Ladies and gentlemen, welcome to the PSP Swiss Property Q1 Results 2021 conference call. I'm Moira, the conference 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.
Good morning, everybody, and welcome to this conference call. As always, I will not go through the presentation. I will make a one to two-minute introductory remark. Then really leave the floor for questions. I think as seen in the past, that's the best use of time of everybody. Just to start off, we reported, I think for us, a very solid Q1 result, reiterating our guidance is also for 2021. The market has not really materially changed since we last talked about two months ago. What we see is, in CBD locations, a healthy letting market. In the outskirts, obviously a more difficult letting market. In the majority of our locations, we see quite a healthy and good demand. We see a continuously strong transactional market with transaction evidence for equal, if not even lowering yields on the prime assets with visible cash flows.
Headline results is the things to be mentioned, at least from our side, top-line growth, an increase of the rental income of 4.6%, deriving predominantly from new projects which came into the portfolio in Geneva and Zurich at the acquisition. We have a moderate COVID impact in Q1, clearly compared to no impact in Q1 2020. Here from the comparison, the top-line growth would have been even higher with a flattish like-for-like development of plus two percent. If we include, obviously, the COVID implication, we are at minus 2.1. We report in Q1 also valuation gains. As you know, typically, we value the portfolio twice a year fully. If we have in Q1 or Q3 material evidence based on rental contracts or of completion of projects, we are obliged to ask the valuer for next evaluation. We did that in two instances.
One on the completion of a project in Zurich West Atmos, which triggered revaluation gains of roughly CHF 20 million. We have renewed a letting, a new lease agreement on Bahnhofstrasse, the highest retail at higher rents, which triggered a valuation gain of a bit more than CHF 10 million. These were the two incidences where we had valuation gains. Also to be evidenced is the condominium sales gains. On the one hand, the development in Lugano with Parco Lago, where we have transferred ownership of all the reserved apartments from year-end, have now sold effectively 62% and contributed CHF 5.5 million to the income. We have sold a project in Zurich Kilchberg. As you know, a few years ago, we have earmarked assets with a higher beta usage conversion from office into resi. We have developed the project on Kilchberg, the various scenarios.
Thought about developing it ourself and selling the apartments in view of the strong residential market. We came to a conclusion that we sell it as a project, and so realized a gain of CHF 7.7 million or a plus of more than 50% of the book value. On the cost side, fairly stable picture, leading clearly to an EBIT margin of above 82%, 83%. I think on the cost side, to be evidenced is the continuous reduction of the financial expenses. We are now on a passing cost of debt of 38 basis points, clearly contributing a substantial part to the bottom line. Here, the strategy is when we have larger maturities, try to lock in rather low rates on the longer term.
On the short term, we try to, through private placements, try to fund us currently negatively, and we fund us negatively at roughly 40, 45 basis points in a magnitude of CHF 150 million. This is quite a strong contributor also to the earnings. Here also, we try to optimize the whole P&L impact. I think with that's a bit the headline numbers. I would really like to hand over to questions, and I'm happy to enter into all material details you would like to go through.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press Star and one on their touch-tone 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. 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 is from Pascal Fulger from Vontobel. Please go ahead.
Good morning. three questions, if I may. The first one is on your contracting renewals. 75% of contracts have already been renewed for this year. I know there are larger expiries towards the end of the year, but my question is based on your calculation. Is your vacancy rate guidance of 4.5% sort of a worst-case scenario? The second question, also in terms of reletting, you reported a positive revaluation gains thanks to Bahnhofstrasse Zurich. Are there any other contracts in that region up for renewal in the foreseeable future? Maybe the last question, COVID-19 claims. Your rent collection is still at very high levels. Were there sort of any new claims from tenants asking for rent reliefs, which sort of did not ask for it last year? Has anything changed in that regard? Thank you.
On the vacancy rate and the renewals, it's always difficult to speak about worst case, so I wouldn't speak about worst case. That's our best estimate based on what we see on expiries, what we see that what we have to do with the empty space to bring it back to lettable area. I'm convinced that we can achieve this around 4.5%, and we are not so worried about this number because we see that, first of all, this is a good space which becomes available quality-wise, and we have the top-line growth. I wouldn't speak in April in the worst case terminology. I would say this is the vacancy guidance we can give based on our best estimates and best views we have today. On the reletting, yes, we have, within the portfolio, selectively a reversal potential.
What we have seen now that in such an environment, often then you have also to give some concessions which then offset, I would say even, perhaps on the top line, the benefits. We had on this very specific property, a renewal already in December and now a renewal this spring. They are in the portfolio selectively, but I would say they are not so material that they really can substantially change the like-for-like growth from today's perspective. In this current environment, we have the positives, and sometimes you have a negative. On the COVID rent collection of 98%, yes, I think it's a high number, but it's similar to what we had also last year. We have some requests, but nothing really material where we have to say this is now something which popped up newly with the big ones. We have found agreements.
I think here now it's important as to see how quickly the situation is really then released and the various operating activities can open.
The next question is from Pascal Bull from Stifel. Please go ahead.
Yes, good morning. I want to follow up on this rent relief. You booked CHF 1.6 million in Q1. What is your expectation for Q2 and also for second half in that regard? That's my first question. Secondly, we saw a positive progress in Parco Lago. Do you see this to continue, and by when do you expect to have things sold the rest of the units? Yeah, that's it.
On the rent reliefs, I cannot give you a number on what we expect for Q2 and Q3. I think what we said with the full year is that our best estimate that it could be like last year. We have foreseen in our projection further rent reliefs, but depends really on how long this COVID lasts. We have in our guidance, there is some cushion in it, and we have, I would say, certain scenarios already embedded. On the Parco Lago expectations, the progress is the disposals are going well. I would say reasonably, we would say that by the year-end 2022. From now, another 18 months, we should have sold the majority of the apartments. Clearly, they are working full speed. The apartments are now being completed, but still, this needs a bit of time, and there is really no hurry.
You have to keep in mind that we are hardly giving price concessions. There was no price concessions, and we have a profit margin of roughly 35%. We are not under pressure.
Thank you.
The next question is from Ken Kagerer from ZKB. Please go ahead.
Yes. Good morning, everyone. I've got two quick questions. The first one, we have heard that Google intends to move to General-Guisan-Quai in Zurich. What are your discussions with Google on the Hürlimann Areal? Do you see any risk that they might move out, or do they even want more space? Could you give us a bit of an insight there? The second one is the one that I always bring. It's basically on the expiries in 2022 and 2023, where we have each year 18%, so 36% are going to be renegotiated or have to be renegotiated in the next years. Could you give us an update there, where you stand with the negotiations or discussions with these tenants? Thank you very much.
With Google, we have a long-dated relationship with them. We have discussions on the relating of the space. Our observation is that they generally are expanding, that they generally have the desire to grow and to take up more space, as far as I can say so far, that Hürlimann is an important part on that game from them. I think that's what I can say specifically on this. On the expiries of 2022 and 2023, I think here it's correct, it's an 18%, with rent contracts lasting five years plus five-year option, we theoretically have every year an expiry of 20%. I think for the 2022, we have one large expiry we talked about. They make up a large part of it, we are here on good grounds, I would say.
On the 2023, I think there's nothing really, I would say, imminent. We have some projects which we on purpose are vacating and repositioning. Is it the Globus on Bellevue, for this case, or we have in Basel the Hochstrasse, where we are already on the way to reposition that asset and bring in the new concept. They are not really big expiries. There are many smaller ones, which we are, on the one hand, confident that we can renew. On the other hand, the majority is in very good locations, and I think we'll address them in the right manner. Generally, I can say that we see a solid top-line development independently from those expiries, which should ensure the dividend growth pattern we have seen in the past. For this period, I have limited doubts that we cannot continue on that path.
Thanks. Maybe one follow-up question, which is not connected to the first two, but could you just give us a bit of an update on the performance of the hotels in terms of bookings there, and what your expectation is for this year and maybe also going forward? Do you have revenue rents introduced for those hotels, or what's exactly going on? Sorry.
No. Nothing to apologize. It's a fair question. In one case, we have on top of fixed rent, we have a revenue-based rent, which is obviously not paying in now. I think on average, what we observe is that during the week, they have occupancy ratios of 20, 30, 40%, peaking up to 100% on the weekends. The Geneva one is what we see performing better than the peers, clearly not being at levels they would like to, but working fine. Our hotel exposure is rather limited. I think from that end, Geneva opened well. They are adhering to their contract. I think here, limited worries, but it is clear that as long as you have partial lockdown or partial home office obligations, is that during the week, the hotels are not full and you have limited tourism.
They are very solid operators and very centrally located hotels. I think here we will go through with them.
Thank you.
Thank you, Ken.
The next question is from Andreas Brun, from Credit Suisse. Please go ahead.
Good morning. I've got only one question left. The adjusted EBITDA guidance remains at 275, despite the CHF 10 million higher EBITDA number you would normally reach on a quarterly basis. Can you put this into perspective, please?
Well, we have in our EBITDA guidance, I apologize. We have foreseen the, how can I say, the disposal gain of Kilchberg. Clearly, we have, as I mentioned, a little bit of COVID reserves. It's too early to talk about any change in the guidance. I think the guidance is solid at this CHF 275.
The next question is from Andreas von Arx from Baader Helvea. Please go ahead.
Good morning. Capital from my side as well. Could you give some color on the increase in the trade payables to close to CHF 200 million? That would be the first question. Second question on your vacancies. Could you give some insights on Rue du Prince and the Haslerstrasse in Bern? Last question. You have been rather outspoken in your outlook statement on weakness of the retail segment market. Could you give some evidential examples here on why you come to that conclusion that retail is so much under pressure? Thank you.
Thank you, Andreas. I think on the first one, if you look on our COVID implications and the lockdown-related rent receivables, which went slightly up, these are because we staggered some payments, but it's nothing unusual. We are working down on this element. On the vacancy rates on the Rue du Prince, we are currently in reletting talks of two floors. The Rue du Prince is really Rue du Molard, Place du Molard, Rue du Marché, very central. I would say excellent spaces. We are here in discussions for reletting. On the Haslerstrasse, Effingerstrasse, we had a large tenant leaving, SBB. Here we are in discussions for reletting it. It is not prime. We have, on the other hand, quite attractive rent levels. I think here we just need a bit of time. The one question is more technicality.
We are discussing access to the various floors for the tenant we had before. One elevator was good enough. In the discussions now with potential new tenants, they'd like to have a second one. We are thinking of, is an additional investment needed, really, to get those tenants? It's, I would say, quality, price, location. It's an okay asset. It's clearly not an asset which would now fit really into our priorities, but we are full speed working on the reletting on this asset. On the weaknesses of retail, it's more an observation, not on the high street, but more on the, I would say, commercial retail, non-food, what we see with regard to the various trends also of the e-commerce, where we clearly see that those stores are under pressure.
As soon as you are away from high-frequency areas and you're going into commodity product, those tenants have difficulties, and we observe that more when we discuss about expiries, perhaps in secondary locations. Fortunately, we are not too much exposed to it. We have also, when we talk about Freie Strasse in Basel, we have an expiry and the market has changed. That's, I think, something one has to face.
Okay. Just quickly on my first question, I'm just looking at the balance sheet. Trade payables went to CHF 200 million and has been around CHF 20 million in all four quarters of the previous year. That's CHF 160 million, roughly, difference.
Let me check.
I mean.
Sorry. I misunderstood your question. I will come back to that.
Okay.
Okay?
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, to ask a question, please press star and one on your telephone. The next question is from Holger Frisch from Zürcher Kantonalbank. Please go ahead.
Yes, good morning. Thank you for taking the question. Another question on your guidance for the vacancy rate of 4.5%, roughly. Considering that you have new leases starting Q2, which contribute around 0.5% to the current vacancy rate of 3.1%, this would imply an increase in the vacancy rate of roughly two percentage points expected until the end of the year. Could you please give some more clarity? What is driving expected increase in terms of properties and the type of use? Is it office, is it retail, et cetera? Thank you.
Thank you. Perhaps just I looked at the balance sheet again, Andreas. We had a dividend obligation clearly in Q1. We had the AGM on 30th of March. The dividend was paid in Q2. This account payable is the CHF 170 million for the dividend on the 31st of March. You see also this has an impact on the equity side, the equity statement. You had an impact from the dividend. The cash payment happened in April. That's the reason for this account payable increase from CHF 26 to CHF 196. If you deduct the CHF 170, you're back on the CHF 26. Sorry, I had to quickly just cross-check and think through. On the increase of the leases on the vacancies, these are specifically an asset we have in deal. It's specifically office. It's nothing material on the retail side. It's typically, I would say, good quality office.
On the one hand, also sometimes office, we have to bring back into the lettable fashion. Considering that you have the expires in Q4, this takes often two, three, four months. I would say if I go through the list now, it's predominantly office. The only one which is retail is the one I mentioned with Freie Strasse in Basel. Here we are already in discussions with a potential tenant. Probably the lease would start in early 2022. Another big one is the one I mentioned, an office in Biel, which is a bit larger surface. Rue du Prince, we have expired, but here we're also already in letting discussions. Those will start in early 2022. Nothing really, I would say, which spikes up, which is against our core business activity.
Okay. Thank you.
There are no more questions at this time.
I would like to thank to all participants. If there are any follow-up questions, don't hesitate to contact us. I wish you a great day and all the best. Thank you. Bye-bye.
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