5  Additional information

5.1  Taxes

5.1.1  Tax expense

In the income statement, the tax expense for 2019 and 2018 breaks down as follows:

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.

Other deferred taxes in the income statement

The year-on-year change in temporary valuation differences is attributable to the impact of the tax reform (STAF) as a result of lower tax rates. This was offset by higher expenses for the capitalised tax effects of loss carry-forwards and deferred taxes on revaluation.

5.1.2  Tax liabilities

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

5.1.3  Deferred tax liabilities and assets

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

The deferred tax liabilities in connection with the higher valuation of investment real estate are based on a tax rate of up to 32% (2018: 32%).

Valuation differences on write-downs on investment real estate in the Canton of Zurich and on other balance sheet positions are calculated at a rate of 18 to 19% (2018: 20–22%). A tax rate of up to 24% was applied to valuation differences on write-downs on investment real estate outside the canton of Zurich (2018: 14–24%).

Deferred tax assets comprise the following positions:

The deferred tax assets from loss carry-forwards were valued at a tax rate of 19.7% (2018: 22.0%).

The recognition of pension commitments results in deferred tax liabilities amounting to CHF 4.0 million as at the balance sheet cut-off date (31.12.2018: CHF 2.3 million), representing a year-on-year increase of CHF 1.7 million, CHF 1.9 million of which was taken directly to other earnings and CHF 0.2 million to income.

5.1.4  Reconciliation

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

The reference tax rate used is the sum total of the national, cantonal and municipal income tax rates which are applied on average. The reduction to 21% of the reference tax rate is reflected in the increase in tax effects from revaluations.

Income subject to a lower tax rate factors in that a number of the Group companies are domiciled, or an investment property is situated, at a location where the total tax burden is lower than the reference tax rate.

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 40%. 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

The capital commitment conforms to contractual agreements for the acquisition of development real estate.

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 246.5 million in connection with financing transactions with third parties on behalf of individual subsidiaries (2018: CHF 373.5 million).

5.3  Assets pledged as security for own liabilities

5.4  Finance, capital and risk management

5.4.1  Management of finance and capital

In the context of the financing strategy, in the investment and financing guidelines the Board of Directors issued rules on the extent to which the 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 (net 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)

Net gearing

(net financial debt as a percentage of consolidated equity)

Interest coverage ratio

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

Refinancing of properties

(Borrowings as a percentage of the book value of investment and development real estate)

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.

Interest rate risks

As at 31 December 2019 fixed advances amounting to CHF 250 million (12.5% of all financial liabilities) are in place.

The average interest rate of all financial liabilities as at 31 December 2019 is 1.33% (31 December 2018: 1.48%).

The average interest lock-in period for all financial liabilities as at 31 December 2019 is 56 months (31 December 2018: 52 months).

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 1.3 million (2018: CHF 0.0 million/CHF –1.9 million).

Credit risks

At CHF 20.8 million, the maximum default risk relating to cash is lower than the book value of CHF 29.8 million, since waiver of the right to offset credit balance against liabilities was contractually excluded with a number of lending banks.

On the balance sheet cut-off date, borrowings (excluding bond issues) existed at nominal values towards the following Swiss counterparties:

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.

The maximum default risk relating to receivables and other claims corresponds to the book value. As at the balance sheet cut-off date, the credit risk relating to financial assets amounts to CHF 118.8 million, which, with the exception of the pension plan assets of CHF 20.2 million, corresponds to the balance sheet item.

Refinancing and liquidity risk

Under the financial covenants, Allreal has the option of taking out around CHF 1.6 billion in new borrowings before new equity is required.

Interest and nominal amount payments on liabilities

5.4.3  Market valuation of financial assets and liabilities

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

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.

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 0.5% (2018: 0.6%).

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

5.5  Transactions with related parties

The Board of Directors, Group Management and the Allreal pension fund are deemed to be related parties.

The members of the Board of Directors received fixed remunerations totalling CHF 0.69 million (2018: CHF 0.63 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.

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 3.11 million (2018: CHF 3.54 million) paid to Group Management was recognised in the consolidated financial statements, from which the highest total remuneration of CHF 1.20 million (2018: CHF 1.16 million) was paid to Roger Herzog.

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

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.

As of the balance sheet cut-off date, the following members of the Board of Directors and Group Management were directly or indirectly invested in Allreal Holding AG:

The shareholding of the Helvetia Group, St. Gallen, in which Philipp Gmür performs the function of Group CEO, is not included in the table.

The shares held by the members of the Board of Directors and Group Management correspond to 1.69% of the share capital of the company (31.12.2018: 1.81%).

The Helvetia Group, which holds 10.6% of Allreal Holding AG’s share capital, is represented on the Board of Directors of Allreal Holding AG by Philipp Gmür. Allreal works for Helvetia as a general contractor for the realisation of construction projects. These services are provided at arm’s length. During the period under review, the volume of project work completed for the Helvetia Group amounted to CHF 21.3 million. In addition, insurance contracts are in place between the Helvetia Group and individual Allreal companies which have an annual premium volume of CHF 1.3 million (policies covering buildings, construction and personnel).

Allreal obtains legal consulting services from several law firms, including Meyerlustenberger Lachenal AG, in which Andrea Sieber is a partner. In the 2019 financial year, Allreal was charged fees amounting to CHF 0.055 million.

Meyerlustenberger Lachenal AG is a tenant of office space in the commercial property at Schiffbaustrasse 2 in Zurich at arm’s length conditions and an annual rental volume of CHF 0.94 million.

In the second half of 2019, Allreal acquired from the Allreal pension fund 40% co-ownership rights to the residential real estate Heerenwiesen 23–41 in Zurich Schwamendingen (annual gross target rental income CHF 1.0 million). Transfer of ownership took effect on 1 January 2020. The purchase price was CHF 28 million. The remaining 60% of co-ownership rights were previously already held by Allreal.

5.6  Events after the balance sheet date

Between 31 December 2019 and 11 February 2020 (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.