Financial commentary
Financial commentary
Swiss Prime Site can look back on an extremely successful 2024 financial year. With significant growth in rental income, we achieved a marked increase in earnings despite higher financing costs. Success in letting our new developments and marked rental increases for renewed leases were the main drivers. In addition, we achieved efficiency gains in the property portfolio and further portfolio streamlining through the sale of properties. This enabled us to significantly reduce the expense ratio and further improve the portfolio. In Asset Management, we also profited directly from the marked increase in institutional investors’ appetite for real estate, with a range of capital increases together totalling around CHF 600 million. This segment is already generating almost 10% of consolidated EBITDA – and it is trending strongly upwards.
Over the past financial year 2024, our key priority was implementing our strategy of consistent focus on our core competency in real estate. We achieved a significant increase in the operating result (measured in FFO I – funds from operations) of 4.2% to CHF 4.22 per share [previous year: 4.05]. This was primarily driven by a significant increase in rental income of 6% in our own property portfolio and the marked increase in income in the Asset Management segment. The acquisition of the Fundamenta Group with its managed property portfolio of around CHF 4 billion increased the entire assets under management (AuM) of our group to over CHF 26 billion [previous year: CHF 21.5 billion]. This makes us the largest independent real estate asset manager in Switzerland by a considerable margin, with investment vehicles that cover targeted strategies in both the commercial and residential segments.
Income from rental of properties rose in the reporting year by 5.7% to CHF 463.5 million [438.3 in the prior-year period], which equates to like-for-like growth (EPRA LfL) of 3.3% [4.3% in the previous year]. Of this growth, around 1.4% points are attributable to real rent increases (i.e. exclusive of indexation and reduction of vacancies), which points to the high rent potential in the portfolio. Particular contributions to the overall growth in earnings came from the following properties: in Zurich, the newly let office building on Müllerstrasse and «Fifty-One», the office building acquired in 2023; in Geneva the new Alto office building in Lancy; and in Basel the life sciences-oriented Stücki Campus with its four extensions. Furthermore, an increase in turnover rent was achieved in the hotel, retail and parking areas. New letting and reletting achievements in 2024 with reputable companies such as Swisscom, Prada, Zürcher Kantonalbank and insurance company Vaudoise will in turn contribute to rental increases in the years to come. The vacancy rate at the end of 2024 was 3.8%, 0.2% points below the previous year [4.0%]. At the end of the year, the average term of our rental contracts (WAULT) was stable at a comfortable 4.8 years [5.0]. The portfolio optimisations of recent years have reduced the number of properties. As well as raising the average quality level within the portfolio, this also allows us to manage the portfolio much more efficiently. We succeeded in further optimising operating costs through more effective management of maintenance expenses and by centralising purchases such as electricity and consultancy services, and thus reduced the cost ratio (measured against the EPRA cost ratio) to 17.3% [18.3%]. Overall, the operational EBITDA of the Real Estate segment (excluding revaluation and sales) increased markedly in 2024 to CHF 389.2 million [370.6].
At the end of 2024, our portfolio boasted a stable value of CHF 13.1 billion at fair value [13.1 in the previous year]; the share of development properties was CHF 0.2 billion [0.9]. At the end of the financial year, the building stock numbered 139 properties [159] and had maintained its highly diverse tenant profile with around 2 000 tenants. At the end of the reporting year, we recorded revaluations in our portfolio of CHF +113.7 million [-250.5], of which CHF +15.9 million was attributable to the development properties. This positive trend reflects the optimised portfolio quality coupled with a turnaround in the Swiss real estate market, where we saw significantly more transactions and stronger interest in real estate investments in 2024. As the average discount rate applied by the independent property valuer Wüest Partner remained unchanged, this change is purely due to operational improvements: higher rates for new rental contracts, lower vacancies, and reductions in property costs. We will continue to streamline the portfolio, consistently focusing on new, centrally situated, sustainable properties in prime locations. Last year, we once again closed a number of sales to finance our development projects (capital recycling). Over the course of the year, and particularly in the second half, we sold 23 properties with a fair value of CHF 345 million, making a profit of 3% above the latest appraisal values. We consistently pursued portfolio optimisation here, with an average size of approx. CHF 17 million and the primary use being retail – meaning a focus on larger properties and a trend towards fewer retail spaces. We only made one small acquisition for our own portfolio last year due to a lack of attractive prospects among the properties available on the market.
Last year proved positive for Asset Management on two counts. First, our acquisition of specialist asset manager Fundamenta considerably increased our assets under management (AuM), and second, we achieved strong organic growth with various new capital raises. With an asset base of CHF 4.2 billion transferred in the Fundamenta acquisition, Swiss Prime Site Solutions has advanced to become the largest independent real estate asset manager in Switzerland; managed assets increased to CHF 13.3 billion as at the end of 2024 [8.4 as at the end of 2023]. In the reporting year, we were able to grow organically by around CHF 1 billion through acquisitions. The return to a positive market environment for capital raises, with higher investor appetite after a number of interest rate cuts by the Swiss National Bank, was a decisive turning point in the development of new money. This was particularly evident in the case of new client money and contributions in kind for our projects, specifically the Akara Swiss Diversity Property Fund PK, the Swiss Prime Investment Foundation and the Fundamenta Group Investment Foundation. In fact we were able to carry out two capital increases for each of these three products.
In total, the capital increases amounted to over CHF 600 million, which also resulted in a significant growth in revenues. As at the end of 2024, revenues were CHF 70.8 million [49.7]. The proportion of recurring income, at 75% [77%], was somewhat lower than in the previous year, as there was more transaction-related income in 2024.
Significant economies of scale saw a disproportionate rise in EBITDA of 47% to CHF 42.0 million [28.6], which yielded an EBITDA margin of 59%. Initial synergy effects from the Fundamenta acquisition bore fruit in the second half of the year; we succeeded in reducing operational costs by merging two existing locations in Zug, through natural fluctuation in the workforce and by centralising overarching functions such as finance, IT and communication.
The consolidated operating result before depreciation and amortisation (EBITDA) was CHF 415.1 million [389.7 in the prior-year period]; this was excluding revaluations and sales and based on IFRS 5 (i.e. without taking into account the pro rata result of Wincasa, which was sold in the previous year). This operating result includes a loss of CHF –6.9 million [+1.5] by the retail business of Jelmoli. In its final year of operation, Jelmoli worked with successively higher discount campaigns and achieved a lower contribution margin, which was not wholly offset by lower salary and material costs. With the above-mentioned efficiency gains in the Real Estate segment and the lower operating costs at Jelmoli, consolidated operating expenses amounted to CHF 257.0 million [269.4] which – despite the integration of Fundamenta – was lower than at the 2023 year-end.
Total net financial expenses increased to CHF 86.6 million [76.3] due to higher refinancing costs compared with expiring financing. Due to a significantly higher year-end share trading price, this figure includes non-cash fair value adjustments of our convertible bonds of CHF 13.2 million, which increased expenses in the reporting period. Actual interest expenses were correspondingly lower.
The cash-effective result per share (FFO I, funds from operations) rose by 4.2% to CHF 4.22 [4.05] – in a combination of significantly improved operating profit contribution and higher financing costs. The intrinsic value (EPRA NTA) per share was CHF 99.27 [99.68]. Based on the higher result, the Board of Directors will propose an increase of the dividend to CHF 3.45 per share to the Annual General Meeting on 13 March 2025; this equates to 82% of FFO I. This would make the resulting dividend yield 3.5% as at year-end.
In 2024, we once again maintained our conservative financing strategy with a strong equity base. Interest-bearing financial liabilities excluding leasing amounted to CHF 5.3 billion as at the balance sheet date [5.4 as at the end of 2023], once again drawn from a variety of sources in the banking and capital market. The average term to maturity decreased slightly, to 4.3 years [4.6]. The average interest rate as at the balance sheet date rate fell to 1.1% [1.2%]. Of our financing volume, 87% was based on fixed interest rates [87%]. The quota of our unencumbered assets rose slightly to 87.4% [86.1%], as we repaid expiring mortgages with liquidity and did not refinance. As at the end of 2024, we had unused, contractually secured credit facilities available in the amount of CHF 1.1 billion, which together with the unencumbered assets gives us very high operational and financial flexibility. In the reporting year, we succeeded in extending these credit facilities totalling CHF 2.6 billion at national and international banks by a further year at unchanged terms, which underscores our exceptionally good access to the banking market. Over the past year, we profited from a highly receptive capital market and successfully placed a total of CHF 435 million in bonds with a sustainability focus as part of our Green Finance Framework. In March we issued a green bond in the amount of CHF 250 million at 1.8%, which matures in 2030, and an additional green bond in the amount of CHF 185 million at 1.65% with a five-year term to maturity. By year-end, a marked reduction in the loan-to-value ratio (LTV) of the property portfolio was achieved, down to 38.3% [39.8%], due in particular to profitable property sales. As forecast in the first half of the year, this brought us in well below the target value of 40%, which gives us additional room for manoeuvre in the coming years.
We are optimistic about 2025: the Swiss real estate market is currently experiencing singular momentum. This is underpinned both by stronger investor appetite based on the significant interest rate cuts of recent months and by continued positive economic growth. With our two business areas – «Real Estate» focussing on prime commercial properties and «Asset Management» focussing on residential properties – we can draw the utmost in balanced benefits from this impetus.
In the Real Estate segment, rental income in 2025 will be temporarily impacted by the elimination of the Jelmoli rent of around CHF 20 million net (EBITDA basis), taking into account intercompany rent offsetting and operating losses. By contrast, sustained rent increases and newly let properties should have a positive influence on the result. For 2025, we expect higher rental income in particular from the JED new builds in Schlieren and the Bern 131 building, as well as further letting of Alto Pont-Rouge in Geneva. Overall, we anticipate a further reduction in the vacancy rate to under 3.8% in 2025. Nevertheless, additional rents cannot completely offset the absence of Jelmoli. However, we will lay the foundations for further long-term rental growth in 2025 with the Zurich construction projects in the Jelmoli building and «YOND Campus». Consequently, we are maintaining our medium-term rental income target of CHF 500 million from 2028 onwards (i.e., after the reopening of the Jelmoli building). Given the increased momentum in the transaction market, we anticipate more opportunities for our own portfolio once again in 2025. As ever, we will review these opportunities selectively where we sense a fit with our portfolio strategy and the prospect of earnings accretion.
In the «Asset Management» area, we will further expand our leading position as an independent real estate specialist with the addition of the Fundamenta brand. Our range of funds and services allows us to comprehensively cover almost all investor and property types. In 2025 we expect a continuation of the increased investor interest we have seen since late 2024, which should bring further significant growth with new capital increases and transactions. This will augment our strong base with recurring income from fees for management, construction and development. We anticipate assets under management of over CHF 14 billion by the end of 2025 – an increase of around
CHF 1 billion.
At the group level, we will keep the LTV under 39%. We expect to largely offset the lack of Jelmoli letting and anticipate an FFO I per share of between CHF 4.10 and 4.15. In the medium term – and in particular following the reopening of the Jelmoli building at the end of 2027 – we see significant potential of over 10% in the FFO.