PSP Swiss Property AG

Thank you, and good morning to everybody. As always, I will just do a very quick introduction and then leave the floor for Q&A.

We are obviously very pleased about the results we have released this morning. They come back on the back of a rather strong rental income growth, which demonstrates, on the one hand, the acquisitions we have done last year and the completion of our pipeline projects; secondly, quite strong revaluation gains, which demonstrates the strength and resilience of the prime transaction market, which then goes hand in hand with the confirmation of our full year EBITDA guidance and slightly improved vacancy guidance of below 4.5%.

Organization-wise, we are all back into the office since beginning of June. We have -- we are confronted with a stable letting market on the prime locations as we have wrote in our report, and we are quite confident for the second half of the year, being it on the letting market as what we see on the resilience of the transactional market.

But having said that, I know that there are already questions on the line, and I would rather spend time in going through your questions and your interest. So I give back to the operator.

Three questions, if I may. The first one with regards to your revaluation gains.

So going back, since your IPO, if I'm not mistaken, it's sort of a record level, and it's like CHF 7 per share. Can you give us, please, some more flavor on what you expect, where we go from there going forward?

And maybe comparing the discount rate and transactions yields, can you confirm that you still would be able to sell sort of prime assets in your portfolio at the premium towards your upward revised book value? And then the second question is with regards to your vacancy rate guidance.

You fine-tuned this. You communicated earlier, it's rather back-end loaded this year, and you are currently at 3.1%.

Can you please give us some more granularity with your expected quarterly development towards Q3 and 4? And sort of in which months will we be able to have a better visibility on where we'll stand towards the end of the year?

And my last question with regards to COVID-19, still the topic, unfortunately. Can you just explain briefly why your rent collection is at 99%, but your receivables increased to CHF 9 million?

So I think you still have some open cases in front of the court. If you could just give us, please, an update on your current legal situation, maybe in general for Switzerland?

And what's your view on that?

Thank you, Pascal. On the revaluation gains and -- yes, you're right, it's the highest half year revaluation gain since the IPO.

It's predominantly CB-driven, CBD Zurich and CBD Geneva, and it's a combination of yield compression and, clearly, also, in some cases, letting successes and, then as we saw in Q1, completion of development projects. If you look at the transactional market, we can say this has also been set by the valuer, it's based on transactional evidence.

To your question on premium, we have sold in the first half of the year an asset in Zurich at the 60% premium. Clearly, it's linked to a project and the partial redevelopment case.

But if I look at the transactional evidence, I think on a single asset basis from a pure theoretical point of view, we think that we could sell still at the premium. Now how you would translate that through the portfolio and [ read ] across, I think it's not on us.

But we feel comfortable on the value set by the valuer based on what we see on the market. On the other hand, we have also to see that we went with our yields over the last year quite a long way.

So we are, I wouldn't say, priced at market, but we are priced at market. With regard to the vacancy rate guidance, we are typically not doing now quarterly forecast, but you're right, it's back-end loaded towards Q4.

I would -- if I have to guess, say that Q3, we're somewhere around perhaps 3.5%. And then we see certain expiries, which we have already highlighted in Q4, which we know that we will not be able, on such a short notice, to fill up because in some cases, we have to fill back or rebuild back the space.

So for the year-end, we have a little bit of an increase on the vacancy, but we are comfortable that we should be below the 4.5%. From the -- with regard to the rent collection, the 99% are based on the ones, which are not at risk and excludes the receivables in that case.

We have started with a CHF 5 million receivable line on Q1, and we are now at CHF 9 million. But we are pretty confident also with recent legal court case that the rent is due, that we are in a good position in our current negotiations.

So I think here, that's already embedded also in our forecast. I think we are well positioned.

You might be aware about the recent court case in Zurich, where Judge clearly stated that the rent is due also in a COVID phase. What other cases might follow, we don't know, but this is the first, I would say, important case we have seen.

I have a couple of questions. First one is related to the financing profile.

I've seen that you have 2 private placement maturities of CHF 140 million in September and CHF 150 million in December. What can we expect in terms of interest rate development in your opinion?

And where do you see the average loan maturity profile going in the midterm? That's the first one.

The second one is related to the expiry profile of rents. I mean we all know in '22 and '23, you have a kind of increased maturity situation.

Did you work already on those maturities? And could you achieve some successes?

And where do you think the interest rate -- sorry, the vacancy rate might go in 2022? I know it's early, and you typically don't like to talk too early about that, but maybe you can give us a hint on that.

The other one, the third one, is on the transaction market, where I would like to ask if you still find at those levels that we are seeing, at those price levels, attractive opportunities to buy in prime locations or if you're kind of withdrawing from the transaction market in the current environment. Could you give us some flavor there?

And the last one is actually on the dividend situation. I have realized that you have already achieved quite high EPS contribution in the first half.

EPRA EPS at CHF 2.2 and adjusted EPS is at CHF 2.45. Can we expect dividend increase in the range of 5 to 10 happen as we basically were used to in the recent past?

Or could you imagine that there might come a larger step in terms of dividend payout?

Thank you, Ken. With regard to the financing part, here, yes, we have the CHF 140 million private placement coming up in September and the CHF 150 million in December.

As we stated, we have roughly CHF 1 billion of unused credit line. So we don't need to tap into the market.

The market for us is interesting to get duration. So if you have now duration of 5-year, clearly, we try to look at 7-, 8-, 9- or 10-year bonds, and this would increase a bit our duration.

We look at the traditional credit market, as I said. We look at the traditional capital market, but we look also at a bit more innovative solutions.

So here, we try clearly always to be a bit best-in-class and further reduce our marginal cost of debt, which is currently at 37 bps. So the aim is with these 2 renewals to be even lower at an all-in cost of 37 bps and be net higher than the 5-year average duration we have.

With regard to the renewals of the contracts, clearly, we are, I would say, well ahead on the '22, '23. There's a very large maturity in '22.

We have already talked about. And here, we are confident that we will prolong that contract.

We are, obviously, always in discussion, negotiations. But this is with, by far, the largest one for '22.

In '23, the largest one is in [indiscernible] we have a repositioning project, which we're working on, where we aim to try to get an additional value by repositioning the asset and the remaining parts and the renewals are in a magnitude of CHF 1 million or below CHF 1 million of rental income. So if you look at the '22 and '23, it's a very quite diversified renewal pattern.

Here, unfortunately, I cannot give you a vacancy indication, but we are confident that we will be below or at our structural vacancy. We have, I would say, a very solid setup, good assets, and we're working towards keeping a reasonable low vacancy rate.

But the vacancy rate guidance, if you don't mind, we will provide beginning of the year. With rent contracts, which can be canceled with a 6-month notice, it's very difficult to give a guidance 18 months ahead.

I get that, sorry. Could you just remind us about the structural vacancy rate in your portfolio?

The structural set by [indiscernible] is 5%, 5.5%. Now don't pick me that I said we expect 5%, 5.5% vacancy rate.

I know the question. We are now on a 3.1%.

We said we are below 4.5%. Our aim is to be on that range, but it's too early now to give a vacancy guidance for next year.

We have a very solid portfolio. We have a very high cash flow visibility.

I think, as you said, this leads me to your last question, and then I will take that one of the market transaction, the dividend. As you said, we have an EPRA EPS of CHF 2.20, and we base our dividends on the EPRA EPS.

We have a very good visibility that we will be -- with our dividend path below our EPRA EPS, but also from historical views that we are a bit against erratic dividend payment. So we prefer high visibility, slightly continuous growth.

So I would -- as far as I can, it's in the judgment of the Board, but they would today exclude that we have any special dividends coming up.

So the [indiscernible] step is the most realistic probably then?

I would say, if you look on the past, we had CHF 0.05 increases. What it will be then next year, we will see.

But it's important that we show a continuous good dividend growth. The visibility we have for the next, I would say, 3 to 5 years is that we can continue on that dividend growth pattern.

On the transactional market, it depends really on the asset. Last year, we bought Hôtel de Banque in Geneva, and we were very happy that we bought an asset.

And we had already a very good letting success. We are, I would say, on plan with our repositioning of the asset.

And clearly, that's something we look at. Prime, with some expected vacancies with sale and partial leaseback, there, we are bidding.

So we are not withdrawing from the market, but we invest if we think that we can create value over time. We are not just buying for yield differential.

So clearly, we are in the market. We are -- on the acquisition side, we look at the market.

And we are also active on continuously cleaning up the portfolio with -- where we can achieve perhaps substantial premiums on a B+ assets and then reinvest that if we have the opportunity on a prime asset.

Could you elaborate maybe a bit more on the CHF 70 million revaluation gains you had on your development portfolio? If that is just also discount driven or just on the developments or maybe some flavor on single developments that have seen significant revaluations?

First question. Second question is on -- also on the revaluations.

I mean, I think everybody is a bit surprised given the high number, especially since this seems to be at the high end compared to what we have seen at more residential focused players, whereas I think the general market expectation is that residential prices have increased significantly and probably commercial price is a bit less given the home office discussion. Your insights into that theme would be of interest to me.

And then the third question is on Zurich North. If you could give an update here?

I've noticed that you expect to relet one of your properties relatively quickly in Wallisellen, whereas for the other one, you continue to see low demand. So a, what is the difference between the 2?

And how do you see the situation in Zurich North in general?

Thank you very much for your questions. On the CHF 70 million development, it's basically on 2 assets.

The one we have already disclosed in Q1, which is the building in Hardturmstrasse, the Förrlibuckstrasse, the ATMOS, which contributed almost half to it; and the secondly is basically the completion of the Bahnhofplatz [indiscernible]. We're typically not disclosing single asset valuations.

But if you look on the development pipeline and you see that we will deliver, and we already delivered floors to the tenants. It's a fully let complex.

And clearly, here, risk probably was taken out by the valuer on the development side, and there was more discount rate reduction on this prime asset at completion fully let building. So this is -- I would say this is the source of the CHF [ 70 ] million.

On the general comment on the valuation, if you look, for instance, on Page 56, 57 and 58, and you look on where the assets are, which we own and then compare that with transactional evidence in those locations, I think this explains why the valuer adjusted the yields. Overall, we had a yield compression of roughly 10 basis points, and this has this contribution to the valuation.

It's -- I would say it's pretty much that. And I would now compare that with rental portfolio -- residential portfolios.

Our understanding is that there is enough transactional evidence and demand for prime assets at that locations with this rental income pattern and investors are ready to pay those yields. And so the value is adjusted.

If I may, I mean, no question about that, but would you then say it's fair to say that your significant revaluations are really very, very much driven just by the central locations and that already, let's say, at secondary locations like Zurich North, maybe even Zurich West, the revaluations then are already less? Or would that be not a fair picture?

It's absolutely a fair picture. You see a bifurcation in the market.

I would exclude now Zurich West from this, but there's a bifurcation between CBD and non-CBD on the yields and on the valuations. So also we had negative valuation changes in our portfolio, and those are linked more than on the assets, as we mentioned, on Zurich North or on perhaps more B+ locations or with some expected vacancies coming up.

But the prime ones, and this is then defined also by the quality of the portfolio had a disproportional high contribution. Zurich West, I would see on the positive side due to the demand also on the letting side.

We have seen that also in our valuation gains on ATMOS, which had a significant contribution in -- especially in Q1. On your comment on Zurich North.

Here, we are in letting discussion for half of the floor on the Richtistrasse 11, that's correct. But the demand on Zurich West and Zurich North is rather limited.

We are marketing the floors. We are considering also repositioning of certain assets, but the overall area has an oversupply.

And it's not only, I think, the rent level, it's really just too much product out there. Luckily, we have a limited amount of surface available.

Clearly, it's always popping up. But if you have a 3% vacancy, the last ones pop up, but I can promise you that we are working on it.

We try to let it. We consider also repositioning of the area of single assets.

But yes, it's half a floor, we are close to let. In others, we are slightly in discussions, but the demand is rather limited.

Well, then I would like to thank you, everybody, for participating, and I look forward to the exchange over the next couple of weeks, and wish you a nice day and a happy weekend. Thank you.

Bye-bye.