PSP Swiss Property AG

Ladies and gentlemen, welcome to the PSP Swiss Property Financial Year 2025 results conference call. I am Moira, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Giacomo Balzarini, CEO of PSP Swiss Property. Please go ahead, sir.

Thank you, Maria, and good morning to everybody, to our release of the annual results of 2025. As every year, I will have a quick rundown through the major highlights of the year, and then I will open for the Q&A in order to have enough time to address the questions. As stated already at the press release, clearly we are happy and pleased to report an excellent year-end result for 2025, which is predominantly backed by very good business sentiments in our major markets of Zurich and Geneva, which reflects roughly 80% of our portfolio. We have seen major re-lettings within our portfolio, and we are very positive on the letting market in general in those areas, specifically in the city areas. There's a clear bifurcation between city center and surrounding and secondary locations. That's a trend we have seen now since a couple of years. Second point, we are confronted with a huge amount of liquidity which needs to be invested in the real estate, first and foremost residential, but then also prime office, and that has also driven the valuations last year backed by the letting successes. If we go into the headline results, and we start with slide 9, We see that the operating income went up by 9.4%, clearly driven by the new changes in fair value, which you will address separately. The rental income was flat, also driven by the fact that we had disposals last year, which has reduced the top line. On the other hand, we had positive contributions by the finish of the projects in Basel, in Zurich, and acquisition in Geneva. We had one slight gain from a disposal of an investment property in Bern, Gurten, which ends basically the development site we owned in Bern and contributed 7.7 million gain. We have no gains out of disposal from inventories, and we have seen no acquisitions during the year. I will come later to that point. On the expense side, you see an overall reduction of the operating expenses by further 1.2%. The biggest contributor was the property tax refund we had in Geneva last year, which reduced the operating expenses by 12.8%. For the ongoing year, you will see a bit of a rebalancing of that line and back to the roughly 11 million. Beside that, we have and demonstrate continuously high-cost discipline, and we turned in this year with an EBITDA margin slightly above 85%. Financial expenses on slide 11 have leveled out roughly at 35 million. This is the run rate we should see also. on 26, considering today's interest rate environment, and the taxes of 95.5 million were separated, 31 million in current taxes, and 65 million deferred taxes, where of 50 were linked to the valuation gains. With that, the board proposes, again, an increase in the dividend of 5 cents, 395, you see that on slide 12. which results in a payout ratio of 80%. If you go into the portfolio on slides 15 and 16, you see that the vacancy rate came in as expected to 3.5%. We had a higher vacancy report in Q3. If you remember that, I think this can always happen depending on the expiry profile, but we were pretty convinced that we get to this 3.5%. If you look on the details, slide 16, we see letting successes in beans, the Grubenstrasse, which with the current lettings, is led by almost 80 percent, and we are confident that we will leave out the remaining spaces over the next couple of months. And the second big letting success is where we are today at the letting of almost 85 percent that have advanced negotiations of the remaining small retail space and one office floor. On the lease expiries on slide 17, the major highlight is that for this year, we are almost done. We are left with 16% of lease expiries. That helped us to give also guidance of 3.5% vacancy rate for 26, and the major highlight for 27, Always the big question on the release renewal on Google. Google made a public statement beginning of the year that they will concentrate on two sites in Zurich. One is the Europale, and secondly is the Hügelmann site. And in this end, we are now in the paperwork. And finally, the lease expiry is still within the numbers of 2017. If you go to the valuation gains and overall portfolio appreciation, 425 was roughly 2.9% if we include investments. The valuation gains per se was 231 million. The one part, 13.7, was in Q1. We added the value of another 97 in the half year. And for the fourth quarter, another $118.5 million. Besides the compression overall of two basis points, one of the key drivers on the Q4 valuation gain was the letting of two high street retail contracts at the rent of above 25% plus to the in-place rent. and this triggered a revelation gain in Q4. It didn't make up the full amount, but clearly it was a significant contributor, and that is observed over the last two, three years. The high-speed retail, especially in Zurich, at the right location, is sought after, and there is quite a lineup of tenants looking for those spaces. If you go into the capital structure, I will not go into the detail of the green finance policy authorities at our hearts. All the funds coming from the bonds, coming from the credits, and coming from the private placement are linked to our ambition to reduce emissions. Overall, on the debt, we have still roughly one billion of committed unused credit lines. But this is on slide 23. For us, the highlight is really that the loan-to-value came further down to 33.1% today, clearly backed by, on the one hand, the valuation gains into portfolio predominantly. Today, we fund at roughly 80, 90 basis points. We're on a four, five year, so I think the funding environment for us continues to be very interesting. Some highlights on the development. If you look on 25, we are finishing . We are there with a level of 50%. We have leased out the retail space. Roughly six of these leases all at rent between 450 and 490 Swiss francs. And we have a reasonable good leasing level that we expect that we could lease off the whole building within the next six to 12 months. The overall carte de banque develops very well. If you look at the detail, for instance, on the number five, the carte de bise, is almost fully let. We are left with one floor. As you know, we have let also the private bank on slide 27, the full building of Banque Henriette. And on slide 28, we have received the building permission for Jean Petito 15, and they are in negotiation with the bank. On 12, we are still waiting the building permissions. I will address the at the end. On slide 29, I would like to first highlight the progress of . Slide 30, we got the building permission. We have identified an operator. We are signing contracts with that operator, and we are positive that we will soon be able to open a hotel in by end 28. To further project in Bern, Eigerstrasse slide 31. Here we are planning service departments. We are in the phase of submitting the building permissions. in Geneva, we will start this year in summer the reconversion in the hotel where we have fully signed lease agreement. And on slide 33 and 34, we are starting the works in Marktplatz in Baden, a very central building location. The rendering is not really providing the full beauty of that building, but it's on the central marketplace of Baden. And Lillebachstraße is a very small project, but it's on the Stadthofen, where you will hear more over the next couple of years on what we plan to do on that site. A quick update and I think this will be then also part of the Q&A. We are in final negotiations on two transactions which would include the disposal of the RISD part and the acquisition of a very central located asset. We have signed head and terms and are in a final due diligence with the two parties So this is something, if everything goes well, should be expected within the next six months. However, this is quite a complex transaction, so we will have to continue to work on it. This leads me to the end and to the guidance for 26. We guide for an increased EBITDA of $310 million for 2026. and a guidance on the vacancy rate of roughly 3.5%. That would end my outlines, and I would like to hand over for the questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Anyone who has a question may press star and one at this time. The first question comes from the line of Stephen Boumans from ABN AMBRO of the OBHS. Please go ahead.

Hi, good morning. Thank you for taking my questions, of course. I've got some questions on the investment markets. So could you please update on the general investment markets for how much deals are in the market versus six months ago? Second, you mentioned the one acquisition. Can you provide a bit of idea on the size? And also, if there is possibility, are you looking at more than that only deal? And the third one, what is the probability that you would accept equity markets to fund external growth in 26?

On the first question, the number of deals, We see more liquidity in the market. We have seen a huge amount of raisings through the funds. On our spectrum, on the really prime, there are a few transactions we are observing, but as always, on that level of quality, there's not a huge amount of transactions available. I think this will clearly support, in my view, the yields. and probably even put a bit pressure on the yields, but the number of transactions have not materially changed. I hope you understand I cannot give you insights on the transaction related to Valizelan we are pursuing. I think it is a highly delicate operation at the moment. I think by the rest, we are looking at acquisitions. We would only tap the equity market if we see a substantial large portfolio which is accreted day one, and only then. And considering that, I would exclude it for the moment.

Okay. That is very clear. Then if I may, one last question on artificial intelligence. Could you provide me any updates on the perceived risks there? For example, has there been any tenant stating that they want to downsize due to death? Just any color would be helpful.

Thank you. I think it's a quite broad topic, which is a topic which we follow very intensively, probably all the market participants. In a nutshell, we see optimizations within our organization, and by seeing that clearly, we see that also with other corporates. What we observe, and I think it is especially true a bit for the major cities in Geneva, that the impact of this optimization within the organization will need more of freeing up space in larger plots and larger office spaces outside of the city centers. In the city centers, the buildings are typically of a smaller size. The companies which are there they're trying really to have their key people there. So I think from the first wave, if we see optimizations with the tenants, which we currently are not seeing on a big scale, leaving space, this would be absorbed rather quicker in the city centers than outside. But without any question, there will be an optimization of space. I think our tactic over the last years has been to provide grade A space in very central locations, and within that, we see that there's a continuous demand for it. But it's clearly something we continue to observe, and therefore, that's also a very important reason we are very conservative in acquiring buildings which are not centrally located, which have large floor plots, and which are then perhaps a bit more exposed to optimizations of payments.

Very clear. Thank you so much. Thank you.

The next question comes from the line of Ken Kager from ZKB. Please go ahead.

Yes. Good morning, everyone. My first question refers to the relatively low LTV ratio that you carry currently that should give you theoretically the opportunity to do accretive acquisitions. Nevertheless, you've said prices are high. What can we expect from you there, and is there any way that you come back to a growth trajectory for your company?

Well, I think the accretive transaction is, as I say, independent from the loan-to-value. It's just that you have a bit more firepower to do the acquisitions.

That's clear. I meant to do acquisitions as opposed to others out of an increase in the leverage.

Absolutely. I think it's a valid point. However, I think we keep going on with a very strong discipline on the acquisitions. We need, when we buy a building, we need to be able to create value in the medium term by either increasing the rents, by either increasing the floor plates, or by either having a very good visibility that the land value will increase due to the scarcity. The things we have observed the transaction last year have not led to that. I think at the premise, we observed that an investor can also leverage himself, so we will leverage if we really see those are creative transactions. From a pure earnings per share point of view, it's a no-brainer. We have a significant or an interesting yield pickup, but this does not justify just the sake of a transaction. We are convinced, if you look back over the last five years, we bought for more than 600 million. We have not done acquisitions last year. We are monitoring the market, and we are for sure that if there is something interesting for us, we can be ready to do those acquisitions.

Thank you. The next question refers to the integration of credit switching to UBS. Could you give us an update on the threats and opportunities that you see from the consolidation of the office space, predominantly in the Zurich region and Geneva region?

On the Zurich region, I think what we learned from the announcement of Google is that they take over a space which is giving back by UBS in the Europale. What we observe is that UBS and what they publicly say is concentrating their activities around with significant investment, especially in the , which is, I would say, central for us. So, this is a very, very strong commitment of the bank in the central location. How they then plan tactically their three locations, being in Dotsikon, being in Rostedt and being in Wittgenhof, I think that's a question to be addressed to them. The direct impact for us is keeping their concentration positive. Then, as I said before, on AI, also they will optimize their space. But by their commitment to the city center, I fundamentally believe that they attract other companies who want to be close to the bank and to the financial center. From that end, I'm very positive on that combination. With regard to Geneva, I would say it's neglectable in a broad and large scale. It's not comparable to what we observe in Chile.

Thank you. And maybe two quick ones. One on the Löwenbrei. Could you tell us if it's accretive on the yield post-investment, the new use compared to the previous use, or what would be the impact there?

We are signing quite a long lease with a very good tenant in a residential type, although it's a hotel or similar to a hotel concept. So I would expect, say, most likely reduced yields. However, for us, it's an attractive rental contract which provides higher rents than in-place rents we would have. So I think from that end, the predominantly reason for entering that is to increase cash flow yield. But I think the it's a de-risking of that asset in that location.

Thank you. And the last one on Globus and Bellevue. I mean, we hear that Globus is not very happy with the performance of this location. Are you in discussions with them? What is the situation there? Thank you.

To put it in perspective, without offending, it's a very small contract in the overall piece. We are in discussions with all our tenants, but here we have a rental contract and I think there's not much to discuss on the rental contract and to discuss today on this. Thank you. Thank you.

The next question comes from the line of John Wong from Van Lanshot Kenton. Please go ahead.

Hi, good morning. Thanks for taking the questions. So, if I understand it correctly, in Q4 there was another deferred tax release. Do you see more of such effects in 2026 and 2027? And should it be considered a recurring item looking at how it also happened in 24?

Well, the deferred tax release you were referring goes back to a system change we have disclosed in 22, 23, which will take from that point on 20th. So today, I think we are in year three. So for the next 17 years, you can probably plug in a size of 10 million deferred tax release. It was a 14 million, 10 million last year, 14 million this year. So I think that's something we can plug in and which we have in length, I think it's closed in 2023.

Okay, that's clear. Looking at the funds that are being raised in the market, do you see these as competitors to the type of investments that you are looking at, or does this open opportunities for you to recycle some capital?

The funds which are raised are only in very limited way probably competing with us. These are funds which will be deployed either on the regular on secondary commercial, if it's a very stable prime-prime, but for the value-add, which we look at, we observe that those institutional players, and we have seen that in the past, are not really looking to potentially buy vacancy, repositioning a prime asset, touching a historically protected building. So I would say clearly these are funds in the market, But for the respective transactions we have done in the past, I don't see them so competing. But clearly they will have to deploy those funds, and this will probably drive yields a bit further down.

Okay, that's clear. Thank you.

The next question comes from the line of Tommaso Perpo from UBS. Please go ahead.

Yes. Good morning. Thanks for taking the question. One question on guidance. So I guess RISD Park is not included in the guidance, right? And so if that's correct, where does this additional $10 million of EBITDA come from? Is that really mostly from hotel deposit being finalized, or does this also take into account the selling of Aura, which has already happened this year, or where does it come from? Thanks.

Thanks, Omar. It's a very good question. I can confirm that volume is not part of the guidance. Secondly, these additional 10 million, 10.15 million you were mentioning are coming from development phase we are working since we said over the last year of repositioning office buildings which we believe are not anymore office buildings for the future in condominiums. We have reclassified those. We are in process of evaluating and conducting a disposal and we have factored a potential gain into the EBITDA guidance in the amount plus minus you mentioned. But I can confirm again that one of them is not part of that equation.

Very clear. Thanks a lot. And then the additional question, one on the payout ratio or the dividend, I mean, you know, Combining the relatively low payout ratio and low LTV, is there any chance that, you know, sooner rather than later, you will start raising the dividend by 10 instead of 5 cents?

Normally, a payout rate goes from 0 to 100%, and we are at 80. So calling this relatively low, I would say I think it's a fair payout ratio. As we said, we want to give a continuity. We want to give a predictability. Clearly, there is room theoretically for a stronger increase, but we prefer to first work on the cash flows and the earnings and then subsequently in case further increase the dividends. If you look historically, our payout ratio was always around 80, 85, 90. That's correct. But I think this is a fair development. On the loan-to-value, I'd like to add, and without giving any signals of being bearish, but we are really operating in a very low-interest environment. The sensitivity is not neglectable. So we are very happy. with a loan to value of 33. It gives us all the flexibility, but it gives us also all the protection. Because we have to be aware that if there is a change on the rates, which we wouldn't expect, it has not only an impact on the leverage, but it has then also an impact on the funding levels. And I think here we are pretty safe to be able to continue to fund on those spreads We are currently funding because we are quite of a leeway on the loan-to-value. Being on the funding, being and also doing opportunistic acquisitions, but we wouldn't leverage now on this strength to increase the dividends by another 5, 10%. So we are focused on earnings quality, on cash flow generation, and the continuous improvement of the payouts.

Mr. Frank, and then last question on the Gurton property you sold. I mean, it was a relatively small transaction, but the gain was quite significant. So where does that big gain come from? Was that book value there just so conservatively estimated?

We have seen that also when we did the last disposal in Reinfeldt and when we did the last disposals on Lugano. When you do clearly the last sale, typically the book value is what is the book value, but you clean up really then the site. And I think that's a bit then the last risk protection you have on those sites, which goes in, you leave all your costs. It's the game you realize, but clearly it was a large project over many years, and the book value is then also always very, very difficult to estimate by the value of what is left there. And then it's a bit of, probably at the edge, also a bit of relief of reserves, because it's difficult to estimate if it's $7 million or $6 million. Clearly it depends also on the buyer, and for the buyer this was key, as a key asset, and this results then in this gain of 7.7 million. But I wouldn't now do a read across of conservatism in those book values. But this is typical on those sites you have for 20 years. At the end, you clean it up, and if you find somebody really wants this plot, then you have this scale which materializes.

So thanks.

Any further questions, please press star N1. The next question comes from the line of Eleanor from Barclays. Please go ahead.

Good morning. Thank you for the presentation. I have a couple of questions. So firstly, can you give us any help in where you expect your upper earnings to share over the year? Would it be fact-fishing in a similar year on the growth rate maybe?

Well, if you look on our earnings per share, and if you take the April earnings per share and I take out this disposal gain I mentioned, we would see a slight uptick on the earnings per share. We see a flat development on the top line. As mentioned beforehand, we expect a disposal gain. But if you take that one out, We see a slight increase of the .

Okay, thank you. And then you mentioned some very strong on high-truth retail. How does that compare to ?

I hardly hear you. Can you try to ask again?

Oh, yeah, . You mentioned strongly on high-truth retail. How does that compare to offices?

Well, I think in a magnitude, it has been never comparable because these are completely two different worlds. The high-speed retail, it's a handful, you can say basically two handful of buildings, and if you dare have at the moment an expiry or a new tenant coming in, you have the strong demand. However, also in the prime office in Zurich, And in Geneva, we are letting at-market, we are sometimes letting above-market. If you look, for instance, at PINs, the overall rent we get is higher than the underwriting we have seen. So I think generally we have a solid development, but it's predominantly there where you do investment in prime office, reposition the asset, where you can then increase the rents. We have seen, by the way, last year, a mathematical a like-for-like of 1.3%. If we take out this, if we recall in 2024, we have to look twice the turnover, and if you take out that one-off, we have a like-for-like of 2%, coming from indexation 1%, rent 40 bps, and another reduction of the vacancy of 40 bps. And we expect also for this year a like-for-like of roughly 1.5%, which is not including this high-street retail because it was an option in one year. So, we will see that in 2027.

Very helpful.

Thank you. The next question comes from Matteo Lindauer from Funtubo. Please go ahead.

Yes, good morning, everyone. Thank you for taking my question. One question on the letting activity of the high street retail segment. Could you tell us the price per square meter you have renewed for? And the second one is on the sixth office building in Zürich West. Did you have a look at it? Of course, Swiss Primes have acquired it, but did you have a look at it?

On the first question, you know, this high street retail, it's always a blend of underground, ground floor, first floor, and I can just say at the moment that we significantly increased the rent, as mentioned, above 25%. We typically disclose also per square meter from the market, from the value in the annual report, but this will be in 26. We have a certain confidentiality until the PEM really moved in, so from that end, I will keep it at that level and not disclose per square meter range. With regards to the assets you mentioned, it's clear we look at every asset. We have our reason why we are perhaps not the best bidder. As I mentioned at the beginning, for those assets in general we observed last year, either we have seen no positive reversary or even negative reversary or we have seen capex which need to be invested to either fill the building or put the building back into multi-tenant solution and thirdly we are very much looking on what could be the land appreciation going forward and that's the reason why we probably didn't want to buy this asset.

Okay, many thanks

Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Giacomo Balzarini for any closing remarks.

Yes, I'd like to thank all the participants. I wish you a great day, and clearly we will talk soon on a separate note. Thank you. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coral School, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.