3 Notes on the consolidated statement of comprehensive income
3.1 Income from renting investment real estate
CHF million | 2018 | 2017 | ||
Rental income from residential properties | 33.7 | 33.6 | ||
Rental income from commercial properties | 161.1 | 145.6 | ||
Income from renting investment real estate | 194.8 | 179.2 |
The rental income is calculated as follows:
Projected rental income | 200.3 | 187.8 | ||
Vacancy losses | –4.0 | –4.9 | ||
Collection losses and loss of income as a result of rent-free periods | –1.5 | –3.7 | ||
Income from renting investment real estate | 194.8 | 179.2 |
The accumulated vacancy rate for the 2018 financial year amounted to a total of 2.0% of projected rental income (2017: 2.6%), with residential properties accounting for 2.9% and commercial properties 1.8% (2017: 1.6% and 2.8%, respectively).
The rest of the rental income breaks down as follows:
CHF million | 2018 | 2017 | ||
Residential real estate held on a continuous basis | 33.4 | 33.6 | ||
Commercial real estate held on a continuous basis | 161.1 | 142.3 | ||
Acquisitions and own developments | 0.3 | 3.3 | ||
Income from renting investment real estate | 194.8 | 179.2 |
3.2 Direct expenses for rented investment real estate
CHF million | 2018 | 2017 | ||
Administrative and operating expenses, residential real estate | –1.6 | –1.6 | ||
Administrative and operating expenses, commercial real estate | –5.0 | –5.5 | ||
Maintenance and repair expenses, residential real estate | –4.8 | –4.7 | ||
Maintenance and repair expenses, commercial real estate | –11.2 | –12.8 | ||
Real estate expenses | –22.6 | –24.6 |
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 | 2018 | 2017 | ||
Administrative fees and costs | –2.7 | –2.7 | ||
Insurance, fees and charges | –1.7 | –1.6 | ||
Janitorial services | –0.3 | –0.5 | ||
Other expense and ancillary costs (borne by owner) | –1.9 | –2.3 | ||
Administrative and operating expenses | –6.6 | –7.1 |
In 2018, real estate expenses for unlet properties amounted to CHF 0.6 million (2017: CHF 0.5 million).
3.3 Income from real estate management services
CHF million | 2018 | 2017 | ||
Income from administration and management | 1.1 | 3.7 | ||
Income from sale of companies | 2.1 | – | ||
Income from sale and brokerage | 0.0 | 0.5 | ||
Income from real estate management services | 3.2 | 4.2 |
Hammer Retex AG, together with its facility management service operation for third parties, was divested on 28 March 2018, see 3.12.
3.4 Earnings from Projects & Development division
CHF million | 2018 | 2017 | ||
Income from realisation Projects & Development | 290.3 | 343.2 | ||
Direct expenses from realisation Projects & Development | –252.5 | –298.2 | ||
Earnings from realisation Projects & Development | 37.8 | 45.0 | ||
Income from sales Development | 55.2 | 86.4 | ||
Direct expenses from sales Development | –49.7 | –74.6 | ||
Earnings from sales Development | 5.5 | 11.8 | ||
Capitalised company-produced assets | 6.6 | 7.5 | ||
Diverse income | 2.7 | 2.4 | ||
Earnings from Projects & Development division | 52.6 | 66.7 |
Earnings from realisation Projects & Development consists of architects’ and project & development fees (CHF 23.1 million) and earnings from construction activity (CHF 17.7 million) (2017: CHF 27.1 million/CHF 23.5 million). This contrasts with directly offset sales deductions of CHF –3.0 million for warranty expenses, construction insurance and guarantees, performance guarantees, bad debt allowances and third-party expenses arising from tendering (2017: CHF –5.6 million).
Income from sales Development was attributable to the disposal of the development property at Grindelstrasse Bassersdorf ZH (CHF 20.3 million) and to revenue from the projects Solistrasse Bülach ZH (CHF 27.1 million), Guggach Zurich (CHF 2.9 million) and Kirschblütenweg Basel (CHF 4.9 million), resulting in gains on sales of CHF 5.5 million. Under the project Solistrasse Bülach ZH, contracts of sale had been notarised for 49 units, and 12 units were reserved.
Diverse income includes fees for third-party project development activities amounting to CHF 1.8 million and other earnings from commissions and services provided for third parties amounting to CHF 0.5 million and rental income from development real estate in the amount of CHF 0.4 million.
3.5 Personnel expenses
CHF million | 2018 | 2017 | ||
Salaries and wages | –32.4 | –36.2 | ||
Social insurance benefits | –2.2 | –3.6 | ||
Employee pension plans | –4.6 | –5.4 | ||
Share-based reimbursement | –0.2 | –0.1 | ||
Other personnel expenses | –2.1 | –2.3 | ||
Personnel expenses | –41.5 | –47.6 |
An expense of CHF 3.6 million was credited to employee pension expenses in application of IAS 19 (2017: CHF 4.5 million), see 3.11. Other personnel expenses include spending on actual and flat-rate staff expenses (CHF 1.6 million), training and development (CHF 0.3 million), costs for the recruitment of new employees (CHF 0.1 million) and other directly attributable staff expenses (CHF 0.1 million).
On the balance sheet cut-off date, the staff headcount stood at 229 employees, corresponding to 216 full-time equivalents (31.12.2017: 274 employees/259 full-time equivalents).
3.6 Other operating expenses
CHF million | 2018 | 2017 | ||
IT expenses | –1.5 | –1.3 | ||
Rental expenses | –3.2 | –3.6 | ||
Consultancy and legal fees | –1.2 | –1.2 | ||
Administration expenses | –2.8 | –3.0 | ||
Capital taxes | –1.8 | –2.1 | ||
Other general operating expenses | –0.7 | –0.7 | ||
Other operating expenses | –11.2 | –11.9 |
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 a lease which runs until 31 January 2021, with an annual rent of CHF 2.7 million. The leases for the other sites, with annual rents of CHF 0.5 million, have fixed terms, the longest of which runs until January 2022.
CHF million | 31.12.2018 | 31.12.2017 | ||
Rental commitments up to 1 year | 3.1 | 3.4 | ||
Rental commitments 2 to 5 years | 3.3 | 7.1 | ||
Rental commitments more than 5 years | 0.0 | 0.0 | ||
Total | 6.4 | 10.5 |
3.7 Financial income
CHF million | 2018 | 2017 | ||
Interest income on financial assets | 1.6 | 1.7 | ||
Financial income | 1.6 | 1.7 |
3.8 Financial expense
CHF million | 2018 | 2017 | ||
Expense for derivatives | –12.1 | –13.3 | ||
Interest expense for bond issues | –11.1 | –9.0 | ||
Interest expense payable to banks/insurance companies for liabilities | –7.4 | –7.3 | ||
Capitalised building loan interest | 0.3 | 0.4 | ||
Financial expense | –30.3 | –29.2 |
The expense for derivatives is in connection with the recycling of hedging reserves, CHF 12.1 million of which was charged to the income statement as non-cash expense in the period under review.
The interest expense for bond issues includes paid and accrued interest of CHF –11.3 million up to the balance sheet cut-off date (2017: CHF –8.7 million) and amortisation of CHF 0.2 million (2017: CHF –0.3 million) between the debt components and the redemption amounts.
Capitalised building loan interest of CHF 0.3 million (2017: CHF 0.4 million) breaks down into development real estate under construction (CHF 0.1 million) and investment real estate under construction (CHF 0.2 million), applying an average interest rate of 0.80% (2017: 0.85%).
3.9 Earnings per share/net asset value (NAV) per share
2018 | 2017 | |||
Number of outstanding shares as at 1 January (in thousands) | 15 913 | 15 931 | ||
Change in holdings of treasury shares (in thousands) | –27 | –18 | ||
Number of outstanding shares as at 31 December (in thousands) | 15 886 | 15 913 | ||
Average number of outstanding shares (in thousands) | 15 888 | 15 929 | ||
Net profit excl. revaluation effect (in CHF million) | 115.6 | 113.3 | ||
Earnings from revaluation of investment real estate (in CHF million) | 60.6 | 21.8 | ||
Deferred taxes on revaluation gains (in CHF million) | –15.2 | –5.9 | ||
Net profit incl. revaluation effect (in CHF million) | 161.0 | 129.2 | ||
Earnings per share incl. revaluation effect (CHF) | 10.13 | 8.11 | ||
Earnings per share excl. revaluation effect (CHF) | 7.28 | 7.11 | ||
Diluted earnings per share | ||||
— incl. revaluation effect (CHF) | 10.13 | 8.11 | ||
— excl. revaluation effect (CHF) | 7.28 | 7.11 |
The share-based remuneration of members of Group Management has the effect of diluting the earnings per share. For this calculation, the average number of outstanding shares increases from 15,887,988 to 15,889,091.
CHF million | 2018 | 2017 | ||
Outstanding shares (in thousands) as at 31 December | 15 886 | 15 913 | ||
Equity as at 31 December (CHF million) | 2 218.8 | 2 150.7 | ||
Net asset value (NAV) per share after deferred taxes (CHF) | 139.65 | 135.15 | ||
Equity plus provision for deferred taxes less deferred tax assets (CHF million) | 2 428.2 | 2 330.0 | ||
Net asset value (NAV) per share before deferred taxes (CHF) | 152.85 | 146.40 |
3.10 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 defining and implementing investment strategy.
Plan members of the pension fund 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 | 31.12.2018 | 31.12.2017 | ||
Present value of pension commitments | –133.2 | –141.4 | ||
Fair value of pension fund assets | 143.8 | 151.3 | ||
Net pension fund assets | 10.6 | 9.9 |
Defined benefit pension plan expenses break down as follows:
CHF million | 2018 | 2017 | ||
Current service cost | 3.7 | 4.4 | ||
Past service cost | 0.0 | 0.0 | ||
Service cost | 3.7 | 4.4 | ||
Net interest income employee pension plans | –0.1 | 0.1 | ||
Pension expenses recognised in the statement of income | 3.6 | 4.5 |
Change in pension commitments
CHF million | 2018 | 2017 | ||
Present value of pension fund commitments as at 1 January | 141.4 | 150.6 | ||
Current service cost | 3.7 | 4.4 | ||
Interest expense | 0.9 | 0.9 | ||
Contributions from insured members | 1.8 | 2.7 | ||
Benefits paid | –2.3 | –5.9 | ||
Insurance premiums | –0.1 | –0.2 | ||
Sale of companies | –11.4 | 0.0 | ||
Actuarial gains | –0.8 | –11.1 | ||
Present value of pension fund commitments as at 31 December | 133.2 | 141.4 |
Changes in pension fund assets at market value
CHF million | 2018 | 2017 | ||
Assets of the pension funds at market value as at 1 January | 151.3 | 137.7 | ||
Return on plan assets (excluding interest income) | –1.0 | 13.4 | ||
Interest income | 1.0 | 0.8 | ||
Employer’s contributions | 1.8 | 2.8 | ||
Contributions from insured members | 1.8 | 2.7 | ||
Benefits paid | –2.3 | –5.9 | ||
Insurance premiums | –0.1 | –0.2 | ||
Sale of companies | –8.7 | 0.0 | ||
Assets of the pension funds at market value as at 31 December | 143.8 | 151.3 |
As at the balance sheet cut-off date, plan assets break down into the individual investment categories as follows:
CHF million | 31.12.2018 | in % | 31.12.2017 | in % | ||||
Cash | 5.9 | 4.1 | 4.7 | 3.1 | ||||
Equity instruments (shares) | 53.9 | 37.5 | 53.2 | 35.2 | ||||
Debt instruments (bonds) | 22.4 | 15.6 | 23.4 | 15.5 | ||||
Other assets | 0.9 | 0.6 | 9.3 | 6.1 | ||||
Assets traded on active markets | 83.1 | 57.8 | 90.6 | 59.9 | ||||
Real estate | 60.7 | 42.2 | 60.7 | 40.1 | ||||
Assets not traded on active markets | 60.7 | 42.2 | 60.7 | 40.1 | ||||
Pension fund assets | 143.8 | 100.0 | 151.3 | 100.0 |
The calculation was performed on the basis of the following assumptions:
31.12.2018 | 31.12.2017 | |||
Discount rate | 0.85% | 0.70% | ||
Expected development of wages and salaries | 0.60% | 0.60% | ||
Expected development of pensions | 0.00% | 0.00% |
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 4.0 million lower or CHF 4.3 million higher (31.12.2017: CHF 4.4 million/CHF 4.6 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 0.4 million higher or CHF 0.4 million lower.
The revaluation component of pension fund positions recognised in other comprehensive income breaks down as follows:
CHF million | 2018 | 2017 | ||
Change in demographic assumptions | 0.0 | 0.0 | ||
Change in financial assumptions | 2.5 | 1.8 | ||
Effect of experience-based adjustments | –1.8 | 9.3 | ||
Return on plan assets (excluding interest income) | –1.0 | 13.4 | ||
Total revaluation component recognised in other comprehensive income | –0.3 | 24.5 |
A probable CHF 5.1 million will be paid out under defined benefit commitments within the next twelve months, and a probable CHF 41.5 million in the subsequent nine years.
The average term of defined benefit commitments to the end of the period under review is 15.7 years (31.12.2017: 16.2 years).
For the following year, contributions to the plan are expected to come to CHF 2.4 million (employer) and CHF 2.4 million (employees) (2017: CHF 2.9 million and 2.6 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 1.0 million (2017: CHF 0.9 million).
In 2018, employee benefits came to a total of CHF 4.6 million (2017: CHF 5.4 million).
3.11 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.
Time of allocation | Number of | Share price | Expenses | Availability | ||||
18.04.2016 | 581 | 134.00 | 0.013 | 30.04.2018 | ||||
25.04.2017 | 502 | 166.50 | 0.042 | 30.04.2019 | ||||
20.04.2018 | 612 | 159.50 | 0.033 | 30.04.2020 | ||||
20.04.2018 | 612 | 159.50 | 0.098 | immediately |
Provided that all preconditions are met, a total of 1,114 shares of Allreal Holding AG will in future be distributed to eligible beneficiaries.
Total expenses for share-based reimbursement amounted to CHF 0.19 million in the period under review (2017: CHF 0.15 million).
3.12 Sale of companies
Hammer Retex AG, together with its facility management service operation for third parties, was divested for CHF 0.75 million on 28 March 2018. CHF 0.25 million of the purchase price was settled in cash at the time of sale and CHF 0.125 million on 31 December 2018. The remaining payments will be made in staggered instalments until 31 March 2020.
At the time of deconsolidation, revenue from the divested business operation was at CHF 0.9 million and net profit at CHF 0.0 million.
The disposal of net assets resulted in earnings from sale of companies of CHF 2.05 million, which were taken to the income statement as a component of the item Income from real estate management services.
CHF million | 28.03.2018 | |||
Property, plant and equipment | 0.04 | |||
Deferred tax assets arising from IAS 19 | 0.60 | |||
Other receivables | 0.86 | |||
Cash | 0.48 | |||
Assets | 1.98 | |||
Liabilities from net pension fund commitment (IAS 19) | 2.73 | |||
Other current liabilities | 0.25 | |||
Short-term provisions for building risks | 0.25 | |||
Current tax liabilities | 0.05 | |||
Equity and liabilities | 3.28 | |||
Net assets divested | –1.30 | |||
Purchase price | –0.75 | |||
Earnings from sale of companies | 2.05 | |||
Purchase price settled in cash | 0.25 | |||
Cash divested | –0.48 | |||
Net cash disposal | –0.23 |