Allreal : Convincing half-year results in 2022

Ad hoc announcement pursuant to Art. 53 LR

Glattpark, 24 August 2022: Allreal recorded an encouraging increase in net operating profit year-on-year in the first half of 2022. In the Real Estate division, the company's results were very good thanks to the portfolio expansion and again low vacancy rates. The Projects & Development division recorded a stable result and an improved gross margin in third-party business. Allreal increases its outlook and expects a net operating profit for 2022 as a whole of at least CHF 135 million.

Allreal achieved a net operating profit of CHF 81.8 million in the first half of 2022, compared with CHF 79.1 million in the first half of 2021 - a year-on-year rise of 3.4%.

However, net profit including revaluation effect fell by 25.7% year-on-year from CHF 111.3 million to CHF 82.7 million. At CHF 1.1 million before tax, revaluation effect was lacklustre, falling significantly below the previous year's level of CHF 41.8 million.

Real Estate division's rental income rises thanks to the portfolio expansion in Western Switzerland
Rental income in the Real Estate division increased by 4.9% to CHF 106.8 million. The reasons for the significant growth were the expansion of the portfolio of yield-producing properties in Western Switzerland, low vacancy rates and low real estate costs. The annual target rental income from the additions to the portfolio in Western Switzerland is around CHF 14 million altogether. In view of the properties under construction or development in Western Switzerland, it is likely that rental income will also continue to rise in the next few years.

There were no changes in the portfolio in the first half of 2022. The cumulative vacancy rate remained stable compared with the balance sheet cut-off date at the end of 2021 to stand at the very low level of 1.5%.

Allreal is holding negotiations with several large customers on extending leases early. In the period under review the company achieved a success in early lease renewals at Vulkanstrasse 106 in Zurich Altstetten. Even though the long-term main tenant will hand back some of the space they have been renting until the end of 2023, they concluded a new rental agreement for the remaining area up to 2028. Allreal has already found attractive and long-term follow-up solutions for around half of the vacant space. The weighted remaining term of fixed-term leases for all commercial real estate was 5.3 years as at the cut-off date (compared with 5.7 years as at 31 December 2021).

Allreal expects a stable vacancy rate and no rise of note over the financial year 2022 as a whole based on the high quality of its real estate management and the fact that no more major leases are up for renewal in the current year.

Direct expenses for yield-producing properties rose only slightly, up from CHF 10.0 million in the first half of 2021 to CHF 10.8 million in the period under review. This was despite the larger portfolio. The operating expense ratio is expected to rise for 2022 as a whole given that work to refurbish or convert a number of properties is not due to begin until the second half of the year.

Despite higher rental income, the net return of yield-producing property fell by 0.3 percentage points year-on-year owing to revaluations in the previous year. Nevertheless, the net yield amounted to an attractive 3.9%, compared with 4.2% in the first half of 2021.

The valuation of the investment real estate carried out by an external real estate valuer on 30 June 2022 resulted in a minimal upward revaluation of CHF 1.1 million. The total value of the portfolio of investment real estate on the cut-off date amounted to CHF 5.13 billion, compared with CHF 5.11 billion on 31 December 2021. The market value of the residential real estate came to CHF 1.66 billion, while that of commercial real estate amounted to CHF 3.30 billion. The market value of investment real estate under construction was CHF 164.5 million.

The Real Estate division reported net profit excluding revaluation effect of CHF 70.6 million in the first half of 2022, compared with CHF 66.1 million in the same period last year. Its share of the Group's net operating profit came to 85.6%.

Stable result in the Projects & Development division, with an improved gross margin
The Projects & Development division reported earnings of CHF 34.9 million in the first half of 2022, compared with CHF 37.5 million in the same period last year.

Income from the sale of development real estate had an impact in this respect. Meanwhile, business remained challenging for the Realisation department and well-functioning risk management is essential. On the one hand, some prices have risen considerably, while on the other, supply shortages for various materials are resulting in challenges when it comes to meeting deadlines. This environment continues to demand a high degree of flexibility in work processes. Against this background, the department proved its worth overall.

Earnings from realisation Projects & Development fell to CHF 13.4 million in the first half of 2022 from CHF 15.2 million in the same period a year earlier, again as a result of these factors. The gross margin - which was generated with the development and execution of projects for third parties - amounted to 11.2%, up from 9.1% at the end of 2021 and 11.4% in the first half of 2021. This meant that the profitability of the Realisation department moved towards the 12% target again.

Allreal disposed of a piece of land from its development reserves in the period under review. In Rümlang ZH, Allreal sold the final part of the Bäuler development reserve, in doing so benefiting from the current high land prices. As with the sale of residential real estate in Winterthur ZH and three projects in Western Switzerland, the sale of development real estate generated sizeable income (CHF 15.6 million, compared with CHF 18.4 million in the first half of 2021).

Development and construction projects in German-speaking and Western Switzerland went according to plan. There was a minor decrease in the Realisation department's completed project volume to CHF 155.5 million in the period under review, down from CHF 160.5 million in the first half of 2021. Of this, third-party projects accounted for CHF 120.0 million, or 77.2%, and own projects for CHF 35.5 million, or 22.8%.

The secured order backlog as at the cut-off date amounted to around CHF 608 million, corresponding to capacity utilisation for just under two years.

The Projects & Development division recorded a net profit of CHF 11.9 million in the period under review, compared with CHF 14.6 million in the first half of 2021. This represents a 14.4% share in the Group's net operating profit.

Long-term and stable financing
As at the cut-off date, financial liabilities had increased only slightly - by CHF 15.8 million to CHF 2.74 billion - despite the distribution to shareholders in April 2022. On 30 June 2022, the average interest rate for financial liabilities amounted to just 0.63%. The average interest lock-in period amounted to 41 months.

In the next few months, Allreal will review measures to finance debt on the capital market in order to replace expiring fixed-rate mortgages in good time. This will also enable interest lock-in periods to be extended up to the end of the financial year 2022.

As at 30 June 2022, the equity ratio amounted to 44.1%, net gearing to 107.3% and the interest coverage ratio to 11.7, compared with 44.1%, 103.7% and 12.9, respectively, on 31 December 2021).

Implementation of initial measures contained in the sustainability strategy begins
Allreal set itself ambitious targets in the sustainability strategy it developed in the previous year. Initial measures towards achieving these targets began to be implemented in the first half of 2022. For example, the company identified a number of properties for which a broad-based expansion of solar power systems will begin in the second half of the year. In addition, more charging stations are being installed to promote e-mobility. Allreal will equip at least 20% of garage parking spaces at yield-producing properties with electric vehicle charging stations by the end of the first half of 2024. The two initiatives comprise an investment volume of around CHF 10 million.

Improved outlook for 2022 as a whole
The first half of 2022 was shaped by rising inflation and the about-turn in interest rates performed by central banks. Despite the sharp rise in long-term interest rates, they are still at a low level by historical standards. The Swiss economy is robust and demand for Swiss real estate in central locations is undiminished.

For the financial year 2022, Allreal now expects net operating profit of at least CHF 135 million.

Conference call
A conference call will be held in German on the reporting day from 9 a.m. to 10.15 a.m. If you wish to take part, the following link will be available on the day from 8.30 a.m.:

https://call.conferencing.swisscom.ch/conference/x/zy_HuuR9Nwcx