Swiss Prime Site: Strategic and operational progress with increased earnings in H1 2024

Swiss Prime Site confirmed its strategic focus for the first half of 2024, recording good progress both strategically and operationally.

René Zahnd, CEO Swiss Prime Site: “Operationally, we have improved again in the first half of the year and we see how our focus on the real estate business has had a positive impact on our financial results. Strategically, we have expanded our platform and increased our real estate assets under management to almost CHF 26 billion with the acquisition of Fundamenta, becoming one of the strongest players in the Swiss real estate market in both the commercial and residential segments. We are now ideally positioned to capitalize on the positive market momentum.”

Increase in rents and efficiency in the Real Estate business
In the first half of the year, rental income increased by 6.0% to CHF 232.0 million (218.9 million in the same period of the previous year). This was largely due to three factors: new construction projects on Müllerstrasse (Zurich), in Stücki Park (Basel) and in Pont-Rouge (Geneva); a further decline in the vacancy rate to a record low of 3.6% (4.0% in December); and improved rents for new and renewed leases. The increase amounted to 3.7% on a like-for-like basis (EPRA LfL) (3.4% in the same period of the previous year). The average remaining lease term (WAULT) was almost constant at 4.9 years at the end of June 2024. Thanks to continuous portfolio optimization with capital recycling activities and a tight focus on costs, the Company achieved this increase in income with slightly lower expenses in the Real Estate segment, significantly reducing the EPRA expense ratio by one percentage point to 18.4% (19.4% in the same period of the previous year). The operating result (EBITDA) in the Real Estate segment increased accordingly to CHF 199.8 million (+7.3% excluding gains on disposal).

An attractive portfolio with further potential
In mid-2024, Swiss Prime Site recorded +CHF 30 million in positive portfolio revaluations (-99 in the prior-year period). As the discount rate applied remained unchanged, this change is solely due to operational improvements: higher rates for new leases, lower vacancies and lower property costs. Overall, the value of properties increased by +CHF 73 million to CHF 13.15 billion compared to the end of 2023, thanks to a combination of revaluations, sales and development investments.

Swiss Prime Site continued to recycle capital in the first half of the year, financing the Company’s growth investments through sales and continuously optimizing and modernizing the portfolio. Six properties with a total value of around CHF 50 million were sold on the market – at prices that are around 5% higher than the last valuations at the end of 2023. The Company therefore expects sales of around CHF 250-300 million this year. Swiss Prime Site focuses on new, centrally located properties that are efficiently managed for tenants at a high level and with a view to sustainable development.

Asset Management: Fundamenta Acquisition and Several New Issues
The first half of the year in the asset management segment was marked by the acquisition of specialist asset manager Fundamenta. This transaction, completed in April, resulted in the transfer of CHF 4.2 billion in fund assets. Swiss Prime Site Solutions moved up to become the largest independent real estate asset manager in Switzerland: assets under management (AuM) increased to CHF 12.7 billion.

The change in the interest rate environment and the continued positive economic data in Switzerland have once again made real estate investments more attractive. This is evidenced by the capital increases carried out in the first half of the year. In total, Swiss Prime Site raised around CHF 270 million in new money and in-kind contributions for its products, in particular Akara Swiss Diversity Property Fund PK, Swiss Prime Investment Foundation and Fundamenta Group Investment Foundation.

Asset management revenues increased by 22% to CHF 27.0 million (22.2 million in the same period last year). The expanded asset base allowed Swiss Prime Site to earn significantly higher management fees, which further increased the share of recurring income to 80% (78%) and underlines the stability and consistency of this business segment.

EBITDA increased by 22% to CHF 14.6 million (11.9), in line with the increase in revenue. Fundamenta’s contribution was included only on a pro-rata basis for the period following the completion of the acquisition in April; synergies are expected to start to materialize in the second half of the year. Swiss Prime Site is executing on its plans and continues to expect an FFO I contribution of CHF 0.20 per share from the acquisition on a current rate basis.

Higher operating profit and FFO I
Consolidated operating result before depreciation and amortisation (EBITDA) increased by 3.5% to CHF 204.7 million (197.8 in the same period of the previous year); this was based on IFRS 5 (“Discontinued operations”, i.e. excluding the proportionate result of Wincasa, which was sold in the previous year). Consolidated operating result includes a loss of CHF -3.8 million (-3.6) from the Jelmoli retail business, which was caused by a further decrease in income to CHF 55.9 million (59.8) due to the decrease in the number of customers in the Jelmoli building and lower average revenue per purchase.

Total net financial expenses increased to CHF 29.5 million (28.1) due to higher refinancing costs compared to expiring financing. This included fair value adjustments on convertible bonds of CHF 7.2 million, which reduced expenses in the reporting period; actual interest expenses were correspondingly higher.

Effective cash flow from operations per share (FFO I) increased by 4.6% to CHF 2.03 (1.94). The purchase price of Fundamenta, partly paid for in shares, slightly increased the number of average shares outstanding. The fact that Swiss Prime Site was able to increase earnings per share from the outset underlines the attractiveness of the transaction.

Sustainable refinancing
In the first half of the year, Swiss Prime Site once again maintained a conservative financing strategy with a strong capital base. Interest-bearing financial liabilities excluding leases amounted to CHF 5.7 billion at the balance sheet date, coming from various channels in the banking and capital markets. The average maturity decreased slightly to 4.2 years (4.6 years at December). At the end of the first half of the year, the Company had unused, contractually secured financing facilities of CHF 820 million, which further increases its flexibility.

In the first half of the year, Swiss Prime Site benefited from a very receptive capital market and successfully placed bonds with a total value of CHF 435 million on the Swiss capital market with a focus on sustainability within the Green Finance Framework.

The loan-to-value ratio (LTV) of the real estate portfolio increased temporarily at the end of June to 40.9% (39.8% in December), exceeding the target value of 40%. This increase can be attributed – assuming other factors remain unchanged – in particular to the dividend payment, which is routinely paid in the first half of the year. Swiss Prime Site has deliberately planned the majority of its real estate sales for the second half of 2024, in view of the expected and currently materialized interest rate cuts. The Company therefore remains confident that it will be able to complete the sales planned for the full year of 2024, which will lead to the LTV ratio falling below 40% by the end of the year.

The outlook remains optimistic
Swiss Prime Site remains optimistic about the second half of the year. The last new lab in Stücki Park in Basel will be handed over to its tenants and operations will commence. In addition, Tertianum will occupy Paradiso-Lugano. Swiss Prime Site will continue its capital recycling strategy and, as mentioned, will sell further properties to finance growth investments without new capital. The focus will remain on prime locations with modern, sustainable spaces. The company also anticipates further earnings growth in the asset management area, with a direct link to successful new issues in the first half of the year.

In summary, Swiss Prime Site expects a vacancy rate of around 3.8% for the full fiscal year and a LTV for the real estate portfolio that will return to below 40% in the second half of the year. Assets under management by Swiss Prime Site Solutions are expected to amount to around CHF 13 billion by the end of 2024. Swiss Prime Site also forecasts an increase in FFO I to between CHF 4.15 and 4.20 per share.