PSP Swiss Property AG
SIX:PSPN
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Q2-2025 Earnings Call
AI Summary
Earnings Call on Aug 19, 2025
Solid Results: PSP Swiss Property reported strong operating performance, though slightly below last year due to two one-off effects in the prior period.
Valuation Gains: The company saw a valuation gain of over CHF 100 million, mainly from its Zurich CBD portfolio.
Stable Margins: EBITDA margin remains above 85%, reflecting strong cost discipline.
Guidance Confirmed: Management reaffirmed full-year guidance, not raising it despite historical tendencies to upgrade.
Vacancy Target: Vacancy rate stands at 4% with a plan to reduce it to 3.5% by year-end through letting activity.
No Major Acquisitions or Disposals: No new acquisitions or disposals in the period, but the company remains selective and patient in its approach.
Funding: PSP issued a Swiss franc floating rate note, maintaining its average cost of debt around 1%.
Selective Demand: Tenant demand is becoming more price-sensitive and selective, especially in non-prime locations.
PSP Swiss Property benefitted from valuation gains exceeding CHF 100 million, primarily driven by assets in Zurich's central business district. This uplift was attributed to the company's ability to meet or exceed rental expectations, especially in well-located office and top-tier retail properties.
Management noted that demand remains strong for prime office and retail spaces, with the ability to achieve or surpass rental expectations. However, the market is increasingly selective and tenants are more price-sensitive, particularly in non-central or less prime locations. The company sees bifurcation between CBD and non-CBD areas and remains confident in its ability to find alternative tenants and grow rents asset by asset.
The current vacancy rate is 4%, with a target to reduce it to 3.5% by year-end. The reduction will be mainly driven by temporary and long-term letting activities, especially for retail surfaces on Füsslistrasse. The company is positive about achieving this target through ongoing leasing efforts.
PSP is progressing with key development projects, including Geneva's Quartier des Banques, where new product offerings have led to stronger demand compared to last year. The company is also focused on redevelopment potential within its portfolio, but this will not be a dominant driver of growth; instead, it follows a selective, asset-by-asset approach.
No major acquisitions or disposals occurred during the period. Management continues to monitor the market but remains selective, emphasizing only long-term accretive deals that fit the portfolio. There are minor disposals planned as part of portfolio clean-up, but no significant sales expected in the near term.
The company successfully launched its first Swiss franc floating rate note, keeping the average cost of debt at around 1%. The average duration of debt is about 3.6 years, which management is comfortable with given the company's low loan-to-value and inflation-hedged rental income. The strategy is to remain opportunistic within a 3.5 to 4.5-year range for debt maturity.
PSP confirmed its full-year guidance, emphasizing that its forecast is set with the intention to achieve it, not to allow for mid-year upgrades. The company expects like-for-like rental growth to be lower than last year due to lower indexation and turnover components, but still sees potential for rent increases in prime locations upon lease renewals or renovations.
Operating expenses remain stable, with a slight increase in general and administrative costs due to IT and project expenses. A tax rate increase in Geneva affected deferred taxes, contributing to a miss versus adjusted net profit expectations.
Ladies and gentlemen, welcome to the PSP Swiss Property Half Year 2025 Results Conference Call. I'm Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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, Mathilde. Good morning, everybody, and thanks for dialing in. As usual, with the half year results, the quarter results, I will do a rather quick introduction then go directly into the Q&A.
As we report this morning, we are satisfied with very solid operating results. You have seen it, it's a bit lower in the previous year's comparison. But as mentioned, this is due to 2 specific one-off effects we had in the first half of '24. We have seen a valuation gain of above 100 million, which is predominantly driven by the Zurich CBD portfolio. And thanks to the continuous cost discipline, we operate at EBITDA margin of above 85%.
We are on track with the various development sites. Also here and there, might take a bit longer, but we can go through that in the Q&A. But generally, we are pretty satisfied with the developments and the demand. And on the acquisition side, we had nothing we acquired or disposed. But clearly, we are looking at the transactions in the market. But as per now, we have not seen anything which would suit our portfolio.
The successful news came out from Wallisellen that we got the permission and the new rezoning code. So we are working there on the next strategic steps, and we have the reclassification of the full site. And on the funding side, we were able to launch the first Swiss franc floating rate note a couple of weeks back, which we reported as a subsequent event, and we were able to secure extremely interesting margin conditions on clearly on a rather shorter issue, but which keeps us and allows us to keep the average cost of debt around the 1%.
With that, we can confirm our guidance for the year-end, as we did in the press release this morning. And as I mentioned, I prefer rather going directly into the Q&A and go to your questions. Thank you.
[Operator Instructions] The first question comes from the line of Matteo Lindauer from Vontobel.
I have 2 questions. First, how is the progress on renewing rental agreements, which are expiring in 2026? And the second one is on Löwenbräu. Are you already in advanced talks with an operator for the service apartments?
Thank you, Matteo. On the 2026 renewals, clearly, we are working on those. Also typically, with the majority of those, you start 6 to 9 months before. We have one larger maturity which comes up in Geneva, Route des Acacias. It's end of the Q1, where we have the tenant moving out. We were very close in signing a lease agreement, which didn't mature then or materialize a few days back. So here, this is the biggest one, which will mature, which makes up roughly 1% of the rent roll, but we are very positive that we can tackle it. And the others, I think that's the usual ongoing business we have.
With regarding to the Löwenbräu, I think there are 2 passes. We are on the building provision models. And clearly, we talk with concepts and operators. I think that's underway as well.
The next question comes from the line of [ Marc Forster ] from [ Finanz und Wirtschaft ].
Hello. Can you hear me?
Absolutely.
You said that demand was selective and increasingly price-sensitive, even in the central locations. So what does this imply for PSP? Because your portfolio profited from substantial revaluation gains coming from Zurich Central locations. So is the price-sensitive behavior of tenants more an issue for the market in general? Or does PSP feel some implications, too.
I think generally, if you look at the market you mentioned, we are letting well, and we are, especially in the office, reaching our rental expectations and selectively also exceeding. Also the highest retail, we are reaching our rental expectation and we see a solid demand.
It's clearly you see a bifurcation between CBD and non-CBD. And then as you get closer, if you take specifically Füsslistrasse, perhaps there, we had to adjust a bit our rent expectation because it's not super, super prime. But generally, we see that we can translate our rent expectation that materialized also in the valuation uplift of the first half of the year.
We now have a question from the line of Steven Boumans from ODDO BHF.
I have 2 sets of questions. The first one relating to the pre-lettings in Geneva, Quartier des Banques, What is your opinion on the strength of the Geneva leasing market compared to 1 year ago? And second, maybe provide some color on the discussions that you have today, including on where rental levels are likely to fall and expected occupancy for the moment of delivery. That's the first one.
I would say on the Geneva CBD, Quartier des Banques, the fact that you were able to buy the headquarter last 1.5 years, a hospitality concept is very positive. We have also had an immediate relating of a full building.
On Arquebuse, we are going into a multi-tenant strategy, and we are in negotiation and we have rental contracts out there. I think the positive, we will deliver a complete new product to the fact what we had beforehand. And we see a solid demand on all those. On one of the Petitot buildings we have to go first through the building permission. Sometimes, those take a bit longer and then also the letting starts, obviously, a bit later.
But compared to 1 year ago, I would say we had -- we didn't have this product. So I would say the demand is stronger, and we are talking to tenants. We wouldn't have talked a year ago because there was a complete different product. So we are positive on the Quartier des Banques. But never mind, you have to first develop those products. You have to go through the building permission. You have to build them, but you will deliver very nice offices and also reasonable sizes. These are not really super large low price. So I think we will absorb, but the market will absorb this product.
Okay. And you expect them to -- delivery to be almost fully pre-let?
I would say that we have a very highlighting state to this.
Okay, clear. Second question, what is the expected timing of the Richtipark residential disposals? And second, do you see more residential redevelopment potential in your portfolio?
Yes. Thank you. Well, on the Richtipark, we just came out of the rezoning. So I think now that our priorities on the one hand, really work on the project of having being able to deliver a project which includes all the requirements. In parallel, we are -- we have been approached on potential asset swaps which we are going through. So I think that's a parallel move we have, and that was also the reason why we had to reclassify for sale.
I would say here, it's a bit premature to talk about timing because you can imagine it's a large project, which involves also a variety of tenants. But clearly, it's on the highest priority of us. And clearly, we are very positive to be able now to deliver a nice product for the region, if at the end, it's we at delivery for somebody else, I think that's something we will have to -- we will go through in the next couple of quarters.
Okay. Clear. And the second one, do you expect some other residential redevelopment potential in your portfolio?
Well, if you look historically, we have always the approach of the highest and best use. So we have 2 assets, which we are working on, which is the Sihlamtsstrasse and the Flüelastrasse. We are clearly glancing through the portfolio also when we see that perhaps an office building is rather up for resi, but this will not be the substantial driver of our strategy. This is a continuous asset management approach throughout the organization. And for sure, there will be some redevelopers in the resi, but as I said, this will not be the dominant part.
The next question comes from the line of Ken Kagerer from Zürcher Kantonalbank.
The first one is on the vacancy rate. Could you just give us some granularity how you want to get that down from the current 4% to the intended 3.5 by year-end?
This will go through a letting of the retail surfaces on the Füsslistrasse by year-end through a temporary letting of that phase and parallel letting activity for the long term. This will be the main driver of the reduction.
What is the average rent per square meter for the temporary letting, please?
This is, I would say, it's not a substantial driver. The important is that we want to show showcases. Clearly, we are working on fixed rent for the first part of the surface, but we are foreseen to have a full letting of the overall surface if you are not able to have a letting agreement by the year-end.
I've seen that the average duration of your debt has come down over time. What is your strategic plan for the average duration currently? Is it 3.6 years, if I see that correctly. Where would you want to see that in the midterm?
Yes, that's correct. If you look very historically, we were even shorter. We were even at 3 or below. Then with the negative rates, we try to go as long as possible. I think the way we see it, first of all, we have basically full inflation hedge on the top line. So we have the ability to go a bit shorter plus we have a relative low loan to value. So I would say whatever is around 3.5, 4.5 is an area where we feel comfortable. And within that area, we try to act opportunistically on diversification of funding sources and to having attractive spreads.
Excellent. Then another one on Zurich. As I understand that you have had very significant uplift in valuations there. What do you expect in terms of the UBS properties coming to the market in a prime office space? And in terms of the impact on the market in terms of rents and absorption of vacant buildings?
Do you talk about disposals or the about lettings?
No, letting. More on letting inside.
Yes. I think that the thing we see is that perhaps in '26, '27, there will be some office space coming to the market, but the way we see it and the strength of the market, this will be absorbed, could lead to temporary vacancies in buildings, but I think it's not a huge amount of surveys which comes. The demand in the CBD for modern offices is solid. That's what we observe in our buildings. So I think that's not in how we really have a substantial influence.
And retail on the [indiscernible], what's your view on that?
I had to give an interview yesterday the different buildings, you're close to a dead zone if you want to get there by foot. So I think it's -- we will see. I think it's very difficult to see what concept comes. We heard that there's retail coming, but we have also heard that's not so clear what kind of retail. I think the demand for retail generally on Bahnhofstrasse is very high. But I think also that the further away [indiscernible] of the Bahnhofplatz is not so attractive like the Bahnhofstrasse [indiscernible] surface, just from the pure accessibility. But the underlying demand, what we see from tenants is quite strong.
And maybe last one from my side. We have seen that Mobimo has done an M&A deal. And obviously, we always ask you what are you seeing in the market -- some -- do you see some consolidation activity where you could take part of? And if so, how would you finance that?
Yes. With all respect, I think it was a small M&A deal. You can call it M&A deal. We look at the market, we look at transactions. But we are -- as always, we are very sensitive to try to do accretive transactions in the long term. We are very diligent on capital allocation. And we don't see really a lot of assets which would see at our portfolio. So the funding then we -- if we find something really of interest, I think the funding is least of the issues.
We now have a question from the line of [ Elias Renzi ] from [ Kempen ].
First one, coming back to your comments on demand being more selective and price sensitive. I understand there is a bifurcation in your more prime properties. But does this make you more cautious on future lettings? Or are you going to continue to chase higher rents?
I think this is a very general question. I think it's asset by asset specific. I think we have buildings where we know that we can increase the rents. Generally, we have seen and said in the past that you can increase rents in line with the quality of the product you're delivering. So clearly, the ambition is to increase the rent income and to increase the like-for-like. Also if you have 150, 160 assets, there's always one asset which expires and you need to do some work, and then you have a longer absorption time. But what I say and see with our position of the assets, we have alternative tenants, and we are generally positive that we can increase the rents, yes. But it's very, very asset specific.
Okay. Clear. And then on guidance, I would say you typically have the tendency of upgrading guidance in H1. Historically, you've been a bit more conservative for the start of the year. This time, you only confirmed guidance or how should they read this?
I would read it the way we communicated. We never issued the guidance in beginning of the year with the aim to upgrade in midyear. We issue the guidance we think we can get by the year-end. If we issue guidance with the fixed number is because we have a convention that we get to those fixed numbers. If you guide that we can get a higher, we issue higher. Here, we said clearly around 300, not with an ambition to beat that. So clearly, we try to beat it, but it's not something we hold on the back end. So I would read it that this is the guidance we gave for the full year.
Okay. And maybe just one last one. Of course, looking at valuations, it does screen that valuations have clearly bottomed out. If we look on the very prime segment, there seem to be interesting deals at very attractive yields. Wouldn't it be a perfect moment to be more on the acquisition side?
We look at the variety of the acquisitions. And if we think that something is for us, long-term accretive, not only from an EPS point of view, but also from an NAV point of view, we clearly look at it and we try to buy it. Just the fact that a yield is higher a bit in a less prime location doesn't intrigue us to say now we have to go and buy it. Also here, we look at all the transactions and we take the decisions asset by asset.
And we don't feel under pressure that we need to buy. If you look historically, we grew top line by almost 70 million in the last 6 years. So we find opportunities, we don't chase opportunities.
The next question comes from the line of Eleanor Frew from Barclays.
Just one. So a lot of questions on acquisitions, but maybe thinking about disposals. Do you think you could be moving towards a seller at the second half of the year given the transaction market moving in the right direction?
No, I wouldn't say on the large scale. We have something minor, which we are working on a disposal, but this is more of a cleanup. We are pretty happy with the portfolio we have. We did -- I wouldn't say large, but we did some disposals last year in the portfolio, which were part. So I wouldn't expect now large disposals in the second half.
We now have a question from the line of Andreas von Arx from Baader-Helvea.
My first question is on taxes, more specific deferred taxes. Could you elaborate a bit on the moving parts here because I think that's probably the key reason why you have missed the expectations on adjusted net profit. I'm specifically thinking about the minus 6.3 million impact from changes in tax rate. And maybe you could also elaborate on the effects, that long-term revaluation effect that you had in previous periods. What the effect here was in the first half, just to better understand what's going on in the deferred tax.
And then I have a second question. Basically, same questions. We already heard 2 times, but I'm going to ask it a bit different. I mean, your competitors all seem to fully use the balance sheet and put it at work, rather increasing LTVs with acquisitions and projects, and you stick to your conservative approach of low LTV and let's say, not counting for acquisitions. Why do you think investors are better off with your conservative strategy in the current low rate interest environment?
Thank you, Andreas. I think on the deferred tax rate, I thought we have disclosed it, but we had a tax rate increase in the canton of Geneva, which had an impact on deferred taxes. So this is an alignment of the local taxes which goes on.
On the acquisition front, I think here -- and we tried to evidence that over the last years. It's clearly that the acquisitions with those funding levels are accretive. And we are generally positive on Switzerland, and we are generally positive on the office market, and we are generally positive on our locations. However, we come out of a super cycle and rates are low. So the sensitivities are very high. And I think, therefore, we are a bit more selective with our in-place portfolio and with the development pipeline.
Also it doesn't seem large, but we have other developments in the portfolio, which will come through the next 12, 18 months. We feel that it's more opportune to wait for the opportunities when there is stress. Like we bought the Hôtel de Banque during COVID. We bought the West High when not many were able to buy it. We try to buy something a bit of the market then come in with a new concept. So we will see and get opportunities that we need to get the additional extra in our area.
And therefore, we feel also pretty comfortable with a reasonable low loan to value. I think this is, for us, [indiscernible] that was also, by the way, the message into the organization today. We need to be able to work through cycles we are not aware if they come and when they come. And if we do an acquisition, we need to be convinced that this creates additional value medium, long term. And this in our locations. And so we don't want to dilute those locations by buying something which is a bit east or west.
And I think that's -- that's a bit our philosophy, but that's also the way we are incentivized. We are incentivized for the long-term development. And I think every shareholder and investor has to figure out which case he wants to play. But we shouldn't forget it's still a cyclical business and sensitivities are high. But that's not a message of cautious. I think it's a message we give since decades, and we grew. And I think we were the ones which grew most over the last years with single acquisitions, but we are not promising it.
The next question comes from the line of Sheetal Jaimalani from Deutsche Bank.
I just have a quick one on rental growth. Where do you see the like-for-like rental growth at the year-end of FY '25? And where do you stand in terms of ERV and how do you see it across your different markets?
Yes. If I understood your question on the like-for-like, you see that the like-for-like clearly came down compared to the last year. But last year, we had a much high indexation, plus we have a substantial turnover component, which didn't materialize in this amount in '25. So from the 1.2 percentage points, roughly 1% was like-for-like growth through the indexations.
Through the different markets, we will be able, in our view, to continue to go the larger rents on super prime retail, but those occur when you have maturities. We can increase the rents in prime office when we renovate the buildings and bring up a new product. And I think from the majority of the others, it's clearly a stable development with indexation. I think that's a bit the message across the markets.
We have a follow-up question from the line of Matteo Lindauer from Vontobel.
Yes. I have one more question regarding other operating income. For example, in 2024, we have seen it at level of CHF 6 million in 2023, CHF 7 million. Now it's standing after the half year at around CHF 1 million. What can we expect going forward from other operating income? Or what's your expectation?
If you take in the capitalized on services and the other income with regard to the VAT refunding, I think you could figure out another CHF 2 million by the year-end.
Okay. And going forward, in 2026, 2027?
I think on overall operating income of CHF 300 million for the half year, guessing a 1 percentage point in '26, '27. No, I think it will be these minor elements.
The next question comes from the line of Alexander Totomanov from Green Street.
Two questions for me. Our letting discussions going on Hôtel des Postes in Lausanne given the project completes in less than 6 months.
The discussion of Hôtel des Postes are going, I have to admit, positive. We have an advanced discussion on the retail part. We have an increased interest on the retail part, and I hope that we can soon report a success on that. Also there are alternatives. And we have basically every floor, ongoing discussions and negotiations.
It's clear that I think the building is a superb building when it's finished, it's delivered. It's for this submarket large surfaces. It's a large product, and it will take a bit of time to be absorbed. And it's a bit, I would say, on the price range, it respects the quality of the product. But we have signed leases. We are in discussions. I think the sentiment and the responses are picking up. But it's -- at the end, you have to deliver it. Then you have to negotiate, and this takes time. It's thousands of square meters, but we are positive on San Francois, it's a very nice product at the end.
Okay. And second question, and I think that's something that Andres alluded to as well. Swiss Prime site announced the purchase of a new build asset in Lausanne west last week. You mentioned you have a conservative long-term view in terms of acquisitions. Were you in the bidding tent for the Lausanne west asset?
It's a general asset we were aware of at the very beginning, and we didn't follow up.
[Operator Instructions]. We now have a question from the line of Kai Klose from Berenberg.
Just one question regarding the general and admin expenses. There was a bit of a stronger wise in the first half year-on-year by 6%. Was there anything specific in the first half or kind of a one-off, and that will give an indication for the full year?
Well, the general admin costs, yes, they increased by 6%, but we are talking about 200,000. So we had a bit more IT costs and project costs. I would say, for the overall of the year, I think this is in line with the last years. As I said, the overall operating expenses are very stable. There might vary depending on delivery of certain projects here and there, but this is all very, very much under control.
[Operator Instructions] 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, thank you from our side for your interest, for the questions. I'm sure we will keep in touch, and I wish you all a successful day. 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.