Projects & Development division

Earnings from business activity achieved by the Projects & Development division in the period under review by means of project development, realisation and sale of residential property amounted to CHF 110.7 million. The result is 4.4% below that of the previous year, proving the division’s good earning power. Profits earned from the sale of residential property deriving from the division’s own development and realisation made a decisive contribution to the result. They practically balanced out the significantly lower profits and fees obtained from contract awarding to sub-contractors.

Operating expenses continued to rise by 5.7% to CHF 68.8 million (2012: CHF 64.5 million) mainly owing to considerable growth in personnel expenses compared to 2012 as a result of the high order volume. Consequently, earnings before interest and taxes (EBIT) fell by 16.5% to CHF 45.2 million (2012: CHF 54.7 million). The division therefore earned an operating margin (EBIT as percentage of earnings from business activity) in the period under review of 40.8 (2012: 47.2%). Despite clearly higher expenses, net profit reported by the division for the period under review amounted to CHF 29 million (2012: CHF 36.7 million), corresponding to a respectable return on equity of 12.5% (2012: 13.2%).

Project development

In the period under review, the Projects department handled a consistently high potential order volume of about CHF 1 billion for both third parties and own projects. Thanks to many years of experience and profound knowledge of all relevant processes, the Project Development department is capable of covering the entire range starting with the idea and comprehensive analysis to a project that is ready for construction and with long-term cost-effectiveness. The department thus makes a substantial contribution to the success of the entire division and the group as a whole.

On land measuring some 55 000 square metres in the vicinity of the railway station in Bülach (canton Zurich), Allreal is planning to realise a mixed-usage project consisting of more than 450 rental apartments and condominiums and office and commercial space with a total investment volume of about CHF 260 million. The land known as Bülachguss was secured by Allreal in 2010 and represents a part of the formerly industrially used Bülach Nord development area. Following implementation of an urban-planning competition based on the communal zoning plan, Allreal in the period under review commissioned renowned firms of architects to develop feasibility studies for eight building lots defined in the urban-planning concept. The continued development of the design projects depends on a legally binding adoption of the communal zoning plan. Should the zoning plan be adopted by the middle of 2014, as expected, the project will be developed to the building application level allowing for ground-breaking in 2015.

A further significant project design refers to Neuwisen-Areal in Dielsdorf (canton Zurich). In 2013, Allreal implemented an explorative planning study with five teams of architects for the 46 000 square-metre property in the vicinity of the railway station. Two projects have been selected for continued in-depth advancement to be completed by the end of February 2014. The winning project will serve as a basis to amend the building and zoning plan currently in force. This is a precondition to ensure that residential use will be possible on the land currently zoned for industrial use. It is intended to develop several buildings comprising about 200 rental apartments and condominiums and a smaller share of commercial space. Capital expenditure for the project will exceed CHF 200 million. Should the planned re-zoning be completed by the end of 2016, construction could start in 2018 or 2019.

In spring of 2014, the Zurich Opera House will move into newly constructed rehearsal facilities included in the new Escher-Terrassen building on Hardturmstrasse in Zurich-West. The land on which the former rehearsal stage was located on nearby Hardstrasse permits planning of a larger perimeter. It is intended to develop an office building there with ground-floor usage geared to the general public. The research study for the new development with an intended useful area of about 15 000 square metres and connected re-design of the Schiffbauplatz was initiated at the end of the year under review.

Other important projects commenced in the 2013 financial year, or significantly progressed or completed, include:

[GE]:Area development

[AE]:Site development

[PE]:Project development

[*]:on behalf of third party

Realisation

The project volume concerning own and third-party projects processed in the period under review amounts to a record-high CHF 1.09 billion or 15.7% above that of 2012. Due to numerous projects completed in 2013 or to be completed in due course, the project volume will decrease in the short to medium term. Moreover, the Realisation department, which is managed by Raymond Cron since August 2013, will in the future limit itself even more consequently to projects with intact profit expectations and continuously optimise both customer orientation and project handling.

Of the entire project volume handled in the 2013 financial year, 57.1% relate to third-party projects, 19.6% to own projects, and 23.3% to projects designated for the sale of residential property from own development. New buildings represented 85.8% and refurbishments accounted for 14.2%.

In the 2013 financial year, the Realisation department worked on more than 140 new and refurbishment projects. Many of the ongoing construction projects proceeded according to schedule and in compliance with deadlines and budgets. However, for various reasons, estimated profits were not achieved to the desired extent in all projects.

Secured orders on the cut-off date of CHF 1.4 billion guarantee full utilisation of the department’s available capacity for about 18 months.

At an investment volume of about CHF 550 million, Toni-Areal in Zurich-West was the largest and most demanding individual project processed in the period under review. Following completion of conversion work and new construction, the building represents 92 000 square metres of usable space. The largest tenants are the Zurich University of the Arts and the Zurich University of Applied Sciences (75 000 square metres). Rental apartments account for some 13 500 square metres of floor space in the newly constructed high-rise building. Considering that delays in realisation occurred in the past, every available capacity was focused on the project in the year under review. In order to meet the deadlines agreed upon with the canton of Zurich, at times more than 1 000 tradesmen worked at the same time on the project covering 24 435 square metres. On the cut-off date rental agreements were signed for more than half of the apartments which will be available from April 2014. In the summer of 2014, the two universities and their approximately 5 000 students, lecturers and staff will move into the building and the 1 400 facilities specifically equipped to meet their needs. The 20-year rental agreement concluded with canton Zurich will come into force on 1 July 2014. On this date, the building will be reclassified from the portfolio of investment real estate under construction to the portfolio of income-producing real estate.

In May 2013, Allreal began with construction work on the Freilagerareal in Zurich Albisrieden covering some 70 500 square metres. The project is the largest ever third-party contract implemented by Allreal. Total investment of the residential complex owned by Zürcher Freilager AG will amount to about CHF 500 million. The project includes 800 rental apartments, 200 rooms used as a student residence as well as commercial space for trade and commerce. The complex complies with the requirements of the 2000-watt society. A period of three years is scheduled for implementation of the project, and the complex will be handed over to its owners in 2016.

In the period under review, Allreal refurbished a three-storey department store building in the city centre of Zug with floor space of nearly 6 000 square metres and operated by the Coop Group of retail stores. The construction sum amounted to over CHF 20 million, and construction work began on 3 January 2013 while the store’s day-to-day business continued. The department store remained closed for construction work from April to end October but reopened on schedule in November in time for Christmas business. Following finishing work, the building was handed over to the owners in mid-December 2013.

The most important projects initiated in the year under review in addition to those described above include:

[*]on behalf of third party

Projects completed in the period under review and handed over to the owners include amongst others:

[*]on behalf of third party

Sale of residential property

In the year under review, Allreal sold 256 condominiums from own development and production again with exceptional success. The profit generated from the sale of residential ownership made a significant contribution to the good financial result reported by the division for 2013.

With the sale of the last condominium, three projects were completed in the 2013 financial year: the Aublickweg residential complex in Au-Wädenswil, the Schinebüel residential complex in Birmenstorf AG and the Konradhof apartment building located on the Richti-Areal in Wallisellen.

The sale of the condominiums in Wallisellen and in Zurich was especially successful thanks to a generally positive demand, particularly for condominiums in the medium price segment.

Allreal started construction on the Guggach residential complex in Zurich Unterstrass at the beginning of June 2013. The project comprises 197 condominiums spread across 4 buildings with 7 to 8 floors and complying with the Minergie standard. The outstanding success of the sale of the condominiums started at the beginning of 2013 and underlines the continuing good demand for affordable residential ownership in an urban environment. Of the condominiums ready for hand-over at the end of 2015 and beginning of 2016, 102 units were sold at the end of the period under review.

The sale of elaborately equipped condominiums in a higher price bracket in Erlenbach ZH, Kilchberg ZH and Meilen ZH was more demanding as supply exceeds demand in the higher and upper price segment. In the case of the Holengasse project located in Meilen ZH, Allreal reacted with a significant price reduction on the unsold units. As a result, the sale of several units will come into effect in 2014.

As 31 December 2013, the following 204 residential units were for sale (31.12.2012: 218):

Owing to the low number of units for sale, the sale of condominiums in 2014 will be below that of the period under review.

In 2013, the Project & Development division’s contribution toward net profit excluding