Real estate portfolio

At the end of 2016, the real estate portfolio included 161 office and commercial properties as well as four development sites and six individual projects. The carrying value of the total portfolio stood at CHF 6.894 billion (end of 2015: CHF 6.724 billion). In 2016, an office and commercial property located at Hardturmstrasse 101, 103, 105 / Förrlibuckstrasse 30 in Zurich was purchased for CHF 145.2 million. Two smaller objects in Fribourg and Zurzach were sold for a total of CHF 12.9 million.

The current site developments and projects progressed as planned. The first stage of the “Salmenpark” project in Rheinfelden with an investment total of approximately CHF 190 million was completed. This includes office and commercial space, a seniors’ centre and nursing home as well as rental apartments and for-sale condominiums. The revised building application for stage 2 (96 residential units for sale) with an investment total of approximately CHF 70 million was submitted at the end of 2016. Construction is scheduled to start in autumn 2017 and takes until 2020. Construction for the new project “Residenza Parco Lago” in Paradiso (near Lugano) with approximately 13 000 m² floor space (condominiums as well as office, commercial and retail areas) will start in Q1 2017. The investment total will amount to approximately CHF 80 million. All units will be sold after their completion towards the end of 2019.

Comprehensive renovations are underway for several properties. The property located at Rue Saint-Martin 7, Lausanne, will be renovated for approximately CHF 12 million in 2017. Until 2018, the building located at Rue du Marché 40, Geneva, will be renovated for approximately CHF 15 million. On the “Orion” project (in planning), the two buildings located at Förrlibuckstrasse 178/180 and at Hardturmstrasse 181, 183, 185 in Zurich West will be replaced by a modern office property. Construction is scheduled for 2018 to 2020. The investment total will amount to approximately CHF 120 million. During the reporting period, the above-mentioned properties were reclassified from “investment properties” to “development properties”.

Vacancy rate

At the end of 2016, the vacancy rate stood at 9.3% (end of 2015: 8.5%), after the above-mentioned reclassifications. 0.7 percentage points of these 9.3% were due to ongoing renovations. The properties in Zurich West and Wallisellen (carrying value CHF 0.8 billion) contributed 2.1 percentage points to the overall vacancy rate. The remaining properties with a carrying value of CHF 5.4 billion (i.e. the total investment portfolio excluding the objects under renovation as well as those in Zurich West and Wallisellen) made up 6.5 percentage points.

Annual results 2016

In 2016, net income (excluding changes in fair value) reached CHF 172.5 million (2015: CHF 161.3 million). The increase resulted mainly from the sale of condominiums at the “Salmenpark” in Rheinfelden and the “Black” apartment tower on the Löwenbräu site in Zurich West. As a result, income from apartment sales rose from CHF 3.3 million in the previous year by CHF 11.0 million to CHF 14.2 million. Corresponding earnings per share (excluding changes in fair value) amounted to CHF 3.76 (2015: CHF 3.52).

Net income (including changes in fair value) amounted to CHF 134.9 million (2015: CHF 187.7 million). The decrease was mostly due to the depreciation of the property portfolio, which amounted to CHF 50.2 million in 2016 (2015 resulted an appreciation of CHF 33.8 million). Thereof CHF 7.8 million were related to the investment portfolio and CHF 42.4 million to project developments. The depreciation of the developments was mainly due to one project in Geneva and several renovations in Zurich and Basel. Earnings per share (including changes in fair value) amounted to CHF 2.94 (2015: CHF 4.09).

Strong capital structure

With total equity of CHF 3.867 billion (end of 2015: CHF 3.870 billion) – corresponding to an equity ratio of 54.9% (end of 2015: 57.0%) – PSP Swiss Property had a strong capital base at the end of 2016. Interest-bearing debt amounted to CHF 2.248 billion, corresponding to 31.9% of total assets (end of 2015: CHF 1.969 billion respectively 29.0%).

At the end of 2016, the passing average interest rate was 1.28% (end of 2015: 1.53%). The average fixed-interest period was 4.3 years (end of 2015: 3.4 years).

No major committed bank loans will be due until 2019. Currently, unused committed credit lines amount to CHF 710 million.

PSP Swiss Property has ratings from two international rating agencies: in March 2016, Fitch confirmed the Senior Unsecured Rating A- (outlook stable); in November 2016, we received an A3 Issuer Rating (outlook stable) from Moody’s.

Subsequent events

On 10 February 2017, the CHF 125 million 0.000% bond (maturing in 2023), issued in September 2016, was increased by CHF 50 million to CHF 175 million.

There were no further material subsequent events.

Changes in the Board of Directors and in the Executive Board

There will be changes in the Board of Directors and the Executive Board. After 17 years on the Board of Directors, over 15 years thereof as its Chairman, Mr. Günther Gose will not stand for re-election at the coming Annual General Meeting of 5 April 2017. PSP Swiss Property extends its sincere gratitude to Mr. Gose for his highly appreciated and valuable contribution to the benefit of the company over so many years.

The Board of Directors will propose to its shareholders to elect Mr. Luciano Gabriel as new Chairman of the Board of Directors; Mr. Gabriel has been the Delegate of the Board of Directors and Chief Executive Officer (CEO) since April 2007. Mr. Gabriel will resign as CEO of the Company and the position of Delegate of the Board of Directors will not be filled any longer.

All other six current members of the Board of Directors stand for re-election. As of 5 April 2017, the Board of Directors shall thus consist of seven (previously eight) members. The Audit Committee and the Compensation Committee shall consist of the same four members: Peter Forstmoser, Adrian Dudle, Nathan Hetz and Josef Stadler; Peter Forstmoser is foreseen as Chairman of both committees.

At its meeting of 6 March 2017, the Board of Directors has appointed Mr. Giacomo Balzarini as Chief Executive Officer (CEO)/Chief Financial Officer (CFO) as of 1 April 2017; Mr. Balzarini has been Chief Financial Officer since April 2007. Mr. Martin Heggli, Swiss certified expert for accounting and controlling, who has been responsible for accounting of PSP Swiss Property since September 2005, has been appointed Chief Operating Officer (COO) and member of the Executive Board as of 1 April 2017 as well. As CEO/CFO, Mr. Balzarini will remain responsible for capital market and banking matters as well as for analyst contacts. As COO, Mr. Heggli will be responsible for finance and operations. Mr. Adrian Murer (appointed July 2016) remains Chief Investment Officer (CIO) and member of the Executive Board.

Other material proposals to the Annual General Meeting on 5 April 2017

For the business year 2016, the Board of Directors proposes an ordinary dividend payment of CHF 3.35 per share (previous year: CHF 3.30). In relation to net income (excluding changes in fair value), this corresponds to a payout ratio of 89.1%; in relation to the 2016 year-end share price of CHF 88.00, it corresponds to a yield of 3.8%.

Furthermore, the Board of Directors proposes the election of Ernst & Young AG, Zurich, as new statutory auditor for the business year 2017 to replace PricewaterhouseCoopers, Zurich, which was the Company’s statutory auditor since 2000.

Market environment and outlook 2017

Due to the predicted continuing low interest rates, investors’ demand for the purchase of well-located commercial properties will hardly diminish. PSP Swiss Property observes the acquisition market attentively; however, and in accordance to its known acquisitions policy, the Company remains prudent with regard to potential purchases.

While the outlook for Switzerland’s economy as a whole is positive, the office and retail property market remains a challenge. The market is competitive, location and quality are increasingly important. PSP Swiss Property expects office rent levels not to recover soon. The outlook for the office market in central locations is significantly better than for peripheral locations. Rents remain under pressure in the retail sector, due to shopping tourism abroad and growing online shopping. Central locations (“high street retail”) are more resilient to this trend.

The focus of the Company remains on the renovation and modernisation of selected properties, the further development of our sites and projects as well as the letting activities.

For the business year 2017, an ebitda (excluding changes in fair value) of approximately CHF 225 million is expected (2016: CHF 241.6 million). The forecasted reduction reflects the lower expected income from condominium sales compared to the past year. In addition, a slightly lower rental income is predicted due to renovations.

With regard to the vacancies at year-end 2017, a rate of around 10% is expected (end of 2016: 9.3%).

Key figures