Letter to our shareholders
Dr. Wolfgang Zürcher, Chairman
Roland Friederich, CEO/CFO
Ladies and Gentlemen,
Züblin can look back on a successful financial year 2021/22. The signing of several new leases and the upward revaluation of the property portfolio at the year-end made the biggest contribution to our good results. Nonetheless, the market environment for centrally located commercial properties in Swiss economic centers remains challenging. Growth through property acquisitions in line with Züblin’s specified investment guidelines proved impossible to achieve due to a further decline in yields. Our investments were therefore primarily focused on continuing to enhance our offering, for example by creating modular space to increase workplace flexibility and investing in further improvements in the environmental footprint of our properties.
Portfolio - vacancy rate halved
The total value of the portfolio was CHF 225.1 million as of 31 March 2022, an increase of 2.9% or CHF 6.4 million compared to the previous year. Contributing factors included investments (CHF 1.0 million), the market environment and successes in letting, which are reflected in a lower vacancy rate. As of the reporting date, the vacancy rate was 7.9% (previous year 15.7%). The weighted average lease term (WALT) was at 3.5 years (previous year 3.8). Annualized rental income amounted to CHF 9.1 million in financial year 2021/22. The increase of around 10% or CHF 0.8 million compared with the previous year was mainly due to the re-letting of the entire Holbeinstrasse 22 property in Zurich.
The portfolio, which continues to comprise six properties, enjoys both high location and tenant quality. The latter was further improved by the successful letting of the Holbeinstrasse property to tenants from the asset management, fiduciary services and sports medicine sectors. The two fully leased properties Hardturmstrasse and Hofwiesenstrasse in Zurich-Oerlikon are also firmly in the prime category. Two long-standing leases in Hofwiesenstrasse, which directly overlooks Oerlikon rail station, were extended by a further five and ten years respectively. In the Torre commercial building in Baden, we made space more attractive by combining previously separate areas and subsequently leasing it successfully on a long-term basis. In Egg near Zurich, a large area in this office and commercial property was repositioned as a new modular design that can potentially be let to a number of smaller tenants. After talks with a successful provider of life science services regarding Morgenstrasse 136 in Bern initially progressed rapidly, negotiations unfortunately broke down unexpectedly at the end of 2021. The main reason was the feasibility of implementing the interested partyʼs ambitious goals for the tenant fit-out of the shell construction.
The impact of the COVID-19 pandemic on Züblin’s portfolio during the financial year was again limited to the hospitality segment. Just 3.4% of Züblin’s rental income is attributable to this segment. In the course of marketing our space, however, it became clear that the trend towards working from home will continue after the pandemic and there is a noticeable shift towards hybrid workplaces. From the tenantʼs perspective, the quality of the location and the flexibility of the space on offer are therefore the primary criteria for leasing new office space. Züblin believes its portfolio remains well-positioned to meet this demand.
Earnings situation - net profit increased by 50%
Financial year 2021/22 was a successful one. Net profit was CHF 6.0 million, up 50% on the previous year (CHF 4.0 million). The increase was mainly due to the higher valuation of the investment properties. The strengthening of the portfolio by halving the vacancy rate, good market conditions and the quality of the portfolio were the key inputs to the valuation gain of CHF 5.2 million before deferred taxes.
Net operating income fell by 4.8% to CHF 7.9 million (previous year CHF 8.3 million) during the re-letting of the Holbeinstrasse property in Zurich as expected. One-off effects amounting to CHF 0.4 million in personnel and administrative expenses led these to increase from CHF 2.7 to CHF 3.2 million.
Return on equity rose from 3.0% in the previous year to 4.4%. Net profit for 2021/22 corresponds to earnings per share of CHF 1.80 (previous year CHF 1.21).
Solid balance sheet – long-term capital committment through renewal of revolving credit facility
Total assets rose by 3.4% to CHF 230.6 million in fiscal year 2021/22. The value of the real estate portfolio increased by CHF 6.4 million due to investments and revaluation gains and stood at CHF 225.1 million as of March 31, 2022. The equity ratio remains solid at 59.2% (previous year 60.0%), while the loan-to-value ratio (LTV) decreased to 29.7% as of the reporting date (previous year 30.6%).
The tender process for the revolving credit facility expiring at the end of September 2022 was successfully concluded in March 2022, well ahead of schedule, by signing a new loan agreement with our existing principal bankers and thus continuing our close cooperation with them. The new facility secures financing for a further seven years on more favorable terms, offering flexible borrowing terms of between one month and seven years over its lifetime. The average effective interest rate at the balance sheet date fell from 1.1% to 0.8%. In addition to this credit facility for CHF 100 million, the company also has access to authorized capital of CHF 37 million approved by the Annual General Meeting.
Dividend - stable payout policy
Züblin’s net profit for 2021/22 means the company is able to maintain its policy of paying a stable dividend, allowing shareholders to participate in the company’s success. The distribution of CHF 1.00 per eligible registered share also ensures that sufficient funds remain available in the company for real estate investments.
The Board of Directors will propose the tax-free distribution of CHF 1.00 per eligible registered share from the statutory capital contribution reserves to the 2022 Annual General Meeting.
Outlook
The properties in our portfolio are aligned with market demand wherever necessary. We will actively invest in space with the potential for optimization, whether by adapting to today’s changing tenant needs or continuing to improve the environmental sustainability of our office and commercial properties, with the aim of enhancing the quality of the portfolio and maintaining and increasing the value of our properties as far as possible.
The Swiss real estate market is likely to remain attractive for investors in Züblin’s fiscal year 2022/23 and the high price situation is expected to continue. In this market environment, sustainable and stable growth through acquisitions of properties that comply with investment guidelines remains challenging.
Thanks
After an enforced two-year break, we are delighted to be able to welcome our esteemed shareholders in person again at the 2022 Annual General Meeting. We would like to take this opportunity to thank you for the trust you have placed in us during this period of great uncertainty. We would also like to thank all our partners and tenants, with whom we have been able to maintain consistently good and constructive lines of communication. And last but not least, we would like to thank the Züblin team, which has worked tirelessly and with great motivation for Züblinʼs success.
Dr. Wolfgang Zürcher
Chairman
Roland Friederich
CEO / CFO
