Ladies and gentlemen, welcome to the PSP Swiss Property Q4 Results 2019 Conference Call. I am 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.
Thank you, good afternoon to everybody, and thank you for your availability on, I guess, quite the busy schedule. 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&A. The highlights, we report an EBITDA number for the financial year 2019 of CHF 256.1 million. More importantly, we guide for an EBITDA of above CHF 260 for the year. We report a vacancy rate of 3.5%, 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 CHF 290.5 million, translating a like-for-like of 1.2%.
For the full year of 2019, we report a valuation gain of CHF 244 million on the back of a yield compression of 16 basis points, which then translates into a loan-to-value for the year at the balance of the 31st of December of 32.3%, and a passing cost of debt of 0.73%. This leads us to a dividend increase proposal to the AGM from CHF 350 to CHF 360 on the back of an EPRA EPS of CHF 394 or a PSP EPS of CHF 469 on operating basis. We propose also to the AGM, the new board member, the CEO of Castellum, Henrik Saxborn, to be joining the board of PSP. Besides that, to highlight sustainability improvements with regard to the ratings. We disclose them page five of the presentation and in the annex.
Last week, we have been certified as a Great Place to Work, conducting an employee survey and a culture audit throughout the firm, which clearly enforces also the S in the whole ESG equation. With that, I would like to directly go into the Q&A, and I'm happy to take in the questions.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you 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 may press star and one at this time. Once again, to ask a question, please press star and one on your telephone. The first question is from Kai Klose from Berenberg. Please go ahead.
Yes, good afternoon, gentlemen. I've got a quick question on page 111 of the annual report, where you show the EPRA like-for-like change by areas. We had a +2.3% in Zurich and a -6.8% for Lausanne, and a +4.6% for other locations. I just was wondering, could you give more details on the other locations which contributed positively to the like-for-like? That was the 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, huh?
Exactly. What was the 4.6% for the other locations plus?
Yes. The other locations were rental renewals predominantly coming out of Biel. We had quite a good letting success in that area. This led it then to the rental, the like-for-like growth in that end. Lausanne is an expiry we had in Sévelin, we are already now in advanced negotiations for that surface. I think these are the two main highlights.
Thank you.
For any further questions, please press star and one on your telephone. Star and one. The next question is from Pascal Furger from Vontobel. Please go ahead. Mr. Furger, your line is open.
Hi, good afternoon. Thank you for taking the question. First question on the Parco Lago property in Lugano. There, your pre-selling quote stands at 29% versus 15% in H1 last year and 10% a year ago. 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'll 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, you're right. What we wrote is the completion of the projects.
Yes, all units to be sold.
To be sold, that we are ready really to start changing ownership. I think that would be a misread. With that, we want to say that starting in June, we will start with the first handover, and full profit booking of the sold apartments, we'll have continued sales until the end of the year. It's not meant that we have sold all the apartments by mid-2020. If that was in the presentation, it was a misread from us. We are confident, sorry, if I may add. We have seen an increase in demand and an increased amount of reservations. We are quite confident that we'll continue to improve the disposal process of Parco Lago. With regard to the development side, we are on time, and we are in budget, from that end we have no constraints.
Okay. Thank you. Maybe one more question with regards to project you sold. Two project in the course of last year, which basically mitigate a bit your total turnover from this promotion business. The lower sales basically from Locarno, one in Uster, and Rue de Berne in Geneva. Is there basically more project which you can sell in the next three years?
Yes. We have put in the annual report that we reclassified three further assets where we see a better use in a conversion in residential. This is an asset in Zurich on the Seestrasse, which is currently an office building, but it's a residential area. It's Sihlaustrasse, and it's Zurlindenstrasse. Since a bit of time, we are working on highest and best use project. It is not excluded that we will sell the one 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 ourself, 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. We are transparent.
In the annual report you see the reclassified buildings, where we plan to sell them as a project.
Okay. Thank you. That is very helpful. Maybe just the last question on the real estate operating expenses, the direct ones. You did quite a good job on the cost side. We are 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?
Yes. No, I think with regard to the property operating expenses, we should see a further slight 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. As we are able to reduce 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 CHF 17 million, which is ± quite stable. 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 Anders Toome, 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 the 85% lettings for your-
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%- 3.5% . The roads down from 3.5% to below 3.5% Is a bit steeper. Still we expect like-for-like for the year around 0.8%.
Thank you very much. One more question from my side, if I may. You noted quite high interest for- properties in the transaction market. What is your sense when you're looking at pending transactions? Are we going to see more yield compression 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 a yield widening. If that environment and the low interest environment now leads to further yield compression, really is subject to transactional evidence, and I think we have to observe that over the next three to six months. From that end, it's really early stage to say. The general parameters are here to say the transaction market is healthy, the demand is strong. I don't see yet any signs that yields go out.
All right. Thank you very much.
Thank you.
For any further questions, please press star and one on your telephone. It seems we have no further questions, sir.
Thank you very much. Appreciated the call. Wish you all a good afternoon and talk to you soon. Thank you.
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