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  • Alphaprop Celebrates 5-Year Anniversary and Expands Real Estate Offering

    Alphaprop Celebrates 5-Year Anniversary and Expands Real Estate Offering

    Novalytica Consolidates All Real Estate Expertise Under the Alphaprop Brand

    On the occasion of Alphaprop’s fifth anniversary, parent company and data analysis specialist Novalytica is now grouping all its real estate expertise under the established Alphaprop brand. The aim is to further strengthen the company’s focus on the needs of the real estate industry. This milestone is being celebrated at an exclusive event for customers and partners at the FIFA Museum in Zurich.

    Over the past five years, Alphaprop has established itself as a leading provider of data for indirect real estate investments in Switzerland and serves as the data partner of the Real Estate Investment Data Association (REIDA) in the area of financial data pooling. The offering is now being expanded: from now on, Novalytica AG will bring together all services and products for the real estate industry under the Alphaprop brand.

    This step creates a clear and focused point of contact for property owners, asset managers, pension funds, public institutions, and other real estate stakeholders. While Alphaprop will now focus exclusively on data-driven solutions for the real estate sector, Novalytica will remain active as a Data & AI partner in other industries.

    Consolidated Expertise for Data-Driven Decisions

    The new structure allows for better synergy utilization and strengthens the company’s position in the real estate sector. In addition to the well-known data portal for indirect real estate investments, Alphaprop now also offers a comprehensive portfolio of services including energy data collection & ESG reporting, portfolio reporting, tailored analyses, data tools, and AI-driven solutions – all from a single source.

    «Over the past five years, Alphaprop has grown into a strong and trusted brand in the Swiss real estate market,” says Thomas Spycher, co-founder and partner of Novalytica & Alphaprop. “Consolidating all our real estate expertise under this roof is the logical next step. This allows us to offer our clients an even more comprehensive and integrated service portfolio.»

    Continuity in Leadership and Service

    Existing clients will continue to receive the same reliable service. All points of contact remain unchanged, as they were already part of a dedicated real estate team. Alphaprop AG, a wholly owned subsidiary of the owner-managed Novalytica AG, will continue to be led by Novalytica founders and main shareholders Massimo Mannino and Thomas Spycher.

    «Our clients benefit from the combined expertise of our team, which blends deep industry knowledge with Novalytica’s technological innovation in Data & AI,” adds Massimo Mannino. “This creates the foundation for even more informed, data-driven decisions in the real estate sector.»

    About Alphaprop

    Founded in 2020 as a joint venture, Alphaprop is Switzerland’s leading provider of data and analytics for indirect real estate investments. Since 2022, Alphaprop has been a wholly owned subsidiary of data analytics specialist Novalytica, consolidating the group’s entire real estate expertise. Its offerings are aimed at property owners, asset managers, pension funds, public institutions, and other real estate stakeholders.

    About Novalytica

    Since 2019, Novalytica has supported organizations as a Data & AI partner on the path to data- and AI-driven decision-making. The interdisciplinary team combines expertise in computer science, data science, and economics. Novalytica is an official Microsoft Data & AI Solutions Partner.

    Media contact

    Novalytica AG / Alphaprop AG
    Dr. Massimo Mannino, Partner & Co-Founder
    massimo.mannino@novalytica.com
    +41 79 483 36 43
    Press release in PDF

  • Rising discount rates depress investment returns: Indirect real estate investments in May 2024

    Rising discount rates depress investment returns: Indirect real estate investments in May 2024

    Summary

    • Listed real estate funds have performed very positively in the last 6 months. In general, real estate investments are attracting increased interest. Capital increases of over CHF 2.4 billion have been announced for 2024.
    • The annual reports of Swiss real estate investments with a balance sheet date of 31.12. show a slight valuation adjustment. The median change in the average discount rate amounted to + 9.5 basis points.
    • At 1.61%, investment yields were significantly lower than in previous years. On average, this is made up of 3.15% from operating activities and -1.49% from capital losses.
    • On average, all uses showed devaluations. Residential properties were valued 0.6% lower for investment products with a balance sheet date at the end of 2023. Commercial properties depreciated by 2.2%.

    The annual reports as at December 31 and the corresponding valuations were eagerly awaited again this year. The reports always provide an indicator of how the investment vehicles for indirect Swiss real estate investments are performing in an environment of higher interest rates. This brief analysis summarizes the current market situation and the reports for the investment vehicles with a balance sheet date of 31.12.

    Market remains friendly and capital increases are back

    The market for listed real estate investments continued to recover in the first months of 2024.
    As at the end of April, the index of listed funds SWIIT YTD was up 3.31%, listed equities (REAL) were up 0.90% and the KGAST Immo Index was up 0.93%. In a 10-year comparison, the listed funds slightly outperformed the KGAST Immo Index.

    In line with the positive performance of the listed vehicles, many players are active with capital increases. Funds and investment foundations have already announced capital increases of CHF 2.4 billion for 2024. More than CHF 500 million has been subscribed so far and, thanks to the clearly positive agios, further capital increases by listed funds should almost automatically be fully subscribed.

    Rising real discount rates

    The long-awaited correction in valuations has already become apparent in the financial statements for Q2 and Q3 2023. The following chart shows the median change in the average discount rate per portfolio. The inflation expectation applied in the valuation, which is reflected in the difference between the real and nominal discount rate, was increased over 2023. In order to primarily capture the change in the real discount rate and not the pure adjustment of the inflation expectation, only investment products that provide information on the real discount rate were taken into account.
    2023 was the first quarter to show an increase in the median discount rate. In 2023-Q4, the median value was +9.5bp. Accordingly, a clear majority of investment products recorded capital losses due to devaluations.

    Investment returns continue to fall

    After years of high investment returns due to capital gains, capital losses have a correspondingly negative impact on investment returns. For 53 funds and investment foundations of investment groups, the average (unweighted) investment return is 1.61%. With inflation of around 1.7% for the average household1 in the same period, the value was just about maintained in real terms.

    The following chart shows the investment returns of 53 vehicles (real estate funds and investment groups) that closed the financial year on December 31. In line with the income statement, we divide the investment return into a portion from net income, a portion from capital gains and losses and a portion from other changes.
    Compared to previous analyses, the method has been refined to better reflect special effects, for example from major capital increases.

    The return on investment represents the change in the net asset value including the distribution. In addition to the overall result consisting of net income and capital gains/losses, the net asset value is also influenced by the allocation/withdrawal of provisions, by the price set in the sale of units and by other income from the sale of units. In recent years with high investment returns and revaluations, these other changes were very small in comparison. In the case of devaluations and investment returns close to 0, the effect can become significant, which is why the method was adjusted accordingly to a calculation per unit.2

    In total, the vehicles comprise properties with a market value of over CHF 65 billion and net assets of over CHF 50 billion. They account for around 35% of the market for funds and investment foundations with a focus on real estate in Switzerland.

    On average, 3.15% was generated through net income. -1.49% comes from realized and unrealized capital gains and losses. -0.05% of the return comes from other sources and primarily relates to investment products with significant unit turnover or with large allocations to provisions for repairs.

    Devaluations across all uses

    A comparison of the change in valuation by use for investment products with information on prime costs (primarily real estate funds) shows that residential properties were valued -0.6% lower than in the previous year. The valuations of commercial properties fell by 2.2%. There were devaluations in all major regions. Vacancy rates in the portfolios of investment products as at 31.12. (analyzed if the information is available) fell slightly across all uses. For residential properties, the value for the analyzed investment vehicles is 2.7%. In 2020, the figure was still 4.8%, which represents a significant decline and illustrates the situation on the residential market.

    Overall, the majority of investment products remain solid even in an environment of higher interest rates and rising discount rates. Slight devaluations and lower investment returns were to be expected. Following a very good performance in recent months, the valuation of listed real estate funds is already relatively high again and, in a long-term comparison with the 10-year CHF swap rate, the agios are quite in line with the long-term trend.3

    Endnotes

    1 Federal Statistical Office: CPI-Calculator, https://lik-app.bfs.admin.ch/

    2 We determine the net income per unit in CHF, the capital gain/loss per unit in CHF and the investment return per unit in CHF. The other income per unit is determined as investment return in CHF – net income in CHF – capital gain/loss in CHF (always per unit). The investment return is then divided between the 3 components.

    3 See slide 4 in the Credit Suisse Asset Management report: https://am.credit-suisse.com/content/dam/csam/docs/real-estate/key-facts/immobilienfonds-20240430-en.pdf

  • Indirect real estate investments and their CO2 reduction paths: Update 2024

    Indirect real estate investments and their CO2 reduction paths: Update 2024

    Summary

    • Since the publication of the AMAS circular on environmental KPIs in May 2022, data availability has been significantly increased.
    • Weighted by market capitalization, environmental KPIs are available for 100% of the SWIIT and 95% of the KGAST.
    • The intensity of greenhouse gas emissions for the SWIIT and KGAST indices is comparable to the current REIDA benchmarks and even slightly below the CRREM target values for Switzerland.
    • About half of the investment products in the two indices publish a reduction path. Aggregated, these reduction paths align with the CRREM target paths for a maximum of 1.5 degrees Celsius global warming.
    • Whether the necessary structural measures for the planned reduction paths can be implemented as planned will be seen in the coming years.

    With the AMAS circular on environmental KPIs, a framework for reporting sustainability metrics for indirect Swiss real estate investments was established in May 2022. The goal is to standardize reporting and increase comparability between portfolios. Over the past two years, the data base and processes for the publication of KPIs have been developed. Against this background, we analyze the current state of ESG reporting with a particular focus on the data coverage of Swiss indices. In addition to environmental KPIs, we focus on the CO2 reduction paths, which will become a central aspect for monitoring progress in the future.

    Progress in data coverage

    The guidelines defined within the framework of self-regulation in the AMAS circular require the publication of data points in four categories: coverage ratio, energy mix, energy consumption and its intensity, as well as greenhouse gas emissions and their intensity. Data availability was greatly improved with the publication of the annual reports for the year 2023. In the summer of 2023, data coverage was at 89% for the SWIIT and 75% for the KGAST. Since May 2024, ESG KPIs are available for the entire SWIIT portfolio (42 out of 42 investment products) and 94.9% of the weighted KGAST Immo-Index (37 out of 44 investment products). This improved data coverage strictly reflects the availability of information and must be clearly distinguished from the AMAS KPI for “coverage ratio”.

    It is important to note that the methods of data collection are often not fully transparent. This makes it difficult for investors to distinguish between actual measurements and modelled data. Additionally, products can only be partially compared due to methodological differences. With the AMAS circular on best practice behaviour, which builds on the guidelines from REIDA, a methodological convergence is likely to occur. The Scope 3 consumption (tenant-controlled emissions), which was not required in the AMAS circular and is also defined as advanced in the ASIP ESG reporting standard, remains a major challenge for most products.

    The intensity of greenhouse gas emissions is decreasing

    The intensity of greenhouse gas emissions provides insight into the amount of CO2 equivalents emitted per square meter of energy reference area or rentable area. Weighted by product, the KGAST1 records an emission of 14.97 kg CO2 equivalents per square meter. The value of the listed real estate funds index, SWIIT, is 16.65 kg CO2 equivalents per square meter2. These values represent a reduction from the previous year and approach the 2023 REIDA benchmark, which was determined based on 5,290 properties and stands at 13.5 kg CO2 equivalents per square meter. However, changes over time or comparisons with REIDA are only partially interpretable: the measurement times of the reported values vary depending on the investment product and in some cases are over a year old. Moreover, the use of the properties, especially commercial ones, has a significant impact. If properties are largely tenant-controlled and a significant portion of the energy is managed by the tenant, this energy consumption falls into Scope 3 and is not included in the calculated greenhouse gas emissions here. Furthermore, there are likely still considerable methodological differences that will diminish with alignment to REIDA methodologies. Currently, even for knowledgeable readers, it is not clear for many investment products which methodological approach has been chosen.

    The following graphic illustrates the distribution of greenhouse gas emission intensity for the two indices, broken down by their primary use.

    The portfolios of the listed funds (SWIIT) show a higher median emission compared to KGAST. However, it should be noted that data coverage for KGAST is not complete. There is a possibility that particularly the more intensive emitters have not yet been fully captured, which could distort the overall picture. The type of use of the portfolios plays a crucial role in the comparability of greenhouse gas emission intensity. Investment products that mainly belong to the residential sector exhibit higher greenhouse gas emission intensity. This observation is consistent with the results of the REIDA benchmarking.

    First signs of promising reduction paths

    In line with Switzerland’s climate goals, many investment products have set a target of achieving CO2 neutrality by 2050. This is explicitly stated in the annual reports of 31 real estate funds in the SWIIT and 24 investment groups in the KGAST. Slightly more common are CO2 targets for 2030, which have been defined for 33 and 24 products, respectively. Based on these targets and other data in the sustainability reports, initial overarching estimates of reduction pathways can be made. These estimates enable investors to compare actual progress with planned trajectories.

    We start from the current value or initial value of the product’s reduction path and, for simplicity, extrapolate linearly from the initial value to the target value for 2030 and to net-zero in 2050. The available reduction paths are aggregated with the respective weighting in the index to form an “index reduction path.” In the next two graphics, these paths are visualized for the two indices.

    The graphic shows various paths for reducing CO2 emissions, measured in kilograms of CO2 equivalents per square meter (kg CO2e/m²), over the period from 2023 to 2050. Each gray path represents a product of the respective index. Generally, the reduction paths show a clear trend toward reducing CO2 emissions over the entire period. Both KGAST and SWIIT are performing well compared to the 1.5-degree target paths of CRREM as of 2023. However, there are significant discrepancies between individual products. Additionally, it is assumed that the reduction path, especially for products that have not yet published one, presents a major challenge.

    Thus, the newly available data provides a good overview of the initial situation for indirect Swiss real estate investments. The level of emissions is even slightly below the CRREM reference value. Whether the necessary structural measures for the planned reduction paths can be implemented as planned and whether these costs are already fully reflected in today’s valuations will become apparent in the coming years.

    Endnotes

    1 The KPI is available for 39 investment products

    2 Contains the last published value (can therefore include different times of the measurement)

    Further links

  • Dividend yields of Swiss real estate funds in 2022

    Dividend yields of Swiss real estate funds in 2022

    Summary

    • Prices of traded Swiss real estate funds saw a substantial decline over the first 6 months of 2022.
    • Dividend yields increased on average by 38 basis points or 15.2%.
    • The shift occurred for all funds and over all usage in a similar way.
    • Dividend yields have reached on average a similar or even higher level than the dividend yield of dividend paying investment foundations within KGAST Immo-Index of the same usage.

    With the change in the interest rate environment and the 50 basis point increase in the SNB policy rate, the environment for indirect real estate investments has changed. The SWIIT index of listed real estate funds plunged nearly 15% over the first 6 months of 2022. SIX-listed real estate stocks had a performance of -7% over the same period. After years of falling interest rates, falling discount rates and therefore increasing property valuations, the generated cash flow becomes now the main focus.

    Strong increase in dividend yields

    Since the dividend yield is inversely proportional to the share price, this change in price has resulted in an increase in the dividend yield.

    The chart below shows the dividend yield for each fund with values calculated as of beginning of the year and as of last Monday (11.07.2022). The average dividend yield increased from 2.5% to 2.88% by 38 basis points. The chart shows, that yields of 39 out of 40 funds increased and there is nearly a universal change in level.

    Increase in yield over all property types

    Dividend yields differ clearly by usage and commercial property yield higher, usually connected to a higher risk. We assign the funds based on the share of commercial properties in the fund portfolio. “Residential”, “Commercial” and “Mixed”. Dividend yields of residential property funds increased on average by 28bps, mixed funds increase by 38bps, commercial funds by 51bps For each usage, the relative increase was in the range of 13-18%.

    Yield level now similar to KGAST Immo-Index

    For many pension funds, investment foundations are the preferred tool for indirect real estate investment. The price of investment foundations is generally less volatile as they are traded at the NAV and thus do not built up agios/disagios. The dividend yield of investment foundations (only dividend paying foundations) offers a rough comparison of the current level of dividend yields. Generally, the funds’ dividend yields are now in line or even higher than dividend yields of investment foundations. It is not possible to make a statement on the quality of the underlying assets and therefore the risk involved, but it offers a rough idea where the current yields stand.

    Average 01.01.2022Average 11.07.2022Change in basis points (change in %)Dividend Yield KGAST Subindices 2021
    Commercial3.48%3.99%51bps (+15%)2.82%
    Mixed2.09%2.47%38bps (+18%)2.31%
    Residential2.08%2.36%28bps (+ 13%)2.33%

    Note: Fund data as of 11.07.2022. KGAST Yields 2021 use only dividend paying investment foundations and are weighted by the respective KGAST index. As many investment foundations are accumulating, the value provides only a rough comparison.

    About Alphaprop

    Alphaprop provides new perspectives in research and analysis of Swiss indirect real estate investments. The data portal bundles all relevant facts and figures of indirect real estate investments and presents them in a smart and meaningful way.

    Would you like to compare investment products in detail, obtain standardized reports or benchmark your portfolio?

    You can reach Marina Schürmann at:
    marina.schuermann@alphaprop.ch
    +41 76 499 72 45