PSP Swiss Property AG

Good morning to everybody, and welcome to our 2024 results release. We are very happy to share with you the highlights of this very successful business year.

And I will do a quick rundown through the major slides before we head into the Q&A. Let's start first with Slide 3.

Just to remind you and to reiterate, we will continue to focus on CBD locations of these major economic strong cities being Zurich and Geneva, and we will focus on value-add projects within the portfolio and grow opportunistically if we can substantially create shareholder value. This is the strategy we pursue since years, and we will continue to pursue.

Slide 4. The letting market is unchanged over the last fourth quarter.

We are confronted with rather strong letting market in the CBD location of Zurich and Geneva. And the transaction market even strengthened during Q4 in Zurich.

We have seen at least 2 transaction on prime assets with yields at or below 2%. If we go on to the key figures on Slide 10, we see that we have delivered a rental income of roughly CHF 350 million.

This is a growth of 5.4%, driven on the one side by the acquisitions of the Westpark in '23 and Rue de Hesse in '24 by the reclassification of development projects, which materialized and with specific cases we report in Q1 being specific turnover rents. On the negative side, we clearly positively and successfully disposed 7 assets at a premium of 14% and we have reclassified some assets into development projects, which we will reposition and then rent again and bring back into the investment portfolio.

The like-for-like was at 3.6% for '24. As an anticipation, we expect a like-for-like of roughly 1.5% for '25.

This predominantly due to the fact that inflation rate came substantially down to 0.7% in Switzerland. On the valuation gains of plus CHF 171 million, I will come on the later slide.

You have seen in '24 that we have basically not sold assets out of the development projects. The CHF 1 million gain comes up from a cleanup of the project in Lugano and Rheinfelden.

And with that, we have sold all the former brewery assets, which were held for sale. On the other hand, you have seen that -- and you see on the property sales from the investment portfolio that we realized a gain of CHF 14.1 million by selling 7 noncore assets at an average premium of 14% above the external value.

On the cost side, Slide 11, an unchanged picture. You see a very disciplined cost management within the company, translating into an EBITDA margin of 85%.

I will not go through the single line items, but this is also a position -- these are positions you should expect going forward to be pretty stable. On Slide 12, we see the expected increase in the financial expenses, which will continue on that path on '25.

We don't expect a major increase. We expect for '25, roughly CHF 35 million, CHF 36 million of financial expenses.

Please keep in mind the passing cost of debt is roughly 1%. On Slide 13, you see the proposal of the Board to the AGM to increase the dividend by CHF 0.05 and if you look historically, you'll see that we basically every year increase the dividend and the visibility we have today is that we can continue on that path on the foreseeable future.

Slide 16 demonstrates the vacancy rate, which came in at 3.2%. The highest vacancies on Slide 17, you see being the Grubenstrasse in Zurich, where we are currently providing the fit-out for the largest tenant being a light industrial tenant, we are very, very positive that we are able to further let that building by the year-end of this year.

I think once this ground floor tenant is in the building, this will anticipate and this will attract other tenants. So we are positive in it.

Clearly, it took us a bit longer for a variety of reasons we have mentioned, but it's not really material for the overall success of the company. I think that will a building, which will be very positive still for the portfolio.

The remaining ones, if you look, Peter Merian, Hochstrasse and Limmatquai, clearly, they all contribute to the vacancy rate, but the overall vacancy rate is rather low with 3.2%. And you have seen that we are guiding for a slight increase of 3.5%, but this is almost a rounding error if you compare it to the overall picture.

Slide 18, the expiry profile. We have already very successfully pre-let the '25 maturities.

We're working on the '26 maturities. Probably during the Q&A, we will come back to that, but we are positive that we are able to handle also those maturities.

We have various projects underway. Perhaps one of the highlights and the surprises were the revaluation gains of CHF 171 million on Slide 19.

One element is CHF 7.5 million are linked to the acquisition and the first-time valuation of Rue de Hesse, which we acquired in the half year. On the existing portfolio, the large part, roughly CHF 150 million were contributed by the investment portfolio, roughly CHF 10 million came from the development portfolio.

The drivers behind are, on the one hand, letting successes, this is the major driver. And secondly, the adjustment of the market rents.

If you see on Slide 20 that there's a 3 basis points yield compression. This is driven by the disposals.

Overall, there was no yield compression in the investment portfolio. So the success of the valuation came from the letting success and the increased market rents of the portfolio.

Slide 22 and then 23, predominantly on the debt side. We are still confronted with a very diversified and stable lender portfolio.

Clearly, the merger of the 2 large banks contributed that we have one bank relation less. We still have roughly CHF 900 million unused committed credit lines.

We just did a private placement of CHF 125 million with a spread of 30 bps, so we can attractively fund in the market. And this translates into a capital structure with a very low loan-to-value of 34.1% and a very strong credit metrics, which you see on Slide 24.

Just a quick rundown on the major projects being one TEC in Basel. I think what changed here, we postponed slightly the completion as we will go into the full fit-out of the building.

But this is not, I would say, of major relevance. We will spend roughly CHF 4 million more, but we will go into a fit-out because we see that there is slight stronger demand for fitted out space than not fitted out space.

On Bollwerk in Bern, it's a smaller project, but very -- at the main station of Bern, the ground floor retail has been let, and we are now on the final stage of letting office spaces at CHF 450 per square meter, which confirms our letting assumptions. 28 Hôtel des Postes, a beautiful building.

It will be really a landmark building in Lausanne. We were for many months now working on a negotiation with a retailer, which pulled back at a very short notice.

We are working on a second -- a retailer on the ground floor, we're working on leasing up the office space. I think here, it's clearly -- it's not an evident price tag.

We ask for Lausanne, but it's a prime asset. And with the vacancy rate we are currently running, we believe that we can afford to try to really scratch a bit on the surface of the letting.

But the project and the assets is a beauty, and we are convinced that in the short and medium term, we will have first letting successes. The new ones, which we added is on the next slide, just a highlight on the rezoning project in Wallisellen.

The rezoning has publicly been available. The municipal assembly will take place in April.

And this contains a rezoning of an industrial area into a mixed zone, which will allow us to convert these surface into 75% residential area, whereof 30% affordable housing. I think for the moment, we will not be able to say much more.

We want to wait for this municipal assembly to take place and the votes going through. But clearly, we are working on various projects and alternatives and then for sure, can say more with our Q1 and Q2 results.

And the last one is an overview on the Quartier des Banques. the in-place portfolio with the Hotel de Banque and the Synagogue in red and then the various projects in yellow and blue.

So this is clearly a little city development we are going through with the projects which started with the acquisition of the Rothschild portfolio in 2017. And then clearly, the successful acquisition and letting of the Hotel de Banque during COVID and the acquisition of Rue de Hesse last year and this Quartier des Banques.

But also here, more to come in the half year results and going forward. With regard to the outlook on Slide 33, we guide for an EBITDA of roughly CHF 300 million.

We have clearly in the top line contributions from the Finnish projects being the Bellevue, the Hochstrasse, the Fusslistrasse. On the other hand, we have the Rothschild portfolio, which we have vacated.

We have [indiscernible], which is becoming vacant. So clearly, the top line will be rather flat with a like-for-like growth of roughly 1.5%.

However, it will be the second best EBITDA of the history of PSP. And secondly, we guide for a vacancy rate of 3.5% for 2025.

With that, I would like to hand over to the Q&A, and I'm ready to take questions.

A question on the investment markets and how you look at that. So for example we see also a peer raising money to invest.

So I'll address also some questions for you. First, could you provide some color on the likely route of you becoming more active in acquisitions and to what extent, in '25?

Second, are you in any exclusive talks today? Third, some color on the deals in the market today.

Of course, the last explain how you look at funding acquisitions potentially with equity and which metrics do you look at here?

Perhaps we start with 4. We look at investment cases.

And before we think about equity raising, we need to have a very, very attractive investment opportunity, which is fully accretive to shareholders in a large scale, which we currently don't see. If you say how we approach the investment market, if you look back over the last years, I think we were at most, I would say, active investors, acquiring assets.

We did the Rothschild acquisition, we did Quartier des Banques acquisition. We did the Westpark acquisition.

Our approach is to find opportunities, which we are able to create an additional value to the shareholders and then to be able to fund them ourselves and create value over time. We have always said we are not focused on size.

We are focused on profitability, but I think we demonstrated that we were able to create value, grow over it. The investment market, how we see it, there are some portfolios or single assets in the market, which we, however, at the moment don't judge to be so attractive for our metrics with regard to long-term resilience of the earnings and the quality of the micro occasions but clearly, and with that, I can honestly say we are not in exclusive talks on certain assets, but we are looking at a variety of assets and the market as we always do.

There's nothing new.

Okay. That's very clear.

And if I may, one last one. So that's on the lease expiry in '26.

Can you comment what to expect here? And also after these discussions, do you think we wouldn't see a peak like 80% going forward?

So that will be a bit more flattish as we have seen in the past decades?

Well, if you look at our average lease agreement has a term of 5 years. So by definition, you would have every year, roughly this 15% to 20% lease expiry.

So it's nothing, I would say, which for us, it's now astonishing. We have a few lease expiries next year, which we are working on.

But I would say nothing major which provides us with headaches. This is rather a normal path.

We have, in certain instances, clearly on especially in prime locations or if we talk about the serviced apartment concepts of the school in Basel 15- or 20-year contract. So this prolongs this lease expiries.

But typically, we -- you should expect from us this 15% to 16%, 17% expiries per year. But I think we're used to it.

And if you go back, we typically start always the year with a quite good reletting status.

I have a couple. I'll ask them 1 by one.

Firstly, maybe just quickly on Richti portfolio sale. How is that taking into account for the full year '25 guidance?

Normal. I think the tenants which are there, they pay the rents.

It's classified as a development to be hold I think what we do is now since -- or more than a year, we are not letting any new space. So we're holding back just not to prevent potential projects.

But as it was last year, we don't have a lack or a loss of rental income. So it's held normally.

It's clearly not part of the vacancy rate.

Okay. And in case you would kind of potentially sell down that project, that potential kind of gain is not baked into the guidance currently?

No, this asset is mark-to-market investment portfolio. It will be continued to be mark-to-market as an investment portfolio to be held.

As I said, and I hope you understand we are waiting now for the municipalities to decide because this is a major project also for them, which will provide additional residential surface. I think that's our priority to really provide additional new surfaces, which are utilized instead of having a 50% empty office buildings.

But from then on, we will see on how we develop this project.

And then 1 question on the market outlook. You used to comment also on kind of the -- your view of B and C locations as well as nonfood retail and this time around you only commented on kind of your focus areas of prime locations.

So is that kind of an indication that you see B and C locations in terms of office space bottoming out? Or what's your view here?

Perhaps we have sold the B and C location, and we're working on the reposition of Wallisellen. So it's not anymore so much on our full screen.

But I think it's clear that in the 2 major cities, whenever you move towards the airport, you're confronted with a high level of vacancy. And I think that will last for a while.

But clearly, we have now streamlined our portfolio also with the disposal of the assets last year in [indiscernible] these were secondary cities and with that and also with now with the project in Wallisellen, we have, I would say, ultimately detached our approach to the B and C locations. But it's evident that those regions still are confronted with an oversupply.

Got it. And last question.

You mentioned cost discipline, but G&A costs actually increased by, I think, 11% roundabout. Could you maybe touch on the reasons for that increase?

Yes. I think here what we had -- we had some additional valuation costs, also, there is some costs with the GRI reporting.

And then I think this is nothing material which I would say is not linked to the discipline of the costs.

Okay. And this is -- can we expect this to be the run rate going forward?

I would expect the run rate of roughly CHF 10 million on this line item.

Some of my questions have been answered already, but I'd like to have some more clarification on the expiry profile in 2026. Where do you stand there in your discussions?

And do you see any large contracts that might become vacant? That's the first one.

The second 1 is you see some of those assets that might be acquired by SPS? And do you feel you're missing some opportunities there?

What's your view on that? And maybe you want to give us a bit of more color on the very large revaluation effects that you have seen?

And then I have the last one, but let's take those 3 for now.

On the expiry profile, the largest one, which expires is in [ Hochstrasse and the Pfingstweid ] lease, where [ Pfingstweid ] Is moving in the new building, they are currently developing. We will see when they are exactly moving.

But I think this is an expiry we have announced in '26. We are working on a variety of scenarios.

We are very positive on the location. But if I would say this is the largest ones then we have some in the inner cities, which we are working on, some negotiations and discussions.

But as I mentioned beforehand, we are pretty confident about it, and I don't see any large ones which we know which could provide a substantial headache. To the second question, it's a bit difficult to comment on vague press announcements of peers about portfolios.

So if you would ask me which assets you mean, I could give you an answer, but I cannot comment on potential acquisitions in the time frame of 9 or 12 months, if you understand. And on the large revaluation, it's compared to the overall portfolio, it's a 1.7% valuation gain is clearly, if you go through, these are predominantly CBD assets, which either have been finished on the development side and become investment portfolio.

And with that, an ultimate valuation risk has been taken out. You can take the Globus at the Bellevue as an example, or then clearly reletting successes.

We mentioned those being the on the retail side, I would now overvalue this is, I think it's a solid result. At the end, it's the view of the value.

And now the last one, I mean, if you go to Slide 51, where you show the quality of your portfolio, it's quite impressive. But I mean we see that a lot from other companies that probably have a less attractive positioning than you.

The question here is, where do you stand with the portfolio cleanup and how many assets are still there that you intend to sell? And what's the time frame that you like to achieve on those potential sales?

No, we -- I think we are away from the cleanup of the portfolio since a few years because we don't feel under pressure. Clearly, it's an optimization process.

At the moment, we are working on some repositioning assets where we see a repositioning potential from offices in resi. We have, as you see, not earmarked mainly for disposals and it depends also on the way we can grow and how we can create value.

But I would say that we are over with the cleanup, which stemmed from the big acquisitions of the brewery sites. Here, this is a regular portfolio management, continuous optimization of earnings and looking on how the macro occasion developed and if we see that the macro occasion moves from an office into resi part, this will trigger hopefully, before the market reacts in a repositioning of that asset.

So we're pretty happy with the portfolio as it is.

Just 1 question actually on property valuation. You referred to higher ERVs.

And I'm just wondering what magnitude it was?

I think what might be a reason, if you look historically and you look back, I would say, 10, 12 years also in our annual report in the annex. You see market rents and you will see the market rents put in place by the valuer.

So in the phase of yield compression, what we have observed is that the value adjust a bit, the market rates downwards. And clearly, if a contract, and you have seen that last year in -- was it Q3?

Where a tenant didn't move out by extended it. The value has foreseen a reduction in the rents, but the contract was prolonged at that market rent.

So this clearly triggers increase of the value. Or as we mentioned, we have successfully relet high street retail contracts.

This change is also the market rent view from the value or we said also in Q1 that we have seen a strong turnover rent from 1 of the contracts. This going forward has also adjusted a little bit the model of the valuer.

And those are elements on how we have seen that market rent potential has been adjusted, especially CBD Zurich from the valuer and on that sensitivity of the yields contributed to the value increase. It's not systematic across the portfolio is very specific based on letting successes.

But clearly, this has a substantial impact, as you can see from the annual report, if you look at the sensitivities rate, discount rates are and market rent developments are.

One of your peers recently highlighted that they are looking at sale and leaseback transactions. So I just wanted to check if you're also doing that.

And second quick 1 on the project take in Basel. I saw there was a delay from '25 until mid-'26.

Can you highlight what has changed there?

Perhaps on the second one, as I mentioned, that perhaps it was not so clear, I apologize. The delay comes predominantly because we do the full fit-out of the surfaces because as we said at the beginning, when we started TEC, this is a project which we knew we had to tackle.

Thanks to this asset, we were able to do the tower and the climb. We try to do it in row, and we realized that the demand is very low.

There was some demand for fully fitted out surface, and that's what we do with an additional, I would say, minor CapEx. On the first one, I have to understand to answer the same way answer to, I think, to Ken commenting on WAULT sale and leasebacks is very difficult.

I think these are hypothetical statements. You can be sure that we look at, I think all potential transactions which are in the area where interest of us.

And if we think that they are value accretive for our shareholders, we participate in biddings. If we see or value certain potential lease expiry or CapEx risks, then we might not continue on that process.

But I think the general comment is not really helpful if you understand.

A couple of questions. So back on reletting, could you give us some color on how those conversations are going on reletting?

Have we seen any changes recently? Are they taking longer?

Any pushback from the rent levels? And then a second one, am I right in thinking you'd rather focus on developments and acquisitions at present?

And if yes, is there any scope to accelerate your development pipeline and then do you have any sort of hurdle rates on developments to get them going?

On the reletting, I think discussions go positive very well, especially on the CBD locations. I think here, nothing has changed over the last quarters.

And we are not in the phase of accelerating the development pipeline. I think you have to keep in mind that when you do a project, you first have years before to start aligning the lease agreements and to prepare the project with the local municipalities, to find the potential total contractor and the architects.

And I think this is -- these are all especially in the CBD long-term projects and we try to do them as quick as possible but also as reasonable as possible. And there's no need to run in any urgency models or anticipation models.

We have the funds. We have a loan to value, which is reasonable loan to fund our pipeline and to fund acquisitions.

But I think as we demonstrated over the last years, we are here to create shareholder value in the mid and long term and not to draw an 80-meter sprint in the winter indoor.

I would like also from our side, thanks, everybody, for attending this conference call, for the interest in PSP, supporting us and look forward to interacting in the next couple of weeks. Thank you.

Bye-bye.