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

[Interpreted] Good morning, and a warm welcome at the balance sheet media conference of Swiss Prime Site on our results 2023. A warm welcome here in the Prime Tower and of course also a warm welcome to all of those who are joining us from elsewhere in Switzerland or -- and Europe. So let's start with out last year's objectives. But before, I would like to just make 1 remark. We are a real estate company. But if I look at that as a real estate company, we've been very mobile. We have repositioned ourselves in strategic terms. I'm sure you all remember. Starting with 1 year and 2 days ago communicating the refurbishment and restructuring of the Jelmoli building and phasing out or terminating the operative business at the end of 2024, and then the sale of Wincasa for a very tidy profit. So that was our strategic realignment. And now with the 2 pillars, direct real estate portfolio and asset management. So we are going to hear a lot more about the target in the course of the presentation. But let me just say that vacancies by the end of the year were 4.1%, asset under management, our Solutions AG, was CHF 8.2 billion at the end of the year. And the FFO I was stable. And let me just add one thing here. It was quite demanding, keeping it stable. And it was a little better than stable, actually there was a little growth. This was due to additional financing costs, plus CHF 80 million compared to 2022 and due to the capital recycling business, the sale of real estate, this always reduces the top line. It was CHF 10 million in our case. And that meant that our operative business had to compensate CHF 28 million. And so it is quite an impressive result not just to keep the FFO I stable, but to actually see a slight growth. And then last but not least, are about targets, the LTV below 40%, and we actually managed this with 39.8%. So let's take a more detailed look at the market in general of the past year and the way that we perceived it. Let's start with transactions. It's correct that there were hardly any transactions in the first half of the year. And then the transaction market started to reactivate in the course of the year 2023 with larger transactions. And in contrast with many other European countries, we did not see any emergency sales in the market, but more portfolio optimizations in the way that we do it ourselves. And then another important element are the contributions in kind. We were able to be successful here in a few cases in the framework of the Solutions AG. You all know about pension insurances. And those pension insurances are fully autonomous. That means that they have their own real estate portfolio. And the more complicated the real estate market is becoming, for example, in terms of sustainability or building permits, the more pension insurances are wondering whether they should continue to manage that business themselves or whether they should maybe transfer it into one of our products as a contribution in kind. So we assume that this is going to continue. This trend is going to continue. And the sales prices in the transaction market that we saw in our portfolio were 7% above fair value. And of course we don't sell A locations, but we sell properties in B and C locations, retail spaces. And considering that that is an excellent result. It also shows however that the evaluations were reasonable in the past. Before talking about lettings, let me just talk about valuations on the right-hand side of the slide. Of course discount rates did rise last year, and we did see an effect in that, which led to slight evaluations. All this as a result of the rise in interest rates. This had an effect of minus 1.9%. Yes, this did surprise us. I have to be honest here. And I remember that on the 1st of November, during an official event, I was asked by journalists how I was expecting valuations for the end of the year. And I said twice the half year results, it was minus CHF 97 million. After 6 months I would've expected CHF 200 million. But we have to be honest and say that we were only working with our transaction information, which is above fair value. And so the analyst had of course a deeper view of the overall market here. And ultimately all valuations are estimates. They're well-made estimates. But nevertheless, that's what they are. And it also shows that the market does work. Valuations are independent and that is why my personal valuation does not necessarily have to be that of the market in total. So we were able to counteract the devaluation effects by indexing. Indexation, 90% are indexed. And so asking for indexations is one thing, but actually our tenants also pay those rates. We've not had, not a single case of default here. And we actually have been able to increase rent in good locations, which strengthens our portfolio. And once again, we were able to reduce vacancy rates. It was 4.3% at the end of '22, and now it's at 4.0%. And despite the discount rate effects, we were still able to have an increase of [ CHF 18 million ]. And lettings now in [indiscernible], of course increasing rents, I already mentioned that. And there is unchanged demand for prime locations. We are still looking for long-term rental contracts. Usually we have 10-year leases. This is still normal for us, even though in other areas we've heard that these time spans are being reduced. And for the future, we expect that the residential market which is mainly solutions business where we have a lot higher demands than there is supply. And so I think there is a lot of work to be done on the supply side. We've also seen that construction activities have reduced. This may be due to building permits. They are not being submitted quite so quickly during COVID. And we expect that demand will outstrip supply in the medium term too. So an overview of the business year, I've already mentioned the strategic focus. And the key elements have been, first of all, stable fair value of CHF 13.1 billion. This is almost a straight line. Despite the devaluations that we've also seen, we've been able to compensate them by value increasing investments. And so we've remained stable here. We made 2 purchases, the most important one, the Fifty-One building here in the facility of the Prime Tower. And there are also 2 development projects Mullerstrasse in Zurich and the Alto Pont-Rouge in Geneva. And the picture that you can see in the presentation is the Alto Pont-Rouge. It's going to be very attractive. So anyone still looking for office space in Geneva, there's still a few spaces left. We had sales of CHF 280 million. That's almost exactly the same amount that we reinvested into our developments. 7% above fair value. And I will talk a little more about this when I talk about sustainability. We've been able to reduce CO2 emissions by 10% across our portfolio. The increases in rental income is like for like. It's also important to a new record high. And I've already mentioned the reduction in vacancy rates. And we expect the vacancy rates to be further reduced over the next few years. Asset management. We've seen growth despite all the difficulties that I mentioned, interest rates rises, et cetera. And the emissions that did not happen, at least not in terms of cash but in terms of contributions in kind. We've still been able to grow. And I think we're probably the only ones who've been able to grow. We were able to grow in 2023. And now when you can - and then we also have CHF 100 million of devaluations in the product. So that's very healthy growth. There were hardly any returns. And so we can see that our business model is very resilient. So there were no redemptions at all. And so we optimized costs. That was necessary in the first half year. We mainly had a headcount reduction due to the sales of Ticino and also Wincasa. And this has a positive effect on our costs of course. Financing, we had an LTV of 39.8%. This is slightly higher compared to 2022, but below the 40%, that was the target. This is an important figure for you. The liquidity that we have now will cover all liabilities over the next 18 months, and that is an important key figure for the Moody's rating, which is going to be extended at the end of this year with a minus. So in summary, in 2023, rental income, CHF 438 million, like for like is 4.3%. And apart from that, 1.3% asset under management, CHF 8.4 million, that's a plus of 9% EBIT without Wincasa. And before revaluation to CHF 403 million. This is a plus of 6.1%. And the profit with Wincasa, this is the lighter bar, plus 5.9%. And then the FFO sites, this is what pays the dividend without Wincasa. It's important to stress that because in '22 Wincasa was with us for 12 months. In '23, it was just 4 months. And that is why we adjusted the results accordingly. And so this brings us to a plus of 1.3% in terms of FFO I. FFO II growth gives us -- brings us almost up to CHF 6, driven by the sales in real estate and the sale of the Wincasa unit. And the EPRA NTA showed a small reduction mainly caused by the devaluations in the portfolio. So that was the key figures. And now let me just talk a little about the portfolio and then hand over to finances. And then afterwards we're going to talk about the project pipeline and sustainability. So, you know our portfolio. Those are the 2 lines along the A1, Geneva to St. Gallen, if you want to say it generously. And the half of the A2 linking Basel with Lucerne and Zug. And there is only one dot in the [indiscernible] Ticino. And that is a building that's going to be completed for Tertianum this year. Ticino also needs infrastructure for older people as a residents, and also as a care center. But it's mainly A1, half of A2 with the exception or with the addition of the Ticino property. Last year we still had 176 properties. Now we have 159 properties. That means we're becoming more efficient by selling smaller properties whose operating expenses are higher. And so in relation, we have few expenses and that makes us more efficient. And also, of course that means more cost effective. The use types are something that you've seen before here. You can see the pie chart on the left-hand side. In future we want to bring the office share up to approximately 50%. I think that's going to be happening after the transformation of the Jelmoli property. And that is also going to shift slightly towards logistics and infrastructure because we all have some new laboratory spaces in the new JED building. So that slice is going to grow a little. But the important information is approximately 50% office and approximately 20 retail space. Diversification. Well, I'm showing the 5 main tenants, and I would like to make a remark here. You all know the Cigna story. You know that they own half of Globus. That's good news Globus has been able to pay the first tranche. So we did receive the rent for 2024 or we have it so far. But of course what's going to happen to Globus in the future? That is a question. So we have been a little cautious in our guidance for the FFO 1. Globus is in 4 locations. And this accounts for approximately CHF 20 million in terms of rent. So of course, we're keeping our fingers crossed, and Globus are optimistic that they will continue to rent those spaces, but it's always difficult when you -- when your hands are tied and you just have to wait for the market. But of course, we do appreciate this tenant. So we would be delighted to be able to continue. And then, so you all know the business model of the Cigna Group. And of course, it was always about raising rents in such a way that this was no longer related to the sales of the retailers. And so I've taken a look at our figures in that respect for Geneva, Lausanne and Lucerne. Our rent went up by 8.7% to 9.9% of sales. So we are doing well in the market. This is not an exaggerated rental rate.

[Interpreted] Interpret apologizes, there's no microphone.

[Interpreted] Are you talking about the list in percentage of sales?

[Interpreted] Jelmoli was at 12.5% approximately because it was the Jelmoli sales. And of course we also have third-party rental income. So that was 12.5%. This is certainly the upper limit of what the market can sustain. But we've never said any -- said otherwise. So from the portfolio, and the portfolio is looking good. We are now -- now have 84% in the first quarter. And when we talk about capital recycling, this is now about -- concerns those properties in quadrants 2 and 4 that we would like to sell in order to develop our development pipeline. And well, 3% is just CHF 400 million. But of course, on top of that, our development pipeline has some developments that we have not started yet, but that have potential. They are not shown here, but that is additional potential for capital recycling. And the good thing is that when we sell our own developments, we don't lose any top line. So -- but now we're talking about the existing portfolio. Vacancies are record low, 4%. And our ambition is to bring this down even more. And you will see that in the outlook. And here, the -- this expiry figures, this is very good. The average is 5 years now. And so we're always being asked about prenegotiations. And so 6% have already been prenegotiated. And the 18% that are going to expire at the end of 2026 also include Globus with its sites. Those contracts run until 2026. And let me just refer to the Capital Markets Day, I said that we had been in contact with them, and that was exactly about what it was about, about whether they want to extend their contracts. And we're still talking to them. Of course, at the moment, it's all a little bit up in the air because of the Cigna affair. But this is a stable, a very good result. And now here, this is our Asset Management slide. And those are the product lines, the fund management, the Asset Management and the Real Estate advisory with third-party customers. The growth is CHF 700 million is distributed across all 3 areas. And so the overall result is very positive indeed. This is an interesting slide because I often get asked about the Chinese walls. Well, here, we only look at commercial properties, and that's exactly what the slide tells you. This is a totally different situation in Asset Management. Asset Management has a focus on residential business. And that focus is going to be strengthened rather than weakened. And so you can expect the green share to grow. And you can also see the size of the investments. In fund, the CHF 10 million to CHF 30 million. In Asset Management, they are CHF 30 million to CHF 75 million. So we never do anything below CHF 50 million. And so that shows that we are not competitors in the market for the residential properties, but the -- we may want to buy the same commercial property though, but these Chinese walls exist. And so we have a separation of the different product lines. There are synergies of course, but those are about sustainability, development and construction, and that is possible to do in a matrix organization. But apart from that, there are those strict Chinese walls and that is our USP that's being recognized by the market. So that was the first part. And now I look forward to hearing about the figures.

[Interpreted] Thank you very much, and cordial welcome. It's nice to see so many of you having joined us, and welcome everyone at home or in the offices following us online. Before talking about the figures, let me make a preliminary remark, all the figures I'm going to show and you will find in the financial report are IFRS 5 figures. What does it mean, IFRS 5? Figures of our continuing business. So we are doing as if we had sold Wincasa at the beginning of 2022. Why is this the case? IFRS wants to allow investors to have like-for-like comparison of operating performance, which I think is important. Otherwise, there'd be huge swings for top line, personnel, expenditure. Now this is all excluded here. The drawback of course is you cannot take last year's '22 figures. They're restated. We published the applicable figures in the Capital Markets Day and have them in the Annex here for those of you who would like to look into them. So much for a preliminary remark on the figures. So let me get started. 1.9% below the line of rise of top line operating income to almost CHF 660 million, strongly driven by rental income that rose by 1.3% to CHF 5.5 million in absolute figures. What I think is almost more relevant are the 4.3% of like-for-like growth. That's the underlying potential of our portfolio, which enables us to do capital recycling on one hand and to have rising rental income on the other hand. The major offset in the development field is due to the fact that we sold Tertianum Olten, which we were still keeping as a development. So you can see the increase here. Relatively strong increase over on the other side. You will also see an increase in cost. And if you set this off against each other, you'll see that we made around CHF 6 million profit selling Tertianum Olten. In Asset Management -- I will be talking about that more. We had a slight decrease, particularly driven by lower emissions we carried out last year, but I'll be giving you more details later on. And finally, retail, you will perhaps recall at the half year we had a positive offset. Now we've got a slightly negative offset of around 4% attributable to 2 things. On the one hand, we terminated our online trading at the half year point, which caused a loss of income. And we see it in the bottom line. And there were deficits. That's why we stopped it, but it had a negative -- a positive effect on the top line. And the Christmas business were somewhat muted. We had slightly less footfall than the previous year, so a slightly lower turnover compared to the previous year. Moving on to the next chart, cost. I think what stands out here is the plus of turnover that we achieved are clearly lower costs. Direct real estate cost was reduced by 6% in a year in which turnover was increased by 1.3% and an inflationary setting, I think this is an excellent performance. Rene gave you some of the reasons before, partly due to optimization of portfolios, selling properties that involved a great deal of expenditure or smaller ones in retail that required more of an effort. And on the other hand, we had very stringent cost management. Look at the EPRA figures, you will see that the EPRA cost ratio went down by almost 10% last year in the benchmark that we are setting here, I think that is a good result, and we are going to continue to improve on that. Development costs, I need not comment on that any further. That's the other side of the sale of Tertianum Olten. Cost of goods sold, there is a reduction of 19.6% that looks dramatic, but we had special depreciations on goods the year before. Of course, the residual time for Jelmoli is somewhat shorter and shorter, which is why we had to do that. And operating margin was slightly increased, and this is reflected in Jelmoli's annual result. You will see that in the segment reporting. We're talking about around CHF 1 million -- a minus of CHF 1 million for 2023. So clearly, an improvement over the previous year. Personnel costs and important and one of the major key figures went down by around 3%. The key elements on the one hand are the cost savings that Rene Zahnd mentioned before, which were mirrored in the operating figures, which was eliminated more or less by the additional costs we had for the social plan for Jelmoli. The entire social plan cost us a few millions with single-digit figures in the millions, and it was booked last year and plus the residual time until closure. And we have restructured pensions. I think we have found a good solution that is simpler and that will reduce cost in the long run, which had an effect here on the minus of 3%. Depreciation and impairments. Let me just quickly comment on that. That was on the investment assets of Jelmoli, and we are back to a normal level for the future. So our total operating expenses, as we're showing them in the financial reporting, went down by around 16% if you take out the one-off effects on the Jelmoli of CHF 34 million, then a like-for-like comparison for the adjusted operating expenses shows a minus of around 6%. Well, when income rises and costs go down, this of course is no surprise. It has a positive effect on the income. And you can see the one-off effect of Jelmoli corrected for we've got an adjusted operating contribution of around 7%, a plus of 7% of EBIT. Let me say a word about revaluations of around CHF 250 million as Rene Zahnd said, around 1.9% of our portfolio value. We saw devaluations typically driven by increases in discount rates, nominally about 30 bps of an increase of the discount rates. In real terms, it was around 10 bps, just under 10 bps. And you can also see the devaluations across the entire portfolio. This does not apply to single types of use or single locations. Contrary to this, you can see the resilience of our development portfolio. We had revaluations of around CHF 19 million despite the discount rate adjustments. And this shows that our development portfolio, even in the year with devaluations can make a positive contribution to our development. Maybe a final word on the sales of property, an average of 7% over the last fair value, last fair value means at the end of 2022 before the devaluations that we had. This is certainly one of the key figures here and dimensions as it gives you a good indication of whether we have the right values on the balance sheet, the 7% more or less what we saw in the recent years with some outliers that were slightly higher or lower, but hasn't really changed fundamentally. And finally, before we come to net profit. And let me talk about the FFO. As Rene Zahnd mentioned, I would like to highlight one figure. We've got the cash effective interest expense that rose by CHF 38 million -- from CHF 38 million to around CHF 56 million, so a difference of CHF 18 million that we compensated in FFO I by a combination, particularly by the increased operating contribution, as I mentioned before, and lower tax rate. EPRA NTA remained more or less stable. The slight fall that we're seeing here is the net from the operating contribution from 2023, offset by the devaluation -- against the devaluation, CHF 250 million. Let me show you one more chart about our 2 main segments, Real Estate in the first case here, the composition of rental income, this is segmental reporting, not the consolidated view. Of course, you can consolidate that later. You can see the like-for-like growth of 4.3%, strongly driven by index adjustments on the one hand and the reduction of vacancy, continuous improvement of spaces and better re-rentals. We had an inflationary contribution of around 2% last year due to indexation. That means another 2% were increased in real terms by our performance, and this shows the resilience of the popularity of our property portfolio and the locations and services that we can offer. So we can actually enforce about 2% price adjustments over inflation. And let me also tell you what we did in capital recycling. We had the sales of around CHF 280 million, of which CHF 240 million were closed in 2023, CHF 40 million are going to close in Q1 2024. But everything has been signed already. Now this results in around a minus of CHF 10 million of rents, which we compensated by the delta on the portfolio and the redevelopments, in particular Mullerstrasse, which has already made a small contribution. We handed it over to Google in November, already making a small contribution. Same goes for Pont-Rouge. And then we've got one of the last development stages in JED in there. Sales of 0.6 is primarily 1 month of 51 here, which closed at the end of November 1st of December. So this is 1 month shown here and then completion of new buildings, primarily Tertianum at the Richterswil. Moving on to the other segment, which is Asset Management. Let me show you this chart. What is key here, as already been mentioned by Rene Zahnd, that's the 9% or actually 10%, if you adjusted or corrected for valuation adjustments in a not-too-easy market environment. This goes to show the appeal of our products and the popularity of them among our investors. What is perhaps even more important to me are the figures I'm showing as percentages here. On the one hand, the resilience in this business, showing that we are almost up to 80% of recurring income there. The vast majority of the income we have here is recurring, of a recurring nature, not dependent on us making emissions or issues and transactions. Shows the quality and resilience of the portfolio. And the second figure I'd like to draw your attention to is that in this particular setting with the high rate of recurring income, we've generated an EBIT margin that is more or less constant, clearly above 50%, 55% last year. So again, this does not depend on major transaction fees, but is very resilient and stable. Now 3 final charts. After all, this is a balance sheet media conference. So let's talk about the balance sheet. Key element certainly is properties values of CHF 13.1 billion, rather stable. But there has been some shifts inside the CHF 13.1 billion. You can see this in this waterfall chart. On the one hand, we've got the divestitures. Of the 280, 240 have closed already. You can see that. And in particular, Fifty-One, but we've also carried out a purchase in Basel, a knock-on purchase. Investment was high last year. We have 3 major developments that we completed more or less, the Mullerstrasse, the Pont-Rouge and Stucki Park and Basel which is mirrored here in the just under CHF 300 million of investments. And the valuation result, you saw that before, at around CHF 250 million, minus CHF 250 million, which adds up to the CHF 13 billion of a stable value. And a word about our funding situation or financing parameters. As was said in the introduction, Moody's last Monday confirmed our A3 rating with stable outlook against the background that -- our LTV was relatively stable at 39.8% despite major devaluations. And despite a purchase here in the [indiscernible] site, I think this speaks for the major resilience we're showing in terms of balance and financing, balance sheet and financing. At year-end, about 78% of our financial liabilities were fixed. The average interest rate of 1.2%, a clear increase over the previous year. We were 0.9%. 1.2% is a weighted value per end of the year 2023. For those of you who would like to go to the trouble and looking at half year figures, we'll see that it's at 1.2% as well, but we were stable in the second half year with our financing cost. And in terms of maturities, we are at 4.6 years or around 5 years, that we're having the slight fluctuations, of course, due to individual maturities and refinancing, but we're not going any shorter, but we're staying at around 5 years to guarantee stability and resilience. Let me show you this chart here. Our consortium credits were renewed by 1 year with UBS and Zurcher Kantonalbank by 1 year each. This takes us into 2028-2029. The 2 facilities have an option to -- for renewal for 1 year, which we intend to make use of. And we will certainly come to an agreement with the banks to take us to 2029-2030, and giving us enough time to build up a successive succession financing. Liquidity is around more than CHF 900 million, CHF 820 million free credit lines. These are committed credit lines, which we can call any time more or less, and this is important for us that for 18 or even 24 months, we have financing even if we were not to make any further transactions. We can cover all the liabilities for our development projects. So much from me, and thank you very much. Let me hand back to Rene.

[Interpreted] Thank you, Marcel. Let me just say a few words about our pipeline and sustainability. So pipeline. Why do we do capital recycling? I think you've seen this before, but I think it shows quite well. On the left-hand side, you can see that we sell properties [indiscernible] locations and reinvest the cash into our development pipeline with at least 4% to 5%. And we optimize the use. That means small laboratories and less retail, more office space. And we also improve the sustainability of the buildings themselves. Of course, in new builds, that's relatively easy, but we can also increase the building's value. And let me just say about project development. When or even before we have the building permit the financial expense is CHF 2 million to CHF 5 million for each project. And so those projects in planning, this CHF 1.15 million, that's what that is. That's not committed, that can be released. And that can be released whenever we have a legally binding building permit or when we have 50% rental. And usually, the permits can be extended by 2 years, which means that we have quite a generous buffer on -- to decide when to actually start a project. And so we had those 3 large projects that Marcel mentioned, but those large projects are going to decrease in number and in volume, and we're going to have smaller ones in the future. At the moment, we have CHF 810 million under construction, CHF 700 million have already been spent or committed and have been spent and $100 million have been committed. Just so that you can see the relationship of how much needs to be invested into the development pipeline. So getting a building permit doesn't cost much money but a lot of patience. But it's actually just a small share for us and in terms of finances. And the big question is always when to launch what project. So these 2 slides, you've seen them before. These are about the project under construction. The Alto Pont-Rouge, here we have a pre-letting rate of 78%. And I said that once it's in the portfolio, it's going to be 80%. We have 78% at the moment, but a lot of very interesting leads. So we're expecting 95% by the end of the year. The last 5% is always more difficult because there you're less flexible in terms of what you can offer potential tenants. But certainly this is a good investment. And then Stucki Park is practically completed. Tertianum Paradiso is going to be transferred to Tertianum this summer. And the JED new build in Schlieren at the end of the year. And BERN 131 next year. So those are the projects under construction, where we have a CHF 10 million committed sale. And here, you can see a selection. This is just a selection of our very attractive project development pipeline. So Steinenvorstadt in Basel here, we -- this is a smaller project. Destination Jelmoli. I don't think I need to talk about that. So you all know about is on the press. And here we have a -- we did submit the construction application just before Christmas, on the 15th of December. And we're expecting a building permit to be issued by the end of the year because we would like to start work on Destination in March 2025. Maaglive in Zurich. Here we are expecting the building permit to be granted soon. There's going to be a tour of the property, with the authorities very soon. And we are confident that we're going to get the building permits. And so this is in our long-term plan. We expect that we won't start construction until the second half of 2025, just to give us a bit of a buffer. The Grand Passage in Geneva is also one of those Globus locations. We talked about it at their Capital Markets Day. We're doing the same thing that we did for [indiscernible], create more space, a shift towards more office space. And we have received a building permit, but it's not yet enforceable. And then YOND 2, for the second part of the YOND campus in Zurich is -- has preliminary project concluded. Now let me talk about the project in the -- shown in the middle here, the Route de Meyrin 49 in Geneva. And this is about the question of where the developments can be sold, and that's exactly what this project is about. This is 18 meters deep. So it's very well suited to be turned into residential space, and that is not our competence. So it would be the wrong thing to make the investment and turn it into residential units. But we're going to get the permission and then sell it in the market. So that's going to be attractive because Geneva with all the difficulties in the rental market, if you turn commercial properties to rent properties, there's no rental cap. And that is going to be interesting for investors. Now let me now talk about sustainability. I've got a couple of slides on that. We certified 94%. And we're very proud of the 10% emission reductions in our own portfolio. The target is to be CO2 neutral by 2040. And the circular economy really is a game changer for society as a whole, but in more concrete terms for the real estate industry. We showed last time what we talked about, what we recycled and reuse of all the materials that were taken off of Mullerstrasse. And we were actually able to recycle 90% of the cement. And we were able to save 2,600 tonnes of CO2. And so the raw materials or the materials that have been produced stay in the cycle in the -- for a circular economy, and that's the future. And green finance framework was already explained by Marcel. So the 10%, you don't have to read all of this, but those of you who are joining us online can probably not see this. But anyway, this is a linear path until 2040, and this is where we are. So we track our CO2 savings every year. And those individual points are one of our properties. So we know for each individual property what we need to do, when, in order to achieve our 2040 target of being CO2 neutral. And the CapEx has already been included here. We did that during COVID. So there's no hidden costs here. Right. So last slide, the outlook. Let's start with asset under management in the right bottom corner, CHF 9 billion. And I'm sure that you still remember the intermediate target of CHF 10 billion by the end of 2025. So if we're at CHF 8.5 billion, it has to be above CHF 9 billion for 2024 in order to achieve the CHF 10 billion target the year after. We have an LTV of the Real Estate portfolio of below 40%. Vacancies are below 4%. And FFO I per share, this is now in real terms, and we decided to change from percentage here to real figures. So here, it's going to -- the target is CHF 4.10 to CHF 4.15. And I was told that this is rather conservative, but that's due to the Globus situation. So 2024 could be an excellent year with a very good additional rental income, but this is all assuming that Globus continues to perform. So that's the presentation. And now we'll be happy to take your questions.

[Interpreted] Apart from Marcel, we have Karin Voigt, CPO; then Urs Baumann, our CIO for Real Estate, Anastasius Tschopp for Asset Management. And if you have any questions for Reto, Reto Braegger, he is the CEO of Jelmoli. Who would like to break the ice? Well, I thought it was going to be you as usual, please one question which has to be interpreted, but the floor won't be taken away from you.

[Interpreted] I have 2 questions to the CEO and 2 to the CFO. I'll begin with the first 2 questions. Rene. You've set ambitious goal for [ Daniel Brilli ] at the podium in [ Divos ] regarding the interest in UBS vehicles, what is the state of the negotiations? And are there any other fund companies, which currently find it difficult in the market setting and you would have an interest in driving ahead inorganic growth?

[Interpreted] I'll be pleased to take that question. But of course, the question is with the size of UBS in business, they want to keep everything. No negotiations have been -- have taken place. We would assume that we will learn more from UBS, where they stand, but we clearly want to grow in Asset Management. Now does this growth have to be purely organic? No, it can be inorganic. I can tell you that much. Perhaps it's not the worst moment to keep your eyes open. As you said, we performed well relatively to others.

[Interpreted] Second question refers to the logistics object sold. The reason why you were not involved, is that because you want it to be below 40% of LTV? Or are there any other reasons?

[Interpreted] Urs, would you like to answer that?

[Interpreted] Yes. Well, it was also the site, the location that was one of the criteria. Logistics, yes, can be interesting. It's something that we cover, but that was purely logistics, and that was one of the main reasons.

[Interpreted] When we talk about logistics in our portfolio, we're talking about city center logistics, where the goods are sent on the last mile to the client. So we want -- for instance, to be directly next to the new ice hockey stadium here.

[Interpreted] The first question to the CFO, please go to Chart 27. Doesn't work. Well, okay. Question is as follows. What's the average interest on maturities this year and next year currently?

[Interpreted] Well, the large liabilities for this year are the CHF 290 million finance in the capital markets, one bond CHF 190 million, another one CHF 100 million at 1% and 2%, respectively. If you weight this, you will be up around 1.3%. So depending on how interests are going to evolve, I would assume a slightly higher interest rate, but not dramatically higher interest rate. And I would say this is part of our FFO guidance. In this guidance, we are assuming that the interests are not going to change this year. That's the cautious guidance underlying it with slightly higher financing costs, but on the basis of high fixing and relatively little to refinance in 2024, it will be a rather low figure of additional cost that we are expecting. For 2025, there'll be a little more, in particular, the convertible bond, CHF 300 million in January, relatively low interest rate, 0.5%, depending on what the options will be going forward, then this might have some impact.

[Interpreted] And the second and final question for the time being in Asset Management. If you look at profitability and assuming that you are going to continue to cut cost or optimize cost. How many basis points can you still squeeze out?

[Interpreted] Well, I'll be pleased to take on that question. Let me turn it around. The question is how many assets under management can be managed with the same headcount. And then you will squeeze out a few basis points. That's the point. We are staffed such at the moment that we can grow with our problems without having to add to headcount. Well, this applies to the CHF 10 billion. Anyone else who has a question? Well, we are first going to take questions here in the hall and then check as to whether there have been questions coming in online. [ Ralph ], please.

[Interpreted] On the purchase, well, there are others perhaps who want to sell or have to sell. Are there any negotiations with others who for purchases in asset management?

[Interpreted] Well, whether we are specifically negotiating, I cannot answer that, whether it's yes or no. We are keeping the question. The thing is we're keeping our eyes open, and we're interested in growing. I can confirm that much.

[Interpreted] And on the like-for-like rent, what are you expecting for this year?

[Interpreted] Well, we believe we are well-positioned in the market to enforce higher rents.

[Interpreted] I would like to get a figure. I would like to get a figure.

[Interpreted] Well, I would assume it's slightly lower than this year -- than last year, given the fact that inflation is back. Last year, inflation-driven, we had adjustments slightly more than 2%. Now I would assume this is coming down. The rest depends on expiries. But in the long run, we think the potential is 1% to 1.5% per annum of real-term increases. And if you add all this up, this brings you to maybe 2%, 2.5% depending on how things evolve.

[Interpreted] A question on Globus. Maybe it's probable that Globus will have to be sold in Zurich. Is there a possibility that your strategy to reduce retail would be robust because it might be a good deal in a very prime location? Or is that excluded?

[Interpreted] Well, I'll be pleased to answer that question. First, you started off saying that it's clear that it's going to be sold. But that's not clear at all. I have no idea what's going to happen to the building. And if it was to be sold, I have no interest because it will remain retail. It's different from the Jelmoli building. You cannot simply open it up. The facades are protected. And I imagine how much light would have to come in if you have to convert this into office space, that wouldn't work at all. So I'm not interested. Any more questions here in the auditorium? Yes, please.

[Interpreted] Always on Globus, still on Globus, I think I have understood there is some concern about the current situation. Would you have any idea of what you did with these department stores if Globus wouldn't exist anymore? Have you talked about that with anyone? And can you give us a personal opinion on what happened about Cigna?

[Interpreted] Well, where shall I begin? Personal opinion. So you always have to be careful with personal opinions. So I don't really have a personal opinion, but it's clear that when rents are so high that they are disproportionate to turnover, then in the long run it cannot work out. I think that's maybe the statement I can make here at this point. But regarding our buildings, well, the buildings that we have with Globus in Geneva, in Lausanne and Lucerne, they are in excellent locations, and you'll be able to do a lot with them in the future. We've already submitted or received a building permit in Geneva. And similar to the Jelmoli building, we would like to convert that building. But all of us cannot answer this question. What's going to happen to our city centers? That's an important question. Maybe it's not so difficult in Switzerland, but look at Germany, if you take all the [ Karlstad ] and [ Karloff ] buildings that are in best locations. And should they be empty, it cannot be easily reconverted like Jelmoli. So the question, almost philosophical question that goes beyond the scope of this meeting is how are the city centers going to evolve. [ Ken ], I thought you were through.

[Interpreted] Well, I have a question on Jelmoli, 3 things, really. First, looking around the real estate industry, some would assume that the -- your conversion cost is very conservative. Do you think they will be realistic? Or do you think you will incur additional costs. The other thing is how about opening up for retail. If you can achieve your target scenario regarding opening to retail, what would be the potential rental income? You said you were talking to potential tenants. And last but not least, it's not as relevant for you as it is for us, but can you give us some guidance about the sales in 2024?

[Interpreted] Well, many questions that is, I'd take the last one, sales, and hand it over to you, Reto.

[Interpreted] I think it should work, the microphone, yes. Thank you for the question. Well, this is difficult to assess. We assume there is -- well, there's a slight decrease that we had due to the muted Christmas business. I can only tell you what we're planning. The real thing will be, we don't know, but we are planning to be at the same level as the previous year, 2023 plus/minus. What the next months will bring macroeconomically and the impact on consumer behavior by inflation. This is an open matter with our strategies and scenarios. We're well equipped, and we will do everything in our power to conclude the year well.

[Interpreted] Well, it's a difficult question to answer. Imagine, Jelmoli will remain Jelmoli as you know it until the summer. And the first challenge is what will be the new client base? If you do permanent sales there, you will not have the same clients anymore. So the question is, have we purchased the right thing? Have we hit the right price segment? That's one thing. And will the clients come back? And how are we going to approach these clients in terms of marketing? So the second half year is going to be the big question mark, and I cannot give you a guidance about this. Question about cost. Now I don't really care what the market says. We once stated CHF 130 million, that should be sufficient. And on external communications. Well, we have very loose conversations. It's only possible now to have specific conversations with potential tenants. Why? Because you have to show them plans. And we've only had them since December 15. So if you exclude the holidays, we only started negotiations in January. And we still have the goal of CHF 33 million of rental income in the converted Jelmoli compared to the CHF 27 million we're having.

[Interpreted] Well, I have another question, second question regarding vacancy. We learned that below 40 can be 39.8 to 39.9. Now you said, to be serious, you said that in renegotiations of maturities, you have come a long way already. You have visibility. So what's the realistic value for 2024?

[Interpreted] Well, what we are expecting in the medium term, Karin, what would you -- what will we say in the medium term?

[Interpreted] Well, I would say 3.8 cautiously, end of 2024.

[Interpreted] Well, I'm personally disappointed now that in the medium term 2024, 3.8, that's what the specialist said. And where do you think we can get with our portfolio?

[Interpreted] 3.6.

[Interpreted] Well, the 3.5 that I would -- I once said is very close to that. But 3.8, well, somewhere between 3.9% it will be.

[Interpreted] And my third and final question, you talked about new rentals and you fetched higher rents, and that shows the potential. Where is the reversion potential on average in the portfolio?

[Interpreted] Across the entire portfolio. The way we get the appraisals from Wuest Partner, we are at around 10%.

[Interpreted] There's a question at the back.

[Interpreted] Rene Locher, Stifel. I'm referring to Slide 24. So if you model a CHF 10 billion for 2025 and you assume CHF 50 million EBITDA. But if I look at the margins today, you have a revenue margin of 52%. So this is quite ambitious. So is this a revenue margin or the EBIT margin?

[Interpreted] Anastasius, would you like to answer that one?

[Interpreted] Yes. Of course. You have to be a bit careful because these are -- there are recurring and nonrecurring fees. And nonrecurring fees can be accumulated quite quickly. But those are stable and they increase. And we have new business deals to open up a new markets that we can open up. So we have a stable foundation, and that will allow us to increase our revenues and our EBIT.

[Interpreted] And as far as the EBIT margin is concerned, we will show this later that if we show massive growth in the third-party business. So the business from clients who ask us to manage their portfolio, and that can help us increase the AUMs, but of course, has the smallest margin in that business. And so that's why we're going to divide those businesses in terms of margin because the largest margin is in the funds business and then in the banished assets, et cetera. So CHF 1 billion in assets under management is not easy to analyze. You have to know from which part of the asset management it comes.

[Interpreted] Well I looked at the slides of the Capital Markets Day last night, and I saw that you expect CHF 60 million increased rental income by 2028. That's a plus of CHF 500 million. And if you refinance with CHF 50 million increased financing costs.

[Interpreted] Well, that's not an expectation. That's a simulation, which is based on 2.25% of interest on our investments. If the interest rate remains the same, that's going to happen. But if you have a long-term interest rate, then at one point it's going to run out. And so when we're at the end of the fixed interest rate term, then this will still have a positive effect. And this is just to show you once more how resilient our business model is even in that kind of scenario with -- we can still expect an additional EBIT contribution.

[Interpreted] And then there's a question over here. I suggest 2 more questions from the room. And then we'll go over to the online questions.

[Interpreted] Yes, I have a question about office space. You seem to be very optimistic as far as rental opportunities are concerned. We read about headcount reductions everywhere. Also in Zurich, Google has not moved into Mullerstrasse yet. And it's not quite clear if and indeed when they will move in. So you seem to be quite optimistic about that.

[Interpreted] Well, we've always been right to be optimistic. People have returned to the office. So first of all, as far as Google is concerned, they want to submit their application for the restructuring at -- they're paying rent, so it's their business. But prime locations are always in demand. That's our experience. And our tenant survey showed that too. And very frequently, offices are restructured with few individual offices, but more co-working spaces or meeting spaces. And Switzerland is used to temporary work where people come to the office all on the same day. And that's not something that's going to change very soon. So we feel optimistic. Plus immigration. We can see that our portfolio has a strong demand for the tower. We have a waiting this year. So I think, yes, we have cause to be optimistic. Yes. No, the microphone is going to the back. I'll see you next week. So no question for you. And so there is a question from the back.

[Interpreted] Well, I have a couple of questions. First of all, investments, CHF 290 million last year. And this year it's going to be considerably less what -- including all the sustainability investment, what is the plan?

[Interpreted] Well, we showed this when we shared the pipeline. We have a commitment of CHF 100 million approximately. And then there are going to be some ongoing work, but I would expect a clear reduction for this year, yes. You are absolutely right.

[Interpreted] So you think approximately CHF 150 million?

[Interpreted] Well, yes, that seems to be realistic.

[Interpreted] And then on the LTV development, 39.8%. The EPRA LTV is now at 40%. You want it to be below 40% for 2024. So what are the levers that you have here? And do you not see a devaluation pressure anymore for Real Estate in 2025?

[Interpreted] Well, yes, that's one of the topics that we're dealing with. We said earlier that the market has revived a little, and we can see that from our own profit from sales. So the devaluation pressure has been less than predicted. And I think common perception is there's more activity in the market, and that makes sense when you look at the interest rate development and the general development of the economy. And so we would not expect any major devaluations. Of course, the levers are the valuation situation. We are not expecting major valuation increases. And then also the capital recycling. So that should be able to keep us on a stable course.

[Interpreted] Well, some competitors are saying that S&P are going to reduce the interest rate 3x. So for us, flat is a slight reduction. And so that's a onetime reduction of interest rate would be good for the market. But to get back to that valuation. Of course you have to understand that the transaction figures is always one that you expect. So it's always -- it always lags behind about 6 months, a little. The market has turned not quite to its original status. But I would say that by the end of the year 2024, we're not going to have any additional devaluations. So now let's take a look at the questions that have been submitted online.

[Interpreted] [Operator Instructions] [ Mr. Felaxt ].

[Interpreted] I have 2 questions for finance and 2 questions for the CEO. So first of all, for the CFO, the guidance for FFO I. What is your assumption in terms of shares and convertibles? Does that have an effect on the guidance? That's the first question.

[Interpreted] Well, the guidance is to be stable. The convertible can convert whenever it converts at the beginning of 2025. And experience has shown that the conversion happens at the end. So we're not expecting any effects in 2024. So that's the assumption.

[Interpreted] Dividend, you are expecting a sustainable dividend. But if I look at the [ FPO ], the maintenance CapEx is not included, is approximately CHF 100 million. And so if the FFO is adjusted, the way that many competitors do that in abroad, then this would lead to CHF 3 and the dividend would be above that. So is that dividend sustainable? Or how do you finance the 100,000 maintenance CapEx?

[Interpreted] I don't know where you got the CHF 100 million from. That's not our maintenance CapEx. That's the CapEx that we invest in our regular portfolio per year without the large projects that I mentioned here individually, but the large majority, 2/3 of them are for major refurbishments that are usually accompanied with an increase in rent or increase in rental spaces, et cetera. So the maintenance CapEx is not CHF 100 million. That would be much too high for our young and quiet portfolio.

[Interpreted] And then a question on working from home. I would like to rephrase that question. You said that it's undisputed that there is high demand for prime locations. So what's the limit for Swiss Prime Site where you would say, okay, this is not an attractive property anymore? So you showed [indiscernible], for example, but what about if going towards Opfikon or Wallisellen or maybe also the larger cities. So what's your limit here? Would that be Bern that's not attractive or even smaller cities?

[Interpreted] Well, I live a Bern now, so I couldn't say that Bern is not attractive anymore. Anyway, joke side, of course, it's the large cities. If you look at Zurich, for example, yes, Wallisellen and Opfikon, everything between Uitikon and the airport would not be interesting to me personally. Looking at Geneva, anything between the airport and France is also not so interesting. But the Alto Pont-Rouge, for example, is very interesting. Bern is such a small city that we would look at everything in the city center, but not the rest. But so you can fly -- it's of course the actual micro location that really decides whether it's attractive or not.

[Interpreted] And now on the medium-term financial planning. The pipeline has CHF 1 billion until 2030 with an average of CHF 200 million. And so you said that capital recycling is going to continue for a couple of years. So how is the rest going to be financed in the medium term? Are you going to do additional convertibles into assets? Or are you going to do additional sales? How is that gap going to be filled?

[Interpreted] If you can't fill them with just price increases, that would be the last question. Well, thank you, [indiscernible] I think I answered some of that question. The 3% is shown in red, and that would be CHF 400 million. So I think we can still do capital recycling for another 4 years. But of course, you can also take a property from the bottom left and recycle that. We haven't even started looking at that yet. And what's more, we have a project pipeline which is larger than the CHF 3 million, but those are projects that we don't show so much and simply because [indiscernible] experience sometimes these properties may turn out to be more suitable for residential use, and then they would be put into capital recycling.

[Interpreted] So I think that it will be another 4 years before we go into the top right quadrant. So the question would be additional capital recycling in order to keep the LTV stable.

[Interpreted] Yes. Yes, in the -- to the scope that we've done it until now. And so we're showing the existing portfolio. But ultimately, we also have developments from the past. That's our residential that we could sell. Any more questions online? Maybe the final question.

[Interpreted] [Dennis Saliv].

I'll ask in English but please answer in German. I have 2. First one on guidance. I appreciate that you're more conservative because of Globus. But if you take the higher end of the guidance, you're guiding for CHF 10 million total FFO growth. So then if we compare it to deliveries, you have CHF 27 million of rent coming from Alto Pont-Rouge and Mullerstrasse. And then you're also optimistic on growth in [ SPS Solutions ]. Obviously, there's also higher cost, but basically guidance assumes very little rent from Globus. Is this the right way to look at it? Or is there something else? And then second question, how confident would you be on reletting the Globus properties?

[Interpreted] Well, I'll take the second question, and I do it in German because we have an interpreter. Second question is, in German is how optimistic are we on reletting Globus. Well, we are totally optimistic. We will bring this to market. Fundamentally, as we said about Geneva, we would do it with more office space. Same for Lausanne, copy paste more office space. In Lausanne, we would perhaps leave it as it is in the medium term. There's no problem whatsoever. These properties will remain in our portfolio. We have a plan there. In the short term, of course, we will lose some of the top line, but that's simply the reality. But in the medium term, we are very optimistic. And the first question over to the CFO, FFO guidance.

[Interpreted] The assumptions that it's based on is that the new buildings go online, that we are going to continue our capital recycling. You saw the impact it had on top line. If we take similar dimensions, we would have to assume there will be a similar impact on top line in 2024. What we also said is we're seeing slightly higher financing costs, say a single-digit figure in the millions for 2024. That's the basis of this guidance. And that's why we ended up with the figures we announced.

[Interpreted] So thank you very much for your attention. Thank you for being invested in our shares and for remaining invested. And I would like to invite you for drinks and refreshments one floor further down. I would like to thank everyone listening in online. And this ends the media conference. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]