Real estate portfolio
At the end of September 2020, the carrying value of the total portfolio was CHF 8.479 billion (end of 2019: CHF 7.982 billion).
End of September 2020, we acquired three attractive commercial buildings in Geneva’s prime downtown location for CHF 295 million (CHF 304.1 million including transaction costs). The three adjacent properties are located at Rue de la Confédération 2 (8 100 m2 rental space), Rue de la Corraterie 5/7 (5 400 m2) and Rue de la Cité 6 (2 100 m2). The substance of the properties is very good and the location between the banking quarter, the old town and the prestigious Rue du Rhône is highly frequented. The main tenant is the seller UBS; smaller areas are let to five small companies. UBS will maintain its branch office at Rue de la Confédération 2 following layout modifications in the properties over the next two years. In the medium term, UBS will return a large part of the rented space in the two properties Rue de la Corraterie 5/7 and Rue de la Cité 6. We will modernise this spaces and market them in due course.
With effect from 1 August 2020, we carried out an asset swap with Zurich Insurance Group. The commercial building at Seilerstrasse 8 in Bern with 4 500 m2 rental space was acquired for CHF 23.7 million (we already own the immediately adjacent property at Seilerstrasse 8a). As a counter transaction, the development property at Zurlindenstrasse 134 in Zurich was sold for CHF 15.0 million, resulting in a gain of CHF 7.6 million.
At the end of March 2020, we acquired a plot with a commercial building (built in 1975/1991) at Grubenstrasse 6 in Zurich (district 2) for CHF 33.5 million. We will replace the compound with a modern new building offering a mixed use (around 5 600 m2 of office and 5 900 m2 of commercial space). The investment total will amount to approximately CHF 35 million. The new property will benefit from its good location; the bus and suburban railway stations Zurich Binz are located right next to the building. We submitted the building application in mid-May 2020. Demolition work on the existing building was completed end of September 2020. The new building will be realised between 2021 and 2023.
The properties acquired at Bärenplatz in Bern in January 2019 will be extensively renovated and modernised by the end of 2021. Clearance and dismantling work was completed mid-2020. The investment sum amounts to around CHF 14 million. The ground floor and the first basement floor are intended to be used for gastronomy (around 1 100 m2), with office space above (around 1 300 m2) and some small apartments (around 900 m2) in the uppermost parts of the building. 30% of the space (gastronomy area) has already been pre-let.
The office building at Grosspeterstrasse 18 in Basel no longer meets today's requirements. Planned is a new construction with around 5 600 m2 of office space; 50% has already been pre-let to Swisscom. A further 8% of the space has been pre-let to a catering operator in Q4 2020. The investment total amounts to around CHF 34 million. In August 2020, we started the dismantling process. Completion is scheduled for the end of 2022.
The hotel project "Rue du Marché" in Geneva with an investment sum of around CHF 35 million has successfully been completed. The hotel operator citizenM started operations at the beginning of September 2020.
The total appreciation for the Q1-Q3 2020 period amounts to CHF 28.0 million. Mid-2020, the appreciation was CHF 31.1 million. Thereof, CHF 26.4 million were related to the investment portfolio and CHF 4.7 million to the sites and developments projects. At mid-2020, the portfolio’s weighted average nominal discount rate stood at 3.29% (year-end 2019: 3.32%). The appreciation resulted mainly from the lower discount rate as well as from various lettings and the reduction in vacancies. In contrast, more cautious income forecasts in connection with COVID-19 had the effect of reducing the value in individual cases. In Q3 2020, there was a devaluation totalling CHF 3.2 million. This consists of appreciations of the property at Heinrich Stutz-Str. 27/29 in Urdorf and the property at Seilerstrasse 8 in Bern purchased in Q3 2020. Devaluations, due to transaction costs, were recorded for the properties at Rue de la Confédération 2, Rue de la Corraterie 5, 7 and Rue de la Cité 6 in Geneva acquired in Q3 2020.
At the end of September 2020, the vacancy rate stood at 3.3% (end of 2019: 3.5%). 0.6 percentage points of all vacancies is due to ongoing renovations. Of the lease contracts maturing in 2020 (CHF 31.7 million), 95% were already renewed. The wault (weighted average unexpired lease term) of the total portfolio was 4.2 years. The wault of the ten largest tenants, contributing around 30% of the rental income, was 5.4 years.
Quarterly results Q1-Q3 2020 (9 months)
Net income excluding gains/losses on real estate investments amounted to CHF 159.7 million, this corresponds to a decrease of CHF 7.7 million or 4.6% compared to the previous year’s period (Q1-Q3 2019: CHF 167.4 million). The decrease is due to positive one-off effects in the previous year’s period – the reduction of income tax rates in several cantons resulted in a release of deferred taxes totalling CHF 59.0 million, of which CHF 22.1 million had a positive impact on net income excluding gains/losses on real estate investments.
Rental income increased by CHF 4.2 million to CHF 221.2 million (Q1-Q3 2019: CHF 217.0 million). This is despite the fact that during the reporting period, rent reliefs of CHF 2.8 million were recorded in connection with the lockdown. Income from the sale of condominiums and projects was up by CHF 1.7 million to CHF 11.1 million (Q1-Q3 2019: CHF 9.4 million). Capitalised own services and other income also increased, by CHF 1.5 million and CHF 3.3 million respectively. Operating expenses decreased by CHF 2.8 million to CHF 39.6 million (Q1-Q3 2019: CHF 42.4 million). Financial expenses declined by CHF 4.7 million to CHF 10.1 million (Q1-Q3 2019: CHF 14.8 million).
Earnings per share excluding gains/losses on real estate investments, which is the basis for the dividend distribution, amounted to CHF 3.48 during the reporting period (Q1-Q3 2019: CHF 3.65).
Net income reached CHF 179.9 million (Q1-Q3 2019: CHF 311.5 million). One-off effects during the previous year’s period also explain the decline in net income by CHF 131.6 million or 42.2%. In addition to the effects already mentioned, the portfolio appreciation in the reporting period was lower at CHF 28.0 million compared to Q1-Q3 2019 (CHF 124.7 million). Furthermore, in the previous year's period, income of CHF 15.0 million resulted from the sale of two investment properties. Earnings per share amounted to CHF 3.92 (Q1-Q3 2019: CHF 6.79).
At the end of September 2020, net asset value (NAV) per share was CHF 97.35 (end of 2019: CHF 97.02); the dividend of CHF 3.60 per share paid on 17 April 2020 must be considered in this regard. NAV before deducting deferred taxes amounted to CHF 116.63 (end of 2019: CHF 115.82).
Strong capital structure
With total equity of CHF 4.465 billion at the end of September 2020 – corresponding to an equity ratio of 52.3% (end of 2019: CHF 4.450 billion or 55.4%) – the equity base remains strong. Interest-bearing debt amounted to CHF 3.087 billion, corresponding to 36.1% of total assets (end of 2019: CHF 2.596 billion or 32.3%). The small increase compared to mid-2020 (34.3%) was due to the debt-financed acquisition of the properties in Geneva totalling CHF 304 million. At the end of September 2020, the average cost of debt was low at 0.46% (end of 2019: 0.73 %). The average fixed-interest period was 5.1 years (end of 2019: 4.4 years). Currently, unused credit lines amount to CHF 960 million (thereof CHF 700 million committed).
PSP Swiss Property has ratings from two international rating agencies: Senior Unsecured Rating A- (outlook stable) from Fitch and A3 Issuer Rating (outlook stable) from Moody’s.
Remarks with regard to the corona crisis
The measures taken by the authorities in mid-March 2020 and at the end of October 2020 to combat coronavirus do have a severe impact on the population and the economy. How long it will take to return to normality is impossible to predict from today’s perspective. This depends on how a future spread of the coronavirus can be contained and how severe the spring 2020 lockdown and current restrictions have damaged or will damage the economy.
Thanks to its broad portfolio diversification and its focus on office use, the exposure of PSP Swiss Property in the sectors affected by the official business closures is manageable (20% of rental income). Moreover, the impact on these tenants varies widely. PSP Swiss Property has approximately 2 300 tenants; thereof, around 220 were directly affected by the ordered closure of their businesses in spring 2020. About 350 tenants had applied for a deferral of payment or a rent adjustment. As an emergency measure, payment extensions were granted, if this was appropriate. Overall, rent reliefs in the amount of CHF 2.8 million were recognised during the reporting period. The level of rent collection was high at 98% in Q3 2020 (Q2 2020: 94%). As at 30 September 2020, outstanding lockdown-related rent receivables amounted to CHF 4.7 million (mid-2020: CHF 5.2 million).
In June 2020, the Federal Council was mandated by a motion to draft a law requiring a subsequent rent reduction of 60% in favour of tenants affected by the authorities' closure of their businesses. The planned regulation is intended to ensure that agreements made between tenants prior to the adoption of the law remain valid; and will apply only to monthly rents of up to CHF 20 000, with the possibility for both, the landlord and the tenants, to refuse the regulation if the monthly rent exceeds CHF 15 000. The Federal Council has drafted a law to this effect, which the National Council voted in favour of at the special session at the end of October 2020. After detailed consultation, the parliament will debate it in the December session at the earliest. The introduction of a corresponding regulation (for monthly rents up to CHF 15 000) would result in total estimated rent reliefs of additional approximately CHF 0.5 million for PSP Swiss Property.
Market environment and outlook 2020
An outlook of the Swiss economy is more difficult than ever. Most forecasts predict a decline in GDP by around 4% for 2020. It is just as difficult to anticipate the impact of the corona crisis on the real estate sector. More than ever, it must be differentiated between the various sub-segments. The situation is different for office space and other commercial properties and it varies significantly depending on the quality of their location. PSP Swiss Property expects demand for modern office space in A-locations to remain stable in the coming months. On the other hand, the market for older office buildings in B- and C-locations as well as non-food retail space, which had been challenging even before the crisis, will remain difficult for the time being.
It is yet too early for a final assessment of the impact the corona crisis will have on our business activities. However, PSP Swiss Property is well prepared for the times ahead for a number of reasons: we have a high-quality portfolio with a low vacancy rate. The main use is office space and the tenant base is broadly diversified. The development projects, most of which are already well let, will generate further growth. We also have a solid equity base and sufficient financing sources.
For the business year 2020, an ebitda excluding gains/losses on real estate investments of around CHF 270 million is confirmed (2019: CHF 256.1 million). With regard to the vacancies, a rate of around 3% at year-end 2020 is confirmed (end of September 2020: 3.3%).
Key figures
Key financial figures | Unit | 2019 | Q1-3 2019 | Q1-3 2020 | +/-1 |
Rental income | CHF 1 000 | 290 460 | 217 011 | 221 174 | 1.9% |
EPRA like-for-like change | % | 1.2 | 1.0 | -0.32 | |
Net changes fair value real estate investments | CHF 1 000 | 244 176 | 124 688 | 27 977 | |
Income property sales (inventories) | CHF 1 000 | 12 835 | 9 403 | 11 124 | |
Income property sales (investment properties) | CHF 1 000 | 14 961 | 14 961 | 0 | |
Total other income | CHF 1 000 | 7 957 | 7 173 | 11 902 | |
Net income | CHF 1 000 | 453 425 | 311 497 | 179 917 | -42.2% |
Net income excl. real estate gains3 | CHF 1 000 | 215 214 | 167 450 | 159 720 | -4.6% |
Ebitda excl. real estate gains | CHF 1 000 | 256 145 | 193 223 | 205 619 | 6.4% |
Ebitda margin | % | 82.0 | 82.3 | 84.2 | |
Total assets | CHF 1 000 | 8 036 244 | | 8 542 909 | 6.3% |
Shareholders’ equity | CHF 1 000 | 4 450 220 | | 4 465 317 | 0.3% |
Equity ratio | % | 55.4 | | 52.3 | |
Return on equity | % | 10.5 | 9.8 | 5.4 | |
Interest-bearing debt | CHF 1 000 | 2 596 136 | | 3 087 449 | 18.9% |
Interest-bearing debt in % of total assets | % | 32.3 | | 36.1 | |
Portfolio key figures | | | | | |
Number of investment properties | Number | 162 | | 163 | |
Carrying value investment properties | CHF 1 000 | 7 259 441 | | 7 671 154 | 5.7% |
Implied yield, gross | % | 4.0 | 4.0 | 3.8 | |
Implied yield, net | % | 3.4 | 3.4 | 3.3 | |
Vacancy rate end of period (CHF) | % | 3.5 | | 3.3 | |
Number of sites/development properties | Number | 12 | | 14 | |
Carrying value sites/development properties | CHF 1 000 | 722 223 | | 807 741 | 11.8% |
Headcount | | | | | |
Employees/FTE | People | 94/89 | | 97/89 | |
Per share figures | | | | | |
Earnings per share (EPS)4 | CHF | 9.89 | 6.79 | 3.92 | -42.2% |
EPS excl. real estate gains4 | CHF | 4.69 | 3.65 | 3.48 | -4.6% |
EPRA EPS | CHF | 3.94 | 2.97 | 3.29 | 10.5% |
Distribution per share | CHF | 3.605 | n.a. | n.a. | |
Net asset value per share (NAV)6 | CHF | 97.02 | | 97.35 | 0.3% |
NAV per share before deferred taxes6 | CHF | 115.82 | | 116.63 | 0.7% |
EPRA NAV | CHF | 117.04 | | 117.85 | 0.7% |
Share price end of period | CHF | 133.60 | | 111.50 | -16.5% |
1 | Change to Q1-3 2019 or carrying value as of 31 December 2019 as applicable. |
2 | EPRA like-for-like change excluding COVID-19 impact is +1.0%. |
3 | “Net income excluding gains/losses on real estate investments” corresponds to the net income excluding net changes in fair value of the real estate investments, net income on sales of investment properties 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”. |
4 | Based on average number of outstanding shares. |
5 | For the business year 2019. Cash payment was made on 17 April 2020. |
6 | Based on number of outstanding shares. |
Further information
Giacomo Balzarini, CEO · Phone +41 (0)44 625 59 59 · Mobile +41 (0)79 207 32 40
Vasco Cecchini, CCO · Phone +41 (0)44 625 57 23 · Mobile +41 (0)79 650 84 32
Report and presentation are available on www.psp.info
www.psp.info/reports
www.psp.info/presentations
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Agenda
Publication FY 2020 · 23 February 2021
Annual General Meeting 2021 · 31 March 2021
Publication Q1 2021 · 30 April 2021
Publication H1 2021 · 20 August 2021
Publication Q1-Q3 2021 · 9 November 2021
