Real Estate division

In 2015, earnings from the rental of yield-producing properties increased significantly by 9.9% to CHF 174.9 million (2014: CHF 159.2 million). This considerable rise reflects the strong portfolio growth of the previous year. Properties transferred to the portfolio in 2014 and, for the first time, income relevant for the entire reporting period include the Eikenøtt residential complex in Gland VD comprising 65 rental apartments and Favrehof in Wallisellen ZH with 118 rental apartments, Toni-Areal in Zurich-West with 100 rental apartments plus 87 000 square metres floor space, Richtiring office building in Wallisellen with 25 525 square metres floor space, Lilienthal office building in Opfikon ZH with 13 414 square metres floor space and Herostrasse office building in Zurich Altstetten with 11 256 square metres floor space.

Of the total rental income for the 2015 financial year, 18.0% derived from residential properties and 82% from commercial properties (2014: 17.5%/82.5%).

Only slight changes compared to 2014 were observed in terms of usage categories during the period under review. The rounded share of Office/Services amounted to 57%, Residential to 20%, Trade/Warehousing to 7%, Parking to 7%, Sales to 6% and Remaining to 3%.

The average duration of fixed term rental agreements for commercial real estate was 7.4 years (2014: 8.7 years). On the cut-off date, the share of contracts to be renewed in the following year represented a low 2.8% (2014: 4.1%).

Of the total earnings from letting commercial real estate amounting to CHF 143.4 million, the ten largest tenants contributed a share of 59.9% (2014: 51.1%) and the five largest tenants a share of 45.6% (2014: 42.4%).

In a market environment characterised by vacancies and oversupply, the initial and follow-up letting of commercial space and of higher-priced residential units proved to be extremely demanding. Nevertheless, in the period under review, Allreal was able to lower the cumulated vacancy rate by 0.4 percentage points to 7.5% of target rental earnings.

In 2015, numerous fixed-term rental agreements representing a total of 25 000 square metres were concluded or extended. Moreover, in the period under review, the initial vacancies in the Escher-Terrassen and Toni-Areal residential complexes in Zurich-West were reduced. Although the rents in both complexes are higher than average, on the cut-off date about 90% of the apartments were let. This was achieved by both structural measures and an adjustment of rents to the market level.

The four largest vacancies represented a share of 40.7% of the cumulative vacancy rate include the Lilienthal office building in Opfikon ZH (12.2%), the Herostrasse office building in Zurich Altstetten (10.4%), the office building on Bellerivestrasse 30 in Zurich Riesbach (10.2%) and the ground-level commercial space in the Richti complex in Wallisellen ZH (7.9%).

Real-estate expenses in the period under review amounted to CHF 31.8 million (2014: CHF 25.1 million), or 18.2% of rental income (2014: 15.8%). The rise is the result of modernisation of yield-producing properties and sometimes costly adjustments to the needs of users in view of successful continued letting or re-letting. Two fully occupied office buildings on Hardstrasse in Zurich-West and on Kalchbühlstrasse in Zurich Wollishofen represent the properties with the highest refurbishment and restoration expenses.

Net yield derived from the rental of residential and commercial space in 2015 amounted to 4.2%, or 0.3 percentage points below that of the previous year.

Hammer Retex generated earnings of CHF 6.1 million (2014: CHF 6.6 million) with the management, operation and marketing of commercial and residential real estate. In terms of market value, the share of Allreal properties managed by Hammer Retex in the period under review rose from 36% to 40%, which resulted in lower fees.

Allreal divested three yield-producing properties in 2015 producing a significant profit of CHF 21.1 million. The three properties fetched prices above the balance-sheet market value. They include the Im Lindenhof residential building in Effretikon ZH comprising 26 rental units (effective 1 March 2015), Eggbühlstrasse 21–25 office building in Zurich Oerlikon with 20 175 square metres of useful space (effective 1 April 2015) and Oberdorfstrasse 9–13 office building in Baar ZG with 6 572 square metres of useful space (effective 1 October 2015).

With effect from 30 September 2015, the Sonnentalstrasse 8 commercial building in Dübendorf ZH joined the portfolio of yield-producing properties. The building with 26 006 square metres of useful space is fully let under a rental agreement with at least five years duration. Annual target rental income amounts to CHF 2.5 million. The property is located in the Hochbord quarter in close proximity to Stettbach railway station. Within the parameters of revision of the usage zoning ordinance, the property, which currently is located in an exclusively commercial zone, is to be assigned to the central business district. Following rezoning, residential usage will be permitted in addition to commercial usage. The property consequently enjoys significant long-term development potential.

On the cut-off date, the portfolio of yield-producing properties comprised 19 residential and 43 commercial buildings (2014: 20/44).

Following the addition of one project from Allreal’s own development, the inventory of investment real estate under construction grew by two buildings at an investment volume of CHF 96 million, a cumulated market value of CHF 49.9 million and an annual target rental-income volume of CHF 6.0 million.

The building, which was transferred with effect from 30 June 2015, is located on Schiffbauplatz in Zurich-West and represents a six-storey office building under construction with 13 143 square metres of useful space.

Valuation by an external assessor of the 64 investment properties – 62 yield-producing properties and 2 properties under construction – resulted in a positive value adjustment before tax of CHF 15.8 million (2014: CHF –5.9 million).

In the portfolio of yield-producing properties, the residential properties were positively revalued by CHF 32.1 million (2014: CHF 23.0 million). In contrast, the commercial properties were negatively revalued by CHF 30.1 million (2014: CHF –28.2 million). The portfolio of investment real estate under construction was positively revalued by CHF 13.8 million (2014: CHF –0.7 million).

When taking into consideration inventory changes in the portfolio and assessment-related value adjustments, the total value of the portfolio as at 31 December 2015 amounted to CHF 3.53 billion (31.12.2014: CHF 3.51 billion). Of this amount, CHF 3 457.3 million, or 98.6%, apply to yield-producing properties and CHF 49.9 million, or 1.4%, to investment real estate under construction.

As at 31 December 2015, the share of residential properties in the portfolio of yield-producing properties amounted to CHF 719.6 million, or 20.7%, and that of commercial properties amounted to CHF 2 755.7 million, or 79.3%.

The geographic distribution of the portfolio of yield-producing properties has changed only marginally in terms of market value. As at 31 December 2015, the share of the City of Zurich was 52.1% (2014: 53.5%), of remaining Canton of Zurich 36.6% (2014: 34.6%), of the two Basel cantons 6.3% (2014: 6.1%), Cantons of Geneva and Vaud 3.8% (2014: 3.9%) and the Zug region 1.2% (2013: 1.9%).

In 2015, the Real Estate division’s contribution toward net profit excluding revaluation effect represented a share of 87.5%.

Charts Real Estate division

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