Earnings Call: H2 2019

Feb 25, 2020

Ladies and gentlemen, welcome to the PSP Swiss Property Q4 Results 2019 Conference Call. I am 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 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 Properties. Please go ahead, sir. Thank you, and good afternoon to everybody, and thank you for your availability on, I guess, quite a busy schedule. So therefore, I will do a rather quick introduction on the highlights of the financial year 2019, and then we can go immediately into the Q and A. The highlights, we report an EBITDA number for the financial year 2019 of $56,100,000 And more importantly, we guide for an EBITDA of above $260,000,000 for the year. We report a vacancy rate of 3.5 percent, and we guide for a further reduction of the vacancy rate, and we expect to be below 3.5% by the end of the year. Rental income went up by 4% to 290,500,000 translating a like for like of 1.2%. And for the full year of 2019, we report a valuation gain of €244,000,000 on the back of a yield compression of 16 basis points, which then translates into loan to value for the year at the balance of the 31st December of 32.3% and the passing cost of debt of 0.73%. This leads us to a dividend increase proposal to the AGM from €3.50 to €3.60 on the back of an EPRA EPS of 3.94 dollars or an EPS 3,000,000,000,000 calculated EPS of $4.69 on operating basis. And we propose also to the AGM the new Board member, the CEO of Castello, Hendrik Saxbourne, to be joining the Board of PSP. Beside that, to highlight sustainability improvements with regard to the ratings, We disclosed them at Page 5 of the presentation and in NeonX. And last week, we have been certified as a great place to work, conducting an employee survey and a cultural audit throughout the firm, which clearly enforces also the S in the whole ASG equation. But with that, I would like to directly go into the Q and A, and I'm happy to take in the questions. We will now begin the question and answer The first question is from Kai Klose from Berenberg. Please go ahead. Yes. Good afternoon, gentlemen. I just had a quick question on Page 111 of the report, annual report, where you saw the extra like for like change by areas. We had a plus 2.3 in Zurich and minus 6.8 for Luzon and a plus 4.6 for other locations. I just was wondering, could you give more details on the other locations, which contributed positively to the right track? That was your first question. Kai, I didn't hear you very well, but I think you referred to Page 111 and the like for like, I guess. And Exactly. What was the 4.6% for the other locations plus? Yes. The other locations were rental renewals predominantly coming out of Peel. We had quite good letting success in that area, and this lead it then to the rental the like for like growth in that end. Lawson is an expiry we had in Sebela, but we are already now in advanced negotiations for that surface. So I think these are the 2 main highlights. Thank you. The next question is from Pascal Fouger from Vontobel. Please go ahead. Mr. Fugger, your line is open. Hi, good afternoon. So first question on the Parco Loco property in Lugano. So there your pre selling quote stands at 29% versus 15% in H1 last year and 10% in a year ago. So in your presentation, you mentioned you are confident that you will fully sell basically all the condominiums by mid of this year when the project is about to be completed. Can you please share with us why you are so confident in this? That will be my first question. Thank you. I'm not sure where we said that we are confident to fully sell. I think what we wrote, well, you're right, the completion, we said what we wrote is the completion of the projects and that's to be sold. Yes, to be sold that we are ready then really to start changing ownership. So I think that would be then a misread. With that, we want to say that starting in June, we will start with the first handover and then full profit booking of the sole departments, and that will have continued sales under the end of the until the end of the year. But it's not meant that we have sold all the apartments by mid-twenty 20. So that is if that was in the PlayStation, it was a misread from us. But we are confident sorry, if I may add, we have seen an increase in demand and an increased amount of reservations, And we are quite confident that we'll continue to improve the disposal process of Parcolago. With regard to the development side, we are on time and we are in budget. So from that end, we have no constraints. Okay. And maybe one more question with regards to projects. You sold 2 projects in the course of last year, which basically mitigated a bit your total turnover from this promotion business. I mean, the lowest is basically from Lugano, 1 in Uster and Ruedeberg in Xevo. Is there basically more pro tract which you can sell in the next 3 years? Yes. We have put in the annual report that we reclassified 3 further assets where we see a better use in a conversion in residential. These are this is an asset in Zurich on the Seestraafen, which is currently an office building, but it's a residential area. It's Seedamstrasse and it's Sur Lindenstraase. Since a bit of time, we are working on highest and best use project, And it is not excluded that we will sell the 1 or the other this year. It depends really on the status of the project. We will then decide if this is a project we want to develop and then dispose the apartments ourselves or and considering the demand in the market, if it's not more wise to dispose of the project and taking so upfront the, I would say, in our view, a larger part of the profit. But we are transparent in the annual report. You see the reclassified buildings where we plan to sell them as a project. Okay. That is very helpful. Maybe just the last question on the real estate operating expenses, the direct one. So it did quite a good job on the cost side. So you're now at 9.9% in percentage of rental income. Are you confident that you can keep basically those direct costs basically at this rate? Or will we see an increase related to, for example, new projects in 2020? On the yes. No, I think on with regard to the property operating expenses, we should see a further slight further reduction in the costs as we aim to be even lower on the vacancy rate and therefore can further transfer the ancillary expenses to the tenants. And as we are able to reduce the letting the vacancy rate, we should also incur less letting expenses. On the CapEx, I think we have here, I would say, a run rate of €17,000,000 which is plusminus, quite stable. So I think from those two lines, I'm pretty confident that this is kind of a run rate or that we can also slightly further optimize it. Thank you very much. Thank you. The next question is from Andres Tholme from Green Street Advisors. Please go ahead. Hi, good afternoon. My question is about your like for like rent growth expectations in 2020 on the back of 85% lettings? Yes. The like for like expectations for 2020 are around 0.8% compared to the 1.2% of 2019, predominantly driven by a fact that we were able to reduce the vacancy rate last year from 5% to 3.5%. And then the roads down from 3.5% to below 3.5% steeper. But still, we expect like for like for the year around 0.8 Thank you very much. And one more question from my side, if I may. You noted quite high interest for properties in the transaction market. What is your kind of sense when you're looking at pending transactions? Are we going to see more yield contraction to come in the next year? It's clearly the beginning of the year. As always, there were not so many transactions. Considering, however, the interest rate environment and the need to invest, I have today, I would say, no signs that we have yield widening. If that leads if that environment and the low interest environment now leads to further yields compression really is subject to transactional evidence, and I think we have to observe that over the next 3 to 6 months. So from that end, it's really early stage to say. But the general parameters are here to say the transaction market is healthy, the demand is strong. So I don't see yet any signs that yields go out. It seems we have no further questions, sir. Thank you very much. Appreciate the call. Wish you all a good afternoon and talk to you soon. Thank you. Ladies and gentlemen, the conference is now over.