We are all living in challenging times at present. Having scarcely got to grips with the worst social consequences of the global pandemic, new clouds gathered on the horizon at the beginning of 2022 due to the geopolitical tensions in eastern Europe. This was closely followed by a rise in the price of raw materials, an emerging energy crisis and an interest rate pivot. Despite the largely negative expectations, the Swiss economy recorded a pleasing performance. Inflation is currently half the European level, employment is solid and immigration into the «safe haven» of Switzerland has risen sharply again after the pandemic years. This also had a positive impact on us, the country’s largest listed platform for real estate investments, enabling us to report another successful year and favourable results.

As at the end of 2022, Swiss Prime Site had assets under management of CHF 20.8 billion and a property portfolio with a value of CHF 13.1 billion. Swiss Prime Site Solutions manages third-party mandates worth a total of CHF 7.7 billion. Rental income grew by 1.9% (L4L) year-on-year, while the even lower vacancy rate of 4.3% and resulting profit of CHF 300.6 million underline the prime quality of our portfolio and the stringent implementation of Swiss Prime Site’s strategy. With earnings per share of CHF 3.92 and FFO I of CHF 4.26, which is used as the basis for our distributions, the Board of Directors will propose to the Annual General Meeting that the dividend be increased by CHF 0.05 to CHF 3.40.

We are the leading partner for investors who invest both directly and indirectly in the real estate market, serving them through our two segments Real Estate and Real Estate Asset Management. We further focused and refined our portfolio over the past year. Since 2021, we have applied our capital recycling expertise to sell 13 properties with a value of around CHF 300 million that do not fit with our «Prime» claim. At the same time, we have been investing the freed-up capital in our first-class properties and in the development of value-adding projects in our pipeline. We thus aim to meet the growing requirements of our tenants and customers and underline our aspiration to be a leader in the area of sustainability. Our strategy has delivered measurable successes, namely the high level of new leases and renewal activities and the further fall in the portfolio’s vacancy rate. We see our growth path in Real Estate Asset Management at Swiss Prime Site Solutions. Following its acquisition, the Akara Group was successfully integrated and initial synergies achieved. With real estate funds, products for investment foundations and asset management mandates, we have a diversified and stable footing in this area. The marked growth in the customer base for all three Real Estate Asset Management vehicles shows that the services are very popular with customers.

We, the Board of Directors and the management of Swiss Prime Site, have decided to redevelop the Jelmoli building in Zurich city centre for an expected period of two years from the beginning of 2025. This to make it sustainably fit for the future. Therefore, we will no longer operate the Jelmoli department store ourselves from the end of 2024. This further step towards focusing on our core competencies was taken after a comprehensive and detailed analysis. With the extraordinary dynamics in online retail and changes in consumer behaviour, brick-and-mortar retailing is increasingly being squeezed. Despite high investments by its owner, Swiss Prime Site, and tremendous efforts on the part of its employees, this structural change was clearly reflected in the profitability of the department store Jelmoli. This led Swiss Prime Site to conduct extensive market research over recent months, with the objective of transferring operational management of the department store to new hands.  However, in-depth talks with numerous possible partners have not yet led to the intended success. We are deliberately communicating our decision at an early stage. This will give the employees time for a possible professional reorientation. Our goal is to further develop the Jelmoli building into a unique destination and an open urban meeting place. The reopening of the completely renovated property is planned for the beginning of 2027.

In light of the challenges referred to above, our refinancing at the end of 2021 was vitally important. It brought about a marked fall in interest costs, and we now have a balanced maturity profile with no need for significant refinancing until 2025. This gives us freedom and good visibility, which seems important in what is currently an increasingly challenging environment. Accordingly, the globally active rating agency Moody’s has rated our long-term issuer rating as «A3» with a stable outlook. This very positive rating, both in Switzerland and internationally, reflects the excellent basis of our company. Through targeted investments in the circular economy for both existing buildings and new build projects, and the successful certification of 73% of the floor space in our portfolio, we have also made important progress with regard to sustainability.

On behalf of my colleagues on the Board of Directors, I would like to thank all our customers, tenants and partners and also you, our shareholders, for your trust and interest in Swiss Prime Site. I would also like to thank our management and employees, who drive the operational implementation of our strategy on a daily basis.

Swiss Prime Site enjoyed a successful 2022 financial year and once again achieved a good operating performance. Following the integration of the Akara Group into Swiss Prime Site Solutions, the Services segment grew disproportionately to a total of CHF 7.7 billion AuM. As expected, the vacancy rate fell again to a low level of 4.3% as at the end of 2022. Overall, FFO growth of 6.2% per share underlines these good results.

The 2022 key figures were affected by three extraordinary factors. Firstly, our consolidated financial statements were prepared in accordance with international financial reporting standards (IFRS) and the previous year’s figures adjusted accordingly. Secondly, the Akara Group was integrated into our scope of consolidation. Further details can be found in section 2.4 of the Financial Report «Conversion to IFRS». Thirdly, based on the changing market environment with new shopping habits and a correspondingly uncertain outlook for Jelmoli, we decided to redevelop the building in order to position it as a mixed-use modern office and retail property in the future. Accordingly, we will no longer oper­ate the department store ourselves from the end of 2024. In this context, we have recognised impairments on the inventory, property, plant and equipment – such as specific sales equipment – and software, which amounted to CHF 34.3 million. Together with other impairments (mainly software), these non-cash special effects amounted to a total of CHF 41.1 million. Adjusted for these special effects, the comparable EBIT came to CHF 430.7 million [CHF 404.8 million]. This corresponds to a pleasing increase of 6% compared to the previous year.

Stable revaluations compared to the 1st half-year

The valuation outcome remained stable compared with the first half of 2022 at CHF 169.7 million, but was lower than in 2021 [CHF 301.9 million]. In the wake of rising inflation and base rates, we are witnessing the end of yield compression, i.e. the reduction in purchase yields and thus discount rates seen over the last few years. Due to the dy­na­mic development of rents, with like-for-like growth of 1.9%, and the ongoing reduction in the vacancy rate, we achieved an increase in real estate values last year. The latter effects accounted for some 50% of revaluations in 2022. Despite the valuation effect, the net yield on property for our property portfolio remained almost unchanged at 3.1% [3.2%], still attractive given the widely diversified and economically strong tenant base.

Strong growth in real estate asset management

With its asset-light business model in the three areas of real estate funds, investment foundations and pension fund mandates, Swiss Prime Site Solutions focused 2022 exclusively on non-listed products for qualified Swiss inves­tors. Its services are enjoying solid demand even given the current stock market and economic environment. This is reflected in the expansion in the customer base of around 10% year-on-year and net new assets of around CHF 600 million. The combination of these and direct mandates enabled us to significantly increase our assets under management by 113% year-on-year to CHF 7.7 billion [CHF 3.6 billion]. All three products contributed to the growth. The increase of 185.6% in income from asset management to CHF 52.0 million was on the one hand in part to the integration of the Akara Group. On the other hand, the business grew organically by around CHF 1.8 billion in AuM and thus contributed significantly to the increase in income. Despite the strong growth, the proportion of recurring income at Swiss Prime Site Solutions was at 63%. The integration of the Akara Group was completed during the year and will deliver further eco­n­omies of scale and efficiency gains. EBIT reached the desired target at CHF 30.0 million [CHF 8.6 million]. The EBIT margin increased significantly to 58% [47%] with costs – mainly personnel costs – remaining stable.

Active cost management and higher EBIT before revaluations and special effects

The increase in the group’s costs compared with the previous year was primarily attributable to the integration of the Akara Group and the effects already mentioned. Excluding this effect, our strict cost control efforts were successful. The Group EBIT before revaluations and special effect increased by 6.4% and reached CHF 430.7 million [404.8 million]. Without adjustments, EBIT came to CHF 389.6 million.

New financing strategy clearly taking effect

The new financing strategy defined and implemented at the end of 2021 delivered the expected positive effects over the course of the financial year. Financing costs (net) were CHF 44.7 million [CHF 73.1 million]. The average interest rate on borrowed capital increased slightly to 0.9% [0.8%]. The current situation and interest rate pivot clearly show that diversifying our sources of financing was the right decision. To further optimise the maturity profile, our syndicated loans were extended by another year in the second half of 2022. The average term to maturity of our financial liabilities is therefore comfortable with 5.0 years [5.8 years]. Despite the special effects, the profit before revaluations reached CHF 300.6 million [CHF 293.7 million].This corresponds to a return on equity (ROE) of 4.7% [4.8%].

Increase in net asset value and reduction of the LTV

The net asset value (NAV) per share rose by 1.7% year-on-year to CHF 102.96 [CHF 101.22]. To permit better comparison with other European real estate companies, we also report our EPRA NTA. This rose to CHF 102.69 [CHF 100.93] per share. Swiss Prime Site closed 2022 with a share price of CHF 80.15. The total return on an annual basis was –7.3% and clearly outperformed both the national SPI (–16.5%) and the REAL (–9.0%) indices and the international EPRA index (–36.0%). FFO I, which is used to determine our ability to pay dividends, increased by 6.2% year-on-year to CHF 4.26 per share as at the end of 2022 [CHF 4.01]. In accordance with our dividend policy, this allows us to propose to the Annual General Meeting that the dividend be increased to CHF 3.40. The payout ratio is thus  a conservative 80%. With an equity ratio of 47.7% [47.5%] and a significantly improved LTV ratio of 38.9% [40.2%] and a diverse range of capital market and bank financing, we believe we have very solid and broad-based financing in place for the future.

Stable outlook

With our market-leading offering, we look to the immediate future with confidence. Our expectation is based on our high quality properties in prime locations and our successful asset management business, which can grow without significant capital investment. Our prudent capital recycling strategy and forward-looking refinancing over the last 18 months have significantly strengthened our balance sheet and make our business model more resilient to upcoming challenges. Following our sales as part of capital recycling and with the ongoing index adjustments, we expect rental income to increase marginally in the 2023 financial year, with gradually rising financing costs. Thus, we expect FFO I to remain roughly stable in 2023. After completion and commissioning of the highly advanced project developments in Zurich (Müllerstrasse), Altstetten (JED) and Basel (Stücki Park), FFO I should rise again noticeably in 2024.