Helvetica Swiss Commercial Fund – Consistency in a difficult market environment

Press release (PDF)

Zurich, August 16, 2023 – Helvetica Swiss Commercial Fund (HSC Fund) has successfully closed the first half of 2023 in a challenging market environment. The occupancy rate increased to 95.2 percent and is at its highest level in four years.

• Annual rental income increased by CHF 0.5 million to CHF 43.8 million
• Increase in occupancy rate to 95.2 percent - the highest level in four years
• Market-related reduction in the market value of the existing portfolio by 0.8 percent to CHF 750.0 million
• The Fund Management is considering a merger of the HSC Fund with the HSO Fund, which would create a more diversified, listed commercial fund of over CHF 1 billion
• Reduction of debt financing through planned sales of approximately CHF 30 million
• Commitment to sustainability at the core of business activities

Solid portfolio and increased occupancy rate

Despite the existing uncertainty in the market, Helvetica Swiss Commercial Fund showed consistency. As a result of increases in key interest rates and a slowdown in transaction activity, the market-driven to a 0.8 percent reduction in the market value of the existing portfolio from around CHF 756.2 million to around CHF 750.0 million. No new properties were acquired during the reporting period. Annual rental income increased by CHF 0.5 million from CHF 43.3 million to CHF 43.8 million as a result of rent adjustments made during the reporting period. This was due to an increase in the Swiss national consumer price index and a slight increase in the occupancy rate. The latter is at its highest level for four years. The high occupancy rate is evidence of asset management's active efforts to maintain first-class tenant relationships and continued commitment to outstanding property management and illustrates the robust performance of Helvetica Swiss Commercial Fund in a challenging market environment.

Income statement - increase in total income

In the first half of 2023, rental income increased by CHF 0.1 million to CHF 21.3 million and other income increased from CHF 0.2 million to CHF 0.3 million, resulting in an increase in total income from CHF 21.4 million to CHF 21.7 million. Expenses increased by CHF 1.5 million to CHF 7.9 million, mainly due to increased financing costs of interest-bearing liabilities, which bore an average interest rate of 1.56 percent, reflecting interest rate increases by the SNB. No realized capital gains were realized, while unrealized capital losses of CHF 6.8 million were recognized as devaluation on the portfolio.

Statement of assets and liabilities - net fund assets slightly decreased

The fair value of the portfolio decreased by CHF 6.1 million to CHF 750.0 million as of June 30, 2023, mainly due to fair value adjustments less capitalized investments. Total fund assets amounted to CHF 768.0 million, with cash and cash equivalents reduced by CHF 1.3 million to CHF 1.2 million, while other assets increased by almost CHF 1.0 million to CHF 13.6 million. After deduction of liabilities and liquidation taxes, net fund assets amounted to CHF 491.5 million, a decrease of CHF 17.4 million compared to the previous year. The debt ratio increased slightly to 30.71 percent.

Performance - return on investment of 1.19 percent

In the first half of the year, the price of fund units fell by a gross 9.2 percent from CHF 98.00 to CHF 89.00. Taking into account the distribution for the 2022 financial year of CHF 5.35 paid out in the first half of the year, this corresponds to a net performance of minus 4.0 percent. The discount on the net asset value is 21.4 percent. Taking into account the distribution of CHF 5.35 per unit and the overall performance in the first half of the year, the net asset value decreased by CHF 4.01 from CHF 117.19 to CHF 113.18 per unit. Return on equity decreased from 3.12 percent to 1.14 percent compared to the first half of 2022, while return on investment was 1.19 percent, a decrease of 2.08 percentage points compared to the same period last year.

Outlook - sustainability at the heart of our business

The continued positive economic development in Switzerland and a very high indexation quota of the fund of over 94 percent lead us to expect further growth in rental income, which will have a positive impact on the fund's earnings. Furthermore, our commitment to sustainability is at the heart of our business activities. In view of the results of the Swiss vote on a climate protection law and expected tightening of sustainability regulations, we have reviewed our sustainability strategy to reflect the changed situation. The fund management has decided that all properties will receive a GEAK (building energy certificate issued by the cantons) in order to determine their energy consumption, create transparency and highlight energy potential. Renovation and sustainability projects are being implemented at various locations and properties in the portfolio.

Despite various measures to increase earnings and value in the long term, a further market-driven reduction in market values is to be expected. In the current market environment, characterized by rising interest rates, the fund also faces increasing financing costs. Given the fund's financing structure, a thorough evaluation of our financing strategy has led the fund management to maintain its short-term financing approach for the time being. The current forecast shared by the majority of the market indicates a stable outlook for short-term interest rates, with the possibility of a downward trend in the coming year.

In order to reduce the leverage ratio, the fund management plans to sell real estate worth approximately CHF 30 million. The aim is to reduce the leverage ratio to around 28% by the end of the year in a first step and then to reduce it to 25% in a further step with additional sales.

In view of the challenging market environment, the focus is thus on increasing rental income by raising the occupancy rate, adjusting to inflation, and consistently realizing potential in the properties in order to continue to generate attractive returns and distributions for our investors. For the 2023 financial year, Helvetica expects a distribution at the level of previous years.

The Half-Year Report 2023 of the HSC Fund is available on the company’s website as well as on Swiss Fund Data.

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About Helvetica

Helvetica Property Investors AG is a leading real estate fund management and asset management company. We offer our clients sustainable value through active, long-term ownership of secure and stable real estate investments. With a fully integrated real estate investment platform, we offer standardized investment products as well as customized investment programs. We are proud of our long-standing reputation for excellent customer service and our commitment to responsible business practices. Our firm is licensed and regulated by the Swiss Financial Market Supervisory Authority FINMA.

About Helvetica Swiss Commercial Fund

The HSC Fund is a Swiss real estate fund listed on the SIX Swiss Exchange and open to all investors. The HSC Fund invests in commercial and industrial properties in the most important economic areas of Switzerland. The fund's portfolio is geared towards long-term value preservation and features high location and property quality as well as broad diversification. The investment objective is primarily the long-term preservation of substance and the distribution of appropriate income. The HSC Fund is authorized by the Swiss Financial Market Supervisory Authority, FINMA.

Listing SIX Swiss Exchange; ticker symbol HSC; security 33 550 793; ISIN CH0335507932

Disclaimer
This media release does not constitute a prospectus within the meaning of Art. 35 et seq. of the Federal Act on Financial Services or Art. 27 et seq. of the Listing Rules of SIX Swiss Exchange Ltd, nor does it constitute a Key Investor Information Document (KIID) within the meaning of the Swiss Collective Investment Schemes Act or a basic information sheet. It does not constitute an offer or a recommendation to subscribe for or redeem fund units but is intended solely for information purposes. This media release may contain forward-looking statements that are subject to uncertainties and risks and may change. Historical performance is no guarantee of current or future performance. The performance data do not take into account any commissions and costs charged on the subscription and redemption of units. The documents that are solely relevant for an investment decision, the prospectus with integrated fund contract as well as the current annual report can be obtained free of charge from the fund management company. This media release is not addressed to persons resident and/or domiciled outside Switzerland. In particular, this media release may not be made available or handed over to US persons within the meaning of the US Securities Act or US tax regulations, nor may it be distributed in the USA.