Real estate portfolio
At the end of June 2015, the real estate portfolio included 161 office and commercial properties. In addition, there were five development sites and five individual projects. The carrying value of the total portfolio stood at CHF 6.679 billion (end of 2014: CHF 6.608 billion). In H1 2015, no investment properties were purchased nor sold.
The project “Löwenstrasse 16” in Zurich was successfully completed. The new construction offers a mixed use for offices and retail areas as well as one apartment. Work began on the latest building project, “Hardturmstrasse 161 / Förrlibuckstrasse 150” in Zurich. This property will undergo a comprehensive renovation and the technical installations will be brought up to date by mid-2017. An exterior facelift and a modern interior finishing with flexible office layouts will increase the building’s appeal. The planned investment total will be approximately CHF 38 million. At the project “Bahnhofquai / Bahnhofplatz” in Zurich, debates on principles are being held with the local authorities for the preservation of historical monuments. The resulting delay for the renovation work is difficult to predict. The new developments and conversions on the other sites progress as planned.
The revaluation of the properties resulted in an appreciation of CHF 13.1 million. Positive effect had the increase in value due to renovations made in the first half of 2015 and a decline in the average weighted discount rate by 13 basis points – at the end of June 2015, the portfolio’s weighted average nominal discount rate was 4.68% (end of 2014: 4.81%). On the other hand, longer vacancy periods before new rentals, adjustments of market rents in peripheral locations and higher renovation spending at a number of properties had a negative impact.
Vacancy rate
At the end of June 2015, the vacancy rate stood at 8.9% (end of 2014: 10.0%). 1.4 percentage points of these 8.9% were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.6 billion) contributed 2.3 percentage points to the overall vacancy rate. The remaining properties with a carrying value of CHF 5.4 billion (i.e. the total investment portfolio excluding the objects under renovation as well as those in Zurich West and Wallisellen) made up 5.2 percentage points.
Half-year results 2015
In H1 2015, net income excluding changes in fair value reached CHF 78.7 million (H1 2014: CHF 87.4 million). This result is in line with expectations. The reasons for this decline were lower rental income due to ongoing renovations, which decreased by CHF 1.5 million, and lower income from the sale of freehold apartments, which fell by CHF 4.9 million (during the reporting period, no apartments respectively only two parking lots were transferred). Furthermore, in H1 2015 income from VAT recovery decreased to CHF 0.1 million (H1 2014: CHF 2.1 million). Corresponding earnings per share amounted to CHF 1.72 (H1 2014: CHF 1.91). For PSP Swiss Property, net income excluding changes in fair value is the basis for the distribution to shareholders.
In H1 2015, net income including changes in fair value amounted to CHF 88.2 million (H1 2014: CHF 95.9 million). Earnings per share including changes in fair value amounted to CHF 1.92 (H1 2014: CHF 2.09).
Strong capital structure
With total equity of CHF 3.766 billion (end of 2014: CHF 3.841 billion) – corresponding to an equity ratio of 55.9% (end of 2014: 57.5%) – PSP Swiss Property had a strong capital base at the end of June 2015. Interest-bearing debt amounted to CHF 2.049 billion, corresponding to 30.4% of total assets (end of 2014: CHF 1.929 billion respectively 28.9%). Currently, unused committed credit lines amount to CHF 590 million. No major committed bank loans will be due until 2019.
At the end of June 2015, the passing average interest rate was 1.64% (end of 2014: 1.70%). The average fixed-interest period was 3.7 years (end of 2014: 3.9 years).
In April 2015, the rating agency Fitch confirmed PSP Swiss Property Ltd’s rating with an “A-” and stable outlook.
Mid-January 2015, Switzerland’s National Bank discontinued its efforts to defend the minimum exchange rate of CHF 1.20 per euro and, at the same time, introduced negative interest rates. For borrowers (such as PSP Swiss Property), who hedge their interest rate exposure with interest rate swaps, this entails additional interest charges, because they (as fixed payers) also have to pay the negative variable interest rate (CHF-Libor) to the swap counterparties. On the other hand, several lending banks have not yet taken into account the negative basis for the interest calculation, despite the fact that this is contractually stipulated. Following the settlement with two counterparties, the additional interest charges from the still pending cases amount to CHF 1.5 million. The additional interest charges was neutralised by activating a “receivable from negative Libor”. For the 2015 business year as a whole, this amount might rise to approximately CHF 3 to 4 million (on the occasion of the Q1 2015 publication, approximately CHF 8 million were assumed).
Market environment
Due to the uncertainties in Europe, which also affect Switzerland, and the strong franc, the environment remains challenging. While the impact on the real estate sector is only indirect – unlike the export industry or tourism – these “external factors” could become an increasing burden on the Swiss economy and, with a certain time lag, on the property market as well.
In Switzerland itself, the political environment causes some concern. The economy is increasingly burdened by the uncertainties about when and how the immigration initiative will be implemented. Furthermore, there is the possible tightening of the Lex Koller (the law that governs the purchase of real estate by foreigners) as a “homemade” problem: despite the rejection by the parliament at the end of 2014, the Federal Council insists on revising the Lex Koller. Apparently, in the upcoming legislative consultation process it will be suggested that foreign investors shall, to a large extent, be excluded from Switzerland’s real estate market.
In the office market, supply currently exceeds demand in certain areas with an oversupply, particularly in peripheral regions. However, modern office buildings in central locations with good transportation links remain in demand. In the main economic centres Zurich and Geneva, the additional supply in commercial space delivered during the recent years might dampen rental prices for some time to come.
Overall, the market for retail space in central locations (“high street retail”) is robust. Rents remained more or less unchanged at high levels. While this market segment remains demanding, there is no weakening of the terms.
Outlook 2015
PSP Swiss Property remains confident about the future: the Company is well established in the Swiss real estate market with a strong capital base and a high-quality property portfolio. The Company sticks to its long-term, value-oriented and judicious acquisition strategy and conservative financing policy.
Focus will be kept on renovation of selected properties as well as on the development of the sites and projects.
For FY 2015, an Ebitda (excluding changes in fair value) of CHF 230 million is now expected (so far: approximately CHF 225 million; FY 2014: CHF 238.2 million). The decrease compared to 2014 is mostly due to lower income from the sale of apartments as well as lower income from VAT recovery. Rental income is likely to remain stable over the whole year, despite an increase in renovations.
With regard to the vacancies at the end of 2015, a rate of below 10% is now expected (so far: around 10%; end of June 2015: 8.9%).
Key figures
Key financial figures | Unit | 2014 | H1 2014 | H1 2015 | Δ in %1 |
Rental income | CHF 1 000 | 277 150 | 138 402 | 136 926 | -1.1 |
EPRA like-for-like change | % | 0.2 | 0.4 | 0.6 | |
Net changes in fair value of real estate investments | CHF 1 000 | 5 789 | 9 827 | 13 085 | |
Income from property sales | CHF 1 000 | 8 839 | 6 919 | 15 | |
Total other income | CHF 1 000 | 6 987 | 3 480 | 1 527 | |
Net income | CHF 1 000 | 175 346 | 95 877 | 88 227 | -8.0 |
Net income excl. gains/losses on real estate investments2 | CHF 1 000 | 169 345 | 87 433 | 78 721 | -10.0 |
Ebitda excl. gains/losses on real estate investments | CHF 1 000 | 238 242 | 122 050 | 113 964 | -6.6 |
Ebitda margin | % | 81.8 | 83.0 | 82.3 | |
Total assets | CHF 1 000 | 6 684 665 | 6 518 630 | 6 741 118 | 0.8 |
Shareholders’ equity | CHF 1 000 | 3 840 795 | 3 766 070 | 3 766 229 | -1.9 |
Equity ratio | % | 57.5 | 57.8 | 55.9 | |
Return on equity | % | 4.6 | 5.0 | 4.6 | |
Interest-bearing debt | CHF 1 000 | 1 928 669 | 1 878 391 | 2 048 741 | 6.2 |
Interest-bearing debt in % of total assets | % | 28.9 | 28.8 | 30.4 | |
Portfolio key figures | | | | | |
Number of properties | Number | 161 | 160 | 161 | |
Carrying value properties | CHF 1 000 | 6 161 136 | 6 054 849 | 6 121 627 | -0.6 |
Implied yield, gross | % | 4.5 | 4.5 | 4.4 | |
Implied yield, net | % | 3.9 | 3.9 | 3.9 | |
Vacancy rate end of period (CHF) | % | 10.0 | 9.3 | 8.9 | |
Number of sites and development properties | Number | 10 | 10 | 10 | |
Carrying value sites/development properties | CHF 1 000 | 446 908 | 397 315 | 557 262 | 24.7 |
Employees | | | | | |
End of period | Posts | 83 | 89 | 88 | |
Equal full-time employees | Posts | 78 | 82 | 82 | |
Per share figures | | | | | |
Earnings per share (EPS)3 | CHF | 3.82 | 2.09 | 1.92 | -8.0 |
EPS excl. gains/losses on real estate investments3 | CHF | 3.69 | 1.91 | 1.72 | -10.0 |
Distribution per share | CHF | 3.254 | n.a. | n.a. | |
Net asset value per share (NAV)5 | CHF | 83.74 | 82.11 | 82.11 | -1.9 |
NAV per share before deducting of deferred taxes5 | CHF | 99.57 | 97.76 | 98.18 | -1.4 |
Share price end of period | CHF | 85.80 | 83.50 | 80.00 | -6.8 |
1 | Change to H1 2014 or carrying value as of 31 December 2014 as applicable. |
2 | “Annual net income excluding gains/losses on real estate investments” corresponds to the consolidated annual net income excluding net changes in fair value of the real estate investments, realised income on investment property sales and all of the related taxes. Income from the sale of properties which were developed by the Company itself is, however, included in the net income excluding gains/losses on real estate investments. |
3 | Based on average number of outstanding shares. |
4 | For the business year 2014: cash payment was made on 9 April 2015. |
5 | Based on number of outstanding shares. |