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

Good morning. Welcome to our balance sheet media conference today on Thursday, 9 of February. So just to jump right in it, our results for 2022 were positive. But still, it's not the right time to just applaud ourselves, because we were forced on Monday to communicate to 550, not 850s was reported, because 350 are our tenants, employees, I just assume they're not going to lose their jobs, they're just not going to work at Jelmoli anymore. But nevertheless we were forced to tell our own 550 employees on Monday that the department store is not going to continue the way that our employees liked it across 6 storeys, as of the end of 2024. And so, the results are positive, but we are keeping in mind that we have had to give our employees this bad news and that's something that we do take seriously. So now about the results. I'm not going to go through each and every item, but let me just pick out the most important points. On the right-hand side, increase of rental income which is still the most important performance indicator, which rose by 1.1% to CHF 431 million approximately, and the like-for-like growth rate is almost 2%, 1.9% to be precise. The reduction of vacancies by 4.6% at the end of 2021 to 4.3% is also positive, and this was as per the end of last year. And the figure, they're all looking at is the valuations, and we've read a lot -- rise in interest rates also means rise in discount rates minus 1.1%, minus CHF 50 million is what we read, that's a plus of CHF 173 million and we at the -- in the middle of the year, we always said that we expect the valuation results to be the same in mid-year and the end of the year and that's actually been confirmed. So CHF 146 million last year, so it was practically flat but slightly positive. And last year's highlight is our strong asset management. We were able to show some organic growth without acquisition, CHF 1.8 billion to CHF 7.7 billion. And today, on 9 February we have already exceeded the CHF 8 billion mark. And so we were able to reach our target EBIT of CHF 30 million. So the EBIT, adjusted EBIT was up by 6% to CHF 430 million, that means before revaluation and one-off items. I'm not going to talk about -- much about finance because Marcel Kucher is going to go into more detail there later, but let's take a look at the right hand side, strong balance sheet and FFO. Of course, the reduction of LTV from 40.2% to 38.9% is particularly interesting. So we're no longer at -- 39.8% or 39.9%, but we have actually [ cracked the ] 40%, the magic number for the LTV. And the EPRA NTA rose to CHF 102.69, that's an increase of 1.7%, and that is what allows us to pay out a dividend. The FFO 1 per share, unlike the FFO 2, this does not include the sales proceeds and this -- the FFO 1 rose by 6.2% from CHF 4.01 to CHF 4.26. And we are going to propose a dividend of CHF 3.40 per share. And we're also are going to have a change in the Board of Directors [ this being ] proposed, will be proposed to the Annual General Meeting. So in addition, we have EBITDA from 4.8% to CHF 448.6 million and profit adjusted to CHF 300.6 million. Now we are the first to publish our accounts, and so, the question is always how we see the market as it is? And we have 3 points that we would like to make. Transactions, while you've all been able to see that in the second half 2022, it was a little lower and -- but with Swiss Prime Site Solutions, we were able to sell 100 properties in part in 2022, and you might say that anyone can buy as long as they spend enough. But let me tell you that the performance of the product is always above the benchmark. And the other point, we would like to make is that we also sold properties. And so one figure that's important is the one what you sellout. And we sold long tail those are not the CBD district, not the CBD district properties and we were able to sell 15% to 20% above book value, and that means that the market is still healthy, and it also means that the valuations have been reasonable unrealistic. So no over-valuations, if you can still achieve above book value. So much on the transaction value. Let's talk about Lettings. We have been able to let 172 square meters, in addition, so this is a very good market in central locations, especially now with our sustainability standards. And the -- you already know about our tenant survey, particular to our guests from abroad. Let me just say, you should forget all you know about working from home, maybe that's true for other countries, it's not so much true for Switzerland. We have a very strong demand for office spaces in good locations and also if you read Credit Suisse or any other estimates and they all say that particularly Zurich, which is our main market, has not enough demand actually in case -- in terms of office space. And that means, we expect to be able to renew contracts at better conditions. Now let's talk about Valuations. Well, valuation is always a little bit about looking into the crystal ball. Well, but what are we expecting? We are expecting the discount rate, not to go down even more but -- and so the question is, what will happen to property values? There are 4 levers to counteract an increase in discount rates. The first one is of course adjusting rental income. So that's the first lever. And the second lever is an increase in rents, whenever there is a rent option, whenever we want to renew a rental contract. Another lever is to decrease vacancies further and we expect to be able to do that. And the fourth lever is our development pipeline. So once a property is ready for rental, we expect a revaluation effect. This particularly goes for the end of properties, so a property is ready at the point when tenants move in. So that we can attract the right kind of tenants. And that is where we usually have another positive effect in valuations. So that's our view on market transactions, lettings and valuations. Before I hand over to Marcel about the figures, let me just say a few things about Jelmoli. Let me just talk about the investment volume of CHF 100 million. This is a very accurate estimate for the idea we have, because of course the question is what will happen to it? We are already in -- having a dialog with the city, and we'll have to see whether our ideas will be put into practice. One idea is to open the site to have more access from street level and we also want to have a Plaza with air, and lights from the inside daylight, lighting inside and we also want to use the roof surface -- architects always say that the roof is the fifth side of the facade, and absolutely agree with that. So we want to be able to open that to the public. I just read Andrea Martel's commentary who said that it's the same about the house, but the house is going to see improvements. The building is going to become more open. It's going to be better than before. At the moment, it's a department store in Zurich. It's going to be more open for more possible customers rather than those who just want to purchase goods, and it is going to invite the population, and so, I think we really have the possibility to realize a very good project here. So about the CHF 100 million, it's going to be around the summer, I think, and by then we'll know also from the authorities for listed buildings, will know what will be allowed to do and what we won't be allowed to do and then we will be able to adjust the investment volume more precisely. So that's about the Jelmoli building. And now, it's over to the financials with Marcel.

Thank you very much. And welcome to Prime Tower on my behalf. Before we look into the figures, let me make a general remark. You will remember, we changed over to IFRS. All the figures we are presenting are IFRS figures, conversion within the framework of which we announced as extrapolations last year, but when you compare, previous years figures with the old figures there is a slight adjustments or previous year figures have been restated to provide for like-for-like comparison based on IFRS. So let's look at the details of the figures. We've got the operating income here listed in detail. Let me refer you to 3 components. In particular, the first thing Rene mentioned already 1.1% of growth in terms of absolute rental income last year. We sold a few properties within the framework of capital recycling, the like-for-like growth as a result is clearly higher than that at 1.9%, and this goes to show that we have the right properties in the right places. Last year, the main increases occurred at the beginning of the year. And when you remember properly how inflation evolved, you can see that we -- relatively little index adjustment is included, the majority of them are appealing renewals of rental agreements. And more is to come based on the development of the inflation in the second half of the year. And but Rene also mentioned quickly was return from asset management. Clearly, increased by 186%, that's really a tripling of the figures. And I'll be looking into the details in a minute and to where the origins are, how stable this growth is. Let me also say a word about income from real estate services that's Wincasa in this case, a plus of 5% at constant pricing, by the way. So we're seeing that growth continues to be possible with Wincasa, we are talking about more than CHF 80 billion of serviced assets, currently. Total operating income of just under CHF 775 million or a plus of 3% compared to the previous year. Let me say more about the cost side, the operating expenses. Let's begin with the simpler things, direct real estate cost rose by 6% around half of which is attributable to higher energy costs for Jelmoli on the one hand, but also for the vacancies on the other hand, which account for about the half of the increase in the real estate expenditure. We assume that this is not going to increase or even going to come down a little bit, as energy prices have come down. Second point, I would like to mention here is that we saw previously, there was growth of income in retail 10% of cost of goods sold, plus of 18%. But bear in mind that given the decision to transform Jelmoli, we looked into proper appraisal of this and carried out CHF 7 million of impairment and this is part of the CHF 34 million that we communicated as one-off expenditure for the Jelmoli transformation. The rest of the CHF 34 million, the balance of it can be found in impairments and depreciation, with the high increase as you can see here, which is almost exclusively attributable to the impairment related to Jelmoli. So total operating expenditure is a plus of 14%, CHF 438 million adjusted for the one-off expenditure that we commented. This brings us to CHF 397 million, a plus of 3% which is in line with top-line growth. Now cost and income taken together, produces EBIT results shown on the next slide. Let me mention revaluation here, as Rene mentioned minutes ago. It was stable in the second half year of 2022 CHF 170 million, approximately and is especially gratifying to see that the capital recycling properties that we sold account went at around 20% above book value and produced a profit of CHF 51 million, approximately. Total EBIT including revaluations of minus 20%. As you can see here its slightly decreasing and if you take into account the one-off items, you will get a plus of 6% of adjusted EBIT on a like-for-like basis, which underscores -- good operating performance of our Group last year. Now what counts in particular for dividend payment is a cash view. So in our guidance, and in our daily operations, we focus very much on funds from operations. We do not have to do any additional corrections, as this is the cash view here as shown and in line with the adjusted EBIT. We have a plus of 6.2% which is above our announcement of 5%, particularly due to our operating progress with higher top line controlled cost. EPRA NTA rose by just under 2% to CHF 102.70, which is due to successful capital recycling that we've implemented on balance dividend payout based on FFO. Let me focus on 2 specific components in more detail. One is growth in rental income 1.9% on EPRA like-for-like basis. The key component certainly are reduction vacancies on the one hand and very effective management of properties with a strong focus on letting in a strong rental market. We have around CHF 4 million that we sold under capital recycling, about CHF 1.8 million of rental income was taken from the market, these properties that we are beginning or have begun to refurbish, Mullerstrasse in Zurich would be a case in point here, but it was compensated by existing properties. Let me look ahead of around 90% of our rental income is indexed to inflation. We are intensely making sure to make use of that, there's no negative reaction from tenants. So we can implement that as announcement as laid down in the contracts CHF 11 million to CHF 12 million will be the amount of additional income, some of it this year, the rest will follow in next year, not all the contracts can be adjusted for 1 of January, that's why there is some degree of overlap. Now on the other hand, from the sales in 2022, our rental income will be reduced by around CHF 4 million. Second component, I would like to highlight is continuous portfolio enhancement. Look at the compensation of the value we sold, total book values of around CHF 266 million. That's what we made the CHF 51 million profit on which amounts to CHF 317 million of cash income there, it's important to say that the 19% or just under 20% that we sold beyond book market. This will be continued, it's not everything from the first half year of January last year, last December we sold properties in the amount of another CHF 80 million that we now close in January, are going to close in the weeks to come. And for the sales that we conducted in December, we clearly were beyond book value, again, just to remind you we are selling things that are making our portfolio better in the course of capital recycling peripheral properties that are not part of our core and prime portfolio. You can also see it by the number of properties, despite an increase in the real estate value. We went down to 176 properties which makes it more efficient for us, to manage the properties. Now let me say something about value increases, the valuation gain of CHF 173 million that Rene mentioned, account rate to 2021 around half of it is due to higher rents and reduction vacancies and the balance by reduction of the discount base rate, but the reduction compared to the previous year, it was clearly lower and accounted for only half of it. I think, this is important to know going forward. That's why we clearly focused on further reduction of vacancies and like-for-like growth to go with it. 2 more components, I would like to highlight on from asset management. The real estate management, asset management, you mentioned before, strong growth of around 30% on an organic basis CHF 1.8 billion in addition to the CHF 2.3 billion from the Akara acquisition currently, this amounts to CHF 7.7 billion to CHF 140 million have been added in the meantime. So we are already pushing out -- pushing the CHF 8 billion threshold. An important component is how much of it is recurring? You would assume that great, it is non recurring, it is come down a little bit, but we're still at about 2-thirds of our fees that are recurring 63% to be precise and this is a very significant figure, because it's the recurring one, returning every year. To remind you again, the whole growth is non-recurring in the first year, in the second year it's recurring and this figure, of course, is certainly going to increase in the years to come. CHF 30 million of EBIT, we communicated already, 58% EBIT margin. So we were where we used to be 2 years ago, we clearly have economies of scale there, given the size and we can see more economies of scale with the current personnel for the future. Let me also remind you that the Akara acquisition was fully integrated by August, the merger occurred in August, and that point in time we cut out certain duplication in back office and some of these effects continue to be there in 2023. Let me also add a comment on real estate services, or Wincasa in our case, we showed you one figure before CHF 1 million to CHF 81 million of serviced assets, which is a record figure, clear increase of around 6% compared to the prior year. And it's important, in this context that this clear increase was at constant pricing, managed constant pricing. And both on the basis of existing clients and new clients, we have a high degree of client satisfaction, we have increased it, we carry out detailed client surveys with all major clients every year. And we clearly increased the results again, which is a good basis to gain new clients. In 2022, we renewed the contract with Wincasa for another 5 years, and the best thing is that in recent years, we invested a great deal of money in IT and digitalization, which will help us to be a lot more efficient, I think 2022 is the first year where you clearly see an impact on the figures. Our personnel cost ratio was clearly reduced to below 70%, and our operating EBIT margin is 11.3% clear increase compared to the previous year, and this is not to be the end of the line. Some of the IT projects are only going to go online this year and in the years to come. So we'll clearly see upside potential there. Then, over on the other side of the balance sheet on to funding. This is the presentation, over the past 3 years, our financial liabilities and our investment properties. We can see a clear trend here, financial liabilities are being held stable or even being reduced under the capital recycling at slightly increasing real estate value, which brings down LTV from 42% 2 years ago to now below 39% in 2022. This is an important signal showing we're taking things very seriously and implementing well, we de-leveraging it slowly but surely. The same thing at unchanged maturity profiles and this is always as of 31 of December at appealing interest rates, due to the strong basis of our funding and new appealing opportunities for funding is currently at 0.9% average interest rate. At the end of 2022, 86% of our funding is unsecured, which is important for maintaining our rating. We're making sure that the vast majority of our creditors are on a level footing. We've got a good mix here from unsecured bonds, capital market funding, and unsecured loans, funding from banks. This is an important component as well, we widely diversified in terms of funding and can resort to all sorts of resources. Our maturity profile is very balanced, as you can see, we had a peak -- we're going to have a peak in the year 2027 and '28, these are consortium Credit Suisse, a total of 13 banks and these credits include options for renewal for a year or 2 years under current terms, we are assuming that we will make use of these opportunities. Something we haven't communicated yet, but are communicating now is open credit lines or cash amounts to CHF 800 million -- around CHF 800 million. So the maturities this year and next year we are facing them in a pretty relaxed mood, depending what the situation in the capital market is, we would like to go back to the capital market, but there is no pressure on us to do that, we can do that earlier or later, it doesn't mean we're not wanting to go back to the capital market, but we are keeping a close eye on opportunities. The CHF 50 million, if anyone would ask for that is private placements, that are revolving. We've got good access to the placements in replacing them currently, at a margin of 31 bps. Well, so much in terms of figures. Let me hand back to Rene.

Thank you, Marcel. So I always thought that I was a fast speaker, but he is even faster, isn't he? So let's talk about the portfolio. I don't think I need to go into deep-dive. Properties are still in the same place, say banana-shaped area between Geneva and Zurich. We had 170 to -- 1.7 million square meter of rental floor space, and that's excellent. But of course, it always depends on what time options run out. So this is much better than last year and in the previous years. Now 2022, we have the best peak in pandemic. And that was even better, also better than 2019. No, the vacancy rate, this is the lowest vacancy rate that we've ever had. We are now at 4.3% and we are going to work towards lowering the vacancy rate further. And the target value you may wonder, well, we expect that we will be able to reduce by 0.2% at least. So that's not quite the same degree as last year, but it should get us to 4.1% of vacancy at the end of the year. Now this slide is interesting in terms of rentals, not much has changed. But the question is what will happen after the Jelmoli building has been refurbished in terms of usage, distribution? As you can see, the share, the sale retail is going to go down to 22% and this will be compensated by more offices and increased to approximately 48%. And so now if you're looking for the laboratory spaces. I can tell you that those are under the logistics infrastructure heading, the 9%. So laboratories also are part of infrastructure, so they are under that 9%. And this is a slide for our shareholders from abroad. Just to give you an idea of the retail business. We now, I think 26%, not the 20% -- 22% that we are heading for in a few years' time. But the question is, what's happening to retail? Retail still has a role to play, we absolutely agree on that. In CBD locations, we need retail. There's no doubt about it. But this slide shows that the 57% of rental income from retail can be repositioned and that's what we're doing. 24% is food or near food, that's the Migros and coop's and 19% will be other types of retail. So this is not -- we're not saying that retail won't be happening at Jelmoli anymore. We still will have 10,000 square meters, nobody has any idea of how much 10,000 square meters is. So this is about the surface as Globus has in Zurich. So we are going to be very big. And so, retail is of course part of any inner city, but it can take different shapes and forms. And we will be able to show you what we have there after the end of the refurbishment in 2027. So this is something that we've never shown before. This is the location of our properties. So if you're -- it's good to be in the top right-hand corner. This is where 83% of our portfolio value is located. And you can compare that with other companies and the 14% that's also interesting. These are about excellent location quality, which can be further improved by making investments into the building, for example to improve sustainability or to upgrade the area -- the surface area. And then, the 2% -- 1% what we call long tail properties, which are pre-destined for being sold, the next opportunity in order to have funds for refurbishment elsewhere or development elsewhere. And so, when we invest in life science and laboratory areas, they will not be next to Zurich main station. Laboratories are usually, for example, Ariv Stucki Park in Basel and in Zurich, they are wherever the cluster is and that is Schlieren in Zurich area. It's important to stress. So if you look at where the property is that's an approach that's not -- that doesn't do justice to the different use cases. So you always have to look at what is the perfect location for a particular type of property and that is why we also have some properties in that 14% segment. And so, the -- here, this is the lease expiry of rental contracts. It's always good to be in line with the finances 5.3 years on average. And you can see how these are distributed long-term rentals over 10 years, very much driven by Tertianum. We are still the proprietors of different -- of various buildings. So that was about the portfolio of the Swiss Prime Site AG. Now let me talk about asset management. Next then, next some project developments. So asset management, first. I'm not going to go through everything, but just from left to right, we have 3 parts. One is fund management, where we make our own decisions about investments. It's always important to know who makes those investments -- make such decisions. And so, that's what we want to expand most, because we think this is where the potential is the greatest. At the center, this is the investment foundations, the fiduciary segment, this has been extended until the end of 2027, that was great and I would like to thank the investment foundation for having extended contract here. This is important for you to know when we -- this is -- we are the asset managers here. And then, the Board of the Foundation decides whether we buy a property or not, we just suggest it. And then, we also have the real estate advisory for third-party clients, here we want to make sure that the buildings are in top shape and one the Asga Pensionskasse showed very strong growth last year. And now, I wonder whether you may be our competition and we are competition for ourselves, in terms of acquisition. Well, we have different acquisition sales teams with different products, a fund management, this is separate from asset management, this is separate from third party business and from real estate advisory. Of course, there are lots of synergies as Marcel mentioned at the back office, finance sustainability, all these topics are covered by us as the parent companies for asset management too. And that means that we were able to keep the cost quite low here for the asset management part. Maybe the color graph is difficult to discern here, but the largest share is living, is residential segment. So looking at the Immobilien AG, the Real Estate AG, we are still looking for commercial properties. So there's only a very marginal overlap. And then, going into the individual products, drilling down into the individual products, you can see that it's not just about how the product is split up and what the typical investment size is. Here, these are smaller investments than the medium investments of the -- investment foundation. So there's hardly an overlap here in the market, either. And so, if 2 products bid for properties, and that's the way it is. And then, the better price will get the deal. So that is, of course, a result of having those 2 acquisition organization separately. So now let's take a look at some of our projects in our pipeline. This slide shows exactly where you want to go. This is sales of CHF 370 million to get -- discussion and acquisitions and developments to the tune of CHF 274 million. And so, I think we've done a lot, we've got it right, in terms of capital recycling. And I don't think, I need to go into detail about the individual projects, I think you've heard it all before. Now this is the development and the project pipeline. In summary, so we have projects worth approximately CHF 1 billion and we still have CHF 330 million to invest, CHF 740 million have already been invested. And so, this shows the capital that we still need to finance the development pipelines. But the message is important. In the CHF 740 million now have just CHF 5 million in terms of correction. So we are in full control of the costs, and I think this is an excellent achievement, excellent performance by the management, because when you go -- the costs are under control and CHF 840 million for projects and planning and I'll go into more detail about that. This slide is important. These are our major projects under construction. Mullerstrasse, before you ask Mullerstrasse, Google is not a problem, we have been able to sign Google. The question is Google is going to continue to grow in Zurich, the way it has been, that's a different question. But they will move into the building. That's what you need to know about this. And in the fourth quarter is going to move, move in time. Alto Pont-Rouge is also going to be ready for -- in the fourth quarter. And so, that's the normal occupancy rates here, 60% unless we have a 100% deal with Tertianum, but normally 60% with this kind of time line is totally normal and positive. So Stucki Park is going to be finished in 2024. The new building in Schlieren with laboratories also 2024. Tertianum, 2 buildings will be concluded in 2022 -- '24, excuse me, the Paradiso-Lugano and Olten and then the new project in Berne, at BERN131. So looking at this, you can see why we are expecting to once again increase the FFO 1 in 2023 and '24. Particularly, Mullerstrasse and Alto Pont-Rouge are going to be added in 2023. This will be at the end of the year. So that's also going to have much of an effect on the 2023 figures, but 2024 is going to be a very strong year because we'll have these new occupancies. And then, we have some -- these are some of the projects that we are planning, of course, there are more. I'm just showing a few. So first of all, the Route de Meyrin in Geneva this is the conversion of an office building into a residential building. We are going to file the application at the end of the year and we're going to see how this -- that we may well sell this again in the market. Maaglive is also going to have a residential tower. But we're definitely not going to sell that, we're going to keep it as part of our portfolio, because it is more or less a living room. This is where our home is, and so, we don't want someone else to own it. We expect that we will get building approval in the next few weeks. So in the canton of Zurich, it works differently to other cantons. Here at Zurich, it's the other way round, you first get the building permit, then you submit your plans for 30 days in the next 30 days and then, you can get all the responses from the population and then we get the final permits. And -- but once you have received the building permit, that means that you have done everything right, you met all the requirements. And I think, I don't need to go into detail about the other projects listed here on this slide. Now let me talk about sustainability. A certification strategy, let me just say here that we have been able to certify 75% of our floor space with different certificates. Most of them the BREEAM In-Use certification, but there are some other certifications, such as the Minergie, the SNBS Standard for Sustainable Building Switzerland and other certifications, the tower also certified. And then, certifications of the existing building stock should be finished by the end of the year and, but of course, we also have some other floor spaces such as car parks, for example that we're not even going to attempt to have certified. But we are going to certify whatever can be certified. And then, of course, we want certification for all of our new development projects. According to SGNI in Basel, this is the point on to the German sustainability standard and we chose that because the sites allowed the certification of laboratory spaces at a relatively early point. So much about certification. Let me just jump back a little. We were able to achieve CO2 reduction and we are able to continue on the CO2 reduction pathway. And we have been investing into the circular economy, you may have seen in Mullerstrasse, but also at Messeturm in Basel and also for the new buildings here in Maaglive, and BERN131 which are new wood hybrid buildings. It's very important to us to actually continue on this path towards a circular economy. My objective would be to create, to build a circular building where 80% of materials are recyclable. And at the end of the life cycle, the materials should be ready for reuse and either for our own projects or to be sold. So one thing that's new for some of you is the Green Finance Framework, that means our new financing has to be green and you may say they're always green. So this has to be validated by an external body, otherwise it's not worth anything.

Now for the GRESB standard. This is the standard, we believe will prevail, we've improved the portfolio is at 85 points and the development portfolio at 88 points currently, we expect for 2023 to achieve 90 points on the development portfolio and to improve by 2 points to 3 points in the year. Points in the year. Portfolio in general, it's very difficult to get to 100 as to the last mile or the last meters of the most complex ones, but we want to be in the lead and I am taking personal efforts to make sure that we are better than the peer group, it's our responsibility as a real estate business. Now the final 2 slides are on guidance 2023. FFO is stable, 2024. We are expecting another increase based on the large-scale projects that will then be taken into the portfolio. LTV is to remain under 40%. It will be nice if it's even under 39% rather than pushing the 40% threshold, all the time. Vacancy we guided for 4.1% by the end of the year and assets under management. And now this figure relates to Solutions Limited only so, that you don't always have to say what's the direct and the indirect portfolio. For solutions, it's to be larger than CHF 8.5 billion by the end of the year. Before the questions, this is the last slide, key proposals to the Annual General Meeting, we already communicated on the proposed new member of the Board of Directors and we proposed payout of a dividend of CHF 3.40, half of it not subject to tax, CHF 1.70 and this tax exemption should be possible for another 5 years on our stock. Now the CHF 3.40 after all is 80% of the FFO 1 of the cash that we achieved and this is precisely at the lower end of our dividend policy. This is why we're making this proposal for CHF 3.40 per share. I don't think I need to provide the details, we won't be the only company that will have to amend the Articles of Association to the new code of obligations this year or the next year will be a huge business for law firms, but I won't talk about the details here. We specifically mentioned the concept of the capital band but read the attachments to the Annual General meeting invitation where you will find all the details. So thank you very much so far. We're going to have the Q&A session as always. We are taking questions in the hall first and then I'll see whether viewers connected online have any questions. And please don't ask 5 questions in one go, we won't withdraw the floor from you, but it would be nice to have one question at the time. Now it's nice of you to wear a tie as well. We agreed to wear a tie and you are the only one in the hall supporting us, wearing a tie.

I have 3 questions. But I'll take one at a time. The first one relates to indexing. How realistic is fully handing down indexing or -- and how has been the development in this regard in?

Well, I mentioned it briefly, we've had a nice round of indexing that we've already completed by December 31, and as far as I know, we haven't received any negative feedback.

Well, the second part of the question for Karin Voigt, Head of CPO, Chief Portfolio Officer, that is. So the question is, are we in the process of making more concessions to tenants?

Well, we have no additional concessions for tenants or any other concessions. So I can't see any stronger demands coming in from tenants or any impact on the indexing on the rental agreements.

Well, the question was more about -- assume, I have a rental agreement at 100 and I renegotiated. Can I then negotiate on the basis of 100 or 100 plus when new negotiation we will take the higher level and a renewal?

Well, of course for new negotiations the approach will be the plus one and that's different from renewals.

Second question, the second question relates to Wincasa, the operating outlook, I would be interested to know about the personnel retention rate? You mentioned, certain IT investment efficiency gains, that you've made, I wanted to ask whether IT investments have been concluded? And what the IFAM AXA margin compares to SPSS? I'll pass the question on, but the question is also how much business are we making -- doing together?

Well, just to give you the order of magnitude 80% of Wincasa sales is attributable to SPS, be it SPSI, or SPSS. Wincasa generates more than 70%, but has to generate more than 75% in the third-party market. Well, it was actually 3 questions. First question is about the retention rate. We do not refer to it as retention rate, but attrition or fluctuation rate. There's a lot of fluctuation in the industry and has been for many years, the average across recent years was between 15% and 25% in the industry, that's normal in the industry. With us, fluctuation has slightly increased in recent years. We're around 20% but in 2022 we've lowered it by 1 percentage point, we have fewer fluctuations or less fluctuation than the previous year, and we're doing a lot for retention by quantitative measures, salary increases, appealing bonuses for instance, but also a lot of qualitative measures in terms of training, further education, coaching, change management for management. And we expect to hold this rate. Now second question, how about investment cycles related to IT changes and transformation? We are at 0.5 point, more or less of the program. We said, we have a Wincasa '25 strategy by the end of '25. We want to take the platform to the next level. A lot of the investment has been made Marcel has given you information about the steps last year, digitalization of incoming mail and of tenants files was important, so we can work, no matter what location, everything has been fully digitalized apart from the tenants and owners portal, we've also set up a portal for suppliers that we need to conduct ERP migration, we have chosen the Swiss standard to convert to, and we will need to do that by the end of 2025. The third question was about our terms from IFAM, AXA, SPS? I can say that these are all at arm's length agreements. Marcel, mentioned it already, new mandates such as IFAM. Well, there were various contenders for it -- various competitors for it and we won the mandate, but on standard market terms, up to this that we have a very pretty tough profitability view, we always set the standards of not going below an EBIT margin should that be the case, we would be opt out of a process that we've got our clear criteria there.

My final question going to Marcel, whether the FFO particularly when interest rates are rising, is the right key ratio for dividend payment as FFO is available basically for capital -- for investors?

Well, I think it's the right ratio, especially when interests are rising, as we have to generate the cash that we can pay out to our shareholders and that's precisely the figure covered by FFO. Now in an extreme scenario, when interests accounted for rose to 10% for instance, almost everything in terms of FFO would be -- have to be available for interest payments, as this is an obligation there would be nothing left for dividend payout. So I think it might be difficult. Well, I don't really see it that way. If that was the case, if there was nothing left, one would have to discuss the basis from which to pay out, to make the payout, so that's why we're working on this not happening. That's why we are guiding for flat FFO and it's our job to make sure we can perhaps hand down higher inflation to tenants, for instance and we showed at our Capital Markets Day, how we can do that in a hypothetical scenario that we were assuming on that day. If interest rates rise to 10%, then our guidance wouldn't apply anymore, I simply wanted to add that. Well, FFO is after interest rate payment. Well, FFO is funds from operations, if that wasn't clear. So that's with interest rates deducted, interest deducted, interest went down by around CHF 10 million this year, it's part of our new funding round about CHF 10 million interest that we paid, despite the slight increase and that's included in the FFO. FFO is all cash interests and taxes pay, everything deducted. More questions?

I have 2 questions, a brief one, on LTV below 40%, very nice, but you still have -- its still excluding leasing liabilities. Would it be a realistic objective to be under 40% including leasing liabilities?

Well, it's the correct LTV view from my point of view for a potential creditor it is to show what would happen if I have to sell the portfolio. In a certain situation, our portfolio valuations are appraised on the basis of whether you have a permit to build or not. Everything correct on our books. And then, the other thing is accounting technique. But that is not to be substituted in the case of a sale. So everything is reflected properly on our books. And from my point of view, it's the right cash view that we have in there, and I can't see a need to adopt a different view.

And on the '23 maturities, this includes the convertible bond, I don't think there'll be refunding through a new convertible bond, are you discussing that?

Well, we're looking into various or different options, convertible option would certainly be an option, like a straight bond. We will certainly be a green bond and as backup, we have other options, including an RCF.

And what's your working hypothesis regarding the 0.9% of funding costs, are you assuming it's going to go up? Do we need to expect 1%, 2%?

Well, it will depend on what the SNB is going to do. Our marginal funding costs are around 50 bps spread at the current interest rate of 1%, they'd be 1.5% that's the marginal funding that we're getting at the moment.

Final question mortgages, would that be an option, if you get more appealing funding to raise your mortgage component?