ZUG ESTATES HOLDING AG Press release
Zug, March 8, 2019
Another significant increase in net income for the Zug Estates Group
- Net income up 12.2% to CHF 38.8 million
- Increase of 8.9% in net income excluding income from revaluation to CHF 28.6 million
- Property income up 11.8% to CHF 50.8 million
- Value of portfolio exceeds CHF 1.5 billion for the first time ever
- Dividend strategy:
- At each general meeting of shareholders as of 2020, the board of directors intends to propose a dividend calculated at an annual growth rate of 10%, until such time as the payout ratio reaches a level of two thirds of earnings from operations and as long as no major investments are needed.
- A special dividend from the sale of the Aglaya condominiums will be proposed at the 2020 and 2021 general meetings of shareholders.
Peter Wicki will succeed Kim Riese as head of development and construction and will also become a new member of Group Management of Zug Estates AG.
The Zug Estates Group remains on a successful growth trajectory. The year under review witnessed an increase in property income (+11.8%), operating revenue (+8.3%), net income (+12.2%) and net income excluding revaluation (+8.9%). Moreover, the value of the portfolio increased by 9.1%, totaling CHF 1.54 billion at the end of 2018. The low vacancy rate continues to be one of the factors behind this success. It was maintained at a low 2.9% (previous year: 1.5%) despite an additional 152 apartments and over 13 000 m2 of completed commercial space. Attractive demand-driven rental products and a clear-sighted marketing approach ensure the rapid absorption of new commercial space in a fiercely competitive market.
Completion of construction site A and wooden high-rise S22 led to a substantial 11.8% rise in property income to CHF 50.8 million.
In a persistently competitive market environment, hotel & catering income was increased from CHF 16.1 million to CHF 16.7 million (+3.4%). Gross operating profit (GOP) remains high at 40.6% thanks in part to the newly refurbished rooms at the Parkhotel Zug and higher-than-average demand for our 49 serviced city apartments in the center of Zug. Operating revenue rose by an impressive CHF 5.4 million (+8.3%) to CHF 70.8 million.
Sizeable value-preserving investments in the Metalli complex led, as expected, to higher operating expenses, up by CHF 2.8 million to CHF 28.6 million (+10.9%). Operating income before depreciation and revaluation rose 6.6% year-on-year to CHF 42.2 million.
Continued high demand for real estate combined with the excellent locational qualities of our sites translated into an encouraging increase in income from revaluation in the year under review as well, 27.2% higher year-on-year at CHF 11.1 million.
Owing to additional financing at very attractive conditions, the financial result improved only slightly by 2.7% to a negative CHF 5.7 million in spite of substantial investments in our portfolio. The average interest rate on borrowed capital was reduced from 2.0% to 1.8%, while the average residual term decreased from 6.4 to 5.4 years.
These strong results from both business segments produced a 12.2% increase in net income to CHF 38.8 million as well as a renewed rise in net income excluding income from revaluation, up 8.9% to CHF 28.6 million.
Dividend strategy: Further rise in distribution
Zug Estates is looking to achieve a balance between reinvestment and distribution to shareholders in the current year too. The solid result allows the board of directors to propose to the 2019 general meeting of shareholders that the distribution be increased by 9.8% to CHF 28.00 per series B registered share. This is equivalent to a payout ratio of 49.9%. The distribution has thus increased by CHF 13.00 (+86.6%) since the stock exchange listing in 2012.
The anticipated special effects of sales proceeds from the Aglaya promotional project over the coming two years were cause to revise the current dividend strategy of Zug Estates Holding AG. At each general meeting of shareholders as of 2020, the board of directors intends to propose a dividend calculated at an annual growth rate of 10% until such time as the payout ratio reaches a level of two thirds of earnings from operations and as long as no major investments are needed. An additional special dividend from the sale of the Aglaya condominium apartments will also be proposed at the 2020 and 2021 general meetings of shareholders.
Value of portfolio above CHF 1.5 billion for the first time
In the year under review, Zug Estates invested another sizable sum of CHF 117.5 million in expanding its portfolio further. An additional CHF 18.1 million were channeled into the Aglaya promotional project, which has meanwhile seen 90% of apartments sold or reserved. The fair value of the entire portfolio thus increased significantly, up 9.1% to CHF 1.54 billion (previous year: CHF 1.41 billion). The equity ratio decreased from 56.8% to a still solid 54.4% as a result of investment activity.
Development and marketing in sync
Completion of construction site A and office building S22 added 152 apartments and around 13 000 m2 of commercial space to the inventory of voids. Thanks to the portfolio's above-average locational and property features coupled with a very effective marketing thrust, the vacancy rate was held at a low 2.9% as at 31.12.2018 (previous year: 1.5%) in spite of this substantial increase in space. In addition, further commercial rental agreements comprising a total of 3000 m2 that have not yet been factored in to the vacancy rate were signed in the period under review.
More transparency and comparability
With a view to increasing the transparency and comparability of its reporting, Zug Estates has opted to disclose its participation in Miteigentümergemeinschaft Metalli on the basis of quota consolidation. To date, the entire profit contribution from this participation has been reported in property income. Under the new method, the individual items will now be recognized in the respective income statement positions on a proportional basis. These changes will necessitate an adjustment of the previous year's figures both in the present report and the coming Half-Year Report for 2019.
Other development and marketing successes
Both sites saw further development and marketing successes.
Zug City Center site
The continuing development and renewal of the Metalli site as an encounter hub for the city of Zug follows carefully defined principles. Elements which inspire a sense of identity are preserved, while more open spaces and places to meet are created. Novel amenities are also to be introduced to offer genuine added value to the population of Zug. Zug Estates is currently working with the city of Zug on a joint planning agreement, which should be ready in summer/fall 2019. The project will subsequently be fleshed out in dialog with other stakeholder groups and the public.
Demand for office space in the Metalli complex remains good. An arm's-length contract extension until 2027 was signed with Kolmar, our largest office tenant. Regus has also rented an additional 380 m2 of office space. In the Metalli complex alone, rental contracts for a total of more than 3 000 m2 were extended and renewed in the year under review.
Refurbishment work on the property at Baarerstrasse 14a is progressing according to plan. CHF 3.3 million were invested in the first phase, with a further CHF 1.1 million to follow in the next phase in 2019. Completed on schedule, work on store expansions for Metalli tenants Esprit and Confiserie-Café Speck will generate additional rental income of TCHF 95 a year.
Extensive refurbishment work on the hotel rooms, guest toilets, roof and external area of our subsidiary Hotelbusiness Zug AG was completed. The new room design is attracting consistently positive feedback from guests, as also reflected in higher revenues.
Läderach Chocolatier Suisse will be joining the ranks of popular brands in the Metalli shopping area on August 30, 2019.
In July 2018, Zug Estates and utility services provider WWZ Energie signed a declaration of intent to connect the Metalli development to the Circulago district heating system. Effective 2020, the Metalli complex will cover 85% of its heating requirements and 100% of its cooling needs with water from Lake Zug. This is set to produce annual CO2 savings of 780 tonnes, marking a major milestone in our sustainability strategy.
Suurstoffi Rotkreuz
The handover of construction site A (Suurstoffi 16, 18, 20) to tenants was completed at the end of February 2018. Zug Estates invested a total of approximately CHF 115.3 million in this third construction phase. In addition to existing tenant companies Mobility and GfK, a group medical practice, an MRI center and a hairdressing salon will be moving into construction site A. Occupancy is at 100% for the apartments and 86% for the commercial premises.
Construction work on the wooden high-rise, S22, was completed according to plan in July. Rental space was handed over on schedule to anchor tenant Amgen as well as to other tenants including Arval and Mobilezone. Two further attractive long-term tenants were also found: the world's largest beer brewer, AB InBev, and catering company Hello Suurstoffi AG. The site's occupancy level is 75%. Negotiations (some at an advanced stage) with further prospective tenants are underway for the remaining area of around 3 000 m2.
The vertical garden high-rise Aglaya reached a height of 70 meters in October 2018. Completion and move-in will be in phases in Q4 2019. The investment volume runs to approximately CHF 100 million, 92% of which is for promotional purposes. 87% of apartments were either reserved or sold by end-2018. A long-term rental contract has also been signed with international coworking provider Spaces for the approximately 1 800 m2 of commercial space on the 1st to 3rd floors, as well as the catering space on the ground floor.
Construction work on the campus of Lucerne University of Applied Sciences and Arts is going to plan, with the handover set of the first stage expected to take place on schedule in Q3 2019. The second phase is timetabled for completion by the end of Q2 2020. Long-term rental contracts have already been signed for some 70% of the overall 26 000 m2 of rental space. Demand is high for the remaining lettable office space. Initial contracts have already been or will shortly be signed.
New management appointment
The board of directors and Group Management of Zug Estates Holding AG have appointed Peter Wicki as successor to Kim Riese, head of development and construction, and thus elected Peter Wicki as a new member of Group Management of Zug Estates AG. He will begin working for Zug Estates on September 1, 2019.
Peter Wicki, who is 47 and a Member of the Royal Institution of Chartered Surveyors, holds a diploma in architecture from ETH Zurich and a Master of Science in Real Estate (CUREM). In addition, he is currently completing an Executive MBA at the University of St.Gallen (HSG). He has been Head of Portfolio Management and a member of the Management Board of SBB Real Estate since 2012. Prior to this, he worked as a real estate consultant and appraiser at Wüest Partner in Germany and Switzerland.
Picture: https://zugestates.cloud-hosting.ch/index.php/s/DKHnGst17o8QBPL
Outlook for 2019
For the 2019 financial year we are looking to see a marked increase in operating income before depreciation and revaluation driven largely by the first wave of projected sales proceeds from the Aglaya apartments. We again anticipate a year-on-year increase in net income excluding income from revaluation.
In the real estate business unit we expect a rise in rental revenue thanks to full-year rental revenue from S22 and construction site A, and also as tenants move in following the first phase of construction site 1, as well as from rentable space in the Aglaya building. At the same time, further maintenance work at the Metalli complex and at the Suurstoffi site point to higher property expenses.
In the hotel & catering segment, we expect to maintain sales and gross operating profit at prior-year levels.
Report - March 8, 2019
You will fund the full report on the 2018 financial year on our website, at https://www.zugestates.ch/en/mn/downloads.html
An analysts' and media conference will take place at 11 a.m. today, at the Parkhotel Zug. Dr. Beat Schwab (Chairman of the Board), Tobias Achermann (CEO) and Mirko Käppeli (CFO) will present the results for 2018. If you wish to attend, please register by email to ir@zugestates.ch (no later than 10 a.m.).
A webcast will be held in German at 2.30 p.m. Following the presentation, Tobias Achermann (CEO) and Mirko Käppeli (CFO) will be available for questions.
Live-presentation: https://webcasts.eqs.com/zugestate20190308
To dial in: +41 44 580 65 22 / conference ID: 59518720#
The corresponding presentation can be viewed on our website https://www.zugestates.ch/en/mn/downloads.html (from 2 p.m.)
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