PSP Swiss Property performs well operationally – devaluation depresses profit
Published: Tuesday, Nov 7th 2023, 08:30
Updated At: Wednesday, Nov 8th 2023, 00:53
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The real estate group PSP Swiss Property has performed well in a more difficult environment. Operating income and property income continued to rise in the first nine months of 2023. However, a portfolio devaluation reduced net profit. Nevertheless, PSP confirms its forecast and expects another good operating result for 2023.
The second-largest listed Swiss real estate group announced on Tuesday that its core business, the rental of commercial space, had developed positively. Real estate income increased by 4.5 percent year-on-year to CHF 247.6 million.
The operating result, i.e. profit excluding gains/losses on real estate investments, increased by 16.3% to CHF 210.8 million. A positive earnings contribution of CHF 30.6 million resulted from the reversal of deferred taxes. On the other hand, lower profits from the sale of development projects and condominiums weighed on the result.
Net profit fell by 45.3% to CHF 155.3 million. The main reason for this was a portfolio devaluation of 67.2 million francs. In the same period of the previous year, there had been an appreciation of CHF 131.9 million. As at June 30, PSP had reported a loss of CHF 90.7 million as part of the regular half-yearly valuation. This was offset at the end of September by the revaluation of two properties in Zurich. This resulted in a plus of 23.5 million.
Value of the real estate portfolio at just under 10 billion
The equity ratio was a solid 53.2% or CHF 5.2 billion at the end of September 2023. The balance sheet value of the portfolio amounted to CHF 9.7 billion at the end of September, compared with CHF 9.4 billion at the end of 2022. The vacancy rate rose to 3.2% (end of 2022: 3.0%).
PSP expects a vacancy rate of 4% at the end of 2023. The slight increase is due to the reclassification of a project that will be completed in the fourth quarter of 2023. Of the rental agreements expiring in 2023, only 3% were still open at the end of September 2023.
High demand for prime locations in centers
Meanwhile, the rental market in the segment relevant to PSP (quality properties in central locations in the most important economic centers) was satisfactory. Demand for attractive rental space in Geneva and Zurich was dynamic. However, the market for older office properties in B and C locations and non-food retail space is challenging. Basel continues to be characterized by an oversupply of office space.
The transaction market for attractive properties in prime locations has hardly changed in terms of prices and initial yields. PSP writes that the required yields are still very low despite the increased interest rate environment. The number of transactions has also decreased. Investors are now demanding higher yields for properties in peripheral locations and for properties that are no longer up to date in terms of quality.
Confirmed forecasts
PSP is confident about the 2023 financial year as a whole. A good operating result is once again expected. The forecast for EBITDA excluding gains/losses on real estate investments was confirmed at CHF 295 million (2022: CHF 293.8 million). PSP will therefore be able to continue its "shareholder-friendly" dividend policy.
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