Financial commentary CFO

Annual Report for the year 2020

2020 will enter the history books as an unprecedented financial year. The pandemic had a major social and economic impact in 2020, one that was felt by both the Swiss real estate sector and the Swiss Prime Site Group. However, despite the challenging situation, the Company still managed to meet many of its targeted goals and achieve good results in the end. In 2020, Swiss Prime Site generated an operating income of CHF 792.9 million [CHF 1 258.8 million] and an operating result (EBIT) of CHF 762.3 million [CHF 628.3 million]. The differences on both levels are mainly attributable to the sale of the group company Tertianum on 28 February 2020. EBIT for the core Real Estate business amounted to CHF 555.0 million [CHF 572.9 million]. This included revaluation gains of CHF 203.4 million in the property portfolio at a fair value of CHF 12.3 billion [CHF 11.8 billion]. The Services segment generated EBIT of CHF 207.3 million [CHF 55.5 million]. This big increase was due to the profit from the sale of Tertianum, which amounted to CHF 204.2 million. The result at profit level was CHF 610.4 million [CHF 608.5 million]. In contrast to the previous year, this value only includes a marginal positive tax effect of CHF 7.1 million [CHF 172.5 million] from the reversal of deferred tax liabilities arising from cantonal reductions in tax rates. Excluding revaluations and all deferred taxes, profit rose to CHF 476.6 million [CHF 315.7 million]. In all, Swiss Prime Site boosted its equity ratio to 47.8% [44.4%], thereby significantly strengthening the balance sheet.

Business performance

Swiss Prime Site’s core Real Estate business performed well despite the many challenges thrown up by the pandemic. Renewals and first-time lettings for a total of 85 000 m2 were secured in 2020. Although lower than the previous year (128 000 m2), this is still a solid figure under the circumstances. Realisation of the project pipeline proceeded according to plan in the reporting year. Major property developments were completed and handed over to anchor tenants. This included YOND in Zurich, Schönburg in Berne and West-Log in Zurich-Altstetten, as well as the first phases of Stücki Park in Basel and JED in Schlieren. The projects under construction are on schedule. They currently constitute an investment volume (including land) of CHF 1 080 million. Further projects with an investment volume of CHF 640 million (including land) are being planned. Building permits have been issued for the projects Alto Pont-Rouge in Geneva, the new build JED in Schlieren, Stücki Park II in Basel and Tertianum Lugano-Paradiso. The planning application for the building on Müllerstrasse in Zurich, which has already been let, was submitted. The potential projects that emerged from an architecture competition for the maaglive new build on the Prime Tower site are currently being assessed. A decision is expected in the coming months.

In the Services segment, the effects of the pandemic were felt to differing degrees by the individual group companies Swiss Prime Site Solutions, Wincasa and Jelmoli. Real estate asset manager Swiss Prime Site Solutions processed a high volume of tenant enquiries for its client Swiss Prime Investment Foundation. In addition, new and promising investment vehicles were launched or prepared for investors. In the fourth quarter of 2020, immoveris was merged with Swiss Prime Site Solutions, which increased the assets under management to CHF 3.0 billion [CHF 2.3 billion]. Despite the tough market, Wincasa was able to increase the size of managed investment properties to CHF 72.0 billion [CHF 71.0 billion]. The real estate service provider received more than 2 000 tenant requests associated with the pandemic, which it was only able to process by incurring huge additional costs on its income statement. Nevertheless, it continued to press forward with the transformation to a digital business model. Like many retailers, Jelmoli was not able to recover to the previous year’s level after being hit hard by the lockdown in the first half of the year. Performance during the second half of the year and during the Christmas period in particular was pleasing, and there were even some considerable improvements on the previous year.

Operating income

in CHF m01.01.– 31.12.201901.01.– 31.12.2020Change in %
Real Estate segment519.5482.9– 7.1
   Rental income from properties437.3431.0– 1.4
   Income from real estate developments79.850.1– 37.2
   Other operating income2.41.8– 25.0
Services segment828.4378.2– 54.4
   Rental income from propertiesn106.028.6– 73.1
   Income from real estate services148.1146.2– 1.3
   Income from retail127.8110.6– 13.4
   Income from assisted living423.972.4– 82.9
   Income from asset management13.513.1– 3.1
   Other operating income9.07.3– 19.7
Eliminations– 89.0– 68.1– 23.5
Total group1 258.8792.9– 37.0

Swiss Prime Site generated operating income of CHF 792.9 million [CHF 1 258.8 million] in 2020. The difference in comparison to the previous year is mostly attributable to the sale and deconsolidation of the group company Tertianum on 28 February 2020.

In a challenging market environment, the Real Estate segment generated rental income of CHF 431.0 million (−1.4%). On a like-for-like basis, there was a fall of 3.7%. This takes into account a CHF 12.7 million reduction in income caused by the effects of the coronavirus pandemic. Around CHF 4.0 million of this figure was due to lower than planned sales and parking rental income, and around CHF 9.0 million was attributable to the rent waivers granted. Operating income came in at CHF 482.9 million [CHF 519.5 million]. Despite the difficult market conditions, it was possible to bring vacancies in the portfolio back down to 5.1% [4.7%] after they had risen to 5.4% in the first half of 2020. The property portfolio grew by CHF 557.2 million (+4.7%) to CHF 12.3 billion. This increase was due to revaluation gains and the completion of the Company’s own project developments. At 3.2% [3.5%], the net yield on property on the real estate portfolio is at an attractive level in the market for prime properties.

The Services segment generated operating income of CHF 378.2 million [CHF 828.4 million]. In comparison to the previous year, this only includes two months of results for Tertianum, which largely explains the difference. Capital increases enabled Swiss Prime Site Solutions to generate new funds totalling CHF 160 million for its client Swiss Prime Investment Foundation and thereby finance some attractive transactions. Income from asset management amounted to CHF 13.1 million [CHF 13.5 million]. Wincasa generated income from real estate services amounting to CHF 146.2 million [CHF 148.1 million]. With the digital rental agreement for ancillary space, the transformation of the group company’s business model began to bear fruit. Jelmoli was heavily affected by the government-imposed lockdown in March, April and May. It was also hit hard by the partial restriction of Sunday shopping in the fourth quarter, which is traditionally the busiest period of the year for retailers. Income from retail was CHF 110.6 million, down by a considerable 13.4% on the previous year.

Operating result (EBIT)

in CHF m01.01.– 31.12.201901.01.– 31.12.2020Change in %
Real Estate segment572.9555.0– 3.1
Services segment55.5207.3273.7
Total group628.3762.321.3

In 2020, Swiss Prime Site increased its operating result (EBIT) by a considerable margin of 21.3% to CHF 762.3 million [CHF 628.3 million]. Income from the sale of Tertianum contributed substantially to this rise.

The core Real Estate business generated EBIT of CHF 555.0 million [CHF 572.9 million]. The 3.1% difference to the previous year was attributable to the impact of the coronavirus crisis. On the one hand, rental income dropped by CHF 12.7 million as a result of the pandemic. On the other hand, the costs involved in handling tenant enquiries increased. The operating result includes net revaluation gains of CHF 203.4 million [CHF 204.4 million]. The major part of these gains, CHF 164.5 million, relates to existing properties. Projects under construction made up the remaining CHF 38.9 million. The average real discount rate as at 31 December 2020 was 2.91%, 15 basis points lower than at the end of 2019. Excluding revaluations, the Real Estate segment generated EBIT of CHF 351.6 million [CHF 368.4 million]. The pro rata pre-tax profits from sold development projects (Espace Tourbillon and Weltpost Park) and the sale of existing property in Berne and Zurich during the year contributed a total of CHF 36.1 million [CHF 37.6 million] to the result.

The Services segment generated EBIT of CHF 207.3 million [CHF 55.5 million]. The significant increase is attributable to the profit of CHF 204.2 million from the sale of Tertianum.

The operating result excluding the profit of sale was CHF 3.1 million. EBIT was considerably lower due to the compulsory closure of Jelmoli for several months, as well as other pandemic-related costs incurred by Wincasa. Despite the lower income from transactions, Swiss Prime Site Solutions was able to achieve a result in line with expectations. At CHF 375.0 million [CHF 771.9 million], the operating expenses of the Service segment for 2020 were down significantly, due to lower personnel costs following the sale of Tertianum. The Swiss Prime Site Group employed a workforce totalling 1 728 persons [6 506] on the balance sheet date.

Profit

in CHF m01.01.– 31.12.201901.01.– 31.12.2020Change in %
Operating result (EBIT)628.3762.321.3
Financial expenses– 70.7– 60.5– 14.4
Financial income1.91.7– 10.6
Income tax expenses49.0– 93.1– 290.0
Profit608.5610.40.3
Profit excluding revaluations and deferred taxes315.7476.651.0

Swiss Prime Site generated a profit of CHF 610.4 million [CHF 608.5 million] in 2020. In contrast to the previous year, this value only includes a marginal positive tax effect of CHF 7.1 million [CHF 172.5 million] from the reversal of deferred tax liabilities arising from cantonal reductions in tax rates. Excluding revaluations and all deferred taxes, profits rose significantly to CHF 476.6 million [CHF 315.7 million]. This figure takes into account the profit of CHF 204.2 million resulting from the sale of Tertianum. Financial expenses were reduced to CHF 60.5 million [CHF 70.7 million] through new, long-term refinancing. EPS (earnings per share) was CHF 8.04 [CHF 8.00]. Excluding revaluations and all deferred taxes, EPS was CHF 6.27 [CHF 4.14].

Balance sheet figures

 in31.12.201931.12.2020Change
in %
Equity ratio%44.447.87.7
Return on equity (ROE)%11.510.6– 7.8
Net property yield%3.53.2– 8.6
Weighted average interest rate on financial liabilities%1.21.1– 8.3
Weighted average residual term to maturity of interest-bearing financial liabilitiesyears4.24.814.3
Loan-to-value ratio of property portfolio (LTV)%45.741.9– 8.3
NAV before deferred taxes per share1CHF86.3495.4110.5
NAV after deferred taxes per share1CHF71.8780.1111.5

1 Services segment (real estate-related business fields) included at book values only

In the fourth quarter of 2020, Swiss Prime Site successfully issued a green bond with a value of CHF 300 million, a term of nine years and a coupon of 0.65%. Due to attractive refinancing, the weighted average residual term to maturity of interest-bearing financial liabilities increased significantly to 4.8 years [4.2 years] and the interest rate on financial liabilities fell to 1.1% [1.2%]. In comparison to the somewhat lower net yield of 3.2% [3.5%] on the property portfolio, this implies a very attractive interest rate spread of 2.1% [2.3%].

The sale of Tertianum led to a cash inflow of CHF 600.4 million and a total profit of CHF 508.7 million. Of this figure, CHF 304.5 million was a repayment of goodwill recorded directly as equity and CHF 204.2 million was recorded as profit of the sale in EBIT. In addition, conversions of convertible bonds resulted in a marginal increase in shares issued to 75 970 364 [2019: 75 946 349] and thus a slight rise in equity by CHF 2.4 million. These effects led to a clear increase in the equity ratio to 47.8% [44.4%] and a reduction in the loan-to-value ratio of the property portfolio to 41.9% [45.7%]. NAV after deferred taxes rose significantly to CHF 80.11 per share (+11.5%). This takes into account the dividend payout of CHF 3.80 per share in April 2020. Swiss Prime Site generated a return on equity of 10.6% [11.5%]. Due to the profit of sale, this was significantly higher than the company’s long-term target of 6– 8%.

Outlook

In view of the development projects that were completed in 2020 and are largely fully let, Swiss Prime Site expects rental income to rise in 2021, subject to unforeseeable upheaval linked to the coronavirus pandemic. The vacancy rate in the portfolio will be reduced to below 5%. On a medium-term horizon, Swiss Prime Site is standing by the targets communicated in October 2020.