How would you sum up the 2022 financial year?
René Zahnd (RZ): It was an eventful year featuring a host of challenges but also numerous glimmers of hope. We achieved, and in some cases even exceeded, the objectives we had set for ourselves. Further, we have decided not to continue Jelmoli’s operations ourselves from the end of 2024 and to redevelop the building. It was a difficult but necessary decision. Overall, we are able to present a good set of numbers to our shareholders. On a social level, the global geopolitical situation was and naturally still is a cause for concern. I would also like to see glimmers of hope for us all in this regard.

Can you please elaborate on the decision regarding the real estate andthe operational business of Jelmoli?
RZ: The Jelmoli department store has belonged to Swiss Prime Site since the takeover of the real estate division in 2009. With the rise of online retailing, the stationary trade in goods and services has come under significant pressure on a global, national and region- al level. Retailers and department stores worldwide are trying to counter this fundamental change with the digitalisation of the business model, efficiency measures and strategic partnerships. The two-year pandemic has further increased the pressure. Jelmoli and Swiss Prime Site have sought the operational and strategic turnaround in recent years. The lack of alternatives has now prompted us to make this decision. This also includes the fact that we will no longer be running Jelmoli’s operations ourselves from the end of 2024.

What will happen to the employees now?
RZ: We have decided to communicate the decision to employees, business partners and other stakeholders at an early stage. This will give employees in particular around two years’ time for possible professional reorientation. This transition phase will be professionally accompanied until the end of 2024 and employees will be supported where possible.

Can you tell us in more specific terms how this relates to the Real Estate segment?
RZ: In the Real Estate segment, what we had been repeatedly asserting almost like a mantra over the last two years actually proved to be true: the pandemic had no impact on demand for office and commercial space. Our vacancy rate is at its lowest level for over a decade at 4.3%. This is also attributable to the high level of new leases and renewal activities, which accounted for some 172 000 m². We are seeing the same trend in projects. Those that are already under construction are either already fully let or have a high level of pre-letting.

And what about the Real Estate Asset Management?
Anastasius Tschopp (AT): Real Estate Asset Management also benefited from the good market conditions. Firstly from the primary effects on the real estate market, i.e. the solid demand for floorspace. For example, the vacancy rate of the SPIF portfolio managed by us stands at a record low of 2.7%. We also saw demand for our real estate products remain intact, particularly in the second half of the year, despite the challenging market environment. We grew our customer base by 10%, while assets under management also increased from CHF 3.6 billion to CHF 7.7 billion. Five years after being founded, we are Switzerland’s second-largest independent real estate asset manager.

What makes up the Real Estate Asset Management portfolio?
AT: Swiss Prime Site Solutions is diversified across three pillars. Firstly, we develop and manage fund products. We also offer asset management services, handling the executive management and asset management of independent investment foundations. The third pillar is real estate services. We advise and support institutional investors and companies in the structuring and management of their real estate portfolio.

You integrated the Akara Group in 2022. How did that go?
AT: Swiss Prime Site Solutions and Akara were an ideal fit from the outset. They were also aligned almost identically with regard to team spirit and goals, which allowed us to complete the integration relatively easily and in a short time. In autumn, we received approval from FINMA to merge the fund management companies. That was a key milestone.

There were a wide range of uncertainties over the course of the year. What impact did this have on the real estate market?
RZ: The first few weeks of the year were very promising. We were finally able to start pushing the pandemic towards the back of our minds, which enabled us to start 2022 with a new sense of vigour. I felt this not just on a personal level but also in a business context. Unfortunately, the world was then brought back to earth with a bang by the geopolitical conflicts in Ukraine and beyond. This also intensified a number of issues such as resource procurement, price trends and, of course, interest rates. However, the real estate market ultimately proved to be robust because opposing trends were and still are at play.

What were these?
RZ: Well, Switzerland has always been seen as a «safe haven» in uncertain times. With a strong economy, independent monetary policy and high levels of immigration, we have positive effects on our side. What this means specifically for our business is that real estate, already seen as a very appealing way to preserve value and protect against inflation, became even more attractive.

How does inflation affect your business?
AT: Investors have always viewed real estate as a form of inflation protection. This is particularly true for portfolios comprised primarily of commercial properties as their rents are tied to the country’s consumer price index. This obviously helps us. Rents for residential real estate also move in a similar fashion, albeit with something of a lag. I believe it is also important to point out that inflation in Switzerland is at just one-third of the EU level. We also seem to be past the peak already, which in turn has positive effects for us and for demand.

Let’s talk about interest rates. What are your plans as regards refinancing?
RZ: The interest rate pivot is obviously a major topic for everyone. We have more than CHF 5 billion in outstanding loans that are currently financed at less than 1% on average. If our interest expenses were to rise to a hypothetical level of 2.5% over the next few years, we would have to pay around CHF 90 million extra in interest. But we believe that we are very well equipped for such a scenario. For the next three years up to 2025, we have no major refinancing requirements that we could not cover via existing credit lines or our efficient capital recycling activities. And with rents tied to inflation, we also have an effective mechanism for absorbing a significant proportion of the higher interest rates.

What does this mean for the valuations of your properties?
RZ: If you listen to the various valuers, they are currently giving out cautiously positive signals. They are anticipating a largely stable trend with selective devaluations, particularly in peripheral locations.

Didn’t the transaction market grind to a halt?
AT: We’ve heard that a lot. The reality, however, is that demand for good and very good real estate still always significantly exceeds supply. This is especially true for commercial properties. There were also a large number of transactions that were not publicly announced. You only learn about these if, like us, you have an excellent and broad network.

What was the trend for rents in 2022?
RZ: We achieved good results on a like-for-like basis with growth of 1.9%. Good locations like ours are always in demand. Among new leases, spaces in the life sciences and technology fields were particularly sought after. Tenants are prepared to pay for the location and the quality of the space. The high level of value generation in these fields means that rental costs play a rather more subordinate role.

Staying with valuations for a moment, what are your expectations for 2023?
RZ: Unfortunately, even we don’t have a crystal ball. Based on discussions with appraisers, we are not anticipating further increases in value for our properties, however, we believe that our portfolio is well positioned due to excellent locations.

There are over a dozen projects in your development pipeline. How are they progressing?
RZ: We currently have developments totalling some CHF 960 million under construction, with investments of around CHF 300 million still outstanding. All construction work is on schedule and within the expected budgets. The projects are already fully let or have a high level of pre-letting. In 2023, we expect to complete the Alto Pont-Rouge project in Lancy, the two Tertianum projects in Paradiso and Olten, and the Müllerstrasse project in Zurich. The Stücki Park development in Basel and the JED new build in Schlieren will be finished a year later in 2024. Alto Pont-Rouge is the only one in which space is still available. A new cluster is developing in this region of Geneva, however, and potential tenants often want to see the finished product first. The projects in development are well on track and we are pressing ahead with obtaining building permits. These are valid for four years, giving us enough time to react to potential changes in demand. A project must be 50% pre-let before construction can start. I like to talk about a risk-free pipeline, not least because all projects have interim lets in place and are generating income.

You also have an extensive project pipeline for your third-party customers. How is that going?
AT: We are developing a pipeline of around CHF 500 million for our customer Swiss Prime Investment Foundation. The pipeline for our funds amounts to some CHF 300 million. We are also well on schedule here and able to implement and market the construction
projects as planned.

We spoke earlier about raw materials prices and supply shortages. Are these affecting the profitability of your projects?
RZ: We have concluded contracts with solid general contractors to fix most of our continuing investments for the next 24 months. It goes without saying, however, that we also take changes in market conditions into account. We respond by increasing the
assumed construction costs in calculations for new projects and adapting our procurement and planning accordingly to ensure attractive returns for the developments. But what people often forget is that construction costs only make up around 20% of the overall life cycle costs. In this respect, we see no showstopper for our projects and continue to set ourselves the target of achieving returns of around 4.5% «on cost» from our
developments.

What is the situation as regards the financing of your project pipeline?
RZ: We operate with very stringent project controlling constraints and only invest in things that generate value. In addition, we mainly finance our projects via the capital recycling activities referred to above. We sold properties with a value of around CHF 300 million in 2022 as they were no longer aligned with our focused portfolio. Some of the proceeds flowed directly into the implementation of the pipeline or into suitable projects such as BERN 131.

Let’s talk about real estate asset management again. Why should investors invest in the funds?
AT: Swiss Prime Site’s core competency is real estate management. We are currently Switzerland’s largest listed real estate company and the fifth-largest in Europe. Of the CHF 20 billion in Assets under Management that makes up the portfolio as a whole, around CHF 7 billion is managed by Swiss Prime Site Solutions. We provide important services throughout the entire real estate life cycle while generating added value for our customers. In addition, we have a separate team per product. All that is unique in our business and is our USP.

You said that demand for real estate remains strong. Is there not a risk of real estate becoming overrepresented in customer portfolios?
AT: This is a genuine risk, and was evident in the market in the shape of a number of cancelled issues in the third quarter of 2022. However, I anticipate that things will calm down. In addition to issues, we can also achieve growth through contributions in kind – as happened several times in 2022 – or by taking over portfolios that were previously managed «in-house».

So this means that you will continue to pursue your growth plans?
AT: Yes, we will. We currently manage CHF 7.7 billion of Assets under Management for our customers. Our target is to grow this figure to around CHF 10 billion by the end of 2025. The route to this target is clear: reinvestment with our customer Swiss Prime Investment
Foundation, further contributions in kind and more issues.

What is the situation with your own portfolio?
RZ: Our clear motto here is self-financed, value-generating growth. The portfolio is a good size, with a current value of CHF 13 billion. We are primarily working on further optimising use and pressing ahead with our
projects. Both are linked to our capital recycling activities. By adapting certain types of use or selling properties that are too small, we free up capital that we can invest elsewhere in order to constantly improve our portfolio and make it more sustainable.

As a company, do you move away from topics such as sustainability in difficult times?
RZ: Anyone who only considers sustainability to be «important» in good times has not fully grasped the situation. For us as a society, there is now no alternative to sustainability. If individuals, companies and society as a
whole do not finally recognise this, there will come a point when we will no longer be able to actively bring about change. We all need to act now.

What specifically are you doing in this regard?
RZ: We are taking action at various levels. Our CO₂ reduction pathway gives us a clear course in our operational activities, with a goal of achieving climate neutrality by 2040. We are therefore investing in our property portfolio, both in the areas of energy procurement and consumption and in production through photovoltaic systems. We also screened our entire portfolio this year and have now certified 73% of the 1.6 million square metres of rented space. In addition, we are strongly committed to the circular economy. This creates security both for us and for our tenants with regard to the sustainability standards of our properties, while at the same time highlighting additional opportunities to further optimise our buildings. We are also working on «green leases» that benefit both us and our customers.

What is the situation as regards sustainability in the Real Estate Asset Management segment?
AT: Sustainability is also a key issue for us. With this in mind, we also have a dedicated sustainability specialist in the team. Being part of the Swiss Prime Site Group also gives us access to a great deal of additional expertise in this area. We exploit these synergies to provide our customers with even better advice and further raise their awareness.

You mentioned green leases. Do your tenants want them?
RZ: Our tenants want an attractive location that is also as sustainable as possible. We also saw this again in the feedback to our annual tenant survey as our customers must themselves achieve climate neutrality by 2050 at the latest. Our investments lead to a reduction in ancillary costs as a result of lower consumption. Sustainability is also economical.

What are your expectations for the 2023 financial year?
RZ: We will hopefully see a calmer geopolitical situation in the foreseeable future. This is also likely to push effects such as the scarcity of raw materials and inflation, which is primarily driven by raw materials, rather more into the background. The pace of central bank interest rate rises has eased somewhat both globally and in Switzerland.