Selected notes

1  Basic principles

1.1 Presentation of accounts

The 2018 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 2017 consolidated financial statements.

Since 1 January 2018, the following new or amended IFRS accounting standards and interpretations have been used in the consolidated financial statements for the first time:

     
     
     
     

With the exception of IFRS 9 and IFRS 15, the IFRS amendments have no material impact on the consolidated financial statements.

IFRS 9

IFRS 9 sets out the classification and measurement of financial instruments and specifies the requirements for hedge accounting and the amortisation of financial assets.

The impact of IFRS 9 on the relevant balance sheet items was analysed and also quantified in terms of the amortisation of financial assets. This analysis revealed no need for changes to the consolidated financial statements.

IFRS 15

The standard contains new principles for recognising revenue based on the transfer of control.

To date, revenue and income on the sale of development property have been recognised on transfer of ownership of the respective development real estate unit. Effective 1 January 2018 in compliance with IFRS 15, Allreal recognises revenue and income by the percentage of completion (POC) method as of the time the contract of sale of the development real estate unit is notarised. These units are offset against prepayments made by purchasers and reported under the balance sheet item contract assets or contract liabilities.

In accordance with the modified retrospective approach, in cases where the contract of sale had been notarised but ownership had not been transferred as at 31 December 2017, gains on the sale of development real estate are recognised in the 2018 consolidated financial statements under equity with no impact on income. This concerns twelve units in the Kirschblütenweg development in Basel and four units in the Guggach development in Zurich, resulting in a gain of CHF 2.1 million, tax expenses of CHF 0.6 million and capitalised costs of CHF 17.8 million.

Income from realisation Projects & Development continues to be recognised by the percentage of completion (POC) method. In compliance with IFRS 15, positive order balances Projects & Development division are now reported under the balance sheet item contract assets (within current assets) and negative order balances as contract liabilities (within short-term liabilities). This impacted the consolidated financial statements as follows:

 

30.06.2018

 

01.01.2018

 

31.12.2017

 

25.6

 

46.8

 

0.0

 

38.4

 

31.8

 

78.6

 

31.5

 

20.7

 

0.0

 

16.6

 

33.5

 

54.2

The cash flow statement reflected the impacts accordingly. Application of the modified retrospective approach eliminated the need to restate the previous year’s figures.

With the exception of income from renting investment real estate, which is recognised in accordance with IAS 17, and income from the sale of companies, income is presented in the consolidated financial statements in accordance with IFRS 15.

If IFRS 15 had not been applied, the amounts recognised through equity would have been reported in the income statement since ownership of all units whose sale had been notarised was transferred in the first half of 2018. Moreover, as a result of notarisation of the sale of eight units under the project Solistrasse Bülach ZH, reported income from sales Development of CHF 1.9 million would have been capitalised as part of buildings under construction and the gain of CHF 0.2 million would only have been recognised and accrued on transfer of ownership.

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 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 impacts of IFRS 16 on the consolidated financial statements has not yet been made; the standard will be applied for the first time in 2019.

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 2018, no unusual events occurred that had a material impact on the assets, financial position and earnings of the Allreal Group.

The 2018 consolidated semi-annual financial statements were approved by the Board of Directors of Allreal Holding AG on 17 August 2018.

1.2 Scope of consolidation

Hammer Retex AG, together with its facility management service operation for third parties, was divested and deconsolidated on 28 March 2018, see 5. In all other respects, the scope of consolidation remained unchanged from 31 December 2017.

2  Income from renting investment real estate

 

1st half-year
2018

 

1st half-year
2017

 

16.7

 

16.9

 

81.2

 

70.6

 

97.9

 

87.5

Income from renting investment real estate increased year-on-year by 11.9% to CHF 97.9 million, which is essentially attributable to the portfolio growth achieved in the second half of 2017 and a reduction in vacancies.

The cumulative vacancy rate for the first half of 2018 totalled 2.0% of target rental income (1st half-year 2017: 2.9%), broken down into 2.0% for commercial properties and 2.1% for residential properties (1st half-year 2017: 3.2% and 1.5%).

3  Income from real estate management services

1st half-year
2018

 

1st half-year
2017

 

0.9

 

1.9

 

2.1

 

0.0

 

0.0

 

0.4

 

3.0

 

2.3

Hammer Retex AG, together with its facility management service operation for third parties, was divested on 28 March 2018, see 5.

4  Earnings from Projects & Development division

 

1st half-year
2018

 

1st half-year
2017

 

140.1

 

163.8

 

–119.9

 

–140.2

 

20.2

 

23.6

 

27.5

 

65.5

 

–25.4

 

–56.9

 

2.1

 

8.6

 

3.4

 

4.1

 

1.5

 

1.1

 

27.2

 

37.4

Earnings from realisation Projects & Development consists of architects’ and project & development fees (CHF 12.3 million) and earnings from construction activity (CHF 8.8 million) (1st half-year 2017: CHF 13.3 million and CHF 12.9 million, respectively). This contrasts with directly offset sales deductions (CHF 0.9 million) (1st half-year 2017: CHF –2.6 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 2.3 million) and Kirschblütenweg Basel (CHF 4.9 million), resulting in gains on sales of CHF 2.1 million. Under the project Solistrasse Bülach ZH, contracts of sale had been notarised for 8 units, and 36 units were reserved.

5  Sale of companies

Hammer Retex AG, together with its facility management service operation for third parties, was divested for CHF 0.7 million on 28 March 2018. CHF 0.25 million of the purchase price was settled in cash at the time of sale. The remaining payments will be made in staggered instalments until 31 March 2021.

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 the 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.

 

28.03.2018

 

0.04

 

0.60

 

0.86

 

0.48

 

1.98

 

2.98

 

0.05

 

0.25

 

3.28

 

–1.30

 

–0.75

 

2.05

 

0.25

 

–0.48

 

–0.23

6  Direct expenses for rented investment real estate

 

1st half-year
2018

 

1st half-year
2017

 

–0.7

 

–0.7

 

–2.4

 

–3.0

 

–1.8

 

–2.2

 

–4.0

 

–5.2

 

–8.9

 

–11.1

7  Earnings from revaluation of investment real estate

 

1st half-year
2018

 

1st half-year
2017

 

13.0

 

15.3

 

7.2

 

5.3

 

–7.3

 

–10.6

 

0.0

 

–1.3

 

12.9

 

8.7

CHF 1.1 million of the higher valuation of yield-producing properties relates to residential real estate and CHF 11.9 million to commercial real estate (1st half-year 2017: CHF 1.8 million and CHF 13.5 million, respectively). CHF 7.3 million of the lower valuation of yield-producing properties relates to commercial real estate (1st half-year 2017: CHF –10.6 million).

The average discount rates as at 30 June 2018 for the entire portfolio of yield-producing properties amount to 4.31% (31.12.2017: 4.33%). The average capitalisation rates as at 30 June 2018 amount to 3.82% (31.12.2017: 3.84%).

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

8  Financial expense

 

1st half-year
2018

 

1st half-year
2017

 

–6.0

 

–6.6

 

–5.4

 

–4.7

 

–3.7

 

–3.4

 

0.1

 

0.3

 

–15.0

 

–14.4

Interest expense for derivatives is in connection with the recycling of hedging reserves, CHF 6.0 million (1st half-year 2017: CHF –6.6 million) of which was charged to the income statement as non-cash expense in the period under review.

9  Earnings par share / net asset value (NAV) per share

 

1st half-year
2018

 

1st half-year
2017

 

15 913

 

15 931

 

–26

 

–1

 

15 887

 

15 930

 

15 888

 

15 934

 

61.3

 

59.3

 

12.9

 

8.7

 

–3.9

 

–2.0

 

70.3

 

66.0

 

4.42

 

4.14

 

3.86

 

3.72

    
 

4.42

 

4.14

 

3.86

 

3.72

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 15,887,687 to 15,888,780 shares.

 

30.06.2018

 

31.12.2017

 

15 887

 

15 931

 

2 125.5

 

2 150.7

 

133.80

 

135.15

 

2 316.0

 

2 330.1

 

145.80

 

146.45

10  Investment real estate

 

30.06.2018

 

31.12.2017

 

820.4

 

818.4

 

3 081.5

 

3 112.8

 

3 901.9

 

3 931.2

 

83.0

 

25.4

 

3 984.9

 

3 956.6

The changes in the first half of 2018 can be summarised as follows:

 

Residential
real
estate

 

Commercial
real
estate

 

Total

yield-producing
properties

 

Investment
real estate
under
construction

 

Total

investment
real
estate

 

818.4

 

3 112.8

 

3 931.2

 

25.4

 

3 956.6

 

0.0

 

0.0

 

0.0

 

0.0

 

0.0

 

0.9

 

4.7

 

5.6

 

9.7

 

15.3

 

0.0

 

0.0

 

0.0

 

0.1

 

0.1

 

0.0

 

0.0

 

0.0

 

0.0

 

0.0

 

0.0

 

–40.6

 

–40.6

 

40.6

 

0.0

 

1.1

 

4.6

 

5.7

 

7.2

 

12.9

 

820.4

 

3 081.5

 

3 901.9

 

83.0

 

3 984.9

 

770.8

 

2 714.3

 

3 485.1

 

45.9

 

3 531.0

The value-enhancing investments relate to the yield-producing properties Schiffbaustrasse 2, Zurich (CHF 2.2 million), Vulkanstrasse 106, Zurich (CHF 1.3 million), Engstringermatte, Schlieren (CHF 0.9 million), Grüngasse 27–31 / Badenerstrasse 119–133, Zurich (CHF 0.7 million), and two other properties (CHF 0.5 million).

The reclassifications relate to two properties at the Grünhof site in Zurich (CHF 33.9 million) and Hardstrasse 301 at the Escher-Wyss site in Zurich (CHF 6.7 million).

Largest tenants, commercial real estate

Share in total rental income from commercial real estate:

30.06.2018

 

31.12.2017

 

15%

 

17%

 

8%

 

 

7%

 

8%

 

6%

 

7%

 

5%

 

6%

 

 

6%

 

41%

 

44%

In the first half of 2018, the five largest tenants accounted for a lower share of around 34% of total rental income from all yield-producing properties (commercial and residential).



The weighted remaining term of fixed-term rental contracts for commercial real estate is 6.5 years (31.12.2017: 6.8 years).

Investment real estate under construction as at 30 June 2018

 

Acquisition/
project start

 

Area of property
in m2

 

Register of
suspected
contaminated
sites

 

Minergie

 

Market value
CHF million1

 

Estimated
investment
volume
CHF million2

 

Target rental
income on
completion p.a.
CHF million

 

Expected
completion

   

2011

 

11 250

 

yes

 

yes

 

37.1

 

38.5

 

2.0

 

2018

 

2002/2018

 

7 088

 

yes

 

yes

 

37.0

 

79.2

 

4.3

 

2020

 

2002/2018

 

1 988

 

yes

 

yes

 

8.9

 

39.7

 

2.3

 

2020

        

83.0

 

157.4

 

8.6

  

1 As per 30.06.2018 valuation

2 Building and land costs

Fangletenstrasse, Bülach ZH

Four new-build four-floor 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 the second half of 2018, will be reported in the portfolio of yield-producing properties. For the market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.20% and 3.70% were applied (31.12.2017: 4.40% and 3.90%).

Grünhof site, Zurich

New-build six-floor apartment building with 80 rental apartments in the inner courtyard (previously used for commercial purposes) plus realisation of a replacement new-build containing eight rental apartments in addition to office and commercial space on Badenerstrasse. The rentable residential, office and commercial area in the new-builds on the 7,870 square metre plot in Zurich Aussersihl is 8,022 square metres in total. The project is being built by the Projects & Development division and, upon completion in 2020, will be reported in the portfolio of yield-producing properties. For the first-time market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.10 / 3.90% and 3.60 / 3.40% were applied.

Hardstrasse 301, Zurich

New-build six-floor commercial building with lettable floor space of 5,800 square metres, comprising 4,900 square metres of office space on the upper floors, 580 square metres of commercial space on the ground floor, 320 square metres of storage area in the basement as well as an underground garage with 21 parking spaces. The project is being built by the Projects & Development division and, upon completion in 2020, will be reported in the portfolio of yield-producing properties. For the first-time market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.50% and 4.00%, respectively, were applied.

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

Recognised at fair value as at 30 June 2018, yield-producing properties (CHF 3901.9 million) and investment real estate under construction (CHF 83.0 million) qualify as category 3 fair values. No adjustments were made to valuation techniques or processes during the period under review.

11  Development real estate

 

Development
reserves

 

Buildings under
construction

 

Completed
real estate

 

Total develop-
ment real estate

 

78.3

 

29.9

 

8.3

 

116.5

 

33.5

 

0.0

 

0.0

 

33.5

 

0.5

 

9.5

 

0.0

 

10.0

 

1.0

 

1.1

 

0.0

 

2.1

 

0.0

 

0.0

 

0.0

 

0.0

 

–20.3

 

–18.7

 

–6.3

 

–45.3

 

0.0

 

0.0

 

0.0

 

0.0

 

93.0

 

21.8

 

2.0

 

116.8

The disposal of development reserves relates to the property on Grindelstrasse Bassersdorf, disposals of buildings under construction relate to the projects Solistrasse Bülach (CHF 2.3 million) and Kirschblütenweg Basel (CHF 16.4 million), and disposals of completed real estate relate to Guggach Zurich (CHF 6.3 million). Disposals of buildings under construction and completed real estate in an amount of CHF 17.8 million were recognised directly through equity, see 1.1.

Development real estate as at 30 June 2018

 

Acquisition/
project start

 

Area of property
in m2

 

Register of
suspected
contaminated
sites

 

Book value
CHF million

 

Estimated
investment
volume
CHF million1

 

Project status

 

Expected
completion

              
   

2013

 

46 419

 

no

 

35.42

 

175.0

 

in planning

 

open

   

2018

 

8 386

 

no

 

33.72

 

70.0

 

in planning

 

open

   

1987

 

30 278

 

yes

 

16.02

 

100.0

 

in planning

 

open

   

2016

 

11 582

 

no

 

2.43

 

55.0

 

in planning

 

open

   

2017

 

3 806

 

no

 

5.52

 

17.0

 

in planning

 

open

       

93.0

 

417.0

    
   

2011

 

18 586

 

yes

 

21.8

 

55.0

 

in progress

 

2019

       

21.8

 

55.0

    
 

20164

     

2.0

      
       

2.0

      
    


116.8

 


472.0

    

1 Land and building costs

2 Book value includes acquisition costs for the land 100% owned by Allreal and accrued project costs of third parties

3 Book value includes acquisition costs for prepayments made for land and accrued project costs of third parties (transfer of ownership for land pending)

4 Completion

Solistrasse, Bülach ZH

Five new-build apartment buildings with a total of 73 condominiums and 78 underground parking spaces to Minergie-Eco standard with lettable floor space (100% residential) of 8,150 square metres. It is being built by the Projects & Development division and is scheduled for completion in 2019. As at 30 June 2018, contracts of sale had been notarised for 8 out of 73 residential units, 0 of which with transfer of ownership.

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 the Projects & Development division and completed in 2016. As at 30 June 2018, 196 out of 197 residential units had been sold with transfer of ownership. One apartment was still for sale.

12  Share capital

On 20 April 2018, the annual general meeting of Allreal Holding AG voted in favour of lowering the share capital by reducing the nominal value of each registered share from CHF 50.00 to CHF 1.00 and using the amount of the reduction to repay CHF 6.25 per registered share to shareholders and to allocate CHF 42.75 per registered share to the reserves from contribution of capital. Accordingly, as at the balance sheet cut-off date, the share capital of Allreal Holding AG comprised 15,942,821 registered shares with a nominal value of CHF 1.00 each. Each share carries one vote and confers entitlement to attend the general meeting if entered in the share register.

Shareholdings developed as follows:

 

Shares issued

 

Treasury shares

 

Outstanding shares

      
 

15 942 821

 

12 000

 

15 930 821

   

166 174

  
   

–146 646

  
   

–502

  
 

15 942 821

 

29 528

 

15 913 293

 

15 942 821

 

29 528

 

15 913 293

   

115 468

  
   

–88 166

  
   

–1 193

  
 

15 942 821

 

55 637

 

15 887 184

On 30 June 2018, Allreal held 55,637 treasury shares (31.12.2017: 29,528 shares). The average purchase price per share stands at CHF 159.45 (31.12.2017: CHF 165.25). 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 20 April 2020 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 1,000,000 by issuing up to 1,000,000 registered shares each with a par value of CHF 1.00 (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 million through the issue of up to 2,495,763 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 2018) following the conversion of convertible bonds into shares in previous years. The par value reduction to CHF 1.00 per share is also applicable to conditional capital, resulting in the latter amounting to CHF 2.5 million as at 30 June 2018.

Further, Allreal Holding AG has conditional capital of CHF 200 million (200,000 registered shares at a nominal value of CHF 1.00 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 20 April 2018 voted in favour of making a distribution of CHF 6.25 per share, corresponding to a total amount of CHF 99.6 million, in the form of a nominal value reduction. The treasury shares of the company do not rank for distributions. Consequently, a distribution of CHF 99.3 million was made on 5 July 2018, which is reported in other liabilities as at 30 June 2018.

13  Financial liabilities

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

 

<1 year

 

1–3 years

 

3–5 years

 

>5 years

 

Total

          
 

558.0

 

306.0

 

359.3

 

689.7

 

1 913.0

 

29.2

 

16.0

 

18.8

 

36.0

 

100.0

          
 

450.5

 

301.0

 

362.8

 

742.0

 

1 856.3

 

24.3

 

16.2

 

19.5

 

40.0

 

100

The financial liabilities consist of loans secured by mortgage (fixed advances and fixed-rate mortgages) and eight bond issues. The bank loans in the form of fixed advances are extended on a rolling basis. Bond issues and 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 2018–2023 0.50% bond with an issue price of 100.123% (CHF 125.0 million) was paid up on 19 April 2018. In addition to the interest rate of 0.50% actually payable, the expense – corresponding to an effective interest rate of 0.55% – is also deferred to the income statement.

In the first half of 2018, CHF 52 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 53 months (31.12.2017: 49 months).

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

 

Nominal
amount

 

Book value

as at 30.06.2018

 

Fair value
as at 30.06.2017

 

Book value

as at 31.12.2017

 

Fair value

As at 31.12.2017

 

160.0

 

160.2

 

157.9

 

160.2

 

163.5

 

150.0

 

149.9

 

147.9

 

149.9

 

150.6

 

100.0

 

100.4

 

103.6

 

100.4

 

106.3

 

150.0

 

149.6

 

149.9

 

149.5

 

152.0

 

125.0

 

124.7

 

125.0

 

 

 

120.0

 

120.2

 

121.7

 

120.3

 

122.3

 

150.0

 

149.6

 

156.0

 

149.5

 

157.8

 

125.0

 

124.9

 

126.4

 

124.9

 

127.3

 

453.8

 

453.8

 

461.5

 

403.3

 

411.5

During the period under review, CHF 0.1 million was spent on the amortisation of the issuing costs for the bonds (1st half-year 2017: CHF 0.2 million).

As at 30 June 2018, fixed advances amounting to CHF 322.5 million and fixed-rate mortgages amounting to CHF 453.8 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 2018 is 1.57% (31 December 2017: 1.53%).

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.

14  Capital commitments, contingent liabilities and legal disputes

 

30.06.2018

 

31.12.2017

 

18.5

 

18.5

 

0.0

 

0.0

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 an additional CHF 273.1 million in connection with financings with third parties on behalf of individual subsidiaries (31.12.2017: CHF 346.0 million).

As at 30 June 2018, there are no pending legal disputes of a nature liable to have a significant impact on the asset and income situation of Allreal Group for which no corresponding provisions are in place.

15  Events after the balance sheet date

Between 30 June 2018 and 17 August 2018 (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.