Ladies and gentlemen, welcome to the PSP Swiss Property Results 2018 conference call. I am Alessandro, 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 afternoon to everybody, welcome to the conference call on our results for the full year of 2018. I will refer to the presentation and the press release we published earlier this morning. My presentation will be structured the following way. I will start with some general comments on the Swiss real estate market and glance on the key company developments on slides four to five. I will review the key consolidated figures for the full year 2018 on slides seven to 10. I will address the development of the vacancy rate on slides 14 and 15, followed by the expiry profile of the leases on slide 16, and the changes in fair value on slides 17 and 18. Thereafter, I will provide an update on our current debt and capital structure on slides 20 and 21.
With respect to the development sites and projects, which are detailed on slides 23 and following, I will provide a quick update on the ones under construction and comment on the investment plan. Before concluding with the outlook for 2019 on slide 37, I will provide additional information on the recently announced acquisitions and disposals under the section Subsequent Events on slides 34 and 35. Let me start on slide four with our view on the current market environment, followed by the main developments in 2018. Experts foresee a further growing Swiss economy. We expect that the predicted economic expansion will have a positive impact on the demand for office space, at least in central locations. The office market further improved in 2018, not equally throughout the country. In city centers, Zurich's central business district, for instance, demand picked up visibly, while supply and vacancies declined.
Here, it is virtually impossible to expand the overall commercial area. Consequently, building activity is restricted to conversions and modernizations. In Zurich West, where are also particularly active, there is considerable interest in modern office space as well. On the outskirts of the main cities, including Zurich North and in various locations further away from city centers, on the other hand, new constructions keep rising without corresponding demand. Lowering vacancy rates in these locations will, therefore, remain difficult. In Geneva, in certain market sections, there is overcapacity. In addition, a number of new developments will come on the market in the near future. Vacancy reduction will, therefore, be slow. In Basel, the supply of office space decreased slightly. While in the short to medium term, new construction will come on the market here as well. We think that this additional space should be absorbed quite easily.
In general, demand for office space is driven not so much by the traditional office sectors such as banks and insurance companies, but increasingly by companies from a wide variety of industries, from IT to architects to consulting firms and law firms. This has the welcome side effect to improve tenant diversification, which lowers cluster risks. There are not much positive news from the retail sector. Shopping tourism, and above all, the rise of online shopping remain great challenges, especially for shops near the border and old-fashioned shopping malls. We were largely unaffected by these developments. Most of our properties with retail space are located in highly frequented and renewed central locations, which seem to be much less affected by changes in customer behavior. Locations such as the Zurich's Bahnhofstrasse still benefit from the luxury shopping tourism of wealthy foreign visitors.
The price for office and commercial properties remained high in 2018. Many investors accept lower and lower net initial yields for high-quality objects in business centers. Please turn to slide five for the main developments of our property portfolio. 2018 was driven by a continuous quality enhancement of our property portfolio, vacancy reduction through proactive letting activities, pre-leasing of our development pipeline, and further portfolio optimization through disposals. We did this by means of renovations and modernizations of investment properties and, on the other hand, by further developing our sites and projects. Regarding the letting activities, we focus not only on reducing the past vacancy, dealing with leases being terminated, and pre-letting of our development pipeline, but also on the proactive management of leases that are due for extension in the next years.
Overall, we are very satisfied with the rental success we achieved so far, in particular, considering the standing of our new tenants. The value of our property portfolio rose to CHF 7.4 billion, up 5.6% compared to the year-end 2017. Thereof, the carrying value of development sites and projects valued under IAS 40 at market is CHF 624.6 million. In 2018, we sold a property in Petit-Lancy, Geneva, for CHF 55 million, and the development project in Rheinfelden for CHF 16.7 million. As disclosed on the subsequent events, we finalized also the sale of the Bernstrasse Süd for CHF 31 million and of a property in Fribourg for CHF 30 million. More details on the acquisitions in Bern are provided under the section Subsequent Events on slide 34. The vacancy rate came down to 5%. Of the leases maturing 2019, as per end of December 2018, 70% were already renewed.
The balance sheet is as strong as ever, with an adjusted net loan-to-value of 31.8% and a low passing average interest rate of 0.87%. Let's look at the key consolidated figures on slide seven. The EBITDA before revaluation gains for 2018 amounted to CHF 241.7 million. The slight decrease of CHF 500,000 or 0.2% is exclusively driven by much lower income from condominium sales, CHF 9.2 million less in 2018 compared to 2017. The net income excluding revaluation gains of CHF 176.2 million was therefore also slightly lower. Including revaluation gains, the net results amounted to CHF 308.2 million, up 20%. Main reason for this increase was a positive revaluation result of CHF 166.7 million compared to the revaluation gain in the same period in 2017 of CHF 83.3 million. The overall net income per share went up from CHF 5.60 to CHF 6.72, whereby the EPS excluding revaluation gains was CHF 3.84.
Compared to the year-end of 2017, the NAV per share went up by 4.2% to CHF 90.63. The NAV before deducting deferred taxes amounting to CHF 109.20. The EPRA NAV, which is not on the slide, amounted to CHF 110.2. We will propose an ordinary dividend of CHF 3.50 to the AGM of April 4th, 2019. This is a CHF 2.90 increase compared to 2017. Please turn to slide eight for a more detailed review of the consolidated figures, especially the rental income, the revaluation gains, the income from property sales, and the other income. The rental income went up by CHF 6.9 million or 2.5% from CHF 272.5 to CHF 279.4. This increase was largely driven by the inclusion of the Rothschild portfolio and the vacancy reduction. On a like-for-like basis, the rental income went up by 0.9%, mainly driven by Geneva, Bern, and Zurich.
For 2018, we incurred a revaluation gain of CHF 166.7. Details will be provided on slide 17. During 2018, we sold the remaining condominiums and the commercial units in Rheinfelden, the former project Salmenpark, and the development project Bau Areal in Rheinfelden. In 2018, we accounted for 12 apartments disposed in Lugano, Paradiso, and one apartment in Zurich, Löwenbräu. Overall, those sales contributed CHF 10.5 million. Disclosed on the subsequent event and evidenced also on slide 35, early this year, we sold the last apartment in the Löwenbräu tower. The CHF 4.6 million capitalized own services is mainly due to the curated advisory fees related to the acquisition of the Rothschild portfolio, and the CHF 3.5 million other income is again mainly driven by opting in VAT refunds. The total operating income for 2018 went up by 22.6% to CHF 467.2 million. Slide nine shows details of the consolidated expenses.
The property's operating expenses increased by 8.9% to CHF 12.8 million, mainly due to the increased property taxes related to the acquisition of the Rothschild portfolio. Ancillary expenses related to the vacant space came down, thanks to the lower vacancy rate. The property's maintenance and renovation expenses remained stable at CHF 17 million. During 2018, a total of CHF 63.3 million was spent for the renovation of the investment portfolio, of which 12% or CHF 7.6 million were charged to the maintenance and renovation line. The difference of CHF 9.4 million reflects the pure property maintenance expenses. The CapEx for the development portfolio, which is not on the slide, amounts to CHF 62.3 million for the reporting period. The personnel expenses increased by 4.1%, mainly due to the modifications of the pension plan, which led to higher temporary accounting charges deriving from IAS 19.
The general and admin expenses also increased by 8.9% to CHF 7.7 million, primarily due to slightly higher IT expenses and legal costs related to the Steiner case. The total operating expenses went up overall by 4.9% to CHF 58.6 million. The EPRA cost ratio amounts to 18.3%, excluding direct vacancy costs. Considering CapEx as a pure investment item and eliminating its P&L impact, the cost ratio, excluding vacancy costs, would amount to 15.6%. More details on the calculations are evidenced on slide 15, together with the additional disclosure under the EPRA Best Practice Recommendations. All EPRA KPIs have been reviewed by our auditor, EY. Slide 10, we see that the financing expenses fell by 39.8% to CHF 22 million, and that the taxes for 2018 amount to CHF 78.4 million, of which CHF 57.3 are deferred.
Please turn now to slide 14, where you see the development of the vacancy rate and the portfolio size over the last years. As already mentioned, the vacancy rate came down to 5%. On slide 15, you see the top 10 vacancies in our portfolio, with an indication of actions taken. I would leave this for the Q&A session if questions arise. On slide 16, we illustrate the expiry profile of our leases. Of the CHF 31 million rents originally maturing in 2019, or 11% of the portfolio, 70% were renewed as per December 2018. The weighted average unexpired lease term of the portfolio amounts to 4.5 years. Of the 10 largest tenants, representing roughly 30% of the total rental income, the vault is 6.2 years.
The revaluation gain from the existing portfolio, as summarized on slide 17, including the fair value changes of the development sites accounting for under IAS 40, amounted to CHF 166.7 million. As reported in the Q1 of this year, we incurred the first-time revaluation loss of CHF 3.9 million for the acquisition of the Rothschild portfolio. Footnote seven elaborates on the revaluation effects per reporting year 2018. Slide 18 shows discount rates applied by Wüest Partner for valuing PSP's real estate portfolio. The weighted average discount rate on a nominal basis, not like-for-like, as the Rothschild portfolio and the Grosspeter Tower are newly included, came down by 13 basis points to 3.49%. The continuous low interest rate environment and the transactional evidence of primary estate transaction explain this further yield compression. The second driver of this valuation gain is the reduced vacancy rate, especially for development projects.
Those letting successes were a key driver of the valuation result. On the other hand, the market rents were reduced by a further 0.4% across the portfolio, and maintenance CapEx and fit-out contributions for new lettings increased selectively. Finally, the structural vacancy rate of the portfolio assumed in the valuation by Wüest Partner was reduced from 6% to 5.9%. Let me now conclude the financial part of this presentation with some short comments on the capital structure and on our financing activity on slide 20 and following. We have started the refinancing round of our bank loan maturities during 2019 successfully. As you know, we have fixed-term loans or loans based on the multi-year structure with an automatic rollover clause. Additionally, we regularly issue Swiss franc bonds. The weighted average maturity of the loan agreements is three years.
As per year-end 2018, the undrawn committed credit facilities amount to CHF 930 million. As per today, the undrawn committed credit facilities amount to CHF 820 million. Turning to slide 21, you can see that the total shareholders' equity amounts to CHF 4.2 billion or 54.6% of total assets. The deferred tax liabilities amount to CHF 851.9 million, or 11.2% of total assets. Total interest-bearing debt amounted to CHF 2.5 billion, an increase of 0.8%. This results in a loan-to-value of 33% as per end of 2018. The adjusted loan-to-value, which excludes the temporary fixed-term deposit of CHF 125 million, amounts to 31.8%. All financial liabilities are on an unsecured basis and at the holding level. The long-term debt represents 75.3% of total indebtedness. The reduction compared to the previous years is due to the fixed-term loans that will be renewed as evergreen structure at their maturity in July of this year.
The average interest charge for the reporting period amounted to 0.94%, and as mentioned, the passing average interest charge was 0.87%. We expect a further reduction in 2019 to almost 0.8%. The interest coverage ratio amounts to 11 times. About 76.5% of all indebtedness was with fixed interest over more than one year. The average fixed interest period decreased to three years, as mentioned. Please kindly turn now to slide 24 for an update on the projects. The renovation work for the property on the Hardturmstrasse 161, Förrlibuckstrasse 150, evidence on slide 24 and 25, are getting to the end. The building went through a substantial renovation of the construction structure and technical installations, coupled with a soft refurbishment. Recently, we finalized a large lease agreement with UBS. Our tenant, Westhive, took additional space. We have currently a letting level of 90%.
For the remaining space, we have various interested parties and are optimistic to be able to close those negotiations at attractive levels. What is important for us in this building and in this area is that we are able to attract tenants ranging from telecom industry to energy, med tech, and governmental entities to modern co-working activities. There will be an additional 1,800 sq m up for renovation, which we'll tackle during the second half of 2019. The works at Bahnhofquai, Bahnhofplatz in Zurich, evidence on slide 26, progress well for stage 1 at Bahnhofquai 9, 11, 15, delivering 4,200 sq m of office space and 860 sq m of retail space. 95% of the space is pre-let. The latest lease agreement was signed with the IBP Group.
With regard to the second phase in the Waisenhausgasse 2, 4, and the Bahnhofquai, evidenced on slide 27, the building is now fully leased to the German hotel group Ruby Hotels & Resorts and to Candrian Catering for a new restaurant. The submission of the building permission occurred last year, and we expect the building permission shortly. This building is already fully let. The development in Lugano Paradiso, evidence on slide 28, delivering mainly condominium apartments beginning of 2020, is on track with regard to development of the project. The planned investment sum is CHF 80 million. As per today, 7% of the total units have been sold. We are slightly behind plan with regard to total number of sold apartments as per today, but are confident on the outcome of the final project.
The renovation work for the building on Rue du Marché 40 in Geneva, evidence on slide 29, is in progress. The building will undergo a complete renovation of the retail space and the reconversion of the current office space on the floors 2 to 7 into a modern state-of-the-art city hotel. In this respect, we signed a lease agreement with international operating boutique hotel group, citizenM. We expect completion to occur end of 2020. We finalized also a letting agreement of the high street retail space last week. With this, the building is also fully let. The planning phase for the project Orion in Zürich West, now called Project Atmos, and demolition of the two existing buildings is progressing well. The two buildings originally located at the Hardturmstrasse and Förrlibuckstrasse will be replaced by a modern state-of-the-art office building. On slide 30, you see the first renderings of the building.
45% of the surface is pre-let to On, an innovative Swiss running shoe brand. For the remaining surface, advanced discussions are on the way and the interest is high. On slide 31, we illustrate a new project which we are currently launching in Basel. We are going to replace an existing building next to the Grosspeter Tower, and we were able to secure Swisscom as an anchor tenant. The construction time will take from 2020 to mid-2022, with an overall investment amounting to CHF 33 million. We expect to generate an overall rental income of CHF 2.2 million, CHF 1.35 million more than before. Slide 32 summarizes all planned investments for development site and for the investment portfolio, excluding the new Biozentrum in Basel. We will include that one once we officially started and committed the funds. The overall investment plan amounts to approximately CHF 295 million for the development projects.
At completion and once fully rented out, these five projects should deliver an aggregated annual rental income of roughly CHF 35 million, whereby CHF 8.6 million were already earned in 2018. Besides the mentioned development projects, we are working on a few other initiatives on the existing portfolio, which will turn into projects in the coming years. As shown on slide 34 and 35, we disclosed a number of transactions occurred since January of this year on the subsequent events. Those include the two acquisitions in Bern and the disposals in Zurich and Fribourg. Besides this transaction, we also issued a new eight-year corporate bond amounting to CHF 100 million at very attractive conditions. I will leave comments for the Q&A session at the end of this call. Let me now conclude on slide 37 with a few words of the outlook for 2019 and our guidance on EBITDA and year-end vacancy.
Switzerland's economy is in a good shape. Growth, however, seems to have peaked, most economies predict a deceleration and normalization of growth rates in 2019. Nevertheless, the outlook remains positive. Significant changes in interest rates are unlikely in 2019. In the U.S., the Fed began raising interest rates in small steps, but as long as the European Central Bank keeps its rate more or less unchanged, no significant rate hikes are expected in Switzerland. These are supportive side effects that our refinance costs will remain low for the foreseeable future. Due to the positive economic situation in Switzerland, demand for office space is expected to stay at good level, especially in the regions we are active. Consequently, the outlook for property companies such as PSP, focusing to a large degree on office buildings in prime locations, are promising, even if the economy should slow down slightly during this year.
Our focus remains unchanged. We modernize individual properties, develop our projects, and concentrate on our letting activities. We will only consider acquisitions if they allow for added value in the long term. In financing, we'll continue to pursue our proven conservative approach, as in the past, we consider tapping the debt capital market if required. For 2019, we expect an EBITDA of CHF 250 million. With regard to the vacancies, we expect the vacancy rate by the year-end of below 5%. We will report our consolidated financial results for the first quarter of 2019 on May the 7th. That would end my comments on the financial results 2018, I'm now ready to take questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 may press star and one at this time. The first question is from Mr. Robert Woerdman from Kempen. Please go ahead.
Good afternoon, this is Robert from Kempen. Just a question on like-for-like growth and the vacancy. The vacancy is down 3.2%. The like-for-like rental growth was 0.9%, obviously taken into consideration that you improved your occupancy rate. Is it fair to assume that on the relettings that you did over 2018, you locked in quite a market discount on the relettings? Or how do we reconcile back to the 0.9% like-for-like rental growth?
Thank you, Robert. I think from what we have to say, from the 3.2% vacancy reduction, roughly 1% was due to the disposal. Secondly, the vacancy reduction in 2018 will mostly translate in rent in 2019. As you have typically the incentives of three to six months on the rent- free. With that, I would expect roughly a 1% like-for-like rent growth for 2019.
Okay. That's very clear. A follow-up question. Since you took over as CEO, you have been quite active on portfolio rotation. Is this a trend that we can expect to continue, or have you pretty much sold off the entire tail end of the portfolio that you want?
Well, under the 10 years prior to my job as CEO, we sold roughly CHF 600 million of properties. I think, clearly we sold some assets which we had in mind to on the disposal side, and we were able to acquire some properties because the opportunities arise. Clearly we'll continue to be active on the portfolio rotation side, but we need the right opportunities on the acquisition side, and clearly we skim and glance our portfolio for disposals. I wouldn't say that by definition every year we have to rotate. That's not a target we have.
Okay. That's clear. Last question that was nitty-gritty, but on the Atmos building, you mentioned that there was great interest. What would be the rental levels of Atmos? Or if you don't want to give the absolute level, is this higher, lower, or in line with you have been underwriting the project with?
I think we are at the underwriting level. Seeing the strong interest, we see that we might be a bit harder on the incentives. I think that's a bit the trend, we are clearly in a solid market, and the demand we see is from tech-affined companies to co-working activities for that area.
Okay. That's all clear. Many thanks.
Thank you.
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Thank you very much. I wish everybody a great day, and we will talk the next days. Thank you. Bye-bye.
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