Earnings Call: Q1 2020

May 5, 2020

Ladies and gentlemen, welcome to the PSP Swiss Property Q1 Results 2020 Conference Call. I'm Moira, 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. The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Giacomo Baldarini, CEO of PSP Swiss Property. Please go ahead, sir. Thank you, and good morning to everybody to this presentation of our Q1 results of 2020. I will give you a quick rundown on certain slides of the presentation we released this morning. And in this, I would also elaborate on political and economic discussions on the COVID-nineteen situation. But I will do it rather quickly in order to allow time for questions, which obviously arise in this environment. If you may go down to Slide 4 of the presentation and the current environment, what we can say at the outset is that we went very well positioned into this crisis, which occurred at the end of the Q1 in the sense of a quite stable and rather strong letting market in our areas with, as you have seen, a record low vacancy rate and with all financings done for the year And more importantly, with an organization which we see now and how we developed over the last 7, 8 weeks, which works, which is operationally effective. I think we see that it's an advantage, at least from our side, to have all people in the company. That's including also the property managers, and they will come to that point later. On the market, and as we are writing, until the outbreak, clearly, we were in a rather strong letting market in Zurich CBD and Zurich West, and we saw good and healthy demand in Geneva. With regard to the letting market, we came not to a full stop. We came, but however, to a temporary stop, driven predominantly by also the uncertainty from the tenants, but also, I would say, by other priorities of the tenants and also by the sheer fact that's impossible. At least for a while, it was impossible to show spaces. However, with a vacancy rate of 3.5% or 3.2%, there's also, we have to say, not much to show and they will come later to this point. But we believe this is a temporary stop. We expect that the demand for good offices at prime locations will reestablish as soon as the lockdown is resolved. And I come later also at this point what the steps are from the federal government to really bring back the economies to up to a level we had beforehand. On the investment market, what we hear from the participants is that the demand for assets with good earnings visibility, with a good location, with a good profile is intact. And we see it ourselves as we are in a process where we are disposing 2 assets that the demand is very healthy. And so at this point, I will later elaborate. So I think also the investment market is expected to come back for the good assets in good location. If we move into really the P and L of the Q1, they will come then to the COVID implication of Slide 8. We see that rental income, as expected, came up by 2.2% to 74,000,000 dollars with no impact from the COVID crisis, driven predominantly by vacancy reduction and by the electing successes of the development project, being it also in Lausanne, be it in Bartels, but busy also in Zurich. The comparison on the negative development of the operating income of 30 percent is driven by 2 factors which occurred last year. The one is that last year, we had a valuation gain on a single property we asked to be revalued in Rue du Marche and by revaluation gains from the acquisitions in Bern we have undertaken. I will come on the valuation slide on what happened this year and this quarter on the valuations. And the second effect we had last year was the property sales gains, which occurred due to the Wernerstrasse and due to Flybuur of SEK 14,900,000 which was not happening this year. So from a pure operating point of view, we have a top line increase, and the rest was driven by factors we had last year. On the cost side, Page 9, you see that operating expenses came down by 6.7%. On the on hand, driven by lower vacancies means that the property operating expenses came in lower due to less and lower letting expenses, but also due to further reduction of ancillary expenses, which are typically borne by the landlord. And since years, we are repeating that if we are able to reduce clearly our vacancy rate, this has also implications on the property operating expenses. The property maintenance and renovation expenses, these are effective costs. They came down by 11%. This is, in fact, wise, not a big amount, €400,000 But you will hear later that we expect for the full year lower maintenance renovation expenses as we quite at the beginning of the outbreak of the crisis looked at all of our projects and reviewed which ones are critical and which one can we postpone and so a bit support the P and L for 2020. Quite a stable development of personal expenses on slightly lower general and admin expenses, but this is almost neglectable at lower IT expense. But overall, it translates to lower total operating expense, as mentioned, of 6.7%, and you should see that also across the other three quarters of the year. On Slide 10, we can see again a further reduction of the net financial expenses of almost $1,200,000 or by 23.7%. This is clearly driven by the bond issues of last year, but also on the bond issues of beginning of this year. We were very lucky to be able to really issue debt at low or even negative rates, which had an impact on Q1 and which will have an impact on the full 2020. The tax line is an ordinary tax line, average tax rate of 18.5%. Q1 'twenty one is clean of any effects we had in the previous years from the tax review. So from that point of view, a pretty clear tax view. And if you look at then the net income, excluding the valuation gains, a slight reduction of 4.8 percent or $48,100,000 for the quarter. If we move to Slide 14 first and then 15, it's clearly that we have delivered a record low rate with 3.2%. This shows that the efforts and the initiatives we have started to take 2017, 2018 really materially had an impact on our vacancy rate and then translated also to the top line. If you look at the single vacancy rates on Page 15, clearly now with this transparency, we see basically every vacancy contribution. These are contributions of 10 to 30 basis points to the vacancy rate. On all these spaces, we are working on letting activities. The reason why we slightly increased the guidance on the vacancy rate from below 3.5 to around 3.5 is predominantly due to our Oranje Strasse 9, where we were close of signing a lease agreement pre corona. The discussions have been stopped, and there is a certain uncertainty if we are able to sign this lease by year end or not, clearly, we will aim to lease it. But in case not, this is, I would say, one of the swing factors of our guidance. However, Ronnestros is a very central location, and we are positive that we are able to really be able to let this space in due course. As also in Safrofois, we have a lease agreement outstanding and expect feedback on these discussions, so also the growth paper towels. And on all these elements, clearly in today's environment, a bit more difficult to discuss. It takes more time for tenant. Tenants take time to review their expansion plans, but we have to admit we are working on a very low base now with 3.2, 3.5 vacancies. On Slide 16, you see the expiry profile. And if you look at it and compare in our full year presentation in February, already there, we said that 85% of the maturities are solved and relet. This figure has not changed over the last quarter. It's predominantly because this 15% of expires renew that they're moving out. And it's difficult now, as well as difficult really to have these reletting discussions, but we have quite a good visibility on this 15%. Plus then also on the 2021, which we have to say that the largest ones we have already relet and that the others ones we don't have really a big single expiry where we would have seen this as a dominant effect. Please keep in mind that with a leasing profile or rental contracts of 5 year plus 2 5 year options, we always have 15% to 20% of maturities a year. So this is pretty a standard picture for us. If we move to Slide 17 on the changes in fair value, I would like to start first to outline again on how we proceed with value in our portfolio. By the regulation of the Swiss Stock Exchange, we have to value our portfolio twice a year fully by an external value, in our case, Woospartner. It's done in the full year, and it's done in the half year. In the first and in the third quarter, we run an analysis ourselves based on the single assets with regard to new lettings, with regard to vacancy development, with regard to market rent assumptions and also with regard to investments in the property beside what is clearly an evident, besides single transactions. If in this internal analysis, we come to the conclusion that on a single property point of view, we have a deviation or a potential deviation of a value of $5,000,000 on the assets, plus or minus, we have to go back to the buyer and ask him for a revaluation. So happened last year Q1 2019, Rudy Marche, where we signed the lease agreement on the retail side, which we thought this could have an impact on demolition, and it triggered a revaluation gain of Ridicomacher. Going through this process, we have identified no case where we think on a single asset basis, we have to revalue this asset. Anyhow, in considering the market, we asked the valuer explicitly to do a forward roll forward valuation of our portfolio. In order to have also the valuers' view on which should then somehow foster or be contrary of our assumptions. The valuer looked at the portfolio of DSP based on starting point 31st December, looked at all the agreements which have been closed so far, looked at the 11 regions split by office, retail, looked at the vacancy rates, looked at the single largest assets and took some assumptions on structural vacancy, on potential market rent adjustments, on structural vacancies and also yields based on the market evidence they have now. And they came to the conclusion that there is no material evidence for a substantial increase or decrease of devaluation. So said, based on what they know today, based on what we close in our portfolio and based what they see in the market, they come to the conclusion that as per June 30, 2020, the valuation should be plusminus0. Clearly, they added a disclaimer that this statement is based on an increased uncertainty given the overall COVID crisis. So with this in mind of running our process as we do it every 1st and third quarter and the assessment of the value, we came to the conclusion that we have not to value the portfolio in the quarter, and we will revalue the portfolio in the ordinary course of business midyear of this year. The slight revaluation loss of a bit more than CHF 200,000 is due to the fact that we acquired a building with a piece of land in Zurich. The value of market it valued it at market than what we paid for it, but we have to activate our costs. So this is basically activated on services. We charge the building. But the value was even valued by the valuation company CHF 100,000 higher than what we bought it for. This leads me now to the capital structure on Slide 20. As mentioned, we were able to do 2 bond issuance beginning of 2020 in the amount of $250,000,000 And we were even more, I would say, lucky to renew a loan facility, which was maturing in October of this year in advance. So we did a forward loan maturity renewal for 10 years starting in February at an all in cost of 23 basis points. What we did also in the same time, we reduced with our committed lines. We had committed lines of more than €1,000,000,000 and reduced the committed lines by this €350,000,000 and in this sense saved on average about 15 to 20 bps of commitment fees. So our net expense for this new loan is roughly 3 to 5 basis points. And with that, we have no loan bond maturities in 2020. We have a little bond maturity early 2021 and one end of 2021. And we are today, we are having a €770,000,000 unused credit lines and therefore, 6 20 committed lines, which gives us plenty of headroom to do our developments and to clearly renew also our 2021 and then potentially also our 2022 maturities. Which leads me to Slide 21, I would say a basically unchanged picture of our capital structure with a loan to value of 32.8 percent of an increased duration to 5.9 years, which is rather high for PSP. This clearly driven by the significant amount of bond issues we have done last year and beginning of this year. And a passing cost of debt, which is below 60 bps. There, keep in mind that we did a negative bond in the Q1. So this will clearly help this year to have the financial expense even lower. If we then have to renew this negative bond, we will have a compensating element, but we see average passing cost of debt to be around 60 bps by the end of the year. This would lead me to a really snapshot on the development pipelines. And here, I will only go into what has changed basically since we spoke end of February. Page 24, Parcolago. We have a delay of roughly 3 months. We had lockdowns and partial lockdowns in the region, a big challenge by our operating people in house and on the ground and a big thank you to all involved parties. I think everybody does his best. This is a very nice project. It will just suffer a bit of delay in the delivery of the apartments. Clearly, also difficult to sell new apartments in a phase where you have lockdowns, but we are convinced about the project, and we are positive that as soon as we can really start again with the developments and showing the flats that we will keep pick up with the sales. I will come later to this. We compensate the delay of this project and delayed earnings from this project with another disposal, but they come later to this point. The second project, which was hit by the lockdown is the Rue du Marche Marche development or redevelopment in Geneva on Slide 25. Here, we expect the opening in August, Contrary to what we thought originally to be a June opening, we have very constructive discussions with the operating company and with our developer. So we're all working in strength on this new deadline without any penalties incurring. So here, clearly, everybody works together on this new time line and is positive and looks forward to this opening. Here, clearly, we will have a delay of opening, and this will also clearly have an impact on the top line, as I mentioned at the beginning. The projects in Zurich, so for Atmos, are working according to plan with clearly the securities and sanity and health measures, which led to selective delays. But as it were very well in our time line, this has no impact on our original time line And also the discussions with the tenants, which signed, this is 100% now pre let, are positive. And we expect the completion to occur as we mentioned beginning of 2021. So also for the development in the Barnoff plant, Slide 2728, everything is running according to plan. And we have here no major impact, which would have an impact on the 2020 results. Slide 29. It's the acquisition in Bern, Berenplatz next to the Parliament. You see in the back the Swiss Parliament building and in front the buildings we acquired. You will see that we have pre led now 30% of the building to a gastronomy operator, and we are in advanced discussions to pre let the office and also service departments. We have slightly higher costs in this repositioning. As we clearly, when we did the underwriting, we were aware this is a historically protected building. Once you touch it and you start seeing really what is behind the walls, behind the floors, we might have slightly higher costs. On the other hand, we realize also today, I think, what a beautiful location this is and how attractive this is for potential tenants. So in this overall context and situations, we are not worried for the slight increase on the costs. But we disclose it pretty transparently. Slide 30, the Baue Falcie. We have submitted the construction permit. Due to COVID-nineteen, there's a slight delay in the approval process. We expect that we can start mid-twenty 20. We are pre led 50% to Swisscom. I think here, this will be a nice addition to our area around the main station of Basel. And there's nothing additional to add. That would lead me to our latest acquisition, Slide 31. It is a piece of land with a former building from Biopharmaceutical, which we are tearing down, doing new development. It's a 50% office and 50% light industrial area, where we additionally will invest roughly €35,000,000 We are already in discussions with potential tenants from a variety of sectors, and we expect a gross yield of roughly 4.1%, 4.2% based on what we see today. And this leads me to the end of this development overview on Slide 32, where you see, as in the past, all the projects, the committed CapEx from those projects and the committed CapEx from the investment portfolio and also pre let status, which demonstrate a very high visibility on the future rental income with, I would say, a rather limited additional committed CapEx to cost. With this, I would end the Q1, and I would ask you kindly to go quickly to Slide 37, where I before we go then into the Q and A, would give you our view on COVID-nineteen implications. First of all, we have seen a partial lockdown starting beginning of March by the Federal Council, which affected the non food retailers, restaurants, leisure facilities and schools. We have, as per today and since 27th April, certain retailers open. And the remaining retail stores, the restaurants, the schools, the travel office and port facilities will open next Monday. So there will be a strong release of those activities starting next Monday. And then the last wave expected to be open on June 8 are the zoos, the theaters, the cinemas. But the ones which are relevant for us opened on the 27th April and will open next Monday. Clearly, this is all subject of a judgment by the Federal Council. We have to say the measures they have taken to support the economy and the speed of those measures in our view were extraordinary. They supported the small midsized companies clearly with liquidity injections being it by helping them on the payments of their various bills, but also by providing them credits on a 5 to 8 years maturity at 0 cost, which was what we hear very well and strongly absorbed in the market. So from that end, I would say strong interventions by the government. There is a current discussion underway, and there is a political, we say, bias, political initiatives, not to say activism, to try to get in between the discussions tenants have with landlords. As you know, as a property company, it's our daily business to have the interactions with our landlords. And there's the obvious question, is the rent due to be paid if a tenant cannot access the surface. We have done various reviews. We have legal opinion from a very strong law firm, and we are convinced that the rent is due. However, we are in strong interactions with the tenants, and we are of the opinion and convinced that the landlord should deal it bilaterally with the tenants itself as we have a history of those tenants, and we expect those to have a future with those tenants. Nevertheless, there is a proposal in the Parliament that tenants which pay less than CHF 5,000 a month, so that means CHF 5,000 per month should get a complete reduction of this rent for 2 months. This discussion has been taken yesterday in the next order session in the Council of State, where it has been approved by 24 to 19 modes, it will be discussed today in the National Council. If the National Council is in disagreement, it will go back to the council estate. If the National Council supports this, then it will go to the Federal Council, whereby the Federal Council said now twice that they don't want that the politics interfere with certain or interfere in the discussion between the landlords and the tenants. What does it mean for PSP? Clearly, in reviewing our guidances for the year, we took a variety of scenarios into account. So we look at and observe what the politicians do, and we hope that they come to a reasonable assessment to let the economic players act with their daily activities. Clearly, we are in discussions with our tenants, and you see it on Slide 38. We have, in our view, a rather limited exposure to these lockdown affected areas. We have received roughly 300 requests for rent holidays reductions. We have in April provided rent holidays in the amount of 3,500,000 to 170 tenants. And we are from those, we have intensive discussions or basically verbal agreements in the amount of 10%. And we started those discussions mid end of last week. Now why did we start only mid end of last week? It's pretty simple because as long as you don't know when the store, the shop, the activities reopened, you don't have a visibility on what you're talking about. So we have instructed our property managers, asset managers, and this was excellently done by our Chief Investment Officer, Reiter Grunder, which took also advantage of this 6 week period to do really a profound assessment of it to start the discussions. They are discussing with all the tenants on the lease agreements, and we are convinced that we found the majority of the cases an agreement. But clearly, this is our daily business. We have cases where we have a history, and that's the reason also why we need and we have to look also at having the appropriate legal support. With regard to the rent collection, on the April rent, the overall rent collection was slightly above 70%. For the affected tenants, the rent collection was around 25%. But clearly, the measures put in place by the Federal Council to allow the tenant or to put in the fact that the landlord cannot terminate the contract now within 30 days but needs 90 days, basically allowed also tend not to pay the rents because we clearly cannot enforce a rent collection. We are clearly monitoring. We are asking on a written basis for these rent payments. We give we are giving notice, but the legal notice cannot be given in advance than 90 days. So that means also there is quite a strong incentive by the affected tenants to not pay the rent. So we're not so surprised by the rather low rent collection of the affected tenants. In a summary, clearly, our aim is to collect the rent, but also to have constructive and prospective discussions with our tenants because clearly, we are aware that we have also future with them, which leads me to my final slide, 39. Again, what are in our view the implications for P and L 2020. From the construction side, as mentioned, it's Parcolago in Paradiso with the percentage of completion recognized gains plus the loss of rental income due to the delay in Rue du Marche. That's the P and L. The remaining projects work according to plan. The second is whatever is then the bottom line impact from the discussion negotiations with our tenants, we have also luckily around moderate turnover component in the world portfolio of roughly 1%. Here in our projections, we assumed a significant reduction of it. We tried to compensate these negative effects by reviewing all the projects and renovations within the portfolio also to reduce traffic in the building, but also which are really not timely critical. And so we're able, in our view, and are able to optimize the cost base. And what we did is to compensate for the delay of Resense Parcolago, we anticipate a project sale in Thor Lindenstraas in Zurich. That's similar to the project we sold last year, Rooster. You know that our portfolio is based on highest best use. We identified buildings we think can be converted in residential. We also in Surlinen since about 18 months are working on a project on how this could be converted and then always take the decision, is this something we should do or we can sell as a project considering the current positive market environment for residential, we decide to dispose it. We are currently in the discussions, and we here see that there is quite a strong appetite for it. So this will be a compensating element for the Parcolago, which will then come as expected 2021 2022. On the capital structure summary, I think we are well capitalized enough committed credit lines, nothing to be refinanced this year. So can we can really focus on 2 points, on the tenant discussions, on our development projects and even more important so on the health of our employees and the relationship with our partners, which at the end is for us the most important. Outlook 41, in summary, we reduced a bit our EBITDA guidance from above $260,000,000 to around $260,000,000 This takes account of the various effects I already mentioned and a slight expectation of a higher vacancy rate instead of below 3.9% to around 3.5%, but we are still convinced that these are a solid outlook from what we know today. So clearly, these are guidance that's based on our today's knowledge, our best efforts. If anything material would change in our view, we clearly would announce it. That would end my presentation on Q1 and my outlines on the COVID-nineteen, and I'm happy to take questions. We will now begin the question and answer The first question is from Pascal Kruger from Vontobel. Please go ahead. Hi. Good morning. So a couple of questions on the impact on the P and L from coronavirus. So the first one is on the proposal in the parliament that the tenants basically pay less than $5,000 a month should get this complete reduction for 2 months for rental income. How much would that be as PSP? That would be my first question. I think if you run through the portfolio, I think you come to a conclusion, it's not a significant amount. It's part of our guidances. It's a significant contribution to something we should be able to discuss with our tenants per se, but it's part of our guidance. We have embedded certain of those elements. But I hope you understand that we are not able to make specific numbers, which I think are not appropriate here. But it's you can imagine, you know a bit our tenant base. You saw how many tenant requests we have received, and you know that we have predominantly larger tenants. In terms of your guidance, can you just share with us a bit your assumptions you took in terms of rental income? I cannot give you the assumptions on the single sectors. I would say we expect a similar top line as 2019 and not the increase we expected for 2020 as we outlined the original guidance. So top line should be around, from what we know today, 'nineteen. And this has various elements. It has a reduction of the turnover component. It has a delay of Rudy Marche. It has a delay of clearly, for instance, Steinathor, Bechtra, a minor event, and then it has discussions and potential interventions. I think here, it's something which is also going too much into detail to really then your comment on it. Okay. And just maybe a bit of a numerical question. So based on your slide on Page, I think, 38, so I derived like But then you But then you stated that 21% of your tenants already affected by coronavirus, which indicates €5,000,000 rental income where you collected €1,500,000, leaving €4,000,000 open. So I was just wondering where this additional 3,000,000 were coming from. I mean, which other segments were impacted? Or in which other segment do you see basically additional risk? I wouldn't say additional risks, But in these environments, you have then always some tenants which are supposed to pay rent and then perhaps say, well, in this environment, I don't pay the rent. And then we have our usual discussions on rent arrears. There's no specific one which I would say I would highlight on the overall portfolio. But the whole discussion on rent collection, rent arrears is something we have every month. And in this situation, it's needless to say that sometimes you have also an office tenant, which says, well, I try and they don't pay the rent and then we see on where we get. But I would say that's nothing which I would say has to be highlighted, we have very for us. Okay. Thank you. The next question is from Ken Caglar from ZKB. Please go ahead. Yes. Hello. Thank you very much. I have a question on the expiry profile on Slide 16. Next year, as you mentioned, there are some expiries. And you also said that currently, it's difficult to relet office space. What is your expectation with all the current knowledge for the vacancy rate next year? Or did some of the tenants come back to you already that they would not renew any contract next year or the year after? That's the first one. Well, I think we give typically a vacancy rate guidance in the year where we have to report it. I think what we see today is we don't have indications now that tenants are really already saying, I'm not renewing for next year. The discussions are starting. As I mentioned beforehand, these are rather tenants which pay rents of €1,000,000 to €2,000,000 a year. So on average, a bit smaller ones. It's not a big chunk on a single building. So I'm we are not so worried about our vacancy outlook. But this is something really which is at the heart of our business for the next 6, 9 months for sure. And I'm pretty sure I can say more about it, I would say, during Q3 with regard to 20 21. Okay. Thank you. The other one is more on the credit lines. I mean, firstly, you mentioned the committed credit lines. Could you give us a bit of an update here on the pricing? And then what you see generally in terms of credit pricing in the market out there? Well, I think on the pricing, nothing has changed on the credit lines. We have committed credit lines. That means that for us, when we draw the credit line, we pay the same spreads as before COVID. We have put in place a non committed credit line at conditions which is below our committed line. So we have a bit of room to maneuver. What we observed, obviously, if you would have had to go to the capital market, that spreads went up. So if historically we paid spreads of 40 bps or 50 bps, That is difficult first to get indications, but that one would suggest that the spread almost doubled or went to 80, 90 bps. Now we didn't have to tap the market, and we'll do so once we think that spreads are back on a reasonable level. But so from that end, for us, no impact on spread levels for our portfolio. Okay. And maybe a third and last one. Parcolade, you have mentioned it. It has not been the easiest project to sell now with the current situation and the general market conditions in Ticino, it's going to be even probably harder. Is there any plan B or what do you expect? Could you even imagine to lower the pricing? Or how long do you think it will take that this project will be finally sold? We have seen pretty well during Q4 and beginning of the year that as soon as we had a showroom, a showflat, that the interest was very high. We wouldn't overvalue now this transition phase, which came into COVID, which put clearly Pacino in an extreme situation. And I think we are in a position, and we should, as an investor, be in a position also to say and be patient on it. I think for us, most important is that we can go back to work, that all the employees on the ground are protected. And if and once we have then finished those apartments, we are pretty convinced that we will be able to sell. What the additional measures are, we would have to take, I think this is something we will judge when we get there. But for the moment, we are still pretty positive on the product quality wise and also pricing wise. We think we are not so far away from reality as we have sold them also in Q4. The next question is from Pascal Bole from MainFirst. Please go ahead. Yes, good morning from my side. I have just a quick question concerning your tenants in the retail space. Do you see there any chances that some of them will not survive the current crisis or yes, such issues? And further, do you have already signed found agreements with larger tenants like Hermes who probably approached you for lower rents in this period? Well, I hope that you understand that I'm not providing any details of single tenants. What I can say is based on our tenants' profiles, I don't have at the moment indications of any default risks. Clearly, we have also here and there smaller tenants, which might since years have had issues. But I will say this is volume wise, not company wise, volume wise, neglectable. So for the moment, we have no indications of an increased default risk. We are in discussions, as I mentioned, with tenants, and we are not disclosing single agreements. As I mentioned, about 10% of the discussions we had so far, we have a verbal agreement, and we are now in exchange of lease agreements. Let's just be reminded that these are still quite complex discussions because you have a lease agreement, you discuss about rent, you have to do amendments to your lease agreement. You might have options in this lease agreement. And then when you find a win, you have also exchange those lease agreements. And then typically, both sides get a lowest to look at those lease agreements. So this takes also a bit time. But I think we are working full speed on it. And as I mentioned, we have very positive and constructive discussions in the majority of the cases. The next question is from Andreas Von Aert from Baader EMEA. Please go ahead. Yes, good morning. Thank you very much for taking my questions. I have 3. First one, again, thank you for the update on the COVID-nineteen effects and the implications for valuations at the half year. My impression is that this update and your updated guidance basically covers the lockdown period. I mean, given your experience, do you think there could be then additional effects from an economic slowdownrecession coming later on? Or do you think this is reflected in the guidance? Or how big is the risk that we're now going to see again a guidance reduction later this year? That's the first question. 2nd question is on the Retail segment. I mean, some people think that with the lockdown behaviors are changing structurally. Is that something that you would share that the Retail segment now is in a completely different stage as compared to before COVID? Thank you for your views here. And then my last question is with regards to the office market in Zurich North, respectively, around the Geneva Airport. Do you see here any additional risks given what's going on with companies related to the airline industry coming to the also to the office market, let's say, around Zurich North or around the Geneva Airport? Thank you very much. Thank you. On the first question on the guidance, it's clear the guidance which we give based on our knowledge of today. But it's a 2020 guidance, which we believe if there is not a material intervention or change that we should be able to deliver it. Clearly, it's a guidance, which should also demonstrate a bit our strength to be able to react. In case anything will happen, we would adjust then in course of the quarters or in the half year or in the third quarter. But for the time being, it's clearly the view we have. Clearly, also the view from the value space and what he knows today. And one has clearly to observe what the midterm economic implications are. Whenever we go everybody goes back to business on how transactions happen on the market and how really turnovers develops in the various segments. What we always said, if this lockdown is rather short, and we talk about this 2, 3 months, I think there is a pretty good base to believe that we go back to Knoll because people want to go back to work, they want to go back to consume, spend to the restaurants. And I think this is something which we think will then bring back to normal states, especially in our view for central locations. For central locations for perhaps rather smaller buildings. So to your question, guidance is 2020, clearly, it is based on what we know today, but it is in our view quite has quite a good visibility. On the retail segment, clearly, this lockdown triggered the belief that e commerce has its stance and will continue to expand. On the other hand, the retail we have on central location is also a lot of events driven, is also a lot of entertainment driven, is product driven. And what we hear from our tenants in that area is that they believe in those locations. So one has really to see on which retail segment one talks about, but it will have an implication on retail demand and how it operates. As it also will have probably a bit on office, I think that everybody realized working from home is possible now. The ones we talk also within the company, everybody would like to go back to the office because it's okay to work from home, but not everybody has a single office at home and he's really quiet and everything. So but clearly, this ability to work from home will have an impact on office. On the other hand, it will also have an impact on how you structure the landlord your office and on your per square meter square meter availability for employees with regard to generic measures, sanity measures that you will probably start thinking of providing a bit more space to employees. And this might be compensating factor. This leads me to your 3rd point, the office air in Zurich Nord and the airport in Geneva, which we luckily are not exposed. In Zurich Nord, we have a few assets in Volusellen. But clearly, those will suffer even more. There is in Geneva especially more supply coming into the market. And one thing we are a bit debating internally is really also impact on larger buildings, on larger floor plates. And are really employees willing to work on larger floor plays? And can landlord really force people to work in a close environment with such high frequency. So this will have, in our view, an implication. And clearly, the one linked to these sectors will be even more affected in the short term. Having said that, we are luckily less so exposed there and did not invest in the past years in those areas. Thank you very much. Thank you. The next question is from Rod Frey from Merkke Baumann. Please go ahead. Hello, altogether. I was just thinking about valuation. I mean, you gave us what could happen in corona, and maybe there will be some follow ups, and we are in a recession. The next valuation, do you think there will be on the downside? Or is it too early and we'll see downside just at the end of the year. What is your and there are implications anyway. So what is your feeling about that? I know that you don't make the valuation, but what is your feeling? Or do you have as much reserves to the market that it won't have an impact? I think I made it pretty clear that we asked Western partner to do a roll forward evaluation of our portfolio as per June 30 based on what they see, based on what they know and based on what they expect from today's world. And they come to the conclusion with all the caveats of the uncertainty that valuation is pretty much in line with what we had. And I also mentioned what kind of assumptions they took. I think I cannot add more to it, and I cannot give forward guidance on valuations on year end because the valuations are based on closed rental agreements and on transactional evidence. And I would leave it here to the Valor, which clearly said there's an increased uncertainty in this COVID environment, but also stated to us, there are compensating factors, which should lead to this outcome. And this is, as I mentioned, rolled forward as per June 30. Okay. Well, thanks. Thank you, Rolf. The next question is from Andres Thome from Green Street Advisors. Please go ahead. Hello, good morning. My question is regarding the rent deferrals. I was just curious whether you can add some color in terms of what's the proportion of office tenants that have asked for rent deferrals or fall into the bucket where you haven't collected rents? Yes. It is a value wise, a smaller amount of office requests, I would say, which in the overall context are not really relevant. But I think in so extreme situations and depending on certain regions, you get requests from all over. I think these are operating companies and tenants, and they try to optimize on their end, and then they come with their request. I think this is we disclose it, we say it, but it's amount wise not, in our view, significant plus it has no base for arguments. Fair enough. Thank you for that. And then I was just wondering if you already have some indication about May collections for the month of May? Or is it too early to say anything about that? No, it's too early. I think we typically run the collection starting May 10. And then when you run it, you get the collection cut off somewhere May 6, 7. And yes, I think here, we will have to wait, I would say, for another 10 days to get a first indication. I think from our end, as I mentioned beforehand, on the rent collection for the lockdown tenants, we are, I think, not worried with regard to the liquidity. So for us, it's not a liquidity event if they don't pay. And they got all the incentives from the federal government not to pay. So from that end, independently, if they pay or not, we will have to have our discussions tenant by tenant on the case. And then if you had opinion that 100% is owed to us, we will try to enforce the collection. And if we come to the conclusion that we find another agreement, we will find another agreement. But for a rent collection point of view, liquidity wise, it's something which is it's important for us, but it's not so relevant. More really the case by case assessment of the situation. The next question is from Nicolas DiMaggio from Swiss Finance and Property. Perhaps one question regarding the transaction market. Do you see perhaps any more opportunity to invest in some assets in the coming months? Or the transaction market is stay quite stable and it's still really difficult for you to find opportunities? Well, thank you, Nicolas. It's clearly something we look at. We don't see distressed sellers at the moment, especially not in the areas where we have our focus. By the way, we don't want to move away from our CBD focus on these 5 areas. We have to see a bit on what happens on the asset allocation side of the institutional investors. If some ones want to a bit reallocate their portfolios, then this might trigger a disposal. In one case, we are discussing with 1 on an asset swap basis, which we might find good grounds to swap 2 assets. But clearly, also here in evaluating potential opportunities, we will be very careful and look at what potential future scenarios could come in place. I think there's no hurry from us to now jump on opportunities. What we see is that from the usual big institutional investors, the demand for cash flow visibility for earnings is still very high. Thank you. Thank you. There are no more questions at this time. Well, thank you to everybody from our side on your interest. And as always, if you have any follow-up questions, don't hesitate to shoot us an e mail or call us. And we wish you all best of health and best of luck in the next coming months. Thank you. 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.