Real Estate division

Apart from a single change of ownership, the portfolio of income-producing real estate remained unchanged. The divestment of a smaller commercial building in Muttenz represented the only change of ownership in the period under review. Ownership of the building used mainly for commercial purposes and with a total floor space of 2 043 square metres was transferred on 30 March 2012. The new owner of the building, which was erected in 1987 and held by Allreal since the establishment of the company in 1999, is a private investor.

No additions to the portfolio of income-producing real estate in the 2012 financial year were registered. Owing to the fact that it is very difficult to find properties on the real estate market that fit Allreal’s investment criteria, the company prefers to expand its real estate portfolio by means of own projects. Two large, high-yield additions are expected, namely the Toni-Areal in Zurich-West and the Allianz headquarters in Wallisellen.

The portfolio of income-producing real estate on the cut-off date included 45 commercial and 19 residential properties. At CHF 39.5 million, the average market value of the 64 properties was reported slightly above that of the previous year.

Rental income for 2012 decreased slightly by 0.6% to CHF 142.1 million; the share of commercial properties amounted to 83% and that of residential properties to 17%. In the period under review, the two properties Moos-/Grütstrasse in Adliswil and Le Lumion near Geneva, which were included in the portfolio in 2011, for the first time became income-relevant for a twelve-month period, thereby setting off new vacancies registered during the period under review.

A large share of the rental agreements expiring in 2012 were extended, renewed or newly negotiated at comparable conditions. On the cut-off date, the average residual term of the fixed-term rental agreements was 6.4 years. In 2013, 9% of the rental agreements are scheduled for renewal or extension.

The cumulative vacancy rate in 2012 was 5.0%, or 0.6% above that of 2011. The increase was noticeably influenced by the vacancy of a commercial building in the city of Zurich with effect from 1 March 2012. The office building that was erected in 1992 with a floor space of 4 856 square metres is excellently located on Brandschenkestrasse. 19% of the total floor space is relegated to residential use. In the period under review, new rental agreements have been concluded for about 55% of the total commercial area (in terms of gross target rental income), which will become fully effective from spring 2013. Another success refers to the letting of a commercial building on Hohlstrasse in Zurich-Altstetten. The building with a floor space of 10 000 square metres is located in close proximity to a busy railway station. The rental agreements negotiated with two new tenants refer to the entire floor space and became income-relevant from the fourth quarter of 2012. In terms of income, 95% of the vacancies cumulated during the period under review refer to commercial buildings and 5% to residential properties. Based on the significant portfolio growth and the low number of expiring rental agreements, Allreal expects a lower vacancy rate for 2013.

Real estate expenses for the 2012 financial year amounted to CHF 19.6 million, corresponding to 13.8% of the entire income generated from income-producing real estate. Therefore, the expenses incurred in connection with the operation and maintenance of income-producing real estate and value-maintaining measures remained within a range of 13%–15%.

Net yield resulting from the rental of income-producing real estate amounted to 4.9%. This outstanding value, also by industry standards, is 0.2% below the previous year’s result and reflects the increasing pressure on yields.

Of the income resulting from the rental of commercial buildings, the 10 largest tenants generated 29.0% and the 5 largest tenants 43.4%. In 2012, the latter included IBM Schweiz AG with 8.9%, MAN Diesel & Turbo Schweiz AG with 6.6%, Canton Zurich with 5.4%, Partner Reinsurance Company Ltd. with 4.4% and Credit Suisse AG with 3.7%. In terms of rental income generated by all yield-producing properties (commercial and residential buildings), the share of the 5 largest tenants amounted to 25.9%.

In terms of the target rental income generated by all income-producing properties as at 31 December 2012, office and services usage represented 51.9% of total floor space. The following categories account for the remaining share: residential 19.0%, trade and warehousing 9.6%, sales 7.7% and parking 7.4%. The remaining usages accounted for 4.4%.

Similar to the usage mix, the geographic distribution of the 64 income-producing properties in the period under review demonstrated insignificant changes compared to the previous year. In terms of market value, the city of Zurich accounts for 53.4%, canton of Zurich 31.5% and remaining Switzerland 15.1%. Of the latter, Basel accounted for 8.1%, Geneva 4.6% and Zug 2.4%.

With the management of real estate for private owners, associations of condominium owners, pension funds and insurance companies, the Hammer Retex Group acquired by Allreal in April 2012 generated revenue of CHF 4.4 million and affecting Allreal’s income statement for the first time. The facility management company is well established in central Switzerland and the Zurich Metropolitan Area; it will initially take on the management of two income-producing properties in Allreal’s own portfolio. The number of properties in Allreal’s own portfolio managed by Hammer Retex is set to increase in the future.

The acquisition of Hammer Retex allows Allreal to geographically expand its activities into the flourishing Zug metropolitan area. Furthermore, Allreal now includes an experienced facility management company that is well established in Central Switzerland and the Zurich Metropolitan Area.

Only one addition was made to investment real estate under construction in 2012. It refers to Favrehof residential block on Richti-Areal in Wallisellen formerly disclosed as development real estate. The building with five full floors and a penthouse floor was designed by Diener & Diener Architects and comprises 118 rental units, commercial space on the ground floor and a basement car park for 116 vehicles. Construction start of the residential building with 14 000 square metres floor space began in March 2012. Completion and the connected reclassification from development real estate under construction to income-producing real estate is scheduled for mid-2014.

Thanks to the addition of the Favrehof apartment building, the portfolio of investment real estate under construction increased to a total of six, namely four residential buildings, one office building and one property with mixed usage. Two of the six buildings will be completed in the 2013 financial year and affect income. On the cut-off date, the expected rental income from all buildings listed as investment real estate under construction amounted to over CHF 43 million.

A valuation of all buildings listed as investment real estate and carried out by an external real estate evaluator as at 31 December 2012 resulted in a negative change in value before taxes of CHF 8.2 million. The portfolio of income-producing real estate was valued slightly lower by CHF 0.3 million compared to the previous year. By contrast, the portfolio of investment real estate under construction was valued lower by CHF 7.9 million. The total negative change represents 0.3% of the entire portfolio’s market value.

Changes in the period under review and valuation losses of the entire portfolio resulted in a higher market value compared to that on the cut-off date the previous year. The market value on 31 December 2012 amounted to CHF 3.16 billion, while the share of income-producing real estate amounted to CHF 2 531 million or 80.1% and that of investment real estate under construction to CHF 628 million or 19.9%.

The Real Estate division’s contribution toward net profit excluding revaluation gains reported for 2012 represents a share of 66.7%.