Business

Ton Büchner
Chairman of the Board of Directors

Dear Readers

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.

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 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.

Ton Büchner
Chairman of the Board of Directors

left: René Zahnd
CEO Swiss Prime Site‑Gruppe
right: Anastasius Tschopp
CEO Swiss Prime Site Solutions

«Our company’s resilience is particularly evident right now.»

Swiss Prime Site and its twin cornerstones Real Estate and Real Estate Asset Management achieved a successful performance and good results in the 2022 financial year. René Zahnd, CEO of the Swiss Prime Site Group, and Anastasius Tschopp, CEO of Swiss Prime Site Solutions, look back with satisfaction on a year that was exciting and challenging in many respects.

Read interview

The real estate sector in the metaverse: a risk with real opportunities

Tech companies are investing billions in creating the next generation of virtual worlds. As part of this, real estate companies could look to expand upon their current business models in a targeted way. Yet not everything that is technically possible is likely to lead to success.

Swiss Prime Site

A year ago, two announcements by Mark Zuckerberg sent expectations soaring for Web3, the next iteration of the internet. He renamed the Facebook Group Meta, while also investing billions in developing virtual platforms. Since then, companies in numerous industries have been prompted to extend their business models from the physical space into the virtual metaverse, thus positioning themselves as far-sighted organisations. Real estate developers and players from outside the industry have invested millions in «parcels» – pixels on platforms such as Decentraland and The Sandbox. In retail, brands like Nike have opened virtual flagship stores and are now selling digital product collections. Yet while all this is going on, such efforts to become pioneering players within the metaverse have met with incomprehension from many. Meta has lost around USD 500 billion in market capitalisation since the group was renamed. It could be argued that this issue has proved more polarising than almost any other. If we are to draw any conclusions about the role that the metaverse may play in the real estate sector, we need to ask three key questions.

This issue has proved more polarising than almost any other.

Bastian Zarske Bueno, Head Group Corporate Ventures & Innovation

Firstly, are people likely to spend more time in the virtual realm in future? The fact that gaming is already the foremost entertainment medium across all age groups is often overlooked. Over a third of humankind – three billion people worldwide – play video games on a regular basis, and a growing proportion of them are doing so with virtual reality (VR) headsets. Admittedly, apart from gaming, there is little evidence of a mass movement into completely virtualised parallel worlds. But could we not argue that today’s hybrid world is, in fact, a precursor to such developments?

Will the technologies that underpin the metaverse soon become widely available?

Secondly, will the technologies that underpin the metaverse soon become widely available? The competition between technology groups such as Apple or Meta is accelerating the development of the necessary hardware, which is reflected in the falling price of AR and VR devices. The sales figures for headsets from these brands are skyrocketing, while research into gloves that allow the wearer to feel sensations from virtual interactions is well underway. The data processing and transmission infrastructure still remains an obstacle because this is insufficient for processing large amounts of data in real time in many places. Realistically, however, given the speed at which technology is evolving, it does not seem that this will present much of a hurdle for long. 

Thirdly, companies should take a nuanced view of the appeal of different business models in the metaverse. Despite the risks, such as the high power consumption of many VR and AR applications, the development of virtual platforms and expansion of physical reality offer serious business opportunities. This is especially true for commercial real estate. Given the creeping «servitisation» of real estate, the metaverse may actually be the least capital-intensive way of «developing» extra space and expanding one’s portfolio – just virtually. The investment risks will pay off provided that such ventures offer new added value for users. With this in mind, real estate companies should not only concentrate on transferring their existing business models to virtual platforms, but also try to complement their existing business models and assets in a meaningful way. Areas with clear potential include virtual digital twin-based services for site users, simulations of building developments and user behaviour for planning and marketing, and the enhancement of retail spaces with social commerce. Holding future meetings and workshops in the metaverse using avatars would prove inexpensive (as it avoids the cost of room rental) and low in emissions (as the participants would not be required to travel), yet more immersive than 2D video calls. This represents both an opportunity and a risk for owners of commercial properties as value would shift along the chain.   

The fact that only large tech companies are currently shaping the development of digital infrastructure is not a desirable development and runs the risk that the adverse societal consequences we have already seen due to the proliferation of social media will be repeated and exacerbated. To prevent this, real estate developers could contribute to and benefit from the appeal and economic benefits of the «living space» of the metaverse through targeted innovation. Until the metaverse reaches the peak of the Gartner hype cycle, the proof will be in the pudding.

This story appeared in the publishing supplement to NZZ Real Estate Days 2022. 

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Martin Pfenninger
Head Group Sustainability

Setting an example of sustainability

As the largest real estate company listed on the stock exchange in Switzerland, we lead by example and are aware of our responsibilities towards our employees, customers, the environment and society as a whole. Our vision is to generate value and create sustainable living spaces. For us, this means a comprehensive, multidimensional business concept in which non-financial aspects are taken into account as well as financial goals.

Read interview

The real estate sector in the metaverse: a risk with real opportunities

Tech companies are investing billions in creating the next generation of virtual worlds. As part of this, real estate companies could look to expand upon their current business models in a targeted way. Yet not everything that is technically possible is likely to lead to success.

Swiss Prime Site

A year ago, two announcements by Mark Zuckerberg sent expectations soaring for Web3, the next iteration of the internet. He renamed the Facebook Group Meta, while also investing billions in developing virtual platforms. Since then, companies in numerous industries have been prompted to extend their business models from the physical space into the virtual metaverse, thus positioning themselves as far-sighted organisations. Real estate developers and players from outside the industry have invested millions in «parcels» – pixels on platforms such as Decentraland and The Sandbox. In retail, brands like Nike have opened virtual flagship stores and are now selling digital product collections. Yet while all this is going on, such efforts to become pioneering players within the metaverse have met with incomprehension from many. Meta has lost around USD 500 billion in market capitalisation since the group was renamed. It could be argued that this issue has proved more polarising than almost any other. If we are to draw any conclusions about the role that the metaverse may play in the real estate sector, we need to ask three key questions.

This issue has proved more polarising than almost any other.

Bastian Zarske Bueno, Head Group Corporate Ventures & Innovation

Firstly, are people likely to spend more time in the virtual realm in future? The fact that gaming is already the foremost entertainment medium across all age groups is often overlooked. Over a third of humankind – three billion people worldwide – play video games on a regular basis, and a growing proportion of them are doing so with virtual reality (VR) headsets. Admittedly, apart from gaming, there is little evidence of a mass movement into completely virtualised parallel worlds. But could we not argue that today’s hybrid world is, in fact, a precursor to such developments?

Will the technologies that underpin the metaverse soon become widely available?

Secondly, will the technologies that underpin the metaverse soon become widely available? The competition between technology groups such as Apple or Meta is accelerating the development of the necessary hardware, which is reflected in the falling price of AR and VR devices. The sales figures for headsets from these brands are skyrocketing, while research into gloves that allow the wearer to feel sensations from virtual interactions is well underway. The data processing and transmission infrastructure still remains an obstacle because this is insufficient for processing large amounts of data in real time in many places. Realistically, however, given the speed at which technology is evolving, it does not seem that this will present much of a hurdle for long. 

Thirdly, companies should take a nuanced view of the appeal of different business models in the metaverse. Despite the risks, such as the high power consumption of many VR and AR applications, the development of virtual platforms and expansion of physical reality offer serious business opportunities. This is especially true for commercial real estate. Given the creeping «servitisation» of real estate, the metaverse may actually be the least capital-intensive way of «developing» extra space and expanding one’s portfolio – just virtually. The investment risks will pay off provided that such ventures offer new added value for users. With this in mind, real estate companies should not only concentrate on transferring their existing business models to virtual platforms, but also try to complement their existing business models and assets in a meaningful way. Areas with clear potential include virtual digital twin-based services for site users, simulations of building developments and user behaviour for planning and marketing, and the enhancement of retail spaces with social commerce. Holding future meetings and workshops in the metaverse using avatars would prove inexpensive (as it avoids the cost of room rental) and low in emissions (as the participants would not be required to travel), yet more immersive than 2D video calls. This represents both an opportunity and a risk for owners of commercial properties as value would shift along the chain.   

The fact that only large tech companies are currently shaping the development of digital infrastructure is not a desirable development and runs the risk that the adverse societal consequences we have already seen due to the proliferation of social media will be repeated and exacerbated. To prevent this, real estate developers could contribute to and benefit from the appeal and economic benefits of the «living space» of the metaverse through targeted innovation. Until the metaverse reaches the peak of the Gartner hype cycle, the proof will be in the pudding.

This story appeared in the publishing supplement to NZZ Real Estate Days 2022. 

You might also be interested in this:

Decarbonisation, net zero, buildings as power plants – making the reduction pathway a reality

Space as a service!

Stücki Park – where life sciences and business come together

Good operating results

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.

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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.

Rising rental income and good result from capital recycling

The positive course of business of the Swiss Prime Site Group is clearly demonstrated by the pleasing growth in operating income, which rose by 3.3% to CHF 774.4 million. Both segments contributed to this result. The rise in rental income in the Real Estate segment was driven by a strong new leases and renewal volume of 172 000 m2 in the company’s own portfolio. Improved rental conditions and the ongoing reduction in the vacancy rate to 4.3% [4.6%] led to an increase in rental income of 1.1% to CHF 431.3 million (+1.9% on a like-for-like basis). WAULT remained stable at 5.3 years [5.6 years].

The impressive result from new leases and renewal activities underlines both the high quality of the properties in our portfolio and the high demand for modern, flexible and high-quality office and commercial spaces at prime locations. We were able to more than compensate for rental income lost in 2021 with moder­nisation projects such as Müllerstrasse, Zurich or through our capital recycling activities. As part of our strategy to make the property portfolio even more focused, we sold various smaller existing properties, a portfolio comprising several retail properties in Western Switzerland and the last building of the major Espace Tourbillon project in Geneva with total proceeds of CHF 17 million. The sales generated an attractive gain of CHF 51 million [CHF 40 million]. In accordance with our capital recycling objectives, the proceeds were inves­ted in the project pipeline. We also purchased three attractive development projects in Zurich (Oerlikon), Basel (Steinenvorstadt) and Berne that offer great value creation potential. This will ensure that our property portfolio becomes even more attractive going forward.

Operating Income

in CHF million

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.

EBIT adjusted
(excl. revaluations)

in CHF million

EPRA NTA per share
and LTV

in CHF resp. %

Profit before revaluations and equity ratio

in CHF million resp. %

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.

Comparison of key figures

Swiss Prime Site

* without revaluation and deferred taxes

Swiss Prime Site Immobilien

Swiss Prime Site Solutions

Wincasa

Jelmoli