Swiss Prime Site AG

SIX:SPSN

Earnings Call Analysis

Stable Performance Amidst Structural Shifts

In the first half of 2023, the company reported stable financials despite restructuring, including a profit of CHF 146 million from the sale of Wincasa and a slight portfolio revaluation drop of 0.74%. Major development projects are expected to generate CHF 26.5 million in additional rental income from 2024, with the company experiencing 3.4% like-for-like rental growth and a reduction in vacancies. The company remains committed to sustainability, aiming for 100% certified spaces and a CO2 neutral portfolio by 2040, while also aligning financing with green initiatives. Asset Management grew to CHF 8.3 billion under management with positive outlook despite interest rate hikes, underpinned by stable rent-related revenue and the company is on track to reach CHF 10 billion in assets under management by 2025.

Maintaining Steady Rental Income Amidst Sales

The company showcased resilience with a slight 2% increase in rental income to just under CHF 219 million. Despite actively participating in capital recycling by selling CHF 3.5 million in rent volume, they managed to achieve a 3.4% like-for-like rental income growth. This performance indicates a successful balance between generating cash from sales and maintaining steady rental streams.

Retail and Asset Management Performance

The retail sector, particularly Jelmoli, saw a robust performance with over 4% growth, driven by a return to office work and the strategic move of converting shops to outlets, resulting in stabilized prices and improved margins. However, the Asset Management segment declined by 18%, attributed to challenges in the issuance and acquisition market, signaling sector-specific difficulties and the need for strategic adjustments.

Financial Health and Cost Management

The cost analysis revealed prudent cost management, particularly in real estate, where costs fell by 0.5% despite a 2% increase in rental income and inflationary pressures. Development costs aligned with expectations, and while personnel costs rose slightly by CHF 0.5 million due to specific provisions for Jelmoli, overall expense control resulted in a 7.7% reduction in total cost base compared to the first half of the year. Consequently, operating income increased by 1.3%, excluding revaluations, suggesting the company managed to withstand inflationary challenges and preserve profitability.

Development Projects and Investment Returns

With minimal cost increases in development projects during the pandemic and high pre-letting statuses, the company has set a target return of 4% to 5% for its development ventures. Emphasizing on developments being a distinct competitive edge, the executive team highlighted their strategy to maintain a level of committed funds that aligns with Moody's criteria, thereby mitigating risks associated with construction. Six projects are currently underway, demonstrating the company's proactivity in adding value through their development pipeline.

Navigating a Shifting Transaction Market

Executives expressed optimism that the transaction market will continue to open up, potentially easing as interest rates stabilize in the latter part of 2024. They noted the absence of distressed sales, with companies considering sale and leaseback options. Although yields have seen some increase, their development strategy is targeted towards filling the pipeline with high-return projects, circumventing the unattractive yields of fully let properties in good locations. The market correction is not expected to be as drastic in Switzerland as in other regions.

Strategic Capital Recycling and Financing

Swiss Prime Site is leveraging the capital from the Wincasa sale as an alternative financing source, allowing for less property sales than initially anticipated. This approach reflects strategic capital recycling, which provides flexibility in how funds are used for financing or further development. Despite the potential uncertainty with interest rate increases and cash flow projections, the company's management remains confident in their streamlined structure and preparedness to meet midterm goals. They exhibit control over the development pace and financing strategies, which gives them a leading edge in sustaining growth and managing financial commitments.

Earnings Call Transcript 2023-Q2

[René Zahnd, executive]

Good morning. You can guide an FFO I flat and still not be boring as a company. So on that note, a warm welcome to those joining us online and those here today in Zurich at our balance sheet press conference. So let's start with the results for the first half year 2023. And of course, a highlight is the streamlining of our corporate structure due to the sale of Wincasa with a profit as you've been able to read in the press of CHF 146 million.Another streamlining project starting in 2025 will be the Jelmoli operative business being phased out, which will cease at the end of 2024. And we're currently working on the redevelopment of the property starting from 2025. We had a stable fair value of CHF 13.1 billion and the revaluations, we're often asked about those. There was a slight adjustment of minus 0.74% and for the entire portfolio.So what are we expecting for this year, and particularly for the second half of 2023? Well, that's the handover of the important development projects, Mullerstrasse in Zurich on the 1st of November, 2023, and the opening of the Alto Pont Rouge in Geneva. That's good news. And that is because they are a major development project. And from 2024 onwards we will be able to benefit from them, that's CHF 26.5 million additional rental income starting from the beginning of next year. Hardly any rent this year because there are some rent-free periods for the new tenants. So we can start calculating this from the 1st of January, 2024.Then sales is another important topic. We have heard a lot about negative revaluations. How does that work? Well, as you can see, we had sales of CHF 148 million and this was around 10% above fair value. And those are B and C locations, some with more difficult use cases. And so it's more difficult to find people to -- buyers and so these valuations are very realistic, because, well, the transaction market works like that.And then 2 points on sustainability. By the end of the year, we are going to have certification for all of our spaces 100%, all of the ones that can be certified, of course parking spaces can't be certified, but everything else will be subject to certification and we are going to be the first signatory on the Charta of all Circular Building. I'll talk about that some once more, a little later.So the most important figure for the first half year is a rental income. We were able to generate 3.4% like-for-like growth or 1.9%. And this means that we were able to further decrease our vacancies. We had to adjust the corporate structure a little in the summer. You can imagine that we had a start geared [indiscernible] [ Tatiana ], [indiscernible] and Jelmoli. And due to the streamlining of our business with concentration on the 2 pillars, direct properties and asset management of course we don't need the same kind of cost base anymore. And due to terminations, this is going to become effective from the 1st of January, 2024.And so positive in asset management. We grew, we're now at CHF 8.3 million assets under management in the first 6 months of this year. And compared with our peer group, this is more than respectable. And I will go into more detail about asset management in the second part of the presentation.[Indiscernible] we are still open to or expecting to have our midterm goals reached. And so 0.5% year-on-year reduction private of seasonal increase compared to year-end. This is simply due to the fact that the dividend is due in the first half of the year, the complete dividend and just not split up across the 2 halves of the year. And we also had refinancing of a convertible bond of CHF 275 million at a very interesting interest rate.And so that's more or less the picture that illustrates the streamlining of the business best. So now you can see here 2018 where we always had a lot of different businesses or different areas. And this was a criticism that was sometimes voiced, not to -- is somewhat justified and you can see in the middle where we are today and on the right-hand side what the target is for 2025 with our 2 pillars, direct real development and asset management at a ratio of approximately 80% versus 20%.And so here these are the figures for the first half year with like-for-like growth of 3.4%. Assets under management also showed a nice growth rate of 19% compared to last year 6.5% compared with the end of the year last year. The EBIT 74% growth, including the sale of Wincasa and without the sale of Wincasa is still a gross of 1.3%, before revaluations of course. And profit including Wincasa plus 89% and without Wincasa minus 2.2%.Let me just explain that of course, we refrained from capital recycling. We could have sold a lot more and then we wouldn't have had that negative figure. But of course we still had the sales results of Wincasa, so it doesn't make sense to necessarily sell more properties. It's better to keep them for the second half of the year or next year so that our capital recycling can continue. And per share FFO I and that of course is the important figure that determines a dividend payment is practically stable. FFO II showed considerable growth of 81% due to the sales results, including the profit from Wincasa, from the Wincasa sale. And then the EPRA NTA showed a slight increase of 0.6% to now CHF 101.4.Let's take a look at the market very briefly. I already mentioned some aspects and would like to tell you what we feel about the interest rate environment. We expect that the S&P is going to do another interest rate cut in September. And I'm telling you this because you can expect us to be able to be prepared for that and it being considered in analysis for the end of the year. So this interest rate cut will -- increase will come. And then is it going to be recession? Certainly not, we still expect high consumption rates of Swiss households.And the other aspect is that we have immigration that is incredibly high this year. You can rate them as positive or as negative, but we're not talking about refugees from Ukraine, but these are people from Germany, France, Italy, so our neighboring countries and they mainly work in the health care sector where we have a high need and also in the services sector. And that once again means that it gives us -- opens up potential for us for Prime side office space. After COVID the situation has relaxed somewhat, but the supply chains can still -- are still subject to or at risk and you can -- especially when you look at the pictures from the Panama Canal for example, you can see that it only takes a small event or seemingly small events to disturb supply chain. And so these are the general remarks. But how does this refer to our portfolio?Well, lettings were excellent as you can see from our figures, not just in the like-for-like increase of 3.4%, but also the reduction of vacancies to 4.1%. So the prime locations are very hard to demand. And furthermore, there is going to be a scarcity in supply. So we are always talking about prime locations. This could be different in rural areas. But of course if the number of building permits being issued and at the same time as the population growth is going to lead to a reduction in supply and that will give us more opportunity.And valuations, as I already mentioned, minus 0.74%. So this of course is due to the discount rate effects and 90% in debt of our index. So this is one aspect. And the other aspect is the increases in rents for new contracts or extensions of contracts, the reduction in vacancies and also the development portfolio, which counteract the increase of discount rate.The transaction market has shown some positive sales effects 10% above fair value. So the transaction market is still quite strong, not quite as strong as the beginning of 2022. I think that's obvious, but the last most recent transactions of our sales, for example, the Tertianum properties in Eastern Switzerland also include an institutional investors joining the bid. And this is happening again. So we can see that there are some very positive aspects influencing the second part of the year.So that's by way of introduction, and now it's over to Marcel.

[Marcel Kucher, executive]

Thank you very much, and welcome. I will take a few minutes to dig a little more into the figures for the first half year of 2023. Let's begin with this chart as we have it in the income statement. I'm showing a reconciliation here based on IFRS 5, Wincasa is considered to be a discontinued operations adjusted for the previous year. We're showing it as if we had sold Wincasa at the beginning of 2022.Why does IFRS do that? It's for comparability of figures. Otherwise you will have a huge decrease of personnel costs which would be difficult to interpret for investors and interested investors. And IFRS prescribes and I think it's reasonable that all the figures are on a comparable basis as if Wincasa had been sold at the beginning of 2022.There's going to be one line as you will see in the income statement, the second from the bottom prior to net profit, where there's compensated where there's the proceeds are offset, so profit from the sale is the same. And you will see the same position for 2023, it's huge because it includes proceeds from the Wincasa transaction. But you will find all the details in the Annex 8.2 for those of you who would like to look up on that.Second preliminary remark in the course of streamlining of our corporate structure, we thought about reasonable structuring and segment reporting for the future. And we adjusted it, currently we're showing 3 segments Real Estate, it's our real estate including financing. And second Asset Management, including solutions in particular with allocated financing. And we are showing for the next 3.5 years, a third segment called Retail that includes Jelmoli. So we're offering as much transparency as possible in the P&L and the balance sheet showing the highlights.Now these are the preliminary remarks. Let's move on to the figures. Rene Zahnd mentioned some of them before. I will add some flesh to it. Rental income as we said rose by 2% over the previous year CHF 219 million, just under CHF 219 million. So this in our view is a good figure in parallel to what we sold in terms of capital recycling a volume of CHF 3.5 million of rent. This is a like-for-like increase of around 3.4%. And I'm going to show we were expecting for the end of the year.Then Developments POC projects, we only have one project in "Plan-les-Ouates" in Geneva, which is being phased out. We have some residual surfaces so we expect proceeds to go down from it and costs as you will see in the next page. We're assuming that there won't be a lot in terms of costs. There are some residual space that is still in our books. Asset Management minus of 18%, I'll talk about this later, certainly due and attributable to the more difficult issuance market and acquisition. And I will provide more detail about this later on.Another figure I would like to highlight on is Retail, Jelmoli in other words, nice growth in excess of 4% driven by all the locations, Bahnhofstrasse performed very well. Particularly at Bahnhofstrasse, it was the restaurants that performed very well, which goes to show that people have moved back to the office. Working from home has been reduced and of course people have to have food over lunch. Then airside at the airport took a positive development benefiting from increasing passenger volumes and in the circle, if you visited there, one of the shops has turned into an outlet which is well-received and helps us in terms of margins.Prices have been stabilized and this is a good development in terms of margin with Jelmoli. Total of just under 1% negative, minus 1%, driven by lower returns in Asset Management primarily. Looking at the costs on the other hand, Rene Zahnd mentioned it before. We had a strong cost focus. You can see that in real estate costs decreased despite the increased sales. We showed sales proceeds 0.5% less of real estate costs despite 2% more rental income and an inflationary setting. This goes to show that we did a good job, I think, in that regard in terms of cost discipline.Development costs, I don't need to go into the details of it's in line with what I said before. Cost of goods sold. I mentioned that before. We had an increase of 4% in proceeds and 2% higher costs that ends up in a higher margin, the reasons for which I mentioned before. Personnel costs went up by CHF 0.5 million. There's 2 elements worth mentioning here compared to the first half year 2022, we made a provision of around CHF 1 million for the closure of Jelmoli, retention measures and parts of the redundancy plan, you can expect these costs to continue until closure. This is included there.And then we in-sourced something here, especially in the development field. Looking forward to the sale of Wincasa, we decoupled from the major developments and doing activities ourselves that we had previously offered or purchased from Wincasa. This has now been sourced in. And if you look at that, the 1 million for Jelmoli, you can see that we brought this down. And of course, we are capitalizing on that as part of the development cost instead of a third party, we're using our own staff to do these activities.Now the total cost base is 7.7% less of around CHF 123 million in the first half year. And if you add all this up, operating income, as mentioned before and operating expenses and take the sales that we mentioned before, it's a profit of around CHF 9.8 million. You will end up with the plus of 1.3% of EBIT, excluding revaluations. And I'll be talking about this later on separately.Now in terms of per share, we have the following picture. We've shown that before, including Wincasa. The Wincasa contribution for the first year, we're at CHF 2, FFO I. FFO I, especially in these times, is we consider the correct benchmark contrary to EBITDA or EBIT FFO I includes higher financing costs, which in a company like ours with a major balance sheet and financing portfolio, it's an important benchmark to include interest rates. That's what FFO I does.And I think to show a stable result goes to show that we've done a good job in operating terms that we've been able to cushion the higher financing costs. You can also see the increase in EPRA NTA or our equity, that's a combination of the sales proceeds, the sale of Wincasa, the Wincasa business and with revaluation deducted. This gives us around CHF 101 per share.Let me pick up 1 or 2 other highlights on the one hand, rental growth, rental income growth. Here are the details, CHF 3.5 million of sales, I mentioned before. Now the existing properties, like-for-like growth of 3.4%, partly through indexing and through real rental income of around 1% to 1.2%. The rest, the balance is indexing. We didn't purchase anything.So the other areas kept in balance more or less. One important figure I would like to mention, a difference from company to company, is some of the index possibilities at the beginning of the year. We have them scattered throughout the year. We expect higher index adaptations for the second half year. We have legally announced all of them with the increases. And you can see what we're expecting in terms of indexing in 2023. We've only have generated 38% in the first half year, so around 60% will only be seen in the second half year in the P&L. And this means that our expectation for like-for-like will be higher in the second half year towards 4% in total for the entire year.Now moving on to valuations on the real estate portfolio. You can see the investment sales of around CHF 80 million. You will recall the CHF 9.8 million of that is proceeds. And this is what we actually booked in the first half year and we've had additional sales, which goes to show in our view that the transaction market is still working. And especially for me as the CFO, this confirms that the values on our books are not entirely wrong. We have a certain safety margin in it if we can come up with a profit in a more difficult market.Investments, around CHF 150 million, you will recall that we usually guide for CHF 200 million to CHF 300 million at least that we digest per annum. So we are on track. It's important for the construction projects to actually be completed by the end of the year.Valuation gains, let me say a word about that. As you can see here, the discount rate has clearly been increased by 21 bps from 3.72% to 3.93%. If you take the sensitivity tables from the last annual report, that would mean a devaluation of around 7%, but there is a strong counter position, especially due to indexation and cost reduction and other new rentals, high new rentals that we have been able to enforce.Now to make it more understandable, we are showing sensitivities and added sensitivities with [ BioMatrix ] in our annex, where we're showing sensitivity on the discount rate and sensitivity to rental adjustments and that will probably give us a better feeling going forward. Regarding potential changes for valuation, that was going to be a comprehensive picture, as shown by the matrix in the annex.Now a word about asset management, perhaps. We saw that before, CHF 22.2 million top line, CHF 11.3 million of EBIT. The quality of earnings is clearly higher than the previous year due to the recurrent EBIT. And yet -- and that will be the basis for the future. AUMs grew by 6.5% compared to the end of the year, CHF 0.5 billion of growth in this market. Let me make 2 more remarks on that. First of all, if you extrapolate for the year, you have to realize that in 2022, the first half year was excellent. Total year, we had about just under CHF 30 million of EBIT. So we cannot talk about multiplication of the first half year, but that's an important thing to note.Second thing is that we certainly have an appealing pipeline and we are confident for the entire year. We are going for a result more or less at the level of last year. There's about 10% of uncertainty depending on the development of the issuance and transaction markets. But quality of earnings is important for us, 80% of recurring. And of course, we need to increase our assets under management.Secondly, I'd like to talk about financing. Here, we've got a very stable situation in terms of financing in a rather good market, clearly higher interest rates, of course, average interest rate at the end of June, including all the S&P rises of 1.2%, around 30% higher than at the end of the year. And you can see on a like-for-like basis, we have around 30% increase in financing costs. We are trying to keep maturities stable, 4.8 years of average maturity and 71% was fixed at the end of June of financing, it's increased. In the meantime, we made a major swap at appealing terms. And we have more than 80% fixed in terms of interest rates of our financial liabilities. And we heard about LTV already. We are maintaining our forecast of successively reducing it. And I think we've had a good start doing that compared to the end of the year 2022. We have a seasonal increase, as Rene Zahnd mentioned before.And finally, on the financing structure, we've refinanced everything for the year 2023. The next maturity will be in July 2024 with the committed funds that we've had at the end of June of around CHF 700 million. We do not rely on capital market transactions. We are in a comfortable situation, but we are permanently looking into that. And if appealing situations or opportunities arise, we will make use of them. Looking back, refinancing the convertible bond was a good thing at CHF 275 million at 1.625% given the current market setting.So much on my part. Let me hand it back to Rene Zahnd at this point to give you more details of our portfolio.

[René Zahnd, executive]

Thank you, Marcel. The portfolio, we have now 168 properties, a little less than last year because, of course, we also sell. And so as in principle, the portfolio compared with UBS and Credit Suisse. That's a question that we're often asked about. Well, we have just been able to extend some of the contracts that had come up for renewal with UBS and so we are not affected by the merger. But of course, if this had happened 10 years ago, we would have been affected because we're at the Motel 1, which is a building that was rented by Credit Suisse 10 years ago and also [ Austrasse ], our median mark, which was a UBS back office. So we can certainly say that the transformation was done very early on so that we're not affected.So anyway, 168 properties compared with 176 last year means that we're becoming more efficient. We're selling smaller properties and the ones that don't fit with our portfolio and that require a relatively larger management efforts. And so that's a good thing.In terms of use types, after the repositioning of Jelmoli, we are going to have approximately 47% of offices and 22% retail. We said that in the medium term, we want 20% as a target and our development pipeline does not contain any additional retail projects because Jelmoli is going to be transformed and some retail is going to be retained, but it's going to be less in total than before, 48%, 22%. And the tenant structure, the main tenants have not changed and we have recently received the results of the tenant surveys of last year, which was very positive. You will hear about the details and that's at the Capital Markets Day in October.This is a slide that we like to show because it shows very clearly where our properties are positioned and it shows the sales potential for the capital recycling 3%, in fact, in Quadrants II and IV. And everything else, 97% are excellent locations and it's always about location at the end of the day. And our portfolio has now 40% in Quadrant IV and we're trying to move that up into Quadrant 1. That's our redevelopment work that we do internally. And Quadrant V and II are on the list of properties first that we would like to sell. So we would like to end up with all of our properties in the top right-hand quadrant. But I think we're certainly moving in the right direction here.Now on the second look at the vacancy rate. We now have an all-time low of 4.1% in terms of vacancies and we are expecting it to be reduced even further by the end of the year, whether we're going to go below the 4.1%. Here, the lease expiry profile of rental contracts is very stable. The [ walls ] is 4.2 years. So that's a excellent position to be in. And a large part of the extensions have already been agreed for coming up next year. And so of course, the question, we don't have any basic changes in the rental contracts, tenants are not asking for reductions in rent or incentives, and that just shows our strong position in the market at the locations that we're acting.Now let's take a look at the pipeline and the capital recycling. I'm going to lead you through the slides briefly because that is really the key message for today. Let's start on the left-hand side. Over the last few years, 2019, we sold to the tune of CHF 1 billion and this was recycled by being reinvested into our projects. And so it really makes sense because it optimizes the use, it means we have a better mix. And also we improved the locations because we are moving away from this central quadrant and concentrate on developments in the top right-hand quadrant.We also have more sustainable buildings with a better label. So we're not just renovating our existing ones, but we also buy ones with a SMBS label, for example. And this is also important. So if we sell properties that are vacant, they may have a yield of 4%, but that's what you saw what you have if you have better locations, if you're more sustainable and if you -- and this will all boost the yield, so -- and the profits. And that is why we are going to continue our capital recycling policy for a few years to come.I don't think this really requires much comment. This just shows you what the project status is, projects under construction and planning with a pipeline of CHF 2.2 billion in total. One new project in planning is, of course, the refurbishment of Jelmoli on Bahnhofstrasse.And now I would now like to zoom into the individual projects. I think that's a bit more interesting. Of course, we have some major additional rental income coming up next year. We are expecting an excellent 2024 due to those developments. So one such project is Mullerstrasse and the other one is Alto Pont Rouge and together they are going to generate CHF 26.5 million in rental income, but also StuckiPark I and II are going to be completed, not quite at the beginning of the year, but in the course of 2024. So that's another positive aspect. And so when is Mullerstrasse going to be transferred to Google? Well, the date is the 1st of November. And so at the end of October, at the Capital Markets Day, we will be able to show you the basic state of the building before being handed over to the tenant.Alto Pont Rouge, well, here, we are expecting a pre-letting rate of 80% by the end of the year. We are on track here because currently, we are at 70%. I'm sorry, 80% by the end of the year and 100% by next year. It always takes a little bit of time to fill such a new project. And BERN 131 is another interesting project. I think you once asked me how can you think of building there? Well, it is really good location because people come from Zurich and from [ Toon ] on the other side, close to the station. And this is proven true. We have a contract with Zurich Insurance. And if they decide to rent a property in a place like that, that means that it's a very safe and good location.Then another selection of projects in planning. So this is just a selection of highlights, of course, the Steinenvorstadt in Basel. This is a recently acquired project, which is already -- where we are actually moving forward very fast. We have already concluded the study competition. This is really an outstanding project. And then Jelmoli building in Zurich, here, we are going to be able to present first rendering photos at the Capital Markets Day. And so this -- the basic concept is still the same. We are going to have offices on the top floor, down to the second floor and that will leave us with 2,000 square meters of retail space, down to the basement and on the ground floor. That's important for a city. You need that kind of views in the city.And the first floor is still maybe will be split between retail and offices. That will depend on whether we will be able to open the building on site in [ Gassa ] so that we can offer some brands across 2 stories. So it's still a flexible story. And certainly, we are going to have a great building. The initial conversations with the cities have been excellent and we are optimistic that starting in 2025, we'll be able to start work. And we're 47 in Zurich, that is on 2. We've renamed it, but that's the existing [ Yond ] that you're all familiar with that you've visited and that's just the continuation of that development.And of course, Mark Life, we now have the building permit, 2 objections have been filed. And well, I'm relatively surprised how [ Marius Huber ] and [ Serich Haimashultz ] are connected. But why don't you -- Mr. Huber, why don't you contact me and I'll tell you all about the project and then you can get your information firsthand. So that's the first point.And the second point whether we question our project. Mr. Huber, the question is no exclamation mark. This is a project that we have opted for that we're going to implement. And because it is simply the best project no matter which way you look at it. So that's all for them. And we also -- you can see here. So we're still within the time frame. In the second half of 2025, we are hoping to -- or we're expecting to be able to start construction, 3 years construction time. Of course, those kind of projections do cause delays. And so we would really appreciate it if we were able to share information in [indiscernible] as the ones who are developing the project. So I hope Mr. Huber got the message.So much on the current project pipeline. Where do we stand with regard to our sustainability strategy? We're doing good -- making good headway, 100% assertive viable space, which will be certified by the end of the year. That's certainly an interim stage. It will be important for us to improve on certification, the certificates that you keep. There are various levels take [ preamp ], they've got various tiers or levels. We've certainly achieved the first level. And the next level will be for projects to be even better than fundamental basic certification.Second point here is climate neutrality. We are confirming what more to have a CO2 3 portfolio by 2040. You will find the chart in the documents. I will not touch upon the milestones, but we are in line with the reduction path towards the end of 2040.Circular economy, the circular economy, it's important for us to be part of it and to be a signatory to the Charta. So this is really essential for us as we are trying, especially for new buildings to adopt as many of those principles as possible. What does it mean? It means that we are focusing on materials, trying to select materials that at the end of the life cycle of the building can be continued to be used. And on the other hand, we are adjusting construction processes to such an extent that we're not bonding these materials in the process, but that at the end of their life, they can be separated easily to give us nothing else than a wealth of materials that we can sell in the market or reuse ourselves, so much about the circular economy. Certainly, a good principle, which we consider important to be part of.And last but not least, we coupled our total financing to sustainability aspects, which has paid off once more, not only in terms of green bond, but also the convertible bond in the amount of CHF 275 million in the green finance framework, certainly an interesting interest rate.Now so much about the real estate company and now for asset management, where do we stand here? We are going to keep showing this chart. This will give you an outline of where the CHF 8.2 billion go. On your left, we have the fund management business, a total of CHF 3.1 billion of assets under management currently with 2 open and closed ended investment fund. At center, we've got the investment foundation with around CHF 4 billion of assets under management. By the way, at the beginning of the foundation, that was one of the intermediate goals and the intermediate goal has already been achieved. The investment foundation is going to grow further.And over on the right-hand side, we've got the other pension funds that we can take care of various mandates, in total, CHF 1.1 billion of assets under management and all this adds up to the CHF 8.2 billion of assets under management that we've communicated. Where do we think we stand in the market? We consider ourselves just looking at direct investments. We're probably the largest independent asset manager in Switzerland compared to our competitors.And why do we have a positive outlook on the market? Of course, the rise of interest rates has reduced the transaction market in particular and issuance as well and issuance first. And then transactions, of course, it's possible either way. But what at the end of the day are the issuance drivers? The issuance drivers or the quote which pension funds are invested in real estate. Now bonds have been going down for some time. Equities have gone down for some time. And mathematically speaking, the real estate portfolio is going to be too big. But the real estate, the properties have not become worse as a result of it. And as soon as this rises, again, there will be opportunities of investing in real estate. That's one thing.And the other thing is when I'm talking to investors, I hear, well, when will there be an end to the rise of interest rates? That's a typical question. And it's a justified question. Nobody wants to have prices too high. And surprising a loss in the portfolio quite right from the beginning. So as soon as the market relaxes again and we're not seeing any further rises of interest rates. The appetite for real estate will become larger again as people will no longer be afraid of having paid too much. That's one of the driver.And the other is that CHF 20 billion of new money comes in into the pension funds per annum. And if society grows, there'll be more money flowing into pension funds and that funds have to be invested. Yields continue to be highly appealing. So we want to be close to the market with our asset management to benefit and capitalize on a pickup in the market. We are also well set up in terms of sustainability as we have already shown under the real estate company.Now what is it about primarily in these periods of times? And [ Estacio's ] team did a great job in that regard. The cash flow return is essential and we're doing well in all products. That's the ultimate driver for Asset Management currently. And as Marcel Kucher already mentioned, we have around 80% of recurring fees. And as the term says recurring or not onetime fees, but these are fees as long as the contracts last will recur over the years and we'll be back over the years.So you can see that this structure can survive without any problems and come up with good results even without transactions or hardly any transactions, you've got to achieve that first. You've got to be mature enough to achieve that. So what do you need to take home from all this? If you take home anything is the point on the right-hand side. We are sticking to our midterm targets. There's no reason of coming away from the CHF 10 billion of assets under management by the end of 2025. We are at CHF 8.2 billion currently and CHF 50 million of EBIT. We are absolutely convinced and prepared to achieve that.So much on Asset Management. This brings me to my last chart before we're going to have a Q&A session. What are the financial goals that we communicated at the beginning of the year is stable FFO I, despite the difficult setting, despite the increased the higher financing cost, LTV below 40% to be below 40% to 39.7% as we explained, have been driven by dividend payment primarily in the first half of the year and we are improving the vacancy rate. We're pushing it below 4.1% by the end of the year. And with regard to AUM, we are a little more cautious. We're saying around CHF 8.2 billion, what we are currently showing already, we are expecting as the result at the end of the year.So much from Marcel and myself, we will be pleased to take your question now.

[Unknown Executive]

[Operator Instructions]

[Unknown Analyst]

I have 3 groups of questions. The first group of questions regards Slide 24, refers to Slide 24, Chart 24, to be more precise, Quadrant V in this matrix. I have the following questions. What's the volume of properties in Quadrant V? And what's the average return and current valuations in Quadrant V? And maybe you can pick out the 2 or 3 largest examples.

[René Zahnd, executive]

Can you answer that, perhaps, Karin? Maybe you should use a microphone as well.

[Karin Voigt, executive]

Well, I can't give you a precise information, but I will do that later on. Well, the volume is CHF 130 million. Volume is clear, but I can't give you the 2 largest examples. The return is slightly higher than in the first quadrant. Logically, I would estimate between 5% and 8%. But I'll be pleased to supply precise figures after the conference.

[Unknown Analyst]

Second group questions refers to the Jelmoli property. If I recall properly, it was about entrances and the distribution of tenants on the first floor and the ground floor and you've had talks with the construction authorities. Now has this resulted in an increase of conversion costs?

[Unknown Executive]

Well, we cannot tell you at this point. Well, let me begin somewhere else. The authorities are absolutely open as regards to the opening of the side road is concerned, but it will be exciting. I cannot tell you everything. We will green the roof. It will be a very cool surface, the fifth facade of a building actually is the roof. We're hardly using it at the time, but we will use it. And this has an impact on conversion costs. But in terms of internal calculation, we have not noticed any increases. But the city wants us to have a small contest to competition as regarding the greening of the roof. But we are fairly certain as far as cost is concerned.

[Unknown Analyst]

Third group of questions, relatively simple and brief. It's about segment reporting and in particular, the shared services. I saw that there is an operating income of CHF 8 million in the first half year. What does this include in more detail? And secondly, I would like to know about personnel costs of CHF 7 million in the first half year. I would assume that it will be around CHF 14 million in the full year. What's this composition?

[Unknown Executive]

What do you mean by that composition of personnel cost?

[Unknown Analyst]

Well, I would like to know what personnel is included in the CHF 14 million or has been distributed to shared services and why?

[Unknown Executive]

Well, shared services includes all the costs not directly related to real estate. In accounting, Rene and myself to be more precise and further costs. However, we are allocating a good part of it of the overhead cost to shared services. I do some work for Real Estate and for Asset Management. And we have come to an agreement with the tax authorities on how to allocate this cost. I think this is meant to demonstrate the fair performance of the various segments. I hope this answers your question.

[Unknown Executive]

Any further questions from the audience here before we open it to persons following us online. Yes, please.

[Unknown Analyst]

Well, I would like to know about the largest revaluations, what properties had the largest revaluations?

[Unknown Executive]

Would you like to take that question?

[Unknown Executive]

Well, the largest revaluations, I need to think about that. Let me think about it. Well, Urs, would you know?

[Urs Baumann, executive]

Well, we had revaluations in particular, in the development projects also for Jelmoli -- I mean Alto Pont Rouge, showing a revaluation gain and some individual ones on development projects.

[Unknown Analyst]

So it's primary development project?

[Urs Baumann, executive]

Yes, primarily development project. Yes, please.

[Unknown Analyst]

Well, [ Alpasouk ], for instance, had major revaluations, not very prime or CBD office locations, but office locations like the ones in [ Zook ], for instance.

[Unknown Executive]

Let me make a few comments on that. With regards to valuation for the values themselves, I mean they have to find their way as well. And now I saw it with someone who wrote it in the preliminary reports for about revaluations only CHF 1.2 million. Of course, we have various pots of development, CHF 1.2 million are only from the development being built. But the largest development revaluations will be from the projects under planning. So because the largest ones are almost completed as Mullerstrasse and Pont Rouge, there's only a small part, a small contribution from that.And bear in mind that we have changed our system, the projects that we are building or we're beginning to build. They are being revalued steadily. But earlier on, with every investment revaluation came down again, which didn't make sense. We wanted to have a straight line that is transparent, easy to understand. And this is the value today. This will be the value tomorrow and it's slowly rising to get there.

[Unknown Analyst]

So you don't have those various stages anymore as construction permit?

[Unknown Executive]

Yes, I do have that for the pots. When are things in planning when -- but all this is about is how this is appraised at the end of the day. And when the appraiser mirrors the development potential, in particular with the projects under construction, we want to have a continuous way of showing revaluations.

[Unknown Analyst]

This brings me on to the next question. So you said you were selling at the same deals as before, but you already have had a revaluation. So you won't have yield over 4% for Mullerstrasse, for example?

[Unknown Executive]

Well, that's the starting situation. Of course, we'll always start off with 5%. But of course, over the course of the project, this -- well, maybe you could say more about that. Well, there are several methods here, individual properties are earmarked for sale and some to generate rental income. And so now we have a better, more actual controlled element over the course of time or construction time, which will then be added to the portfolio.

[Unknown Analyst]

So you're talking about the 5% B location, 5% and taking that money and putting it into development, then we'll put it into a strong development, which will once again have to yield 5%. So that's the way it works. How do we spend the money?

[Unknown Executive]

Yes, I do realize that. But the point is that means that in the short term, you are losing out more income than in the long term in terms of valuation. But the properties that we sell, of course, also have generate income, but they're smaller properties. And so when we add larger projects to the portfolio, then the rental income will be higher than it would have been originally. So we're switching small for larger projects and less favorable for more favorable locations.

[Unknown Analyst]

Well, okay. Another question is what's the FcoS rate at the end of the year? And what's the swap rate? What are the costs for the swap rate?

[Unknown Executive]

22% from 6 years, 5.5 years to be precise. And the costs by [ NVIA ], that's a good question. That will depend on whether the Swiss National Bank raises interest rate again. So it's going to be go -- follow that development with the 25 bps we've seen here. So that will depend. It will be a little higher than now, but I would assume that the 225 base interest points will be that this raise will happen.

[Unknown Analyst]

A question about the discount rate raise. Does this include an inflation increase?

[Unknown Executive]

Yes, of course, it was in real term. The discount rate increase was in real terms. It's usually 5 or 6 bps in real term. Otherwise, you wouldn't have had the revaluation effect.

[Unknown Executive]

Thank you, [ Rolf ]. Any more questions in the room? Okay. Another one from you.

[Unknown Analyst]

Three brief questions. The first one refers to Slide 26, if I may. Okay. And here, you can see the 14% to be expected. So what about the major rental contracts? What's the status of negotiations here? And what's the vacancy guidance for the next couple of years in here? Well, the vacancy guidance is going to be around 3%, about 3%, so below the 4% that we have already mentioned. And now plus 1% on -- so the 14% in 2024, 66% have already been extended. And so what's the status of negotiations?

[René Zahnd, executive]

So basically, you want to know whether there's a major tenant among them, et cetera. Well, what I can say is there was one major tenant that's been extended. It's not reflected in these figures yet. And that was Swisscom in [ Gainfacasa ]. So actually, this figure would be lower. So this would take us to the 75% instead of 66% if we added Swisscom to this.

[Unknown Analyst]

And another question is whether we are controlling our risks?

[René Zahnd, executive]

Yes, we're already negotiating with all of the tenants that have -- where extensions are coming up, and I don't see any major risk with any of the key tenants. Well, this is also the result of the survey that I mentioned earlier that we're going to present at the Capital Markets Day. None of the tenants that has extended so far wants to reduce prices or those things that we've heard in connection with working from home is something that we are not seeing in Switzerland.

[Unknown Analyst]

Yes. And the second question concerns Asset Management. And here, you can see that we have a market and environment. The short-term outlook has been confirmed as far as I understood. But there is a certain concern that the business will be less attractive in the medium-term. What is your position on external growth, would you consider buying abroad? Something that personally I would not appreciate so much? Or are you looking at Switzerland?

[René Zahnd, executive]

Well, let me start the first part. Since you've already explained our strategy by saying that you wouldn't really support this. Okay. So anyway, with our third-party customers and the investment foundation, et cetera, we are set to have a healthy organic growth. But never that being said, we are interested in looking at other growth opportunities within Switzerland.Well, if you work in a growth business and it's going well, it would not make sense to exclude the possibility of possible acquisitions. But the medium term, CHF 10 billion and CHF 50 million, that's in today's structure. That's if we take -- if we assume organic growth. If we were to make an acquisition, that would be added to what we've mentioned.Would you like to add anything to this, Anastasius?

[Anastasius Tschopp, executive]

Well, I think it's all been said.

[René Zahnd, executive]

Great. And now I forgot the question.

[Unknown Analyst]

Well, the third and last question is one of your competitors mentioned the term of green equity. Is that something that you're looking into? If yes, why? Or What's the status? And if no, why not?

[Unknown Executive]

Well, I think we are leading in all areas, also in the area of sustainability. So you can assume that we are taking into consideration all of those things, we just revised our sustainability concepts, et cetera. And we're also looking at all the possibilities on the equity side. And that's, of course, what our sustainability focus is all about.And then there was a question over here.

[Unknown Analyst]

I have 3 questions. First of all, the savings due to the streamlining of the group. Where are you going to have the higher savings?

[Unknown Executive]

Well, there are going to be 3 parts, 1/3 staff costs. We started with this before the summer holidays and the cost reduction is going to be palpable next year. Then in the operative side savings, external costs and the third part is IT, et cetera, where due to the streamlining, we are able to have a stronger focus because we only have one business which is Real Estate, sometimes for ourselves and sometimes for third parties. But of course, it is -- really opens up the possibility of having a very lean back office structure.

[Unknown Analyst]

Then on the Wincasa sale, so that's totally finished. But so you agreed to pay the purchase price in 2 tranches. And the second part is going to be paid next year, at the beginning of next year. What's the reason for that?

[Unknown Executive]

Well, the second tranche is, of course, hedged to guarantees. Well, the reason is this. Of course, this is something that we thought about for a long time. We did a deal on the 14th of March and then on the 19th of March, the Credit Suisse UBS story happened. And so you have to see that the volume contains 30% Credit Suisse Asset Management -- Services Asset Management, not Credit Suisse money. But I received a call on Tuesday that the deal is dead because of that story. And of course, that did keep me up at night after that. And it cost us a few millions in terms of purchase price and other securities. And that's a shit, sorry to say it bluntly. But that's the way it went. And so ultimately, we still ended up with a good deal. But yes, I didn't sleep well. I can tell you that after the takeover.

[Unknown Analyst]

Okay. And then the convertible bond structure is a little unusual with this Dutch financing investment company. What's the reason for this structuring? And should we expect that next time the convertible bond becomes mature, we have a similar structure?

[Unknown Executive]

Well, 3 points on this. Firstly, our convertible bonds are very specific financing instrument for a specific kind of investor. You all know that we have a relatively large financing portfolio by Swiss standards and we try and split this as far as possible. And convertible bonds are very strongly influenced by international investors and Swiss investors also do this via foreign vehicles. Credit Suisse, they did that with the bank from Geneva. Anyone who works -- who invests in that kind of vehicle, also Swiss Life do that via foreign companies. And so we wanted to offer a vehicle which will allow optimum access for those investors. And that is why we chose that Dutch company in order to avoid any dual tax burden. So I wanted to ensure that we won't have this dual burden. And so that is a good vehicle for all investments in the euro space. That was a little bit of a test case for us.So when working with foreign investors, this can be quite a good model also in the future. It's not something that we've done so much in the last few years. If we look back a bit further, when we still interest to be had, there were quite a lot of transactions of this type. Swiss Re, for example, did that kind of thing because it ensures avoiding the double tax burden. But of course, you have 0 interest rates, it doesn't really matter. And that is why we haven't seen this kind of thing for 7 years. But now we have a certain level of interest rate, again, this is a form that is going to be popular for analysis financing for Swiss companies.

[Unknown Executive]

Rolf again, and then we are going to see whether there are questions online.

[Unknown Analyst]

Could you comment on the transaction market? What's your feeling is where is the transaction market moving to on condition that we're seeing 0.25 percentage point rise of interest rates? Are there any distress things that maybe outside of Switzerland that you don't want to have?

[Unknown Executive]

Well, I can make one of the other comment on the transaction market. We are convinced that the transaction market is going to continue to open up. It opened up slightly in Q2. And we believe it's going to continue to open up if the interest rate situation is going to relax perhaps in Q4 or 2024. Do I see any distressed situations? No, not really, but let's take a realtor as an example. It was communicated in the newspapers, export-driven companies in Switzerland, as we are seeing, are trying perhaps to do more of a sale and leaseback business because they're saying, well, why should I be a property owner. It's not my business. These are opportunities in the market.Now whether they are cheaply priced, I wouldn't think so. These companies are thinking, well, they can better invest their money and reinvesting their money in the development of the company rather than using it as a landowner. But otherwise, we're not seeing any distressed sales of properties.

[Unknown Analyst]

But do you think that yields continue to rise and valuations will be according to receiving the trends?

[Unknown Executive]

Well, we've seen a certain degree of increase already. And I think it's going to continue along the same lines. We are certainly interested in buying. But especially in the development area to fill our pipeline. We've done that for a number of years. And it's correct, the fully let properties in good locations really have yields that are not interested -- interesting for us, because they would weaken our results. So the market correction has taken place. And I'm convinced it's not going to take place in Switzerland as we are not Germany. It's not going to happen here to the same extent.And of the properties sold -- take the microphone, please. Well, you don't have a big bag of and tried to sell the 30 and have sold 10. All the properties that we wanted to sell, we have sold. So we haven't remained stuck with ones that we wanted to sell. But at the beginning, the smaller buildings were built by very -- were bought by very local owners. And in the second Q, it was CHF 40 million transaction with institutional investors, not only one, but several were involved in bidding.

[Unknown Executive]

So let me suggest that we're going to go online. You had enough opportunities to ask your questions in the hall here. So let's get started with questions online.

[Unknown Executive]

Andreas von Arx, your question?

[Andreas von Arx, analyst]

I have 4 questions. Well, I have sort of an echo on the line. First question on the discount rate, Chart 16. The increase of the real discount rate, if I understand well, the component of inflation of vesting partner is 1.25%. How does this compare historically? Is this value that we've had before? Or is it unusually high? First question.

[René Zahnd, executive]

Marcel?

[Marcel Kucher, executive]

Well, compared to the last 10 years is certainly high as we haven't had inflation for 10 years. Now I've been in the industry for 20 years. And I think if you go back 15 to 20 years, it's certainly a normal value or rather conservative value. My first real estate financing was closed at 4.8% and that was absolutely happy at the time. But that was at an inflation rate of around 2%, but this goes back many years. And if I recall well, it was standard at the time. But in recent years at 0 interest rates, this certainly is the highest value that we have seen in the past 5 to 6 years.

[Andreas von Arx, analyst]

Second question on Jelmoli, Chart 31. The CHF 30 million of rental income and the CHF 100 million CapEx, where is the rental income before the project?

[Marcel Kucher, executive]

Well, today, it's about CHF 26.5 million before the project and the CHF 30 million is a guarded assumption. It will be between CHF 30 million and CHF 33% million. That's the assumption we're making for rental income in the converted -- from the converted building.

[Andreas von Arx, analyst]

I have a question on Asset Management. The interest rate setting has changed, but not only the 2 largest competitors have emerged as well. Now how do you view the market given that UBS and Credit Suisse are going to appear in the market as one unit? And will there perhaps be possibilities? I'm thinking of lower cost structure to significantly gain market share. Looking at the market, all suppliers have more or less the same fee structure and with very large funds, competitors with the same size of Swiss Prime side, about CHF 80 million management fees per annum. Cost Swiss Prime Site are about half of that. So wouldn't there be a possibility for a more aggressive cost structure to gain significant market share in this changing setting?

[René Zahnd, executive]

Well, Anastasius?

[Anastasius Tschopp, executive]

Well, as far as UBS and Credit Suisse is concerned, I cannot tell you what UBS is going to do in terms of strategy. There will certainly be opportunities for us, whether this year or next, we're going to see. It will also be a question of the counterparty risk. How much of pension fund money are with asset and Asset Management? We're seeing potential on our side. And as far as the costs are concerned, the cost of our products is always important to have the right costs compared to return. And we said we want to offer products with a clear cost structure, products that are pure. We are a pure player of doing real estate only.So we're feeling comfortable with our cost and we believe that we can continue to grow on that basis. So I do think that the large players in the industry, the non-independent asset managers will perhaps have to reinvent themselves.

[René Zahnd, executive]

Well, thank you for your question, Mr. Von Ark, very pertinent one. What can I add in terms of answer? Well, of course, you can gain clients on the basis of cost. That's one possibility. The other possibility is that we appear as a real estate platform and have all the skills in-house especially in terms of sustainability and we're seeing that investors are looking into the track record of Swiss Prime Site real estate company and convert that on a one-to-one basis to solutions. So that's going to be one of our key aspects when it comes to gaining customers or convincing customers to invest with us rather than a peer.

[Andreas von Arx, analyst]

Final question on your strategic setup. If I understand correctly, one big difference between the 2 big real estate companies is that with Swiss Prime Site, development, the development share is higher. Developments offer opportunities and risks at the same time. Would you agree that if investors bear the risks of developing that they ought to be rewarded by a higher return on equity or a higher return on invested capital compared to your competitors?

[René Zahnd, executive]

Would you like to take that?

[René Zahnd, executive]

Well, historically speaking, I do see the idea of risk you're talking about, but I would suggest that we are tightly managing those risks. And by the pre-letting ratio that we have or given that we are working with general contractors and working with prime locations, developments in Zurich, Geneva, Berne, Basel, I think this means that the theoretical risk is being -- is minimized or almost eliminated. Given COVID-19 pandemic and looking at the figure in recent years, we've had hardly any cost increases in our development projects and pre-letting statuses are very high.So the crucial thing is that we can develop for a return of 4% to 5% and we are not seeing any projects in the markets that are coming close to these figures in the locations that we have and certainly not with new buildings in prime locations and with prime buildings. And as long as this is the case, where we have 0.5% or 1% or 1.5% of higher returns, it would make sense also for investors. It would be value-adding.Well, let me add the difference between us and the largest competitor effectively is the development pipeline plus Asset Management. There are 2 differences really. And about development, it's important for us and it's been a criterion of Moody's that committed funds, committed funds, I would like to emphasize, committed funds for developments that are under construction ought not to be too large. And that's how the risk is measured on all the other plants that we have are riskless. We are benefiting from the value, the increase in value of land. At the moment, we are putting it into practice. We have 6 projects being put in practice at the moment. That's when the question is relevant. And the answer that Marcel has given is correct and our countermeasures to mitigate the risks.

[Andreas von Arx, analyst]

Well, but I do think that given the appealing developments, higher FFO all to be achieved by comparison, but that will be offset by more capital invested. If you look not only at cash generation, but also as returns, then would Swiss Prime Site be ready to say, well, we will do better in terms of return as well? Or are you simply saying we can generate better FFO? That was really the point I was making.

[René Zahnd, executive]

Well, we're actually buying independence, independence from the existing market through the development business. I keep saying that. We are our own developers, we can generate the volume ourselves with 5% on cost and that's the interesting point about it.Absolutely. If you compare, then you would really have to compare everything properly. Other companies have various types of businesses that all generate return and all come with their risks. I think what we do is closer to our core business and allows us to come up with continuous growth at appealing returns and independent from transaction markets.

[Unknown Executive]

Okay. Any -- yes, please. More questions here in the auditorium. No, online. [ Mr. Rotter ] online.

[Unknown Analyst]

A lot of questions have been put already. I'll ask my first question regarding Globus. Globus is one of the largest tenants of yours. And you read a lot about the Sigma group in Austria that owns part of Globus in Switzerland. Can you tell me what the average volt is, the average lease terms of Sigma and Central? And why you're not worried about any potential change?

[Unknown Executive]

Well, good question, [ Serge ]. Let me take that. The contracts with Globus will expire at the end of '26 at the first fixed term and there are options for renewals of 5 years each. We have assurances that all options will be used in our locations. These are Geneva, Lucerne, and [ Lozam ], that's point number one. Second point I would like to make is a lot to do with Mr. Benko. If you talk about the Sigma Group, please be aware that Globus' operating business is under the rein of Central Group. It's not Mr. Benko's structure that is in charge of it.Well, they are in charge of real estate, but we are the real estate, the property owner, so we don't really need this part of the structure, but we need the operating business that is going to manage Globus and Savastano in Switzerland, but actually Central Group.

[Unknown Analyst]

Okay. Great. Very helpful. Second question I have refers to Asset Management. In your CHF 10 billion and CHF 50 million EBIT goals, have you defined quotes for recurring and nonrecurring?

[René Zahnd, executive]

Anastasius?

[Anastasius Tschopp, executive]

Well, I lived the shares, as you are mentioning. Well, the idea is to have 2/3 of recurring fees in the long run, but in a single business year. It may be that we have a lot of issues and transactions, which would press down recurring fees. But as a matter of fact, it's about absolute figures. The absolute figure is to move upward at the end of the day and be the foundation for our business plan.

[René Zahnd, executive]

Well, Serge, the goal is actually, it's good for this year to have been a rather difficult one because it proves that the structure is mature enough. It's independent of transactions. And a lot of others are dependent on transactions at the end of the day. But this structure is self-funding through recurring fees and that will remain the same. In the future, we are at 80% currently and you said it, it has to be 2/3 in the long run.

[Unknown Analyst]

Well, you have CHF 9 million, 80% of CHF 11.3 million, CHF 8.2 million. So you still have a long way to go, I would say. And what I'm worried about is that with the issuance volume, you have to get up to CHF 15 million. You have to fill the delta, but it always takes time. There's always a lag. There is going to be an interest rate rise in September. So '24 will be difficult. And then you'll be already in 2025. Aren't you seeing a danger there that it could be a close call at the end of the day?

[René Zahnd, executive]

Well, if we have a crystal ball, I would be using it today, but the point is what we need to do is, well, to be sure to be close enough to the market to use opportunities quickly when the market relaxes. And we are prepared. We've got the structure. We are lean enough. We are streamlined enough and that is why we're absolutely convinced to meet the midterm requirements.

[Unknown Executive]

So Rolf has a very, very last question. Everyone's hungry. Okay.

[Unknown Analyst]

I just wanted to refer to the development on the sales. That's about almost CHF 400 million. But you have CHF 1 billion under construction until 2025. So if you are going to develop all of them, are you going to sell more buildings? How are you going to finance them?

[René Zahnd, executive]

Well, at the moment, we still have in our properties. And of course, you could say that we could spend the cash from the Wincasa sale for financing. So that's another option of financing. And this contributed to selling less this year than we originally planned because we thought we might as well postpone those sales. So that's also a kind of capital recycling, whether it goes into financing or into development is irrelevant at the end of the day.

[Unknown Analyst]

So are you going to increase debt? Or are you going to continue selling in order to finance the development pipeline?

[René Zahnd, executive]

Well, in the long term -- well, we are the ones who set the pace. And if I didn't have anything left to sell very, very theoretically, if I didn't have anything left to sale, I would have a much higher top line because we now have a lot of developments in the portfolio. And then since we set the pace, it wouldn't be CHF 250 million, but less per year that needed financing. So it's all under our control.Karin, would you like to add something?

[Karin Voigt, executive]

Well, I want to answer [ Ken's ] question, 155 properties now at 41. The smaller are CHF 3 million. And at the end of the year, we're going to have 5 properties fewer in that particular quadrant.

[René Zahnd, executive]

So okay, let's leave it at that. Thank you very much for your interest. And if you have time to join us for the [indiscernible], we would be delighted. I hope you came for that as well, not just for our figures. And so I look forward to chatting to you there. Thank you.[Statements in English on this transcript were spoken by an interpreter present on the live call.]