In a challenging market environment, PSP Swiss Property achieved a solid operating result.

Real estate portfolio

At the end of September 2023, the value of the portfolio was CHF 9.7 billion (end of 2022: CHF 9.4 billion), the vacancy rate was 3.2% (end of 2022: 3.0%). Of the lease contracts maturing in 2023 (CHF 43.0 million), only 3% were open at the end of September 2023. As per year-end 2023, we forecast a vacancy rate of below 4%. The slight increase is due to the reclassification of "B2Binz" (project completion in Q4 2023). The wault (weighted average unexpired lease term) of the total portfolio was 4.7 years.

In the reporting period, we purchased the modern office building at Pfingstweidstrasse 60/60b in Zurich for CHF 216.5 million. We sold the investment property at Bahnhofstrasse 23 in Interlaken for CHF 3.0 million, part of the Wädenswil site for CHF 13.0 million and the project “Spiegel” in Köniz near Bern for CHF 2.7 million. There were partial sales at the project “Residenza Parco Lago” in Paradiso and at the “Salmenpark” site in Rheinfelden totalling CHF 17.2 million.

Four larger projects were successfully completed, and the properties were reclassified back into the investment portfolio. The car park “P-West” in Zurich West was completely renovated (Q1 2023). “Clime” (a sustainable wooden building) in Basel was handed over to the tenants (Q2 2023). Furthermore, the two projects (both comprehensive renovations and modernisations) “Hotel de Banque” in Geneva and “Bahnhofplatz 2” in Zurich were completed (Q3 2023).

Real estate market

In the segment relevant to us (quality properties in central locations in the most important economic centres), the letting market remained satisfactory in the reporting period. For older office properties in B and C locations as well as non-food retail space, however, letting remained a challenge. The market was dynamic in the centres of Geneva and Zurich with continuously good demand for attractive letting space. The environment was more difficult in Basel with its oversupply of office space.

The transaction market for properties in good inner-city locations has hardly changed in the reporting period in terms of prices and initial yields. Despite higher interest rates, required yields remain very low for attractive investment opportunities in prime locations. The number of closed transactions, however, has decreased significantly in the reporting period. Investors continue to prefer assets with high cash flow visibility. Due to the uncertain economic development and higher interest rates, yield needed by investors have risen in peripheral locations and for qualitatively outdated properties.

Quarterly results Q1-Q3 2023

In the reporting period, the letting of commercial space developed positively. Rental income increased from CHF 236.8 million by CHF 10.7 million or 4.5% to CHF 247.6 million compared to the previous year’s period. The operational result, i.e., net income excluding gains/losses on real estate investments increased by CHF 29.5 million or 16.3% to CHF 210.8 million (Q1-Q3 2022: CHF 181.3 million). The release of deferred taxes in the amount of CHF 30.6 million had a positive effect on the overall result (this release was recorded in the half-year results 2023 as of the end of June 2023). For the calculation of the property gains tax contained in the deferred taxes on real estate, the market value 20 years ago is used in the relevant cantons, if applicable. The adoption of these market values led to the mentioned release of deferred taxes. On the other hand, lower profit from the sale of development projects and condominiums had a negative impact (CHF - 9.8 million compared to Q1-Q3 2022). Operating expenses decreased by CHF 1.3 million or 3.1% to CHF 41.7 million (Q1-Q3 2022: CHF 43.0 million). Financial expenses were up by CHF 6.9 million or 79.8% to CHF 15.5 million (Q1-Q3 2022: CHF 8.6 million). Earnings per share excluding gains/losses on real estate investments, which is the basis for the dividend distribution, amounted to CHF 4.59 (Q1-Q3 2022: CHF 3.95).

Net income reached CHF 155.3 million (Q1-Q3 2022: CHF 284.0 million). The decrease in net income by CHF 128.6 million or 45.3% was mainly due to the portfolio devaluation by CHF 67.2 million (Q1-Q3 2022: appreciation of CHF 131.9 million). As per 30 June 2023, the regular semi-annual portfolio valuation by our external real estate valuation company Wüest Partner resulted in a depreciation of CHF 90.7 million. Due to property-specific changes in value, we had two properties valued by Wüest Partner as of the end of September 2023, in accordance with our accounting principles (Bahnhofplatz 1, 2 / Bahnhofquai 9, 11, 15, Zurich: completion of project development; Binzring 15/17, Zurich: extension of lease contract). This resulted in a total appreciation of CHF 23.5 million. Earnings per share amounted to CHF 3.39 (Q1-Q3 2022: CHF 6.19).

At the end of September 2023, net asset value (NAV) per share was CHF 112.85 (end of 2022: CHF 113.33). NAV before deducting deferred taxes amounted to CHF 135.45 (end of 2022: CHF 136.62).

Solid capital structure

With total equity of CHF 5.2 billion at the end of September 2023 – corresponding to an equity ratio of 53.2% – the equity base remains strong (end of 2022: CHF 5.2 billion or 54.8%). Interest-bearing debt amounted to CHF 3.4 billion or 34.8% of total assets (end of 2022: CHF 3.1 billion or 32.6%). At the end of September 2023, the average passing cost of debt was at 0.88% (end of 2022: 0.47%). The average fixed-interest period was 4.1 years (end of 2022: 4.1 years). Currently, unused credit lines amount to CHF 1.0 billion (thereof CHF 0.7 billion committed). PSP Swiss Property has an Issuer Rating A3 and a Senior Unsecured Rating A3 (outlook stable) from Moody’s.

Outlook

In PSP Swiss Property‘s market segment, we expect demand for office space to remain sound. In general, due to the changing interest-rate environment, market participants are today confronted with challenges unlike anything we have seen in the last ten years. The valuation of properties must deal with these market uncertainties. Thanks to our low debt ratio of 34.8%, we are well positioned to cope with these challenges.

Major renovation projects will lead to manageable temporary rent losses in the current year. Nevertheless, we expect higher rental income overall in 2023 than in 2022 due to the indexation (inflation adjustment) of rental contracts as per the beginning of 2023, the completion of several projects as well as the acquisition in Zurich West.

We expect lower income from the sale of development projects and condominiums and stable operating expenses. The release of deferred taxes will positively impact net income excluding gains/losses on real estate investments (there will be a further release of deferred taxes of around CHF 60 million as per the end of 2023). Due to the higher interest-rate level, we expect higher financial expenses.

For the business year 2023, we expect an ebitda excluding gains/losses on real estate investments of CHF 295 million (2022: CHF 293.8 million). We are confident that we will be able to achieve another good operational result in 2023 to continue our shareholder-friendly dividend policy.

Key figures

Key financial figures

Unit

2022

Q1-Q3 2022

Q1-Q3 2023

+/-¹

Rental income

CHF 1 000

316 231

236 822

247 553

4.5%

EPRA like-for-like change

%

2.2

2.3

5.2

Net changes fair value real estate investments

CHF 1 000

124 886

131 894

-67 188

Income from property sales (inventories)

CHF 1 000

25 181

23 666

13 896

Income from property sales (investment properties)

CHF 1 000

-447

-447

910

Total other income

CHF 1 000

7 669

7 055

6 297

Net income

CHF 1 000

329 960

283 969

155 344

-45.3%

Net income excl. real estate gains²

CHF 1 000

235 714

181 293

210 756

16.3%

Ebitda excl. real estate gains

CHF 1 000

293 822

226 694

226 931

0.1%

Ebitda margin

%

83.9

84.4

84.7

Total assets

CHF 1 000

9 483 866

9 729 257

2.6%

Shareholders’ equity

CHF 1 000

5 198 379

5 176 208

-0.4%

Equity ratio

%

54.8

53.2

Return on equity

%

6.5

4.0

Interest-bearing debt

CHF 1 000

3 092 389

3 386 206

9.5%

Interest-bearing debt in % of total assets

%

32.6

34.8

Portfolio key figures

Number of investment properties

Number

162

162

Carrying value investment properties

CHF 1 000

8 886 673

9 097 462

2.4%

Implied yield, gross

%

3.5

3.7

Implied yield, net

%

3.1

3.2

Vacancy rate (CHF)

%

3.0

3.2

Number of sites and development properties

Number

13

11

Carrying value sites and development properties

CHF 1 000

534 382

559 639

4.7%

Headcount

Employees/FTE

Number

100/91

103/92

Per share figures

Earnings per share (EPS)³

CHF

7.19

6.19

3.39

-45.3%

EPS excl. real estate gains³

CHF

5.14

3.95

4.59

16.3%

EPRA EPS³

CHF

4.66

3.50

4.37

24.8%

Distribution per share

CHF

3.80⁴

n.a.

n.a.

Net asset value per share (NAV)⁵

CHF

113.33

112.85

-0.4%

NAV before deduction of deferred taxes⁵

CHF

136.62

135.45

-0.9%

EPRA NRV⁵

CHF

139.42

138.18

-0.9%

Share price end of period

CHF

108.50

108.20

-0.3%