Listen to this articleBelow is our recent interview with Giacomo Balzarini, CEO of PSP Swiss Property:
Q: Mister Balzarini, you can look back on a successful first half year. What is your assessment?
A: We are indeed very satisfied with the development of our business in the first half of 2019 as we could further improve our operational performance compared to the same period last year. Driven by acquisitions made last year and at the beginning of 2019, rental income was up by 6.3 million Swiss francs to 145.0 million Swiss francs. Furthermore, we were able to reduce both, operating expenses by 1.4 million Swiss francs to 27.6 million Swiss francs and financial expenses by 1.5 million Swiss francs to 10.0 million Swiss francs. Bottom line, net income was up by 63.5%, respectively by 100.5 million Swiss francs to 258.8 million Swiss francs. This improvement was also driven by the portfolio appreciation and the release of deferred taxes in the context of reduced total profit tax rates in the cantons of Geneva and Basel-Stadt. Our strategy of modernization of existing properties and the further development of areas and projects has been increasingly bearing fruit. As a result of the very positive development of the Swiss Office Property Market the good demand for office space led to lower vacancy rate of 4.0% by mid-year. Based on this solid economic foundation and following our motto “Top location and top quality – our key to success”, we see ourselves well positioned for the second half of the year and beyond.
Q: How is this impressive business success reflected in the development of the share price?
A: The PSP share is particularly interesting to long-term oriented institutional investors and it has outperformed since the IPO in 2000 with above-average performance, moderate volatility and a constant and attractive dividend yield. We view the fact that the share price has developed particularly positively this year as an expression of the confidence of our shareholders in our far-sighted strategy. But it’s also fair to say that the recent share price development is partly due to the global uncertainty. In other words: the PSP share is well perceived as “safe haven investment”.
Q: How important has the sustainability factor become to investors?
A: We are experiencing the growing awareness that the sustainability of an investment is not only desirable and socially rewarding, but is essential for the long-term return on investment. As for investors, sustainability also has a strategic importance for PSP Swiss Property as part of our Corporate Social Responsibility policy. We consider sustainability not only as an indispensable prerequisite for our long-term business success, it also fully complies with the values and business principles enshrined in our corporate culture.
Q: How do you translate your commitment to sustainability into your operational business?
A: We have started to define our own requirements at an early stage and started optimizing our property portfolio with ecological criteria already 10 years ago. In 2010 we began collecting data systematically on energy and water consumption at all our properties. Based on this database we considered all the options we had for operational and technical improvements. Since then, we were able to lower our properties’ CO2 emissions from 21 kilos per square meter on average to just 11.5 kilos. The energy savings totaling approximately 30 million kilowatt hours would be enough to heat 3,000 single-family homes for a year. The greatest impact in terms of environmental sustainability is the ongoing operation of our properties. Therefore, we try to minimize the energy and water consumption – but also the waste production – measurably and permanently. For this purpose, we continuously carry out operational and technical optimization measures. Wherever possible, we replace oil heaters in our existing properties, which consume a particularly large amount of energy, by more environmentally friendly gas and heat pump heating and district heating connections. We also try to set standards for new buildings such as the Grosspeter Tower in Basel, both in terms of energy efficiency and in terms of the materials used and the construction.
Q: What makes the Grosspeter Tower exemplary in terms of sustainability?
A: Grosspeter Tower is not only one of Basel’s recognizable landmarks but also our beacon project for sustainability which has set a mark far beyond our country’s borders. As this building was designed from the beginning under the premise of sustainability, we were able to apply the latest findings and advanced environmental technologies. It includes a sophisticated geothermal system with sensors guarantee energy efficiency that tap a reservoir 250 meters underground which serves as a storage system for cold in summer and for heat in winter. In winter, heat pumps draw the stored heat from underground to obtain the necessary room temperature above. Thus, the ground’s temperature declines in the course of the winter and the resulting cold can be used to cool the building in summer – and ingenious cycle which keeps repeating itself year after year. The opaque part of the façade consists of a photovoltaic system. The solar cells generate 260,000 kilowatt hours of energy each year. This is enough to cover the building’s basis electric requirements. These are all good reasons why Grosspeter Tower – a 120 million francs investment – was awarded the renowned Swiss Solar Prize in the category for new constructions.
Q: Like sustainability, co-working is another trend. What is your strategy in this regard?
A: Co-working is a trend that has already gained momentum in Switzerland and that we, as one of the first movers in the market, have set at an early stage. As the owner of numerous office properties, co-working is an interesting letting segment for us. However, the stake of co-working space in our rental income is still only around 2%. Being a partner for companies providing co-working spaces, we also benefit from the fact that we have for years pursued the goal of offering our tenants individually usable, flexible areas of top quality as well as tailor-made services. Another advantage is our focus on prime locations; Many of our properties are located exactly where co-working providers prefer to expand – in inner cities, at train stations, in trendy neighborhoods. Thanks to co-working offers, we can further diversify our rental offer and make even better use of the buildings.
Q: How are you positioned given the cautious economic forecasts?
A: With the described business setup and our farsighted and rather conservative approach we consider ourselves well equipped for a possible slowdown of the Swiss economy. However, since we think and act in the very long term and always pay attention to a top location and the highest quality in our properties, the fluctuations in the economic cycle are only of secondary importance for us. Geographically, we continue to focus on the most important and dynamic economic regions of Switzerland with a strong labor market – Zurich, Basel, Geneva, Lausanne and Bern. We now have a total equity of 4.3 billion Swiss francs, corresponding to a strong equity ratio of 53%. Our substantial capital enables us to allocate more than 300 Swiss million francs for the further development of our sites and development properties in the coming years which will lead to an additional rental income of around 30 million Swiss francs in the medium term. On top of that we have budgeted around 30 million Swiss francs for renovations and modernization at selected investment properties until the end of 2019. The acquisition of properties will be carried out as usual under clear risk management guidelines. Convinced that service quality is becoming increasingly important in our industry, especially in economically challenging times, we continue to place great efforts in strengthening our relationships with stakeholders according to our motto: “Even closer to the market, even closer to the tenants”.
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