Selected notes

1.1  Presentation of accounts

The 2017 consolidated semi-annual financial statements were prepared in accordance with International Financial Reporting Standard IAS 34 on Interim Financial Reporting and conform to the Listing Rules as well as Article 17 of the Directive on Financial Reporting (DFR) of SIX Swiss Exchange. The same principles of accounting apply as for the 2016 consolidated financial statements. The scope of consolidation remained unchanged from 31 December 2016.

Since 1 January 2017, the following new or amended IFRS accounting standards and interpretations have been used in the consolidated financial statements for the first time:

These IFRS changes have no significant impact on the consolidated financial statements.

Some new or amended IFRS standards and interpretations have been adopted by the IASB, but will only enter into force in a subsequent accounting period. With the exception of the standards described below, no material adjustments are expected.

IFRS 15

The standard contains new principles for recognising revenue. Of particular significance for Allreal is at what point in time revenue and income on development property held for sales are recognised. In accordance with IAS 18 and IFRIC 15, revenue and income are currently recognised on transfer of ownership of individual development real estate units. Under certain circumstances, the new standard IFRS 15 provides that revenue and income are recognised by the percentage of completion method (POC) over the life of a project.

IFRS 16

The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. Long-term leases for properties fall under the scope of IFRS 16 and are to be recognised for the lessee’s right to use the asset.

A detailed analysis of the impact of IFRS 15 and IFRS 16 on the consolidated financial statements has not yet been made; it is not planned to apply the standard early. Apart from additional disclosure requirements, the remaining IFRS amendments are not expected to result in any material adjustments.

Seen over the course of the year, individual business activities of the Allreal Group are subject to fluctuations, in particular in the Projects & Development division – for instance, the planning and execution of construction projects or the sale of development real estate. In the first half of 2017, no unusual events occurred that had a material impact on the assets, financial position and earnings of the Allreal Group.

The 2017 consolidated semi-annual financial statements were approved by the Board of Directors of Allreal Holding AG on 22 August 2017.

1.2  Change in the calculation of diluted earnings per share

The method hitherto employed by Allreal to calculate diluted earnings per share was to adjust undiluted earnings for the amount of personnel expenses deferred for share-based reimbursements, which is not in compliance with IAS 33.

The method of calculation has therefore been adjusted accordingly, resulting in diluted earnings per share remaining unchanged year-on-year at CHF 4.39.

The method of calculating undiluted earnings per share is not affected by this change.

Income from renting investment real estate increased year-on-year by 1.2% to CHF 87.5 million, which is essentially attributable to a reduction in vacancies.

The cumulative vacancy rate for the first half of 2017 totalled 2.9% of target rental income (1st half-year 2016: 6.2%), broken down into 3.2% for commercial properties and 1.5% for residential properties (1st half-year 2016: 7.0% and 2.7%).

Earnings from realisation Projects & Development consists of architects’ and project & development fees (CHF 13.3 million) and earnings from construction activity (CHF 12.9 million) (1st half-year 2016: CHF 17.3 million and CHF 8.0 million, re/spectively). This contrasts with directly offset sales deductions (CHF –2.6 million) (1st half-year 2016: CHF –0.9 million).

In the first half of 2017, ownership of land under the projects Fangleten-/Soli/strasse Bülach (CHF 29.7 million), Guggach Zurich (CHF 18.7 million), Pfruendmatt Mettmenstetten (CHF 8.6 million), Lerchenbergstrasse Erlenbach (CHF 6.4 million), Stauffacher Steinen (CHF 1.7 million) and Cholplatz Bülach (CHF 0.4 million) was transferred to third parties, resulting in gains on sales of CHF 8.6 million.

In the first half of 2016, the sale of four properties produced earnings of CHF 5.6 million.

CHF 1.8 million of the higher valuation of yield-producing properties relates to residential real estate and CHF 13.5 million to commercial real estate (1st half-year 2016: CHF 11.4 million and CHF 10.2 million, respectively). CHF 10.6 million of the lower valuation of yield-producing properties relates to commercial real estate (1st half-year 2016: CHF –17.8 million).

The average discount rates as at 30 June 2017 for the entire portfolio of yield-producing properties amount to 4.42% (31.12.2016: 4.43%). The average capitalisation rates as at 30 June 2017 amount to 3.93% (31.12.2016: 3.95%).

As in the previous year, Jones Lang LaSalle AG acts as the real estate valuer on a contract basis.

Interest expense for derivatives is in connection with the recycling of hedging reserves, CHF 6.6 million of which was charged to the income statement as non-cash expense in the period under review.

The diluted earnings per share for the first half of 2016 were restated owing to a change in calculation method; see 1.2.

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 15,934,047 to 15,934,795 shares.

The changes in the first half of 2017 can be summarised as follows:

Within the commercial real estate portfolio, the value-enhancing investments relate to Bellerivestrasse 30, Zurich (CHF 3.5 million), Grüngasse 27–31 / Badenerstrasse 119–133, Zurich (CHF 1.0 million), and five other properties (CHF 1.0 million).

The reclassification from yield-producing properties to development real estate relates to Grindelstrasse 3/5 in Bassersdorf. Following the merger with an undeveloped 6,000 square metre adjacent plot carried as development reserves since 2008, the land area reserved for project development increased to approximately 12,000 square metres.

Largest tenants, commercial real estate

Share in total rental income from commercial real estate:

In the first half of 2017, the five largest tenants accounted for 45% of rental income from commercial real estate. The ten largest tenants generated 58% of rental income from commercial real estate.

The five largest tenants’ share of total rental income from all yield-producing properties (commercial and residential) declined to around 36% in the first half of 2017.

The weighted remaining term of fixed-term rental contracts is 7.4 years (31.12.2016: 7.1 years).

Schiffbauplatz, Zurich

New-build five- to six-floor commercial building to Minergie standard with lettable floor space of 13,100 square metres. The project comprises 10,700 square metres of office space on the first to fifth floors, 1,800 square metres of space for catering and commercial businesses on the ground floor, 600 square metres of storage space and 36 parking spaces in the underground car park. Ten-year rental contracts have been concluded for the whole of the office space and part of the storage space. The project is being built by the Projects & Development division and, upon completion in the second half of 2017, will be reported under the portfolio of yield-producing properties. For the market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.50% and 4.00% were applied (31.12.2013: 4.60% and 4.10%).

Fangletenstrasse, Bülach ZH

Four new-build apartment buildings with a total of 76 rental apartments to Minergie-Eco standard on the 11,250 square metre plot on Fangletenstrasse in Bülach-Nord. The rentable area is 7,387 square metres. The project is being built by the Projects & Development division and, upon completion in 2018, will be reported under the portfolio of yield-producing properties. For the market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.40% and 3.90% were applied (31.12.2016: 4.40% and 3.90%).

The two investment real estate properties under construction are 100% solely owned by Allreal.

Yield-producing properties (CHF 3,499.5 million) and investment real estate under construction (CHF 94.4 million) are recognised as at 30 June 2017 at category 3 fair values. No adjustments were made to valuation techniques or processes during the period under review.

The reclassification from investment real estate to development real estate relates to Grindelstrasse 3/5 in Bassersdorf (CHF 16.0 million). Following sale to a third party and the start of construction, the Fangletenstrasse project in Bülach (accrued costs) was reclassified from development real estate to trade receivables (CHF –0.7 million).

Kirschblütenweg, Basel

New-build complex of 12 terraced houses and 24 garage parking spaces to Minergie standard with lettable floor space (100% residential) of 1,967 square metres. It is being built by Allreal Generalunternehmung AG and is scheduled for completion in 2018. As at 30 June 2017, all residential units had been sold, 0 of which with transfer of ownership.

Lerchenbergstrasse, Erlenbach ZH

Five new-build semi-detached houses and three new-build apartment buildings with a total of 39 residential units and 93 underground parking spaces to Minergie standard with lettable floor space (100% residential) of 7,730 square metres. The project was built by Allreal Generalunternehmung AG and completed in 2014. As at 30 June 2017, 38 out of 39 residential units had been sold, 35 of which with transfer of ownership. 1 apartment was still for sale.

Guggach, Zurich

Four new-build apartment buildings with a total of 197 condominiums and 219 underground parking spaces to Minergie standard with lettable floor space (100% residential) of 25,919 square metres. The project was built by Allreal Generalunternehmung AG and completed in 2016. As at 30 June 2017, 195 out of 197 residential units had been sold, 186 of which with transfer of ownership. Two apartments were still for sale.

As at the balance sheet cut-off date, the share capital of Allreal Holding AG comprises 15,942,821 registered shares with a par value of CHF 50 each. Each share carries one vote and confers entitlement to attend the general meeting if entered in the share register.

Shareholdings developed as follows:

On 30 June 2017, Allreal held 13,030 treasury shares (31.12.2016: 12,000 shares). The average purchase price per share stands at CHF 176.40 (31.12.2016: CHF 134.15). The total purchase price is deducted from consolidated equity.

The Board of Directors is authorised by the annual general meeting to increase the share capital – excluding the subscription rights of shareholders as applicable – until 15 April 2018 to acquire businesses, business units, participating interests or real estate through an exchange of shares, for financing or refinancing the acquisition of businesses, business units, participating interests or investment projects, or for the purpose of an international placement of shares worth up to CHF 50.0 million by issuing up to 1,000,000 registered shares each with a par value of CHF 50 (authorised capital).

For the purpose of issuing convertible bonds, warrant bonds or other financial instruments, the annual general meeting of 31 March 2006 created conditional capital of up to CHF 125.0 million through the issue of up to 2,500,000 registered shares with a par value of CHF 50 each and with the exclusion of shareholders’ subscription rights. Bearers of the convertible and/or warrant bonds are entitled to subscribe to the new shares. This conditional capital decreased by CHF 0.2 million to CHF 124.8 million (as at 30 June 2017) following the conversion of convertible bonds into shares in previous years.

Further, Allreal Holding AG has conditional capital of CHF 10.0 million (200,000 registered shares at a par value of CHF 50 each) at its disposal for the purpose of issuing options to the members of the Board of Directors and management. This conditional capital has not been drawn on.

The annual general meeting of Allreal Holding AG of 21 April 2017 voted in favour of making a distribution of CHF 5.75 per share, corresponding to a total amount of CHF 91.6 million, in the form of a repayment of reserves from contribution of capital.

Maturity of financial liabilities (capital lock-up at nominal values)

The financial liabilities consist of loans secured by mortgage (fixed advances and fixed-rate mortgages) and six bond issues. The bank loans in the form of fixed advances are extended on a rolling basis. Apart from the bond issues, only bank loans with contractually agreed remaining terms to maturity greater than twelve months are reported as long-term financial liabilities.

During the reporting period, a 2017–2027 0.875% bond with an issue price of 100.550% (CHF 160.0 million) was paid up on 30 March 2017. In addition to the interest rate of 0.875% actually payable, the expense – corresponding to an effective interest rate of 0.859% – is also deferred in the income statement.

In the first half of 2017, CHF 130 million in short-term financial liabilities were refinanced on a long-term basis, increasing the average interest lock-in period for all financial liabilities to 52 months (31.12.2016: 36 months).

As at the balance sheet date, the bond issues and fixed-rate mortgages are recognised as follows:

During the period under review, CHF 0.2 million was spent on the amortisation of the issuing costs for the bonds (1st half-year 2016: CHF 0.2 million).

As at 30 June 2017, fixed advances amounting to CHF 425 million and fixed-rate mortgages amounting to CHF 404.8 million (at nominal values) are in place, all of which were taken out with Swiss banks, insurance companies or pension funds.

The average interest rate of all financial liabilities as at 30 June 2017 is 1.69% (31 December 2016: 1.67%).

During the reporting period, the contractual clauses (financial covenants) relating to minimum capitalisation (equity ratio, net gearing, interest coverage ratio and refinancing of properties) agreed upon with the lenders were complied with without exception.

The capital commitment relates 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.

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 CHF 388.1 million in connection with financing transactions with third parties on behalf of individual subsidiaries (31.12.2016: CHF 421.6 million).

As at 30 June 2017, there are no pending legal disputes of a nature liable to have a significant impact on the asset and income situation of the Allreal Group for which no corresponding provisions or bad debt allowances are in place.

Until 26 April 2017, those shareholders who had concluded a pooling agreement to satisfy the provisions of the “Lex Koller” were deemed to be related parties. The shareholders’ pooling agreement was terminated effective this date. The sole shareholder from this pool that is still deemed to be a related party is the Helvetia Group, which holds a 10.67% share in Allreal Holding AG.

Until termination of the agreement, the Projects & Development division carried out construction projects for a total of CHF 6.5 million for several parties to the shareholders’ pooling agreement, which corresponds to 4.0% of income from realisation Projects & Development (1st half of 2016: CHF 7.0 million/3.2%).

Between 30 June 2017 and 22 August 2017 (date on which the consolidated semi-annual 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.