Real estate portfolio
As at the end of 2010, the real estate portfolio included 175 office and commercial properties in prime locations as well as 7 attractive development sites with a total carrying value of CHF 5.518 billion (end of 2009: CHF 5.216 billion). During the reporting period, a property in Zurich was bought for CHF 45.1 million and eight small assets from the investment portfolio were sold for a total consideration of CHF 28.7 million, resp. 16.8% above the last valuation (IFRS: 10.4%).
The revaluation of the portfolio resulted in an appreciation of CHF 180.6 million (2009: CHF 112.4 million). This appreciation was mainly due to changes in the discount rates, successful closing of new leases and lease extensions at higher rents.
New constructions and conversions on the sites progressed as planned. The following developments are particularly worth mentioning: the completion of the two new office buildings in Wallisellen (Richtistrasse 9 and 11); investments for this project (13 335 m2 floor space and 228 parking lots) totalled CHF 77.4 million. In December 2010, the opening of the thermal bath on the Hürlimann site in Zurich was very successful; the boutique hotel will be completed during 2011. On the Löwenbräu site in Zurich, the sale of the freehold apartments began successfully: of the 58 units, 43 are already reserved. And, during the third quarter 2010, a part of the site (art galleries and museums) was sold, whereby the transfer of ownership will occur after completion of the construction, presumably in spring 2012.
Vacancy rate
At the end of 2010, the vacancy rate stood at 8.5% (end of 2009: 7.5%). As expected and already communicated, the increase results from the completion of the two new buildings in Wallisellen (contribution to the vacancy rate: 1.7 percentage points).
Of the 8.5%, 1.1 percentage points were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.8 billion) contributed 5.1 percentage points to the overall vacancy rate. The contribution by the core investment portfolio with a carrying value of CHF 4.4 billion (i.e. the investment properties excluding the objects under renovation as well as those in Zurich West and Wallisellen) was just 2.9 percentage points.
2010 annual results
Net income amounted to CHF 280.8 million (2009: CHF 231.1 million); earnings per share were CHF 6.62 (2009: CHF 5.53). Net income excluding changes in fair values rose from CHF 136.5 million to CHF 139.8 million; earnings per share amounted to CHF 3.30 (2009: CHF 3.26).
The improved results were mainly due to the following: income from discontinued operations, lower operating expenses due to the efficient cost management as well as lower interest expenses.
The optimised cost structure resulted in an increase of EBITDA excluding changes in fair values to CHF 223.3 million (2009: CHF 221.1 million) which was well above the guidance of "above CHF 215 million". The EBITDA margin improved to 80.3% (2009: 79.5%).
Solid capital structure, low interest expenses
With a loan-to-value of 35.7% (end of 2009: 37.2%), the capital structure remains very solid. During the reporting period, interest rate hedging transactions were concluded, which will allow PSP Swiss Property to continue benefiting from the historically low interest rate levels in the medium term. No bank loans will be due until 2013; bonds totalling CHF 290 million will mature in 2012. PSP Swiss Property has unused credit lines of CHF 630 million. This substantial amount allows the Company to continue to flexibly manage its capital and is an excellent basis for acquisitions.
In the reporting period, the average interest rate was 2.58% (2009: 2.54%). At the end of 2010, the average fixed-interest period was 3.2 years (end of 2009: 3.0 years).
Proposal for a higher nominal value reduction
The Board of Directors will propose a cash distribution in form of a nominal value reduction of CHF 2.80 per share (previous year: CHF 2.70 per share) to the Annual General Meeting on 1 April 2011, leading to an increase of 3.7%. Compared to net income excluding gains/losses on real estate investments (CHF 3.30), this corresponds to a payout ratio of 84.8%; in relation to the 2010 year-end closing price of the PSP-share (CHF 75.00), this corresponds to a payout yield of 3.7%.
Subsequent events
After the balance sheet date of 31 December 2010, the following properties were, respectively will be, transferred (transfer of benefit and risk): i) as at 1 February 2011: Rösslimatte 6/6A/6C (depot), Thun, and ii) as at 20 June 2011: Schützengasse 32, Zurich. The total sales price for the two properties amounts to CHF 12.1 million.
In early February 2011, the Swiss Federal Tax Authorities approved for PSP Swiss Property Ltd an amount of CHF 659.2 million of capital contributions. This amount (capital contribution reserves) may be used for tax privileged repayments to the shareholders in future business years.
Novelties in the reporting
In line with our transparency policy, two novelties are published in the 2010 annual report: the first-time publication of the EPRA performance figures and the sustainability report. In line with the Best Practice Recommendations of the EPRA (European Public Real Estate Association) Reporting and Accounting Committee, we now disclose the EPRA performance figures for 2009 and 2010. In addition, a sustainability report is published for the first time. This report includes information on ecological sustainability, i.e. the taking into account of environmental factors at all stages of business activity, as well as questions regarding economic and social sustainability.
Outlook 2011
PSP Swiss Property is confident about the medium- and long-term future due to its wellestablished market position, its strong capital base and the high quality of its property portfolio.
In the current year, the evaluation of acquisition opportunities as well as the management of vacancies will be at the top of the agenda. With a view to optimising the portfolio, significant investments are again planned in 2011 in individual properties to enhance their attractiveness.
With regard to vacancies in our investment portfolio, a stabilisation of the vacancy rate is targeted; the rate is expected to be approximately 9% at the end of 2011.
With regard to the sites and development projects, the focus will be on two sites in Zurich, the Hürlimann site (completion of the hotel) and the Löwenbräu site (construction start). The other sites are interesting projects which are partly still in the planning phase.
Based on the assumption of an unchanged property portfolio, an EBITDA excluding gains/losses on real estate investments of approximately CHF 220 million is expected for 2011 (2010: CHF 223.3 million). The slightly lower EBITDA results from three factors: i) higher chargefor increased renovation investments in a number of properties to enhance their attractiveness, ii) discontinuance of income from discontinued operations and iii) non recurrence of one-time tax refunds from submitting certain rental contracts to the value added tax (opting in).
