5  Additional information

5.1  Taxes

5.1.1  Breakdown of tax expense

In the income statement, expense for 2016 and 2015 breaks down as follows:

Note

 

2016

 

2015

      

5.1.2

 

–23.1

 

–14.9

5.1.4

 

–23.6

 

–3.6

5.1.5

 

–7.6

 

–11.0

  

–54.3

 

–29.5

5.1.2  Current taxes on business activities

Current income taxes are calculated using the actual tax rates in force.

This position comprises income taxes and property gains taxes:

 

2016

 

2015

     
 

–9.0

 

–8.8

 

–14.1

 

–6.1

 

–23.1

 

–14.9

In the Projects & Development division, expenses for property gains taxes are contingent on the time of sale of development real estate; in the Real Estate division, they are contingent on sales from the portfolio. These property taxes are incurred on a cyclical basis accordingly.

5.1.3  Current tax liabilities

As at 31 December, the following receivables and liabilities are due from or owed to municipal and cantonal tax authorities:

 

31.12.2016

 

31.12.2015

     
 

4.8

 

2.5

 

0.0

 

–0.1

 

–0.1

 

–0.2

 

–0.6

 

–0.3

 

–0.5

 

–0.9

 

–2.9

 

8.1

 

6.7

 

0.0

 

7.4

 

9.1

5.1.4  Deferred taxes on revaluation in the income statement

The deferred taxes on revaluation break down as follows:

 

2016

 

2015

     
 

–23.6

 

–3.6

 

–23.6

 

–3.6

The upward valuation of CHF 85.0 million on the investment real estate led to a net charge of CHF 23.6 million to deferred taxes in the income statement, CHF –1.7 million of which was attributable to investment real estate under construction and CHF –21.9 million to yield-producing properties.

5.1.5  Other deferred taxes in the income statement

 

2016

 

2015

     
 

–19.7

 

–19.6

 

5.9

 

9.4

 

0.0

 

0.3

 

0.2

 

0.3

 

6.0

 

–1.4

 

–7.6

 

–11.0

During the period under review, the temporary valuation differences between the tax-relevant individual financial statements of the Group companies and the consolidated financial statements increased, such that deferred tax ­income of CHF 19.7 million was charged to the income statement.

In addition, tax effects amounting to CHF 5.9 million arising from loss carry-forwards and valued at the consolidated tax rate of 22% were charged to the income statement. With the sale of four investment properties, deferred tax ­liabilities amounting to CHF 6.0 million net were written back.

5.1.6  Deferred tax liabilities and assets

The deferred tax liabilities from the provision for deferred taxes reported under long-term liabilities break down as follows:

 

31.12.2016

 

31.12.2015

     
 

95.9

 

71.9

 

96.1

 

91.4

 

0.2

 

–0.2

 

0.3

 

0.3

 

192.5

 

163.4

The deferred tax liabilities in connection with the higher valuation of investment real estate (difference between market and acquisition value) are based on an average holding period of at least ten years from date of purchase, or year of construction in the case of new properties, and a tax rate of up to 31% (2015: 31%). Deferred taxes are calculated separately for each investment property.

Temporary valuation differences on investment real estate (difference between acquisition value and taxable book value) and other balance sheet ­positions record the differences between the individual financial statements of the Allreal Group companies and the consolidated financial statements. These mainly involve write-downs on investment and development real estate, additional value adjustments on receivables and the recognition of additional provisions deducted from the current tax assessment.

Valuation differences on write-downs on investment real estate in the canton of Zurich and on other balance sheet positions are calculated at a consolidated tax rate of 21 to 22% (2015: 22%). A tax rate of 14 to 24% (2015: 15%) was applied to valuation differences on write-downs on investment real estate outside the canton of Zurich.

In 2016, with the amortisation of the bond issues, deferred taxes totalling CHF 0.1 million were credited to the income statement (2015: CHF 0.3 million) and with the issue of the 0.625% bond 2016–2024 deferred taxes of CHF –0.1 million were recognised in income.

Deferred tax assets comprise the following positions:

 

2016

 

2015

     
 

31.0

 

25.1

 

2.8

 

0.9

 

0.8

 

0.3

 

0.0

 

15.9

 

34.6

 

42.2

As at 31 December 2016, capitalised deferred taxes existed on tax loss carry-forwards of CHF 31.0 million (31.12.2015: CHF 25.1 million) relating to Group companies domiciled in Zurich which reported cumulative losses in the individual financial statements, which losses are likely to be offset against gains in the following years (expiry of first tax loss carry-forward as of 2018). A tax rate of 22% was applied (2015: 22%).

The recognition of pension commitments results in deferred tax assets amounting to CHF 2.8 million as at the balance sheet cut-off date (31.12.2015: CHF 0.9 million), representing a year-on-year increase of CHF 1.9 million, CHF 1.7 million of which was taken directly to other earnings and CHF 0.2 million to income.

5.1.7  Reconciliation

The following table shows the reconciliation between the theoretical tax rates applicable to the Group and the effective taxes.

 

2016

 

2015

     
 

227.9

 

151.4

Reference tax rate

%

 

22.0

 

22.0

 

50.1

 

33.3

 

4.9

 

–0.1

 

–2.8

 

–3.2

 

–2.4

 

–1.9

 

4.5

 

1.4

 

54.3

 

29.5

The reference tax rate used is the sum total of the national, cantonal and municipal income tax rates which are applied on average.

The adjustment of tax effects on revaluations reflects the change in the upward and downward valuations of investment properties and their cumulative balance, encumbered with up to 31% deferred taxes and as the difference versus the reference tax rate of 22%.

The credit of CHF 2.8 million for current taxes of previous years results from the recalculation of the tax status of each Group company on the basis of tax returns submitted or definitive tax assessments received.

Income subject to a lower tax rate factors in that a number of the Group companies are domiciled at locations where the total tax burden is significantly lower than the consolidated tax rate of 22%.

Income subject to a higher tax rate factors in that gains on real estate subject to property gains tax are taxed at total tax rates of up to 35% and are therefore above the consolidated tax rate of 22%. In particular, this relates to gains taxed in connection with the invoicing of completed projects in the Projects & Development division or from the sale of investment properties in the Real Estate division.

5.2  Capital commitments, contingent liabilities and legal disputes

 

31.12.2016

 

31.12.2015

     
 

18.5

 

35.0

 

0.0

 

0.0

The capital commitments relate to contractual agreements for the acquisition of development real estate. Whether the commitment is invoked depends on the fulfilment of the conditions agreed with the counterparties.

As in the previous year, there are no guarantees or sureties in favour of third parties. Beyond this, in the individual financial statement, Allreal Holding AG has issued guarantees and sureties amounting to an additional CHF 421.6 million in connection with financings and derivative financial transactions with third parties on behalf of individual subsidiaries (2015: CHF 539.6 million).

As at 31 December 2016, there are no pending legal disputes of a nature ­liable to have a significant impact on the asset and income situation of Allreal Group for which no corresponding provisions are in place.

5.3  Assets pledged as security for own liabilities

 

31.12.2016

 

31.12.2015

     
 

3 574.5

 

3 525.2

 

165.7

 

295.5

 

3 740.2

 

3 820.7

 

3 055.6

 

3 223.1

 

956.3

 

1 132.8

5.4  Financial instruments

5.4.1  Management of finance and capital

In the context of the financing strategy, in the investment and financing guidelines last amended on 1 October 2013 the Board of Directors issued rules on the extent to which Allreal Group can take out external debt. The share of consolidated equity must be over 35% on the balance sheet cut-off date, net gearing must not exceed 150%, the interest coverage ratio must not fall below 2.0 and the investment and development real estate balance sheet positions may only be refinanced with a maximum of 70% interest-bearing borrowings.

The Board of Directors reviews the capital structure on a quarterly basis and monitors in particular compliance with the limits set out in the investment and financing guidelines. Capital management encompasses both equity capital and interest-bearing borrowings (financial debt).

The contractual terms agreed with lenders regarding minimum capitali­sation (financial covenants) are identical to those laid down by the internal investment and financing guidelines. During the period under review, they were complied with without exception and are as follows as at the balance sheet cut-off date:

Equity ratio

(equity as a percentage of total assets)

 

31.12.2016

 

31.12.2015

     
 

2 086.8

 

1 994.1

 

3 992.9

 

4 136.0

 

52.3%

 

48.2%

Net gearing

(net financial debt as a percentage of consolidated equity)

 

31.12.2016

 

31.12.2015

     
 

1 600.7

 

1 777.6

 

–21.4

 

–23.4

 

1 579.3

 

1 754.2

 

2 086.8

 

1 994.1

 

75.7%

 

88.0%

Interest coverage ratio

(EBITDA excl. revaluation gains divided by net financial expense)

 

31.12.2016

 

31.12.2015

     
 

181.0

 

179.7

 

37.7

 

41.8

 

4.8

 

4.3

Refinancing of properties

(Borrowings in percent of the book value of investment and development real estate)

 

31.12.2016

 

31.12.2015

 

1 600.7

1 777.6

 

3 574.5

 

3 525.2

 

165.7

 

295.5

 

3 740.2

 

3 820.7

 

42.8%

 

46.5%

If the financial covenants are not complied with, the lenders are contractually entitled to raise the margins for financing, introduce amortisation obligations or demand full repayment of loans.

5.4.2  Financial risk management

Allreal Group is exposed to various financial risks stemming from the market, changes in interest rates, receivables, refinancing and liquidity. Risk management is conducted in compliance with the investment and financing guidelines approved by the Board of Directors. The operational implementation of the guidelines is undertaken directly by the Chief Executive Officer or the Chief Financial Officer, who submits reports to Group Management on key financial ratios at least once a month. The Board of Directors is informed of the development of financial risks in writing every three months by Group Management.

5.4.3  Market interest rate risk

Fluctuations in the market interest rate give rise to an interest rate risk for Allreal as part of the borrowings are in the form of fixed advances with mortgage collateral or mortgage loans on a short-term basis up to a maximum of 6 months. Advances are taken out with banks and are denominated exclusively in Swiss francs. As at the balance sheet cut-off date, these advances amounted to CHF 683 million, corresponding to 42.7% of all borrowings.

The remaining financial liabilities are refinanced through bond issues and fixed-rate mortgages to prevent interest rate risk during their term.

In previous years, payer swaps were concluded to reduce risk, but they caused an additional increase in interest expense as a consequence of negative CHF interest rates. For this reason, all outstanding interest rate swaps were terminated early on 6 December 2016.

The maturity structure is reviewed by the Board of Directors and Group Management at least quarterly and the risks are analysed by means of simplified liability management. The aim is to achieve an even distribution of the maturities structure of the financial liabilities.

For the purposes of a sensitivity analysis, it was assumed that all balance sheet positions as at 31 December were in place on the same scale for a whole year and that the interest rate level changes by one percentage point at the beginning of the period. This would mean that net profit would remain unchanged if interest rates fell by 1%. If interest rates were to go up by 1%, net profit would decrease by CHF 0.7 million (2015: CHF 1.4 million/CHF –5.7 million).

5.4.4  Credit risk

The credit risk to which Allreal is exposed is that a counterparty might be unable to meet its financial obligations owing to default, resulting in losses for the Group. Customers’ payment arrears and credit standing are continuously monitored in both the Projects & Development division and the Real Estate division. Monthly reports with comments on the largest positions are submitted to Group Management.

Trade receivables and other receivables consist of a large number of balances owed by counterparties in the Projects & Development division and owed by tenants and property management companies in the Real Estate division. Receivables from tenancies are typically secured via separate bank guarantees or tenant deposits. There are no concentrations of risk in which a single debtor accounts for more than 20% of total trade receivables. Payments on account are periodically requested for current construction projects. Allreal’s close monitoring of receivables explains its low historical default rate.

The credit risk relating to cash and derivative financial instruments is considered small as the counterparties consist solely of banks and insurance companies with good credit ratings (minimum long-term rating of BBB+). Allreal endeavours to work with a large number of banks which mainly operate in Switzerland. At CHF 10.6 million, the maximum default risk relating to cash is lower than the book value of CHF 21.4 million, since with a number of lending banks waiver of the right to offset credit balance against liabilities was contractually excluded.

The maximum default risk relating to receivables and other claims corresponds to the book value. The guarantees and sureties issued in favour of banks in connection with financing transactions are not likely to give rise to any additional charges greater than the recognised borrowings from banks and insurance companies amounting to CHF 956.3 million.

As at the balance sheet cut-off date, the credit risk relating to financial assets amounts to CHF 136.8 million, which corresponds to the balance sheet item.

5.4.5  Refinancing and liquidity risk

As at the balance sheet cut-off date, unutilised immediately callable credit limits granted by banks are in place in an amount of CHF 589 million. The binding financial ratios agreed with banks in the credit agreements are the same as those laid down in the investment and financing guidelines; during the period under review they were complied with at all times. Three-year medium-term planning is in place for Allreal Group which ensures that the thresholds are complied with on a rolling basis through early extension of maturing loans. Under the financial covenants, Allreal has the option of taking out around CHF 1.5 billion in new borrowings before new equity is required.

The following breakdown shows the non-discounted payment outflows of existing liabilities. In accordance with contractual agreements, the earliest possible repayments are entered as the maturity dates.

Interest and nominal amount payments on liabilities

Book value

< 1 year

1–3 years

> 3 years

    

1 777.6

1 017.4

21.4

803.7

71.8

12.8

21.8

20.7

33.4

33.4

0.0

0.0

20.0

20.0

0.0

0.0

1 903.0

1 060.2

47.5

850.8

    

1 600.7

695.1

152.7

810.8

35.5

35.5

0.0

0.0

20.6

19.7

0.9

0.0

1 656.8

750.3

153.6

810.8

5.4.6  Market valuation of financial assets and liabilities

Financial assets and borrowings are recognised using the amortised cost method.

In the previous year, derivative financial instruments (interest rate swaps) were stated at market value as at the balance sheet cut-off date, by estimating and discounting future payment flows at current interest rates on 31 December 2015. Because the contracts are standardised, it is possible to value them on the basis of current interest rates. Allreal has the interest rate swaps calculated by third parties.

All financial instruments carried at fair value are broken down into categories.

Allocation to the individual categories is dependent on the database for ­calculating the fair values.

Category 1: Fair value using prices quoted on an active market (stock exchange)

Category 2: Fair value using a valuation method whose input factors are derived from an active market

Category 3: Fair value using a valuation method whose input factors are not observable on an active market

Category 1

Category 2

Category 3

Total

    

0.0

–71.8

0.0

–71.8

    

0.0

0.0

0.0

0.0

In 2016 and 2015 there were no reclassifications within the categories.

With the exception of the borrowings shown below, it can be assumed that the book values of the financial assets and the other financial liabilities correspond to fair values.

 

Fair value

category

Nominal
value

31.12.2016
Book value

31.12.2016
Fair value

31.12.2015
Book value

31.12.2015
Fair value

        

149.4

159.9

149.2

160.4

124.8

128.4

124.7

129.0

149.9

151.3

120.4

122.2

120.5

122.3

100.4

106.4

100.5

103.4

149.4

150.0

 

276.3

286.6

296.8

307.3

The fair values of the bond issues correspond to the market price as at the balance sheet cut-off date. The fair values of the fixed-rate mortgages are determined using the CHF interest rates current as at 31 December for the respective terms (at least 0.0%) plus a credit margin of 0.70% (2015: 0.8%).

The following table shows the book and market values (fair values) of all ­financial instruments recognised on the balance sheet.

31.12.2016
Book value

31.12.2016
Market value

31.12.2015
Book value

31.12.2015
Market value

    

192.1

192.1

239.8

239.8

21.4

21.4

23.4

23.4

213.5

213.5

263.2

263.2

    

1 600.7

1 633.5

1 777.6

1 809.7

56.1

56.1

53.4

53.4

0.0

0.0

71.8

71.8

5.5  Transactions with related parties

Related parties consist of those shareholders who have formed a group ­under the shareholders’ pooling agreement with a view to complying with the “Lex Koller” requirements and as at the balance sheet cut-off date hold 38.80% of the share capital of Allreal Holding AG, the Board of Directors, Group Management and the Allreal pension fund.

The seven members of the Board of Directors received fixed remunerations totalling CHF 0.63 million (2015: CHF 0.70 million), which is paid out after the annual accounts have been approved by the annual general meeting. These persons do not receive any other remuneration.

 

2016

 

2015

   

CHF
million

 

CHF
million

 

0.15

 

0.23

 

 

0.15

 

0.08

 

0.08

 

0.08

 

0.08

 

0.08

 

0.08

 

0.08

 

0.08

 

0.08

 

 

0.08

 

The remuneration of the Board of Directors is paid directly by Allreal Holding AG. The members of Group Management are employees of Allreal General­unternehmung AG – a wholly owned subsidiary of Allreal Holding AG – which pays the remuneration of these persons. All amounts represent gross payments before the social insurance contributions paid by the remuneration recipients. The employer’s share of the social insurance contributions is not included.

In the period under review, remuneration totalling CHF 3.12 million (2015: CHF 3.74 million) paid to Group Management was recognised in the consolidated financial statements, out of which the highest total remuneration of CHF 1.15 million (2015: CHF 0.96 million) was paid to Roger Herzog.

Variable bonuses will be paid out in cash after the annual accounts and the compensation report have been approved by the Board of Directors.

 

2016

 

2015

     
    
 

0.73

 

0.64

 

0.10

 

0.04

 

0.25

 

0.22

 

0.07

 

0.06

 

1.15

 

0.96

    
 

1.24

 

1.75

 

0.23

 

0.23

 

0.41

 

0.70

 

0.09

 

0.10

 

1.97

 

2.78

1 Calculated at the market value on date of allocation

In summary, the following remunerations paid to the Board of Directors and Group Management were recognised in the consolidated financial statements:

 

2016

 

2015

     
 

3.59

4.28

 

0.00

 

0.00

 

0.00

 

0.00

 

0.16

 

0.16

 

0.00

 

0.00

 

3.75

 

4.44

In the period under review and in the previous year, no loans, credits or sureties were granted to members of the Board of Directors and Group Management or parties related to them, nor to former members of these bodies.

On 19 April 2016, Allreal Holding AG sold 200 registered shares to one member of the Board of Directors at the market price of CHF 135.20 (transaction value: CHF 0.03 million) and on 20 April 2016 bought 250 registered shares from one member of Group Management at the market price of CHF 135.40 (transaction value: CHF 0.03 million).

As at 31 December 2016, the following members of the Board of Directors and Group Management were directly or indirectly invested in Allreal Holding AG:

 

Number

of shares

Value in

CHF
million

 

Number

of shares

Value in

CHF
million

    

2016

  

2015

        
 

18 180

2.75

 

18 180

2.43

 

 

6 381

0.85

 

400

0.06

 

200

0.03

 

1 000

0.15

 

1 000

0.13

 

220

0.03

 

 

266 000

40.25

 

266 000

35.54

 

1 471

0.22

 

1 105

0.15

 

142

0.02

 

145

0.02

 

682

0.10

 

486

0.06

 

712

0.11

 

499

0.07

 

 

155

0.02

The shareholding of the Helvetia Group, St. Gallen, in which Dr Ralph-Thomas Honegger performs the function of Chief Investment Officer (CIO) and is a member of management, is not included in the table.

The shares held by the members of the Board of Directors and Group Management correspond to 1.81% of the share capital of the company (31.12.2015: 1.84%).

During the year under review, the Projects & Development division carried out construction projects for a total of CHF 18.7 million (2015: CHF 25.0 million) for several parties to the shareholders’ pooling agreement under standard market conditions, which corresponds to 4.5% of income from realisation Projects & Development (2015: 4.1%).

The Helvetia Group, which holds 10.0% of Allreal Holding AG’s share capital, is represented on the Board of Directors of Allreal Holding AG by Dr Ralph-Thomas Honegger. Insurance contracts (policies covering buildings, construction and personnel) are in place between the Helvetia Group and individual Allreal companies with an annual premium volume of CHF 1.2 million (2015: CHF 1.1 million).

A buildings insurance policy with an annual premium volume of CHF 0.13 million (2015: CHF 0.13 million) is held with the Swiss Mobiliar Group, which is a member of the shareholders’ pooling agreement through a subsidiary. Allreal was granted fixed mortgages amounting to CHF 52.5 million (CHF 37.5 million at 1.55% and CHF 15.0 million at 1.90%) with terms running until 2022.

Privatbank IHAG Zurich AG, which belongs to the group of companies of the core shareholder IHAG Holding AG, has granted Allreal loans secured by mortgage totalling CHF 20.0 million (interest rate of 0.50% with a term until January 2017). The bank has also been entrusted with the task of market making for the company (fees of CHF 0.08 million).

For several years, Allreal has had a business relationship with Banque Cantonale Vaudoise, where Olivier Steimer, member of the Board of Directors of Allreal Holding AG, holds the office of Chairman of the Board of Directors. As at the balance sheet cut-off date, there are mortgage-backed loans in the amount of CHF 50.0 million (interest rate of 0.6% with terms to February 2017) in place.

Allreal obtains legal consulting services from several law firms, including Meyerlustenberger Lachenal Attorneys at Law, in which Andrea Sieber is a partner. In the 2016 financial year, Allreal was charged fees amounting to CHF 0.057 million (2015: CHF 0.061 million).

The Allreal pension fund holds Allreal registered shares with a value of CHF 1.7 million (2015: CHF 1.5 million). As at the balance sheet cut-off date, there are no receivables or liabilities between the Allreal pension fund and the Allreal companies. During the period under review, Allreal’s employer’s contributions amounted to CHF 2.5 million (2015: CHF 2.8 million).

Taking the above-mentioned into account, as at the balance sheet date, there are no significant outstanding receivables or liabilities between any related parties, and no other transactions with related parties took place in 2016.

5.6  Intracompany relationships

The transactions between the individual Group companies are carried out at arm’s length. This also applies in particular to building services provided to the Real Estate division by the Projects & Development division.

In addition, the Projects & Development division performs management services for the other parts of the company. In 2016, it received CHF 5.0 million (2015: CHF 4.8 million) from the Real Estate division as well as CHF 0.6 million (2015: CHF 0.6 million) from Allreal Holding AG for such services. These sums were eliminated in the consolidated financial statements.

5.7  Events after the balance sheet date

Between 31 December 2016 and 7 February 2017 (date on which the consolidated financial statements were approved by the Board of Directors), no further events took place which would result in any adjustments to the book values of the assets and liabilities or which would need to be disclosed here.