Ladies and gentlemen, welcome to the PSP Swiss Property Half Year Results 2022 conference call. I am Sandra, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The short presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. 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. Yes, good morning to everybody, and thank you very much for attending this conference call. As always, I will just a quick intro, and then I will give back to you for Q&A. I apologize that we do this for some in the middle of the summer holiday season, but that's with our reporting calendar. We report today our half year results. We are very pleased with the results per se. Even more, we are pleased with the market environment, which allowed us really to have basically all lights on green. On the letting side, on the transactional side, on the market side, we are, I think, I believe what I can see in a very good situation. We have confirmed our latest vacancy guidance for the year-end at below 4%. We come in with a 3.7%, and we are also positive for the reletting of the expiry profile of next year based on today's perspective. We were able to improve our EBITDA guidance, also only marginally. We improved it to CHF 90 million for the full year, based on slightly better sales achievements in Lugano, Paradiso, which will lead us probably to a record operating result for the full year, compared to the historical results. I think to be mentioned is also the valuation gain, also differentiated per assets, but based on still solid and healthy transaction market on the prime locations, but also due to letting successes on the development side. I think this is good to see that we are really also able to let the surfaces we have developed, we have planned. In some cases, like the project in Zürich on the opera side or the Globus am Bellevue or Limmatquai, even before we vacated the building and even before we started to build the new building, we have basically a full letting situation. I think this is a strong signal for the asset, but also strong signal for the micro location of the building, despite clearly the general economic challenges we are faced and also the capital market challenges. Overall, PSP is in a very solid position. Also with regard to the organization, we are very positive for the coming quarters to come. From that side, as always, I'd like to give back to you. I think, it's most important to have your questions answered and then go through that point. I appreciate. Thank you. We will now begin the Q&A session. Anyone who wishes to ask a question or make a comment may press star and one at this time. The first question comes from Pascal Furger from Vontobel. Please go ahead. Good morning. Thank you for taking my questions. Three, if I may. First one, on revaluation gains. It was more than 1% of your portfolio. You already mentioned some comments, but could you please give us also some more flavor, probably by region or by property use? A second question linked to that. Of your revaluation gains, like 25% were driven by own development. Going forward, what is your best guess? What can we assume for contribution from your own development on average per year or for instance, in relation to the total investment? It would be just interesting to hear your assumptions here as a tailwind from discount rates is probably about to stop very soon. Then just, you mentioned the transaction market. Could you give us here some more flavor maybe on probably monthly development. I'm not sure whether the summer was in general more quiet, but just to get some more flavors on that side. Thank you so much. Thank you, Pascal, for those questions. I think with regard to the revaluation gains, if I take the top 10 positive ones, I would say eight out of 10 are coming out of Zürich CBD. One additional is the Hôtel de Banque in Geneva, which is backed by relettings of the suites above the underwriting rent, and together with that, still also a slight yield compression. The third one is in Basel. I think this is clearly driven by CBD locations. If you look on the negative side, because you have always positive contributions, but clearly in the portfolio also negative contributions. The negative ones are a little bit these assets a bit more on the periphery. I would say not based on the underlying developments on the letting side, but probably by the value anticipating perhaps a little bit more difficulties on the lettings, so going down with market rents or going slightly up with discount rates. Also, on the negative side, we had much less of an impact size-wise than the positive contributor. Here it's obvious it's a Globus am Bellevue, it's Bahnhofplatz, it's Bahnhofstrasse, it's Hôtel de Banque, it's also Limmatquai, based on those relettings. Sorry, you asked regions and uses. As you know, in the CBD, buildings, we have often mixed-use retail and office. Now, if you take Theaterstrasse 12, we have relet the retail space, and we have relet the office space. I think it's the both combinations which come in. We still see a very healthy and good prime retail market. We had our board meeting in Geneva and discussing also with the local brokers, also the high street jewelry, watch shops in Geneva are doing very well. This prime retail is still, as far as we can see at the moment, still quite healthy and clearly contributes then to this, valuation or stability of the valuation. I think on the forward-looking on development contribution, if I may, we never made forward guidance on valuations. I think what I can say is that, clearly, as we progress and we have letting successes, there will be a contribution. As you know, we have a rather smaller part on development, so I would also expect that the general contribution out of those development projects will be on the smaller side. There are a variety of factors which come in, clearly letting success, letting above the underwrite or the expectations, but then you never know how the market develops, what happens on the discount rates. I would leave this really to the valuer, and I think it's not so material that this has then the significant impact on our balance sheet. On the transaction market, I think my statements are, primary and foremost backed by discussions, with the valuer, which, in those regions where we are active, still sees a healthy transaction market. No evidence of, you know, clearly, less attractiveness. Obviously, during the summer period, there's a bit less liquidity. It's always a momentum analysis. I think that's predominantly backed by a valuer statement, and he makes also up and comes up with his assessment on the values. I think that from I derive my statement. Okay. Thank you. Thank you. The next question comes from Ken Kagerer from ZKB, please. Go ahead. Yes, good morning, everyone. First question relates to page 16, where you show the expiry profile of leases. Obviously, there's a bit of a peak coming in 2023. Could you just tell us where you stand with these 17% that are up for renewal? That's the first one. Well, if you look, for instance, on the 2023, the biggest one is a retailer which has an option to terminate the contract, which we are very confident that he will not terminate that contract. This is- Does it make? I will not tell you, and I cannot tell you how much it is, but it's a significant contribution of the letting of the reletting of it. It's, I would say, in general, you can say it's four times higher than the second-largest. Okay. Besides that, I think we are on all the others working. Some we know that they will leave, and we are already in discussion with potential new tenants. On others, we know that they stay. I think here in general, we don't have other very peak ones where you say, "Okay, you need, you know, a significant longer time." I think that's always a bit the challenge on the reletting. You have always some which expire, which we not renew. But as long as they are smaller or the reasonable size, you have one year, you have time. Perhaps it takes a bit longer, but you have time. Clearly, if it's a larger chunk, then often with the build-out and the reposition, it takes a bit longer time. Here I would say the largest one is taken care, and the others are really staggered around the portfolio, and I'm not so worried about this. Okay. You don't wanna do that usually, and I'm sure you will not this time, but I still ask. Can you give us already some insight where you believe the vacancy rate should tend towards 2023? It's always, you know, with this expiry, it's always difficult, especially because we are so accurate. I don't really expect negative surprises on the expiries. If you don't mind, you know, we are 1.5 years ahead. Yeah. The WALT, I mean, it's relatively short, and I know why. I mean, there's a tendency towards shorter term contracts. Do you think it will get longer term again from the 4.2 years, or do you think we will hover around four years now going forward? Well, the contracts are typically five-year contracts. Yeah. You have in certain cases 10-year contracts, and then in some cases you have the early breaks, and this brings the WALT down. I think what has to be seen when we give early breaks, we have quite significant penalties in these early breaks. The early breaks are often asked just to have flexibility in emergency case or new settings, but not because they believe they want to go out. From that end, I think honestly, this is the world we have to expect. If we would have a longer one, it's because we have larger, longer leases. That means that we have larger single tenants. That speaks again against diversity. We want those to have quite a diversified tenant base. Clearly, if we sign now, I say Gartenstrasse for 10 years, doesn't have a big impact really on that specific asset. If we have a tenant which makes an impact on the WALT, then it's also a significant tenant, and then you have more of a concentration risk. We are pretty happy with this 4.9 as well. Second question. On the debt side, I mean, the average fixed interest periods are now 4.5 years. It's coming down all the time. Obviously, you can refinance very attractively on the short end. Do you have a midterm target where you wanna end up with that? Could you also indicate where the interest rate could go, the average interest rate? Yeah. I think here, if you take a bit of a longer perspective on PSP, we are on record long durations because we originally and historically were more in the two years to three years and less in the four years to five years. I think what we did over the years 2020, 2021, we tried really to go long term because we were in a negative environment. One has to see that every hedge expires. I think also if you have a six- or seven-year duration, I think one can be safe in the short term, but there comes the moment where this expires. When we look at our maturity profile, we factor in, on the one hand, the overall loan-to-value, which is reasonably low to say, "Okay, we can be a bit on the short end." Secondly, we factor in the quality of the earnings, where we believe that we have good and thanks to the position of the assets and the solidity of the tenants, and now also thanks to the low vacancy rate, solid top line, which can afford a little bit of more interest rate, because I think this is the typical business and the cyclicality. It's not we have a short amount of short-term debt. We have the next larger expiry in September next year. I would expect, and I think we are comfortable with a little bit the shorter duration backed by the fact that clearly rates might rise also a bit, but they will not stay high forever. With the balance sheet and the quality of earnings, as we did in the last cycle, we believe we can go a bit shorter. Now, giving you a number is difficult because often it's driven by opportunities on the debt market. I would tend to say we will go a bit shorter on duration, and we feel comfortable with it. Okay. Third question. Changes in fair value. I mean, I would like to come back to that as well. I mean, you explained pretty well the change in the development portfolio of the CHF 22.3 million. That was due to lettings successes. However, on the investment portfolio, the roughly CHF 100 million, the CHF 97.7 million, is that only due to the yield compression, which was, if I calculated it correctly, three basis points? Or did there also happen some positive changes in the DCF assumptions by the valuers? Well, first of all, thanks for the question. If you take Q1, we had a very strong letting success in Gartenstrasse, which was a letting. We had letting success in the retail side on Bahnhofstrasse. We had letting success on Bleicherweg. Also, on the in-place portfolio, we had letting successes, which then clearly give confidence, you know, a bit of comfort on the discount rate. With a stable vacancy rate, there's not much which comes out of the reletting. It's clearly driven by the overall three basis points yield compression. Okay. Clearly here and there was materiality on relettings, which came through. Okay. Maybe a very short last one, if I may, on Lugano, Paradiso. I mean, obviously, you were very successful there now. What is still open? I think you were in discussion with some retail spaces with Q1. What is the benefit we can expect for the second half of the final, hopefully, closure of this project? Well, overall, we have 24 units open from the 140 we had. We have seven reservations. We have 4 not really agreed contracts, and then we have 13 which are still open. One part is this commercial activity. Although, please keep in mind, this is a very small area, and for us, really a question of more or less gain. I think there will be a contribution also by year-end, but most of them, I would expect comes then in the next year, and then next year, I would expect that the project is closed. Excellent. Thank you very much. Thank you. The next question comes from Andreas von Arx from Baader Helvea. Please go ahead. Yeah. Good morning, everyone. I also have several ones. The first one is on the vacancy rate for 2022. I mean, you're at 3.7%, and your guidance is for lower than 4%. If I look at page 15 of the presentation, you have a lot of expected lettings in the second half. I mean, if I add that together, I mean, that should be like at least a 0.5% impact positively on the vacancy rate. Is there basically significant tenants that are leaving in the second half of the year? Or, I mean, is there any reason why the vacancy rate should go up from 3.7%, or should it not actually rather go more towards 3%? That's the first question. Well, we have in Q4 2 contracts which will not be renewed, which we already know, which will bring up slightly the vacancy. You will see probably in Q3 an even lower vacancy because those relettings come in. Net, we will be probably at 3.7% ±. That is enough to be below 4%. I think this is, we have in Q4 some expiries, which we are very confident that we can relet next year because we are in discussion. Then you have a bringing back of the surface. Until you can relet, you have this phase over the year-end. This is, I would say, the biggest part. I'm just going through the list, but this is predominantly two expiries in Q4, which will bring the vacancy rate back up, which will come down in Q3, by a few basis points, and this comes back then. We are on a materiality level, which based on a few thousand lease agreements and on a CHF 10 billion portfolio, I think is normal. Okay. Second question on potential portfolio changes. I mean, you know, can you give some color whether there would be significant disposals in the second half, or is it just the usual fine-tuning? Is it now the time to use the still supportive transactional market to adjust the portfolio? I think this is, I would say my point of view, very important. We have significantly worked on our portfolio over the last years. We are very, very happy with the assets we have. Clearly, there are a few which qualify for fine-tuning, and there are a few which qualify for asset swaps, but without urgency. We don't see in our portfolio assets we need to sell and to take advantage of the market, because at the end, we want to have also size and liquidity, earnings quality, which allows to continue our dividend path. From that end, I wouldn't expect significant changes in the Q3, Q4. Clearly, we are working on a variety of options, but nothing really, I would say, super material. On the outlook for the discount rate. I mean, your external valuer has increased the inflation component of your nominal discount rate. I mean, is it really realistic that you increase the nominal inflation? The inflation component, I guess that's based on long-term view, while actually the real interest rates are not expected to also move up in the future. I mean, isn't it more realistic that actually the real discount rate should then also increase given the new interest rate environment, which should have an adverse impact on your revaluations? Well, I give you my read, but this is the question for Wüest Partner you can address today. My read is that based on the transaction market, he has enough evidence that there's no move on the effective yields. He has adjusted his long-term inflation expectations by 50 basis points. As we have a portfolio which is basically fully indexed, we have the full catch up on the rental income, and so there was no material impact on the valuation per se. I think from a pure technical point. His adjustment of the inflation on the discount rate and on the top line had a negative impact of CHF 2 million on the overall portfolio. This is the technical really material model view. The rest is his view on the market. I think that's also a bit, yeah. With a stable discount rate, I mean, he surely does not reflect the changed interest rate environment given the new policies of the National Bank. Doesn't that mean the second, the transaction market are not as supportive as in the first half, but revaluations will go down? You make two statements. You make one statement on the history and the moment, and one is on the future. I think here is a point he takes and what he sees on the transaction market, and the demand on the market supports the yields we have in the portfolio. What the impact will be going forward is an analysis he will do in Q3, Q4, which will lead to the variations towards the year-end. The move of the interest rate has probably more an effect on the expectation on the yield gap of the investors rather than the overall yield. He observes we have transactional evidence that supports the values of the portfolio. Otherwise, we wouldn't have disclosed it. I think this has to be separated to what the view is going forward. At the moment, if we talk to them, if we see the reports, he supports what he sees in the market. Last question from my side, maybe your view as a long-term real estate expert. I mean, if I look north of Switzerland to Germany, if I'm investing in listed real estate of the largest European real estate company, Vonovia, I can get the value of the assets at a 50% discount if I buy the shares. Whereas in Switzerland, I mean, share prices are more or less on the book value. I mean, is that sustainable in your view? And then which market should correct rather? Thank you very much. Thank you. I think this is really. I think that you had different premium discounts between the Swiss market and other markets. Is it the German now? Was it the U.K. when you had the financial crisis? I think you see it also kind of a reflection in the currency, what the currency did over the last three, four weeks. I think it's a perception on the safety on the earnings, on the visibility on the earnings, on the stability of the market per se, which gives trust that, you know, the company will be able to deliver in future on those earnings. And clearly, if you look on the hype you had on the German residential, there we were lagging behind. There, I didn't get the question. I think it's very difficult to compare, but I would tend to say that's the market and there are a variety of reasons. I remember in the financial crisis where we were trading at 50 CHF and the NAV was at 65 CHF. The U.K. ones, they were trading at 70%-80% discount. There was probably a reason for that as there is a reason for this current bifurcation between German residential and Swiss listed companies. This is a question also of liquidity. It's a question of international capital flows. This is a question of dividend stability. I think there's a variety of points. We feel pretty confident with our earnings quality. We feel very confident with our balance sheet, and with our dividend policy. These all lead probably also into certain kind of evaluation. What then the market will do for us, it's also not so important. I think we need to be confident on the great results and to continue to work on those. Thank you. I pass it back to the queue. Thank you. As a reminder, if you wish to register for a question, please press star and one. The next question comes from Serge Rotzer from Credit Suisse. Please go ahead. Yes. Good morning, gentlemen. Well, basically, you already discussed about my question, but, as you know, Swiss National Bank already announced that they will increase interest rate to 2.5 or 0.5. Can you remind me what is your working assumption, 0.1, and 0.2 is you have you take an inflation rate of 0.5, this is in slide 18. Is this not too low? Thirdly, what kind of impacts do you then expect, you know, on the tenant side? We would expect some failures or as you mentioned in the beginning, that you had also negative impacts on the valuation due to lower rents within some pre-let areas and discount rates were declining. Do you see more of this to come then on the horizon? Yeah, well, if you could give me some more flavor or color on that. Thank you very much, Serge. Just to be clear, we don't take a 0.5% assumption on the valuation. That's done by the valuer. The valuer is an independent body who values our portfolio. At this point in Q1, made the adjustment of 0.5. There were other valuers in Switzerland which didn't do that in Q1. I think this is not done by us. Secondly, on the third question on valuations. On 170 assets in a portfolio, you have always positive and negatives. Model-wise, if you change nothing, the portfolio, generally the assets become older, and there is an embedded devaluation based on the model. I think if you don't do anything, and don't change the discount rate, and you don't change the rental contract, as the asset becomes older, and it's independent if it's a new asset or if it's an old asset, you have an embedded model-driven devaluation. That's in the portfolio. I think from that end, I don't see also something specific on the tenants. We don't have any insights besides the usual ones, which is a little, I don't know, a little restaurant which might have difficulties, but I don't have evidence of anybody in difficulties. Then to your first question, which is probably the most challenging and the most interesting, what is the working assumption? Clearly, we are confronted with a capital market and with a stock market, which thinks very, very short term. I had an employees briefing this morning, and I tried to explain the bridge between our results towards the market, which read into like-for-like, indexation, valuation. The other side of the coin is we have assets, super CBD, in the most important cities of Switzerland, which is one of the most stable countries for the long term. Taking out the working assumption on interest rates implies also that you start to trade a bit. I think we have set up the company to go through cycles. Clearly the assumptions we have taken with this very low loan-to-value is historically driven that rates will move up. If they move up, we should have enough comfort to be able to take action if there are opportunities. That's our working assumption. Otherwise, we would run with a much higher loan-to-value. On the single expiry, as explained beforehand, I believe we can go a bit shorter on the duration because we have the strong balance sheet and the quality earnings. We might go a bit shorter on duration, but not because we have a very strong interest view, but because I believe we can afford without jeopardizing our dividend capability. I think this is, I would say, the base assumption. We have a very, very low view on our assets and on the core portfolio, which is, let's say, 90% of our portfolio is untouchable, in our view, because it's really part of the core. You will have interests which move up and down, and we'll take advantage opportunistically, and clearly financial expenses will go up, and we will pay them. We will try to take more rents as inflation goes up. It's really a, I would say a trying to be on the operational excellence side with a very strong balance sheet and quality-driven portfolio. That was very helpful. Thank you so much. Probably, an add-on here. Do you see any fluctuations, or do you expect higher bad debt going forward then, if interest rates are increasing? I would say on the institutional players in Switzerland, not significantly. There might be, I would say, not public entities, private, where you have those elements. If I look on the known institutional players, I think these are all solid assets, solid funding. Under the current assumptions, one can see going forward, I wouldn't see really a bad debt problem in Switzerland. Okay, cool. Perfect. Thank you. Bon voyage for the second half. Thank you. Mr. Balzarini, so far there are no more questions. Well, thank you very much to everybody attending, and I wish you all the best, and look forward to your bilateral discussions in the coming days. 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.