Projects & Development division

With a profit from business activity of CHF 108.3 million for 2011, the Projects & Development division reported an outstanding result along the lines of the previous year. The result achieved in the period under review by the division´s three departments, Project Development, Realisation and Acquisition/Sales, matched the previous year´s record result.

Allreal expanded its capacities due to the good order situation and high order backlog in the year under review. The company increased its workforce by 36 to a total of 297 full-time positions. Due to the resulting additional costs, Allreal´s earnings before interest and taxes (EBIT) decreased by 5.2% to CHF 56.1 million.

The net profit of CHF 37.1 million reported for the 2011 financial year substantiates the Projects & Development division´s distinct earnings power and high profitability corresponding to a return on equity of 15.6%.

Project Development

The Project Development department, which in the period under review was well occupied with third-party projects and own projects, in connection with several projects demonstrated its ability to develop in good time practical solutions that maintain value over the long term. With an increased workforce, the department in 2011 again made an essential contribution toward the success of the entire division by developing projects ready for construction – on the one hand through additional project volume and on the other with buildings for Allreal's own portfolio or the profitable sale to third parties.

In the year under review, the Project Development department completed the remaining two projects on the Richti-Areal site in Wallisellen and transferred them to the Realisation department. The site represented a particularly complex and demanding development due to an investment volume of approximately CHF 700 million and six buildings designed by different firms of architects. Thanks to the outstanding cooperation and coordination between all departments and staff members working on this extremely important project for Allreal, the transition from development to execution of all projects succeeded smoothly.

At the beginning of 2011, the department started on a project comparable to the development of Richti Wallisellen. The project is based on a 55 000 square-metres parcel of land in Bülach which is secured until 2014 and was formerly used for industrial purposes. It is well suited for the development of 360 rental and condominium units and about 170 000 square metres suitable for offices and services. The investment volume resulting from the development amounts to about CHF 270 million. Due to existing rental agreements and rezoning of the land for residential purposes, Allreal expects construction to start no earlier than 2014 or 2015.

In September 2011, Allreal acquired a 20 000 square metre site in Zurich-Unterstrass. The Guggach-Areal is extremely well located and eminently suitable for a high-class residential development. In order to ensure a development of high quality and convincing architecture, immediately following acquisition six firms of architects were commissioned to submit a project design. The project chosen by the jury and recommended for further processing fully complies with the high requirements. While construction start of the 200 condominium apartments spread across four buildings forming a central park-like courtyard is scheduled for autumn 2012, the final date will depend on the planning permission procedure.

Allreal won two investor competitions in 2011 with projects from its own development in Romanshorn and in Lucerne. The project volume of the two projects amounts to about CHF 77 million.

The most important project developments embarked on, significantly processed or completed in the 2011 financial year include:

[RD:] regional development

[SD:] site development

[PD:] project development

[*:] third-party contracts

As at 31 December 2011, third-party and own projects processed by the Project Development department represented a consistently high potential investment volume not included in the order backlog of approximately CHF 1 billion.

Realisation

In the period under review, the completed project volume compared to the previous year significantly grew by 26.6% to CHF 743.2 million. In addition to own projects, the successful acquisition of new and conversion projects contributed toward this pleasing growth.

Of the volume processed in the 2011 financial year, own projects accounted for 41.6% and third-party contracts for 58.4%. The proportion of new construction projects of the entire project volume amounted to 79.1% while conversions and new buildings represented 20.9%.

The conversion and new construction of the Toni-Areal in Zurich-West and the new construction of the Richti-Areal Wallisellen represented the largest ongoing construction projects during the period under review.

Toward the end of 2011, six of the seven development sites of the Richti-Areal in Wallisellen – where 4 000 people will soon be living and working – were being worked on simultaneously. Construction of the last project will begin in the first quarter of 2012. The investment volume of the entire site development consisting of 229 condominiums and 200 rental apartments as well as about 3 000 workplaces amounts to about CHF 700 million. Richti Wallisellen is considered the first development in Switzerland which upon completion will comply with the goals of the 2000-watt society.

The Superblock administration building in Winterthur represents a significant third-party contract. Work on the building was started at the end of 2011. The building with an investment volume of about CHF 200 million includes 2 200 workplaces, 27 rental apartments and a day nursery. Completion of the building, which is to be used by AXA Winterthur Insurance Company and the Winterthur city council, is scheduled for autumn 2014.

A further large project is represented by the conversion of 92 UBS AG branch offices in the Zurich Metropolitan Area and in Eastern Switzerland. The project with a total volume of over CHF 90 million will extend across a period of three years. Work on the first lot was begun in April 2011. The task is exceptionally complex and demanding as operation of the branch offices has to be ensured at all times during the conversion. Moreover, strict safety regulations have to be observed. Planning and execution require a high degree of flexibility as an individual procedure has to be developed for each branch office while planning and lead times are kept at an absolute minimum. During the period under review, ten branch offices on average were being converted simultaneously.

The most important projects embarked on in the 2011 financial year include:

Projects completed and transferred to owners during the period under review include:

As at 31 December, the Realisation department worked on over 120 projects. The department was unable to reduce order backlog due to a gratifying order intake and despite additional capacities. Secured orders as at 31 December 2011 guarantee full order books for the Projects & Development division for clearly more than two years.

As capable project managers and site managers are difficult to find on the employment market, the Projects & Development division introduced an internal site manager training school and launched a trainee programme. The modular structure of the site manager training school provides practical vocational training parallel to work and allows participants to carry out the important task of a site manager in accordance with the company's needs. The trainee programme was developed with the special and specific needs of university graduates in mind. Covering several stations it offers future management employees a hands-on introduction to working life.

Acquisition/Sale of real estate

In the 2011 financial year, the sale of residential property from Allreal's own development and realisation again proved to be a reliable pillar of revenue. With 200 units sold, the department as in previous years made a substantial contribution to the division´s convincing result. Despite an increasingly large supply especially in the Greater Zurich Area, the consistently good sales figures are without a doubt due also to the fact that Allreal limits its projects to the middle and upper price segments. As at 31 December 2011, 245 residential units were up for sale.

Residential units were available in the following buildings:

The following projects were completed in 2011 after the sale of all units:

In the year under review, ownership transfer of the Bauarena Volketswil investment real estate completed in 2009 was carried out including posting of the corresponding profit following project completion.

Markthalle Basel represents another complex from own development and realisation that was successfully placed on the market and sold to an institutional investor. Transfer of the complex will be carried out following completion of construction and refurbishment work in spring 2012.

In 2011, Allreal acquired three parcels of land in the Greater Zurich Area earmarked for the development and realisation of residential property. In addition to the former industrial site in Bülach, Allreal was able to secure other attractive parcels of land in Basel, Kilchberg ZH, Mönchaltorf ZH and Zurich-Unterstrass. The land acquired or secured in the period under review represents an estimated investment volume of CHF 530 million.

The Project & Development division´s contribution toward net profit excluding revaluation effect reported for 2011 represents a share of 32.9%.