The past year has been challenging in many respects. But Swiss Prime Site has taken important strategic steps in this tough environment and achieved positive results – clear testament to the resilience of our company and our business model.

«Today, we present Swiss Prime Site
to you as a focused real estate company.»

Transformative year

Early on in the year, we announced we would wind down operations at Jelmoli – a very emotional moment and a difficult decision. At the heart of our considerations, besides the eco­nomic perspective, were our concerns about how the employees would adapt to the new circumstances and around the loyalty from many of our customers. But we are firmly convinced that the Jelmoli building will benefit from the realignment and will retain its role as a particularly vibrant meeting place in the city. We are aware of the unique significance of the property for the city centre of Zurich and will ensure it maintains this status. The second big step took place shortly afterwards when we sold our property management business Wincasa to Implenia. Both Wincasa and the Implenia Group are strategic partners for our business and we look forward to seamless continuation of our positive partnership.

Today, we present Swiss Prime Site to you as a focused real estate company. Since the sale of Tertianum in 2020, we have been transforming ourselves from a conglomerate with over 6 000 employees into a specialised, agile company, which will soon have around 200 employees and focus on our core competence: the real estate business. This will allow us to fully align our expertise with our portfolio and realise synergies with third-party investors. This focus will make our operations more effective and efficient, creating a more distinctive business profile. Our properties are in prime locations with a high degree of versatility and flexibility in usage types, which means they attract a particularly robust tenant base with a long-term focus. We generate growth primarily through our high-quality developments and with additional external capital in the Asset Management division.

Exciting environment

Regrettably, this past year was once again dominated by global geopolitical tensions. We are deeply shaken by the conflicts in Ukraine and the Middle East and we earnestly hope these situations will be resolved as quickly as possible. In our day-to-day opera­tions in Switzerland, these ongoing conflicts have had little effect thus far. Our tenants and customers often tell our employees that they increasingly appreciate Switzerland as a place to live and do business. The strong Swiss franc, low inflation, and an economic environment that remains robust are certainly a testament to that. Switzerland is once again living up to its reputation as a «safe haven», where the majority of economic ­indicators point to a significantly better situ­ation than in the rest of Europe.

The changing inflation and interest rate environment has had a major impact on expectations in the real estate sector over the past year and contributed to a high level of uncertainty. But the end of the year brought signs of change, with inflation slipping back considerably. We believe that the market sentiment is improving markedly and we are seeing real estate investors becoming more active in the market again.

Significant milestones

Swiss Prime Site has posted good operational results in this highly eventful year. Despite significantly higher interest rates, we could even slightly increase our comparable operating cash flow (FFO I CHF 4.05 per share vs 4.00 in 2022). Thanks to our strong financial position, we can propose an unchanged dividend of CHF 3.40 per share to the Annual General Meeting.

We continued to benefit from our fun­damentally new financing strategy implemented in 2021. With a strong balance sheet, low levels of debt, and a high share of unencumbered assets, Swiss Prime Site has greatly improved its profile in the credit ­market: in 2023, we successfully placed CHF 425 million in bonds within our «Green ­Finance Framework» on the capital markets and also extended our credit lines with a sustainability link despite the challenging situation in the banking market.

We are particularly proud to have delivered two projects to new tenants in the most important Swiss business centres in 2023: in Zurich, Google took over a fully renovated office building, our first major circular building project, while the new Alto Pont-Rouge building in Geneva welcomed the French bank BNP Paribas along with other tenants. Both projects were completed within budget and on time, proof of our exceptional development expertise.

We once again actively managed and further improved the real estate portfolio last year, resulting in a record low vacancy rate of 4%. Under our capital recycling strategy, we have also sold older buildings and properties outside of economic centres. We are primarily reinvesting the proceeds in our growth through the developments mentioned above and other construction proj­ects. Overall, our development focus is on centrally located offices, laboratories and logistics buildings – it is in our DNA to aim for the highest sustainability standards.

Our Asset Management division felt the uncertainty on the investor side, especially in the first half of the year. There was a lack of appetite anywhere in the market for new investment, which meant very limited new funds for acquisitions in the portfolio. In this environment, Swiss Prime Site Solutions stood out even more and increased managed assets by close to 10% to CHF 8.4 billion. Our team excels in the market with its real estate expertise and top-notch fund and investment products. Our extensive experience makes us the preferred partner for more complex transactions, such as contributions in kind from pension funds and sale & lease-back transactions for commercial properties.

«Despite the challenging ­environment, our
Asset ­Management division ­realized growth in 2023.»

Strategic outlook

Swiss Prime Site is very well positioned with its implemented focus on the two pillars of «Real Estate» and «Asset Management» and we look to the future with confidence. After a transformative 2023, we will be focusing even more on fully tapping the potential in our own portfolio and in the Asset Management division. Our strategic priorities are the following.

Rental growth: We see further potential here in terms of our lettable areas as well as rental rates and will become more efficient by focusing on our portfolio.

Developments: We are creating landmarks in Switzerland – the new Jelmoli building is just another example. In 2024 and 2025, we will hand over several large buildings which have already been let, and we are planning more projects such as Grand Passage in the centre of Geneva.

Asset Management: Our goal is to further broaden and diversify our Asset Management business. We aim to expand our product range, tap into new groups of investors, and foster partnerships.

Sustainability: We aspire to be a leader in sustainability. Our teams work day in and day out on innovative concepts for saving resources and promoting renewable energy with an eye to the future. Our CO₂-reduction pathway and circular construction are the main steering elements.

I personally feel very proud to be representing Swiss Prime Site and working with such a professional and motivated team. On behalf of the entire Board of Directors, I would like to thank you, our shareholders, for your trust and support. Together with our tenants, customers, employees and partners, we will continue to create sustainable value with living spaces that meet the needs of our modern society.

2023 was a successful financial year for Swiss Prime Site. We further improved our operating performance and mitigated ­the impact of higher interest rates thanks to our prime portfolio and strong financial position. We also streamlined the portfolio, laying the strategic foundations for a promising outlook, which will also simplify and improve the comparability of our financial data. ­Ongoing high demand for modern, centrally located spaces­ ­remains the driving force of our success. We are delighted to have successfully completed our largest projects in the pipeline, further strengthening our position in the market.

In the 2023 financial year, we resolutely pushed ahead with the implementation of our strategic goals – particularly the focus on our core competency in the real estate business. One important step was the sale of Wincasa, our property management company. This meant financial reporting had to be modified in accordance with IFRS 5 («discontinued operations»). As Wincasa is no longer part of ongoing operations, the income statement for 2023 will be disclosed separately and the figures of the previous year adjusted accordingly. This makes it easier to compare our financial figures. We also introduced segment reporting for the core areas of Real Estate and Asset Management. A third segment, «Retail», is added until Jelmoli winds down operations at the end of 2024.

Resilient portfolio

On a fair value basis, our portfolio boasted a stable value of CHF 13.1 billion as at the end of 2023 [13.1 in the previous year] and comprised a total of 159 [176] properties. The share of development properties amounted to CHF 0.9 billion [1.1]. In 2023, we had to ­untertake negative revaluations of CHF –250 million [+170], which corresponds to 1.9% of the starting basis for the year. Devaluations were seen in most areas of the portfolio, driven by higher discount rates. We mitigated the negative discount rate effects through improved rentals in most properties. In our development projects, we achieved value growth of CHF 19 million. In the fourth quarter of 2023, we handed over our largest development projects – the Alto Pont-Rouge office buildings in Geneva and Müllerstrasse in Zurich – to the tenants as planned and in 2024 we expect them to start making a significant contribution to rental income.

In the course of the year, we sold 16 properties and campuses that no longer fit our portfolio, with the largest of them located in Olten and Berlingen. We sold the properties for a total of CHF 280 million, resulting in an average profit of 7% above the last appraisal value. After a long period without any purchases, we made two selective property acquisitions towards the end of the year: a smaller building in Basel, adjacent to an existing property, and the «Fifty-One» building in Zurich-West. Through this active portfolio management, we are further improving our real estate holdings and focusing on new, centrally located, sustainable and larger properties that allow for optimal property management.

Asset Management: growth in assets despite general restraint

In the first half of the year in particular, there was clear restraint on the part of investors in the Asset Management division. With the downturn in the stock and bond markets the preceding year, coupled with relatively stable property prices, many institutional in­vestors had an increased weighting in real ­estate and made very few new investments. Despite these challenges, we increased our assets under management (AuM) by 9% to CHF 8.4 billion [7.7 in the previous year]. We achieved this primarily through organic growth and reinvestments as well as contributions in kind from pension funds and other investors.

In the reporting year, revenues from ­Asset Management decreased by 4.4% to CHF 49.7 million [52.0]. This decline was mainly due to lower new issue volumes as well as fewer transactions than in the previous year. Recurring fees from construction development and other consultancy services only partially offset this decline. Through cost optimisation and economies of scale, we compensated for a good proportion of this decline and this segment’s contribution to EBIT decreased by less than 10%. The great resilience of Asset Management is also reflected in the greater stability that has come with our growth in size: 77% of earnings are now ­recurring income [63%].

Strong financial indicators

The consolidated EBIT excluding revaluations reached CHF 403 million [380 in the previous year]. Operating expenses reduced significantly to CHF 269 million with lower real estate, personnel and other costs. The Asset Management business at Swiss Prime Solutions contributed CHF 27 million to the consolidated EBIT, while Jelmoli’s retail business incurred a small loss of CHF –1 million due to reduced consumer confidence, especially in the fourth quarter. The interest expenses on our financial liabilities rose to CHF 58.5 million [40.1], driven by higher reference interest rates and regular refinancing. Total net financial expenses were CHF 76.3 million, CHF 14.3 million of which was the result of fair value adjustments to our convertible bonds due to the higher share price at the end of the year. This ­resulted in a consolidated profit after ­revaluations of CHF 236.0 million [404.4], CHF –250.5 million of which was due to ­revaluations and CHF 149.3 million to the one-off profit from the sale of Wincasa. FFO I (operating cash flow before divestment effects) rose by 1.3% to CHF 4.05 per share [4.00]. The intrinsic value (EPRA NTA) per share fell marginally to CHF 101.52 (–1.1%). The Board of Directors will propose a distribution of a dividend of CHF 3.40 per share, which remains unchanged to the previous year, to the Annual General Meeting on 19 March 2024. The amount represents 82% of the realised FFO I and, based on our year-end closing stock price, the resulting dividend yield is an attractive 3.8%.

Green refinancing and growth funded through capital recycling

We have diligently maintained our conservative financing strategy with a strong equity base. The financing ratio of the real estate portfolio (loan-to-value, LTV) was 39.8% as at the end of the year [38.8% in the previous year]. The slight increase was mainly due to the revaluation of the real estate port­folio as well as the two acquisitions at the end of the year. Under our capital recycling strategy, funds freed up from property sales and the sale of Wincasa were used for our development projects and the targeted acquisition in ­Zurich-West. Interest-bearing borrowed capital without leasing stood at CHF 5.4 billion as at the balance sheet date and was comprised of a broad range of sources in the banking and capital market. The average term reduced slightly to 4.6 years [5.0].

The average interest rate increased to 1.2% [0.9%] as at the balance sheet date, with 87% [78%] of the interest fixed. 86% of our assets were unencumbered as at the balance sheet date, which, together with the low financing ratio, was the basis for our A3 credit rating from the rating agency Moody’s. As at the end of the year, we had unused, contractually guaranteed financing lines of CHF 819 million which allows us to continue operating with a very high level of operational and financial flexibility.

In 2023, we successfully refinanced or extended CHF 2.9 billion of our borrowed capital with a sustainability link. Each extension of our banking facilities was set at one year. This means they are now extended until 2028 and 2029, with an additional extension option of one year each. Under our «Green Finance Framework», we also successfully placed CHF 425 million of bonds on the Swiss and international capital markets, and with record low credit spreads for our company.

Optimistic outlook

For 2024, we are optimistic about our high-quality real estate portfolio and leading asset management franchise.

In the Real Estate segment, we handed over our building on Müllerstrasse as well as a large proportion of the spaces in Alto Pont-Rouge to the tenants by the end of 2023. In 2024, the last two new laboratory buildings in Stücki Park in Basel will also be completed, and we expect Tertianum to move into the Lugano site by the end of the first quarter. Meanwhile, we will maintain our capital recycling strategy and sell more properties to finance our growth investments without using borrowed capital. This will allow us to continue focusing our portfolio on prime locations with modern, sustainable spaces.

We are anticipating further profit growth for our Asset Management area. Our teams have noted a more positive tone in discussions with investors, fuelled by the renewed decline in long-term interest rates, and we expect this attitude to be reflected in a stronger appetite for investing. At the same time, we are confident that as a strong independent asset manager, we can gain market share.

Throughout the company, we will continue to significantly cut back our cost base with our leaner structure, as announced. Based on the current yield curve and expiring financing, we expect financing costs to rise only marginally in 2024.

In summary, we are expecting a vacancy rate of less than 4% and the LTV to remain below 40% for the real estate portfolio for financial year 2024, a further increase in assets under management at Swiss Prime Site Solutions to more than CHF 9 billion, and further growth in FFO I from continuous operations to CHF 4.10 – 4.15 per share. We are confident we can achieve these goals for our shareholders as a basis for an attractive, self-financed dividend.