Good morning. You can guide an FFO I flat and still not be boring as a company. So on that note, a warm welcome to those online joining us and those here today in Zurich at our balance sheet press conference. So let's start with the results for the first half year, 2023. And of course, the highlight is the streamlining of our corporate structure. Due to the sale of Wincasa, with a profit, as you've been able to read in the press, of CHF 146 million. Another streamlining project, starting in 2025, will be the Jelmoli operative business being phased out, which will cease at the end of 2024. And we're currently working on the redevelopment of the property, starting from 2025.
We had a stable fair value of CHF 13.1 billion, and the revaluations, we're often asked about those, there was a slight adjustment of -0.74% for the entire portfolio. So what are we expecting for this year, and particularly for the second half of 2023? Well, that's the handover of the important development projects, Müllerstrasse in Zurich, on the first of November, 2023, and the opening of the Alto Pont-Rouge in Geneva. That's good news, and that is because they are major development projects, and from 2024 onwards, we will be able to benefit from them. That's CHF 26.5 million additional rental income starting from the beginning of next year.
Hardly any rent this year because there are some rent-free periods for the new tenants, so we can start calculating this from the first of January, 2024. Then, sales is another important topic. We have heard a lot about negative revaluations, how that's at work. Well, as you can see, we had sales of CHF 148 million, and this was around 10% above fair value. And those are B and C locations, some with more difficult use cases. And so it's more difficult to find buyers. And so these valuations are very realistic because, well, the transaction market works like that. And then two points on sustainability. By the end of the year, we are going to have certification for all of our spaces, 100%.
All of the ones that can be certified, of course, parking spaces can't be certified, but everything else will be subject to certification. And we are going to be the first signatory on the Charta of the Circular Building. I'll talk about that somewhat more a little later. So the most important figure for the first half year is the rental income. We were able to generate 3.4% like-for-like growth or 1.9%, and this means that we were able to further decrease our vacancies. We had to adjust the corporate structure a little in the summer.
You can imagine that, we had a start geared at the subsidiaries, Tertianum, Wincasa, and Jelmoli, and due to the streamlining of our business, with concentration on the two pillars, direct properties and asset management, of course, we don't need the same kind of cost base anymore. Due to terminations, this is going to become effective from the 1st of January 2024. Still positive in asset management, we grew. We are now at CHF 8.3 million assets under management in the first six months of this year. Compared with our peer group, this is more than respectable. I will go into more detail about asset management in the second part of the presentation. Here, we are still hoping to or expecting to have our mid-term goals reached.
0.5% year-on-year reduction, private, of our seasonal increase compared to year-end. This is simply due to the fact that the dividend or is due in the first half of the year, the complete dividend, and it is not split up across the two halves of the year. We also had a refinancing of a commercial bond, of CHF 275 million at a very interesting interest rate. That's more or less the picture that illustrates the streamlining of the business best. Now you can see here, 2018, where we always had a lot of different businesses or different areas, and this was a criticism that was sometimes voiced, and that is somewhat justified.
You can see in the middle where we are today, and on the right-hand side, what the target is for 2025, with our two pillars: direct real development, development and asset management, at a ratio of approximately 80% versus 20%. Here, these are the figures for the first half year, with like-for-like growth of 3.4%. Assets under management also showed a nice growth rate of 19% compared with last year, 6.5% compared with the end of the year last year. The EBIT, 74% growth, including the sale of Wincasa. Without the sale of Wincasa, is still a growth of 1.3%, before revaluations, of course. Profit, including Wincasa, +89%, and without Wincasa, -2.2%.
Let me just explain that, of course, we refrained from capital recycling. We could have sold a lot more, and then we wouldn't have had that negative figure. But of course, we still had the sales results of Wincasa, so it doesn't make sense to necessarily sell more properties. It's better to keep them for the second half of the year or next year, so that our capital recycling can continue. And per share, FFO I, and that, of course, is the important figure that determines the dividend payment, is practically stable. FFO II showed a considerable growth of 81% due to the sales results, including the profit from Wincasa, from the Wincasa sale. And then the EPRA NTA showed a slight increase of 0.6% to now CHF 101.4.
Let's take a look at the market very briefly. I already mentioned some aspects, and would like to tell you what we feel about the interest rate environment. We expect that the S&P is going to do another interest rate cut in September, and that I'm telling you this because you can expect us to be able to be prepared for that, and being considered in our analysis for the end of the year. So this interest rate cut will increase, will come, and then is there going to be recession? Certainly not. We still expect high consumption rates of Swiss households, and the other aspect is that we have immigration that is incredibly high this year.
You can rate that as positive or as negative, but the-- we're not talking about refugees from Ukraine, but these are people from Germany, France, Italy, so our neighboring countries, and they mainly work in the healthcare sector, where we have a high need, and also in the services sector. And that, once again, means that it, gives us, opens up potential for us for, prime site office space. After COVID, the situation has relaxed somewhat, but the supply chains can still, are still, subject to or at risk, and you can, especially when you look at the pictures from the Panama Canal, for example, you can see that it only takes a small event or seemingly small events to, disturb supply chains. And so these are the general remarks, but how does this, refer to our portfolio?
Well, lettings were excellent, as you can see from our figures, not just in the like-for-like increase of 3.4%, but also the reduction of vacancies to 4.1%. So the prime locations are very much in demand. And furthermore, there's going to be a scarcity in supply, so we are always talking about prime locations. This could be different in rural areas, but of course, if the number of building permits being issued were, a nd at the same time as the population growth is going to lead to a reduction in supply, and that will give us more opportunity. And valuations, as I already mentioned, -0.74%.
So this, of course, is due to the discount rate effects, and 90% are index of our index. So this is one aspect, and the other aspect is the increases in rents for new contracts or extensions of contracts, the reduction in vacancies, and of course, also the development portfolio, which counteract the increase of discount rate. The transaction market has shown some positive sales effects, 10% above fair value. So the transaction market is still quite strong, not quite as strong as the beginning of 2022, I think that's obvious. But the last most recent transactions of our sales, for example, the Tertianum properties in eastern Switzerland, also include an institutional investors joining the bid.
This is happening again, so we can see that there are some very positive aspects influencing the second part of the year. That's by way of introduction, and now it's over to Marcel.
Thank you very much, and welcome. I will take a few minutes to dig a little more into the figures for the first half year of 2023. Let's begin with this chart. As we have it in the income statement, I'm showing a reconciliation here based on IFRS 5. Wincasa is considered to be a discontinued operations, adjusted for the previous year, we are showing it as if we had sold Wincasa at the beginning of 2022. Why does IFRS do that? It's for comparability of figures. Otherwise, you will have a huge decrease of personnel costs, which would be difficult to interpret for investors and interested investors. And IFRS prescribes, and I think it's reasonable, that all the figures are on a comparable basis, as if Wincasa had been sold at the beginning of 2022.
It's going to be one line, as you will see in the income statement, the second from the bottom, prior to net profit, where it's compensated, where there's the proceeds are offset, so profit from the sale is the same, and you will see the same position for 2023. It's huge because it includes proceeds from the Wincasa transaction. But you will find all the details in the Annex 8.2, for those of you who would like to look up on that. Second preliminary remark: in the course of streamlining of our corporate structure, we thought about reasonable structuring and segment reporting for the future, and we adjusted it. Currently, we're showing three segments: real estate, it's our real estate, including financing, and second, asset management, including solutions, in particular, with allocated financing.
We are showing the next, for the next three half years, a third segment called retail. That includes Jelmoli. So we're offering as much transparency as possible in, in the peer, P&L and the balance sheet, showing the highlights. Now, these are the preliminary remarks. Let's move on to the figures. René Zahnd mentioned some of them before. I will add some flesh to it. Rental income, as we said, rose by 2% over the previous year, CHF 219 million , just under CHF 219 million . So this, in our view, is a good figure. In parallel to it, we sold in terms of capital recycling a volume of CHF 3.5 million of rent. This is a like-for-like increase of around 3.4%, and I'm going to show what we're expecting for the end of the year.
Then, developments, POC projects, we only have onr project in inverted commas, Plan-les-Ouates in Geneva, which is being phased out. We have some residual surfaces, so we expect proceeds to go down from it and costs, as you will see in the next page, we are assuming that there won't be a lot in terms of costs. There's some residual space that is still on our books. Asset management, - 18%, I will talk about this later, certainly due and attributable to the more difficult issuance market and acquisition, and I will provide more detail about this later on. Another figure I would like to highlight on is retail, Jelmoli, in other words, nice growth in excess of 4%, driven by all the locations. Bahnhofstrasse performed very well, particularly at Bahnhofstrasse.
It was the restaurants that performed very well, which goes to show that people have moved back to the office. Working from home has been reduced, and of course, people have to have food over lunch. Then Airside at the airport took a positive development in benefiting from increasing passenger volumes and in The Circle, if you visited there, one of the shops was turned into an outlet, which is well received and helps us in terms of margins. Prices have been stabilized, and this is a good development in terms of margin with Jelmoli. Total is just under 1%, - 1%, driven by lower returns in asset management, primarily. Looking at the costs, on the other hand, René Zahnd mentioned it before, we had a strong cost focus.
You can see that real estate costs decreased despite the increased sales. We show sales proceeds 0.5% less of real estate costs, despite 2% more rental income in an inflationary setting. This goes to show that we did a good job, I think, in that regard, in terms of cost discipline. Development costs, I don't need to go into the details of, it's in line with what I said before. Cost of goods sold, I mentioned that before, we had an increase of 4% in proceeds, and 2% higher costs. That ends up in a higher margin. The reasons for which I mentioned before, personnel costs went up by CHF 500,000. There's two elements worth mentioning here.
Compared to the first half year, 2022, we made a provision of around CHF 1 million for the closure of Jelmoli, retention measures, and parts of the redundancy plan. You can expect these costs to continue until closure. This is included there, and then we insourced something here, especially in the development field. Looking forward to the sale of Wincasa, we decoupled from the major developments, and aren't doing activities ourselves that we had previously offered or purchased from Wincasa. This has now been sourced in, and if you look at that, the CHF 1 million for Jelmoli, you can see that we've brought this down. Of course, we are capitalizing on that as part of the development cost. Instead of a third party, we're doing we using our own staff to do these activities.
Now, the total cost base is CHF 7.7 million less of around CHF 123 million in the first half year. And if you add all this up, operating income, as mentioned before, and operating expenses, and take the sales that we mentioned before, it's profit of around CHF 9.8 million, you will end up with the plus of 1.3% of EBIT, excluding revaluations. And I'll be talking about this later on separately. Now, in terms of per share, we have the following picture. We've shown that before, including Wincasa. The Wincasa contribution for the first year, we're at CHF 2 , FFO I.
FFO I, especially in these times, is we consider the correct benchmark, contrary to EBITDA or EBIT, FFO I includes higher financing costs, which in a company like ours, with a major balance sheet and financing portfolio, it's an important benchmark to include, interest rates. That's what FFO I does. I think to show a stable result goes to show that we've done a good job in operating terms, that we've been able to cushion the higher financing cost. You can also see the increase in EPRA NTA or, equity. That's a combination of the sales proceeds, the sale of Wincasa, the Wincasa business, and with revaluation, deducted. This gives us around CHF 101 per share. Let me pick out one or two other highlights. On the one hand, rental growth, rental income growth. Here are the details.
So CHF 3.5 million of sales I mentioned before. Now, the existing properties, like-for-like growth of 3.4%, partly through indexing and through real rental income of around 1%-1.2%. The rest, the balance is indexing. We didn't purchase anything, so the other areas were kept in balance, more or less. One important figure I would like to mention, differs from company to company, is sum of all the index possibilities at the beginning of the years. We have them scattered throughout the year. We expect higher index adaptations for the second half year. We've legally announced all of them with the increases, and you can see what we're expecting in terms of indexing of 2023.
We have only generated 38% in the first half year, so around 60% will only be seen in the second half year in the P&L. And this means that our expectation for like-for-like will be higher in the second half year, towards 4% in total for the entire year. Now, moving on to valuations on the real estate portfolio, you can see the investment sales of around CHF 80 million, and you will recall the CHF 9.8 million of that is as proceeds. And this is what we actually booked in the first half year, and we've had additional sales, which goes to show, in our view, that the transaction market is still working, and especially for me as a CFO, this confirms that the values in our books are not entirely wrong.
We have a certain safety margin in it if we can come up with a profit in a more difficult market. Investments, around CHF 150 million, and you will recall that we usually guide for CHF 200 million-CHF 300 million, at least, that we digest per annum, so we are on track. It's important for the construction projects to actually be completed by the end of the year. Valuation gains, let me say a word about that. As you can see here, the discount rate has clearly been increased by 21 basis points, from 3.72% to 3.93%.
If you take the sensitivity tables from the last annual report, that would mean a devaluation of around 7%, but there is a strong counter position, especially due to indexation and, cost reduction, and other new rentals, high new rentals, that we have been able to enforce. Now, to make it more understandable, we are showing sensitivities and added of sensitivities with, by a matrix in our annex, where we're showing sensitivity on the discount rate and sensitivity to, rental adjustments, and that will probably give us a better feeling going forward regarding changes, potential changes for valuation. That was going to be a comprehensive picture, as shown by the matrix in the annex. Now, a word about asset management, perhaps. We saw that before, CHF 22.2 million top line, CHF 11.3 million of EBIT.
The quality of earnings is clearly higher than the previous year, due to the recurrent EBIT. And yet, and that will be the basis for the future, AUMs grew by 6.5% compared to the end of the year. CHF 500 million of growth in this market. Let me make two more remarks on that. First of all, if you extrapolate for the year, you have to realize that in 2022, the first half year was excellent. Total year, we had about just under CHF 30 million of EBIT, so we cannot talk about multiplication of the first half year, but that's, that's an important thing to note. Second thing is that we certainly have an appealing pipeline, and we are confident for the entire year. We are going for results, more or less, at the level of last year.
There's about 10% of uncertainty, depending on the development of the issuance and transaction markets. But quality of earnings is important for us, 80% of recurring, recurring, and of course, we need to increase our assets under management. Second, secondly, I'd like to talk about financing. Here, we've got a very stable situation in terms of financing in a rather good market. Clearly higher interest rates, of course, average interest rate per-- at the end of June, including all the S&P rises of 1.2%, around 30% higher than at the end of the year. And you can see in a like-for-like basis, we have around 30% increase in financing costs. We are trying to keep maturities stable. 4.8 years of average maturity, and 71% was fixed at the end of June of financing.
It's increased in the meantime. We made a major swap at appealing terms, and we have more than 80% fixed in terms of interest rates of our financial liabilities. We heard about LTV already. We are maintaining our forecast of successively reducing it, and I think we've had a good start doing that. Compared to the end of the year 2022, we have a seasonal increase, as René Zahnd mentioned before. Finally, on the financing structure, we've refinanced everything for the year 2023. The next maturity will be in July 2024. With the committed funds that we've had at the end of June, of around CHF 700 million, we do not rely on capital market transactions.
We are in a comfortable situation, but we are permanently looking into that, and if appealing situations or opportunities arise, we will make use of them. Looking back, refunding, refinancing the convertible bond was a good thing, at CHF 275 million at 1.625%, given the current market setting. So much on my part. Let me hand it back to René Zahnd at this point, to give you more details about portfolio.
Thank you, Marcel. The portfolio. We have now 168 properties, a little less than the last year, because, of course, we also sell. So, as in principle, the portfolio compared with UBS and Credit Suisse, that's a question that we're often asked about. Well, we have just been able to extend some of the contracts that had come up for renewal with UBS. So we are not affected by the merger. But of course, if this had happened 10 years ago, we would have been affected because we're at the Motel One, which is a building that was rented by Credit Suisse ten years ago, and also Dorfstrasse, our MediaMarkt, which was a UBS back office. So we can certainly say that the transformation was done very early on, so that we're not affected.
So anyway, 168 properties, compared with 176 last year, means that we're becoming more efficient. We're selling smaller properties, the ones that don't fit with our portfolio, and that require a relatively large management efforts. And so that's a good thing. In terms of use types, after the repositioning of Jelmoli, we are going to have approximately 47% of offices and 22% retail. We said that in the medium term, we want 20% as a target, and our development pipeline does not contain any additional retail projects because Jelmoli is going to be transformed, and some retail is going to be retained, but it's going to be less in total than before. 48%, 22%.
The tenant structure, the main tenants have not changed, and we have recently received the results of the tenant surveys of last year, which was very positive. You will hear about the details of that at the Capital Markets Day in October. This is a slide that we like to show you because it shows very clearly where our properties are positioned, and it shows the sales potential for the capital recycling. 3%, in fact, in Quadrant II , Quadrant II and IV. Everything else, 97% are excellent locations, and it's always about location at the end of the day. Our portfolio has now 14% in Quadrant IV , and we're trying to move that up into Quadrant I . That's our redevelopment work that we do internally.
Quadrant V and II are on the list of properties for sale that we would like to sell. So, we would like to end up with all of our properties in the top right-hand quadrant. But I think we're certainly moving in the right direction here. Now let's take a look at the vacancy rate. We now have an all-time low of 4.1% in terms of vacancies, and we are expecting it to be reduced even further by the end of the year. Whether we're going to go below four, be below the 4.1%. Here, the lease expiry profile for rental contracts is very stable. The WAULT is 4.2 years, so that's an excellent position to be in.
A large part of the extensions have already been agreed that for coming up next year. So of course, the question, we don't have any basic changes in the rental contracts. Tenants are not asking for reductions in rent or incentives, and that just shows our strong position in the market at the locations that we're active in. Now, let's take a look at the pipeline and the capital recycling. I'm going to lead you through the slide briefly, because that is really the key message for today. Let's start on the left-hand side. Over the last few years, 2019, we sold to the tune of CHF 1 billion, and this was recycled by being reinvested into our projects. So it really makes sense, because it optimizes the use.
It means we have a better mix, and also, we improve the locations because we are moving away from this central quadrant and concentrate on developments in the top right-hand quadrant. We also have more sustainable buildings with a better label, so we're not just renovating our existing ones, but we're also buy ones with an SNBS label, for example. And, and this is also important. So if we sell properties that are vacant, they may have a yield of 4%, but that's also what you'll have if you have better locations, if you're more sustainable, and if you, and this will all boost the yield, so, and the profits. And that is why we are going to continue our capital recycling policy for a few years to come.
I don't think this really requires much comment. This just shows you what the project status is, our projects under construction and planning, with a pipeline of CHF 2.2 billion in total. One new project in planning is, of course, the refurbishment of the Jelmoli on Bahnhofstrasse. And now, I would now like to zoom into the individual projects. I think that's a bit more interesting. Of course, we have some major additional rental income coming up next year. We are expecting an excellent 2024 due to those developments. So one such project is Müllerstrasse, and the other one is Alto Pont-Rouge, and together, they are going to generate CHF 26.5 million in rental income.
But also Stücki Park I and II are going to be completed, not quite at the beginning of the year, but in the course of 2024. So that's another positive aspect. And so when is Müllerstrasse going to be transferred to Google? Well, it's the date is the first of November. And so at the end of October, at the Capital Markets Day, we will be able to show you the basic state of the building before being handed over to the tenant. At the Pont-Rouge, well, here we are expecting a pre-letting rate of 80% by the end of the year. We are on track here because currently we are at 70%. And so 80% by the end of the year and 100% by next year.
It always takes a little bit of time to fill such a new project. And BERN 131 is another interesting project. I think you once asked me: How can you think of a building there? Well, it is really good location because people come from Zurich and from Thun on the other side, close to the station, and this has proven true. We have a contract with Zurich Insurance, and if they decide to rent a property in a place like that, that means that it's a very safe and good location. Then, another selection of projects in planning. So this is just a selection of highlights, of course. The Steinenvorstadt in Basel, this is a recently acquired project, which is already where we're actually moving forward very fast.
We have already concluded the study competition. This is really an outstanding project. Then Jelmoli building in Zurich. Here we are going to be able to present the first rendering photos at the Capital Markets Day. So this, the basic concept is still the same. We are going to have offices on the top floors, up to the, the, down to the second floor, and that will leave us with 2,000 square meters of retail space, down to the basement and on the ground floor. That's important for a city. You need that kind of use in a city. The first floor is still, maybe will be split between retail and offices. That will depend on whether we will be able to open the building on Seidengasse so that we can offer some brands across two stories.
So it's still a flexible story, and certainly, we are going to have a great building. The initial conversations with the cities have been excellent, and we are optimistic that starting in 2025, we will be able to start work. Werk 47 in Zurich, that is YOND 2. We've renamed it, but that's the existing YOND that you're all familiar with, that you've visited, and that's just the continuation of that development. And of course, Maaglive. We now have the building permit. Two objections have been filed, and, well, I'm relatively surprised how Marius Huber and Zürcher Heimatschutz are connected. But why don't you, Mr. Huber, contact me, and I'll tell you all about the project, and then you can get your information firsthand? So that's the first point.
And the second point, whether we question our project, Mr. Huber, the question is no. This is the project that we have opted for and that we're going to implement, and because i t is simply the best project, no matter which way you look at it. So that's all for now. And we also, you can see here, so we're still within the time frame. In the second half of 2025, we are hoping to or we are expecting to be able to start construction, three years construction time. Of course, those kind of rejections do cause delays, and so we would really appreciate it if we were able to share our information in NZZ as the ones who are developing the project. So I hope Mr. Huber got the message.
So much on the current project pipeline. Where do we stand with regard to our sustainability strategy? We're doing good, making good headway, 100% of certifiable space, which will be certified by the end of the year. That's certainly an interim stage. It will important for us to improve on certification. There's certificates that you keep. There are various levels. Take BREEAM, they've got various tiers or levels. We've certainly achieved the first level, and the next level will be for projects to be even better than fundamental basic certification. Second point here is climate neutrality. We are confirming once more to have a CO2 free portfolio by 2040. You will find the chart in the documents. I will not touch upon the milestones, but we are in line with the reduction path towards the end of 2040. Circular economy.
The circular economy, it's important for us to be part of it and to be a signatory to the charter. So this is really essential for us as we are trying, especially for new buildings, to adopt as many of those principles as possible. What does it mean? It means that we are focusing on materials, trying to select materials that at the end of the life cycle of the building, can be continued to be used. And on the other hand, we are adjusting construction processes to such an extent that we're not bonding these materials in the process, but that at the end of their life, they can be separated easily to give us nothing else than a wealth of materials that we can sell in the market or reuse ourselves. So much about the circular economy.
Certainly, a good principle, which we consider important to be part of. And last but not least, we coupled our total financing to sustainability aspects, which has paid off once more, not only in terms of Green Bond, but also the Convertible Bond in the amount of CHF 275 million in the Green Finance Framework, at certainly an interesting interest rate. Now, so much about the real estate company, and now for asset management. Where do we stand here? We are going to keep showing this chart. This will give you an outline of where the CHF 8.2 billion go. On your left, we have the fund management business, a total of CHF 3.1 billion of assets under management, currently with two open and a closed-ended investment fund. At center, we've got the investment foundation with around CHF 4 billion of assets under management.
By the way, at the beginning of the foundation, that was one of the intermediate goals, and the intermediate goal has already been achieved. The investment foundation is going to grow further. Over on the right-hand side, we've got the other, pension funds that we can take care of, various mandates. In total, CHF 1.1 billion of assets under management, and all this adds up to the CHF 8.2 billion of assets under management that we've communicated. Where do we think we stand in the market? We consider ourselves, just looking at direct investments, we're probably the largest independent asset manager in Switzerland compared to our competitors. Why do we have a positive outlook on the market? Of course, the rise of interest rates has reduced the transaction market, in particular, and issuance as well, and issuance first, and then transactions, of course.
It's possible either way. But what, at the end of the day, are the issuance drivers? The issuance drivers are the quote at which pension funds are invested in real estate. Now, bonds have been going down for some time. Equities have gone down for some time. Mathematically speaking, the real estate portfolio is going to be too big, but the real estate, the properties, have not become worse as a result of it, and as soon as this rises again, there'll be opportunities of investing in real estate. That's one thing. And the other thing is, when I'm talking to investors, I hear, "Well, when will there be an end to the rise of interest rates?" That's a typical question, and it's a justified question.
Nobody wants to buy, have prices too high, and surprising a loss in the portfolio, quite right from the beginning. So as soon as the market relaxes again, and we're not seeing any further rises of interest rates, the appetite for real estate will become larger again as, people will no longer be afraid of having paid too much. That's one of the driver, and the other is that CHF 20 billion of new money comes in into the pension funds per annum, and if society grows, there'll be more money flowing into pension funds, and that funds have to be invested. Yields continue to be highly appealing, so we want to be close to the market with our asset management to benefit and capitalize on, a pickup in the market.
We are also well set up in terms of sustainability, as we have already shown under the real estate company. Now, what is it about primarily in these periods of times? And Anastasius's team did a great job in that regard. Cash flow return is essential at the moment, and we're doing well in all products. That's the ultimate driver for asset management currently. And as Marcel Kucher already mentioned, we have around 80% of recurring fees, and as it says, as the term says, recurring are not one time fees, but these are fees as long as the contracts last, will recur over the years, and we will be back over the years. So you can see that this structure can survive without any problems and come up with good results, even without transactions or hardly any transactions. You've got to achieve that first.
You've got to be mature enough to achieve that. So what you need to take home from all this, if you take home anything, is the point on the right-hand side. We are sticking to our midterm targets. There's no reason of coming away from the CHF 10 billion of assets under management by the end of 2025. We are at CHF 8.2 billion currently and CHF 50 million of EBIT, and we are absolutely convinced and prepared to achieve that. So much on asset management. This brings me to my last chart before we're going to have a Q&A session. What are the financial goals that we communicated at the beginning of the year?
It's stable FFO I, despite the difficult setting, despite the increased, the higher financing cost, LTV below 40%, to be below 40% to 39.7%, as we explained, have been driven by dividend payment, primarily in the first half of the year, and we are improving the vacancy rate. We're putting it, pushing it below 4.1% by the end of the year. And with regard to AUM, we are a little more cautious. We're saying around CHF 8.2 billion, what we are currently showing already, we are expecting as the result at the end of the year. So much from Marcel and myself. We will be pleased to take your question now. We have the following rules. I keep saying that before we get started. Take a microphone, wait for the microphone, as there's simultaneous interpretation.
Interpreters can't hear you otherwise, neither can those listening to interpretation. Please, take one question at a time, for the interpreters, but also for us, so we don't have to memorize all your questions. Microphone is here and over there. So, let's kick off with the Q&A.
Thank you very much. I have three groups of questions. The first group of questions regards slide 24, refers to slide 24, chart 24. To be more precise, Quadrant V in this matrix. I have the following questions: What's the volume of properties in Quadrant V, and what's the average return, and current valuations in Quadrant V? And maybe you can pick out the 2 or 3 largest examples.
Can you answer that, perhaps, Karin? Maybe you should use a microphone as well.
Well, I can't give you precise information, but I will do that later on. Well, basically, w ell, the volume is CHF 130 billion. The volume is clear, but I can't give you the two largest examples. The return is slightly higher than in the first quadrant. Logically, I would estimate between 5% and 8%. But I'll be pleased to supply precise figures after the conference.
Second group of questions regards, refers to the Jelmoli property. If I recall properly, it was about entrances and the distribution of tenants on the first floor and ground floor, and you've had talks with the construction authorities. Now, has this resulted in an increase of conversion costs?
Well, we cannot tell you at this point. Well, let me begin somewhere else. The authorities are absolutely open as regards the opening of the side road is concerned, but, it will be exciting. I cannot tell you everything. We will green the roof. It will be a very cool surface. The fifth facade of a building, actually, is the roof. We're hardly using it at the time, but we will use it, and this has an impact on conversion cost. But in terms of internal calculation, we have not noticed any increases. But, the city wants us to have a small contest or competition with regards, regarding the greening of the roof. But we're fairly certain as far as cost is concerned.
Thank you very much. Third group of questions, relatively simple and brief. It's about segment reporting, and in particular, the shared services. I saw that there is an operating income of CHF 8 million in the first half year. What does this include, in more detail? And secondly, I would like to know about personnel costs of CHF 7 million in the first half year. I would assume that it will be around CHF 14 million in the full year. What’s this composition? What do you mean by that, composition of personnel cost? Well, I would like to know what personnel is included in the CHF 14 million, or has been distributed to shared services, and why?
Well, shared services includes all the costs not directly related to real estate. In accounting, René and myself, to be more precise, and further costs. However, we are allocating a good part of it, of the overhead costs to shared services. I do some work for real estate and for asset management, and we have come to an agreement with the tax authorities on, on how to allocate this cost. I think this is, to, meant to demonstrate a fair performance of the various segments. I hope this answers your question.
Any further questions from the, audience here before we open it to persons following us online? Yes, please.
Well, I would like to know about the largest, revaluations. What properties had the largest revaluations?
Would you like to take that question?
Well, the largest revaluations, I need to think about that. Let me think about it.
Well, Urs, would you know?
Well, we had revaluations, in particular in the development projects. Also for Jelmoli and Alto Pont-Rouge, showing a revaluation gain and some individual ones on development projects.
So primarily development project?
Yes, primarily development project.
Yes, please.
Well, Opus Zug, for instance, had major revaluations or not very prime or CBD office locations, but office locations like the ones in Zoo, for instance. Let me make a few comments on that. With regards to valuation for the valuers themselves, I mean, they have to find their way as well. And now, I saw it with someone who wrote it in the preliminary reports for about revaluations. It said, only CHF 1.2 million. Of course, we have various pots of development. CHF 1.2 million are only from the developments being built, but the largest re-evaluations will be from the projects under planning. So because the largest ones are almost completed, as Müllerstrasse and Pont-Rouge, so there's only a small part, a small contribution from that. And bear in mind that we have changed our system.
The projects that we are building, or we're beginning to build, they are being revalued steadily. But earlier on, with every investment, the revaluation came down again, which didn't make sense. We wanted to have a straight line that is transparent, easy to understand, and this is the value today, this will be the value tomorrow, and it's slowly rising to get there.
So you don't have those various stages anymore as construction permit?
Yes, I do have that for the plots. When are things in planning? When, b ut all this is about is how this is appraised at the end of the day, and when the appraiser mirrors the development potential, in particular, with the projects under construction, we want to, to, to have a continuous way of showing the revaluation.
This brings me on to the next question. So you said you were, you were selling at the same deal as before, but you already have had a revaluation, so you won't have yield over 4% for Müllerstrasse, for example.
Well, that's a starting situation. Of course, we always start off with 5%, but of course, then over the course of the project, this, w ell, maybe you could say more about that. Well, there are several methods here. Individual properties are earmarked for sale and some to generate rental income. And so now w e have a better, more accurately controlled development over the course of time, of construction time, which will then be added to the portfolio.
So what you're talking about the 5%, B location 5%, and they're taking that money and putting it into development, then we'll put it into strong development, which will once again have to yield 5%. So that's the way it works. How do we spend the money?
Yes, I do realize that, but the point is, that means that in the short term, you are losing out more income than in the long term in terms of valuation. But the properties that we sell, of course, also have generate income, but they're smaller properties. And so when we add larger projects to the portfolio, then the rental income will be higher than it would have been originally. So we're switching small for larger projects and less favorable for more favorable locations.
Well, so, okay, another question is, what's the FFO's rate at the end of the year? And what's the swap rate? What's the— What are the costs? The costs for the swap rate. 22% from 6 years, 5.5 years, to be precise. And the cost by end of the year?
That's a good question. That will depend on whether the Swiss National Bank raises the interest rate again. So it's going to be, go, follow that SNB development where the 2025 fits, as we've seen here. So that will depend. It will be a little higher than now, but I would assume that the 2.25 basis points will be, t hat this raise will happen.
A question about the discount rate raise. Does this include an inflation increase?
Yes, of course, it was in real terms. The discount rate increase was in real terms. It's usually 5, 6 bps in real term. Otherwise, you wouldn't have had the revaluation effect. Thank you, Rolf. Any more questions in the room? Okay, another one from you.
Thank you. Three brief questions. The first one refers to slide 26, if I may.
Of course, you may.
Okay. And here you can see the 14%, to be expected. So what about the major rental contracts? What's the status of negotiations here? And what's the vacancy guidance, for the next couple of years in Europe?
Well, the vacancy guidance is going to be 3%, around 3%, about 3%, so, below the 4% that we have already mentioned, and now plus one on, sorry, 14% in 2024, 66%, have already been extended.
And so what's the status of negotiations?
So basically, you want to know whether there's a major tenant about among them, et cetera. Well, what I can say is there was one major tenant that's been extended. It's not reflected in these figures yet. That was Swisscom in Genferstrasse. So actually, this figure would be lower.
So this would take us to the 75% instead of the 66%, if we added Swisscom to this. And another question is whether we're controlling our risks.
Yes, we're already negotiating with all of the tenants that have where extensions are coming up, and I don't see any major risk with any of the key tenants. Well, and this is also the result of the survey that I mentioned earlier, that we're going to present to the Capital Markets Day. None of the tenants that has extended so far wants to reduce prices. All of those things that we've heard in connection with working from home is something that we are not seeing in Switzerland.
Yes, and the second question concerns asset management. And here you can see that we have a market environment. The short-term outlook has been confirmed, as far as I understood, but there is a certain concern that the business will be less attractive in the medium term. What is y our position on external growth, would you consider buying abroad? Something that personally I would not appreciate so much, or are you looking at Switzerland?
Well, let me start the first part, since you've already explained our strategy by saying that you wouldn't really support this. Okay, so anyway, with our third-party customers and the investment foundation, et cetera, we are set to have healthy organic growth. That being said, we are interested in looking at other growth opportunities within Switzerland. Well, if you work in a growth business and it's going well, it would not make sense to exclude the possibility of possible acquisitions. But the medium term, CHF 10.05 billion, that's in today's structure. That's if we take—if we assume organic growth. If we were to make an acquisition, that would be added to what we've mentioned. Would you like to add anything to this, Anastasius?
Well, I think it's all been said.
Great. And now I forgot the question.
Well, the third and last question. Is one of your competitors mentioned the term of green equity. Is that something that you're looking into? If yes, why? If or what's the status, and if no, why not?
Well, I think we are leading in all areas, also in the area of sustainability. So you can assume that we're taking into consideration all of those things. We just revised our sustainability concepts, et cetera, and we're also looking at all the possibilities on the equity side. And that's, of course, what our sustainability focus is all about. And then there was a question over here.
I have three questions. First of all, the savings due to the streamlining of the group, where are you going to have the highest savings?
Well, there are going to be three parts. One-third staff costs. We started with this before the summer holidays, and the cost reduction is going to be palpable next year. Then in the operative side, savings, external costs, and the third-party is IT, et cetera, where due to the streamlining, we are able to have a stronger focus because we only have one business, which is real estate, sometimes for ourselves and then some sometimes for third parties. But of course, this really opens up the possibility of having a very lean back-office structure. And on the Wincasa sale, so that's totally finished. But so you agreed to pay the purchase price in two tranches, and the second part is going to be paid next year, at the beginning of next year.
What's the reason for that?
Well, the second tranche is, of course, hedged together and sells guarantees. Well, the reason is this: Of course, this is something that we thought about for a long time. We did a deal on the 14th of March, and then on the 19th of March, the Credit Suisse UBS story happened, and s o you have to see that the volume contains 30% Credit Suisse Asset Management. So this is asset management, not Credit Suisse money. But, I received a call on Tuesday that the deal was dead because of that story. And of course, that did keep me up at night after that. And it cost us a few millions in terms of purchase price and other securities, and that's it.
Sorry to say it so bluntly, but that's the way it went. And so ultimately, we still ended up with a good deal. But yes, I didn't sleep well, I can tell you that after the takeover.
Okay, thank you. And then, the convertible bond structure is a little unusual with this Dutch financing investment company. What's the reason for this structuring? And should we expect that next time the convertible bond becomes mature, we'll have a similar structure?
Well, three points on this. Firstly, convertible bonds are a very specific financing instrument for a specific kind of investor. You all know that we have a relatively large financing portfolio by Swiss standards, and we try and split this as far, far as possible. Convertible bonds are very strongly influenced by international investors, and Swiss investors also do this via foreign vehicles. Credit Suisse, they did that with a bank from Geneva. Who works, who invests in that kind of vehicle, also Swiss Life, do that via foreign companies. So we wanted to offer a vehicle which will allow optimum access for those investors. And that is why we chose a Dutch company in order to avoid any dual tax burden.
So we want to ensure that we won't have this dual burden, and so that is a good vehicle for all investments in the Euro space. That was a little bit of a test case for us. So when working with foreign investors, this can be quite a good model also in the future. It's not something that we've done so much in the last few years. If we look back a bit further, when there was still interest to be had, there were quite a lot of transactions of this type. Swiss Re, for example, did that kind of thing because it ensures avoiding the double tax burden. But of course, if you have zero interest rates, it doesn't really matter, and that is why we haven't seen this kind of thing for seven years.
But now that we have a certain level of interest rate again, this is a form that is going to be popular for analogous financing for Swiss companies. Rolf again, and then we are going to see whether there are questions online.
Could you comment on the transaction market? What's your feeling? Where is the transaction market moving to? On condition that we're seeing a quarter of a percentage point rise of interest rates. Are there any distressed things that maybe outside of Switzerland that you don't want to have?
Well, I can make one of the other comment on the transaction market. We're convinced that the transaction market is going to continue to open up. It opened up slightly in Q2, and we believe it's going to continue to open up if the interest rate situation is going to relax, perhaps in Q4 or 2024. Do I see any distressed situations? No, not really, but let's take Rieter as an example. It was communicated in the newspapers. Export-driven companies in Switzerland, as we are seeing, are trying perhaps to do more of a sale and leaseback business because they're saying: Well, why should I be property owner? It's not my business. These are opportunities in the market. Now, whether they are cheaply priced, I wouldn't think so.
These companies are thinking, well, they can better invest their money, and reinvesting their money in the development of the company rather than using it as a landowner. But otherwise, we're not seeing any distressed sales of properties.
But do you think that yields are continued to rise and, and valuations will be according to receding trends?
Well, we've seen a certain degree of increase already, and I think it's going to continue along the same lines. We're certainly interested in buying, but especially in the development area, to fill our pipeline. We've done that for a number of years, and it's correct, the fully let properties in good locations really have yields that are not interesting for us because they would weaken our results. So the market correction hasn't taken place, and I'm convinced it's not going to take place in Switzerland, as we are not Germany. It's not going to happen here to the same extent. And of the properties sold - Take the microphone, please.
Well, you don't have a big bag of, and try to sell 30 and have sold 10.
Now, all the properties that we wanted to sell, we have sold, so we haven't remained stuck with as ones that we wanted to sell. But at the beginning, the smaller buildings were built by very—were bought by very local owners, and in the second Q, it was CHF 40 million of transaction with investor institutional investors. Not only one, but several were involved in bidding. Let me suggest that we're going to go online. You had enough opportunities to ask your questions in the hall here. So let's get started with questions online. Andreas von Arx, your question?
Good morning. Good morning. I have four questions. Well, I have sort of an echo on the line. First question, on the discount rate, chart 16, the increase of the real discount rate, if I understand well, the component of inflation, Wüest Partner , is 1.25%. How does this compare historically? Is this a value that we've had before, or is it unusually high?
First question. Marcel?
Well, compared to the last 10 years, it's certainly high, as we haven't had inflation for 10 years. Now, I've been in the industry for 20 years, and I think if you go back 15-20 years, it's certainly a normal value or a rather conservative value. My first real estate financing was closed at 4.8%, and I was absolutely happy at the time, but that was at an inflation rate of around 2%, but this goes back many years. And if I recall well, it was standard at the time, but in recent years, at 0% interest rates, this certainly is the highest value that we've seen in the past 5-6 years.
Second question on Jelmoli, chart 31. The CHF 30 million of rental income and the CHF 100 million CapEx, where's the rental income before the project?
Well, today, it's about CHF 26.5 million before the project, and the CHF 30 million is a guarded assumption. Will be between CHF 30 million and CHF 33 million. That's the assumption we're making for rental income in the converted building.
Thank you. I have a question on asset management. The interest rate setting has changed, but not only, the two largest competitors have merged as well. Now, how do you view the market, given that UBS and Credit Suisse are going to appear in the market as one unit, and will there perhaps be possibilities? I'm thinking of lower cost structure to significantly gain market share. Looking at the market, all suppliers have more or less the same fee structure, and with very large funds, competitors with the same size of Swiss Prime Site, they've had CHF 80 million management fees per annum. Costs of Swiss Prime Site are about half of that. So wouldn't there be a possibility for a more aggressive cost structure to gain significant market share in this changing setting?
Well, Anastasius?
Well, as far as UBS and Credit Suisse is concerned, I cannot tell you what UBS is going to do in terms of strategy. There will certainly be opportunities for us, whether this year or next, we're going to see. It will also be a question of the counterparty risk, how much of pension fund money are with an asset manager, we're seeing potential on our side. And as far as the costs are concerned, the cost of our products is always important to have the right costs compared to return. And we said, we want to offer products with a clear cost structure, products that are pure.
We're a pure player doing real estate only. So we're feeling comfortable with our cost, and we believe that we can continue to grow on that basis. So I do think that the large players in the industry, the non-independent asset managers, will perhaps have to reinvent themselves.
Well, thank you for your question, Mr. von Arx. Very pertinent one. What can I add in terms of answer? Well, of course, you can gain clients on the basis of cost. That's one possibility. The other possibility is that we appear as a real estate platform and have all the skills in-house, especially in terms of sustainability. And we're seeing that investors are looking into the track record of Swiss Prime Site Real Estate Company and convert that on a one-to-one basis to solutions. So that's going to be one of our key aspects when it comes to gaining customers or convincing customers to invest with us rather than appear.
Final question on your strategic setup. If I understand correctly, one big difference between the two big real estate companies is that with Swiss Prime Site, development, the development share is higher. Developments offer opportunities and risks at the same time. Would you agree that if investors bear the risks of developing, that they ought to be rewarded by a higher return on equity or a higher return on invested capital compared to your competitors?
Would you like to take that?
Well, historically speaking, I do see the idea of risk you're talking about, but I would suggest that we are tightly managing those risks. By the pre-letting ratio that we have, or given that we're working with general contractors and working with prime locations, developments in Zurich, Geneva, Berne, Basel, I think this means that the theoretical risk is being minimized or almost eliminated. Given the COVID-19 pandemic and looking at the figure in recent years, we've had hardly any cost increases in our development projects, and pre-letting statuses are very high. So the crucial thing is that we can develop for a return of 4%-5%, and we're not seeing any projects in the markets that are coming close to these figures in the locations that we have, and certainly not with new buildings in prime locations and with prime buildings.
As long as this is the case, where we have 0.5% or 1%-1.5% higher returns, that it would make sense also for investors, it would be value-adding.
Well, let me add, the difference between us and the largest competitor, effectively, is the development pipeline, plus asset management. There are two differences, really. And about development, it's important for us, and it's been a criterion of Moody's, that committed funds, committed funds, I would like to emphasize, committed funds for developments, developments that are under construction ought not to be too large, and that's how the risk is measured. All the other plans that we have are riskless. We are benefiting from the value, the increase in value of land, and the moment we're putting it into practice, so we have six projects being put in practice at the moment. That's when the question is relevant, and the answer that Marcel has given is correct, and our countermeasures to mitigate the risks.
Well, but I do think that given the appealing developments, a higher FFO ought to be achieved by comparison, but that would be offset by more capital invested. If you look not only at cash generation, but also as returns, then would Swiss Prime Site be ready to say, "Well, we will do better in terms of return as well," or are you simply saying, "We can generate better FFO?" That was really the point I was making.
Well, we're actually buying independence from the existing market, so through the development business. I keep saying that. We are our own developers. We can generate the volume ourselves with 5% on cost, and that's the interesting point about it. Absolutely. If you compare, then you would really have to compare everything properly. Other companies have various types of businesses that all generate return and all come with their risks. I think what we do is closer to our core business and allows us to come up with continuous growth at appealing returns and independent from transaction markets. Okay, any, y es, please. More questions here in the auditorium. No, online. Mr. Rotzer, online.
Hi, Serge. Well, hi, René, and everyone. A lot of questions have been put already. I'll ask my first question regarding Globus. Globus is one of the largest tenants of yours, and you read a lot about the Signa Group in Austria, that owns a part of Globus in Switzerland. Can you tell me what the average WAULT is, the average lease terms of Signa and Central, and why are you not worried about any potential change?
Well, good question, Serge. Let me take that. The contracts with Globus will expire at the end of 2026, at the first fixed term, and there are options for renewals of five years each. We have assurances that all options will be used in our locations. These are Geneva, Lucerne and Lausanne. That's point number one. Second point I would like to make is a lot to do with Mr. Benko. If you talk about the Signa Group, now, please, be aware that Globus' operating business, it is under the reign of Central Group.
It's not Mr. Benko's structure that is in charge of it. Well, they are in charge of real estate, but we are the real estate, the property owner, so we don't really need this part of the structure, but we need the operating business that is going to manage Globus and Savastano in Switzerland, but actually, Central Group.
Okay, great. Very helpful. Thank you very much. Second question I have refers to asset management. In your CHF 10.05 billion EBIT goals, have you defined quotas for recurring and non-recurring?
Anastasius ?
Well, I'll lift the shares, as you are mentioning. Well, the idea is to have two-thirds of recurring fees in the long run, but in a single business year, it may be that we have a lot of issues and transactions which would press down recurring fees. But as a matter of fact, it's about absolute figures. The absolute figure is to move upward at the end of the day and be the foundation for our business plan. Well, Serge, the goal is actually. It's good for this year to have been a rather difficult one, because it proves that the structure is mature enough. It's independent of transactions, and a lot of others are dependent on transactions at the end of the day. But this structure is self-funding through recurring fees, and that will remain the same.
In the future, we are at 80% currently, and you said it, it has to be two-thirds in the long run. Well, you have CHF 9 million, 80% of CHF 11.3 million, CHF 8.2 million. So, you still have a long way to go, I would say. What I'm worried about is that with the issuance volume, you have to get up to CHF 15 million. You have to fill the delta, but it always takes time. There's always a lag. There is going to be a, an interest rate rise in September, so 2024 will be difficult, and then you'll be already in 2025.
Aren't you seeing a danger there? That it could be a close call at the end of the day.
Well, if we had a crystal ball, I would be using it today. But the point is, what we need to do is, well, to be sure, to be close enough to the market, to use opportunities quickly when the market relaxes. We are prepared. We've got the structure, we, we're lean enough, we're streamlined enough, and that is why we're absolutely convinced to meet the midterm requirements.
Okay. That's it. That's, that's been all my questions. Thank you.
So Rolf has the very, very last question.
Everyone's hungry. Okay. I just wanted to refer to the development in the sales. That's about almost CHF 400 million, but you have CHF 1 billion under construction until 2025. So if you are going to develop all of them, are you going to sell more buildings? How are you going to finance them?
Well, at the moment, we still have enough properties. And of course, you could say that we could spend the cash from the Wincasa sale for financing. So that's another option of financing. And this contributed to selling less this year than we originally planned because we thought we might as well postpone those sales. So that's also a kind of capital recycling, whether it goes into financing or into development, is irrelevant at the end of the day.
So are you going to increase debts, or are you going to continue selling in order to finance the development pipeline?
Well, in the long term, well, we are the ones who set the pace. And if I didn't have anything left to sell, very, very theoretically, if I didn't have anything left to sell, I would have a much higher top line, because we now have a lot of developments in the portfolio. And then, since we set the pace, it wouldn't be CHF 250 million, but less per year that needed financing. So it's all under our control. Karin, would you like to add something?
Well, I want to answer Ken's question. 155 properties, now at 41. The smallest at CHF 3 million, and at the end of the year, we're going to have 5 properties fewer in that particular quadrant.
So, okay, let's leave it at that. Thank you very much for your interest. And if you have time to join us for the after, we would be delighted. I hope you came for that as well, not just for our figures. And so I look forward to chatting to you then. Thank you.