PSP Swiss Property – Solid operating earnings. Improved FY 2016 ebitda and vacancy forecast.


Improved operating earnings are expected for FY 2016 compared to the previous year – in fact now an ebitda (excluding changes in fair value) in excess of CHF 240 million (so far: approximately CHF 240 million). At the end of June 2016, NAV per share amounted to CHF 82.42 (end of 2015: CHF 84.38). In this regard, it should be considered that on 6 April 2016, CHF 3.30 per share were paid out (totalling CHF 151.3 million).

Real estate portfolio

At the end of June 2016, the real estate portfolio included 163 office and commercial properties as well as five development sites and three individual projects. The carrying value of the total portfolio stood at CHF 6.737 billion (end of 2015: CHF 6.724 billion). In June 2016, the investment property located at Av. de Beauregard 1 in Fribourg was sold for CHF 12.7 million. After the balance sheet date respectively on 29 July 2016, an office and commercial property located at Hardturmstrasse 101, 103, 105 / Förrlibuckstrasse 30 in Zurich was purchased for CHF 145 million. This acquisition strengthens the position of PSP Swiss Property in Zurich West, thus provides additional strategic options.

The completion and delivery of the residential units at the “Salmenpark” in Rheinfelden proceeds as planned. Overall, 80 of the 113 freehold apartments have been sold. The Salmen Center (retail spaces as well as a nursing and care home) was completed and reclassified to investment properties at the end of March 2016. The first stage of construction with an investment total of approximately CHF 180 million will be completed by the end of 2016. The revised building application for stage two with an investment total of approximately CHF 70 million will presumably be submitted by the end of 2016. This stage includes the development of 100 condominiums for sale.
The new constructions and conversions on the other sites progressed as planned.
Vacancy rate

At the end of June 2016, the vacancy rate stood at 9.1% (end of 2015: 8.5%). 1.0 percentage points of these 9.1% were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.7 billion) contributed 2.8 percentage points to the overall vacancy rate. The remaining properties with a carrying value of CHF 5.5 billion (i.e. the total investment portfolio excluding the objects under renovation as well as those in Zurich West and Wallisellen) made up 5.3 percentage points.

Half-year results H1 2016

During the reporting period, net income (excluding changes in fair value) reached CHF 89.0 million (H1 2015: CHF 78.7 million). The main reasons for this increase were higher rental income, which was up by CHF 1.4 million, income of CHF 10.5 million from the sale of 56 freehold apartments at the “Salmenpark” project in Rheinfelden (H1 2015: no income from apartment sales) as well as income from VAT recovery, which was up by CHF 1.7 million. Corresponding earnings per share (excluding changes in fair value) amounted to CHF 1.94 (H1 2015: CHF 1.72).

Net income (including changes in fair value) was CHF 65.0 million (H1 2015: CHF 88.2 million). Lower net income was caused by the revaluation of the properties which resulted in an overall depreciation of CHF 31.8 million (thereof CHF 23.1 million related to the investment portfolio and CHF 8.7 million regarding the project developments). The expected higher rental income due to completed renovations and a decline in the average weighted discount rate by 10 basis points had a positive effect on the valuations; however, these drivers were not enough to compensate the depreciations due to expected longer downtime between lettings, partially lower market rents as well as higher renovation outlays at a number of properties. Corresponding earnings per share (including changes in fair value) amounted to CHF 1.42 (H1 2015: CHF 1.92).

Strong capital structure

With total equity of CHF 3.780 billion (end of 2015: CHF 3.870 billion) – corresponding to an equity ratio of 55.6% (end of 2015: 57.0%) – PSP Swiss Property had a strong capital base at the end of June 2016. Interest-bearing debt amounted to CHF 2.064 billion, corresponding to 30.3% of total assets (end of 2015: CHF 1.969 billion respectively 29.0%).
At the end of June 2016, the passing average interest rate was 1.47% (end of 2015: 1.53%). The average fixed-interest period was 4.5 years (end of 2015: 3.4 years).

No major committed bank loans will be due until 2019. Currently, PSP Swiss Property has unused committed credit lines totalling CHF 630 million.

In March 2016, the rating agency Fitch confirmed PSP Swiss Property Ltd’s rating with an “A-” and stable outlook.

Market environment

PSP Swiss Property assumes that, in the short run, the Brexit vote will have only a limited impact on Switzerland’s property market despite the expected economic slowdown in Europe.
In certain geographical areas, there is a structural oversupply of office space. Overall, office rents are likely to decline slightly in 2016. This trend will not only impact peripheral locations, but to a certain extent also central places. In the economically strong Zurich city centre, pressure on rents is only moderate. However, vacancies are absorbed more slowly than in recent years.
The retail market suffers from exchange-rate induced shopping tourism abroad and the growing online shopping. Rents in this sector are likely to decline overall in 2016. In this market environment, central locations (“high street retail”) prove to be particularly robust.

Outlook 2016

Due to the continuing low interest rates, demand for well-located commercial properties remains strong and the acquisition market highly competitive. When evaluating possible acquisition targets, PSP Swiss Property continues to pursue its conservative acquisition strategy.

Focus will be kept on the letting activities, the renovation and modernisation of selected properties as well as the further development of our sites and projects.

For 2016, PSP Swiss Property now expects an ebitda (excluding changes in fair value) in excess of CHF 240 million (so far: approximately CHF 240 million; 2015: CHF 232.7 million). With regard to the vacancies at year-end 2016, an improved vacancy rate of around 10% is now expected (so far: around 11%; end of June 2016: 9.1%).


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