3 Notes on the consolidated statement of comprehensive income
3.1 Income from renting investment real estate
CHF million | 2016 | 2015 | ||
Rental income from residential properties | 32.7 | 31.5 | ||
Rental income from commercial properties | 140.6 | 143.4 | ||
Income from renting investment real estate | 173.3 | 174.9 |
The rental income is calculated as follows:
Projected rental income | 186.9 | 192.3 | ||
Vacancy losses | –9.6 | –14.4 | ||
Collection losses and loss of income as a result of rent-free periods | –4.0 | –3.0 | ||
Income from renting investment real estate | 173.3 | 174.9 |
The accumulated vacancy rate for the 2016 financial year amounted to a total of 5.1% of projected rental income (2015: 7.5%), with commercial properties accounting for 2.4%, while residential properties accounted for 5.7% (2015: 5.0% and 8.0%, respectively).
The rest of the rental income breaks down as follows:
CHF million | 2016 | 2015 | ||
Residential real estate held on a continuous basis | 32.1 | 31.5 | ||
Commercial real estate held on a continuous basis | 139.7 | 141.7 | ||
Acquisitions and own developments | 0.6 | 0.6 | ||
Sold properties | 0.9 | 1.1 | ||
Income from renting investment real estate | 173.3 | 174.9 |
3.2 Direct expenses for rented investment real estate
CHF million | 2016 | 2015 | ||
Administrative and operating expenses, residential real estate | –1.6 | –2.2 | ||
Administrative and operating expenses, commercial real estate | –7.0 | –6.5 | ||
Maintenance and repair expenses, residential real estate | –2.7 | –2.3 | ||
Maintenance and repair expenses, commercial real estate | –13.1 | –20.8 | ||
Real estate expenses | –24.4 | –31.8 |
The real estate expenses relate solely to the yield-producing properties in the Real Estate division.
The administrative and operating expenses break down as follows:
CHF million | 2016 | 2015 | ||
Administrative fees and costs | –3.9 | –3.6 | ||
Insurance, fees and charges | –1.5 | –2.0 | ||
Janitorial services | –0.6 | –0.7 | ||
Other expense and ancillary costs (borne by owner) | –2.6 | –2.4 | ||
Administrative and operating expenses | –8.6 | –8.7 |
In 2016, real estate expenses for unlet properties amounted to CHF 0.6 million (2015: CHF 1.0 million).
3.3 Income from real estate management services
CHF million | 2016 | 2015 | ||
Income from administration and management | 4.0 | 5.4 | ||
Income from sale and brokerage | 0.7 | 0.7 | ||
Income from real estate management services | 4.7 | 6.1 |
3.4 Earnings from sale of investment real estate
CHF million | 2016 | 2015 | ||
Proceeds from sale | 100.4 | 116.0 | ||
Transaction costs on sale | –1.6 | –0.7 | ||
Balance sheet value = market value on 31.12 of the previous year | –93.2 | –94.2 | ||
Earnings from sale of investment real estate | 5.6 | 21.1 |
The period under review saw the sale of the commercial properties Lagerstrasse 41/45 in Zurich, Max Högger-Strasse 2 in Zurich, Alte Dübendorferstrasse 17 in Dietlikon and Badenerstrasse 141 in Zurich. After deduction of transaction costs, the sale resulted in earnings of CHF 5.6 million on a total selling price of CHF 100.4 million. In 2015, the sale of three properties produced earnings of CHF 21.1 million.
3.5 Earnings from Projects & Development division
CHF million | 2016 | 2015 | ||
Income from realisation Projects & Development | 414.7 | 467.0 | ||
Direct expenses from realisation Projects & Development | –372.0 | –418.6 | ||
Earnings from realisation Projects & Development | 42.7 | 48.4 | ||
Income from sales Development | 232.1 | 126.3 | ||
Direct expenses from sales Development | –197.5 | –108.3 | ||
Income from sales Development | 34.6 | 18.0 | ||
Capitalised company-produced assets | 6.1 | 11.5 | ||
Diverse income | 0.6 | 0.9 | ||
Earnings from Projects & Development division | 84.0 | 78.8 |
Income from realisation Projects & Development consists of architects’ and project & development fees (CHF 29.3 million) and earnings from construction activity (CHF 16.9 million) (2015: CHF 36.8 million/CHF 13.6 million). This contrasts with directly offset sales deductions of CHF –3.5 million for construction insurance and guarantees, performance guarantees, bad debt allowances and third-party expenses arising from tendering (2015: CHF –2.0 million).
During the 2016 financial year, ownership of units under the projects Cholplatz Bülach (CHF 17.4 million), Lerchenbergstrasse Erlenbach (CHF 17.5 million), Holengass Meilen (CHF 2.9 million), Pfruendmatt Mettmenstetten (CHF 29.6 million), Stauffacher Steinen (CHF 14.5 million), Guntenbachstrasse Volketswil (CHF 4.6 million), Escherhof Wallisellen (CHF 4.2 million) and Guggach Zurich (CHF 141.4 million) was transferred to third parties, resulting in gains on sales of CHF 34.6 million.
Diverse income includes fees for third-party project development activities amounting to CHF 0.4 million and other earnings from commissions and services provided for third parties amounting to CHF 0.2 million.
3.6 Personnel expenses
CHF million | 2016 | 2015 | ||
Salaries and wages | –38.9 | –43.5 | ||
Social insurance benefits | –3.6 | –3.7 | ||
Employee pension plans | –4.5 | –5.6 | ||
Share-based reimbursement | –0.1 | –0.1 | ||
Other personnel expenses | –2.3 | –2.6 | ||
Personnel expenses | –49.4 | –55.5 |
A CHF 1.2 million past service cost was credited to employee pension expenses in application of IAS 19 (2015: CHF 1.1 million); see 3.11.
Other personnel expenses include spending on actual and flat-rate staff expenses (CHF –1.8 million), training and development (CHF –0.2 million), costs for the recruitment of new employees (CHF –0.2 million) and other directly attributable staff expenses (CHF –0.1 million).
On the balance sheet cut-off date, the staff headcount stood at 292 employees, corresponding to 276 full-time equivalents (31.12.2015: 337 employees/312 full-time equivalents).
3.7 Other operating expenses
CHF million | 2016 | 2015 | ||
IT expenses | –1.2 | –1.4 | ||
Rental expenses | –3.6 | –3.8 | ||
Consultancy and legal fees | –1.8 | –2.3 | ||
Administration expenses | –3.5 | –4.1 | ||
Capital taxes | –1.9 | –1.7 | ||
Other general operating expenses | –0.8 | –0.6 | ||
Other operating expenses | –12.8 | –13.9 |
Rental expenses relate to business premises and parking spaces in Zurich, Basel, Bern, Cham and St. Gallen. For its head office in Zurich, Allreal has an indexed lease which runs until 31 January 2018, with an annual rent of CHF 2.8 million. The leases for the other sites, with annual rents of CHF 0.7 million, have fixed terms, the longest of which runs until January 2022.
CHF million | 31.12.2016 | 31.12.2015 | ||
Rental commitments up to 1 year | 3.5 | 3.5 | ||
Rental commitments 2–3 years | 1.6 | 4.6 | ||
Rental commitments 4–5 years | 0.9 | 0.0 | ||
Rental commitments more than 5 years | 0.0 | 0.0 | ||
Total | 6.0 | 8.1 |
Administrative expenses include the cost of corporate communications, telecommunications, property insurance and office supplies.
Other general operating expenses consist essentially of costs for the operation, maintenance and repair of operating facilities, postage costs and the cost of pre-tax cuts in VAT.
3.8 Financial income
CHF million | 2016 | 2015 | ||
Interest income on financial assets | 1.8 | 1.8 | ||
Financial income | 1.8 | 1.8 |
3.9 Financial expense
CHF million | 2016 | 2015 | ||
Interest expense payable to banks/insurance companies for liabilities | –7.4 | –9.2 | ||
Interest expense for derivatives | –23.1 | –25.5 | ||
Interest expense for bond issues | –9.6 | –10.4 | ||
Capitalised building loan interest | 0.6 | 1.5 | ||
Financial expenses | –39.5 | –43.6 |
The expense for derivatives comprises interest paid of CHF –18.1 million (2015: CHF –20.4 million) in respect of interest rate swaps until terminated. In addition, in the period under review until the time of termination of all interest rate swaps, ineffective portions of the changes in market value and derivatives no longer qualifying for hedge accounting were taken to the income statement in the amount of CHF –4.2 million (2015: CHF –5.1 million). In connection with the recycling of the hedging reserves, CHF –0.8 million was charged to the income statement.
The financial expense for bond issues includes paid and accrued interest of CHF –9.4 million (2015: CHF –10.0 million) up to the balance sheet cut-off date and amortisation of CHF –0.2 million (2015: CHF –0.4 million) between the debt components and the redemption amounts.
Capitalised building loan interest of CHF 0.6 million (2015: CHF 1.5 million) breaks down into development real estate under construction (CHF 0.4 million) and investment real estate under construction (CHF 0.2 million), applying an average interest rate of 1.67 to 2.31% (2015: 2.10–2.30%).
The average interest rate on the outstanding financial liabilities is 1.67%, with an average interest lock-in period of 3.0 years for all financial liabilities (2015: 2.15% and 4.3 years).
3.10 Earnings per share/net asset value (NAV) per share
2016 | 2015 | |||
Number of outstanding shares as at 1 January (in thousands) | 15 910 | 15 941 | ||
Change in holdings of treasury shares (in thousands) | 21 | –31 | ||
Number of outstanding shares as at 31 December (in thousands) | 15 931 | 15 910 | ||
Average number of outstanding shares (in thousands) | 15 929 | 15 907 | ||
Net profit excl. revaluation effect (in CHF million) | 112.2 | 109.7 | ||
Earnings from revaluation of investment real estate (in CHF million) | 85.0 | 15.8 | ||
Deferred taxes on revaluation gains (in CHF million) | –23.6 | –3.6 | ||
Net profit incl. revaluation effect (in CHF million) | 173.6 | 121.9 | ||
Earnings per share incl. revaluation effect (CHF) | 10.90 | 7.66 | ||
Earnings per share excl. revaluation effect (CHF) | 7.04 | 6.89 | ||
Diluted earnings per share | ||||
— incl. revaluation effect (CHF) | 10.90 | 7.65 | ||
— excl. revaluation effect (CHF) | 7.04 | 6.90 |
The diluted earnings per share for the 2015 financial year were restated owing to a change in calculation method; see 1.3.
The share-based remuneration of members of Group Management has the effect of diluting the earnings per share. For the calculation of the diluted net profit, the average number of outstanding shares increases from 15 928 818 to 15 929 586 shares.
CHF million | 2016 | 2015 | ||
Outstanding shares (in thousands) as at 31 December | 15 931 | 15 910 | ||
Equity as at 31 December (CHF million) | 2 086.8 | 1 994.1 | ||
Net asset value (NAV) per share after deferred taxes (CHF) | 131.00 | 125.35 | ||
Equity plus provision for deferred taxes less deferred tax assets (CHF million) | 2 244.7 | 2 115.3 | ||
Net asset value (NAV) per share before deferred taxes (CHF) | 140.90 | 132.95 |
At the end of the year, the share price stood at CHF 151.30 (31.12.2015: CHF 133.60). This represents a premium of 15.5% compared to the net asset value per share after deferred taxes of CHF 131.00 (31.12.2015: premium 6.6%).
3.11 Employee pension plans
Swiss pension institutions are regulated by the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). The BVG stipulates that pension institutions must be managed autonomously and as legally independent institutions.
The Board of Trustees, as the governing body of the pension fund, is made up of an equal number of employee and employer representatives. The Board of Trustees is tasked with defining and implementing investment strategy.
Plan members are insured against the economic consequences of old age, disability and death, in respect of which the BVG stipulates minimum benefits. Both employer and employee pay a share of the contributions to the pension fund; these are based on the insured salary and on the age of the plan member. Pension contributions and annual interest are credited to the individual savings accounts. Upon retirement of a plan member, the balance of the savings account is either paid out or, applying a statutory conversion rate, converted into a retirement pension. Benefits will also be paid in cases of long-term occupational disability.
All actuarial risks, comprising demographic risks (life expectancy) as well as financial risks (return on plan assets or development of wages, salaries and pensions), are borne by the pension fund and regularly assessed by the Board of Trustees. In the event of a shortfall in cover as defined by the BVG, recourse may be had to various measures. These primarily include increasing current contributions, payment of additional restructuring contributions by the employer, or adjusting the conversion rates.
Development of pension fund commitments and assets
CHF million | 31.12.2016 | 31.12.2015 | ||
Present value of pension commitments | –150.6 | –141.8 | ||
Fair value of pension fund assets | 137.7 | 137.6 | ||
Net pension commitments | –12.9 | –4.2 |
Defined benefit pension plan expenses break down as follows:
CHF million | 2016 | 2015 | ||
Current service cost | 5.4 | 6.0 | ||
Past service cost | –1.2 | –1.1 | ||
Service cost | 4.2 | 4.9 | ||
Net interest income employee pension plans | 0.0 | 0.1 | ||
Pension expenses recognised in the statement of income | 4.2 | 5.0 |
The past service cost of CHF 1.2 million was credited to the income statement under personnel expenses (2015: CHF 1.1 million).
Change in pension commitments
CHF million | 2016 | 2015 | ||
Present value of pension commitments as at 1 January | 141.8 | 151.1 | ||
Current service cost | 5.4 | 6.0 | ||
Past service cost | –1.2 | –1.1 | ||
Interest expenses | 1.3 | 1.5 | ||
Contributions from insured members | 2.8 | 3.1 | ||
Benefits paid | –8.4 | –9.0 | ||
Insurance premiums | –0.2 | –0.2 | ||
Actuarial losses/(gains) | 9.1 | –9.6 | ||
Present value of pension commitments as at 31 December | 150.6 | 141.8 |
Changes in pension fund assets at market value
CHF million | 2016 | 2015 | ||
Assets of the pension funds at market value as at 1 January | 137.6 | 137.0 | ||
Return on plan assets (excluding interest income) | 1.5 | 1.8 | ||
Interest income | 1.2 | 1.3 | ||
Employer’s contributions | 3.2 | 3.4 | ||
Contributions from insured members | 2.8 | 3.1 | ||
Benefits paid | –8.4 | –9.0 | ||
Insurance premiums | –0.2 | –0.2 | ||
Assets of the pension funds at market value as at 31 December | 137.7 | 137.6 |
As at the balance sheet cut-off date, plan assets break down into the individual investment categories as follows:
CHF million | 31.12.2016 | in % | 31.12.2015 | in % | ||||
Cash and cash equivalents | 3.5 | 2.5 | 4.5 | 3.3 | ||||
Equity instruments (shares) | 41.2 | 29.9 | 41.4 | 30.1 | ||||
Debt instruments (bonds) | 34.0 | 24.7 | 37.7 | 27.4 | ||||
Other assets | 0.9 | 0.7 | 0.7 | 0.5 | ||||
Assets traded on active markets | 79.6 | 57.8 | 84.3 | 61.3 | ||||
Real estate | 58.0 | 42.2 | 53.3 | 38.7 | ||||
Assets not traded on active markets | 58.0 | 42.2 | 53.3 | 38.7 | ||||
Pension fund assets | 137.6 | 100.0 | 137.6 | 100.0 |
The calculation was performed on the basis of the following assumptions:
31.12.2016 | 31.12.2015 | |||
Discount rate | 0.30% | 0.90% | ||
Expected development of wages and salaries | 0.60% | 0.60% | ||
Expected development of pensions | 0.00% | 0.00–0.25% |
The discount rate and the future development of wages and salaries were identified as significant actuarial assumptions.
If the discount rate were 25 basis points higher or lower than at the balance sheet cut-off date and if all other variables were to remain constant, the present value of pension fund commitments would be CHF 4.9 million lower or CHF 5.3 million higher (31.12.2015: CHF 4.3 million/CHF 4.7 million).
If the development of wages and salaries were 25 basis points higher or lower than the assumptions made at the balance sheet cut-off date and if all other variables were to remain constant, the present value of pension fund commitments would be CHF 0.5 million higher or CHF 0.6 million lower, respectively.
The revaluation component of pension fund positions recognised in other comprehensive income breaks down as follows:
CHF million | 2016 | 2015 | ||
Change in demographic assumptions | 0.0 | 0.0 | ||
Change in financial assumptions | –11.0 | 2.4 | ||
Effect of experience-based adjustments | 1.6 | 7.2 | ||
Return on plan assets (excluding interest income) | 1.5 | 1.8 | ||
Total expense recognised in other comprehensive income | –7.9 | 11.4 |
A probable CHF 4.4 million will be paid out under defined benefit commitments within the next twelve months, and a probable CHF 42.8 million in the subsequent nine years.
The average term of defined benefit commitments to the end of the period under review is 16.8 years (31.12.2015: 16.7 years).
For the following year, contributions to the plan are expected to come to CHF 3.0 million (employer) and CHF 2.7 million (employee) (2015: CHF 3.4 million and 3.0 million, respectively).
In addition to the Allreal pension fund, some Allreal staff are covered by a management insurance plan taken out with an insurance company. Allreal’s only commitment in respect of this plan is to pay the annual contributions. In the period under review, these amounted to CHF 0.7 million (2015: CHF 0.6 million). The management plan is classified as a defined contribution plan in accordance with IAS 19.
In 2016, employee benefits came to a total of CHF 4.9 million (2015: CHF 5.6 million).
3.12 Share-based reimbursement
Members of Group Management receive an additional remuneration in the form of shares of Allreal Holding AG. Entitlements will be satisfied by the company by means of treasury shares. The amount in connection with the share allocation is charged to personnel expenses over the vesting period.
Time of allocation | Number of | Share price | Expenses | Availability |
10.12.2014 | 441 | 134.00 | 0.027 | 30.11.2016 |
18.04.2016 | 581 | 134.00 | 0.026 | 30.04.2018 |
18.04.2016 | 621 | 134.00 | 0.083 | immediately |
Provided that all preconditions are met, a total of 581 shares of Allreal Holding AG will in future be distributed to eligible beneficiaries.
Total expenses for share-based reimbursement amounted to CHF 0.14 million in the period under review (2015: CHF 0.14 million).