Home » Com­men­ta­ries » «We see gre­at poten­ti­al in deve­lop­ment pro­jects in par­ti­cu­lar»

28. Febru­ar 2019

«We see gre­at poten­ti­al in deve­lop­ment pro­jects in par­ti­cu­lar»

René Zahnd, CEO Swiss Prime Site

René Zahnd, CEO

Swiss Prime Site clo­sed out the 2018 finan­ci­al year with favoura­ble results. Both the core real estate busi­ness and the Ser­vices seg­ment con­tri­but­ed to this plea­sing result. The port­fo­lio of exi­sting pro­per­ties was opti­mi­sed by acqui­si­ti­ons and divest­ment. In addi­ti­on, the pro­ject pipe­line was imple­men­ted accord­ing to plan and aug­men­ted with new pro­jects. Tech­no­lo­gi­cal chan­ges were prio­ri­ti­sed in the group com­pa­nies in the Ser­vices seg­ment. The pro­gress achie­ved will make the busi­ness models of the ver­ti­cal­ly inte­gra­ted real estate-rela­ted busi­ness are­as signi­fi­cant­ly more robust for the future. Sus­tainab­le growth and long-term suc­cess are of para­mount rele­van­ce to the ent­i­re manage­ment team, and in par­ti­cu­lar to René Zahnd, CEO of Swiss Prime Site.

René Zahnd, you have been CEO of Swiss Prime Site for three years now. How has the real estate mar­ket chan­ged sin­ce you took up your posi­ti­on in 2016?
The mar­ket has beco­me con­si­der­a­b­ly more dyna­mic. New tech­no­lo­gies and the chan­ged demands of mar­ket play­ers are lea­ding to a diver­si­fi­ca­ti­on of the source of demand. The posi­ti­ve side effect of this chan­ge is that the real estate sec­tor has to focus much more stron­gly than pre­vious­ly on the cli­ent (tenant/user/operator) and their spe­ci­fic needs. This has meant that pro­ducts com­ing onto the mar­ket are also absor­bed at the end of the day. Ano­t­her chan­ge has occur­red in the resi­den­ti­al mar­ket, which is now rea­ching its limits. Put ano­t­her way, too many resi­den­ti­al pro­per­ties are still being crea­ted in the wrong loca­ti­on. What is more important for Swiss Prime Site, howe­ver, is the fact that demand for office floor space has picked up again, par­ti­cu­lar­ly in the grea­ter Zurich area.

How does the inte­rest rate situa­ti­on influ­ence your busi­ness model?
Alt­hough the assump­ti­on a few years ago was that inte­rest rates were bound to rise again soon, we are still con­fron­ted with a low inte­rest pha­se. The effect is that all mar­ket play­ers are on the loo­kout for returns, and one place they are fin­ding them is the real estate sec­tor. This means that cur­r­ent­ly we are in direct com­pe­ti­ti­on not just with other real estate com­pa­nies, but also with life insuran­ce com­pa­nies, pen­si­on funds and other insti­tu­tio­nal inve­stors. Thanks to our attrac­tive port­fo­lio and the pro­ject pipe­lines, we are able to cope well with the exi­sting mar­ket situa­ti­on. Our results reflect this.

What does this new com­pe­ti­ti­on mean for you?
When more play­ers par­ti­ci­pa­te in the real estate mar­ket, this often results in excess demand and pri­ce increa­ses. This does not affect us severely, given that we have a lar­ge port­fo­lio of 190 pro­per­ties, as well as a wide pipe­line of around 20 pro­jects at our dis­po­sal. Both fac­tors give us a cer­tain degree of inde­pen­dence vis-à-vis the mar­ket. When it comes to see­king hig­her returns, we see gre­at poten­ti­al in pro­ject deve­lop­ments in par­ti­cu­lar.

It appears that you con­ti­nued to cope very well with the chal­len­ges in the 2018 finan­ci­al year. What con­clu­si­ons would you draw?
At the start of the year, we pro­mi­sed our inve­stors suc­cess­ful busi­ness per­for­mance. We were able to ful­fil our pro­mi­se. We are defi­ni­te­ly satis­fied with the result. At the ear­nings level, we grew by 5.1% to CHF 1 214.1 mil­li­on. Ren­tal inco­me, which is the most important indi­ca­tor in our core real estate busi­ness, also rose by a plea­sing 2.0% to CHF 479.4 mil­li­on.

How did ear­nings per­form in the Ser­vices seg­ment?
We achie­ved year-on-year growth in Ser­vices as well. Our major growth area was assi­sted living, through our group com­pa­ny Ter­tia­num (+10.2% com­pa­red with 2017). We expect fur­ther growth in that area in com­ing years as our net­work expands. Some record sales were posted at Jel­mo­li, espe­ci­al­ly on «Thank You Day» which mar­ked the 185th anni­ver­s­a­ry, and also during the pre-Christ­mas peri­od. Our stra­te­gy of not par­ti­ci­pa­ting in point­less dis­count batt­les such as «Black Fri­day» once again pro­ved to be the right approach this year. We are con­vin­ced that our custo­mers value this firm posi­ti­on.

How did Win­ca­sa and Swiss Prime Site Solu­ti­ons fare in 2018?
Win­ca­sa was able to achie­ve increa­sed tur­no­ver (+1.5%) in a satu­ra­ted mar­ket. But much more pivo­tal for the real estate ser­vice pro­vi­der is the trans­for­ma­ti­on of the busi­ness model into a digi­tal con­cept, and the deve­lop­ment of new ser­vices. The new­ly estab­lished Mixed Use Site Manage­ment unit has acqui­red a num­ber of inte­re­sting con­tracts over the past year. We reor­ga­nis­ed the manage­ment at Swiss Prime Site Solu­ti­ons in the sum­mer of 2018 and this has alrea­dy paid off. Fol­lo­wing the rene­wal of the asset manage­ment con­tract with Swiss Prime Invest­ment Foun­da­ti­on (SPIF) ahead of sche­du­le, the focus is now on deli­vering the best pos­si­ble ser­vice for this custo­mer. In this respect, we are very for­tu­n­a­te that the employees of this group com­pa­ny have exper­ti­se across the who­le real estate spec­trum. The assets mana­ged by Swiss Prime Site Solu­ti­ons increa­sed from CHF 1.4 bil­li­on to CHF 1.6 bil­li­on in 2018. All in all, a plea­sing per­for­mance.

«Ren­tal inco­me, which is the most important indi­ca­tor in our core busi­ness, also rose by a plea­sing 2.0% to CHF 479.4 mil­li­on.»

And what is the posi­ti­on at ope­ra­ting result level in the­se two seg­ments?
We are on tar­get the­re, too. Swiss Prime Site Immo­bi­li­en gene­ra­ted EBIT of CHF 431.1 mil­li­on, rep­re­sen­ting growth of 2.1% in our core busi­ness. Reva­lua­ti­ons in the amount of CHF 68.3 mil­li­on also con­tri­but­ed to this impres­si­ve result. Again, this shows the attrac­tiveness of our real estate port­fo­lio. This figu­re also inclu­des pro­fits on sales. They are part of our stra­te­gy of deve­lo­ping real estate pro­jects and sel­ling them eit­her in part or in who­le when a favoura­ble oppor­tu­ni­ty pres­ents its­elf. We then invest the inco­me in addi­tio­nal pro­per­ties for our port­fo­lio and new pro­jects. We are on sche­du­le in the Ser­vices seg­ment with our goal of gene­ra­ting a sub­stan­ti­al con­tri­bu­ti­on to the Group by no later than 2021. Cur­r­ent­ly, EBIT is CHF 47.6 mil­li­on.

You con­duc­ted a num­ber of tran­sac­tions in 2018, inclu­ding the sale of your sha­re in Sihl­ci­ty. What was the rea­son for this sur­pri­sing move?
We had a litt­le over 24% ownership of the site dating from the peri­od when Sihl­ci­ty was deve­lo­ped. Howe­ver, we always aim to be at least a majo­ri­ty owner, or bet­ter still, sole owner. When we were offe­red the pro­spect of an attrac­tive real estate swap for our sha­re, we sei­zed the oppor­tu­ni­ty. This enab­led us to fur­ther opti­mi­se our port­fo­lio and to relin­quish a part of the retail floor space that we did not con­trol.

You car­ri­ed out a sha­re capi­tal increa­se in Sep­tem­ber 2018. Why?
In the cour­se of our claim to grow pro­fi­ta­b­ly, we use capi­tal increa­ses to sei­ze oppor­tu­nities in the mar­ket. We have done this very well in the past. In this sen­se, capi­tal increa­ses are part of our cor­po­ra­te stra­te­gy.

Westlog Zürich

The «West-Log» site in Zurich Alt­stet­ten is a new urban logi­stics deve­lop­ment.

How will you use this capi­tal?
We invest the funds spe­ci­fi­cal­ly for our deve­lop­ment pro­jects, which in the medi­um and long term allow us to increa­se ren­tal inco­me and gene­ra­te inco­me from sales, which we in turn can invest in new pro­jects. We achie­ved this in Gene­va with the par­ti­al sale of «Espace Tour­bil­lon» and reinvest­ment in the pro­ject «Alto Pont-Rouge». And with the sale of the «Welt­post Park» pro­ject in Ber­ne and the acqui­si­ti­on of «West-Log» in Zurich. Ano­t­her important con­si­de­ra­ti­on is the addi­tio­nal finan­ci­al fle­xi­bi­li­ty, which allows us to react to uni­que oppor­tu­nities in the mar­ket, such as the purcha­se at Beet­ho­ven­stras­se in Zurich.

Do you feel you are well set up now in rela­ti­on to capi­ta­li­sa­ti­on?
Our cur­rent equi­ty ratio is 43.9 %. It is sound as usu­al, and gives us enough room for mano­eu­vre. We are a com­pa­ny that will always con­si­der the who­le gamut of finan­cing pos­si­bi­li­ties if we need to.

Whe­re do you see Swiss Prime Site cur­r­ent­ly in the imple­men­ta­ti­on of its stra­te­gy?
We are very satis­fied with deve­lop­ments in the core real estate busi­ness. The focus on deve­lop­ment pro­jects and our cli­ents has alrea­dy paid off. This per­for­mance also reflects the out­stan­ding qua­li­ty of our real estate team, allo­wing us to deli­ver supe­ri­or ser­vices both for our own port­fo­lio and through asset manage­ment for third-par­ty port­fo­li­os (SPIF). We have made very good pro­gress in the past year in the Ser­vices seg­ment. The focus is now on con­ti­nuing to work on ope­ra­tio­nal excel­lence to ensu­re that we will be in a posi­ti­on to gene­ra­te at least 10 % of EBIT from this area in the medi­um term. At the same time, we as a group are also making impro­ve­ments in the are­as of inno­va­ti­on and sus­tai­na­bi­li­ty. At the end of the day, this will be reflec­ted in con­ti­nuing strong per­for­mance.

Could you pro­vi­de a bit more detail?
Thanks to invest­ments, we have been able to increa­se our port­fo­lio  of exi­sting pro­per­ties signi­fi­cant­ly by CHF 571.3 mil­li­on in the past 12 mon­ths. Fur­ther­mo­re, we suc­ce­e­ded in redu­cing the vacan­cy rate to 4.8 %. The sale of the «Welt­post Park» pro­ject has enab­led us to fur­ther refi­ne our portfolio’s focus on office floor space. The growth in the Ser­vices seg­ment demon­stra­tes that we have also increa­sed ear­nings diver­si­fi­ca­ti­on. Our group com­pa­nies make valu­able mar­ket know­ledge avail­ab­le to us, and we can make ide­al use of that know­ledge both for purcha­ses and in our pro­jects. Inno­va­ti­on, and in this con­text sus­tai­na­bi­li­ty as well, are pil­lars that will sup­port our future. We have group-wide com­mit­tees in order to fur­ther deve­lop our busi­ness models in this regard.

How will the office mar­ket per­form in your core zones, Zurich and Gene­va?
We expect sta­ble per­for­mance and good demand in Zurich. We are also see­ing this at first hand in our pro­jects that are com­ing onto the mar­ket, such as YOND. The demand for supe­ri­or-qua­li­ty, fle­xi­ble office floor space is the­re. In Gene­va, we are see­ing a clear move­ment by many com­pa­nies out of the city cent­re into the new sub-cen­tres that are emer­ging around the Pont-Rouge, and around Plan-les-Oua­tes for logi­stics. This is pre­cise­ly whe­re we are deve­lo­ping two exci­ting major pro­jects.

Will the vacan­cy rate con­ti­nue to fall?
We cur­r­ent­ly have a vacan­cy rate of under 5 %. That is a very good figu­re, which we want to main­tain. A base vacan­cy rate of 4 to 5 % real­ly is qui­te healt­hy. It gives us fle­xi­bi­li­ty in the port­fo­lio and allows us to respond to our ten­ants’ needs.

Win­ca­sa bought real estate ser­vice pro­vi­der «stream­now» in the second half of 2018. Can you tell us what the sto­ry was the­re?
Win­ca­sa is syste­ma­ti­cal­ly con­ti­nuing on the digi­ta­li­sa­ti­on path and pla­cing a strong focus on cli­ent bene­fit. Digi­tal com­mu­ni­ca­ti­on and tran­sac­tion por­tals such as stream­now are well estab­lished in the mar­ket and con­tri­bu­te to increa­sing the pro­fes­sio­na­li­sa­ti­on of ser­vices for ten­ants. stream­now is a well-desi­gned ten­ant por­tal that allows users to take care of all mat­ters rela­ting to the pro­per­ty and the ren­tal agree­ment sim­ply, quick­ly and at any time, whe­re­ver they hap­pen to be. We are all fami­li­ar with this from online ban­king and insuran­ce apps. We are con­vin­ced that this acqui­si­ti­on means an important step towards focus­sed ten­ant ser­vices.

«We are a com­pa­ny that will always con­si­der the who­le gamut of
finan­cing pos­si­bi­li­ties if we need to.»

You have slight­ly adap­ted the way you com­mu­ni­ca­te your goals. Why?
Inve­stors and ana­lysts want fore­casts to be as pre­ci­se and detail­ed as pos­si­ble. We value trans­pa­ren­cy very high­ly, and we want to be even more suc­cess­ful in mee­ting this need. Invest­ments in real estate are a medi­um- to long-term pro­po­si­ti­on. That is why we now com­mu­ni­ca­te medi­um-term goals as well. Invest­ments in real estate are a medi­um- to long-term pro­po­si­ti­on. Taking a look at our pipe­line, it is easy to see that pro­jects gene­ral­ly take a num­ber of years. Pro­per­ties have to be built befo­re they can yield returns. This may also some­ti­mes result in hig­her vacan­cy rates at first. Fur­ther­mo­re, the years ahead will vary con­si­der­a­b­ly with respect to the deve­lop­ment pro­jects that we will eit­her incor­po­ra­te into our port­fo­lio or sell on the mar­ket. It is important to us to make that clear.

What tar­get figu­res can inve­stors expect for 2019 and beyond?
We anti­ci­pa­te sta­ble figu­res for 2019 both at the ear­nings and «Ope­ra­ting result» level. We will see stron­ger growth again in 2020 and 2021 as a result of pro­ject com­ple­ti­ons.

How do you see the future?
I am opti­mi­stic by natu­re, so I also take a main­ly posi­ti­ve view of the future, spe­ci­fi­cal­ly in tho­se are­as that we can direct­ly influ­ence our­sel­ves through our dai­ly work. Of cour­se, this doesn’t inclu­de geo­po­li­ti­cal risks, which defi­ni­te­ly have not redu­ced, or home-grown con­cerns, such as the vote on the urban sprawl initia­ti­ve or deba­te about the respon­si­ble busi­ness initia­ti­ve. All in all, howe­ver, we are in a good posi­ti­on in the Swiss real estate sec­tor.