W e have all been living in extraordinary times for nearly two years now. Although we have gradually got used to the circumstances around us and learned to live with them, the pandemic has had a significant impact on all of us. Despite that, there were some encouraging signs from the economy and society in 2021. Over the last twelve months, the Swiss Prime Site Group has been successful in the market, achieving key strategic and operational milestones and reaching its objectives. With a profit of CHF 507.4 million, equivalent to CHF 6.68 per share, we have achieved very strong results. The Board of Directors will therefore propose a distribution of CHF 3.35 to the 2022 Annual General Meeting.

The 2021 financial year began with a lockdown that lasted several months. Over the course of the year, however, initial concerns about the potentially severe implications for the office space market were proven to be unfounded. The Board of Directors and management were therefore able to focus on core strategic and operational matters. These included further establishing the Swiss Prime Site Group as the leading real estate investment platform in Switzerland and realising an associated increase in the group’s profitability, resilience and sustainability.

This strategy also led us to acquire the successful Akara Group in Zug as at the end of 2021. This is complementary to our group company Swiss Prime Site Solutions. In the Real Estate segment, we achieved key milestones in four core areas: vacancy rate reduction, active portfolio management, optimisation of types of use and capital recycling. To further improve the Company’s flexibility and agility, we also significantly adjusted the Company’s financing in 2021 by arranging unsecured syndicated loans totalling CHF 2.6 billion. This new financing is also directly linked to our sustainability goals. Starting the construction of our first circular economy project on Müllerstrasse in Zurich represents a milestone in this area.

The renewal process within the Executive Management and Board of Directors con­tinues apace. In 2021, we were able to fill key positions with Barbara Knoflach as a member of the Board of Directors of Swiss Prime Site, Martin Kaleja as CEO of Swiss Prime Site Immo­bilien, Anastasius Tschopp as CEO of Swiss Prime Site Solutions and Marcel Kucher as CFO of our Group. We are pleased that we can now propose to the Annual General Meeting that Barbara Frei-Spreiter will be replaced by Brigitte Walter on the Board of Directors of Swiss Prime Site. In addition to a generation change, we have also added more expertise to our committees. Remuneration guidelines have been further refined and linked to key sustainability ambitions.

My colleagues and I are pleased that we have been able to generate positive results even in these challenging times. This shows that our sustainable business model as a comprehensive real estate platform is both robust and agile. This redesigned review will give you an overview of the dynamics and key processes within the Swiss Prime Site Group.

I would like to thank all our employees for their considerable dedication during this challenging year as well as you, our shareholders, for your trust and interest in Swiss Prime Site.

Ton Büchner
Chairman of the Board of Directors

René Zahnd (CEO) and Marcel Kucher (CFO) look back on an eventful 2021 financial year. Despite numerous challenges, positive results were generated and many milestones reached.

What were the most important milestones that you achieved this year?

René Zahnd: Generally, in the first half of 2021 we were pleased when things started to open up again after the second wave of the pandemic and many of our tenants, as well as broad swathes of the economy, were able to resume their work again. And through our own efforts, we also managed to increase rental income, significantly reduce the vacancy rate, enhance our portfolio and strengthen our business model with the acquisition of the Akara Group.

Marcel Kucher, you became the new CFO of Swiss Prime Site in the middle of 2021. What were your milestones in your first six months?

Marcel Kucher: I’m very satisfied in my new role and the company has made me extremely welcome. We published excellent half-year results and hosted a successful investors’ day. However, by far the most significant achievement was the refinancing of a large portion of our balance sheet totalling CHF 2.6 billion.

Let’s talk about the organisational changes first. There are three new members of the Executive Board. Can you tell us a bit more about them?

RZ: Given the size of our Executive Board, it sounds like a lot, but actually it was a structured, planned renewal process, similar to the one that has taken place on our Board of Directors. Martin Kaleja has been leading Swiss Prime Site Immobilien since the beginning of the year and has given our property portfolio more strategic direction and definition. Anastasius Tschopp manages the group company Swiss Prime Site Solutions. Due to the increasing importance of real
estate asset management, it was a logical step to appoint him to the Executive Board.
Marcel Kucher took over the position of the CFO by mid-year and very quickly realigned our financing to an internationally comparable level.

Can you give us more details about the refinancing?

MK: On Capital Markets Day in 2021, we introduced our new capital management principles. The key principles include optimising the mix of equity and borrowed capital, increasing financial flexibility, ensuring homogeneity of financing sources, reducing refinancing risks and minimising financing costs. Building on these principles, we concluded a contract with eleven Swiss banking institutions for two unsecured credit facilities worth CHF 2.6 billion.

«This will increase our financial flexibility and significantly reduce interest costs.»
Marcel Kucher, CFO

What do these facilities cover and what impact will they have?

MK: First, Swiss Prime is using CHF 1.8 billion to redeem the vast majority of its bank mortgages, which as at 30 June 2021 were mostly secured with real estate. In addition, we have secured a committed revolving credit facility (RCF) for CHF 0.8 billion. With this change, the proportion of properties not secured by mortgages in Swiss Prime Site’s entire portfolio will increase from just under 30 percent to more than 80 percent and will ensure that the vast majority of the providers of borrowed capital are treated equally. This will increase our financial flexibility and significantly reduce interest payments.

You mentioned reaching an international level. Can you expand on that?

RZ: Internationally, very few real estate companies are financed using mortgages. Through this significant optimisation of our financing structure, we are increasing our position in relation to both European and global competitors. In the medium term, this should also lead to an improvement in our credit rating.

The link to sustainability is interesting. What’s that about?

RZ: A key aspect of the new financing is the fact that it also contributes towards our comprehensive sustainability goals. In addition to other parameters, the credit margin to be paid is impacted by any changes in our ESG rating. This enables Swiss Prime Site to further integrate financial and non-financial performance, building on the green bonds already issued.

«A key aspect of the new financing is the fact that it also contributes towards our comprehensive sustainability goals.»
René Zahnd, CEO

Keyword flexibility: this was another year when you had to be flexible as a company. How strongly have you felt the effects of the pandemic in your business and in your figures?

RZ: Neither we nor our customers have remained unaffected by the pandemic this year. Where reasonable and necessary, we made concessions towards our tenants and this was reflected in positive feedback in our tenant survey. The hotel and gastronomy sector was particularly affected, with our city hotels – normally very popular for business trips – experiencing a significant downturn in business in the first half of the year. Overall, the pandemic cost us rent waivers of around CHF 5 million in 2021 (2020: CHF 9 million). The significant decline compared to 2020 shows that our tenants and the economy in general were significantly better at handling the pandemic in its second year.

What other feedback have you received from your tenants?

RZ: Firstly, and most importantly: the COVID-19 pandemic has not affected the demand for space. But it has accentuated various trends in the real estate market, with a greater customer focus on prime locations and a high level of spatial flexibility. The vast majority of our tenants have either the same or slightly increased spatial requirements. Furthermore, tenants have given Swiss Prime Site very good marks in the categories of overall satisfaction and loyalty. Issues such as health and sustainability have also become more significant. Like Swiss Prime Site itself, many of our tenants want to decrease their CO₂ emissions both directly and indirectly. We are supporting this by making significant investments in our existing property portfolio.

What do you understand by the term «spatial flexibility»?

MK: The pandemic has made it clear that our tenants and their employees want to use their spaces in a flexible way. This means that based on the situation, they decide with their employees when they will work at the company's offices. The result is that a lot fewer fixed workplaces are required. However, many of our tenants have told us that by contrast, they need more general-purpose spaces for discussions, meetings, workshops or just to get together, and that this is extremely important for their corporate culture and to promote innovation and teamwork. We therefore need to provide the right spaces in the right location and – as shown by the results of our survey last summer – we’re ideally placed to do that.

«There’s no trend towards a reduction in space requirements.»
Marcel Kucher, CFO

The low vacancy rates also show that the requirement for space is not dwindling. Are you expecting to see a further reduction here?
RZ: Over the course of the year, we significantly reduced the vacancy rate, from 5.1% in 2020 to 4.6%. Achieving this in the middle of a pandemic is down to the strong performance of Martin Kaleja’s team. At a time when the media in particular were talking about a trend towards smaller spaces, the team managed to let or re-let around 169 000 m². To put this figure in perspective: it’s more than four times the space in the Prime Tower and one of the highest rental figures of the last six years!

Is there perhaps a misconception here that needs to be cleared up?
MK: Our tenant survey, vacancy rate and the square metres of new rentals send a clear message and show that our customers want to continue to offer their employees a central location where they can express their corporate culture and values, and work and develop together. So there’s no question of a trend towards a reduction in space requirements.

At the beginning, you mentioned that you managed to increase rental income through your own efforts. How did you do that?
RZ: Prices for offices and other spaces are stable. However, we know that location – fuelled by the pandemic – has become more important. In addition to contemporary surroundings, our customers want to offer their employees centrally located workplaces that are easy to get to. This is known as POI, or point of interest. Our first-class portfolio gives us an advantage here. Our efforts to offer more flexible spaces within our properties – such as co-working spaces – have also been very popular.

So, tenants are becoming more demanding in this aspect?
MK: The individuality of their spaces was important to our tenants even before the pandemic. What’s changed in the last two years is that tenants increasingly want additional services that they can draw on as required. These services can include rentable general-purpose spaces, meeting and workshop facilities as well as co-working spaces.

What does this mean for you?
RZ: We have responded to these demands and adjusted our product range. Adopting the motto «Space as a service», this year we expanded our collaboration with FlexOffice and memox. We also entered into a new partnership with Superlab Suisse. Ready-to-use laboratories are in high demand in certain industries. In Stücki Park in Basel, we worked with ZIP to launch our own co-working product onto the market. All of these developments contributed to a successful year for us.

«Beyond that, going forward we simply must build our real estate in such a way that it can serve as a source of re­usable materials at the end of its useful life.»
René Zahnd, CEO

Have your adjusted your project pipeline accordingly?

MK: That’s not been necessary. We simply made a few adjustments to our space planning, for example, in our Stücki Park project and the JED (new building). In those locations, we’ve planned in additional spaces for flexible use laboratories.

Was the implementation of the project pipeline impacted by the pandemic in any way?

RZ: No, fortunately not. All projects are on schedule. However, we are noticing at the moment that our general contractors are experiencing difficulties getting in some materials – such as wood – on time. So far, though, this has not impacted the progress of the projects.

One of your flagship projects is Müllerstrasse in Zurich. Has the new tenant insisted that the modification be in line with circular economy principles?

RZ: We count ourselves fortunate to be handing over such a prominent piece of real estate to an equally prominent tenant in 2023. Sustainability has been a top priority for us for a long time and we want to be carbon-neutral by 2040. We are very pleased that sustainability is also important for our tenants. So we have the opportunity to carry out the modification for Google based on circular economy principles. Beyond that, going forward we simply must build our real estate in such a way that it can serve as a source of reusable materials at the end of its useful life. We owe it to ourselves and to society to re-use materials and reduce our CO₂ emissions in this way.

Can you be more specific?

RZ: Well, the real estate and construction industry is responsible for a significant proportion of Switzerland’s CO₂ emissions – estimates put it at up to 40%. If, as a country, we want to be climate-neutral by 2050, then we need to build our real estate so that the materials can be separated and recycled at the end of their life cycle.

Is this kind of construction more cost-intensive?

MK: If you plan intelligently right from the start and work with specialists, the costs aren’t any higher. This is another situation in which the construction budget is more accurate than is generally the case with traditional construction projects. You also have to consider that at the end of their life cycle, the built materials have a value and can be re-sold.

You mentioned expanding your business model. Could you provide a bit more detail?

MK: We said last year that our portfolio of around CHF 12–13 billion in directly owned real estate had reached a very good size. The aim now is to further focus the portfolio and adjust it to suit the needs of our tenants. We have also set ourselves the goal of increasing our investment in the business of Real Estate Asset Management. At the start of 2021, our group company Swiss Prime Site Solutions submitted an application to FINMA for a fund licence which was granted. With CHF 144 million in equity, we were able to launch IF commercial as planned with an investment volume of CHF 220 million. Together with our investment foundation, we raised CHF 500 million in new money on the market in 2021. This is an impressive achievement.

At the end of the year, you completed an acquisition.

RZ: Yes, that’s right. At the end of the year, we announced the purchase of the fund provider Akara. This strengthens our position as a comprehensive real estate investment platform.

Can you explain the idea behind this concept?

RZ: With us, investors can invest either directly or indirectly in real estate or in products based on it. We provide real estate investment vehicles and real estate mandates for the full spectrum of investors, from qualified private investors through to institutional investors. The investment strategies differ depending on the types of use, regions and financing requirements, as well as the legal regulations for the vehicles and mandates. The services offered for the investment vehicles and mandates cover the full value creation chain along the real estate life cycle.

Why did you decide on an acquisition-based growth path?

RZ: The purchase of the Akara Group has significantly accelerated the organic growth achieved so far. The funds provider complements our group company Swiss Prime Site Solutions perfectly, and there are significant synergies. These include the merger of the fund management companies and the 100-plus new investors who we’ve welcomed to Swiss Prime Site.

What other positive impacts have resulted from the transaction?

MK: The capital requirement is manageable and the purchase results in immediate gains, both in terms of profit and value. In addition, the LPCI vehicle (limited partnership for collective investments) – a private equity real estate investment regulated by FINMA – provides us with an additional and innovative investment product.

Beside Swiss Prime Site Solutions, the Services segment includes also the group companies Wincasa and Jelmoli. How have they developed over the last financial year?

RZ: Wincasa is making considerable progress in the digitalisation of its business model. Next year and beyond, we are expecting to see a significant rise in profitability. Due to the pandemic and a long lockdown, Jelmoli had another difficult year in 2021. However, the management’s reaction to this was extremely agile, and substantially contributed to halving the losses of 2020.

What are you expecting in 2022?

RZ: In the Real Estate segment, we are pressing ahead at full speed with ongoing development projects and focusing our portfolio on prime locations and properties, with corresponding sustainability advantages. We therefore expect to record consistent growth and a further fall in our vacancy rate. We see considerable growth potential in real estate asset management. Following the acquisition and integration of the Akara Group, we are expecting an extremely dynamic and successful year. Our capital recycling approach (sale investment properties, reinvestment into developments) will ensure a steady balance sheet and we may even be able to improve some of our core figures.

Swiss Prime Site performed strongly in the 2021 financial year and surpassed its own targets significantly. Both segments and all of the group companies contributed to this pleasing result. The fact that these results were achieved in spite of a lockdown lasting several months makes them all the more impressive. On a strategic and financial level, Swiss Prime Site has taken important steps to become even better equipped, more agile and more flexible in dealing with future challenges.

The  sale of the Tertianum Group on 28 February 2020 limits the comparability of the 2021 key figures with the previous year. On the one hand, the 2020 figures include Tertianum’s results for two months. On the other, the profit from the sale (CHF 204.2 million) was allocated to the prior year period. In order to present Swiss Prime Site’s results and performance in a more transparent and comparable manner, we are publishing a supplementary «pro forma» calculation of the figures for the 2020 financial year, which excludes the aforementioned effects from the sale of Tertianum.

O n a comparable basis the operating income increased by a pleasing 5.1% to CHF 744.9 million. Both segments and all of the group companies contributed to this very good result. This once again highlights the stability and resilience of our Company, particularly in light of the pandemic situation, which continues to be challenging. The significant improvement in our results was mainly attributable to four key driving factors: the manageable impact of the COVID-19 pandemic, strong operating performance in the area of rental income from existing properties and development projects, the quality of our portfolio and the associated valuation outcome, and exceptional growth in the Services segment driven by the group companies Swiss Prime Site Solutions, Wincasa and Jelmoli.

2. Rental income: increase in operating income

Despite the rent waivers granted, rental income increased by an impressive 3.1% (target: +2.5%) to CHF 426.7 million. This result is due to the sharp decline in vacancies from 5.1% to 4.6% (target: 4.6–4.8%), projects that were completed and transferred to the portfolio, and growth in operating rental income (like-for-like: +0.5%). We were also very successful with letting existing properties and projects in the 2021 financial year. We let or re-let around 170 000 m², exceeding the figure for 2019 by around one third. The rental market proved very attractive, with significant leases in the major centres of Geneva, Basel and Zurich.

3. Property portfolio: significant revaluation gains

The robust state of the market and the exceptional quality of our properties are also reflected in the value of Swiss Prime Site’s portfolio. Despite sales of CHF 146.4 million, the port­folio value grew by CHF 470.9 million to CHF 12.8 billion. Investments in projects of CHF 280 million and favourable revaluation gains of CHF 318.8 million both contributed to this positive development. Due to higher rents, however, the net yield on property remained unchanged at attractive 3.2%. This is a strong indication that we generated the valuation outcome with our operational activities.

4. Services segment: strong performance

In the Services segment, Swiss Prime Site Solutions again reported outstanding growth in real estate assets under management, reporting an increase from CHF 3.0 billion to CHF 3.6 billion. The group company’s operating income rose by 38.8% to CHF 18.2 million. Contributing factors were the launch of various products domestically and abroad, success in acquiring additional management contracts and the growth of existing products. The positive flow-on effects from this will begin to unfold fully in the coming financial year. Following its approval as a fund manager and acquisition of fund provider Akara, the real estate asset manager’s growth will be even more pronounced in 2022 and beyond. Wincasa asserted itself in a highly competitive market and reported improved operating income and 3.6% growth compared to the previous year. Despite an extended lockdown in the first half of the year, Jelmoli also improved significantly and reported an 8.1% increase in operating income. This represents a significant increase compared to the market as a whole.

Exceptional increase in profitability

Thanks to stable personnel costs and only a slight increase in other operating costs, we were able to convert our increased income into significantly higher profitability. This positive development on the cost side clearly demonstrates the potential of Swiss Prime Site’s comprehensive property platform in terms of synergies, digitalisation and resulting improvements in efficiency. A total of CHF 54.8 million (incl. PoC) against CHF 36.1 million in the previous year in pre-tax profits was realised from sales. The group’s operating result (EBIT) before revaluations increased markedly by 12.5% (target: +5.0%) to CHF 396.6 million. Even excluding the effect of sales, an above-average increase of 8.0% was reported.

Impressive profit growth

In terms of company profit, Swiss Prime Site generated CHF 507.4 million, an increase of 25.2%. This result is all the more pleasing given that income taxes were higher and a special effect of CHF 24.9 million was recognised as a result of extensive refinancing at the end of 2021. The aforementioned one-off effect relates to early repayment charges and other costs associated with the discharge of bank mortgages amounting to CHF 1.8 billion. As a result of changing our sources of financing, future interest charges (associated with the discharged bank mortgages) will decrease by around 50%, or CHF 10–12 million per annum. The increase in income taxes is attributable to higher revaluation gains and gains from sales. Not including revaluation effects, Swiss Prime Site’s profit increased by 6.6% to CHF 289.5 million, or CHF 3.81 per share.

Strong balance sheet and FFO

Our strong results and the increased focus on further improving our balance sheet ratios (keyword: capital recycling) resulted in a marked 0.5 percentage point increase in the equity ratio, bringing it to a very solid 48.3%. At the same time, the loan-to-value ratio (LTV) fell by 1.7 percentage points to 40.2%. The newly defined target ratio of less than 40% is therefore already within reach. In net terms, that is after deducting cash holdings, the LTV amounts to 39.3%. As a result of the switch, the proportion of properties not secured by mortgages increases from 30% to 84%, and the average term to maturity from 4.8 to 5.8 years. Net asset value (EPRA NTA) increased to CHF 100.84 per share (+4.8%).

Funds from operations (FFO Cash) is a figure used in the European market as a key indicator of the operating performance of real estate companies. This figure is calculated without including the result of valuations or items not relevant to cash, such as depreciation, etc. As is already the practice in many international businesses, we plan to increasingly use this figure in future to measure our performance and, in the medium term, use it as the basis for distributions. FFO I per share increased from CHF 3.59 to CHF 3.96 in 2021. In the new terminology, the steady dividend of CHF 3.35 recommended to the Annual General Meeting would produce an attractive payout ratio for
our shareholders of around 85%.

Positive outlook

Starting in the 2022 financial year, Swiss Prime Site will publish its annual figures in accordance with the IFRS international accounting standards, which will allow it to provide even more transparent and comprehensive information on the course of business. This change will make it easier to compare us with other companies in our sector and will provide all stakeholders with a more comprehensive and in-depth source of information. The aim behind this increasing transparency is to continually improve our appeal to diverse groups of investors. To ensure comparability and predictability, we will also publish indicative financial statements prepared in accordance with IFRS together with the 2021 annual figures (prepared in accordance with Swiss GAAP FER). There will be only marginal changes to the main key figures as a result of the change.

Our strong operating performance over the past financial year, combined with the strategic adjustments made to our financing strategy at
the end of 2021, the expansion of our business model to encompass a comprehensive platform for real estate investment, transparent accounting and the Moody’s A3/stable credit rating we recently obtained, all provide an optimal foundation for further increases in value in the interests of all of our shareholders.