Annual Report 2011/2012

Transcription

1 Swiss Foundation for International Real Estate Investments Annual Report 2011/2012 Zurich Munich Vienna Madrid New York Sydney

2 Dieser Geschäftsbericht ist auch auf Deutsch erhältlich. Senden Sie Ihre Bestellung an Ce rapport annuel est aussi disponible en français. Envoyez votre ordre à Translation of the Annual Report This annual report was prepared in German and later translated into French and English. The German version was reviewed by auditors and is legally binding. Notes on the Photography The series of London photographs in this Annual Report was taken by our photographer, Eliane Rutishauser, in the spring of Cover photo: From Tower Bridge there is a fine view of the south bank of the Thames, where the More London development project shows its best side with the distinctive skyscraper known as The Shard. Pages 2 3: Situated a little further upstream is the Oxo Tower. Originally built as a power-station for the Post Office, the building was owned for a long time by the Liebig Extract of Meat Company, famous for its OXO brand. Today the Oxo Tower is a mainly residential building. Page 16: View of the office building at 21 Tudor Street, which the AFIAA took into its portfolio this year. Page 20 21: Broadgate Tower, otherwise known as 201 Bishopsgate, is one of the tallest buildings in London. It rises above the tracks running into Liverpool Street Station. Page 22 23: Finsbury Avenue Square. Page 26 27: The Parliament View apartment building seen from Lambeth Bridge. Page 28: Victoria Street. Page 48 49: High Holborn. Page 4: The Gherkin scarcely needs an introduction. Perhaps just as well known is the computerized light animation by the artist Julian Opie. It fits perfectly into the neighborhood of the imposing tower. Pages 12 13: The unusual façade of the office building at One Coleman Street is quite eye-catching. All of the window panes are set at different angles. The building s life cycle assessment is also very impressive. Page 50: The Perspective Building, 100 Westminster Bridge Road. Page 52 53: Reflected image at the Euston Square Underground station. Page 54: St. Giles High Street. Once a notorious slum, today the site is occupied by a building complex designed by the architect Renzo Piano. Pages 14 15: More London. Back page: Fetter Lane.

3 AFIAA Annual Report 2011/ Annual Report Report from the Chairman of the Foundation Board 5 Report from the Management Committee 6 Organizational Structure 9 Operating Figures as at Direct Investments 11 Annual Financial Statement Separate Trust Assets Consolidated Asset Account 17 Consolidated Income Statement 18 Changes in Net Assets 19 Appropriation of Profit (Separate Trust Assets) 19 Administrative Accounts Consolidated Balance 23 Consolidated Income Statement 23 Permanent Assets Balance 24 Permanent Assets Profit Statement 24 Proposed Appropriation of Profits (Permanent Assets) 24 Appendix 1 Principles and Organization 29 2 Principles of Valuation and Reporting; Continuity 31 3 Notes on Investment Activity and Net Performance of Assets 35 4 Notes on Other Balance-Sheet Items and Income Statement 40 5 Key Figures as Required by KGAST 45 6 Events After the Balance-Sheet Date 47 Report of the Statutory Auditor Report of the statutory auditor with consolidated financial statements as of 30 September Additional Information Statement of Valuation Submitted by the Independent Swiss Property Valuation Experts 55 Investment Foundation Headquarters 56 Professional Memberships 56

4 South bank of the Thames, Oxo Tower Wharf

5

6 Annual Report Gherkin

7 AFIAA Annual Report 2011/2012 Annual Report 5 Report from the Chairman of the Foundation Board Dear Colleagues: A challenging environment for investment Last summer marked the fifth anniversary of the outbreak of the financial crisis. Within a few business quarters, the central banks of the most important financial centers lowered their key lending rates by three to five percentage points and kept them at an exceptionally low level since then. The current investment environment in established markets continues to be characterized by low lending rates accompanied by moderate inflation and persistently low economic growth. Under these macro-economic conditions, standard strategies can be derived for institutional investors. An expansion of strategic allocation is anticipated in favor of corporate bonds, bonds issued by emerging countries, shares in globally active companies and the currencies of structurally strong growth economies. Flight to tangible assets It goes without saying that there will continue to be a strong demand for tangible assets such as real estate, precious metals, and commodities. The most important drivers behind this are the high degree of volatility in financial markets and the fear among many investors that expansionary monetary policy will fuel inflation. The customary investments in domestic residential properties play a particularly important role for Swiss occupational pension funds. More than CHF 100 billion of pension fund assets is currently invested in Swiss properties. In retrospect, the continuous appreciation of Swiss real estate over the past 20 years is fundamentally attributable to underlying factors. Population growth, inward migration, an upward trend in incomes, low interest rates, and at the very least, regional construction activity driven by population growth along with the flight to tangible assets are the reasons for the price rise and the investment crisis in the institutional real estate investment sector. International real estate investment as a profitable alternative We have noticed that the high level of prices in the Swiss real estate market and the shortage of opportunities in particular are increasingly causing second pillar investors to evaluate their commitments to international real estate. This suggests neither a total withdrawal from the Swiss real estate sector, nor the need to achieve better yields, but merely the application of the principle of diversification to the real estate sector. For most pension funds, venturing beyond the Swiss border involves delegating responsibility to a trustworthy service provider. The only investment foundation under Swiss law investing directly in international real estate, AFIAA has been offering its services exclusively to Swiss savings and pension funds as an independent and professional mutual aid organization and as a partner in the international real estate sector for over eight years. Clear strategy strengthened organization simple structures During the past year, the committees of our investment foundation have worked intensively on the AFIAA profile. In strategy sessions and workshops conducted under the heading setting the sights, the members of the Foundation Board and the Investment Committee have set down and compared their views on strategic orientation and the desired asset classes. On the basis of a detailed analysis of portfolios, markets, and correlations, clusters were defined that on one hand, embrace investment markets that are strong enough for us to build up and maintain specific market knowledge and a permanent market presence, but on the other hand offer a high potential for diversification among them. These clusters are subdivided into the three global regions of Europe, North America (excluding Mexico), and Oceania (mainly Australia); AFIAA is represented by its own staff in each. The strategic approach is clearly stated in the revised investment guidelines and in a concisely formulated investment profile for the benefit of investors and other stakeholders and also for business partners and property owners willing to sell. At the operational management level, responsibilities have been assigned on a strictly functional basis. Consequently, Christopher Duisberg, our branch director in New York, has been concentrating on managing our North American investments under the divisional supervision of the Head of Asset Management since the start of the current fiscal year, and has handed over responsibility for North American acquisitions to a newly recruited staff member. This activity will be further intensified and directed toward the next phase of corporate development with the integration of a Head of Global Acquisitions into Management. A decision was made to slim down the group structure. As part of the structural reforms of the BVG (Federal Law on Occupational Retirement, Survivors and Disability Pension Plans), the Verordnung für Anlagestiftungen (Swiss Federal Law on Investment Foundations) came into force on This law does not allow subsidiaries of an investment foundation to have any further holdings in its core assets. The AFIAA Investment AG is a subsidiary directly owned by the AFIAA; it has a further holding, AFIAA US Investment Inc. our management arm in North

8 6 Annual Report AFIAA Annual Report 2011/2012 America. Hence, a restructuring within the statutory time limit is necessary. The Foundation Board has decided not only to transfer the American company to the Separate Trust Assets of the AFIAA, but beyond that, to liquidate the operational Swiss management company, AFIAA Investment AG, whose operations will be performed directly by the Investment Foundation from then on. The tax advantages also favor this more comprehensive solution. In addition, this simplified structure will make it more evident that the operational units are working exclusively for AFIAA and in the sole interest of this Foundation and its investors. support of our plans for further growth. Thanks are also due to our colleagues in the Investment Committee for their wholehearted collaboration and valuable and constructive discussions. We thank the team at AFIAA for their professional commitment, and their tirelessly motivated dedication to the prosperity of our organization. Zurich, December 2012 On behalf of the Foundation Board Andreas Markwalder, President We extend our thanks to AFIAA investors for the confidence they have shown in us, and for their Report from the Management Committee Ladies and Gentlemen: Controlled growth AFIAA is determinedly pursuing a strategy of growth. The decisive factors here are the increased demand by investors for international real estate investments by means of transparent Swiss structures, and market growth anticipated in the years to come. We are working under the assumption that by the next full census in 2015, the overall market in international real estate investments within the second pillar (CHF 7.4 billion, according to 2010 pension fund statistics) will have grown significantly. Today AFIAA has a marketshare of at least 10 % and aims to expand this further in a growing overall market. We believe that in a rediscovered growth market we will be able to profit from our advantage as first mover and from our leading position on costs as a mutual self-help organization independent of the banks, as well as a certain skepticism towards financial institutions. AFIAA will soon offer new investors access to an attractive existing and internationally diversified portfolio currently comprising 28 direct investments. In the medium term, through the economies of scale and more improved diversification, existing Foundation members will benefit from our growth ambitions. The operational implementation of the growth strategy is preferably TER-neutral and premised on continuous quality assurance. The lead time necessary for building up internal resources and raising new funds places additional limits to growth. Budget, organization, and processes are designed to handle annual growth increments from CHF 250 million to 400 million of invested equity capital at a qualitatively high level. Discussions with potential new clients have intensified. A number of pension fund institutions, some of them quite large, are currently considering investing in AFIAA. Investment decisions are expected in the near future. Focused allocation by country AFIAA sees itself as a globally diversified Special Real Estate Asset. By regularly monitoring and adjusting the strategy within the existing investment guidelines, AFIAA sets its target criteria for acquisition activity during the next planning period. The objective distribution among individual countries is worked out in consideration of the degree of maturity and prospects of different markets. This planning enables us to focus the deployment of our internal resources, to profit from the cycles in real estate markets, and to convey to our investors a perspective assessment of the distribution by country. For AFIAA, the transparency and integrity of a market are the definitive criteria and prerequisites for efficiently assessing opportunities and risks. Hence, as a first stage, countries that do not fulfill our high demands for market transparency and (absence of) corruption are excluded across the board. The absence of the rule of law is also a criterion for excluding a country. The remaining

9 AFIAA Annual Report 2011/2012 Annual Report 7 markets are assessed according to fundamental macro-economic data, as real estate markets do not function independently, but follow the general economic trend in the medium term. In particular, a country s overall economic performance (GDP), growth figures (prospects for growth in GDP), and national budget (national debt as a percentage of GDP). Additional criteria for assessment include the contribution of diversification to a national economy (correlations of the relevant growth in GDP to the growth in Switzerland s GDP), liquidity in the real estate market (transaction volume), supplies of raw materials (reserves of the most important non-renewable sources of energy), and economic stability (standard deviation of GDP growth rates). From among the list of preferred target countries for investment generated by the process described above, we evaluate the ones that match our current investment guidelines, which avoid cluster risks and promise the investor a defined net return on equity of currently at least 4.5 % after hypothetical hedging costs in the desired asset class of high quality core properties. Refined property strategy The committees of AFIAA have been working intensively on the profile of the investment vehicle, not only with regard to growth and macroeconomic allocation, but also with an eye to target cities and the availability and attractivity of properties. Today, AFIAA is pursuing a coherent core strategy with a weighted target of a minimum of 80 % core office properties (preferably with subsidiary retail use), and a modest admixture of Core-Plus properties. In addition, as a matter of principle, the latter are to be transferred to core properties in the medium term. It follows from this targeting that no compromises will be made in investment decisions with regard to the (unalterable) location of the properties, and therefore, out of a final list of selected major cities, investments will be made exclusively in central business districts (CBDs) and fringe CBD locations and in long-established and important submarkets. During the recent months, in order to make an overall assessment of investment opportunities, AFIAA developed a property rating system. The main idea behind this rating system is to make the evaluation of investment opportunities more objective and thus easier to compare. A property s location, quality, sustainability, and rental market are assigned different weightings and evaluated according to various criteria, whereby the location and quality of the property features which are impossible or very difficult to change are given a disproportionate share of 60 % on the influence on the outcome. On one hand, the rating system provides a preliminary sifting of investment opportunities, and on the other hand, it creates a foundation for evidence-based and structured discussion of the properties within the decision-making committees. As well, in terms of property rating management has a clear objective for acquisitions. Intensified acquisition activity In implementing the targeted growth strategy, AFIAA management is concentrating on the purchase of one property per quarter. Potential investment properties fall in the range of approximately CHF 40 million to CHF 140 million per property, though values around CHF 100 million are preferable in terms of fungibility. During the second and third quarters of 2012, we were able to maintain the desired activity rate with the purchase of 21 Tudor Street, London EC4, and 525 Flinders Street, Melbourne. Thanks to these purchases, the portfolio now comprises 28 direct investments, with a total market value of CHF 1,044.1 million. In the spring of 2012, AFIAA discontinued due diligence review on another property in Paris that was considered attractive initially. The main reasons were hard to quantify legal findings and construction defects. Last autumn, an assessment already underway for some time on an attractive property in Cologne was unexpectedly withdrawn by the owner. Important sources for our extensive pipeline of property offerings include the contact networks of our local staff and partners, especially project developers, proprietors (investment funds, insurance companies, family estates, etc.), real estate consultants, investment banks, major banks, and leading law firms. Thanks to our internationally experienced acquisitions team, which has been increased to four seasoned experts during the last financial year, we enjoy excellent personal contacts. Worthy of special mention is the extensive and robust network of the Head of Global Acquisitions, who over the course of his career has been responsible for worldwide real estate transactions for various institutional investors totaling more than CHF 7 billion. With this behind them, our Acquisition Department was able, during the financial year 2011/12, to examine roughly 1300 properties with a total value of about CHF 110 billion (a consistent volume of about 100 properties each month, worth between CHF 8 to 9 billion). After a rigorous pre-selection process, a steady pipeline of six to eight investment opportunities still remain that we continuously analyze through our local organizations and assess in our committees. Stable performance With a return on investment approaching 8 %, the overall performance of the Special Trust Assets for the 2011/2012 financial year is extremely positive. With equity capital of CHF million as at 30 September 2012, we were able to achieve a stable net profit of CHF 46.8 million (before repair and

10 8 Annual Report AFIAA Annual Report 2011/2012 maintenance costs). After four successive financial years in which performance suffered from adverse foreign exchange trends, during the reporting year most of the relevant foreign currencies rose in value against the Swiss franc. On the other hand, capital losses from revaluations and high maintenance activity in the case of two properties have had a considerable one-off impact on the overall performance for 2011/12, which explain the currency-adjusted decline in overall performance from CHF 33.2 million to CHF 21.6 million. Revaluations of the portfolio stock led to a total reduction in value of CHF 10.6 million, or 1.22 % of invested equity capital. Of these non-realized capital losses, CHF 5.8 million results from ancillary purchase costs on the properties acquired in the year reported (21 Tudor Street in central London and 525 Flinders Street in Melbourne), which to a large extent were not covered by the expert valuation and led to a corresponding adjustment to their value. In order to partially compensate for these added property acquisition costs in future, or, as the case may be, to share the economic burden between old and new investors, the Foundation Board slightly adjusted the issue commission for capital commitments as at July 1, 2012 to a modest 1 to 2 % (depending on the total commitment). Despite the % growth in the property portfolio and structural strengthening, the revised TER ISA dropped slightly to 0.55 %. The most important upward revaluation applied to Garrard House in London, where we were able to renew the lease with the single tenant, Schroders, with substantially improved terms. Other increases in value were seen on the newly positioned properties of Forum Zehlendorf in Berlin, and Westfalen-Center in Dortmund. The combined increase in the value of these two properties is CHF 8.5 million. However, this was matched by expenditures of a similar amount that affected profit (compare the maintenance and repair costs). The vacancy in Berlin due to renovation work accounts for roughly 0.6 percentage points of the total drop in rental income. Once the building project is completed, this figure should improve correspondingly. The largest share of the rental shortfall is attributable to the Rohr Road logistics property in Groveport (Ohio, USA). The decline in revenue due to non-occupancy of this property contributed CHF 1.8 million, or about 2.4 percentage-points, to the rental shortfall. Unfortunately, a party interested in leasing the Rohr Road property withdrew last summer after intensive negotiations. The largest downward valuation was recorded for the property in Munster (Germany) known as the Classical Service Center. The decisive factor there was a persistently difficult local rental market, which, in the view of management, was not adequately reflected in the existing valuation and prompted the AFIAA to have the property valued by a local expert. An adjustment for the corresponding value correction was made immediately. We are pleased to note the settlement of a legal dispute with the former tenant of our Spanish property. The roughly CHF 2 million payment received in compensation has been credited to the NAV. Expansion of organizational structure In addition to the enlarged staffing of the Acquisition Department and of the local management units in Sydney and New York, the Asset Management and Finance Departments as well as the areas of research and portfolio management have been strengthened. By means of detailed evaluations of markets and portfolios, these sections provide valuable basic data and action recommendations for the focus of acquisition or for property strategies within Asset Management. The Foundation Board and the Investment Committee also base their strategic determinations and purchase and sale decisions on the extensive documentation from Portfolio Management, among other things. This division is also responsible for property sales. The successful sale of a fairly small and non-strategic building in Düsseldorf by means of a tax-optimized sale of the relevant property company demonstrated our effectiveness and competence in this sphere as well. After deducting all costs, the sale yielded a gratifying capital gain. The internal resources devoted to managing the property can now be deployed more effectively to the AFIAA s larger existing holdings and future acquisitions. In the near future, other smaller properties are to be prepared for sale, so that the portfolio can be continuously optimized in terms of our revised property strategy in this way as well. Outlook A further property is currently undergoing the due diligence process. The real estate is a Grade A office building in the central business district of a major German city. The total investment costs anticipated amount to EUR 100 million. We are working towards the conclusion of a binding purchase contract within the next few weeks. Zurich, December 2012 The Management Norbert Grimm, CEO Axel Schuhmacher, Martin Brendel, Reto Schnabel, Gabriele Wolfram

11 AFIAA Annual Report 2011/2012 Annual Report 9 Organizational Structure Foundation Board Andreas Markwalder Chairman Carlo Garlant Vice Chairman Beat Bommer Member Prof. Dr. Peter Forstmoser Member Thomas R. Schönbächler Member Investment Committee Dr. Thomas Wetzel Chairman Dr. Christoph Caviezel Vice Chairman Thomas Frutiger Member Andreas Markwalder Member 1 Dr. Steffen Metzner Expert member Stefan Schädle Member Livia Gallati Secretary 1 Management Committee Norbert Grimm CEO, Managing Director Axel Schuhmacher Vice CEO, Head of Asset Management Martin Brendel (since ) Head of Global Acquisitions Christopher Duisberg (up to ) Managing Director USA Reto Schnabel CFO Gabriele Wolfram Head of Portfolio Management Auditors Ernst & Young AG KPMG Pension Fund Valuation Experts Martin Frei MSc ETH in Architecture / SIA, MA ETH in Management, Technology and Economics / BWI (Chairman) Daniel Conca Lic. iur., Qualified Real Estate Trustee; MRICS Our investors 1 without voting rights

12 10 Annual Report AFIAA Annual Report 2011/2012 Operating Figures as at Market values in thousand CHF Change Market value of direct investments % Market value of indirect investments % Total investments % Outside capital in thousand CHF Change Mortgage loans (direct investments) % As % of market value of total investments % % % As % of market value of direct investments % % % Net assets in thousand CHF Change Net assets as per the asset account % Net asset value per share (CHF) % Net assets per share, adjusted for dividend (CHF) % Shares in units Change Outstanding shares % Redeemed shares 0 0 Capital commitments by investors in thousand CHF Change Capital commitments % Capital calls ( ) ( ) % Capital call rate % % % Each capital call transaction is calculated retroactively and converted into shares. There were no converted capital calls as at the reporting date.

13 AFIAA Annual Report 2011/2012 Annual Report 11 Direct Investments In the reporting period, AFIAA enlarged its portfolio with the acquisition of two properties, while it sold off a property in Düsseldorf. The property at 21 Tudor Street, London EC4, was taken into the portfolio in May. The acquisition of 525 Flinders Street in Melbourne was completed in June Both are classic core properties with office use. In July 2012, AFIAA sold the Dock 13 townhouse in Düsseldorf. The building was too small and lacked any long-term upside potential, either in rental or capital value. The sale price exceeded the book value of the property by about EUR 0.3 million, or 6 %. The portfolio of direct investments as at comprised the following properties: Property Address Construction Type of use Rentable Ac qui sition date area m² date Campus B, Munich Georg-Brauchle-Ring Office Dock 13-Speicher, Düsseldorf Speditionsstrasse Office Dock 13-Villa, Düsseldorf Speditionsstrasse 13a 2001 Commercial Rue Lauriston, Paris 46/48 Rue Lauriston 1978 Office Arch Street, Philadelphia 1401 Arch Street 1930 Office Market Street, Philadelphia 1760 Market Street 1980 Office Forum Zehlendorf, Berlin Teltower Damm Office/Retail Classical Service Center, Münsterstrasse /1997/ Office Münster 2000 Tele Haase, Vienna Vorarlberger Allee Office/Ware house/production Westfalen-Center, Dortmund Lindemann-/Wittekind-/Berswordtstrasse 1996/1998 Office/Hotel Twin Office, Salzburg Münchner Bundesstrasse Office Arkade Mitte, Salzburg Peilsteiner Strasse /2005 Office Fashion Park, Salzburg Wickenburgallee Commercial Gusswerk Lofts, Salzburg Söllheimerstrasse Commercial Gusswerk Turm, Salzburg Söllheimerstrasse Office/Commercial Gusswerk Esprit, Salzburg Söllheimerstrasse Commercial Big Biz, Bauteil C, Vienna Dresdner Strasse Office Elston Logan, Chicago 2700 N Elston Avenue 2007 Retail Rohr Road, Groveport 2829 Rohr Road Logistics Datacolor, Lüneburg Wilhelm-Fressel-Strasse Office/Ware house/production Datacolor, Öhringen Verrenberger Weg Office/Ware house/production Poligono Industrial, Malaga Casabermeja 2007 Logistics Wells Fargo Tower, Austin 400 West 15th Street 1981 Office Garrard House, London Gresham Street 1998 Office Atrium, Sydney 60 Union Street 2006 Office/Retail HQ South, Brisbane 512 Wickham Street 2010 Office/Retail Quartermile 2, Edinburgh 2 Lister Square 2009 Office/Retail Tudor Street, London 21, Tudor Street 2003 Office Flinders Street, Melbourne 525, Flinders Street 2009 Office Acquisitions in the reporting period 21, Tudor Street, London 525, Flinders Street, Melbourne

14 One Coleman Street

15 Annual Financial Statement

16 More London

17

18 Separate Trust Assets AFIAA Immobilien CHF Swiss Securities No Tudor Street

19 AFIAA Annual Report 2011/2012 Annual Financial Statement Separate Trust Assets 17 Consolidated Asset Account Market value in CHF Notes *) Assets Real estate Indirect investments I Direct investments II Other assets Receivables from third parties Trade debtors Accrued income / deferred expenses Prepaid financing costs Deferred tax credits III Liquid funds Bank balances Fixed-term deposits / callable deposits Total assets Liabilities Long-term mortgage loans IV Short-term mortgage loans IV Trade creditors Liabilities to third parties Accrued expenses / deferred income Total liabilities Net assets Net assets before liquidation costs Estimated liquidation costs VI ( ) ( ) Net assets Shares Issued shares (units) Redeemed shares (units) 0 0 Capital value per share (CHF) Net profit for the period per share (CHF) Inventory value (net assets) per share (CHF) *) Notes I VIII see Section 4 in the Appendix.

20 18 Annual Financial Statement Separate Trust Assets AFIAA Annual Report 2011/2012 Consolidated Income Statement in CHF Results of operations Income from real estate assets Rental income Loss of income due to vacancy ( ) ( ) Collection losses / change in bad-debt provision ( ) ( ) Upkeep of buildings ( ) ( ) Maintenance ( ) ( ) Repairs ( ) ( ) Operating expenses ( ) ( ) Costs of services and waste removal ( ) ( ) Heating and and operating costs (including building maintenance) ( ) ( ) Insurance ( ) ( ) Property management fees ( ) ( ) Letting expenses ( ) ( ) Taxes and duties ( ) ( ) Costs of local management companies VII ( ) ( ) Other operating expenditure ( ) ( ) Operating profit Other income Investment income from funds Interest received Other income (expenditure) ( ) Financing cost ( ) ( ) Mortgage loan interest ( ) ( ) Other interest payable ( ) ( ) Ground rent ( ) ( ) Administrative expenses VIII ( ) ( ) Legal and consultancy fees (68 707) ( ) Auditing costs ( ) ( ) Valuation costs ( ) ( ) Payments to administrative accounts ( ) ( ) Remuneration to custodian bank (87 041) (83 219) Remuneration to administrative officers (AFIAA Investment AG) ( ) ( ) Acquisition expenses ( ) ( ) Other administrative expenses (62 623) (58 715) Taxes on capital assets and profits Income and expenditure from transactions in fund units Commission from subscriptions for fund units Purchase in current income Net profit for the reporting period Realized capital and currency gains ( ) ( ) Realized profit Unrealized capital and currency gains ( ) Change in currency differential due to consolidation ( ) Change in estimated liquidation costs VI ( ) ( ) Total profit (loss) for the period ( ) Less total net currency gain *) ( ) Total currency-adjusted profit *) Foreign currency effects have a decisive influence on the overall performance expressed in Swiss francs. Hence, alongside the total profit or loss, we also show the total profit or loss adjusted for foreign-exchange effects. The composition of the total foreign exchange transactions is presented on page 39.

21 AFIAA Annual Report 2011/2012 Annual Financial Statement Separate Trust Assets 19 Changes in Net Assets in CHF Assets at start of financial year Subscriptions for shares Distributions ( ) Net profit Realized capital and currency gains ( ) ( ) Unrealized capital and currency gains ( ) Change in currency differential due to consolidation ( ) Change in estimated liquidation costs ( ) ( ) Total profit (loss) for the period ( ) Net assets Appropriation of Profit (Separate Trust Assets) For the 2011/12 reporting period the realized profit forms a basis for the application of profits. At its meeting on the Foundation Board resolved to make a distribution of CHF 3.40 per share with the option of commission-free reinvestment under Art. 7a of the Foundation statutes. Appropriation of profit in CHF Net profit for the period Realized profit for the period Capital gains to be distributed 0 0 Gain brought forward from previous year Amount available for distribution Amount set aside for distribution Profit retained for reinvestment 0 0 Balance carried forward

22 Broadgate Tower

23

24 Administrative Accounts Finsbury Avenue Square

25 AFIAA Annual Report 2011/2012 Annual Financial Statement Administrative Accounts 23 Administrative Accounts of the AFIAA Investment Foundation The scope of consolidation of the Administrative Accounts includes the Permanent Assets of the AFIAA investment Foundation and the individual financial statements of the Swiss management company, AFIAA Investment AG, as well as those of its foreign subsidiaries, AFIAA U.S. Investment, Inc. (USA) and AFIAA Canada Real Estate Inc. (Canada). Additionally, the Administrative Accounts show the core assets of the Foundation separately from the minimal costs of running the Foundation. Consolidated Balance in CHF Assets Tangible assets (movables) Total investment assets Asset accrued / deferred items Receivables from Separate Trust Assets Other receivables Banking/postage Total circulating assets Total assets Liabilities Foundation capital Reserve funds Currency differential due to consolidation (47 039) (51 610) Profit brought forward Net profit for the year Total equity Liability accrued / deferred items Accounts payable to Separate Trust Assets Trade creditors Other liabilities Total outside capital Total liabilities Consolidated Income Statement in CHF Income Income from services Other income Total operating income Expenditure Personnel ( ) ( ) Premises ( ) ( ) Office and administrative expenses ( ) ( ) Consultancy fees ( ) ( ) Marketing ( ) (66 630) Audit (25 000) (25 000) Depreciation ( ) ( ) Operating profit Financial income Financial costs and currency gains (14 089) (32 380) Pre-tax profit Taxes on income (61 240) ( ) Net profit for the financial year

26 24 Annual Financial Statement Administrative Accounts AFIAA Annual Report 2011/2012 Permanent Assets Balance in CHF Assets Accounts receivable /(payable) from /(to) Separate Trust Assets Share in AFIAA Investment AG Total assets Liabilities Accrued expenses / deferred income Foundation capital Reserve fund Profit brought forward Net profit for the financial year 796 (6 026) Total liabilities Permanent Assets Profit Statement in CHF Income Contributions from Separate Trust Assets Total income Expenditure Organizational structures 1), Investors Meeting Other expenses Write-off of founding costs 0 0 Total expenditure Net profit (loss) for the financial year 796 (6 026) Proposed Appropriation of Profits (Permanent Assets) The Foundation Board proposes to the Investors Meeting that, from the balance-sheet profit of CHF , the sum of CHF be allocated to general reserves and the remaining CHF be carried forward to the next financial year. Proposal to the Investors Meeting in CHF Profit carried forward from previous year Net profit for the financial year 796 (6 026) Balance-sheet profit Allocation to reserve fund (10 000) (10 000) Balance to be carried forward to next financial year ) The annual remuneration for the Foundation Board is CHF for the Chairman, CHF for the Vice-chairman, and CHF for the remaining board members. The members of the Investment Committee receive annual fees of CHF 4 000, and the chairman of the committee receives CHF An attendance honorarium of CHF 750 per meeting is paid to each member of both bodies. For telephone conferences, members of both committees receive compensation of CHF 750 (without expenses).

27 AFIAA Annual Report 2011/2012 Annual Financial Statement Administrative Accounts 25

28 Lambeth Bridge

29

30 Appendix Victoria Street

31 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 29 1 Principles and Organization Legal Form and Purpose AFIAA Investment Foundation for International Real Estate Investments is a foundation serving Switzerland s occupational pension industry. The investment foundation is based on the following legal provisions, as of the codification at the start of 2012: Art. 53(g) 53(k) of the Bundesgesetz über die berufliche Vorsorge, or BVG (Federal Law on Occupational Pensions), the Verordnung über die Anlagestiftungen, or ASV (Regulations for Investment Foundations), and references to Statutory Instruments BVV1 and BVV2 (regulations concerning investments, integrity and good faith of the officers, accounting, valuation, and transparency). The purpose of AFIAA is the joint investment and management of pension funds entrusted to it by investors in international real estate. All tax-exempt second pillar pension institutions domiciled in Switzerland are entitled to invest with the Foundation. Statement of Charter and Regulations The legal basis of the Foundation s activity comprises the following regulatory documents: Foundation charter dated (updated ) Articles of incorporation approved by the regulatory authorities dated (updated ) Rules dated (updated ) Organizational regulations dated (updated ) Investment guidelines dated (updated ) Financial guidelines dated (updated ) Organization The governing body of AFIAA is the Investors Meeting, which is made up of representatives of the investors. The Ordinary Investors Meeting convenes annually at the written invitation of the Chairman of the Foundation Board no later than six months after the end of the financial year. The duties and powers of the Investors Meeting are laid down in the Articles of Incorporation and the Foundation Charter. As at there were 24 pension funds investing with AFIAA (previous year: 23). At the close of the accounting year, the distribution of net assets was as follows: Share of total investment, in CHF Number of investors Total investment, in thousands of CHF (no calls yet transacted) < 20 million to 50 million > 50 million Total The organization is characterized by collaboration between the Foundation Board, the Investment Committee, senior management, and external partners. The organization of management and financial control comprises seven levels: Foundation Board, Investment Committee, Management Company, valuation experts, auditors, the External Body for Review of Compliance with Investment Guidelines, and the custodian bank. Foundation Board The Foundation Board runs the Foundation, oversees the entire management, and issues the necessary instructions. It possesses all the powers for this purpose, except those which reside with another body or with the supervisory authorities. Under the Articles of Incorporation the Founder has the right to nominate one member of the Foundation Board, as long as he holds a share in the Foundation. The remaining members of the Foundation Board are elected by Investors Meeting for a term of one year and may be reelected. The Foundation Board represents the Foundation externally. It decides who shall have signatory rights as well as the nature of those rights. Board Members Andreas Markwalder President; Gastro Social

32 30 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 Carlo Garlant Vice-President; ASGA Pension Fund Beat Bommer Member; Pension Fund for the Canton of Basel-City Prof. Dr. Peter Forstmoser Member; Niederer Kraft & Frey, Attorneys Thomas R. Schönbächler Member; BVK Staff Pension Provision for the Canton of Zürich Investment Committee The Investment Committee consists of nationally experienced real estate managers and international specialists working both in academia and professional practice. The Committee decides on all new investments and sales, as well as major conversion and renovation projects. Members Dr. Thomas Wetzel President; Wenger Plattner, attorneys Dr. Christoph Caviezel Vice-President; Mobimo Group Thomas Frutiger Member; the Frutiger Construction Company Andreas Markwalder Member (nonvoting); GastroSocial Dr. Steffen Metzner Specialist member; RES Consult GmbH, Leipzig, and Lecturer at the University of Leipzig Stefan Schädle Member; BVK Staff Pension Scheme for the Canton of Zürich Livia Gallati Secretary (non-voting); AFIAA Investment AG Management Company The AFIAA Investment AG management company exercises management authority over the investment foundation. It comprises a team with many years of international experience in the real estate field, is the central point of contact for investors and suppliers of real estate investments, and coordinates the corporate network. Its methods and procedures are certified under the relevant ISO quality standards. Carlo Garlant Vice-President; ASGA Pension Fund Beat Bommer Member; Pension Fund for the Canton of Basel-City Prof. Dr. Peter Forstmoser Member; Niederer Kraft & Frey, Attorneys Thomas R. Schönbächler Member; BVK Staff Pension Fund for the Canton of Zürich Management Norbert Grimm CEO, Managing Director Axel Schuhmacher Vice-CEO, Head of Asset Management Martin Brendel (since ) Head of Global Acquisitions Christopher Duisberg (up to ) Managing Director North America Reto Schnabel CFO Gabriele Wolfram Head of Portfolio Management Valuation Experts The Foundation Board appoints at least two independent and reputable Swiss valuation experts, who are equipped by their training and experience to carry out their tasks and meet the requirements of the supervisory authorities. The Foundation arranges for all its properties, whether held directly or indirectly through subsidiary companies, to be valued individually by one of these independent valuation experts at least once a year at the end of a business quarter and on other specially designated occasions. The Swiss valuation expert may call in a foreign expert to carry out the valuation in his place, provided the latter s qualifications fulfil the above-mentioned requirements. The independent Swiss valuation experts review all reports provided by local foreign experts. In particular, they ascertain that the valuation standards laid down in the Foundation s regulations have been correctly applied, and verify the valuation using recognized methods. The Foundation Board has appointed the following independent Swiss valuation experts: In addition, the management company handles the Foundation s accounting and maintains the register of investors. It is responsible for the issue and redemption of share certificates, liquidity planning, payment instructions, drafting the annual report and accounts, and running annual or multi-year budgets. Other tasks include periodic reporting of variances to the Foundation Board and quarterly NAV shareholding account statements, as well as the preparation of Foundation Board meetings. Martin Frei MSc ETH (Swiss Federal Institute of Technology) in Architecture / SIA, MAS ETH in Management, Technology and Economics / BWI (Chairman) Daniel Conca Lic. iur., qualified trustee in real estate; MRICS Auditors The statutory auditors of AFIAA are Ernst & Young AG, Zurich. The auditors are elected annually by the Investors Meeting. Board of Directors Andreas Markwalder President; Gastro- Social External Body for Review of Compliance with Investment Guidelines An external body independent of the management company periodically monitors the observance of

33 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 31 the investment and financing guidelines. In addition to this, once a year, the external auditors monitoring compliance with investment guidelines must confirm that the compliance guidelines of the Conference of Investment Foundation Managers (KGAST) are being implemented properly. The firm of Ernst & Young AG, Zurich, has been entrusted with this task. Custodian Bank The custodian bank holds the accounts of the Investment Foundation and executes monetary transactions and short-term cash deposits. Bank Sarasin + Cie. AG, Zürich, acts as the custodian bank of AFIAA. Sales Commissions and Account Management Fees/Refunds Neither the AFIAA Investment Foundation, the AFIAA Investment AG, or any other AFIAA group companies have received any compensation or other form of remuneration for sales and customer services from banks or other sales partners during the reporting year, nor have they provided such services. No reimbursements of fees or commissions of any kind were made to investors. 2 Principles of Valuation and Reporting; Continuity Financial Reporting The financial statement of the Swiss Foundation for International Real estate Investments (AFIAA), presented below for the financial year that ended on , was approved by the Foundation Board on The financial reporting accords with Swiss legislation, with the professional recommendations for accounting (the Swiss GAAP FER 26), and the Verordnungen über die Anlagestiftungen, or ASV (Regulations for Investment Foundations). These rules improve the comparability of the annual accounts and enhance their transparency and clarity. With regard to the consolidated annual report, please refer to the explanations below. For the purpose of consolidation, the same accounting principles were used as in the previous year. The financial year 2011/2012 represents a normal financial year for the AFIAA Investment Foundation, which covers the period from to Principles of Valuation and Financial Reporting Direct Investments The valuation of property assets is carried out in accordance with the professional recommendations of the Swiss GAAP FER 26, as well as the principle of fair value in conformity with the guidelines of the International Valuation Standards (IVS). The IVS define the market value as the proceeds that with a high degree of probability might be achieved through a sale in the open market, that is to say, under fair market conditions at the time of the valuation in a free market between well-informed parties. Included among the permitted methods for calculating market value are such conventional market procedures as market-oriented direct value comparison, cash equivalent, and the income approach. The method most commonly applied is the discounted cashflow method. Here the value of the property is defined as the sum of future net gains, discounted back to the date of valuation. Independent local experts carry out the valuation reports. Independent Swiss valuation experts review reports by local foreign experts, and verify the accuracy of methods used, checking for recognizable material divergences. The reports by the independent Swiss valuation experts become a component part of this annual report. AFIAA has the value of each property estimated at least once a year. The AFIAA s valuation guidelines provide for rolling valuations during the year. Valuations rendered at the end of different quarters make it possible to react swiftly to changes in market values. All market values calculated on a valuation-date prior to the closing date of financial reporting have been examined critically

34 32 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 at the end of the financial year and verified as to their validity at the closing date. Indirect Investments The balance statement of indirect investments is based on statements provided by the relevant management company, derived from quarterly reports and year-end accounts. In all cases the latest calculated net asset values are taken into account. Mortgage Loans The balance statement of mortgage loans shows the amount of the loan less any amortization payments made. The mortgage loans are adjusted in the local currency relevant to the investment property in question. As a hedge against the risk of changes in interest rates, in certain cases swap trades have been made. The combination of mortgage loans at variable interest rates and swap trades results in a fixed burden of interest over the life of the loans in question. Replacement values of swap contracts are quantified under Note IV, but are not included in the statement of assets. Liquidation Costs Liquidation costs are covered by reserves for eventual sales of real estate assets. They contain deferred tax assets and liabilities as well as additional transaction costs. For the subsidiary companies that hold real estate assets, the rule is that the positive differences between corporate value and taxable values at the year-end are taken into account as deferred tax liabilities (the liability method ). The deferred taxes on properties are calculated according to the tax rates applicable on the closing date, or the tax systems applicable to the property in question, as a matter of principle. The companies holding the properties are assessed, with regard to the deferred tax liability, according to the tax implications arising from the sale of the properties (even if a sale of the company shares were possible). Deferred tax credits are calculated based on negative differences in valuation, where they can be offset against profits for tax purposes. However, deferred transaction costs do not include any penalty costs in connection with an early repayment of mortgage loans. This also includes liquidation costs arising from hedge transactions. These costs are dependent on the interest level at the time of sale and reflect the market price of the mortgage. The provisions for liquidation costs are taken directly into the equity capital and have no effect on performance. Principles of Consolidation Methods of Consolidation The consolidated annual reports comprise the annual accounts of the Foundation (parent company) and the year-end accounts of the companies it controls, after internal group transactions have been eliminated. The foundation directly or indirectly owns 100 % of all subsidiary companies, and these are fully consolidated. The accounts of the Separate Trust Assets are kept separately from Administrative Accounts. Consolidation of Companies The group companies listed below are allocated either to the consolidation of Separate Trust Assets or to that of the Administrative Accounts. The consolidated annual accounts of the Separate Trust Assets represent the interests of the investors, while the actual functioning of the Foundation is shown in the consolidated Administrative Accounts. The consolidated account of the Separate Trust Assets has expanded with the addition of AFIAA London 2 and AFIAA Paris 1. The former was set up to acquire the Tudor Street property in London EC4, and the latter in connection with a planned investment in Paris. As the acquisition was not made, it remains available to act as a shell company for a future acquisition in France. In addition, AFIAA Australia 4 has been set up as a shell company for a future acquisition in Australia. During the reporting period, the German subsidiary, AFIAA Dock 13 Villa GmbH was sold. No companies were liquidated. The scope of consolidation of AFIAA s global Separate Trust Assets, as at the reporting date, included the following companies: Additional transaction costs, which are deferred, are fees specifically estimated for consultants and brokers, as well as fees arising from a sale. They are taken into account to the extent that they must be borne by the seller directly or indirectly by means of a deduction from the sale price according to local practice. As a rule, these transaction costs represent a negative difference between corporate and taxable values. Accordingly, they activate deferred tax credits, provided it appears certain that they can be offset against taxable revenues.

35 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 33 Country Company Headquarters Investment Function Capital 6) Separate Trust Assets Switzerland AFIAA Holding AG Zurich 100 % 100 % 1) CHF CHF AFIAA 250 Dundas AG Zurich 100 % 100 % 5) CHF CHF AFIAA Country Hills AG Zurich 100 % 100 % 5) CHF CHF AFIAA 2550 Argentia AG Zurich 100 % 100 % 5) CHF CHF AFIAA London 1 AG Zurich 100 % 100 % 2), 3) CHF CHF AFIAA London 2 AG Zurich 100 % 2), 3) CHF AFIAA Scotland AG Zurich 100 % 100 % 2), 3) CHF CHF AFIAA Germany AG Zurich 100 % 100 % 2), 3) CHF CHF Germany AFIAA Deutschland GmbH Munich 100 % 100 % 1) EUR EUR AFIAA Deutsche Holding GmbH Munich 100 % 100 % 1) EUR EUR AFIAA Campus GmbH Munich 100 % 100 % 2), 3) EUR EUR AFIAA Dock 13-Speicher GmbH Munich 100 % 100 % 2), 3) EUR EUR AFIAA Dock 13-Villa GmbH Munich 0 % 100 % 2), 3) EUR 0 EUR AFIAA CSC GmbH Munich 100 % 100 % 2), 3) EUR EUR AFIAA Teltower 35 GmbH Munich 100 % 100 % 2), 3) EUR EUR AFIAA Log 1 GmbH Munich 100 % 100 % 2), 3) EUR EUR AFIAA Büroturm Hafen D1 GmbH Munich 100 % 100 % 5) EUR EUR AFIAA Büroturm Hafen D2 GmbH Munich 100 % 100 % 5) EUR EUR France AFIAA 46 Lauriston SAS Gagny (Paris) 100 % 100 % 2), 3) EUR EUR AFIAA Paris 1 SAS Gagny (Paris) 100 % 5) EUR Spain AFIAA Real Estate Spain S.L.U. Madrid 100 % 100 % 1) EUR EUR AFIAA Gestión 1 S.L. Madrid 100 % 100 % 2), 3) EUR EUR USA AFIAA U.S. Real Estate, Inc. Clayton 100 % 100 % 1) USD USD AFIAA 156 William Street, LLC Philadelphia 100 % 100 % 1) USD 0 USD 0 AFIAA 156 William Street SPE, LLCPhiladelphia 100 % 100 % 5) USD 0 USD 0 AFIAA Arch Street, LLC Philadelphia 100 % 100 % 2), 3) USD USD AFIAA Market Street, LLC Philadelphia 100 % 100 % 2), 3) USD USD AFIAA Elston Logan, LLC Rosemont 100 % 100 % 2), 3) USD USD AFIAA Rohr Road, LLC Columbus 100 % 100 % 2), 3) USD USD AFIAA WFT, LLC Austin 100 % 100 % 2), 3) USD USD Canada AFIAA 250 Dundas Inc. Toronto 100 % 100 % 5) CAD 0 CAD 0 AFIAA 250 Dundas Trust Toronto 100 % 100 % 5) CAD 0 CAD 0 AFIAA 2550 Argentia Inc. Toronto 100 % 100 % 5) CAD 0 CAD 0 AFIAA 2550 Argentia Trust Toronto 100 % 100 % 5) CAD 0 CAD 0 AFIAA Country Hills Inc. Calgary 100 % 100 % 5) CAD 0 CAD 0 Austria AFIAA Austria GmbH Vienna 100 % 100 % 1) EUR EUR AFIAA Betriebs 1 GmbH Vienna 100 % 100 % 2), 3) EUR EUR AFIAA Betriebs 2 GmbH Vienna 100 % 100 % 2), 3) EUR EUR AFIAA Betriebs 3 GmbH Vienna 100 % 100 % 1) EUR ) EUR ) AFIAA Betriebs 4 GmbH Vienna 100 % 100 % 1) EUR ) EUR ) Optimax Gamma LiegenschaftenverwertungsgmbH & Co KG Vienna 100 % 100 % 2), 3) EUR EUR Australia AFIAA Australia Pty Ltd Sydney 100 % 100 % 1) AUD AUD AFIAA Australia 1 Pty Ltd Sydney 100 % 100 % 2), 3) AUD AUD AFIAA Australia 2 Pty Ltd Sydney 100 % 100 % 2), 3) AUD AUD AFIAA Australia 3 Pty Ltd Sydney 100 % 100 % 2), 3) AUD AUD 1 AFIAA Australia 4 Pty Ltd Sydney 100 % 100 % 5) AUD 0 Administrative Accounts Switzerland AFIAA Investment AG Zurich 100 % 100 % 4) CHF CHF USA AFIAA U.S. Investment, Inc. New York 100 % 100 % 4) USD USD Canada AFIAA Canada Real Estate Inc. Toronto 100 % 100 % 4) CAD 0 CAD 0 1) Holding company 2) Ownership entity 3) Operating company 4) Management company 5) Inactive 6) Share capital as well as paid-in capital 7) of which EUR was paid-in

36 34 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 Foreign Currency The AFIAA Investment Foundation operates in the Euro-zone, the United Kingdom, North America and Australia. Consequently, exchangerate fluctuations influence AFIAA s financial report and profit statement, which are expressed in Swiss francs. Conversion of Subsidiary Company Earnings The assets and liabilities of the foreign subsidiary companies are converted into Swiss francs at the median daily rate on the period closing date. Conversion of the items in the income statement is effected at the average exchange rate for the reporting period. The foreign exchange effects resulting from variations in exchange rates are recorded as currency differential due to consolidation and are profit-neutral. Other Foreign Currency Transactions Foreign currency transactions are converted at the daily rate prevailing on the day of the transaction. Influences due to changes in exchange rates are entered under Shareholders Equity with no impact on profit. Currency Hedges No currency hedging is undertaken within the Separate Trust Assets. Any hedging of foreign currency risk is a matter for the investors. Currency Conversion Rates Currency exchange rates as at the reporting date are taken from the custodian bank, while publicly available inter-bank rates are used for the annual average rate of exchange. Currency Exchange rate Exchange rate on ba lance sheet on ba lance sheet date date CHF CHF Average exchange rate CHF Average exchange rate CHF EUR USD CAD GBP AUD

37 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 35 3 Notes on Investment Activity and Net Performance of Assets Organization of Investment Activity and Asset Management As the senior executive body, the Foundation Board sets the strategic direction of the Foundation and issues the investment guidelines in accordance with Art. 10 of the statutes of the AFIAA Swiss Foundation for International Real Estate Investment. The investment guidelines relevant to the reporting period were adopted by the Foundation Board on These guidelines are subordinated to the regulations of BVV 2, in particular, Art. 49 ff. and where applicable, the practice of the supervisory authorities for investment foundations derived from it, as well as the statutes and rules of the Foundation. The investment guidelines designate types of properties eligible for investment, investment principles to be observed, and the method of risk distribution. pendent of management, on a quarterly basis. All bodies and persons involved in the area of capital investment are subject to a strict duty of confidentiality. In addition, these persons are obliged to abide by the ASIP Charter and the KGAST code of professional conduct. Care is taken that the AFIAA collaborates only with partners who can demonstrate local and/or worldwide experience in order to minimize risk, and to benefit as much as possible from the partners international knowhow. Each investment decision is made by the In vestment Committee at the request of the Management Committee. The Management Committee is responsible for implementation of the guidelines and investment decisions. The investment strategy selected focuses on a diversified portfolio with stable direct investments and an admixture of fund units with a medium-term holding period. Compliance with the investment guidelines is checked with regard to every investment decision by the Investment Committee, and by a body inde-

38 36 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 Presentation of Investments by Asset Category The table below shows the actual distribution of the portfolio as at next to the prescribed range for the sector in question. Investment Guidelines Set Down Direct Investments and Drawdown Fund Investments as of Distribution by markets Europe 20 to 80 % Central and Northern Europe 20 to 50 % (DEU, AUT, Benelux, Scandinavia) Western Europe (GBR) 0 to 30 % Southern Europe (FRA, ITA, 0 to 30 % ESP) North America (USA, CAN) 10 to 40 % Oceania (AUS) 10 to 40 % 80 % % 0.84 % ESP 1.67 % FRA % AUT % DEU Specified bandwidth % % % GBR % USA % AUS 0 Europe North America Oceania Distribution by asset class Direct real estate investments in land and via subsidiaries Investments in non-listed collective investments Investments in listed collective investments 90 to 100 % 0 to 5 % 0 to 5 % 100 % % Specified bandwidth Direct real estate investments in land and via subsidiaries 3.32 % Investments in non-listed collective investments 0.00 % Investments in listed collective investments

39 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix % % Specified bandwidth Distribution by investment strategy Core / Core Plus 75 to 100 % Value Added 0 to 20 % Opportunistic 0 to 5 % % 0.50 % Core / Core Plus Value Added Opportunistic Distribution by type of use Offices 35 to 100 % Commercial 0 to 50 % Miscellaneous (hotel, logistics, 0 to 15 % apartments, other) 100 % % Specified bandwidth % 9.44 % 1.90 % Other 0.68 % Aptm % Log. Offices Commercial Logistics, apartments and other

40 38 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 Details on Overall Performance The overall result for the financial year can be broken down into various components, differentiating between current performance and valuation outcome, yields from direct investments and investment funds, and between performance in local currency and the overall performance adjusted for currency fluctuations. The net performance represents the current revenues earned from assets after deduction of all costs. Unlike the overall performance, which reflects the total value contribution, it includes neither capital gains/losses nor currency gains/ losses. The return on equity capital, as defined by the KGAST bulletin, dated , is explained in Section 5, along with the other key indicators. It is broken down into various components, as shown below. The latest edition of the KGAST bulletin, Key indicators of real estate special assets (investment groups) in investment foundations, makes clear that the net assets as at the end of the period, and not the average net assets, should be taken as the reference value for calculating the return on equity capital. Hence, the individual components of the return on equity capital have been calculated on the same basis. Performance during the period under review in thousand CHF 2011/2012 Sector performance 2010/2011 Sector performance Net assets at end of financial year Net profit (excluding funds) % % Capital gain (loss) on direct investments (after (16 503) (1.91 %) (5 592) (0.80 %) liquidation costs) Capital yield from funds % % Capital gain from funds % % Currency gain (loss) % (59 583) (8.47 %) Total profit (loss) for the period % (26 350) (3.74 %) Value-adding components in million CHF Total profit Total profit, currencyadjusted Total profit, AFIAA direct investments Capital gain, Net performance (excl. ments direct invest- funds) Liquidation costs 2) Capital yield, funds 3.5 Capital gain, funds Currency gain 1) not realized realized Change in currency differential 1) Incl. change in currency differential resulting from consolidation 2) Change in estimated liquidation costs plus realized liquidation costs

41 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 39 Net performance for the reporting period (including and excluding funds) in thousand CHF 2011/ /2011 Net assets at end of financial year Net performance (including funds) Capital yield from shareholdings (3 511) (16) Net performance (excluding funds) Net performance (including funds) in relation to net assets at end of financial year 4.26 % 4.75 % Capital gain on direct investments (including change to liquidation costs) in thousand CHF 2011/ /2011 Net assets at end of financial year Capital gain (loss) from direct investments (11 006) (1 753) Change to estimated liquidation costs (5 413) (2 965) Realized liquidation costs (84) (874) Capital gain (loss) from direct investments (including change to (16 503) (5 592) liquidation costs) Market value of direct investments at start of financial year Market value of direct investments at end of financial year Average market value of direct investments Value-change return on direct investments (1.60 %) (0.62 %) in relation to net assets at end of financial year (1.91 %) (0.80 %) Capital gain from funds in thousand CHF 2011/ /2011 Net assets at end of financial year Capital gain from funds Return from change in fund value in relation to net assets at end of financial year 0.16 % 0.76 % Currency gain in thousand CHF 2011/ /2011 Net assets at end of financial year Realized currency gain (loss) (5 610) (10 439) Unrealized currency gain (32 583) Change in currency differential due to consolidation (16 561) Total currency gain (59 583) in relation to net assets at end of financial year 4.66 % (8.46 %) The realized and unrealized capital and currency gains (losses) contained in the preceding sections are grouped in a different way in the following tables. The following information serves as a transition to the financial statement. Realized capital and currency gains in thousand CHF 2011/ /2011 Realized capital gains (losses) from direct investments (452) Realized capital gains from indirect investments 0 0 Realized currency gains (losses) (5 610) (10 439) Realized liquidation costs (84) (874) Total (6 146) (4 406) Unrealized capital and currency gains in thousand CHF 2011/ /2011 Unrealized capital gains (losses) from direct investments (10 554) (8 660) Unrealized capital gains from indirect investments Unrealized currency gains (32 583) Total (35 861)

42 40 Annual Financial Statement Appendix AFIAA Annual Report 2011/ Notes on Other Balance-Sheet Items and Income Statement The following notes refer to the relevant balancesheet positions of the Separate Trust Assets. I Indirect Investments In the process of expanding the portfolio since the first financial year of 2004/2005, AFIAA achieved rapid diversification by investing in the indirect investment sector. As at the balance-sheet date in 2012, there are still two indirect investment holdings in the portfolio. Fund investments as a proportion of total investments were 3.32 % at the balance-sheet date (previous year 3.76 %). The indirect real estate investments comprise holdings in funds that are not listed on the stock market. The capital commitment can be divided into a sum already invested (called) and a sum yet to be invested (outstanding commitments). As at , outstanding commitments only amounted to CHF 1.0 million. The fund management companies issue financial statements after a certain time lag. In this Annual Report, the NAVs of the residual fund investments reflect the current reported NAVs as at mains our objective. As early as the 2008/09 financial year, AFIAA examined and negotiated the opportunity for a timely withdrawal from HUSCOF. The offer to buy back the shares at the NAV value as at was in place. However, in view of the fund s recovery potential, we declined to sell at the values prevailing at the time. Nevertheless, various preferred call privileges were secured which would have permitted an exit at the end of AFIAA decided not to exercise the option to redeem at the end of We still have a final option to exit at the end of The strategy of retaining our investment for the time being has so far proved correct, as the holding in HUSCOF has made a massive recovery from its all-time low in December The AIG U.S. Residential Fund runs until August 2013 with two options for a one-year extension. According to the fund s management, it is probable that these options will be exercised, but the majority of the investments are to be disposed of starting as early as After several financial years with high value-corrections in the indirect investment sector, the two remaining funds show substantial recoveries in value both in the reporting year and also in the previous period. In aggregate, we have been able to register an unrealized capital gain of CHF 1.4 million (previous year: CHF 5.4 million). In relation to the fund s NAV as at , this is equivalent to a value-change yield of 4.10 % (previous year: %). The Hines U.S. Core Office Fund (HUSCOF) contributed to our overall performance during the AFIAA reporting year with a capital gain of CHF 2.5 million, equivalent to a value-change return of % (Previous year: + CHF 3.8 million; %). As forecast by HUSCOF, CHF 0.9 million of dividends were distributed during the financial year just ended. Due to the substantial distributions amounting to CHF 2.6 million, shares in the AIG U.S. Residential Fund declined somewhat in value in the reporting period. With invested assets amounting to CHF 7.3 million, value-corrections of CHF 1.2 million or % were recorded (previous year: CHF 1.5 million; %). Despite the gratifying overall performance of the fund investments, AFIAA continues to adhere to its decision to concentrate on direct investments. An exit from the funds in the medium term re-

43 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 41 Indirect investments (non-listed real estate funds) in thousands of the respective foreign currency Country Fund Commit ment in foreign currency Of which drawn down Open liabilities NAV CHF NAV CHF USA AIG U.S. Residential USD USD USD USA HUSCOF USD USD Total Open liabilities as at arising from capital commitments increased after currency adjustments to CHF (previous year: CHF ). Indirect investments (non-listed real estate funds) in thousand CHF 2011/ /2011 Balance at start of financial year Capital invested 0 0 Capital gain Sales 0 0 Currency gain (2 034) Balance at end of financial year II Direct Investments Direct real estate investments comprise the income-earning properties held through singleproperty companies. These structural measures serve to reduce liability risks. During the current reporting year, one property in Germany was sold. All market values of direct investments have been checked in the reporting year by independent valuation experts, and revalued in accordance with the prevailing guidelines. The valuations comply with the professional recommendations of Swiss GAAP FER 26, as well as with the International Valuation Standards (IVS), which are laid down by the International Valuation Standards Committee (IVSC). The total value of the 28 direct real estate investments was CHF on the reporting date. Direct investments in thousand CHF 2011/ /2011 Balance at start of financial year Additional purchases at acquisition value (incl. incidental expenses) Value-adding expenditures (investments) 0 0 Revaluation result (10 554) (1 753) Sales (5 705) (41 301) Currency gain (loss) (72 191) Balance at end of financial year III Deferred Tax Credits in thousand CHF 2011/ /2011 Tax credits from losses carried forward for future offsetting Tax credits from tax deferrals Total deferred tax credits Allowable losses carried forward for future offsetting reduce the future basis for calculating taxes. Deferred tax credits arising from losses carried forward are taken into account where it is probable that taxable income will be liquid, against which losses carried forward can be offset. The rise in these tax credits is predominantly attributable to accumulated depreciation. These financial assets are matched by deferred tax liabilities arising from positive differences in valuation or, as the case may be, reduced deferred tax credits arising from negative differences in valuation,

44 42 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 a fact that is reflected in the balance-sheet item estimated liquidation expenses. The tax credits arising from tax deferrals are the financial effects of outstanding interest payments on intercompany loans in U.S. dollars. These interest charges cannot be offset until the tax period in which the interest is paid. IV Mortgage Loans External financing taken up in connection with direct investments showed outstanding principal totaling CHF at the reporting date (previous year: CHF ). Across all mortgage loans and currencies, the weighted average interest rate at the balance-sheet date was 4.22 % (previous year: 4.71 %). The average residual fixedinterest period for all loans is a weighted figure of 2.35 years (previous year: 2.03 years). in thousands of the respective foreign currency Foreign currency Amount Book value CHF Book value CHF Weighted avg. fixed Weighted interest period avg. interest in years rate USD % EUR % GBP % AUD % Total The following table shows the values of mortgaged investment properties: in thousand CHF Book value of mortgaged properties Outstanding loans or cover The variable interest rates on mortgage loans for the following properties have been hedged by means of swap trades: in thousands of the respective foreign currency Property Currency Contract value Replacement value Contract value Replacement value CSC Münster EUR (2 113) (1 760) Westfalen-Center, Dortmund EUR (3 825) (3 135) Forum Zehlendorf, Berlin EUR (1 725) (1 444) Datacolor, Lüneburg/Öhringen EUR (1 545) (1 531) Optimax, Vienna EUR (87) Optimax, Vienna EUR (105) Wells Fargo Tower, Austin USD (915) (1 324) In all hedge transactions, the contract values equal the amount of the corresponding underlying transaction, whereby the risk of a change in interest rate is eliminated completely. The financial expenses resulting from the underlying and hedged transaction remain unchanged, as with a normal fixed mortgage. No market valuation of the financial liability is put into the balance sheet for either normal fixed mortgages or hedged variable mortgages. In the same way, replacement values of swap trades are not shown in the balance sheet.

45 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 43 V Financial Liabilities to Investors Financial liabilities to the investors comprise previously invested funds that have not yet been converted into shares. Conversion takes place at the beginning of a quarter on the basis of the Net Asset Value (NAV) in the previous quarter. Since there were no capital calls in the last quarter of the reporting period, there were no liabilities to investors as at VI Liquidation Costs The calculation of the provisions for deferred liquidation taxes was carried out as described in Section 2 and calculated by the local tax experts at individual property level at the time of purchase. The provisions for deferred liquidation taxes are adjusted to correspond to the altered valuations of the individual properties. in thousand CHF Book value Book value Change Deferred tax credits arising from negative differences in valuation Deferred tax liabilities arising from positive (27 417) (22 584) (4 833 ) differences in valuation Additional transaction costs (16 042) (13 845) (2 198) Total (38 267) (32 854) (5 413) VII Local Management Expenses In this report, the costs subsumed under this heading are the decentralized costs incurred in the companies that own and operate the properties, but which lie outside actual operating costs. They are itemized as follows: in thousand CHF Change Consultancy expenses (548) (451) (97) Asset management and bookkeeping (1 767) (1 919) 152 Other (756) (256) (500) Total (3 071) (2 626) (445)

46 44 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 VIII Administrative Expenses This block of costs shows expenditure at the level of the Foundation as well as auditing and valuation expenses, which in total can be defined as relevant to TER ISA. (see Section 5). The remuneration of administrative officers exclusively comprises payments to the foundation-owned Management Gesellschaft AFIAA Investment AG. This company is compensated by the Foundation on the basis of a cost-plus contract. Acquisition expenses are costs such as due diligence and travel expenses associated with property purchases that did not come to fruition. in thousand CHF Change Legal and consultancy fees (69) (118) (49) Auditing expenses (196) (286) (89) Valuation expenses (143) (172) (29) Remuneration to the Administrative Accounts (158) (105) 53 Remuneration to custodian bank (87) (83) 4 Remuneration to administrative officers (4 547) (4 159) 388 Acquisition expenses (254) (679) (425) Other administrative expenses (63) (59) 4 Total (5 517) (5 661) (145)

47 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 45 5 Key Figures as Required by KGAST The following figures comply with the professional bulletin from KGAST dated : Rate of Rental Income Loss Due to Vacancy The rental income loss rate is defined as the rental shortfall (losses from unoccupied premises and collection losses) as a percentage of the net budgeted rentals for the reporting period. It is an important indicator of the letting status for completed buildings held as investment properties. AFIAA gives a broad interpretation to the concept of rental income loss and, in calculating the rate of rental income loss, account is taken not only of collection losses and changes in provision for bad debts on outstanding rent, but also actual shortfalls and provision for incidental costs. in thousand CHF 2011/ /2011 Budgeted rental income per balance sheet Absorbed ancillary costs (12 903) (12 531) Budgeted net rental income Loss of income due to vacancy (6 856) (5 348) Collection losses / changes to bad-debt provision (265) (1 315) Total rental income loss (7 121) (6 663) As a percentage of net budgeted rental income 9.45 % 9.71 % Borrowing Ratio The borrowing ratio shows the amount of external financing in relation to the market value of the properties. It shows the level of external real estate debt financing. in thousand CHF 2011/ /2011 Market value of direct investments Long-term mortgages Short-term mortgages Total mortgages As a percentage of market value of direct investments % % Operating Profit Margin The operating profit margin is one of the most important indicators in corporate analysis. It expresses the operating profit that is left after deduction of operating expenses as a percentage of the net rental revenue. In international practice, the ancillary operating costs are generally presented as gross figures; that is to say, the amount invoiced to the tenants is shown as revenue and the payments are shown in full as expenses. This contrasts with Swiss practice, by which a netting-off is done within the expenses. Hence, the yield from properties according to the income statement below is shown after deduction of ancillary costs, in order to ensure comparability at the level of net rental revenue. in thousand CHF 2011/ /2011 Income from real estate assets per income statement Absorbed ancillary costs (12 903) (12 531) Net rental income Operating income Leasehold fees (1 152) (850) Repairs Operating profit per KGAST definition As a percentage of net rental income % %

48 46 Annual Financial Statement Appendix AFIAA Annual Report 2011/2012 Total Expense Ratio (TER ISA ) The Total Expense Ratio, or TER ISA (Immo bi lien Sondervermögen Anlagestiftungen, or separate trust assets in real estate investment foundations ) is defined as the operating expenses for the Separate Trust Assets (investment group) as a percentage of the average total assets (sum of all assets). TER ISA is an indicator of the burden of operating expenditure on a special real estate asset (investment group). According to the definition, the property management costs are explicitly relevant to the TER ISA. Acquisition expenses for purchases that were not finalized are not included. in thousand CHF 2011/ /2011 Total assets at start of financial year Total assets at end of financial year Average total assets Administrative expenses (Separate Trust Assets) Acquisition expenses (254) (679) Property management fees Operating expenses (Separate Trust Assets) As a percentage of average balance of total assets 0.55 % 0.56 % Return on Equity (ROE) The return on equity (ROE) represents the total performance over the financial year as a percentage of the average net assets of the Separate Trust Assets. It expresses the return on shareholder equity. The latest revision of the KGAST bulletin Key Indicators of Separate Trust Assets (investment groups) in Investment Foundations stipulates that the net assets as at the end of the period, rather than the average net assets, be used as the reference value. Buying into Current Income when shares are issued, and the Adjustment of Current Income upon the repurchase of shares, enable direct comparison of the overall performance with net assets at the end of the period. The indicator for the reporting year has been calculated in accordance with the updated bulletin. The statement of the comparison period has been adjusted for the reporting year. in thousand CHF 2011/ /2011 Net assets at end of financial year Total profit (loss) (26 350) As a percentage of net assets at end of financial year 7.17 % (3.74 %) Return on Investment Return on investment is defined as the relative change in the net inventory value of the shares in the period under consideration, assuming the reinvestment of any distributed proceeds. It expresses the overall return achieved for the investors. in CHF 2011/ /2011 Net assets per share at start of financial year Net assets per share at end of financial year (adjusted for dividends * ) Change in net assets per share (4.0676) As a percentage of net assets at start of financial year 7.96 % (3.66 %)

49 AFIAA Annual Report 2011/2012 Annual Financial Statement Appendix 47 * In the previous year, a distribution of CHF 3.20 per share was offered for the first time. Instead of cash dividends, new shares with an NAV ex-dividend of CHF could be taken up free of commission. The growth in value per share assuming reinvestment is shown as follows: in CHF Value per share Offered distribution per share 3.20 Value per share ex-dividend New shares for reinvestment (in units) shares per existing share Dividend-adjusted NAV per share as at (1+3.20/ ) x = Distribution Yield The distribution yield relates the dividend amount distributed per share to the capital value per share. in CHF 2011/ /2011 Dividend per share Capital value per share Distribution yield 2.98 % 0 % Distribution Ratio The distribution (or pay-out) ratio shows the amount distributed as a proportion of the total net profit for the financial year. It provides a means of assessing the distribution and financing policy of a company (or of the separate trust assets of an investment foundation). in thousand CHF 2011/ /2011 Total amount distributed Net profit for financial year Distribution ratio (of total distribution) % 0 % 6 Events After the Balance-Sheet Date No events are known to have taken place since the balance-sheet date that might significantly influence the validity of the Annual Report.

50 High Holborn Street

51

52 Report of the Statutory Auditor The Perspective Building

53 AFIAA Annual Report 2011/2012 Annual Financial Statement Report from the Statutory Auditors 51 Report of the statutory auditor with consolidated financial statements as of 30 September 2012 of AFIAA Anlagestiftung für Immobilienanlagen im Ausland, Zurich To the Investors Meeting of AFIAA Anlagestiftung für Immobilienanlagen im Ausland As statutory auditor, we have audited the consolidated financial statements (Separate Trust Assets, Administrative Accounts and appendix, pages 17 47), the administrative management and the asset management of AFIAA Anlagestiftung für Immobilienanlagen im Ausland for the year ended 30 September The consolidated financial statements, the administrative management and the asset management are the responsibility of the board of trustees. Our responsibility is to express an opinion on these matters based on our audit. We confirm that we meet the licensing and independence requirements as stipulated by Swiss law. In our opinion, the consolidated financial statements, the administrative management and the asset management comply with Swiss law, the articles of incorporation and the regulations. We recommend that the financial statements submitted to you be approved. Zurich, 12 December 2012 Ernst & Young AG Daniel Zaugg Licensed audit expert (Auditor in charge) Daniel Lanfranconi Licensed audit expert Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, the accounting and the assets management, as well as significant estimates made and the overall financial statement presentation. For the audit of the administrative management, we have assesd whether the legal requirements on organization, administration as well as the requirements regarding loyalty in the asset management were complied with. We believe that our audit provides a reasonable basis for our opinion.

54 Near Euston Square

55

56 Additional Information St. Giles High Street

57 AFIAA Annual Report 2011/2012 Additional Information 55 Statement of Valuation of the AFIAA Real Estate Portfolio of Direct Investments Submitted by the Independent Swiss Property Valuation Experts for the 2011/2012 Financial Year Commission In accordance with Art. 3, paras. 6 and 7, of the AFIAA regulations dated , as well as the AFIAA Valuation Process updated , the properties held by the AFIAA must be valued annually at their market value by independent local valuation experts. These valuations have been carefully checked and verified by a Swiss valuation expert to ensure uniform and correct application of the valuation methods prescribed in the regulations. Daniel Conca, of Murten, and Martin Frei, of Immoconsult Martin Frei, Zurich, have been selected as the Swiss valuation experts. They meet the requirements necessary for the admittance of valuation experts by the FINMA (Swiss federal law on collective capital investments KAG, Art. 64, or previously Art. 50 of the Investment Funds Order AFV). Standards of Valuation The result of a valuation is a statement of market value. The valuation of property assets is carried out according to the principle of fair value, i.e., the estimated market value is taken as the sales price that can be agreed upon under fair market conditions at the time of the valuation between well-informed independent parties in a free market. Daniel Conca and Martin Frei confirm that the methods used by the local valuation experts conform to the AFIAA guidelines and those of the International Valuation Standards Committee (IVSC), and/or nationally recognized and customary standards under Fig. 1 Para. 3 of the abovenamed guidelines. Methods of Valuation The independent local valuation experts generally use the discounted cash-flow method or the cash value method for their valuations. In the former case, the value of the building is defined as the sum of future net revenues, discounted back to the valuation date. The discount rate chosen is determined by the market conditions for each property. Independent Status All local and Swiss valuation experts certify their independence from the AFIAA and from persons associated with the AFIAA. The following local valuation experts were retained to provide valuations: Ehrenberg Niemeyer Adam, Germany Jochen Niemeyer CBRE GmbH, Germany Stefan Gunkel EHL Immobilien GmbH, Austria Wolfgang Wagner Real Estate Advisory Group REAG, France Gildas de Kermenguy Gestion de Valoraciones y Tasaciones GESVALT SA, Spain Sergio Espadero Cushman & Wakefield, United Kingdom Andy Miles Colliers International, Scotland Andrew G. Clark Metropolitan Valuation Services, Inc., USA Martin Levine Paul Hornsby & Company, USA Paul Hornsby M3Property, Australia Martin Reynolds CBRE Valuations Pty Limited, Australia Steven Kearney Zurich and Murten, Martin Frei Daniel Conca MSc ETH in Architecture / SIA, MAS ETH in Management, Technology and Economics / BWI (Chairman) Lic. iur., Qualified Real Estate Trustee; MRICS The Swiss valuation experts verify the valuations by checking for methodological accuracy and for recognized material divergences.

58 56 Additional Information AFIAA Annual Report 2011/2012 Investment Foundation Headquarters AFIAA Swiss Foundation for International Real Estate Investments Gartenhofstrasse Zurich Switzerland Tel Fax Professional Memberships The AFIAA Investment Foundation is a member of the following professional organizations and associations: KGAST Conference of Managers of In vestment Foundations, Zurich, ASIP Schweizerischer Pensions kassen verband (Swiss Federation of Pension Funds), Zurich, Swiss Circle International Real Estate Marketing, AFIRE Association of Foreign Investors in Real Estate, Credits Photos: Eliane Rutishauser, Zurich Design: sappari design/development Oliver Walkhoff, Zurich Translation: panalingua GmbH, Zurich Printed on FSC paper

59

60 AFIAA Swiss Foundation for International Real Estate Investments Gartenhofstrasse Zurich Switzerland Tel Fax Fetter Lane