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Ladies and gentlemen, good morning. Welcome to the PSP Swiss Property Quarterly Results Q1 2018 Conference Call. I'm Mierdo, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand it over to Mr. Giacomo Balzarini, CEO of PSP Swiss Property. Please go ahead, sir.
Thank you, and good morning, to everybody. I might correct, this is a Q&A-only call. So there will be only just a short introduction. As you know, we do a presentation followed by Q&A on the half year and the full year results. On the quarter results, we never had one. We start with the full, and we thought to have a short Q&A, giving analysts, investors opportunity to ask questions, is worthwhile. Just to set the scene before I open for questions, we released our quarterly results this morning. We had a quite successful start in 2018. We're able to confirm our EBITDA guidance and to improve our vacancy guidance for the full year to 3.5% -- 7.5% based on better letting visibility. And we did also important progresses on the letting -- on development pipeline. We had a property news 2 weeks ago with the letting at the Bahnhofplatz 1 to the tenant #18, which is owned by the IVG (sic) [ IWG ] Group. So also that project is well on track. And I think we released a couple of updates also on our disposals, but if it's okay for everybody, I would like to open the line, really, for questions if there are. So I think we can go more efficient through the call. So please, we are ready for your questions.
[Operator Instructions] The first question comes from the line of Ken Kagerer of Zürcher Kantonalbank.
It's Ken from ZKB. I just have a quick question regarding the vacancy. Could you just highlight a bit your successes or advances that you have done with working on those vacancies and maybe give us also a quick update on the maturities in 2018?
Yes. I think that the successes came on the one hand in Wallisellen, where we signed 2 lease agreements, one in Biel, on the Bahnhofplatz 2, a new one then also in Lausanne, we had letting success, and also in Hardturmstrasse in Zürich. So there were a few smaller, mid-sized lettings plus, clearly -- also, then a better visibility on Grosspeter Tower. The forecast is always a mix between letting success and some visibility and probabilities. So I think it is better visibility also on some open and in-negotiation agreements, where we have the feeling that we're ready to close. With regard to 2018 maturities, we are quite well ahead with the mergers we work on and the expiries are factored in, in our new forecast. So we are very confident that we can -- the open ones, which we know, that they are not moving out, that we can prolong them. So that's already factored in, in the forecast. What's not in the forecast is any potential vacancy reduction from disposals. So the vacancy reduction of the guidance is only through letting [ successfuls ] and not through disposals.
That would have been my second question. Where do you stand with potential disposals, and what would the vacancy impact of those be?
Well, the vacancy impact -- if we talk about 3 disposals. One is in Geneva, one is in Fribourg, and one is in Zürich. We talk about potential vacancies of slightly more than 1%. With all the 3, we are in progress. There are all various reasons why they have not been closed, being procedural reasons, being the regions reasons, being political reasons, but we are on plan. And I would say, we hope to be able to give more concrete evidence by mid-year or latest in Q3. This is a bit of timeline of the 3 disposal processes.
Excellent. And maybe one last one, if I may. And it's probably of less importance, but could you just highlight what's the reason for the CHF 3.9 million write-down on the hotel portfolios first?
Well, in Geneva, you pay -- we paid roughly CHF 5 million of transfer taxes on the overall portfolio. And clearly, they are -- those are not part of the valuation of the valuer. So when you acquire, you pay the transfer taxes and the valuer typically doesn't factor in those transfer taxes. So this is a tax hit of CHF 5 million compared to valuation hit of CHF 3.8 million.
The next question comes from Mr. Bessell Mike of Bank of America.
Couple of questions from me, please. One on Bahnhofplatz in -- or 2 on -- actually on Bahnhofplatz in Zürich. The first is, what sort of IWG Group covenant have you got on that leasing, and the second is an update on other interests in that scheme? And then I'll come to a question on guidance, if I may.
If -- Well, if you don't mind, we are -- I think that the covenants we got are typical covenants we require from tenants. I think more important, and I think that's where you're coming from, it's a fixed-term lease, it's a 10-year lease plus options on a fixed rent, on a, I would say, interest in market rent for us. And not, as you would observe, in today's market from co-working type operator, which are turnover based. That was an important element for us. On the other hand, I think we have a couple of activities in the co-working service office-type of field that we try really to look what is the best operator for respective buildings and how can we add flexibility to that building. But all the contracts we have so far, beside one in Wallisellen, are fixed-rent contracts. In Wallisellen, we have a mix between the base fee and the turnover fee. But they are -- we are working on the variety of scenes, but it's not now the new big scene, which we see coming up for the portfolio. We are active, but we always look what is the best tenant to that building to add flexibility.
Okay. And additional interest in the remainder of the building?
The building is basically full. We have a very small space on the ground floor of roughly 200 square meter, where we negotiate with a fitness club, which would fit best to this co-working at the hotel. We signed a large lease with the hotel operator, Ruby Hotels & Resorts. And then we are left with a space, which we will lease to restaurant, and we start, basically, an auction process end of second quarter because the demand is very high. But with that, the building is full.
Perfect. And then on your guidance -- sort of your EBITDA guidance of greater than CHF 235 million, the better vacancy guidance is welcome, does that give us upside -- any potential upside to this year's EBITDA? Or do you think the timing is going to be late enough this year that you -- that we should think of that vacancy as an improvement to next year's EBITDA?
I have to say it's the latter. Whatever you close today or so, we see improved business sentiment, you have to give incentives. So basically, it's eaten off by the rent free. So the guidance on the top line has not and will probably not substantially improve due to the lettings. This is an impact for 2019.
The next question comes from the line of Klose Kai of Berenberg.
Just two questions. You mentioned in your presentation stabilization of when levels will cross the portfolio. Could you maybe indicate about the new lettings what -- on what level of incentives that you had to give for that higher-than-expected, lower-than-expected? And the second question, what is the ongoing -- what would be the CapEx you expected to spend for the investment portfolio as a rough indication for the full year?
Yes, on the incentives, I think we don't observe a substantial change over the last -- since the last 6 months. On average, we are renewing flat, slightly positive. So for the year, I would expect a slight positive like-for-like. What we continue to see if we have a large lease expiry that the tenants will come up with incentive requests being a little fresh-up or additional rent free, things we have not seen perhaps 4, 5 years ago but things which are common in today's market practice. But incentives for good assets in central locations have not deteriorated. So I think that we are pretty well ahead. What we see still is that the decision process with tenants is quite long, is still cumbersome, so we see an improved business sentiment, on the other hand, it's still, I would say, a tenant market. With regard to the CapEx for the full year, you should expect, on investment portfolio, similar amount to last year's, it will be around CHF 40 million, CHF 50 million, which goes then into, if you take it with the maintenance line, it will be around, I would say, CHF 17 million, CHF 18 million on the P&L. And this is always a split between maintenance and CapEx. No big surprises on that end.
The next question comes from Woerdeman Robert with Kempen & Co.
This is Robert, Kempen. I like the announcement of Woerdeman, but aside, first thing, you have made some improvements on letting on the Grosspeter Tower and also the Bahnhofplatz, definitely derisking the development pipeline. All things equal, how will the appraisal take this into consideration and what kind of potential development -- additional development profits can we expect for, let's say, the second quarter or the fourth quarter results?
Well, I think this is really up to the appraisal. I think that the letting on the Bahnhofplatz, I would say, should have a positive impact from a pure letting point of view on the half year and also the Grosspeter, but I would say, it's something we will have to see on the mid-year because it depends also on how the value sees the yields, and if you don't mind, I cannot comment more on valuation expectations from the valuer. I think we are focused on letting as close as possible or above at market. And as you said, rightly so, derisking the development portfolio, now we have, I think, with the Bahnhofplatz, we are close to 90%, and with Rue du Marché, we are at 70%, and by year-end, we will get to 100% because we are close to sign agreements for the retail space. Hardturmstrasse, Förrlibuckstrasse, we are well advanced. And as said last time, with the full year report, as we are close of signing a lease agreement with a larger tenant and also on the Orion one, so I think our priority is letting. How the valuer sees it then, it's up to the valuer.
I fully acknowledge the deal comment, obviously. But just put it differently then, to what extent have you been able to potentially outpace the estimates with respect to ERV on those Grosspeter Tower and Bahnhofplatz?
I would say on the first one flat, on the second one, slightly above.
Okay. That is clear. Then with respect to investment opportunities, is there -- aside from acquisitions, is there also a potential for you to start new developments? Or have you identified additional development potential?
Well, it's clearly a point -- the focus point we look at. The issue is, first of all, that the price is -- for development projects, often, in our view, don't reflect the risk associated with it. So in that sense, no, we have not identified at the moment. We are looking, we're assessing, but we have not seen yet the opportunity, which we think, fit into the portfolio. On the acquisition side, we work on a few potential acquisitions of single properties, also smaller ones. I think that's a common priority we have, but there's nothing now in the pipe, or I'd say, we are very close of -- short of closing it.
Okay. That's clear. And then last one on the pace of letting, and we already discussed this earlier, but it seems like the first quarter pace of letting is going faster than, let's say, over the last 5 years and quite significantly faster. Is there a different way of incentivizing your letting team, or what has changed? Put it differently.
I would say, first and foremost, the thing is, it's clearly also due to the market, [ it's market ] improvement, and then it often depends also what kind of building comes up to the market. Clearly, we did some organizational adjustments. We fostered our letting team. We try to get closer to our intermediaries and to tenants and all those elements helped to progress. Clearly, we are not operating on a direct incentive of single people on the letting side. We tried to motivate and give them the instruments to be closer to market. So I think it's a process. Is this new trend do we see? I think now we work on this new 7.5%. We work on the additional vacancy we have disclosed in the report, we work on the disposals, and we take it from there, I think. It's a medium-term goal to further reduce our vacancy.
[Operator Instructions]
I think we're good. If there are no other questions, we are happy to close the call. We thank everybody for dialing in and listening to this Q1 -- of the first quarter, and we look forward to talk to you on the second quarter in August. Thank you very much to everybody.
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.