Swiss Prime Site AG (SPSN) Earnings Call Transcript & Summary

A cordial welcome. Good morning. Welcome to those here in the Prime Tower or watching us online from somewhere in the world. It's a great day today. You will remember that our former Government Minister, Adolf Ogi, celebrated a day once. And -- but it's a day of joy. Most of the COVID restrictions have been lifted. I don't know how many of you have worn a mask coming up here in the lift. But except for public transportation, it's no longer required. You have to get used to it. That's one thing -- one part of the joy we have today. The other part is our top level results in a rather difficult year, 2021. In addition to that, we have achieved a great deal strategically, including refunding at the end of the year and the purchase of the Akara Group or growth in asset management at a strategic level. And only very recently, we published the A3 Moody's rating. So all seems to be good and well. It was a great mood this morning until I saw the ABP headline stating that their income has decreased. Well, ladies and gentlemen, do you know what you're writing? It's -- I really don't like that. It's really an affront to our people who have done a great job last year. So I would like to ask everyone to correct that following this press conference. So I had to say that, and this is not really serious work. This is not really earnest work. Let's get started with the investment platform in 2021. We first showed this chart at the Capital Markets Day in the autumn of last year, and it shows very well who we are. It's a mixture of portfolio holders on the left-hand side and the mixture of services as managers of various products for institutional investors/qualified investors. This platform, and that's important for you to know, is a guarantee of good and sustainable cash flows from the various components. Let me begin over on the left-hand side with the share performance of the SPS stock last year, a plus 7%, good performance, very good performance. Now seeing where we've been with the IPO since, we're on average of the past year at 7.3%. We issued a second green bond in the amount of CHF 300 million, and we'll take you through how we're going to invest this in green real estate. Moving on to asset management solutions. Okay. Let's begin at the center here, the largest customer, Swiss Prime Investment Foundation. Assets under management currently, at CHF 3 billion. And the yield is certainly outstanding at 6.4%. And on the left of that, we've got the funds business. You will be aware that at the end of the year -- or September last year, we received a FINMA license for fund management. We then launched our first fund product towards the end of the year, a commercial product starting at CHF 220 million. And at the very end of the year, we made an acquisition, and we'll be getting back to this. We acquired Akara, a company called Akara, who added CHF 2.3 billion of assets under management. And over on the right-hand side, under asset management, we've got the third-party mandates, pension funds of this country. There are various ways of -- various types of third-party mandates. Some of them are passive pension funds that don't want to grow. They want to see their real estate doing well and have low vacancies, but then there are other mandates, for instance, a collective pension fund from Eastern Switzerland that wants to grow by CHF 500 million to CHF 1 billion in the years to come. And over on the right-hand side, we've got Wincasa, the real estate service provider, with a good year. What does it mean specifically? Let's go through the various components. We've got an increase in operating income of 5.1%. Whenever you see the asterisk there, it's the last time you're seeing it. We've got this adjusted by the Tertianum effect in 2020. What was that effect? First of all, it was a share of income as a result of the sale of Tertianum in February 2020. And on the other hand, there was a revenue over 2 months included in the 2020 figures, which we took out by way of calculation. So the asterisk means that everything is on a like-for-like basis. Without the impact of the sale of Tertianum, an increase by 5.1% to CHF 745 million positive contribution from both segments from Real Estate and the Services segment. What is very gratifying, really very gratifying, especially when you think that we still were in the pandemic in 2021, and that is the increase in rental income by 3.1% to just under CHF 427 million. On a like-for-like basis, we have an increase of 0.5% despite reduced income driven by the pandemic, and I'll getting back to this. What is also very gratifying here, in not easy times, that's a reduction of vacancies from 5.1% to 4.6%, 5.1% at the end of 2020 to now 4.6%. Now about the impact of the pandemic. We have a decrease of just under CHF 8 million, including rent waivers in the amount of CHF 4.8 million, especially for the field of hospitality. You will recall that I said from the beginning that retail and offices were not a problem. But we were worried about city hotels, restaurants, and that's where we granted rent waivers. And then we've got turnover-linked income that will drop from -- some from the hotels or from car parks. When shops are closed, of course, there's less traffic on the road, less cars parked, which led to lower turnover. And that's how the CHF 7.9 million are composed. Portfolio is very appealing, growth to CHF 12.8 billion. Revaluation gains of just under CHF 319 million compared to the year before, where we were at CHF 204 million. I think in 2019, it was the same figure, CHF 204 million. So this goes to show how appealing the portfolio is, and we are particularly proud that the net yield on property remained unchanged at 3.2%. So when the portfolio grows by revaluation gains, you have to do a lot of work to make sure net yield remains stable. Moving on to Services. Let me specifically refer to the major growth of solutions asset management, an increase in operating income by almost 40% and growth of assets under management from CHF 3 billion to CHF 3.6 billion, which leads to EBIT of CHF 396.6 million, a plus of 12.5%. And even if we exclude proceeds -- sales proceeds, we end up at a plus of 8% over the previous year. Now moving on to profit. Profit does not decrease. It's a plus of 25.2%. Let me repeat that for those of ABP present, and that's CHF 6.68 per share. The equity ratio rose to 48.3%, that's very gratifying. And the same goes for the reduction of the LTV to just over 40%, or in net terms to 39.3%, which is the target ratio. The target ratio is one below 40%. EPRA NTA rose to CHF 100.84 per share, which is an increase by 4.8%. And we also have an increase of FFO. Marcel Kucher in his presentation will provide you with the details of this. And I won't dwell on optimized financing either. This will be covered by Marcel, but what we can say is that a reduction of the average interest rate from 1.1% to 0.75% is very interesting. And as far as sustainability is concerned, we will have more slides to take you through this subject matter. So a look at the most important results of the past year and a quick look at the project pipeline. We already mentioned the rise in rental income. So we were able to reduce to -- we were able to let or relet around 170,000 square meters of office and retail space, of which 23,000 square meters accounted for a reduction in vacancies. And now looking at this over time, that shows that compared with 2019, we were able to achieve an increase of 33%. We've been able to acquire some interesting and internationally renowned tenants such as Google, for example, Müllerstrasse in Zurich, Zalando here in the tower, Aquilas as well. And so we have some -- we were able to renegotiate some of the rental contracts. And that means that we were able to make most of the renegotiations because, of course, when rental contracts are renegotiated, there's always a potential to increase profits. The Alto Pont-Rouge is a very favorable project where we now have 50% rental coverage, and 50% is usually where we start. But here, we started before, and now we are at 50%. We have a law firm, a coworking space and a large financial institution. And these are the most -- the major tenants here. We were also able to collaborate with Superlab Suisse, who offer labs in a coworking space concept, which means that they prepare labs and then they market them. Of course, we are the specialist for the properties, and Superlab Suisse are then the specialists at adapting the concept of the lab environment. Now hopefully, we now have the pandemic behind us. And so of course, we can now imagine labs where you don't use substances that are hazardous but more like everyday substances, so you don't need the full hazmat equipment. And of course, these are located in Basel, which is a well-known chemical industry location, but also Schlieren here near Zurich. Schlieren is very interesting particularly in terms of the University of Zurich in the area of life sciences. And we also bought one plot and sold several plots that I'm not going to go into detail about. Selling and acquiring are always part of the capital management, of course. So the discount rate has dropped from 2.91% to 2.75%, and the yield has remained stable at 3.2%. On the right-hand side, you can see the vacancy rate, 4.6% at the moment, which was 5.1% at the end of last year. Now looking at the development over time, you can see that since 2014, we have now the lowest vacancy rate since then, since 2014. And we believe that we can even improve this further to approximately 4%. So there is still some potential to be harvested over the next few years. In terms of the portfolio, there's not much new to report. So also, we are still stronger than same locations as before. But there's some shifts in terms of use, particularly in terms of logistics infrastructure, which is, of course, one of the winner industries over the last couple of years. This also includes life sciences products in our case where -- so we now have logistics infrastructure, 9%. That has been an increase over the last 2 years. And as far as major tenants and balanced lease expiry structure are concerned, you can see here the major tenants in our portfolio and also the major office tenants and the major retail tenants. You can see the names here. And so these names really reflect the who's who of Swiss industry and the Swiss economy. Zurich [indiscernible], the canton of Zurich, I don't need to read them all out, but it certainly is a very interesting mixture. The same goes for retail where we have some major players, and retail hasn't always been that -- doing that well in the pandemic. But Globus is one of the winners of the pandemic. They have once again a great result as they published yesterday. And so food, near food, office equipment, do-it-yourself, all these sectors have seen some very successful years. And of course, that's reflected in the distribution of the segments here. In terms of lease expiry of rental contracts, we are happy. Our average maturity is 5.6 years. And maybe just a couple of words about the 6.1% and 6.8%, right on the left and right on the right. Well, these include 1% residential parking, storage warehouses. So these are rental contracts that automatically extend, which means that if they're not terminated, unless they're explicitly -- they're not terminated automatically, they have to be terminated explicitly. And that's why we've put them under the open-end categories. So -- and we are already negotiating for 4 years into the future. So we don't just start negotiations when the contract is about to run out, but we do this well ahead of time. So now let's move on to asset management. Yes, as I already mentioned, we have the SPIF with -- and we had 2 issuances of CHF 340 million. And we also have additional potential in terms of a development pipeline worth around CHF 600 million. The foundation decided to go international, in more concrete terms, to Germany with our product Living+ Europe, which is assisted living. And we now have acquired our first property year. You can imagine that during the pandemic, moving over to Germany, well, they're still not opening up after the pandemic in Germany just yet. So you can imagine that it was a difficult time to launch this product. There was a time when it wasn't even possible to view properties. So it was quite difficult to even get a viewing, and that explains why we are still at a relatively low level here in terms of assets under management. And then we also have a new commercial fund with -- which first launched with an equity of CHF 144 million. And a second launch is going to start in March 2022. And in January, the closing was also concluded, I'll get back to that in a moment. And then we also won some new customer mandates to the tune of approximately CHF 1 billion. So what's the Akara Group? It's actually an owner-managed real estate asset management company with assets under management worth CHF 2.3 billion. The signing took place on the 15th of December 2021, and the closing was on the 10th of January 2022. So you will see these figures reflected in the half annual results. So this is a very well-managed assets management company, but it's also interesting in terms of customer segments. So it's always interesting to look at whether there are any overlaps, but there aren't in this case. That means we have approximately 100 new investors. And that, of course, helps the platform. So that means that there is no competition amongst the investors. And so that is why this was such a great fit. Also, of course, a focus on residential properties. There are 2 parts: the Akara Diversity open-ended fund with a focus on residential properties; and the Akara Property Development, which is a closed-end fund. That is also a segment that we were very interested in. So that was the acquisition of the Akara Group. And so the question is always where this is going to lead us. Of course, we've spent the money. But what does that -- how does that affect our business? Well, in 2022, we are expecting between CHF 27 million and CHF 28 million compared to what we have today. That's a great step. We are already at CHF 6 billion assets under management in that area, and the target is CHF 27 million to CHF 28 million EBIT contribution for 2022. And this is based on the different investment vessels. And we are going to talk about the midterm prospects of that later. Now let's take a look at sustainability. I don't want to bore you with a stakeholder dialogue and our employee surveys, which were, of course, interesting but very far-reaching as well. So the interesting part that I would like to mention here is the issue of the second green bond with a volume of CHF 300 million, which gives us a market share in real estate of 75%. So that's certainly impressive. We are first movers here. And of course, we want to stay that way. It's always exciting to see how sustainability can be linked with business, what makes sense here. And here, we are planning a direct link, so the better, the more sustainable, we are the lower -- the credit costs are going to be -- and I'm sure that Marcel Kucher will say a few more words about that topic. In the segment of ecology, we are aiming to be climate neutral by 2040, Scope 1 to 3. There are other competitors who also communicate their figures, and Scope 1 and 2 is easy to achieve, let me just stress that. But Scope 3 is a different matter because this also includes the value-added chain, the rent. And that is more difficult. And by 2040, we are going to be climate neutral according to Scopes 1, 2, 3. We've taken some additional action this year by integrating photovoltaic installations. This means a doubling of the number of systems that we have. And new for Switzerland is the so-called circular economy. So we want to move from the linear economy to the circular economy. And we're doing that particularly with the pilot project at Müllerstrasse in Zurich. And let me tell you that Google wouldn't have become our tenant if we weren't doing this because, of course, they, too, are dependent on being as climate neutral as possible. So what does that mean? It means cataloging and reusing the materials used in the construction of the building or the refurbishment of the building. So to explain this a bit more, if you have a building today that's at the end of its life cycle, it is torn down and you actually have to pay for tearing it down, for demolishing it. But if you use circular economy principles, that means that you are left with a depot of various materials. And these materials have a value. And the new owner who will build a new building, or you yourself if you're going to build a new building, will then be able to use that material. And that means that, that has to be already included in the early stages of the planning process. So the target here is to achieve 100% reuse of materials. And in Müllerstrasse, we're going to be able to achieve that to a large extent of maybe not 100%, but we should be able to reuse as much material as possible in order to be able to do justice to the circular economy principle. And then in addition to the -- in connection with the green bonds, we mentioned this, too. Well, there is reporting. So we undergo an audit because investors trust us to invest in green products as part of the green bonds. And here, you can see the employment of assets here. 94% of the CHF 600 million have been used, have been included in development projects, investments to increase energy efficiency and also renewable energies and lowering of emissions. So that means that our emission coefficients are 60% to 80% lower, and that means that we are able to save around 325 tonnes of CO2 per year. And just looking at the PV systems. Over the space of 25 years, they will save 325 tonnes of CO2. So of course, it's always a question of what your benchmark is. And now here, we're trying to benchmark with the best possible, and that means new buildings over the last 5 years. So these figures are benchmarked against the portfolio of new builds over the last 5 years. Now our own portfolio, of course, also includes older buildings. And if we compare it with older buildings of maybe 12 years or more, then these figures would even double. But of course, we want to do even better than the new builds over the last 5 years. You will see in your documents, it's shown at the bottom. So that was on sustainability. Now let's also look at the development pipeline. I have 3 slides on that. The CHF 2 billion pipeline is allowing us to be totally independent. So if properties become more and more expensive, we don't have to make purchases. We can, but we don't have to. We can feed ourselves in a way with future rental income, and I think this slide here shows that quite clearly. At the bottom, you can see the completed projects over the last few years. In the right-hand column, you can see additional rental income generated by these developments. And that was CHF 30 million before. And now as far as projects under construction are concerned, there are going to be another CHF 47 million and for those projects under development, approximately CHF 28 million. And then we also have some reserves of CHF 500 million. And so these properties are already owned by us, but we haven't started planning yet. Of course, we've thought about what to do with them, but we haven't started the actual planning process. So that means that we don't have allocated a particular potential rental income to these CHF 500 million in reserves. So what projects are we talking about? Here on Slide 19, you can see the scheduled projects under construction, 3 for Tertianum in Ticino, in Zurich and in Solothurn. And of course, these are already -- have an occupancy rate of 100%. Then the Alto Pont-Rouge project now has an occupancy rate of 50%, and the project is going to be completed in the autumn of 2023. That means -- this is the basic completion. And then, of course, the fittings will be added for another 3 months or so. So we can expect to be able to have the full rental income by 2024. We've all also started the finger docks 3 and 4 at the Stücki Park. There are already some existing buildings here, and we've now started on buildings 3 and 4 laboratory buildings. And so I think it's worth mentioning is that we originally planned for 4 buildings and then saw quite quickly that there is a lot more demand at this site and then changed our plans and now are going to build 3 laboratory building, and 1 is going to be an office building. So these are the scheduled projects under construction. And now here, planned projects. What does that mean? Well, BZO, for example, that means our design planning, building and zoning regulations. QP means the quarter plan. I mean, that's an additional planning process, and zoning regulations are also acquired here. So on the left-hand side, here, we have the JED new build in Schlieren, which is going to house laboratories next to the refurbishment of the old NZZ printing shop. And we're also planning the refurbishment of a current office building into a residential building. That's really interesting. That's the Route de Meyrin 49 in Geneva. There is not enough -- there is a lack of residential space in Geneva. I'm not going to go into the details of the causes for this. But anyway, we were allowed to convert this into residential. So this does not mean that it has to be a social housing, but the canton of Geneva decided a few years ago that, that's not necessary. And that has allowed us some interesting projects because these are office buildings that are not in an ideal location, to be honest. And -- but these are in a great location for residential use. Uster, Poststrasse, this is an additional potential which is being realized in our own portfolio. And maaglive, of course, right here where we are, next door, and then a couple of projects near Basel. So now I'm going to hand over to Marcel for the financial key figures.

Thank you, René, and a cordial welcome. I'm pleased to see so many faces that I've come to know in the past 7 months I spent with Swiss Prime Site. So a cordial welcome. Before we talk about the details of the past financial year, let me show you 2 charts that we presented at the Capital Markets Day in October, and we can report excellent progress. Let me begin with capital management here. At the Investors Day in October, we extensively reported on how the balance sheet will be under sharpened focus, and we picked out 2 things how we're going to drive ahead and optimize capital management. And on the other hand, we talked about capital recycling, which is really using our great pipeline to create our own growth and funding it by selling noncore real estate, noncore property. In October, we just gave you some guidance. We had detailed conversations with our funding partners. In the meantime, we can add figures, in particular, as far as our targets are concerned, LTV, as many rating agencies do, total debt through total assets of below 40%. And we could tick this off. As René mentioned before, we achieved that for the first time this year. Second thing is we want to put everyone at the same level, pari passu, as it is -- you say it in jargon. We don't want to have any subordination, and we'll be giving you more details. We want to do a major refunding with the objective of being in excess of 80% of unencumbered assets, which will enable us to be more flexible in handling our debt. And then everything secured ought to be below 20%. How many times, in other words, can we pay our interest rate load from the EBIT that we generate? We want to go for sevenfold, and I'll be coming back to this in a minute. Now what has happened since last October? On the one hand, in December, with our funding partners, 11 of them, and I can see many faces representing these partners here in the room, we carried out major refunding to the tune of CHF 2.6 billion with 2 syndicates, 1 syndicate of cantonal banks and 1 of the major banks. They are more or less identical in terms of terms, and we've got 6 years with an extension option of 1 year in 1 case and 5 years with the extension option of 3 years in the other case. So this is a long-term focus on funding. Now what is exciting is that credit margin were linked to 2 components on the LTV. On the one hand, the higher our indebtedness, the higher the risk for the banks and the higher the interest rate might be. Or inversely, from our point of view, we want to bring it down and bring down debt, which will help us with funding costs in the long run. And the second thing is that we are relatively leading in Switzerland. We've got the ESG lead with the ISS rating link. The better we are going to be in terms of ESG, sustainability, the better the credit margin is going to turn out to be. It says CHF 2.6 billion here. I'll show you that we are currently using about -- around CHF 1.8 billion. You may ask what we're doing with the other CHF 800 million. For us, this is sort of a buffer. We can always draw this money. It's contractually secured and provides a lot of security and stability for us in terms of funding, and we're happy with that. Now something we have communicated in this context and saying that this is the basis for capital management criteria, combined with refunding, heavily unencumbered, that in the medium term, we want to get a better rating. You may have read 2 days ago that the medium term -- rather short term -- at the beginning of the week, we got a stable A3 rating or A- rating, in other words, from Moody's. We are very pleased with it, and it goes to show that we are on the right track. Let me emphasize that this is a great achievement. In commercial across Europe, there are 2 more companies with an A rating. So we're really in a prestigious group of A-rated companies in the field of real estate. What are the reasons for the A rating? Well, certainly, the great portfolio we have. We're in the right places, and we're modern, environmentally friendly, high quality with the size required and diversification required. Secondly, Switzerland is certainly a great place to be, highly stable throughout all the cycles as we have seen throughout the pandemic. And thirdly, we have a diversified business model heavily focused on our real estate investment platform with real estate as a core but also asset management as a growth model, capital-light. And finally, financial flexibility that I've just referred to with a lot of unencumbered funding, good liquidity and the reserves of CHF 800 million for the long term-ness of financial liabilities. Now let me move on to the results achieved in financial 2021. As René said at the beginning, and before we get started with the results and looking at the details, we need to know what we're comparing with. In the past year, we had Tertianum on the portfolio for 2 months. It still says assisted living here. Now we need to adjust for that to get a good basis for comparison, both for income and expenses. And this is what we've done here. You will find the figures announced in our media press release. And 2021 adjusted, that's adjusted for assisted living, the 2 months of Tertianum. And on that basis, as René mentioned before, we achieved growth of 5.1% of operating income, which in the current setting is really gratifying. And particularly gratifying is that all our group companies have contributed to this result. We talked about real estate before, 3.1% of growth; and asset management solutions, almost 40% of growth. This is our growth engine. But Wincasa made its contribution at almost 4% of growth in a highly competitive and not an easy market. I can recall some conversations at the half year about that. And so the result here is impressive. The same goes for Jelmoli. We were more than 10% in lockdown last year, and the 8.1% in this picture are just as impressive as last year. Now of course, as the CFO, I'm very pleased with the top line. But operating expenses increased only disproportionately lowly, and the largest share of this is retail -- goods in retail, that's good if we are selling more. The largest item in dark blue is personnel costs, which has remained flat, absolutely constant despite top line growth of -- in excess of 5%. So it's fair to say that we have managed our costs well with strict cost management and the required focus on it. Top line grew, and costs remained almost the same. So this has to have a positive effect on EBIT. You can see 2 figures that are very impressive, the 12% growth on EBIT and in parallel to this, an improvement of our EBIT margin of just under 50% to more than 53%. René mentioned that before. Part of it is based on sales proceeds. But even if you exclude that, we still have an increase of 8% of EBIT, which is disproportionately high. And for profit, compared to the adjusted profit and adjusted, in particular, by the high proceeds from the sale of Tertianum, we have a growth rate of 6.6%. Let me remind you that one-off costs for refunding of almost CHF 25 million are included here. And if you exclude this, it would be clearly higher. But even including this, growth is very nice of profit of almost 7%. Our earnings per share is CHF 3.81 versus CHF 3.57 previous year without revaluation gains and deferred tax. Now let me provide you with more detail on the largest item. That's the development of net rental income from 2020. CHF 11 million of Tertianum, Tertianum normally let some of the apartments. And so there is a Tertianum effect of around CHF 11 million, which we excluded here. And we then started at CHF 413.7 million as a basis. And you can see the growth from CHF 413.7 million to CHF 426.7 million. Purchases and sales set each other off. And we've got developments at 5.6% (sic) CHF 5.6 million -- completion of projects at 5.6% (sic) [ CHF 5.6 million ], which will bring growth in future; modernizations and modifications providing 2.1% (sic) [ CHF 2.1 million ]; and existing properties, adding 2% -- CHF 2 million. And EPRA includes COVID effects. They do not exclude them. So EPRA growth at 1.3% is slightly higher than what we are indicating here as you can see. Now we talked about the COVID-19 impact at CHF 7.9 million. For 2022, we're expecting clearly less than that. Let's move on to the balance sheet. The largest item here is, of course, our real estate portfolio. You can see how it evolved. We had investments of around CHF 280 million to drive ahead our pipeline last year, which is to be the growth driver for the futures. We sold for just under CHF 150 million. And revaluation gains, as René mentioned before, of CHF 319 million rounded up. These revaluations were made at a constant net yield of 3.2%. In other words, we generated that ourselves. We earned that ourselves by increasing the income as much as the valuation increase. Let me also say about -- a few words about capital recycling. You may say, "Well, this is not quite capital recycling." But we have another CHF 100 million of real estate sold in 2021. But closing took place only in January or February or will take place in Q1 this year. So that capital recycling has been deferred slightly in time, as we had announced. The second largest item of funding -- is funding. We mentioned the highlights before, in particular, the consortial credits. And you can see a chart about this here, almost 85% is unencumbered; decrease of mortgages, the red bar here; and balanced growth on credit facilities, including, in particular, the consortial credits. Now through this refunding, we're not only almost exclusively unencumbered, but the interest rate was clearly reduced as well. It reduced by more than 1/3, down from 1.1% to 0.75% at the end of 2021. And in parallel to this, the average term to maturity was prolonged by 1 year. So we're doing better, and we're set for the longer term at a lower LTV in net terms here of around 39%, below 40%. On the bottom left, you can see the breakdown of maturities. We are going to be stable in the years to come. And in 2022, there are no maturities at all. So there is no pressure whatsoever for us to conduct refinancing, but we can still do that, benefiting from the A rating. And finally, the result of that is equity, the equity ratio, a clear increase of -- from CHF 6.08 billion. Well, this clearly following a -- or after an appealing dividend payout of CHF 250 million, and the equity ratio is taking a good step up to 48.3%. Return on equity last year was 8.2%, which puts us above our target range of 6% to 8%. I think 8% is really highly appealing in the current interest rate setting. Now let me give you 2 more figures that I would like to mention as a sideline. René mentioned that briefly before. We want to introduce a new key ratio here, which is funds from operations, FFO. Many of you have got it in their reports. Those who deal with European real estate stocks view this as a key figure. FFO is, for instance, in Vonovia's annual report, 178x. What does FFO stand for? It's funds from operations. It's really a cash figure for our income statement. We believe it's one of the key ratios. It means what we made in terms of cash in 2021. And you can see how it is calculated. To make sure it is correct, we added it to the financial report. KPMG, our auditors, have calculated it and have checked on the calculations and have confirmed its accuracy. It includes all noncash components, everything related to valuations, to depreciation, to deferred taxes and only looks at what is cash effective, either paid in 2021 or will have to be paid but it's still allocated to '21. So there's the difference to cash flow. Cash flow is what you paid. But if you pay your taxes only the next year, you won't see it in the cash flow statement, but you'll see it in FFO. So we believe this is a good foundation to define how much can be paid out, and we will be coming back to this in a minute. We have a 10% increase on FFO cash effective results from CHF 3.59 to CHF 3.96 per share. And the second key thing for a real estate company is the intrinsic value of the stock. We're using the EPRA NTA benchmark. NTA stands for net tangible assets. The increase is just under 5% from 69 -- CHF 96.26 to CHF 100.84. If you compare this to the share price, you can see there is clear upside potential for next year. A word on the outlook before I hand it back to René. We decided from 2022, from this year, to go back to reporting on the basis of IFRS. We believe this is the right thing based on our business model to make sure that we are comparable both in Switzerland and internationally. At the same time, have today announced an indicative IFRS income statement for 2021 and a balance sheet for 2021 so that you will have a basis for your analysis and will be spared surprises at the end of the year. What is the major offset we have compared to FER Swiss accounting standards that we've used so far? Certainly, IFRS 16, the leases article with quite a few items shown there. And IFRS 16 differs from FER slightly. You can see we have a positive offset of CHF 12.7 million, and these items will be shown in the financial success. If you look at our operating figures, direct real estate costs, when you compare them to the major Swiss peers, you will see that we are at the same basis in terms of IFRS for the future. And then we've got the employee benefits article, IAS 19. We've got an excellent pension fund. We even have an asset, not a liability, though that's relatively rare, because there is so much overcoverage in that pension fund. And IFRS also wishes that certain properties such as Jelmoli are shown separately. They show -- will be shown at fair value but will be shown separately. So you will have the same figure in a positive or -- and in a negative way and shown separately. EPRA, the European Public Real Estate Agencies -- Association, from this year demands that IFRS be the basis for EPRA figures from this year. If you look at the details, you will find this reconciliation in the EPRA figures. The EPRA figures following the new reconciliations will be calculated already, and the IFRS reconciliation is already included. So there won't be any surprises to be expected for the future. Now on this, let me hand it back to René for prospects.

Thank you very much, Marcel. Now let's take a look at the outlook. We have 3 slides left, just to give you an indication. First of all, the market overview. Well, the question is always, as the largest real estate company in Switzerland, how do you see the market? Well, anything that wasn't a bumpy year for property would be surprising to me for various reasons. First of all, interest rates. You all heard, of course, of the interest rates in the United States going up. And what's going to ECB do? They're going to follow suit. What is the Swiss National Bank going to do? They may follow suit as well. Some say that there are going to be some effects on the interest rates in Switzerland by the end of the year or maybe some effects over the next year. So yes, we expect a return of the SNB interest rate of 0% for 2023. And I think we're going to return to 0%. I'm saying this on the basis of my many years of experience. I'm no spring chicken after all. And so this is a great sign for real estate. Interest rates are not going to rocket, and that is certainly a good sign for our industry. Now the question of inflation. Are we going to have inflation? Are we not? Of course, based on supply chains, there is a degree of inflation, which is based on the current situation, which might also level itself out again. But there may be a slight rise of inflation. And -- but Switzerland is protected, first of all, because of the Swiss franc; and secondly, because of energy being less important in Switzerland than in our neighboring countries. Only half of costs of German costs are assigned to energy. So in a basket of commodities in Germany, energy accounts for 50%, and that's not the case in Switzerland. And that has an effect on inflation. And it shows that we are relatively on the safe side here also in terms of the slight rise in inflation. But it's not going to be as marked. We're talking about a company here, which mainly invests in commercial properties, and they were a dime a dozen during the pandemic. And -- but now one thing that's certain is if there is -- if we do get some inflation, we are going to be bound to the Consumer Price Index. So this is a certain contraction against inflation effects. So that's the good news. When talking about the risks on the left-hand side of the slide, yes, geopolitical conflicts, of course, cannot be ignored, just to mention the recent Ukraine crisis. But we have seen in the past that geopolitical conflict ultimately is not a disadvantage for Switzerland because Switzerland offers the safe haven for a lot of investors. And this could also translate itself into investments in real estate. So of course, there is a dip in the real estate market at the beginning of any geopolitical crisis. But ultimately, it does not negatively affect our share prices in Switzerland. Another risk, however, is possible supply bottlenecks. In particular, Asia and China have a 0 COVID tolerance still. And so if they close their ports every time they have a single case of Omicron, then this will have an effect and is still a risk, in my opinion. We've seen it in the past with the Delta variant. I hope it's not going to continue like this, but there's a risk here in terms of delivery bottlenecks if, for example, ports in China were closed. And so the outlook for us, commercial properties, we were able to reduce vacancies by 0.5%. So the market is doing very well indeed, if we have a good location. And so it always has to be a good POI, point of interest, as I like to call it. So it's possible or likely that the pandemic has widened the gap between less favorable locations and prime locations. But as we are in the prime location segment, we don't need to worry about that. The retail market has seen some positive signs. And here as well, we see that the prime locations did not suffer greatly. If any location suffered, those were -- or any segment suffered, it was the hospitality segment. But we are now confident as more and more countries are lifting COVID restrictions. This will get better. It's now getting difficult to book flights for the springtime. So that's a good sign. And for us, that also means that we will be able to receive more travelers from abroad this year. So that's going to give a boost to the hospitality industry. So 2022 is going to be a great year. Invest in real estate, that's my advice, if possible, in ours. So in terms of guidance for 2022, what's the top line? We are expecting a growth of assets under management between CHF 19 billion and CHF 20 billion. But don't forget, we also include what we sell. Out of our recycling, we sell up to CHF 300 million per year, which have to be acquired again in order to be able to generate this kind of growth. And vacancies are going to be below 4.6% by the end of the year. 4.6% was what we had at the end of 2021. We are expecting an increase in FFO I without sales proceeds of between 3% and 5%. And this is -- asterisk says, it's adjusted for early repayment premiums of CHF 24.9 million in 2021. And LTV is going to be below 40% by the end of the year. So that's our outlook and our guidance for 2022. So you can see that we are optimistic. Now let's take a look at the 2 segments. The property segment on the left-hand side, we've already mentioned the volume of around CHF 12 billion to CHF 13 billion and vacancies around 4% in the medium term. We're currently at 4.6%, as I mentioned before. And types of use, a little less retail. Smaller retail buildings are on our list of properties for sale for the next couple of years. And so this is going to reduce the retail share from currently 26% to below 20%. It's going to be compensated by increased office and logistics infrastructure investments. And our development pipeline no longer includes retail, which means that retail will automatically be reduced somewhat. The pipeline is going to be -- remain around CHF 2 billion with a certain share of reserves in the portfolio and project pipeline. And we are going to continue to benefit from the capital recycling effect, meaning that the sales of noncore real estate -- sales proceeds from noncore real estate are used for refinancing the project pipeline. So now on to the services. At the top here, we have solutions, CHF 27 million to CHF 28 million EBIT contribution is expected for 2022. Now when looking at 2025, we are expecting the new target of CHF 10 million (sic) [ CHF 10 billion ]. We are currently at CHF 6 million (sic) [ CHF 6 billion ], and that's a growth of CHF 1 billion per year. That's certainly quite a lot to achieve, but we are optimistic that we will achieve it. We've already started in the first 6 weeks of this year, so CHF 1 billion per year. And the EBIT contribution to the group is going to be above CHF 50 million by 2025. Now on to Wincasa. I know that you're going to ask this question anyway. Wincasa EBIT contribution in 2021 was approximately CHF 12 million, a little over CHF 12 million. And in terms of margin, that means 9% EBIT margin. And we always said that after this investment cycle, particularly in the IT backbone of the -- for infrastructure, we want to increase the EBIT margin once again. And this is shown here. We are expecting an EBIT margin of 12% as of this year. And I think [ Richard Parkman ] once asked whether we were going to have a less favorable outlook, 9% to 15% in 1 year. Well, that was to show the path, the trajectory, starting with 12% for 2022. Assets under management are going to stay at a level of approximately CHF 70 billion. We are not expecting or planning to increase this considerably. Jelmoli, by 2023, we want an operationally balanced EBIT. At the end of 2021, Jelmoli managed to half the losses of the previous year. The loss of 2021 was CHF 9 million compared with CHF 18 million in 2020. So halving this loss was a great achievement because let's not forget that we had lockdown for 6 weeks. Only the food section was open, and gastronomy was shut for 10 weeks. And let me just remind you that Jelmoli had -- comprises 13 gastronomy establishments. And of course, that means a great loss of customers. And that is how this result came about. So halving the loss is certainly a great achievement against that background. So now the proposals to the Annual General Meeting. In terms of elections, Barbara Frei-Spreiter was -- will not be available once again. And we are going to propose the -- her to be replaced by Brigitte Walter as a new independent member of the Board of Directors and member of the Audit and Investment Committee. The headquarters of Swiss Prime Site AG is going to be relocated to Zug from Olten. This is due to Akara's headquarters being located in Zug. And so we really want to get our team together in the same site. And because we are -- have now the opportunity to rent the 33rd floor here, so all of our Zurich team is going to be here. Before, solutions were on the seventh floor. They're going to move up to the 34th. Marcel and myself are going to meet on to the 33rd floor. Also, finance department is going to be located there. And then we also have some offices at Hardstrasse in Zurich. They're also going to be moved. Their staff, they are also going to move here to the Prime Tower. So that means that we'll now be able to -- we'll be able to consolidate to 3 locations, Zurich, Zug and Geneva. Distribution of dividend. I'm not going to go back to explaining the FFO calculations. But let me tell you that the CHF 3.35 per share, this is the floor. We want to increase our dividend payouts in the future, and we have the capacity to do so. So how is payout going to take place? There are going to be 2 parts: 50% in the form of a dividend payment and 50% in terms of withholding tax-free nominal value reduction of CHF 1.675. So it's important for some pension funds. The cash is going to be added on the 30th of March 2022, and the nominal value reduction is still planned. But we still have to subject this to regulatory requirements. And so we're expecting to be able to pay this out on the 13th of June 2022. So great. That's all in terms of the presentation. And now we'll be happy to take your questions.

Let me repeat. Those who have been with us several times, we have CEOs, this lady and gentlemen of the associated companies, and I can pass on questions to them as appropriate. We're going to start with questions from the auditorium first, and we'll then allow for questions coming in or submitted by online. Yes, any questions? [Operator Instructions] Who would like to ask the first question?

What does practical indexing of 100% mean? Is it 95% -- I'm talking about inflation.

Well, for all -- for 95% of our contracts, we are fully indexed, 100% indexed.

Second question, I would like to know about the goodwill that you are paying for Akara. And my third question for Marcel Kucher is about the CHF 25 million that was written off. If you convert it to interest -- the interest rate for the next, I don't know, average term is, how much would it be?

Well, I'll take the second question, and Marcel can then do his maths. Well, with the owners of Akara, we agreed that we will remain silent, but you will automatically see the figures in the half year results. So we won't comment on the price. And by the way, you can do your own maths. So we paid some of it in terms of shares. And if you don't want to do your maths, I'll invite you to wait for the half year press conference, and then you will see. Have you done your maths, Marcel?

Well, I'm not sure whether this is the right question. What we have so far is we've had an agreement for a certain term to pay an interest rate. And what you can see in the CHF 25 million is that we will have refunded more deeply, more -- otherwise, we wouldn't have made any early repayments. And so this is cost anyway, the cost that we had. Now all the banks are here in the room. I have to watch it. We paid less than the cost that would have incurred -- we would have incurred anyhow. The banks gave us a discount over what was agreed contractually. So I think it's a very appealing solution to us because we have concluded contracts with their costs, but we don't have to pay the whole cost of it, only part of it. And that's the CHF 25 million. If you wish, you can divide the CHF 25 million by CHF 2.6 billion and calculate it over a period of 6 years, and that will get you a very small percentage.

Well, let me thank the interpreters at this moment. It won't be -- have been easy to have interpreted Marcel Kucher's statement here about the costs that would have been incurred anyway. Well, next?

A question about the dividend. You are showing an FFO that is 10% higher, but the dividend remains unchanged. The payout ratio last year was more than 90%, just under 95%, and now it's 85%. I think René was very enthusiastic. So announcing a stable dividend is not really in line with what you have achieved. Can you explain the difference, why are you so defensive there?

Well, I'll be pleased to do that. Well, we introduced FFO for the first time. We had adjusted EPRA earnings up to now, which was close to FF&O. But the main reason really is that, the figures are showing it, that the dividend that used to be CHF 3.80, we reduced it to CHF 3.35 last year, a step we had to take in terms of balance sheet stability. And it was the right thing to do. I cannot talk on behalf of the Board of Directors, but I can understand that the following year, you don't want to increase again. We might have done that on the basis of the figures, yes. But it would have been perhaps a bad signal. If you cut the dividend and then raise it again the next year, that will be a funny signal. But we expect future growth in the years to come.

Second question, I don't know whether you've ever disclosed it, but interest rate costs that are linked to LTV and ESG now, have you disclosed that? Now with the LTV, you were below 40%. You want to bring it down further, but there will be a floor somewhere. So the upside is limited. And for ESG, there will be a negative bonus if you failed to achieve the objectives. Now have you reached the interest rate ceiling? You said yes. So there's more negative risks than positive risks of getting a better interest rate.

Well, I don't think that the ceiling has been reached. We have debt of around CHF 5.1 billion. CHF 1.7 billion has been refinanced. The vast majority of our debt has not been refinanced, and this includes debt that's been going on for longer periods of time. So there's even further downside potential. I don't think that the ceiling, we'll have achieved, will have been reached. And for the 2 new credit facilities, there's certainly a possibility, an upward possibility. I consider this to be more probable. And it applies to ESG, too. It goes both ways, not only up but also down. It will go up both ways.

Next question, on Slide 18, you presented the pipeline with target rental income. It's always a matter of gross and net. Do -- your net yield is 3.2%. And when I do my maths, I end up with 4.3%. 18, that is Chart 18. I ended up with a yield of 4.3%. That will rise to 4.2% in construction. Can you explain the rationale there and how does this compare to the current yield of 3.2%?

Well, we are expecting a net yield on developments of 4.5% on costs. This is our expectation. Now for developments, due to the past, we're always doing the same. When we develop ourselves, construction cost is calculated, including a margin. And in the past, we've done that. Construction cost clearly ended up below this margin. For submissions, there will be somebody who bids at -- bids lower at the same quality. And often, the figures that we have -- that we're showing in developments with a safety margin, the safety margin will be released. And the developments will turn out better at the end of the day. So that's maybe the difference between what you calculated. It's -- and it's on cost. What we're showing is on cost.

If you look at valuations then, they will not have 4.5% on cost on their books and revalue it. But the more risks are excluded, the closer you get to the end, the more -- the closer you will get to a real margin. So I would assume that it is not probable that it will go into the books at 4.7% of yield. Part of it has been realized. Part of it will come as we get closer to completion.

Any further question from the auditorium? Yes, please?

I have a question on WAULT development. It was 5.6 years. It was in excess of 6 years before. What is your expectation for 2022? Given all the rental contracts that have been concluded, will it go down further or increase significantly?

Well, I don't think it will increase significantly. It will be leveling between 5 and 6 years.

And on guidance in rental contracts, last year, you gave guidance for an increase in rental contracts. You renounce on that today. Can you still tell us what you're expecting?

Well, we haven't written it because of the way we are communicating. But we would assume that we will have growth in rental income. But it's, of course, part of the cash view under FFO I.

And for the growth of solutions, CHF 27 million, CHF 28 million of EBIT contribution this year, what do we expect in terms of like-for-like growth? And how much will be on the basis of acquisition?

Can you answer that question?

Well, I haven't really got the question.

Well, about like-for-like. Well, let me first of all say how the business works. On the assets under management, you've got recurring fees, management fees that you always incur. And the higher your assets under management, the more management fees you will have. And these fees have to pay all your staff. That's the most important thing. And the balance will be on top and will be bottom line effective. That will be issuance fees, transaction fees, construction, development fees. So these are the interesting fee components that you can generate in addition.

Well, now I got the question. I thought you were referring to solutions '21, solutions '22. We have a large part of recurring fees. And on a like-for-like basis, we will certainly increase that part and combined with the acquisition we have made.

So what will be Akara's contribution to the CHF 27 million, CHF 28 million?

Well, let me put it this way. Akara will be integrated from August 2022. Why August? It was part of the deal because the earlier owners are still responsible for including the figures, 2021 and half year -- first half year of 2022. And we asked FINMA to combine the 2 fund managements that will give them synergetic effects. Now this year, I think we've communicated that figure already. It will be around CHF 15 million of EBIT contribution from Akara, and the balance will be from the original solutions. So more or less 50-50.

Just a follow-up question on the FFO growth. The 3% to 4% includes -- does that include Akara? Because if you take CHF 50 million EBIT contribution for this year, that's almost 5% growth just from Akara. And then you don't -- still don't have the rental income. So -- which is probably likely to grow a little. So that would give us an FFO above 5%. And the second question is, does this guidance also will have an effect on the dividend for next year?

Of course, Akara is included, but we're talking about the per share price here, and we communicated it. Part of the transaction was paid for in shares. And so it's not just Akara, but it also includes inherent growth based -- coming from the rest of the business. And what was the second question?

The link between FFO and dividend.

Well, the guidance says that we are going to pay out between 80% and 90%, currently 85%. So that's our guidance. And so if the FFO growth and the guidance remains the same, of course, that's going to have an effect in terms of increasing the growth of the dividend. But that's going to be a decision by the Supervisory Board, of course -- I'm sorry, by the Board of management.

And are there any more questions? Any more questions from the room, from the auditorium or from external audience? In that case, thank you very much for your attention. As always, those who are here are cordially invited to join us upstairs for an Aperol. You don't have to wear your masks. But of course, you are welcome to, if you wish. And so we look forward to seeing you there and continuing the conversation informally there. And thank you very much for everyone joining us online. [Statements in English on this transcript were spoken by an interpreter present on the live call.]