3  Notes on the consolidated statement of comprehensive income

3.1  Income from renting investment real estate

The rental income is calculated as follows:

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:

3.2  Direct expenses for rented investment real estate

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:

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

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

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

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

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.

3.7  Financial income

3.8  Financial expense

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

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.

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

Defined benefit pension plan expenses break down as follows:

Change in pension commitments

Changes in pension fund assets at market value

As at the balance sheet cut-off date, plan assets break down into the individual investment categories as follows:

The calculation was performed on the basis of the following assumptions:

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:

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.

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.