Zug Estates Group presents pleasing operating result

Ad hoc announcement pursuant to Art. 53 LR
Zug, 21 February 2024

Pleasing operating result for Zug Estates Group thanks to numerous rental successes, increased rental income and repositioning of Garden Park Zug AG.

• Net income excluding revaluation and special effects of CHF 33.9 million was slightly higher than the previous year’s figure (CHF 33.8 million)
• Rental income increased by 5.5% from CHF 62.2 million to CHF 65.7 million 
• The decision to proceed with the S43/45 construction project at the Suurstoffi site in Rotkreuz represents an investment of around CHF 85 million 
• Hotelbusiness Zug AG was successfully renamed Garden Park Zug AG with a simultaneous repositioning of the hotel & catering segment
• The board of directors will propose to the general meeting of shareholders that the ordinary dividend per series B registered share be increased by 7.3% to CHF 44.00 (previous year: CHF 41.00)
• In the 2024 financial year, a significant reduction in the vacancy rate to around 1% and an increase in net income excluding revaluation and special effects to over CHF 35 million are expected 

2023 was characterised by a changed backdrop interest rate and market environment, on the one hand, and an increasing supply shortage in some segments of the real estate market, on the other. The rise in interest rates compared with the previous year led to higher financing costs and an increase in discount rates. The resulting downward pressure on real estate values detracted from increased property income.

Zug Estates benefited from brisk demand for attractive, well-connected rentable space and achieved numerous rental successes. The hotel & catering segment showed an encouraging trend, while the refurbishment of the ground floor of the Park Hotel Zug (formerly known as Hotelbusiness Zug AG) was successfully completed with the opening of the new aígu restaurant and repositioning of Garden Park Zug AG.

Net income excluding revaluation and special effects amounted to CHF 33.9 million in the 2023 financial year, representing a slight increase of CHF 0.1 million or 0.2% compared with the previous year’s figure of CHF 33.8 million. Net income was 39.2% or CHF 15.6 million lower at CHF 24.2 million (previous year: CHF 39.8 million), the decline being attributable to a negative revaluation result caused by overall market factors.

Encouraging increase in property income and operating result
Property income of the Zug Estates Group rose by CHF 3.5 million or 5.5%, from CHF 62.2 million to CHF 65.7 million in 2023. Improvements to the bottom line were achieved as a result of the full year impact of the Renggli Group acquired in the previous year, the purchase of an additional 3.5% of MEG Metalli in 2023, as well as index and reference interest rate adjustments. Adjusted for changes to the portfolio (like-for-like basis), rental income was up CHF 0.9 million or 1.5%.

Despite the temporary loss of income due to the repositioning, hotel & catering income rose from CHF 14.7million in the previous year to CHF 15.2 million, a year-on-year increase of CHF0.5million or 3.5%. Income from accommodation continued to pick up and was actually slightly above the level prior to the outbreak of the COVID-19 pandemic. The repositioning of the aígu and Bären restaurants caused a temporary fall in catering turnover in 2023. Thanks to careful coordination of the building work, hotel operations were only marginally affected and gross operating profit (GOP) remained on a par with the previous year’s level at 37.8% (2022: 37.9%).

Operating income of the entire group increased by CHF 4.7 million or 5.8%, from CHF 80.1 million to CHF 84.8 million. 

Expansion of the portfolio caused property expenses to rise from CHF 7.8 million to CHF 8.2 million – an increase of CHF 0.4 million or 4.9%.

The operating result before depreciation and revaluation rose by 5.1% or CHF 2.5 million, from CHF 49.7 million to CHF 52.2 million.

The higher interest rates and a more hesitant transaction market in overall terms led to a rise in discount rates. The net revaluation figure was correspondingly negative at CHF 11.0 million, as against a revaluation gain of CHF 6.8 million in the prior year.

Due to the revaluation effects mentioned, EBIT was down by CHF 15.4 million or 28.9%, from CHF 53.0 million to CHF 37.6 million.

Both the acquisitions concluded and higher interest rates on short-term interest-bearing debt resulted in a decrease in the net financial result of CHF 2.4 million or 30.9% to CHF 10.2 million (previous year: CHF 7.8 million)
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Value of portfolio falls slightly due to negative net revaluation figure
Acquisitions and investments for the portfolio amounted to CHF 28.3 million in the 2023 financial year (previous year: CHF 123.2 million). The bulk of this – CHF 19.4 million – was incurred in the first half of 2023 as a result of the acquisition of another 3.5% co-ownership share in Miteigentümergemeinschaft (MEG) Metalli. This increased the company’s co-ownership share of MEG Metalli to 78.75%. The Duggelistrasse 28 property in Cham was sold in the second half of 2023 at its current book value of CHF 4.5 million.

In early December 2023, Zug Estates Ltd merged its two existing office sites in Zug and Rotkreuz and moved into its new premises at the Metalli site. The Industriestrasse 12 property was therefore reclassified from operating properties to investment properties as at 31 December 2023. At the same time, the Bären property – which is in the course of being renovated – was reclassified from operating properties to investment properties under construction following the conclusion of a lease agreement with Tibits Ltd.

The market value of the property as a whole fell by a marginal 0.2% or CHF 2.9 million and still amounts to CHF 1.83 billion. The slight reduction in market value is attributable to a negative net revaluation result of CHF 11.0 million, which stems from an average increase in real discount rates of 15 basis points and represents around 0.6% of the portfolio value of all investment properties.

Numerous rental successes in all segments will result in low vacancy rate in 2024
Zug Estates can look back on very successful rental activity in the 2023 financial year. Commercial leases for space totalling around 24'000m² and involving rental income of more than CHF 10.2 million p.a. were extended or concluded. Most of the new contracts will only take effect in the first half of 2024 and do not affect the vacancy rate as at the end of 2023. The rise in the vacancy rate to 3.9% as at 31 December 2023 (previous year: 1.6%) is primarily attributable to refurbishment work at the Metalli shopping mall, which accounts for a share of 1.8%. 

Agreements concluded in the 2023 financial year related to office and education space in Zug and Rotkreuz as well as retail space at the Metalli site. At the Suurstoffi site in Rotkreuz, new lease agreements for the S14 property covering around 2'600m² were concluded with Lombardi SA Ingegneri Consulenti and Pacojet International AG. In addition, on 1 January 2024 the Canton of Zug took over the S6 property – which comprises around 4'500m² – for a fixed lease term of ten years, with plans to open a new cantonal school.

At the Zug City Centre site, the lease with UBS AG for the Baarerstrasse 14a property and leases for retail space totalling around 3'700m² were extended for five years. In addition, attractive brands were recruited for all newly created rental units at the Metalli shopping mall following the renovation of the former C&A and Zara spaces. LUSH, Maison Carat and Douglas opened their outlets in autumn 2023. Lidl, doodah and lifestyle label PME Legend are to follow suit in spring 2024.

At 6.5 years as at 31 December 2023 (previous year: 6.5 years), the weighted average unexpired lease term (WAULT) was at a very high level for the industry. 

Opening of aígu restaurant and repositioning of Garden Park Zug AG
The ground floor of Park Hotel Zug was comprehensively refurbished between June and October 2023. The outcome is the creation of aígu Restaurant & Bar (www.restaurant-aigu.ch) – a new restaurant that blends Swiss cuisine with the flair of southern France. Thanks to a spacious terrace and a new conservatory, the restaurant, bar and conference area has been opened up and made more inviting; it now has the space to host major events for up to 220 people. 

The Bären property – a listed building – has been undergoing a complete refurbishment since April 2023. Previously operated by Hotelbusiness Zug AG, the restaurant has been taken over by Tibits Ltd, which – following completion of the refurbishment work in June 2024 – is set to open its first venue in Zug.

As part of the refocusing, Hotelbusiness Zug AG, which owns Park Hotel Zug with the aígu Restaurant & Bar and City Garden Hotel, City Apartments and Secret Garden Restaurant & Bar, has been renamed Garden Park Zug AG (www.gardenpark.ch).

S43/45 project enters construction phase
To address the change in tenant requirements with regard to spatial quality and flexibility of use, the S43/45 construction project involving the only plot not yet developed at the Suurstoffi site was revised in the 2023 financial year. The application for modification was submitted to the Risch Rotkreuz municipality in July 2023 and signed off in September 2023. The project consists of two buildings with total office and education space of around 14'400m² as well as 1'100m² of residential space for student living.

In view of the encouraging situation for rental properties at the Suurstoffi site and across the Zug Estates portfolio, undiminished demand for attractive, well-connected rental spaces as well as the positive market outlook for the Zug region, the board of directors of Zug Estates Holding Ltd decided to give the project the green light. Construction of the two buildings, at an investment cost of around CHF 85 million, will take around three-and-a-half years. Building work is due to start at the end of 2024, with leased spaces likely to be handed over to future tenants from mid-2027.

Further development of Metalli Living Space not yet finalised
An initial review by the cantonal authorities of the development plans for both the Metalli and Bergli sites was successfully concluded in the first half of 2023. The plans were to have been submitted to the Greater Municipal Council (GGR) of the City of Zug in October 2023. However, the process was halted due to the “2000 homes for Zug’s middle classes” city initiative, which was approved by voters on 18 June 2023 and requires that at least 40% of newly built residential space in all high-density areas be “affordable”.

To ensure legal certainty with regard to implementation of the initiative, the City of Zug commissioned a legal opinion, which was duly received in early December 2023. Zug Estates is in close contact with the planning department of the City of Zug in order to clarify the concrete impacts on the development plans for both the Metalli and Bergli sites. A conclusive assessment is not yet possible. However, it is clear that the financial implications are not negligible. Against this backdrop, it is not yet known whether – and if so to what extent – Zug Estates will pursue the two development plans and therefore the Metalli Living Space project.

Comprehensive sustainability reporting
Zug Estates now publishes its sustainability report on the basis of GRI Standards, in which it reports in detail on the objectives and achievements of Zug Estates right across the ESG spectrum, in tandem with the annual report. At the heart of the Zug Estates sustainability strategy is the reduction in greenhouse gas emissions from the operation and construction of properties as well as the creation and continuous development of future-proof, versatile living spaces.

With 1.1 kg per m² energy reference area (Scope 1 and 2), greenhouse gas emissions from the operation of the entire real estate portfolio remain at a very low level and are significantly below the industry average. The current reduction pathway and latest assessment of consumption figures in relation to energy and water can be found in the sustainability report, along with extended reporting in relation to Scope 3 emissions. Furthermore, the report provides information about past and current projects in the various thematic areas being targeted by Zug Estates.

Equity ratio remains solid 
Due to the purchase of further MEG Metalli shares, the equity ratio fell slightly from 55.2% to a nevertheless still very solid 54.9%. 

Interest-bearing debt, on the other hand, rose by CHF 13.8 million or 2.1%, from CHF 660.5 million to CHF 674.2 million. Interest-bearing debt as a percentage of total assets therefore amounted to 37.3% compared to 36.9% in the previous year. A total of around CHF 150 million in short-term debt was firmly secured with a medium maturity in the reporting period, resulting in a slightly extended average residual maturity of 3.5 years (prior year: 3.4 years). Higher interest rates resulted in an average interest rate for the period for interest-bearing debt of 1.5%, as against 1.3% in the prior year. 

Dividend increase and change in dividend strategy
In line with the announced gradual increase in the dividend up to a maximum of two-thirds of net operating income, the board of directors will propose to the general meeting of shareholders that the dividend be increased by 7.3%, from CHF 4.10 to CHF 4.40 per series A registered share and from CHF 41.00 to CHF 44.00 per series B registered share. 

The board of directors has decided to amend the dividend strategy in favour of a more open formulation. Zug Estates continues to endeavour to ensure a positive dividend trend. The distribution should ensure a solid, long-term financing structure in the future too and not amount to more than 90% of operating profit.

Outlook for 2024
Thanks to successful rental activity in the 2023 financial year as well as rent increases due to index and reference interest rate adjustments, we expect a significant reduction in the vacancy rate to around 1%, higher rental income and an improvement in the operating result in 2024.

In the hotel & catering segment, we expect a rise in sales due to the expanded catering offer. However, given the higher proportion of comparatively low-margin catering revenues, we expect a slight decrease in the GOP margin.

Taking into account slightly higher financing costs, we anticipate net income excluding revaluation and special effects of around CHF 35 million for the 2024 financial year.

Report on 21 February 2024
A media conference in German will be held today at 11:00 at Park Hotel Zug. Patrik Stillhart (CEO) and Mirko Käppeli (CFO) will present the 2023 results and then answer questions. The conference will be held in a hybrid format. You can also follow it in a Zoom meeting. It will be possible to ask questions online.

Please register for the conference via the link below. We look forward to seeing you either in person or virtually. https://zugestates.ch/en/stories/balance-sheet-press-conference-on-the-2023-annual-result

Downloads:

Press release (PDF)
Annual Report 2023 (PDF)
Sustainability Report 2023 (PDF)
https://zugestates.ch/en/downloads

Upcoming events:

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About Zug Estates
The Zug Estates Group conceives, develops, markets and manages properties in the Zug region. It focuses on central sites that are suitable for a wide range of uses and allow sustainable development. The real estate portfolio is comprised mainly of the two sites in Zug and Risch Rotkreuz. The Group also runs a city resort in Zug incorporating the leading business hotels Park Hotel Zug and City Garden and a comprehensive range of restaurants. The total value of the portfolio came to CHF1.83billion on 31 December 2023. Zug Estates Holding AG is listed on the SIX Swiss Exchange, Zurich (ticker symbol: ZUGN, security number: 14 805 212).

Zug Estates Holding AG | Baarerstrasse 18 | CH-6300 Zug | T +41 41 729 10 10 | www.zugestates.ch