SF Urban Properties Ltd improves operating result

• Net profit incl. revaluations CHF 26.8 million (-33.8%)
• Net profit excl. revaluations CHF 14.7 million (+32.3%)
• Property income up sharply to CHF 28.4 million (+4.7%)
• Portfolio value increased by 5.1% to CHF 754.5 million
• Vacancy rate down substantially to 1.5% (as at 31 December 2022)
• Distribution from capital contribution reserve of CHF 3.60 per registered share, same as in 2021

In spite of the changed market conditions, SF Urban Properties Ltd improved its operating result due to the robust portfolio of properties in selected good locations and the very focused work done by the management team. The Board of Directors will propose a distribution from the capital contribution reserve of CHF 3.60 per registered share of CHF 9.00 par value. Based on the share price as at 31 December 2022, the distribution yield will be around 4.0%.

Positive result for 2022

SF Urban Properties Ltd (SIX Swiss Exchange: SFPN) ended the 2022 financial year with a lower operating result. Earnings before interest and taxes (EBIT) declined from CHF 57.8 million to CHF 41.3 million owing to lower revaluations of CHF 15.2 million (previous year CHF 36.8 million). As a result, the net profit attributable to the shareholders of SF Urban Properties Ltd dropped from CHF 40.5 million to CHF 26.8 million (-33.8%).

Fortunately, the net profit excluding revaluation effects and deferred taxes improved by CHF 3.6 million (+32.3%) from the previous year to CHF 14.7 million. This is mainly due to higher property income and higher gains on development properties. The earnings per share excluding revaluation effects amounted to CHF 4.39 (previous year CHF 3.32), while the Net Asset Value (NAV) per registered share was CHF 120.36 as at 31 December 2022 (previous year CHF 108.36).

Investment property portfolio strengthened

The strategy of focusing on central locations in Zurich and Basel once again proved itself in the 2022 financial year. During the year under review, the company acquired Binningerstrasse 5 / Innere Margarethenstrasse 2 in Basel, a property with strategic importance for the consolidation programme, for CHF 18.2 million.

New leases and extensions to existing leases amounting to 13.5% of net annual rent were concluded in the period under review. The value of the portfolio, including building rights and including new acquisitions, increased from CHF 718.2 million to a total of CHF 754.5 million as at 31 December 2022 (+5.1%). The vacancy rate as at 31 December 2022 was 1.5%, which is a new record (previous year 2.6%).

Improved earnings from development projects

Gains from development properties increased by CHF 4.5 million year-on-year to CHF 8.3 million. In order to continue enjoying such development gains in the coming years, the company invested in several development projects. SFUP invested CHF 5.7 million in acquiring a development project in a preferred location with a view of the lake at Alte Landstrasse 26 in Rüschlikon. CHF 8.3 million was also invested in the acquisition of a development project in the exclusive Seefeld district in Zurich at Seefeldstrasse 186.

Another CHF 8.6 million was used to acquire a development project in an idyllic location at Ruchenacher 17 in Zumikon. In the year under review the company successfully registered all condominium units of the 'Kluspark' and 'Sandreutergarten' development projects in Zurich and Riehen, respectively, and handed them over to the buyers. 14 of the 16 condominium units in the 'maison johann' reference project in Basel were registered.

Solid financing

The company is robustly financed with a loan-to-value ratio of 44.6% (previous year 44.0%). The average interest rate of the financial liabilities was 2.01% in the reporting year (previous year 1.35%). This augmentation compared to the previous year is due to market turbulences in the second half of the year. However, net financial expenses, including the increase in value of interest rate derivatives, decreased to CHF 4.8 million (previous year CHF 5.2 million) due to interest rate hedging transactions. The average fixed-interest period decreased slightly to 6.81 years (previous year 7.72 years).

Making the sustainability strategy tangible

With regard to the targets set for the CO₂ reduction measures, the company improved the review of the implementing measures and made them more tangible. A materiality matrix was defined for weighting various sustainability aspects for a predominantly urban portfolio. This weighting serves as the compass for management to implement specific measures in the coming years.

In 2023 the company will focus, among other things, on installing the first photovoltaic systems and submitting the GRESB (Global Real Estate Sustainability Benchmark) report.

Outlook for 2023

Given the ongoing geopolitical uncertainties, the lack of a clear trend for future global economic growth and the rise in energy and building costs, the outlook for 2023 is challenging. We generally expect demand for investment properties to remain steady and believe that investment properties with a stable cash flow yield will remain an interesting proposition.

Switzerland is seeing an increasing housing shortage. While net immigration is still on the rise. The situation can be expected to worsen further in Zurich and Basel in 2023, as construction activity is contracting due to complex regulations and higher financing and building costs. We therefore expect apartment rents to rise in Zurich in particular, but also in Basel.

The leases for our commercial properties, which account for some 70% of our property income, contain indexation clauses as a hedge against inflation. We expect an increase in property income of 1.9% from this share of the leases in 2023. Demand for modern and attractive commercial space is likely to remain stable in 2023.

The planned renovations and conversions of selected properties will continue in 2023 and the reference properties are expected to have a very positive effect on the operating result. Although we believe that building costs have peaked in the past year, the situation remains hard to predict, which is why we are paying particular attention to our building projects and making the planning of them as flexible as possible.

Management remains confident about the expected course of business in 2023.

Distribution proposal to the Annual General Meeting on 5 April 2023

The Board of Directors will propose a distribution from the capital contribution reserve of CHF 3.60 net per registered share of CHF 9.00 par value and CHF 0.72 net per registered share (voting share) of CHF 1.80 par value, both exempt from withholding tax. Based on the share price as at 31 December 2022, this will result in a distribution yield of 4.0% for the registered shares of CHF 9.00 par value listed on SIX Swiss Exchange.