1   Basic principles

The Allreal Group is a real estate company which operates exclusively in Switzerland with the main focus on the greater Zurich area. On the one hand, it is involved in the development and management of its portfolio of residential and commercial properties (real estate) and on the other hand, it is involved in the development and realisation of construction projects for its own requirements and on behalf of third parties and in providing additional real estate services (Projects & Development).

Allreal Holding AG, which has its headquarters in Baar, Canton Zug, is listed on the SIX Swiss Exchange and exercises management functions over the Allreal Group as the Group's parent company.

The consolidated annual accounts are based on the individual company accounts, 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 Article 17 of the Directive on Financial Reporting of the SIX Swiss Exchange and Swiss law.

In 2011, the following new IFRS accounting standards and interpretations were used in the consolidated financial statements for the first time:

• IAS 24: Related Party Disclosures (Revised)
• IAS 32: Financial Instruments: Presentation (Amendment)
• IFRIC 14: IAS 19: The Limit on a Defined Benefit Asset,
  Minimum Funding Requirements and their
  Interaction (Amendment)
• IFRIC 19: Extinguishing Financial Liabilities with
  Equity Instruments
• Improvements to IFRSs (May 2010)

The revised standards and new interpretations have no significant impact on the consolidated result or on the consolidated equity of the Allreal Group.

The following new or revised IFRS accounting standards and interpretations will come into force for the reports listed below (indicating from which financial year Allreal plans to take account of the changes):

• IAS 1: Presentation of Financial Instruments (Amendment), 2013
• IAS 12: Deferred Tax: Recovery of Underlying Assets, 2012
• IAS 19: Employee Benefits (Amendment), 2013
• IAS 27: Consolidated and Separate Financial Statements
  (Amendment), 2013
• IAS 28: Investments in Associates (Amendment), 2013
• IAS 32: Financial Instruments: Presentation (Amendment), 2014
• IFRS 7: Financial Instruments: Disclosures (Amendment), 2012
• IFRS 9: Financial Instruments: Classification and Measurement of
  Financial Assets, 2015
• IFRS 10: Consolidated Financial Statements, 2013
• IFRS 11: Joint Arrangements, 2013
• IFRS 12: Disclosure of Interests in Other Entities, 2013
• IFRS 13: Fair Value Measurement, 2013

Allreal will not apply these changes before they come into force. Any impact on the consolidated financial statements will therefore only be taken into account in the financial years following the adoption of the new or revised IFRS accounting standards and interpretations. IFRS 13 (Fair Value Measurement), which supplements the current IAS 40 standard effective 1 January 2013, redefines, inter alia, the fair value measurement of investment real estate. In particular, the principle of “highest and best use” is to be applied, which could lead to higher fair values for individual investment real estate properties held by the Allreal Group. The impact of the new standard on the consolidated financial statements is to be analysed in 2012. Besides additional disclosure requirements, the remaining IFRS amendments are not expected to result in any material adjustments.

The Board of Directors of Allreal Holding AG approved the consolidated financial statements for publication on 10 February 2011. They are also subject to the approval of the annual general meeting of Allreal Holding AG of 30 March 2012.

Previously, the project volume completed by the Projects & Development division (Projects & Development sales) was reported in the statement of comprehensive income as the sum of all income from third-party projects and sales of development real estate – determined by the production method. At the same time, investment costs for unsold development real estate were charged to direct expenses from realisation Projects & Development.

This method of presentation does not conform with the provisions of IAS 2 and IAS 18 since sales of development real estate may only be posted after the transfer of benefits and risks and, accordingly, the related costs may only then be charged to direct expenses in the consolidated statement of comprehensive income. For this reason, earnings from the Project & Development division are now divided into income from realisation Project & Development (third-party projects) and income from sales Development (own projects), see also 2.6.

This restatement led to a change in the presentation of the consolidated statement of comprehensive income, as a result of which sales of development real estate and the related direct expenses were each reduced by CHF 41.1 million in 2010. The restatement had no effect on earnings from the Project & Development division, net profit or equity.

Restatement of consolidated comprehensive income 2010 in respect of earnings from the Projects & Development division:

Group companies over which the Allreal Group exercises more than 50% of management and control are fully consolidated in the consolidated financial statements. New companies will be fully consolidated from the reference date of the acquisition.

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 connection 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 contribution 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 assessment of the market value of the net assets taken over.

Receivables and liabilities, expenses and income between the consolidated companies and intercompany interim earnings are eliminated.

The scope of consolidation remained unchanged during the period under review.

The 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 whereby 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 at Vulkanstrasse and Bändliweg in Zurich-Altstetten), Allreal West AG (Escher-Wyss site in Zurich-West) and Apalux AG (commercial and residential properties).

Allreal Generalunternehmung AG, Allreal Markthalle AG and PM Management AG make up the Projects & Development division.

The activities of Allreal Holding AG (parent company) and Allreal Finanz AG (intercompany 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.

During the period under review, 14.01% of earnings from projects realised by the Projects & Development division stemmed from one single customer.