OREANDA-NEWS. At the end of 2014, the real estate portfolio included 161 office and commercial properties. In addition, there were five development sites and five individual projects. The carrying value of the total portfolio stood at CHF 6.608 billion (end of 2013: CHF 6.466 billion). At the beginning of September 2014, the investment property on Peter Merian-Strasse 88/90 in Basel was acquired for CHF 71.9 million. At the end of April 2014, the investment property on Albulastrasse 57 in Zurich was sold for CHF 10.6 million, resulting in a profit of CHF 2.0 million.

The construction of the apartment tower “Black” on the L?wenbr?u site in Zurich was completed in the first quarter of 2014. At the end of 2014, 47 of the 58 freehold apartments were sold. During the reporting period, three apartments were transferred to the buyers (in the business year 2013: 44).

The apartment complex on the Gurten site in Wabern near Bern was completed in the second quarter of 2014. All 99 apartments and both studios have been sold; thereof, 98 apartments and both studios were transferred to the buyers in the reporting period. The last apartment will be transferred in 2015. The commercial units in the back and middle row were completely renovated by the end of 2014. The former bottling plant (the so-called “Elefant”) will be converted into office and commercial space.

Work on the “Salmenpark” in Rheinfelden, the currently largest development project with an investment total of CHF 180 million (stage 1), proceeds according to plan. Construction began at the end of August 2013; completion is planned for 2016. 45% of the commercial units and 13 units of the 36 rental apartments have been pre-let. 46 units of the 113 freehold apartments have been sold.

The latest construction project (“Grosspeter Tower” in Basel) started in November 2014. The construction of this high-rise building (78 meters, 22 storeys) will last until the end of 2016. The project (the goal is to achieve LEED Gold, the Swiss “Minergie” standard and zero-emission operation) is designed for a mixed use with a hotel and offices. The total investment amounts to CHF 115 million.

The new developments and conversions on the other sites progress as planned.

Vacancy rate

At the end of 2014, the vacancy rate stood at 10.0% (end of 2013: 8.0%). 2.8 percentage points of the 10.0% were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.6 billion) contributed 2.2 percentage points to the overall vacancy rate. The remaining properties with a carrying value of CHF 5.3 billion (i.e. the total investment portfolio excluding the objects under renovation as well as those in Zurich West and Wallisellen) made up 5.0 percentage points.

Annual results 2014

In 2014, net income excluding changes in fair value reached CHF 169.3 million (2013: CHF 173.6 million). The reasons for this decline were lower rental income due to ongoing renovations, which decreased by CHF 2.0 million, and lower income from the sale of freehold apartments, which fell by CHF 6.2 million (in 2013, income from apartment sales was extraordinarily high). Corresponding earnings per share amounted to CHF 3.69 (2013: CHF 3.79). For PSP Swiss Property, net income excluding gains/losses on real estate investments is the basis for the distribution to shareholders.

Net income including changes in fair value amounted to CHF 175.3 million (2013: CHF 271.0 million). The decline is mainly due to the lower appreciation of the properties; in the reporting year, this amounted to CHF 5.8 million (2013: CHF 128.1 million). Earnings per share including valuation differences amounted to CHF 3.82 (2013: CHF 5.91).

Strong capital structure

With a loan-to-value of 28.9% (end of 2013: 28.1%), the capital structure remains very solid. Currently, unused committed credit lines amount to CHF 690 million. No major committed bank loans will be due until 2019.

At the end of 2014, the passing average interest rate was 1.70% (end of 2013: 1.85%). The average fixed-interest period was 3.9 years (end of 2013: 3.4 years).

In March 2014, the rating agency Fitch confirmed PSP Swiss Property Ltd’s rating with an “A-” and stable outlook.

Material proposals to the annual General Meeting on 1 April 2015

For the business year 2014, the Board of Directors will propose a distribution out of the capital contribution reserves of CHF 3.25 per share (2013: 3.25 per share). In relation to net income excluding changes in fair value, this amount corresponds to a payout ratio of 88.1%; in relation to the current share price, it corresponds to a yield of 3.3%.

All members of the Board of Directors, of the Compensation Committee as well as Mr. G?nther Gose as Chairman of the Board of Directors stand for re-election.

Subsequent events

For the refinancing of financial liabilities, a 1.00% bond, with a duration from 2015 to 2025 and a volume of CHF 100 million was issued on 6 February 2015.

There were no further material subsequent events.

Market environment

In the office market, supply currently exceeds demand in certain areas with an oversupply, particularly in peripheral regions. However, modern office buildings in central locations with good transportation links remain in high demand. In the main economic centres Zurich and Geneva, the additional supply in commercial space delivered during the recent years might dampen rental prices for some time to come.

Overall, the market for retail space in central locations (“high street retail”) was robust in 2014, despite the fact that the rapid expansion of many retail chains has slowed down. Rents remained more or less unchanged at high levels. While this market segment remains demanding, there is no weakening of the terms.

In a challenging environment, PSP Swiss Property strives to keep its portfolio as attractive as possible. Consequently, the focus remains on the renovation and improvement of selected properties. On the one hand, overall demand for commercial space is stable or slightly declining; on the other hand, demand is strengthening for modern and sustainable rental space which may be tailored to each tenant’s individual requirements. Therefore, comprehensive renovation projects at a number of properties, in particular in the centre of Zurich (e.g. on Bahnhofquai/Bahnhofplatz and on Bahnhofstrasse 10) already started. Overall, PSP Swiss Property will invest approximately CHF 120 million in investment properties for renovations and conversions during the current year and 2016.

Outlook 2015

PSP Swiss Property remains confident about the future: the Company is well established in the Swiss real estate market with a strong capital base and a high-quality property portfolio. In any case, the Company sticks to its long-term, value-oriented and judicious acquisition strategy and to its conservative financing policy.

Focus will be kept on renovation of selected properties as well as on the development of the sites and projects.

For the 2015 business year, an Ebitda (excluding changes in fair value) of approximately CHF 225 million (2014: CHF 238.2 million) is expected. The decrease compared to 2014 is mostly due to lower income from the sale of apartments as well as no income stemming from VAT recovery. Rental income is likely to remain stable, notwithstanding the lager renovation volume.