Ladies and gentlemen, welcome to the media conference on the annual results today. You can see we've got operating profit growing to €1,200,000,000 profit was increased to €310,000,000 The portfolio rose by 5.4%, percent, vacancies down below 5%. Revaluations are in the bandwidth as last year and Board of Directors is proposing a payout of a dividend of CHF3.80 and we are proposing to elect Mrs. Nartebas to the Board of Directors and colleague Claus Wechen will not stand for reelection. On this, let me hand over to Rene Zand to be followed by Markus Mayer.
On Sunday night and asked to keep bed rest until the end of the week, but I'm sure he's watching us from his couch. So now let's take a look at
the figures.
So financial year 2018 was a very positive business year, the most important highlights. The property portfolio showed a growth of 5 point 4% to CHF 11,200,000,000. The operating income was CHF 1,200,000,000. Here, the growth was just over 5%, 5.1%. And it's just been that these figures are correct, EUR479,000,000 both in rental income and in EBIT.
So we had a 2% increase in rental income and 1.7% increase of our EBIT. Profits rose by almost 2% to EUR 3 €11,000,000 The equity ratio was almost 44%. And the earnings per share, just like last year, exactly the same, CHF 4.27. And the net asset value also showed a slight growth by 1.3 percent to CHF67.74. And please observe that the net asset value only contains our Services segment in at book values.
Now let's take a look at our events of last year. First of all, the successful capital increase of Swiss Prime Sight, EUR 323 million on the 28th September 2018. That's the date of the settlement. And the third time, euros 221,000,000 to purchase existing properties. That's €550,000,000 together.
And that was also in September 2018. We're currently working on the 4th issue, which is being carried out by the Swiss Investment Foundation. We have 190,000 square meters in terms of new and renewed leases. That's almost the same as last year where we achieved 195,000 square meters. That's 5x the surface area of the prime tower.
And this is accounts for rental income of about 50,000,000 in new leases or renewed leases in 2018. That is certainly a very positive result. Let's take a look at acquisitions. There were 2 acquisitions. 1 was the Islay site in Regensdorf, which we acquired in January 2018 and an office building at Beethovenstrasse, 33 in Zurich.
And they have a combined rental income of CHF 5 200,000 per year. Another acquisition of 2018 was the Monte Tertjanen project, which is scheduled to be completed in 2021. And another acquisition was the Westlog project in Zurich Alstatten, which is expected to be completed in 2020 with annual rental income
of CHF
4,600,000. Another highlight of the year was the asset swap with the Swiss Asset Management. And another highlight was a divestment that sounds negative, but it's not. These are mainly profits from sales actually. And these accounts to around €34,000,000 80 percent of which come from our development business.
And the remaining profits from sales came from a burn property from our portfolio, but I'll get back to that in just a moment. So these were our highlights in the core business. I also have some pictures here. Beethovenstrasse in Zurich on the left hand side, which is a very flexible building, which we just restructured, and we have very interesting rental structure here. And on the right hand side, it's the Isaly site.
Really, it's a development site anyone would dream of, and it already has a net yield of 4.5%. And at the moment, we are doing what everybody loves doing most. We're not doing anything. We're happy with the 4.5% net yield, and we're waiting for the Regenstahlf municipality to launch another development plan, maybe in collaboration with us so that we can then rezone the site and start development. So this is a land reserve for the future.
Here are the projects that we acquired. On the left hand side, the Westlog in Zurich Alstatten with a rental ratio of 85% with electromateriel as a tenant, and we're expecting them to also rent the rest of the building once it's finished. It's very interesting. There's a lot of connection with e commerce. So the more e commerce sales are generated, the more the large logistics companies are going to move into urban areas or rather on right on the edge of the towns where hubs are created for transport of these e commerce products.
Maybe in the future, this will also be self driving vehicles and the last miles are then done into the city. On the right hand side, you can see the tertiary residential and care center in Monte. Now let me talk about the asset swap together with Credit Suisse Asset Management. This is an image of Seal City. What were the reasons for this asset swap?
We were not the sole property for 2 properties. 1 was in Laufel, where we held 49% and Credit Suisse held 51%. And here in Seal City, our share was 24.2 percent and rest belonged to Credit Suisse. And we always knew that we wanted to be 100 percent owner of the property. We therefore suggested the asset swap and were able to complete it successfully.
So that means that we don't have the 24.2 percent co ownership anymore, not because you said it didn't work, but simply because we didn't want to be a minority owner.
And
we the retail share in our overall portfolio was more than 30% in 2018. We're now below 30%, and that was always also a reason why we were in favor of reducing our retail areas. So in turn, for the 24.2%, we received the Ruhlerstrasse in Zurich, very close to the main train station. At the moment, Swisscom is a tenant of this building, but they're going to move out. And that is an excellent opportunity that we're going
to seize.
We have some excellent ideas because sometimes a tenant leaving is an opportunity. And the Gisuber site near Seal City in Zurich was the other property that received, and this is the Swisscom headquarters. And last year, we were able to extend the rental contract by 10 years with an option for another 5 years. And that was a reason why we didn't just want to own 49%, but 100% of the property. So this asset swap certainly made sense from that perspective, too.
80% of our profit from sales came from sites under development. On the left side, you can see the Wertvostpark in Bern. This is a residential development. That is why we were sure right from the start that we're going to sell it. So now we are looking at selling the construction permits.
That's a typical thing for Bern. And then the other aspect is the POC method sales profit over the next few years. On the right hand side, you can see the only sale from our existing portfolio worth mentioning. It's a small building directly on the Barnhorst Platz, the main station square in Bern, with a net price of 2.2 net yield. That was so interesting that we decided to sell it.
In summary, this is the portfolio. The valuation gains was similar to last year, around CHF 86,000,000 a net yield slightly below last year, 3.6 percent. And the real discount rates was also lower than last year, 3.22. So how did these positive revaluations come from? Well, from existing build from €38,700,000 on investment properties and €28,900,000 were on development.
Last year, we had 5.2% of vacancies. We're going to drop it down below 5%. We're now at 4.8%, and we're now still level here. And we can expect to our vacancies to remain below 5%. Let's take a look at the Services segment results.
I was already able to read in your report that this is a disappointment, but I beg to differ. The question is how this was budgeted. They all were in within budget and therefore not a disappointment. So let's start with Swiss Prime Side Solutions at the bottom of the slide. Here, we had assets under management increase of CHF 1,600,000,000 at the end of the year, and we now have CHF 1,900,000,000 assets under management.
There was a major transaction over Christmas New Year, which wasn't closed until the 3rd January. And so the 3rd January can't be booked for 2018, obviously. So that's going to be shown in 2019. So we are already almost at a level of 1,900,000 assets billion assets under management. And that shows that the 4th issue was is going to be successful.
Last year, we also had the opportunity to exchange the team here, and we're more than happy with the results. Tetsianum. Today, we have 77 sites in total, around 3,200 care beds and 1800 apartments. In addition to the 77 sites, we also have 15 sites under development for assisted living. And if you now take the number of care beds and new apartments, including developments, that's going to bring us up to 3,000 800 care beds and around 2,500 apartments.
What are we planning for 2019? There are going to be 2 new openings, 1 in Kyaso and another one in Lisle. What else did we do at Tatiana? We invested a lot into the new ERP system by SAP. This is now fully set up in German, Switzerland and Ticino.
So the CARE documentation, CARE Coach was also introduced in those regions. And now the next challenge is to introduce these new software applications in French speaking Switzerland so that the entire Tertial in Switzerland is equipped with software. The Elmerly, well, you've heard about the minus EUR 2,600,000 EBIT. This was we missed the
budget, but
we knew that we would refurbish a major property that was Zara's shop that was closed for 2 months, and there were no 2 rental there were 2 rental incomes that were missed for 2 months. And that is why the result is not as positive as it was in 2017, but we are on budget. This afternoon, we're going to announce or tomorrow at the latest that the PAS clinic is going to be included 7,500 square meters. The Paris clinic are going to offer dermatology, aesthetic medicine, medical cosmetics, also well known as an eye clinic. And it's important to create such centers.
It's no longer just a shopping center or a shopping mall. It's not just a house of brands either. We are going to Mall in this year, Omni Palace Clinic. Franco Savastana tested it yesterday. He said, well, you can now offer Botox to go at the El Moli instead of coffee to go.
Well, I thought that was a very nice image, and so that's why I'm mentioning it here. We're also going to open the location at Zurich Airport, hopefully, in the summer of 2020. We are still on track here, so we are expecting to be able to keep the schedule. Both on the air side and in the circle. Amnaue Winqaza showed an increase to CHF68 1,000,000,000 with a number of new contracts with new customers, but we're also able to renew contracts with existing customers.
We are working hard on digital transformation. And of course, it's not enough just to create a website. The entire IP infrastructure needs to be changed and that requires investment and time. That is why the EBIT margin has dropped a little, but it's still 13 percent, and 13% is still excellent. And this was planned because the transformation process, this technological upgrade is something that we want to invest in.
The outlook for this year is going to be clearly over €50,000,000 in services. It's currently €47,600,000 in 2018. That was 10% of the EBIT, and we're expecting a clear increase. And we're also expecting around €50,000,000 from Tercieno and Vincasa alone for 2019. And now if you compare that with the €50 5 that I will set as a target for 2020, that shows you that we're on course.
And now I'm going to hand over to Marcus for more details on the
essential components of the 2018 financial statements. Well, for the highlights, we had growth in the core business of real estate, rental income and sales proceeds. I'm sorry? Well, the tie is not fitting well, is it? Anyway, we had growth in real estate, in the core business for rental income and sale of real estate developments, and there was growth with Vincasa from construction and property management fees.
We planned for strong growth in the field of assisted living with Tazianum given the newly opened care and residential centers and Jelmoli compared to peers did very well in a demanding retail setting. So let's get started with the main source of income, rental income, of course, and the details. There's an increase of 2%, 9 point €5,000,000 up to €479,000,000, €15,500,000 stemming from sale and completion of For the acquisitions, of course, this is mainly focused on the asset swap with Great Swiss Investment Vehicles. And on the left hand side, you can see the minus of €3,000,000 of sales. That's basically attributable to our 24% share in Ziel City.
And add to this the office building Swisscom office building at Warblaufen where we had a 49% share, which we increased to 100% as a result of this transaction, putting us in the driver's seat. And there are 2 well located office buildings in Zurich with potential at Gisubelstrasse and Mullerstrasse. Furthermore, in the summer, we acquired a top level CVD office property in Zurich, well have a long term development project with a 4.5% yield already on the books and this is property with potential for further development located at Regensdorf. That's the Easley site. As far as the concluded real estate investments are concerned, it's primarily Motel 1 in Zurich, the hotel we opened, plus a mixed use property of Riamboursin in Mera, near Geneva.
Like for like growth on various investment properties amounted to a net of CHF 4,900,000 due to higher lettings or re lettings and discontinuation of rental discounts. Let me also mention the Fair Tower in Basel, which is a hotel and the Stukki Business Park on the Stukki site as well as the media park here in Zurich. There's another major property near Petitlancy, near Geneva in Petitlancy. Next, we temporarily lost CHF 8,600,000 due to substantial modernization and refurbishment, 1st and foremost, at the Stuckey Mall in Basel and the A1 shopping center that was re converted to a DIY market. But also there is an OBSE property, which is a result of the bankruptcy of OBSE last summer was given up by OBSE and we are going to convert it on behalf of a financial services provider in Basel.
Up to this 700,000 from assisted living, that's income from additionally leased properties. This is EBIT. And on the left, you've got top line growth up to the CHF 1,200,000,000 In dark, we've got the Real Estate segment that contributed to growth primarily due to the POC accounting. We've got higher POC income that we achieved due to growth I just outlined for rental income. We've got EUR 73,000,000 of POC income on the books and expenditure of €57,000,000 The increase in the segment of services of €36,000,000 or 5% is primarily attributable to strong growth in the field of assisted living.
Taking a look at the center chart, EBIT composition, we can see that services account for 10% of EBIT already, and there's a trend for it to increase. This is the breakdown for services. Tertianum post strong growth, which has not yet have a major impact on EBIT, the reason being that the various projects and care centers being built up and that will take some time for them to be up and running. So the ramp ups are having their effect temporarily on our margin. Look, wind cars are top line growth and a slight decrease in EBIT for the transformation efforts that I mentioned before and also due to income from the transaction business in 2017, we have an excellent year as far as the transaction business is concerned.
And in 2018, a major transaction was only concluded at the end of the year, but the situation is stable. GELMOLI is on track as far as budget is concerned. This has been mentioned before. Menswear did well. Accessories did well as well as food and restaurants.
We had decreases in sales, especially for ladies wear and the ladies' world. Moving on to Swiss Prime Site Solutions, where we had reorganization and a delay in the closing of the transaction that will lead to higher income in 2019 only. This is the group income statement with operating income of CHF 1,200,000,000 then revaluations of investment properties, slight increase over the previous year, Strong performance for prime properties such as one here at Mark, the Mark site or retail locations in Geneva and Zurich and high quality office space in Bern and Zug. €29,000,000 from real estate development, let me mention Espasteur Bion at Geneva, where 3 buildings are being built and that we will take on to our portfolio and Stukipark and Basel, the additional finger docks that we are going to build with mixed use between lab, medtech and office space will also lead to a high income. The market weighted average discount rate decreased by 13 basis points to 3.22%, down from 3.35%.
In nominal terms, it's 3.75%. Moving on to sales proceeds. The 2 components really, the actual sales proceeds for the property at Bahnhofplatz 9 in Bern and the residential building called Welporspark in Bern, which will be posted in our POC accounting. In the summer, we sold the land and the project. We've got a total of €34,000,000 of sales proceeds, 80% of them are from real estate developments.
Operating expenses increased considerably by €71,000,000 up to €823,000,000 This is primarily attributable to expenses resulting from real estate development and growth in the field of assisted living, Tersianum, the newly opened establishments, especially triggering personnel cost and depreciation and rental expenditure for additionally leased properties. Headcount rose from 4,900 FTEs at lowered. We benefited from the low interest rate setting. Tax expenses considerably rose as a result of the sales of properties and the asset swap. All this leads to an increase in profit to CHF 310,900,000 and profit before revaluation gains and all deferred taxes of CHF 287 800,000 Swiss francs.
This is the development of the real estate portfolio from a purely financial point of view. The market value of the real estate portfolio rose by CHF571,000,000 or 5.4 percent to CHF11.2 billion. This reflects the situation of rental income, strong increase as a result of the purchases and this is real estate swap, the asset swap and the acquisition of Let Westlog in Zurich and Beethovenstrasse, the top level CBD property and 2 more projects in the field of assisted living, one at Monte and the other one at Ritesuil. Now on the left, you have the divestments primarily due to the sale of Seal City and smaller shares accounted for the Baanhofstrasse 9 building in Bern. Value increases of investment properties contributed around EUR 122,000,000 strongly driven by the prime properties on our portfolio.
For refurbishments and modifications, an increase in €320,000,000 shown in Berg in Bern, primarily the former World Post Bank and the Plan Le Wat site that we mentioned before as well as Port Rouge and the Stuckey Mall and the Finger Docks as well as the Yond project here in Zurich, which is going to be completed in the autumn of this year, and we'll be ready for tenants to move in. Moving on to shareholders. Equity, our equity ratio is 44%, which is within our guidance bandwidth. We carried out a successful capital increase of CHF 320 3,000,000, and we feel very comfortable in this situation. Moving on to financing structure.
There's a slight shift towards capital market funding. At the beginning of the year, we issued a convertible bond €300,000,000 convertible bond at a coupon of 0.3% to 5%. It's an innovative issuance giving us the right as the issuer to choose the amount of cash or bearer shares of Swiss Prime site, we would want to complete conversion. This gives us a great degree of flexibility. In the summer, we issued a 6 year straight bond at a coupon of 1%.
The average volume weighted interest rate is 1.4% and amounts to an average residual term of 4.3 years. The load to value LTV is also within our guidance bandwidth at around 45%. So much on the financial key ratios. Let me hand it back to Rene Zandt at this point.
Take a look at our project pipeline. In summary, I think this is a very clear slide. It shows that what the developments are. We still have 2.2 net yield for fully rented retail properties, so it's not very attractive for buyers. And our development pipeline gives us the opportunity to achieve higher rents to get revaluations just like last year when we achieved the €29,000,000 and there is also the option of achieving or generating sales profits from selling properties.
There are a lot of synergies between the development business and modernization of existing properties. And also, here, we have the League of Sustainability, and that is closely tied in with innovation. We can ask our partners to be compatible with our values, And this allows us to set up the 3 d model, which makes construction easier and also has benefits in terms of facility management. Here are our 15 projects across Switzerland. Those of you who have been paying attention will know our project pipeline, the €200,000,000 are still part of the reserve.
They're not in this development yet. They haven't disappeared. They're just not on this slide. The focus of development is Zurich, Geneva and Baader, a major development in Bern and the small delta Alton and Ticino. These are developments for Churchian and for Assisted Living.
Here are the properties under construction, and I'll show you this slide here so that you can get an idea what it looks like. Let's start with the Olin in Zurich. We now have 40% contracts under negotiation and of AgfaSci Fiend contracts. And we are expecting that by the end of 2019, we will have rented out more than 2 thirds of the surface area. This is going to enter our portfolio at the beginning of the Q4
2019.
And by that time, we will have rented out 2 thirds.
In the middle, this
is another property that is going to enter the portfolio in the Q4 this year. This is the Schoonbockenburne. The hotel has already been rented out to the Price Hotel, and then there is going to be a co op, 800 square meters. And there is also going to be a gym and 240 apartments, of which only 20 have not been rented out yet, start of contracts on the 1st November. So I think I'm not being too optimistic when I say that they're all going to be rented out.
Another project is the West Loch in Zurich. Here, we have already rented out 85% And more properties under construction is Itlondleroy, another logistics center, which looks a little more like an office, but it is a logistics center in a very similar location to Eierstadt in Zurich right at the gate of the city near the motorway and so easily accessible for trucks who park underground here for reloading. 5 of these buildings have already been sold to Heisz Vistor Foundation. And this is a little correction of what Markus Mayer just said, not free buildings, but only 2 are going to be added to our portfolio because we are planning to sell Building A, the smallest building on the corner here. And that's very interesting because this is going to be a sale to commercial clients, floor by floor.
I don't know whether we invented the concept, but these commercial
operators
have now operating their commercial interest, not just by companies wanting to rent, but also by companies wanting to buy because they want to be committed in the long term. In conclusion, we are expecting that 5 of these buildings, 2 have been sold, 1 more is going to be sold, and so 2 are going to be in the portfolio. Then JED in Zurich at the center of the slide here, This is the former NZZ site so that you know what I'm talking about. We have already rented out 75% of existing buildings. There is still potential for a new build, too.
75% of the existing building has already been rented out. And on the right hand side, these are the finger docks that Markus Mayer just mentioned. 2 are under construction as we speak, and we are expecting to have rented it out by the end of the year.
And that
means that we can start construction of the 3rd and the 4th building. Now let's take a look at the projects and planning. The 4 projects at the bottom are all assisted living projects in Ticino, Monte, Richtersveel and Alton, projected for completion in 2021. This is what it looks like. This is Alton.
The building you can see here already exists. That's our building. That's not going to be the assisted living building, but the 2 new builds on the left and on the right is going to be for Tordianas on the left and other tenants on the right on the same side. The yield is going to be mostly above 4%. I've said this before, but let me say it again.
The yield for Tetsuinum's properties are between 4% 5% net. And this is a good thing because all of these hotel buildings could be also be converted into normal regular apartments. These are not health care facilities with specific intentions. This is simply a different form of living with Care Beds. And that is why the yield of around 5% is to be judged as to be
positive. Here's
a project in Lugano. It's a building that's practically on the lake inside in the lake almost. And of course, that kind of building is not cheap. And that's why it is going to be a residence luxury living. And we have several residences.
These are buildings where tenants pay between CHF10,000 and CHF15,000 per month. And this is going to be the 14th residence in Lugano. We already have a great deal of interest, not so much from Ticino, but from Northern Italy, Milan and Torino. So here, it's the investment is high, €70,000,000 and that has to do with the building being on stilts in the water. Here's the Alto Pen Rouge at Hartbook 2.
I don't have to repeat what Peter Lehmann said. But let me tell you, we have filed to get the building permit, which we are expecting to get by the autumn of this year. And so if all goes well, we can start construction at the end of this year, I certainly know later than next spring. The yield is going to be clearly above 4%. We are currently expecting 4.6% net yield.
This used to be lower, but we then revised the entire project, And then as soon as we know what the authorities want us to do, then we will start putting this into practice with the general contractor. So we are expecting to be able save on the building's costs that we have calculated so far and we've budgeted for. The mark side is a great success. Of course, you know it well. This is potential terrace for smaller apartments.
And I think these apartments would be a good fit here. And this was one of the questions of the newspapers, whether this is necessary for that is absolutely a must for cultural events to keep taking place here on the site. We are not the direct tenant of the Tallhallah, but as far as we see things, the new build could be implemented and it would not be a problem with the adjacent Torne Hiler. But that's going to be out of our hands, but it's going to work. We can build, and this is not going to prevent cultural events from taking place on this site here.
And I think that's a message that you should take home today.
Moving on to the outlook for 2019. Beginning on the left hand side with the economy in general, we believe that 2019 is going to be slightly dampened compared to 2018, which is due primarily to geopolitical risks such as the shutdown in the U. S. Or Brexit. And nobody really knows where Brexit is standing at the moment.
All problems in Italy, fundamental problems in the neighboring European Union countries, which means that economic forecasts have been brought down a little bit but are still positive for Switzerland. The outlook is positive. And specifically, for our 2 main segments, the office space market. On the one hand, we had an excellent year in 2018 for office space. A lot of office space was re let or newly let.
So the economy is doing well. There is a lot of demand for office space in prime locations, the ones that we're having on our portfolio. We assume that this momentum is going to be maintained in 2019 for office space. So there is green light for office space. Of course, it's always a matter of the micro locations.
When you're located in Zurich West, it's not the same as Zurich North. We do believe airport, but everything in between Oerlikon and the airport will be suffering. But CBD and SuriQuest or Geneva with the new subcenters certainly include great potential. The question of course always is how will the working landscape change. Co working spaces are on the rise.
But where do we stand? Let me refer to the JLL report. We're at 0.9% of office space, so it's co working space today. What about the international picture? Amsterdam has more than 5 percent of co working space and perhaps in Switzerland, we will get there to 5%.
So this is 5% of the entire office space market in Switzerland. Or in other words, co working space is absolutely interesting, but it's not a solution to all your problems. If you have a location that is not all that good, co working will not help you. It works in good locations, but there may be limited growth, growth limited to those 5%. Maybe office space has to be very flexible, that's another point, with high rooms, for instance, that give you the freedom to respond to new needs.
So office space is okay. For the retail market, we've got increasingly bad news coming up. We're trying to tackle that inside Yellmoly. Thanks to Yellmoly. I believe we understand the retail business.
So the event centers that are building up, which are a blend of traditional shopping plus restaurants and other segments such as the Palace Clinic I mentioned earlier on and the Stuttig conversion will be similar. I didn't mention this because it's not a development project, but the reconversion of the mall is at 75% of letting at the moment and it's going to be up to 100%. There is a blend of a gym, health and the cinema. So it's a new design. The former shopping malls, we like to use that concept.
It's certainly something that we are changing. It's a success story. There will be brick and mortar retail in the future. You just have to implement it properly. A lot of small stores and shops are closing down.
The OBSE Group went into bankruptcy. We have 8 locations that we re let at higher rental income on aggregate compared to before. And here's the point, only one of those locations is still operating in the same segment as OBSE. Only one of 8 is still working in the field of fashion. So shopping is moving away from fashion and we've done this in ELMOLI.
We've clearly decreased the share of fashion in recent years. So a good prime
site
in a city center remains a prime site, but it will no longer be OBSE, but maybe Basel Cantonal Bank that gets established in this good location. So there's a great deal of potential, but inner cities are changing, of course. Ground floor things are changing. Let's take Zurich, for instance. Here in Zurich, you can see there's a lot more restaurants at Bahnhofstrasse, Uy Cafe, Bar 45, relaunch of Cafe Zurich, Confisserie, Bachmann or you've got co working space or showroom surface area.
So this transformation is taking place. But if the location, the micro location is right, if you can offer a good surface area, then you will be doing well, maybe for other purposes. So for our retail about the capital markets. We believe that interest rates will remain low. We've got business representatives or economic representatives here.
The answer is that on Sunday newspaper said we're going to have negative interest rates by the end of 2020 And Financi und Wirtschaft, your newspaper wrote that we're a far cry from a change of the situation as far as euro interest rates are concerned. We would be ill advised if you didn't trust those 2 publications. So we believe there's not going to be change to the interest rate setting for 2019 and maybe even beyond it. As far technology is concerned, technological change certainly is something that is keeping us on our toes. That's why we have invested heavily.
Let's stay with the buildings, for instance. There are 2 things. Either you build a building with little technology or a fully technologically equipped building. You need to know your customers' needs. And the question about technology also is whether you can have a self sufficient building, maybe a building as a powerhouse that feeds itself with power and energy, new things that technology enables.
And building information modeling is certainly also be a cost reducing component on with an impact on the construction industry, a positive one. Or today, you may have seen this picture, a house planned and constructed digitally. This is done at Dubendorf in a test lab. It was built by robots and 3 d printers. So all these are forms of technology that we have to be interested in.
For Tercianum, it's robotics, of course, that plays an important role, support of care coaches or rental platforms, interconnection of clients. I think technology opens up many new opportunities and we have a positive view of it as we are seeing more opportunities than risks. And finally, a word about politics. With a smile on our faces, we're happy that the initiative has been turned down, clearly turned down on settlements and development in Switzerland. In May, we're going to have the vote on tax revision related to Social Security System.
This will have a direct and indirect impact on the real estate business, but not only on the real estate business. So we're actually in close contact with politics and pressure exerted by regulation. And last but not least, for our guidance, we're presenting it in a different fashion now. We've got 2 points on core business then for segments, one bullet point and summing the final bullet point for the group. Let me begin with the core business on the left hand side.
This is a medium term piece of guidance, development pipeline. That's the additional rental income. And then you see how rental income is going to evolve, the €479,000,000 that you've got in your documentation. And here, unfortunately, we only have an additional €2,500,000 from development business. That's the Yand and Schoenberg projects that will only get onto the portfolio in Q4 2019.
But then we are going to have nice increases, plus 14, plus 14, plus 20 4, plus 27,000,000, interesting increases for the most important figure, income from the development pipeline and those of you familiar with the old presentation, if you add all this up, you get up to around €83,000,000 We once referred to 92,000,000, but we haven't lost 9,000,000. The last project will be terminated by 2025 and is not shown here. So we're still talking about the same figure. But by 2023, we're looking at a total of €83,000,000 of additional rental income. And this includes, and that's important, we'll assume that the 3rd building will be sold as condominiums.
So let's be precise here. For the Plagne Ward projects, the 2 buildings that will go into the portfolio and the third one is going to be sold. Please take that home as a message. We are very confident of achieving those values. Of course, there's a risk in the development business, a risk related to approvals, to timing, when we get approvals.
Those under construction do not come with a risk. We'll be in due course building them. But anything that requires approval comes with a certain risk, but you can keep an eye on that. And as I mentioned already in the core business, the vacancy rate is going to be maintained at 5% or lower. We're at 4.8% currently.
And for the services segment, we said, well, let's specifically focus on Tersyanum. Tersyanum is going to achieve €500,000,000 of sales for the first time this year composed of 2 packages, one being the actual income from assisted living and the other part being rental income. That's 500,000,000 and we are expecting EBIT of more than €30,000,000 from Tersyanum. The EBIT margin will be a little more than establishments opened in 2019, then we would be around 6.5% of EBIT margin in a peer comparison. And we will have introduced the SAP ERP.
We will have introduced the Care Coach across the territory of Switzerland. So we're very proud and with the results to be expected for 2019. And finally, at group level, we want to uphold an appealing payout policy for Swiss Prime Sight. So that's all information on my behalf, and let me hand it over at this point to the Chairman for questions.
Thank you very much for your presentations, dear colleagues. We're now open for questions. Thank you very much. The first question is to Peter Lehmann. Concessions did you make for the first 40% of rental contracts?
Or in other words, what's the average price per square meter? And what are you expecting for the next 10% as of mid-twenty 18? On the first point, we don't make any concessions. We set the rental price about 6 months ago, and that's what we're asking for now. It's a mixed price CHF260 per square meter for the surface area and CHF160 for the upper floors.
And that is also the basis for the rental contract that we're going to be signing until between now and the end of the year. Let me just add to what Ronny said. I would not be happy with 2 thirds by the end of the year, but I'm expecting more than that. Thank you, Peter. I'm happy to hear that.
Next question to Peter Lehmann. What price per square meter are you trying to achieve in a sale? Well, it's going to be market prices comparable with similar properties in Geneva between CHF 4,500,000 CHF 5,000. Thank you. And the next question to Mr.
Markus Mayer, if I may. You spoke about investments at Surinqaza. What size are they? And I heard that the EBIT margin is going to be increased. So what's the objective for 2019 in terms of EBIT margin?
Well, the investments are in the platforms
and
also suppliers and tenants are investing here. Customer expectations vary quite a lot, both in terms of the tenants and the owners. So this is quite a complex issue. We're also working on workflows such as central recording of rental contracts and checking credit worthiness of applicants, etcetera. These are relatively complex processes, and we're developing them to be agile.
So the investments are going to be several 1,000,000 over the next few years. And the 13% margin is
excellent.
And we're going to try and keep that up. And a follow-up question. The costs for the ERP system for Terpusen are probably special expenses. How high are those? Well, it's an SAP system for operation, but also the in combination with a care coach, which records services rendered and care class attribution of patients.
That's all part of the package, similar to Wincarza. And the last question to Doctor. Vieli. Well, if you're using a title, then you should do it properly. No, sorry, just joking.
Well, you're Austrian. And the Austrians love their titles, don't they? Otherwise so you don't need to call me by my title. The name is certainly sufficient. So quite a while ago, you spoke about strategic options for Tasienum and how they were going to be reviewed.
How is that process going on? How much longer is it going to take? Can you give us some insights into this long term strategy review? Well, I could be rude and say no. Insights?
We said we have an an objective of €500,000,000 in terms of sales, €190,000,000 sites €90,000,000 EBIT. And so we are striving to boosting the added value. We're always talking about options inside. Of course, that's what we do for a living. That's our daily business.
You would be surprised that we at all the options that we check every day, that's part of our job. But of obligation, just like digitalization of wind cars. And just to give you an example, we check more than 5, 400 young new companies to see whether they would be interesting for us to invest in. We're not just building contractors. We really try to shape this world, and that plays into our work at Cessiano and Carza, Win Carza, etcetera.
You'll hear from us when the time is right, but we want to treat all of our shareholders the same. I was fearing that. Thank you very much, Mr. Verdi, for letting me speak. Whilst the maturity profile of contract up for renewal in 2019 2020 and renewed contracts.
Maybe you could just also insert that into your annual report. And another question about something you haven't mentioned. You spoke about the net yield of the purchases or sales, but I would like to know what the figures were for Beethovenstrasse and Westlog because you didn't mention those. Well, on maturity or rentals, the contracts are for renewal. It's a the figure is about 13% for the next 12 months.
Onethree of them are parking space, etcetera. They're not that important. Just like in the past, we don't want to sign contract as soon as possible. We have learned that sometimes time works in our favor and helps us to bring up prices. But we're going to try and find the right time to sign the contract.
The Zurich and Geneva markets are very interesting for rental properties. And so rest assured that we are going to be able to have a vacancy rate of far below 5%. And in 'twenty nine, we have no contract up for renewal that would worry us. Let me also add that the average maturity of remaining rental contract time is 6.4 years at the moment. So most of our rental contracts are long term contracts.
And then the net yields and an additional question. The cost of modernization, for example, obvious or Stuki, that must be quite a setback, having to invest so much in these properties to be able to rent them out again. Can you maybe comment on that? Well, the investment costs that are necessary to repurpose these properties already contained in our 2018 So they're not going to create any pain. And so if you have the impression that we bought something that was too expensive a year ago, let me tell you, we were it was good that we bought them a year ago because it was 2.6%, 2.7%.
And today, we have 2.2%, 2 point 3% yield. So the yields are going down. And that is why we feel that all of the acquisitions that we made were wise. And Westlog, here we have yield of between 3.6% 4%. What about logistics properties?
And I asked a question about OSA in order to get an idea of what we can expect when other new properties are modernized. So what percentage of the original building costs do you have to calculate? Well, that's always different. We always work out for example, if we plan to repurpose from commercial to residential, we have to look at where the risk is higher. Building apartments is much more expensive, rental yields are not necessarily or rental income is not necessarily higher.
And that is why it may be better to create offices. But that is something that we a decision that we take for each individual property. And in most cases, we are going to be far below the 40% of construction costs. Follow-up question on investments in your IT systems and Care Coach. Amortization charges have risen by EUR 7,300,000 to EUR 7,300,000 excuse me, by EUR 4,500,000.
Is it going to stay on that level? Well, we are not going to start right up until we've concluded the project. And yes, it's going to increase, yes, over the next few years. And usually, write off period is 5 years. But that depends on the service life.
You said that in the medium term, you are expecting a 6% margin for Tetrion. Now you're at 7%. Why that drop? We have several operations that are still being ramped up and that has an effect on EBIT. Because of course, here, we have the staff.
We have all the and the operations are running, but the projected rental rate is not quite achieved yet. So this is ramp up fire pace. It's going to take a while. And so once we're better known and the local market has absorbed it, we are going to be able to boost those margins.
Final question on the transaction market. I saw that you requalified some assets for sale. What do you expect for this and next year? And if everything remains the same, are you going to proceed to divestments from your portfolio? Well, we are keeping a close eye on our portfolio and there may be sales coming up.
But if we divest, then it's always a matter of reducing retail space. It would be, for instance, a great opportunity to test the market and to see at what price we could sell. And we are keeping an eye on that, as I said, but we are very careful, and it's got to be a strategic fit. A1, by the way, is the Aufringen property for those of you who haven't understood which one we're talking about. It's the reconversion to the DIY market where creative investors are saying, well, they could build a highly creative place and turn it into a very valuable center for Switzerland.
There's a lot of creativity and offering in, if you keep an eye on that. Mr. Frey, no microphone being used. The interpreter can't hear. Well, you showed the chart with the rising rental income and in small print, it says without divestment.
What are you expecting to get from divestments a little every year? Well, from the development pipeline, we expect the rental income and, of course, sales proceeds in the amount of around 20,000,000 per annum. In parallel, that's why I was referring to the 3rd building at Pla Leroy, which we are thinking of selling. And the asterisk is there. But well, we did really look into it.
But of the 4 finger docks at Stuki, theoretically, one might sell 1, but the rental income would then decrease as one building less would go on to the portfolio. So below the line, you've got to have the 2 things: increase in rental income and maintenance of the profit potential. You saw €30,000,000 from divestments of projects, and I would assume that this is going to remain more or less the same in future years. So around €30,000,000 of sales proceeds on investment properties at further increase of rental income. Yes, please.
Wait for the microphone, please. I have a follow-up question to Peter Lehmann. It's about the maturity profile, 2019 2020. You said you didn't want to renew contracts early on, but maybe you can give us some indication as to where current rents are standing with regard to maturities in 2019 2020 compared to the current market level. What can you expect on a like for like basis on the current portfolio?
Well, why don't you assume that we will have a percentage in the range we have in 2018 around 1% Marcus? Wouldn't that be realistic across the entire portfolio? In the CBD, of course, it would be higher, but then we may have B sites where it will be lower, but it's going to be around 1% on a like for like basis. Question to Mr. Salvastano perhaps.
I've been hearing different information from various people on rental agreements with the airport, Zurich Airport. Can you give us some detailed information about terms and conditions for the new retail space in Zurich Airport and explain what exactly the circle concept is going to be and how retail investors retail customers are to be drawn there. Well, on your second question, we're going to go to the airport because the airport is close to Zurich, but is a town in itself more or less. At the airside center, we're going to occupy 430 square meters and 700 square meters of gym and 750 square meters of lifestyle in the circle. So in the circle, we are expecting to sell the best from the head office from the main house.
And were very flexible in our design and the store there will be very flexible. In the circle, there's going to be a congress center, 2 hotels, a university hospital and Dufry. Dufry is known for cosmetics and traffic building products and interesting restaurants, and we hope to gain new customers, especially weekends are going to be important in the circle, and we are going to have a lot of business driven during the week. With 30,000,000 of passengers per annum, we have a great density of high spenders. We're doing this for three reasons.
We would like to reinforce the brand internationally. Internationally means the airport. We want to achieve economies of scale for our head office, for our main operation, and we're going to get brands we haven't had before because they're interested to be at the airport. So there will be more brand awareness for the Yelmoly brand. We're going to get new brands who want to be there, desperately want to be there.
Now as far as the terms are concerned, of course, I cannot give you any information. Let me add that the University Hospital concept should not be underestimated. University Hospital is going to outsource parts of its services to the airport. So they're going to close some segments down at the Zurich center and bring it to the airport. So there's going to be traffic of people, patients are going to go there as the hospital is reorganizing.
It's not an emergency ward. It's going to be a hospital for day to day cases. You will have seen that the Bula Hospital has discovered this already and is opening or has already opened a site at the Zurich Airport. So you have to see everything in the context. It's not only passengers crossing the bridge to the circle and it's open 7 days a week.
El Mor is open 7 days a week at the airport and only it's not closed on weekends as in the city. And you shouldn't underestimate in the current market setting and competition, we've got brands at airside that we can position and that we can offer at the airport. And apart from Geneva, Zurich is the ultimate location in airport anymore. Let me add at this point, the airport anymore. Let me add at this point about the surface areas.
We're talking about 2,750 additional in 23,000 here. So there's not going to be a second year moly in its true scope. And the airport has been growing sensationally. Look at the recent years. It's the place to be.
And I'm personally convinced. We talked about office space a minute ago. These offices will be filled. And this will mean not only holiday passenger traffic coming from Zurich North, but traffic generated directly by everything that's going to happen in the circle. This is why we're going to be focusing on sports and be very close to health.
The health issue, the health theme which we have we are doing with the Paris clinic at the 4th level where sports will also be located. Yes, please. The lady there. I'd be interested in the roofs. Do you have requests coming in for 5 gs aerials?
Yes, clearly so. And how appealing is this business? Well, it's not unappealing, I would say. And what about solar panels? Are you that's less appealing, I would say.
The aerials are more appealing, but no, let's be serious. But there's 3 potentials to roofs: the aerials for 1, then power production, 2nd and third climate regulation with green spaces on the roofs. So the challenge is how can you use photovoltaics on roofs and have green spaces as well as to counteract the rising temperature in city centers. Now to combine the two things, that's the current and future challenge. Now the aerials are easily located.
Well, I'll be pleased to take this up. We are very close to the sustainability issue. I have mentioned it as it is too complex on the entire portfolio. We are on a path of decreasing climate change or guaranteeing the rising temperature to be contained. So this is from the point of view of sustainability.
We are thinking about solar panels or self sufficient buildings or buildings that can even feed power back to the grid. Now the other question about the aerials, that's an business driven question, not so much focused on sustainability. So it's a difficult comparison. We are trying to play the 2 instruments and the roof is continues to be underestimated. Architects call it the 5th facade, but the roof has to be used today in one way or another, and we are trying to do that.
Well, if you look towards Honk here, you can see so much space that could be used in a much smarter fashion. There is a great deal of potential, but unfortunately, there's a lot of regulations that disables a lot for aesthetic reasons. There is a big trend of making active use of the roofs. Look around Denmark where roofs are actively used for sports or other purposes, which is not possible currently in Zurich. And that's interesting from an economic point of view.
Okay, further questions? No more questions. Mr. Frey, no more questions. Well, completely overwhelmed.
You seem to be. And if everyone's overwhelmed, of course, following your comments this morning, we were overwhelmed in the 1st place. So thank you very much for your attention. As usual, we are going to move one floor up to higher levels. And thank you for coming and wish you a nice summer.