Swisscanto (CH) Real Estate Fund Swiss Commercial: Increased payout and return on investment

• Total income increased again to CHF 16.8 million (2018: CHF 13.6 million) and return on investment raised further to 3.9% (2018: 3.2%)
• Payout sustainably increased from CHF 3.50 to CHF 3.70 per share
• Diversification enhanced through addition of three portfolio properties in central locations
• Successful re-leasing in Etoy and completed repurposing in Baden

Payout raised by more than 5% to CHF 3.70 per share

The Swisscanto (CH) Real Estate Fund Swiss Commercial (ISIN: CH0111959190) achieved a solid performance in fiscal year (FY) 2019. Total income for 2019 was boosted year-on-year to CHF 16.8 million (2018: CHF 13.6 million), lifting the return on investment from 3.2% to 3.9%. The total income figure consisted of net income of CHF 18.5 million (2018: CHF 17.9 million) minus unrealized capital losses amounting to CHF -1.7 million (2018: CHF -4.2 million). The net asset value (NAV) per share as of end-FY 2019 amounted to CHF 103.19 (end-FY 2018: CHF 102.78). The return on equity rose to 3.8% from 3.1% in 2018. This positive result enables the payout to be raised from CHF 3.50 to CHF 3.70 per share. At a payout ratio of 86.1% (2018: 84.3%), the payout is sustainably fundable out of current operating income. The payout will be disbursed to investors on 17 April 2020.

Qualitative portfolio enlargement for the purpose of diversification

As of 31 December 2019, the fund’s portfolio comprised 23 properties (end-2018: 20) with a combined market value of CHF 601.7 million (end-2018: CHF 545.8 million). The fund generated more than 90% of its income from commercial leasing. Office and industrial space usage predominate in the fund, respectively accounting for 38% and 17% of overall income, followed by warehouse space (15%) and retailing space (13%). In the first quarter of 2019, three properties in central locations and with a broad income base were added to the portfolio. The fully leased office and retailing property at Rue de Lausanne 31 in Vevey is situated in an excellent microlocation in the center of the city. Its market value stands at CHF 7.8 million for a gross yield of 5.0%. The office property Via Serafino Balestra 17 is located in the central business district of the city of Lugano. Its market value stands at CHF 22.1 million for a gross yield of 4.7%. The property Schaffhauserstrasse 110 in the center of Opfikon has a diversified tenant structure consisting of medical practices, retailing spaces, public usage space and 20% housing. Its market value stands at CHF 16.0 million for a gross yield of 4.7%.

Optimization measures taken for existing portfolio properties

The remodeling and partial repurposing of the property at Mellingerstrasse 18 in Baden was successfully concluded. Besides its commercial usage, around two-thirds of the property now consists of housing units. The property became ready for occupancy at the end of Q3 2019; over 50% of its floor space is currently leased. Lease negotiations for the property’s commercial spaces were in progress at the time of preparing this report. The lease of one of the major tenants of the retailing property at Route de la Chenalette 177 in Etoy expired at the end of August 2018. Construction work was subsequently undertaken to significantly enhance that property’s visibility and to subdivide the rental space. Marketing of the property proceeded successfully: it was leased to two tenants on long lease terms of 15 years and 8 years, respectively. Marketing of the space on the property at Dorfstrasse 1-3 in Altenrhein to be freed up in 2021 by the departure of Stadler Rheintal AG commenced in the second quarter of 2019, as planned. In addition, the disposal of a building on that property for around CHF 3.1 million reduced the property’s exposure. The sale will close in May 2021 and has no impact on the further marketing of the property.

Outlook

The current fiscal year will be shaped by factors including the emergency measures taken to combat the coronavirus pandemic. Altogether, as of April, around 13% of the fund’s annual rental income has been directly affected by the restrictions imposed by the Swiss Federal Council, though the rent default risk for the majority of those tenants impacted is rated low at present. Proactive asset management will be employed to keep the risk of payment defaults by other tenants limited and temporary. Otherwise, the fund will continue to adhere to its established, proven investment strategy in 2020. To further optimize income and asset diversification, we constantly evaluate opportunities for portfolio investments in the core/coreplus segment along the main business axes. Further reducing vacancies and sustainably optimizing cost efficiency will also stay in the spotlight in FY 2020. Re-use of the floor space in Altenrhein and fully leasing the property in Baden remain two main points of emphasis in tenancy management.