Selected notes

1.1  Presentation of accounts

The 2019 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 2018 consolidated financial statements.

Of the new or amended IFRS standards and interpretations which entered into force on 1 January 2019, only IFRS 16 “Leases” (explained below) had an impact on the consolidated financial statements.

IFRS 16

The standard sets out the principles for the recognition, measurement and presentation of leases previously defined in IAS 17. The changes affect in particular operating lease contracts with the lessee, which are now recognised in the balance sheet.

Initial application of the new standard followed the modified retrospective approach, thus eliminating the need to restate the previous year’s figures.

As lessee, Allreal is affected in its capacity as ground lessee of yield-producing properties and with regard to long-term rental agreements for offices and parking spaces. As ground lessee, Allreal recognised a right-of-use asset of CHF 34.8 million for future ground rent and a right-of-use asset of CHF 6.8 million for long-term rental agreements. At the same time, for both positions a lease liability in the same amount was recognised on 1 January 2019.

Leasehold agreements are in place in connection with yield-producing properties or investment real estate properties under construction. Ground rent accruing is index-linked, any changes in the index are made prospectively. Ground rent was previously deducted from income from renting investment real estate. Right-of-use assets arising from leasehold agreements count as yield-producing properties and are reported separately in the notes.

The initial valuation of lease liabilities for both positions corresponds to the value of the discounted future payments. An interest rate with a comparable term and level of security is used as discounting rate. Lease liabilities incurred in the capacity as ground lessee bore an interest rate of 2.0%, and long-term rental agreements an interest rate of 0.5%. Right-of-use assets were initially recognised at the amount of the lease liabilities.

Right-of-use assets arising from long-term rental agreements for offices and parking spaces are reported under other property, plant and equipment. Right-of-use assets are depreciated on a straight-line basis. This position was previously recognised as rental expenses under other operating expenses.

Payments of ground rent and rental expenses are now divided into an amortisation component and an interest component and thus result in shifts between cash flow from financing activities and cash flow from operating activities.

Application of the new standard does not entail any material adjustments for Allreal in its capacity as lessor.

Effects of initial application of IFRS 16

Opening balance sheet after application of IFRS 16

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 2019, no unusual events occurred that had a material impact on the assets, financial position and earnings of the Allreal Group.

The 2019 consolidated semi-annual financial statements were approved by the Board of Directors of Allreal Holding AG on 13 August 2019.

1.2  Scope of consolidation

The scope of consolidation remained unchanged in the 2019 financial year.

The cumulative vacancy rate for the first half of 2019 totalled 1.9% of target rental income (1st half-year 2018: 2.0%), broken down into 3.8% for residential properties and 1.5% for commercial properties (1st half-year 2018: 2.1% and 2.0%).

Hammer Retex AG, together with its facility management service operation for third parties, was divested in the first half of 2018, see 5.

Earnings from realisation Projects & Development consists of architects’ and project & development fees (CHF 11.1 million) and earnings from construction activity (CHF 12.1 million) (1st half-year 2018: CHF 12.3 million and CHF 8.8 million, respectively). This contrasts with directly offset sales deductions (CHF 2.5 million) (1st half-year 2018: CHF 0.9 million).

Income from sales Development is attributable to revenue from the project Solistrasse in Bülach ZH (CHF 22.4 million) which comprises 73 units, resulting in gains on sales of CHF 3.4 million. As at the balance sheet cut-off date, contracts of sale had been notarised for 71 units.

Hammer Retex AG, together with its facility management service operation for third parties, was divested for CHF 0.75 million in the first half of 2018.

The disposal of net assets resulted in earnings from the sale of companies of CHF 2.05 million, which were taken to the 2018 income statement as a component of the item Income from real estate management services.

CHF 13.6 million of the higher valuation of yield-producing properties relates to residential real estate and CHF 25.7 million to commercial real estate (1st half-year 2018: CHF 1.1 million and CHF 11.9 million, respectively). CHF 0.7 million of the lower valuation of yield-producing properties relates to residential real estate and CHF 14.3 million to commercial real estate (1st half-year 2018: CHF –7.3 million for commercial real estate).

In connection with the introduction of IFRS 16, a right-of-use asset classified as investment real estate was recognised. The first-time valuation reduced the valuation by CHF 0.5 million.

The average discount rates as at 30 June 2019 for the entire portfolio of yield-producing properties amount to 4.10% (31.12.2018: 4.15%). The average capitalisation rates as at 30 June 2019 amount to 3.61% (31.12.2018: 3.66%).

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

Expense for derivatives is in connection with the recycling of hedging reserves, CHF 4.5 million (1st half-year 2018: CHF –6.0 million) of which was charged to the income statement as non-cash expense in the period under review.

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 15,886,232 to 15,887,486 shares.

The changes in the first half of 2019 can be summarised as follows:

The value-enhancing investments relate to the yield-producing properties Grüngasse 27–31 / Badenerstrasse 119–133, Zurich (CHF 3.1 million), Fangletenstrasse 4, Bülach ZH (CHF 0.4 million), Engstringermatte, Schlieren ZH (CHF 0.2 million), and seven other properties (CHF 0.5 million).

Largest tenants, commercial real estate

Share in total rental income from commercial real estate:

In the first half of 2019, the five largest tenants accounted for a lower share of around 33% 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 6.1 years (31.12.2018: 6.4 years).

Investment real estate under construction as at 30 June 2019

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 2020/2021, 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 3.80/4.00% and 3.30/3.50% were applied (31.12.2018: 3.90/4.10% and 3.40/3.60%).

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 market valuation as at the balance sheet cut-off date, nominal discount and capitalisation rates of 4.30% and 3.80%, respectively, were applied (31.12.2018: 4.40% and 3.90%).

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

Recognised at fair value as at 30 June 2019, yield-producing properties (CHF 4,163.8 million) and investment real estate under construction (CHF 73.7 million) qualify as category 3 fair values. No adjustments were made to valuation techniques or processes during the period under review.

The addition to development reserves relates to the property on Hauserstrasse in Zurich. The reclassification from development reserves to buildings under construction relates to the project Alter Züriweg in Zufikon AG as a result of the start of construction in the period under review. The other changes to buildings under construction relate to the project Solistrasse in Bülach ZH, i.e. in connection with the 71 notarisations, income from sales Development of CHF 3.4 million was recognised and CHF 22.4 million restated as contract assets.

Development real estate as at 30 June 2019

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 2019, contracts of sale had been notarised for 71 out of 73 residential units, 0 of which with transfer of ownership.

Alter Züriweg, Zufikon AG

Two connected new-build stepped apartment blocks with a total of 20 condominiums and 30 underground parking spaces to Minergie standard with lettable floor space (100% residential) of 2,007 square metres. It is being built by Allreal Generalunternehmung AG and is scheduled for completion in 2021. As at 30 June 2019, contracts of sale had been notarised for none of the 20 residential units, nor had any transfers of ownership been recorded.

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 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:

On 30 June 2019, Allreal held 55,738 treasury shares (31.12.2018: 57,055 shares). The average purchase price per share stands at CHF 155.35 (31.12.2018: CHF 155.35). 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, there exists – excluding the subscription rights of shareholders – conditional capital of up to CHF 2.5 million through the issue of up to 2,495,763 registered shares with a par value of CHF 1.00 each. Bearers of the convertible and /or warrant bonds are entitled to subscribe to the new shares.

Further, Allreal Holding AG has conditional capital of CHF 200,000 (200,000 registered shares at a nominal value of CHF 1.00 each) at its unrestricted 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 12 April 2019 voted in favour of making a distribution of CHF 6.50 per share, corresponding to a total amount of CHF 103.3 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 of bond issues. The bank loans in the form of fixed advances are extended on a rolling basis.

The average interest lock-in period for all financial liabilities decreased to 46 months (31.12.2018: 52 months).

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

During the period under review, CHF 0.1 million was spent on the amortisation of the issuing costs for the bonds (1st half-year 2018: CHF 0.1 million).

As at 30 June 2019, fixed advances amounting to CHF 568.3 million and fixed-rate mortgages amounting to CHF 598.8 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 2019 is 1.27% (31 December 2018: 1.48%).

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.

There are no purchase commitments, 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 452.0 million in connection with financings with third parties on behalf of individual subsidiaries (31.12.2018: CHF 373.5 million).

As at 30 June 2019, 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.

Between 30 June 2019 and 13 August 2019 (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.