Formed as of January 1, 2008, the HOCHTIEF Real Estate division combines our real estate and real estate portfolio activities. It comprises the companies HOCHTIEF Projektentwicklung, aurelis Real Estate and HOCHTIEF Property Management. The division's capabilities are focused on the entire real estate life cycle, from development and construction to marketing and management. This integrated approach allows us to create lasting synergies.
One of the priorities in the reporting year was expansion of the care segment. 2008 saw the start of construction on several care projects in Germany. Our real estate development subsidiary launched a long-term collaboration with partner BeneVit, an operator of care facilities driven by innovative residential and support concepts.
HOCHTIEF Projektentwicklung expanded internationally too. At the beginning of 2008, it established its seventh
In Düsseldorf, HOCHTIEF Projektentwicklung is building the Four Elements office building. Over 70 percent of the 14,700-square-meter property (gross floor space) has been pre-leased; the tenants include a law firm. The final investor is Rheinische Versorgungskassen.
In Munich, construction began in 2008 on the Altezza, an office property with a total of 22,000 square meters of gross floor space. The property was purchased in 2007 by ING Real Estate for an office property fund. More than 50 percent of the property has been pre-leased to BT Germany. In addition, a lease agreement was signed with Deutsche Apotheker- und Ärztebank at the end of the year. The project is therefore already sold and 77 percent pre-leased prior to completion.
In Essen, building work began in 2008 on the Rüttenscheider Tor, an office development with almost 9,800 square meters of gross floor space. Even before the start of construction, 62 percent of the office space had been leased to renowned law firms.
We also notched up international success in this segment: HOCHTIEF Development Schweiz, formed in 2007, is realizing its first project with the Portikon in Zurich: The sevenstory office and business building comprises 19,500 square meters of gross floor space. Thirty-eight percent of the space is already leased to Baxter Healthcare SA.
Development work is underway on the so-called Quartier 21 in Hamburg-Barmbek where a modern, multi-generational district is taking shape over an area of 14 hectares. The Quartier 21 project company"a consortium including HOCHTIEF Projektentwicklung and a partner – has leased the first building with 2,800 square meters of rentable space to the Women's Medical Center.
In Duisburg, our subsidiary sold an area of approximately 85,000 square meters at the former Hohenbudberg marshaling yard to Hafen Duisburg Rheinhausen GmbH. A logistics center is to be developed on the site.
In Munich-Freimann, roughly 108,000 square meters of land were sold to a major corporation. In the district of Pasing, aurelis also sold around 50,000 square meters on Paul-Gerhardt-Allee for commercial use. Plus, as part of the Am Hirschgarten quarter in the Munich district of Neuhausen- Nymphenburg, we sold around 18,000 square meters of residential lots to various property developers.
aurelis develops the land together with local authorities and supports the process until development rights have been secured and the land is ready for construction. The company responds to urban development requirements and supports the trend toward living in the city with modern urban districts, including the Europaviertel in Frankfurt, the Am Hirschgarten quarter in Munich and Le Quartier Central in Düsseldorf. Aspects of sustainable urban development are taken into account: Real estate revitalization, for example, helps reduce land consumption and integrate existing infrastructure.
In the area of refurbishment, aurelis is currently active in Freiburg: Around ten million euros is being invested in the revitalization of the former customs office building at the north freight yard. Phase one with 5,900 square meters will be completed in the first quarter of 2009, and 78 percent of it has already been leased over periods of ten and 15 years. Leasing of phase two with a further 2,400 square meters begins in spring 2009.
In 2008, HOCHTIEF Property Management enhanced its service portfolio with an Asset Management Services unit. Here we assist our clients in identifying opportunities to increase the value of property portfolios and individual assets. To this end, we prepare asset analyses and asset strategies.
There are also synergies with aurelis Real Estate: In a competitive tendering process, HOCHTIEF Property Management won the contract to provide nationwide management of roughly 24 million square meters of land and almost two million square meters of building space belonging to the company. Starting in January 2009, the three-year contract covers commercial property management for around 4,500 leases with an annual volume of around EUR 100 million. Also included are coordination of facility management providers as well as space and building management for over 2,000 buildings and structures. Therefore, in terms of space, HOCHTIEF has advanced to become Germany"s biggest independent property manager.
Staff was similarly transferred to HOCHTIEF under another contract: Forty-three staff of Deka Immobilien are now part of HOCHTIEF. Together with them, we will manage around 75 percent of Deka Immobilien's real estate in Germany for an initial period of five years, assuming commercial and technical management for the properties of funds set up by Deka Immobilien Investment and Westinvest.
In the reporting year, the first step was taken toward developing the shopping center segment. The scope of an existing property management contract for Shaftesbury Asset Management was broadened: HOCHTIEF has also been responsible for center management for two shopping centers in the Shaftesbury portfolio since 2009.
At more than EUR 800 million, work done was up by 56 percent to a very high level. At HOCHTIEF Projektentwicklung, work done increased as a result of the many projects currently being carried out, while at HOCHTIEF Property Management, it grew as the company performed the management contracts it received in 2007 and 2008. This high level of work done pushed the order backlog down to EUR 705.3 million in the year under review. On a similar scale to work done, external sales rose by EUR 310.7 million to EUR 791.1 million.
Operating earnings climbed 30 percent year on year to EUR 81.7 million, mainly because of the growth in earnings on HOCHTIEF Projektentwicklung's international projects. Profit before taxes, on the other hand, was slightly down on the prior-year figure, as net investment and interest income fell by EUR 22.4 million. This was due to the higher volume of financing for the development projects currently in progress and because the financing used to acquire shares in aurelis at the end of 2007 was for the first time included for the full fiscal year.
Capital expenditure changed only slightly compared with the previous year and in 2008 consisted mostly of expenditure on financial assets for affiliated companies.
RONA – the Group's main measure of value creation – failed to match the high prior-year figure of 12.7 percent due to the increase in net assets. This was due, in turn, to the interest in aurelis for the first time being included for the full fiscal year and to the larger volume of projects at HOCHTIEF Projektentwicklung.
| (EUR million) | 2008 | 2007 |
|---|---|---|
| New orders | 618.2 | 965.0 |
| Work done | 813.9 | 521.0 |
| Order backlog | 705.3 | 1,042.0 |
| Divisional sales | 811.6 | 493.5 |
| External sales | 791.1 | 480.4 |
| Operating earnings (EBITA) | 81.7 | 63.0 |
| Profit before taxes | 54.2 | 58.6 |
| Capital expenditure | 11.1 | 12.6 |
| RONA (%) | 10.2 | 12.7 |
| Net assets (December 31) | 1,047.7 | 735.8 |
| Employees (average over the year) | 874 | 455 |
At HOCHTIEF Projektentwicklung, attention will focus on the following activities: Further selective business growth in Northern and Eastern Europe, project selection focused on high-profit projects, and marketing of projects currently being constructed. We will counter the current challenging market environment with a tight focus on very attractive project sites and high-quality, sustainable real estate.
Besides its ongoing projects – including the Europaviertel in Frankfurt, the Am Hirschgarten quarter in Munich and Le Quartier Central in Düsseldorf – aurelis Real Estate will step up its activities in Duisburg and Nuremburg. A further priority will be to expand activities related to the refurbishment of leased space and buildings.
Given corresponding demand, there are plans to sell developed properties to investors as in previous years. This said, the division is under no strong sales pressure in 2009 as a result of the high occupancy rate of 87 percent as well as the high pre-sales rate of 49 percent in the case of still incompleted projects attained by HOCHTIEF Projektentwicklung.
The impact of the financial crisis on demand for real estate is currently difficult to predict.
The division therefore plans to generate healthy profit before taxes from ongoing business in 2009. This may, however, be below the prior-year level.