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

Good morning. A cordial welcome to the financial results conference of Swiss Prime Site. Welcome to all the guests physically present in the room, but also I would like to welcome everyone following us online. Today, we would like to begin with an appreciation, a market view. Maybe you won't be surprised, and you won't be surprised me beginning with this title, Good locations and good properties remain in demand. Let's look back. What a wild first half year we have. The invasion of Russia in the Ukraine. You will remember the last meeting we had here in February, we were not quite certain that it would come about, that it would happen, but it did happen after all. So we had the invasion and the never ending lockdown periods in China triggered by the disruption of supply chains and price increases -- considerable price increases, commodities like gas and oil and food as well. What do price increases mean? They lead to inflation. Inflation in Switzerland effectively rose by the end of June at the half year point, 3.4%, which is a great deal in Switzerland. But by a European comparison, it's still moderate. The same period of time, the inflation in Europe was 8.6%. And then, of course, easy to understand, we had the increases in policy rates from the central banks, which led to uncertainty. As a general rule, uncertainty is always bad for financial markets. And the financial markets corrected negatively. The SMI and SPI lost around 15%, and the real estate sector suffered from it as well, both the funds at minus 17% and the listed real estate companies at minus 9% demonstrated negative performance. The largest impact on prices and performance, however, was not due to the increases in interest rates, but what happened when you have a loss of value. Then inside the portfolio, real estate allocations will be too large. And if it's too large, it needs to be corrected, which led to overreactions. Overreactions, in this case, means sales. And these sales, however, are opportunities to enter as well as you will see when we are going to talk about our asset management business. Now due to the coupling of rents to the country's price index -- consumer price index, there is an inherent protection against inflation for real estate, but residential remains attractive. We have positive net migration, a high increase of area space used per capita and the increasing number of households. This is a number that is rarely properly reported, but it's the most important figure for residential business. I believe the Federal Office of Statistics has a scenario of 2020 to 2050, and I'm reading that 2019, 3.8 billion private households accounted in Switzerland; between 2020 and 2050, the number of private households will rise from 3.8 million to 4.7 million, an increase of 23%. So if you're interested in these household figures, I think these are the most important figures across the board. Now there's a lot of drama. But against that background, we're still setting with real negative interest rates, although in Switzerland, we cannot be protected against global disruptions, the centers in Switzerland, in particular the central locations remain a safe haven for international businesses. Take the example of Google here in Zurich. And the economy is benefiting from that in terms of growth of employment. We almost have full employment. The real estate market continues to be dynamic. We've got stable yields and yet more stable cash flows. And that's what it's all about. What's paying a dividend at the end of the day? It's not revaluation, but it's cash. So at the end of the day, that's the figure we are achieving by good letting and by having good tenants that pay their rents, and that cash will then pay our dividends to shareholders. That's where the circle closes to what I said in the beginning, good locations and properties remain in demand in the current situation. So we are positive and optimistic as far as the second half year of 2022 is concerned. So much about the market in general. Let me emphasize some highlights. Assets under management rose to CHF 20 billion in the first half year. Operating income also increased by 2.5%. In this case, all units contributed to the increase. Rental income rose by 0.3%, and on a like-for-like basis, we're at a gratifying 1.9%. Vacancy rate. Vacancy rate decreased from 4.7% in the first half year 2021 to now 4.4%. We increased profit by 6.3%. FFO I, and Marcel Kucher will get back to this later on, rose by 7.2%, which is the cash relevant figure from which to pay out dividends. At mid-year, it was at CHF 2.09. And last year, we paid a dividend of CHF 3.35. We have earned more than half of the dividend. The LTV, currently at 40.5%. The objective remains clear, we want to press it down below 40%. And the EPRA NTA finally demonstrated an increase of 3.1% to now CHF 100.78. Now here are the most important results for the real estate company. 102,000 square meters were let or relet, some of it at higher rents, which led to the like-for-like increase, which you can see at the bottom right of 1.9%. This is an impressive figure, not only compared to the years of pandemic that we're showing here in this chart, but even going further back over the access of time. Back to 2018, the 102,000 square meters is certainly impressive by comparison. The most important tenants, just to name some of them, certainly are Adobe, but the Swiss Post as well and others who have rented new surfaces with us. Now for revaluations, so the portfolio first. We're standing at just 13 -- just under CHF 13.1 billion; revaluation gains, CHF 166.6 million. If you deduct the revaluations from projects, which we are listing at the bottom, CHF 31.6 million, then what remains is CHF 135 million. Now question of revaluation, where does it come from? Is it due to a reduction of the discount rate due to the market outside our control? The answer is yes. But this year, this is only partly the truth, certainly due to the increase of rental income and the reduction of vacancies as well. As you can see on the right-hand side, vacancy rate now at 4.4%. So the increases and the revaluation gain is really internally generated to a great extent, not only driven by the markets. We carried out a tenant survey this year. Again, compared to the previous year, we achieved yet better results. The left-hand side may be less of interest to you, but the right-hand side is the question that everyone asks, do tenants want to reduce or not reduce their space? 82% of tenants want to retain the lease space, 14% want to increase the space they're currently renting and only 4% are considering reducing their space. So this is a clear demonstration of the economic performance in this country. Moving on to the portfolio. So of course, we're still present in the same sites, particularly in Zurich and in Central Switzerland, because we're also including Zurich and Lucerne. I think we'll have to correct that next time. So Zurich and Central Switzerland with more than 50%, then we deal with more than 20%. So you know that this space between the A1 and A2. In terms of types of use, no, nothing new, but we have already sold a package in West Switzerland, which means that by the end of the year, the -- we're going to be able to reduce the share of retail to approximately 20%. Rents have been stable, and the cash flow generated by the rent is very important. We are particularly proud of the 5.5 years average, and that really gives us a very solid position. 90% of rent contracts are running out this year, and this is a very stable, positive situation for the next few years. From CPO to CIO, I'll keep it brief on this slide. This is our project pipeline. We like showing this because it keeps changing, of course. Here, you can see the CHF 2.2 billion that are in the pipeline in total on the left-hand side. And then the different columns, of course, the figures shift a little bit because projects are now under construction or some are in development and somewhat just as a reserve. And then on the right, you can see the target rental income. And of course, this helps particularly when we carry out capital recycling. We sell properties and we have rental income that we need to compensate, and we can do that by better rental contracts by reducing vacancies even further or by adding new development projects to the portfolio. I don't think I need to say much about the projects under construction that have been no time delays and the costs have not risen in any of the projects either. And if there have been additional investments that has been in terms of tenant's fit-outs and, for example, the switching from offices to laboratories because here you need a lot of more heating sanitation infrastructure. But of course, that is also going to be offset by the future rent. So it's an investment. Now in new projects. On the 21st of September, we're going to break ground for the JED new build in Schlieren, and you can see the figures here. Now our projects -- planned projects. I'm going to start with Route de Meyrin in Geneva. This is an old office building that we're not going to tear down, but we're going to repurpose it for -- and convert ir into residential properties. And maaglive, you probably saw on the way here. The design plan is final, and we have now submitted the building application. This is about -- this is a multipurpose house, a cultural venue, but also a residential tower, not quite as high as the prime tower, but still a tower. And BEYOND in Zurich is the continuation of our successful YOND project on the former Siemens campus, and this is the second step of that project. And on the right-hand side, the Müchenstein project, Dreispitz Mitte. I once was asked whether we don't have any interesting properties in the centers of town anymore. But this is the central -- this is going to be the university center of the 2 canton of Basel. And so this is going to be certainly worth the investment. Now let's talk about these new projects. We purchased both of them this year. These are designs that we haven't made, but we've bought them. And what's interesting here is that we can get started straight away, particularly BERN 131. It is going to be a flexible office and commercial space using photovoltaics on the roof and facade. And it's going to be hybrid wood build. It's for offices and commercial spaces. It is the extension of the [ one-off ] station in the City of Berne. On the right-hand side, this is a building on the center of Basel, which has been a retail sale, but we don't want to grow in retail, but the building was so interesting that we decided to repurpose it a little. And we're going to renovate it and convert it to residential property with services, gastronomy and some retail use on the ground floor and the basement. And so the project execution is going to be '22 to '24 for Berne and '24 to '25 for Basel. I already mentioned capital recycling. So you can see what we've sold in the first half year of this year, 9 smaller properties, 7 of which are part of the starting portfolio for our own funds. And at the center, building B in Plan-les-Ouates. That's our last large building. I'll say a bit more about it. The contract has already been signed. The closing is not until December though for clear obvious reasons. We want to take the CHF 15 million of gain from selling, and this brings it up to CHF 45 million. In short, the purchasing profits from last year are going to be exceeded again. This Building B has existing tenants, and the new owner is going to take over the tenancy contract. But we want to keep the contracts in our calculation for as long as possible, that's why the closing is in December. On the right-hand side, you can see the retail portfolio, which is currently being sold. That's not finalized yet, but it's going to be added before the end of the year. So these sales were more than CHF 300 million. And on the other hand, 3 acquisitions, more or less the same amount, and that's what I mean about capital recycling. So we're selling properties that are no longer strategically attractive to us and replace them with new properties, more sustainable properties and properties with a more long-term prospect. So it certainly makes sense. So that was the real estate business. Now let's talk about asset management. As you've seen, we have grown by CHF 1.2 million. And so whenever we sell a property, there are always opportunities to be taken to, and you can see here the additional RMs in the individual projects. I'm starting on the left-hand side with real estate funds. As you all know, we were able to buy Akara. And that means that we are now -- have grown in terms of our own internal fund. And these 2 units have been merged, and we now have the approval from FINMA. We received this on the 9th of August. And of course, that means that we're going to have synergy effects in the fund business. What's special about this is that we are -- we'll be able to develop this fund management, and I think that's unique in Switzerland. And really, congratulations to our team for having made this possible also getting the FINMA approval. Those who don't work in asset management -- sorry, someone called my computer. Sorry about that. So anyway, this fund management is really under our control. That means that we are in full control. We can determine what's happening. We can adapt the structure as we need -- as we need it to be. And here at the center, this is the Swiss Prime fund, the [indiscernible], we are -- we hold this foundation. And on the right, this is our advisory business where we have clients such as pension funds. And on the right-hand side, there are a range of objectives. Some of the pension funds don't want to grow, such as BASF. This is about renovations or reducing vacancies. But Asga is a client that really wants to grow, and they have been growing this year with our support. So these are products and product groups. So what's the effect of this? Growth of assets under management are now at almost CHF 7 million. So you can see at the beginning of the year, it was CHF 5.7 million and now at CHF 6.9 million. And we have now shown what is from the area of asset management and what's from the area of fund management. And so our objective is 10 billion assets under management, that's our target for 2025. And this slide is also important in terms of showing what's recurring, what's nonrecurring fees. Recurring fees are those fees that we receive because we manage a product. And these recurring fees will continue to grow, of course, with the growth of the fund. But once they are in the portfolio of their respective client, they will be recurring fees. And the key figure here is that the recurring fees pay for the cost of the entire unit easily. And so theoretically, we wouldn't need to grow, and we would still have a great EBIT contribution. And so at the moment, 53% are recurring fees, and these are going to be increased to approximately 65% by 2025. In summary, the asset-light business model, why has it become even more interesting? Well, this is not just because of the opportunities in the market, but also because capital started to cost again. And so it's important to have a business model that's not capital intensive, but capital light. And the growth has already been impressive, and we are confident that we will continue to grow in the second half. So of course, you shouldn't expect that will double at CHF 1.1 billion because, for example, Asga have bought enough for this year, so they're not going to add any transactions to the portfolio this year. But there's going to be good growth, sound growth, but not to the same extent as in the first half year. 2/3 of yields come from the fund business, by the way, also 2/3 of the EBIT contribution. And that's great because this makes us independent in our management. And recurring -- and that's going to grow by more than 50%. So that's on the asset management. And since you're going to ask the question, let me just mention the other 2 areas. Services, what our expected EBIT contribution for Wincasa by the end of the year? It's going to be between CHF 17 million and CHF 18 million. So that's at the end of the year, the expected EBIT contribution of Wincasa. And this target has been raised a little from CHF 27 million to CHF 28 million to now CHF 30 million in terms of EBIT contribution. And Jelmoli, I can tell you, that is going to be better than last year. Whether it's just better or much better, that's basically going to be decided in the last 3 months of the year, and because the Christmas business, of course, is very determining here. So we'll have to see. So that was the Service segment. And now it's over to Marcel.

Thank you very much, and welcome. I'm very pleased to take a few minutes to dig deeper into our financial figures. As a warm up, let me mention something that is not shown on the screen, IFRS. As you will recall, we announced at the end of the year that for 2022, we're going to convert to IFRS to be in line with all our European peers and the big Swiss real estate companies. We have done that. And specifically, we have adjusted the previous year figures. So those of you who compare to what we said half a year ago will see that we have slightly adjusted some of the figures, but the fundamental statements continue to be the same. You will find some differences not because we would have made mistakes, but because we have converted previous year figures to IFRS. So much about that. Now let's dig deeper into the details of the figures, beginning with operating income growth of 2.5%. René mentioned it before, very gratifying here, all units have contributed to this. First and foremost, let me say that growth of 200% -- more than 200% in Asset Management is very high. That's very gratifying. Assets under management grew by more than 100% and income by 200%. So we're not only growing, but we're growing very profitably in this area, which we need to emphasize. Second thing I would like to highlight is letting income, 0.4%, above the previous year, which may not sound to be all too much. But I'll be sharing more details. We have sold, and an important property was taken out of the market as we are renovating it. And if we exclude that, we have 1.9% growth on a like-for-like basis. All the other areas grew retail by 25%. Real estate services, more than 4%. Perhaps something I'd like to mention, we've got the 2.5% of growth, and we achieved that despite a clear reduction in the development field. We said it last year, the final project that we developed for others with PLO, we concluded that. And so you see a strong reduction from CHF 36 million to around CHF 9 million of developments. No further projects are in the pipeline. So that will remain the same, but we've been able to overcompensate by growth in other areas. Over on the right-hand side, cost side, expenses. We have under proportionate increase of cost by 1.7%, which is gratifying and shows that we have costs under control. And we are not increasing cost to the same extent as we increased operating income. What is obvious here, what is striking, and I would like to provide more details, is the increase in personnel costs by around CHF 7 million. Of the CHF 7 million, just about CHF 2 million are attributable to COVID-19 effects. In the first half year of 2021, we had compensation for shorter working hours and around CHF 4 million are due to the Akara acquisition, which we've been booking as additional personnel cost, and that explains most of the difference. Moving on to EBIT and EBIT margin. At 7.2%, it doesn't look very gratifying at first glance, but we need to look at the details. If you compare the figures to the previous year, the first half year in 2021, we had sales proceeds of around CHF 36 million. Currently, we are at around CHF 15 million of sales proceeds, difference is CHF 21 million. And if you do your math, the difference between CHF 198 million and CHF 214 million is clearly less than CHF 21 million. So in operating terms, EBIT was increased by 3.3%. René Zahnd mentioned it already. We have around CHF 165 million of sales that we have already booked and we have appointments for other books. So this is a temporary effect by the end of the year. Sales proceeds will be surpassed compared to the previous year. And this temporary effect will be resolved. So I would suggest, take with you 3.3% growth of EBIT without sales proceeds. On the profit side, we've got more growth, 6.3% due to primarily 2 factors. First of all, the revaluation gain of CHF 130 million was increased to CHF 160 million in order of magnitude, and cost was further reduced. And on the funding side, particularly due to the refunding that we did at the end of 2021, around CHF 5 million. We have lower funding expenditure in the first half year. We talked about the largest contribution of our income -- rental income. And here, I'm providing more details for you to look at. Total increase by 0.3%, 0.4% to CHF 214 million. But what is key is growth of 1.9% on a like-for-like basis. You can see the details, the contributions particularly for sales. And we have proceeds of about CHF 2.1 million. And the Müllerstrasse property was withdrawn from the market to refurbish it for Google, which reduces rental income by CHF 2.1 million, which will be overcompensated by the investment properties on the portfolio where we have a like-for-like growth of 1.9% and the completion of projects. And some of it is also due to sales. Let me talk about the composition of our portfolio and the largest figure. In this particular chart, purchases and sales are more or less balanced. Investments were slightly higher, but René Zahnd did his math already for the entire year, both in terms of sales and investments in our developments such as new purchases. We are expecting around CHF 290 million sales, probably a little higher. So our capital recycling methodology is being pursued properly in the current market. We have very appealing terms to sell, and this is why we can expect the gain that we have mentioned. Revaluation gains in 2021, they were around CHF 130 million. Currently, they're at CHF 170 million. I think this -- in a situation of a reduction of discount rate, 4 basis point. 2021, it was 8 basis points. We achieved higher valuation at lower market-driven reduction of the discount rate. To a large extent, we achieved this result on our own resources by reducing the vacancy rate considerably and by good like-for-like basis and, in particular, by good letting in the first half year, which will have an impact in the years to come and had an impact on valuation, of course. Let me add 2 more charts to give details for asset management. Here, you're seeing on the first chart the fee and cost structure expressed in bps for 1 year. This makes it comparable to other asset managers. And I think it's a fairly good result. The first message we can say is our cost structure is very appealing, 31, 32 bps and as measured against AUMs. If you compare this to large European asset managers, you will find them to be around 45 bps with the objective of 40 bps. We have an appealing cost structure, and we would assume that in future, it will be yet more appealing. René Zahnd mentioned it, the 2 fund managements were merged in August. And we're planning for the second half year and going forward to achieve efficiency gains as a result of the merger of the 2 companies. So in terms of cost, we will tend to be more efficient. Recurring fees, as René mentioned a minute ago, we're at around 11 basis points above costs. Costs, let me mention that this also includes the share of nonrecurring expenses. If we excluded that cost, it would even be lower, but the crucial point is that the margin was expanded from 9 basis points in 2021 to more than 11 basis points in the 2022 financial year. And we assume that the part of recurring fees on the bps is going to increase further, in particular, because the product mix is going to change -- pivot to the fund business where we provide more services and achieve higher recurring fees. Total fees of 81.3%, particularly driven by acquisitions and transactions that we made in the first half year. And the final word on asset management and more details about it. This is the performance of EBIT and EBIT margin. You can see a clear leap in the first half of 2021 from CHF 3.8 million to CHF 17.1 million. We purchased part of it, Akara, accounting currently for around 1/3 of our AUMs. Then we're listing the details here, also accounting for 1/3 of the EBIT. We've got 2 companies that are very similar. And with the merger, they will grow together, merge even more smoothly. Good fit. And you can see a good increase of the EBIT margin to around 62%. We assume that we have the same effects. We will gain efficiency and product mix pivoting toward funds, and we assume that the EBIT margin is going to rise to around 66%. So let me move away from the P&L and talk about funding structure. This is our lease expiry profile. We're currently at 5 years, which is slightly lower compared to the first half year in 2021, primarily driven by the fact that we are working with private placements that were very short term. So it's not an expiring in that sense. There's no need for refinancing in 2021, but these are rolling private placements on very appealing terms. And they have rolled further in the meantime. So the average interest rate was further reduced. You can see compared to the first half year of 2021, we went down from 0.94% to 0.7%. And if you compare it to the end of 2021 when refinancing had already been done, we were at 0.75%. So we have yet another reduction for the reasons specified. We are primarily unsecured to the extent of 86%, around 14% is secured. The LTV was clearly lowered from 42% to 40.5%. And the final comment on the balance sheet with regard to return on equity or equity and return on equity. Despite the dividend payout in the first half year, which applies to the full year, we have increased equity slightly to around CHF 6.43 billion, which is due to the good comprehensive income and a slight capital increase in the course of the Akara acquisition when part of the price was paid by shares. This produces an equity ratio of clearly increased return on equity of 8.3%, which is within our target -- well within our target range of 6% to 8%. Two more figures at the end of my part of the presentation. The first was mentioned by René Zahnd. A figure very crucial to us is the cash that we are generating per stock per share. It's what we pay out. It's cash P&L as it were. We're using the key European figure, FFO I funds from operations. So it's a cash focused P&L without divestments. So this is the recurring part. And if you like it, the cash focus, despite the slight capital increase I mentioned in the course of the Akara acquisition, it increased by 7.2% per share to 2.09 per share. This shows how well we're doing, how resilient we are, how solid we are to generate future cash returns. And in parallel to this, let me mention the EPRA. One of the EPRA key figures, you will find the others in the appendix. EPRA NTA up to CHF 100.8 million more or less. NTA is the basis of the value of our share. There's an increase that is demonstrated here. And we can see the potential in our stock, which hopefully will be realized in the years to come. And let me hand it back to René at this point. Thank you.

Thank you very much, Marcel. Now this is actually already in the last few slides before the question-and-answer session. Just an outlook until the end of the year. This is a slide that you've seen before. We used it last year, too. Our medium-term objectives are the same. Otherwise, it wouldn't be worth their name. But there's one addition, and that's in services, Swiss Prime Site Solutions. This is just to show you that we are targeting CHF 30 million EBIT contribution for 2022. That's all that's new. Everything else was there before. Wincasa, we -- assets under management are more than CHF 70 billion. And -- but the top line is important. By the end of the year, we expect total AUM of more than CHF 20 billion; vacancy rates, below 4.4%; and increase in FFO I of between 3% and 5%. We believe that 5% is realistic by the end of the year. So it's going to be larger than or equal to 5%, and LTV is smaller than 40%. And so just one addition, because we generally don't change the slide. So the volume, just let me mention that again. The starting point for the figure was that we decide that we didn't just want to buy existing properties for high a price -- at a high price, which means that we decided not to grow at any cost. Now the revaluation from last year, CHF 300 million or CHF 166 million, where brings us to the CHF 12.5 million. So there is no contradiction to now show the CHF 13.1 million. The idea behind it is that we do not want to grow at any cost and buy expensive existing properties. That's the background.

I think that's all we have in terms of presentation, and I will start with questions and answers.

So first of all, we'll take the questions from the room, and then we'll see if anyone in the metaverse has any questions. But first, we'll stay here in the room. And so please try and ask 1 or 2 questions at a time, and we'll let you get back later. But don't ask too many questions at once.

Thank you very much. So I'll just do 3 questions. The first one is the financing strategy -- expense financing strategy and the terms of the contracts have been adjusted in the first half year. What's the strategic direction? And what are the medium-term costs here?

Currently, we are seeing some good opportunities for financing ourselves. Currently, of course, interest costs are a little higher, but they've gone down a little again since June. So the maximum was 1.4% of yield of federal obligations. So I don't know, 1.5% of federal bonds. And in the placements that we did in the last few months, we have some very attractive opportunities. I don't really expect shortening of the average maturity, but we -- I expect that we will stick with the 5 to 6 years that we are currently using mostly.

The second question is about the profile of maturities. So I would like to know what the status is going to be in 2023, '24, and can you tell us what that's going to mean for vacancies?

Well, I'm delighted to pass on this question to Karin Voigt, the CPO of Swiss Prime Real Estate AG, Immobilien AG. So, Karin?

Currently, the maturity is not expected to go down because our new contracts has been -- have always been for a term of 10 years, and my expectation is that it's going to stay like that.

Well, my question refer to the status of the lease expiries by 2023. 60% is going to be dealt with. And so what tenants are going to move out? And how is that going to affect vacancies?

Well, we're expecting a positive effect, because the ones that are running out are part of our intensive operative business. And in 2023, we'll have 40% to work with. We are working on them. We are negotiating and the same goes for 2024. So I cannot -- I do not perceive or expect a negative effect here.

And my third, last question. I noticed that Wincasa and Jelmoli did not feature much in the presentation and the report. Why is that? And can you imagine that you may actually dispose of one of the businesses?

Well, this is a recurring question, isn't it? So of course, a growing business of asset management is more interesting, and that's why we're talking about it more. But we are not planning to dispose of any of the other businesses. And at the end of the year, we'll be able to say more about these business units. The EBIT contribution of Wincasa is between CHF 17 million and CHF 18 million. And so maybe just to go back to the vacancy rates. For the next few years, we are expecting to reduce the vacancies further.

So I also have 3 questions, if I may. So what were the top changes, where did you have value depreciations or negative revaluations?

Well, the revaluations continued. We can see some positive developments at the prime sites and in the commercial properties in the centers, and negative revaluations were just a few. And we were still able to make some adjustments in retail properties, that's where maybe in a less central location, but generally very positive. And yes, the Jelmoli house in that connection, maybe we should mention that. There was a slight revaluation. And you can see that specifically, because Jelmoli is an operating property and it is -- we are not allowed to record it in the revaluation success. But on the whole, it was positive.

And the second question you purchased 2 projects. We're at 4% and 4.5%. And so now looking at the transaction market, can you see a change in yield expectations? Are there regional differences? One of the properties was in Berne.

Well, yes, that was an actual project of the company [indiscernible] and the owner of land was a Berne local authority. And so I can't really deduct anything from that. And the owner of the building in Basel was Credit Suisse, and we bought it from Credit Suisse. The transaction market is still very attractive. And this goes for the top locations. Our other 2 properties that we sold, apart from the starting portfolio for our fund, 14% were sold above fair value, and those weren't particularly attractive locations. They weren't A locations. So the market is still strong and is still very much in favor of real estate business.

And my last question, if I may, the basis for the dividend payout went by up by 7%. Does that mean that the dividend is also going to increase in the same degree?

No, it does not. But if you were to ask me what I personally would expect as a shareholder of this company, I would certainly expect an increase of the dividend last year -- next year.

Next question. Questions? Over there, please.

Good morning. I have 2 questions. I'm from Credit Suisse. Interesting, what you said about the buyer side, what about the seller side? Why would anyone buy real estate today? Who is that? You yourself said allocation means tilts towards selling, what's the motivation of buying real estate today?

Well, we have answered this question in a way. If you see who has capital needs in the second half year, who is going to issue. It's particularly the ones who want to invest money in real estate, fund products or investment foundations. And for the investment foundation, something is really new, and that's exciting. That's contributions in kind that increase in the market, material investments in the investment foundation. So the interest in real estate, in properties and in the cash flow, let me repeat that. I don't tend to quote people, but the CEO of Swiss Life said something very interesting. He said we invest in real estate, not because of revaluation, just because of the steady cash flow. This maybe is not exactly the same for us because he's in a different core business, but his statement applies on the cash flow that is generated there. It can even be generated when interests rise as long as there is no recession. The rents will be paid, and that's the money with which you pay the dividend for shareholders.

The buyers were exclusively insurance companies?

No, not exclusively. Maybe Anastasius, you can comment on that. You were the largest buyer.

Well, thank you for this question. No, the market forces are continuing to place, not only insurance companies or banks that are buying private equity, family offices, funds, investment companies, that's the whole portfolio. And the market continues to be appealing on either side. Even if you look at prices, there's stable shifts toward the right, maybe prices are not going up considerably, but it's very stable.

Last question, perhaps to the CFO. The portfolio is rather cyclical now with potential inflation or recession looming. Would you expect higher bad debts or other losses? How do you budget for that?

Well, I'll let him answer in a minute, but we do not expect a recession. I would like to correct what you said.

Well, let me comment on about debt. I work for various companies as the CFO and have been in the business for 25 years. We've got currently days outstanding. That's the ratio that tells you how long someone hasn't paid after the date of invoicing. We're at 2.8 days. So our tenants pay very much on time. We have almost no bad debt whatsoever. On the contrary, we retransferred provisions -- COVID provisions. And I cannot see any indication to the contrary. We're monitoring that very closely, and there is no difference really between retail and others. Now I'm not sure why you're saying is this is cyclical. We -- our portfolio is very stable. We have demonstrated that we are at around 5.5 years of WALT. Our vacancies are similar in retail and in office. If anything, they're lower in retail than in office. So I would actually contradict what you said. No bad debt.

Very convincing. Thank you very much.

Can you pass on the microphone?

Pascal Boll from Stifel. First question about vacancies. 4.4%, that's a great job you've done. If I remember properly, you said in the past that given the higher share, compared to other real estate companies in the development portfolio, that vacancies would be between 4% and 5%. Now you are saying that you are seeing potential further reducing vacancies. First question is, is that not a contradiction in terms or has there been any change? And secondly, where could prices move in the medium term?

Let me take that question. I can't recall having said that. But what I can recall is compared to peers that do not project development, our vacancy rate is about 0.2% higher, 0.2%. When projects are completed, then the completed projects enter the portfolio, but are not fully let in most cases. We were at 70% to 80% of letting status. And next year, they will be fully let, but the new projects are coming in. So we're actually taking the 0.2% with us all the time.

And where can the development go?

I think between 3, 5 and 4.

Margin SPS solutions, you are assuming that it will be going to up to 66% if I consider your presentation? What's the downside? What could be happening for the margin not to remain above 60%, but maybe going back to 40% to 50%? Would that mean that fees from transactions would be missing or?

Well, the question of transactions or no transactions is to do with recurring and nonrecurring fees, but the stronger growth in fund growth is the higher profitability because we are having our own fund management, we are much more in control compared to a situation where we only are manager or asset manager. But our growth will primarily be generated by funds. And so we actually are not seeing any downside, only funds didn't grow any further or growing with other clients, then -- would be -- have a negative impact on the yield.

Now on the European valuations, they're less resilient than compared to Switzerland. What's the client interest? Has there been any change? What are you expecting there with regard to volumes in the months to come?

Well, it's generally difficult if you launch a vessel outside the vehicle outside Switzerland. It's difficult, but looking at the German market and the product that we launched there, senior living, there is a lot demand and the 5 buildings that we've bought in the meantime are very good. We have not only a value increase that we've achieved in recent months, but we are very stable and we are confident to find new investors and to be able to invest the money we have. We have a full pipeline. We're confident, but it takes time to generate that growth in Germany.

Reto? Please hand in a microphone.

Reto Portmann, zCapital. I have a question about management changes for real estate. Maybe you can make 1 or 2 comments there? And the massive expansion of your responsibilities.

Well, I do understand your question, but these are internal things, and we're not going to further comment on them.

What about the expansion of your responsibilities? That's not temporary.

No, it's not temporary. And that works. Well, it works. I'm a real estate man after all. When you talk about expansion, it was 100x more difficult to understand a business like Tertianum. That was time consuming. But I do understand real estate. So there is some logic to it for us to merge the businesses. And I can rely on a tried and tested team. We're not changing that. The structure remains the same. We've got a top CPO, a top CIO. And these are the pillars I can continue to rely on. So I'm not really seeing the difficulty. I don't think I will be grossly over taxed. Let me say that the Tertianum was much more complex.

[indiscernible] of Maerki Baumann. Question about the funding structure. The private placements, are they limited to the CHF 200 million? And do you intend to increase that share? How have the terms changed since the interest rate rise by the SNB?

Well, I'll be pleased to comment on that. It's a new instrument for us, private placements. We've been able to do that after changing our funding structure with -- working with a secured facility that makes us more flexible or in other terms, we can work with a 3 months private placement. Should it not be renewed, we have a major backup facility in the amount of CHF 800 million through which to cushion it. The last private placement, René, was done, I think it was a Monday at 0.3%.

That's higher than half a year ago. Is it?

Yes, higher than half a year ago. That's correct. But the funny thing is it's less higher than the 50 bps that the SNB has increased. So the margin has reduced. There are not many A-rated companies in the market. I think that is due to our rating, and that is why we still have appealing terms for placements.

[ Philip Bjornson ] of [indiscernible] I have a question on indexed rents. What was the effect in the first half year? And what do you expect for the medium term of the balance of the year? Second question, could you perhaps comment on your sustainability strategy? You improved some ESG ratings, I've seen, but what's your general idea achieving your goals there? And maybe, can you comment on the cost, the additional cost for implementing the sustainability strategy?