PSP Swiss Property AG (PSPN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PSP Swiss Property Q1 2025 Results Conference Call. I am Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Giacomo Balzarini, CEO of PSP Swiss Property. Please go ahead, sir.

Good morning, everybody, and welcome to our Q1 results release. As always, I will give a quick headline rundown on the major items we saw. As you know, Q1 follows quickly the full year release. So there's, by habit, not much news. But if we start on the letting market, we continue to see a very positive sentiment on the prime locations, especially in Zurich and Geneva, that continues. Meanwhile, we saw that also on the letting side. And we continue to see a bifurcation between prime and non-prime being -- on the letting side, being on the rent side. If you look at the letting successes, just a few highlights which are probably not material with regard to the rental income, but are quite important with regard to letting levels or vacancy rates. The one is on the redevelopment of the Bollwerk in Bern, where we had a letting success as rents at slightly above CHF 400, which are pretty strong rents for Bern. Clearly, it's a very center-located building. It's a rather small space, but I think we are positive on that side. Secondly, we fully let now Limmatquai. If you recall, we had offers to let the space slightly below CHF 800. We'll try to stick to our targets, and we now have fully let the building and relet the last 2 floors at rents above CHF 800. And finally, nonprime but working on since about 15 years, we have almost fully let the Rheinfelden with the remaining office space, with just a little bit of retail vacant. I think these are quite nice successes. Also, as I said, not really material with regard to the overall rental income. With that, we are confirming and reiterating our vacancy rate guidance. If you go to the transaction side, the market is intact. Also we see limited transaction on the prime side. This is not due to the fact that there are not potential buyers, but there's still very few potential sellers. There has been a transaction on the Corraterie in Geneva, which -- and has been traded. There is an asset on the market, a slight one on [ Rue du Grand ], but there is still only a few transactions in that market predominantly due to the fact that we don't see really sellers on that end. If you go quickly to the results, on the one hand, also, we are a bit below the market consensus. We are fully in line with our projections. We have a slight positive impact on the cost side. This is due to an effect on the building at Rue du Marché, where we got the [ SPR ] label, sustainability label. Through that, we are -- we don't need to pay the property taxes on that building for the next -- or for 20 years. We had accrued an amount -- the yearly amount on this tax amount and we were able to release it now in Q1 for the last 5 years. And this is a one-off effect for the quarter. But this [ SPR ] label, which is sustainability label in Geneva, had a positive impact on that building. The second element is on the valuations. As you know, we have typically no valuation change in Q1 and Q3. But also, this year, we had a positive incidence on a building on Bahnhofplatz Waisenhausplatz, where we had to ask the value due to a leasing contract to review the valuation which triggered an uplift of roughly CHF 13 million on that building, and you saw that on the income line. With that, if we look forward on the valuations, and I anticipate a potential question. If you look at the current transactional market, if we look at the structural vacancies and the market rents, I would expect that there is a slight uplift on the values towards midyear if there's nothing material which is changing, predominantly due to the fact to market rent levels and structural vacancy rate adjustments. If we go quickly on the major highlights on the projects. The one to highlight is the project in Wallisellen the Richtipark, we got the official rezoning. Although there's still an appeal period going through, so legally it will go through by midyear. But the local communality and the population had a positive vote on the rezoning on all the projects, which were planned, of which also [ our ] was part. And secondly, on the Löwenbräu side, we are progressing with building permission and potential operators on the repositioning of the “Löwenbräu Red building. Here, we'll disclose more towards midyear, but we're also pretty positive on that side. If you look on the consensus difference on the income, vis-a-vis what we delivered, you might interpret that the taxes were higher. And in fact, we had to adjust the rate tax for the Geneva properties. Already, tax going forward, the tax rate has changed 14% to 14.7%, and this has an impact on the taxes we had to pay in Geneva. And this probably explains a bit the differences between our net income result and the consensus. With that, I will go straight to the Q&A and open the mic.

[Operator Instructions] The first question comes from Steven Boumans from ABN AMRO.

A quick one. Like-for-like growth in Zurich is negative, could you please comment on that one?

Can you repeat that? I didn't understand it.

Yes, sure. So if I look at like-for-like growth in Zurich, it is slightly negative, minus 40 bps. Could you please comment on that?

Yes. If you recall, last year, we had a strong contribution on the turnover rent in one building, which is not a repeat. And this is basically the fact why it goes -- it went through Zurich.

Okay. Clear. And the second one, since you are adding the Geneva redevelopment, could you please comment if there are any other developments also in that area? And what I mean is that the municipality in the past mentioned that they want to revitalize the Quartier des Banques a bit. So maybe if there's some update on that.

I would say I would say nothing really material. There was a larger transaction of the BNP building in that area, but that's a few years back repositioning. I think the overall revitalization of that area is ongoing. There are also the buildings which were, at the time, sold by Lombard Odier, which will be reconverted, but I think that adds all to the quality of the carded Quartier des Banques. So nothing we would be worried about. We're rather positive for the overall area and our projects. And we have seen that, by the way, also by the letting success to a bank, already on the [ redraft ] and also on the letting success of the Rue de Hesse we have seen. So we are rather positive on this side.

The next question is from Ken Kagerer from ZKB.

I have 2 questions. The first one is regarding the expiries in 2017 and '18. We see they're 16%, which is a rather high number. Could you give us a bit of color on potential effect on the vacancy rate there or where you see those renewals? And the second question is on Wallisellen. Last time, you said once you have the permission, you will give us a bit of a color on where this journey is going or, if you would say the whole project, what the potential associated profit with such a sale would be, how far you would go into development by yourself if you take an asset swap with, for example, Swiss Life as an option. That's basically it.

I think to the second one, you're absolutely right that we don't have the permission yet. I think you have still to wait for the period. I think it is fair. We will disclose more details in the half year or in Q3. I think this is quite a rather complex project with many involved parties, and one has to really think through before making public statements. I think what we can reiterate is the overall communality, the mayor, the whole city, are in favor of this overall rezoning, which will bring more residential areas to the communality. We are positively impacted, but we are working together with the local authorities to develop an interesting project. And how it will then look once we are through, we will obviously, in our responsibility, disclose it. But whatever we talk now, it's premature. So I hope you understand. With regard to the -- non, no, but I think this is more than fair. With regard to '26, as you remember, we had an expiry on Route des Acacias with the tenant of Pictet. We are working there, on the one hand, on the reletting of the full building. We are in discussions with tenants. Secondly, we are also thinking about the potential reconversion. So I think this is the largest in the next year. And then we have, in '27, we have some retail expiries, but we are very positive based on the demand we see that we can really relet or prolong those contracts. And there is 1 or 2 office tenants, which we know that this will come to maturity. But I think this 16% is an ordinary process, and then we will provide the vacancy rate guidance as we get closer to it.

The next question comes from Eleanor Frew from Barclays.

Just one question from me. So your cost of debt has been quite flat for the last few quarters, maybe do you see it developing over the year to come.

Well, we are currently also looking at the market that we could refund at those rates. We could issue a bond today at those rates. So I think I don't see, at the moment, major increases. If we look on the credit side, we are rather decreasing it even. So I think we would be rather around the 1% plus/minus. I don't see at the moment, also based on the refinancing needs, substantial impacts to it.

[Operator Instructions] The next one is from Holger Frisch from Zürcher Kantonalbank.

Two questions from my side. So first one would be on the income taxes. Could you just remind us of the background of the unusually high income taxes in this period?

Yes, I mentioned at the beginning, but perhaps I was not so clear. We had to adjust the local tax rates in Geneva from 14% to 14.7% as they're moving up towards targeting the 15% tax rate, and this explains the tax adjustment in Q1.

And then on the conversion of the “Löwenbräu Red to service apartment. You also have some service apartments in Basel, and if I'm not wrong, you are not operating them on your own, right? So this will be...

[ Absolutely. Absolutely ].

And could you remind us how many service apartments do you have in your portfolio currently?

The only one we have is -- sizable is really the Hochstrasse. The only we have. We had one Zurich, which we swapped in the transaction with Swiss Life.

Okay.

But just to add, I think in general, we are not operating any of those activities. We are always looking what is the best user of the building which medium, long term, can provide us with the highest rental income and add value to the overall area and to the overall building. And then we go through normal bidding processes once we have identified it.

[Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Giacomo Balzarini for any closing remarks.

Yes. Thank you very much. Before wishing you all a happy week, we have, as most of you know, planned for a property tour, Thursday night and Friday morning in Geneva. Thank you for all those attending. If there's anybody who would like to attend, we will host a dinner in the Café des Banques on Thursday night, where we have also a guest speaker on the local market. And we will do a property tour visiting all the projects and assets in Geneva Friday morning. So everybody who is not perhaps now already signed up, happily invited. You can do that online or you can can write to Vasco or myself. Thank you very much. Happy, good week. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.