Ladies and gentlemen, welcome to the full year 2023 results conference call. I am Vicky, 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&A session. You can register for questions at any time by pressing a 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 and good morning to everybody. To our result release of 2023. As always, I will do a quick rundown of the major points of our results and then leave room for the Q&A. Just to start, we just released, I would say, outstanding operating results, which were backed by healthy letting market in our areas. We were able to undertake an excellent transaction in the first quarter of last year, and as we will see, we had quite a strong execution of the projects we have in the pipeline and everything in line with a very lean and stable organizational structure. On the funding side, as you will see, and we have also announced previously, we were able to finally conclude the full finance concept linked to sustainable KPIs.
If you go on slide three, just as a highlight, you will see here, as always, our major activities are concentrated primarily in the Zurich CBD and Geneva CBD, and then also following in the other three major cities, Bern, Basel, Lausanne. These will continue like this. We will concentrate our activities in where we think is the strongest labor markets in Switzerland and where we have the strongest resilient returns and yields. Looking at slide four, we were confronted, as I mentioned at the beginning, with a strong letting market. We see limited new demand in the CBDs of Zurich and especially Geneva. We see here companies who want to be active in those city centers. Thanks to the investments undertaken by the landlords over the last, I would say, almost decade, we have quite high-quality asset portfolios, which also allows those tenants to be active.
You continue to see quite a strong bifurcation from prime to non-prime. Luckily, we are not active or very limited active on the non-prime areas, but there we would expect a stronger bifurcation also in 2024 with regard to rent levels and also with regard to valuations. On the transaction side, as also publicly known by valuers and reported, there's very few forced sellers. We have a bit of pickup of transactional evidence, but the transactional market continues to be healthy and underlies the current-in-place yields, as we can observe. If you go into the key figures of the rental income and the concentrated income on slide nine, the rental income for 2023 came in at CHF 331.9 million. This is an increase of 5% or CHF 15 million. The like-for-like growth was 5.1%, whereof 2.8 percentage points came in from the inflation. For 2024, the indexation is 1.4%.
Still quite a strong top-line growth, clearly less of a strong like-for-like growth, but anywhere a very strong, again, expected top-line growth for 2024, backed also on this inflation adjustment. We'll come back to the valuation changes, which came in negative by CHF 161 million on the latest slide. And you see here also the property sales revenues, CHF 14 million were already reported in Q3. One asset was in Wädenswil and then the disposals of the Parco Lago apartments and a land plot in Bern. Here you see a certain volatility in the earnings on this side, but we continue to develop assets and dispose them as we go also in the near future.
On the expense line, slide 10, as you know, we aim to have an EBITDA margin of above 80%, high-cost discipline, overall operating expenses, again, around CHF 56 million, very stable operating expenses, which is also due to the fact that we have our in-house property management and are able to very closely monitor any type of excesses or deviations. Maintenance and renovation expenses depend a bit on the project pipeline, but this year came a bit down by 15%. Personnel expenses and general admin expenses, pretty flat. I think here we are on a very stable and foreseeable ground also for the next couple of years. Slide 11, you see the increase of the financial expenses, as already previously announced. Still historically on a very low level with CHF 23 million, but clearly an increase compared to 2020, 2021, or even 2022.
And as already mentioned also in the half-year and in the third quarter, the deferred capital tax release overall by almost CHF 100 million, which linked to a positive tax effect for 2023. Here for 2024, we should expect a deferred capital gain benefit of roughly CHF 10 million. Slide 12, you see this continuous strong dividend growth path of PSP. And as we mentioned already various times, based on our top-line expectations, our cost discipline, we see this trend to be continued for the next couple of years based on today's visibility. And we propose to the AGM an increase of the dividend to 385. If you go on slide 15 and 16, quick rundown on vacancy. Vacancy came in at 3.6%. The largest contribution is the project in Binz, which we finished end last year, which moved into the investment portfolio.
For all the floors, we are in negotiations, in discussion with potential tenants. We have an LOI signed for the full light industrial area, and we are confident to be able to conclude those lease agreements in the next couple of months. The product is excellent. I think we need just a bit of time to really conclude all those negotiations, but we are positive that we are able to sign leases and to report leasing successes the next couple of quarters. The remaining largest vacancies are rather small overall. We have the Peter Merian in Basel, which is very closely at the main station, basically on the main station. We are rebuilding back one floor plates. There we see a lack of demand, but nevertheless, we have seen in Basel that regularly we are surprised by the market and are able to let it out.
We have full efforts in letting it. However, we have also seen these are rather minor contributions to the overall top line. Worthwhile to mention is Richtistrasse in Wallisellen. We are with the local authorities on a rezoning plan, and I think we can report back a bit more details over the next couple of quarters as this is more of also a political process. But we are positive that we will be able to bring forward a new project, which is really helpful also for the local communality and at the end then also for us. Lease expiries, 2024 from the 9% lease expiries, we are left with 24 percentage points. And also for 2025, we are already working on the largest leases, and we have a very good visibility also on the 2025 maturities. So I think here is nothing to be really worried about.
Slide 18 on the changes in fair value. You remember that we had a first revaluation loss in the half-year of roughly CHF 90 million to CHF 100 million coming from the investment portfolio on the negative side, compensated partially by the development portfolio. We had a positive revaluation gains report in Q3 linked to two lease achievements. And then overall in Q4, we had another negative contribution on the investment portfolio, mainly driven by yield widening of roughly 12 basis points, which was compensated predominantly by the healthy letting market, letting successes, like rental growth. I think overall, it's a -1.7% of the overall investment portfolio. Couple of words on the finance, Slide 21. As I mentioned at the beginning, we have implemented the full green finance policy.
We have seen also, in our view, a certain materiality on the negotiations with the banks and of the issues of the bonds, being on the demand side, being also on the spread side. If you look on slide 23, overall matrix, loan-to-value, the adjusted one at 34.7%, still high credit matrix, reasonable duration. I think we will continue to operate on the back of a very strong balance sheet. A few words on the current projects, slide 25. Füsslistrasse, we were able to fully let the office park. We are left with the ground floor and first-floor retail. I think here we will need another couple of months. We have interested parties on the letting side. We are not rushing into it because we believe it's an excellent product at an excellent location.
But we see as soon as you're off Bahnhofstrasse and you have a first-floor retail, it becomes not immediately obvious. But we have interest. We are in discussions, and we are pretty positive that we were able to report letting successes also in the course of this year. Hochstrasse, as you remember, was originally let 50% to a serviced apartments operator. In the first quarter of this year, we were able to lease out the remaining 50% to a school. So the building is fully let before completion in end of this year, and it will be an excellent project, an excellent product we can offer then at the main station of Basel. Globus and Bellevue, nothing new. We will start handing over the surfaces during Q2 and Q3 of this year, and the project runs according to plan. Slide 28, I mentioned that already last time.
It's the final project and the final asset we are developing on this Grosspeter area where we said that's the most defensive part. We have Swisscom, which retains their infrastructure, almost half of the building. And we are finishing up and renovating the office part and will be in the market. But clearly, this will take a bit more time. But we see this last piece as an overall finish-up of the Grosspeter area, which was really a success story of PSP. And the latest project which we're working on is in Lausanne, the Hôtel des Postes , very prominent location at Place Saint-François. We have here already signed the leases with Post and Swisscom, which are coming back and working on a repositioning of the building and are starting leasing discussions. And this will be then completed by the end of next year.
This leads me to the guidance for the year. We are guiding for a vacancy rate, again, of below 4% as this year. We are again guiding for an EBITDA guidance of above CHF 295 million, backed on, as I mentioned, a strong top-line growth, less condominium sales, which flows into this EBITDA, and very stable cost base. Therefore, again, in our view, a very strong operating result to be expected by PSP in 2024. With that, I would like to open for discussions and Q&A.
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 the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only headsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question is from Ken Kagerer, ZKB. Please go ahead, sir.
Yes. Good morning, everyone. I have two quick ones. The first question refers to the EBITDA guidance. Last year, we had, as you mentioned, the likes of sales from Parco Lago. What do you incorporate as a compensation for that for the current year, please?
From Parco Lago, we have basically closed the project end of last year. I think there will be no significant contribution in 2024. The EBITDA guidance foresees CHF 4 million of gains from two other projects which we are working on, but the Parco Lago project per se is completed.
No, I'm aware of that. I'm just wondering where the other net result from property sales like Parco Lago comes from. But you said two other projects that should contribute CHF 4 million. Is that correct?
Yes. We are working on concretely two. And in our EBITDA guidance, four are considered for it. And we will report back depending on the progress during the next quarters.
Excellent. Thank you very much. And the second question is with regards to the renewals for 2024. I mean, you have done a good job. There's only a limited amount open. But could you just tell us where and why this is the case and if you have any of those implied into your vacancy guidance?
The full expiries is embedded in our guidance. I think the biggest one is clearly the Binz, which is actually the biggest contributor on the vacancy. Here, we have foreseen letting successes. It's one of our top priorities. We have also Füsslistrasse, which will be finished this year. It will come into the portfolio where we have vacancy at the moment. We have the Bahnhofplatz spot, which is currently up for letting. On the other hand, we have the Hochstrasse, which is fully let, which comes into the portfolio, or the Bellevue. So I think we are working on those upcoming reclassifications. But as I mentioned, we are pretty confident that we will have enough letting successes to achieve our guidance.
Thank you very much.
Thank you.
The next question from Tommaso Oberto, UBS. Please go ahead.
Yes. Good morning. Hopefully, you can hear me okay. So first question, just from a very high-level point of view. With the CS UBS merger, I was wondering, do you currently see any additional supply coming to the office market in Zurich, for instance?
I think if you look on their current footprint, Credit Suisse being, I would say, predominantly, and they say Zurich at the Uetlihof, and UBS concentrated around the Paradeplatz, Europaallee, and Opfikon. My best guess today is that going forward, they will concentrate more on the CBD and less in the secondary location like Uetlihof and Opfikon, and here perhaps over the next five, 10 years, which would mean that this would rather strengthen our position in the CBD. And for that, I'm not really worried about this merger with regard to the Zurich CBD office supply.
Okay. Thanks. And then second question on the like-for-like growth. I think you alluded to it, so apologies if I've missed it. But how much of the like-for-like growth really comes from indexation? How much is from rent reversals, for instance?
If you look at 2023, we had these 5.1 percentage points like-for-like, of which 2.8 percentage points came in from indexations. If you look at the like-for-like of 2024, which best guess today is rather 2% to 2.5%, 1.4 percentage points come from the indexation.
Okay. Thanks. And last one, on interest costs. Where would you expect interest costs to be in 2024 given some debt maturities?
Two years ago, when this interest rate increase started, we said you could add CHF 10 million every year as a best guess. So I think it's still about this guess.
Okay. Thanks.
Thank you.
The next question from Steven Boumans , ABN AMRO ODDO BHF. Please go ahead.
Hi. Good morning. And thank you for taking my questions. I have one follow-up on the rent renewals. Could you please provide me some color where those renewals will come from in 2024, especially since annualized cash passing rental income is like 8% below estimated rental values? So if you've heard of large amount of contracts maturing where, I don't know, the rents are below ERVs or the ERVs are conservative, some color would help there. Thank you.
Probably your later comment is the correct one, with the ERVs being rather on the conservative side, which ones are closed or disclosed. We are currently, on the larger ones, signing leases 4% to 5% above market. So I think clearly, it's very, very fragmented, very, very differentiated. Overall, it will translate in a top-line growth, as I mentioned, of roughly 3.5% like-for-like, around 2% to 2.5%. There are instances which the renewal is flat. As soon as we invest something in the building, we can selectively substantially increase the rents. But it's very difficult to make a harmonized expression on it.
Okay. Clear. Then I have a second. The last question, it's on retail. Can you help us with what is your experience when, for example, a department store closes next to your high street retail shops on items like footfall, retailer revenue, or rents for your shops?
I have to admit, on the locations we are positioned, there are no retail stores which are closing. And hence, what we still experience is that when there are renewals - we just had a recent one where a tenant exercised the option for renewal, we are still able to increase those rents. So in Zurich, CBD retail, with a reasonable position on the first row, rents are still moving up. That's what we observe.
Okay. And it's more theoretical question. So if a large department store closes nearby in the CBD, do you think that will benefit your high street shops that are in the area?
As I mentioned, I think what we observe, it depends clearly always on the brands which are in these department stores. And clearly, they are only selective of brands which want to be at the Bahnhofplatz, and those are ready to really pay these top rents. Perhaps from the recent announcement of closure of department stores, we see interested brands looking at space, but there's not much availability. So there's not much retail availability on this main shopping street. So as you perhaps also mentioned correctly, it's a bit a theoretical question.
Okay. Thank you so much. Clear.
Thank you.
The next question from Markus Kulessa , Bank of America. Please go ahead.
Yeah. Good morning. Thank you for presentation. Most of my question has been answered already on the guidance. If I understood well, you're guiding on a like-for-like to between 2% and 2.5% rent growth next year, just if you can confirm this, and maybe a bit of detail on the deferred tax release for this year, the CHF 10 million, how it's going to be split between H1 and H2. And the last question on transaction market, if you see any opportunities for acquisitions or if you're more on the seller mode for 2024. Thank you.
Thank you, Marcus. Just to be clear, we guide on vacancy, and we guide on EBITDA. We give a bit of an outlook of like-for-like based on the indexation assumption and what we see on the renewal. And there, as I said, if you calculate back our EBITDA guidance on the assumption of disposal gains from the condominium sales, you get to a top-line growth of roughly 3.5%. If you take there the indexation out, which is known by roughly 1.4%, you get to this like-for-like of two to 2.5. I think that's a bit back-of-the-envelope calculation.
On the deferred taxes, this release of expected CHF 10 million will come through the year, either half-year, partially, and end of the year. It's a very technical calculation asset by asset. And as we mentioned, this will occur over the next 20 years- every- year, one year a bit more, one year a bit less. And on the transaction side, unfortunately, we don't see at the moment big opportunities in the CBDs. That means also that nobody is ready to sell asset CBD.
We are looking at one asset, but this is something we are currently evaluating. At the moment, for us, we need really, as we mentioned also in last year and as we underlined with the acquisition at the Westpark , we need to really be able to generate additional value by those acquisitions. So we look always at a bit special angles when we evaluate transactions.
Okay. Thank you very much.
Thank you.
The next question is from Andreas von Arx , Baader Helvea. Please go ahead.
Yeah. Good morning. Just a first question of understanding, slide 16, largest vacancies. Just that I do get that correct. So in the Binz. So the 30% you mentioned, so that means with the 10% that is rented already and the 30%, there will be a 60% vacancy, let's say, at the half-year if nothing changes. Do I read that slide correctly like that?
Correct part is the 30% + the 10 would be 40%. And this is the LOE with one tenant on the light industrial. But we are in discussions also with tenants on the 5th, 4th, and the 6th floor. So what the number will be mid-year is difficult to say. We will aim for a higher absorption, obviously. But this 30% is just linked to the light industrial, does not incorporate the advanced discussions we have with the other potential tenants.
The second question is on deferred tax. I'm struggling here a bit with you have around CHF 160 million deferred tax or clearly above CHF 100 million, whatever, plus or minus. But in your adjusted figures, you only take CHF 28.9 million as a reversal tax effect. Why that significant difference?
Can you help me where you see this 28? Or, if you don't mind, I look at it, and I come back to you because I don't have this 28 on top of my head.
Yeah. In your adjusted net profit calculation, you have an adjustment tax effect of revaluation gains to get to the 7.4 adjusted EPS that you report.
Well, you have the positive impact of release of deferred taxes from the negative valuation. And then you have also deferred taxes you build based on your amortizations, which you need to factor in. But I will look into it. And if you don't mind, I come back to you after the call.
Yeah. Okay. No. I mean, we can discuss later. I mean, as you do.
Thank you.
And if we look at, you mentioned that you think the CBD areas are relatively healthy and maybe a bit more challenging secondary markets. Now, if you would have concrete offers for properties, I mean, where would you look at that? And now I'm coming with some specific regions. I mean, let's say cluster one, Oerlikon, Altstadt, and Binz; cluster two, Liebefeld, Wankdorf; and cluster C, any CBD close to train station in Lucerne, St. Gallen, and Neuchâtel. Is there any of these three clusters you would right now look at the large office building?
Yeah. I think we will continue to focus on the CBD areas of Zurich, Geneva, Bern, Lausanne, and partially Basel. I think we were. I take St. Gallen. We were in St. Gallen. We had our exposure in St. Gallen. The issue is just the company sizes, the magnitude of the economic strength of those areas. If you want to have the largest exposures, it's limited.
So it might be an interesting transaction to go into. But as soon as you have upcoming expiries, it has been proven in the past, it's very difficult to find alternative replacements to have negotiating powers on the rents. And this is true for most of the secondary locations as soon as you go above a certain size. So taking all the clusters, we will probably focus on the areas we are currently active and selectively move out depending on the opportunities of the few secondary clusters we are in.
Okay. So that means Oerlikon in Zurich or Liebefeld in Bern, that's already non-CBD according to your criteria.
Absolutely. And we are not in Oerlikon. And Liebefeld, we are active. Although we are very happy with the portfolio we have acquired in Liebefeld, which is a stabilized return. But in Oerlikon, we are not active, and we are not envisaging to go into Oerlikon.
Yeah. Super. Now, assuming that there will be pressure on vacancy rates in secondary locations, I mean, would you foresee that rents there would come significantly down, increasing the gap between CBD office rents and secondary rents? I mean, is that a development that might come in the next couple of years?
I think that's a development you have seen in the past years. Rents came down on the secondary locations significantly, and incentives increased significantly. So this gap has increased. Clearly, we were already confronted 10 years ago with the question, "Now, does the gap become so big that tenants from the CBD move out to the secondary locations?" You might have selective moves, but predominantly, those which want to be in the CBD want to be in the CBD. So we still observe the trend that tenants, once they are in available spaces in the CBD, like to move in the CBD. But this rent decline is something we observe now since a few years.
Thank you very much. And I give it back to the queue.
Thank you, Andreas.
As a reminder, if you wish to register for questions, please press star and one on your telephone. The next question is from Alexander Totomanov, Green Street. Please go ahead, sir.
Good morning. And thank you for taking my question. Does Globus lease out the entirety of your Bellevue project in Zurich? I didn't really fully understand. I tried to repeat. It was the question on Globus. Yeah. Does Globus lease out the entirety of your Bellevue project in Zurich?
No. Globus leases the ground floor and the basement. So the minor part of the building, we have another tenant on the ground floor as well. We have a third tenant in the first floor. And we have a very large bank taking over all the office parts. So it's less than the original space they're leasing back after renovation.
And apart from Bellevue, do you have any other exposures to Globus in your portfolio?
No.
That was a no, right?
No. No.
Great. Thank you very much.
Thank you.
For any further question, please press star and one on your telephone. Mr. Balzarini, there are no more questions at this time.
So thank you, the operator, and all the participants for attending this call. And look forward to follow up on questions and discussions. Thank you very much, and have a good day. Bye-bye.
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.