Newsbox: Another significant increase in net income for the Zug Estates Group

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 mailto:[e-mail] (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: [phone] / 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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Downloads:
Attachment (Link), Press release:
http://e3.marco.ch/publish/zugestates/1183_226/190308_Press_release.pdf

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Upcoming events:
April 9, 2019 | General meeting of shareholders
April 15, 2019 | Cash distribution to shareholders (Payment Date)
August 30, 2019 | Publication of the 2019 half-year report
 
For further information, please contact:
Tobias Achermann, CEO
Mirko Käppeli, CFO
T [phone], mailto:[e-mail]

About Zug Estates
The Zug Estates Group conceives, develops, markets and manages properties in the
Zug region. It focuses on central sites which are suitable for a wide range of
uses and allow sustainable development. The real estate portfolio comprises the
two sites in Zug and Risch Rotkreuz. The Group also runs a city resort in Zug
incorporating the two leading business hotels Parkhotel Zug and City Garden,
augmented by a range of restaurant outlets. As at December 31, 2018, the total
portfolio value was CHF 1.54 bn. Zug Estates Holding AG is listed on the SIX
Swiss Exchange, Zurich, (ticker symbol: ZUGN; securities number: 14 805 212).


* Press release: http://e3.marco.ch/publish/zugestates/1183_226/190308_Press_release.pdf 

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