Good morning. A cordial welcome to the financial results conference of Swiss Prime Site. A welcome to all the guests physically present in the room, but also I would like to welcome everyone following us online. Today, we would like to begin with an appreciation, a market view. Maybe you won't be surprised, and you won't be surprised me beginning with this title: Good Locations and Good Properties Remain in Demand. Let's look back. What a wild first half year we had. The invasion of Russia in the Ukraine. You will remember the last meeting we had here in February. We were not quite certain that it would come about, that it would happen, but it did happen after all.
We had the invasion and the never-ending lockdowns periods in China, and triggered by the disruption of supply chains and price increases, considerable price increases, commodities like gas and oil and food as well. What do price increases mean? They lead to inflation. Inflation in Switzerland effectively rose by the end of June or at half year point, 3.4%, which is a great deal in Switzerland, but by a European comparison, it's still moderate. The same, period of time, inflation in Europe was 8.6%. Of course, easy to understand, we had increases in policy rates from the central banks, which led to uncertainty. As a general rule, uncertainty is always bad for financial markets, and the financial markets corrected negatively. The SMI and SPI lost around 15%, and, the real estate sector suffered from it as well.
Both the funds at -17% and the listed real estate companies at -9% demonstrated negative performance. The largest impact on prices and performance, however, was not due to the increases in interest rates, but what happened when you have a loss of value, then inside the portfolio, real estate allocations will be too large, and if it's too large, it needs to be corrected, which led to overreactions. Overreactions in this case means sales. These sales, however, are opportunities to enter as well, as you will see when we are going to talk about our asset management business. Now, due to the coupling of rents to the country's price index, consumer price index, there is an inherent protection against inflation for real estate. Residential remains attractive.
We have positive net migration, a high increase of area, space used per capita, and the increasing number of households. This is a number that is rarely properly reported, but it's the most important figure for residential business. The Federal Statistical Office has a scenario of 2020 to 2050, and I'm reading that. 2019, 3.8 million private households were counted in Switzerland between 2020 and 2050. The number of private households will rise from 3.8 million - 4.7 million, an increase of 23%. If you're interested in these household figures, I think these are the most important figures across the board. Now, there's a lot of drama, but against that background, we're still in a setting with real negative interest rates. Although in Switzerland, we cannot be protected against global disruptions.
The centers in Switzerland, in particular, the central locations, remain a safe haven for international businesses. Take the example of Google here in Zurich. The economy is benefiting from that in terms of growth of employment. We almost have full employment. The real estate market continues to be dynamic. We've got stable yields, and yet more stable cash flows. That's what it's all about. What's paying a dividend at the end of the day? It's not revaluation, but it's cash. At the end of the day, that's the figure we are achieving by good letting and by having good tenants that pay their rents, and that cash will then pay our dividends to shareholders. That's where the circle closes to what I said at the beginning. Good locations and properties remain in demand in the current situation.
We are positive and optimistic as far as the second half year of 2022 is concerned. Much about the market in general. Let me emphasize some highlights. AUM rose to CHF 20 billion in the first half year. Operating income also increased by 2.5%. In this case, all units contributed to the increase. Rental income rose by 0.3%. On a like-for-like basis, we're at a gratifying 1.9%. Vacancy rate decreased from 4.7% in the first half year of 2021 to now 4.4%. We increased profit by 6.3%. FFO I, and Marcel Kucher will get back to this later on, rose by 7.2% which is the cash relevant figure from which to pay out dividends.
At mid-year, it was at CHF 2.09, and last year we paid a dividend of CHF 3.35. We have earned more than half of the dividend. The LTV currently at 40.5%. The objective remains clear. We want to press it down below 40%. The EPRA NTA finally demonstrated an increase of 3.1% to now CHF 100.78. Now, here are the most important results for the real estate company. 102,000 square meters were let or re-let, some of it at higher rents, which led to the like-for-like increase, which you can see at the bottom right of 1.9%.
This is an impressive figure, not only compared to the years of pandemic that we're showing here in this chart, but even going further back over the axis of time, back to 2018. The 102,000 square meters are certainly impressive by comparison. The most important tenants, just to name some of them, certainly are Adobe, but the Swiss Post as well, and others who have rented new surfaces with us. Now for revaluations of the portfolio first, we're standing at just under CHF 13.1 billion. Revaluation gain is CHF 166.6 million. If you deduct the revaluations from projects which we're listing at the bottom, CHF 31.6 million, then what remains is CHF 135 million. Now, question of revaluation, where does it come from?
Is it due to a reduction of the discount rate, due to the market outside our control? The answer is yes. This year, this is only partly the truth. Certainly due to the increase of rental income and the reduction of vacancies as well. As you can see on the right-hand side, vacancy rate now at 4.4%. The increases and the revaluation gain is really internally generated to a great extent, not only driven by the markets. We carried out a tenant survey this year. Again, compared to the previous year, we achieved yet better results. The left-hand side may be less of interest to you, but the right-hand side is the question that everyone asks. Do tenants want to reduce or not reduce their space? 82% of tenants want to retain the lease space.
14% want to increase the space they're currently renting, and only 4% are considering reducing their space. This is a clear demonstration of the economic performance in this country. Moving on to the portfolio.
Of course, we're still present in the same sites, particularly in Zurich and in Central Switzerland, because we're also including Zug and Lucerne. I think we'll have to correct that next time. Zurich and Central Switzerland with more than 50%, then, Romandy with more than 20%. You know that, this space between the A1 and A2. In terms of types of use, there's nothing new, but, we have already sold a package in Western Switzerland, which means that by the end of the year, we're going to be able to reduce the share of retail to approximately 20%. Rents have been stable, and the cash flow generated by the rents is very important.
We are particularly proud of the 5.5 years average, and that really gives us a very solid position. 90% of rental contracts are running out this year, and this is a very stable, positive situation for the next few years. From CPO to CIO. I'll keep it brief on this slide. This is our project pipeline. We like showing this because it keeps changing, of course. Here you can see the CHF 2.2 billion that are in the pipeline in total on the left-hand side. The different columns, of course, the figures shift a little bit because some projects are now under construction or some are in development and some are just as a reserve. On the right, you can see the target rental income.
Of course, this helps, particularly when we carry out capital recycling. We sell properties and we have rental income that we need to compensate, and we can do that by better rental contracts, by reducing vacancies even further or by adding new development projects to the portfolio. I don't think I need to say much about the projects under construction. There have been no time delays, and the costs have not risen in any of the projects either. If there have been additional investments, that has been in terms of tenant fit-outs and, for example, switching from offices to laboratories, because here you need a lot more heating, sanitation infrastructure. Of course, that is also going to be offset by the future rent. It's an investment.
Now in new projects, on the 21st of September, we're going to break ground for the JED new build in Schlieren, and you can see the figures here. Now our projects, our planned projects. I'm going to start with Route de Meyrin in Geneva. This is an old office building that we're not going to tear down, but we're going to repurpose it and convert it into residential properties. MAAG Areal, you probably saw it on the way here, the design plan is final and we have now submitted the building application. This is a multipurpose house, a cultural venue, but also a residential tower, not quite as high as the Prime Tower, but still a tower.
Beyond in Zurich is the continuation of our successful Yond project on the former Siemens campus, and this is a second step of that project. On the right-hand side, the Münchenstein project at Dreispitz Mitte. I was once asked whether we don't have any interesting properties in the centers of town anymore. This is the central, this is going to be the university center of the two cantons of Basel. This is going to be certainly worth the investment. Now let's talk about these new projects. We purchased both of them this year. These are designs that we haven't made, but we've bought them. What's interesting here is that we can get started straight away.
Particularly Bern 131 is going to be a flexible office and commercial space using photovoltaics on the roof and facade, and it's going to be a hybrid wood build. It's for offices and commercial spaces. It is the extension of the Wankdorf station in the city of Bern. On the right-hand side, this is a building at the center of Basel, which has been a retail space, but we don't want to grow in retail. The building was so interesting that we decided to repurpose it a little, and we're going to renovate it and convert it to residential property with services, gastronomy, and some retail use on the ground floor and the basement. The project execution is going to be 2022-2024 for Bern and 2024-2025 for Basel.
I already mentioned capital recycling. You can see what we've sold in the first half year of this year, nine smaller properties, seven of which are part of the starting portfolio for our own funds. At the center, building B in Plan-les-Ouates, that's the last large building. I'll say a bit more about it. The contract has already been signed. The closing is not until December, though, for clear, obvious reasons. We want to take the CHF 15 million of gain from selling, and this brings it up to 45. In short, the purchasing profits from last year's are going to be exceeded again. This building B has existing tenants, and the new owner is going to take over the tenancy contract. We want to keep the contracts in our calculation for as long as possible.
That's why the closing is in December. On the right-hand side, you can see the retail portfolio, which is currently being sold. That's not finalized yet, but it's going to be added before the end of the year. These sales were of more than CHF 300 million, and on the other hand, three acquisitions are more or less the same amount. That's what I mean about capital recycling. We're selling properties that are no longer strategically attractive to us and replace them with new properties, more sustainable properties, and properties with a more long-term prospect. It certainly makes sense. That was the real estate business. Now let's talk about asset management. As you've seen, we have grown by CHF 1.2 million. Whenever we sell a property, there are always opportunities to be taken too.
You can see here the additional AUMs in the individual projects. I'm starting on the left-hand side with real estate funds. As you all know, we were able to buy Akara, and that means that we have grown in terms of our own internal fund. These two units have been merged, and we now have the approval from FINMA. We received this on the ninth of August. Of course, that means that we're going to have synergy effects in the fund business. What's special about this is that we will be able to develop this fund management, and I think that's unique in Switzerland. Really congratulations to our team for having made this possible, also getting the FINMA approval. Those who don't work in asset management. Sorry, someone called my computer. Sorry about that.
Fund management is really under our control. That means that we are in full control. We can determine what's happening. We can adapt the structure as we need it to be. Here at the center, this is the Swiss Prime Anlagestiftung. We hold this foundation. On the right, this is our advisory business, where we have clients such as pension funds. On the right-hand side, there are a range of the objectives. Some of the pension funds don't want to grow, such as BASF. This is about renovations or reducing vacancies. ASGA is a client that really wants to grow, and they have been growing this year with our support. These are products and product groups.
What's the effect of this? Growth of assets under management are now at almost CHF 7 billion. You can see at the beginning of the year, it was CHF 5.7 billion, and now it's CHF 6.9 billion. We have now shown what is from the area of asset management and what's from the area of fund management. Our objective is CHF 10 billion assets under management. That's our target for 2025. This slide is also important in terms of showing what's recurring, what's non-recurring fees. Recurring fees are those fees that we receive because we manage a product. These recurring fees will continue to grow, of course, with the growth of the fund. Once they are in the portfolio of the respective client, they will be recurring fees.
The key figure here is that the recurring fees pay for the cost of the entire unit easily. Theoretically, we wouldn't need to grow, and we would still have a great EBIT contribution. At the moment, 53% are recurring fees, and these are going to be increased to approximately 65% by 2025. In summary, the asset-light business model, why has it become even more interesting? Well, this is not just because of the opportunities in the market, but also because capital started to cost again. It's important to have a business model that's not capital-intensive, but capital-light. The growth has already been impressive, and we are confident that we will continue to grow in the second half.
Of course, you shouldn't expect that we'll double the CHF 1.1 billion because, for example, ASGA have bought enough for this year, so they're not going to add any transactions to the portfolio this year. There's going to be good growth, sound growth, but not to the same extent as in the first half year. Two-thirds of yields come from the fund business. By the way, also two-thirds of the EBIT contribution, and that's great because this makes us independent in our management. Recurring, and is that going to grow by more than 50%. That's on the asset management. Since you're going to ask the question, let me just mention the other two areas. Services. What are expected EBIT contribution for Wincasa by the end of the year?
It's going to be between CHF 17 million and CHF 18 million. That's at the end of the year, the expected EBIT contribution of Wincasa. This, our target has been raised a little from CHF 27 million - CHF 28 million to now 30 million in terms of EBIT contribution. Jelmoli, I can tell you that is going to be better than last year. Whether it's just better or much better, that's basically going to be decided in the last three months of the year. Because the Christmas business, of course, is very determining here.
We'll have to see. That was the service segment, and now it's over to Marcel.
Thank you very much, and welcome. I'm very pleased to take a few minutes to dig deeper into our financial figures. As a warm-up, let me mention something that is not shown on this screen, IFRS. As you will recall, we announced at the end of the year that for 2022, we're going to convert to IFRS to be in line with all our European peers and the big Swiss real estate companies. We have done that, and specifically, we have adjusted the previous year figures. Those of you who compare to what we said half year ago will see that we have slightly adjusted some of the figures, but the fundamental statements continue to be the same. You will find some differences, not because we would've made mistakes, but because we have converted previous year figures to IFRS. Much about that.
Now, let's dig deeper into the details of the figures, beginning with operating income growth of 2.5%. René mentioned it before. Very gratifying here. All units have contributed to this. First and foremost, let me say that growth of 200%, more than 200% in asset management is very high. That's very gratifying. Assets under management grew by more than 100%, and income by 200%. We're not only growing, but we're growing very profitably in this area, which, we need to emphasize. Second thing I would like to highlight is for letting. Letting income 0.4% above the previous year, which may not sound to be all too much, but I'll be showing more details. We have sold, and an important property was taken out of the market as we are renovating it.
If we exclude that, we have 1.9% growth on a like-for-like basis. All the other areas grew, retail by 25%, real estate services more than 4%. Perhaps something I'd like to mention, we've got the 2.5% of growth, and we achieved that despite a clear reduction in the development field. We said it last year. The final project that we developed for others was Plan-les-Ouates. We concluded that. You see a strong reduction from CHF 36 million to around CHF 9 million of developments. No further projects are in the pipeline, so that will remain the same. We've been able to overcompensate by growth in other areas. Over on the right-hand side, cost side, expenses. We have under-proportionate increase of cost by 1.7%, which is gratifying.
It shows that we have costs under control, and we're not increasing costs to the same extent as we increased operating income. What is obvious here, what is striking, and I would like to provide more details, is the increase in personnel costs by around CHF 7 million. Of the CHF 7 million, just about CHF 2 million are attributable to COVID-19 effects. In the first half year of 2021, we had compensation for shorter working hours, and around CHF 4 million are due to the Akara acquisition, which we've been booking as additional personnel costs. That explains most of the difference. Moving on to EBIT and EBIT margin at 7.2% doesn't look very gratifying at first glance, but we need to look at the details.
If you compare the figures to the previous year, the first half year in 2021, we had sales proceeds of around CHF 36 million. Currently, we are at around CHF 15 million of sales proceeds. Difference is 21. If you do your math, the difference between 198 and 214 is clearly less than 21. In operating terms, EBIT was increased by 3.3%. René Zahnd mentioned it already. We have around CHF 165 million of sales that we have already booked, and we have appointments for other bookings. This is a temporary effect. By the end of the year, sales proceeds will surpass compared to the previous year, and this temporary effect will be resolved. I would suggest take with you 3.3% growth of EBIT without sales proceeds.
On the profit side, we've got more growth, 6.3%, due to primarily two factors. First of all, the revaluation gain of CHF 130 million was increased to CHF 160 million in order of magnitude, and cost was further reduced. On the funding side, particularly due to the refunding that we did at the end of 2021, around CHF 5 million, we have lower funding expenditure in the first half year. We talked about the largest contribution of our income, rental income, and here I'm providing more details for you to look at. Total increase by 0.3-0.4% to CHF 214 million. What is key is growth of 1.9% on a like-for-like basis. You can see the details, the contributions, particularly for sales.
We have proceeds of about CHF 2.1 million. The Müllerstrasse property was withdrawn from the market to refurbish it for Google, which reduces rental income by CHF 2.1 million, which will be over-compensated by the investment properties on the portfolio when we have a like-for-like growth of 1.9% and the completion of projects. Some of it is also due to sales. Let me talk about the composition of our portfolio and the largest figure in this particular chart. Purchases and sales are more or less balanced. Investments are slightly higher, but René Zahnd did his math already for the entire year, both in terms of sales and investments in our developments, such as new purchases. We're expecting around CHF 290 million sales, probably a little higher.
Our capital recycling methodology is being pursued properly in the current market. We have very appealing terms to sell, and this is why we can expect the gain that we have mentioned. Revaluation, or valuation gains in 2021, they were around CHF 130 million. Currently, they're at CHF 170 million. I think this in a situation of the reduction of discount rate of 4 basis points. In 2021, it was 8 basis points. We achieved higher valuation at low market driven reduction of the discount rate.
To a large extent, we achieve this result on our own resources by reducing the vacancy rate considerably and by good like-for-like basis, and in particular, by good letting in the first half year, which will have an impact in the years to come and had an impact on valuation, of course. Let me add two more charts to give details for asset management. Here you're seeing on the first chart, the fee and cost structure expressed in bips for one year. This makes it comparable to other asset managers, and I think it's a fairly good result. The first message we can say is our cost structure is very appealing, 31-32 bips, as measured against AUM. If you compare this to large European asset managers, you will find them to be around 45 bips with the objective of 40 bips.
We have an appealing cost structure, and we would assume that in future, it will be yet more appealing. René Zahnd mentioned it. The two fund managements were merged in August, and we're planning for the second half year and going forward to achieve efficiency gains as a result of the merger of the two companies. In terms of cost, we will tend to be more efficient. Recurring fees, as René mentioned a minute ago, we're at around 11 basis points above costs. Let me mention that this also includes the share of non-recurring expenses. If we excluded that, costs would even be lower. The crucial point is that the margin was expanded from 9 basis points in 2021 to more than 11 basis points in the 2022 financial year.
We assume that the part of recurring fees and the bips is going to increase further, in particular, because the product mix is going to change, pivot to the fund business, where we provide more services and achieve higher recurring fees. Total fees at 181.3%, particularly driven by acquisitions and transactions that we made in the first half year. The final word on asset management and more details about it. This is the performance of EBIT and EBIT margin. You can see a clear leap in the first half of 2021 from CHF 3.8 million - CHF 17.1 million. We purchased part of it, Akara. Akara accounting currently for around a third of our AUM. We're listing the details here. Also, accounting for a third of the EBITs, we've got two companies that are very similar.
With the merger, they will grow together, merge, even more smoothly. Good fit. You can see a good increase of the EBIT margin to around 62%. We assume that we have the same effects. We will gain efficiency and product mix pivoting toward funds. We assume that the EBIT margin is going to rise to around 66%. Let me move away from the P&L and talk about funding structure. This is our lease expiry profile. We're currently at five years, which is slightly lower compared to the first half year in 2021, primarily driven by the fact that we're working with private placements that were very short-term. It's not an expiry in that sense. There's no need for refinancing in 2021, but these are rolling private placements on very appealing terms.
They have rolled further in the meantime. The average interest rate was further reduced. You can see compared to the first half year of 2021, we went down from 0.94% - 0.7%. If you compare it to the end of 2021, when refinancing had already been done, we were at 0.75%. We have yet another reduction for the reasons specified. We are primarily unsecured, i.e., to the extent of 86%. Around 14% is secured. The LTV was clearly lowered from 42% - 40.5%. A final comment on the balance sheet with regard to return on equity and return on equity.
Despite the dividend payout in the first half year, which applies to the full year, we have increased equity slightly to around CHF 6.43 billion, which is due to the good comprehensive income and a slight capital increase in the course of the Akara acquisition, when part of the price was paid by shares. This produces an equity ratio of clearly increased by return on equity of 8.3%, which is within our target, well within our target range of 6%-8%. Two more figures at the end of my part of the presentation. The first was mentioned by René Zahnd. A figure very crucial to us is the cash we are generating per stock per share. It's what we pay out. It's cash P&L, as it were. We're using the key European figure, FFO I funds from operations.
It's a cash-focused P&L without divestment. This is the recurring part, if you like, the cash focus. Despite the slight capital increase I mentioned in the course of the Akara acquisition, it increased by 7.2% per share to CHF 2.09 per share. This shows how well we're doing, how resilient we are, how solid we are to generate future cash returns. In parallel to this, let me mention the EPRA. One of the EPRA key figures, you will find the others in the appendix. EPRA NTA up to CHF 100.8, more or less. NTA is the basis of the value of our share. There's an increase that is demonstrated here, and we can see the potential in our stock, which hopefully will be realized in the years to come. Let me hand it back to René at this point.
Thank you.
Thank you very much, Marcel. This is actually already the last few slides before the question answer session. Just an outlook until the end of the year. This is a slide that you've seen before. We used it last year, too. Our medium-term objectives are the same. Otherwise, they wouldn't be worth their name. There's one addition, and that's in services, Swiss Prime Site Solutions. This is just to show you that, we are targeting CHF 30 million EBIT contribution for 2022. That's all that's new. Everything else was there before. Wincasa, we, assets under management are more than CHF 70 billion. The top line is important.
By the end of the year, we expect a total AUM of more than CHF 20 billion, vacancy rates below 4.4%, an increase in FFO I of between 3% and 5%. We believe that 5% is realistic by the end of the year. It's going to be larger than or equal to 5%, and LTV is smaller than 40%. Just one addition, because we generally don't change this slide. The volume, just let me mention that again. The starting point for the figure was that we decided that we didn't just want to buy existing properties at a high price, which means that we decided not to grow at any cost.
Now, the revaluation from last year, CHF 300 million or CHF 166 million, which brings us to the 12.5. There is no contradiction to now showing the 13.1. The idea behind it is that we do not want to grow at any cost and buy expensive existing properties. That's the background. I think that's all we have in terms of presentation. Now we'll start with questions and answers. First of all, we'll take the questions from the room, and then we'll see if anyone in the metaverse has any questions. First, we'll stay here in the room. Please try and ask one or two questions at a time, and we'll let you get back later. Don't ask too many questions at once.
Thank you very much. I'll just do three questions. The first one is the financing strategy, external financing strategy, and the terms of the contracts have been adjusted in the first half year. What's the strategic direction, and what are the medium-term costs here?
Currently, we are seeing some good opportunities for financing ourselves. Currently, of course, interest costs are a little higher, but they've gone down a little again since June. The maximum was 1.4% yield of federal obligations. They're now 1.5% of federal bonds. In the placements that we did in the last few months, we have some very attractive opportunities.
I don't really expect a shortening of the average maturity, but I expect that we will stick with the 5-6 years that we are currently using mostly.
The second question is about the profile of maturities. I would like to know what the status is going to be in 2023, 2024, and can you tell us what that's going to mean for vacancies?
Well, I'm delighted to pass on this question to Karin Voigt, the CPO of Swiss Prime Site Immobilien AG. Karin.
Currently, the maturity is not expected to go down because our new contracts have always been for a term of 10 years. My expectation is that it's going to stay like that.
Well, my question referred to the status of the lease expiries by 2023. Sixty percent is going to be dealt with and so what tenants are going to move out, and how is that going to affect vacancies?
Well, we're expecting a positive effect because the ones that are running out are part of our intensive operative business. In 2023, we'll have 40% to work with. We are working on them. We are negotiating, and the same goes for 2024. I do not perceive or expect a negative effect here.
Thank you. My third and last question, I noticed that Wincasa and Jelmoli did not feature much in the presentation and the report. Why is that?
Can you imagine that you may, actually, dispose of one of the businesses?
Well, this is a recurring question, isn't it? Of course, the growing business of asset management is more interesting, and that's why we're talking about it more. We are not planning to dispose of any of the other businesses. At the end of the year, we'll be able to say more about these business units. The EBIT contribution of Wincasa is between CHF 17 and CHF 18. Maybe just to go back to the vacancy rates. For the next few years, we're expecting to reduce the vacancies further.
I also have three questions, if I may. What were the top changes? Where did you have value depreciations or negative revaluations?
Well, the revaluations continued.
We can see some positive developments at the Prime sites and in the commercial properties in the centers. Negative revaluations were just a few, and we were still able to make some adjustments in retail properties that were maybe in a less central location, but generally very positive. Yes, the Jelmoli house. In that connection, maybe we should mention that there was a slight revaluation, and you can see that specifically because Jelmoli is a operating property and it is. We are not allowed to record it in the revaluation success, but on the whole it was positive.
The second question, you purchased two projects at 4% and 4.5%. Now looking at the transaction market, can you see a change in yield expectations?
Are there regional differences? One of the properties was in Bern.
Well, yes. That was an actual project of the company Losinger Marazzi, and the owner of land was Bern local authority. I can't really deduct anything from that. The owner of the building in Basel was Credit Suisse, and we bought it from Credit Suisse. The transaction market is still very attractive. This goes for the top locations.
Our other two properties that we sold, apart from the starting portfolio for our fund, 14% were sold above fair value, and those weren't particularly attractive locations. They weren't A locations. The market is still strong and is still very much in favor of real estate business.
My last question, if I may.
The basis for the dividend payout went up by 7%. Does that mean that the dividend is also going to increase in the same degree?
No, it does not. If you were to ask me what I personally would expect as a shareholder of this company, I would certainly expect an increase of the dividend next year.
Next question. Questions. Over there, please.
Good morning. I have two questions. I'm from Credit Suisse. Interesting what you said about the buyer side. What about the seller side? Why would anyone buy real estate today? Who is that? You yourself said allocation means tilts towards selling. What's the motivation of buying real estate today?
Well, we have answered this question in a way. If you see who has capital needs in the second half year, who is going to issue, it's particularly the ones who want to invest money in real estate fund products or investment foundations. For the investment foundation, something is really new, and that's exciting. That's contributions in kind that increase in the market, material investments in the investment foundation. The interest in real estate, in properties and in the cash flow, let me repeat that.
I don't tend to quote people, but the CEO of Swiss Life said something very interesting. He said, "We invest in real estate not because of revaluation, just because of the steady cash flow." This maybe is not exactly the same for us because he's in a different core business, but his statement applies, and the cash flow that is generated there can even be generated when interest rates rise, as long as there is no recession. The rents will be paid, and that's the money with which you pay the dividend for shareholders. The buyers were exclusively insurance companies. No, not exclusively. Maybe Anastasius, you can comment on that. You were the largest buyer.
Well, thank you for this question. No, the market forces are continuing to play. It's not only insurance companies or banks that are buying.
Private equity, family offices, funds, investment companies, there's a whole portfolio, and the market continues to be appealing on either side. Even if you look at prices, there's stable shifts toward the REITs. Maybe prices are not going up considerably, but it's very stable.
Last question, perhaps to the CFO. The portfolio is rather cyclical. Now, with potential inflation or recession looming, would you expect higher bad debts or other losses? How do you budget for that?
Well, I'll let him answer in a minute, but we do not expect a recession, I would like to correct what he said.
Well, let me comment on bad debt. I worked for various companies as a CFO, and I've been in the business for 25 years. We've got currently days outstanding. That's the ratio that tells you how long someone hasn't paid after the date of invoicing.
We're at 2.8 days. So our tenants pay very much on time. We have almost no bad debt whatsoever. On the contrary, we reversed COVID provisions, and I cannot see any indication to the contrary. We're monitoring that very closely, and there is no difference really between retail and others. Now, I'm not sure why you're saying this is cyclical. Our portfolio is very stable. We have demonstrated that we're at around 5.5 years of WALT. Our vacancies are similar in retail and in office. If anything, they're lower in retail than in office. I actually contradict what you said. No about that.
Very convincing. Thank you very much.
Can you pass on the microphone, please?
Yeah.
Good morning, Pascal Boll from Stifel. First question about vacancies. 4.4%, that's a great job you've done. If I remember properly, you said in the past that given the higher share compared to other real estate companies in the development portfolio, that vacancies would be between 4% and 5%. Now, you are saying that you are seeing potential of further reducing vacancies. First question is that not a contradiction in terms, or has there been any change? And secondly, where could prices move in the medium term?
Let me take that question. I can't recall having said that, but what I can recall is compared to peers that do not pursue development, our vacancy rate is about 0.2% higher. 0.2%. When projects are completed, then the completed projects enter the portfolio but are not fully let in most cases.
We were at 70%-80% of letting status. Next year they will be fully let, but the new projects are coming in, so we're actually taking the 0.2% with us all the time. Where can the development go? I think between three, five and four. Margin SPS Solutions is. You are assuming that it will be going to up to 66% if I consider your presentation. What's the downside? What could be happening for the margin not to remain above 60% but maybe going back to 40%-50%? Would that mean that fees from transactions would be missing or? The question of transactions or no transactions is to do with recurring or non-recurring fees. The stronger growth in fund growth is the higher profitability because we are having our own fund management.
We are much more in control compared to a situation where we only are manager or asset manager. Our growth will primarily be generated by funds and so we actually are not seeing any downside. Only if funds didn't grow any further or growing with other clients, then they would have a negative impact on the yield.
Now, on the European valuations, they're less resilient than compared to Switzerland. What's the client interest? Has there been any change? What are you expecting there with regard to volumes in the months to come?
Well, it's generally difficult if you launch a vehicle outside Switzerland. It's difficult. Looking at the German market and the product that we launched there, senior living, there is a lot demand. The five buildings that we've bought in the meantime are very good.
We have not only a value increase that we've achieved in recent months, but we're very stable. We're confident to find new investors and to be able to invest the money we have. We have a full pipeline. We're confident, but it takes time to generate that growth in Germany.
Thank you.
Reto, please hand in the microphone.
Thank you. Reto Portmann, zCapital. I have a question about management changes for real estate. Maybe you can make one or two comments there and the massive expansion of your responsibilities.
Well, I do understand your question, but these are internal things, and we're not going to further comment on them.
What about expansion of your responsibilities? That's not temporary.
No, it's not temporary. That works. Well, it works. I'm a real estate man, after all.
When you talk about expansion, it was 100 times more difficult to understand a business like Tertianum. That was time-consuming, but I do understand real estate.
There is some logic to it for us to merge the businesses, and I can rely on a tried and tested team. We're not changing that. The structure remains the same. We've got a top CPO, a top CIO, and these are the pillars I can continue to rely on. I'm not really seeing the difficulty. I don't think I will be grossly overtaxed. Let me say that the Tertianum was much more complex.
Rolf Kunz of Maerki Baumann. Question about the funding structure, the private placements, are they limited to the CHF 200 million? And do you intend to increase that share?
How have the terms changed since the interest rate rise by the SNB?
Well, I'll be pleased to comment on that. It's a new instrument for us, private placements. We've been able to do that after changing our funding structure working with a secured facility that makes us more flexible, or in other terms, we can work with a three-month private placement. Should it not be renewed, we have a major backup facility in the amount of CHF 800 million through which to cushion it. The last private placement, René, was done, I think it was a Monday at 0.3%.
That's higher than half a year ago. Is it?
Yes, higher than half a year ago. That's correct. The funny thing is it's less higher than the 50 basis points that the SNB has increased. The margin has reduced.
There are not many A-rated companies in the market. I think that is due to our rating, and that is why we still have appealing terms for placements.
Philipp Jossen of Albin Kistler . I have a question on indexed rents. What was the effect in the first half year, and what do you expect for the medium term or the balance of the year? Second question, could you perhaps comment on your sustainability strategy? You improved some ESG ratings I've seen, but what's your general idea achieving your goals there? And maybe can you comment on the cost, the additional cost for implementing the sustainability strategy?
Well, fundamentally, we're adjusting once a year, as specified in the contracts. Most of it will be done at the end of the year. We had increases in rents to the tune of CHF 1 million calculated for one year.
You can see part of it in the like-for-like comparison, and the smaller part was in March or May, but the larger part is yet to come. We're at 94% indexed. We can adjust the rents there, and we are intensely working on preparing that, which is one of the key topics in current field of business. Well, on the sustainability strategy. Well, the focus clearly is on properties, on real estate and developments. CO2 neutral portfolio by 2040, that's the key aspect. All necessary steps have been triggered, calculations have been done, and our external agency has already calculated the cost. Now, the question was, does it cost more? I don't think so. The contrary will be the case probably.
When properties are not sustainable, there'll be a discount in terms of valuation or the reselling price will be lower. I don't think it's a question of cost. On CO2 and sustainability, I'm talking about scopes one to three, including three, which is the most difficult one, the tenants. The pandemic has really helped us. It may sound weird, but we are a lot closer to the needs of the tenants, for one. Secondly, the tenants have to fill in their sustainability report. All this helps because we are all moving in the same direction. We can have green leases today. Within the contracts that we're concluding with clients, we can add green components. For instance, we can specify where power is to come from. Tenants cannot purchase their power from anywhere they like.
That's the first CO2 reduction path. The second component is to do with circular economy, as we have began at Müllerstrasse. In this multipurpose house of culture, it will be included. Seventy to eighty percent will be built in a recyclable manner we hope. That means we will use as few bonding components for building, so that at the end of the phase of construction, we can have better separation of materials which we can use or sell. We will never pay for demolition anymore. That's a slogan we've used. How does that combine with the funding structure?
In the consortial components, we have a component of sustainability included, which means that the general cost will go down, but when we issue bonds, it will be bonds, green bonds, and the market is moving in this direction, and I think that's a good thing.
Any further questions from the auditorium? Yes, please.
Holger Frisch of Zurich Cantonal Bank. I have two questions. You said very low number of tenants want to reduce their surfaces. Swisscom is the largest office tenant. We have heard that they are handing back space. What about you?
Well, we're not impacted by that. We were impacted by that. Müllerstrasse used to be a Swisscom building, and they moved out of that, fully moved out of that, but that's a great example then to show that it's not always negative. It was an opportunity for us.
I think we got the building on relatively good terms. B, with the idea of the circular economy, we have found a tenant like by the name of Google.
I have a second question on the LTV, fundamental question. Converting to IFRS, you need to show your leasing liabilities, which you have done. When you calculate the LTV, you're excluding it. What's the rationale behind that?
Well, the leasing liabilities are liabilities that we need to report on the basis of IFRS. That's correct. It's not a debt that we have to the outside. It's an entitlement. It's a right that we have for which we pay to erect and use the buildings. I think there are two options. You can either use it on either side, and we didn't add it to valuations.
You would have to raise valuations as well. We would have to apply the Wüest Partner evaluations, and that would go up. We opted for what most are opting for. We don't take it into account as there are no financial liabilities in the strict sense. It's not a debt that we need to service.
Yes. Please pass on the microphone.
I have four brief questions, four more brief questions. First, on like-for-like growth. You mentioned that inflation will be added to that or has been added to that. Could you give us some more granularity about the improved letting conditions and turnover-based rental income and the cost related to the letting conditions?
That was the first brief question.
Yes. Correct.
Well, I think that would require a lengthy discussion.
I cannot give you a direct answer, but as I said, we have made adjustments to a very moderate extent up to now. The rise of inflation primarily happened this year, so adjustments have not really been affected by that, and if so, only to a small extent. So only a small part of the like-for-like growth is attributable to that. Part of it is attributable to additional parking revenues. That's the case. I would have to look it up. I could not say off the top of my head, but the larger part is due to reduction of vacancies and better letting.
Second question, regarding the third-largest tenant, Globus. What's the status of discussions with them? Do they want to have more space, less space? Do they want to invest?
Good question. We certainly want to invest in Geneva.
It's part of our logic. I think for them and for us, when we look at the locations that we primarily invest in, it's Geneva and Zurich, and they certainly want to invest there. That's as far as we know. The contracts expire, all three of them expire in 2026. There are Lausanne and Lucerne in addition to Geneva, where we have contracts with Globus. I don't think they want to primarily invest in Lausanne and Lucerne.
Third question relates to the tenant survey. When you talk to Zurich Insurance, then the head of Switzerland would not say the same as the head of real estate or the global head. So what does that mean? Who are your respondents, and how do you get to the statements in the survey?
Very good question.
We intensely considered that, who we're going to address the survey to, because these are the contact partners for the rental contracts. That person has to pass it on to, say, the sustainability units. Whether this actually happens, we have no way of checking on. The idea is that the ones responding are in charge of the rented space.
Fourth and final question.
Tying up with what Reto Portmann said, and the succession to the CEO Real Estate, you could have settled it for the first of January 2021. Why have you decided one and a half year later, consolidating the function with group management, the Group CEO.
Well, I can only repeat what I said before. At the end of 2020, we still had Tertianum. Just out of my memory, Tertianum accounted for about 25% because it was an entirely different business, active in 16 cantons with all the effort it took. It was far away from our core business. I really understood everyone saying, "What is Tertianum to do with you?" Whether I can provide support for the real estate company or for asset management, the to-dos will be the same. You do acquisitions, you do developments. I worked in the development business, so it doesn't mean a lot of additional work. Tertianum was so fresh at the time that we said, "Well, let's wait and see." By the way, we had a plan of making asset management big, which we have done in the meantime.
There will be some capacity left for us. I was chairman of the board of the solutions company, and I will of course step down as the chairman of the board. In terms of compliance, that is the right step to do. We have informed FINMA. It wouldn't work to be the manager of the real estate company and be the chairman of the board. Thank you for the question.
Are there any more questions from the room?
Just last very brief question, honestly. Ms. Müller. The next quarter starting in a month, the prioritization is very clear. The question to Ms. Müller, how did you purchase? Are you above the previous year? Or how cautious are you going to start the Jelmoli over the next three months? Also in taking into consideration the possible recession.
Well, purchasing for the second half year took place a while ago. We expected successful slight growth over last year, and that's the way we purchased.
How has it been so far in the second half?
Well, in the first half of the year, we can compare the second quarter. Last year, there was lockdown during that time. In the first quarter, we were 18% above the previous year.
That includes the lockdown effect of last year. In the second quarter, we were better than in the previous year, and we're moving towards 19%. What is happening now is putting us into an optimistic mood. We're expecting strong months leading up to Christmas. Overall, we would say that the situation across all of the areas is quite good. Wherever we had some supply problems, we were able to replace those.
Are there any more questions from the room? Okay. From the metaverse. A question from the German channel, from Andreas Ruhlmann from Baader Helvea. Good morning. So we can hear you now.
I have some brief questions. I will ask them one after the other. I'll start with something that I didn't understand.
The project of Kohlestrasse, Rheinstrasse in Augst, was there not enough room on the slide or have there been changes? Maybe you could also tell us, the size of the portfolio that's going to be sold in the second half year. Maybe I missed that.
Thank you very much for the question. The first one goes to Urs Baumann.
Thank you for this question.
Yes. In actual fact, both projects are still part of the portfolio, still working on them. It wasn't just a question of room on the slides, but simply because we did a prioritization to show what the focus of our development projects is at the moment. Also, we wanted to show the largest projects under development. Let me just make it clear, nothing has changed in terms of additional rental income. Both projects are still active. The second question or the second part of the question
What's about the size of the retail portfolio in Western Switzerland. Maybe you can answer that.
CHF 100 million. Approximately CHF 100 million.
When you do development projects for Swiss Prime Site Solutions, do you do them through a separate development department, or do they use the expertise at Swiss Prime Site Immobilien?
I would love to answer that. Well, we have our own department. We have a team for each project who are responsible for asset management, acquisition, sales, et cetera. But when we buy a property, we work together with the real estate part, of course, because we can benefit from the expertise.
I can add something here. Unlike banks and insurances, we always have acquisition and sales separate, because we can here benefit from the group in all questions concerning project development.
When we know about the property, it's always just beneficial if eight eyes look at it than if just two eyes look at it. It always makes sense to ask a colleague's advice. The same goes for risk management or for sustainability issues. Here too, solutions can actually benefit from things that the other part of the company has already worked on.
Could you split the 161 assets to the two segments in FFO? Because these are different business models with different risk profiles, and I'm not sure it makes sense to have a joint FFO.
Yes, we can do that. We're not doing it at the moment, but we could, yes. Mm.
Would it make sense to take the EBIT of the services and deduct that?
Well, on the service side, you have fewer of those effects, revaluation effects, et cetera. I would base it on the EBITDA and then also deduct a little bit for the interest and the tax, and that will give you a pretty good idea, yes. It'd be great to have that separate in the future.
My last question, the share price is CHF 87, and the NAV is CHF 84. The premium for Credit Suisse Asset Management in Germany, we have a share price of CHF 10.7 and a NAV of CHF 18.59. Here it seems to me that the asset management doesn't seem to be very well reflected here. Why does Swiss Prime Site follow that strategy?
Wouldn't it make more sense and be beneficial, more beneficial for shareholders if the two were separate so that if you had two visible valuations?
That was a long question. Well, the comparisons with DIC is something that we hear about, of course, something that we hear about quite often. Maybe you could consider that too, to reduce that. Maybe the comparison with DIC is not realistic. We have an LTV of more than 50. That's just simply so far removed from their situation. It's got nothing to do with whether you think the asset management business is good or not, but the most recent acquisition of more than 60% of the shares of a company that's mainly in logistics will certainly boost. These are really worlds apart. We can't compare them.
Well, the point is that asset management, we have to give a value for asset management, and it's quite obvious. I said earlier that the more expensive capital becomes because it's been free so far, and maybe you can ask yourself whether you just want to invest directly into real estate. These asset-light are able to benefit from the synergies of existing structures. They're going to become even more interesting. Would you like to add something?
Yes. An interesting development that I can see in Europe at the moment, Vonovia is the largest real estate company in Europe. Of their EUR 90 billion assets, they're selling EUR 7 billion, but they're not actually selling it. They're putting it into asset management vehicles. If you look at their share price, and they have it so these have those managed vehicles.
I think that's not going to be the only company that's going to go down that route. We are really several steps ahead here because we already have three or four years of experience. This has been part of our strategy for some years, and now some other companies are seeing that this is an interesting business and are looking to become involved too. Asset management business is really giving us the opportunity to generate a lot of yield here. Our business model, Mr. Vorax, you asked this before, our business model is not selling real estate from the real estate company and transfer it to a different product. We did that once. That was a transaction of approximately CHF 80 million, the starting portfolio for our first fund.
Since then, we have not done that again. CHF 80 million compared with CHF 1.2 billion is really negligible. The risk that you saw at the time, Mr. Vorax, has not become reality for us. We are not Vonovia. I can see that it's not just about re-shifting, changing, rearranging our own portfolio, but we are in a very good position here. We are ahead of our time. Yes, asset management comes on top. A lot of asset managers have missed the deadline for registering with FINMA, and we are in a good position here. We have all of the approvals from the most important regulatory authority in Switzerland. I think we already have this headway here.
Is there, Mr. Vorax, have you got any more questions?
Well, if I were Vonovia and I had half of the NAV, yeah, I would probably also move my properties to a fund for a better book value. I can see that this is shareholder value generation. In Switzerland, the situation is different. Today, most real estate companies look at the book value irrespective of the additional business areas. Swiss Prime Site has an additional business area that's not visible in their share book. We have to wait another five years or until 2025, until you've reached your objectives, until you're talking about selling this shareholder value. That was a remark. I did not interpret that as some questions, so I don't think we need to respond. We are already incredibly successful with our asset management.
We've already exceeded our midterm goals by far. It is part of our core business ultimately. I think that shareholders can certainly benefit from that, and will do in the future. We don't have to wait 5 years for that. All right. Is there another question? Well, if there are no more questions, that concludes today's conference. Please join us for the apéro. It's not above us, but it's one floor below us. We are very happy tenants now of the 33rd floor. We have a very nice area there. We can also give you a tour of the offices if you would like. Just follow Urs Baumann or Karin Voigt. He will just give you a brief tour of the 33rd floor before we then meet for the apéro.
Thank you very much, and have a good day, and all the best.