PSP Swiss Property AG
SIX:PSPN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
111.1
126.6
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CHF.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
PSP Swiss Property AG
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the PSP Swiss Property Q1 Results 2021 Conference Call. I'm Myra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded.The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.At this time, it's my pleasure to hand over to Mr. Giacomo Balzarini, CEO of PSP Swiss Property. Please go ahead, sir.
Good morning, everybody, and welcome to this conference call. As always, I will not go through the presentation. We'll make a 1-to-2-minute introductory remark and then really leave up the floor for questions. I think I've seen in the past, that's the best use of time of everybody.Just to start off, we reported, I think for us, a very solid Q1 result. Reiterating our guidance is also for 2021. The market has not really materially changed since we last talked about 2 months ago. What we see is in CBD locations, a healthy letting market. In the outskirts, obviously, a more difficult letting market. But in the majority of our locations, we see quite a healthy and good demand.We see a continuously strong transactional market with transaction evidence for equal, if not even lowering yields on the prime assets with visible cash flows.Headline results is the things to be mentioned is from our side. Top line growth, an increase of the rental income of 4.6%, deriving predominantly from new projects, which came into the portfolio in Geneva and Zurich and the acquisition.We have a moderate COVID impact in Q1, clearly compared to no impact in Q1 2020. So here from the comparison, the top line growth would have been even higher with flattish like-for-like development of plus 0.2%. If include, obviously, the COVID implication, we are at minus 2.1%.We report in Q1 also valuation gains. As you know, typically, we value the portfolio twice a year fully. If we have in Q1 or Q3 a material evidence base on rental contracts of all of completion of projects, we are obliged to ask the value for next evaluation. We did that in 2 instances, one on the completion of a project into West ATMOS, which triggered the revaluation gains of roughly CHF 20 million. And we have renewed a letting -- renewed a new lease agreement on Bahnhofstrasse, the highest retail -- at high rents which triggered revaluation gain of a bit more than CHF 10 million.But these were the 2 incidents where we had revaluation gains. And also to be evident is the condominium sales gains, on the one hand the development in Lugano with Parco Lago where we have transferred ownership of all reserved apartments from year-end, and so have now sold effectively 62% and contributed CHF 5.5 million to the income.And we have sold a project in Zurich-Kilchberg, as you know a few years ago, we have earmarked assets with higher, better usage conversion in -- from office into resi. We have developed a project on Kilchberg with various scenarios. Thought about developing it ourselves and selling the apartments in view of the strong residential market. We came to a conclusion that we sell it as a project, and so realized a gain of CHF 7.7 million or a plus of more than 50% of the book value.On the cost side, fairly stable picture, leading clearly to an EBIT margin of above 80% to 83%. I think on the cost side, to be evidenced is the continuous reduction of the financial expenses. We are now on a passing cost of debt of 38 basis points, clearly contributing a substantial part to the bottom line.Here, the strategy is when we have larger maturities, try to lock in rather low rates on the longer term, but on the short term we try through private placements, tried to fund us currently negatively, and we fund us negatively at roughly 45 basis points in a magnitude of CHF 150 million. So this is quite a strong contributor also to the earnings. And here also, we tried to optimize the whole P&L impact.I think with that, that's a bit the headline numbers. I would really like to hand over to questions, and I'm happy to enter into all material details you would like to go through.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Pascal Furger from Vontobel.
Three questions, if I may. So the first one is on your contracting renewables. So 75% of contracts have already been renewed for this year. I know there are larger expiries towards the end of the year. But my question is, based on your calculation, so is your vacancy rate guidance of 4.5% sort of a worst-case scenario?And then the second question also in terms of reletting, you reported a positive revaluation gains, thanks to Bahnhofstrasse at Zurich. Are there any other contracts in that region up for renewal in the foreseeable future?And then maybe the last question, in COVID-19 claims, your rent collection is still at very high levels. But were there sort of any new claims from tenants asking for rent reliefs, which sort of did not add for like last year? Or has anything changed in that regard?
On the vacancy rate and the renewals, it's always difficult to speak about worst case. So I wouldn't speak about worst case. That's our best estimate based on what we see on expiries. What we see that what we have to do with the empty space to bring it back to lettable area. But I'm convinced that we can achieve this around 4.5%. And we are not so worried about this number, because we see that, first of all, this is a good space which becomes available -- quality-wise, and we have the top line growth. But I wouldn't speak in April, in the worst-case terminology. I would say this is the vacancy guidance we can give based on our best estimates and best views we have today.On the reletting, yes, we have within the portfolio selectively reversion potential. What we have seen now that in such an environment, often then you have also to give some concessions, which then off-let or offset, I would say, even perhaps on the top line, the benefits. We had on this similar -- on this very specific property a renewal already in December and now renewal this spring. So they are in the portfolio selectively.But they are -- then I would say, they are not so material that they really can substantially change the like-for-like growth from today's perspective. In this current environment, we have the positives and sometimes you have a negative.On the COVID rent collection of 98%, yes, it's -- I think it's a high number, but it's similar to what we had also last year. We have some requests, but nothing really material where we have to say this is now something which popped up newly with the big ones we have found agreements. I think here now it's important us to see how quickly the situation is really then released and the various operating activities can open.
The next question is from Pascal Boll from Stifel.
I want to follow up on this rent release. You booked CHF 1.6 million in Q1. What is your expectation for Q2 and also for H2 in that regard? And that's my first question.Secondly, we saw a positive progress in Parco Lago. Do you see this to continue? And by when do you expect to have things sold the rest of the units, yes that's it.
On the rent reliefs, I cannot give you a number on what we expect for Q2 and Q3. I think what we said with the full year is that our best estimate that it could be like last year. So we have foreseen in our projection further rent reliefs, but depends really on how long this COVID lasts. But we have, in our guidance, there is some cushion in it, and we have certain, I would say, certain scenarios already embedded.On the Parco Lago expectations, the progress is that the disposals are going well. I would say reasonably, we would say that by the year-end '22, so now from now another 18 months, we should have sold the majority of the apartments. Clearly, they are working full speed. The apartments are now being completed. But still, this needs a bit of time, and there is really no hurry. You have to keep in mind that we are hardly giving rent -- price concessions, so there was no price concessions, and we have a profit margin of roughly 35%. So we are not under pressure.
The next question is from Ken Kagerer from ZKB.
I've got 2 quick questions. The first one, we have heard that Google intends to move to [indiscernible] in Zurich. What are your discussions with Google on the Hürlimann Areal? Do you see any risk that they might move out? Or do they even want more space? Could you give us a bit of an insight there?And the second one is the one that I always bring, it's basically on the expiries in 2022 and 2023, where we have each year 18%, so 36% are going to be renegotiated or have to be renegotiated in the next years. Could you give us an update there, where you stand with the negotiations or discussions with these tenants.
With Google, we have a long-dated relationship with them. I think what we -- and we have discussions on the reletting of the space. Our observation is that they generally are expanding that they generally have the desire to grow and to take up more space. And as far as I can say so far that Hürlimann is an important part on that game from them. So I think that's what I can say specifically on this.On the expiries of '22 and '23, I think here, it's correct, it's an 18%. But with rent contracts lasting 5 years, plus 5-year option, we theoretically have every year an expiry of 20%. I think for the '22, we have one large expiry we talked about. They make up a large part of it, and we are here on good grounds, I would say.And on the '23, I think there's nothing really, I would say, imminent. We have the -- some projects which we on purpose are vacating and repositioning. Is it the Globus am Bellevue for this case or we have in Basel the Zollstrasse, where we are already on the way to reposition that asset and bring in the new concept. So they are not really big, big expiries. There are many smaller ones, which we are -- on the one hand, we are confident that we can renew. On the other hand, the majority is in very good locations, and we'll address them in the right manner.Generally, I can say that we see a solid top line development independently from those expiries, which should ensure the dividend growth pattern we have seen in the past. So for this period, I have limited doubt that we cannot continue on that path.
Maybe one follow-up question, which is not connected to the first 2, but could you just give us a bit of an update on the performance of the hotels in terms of bookings there? And what your expectation is for this year and maybe also going forward? Do we have revenue rents introduced for those hotels or what's exactly going on, sorry?
No, no, nothing to apologize. It's a fair question. We have -- in one case, we have -- on top of fixed rent, we have a revenue-based rent, which is obviously not paying in now. I think on average, what we observed is that during the week, they have occupancy ratios of 30% -- 20%, 30%, 40%, picking up to 100% on the weekends. The Geneva one is what we see performing better than the peers and clearly not being at levels they would like to, but working fine. And our hotel exposure is rather limited.And so, I think from that end, we -- the Geneva opened well. They are adhering to their contracts, so I think here, limited worries. But it is clear that as long as you have partial lockdown or partial home office obligations, is that during the week the hotels are not full and you have limited tourism. But they are very solid operators and very centrally located hotels. So I think here we will -- we'll go through with them. Thank you, Ken.
The next question is from Andreas Brun from Crédit Suisse.
I've got only one question left. The adjusted EBITDA guidance remains at CHF 275 million despite kind of the CHF 10 million higher EBITDA number you would normally reach on a quarterly basis. Can you put this into perspective, please?
Well, we have -- in our EBITDA guidance -- I apologize -- we have foreseen the -- how can I say, the disposal gain of Kilchberg. Clearly, we have, as I mentioned, a little bit of COVID reserves, but it's too early to talk about any change in the guidance. But I think the guidance is solid at least CHF 275 million.
The next question is from Andreas von Arx from Baader-Helvea.
Could you give some color on the increase in the trade payables close to CHF 200 million. That would be the first question. Second question on your vacancies. Could you give some insights on Rue du Prince and Hallerstrasse in Bern?And then last question, you have been rather outspoken in your outlook statement on weakness of the retail segment market. Could you give some evidential examples here on what -- why you come to that conclusion that retail is so much under pressure?
Thank you, Andreas. I think on the first one, if you look on our COVID implications and the lockdown related rent receivables, which went slightly up. These are because we staggered some payments, but it's nothing unusual, and we are working down on this element. On the vacancy rates, on the Rue du Prince, we are currently in relating talks of 2 floors. The Rue du Prince is really Rue de Morat, plus the Rue de Sébeillon central, I would say, excellent spaces. And we are here in discussions for reletting.On the Hallerstrasse, Seilerstrasse we had a larger tenant leaving yesterday. And here, we are in discussions for relating it. It is not prime. We have, on the other hand, quite attractive rent levels. I think here, we just need a bit of time. The one question is more technicality. We are discussing access to the various floors for the tenant we had before. One elevator was good enough in discussions out with potential new tenants they'd like to have a second one. So we are thinking of is an additional investment needed really to get those tenants. But it's, I would say, quality, price location, it's an okay asset. It's clearly not an asset which would now fit really into our priorities, but we are full speed working on the reletting on this asset.On the weaknesses of retail, it's more an observation, not on the high street, but more on the, I would say, commercial retail, nonfood, what we see with regard to the various trends also of the e-commerce, where we clearly see that those stores are under pressure. As soon as you are away from high frequency areas and you're going into commodity product, those tenants have difficulties, and we observed that more when we discuss about expiries, perhaps in secondary locations.Fortunately, we are not too much exposed to it, but we have also when we talk about Freie Strasse in Basel, we have an expiry and the market has changed. So that's, I think, something one has to face.
Okay. And just quickly on my first question. I mean I'm just looking at the balance sheet, trade payables went to CHF 200 million and have been around CHF 20 million in the all 4 quarters of the previous year. So that's CHF 160 million roughly difference.
Let me check. So then I misunderstood your questions I will come back to that.
Okay.
[Operator Instructions] The next question is from Holger Frisch from Zürcher Kantonalbank.
Another question on your guidance for the vacancy rate of 4.5% roughly. Considering that you have new leases starting in Q2, which contribute around 0.5% to the current vacancy rate of 3.1%, this would imply an increase in the vacancy rate of roughly 2.2 percentage points expected until the end of the year. Could you please give some more clarity here what is driving expected increase in terms of properties and the type of use? So is it office, is it retail, et cetera?
Thank you. Perhaps just, I read -- I looked at the balance sheet again, Andreas. We had a dividend obligation clearly in Q1, we had the AGM on 31 of March. The dividend was then paid in Q2. And so this account payable is the 170 million [indiscernible] dividend on the 31st of March. And you see also this as an impact on the equity side, the equity statement, you had an impact from the dividend. The cash payment happened in April. So that's the reason for these account payables, increased from CHF 26 million to CHF 196 million. If you deduct the CHF 170 million, you're back on the CHF 26 million. Sorry, I had to quickly just cross-check and think through.On the increase of the leases, on the vacancies, these are specifically an assets that we have in Biel. It's specifically office. It's nothing material on the retail side and it's typically, I would say, good quality office. On the one hand, there are also sometimes office, we have to bring back into the lettable fashion, and considering that you have expires in Q4, this takes often 2, 3, 4 months. But I would say if we go through the lease now, it's predominantly office. The only one, which is retail is the one I mentioned with Freie Strasse in Basel. But here, we are already in discussions with a potential tenant. Probably the lease would start then early '22.Another big one is the one I mentioned in office in Biel, which is a bit larger surface. Rue du Prince, we have expires. But here, we're also already in letting discussions. Those will start then if -- in early '22. So nothing really, I would say, which spikes up, which is again against our core business activity.
There are no more questions at this time.
Well, then I would like to thank to all participants. If there are any follow-up questions, don't hesitate to contact us. And then I wish you a great day and all the best. Thank you. Bye-bye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.