Conference call and live webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants have been listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relevant field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stéphane Bonvin, CEO of Investis Group. Please go ahead, sir.
Yes. Ladies and gentlemen, good morning, and welcome to this full year 2023 results presentation. Today, I have with me Laurence Rickenbacher, our investor relations, René Häsler, our CFO. The agenda of this presentation will be as follow. I will start with the highlights and continue with the market trends, then our CFO will present you the financial overview, and I will conclude with the outlook before the Q&A session. Highlights 2023. The strategy was to concentrate us on the operation performance and on the cash flow generation. So on the group level, we could achieve that the top line growth, a top line growth of 1.7% to CHF 232 million, despite the sale of 11 properties in April 2022.
We propose an unchanged dividend fully owned by the FFO, and we also reach our goal to keep a very solid capital structure with a low LTV at 26%. Despite this low LTV, we could show that by end of January 2024, the 5-year total return on the Investis share was 84% versus 27% for the index. Regarding properties, again, our strategy of good location, proactive refurbishment, tenant fluctuation gave us a like for like rental growth of 3.1%. The quality of our portfolio help us to reduce again the vacancy rate to 0.9%. We had, in 2023, a rise of our discount rate from 2.74% to 2.97%, which conduct to a negative valuation of CHF 47.7 million.
Going forward, in properties, our goal is to replace the income we sold in 2022. At the end of 2023, we stand already at CHF 58 million, so part would be already replaced. As I explained a year ago, our vision was that interest rate would rise for a short period before gradually returning to a level close to 0% by 2026. Therefore, our strategy was to take advantage of the high market price in 2022 to sell part of our portfolio and replace it under better conditions. This has been done.
We have already started implementing this strategy by purchasing two buildings at the end of 2023, and since the beginning of 2024, we continue to make many offers, and we are now on exclusivity on various transactions, and we are very confident that we will be able to replace the income sold by the end of the year and even surpass it. Real estate service, we were once again able to grow our top line by 4.7%, and despite the headwinds we faced in property management, particularly in the activity of commercial letting, we were able to maintain an excellent EBIT margin of 9.9%. Market trends. As you know, to adapt our investment strategy, we are following different metrics. Of course, the most important one is the migration and demography.
In Switzerland last year, we had a very strong net migration with a peak with roughly 100,000 new inhabitants. Regarding Geneva, the growth of population for 2023 was +6,500 new inhabitants or 1.3% versus 1.1% in 2022. Going forward, we expect that the immigration will remain high. Regarding the construction activity, actually, the number of construction permits is at the lowest level. A further slide will show that this activity is coming down. In 2023, 3,900 new homes were built in Geneva. High level compared to the average over the last year, which is at 2,200.
Regarding the regulation, again, thanks to the tax regime for corporations, which remains among the most attractive in Switzerland, and especially for multinational companies, makes this region very attractive. All these factors contribute to a significant growth of the population. Now, capital market. As you know, February, we had, again, a very low, inflation by 1.2%, much lower than expected by the Swiss National Bank. So this conduct that last Thursday, the Swiss National Bank, reduced its policy rate from 1.75% to 1.5%. As noted last year, we expected that interest rates were, we're gonna decrease due first to the weak European economy and the strong Swiss francs.
The strategy of the Swiss National Bank is to be proactively, aims to mitigate potential negative effect on the Swiss economy by making borrowing more affordable. So this, this will have an impact on the real estate market, and we expect that price should start to rise again, by the second half of 2024. Also, we continue to see Swiss franc interest going down and should be, as I said before, in 2026, around 0% again. So our strategy now is to take this window of opportunity, to buy as much as possible properties. Regarding the real estate market, the residential real estate market fundamentals are stronger than ever, largely due to rising interest rates, which has significantly boosted the demand for rental apartments.
Additionally, the demographic growth, the decrease in construction activities, and fewer construction permits have surged demand, leading to a sharp increase in price. This trend is evident in our portfolio, with a notable 3.1% like-for-like rental increase. So now we're gonna go through some slides that reflects the strong fundamentals of the residential real estate market. The first one on the Lake Geneva Region market. On this slide, we can see that for a 110 square meter apartment, the average rent paid in the different regions. The first, we see that the red area is, of course, the Lake Geneva Region and Zurich area. And also, what we can see in Lake Geneva Region is that even the peripheral area shows above average rental value.
That means where it is really very red, it's above 2,800 CHF per month. Vacancy rate on the next slide. So in 2023, it went down. For Switzerland, 1.2%. Canton Vaud fell under 1%. And for Geneva, it fell, it stays around at a very low level of 0.4%. And as I said before, for our portfolio, we stand last year at 0.9%. Now, regarding the transaction market in Geneva, the real estate transaction volume in Geneva has further decreased in 2023, especially on the two main traditional sector, residential and office market. On the residential, it went down. If you compare 2021 to 2023, you can see that it came down from CHF 2 billion to CHF 0.5 billion.
Of course, this had an effect on the price of the transaction, and the prices went clearly down. The next slide shows you the new construction activity in Geneva. It's high on average, even not sufficient, because the vacancy rate stay at a very low level. But what we can see is that end of Q4 2023, the production of apartment stand at 7,500 units, coming down from more than 9,000 units. So it means that the market absorption in the canton remains very high. And of course, due to the low numbers of new building permits, the trend of new construction will continue to decline. Now, for the Swiss real estate market, the residential, of course.
This slide shows the breakdown of the residential demand, and what we see in 2023 is that roughly 90% of the demand were absorbed by the international net migration. It's a record compared to 2008, where it was also very high. Now, on the residential yield, what we can see, we follow since a long time now, this chart. We note that the net yield for prime residential went up from 2% to 2.5%, due of course, on the rise of the interest. And parallelly, the ten-year bonds has stabilized, but we expect that it will slowly come down. And going forward, we should again have a normal risk premium between the ten-year bonds and the net yield for residential, around 2.5%.
And we expect that, half, for the second half year 2024, that the activity, investor activity, could pick up again. Next slide. We see that, rents are on the rise for offered rents and existing rent both. Both were boosted by inflation since 2021. But going forward, we expect that due to the decline of interest, and of course, also inflation, we do not expect rise, like these two last years on existing rents, but offered rents will continue to rise due to the, general under supply in all the country. So maybe to resume, the market outlook, we have really very strong fundamentals. We expect that the vacancy rate should, stay very low.
What we note also is according to Wüest Partner, the market rents in the Lake Geneva region is expected to grow by 3.4% this year. Globally, as I said, the market fundamental remains very strong in the Lake Geneva region. The next slide is our property in Rue du Nant. Again, this year, we could rise the rent, CHF 22,000 for the full year, or +2.8%. Due to the market condition, despite this increase of the rents, the value came down 4%. To conclude regarding Investis, our position is unique, and I think that we will benefit more than our peers, thanks to this under-supplied environment.
because we are active in markets where there is a constant situation of under-supply, with low vacancy rate. Again, I repeat, we focus on middle segment of the market. That is where you have the highest demand, the higher rental growth. And as I said earlier, fundamentals remain very strong. So now, René will present you, the financial overview.
Thank you, Stéphane. Good morning, ladies and gentlemen, also from my side. Yes, let's talk about figures. On page 18, you have an overview of the group main statements that are important to us. Likewise, for the two segments, properties and real estate services. I come back to these highlights during the next slides. When we talk about the group, we could grow the revenue to CHF 232 million, which is 1.7%. Overall, a good achievement. More important for us is the EBITDA before evaluation, that is below last year. If we exclude properties sold or their contribution, we had effectively an increase, but I come back to that in property segment, where we can more dig into the details.
As usual, the graphs to the right are very important to us. You see the revenue distribution between the two segments. Of course, services bring 77%. More important, if you look at the invested capital, then only 3% of the group's investment is allocated to the service business. On the other hand, cashflow generation is very important. 40% or 39%, to be precise, of the cashflow generated by the real estate service business is more important year-on-year. So in a nutshell, stable cash flows from the properties, growing year-on-year, and very high return on low invested capital in the service business. Yeah, properties.
You all know what we did or where we started in 2021, and we concluded it in spring last year, with the sale of 11 properties, and the resulting positive effect on the P&L, but also on the balance sheet, with much reduced financial debt. In this year, our focus was on growing the rent. We had an increase of 3.1% like for like, for both activities, residential and commercial. And if I come back to that key number for us, EBITDA before revaluation, then the official numbers show a decrease of 8.5%. If we exclude or try to like for like it, then the contribution of these 11 properties in last year was CHF 4.5 million.
So effectively, we had an increase of 4.2% on that important key figure for us. On the right, we illustrated that considerable like-for-like rent increase that we have year-on-year. If we look over a five-year period, we had an increase of 7.6%, which is remarkable and probably outstanding in the Swiss market. Turnover, CHF 53.1 million, with now 2,477 apartments. Again, we sold 11 buildings, that is the lighter part in the 2022 and 2021 column. And again, the gain resulted in last year CHF 63 million, 20% above the valuation. And I'm very confident that we're coming back to such levels in the future. Yeah, the higher interests had also some remarks in our portfolio.
Evaluation by CBRE resulted in a negative effect of CHF 47 million. If we look in a little bit greater time than only one year, we see that in the last eight years or since the IPO, we had a net revaluation gain of over CHF 400 million. So the 47 million decrease this year is not really a concern to us, but it reflects the market condition on the valuations. But as Stéphane said, interest going down again, that will probably also have an effect on our discount rates going forward, so that this 47 million can be compensated rather easily in the years to come. In the first half, we had a revaluation loss of 49 million.
In the second half, it was positive by CHF 1 million, despite the further increase of the discount rate of another 10 basis points on all properties. And that further negative effect was compensated by higher market rent that were estimated by CBRE. The, again, lower vacancy rate and the higher rates in the normal year-on-year or month-on-month achievement in our portfolio. The characteristic of the portfolio is still the same, even so we have purchased 2 buildings at the end of the year, in end of November and mid of December, so not really a big impact on the 2023 financials. We still are 90% residential, mainly focused in the Lake Geneva region, which accounts 94% of the portfolio. And as you know, we are in the middle segment. 1-3 room apartments is our focus.
Yeah. Low vacancy rate of 4.9%. We still have two properties in the Canton of Valais that dilutes the excellent number. Otherwise, it would be rather below 4.7%. Maybe we see that in the near future. But anyway, we guide on 1% vacancy rate, and we are clearly below at the moment. On this page, you see the historic development. We, in 2020, we were at 3%. We explained these several buildings that exceptionally contribute to this number. Underlying, we were the whole period around 1%, and now we are officially over the whole portfolio, a little below 1%, more in the vacancy.
On the right, you have this rent potential that we always show, and it increased again to 12%. It was 10% last year. This is a normal result of the market development. Despite a 3.1% like-for-like rent increase, that number increased another 2% to this 12%, which shows only that the market conditions are in our favor in the region that we operate. Tenant turnover, constant at 11%, and our target remains the same for the like-for-like rent growth. We aim for 1%-2%. This year, 2024, it will probably be again at the higher end, since we had another increase on the CPI. That's well, these were my comments on the property.
If we come to the very important real estate service business, we could again increase the top line to CHF 182 million, and this by conserving the high significant EBIT margin, which resulted at 9.9%, exactly on our guidance that we gave you during 2023. Facility service is still accounting for two-thirds on the top line, and it is also an important contributor on the EBIT margin. These numbers you know where we come from, from 2019 to today, and you see we work year-on-year on the EBIT margin, while also growing the business.
If I just look at 2019, so in the last five years, we could increase our top line by 50%, while still improving the EBIT margin. Operating results were very excellent, but also below the operating profit being as our focus in management. Financial expense increased only CHF 4.3 million. This is a result of higher interest that also we had to pay. But since we paid back a big chunk of our financial debts, financial expense resulted only in CHF 3.1 million for the year 2023. Tax, somehow, difficult to understand, if you just look at the figures, but this is a mixed bag. We still pay 14% tax on our portfolio income.
We still pay some 17% in our service business. But due to the revaluation losses, which contributed 14% in deferred taxes, that resulted in that strange number of a tax loss - a tax expense of CHF 1.2 million. Net result, slightly negative, but more important is our operating excellence and the net profit, excluding the revaluation effect, stands at a strong CHF 35.5 million. Last but not least, our balance sheet. No big changes. Financial debt increased slightly to roughly CHF 400 million. Without the surprises in there, we have the federal tax on the property sales that we could only pay during 2023, which accounted 22 million. Then we invested again, the portfolio, CHF 63 million.
Of course, the dividend that we paid was again financed through our excellent cash flow from the business. All the other lines in the balance sheet are more or less on prior levels, and the equity ratio stays at a strong 64%, which gives us much credit to grow our business as based on outline before. Debt structure. Yes, we paid back one of the two bonds. At the end of the year, we had only one bond outstanding. Looking into the future, if we can invest what we plan, of course, we will become again active on the capital market, and finance our needs with bonds or other means that we have at the moment.
We still expect interest to go down, and then it will be the window for us to again tackle the capital market and issue respective bond. That's from my side, and I hand over to Stéphane.
Thank you, René. So now shortly on ESG. First, I suggest that you have a look at our non-financial report, and especially for all the details regarding our actions across our entire portfolio. But last year, we focused on the energetic consumption, so we are monitoring for the third consecutive year our portfolio. We focus on energetic renovation. Start of this year, we win the energy trophy from SCJ. In two category, we were first with electricity savings and thermic savings, which was compared with other big landlords of Geneva. Since 2022, we participate in the index, Swiss Sustainable Real Estate Index. And also, on the social side, 1.8% of our portfolio is rented to the Hospice Général social housing.
This is also part of our strategy, we are continuing to improving the comfort for our tenants through interior renovation. Outlook 2024. So as I explained before, the residential property market has solid fundamentals. The demand for residential properties in French locations will remain healthy and strong. We expect that the net migration into Switzerland will remain at a high level. We explained this already end of June. The residential market is expected to be short 50,000 apartments by 2026. And of course, the construction activity continues to be restrained. So we expect a continuing rise in the rents. Regarding our portfolio, so we aim to replace, as soon as possible, the CHF 10 million income that we sold in 2022.
We should achieve it by end of 2024, and even surpass it. Regarding real estate service, there, we focus on a healthy organic growth, and also to maintain our high margin. And also low debt, strong balance sheet is part of our strategy, again, to be able to take advantage of good opportunities to create value for our shareholders. So thank you. Now we are ready for the Q&A session.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume of the webcast. Webcast viewers may submit their questions or comments in writing via the relevant field. Anyone who has a question may press star and one at this time. Our first question comes from Holger Frisch from Zürcher Kantonalbank. Please go ahead.
Yes. Good morning, and thanks for taking my questions. I have three. First one, could you please elaborate a bit on the development of the vacancy rate in the portfolio, especially with respect to the commercial properties, where you managed to bring down the vacancy rate to 0.1% from the 2.4% last year? And maybe a few words on the role of Banque Cantonale de Genève as the second largest tenant right now.
Okay. It's finally is one question. It's not three question, or, or you, you're gonna come with two other-
I take them one by one.
Okay, okay, good. So, regarding Banque Cantonale de Genève, we bought last year, at the end of the year, the back office building of the BCGE in Petit-Lancy, and we did a sale-leaseback. And the rent is roughly around CHF 2 million, and this is a triple net contract, so this makes that why they became now one of our biggest tenants. And vacancy reduction of 2.5-0.1, was simply that we could rent all the vacant space. And I don't know what to say, that I didn't notice something special, but you know why? Maybe our commercial part becomes much bigger, thanks to this acquisition, I don't know. And this makes that it's came so low.
But no really special explanation about this.
Okay, thanks. And then you mentioned that you made many offers to replace the sold rent level.
Yes.
Could you elaborate what this could imply for the development of the LTV this year, if your plans materialize?
... Yeah, this depend the price of the price of the properties. Of course, it gonna raise, but as we said always the strategy is not to go over 40%. It's gonna grow, but I cannot give more detail or more detailed answer, but because I don't know exactly how much we're gonna buy. But we are really focused on it, and what I can say is that compared to the 2020, 2021, 2022 the liquidity in the market is completely different because we are doing every week's offer. And our offer depends the property, if it's commercial, non-commercial. We are also looking to commercial because we did very successful transformation in Geneva.
Yeah, yeah, I know why now we have this reduction because we transformed a school in Boulevard de Saint-Georges into apartments. This is why we have this reduction in the commercial rate. Of course, our offers now depend on the quality of the property between 4.5%-6% gross yield. Yes, we are now with different transaction. We are in exclusivity during the due diligence process. That's—I cannot give you a precise number.
Okay. My question-
Make a calculation, a gross, depend how many we buy.
I mean, you can add the figures into your calculator. If you add CHF 200 million in properties and CHF 200 million in debt, our LTV could increase to 35%, or whatever the-
Okay, but-
It's straightforward.
Okay. Okay. Then maybe a final question on interest rate expense for this year and financing policy. So your average maturity stands at only four months now, considering that the average interest rate stood at 1.66% at the end. What's your expectation for interest costs and the, maybe then targeted maturity in case you tap the bond market in the near future? That would be all. Thanks.
Unfortunately, I don't have a crystal ball right now, but if the National Bank is decreasing what we expect already in June a further step, that will of course have an impact on the interest that we are ready to pay. And if we launch a bond or two, or three, or whatever, at several maturities, 2, 3, 4 years, whatever is available and works for the investors and for us, then of course, the average maturity will increase again. But we have no concern with that short maturity profile that we have at the moment. It was a clear decision from the management and our board to replace the bond with short-term bank loans and private placements.
Okay, great. Thank you.
Welcome.
As a reminder, if you wish to register for a question, please press Star followed by one. Gentlemen, so far... Sorry, we have registration just right now from Philipp Ziegel from ZKB. Please go ahead.
Yes, good morning, Philippe Ziegel from ZKB. Actually, I do have two questions, and the first one is addition to the to the purchases. How do you see the market? You mentioned in the re- in the publication this morning that the institutional investors are coming back to the market. How is the competition going on then?
Well-
-to buy any additional properties?
So what we've seen, by the end of maybe the half year 2023, the market was really very quiet. We did a lot of offers, and of course, you had some owners, they had to sell, so we could go through to transactions. But now what we see, but this only since maybe 2-3 weeks, is appetite is coming back, but only in residential and only in properties, I think where you have a higher ESG quality, and this means that these properties are not very, very centrally located, like in periphery and were built maybe the last 20 years.
We are now, it's picked up again, and also what you can see is that you have some funds, or an investment, they start also again to raise money, to raise new capital. And of course, these, when they have money, they have to buy. So appetite is coming back, and also the decision of last Thursday makes that people see that finally the inversion point arrived, and that maybe appetite from all investors also for indirect real estate are coming back. But parallely of that, you have many institutional, like insurance, like PEKKA, also some funds. You have still some funds who has had redemption, they need to sell, but many of them, they are a little bit profiting from this period, so with this period to adjust the portfolio.
What I heard from many of them is that they prefer to own only properties over CHF 30 million. So then we see a lot of small properties, smaller properties coming on the market. For us, our strategy is not a question of size, is really the quality of the property, the potential it has. And this is where we really focus, not on the size. And I think we are very well prepared to have, to own many properties from CHF 5 million to CHF 50 million or CHF 100 million. We don't care. But the liquidity, as I said before, increased a lot. There is a lot of property on the market. And of course, what we also saw is that we made offer.
We finally arrived at the end of the second round, we were first, and finally, because the price was not the price expected from the sellers, they decided not to sell. That's what happened also. But I think now, depends where you have front of you. I think funds, they are not able to sell, because this is just a policy regarding the result they have to announce. They don't want to sell under the valuation. But now, if you take PEKKA or insurance, there you have more, flexibility.
So that means at the end, that you see the chance to, to buy at the gross yield of between 4.5%-6%?
Yeah, I see- yeah.
Oh, oh-
I think residential will be 4.5-5, and office, where we see the chance to... You know, we have to be opportunistic, because I see two things. First, if there is an opportunity to change the property into apartment, because we are doing the refurbishment for roughly CHF 1,500 per square meter. So then if you have a rent of CHF 250-CHF 270, and then you transform, because when you do apartment from office, you have no control on the price. So then you can rent it. We've seen in Boulevard de Saint-Georges, we were between CHF 500-CHF 600 per square meter, because we are doing them very small apartment. So then, this is a very good opportunity.
Even with transformation, we're gonna improve the yield. And also, you know, now there is not a lot of appetite for office, but I'm sure because, for me, it was clear that last Thursday and I spoke to some investor and of course with my team, that SNB had to decrease the interest rate, and they have to do it. I think in June, they're gonna do it again. Why? Because the European economy is not going well, and you're gonna see the numbers of April will not be that good.
France, if they announce a growth of GDP of 1.7, and they're gonna produce only 0.4, and with the result that they have a deficit of 4.5%, which comes to 6%, you will see the pressure of the financial market. Of course, then it's always the same story. You have pressure on the Swiss franc. SNB has no other possibility than to decrease the interest. Also, we import every month; we import inflation with the strong Swiss francs, so we are in a very comfortable position. I expect that all the... Because there is less appetite for office, but for me, Geneva is really booming, actually.
I don't know if you've seen the result of the tax. Finally, they expected a loss, and they had a huge gain of over CHF 1 billion, compared to an expected loss of CHF 0.5 billion, and this is due mainly for the corporate tax. So Geneva is really booming. So I expect that if we can buy office at 6% yield and sell it at 4% in 2 years, I'm happy to get in the pocket of investors this margin of 2%. So we have to be opportunistic, and we have the chance. This is why we sold this portfolio in 2022, is to be able to be opportunistic and take advantage of such transaction.
Okay, good. Thank you. Second question will be on the service business.... EBITDA contribution, it's, it's around 40%. It's quite, quite high for a real estate company. May you give us a bit, a flavor on, how do you wanna proceed with, the service business? Do you wanna purchase more assets, or do you think about, probably have a spin-off?
I take the first question, and the second one, we cannot comment, as we have no interest in that respect. We are very happy with our business, and we grow it. Acquisition-wise, we are more in the field of bolt-on acquisitions, 'cause we achieve our portfolio size for the Swiss markets, and at the moment, there is more questions about handing over the business to us, while the previous owner want to go out of the business. In January, we purchased another company, which is Olbara.
It's a small, facility service, company that we, will add to our, facility service portfolio, and we are in the last talks for two more, small bolt-on acquisitions that, are not yet, done, but we are confident to add that to our portfolio. Yesterday, we sold Orchid, a very small, niche, which was not in our strategy to do renovation, in the service business. But otherwise, we are very confident the businesses, had a very good start into the year. We are very confident to, again, confirm excellent results, in that segment.
Okay, good. You mentioned before that the facility services has a higher EBIT margin. May you give us your expectation on the EBIT margin for 2024?
I didn't comment on the EBIT, EBIT margin. I just said that we had a good start into the year, after 2 months, and we confirm our EBIT margin target of high single digit. If it is then 10.0, we take it, but we don't have the aim to grow it. We want to grow the top line organically. That is our focus.
Okay, thank you. Perfect.
Once again, to ask a question, please press Star followed by one. Star followed by one. Gentlemen, so far there are no more questions from the phone.
There are no more questions from the webcast either.
No questions also from the webcast, madam.
Okay, thank you for your attention. Thank you for your interest in Investis, and we wish you all a good day. Thank you. Bye-bye.
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