Allreal records stable result in the first half of 2023
Ad hoc announcement pursuant to Art. 53 of the Listing Rules
- Higher rental income in the Real Estate division and only slight devaluations in the portfolio
- Gross margin in the Projects & Development division in line with target value
- Marc Frei, as CFO, becomes a member of Group Management
Glattpark, 30 August 2023: Allreal generated net profit excluding revaluation effect of CHF 66.7 million in the first half of 2023, compared with CHF 81.8 million in the same period last year. The decrease compared with the previous year can primarily be attributed to the lower income from the sale of development real estate, as well as the higher net financial expense. In addition, Allreal benefitted from a one-off tax effect in the first half of 2022. Including revaluation effect, net profit amounted to CHF 44.3 million, down from CHF 82.7 million in the first half of 2022.
Good result in Real Estate division despite significantly higher financing costs
Allreal’s Real Estate division performed well, in line with expectations. At CHF 108.5 million, rental income was up year on year, mainly on account of the linking of commercial rents to the national consumer price index (first half of 2022: CHF 106.8 million). As a result, rental income from the properties sold in Basel at the end of last year were more than offset.
At 1.7%, the cumulative vacancy rate remained at a low level in the period under review (first half of 2022: 1.5%). This meant that Allreal’s portfolio again has a lower vacancy rate than the Swiss industry average. Allreal has a very solid tenant base with whom the company has a relationship based on partnership and longterm tenancy. However, the low vacancy rate also reflects the high quality of the properties and the active real estate management.
Owing to the higher rental income, low vacancy rate and low revaluations in the previous year, the net yield remained stable, amounting to an attractive 4.0% (first half of 2022: 3.9%).
At CHF 10.5 million, direct expenses for yield-producing properties were slightly down on the previous year (first half of 2022: CHF 10.8 million). However, they will most probably go up again slightly in the second half of the year as work begins on implementing various projects.
The valuation of the investment real estate carried out by an external real estate valuer on 30 June 2023 resulted in a slight devaluation of CHF 26.1 million. The positive revaluation of the fully modernised and fully let commercial property at Bellerivestrasse 36, as well as two residential properties in Zurich, are particularly worth a mention. On the other hand, there were larger devaluations of the property at Freiburgstrasse in Bern and of several residential properties in Western Switzerland.
In relation to the portfolio value, however, the effect is very small in view of the interest rate adjustments made by the Swiss National Bank, confirming the high quality of the portfolio. The total value of the portfolio of investment real estate on the cut-off date amounted to CHF 5.09 billion, compared with CHF 5.10 billion on 31 December 2022.
The Real Estate division reported net profit excluding revaluation effect of CHF 69.4 million in the first half of 2023, compared with CHF 70.6 million in the same period last year.
Gross margin stable in the Projects & Development division
Allreal’s Projects & Development division reported earnings of CHF 17.6 million, compared with CHF 34.9 million in the first half of 2022. The reason earnings were significantly lower than the previous year were sales of development real estate in the first half of 2022 of CHF 15.6 million. Besides sales of residential real estate in Winterthur ZH and in Western Switzerland, the main positive impact on the previous year’s figure came from the sale of a plot of land from the development reserves in Rümlang ZH. The sale of the apartments in the project at Spiserstrasse in Zurich started successfully in the first half of the year. As a result of the notarisations that are to be expected in the second half of 2023, further successful sales are conceivable over the year as a whole.
Despite challenging market conditions, the Realisation department reported a solid gross margin for third-party projects of 9.9%, compared with 11.2% in the first half of 2022. There was a decrease in the Realisation department’s completed project volume to CHF 143.0 million in the period under review (first half of 2022: CHF 155.5 million). Of this, third-party projects accounted for CHF 116.4 million, or 81.4%, and own projects for CHF 26.6 million, or 18.6%.
The secured order backlog as at the cut-off date amounted to around CHF 510 million, corresponding to capacity utilisation for just over 18 months.
The Projects & Development division recorded a net profit of CHF –0.3 million in the first half of 2023, compared with CHF 11.9 million in the same period last year.
Capital recycling contributes to long-term stable financing
In March 2023, the company issued its first fixed-rate green bond. The bond of CHF 150 million has a term of five years and an interest rate of 3.0%. As a result, the average interest rate on financial liabilities had increased to 1.27% as at 30 June 2023. It is therefore conceivable that the net financial expense will be considerably higher in the future. The average interest lock-in period amounted to 41 months.
After distribution to shareholders in April 2023, financial liabilities rose (as expected) by CHF 82.9 million to CHF 2.69 billion, up from CHF 2.61 billion on 31 December 2022.
As at the cut-off date, the equity ratio amounted to 44.3%, net gearing to 106.0% and the interest coverage ratio to 7.3 (31.12.2022: 45.6%/99.9%/11.5). It is important to continue to bear these parameters in mind. Allreal is carrying on with the capital recycling strategy in the current year, having launched it in the previous year. This is contributing to long-term stable financing. In this context, Allreal sold a commercial property in Urdorf ZH for a profit at the end of June, as it no longer fits the portfolio.
Sustainability strategy underway
In June, together with 11 other key players from the real estate industry, Allreal signed the Circular Building Charta. The ambitions formulated in the Charta complement our sustainability goals in terms of recyclable construction. Allreal is taking its first steps towards a circular economy with the flagship project Baarermatte, among other things. In doing so, Allreal is already factoring in the reuse of construction material from the existing property in the planning phase and is setting clear objectives regarding the consumption of CO2 during construction and operation of the new buildings.
Allreal has also pushed ahead with the expansion of solar power systems and electric vehicle charging stations. By 2024, it wants its PV devices to produce more than 5,500 kWp of electricity and more than 25% of car parks to be equipped with electric vehicle charging stations.
Outlook for 2023 as a whole defined in detail
For the financial year 2023, Allreal expects rental income to increase slightly compared with the previous year as a result of the rise in the reference interest rate and the linking of commercial rents to the national consumer price index. A positive contribution to profit is expected from the Projects & Development division, albeit significantly lower than in the previous year. The Group’s net profit (excl. revaluation effect) is expected to be just over CHF 120 million.
Management change and strategic continuity
There was a change at the top in the period under review with Stephan Widrig taking over as the Group’s CEO in May. In addition, the Board of Directors has appointed Marc Frei, who has been acting Head of Finance since the departure of Thomas Wapp, as CFO and a full member of Group Management from 1 September 2023 onwards. Born in 1986, Marc Frei has worked for Allreal since 2019, most recently as Head of Controlling and Deputy CFO.
As a professional player in the real estate industry with a healthy portfolio, Allreal considers itself to be well equipped to successfully overcome even the more challenging cycles in the real estate market. Its high level of development and realisation expertise enables it to create additional value for shareholders beyond its portfolio. The previous strategy endures under the new management.
Allreal combines a stable-income property portfolio with the activities of a general contractor (development and realisation). The company’s property portfolio is worth around CHF 5.1 billion. During the 2022 financial year, the volume of projects completed by the Projects & Development division amounted to CHF 320 million. The property company employs more around 240 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.
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