Swiss Prime Site: strategic and operational progress with increased earnings in first half of 2024

Ad Hoc announcement pursuant to article 53 LR

PRESS RELEASE

Zug, 22 August 2024

• Increase in rental income to new high of CHF 232 million (+6.0% absolute; +3.7% LfL) and reduction in vacancies to record low of 3.6%
• Growth in Swiss Prime Site Solutions’ assets under management to CHF 12.7 billion (CHF 8.4 billion as at December 2023) – with acquisition of Fundamenta and organic growth
• Increase in consolidated operating result before depreciation and amortisation (EBITDA) by 3.5% to CHF 205 million (CHF 198 million as at 30.06.2023)
• Increase in funds from operations (FFO I) per share by 4.6% to CHF 2.03
• Optimistic outlook – guidance increased for the 2024 financial year

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

René Zahnd, CEO of Swiss Prime Site: «Operationally, we improved again in the first half of the year and can see how our focus on the real estate business has positively impacted our financial results. Strategically, we 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 take advantage of the positive momentum in the market.»

Rental growth and efficiency gains in the Real Estate business area
In the first half of the year, rental income grew by 6.0% to CHF 232.0 million [218.9 in the prior-year period]. This was largely attributable to three factors: the new build projects on Müllerstrasse (Zurich), in Stücki Park (Basel) and at Pont-Rouge (Geneva); a further decrease in the vacancy rate to a record low of 3.6% [4.0% as at December]; better rents for new and renewed leases. Growth amounted to 3.7% on a like-for-like basis (EPRA LfL) [3.4% in the prior-year period]. The average term to maturity of the rental contracts (WAULT) was near constant at 4.9 years as at the end of June 2024. Through ongoing portfolio optimisation with the capital recycling activities and a strict focus on costs, the Company achieved this income growth with slightly lower expenses in the Real Estate segment, significantly reducing the EPRA cost ratio by one percentage point to 18.4% [19.4% in the prior-year period]. The operational result (EBITDA) in the Real Estate segment grew accordingly to CHF 199.8 million (+7.3% without taking gains from sales into account).

Attractive portfolio with further potential
At the halfway point of 2024, Swiss Prime Site recorded CHF +30 million in positive revaluations of the portfolio [-99 in the prior-year period]. As the applied discount rate remained unchanged, this change is exclusively due to operational improvements: higher rates for new rental contracts, lower vacancies and lower property costs. Overall, the property value increased by CHF +73 million to CHF 13.15 billion compared to year-end 2023, due to a combination of revaluations, sales and investments in developments.

Swiss Prime Site continued to push ahead with its capital recycling in the first half-year, financing the Company’s development investments with sales and continuously optimising and modernising the portfolio. Six properties with a total value of around CHF 50 million were sold on the market – at prices around 5% higher than the most recent appraisal values at the end of 2023. The Company therefore anticipates sales in the order of CHF 250–300 million for this year again. Swiss Prime Site is sharpening its focus on new, centrally located properties, which are efficiently managed for the tenants at a high standard and with sustainability in mind.

Asset Management: acquisition of Fundamenta and several new issues
The first half-year in the Asset Management segment was marked by the acquisition of specialist asset manager Fundamenta. Completed in April, this transaction saw the transfer of CHF 4.2 billion in fund assets. Swiss Prime Site Solutions has advanced to become the largest independent real estate asset manager in Switzerland: assets under management (AuM) have increased to CHF 12.7 billion. 

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

Revenue from Asset Management grew by 22% to CHF 27.0 million [22.2 in the prior-year period]. The expanded asset base allowed Swiss Prime Site to earn significantly higher management fees, which further raised the proportion of recurring income to 80% [78%] and underlines the stability and consistency of this business segment.

EBITDA grew by 22% to CHF 14.6 million [11.9], in line with revenue growth. Fundamenta’s contribution was only included on a pro-rata basis for the period following the completion of the acquisition in April; synergy effects are expected to start taking hold in the second half of the year. Swiss Prime Site is on course with its plans and continues to expect an FFO I contribution of CHF 0.20 per share from the acquisition on a run rate basis.

Higher operating profit and FFO I
The consolidated operating result before depreciation and amortisation (EBITDA) rose by 3.5% to CHF 204.7 million [197.8 in the prior-year period]; this was based on IFRS 5 («Discontinued Operations», i.e. without taking into account the pro rata result of Wincasa, which was sold in the previous year). The consolidated operating result includes a loss of CHF -3.8 million [-3.6] by the Jelmoli retail business, which was driven by a further drop in income to CHF 55.9 million [59.8] due to declining footfall 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 non-cash fair value adjustments of convertible bonds of CHF 7.2 million, which reduced expenses in the reporting period; actual interest expenses were correspondingly higher.

The cash-effective funds from operations per share (FFO I) rose by 4.6% to CHF 2.03 [1.94]. The purchase price for Fundamenta, partially paid in shares, slightly increased the number of average outstanding shares. The fact that Swiss Prime Site was still able to increase the result per share from the outset underscores the attractiveness of the transaction.

Sustainable refinancing
In the first half-year, Swiss Prime Site again maintained its conservative financing strategy with a strong equity basis. Interest-bearing financial liabilities excluding leasing stood at CHF 5.7 billion as at the balance sheet date and were sourced from a variety of channels in the banking and capital market. The average term to maturity decreased slightly to 4.2 years [4.6 as at December]. As at the end of the first half-year, the Company had unused, contractually secured lines of finance available in the amount of CHF 820 million, which further increases its flexibility.

In the first half-year, Swiss Prime Site profited from a highly receptive capital market and successfully placed a total of CHF 435 million in bonds with a sustainability focus on the Swiss capital market as part of the Green Finance Framework. 

The loan-to-value ratio (LTV) of the property portfolio increased temporarily as at the end of June to 40.9% [39.8% as at December], exceeding the target figure of 40%. The increase can be ascribed – all other things being equal – to the dividend payment in particular, which is routinely paid in the first half-year. Swiss Prime Site intentionally scheduled the majority of its property sales for the second half of 2024, with a view on the expected and now materialized interest rate cuts. The Company therefore remains confident of completing the sales that are planned for the whole of 2024, which will bring the LTV ratio back below 40% by year-end. 

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

In conclusion, Swiss Prime Site expects a vacancy rate of around 3.8% for the full financial year and an LTV for the property portfolio that will return to below 40% in the second half of the year. The assets under management of Swiss Prime Site Solutions are expected to amount to approximately CHF 13 billion at the end of 2024. Swiss Prime Site also anticipates an increase in the FFO I to between CHF 4.15 and 4.20 per share.

If you have any questions, please contact:
 
Investor Relations, Florian Hauber
Tel. +41 58 317 17 64, florian.hauber@sps.swiss
 
Media Relations, Patrick Djizmedjian
Tel. +41 58 317 17 42, patrick.djizmedjian@sps.swiss
 
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