Consolidated financial statement
The Allreal Group reports operating net profit for the 2009 financial year of CHF 83.1 million, corresponding to a 6.0% increase over the previous year. On the one hand, the increase is due to an improved real estate break-even ratio at constant capital expenditure brought about by selling and renting of commercial and residential property in the Real Estate division; on the other hand, the increase was influenced by yet a further improvement in the Project & Development division’s results, compensating for higher personnel and operating expenses.

In the Real Estate division, rental income grew by 7.7% to CHF 132.9 million due to an expansion of the portfolio and a reduction in the vacancy rate. Rental income resulting from continuously leased commercial and residential properties grew by 0.4% and 2.5% respectively (like-for-like rental growth). While the real estate expenses of 14.8% of rental income exceeded the previous year’s value, they remained within the 13% to 15% range experienced in previous years. The cumulative vacancy rate for the 2009 financial year amounted to a very good 3.7% of target rental income and is expected to rise slightly in 2010.

The valuation of investment real estate by an external real estate valuer resulted in a gain of CHF 6.5 million for the entire portfolio’s asset value. The correction includes a valuation gain for residential real estate (CHF 16.5 million) and a valuation loss for commercial real estate (CHF –2.2 million) and for investment real estate under construction (CHF –7.8 million). The higher valuation for residential real estate is due to pressure on yields as a consequence of the continuing high demand by institutional investors. Compared to the previous year, the discount and capitalisation rates have been slightly lower. For the first time, properties that upon completion are allocated to the Real Estate division are shown at market value on the balance sheet. Market values were determined by means of the discounted cash flow method (DCF) and resulted in a net devaluation of investment real estate under construction of CHF –7.8 million due to a change in project parameters introduced during the year under review.

The sale of four commercial properties resulted in a profit before tax of CHF 6.5 million. The prices were about 10% above the market value as shown on the balance sheet on 31 December 2008.

The Projects & Development division reached yet another peak by reporting a consolidated profit from business activity of CHF 82.2 million (2008: CHF 81.8 million). Although the completed project volume slightly declined in 2009 and therefore resulting in a clearly lower rate of completion for own projects and correspondingly lower revenue, the division’s consolidated profit rose due to distinctly higher fees (+20%) and profits from construction activity (+ CHF 12.6 million). Higher personnel and other expenses resulted in a lower operating margin of 40.5% when compared to the previous year (2008: 42.2%).

Due to modified planning parameters for the Escher-Terrassen project in Zurich-West, the project’s cost of acquisition was adjusted by CHF 2.1million following an impairment test and loss charged to the Project & Development division.

Although net financial debt grew by approximately CHF 186 million, financial expenditure of CHF 34.3 million remained at the previous year’s level. In addition to lower interest rates, the capitalisation of interest expenditure in accordance with the changed accounting standards (IAS 23) had a positive effect on the financial result. Financial expenditure includes compounding effects of CHF 3.2 million resulting from the redemption of two convertible bonds.

At CHF 25.6 million, the operating tax expenditure represented 23.6% of net profit before tax and was therefore above the group tax rate of 22%. Of this amount, CHF 26.7 million was allotted to current taxes and CHF –1.1 million to deferred taxes resulting from a time discrepancy. Additional deferred tax resulting from revaluation amounted to CHF 1 million.

Consolidated balance sheet and consolidated equity
On the balance sheet day, the market value of investment real estate amounted to CHF 2 519.1 million. The market value is comprised of commercial real estate (CHF 1810.7 million), residential real estate (CHF 396.4 million) and investment real estate under construction (CHF 312.0 million). The value of the real estate portfolio therefore increased by CHF 208.9 million in 2009 through acquisitions and disposals (CHF 29.9 million), value-increasing investments (CHF 9.0 million), construction activity (CHF 163.5 million) and valuation gains (CHF 6.5 million). In 2010, three projects held as investment real estate under construction with an investment volume of CHF 190.0 million will be transferred to income-providing real estate.

Compared to the previous year, the book value of the portfolio of development real estate grew by CHF 13.5 million to CHF 394.4 million. Of the development reserves (CHF 165.4 million), the Richti-Areal valued at CHF 94.0 million is the most valuable. The share of development real estate currently under construction of the entire portfolio of development real estate was 57%. A large number of buildings under construction are scheduled for completion in 2010 and 2011 and are likely to result in profit contributions to the consolidated financial statement in the following years. The successful sale of residential property is also reflected in Allreal’s portfolio of completed buildings amounting to only CHF 4.2 million, or 1.1% of all development real estate.

The growth of the real estate portfolio related to a CHF 185.9 million rise in net financial debt to CHF 1471.2 million. As at 31 December 2009, deferred tax assets and liabilities amounted to CHF 79.7 million (31.12. 2008: CHF 79.8 million). Deferred tax liabilities brought about by the revaluation of investment real estate and the delay between the consolidated financial statement and the closing of accounts of group companies were compensated for by the deferred taxes resulting from the valuation of the interest rate swaps.

In the period under review, consolidated equity grew by CHF 26.8 million to CHF 1277.5 million at 31 December 2009. Net income of CHF 88.6 million was faced with the dividend payment (CHF –56.7 million), the acquisition of own shares (CHF –0.5 million) and a rise in the replacement cost of derivative financial instruments (CHF –12.6 million). The latter was caused by the continuing low level of interest rates reflected in the valuation of interest rate swaps. The amount resulting from the issue of a 2.125% convertible bond 2009–2014, which is considered equity security, amounted to CHF 8 million and was allocated to group equity capital.

Consequently, the net asset value (NAV after deferred tax) per share rose by CHF 2.40 to CHF 112.65.

Consolidated cash flow statement
In the period under review, continuing positive business developments have led to a nearly unchanged operating cash flow before changes in working capital of CHF 114.0 million (2008: CHF 115.9 million). Due to lower accounts receivable, net working capital decreased marginally by CHF 14.0 million. The amounts of CHF 30.7 million and CHF 18.3 million respectively were paid for financial expenses and tax on current income and on profit from the sale of property. The result was a cash flow of CHF 79.0 million (2008: CHF 108.1 million).

While investment activity continued in the year under review, acquisitions amounting to CHF 100.5 million and value-increasing investments in existing buildings of CHF 9.0 million exceeded the amount of CHF 44.0 million obtained from the sale of four commercial properties. Continued project activity in investment real estate under construction resulted in cash out investments of CHF 157.1 million. Changes in the remaining fixed assets and financial investments amounted to CHF –6.4 million. The result was a cash flow from investment activity of CHF 216.1 million (2008: CHF 150.5 million).

On the financing side, investments led to an increase of CHF 203.9 million in bank liability. Including the dividend payment and the purchase of own shares, net additions from financing activity amounted to CHF 146.6 million (2008: CHF 42.0 million).

Financial situation
Allreal’s investment guidelines and the maximum borrowing level outlined in the credit agreements with the banks define four decisive financial ratios, which were reported as follows for the entire period under review and as of 31 December 2009: consolidated equity ratio 41.5% (at least 35%), net gearing 115.2% (maximum 150%), interest coverage ratio 4.2 (at least 2.0) and the borrowing level for investment and development properties 51.5% (maximum 70%).

At the end of the financial year, average interest on financial liabilities amounted to a low 2.56% (31.12. 2008: 2.79%) at a shorter average duration of 36 months (31.12.2008: 44 months). Of the interest-bearing borrowings as of 31 December 2009, 94.4% were effectively secured against rising interest rates by means of interest-rate swaps, fixed-date mortgage loans and convertible bonds. Immediately available bank loan limits at 31 December 2009 amounted to a comfortable CHF 377 million. In our cooperation with banks we do not recognise any signs of deterioration in conditions. As Allreal did not hedge against interest rate hikes by means of derivative financial instruments in 2009, the company benefited from the continuing low interest rate level and refinanced new borrowings for a longer period of time during the year under review on a short-term basis with interest rates below 1%. The issue of the 2.125% convertible bond 2009–2014 amounting to CHF 200 million allowed Allreal to hedge a part of its floating rate financing long term and at attractive conditions.

In 2010, a total of approximately CHF 350 million of the existing financial debt will benefit from floating interest rates as interest swaps and the 1.875% convertible bond 2006-2010 are due. For Allreal this will open interesting opportunities in the coming months to hedge interest rates at a low level as a rise in money market and capital market rates is expected for the second half-year.

The payout ratio of 68% of net income is well below the maximum value of 75% as specified by the company.

Annual accounts of Allreal Holding AG
The 2009 financial year resulted in clearly higher profits of CHF 59.7 million (2008: CHF 31.6 million). Compared to the previous year, income from investments in group companies increased noticeably to CHF 51.0 million (2008: CHF 14.0 million). By contrast, net financial income decreased to CHF 11.2 million (2008: CHF 20.5 million) as a result of one-time expenses amounting to CHF 4.7 million in connection with the issue of a new convertible bond.

The remaining expenses and taxes of CHF 2.5 million remained within the parameters of the previous year.

Owing to the issue of the 2.125% convertible bond 2009–2014 for CHF 200 million, total assets increased to CHF 1400.3 million. The added means resulting from the convertible bond were used for refinancing purposes and a higher investment share in group companies.

As of 31 December 2009, shareholders’ equity amounted to CHF 1043.1 million (31.12.2008: CHF 1 040.1 million). The slight increase of CHF 3 million resulted from the difference between the dividend payment in April 2009 of CHF 56.7 million and the annual profit of CHF 59.7 million.