The HSC Fund once again lives up to its reputation as a dividend gem with a 5 centime higher distribution of CHF 5.35.

•    Distribution yield of 5.5% based on the share price as of 31.12.2022
•    The return on investment increased by 0.4% to 5.8%.
•    Return on equity increased from 5.2% in the previous year to 5.6%.
•    Performance of -10.8% versus the benchmark the SXI Real Estate Funds Broad (-15.2%)
•    Occupancy rate increased significantly by 2.0% to 95.1%.
•    Rental income increased by 1.7% to approximately CHF 42.7 million
•    The debt financing ratio was reduced to 28.7%.
•    Higher net asset value (NAV) per share, which increased from CHF 116.04 to CHF 117.19
•    Real estate portfolio increased by CHF 6.4 million to CHF 756.2 million without further acquisitions

Details to the financial year 2022

In a challenging market environment, the Fund Management looks back on a successful financial year. Excluding further acquisitions, the market value of the portfolio increased slightly by 0.9% from CHF 749.8 million to CHF 756.2 million. The occupancy rate also increased significantly by 2.0 percentage points from 93.1% to 95.1%. The noticeable increase in demand for rental space has led to a CHF 0.7 million rise in annual rental and building lease income to CHF 42.7 million. However, not only the general conditions have improved, but also the fund itself. In addition, the end of 15 years of deflationary rent trends has been reflected in higher rents. The HSC Fund is thus well positioned for the future and provides solid protection against rising inflation, thanks to a high indexation rate of the leases of around 92%.

Income statement

Since the focus in the 2022 financial year was on optimizing the return of the portfolio of existing properties, no transactions or capital increases took place. A total of CHF 42.7 million in rental income was recognized during the year under review, slightly more than in the previous year. This is equivalent to an increase of CHF 0.7 million or 1.7 percent and is largely attributable to the elimination of vacancies and a reduction in rent defaults. Other income was down from CHF 0.8 million to CHF 0.2 million, so total income was stable at CHF 43.0 million compared to CHF 42.8 million in the previous year. Expenses came to CHF 13.7 million, a decline of CHF 1.4 million compared to CHF 15.1 million in the previous year. This is mainly attributable to a decrease in expenses for maintenance and repairs due to the fact that more capitalizable investments were made during the year under review.

Realized capital gains declined CHF 0.4 million to CHF 0.1 million compared to the same period of the previous year. Unrealized capital gains include CHF 3.1 million in market value adjustments as write-ups on the portfolio, whereas write-ups of CHF 2.0 million were recognized for the portfolio in the previous year. Financing costs bore an average interest rate of 1.29 percent during the year under review. The increase over the prior-year period is attributable to the interest rate hikes made by the Swiss National Bank (SNB) in 2022. The Fund Management Company has decided to adhere to the financing strategy used to date.

Balance sheet

The portfolio’s market value increased by CHF 6.4 million to stand at CHF 756.2 million on December 31, 2022, compared to CHF 749.8 million at the end of 2021. Increases in the value of the portfolio are mainly comprised of market value adjustments and capitalized investments. Gross asset value amounted to CHF 774.6 million as of the reporting date. Cash and cash equivalents fell by CHF 15.8 million to CHF 2.5 million. Cash and cash equivalents were used for the distribution of profits, investments made and to reduce interest-bearing debt. Other assets increased by nearly 3.3 CHF million, from CHF 9.3 million to CHF 12.6 million. After deducting liabilities of CHF 241.9 million and liquidation taxes of CHF 23.7 million, this results in net fund assets of CHF 509.0 million. That corresponds to a year-over-year increase of CHF 5.0 million.

The debt financing ratio was reduced to 28.74 percent, putting it below the regulatory threshold. The debt financing ratio at the end of the previous year had been 31.04 percent.

Distribution and performance

The HSC Fund is again an outperformer with a distribution yield of 5.5% as of 31.12.2022. The reduction of the vacancy rate from 6.9% to 4.9% underlines the attractiveness of the properties and the fund. As a result of the distribution for the 2021 financial year of CHF 5.30 per share and the overall performance in the 2022 financial year, the net asset value increased by CHF 1.15 from CHF 116.04 to CHF 117.19 per share.

Considering the distribution for the reporting year 2021 of CHF 5.30 per share, the fund achieved a remarkable investment return of 5.8%. For the financial year 2022, a distribution of CHF 5.35 per share will be made, which represents an increase of 0.9% compared to the previous year.

Outlook

The Fund Management continues to see an unbroken high demand for commercial rental space. With around 92% indexed leases in the fund, investors are very well protected from inflation. Thanks to this inflation protection, rental income can be continuously increased through rent adjustments.

We see sustainable growth for the fund in 2023 as well, thanks to increases in rental income and further reductions in vacancies. Consequently, nothing stands in the way of an even higher distribution in fiscal year 2023 than in the previous year. The fund management aims to further increase the distribution compared to the previous year and is targeting CHF 5.40 per fund share. Accordingly, the fund remains a dividend gem among Swiss real estate funds and one of the Swiss real estate funds with the highest payout in absolute terms.

The annual report 2022 of the HSC Fund is available on the company’s website or also under Swiss Fund Data.

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