Corona-influenced half-year results of the Zug Estates Group
- The property income increased by 5.4% compared to the same period of the previous year
- CHF 28.2 million
- Doctorate profit before taxes of CHF 9.5 million in the Aglaya project
- The group result amounts to CHF 8.3 million (previous year period: CHF 26.1 million). Without
- Revaluation and special effects reduced the group result from CHF 15.4 million.
- to CHF 11.9 million
- Solid capital base with an equity ratio of 55.7% (54.7% as of December 31, 2019)
At Zug Estates, too, the first half of 2020 was dominated by the challenges we were faced with by the COVID-19 pandemic.
In the real estate sector, many of our tenants had to close their shops during the officially ordered lockdown. This mainly affected our retail tenants and thus the Metalli shopping mall. In the Hotel & Gastronomy segment, the almost complete standstill of international business travel led to a considerable drop in sales.
Fortunately, despite Corona, we were able to hand over all of the remaining 49 condominium units of the Aglaya doctoral project to their new owners on time. In addition, we have already been able to find a partnership-based and conclusive solution for a one-off rent waiver with over 90% of the tenants directly affected by the lockdown.
In the first half of 2020, the group result was CHF 8.3 million, 68.3% below the previous year's period (CHF 26.1 million). Adjusted for revaluation and special effects, the declining figures in the Hotel & Gastronomy segment in particular lead to a reduction in consolidated earnings by 22.7% from CHF 15.4 million to CHF 11.9 million.
Increase in property income with significantly lower hotel and catering sales
The full period of validity of rental contracts, the majority of which were concluded in the previous year, increases property income in the first half of 2020 compared to the same period in the previous year by 5.4% to CHF 28.2 million. Due to the COVID-19 pandemic, rent payments of CHF 0.7 million were granted.
Income in the Hotel & Gastronomy segment fell from CHF 8.2 million to CHF 3.6 million. The occupancy of our hotels was temporarily reduced to less than 10% during the lockdown. Since then we have been able to record growth again, but are still well below the corresponding prior-year figures. The gross operating profit (GOP) is only 7.8% compared to 39.3% in the first half of 2019.
The sale of the last 49 condominiums in the Aglaya project resulted in income of CHF 72.5 million and a pre-tax promotion profit of CHF 9.5 million
In the Aglaya doctoral project, we were able to generate a return on the investment volume of 17.3%. Since no sales revenue was posted in the same period of the previous year, there was an overall significant increase in operating income from CHF 36.7 million to CHF 105.4 million.
The real estate portfolio was valued a total of CHF 13.6 million lower, which corresponds to around 0.9% of the portfolio value of all investment properties as of June 30, 2020 and is due to a slightly more conservative assessment of the market rents for retail space in general and individual specific office spaces. In the same period of the previous year there was a revaluation gain of CHF 11.5 million.
The average interest rate of the interest-bearing debt capital could be further reduced from 1.4% to 1.3%. As expected, the significantly lower construction activity led to a decrease in capitalizable interest and a corresponding increase in financial expenses from CHF 2.5 million to CHF 3.5 million.
Stable portfolio with a higher vacancy rate
At CHF 1.63 billion, the market value of the portfolio is at the same level as on December 31, 2019. In the first half of 2020, the last building in construction site 1 in Rotkreuz was put into operation. As expected, this increased the vacancy rate from 3.3% as of December 31, 2019 to 5.3% as of June 30, 2020. We invested a total of CHF 16.2 million in our portfolio in the reporting period. The weighted average remaining lease term (WAULT) is 6.7 years (6.8 years as of December 31, 2019), a very high level compared to the industry.
While our residential products are enjoying very good demand in the current market environment, we are currently noticing a certain reluctance due to the COVID-19 pandemic, especially among those who are interested in office space. However, we are confident that the centrally located, high-quality and sustainably operated office space at Zug Estates will continue to be in high demand in the future. Fortunately, the number of inquiries for retail space in Metalli remained stable. We currently have no evidence of a decline.
Solid capital base
With the repayment of funds from the sale of the last apartments in the Aglaya and despite the distribution of a special dividend, the interest-bearing debt capital was reduced from CHF 597.4 million to CHF 587.1 million in the first half of 2020. The average remaining term of this financing is 4.8 years (previous year: 5.2 years). With an equity ratio of 55.7% higher by one percentage point, Zug Estates has a very solid equity base.
Project development with a focus on the Metalli habitat
After the city of Zug and Zug Estates presented the first result of the joint planning process for the “Metalli living space” in March 2020, a feasibility study was carried out with the specialist planners. The alignment project and the application for adapting the two development plans concerned are currently being drawn up with all the relevant documents. The guideline project is to be submitted to the city of Zug in the third quarter of 2020. The legally amended development plans are expected in 2022/23.
After receiving the building permit, the Board of Directors approved the planning phase for the last two buildings (S43 / 45) on the Suurstoffi site in Rotkreuz. The start of construction will be triggered as needed, taking into account the market recovery in connection with COVID-19.
Step-by-step implementation of the sustainability strategy
The connection of the Metalli-Gevierts to the lake water network Circulago could take place according to plan in April 2020. The corresponding contracts for the connection of the remaining 16 properties were signed in December 2019. Commissioning is to take place in stages in 2021, 2023 and 2025. From this point in time, Zug Estates will be able to operate its entire portfolio almost CO2-free.
Public electric charging stations have been available to customers on the Metalli shopping street since the beginning of June. Two of the six stations are high-performance fast charging stations, the first in the city of Zug.
The installation of the CO2-neutral cooling in the rooms of the Parkhotel Zug was completed on schedule in April 2020, which means a significant increase in comfort for the guests from now on.
Outlook 2020
Due to the temporary effect of the rent reductions in connection with COVID-19, we continue to expect increasing rental income for the year as a whole. As a result of increased renovation and maintenance work or lower capitalizable financing costs, real estate expenses and financial expenses will be higher.
In the Hotel & Gastronomy segment, we are assuming that sales and GOP will be well below the previous year's level due to the considerable drop in sales due to the stoppage of international business transactions by our regular customers, although the developments in the second half of the year are difficult to forecast.
Therefore, both an operating result before depreciation and revaluation and a consolidated result without revaluation and special effects are expected to be significantly below the previous year.