Earnings Call: H1 2021

Sep 1, 2021

Ladies and gentlemen, welcome to the Half Year Results 2021 of Investis Group Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. Webcast viewers may submit their questions or comments in writing via the relative field. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Stephane Bombard, CEO of Investis Group. Please go ahead, sir. Ladies and gentlemen, good morning and welcome to our half year 2021 results presentation and thank you for your interest in our company. I have today with me Rene Hessler, our CFO and Laurence Bienc, our Investor Relations. The agenda of this presentation will be as follows: I will start with the highlights of this half year and I will continue with the market trends, then Rene Hessler will present you the financial overview and I will conclude with the outlook before the Q and A session. Highlights of this half year twenty twenty one, so we had really an excellent half year on both segments. The impact of COVID as already mentioned earlier this year was very small and it doesn't impact our business. The continuing improvement of our operations makes that we were able to deliver solid results and this year after year. Also this result shows that our strategy is the good one in any circumstance. So now regarding the result on group level, the revenue went up 14% to €102,000,000 the operating profit before revaluation up 6.1 percent and we could achieve an impressive EBIT of €155,000,000 compared to €62,000,000 of last year. And this gives us now a substantial increase in our NAV per share to 82.50, excluding the deferred tax. Now regarding properties, so we had this revaluation gain of €131,000,000 that shows the quality of our portfolio, the good locations of our properties, but also that we are able to transform the rent potential into real rent. And this like for like rent increase came up plus 1.6% for these 6 1st months. We could also reduce our vacancy rate to 2.7% compared to 3% last year. And here again, I repeat that all our properties which are under refurbishment, they are counted in these vacancy rates. Now regarding the real estate services, so we could grow the top line through acquisition but also organically. We bought during these 1st 6 months these 2 companies, Hohr AG and Cielab and they are now since the 1st April consolidated. Regarding the EBIT margin, we could increase it to 8.8% thanks to the improvement in our operation, the digitalization and also that we want to have only profitable contracts. And also almost all subsidiaries improve their operating margin. So now the market trends, as you know we follow different metrics to guide us for our investment strategy. It's the demography, one of the most important, the construction activity, the regulation and of course the capital markets. Now regarding demography, Switzerland had for this 1st 6 months again a net migration of 26,000 people and for the content of Geneva for the last 12 months we had 2,690 new inhabitants in Geneva plus 0 0.5%. So also with this pandemic, we can see that the demographic continued to grow and of course this is mainly due to quality of Switzerland makes that going forward, we see improvement in the demography. Now regarding the construction activity, we have a higher construction activity at the moment, but that will not cover the pending demand in the free market. It's still a high entry order for home ownership and this will support the demand for rented apartments. Regarding regulation, still we think that the tax regime for corporation in the Lake Geneva region, which one is one of the most attractive, will support the positive migration. Regarding capital market, I will come later on. Now if you look more in detail in the real estate market in Geneva, so we can say that despite the stronger construction activity, there is no significant change in demand in the residential market. Most of the apartments that will come to the market will have controlled rents by the content and will not change the dynamics in the free market. The demand for apartments in the free market remains high, which is reflected also on the price trends. The rents for all non new homes operate in the free market is up by 0.8% for the last 12 months. And if we look for the previous year, it was exactly also the same 0.8% for the same 12 months period. The vacancy rate in the residential sector in Geneva is the lowest of Switzerland, 0.49 versus 1.72 for the national level. And also what I mentioned just before, the population of Geneva has the highest proportion of rented housing, 78%. So all these elements makes that we continue to be very confident in this market, which is we told it already many times, the USP of Investis. Now regarding the real estate market of Switzerland, if we look into the residential market, you can see on the graph on the left that you have 4 areas with very low vacancy rate. This is Geneva, Zug, Zurich and Basel. But what's very important to note is that the number of construction application is declining again and the strongest decline was recorded in the content of Geneva, Baselstadt and Touk, where you have the highest vacancy rate in Switzerland. So again, we can see that this situation going forward of low vacancy rate will not change. Geneva has not only the lowest vacancy rate, but also the lowest stock of units for rents and this is due to the high density of the Canton, because we can say that the Canton of Geneva is a city Canton and it doesn't help to have units, I would say, around the city center. Also on the next graph on page 10, that's also very important to note. We can see that the offered rent in the market for the free apartments that they are now for rent, they are 25 percent, almost 25% higher than the current lease in Geneva and Lausanne. This means that we disclosed that we have these 13 potential, rent potential on our portfolio. And if we look into the offer, you can see that this is 25% for the global market of Geneva and Lausanne. But what we see on our portfolio is that very often we are able to rent much higher than this 13%. What CBRO gave us as rent potential. On the next slide, here we can see that for the period from 20 11 to 2020, the Lake Geneva region has a lower rental reduction than the rest of the region of Switzerland and this is mainly due to the controller trend, but it's also due that we explained it that we have a fluctuation of our tenants of approximately 10% per year, and we can see on this graph that for Lausanne and Geneva, the lease duration is higher than the rest of Switzerland, more than 10 years. The next slide shows again that the Geneva vacancy rate is declining again and well below the national trend, which is actually climbing again. So we add now a new graph which is also very interesting to understand why in Geneva you have a low share of house owners. It shows that Geneva has the lowest disposable income of Switzerland. So that makes that the people are not able to save money to become owner and so they have to stay tenant and that makes why this market is very interesting. So now about the financial market, so on this graph that we show since years now, we can still see that the residential net yield continued to decrease, parallelly with the 10 year Swiss bonds. We, by investors, we still continue to see a very low environment of the interest rate for the next 5 year minimum, so negative. And we think also that next year, the Swiss francs will become stronger. This is due to the normalization after COVID situation in Europe and we think that Switzerland is now in a much, much better situation than our neighbors. And Swiss National Bank will have to fight again to keep the Swiss francs low. This means that always we still see that the risk that the interest becomes more negative, higher than they become positive. So the next slide, this is this property that we show since the IPO. Again, we can see that during these last 6 months, we could increase the rent by 4.3%. We did the calculation for the last 7 years what was the average rental increase. It comes to plus 3.2%. So this shows then that thanks to this increase of the rent plus the yield compression, we have year after year a higher evaluation. And again, for these 1st 6 months, we had CHF2.2 million more valuations for this property. So to sum up, as I said before, Lake Geneva region is Investis USP. We have low vacancy rate. We are in a very low interest rate environment. We don't see any change there. The number of residential properties in city center does not grow. We are in a region where we have the highest demand. We have also one of the higher rental growth of Switzerland and also the highest potential for with the high rental RANS per square meter. So to conclude, we think that the concentration of our portfolio in this market makes that Investis has one of the most valuable and resilient portfolio of Switzerland. So now, Rene Hessler will present you the financial overview. Thank you, Stefan. Good morning, ladies and gentlemen, also from my side. I turn directly to Page 19, where you see these 4 important graphs on the right hand side, which characterizes our 2 segments very nicely. So starting maybe with the figures, we closed 6 months with just over $100,000,000 of revenue and once more a net profit which is slightly higher than turnover at CHF 132,000,000. Of course, that is due to the strong revaluation gains that we could accommodate in the 1st 6 months. When we look at the 2 segments, the 2 kits that we have in our organization, We have on the one side the portfolio which is asset heavy, 98% of our balance sheet is covered from properties. With steady cash flows, cash generation is 70% coming from properties, but also service is constantly and improving and marking the importance within our group. They post 72% of our revenues, but also generate 30% of our cash flow. Those real estate services were important to us, strong cash strong performance on low invested capital. If we look into the portfolio a little bit more in details, the revenue up 0.5%. This is lower than the like for like rental income of 1.6%. This is due to the 3 sales that we did in the second part of last year when we sold some commercial properties, but we are back with the revenues. When we look at the full property rents that we have in the portfolio, we are now at €63,000,000 with a vacancy of 2.7%. So that should lead to rental incomes above €30,000,000 going forward. On the right hand side, important, our like for like rental growth, low vacancy rate. We still have some properties that we want to fill that we are repositioning and that will then also show even lower vacancy rates, I would say, in the years to come. The revaluation gains, again, are the result of both lower discount rates, but also already mentioned higher cash flows in the portfolio. On the next slide, we see the characteristics of this portfolio still the same as you know it. We are residential. We have over 3,000 apartments. 93% is residential, mainly in Geneva and Lausanne 69% in Geneva, 25% in Canton of Vaux. And the apartments are smaller apartments 1 to 3 rooms, which is the characteristic of our portfolio, which also is what our tenants look for. Vacancy rates, Geneva, we are down to 1.2% since we filled in that one property that we repositioned in Geneva. And the wall will follow the track in the future so that we will also have then vacancy rates below 2% as expected. Commercial is rather less important, but also there we have some vacancy. On the next page, Stefan mentioned it, our rent potential. So CBRE is always looking at our market rents and they rated that these rents could be 13% above our current levels. So still some room for high rents that 13% is the same number as year end despite the 1.6% higher rent link comp imposed like for like. Important to note is 75% of our contracts are linked to the CPI, Swiss consumer price index, not to the interest rate that gives us protection and interests should even decrease further. We have the tenant turnover of 10%, which actually produced this like for like rental income. And the target remains the same, 1% to 2% on a yearly basis for this like for like rental income. That's for the portfolio. I would say no news compared to before. We are working on, I would say, improving the quality of the portfolio as before and that was also a result in the valuation. Our service, getting more and more important. We have revenue of $74,000,000 compared to the $62,000,000 last year is on the one side the 2 acquisitions, RORAKE, facility service company similar to Hauswap Profis and CLEB, another company that is doing asbestos analysis has their core business. Rather small company, posted a turnover last year of 2,000,000 dollars and is well integrated into our facility service business. EBIT margin in the service, 8.8%, a notch above last year despite that we purchased a considerable turnover in raw with margins that are still I would say below average. You might remember that in Facility Service, in the concierge segment, we expect margins of above 5%. Roar is not yet there. And here I would like to mention that Roar is consolidated since 1st April and the 1st 3 months are not in our figures, but their raw is rather a black 0, if not a red 0 in the margin. So they are very seasonally impacted. The strong season is coming in the Q3 and then the Q4 is then again a lower margin business again because due to weather conditions you cannot always perform the specialty services that they do that they offer. Nevertheless, 8.8%. I would say going forward, these margins should stay or even slightly increase when we then integrate all the companies together. For once, the COVID-nineteen effects that we had in our group were a little bit stronger in the service business than in the property airport. But I hope with the vaccine getting distributed to everybody, we can get over that pandemic and go back to normal business as before. So the margin, we are very glad that we could again post this 8.8%. On the next slide, you simply see the past development of turnover and the EBIT margin. And we are now in this high single digit bandwidth that we don't want to use and will continue. If we look on Page 25, below the operating profit, we see financial income and financial expenses, which are explained. And the tax, normal at around 15%, since most of the profits are coming from Geneva and Vaux, which have tax rates below 15%. EPS of CHF10 which is also a result of the strong revaluation in the portfolio. Balance sheet is normally rather a rather boring slide. Since we have actually 3 positions in the balance sheet is the portfolio on the one side, financing on deferred tax on the other side, which results then in a strong equity of 51% or €900,000,000 as per end of June. Financing on the far right, you see that we have credit lines available, €382,000,000 Part of it is used with bank credits and we still have unused credit lines of SEK 267,000,000. So comfortable situation for refinancing of the bond in November. We are not yet sure whether we do a bond or use the credit lines. I would also mention that in July, we issued our 1st private placement. All financing is done unsecured. So we are also available for private placements should there be extra cash on market. This financing leaves us with a LTV of below 40% at 39 percent despite the investments we did in the real estate service business and I'm sure you saw it in the half year report that we invested EUR 40,000,000 into these acquisitions in the 1st 6 months. That's in a very short overview, the financials from my side and I hand over to Stefan for closing remarks. Thank you, Rene. For the outlook 2021, so we remain very positive in the Swiss housing sector, Immigration into Switzerland and especially into the Lake Geneva region will continue. We will continue to expand our portfolio through targeted acquisition, always in the Geneva Lake region. The demand for residential properties in prime fixed location remain healthy. We will also continue to develop our real estate service by focusing on acquisition and profitable revenue growth. As just Rene mentioned it, we have a low debt, strong balance sheet and this gives us low average borrowing costs and we don't see any change there. And the operating profit for 2021 is expected to be much higher than previous year due to the continued solid performance of both segments. So thank you for your attention. We are now ready for the Q and A session. We will now begin the question and answer session. Webcast viewers may submit their questions or comments in writing via the relative field. The first question comes from Pascal Folger from Vontobel. Please go ahead, sir. Good morning. I have three questions. The first one is on property valuation. Here, obviously, very strong. So far, you were basically the leader in the Swiss universe, if I'm not mistaken, at least in relative terms. So also in general, you reported quite meaningful revaluation gain since your IPO. My question is, is this story now over? Or what is your view on that and what basically are the next triggers? Then the second question on the annualized rental income, it's up like 7% to 63,000,000. Dollars Can you please provide a sort of a bridge where this is coming from or which properties you purchased at what prices, just to get a bit of a feel there? And then the last question is on your non core investments. You saw the stake in Flat Fox for 2,600,000 I saw there is many different platforms in the Swiss market. So why did you sell it? And maybe, at some point in the future, you could give us sort of an overview on sort of all your other non core investments. It appears this also captures some value. That would be helpful. Thank you. Maybe first question, so property valuation. So maybe if you look into our competitors, you can see that the discount rate they use is much lower than ours. And I think that this morning, your colleague mentioned that we have or you mentioned it that we are still reasonable with our evaluation. So what we have to look is, at the end is the market, where stay the market today in the transaction. So actually, if we take the gross yield of our portfolio, it's around 3.7%, 3.6%. And if you look really the transaction market, you've seen the start of this year, you had this huge transaction of the portfolio from mid teen RDT, it was at 2% gross yield. So in between 2% to 3.6%, I think we have still there a huge potential. So the answer is no, it's not at the end. And also what I mentioned regarding the interest rate and the capital market, Switzerland, finally, as always, we are like a marathonia and we had to start to run during 3 months And now we start again to run and we will be very soon fit again. But if you look around us, our neighbors, they were already all very fat. They became fatter, fatter for the last 3 months and they are not able to run. So this is why if I do a calculation of the value of Swiss francs, I think that the Swiss National Bank will have these next months some stress and so we will stay in these negative area for a long time. And of course, the market of residential property is very attractive. And you see a slow slide that people is going from the 10 year Swiss bond where it's negative to the residential market. So then I see I don't for us, I see it's still very positive and I think that we will have a higher evaluation. Now maybe regarding the second question, I hope I answered to the first one. For the second one, maybe Rene will answer regarding the annualized rent income. Yes, sure, Pascal. It is correct. We are up, what is it, 4,500,000 dollars And if you look in the portfolio details on Page 30, you see the 3 properties that we bought. It's 3 properties in the Canton of Wo in the range of €25,000,000 that is on the one side contributed €900,000 to the full occupancy rent. Then we have that property development that we listed in the last, what was it, 3 years, which is the Alaya Bay down in Sion, a very attractive new leisure location, which is not daily in the press, but daily in the social media and that contributed $2,200,000 to the gross rental income. And then with the acquisition of ROR, we also bought the property, which also generated €700,000 of rental income. So these three elements will give you the details for the €63,000,000 dollars If I take the last question, the sale of Flat Fox. As you know, we were a very minority shareholder. And the founder and the other shareholders together decided to sell the company. And since we were bound by a shareholder agreement, we also had to sell with them. And that is the reason why we did sell a stake. We didn't want to sell, but economics sometimes force you to follow the majority, as simple as it is, since 100% of the company was sold to Mobilior, the insurance company. Yes. And maybe to add on this topic regarding the startup. So we are invested in several startup in the prop tech environment. And of course, we have some investments that are really strategic and industrial for us. For example, one company is Perti, which is developing a software for really institutional owner for property management. As you know, we are invested in BATMed. We have a very small also in priceable. We have also in a very promising investment where we believe strongly in the blockchain, these stories. So but some of them they are strategic, strategical, majority of them because as you know we provide services and we think that it's very important to innovate. And our politics is always when we want to transform something in our business, we prefer to do it on the site in a start up because it goes faster, it's cheaper and we are able to bring a new mentality in the business. So that's really the way we follow. And of course, we had almost in all this participation that we have, like you've read that price of the new valuation was €110,000,000 but made post money is also much higher. Taurus will be also very soon do another round at a much higher valuation. But of course, we are not disclosing a lot because it's not our main business. But as we are finally an industrial in the real estate service business and we have to invest and we have to follow what's happening in the future and that's really our way to go into the innovation. But it's quite difficult to give you numbers to disclose a lot of things because also we don't have in all company the control and we decide everything. Perfectly clear. Thank you very much. You're welcome. The next question comes from Philippe Tugger from JKB. Please go ahead, sir. Good morning. I do have two questions. First one, after the integration of Rodolphe and CLAB, how far are you able to increase the margin until the end of the year? And the other question is going to the property segment. Are you planning to buy or sell any other properties in the second half year? And if yes, where? That's the 2 questions. Maybe I'd say I start with the margin one. I expect that the margin will not decrease and be stable at the level we are seeing it now. But since I don't have a crystal ball to look into it, it's a guess. And second one, Stefan, maybe you want to cover that? Yes. For now, we don't have really I don't say that we have really in pipeline. We do every week offer. I cannot say that we have actually a big deal that we change fundamentally the business of investors in the pipeline in both sides, buying or selling. For now it comes or it doesn't come. But as I told before, many properties that we are able to buy, it's our property that are not in the market and that it's more with our network that and we can buy directly from the seller. And to sell, we don't for now we have nothing in course. And you're still comfortable with the properties in the Vale region? So in Vale, the main thing is Alaya now is not we are in discussion to sell a small building, but nothing is around €5,000,000 But we are more going out of the Vale. And Alaya, I don't know if you've been there, but you should go and you should try and you will see that every week. If you like the surf, you will come back and that is an attractive investment. But of course, in the valuation, this makes a big part of this 4%. And other commercial buildings in the Rejour Valais, are they connected with Alaya Bay? Yes. You have Alaya Bay, Alaya Chalais. And you have also Alaya Lodge, which is the hotel. And the commercial buildings, all the commercial buildings? Yes. Those are connected with Alaya. Okay. Yes. Good. Thank you so The next question comes from Mark Wiese from Merkki Baumann. Please go ahead. Good morning. I have only one detailed question regarding the FTEs in the property segment, which you decreased or halved from 10% to 5%. So could you give us the reason for that? Is there a bit of change of occupancy management or what's the reason? Thanks. So maybe that was always my goal. We had never had so much people in the property segment. But we own Hazard Coffee, we own Prevera and we work with refurbishment company, the name is Minisal. So what we decide is that finally all our properties are managed by Trivera, all our concierge, they are also managed by Hansworth Profits. And finally, also all the refurbishment we do, the technical team we had, we push it into MINISAL. And why? Because if you have only 2 or 3 people on the technical side working in our office, they are less efficient to work in this minisal team. And this company is almost doing maybe the half of the turnover with us. And it was a small company 25 years ago and they grow, thanks to us and thanks to also other partners. And they know exactly our politics. It was more efficient to have this technical team into Alaya into sorry, into Minicel than Bayer. Please explain this change. Thank you. Maybe I can add another one and about relating to ESG. Could you give us kind of an update to when can we expect ESG reporting initiative from your side? So we are working on it. So as I said last year, we received already from Signaterre the complete overview of our portfolio. Now we start to refurbish the worst property we have in the portfolio in Geneva. We also now are in discussion to enter in the SSS REA index. We are adding now in 15 properties solar panel. Also, we spoke to all our partners where we have white goods for the lift, etcetera, that we want to have better energetic performance on all the new material we buy. We are also working on the project Eco Verintein for all the property which are not in Eco Verintein is that in all the common parts of the property is a program that you do with Le Service Industrial Genoa really to reduce the consumption of any energy. And so we are quite doing a lot. And for the report, we are also working on it. But we can expect something in the annual reporting then relating to the reporting side. I mean, the initiatives are very good and welcome, But the investors also need some reports about it to compare to get the numbers kind of and all that stuff. So can we expect that something at the end of the year? Or what do we have to expect? Or how much time we have to wait for that? So maybe I'll take that. In the year annual year end report 2021, you will not have a detailed ESG report that would anyhow be disclosed separately. And when we do publish it is when we are ready and we are not yet ready to give you a report as to the others since a couple of years. Okay. Thank you. Welcome. Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Stephane Bonvin for any closing remarks. I have one additional question that came in through the chat, which is which came in from Johannes Schwab from SFP. Low housing developments in Geneva, but what about the rezoning and the redevelopment of Geneva West Industrial Zone towards housing mix zone, higher competition looking forward in the Geneva housing market? So you know in Geneva, when you have the industrial zoning, it's quite complicated because you have a foundation who owns almost all the plots. And there is also a big discussion because, as you know, Geneva, now they have with some big place, they are doing more and more residential, but you have also industry, artisanal, etcetera, who need space. So when I speak with La Fondation Deterrence du Schelage in Geneva, they want to expand, they want to have more space. So for now, it's like La Praise. La Praise, we speak about 55,000 new apartments. But finally, you have still people with small company working there and they are not if you take all this space to do residential, you have no more space for this company. It's not easy. So I don't see we will see some change during the time, but it's not that in 1 year you will have 55 new 50,000 new apartments. So you know Geneva is not so easy. We saw now, for example, La Casa de Vernet, Cartier de L'Etain, it was possible because Claude Berdas bought during 10 years many property, all the small garage, all the small entities. To do Cartier Leighton, he had to invest and to buy not only the real estate, he bought the companies, the garage, car seller, etcetera, etcetera. And I'm not sure that institution, they are ready to do that. So we know it, it will come, but I think this will be the normal it will continue with a normal rate of construction in Geneva. So that was I think the last question. I have another one. What size of acquisition or investments in CHF1 1,000,000 would be needed to launch a capital increase? Wow. I mean, we have a leverage of below 40% and if suddenly we have a portfolio or possibilities to purchase $200,000,000 plus or even $300,000,000 of course then there would be time for capital increase. I don't know whether. Yes, my so €250,000,000 so that was my idea. Okay, then thank you again for your interest in Investis and we wish you a good day. Thank you. Bye bye. Thank you very much. Bye bye. See you soon. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.