Annual Report 2014

Performance der Aktie im Überblick

20

15

10

5

0

–5

–10

–15

Gesamtperformance: Kursveränderung plus Ausschüttung an Aktionäre plus Bezugsrechte aus Kapitalerhöhung in Prozenten des Kurses am 1. Januar

2011

2012

2013

2014

Marktwerte und LeerstandsquoteCHF Mio.

4000

3500

3000

2500

2000

1500

1000

500

8%

6%

4%

2%

Gesamtperformance: Kursveränderung plus Dividende plus Bezugsrechte aus Kapitalerhöhung in Prozenten des Kurses am 1. Januar

2011

2012

2013

2014

Viert- und fünftgrösster Mieter 8.0%

Mieteranteile Geschäftsliegenschaften

in Prozent des Ertrags aus Vermietung 2011

Grösster Mieter 8.5% Zweit- und drittgrösster Mieter 11.6%

Sechst- bis zehntgrösster Mieter 5.2%

Übrige 56.7%

Anlageliegenschaften im Bau

Renditeliegeschaften

Leerstandsquote in Prozent

Unternehmensergebnis CHF Mio.

175

150

125

100

75

50

25

2011

2012

2013

2014

Unternehmensergebnis exkl. Neubewertungseffekt

Unternehmensergebnis inkl. Neubewertungseffekt

Abgewickeltes Projektvolumen und EBIT GeneralunternehmungCHF Mio.

1200

1050

900

750

600

450

300

150

2011

2012

2013

2014

EBIT Generalunternehmung

Abgewickeltes ProjektvolumenGeneralunternehmung

80

60

40

20

Overview of share performance Net profitCHF million

Completed project volume and EBIT Projects & Development divisionCHF million

Market values and vacancy rateCHF million

Overall performance: Price change plus profit distribution plus subscription rights resulting from capital increase in percent of share price as on 1 January

Net profit incl. revaluation effec

Net profit excl. revaluation effect

Completed project volume Projects & Developments division

EBIT Projects & Development division

Yield-producing properties

Investment real estate under construction

Vacancy rate in %

Real estate at a glance

201431.12.2014*

201331.12.2013* Change in %1

Yield-producing properties

Residential real estate on cut-off date number 20 18 +2

Commercial real estate on cut-off date number 44 42 +2

Market value on cut-off date CHF million 3 509.6 2 610.2 +34.5

Average market value by object CHF million 54.8 43.5 +26.0

Rental income from investment real estate CHF million 159.2 148.5 +7.2

Vacancy rate2 % 7.9 4.7 +3.2

Real estate expenses CHF million −25.1 22.3 +12.6

Real estate expenses in % of rental income 15.8 15.0 +0.8

Gross yield3 % 5.4 5.6 −0.2

Net yield4 % 4.5 4.8 −0.3

Investment real estate under construction

Buildings on cut-off date number 1 7 −6

Market value on cut-off date CHF million 4.0 835.6 −99.5

Investment volume CHF million 23.0 950.0 −97.6

Development real estate

Cost value land reserves on cut-off date CHF million 39.0 51.0 −23.5

Estimated investment volume land reserves CHF million 784.0 694.0 +13.0

Cost value buildings under construction on cut-off date CHF million 167.4 287.6 −41.8

Estimated investment volume buildings under construction CHF million 265.0 490.0 −45.9

Cost value completed buildings on cut-off date CHF million 94.8 43.9 +115.9

* Should no further particulars be given, values referring to the income statement concern the full year and balance sheet value the cut-off dates 31.12.2014 resp. 31.12.2013

1 Changes in quantum and percentage values are shown as absolute difference2 In percent of targeted rental income, cumulated at cut-off date3 Rental income from investment real estate in percent of continued market value as at 1 January4 Rental profit from investment real estate in percent of continued market value as at 1 January

Key figures at a glance

201431.12.2014*

201331.12.2013* Change in %1

Group

Total sales2 CHF million 1 036.4 1 242.3 −16.6

Operating profit (EBIT) incl. revaluation gains CHF million 170.9 192.8 −11.4

Net profit incl. revaluation effect CHF million 104.4 121.8 −14.3

Operating profit (EBIT) excl. revaluation gains CHF million 176.8 184.7 −4.3

Net profit excl. revaluation effect CHF million 109.1 116.1 −6.0

Cash flow CHF million 158.5 157.6 +0.6

Return on equity incl. revaluation effect % 5.3 6.3 −1.0

Return on equity excl. revaluation effect % 5.4 6.2 −0.8

Equity ratio on cut-off date % 47.6 49.3 −1.7

Net gearing on cut-off date3 % 87.9 80.8 +7.1

Average interest rate on financial liabilities on cut-off date % 1.93 2.13 −0.20

Average duration of financial liability months 50 56 −6

Sales Projects & Development division CHF million 870.6 1 087.0 −19.9

Earnings from Projects & Development division4 CHF million 102.8 110.7 −7.1

Operating margin Projects & Development division5 % 44.9 40.8 +4.1

Employees (number) on cut-off date full-time equivalents 348 371 −23

Allreal Holding AG

Net profit CHF million 47.5 44.3 +7.2

Share capital CHF million 797.1 797.1 –

Share

Earnings per share incl. revaluation effect CHF 6.56 7.66 −14.4

Earnings per share excl. revaluation effect CHF 6.85 7.29 −6.0

Net asset value (NAV) per share before deferred tax on cut-off date CHF 129.10 130.90 −1.4

Net asset value (NAV) per share after deferred tax on cut-off date CHF 122.55 123.80 −1.0

Profit distribution per share6 CHF 5.50 5.50 –

Share price on cut-off date CHF 137.10 123.50 +11.0

Dividend/Profit distribution yield6 % 4.0 4.5 −0.5

Valuation on cut-off date

Market capitalisation7 CHF million 2 185.5 1 964.7 +11.2

Enterprise value8 CHF million 3 903.9 3 555.1 +9.8

* Should no further particulars be given, values referring to the income statement concern the full year and balance sheet value the cut-off dates 31.12.2014 resp. 31.12.2013

1 Changes in quantum and percentage values shown as absolute difference2 Sales resulting from rental of investment real estate plus completed project volume Projects & Development division3 Finance liabilities minus cash and marketable securities as percentage of equity4 Income from realisation in Projects & Development, Sales Development, capitalised company-produced assets and various revenues minus direct expenses from realisation in

Projects & Development, Sales Development5 EBIT excl. revaluation and restoration of value adjustments on projects as percentage of profit from business activity (balance of operating income,

direct operating expenses, capitalised company-produced assets and earnings from sale of investment real estate)6 Board of directors proposal of CHF 5.50 per share for the 2014 financial year by means of repayment of reserves from capital contributions7 Stock price at balance sheet date multiplied by the number of outstanding shares8 Market capitalisation plus net finance debts

1

AnnualReport 2 Editorial 6 Marketenvironment 8 Businessmodelandstrategy 10 Sustainability 14 Organisation 18 RealEstatedivision 22 Projects&Developmentdivision 27 Outlook

28 Corporategovernance Compensationreport 43 Compensationreport

Financialreport 65 Financialcommentary 69 ConsolidatedfinancialstatementsofAllrealGroup

AllrealHoldingAGannualaccounts150 AllrealHoldingAGannualaccounts

Additionalinformation 158 Informationforinvestorsandanalysts166 Glossaryofrealestateterms168 Organisationandschedule

2

— Soundfinancialresults— Real-estateportfoliowithsignificantgrowth— Projects&Developmentdivisionassertiveinademandingenvironment— Strategicfinancingwithafocusonopportunities— ProposalforunchangedprofitdistributionofCHF5.50pershare

NetprofitexcludingrevaluationeffectamountingtoCHF109.1millionrepre-sentsasoundresultforAllreal’s2014financialyear.Thankstohigherrentalincomeandloweroperatingexpenses,operatingprofitisreportedatonly6%belowthatofthepreviousyearwhichwascharacterisedbyexceptionalsalesprofits.

Theportfolioofinvestmentrealestateexperiencedanegativevalueadjust-mentduringtheperiodunderreviewofCHF5.9million.Correspondingly,netprofit includingrevaluationeffectamountedtoCHF104.4million,or14.3%belowthatofthepreviousyear.

IncomefromrentingandrealestatemanagementandthecompletedprojectvolumeresultedinatotaloperatingperformanceofCHF1036.4million.

Thenumberofstaffemployedonthecut-offdateinBasel,Bern,Cham,St.GallenandZurichamountedto376persons.Asstaffcapacitywasadjustedtothelowerprojectvolumeowingtothecompletionofprojects,thenumberoffull-timepositionsdecreasedby23to348throughnaturalfluctuation.

Adherencetoinvestor-friendlydistributionpolicyAllreal’sshareclosedatCHF137.10onthecut-offdate.Theyear-endpricewastherefore11%abovethatofthepreviousyear.Thepositiveshare-pricedevelopmentandtheprofitdistributionofCHF5.50pershareforthe2014financial year resulted in a considerable overall performance of 15.5%. Atthe Shareholders’ Meeting scheduled for 17 April 2015, the Board of Di-rectorswillproposethedistributionofCHF5.50pershare.Relatedto theyear-endshareprice,thepay-outcorrespondstoacashyieldof4.0%.Asthenecessarymeansforthispay-outwillbegeneratedforcapitalreserves,thepaid-outamountwillbetax-freeforprivateinvestors.

RealEstatedivisionwithhigherrentalincomeContinuedexpansionoftheportfolioofyield-producingpropertiesduringtheperiodunderreviewresultedingrowthofrentalincomeby7.2%toCHF159.2million.

Despiteahighervacancyrateandhigherrealestateexpensescomparedto2013,netyieldontherealestateportfolioof4.5%wasgratifyingcomparedtootherindustries.

Growth of the portfolio of yield-producing properties resulted exclusivelythroughreclassificationof investmentrealestateunderconstructioncom-pleted in the2014 financialyear,namely twoapartmentbuildings inGland(CantonVaud),oneapartmentcomplexandoneofficebuildinginWallisellen,oneapartmenthigh-riseinZurich,twocommercialbuildingsinZurich,andoneofficebuildinginOpfikon.

Editorial

3

Thesaleofthreeyield-producingbuildingsatatotalvalueofaboutCHF54millionresultedinprofitbeforetaxofCHF3.1million.ThebuildingsconcernoneolderresidentialbuildinginSchlierenandtwocommercialbuildingsinZurich.

Onthecut-offdate,theportfolioofyield-producingpropertiescomprised20residentialand44commercialbuildings.

In the period under review, a six-storey residential and commercial com-plexunderconstructioninZurich-Westmeasuring3400squaremetreswasadded to the portfolio of investment real estate under construction, andseven buildings in the portfolio were reclassified to yield-producing prop-erties.Therefore,asat31December2014, theportfolioof investmentrealestateunderconstructioncomprisedonebuilding.

Thevaluationoftheportfolioof investmentrealestatebyanexternalesti-matorresultedintotalvaluereductionofCHF5.9million.Whilethevalueofresidentialbuildingsincreased,thatofcommercialbuildingsdecreased.Theestimator primarily took into consideration the oversupply of commercialspaceintheZurichmetropolitanarea.

The overall value of the portfolio as at 31 December 2014 amounted toCHF3.51billion,orCHF67.8millionabovethepreviousyear’svalue.

Projects&DevelopmentdivisionwithstableresultsWithearningsfromoperationsofCHF102.8million,theProjects&Develop-mentdivisionstooditsgroundwellinaverydemandingmarketenvironment.Salesofdevelopmentrealestatehavemadeasignificantcontributiontowardtheresult,whichisbelowthatofthepreviousyear.

Thereductioninoperatingexpensesasaresultoflowerlabourcostsnearlymatched the reduction in fees and profits. A credit note affecting person-nel costs in connection with the IAS 19 accounting standard amounting toCHF4.5millionsignificantlycontributedtowardloweroverallexpenses.EBITfor2014grewbyCHF46.2million,or2.2%abovethepreviousyear’svalue.

In2014,theProjectDevelopmentdepartmentworkedonownandthird-partyprojects representing a consistently high potential order volume of aboutCHF 1.0 billion. The largest and most important developments completedduring the period under review included a nearly fully rented office build-ing(13100sq.metresfloorspace)locatedontheEscher-Wyss-ArealinZu-rich-West,twocommercialbuildings(40000sq.metresfloorspace)ontheBäuler-ArealinRümlang,theBülachguss-Areal(some450apartmentsandtrade) in Bülach, the Neuwisen-Areal (about 200 apartments and trade) inDielsdorf, and the Dietlimoos-Moos site (about 400 apartments and trade)inAdliswil.Theprojects transferred to theRealisationdepartment in2014include the Pfruendmattstrasse complex in Mettmenstetten comprising 35single-familyterracedhousesandtheSchiffbaustrasseresidentialandcom-mercialbuildinginZurich-Westcomprising23rentalapartmentsandcom-mercialspaceatstreetlevelandonthefirstfloor.

Anteil der Geschäftsfelder am operativen Betriebsergebnis

Immobilien XX.X%

Generalunternehmung XX.X%

2014

Thedivisions’contributiontowardoperatingprofit

RealEstate74.1%

Projects&Development25.9%

4

The project volume completed in the period under review by the Realisa-tiondepartmentamountedtoCHF870.6million,or19.9%belowtheprevi-ousyear’svalue,reflectingthecompletionofseverallargeprojects.Ofthecompletedprojectvolume,62.8%applytothird-partyprojects,20.9%toownprojectsand16.3%todevelopmentprojectsforsaletothirdparties.

On 1 May 2014, following a construction period of nearly five-and-a-halfyears,theToni-Arealwashandedovertothemaintenant,theCantonofZu-rich.Therealisationofthislargeprojectprovedtobeextremelycomplexanddemanding.TeachingoperationsbythetwouniversitiesinthebuildingbeganasscheduledinSeptember2014.TherentalagreementnegotiatedbetweentheCantonofZurichandAllrealforeseesdurationofatleast20years.

In October 2014, UPC Cablecom took over the Richtiring office building atRichti-ArealinWallisellen,representingthecompletionofthesecondphaseofnewdevelopmentonthesitelocatedbetweenWallisellenrailwaystationandGlattCenter.Onthe72000square-metresite,Allrealdevelopedandim-plementedthreeapartmentbuildings,oneresidentialandcommercialbuild-ing,oneofficehigh-riseandtwoofficebuildings.Theinvestmentvolumere-quiredforRichtiWallisellenamountedtomorethanCHF800millionintotal.

Securedorderbacklogonthecut-offdateamountedtosomeCHF820mil-lion,representingfullutilisationforaperiodofabouttwelvemonths.

SoundcapitalbasepermitsfinancingofinvestmentsandprojectsIn the period under review, financing of ongoing projects for Allreal’s ownportfolio resulted in additional debt of about CHF 131 million, taking totaldebtcapacitytoCHF1.75billion.Refinancingwascarriedoutbymeansofa1.25%five-yearbondloanamountingtoCHF125million issued inthefirsthalfof2014.Theamountofthe2.125%convertiblebondredeemedon9Oc-tober2014totalledCHF199.79million.

With an additionally lower average interest rate for debt compared to thepreviousyearof1.93%andaslightlyshorteraveragetermtomaturityof50months,Allreal’sfinancingremainedfavourable.

A free credit line of over CHF 543 million available short-term allows forfinancingofongoingprojects,especially thepurchaseofsuitable landandbuildings.Debtcapacityonthecut-offdateamountedtoCHF1.3billion.

DuetothedeclineofAllreal’sequityratioto47.6%,netgearingonthecut-offdateincreasedto87.9%.The5.4%returnonequityexcludingrevaluationgainsisreported0.8%belowthepreviousyear’svalue.

AssessmentoffutureprospectscharacterisedbyimponderablesThedemandingmarketsituationwillcontinuetothrowitsshadowsonboththe Real Estate and the Projects & Development division and, as a result,economicparameterswillremainchallenging.

However, in2015only fewrentalagreementsareup forrenewalorexten-sion.Moreover,thankstotheavailabledevelopmentpropertiesandsecured

5

plotsofland,Allrealiscapableofdevelopingandimplementingownprojectswiththeoptionofasubsequentsaletoprivateorinstitutionalinvestors.

Despitethechallengesand imponderables, thecompanyexpectsnetprofitforthe2015financialyeartobecomparableatleasttothatoftheyearunderreview.

TheBoardofDirectorsandGroupManagementwishtotakethisopportunityto thankallstaffmembers for theircontribution to thesound financialre-sultsandourshareholdersfortheirtrustandsupport.

ThomasLustenbergerChairman

BrunoBettoniChiefExecutiveOfficer

6

RealEstateResidentialpropertycontinuestobeinhighdemand,however,increasinglyinlow-tomid-price-rangelocationsclosetocitycentresoreasilyaccessi-ble.Hence,themoreexpensivepropertiesaremoredifficulttosell.Thisisdue,ontheonehand,toaprogressivelyhighersupplythandemandinthissegment and, on the other, to increasingly rigorous requirements for ob-tainingamortgage.Duetoconstantwarningsconcerninganimminentreal-estatebubble,lendingbankstendtovaluehigher-pricedresidentialpropertymoreconservatively.Asaresult,buyersofresidentialpropertyarerequiredtocontributeahigherdownpaymentandredeemmortgagesfaster.Marketpriceshavethereforesoftenedand,incertainregions,evendeclined.More-over,clearlylongerabsorptionperiodsandhighermarketingexpensesareputtingadditionalpressureonprofits.

In terms of rental apartments, as the supply of high-priced units exceedsdemand, thevacancyrate in thiscategorycontinuestorise.Rentingofex-pensiveapartmentsisfurtherhamperedbytheconsiderablenumberofcon-dominiumsacquiredbyprivateindividualsasaninvestmentforlettingpur-poses.Propertiesthatincluderentalapartmentsinthelower-tomid-pricerangecontinuetobeindemand,especiallybyinstitutionalinvestors.

Thepriceoflandsuitableforthedevelopmentandrealisationofresidentialspacepersistsatahigh level,andsignsofa turnaroundarenot tobede-tected.Correspondingly,theacquisitionofbuildinglandfortheconstructionofprojectswiththepromiseofacommensurateyieldremainsdemanding.

As the vacancy rate in commercial real estate continues to rise, investorsare growing increasingly insecure, resulting in a noticeable slump on themarket.Whileofficeandcommercialbuildingscontinuetobeindemand,in-vestorinterestisconfinedtonewbuildingsatgoodlocationswithlong-termtenantsandahighvacancyrate.Ownersofcommercialpropertiesexperi-enced initial rentals,sub-lettingandreletting tobeequallyasdemanding.Asa rule, contract conclusions todaycall for longer rent-freeperiodsandconversionsandinteriorfittingstobeimplementedattheowner’sexpense.Itisnearlyimpossibletore-letanolderbuildingwithoutimplementingcom-prehensiveremodellingandrenovationwork.Dependingontheregion,thelevelofrentsisstabletodeclining.BasedontheoversupplyofcommercialspaceemerginginSwitzerland,pressureonrentsisexpectedtoriseinthemediumterm.

Projects&DevelopmentInsecurityconcerningthecourseofeconomicactivity,theoversupplyofcom-mercialspaceandthedecliningdynamicsintherentalandresidentialmar-ketswillcertainlyexertanegativeinfluenceonconstructionactivity,whichtoday is still buoyant. A decline in construction volume would additionallyfuel the existing pressure on margins in the entire industry and inevitablyfurther frustrate an economically successful business activity. Should thisdevelopmentactuallysetin,consolidationintheconstructionindustrywillbelikely.Asaresult,professionalpromoterswouldmostlikelyputincreasingvalueonthesoundfinancingandcreditworthinessofallcompaniesinvolvedin a building project, not least because careful risk evaluation is becom-ing increasingly important. Well-funded providers of construction-related

Marketenvironment

7

services–includingfinanciallysoundgeneralcontractors–willmostlikelybenefitfromthisdevelopment.

Should construction activity really have passed its peak, companies in theconstruction and ancillary industries today operating at full capacity willin the foreseeable future inevitably show surplus capacity. Should cap-acitynotbe reduced,companiesare likely tosubmit loweroffers for theirworkinordertofillcapacity. Insuchacase,generalcontractorswillbeinapositiontobenefitfromcommissionsobtainedfromcontractawardingtosubcontractors.

Beyond any doubt, the immense pressure on costs and deadlines in theconstruction industry puts compliance with contractually stipulated qual-itystandardsatadditionalrisk.Furthermore,theriskofwagedumpingandotherviolationsoflabourandsocial-insuranceregulationswillincrease.Inorder to minimise resulting liability risks and secure quality standards oftheawarded jobs,generalcontractorswillbeobliged tomoreconsistentlyobservetheirsupervisionandcontroldutiesbymeansofsuitableconceptsandmeasures.Higherconnectedadministrativeandtechnicalexpenseswillcausesignificantlyhighercostsand,inturn,reduceprofitopportunities.

8

Allrealcombinesastable-incomerealestateportfoliowiththeactivitiesofageneralcontractor(projectdevelopmentandrealisation).

Underpinnedby thisprovenandsuccessfulbusinessmodel,Allreal isabletocovertheentirevaluechainofaproperty−fromprojectdevelopmentandrealisationallthewaythroughtoprofitablelong-termpropertyinvestments.This integrated approach also generates numerous synergies that benefitclientsandthecompanyalike.

Allreal does not operate in the main or secondary construction industries,nordoesithaveanyparticipatinginterestsinthesesectors.Thismeansthatour company’s independence and transparency as regards contract place-mentarealwaysguaranteed.Contractsareawardedsolelyon thebasisofobjectiveandeconomiccriteria.

Allreal defines its most important operating and financial target values asfollows:

Returnonequityexcl.revaluationeffect 6–7%p.a.

Shareofresidentialsegmentintotalrentalearnings 20%

Netyieldoninvestmentsandyield-producingproperties(atcostofacquisition)

5%

Equityratio 35%

Netgearing(ratioofnetfinancialdebtandequity) 150%

Interestcoverratio 2.0

Capitalgearingoninvestmentrealestateanddevelopmentrealestate 70%

Distributionyield 80%ofnetoperatingresult(excl.revaluationeffect)

RealEstatedivisionActivemanagementandcontinuousexpansionoftheportfolioofresidentialandcommercialpropertiessecurestableandlong-termvaluecreation.Indi-vidualpropertiesandentirereal-estateportfoliosareacquired,heldorsolddependingonmarketconditionsandtheopportunitiestheygenerate.Allreal’ssubsidiary,HammerRetex,hasextensiveexperienceoffacilitymanagementandhasaparticularlystrongpresenceincentralSwitzerlandandtheZuricharea.HammerRetex isprimarilyaserviceprovider for thirdparties,but italsoundertakesfacilitymanagement forcertainpropertieswithinAllreal’sown portfolio. For properties not managed by Hammer Retex, Allreal col-laborateswithcompaniesthathavestronglocalandregionalroots.

Allreal handles various additional activities, including sales of residentialpropertydevelopedandrealisedbyourselvesfortheaccountoftheProjects&Developmentdivision,andprovidingadviceonrealestatetransactionsforprivateindividuals,companiesandinstitutionalinvestors.

Allreal’sinvestmentpropertiesarelocatedmainlyintheZurichmetropolitanareaandotherSwissbusinesscentres.Residentialpropertiesaccountforatleast20%oftotalrentalincome.

Allreal currently holds the third-largest real-estate portfolio of all listedSwissreal-estatecompanies.

Businessmodelandstrategy

9

PortfolioManagement

Real EstateManagement

Sales/Contracting

ProjectDevelopment

Realisation

Experience

Value creation

Expertise

Real EstateProjects &Development

Projects&DevelopmentdivisionThe Projects & Development division provides services in project develop-ment and the realisation of real estate. The division’s offer comprises allservices connected with the development and realisation of new buildingsandtheconversionorrenovationofbuildingsaimedatdeliveringfairmarketreturnsandoptimaladdedvalue.Theimplementationofthebuildingsiseco-nomicallyandecologicallybalanced.

TheProjects&Developmentdivisionprovidestheseservicesforthirdpar-ties,foritsownaccount(resale),orfortheaccountoftheRealEstatedivision.

Withbranches inBasel,Bern,Cham,St.GallenandZurich, theProjects&Development division is one of the largest suppliers in German-speakingSwitzerlandandmarketleaderintheZurichmetropolitanarea.

10

ResponsibleentrepreneurialactivityandsustainablecorporatemanagementdetermineAllreal’sstrategyandoperation.Thecompanyisawareofandas-sumesitsresponsibilitytowardtheenvironmentandthesociety.

TheCodeofConductapplyingtotheentireAllrealGroupdescribestheex-pectedbehaviourofemployees,contractorsandsuppliers,therebydefiningguidelinestoberespectedandobservedwithoutexceptionsandlimitations.Observanceofhighethicalstandardsofbehaviourcharacterisedbypersonalresponsibility and strict adherence to all legislation of significance to thecompanyrepresentsthebasisofallentrepreneurialactivity.

EconomicresponsibilityAllrealendeavourstoprovideitsshareholderswitharegularreturncompar-abletoadirectinvestmentinrealestateandthusallowingshareholderstoparticipate in the company’s economic success. The business model com-bines a stable-income real-estate portfolio with the activities of a generalcontractor.Generally,upto80%oftheearningsresultingfromtheoperatingbusinessaredistributedtoshareholders.

Thanks to theclearstrategy,consideratehandlingof risk,sound financingandthehighearningspower,Allrealprovidesthebestconditionsforacon-tinuousincreaseinshareholdervalue.

EcologicalresponsibilityWhile impact on the environment may be minimised when constructing oroperatingrealestate,itcannotbeeliminatedcompletely.Effortstominimiseenvironmental pollution usually lead to higher production costs. They areusuallymorethancompensatedforintheshorttomediumtermbymeansofloweroperatingandmaintenanceexpensesandalongerlifeexpectancy.Whentakingintoconsiderationtheentirelifeofabuilding,itshowsthatpro-jectsthatareplannedandrealisedsensitivetotheecologyandeasyontheenvironmentcanbeconsideredprofitableinthelongtermandbyallmeansconsistentwitheconomicinterests.

AtAllreal,development,planningandrealisationofallprojectsarebasedontheprincipleofcarefuluseofresourcesandminimumdisruptionoftheen-vironment.Thecompanythusensurestoconsistentlycomplywithallprovi-sionsofenvironmentallaw,carefuluseofnon-renewablesourcesofenergyand implementationofenergy-savingmeasuresduring realisationandop-erationofrealestate.Asaconsequence,projectsforthirdparties,forresi-dentialownershipandforthecompany’sownportfolioarebalancedbothintermsofecologyandtheeconomy.

Inthisconnection,Allrealhasmadeanameforitselfasapioneerandpath-breakerinthedevelopment,planningandimplementationofecologicallyex-emplaryprojects.Thecompanyhasrealisedmorethan88Minergiebuildingssince the year 2000, including the zero-heating-energy Eulachhof complexinWinterthur,whichwasgrantedtheSwissSolarAwardandtheWattd’OrAward.Moreover,AllrealimplementedSwitzerland’sfirstbuildingcomplex–RichtiWallisellen–whichcomplieswiththerequirementsofthe2000-watt

Sustainability

11

societyand inMönchaltorfoneof the first residentialcomplexes incantonZurichtocomplywiththeMinergiestandardA.

Energybalanceofyield-producingrealestateIn terms of operating and maintaining its own yield-producing real estate,Allrealendeavourstokeepthestrainontheenvironmentaslowaspossible.Foritsyield-producingproperties,thecompanymeasuresandanalysesen-ergy consumption, water consumption and CO2 emission based on the in-ternationallyacceptedrecommendationsoftheEuropeanPublicRealEstateAssociationEPRA.Thedatasystematicallygatheredforthefirsttimein2012providesaninventoryofthecurrentstatus,andamulti-yearcomparisonisof relevance for the definition, implementation and control of sustainablemeasures taken in order to lower energy consumption and the connectedreductionofpollutantemission.

The calculation of energy and water consumption takes into considerationyield-producingpropertiesforwhichthenecessaryinformationisavailableacross a twelve-month accounting period. In the 2014 financial year, thisappliesto16residentialcomplexesatatotalmarketvalueofCHF490millionand 38 commercial buildings at a total market value of CHF 1821 million(2013: 15 residential/39 commercial buildings). Comparability is, however,restrictedasboththecompositionoftheportfolioandtheparametersdifferfromyeartoyear.

Total energy consumption (electricity and heating) of the surveyed prop-ertiesintheyearunderreviewamountedto61.3millionkilowatt-hourscor-respondingtoanaverageconsumptionperbuildingincludedinthesurveyofabout1.14millionkilowatt-hours.ThesevaluescorrespondtoaCO2equiva-lentof16718tonsoranaverageofsome310tons(2013:19000t/350t).Themainreasonsforthelowerenergyconsumptionareseeninrelativelymildwintertemperaturesandtheloweraverageageoftheincludedproperties.

Water consumption of the surveyed properties amounted to 332783 cubicmetrescorrespondingtoanaverageconsumptionperpropertyof6163cubicmetres.Thehigherwaterconsumption(intotalandperproperty)followsthefullyconsolidatedregistrationofindustrial(mainlyEscher-Wyss-Areal)andtradeconsumption(mainlyCenterEleven).

12

Totalenergyconsumption

2014 2013

Numberyield-producingbuildings 54 54

ElectricityinkWh 11750847 14726164

HeatinginkWh 49552982 53620958

TotalinkWh 61303829 68347122

Totalwaterconsumptionofthesurveyedbuildingsinm3 332783 293562

Totallettablespaceinm2 513259 509477

Averagewaterconsumptionofthebuildingsincluded

2014 2013

ElectricityinkWh 217608 272707

HeatinginkWh 917648 992981

TotalinkWh 1135256 1265688

Averagewaterconsumptionperbuildinginm3 6163 5436

Averagelettablespaceinm2 9505 9435

Energiemix in kWh

•• Wohnliegenschaften

Marktwert CHF ••• Mio.

Allgemeinstrom Fernwärme Erdgas Heizöl Holzschnitzel

•• Geschäftsliegenschaften

Marktwert CHF •••• Mio.

SocietyandsocialresponsibilityEfficient,capableandexperiencedemployeesareofmajorimportancecon-cerningsuccessfullong-termbusinessactivity.ThatiswhyAllrealattachesgreatsignificancetothesystematicongoingandfurthertrainingofitsstaffatallhierarchicallevelsandinallareasofactivity.In2014,annualexpensesof internalandexternalongoingandfurthertrainingamountedtoCHF840peremployee(2013:CHF780).Moreover,Allrealoffersyoungpeopletheop-portunity toenterworking life throughanapprenticeshipora traineepro-gramme,whichwastakenadvantageofbyeightapprenticesandtraineesonthecut-offdate.

EnergymixinkWh

16residentialbuildings

MarketvalueCHF490million

38commercialbuildings

MarketvalueCHF1821million

Generalelectricity Districtheating Naturalgas Heatingoil Woodchip

13

Anemployeesurveycarriedouttwiceayearensuresthatconflictpotentialisrecognisedearlyandcorrespondingmeasuresaredefinedandimplementedontime.

The PAQ management system introduced in 2013 has been enhanced andfurther optimised in the year under review. In 2014, Allreal successfullypassedanauditbasedonPAQandcarriedoutbytheSwissAssociationforQualityandManagementSystemsSQS.

Moreover,Allrealattacheshighprioritytoclearandunambiguousdefinitionsconcerningallaspectsrelatingtooccupationalsafetyandsafetyonthecon-structionsite.Adherencetoapplicablesafetyregulationsisbeingregularlymonitored.

Prevailingpressureonpriceanddeadlinesexperiencedintheconstructionindustryincreasestheriskofwageundercuttingandotherviolationsofla-bourandsocial-securityregulations.Thisisconnectedwithaconsiderabledangeroffailingtoreachtherequiredqualitystandards,especiallyincasesof work being awarded to subcontractors, which is then completed by un-trainedtradespeopleoftennotemployedinconformitywiththelaw.Inordertoensurethatthequalitylevelofcontractsawardedtosubcontractorsisbe-ingmaintainedandliabilityandreputationrisksthusminimised,Allrealhasdefinedandimplementedaseriesofmeasuresintheperiodunderreview.ThesemeasuresincludedeeperverificationofAllreal’ssubcontractorsand,in turn, their subcontractors with regard to maintaining applicable labourand social-security regulations, stricter inspections of construction sites,the duty for tradesmen on large construction sites to identify themselves,adjustmentofcontractualagreementswithcontractors,andarestrictiononthenumberoftheirsubcontractors.

Allrealcultivatesongoingcommunicationswithvariousstakeholders,main-tainscontactandexchanges ideaswith representativesofpolitics, theau-thorities, political parties and associations based on open and transparentcommunicationswithalldialoguepartners.

In addition, Allreal supports cultural and social organisations within theframeworkof long-termagreements,suchas the InternationalOperaStu-dioandsupportforchildrensufferingfromcancer.Thecompanywelcomesandsupportsvolunteerworkperformedbyitsemployeesintheirsparetime.Moreover, thecompanydemonstrates itscommitment tosocietyand to itssocialresponsibilitybymembershipinvariousnon-partyorpoliticallynon-partial organisations, which include Avenir Suisse, a free-market liberalSwissthinktank,andStiftungÖffentlichkeitundGesellschaft,anorganisa-tionaffiliatedtotheUniversityofZurichchampioningqualityinmediawork,bothonthesideofthepublicandthemedia.

Asignificantcultural commitment reachingout farbeyond thecompany isAllreal’s collection of contemporary architectural photography. The photo-graphsconcernbothacquisitionsandcommissionswhich,asfaraspossible,takeintoconsiderationyoungphotographersandthoseatanearlystageoftheirartisticcareer.

14

BoardofDirectors

Dr.ThomasLustenberger(*1951,Swiss)Chairman,membersince1999

Dr.iur.,LL.M.

Since1980PartnerinZurichlawfirmMeyerlustenbergerLachenal,Zurich

MemberoftheBoardofDirectorsofCalidaHoldingAG,Oberkirch(Chairman),andothernon-listedcompanies

Dr.Ralph-ThomasHonegger(*1959,Swiss)ViceChairman,membersince2012

Dr.rer.pol.

Since2002ChiefInvestmentOfficerandMemberoftheExecutiveBoardoftheHelvetiaGroup(HelvetiaPatriaGroupuntil2005)

1996–2001VariousmanagementfunctionswithHelvetiaPatriaVersicherungenandMemberofExecutiveManagementSwitzerland

1987–1995VariousmanagementfunctionswithPatriaVersicherungen

AlbertLeiser(*1957,Swiss)Membersince2005

Certifiedrealestatetrustee

Since2004ExecutivegeneralmanagerofCityofZurichandCantonZurichHomeOwners’Association

1999–2004HeadRealEstateandMortgagesdivision,Rentenanstalt/SwissLife

1994–1998VariousmanagementfunctionswithRentenanstalt/SwissLife

1977–1994Positionswithvariousreal-estatecompanies

Boardmemberofthreenon-listedcompanies

MemberSVITZurich

CityofZurichcouncillor

ThefollowingtablecontainsinformationconcerningthemembersoftheBoardofDirectorsandoftheExecutiveManagement,whoallresideinSwitzerland.

Organisation

15

OlivierSteimer(*1955,Swiss)Membersince2013

lic.iur

Since2002ChairmanoftheBoardofDirectorsofBanqueCantonaleVaudoise

2001–2002CEOPrivateBankingInternationalofCreditSuisseGroup

1997–2001MemberoftheExecutiveBoardPrivateBanking,CreditSuisseGroup

1983–1996VariousfunctionsatCreditSuisseGroup

ACELimited,Zurich,andotherunlistedcompanies

MemberoftheBankCouncilatSwissNationalBankSNB(DeputyChairman),ZurichandBerne

MemberoftheETHBoard,Zurich;BoardofTrustees,SwissFinanceInstitute(Chairman),Zurich;MemberoftheExecutiveCommittee,economiesuisse,Zurich,andfunctionsatnumerousotherinstitutions

PeterSpuhler(*1959,Swiss)Membersince2013

Since1989owner,ChairmanoftheBoardofDirectorsandCEOofStadlerRailGroup

MemberoftheBoardofDirectors,RieterHoldingAG,Winterthur;AutoneumHoldingAG,Winterthur

BoardMember,AebiSchmidtHoldingAG(Chairman),Frauenfeld;GleisagGleis-undTiefbauAG(Chairman),Goldach;WaloBertschingerAG,Zurich,andotherunlistedcompanies

MemberofLITRA(DeputyChairman),Berne,andnumerousotherinstitutions

BrunoBettoni(*1949,Swiss)Membersince2014

ChiefExecutiveOfficersince1999

1995–1999ManagingdirectorofOerlikon-BührleImmobilienAG

1983–1995MemberofGroupManagementofOerlikon-BührleImmobilienAG

1973JoinedOerlikon-BührleImmobilienAGasprojectmanager

WiththeexceptionofBrunoBettoni,allmembersoftheBoardofDirectorsofAllrealHoldingAGarenon-executiveinthecompanyand,withtheexceptionofthedisclosedmandates,theyespeciallyholdnoofficialrolesorpoliticaloffices.NoneoftheBoardmembersinthepastheldoperatingmanagementfunctionswithintheAllrealGroup,withtheexceptionofBrunoBettoni.TherearetwoBoardofDirectorscommittees(RiskandAuditCommittee,andNominationandCompensationCommittee).TheBoardmembersareappointedindividuallyforone-yeartenurewhichlastsuntilthefollowingannualShareholders’Meeting.

16

GroupManagement

BrunoBettoni(*1949,Swiss)ChiefExecutiveOfficersince1999

1995–1999ManagingdirectorofOerlikon-BührleImmobilienAG

1983–1995MemberofGroupManagementofOerlikon-BührleImmobilienAG

1973JoinedOerlikon-BührleImmobilienAGasprojectmanager

SwissprogramsinManagement:Advancedmanagementprogram

Variousmanagement-relatedcourses

Additionalapprenticeshipasbricklayer

Apprenticeshipasarchitecturaldraughtsman

HansEngel(*1955,Swiss)HeadofInvestmentsMemberofGroupManagementsince1999

Certifiedrealestatetrustee

1987–1999MemberofthegroupmanagementofOerlikon-BührleImmobilienAG

1981JoinedOerlikon-BührleImmobilienAGasanexpertforcontractsandthepurchase,saleanddevelopmentofrealestate

1974–1980RecordingofficerintwoZurichnotaries’offices

Variousmanagement-relatedcourses

Commercialapprenticeship

RogerHerzog(*1972,Swiss)ChiefFinancialOfficerMemberofGroupManagementsince2004

Swisscertifiedauditor

2003JoinedAllrealGeneralunternehmungAGasHeadAccounting

1998–2003PricewaterhouseCoopers,ManagerAuditingandConsulting

1995–1998ZurichBusinessSchool,degreeinBusinessAdministration

1988–1995CreditSuisse,employeeinforeignexchangeandcommercialcreditdivisions

Commercialapprenticeship

17

AlainParatte(*1964,Swiss)HeadofRealEstateMemberofGroupManagementsince2013

GraduatearchitectSwissFederalInstituteofTechnology(ETH)/SwissSocietyofEngineersandArchitects(SIA),post-graduatestudiesingeneralbuildingmanagement(ETH)

2009JoinedAllrealGeneralunternehmungAGasHeadPortfolioManagement

2003–2009PensimoManagementAG,portfoliomanagerTuridomusrealestateinvestmentfund

1998–2003ProjectdevelopmentOerlikon-BührleImmobilienAG/AllrealGeneralunternehmungAG

1996–1998SwissFederalInstituteofTechnologyZurich,post-graduatestudiesingeneralbuildingmanagement(ETH)

1992–1996PlanpartnerAG,regionalplanningspecialist

SwissFederalInstituteofTechnologyETH,architecturedegree

NigelWoolfson(*1958,Swiss)HeadProjectDevelopment,memberofGroupManagementsince2013

Graduatequantitysurveyorandregionalplanner,MBA

2006JoinedAllrealGeneralunternehmungAGasteamleader,ProjectDevelopment

1994–2006KarlSteinerAG,departmenthead,ProjectDevelopment

1989–1993SteigerpartnerArchitektenAG,projectmanagerandspecialistinrealestateconsulting

1986–1989Suter+Suter,specialistinrealestateconsultingandprojectdevelopment

1982–1986SouthAfricanTransportServices(SATS),quantitysurveyorandspecialistinprojectdevelopment

UniversityofNatal,Durban,SA,degreeinquantitysurveying

RaymondCron(*1959,Swiss)HeadRealisationMemberofGroupManagementsince2013

CivilengineerFederalInstituteofTechnology(ETH)/SwissSocietyofEngineersandArchi-tects(SIA),post-graduatestudiesinTechnicalBusinessAdministration

2013JoinedAllrealGeneralunternehmungAGasheadRealisation

2008–2013OrascomDevelopmentHoldingAG,COO

2004–2008FederalOfficeofCivilAviation,Director

1989–2004BatigroupHoldingAGandprecedingcom-panies,MemberofManagementBoard

MemberofBoardsofDirectorsofunlistedcompanies

SwissFederalInstituteofTechnologyETH,engineerdegree

Auditors

Ernst&YoungAG,Zurich

Externalrealestatevaluer

JonesLangLaSalleAG,Zurich

WiththeexceptionofservingonAllreal’sBoardofDirectors,themembersofGroupManagementholdnoothercomparablepostsand,withtheexceptionofthedisclosedmandates,executenopublicfunctionsandholdnopoliticaloffice.

SignatoryauthorityMembersoftheBoardofDirectorsandofGroupManagementhavejointsignatoryauthorityforthecompany.

18

Continued expansion of the portfolio of yield-producing properties in 2014resulted ina7.2%growthof rentalearnings in theperiodunder review toCHF159.2million(2013:CHF148.5million).Anessentialcontributiontotheearningsgrowthwasmadeby twoprojects,Neunbrunnenstrasse inZürichOerlikonandheadquartersofAllianzinWallisellen,thathavebecomefullyincome-relevantforthefirsttimein2014,aswellastheadditionsintheyearunderreviewwithatargetrentalincomeofCHF48millionintotal.Thefactthatrentalearningsarenothigherisduetothegreatervacancy-relatedlossofearningsandthesaleofinvestmentrealestatein2013and2014.Oftotalrentalincomein2014,theshareofresidentialrealestateonthecut-offdateamountedto17.5%andthatofcommercialrealestateto82.5%.

Onlyslightchangeswereobservedintermsofusagecategoriesduringtheperiodunderreview:57%appliedtoOffice/Services,20%toResidential,6%toSales,7%toTrade/Warehousing,and10%toRemainingusage.

Fixed-term rental agreements for commercial real estate represented anaveragedurationof8.7years(2013:6.8years).Onthecut-offdate,theshareofcontractstoberenewedin2015representedalow4.1%(2013:9.4%).Thetenlargesttenantscontributedashareof51.1%(2013:50.4%)tototalearn-ingsfromrentingcommercialrealestate.

Theoversupplyofcommercialspaceandhigher-pricedresidentialunitscon-tinuedtogrowintheperiodunderreview.Accordingly,thereductionofva-cancieshasbecomemoredemandingandcostly.

Despitegreateffortsandcorrespondingsuccessinconcludingrentalagree-ments,cumulatedvacancyrategrewto7.9%(2013:4.7%).Acontributiontothisgrowthwasmadeintheperiodunderreviewbyinitialvacanciesininvest-mentrealestatereclassifiedin2014toyield-producingpropertiesundercon-struction,andoneportfoliobuildingeachinZurichOerlikonandWinterthurwithexpiredrentalagreements.Inadditiontotheconclusionofrentalagree-mentsforsmallertomid-sizedspaces,therentalagreementwithMANTurboSchweizAGwasextendedbyatleasttenyears.Thecompany,whichutilizesa50000square-metreareaonEscher-Wyss-ArealinZurichatannualrentofmorethanCHF9million,isoneofAllreal’sfivelargesttenants.

Renditeliegenschaften

3750

3500

3250

3000

2750

2500

2250

2000

1750

1500

1250

1000

750

500

250

CHF Mio.

2011

2012

2013

2014

Regionale Verteilung Wohn- und Geschäftsliegenschaften

in Prozent des Marktwerts per 31. Dezember 2014

Stadt Zürich ••.•% Kanton Zürich ••.•% Übrige Regionen ••.•%

RealEstatedivision

Yield-producingproperties

CHFmillion

Regionaldistributionofcommercialandresidentialproperties

inpercentofmarketvalueasat31December2014

CityofZurich53.5% CantonofZurich34.6% Otherregions11.9%

19

In theperiodunder review, real-estateexpensesgrew toCHF25.1million(2013: CHF 22.3 million) corresponding to a real-estate expense ratio intermsofrental incomeof15.8%.Especially incommercialrealestate, thegoodconditionofabuildingplaysanincreasinglysignificantroleinitsrentalsuccess.Correspondingly,Allrealexpectstheexpenseratiotoremaininthe15%to17%range.

Realestategeneratinglargerinvestmentvolumesintheperiodunderreviewincludes Escher-Wyss-Areal in Zurich, Dreieck-Areal in Winterthur, Baar-ermatteandOberdorfstrassecommercialrealestateinBaar,andKalchbühl-strasseofficebuildinginZurich.

Despite a higher vacancy rate and increased real estate expenses, net in-come derived from the rental of residential and commercial real estate in2014amountedto4.5%,arespectableresultbymarketcomparison.Hammer Retex generated earnings of CHF 6.6 million (2013: CHF 6.8 mil-lion) with the management, operation and marketing of commercial andresidential realestate. In termsof themarket valueofall yield-producingproperties,theshareofAllrealpropertiesmanagedbyHammerRetexonthecut-offdateamountedtoabout36%.Consequently,expensessavedbytrans-ferringthemanagementofpropertiestoanin-houseorganisationamountedtoCHF1.1million.

Theportfolioofyield-producingpropertiesshowedsevenadditionsandthreedivestments.

The additions represent only reclassifications of investment real estateunderconstruction,whichinclude:—twoapartmentbuildings intheEikenøttresidentialcomplex inGlandVD

withatotalof57apartments,ofwhich51wererentedonthecut-offdate—FavrehofapartmentbuildingonRichti-ArealinWallisellenwith118rental

units,ofwhich117wererentedonthecut-offdate—Escher-Terrassenresidentialhigh-riseinZurich-Westcomprisingatotal

of51unitsofwhich30wererentedonthecut-offdate.

Ertrag aus Renditeliegenschaften

160

140

120

100

80

60

40

20

CHF Mio.

2011

2012

2013

2014

Gewerbe/Lager •%

Aufteilung Wohn- und Geschäftsliegenschaften nach Nutzungsart

in Prozent des Soll-Mietertrags 2014

Büro/Dienstleistung ••% Wohnen ••% Verkauf •%

Parking •% Übrige •%

Incomefromyield-producingproperties

CHFmillion

Breakdownofcommercialandresidentialpropertiesbyusage

inpercentoftargetrentalincome2014

Officeandservices57%

Tradeandwarehousing7%

Residential20%

Parking6%

Sales6%

Other4%

20

The commercial properties transferred to the portfolio of yield-producingpropertiesconcern:—Toni-ArealinZurich-West,whichislettocantonofZurichandusedbytwo

universities,representstotalfloorspaceof87000squaremetres(includ-ing100rentalapartments)andanoccupancyrateof96%on thecut-offdate.

—a seven-storey office building on Herostrasse in Zurich Altstetten with10839 square metres floor space and an occupancy rate of 57% on thecut-offdate

—the six-storey Lilienthal commercial building in Glattpark Opfikon with13131 square metres floor space and an occupancy rate of 51% on thecut-offdate

—thesix-storeyRichtiringofficebuildinginWallisellenlettoUPCCablecomwith25571squaremetres floorspaceandanoccupancyrateof96%onthecut-offdate.

ProfitbeforetaxofCHF3.1millionresultedfromthesaleofthreepropertiesin2014atatotalof6.1%abovethebalancesheetvalue:anolderresidentialbuildinginSchlierenZH(witheffectfrom1December2014),andacommer-cialpropertyeachinZurichAltstetten(witheffectfrom1April2014)andinZurichSeebach(witheffectfrom15December2014).

Duringtheperiodunderreview,theportfolioofinvestmentrealestateunderconstructionrecordedanadditionofaresidentialandcommercialbuildingunderconstructionatSchiffbaustrasseinZurich-Westandsevendeparturesduetoreclassification.

Consequently,asat31December2014,theportfolioofinvestmentreales-tateconsistedof64yield-producingproperties–20residentialand44com-mercialbuildings–andoneinvestmentpropertyunderconstruction.

Valuationofthe65investmentproperties(2013:67properties)byanexternalassessorresultedinnegativeadjustmentbeforetaxofCHF5.9million(2013:CHF+8.1million).Whilethevaluationofresidentialpropertiesresultedinan

Viert- und fünftgrösster Mieter ••%

Mieteranteile Geschäftsliegenschaften

in Prozent des Ertrags aus Vermietung 2014

Grösster Mieter •% Zweit- und drittgrösster Mieter ••%

Sechst- bis zehntgrösster Mieter ••%

Übrige ••%

Kumulierter Leerstand

Renditeliegenschaften

8

7

6

5

4

3

2

1

in Prozent des Soll-Mietertrags

2011

2012

2013

2014

Cumulativevacancyrate

yield-producingproperties

inpercentoftargetrentalincome

Breakdownoftenantsofcommercialrealestate

inpercentofrentalincome2014

Largesttenant16%

Fourth-andfifth-largesttenants11%

Others49%

Second-andthird-largesttenants15%

Sixth-totenth-largesttenants9%

21

appreciationofCHF23.0million,thatofcommercialpropertiesledtoade-creaseofCHF28.2million.Theonlyinvestmentpropertyunderconstructionwasdown-valuedslightlybyCHF0.7million.Thenegativevalueadjustmentreflects both the demanding situation in letting commercial space and thehighervolumeofmarket-relatedvacancies.Theadjustmentcorrespondsto0.17%ofthetotalportfolio’smarketvalue.

When taking into consideration inventory changes in the portfolio andvalueadjustments, the totalvalueof theportfolioof investmentpropertiesamountedtoCHF3.51billion(2013:CHF3.45billion)asat31December2014.Ofthisamount,CHF3509.6millionapplytoyield-producingpropertiesandCHF4.0million to investment realestateunderconstruction.Theaveragemarketvalueofthe64yield-producingpropertiesthusamountedtoCHF54.8million(2013:CHF43.5million).Whiletheshareofresidentialpropertiesintheportfolioofyield-producingpropertiesamountedtoCHF692.5millionor19.7%, that of commercial properties amounted to CHF 2817.1 million, or80.3%.

OwingtothereclassificationofToni-Arealandbasedonnumerousotherad-ditions,thegeographicdistributionoftheportfolioofyield-producingprop-ertieshaschanged in termsofmarket valuewhencompared to theprevi-ous year. As at 31 December 2014, the share of the City of Zurich grew to53.5%(2013:50.5%),remainingcantonofZurichdecreasedto34.6%(2013:34.8%),theshareofthetwoBaselcantonsdecreasedto6.1%(2013:8.1%),cantonsofGenevaandVauddecreasedto3.9%(2013:4.2%)andtheZugre-gionshrunkto1.9%(2013:2.4%).

The Real Estate division’s contribution toward net profit excluding revalu-ationeffectreportedfor2014representsashareof72.6%.

Wohnliegenschaften

Wohnungsmix nach Wohnungsgrössen per 31. Dezember 2014

≤ 1½ Zimmer •% ≤ 2½ Zimmer ••% ≤ 3½ Zimmer ••%

≤ 4½ Zimmer ••% ≥ 5 Zimmer •%

Residentialrealestate

Apartmentmixbysizeofapartment

≤2½rooms 21%

≥5rooms 7%

≤3½rooms 40% ≤1½rooms 4%

≤4½rooms 28%

22

Projects&Developmentdivision

EarningsfrombusinessactivityachievedbytheProjects&Developmentdivi-sionintheperiodunderreviewbymeansofprojectdevelopment,realisationandsaleofdevelopment realestateamounted toCHF102.8million (2013:CHF110.7million).Theresultischaracterisedessentiallybythesuccessfulsaleofdevelopmentrealestate.

The division’s operating result (EBIT) amounted to CHF 46.2 million (2013:CHF45.2million).Thesaleofdevelopmentrealestateandacreditnoteaf-fectingnetincomeinconnectionwiththeIAS19accountingstandardrelat-ing toastaffpension fund liabilitycontributed to theRealisationdivision’sresult.Thisresultisreportedabovethatofthepreviousyeardespitelowerearnings.

In theyearunderreview, theProjects&Developmentdivisionreportedanoperatingmarginofagratifying44.9%(2013:40.8%).Operatingprofitforthefinancial year amounted to CHF 30.9 million (2013: CHF 29.0 million), or arespectablereturnonequityof17.7%(2012:12.5%).ProjectdevelopmentIntheperiodunderreview,withownandthird-partyprojects,theProjectDe-velopmentdepartmentreportedcontinuedgoodutilisationofitscapacities,whichwereslightlyabovethoseofthepreviousyear.

TheRichti-ArealinWallisellen,whichwascompletedin2014,representsaprominent example of the division’s productivity. The construction projectwasfinancedentirelybyAllreal’sownmeans,anditguaranteedgoodcapac-ityutilisationoftheRealisationdepartmentforaperiodofsomefouryears.Theprojectfurthermoregeneratedalargenumberofownershiptransfersofdevelopmentrealestateandcontributedtowardthegrowthoftheportfolioofyield-producingproperties.

Intheperiodunderreview,anarchitecturalcompetitionwascarriedoutforan office building on Schiffbauplatz in Zurich-West. The project that wasunanimously recommended for further processing by the jury comprisesabout13,000squaremetresofusablespaceonsixfloors.Shouldallpermitsbeavailableontime,constructionwillcommencemid-2015.

ProjectDevelopmentin2014definedaneutral-usage,modularconstructionconceptfortheBäuler-Areal(30,278squaremetres)inRümlangZH,whichwasreceivedwithgreatinterestbythemarket.

Planningofthemixed-usageBülachgusssiteinBülachZHwascontinuedintheperiodunder review.Onsome55,000squaremetres,Allrealplans therealisation of over 450 rental apartments and condominiums, and com-mercial space for offices and trade. The investment volume of the projectamountstoaboutCHF300million.Thelayoutdesignrequiredforimplemen-tationwillbediscussedinMarch2015byBülach’scitycouncil.

23

Further important development projects taken up, significantly proceededwithorcompletedin2014inadditiontothosementionedaboveinclude:

Delta-Areal* AE Residential Solothurn

Dietlimoos-Moos* GE Residential,office,trade AdliswilZH

Neuwisen-Areal GE Residential,office,trade DielsdorfZH

Kirschblütenweg PE Condominiums Basel

Schafschürwies* PE Residentialcomplex HombrechtikonZH

Pfruendmattstrasse PE Condominiums MettmenstettenZH

Bodan-Areal PE Residential,office,trade RomanshornTG

AmOeschbrig* PE Residential Zurich

Grütlistrasse* PE Gymnastichall Zurich

Schiffbaustrasse PE Residential,office,trade Zurich

Kirchenweg* PE Residentialandoffice Zurich

GE:AreadevelopmentAE:SitedevelopmentPE:Projectdevelopment*onbehalfofthirdparty

The potential order volume of the processed projects amounted to aboutCHF1billion.

RealisationProject volume concerning third-party and own projects processed by theRealisationdepartmentin2014amountedtoCHF870.6million,or19.9%be-lowthatof thepreviousyear (2013:CHF1087.0million).Thisclearreduc-tion is due mainly to the completion end of 2013 of several large projectsinZurich-WestandRichti-Areal inWallisellenandduringtheperiodunderreview.Moreover,forsakingprojectswithlackingprofitexpectationshasad-ditionallyaccentuatedthevolumereduction.

Capacity adjustment to the lower project volume occurred gradually andmainly by means of natural fluctuation and the termination of contractualagreementswithfreelancecollaborators.

Oftheprojectvolumecompletedintheperiodunderreview,62.8%applytothird-partyprojects,20.9%toownprojectsand16.3%todevelopmentpro-jectsforsale(2013:57.1%/19.6%/23.3%).Theshareofnewconstructionpro-jectsamountedto77.5%andthatofconversionsandrefurbishmentto22.5%(2013:85.8%/14.2%).

TheRealisationdepartmentprocessedsome120projectsinthe2014finan-cialyear.Withfewexceptions,theconstructionprojectsproceededaccord-ing to schedule and thus maintained deadline, cost and quality specifica-tions.TheorderbacklogofsomeCHF820millionsecuredonthecut-offdaterepresentscapacityutilizationofatleasttwelvemonths.

Pressure on costs and scheduling concerning the realisation of construc-tion projects further intensified during the period under review. Moreover,significantlyhigherliabilityrisksweregeneratedbyhigherjointandseveralliability and stricter regulations concerning labour and social-insurance

24

Operative Marge Generalunternehmung

60

50

40

30

20

10

in Prozent

2011

2012

2013

2014

regulations.Accordingly,theRealisationdepartmentbeganmid-2014toim-plementaseriesofmeasures.Projectscompletedin2014Toni-Arealwas transferred to theCantonofZurichwitheffect from1May2014.ThebuildingusedmainlybytheZurichUniversityoftheArtsandtheZurichUniversityofAppliedSciencesisthelargestandmostcomplexindivid-ualprojectrealisedbyAllrealtodate.Thebuildingcomprises87000squaremetresofusablespace,ofwhichthetwouniversitiesaccountfor71000,Col-lections/Museum6000andthe100rentalapartments10000squaremetres.DurationoftherentalagreementbetweenAllrealandCantonofZurichisatleast20years.

A further large project brought to completion in 2014 is the mixed-useRichti-ArealsiteinWallisellen.TheprojectisconsideredSwitzerland’sfirstcomplextofulfiltherequirementsrelatingtothevisionof2000-wattsocietywhich,inbothprofessionalcirclesandinthepublic,isconsideredanecolog-icalandurban-developmentshowcaseprojectwithafutureorientation.ThelastthreeRichti-Arealbuildingswerecompletedintheperiodunderreview:anapartmentbuildingforAllreal’sownportfolio,aresidentialandcommer-cialbuildingsoldtoaninstitutionalinvestorandanofficebuildingleasedtoUPCCablecom.TheinvestmentvolumeoftheentireprojectamountstooverCHF800million.

End of October, the Superblock office complex in Winterthur with usablespace of some 50000 square metres was transferred on-schedule to theowners,AXAWinterthur.ThesecondstageoftheprojectisreservedforWin-terthur’scitycouncilandreadyfortransferinthefirstsixmonthsof2015.

Furtherprojectscompletedintheperiodunderreviewandtransferredtotheownersinclude:

RestorationcommercialbuildingGewerbestrasse* AllschwilBL

ConversionZentrumOberdorf BaarZG

TotalrefurbishmentUBSheadquarters* Basel

ConstructionresidentialcomplexKeiserpark* BuchsAG

ConstructioncondominiumsCholplatz BülachZH

ConstructionsitedevelopmentHammergut* ChamZG

ConstructionresidenceEichenwäldli* DietikonZH

RestorationapartmentbuildingsWassergass* HorgenZH

ConstructioncondominiumsBruggächer MönchaltorfZH

RestorationresidentialcomplexWebermühle* NeuenhofAG

ConstructionresidentialcomplexHeerpark2* OberuzwilSG

ConstructioncommercialbuildingLilienthal OpfikonZH

RestorationresidentialcomplexDörfliweg* SchliernBE

ConstructionapartmentbuildingLeuenbergstrasse* St.Gallen

ConstructionresidentialandcommercialbuildingFreihof* WilSG

ConstructionresidentialcomplexHohfurri* WinterthurZH

NursingcentreSpitalZofingen* ZofingenAG

RestorationresidentialcomplexBimHasel* ZollikofenBE

SecondstageresidentialcomplexRiedpark* Zug

RestorationresidenceFeldstrasse* Zurich

OperatingmarginProjects&Developmentdivision

inpercent

25

Construction,additionandconversionresidentialandcommercialbuildingMühlebachstrasse*

Zurich

ConversionandconstructionKinoRazzia* Zurich

RestorationUBSTheaterstrasse* Zurich

ReplacementSchaffhauserstrasse* Zurich

ConstructionofficebuildingHerostrasse Zurich

AdditionalfloorstoMANwarehouse Zurich

Constructionresidentialhigh-riseEscher-Terrassen Zurich

*Onbehalfofthirdparties

OngoingprojectsOntheFreilager-Areal inZurichAlbisrieden,Allreal isconstructingaresi-dentialcomplexcomprisingsome800residentialapartments,200roomsforstudentaccommodation,andspacefortradeandretailusage.Intheperiodunderreview,workonthiscurrentlylargestclientprojectisonscheduleandrunningsmoothly.Transfertotheownersisscheduledfor2016.

FurthersignificantbuildingspursuedbytheRealisationdepartmentin2014includedresidentialcomplexesinZurichUnterstrass,BottmingenBL,Rüm-langZHandHerisauAR,therestorationofacommercialbuildinginBasel,andtherenovationofaresidentialcomplexinWetzikonZH.

Projectscommencedin2014In viewof theupcomingrestorationandrenovationof theUBSbuildingonParadeplatz inZurich,Allrealwascommissionedwithprovidingan interimsolutiononPelikanstrasseincloseproximityinZurichCity.

In August, construction work on a residential and commercial building lo-cated on Schiffbaustrasse in Zurich-West was started. Upon completionscheduledforend2017/beginning2018, thisbuildingwillbetransferredtoAllreal’sportfolioofyield-producingbuildings.

At the beginning of December, restoration and extension work on BalgristUniversityClinic inZurichRiesbachwasbegun.Constructionperiodof thismajorprojectisexpectedtolastthreeyears.

Themostimportantprojectscommencedin2014inadditiontothosemen-tionedaboveinclude:

RestorationapartmentbuildingBernhofstrasse* AdliswilZH

ConstructionresidentialcomplexKreuzlingerstrasse* AmriswilTG

TenantextensionsStückiBusinessPark/StückiShopping* Basel

SecondstageresidentialcomplexObermühleweid* ChamZG

ConstructionresidentialcomplexMoosholzwiesen* EgnachTG

AdditionstoapartmentbuildingPoststrasse* ErlenbachZH

ConstructionterracehousesPfruendmattstrasse MettmenstettenZH

ConstructioncondominiumsImGarten* RoggwilTG

ConversionandrestorationofficebuildingSchwertstrasse* Schaffhausen

RestorationresidentialcomplexGrindelstrasse* VolketswilZH

RestorationresidentialcomplexLangfurrenstrasse* WetzikonZH

26

ThirdstageconstructionresidentialcomplexRiedpark* Zug

ConversionArchivesofContemporaryHistory* Zurich

RestorationapartmentbuildingsFlurstrasse* Zurich

ConstructionapartmentbuildingGriesernweg* Zurich

RestorationofficebuildingKalchbühlstrasse Zurich

ConversioncommercialbuildingKirchenweg* Zurich

ConstructionapartmentbuildingAmOeschbrig* Zurich

RestorationandconversionofficebuildingzurBastei* Zurich

*Onbehalfofthirdparties

SaleofdevelopmentrealestateThesaleof84unitsin2014wasclearlybelowthatofthepreviousyear(2013:256 units). The main reasons for the decline refer to the lower number ofunitsforsaleinthelowertomediumpricerangecomparedtothepreviousyear,theover-supplyofhigher-pricedunitsintheZurichmetropolitanarea,andtighterconditionsimplementedbythelendingbanks.

The Brüggacher project in Mönchaltorf ZH was successfully completed in2014withthesaleofthelastofatotalof50units.WhilealleightunitsintheStockenstrasseprojectinKilchbergZHweresoldonthecut-offdate,thelasttransferswilltakeplaceonlymid-2015.

Onthecut-offdate,17ofthe35terracedhousesofthePfruendmattstrasseprojectinMettmenstettenZHbegunin2014weresold.

Asaresult,143residentialunits–ofwhichthefollowing53readyforoccu-pation–wereavailableforsaleat31December2014(31.12.2013:198):

Numberofapartments

Ofwhichsoldby

end2014

Ofwhichtransferredby

end2014

Readyforoccupancy

Holengass MeilenZH 23 22 16 Q42012

Escherhof WallisellenZH 122 114 114 Q32013

Stockenstrasse KilchbergZH 8 8 5 Q42013

Lerchenbergstrasse ErlenbachZH 39 25 20 Q12014

Cholplatz BülachZH 82 52 48 Q22014

Guggach ZurichUnterstrass 197 125 0 Q12016

Pfruendmattstrasse MettmenstettenZH 35 17 0 Q22016

When taking into consideration transfer of ownership of the Ringhof resi-dential and commercial building in Wallisellen to an institutional investoron17June2014, salesofdevelopment realestate in theperiodunder re-viewamountedtoCHF211.6million.TheresultingnetearningsamountedtoCHF34.6million.

In2014,theProject&Developmentdivision’scontributiontowardnetprofitexcludingrevaluationeffectrepresentsashareof27.4%.

27

Outlook

AlthoughthefuturecourseoftheSwisseconomyisdifficulttojudge,Allrealexpectseconomicgrowthtoweakenwithfluctuationsoccurringinindividualindustries.

The oversupply of commercial space existing in various regions in Swit-zerland will result in increasingly severe crowding out strategies. This isconnected with longer absorption periods, higher marketing expenses andconcessionsmadetocontractualagreements.Moreover,withregardtocon-tinuedletting,oldercommercialrealestatewillshowanadditionalneedforinvestment.Itwillbecomeincreasinglydifficulttofindtenantsforrealestatethatisbadlyaccessibleorlocatedinperipheralareas.

The market for residential units is likely to be characterised in the futurebysounddemandforcentrallocationsandwellaccessiblesuburbanareas.However,asthesupplyofhigher-pricedrentalapartmentsandcondomini-ums increasingly exceeds demand, contract conclusions will remain ex-tremelydemanding.

Additionsmade2013andlaterresultedindistinctivegrowthofAllreal’srealestate portfolio. Following completion of the dynamic growth phase, ourfocus is now on consolidating the strongly enlarged portfolio of yield-pro-ducing properties and improving profitability by reducing vacancy-relatedrevenuelosses.

As a result of on-going high pressure from competition, decreasing mar-ginsandlowercommissionsfromsubcontractors,thedevelopmentandre-alisationofprojectswithagoodprofitpotentialcontinuestobedemanding.Higherprofitabilityatalowerprojectvolume,asaspiredbyAllreal,impliestheprudentacquisitionofthird-partyprojectsandtheplanningandrealisa-tionofmarket-orientatedownprojectsforsaletoinvestors.

Owing to the low number of new projects, decreasing demand for higher-pricedresidentialownershipand tightenedrequirementsconcerningre-fi-nancing,Allrealexpectssalesof residentialunits in2015 to remainat thepreviousyear’slevel,atbest.

TheBoardofDirectorsandGroupManagementexpect thecourseofbusi-nesstobecarefullypositive.Thisassessmentoffutureprospectsisbasedonvariousaspects:thepotentialresultingfromdownsizingvacanciesoftheen-largedportfolio,thelownumberofexpiringrentalagreements,theperfor-manceof theProjectDevelopmentandRealisationdepartments, theavail-abledevelopmentreservesandsecuredplotsoflandandtheadvantageousfinancingthankstothehistoricallylowlevelofinterest.

Despitechallengesandimponderables,thecompanyexpectstoachievenetprofitfor2015atleastcomparabletothatoftheperiodunderreview.

28 Allreal Annual Report 2014

Corporate governance

Basic principles and introductionThis corporate governance report outlines the principles of management and control at the highest corporate level of the Allreal Group. The following infor­mation on corporate governance is in compliance with the Corporate Govern­ance Directive (DCG) issued by SIX Swiss Exchange, which came into force on 1 October 2014, as well as with the commentaries on the Corporate Governance Directive. It follows the structure used in the DCG.

1 Group structure and shareholders

1.1 Group structure

The Allreal Group operates solely in Switzerland. Its legal structure and partici­pating interests are shown below.

Company Registered office Share capital CHF million

% of shares held

Allreal Home AG Zurich 26.52 100.00

Allreal Office AG Zurich 150.00 100.00

Allreal Toni AG Zurich 70.00 100.00

Allreal Vulkan AG Zurich 50.00 100.00

Allreal West AG Zurich 20.00 100.00

Apalux AG Zurich 0.90 100.00

Allreal Finanz AG Baar 100.50 100.00

Allreal Generalunternehmung AG Zurich 10.00 100.00

Hammertor AG Cham 0.10 100.00

Hammer Retex AG Cham 0.50 100.00

All shareholdings are unlisted companies which are fully consolidated in the Group’s financial statements.The scope of consolidation remained unchanged compared to the previous year.

Allreal Holding AGBaar

Allreal Home AG Zurich

Allreal Office AG Zurich

Allreal Toni AG Zurich

Allreal Vulkan AG Zurich

Allreal West AGZurich

Apalux AGZurich

Allreal Finanz AGBaar

Allreal Generalunter- nehmung AG Zurich

Hammertor AG Cham

Hammer Retex AG Cham

29Allreal Annual Report 2014

Operationally, the Group is structured into two divisions:

Real Estate divisionInvestments in residential and commercial properties, including properties with particular development potential and investment real estate under construc­tion. Various real estate services (property management, residential property sales, real estate consultancy, contract administration) are also provided.

Projects & Development divisionCombination of project development, general contraction activities (realisation) and real estate services.

Allreal Holding AG has its registered office in Baar/Switzerland and is listed on SIX Swiss Exchange. As at 31 December 2014, market capitalisation was CHF 2 185.5 million. The registered shares are traded on the main segment (security number 883756, ISIN CH0008837566, symbol ALLN).

1.2 Significant shareholders

As at 31 December, the following shareholders were entered in the share regis­ter of Allreal Holding AG as having a shareholding (direct and/or indirect) which exceeds a threshold of 3% ("Significant shareholders"):

2014 2013

Helvetia Group, St. Gallen1 10.0% 10.0%

Pension Fund of Oerlikon Contraves AG, Zurich 4.4% 4.4%

PKE­CPE Pension Foundation, Zurich 3.8% 3.5%

Canton Zurich, BVK Employee Pension Fund of the canton of Zurich, Zurich

3.4% 4.8%

Swiss Mobiliar Group, Bern2 3.2% 3.2%

Pension Fund of the canton of Basel­Landschaft, Liestal 3.1% 3.1%

Highclere International Investors LLP, London, UK >3% –

1 Holding via wholly owned subsidiaries Helvetia Swiss Life Insurance Company Ltd, Basel, and Helvetia Holdings AG, St. Gallen

2 Holding via wholly owned subsidiaries Swiss Mobiliar Insurance Company Ltd, Bern, and Swiss Mobiliar Life Insurance Company, Nyon.

For further details of the composition of the shareholder base see page 159 of the Annual Report.

Owing to legislation on the acquisition of real estate in Switzerland ("Lex Koller"), Allreal is required to provide evidence that it is Swiss controlled in order to be permitted to acquire residential real estate or building land for the realisation of residential property.

In order to satisfy the “Lex Koller” provisions, a shareholders’ pooling agree­ment is in place between the significant shareholders and several other share­holders. Under the terms of this agreement, the participating shareholders have committed to jointly hold a controlling majority of the share capital of Allreal Holding AG. Shares outside the pooling agreement are freely disposable.

30 Allreal Annual Report 2014

As at 31 December 2014, the pooling shareholders held 39.75% of the share capital (tied and free shares). The core elements of the shareholders’ pooling agreement are the rules binding on the pooling shareholders stipulating that – subject to any preferential purchase rights accorded to the remaining pool­ing shareholders – tied shares may only be sold to third parties who are not deemed to be foreign nationals within the meaning of “Lex Koller” and who are prepared to enter into the pooling agreement. There are no further obligations in place such as voting instructions at the annual general meeting.

During the reporting period, the proportion of pooling shareholders (tied shares) remained unchanged compared to the previous year at 35.00% of the share cap­ital. As there were no changes in respect of the parties to the shareholders’ pooling agreement, no disclosure reports were filed in 2014.

On 20 November 2014, Highclere International Investors LPP, London, UK, informed the company and SIX Swiss Exchange that it holds more than 3.0 per­cent of the shares of Allreal Holding AG. The disclosure report was published on 25 November 2014.

Particulars of these shareholders can be found on the SIX Swiss Exchange web­site under Significant Shareholders (www.six­exchange­regulation.com/obliga­tions/disclosure/major_shareholders_en.html).

1.3 Cross-shareholdings

There are no cross­shareholdings

2 Capital structure

Capital

As at 31 December, Allreal Holding AG had the following capital structure:

CHF million 2014 2013

Share capital issued 797.1 797.1

Authorised capital 100.0 86.1

Conditional capital 134.8 134.8

2.2 Authorised and conditional capital in particular

Authorised capitalThe Board of Directors is authorised by the annual general meeting of 28 March 2014 to increase the share capital – excluding the subscription rights of share­holders as applicable – until 28 March 2016 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 100.0 million by issuing up to 2 000 000 registered shares each with a par value of CHF 50 (authorised capital).

31Allreal Annual Report 2014

Conditional capitalFor the purpose of issuing convertible bonds, warrant bonds or other financial instruments, the annual general meeting of 31 March 2006 created – excluding the subscription rights of shareholders – 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. 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 31 December 2014) following the conversion of convertible bonds into shares.

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 purposes of issuing options to the members of the Board of Directors and management. This conditional capital had not been drawn on as at the balance sheet date.

2.3 Changes in capital

In the years 2012 to 2014, the capital structure changed as follows as the result of a rights issue in May 2012 and the conversion of convertible bonds into shares in March 2013 and September 2014:

CHF 31.12.2014 31.12.2013 31.12.2012

Ordinary share capital 797 141 050 797 091 450 797 082 450

Authorised share capital 100 000 000 86 131 100 86 131 100

Conditional share capital 134 788 150 134 837 750 134 846 750

2.4 Shares and participation certificates

The share capital is divided into 15 942 821 fully paid­in registered shares with a par value of CHF 50 each. All outstanding shares are unitary shares; there are no preferred or voting right shares.

The registered shares are issued in the form of book­entry securities.

All shares are dividend­bearing. Exercise of the membership rights accorded to the shareholder is conditional on an entry in the share register. Each registered share carries one vote at the general meeting.

The voting rights attaching to treasury shares held by the company are sus­pended, and no dividends are paid on these shares.

The company has no participation certificate capital.

2.5 Dividend-right certificates (participating certificates)

Allreal has not issued any dividend­right certificates.

32 Allreal Annual Report 2014

2.6 Limitations on transferability and nominee registrations

Every shareholder is entitled to be entered in the share register. The Board of Directors may refuse entry in the share register if the number of registered shares held by the buyer, or by a group of shareholders acting jointly, directly or indirectly exceeds 5% of the share capital.

Subject to the 5% clause referred to above, nominee registrations are admissi­ble without any limitations on voting rights.

2.7 Convertible bonds and options

The company repaid the 2.125% 2009–2014 convertible bond worth CHF 199.79 million on 9 October 2014.

In September 2014, 992 registered shares with a par value of CHF 50 each were created from conditional capital through the conversion of convertible bonds. For this reason, the original principal amount of the convertible bond was reduced by CHF 0.21 million from CHF 200.0 million to CHF 199.79 million.

The company had issued neither warrant bonds nor option plans on Allreal regis­tered shares as at the balance sheet date.

3 Board of Directors

3.1 Members of the Board of Directors

Under the articles of association, the Board of Directors of Allreal Holding AG consists of one or more members. It currently has six members. For the current composition of the Board and information on individual Board members, refer to pages 14 and 15 of the Annual Report. With the exception of Bruno Bettoni, none of the Board members perform executive duties in the company and none have performed operational management functions within Allreal in the past.

Allreal obtains consultancy services in legal matters from several law firms, including Meyerlustenberger Lachenal Attorneys at Law, in which Dr. Thomas Lustenberger, Chairman of the Board of Directors of Allreal Holding AG, is one of 32 partners. In the 2014 financial year, Meyerlustenberger Lachenal charged Allreal fees amounting to CHF 0.057 million.

The Helvetia Group, which holds 10.0% of Allreal Holding AG’s share capital, is represented on the Board of Directors of Allreal Holding AG by Dr. Ralph­Thomas Honegger. Allreal works for the Helvetia Group as a general contractor for project development and 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 6.7 million.

33Allreal Annual Report 2014

In addition, insurance contracts are in place between the Helvetia Group and individual Allreal companies which have an annual premium volume of CHF 1.1 million (policies covering buildings, construction and management).

Olivier Steimer is Chairman of the Board of Directors of Banque Cantonale Vau­doise, which has had a business relationship with Allreal going back several years. As at the balance sheet cut­off date, there are mortgage­backed loans of CHF 50 million and derivative financial instruments (payer swaps) with a nom­inal value of CHF 150 million in place.

There are no other material business relationships between Allreal and mem­bers of the Board of Directors.

3.2 Other activities and vested interests

For details of other work and functions performed by individual members of the Board of Directors outside Allreal see pages 14 and 15 of the Annual Report.

3.3 Articles of association provisions relating to the number of permissible activities

Each member of the Board of Directors may hold a maximum of 15 remuner­ated mandates outside Allreal, not more than 5 of which may be mandates with publicly owned companies.

3.4 Elections and terms of office

The members of the Board of Directors, the Chairman of the Board of Directors and the members of the Nomination and Compensation Committee, who must be members of the Board of Directors, are elected individually on an annual basis by the general meeting. Re­election is permitted. The age limit is 70.

Dr. Thomas Lustenberger was first elected to the Board of Directors in 1999, Albert Leiser in 2005, Dr. Ralph­Thomas Honegger in 2012, Olivier Steimer and Peter Spuhler in 2013 and Bruno Bettoni in 2014.

3.5 Internal organisational structure

The general meeting elected Dr. Thomas Lustenberger Chairman of the Board of Directors. The Board of Directors constitutes itself and has appointed Dr. Ralph­Thomas Honegger to serve as its Vice Chairman and Bruno Bettoni as Board Delegate.

The Board of Directors has a quorum if at least half of its members are present. It passes its resolutions with the majority of the votes cast; the Chairman has a casting vote.

34 Allreal Annual Report 2014

The Board of Directors holds four ordinary meetings annually, each normally lasting half a day. Additional meetings may be convened to discuss topics of cur­rent concern. A total of four ordinary meetings were held in 2014. Two meetings were attended by all Board members for the full duration of the meetings, while two meetings were attended by five members. A one­day closed meeting was also held with all members of the Allreal Board of Directors to discuss strategic direction. Meetings of the Board of Directors are also attended by members of Group Management for specific agenda items. The Board of Directors also dealt with a number of business matters by circular letter and telephone con­ferences.

The following key points were addressed at the Board meetings held in 2014:

— Review, isolated adjustment and approval of corporate strategy, me ­ dium­term planning for the period from 2015 to 2017 and the annual budget for 2015

— Discussion and examination of the implementation of the two­pillar strategy with backtracing of the specified quantitative targets on the basis of individ­ual growth initiatives

— Discussion and approval of the financial statements for each quarter (includ­ing liquidity status, debt financing and pending legal disputes), of the vari­ance analysis versus the 2014 budget and of the forecast calculation for 2014 as a whole

— Examination and approval of applications relating to sales of investment properties as well as major investment projects

— Assessment of opportunities and risks of major own projects (development real estate, and investment real estate under construction)

— Discussion of the transaction and rental market and the vacancy situation at individual investment properties within the Real Estate division’s remit

— Discussion of the direction of the Projects & Development division as well as its short and medium­term capacity utilisation on the basis of major offers for third­party construction projects

— Discussion and assessment of financing management (interest lock­in peri­ods, credit facilities and hedging)

— Monitoring of and compliance with the investment and financing guidelines— Deliberations and resolutions in connection with the issue of a bond— Approval of the half­yearly external financial reporting including media

releases— Approval of the proposals of the Risk and Audit Committee and the Nomina­

tion and Compensation Committee— Deliberations on risk management (risk matrix and catalogue) and the inter­

nal control system (ICS)— Discussion of various accounting standards and confirmation of IFRS as the

accounting standards in force for Allreal— Development of the share price and the shareholder structure in relation to

compliance with “Lex Koller” requirements— Discussion and approval of the agenda items to be proposed to the annual

general meeting on 28 March 2014.

The Chairman of the Board of Directors assumes special tasks in his capacity as the liaison to the Chief Executive Officer. Performing these tasks involves sev­eral meetings per year and frequent telephone contact.

35Allreal Annual Report 2014

3.6 Board committees

With a view to integrating the specialist expertise and experience of individual Board members into the decision­making process and enabling the Board to produce reports as part of its supervisory duties, the Board of Directors formed two committees as provided for in the organisational regulations. The duties and powers assigned to the Board of Directors in accordance with the organisa­tional regulations and the law remain vested in the full Board of Directors, i.e., the two Committees have no decision­making powers. The Chairmen of the Committees inform the full Board of Directors of the key findings of the Com­mittee meetings and/or present the resulting proposals.

Risk and Audit CommitteeThe Risk and Audit Committee supports the Board in supervising accounting and financial reporting, the auditors and the external real estate valuer and in monitoring compliance with legal requirements.

The tasks include reviewing the structuring of the accounting system in terms of appropriateness, reliability and effectiveness, reviewing the annual financial statements and the other financial information to be published, monitoring cor­porate risk assessment and reviewing risk management practices and/or the effectiveness of the internal control system (ICS) and periodic reviewing of the insurance cover available to Allreal. The Risk and Audit Committee is also responsible for monitoring business activity for compliance with decisions of the Board of Directors, with internal regulations and guidelines, with corporate policy principles and with relevant legal requirements, in particular those aris­ing from the Stock Exchange Act.

In addition, the Risk and Audit Committee reviews the performance, independ­ence and compensation of the auditors and the external real estate valuer. This includes in particular examining the compatibility of the auditing activities with any consultancy mandates and reviewing overall remuneration. The review reports and the resulting findings and recommendations are discussed in detail with Group Management and the external auditors and consequent measures are formulated. Implementation of these measures is overseen by the Risk and Audit Committee.

The tasks, duties, and powers of the Risk and Audit Committee are defined in the organisational regulations of 2 December 2014. The full Board of Directors is informed of the activities of the Audit and Risk Committee by the latter’s Chairman at the next Board meeting and decides on any resulting proposals.

The Risk and Audit Committee is made up of Albert Leiser (Chairman) and Olivier Steimer (member). Meetings are normally attended by the Chief Finan­cial Officer.

In 2014, the Risk and Audit Committee held two meetings in order to review the 2013 annual financial statement and the 2014 half­yearly financial statement in relation to the above­mentioned tasks. In addition, cooperation with the exter­nal auditors and the operational management was assessed in detail. The two­hour meetings were attended by all members of the Risk and Audit Committee and in some cases by the Chief Financial Officer. Representatives of the

36 Allreal Annual Report 2014

external auditors and the external real estate valuer were present for individual items on the agenda.

Nomination and Compensation CommitteeThe Nomination and Compensation Committee supports the Board of Directors with regard to the selection, compensation and training of the members of the Board, Group Management and the management of the Projects & Develop­ment division.

Its tasks include managing the selection process for members of the Board of Directors and Group Management and the resulting submission of proposals to the full Board of Directors; in respect of Group Management, this also extends to the submission of proposals relating to the key terms and conditions of their contracts of employment. The Committee is also mandated by the full Board of Directors to prepare a compensation report for submission to the annual gen­eral meeting.

Its other tasks include succession planning at the most senior level of manage­ment, monitoring management training and reviewing and proposing the salary policy suggested by the Chief Executive Officer for the attention of the full Board of Directors.

The tasks, duties and powers of the Nomination and Compensation Committee are defined in the organisational regulations of 2 December 2014. The Chair­man of the Nomination and Compensation Committee briefs the full Board of Directors on the Committee’s activities. The Board decides on the resulting pro­posals. The Committee does not have any decision­making powers.

The annual general meeting appointed Dr. Thomas Lustenberger (Chairman) and Dr. Ralph­Thomas Honegger (member) to the Nomination and Compensa­tion Committee. The meetings are normally attended by the Chief Executive Officer.

In 2014, the Nomination and Compensation Committee held two approximately two­hour meetings and five telephone conferences, in which both members of the Committee and the Chief Executive Officer participated. These meetings were concerned with issues of succession planning, the organisation of the company and issues relating to the compensation paid to the members of the Board, Group Management and the Management of the Projects & Development division. In connection with the recruitment of a new Chief Executive Officer, the Nomination and Compensation Committee called on the services of external consultants and participated in ten candidate interviews and presentations. The Committee submitted its proposals regarding these issues to the Board of Directors. 3.7 Definition of areas of responsibility

The principles governing the most senior level of management and the delinea­tion of powers and responsibilities are defined in the organisational regulations

37Allreal Annual Report 2014

of 2 December 2014. While the Board of Directors performs the tasks of super­visory and steering body, Group Management is in charge of the operational business.

At the same time, under the articles of association and the organisational regu­lations, in particular the following powers and responsibilities are vested in the Board of Directors:

— Ultimate direction of the Allreal Group and ultimate supervision of the per­sons entrusted with management (compliance)

— Defining the organisation and appointment of management and persons authorised to act as proxies

— Determining the organisation of and procedures for accounting, financial con­trolling and financial planning

— Producing the annual report and annual financial statements, preparing for the general meeting and implementing its resolutions

— Defining business policy, including in particular investment and financial policy— Decisions on major transactions, including in particular investments and

divestments.

All other tasks are delegated to Group Management. In particular, the latter also prepares the following for approval by the Board of Directors: medium­term planning over a period of three years, the annual budget and financial state­ments and proposals for investments or divestments. It conducts operational business.

Allreal has had internal auditors since 1 August 2014. Allreal staff conduct regu­lar reviews in order to verify property accounts prepared by external property management companies.

3.8 Information and control instruments vis-à-vis Group Management

In particular, the Board of Directors has the following supervisory and control instruments at its disposal:

— Comparative calculation of the annual budget for medium­term planning and corresponding variance analysis (annually)

— Reporting on the functioning and effectiveness of the internal control system (ICS) for financial reporting (annually)

— Reports on compliance with the investment and financing guidelines based on instruments of simplified liability management (quarterly)

— Quarterly statements with presentation of the financial situation (incl. budget comparison, end­of­year forecast and corresponding variance analysis) and management reports (quarterly)

— Balanced score card relating to the Allreal Group and its divisions (quarterly)— Risk matrix and assessments of specific major projects (quarterly)— Detailed reports from Group Management on the trend of business in the indi­

vidual business areas, with lists of the investments and divestments made (management information system/quarterly)

38 Allreal Annual Report 2014

4 Group Management

4.1 Members of Group Management

Group Management is appointed by the Board of Directors. On the balance sheet cut­off date, it consisted of six members: the Chief Executive Officer, the Chief Financial Officer, the Head of Investments/Divestments, the Head of the Real Estate division and the Heads of Project Development and Realisation. The con­tractual period of notice for all members of Group Management is six months. There are no agreements in place for severance payments or signing bonuses. For information on individual members of Group Management, refer to pages 16 and 17 of the Annual Report.

4.2 Other activities and vested interests

For details of other work and functions performed by individual members of Group Management outside Allreal see pages 16 and 17 of the Annual Report.

4.3 Articles of association provisions relating to the number of permissible activities

Each member of Group Management may hold a maximum of two remunerated mandates, not more than one of which may be a mandate with a publicly owned company.

4.4 Management contracts

Allreal has not outsourced any management activities to third parties.

5 Compensation, shareholdings and loans

Details of the remuneration and shareholdings of members of the Board of Directors and Group Management as well as loans granted to them can be found in the compensation report (pages 43 to 47).

6 Shareholders’ participation rights

6.1 Voting right restrictions and representation

Only persons identified as being entered in the share register are entitled to exercise participation rights at the general meeting. In accordance with Art. 6 para. 3 of the articles of association, the Board of Directors may reject an entry if the number of registered shares held by the buyer, or by a group of

39Allreal Annual Report 2014

shareholders acting jointly, exceeds 5% of the share capital. The registration restrictions may be lifted by a simple majority decision taken by the general meeting. There are no other restrictions.

In the 2014 financial year, the Board of Directors did not reject any share regis­ter entries.

Every shareholder also has the option of representing his shares personally at the general meeting or of having himself represented by a proxy, authorised in writing, who need not be a shareholder.

Moreover, every shareholder may have his shares represented by the independ­ent proxy, who is elected annually by the annual general meeting. The inde­pendent proxy exercises the voting rights transferred to him in accordance with instructions. In cases where he has received no instructions, he will abstain from voting.

The articles of association, the minutes of general meetings and the organisa­tional regulations of Allreal Holding AG can be accessed on the Allreal website: www.allreal.ch/Investoren/Corporate Governance/Statuten/Protokolle und Regle ­ mente (www.allreal.ch/de/investoren/corporate­governance/statutenprotokolle/).

6.2 Statutory quorums

The articles of association do not specify any quorums over and above the statutory rules on the adoption of resolutions (Art. 703 and 704 Swiss Code of Obligations (CO)).

6.3 Convocation of general meetings

The convocation of the general meeting is governed by the statutory provisions (Art. 699 and 700 CO) and by Art. 10 and 11 of the articles of association.

6.4 Agenda

Until 20 days before the general meeting, shareholders individually or jointly representing at least 1% of the share capital may submit to the Board of Direc­tors written proposals and requests for items to be added to the agenda.

The German­language list of agenda items will be sent to the shareholders along with the invitation to attend the general meeting.

40 Allreal Annual Report 2014

If so decided by the general meeting, items to be discussed can be admitted for discussion without prior announcement. However, with the exception of the convening of an extraordinary general meeting or a special audit, a resolution may only be passed at the next general meeting.

6.5 Entry in the share register

Invitations to attend the general meeting will be sent to shareholders at least 20 days in advance. Shareholders entered in the share register by the last dispatch date are entitled to vote.

The qualifying date for the 16th annual general meeting on 17 April 2015 is 23 March 2015.

7 Changes of control and defence measures

7.1 Duty to make an offer

Art. 7 of Allreal’s articles of association contains an opting­out clause in accord­ance with Art. 32 SESTA. This provision was introduced to permit changes among the pool shareholders without triggering the duty to make an offer.

7.2 Change-of-control clauses

In the event of a change in the majority control of the company, there are no agreements in place benefiting the members of the Board of Directors or Group Management.

8. Statutory auditors

8.1 Duration of the mandate and term of office of the lead auditor

The annual general meeting of 28 April 2014 elected Ernst & Young AG as audi­tors of Allreal Holding AG and all affiliated companies included in the scope of consolidation for the 2014 financial year.

Daniel Zaugg, Audit Partner, has performed the function of lead engagement partner since 2013.

41Allreal Annual Report 2014

8.2 Audit fees

For 2014, audit fees of CHF 0.31 million were agreed, covering the remuneration for auditing the consolidated annual accounts, the statutory individual accounts of all Allreal companies and the review for the half­yearly financial statements, as well as for issuing audit confirmations for conditional capital increases and the compensation report.

8.3 Additional fees

No additional services were required from Ernst & Young AG.

8.4 Information tools pertaining to an external audit

The Risk and Audit Committee maintains an exchange of information with the external auditors within the scope of the tasks described on pages 35 and 36 of the Annual Report.

During five weeks in the period under review, the auditors conducted audits for the half­yearly financial statements, the internal control system (ICS) and the annual financial statements. The results were discussed with the members of Group Management.

In addition to the statutory report to the annual general meeting, the auditors also prepare a comprehensive report to the Board of Directors which, together with further findings and proposals for improvement, is presented to a meeting of the Risk and Audit Committee and discussed in detail. Specifically, the report for the 2014 financial year contained topics such as audit focus areas and activ­ities, details of risk assessment, material findings on IFRS accounting and reporting, audit differences, the internal control system (ICS) as well as the impact of IFRS amendments and Switzerland’s new financial reporting law. The Chairman of the Risk and Audit Committee conveys the key findings of these discussions to the full Board of Directors.

The Risk and Audit Committee held two meetings in 2014, with representatives of the external auditors taking part in discussions of individual points on the agenda at both meetings.

The amount of the auditing fee for 2014 corresponds to a budget proposal sub­mitted by the external auditors for a three­year period from 2013 to 2015, sub­ject to re­election by the annual general meeting.

42 Allreal Annual Report 2014

9 Information policy

Allreal provides information on business performance and the financial situation twice yearly by means of an annual and a half­year report. Financial reporting is in compliance with the International Financial Reporting Standards (IFRS) and the provisions of the SIX Swiss Exchange Listing Rules. Moreover, the consoli­dated financial statements and the annual financial statements as at 31 Decem­ber are in accordance with Swiss legislation.

Shareholders entered in the company’s share register will be sent a copy of the annual report and the half­year report. In place of the abridged annual report, shareholders may request to receive a full version or opt not to be sent reports at all. The agenda for the annual general meeting will in any case be sent to registered shareholders together with the invitation.

Analysts’ and media conferences will be held half­yearly. Furthermore, Allreal is subject to the ad­hoc publicity obligation according to Art. 53 of the Listing Rules. Ad hoc communications will be e­mailed to interested parties on request. Ad hoc communications may be subscribed or unsubscribed to via the company website at: www.allreal.ch/en/nc/investors/ad­hoc­publicity/

Further information on Allreal and the interactive electronic version of the annual report are available at www.allreal.ch. The contact addresses are shown on pages 168 to 170 of the Annual Report.

Below is a schedule of important dates:

Annual general meeting 2015 17 April 2015

Half­year results 2015 31 August 2015

Annual results 2015 29 February 2016

Annual general meeting 2016 15 April 2016

43Allreal Annual Report 2014

Compensation report

Introduction and principlesThe compensation report of Allreal Holding AG contains information on the re­muneration paid to members of the Board of Directors and Group Management. The compensation report is based on the following regulations and guidelines:— Swiss Code of Obligations (CO)— Ordinance against Excessive Remuneration in Listed Companies Limited by

Shares (ERCO)— Corporate Governance Directive (DCG) issued by SIX Swiss Exchange— Swiss Code of Best Practice for Corporate Governance issued by econo­

miesuisse— Articles of association of Allreal Holding AG— Organisational regulations of Allreal Holding AG

The compensation system in place for members of the Board of Directors and Group Management is simple and transparent and has remained essentially unchanged compared with the previous year. It is designed to achieve sustaina­ble business success with a top­tier corporate leadership which takes the long­term view, supported by a competitive, performance­based compensation pol­icy.

1. Responsibilities and procedures for determining compensation

1.1 Responsibilities of the annual general meetingIn accordance with the articles of association, the Board of Directors will, on a yearly basis, submit a binding proposal to the annual general meeting for the total remuneration to be paid to the members of the Board of Directors and the total fixed remuneration (basic salary and employer’s contributions to the management pension plan) to be paid to Group Management for the current financial year.

Furthermore, the total variable remuneration to be paid to Group Management and, where applicable, the Board of Directors for the past financial year annual is subject to the binding approval of the annual general meeting.

Accordingly, the annual general meeting of 17 April 2015 will vote on the total remuneration to be paid to the Board of Directors and the total fixed remuner­ation to be paid to Group Management for the 2015 financial year and the total variable remuneration to be paid to Group Management for the 2014 financial year.

If the annual general meeting refuses to approve individual components of re­muneration, the Board of Directors may submit a new proposal or convene a new general meeting.

1.2 Responsibilities of the Board of DirectorsThe Board of Directors will submit yearly to the annual general meeting a com­pensation report detailing the remuneration paid to the Board of Directors and Group Management in the past year.

44 Allreal Annual Report 2014

1.3 Responsibilities of the Nomination and Compensation CommitteeThe Nomination and Compensation Committee is responsible for designing, im­plementing and monitoring the compensation system for the members of the Board of Directors and Group Management by means of internal benchmarking, as well as for all employees (salary policy). This was done without calling on the services of any external consultants. Once a year, the Nomination and Compen­sation Committee will prepare all the background information required by the Board of Directors as a basis for its decisions and will also draft the proposals to be submitted to the annual general meeting.

The annual general meeting of 28 March 2014 appointed Dr. Thomas Lusten­berger (Chairman) and Dr. Ralph­Thomas Honegger (member) to the Nomina­tion and Compensation Committee.

2. Compensation system

2.1 Statutory rulesArt. 31 to 34 of the articles of association of Allreal Holding AG govern the princi­ples of remuneration. They provide that the Board of Directors and Group Man­agement may, in addition to a fixed remuneration, also receive results­based and performance­based compensation as well as equity securities or convert­ible and/or warrant bonds. Variable remuneration will be dependent on perfor­mance targets.

In the case of members of Group Management appointed after the total fixed remuneration for the current year has been approved by the annual general meeting, an additional amount of a maximum of 20% of the fixed total remu­neration paid to the respective predecessor is available. This additional amount may not, however, exceed 50% of the approved total remuneration for Group Management.

The articles of association do not contain any special rules regarding loans, cred­its and pension benefits granted to members of the Board of Directors and Group Management. The exact wording of the articles of association can be accessed on the Allreal website: www.allreal.ch/fileadmin/user_upload/redakteure/ anleger/statuten/anleger­statuten­allreal­2014.pdf

2.2 Remuneration paid to the members of the Board of DirectorsThe members of the Board of Directors receive fixed remuneration, which is paid out after the annual general meeting has approved the annual financial statements.

The remuneration takes account of the duties and responsibilities of individual members and is not tied to company targets. It is regularly reviewed and, sub­ject to the approval of the annual general meeting, set by the Board of Directors. No further remuneration is paid to the Board of Directors.

2.3 Remuneration paid to the members of Group ManagementIn addition to their fixed basic salary (including fringe benefits and employer’s contributions to the management pension plan), members of Group Manage­ment also receive variable remuneration (target bonus), which is paid out in cash and is based on the company’s annual result (performance bonus) and the

45Allreal Annual Report 2014

attainment of individual targets (function bonus). Over and above this, members of Group Management also receive variable remuneration geared to the compa­ny’s long­term performance in the form of share allocations.

Fixed basic salaryThe amount of the fixed basic salary in cash is dependent on the individuals’ tasks and responsibilities, on their experience and on their proven track record. The basic salary is determined on joining the company or on being appointed to Group Management and is reviewed annually by the Nomination and Compen­sation Committee.

Target bonusThe amount of the target bonus, consisting of the performance and function bonuses, is set by the Board of Directors annually. The performance bonus is based on the budgeted net operating profit (net profit excl. revaluation effect). If the budget is achieved, the performance bonus will be paid out the following year once the annual financial statements have been approved by the annual general meeting. It will amount to between 27% and 68% of the basic salary, depending on the member of Group Management. If the net operating profit falls short of the budget by 10% or more, no performance bonus will be paid out. If the net operating profit is 10% or more above budget, 150% of the agreed performance bonus will be paid out. The performance bonus for a net operat­ing profit which is less than 10% above or below budget will be calculated on a linear basis.

Function bonusThe function bonus is dependent on the performance of the member of Group Management in his area of responsibility and functions and hence on individual target attainment. The function bonus may make up a maximum of 40% of the target bonus and should amount to between 10% and 26% of the basic salary, depending on the member of Group Management. If the individual targets are not achieved, no bonus will be paid out.

In addition to the variable target bonus, members of Group Management may be awarded an additional variable remuneration component in the form of shares which is geared to the company’s long­term performance. The stock exchange value of the registered allocated shares of Allreal Holding AG must not exceed 10% of the individual’s fixed basic salary for the year in question. Bonus recipi­ents will be able to access half of the shares allocated immediately and the remainder in two years’ time provided their employment contract has not been terminated.

If the budget is achieved, the variable remuneration shall, in principle, make up no more than 100% of the basic salary per member of Group Management.

46 Allreal Annual Report 2014

3 Remuneration paid in the 2014 financial year

3.1 Remuneration paid to the members of the Board of DirectorsThe six members of the Board of Directors received fixed remuneration totalling CHF 0.47 million (2013: CHF 0.55 million).

Name Title 2014 2013

CHF million CHF million

Dr. Thomas Lustenberger Chairman 0.15 0.15

Dr. Ralph­Thomas Honegger Vice chairman 0.08 0.08

Dr. Jakob Baer Member up to 28 March 2014 – 0.08

Albert Leiser Member 0.08 0.08

Olivier Steimer Member 0.08 0.08

Peter Spuhler Member 0.08 0.08

Bruno Bettoni Member from 28 March 2014 0.00 –

Total remuneration 0.47 0.55

3.2 Remuneration paid to the members of Group ManagementThe total remuneration paid to the members of Group Management increased by 31% year­on­year to CHF 4.38 million (2013: CHF 3.35 million). This change reflects an increase in the number of members of Group Management to six in the previous year (2013: 5.4 members) as well as the higher performance bonuses paid in light of the above­budget operating net profit reported for the 2014 financial year.

At CHF 1.29 million, the highest total remuneration was paid to Chief Executive Officer Bruno Bettoni, as was the case in the previous year (2013: CHF 1.16 mil­lion). The remuneration received by him and that received by the other mem­bers of Group Management is broken down as follows:

2014 2013

CHF million Share CHF million Share

Bruno Bettoni, Chief Executive Officer

Fixed basic salary 0.62 50% 0.64 55%

Employer’s contributions management pension plan

0.00 0% 0.06 5%

Variable bonus in form of cash payment 0.61 47% 0.40 35%

Variable remuneration in form of shares1 0.06 3% 0.06 5%

Total remuneration 1.29 100% 1.16 100%

Other members of Group Management

Fixed basic salary 1.52 49% 1.32 60%

Employer’s contributions management pension plan

0.27 9% 0.22 10%

Variable bonus in form of cash payment 1.17 38% 0.56 26%

Variable remuneration in form of shares1 0.13 4% 0.09 4%

Total remuneration 3.09 100% 2.19 100%

1 Calculated at the market value on date of allocation

Of the total remuneration of CHF 4.38 million paid to members of Group Man­agement for the 2014 financial year, fixed remuneration (basic annual salary and contributions to pension funds) accounted for 56%, while the variable com­ponent of pay (performance bonus, function bonus and shares) accounted for

47Allreal Annual Report 2014

44% (2013: 60%/40%). The variable component amounted to between 30% and 52% of the total remuneration, depending on the member of Group Manage­ment.

Total variable bonuses for all members of Group Management worth CHF 1.78 million (2013: CHF 0.96 million) are broken down into performance bonuses of CHF 1.31 million and function bonuses of CHF 0.47 million (2013: 0.51 mil­lion/0.46 million) and were calculated in accordance with the principles de­scribed in 2.3 above.

4. Further transactions with members of the Board of Directors and Group Management

4.1 Former membersIn the period under review and in the previous year, no loans, credits or securi­ties were granted to former members of these bodies, nor was remuneration of any kind paid to them.

4.2 Related partiesAs in the previous year, no remuneration was paid to related parties on non­arm’s length terms.

4.3 Loans and creditsIn the 2014 financial year, no loans, credits or securities were granted to mem­bers of the Board of Directors and Group Management or parties related to them. Accordingly, there are no receivables outstanding.

4.4 Management transactionsThe following management transactions with shares of Allreal Holding AG were registered in the 2014 financial year. Details can be accessed on the website of SIX Swiss Exchange Regulation:

Date Title TransactionNumber of

sharesTransaction value

CHF million

12.03.2014 Member of Group Management Sell 250 0.031

10.04.2014 Member of the Board of Directors Buy 100 0.012

In addition, in the year under review, a total of 1 440 shares of Allreal Holding AG were allocated to members of Group Management as a component of their remuneration.

Details of shareholdings of members of the Board of Directors and Group Man­agement can be found on page 127 of the Annual Report.

48 Allreal Annual Report 2014

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Roe EthridgeTobias MadörinRoman Signer

AllrealPhoto collection 2014

Tobias Madörin Toni-Areal 2014

C-Print, 104 × 170 cm

Roe EthridgeToni-Areal, January 27, 2014

C-Print, 134 × 101 cm

Roe EthridgeToni-Areal, January 27, 2014

C-Print, 101 × 134 cm

Roe EthridgeToni-Areal, January 27, 2014

C-Print, 101 × 134 cm

Roe EthridgeToni-Areal, January 27, 2014

C-Print, 134 × 101 cm

Roe EthridgeToni-Areal, January 27, 2014

C-Print, 101 × 134 cm

Roman SignerHaus mit Raketen, 1981, Foto: Emil Grubenmann

Fujiflex print, 73 × 50 cm

Allreal photo collection 2014These photos were all purchased for a collection of

contemporary architectural photography – a major long-term cultural commitment by the company. When building up the collection,

not only are established artists included, but as far as possible also young photographers at an early stage of their creative careers.

65Allreal Annual Report 2014

Consolidated statement of comprehensive incomeThe 2014 financial year closed with operating net profit of CHF 109 million, which, as anticipated, is below the previous year’s record result (2013: CHF 116 million). The decline by CHF 7 million is attributable to the Real Estate division, which the previous year posted very high (pre-tax) gains on sales of CHF 20 million.

At CHF 159 million, rental income in the Real Estate division increased by 7.2% in comparison with 2013 owing to expansion of the portfolio and despite a marked rise in vacancies. Like-for-like rental growth came to 0.4%. The cumulative va-cancy rate rose to a disappointing 7.9% of target rental income (2013: 4.7%). However, 2015 is not expected to see any further increase in loss of income. Real estate expenses of 15.8% of rental income were up slightly on the previous year. As a result of the increase in vacancy rates and real estate expenses, the net yield fell to 4.5% (2013: 4.8%).

The sale of three yield-producing properties for CHF 54 million resulted in a book gain of CHF 3 million, which is 6% more than the market values as at 31 December 2013.

The valuation of investment real estate led to a fall in value by CHF 6 million and was spread among the categories residential real estate (CHF 23 million), commercial real estate (CHF −28 million) and investment real estate under con-struction (CHF −1 million). While the valuation of the residential real estate is affected by the persisting pressure on yields, the estimates of the market value of the commercial real estate reflect the rising vacancies and the stagnant to slightly falling rental prices.

The Projects & Development division reported income from business activity of CHF 103 million. The sale of development real estate generated substantial gains of CHF 35 million (2013: CHF 34 million). As a result of a roughly 20% fall in the completed project volume, fee income, earnings from construction activity and capitalised company-produced assets decreased by CHF 9 million to CHF 67 million.

During the period under review, operating expenses (CHF 67 million) benefited from the positive impact of a one-off effect arising from the treatment of staff pension provision. As a result of an adjustment to the pension plan of the Allreal pension fund decided by the Board of Trustees, CHF 4.5 million was credited to personnel expenses.

Net financial expense (CHF 37 million) was impacted not only by a year-on-year decline in capitalised building loan interest of around CHF 5 million, but also by liquidity-neutral accrued interest effects amounting to around CHF 5 million stemming from the convertible bond and bond issues. In 2015, these effects will be very much smaller.

Operating tax expense of CHF 31 million represented 21.9% of net profit be-fore tax. Of this amount, CHF 29 million was attributable to current taxes and CHF 2 million to deferred taxes. CHF 1 million in deferred taxes was credited to the income statement from the revaluation of investment real estate.

Financial commentary

66 Allreal Annual Report 2014

Consolidated balance sheet and consolidated statement of changes in share-holders’ equityAs at 31 December 2014, the market value of the investment real estate amounted to CHF 3 514 million (31.12.2013: CHF 3 446 million). The roughly 2% increase in the value of the real estate portfolio was attributable to investments and sales (CHF 205 million), reclassifications from one balance sheet item to another (CHF –131 million) and revaluation (CHF –6 million).

Interest-bearing financial assets increased by a substantial CHF 128 million to CHF 143 million. The largest single position consists of tenant fit-outs at the Toni site which were prefinanced by Allreal and will be amortised by the canton of Zurich over the 20-year rental contract period.

With a book value of CHF 301 million as at 31 December 2014, development real estate declined to a ten-year low. This reflects a cautious strategy on starting new own projects owing to the challenging market environment. In 2014, own-ership of development real estate worth CHF 212 million was transferred to third parties. In addition to development reserves (CHF 39 million) and buildings under construction (CHF 167 million), completed real estate (CHF 95 million) make up a large share of this balance sheet item. However, completed real es-tate includes CHF 34 million in contracts which had already been concluded and are to be carried out in 2015.

As at the balance sheet cut-off date, deferred taxes amounted to CHF 104 million (31.12.2013: CHF 114 million) and other liabilities increased slightly to CHF 268 million (31.12.2013: CHF 254 million).

The period under review saw equity decrease by CHF 15 million to CHF 1 954 mil-lion as at the balance sheet cut-off date. Positive factors included the net profit (CHF 104 million) and the disposal of almost all treasury shares (CHF 4 million). By contrast, equity was impacted by payments to shareholders (CHF −88 million)

Nettorendite Anlageliegenschaften

6

5

4

3

2

1

in Prozent

2011

2012

2013

2014

Durchschnittliche Zinskosten

3

2

1

am 31. Dezember in Prozent

2011

2012

2013

2014

Net yield investment real estate

in percent

Average interest costs

as at 31 December in percent

67Allreal Annual Report 2014

and, reflecting the low level of interest rates, by the valuation of interest rate swaps (CHF −24 million) and the pension fund (CHF −13 million).

Consequently, net asset value (NAV after deferred tax) per share decreased by CHF 1.25 to CHF 122.55.

Consolidated cash flow statementA gratifying business performance led to an increase in cash flow before changes in net working capital to CHF 159 million (2013: CHF 153 million). Tak-ing into account the significant decrease in net working capital following the sale of development real estate, cash flow amounted to CHF 222 million, which was used partly to pay net financial expenses (CHF 35 million) and current taxes (CHF 29 million). This resulted in a cash flow from operating activities which remained unchanged compared with the previous year at CHF 158 million.

At CHF 235 million, real estate under construction accounted for the largest share of the robust investment activity. Additional investments and sales of yield-producing properties resulted in a total cash flow from investment activ-ities of CHF 199 million (2013: CHF 116 million). The following year can be ex-pected to see investment weaken.

On the financing side, financial liabilities increased by nearly CHF 131 million. Factoring in the payout to shareholders (CHF 88 million) and the decrease in treasury shares (CHF 4 million) produced a net cash inflow of CHF 47 million (2013: CHF 42 million).

Financial situationAllreal’s investment and financing guidelines and the borrowing level stipu-lated by the credit agreements with the banks were complied with for the en-tire period under review. As at 31 December 2014, the consolidated equity ratio amounted to 47.6% (minimum 35%), net gearing 87.9% (maximum 150%), the interest coverage ratio 4.8 (minimum 2.0) and the borrowing level against in-vestment and development real estate 45.9% (maximum 70%).

As at the balance sheet cut-off date, average interest on financial liabilities was 1.93%, with a slightly shorter interest lock-in period of 50 months (31.12.2013: 2.13%/56 months). During the period under review, net financial debt increased by CHF 131 million, reflecting a CHF 206 million increase in drawdowns on bank loans and a CHF 75 million decrease in outstanding convertible bond and bond issues.

Allreal’s financing strategy is aimed at refinancing roughly one third of all finan-cial debt via the capital market. As at the balance sheet cut-off date, there are three bond issues outstanding totalling CHF 425 million, corresponding to 24% of all financial liabilities. The company is therefore likely to have recourse to the capital market in 2015 as well.

As at the balance sheet cut-off date, immediately available credit lines amounted to CHF 543 million, guaranteeing the high degree of financial flexibility needed to expedite major purchases. With borrowing capacity at around CHF 1.3 billion, Allreal has a stable financial base.

Eigenkapitalquote

50

40

30

20

10

in Prozent am 31. Dezember

2011

2012

2013

2014

Minimum

Equity ratio

as at 31 December in percent

68 Allreal Annual Report 2014

Annual financial statement of Allreal Holding AGNet profit increased by 7% year-on-year to CHF 47.5 million. The increase in dividend income to CHF 38 million more than compensated for the CHF 12 mil-lion reduction in net financial income. Other expenses and taxes remained con-stant at CHF 3 million.

Total assets decreased by around CHF 115 million to CHF 1.86 billion owing to lower financial liabilities. In the first half of 2014, a 1.25% bond 2014−2019 was issued to secure repayment of the CHF 199.8 million 2.125% convertible bond at the beginning of October 2014.

To simplify the legal organisational structure, Allreal Holding AG took over at book values of CHF 66 million the 100% stake in Apalux AG previously held by Allreal Office AG.

As at 31 December 2014, equity amounted to CHF 1 427 million (31.12.2013: CHF 1 467 million), CHF 320 million of which was allocated to reserves from contribution of capital, which may be paid out tax-free to private shareholders.

The CHF 40 million decrease in equity is attributable to CHF 48 million in net profit for 2014, offset by CHF 88 million in reserves paid out in April 2014.

69Allreal Annual Report 2014

Consolidated financial statements of Allreal Group

Consolidated statement of comprehensive income

CHF million Note 2014 2013

Income from renting investment real estate 3.1 159.2 148.5

Income from real estate management services 3.3 6.6 6.8

Income from realisation Projects & Development 3.5 546.5 620.6

Income from sales Development 3.5 211.6 293.9

Diverse income 3.5 1.0 1.3

Operating income 924.9 1 071.1

Direct expenses for rented investment real estate 3.2 −25.1 –22.3

Direct expenses from realisation Projects & Development 3.5 −500.8 –569.5

Direct expenses from sales Development 3.5 −177.0 –260.2

Direct operating expenses −702.9 –852.0

Personnel expenses 3.6, 3.11 −53.1 –62.3

Other operating expenses 3.7 −14.1 –13.9

Operating expenses −67.2 –76.2

Capitalised company-produced assets 3.5 21.5 24.6

Earnings from sale of investment real estate 3.4 3.1 20.0

Higher valuation of yield-producing properties 4.1 81.1 59.2

Lower valuation of yield-producing properties 4.1 −86.3 –70.3

Higher valuation of investment real estate under construction 4.1 0.0 26.7

Lower valuation of investment real estate under construction 4.1 −0.7 –7.5

Earnings from revaluation of investment real estate −5.9 8.1

EBITDA 173.5 195.6

Depreciation of other property, plant and equipment 4.3 −0.7 –0.9

Depreciation of intangible assets 4.5 −1.9 –1.9

Operating profit (EBIT) 170.9 192.8

Financial income 3.8 0.8 1.2

Financial expense 3.9 −37.9 –33.4

Net profit before tax 133.8 160.6

Tax expense 5.1 −29.4 –38.8

Net profit 104.4 121.8

Items subsequently restated in earnings statement:

Valuation of financial instruments 5.4.4 −30.5 37.3

Deferred taxes from valuation of financial instruments 5.4.4 6.7 –8.2

Items not subsequently restated in earnings statement:

Changes in staff pension fund 3.11 −16.0 2.6

Deferred taxes from changes in staff pension fund 3.11 3.5 –0.6

Other comprehensive income −36.3 31.1

Total comprehensive income 68.1 152.9

Earnings per share in CHF 3.10 6.56 7.66

Diluted earnings per share in CHF 3.10 6.57 7.34

70 Allreal Annual Report 2014

Consolidated balance sheet

CHF million Notes 31.12.2014 31.12.2013

Yield-producing properties 4.1 3 509.6 2 610.2

Investment real estate under construction 4.1 4.0 835.6

Other property, plant and equipment 4.3 1.6 1.9

Financial assets 4.4 142.5 14.6

Intangible assets 4.5 1.9 3.8

Deferred tax assets 5.1 31.7 42.2

Non-current assets 3 691.3 3 508.3

Development real estate 4.2 301.2 382.5

Trade receivables 4.6 75.8 74.4

Other receivables 4.7 8.0 4.5

Cash 4.8 31.9 25.0

Current assets 416.9 486.4

Assets 4 108.2 3 994.7

Share capital 4.9 797.1 797.1

Capital reserves 320.2 407.7

Treasury shares 4.9 −0.1 –4.3

Retained earnings 836.8 768.8

Equity 1 954.0 1 969.3

Long-term borrowings 4.10 650.1 431.0

Deferred tax liabilities 5.1 135.6 155.7

Long-term provisions 4.11 3.9 4.3

Other long-term liabilities 4.12 80.8 45.7

Long-term liabilities 870.4 636.7

Trade payables 4.13 79.4 119.6

Prepayments for development real estate 4.14 26.8 20.3

Current tax liabilities 5.1 19.6 18.5

Other current liabilities 4.15 47.8 36.6

Short-term provisions 4.11 10.0 9.3

Short-term borrowings 4.10 1 100.2 1 184.4

Short-term liabilities 1 283.8 1 388.7

Liabilities 2 154.2 2 025.4

Equity and liabilities 4 108.2 3 994.7

71Allreal Annual Report 2014

Consolidated statement of changes in shareholders’ equity

Retained earnings

CHF million Share capital

Capital reserves Treasury shares Hedging reserves

Revaluation reserves

Other retained earnings

Total

As at 31 December 2012 797.1 495.3 –1.0 –55.9 76.0 595.8 1 907.3

Net profit 121.8 121.8

Valuation of financial instruments 29.1 29.1

Changes in staff pension fund 2.0 2.0

Total comprehensive income 29.1 123.8 152.9

Purchase treasury shares –25.2 –25.2

Sale treasury shares 21.7 21.7

Payout to shareholders –87.6 –87.6

Creation of shares from convertible bond 0.0 0.0 0.0

Share-based reimbursement 0.2 0.2

Reclassification 16.3 –16.3 0.0

As at 31 December 2013 797.1 407.7 –4.3 –26.8 92.3 703.3 1 969.3

Net profit 104.4 104.4

Valuation of financial instruments −23.8 −23.8

Changes in staff pension fund −12.5 −12.5

Total comprehensive income −23.8 91.9 68.1

Purchase treasury shares −15.0 −15.0

Sale treasury shares 19.0 −0.1 18.9

Payout to shareholders −87.6 −87.6

Creation of shares from convertible bond 0.0 0.1 0.1

Share-based reimbursement 0.2 0.2

Reclassification −7.2 7.2 0.0

As at 31 December 2014 797.1 320.2 −0.1 50.6 85.1 802.3 1 954.0

Capital reserves represent the amount (premium) earned by shareholders over and above the nominal value on sub-scription of share capital of Allreal Holding AG after deduction of the corresponding issue costs.

For further comments on the treatment of hedging reserves and revaluation reserves see 2.2 and 2.9.

72 Allreal Annual Report 2014

Consolidated cash flow statement

CHF million Note 2014 2013

Net profit before tax 133.8 160.6

Net financial expenses 3.8, 3.9 37.1 32.2

Earnings from revaluation of investment real estate 4.1 5.9 –8.1

Depreciation other property, plant and equipment 4.3 0.7 0.9

Depreciation intangible assets 4.5 1.9 1.9

Earnings from sale of investment real estate 3.4 −3.1 –20.0

Capitalisation of company produced assets 3.5 −11.9 –17.6

Share-based reimbursement 3.12 0.2 0.2

Change in pension fund obligations affecting net income 3.11 −4.5 0.7

Other items −0.9 2.0

Change in development real estate 89.9 93.2

Change in trade receivables −1.5 6.3

Change in other receivables −3.4 –1.6

Change in provisions 0.3 6.5

Change in trade payables −40.2 –27.5

Increase (decrease) of prepayments for development real estate 6.5 –12.1

Change in other current liabilities 11.3 5.6

Cost of finance paid −35.1 –36.2

Financial income received 0.5 1.1

Income taxes paid −29.0 –30.5

Cash flow from operating activities 158.5 157.6

Investment in yield-producing properties 4.1 −27.1 –8.6

Proceeds from sale of yield-producing properties 4.1 54.1 216.1

Investment in investment real estate under construction 4.1 −235.0 –321.3

Divestment of investment real estate under construction 4.1 7.8 0.0

Acquisition other property, plant and equipment 4.3 −0.4 –0.5

Divestment of other property, plant and equipment 4.3 0.0 0.0

Increase financial assets 4.4 −3.2 –3.0

Decrease in financial assets 4.4 5.3 1.0

Cash flow from investing activities −198.5 –116.3

Increase in borrowings 500.0 620.0

Decrease in borrowings −294.4 –720.4

Issue of bond loan 4.10 124.6 148.9

Repayment convertible bond 4.10 −199.8 0.0

Purchase treasury shares −15.0 –25.2

Sale treasury shares 19.1 21.9

Payout of capital reserves −87.6 –87.6

Cash flow from financing activities 46.9 –42.4

Change in cash 6.9 –1.1

Cash at 1 January 4.8 25.0 26.1

Cash at 31 December 4.8 31.9 25.0

73Allreal Annual Report 2014

Segment information for the year ended 31 December 2014

CHF million Real Estate Projects & Development

Totalsegments

Holding/eliminations

Total

Earnings statement

Operating income 165.8 759.1 924.9 0.0 924.9

Profit from intercompany services −4.5 5.1 0.6 −0.6 0.0

Direct operating expenses −25.1 −677.84 −702.9 0.0 −702.9

Operating expenses −6.1 −59.9 −66.0 −1.2 −67.2

Capitalised company-produced assets 0.0 21.5 21.5 0.0 21.5

Earnings from sale of investment real estate 3.1 0.0 3.1 0.0 3.1

Earnings from revaluation of investment real estate −5.9 0.0 −5.9 0.0 −5.9

EBITDA 127.3 48.0 175.3 −1.8 173.5

Depreciation and amortisation −0.8 −1.8 −2.6 0.0 −2.6

Operating profit (EBIT) 126.5 46.2 172.7 −1.8 170.9

Financial income 0.7 0.1 0.8 0.0 0.8

Financial expense −36.0 −1.9 −37.9 0.0 −37.9

Tax expense −14.2 −13.5 −27.7 −1.7 −29.4

Net profit 77.0 30.9 107.9 −3.5 104.4

EBITDA excl. revaluation gains 133.2 48.0 181.2 −1.8 179.4

Operating profit (EBIT) excl. revaluation gains 132.4 46.2 178.6 −1.8 176.8

Net profit excl. revaluation effect 81.7 30.9 112.6 −3.5 109.1

Operating margin in percent1 92.1 44.9 72.4 0.0 71.7

Rental income and income from real estate management 165.8 0.0 165.8 0.0 165.8

Completed project volume third-party projects 0.0 546.5 546.5 0.0 546.5

Completed project volume own projects 0.0 324.1 324.1 0.0 324.1

Total sales (according to internal reporting) 165.8 870.6 1 036.4 0.0 1 036.4

less earnings from intercompany services 0.0 −182.3 −182.3 0.0 −182.3

Total sales to third parties (according to internal reporting) 165.8 688.3 854.1 0.0 854.1

plus reconciliation item external reporting2 0.0 69.8 69.8 0.0 69.8

Diverse income 0.0 1.0 1.0 0.0 1.0

Operating income 165.8 759.1 924.9 0.0 924.9

Balance sheet as at 31.12.2014 3

Non-current assets 3 685.4 5.9 3 691.3 0.0 3 691.3

Current assets 7.1 396.1 403.2 13.7 416.9

Total assets 3 692.5 402.0 4 094.5 13.7 4 108.2

Provisions 0.0 13.9 13.9 0.0 13.9

Other debt (excl. financing and taxes) 98.9 135.9 234.8 0.0 234.8

Financial liabilities 1 663.9 86.4 1 750.3 0.0 1 750.3

Tax liabilities 138.5 5.0 143.5 11.7 155.2

Total debt 1 901.3 241.2 2 142.5 11.7 2 154.2

Total assigned equity3 1 791.2 160.8 1 952.0 2.0 1 954.0

Investment in non-current assets 265.3 0.4 265.7 0.0 265.7

1 EBIT less revaluation gains in percent of income from business activity (balance of operating income, direct operating expenses, capitalised company-produced assets and earnings from sale of investment real estate)

2 See 2.7 for an explanation of the reconciliation item3 Assignment of equity to individual segments corresponds to internal financial reporting guidelines requiring an equity ratio of 40% for the Projects & Development division; financial

and tax liabilities will be assigned accordingly4 The direct operating expenses of the Projects & Development segment include valuation adjustments on development real estate amounting to CHF 0.8 million; see 4.2

Allreal operates in Switzerland only. A geographical breakdown of sales and non-current assets is therefore not required.

74 Allreal Annual Report 2014

Segment information for the year ended 31 December 2013

CHF million Real Estate Projects & Development

Totalsegments

Holding/eliminations

Total

Earnings statement

Operating income 155.3 915.8 1 071.1 0.0 1 071.1

Profit from intercompany services −4.7 5.3 0.6 −0.6 0.0

Direct operating expenses −22.3 −829.7 −852.0 0.0 −852.0

Operating expenses −6.3 −68.8 −75.1 −1.1 −76.2

Capitalised company-produced assets 0.0 24.6 24.6 0.0 24.6

Earnings from sale of investment real estate 20.0 0.0 20.0 0.0 20.0

Earnings from revaluation of investment real estate 8.1 0.0 8.1 0.0 8.1

EBITDA 150.1 47.2 197.3 −1.7 195.6

Depreciation and amortisation −0.8 −2.0 −2.8 0.0 −2.8

Operating profit (EBIT) 149.3 45.2 194.5 −1.7 192.8

Financial income 0.3 0.1 0.4 0.8 1.2

Financial expense −31.3 −2.1 −33.4 0.0 −33.4

Tax expense −22.9 −14.2 −37.1 −1.7 −38.8

Net profit 95.4 29.0 124.4 −2.6 121.8

EBITDA excl. revaluation gains 142.0 47.2 189.2 −1.7 187.5

Operating profit (EBIT) excl. revaluation gains 141.2 45.2 186.4 −1.7 184.7

Net profit excl. revaluation effect 89.7 29.0 118.7 −2.6 116.1

Operating margin in percent1 92.3 40.8 70.7 0.0 70.0

Rental income and income from real estate management 155.3 0.0 155.3 0.0 155.3

Completed project volume third-party projects 0.0 620.6 620.6 0.0 620.6

Completed project volume own projects 0.0 466.4 466.4 0.0 466.4

Total sales (according to internal reporting) 155.3 1 087.0 1 242.3 0.0 1 242.3

less earnings from intercompany services 0.0 −213.0 −213.0 0.0 −213.0

Total sales to third parties (according to internal reporting) 155.3 874.0 1 029.3 0.0 1 029.3

plus reconciliation item external reporting2 0.0 40.5 40.5 0.0 40.5

Diverse income 0.0 1.3 1.3 0.0 1.3

Operating income 155.3 915.8 1 071.1 0.0 1 071.1

Balance sheet as at 31.12.2013

Non-current assets 3 503.6 4.7 3 508.3 0.0 3 508.3

Current assets 7.4 466.0 473.4 13.0 486.4

Total assets 3 511.0 470.7 3 981.7 13.0 3 994.7

Provisions 0.0 13.6 13.6 0.0 13.6

Other debt (excl. financing and taxes) 62.7 159.5 222.2 0.0 222.2

Financial liabilities 1 512.8 102.6 1 615.4 0.0 1 615.4

Tax liabilities 155.7 6.7 162.4 11.8 174.2

Total debt 1 731.2 282.4 2 013.6 11.8 2 025.4

Total assigned equity3 1 779.8 188.3 1 968.1 1.2 1 969.3

Investment in non-current assets 337.1 0.5 337.6 0.0 337.6

1 EBIT less revaluation gains in percent of income from business activity (balance of operating income, direct operating expenses, capitalised company-produced assets and earnings from sale of investment real estate)

2 See 2.7 for an explanation of the reconciliation item3 Assignment of equity to individual segments corresponds to internal financial reporting guidelines requiring an equity ratio of 40% for the Projects & Development division; financial

and tax liabilities will be assigned accordingly

Allreal operates in Switzerland only. A geographical breakdown of sales and non-current assets is therefore not required.

75Allreal Annual Report 2014

Notes to the Consolidated Financial Statements

1 Basic principles

1.1 Business activitiesThe Allreal Group is a real-estate company which operates exclusively in Swit-zerland with the main focus on the Zurich business region. It is involved in the development and management of its portfolio of residential and commercial real estate and engages in management activities both for its own yield-produc-ing properties and on behalf of third parties (Real Estate division). The general contractor activities encompass project development and the realisation, pur-chase and sale of properties (Projects & Development division).

Allreal Holding AG (parent company) has its registered office in Baar (Zug, Swit-zerland) and is listed on SIX Swiss Exchange.

On 10 February 2015, the Board of Directors of Allreal Holding AG approved the consolidated financial statements for publication. They are also subject to the approval of the annual general meeting of Allreal Holding AG of 17 April 2015.

1.2 Presentation of accountsThe consolidated annual accounts are based on the individual company ac-counts, which were prepared in accordance with uniform Group accounting standards as at 31 December. The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) and conform to the Listing Rules as well as with Article 17 of the Finan-cial Reporting Directive (DFR) of the SIX Swiss Exchange and with Swiss law.

The same principles of accounting apply as for the 2013 consolidated financial statements. The scope of consolidation remains unchanged. See 2.29 in con-nection with the valuation uncertainties.

In the 2014 consolidated financial statements, Allreal applied the following new IFRS standards and interpretations for the first time:

Standard/Interpretation Description Entry into force Application from financial year

IAS 32 (Amendment) Offsetting Financial Assets and Financial Liabilities 1 January 2014 2014

IAS 36 (Amendment) Recoverable Amount Disclosures for Non-Financial Assets 1 January 2014 2014

IAS 39 (Amendment) Novation of Derivatives and Continuation of Hedge Accounting 1 January 2014 2014

IFRS 10/IFRS 12/IAS 27 (Amendment) Investment Entities 1 January 2014 2014

IFRIC Interpretation 21 Levies 1 January 2014 2014

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

76 Allreal Annual Report 2014

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. The new developments or amendments are listed in the following table, specify-ing the financial year in which the adjustment enters into force at Allreal.

Standard/Interpretation Description Entry into force Application from financial year

IAS 1 (Amendment) Disclosure Initiative 1 January 2016 2016

IAS 16 (Amendment) Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 2016

IAS 19 (Amendment) Employee Benefits entitled Defined Benefit Plans: Employee Contributions 1 July 2014 2015

IAS 38 (Amendment) Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 2016

IFRS 9 Financial Instruments: Classification and Measurement 1 January 2018 2018

IAS 11 (Amendment) Accounting for Acquisitions ofInterests in Other Entities 1 January 2016 2016

IFRS 15 Revenue Recognition 1 January 2017 2017

IFRS 10/IAS 28 (Amendment)

Sale or Contribution of Assets be-tween an Investor and its Associate or Joint Venture 1 January 2016 2016

IFRS10/IFRS12/IAS28 (Amendment)

Investment Entities Applying the Consolidation Exception 1 January 2016 2016

Improvements to IFRSs (Dec 2013/2012–2014) Cycle

1 July 2014/ 1 January 2016 2015/2016

IFRS 15The standard contains new principles for recognising revenue. Of particular sig-nificance 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 the in-dividual development real estate units (see 2.6). 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.

A detailed analysis of the impact of IFRS 15 on the consolidated financial state-ments will be made in 2015; 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.

1.3 Method of consolidationSubsidiaries are fully consolidated with effect from the date of their acquisition, i.e. from the date on which Allreal gains control. Allreal will be deemed to have gained control if, on the basis of existing rights, it is able to direct those activities of the subsidiaries that significantly affect their returns and also if Allreal is ex-posed, or has rights, to variable returns from its involvement with the subsidiary and is able to affect those returns through its power over the subsidiary.

Subsidiaries are deconsolidated with effect from the date on which control ends.

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Capital is consolidated at the time of purchase using the acquisition method. The purchase price for a corporate acquisition is determined as the total of the market value of the assets transferred, the liabilities contracted or taken over and the equity financial instruments issued by Allreal. Transaction costs in con-nection with a corporate acquisition will be charged to the income statement. The goodwill arising from a corporate acquisition is reported as an asset on the balance sheet and corresponds to the surplus of the purchase price, the contri-bution of minority interests in the companies taken over and the market value of the share of equity held previously over the balance of the assets, liabilities and contingent liabilities valued at market values. If the difference is negative, the surplus is immediately charged to the income statement after renewed assess-ment of the market value of the net assets taken over.

All intercompany balances, income and expenses, as well as unrealised gains and losses from intercompany transactions are fully eliminated.

1.4 Scope of consolidation

Company Registered office

Share capital CHF million

Shareholding in 2014

Shareholding in 2013

Allreal Holding AG Baar 797.1 – –

Allreal Finanz AG Baar 100.5 100% 100%

Allreal Generalunternehmung AG Zurich 10.0 100% 100%

Allreal Home AG Zurich 26.5 100% 100%

Allreal Office AG Zurich 150.0 100% 100%

Allreal Toni AG Zurich 70.0 100% 100%

Allreal Vulkan AG Zurich 50.0 100% 100%

Allreal West AG Zurich 20.0 100% 100%

Apalux AG Zurich 0.9 100% 100%

Hammertor AG Cham 0.1 100% 100%

Hammer Retex AG Cham 0.5 100% 100%

The scope of consolidation remained unchanged during the period under re-view. Allreal Office AG made an intercompany transfer of its 100% shareholding in Apalux AG to Allreal Holding AG at book values.

1.5 Segment reportingThe Allreal Group is subdivided into the two divisions Real Estate and Projects & Development, which constitute segments in their own right. This presentation is in line with the management approach under which Group Management as the decision-making body monitors the results of the two divisions on the level of net profit on a quarterly basis. For the transfer of segment reporting to the consolidated statement of comprehensive income see 2.7.

The Real Estate division comprises the companies Allreal Home AG (residential properties), Allreal Office AG (commercial properties), Allreal Toni AG (Toni site in Zurich-West), Allreal Vulkan AG (commercial properties in Zurich Altstetten), Allreal West AG (Escher-Wyss site in Zurich-West), Apalux AG (commercial and residential properties) and the property management operations of Hammer Retex.

78 Allreal Annual Report 2014

The Projects & Development division consists largely of Allreal General-unternehmung AG plus Hammer Retex’s activities as a general contractor.

The activities of Allreal Holding AG (parent company) and Allreal Finanz AG (inter-company financing) are not assigned to segments as their business activities do not generate any operating income. In the segment information, they are listed under Holding company/eliminations.

2 Accounting and valuation principles

2.1 GeneralThe preparation of the consolidated financial statements requires estimates and assumptions to be made. These relate to the reported amounts of assets, liabilities and contingent liabilities on the balance sheet date and to income and expenditure during the reporting period. The balance sheet is prepared strictly on the basis of acquisition costs, with the exception of investment real estate and derivative financial instruments, which are entered at market values. For significant estimates and assumptions, see the following accounting and valu-ation principles, in particular 2.29. If these estimates and assumptions, made to the best of our knowledge at that date, subsequently transpire to diverge from the facts, the original estimates and assumptions are adjusted for the year in which the situation changed. Significant changes are disclosed in the consoli-dated financial statements.

2.2 Derivative financial instrumentsAllreal uses interest rate swaps (swaps) to reduce interest rate risk. The swaps are used as cash flow hedges, provided there is documentation of the hedg-ing relationship at the inception of the hedge, the hedged future cash flows are highly probable, and the hedging transaction is considered highly effective and the effectiveness of the hedge can be reliably measured. Swaps are initially carried at market value. Subsequently, the effective part of any change in the market value of the swaps is stated under other earnings (not recognised in income). The ineffective part is recognised immediately in income. During the period in which the hedged underlying transaction is recognised in income, the amounts stated under other earnings are taken to the income statement. Sub-sequent changes in the market value of swaps which do not meet the precon-ditions for hedge accounting are recognised in income. Positive replacement values are recognised under other receivables or under financial assets, de-pending on whether the derivative financial instruments have remaining terms of more than twelve months. Negative replacement values are recognised under other short-term liabilities or under long-term liabilities, depending on whether the derivative financial instruments have remaining terms of more than twelve months. Deferred taxes on the replacement values of the interest rate swaps are booked as deferred tax assets or deferred tax liabilities. The net amount of replacement values and deferred taxes is reported as a hedging reserve in the consolidated statement of changes in shareholders’ equity. In the consolidated statement of income, the changes in replacement values arising during the period under review are presented with the effect of deferred tax assets as other earnings.

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2.3 Earnings from renting investment real estateIncome from renting investment real estate includes net rental income after deduction of vacancy losses, and losses due to bad debts. Costs for ground rent, management, operation, maintenance and repairs are reported separately in the income statement as direct expenses for rented investment real estate.

Rent-free periods in commercial premises are recognised on a straight line basis over the contract term.

2.4 Earnings from sale of investment real estateGains and losses on the sale of investment real estate correspond to the dif-ference between the realised net proceeds after deduction of transaction costs and the latest recorded market value of the properties sold. The earnings are taken to the income statement at the time of the transfer of benefits and risks.

2.5 Earnings from revaluation of investment real estateThe revaluation of yield-producing properties and investment real estate under construction shows changes in the market value of the real estate portfolio. The report of the external real estate valuer serves as the basis. The real estate valuation underlying the revaluation excludes the deduction of transaction costs at the time of sale.

For more details of the recognition of investment real estate, see 2.9.

2.6 Earnings from Projects & Development divisionThe earnings from the Projects & Development division include income from realisation Projects & Development (third-party projects), income from sales Development (own projects), capitalised company-produced assets and diverse income. Income from realisation Projects & Development includes the project volume completed during the period under review for third parties (third-party projects) and corresponds to the total of all project costs, fees and earnings from construction activity recognised by the percentage of completion method (POC). In the case of loss-making projects, provisions are immediately made for the estimated final loss in the project accounts (trade receivables or payables).

Earnings realised and received from the sale of development real estate (own projects) are recognised as income from sales Development at the time of trans-fer of benefits and risks, i.e. on transfer of ownership of individual development real estate units and entry of this transfer in the land register. When recognising the revenues, the pro rata project costs and gains are also taken into account.

Direct expenses from realisation Projects & Development and sales Develop-ment contain the accrued project costs of all third-party projects bought in by contractors as well as cumulative investment costs including capitalised com-pany-produced assets and pro rata gains for own projects sold.

Capitalised company-produced assets accrue from investment real estate under construction as well as development real estate and are taken to income at cost if own project work is incurred.

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2.7 Transfer of segment reporting to the consolidated statement of com-prehensive income

The presentation of net profit in the internal reports is similar to that in the segment reports. As regards the Projects & Development division, the segment reports differ from the consolidated statement of comprehensive income in respect of the quantification of sales.

In the segment reports, the volume of projects completed for all third-party and own projects is taken as the relevant sales figure.

In the consolidated statement of comprehensive income, sales from realisation Projects & Development and sales of development real estate are recognised in accordance with 2.6. In the segment reports, in respect of the volume of projects completed for the Real Estate division (intercompany sales) and for own projects, the difference between projects completed and sales Development is stated.

2.8 Financial expense/capitalised building loan interestInterest expenses are accrued/deferred between reporting periods on the basis of the effective interest rate method and taken to income.

For development real estate and investment real estate under construction, debt interest is capitalised. The underlying debt interest rate is the average bor-rowing rate during the reporting period.

2.9 Investment real estateThe investment real estate reported under fixed assets is divided into yield-producing properties (residential and commercial properties) and in-vestment real estate under construction. All investment real estate is carried at market value in accordance with IAS 40 and IFRS 13. The valuation at the time of initial recognition is based on acquisition cost, including directly attributable transaction costs. After the initial recognition, the external real estate valuer regularly determines the fair value on the balance sheet cut-off date using the discounted cash flow method (DCF). For details of the valuation method and the key assumptions, see 2.29. To be able to establish the highest and best use of a project, it must be approvable, in compliance with legal requirements and financially viable. Changes in fair value are taken to the income statement, fac-toring in deferred taxes. In the consolidated statement of changes in sharehold-ers’ equity, the cumulative difference between the acquisition cost and fair value of all investment real estate, factoring in deferred taxes encumbering said real estate, is recognised as part of retained earnings (revaluation reserves). Yield-producing properties whose book value is not likely to be derived from continued use but through a sale are reported separately at fair value in work-ing capital as investment real estate held for sale. This is conditional on the sale being highly probable and the investment properties being in a condition ready to be sold immediately. For a sale to be classified as highly probable, it must be expected to take place within one year. For projects to be assigned to invest-ment real estate under construction, the realisation must be intended for the portfolio of investment real estate. It must also be possible to form a reliable estimate of expenditure and income so that an estimate of fair value can be made.

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2.10 Development real estateThe development real estate carried in working capital includes land reserves, buildings under construction and completed properties which were not sold to third parties. If the criteria for investment real estate under construction men-tioned in 2.9 are not met, such projects are carried on the balance sheet as development real estate.

Development real estate is reported in accordance with IAS 2, which requires that these properties be recognised in the consolidated financial statements at acquisition or production costs or, if lower, their net realisable value. The latter corresponds to the estimated sale price less expected project, construction and sales costs up until the disposal. Any impairment is taken to direct expenses from sales Development.

Land already owned by Allreal or payments on account for planned land pur-chases and third-party cost (but not company-produced assets) are capitalised under development reserves if the project is expected to be realised, but work has not yet started.

Projects in progress on which structural work has yet to be completed, for which the property-specific full statement of accounts is not yet available and for which the transfer of ownership to a third party has not yet been completed are recognised as buildings under construction. Realised development real es-tate which has reached structural completion and development real estate des-tined for immediate sale to third parties are reported as completed buildings.

2.11 Other property, plant and equipmentOther property, plant and equipment is stated at acquisition or production costs less operationally necessary depreciation and, where appropriate, less addi-tional depreciation as a result of impairment losses. The estimated useful life of plant and equipment is four to five years and three years for IT infrastructure. The works of art capitalised under other property, plant and equipment are not depreciated. Depreciation is calculated on a straight-line basis.

2.12 Intangible assetsGoodwill from acquisitions corresponds to the surplus of the purchase price, the contribution of minority interests in the companies taken over and the mar-ket value of the share of previously held equity over the balance of the assets, liabilities and contingent liabilities valued at market values. Goodwill is not amortised, but subjected to an annual impairment test.

For the valuation of the other intangible assets (orders and customer relation-ships), the accumulated depreciations and any impairment losses are deducted from the acquisition costs as of the balance sheet date. The depreciations are performed on a straight-line basis over the estimated useful life of three to four years.

2.13 Financial assetsFinancial assets include long-term loans in the context of usual business oper-ations and the pre-financing of tenant fit-outs, as well as positive replacement values of interest rate swaps with terms to maturity of more than 12 months. Loans are stated using the amortised cost method and are freely available.

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2.14 Short-term receivablesReceivables arising from construction activities undertaken on behalf of third parties are recognised according to the net principle, i.e. payments on account received from clients and partial settlements of accounts arising from the con-struction activities are offset against each other (order balances). Positive net positions are shown under trade receivables, while negative net positions are reported under trade payables; see also 2.6.

Trade receivables and other receivables are reported at their nominal value less necessary value adjustments for irrecoverable claims. Value adjustments are based on an individual assessment of the claim in the light of deposited collat-eral and also take account of appropriate historical empirical values.

All short-term receivables are freely disposable and are not pledged.

2.15 CashCash includes cash on hand, sight deposits with banks and short-term time de-posits with maximum maturities of 90 days. They are reported at nominal value.

2.16 Share capital/Treasury sharesThe share capital of Allreal Holding AG is reported as equity as it is not sub-ject to any repayment obligation or dividend guarantee. Issuing costs which are incurred in connection with a capital increase and are directly attributable to the issuance of new shares are offset against the capital reserves under equity. The premium paid with capital increases or through conversion of a convertible bond is reported under capital reserves.

Treasury shares may be held by Allreal Holding AG or by one of its Group com-panies on the balance sheet cut-off date. These are stated at acquisition cost offset directly against equity and are listed as a separate item in the consol-idated statement of changes in shareholders’ equity. Gains and losses from transactions with treasury shares are taken to retained earnings in equity.

2.17 Bonds and convertible bondsBonds are recognised on issue on the basis of the proceeds received, net of transaction costs. The difference between reported financial liabilities and the repayment amount is amortised to the income statement over the bond’s term to maturity using the effective interest method.

Convertible bonds are recognised in accordance with IAS 32 by breaking them down into liabilities (financial liabilities) and equity. The allocation to equity cor-responds to the difference between the proceeds from the issue before issuing costs and the fair value of the financial liabilities. The issuing costs are offset against the convertible bond and split proportionately between liabilities and equity. The share of equity remains unchanged until the bonds are converted or redeemed. The difference between reported financial liabilities and the repay-ment amount is amortised to the income statement over the convertible bond’s term to maturity using the effective interest method.

83Allreal Annual Report 2014

2.18 Financial liabilitiesIn addition to bond issues and convertible bonds, financial liabilities include bank loans secured by mortgages and are recognised as long-term financial liabilities in compliance with IAS 1 if the contractually agreed remaining term to maturity in the credit agreements is longer than twelve months. All other finan-cial liabilities are recognised as a short-term bank debt, including amortisation payments due within twelve months of the balance sheet cut-off date. Financial liabilities are recognised at amortised costs using the effective interest method.

2.19 ProvisionsProvisions are made to the extent that corresponding obligations exist as at the balance sheet cut-off date and the respective event is in the past. In addition, the amount can be estimated reliably and the probability of occurrence is rated higher than that of the non-occurrence. Provisions are classified as short-term or long-term depending on whether they are expected to be utilised within one year or later. Provisions are reported at the best possible estimate of the amount necessary to meet the obligations as at the balance sheet cut-off date. If the effect is material, provisions are discounted.

2.20 Current liabilitiesLiabilities arising from construction activities undertaken on behalf of third parties are recognised according to the net principle, i.e. payments on account received from clients and partial settlements of accounts arising from the con-struction activities are offset against each other (order balances). Negative net positions are shown under trade payables, while positive net positions are re-ported under trade receivables.

Trade payables and other liabilities (accrued liabilities) due within one year are recorded at their nominal value.

Interest-free payments (reservation fees and down payments) made by future owners of units of development real estate are reported as a separate position under liabilities until such time as ownership has been transferred.

2.21 LeasingLeasing agreements are reported as financial leases if essentially all risks and opportunities associated with ownership of the leased property are transferred to Allreal. They are classified at the beginning of the lease. The leased property is initially capitalised at the lower of the present value of the lease payments or fair value. Leasing instalments are broken down into interest and repayment amounts. The leased property is depreciated over its estimated useful life or over the term of the lease, whichever is the shorter.

Cash flows for operating leasing are taken to income directly at the time of payment.

2.22 ImpairmentIf there is reason to believe that the value of property, plant and equipment and intangible assets has been impaired, an impairment test will be carried out at least once a year and the realisable value will be estimated. The realis-able value is the lower of value in use or market value less selling costs. Any

84 Allreal Annual Report 2014

difference between the asset and the realisable value is depreciated to the in-come statement and reported separately in the notes to the consolidated finan-cial statements.

2.23 TaxesThe tax expenses line item in the consolidated statement of comprehensive in-come comprises current taxes on business activities, deferred taxes on revalu-ation and other deferred taxes.

Current taxes on business activities include income taxes due for the business year as well as property gains tax on the completion and sale of development real estate (Projects & Development division) and the sale of investment real estate (Real Estate division).

Current income taxes are calculated net of tax loss carry-forwards and in com-pliance with the applicable tax regulations on the basis of the results reported by the individual group companies and are recognised under current tax liabilities.

Deferred taxes are determined using the comprehensive balance sheet liability method and are calculated at the tax rates in force or announced on the balance sheet cut-off date. With the exception of taxes on the replacement values of cash flow hedges and changes in the pension fund recognised through equity, changes in deferred taxes are taken to income.

Deferred tax liabilities take account of discrepancies in income and property gains taxes between the valuation for purposes of the consolidated financial statements and the applicable tax valuation of individual assets and liabilities for tax purposes. At the same time, a deferred tax is calculated on all discrep-ancies leading to delays in the timing of taxation. For the higher valuation of investment real estate (positive difference between acquisition cost and market value,) an individual tax rate is applied, with a realistic holding period defined for each individual investment real estate property.

Deferred tax assets from tax loss carry-forwards and the downward revaluation of investment real estate (negative difference between tax value and market value) are capitalised if they appear certain to be recoverable with future tax-able income.

2.24 Employee pension plansEmployees of Allreal Generalunternehmung AG are covered by the Allreal pen-sion fund for mandatory and extra-mandatory staff pension provision as per the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pen-sion Plans (BVG), while employees of Hammer Retex AG are affiliated to the collective foundation of a Swiss insurance company for occupational pension provision.

The Allreal pension fund is a legally independent pension institution based on the principle of defined contributions in accordance with Swiss law. The Board of Trustees of the Allreal pension fund decided to lower the pension conversion rates by 0.5% for all age brackets effective 1 January 2015. The resulting effects are recognised immediately in the income statement under past service cost.

85Allreal Annual Report 2014

On the basis of IAS 19, these pension plans qualify as defined benefit plans. The assets and commitments of these plans are recalculated half-yearly by an external actuary. In accordance with IAS 19 (revised), the plan assets are rec-ognised at fair value and liabilities are valued using the projected unit credit method.

Pension expenses comprise a past service and a net interest component which are recognised under personnel expenses as well as a revaluation component which contains actuarial gains and losses and is recognised through other com-prehensive income under changes in the pension fund.

Some staff are also covered by a management insurance scheme arranged with an insurance company which is classed as a defined contribution plan under IAS 19. The expenditure reported during the period under review corresponds to the employer’s payments to the plan.

2.25 Share-based reimbursementPart of the variable remuneration may be paid to the members of Group Man-agement in the form of shares of Allreal Holding AG. Beneficiaries have imme-diate right of disposal over the first half of the shares allocated to them. The second half will be placed at the beneficiary’s disposal in two years, provided that the employment relationship has not been terminated. Entitlements will be satisfied by the company by means of treasury shares. The amount resulting from the share allocation is charged to personnel expenses over the vesting period. Shares are recognised at market value at the time of allocation.

2.26 Earnings per shareNet profit per share is calculated by dividing net profit by the weighted average number of shares outstanding during the reporting period. As well as allowing for expenditure and income in connection with convertible bonds (interest ex-penses, amortisation effects, taxes), diluted earnings per share also take ac-count of additional shares that may be created as a result of the exercising of option or conversion rights and will have a dilutive effect on the result.

2.27 Consolidated cash flow statementLiquid assets (cash on hand, postal and bank account balances) and short-term deposits with maximum terms of 90 days are used as funds. Cash flow from op-erating activities consists of operating cash flow before changes in net working capital (NWC), changes in NWC (excluding cash and current tax liabilities), as well as cost of finance paid, financial income received, and income and prop-erty gains taxes paid. Cash flows from investing and financing activities are pre-sented separately.

2.28 Foreign currenciesThe geographical range of the Allreal Group’s activities is confined to Switzer-land. The Group has no assets or liabilities in foreign currencies. As all Group companies prepare their annual accounts in Swiss francs, consolidation does not result in any currency translation differences.

86 Allreal Annual Report 2014

2.29 Valuation uncertainties

Investment real estateAs at 31 December 2014, Allreal holds investment real estate with a book value of CHF 3 513.6 million (31.12.2013: CHF 3 445.8 million). The investment real estate is valued at market value calculated using the discounted cash flow method (DCF). The DCF method is based on various estimates and assump-tions, with the yield potential of a property being derived on the basis of future revenue and expenditure. Market values do not take account of transaction costs upon sale. Recognised at fair value as at 31 December 2014, yield-produc-ing properties totalling CHF 3 509.6 million (31.12.2013: CHF 2 610.2 million) and investment real estate under construction totalling CHF 4.0 million (31.12.2013: CHF 835.6 million) qualify as category 3 fair values. During the period under review, no adjustments were made to valuation techniques or pro-cesses and there were no shifts within the fair value categories.

Future rental income is forecast on the basis of current contractual rents and target annual rental income. In the case of expiring commercial leases, a typical local market rent which appears sustainable from a current perspective is used. Where tenants have extension options, as a rule the lower of market rent and contractual rent is stated. Sustainable market rents will also be used in the case of open-ended leases where there is a significant difference between the contractual rents and the market level in the exit year. Moreover, property-spe-cific assumptions with regard to temporary and structural vacancies will be fac-tored into the market valuation.

Management and building costs are in principle based on the relevant property accounts and include non-apportionable operating and maintenance costs, as well as future repair costs based on Allreal’s multi-year budgets. These costs include costs for asset maintenance to secure the long-term level of contrac-tual and market interest rates on which the valuation is based as well as value-enhancing investments generating future additional income.

A property-specific discount is made on each investment property on the basis of macro- and micro-locational considerations and depending on the real estate segment. Inflation is taken into account in the forecast cash flows. The discount and capitalisation rates are based on the interest paid on long-term, risk-free investments plus a specific risk premium.

If the market rents in subsequent years are lower than projected in the DCF valu- ations, this may lead to an adjustment of the fair values. This devaluation effect on investment real estate would be even stronger in combination with increasing discount and capitalisation rates.

In the case of investment real estate under construction, future rental income is also ascertained on the basis of typical local market rents or rents already contractually agreed. On the cost side, expenses are determined with the aid of investment calculations, the chronological progress of construction phases and cost forecasts. If actual construction costs and rental income in subsequent periods differ from the estimates and planned figures, the fair values may need to be adjusted; see also 4.1.

87Allreal Annual Report 2014

Development real estateAs at 31 December 2014, Allreal holds development real estate with a book value of CHF 301.2 million (31.12.2013: CHF 382.5 million). It was valued at acquisi-tion or production costs – including company-produced assets for buildings under construction – less value adjustments for impairment losses. On the bal-ance sheet cut-off date at the latest, an impairment test is carried out for all de-velopment projects by comparing incurred and future costs with the realisable value. On the cost side, expenses are, among other methods, determined with the aid of investment calculations, the chronological progress of construction phases and cost forecasts. The proceeds are based on market assessments, empirical values and completed sales to date. If actual construction costs and sales proceeds in subsequent periods differ from the estimates and planned fig-ures, the book values may need to be adjusted.

TaxesAllreal has significant deferred tax assets totalling CHF 31.7 million (31.12.2013: CHF 42.2 million) and liabilities totalling CHF 135.6 million (31.12.2013: CHF 155.7 million), which stem mainly from valuation differences relating to in-vestment real estate; see 2.23. In calculating the deferred taxes on investment real estate, a remaining holding period was estimated for each property. If the actual holding period of the investment real estate does not correspond to the assumed holding period, this may result in a considerable difference between the tax due and the capitalised deferred taxes when the property is sold.

2.30 Information on the implementation of a risk assessmentAllreal has a comprehensive management system (PAQ) in place. This system describes all parent processes and associated controls and integrates the tasks of management, operational processes and support processes. The PAQ also covers non-financial processes. There is also a documented internal control system in place for accounting and financial reporting to prevent, minimise or identify the risk of material misrepresentation in the annual accounts. The financial reporting controls are based on the COSO framework. Once a year, Group Management provides the Board of Directors with confirmation that a system of internal controls is in place and is functioning effectively.

The Board of Directors evaluates quarterly at corporate level the risk assessment prepared by Group Management (identification, quantification, monitoring and control). In particular, the risk assessment must explicitly give consideration to the reliability and completeness of financial information (fair presentation), as-set protection, compliance with laws, regulations and contracts, as well as the risk of balance sheet fraud.

Effective internal control and management systems are in place to ensure that the consolidated financial statements of Allreal Group comply with the applic-able accounting rules and to ensure the fair presentation of reporting. Account-ing and valuation involve making forward-looking estimates and assumptions. Estimates and assumptions which pose a significant risk in the form of an ad-justment to the book values of assets and liabilities within the next financial year are shown under the individual positions in the Notes; see 2.29.

88 Allreal Annual Report 2014

3 Notes on the consolidated statement of comprehensive income

3.1 Income from renting investment real estate

CHF million 2014 2013

Rental income from residential properties 27.8 24.7

Rental income from commercial properties 131.4 123.8

Income from renting investment real estate 159.2 148.5

The rental income is calculated as follows:

Projected rental income 174.3 156.8

Ground rent 0.0 −0.1

Vacancy losses −13.8 −7.4

Collection losses and loss of income as a result of rent-free periods −1.3 −0.8

Income from renting investment real estate 159.2 148.5

The accumulated vacancy rate for the 2014 financial year amounted to a total of 7.9% of projected rental income (2013: 4.7%), with commercial properties ac-counting for 7.8%, while residential properties accounted for 8.5% (2013: 5.0% and 3.3%, respectively).

The rest of the rental income breaks down as follows:

CHF million 2014 2013

Residential real estate held on a continuous basis 24.6 23.3

Commercial real estate held on a continuous basis 115.7 110.1

Acquisitions and own developments 16.1 7.8

Sold properties 2.8 7.3

Income from renting investment real estate 159.2 148.5

The year-on-year change in rental income from commercial and residential real estate held on a continuous basis came to 0.62 and 0.35% respectively (like-for-like rental growth). In calculating the growth rate on the real estate portfolio, additions and disposals in 2013 and 2014 were not taken into account.

89Allreal Annual Report 2014

3.2 Direct expenses for rented investment real estate

CHF million 2014 2013

Administrative and operating expenses, residential real estate −1.7 −1.4

Administrative and operating expenses, commercial real estate −6.3 −6.2

Maintenance and repair expenses, residential real estate −1.9 −4.0

Maintenance and repair expenses, commercial real estate −15.2 −10.7

Real estate expenses −25.1 −22.3

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:

CHF million 2014 2013

Administrative fees and costs −3.7 −3.7

Insurance, fees and charges −1.3 −1.2

Janitorial services −0.4 −0.3

Other expense and ancillary costs (borne by owner) −2.6 −2.4

Administrative and operating expenses −8.0 −7.6

In 2014 real estate expenses for unlet properties amounted to CHF 1.1 million (2013: CHF 0.5 million).

3.3 Income from real estate management services

CHF million 2014 2013

Income from administration and management 5.4 5.2

Income from sale and brokerage 1.2 1.6

Income from real estate management services 6.6 6.8

3.4 Earnings from sale of investment real estate

CHF million 2014 2013

Proceeds from sale 54.6 217.1

Transaction costs on sale −0.5 −1.0

Balance sheet value = market value on 31.12 of the previous year −51.0 −196.1

Earnings from sale of investment real estate 3.1 20.0

The period under review saw the sale of the commercial properties Buckhaus-erstrasse 32 and Thurgauerstrasse 39 in Zurich and the residential property Badenerstrasse 58–60 in Schlieren. After deduction of transaction costs, the sale resulted in earnings of CHF 3.1 million on total selling prices of CHF 54.6 million.

In 2013, the sale of six properties produced earnings of CHF 20.0 million.

90 Allreal Annual Report 2014

3.5 Earnings from Projects & Development division

CHF million 2014 2013

Income from realisation Projects & Development 546.5 620.6

Direct expenses from realisation Projects & Development −500.8 −569.5

Earnings from realisation Projects & Development 45.7 51.1

Income from sales Development 211.6 293.9

Direct expenses from sales Development −177.0 −260.2

Income from sales Development 34.6 33.7

Capitalised company-produced assets 21.5 24.6

Diverse income 1.0 1.3

Earnings from Projects & Development division 102.8 110.7

Income from realisation Projects & Development consists of architects’ and project & development fees (CHF 37.5 million) and earnings from construction activity (CHF 11.9 million). This contrasts with directly offset sales deductions for construction insurance and guarantees, performance guarantees, bad debt allowances and third-party expenses arising from tendering (CHF −3.7 million).

During the 2014 financial year, ownership of units under the projects Ringhof Wallisellen (selling price CHF 87.5 million), Bruggächer Mönchaltorf (CHF 45.2 million), Cholplatz Bülach (CHF 33.6 million), Lerchenbergstrasse Erlenbach (CHF 21.9 million), Holengass Meilen (CHF 10.2 million), Escherhof Wallisel-len (CHF 10.0 million), Stockenstrasse Kilchberg (CHF 2.0 million) and Lilien-thal-Boulevard Opfikon (CHF 1.2 million) was transferred to third parties, re-sulting in gains on sales of CHF 34.6 million.

Diverse income includes fees for third-party project development activities amounting to CHF 0.8 million and other earnings from commissions and ser-vices provided for third parties amounting to CHF 0.2 million.

3.6 Personnel expenses

CHF million 2014 2013

Salaries and wages −46.3 −49.1

Social insurance benefits −3.7 −4.4

Employee pension plans 0.3 −5.0

Share-based reimbursement −0.2 −0.2

Other personnel expenses −3.2 −3.6

Personnel expenses −53.1 −62.3

The share of wages and salaries attributable to the Projects & Development division amounts to CHF 39.3 million; the share attributable to Hammer Retex is CHF 6.6 million. In addition, payments were made to the Board of Directors of Allreal Holding AG (CHF 0.4 million). Personnel services provided to other divisions are paid in the form of management fees and are eliminated again for the consolidated financial statements.

91Allreal Annual Report 2014

A CHF 5.4 million past service cost was credited to employee pension expenses in application of IAS 19, since, among other factors, the Board of Trustees of the Allreal pension fund had decided to lower the pension conversion rates for all age brackets by 0.5% effective 1 January 2015; see 3.11.

Other personnel expenses include spending on actual and flat-rate staff ex-penses (CHF 2.0 million), training and development (CHF 0.2 million), costs for the recruitment of new employees (CHF 0.4 million), expenses for employee events (CHF 0.2 million) and other directly attributable staff expenses (CHF 0.4 million).

On the balance sheet cut-off date, the staff headcount stood at 376 employees, corresponding to 348 full-time equivalents (31.12.2013: 388 employees/371 full-time equivalents).

3.7 Other operating expenses

CHF million 2014 2013

IT expenses −1.5 −1.3

Rental expenses −3.8 −4.0

Consultancy and legal fees −1.5 −1.1

Administration expenses −4.2 −4.3

Capital taxes −2.1 −1.7

Other general operating expenses −1.0 −1.5

Other operating expenses −14.1 −13.9

Rental expenses relate to business premises and parking spaces in Zurich, Ba-sel, Bern, Cham and St. Gallen. For its head office in Zurich, Allreal has an in-dexed lease which runs until 31 January 2018, with an annual rent of CHF 2.9 million. The leases for the other sites, with annual rents of CHF 0.7 million, have fixed terms, the longest of which runs until July 2017.

CHF million 2014 2013

Rental commitments up to 1 year 3.6 3.7

Rental commitments 2–5 years 6.4 9.8

Rental commitments more than 5 years 0.0 0.2

Total 10.0 13.7

Administrative expenses include the cost of corporate communications, tele-communications, property insurance and office supplies.

Other general operating expenses consist essentially of costs for the operation, maintenance and repair of operating facilities, postage costs and the cost of pre-tax cuts in VAT.

92 Allreal Annual Report 2014

3.8 Financial income

CHF million 2014 2013

Financial income from the sale of shareholdings 0.0 0.8

Interest income on cash 0.0 0.1

Interest income on financial assets 0.8 0.3

Financial income 0.8 1.2

In the previous year, the sale of a 1.14% minority interest in Olmero AG, Opfikon, resulted in a book gain of CHF 0.8 million.

3.9 Financial expense

CHF million 2014 2013

Interest expense payable to banks/insurance companies for liabilities −9.0 −7.9

Interest expense for derivatives −15.8 −20.5

Interest expense for bond issue −8.5 −4.9

Interest expense for convertible bonds −7.4 −7.3

Capitalised building loan interest 2.8 7.2

Financial expense −37.9 −33.4

The financial expense for the 2.00% bond issue 2013–2020 includes paid and ac-crued interest of CHF 3.0 million (2013: CHF 0.8 million) up to the balance sheet cut-off date and amortisation of CHF 0.1 million (2013: CHF 0.1 million) between the debt component and the redemption amount.

The financial expense for the 1.25% bond issue 2014–2019 includes accrued in-terest of CHF 1.2 million up to the balance sheet cut-off date and amortization of CHF 0.1 million between the debt component and the redemption amount.

The financial expense for the 2.50% bond issue 2011–2016 includes paid and accrued interest of CHF 3.8 million (2013: CHF 3.8 million) up to the balance sheet cut-off date and amortisation of CHF 0.3 million (2013: CHF 0.2 million) between the debt component and the redemption amount.

The financial expense for the 2.125% convertible bond 2009–2014 redeemed on 9 October 2014 comprises paid interest of CHF 3.3 million (2013: CHF 4.2 mil-lion) and amortisation of CHF 4.1 million (2013: CHF 3.1 million) between the debt component and the redemption amount.

Capitalised building loan interest of CHF 2.8 million (2013: CHF 7.2 million) breaks down into development real estate under construction (CHF 1.3 million) and investment real estate under construction (CHF 1.5 million), applying an average interest rate of 1.91–2.07% (2013: 1.95–2.13%).

The average interest rate on the outstanding financial liabilities is 1.93%, with an average interest lock-in period of 4.2 years for all financial liabilities (2013: 2.13% and 4.7 years).

93Allreal Annual Report 2014

Based on the financial liabilities which have interest lock-in periods of less than one year outstanding on the balance sheet date and which are not hedged by means of derivatives, a rise in interest rates by 1% would increase the annual-ised interest costs by CHF 2.1 million (2013: CHF 1.0 million).

3.10 Earnings per share/net asset value (NAV) per share

2014 2013

Number of outstanding shares as at 01.01. (in thousands) 15 909 15 934

Change in holdings of treasury shares (in thousands) 31 −25

Issuing of shares from capital increase (in thousands) 1 0

Number of outstanding shares as at 31.12. (in thousands) 15 941 15 909

Average number of outstanding shares (in thousands) 15 930 15 913

Net profit excl. revaluation effect (in CHF million) 109.1 116.1

Earnings from revaluation of investment real estate (in CHF million) −5.9 8.1

Deferred taxes on revaluation gains (in CHF million) 1.2 −2.4

Net profit incl. revaluation effect (in CHF million) 104.4 121.8

Earnings per share incl. revaluation effect (CHF) 6.56 7.66

Earnings per share excl. revaluation effect (CHF) 6.85 7.29

Diluted earnings per share

— incl. revaluation effect (CHF) 6.57 7.34

— excl. revaluation effect (CHF) 6.86 7.01

The share-based remuneration of members of Group Management has the ef-fect of diluting the earnings per share. To calculate the dilution, the net profit was corrected for the effects resulting from the share-based remuneration. This results in a diluted net profit of CHF 104.6 million including revaluation effect or CHF 109.3 million excluding revaluation effect. For the calculation of the diluted net profit, the average number of outstanding shares increases from 15 929 684 to 15 931 099 shares.

CHF million 2014 2013

Outstanding shares (in thousands) as at 31 December 15 941 15 909

Equity as at 31 December (CHF million) 1 954.0 1 969.3

Net asset value (NAV) per share after deferred taxes (CHF) 122.55 123.80

Equity plus provision for deferred taxesless deferred tax assets (CHF million) 2 057.9 2 082.8

Net asset value (NAV) per share before deferred taxes (CHF) 129.10 130.90

At the end of the year, the share price stood at CHF 137.10 (31.12.2013: CHF 123.50). This represents a premium of 11.8% compared to the net asset value per share after deferred taxes of CHF 122.55 (31.12.2013: discount −0.2%).

94 Allreal Annual Report 2014

3.11 Employee pension plans

Swiss pension institutions are regulated by the Swiss Federal Law on Occupa-tional Retirement, Survivors’ and Disability Pension Plans (BVG). The BVG stipu-lates 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 tasked with defining and implementing investment strategy.

Plan members are insured against the economic consequences of old age, death and disability, 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 ac-count 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 occupa-tional 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 contri-butions, payment of additional restructuring contributions by the employer, or adjusting the conversion rates.

95Allreal Annual Report 2014

Development of pension fund commitments and assets

CHF million 31.12.2014 31.12.2013

Present value of pension commitments −151.1 −127.4

Fair value of pension fund assets 137.0 128.5

Effect of asset ceiling 0.0 −3.5

Net pension commitments −14.1 −2.4

Defined benefit pension plan expenses break down as follows:

CHF million 2014 2013

Current service cost 4.5 4.4

Past service cost −5.4 0.0

Service cost −0.9 4.4

Net interest income employee pension plans 0.0 0.0

Pension expenses recognised in the statement of income −0.9 4.4

The past service cost of CHF 5.4 million was credited to the income statement under personnel expenses.

Change in pension commitments

CHF million 2014 2013

Present value of pension fund commitments as at 1 January 127.4 121.3

Current service cost 4.5 4.4

Past service cost −5.4 0.0

Interest expenses 2.8 2.4

Contributions from insured members 3.3 3.5

Benefits paid −4.8 −3.7

Insurance premiums −0.3 −0.2

Actuarial losses/(gains) 23.6 −0.3

Present value of pension fund commitments as at 31 December 151.1 127.4

96 Allreal Annual Report 2014

Changes in pension fund assets at market value

CHF million 2014 2013

Assets of the pension funds at market value as at 1 January 128.5 116.9

Return on plans assets (excluding interest income) 3.8 5.9

Interest income 2.9 2.4

Employer’s contributions 3.6 3.7

Contributions from insured members 3.3 3.5

Benefits paid −4.8 −3.7

Insurance premiums −0.3 −0.2

Assets of the pension funds at market value as at 31 December 137.0 128.5

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

31.12.2014 in % 31.12.2013 in %

Cash and cash equivalents 13.4 9.8 10.0 7.8

Equity instruments (shares) 38.7 28.2 35.2 27.4

Debt instruments (bonds) 38.4 28.0 37.4 29.1

Other assets 0.7 0.5 0.6 0.4

Assets traded on active markets 91.2 66.5 83.2 64.7

Real estate 45.8 33.5 45.3 35.3

Assets not traded on active markets 45.8 33.5 45.3 35.3

Pension fund assets 137.0 100.0 128.5 100.0

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

31.12.2014 31.12.2013

Discount rate 1.00% 2.25%

Expected development of wages and salaries 0.80% 0.6–1.0%

Expected development of pensions 0.0–0.25% 0.0–0.25%

The discount rate and the future development of wages and salaries were iden-tified 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 5.7 million lower or CHF 6.1 million higher (31.12.2013: CHF –4.6 million/CHF 4.5 million).

97Allreal Annual Report 2014

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 commit-ments would be CHF 0.9 million higher or CHF 0.9 million lower, respectively.

The revaluation component of pension fund positions recognised in other com-prehensive income breaks down as follows:

CHF million 2014 2013

Change in demographic assumptions 0.0 3.4

Change in financial assumptions 24.2 −2.8

Effect of experience-based adjustments −0.9 −0.8

Return on plans assets (excluding interest income) −3.8 −5.9

Change in asset ceiling −3.5 3.5

Total expense recognized in other comprehensive income 16.0 −2.6

Development of asset ceiling

CHF million 2014 2013

Asset ceiling on 1 January 3.5 0.0

Change in plan assets −3.5 3.5

Asset ceiling on 31 December 0.0 3.5

A probable CHF 4.1 million will be paid out under defined benefit commitments within the next 12 months, and a probable CHF 42.0 million in the subsequent 9 years.

The average term of defined benefit commitments to the end of the period under review is 16.9 years (31.12.2013: 15.7 years).

For the following year, contributions to the plan are expected to come to CHF 3.6 million (employer) and CHF 3.3 million (employees) (2013: CHF 3.8 million and 3.5 million, respectively).

In addition to the Allreal pension fund, some Allreal staff are covered by a man-agement 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 0.6 million (2013: CHF 0.6 million). The management plan is classified as a defined contribution plan in accordance with IAS 19.

In 2014, employee benefits came to a total of CHF −0.3 million (2013: CHF 5.0 million). CHF 5.0 million).

98 Allreal Annual Report 2014

3.12 Share-based reimbursementMembers of Group Management receive an additional remuneration in the form of shares of Allreal Holding AG. Beneficiaries have immediate right of disposal over the first half of the shares allocated to them. The second half of the shares allocated will be placed at the beneficiary’s disposal in two years, provided that the employment relationship has not been terminated. Entitlements will be sat-isfied by the company by means of treasury shares. The amount in connection with the share allocation is charged to personnel expenses over the vesting period.

Time of allocation Number of Allreal shares

Share price in CHF

Expenses in CHF million

Availability

27.02.2012 208 145.50 0.002 28.02.2014

11.12.2012 415 139.50 0.026 30.11.2014

28.02.2013 220 135.10 0.015 28.02.2015

10.12.2013 524 121.60 0.032 30.11.2015

28.02.2014 250 123.00 0.031 immediately

28.02.2014 250 123.00 0.013 28.02.2016

10.12.2014 567 134.00 0.076 immediately

10.12.2014 567 134.00 0.003 30.11.2016

Provided that all preconditions are met, a total of 1 561 shares of Allreal Holding AG will be distributed to eligible beneficiaries in 2015 and 2016.

Total expenses for share-based reimbursement amounted to CHF 0.20 million in the period under review (2013: CHF 0.18 million).

99Allreal Annual Report 2014

4 Notes to the consolidated balance sheet

4.1 Investment real estate

Residential real estate Commercial real estate Investment real estate under construction

Total investment real estate

CHF million 2014 2013 2014 2013 2014 2013 2014 2013

Acquisition costs

As at 1 January 399.0 383.9 2 054.8 2 010.7 816.6 609.8 3 270.4 3 004.4

Purchases 0.0 0.0 6.0 1.2 0.0 0.0 6.0 1.2

Investments 0.0 3.1 21.1 4.3 235.0 321.3 256.1 328.7

Capitalised building loan interest 0.0 0.0 0.0 0.0 1.5 4.2 1.5 4.2

Disposals −4.4 −12.2 −34.8 −196.6 −7.8 0.0 −47.0 −208.8

Reclassification as revaluation 0.3 0.0 −1.6 0.0 0.0 0.0 −1.3 0.0

Reclassification as assets held for sale 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Reclassifications 145.2 24.2 764.3 235.2 −1 040.6 −118.7 −131.1 140.7

As at 31 December 540.1 399.0 2 809.8 2 054.8 4.7 816.6 3 354.6 3 270.4

Revaluation

As at 1 January 112.5 69.0 43.9 67.3 19.0 18.3 175.4 154.6

Higher valuations 24.0 43.5 57.1 15.7 0.0 26.7 81.1 85.9

Lower revaluations −1.0 0.0 −85.3 −70.3 −0.7 −7.5 −87.0 −77.8

Disposals −1.1 −3.3 −10.7 16.0 0.0 0.0 −11.8 12.7

Reclassification of acquisition costs −0.3 0.0 1.6 0.0 0.0 0.0 1.3 0.0

Reclassification as assets held for sale 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Reclassifications 18.3 3.3 0.7 15.2 −19.0 −18.5 0.0 0.0

As at 31 December 152.4 112.5 7.3 43.9 −0.7 19.0 159.0 175.4

Investment real estate held for sale

As at 1 January 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Reclassification of acquisition costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Reclassification of revaluation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

As at 31 December 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Balance sheet value = market value on 1 January 511.5 452.9 2 098.7 2 078.0 835.6 628.1 3 445.8 3 159.0

Balance sheet value = market value on 31 December 692.5 511.5 2 817.1 2 098.7 4.0 835.6 3 513.6 3 445.8

of which recognised in non-current assets 692.5 511.5 2 817.1 2 098.7 4.0 835.6 3 513.6 3 445.8

of which recognised asheld for sale (current assets) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

of which pledged or subject to restricted disposability 660.8 511.5 2 589.9 1 990.8 0.0 574.8 3 250.7 3 077.1

Fire insurance value 498.2 371.5 2 890.2 2 072.6 – – 3 388.4 2 444.1

100 Allreal Annual Report 2014

The additional purchase within the commercial real estate portfolio (CHF 6.0 mil-lion) relates to the acquisition of a 1 750-square-metre plot at Schiffbaustrasse in Zurich-West to round off the Escher-Wyss site (commercial building project at Schiffbauplatz).

Within the commercial real estate portfolio, value-enhancing investments were made in the buildings at Eggbühlstrasse 21–25, Zurich (CHF 1.0 million), Oberdorfstrasse 9–13, Baar (CHF 1.8 million), Missionsstrasse 60–64a, Basel (CHF 0.7 million), Kalchbühlstrasse 22/24, Zurich (CHF 0.5 million), Grünhof site, Zurich (CHF 0.1 million), and at the Escher-Wyss site, Zurich (CHF 17.0 million).

With the sale of three yield-producing properties, the market value of those properties amounting to CHF 51.0 million (CHF 39.2 million in acquisition costs and CHF 11.8 million in revaluation) as at 31 December 2013 was eliminated from assets. The Zurich Opera House’s rehearsal stages (recognised as invest-ment real estate under construction) in the Escher-Terrassen building were sold at a price of CHF 7.8 million.

Following completion, several properties totalling CHF 928.5 million (CHF 909.5 million in acquisition costs and CHF 19.0 million in revaluation) were reclassi-fied from investment real estate to yield-producing properties. Tenant fit-outs prefinanced by Allreal (CHF 135.8 million) were assigned to financial assets; see 4.4.

As the preconditions under the accounting and valuation principles (see 2.9) were fulfilled, the residential and commercial building under construction on Schiffbaustrasse in Zurich, along with its accumulated acquisition costs of CHF 4.7 million, was reclassified (with no impact on income) from development real estate to investment real estate under construction.

In terms of individual regions and property types, the breakdown of acquisition costs and market values as at 31 December was as follows:

Acquisition costs Market value Change in market value1

CHF million 2014 2013 2014 2013 2014 2013

City of Zurich 119.0 65.7 148.6 91.7 4.1 10.7

Rest of canton Zurich 336.9 278.8 447.2 355.0 18.2 26.5

Other regions 84.2 54.5 96.7 64.8 0.7 6.3

Residential real estate 540.1 399.0 692.5 511.5 23.0 43.5

City of Zurich 1 705.5 1 155.9 1 727.6 1 225.9 −30.6 −29.3

Rest of canton Zurich 770.9 568.0 769.8 552.8 5.2 −21.9

Other regions 333.4 330.9 319.7 320.0 −2.8 −3.4

Commercial real estate 2 809.8 2 054.8 2 817.1 2 098.7 −28.2 −54.6

City of Zurich 4.7 616.8 4.0 613.7 −0.7 1.5

Rest of canton Zurich 0.0 174.3 0.0 195.0 0.0 16.7

Other regions 0.0 25.5 0.0 26.9 0.0 1.0

Investment real estate under construction 4.7 816.6 4.0 835.6 −0.7 19.2

1 From revaluation in comparison with previous year

101Allreal Annual Report 2014

Costs incurred in connection with the acquisition (purchase price, notary’s fees, property transaction costs, commission payments) are recognised under ac-quisition costs, as are the actual production costs of the additions from con-struction activity and value-enhancing investments and total renewals.

The revaluation of the investment real estate is based on the valuation con-ducted on 31 December by the external real estate valuer using the discounted cash flow method.

This involves the yield potential of a property being determined on the basis of future revenue and expenditure. The resulting payment flows correspond to current and forecast net cash flows. The annual payment flows are discounted to the valuation date. The discount rate used for this purpose is based on the interest paid on long-term, risk-free investments plus a specific risk premium. The latter takes account of market risks and the associated illiquidity of a prop-erty. The discounting interest rates vary according to macro- and micro-loca-tional considerations and depending on real estate segment.

This valuation process involves the real estate valuer inspecting each property at least once every three years, as well as after additional acquisitions or on completion of major alterations. The real estate valuer calculates the payment flows on the basis of the rent rolls provided by Allreal (cut-off date 1 January of the following year), all major commercial leases, detailed budgets and me-dium-term planning per property, as well as planned and executed investment projects. From these parameters, the real estate valuer infers his view of the contractual market rents achievable on a sustainable basis and the future real estate expenses. The results of the valuation are discussed with Group Manage-ment, which assesses their plausibility.

As in the previous year, Jones Lang LaSalle AG acts as the real estate valuer on a contract basis. There are no further business connections or investments between Allreal and the real estate valuer.

On the basis of a sensitivity analysis of investment real estate with a market value of CHF 3 513.6 million on the balance sheet cut-off date (31.12.2013: CHF 3 445.8 million), an isolated change in discount and capitalisation rates by 50 basis points would lead to an increase or decrease in value of CHF 371.9 million or CHF 368.3 million, respectively (31.12.2013: CHF 360.6 million/CHF –372.1 million). The bandwidths for the discount and capitalisation rates used in the sensitivity analysis range between 3.5% and 4.0% (residential properties) and between 3.9% and 5.3% (commercial properties) for lower interest rates and between 4.5% and 5.0% (residential properties) and between 4.9% and 6.3% (business properties) for higher interest rates.

102 Allreal Annual Report 2014

The valuation of the yield-producing properties as at 31 December 2014 was based on the following rent bandwidths for the various regions and types of properties:

Residential real estate Commercial real estate

Contractual rents Market rents Contractual rents Market rents

CHF per m2 per year Minimum Maximum Minimum Maximum Minimum Maximum Minimum Maximum

City of Zurich 220 430 220 430 200 620 200 620

Rest of canton Zurich 160 270 190 270 180 390 170 310

Other regions 210 320 210 370 210 560 220 530

All regions 160 430 190 430 180 620 170 620

When determining the highest and best use, the external real estate valuer identified the Escher-Wyss site, Zurich, and the residential property Zolliker-strasse 185–187, Zurich, as two yield-producing properties which satisfy the re-quirements of IFRS 13. The decision not to exploit the potential value of these properties is connected with existing and not immediately terminable rental contracts, some of which have a term of several years.

4.2 Development real estate

Development reserves

Buildings under construction

Completed real estate Total development real estate

CHF million 2014 2013 2014 2013 2014 2013 2014 2013

As at 1 January 51.0 149.4 287.6 396.3 43.9 49.1 382.5 594.8

Purchases 0.0 1.0 0.0 0.0 0.0 0.0 0.0 1.0

From construction activity/development 3.1 2.0 91.3 182.2 6.0 3.4 100.4 187.6

Income from sales Development 1.2 0.7 32.2 30.1 2.0 2.9 35.4 33.7

Impairment 0.0 0.0 0.0 0.0 −0.8 0.0 −0.8 0.0

Disposals −1.2 -4.0 −188.1 -254.0 −22.3 -35.9 −211.6 −293.9

Reclassifications −15.1 -98.1 −55.6 -67.0 66.0 24.4 −4.7 −140.7

As at 31 December = balance sheet value 39.0 51.0 167.4 287.6 94.8 43.9 301.2 382.5

of which pledged or subject to restricted disposability 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

A lower net realisable value for the Holengass Meilen project resulted in an impairment of CHF 0.8 million being taken to direct expenses from sales De-velopment. The value adjustment was due to an appraisal concluding that local market prices for residential properties had fallen in the period under review.

103Allreal Annual Report 2014

The CHF 4.7 million reclassification to investment real estate relates to the Schiffbaustrasse project in Zurich, previously reported under development real estate.

4.3 Other property, plant and equipment

CHF million 2014 2013

Acquisition costs

As at 1 January 6.7 6.2

Additions 0.4 0.5

Disposals 0.0 0.0

As at 31 December 7.1 6.7

Accumulated depreciation

As at 1 January 4.8 3.9

Additions 0.7 0.9

Disposals 0.0 0.0

As at 31 December 5.5 4.8

Book value as at 31 December 1.6 1.9

of which pledged or subject to restricted disposability 0.0 0.0

Fire insurance value 12.9 12.9

Other property, plant and equipment comprises capitalised fit-out costs and in-stallations for commercial and sales premises at the Basel, Bern, St. Gallen, Volketswil and Zurich sites (CHF 0.7 million), IT equipment (CHF 0.1 million) and works of art (CHF 0.8 million).

4.4 Financial assets

CHF million 31.12. 2014 31.12. 2013

Prefinancing of tenant fit-outs 142.5 9.0

Positive replacement values of interest rate swaps 0.0 5.6

Financial assets 142.5 14.6

In the Real Estate division, Allreal provided tenants with prefinancing of costs incurred for interior fit-outs of business and commercial premises which will be repaid by the tenants over the term of their leases on an annuity basis. Final maturities for repayment of the prefinanced tenant fit-outs run until 2034, with interest rates at 1–5.5% p.a., depending on the individual contractual ar-rangements. The largest individual position (CHF 127.2 million) has the canton of Zurich as counterparty (tenant fit-outs on the Toni site). Interest received in the year under review amounted to CHF 0.8 million and was credited to financial income.

104 Allreal Annual Report 2014

As at the balance sheet cut-off date, the prefinanced tenant fit-outs break down as follows:

CHF million 2014 2013

Acquisition costs

As at 1 January 9.0 7.0

Additions 3.2 3.0

Disposals −5.3 −1.0

Reclassification of investment real estate 135.8 0.0

As at 31 December 142.7 9.0

Accumulated depreciation

As at 1 January 0.0 0.0

Additions 0.2 0.0

Disposals 0.0 0.0

As at 31 December 0.2 0.0

Book value as at 31 December 142.5 9.0

4.5 Intangible assets

CHF million 2014 2013

Acquisition costs

As at 1 January 7.1 7.1

Additions 0.0 0.0

Disposals 0.0 0.0

As at 31 December 7.1 7.1

Accumulated depreciation

As at 1 January 3.3 1.4

Additions 1.9 1.9

Disposals 0.0 0.0

As at 31 December 5.2 3.3

Book value as at 31 December 1.9 3.8

The intangible assets relate to project and development contracts for third par-ties and property management customers, taken over as part of the acquisition of Hammer Retex in 2012 and which will be amortised over the remaining term until the end of 2015.

4.6 Trade receivables

CHF million 31.12. 2014 31.12.2013

Receivables Projects & Development division 37.8 31.7

Order balances Projects & Development division 33.3 40.1

Value adjustments to receivables Projects & Development division −0.5 −0.5

Receivables Real Estate division 5.2 3.1

Trade receivables 75.8 74.4

105Allreal Annual Report 2014

The value adjustments relate to overdue receivables from ongoing or completed orders in the Projects & Development division. These are formed on the basis of individual assessments of Group Management regarding the recoverability of the balances. The receivables of the Real Estate division include balances owed by property management companies.

The actual losses on receivables in the Projects & Development division amounted to CHF 0.3 million (2013: CHF 0.1 million). For income losses in the Real Estate division see 3.1.

As at the balance sheet cut-off date, the receivables amounting to CHF 5.2 mil-lion in the Real Estate division are not yet due. The maturities structure for the non-value-adjusted receivables of the Projects & Development division was as follows as at 31 December:

CHF million 2014 2013

Not due 33.8 23.5

Overdue by up to 30 days 1.1 7.6

Overdue by between 31 and 60 days 0.6 0.1

Overdue by between 61 and 120 days 1.8 0.0

Overdue by more than 120 days 0.0 0.0

Receivables Projects & Development division 37.3 31.2

The stated values conform to the valuation principles described under 2.14 after deduction of prepayments made for each project which as at 31 December is under construction for third parties and has not yet been billed and paid.

CHF million 2014 2013

Contract costs incurred 687.1 683.6

Fee income booked 64.9 63.7

Gains and losses booked 21.6 15.5

Services provided 773.6 762.8

Less prepayments received −779.5 −785.0

Total project balances −5.9 −22.2

Of which with credit balance(recognised as trade receivables) 33.3 40.1

Of which with debt balance(recognised as trade payables) 39.2 62.3

106 Allreal Annual Report 2014

4.7 Other receivables

CHF million 31.12.2014 31.12.2013

Prepaid expenses and accrued income 2.6 0.5

Receivables arising from WIR balances 0.1 1.0

Receivables arising from value added tax 4.4 2.2

Receivables arising from decontamination work 0.2 0.2

Diverse other receivables 0.7 0.6

Other receivables 8.0 4.5

4.8 CashOf the cash amounting to CHF 31.9 million (31.12.2013: CHF 25.0 million), CHF 21.9 million is freely disposable in the form of current account balances and CHF 10.0 million can only be used for certain third-party construction projects of the Projects & Development division. As at the balance sheet cut-off date, all funds are invested at standard market conditions with Swiss banks with at minimum a BBB+ rating (if rated).

4.9 Share capitalAs 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 (fully paid up). Each share carries one vote and confers entitlement to attend the gen-eral meeting if entered in the share register.

Shareholdings developed as follows:

Number of shares Shares issued Treasury shares Outstanding shares

2013

Balance as at 1 January 15 941 649 7 661 15 933 988

Conversion of convertible bond 180

Purchase treasury shares 193 077

Sale treasury shares −166 172

Share-based reimbursement −1 329

As at 31 December 15 941 829 33 237 15 908 592

2014

Balance as at 1 January 15 941 829 33 237 15 908 592

Conversion of convertible bond 992

Purchase treasury shares 120 347

Sale treasury shares −150 576

Share-based reimbursement −1 440

As at 31 December 15 942 821 1 568 15 941 253

On 31 December 2014, Allreal held 1 568 treasury shares (31.12.2013: 33 237 shares). The average purchase price per share stands at CHF 126.18 (31.12.2013: CHF 130.72). The total purchase price is deducted from consolidated equity.

107Allreal Annual Report 2014

The Board of Directors is authorised by the annual general meeting to increase the share capital – excluding the subscription rights of shareholders as applic-able – until 28 March 2016 to acquire businesses, business units, participating interests or real estate through an exchange of shares, for financing or refi-nancing 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 100.0 million by issuing up to 2 000 000 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 – excluding the subscription rights of shareholders – 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. 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 31 December 2014) following the conversion of convertible bonds into shares.

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 purposes of issuing options to the members of the Board of Directors and management. This conditional capital has not been drawn on.

The Board of Directors will propose to the annual general meeting of 17 April 2015 a distribution of 5.50 per share, corresponding to a total amount of 87.7 million, in the form of a repayment of reserves from contribution of capital. In 2014, CHF 87.6 million in reserves from contribution of capital were distributed to shareholders, corresponding to CHF 5.50 per share. Treasury shares are not entitled to a dividend.

4.10 Borrowings

Maturity of the financing (capital lock-up at nominal values)

CHF million 1 year 1–3 years 3–5 years 5 years Total

As at 31.12.2013 1 188.5 167.5 0.0 265.3 1 621.3

As at 31.12.2014 1 100.2 173.5 131.0 347.3 1 752.0

Of which with repayment/redemption 378.0 173.5 131.0 347.3 1 029.8

Repayment p.a. 3.4 0.0 0.0 3.0 6.4

The financial liabilities of the Allreal Group consist of bank loans secured by mortgage (fixed advances and fixed-rate mortgages) and three 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 finan-cial liabilities.

108 Allreal Annual Report 2014

The following bond issues are recognised under borrowings:

2.00% bond issue 2013–2020

Amount CHF 150.0 millionIssue price 100.311%Coupon 2.00% p.a., payable annually on 23 SeptemberTerm 7 yearsRepayment 23 September 2020

As at 31 December 2014, the 2.00% bond issue is recognised at CHF 149.1 mil-lion in long-term borrowings. During the period under review, CHF 0.1 million was spent on the amortisation of the issuing costs. In addition to the interest rate of 2.00% actually payable, expense, which corresponds to an effective interest rate of 2.12%, is also deferred to the income statement.

1.25% bond issue 2014–2019

Amount CHF 125.0 millionIssue price 100.486%Coupon 1.25% p.a., payable annually on 2 AprilTerm 5 yearsRepayment 2 April 2019

As at 31 December 2014, the 1.25% bond issue is recognised at CHF 124.7 mil-lion in long-term borrowings. During the period under review, CHF 0.1 million was spent on the amortisation of the issuing costs. In addition to the interest rate of 1.25% actually payable, the expense – corresponding to an effective interest rate of 1.32% – is also deferred to the income statement.

2.50% bond issue 2011–2016

Amount CHF 150.0 millionIssue price 100.45%Coupon 2.50% p.a., payable annually on 12 MayTerm 5 yearsRepayment 12 May 2016 at par

As at 31 December 2014, the 2.50% bond issue is recognised at CHF 149.6 mil-lion in long-term borrowings, and during the period under review CHF 0.3 mil-lion was spent on the amortisation of issuing costs. In addition to the inter-est rate of 2.50% actually payable, the expense – corresponding to an effective interest rate of 2.71% – is also deferred to the income statement.

109Allreal Annual Report 2014

2.125% convertible bond 2009–2014

Amount CHF 199.79 million (originally CHF 200 million)Issue price 100%Coupon 2.125% p.a., payable annually on 9 OctoberMaturity 5 yearsRepayment 9 October 2014 at parConversion price CHF 135.89

Until 19 September 2014, each bearer bond at CHF 5 000 par could be converted into 36.79447 registered shares of Allreal Holding AG.

In accordance with the terms of the bond issue, the capital increase in May 2012 resulted in the subscription ratio being adjusted from 36.03604 to 36.79447 regis tered shares per bearer bond at par value CHF 5 000. In other words, the conversion price was adjusted from CHF 138.75 to CHF 135.89.

Deferred tax liabilities at the consolidated tax rate of 22% are recognised on the difference between the tax value of the convertible bond and the book value of the debt component, plus proportionate issuing costs, and are written back to income over the term of the convertible bond. In 2014, deferred taxes amount-ing to CHF 0.9 million were written back in favour of the tax expense.

In the second half of 2014, CHF 0.135 million in convertible bonds were con-verted into 992 registered shares of Allreal Holding AG. The 2.125% convert-ible bond was repaid on 9 October 2014 at a remaining par value of CHF 199.79 million.

As at 31 December 2013, the debt component of the convertible bond was recog-nised in an amount of CHF 195.9 million in short-term borrowings. This means that during the period under review CHF 4.1 million was charged to financial expense for the amortisation of the difference between the debt component and the redemption amount (2013: CHF 3.1 million).

Maturity of interest rates (interest lock-in period at nominal values)

CHF million 1 year 1–3 years 3–5 years  5 years Total

As at 31.12.2013

Borrowings 1 188.5 167.5 0.0 265.3 1 621.3

Effect of interest rate swaps −885.0 150.0 200.0 535.0 0.0

Total 303.5 317.5 200.0 800.3 1 621.3

Total in % 18.7 19.6 12.3 49.4 100.0

As at 31.12.2014

Borrowings 1 098.7 173.5 131.0 348.8 1 752.0

Effect of interest rate swaps −735.0 100.0 150.0 485.0 0.0

Total 363.7 273.5 281.0 833.8 1 752.0

Total in % 20.8 15.6 16.0 47.6 100.0

110 Allreal Annual Report 2014

The classification of financial liabilities by interest lock-in periods is done on the basis of the actual date of maturity of the underlying fixed advances and mort-gages and the maturity of the bond issues. In calculating the capital lock-up and interest lock-in periods, the respective par values of the bonds and their coupons were taken into account.

As at 31 December 2014, fixed advances amounting to CHF 1 097.2 million and fixed-rate mortgages amounting to CHF 229.8 million (at nominal values) are in place, all of which were taken out with Swiss banks or insurance companies.

On the balance sheet cut-off date, financial liabilities (excluding bond issues) existed towards the following banking groups and insurance companies:

Counterparty 2014 2013

CHF million Amount Share in % Amount Share in %

Swiss cantonal banks 605.0 45.6 535.1 47.7

Swiss big banks 508.0 38.3 376.0 33.5

Other Swiss banks 131.2 9.9 127.4 11.4

Swiss insurance companies 82.8 6.2 82.8 7.4

Foreign banks 0.0 0.0 0.0 0.0

Total 1 327.0 100.0 1 121.3 100.0

In the next twelve months, three interest rate swaps each with a value of CHF 50 million will mature, one at 1.42% in January 2015, one at 2.14% in September 2015 and one at 2.10% in December 2015.

If Allreal had not concluded any interest rate swaps, 62.6% of the financial li-abilities would be subject to variable interest rates and would be exposed to the risk of changes in interest rates in the market (31 December 2013: 61.0%).

The average interest rate of all financial liabilities as at 31 December 2014 is 1.93% (31 December 2013: 2.13%).

The average interest lock-in period for all financial liabilities as at 31 December 2014 is 50 months (31 December 2013: 56 months).

For additional comments on financial instruments, see 5.4

4.11 ProvisionsThe provisions for construction guarantees cover existing risks arising from completed projects of the Projects & Development division. The other provisions comprise possible outflows of funds arising from pending litigation. Provisions for existing risks from current orders (construction risks) are offset directly against the project balances under the receivables or liabilities.

111Allreal Annual Report 2014

Short-term provisions

Construction guar-antees Other Total

CHF million 2014 2013 2014 2013 2014 2013

As at 1 January 7.5 1.5 1.8 1.8 9.3 3.3

Allocation 5.1 7.3 0.0 0.0 5.1 7.3

Utilisation −1.6 -0.7 0.0 0.0 −1.6 −0.7

Write-back −2.8 -0.6 0.0 0.0 −2.8 −0.6

Reclassification 0.0 0.0 0.0 0.0 0.0 0.0

As at 31 December 8.2 7.5 1.8 1.8 10.0 9.3

Long-term provisions

Construction guar-antees Other Total

CHF million 2014 2013 2014 2013 2014 2013

As at 1 January 3.8 3.3 0.5 0.5 4.3 3.8

Allocation 0.0 0.5 0.0 0.0 0.0 0.5

Utilisation 0.0 0.0 0.0 0.0 0.0 0.0

Write-back −0.4 0.0 0.0 0.0 −0.4 0.0

Reclassification 0.0 0.0 0.0 0.0 0.0 0.0

As at 31 December 3.4 3.8 0.5 0.5 3.9 4.3

The provisions were reassessed and adjusted as at the balance sheet cut-off date. In the assessment of the company, the provisions formed are necessary to reflect legal or de facto liabilities arising from previous events in connection with which a cash outflow is likely. The amounts and temporary classification are based on estimates and as such are subject to uncertainties.

Provisions are classified as short-term or long-term depending on whether they are expected to be utilised within one year or later.

4.12 Other long-term liabilitiesOther long-term liabilities totalling CHF 80.8 million (31.12.2013: CHF 45.7 mil-lion) relate on the one hand to the negative replacement values of the inter-est rate swaps (hedge accounting) with residual maturities of more than twelve months (CHF 66.66 million), and on the other hand to the pension fund commit-ments arising from treatment in accordance with IAS 19 (CHF 14.2 million). The tax effects are recognised under deferred tax assets.

4.13 Trade payables

CHF million 31. 12. 2014 31. 12. 2013

Payables Projects & Development division 40.2 57.1

Order balances Projects & Development division 39.2 62.3

Liabilities toward property management companies 0.0 0.2

Trade payables 79.4 119.6

112 Allreal Annual Report 2014

The reported values represent liabilities after deduction of corresponding coun-terclaims for each project, in compliance with the valuation principles described under 2.20; see also 4.6.

4.14 Prepayments for development real estate

CHF million 31. 12. 2014 31. 12. 2013

Bülach Cholplatz 0.5 4.0

Erlenbach Lerchenbergstrasse 1.6 2.5

Kilchberg Stockenstrasse 0.7 0.3

Meilen Holengass 1.9 0.6

Mettmenstetten, Pfruendmatt 0.6 0.0

Mönchaltorf Bruggächer 0.0 6.0

Wallisellen Escherhof 0.0 0.6

Zurich Guggach 21.5 6.3

Payments for development real estate 26.8 20.3

4.15 Other current liabilities

CHF million 31. 12. 2014 31. 12. 2013

Diverse liabilities 1.0 2.1

Accrual of staff holiday entitlements 2.2 2.5

Negative replacement values of interest rate swaps 1.9 0.0

Accrued expenses and prepaid income 42.7 32.0

Other current liabilities 47.8 36.6

In addition to non-cash payables (CHF 0.5 million), diverse liabilities also in-clude liabilities from the settlement of social security and taxes at source (CHF 0.5 million).

As at the balance sheet date, all holiday entitlement not yet utilised by employ-ees is evaluated on the basis of individual rates of pay and is recognised as an accrual in the consolidated financial statements. As at 31.12.2014 this accrual amounted to CHF 2.2 million (31.12.2013: CHF 2.5 million).

Accrued expenses and deferred income essentially comprise accrued interest expenses arising from financial liabilities, prepaid rents, real estate expenses or operating expenses not yet settled and remuneration not yet paid to the Board of Directors and Group Management.

113Allreal Annual Report 2014

5 Additional information

5.1 Taxes

5.1.1 Breakdown of tax expenseIn the income statement, expense for 2014 and 2013 breaks down as follows:

CHF million Note 2014 2013

Current taxes on business activities 5.1.2 −28.8 −31.3

Deferred taxes on revaluation 5.1.4 1.2 −2.4

Other deferred taxes 5.1.5 −1.8 −5.1

Total tax expense −29.4 −38.8

5.1.2 Current taxes on business activities Current income taxes are calculated using the actual tax rates in force.

This position comprises income taxes and property gains taxes:

CHF million 2014 2013

Income taxes −17.7 –16.9

Property gains taxes −11.1 –14.4

Taxes on business activities −28.8 –31.3

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.

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

CHF million 31. 12. 2014 31. 12. 2013

Property gains taxes −1.2 –1.7

Federal, cantonal and municipal taxes 2005-2010 8.5 8.6

Federal, cantonal and municipal taxes 2011 0.9 1.4

Federal, cantonal and municipal taxes 2012 −0.8 –2.0

Federal, cantonal and municipal taxes 2013 −1.3 12.2

Federal, cantonal and municipal taxes 2014 13.5 0.0

Current tax liabilities 19.6 18.5

In a decision issued on 26 June 2014 supplementing a ruling of the Swiss Fed-eral Supreme Court handed down on 5 October 2012 concerning the Swiss tax liability of the since liquidated business establishment of Allreal Finanz AG in the Cayman Islands, the Administrative Court of Zug ruled that the tax liability would only commence from the date of the Supreme Court’s ruling. The Swiss Federal Tax Administration as opposing party represents a different opinion and has therefore referred the case to the Swiss Federal Supreme Court. As at 10 February 2015 (date of the approval of the annual financial statements by the

114 Allreal Annual Report 2014

Board of Directors), no decision has yet been made. The company believes that as of the balance sheet cut-off date, sufficient tax provisions are in place.

5.1.4 Deferred taxes on revaluation in the income statementThe deferred taxes on revaluation break down as follows:

CHF million 2014 2013

From revaluation during current year 1.2 –2.4

Total deferred taxes from revaluation 1.2 –2.4

The downward valuation of CHF −5.9 million on the investment real estate led to a net credit of CHF 1.2 million to deferred taxes in the income statement, CHF 0.1 million of which was attributable to investment real estate under construc-tion and CHF 1.1 million to yield-producing properties.

5.1.5 Other deferred taxes in the income statement

CHF million 2014 2013

From temporary valuation differences −5.3 –4.1

From capitalised tax effects of loss carry-forwards −1.0 1.1

From recognition of bond issues −0.1 –0.1

From recognition of convertible bond 0.9 0.7

From recognition of pension commitments −1.0 –0.5

From write-back as a result of property sales 4.7 –2.2

Total other deferred taxes −1.8 –5.1

During the period under review, the temporary valuation differences between the tax-relevant individual financial statements of the Group companies and the consolidated financial statements increased, such that deferred tax income of CHF 5.3 million was charged to the income statement (2013: CHF 4.1 million).

In addition, tax effects amounting to CHF 1.0 million arising from loss carry- forwards and valued at the consolidated tax rate of 22% were charged to the income statement. With the sale of three investment properties, deferred tax assets amounting to CHF 4.7 million were written back.

115Allreal Annual Report 2014

5.1.6 Deferred tax liabilities and assetsThe deferred tax liabilities from the provision for deferred taxes reported under long-term liabilities break down as follows:

CHF million 31. 12. 2014 31. 12. 2013

From higher valuation of investment real estate 60.0 79.4

From temporary valuation differences on investment real estate 67.7 65.8

From temporary valuation differences on other balance sheet items 7.5 9.2

From recognition of bond issue 0.4 0.4

From recognition of convertible bond 0.0 0.9

Provisions for deferred tax 135.6 155.7

The deferred tax liabilities in connection with the higher valuation of investment real estate (difference between market and acquisition value) are generally based on an average holding period of ten years from date of purchase, or year of construction in the case of new properties, and a tax rate of up to 30% (2013: 30%). Deferred taxes are calculated separately for each investment property.

Temporary valuation differences on investment real estate (difference between acquisition value and taxable book value) and other balance sheet positions rec-ord the differences between the individual financial statements of the Allreal Group companies and the consolidated financial statements. These mainly in-volve write-downs on investment and development real estate, additional value adjustments on receivables and the recognition of additional provisions de-ducted from the current tax assessment.

Valuation differences on write-downs on investment real estate in the canton of Zurich and on other balance sheet positions are calculated at a consolidated tax rate of 22% (2013: 22%). A tax rate of 15% (2013: 15%) was applied to valu-ation differences on write-downs on investment real estate outside the canton of Zurich.

In 2014, with the amortisation of the bonds, deferred taxes totalling CHF 0.8 million were credited to the income statement (2013: CHF 0.7 million).

Deferred tax assets comprise the following positions:

CHF million 2014 2013

From downward revaluation of investment real estate 10.6 29.5

From temporary valuation differences on other balance sheet items 0.1 0.1

From negative replacement values of interest rate swaps 15.1 8.3

From tax loss carry-forwards 2.8 3.8

From recognition of pension commitments 3.1 0.5

Deferred tax assets 31.7 42.2

116 Allreal Annual Report 2014

IAS 12, deferred tax assets from tax loss carry-forwards or from negative mar-ket value adjustments can only be capitalised if they can be allocated both in terms of substance and timing. With regard to the lower valuation of investment real estate, it is possible to offset losses on the sale of real estate against other current gains. A tax rate of 22% (2013: 22%) was applied to properties in the canton of Zurich and a tax rate of 15% was applied to properties in the other cantons (2013: 15%).

Deferred tax assets on negative replacement values of interest rate swaps increased by CHF 6.8 million to CHF 15.1 million, CHF 6.7 million of which was taken directly to equity and CHF 0.1 million to income.

As at 31 December 2014, capitalised deferred taxes existed on tax loss car-ry-forwards of CHF 2.8 million (31.12.2013: CHF 3.8 million) relating to one Group company domiciled in Zurich which reported losses in the individual financial statements for 2008 to 2013 that will probably be offset against gains in the following years (expiry of first tax loss carry-forward as of 2015). A tax rate of 22% was applied (2013: 22%).

The recognition of pension commitments results in deferred tax assets amount-ing to CHF 3.1 million as at the balance sheet cut-off date (31.12.2013: CHF 0.5 million), representing a year-on-year increase of CHF 2.6 million, CHF 3.6 mil-lion of which was taken directly to equity and CHF −1.0 million to income.

5.1.7 ReconciliationThe following table shows the reconciliation between the theoretical tax rates applicable to the Group and the effective taxes.

CHF million 2014 2013

Net profit before tax 133.8 160.6

Reference tax rate % 22.0 22.0

Expected tax expense at the reference tax rate 29.4 35.3

Adjustment of tax effects on revaluations −0.1 0.7

Deferred taxes credited for previous years −1.5 –0.8

Income subject to a lower tax rate −2.3 –2.2

Income subject to higher tax rate 3.9 5.8

Effective tax expense 29.4 38.8

The reference tax rate used is the sum total of the national, cantonal and mu-nicipal income tax rates which are applied on average.

The adjustment of tax effects on revaluations reflects the change in the upward and downward valuations of investment properties and their cumulative bal-ance, encumbered with up to 32% deferred taxes and as the difference versus the reference tax rate of 22%.

117Allreal Annual Report 2014

The credit of CHF 1.5 million for current taxes of previous years results from the recalculation of the tax status of each Group company on the basis of tax returns submitted or definitive tax assessments received.

Income subject to a lower tax rate factors in that a number of the Group com-panies are domiciled at locations where the total tax burden is significantly lower than the consolidated tax rate of 22%.

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 32% and are therefore above the consolidated tax rate of 22%. In particular, this relates to gains taxed in connection with the invoicing of completed projects in the Projects & Devel-opment division or from the sale of investment properties in the Real Estate division.

5.2 Capital commitments, contingent liabilities and legal disputes

CHF million 31. 12. 2014 31. 12. 2013

Capital commitments 39.2 39.4

Guarantees and sureties 0.0 0.0

The capital commitments relate 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.

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 659.6 million in connection with financings and derivative financial transactions with third par-ties on behalf of individual subsidiaries (2013: CHF 802.5 million).

As at 31 December 2014, 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 are in place.

5.3 Assets pledged as security for own liabilities

CHF million 31. 12. 2014 31. 12. 2013

Investment real estate 3 513.6 3 445.8

Development real estate 301.2 382.5

Total assets affected 3 814.8 3 828.3

of which pledged or subject to restricted disposability 3 250.7 3 077.1

of which actually utilised (financing liabilities) 1 327.0 1 121.3

118 Allreal Annual Report 2014

5.4 Financial instruments

5.4.1 Management of finance and capitalIn the context of the financing strategy, in the investment and financing guide-lines last amended on 1 October 2013, 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 (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)

CHF million 31.12.2014 31.12.2013

Equity 1 954.0 1 969.3

Equity and liabilities 4 108.2 3 994.7

Equity ratio 47.6% 49.3%

Net gearing(net financial debt as a percentage of consolidated equity)

CHF million 31.12.2014 31.12.2013

Borrowings 1 750.3 1 615.4

Cash −31.9 –25.0

Net financial debt 1 718.4 1 590.4

Equity 1 954.0 1 969.3

Net gearing 87.9% 80.8%

119Allreal Annual Report 2014

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

CHF million 31.12.2014 31.12.2013

EBITDA excl. revaluation gains 179.4 187.5

Net financial expense 37.1 32.2

Interest coverage ratio 4.8 5.8

Refinancing of properties(Borrowings in percent of the book value of investment and development real estate in percent)

CHF million 31.12.2014 31.12.2013

Borrowings 1 750.3 1 615.4

Investment real estate 3 513.6 3 445.8

Development real estate 301.2 382.5

Total real estate 3 814.8 3 828.3

Refinancing of properties 45.9% 42.2%

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 managementThe Allreal Group is exposed to various financial risks stemming from the mar-ket, changes in interest rates, receivables, refinancing and liquidity. Risk man-agement is conducted in compliance with the investment and financing guide-lines approved by the Board of Directors. The operational implementation of the guidelines is undertaken directly by the Chief Financial Officer, who submits reports to Group Management on the most important financial risks at least once a month. The Board of Directors is informed of the development of finan-cial risks in writing every three months by Group Management.

5.4.3 Market riskIn relation to financial instruments, Allreal is mainly exposed to market risk resulting from changes in interest rates. The relevant sensitivity analysis in this connection is set out under 5.4.4.

5.4.4 Interest rate riskFluctuations in the market interest rate give rise to an interest rate risk for the Allreal Group as, in some cases, the Group companies take out fixed advances with mortgage collateral or mortgage loans on a short-term basis up to a max-imum of 12 months. Advances are taken out with banks and are denominated exclusively in Swiss francs. This risk is countered with the use of derivative fi-nancial instruments in the form of interest rate swaps, the aim being firstly to extend the average duration of the interest lock-in periods of all financial liabil-ities and secondly to fix the average interest rate on this debt. This reduces the interest rate risk. At the same time, so-called payer swaps are concluded which

120 Allreal Annual Report 2014

involve Allreal entering into a contract as a fixed payer over a certain term. In return, the counterparty pays the variable CHF Libor rate on a 1-, 3- or 6-month basis. If, however, the CHF Libor rate is negative, the interest expense will in-crease since Allreal is also obliged to make variable interest payments. The in-terest payments are settled with the counterparty net on a monthly, quarterly or half-yearly basis. The variable interest payments from the payer swaps can be shortened further, by reducing the variable 3- or 6-month interest rate with the aid of base swaps on a 1-month basis. These base swaps exchange short-term interest payments and have the same maturity as the overlying payer swaps. They enable Allreal to achieve a risk-free reduction in its interest burden with-out increasing the contract volume.

The maturity structure is reviewed by the Board of Directors and Group Man-agement at least quarterly and the risks are analysed by means of simplified liability management. The aim is to achieve an even distribution of the interest rate renewal dates with a remaining term of more than four years.

As at 31 December 2014, interest rate swaps (payer swaps) totalling CHF 885.0 million are in place (31.12.2013: CHF 885.0 million):

Term Interest rate Contract value Negative replacement value

CHF million

01/2015 1.42% 50.0 −0.1

09/2015 2.14% 50.0 −0.8

12/2015 2.10% 50.0 −1.0

02/2017 3.35% 50.0 −3.7

05/2017 1.53% 50.0 −2.1

10/2018 2.03% 50.0 −4.1

12/2018 1.35% 50.0 −2.7

04/2019 2.23% 50.0 −5.1

05/2020 1.73% 100.0 −9.4

12/2020 2.09% 100.0 −7.8

10/2021 1.71% 100.0 −11.0

12/2021 2.31% 50.0 −12.6

02/2023 0.78% 100.0 −4.4

12/2023 1.45% 35.0 −3.7

Total interest rate swaps 885.0 −68.5

In the 2014 financial year, no new interest rate swaps were concluded, none expired, nor were any repaid.

To reduce financial expense, base swaps were concluded on payment flows already hedged by payer swaps; the base swaps had a contract value of CHF 100.0 million in the preceding years. The base swaps mature in September 2015 and February 2017.

The negative replacement values of swaps maturing in the 2015 financial year were recognised under other current liabilities (CHF 1.9 million), while the other replacement values are entered under other long-term liabilities (CHF 66.6 million).

121Allreal Annual Report 2014

Valuation of interest rate swaps

CHF million 2014 2013

As at 1 January −37.7 -73.3

Profit/loss from market valuation recognised in equity −30.5 37.3

Loss from market valuation recognised in income statement −0.3 –1.7

As at 31 December net −68.5 –37.7

As at the balance sheet date, the following values in connection with the out-standing interest rate swaps apply, broken down by contract maturity:

CHF million 1 year 1–3 years 3–5 years  5 years Total

As at 31.12.2013

Contract value 0.0 150.0 200.0 535.0 885.0

Replacement value 0.0 –6.1 –12.1 –19.5 –37.7

Average interest in % 0.0 1.84 2.02 1.70 1.79

As at 31.12.2014

Contract value 150.0 100.0 150.0 485.0 885.0

Replacement value −1.9 −5.8 −11.9 −48.9 −68.5

Average interest in % 1.84 2.35 1.87 1.64 1.79

The changes in the value of the interest rate swaps which fulfil the require-ments for hedge accounting are reported as part of retained earnings in equity. The interest rate swaps have an impact on the consolidated statement of com-prehensive income in each reporting period in which interest payments are ex-changed with the counterparty. The timing of these coincides with the maturi-ties of the short-term fixed advances on a mortgage basis.

A sensitivity analysis was performed, taking account of the contract volume of the derivative financial instruments and borrowings, cash and financial assets as at the balance sheet cut-off date. It was assumed that the balance sheet po-sitions were in place on this scale for a whole year and that the general interest rate level changes by one percentage point. This approach is consistent with the calculations used in internal financial reporting to the Board of Directors and Group Management.

If the general level of interest rates were 100 basis points higher or lower than on the balance sheet cut-off date and if all other variables were to remain con-stant, net profit would be CHF 2.1 million or – as the case may be – CHF 8.3 mil-lion lower (2013: CHF 1.0 million/CHF 0.003 million), and equity would increase by CHF 58.2 million or decrease by CHF 56.5 million (31.12.2013: CHF 65.3 mil-lion/CHF 61.2 million). In the case of a lower level of interest rates, these calcu-lations are based in particular on the assumption that negative CHF Libor rates will lead to higher payments on interest rate swaps.

122 Allreal Annual Report 2014

5.4.5 Credit riskThe credit risk to which Allreal is exposed is that a counterparty might be una-ble to meet its financial obligations owing to default, resulting in losses for the Group. Customers’ payment arrears and credit standing are continuously moni-tored in both the Projects & Development division and the Real Estate division. Monthly reports with comments on the largest positions are submitted to Group Management.

Trade receivables and other receivables consist of a large number of balances vis-à-vis counterparties in the Projects & Development division and vis-à-vis tenants and property management companies in the Real Estate division. Re-ceivables from tenancies are typically secured via separate bank guarantees or tenant deposits. There are no concentrations of risk in which a single debtor accounts for more than 20% of total trade receivables. Payments on account are periodically requested for current construction projects. Allreal’s close moni-toring of receivables explains its low historical default rate.

The credit risk relating to cash and derivative financial instruments is considered small as the counterparties consist solely of banks and insurance companies with good credit ratings (minimum BBB+ rating). Allreal endeavours to work with a large number of banks which mainly operate in Switzerland. At CHF 5.3 million, the maximum default risk relating to cash is lower than the book value of CHF 31.9 million, since with a number of lending banks waiver of the right to offset credit balance against liabilities was contractually excluded.

The maximum default risk relating to receivables and other claims corresponds to the book value. The guarantees and sureties issued in favour of banks in con-nection with financing transactions and derivative financial instruments are not likely to give rise to any additional charges greater than the recognised borrow-ings from banks and insurance companies amounting to CHF 1 327.0 million.

As at the balance sheet cut-off date, the credit risk relating to financial assets amounts to CHF 142.5 million, which corresponds to the balance sheet item.

5.4.6 Refinancing and liquidity riskAs at the balance sheet cut-off date, unutilised immediately callable credit limits granted by banks are in place in an amount of CHF 543.4 million. The financial ratios agreed with banks in the credit agreements and which must be complied with are the same as those laid down in the investment and fi-nancing guidelines; during the period under review they were complied with at all times three-year medium-term planning is in place for the Allreal Group which ensures that the thresholds are complied with on a rolling basis through early extension of maturing loans. Under the financial covenants, Allreal has the option of taking out around CHF 1.3 billion in new borrowings before new equity is required.

123Allreal Annual Report 2014

The following breakdown shows the non-discounted payment outflows of exist-ing liabilities, including derivative financial instruments (payer swaps), as at the balance sheet cut-off date In accordance with contractual agreements, the ear-liest possible repayments are entered as the maturity dates. Since the interest rate swaps involve fixing the variable payment flows on a monthly, quarterly or half-yearly basis and as this is in the future, the CHF Libor rates on 31 Decem-ber were used as the reference interest rates on a 1- to 6-month basis.

Interest and nominal amount payments on liabilities

CHF million Book value 1 year 1–3 years >3 years

As at 31.12.2013

Borrowings (including interest) 1 615.4 1 201.8 183.2 287.5

Derivative financial transactions 43.3 15.9 29.0 42.7

Trade payables (excluding order balances) 57.3 57.3 0.0 0.0

Other current liabilities 34.1 33.8 0.3 0.0

Total 1 750.1 1 308.8 212.5 330.2

As at 31.12.2014

Borrowings (including interest) 1 750.3 1 110.4 185.0 516.2

Derivative financial transactions 68.5 14.9 24.4 31.4

Trade payables (excluding order balances) 40.2 40.2 0.0 0.0

Other current liabilities 43.7 42.5 1.2 0.0

Total 1 902.7 1 208.0 210.6 547.6

5.4.7 Market valuation of financial instrumentsFinancial assets and borrowings are recognised using the amortised cost method.

Derivative financial instruments (interest rate swaps) are stated at market value as at the balance sheet cut-off date, by estimating and discounting future pay-ment flows at current interest rates on 31 December. Because the contracts are standardised, it is possible to value them on the basis of current interest rates. Allreal has the interest rate swaps calculated by banks.

124 Allreal Annual Report 2014

All financial instruments carried at fair value are broken down into three differ-ent categories.

Allocation to the individual categories is dependent on the database for calcu-lating the fair values.

Category 1: Fair value using prices quoted on an active market (stock ex- change)

Category 2: Fair value using a valuation method whose input factors are de-rived from an active market

Category 3: Fair value using a valuation method whose input factors are not observable on an active market

CHF million Category 1 Category 2 Category 3 Total

As at 31.12.2013

Liabilities from derivative financial instruments (net) 0.0 –37.7 0.0 –37.7

As at 31.12.2014

Liabilities from derivative financial instruments 0.0 −68.5 0.0 −68.5

In 2014 and 2013, there were no reclassifications within the categories.

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.

CHF million Fair valueCategory

31.12.2014 Book value

31.12.2014 Fair value

31.12.2013 Book value

31.12.2013 Fair value

2.00% bond issue 1 149.1 158.0 148.9 152.9

1.25% bond issue 1 124.7 126.9 – –

2.50% bond issue 1 149.6 153.9 149.3 156.8

2.125% convertible bond 1 – – 195.9 202.0

Fixed-rate mortgages 2 229.8 239.8 132.8 134.2

The fair values of the bond issues correspond to the market price as at the bal-ance sheet cut-off date. The fair values of the fixed-rate mortgages are deter-mined using the CHF interest rates current as at 31 December for the respec-tive terms plus a credit margin of 0.8% (2013: 0.6%).

125Allreal Annual Report 2014

The following table shows the book and market values (fair values) of all finan-cial instruments recognised on the balance sheet.

CHF million 31.12.2014 Book value

31.12.2014 Market value

31.12.2013 Book value

31.12.2013 Market value

Financial assets

Assets at amortised cost 218.3 218.3 83.4 83.4

Cash 31.9 31.9 25.0 25.0

Loans and receivables 250.2 250.2 108.4 108.4

Derivative financial instruments used for hedge accounting 0.0 0.0 5.6 5.6

Financial liabilities

Borrowings at amortised cost 1 750.3 1 775.7 1 615.4 1 634.4

Other liabilities at amortised cost 83.9 83.9 91.4 91.4

Derivative financial instruments used for hedge accounting 68.5 68.5 43.3 43.3

5.5 Transactions with related partiesRelated parties consist of those shareholders who have formed a group under the shareholders’ pooling agreement with a view to complying with the “Lex Koller” requirements and as at the balance sheet cut-off date hold 39.75% of the share capital of Allreal Holding AG, the Board of Directors, Group Manage-ment and the Allreal pension fund.

The six members of the Board of Directors received fixed remunerations total-ling CHF 0.47 million (2013: CHF 0.55 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.

Name Function 2014 2013

CHF million CHF million

Dr. Thomas Lustenberger Chairman 0.15 0.15

Dr. Ralph-Thomas Honegger Vice Chairman of the Board of Directors 0.08 0.08

Dr. Jakob Baer Member up to 28 March 2014 – 0.08

Albert Leiser Member 0.08 0.08

Olivier Steimer Member 0.08 0.08

Peter Spuhler Member 0.08 0.08

Bruno Bettoni Member from 28 March 2014 0.00 –

The remuneration of the Board of Directors is paid directly by Allreal Holding AG. The members of Group Management are employees of Allreal General-unternehmung AG, a wholly owned subsidiary of Allreal Holding AG, which pays the remuneration of these persons. All amounts represent gross payments be-fore the social insurance contributions paid by the remuneration recipients. The employer’s share of the social insurance contributions is not included.

126 Allreal Annual Report 2014

In the period under review, remuneration totalling CHF 4.38 million (2013: CHF 3.35 million) paid to the six members of Group Management was recognised in the consolidated financial statements, out of which the highest total remunera-tion of CHF 1.29 million (2013: CHF 1.16 million) was paid to Bruno Bettoni, Chief Executive Officer.

Variable bonuses will be paid out in cash after the annual accounts and the compensation report have been approved by the Board of Directors.

CHF million 2014 2013

Bruno Bettoni, Chief Executive Officer

Fixed basic salary 0.62 0.64

Employer’s contributions management pension plan 0.00 0.06

Variable bonus in form of cash payment 0.61 0.40

Variable remuneration in form of shares1 0.06 0.06

Total remuneration 1.29 1.16

Other members of Group Management

Fixed basic salaries 1.52 1.32

Employer’s contributions management pension plan 0.27 0.22

Variable bonuses in form of cash payment 1.17 0.56

Variable remuneration in form of shares1 0.13 0.09

Total remuneration 3.09 2.19

1 Calculated at the market value on date of allocation

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

CHF million 2014 2013

Short-term benefits 4.66 3.75

Benefits paid after termination of employment contract 0.00 0.00

Termination payments 0.00 0.00

Benefits from shares and option plans 0.19 0.15

Other long-term benefits 0.00 0.00

Total 4.85 3.90

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.

On 12 March 2014, one member of Group Management sold 250 registered shares of Allreal Holding AG directly to the company at the current market price of CHF 125 (transaction value: CHF 0.031 million).

127Allreal Annual Report 2014

As at 31 December 2014, the following members of the Board of Directors and Group Management were directly or indirectly invested in Allreal Holding AG:

Name FunctionNumber

of shares

2014 2013

Dr. Thomas Lustenberger Chairman of the Board of Directors 6 381 6 381

Dr. Ralph-Thomas Honegger Vice Chairman of the Board of Directors 200 100

Peter Spuhler Member of the Board of Directors 266 000 266 000

Bruno Bettoni Member of the Board of Directors and Chief Executive Officer 17 255 16 797

Hans Engel Head of Investments/Divestments, Member of Group Management 232 255

Roger Herzog Chief Financial Officer, Member of Group Management 971 724

Alain Paratte Head of Real Estate, Member of Group Management 382 194

Nigel Woolfson Head of Project Development, Member of Group Management 394 200

Raymond Cron Head of Realisation, Member of Group Management 187 61

The shareholding of the Helvetia Group, St. Gallen, in which Dr. Ralph-Thomas Honegger performs the function of Chief Investment Officer (CIO) and is a mem-ber of management, is not included in the table.

The shares held by the members of the Board of Directors and Group Man-agement correspond to 1.83% of the share capital of the company (31.12.2013: 1.82%).

During the year under review, the Projects & Development division carried out construction projects for a total of CHF 28.5 million (2013: CHF 36.2 million) for several parties to the shareholders’ pooling agreement under standard market conditions, which corresponds to 5.2% of income from realisation Projects & Development (2013: 5.8%).

The Helvetia Group, which holds 10.0% of Allreal Holding AG’s share capital, is represented on the Board of Directors of Allreal Holding AG by Dr. Ralph-Thomas Honegger. Insurance contracts (policies covering buildings, construc-tion and personnel) are in place between the Helvetia Group and individual All-real companies with an annual premium volume of CHF CHF 1.1 million (2013: CHF 1.2 million).

A buildings insurance policy with an annual premium volume of CHF 0.12 million (2013: CHF 0.05 million) is held with the Swiss Mobiliar Group, which is a member of the shareholders’ pooling agreement through a subsidiary. Allreal was granted fixed mortgages amounting to CHF 52.5 million (CHF 37.5 million at 1.55% and CHF 15.0 million at 1.90%) with terms running until 2022. As at the balance sheet cut-off date, a receivable in the amount of CHF 1.0 mil-lion (not yet due) was outstanding from Mobiliar for the completion of a project by the Projects & Development division.

128 Allreal Annual Report 2014

The Privatbank IHAG Zurich AG, which belongs to the group of companies of the core shareholder IHAG Holding AG, has granted Allreal loans secured by mort-gage totalling CHF 31.2 million (interest rate of 0.51% with a term until April 2015). The bank has also been entrusted with the task of market making for the company (fees of CHF 0.08 million).

The Allreal Group obtains consultancy services in legal matters from several law firms, including Meyerlustenberger Lachenal Attorneys at Law, in which Dr. Thomas Lustenberger, Chairman of the Board of Directors of Allreal Holding AG, is one of 32 partners. Decisions to assign mandates to external lawyers are taken by Group Management without consulting the Board of Directors.

In the 2014 financial year, Meyerlustenberger Lachenal billed the Allreal Group fees amounting to CHF 0.057 million (2013: CHF 0.07 million).

For several years, Allreal has had a business relationship with Banque Canto-nale Vaudoise, where Olivier Steimer, member of the Board of Directors of Allreal Holding AG, holds the office of Chairman of the Board of Directors. As at the balance sheet cut-off date, loans secured by mortgage are in place amount-ing to CHF 50 million (interest rate of 0.6% with terms until February 2015), along with derivative financial instruments (payer swaps) with a par value of CHF 150 million.

The Allreal pension fund holds Allreal registered shares with a value of CHF 1.6 million (2013: CHF 1.4 million). As at the balance sheet date, there are no re-ceivables or liabilities between Allreal pension fund and the Allreal companies. During the period under review, Allreal’s employer’s contributions amounted to CHF 3.0 million (2013: CHF 3.8 million).

Taking the above-mentioned facts into account, as at the balance sheet date there are no significant outstanding receivables or liabilities between any re-lated parties, and no other transactions with related parties took place in 2014.

5.6 Intercompany relationshipsThe transactions between the individual Group companies are carried out at arm’s length. This also applies in particular to building services provided to the Real Estate division by the Projects & Development division.

In addition, the Projects & Development division performs management ser-vices for the other parts of the company. In 2014, it received CHF 4.5 million (2013: CHF 4.7 million) from the Real Estate division as well as CHF 0.6 million (2013: CHF 0.6 million) for such services. These sums were eliminated in the consolidated financial statements.

129Allreal Annual Report 2014

5.7 Events after the balance sheet dateFollowing the abandonment of the minimum exchange rate against the euro and the introduction of negative interest rates by the Swiss National Bank on 15 Janu - ary 2015, the negative replacement values of existing payer swaps can be ex-pected to increase further and future financial expense is likely to be higher as negative CHF Libor rates are passed on.

Between 31 December 2014 and 10 February 2015 (date on which the con-solidated 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.

130 Allreal Annual Report 2014

Residential real estate as at 31 December 2014

Location Address Ownership status1

Year acquired

Year of construc-

tion

Renova- tion 2

Area of property

in m2

Register of suspected

contami- nated sites

Minergie Area of property

in m2

1–11/2- room

apartments

2–21/2- room

apartments

3–31/2- room

apartments

4–41/2- room

apartments

≥5– room

apartments

Total apartments

Other uses in m2

Target rental income in

CHF million for 2014

Vacancy rate

in %3

Discount/ capitalisation

rate in %4

City of Zurich

Zurich Hardturmstrasse 5 CO7 2004 2014 2 651 no yes 6 087 0 17 27 6 1 51 0 2.2 65.4 4.20/4.20

Zurich Heerenwiesen 23–41 CoO5 2003 1996 6 970 no no 4 670 5 7 15 17 4 48 1 799 1.4 2.8 4.20/4.20

Zurich Josefstrasse 137 SO 1999 1984 903 no no 2 747 4 36 0 0 0 40 212 0.8 0.1 4.10/4.10

Zurich Neunbrunnenstrasse 47–53 SO 1993 2013 4 291 yes yes 4 640 0 0 14 21 5 40 0 1.6 2.8 4.20/4.20

Zurich Zollikerstrasse 185–1876 SO 2008 1984 1 445 no no 1 637 2 2 4 4 2 14 165 0.6 6.0 –/–

Total city of Zurich 16 260 19 781 11 62 60 48 12 193 2 176 6.6 23.6

Rest of canton Zurich

Adliswil Moosstrasse 1–13/ Grütstrasse 33–39 SO 2005 2011 13 901 no yes 13 299 0 27 62 38 10 137 350 3.8 0.7 4.00/4.00

Bülach Hohfuristrasse 7–11/ Unterweg 55–59/Im Stumpen 2 SO 1999 1979 2013 TR 8 412 no no 3 850 0 9 16 18 6 49 50 1.0 8.9 4.40/4.40

Effretikon Im Lindenhof 7/9/11 SO 2007 1972 1997 PR 3 349 no no 1 979 0 8 18 0 0 26 71 0.4 0.4 4.40/4.40

Fällanden Unterdorfstrasse 2/4/ Unterdorfwäg 2–22 SO 2003 2008 23 691 no no 14 903 0 20 41 56 22 139 2 392 4.0 2.8 4.40/4.40

Glattbrugg Hohenstieglen- strasse 1–23, 2–16 SO 1999 1990 29 639 no no 14 654 18 30 71 41 0 160 659 3.1 3.0 4.30/4.30

Kloten Schaffhauserstrasse 117/119 SO 2001 1992 3 643 no no 2 090 0 4 0 10 4 18 200 0.5 9.2 4.50/4.50

Oberglatt Chlirietstrasse 6, 8, 10 SO 2003 1974 2006/2007 PR 2 028 no no 2 479 0 17 17 0 0 34 9 0.5 0.5 4.40/4.40

Schlieren Limmataustrasse 2–8/ Limmatstrasse 9–11/ Engstringermatte SO 1999 1984 8 907 no no 5 100 0 18 24 12 0 54 286 0.9 2.6 4.20/4.20

Schlieren Schulstrasse 71–77/ Flöhrebenstrasse 6 CO7 2002 1988 2 543 no no 3 332 0 0 24 16 0 40 354 0.8 1.4 4.20/4.20

Volketswil Sunnebüelstrasse 1–17/ Ifangstrasse 12–20/ Neufund 1/3 SO 1999 1968 2002/2003 TR 20 110 no no 12 236 0 0 48 60 40 148 110 2.4 0.2 4.40/4.40

Wallisellen Escherweg 2–6/Favreweg 1–5 / Richtiarkade 13–15/ Richtiring 14–16 SO 2002 2014 8 242 no yes 13 856 1 18 75 22 2 118 1 208 2.1 20.1 4.30/4.30

Total rest of canton Zurich 124 465 87 778 19 151 396 273 84 923 5 689 19.5 4.3

Other regions

Allschwil Kurzelängeweg 26–38+32a SO 1999 1989 2010 PR 6 260 no no 4 015 0 7 20 20 0 47 490 1.0 1.1 4.30/4.30

Basel Achilles Bischoff-Strasse 2–10 SO 2006 1969 2009 TR 2 420 no no 5 954 28 24 28 24 0 104 1 040 1.6 0.8 4.50/4.50

Basel Grosspeterstrasse 45/ St.-Jakobs-Strasse 108 SO 2006 1995 2 067 no no 3 022 5 19 11 8 0 43 47 0.9 3.6 4.40/4.40

Gland Chemin du Molard 10 / Allée Leotherius 2 / Allée Louis Cristin 1 SO 2011 2014 1 173 no yes 4 981 1 21 29 9 5 65 0 0.9 17.5 4.50/4.50

Total other regions 11 920 17 972 34 71 88 61 5 259 1 577 4.4 4.7

Total residential real estate 152 645 125 531 64 284 544 382 101 1 375 9 442 30.5 8.5

1 SO = sole ownership; CoO = co -ownership; CO = condominium ownership2 TR = total renovation; PR = part renovation 3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 60% co-ownership Allreal6 Valuation as at 31.12.2014 according to IFRS 137 Condominium property owned 100% by Allreal

Information on the real estate portfolio

131Allreal Annual Report 2014

Residential real estate as at 31 December 2014

Location Address Ownership status1

Year acquired

Year of construc-

tion

Renova- tion 2

Area of property

in m2

Register of suspected

contami- nated sites

Minergie Area of property

in m2

1–11/2- room

apartments

2–21/2- room

apartments

3–31/2- room

apartments

4–41/2- room

apartments

≥5– room

apartments

Total apartments

Other uses in m2

Target rental income in

CHF million for 2014

Vacancy rate

in %3

Discount/ capitalisation

rate in %4

City of Zurich

Zurich Hardturmstrasse 5 CO7 2004 2014 2 651 no yes 6 087 0 17 27 6 1 51 0 2.2 65.4 4.20/4.20

Zurich Heerenwiesen 23–41 CoO5 2003 1996 6 970 no no 4 670 5 7 15 17 4 48 1 799 1.4 2.8 4.20/4.20

Zurich Josefstrasse 137 SO 1999 1984 903 no no 2 747 4 36 0 0 0 40 212 0.8 0.1 4.10/4.10

Zurich Neunbrunnenstrasse 47–53 SO 1993 2013 4 291 yes yes 4 640 0 0 14 21 5 40 0 1.6 2.8 4.20/4.20

Zurich Zollikerstrasse 185–1876 SO 2008 1984 1 445 no no 1 637 2 2 4 4 2 14 165 0.6 6.0 –/–

Total city of Zurich 16 260 19 781 11 62 60 48 12 193 2 176 6.6 23.6

Rest of canton Zurich

Adliswil Moosstrasse 1–13/ Grütstrasse 33–39 SO 2005 2011 13 901 no yes 13 299 0 27 62 38 10 137 350 3.8 0.7 4.00/4.00

Bülach Hohfuristrasse 7–11/ Unterweg 55–59/Im Stumpen 2 SO 1999 1979 2013 TR 8 412 no no 3 850 0 9 16 18 6 49 50 1.0 8.9 4.40/4.40

Effretikon Im Lindenhof 7/9/11 SO 2007 1972 1997 PR 3 349 no no 1 979 0 8 18 0 0 26 71 0.4 0.4 4.40/4.40

Fällanden Unterdorfstrasse 2/4/ Unterdorfwäg 2–22 SO 2003 2008 23 691 no no 14 903 0 20 41 56 22 139 2 392 4.0 2.8 4.40/4.40

Glattbrugg Hohenstieglen- strasse 1–23, 2–16 SO 1999 1990 29 639 no no 14 654 18 30 71 41 0 160 659 3.1 3.0 4.30/4.30

Kloten Schaffhauserstrasse 117/119 SO 2001 1992 3 643 no no 2 090 0 4 0 10 4 18 200 0.5 9.2 4.50/4.50

Oberglatt Chlirietstrasse 6, 8, 10 SO 2003 1974 2006/2007 PR 2 028 no no 2 479 0 17 17 0 0 34 9 0.5 0.5 4.40/4.40

Schlieren Limmataustrasse 2–8/ Limmatstrasse 9–11/ Engstringermatte SO 1999 1984 8 907 no no 5 100 0 18 24 12 0 54 286 0.9 2.6 4.20/4.20

Schlieren Schulstrasse 71–77/ Flöhrebenstrasse 6 CO7 2002 1988 2 543 no no 3 332 0 0 24 16 0 40 354 0.8 1.4 4.20/4.20

Volketswil Sunnebüelstrasse 1–17/ Ifangstrasse 12–20/ Neufund 1/3 SO 1999 1968 2002/2003 TR 20 110 no no 12 236 0 0 48 60 40 148 110 2.4 0.2 4.40/4.40

Wallisellen Escherweg 2–6/Favreweg 1–5 / Richtiarkade 13–15/ Richtiring 14–16 SO 2002 2014 8 242 no yes 13 856 1 18 75 22 2 118 1 208 2.1 20.1 4.30/4.30

Total rest of canton Zurich 124 465 87 778 19 151 396 273 84 923 5 689 19.5 4.3

Other regions

Allschwil Kurzelängeweg 26–38+32a SO 1999 1989 2010 PR 6 260 no no 4 015 0 7 20 20 0 47 490 1.0 1.1 4.30/4.30

Basel Achilles Bischoff-Strasse 2–10 SO 2006 1969 2009 TR 2 420 no no 5 954 28 24 28 24 0 104 1 040 1.6 0.8 4.50/4.50

Basel Grosspeterstrasse 45/ St.-Jakobs-Strasse 108 SO 2006 1995 2 067 no no 3 022 5 19 11 8 0 43 47 0.9 3.6 4.40/4.40

Gland Chemin du Molard 10 / Allée Leotherius 2 / Allée Louis Cristin 1 SO 2011 2014 1 173 no yes 4 981 1 21 29 9 5 65 0 0.9 17.5 4.50/4.50

Total other regions 11 920 17 972 34 71 88 61 5 259 1 577 4.4 4.7

Total residential real estate 152 645 125 531 64 284 544 382 101 1 375 9 442 30.5 8.5

1 SO = sole ownership; CoO = co -ownership; CO = condominium ownership2 TR = total renovation; PR = part renovation 3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 60% co-ownership Allreal6 Valuation as at 31.12.2014 according to IFRS 137 Condominium property owned 100% by Allreal

132 Allreal Annual Report 2014

Commercial real estate as at 31 December 2014

Location Address Ownership status1

Year acquired

Year of construction

Renovation2 Area of property

in m2

Register of suspected con- taminated sites

Minergie Floor space in m2

Percentage of office space

Percentage of retail space

Percentage of residential

space

Percentage of other uses

Target rental income in CHF

million for 2014

Vacancy rate in %3

Discount/ capitalisation

rate in %4

City of Zurich

Zurich Badenerstrasse 141 LO 2002 1968 2002 PR 713 yes no 2 600 85.1 0.0 0.0 14.9 1.0 0.0 4.80/4.80

Zurich Bändliweg 21 SO 2005 1995 9 254 no no 18 642 90.8 0.0 0.0 9.2 7.0 0.0 4.80/4.80

Zurich Bellerivestrasse 30 SO 2004 1986 2 316 no no 3 078 94.7 0.0 0.0 5.3 1.4 17.4 4.80/4.80

Zurich Bellerivestrasse 36 SO 2004 1974 2009/2010 PR 10 494 no no 11 950 73.6 0.0 0.0 26.4 5.6 0.1 4.60/4.60

ZurichBinzmühlestrasse 95–99, Therese Giehse-Strasse 1 SO 2005 2001 11 712 no no 26 139 7.8 54.6 32.7 4.9 7.1 1.6 4.70/4.70

Zurich Birmensdorferstrasse 108/Weststrasse 75 SO 2000 1983 2007/2008 TR 1 254 no no 4 743 74.5 3.0 10.5 12.0 1.4 47.8 4.90/4.90

Zurich Brandschenkestrasse 38/40 SO 2001 1992 2013 PR 1 402 no no 4 856 33.8 0.0 19.3 46.9 2.3 26.4 4.80/4.80

Zurich Eggbühlstrasse 21–25 SO 2008/2010 1993 2005 PR 6 221 no no 20 175 61.6 0.0 0.0 38.4 4.7 50.0 5.10/5.10

Zurich Förrlibuckstrasse 109 (Toni site) SO 2007 1977/2014 24 477 yes yes 87 004 87.2 0.0 12.8 0.0 11.1 10.5 4.40/4.40

Zurich Grüngasse 27–31/Badenerstrasse 119–133 SO 2002 1925 2006/2007PR 7 870 yes no 12 847 16.5 7.6 32.8 43.1 3.1 2.5 4.99/4.99

Zurich Hardstrasse 319 (Escher-Wyss site)5 SO 2002 1945/2010 60 867 yes no 55 624 28.2 0.0 0.0 71.8 10.0 0.7 –/–

Zurich Herostrasse 126 SO 2010 2014 4 027 no yes 11 256 95.8 0.0 0.0 4.2 – – 4.80/4.80

Zurich Hohlstrasse 600 SO 2001 1986 2006/2012 TR 2 894 no no 10 190 91.0 0.0 0.0 9.0 4.3 0.1 4.80/4.80

Zurich Kalchbühlstrasse 22/24 SO 2000 1976 2014 TR 3 101 no no 6 244 45.8 0.0 6.0 48.2 1.6 0.0 5.10/5.10

Zurich Kreuzstrasse 5 LO 2004 2006 3 333 no no 1 628 95.7 0.0 0.0 4.3 1.0 0.0 4.40/4.40

Zurich Lagerstrasse 41+45 SO 2001 1954 2005 TR 1 909 no no 5 279 75.4 0.0 0.0 24.6 2.7 0.0 4.50/4.50

Zurich Max Högger-Strasse 2 SO 2003 1975 2012 PR 2 131 no no 6 967 83.2 0.0 0.0 16.8 1.5 20.9 5.50/5.50

Zurich Renggerstrasse 3 SO 1999 1966 2001 PR 1 389 no no 1 729 77.1 0.0 0.0 22.9 0.5 0.0 4.90/4.90

Zurich Vulkanstrasse 106 SO 2002 2005 12 295 no yes 36 311 95.1 0.0 0.0 4.9 10.9 9.4 4.80/4.80

Zurich Weststrasse 74 SO 1996 1995 1 482 no no 3 277 33.5 0.0 55.3 11.2 0.9 17.2 5.00/5.00

Zurich Zollikerstrasse 183 SO 2008 1984 2007 PR 3 371 no no 2 777 81.7 0.0 0.0 18.3 1.3 0.0 4.90/4.90

Zurich Zollstrasse/Josefstrasse 23–29/Klingenstrasse 4 SO 1993/2006 1997 4 201 no no 10 703 56.9 3.3 29.8 9.9 4.1 0.1 4.60/4.60

Total city of Zurich 176 713 344 019 65.4 4.6 8.6 21.4 83.5 8.2

1 SO = sole ownership; LO = leasehold owned 100% by Allreal2 TR = total renovation; PR = part renovation3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 Valuation as at 31.12.2014 according to IFRS 136 Rental income from 2015

133Allreal Annual Report 2014

Commercial real estate as at 31 December 2014

Location Address Ownership status1

Year acquired

Year of construction

Renovation2 Area of property

in m2

Register of suspected con- taminated sites

Minergie Floor space in m2

Percentage of office space

Percentage of retail space

Percentage of residential

space

Percentage of other uses

Target rental income in CHF

million for 2014

Vacancy rate in %3

Discount/ capitalisation

rate in %4

City of Zurich

Zurich Badenerstrasse 141 LO 2002 1968 2002 PR 713 yes no 2 600 85.1 0.0 0.0 14.9 1.0 0.0 4.80/4.80

Zurich Bändliweg 21 SO 2005 1995 9 254 no no 18 642 90.8 0.0 0.0 9.2 7.0 0.0 4.80/4.80

Zurich Bellerivestrasse 30 SO 2004 1986 2 316 no no 3 078 94.7 0.0 0.0 5.3 1.4 17.4 4.80/4.80

Zurich Bellerivestrasse 36 SO 2004 1974 2009/2010 PR 10 494 no no 11 950 73.6 0.0 0.0 26.4 5.6 0.1 4.60/4.60

ZurichBinzmühlestrasse 95–99, Therese Giehse-Strasse 1 SO 2005 2001 11 712 no no 26 139 7.8 54.6 32.7 4.9 7.1 1.6 4.70/4.70

Zurich Birmensdorferstrasse 108/Weststrasse 75 SO 2000 1983 2007/2008 TR 1 254 no no 4 743 74.5 3.0 10.5 12.0 1.4 47.8 4.90/4.90

Zurich Brandschenkestrasse 38/40 SO 2001 1992 2013 PR 1 402 no no 4 856 33.8 0.0 19.3 46.9 2.3 26.4 4.80/4.80

Zurich Eggbühlstrasse 21–25 SO 2008/2010 1993 2005 PR 6 221 no no 20 175 61.6 0.0 0.0 38.4 4.7 50.0 5.10/5.10

Zurich Förrlibuckstrasse 109 (Toni site) SO 2007 1977/2014 24 477 yes yes 87 004 87.2 0.0 12.8 0.0 11.1 10.5 4.40/4.40

Zurich Grüngasse 27–31/Badenerstrasse 119–133 SO 2002 1925 2006/2007PR 7 870 yes no 12 847 16.5 7.6 32.8 43.1 3.1 2.5 4.99/4.99

Zurich Hardstrasse 319 (Escher-Wyss site)5 SO 2002 1945/2010 60 867 yes no 55 624 28.2 0.0 0.0 71.8 10.0 0.7 –/–

Zurich Herostrasse 126 SO 2010 2014 4 027 no yes 11 256 95.8 0.0 0.0 4.2 – – 4.80/4.80

Zurich Hohlstrasse 600 SO 2001 1986 2006/2012 TR 2 894 no no 10 190 91.0 0.0 0.0 9.0 4.3 0.1 4.80/4.80

Zurich Kalchbühlstrasse 22/24 SO 2000 1976 2014 TR 3 101 no no 6 244 45.8 0.0 6.0 48.2 1.6 0.0 5.10/5.10

Zurich Kreuzstrasse 5 LO 2004 2006 3 333 no no 1 628 95.7 0.0 0.0 4.3 1.0 0.0 4.40/4.40

Zurich Lagerstrasse 41+45 SO 2001 1954 2005 TR 1 909 no no 5 279 75.4 0.0 0.0 24.6 2.7 0.0 4.50/4.50

Zurich Max Högger-Strasse 2 SO 2003 1975 2012 PR 2 131 no no 6 967 83.2 0.0 0.0 16.8 1.5 20.9 5.50/5.50

Zurich Renggerstrasse 3 SO 1999 1966 2001 PR 1 389 no no 1 729 77.1 0.0 0.0 22.9 0.5 0.0 4.90/4.90

Zurich Vulkanstrasse 106 SO 2002 2005 12 295 no yes 36 311 95.1 0.0 0.0 4.9 10.9 9.4 4.80/4.80

Zurich Weststrasse 74 SO 1996 1995 1 482 no no 3 277 33.5 0.0 55.3 11.2 0.9 17.2 5.00/5.00

Zurich Zollikerstrasse 183 SO 2008 1984 2007 PR 3 371 no no 2 777 81.7 0.0 0.0 18.3 1.3 0.0 4.90/4.90

Zurich Zollstrasse/Josefstrasse 23–29/Klingenstrasse 4 SO 1993/2006 1997 4 201 no no 10 703 56.9 3.3 29.8 9.9 4.1 0.1 4.60/4.60

Total city of Zurich 176 713 344 019 65.4 4.6 8.6 21.4 83.5 8.2

1 SO = sole ownership; LO = leasehold owned 100% by Allreal2 TR = total renovation; PR = part renovation3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 Valuation as at 31.12.2014 according to IFRS 136 Rental income from 2015

134 Allreal Annual Report 2014

Commercial real estate as at 31 December 2014

Location Address Ownership status1 Year acquired

Year of construction

Renovation2 Area of property

in m2

Register of suspected con- taminated sites

Minergie Floor space in m2

Percentage of office space

Percentage of retail space

Percentage of residential

space

Percentage of other uses

Target rental income in CHF

million for 2014

Vacancy rate

in %3

Discount/ capitalisation

rate in %4

Rest of canton Zurich

Bassersdorf Grindelstrasse 3/5 SO 2008 1988 2001 PR 6 004 no no 12 586 55.9 0.0 0.0 44.1 1.9 7.3 5.70/5.70

Dietlikon Alte Dübendorferstrasse 17 SO 2006 2006 2 464 no no 2 730 0.0 75.8 0.0 24.2 1.2 0.0 5.20/5.20

Glattbrugg Thurgauerstrasse 111 SO 1997 1969 1995 PR 4 086 no no 7 417 9.0 74.7 0.0 16.3 2.0 29.7 5.50/5.50

Kloten Schaffhauserstrasse 115/121 SO 2001 1992 4 000 no no 4 343 97.5 0.0 0.0 2.5 1.1 11.0 5.30/5.30

Opfikon Lilienthal-Boulevard 2/6/Voisinstrasse 35 SO 2007 2014 5 167 no yes 13 414 93.2 0.0 0.0 6.8 – – 5.20/5.20

Opfikon Lindbergh-Allee 16 SO 1987 2007 5 241 no yes 13 314 90.8 0.0 0.0 9.2 4.5 0.0 4.80/4.80

Schlieren Bernstrasse 55 SO 2003 2003 7 089 no no 10 193 88.2 0.0 0.0 11.8 2.5 9.6 5.30/5.30

Schlieren Zürcherstrasse 104 SO 2002 1988 2012 TR 4 724 no no 2 705 35.5 43.1 0.0 21.4 1.0 14.1 5.50/5.50

Urdorf In der Luberzen 29 SO 2000 1993 4 667 yes no 9 456 74.1 0.0 0.0 25.9 2.1 62.6 5.80/5.80

Wallisellen Allianz office building7 SO 2002 2013 13 078 no yes 50 819 74.7 12.9 0.0 12.4 13.6 1.4 4.90/4.90

Wallisellen UPC Cablecom office building8 SO 2002 2014 16 875 no yes 25 525 – – – – 2.5 – 5.00/5.00

Winterthur Schützenstrasse 2/Zürcherstrasse 12+149 SO 2002 1928/53/86 18 386 no no 24 319 82.1 0.0 0.0 17.9 5.6 22.1 5.40/5.40

Total rest of canton Zurich 91 781 176 821 74.1 11.0 0.0 14.8 38.0 10.6

Other regions

Baar Baarermatte SO 2002 1981 17 960 no no 10 112 76.4 0.0 0.0 23.6 2.7 0.1 5.30/5.30

Baar Oberdorfstrasse 9–13 SO 2000 1989 2013/2014 PR 5 204 no no 6 572 59.7 17.0 10.6 12.8 1.7 12.0 5.20/5.20

Basel Missionsstrasse 60–62a SO 1999 1972 2014 TR 1 811 no no 3 985 81.8 0.0 8.0 10.2 1.2 1.0 5.00/5.00

Basel Missionsstrasse 64-64a SO 2007 1972 2014 TR 1 658 no no 2 829 71.9 0.0 3.4 24.7 0.6 1.0 5.00/5.00

Basel Steinenvorstadt 36 SO 1999 1982 2012/2013 PR 718 no no 4 292 37.5 27.8 30.3 4.4 1.5 1.4 4.80/4.80

Basel Viaduktstrasse 40–44/Binningerstrasse 35 SO 2009 1998 5 454 no no 20 213 61.8 20.2 0.0 18.0 5.5 1.0 4.90/4.90

Le Grand- Saconnex Route François-Peyrot 10–14 SO 2011 2004 8 442 no no 5 498 92.8 0.0 0.0 7.2 3.6 1.8 4.70/4.70

Petit-Lancy Chemin des Olliquettes 4/Chemin du Gué 99 SO 2008 2010 1 417 yes yes 5 516 91.8 0.0 0.0 8.2 2.3 0.0 4.70/4.70

Total other regions 42 664 59 017 69.8 10.8 4.1 15.3 19.1 1.9

Total commercial real estate 311 158 579 857 68.5 7.2 5.5 18.8 140.6 7.8

1 SO = sole ownership2 TR = total renovation; PR = part renovation3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 Rental income from 20156 Lightcube office building and co-ownership rights to the TMC Galleria car park7 Allianz office building with retail space in Konradhof and Escherhof8 UPC Cablecom office building with retail space and peripheral plots9 Three properties

135Allreal Annual Report 2014

Commercial real estate as at 31 December 2014

Location Address Ownership status1 Year acquired

Year of construction

Renovation2 Area of property

in m2

Register of suspected con- taminated sites

Minergie Floor space in m2

Percentage of office space

Percentage of retail space

Percentage of residential

space

Percentage of other uses

Target rental income in CHF

million for 2014

Vacancy rate

in %3

Discount/ capitalisation

rate in %4

Rest of canton Zurich

Bassersdorf Grindelstrasse 3/5 SO 2008 1988 2001 PR 6 004 no no 12 586 55.9 0.0 0.0 44.1 1.9 7.3 5.70/5.70

Dietlikon Alte Dübendorferstrasse 17 SO 2006 2006 2 464 no no 2 730 0.0 75.8 0.0 24.2 1.2 0.0 5.20/5.20

Glattbrugg Thurgauerstrasse 111 SO 1997 1969 1995 PR 4 086 no no 7 417 9.0 74.7 0.0 16.3 2.0 29.7 5.50/5.50

Kloten Schaffhauserstrasse 115/121 SO 2001 1992 4 000 no no 4 343 97.5 0.0 0.0 2.5 1.1 11.0 5.30/5.30

Opfikon Lilienthal-Boulevard 2/6/Voisinstrasse 35 SO 2007 2014 5 167 no yes 13 414 93.2 0.0 0.0 6.8 – – 5.20/5.20

Opfikon Lindbergh-Allee 16 SO 1987 2007 5 241 no yes 13 314 90.8 0.0 0.0 9.2 4.5 0.0 4.80/4.80

Schlieren Bernstrasse 55 SO 2003 2003 7 089 no no 10 193 88.2 0.0 0.0 11.8 2.5 9.6 5.30/5.30

Schlieren Zürcherstrasse 104 SO 2002 1988 2012 TR 4 724 no no 2 705 35.5 43.1 0.0 21.4 1.0 14.1 5.50/5.50

Urdorf In der Luberzen 29 SO 2000 1993 4 667 yes no 9 456 74.1 0.0 0.0 25.9 2.1 62.6 5.80/5.80

Wallisellen Allianz office building7 SO 2002 2013 13 078 no yes 50 819 74.7 12.9 0.0 12.4 13.6 1.4 4.90/4.90

Wallisellen UPC Cablecom office building8 SO 2002 2014 16 875 no yes 25 525 – – – – 2.5 – 5.00/5.00

Winterthur Schützenstrasse 2/Zürcherstrasse 12+149 SO 2002 1928/53/86 18 386 no no 24 319 82.1 0.0 0.0 17.9 5.6 22.1 5.40/5.40

Total rest of canton Zurich 91 781 176 821 74.1 11.0 0.0 14.8 38.0 10.6

Other regions

Baar Baarermatte SO 2002 1981 17 960 no no 10 112 76.4 0.0 0.0 23.6 2.7 0.1 5.30/5.30

Baar Oberdorfstrasse 9–13 SO 2000 1989 2013/2014 PR 5 204 no no 6 572 59.7 17.0 10.6 12.8 1.7 12.0 5.20/5.20

Basel Missionsstrasse 60–62a SO 1999 1972 2014 TR 1 811 no no 3 985 81.8 0.0 8.0 10.2 1.2 1.0 5.00/5.00

Basel Missionsstrasse 64-64a SO 2007 1972 2014 TR 1 658 no no 2 829 71.9 0.0 3.4 24.7 0.6 1.0 5.00/5.00

Basel Steinenvorstadt 36 SO 1999 1982 2012/2013 PR 718 no no 4 292 37.5 27.8 30.3 4.4 1.5 1.4 4.80/4.80

Basel Viaduktstrasse 40–44/Binningerstrasse 35 SO 2009 1998 5 454 no no 20 213 61.8 20.2 0.0 18.0 5.5 1.0 4.90/4.90

Le Grand- Saconnex Route François-Peyrot 10–14 SO 2011 2004 8 442 no no 5 498 92.8 0.0 0.0 7.2 3.6 1.8 4.70/4.70

Petit-Lancy Chemin des Olliquettes 4/Chemin du Gué 99 SO 2008 2010 1 417 yes yes 5 516 91.8 0.0 0.0 8.2 2.3 0.0 4.70/4.70

Total other regions 42 664 59 017 69.8 10.8 4.1 15.3 19.1 1.9

Total commercial real estate 311 158 579 857 68.5 7.2 5.5 18.8 140.6 7.8

1 SO = sole ownership2 TR = total renovation; PR = part renovation3 Cumulative vacancy rate as a percentage of target rental income for 20144 As per 31.12.14 valuation (nominal rates)5 Rental income from 20156 Lightcube office building and co-ownership rights to the TMC Galleria car park7 Allianz office building with retail space in Konradhof and Escherhof8 UPC Cablecom office building with retail space and peripheral plots9 Three properties

136 Allreal Annual Report 2014

Disposals of yield-producing properties

Location Address Type1

Year of construction

Transfer of ownership

Schlieren Badenerstrasse 58–60 RP 1955 01.12.2014

Zurich Buckhauserstrasse 32 CL 1968 01.04.2014

Zurich Thurgauerstrasse 39 CL 1970 15.12.2014

1 CP = commercial property, RP = residential property

Leasehold properties (ground rents)

Location Address Length of agreement

Zurich Badenerstrasse 141 30 January 2101

Zurich Kreuzstrasse 5 20 October 2086

In the case of two yield-producing properties, Allreal is the ground lessee, but ground rent is only due for one commercial property. Under a contractual agreement, the ground rent is reset annually for a further 12-month period on the basis of capital market interest rates.

Future ground rents will be due as follows:

CHF million 2014 2013

Ground rents up to one year −0.1 –0.1

Ground rents from two to five years −0.2 –0.2

Ground rents after five years −3.8 –3.9

Total future ground rents −4.1 –4.2

Largest tenants, commercial real estateShare in total rental income from commercial real estate:

2014 2013

Canton Zurich 16% 9%

Allianz Suisse Insurance Company Ltd 8% 6%

MAN Diesel & Turbo Switzerland Ltd 7% 7%

IBM Switzerland Ltd 7% 9%

Partner Reinsurance Company Ltd. (PartnerRe) 4% 5%

Total 42% 36%

The five largest tenants’ share of total rental income from all yield-producing properties (residential and commercial) declined to around 35% in 2014 (canton Zurich 13%, Allianz Suisse Insurance Company Ltd 7%, MAN Diesel & Turbo Switzerland Ltd 6%, IBM Switzerland Ltd 6% and PartnerRe 3%).

137Allreal Annual Report 2014

Profile of terms of rental contracts for commercial real estate

The weighted remaining term of fixed-term rental contracts is 8.7 years (31.12.2013: 6.8 years).

Future income from fixed-term contractsAs a result of fixed-term rental contracts on yield-producing properties, the fol-lowing nominal rental income will accrue in future:

CHF million 2014 2013

Residential real estate

Rental income up to one year 1.4 0.8

Rental income from two to five years 5.2 2.3

Rental income after five years 3.9 2.0

Total future rental income from fixed-term contracts 10.5 5.1

Commercial real estate

Rental income up to one year 124.5 103.9

Rental income from two to five years 459.1 268.7

Rental income after five years 384.8 129.9

Total future rental income from fixed-term contracts 968.4 502.5

Total future rental income from fixed-term contracts Yield-producing properties 978.9 507.6

84.8% of all rental income for commercial space is indexed, i.e., rents are ad-justed for inflation in accordance with the Swiss Consumer Price Index (CPI) (2013: 79.0%).

30

25

20

15

10

5

0

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

ff

unbe

fris

tet

Vertragsende bestehender Mietverträge

in Prozent der ausstehenden Mieterträge in CHF Mio.

Fälligkeitsprofil der Mietverträge Geschäftsliegenschaften

unlim

ited

ff

Expiry of rental contracts in force

in percent of outstanding rental income in CHF million

138 Allreal Annual Report 2014

96.0% of rental contracts for residential space are for an unlimited term (2013: 95.8%). The weighted remaining term of fixed-term rental contracts for resi-dential property is 6.8 years (31.12.2013: 4.7 years). Rental prices are based, among other factors, on the development of the mortgage reference rate calcu-lated quarterly by the Swiss National Bank and last published on 3 September 2013, when it was reduced to 2.00%.

As at 31 December 2014, 69.3% of all rental contracts contained index clauses corresponding to a target rental income of CHF 125.9 million (2013: 70.2%, CHF 104.7 million).

Investment real estate under construction as at 31 December 2014

Location Property Acquisition/ project start

Area of property

in m2

Register of suspected

contaminated sites

Market value CHF million1

Estimated investment

volume CHF million2

Target rental income on

completion p.a. CHF million

Expected completion

Zurich Schiffbaustrasse 2010 1610 yes 4.0 23.0 1.2 2016

Total investment real estate under construction 4.0 23.0

1 According to valuation as at 31.12.20142 Building and land costs

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

139Allreal Annual Report 2014

Development real estate as at 31 December 2014

Location Property 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

Development reserves

Basel Kirschblütenweg 2011 3 948 no 6.82 16.0 in planning open

Bassersdorf Grindelstrasse 2008 6 000 no 3.72 15.0 in planning open

Bülach Fangleten/Solistrasse 2011 55 318 yes 3.93 300.0 in planning open

Dielsdorf Neuwisen 2013 46 419 no 1.13 215.0 in planning open

Romanshorn Bodan site 2014 3 997 no 0.43 33.0 in planning open

Rümlang Airport Business Park 1987 30 278 no 15.32 165.0 building permit open

Steinen Schwyzerstrasse 2012 3 100 no 4.32 15.0 building permit open

Volketswil Guntenbachstrasse 2008 5 330 no 3.52 25.0 in planning open

Total development reserves 39.0 784.0

Buildings under construction

Mettmenstetten, Pfruendmatt 2012 6 989 no 13.0 37.0 under completion 2016

Zurich Guggach 2011 20 045 no 154.4 228.0 under completion 2016

Total buildings under construction 167.4 265.0

Completed real estate

Bülach Cholplatz 20144 24.6

Erlenbach Lerchenbergstrasse 20144 41.4

Kilchberg Stockenstrasse 20134 4.2

Meilen Holengass 20124, 5 17.1

Wallisellen Escherhof 20134 7.5

Total completed real estate 94.8

Total development real estate 301.2 1049.0

1 Land and building costs2 Book value includes acquisition costs for the land 100% owned by Allreal and accrued project costs of third parties3 Book value includes acquisition costs for prepayments made for land and accrued project costs of third parties (transfer of ownership for land pending)4 Completion5 Value adjustments amounting to CHF 0.8 million (2014) and CHF 1.7 million (2012) were deducted from acquisition costs, resulting in a book value of CHF 17.1 million as at

the balance sheet cut-off date.

For additional information on the development real estate and individual projects, see pages 22 to 26 of the Annual Report.

140 Allreal Annual Report 2014

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150

Allreal Holding AG annual accounts

Income statement

CHF million Note 2014 2013

Income from investments 2 38.0 33.0

Financial income 3 24.0 24.3

Income 62.0 57.3

Other expense 4 −1.6 –1.5

Financial expense 5 −11.7 –10.3

Tax expense −1.2 –1.2

Expense −14.5 –13.0

Net profit 47.5 44.3

Balance sheet as at 31 December

Investments 6 883.8 817.8

Loans to Group companies 970.0 1 144.5

Non-current assets 1 853.8 1 962.3

Short-term accounts receivable from Group companies 3.0 4.2

Securities 7/11 0.2 4.1

Cash 0.7 1.9

Current assets 3.9 10.2

Assets 1 857.7 1 972.5

Share capital 8 797.1 797.1

Statutory reserves

General reserves 9 11.6 2.8

Reserves from contribution of capital 10 320.2 407.7

Reserves for treasury shares 11 0.2 4.3

Balance sheet profit 297.5 254.7

Equity 1 426.6 1 466.6

2.00% bond issue 2013–2020 12 150.0 150.0

1.25% bond issue 2014–2019 125.0 0.0

2.50% bond issue 2011–2016 13 150.0 150.0

Long-term liabilities 425.0 300.0

2.125% convertible bond 2009–2014 14 0.0 199.9

Short-term liabilities towards third parties 6.1 6.0

Short-term liabilities 6.1 205.9

Liabilities 431.1 505.9

Equity and liabilities 1 857.7 1 972.5

151

Notes

1 Basic principlesAllreal Holding AG, domiciled in Baar, canton Zug, was founded on 17 May 1999. As a holding company it is not engaged in any operating activities. Its function is limited to managing and financing the Allreal Group.

The Allreal Holding AG annual accounts have been prepared in accordance with the provisions of the Swiss Code of Obligations. They supplement the consoli-dated financial statements (pages 69 to 140) prepared in accordance with Inter-national Financial Reporting Standards (IFRS). Whereas the consolidated finan-cial statements provide information about the business situation of the Group as a whole, the information in the annual accounts of Allreal Holding AG (pages 150 to 156) relates solely to the Group’s parent company.

2 Income from investments

CHF million 2014 2013

Allreal Generalunternehmung AG 15.0 20.0

Allreal Home AG 5.0 5.0

Allreal Office AG 10.0 5.0

Allreal West AG 3.0 3.0

Allreal Finanz AG 5.0 0.0

Income from investments 38.0 33.0

Dividends received from the subsidiary companies are booked to the accounts of Allreal Holding AG upon payment.

3 Financial income

CHF million 2014 2013

Compensation from Group companies for guarantees issued 2.0 2.1

Interest income Group loans 21.8 21.4

Income in connection with treasury shares 0.2 0.0

Income from investments sold 0.0 0.8

Financial income 24.0 24.3

4 Other expenseOther expense includes the normal administrative expenses incurred by a hold-ing company (the Board of Directors’ fees, legal advice, personnel recruitment fees, insurance, fees and capital taxes). The management fees paid to Allreal Generalunternehmung AG amount to CHF 0.6 million, unchanged from the pre-vious year.

152

5 Financial expense

CHF million 2014 2013

Interest expense 2.00% bond issue 2013–2020 −3.0 –0.8

Interest expense 1.25% bond issue 2014–2019 −1.2 0.0

Interest expense 2.50% bond issue 2011–2016 −3.8 –3.8

Interest expense 2.125% bond issue 2009–2014 −3.3 –4.3

Issuing expense 1.25% bond issue 2014–2019 −0.4 0.0

Issuing expense 2.00% bond issue 2013–2020 0.0 –1.1

Income in connection with treasury shares 0.0 –0.3

Financial expense −11.7 –10.3

6 Investments

Company Registered office

Share capital

CHF million

Investment 31.12.2014

Investment 31.12.2013

Allreal Finanz AG Baar 100.5 100% 100%

Allreal Generalunternehmung AG Zurich 10.0 100% 100%

Allreal Home AG Zurich 26.5 100% 100%

Allreal Office AG Zurich 150.0 100% 100%

Allreal Toni AG Zurich 70.0 100% 100%

Allreal Vulkan AG Zurich 50.0 100% 100%

Allreal West AG Zurich 20.0 100% 100%

Apalux AG Zurich 0.9 100% –

Hammertor AG Cham 0.1 100% 100%

As at 1 October 2014, Allreal Holding AG acquired the 100% shareholding in Apalux AG from its subsidiary Allreal Office AG at book values. The total bal-ance sheet value of investments increased from CHF 817.8 million to CHF 883.8 million.

7 SecuritiesSecurities consist of 1 568 treasury shares (31.12.2013: 33 237), valued at the market price as at 31 December.

8 Share capitalAs 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 (fully paid up). The premium paid in by means of capital increases and the conversion of convertible bonds is reported under reserves from contribution of capital.

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 28 March 2014 to acquire businesses, business units, participating inter-ests or real estate through an exchange of shares, for financing or refinancing the acquisition of businesses, business units, investments or investment projects, or for the purpose of an international placement of shares worth up to CHF 100.0 million by issuing up to 2 000 000 registered shares each with a par value of CHF 50 (authorised capital).

153

For the purpose of issuing convertible bonds, warrant bonds or other financial instruments, the annual general meeting of 31 March 2006 created – excluding the subscription rights of shareholders – 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. 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 31 December 2014) following the conversion of convertible bonds into shares.

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 purposes of issuing options to the members of the Board of Directors and management. This conditional capital has not been drawn on.

9 General reserves

CHF million 2014 2013

Transfer from reserves from contribution of capital 7.1 7.1

Transfer to reserves for treasury shares −0.2 -4.3

Assignment of balance sheet profit 4.7 0.0

General reserves as at 31 December 11.6 2.8

10 Reserves from contribution of capital

CHF million 2014 2013

Premium from capital increases 652.1 652.1

Premium from conversion of convertible bonds 0.4 0.3

Transfer to general reserves −7.1 -7.1

Distribution to shareholders −325.7 -238.0

Distribution on treasury shares 0.5 0.4

Reserves from contribution of capital as at 31 December 320.2 407.7

154

11 Treasury shares

Number of shares

2014 Value

CHF million

Number of shares

2013 Value

CHF million

Market value as at 1 January 33 237 4.1 7 661 1.1

Purchases 120 347 15.0 193 077 25.2

Sales −152 016 −19.1 –167 501 –21.9

Unrealised price gains as at 31 December 0.2 –0.3

Market value as at 31 December 1 568 0.2 33 237 4.1

Reserves for treasury shares 0.2 4.3

12 2.00% bond issue 2013–2020

Amount CHF 150.0 million

Issue price 100.311%

Coupon 2.00% p.a., payable annually on 23 September

Maturity 7 years

Repayment On 23 September 2020 at par

The bond may be redeemed early, and the bond terms customary for such cap-ital market instruments shall apply. Specifically, this includes an option for early redemption at any time at par, including accrued interest, provided that more than 85% of the original principal amount has been redeemed by Allreal. As at 31 December 2014, the conditions for premature redemption had not been met.

13 1.25% bond issue 2014–2019

Amount CHF 125.0 million

Issue price 100.486%

Coupon 1.25% p.a., payable annually on 2 April

Maturity 5 years

Repayment On 2 April 2019 at par

The bond may be redeemed early, and the bond terms customary for such cap-ital market instruments shall apply. Specifically, this includes an option for early redemption at any time at par, including accrued interest, provided that more than 85% of the original principal amount has been redeemed by Allreal. As at 31 December 2014, the conditions for premature redemption had not been met.

14 2.50% bond issue 2011–2016

Amount CHF 150.0 million

Issue price 100.45%

Coupon 2.50% p.a., payable annually on 12 May

Maturity 5 years

Repayment On 12 May 2016 at par

155

The bond may be redeemed early, and the bond terms customary for such capi-tal market instruments shall apply. Specifically, this includes an option for early redemption at any time at par, including accrued interest, provided that more than 85% of the original principal amount has been redeemed by Allreal. As at 31 December 2014, the conditions for premature redemption had not been met.

15 Significant shareholdersAs at 31 December, the following shareholders were entered in the share regis-ter of Allreal Holding AG as having a shareholding (direct and/or indirect) which exceeds a threshold of 3%:

2014 2013

Helvetia Group, St. Gallen 10.0% 10.0%

Pension Fund of Oerlikon Contraves AG, Zurich 4.4% 4.4%

PKE-CPE Pension Foundation, Zurich 3.8% 3.5%

Canton Zurich, BVK Employee Pension Fund of the canton of Zurich, Zurich

3.4% 4.8%

Swiss Mobiliar Group, Bern 3.2% 3.2%

Pension Fund of the Canton of Basel-Landschaft, Liestal 3.1% 3.1%

Highclere International Investors LLP, London, UK >3.0% –

16 Remuneration and investments of the Board of Directors and Group Management

The details required under Article 663bbis CO are presented in Note 5.5 of the consolidated financial statements of the Allreal Group and in the compensation report.

17 Information on risk assessmentInternal precautions have been taken in order to ensure that the annual ac-counts of Allreal Holding AG conform to the applicable accounting regulations and to guarantee proper company reporting. These precautions relate to mod-ern accounting systems and procedures as well as the preparation of the an-nual accounts.

As holding company, Allreal Holding AG is mandated to manage the Allreal Group, whose financial reporting is summarised in consolidated financial state-ments. To this end, Allreal Holding AG relies on risk management and risk assessment within the Group as disclosed in the 2014 consolidated financial statements.

18 Contingent liabilitiesAs at 31 December 2014, guarantees and sureties to third parties in connection with the financing of Allreal group companies amounted to CHF 659.6 million (31.12.2013: CHF 802.5 million). Under the Swiss value added tax group tax-ation arrangement, Allreal Holding AG is jointly and severally liable vis-à-vis the Swiss Federal Tax Authority for all value added tax obligations of the other Allreal Group companies.

156

Proposal regarding the appropriation of the balance sheet profit The Board of Directors will submit to the annual general meeting the following proposal regarding the appropriation of the balance sheet profit:

CHF million 2014 2013

Carried forward from previous year 250.0 210.4

Net profit 47.5 44.3

Balance sheet profit as at 31 December(at the disposal of the annual general meeting) 297.5 254.7

Allocation to general reserves −7.5 –4.7

Brought forward to new account 290.0 250.0

The Board of Directors will propose to the annual general meeting of 17 April 2015 a distribution of capital of CHF 87.7 million by means of repayment of re-serves from contribution of capital of CHF 5.50 per registered share.

CHF million 2014 2013

Reserves from contribution of capital on 31 December (at the disposal of the annual general meeting) 320.2 407.7

Payment of a distribution (CHF 5.50 per share) −87.7 –87.7

Brought forward to new account 232.5 320.0

The treasury shares of the company do not rank for distributions.

The distribution for the 2014 financial year as determined by the annual general meeting will be paid out to shareholders at the designated place of payment on or after 23 April 2015 free of charge and without deduction of withholding tax.

Baar, 10 February 2015

On behalf of the Board of Directors:Dr. Thomas Lustenberger, Chairman

157Allreal Annual Report 2014

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158

Information for investors and analysts

Details of the share and distribution to shareholdersIn 2014, an overall performance of 15.5% was achieved with the Allreal share, based on the market price of 31 December 2013. This performance comprises the increas in share price (11.0%) and the distribution to shareholders (4.5%).

In the past three years, investors obtained an annualised overall performance of 9.2% (2012), −8.6% (2013) and 15.5% (2014) with the Allreal share, correspond-ing to an average constant return of 5.1% p.a.

On 31 December 2014, the Allreal Group’s market capitalisation stood at CHF 2 185.5 million. As at the balance sheet date, consolidated equity came to CHF 1 954.0 million, resulting in a premium (difference between the market price and equity per share) of 11.8% (31.12.2013: −0.2%).

The Board of Directors will propose to the annual general meeting of 17 April 2015 a distribution of CHF 5.50 (unchanged from the previous year) per regis-tered share in the form of a repayment of reserves from contribution of capital (“capital contribution principle”).

The distribution amounts to 80.4 % of the net profit excl. profit from revaluation effect, corresponding to a cash yield of 4.0%, based on the closing price of the registered share on 31 December 2014.

120

130

140

150

160

170

180

Allreal SPI SXI Swiss Real Estate Shares

01.0

1.20

14

01.0

2.20

14

01.0

3.20

14

02.0

4.20

14

02.0

5.20

14

01.0

6.20

14

01.0

7.20

14

02.0

8.20

14

02.0

9.20

14

01.1

0.20

14

01.1

1.20

14

02.1

2.20

14

30.1

2.20

14

Entwicklung Aktienkurs (indexiert)

Januar 2014 bis Dezember 2014

Share price (indexed)

January 2014–December 2014

159

Key share data

2014 2013

Issued share capital on 31 December CHF million 797.1 797.1

Approved capital on 31 December CHF million 100.0 86.1

Conditional capital on 31 December CHF million 134.8 134.8

Issued shares on 31 December number 15 942 821 15 941 829

Treasury shares on 31 December number 1 568 33 237

Outstanding shares on 31 December1 number 15 941 253 15 908 592

Annual average of outstanding shares2 number 15 929 684 15 912 684

Market price high CHF 138.20 141.60

Market price low CHF 120.20 120.80

Market price on 31 December (tax value) CHF 137.10 123.50

Market capitalisation on 31 December3 CHF million 2 185.5 1 964.7

Average trading volume per day (on-exchange)

number of shares 11 432

14 928

1 Number of shares issued minus treasury shares2 Average outstanding shares according to IAS 333 Market price on 31 December multiplied by number of outstanding shares on 31 December

Share statistics

Share type Registered share

Par value per share CHF 50

Securities number 883 756

SIX symbol ALLN

ISIN CH0008837566

Bloomberg ALLN SW

Shareholder structure as at 31 December 2014

Number of shares

Number of shareholders

Number of shares

%

 478 284 shares ( 3%) 7 5 020 007 31.5

100 001–478 254 shares 18 3 934 491 24.7

10 001–100 000 shares 108 2 726 970 17.1

1001–10 000 shares 394 1 099 392 6.9

1–1000 shares 2 766 690 125 4.3

Total registered 3 293 13 470 985 84.5

Not registered 2 471 836 15.5

Total shares 15 942 821 100

53.4% of the share capital is owned by pension funds and insurance companies and 9.0% by natural persons. A further 22.1% is owned by other legal entities as well as investment funds, foundations and banks. 15.5% of the share capital has not been submitted for registration in the share register. Foreign investors own 6.6% (registered shares).

160

1.25% bond issue 2014–2019Allreal Holding AG issued a fixed-rate bond of CHF 125.0 million in the second quarter of 2014. CHF 124.6 million accrued to the company from the issue of the 1.25% bond 2014–2019 with payment date 2 April 2014 after deduction of issuing costs.

Further information on the bond issue can be found on page 108 of the Annual Report or in the issue prospectus of 31 March 2014.

2014

Market price high % 102.95

Market price low % 100.65

Market price on 31 December % 101.55

Average volume per recorded trading day (on-exchange) CHF million 0.15

100

102

104

106

108

110

112

31.0

3.20

14

02.0

5.20

14

03.0

6.20

14

01.0

7.20

14

02.0

8.20

14

02.0

9.20

14

01.1

0.20

14

01.1

1.20

14

02.1

2.20

14

31.1

2.20

14

1.25%-Obligationenanleihe 2014–2019 SBI Domestic Non-Government Index

Kursentwicklung 1.25%-Obligationenanleihe 2014–2019 (in Prozent)

1.25% bond issue 2014–2019 SBI Domestic Non-Government Index

Price of 1.25% bond issue 2014–2019 (in percent)

April 2014 to December 2014

Amount of bond CHF 125 million

Type of bond Bearer bond

Par value/denomination CHF 5 000

Issue price 100.486%

Coupon 1.25% p.a., payable annually on 2 April

Maturity 5 years

Repayment On 2 April 2019 at par

Securities number 23 427 444

SIX symbol ALL14

ISIN CH0234274444

161

2.00% bond issue 2013–2020Allreal Holding AG issued a fixed rate bond of CHF 150.0 million in the third quarter of 2013. CHF 148.9 million accrued to the company from the issue of the 2.00% bond 2013–2020 with payment date 23 September 2013 after deduction of issuing costs.

Further information on the bond issue can be found on page 108 of the Annual Report or in the issue prospectus of 12 September 2013.

2014 2013

Market price high % 105.30 102.15

Market price low % 101.65 100.00

Market price on 31 December % 105.30 101.90

Average volume per recorded trading day (on-exchange) CHF million 0.10 0.28

Price of 2.00% bond issue 2013-2020 (in percent)

January 2014 to December 2014

102

104

106

108

110

112

114

03.0

1.20

14

01.0

2.20

14

01.0

3.20

14

02.0

4.20

14

02.0

5.20

14

03.0

6.20

14

01.0

7.20

14

02.0

8.20

14

02.0

9.20

14

01.1

0.20

14

01.1

1.20

14

02.1

2.20

14

31.1

2.20

14

2.00%-Obligationenanleihe 2013–2020 SBI Domestic Non-Government Index

Kursentwicklung 2.00%-Obligationenanleihe 2013–2020 (in Prozent)

2.00% bond issue 2013–2012 SBI Domestic Non-Government Index

Amount of bond CHF 150 million

Type of bond Bearer bond

Par value/denomination CHF 5 000

Issue price 100.311%

Coupon 2.00% p.a., payable annually on 23 September

Maturity 7 years

Repayment On 23 September 2020 at par

Securities number 22 213 665

SIX symbol ALL13

ISIN CH0222136654

162

2.50% bond issue 2011–2016Allreal Holding AG issued a fixed-rate bond of CHF 150.0 million in the second quarter of 2011. CHF 148.6 million accrued to the company from the issue of the 2.50% bond 2011–2016 with payment date 12 May 2011 after deduction of issuing costs.

Further information on the bond issue can be found on page 108 of the Annual Report or in the issue prospectus of 10 May 2011.

2014 2013

Market price high % 104.60 106.65

Market price low % 102.54 103.45

Market price on 31 December % 102.55 104.50

Average volume per recorded trading day (on-exchange) CHF million 0.12 0.10

102

104

106

108

110

112

114

03.0

1.20

14

01.0

2.20

14

01.0

3.20

14

02.0

4.20

14

02.0

5.20

14

03.0

6.20

14

01.0

7.20

14

02.0

8.20

14

02.0

9.20

14

01.1

0.20

14

01.1

1.20

14

02.1

2.20

14

31.1

2.20

14

2.00%-Obligationenanleihe 2013–2020 SBI Domestic Non-Government Index

Kursentwicklung 2.50%-Obligationenanleihe 2011–2016 (in Prozent)

Januar 2014 bis Dezember 2014

2.50% bond issue 2011–2016 SBI Domestic Non-Government Index

Price of 2.50% bond issue 2011–2016 (in percent)

January 2014 to December 2014

Amount of bond CHF 150 million

Type of bond Bearer bond

Par value/denomination CHF 5 000

Issue price 100.45%

Coupon 2.50% p.a., payable annually on 12 May

Maturity 5 years

Repayment On 12 May 2016 at par

Securities number 12 248 748

SIX symbol ALL11

ISIN CH0122487488

163

Additional information on valuation

2014 2013

Invested capital1 CHF million 3 672.6 3 603.2

Average invested capital CHF million 3 637.9 3 520.1

Return on invested capital (ROIC)2 % 4.9 5.2

Average investment real estate portfolio CHF million 3 479.7 3 302.4

Interest coverage ratio3 4.8 5.8

Payout ratio4 % 80.4 75.6

Overall performance5 % 15.5 –8.6

Absolute performance6 % 11.0 –12.5

Relative performance7 % −2.0 –36.4

Earnings yield8 % 4.8 6.2

Price/earnings ratio (P/E ratio)9 20.9 16.1

Market to book value10 111.8 99.8

Average EV/EBITDA excl. earnings from revaluation 20.8 19.6

EV/invested capital % 107.3 98.7

Free float11 % 65.0 65.0

1 All assets minus non-interest bearing liabilities and deferred tax credits2 EBIT excl. revaluation gains in percent of average invested capital3 EBITDA excl. revaluation gains, divided by net financial expense4 Payout to shareholders in percent of net profit excl. revaluation effect5 Payout to shareholders plus price change in percent of price as at 1 January6 Change in price in percent of price 1 January7 Absolute performance minus percentage change in SPI since 1 January8 Net profit divided by market capitalisation9 Market price on 31 December divided by earnings per share incl. revaluation effect10 Market capitalisation divided by equity11 Issued shares minus shares tied under the pooling agreement

164

Information on investment real estate

City of ZurichRest of

canton Zurich Other regions Total real estate

2014 2013 2014 2013 2014 2013 2014 2013

Residential real estate

Number 5 4 11 11 4 3 20 18

Living space ’000 m2 20 14 88 75 18 13 126 102

Vacancy rate1 % 23.6 8.9 4.3 2.3 4.7 1.9 8.5 3.3

Rental income CHF million 5.0 3.6 18.7 17.5 4.1 3.6 27.8 24.7

Earnings on property2 CHF million 4.3 3.2 16.6 13.1 3.3 3.0 24.2 19.3

Gross return % 3.8 4.8 4.7 5.2 5.2 6.1 4.6 5.3

Net yield3 % 3.4 4.1 4.2 3.9 4.1 5.0 4.0 4.1

Acquisition value CHF million 119.0 65.7 336.9 278.8 84.2 54.5 540.1 399.0

Market value CHF million 148.6 91.7 447.2 355.0 96.7 64.8 692.5 511.5

Average market value per property CHF million 29.7 22.9 40.7 32.3 24.2 21.6 34.6 28.4

Change in market value4 CHF million 4.1 10.7 18.2 26.5 0.7 6.3 23.0 43.5

Commercial real estate

Number 22 22 14 12 8 8 44 42

Floor space ’000 m2 344 259 177 137 59 59 580 455

Vacancy rate1 % 8.2 2.3 10.6 11.8 1.9 3.5 7.8 5.0

Rental income CHF million 80.1 75.2 33.7 30.5 17.6 18.1 131.4 123.8

Earnings on property2 CHF million 69.6 66.7 28.2 26.0 12.1 14.2 109.9 106.9

Gross return % 5.3 5.8 5.7 5.4 5.5 5.6 5.6 5.7

Net yield3 % 4.6 5.2 4.8 4.6 3.8 4.4 4.7 4.9

Acquisition value CHF million 1 705.5 1 155.9 770.9 568.0 333.4 330.9 2 809.8 2 054.8

Market value CHF million 1 727.6 1 225.9 769.8 552.8 319.7 320.0 2 817.1 2 098.7

Average market value per property CHF million 78.5 55.7 54.8 46.1 40.0 40.0 64.0 50.0

Change in market value4 CHF million −30.6 –29.3 5.2 –21.9 −2.8 –3.4 −28.2 –54.6

Investment real estate under construction

Number 1 3 – 3 – 1 1 7

Land area 000 m2 2 32 – 25 – 1 2 58

Acquisition value CHF million 4.7 616.8 – 174.3 – 25.5 4.7 816.6

Market value CHF million 4.0 613.7 – 195.0 – 26.9 4.0 835.6

Change in market value4 CHF million −0.7 1.5 – 16.7 – 1.0 −0.7 19.2

Investment volume CHF million 23.0 645.0 – 276.0 – 29.0 23.0 950.0

1 In percent of target rental income, cumulative as at cut-off date2 Rental income minus real estate expenses3 Rental earnings in percent of continued market value on 1 January4 From revaluation 31 December 2014 versus 31 December 2013

165

Multi-year overview

Key financial figures (in CHF million) 2014 2013 2012 2011 2010

Total sales 1 036.4 1 242.3 1 086.1 886.1 726.9

Earnings from rental and sale of investment real estate 137.2 146.2 122.1 124.7 120.6

Earnings from real estate management services 6.6 6.8 4.4 – –

Earnings from Projects & Development division 102.8 110.7 115.8 117.5 108.2

Completed project volume Projects & Development division 870.6 1 087.0 939.6 743.2 587.0

Operating profit (EBIT) incl. revaluation gains 170.9 192.8 161.7 226.7 185.0

Operating profit (EBIT) excl. revaluation gains 176.8 184.7 169.9 182.0 171.5

Net profit incl. revaluation effect 104.4 121.8 97.5 146.8 116.4

Net profit excl. revaluation effect 109.1 116.1 104.6 115.0 106.1

Cash flow from operating activities 158.5 157.6 72.2 –22.9 36.5

Cash flow from investing activities −198.5 –116.3 –203.2 –175.5 –52.4

Cash flow from financing activities 46.9 –42.4 85.2 236.4 21.2

Total assets as at 31 December 4 108.2 3 994.7 3 928.4 3 700.5 3 283.5

Market value of investment real estate on 31 December 3 513.6 3 445.8 3 159.0 2 951.0 2 619.3

Balance sheet value development real estate as at 31 December 301.2 382.5 594.8 533.0 520.6

Net yield investment real estate (%) 4.5 4.8 4.9 5.1 5.1

Operating margin Projects & Development division (%) 44.9 40.8 46.7 55.6 54.7

Average interest rate on financial liabilities (%) 1.93 2.13 2.13 2.30 2.59

Average remaining term of financial liabilities (months) 50 56 54 51 46

Return on equity incl. revaluation effect (%) 5.3 6.3 5.5 9.2 8.2

Return on equity excl. revaluation effect (%) 5.4 6.2 6.0 7.6 7.9

Share of equity on 31 December (%) 47.6 49.3 48.6 43.6 47.7

Net gearing on 31 December (%) 87.9 80.8 80.6 98.7 84.1

Market capitalisation on 31 December 2 185.5 1 964.7 2 248.3 1 863.3 1 859.6

Share (in CHF) 2014 2013 2012 2011 2010

Earnings per share incl. revaluation effect 6.56 7.66 6.30 10.56 8.80

Earnings per share excl. revaluation effect 6.85 7.29 6.76 8.27 8.27

Payout per share 5.501 5.50 5.50 5.50 5.50

Net asset value (NAV) per share before deferred taxes on 31 December 129.10 130.90 125.80 125.45 120.85

Net asset value (NAV) per share after deferred taxes on 31 December 122.55 123.80 119.70 118.25 114.70

Market price high 138.20 141.60 149.40 148.00 138.30

Market price low 120.20 120.80 134.00 128.00 114.00

Market price on 31 December 137.10 123.50 141.10 136.50 136.20

Cash yield payout (%) 4.0 4.5 3.9 4.0 4.0

Payout ratio (%) 80.4 75.6 83.4 65.2 70.9

1 Proposal of the Board of Directors to the annual general meeting of 17 April 2015 by means of repayment of reserves from contribution of capital

166

Glossary of real estate terms

Acquisition costs Sum of all costs arising from acquisition of a property (purchase price, no-tary and ownership transfer costs, commissions) and/or effective cost price of own construction, plus cost of value-increasing investments and general refurbishments.

Gross return Calculated from target rental income in percent of continued market value as at 1 January.

Earnings from sale

Investment real estate

Difference between effective sale price (sales proceeds) and most recently re-ported market value, with due allowance for transaction costs in connection with sale and any cash-out guarantees granted to seller.

Collection losses

and loss of income as a result of

rent-free periods

Sum of all rental default losses and expenses in connection with rebates offered to existing or future tenants, rent-free periods etc., plus revenue losses due to floor space vacancies during alterations.

Investment volume Total site and construction costs (incl. capitalisable company-produced assets and building loan interest) at cost.

Vacancy rate Aggregate of all rental losses due to unlet/vacant premises in percent of target rental income.

Earnings on property Rental income minus expenses for management, operation, maintenance, re-pairs and value-maintaining refurbishments. Denotes real estate earnings be-fore tax and borrowing costs (EBIT).

Market value Estimated amount for which a property should exchange on the date of valua-tion between a willing buyer and a willing seller after proper marketing, where each party had acted independently, knowingly and without compulsion.

Market value is normally estimated by means of the discounted cash flow (DCF) method, with no allowance made for transaction costs.

Rental income Sum of all revenue achieved in period under consideration (target rental in-come) minus ground rent, vacancy losses and collection losses.

Net yield Calculated from target rental income in percent of continued market value as at 1 January.

Revaluation effect Higher or lower valuation of investment real estate (yield-producing prop-erties and investment real estate under construction), compared to previous year’s balance sheet cut-off date, resulting from revaluation by external real estate valuer, with allowance for resulting changes in deferred taxes (difference between market and acquisition value).

Target rental income Sum of all revenue potentially achievable in period under consideration in case of full letting, before deduction of ground rent, vacancy losses and collection losses.

Maintenance and repair expenses Sum of all costs borne by owner that arise from reinstatement of a property to or maintenance of a property in its required condition. This also includes all servicing costs.

167

Administrative and operating expenses Sum of all costs incurred by owner through use of a property, excluding mainte-nance and repair expenses. Administrative and operating expenses also include all ancillary costs that are not recoverable from tenants, e.g. due to specific provisions in rental contract.

The definitions of the above terms are based on Document D 0213 "Financial Benchmarks for Real Estate" ("Finanz für Im-mobilien") issued by SIA (Swiss Society Engineers and Architects) and SVIT (Swiss Real Estate Association), 2005 edition.

168

Organisation and schedule

Contacts

Bruno BettoniChief Executive Officer

T +41 44 319 12 37F +41 44 319 15 35bruno.bettoni@allreal.ch

Roger HerzogChief Financial Officer

T +41 44 319 12 04F +41 44 319 15 35roger.herzog@allreal.ch

Matthias MeierChief Communications Officer

T +41 44 319 12 67F +41 44 319 15 35matthias.meier@allreal.ch

Schedule

Annual general meeting 2015 17 April 2015, 4 p.m.KaufleutensaalPelikanplatzCH-8001 Zurich

Half-year results 2015 31 August 2015

Annual results 2015 29 February 2016

Annual general meeting 2016 15 April 2016

Allreal Group Bruno Bettoni

Structure and addresses

Organisation chart

Allreal Holding AGAllreal Finanz AGGrabenstrasse 25, CH-6340 Baar

Allreal Home AGAllreal Office AGAllreal Toni AGAllreal Vulkan AGAllreal West AGApalux AGHammer Retex AGEggbühlstrasse 15, CH-8050 Zurich

Allreal Generalunternehmung AGEggbühlstrasse 15, CH-8050 ZurichViaduktstrasse 42, CH-4051 BaselZieglerstrasse 53, CH-3007 BernGaiserwaldstrasse 14, CH-9015 St. Gallen

Hammertor AGHammer Retex AGSinserstrasse 67, CH-6330 Cham

Real EstateAlain Paratte

Projects & Development

Finance & ControllingRoger Herzog

Investments/DivestmentsHans Engel

CommunicationsMatthias Meier

HRBarbara Tomezzoli

Project DevelopmentNigel Woolfson

RealisationRaymond Cron

169

Share registerResponsibility for address changes and other changes in the share register lies with:

areg.ch AGFabrikstrasse 10CH-4614 HägendorfT +41 62 209 16 60F +41 62 209 16 69info@areg.chwww.areg.ch

Reporting by financial analystsThe Allreal Group is valued and analysed by the following banks, among others:

Zürcher KantonalbankMarkus WaeberResearch, IREP.O. BoxCH-8010 ZurichT +41 44 292 26 94markus.waeber@zkb.ch

Bank Vontobel AGPascal FurgerEquity AnalystDreikönigstrasse 37CH-8022 ZurichT +41 58 283 77 25pascal.furger@vontobel.ch

UBS AGAndré Rudolf von RohrSwiss Equities ResearchEuropastrasse 1CH-8152 OpfikonT +41 44 239 16 57andre.rudolf-von-rohr@ubs.com

Investor relationsAllreal GroupEggbühlstrasse 15CH-8050 Zurich

Roger HerzogChief Financial OfficerT +41 44 319 12 04F +41 44 319 15 35roger.herzog@allreal.ch

Matthias MeierCorporate CommunicationsT +41 44 319 12 67F +41 44 319 15 35matthias.meier@allreal.ch

170

For further information on Allreal:Allreal GroupCorporate CommunicationsMatthias MeierT 044 319 12 67F 044 319 15 35matthias.meier@allreal.chwww.allreal.ch

Further Annual Reports and the Annual Report Shortform in German or English can be ordered from the following address:

Allreal GroupGabriella TomezzoliEggbühlstrasse 15T 044 319 11 11F 044 319 11 12gabriella.tomezzoli@allreal.ch

The interactive Annual Report is available online in German and English at http://ir.allreal.ch/en

Shareholders who, in place of the full Annual Report, wish to receive the An-nual Report in short form or opt not to receive any reports at all and would only like to be sent the invitation to the annual general meeting may notify the com-pany accordingly at any time.

PublisherAllreal Holding AGGrabenstrasse 25, 6340 BaarT +41 41 711 33 03, F +41 41 711 33 09www.allreal.ch

ImprintText and editorial officeAllreal Corporate CommunicationsEggbühlstrasse 15, 8050 Zurich

Graphic conceptWBG AG für visuelle Kommunikation, 8045 Zurichwww.wbg.ch

Design imagesStudio Achermann GmbH, 8004 Zurichwww.studioachermann.ch

Design/RealisationLinkgroup, 8008 Zurichwww.linkgroup.ch

Allreal Holding AGGrabenstrasse 256340 Baar/SwitzerlandT +41 711 33 03F +41 711 33 09E-Mail: info@allreal.chwww.allreal.ch