Real estate portfolio
At the end of September 2015, the real estate portfolio included 161 office and commercial properties as well as five development sites and four individual projects. The carrying value of the total portfolio stood at CHF 6.665 billion (end of 2014: CHF 6.608 billion). As per 2 September 2015, the investment property at Altstetterstrasse 124/Herrligstrasse 21 in Zurich was sold. No investment properties were purchased.
The project “Löwenstrasse 16” in Zurich was completed. The new construction offers a mixed use for offices and retail areas as well as one apartment. Also completed was the total renovation of the property at Bahnhofstrasse 10/Börsenstrasse 18 in Zurich. The use is mixed with retail areas and offices. And on 14 November 2015, “Bain Bleu Hammam Spa” in Geneva/Cologny will open. This new construction follows the already completed spas in Zurich and Locarno.
Early this year, work on the latest building project, “Hardturmstrasse 161/Förrlibuckstrasse 150” in Zurich began. The property will undergo a comprehensive renovation and will be brought up to date with regard to the technical installations until 2017. The new exterior and a state-of-the-art interior allowing flexible office layouts will increase the building’s appeal. The planned investment total will be approximately CHF 50 million.
Planning began for stage 2 of the currently largest project, the “Salmenpark” in Rheinfelden (the investment total of the whole project is approximately CHF 250 million, thereof approximately CHF 70 million for stage 2). Stage 2 includes 100 units of residential use only. The building application shall be submitted by the end of 2015.
With regard to the total renovation of “Bahnhofquai/Bahnhofplatz” in Zurich, discussions concerning technical issues are being held with the local authorities for the preservation of historical monuments. At the moment, the precise timeframe for the renovation work is difficult to predict.
Furthermore, the two buildings at Förrlibuckstrasse 178/180 and Hardturmstrasse 181, 183, 185 in Zurich West will be demolished. They will be replaced by an architecturally appealing construction conforming to today’s requirements regarding flexibility of use and sustainability. The building application for this project named “Orion” shall be submitted in autumn 2016; the new building will then presumably be constructed from 2017 to 2020. From today’s perspective, the investment total will amount to approximately CHF 120 million.
Vacancy rate
At the end of September 2015, the vacancy rate stood at 9.0% (end of 2014: 10.0%). 1.6 percentage points of these 9.0% were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.6 billion) contributed 2.0 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 5.4 percentage points.
Quarterly results Q1-Q3 2015
During the reporting period, net income excluding changes in fair value reached CHF 122.6 million (Q1-Q3 2014: CHF 129.5 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 0.8 million, and lower income from the sale of freehold apartments, which fell by CHF 4.6 million (during the reporting period, only three apartments were transferred). Furthermore, during the reporting period other income declined by CHF 2.5 million to CHF 1.5 million (Q1-Q3 2014: CHF 4.0 million). Corresponding earnings per share (excluding changes in fair value) amounted to CHF 2.67 (Q1-Q3 2014: CHF 2.82). For PSP Swiss Property, net income excluding changes in fair value is the basis for the distribution to shareholders.
During the reporting period, net income including changes in fair value amounted to CHF 132.4 million (Q1-Q3 2014: CHF 138.9 million). Earnings per share (including changes in fair value) amounted to CHF 2.89 (Q1-Q3 2014: CHF 3.03).
Strong capital structure
With total equity of CHF 3.811 billion (end of 2014: CHF 3.841 billion) – corresponding to an equity ratio of 56.6% (end of 2014: 57.5%) – PSP Swiss Property had a strong capital base at the end of September 2015. Interest-bearing debt amounted to CHF 1.979 billion, corresponding to 29.4% of total assets (end of 2014: CHF 1.929 billion respectively 28.9%). Currently, unused committed credit lines amount to CHF 660 million. No major committed bank loans will be due until 2019.
At the end of September 2015, the passing average interest rate was 1.59% (end of 2014: 1.70%). The average fixed-interest period was 3.6 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 2.5 million. The additional interest charges were 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 Swiss franc, the environment remains challenging. While the impact on the real estate sector is only indirect – unlike 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 be excluded to a large extent 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 challenging, presently there is no substantial weakening of market conditions.
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 conservative acquisition strategy and prudent 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 still expected (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. Partly due to the sale of an investment property in Q3 2015, rental income is expected to decline marginally.
With regard to the vacancies at the end of 2015, a rate of 9% is now expected (so far: below 10%; end of September 2015: 9.0%).
Key figures
Key financial figures | Unit | 2014 | Q1-3 2014 | Q1-3 2015 | Δ in %1 |
Rental income | CHF 1 000 | 277 150 | 207 080 | 206 278 | -0.4 |
EPRA like-for-like change | % | 0.2 | 0.2 | 0.5 | |
Net changes in fair value of real estate investments | CHF 1 000 | 5 789 | 10 977 | 13 085 | |
Income from property sales | CHF 1 000 | 8 839 | 8 824 | 3 569 | |
Total other income | CHF 1 000 | 6 987 | 6 087 | 3 660 | |
Net income | CHF 1 000 | 175 346 | 138 936 | 132 400 | -4.7 |
Net income excl. gains/losses on real estate investments2 | CHF 1 000 | 169 345 | 129 496 | 122 577 | -5.3 |
Ebitda excl. gains/losses on real estate investments | CHF 1 000 | 238 242 | 181 472 | 175 896 | -3.1 |
Ebitda margin | % | 81.8 | 82.4 | 82.5 | |
Total assets | CHF 1 000 | 6 684 665 | 6 631 127 | 6 731 802 | 0.7 |
Shareholders’ equity | CHF 1 000 | 3 840 795 | 3 806 859 | 3 810 905 | -0.8 |
Equity ratio | % | 57.5 | 57.4 | 56.6 | |
Return on equity | % | 4.6 | 4.8 | 4.6 | |
Interest-bearing debt | CHF 1 000 | 1 928 669 | 1 928 530 | 1 978 888 | 2.6 |
Interest-bearing debt in % of total assets | % | 28.9 | 29.1 | 29.4 | |
Portfolio key figures | | | | | |
Number of properties | Number | 161 | 161 | 161 | |
Carrying value properties | CHF 1 000 | 6 161 136 | 6 137 758 | 6 145 451 | -0.3 |
Implied yield, gross | % | 4.5 | 4.5 | 4.4 | |
Implied yield, net | % | 3.9 | 3.9 | 3.8 | |
Vacancy rate end of period (CHF) | % | 10.0 | 8.8 | 9.0 | |
Number of sites and development properties | Number | 10 | 10 | 9 | |
Carrying value sites/development properties | CHF 1 000 | 446 908 | 420 666 | 519 496 | 16.2 |
Employees | | | | | |
End of period | Posts | 83 | 85 | 87 | |
Equal full-time employees | Posts | 78 | 79 | 81 | |
Per share figures | | | | | |
Earnings per share (EPS)3 | CHF | 3.82 | 3.03 | 2.89 | -4.7 |
EPS excl. gains/losses on real estate investments3 | CHF | 3.69 | 2.82 | 2.67 | -5.3 |
Distribution per share | CHF | 3.254 | n.a. | n.a. | |
Net asset value per share (NAV)5 | CHF | 83.74 | 83.00 | 83.08 | -0.8 |
NAV per share before deducting of deferred taxes5 | CHF | 99.57 | 98.74 | 99.23 | -0.3 |
Share price end of period | CHF | 85.80 | 80.20 | 80.10 | -6.6 |
1 | Change to Q1-3 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. |