PSP Swiss Property reports a decline in profits in the first quarter

PSP Swiss Property reports rental income of CHF 81.1 million for the first quarter of the current year, up CHF 2.0 million or 2.6% compared to the first quarter of 2022, but operating income, profit excluding gains/losses on real estate investments, fell significantly from CHF 69.7 million to CHF 56.3 million (-19.2%). The decline was mainly due to lower profits from the sale of development projects and condominiums (-17.5 million CHF) and less own work capitalized (-1.3 million CHF), PSP wrote in a statement. Operating expenses decreased to CHF 13.2 million (previous year: CHF 14.0 million). Financing costs increased by CHF 0.6 million or 19.9% to CHF 3.6 million (previous year: 3.0 million). Earnings per share excluding gains/losses on real estate investments decreased from CHF 1.52 to CHF 1.23.

Net profit down by more than a quarter

On balance, PSP reports a net profit of CHF 57.0 million, down CHF 21 million or 26.9% compared to the first quarter of 2022, when net profit was CHF 78 million. In addition to the lower profits from real estate sales, there were also no revaluations in the first quarter of 2023, PSP said, explaining the minus. In the same quarter of the previous year, the real estate company still recorded a portfolio revaluation of CHF 11.9 million.

Vacancy rate slightly up

PSP puts the balance sheet value of the portfolio at CHF 9.45 billion as of the end of March (previous year:9.42 billion). The vacancy rate of 3.2% was slightly higher than at the end of 2022 (3.0%), however, according to the real estate company, 0.3 percentage points of the vacancy rate are due to ongoing refurbishment work. Of the CHF43.0 million worth of leases expiring this year, two-thirds had been renewed by the end of March, PSP added. The wault (weighted average unexpired lease term) of the overall portfolio was 4.4 years. The wault of the ten largest tenants, which account for about a quarter of rental income, was 3.9 years.

No acquisitions in the starting quarter

PSP Swiss Property did not acquire any sites, development projects or investment properties in the first quarter. The investment property at Bahnhofstrasse 23 in Interlaken was sold for CHF 3 million. According to the real estate company, there were partial sales of the "Residenza Parco Lago" project in Paradiso and the "Salmenpark" site in Rheinfelden.

Major investments in Zurich and Basel

PSP has reclassified two investment properties as development projects: First, the real estate company is modernizing the commercial building at Hochstrasse 16 / Pfeffingerstrasse 5 in Basel. About half of the rental space (15,500 sqm) will be put to a new use; 187 serviced apartments are planned. The conversion will be completed towards the end of 2024, and the investment will amount to around CHF 28 million.

On the other hand, PSP is investing CHF 35 million in the renovation and redesign of Globus am Bellevue. The department store at Theaterstrasse 12 in Zurich has never been completely renovated since it was built in the year before and is now in need of major refurbishment. A new commercial building with 5,000 sqm of prestigious retail, gastronomy and office space would be created. The property is scheduled to be ready for occupation at the end of 2024.

Restrained outlook

In the rental market for office and retail space in central locations, PSP expects demand to remain intact. Higher financial expenses due to higher interest rates could be largely compensated, as around 90% of the leases are indexed and the real estate company can thus pass on inflation via the leases linked to inflation. However, higher interest rates and lower liquidity in the transaction market are likely to affect valuations in general. Therefore, PSP does not want to rule out selective devaluations.

Forecast for 2023 confirmed

Due to major renovation projects, PSP expects "manageable temporary rent losses" in the current year. Nevertheless, the company expects higher rental income in 2023 than in 2022, due to the indexation of rental contracts, the completion of several projects and the acquisitions of the previous year. Income from the sale of development projects and condominiums will decline, and financial expenses will increase due to higher interest rates. PSP confirms its forecast for the 2023 financial year: Ebitda excluding gains/losses on real estate investments will amount to CHF 285 million (previous year: CHF 293.8 million), and the vacancy rate will be below 4%. (ah)