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Annual Report 2011


Contents


Key Figures

6

Figures

7

Charts

9

Annual Report

10

Letter from the President of the Board of Directors

11

Report of the Chief Executive Officer

12

Annual Financial Statements

16

Balance Sheet/Income Statement

17

Notes

18

Addendum

19

Report of the Statutory Auditors

19

Company Profile

20

Vision

21

Organization

22

Facts & Figures

23

Markets

24

General Economic Situation

25

Real Estate Market, Switzerland

26

Real Estate Market, USA

27

Property Data

28

Investment Properties

29

Real Estate Development Projects

32

Corporate Governance

34

General Remarks

35

Capital Structure

35

Shareholders

35

Management

36

Statutory Auditors

37

Risk Management

37

Real Estate Valuation

37

sitEX Properties AG Annual Report 2011 | 5


Key Figures


Figures Key financial figures in TCHF Balance sheet total

2010

in %

2011

92,437

150,328

Mortgages and fixed advances

55,417

73,629

maturing in less than 12 months

17,241

22,637

1–3 years

5,938

23,385

4–6 years

3,448

2,918

7–10 years

7,810

1,380

11–30 years

20,980

23,309

Convertible loans treated as equity investments

15,508

22,128

Equity

16,820

35,266

Equity including revaluation of real estate/investments

21,683

49,731

in %

Equity ratio

Equity

18.2

23.5

Equity including convertible loans

35.0

38.2

Return on equity

Basis properties at book value

2.3

8.6

Basis properties at market value

1.8

6.1

EBIT

924

4,807

70,486

5,125

-2,330

Nominal value

6,585

14,088

Capital reductions

917

32,977

64,285

450

450

Real estate acquisitions Real estate sales Capital increases

Shares

Number of shares

Nominal value per share in CHF

Profit per share in CHF

9

39

Dividend per share in CHF

sitEX Properties AG Annual Report 2011 | 7


Returns in TCHF (income properties only)

2010

Target annual lease income as of closing date

3,757

in %

2011

in %

3,802

Gross returns on target lease income

at book value

6.1

6.0

at market value

6.0

5.9

3.3

4.1

Net return

at book value

Key figures, real estate portfolio in TCHF

2010

in %

2011

in %

Book value of real estate portfolio

income properties

61,224

67.8

63,120

67.8

development projects

29,125

32.2

30,024

32.2

Market value of real estate portfolio

income properties

62,925

65.3

63,915

61.9

development projects

33,500

34.7

39,276

38.1

Investment category of income properties

Office

13

14

Retail trade

6

4

Commercial

19

30

Residential

49

39

Other use

13

13


Charts Real estate portfolio in TCHF (market values) 120 000 100 000 80 000 60 000 40 000 20 000 Income properties

Development projects

0

2009

2010

2011

2009

2010

2011

2009

2010

2011

Share capital in TCHF 30 000 25 000 20 000 15 000 10 000 5 000 0

Target lease income as of closing date in TCHF 6 000

4 000

2 000

0

Portfolio structure, 2011

Office Retail trade Commercial Residential Other uses

sitEX Properties AG Annual Report 2011 | 9


Annual Report


Letter from the President of the Board of Directors Dear Shareholders, As we reflect on 2011, sitEX Properties AG can proudly declare a successful and dynamic year. Several milestones were reached. For instance, we acquired highly lucrative income-producing properties in Zurich, and we embarked on a path of active involvement in foreign investments. Annual profits outperformed the preceding year eightfold, the real estate values for the entire Group collectively surpassed the CHF 200 million mark, equity was bolstered by a number of percentage points, and share value increased. Gross returns on the entire portfolio equaled a remarkable 6%. These positive developments are indeed welcome news to our sitEX shareholders. The environment for building a real estate investment company is sound. Although the current market conditions are ideal, let's not be lulled into a state of unbridled euphoria. With deliberation, perspicacity and yet filled with vim and vigor, we will drive our further development onward and achieve our next goals. Numerous forecasts and market analyses are warning that a bubble is forming, or that elevated risks are looming on the horizon. With great effort, we are trying to anticipate all potential scenarios in advance, and have an action plan ready to mitigate any impact, if necessary. So, for example, we hedged the interest rates on debt capital under favorable long-term conditions, and hedged our foreign exchange exposure for our foreign business endeavors. A sound financial basis is the order of the day; therefore, we are striving for an equity ratio of 40% over the medium term. Real estate is viewed as an inflation-proof investment and its sustainability is compelling. By establishing a portfolio with a national mix that is 90% Switzerland and 10% USA, we have achieved an ideal market allocation. Moreover, our portfolio mix reflects a widespread diversification of market risks. The investment structure completes this balanced approach: 61.9% in existing real estate that provides a constant yield, and 38.1% dedicated to real estate development projects. We are confident of the path that sitEX has set upon. We intend to convince our shareholders, tenants and business partners of our dedication and commitment.

Dr. oec. publ. Adriana Ospel

sitEX Properties AG Annual Report 2011 | 11


Report of the Chief Executive Officer

During the year under review, sitEX Properties AG was able to implement a variety of positive approaches. In a challenging and at times utterly dried-up real estate market, it was crucial for us to remain active and successful, and to acquire properties conforming to our strategy. Concurrently with portfolio growth, we were able to increase equity at a steady pace, thus positioning for the potential headwinds created by macroeconomic conditions.

real estate fair market values of CHF 85.870 million. The subsidiary, which will also be absorbed on a consolidated basis into the future corporate structure in 2012, made a substantial contribution to yearend results by distributing a dividend for fiscal year 2010/2011 and for the second half of 2011 in excess of CHF 3.1 million. The subsidiary was renamed as “sitEX Properties ZH AG”, and its registered domicile was relocated to Horgen.

On March 28, 2011, the Company successfully increased share capital by more than CHF 10,186,650, which was the first step toward achieving our objective of increasing the equity base. We gained new shareholders through this process. A second increase to share capital, in the range of CHF 3,901,950, was successfully administered on August 8, 2011. This second capital raise increased share capital as of the December 31, 2011, balance sheet closing date to CHF 28,928,250. As of December 31, 2011, the Company had 64,285 issued and outstanding bearer shares at a nominal value of CHF 450 per share. For one acquisition, the Company drew on an agreement from the preceding year with potential investors, and issued additional convertible bonds that have equity characteristics. By the end of the fiscal year, the convertible bonds reached CHF 22,128,000, the majority of which mature at the end of 2013 under various terms and conditions. This dilution is taken into account each time the fair value of the share is calculated, and the conversion is incorporated into the computation accordingly. The conversion of the loan – a much welcome resource from the viewpoint of the Board of Directors – can be traced in an objective manner.

In the third quarter – after an intensive market study and detailed consultation – the Board of Directors decided to invest in the USA and thereby establish an approximately 10% real estate position abroad. Why? Because by pursuing a countercyclical engagement, we are seeking to invest in a troubled market that has a proven capacity to recover. sitEX should continue to develop and establish an even broader footing in order to exploit market opportunities. Our analysis indicates that the real estate market in central Florida, after an extreme weakening over the last 4–5 years, is approaching its nadir or has already bottomed out. Therefore, we consider the potential for real estate prices to rise to be solid. In addition, we believe that statistically the foreign exchange ­situation has never before been as favorable as at the close of our transaction. The mix of income-producing properties and real estate development projects is an ideal compliment to sitEX Properties AG. The returns are far above the average for Switzerland, and exceed our domestically-held real estate assets. The US earnings are tantamount to a “yield booster” and will have a very positive effect on sitEX’s future success. With the Keith A. Ewing Medical Plaza in Avalon Park (Orlando, Florida), we acquired an asset that is not only generating immediate net income, but also holds potential in the future with the long-term lease agreements featuring staggered lease extensions. The Avalon TC III ­project represents a fully-permitted development parcel that over the next 18 months will allow us to realize an 82-unit apartment complex and commercial spaces. And last but not least, we are now a 50% joint venture partner in a development region just 30 minutes north of downtown Tampa – Florida’s second largest city. The development possibilities for this 6,628,748 m² parcel are gigantic, and are a veritable guarantee to success, depending on market development over the next 10 years. As partner, we will be moving full-steam ahead with the “Avalon Park West” development project, and will closely monitor each of its steps.

Milestones in the Four Quarters In the first quarter, we conducted a property substitution in Füllinsdorf. The Schönthal property was originally acquired in September 2010; however, the party entitled to a right of first refusal chose to exercise this right, and hence, it was subsequently awarded to that party. Since Füllinsdorf is suited to our strategic benchmark parameters, and since the opportunity presented itself to acquire an elegant office complex as compensation, we purchased the modern office building known as “Rheinstrasse 26”. In the second quarter, we took over Eicher Immobilien AG, headquartered in Regensdorf. This represented a decisive strategic step of supra­ regional scope. Through this acquisition, we came into possession of the enormous Eichwatt complex in Regensdorf, which features numerous apartments, office and commercial spaces, and a hotel. We additionally inherited the property Josefstrasse 200, 202, located in Zurich's hip Kreis 5 district. The investment on the sitEX Properties AG balance sheet shows an approximate value of CHF 47.5 million, which is based on the

12 | sitEX Properties AG Annual Report 2011

Beside these solid prospects, another argument carried particular weight for us: we have not merely invested in real estate in the USA; rather, we have invested in a long-term partnership with a successful Swiss entrepreneur who has developed innumerable projects in Florida for the last 20 years, and who is considered a “market guru”. Beat Kähli developed


and built Avalon Park in Orlando, Florida, over the last 15 years. The project is a small city, and its success is profound – we have been convinced of this on multiple occasions. Kähli’s firm, the Avalon Park Group, as well as Eric Marks, its COO and Senior Vice President, will be important touchstones for us. In turn, Beat Kähli's group of companies has also invested in sitEX Properties AG, and will become a major stakeholder in 2012. At the General Meeting on May 9, 2012, Beat Kähli will also be recommended for election to the new Board of Directors of sitEX Properties AG. With this first ever diversified investment abroad, the sitEX Board of Directors is not pursuing some capricious adventure. Rather, it is conducting itself in a targeted and prudent businesslike manner. In terms of organizational structure, sitEX Properties International AG will be established as a new subsidiary; in turn, it will hold sitEX Properties USA, Inc., as its subsidiary. Through this configuration, we are laying the cornerstone for possible expanded foreign business affairs, if the opportunities present themselves. This organizational structure was also chosen deliberately so that we have the flexibility we need in the future, and so that we can separate or spin-off this foreign engagement at any time.

Depending on the evolution of the markets in Switzerland, other parts of Europe, the USA and the rest of the World, opportunities can be realized in any direction and always in the interests of our shareholders. In the fourth quarter, the Duradero project in Allschwil took center stage. The district planning was completed, with full official backing, in close consultation with the municipality. The outsourcing of the resident sports clubs on this property proceeded quite positively, thanks to our assistance. In January 2012, the Allschwil Town Council unanimously approved the District Plan. Next, the Neighborhood Council will make its decision in the summer of 2012. Since all conceivable concerns and interests were incorporated into the district planning process, we can safely assume there will be broad approval, and a waiver of the referendum process. The District Plan envisions an 118% utilization. Our project manager, Dr. Charles Stutz, and the district planner, architect Hans-Jörg Funkhauser, have delivered an excellent and strong work. The Board of Directors of sitEX Properties AG must express its deepest appreciation to these advocates here for their hard work and dedication. Duradero will be the No. 1 issue of our company in the coming year.


Real Estate in General The reserve of building land on Gellertstrasse in Basel was successfully leased for a fixed five-year term, with all costs covered, to the Bilingual Kids Academy as of the beginning of August. This may lead to various other options in the future. Project development at the current date would inevitably come with risks due to circumstances subject to neighborhood law, and would have little promise to show. Still, a pragmatic approach does mean that any further debate in the near future of property’s development potential with all the parties involved in the Gellert neighborhood must be forsaken. A future solution must be crafted patiently and meticulously. And thanks to the successful interim leasing, this can now take place without pressure. The property at Trillengässlein 2, Basel, underwent a partial renovation that entailed a permanent structural improvement. It will always be the objective of management to maintain the properties in excellent condition, and to engage in renovation and restoration investments. In this manner, we are prudently addressing the issue of value retention. It has also been decided to convert the commercial units at the Wengipark property in Solothurn into loft condominiums, thereby providing a sustainable response to the greater demand in this segment. Between the hours of 4:00 a.m. and 5:00 a.m. on December 3, 2011, a major fire broke out at our Renggloch property in Kriens. The cause of the incident was a truck fire in a tenant's parking garage. Property damage to the building and systems was vast. The building was engulfed in flames on the ground floor. Due to the enormous accumulation of heat, the building structure suffered considerable damages, requiring temporary bracing to be installed on the whole building for safety reasons. No person sustained any injuries, and there were no casualties. The technical fire investigations were conducted by the Lucerne Criminal Police Department. The insurance companies were immediately involved and

without exception awarded insurance coverage to sitEX Properties AG; hence financially, no liability for damages remains. By the end of the year under review, it was still uncertain which building sections had to be rebuilt or renovated. However, solutions will be able to be implemented as defined by the landowner. The remaining properties were managed, without any noteworthy incidents, within the scope of the strategy. The vacancy rate for the entire portfolio as of December 31, 2011, equaled 5.7%. All properties that were acquired in 2010 or earlier will be reappraised by the specialist appraiser of sitEX Properties AG at the end of the reporting year. This cycle will also be continued in the future, so that all properties undergo a third-party value control inspection once per year. Hedging Interest and Foreign Exchange Risks The Board of Directors gave special attention to the preemptive hedging of interest rates on debt capital. We successfully tied our financing to current attractive low interest rates, in some cases for more than 20 years, and thereby achieved security for one of our largest cost pools. We arranged early extensions for fixed mortgages reaching maturity, and any imminent maturities were secured by means of forward-mortgages. In addition, very specific derivatives (SWAPs) were used in order to attain a long-term guarantee. Because of the US investment, it was also appropriate to define the foreign exchange hedging strategy for the future. The Board of Directors resolved to cover US dollar-based assets largely through US dollarbased liabilities, which virtually results in what can be neatly referred to as a “natural hedge”. This efficient and cost-effective alternative will take full effect in the following year; the time delay being caused by the chronological spread of the investment tranches over the calendar year. Metaphorically speaking, both sides of the balance sheet ­ultimately move in tandem, keeping the “hedged” portion in harmony, and thus largely eliminating the risk from the corresponding foreign exchange fluctuation. Future Structure of sitEX Properties AG Given the alacrity of developments – both the purchase and the founding of subsidiary companies – the Board of Directors felt it necessary to address the topic of the company's future structure. Today's sitEX Properties AG is slated to transform into a holding entity, and assume the role of an umbrella company. Beside the name change, the real estate assets currently residing in our direct holdings will be conveyed to sitEX Properties ZH AG by means of an assignment of assets. The company will then be renamed as “sitEX Properties Switzerland AG”. In the future, it will hold all Swiss properties and be managed as an investment in the holding company. In other words, sitEX Properties Holding AG will hold two investments, or rather, subsidiaries – namely sitEX Properties Switzerland AG and sitEX Properties International AG. For you as shareholders, nothing changes. Then as now, you will hold one and the same units of stock in the same company, which is merely undergoing a structural realignment. Of course, after the modification has been completed, we can provide you with modern shareholder certificates adapted to our CD. The new structure is also an occasion for us to make conceptual decisions about the accounting systems of the future.

14 | sitEX Properties AG Annual Report 2011


sitEX Properties Holding AG

sitEX Properties International AG

sitEX Properties Switzerland AG

Accounting in the Future and after Consolidation Concurrently with the rollout of the holding structure, we also intend to present consolidated annual financial statements starting in the 2012 accounting year. This is because the individual annual financial statements, which are used for the current corporate form, would have little meaning to the future holding company. In 2011, we wanted to preserve the comparability of the annual financial statements for sitEX Properties AG with the prior year. In addition, the subsidiaries were only just acquired or established (as the case may be) in the latter half of the year, hence it would have been impossible to portray a uniform financial picture. Nonetheless, the Board of Directors will still have to decide about the future accounting standards as well. 2011 Finances Investment property (rental) income soared to CHF 4.239 million, due to the acquisitions. This represents a 55% growth. On the other hand, property expenses increased a mere 26%, to CHF 1.656 million, which points to the streamlined approach to managing operating expenses. Income from real estate equaled CHF 2.583 million, which corresponds to a 61% margin. Revenue from investments includes the subsidiary's dividends for fiscal year 2010/2011, as well as the phase-related dividends of the six months from July 1 through December 31, 2011. We are extremely gratified to report that gross income equals CHF 5.683 million. Operating expenses reflect the efficiency of cost-conscious corporate management and the outsourcing model for specialist tasks. A number of extraordinary project costs connected with the acquisition of the subsidiary in Zurich and the foundation of the international structure were incurred this year. Operating expenses collectively totaled CHF 0.828 million. Depreciation and amortization relates to intangible assets. The Board of Directors rejected a writedown of the real estate assets, since their market values currently exceed book values. EBIT equals CHF 4.807 million. EBIT can be increased over the longterm with the expansion of lease revenues, since costs are considered to be a kind of “foundation”. Financial expenses cover the approaches to interest management of debt capital. Financial expenses equal CHF 1.8 million. Because of its future business direction, in fiscal year 2011 sitEX Properties AG, as the parent company, already carried the total costs of acquisition, financing, business management and project expenses. The dividends of sitEX Properties ZH AG as determined by the system turned out all the greater, which was a welcome outcome. However, it is not possible to derive a corresponding direct comparison of the profit generated to the dividends recognized.

Annual profit of CHF 2.513 million corresponds to an eightfold increase over the prior year; to achieve this, by the end of the year, capital employed nearly doubled when compared to the start of the year. The Company's balance sheet total expanded to CHF 150.328 million. On the assets side, the acquisition of the investment, sitEX Properties ZH AG, for approximately CHF 47.5 million was decisive. The real estate book values shown on the balance sheet essentially correspond to the market values that have been verified on the basis of a neutral appraisal. On the liabilities side, short-term debt capital increased markedly due to an advance payment that was collected for a partial sale of a property. The long-term debt capital increased as a result of a loan posted to the subsidiary sitEX Properties ZH AG that was incurred due to the nature of the transaction. It can be eliminated through the restructuring in the following year. Otherwise, the conversion loans escalated as previously outlined in the introduction. Yet in view of the modalities, these loans represent equity. The reported equity advanced 110%, from CHF 16.820 million to the fiscal year-end amount of CHF 35.266 million. In financial terms, and including the conversion loans recognized as equity investments, equity equaled CHF 57.394 million, which corresponds to a ratio of 38.18%. The goal of the Board of Directors is to have the equity ratio settle at 40% in the medium term. In the spirit of this maxim, the Board of Directors also decided to continue to build up capital, and not to disburse dividends this year. Both increases to capital in February 2012 of over approximately CHF 9 million will likewise further supplement the Company’s equity ratio. Outlook 2012 Over the next 12 months, the Company aims to build upon the suc­cesses achieved in 2011, and through prudent business practices, ensure further development at a high level. sitEX Properties AG is in an outstanding position and benefits from a sound market environment. A solid capital base provides the elbow room needed to successfully implement additional follow-up transactions. We guarantee you that our business conduct is backed by the strength of management’s heart-felt loyalty, conviction and dedication. As our shareholders, your success is not only our mission – it is our passion!

Urs Gribi

sitEX Properties AG Annual Report 2011 | 15


Annual Financial Statements


Balance Sheet/Income Statement Balance Sheet in TCHF

12/31/2010

12/31/2011

Liquid assets

943

1,733

Receivables

299

301

Capitalized accrued income and prepaid expenses

780

1,702

2,022

3,736

Current assets Loans

5,744

Investments

47,529

Real estate

61,224

63,120

Real estate development projects

29,125

30,024

Non-tangible assets

66

175

Fixed assets

90,415

146,592

Assets

92,437

150,328

Current financial liabilities

1,154

772

Current liabilities

2,691

5,485

Accrued expenses, deferred income and provisions Current debt capital Loan obligations to investments

847

1,797

4,692

8,054

11,251

Loan obligations to shareholders (convertible loans)

15,508

22,128

Mortgages

55,417

55,332

Financial liabilities

18,297

Non-current debt capital

70,925

107,008

Total debt capital

75,617

115,062

14,840

28,928

Share capital Statutory reserves Reserves from capital contributions Balance sheet profit/(loss)

559

579

1,075

2,920

346

2,839

Equity

16,820

35,266

Liabilities

92,437

150,328

34.97%

38.18%

Net equity ratio (including convertible loans treated as equity investments)

Income Statement in TCHF

2010

2011

Property income

2,725

4,239

Property expenses

–1,309

–1,656

Net profit/(loss) from properties

1,416

2,583

Income from investments Gross profit/(loss) Business operations expenses EBITDA

3,100

1,416

5,683

–476

–828

940

4,855

Depreciation, amortization and writedowns

–16

–48

EBIT

924

4,807

–532

–1,800

1

13

Finance expenses Finance income Annual income before taxes

393

3,020

Taxes

–94

–507

Net profit/(loss)

299

2,513

sitEX Properties AG Annual Report 2011 | 17


Notes Notes on balance sheet Third party beneficiary sureties

2010

2011

9,350

sitEX Properties AG, Basel, guarantees to pay, on behalf of sitEX International AG, Basel, the contractually-stipulated capital contribution of USD 10,000,000.00 in the investment in sitEX Pasco Holdings, LLC (USA).

Pledged or assigned real estate assets

Properties

Real security for mortgages

90,349

93,144

Nominal value of promissory notes

69,707

69,707

Credit utilization (borrowing)

55,417

55,332

Investments

sitEX Properties Zürich AG

47,529

Credit utilization (borrowing)

18,297

Receivables

Assignment of all interest receivables on leases

Fire insurance value of fixed assets

Properties

105,684

106,529

47,429

100

Critical investments

sitEX Properties ZH AG, Zurich

Holding and property management of real estate assets Share capital: 500,000.00 Investment ratio: 100%

sitEX Properties International AG, Basel

Holding and property management of real estate assets Share Capital: 100,000.00 Investment ratio: 100%

Depreciation, amortization and writedown of real estate assets

The Board of Directors resolved that no writedowns on real estate assets are necessary, since their current market values exceed their book values. The value retention of the real estate assets is reviewed each year by a certified real estate appraiser. Value adjustments to real estate assets would be posted if the determined market value of a property proves to be lower than the book value of that asset. The ongoing costs for property maintenance are posted in the Income Statement. Value-enhancing investments that lead to higher lease income are capitalized.

Risk monitoring

The Board of Directors has periodically undertaken sufficient risk assessments, and determined any actions that these dictate in order to ensure that the risk of a material misstatement in the accounting is considered negligible.

Posting of dividend income

On March 23, 2012, the General Meeting of sitEX Properties ZH AG, Horgen, approved the distribution of a dividend in the amount of CHF 1.2 million for fiscal year 2011. These dividends were already reported in the present Annual Financial Statements as dividend income.

18 | sitEX Properties AG Annual Report 2011


Addendum Addendum on application of balance sheet profits in TCHF Net profit/(loss) Balance carry-forward from prior fiscal year Balance sheet profit/(loss) Allocation to statutory reserves Remaining available balance sheet profit/(loss)

12/31/2010

12/31/2011

299

2,513

47

326

346

2,839

20

126

326

2,713

Dividends Balance carry-forward to new account

326

2,713

Report of the Statutory Auditors Report of the statutory auditor on the limited statutory examination To the General Meeting of sitEX Properties AG, Basel: As statutory auditor, we have examined the financial statements (balance sheet, income statement and notes) of sitEX Properties AG for the year ended on December 31, 2011. These financial statements are the responsibility of the Board of Directors. Our responsibility is to perform a limited statutory examination on these financial statements. We confirm that we meet the licensing and independence requirements as stipulated by Swiss law. We conducted our examination in accordance with the Swiss Standard on the Limited Statutory Examination. This standard requires that we plan and perform a limited statutory examination to identify material misstatements in the financial statements. A limited statutory examination consists primarily of inquiries of company personnel and analytical procedures as well as detailed tests of company documents as considered necessary in the circumstances. However, the testing of operational processes and the internal control system, as well as inquiries and further testing procedures to detect fraud or other legal violations, are not within the scope of this examination. Based on our limited statutory examination, nothing has come to our attention that causes us to believe that the financial statements and the proposed appropriation of available earnings do not comply with Swiss law and the company’s articles of incorporation. Deloitte AG

Erich Schärli Marius Disler Licensed Audit Expert Licensed Audit Expert Chief Auditor

Basel, April 2, 2012

sitEX Properties AG Annual Report 2011 | 19


Company Profile


Vision sitEX adheres to the following four principles: Adding-value is our strength. sitEX creates value. This focus is expressed in our strategies, processes and structures. sitEX 足invests in properties with a clear potential for value growth. Our portfolio horizon is long-term and we are looking for value driven growth. Developing undeveloped sites. sitEX invests in property and areas with upside potential. We acquire, reposition and develop these properties and benefit from the resulting value increase. Our strength lies in discovering hidden pearls. sitEX knows where to find interesting opportunities and pursues them through strategic project development. Quick decision-making processes. To seize opportunities you need to act quickly and carefully. Fast, proven processes lead to solid results. sitEX is able to make preliminary investment decisions about potential properties within 48 hours. This makes it possible for us to evaluate, confirm and purchase properties in the shortest possible time. At sitEX we are committed to creating value by never missing a good opportunity. Superior market knowledge. The sitEX strategy is based on proximity to the market, in-depth knowledge and a comprehensive view. Our real estate expertise is paired with specialized knowledge in regional development and politics as well as planning and building issues. sitEX pursues opportunities all over the country with a focus on Northwest Switzerland. That is the company base and location of our strongest partners: professionals in project development, construction management, law and property marketing and management. Our goal is to be listed on the stock exchange in the medium term.

sitEX Properties AG Annual Report 2011 | 21


Organization

sitEX Properties AG Switzerland

sitEX Properties ZH AG

sitEX Properties International AG

100%

100%

Switzerland

Switzerland

sitEX Properties USA Inc. USA

100%

sitEX Properties Medical Plaza, LLC

sitEX Properties Town Center, LLC

sitEX Pasco Holdings, LLC

100%

100%

50%

sitEX NR Holdings, LLC

sitEX NR Development, LLC

100%

100%

sitEX Properties AG, headquartered in Basel, Switzerland, is structured as a clearly delineated and budget-conscious organisation. It has two subsidiaries. The first subsidiary, sitEX Properties ZH AG (est. June 2011), is domiciled in Horgen, Switzerland; the second, sitEX Properties International AG (est. August 2011), is headquartered in Basel and is a wholly-owned subsidiary.

The Managing Board is composed of four individuals. Dr. Adriana Ospel holds the office of President. Messrs. Thomas Giese, Urs Gribi and Stephan Wegelin hold Board Members positions. During the most recent General Meeting, Mr. Beat K채hli of Zurich, Switzerland, and Winter Park, Florida, USA, was nominated for election as an additional Board Member. The chief executive management over all companies is incumbent upon Mr. Urs Gribi, CEO. All real estate-related duties were placed as service contract orders with specialised and locally based companies.

22 | sitEX Properties AG Annual Report 2011


Facts & Figures Name: sitEX Properties AG Business purpose: Real estate investment and project developments Corporate form: Stock corporation Domicile: Birsstrasse 320B, 4052 Basel ISIN: CH0009219186 Investment focus: sitEX creates value by pursuing investment in diversified real estate assets that generate sustained and solid returns. In doing so, sitEX holds and administers investment properties and develops large-scale real estate properties.


Markets


General Economic Situation

Returns on 10-year government bonds in % 10 9 8 7 6 5 4 3 2 1

US Treasury Bonds European Union Switzerland

2011

2010

2009

2008

2007

2006

2005

2004

0

2003

Switzerland has also been affected by the turbulence in Europe. Due to the euro crisis, the franc-to-euro exchange rate escalated to 1:1 parity. In order to minimize the economic consequences, particularly for the export industry, the Swiss National Bank was forced to intervene and enforce a minimum exchange rate of CHF 1.20 to EUR 1.00. Structural problems and losses in the export economy through the strength of the franc, however, will substantially diminish economic growth in 2012.

The potential for economic recovery admittedly should be viewed with some reservation, at least initially. The stability of the global economy has been severely impaired by new stress factors, such as the recent rise in oil prices, the looming conflict with Iran and the still pending deleveraging/debt relief process of various nations. Due to the chal足 lenging general conditions, the global recovery will progress at a slow pace, and therefore put a drag on Swiss economic growth over the coming years.

2002

The effects of the euro crisis were perceived throughout the world, which brought forth an atmosphere of restraint in the financial markets. In spite of this, the economic prospects continued to be favorable for Asia and Latin America. The situation in the US market likewise eased up after grappling with the economic consequences of the real estate bubble for a long time.

Implementation of the euro rescue package and the cash assistance from the European Central Bank led to an attenuation of the financial risk potential and to a positive effect on the business cycle. Thus, many financial institutions upgraded their 2012 growth projections for Germany, the USA and Switzerland.

2001

So to safeguard the stability of the euro system and the European Union, rescue measures were subsequently passed for EU states facing financial difficulties. Nevertheless, such measures typically have a restrictive impact on the macroeconomy.

And indeed, the Swiss economy weathered the winter half of 2011/12 better than anticipated. Important trading partners to Switzerland, such as Germany and the USA, likewise reported excellent economic data. These positive signals foster better financial prospects for the current year 2012 than previously assumed.

2000

In the first six months of 2011, the global economy recovered from the recession of the previous years. However, in the latter half of 2011, growth was inhibited by the financial crises affecting certain EU member states. Initially, fears only centered around Greece's liquidity, yet over the course of the year, the creditworthiness of several EU member states was downgraded; these states included Italy, Spain and Portugal. As a consequence, tremendous pressure was applied to these states to seek financing through the regular markets since fears were escalating that the euro system was on the brink of total collapse.

Source: Swiss National Bank December 2011

sitEX Properties AG Annual Report 2011 | 25


Real Estate Market, Switzerland The national economy of Switzerland is one of the most stable in the world, with a gross domestic product of CHF 0.55 billion. Based on GDP, Switzerland lands in 19th place internationally, but when viewed from per capita GDP, it ratchets up to 4th place. Though the financial markets in Switzerland have been under immense pressure over the last few years, the real estate market continued to evolve in a truly favorable direction. Due to the unstable economic situation, demand soared for tangible assets like gold and real estate. As long as the financial markets remain precarious and the cost of financing persists at a low level, this trend in real estate assets will continue. In this respect, investors are focusing even more intensely on core/ prime real estate. Multifamily housing and building projects in attrac­ tive residential communities continue to be highly coveted investment targets. Equally strong demand remains for office buildings at easily accessible sites with users who can demonstrate impeccable creditworthiness and are tied into long-term lease agreements. Such ideal assets are still in short supply in the market. By contrast, it is more

Asking price index, Switzerland

common to find specialty markets, properties at peripheral locations, properties with high vacancy rates or subject to certain construction rights. The high pressure on demand and the virtually congruent portfolio strategies of many investors strongly affected the drive on prices in 2011. As a result, willing sales-ready owners were in the position to resort to the bid process, and thereby demand price-maximized property sales. This was typically aimed at higher expenses and lower returns for interested buyers. Despite this, many institutions – such as Credit Suisse, in its latest real estate study – warned of the safe investing in “concrete gold.” A lot of real estate, particularly residential real estate, is overvalued. Since the year 2000, prices have skyrocketed almost everywhere, primarily for condominiums, but also for single family and multifamily residences as well. The situation will get critical, however, when multiple private owners can no longer service their debts because today's extremely low interest rates start to rise again. Generally speaking, the demand for living space in Switzerland remains very high, a phenomenon that immigration tends to reinforce. The vacant unit rate in Switzerland hovers at a constant low level of 0.94%. Another indicator of high demand is the volume of new construction starts in the apartment building segment. In 2011, 45,750 units were built, which corresponds to an increase of 11.5% over the prior year. The situation for office properties looks slightly different. If the Swiss franc continues to remain strong, growth could stagnate – primarily among export-oriented businesses and foreign companies – and there would be a lag in the number of foreign companies moving to Switzerland. This would drive demand down, lease prices would come under pressure and the vacancy risk would rise accordingly.

500

420

340

At the moment, however, none of these factors appear to be imminent. The vacancy rate for office space in Switzerland is at a very low level. In Geneva it is 2.5%, and 4.3% in Zurich. The average CBD lease rates for Class A properties equals CHF 580 per m²/year in Geneva and CHF 410 per m²/year in Zurich. There continues to be demand for office space in Switzerland's largest office market, Zurich. In the summer 2011, just under 200,000 m² of office space was under construction in Zurich, which corresponds to almost 1.8% of the inventory of office space.

260

180

100

Rental units Office space Commercial/industrial space Retail space

26 | sitEX Properties AG Annual Report 2011

2010

2005

2000

1995

1990

1985

1980

1975

1970

20

Source: Wüest & Partner December 2011


Real Estate Market, USA

in % 10 9 8 7 6 5 4 3 2 1 0 –1 –2 –3 –4

Unemployment GDP growth Inflation F Forecast

F 2013

According to data from Colliers International, in 2011 the vacancy rates for office space in Chicago declined from 20.3% to 16.7%, and in New York from 13.9% to 11.1%. The vacancy rate in Los Angeles remained the same as the prior year's 18%. In 2011, the average CBD lease rates

Economic development in the USA

F 2012

According to Jones Lang LaSalle, the lease market stabilized again in a few American cities. The investment market looks equally optimistic; in 2011, USD 411 billion were invested in commercial real estate, a figure that corresponds to a 28% increase over 2010. Projections for 2012 in the American investment market point to additional growth of 10–15%. Good demand remains in the office markets in New York, San Francisco and Silicon Valley. Similarly rising demand can be found in the energy sector, foremost in Houston and Dallas.

2011

Still, the stormy periods from the American real estate market have not been forgotten. Investment in real estate securities boomed from 2005 to 2006, until the big pop was heard in 2007 as the real estate bubble collapsed, unleashing the ensuing international financial crisis. The market is recovering, albeit slowly. The US real estate market closed the first six months of 2011 with disappointing results. In the second half of the year, demand in the office market rose, vacancy rates fell and new construction projects came into the pipeline.

The situation on the real estate market is no longer quite as stable as before the crisis. Because if the economic upturn in the USA were to weaken again, further mortgage failures would ensue. On top of this, the legal dispute between the US government and multiple financial institutions could turn the danger of evictions from hundreds of thousands of homes into a bitter reality. Despite these critical factors, a number of investment funds have blithely returned to the highly speculative real estate securities of three years ago. Currently, these real estate securities can be had for a dime a dozen, figuratively speaking; many investors are speculating that the securities will rise in value, now that there is an upswing in the USA. Ultimately, these investments must be enjoyed with extreme caution. The country has not yet pulled through the financial crisis storm, since many countries must still weather the austere savings and debt relief processes that lie ahead.

2010

For the year 2011, the USA recorded a 1.7% expansion of its economy, and a decline in unemployment from 9.8% (2010) to 9.0%. In addition, OECD projections regarding the economic environment in the USA, for the years 2012/2013, point to a relaxation of conditions.

for Class A properties equaled EUR 240 per m²/year in Chicago, EUR 290 per m²/year in Los Angeles and EUR 390 per m²/year in New York. In the summer of 2011, almost 615,000 m² of office spaces were under construction in New York, which corresponds to just under 1.3% of the office space inventory.

2009

The economic situation in the United States of America is gradually recovering from the financial crisis of the past few years. With GDP equal to USD 15.064 billion, the national economy in the USA is quintessential to the development of the global economy. For this reason, positive economic signals from the USA are considered to be highly indicative of global economic health.

Source: OECD November 2011

sitEX Properties AG Annual Report 2011 | 27


Property Data


Investment Properties

Eichwatt Regensdorf Acquired: Address: Year built: Use:

NEW

2011 Eichwatt 1, 3, 5, 7, 9, 11 Eichwatt 13, 15, 17, 19 8105 Regensdorf 1989 Residential, retail, hotel

The overall “Eichwatt” development project is situated in the Watt district of the municipality of Regensdorf. The local transportation connections are excellent, and within a short distance to the autobahn and the S-Bahn (municipal railway) train station. This collective ensemble of real estate – with well-maintained residential buildings, attractive retail structures and a hotel with restaurant – evokes the character of a small village or a little city. Rheinstrasse Füllinsdorf Acquired: Address: Year built: Use:

NEW

2011 Rheinstrasse 26 4414 Füllinsdorf 1992 Office building with apartment

This striking office building, located in the municipality of Füllinsdorf in the canton of Baselbiet, has outstanding infrastructure. The on-ramp to the Liestal (A1) autobahn is just 3 kilometers away. In addition to the basement level, the building possesses three full stories and a penthouse floor with an apartment. Tenants can park in the spacious parking garage. Visitor parking spaces are located directly in front of the building.

Josefstrasse Zurich Acquired: Address: Year built: Use:

NEW

2011 Josefstrasse 200, 202 8005 Zürich 1990 Multifamily residence

This multifamily residential building, with 40 units, is located in the up-and-coming Stadtkreis 5 (in Zurich West). It has outstanding transportation connections, and several infrastructural amenities are located within walking distance. This property is in superb condition and enjoys excellent sun exposure.

sitEX Properties AG Annual Report 2011 | 29


Keith Ewing Medical Building Acquired: Address: Year built: Use:

NEW

2011 Avalon Park In the vicinity of Orlando, Florida 2009 Clinic (rehab) on ground floor Medical practices and offices on the upper floors

Trillengässlein Basel Acquired: Address:

2010 Trillengässlein 2 4051 Basel Year built: 1902 Useable area: 726 m2 Use: Restaurant and apartments Residents of Basel need no introduction to this property. Trillengäss­lein 2 is home to the legendary Restaurant Schnabel, with a well-cultivated array of gastronomic delights. The charming old town apartments on the upper floors are located in the pedestrian zone of the picturesque city center of Basel.

Renggloch Kriens Acquired: Address:

2010 Rengglochstrasse 19, 25a, 29 6010 Kriens Year built: Rengglochstrasse 19: 2000 Rengglochstrasse 25a: 1990 Rengglochstrasse 29: 1980 Useable area: Rengglochstrasse 19: 7,422 m2 Rengglochstrasse 25a + 29: 4,120 m2 Use: Office and commercial, warehouse/storage areas These properties are striking for their remarkable construction: ultramodern architecture and superb visibility. The project is a characteristic commercial development with spaces bathed in natural light due to the immense glass façades. The property has excellent accessibility on every level. The property is well connected, and since it is at the heart of Switzerland, every part of the nation can be reached swiftly.

30 | sitEX Properties AG Annual Report 2011


Wengipark Solothurn Acquired: Address:

2010 Wengistrasse 29, 31 und Segetzstrasse 3, 5 4500 Solothurn Year built: 2001 Useable area: 5,426 m2 Use: Apartments, office, commercial, restaurant This property is situated on the edge of the picturesque old town of Solothurn. The remarkable construction, built in 2001, is distinct for its meticulous architectural language and modern interior finishes and features. The property houses a number of prominent commercial users. Its proximity to the core of the city and to the train station ensures the outstanding leaseability of the apartments.

Werbholle Dornach Address:

Werbholle 54 4143 Dornach Year built: 1991 Useable area: 1,543 m2 (sitEX shares in STWE and construction rights) Use: Commercial and warehouse areas The functionality and clean lines distinguish this ultramodern commercial property. Located in the municipality of Dornach in the canton of Solothurn, the property possesses optimal accessibility. The A2 and A3 autobahns can be easily reached within ten minutes via Baselstrasse.

Klingentalpark Basel Address:

Sperrstrasse 42, 46, 48 und Hammerstrasse 87, 89, 91 4057 Basel Year built: 1968 Useable area: 9,067 m2 Use: Apartments, car parking garage, office and commercial, restaurant and retail shops A classic multifamily building from the 1960s, this property features a diverse mix of apartment units. The units feature utilitarian floor plans. The rental price range is positioned in the affordable segment, which will ensure excellent leaseability. Located on the ground floor is a restaurant and various retail shops. The property is subject to construction rights.

sitEX Properties AG Annual Report 2011 | 31


Real Estate Development Projects

Town Center III (parcels) Acquired: Address: Size: Use:

2011 Avalon Park In the vicinity of Orlando, Florida 7,203 m² 82 rental apartments Commercial spaces on the ground floor

Avalon Park West Project Acquired: Address: Size: Use:

32 | sitEX Properties AG Annual Report 2011

NEW

NEW

2011 Wesley Chapel In the vicinity of Tampa, Florida 6,628,748 m² Development of approximately 3,500 residential units and a town center


Duradero Allschwil Acquired: Address:

2010 Development land, Baselmattweg 135 4123 Allschwil Scheduled realization: 2013/2014 Planned use: Sustainable residential development Duradero Allschwil is synonymous with a grand residential development that, based on an overall land use plan, is being developed hand-inhand with the municipality. The all-encompassing design concept envisions residential living for multiple generations. Thus, the topic “independent living for senior citizens� is given equal weight as the handling of families with children in the large green area, with playground, planned for the center of the development.

Indian Summer Basel Acquired: Address:

2010 Gellertstrasse 37, 37a 4052 Basel Scheduled realization: No earlier than 2017 Planned use: Open

Indian Summer represents a project development that can be implemented in the medium to long term.

sitEX Properties AG Annual Report 2011 | 33


Corporate Governance


General Remarks We consider our corporate governance as the totality of the organization and substance of the Company's management and supervision. Corporate governance gives us a legal and factual regulatory framework, specifically with regard to the involvement of the Company within its own environment. Corporate governance regulations and policies are mandatory for us.

Capital Structure On December 31, 2011, share capital equaled CHF 28,928,250, divided into 64,285 bearer shares at a nominal par value of CHF 450 per share. The first ordinary capital increase was conducted on March 28, 2011; the second ordinary capital increase ensued on August 5, 2011. By resolution dated June 21, 2011, the shareholders passed a Board-approved capital increase and authorized the Board of Directors to increase the share capital up to a maximum amount of CHF 12,499,650.00 through issuance of no higher than 27,777 fully paid registered shares at a nominal par value of CHF 450 each.

Shareholders The 64,285 bearer shares were held by 51 shareholders on the date of year-end. The largest individual shareholder held 11,466 shares (17.81%), and the smallest shareholder possessed 1 share. The broad spread is meaningful for the development and expansion of the Company, and a welcome circumstance. A diverse group of shareholders also reflects its empathy and support.

sitEX Properties AG Annual Report 2011 | 35


Management

President Dr. Adriana Ospel In this office since: 04/22/2010 Adriana Ospel, whose academic title, Dr. oec. publ., reflects her doctoral degree in public policy, is the founder and managing partner of adbodmer ag. She specializes in corporate transactions (M&A) and in investment management. Complementing her position as President of the Board of Directors of sitEX Properties AG, Adriana Ospel is also an active member on the Boards of Directors of Fredy's (baked goods producer) and academics4business (mediation services provider for the students at the University of Zurich). Executive Officer Urs Gribi In this office since: 04/22/2010 Urs Gribi is married and the father of three children. As a businessman, he is the co-owner of gribi group AG and CEO of gribi theurillat AG, the leading real estate services corporation in northwest Switzerland. During his active political career as member of the cantonal parliament of Basel-Stadt, Urs Gribi was deeply involved in various committees, and repre­ sented the Basel-branch of the FDP party on the cantonal Finance Commission. Since 2002, Urs Gribi has been the presiding president of the Swiss Real Estate Association (SVIT). Board of Directors Dr. Adriana Ospel, experienced economist with a flair for figures, and a high-caliber network Urs Gribi, real estate professional, CEO of gribi theurillat AG, President of the Swiss Real Estate Association (SVIT) Thomas Giese, entrepreneur, German citizen, resident of Zurich Stephan Wegelin, marketing and communications professional specializing in real estate

New Member of the Board of Directors Beat Kähli In this office since: nominated for election Beat Kähli, of Zurich and Winter Park, Florida, is CEO of the Avalon Park Group (APG), headquartered in Avalon Park, Orlando, Florida. APG is a diversified corporate group whose core competencies are in real estate development in Florida. Beat Kähli succeeded in earning an outstanding reputation in the business world of Orlando, and over the years has served on several committees and bodies of important organizations and businesses in Central Florida, included among them his work as a member on the Board of Directors of Florida Hospital, the Central Florida Chamber of Commerce, Red Cross of Central Florida, and the University of Central Florida Foundation.

36 | sitEX Properties AG Annual Report 2011


Statutory Auditors Both sitEX Properties AG and its subsidiaries are audited by the auditing firm of Deloitte AG, Basel. It is responsible for the audit of the 2011 fiscal year.

Risk Management The Board of Directors used the year 2011 in order to meticulously select and launch the right tools to monitor risk. The IKS system was implemented and applied at the property level. The actual careful total risk analysis is a conglomeration of the now defined norms. Periodic surveillance is conducted to an acceptable degree and any measures derived from this action guarantee that the risk of a material misstatement can be deemed negligible.

Real Estate Valuation The Board of Directors arranges for all properties designated for acquisition to be appraised by the selected confidential appraiser – the firm of contrust finance ag of Lucerne. In principle, we also want to have the inventory of owned real estate assets be reappraised once a year, which is why the properties Hammerstrasse/Sperrstrasse, Basel Werbhollenstrasse 54, Dornach Trillengässlein 2, Basel Gellertstrasse 37, 37a, Basel Wengipark, Solothurn Rengglochstrasse 19, 25a, 29, Kriens Baselmattweg 135, Allschwil were reappraised. “Fair market value” or “market value” refers to that monetary amount at which a property would be traded between competent, contractually willing business partners who are independent of each other at a defined point in time and without any time pressure. These valuations were prepared according to the Discounted Cash Flow (DCF) method. The point of departure was based on current lease (rental) values as of January 1, 2012. The renowned real estate appraisers, Peter Krummenacher and Dr. Pirmin Schwander, member of the National Parliament, were responsible for client relations.

sitEX Properties AG Annual Report 2011 | 37


This publication is intended for informational purposes only, and may not be construed as an offer, a recommendation or an invitation to sell, to buy or to conduct any transaction whatsoever. We offer no assurances or guarantees on the contents of this publication, specifically with respect to its accuracy, completeness or its balanced presentation, and we assume no liability or responsibility of any kind with regard to these. The products cited in this publication are not suitable for all recipients of this document. The investor is aware that the risk of loss exists with investments of any nature, even with conservative and defensive investments. sitEX rejects any liability or responsibility for the failure to achieve a specific yield or with respect to capital preservation. Therefore, as the case may be, the investor might not be able to recover his or her entire invested capital. You can obtain further information upon request. All statements are protected by copyright. All rights reserved. Any communications (including telephone calls) may be recorded.


sitEX Properties AG Birsstrasse 320B CH-4052 Basel, Switzerland Telephone +41 (0)58 710 40 00 info@sitex.ch www.sitex.ch


Annual Report 2011