Gratifying half-year results in 2021
Glattpark, 25 August 2021: Allreal achieved a significant increase in net operating profit in the first half of 2021. In the Real Estate division, the gratifying result was further strengthened by revaluation gains. The Projects & Development division also performed well thanks to gains on sales. Allreal now expects a net operating profit of more than CHF 130 million for the full year 2021.
Allreal reported net profit including revaluation gains of CHF 111.3 million in the first half of 2021, compared with CHF 86.4 million in the same period last year – a rise of 28.8%). This gratifying performance was partly a result of an upward revaluation of the portfolio by CHF 41.8 million before tax (compared with CHF 27.7 million in the first half of 2020).
Both divisions performed well overall and made a positive contribution to net operating profit of CHF 79.1 million. This represents an impressive increase of 25.6% (1st half-year 2020: CHF 63.0 million).
Real Estate division increases profit significantly
The Real Estate division again performed well in the first half of 2021. Rental income increased by 1.7% to CHF 101.8 million (compared with 100.1 million in the first half of 2020). This positive development was partly attributable to the rental income that was generated by various additions to the portfolio for the first time.
In the second half of 2020, Allreal acquired an office building in Wetzikon ZH with annual target rental income of CHF 2.9 million. Allreal has developed and realised a replacement new build at Hardstrasse 299/301 on the Escher-Wyss site in Zurich-West. The annual target rental income for this commercial property, which began to contribute to net income in the second quarter of 2021, is CHF 2.3 million. In addition, all the new apartments on the Grünhof site in Zurich Aussersihl were let at the end of January 2021. Going forward, the Grünhof site will generate annual target rental income of CHF 5.4 million.
The commercial real estate at Bellerivestrasse 36, Zurich Riesbach, was reclassified as investment real estate under construction on 1 April 2021. The office building will be totally renovated in the next two years.
In addition, rent payments were waived to the amount of around CHF 0.5 million in the first half of 2021 in connection with the pandemic, compared with CHF 1.4 million in the first half of 2020.
The cumulative vacancy rate stood at 1.5%, meaning that it was persistently at an exceptionally low level by industry standards. Indeed, vacancies actually decreased even further in the residential segment, while – as expected – there was a slight increase in the case of commercial space.
Allreal is holding advanced negotiations with several large customers on extending leases early; these should be completed in the next few months. This would result in the weighted remaining term of fixed-term leases increasing to 5.7 years compared with 4.9 years as at 30 June 2021.
Allreal expects the cumulative vacancy rate to rise only very slightly over 2021 as a whole based on the high quality of its property management and the fact that no more major leases are up for renewal in the current year.
Direct expenses for yield-producing properties fell compared to the previous year from CHF 13.2 million to CHF 10.0 million. Various renovation projects will not be completed until the second half of 2021. Accordingly, the property expense rate declined temporarily to 9.9%, down from 13.2% a year earlier.
The lower property expense rate and the slightly higher rental income resulted in the net return of yield-producing property reaching a healthy 4.2%, up from 4.1% in the first half of 2020.
The valuation of the investment real estate carried out by an external real estate valuer on 30 June 2021 resulted in an upward revaluation of CHF 41.8 million. The total value of the portfolio of investment real estate on the cut-off date amounted to CHF 4.58 billion, compared with CHF 4.53 billion on 31 December 2020. The market value of the residential real estate came to CHF 1.25 billion, while that of the commercial real estate amounted to CHF 3.21 billion. The market value of investment real estate under construction amounted to CHF 122.9 million. The Real Estate division reported net profit excluding revaluation gains of CHF 66.1 million in the first half of 2021, compared with CHF 58.6 million in the same period last year. This represents an 81.9% share in the Group’s net operating profit.
Projects & Development division performs well thanks to gains on sales
Earnings from the Projects & Development division amounted to CHF 37.5 million in the period under review, compared with CHF 24.6 million in the first half of 2020.
Income from the sale of development real estate had a significant impact on the result. Meanwhile, business was challenging for the Realisation department. The impact of the coronavirus could be seen in inefficiencies in the construction process. In some cases, work was commissioned but cancelled by the service provider at short notice, which led to an increased need for flexibility in the construction process. Nevertheless, all the projects that were terminated in the period under review at the handover stage managed to be completed on time and, most importantly, without quality being compromised. The increase seen in the cost of materials on the market in some cases did not have any significant impact on ongoing projects, as delivery times and prices are normally fixed in advance.
Earnings from realisation Projects & Development fell to CHF 15.2 million in the first half of 2021 from CHF 18.8 million in the same period a year earlier, again as a result of these factors. Although the gross margin – which was generated with the development and execution of projects for third parties – remained at a respectable level (11.4%, compared with 13.8% in the first half of 2020), it was still below the company’s expectations.
Allreal disposed of two pieces of land from its development reserves in the period under review. As with the sale of residential real estate, the sale of development real estate generated sizeable income (CHF 18.4 million, compared with CHF 1.6 million in the first half of 2020). In the Realisation department, the large third-party projects are broadly on schedule. The completed project volume stood at CHF 160.5 million in the period under review, compared with CHF 178.6 million in the first half of 2020. Of this, third-party projects accounted for CHF 133.1 million, or 82.9%, and own projects for CHF 27.4 million, or 17.1%.
The order intake was very low in the first half of 2021, as there was a noticeable decline in the number of tenders issued on the market. The secured order backlog as at the cut-off date amounted to around CHF 638 million, corresponding to capacity utilisation for around 21 months.
The operating expenses of the Projects & Development division fell by around 12.7% from CHF 22.9 million in the first half of 2020 to CHF 20.0 million in the first half of 2021.
The Projects & Development division recorded a net profit of CHF 14.6 million in the period under review, compared with CHF 4.8 million in the first half of 2020. This represents an 18.1% share in the Group’s net operating profit.
Long-term and stable financing
As at the cut-off date, financial liabilities had increased by 24.6 million to CHF 2.20 billion, up from CHF 2.18 billion on 31 December 2020. Of this amount, bond issues accounted for 49.8%, fixed-rate mortgages for 25.8% and fixed advances for 24.4%.
On 30 June 2021, the average interest rate for financial liabilities amounted to 0.66%, or five basis points below the comparable figure on 31 December 2020. The average interest lock-in period amounted to 44 months.
With a fixed-income 0.6% bond issue of over CHF 170 million and a term of nine years being paid in mid-July 2021, the credit limits available after the balance sheet cut-off date again amounted to more than CHF 430 million. As a result, the average interest lock-in period increased to 52 months.
As at 30 June 2021, the equity ratio amounted to 48.1%, net gearing to 90.8% and interest coverage ratio to 15.1, compared with 48.4%, 88.6% and 11.0, respectively, on 31 December 2020).
Clear commitment to sustainability
The company continued to work on developing a clear and measurable sustainability strategy in the first half of 2021. The vision is clear: the portfolio of yield-producing properties will be fully carbon neutral by 2050 and the share of fossil fuels in energy consumption will be halved by 2030. Among the factors contributing to this will be the active management of tenants’ behaviour, the broad-based expansion of photovoltaic plants and parking spaces for electric vehicles, and the consistent use of reusable materials. Allreal will also provide more information about the ESG strategy at an Investors’ Day in November 2021.
Improved outlook for the full year 2021
The strong half-yearly financial statements give Allreal reason to be confident that its results for the year as a whole will be very good.
The company’s considerable financial clout gives it the freedom to invest substantial amounts of money in real estate at an early stage.
Allreal now expects a net operating profit for 2021 as a whole. This is likely to come in above CHF 130 million.
The Allreal Group
Allreal combines a stable-income property portfolio with the activities of a general contractor (development and realisation). The company’s property portfolio is worth over CHF 5 billion. During the 2020 financial year, the volume of projects completed by the Projects & Development division amounted to CHF 363 million. The property company employs more than 250 members of staff across Zurich, Basel, Bern and Geneva. With its registered office on Glattpark, Allreal operates exclusively in Switzerland. Shares in Allreal Holding AG are listed on the SIX Swiss Exchange.