Convincing result for 2017 financial year
- Stable operating net profit
- Portfolio growth based on own projects and acquisitions
- Projects & Development with sound profitability in a demanding environment
- Proposal for higher profit distribution of CHF 6.25 per share
Allreal reported a very gratifying net profit excluding revaluation gains in the year under review of CHF 113.3 million. Thanks to higher rental income, the increased profitability of the Projects & Development division and lower cost of financing, the operating result is shown slightly above that of the previous year despite clearly lower earnings resulting from the sale of development real estate.
Net profit including revaluation gains for the 2017 financial year amounted to CHF 129.9 million, or 25.6% below that of the previous year which was characterised by extraordinarily high appreciation gains and the sale of development real estate.
Earnings generated by the Real Estate division and the project volume completed by the Projects & Development division resulted in an overall performance of CHF 603.4 million.
Allreal provided work for 274 employees as at 31 December 2017.
Proposal for clearly higher profit distribution
The shareholder agreement of many years was terminated on 25 April 2017, resulting in a marked increase of free float shares and, consequently, a clearly higher trading volume. Allreal’s share on 31 December 2017 closed at CHF 164.80. Compared to the reference period the previous year, this corresponds to a value increase of 8.9%. The value gain and the profit distribution of CHF 5.75 per share in April 2017 represent an overall performance for the 2017 financial year of 12.7%, which is above the average value in the real estate industry. Owing to the good result for the period under review and the stable business development expected for the coming years, the Board of Directors at the Shareholders’ Meeting scheduled for 20 April 2018 will propose a higher profit distribution of CHF 6.25 per share in the form of a nominal value reduction. Compared to the closing price on 31 December 2017 this corresponds to a cash yield of 3.8%. The pay-out is tax-free for private investors.
Real Estate division with higher rental income and historically low vacancy rate
The growth of the portfolio of Yield-producing properties experienced in the second half of 2017 and the reduction of vacancy-related earnings losses in the period under review resulted in 3.4% growth in rental income to CHF 179.2 million.
The cumulated vacancy rate decreased by 2.5 percentage points in the year under review to a very low 2.6%. Real estate expenses amounted to CHF 24.6 million corresponding to a 13.7% reduction in the expense ratio compared to the previous year. Net yield resulting from letting residential and commercial real estate amounted to a gratifying 4.3%.
On 31 December 2017, the portfolio of yield-producing properties included at total of 63 buildings, 20 residential and 43 commercial, reflecting four additions and one divestment owing to reclassification.
The valuation of all yield-producing properties carried out as at the end of 2017 by an external real estate valuer resulted in a revaluation gain of CHF 21.8 million.
The market value of the entire portfolio as at 31 December 2017 amounted to CHF 3.96 billion.
Projects & Development division with higher profitability
As expected, the earnings of CHF 66.7 million reported by the Projects & Development division for the year under review are below the comparable value the previous year, which was characterised by high profits from the sale of development real estate.
In 2017, adjustment of both project volume and workforce introduced in previous years in view of enhancing profitability resulted in a decline of operating expenses compared to the previous year by 6.6% or CHF 51.2 million.
The operating profit (EBIT) reported by Projects & Development, therefore, amounted to a gratifying CHF 20.8 million.
Several of the projects for third parties and for the own portfolio processed by the Project Development department in the year under review were transferred to the Realisation department. Project Development secured a significant project in 2017 by winning the competition held for the construction of the Basel School of Business. In a market environment characterised by high pressure on prices and margins, Project Development is increasingly gaining importance in terms of acquiring projects for the Realisation department. The projects processed by the department correspond to a potential construction volume of several hundred million francs.
In the period under review the Realisation department implemented a project volume of CHF 420.0 million. The projects are designated for Allreal’s own portfolio and for third parties. The amount is lower compared to the previous year owing to Allreal’s consistent focus on the acquisition and realisation of projects with predictable risk and existing profit potential.
The share of third-party projects in the completed project volume processed in the period under review amounted to 81.7%, while that of own projects increased to 18.3 % as expected.
The order backlog as at 31 December 2017 of about CHF 710 million will secure capacity utilisation for about one-and-a-half years..
Financial liabilities grew by 19.5% to CHF 1.9 billion owing, especially, to the acquisition of four commercial properties during the fourth quarter 2017. By issuing a 0.875% bond worth CHF 160 million with maturity in 2027 plus a 0.75% bond worth CHF 150 million with maturity in 2026, about 50% of financial liabilities on the cut-off date were refinanced via the capital market, as desired.
On the cut-off date, the average interest rate for debt amounted to 1.53%, while the average fixed-interest duration was 49 months. Credit facilities available short-term of some CHF 544 million ensure consistently high scope for financial action.
In a multi-year comparison the operating tax expenses in the period under review amounted to CHF 24.9 million corresponding to a slightly below-average tax rate of 18.0%.
The Group’s equity increased by CHF 63.9 million in the period under review to CHF 2.15 billion corresponding to a net asset value (NAV) per share of CHF 135.15.
As at 31 December 2017, Allreal’s equity ratio was reported at 49.3%, net gearing at 87.2%, and the interest coverage ratio at 6.0.
A solid platform for continued successful business development
Higher rental income and the positive order situation in Projects & Development will ensure continuation of the stable business development.
Consequently, the company expects operating net profit for the 2018 financial year to be reported slightly above that of the period under review.
The trust and support of the shareholders and the commitment of our employees are and remain indispensable building blocks for the company’s success. The Board of Directors and Group Management express their gratitude for the contribution toward the outstanding result.