- Property income increased to CHF 35.3 million (+8.7%)
- Vacancy rate for overall portfolio reduced by one percentage point to 5.4%
- Progress in development portfolio largely compensates for interest-related devaluation (CHF -7 million, or -0.4%)
- Income from disposal of properties (CHF 14.3 million) and sale of condominium units (CHF 5.3 million) contributed significantly to the half-year result
- Net income before revaluation increased significantly to CHF 27.4 million (+85.7%)
- Sustainability-linked committed syndicated credit facility of CHF 500 million signed to secure financing for medium-term development pipeline
- "Green Financing Framework" developed
Basel, 28 August 2023 HIAG can look back on a successful first half of 2023. All business areas proved their strategic strengths in a market environment dominated by rising interest rates. Rental income benefited from a further reduction in vacancies, successful project completions and inflation-related index adjustments. The industry-wide devaluation trend was largely cushioned by development performance in property projects. The sale of condominium units and sales prices above book values for properties that no longer fit the strategy made an important contribution to the half-year result. HIAG strengthened its financial resilience and corporate flexibility by signing a sustainability-linked committed syndicated credit facility and launching a "Green Financing Framework".
Active portfolio and asset management is effective
HIAG increased its property income by 8.7% to CHF 35.3 million in the first half of 2023 (H1 2022: CHF 32.4 million). In addition to another significant reduction in the vacancy rate by 1.0 percentage point to 5.4% as at 1 July 2023, the start of the rental agreement with the furniture store XXXLutz in Dietikon (rental income CHF 3.3 million p.a.) in the second half of 2022 contributed significantly to this increase. Index adjustments of CHF 0.6 million and rental income from two properties acquired in the second half of the previous year (CHF 0.5 million in total) also had a positive impact on the earnings situation. Due to the divestment of three properties that no longer fit the strategy, the annualised property income decreased by 3% to CHF 70.1 million as at 1 July 2023 (1 January 2023: CHF 72.3 million). The operating result EBIT before revaluation more than doubled to CHF 41.6 million; including revaluations, EBIT amounted to CHF 34.5 million (H1 2022: CHF 62.0 million). Net income for the period before revaluation increased significantly to CHF 27.4 million (H1 2022: CHF 14.8 million). Taking account of the revaluation effects, net income for the period amounted to CHF 22.1 million (H1 2022: CHF 56.1 million). The return on equity for the reporting period equalled 4.3% (31 December 2022: 10.4%). The weighted average unexpired lease term (WAULT) decreased slightly to 7.7 years as at 1 July 2023 (1 January 2023: 8.1 years).
Successful project development
In the first half of 2023, HIAG again achieved important milestones in several projects. The building permit for the 80-metre-high residential and commercial building in Zurich-Altstetten (ZH) with 149 apartments as well as retail and service space and some restaurants on the ground floor became legally binding. Construction is scheduled to start in the third quarter of 2023. The recycling centre for high-performance batteries used in the electromobility sector is already under construction on the Papieri site in Biberist (SO) for Librec, a high-tech company with which a long-term rental agreement has been arranged. The new building is scheduled to be completed and handed over in the current year. The groundbreaking ceremony for the innovative "Fahrwerk" project in Winterthur (ZH) took place in August 2023. Rental demand is encouraging for this commercial building that is accessible to vehicles and has around 10,500 m² of floor space. Completion is scheduled for the beginning of 2025. The construction of the "kessel haus" property on the "Kunzareal" site in Windisch (AG) is also proceeding according to plan. The occupation of the hybrid timber building with 24 rental apartments and around 300 m² of office and studio space is planned for spring 2024. The marketing of the condominium units in the "Columbus" promotion project on the "CHAMA" site has picked up speed. By the end of July 2023, 27 of the 52 apartments in Cham (ZG) had been registered or reserved. Based on the status of sales at mid-year, HIAG realised a contribution to earnings from promotions in the amount of CHF 5.3 million (H1 2022: CHF 0.8 million). The marketing launch of the rental units on the "CHAMA" site during the reporting period met with strong demand. Seven months before occupancy in spring 2024, all apartments outside the housing promotion scheme have already been let. The planned open investment volume of the projects under construction or about to start construction is around CHF 180 million. The expected rental income from these projects amounts to CHF 13 million and income of CHF 70 million is expected from the sale of condominium units (outstanding sales proceeds from the CHAMA "Columbus" promotion project). The medium-term development pipeline with an investment volume of around CHF 430 million comprises around 130,000 m² of usable space and corresponds to potential annual rental income of more than CHF 21 million as well as proceeds from the sale of promotion units of around CHF 160 million. In the long term, there is further potential for investment in the development portfolio of CHF 2.5 billion. The potential for rental income is CHF 100 million to CHF 120 million, and the expected proceeds from the sale of promotion projects are CHF 650 million to CHF 700 million.
Progress in development portfolio absorbs pressure on valuations
Continued robust demand in the Swiss property market supported property values in the reporting period despite the Swiss National Bank's (SNB) significant 2.5% increase in the policy rate over the past twelve months or so. The yielding properties only experienced a slight devaluation in the amount of CHF 14.8 million (appreciation of portfolio H1 2022: CHF 19.1 million) or -1.3%. Progress in the development portfolio largely compensated for this effect. In the development portfolio, HIAG recorded a valuation gain of CHF 7.8 million or 1.1% (appreciation developments H1 2022: CHF 22.6 million). In addition, the Inflation clause in the commercial lease agreements makes it possible to continuously adjust net rents in line with the national consumer price index. The increase in the reference interest rate that took place in the summer of 2023 also makes allowance for an adjustment to many of the residential rents from October, which can compensate for a significant share of the increased financing costs.
Successful transaction business
During the reporting period, HIAG successfully advanced its capital recycling strategy with the sale of three properties. In spite of the more challenging market environment, the transaction proceeds substantially exceeded the book value of the properties. The income from the properties transferred in the first half of the year amounts to CHF 14.3 million (H1 2022: CHF 1.1 million). The sales proceeds will be used in the short term to repay financial liabilities and invest in the project pipeline.
Committed syndicated loan signed and solid balance sheet structure with high financing security for future growth
HIAG still has a solid balance sheet structure with a high equity ratio and a low loan-to-value (LTV) ratio. To enhance its financial resilience and corporate flexibility, HIAG signed a sustainability-linked, committed syndicated credit facility with a volume of CHF 500 million and a term of 5 years on 25 August 2023. The syndicated loan replaces a large share of the outstanding mortgages. A maximum of 10% of the financing can still be mortgages. Currently, around a quarter of the syndicated credit facility has been drawn down, which gives HIAG great leeway in financing future projects and in refinancing.
"Green Financing Framework" developed
The consistently pursued sustainability goals should in future also be reflected in HIAG's financing activities. In addition to the sustainability-linked syndicated facility, a "Green Financing Framework" was developed. Proceeds from "green" financing can only be used to fully or partially finance or refinance assets and projects that support the transition to a low-carbon, climate-friendly and responsible economy. HIAG's great commitment to implementing the sustainability goals is already showing positive results: in May 2023, HIAG's sustainability risks were reassessed as "Low Risk" by "Sustainalytics", a global leader in sustainability assessment.
Outlook
So far, the Swiss economy has proven to be quite robust despite the current interest rate trend. During the reporting period, the rental space market relevant for HIAG was stable, and demand for commercial and logistics space in particular was good. The planned progress in the development portfolio should also generate revaluation gains in the second half of the year and have a stabilising effect on the value of the overall portfolio. The operating result is set to develop as expected with further letting successes and rental agreements that follow inflation. The marketing of the condominium units on the "CHAMA" site as well as sales in the context of the capital recycling strategy will continue to contribute to the financing of the short- to medium-term development projects. In addition, the established syndicated credit facility secures the financing of the upcoming projects in the medium term. Against this background and assuming the stable development of the Swiss economy, HIAG expects a good 2023 financial year overall and assumes that the current dividend policy can be continued.
Weblinks
Online Half-Year Report 2023 | Half-Year Report 2023 (Reporting Center)
Conference call and webcast
Marco Feusi, CEO, and Stefan Hilber, CFO, will present the 2023 half-year results and answer questions during a conference call with webcast today at 9.00 a.m. (CEST).
The presentation will be given in German.
To join the conference call, please use the following numbers:
+41 58 310 50 00 (Switzerland/Europe) / +44 207 107 06 13 (UK).
Other international numbers are listed here: Dial-in list
The webcast can be attended under the following link: Webcast
Replay
A replay of the webcast will be provided at the following link: Replay
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