Specialist information factsheet

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1 Specialist information factsheet Specialist information factsheet on the key figures of real estate funds 13 September 2016 I. Introduction Under the self-regulation regime of the Swiss fund industry, fund management companies and SICAVs of real estate funds, as well as representatives of approved foreign real estate funds, are obliged to use standardized key figures in the information on their funds. In this regard they are to adhere to the terms and definitions set out in the present document, and disclose at least the figures listed in margin no. 4 or in bold type in their annual and semiannual reports. The basis for determining these figures centers on certain minimum requirements aimed at harmonizing reporting. Please refer to the minimum breakdown of the statement of net assets and the profit and loss account for real estate funds set down in Art. 95 and Annex 3 CISO-FINMA. In issuing these provisions, SFAMA is seeking to ensure that investors have standardized, comparable information, thus contributing to the highest possible degree of transparency with regard to the product offering on the Swiss fund market. The key figures listed here are also commonplace in business and equity analysis, and thus facilitate comparisons between real estate fund units and the shares of real estate companies. The fund management company/sicav is to publish at least the following key data in the annual and semi-annual reports: Rent default rate Borrowing ratio Operating profit margin (EBIT margin) Fund operating expense ratio (TER REF ) Return on equity (ROE) Return on invested capital (ROIC) Dividend yield Payout ratio Premium/discount Performance Investment yield In addition to these, the fund management company/sicav is free to publish the following key data, among others: Net return on completed buildings Weighted average unexpired lease term (WAULT) Weighted average term of debt Interest on debt capital Gearing SFAMA FI Key figures real estate funds_e_ /13

2 Price/earnings ratio (P/E ratio) Price/cash flow ratio (P/CF ratio) Market capitalization II. Key figures on the fund s real estate holdings 1. Rent default rate The rent default rate is an important indicator of the rental situation of the completed buildings held by the fund. 6 7 Rent losses (vacancy losses and rent collection losses) as a percentage of the expected net rent (including income from ground rent, income from co-owned property and condominiums). The following are deemed to be rent losses: 8 Vacancy losses (valued at the last paid rent) Rent collection losses Rent default rate (%) = Rent losses Expected net rent 9 2. Net return on completed buildings The net return on completed buildings is an important indicator of the earning power of the completed buildings held by the fund Net income of the completed buildings in a given reporting period as a percentage of the market value of the completed buildings at the end of that reporting period. The following are deemed to be net income: 12 Rent income (including income from remuneration for building rights, income from coowned property and condominiums), less remuneration for building rights expenses for maintenance and repairs, excluding reinstatement / replacement investments property expenses SFAMA FI Key figures real estate funds_e_ /13

3 administration expenses property taxes Income from completed buildings sold during the reporting period is to be eliminated in full from the calculation. The net income from completed buildings acquired or completed during the reporting period is to be extrapolated for the full year Net return (%) = Net income Market value of completed buildings at end of reporting period Weighted average unexpired lease term (WAULT) This figure provides information on the weighted average unexpired lease terms of the contractually fixed commercial rent contracts at the end of the reporting period. It is an important indicator of the predictability and stability of the rent income as at the end of the reporting period The WAULT is the sum of the weighted average unexpired lease terms of the contractually fixed commercial rent contracts of the portfolio (to the time of the earliest possible termination date without extension options), divided by the annual net rent of the portfolio at the end of the reporting period. It is to be stated in years. The types of property to be taken into account are as follows: 18 offices, hotels, retail premises, practices, catering premises, warehouses and other properties used for commercial purposes unlimited lease contracts are included in the calculation with a term of six months The following types of property are NOT to be taken into account: apartments, parking spaces, advertising spaces, cellars vacancies are not taken into account Weighted Ø unexpired lease term = NR 1 x UT 1 +NR 2 x UT NR n x UT n NR 1 + NR 2 + NR n 19 NR = net annual rent per rental unit at end of reporting period UT = unexpired term per rental unit n = number of rental units NB: For a better interpretation of the WAULT, the proportion of rent income from commercially used properties in % at the end of the reporting period may be given. 20 SFAMA FI Key figures real estate funds_e_ /13

4 III. Key figures in the fund s statement of net assets 4. Borrowing ratio The borrowing ratio shows the extent to which the properties are financed with borrowed capital as at the end of the reporting period Capital borrowed for financing as a percentage of the market value of the properties. The following are deemed to be borrowed capital: 23 interest-bearing mortgages and other liabilities secured by mortgage loans and advances subject to interest Borrowing ratio (%) = Borrowed capital * Market value of properties * 24 * at the end of the reporting period 5. Weighted average term of debt This figure provides information on the weighted average residual term of the borrowed capital The weighted average term of debt (borrowed capital as defined in margin no. 23 at the end of the reporting period) is to be stated in years. Weighted Ø term = BC 1 x RT 1 + BC 2 x RT 2 + BC n x RT n / BC 1 + BC 2 BC n BC = nominal value of the borrowed capital concerned RT 1 - RT n = residual term of the borrowed capital in days n = number of borrowed capital arrangements 6. Interest on debt capital This figure provides information on the weighted average interest on the borrowed capital as at the end of the reporting period. 28 SFAMA FI Key figures real estate funds_e_ /13

5 29 The weighted average interest rate on the debt (borrowed capital as defined in margin no. 23 at the end of the reporting period) is to be stated, weighted by volume. Weighted Ø interest rate = BC 1 x p 1 + BC 2 x p 2 + BC n x p n BC 1 + BC 2. BC n 30 BC = nominal value of the borrowed capital concerned p = interest rate on the borrowed capital concerned n = number of borrowed capital arrangements 7. Gearing The gearing is an important indicator of the balance sheet structure of the fund, stating the proportion of borrowed capital in relation to the gross asset value Borrowed capital as a percentage of the gross asset value The following are deemed to be borrowed capital: 33 short-term liabilities long-term liabilities estimated liquidation taxes Gearing (%) = Borrowed capital * Gross asset value * 34 * at the end of the reporting period IV. Key figures in the fund s profit and loss account 8. Operating profit margin (EBIT margin) The operating profit margin is one of the most important statistics used in business analysis. It can be calculated and used for comparisons for funds and real estate companies alike Operating profit as a percentage of net rent income SFAMA FI Key figures real estate funds_e_ /13

6 The following are deemed to be operating profit: 37 Rent income (including income from remuneration for building rights, income from coowned property and condominiums), plus income from bank and postal accounts income from short-term, fixed-interest securities capitalized interest on building loans other income less remuneration for building rights expenses for maintenance and repairs, excluding renovations property expenses administration expenses property taxes appraisals and auditing expenses depreciation and provisions (if economically justified) remunerations in accordance with the fund regulations to the fund management company / company shareholder remunerations in accordance with the fund regulations to the custodian bank remunerations in accordance with the fund regulations to the property manager other expenses Operating profit margin (%) = Operating profit Rent income Fund operating expense ratio (TER REF ) The Total Expense Ratio Real Estate Funds (TER REF ) is closely based on the TER of securities funds and is an indicator of the burden placed on the fund by the operating expenses. It is to be expressed both in relation to the gross asset value (GAV) and the market value (MV) Fund operating expenses as a percentage of the average gross asset value (total of all assets) and as a percentage of the average market value (capitalization based on the on- SFAMA FI Key figures real estate funds_e_ /13

7 exchange or over-the-counter share price). If there is no trading, the capitalization is to be based on the net asset value per unit. The following are deemed to be fund operating expenses: 41 Remunerations in accordance with the fund regulations to the fund management company and the custodian bank, plus other expenses (provided these relate to the fund, such as costs for publications and legal/tax advice, advertising, external consultancy expenses, commercial register fees, etc.) fees for supervising the fund remunerations to the property manager appraisals and auditing expenses For real estate funds that invest in other real estate funds, the operating expenses of the real estate funds they invest in must also be included on a pro rata basis in addition to their own operating expenses. Operating expenses do not include, in particular, initial letting fees, construction fees that can be charged directly to the properties, and purchase and sale commissions TER REF (GAV) (%) = Operating expenses Average gross asset value 44 Ø gross asset value * = gross asset value on n reference dates n 45 TER REF (MV) (%) = Operating expenses Average market value 46 Ø market value * = market value on n trading days n 47 * The choice of the number of measuring points for determining the average gross asset value and the average market value can essentially be made at the relevant party s own discretion, but must be the same in the calculation of the TER REF (GAV) and the TER REF (MV). If the fund has different subfunds with different cost structures, the TER REF (MV) is to be disclosed separately for each subfund. 48 SFAMA FI Key figures real estate funds_e_ /13

8 10. Return on equity (ROE) The return on equity is one of the most important statistics used in business analysis. It can be calculated and used for comparisons for funds and real estate companies alike Total income as a percentage of the net fund assets at the beginning of the reporting period plus the balance from unit transactions at principal value. ROE (%) = Total income Net fund assets at beginning of reporting period + balance from unit transactions at principal value * 51 * The balance from unit transactions at principal value corresponds to the value of the balance from unit transactions based on the changes in the net fund assets. 11. Return on invested capital (ROIC) This figure provides information on the return on the gross asset value Adjusted total net income plus interest expenses (mortgage interest and interest from liabilities secured by mortgage as well as other interest paid) as a percentage of the average gross asset value. The adjusted total net income is deemed to be: 54 Total income, plus current net income paid out on redeemed units less current net income paid in on issued units ROIC (%) = Adjusted total net income + interest expenses Average gross asset value * 55 * The average gross asset value is to be calculated in the same way as set out for the TER REF. SFAMA FI Key figures real estate funds_e_ /13

9 V. Key figures for units The key figures for units set out below are based as far as possible on the customary indicators used in financial analysis, and thus facilitate comparisons between real estate fund units and the shares of real estate companies Dividend yield 57 The last gross amount paid out per unit as a percentage of the exchange/market price. Dividend yield (%) = Actual gross distribution * Exchange / market price of units at end of period 58 * Generated gross distribution (including any interim distributions) for the reporting period just ended. 13. Payout ratio The payout ratio expresses the distribution of income in proportion to the net income generated, adjusted for provisions for future repairs. It primarily serves for assessing the distribution and financing policies of a company or real estate fund Total amount of the distributed income as a percentage of the net income, adjusted for provisions for future repairs. Payout ratio (%) = Total amount of distributed income Net income, adjusted for provisions for future repairs Premium/discount 62 Premium: Positive difference between the exchange / market price and the net asset value per unit as a percentage of the net asset value per unit. Discount: Negative difference between the exchange / market price and the net asset value per unit as a percentage of the net asset value per unit. 63 SFAMA FI Key figures real estate funds_e_ /13

10 Premium (%) = Current exchange / market price of units Net asset value per unit 1 64 Discount (%) = 1 Current exchange / market price of units Net asset value per unit Performance 66 The performance of a real estate fund corresponds to the total return achieved on a unit in a given period. It is expressed as a percentage of the exchange / market price of the units at the beginning of the reporting period, and is calculated as follows: change in the exchange / market price, under the assumption that the gross amount of any distributions of income and/or capital gains is immediately reinvested without deductions in the fund at the exchange price of the units. Performance (%) = Exchange price End P x f Exchange price Start P 1 67 The adjustment factor f is calculated using the following formula: f = Exchange price ex + gross distribution Exchange price ex 68 In the event of a change in the capital base (e.g. capital increase) or a splitting of the units during the reporting period, the exchange prices before the capital increase (Exchange price Start P and where applicable also the Exchange price ex ) are to be corrected by a factor. 69 Correction factor = SR x CP + SP (SR + 1) / CP SR = subscription ratio old to new CP = closing price on day before capital increase SP = subscription price The commissions charged on the issue and/or redemption of fund units are not to be taken into account in calculating the performance. The cumulative overall performance over a number of years is calculated by geometrically linking the performance recorded in each of the years or partial periods; the annual average of the cumulative overall performance over a number of years corresponds to the geometric mean. When publishing performance data, the provisions of the Guidelines on the Calculation and Publication of Performance Data are to be heeded SFAMA FI Key figures real estate funds_e_ /13

11 16. Investment yield The investment yield of a real estate fund corresponds to 73 the change in net asset value per unit, under the assumption that the gross amount of any distributions of income and/or capital gains is immediately reinvested without deductions in the fund at the net asset value of the units. Investment yield (%) = Net asset value End P before distribution x f Net asset value Start P before distribution 1 74 The adjustment factor f is calculated using the following formula: f = Net asset value ex at start of period + gross distribution Net asset value ex at start of period 75 Once reduced, the result is the following simplified formula for the investment yield: Investment yield (%) = Net asset value End P before distribution Net asset value ex at start of period 1 76 The net asset value ex is the net asset value after deduction of the distribution. 77 Comment on the adjustment factor f: 78 The adjustment factor f may alternatively be determined as follows provided that the net asset value ex is known on the distribution date: f = Net asset value ex on distribution date + gross distribution Net asset value ex on distribution date The cumulative overall investment yield over a number of years is calculated by geometrically linking the investment yields recorded in each of the years; the annual average of the cumulative overall investment yield over a number of years corresponds to the geometric mean. When publishing data on the investment yield, the provisions of the Guidelines on the Calculation and Publication of Performance Data are to be heeded mutatis mutandis P/E ratio The P/E is the ratio of the price of a unit to the adjusted total net income per unit (reciprocal of the earnings yield). The P/E ratio is to be calculated on the basis of the total net income recorded for the previous financial year. 81 SFAMA FI Key figures real estate funds_e_ /13

12 82 Exchange price divided by the adjusted total net income per unit The adjusted total net income is deemed to be: 83 Total income, plus current net income paid out on redeemed units less current net income paid in on issued units The average number of units outstanding is deemed to be: 84 the arithmetic mean between the number of units outstanding at the end of the previous period and the end of the reporting period. If redemptions or issues of units within the reporting period have totaled more than 5%, a weighted average is to be used (calculated in a similar manner as in the case of the TER REF ). P/E ratio = Exchange price per unit Adjusted total net income per unit 85 The total net income per unit is calculated using the following formula: Total net income per unit = Adjusted total net income Average number of units outstanding Price/cash flow ratio (P/CF ratio) 87 Exchange price divided by the cash flow per unit. Calculation: 88 Using the same rules as the P/E ratio. 19. Market capitalization The market capitalization expresses the value of the fund calculated on the basis of the exchange price of its units Number of units issued multiplied by the current exchange price. Market capitalization = number of units issued x exchange price per unit 91 SFAMA FI Key figures real estate funds_e_ /13

13 CONTENTS Specialist information factsheet on the key figures of real estate funds... 1 I. Introduction... 1 II. Key figures on the fund s real estate holdings Rent default rate Net return on completed buildings Weighted average unexpired lease term (WAULT)... 3 III. Key figures in the fund s statement of net assets Borrowing ratio Weighted average term of debt Interest on debt capital Gearing... 5 IV. Key figures in the fund s profit and loss account Operating profit margin (EBIT margin) Fund operating expense ratio (TER REF ) Return on equity (ROE) Return on invested capital (ROIC)... 8 V. Key figures for units Dividend yield Payout ratio Premium/discount Performance Investment yield P/E ratio Price/cash flow ratio (P/CF ratio) Market capitalization SFAMA FI Key figures real estate funds_e_ /13