Investis Holding SA (IREN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the full year results 2019 conference call and live webcast. I am Shari, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Stéphane Bonvin, CEO of Investis Group. Please go ahead.

Good morning, ladies and gentlemen, and welcome to this conference call for the presentation of the results of Investis Holding for the financial year 2019. First of all, I would like to thank you all for your participation regarding the general difficult situation that our country and the world is going through at the moment. For this presentation, I have with me Laurence Bienz, our Investor Relations; and René Häsler, our CFO. So the agenda for this conference, will be as follow. I will start with the highlights of the financial year 2019. Then I will speak about the IPO achievement, then the strategy, the market trends, and then our CFO will present you the financial review. And then I will conclude with the outlook before the Q&A session. So 2019 was an excellent year for Investis. We could increase our portfolio value to CHF 1.4 billion, up 6.9%. We could also increase our EBIT margin in the real estate service at 8.4%. And we could achieve an excellent net profit result of CHF 172.8 million. And of course, we could increase our equity ratio to 47%. So this excellent performance comes from different factors. Our CFO will elaborate on the figures, but it bonds also from our strategy. We focus on residential properties in Geneva area. During the 2019 year, we did some adjustments on our portfolio in the goal to have really a very secular portfolio only residential, less commercial and also at only very good location. We also decide to reduce our exposure on development. And all this factor brings the excellent result of properties last year. Regarding the Real Estate Service, we focus actually on the EBIT margin. We want to grow, but with a profitable growth. We also decided last year to simplify our model with the consolidation of our services in 2 brands, Privera and hauswartprofis [Technical Difficulty] Okay. Thank you. So I continue. Sorry for the interruption. IPO commitment. So I said we did in June 2016 our IPO, and all our commitments have been achieved in time. Regarding the rental income of the Properties, the commitment was CHF 50 million, we could achieve CHF 57 million. Regarding the Real Estate Services, we announced a high single-digit EBIT margin, we could reach 8.4%. We also commit that we will restructure our debt, we repaid all our mortgage, and we financed our portfolio only through bonds. And we also put on place unsecured credit lines. And the cost of our debt was for 2019 an average of 0.6%. We also committed to buy out minority shareholder, now we control 100% of our portfolio. And also, we could pay for 2017 and 2019 a dividend of CHF 30 million. So strategy. I want to come back on the strategy, and I think in the actual market situation, it's very important to have a long-term view and a strong strategy. And it shows that -- our share price shows that our model is resilient and very stable. So as I said also before, in Properties segment, we really focus on residential properties in Geneva and Vaud. We have a buy-and-hold strategy. And we grow, thanks the realization of our rent potential, thanks the refurbishment and the turnover of our tenant. Also, we want to expand our portfolio through targeted acquisition and, if possible, off-market properties. Regarding the Real Estate Services, we want to have a profitable revenue growth in both activities. In both activities, also, we want to focus only on national recurring service, and also, we focus on institutional clients. On the next slide. So we show this example. This is really the business model of Investis. This property, Rue du Nant 30, that we bought in '98 with a rental income of CHF 339,000. [Technical Difficulty] So sorry again for the interruption. So the business model is for this property, I said in 2015, we had a rental income of CHF 623,000. And end of last year, the income went up to CHF 770,000. So we can see also that during these 20 years, we did some refurbishment on the properties, bathroom, kitchen, and also last year, we did all the face of the building. But what's very important, you can see that in 20 years, the valuation of the property went up 10x. But also, you have to consider that in today's market, the real value of this property would be more around CHF 25 million and not CHF 18 million. So next slide. We own a very focused and attractive portfolio around the Lake Geneva. So 73% is in Geneva, 23% in Canton Vaud, and 91% of our properties are residential properties. So now I will elaborate on the market trends. To define our investment strategy, we follow some basic parameters. The first one, of course, is demography; then it's the construction activities; of course, the regulation, which help us in 2019, thanks to tax regime for corporation has changed and brings us profit; and of course, we also follow the capital market. Demography, very important. Our main market is Geneva. In 2019, Geneva had the highest population growth of the last 3 years, plus 1% or 5,000 new inhabitants. You can see that during '16, '17 and '18, the growth was in between 0.6% to 0.9%, but it was always over the national average. And this growth comes 65% from migration growth and 35% from natural fluctuation. In 2019, only 2,131 new housing units were created in Geneva. By far, this is not covering the demand. So we are still in this area in the undersupply situation.

Ladies and gentlemen, please hold the line. [Technical Difficulty]

Yes. Okay. Sorry, again. Just a number is that for each new unit, when you have a new tenant entering, 52% of the new tenants are only -- of the new units are occupied by 1 tenant. That means that with 2,000 units, you will have the half of it, 1,000 flat, will have only 1 occupant. So by far, the demand is not covered in Geneva. Next slide. There you can see this is just for the rental apartments. The national vacancy rate is by 2.7%, and see on the left that Lausanne and Geneva are very low, 0.54% for Geneva and 0.73% for Lausanne. Zug and Zurich, they have also a very low rate, but compared to them, you can see that for Geneva and Lausanne, the new permits delivered are much lower than Zurich, for example, because they are under -- minus 50%. On the next slide, you can see that the Geneva vacancy rate grow slower than the national trend. You have here a difference of the 1.6% compared to the 2.7%. It's because here, we include also the owned properties not only the rental apartment. Next slide. On the left, that's also of course very important. On the left, this graph shows that the rental price grows more in the big city center compared to Switzerland. You can see that for Geneva, of course, we are -- our properties are located in the center. And regarding the outlook, on the right, you can see that the forecast for the rental price are excellent for Lausanne and Geneva, over 3% compared to the rest of Switzerland. So regarding the price, the outlook is also very positive. So maybe to sum up. Investis is active in markets where there is a constant situation of undersupply. We can say that Lake Geneva region is Investis' USP. The residential properties in cities [Technical Difficulty] Thank you. Okay. Then so to sum up, I said that there, we have there the highest demand. We have also the higher rental growth and the lowest vacancy rate. So conclusion, we feel that our portfolio is located at the right place in Switzerland. Now we are also active in the Real Estate Services. So we focus on 2 activities with 2 national brands, Privera for the property management and hauswartprofis/conciergepro for the facility services. As I said before, in 2019, we decided to simplify our services in 2 brands by selling Regie du Rhone and also the facility tech companies to focus on the 2 national brands, Privera and hauswartprofis. On the next slide, 19, Privera. The main activity is property management and co-ownership -- the management of co-ownership association and this represents 90% of our revenue. [Technical Difficulty] Yes. We have a problem in the line. Apparently, every 10 minutes, our line drops for I don't know what reason. We're just checking alternatives. Maybe we do traditional iPhone dial-in.

Okay.

Ladies and gentlemen, please hold the line. This conference will continue shortly.

Okay. Thank you. So sorry for the interruption, some technical problem. So I started with the Real Estate Services. I said that we are -- we focus on 2 activities with 2 national brands, Privera for the property management and hauswartprofis for the facility services. Privera, the main activities are the property management and the co-ownership association, and 90% of our revenue comes from these activities. Privera has today CHF 1.4 billion of rent under management. It operates the business through 12 office with 450 headcounts. And 90% of the income is generated through recurring contract-based income. Since we acquired in 2014 Privera, the EBIT margin has grown from 2% to a double-digit margin at the end of 2019. Hauswartprofis, so there, we are mainly active in maintenance and cleaning of residential building. So we manage -- mainly 80% of the property that we manage are residential buildings. We have 13 office across the country, 900 headcounts, and we have a diversified business model with recurring contract-based revenue and 80% is recurring. We manage actually more than 2,000 buildings. And since January 2020, hauswartprofis is certified ISO. So now I will give the word to René for the financial review. Thank you.

Thank you, Stéphane. I immediately jump to Page 25. 24 is just a verbal summary that you could read through. The highlights of our financial income statement for Investis Group. You see we closed the year with a turnover of CHF 188 million and a net profit of CHF 173 million. Now this is not going to continue in that pace, growth pace. 2020 will be a rather normal year from our perspective but I would like to highlight just the 2 activities. You note the 3 graphs that we have on the right side, which reflect our very strong business model. So on the one side, the properties with strong cash flows, recurring cash flows. And on the other side, the service business that delivers the margin that we expected even a little bit higher than we expected. As you know, property management is operating on a 10%-plus margin, while facility services is in the region of half of it, i.e., 5% plus. If we will draw the same graph for the operating cash flow delivery, then we would see that 77% of the business of the cash flows is coming from Properties while 23% of Residential Services. So you see that the business that we very much love is delivering meanwhile, very strong cash flows and is a real second leg of the Investis Group. Then we turn to Properties. We have the normal highlights to talk about. But I would like to start with like-for-like rental growth that stays at 0.4%. Now this figure in 2019 was diluted by an effect that we didn't see coming but nevertheless, it arrives. We saw that the payment morale of our beloved tenants have worsened, especially in the second half of the year, and we had to establish certain provisions for nonpaid rental bills. And that cost us 1.2% like-for-like. So the rental contracts in the year 2019 increased by 1.6%. This just to give you a flavor that we continue with our important business model on a very positive side. And underlying, we are within our range of 1% to 2% like-for-like rental growth. And obviously, we are looking forward to work on the cash management for better collection in this business in order to have then the positive rebound in the future. We analyzed, of course, these outstanding rents, and we saw a general hesitance to pay the bills. I mean we still talk about a very small portion of the portfolio, nevertheless, on the like-for-like comparison that cost us. And we also have a new phenomena that was invented in Geneva, and we have 3 cases at hand where the tenant are paying the rent to a so-called blocked bank account and then try to negotiate rent reductions. And they do that since now almost 12 months. And due to the slow handling of the government of these cases, they are at the [Foreign Language]. And the tenants continue to pay the rent on these blocked bank accounts, but we have no access because so we had to dilute our like-for-like rental growth. As you know, we calculate the paid rent on 1-year versus the paid rent in the other year. So a really net-net figure of the rental growth. Overall, the rents that we have contracted are on CHF 61.2 million, a strong growth versus last year. And we assume that also the gross revenue of CHF 57 million in 2019 is going to increase in 2020. Vacancy is at 3.2%, I'll come back to that on the next slide. And average discount rate compared to half year just dropped 1 basis points, it was 3.44% in the June reporting. And that is due to the mix of new buildings that we bought versus some that we sold. In fact, the CBRE valuation process did not change the underlying discount rate in the second half 2019. On the next page, you have the categories of our portfolio. As Stéphane pointed out, we are residential, we are predominantly in Geneva, but also in Canton of Vaud, say, Lausanne, and the apartments are 1 to 3 room apartments. We are not in the -- exposed to the luxury segment. When we talk about the vacancy 3.2%, then this is a mixed bag between the different regions. In Geneva, you know that we have 1 building that we completely repositioning that accounts for 0.9% of the residential Geneva vacancy, so half of the 1.7%. In the Canton of Vaud, we also have 1 building that we are completely renovating. And due to the situation in that building, we have to empty the full building in order to have a full renovation, to proceed and that accounts as well for the considerable growth in the Canton of Vaud. Furnished apartments, slightly above the expected 20% at year-end. But normally, at -- in December, this apartment are less utilized than during the year. And commercial, to close 5.4%, not an issue. We bought 1 specific building in Canton of Valais, which is half empty, which contributed to that 4% vacancy increase. Not a concern to us. We talk about CHF 290,000 vacancy. So the vacancy was already priced in when we purchased the building, not a concern or a worsening of the situation. On the next page, you see the development since 2015 of our top line as well the contribution of the Property segment. Important to know, we still have or we increased a little bit the rent potential. The CBRE already increased the rent potential in our portfolio. You see a 15% safety -- or way to go in the future in order to get to market rent. So if we would have all properties in Zurich, our rent would be 15% higher than actually today. 72% of our residential contracts are in fact commercial contracts which are linked to the CPI and not to the interest rate. That dropped a little bit versus last year, and this is normal situation in our business performance. Every portfolio that we buy, we are 100% nonlinked rental contracts through CPI, and we have to change that over time. And that's why the number dropped a little bit. Not a concern to us, but an opportunity for the future. That's what I wanted to point out in Properties. Real Estate Services, excellent performance. You see we have the top line of CHF 136 million, some 8% below last year, which is entirely an effect of the sold businesses during 2019. And that you can see, the sold businesses still contributed some CHF 21 million turnover to the 2019 top line. So we started the year, actually, at CHF 150 million with the 2 brands that we have in our portfolio here. Important, EBIT margin, 8.4%, high single digit. If you do the mathematical average margin with the 50-50 split of the 2 businesses, you would arrive at, at least 7.5%, we are at 8.4%. So both businesses operate very efficiently. And this is not a onetime effect. This is really now the new basis going forward, and we stick to that margin expectation going forward. I don't say even or why we have the COVID issues at the moment, that will probably have a little hit, temporary little hit, but that rebound will come immediately when we have stable circumstances again. Property management grew their rents under management 2.3% very positively. And those activities will further grow at the same margin. We are not going to buy the market or dilute the margin. We are good citizens and will only accept new mandates where we have the normal expected margin to realize. Corporate. You see the Corporate cost is as before, not really changed since the IPO. But we have a new line in our income statement, which is the income from disposal of subsidiaries, is CHF 18 million, or the effect from the sales of the 4 companies that you see listed below. By far, the biggest contributor is Régie du Rhône. And if you look in the annual report in the segment where we talk about change in the scope of consolidate companies, you will see that we sold this company at 1.5x their turnover, which contributes mostly to the CHF 18 million profit in 2019. Due to our accounting principle of charging goodwill to the equity when we sell a company then we recycle goodwill, and the CHF 8 million goodwill that we recycled on the Régie du Rhône case, diluted, of course, the profit that you see in this CHF 18 million. That's what I wanted to say on the 2 businesses. When we talk about the lines below, EBIT, you'll see breakeven financial results, which is due to financial income from partial sale of Polytech Ventures. Financial expense, that is the interest that we pay on our debts for issue of the bonds. We issued 2 bonds in 2019. And when we come to the income tax line, we see effectively an income in 2019 that is due to the change or release of deferred taxes that we could do following the tax law change in Geneva. And you see, in fact, 2 lines for income taxes. One is the so-called normal income tax charge, and you see a very stable figure in the past and 13% in 2019. That is due to the effect of certain gains from sold companies. We have a much lower tax charge or even no tax charge on these profits. And that's why the average tax rate dropped to 13%. That has nothing to do with lower tax rate in Geneva, which is available as of 2020 only. And the surprise release of deferred taxes in 2019 and '17, these are effects of the tax reform that we have already elaborated in [ income tax ]. Average tax rate going forward, we expect 16% charge that will contribute to the performance. Balance sheet. Very sound balance sheet. We have CHF 1.5 billion total assets, which is predominantly the portfolio with CHF 1.4 billion. You'll see the 5 bonds that we have in the financial liabilities. We have no mortgages. We have no other financial debts at the 31st of December 2019, and also today, as we speak, there are no other debts on our balance sheet. The LTV, and this is the gross LTV without taking into consideration the cash, is 46%, a little bit on the higher side temporarily at year-end. We had some the CHF 50 million excess cash, which is an effect from the bond that we issued in the fall. At that time, we had a portfolio of transaction going on, which we then stepped out during the process. That is why we have that excess cash still on the balance sheet. Going forward, we are confident to using up this cash so that we have a cash line below CHF 10 million on our balance sheet. Deferred taxes, we talked a lot this year, CHF 127 million. And the strong equity position of 47%, you see reflected with CHF 740 million equity. Maybe one word on the debt structure. As I said, we have 30% unsecured financial debts. Also going forward, we have several credit lines installed with Swiss banks. We stay at the counter today of above CHF 300 million. So we have enough firepower going forward to either pay back immediately the bond when it comes to maturity or to invest in also bigger portfolios that would come on the market. If they are, of course, meeting our expectations in terms of valuation. That's what I had to say on the very encouraging financial year 2019. I hand over to Stéphane. Thank you.

So thank you, René. So now the outlook. So the AGM of the 28th April of 2020 will take place under extraordinary circumstances without physical presence of shareholder. They will have to exercise their voting rights by giving power of attorney to the independent proxy. Now regarding the outlook. We see still a positive migration and demographic change in our area, a low proportion of new build properties in central location and ongoing strong demand for rental apartments. So we -- in outlook, we really want to expand our portfolio, thanks our internal growth by the turnover of our tenants, but also through targeted acquisition of market. And in the real estate services, we really want to grow, but only profitable growth. So now a few words about the actual crises of coronavirus before the Q&A session. We believe that Switzerland will enter in a recession to slow the impact of this coronavirus. Of course, the real estate market should also feel the effect because in the recession, the demand for space is under pressure. What are the possible consequence of this [ business ] for Investis? We will give you our analysis on, first, the investment market, then the rents in residential properties and of course in the real estate services. In the investment market, we see that due to the lack of visibility, the transaction volume might decrease. But we think that could be just for a short term. Of course, we expect a decline in the interest rate. And regarding the rental income, they are less vulnerable compared to conventional businesses and, of course, they are not exchangeable. Now regarding the rents, the market of the rents in residential properties. The rents in agglomeration of small cities and peripheral locations are expected to continue to fall. The rent potential might be temporarily weaker, but we think also short-term. So then our expectation is that Investis portfolio will be not very strongly impact. Regarding the real estate services, all our organization were highly digitalized before the crisis, so that the home office were immediately applicable to all administrative jobs with no interruption. So we could also organize our different activities to apply the government instruction immediately. As we already mentioned before, the majority of our revenue depends on recurring contracts in both activities. And also, we can see some additional revenue opportunities, which could partly compensate for revenue shortfalls, like, for example, disinfecting of building. So at the end, we think that after this pandemic, the real estate market will normalize again. And we don't see a large impact on our business. So thank you for your attention. And now we are ready for the Q&A session.

[Operator Instructions] The first question comes from the line of Pascal Furger, Vontobel.

I think I will ask them one after the other. So the first one on your direct real estate expenses. So your direct costs remained flat at around CHF 16 million. So in relation to the total rental income, the cost fell. Can you please share with us how much did you spend of this for renovations of properties last year? And then in absolute numbers in total, what can we expect for this year? And maybe also related to that, in terms of your business model, a big value driver is for you to refurbish properties and then basically create value through that by then re-letting the properties at the higher end at a later point in time. So if this refurbishment currently stopped, my question is how confident are you that you will continue to deliver this 1% to 2% like-for-like rental income growth over the next couple of years? That will be the first broader question.

Thank you. I will take it up, since it is figures-related. So in 2019, we spent for renovation and we distinguish between renovation and normal maintenance. Renovation was CHF 2.7 million, which is expensed in the 2019 accounts. You can assume that the total cash out for renovation is about 3x this number. Since we have to distinguish between value-added renovation and maintenance part of the renovation. It is a little bit higher than in the past years. That is due to these portfolios that we purchased in the last 2 years that needed renovation. Going forward on a normal level, so pre-COVID-19 impacts, we expect a slightly lower number. Then we have our renovation program completed for these new acquisitions that we did in the last 2 years. On an ongoing basis, going forward, you can assume that about 1% of the rents are invested into renovation. And on the rent development, we see still changes in our tenant portfolio, meaning that we still have rent increase potential that we turn into cash and just 1% to 2%, which is not a monthly precise figure, but recurring continuous number that stays as before. 1% to 2% is our expectation.

And maybe I can just add 1 point is, for the moment, Geneva decided to stop all the construction place. So we are not allowed now to continue to refurbish our building. So we stopped it last week. Now we wait. And also, we are looking what will be the impact on the budget and if we are late or -- because we already spoke with the company, and they told us that maybe during the summer, they will not take holidays and try to compensate this. But of course, we have to know what would be the duration of this pandemic. And also maybe just regarding our strategy that you understand well. We don't refurbish a flat when it's vacant. We have a long-term strategy. We decide each year which portfolio we do. As René said, these last 2 years and this year, we are doing a little bit more than the year before because we bought this portfolio, so slowly we are catching up now. But we do this refurbishment. And of course, this like-for-like growth comes when the turnover -- thanks the turnover of our tenants. So then we don't see an impact really on the like-for-like growth. Just maybe if the demand is much weaker, of course, maybe when we have a 3-room apartment with a rent of CHF 800 per month and when we have the new tenants in, the difference would be maybe not CHF 1,600, but maybe CHF 1,550, I think, is not relevant. But this is why we don't see -- because we have really a long-term view, we invest. We don't expect immediately a rent increase, but the time is working for us.

Okay. And related to that, my second question, like-for-like growth, if I understand correctly, it would have been 1.6% adjusted for the tenants who did not pay in the second half. So then correct me, are you confident that this 1.2% gap between reported 0.4% and is 1.6%, this will shift to 2020?

It's a difficult question, looking at the current situation that is going on, on the market. Of course, we are working on collecting these outstanding bills. Number-wise, we are talking about CHF 600,000. Just that we are in the same page, we are not talking about millions. It's difficult to judge whether everything will be collected or whether we have to fear some losses. I mean those blocked payments that will come to us, somewhere in the future, the questions is rather when. So all in all, I'm very positive that the situation will swing back and that we have good tenants that pay their fair share on the rent. Whether, it's 2020 or 2021, unfortunately, I don't have a glass crystal ball to look into what's going about the virus. But without the virus, I would have been more confident for 2020.

And my last question. So you successfully -- basically delivered on all of your IPO targets. So my question now is where do you see Investis from today in 5 years' time?

So maybe it's quite -- so of course, we want to, as I said, we want to grow our portfolio and to grow our services. I think now, let's see what will happen now with this crisis because I have to say that -- to admit that the market is quite dry, actually. In Geneva, it's not very easy to find new opportunities. But of course, we are in the market. We look and we try to buy. I don't think that we will have a strong growth like this last 3 years on the rental income. And regarding the Real Estate Services, now, I think our business is much more simple also for us. And we have a clear strategy how to grow and also how to grow profitable.

Pascal, if you were looking for financial targets, then I have to disappoint you. You will not hear numbers in that respect. I mean that was due to the IPO that we had to say something about the upcoming years. But more general, I would say, we will be clearly the first choice for real estate residential property investments in Switzerland. We are not going to dilute our strategy. We keep our investments focused to Lake Geneva region. And in the service business, we have done our homeworks, and we are looking forward that our businesses continue to grow profitably.

The next question comes from the line of Ken Kagerer, ZKB.

I have 3 quick questions. The first one refers to the discount rate of the external value. In comparison to other companies that we follow, this -- the decrease has been rather low. Could you elaborate why this is the case? Because it looks like that in the current year, the attractivity of residential real estate, especially in central locations has been increasing.

Thank you. I will take that up. First of all, it's CBRE that judges the discount rate, it's not us. Now I would expect that the discount rates still have room for dropping. And of course, depending on how the market is reacting in the current circumstances, I would expect that the discount rate could easily drop further. How much? Again, it's not on us to judge. We take whatever they value our buildings. We have no interrogation in the process. It's their call and they set it up at these levels, which gives an average of 3.43%. But yes, we also noticed that we have room for improvements.

Second question regards the current situation with the coronavirus. How many requests did you receive from your tenants for lower rents or prolonged paying conditions with regards to this situation? Could you just give us a bit of an update where you stand and how you deal with such requests?

So we will give 2, actually, and these are for 1 restaurant in Geneva and 1 hotel in Lausanne. But -- and how do we answer is that they have to take contact that we don't agree. And that they have to take contact with the authorities because the government put in place many helps for such situation. And they have to speak with them. But it was -- for now it's only 2, but our exposure is quite low on these things. But as you know, maybe today or tomorrow, the Swiss government should decide how to manage this case.

And the last one refers to the general cost development in the services business. Firstly, maybe the kind of recurring assumptions that you take because if you take a rather flattish development on those costs, obviously, the margins would increase with a bit of a top line development. And then maybe you want to also give it a bit in the context with the current corona situation, is there any intention to reduce the work time with government help? Or are there any measures that you have been taking or planning to take currently?

Thank you. I will take that up and try to be as specific as possible. So in terms of cost level, I would say we would see a cost level of 91.6% of turnover. As you know, the most important part of that cost block would be staff expenses. And the more services we provide, the more staff we have to have in our companies. But that is not going to change. We did our homework in the past. So at the moment, we have, I would say, achieved the level of staff cost ratio that is as expected. We don't expect a further considerable improvement there. In terms of corona situation, we are having daily meetings with our crisis managers. We have 2 dedicated crisis bodies in place, 1 for property management, 1 for facility services. They meet on a daily basis and discuss the situation. In certain areas of our service business, where we have nonrecurring contracts, when you look at the Service portfolio that we mentioned on slide, just go there, 19, which shows the details for Privera, then in construction management services, letting management services and brokerage, but also center management, of course, in those add-on activities, there is not much going on at the moment, also due to the overall situation that you cannot work. We expect to have also -- how is that called? [Foreign Language], short working compensation. Sorry about that. I don't have the English precise word at hand. So there, we would also investigate and ask for support from the government. The same can be -- we do see in the facility services, at the moment, we are still working almost full speed. Well, I cannot tell you what's going on if the crisis stays for 3 or 4 months what the situation then would be or whatever measures are taken by the government, whether our people can go out or not. What I can see is confirm that our concierge are very well seen on the property when they do their work and they clean whatever needs to be cleaned in these properties.

Got it. Maybe if I may, one last one. You basically told us that the vacancy rate has been higher due to the refurbishment of 2 buildings. I assume that there could be delays right now in this current situation. Where do you see the vacancy rate for 2020 at this point in time to end up? And obviously, there's a lot of uncertainty, but maybe you want to give us a bit of an insight where you see that?

So in these 2 buildings that I mentioned, we are advancing with emptying the building. One is considerably lower, and we catch up immediately when we can finish the renovation in that building, that is the Geneva one. In the [ other ] building, we are still at 50% or a little bit higher vacancy. Also today, half of the building is empty, but we have to empty the full building to 100% before we can start our renovation. So I mean, these 2 cases, in total, they contribute maybe 1% to the vacancy. So the remaining 2%, that will stay going forward. As we always said, we have a fundamental 1% underlying vacancy that we always have because we have a 10% turnover in the portfolio. So every moment in time, we have at least 1% vacancy in the portfolio, which we cannot bring away.

[Operator Instructions] The next question comes from the line of Christian [indiscernible].

I also got a question on the vacancy rates. And especially on -- it has been already mentioned somewhere else that the service apartments, and I think also the furnished apartments are under pressure now also because of perhaps less international movements of employees. What's the situation there?

So I have to say I'm quite surprised because when I analyzed the risk in our business, I said immediately, this is where we will suffer. So we have actually 88 apartments on the more than 3,000 units that we have. I was very surprised because end of last week, the occupancy rate was a little bit under 80%. So for the moment, we are not suffering too much, that much. You know that a lot of hotel they closed, and maybe the -- so people are looking more for furnished apartments. I don't know the explanation of that, but I'm surprised that it's still, we are by 78% exactly at the end of last week.

We have a follow-up question from Pascal Furger.

Yes. Just some 3 smaller questions. First, your revaluation gains, can you just give us some more color there? So in the second half, they were still CHF 29 million, but the discount rate only dropped by 1 basis point. Can you give us at least some more visibility where this is coming from?

Yes, pleasure. It's coming from various sources as normal, and I have to answer such a question. One is we purchased the buildings at good prices below the market, which contributed part of that revaluation gain. Then we had, as I said, essentially 1.6% like-for-like rent increase, which, of course, has an impact on the valuations. So there, it's not only 0.4% like-for-like, it's 1.7% that counts because a temporary shortfall of unpaid rents has not a lateral impact on the cash flow projections. And the third part is that slight increase in the market rent that we also could see in the current portfolio of tenant contracts. And all that influenced positive the cash flow valuation, which gave at higher valuation.

Okay. Then second question, rental income. Can you please share with us what was the impact from both purchases as well as disposals last year?

Sorry. Can you repeat the question, Pascal? I didn't catch it.

And what was the impact in absolute numbers from disposals and also purchases on your rental income, sort of a bridge between 2018 and '19?

That's not an easy one. Let's see. We had some CHF 57.7 million gross rental income a year ago. From the purchases, it's about CHF 5 million that added, then we had some disposals, which is about CHF 2.5 million. Then we have our like-for-like, contributed about 1.7%. So that gives more or less the bridge to the CHF 61 million.

And then the last question with regards to FFO. So initially, I mean, your payout target was 80% of FFO. Is this still basically the right way to look at your dividend capacity? And I mean, FFO fell to CHF 60 million last year. What happened there? That will be my last question.

Thank you for that very important question that I love to elaborate on. So dividend policy, we always said, we don't distribute more cash that we earn. Cash can be measured in various ways. There is one official calculation, which is the cash flow from operating activity in the cash flow statement. Obviously, we have some dilutive or add-in effects there due to these assets held for sale or properties held for sale. Also in that operating cash flow, the interests paid or not a part of that's why we adjust that. You see the detailed calculation of the FFO number in that new section, the annual report at Q4 end, these KPI definitions that we added a separate chapter on. Now dividend policy remains the same from the cash that we earned from the business we want to keep 20% for the company and 80% all go to the shareholders. And we always said, this is not a snapshot calculation that we do year-on-year. So it is a ongoing dividend policy. We want to have a stable dividend and not a yo-yo dividend. Because last year, we had FFO CHF 61 million, this year, we have CHF 16 million. So last year, we would have a much higher dividend, this year a much lower dividend. We decided to average that out over the years, that's why with the CHF 30 million that we have now proposed to the AGM, we are exactly in that range. As I explained a year ago on the CHF 61 million, which is an extraordinary situation, due to the negative interest environment, many of the investors that Régie du Rhône did service until midyear, they left their receivable or their net cash flow with the company. And as you know, in the French part, the property manager, they act on their proper bank account, while in the German part, all investors have their dedicated separate bank accounts. We are now, with the sale of Régie du Rhône, a very clean situation. So all the cash that we have on the balance sheet is our cash. While a year ago, with Régie du Rhône, we had a lot of cash that was not our cash. You see that also in the relations of the accounts payables, where we see exactly this money that we had at year-end which was not ours. And that influenced mathematically the operating cash flow since we had a lot of short-term liabilities that obviously increased the cash flow. And as usual, we have a rebouncing effect in the year after. And that was the reason why the CHF 16 million stood at the end of the year. So you can take the average of the 2 and then you are in a good neighborhood going forward.

That was the last question.

Okay. Then thank you to everyone for your interest, and we hope to see you very soon. Thank you, and have a good day. Bye-bye.

Thank you very much, and stay healthy.