Ladies and gentlemen, welcome to the PSP Swiss Property Q1 2024 Results conference call. I am Maria, 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&A session. You can register for questions at any time by pressing star and one on your telephone. 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 Mr. Giacomo Balzarini, CEO of PSP Swiss Property. Please go ahead, sir.
Thank you, Maria, and good morning to everybody, to our first quarter results report of 2024. As always, I will do a quick rundown on the major highlights in order to have plenty of time for the questions. As you have seen in our view, we have achieved very solid operating results in the first quarter. I will not enter into the market discussion as we have talked about it almost end of February, and since then, the market really didn't change so much. We are confronted with a very solid CBD market and clearly observe the bifurcation between CBD and non-primed. If you go directly into the key slides, I would ask you to go to slide 9.
I think one of the highlights is the rental income growth of almost 10%, driven on the one hand by the acquisition, Westp ark, we undertook last year. Secondly, we have recognized the full indexation in the first quarter of roughly 1.1 percentage points. Thirdly, we had to recognize a turnover rent for the full 2023 in Q1, and plus, we had a payout of a fit out of a tenant, which is considered kind of a one-off for the Q1. This amounted to this increase of roughly CHF 8 million for the first quarter. On the valuation gains, which are unusual for Q1 and Q3, you know, our practice, that we have a full valuation of the portfolio in the half-year and the full year.
And if we have material evidence that based on rental contract changes, there's a ±CHF 5 million change per asset, we are obliged to ask the valuer to review the valuation of this asset. This had a materialization of four assets. I will go into the details on a later slide. And thirdly, you have seen a property sales gain on the condominiums of roughly CHF 550,000. This is basically the last gain and the closing of the project, Parco Lago, in the southern part of Switzerland after almost 20 years of construction. So this project now has finally come to an end. It was a very successful project.
On the cost side, although we see a +5%, I think on Swiss franc amount, it's almost negligible, and compared to the last year, also with regard to projections, we are pretty in line with our cost view. We had a bit higher letting costs. We had on the G&A, we had a bit higher, rating costs with regard to our sustainability efforts and some IT projects, but overall, it was a pretty normal quarter with regard to the costs. I would here, I wouldn't have anything major to highlight, although some percentage points are a bit higher, but this is also seasonality driven. On the next slide 11, you see on the one hand, the increase clearly of the financial expenses. We are still able to fund at very attractive terms.
We issued the bonds in the first quarter at very attractive spreads. Nevertheless, clearly, financial expenses grew and will continue to grow, perhaps a bit less strongly than we had expected, you also due to the interest rate cut by the Swiss National Bank. But I think this is something which is inevitable and also in one or the other case, also a bit healthy, that we have a re-calibration of a sound market. On the tax side, the higher tax impact here is driven by the valuation gains, nothing else. It was a pretty ordinary quarter with regard to the taxes. If you look on the vacancy rate, which came in at 4.1%, here we confirm our guidance for the year end to be below 4%.
If you look, the biggest vacancy contribution comes from the B2Bs. Here we have signed the lease agreement with the light industrial area, and we are in final steps of signing a larger commercial lease. We're hopeful to come to an end by the next couple of weeks and would then do a respective announcement. Here, we're clearly working full speed on this letting, and we see that the product is quite attractive in the market, so we are pretty positive on it. On the remaining part, no major changes to what we have reported in the Q1. As I mentioned, an unchanged guidance. On the expiry profile, the majority has been already released. We are left with fourteen percent to be released. And this leads me to the slide 18, with the changes in fair value.
Here we disclose the 4 assets with regard to the Bahnhofstrasse and Waaghaus. This is an option which has been exercised by a tenant in advance at higher rents, and this triggered clearly a valuation gain on the Bahnhofstrasse 66. This was a break option, which was not exercised. Therefore, also here, an adjustment on the DCF model by the valuer. The Waisenhausstrasse Bahnhofquai is driven by the strong performance of the tenant and by a partial recognition of the turnover rent, which was so far not recognized and triggered a valuation gain, and the Hochstrasse in Basel was driven by the letting success on the leasing side and having now a fully let building since Q1, and this triggered the fourth valuation gain. So I think these are really asset-specific contributions.
I would be careful in applying a read across the whole portfolio. I think we are confronted, as I mentioned at the beginning, with a healthy letting market. Nevertheless, we still would expect a flattish development over the full year. I think in the Q&A, we might also talk about the transaction market, but the evidence we have today is that on the valuation side, we should see overall a flattish development for the year. And therefore, you see also slide 19, those valuations had no impact on the yields. It's a pure DCF rent link income, cash flow driven perspective applied then by the valuer. On slide 21 and 22, the financing situation, I would say unchanged.
We are confronted with a solid funding market, being on the credit side, being on the bond side, and I think also with regard to the maturities, we have a very good visibility. We have plenty of committed credit lines, and also the credit matrix with the equity ratio, with the loan-to-value, is basically unchanged towards the full year results, and I wouldn't expect also major changes towards the year end. What is not recognized here is obviously the dividend, which was paid then shortly after the Q1, and clearly this would change a little bit the matrix, but not substantially. On the development projects, we are all working, I would say, full speed on the ones we have listed.
On the summary on slide 30, you see that in Förrlibuckstrasse, we have had this letting success on the office side. We have already talked, we're working on the retail side with a couple of tenants. On The B2Bs , as mentioned, a bit also in the full year results, so far unchanged. This will take a bit longer to be leased up. On the Globus on Bellevue, all signs on green. Tenants are starting with the fit out, and it's planned to be opened for the Christmas. Hochstrasse, it's fully let, and Hôtel des Postes in Lausanne, we have started on the marketing side. We have a partial letting, and here we are working now really on the construction side to start operating.
From these 23, roughly, million of potential rental income, which will come in until the end, 2025, 2026, annualized CHF 1.2 million have already been recognized. So to end the, the presentation before going into the Q&A, on slide 34, you see in a nutshell, slightly updated EBITDA guidance of CHF 300 million compared to CHF 295 million, and a confirmed vacancy rate guidance of below 4%. With that, I would end my short presentation and leave the floor for the Q&A.
We will now begin the Q&A session. Anyone who wishes to ask a question or make a comment, may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and one at this time. The first question comes from John Vuong, Van Lanschot Kempen. Please go ahead.
Hi, good morning, Giacomo. Thank you for taking my questions. On the like-for-like rental growth, and then more specifically, the turnover rent, if I remember correctly, this was also mentioned as a factor in last year's later quarters. So is this solely an effect seen in Q1, so more of a base effect given that this was already recognized in the later quarters? Or is this a different effect from those?
It's a bit of a special effect because we have reported this turnover rent for 2023, early 2024, so it's a full year recognition of the 2023 turnover. For the like-for-like, we took out three quarters of it. So it's on a like-for-like basis, it's correctly recognized on the adjusted side that you see for one quarter. On the overall rental income, we have recognized the full year. What you will see over the next couple of quarters, clearly, is the accrual of the expected turnover rent contribution on the remaining turnover contracts we have for Q2, Q3, Q4. Overall, as you recall, roughly 1.5 percentage points of our rent roll is turnover linked, and we currently see that the majority of the rental contracts produce a turnover rent. And this triggered also the slight adjustment of the EBITDA guidance.
Okay, that's clear. And maybe as a follow-up on this, on the underlying like-for-like rent growth, which is still super strong at +3.3%. I think you mentioned that 1.1 percentage points is coming from indexation. So is the remainder reversion captured on this? And how do you see this 3.3% develop over the rest of the year?
The second question, I think that's something I would expect toward the end of the year as well. The indexation overall should contribute roughly 1.4 percentage points overall, we would expect as per now. But overall, for the full year, I would expect the like for like of slightly above 3% from today's point of view.
Okay. Thank you. That's it from my side.
The next question comes from Ken Kagerer, ZKB. Please go ahead.
Good morning, everyone. This is Ken Kagerer on ZKB. I would have three questions. The first one regards to the divestments of non-core assets. Where do you stand with those?
We have currently a handful of assets which we are in, I would say, in advanced negotiation. We have a very strong interest on it. Also, as you know, every disposal, every transaction has its own routes. I think we, we should come to an end in Q2 with it. We're hopeful for it. And then in Q2, we will report clearly the details of it. The demand on it is relatively strong. The amount is not so meaningful that we dared, it's so critical to report now on details, and as we are a singularity in negotiations about it. But we are confronted on those assets where we are in discussions with a solid demand.
What could be the top-line impact of those divestments if they all materialize?
Reflected in the EBITDA guidance. And clearly, once we have done the disposals, we would, we would, communicate it, but it's not, it's not substantial.
Thank you. The second question is with regards to the acquisition market. Do you see any attractive targets, especially also from real estate funds with redemptions?
From that channel, we don't see attractive targets for our portfolio, as we are very much focused on CBD assets or value add CBD assets, and we have not seen those type of targets. We are looking at a couple of incidences, but these are not the typical, you know, evident, bidding processes at the moment. In our target segment, we don't have really transactions going on. There are no substantial sellers on this field. But we are working on—
Thank you.
On two incidences, yes. Small, but smaller transactions.
Thank you. And then my last question, just to get some clarification on those revaluation effects. You mentioned already that these were predominantly cash flow driven adjustments, but could you just tell us if the valuer also confirms the discount rate or looked at it, or if there were mild adjustments in one way or the other, or this was not considered at all?
Not considered.
Okay.
The yield is reviewed mid-year and year-end. This is a pure reflection of the adjustment of the rental contract. As I mentioned, either by taking out an absorption time, if an exit option is not taken, or adjusting the effective rent to the old market rent, or by reducing the vacancy, expected vacancy.
Excellent. Thank you very much. This was it from my side.
Thank you.
The next question comes from Andreas von Arx, Baader Helvea. Please go ahead.
Yeah, just a quick one from my side, on the deferred taxes. On what you reported in first quarter, is there any amount that is related to that, 20-year deferred tax item that you had significantly last year? Or is that only coming, once a year?
This can only come when you perform a full revaluation through the valuer, half year and full year. And there, and there, they are recognizing again the value 20 years ago. So there's no impact in the Q1 of it. But every 6 months, there will be a review and the respective adjustment.
Would it make sense to review that CHF 5 million threshold? I mean, you know, it seems to me a bit that this is, you know, given that you have properties with such significant high value, you know, this is triggered quite often and maybe, you know, also if there's not that significant movement, just because of the overall value of the property, would it then not make sense, you know, to increase the threshold so that, you know, this reval in quote, in half year revaluations are not triggered at all? Just as a comment.
I think it's a, it's honestly, it's a valid comment. We have started with CHF 5 million hurdle because we thought it had a certain relevance. But honestly, I would take it on and think about it with the auditor and look if it makes sense to increase this threshold to the next level.
Okay, from my side, thank you, and back to the queue.
Thank you.
The next question comes from Joost Beaumont, ABN AMRO. Please go ahead.
Hi, good morning, and, thank you for taking my questions. I have two questions. First, could you please comment on where prime office rents are going for the full year, given your latest conversation with tenants or maybe external valuators? That's the first one.
Well, the prime office rents towards the year-end, I think we are in a quite dynamic market, but not in a hyperactive market. I think we are confronted currently on the prime office rents in Zurich and Geneva, I would say almost at CHF 900, in selective cases, a bit north. The super top rents, I wouldn't see now a substantial change of it. It might depend on a very particular case where you can reach high rents, but generally, prime rents are CHF 800-850. On the retail side, this is very depending on the respective space, but there's not, I would say, such a high evidence that you can say now, due to the upcoming lettings, you see a strong trend upwards. I think it's a solid base.
The prime rents are very solid, and you can get, you know, above these top prime rents depending on the product.
Okay. So can I say it's low to mid-single digits, prime rental growth for 2024, as far as you can see?
I think it would give perhaps the wrong message, because on the one case now, this option, rents went up almost 20%. In other cases, you have indexation when you have already prolongations. So I think generally saying mid-high single digit, in general, it's something which I think it's difficult then to see. It's really asset specific, contract specific. The more the market is solid, I would say in certain cases it's even strong, but it's not so dynamic that you can speak about seeing high single digit rent growth. I think this might give the wrong perception.
Yeah, that is very clear. Then the second and last question is on retail for high street. I see from external data that footfall in Zurich, Bahnhofstrasse, is up materially and slightly down in Geneva. Is that also what you see for your portfolio, and is it reflective of what you expect for rental growth and regional sales locally?
I think what we observe is generally a strong footfalls in both CBD markets. It might be that you have seasonality effects, periodic effects, where then the footfall is a bit stronger in Zurich than Geneva. You know, the majority of our rental contracts are not turnover based on the retail side, so we have a fixed rent contributions. So it's something we then store specific are not necessarily observing. What we observe, as I mentioned, that on these prime spots, the demand is quite high.
That is very clear. Thank you.
Thank you.
The next question comes from Kai Klose, Berenberg. Please go ahead.
Yes, good morning. Just, 2 quick questions from my side. The first one, the amount of committed credit lines went down by CHF 100 million this spring in the first quarter. Was there any specific reason behind, and what do we currently pay for committed credit lines? And second question is on the vacancy target for 2024, how much is this—to reach that, how much is dependent on the largest vacancy reductions, which you show on page 16?
On the first one, I think this is driven by ordinary refinancing of bonds. We handle this quite opportunistically and try to be quite diversified between bond market and credit market. The average commitment fees, I would say on average are around 15 basis points we pay on the credit side. On your vacancy rate question, with regard to 16, I think clearly the guidance includes a letting success on the B2 wins. I think that's something we are working towards. It includes also letting success on the Bahnhofplatz, Bahnhof side. And clearly also some other letting successes, but we are quite confident to achieve those successes.
If you look overall, I think, it's still, and I think that's very important, that every quarter clearly is always a per quarter observation of the vacancy rate. I think the trend, the overall vacancy rate of whatever is around 4% is already an excellent vacancy rate. And often, especially like also Förrlibuckstrasse, we might tend to try to get a slightly higher rent, and so sacrificing a little bit of vacancy rate perhaps for a quarter, instead of just locking in a rental lease, rental contract, and therefore being able to show a low vacancy rate. I think when you are on those levels of vacancy rate, it's important also to give also, to gear towards rental and rental growth instead of only focusing on the vacancy rate.
Understood, very clear. Many thanks.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Alexander Totomanov, Green Street. Please go ahead.
Good morning, and thank you for taking my question. You mentioned tenants at The Twelve in Zürich have already started to get out of their areas. Is that the case for Globus as well? And, has there been any discussion with the tenant given the difficulties at Signa, one of the department store's owners?
We have a valid rental contract with the respective tenant, and they're fulfilling their obligations as it is expected, and there have been no other discussions for the others. So I think for the moment, as I mentioned, there are all signs on green.
Great. Thank you very much.
Thank you.
Mr. Balzarini, there are no more questions.
I would like to thank you on behalf of the full PSP team, as always, and we will be in touch on the next couple of days on further questions if they may arise. Thank you. Bye-bye.
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.