- Stable rental income and gratifying net yield
- Continued increase in project volume
- Favourable financing
- Confirmation of expectations for entire financial year
In the first half of 2013, net profit excluding revaluation effect amounting to CHF 55.5 million was 11.7% higher compared to the comparable period the previous year. Higher rental income and lower finance expenses contributed toward this gratifying financial result.
Net profit including revaluation effect for the period under review amounted to CHF 59.2 million. Despite improved operating results, the item is reported lower than the comparable period in 2012 as revaluation gains were lower.
In the period under review, earnings from rental of yield-producing properties and from property management grew as did the project volume handled by the Projects & Development division. Total operating performance in the first half-year grew by 26.8% to CHF 612.4 million.
In a volatile market, Allreal’s share is considered defensive and stood its ground well. On the cut-off date, the share closed at CHF 132.80, or 5.9% below the 2012 year-end price. When taking into consideration profit distribution of CHF 5.50 per share, overall performance for the first half of 2013 was –2%, confirming the stability of the share with low price fluctuations and high earning power.
Real Estate division
Rental income grew by 1.4 % to CHF 72.8 million in the first half of 2013 due to a lower loss in earnings related to vacancies and the extension of the portfolio of yield-producing properties.
The vacancy rate during the period under review remained at a low 4.9%. A rise in vacancy rates is expected for office space as re-letting vacant space is proving increasingly demanding.
In the period under review, direct expenses related to letting of yield-producing properties amounted to 13.2%. The item includes initial expenses incurred by the comprehensive refurbishment of a residential building in Bülach. The building with 49 apartments was erected in 1979 and acquired by Allreal in 1999.
In the first half of 2013, rental of the portfolio, which comprises residential and commercial buildings, resulted in a consistently high respectable net yield of 4.9 %.
Earnings of CHF 3.6 million resulting from the acquisition of the Hammer Retex Group in 2012 are shown for the first time in the balance sheet as fully income-relevant. Thanks to the integration of the company’s administration into Allreal’s structures, Hammer Retex is taking on the administration of own properties according to schedule.
In the period under review, two investment properties under construction were transferred to the portfolio of yield-producing properties. The one property is a residential building located on Neunbrunnenstrasse in Zurich-Oerlikon (with effect from 1 April 2013) and the other a commercial building at Richti-Areal in Wallisellen let to Allianz (with effect from 1 June 2013). Both properties will become fully income-relevant in the second half of 2013. Three properties in the portfolio of yield-producing properties were sold in the period under review: two older residential buildings located at Zürcherstrasse in Schlieren (with effect from 28 June 2013) and a commercial building located at Kronenstrasse in Dielsdorf (with effect from 1 April 2013). The sale of the two properties resulted in a profit of CHF 0.7 million, or 4% above market value.
The office building under construction since October 2012 at Lilienthal Boulevard in Opfikon was transferred to the portfolio of investment real estate under construction. Rental agreements have been signed before construction start for about half of the entire 13 100 square metres of floor space.
On the cut-off date, the portfolio of investment real estate comprised a total of 68 properties: 18 residential and 45 commercial buildings, and 5 investment properties under construction.
The valuation of Allreal’s investment real estate as carried out by an external real estate valuation expert resulted in a positive correction of CHF 5.2 million. While appreciation and depreciation of yield-producing properties balanced out, construction progress of investment real estate under construction accounted for CHF 9.2 million. In the period under review, accounting standard IFRS 13 (which entered into force on 1 January 2013) requiring valuation in accordance with the concept of highest and best use was applied in valuing the portfolio for the first time. The resulting effects produced a higher valuation of yield-producing properties amounting to CHF 19 million in total.
As a result of acquisitions and disposals and the revaluation gains, investment real estate on the cut-off date was valued at CHF 3 353.8 million, 6% above the value reported on 31 December 2012. Yield-producing properties represent CHF 2 784.4 million (83%) and investment real estate under construction CHF 569.4 million (17%).
In the period under review, operating result excluding revaluation gains (EBIT) amounted to CHF 63.1 million (1st half-year 2012: CHF 60.4 million).
The Real Estate division’s contribution toward the Group’s operating result reported for the first half of 2013 represents a share of 73.1% (1st half-year 2012: 71.5%).
Projects & Development division
The Projects & Development division’s result from business activity of CHF 54.3 million for the period under review corresponds to an increase of CHF 1.1 million when compared to the first half of the previous year.
The 2013 first half operating result is reported at CHF 21.0 million and, therefore, insignificantly below that of the previous year of CHF 23.7 million. Initial profit contributions from the sale of residential property in Wallisellen, which compensated for the higher operating expenses connected with the acquisition of the Hammer Retex Group, and related larger workforce represented a welcome contribution toward the gratifying result.
On the cut-off date, the division employed 405 members of staff, or 375 full-time positions (31.12. 2012: 409 staff/378 full-time positions).
During the period under review, the Projects & Development division worked at high capacity and handled a consistently high potential project volume of over CHF 1 billion consisting of third-party and own projects. The development of projects for large sites and individual properties made a substantial contribution toward the division’s good level of capacity utilisation and continued portfolio expansion. The most significant projects worked on in the first half-year included the Escher-Wyss-Areal in Zurich, Bülachguss in Bülach, a site suitable for residential development in Dielsdorf, and the Grünhof site located in District 4 in Zurich. Moreover, were advanced several residential freehold projects in Zurich and Basel.
The project volume implemented by the Realisation department in the first six months of 2013 grew significantly to CHF 536.0 million, representing an increase of 30.8% over the comparable period the previous year. In the medium term, the volume of completed projects will probably decline due to the completion of several large projects by mid 2014, which will help defuse the current staff squeeze.
Toni-Areal in Zurich-West was the largest and most complex individual project under construction in the period under review. While the 100 rental apartments will be ready for occupation by April 2014, the two universities open their doors to students in summer 2014.
Raymond Cron was appointed Head of the Realisation department with effect from 1 August 2013. He succeeds Bruno Bettoni, who managed the division on an ad interim basis.
Of the completed project volume, third-party contracts account for 54.9% and own projects 45.1% (1st half-year 2012: 57.5% /42.5%), while newly constructed projects make up 87% and refurbishments and conversions 13% (1st half-year 2012: 89% /11%).
Secured order backlog on the cut-off date amounted to CHF 1.7 billion (31.12.2012: CHF 1.7 billion).
In the first half of 2013, 162 residential units from Allreal’s own development and implementation were sold, representing an increase of 60 units compared to the first half of 2012. Three projects were well received in the market place, namely the Konradhof and Escherhof buildings that form part of the Richti-Areal in Wallisellen and the Guggach project in Zurich-Unterstrass. The value of development property sold in the first half-year of 2013 amounted to CHF 97.1 million. As at 30 June 2013, eight projects comprising a total of 288 freehold apartments were available for sale.
The Project & Development division’s contribution toward the Group’s operating result reported for the first half of 2013 represents a share of 26.9% (1st half-year 2013: 28.5%).
Advantageous financing
The average interest rate for financial liabilities on the cut-off date amounted to a low 1.96% with an average lock-in period of 43 months (31.12.2012:2.13%/54 months) due to the short-term refinancing of new borrowings in an environment of historically low interest rates and by opting not to engage in interest-rate hedging in the period under review. Hedging of the current short-term interest-bearing debt for a longer period of time is foreseeable in the second half-year.
Credit lines of CHF 467 million available on the cut-off date and borrowing capacity amounting to a total of CHF 1.1 billion ensure that ongoing projects will remain financed and, moreover, advantage can be taken of short-term investment opportunities.
Compared to the cut-off date the previous year, Allreal’s market capitalisation declined by 6% to CHF 2.11 billion. Equity share on the cut-off date was 45.8% with net gearing of 89.6% (31.12.2012: 48.6%/80.6%).
Confirmation of expectations for the entire financial year
Thanks to its proven combination of a stable-income real estate portfolio with general contractor operations, Allreal is well positioned in an economic environment characterised by insecurity. Moreover, the continued growth of its real estate portfolio by means of own projects, the high order backlog of the Projects & Development division and advantageous financing represent a sound basis for the successful continuation of operations. Consequently, the Board of Directors and Group Management are confident that the company will successfully cope with the challenges it may meet.
Allreal expects business development in the second half of 2013 to remain stable and operating results for the entire financial year above the level reported the previous year.
The Board of Directors and Group Management wish to take this opportunity to thank all staff members for their contribution to the half-year results and our shareholders for their trust and support.
