Real Estate division

In 2011, the portfolio of income-producing real estate registered two additions – both with an attractive income potential. The Moos-/Grütstrasse residential complex in Adliswil near Zurich became income-relevant from the date of its transfer on 1 June 2011. The complex comprises twelve residential blocks built in accordance with the Minergie standard in the Dietlimoos development area. Of the total of 209 residential units, Allreal acquired 137 rental units and two studios and transferred them to its real estate portfolio. The annual target rental income of the new addition, which was fully let immediately following completion, amounts to CHF 3.8 million.

The targeted expansion of the portfolio in western Switzerland was successfully continued with the acquisition of a four-storey commercial building near Geneva-Cointrin Airport that became income-relevant from 1 July 2011. Le Lumion was completed seven years ago and is located on Route François-Peyrot in Le Grand-Saconnex, a Geneva suburb. The building with a useful area of 5 500 square metres is almost fully let. The annual target rental income amounts to CHF 3.6 million.

In the year under review, an older residential building in Zurich and a smaller commercial building in Basel were divested within the parameters of ongoing portfolio optimisation. Income resulting from the sale of the two properties of approximately CHF 10 million was 8% above the estimated market value.

The residential building on Bächlerstrasse in Zurich-Affoltern was divested with effect from 1 May 2011. The residential complex, which was completed in 1954 and joined Allreal’s portfolio in 2002, comprises a total of 24 rental units with an annual target rental income of CHF 0.4 million.

The second divestment refers to an approximately 30-year-old commercial building located on Clarastrasse in Basel. The sale of the building acquired in 1999 and with a useful area of 1 289 square metres became effective on 15 July 2011. The annual target rental income resulting from letting office, commercial and residential space amounted to CHF 0.3 million.

Allreal’s portfolio of income-producing real estate remained numerically unchanged with acquisitions and divestments balancing each other. On the cut-off date, the portfolio included 46 commercial and 19 residential buildings. The average market value per income-producing property amounted to CHF 39 million, clearly above the comparable value the previous year.

In the period under review, rental income grew by 2.7% to CHF 142.9 million compared to the previous year. The growth reflects the planned ongoing expansion of the portfolio, the connected growth of rentable space, and lower income losses resulting from vacancies. Of the total rental income in 2011, the share of commercial properties amounted to 84% and that of residential properties to 16%.

In terms of target rental income, approximately 5% of the fixed-term rental agreements in the 2011 financial year were due for extension or renewal. In general, the conditions remained unchanged or improved slightly. On the cut-off date, the average residual term of the fixed-term rental agreements was 5.6 years. This outstanding value, also by industry standards, documents both the good calculability of the existing rental agreements and the low risk of revenue loss. In the 2012 financial year, 4.4% of the fixed-term rental agreements are scheduled for renewal.

The vacancy rate in the year under review fell by 0.4% to 4.4%, representing yet another decline compared to the already low 4.8% reported for 2010. In terms of revenue, the vacancy rate of the commercial properties amounted to 4.6% and that of residential properties 3.7%. This gratifying development was favoured by the good results achieved in re-letting and the acquisition of fully let buildings. Of the entire vacancy rate registered on the cut-off date, 48.7% related to two buildings, namely Weststrasse in Zurich and a residential and commercial complex in the centre of Wallisellen.

In 2011, a total of CHF 19.0 million was invested in the operation and maintenance of income-producing real estate including value-maintaining measures, representing 13.3% of rental income. Real estate expenses thus remained within the targeted long-term average of 13% to 15%.

Thanks to a consistently high net yield of 5.1%, the real estate portfolio comprising 65 income-producing properties again represented a convincing element of Allreal’s strategy.

In 2011, as in the previous year, the largest tenants of commercial real estate in terms of gross rental income were IBM Switzerland Ltd. (8.5%), MAN Diesel & Turbo Switzerland Ltd. (6.4%), Canton Zurich (5.2%), Partner Reinsurance Company Ltd. (4.3%) and Credit Suisse Ltd. (3.7%). In terms of earnings from all commercial buildings in Allreal’s portfolio, the share of the five largest tenants was 28.1% and of the ten largest tenants 43.3%.

The mixture of uses of the income-producing properties in terms of target rental income again remained stable in 2011, experiencing only marginal changes compared to the previous year. The share on the cut-off date of office and services represented 53%, residential 19%, trade and warehousing 10%, sales 8%, and parking 7%. Other usage represented 3%.

In terms of the market value as at 31 December 2011, of the 65 income-producing properties 53.1% were located in the City of Zurich, 31.6% in Canton of Zurich and 15.3% outside Canton of Zurich. Of the latter, 8.3% were located in Basel, 4.6% in Geneva and 2.4% in Zug.

Real estate under construction reported four additions and one divestment for the year under review. In terms of market value, this resulted in a significant portfolio growth of CHF 246.0 million to a total of CHF 421.8 million. The additions, which comprise a residential complex comprising 53 rental units in Gland, Canton Vaud, an office complex in the Richti Areal in Wallisellen rented by Allianz Suisse, the Escher-Terrassen residential high-rise with 61 rental units in Zurich-West and a building with 40 rental units in Neu-Oerlikon, will be transferred to the portfolio of income-producing real estate following completion in 2013 and in the first half of 2014 respectively. The only divestment refers to the Moos-/Grütstrasse residential complex in Adliswil, which was transferred to the portfolio of income-producing properties in mid-2011. Including the Toni-Areal reported in previous years, the portfolio on the cut-off date comprised five buildings under construction with an expected target rental income upon completion of CHF 45.8 million in total. With the exception of the residential complex in Gland, investment real estate under construction only includes projects developed and realised by Allreal as a general contractor.

A valuation of investment real estate as at 31 December 2011 resulted in a clear valuation gain before tax of CHF 44.7 million, or 1.5% of the entire portfolio’s market value. Of the upward valuation, the portfolio of income-producing properties represents CHF 29.3 million and that of investment real estate under construction CHF 15.4 million. While the higher valuation of the investment real estate carried out by external valuation experts reflects an increased pressure on earnings, it also confirms the portfolio’s high quality and earnings power.

As a result of changes in the portfolio and the valuation gains, the value of the entire portfolio on the cut-off date compared to the previous year grew by 12.7% to CHF 2 951 million.

The Real Estate division’s contribution toward net profit excluding revaluation effect reported for 2011 represents a share of 67.1%.