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, with rental income rising by 1.9% (like-for-like). 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. 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 IT, which amounted to a total of CHF 34.3 million. Together with other impairments (mainly software), these non-cash special effects sum up 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 317 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.
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 a further 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 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 some 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 effects, our strict cost control efforts were successful. The Group EBIT before revaluations and special effects increased by 6.4% and reached CHF 430.7 million [CHF 404.8 million]. Excluding adjustments, the 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]. FFO I, which is used to determine the 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.
Sustainability in focus
In 2022, we have consistently pursued our sustainability strategy and achieved significant progress in the property portfolio and in financing. We met our goal of having 75% of our portfolio certified with a reputable sustainability standard. In addition, we were able to reduce CO2 intensity by 14%. In line with our progress, our sustainability ratings from external agencies (e.g. GRESB, Sustainalytics) also improved. On the corporate finance side, we have introduced a «Green Finance Programme» into our strategy. According to this, all new financing will be classified as «green» and externally validated.
Redevelopment of the Jelmoli building
The iconic building in the centre of Zurich is set to be redeveloped over a period of two years, to start from the beginning of 2025. Once completed, around 10,000 m2 of refurbished premium retail floorspace will be available on the lower levels. It will be relevant for both existing tenants and new brands or formats. The redevelopment will ensure that the Jelmoli building remains one of the largest and most attractive shopping destinations on Zurich’s Bahnhofstrasse. Some of the floorspace on the upper levels will be converted into high-end offices and public amenities such as fitness and restaurant facilities. From 2027, it will be newly positioned on the market and will no longer be operated by Swiss Prime Site.
Proposals to the General Assembly 2023
At the Annual General Meeting on 21 March 2023, the Board of Directors will propose to the shareholders a distribution of CHF 3.40 per share (+5 cents compared to 2022). Half of the distribution will be made in the form of an ordinary dividend (under deduction of 35% WHT) and half in the form of a distribution from the capital reserves (tax-free) – both with a value date of 30 March 2022. The Board of Directors will also propose Reto Conrad for election to the Board at the Annual General Meeting. It is also planned to amend the Articles of Association in accordance with the revision of the Swiss corporate law.
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. The 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.