Solid result in the first half-year 2023

  • 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
  • Capital recycling an important part of the financing strategy
  • Outlook for 2023 full year specified

After more than ten years of a booming economy and growth, the real estate sector is currently in a challenging position as a result of the economic environment. Interest rate rises are leading to higher financing costs and investment alternatives. Fewer transactions are taking place and the era of uninterrupted upward revaluations is over. The rise in inflation, supply shortages and a lack of skilled workers are resulting in higher construction costs and putting the brakes on new building and renovation projects.

Allreal reported net profit excluding revaluation effect of CHF 66.7 million in the first half of 2023 (first half of 2022: CHF 81.8 million). 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 the revaluation effect, net profit amounted to CHF 44.3 million (first half of 2022: CHF 82.7 million).

“As a professional player in the real estate industry with a healthy portfolio, Allreal considers itself to be well equipped to successfully overcome even more challenging cycles in the real estate market.”

Real Estate division’s rental income rises

Rental income rose, while vacancy rates remained low. The division continued to improve the maturity profile of leases as a result of leases being extended early. Ultimately, net profit in the Real Estate division was in line with what was expected at the beginning of the year. At CHF –26.1 million before tax, the revaluation of the portfolio was slightly negative owing to the change in the interest rate environment (first half of 2022: CHF 1.1 million). In relation to the portfolio value of over CHF 5 billion, 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.

Gross margin stable in the Projects & Development division

Earnings from the Projects & Development division were significantly down on the previous year. The reason for this – besides the challenging economic environment in general – is essentially that sales are cyclical. They will balance out to some extent over the course of the year. The Realisation department recorded a solid gross margin for the planning and realisation of third-party projects of 9.9%t (first half of 2022: 11.2%). By purchasing the Rieter site in Winterthur ZH in July, Allreal has secured a large site in a prime location with a lot of long-term potential. What is more, the site will generate stable earnings as soon as ownership is transferred. The other development and construction projects are going according to plan.

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 from CHF 2.61 billion on 31 December 2022. Of this amount, bond issues accounted for 48.5%, fixed-rate mortgages for 27.8% and fixed advances for 23.7%. 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 the commercial property at In der Luberzen in Urdorf ZH for a profit at the end of June, as it no longer fits the portfolio.

On the cut-off date, the share price closed at CHF 151.20, which represents a slight increase of 0.5% compared with the closing price on 31 December 2022. If the distribution of CHF 7.00 per share in April 2023 is included, an overall performance of 5.2% was recorded in the first half of 2023. This meant that the share performed significantly better than the SXI Real Estate Shares TR as at the cut-off date, it was up 0.9%.

Management change and strategic continuity

There was a change at the top in the first half of the year 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.

Sustainability strategy underway

As part of its sustainability strategy, Allreal is systematically implementing measures to achieve the goals that were defined. In June, together with 11 other key players from the real estate industry, we signed the Circular Building Charta. The ambitions formulated in the Charta complement our sustainability goal of recyclable construction. We are taking our first steps towards a circular economy with our flagship project Baarermatte, among other things. In doing so, we are already factoring in the reuse of construction material from existing properties in the planning phase and setting clear objectives regarding the consumption of CO2 during the construction. Allreal will create and operate the new builds without releasing more than the equivalent of six kilograms of CO2 per square metre of the energy reference area each year.

In setting up an external advisory board on living spaces as early as the end of 2022, we have created a body that will help us learn from projects that have already come to fruition. In the period under review, the advisory board analysed the new district around Moosstrasse/Grütstrasse in Adliswil ZH that was completed in 2012. Detailed information can be found in the report A neighbourhood tour in Adliswil.

We have also pushed ahead with the expansion of solar power systems and electric vehicle charging stations. This means we are gradually getting closer to achieving the goals we have set ourselves. By 2024, we want our PV devices to produce more than 5,500 kWp of energy and more than 25% of our car parks to be equipped with electric vehicle charging stations.

Outlook for 2023 full year specified

Demand for residential properties in urban locations and for commercial space at public transport hubs, which form the core of Allreal’s portfolio, is proving very robust. The general population growth, limited expansion potential in terms of space planning, solid economy and ongoing immigration also support the basic parameters of our portfolio in the medium term.

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.

On behalf of the Board of Directors and Group Management, we would like to take this opportunity to thank our employees for their work over the first half of the year and investors for the trust they have placed in us.