Investis Holding SA (IREN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Investis '24 results webcast. [Operator Instructions] The webcast will be recorded. [Operator Instructions] With that, I will now hand over to Stéphane Bonvin, CEO of Investis.

Well, thank you. Ladies and gentlemen, good morning, and welcome to the presentation of Investis Holdings Full Year '24 Results. I'm pleased to be here today with our CFO, René Häsler who will present you the financial overview; and Laurence Bienz, our Investor Relations. The agenda will be as follows. I will start with the highlights, and then I will continue with the market trends. René will present you then the financial overview, and I will conclude with the outlook before the Q&A session. So before to go into the details of our results, I would like to take a step back and provide some context. Following the sale of part of our portfolio in start 2022, the market reacted exactly as we had anticipated. This allowed us to start acquiring new properties again from the end of '23 till now, and we are still in process to acquire additional properties. Since then, we have bought an important number of properties, achieving a significantly higher return than what we sold. Today, we hold a property portfolio of CHF 2 billion with rental income of CHF 84 million as of the end of January, and we maintain a very conservative LTV. Looking ahead, we plan to acquire approximately 300 million more additional properties. Regarding the market, it has evolved exactly as we foresaw. During '23, there was a necessary adjustment period as market participants adapted to the new pricing reality. However, in '24, we have been able to complete transaction. And since late last year, we have observed a market turnaround driven by successive interest rate cuts from the Swiss National Bank. This has brought investors back into the market as evidenced by the numerous capital increase from funds and investment foundation. And naturally, this will lead to a wave of new acquisition, putting pressure on the yields again. Today, we already see transaction in Central Geneva closing at yield around 3.5% compared to 4% to 4.4% range that we saw last year or in end '23. And of course, the markets remain very liquid, but the volume of available assets is starting to tighten again. Regarding the fundamentals of the residential real estate, the sector remains extremely strong. New construction has slowed, while demographic growth continues. As a result, rental price are rising steadily. As already mentioned during the half year result presentation, we successfully sold our service business in '24 at an excellent price. This transaction significantly strengthened our equity base, providing us with the necessary capital to continue expanding our property portfolio. This sale was a key component of our strategic vision allowing us to reallocate resource efficiently and focus on high-value real estate investment. And as you can see, we have executed this strategy, reinforcing our ability to capitalize on market opportunities. As mentioned before, our portfolio now is evaluated at CHF 2 billion with rental income of [indiscernible] of CHF 84 million. So this means that we have an average gross yield of 4.2%. Our debt remains very low. And we have also -- we also hold significant financial assets, including stakes in PHM, NEO and Taurus. And these financial holdings should, in my view, offset the deferred tax liabilities on our balance sheet. So currently, for me, Investis shares trade at a discount to NAV, and this contrasts sharply with the Swiss residential real estate investment landscape where many funds are trading at a premium. So now let's move to the first slide, Page 4. So highlights. We have 3 main highlights. As I said, so we had in '24, the sale of the service. We had the expansion of our portfolio, and we also decided to increase our dividend to CHF 2.6. And if we go more in details, we bought quite a lot of properties for more than CHF 370 million in 2024. The income from the disposal of the service was CHF 122 million. We had revaluation gain last year of CHF 105 million, the good quality of our portfolio. The net profit, excluding revaluation went up to CHF 157 million. Our dividend is earned on a recurring basis as the FFO was CHF 46 million. The NAV per share, excluding deferred tax went up to CHF 117 and we have still a very low LTV to 27.6%. Market trends. So if you go on Page 6. As you know, we always follow these 4 key metrics, and that allow us to define our group strategy. The first and most fundamental metric is demography. In '25 -- '24, sorry, the canton of Geneva and Vaud experienced another increase in population of 1.1% translating to 5,800 additional residents in Geneva and 9,400 in Vaud. And in the meantime, in '24, just for the canton of Geneva, the net production of new housing units was only 2,082 units. So the shortage is still there. And if we look at the construction activity, it has declined. I will speak about that a little bit later on a slide. And the number of building permits has also dropped. And of course, this is going to continue the housing shortage. Regulation remains a key factor influencing the market. And if regulatory constraints continue to increase, it will not address the core issue, which is not the regulation itself, but rather the lack of construction and the slow pace of building process on accelerating and simplifying these processes. And on a positive note, in 2019, which lowered the corporate tax in Geneva and Vaud have significantly enhanced the attractiveness of these 2 compounds. And this has resulted in an economic growth rate above the Swiss average and has been a key driver of population increase and strong housing demand. And now there, the challenge is, again, to respond to this high growth construction. Regarding the capital market, as anticipated, inflation in Switzerland has decreased, allowing the Swiss National Bank to reduce quite fast the interest rate. We are now at 0.5%. Let's see what's happened tomorrow, but -- so we expect, again, a decrease. Why? Because the low inflation and the strength of the Swiss francs, we are effectively importing deflation every day, which continues to put pressure on the currency. Additionally, the political polarization in our neighbor country has led to unstable government, where the governance is very difficult. And this ongoing uncertainty combined with what we call the mismanagement in Europe should continue to put pressure on Swiss francs. As a result that we still expect that interest rate in Switzerland will turn negative again by '26. So now let's go through some slides. If you go on the Page 7, we see on these slides, the population growth forecast from 2020 to 2050. And the demographic projection indicate a positive trend, mainly in the urban centers such Lausanne and Geneva, where we invested, while more rural and peripheric area may face stagnation or decline. And so we can expect that in this urban center, these are the places where to invest where you're going to create more value going forward. Next slide. The latest data confirms the ongoing tightening of the residential market in the Lake Geneva region. The vacancy rate has now fallen below 1% for Vaud, while Geneva remains at an extremely low level of 0.5% despite the new construction ongoing in Geneva. We can add that almost all the cantons now are under this optimal vacancy rate. And this means that the lack of construction is also a national issue and not only for some city centers. The next slide highlights a clear trend in region with a significant housing shortage that tenants are staying for much longer period. The positive point of this is that for landlords, this signals a strong and stable tenant base and reduce vacancy risk. And if we look now Geneva, of course, you can see it's really in red with a stay of more than 10 years. If we look now at our portfolio, we have a fluctuation of 11%. Regarding the next slide on Page 10, that's about the construction activity. The data shows that in Geneva, we can see from -- since 2010, a strong growth. It went up till Q1 '23 with 9,000 units under construction. And this momentum has now slightly declined to 8,000 units. Despite this high activity, the market remains extremely tight, as I said just before, with a very low vacancy rate. And also, don't forget, in Geneva, 60% of all these new units are controlled rents. And as I said also before, finally, the production is very slow as the net production last year was only 2,082 units. So on Page 11. So this is regarding the real estate market in Switzerland and especially the challenge for new construction. Despite, as I said, the recent -- also, we saw a recent increase in building permit. The construction activity in Switzerland may not be sufficient to cover housing needs. And the following factor could continue to hold back housing construction going forward. The first one is shortage of land. Also, the building potential on central side is steadily declining. And we know that densification is the only option. But there, you have the problem of the objections and one of the main problem is not in backyards effect, which delays a lot the project and also the political, they are a little bit afraid when the population is against project. We have also the complex authorization procedure, which are even worse since the COVID. We have also, of course, the high land -- the high prices for land. Still the market intervention and the new regulation such as rent caps, which create uncertainty for the investors. And also, we saw part of the capital available for investment is now more focused on stock renovation, mainly to meet climate targets. Next Slide 12. So if we look at the -- again, at the Swiss real estate market, we can see that during the last increase in interest rate, the application of the taux de reference [indiscernible] this application was much stricter in German-speaking part. But also you can see in 2010, the decrease too. In the Lake Geneva region, we had more slow but a gradual increase. But this is due mainly in our case for Investis this is due because we have -- our 5-year lease contract, which are indexed on the CPI. And also in Romandy, we don't have the [indiscernible] cost system in our contract. That means that for the landlord is more difficult to add the cost and to compensate the reduction of the interest with the higher cost on the property. The next slide, it shows the premium between the 10-years Swiss bond and the prime residential real estate yield in Geneva, in Zurich. From '23 to '24, the 10-year bond yield rose to 1.2% before declining again to 0.4%. And we see that, again, what we've seen is that in between -- during the year '21, this premium become very tight and now is increasing again around the 2.5% as seen in the past. And as I said before, this is already ongoing in the transaction market. So on Page 14, you can see the -- always the same property we chose since years now. And you see that, again, we had an increase of our rent by 0.9% in '24. So to summarize, Investis position in the real estate market in Switzerland is unique. We are active in markets where there is a constant situation of undersupply with low vacancy rate. Again, we focus on middle segments of the market. There is where you have the highest demand. And again, as I explained before, the fundamentals remain very strong. So thank you. Now I hand over to René for the financial overview.

Thank you, Stéphane. Good morning, ladies and gentlemen, also from my side. Yes, nice set of figures for the 2024 financials. I start on Page 17. The summary you have heard already. I just would like to point out on the last part of the first part, which is equity ratio at 64%. So while total assets rose by 29% to CHF 2.1 billion, equity ratio still remained at 64%. It's slightly increased even. So in a nutshell, we generated in the last year CHF 310 million of equity for our shareholders. On the next page, you see the different lines of the income statement, somehow a mixed bag because we had our service business for almost half a year and the property segment that I will deep dive on the next slides. So difficult to judge these numbers compared to the last years that you see in the reference column. Nonetheless, a very solid performance with a net profit of almost CHF 250 million, recovering from the loss of last year that I don't want to enter again, as you know, the details. Net profit, excluding revaluation, a very important figure for the real estate business, CHF 156 million compared to the CHF 35 million last year. But of course, the main item that drove these results is the sale of the service business, which generated a gain of CHF 122 million. So if we go into the details of the previously 2 segments, just to remind you the service business, I don't go into further details. But on Page 32, you have the details that we already presented in [indiscernible] there. So if you are missing certain information there, you find these details. But more important, our nice portfolio and the financials on this, you generated an increase of 21% on the back of rental increases that we could implement in our portfolio as well as strong acquisitions. You heard it, we invested almost CHF 400 million if we include the 2 properties that we took over from the service part. So that increase is explained by these acquisitions. Nevertheless, EBITDA, our key performance indicator when we look at our numbers increased even 27% to almost CHF 43 million. And the EBIT, including the revaluation gains that I will explain in a moment, almost CHF 150 million. In 2024, we had a one-off turnover-based rental income of CHF 0.5 million. That is important to know as once it will not repeat in '25. And this CHF 500,000 relate rather to the year '22 and '23. So it's rather to the year '22 and '23. So it's -- and that influenced the -- importantly, on our like-for-like rent side, understated in the last 2 years and is probably overstated if you take just that number of 3.4% this year. In the graph to the right, we have illustrated as named alternative like-for-like. And there, you see that effectively 2022 would be 1.5% like-for-like last year, 3% and 2024 rather than 2% that we also see in our residential business where we had a like-for-like increase of 2%. Vacancy, a little higher, still below 2%, not a concern to us, but because we purchased these vacancies, this was a clear decision to purchase these properties. But when we decided to acquire these properties, when we offered the purchase price, we did already consider these vacancies, so we did not pay for these vacancies at all. That's why the purchase prices were lower. Average discount rate from far an increase of 3 basis points, but we have to dig into details, and that's why I show you the residential and commercial number. Residential decreased 3 basis points and commercials even 59 basis points. But the mix of the portfolio resulted that the discount rate increases rather than, as you would expect, decrease. So it's a mix effect and not an increase of the discount rate on the properties itself. Of course, that had a considerable impact on the revaluation gains that we see on the next pages. Gross rental income on the 1st of January 2025 amounted to CHF 78.4 million compared to the CHF 58 million a year ago. So the portfolio, more or less still the same, a little higher share of commercial. We doubled the ratio from 9% to 19%, still 81% residential, still our focus. We continue to grow in the residential business. We stick to our Lake Geneva region. You see 66% Geneva, 28% Vaud. And apartments, still the same. We are in the middle segment, 1 to 3 room apartments that is our core business. Now below, you have the split of these vacancies. Again, it's purchased vacancy. It's not a shift in our portfolio that we suddenly lost tenants. I mean, the 2023 numbers that we presented a year ago, I pointed out that is almost unrealistically low. It was probably the lowest that we could even ever achieve. And the 1% Geneva and 1.1% in the Canton, that is still what we see as structural vacancy rate in the portfolio. Yes. Now these famous revaluation gains. CHF 105 million, a strong number, which, as Stéphane pointed out, is a reflection of the quality of our portfolio. If we deep dive this number a little bit, I can share with you that about a little bit more than 1/3, CHF 37 million is coming from these well-negotiated acquisitions. CBRE valued all these properties higher than we purchased. And overall, and on average, we have both on residential and commercial, about 10% higher valuations at year-end compared to the purchase price that we invested during 2024. Then, of course, the discount rate decreases on the property per property view contributed another 1/3 to that revaluation gain. And then we had that one property that you might follow with us since years. It's [indiscernible] that former hotel in Lausanne Ouchy, where we have now the permit to renovate and transform and that contributed as well strongly to the revaluation gains. And of course, the higher cash flows in the portfolio contributed as usual to the revaluation gains for Investis. So that as a summary. And if we look back, yes, last year, we had a dip of CHF 48 million of revaluation losses, but we overcompensated that number and are back on track going north with these accumulated revaluations in our portfolio. Rent potential, we still have 12% rent potential. And since the commercial part is or we grew the commercial part to 19%. And you can assume that on the commercial tenants, we are more mark-to-market when we do the rental negotiations and that catch-up effect in the residential business is much higher. So in residential, effectively, we have a potential of 14%, which then with the lower commercial part gives a consolidated number of 12%. 14% was also the potential 2023, just to note. Maybe for the last time today, I just would reflect on what we did since the IPO and since 2021 when we decided to sell 7 properties -- 11 properties, excuse me, in 2022 and realized a cash inflow of CHF 377 million. And if we look back, we started the journey in 2016 with a portfolio roughly CHF 900 million and an LTV of 38%, a similar LTV we had at the end of 2021, resulting in CHF 650 million of debt. And if you look today, we are a more developed company, we generated huge equity, and we have now a CHF 2 billion portfolio with only CHF 550 million of debt. So in other words, since 2021, we decreased our debt by CHF 100 million, but increased the portfolio by CHF 250 million. So other recall that capital recycling, we don't like to use that term too much. We simply do our homework and act in the market as good citizens should do. What shall I say on Page 23 to our balance sheet? I mean it's boring. We have our portfolio. We have 64% equity or CHF 1.34 billion. We have these some millions of debt. We have the current deferred tax liability, and that's it. So a very sound and clear balance sheet, and we look forward to grow that balance sheet as we did in the past. One last word on the debt profile. You see we have on all 3 sources, we fund our financial needs. We have the bond, the capital market that we are active again after a little period of silence since we were not happy with the offered. We did a bond last year. We did another one in January with the maturity mid-February. We still have support from private placements. And then we use our banks to fund the short-term needs that we then recycle into longer-term financing on the bond market. We have an average maturity of 5 months as of the balance sheet date. As we speak today with the new bond, it's a 12-month period. And this, of course, can grow on with the next transactions when we come again on the capital. That's from my side. Thank you very much, and I hand over to Stéphane.

Well, thank you, René. So outlook '25. So the main outlook is that we continue and we expect to grow our rental income similar to '24 by 21% -- as I already mentioned, we bought already this year, 2 additional properties with an income of CHF 2.7 million. And we aim to buy CHF 300 million more additional properties for '25. Regarding the market, as said before, the strong demand in Lake Geneva region for apartments remain. Demography stays strong. The new construction stay low, keeping vacancy rates low. And we're going to continue to have our politics with a strong balance sheet and a low debt. And as I said, we expect further significant rental income growth in '25. So thank you for your attention. And now we are ready for the Q&A session.

[Operator Instructions] I have a first question via phone. [Operator Instructions]

This is Holger Frisch from ZKB. Can you hear me?

Yes, we can hear you.

Okay. I have a couple of questions, and I will take them one by one. First one would be on the property mix. So in the portfolio, the commercial use 1%. Could you talk a bit about the long-term strategy in terms of mix? And do you plan to further increase the share of commercial use in the portfolio? And could you also provide a wall on the commercial tenants? That would be the first one.

Yes. We increased this mix and this commercial part. So of course, it was also opportunistic. We could buy office properties at a very good yield. As I said also to some investors in the [indiscernible] presentation, our goal is really to increase now our income mainly in residential. So we aim to keep roughly 80% of residential, 20% of commercial. And of course, if we have, for example, the opportunity to buy an office building that we can transform in residential, we're going to keep -- we're going to do it. But of course, it's not the goal to go over this 20% of commercial. Now regarding the mix of the commercial, this is mainly office and mainly the 3 additional commercial buildings that we bought are in Geneva and our office building and very well located.

And the Vaud, could you provide a Vaud on the commercial tenants?

I don't have that readily available since we don't report up to now on that since we look ourselves as residential I will come back to that.

Okay. Okay. And second question would be on the acquisitions executed in 2024. Just to clarify, you acquired 15 properties for CHF 395 million and sold one property for CHF 22 million, right? Could you provide the rental income that you actually acquired and sold?

I mean you see the properties in the property list, and I leave it up to you to add up these rental incomes. They are marked for each property and you see the valuation. I mean in the residential portfolio at year-end, we have a gross yield of 3.63%. And in the commercial part, we have 5.24% of gross yield. So these are the references. The acquisitions in the commercial for the 3 acquisitions, they had higher yields that we purchased. As I said, we did not pay for the vacancy, especially in one building that we have discussed on 2nd of September in depth. The building R, which was purchased for over CHF 100 million, which is the largest property in our portfolio. But the other properties, they are with gross yields purchased around 4.5%.

Okay. And the last one, was a bit late to the conference. So did I understand it correctly that you expect to buy properties this year for about CHF 100 million or CHF 300 million?

CHF 300 million.

Okay. And about the 2 acquisitions that you already did in 2025, could you provide details on those properties in terms of price and use and location?

So one property is full residential in Geneva. The other one is mainly residential with some on the first floor. And the income, as I said, is CHF 2.7 million and the cost was CHF 55 million.

I now move onto the next question. At the moment, there are no questions in the call. So I'm going to move over to the Board. So I'm going to move over to the Board. The first question is from Philippe Züger, Zürcher Kantonalbank, which net yield comes with the purchases in 2025 and which use and for which use will they be -- which usage are we talking about? Which usage are we talking about?

Purchase in '25. I just answered before.

Okay. That's what I thought, but I don't want to skip questions. I'm moving over to the next question, which is from Charlie [indiscernible]. Will the vacancy rate stay about on the actual level of 1.9% in the current year? Or will it go back again?

I take that very openly. We will see a decrease of that vacancy rate in 2025 since -- we took over a lot of these vacancies, and we are, of course, working on that on a day-to-day basis. And we had already considerable new tenants in these buildings that we acquired. It will not drop to the 2023 level because that is an all-time low that we cannot repeat, but somewhere in between this 2% now and the 1% overall. So -- but I don't know what will the world be in 12 months. So I cannot give you the guidance for the vacancy rate, but it will be lower than 1.9%.

Thank you. Now we're going to take a question from the Q&A session again. [indiscernible]. I'm going to admit you now and you should be able to speak. Mr. Kalusa you would need to unmute yourself. I am going to send you a request and then -- you might try again. In the meantime, I can switch over to the Board, but I'll leave you in the audio Q&A session. Next question from the Board is again from Philippe Züger at which net yield can you buy comparable residential and commercial real estate in Geneva at the moment, what's your assessment of the market?

So we just bought these 2 properties. So the gross yield was around 5%. So it's not bad. For Geneva, mainly residential, it should be around 4% gross yield. And for commercial office, I think on special case, we can still even reach 6%, but afford is more now 5.5%, but we are not really looking now actively on office building as we reach already 20% only if we can transform it immediately as residential building. But I think the main answer is gross yield now, I think we can still continue to buy. We are buying now a small property that we're going to sign very soon in Russia at a gross yield of 4.7%.

Thank you. I now see that Mr. [ Kalusa ] is unmuted, Mr. Kalusa the floor is yours.

I would like to go back to something you said earlier in the presentation where you referred to that the financial assets you have currently on the balance sheet are more or less covering your deferred taxes or deferred tax liabilities, which implies on the one hand side that you see that there's much more value. And my question is about do you have a time frame on realizing that additional value? And how can that be? Because as far as I know, these are mainly shares in a private health company. So I don't know exactly about the liquidity, but maybe you have a put option or something like that in place. Can you elaborate on this kind of topic?

So we don't communicate about this. But as I said, so the 3 main assets, financial assets we have is PHM. So you know that we invested CHF 50 million in the company. And of course, if there come as a liquidity event, an opportunity, we're going to analyze it and we're going to elaborate if it's a good time to exit. The second one is NEO. So you know everyone knows NEO is online broker, which is doing very, very well. So we have actually record results on this company. There is actually also -- for us, it was a long-term investment. And the last one is Taurus. So is this technology that allows to the bank to hold digital assets and they are signing large contract with all the biggest bank, custodian, et cetera. And for now, so what I said is, in my view, the valuation of all these 3 assets is would offset -- the deferred tax, I maintain this, but I cannot give more detail as we are not active to sell these assets for now.

I will move you to visitors again. If you have another question, just raise your hand. With that, we are switching back to the Board. There is another question from Philippe Züger, Zürcher Kantonalbank. Do you want to develop the commercial property at the [indiscernible] yourself? Or do you only want to sell it?

No. There is -- actually, this is -- it was -- it is a hotel, and we started to work to develop it now since 1 month and it's going to become apartments. So we are doing it ourselves, and we don't have the view that the income will increase quite a lot.

Thank you. There is another question on the Board from Philippe Züger, Zürcher Kantonalbank. Can you give us an update on renting out the free space in the Geneva Business Center? What's the vacancy rate at the end of the year compared to the vacancy rate when you bought it?

Thank you for this question. The Business Center has a vacancy at year-end of 8.3% it's twofold. We have the data center, which is unchanged, partly vacant. And we had, at the end of the year, one tenant just closing the rental contract, not reviewing. In the meantime, we have found a replacement. So that vacancy will go away in the upcoming months.

Thank you. I will move to the next question from the Board, which is also from Philippe Züger, Zürcher Kantonalbank. What's the usage mix you are aiming for, you want to go to 90-10? Or do you want to increase the commercial exposure going forward?

I think we elaborated on that already. The 19% commercial that we see at the moment in the portfolio should not grow. That is our internal mindset limit. So we are investing into residential and that figure through the mix effect would then decrease again.

There is one more question from Philippe Züger, Zürcher Kantonalbank. It is concerning the revaluation effects of CHF 105 million. Can you provide a split between residential and commercial?

Yes. I thought I answered that question already. The split is more or less 50-50, a little bit higher in the commercial part.

Thank you. By the way, I don't want to put the blame on Philippe Züger, Zürcher Kantonalbank for repeating questions. He partially put those questions in at the very beginning, but I wanted to clear out the question.

No, it's all fine. It just -- I was not specific on residential and commercial, but now it's explained.

With that, we actually cleared the questions part. If there are more questions that can be -- want to be asked verbally, that would be the time. At the moment, I don't see anyone raising his hand. There is a last opportunity for you to do that or put the question into the question board. But we don't have to extend this session without any reason. So with that, I'll hand over to Stéphane Bonvin for closing remarks.

So thank you for participating to our conference call. It's truly appreciated. Of course, we remain at your disposal for any questions you may have, and we wish you all an excellent day. Thank you.

Thank you, and see you soon. Bye-bye.

Thank you very much for attending this event, which will now be closed. Have a great day.