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Analysis of the historic day of 8 November on the Swiss real estate market: impact of UBS announcements on Swiss real estate funds
8 November 2024 was a day of high volatility in the Swiss indirect real estate market, triggered by UBS's strategic announcement the day before. Following the acquisition of Credit Suisse Funds AG in April 2024, UBS Fund Management (Switzerland) AG, which now manages 14 Swiss real estate funds, presented its plan to merge certain funds for the period from 2025 to 2027. Eight products will be grouped into three distinct blocks.
Summary of the day's events on 8 November
Market reaction was mixed. The most positive results were observed for Residentia (+26.8%), CS REF Hospitality (+10.8%), CS REF Interswiss (+3.1%) and CS REF Green Property (+2.4%). Conversely, UBS Direct Urban (-7.9%), UBS Direct Residential (-5.1%), CS REF Living Plus (-4.6%) and UBS Swissreal (-3.6%) recorded declines. The SXI Real Estate Funds index closed down 0.3% on the day.
Details of the UBS announcement
UBS has published an ambitious merger plan aimed at strengthening the diversification and resilience of its real estate funds. The merger plans, which are subject to regulatory approvals and cantonal tax rulings, will result in the creation of three funds: a residential fund with direct property ownership, a mixed-use fund with direct property ownership and a commercial fund with indirect property ownership.
First merger block: residential funds with direct land ownership
The first block comprises funds of varying sizes, with a current market capitalisation of around CHF 5 billion. The largest fund accounts for around 60% of the total value, while the smallest is just 4.5%. Price differences relative to the net asset value (NAV) as at 7 November 2024 showed a considerable gap, with agios/disagios ranging from -11% to +39%. An immediate adjustment without a “free lunch” is used to calculate the exchange ratios and the new premium of the merged fund, whose capitalisation should correspond to the sum of its components. Despite marked differences between the funds, the total market capitalisation of the four combined funds fell by 1.5%, reflecting a mixed market reaction. This fund would rank second with a weighting of 7.5% in the SXI Real Estate Funds index of Swiss-listed real estate funds.
Second merger block: mixed fund with direct land ownership
The second block, comprising a dominant fund at 85% and a smaller one at 15%, has a market capitalisation of around CHF 3 billion, representing a theoretical weighting of around 4.5%, placing it fifth in the index. On 8 November, total market capitalisation rose by 0.7%, indicating a slightly positive effect, irrespective of individual adjustments linked to the convergence of agios.
Third merger block: funds with indirect ownership of land and commercial real estate
The third and final block, scheduled to merge in 2026/2027, comprises funds of relatively similar size, with the largest representing 53.5% and the smallest 46.5%, and focuses on commercial properties. With an estimated market capitalisation of CHF 3.4 billion, it would rank fourth in the index and give UBS a top-six position with a weighting of over 44%, compared with the current 39.7% for the top six funds.
Market outlook and opportunities
UBS's announcement has redrawn the market map and highlighted some previously neglected funds as today's big winners. Significant differences in agios persist within the different blocks but may narrow as the merger process moves forward and FINMA regulatory approvals are obtained. This transition phase should offer interesting opportunities for active investors. However, it is essential that this positioning is based on a long-term real estate investment strategy and not on short-term speculation, as this is a complex merger plan that still requires several stages to be completed.
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