Zug Estates: Valuation result pushes profit down to 1.9 million
Zug Estates reports a "very solid operating result" for the first half of the year. However, the bottom line profit has shrunk massively due to revaluations and the vacancy rate has risen.
Zug Estates improved net income excluding revaluation and special effects by CHF 7.4% to CHF 18.0 million in the first half of the year. However, "due to overall market conditions", a negative revaluation result of CHF 18.3 million was recorded, compared with a plus of CHF 12.7 million in the prior-year period.
Real estate income increased by CHF 7.7% to CHF 32.8 million as a result of the acquisition of the Renggli Group at the end of 2022, lettings and rent increases due to indexation. The recovery in the Hotel & Catering segment, which began in May 2022, continued in the first half of the year: the segment's income therefore increased significantly by 26.6% to CHF 8.1 million.
Vacancy rate increased significantly
At CHF 1.8 billion, the market value of the entire portfolio remained at the same level as at the end of 2022. Despite new commercial leases and renewals for more than 9,000 square meters and rental income of over CHF 3.8 million, the vacancy rate rose in the first half of 2023, from 1.6% to 3.3% as at June 30. Zug Estates cites the reduction in rental space from Novartis in Suurstoffi as of the beginning of 2023 and the conversion-related vacancies in Metalli due to the adjustment of C&A's previous space. In the Metalli shopping avenue, the previous C&A and Zara spaces will be subdivided and the range of daily necessities will be expanded (IB reported).
Equity ratio at 54%
The acquisition of shares in MEG Metalli and the payment of a dividend of CHF 20.9 million led to an increase in interest-bearing liabilities from CHF 660.5 million to CHF 683.5 million. However, the equity ratio remains at a high level of 54.0% (55.2% as at December 31, 2022). The average remaining term of financing fell from 3.4 years as at December 31, 2022 to 2.8 years as at June 30 The significantly higher interest rate environment compared to the previous year led to a slight increase in the average interest rate from 1.3% to 1.5%.
Outlook for 2023 confirmed
Zug Estates continues to forecast an increase in rental income for 2023. However, the increase will be slowed somewhat by vacancies in individual rental spaces in the Metalli shopping avenue due to conversion work. In addition, the improvement in income will be offset by higher financing costs. The company expects business in the Hotel & Catering segment to remain stable. "However, revenue shortfalls will result from the complete renovation of the Bären property from April 2023 and the complete renovation of the catering and conference areas in the Parkhotel from June to the end of October." Income is expected to be on a par with the previous year, but the ongoing conversion measures and significantly higher electricity costs will have a negative impact on the GOP margin and lead to a result below the previous year. Overall, Zug Estates expects net income excluding revaluation and special effects to exceed CHF 32.0 million in the 2023 financial year (previous year: CHF 33.8 million). (aw)
