alstria office REIT
Annual Report 2007

Plain-text annual report

ANNUAL REPORT 2007 THE FIRST GERMAN REIT. FOUNDED: 711 DAYS AGO. | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Key Figures > Letter from the Board COMPANY PROFILE TABLE OF CONTENT 4 6 8 14 18 22 37 40 41 48 KEY FIGURES LETTER FROM THE BOARD STRATEGY ALSTRIA STOCK CORPORATE GOVERNANCE REPORT GROUP MANAGEMENT DISCUSSION AND ANALYSIS REPORT FROM THE SUPERVISORY BOARD REPORT FROM THE MANAGEMENT BOARD FINANCIAL STATEMENT TABLES NOTES 115 COMPENSATION REPORT 118 VALUATION REPORT 126 LIST OF ALL PROPERTIES 134 AUDITORS' REPORT 135 REIT DECLARATION 136 FINANCIAL CALENDER 137 IMPRINT Investment property portfolio valued at EUR 1,694 MIO Net Asset Value per share of more than EUR 15.55 Sole focus on Germany, FIRST GERMAN REIT Sole focus on offices, PURE PLAY Unique COMPETITIVE ADVANTAGE in acquisitions Buy and manage strategy, long term VALUE CREATION Unique approach of the TENANT RELATIONSHIP | 2 | alstria Annual Report 2007 | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Key Figures > Letter from the Board KEY FIGURES (in EUR k) 2007 2006 Change in % Revenues and Earnings Revenues Net Rental Income EBITDA Consolidated net profit Fund From Operations (FFO) Assets Investment properties Total assets Equity Net Asset Value G-REIT Key Figures G-REIT equity ratio in % Revenues plus other income from investment properties in % NAV per share in EUR Earnings per share in EUR Dividend per share in EUR SHARE ISIN Symbol Prime Sector Industry Group Market Segment Indices Number of Shares Share Capital (notional) Market Capitalisation (Dec 28) Free Float 82,552 76,192 85,911 52,811 31,540 30,063 28,358 51,656 14,533 -3,518 1,693,718 1,835,520 870,876 870,876 1,289,536 1,344,676 397,599 397,599 174.6 % 168.7 % 66.3 % 263.4 % 996.5 % 31.3 % 36.5 % 119.0 % 119.0 % 51 % 31 % 21 pp 100 % 15.55 1.15 0.51 100 % na na na 0 pp na na na DE000A0LD2U1 AOX Financial Services Real Estate Prime Standard, Frankfurt S-DAX, EPRA, German REIT Index, S&P/Citigroup Global REIT Index 56,000,000 EUR 56,000,000 EUR 574,000,000 46 % 82,6 1,289,5 INVESTMENT PROPERTIES (in EUR m) 1,693,7 ➡ +31 % REVENUES (in EUR m) ➡ 30,0 +175 % 2006 2007 2006 2007 FUNDS FROM OPERATIONS (FFO) (in EUR m) NET ASSET VALUE (in EUR m) 31,5 ➡ 870,9 ➡ 397,6 +119 % -3,5 2006 >1000 % 2007 2006 2007 CONSOLIDATE NET PROFIT (in EUR m) 52,8 ➡ 14,5 +263 % G-REIT EQUITY RATIO 51 % ➡ +20 pp 31 % 2006 2007 2006 2007 | 4 | alstria Annual Report 2007 alstria Annual Report 2007 | 5 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Key Figures > Letter from the Board LETTER FROM THE BOARD Dear Shareholders, Ladies and Gentlemen, Time goes by quickly when you are passionate and explore new ground. It has been 711 days since the birth of alstria as a EUR 25,000 GmbH. And those 711 days have been filled with innovation, passion, and important events for alstria. Keep it simple It all started with a limited number of simple ideas that could all be summarised in one word: Focus. Focus on one asset class, offices. Focus on one country, Germany. Focus on value creation and asset management. Focus on tenant relationship management. It took us 711 days to move from the idea to reality. With a EUR 1.9 billion portfolio of pure office buildings and a unique and focused tenant base, alstria is today among the top three German listed commercial property companies and the only office pure play. We did stay focused on the target. Make it sustainable In each of the 711 days of alstria’s life we have made sure that the growth we were pursuing was sustainable over time. We have first of all created a unique, solid office portfolio with long term predictable cash flows and still significant asset management and tenant relationship opportunities. This was done through the first 346 days. It was only when we had hedged any potential downside that we started acquiring portfolios with additional asset management and organic growth opportunities. In the last 365 days, our targeted acquisitions have allowed us to increase the vacancy in the portfolio from 2.4 % to 6.5 % representing more than 60,000 sqm to be let. Seize the opportunity The German REIT law was introduced 4 days prior to the IPO of alstria. It took us another 187 days to elaborate and achieve the conversion process. Although we never ran a race, we are proud to be the first company to be able to benefit from the tremendous advantage offered by this legislation. The REIT legislation offers us tax transparency, which will translate into more liquidity of our portfolio over time. It takes away a number of significant tax risks which are inherent to German property companies. And it gives us a unique competitive advantage in terms of acquisition, as it allows sellers to benefit from a 50 % capital gain tax exemption if they sell their assets to alstria. Execute the business plan but mind the gap We stood still. For almost 200 days. We stepped out of the investment market as we felt that the prices were moving into unsustainable levels. We did our homework, monitored the market, and stepped in again once the REIT status was achieved, using it to enhance the economics of the sales and leasebacks we have executed. We have invested a total of EUR 527 million in 365 days. At an average initial gross yield of 6.4 %. Way above the average. Thanks to the competitive edge of REITs and to strict investment discipline. Adapt to a changing environment The promises made in the course of the IPO have been delivered. The next step would have been to raise an additional EUR 250 to 300 million in order to continue with the acquisition plan. We, however, took into consideration the changing environment and decided not to pursue a route that would dilute our shareholders by a double digit number. And we are very comfortable about this. It took us 711 days to build ourselves a unique position in the German property market and to etch out a unique competitive advantage in the acquisition field for alstria. We can wait another 180 days, or 200 or more for the market to re-open. No one can take this opportunity away from us. As no one can get where we are today. Stay focused Our existing portfolio offers substantial opportunities to grow organically, which we are going to take advantage of in 2008. Our specific approach to the tenant relationship is one of our core operational focuses as it is what makes alstria different from other office property owners. We expect our revenues to grow from 80 million to 95 million and our fund from operations from EUR 30 millions to EUR 40 million in the next 365 days. We also expect to divest some of the assets that are mature from an asset management perspective, and to recycle the capital into our portfolio. Active management is the key for success in the German office real estate sector. This was our view 711 days ago still is today. Olivier Elamine Chief Executive Officer Alexander Dexne Chief Financial Officer | 6 | alstria Annual Report 2007 alstria Annual Report 2007 | 7 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | FOUNDED: 711 DAYS AGO. GROWN: 2 NEW CORE TENANTS PER QUARTER. LONG TERM PARTNERSHIP – OUR VIEW ON TENANTS Even the best organizations in the world have a very limited view on what their office needs will be two or three years down the road. Change in legislation, local elections, new businesses taken on board, others being divested, services outsourced or services merged might change the whole picture all over again. So, although lease contracts are fixed, the probability is high that today’s requirements will not fit tomorrow’s needs. WE SEE THE FLEXIBILITY REQUIREMENT OF OUR TENANTS AS A UNIQUE OPPORTUNITY TO BRING ADDITIONAL VALUE THAT WILL BENEFIT BOTH PARTIES. We are convinced the changes in the occupational needs over the lifetime of a lease agreement constitute a huge opportunity. Can we help our tenants to find additional space within our existing portfolio? Can we support our tenants to focus activities in one site and thus use office space more efficiently? We are creating repeated business with key customers, understanding their needs and adapting to it. WE ARE NOT ONLY RENTING SPACE, WE ARE ADDING VALUE TO OUR TENANT´S ORGANIZATION. This might be an old way of looking at customer relationship. IT IS A NEW WAY OF MANAGING REAL ESTATE. | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | FOUNDED: 711 DAYS AGO. GROWN: 53 SQM OF GERMAN OFFICE SPACE PER HOUR. FOCUS ON GERMAN OFFICE PROPERTIES While a lot of real estate companies are trying to diversify out of there home markets, or are looking to diversify into different asset classes, we are proud of being focused: PURE OFFICE BUILDINGS IN GERMANY, NOTHING MORE, BUT NOTHING LESS. We are convinced there is great virtue of being focused. Focused, to be successful with our operations as you can only manage to the perfection what you know to perfection. Focused, in order to offer our shareholders a pure risk exposure that will allow them to perfectly diversify their portfolio. We have chosen to focus on the largest European economy and the largest European office property market. This market offers great opportunities and we are here to capture them. THIS IS WHY ALSTRIA WILL CREATE VALUE. Staying focused. | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | | Preface | MD&A | Financial Statement Tables | Notes | Auditors Report | Calendar/Imprint | FOUNDED: 711 DAYS AGO. GROWN: 552 DAYS TILL REIT CONVERSION. REIT BENEFITS The key concept of a REIT is a very straight forward one: A REIT provides its shareholders with access to tax transparent cash flows from real estate investments. BUT BEYOND BEING TAX TRANSPARENT what is the benefit of investing in REITS. REITs provide investors with HIGH AND REGULAR PAYOUTS. REITs are more liquid than closed end funds and in countries where REITs have been around for a longer time they have generally outperformed all other types of real estate investments like open ended funds or “classical” public real estate companies. For us at alstria, to be a REIT means that all our management decisions are free of corporate income tax and trade tax considerations, a fact that in our view allows for much more efficient and value orientated decisions. For corporate sellers of real estate, REITs will be the preferred partners over the next years, because REITs can offer the so called exit tax benefit. The exit tax benefit implies that organizations selling to a REIT can cut the tax burden on the realized profit by 50 %. This provides alstria with A UNIQUE COMPETITIVE ADVANTAGE IN FUTURE ACQUISITIONS. All these characteristics make the German REIT a very attractive status to many constituencies. We are convinced the German REIT, like in so many other countries, will be the dominating structure for public real estate companies in the future. This is one of the reasons why alstria is proud that we have been the FIRST REIT IN GERMANY. | 12 | alstria Annual Report 2007 alstria Annual Report 2007 | 13 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | | Preface | MD&A | Financial Statement Tables | Notes | Auditors Report | Calendar/Imprint | FOUNDED: 711 DAYS AGO. GROWN: RANG THE BELL TWICE. ALSTRIA STOCK Stock markets in general Stock markets were characterised by a substantial degree of volatility in 2007. In the first half of the year, the DAX rose to a near all-time high of 8,151 in the middle of July. Uncertainties caused by the so called “sub-prime crisis” led to a downward swing of the DAX in the subsequent months. Following a recovery in October, the DAX closed with a 22 % year-on-year gain. The MDAX and the SDAX generally followed this trend too. The recovery in these indices, however, did not reach the same level as in the DAX. The MDAX closed 5 % higher and the SDAX 7 % lower as compared to the beginning of the year. Real estate stocks The development of real estate stocks was completely detached from the development of the stock markets in general. After a number of successful years for real estate equity, 2007 turned out to be a very difficult year for real estate stocks. The EPRA indices for Germany and Europe lost 41 % and 34 % respectively, and it was virtually impossible for individual companies to withstand that trend. Development of alstria’s share price alstria’s share started with an IPO price of EUR 16.00 on April 2, 2007. Following a peak level of EUR 16.67 in the middle of June 2007, the second half of the year was marked by a persistent downward trend. In mid-November, the share reached its lowest level of the year at EUR 9.51.alstria’s share price suffered from the turmoil on the financial markets almost as much as our peer group and is now trading at a significant discount to the net asset value. Thereafter, the share price recovered somewhat to a price of EUR 11.44 at the beginning of December. The year-endclosing price of the alstria share was EUR 10.25, which isequivalent to a loss of 37 %. In the same period the EPRA GERMANY lost 41 % and EPRA EUROPE 35 %. On November 6, alstria’s management board decided to execute a share buy-back programme. This programme uses the authorisation provided by the shareholders of the company at the last annual general meeting in 2007. Under this authorisation alstria intends to acquire up to 2.5 % of its share capital between now and September 2008 via the Frankfurt stock exchange (XETRA). For the time being it is intended to hold the acquired shares as treasury stock and eventually use them according the shareholders meeting. to the authorisation of Potential uses may include using the shares in future acquisition projects. SHARE DATA AOX A0LD2U DE000A0LD2U1 Stock ID code Securities identification number ISIN – International Securities Identification code Common code Reuters symbol Bloomberg symbol Market segment Indices Trading floors Designated Sponsors No. of shares outstanding as at Dec. 31 028600810 AOX.DE AOX GY Prime Standard SDAX, EPRA, German REIT Index XETRA, Frankfurt (Prime Standard); Open Market in Berlin, Hamburg, Munich, Stuttgart Deutsche Bank AG; JP Morgan 55,326,195 (56,000,000 less 673,805 own shares) Coverage by analysts Being the first German REIT-AG, alstria is actively accompanied by a number of financial journalists and financial analysts from renowned investments banks. In a number of reports, alstria’s strategy and real estate portfolio were analysed. | 14 | alstria Annual Report 2007 alstria Annual Report 2007 | 15 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | THE FOLLOWING INVESTMENT BANKS REPORTED ON ALSTRIA Bankhaus Lampe KG Deutsche Bank JP Morgan Kempen & Co M.M. Warburg (MMW) Sebastian Hein Frank Neumann Martin Praum Osmaan Malik Remco Simon Ralf Dibbern Intense investor relations activities In 2007 alstria’s investor relations activities focussed on informing investors, financial analysts and the business press about alstria’s development specifically, but also about the general characteristics of a German REIT-AG. In addition to our press and analyst conferences, we had numerous interviews with investors and journalists at home and abroad, and presented the company at the following investor conferences: IN 2007, ALSTRIA WAS PRESENTED AT THE FOLLOWING INVESTOR CONFERENCES IPO On April 2, 2007, alstria successfully completed an initial public offering (IPO). With an issue size of 16 million increase and gross proceeds of shares from a capital EUR 256 million, the alstria IPO was the most sizeable equity market transaction in the German real estate sector in 2007. The IPO marked another significant milestone in the recent history of the company. Shareholder structure As of December 31, 2007 Captiva 2 Alstria Holding S.à.r.l. held a 54 % stake in alstria office REIT-AG. Morgan Stanley, Stichting Pensioenfonds and Cohen & Steers held more than 3 % each. The remainder of the shares are defined as free float. At the balance sheet date, alstria held 1.2 % own shares as a result of the buy-back programme. SHAREOLDER STRUCTURE BY INVESTOR 46,0 % May 31 May 2-3 April 24-25 June 29-30 Welt LB German Real Estate Day, New York 14. Handelsblatt Annual Conference "Immobilienwirtschaft 2007", Berlin HVB German Financials Conference, Stockholm Sal Oppenheim Real Estate Conference, Zurich September 6-7 EPRA Annual Conference, Athens September 10-11 GRI Europe Summit 2007, Paris HSH Nordbank Transatlantic September 19 Investor Conference, New York EXPO Real, Munich Real Estate Share Initiative Hamburg Open day at the Hamburg Stock Exchange, Hamburg November 12-14 German Equity Forum, Frankfurt October 8-10 October 25-26 November 10 54,0 % Captiva 2 Alstria Holding S.à.r.l. Free Float Dividend payment The management board and the supervisory board will be submitting a proposal at the Annual General Meeting to pay out a dividend of app. EUR 0.52 per share outstanding for the 2007 financial year. The total amount paid out in dividends will be EUR 28,4 million. SHARE PRICE 2007 DEVELOPMENT April 2, 2007 EUR 16.00 indexed to 100 120 110 100 90 80 70 60 50 Apr. 07 June 07 Aug. 07 Oct. 07 Dec. 07 alstria office REIT-AG EPRA Europe EPRA Germany SDAX KEY FIGURES PER SHARE in EUR (if not stated otherwise) 2007 high 2007 low IPO price Opening price Year end/closing price Weighted average number of shares outstanding Average trading volume in shares (XETRA) Average market capitalisation (in EUR m) Total numbers of shares outstanding as at Dec. 31, 2007 Dividend per share as at Dec. 31, 2007 Cash flow per share from operating activities NAV per share as at Dec. 31, 2007 2007 16.67 9.51 16.00 16.30 10.25 46,081,858 77,080 763.2 55,326,195 0.51 0.23 15.55 | 16 | alstria Annual Report 2007 alstria Annual Report 2007 | 17 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | CORPORATE GOVERNANCE REPORT alstria’s management and supervisory board are aware of the company’s responsibilities towards its shareholders, employees and business partners. For the purpose of a value-oriented corporate management, alstria has therefore implemented the German Corporate Governance Code to a great extent, thereby surpassing legal provisions. The recommendations and proposals made by a commission set up by the German Federal Government include internationally and nationally accepted standards regarding the good and responsible management of companies. Corporate Governance principles provide regulations for the following areas: • they describe the major rights of the shareholders • they define clear management principles and the respective responsibilities for the individual company bodies • they regulate the interaction between these bodies • they demand straightforward and transparent communication with the public • they require conscientious, reliable accounting and auditing Corporate Governance Code and compliance declaration The official compliance declaration of alstria’s management and supervisory board is accessible on our website (at www.alstria.com). With regard to a few individual items alstria has, after thorough deliberation, decided not to comply with the code. These items are specified in the declaration. The reasons for non-compliance are stated in the declaration. The implementation of Corporate Governance at alstria means amongst others: Relations with the company’s shareholders alstria office REIT-AG respects the rights of shareholders and guarantees the exercise of these rights to the best of its ability within the given statutory framework. In particular, these rights include the free purchase and the free sale of shares, equal voting rights for each share (one share - one vote), participation in the annual shareholders’ meeting and exercise of the voting right and appropriate fulfilment of one’s need for information. Communication with the public When relaying information to people outside the enterprise, the management board observes the principles of transparency, promptness, openness, comprehensibility and the due equal treatment of shareholders. Management board The management board as a whole, as well as each individual board member, will conduct the enterprise’s business with the due care and diligence of a precise and conscientious management board member in accordance with governing law, the articles of association, and the rules of procedure for the management board. The management board manages the enterprise on its own responsibility. in the enterprise’s best interests and is committed to developing sustainable enterprise value. is obliged to act In doing so, it Supervisory board It is the task of the supervisory board of alstria office REIT-AG to appoint the management board members, to regularly advise it and to supervise and support the management and the achievement of alstria’s long-term goals. Cooperation between the management board and the supervisory board The management board and the supervisory board cooperate closely to the benefit of the enterprise. The chairman of the supervisory board keeps in regular contact with the management board, especially with the Chief Executive Officer. The management board coordinates the enterprise’s strategic alignment with the supervisory board and discusses with it the current state risk of strategy implementation and the company’s management at regular intervals. For transactions of fundamental importance, the supervisory board specifies in the rules of procedure for the supervisory board that they are subject to the supervisory board’s approval. This includes decisions or measures that fundamentally change the company’s assets, financial or earnings situation. Remuneration of management and supervisory board members Remuneration of management and supervisory board members is reported on pages 115 and 117 of the annual report. The information is individualised and itemised. The management board members’ remuneration comprises fixed and variable components, as well as performance incentives to increase the value of the company in the long term. The long-term compensation components consist of stock options. The intention of this is to create performance incentives geared towards lasting corporate success. The targets that form the basis of these incentives may not be changed subsequently. and chairmanship receive a fixed The supervisory board members Both deputy compensation. chairmanship of the supervisory board as well as membership in the audit committee and chairmanship of the audit committee are taken into account in the evaluation of the supervisory board members’ scope of activities. Membership in other committees is not taken into account. Reporting and audit of annual financial statements alstria informs shareholders and third parties regularly by means of consolidated financial statements and by means of interim reports during the financial year. Consolidated reporting complies with the International Financial Reporting Standards (IFRS). For corporate law purposes (calculation of dividend, financial statements are creditor protection), annual prepared in accordance with national regulations (German Commercial Code). The consolidated financial statements are reviewed by the auditors and by the supervisory board. The audit committee of the supervisory board issues the audit assignment and concludes a fee agreement with the auditors. The auditor participates in the audit committee’s discussions of the annual financial statements and consolidated financial statements and reports the basic audit results. Stock option programme and similar securities-based incentive systems Stock option programme The stock option programme provides for the issuance of option rights to the company’s management board members. The exercise price to be paid for the subscription to an alstria share upon exercise of option rights, which were granted in 2007, amounts to 100 % of the offer price at which the company’s shares were sold in the course of their IPO on the Frankfurt stock exchange (EUR 16). The exercise price for options to be granted in future will be 100 % of the arithmetic means of the XETRA trading’s final auction of alstria’s shares on the Frankfurt stock exchange on the last ten trading days before the options have been issued (“Issue Date”). The holders of subscription rights cannot exercise the option rights before expiration of a waiting period of two years starting from the Issue Date of the respective option right. The option rights may only be exercised if the current stock exchange price of the company’s shares exceeds the stock exchange price of the company’s shares on the Issue Date by 20 % or more for at least seven non subsequent trading days prior to the exercise of the option right. The option rights have a term of seven years. | 18 | alstria Annual Report 2007 alstria Annual Report 2007 | 19 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | Employee participation programme The employee participation programme provides for the issuance of convertible profit participation certificates to the employees of alstria and to the employees of companies in which alstria, directly or indirectly, holds a majority interest. Members of the management board are not considered employees of alstria. The nominal amount of each certificate is EUR 1. Under the programme, up to 500,000 certificates in an aggregate nominal amount of up to EUR 500,000 may be issued. Up to now, 3,600 certificates have been issued. Each certificate will be converted into one non-par value bearer share of alstria if the current stock exchange price exceeds the stock exchange price of alstria’s shares on the issuance date by at least seven non- subsequent trading days prior to the mandatory conversion date. The certificates will only be converted if the beneficiary pays the conversion price and at the mandatory conversion date is still employed with alstria or a subsidiary. The maximum term of each certificate is five years. least 5 % on at Directors’ dealings The following transactions were executed in 2007 and reported to alstria: Under Sec. 15a of the Securities Trading Act (Wertpapier- handelsgesetz), the management and supervisory board members of alstria office REIT-AG, as well as persons who have a close relationship with such members (family members) are obligated to report trading in alstria shares. In addition to the purchase and sale of alstria shares, any transactions in securities relating to alstria shares (e.g. the sale of purchase of options on alstria shares) have to be reported. The company has to be notified about such transactions within five working days and has to publish inapplicable if them immediately. This obligation is the total value of these transactions does not exceed EUR 5,000 during one calendar year. the direct or Directors’ share ownership details pursuant to no. 6.6 German Corporate Governance Code the German Corporate Governance Code No. 6.6 of indirect ownership of recommends that shares of the company or related financial instruments such as derivatives by a member of the supervisory board or of the management board shall be disclosed if it amounts to more than 1 % of the issued shares of the company. If the total owned by all members of the supervisory board and members of the management board amounts to more than 1 % of the issued shares of the company, ownership should DIRECTORS’ DEALINGS IN 2007 Name of the Board Member Function Classification of the share Olivier Elamine Member of the Management Board Share ISIN Place Transaction Transaction Date Price per Share in EUR Number of Shares Deal Volume DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 Xetra Xetra Xetra Xetra Xetra Purchase Purchase Purchase Purchase Purchase 25.07.2007 10.08.2007 14.08.2007 19.10.2007 21.11.2007 13.89 13.20 12.22 12.75 10.48 2,650 1,200 1,200 2,000 1,000 36,808.5 15,840 146,664 25,500 10,480 be disclosed for management board members as a group and for supervisory board members as a group. law and commercial real estate law, the company believes that he is sufficiently qualified to act as chairman of the audit committee. No member of the management board or the supervisory board directly or indirectly owns more than 1 % of the alstria office REIT-AG subscribed capital. The entire holdings of all members of the management board and supervisory board do not exceed 1 % of the shares issued by the company. Non-compliance with the recommendations of the German Corporate Governance Code alstria complies with the recommendations of the “Government Commission German Corporate Governance Code” as published on June 14, 2007 for the time being with the following exceptions and intends to further comply with the recommendations to the same extend: DEDUCTIBLE IN THE CASE OF D&O INSURANCES, NO. 3.8. With regard to the D&O insurance effected for the management and supervisory board of alstria office REIT-AG, no deductable has been agreed. Both the management and supervisory board believe that the sense of responsibility applied in fulfilment of their duties is fully guaranteed without any such deductible. POSSIBILITY OF LIMITATION (CAP) ON STOCK OPTIONS, NO. 4.2.3. The supervisory board has not agreed a cap on the stock option programme for the management board in the event of extraordinary and unforeseeable developments. For any future stock option programmes and similar systems, there will be a discussion as to whether a Cap should be agreed. SPECIALIST KNOWLEDGE AND EXPERIENCE OF THE CHAIRMAN OF THE AUDIT COMMITTEE NO. 5.3.2. The chairman of the audit committee is not a professional accountant. Nevertheless, due to his comprehensive professional expertise as a lawyer regarding commercial NOMINATION COMMITTEE, NO. 5.3.3. The supervisory board did not form a nomination committee. As the supervisory board of alstria with six members is comparatively small, the management and supervisory board see no need to establish a nomination committee. PERFORMANCE-RELATED COMPENSATION FOR MEMBERS OF THE SUPERVISORY BOARD, NO. 5.4.7. The members of the supervisory board do not receive a performance-related remuneration in addition to their fixed remuneration. The reason for the deviance from the code in this regard is the relatively small size of the company. ACCESSIBILITY OF CONSOLIDATED FINANCIAL STATEMENTS AND INTERIM REPORTS, NO. 7.1.2. For practical reasons, the consolidated financial statements and interim reports are publicly accessible within the legally stipulated time frame but a couple of days later than the recommended time frame given by the code. All other recommendations of the German Corporate Governance Code have been implemented in their entirety. alstria has appointed a corporate governance representative within the company to report amendments to an implementation of the German Corporate Governance Code to the management and supervisory boards at least once a year. In this way we ensure the continuous observance of these principles in our company. By means of analysis, supervision and transparency, alstria lays the foundations for fair and efficient corporate management. This will remain our standard in the future as well. | 20 | alstria Annual Report 2007 alstria Annual Report 2007 | 21 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board FOUNDED: 711 DAYS AGO. GROWN: CREATED ONE JOB EVERY TWO MONTHS GROUP MANAGEMENT DISCUSSION AND ANALYSIS transparent for corporate income and trade tax purposes. Except for changing the tax status, the REIT conversion does not imply any changes in the overall strategy of alstria. alstria remains internally managed and continues to be focussed on the acquisition and the management of German office properties. It is alstria´s objective to closely collaborate with its tenants to create a close and long-term partnership. The preferred route for external growth is to execute sale and lease back transactions which offer the sellers an exit tax benefit. Portfolio overview In 2007, alstria acquired investment properties for a total, all-in cost of EUR 527 million. Out of these transactions, approximately EUR 310 million closed in 2007, while the remainder of the contracts is expected – subject to certain conditions - to close in the first months of 2008. The average initial yield on the 2007 acquisitions was 6.4 %. The attractive yields in 2007 were supported by the fact that alstria was able to make extensive use of the exit tax benefit in the acquisitions after the REIT conversion. Economic conditions The year 2007 was characterised by high volatility in the equity markets. Driven by the sub prime crisis specifically the general market sentiment towards real estate stocks deteriorated in the course of the year. Despite these the overall developments in the financial markets, fundamental business environment continued to be very positive: The German economy grew by approximately 2.6 % with continued positive effects on the employment market. The strong economic fundamentals generally fuelled a continuing strong demand for office space in Germany. Also, the direct investment market for office properties reached a record volume of around EUR 311 billion, emphasising the uninterrupted, strong interest of international investors in the German market. alstria’s for Strategy and structure On October 11, 2007, alstria was registered as the first German REIT-AG. The REIT status implies that, effective retroactively from January 1, 2007, alstria will be fully Frankfurt am Main 1 Jones Lang LaSalle: Capital Markets Newsletter ”1. und 2. Halbjahr 2007“, page 2. | 22 | alstria Annual Report 2007 alstria Annual Report 2007 | 23 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board KEY METRICS OF 2007 ACQUISITIONS THE KEY METRICS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: 1 Date Portfolio REIT Benefit All-In-Cost 230.0 11.3 3.1 REIT Conversion 60.8 111.3 53.0 55.0 yes yes yes Passing Rent 14.6 0.9 1 vacant 3.8 7.7 3.3 3.3 Gross Yield 6.3 % 7.9 % 6.3 % 6.9 % 6.2 % 6.0 % Vacancy Metric 11 % 80 % 100 % 12 % 13.5 % 3.2 % 0.0 % Number of properties Market Value (EUR bn) Passing Rent (EUR m/annum) Valuation yield Approximate lettable area (k sqm) Vacancy (% of lettable area) WAULT (years) Value 72 1.7 91 5.4 % 816 6.1 % 11.3 Aurora Munich Hamburg MFI Bilfinger Berger HUK Coburg Berlin Jan May Aug Oct Nov Dec Dec Dec Total 524.5 33.6 6.4 % 12.5 % One of the key characteristics of the alstria portfolio is the stringent focus on a set number of key tenants. Accordingly, in 2007 our Top 5 tenants accounted for more than 75 % of our total revenues. Also, our clear focus on one asset class, i.e. offices, is nicely reflected in our 2007 portfolio. Of our total lettable area, 94% is dedicated to offices. As of the balance sheet date, alstria’s portfolio held 72 office buildings with approximately 816,000 square metres of lettable area and a vacancy rate just short of 6 %. The portfolio is valued at a yield of 5.4 % and the remaining average unexpired lease term is around 11 years. TOTAL PORTFOLIO BROKEN DOWN BY USAGE ALSTRIA’S CORE TENANTS 2007 3 % 2 % 1 % 94 % 1 % 4 % 5% 11 % 41 % Office Retail Residential Other 16 % City of Hamburg Daimler AG Barmer Siemens AG 22 % Rheinmetall AG City of Hanover Other It is alstria’s strategy to give our investors exposure to the total German office market, not only to the 5 or 6 main centres. The reason is simply that, in the past, many of the so called subcenters have quite frequently outperformed the office hot spots like Frankfurt or Munich. In the execution of this strategy, however, it is of utmost importance to us that the properties we do acquire fit the demands of their specific markets. Consequently, the typical exposure we would have in Dresden, Dortmund or Mannheim would still be somewhat lower than our exposure in Hamburg, Dusseldorf or Berlin. On the operations side our low vacancy rate (approximately 4 % of the portfolio, or 30,000 square metres), has remained stable since the beginning of the year. The increase to 6.1%, as reflected in the year end numbers, was only driven by the inclusion of the Bamler Servicepark asset as of December 31, 2007. New vacancy which came up in 2007 was successfully compensated by new lease-up, which represents more than 70 new leases for a total lettable area of around 7,000 square metres. OMV OF INVESTMENT PROPERTIES Hamburg Berlin Hanover Potsdam Magdeburg Detmold Essen Dortmund Wuppertal Dusseldorf Cologne Bonn Halle Leipzig Dresden Erfurt Zwickau Jena Wiesbaden Frankfurt Darmstadt Manheim Wuerzburg Nurnberg Stuttgart Augsburg Munich higher than 100 M EUR from 50 to 100 M EUR from 25 to 50 M EUR from 10 to 25 M EUR from 5 to 10 M EUR from 1 to 5 M EUR 1 Seller rent guaranty 1 For full details of the portfolio see pages 126-133 | 24 | alstria Annual Report 2007 alstria Annual Report 2007 | 25 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board EARNINGS POSITION When comparing the financial year figures of 2006 versus 2007, it is important to note that the 2006 figures only reflect eleven months and only seven months of business activities. Moreover, the 2006 figures reflect only the pro rata revenues of the Primo and Juna Portfolio as well as the Daimler property. SUMMARY OF THE INCOME STATEMENT The following table shows the key operating figures of the audited income statements for the financial year 2007 and the business period 2006: (in EUR k) Revenues Net rental Income Net operating result 2007 % of rev. Jan. 20 - Dec. 31, 06 % of rev. Change 82,552 76,192 75,162 100.0 92.3 91.0 30,063 28,358 51,656 100.0 94.3 171.8 52,489 47,834 23,506 Pre-Tax Income (EBT) 48,133 58.3 18,623 61.9 29,510 Consolidated Profit for the Year 52,811 64.0 14,533 48.3 38,278 Strong operating performance in 2007 - Revenues at EUR 82,552k For revenues were at the financial year 2007, EUR 82,552k. Real estate operating expenses were 8.1 percent of revenues or EUR 6,674k. Net rental income for 2007 was EUR 76,192k. total A net gain from fair value adjustment of EUR 19,256k was recorded for 2007. The revaluation of investment properties contributed EUR 11,170k and the revaluation of financial derivatives EUR 8,086k to this result. Operating expenses and net income influenced by REIT conversion effects The REIT conversion had a number of short-term impacts on the results, which are mainly reflected in the operating expenses and the income tax line. Operating expenses were affected by app. EUR 480k of one-time expenses incurred for advisory services in relation to the REIT conversion. The most significant impact relates to the reversal of all deferred taxes in the balance sheet, which creates a P&L income effect of EUR 7,356k. At the same time, an accrual for a conversion tax charge of EUR 5,100k was recorded. A summary of the REIT conversion- related P&L effects is provided in the following table: REIT CONVERSION (in EUR k) Expense effects Income effects Advisory services Reversal of deferred tax assets Reversal of deferred tax liabilities Conversion tax expense 480 12,513 5,100 19,869 Total 18,093 19,869 Administrative and expenses, personnel other operating expenses are EUR 12,788k for the year. Accordingly, total recurring operating expenses (disregarding REIT conversion-related expenses) are 14.9 % of total revenues (compared to EUR 5,690k or 18.9 % for 2006). expenses The net operating result is EUR 75,162k for 2007 (2006: EUR 51,656k). Hamburg | 26 | alstria Annual Report 2007 alstria Annual Report 2007 | 27 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board Funds from operations at EUR 0.56 per share Funds from operations (FFO) were EUR 31,540k for 2007 compared to a negative amount of EUR 3,518k in 2006. As a result, FFO per share was at EUR 0.56 in the financial year 2007. FUNDS FROM OPERATIONS (in EUR K) Pre-tax income (EBT) less financial result plus non-cash expenses 2007 Jan. 20 - Dec. 31, 2006 48,133 -35,115 2,663 18,623 -33,033 0 Change 29,510 -2,082 EBITDA 85,911 51,656 34,255 less net gain from fair value adjustments on investment property less net gain from fair value adjustments on financial derivatives plus financial result 11,170 8,086 -35,115 22,871 -11,701 -730 -33,033 8,816 -2,082 Funds from operations (FFO) 31,540 -3,518 35,058 FFO is not a measure of operating performance or liquidity under generally accepted accounting principles, in particular IFRS, and should not be income or cash-flow measures as determined in accordance with IFRS. Furthermore, no considered as an alternative to the Company’s standard definition exists for FFO. Thus, the FFO or measures with similar names as presented by other companies may not necessarily be comparable to the Company’s FFO. EBITDA is not a measure of operating performance or liquidity under generally accepted accounting principles, in particular IFRS, and should not be considered as an alternative to the Company’s income or cash-flow measures as determined in accordance with IFRS. Furthermore, no standard definition exists for EBITDA. Thus, EBITDA or measures with similar names as presented by other companies may not necessarily be comparable to the Company’s EBITDA. FINANCIAL RESULTS BREAKDOWN (in EUR k) Syndicated Loan - interest and similar costs Shareholder Loan - interests and similar costs Interest income Registration of land changes Other Total 2007 -41,580 -1,307 6,184 -232 1,820 -35,115 Net profit for the year of EUR 52,811k The resulting earnings before tax are EUR 48,133k for the financial year 2007 (2006 EUR 18,623k). Tax gains from consolidation and the elimination of deferred taxes because of G-REIT conversion lead to a positive tax result of EUR 4,678k. Consolidated net profit is EUR 52,811k for 2007 compared to EUR 14,533k for 2006. Earnings per share are EUR 1.15 for 2007. Hedging instruments The net gain from fair value adjustments on the financial derivatives is driven by the development of the yield curve at the end of 2007. The fact that our debt exposure is fully hedged fixes the current overall cost of debt for the existing portfolio at 4.3 %. An overview of the composition of the fair values is given in the following table: HEDGING INSTRUMENTS BREAKDOWN (in EUR k) Dec. 31, 2007 Swap - 3.6165 % Swap - 3.1925 % Cap - 4.0000 % Cap - 3.8000 % Cap - 3.8000 % Cap - 4.9000 % Total 18,939 3,761 1,811 961 604 1,126 27,202 Financial result alstria has a EUR 1.139 billion syndicated loan facility in place which was arranged by J.P. Morgan, Natixis and HSH Nordbank. This facility has presently been utilised to EUR 927 million. The facility is used by alstria to partially finance the current investment property base as well as future acquisitions. The interest rate on syndicated loan is based on the three-month this EURIBOR floating rate plus a spread dependent on the average lease length of the property portfolio and the loan to value ratio. For economic as well as for G-REIT compliance reasons, alstria is committed to maintaining a G-REIT equity ratio of 45 % or above. | 28 | alstria Annual Report 2007 alstria Annual Report 2007 | 29 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board FINANCIAL AND ASSET POSITION RISK AND OPPORTUNITY REPORT The equity and liability side of the balance sheet reflects a total equity position of EUR 870.876k with an equity ratio of 47 %, which is up 18 percentage points from 29 % at the beginning of the year. The G-REIT equity ratio, which is defined as total equity divided by investment properties, is 51 % (the minimum requirement for G-REIT compliance of 45 %). The long term loan position is EUR 927,456k, up from EUR 833,391k at the prior year’s end. The main changes in the long-term loan position over the reporting period were, firstly, the repayment of the loan for Juna Property GmbH & Co. KG of EUR 162 million. The debt portion of EUR 109 million was drawn down from the syndicated loan facility and the remainder was contributed by the shareholders into capital the refinancing of the “Alte Post” and “Grosse Bleichen” properties led to the increased utilisation of the syndicated loan facility by EUR 52,250k. The third instalment for the Aurora Portfolio was financed by a draw down from the syndicated loan facility of EUR 110,500k. reserves. Secondly, liabilities are EUR 37,188k, which is mainly Current related to trade payables, payables for VAT settlement and accrued interest which will become due under the syndicated loan agreement within one year. Cash position of EUR 103,036k The cash flow from operating activities was at EUR 12,674k mainly driven by the strong operating performance. The cash flow from investing activities was influenced by the strong acquisition activity for office property in the second half year. The instalments of the purchase price for the Aurora Portfolio equalling EUR 221,000k have the most significant impact on the cash flow from investing activities. The purchase of Bamler Servicepark in the fourth quarter resulted in a cash outflow of EUR 60,762k. The cash flow from financing activities the substantial capital restructuring which was undertaken during the period and includes the gross proceeds from the IPO of EUR 256,000k. reflects As a result, alstria closes the financial year 2007 with a cash position of EUR 103,036k (2006: EUR 24,304k). Together with the refinancing via the syndicated loan facility, this enables alstria to meet payment obligations for the acquisitions agreements entered into in the last quarter of 2007. Equity ratio of 47.4 %, NAV per share EUR 15.55 – G-REIT equity ratio at 51.4 % The total investment property value is EUR 1,693,718k as compared to EUR 1,289,536k at the beginning of the year: CHANGE IN INVESTMENT PROPERTY (in EUR m) Investment properties as at Dec. 31, 2006 Changes in consolidated group Acquisitions Disposals Revaluations Prepayments 1,289.54 95.00 293.45 -3.53 11.17 8.09 Investment properties as at Dec. 31, 2007 (audited) 1,693.72 Risk management alstria has implemented a structured risk management and early warning system in accordance with Section 91 (2) of the German Stock Corporation Act (AktG). All risks are recorded, evaluated and monitored on a quarterly basis. Our risk identification process allows the early identification of sources for any potential new risks on an ongoing basis. Risk mitigation measures are defined in order to undertake any necessary steps to circumvent the identified risks, i.e. to diversify, manage or avoid risk. For alstria, risk management means the targeted securing of existing and future potential for success as well as improving the quality of the planning process of the company. The risk management is organisationally assigned to the controlling group. A risk report is prepared by the risk manager and directly reported to the Management Board. Those risks are divided into four categories: • strategic risks; • operational risks; • compliance risks; • financial risks All material risks to the future development of the company’s position and performance are described in this chapter as identified in accordance with alstria’s risk management system. Strategic risks Strategic risk management mainly consists of the application of guidelines contained in the investment policy, asset management policy and rules of management of the relationship with the Group's core tenants. Operational risks alstria's operational risk management refers to property- specific risks and general business risks. This includes, among others, vacancy risk, the creditworthiness of tenants and the risk of falling market rents. The Company uses various early warning indicators to monitor these risks. Rent projections, vacancy analyses, the control of the duration of lease contracts and termination clauses as well as ongoing insurance checks are meant to help identify potential dangers and risks. Compliance risks G-REIT LEGISLATION alstria is registered in the commercial register as a REIT stock. The new REIT segment allows alstria to offer high visibility to investors and differentiate itself as a REIT on the capital market. In order to qualify for becoming and staying a G-REIT, certain requirements have to be met. The most relevant of those are the following: The G-REIT must be a stock corporation listed on an organised market and its statutory seat and management must be in Germany. The registered share capital must be at least EUR 15 million with all shares being voting shares of the same class. The free float must be at least 15 percent and no investor may directly hold 10 percent or more of the shares, or shares which represent 10 percent or more of the voting rights. Furthermore, at least 75 percent of the assets must consist of real estate and at least 75 percent of the gross income must be generated from real estate. At least 90 percent of the annual profits under German GAAP must be distributed to the shareholders and the G-REIT’s equity may not fall short of 45 percent of the fair value of its real estate assets as recorded under IFRS rules. REIT stock corporations are fully exempted from German corporate income tax and German trade tax. Sellers who offer real estate to alstria may, subject to certain conditions, benefit from the so called exit tax - a 50 percent relief on income and corporate income tax respectively, as well as the trade tax payable on capital gains. CAPITAL MANAGEMENT Capital management activities are aimed at maintaining the Company’s classification as a REIT in order to support its business activities and maximise shareholder value. | 30 | alstria Annual Report 2007 alstria Annual Report 2007 | 31 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board The Company manages its capital structure and makes adjustments in response to changes in economic conditions. In order to maintain or adjust the capital structure, the Group can make a capital repayment to its shareholders or issue new shares. No changes were made to the aims, guidelines and processes as at December 31, 2007 and December 31, 2006. The capital structure is monitored by the Company using the Key Performance Indicators for classification as a REIT. The REIT equity ratio, being the ratio of equity to investment property, is the most important KPI. According to the Group’s strategy, the REIT equity ratio must be between 45 % and 55 %. relevant (KPI) LEGAL RISKS The company is not sued in the course of any individual or other kind of legal dispute. A lawsuit is filed against a competitor because of the breach of trademark law. Because the Company is the party taking the legal action, there are no risks out of legal files. the alstria Group and its Financial risks As a result of the IPO, an appropriate credit facility and the incorporation of financial partners, the financing risk of the Company is limited . The financial instruments mainly used by the Group are bank loans and derivative financial instruments. The main purpose of the bank loans is to finance the business activities of alstria. Derivative financial instruments include interest swaps and caps. The purpose of these derivative financial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of financing. The main risks arising from the Group’s financial instruments are cash flow interest rate risks and liquidity risks. The Group is not exposed to any significant credit risks. Interest rate risk Interest rate risk results from market variations in interest rates. These affect the amount of interest expenses in the financial year and the market value of derivative financial instruments used by the Company. alstria's hedging policy uses a combination of plain vanilla swaps and caps in order to limit the exposure of the Company to interest rate fluctuations, but still provide enough flexibility to allow the disposal of real estate assets, avoiding any cost linked to an over-hedged situation. The interest base for the financial liability (loan) is the 3-month EURIBOR, which is adjusted every three months. A number of different derivative financial instruments were acquired to manage the interest the derivative financial expense. instruments is based on the life of the borrowings. The derivative financial instruments relate to interest swaps in which the Company agrees to exchange with contracting partners, at specified intervals, the difference between fixed and variable interest rate amounts calculated by reference to an agreed upon notional principal amount. In addition, interest caps were acquired; here the interest is capped at a set maximum. If the maximum interest rate is exceeded, the difference between the actual interest rate and the cap rate is paid out. The maturity of Liquidity risk Cash management is one of the core processes of alstria. The company assesses its cash on a daily basis. A cash is used to prevent any liquidity risk. This forecasting tool liquidity planning tool uses the expected cash flows from business activities and the maturity of the financial investments as a basis for analysis. focussing on the rates fluctuations and inflation, rental income and thus the valuation of the property can be adversely affected. Regional diversification of the investment portfolio, individual consequent needs and tight monitoring of the market (broker reports) are taken as risk mitigation procedures. Furthermore, the real estate of alstria the market values of all is determined at the financial year by neutral, internationally recognised valuation companies. least annually at the end of tenant’s Counterparty risk alstria hedges a portion of its risk by using third-party instruments (interest rate derivatives, property insurances and others). alstria's counterparties in those contracts are internationally recognised institutions which are rated by the main rating agencies. alstria reviews the rating of its counterparties on an annual basis in order to mitigate any risk of default. the consideration of ecological matters often also results in lower operating expenses. Employees As at December 31, 2007, alstria employed 20 people (December 31, 2006: 4). The yearly average of employees has been 15 (previous year: 4). Compensation report Management board members’ compensation comprises a fixed and a variable component linked to the company’s operating performance. In addition to their bonus the members of the management board receive share options as a long-term incentive component of remuneration. The members of the supervisory board receive a fixed remuneration. Overall assessment No risk to the company’s continued existence can be identified from past or future events. Sufficient precautions have been taken against identifiable risks. The compensation report, containing details of the principles for the definition of the management board and supervisory board remuneration, is laid out in the appendix to the notes to financial statement. Opportunities of the Group Being one of only two German REITs constitutes a substantial opportunity for alstria. This situation provides alstria with a distinct competitive advantage in the direct investment markets because alstria can offer corporate sellers of office real estate the so called exit tax benefit. Quality and environmental management It is the aim of alstria to meet the high quality demands tenants and simultaneously to decrease the of our environmental responsible asset management. through our impact Company group and dependent company report II S.à.r.l., Luxembourg, holds a majority Captiva Capital interest in alstria. According to Section 290 HGB we are required to prepare consolidated statements and a Group management report comprising the group companies controlled by the Group. Apart from this, alstria office REIT-AG and all associated companies as stated in the notes are consolidated in the alstria Group. According to the majority interest in alstria of Captiva Capital II S.à.r.l, Luxembourg, we issued a separate dependent company report with affiliated companies, the German Stock in accordance with Sec. 312 of Corporation Act (AktG). This report includes the following statement: Valuation risks Based on influence factors like economic changes, interest In the course of this, economic and ecological matters are not regarded as contradictory, but as complementary, as | 32 | alstria Annual Report 2007 alstria Annual Report 2007 | 33 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board ”We herewith declare that, to the best of our knowledge at the time which legal transactions have been entered in or measures were undertaken or omitted, the Company received adequate compensation and was not disadvantaged by any measures or transaction.” of 5.1 % and an indirect shareholding of another 48.9 % through its wholly-owned subsidiaries. Holders of shares with privileges No shares exist granting privileges of controlling power. Disclosure requirements in accordance with sections 289 (4), 315 (4) HGB for the financial year 2007 and explanatory report of the management board Nature of voting rights control if employees have a share in capital and do not directly exercise their right of control This constellation does not exist within the company. Composition of subscribed capital, voting rights and privileges As per the closing date December 31, 2007, the company’s share capital was EUR 56,000,000, divided into 56,000,000 notional no par-value shares. Each share represents one vote in the general meeting. There are no restrictions on voting rights. The company did not issue any shares granting privileges of controlling power. Restrictions on disposal of shares or voting rights There are no restrictions as to the disposal of shares or the use of voting rights. Shareholders with an interest of at least 10 % As per the closing date December 31, 2007, the company did not know of any shareholders whose direct interest exceeded 10 % of the share capital. Captiva Capital Partners II S.C.A. has an indirect shareholding of approxi- mately 54 % in alstria. Before alstria converted into a REIT, Captiva 2 Alstria Holding S.à.r.l., a wholly-owned subsidiary of Captiva Capital Partners II S.C.A., was holding a direct shareholding of approximately 54 % in the company. In September 2007, Captiva 2 Alstria Holding S.à.r.l. transferred interests of 9.78 % each to its 100 % subsidiaries Captiva Alstria S.à.r.l., Captiva Alstria 1 S.à.r.l., Captiva Alstria 2 S.à.r.l., Captiva Alstria 3 S.à.r.l. and Captiva Alstria 4 S.à.r.l. Therefore, Captiva 2 Alstria Holding S.à.r.l. holds a direct shareholding Authority of the management board regarding repurchasing and issuance of shares 1. authorised capital The articles of association authorise the management board to increase the share capital with the approval of the supervisory board until March 14, 2012 by issuing new bearer shares against contributions in cash and/ or kind once or repeatedly up to a total amount of EUR 27,500,000.00. 2. conditional capital items The company disposes of three conditional capital (Sec. 192 et seqq. German Stock Corporation Act(AktG)), which are regulated in Sec. 5 (5-7) of the articles of association. a) conditional capital I The share capital is conditionally increased by up to EUR 17,500,000.00 by issuing up to 17,500,000 new no-par value bearer shares with an entitlement to a share of profits from the beginning of the financial year of their issuance. The conditional capital increase shall be carried out only to the extent that conversion or option rights are exercised by holders of conversion or option rights attached to bonds which alstria or its subsidiary companies have issued against cash payments in accordance with the resolution of the general meeting of March 15, 2007, or that conversion obligations under such bonds are fulfilled, and only insofar as no other methods of performance are total of ten percent of the share capital until September 14, 2008. The shares acquired and other own shares that are in the possession of or to be attributed to the company pursuant to sec. 71 a et seq. AktG must altogether, at no point in time, account for more than ten percent of the share capital. Appointment and dismissal of management board and supervisory board members The management board consists of one or more members, which are appointed and dismissed in accordance with sec. 84 AktG by the supervisory board. Amendments to the articles of association are made pursuant to sec. 179 and 133 AktG. The supervisory board is also authorised, without a resolution by the shareholders meeting, to make changes in and amendments to the articles of association that merely affect the wording. Change of control clauses in key agreements entered into by the company No such clauses exist. Compensation agreements with management board and supervisory board members in the case of a takeover bid No such agreements exist. These provisions comply with the statutory requirements comparable listed and are common practice by enterprises. They are not indented to hinder potential takeover bids. used in serving these rights. The management board is authorised to determine further details of the conditional share capital increase. b) conditional capital II The company’s share capital is conditionally increased by an amount of up to EUR 2,000,000.00 by the issuance of up to 2,000,000 no-par value bearer shares. The purpose of the conditional capital increase is to grant shares to the holders of subscription rights (stock options) which are issued in accordance with the authorisation of the annual general meeting held on March 15, 2007 by the company. The conditional capital increase is only carried out insofar as the holders of the stock options exercise their stock options and no own shares of the company are used for servicing. The new shares will participate in the company's profits from the beginning of the business year in which they come into existence as a result of the exercise of the stock options. c) conditional capital III The share capital is conditionally increased by an amount of up to EUR 500,000.00 by the issuance of up to 500,000 non-par value bearer shares. The purpose of the conditional capital increase is to grant shares to the holders of certificates which are issued by the company in accordance with the authorisation of the annual general meeting held on March 15, 2007. The conditional insofar as issued capital certificates are converted into shares of the company and no own shares are used for servicing the certificates. increase is only carried out The new shares will participate in the company's profits from the beginning of the business year in which they come into existence as a result of the conversion of certificates. 3. Purchase of own shares The shareholders’ meeting on March 15, 2007 authorised the management board to acquire own shares up to a | 34 | alstria Annual Report 2007 alstria Annual Report 2007 | 35 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board 2008 OUTLOOK REPORT FROM THE SUPERVISORY BOARD The acquisitions of the Bilfinger Berger and the HUK Coburg portfolio as well as the acquisition of the property in Berlin, Darwinstraße are expected - subject to certain conditions precedent being met - to close in the first months of 2008. These acquisitions will increase the alstria portfolio to a total of 91 properties and will raise lettable area to 945,000 square metres. The the total weighted average unexpired lease term of the portfolio will then be 10.4 years. It was important for alstria to execute these acquisitions without compromising our strict focus. After the 2007 acquisitions, 94 % of our portfolio will still be dedicated to office space and our Top 5 tenants will still account for 70 % of our revenues. year 2008 to be around EUR 95 million, resulting in an operating income (FFO) of EUR 40 million for the year. Again, the envisioned dividend payout in 2009 will be based on the 2008 FFO result. Metric Number of properties 1 MV (EUR b) Passing rent (EUR m/annum) 2 Valuation yield Approximate lettable area (k sqm) Vacancy (% of lettable area) WAULT (years) Value 91 1.90 105 5.5 % 945 6.5 % 10.40 ALSTRIA’S NEW TENANT STRUCTURE IN 2008 PORTFOLIO BY USAGE IN 2008 Supervision of the Company’s management During the reporting year, the supervisory board supervised the company’s management in accordance with statutory law and the articles of association and within the scope of its meetings and by means of further reports provided by the management board both verbally and in writing, informed itself regularly and in detail on the situation and the development of the company, important commercial operations and the risk management. The management board informed the supervisory board about events of importance also in between meetings; fundamental furthermore the chairman of the supervisory board and the chairman of the management board had information and consultation talks on a regular basis. In some of its meetings, the supervisory board discussed single topics with external legal and financial experts. 94 % 3 % 2 % 1 % Office Retail Residential Other 36% 21% 1 % 2 % 3 % 3 % 5% 6 % 9 % 14 % City of Hamburg Daimler Barmer Bilfinger Berger Siemens Deutsche Rentenersicherung Rheinmetal HUK City of Hanover Other Including the 2007 acquisitions, we assume that our total portfolio will be valued at around EUR 1.9 billion. The annualised passing rent of the total portfolio will be around EUR 105 million p.a. Based on these parameters, the management of alstria expects total revenues for the 1 For full details of the portfolio see pages 126-133 2 As of Dec. 31, 2007 The market situation, development of the company and internal organisation were addressed on each regular supervisory board meeting during the reporting period. the supervisory board debated important Moreover, specific matters which are material the further the company and decided on legal development of transactions and measures in which it is obliged to participate in accordance with statutory provisions, the articles of association, and the rules of procedure of the management board or the rules of procedure of the supervisory board. This applies to the company’s budget planning. in particular for In 2007, the supervisory board had eight meetings in plenary session. Additionally, one decision was made by way of circular resolution. All supervisory board members attended nearly each and every meeting personally. No member of the supervisory board missed more than two supervisory board meetings. Focal points of discussion The focal points of the supervisory board meetings were, in addition to the initial public offering of the company’s shares in April 2007 and the company’s conversion into a German REIT-Stock Corporation in October 2007, important acquisitions such as the Bilfinger & Berger portfolio, the HUK Coburg portfolio or the mfi asset. The supervisory board appointed Alexander Dexne as Chief Financial Officer and dealt with the resignations of Dres. Robert Hannemann and Michael Börner-Kleindienst. The supervisory board further resolved on an employee profit participation programme and a stock option programme for the management board as well as rules of procedure for the management board, the supervisory board and the audit committee, which reflect the recommendations of the German Corporate Governance Code. the supervisory board, inter alia, was Furthermore, concerned with the annual and consolidated financial statements as of December 31, 2007, the agenda for the 2008 AGM and the corporate and budget planning for the financial year 2008. Members of the supervisory board At the beginning of the reporting period the supervisory board only had three members, John van Oost as chairman, Daniel Quai and Stephan Fritsch. Stephan Fritsch resigned from his office, effective from the end of the extraordinary shareholders meeting on January 16, 2007. The extraordinary shareholders meeting resolved to enlarge the supervisory board by means of amendments to the articles of association from three to six members and elected Richard Mully as a new member of the supervisory board effective from the end of the extraordinary shareholders meeting. The shareholders meeting further Stuhlmann, Dr. Christian Olearius and Dr. Johannes Conradi effective from February 15, 2007, when the enlargement of the supervisory board became effective upon registration with the commercial register. Effective from April 01, 2007 Alexander Stuhlmann was appointed as chairman of the supervisory board. From that day on John van Oost was vice-chairman of the supervisory board. appointed Alexander | 36 | alstria Annual Report 2007 alstria Annual Report 2007 | 37 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board Committees of the supervisory board The supervisory board constituted four committees during the reporting period. The chairmen of such committees informed the plenary meetings about the work of the committees. The supervisory board constituted the audit committee effective February 15, 2007 and elected Dr. Johannes Conradi as chairman, Daniel Quai and Dr. Christian Olearius as members. The members of the audit committee the auditor’s necessary handle issues of accounting, independence, the issuing of the audit mandate, the determination of auditing focal points and the fee agreement as well as issues of risk management and compliance. The audit committee had two meetings in the reporting period. On March 15, 2007, the supervisory board created a special committee, to which it delegated the adoption of all resolutions relating to the initial public offering of the company’s shares. The members of the special committee were John van Oost as chairman, Alexander Stuhlmann and Richard Mully. The special committee took three resolutions by way of telephone conference. On June 14, 2007, the supervisory board established a special committee for discussion and resolution regarding the possible acquisition of an important portfolio. The members of the committee were Alexander Stuhlmann as chairman, Richard Mully and Dr. Christian Olearius. The special committee had one session on June 14, 2007. On September 5, 2007, the supervisory board created an investment committee which deals with acquisitions and disposals of assets, provided that the consideration does not exceed EUR 100,000,000. Beyond that amount, the supervisory board will decide in plenary session. The members of the investment committee are John van Oost as chairman, Alexander Stuhlmann and Richard Mully. The investment committee approved two real estate acquisitions in 2007 and resolved by way two telephone conference and one circular resolution. Audit of annual and consolidated financial statements PricewaterhouseCoopers Aktiengesellschaft Wirtschafts- prüfungsgesellschaft, branch Berlin, audited the annual financial statement and the management report of alstria office REIT-AG as well as the consolidated financial statement and the consolidated management report for the business year beginning January 1, 2007 and ending December 31, 2007 prepared by the management board and provided them with an unqualified audit opinion. The audit committee monitored the auditors’ work and independency and determined the focal points for the audit. The annual financial statement and the management report of alstria office REIT-AG, the consolidated financial statement and the consolidated management report, the recommendation for the profit appropriation as well as the auditors’ reports produced by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, branch the Berlin, were made available to all members of supervisory board. The supervisory board has reviewed these documents prepared by the management board. The documents were comprehensively dealt with in the meetings of the audit committee held on March 5, 2008 and the supervisory board held on March 25, 2008. The auditor attended the meeting of the audit committee and gave an account of the results of his audit. After the audit the committee reported the results of his meeting, supervisory board has affirmatively taken note of the results of the audit. No objections had to be raised. The supervisory board has affirmatively taken note of the annual financial statement and the management report the consolidated financial of alstria office REIT-AG, statement, the consolidated management report and the recommendation for the profit appropriation prepared by the management board. In accordance with the result of its own review, the supervisory board has approved the annual financial statements and the consolidated financial statements. No objections had to be raised. Thus, the 2007 annual financial statements for alstria office REIT-AG have been adopted. Moreover, the management board presented the report on relations to affiliated companies pursuant to sec. 312 German Stock Corporation Act (AktG) to the supervisory board. Likewise, the auditor’s report prepared thereto by PricewaterhouseCoopers Aktiengesellschaft Wirtschafts- prüfungsgesellschaft, branch Berlin, was presented to the supervisory board. Both reports were also communicated to each member of the supervisory board. The audit opinion of the auditor reads as follows: “In regards to our duty bound audit and assessment, we certify that, 1. 2. 3. the actual details of the report are correct, in regards to the legal transactions which are listed in the report, the services of the company have not been inadequately high or disadvantages have been counterbalanced, the provisions listed in the report do not provide any circumstances for a considerably different evaluation the one given by the management board.” The supervisory board also reviewed this report by the management board and has affirmatively taken note of the report prepared thereto by the auditor. In accordance with the final result of its own review, the supervisory board approves the statement of the management board regarding the report pursuant to sec. 312 (3) AktG. Risk management and compliance The audit committee monitored the further implementation of the risk management system, assured itself of the efficiency of the system and addressed the major risks according to such a system with the auditors and the management board. The audit committee discussed compliance issues with the management board on a regular basis. Corporate governance In 2007, the supervisory board also dealt with the company’s fulfilment of the recommendations of the German Corporate Governance Code. In March 2008 the management board and the supervisory board issued the annual statement of compliance in accordance with sec. 161 AktG. The management board and the supervisory board have declared that the company followed and will follow the recommendations of the German Corporate Governance Code and which of the recommendations have not been followed and will not be followed. Each member of the supervisory board discloses any possible conflict of interest to the supervisory board and abstains from voting on the respective resolutions. When the company participated in the bidding process for an important portfolio and Dr. Conradi was the legal advisor for the seller he asked not to receive any information or documentation regarding this project and announced not to able to participate in the respective consultations. Therefore, the supervisory board established a special committee for discussion and resolution regarding this bidding process. When the supervisory board makes decisions regarding contracts with supervisory board the member members pursuant concerned does not participate in the decision. to sec. 114 AktG, The supervisory board would like to thank all employee and the management board for dedication and successful work in 2007. the their Hamburg, March 25, 2008 Alexander Stuhlmann Chairman of the supervisory board | 38 | alstria Annual Report 2007 alstria Annual Report 2007 | 39 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Earnings Position > Financial and Asset Position > Risk and Opportunity Report > 2008 Outlook > Report from the Supervisory Board > Report from the Management Board REPORT FROM THE MANAGEMENT BOARD FINANCIAL STATEMENT TABLES attention. This integrated system is supplemented by the appropriate selection and training of qualified employees. The result of all this is a secure basis that guarantees that the course of business is represented in a way that corresponds to the actual situation. In accordance with the decision made in the shareholders’ meeting, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin, an independent auditing company, has audited the consolidated financial statements and the group MD&A. The supervisory board reviewed the consolidated financial statements, the group MD&A and the audit thoroughly. The audit report committee of the supervisory board discussed these documents in the presence of the auditor. The results of this review can be found in the supervisory board report (see p.37) of this annual report). Hamburg, March 18, 2008 The preparation of these consolidated financial statements and the information contained in the management’s discussion & analysis (MD&A) is the responsibility of the management board of alstria office REIT-AG. The consolidated accounts are drawn up on the basis of the International Financial Reporting Standards (IFRS), as the EU, and the additional applicable throughout requirements of German commercial law pursuant to Sec. 315a (1) German Commercial Code (HGB). The management board of that these consolidated financial statements reflect all of the adjustments that are necessary for the portrayal of the assets, financial and income position at the end of the period ending in December 2007. These consolidated statements contain certain estimates and financial assumptions by the management board that influence the figures specified in the financial statements. The group MD&A was is required by the HGB. supplemented with information that the company believes the deployment of With the help of an effective internal risk management system, reliable software and a standardised operating system, we ensure that all activities within the company are performed in compliance with existing authorisations and that all business transactions are documented and processed with maximum care and CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007 (in EUR k) Notes 2007 Jan. 20 - Dec. 31, 2006 Revenues Income less expenses from passed on operating expenses Real estate operating costs Net Rental Income Net gain from fair value adjustments on investment property Administrative expenses Personnel expenses Other operating income Other operating expenses Net Operating Result Financial Income Financial Expenses Net gain/loss from fair value adjustments on financial derivatives Other financial expenses 12.1 12.2 12.3 12.8 12.4 12.5 12.6 12.7 12.8 12.8 12.8 82,552 314 -6,674 30,063 -17 -1,688 76,192 28,358 11,170 -9,251 -3,532 588 -5 22,871 -5,523 0 6,117 -167 75,162 51,656 6,184 -38,683 8,086 -2,616 128 -23,006 -730 -9,425 -27,029 -33,033 48,133 18,623 Olivier Elamine Chief Executive Officer Alexander Dexne Chief Financial Officer Financial result Pre-Tax Income (EBT) Income tax income/expense 12.9 4,678 -4,090 Consolidated Profit for the Year 52,811 14,533 Attributable to: Shareholder 52,811 14,533 Earnings per share in EUR basic, for profit for the year attributable to ordinary equity holders of the parent diluted, for profit for the year attributable to ordinary equity holders of the parent 15 15 1.15 1.15 13.95 13.95 | 40 | alstria Annual Report 2007 alstria Annual Report 2007 | 41 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2007 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2007 ASSETS (in EUR k) Notes 2007 2006 Equity and Liabillities (in EUR k) Notes 2007 2006 Non-Current Assets Investment property Property, plant and equipment Intangible assets Deferred tax assets Total Non-Current Assets Current Assets Trade receivables Accounts receivable from affiliates Derivatives Tax receivables Other receivables Cash and cash equivalents 10.1 10.2 10.3 11.5 10.4 10.4 10.4 10.4 10.5 1,693,718 1,494 359 0 1,289,536 0 0 12,513 1,695,571 1,302,049 2,646 77 27,202 1.949 5,039 103,036 99 0 14,563 0 3,661 24,304 Total Current Assets 139,949 42,627 Equity Share capital Capital surplus Treasury shares Retained earnings Total Equity Non-Current Liabilities Long-term loans, net of current portion Deferred tax liabilities Other liabilities Total Non-Current Liabilities Current Liabilities Short-term loans Trade payables Payables to affiliates Profit participation rights Liabilities of current tax Other current liabilities Total Current Liabilities Total Liabilities 11.1 11.2 11.5 11.3 11.2 11.3 18 11.3 11.3 56,000 754,647 -7,115 67,344 8,000 375,066 0 14,533 870,876 397,599 927,400 0 56 813,466 19,869 56 927,456 833,391 8,936 3,068 15 5 5,332 19,832 1,712 5,363 82,471 0 0 24,140 37,188 113,686 964,644 947,077 Total Assets 1,835,520 1,344,676 Total Equity and Liabilities 1,835,520 1,344,676 | 42 | alstria Annual Report 2007 alstria Annual Report 2007 | 43 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2007 (in EUR k) Notes Share capital Capital surplus Treasury shares Retained earnings Total Equity As of January 1, 2007 8,000 375,066 As of January 1, 2007 0 14,533 397,599 Changes in fiscal year 2007 Consolidated profit for the year Changes in the consolidated group Valuation shareholder loan Deferred taxes Share-based payments Contributions to share capital Contributions to capital surplus (IPO) Transaction costs of issue of shares Acquisition of treasury shares Other Contributions to capital surplus 5 0 0 0 0 0 48,000 0 0 0 0 0 -5,531 447 200 813 0 240,000 -11,038 0 154,690 Changes in fiscal year 2007 Consolidated profit for the year Changes in the consolidated group Valuation shareholder loan Deferred taxes Share-based payments Contributions to share capital Contributions to capital surplus (IPO) Transaction costs of issue of shares Acquisition of treasury shares Other Contributions to capital surplus 0 0 0 0 0 0 0 0 -7,115 0 52,811 0 0 0 0 0 0 0 0 0 52,811 -5,531 447 200 813 48,000 240,000 -11,038 -7,115 154,690 As of December 31, 2007 11.1 56,000 754,647 As of December 31, 2007 -7,115 67,344 870,876 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD FROM JANUARY 20 TO DECEMBER 31, 2006 (in EUR k) As of January 20, 2006 Changes in fiscal year 2006 Consolidated profit for the year Changes in the consolidated group Valuation shareholder loan Deferred taxes Share-based payment Contributions to share capital Contributions to capital surplus Transaction costs of issue of shares Acquisition of treasury shares Other contributions to capital surplus Notes Share capital 25 0 0 0 0 0 7,975 0 0 0 0 Capital surplus 0 0 8,763 1,576 0 0 0 364,727 0 0 0 As of January 20, 2006 Changes in fiscal year 2006 Consolidated profit for the year Changes in the consolidated group Valuation shareholder loan Deferred taxes Share-based payment Contributions to share capital Contributions to capital surplus Transaction costs of issue of shares Acquisition of treasury shares Other contributions to capital surplus As of December 31, 2006 8,000 375,066 As of December 31, 2006 Treasury shares Retained earnings Total Equity 0 0 0 0 0 0 0 0 0 0 0 0 0 25 14,533 0 0 0 0 0 0 0 0 0 14,533 8,763 1,576 0 0 7,975 364,727 0 0 0 14,533 397,599 | 44 | alstria Annual Report 2007 alstria Annual Report 2007 | 45 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007 (in EUR k) Cash flows from operating activities Consolidated profit for the year Non-cash: Unrealized net gain from fair value adjustments Interest income Interest expense Result from income taxes Other non-cash income (-)/expenses (+) and IPO-costs Gain (-) on disposal of fixed assets Depreciation and impairment of fixed assets Increase (-) in trade receivables and other assets that are not attributed to investing or financing activities Decrease (-)/increase (+) in trade payables and other liabilities that are not attributed to investing or financing activities Affecting payment: Interest received Interest paid Income tax paid 2007 Jan. 20- Dec. 31, 06 52,811 14,533 -19,256 -6,184 38,683 -4,678 2,663 -175 348 -3,607 -22,792 6.184 -29,374 -1,949 -22,141 -128 23,006 4,090 0 0 0 -1,000 -1,717 128 -18,876 -3 Cash flows from operating activities 12,674 -2,108 Cash flow from investing activities Purchase of investment properties Proceeds from investment properties Purchase of fixed assets Acquisition of a subsidiary -291,640 3,700 -2,114 -16,444 -1,054,222 0 0 -17,415 Cash flows used in investing activities -306,498 -1,071,637 (in EUR k) Cash flow from financing activities Cash received (+) from equity contributions Cash paid (-) for the acquisition of treasury shares Cash received (+) from the issue of bonds and borrowings Cash paid (-) for the acquisition of derivative financial instruments Cash paid (-) for the redemption of bonds and borrowings Cash paid (-) for transaction costs Cash paid (-) for IPO costs 2007 Jan.20- Dec. 31, 06 305,008 -7,115 332,124 -1,804 -243,262 -355 -12,040 374,365 0 1,366,005 -11,631 -625,180 -5,510 0 Cash flows used in financing activities 372,556 1,098,049 Cash and cash equivalents at the end of the period Change in cash and cash equivalents (subtotal of 1 to 3) Effect of changes in consolidated group on cash and cash equivalents Cash and cash equivalents at the beginning of the period 78,732 0 24,304 24,304 0 0 Cash and cash equivalents at the end of the period 103,036 24,304 Composition of cash and cash equivalents Cash Securities 103,036 0 24,304 0 Cash and cash equivalents at the end of the period 103,036 24,304 | 46 | alstria Annual Report 2007 alstria Annual Report 2007 | 47 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties NOTES Contents 1. 2. 3. Corporate Information Basis of Preparation Changes in Accounting Policy and Disclosures Basis of Consolidation Consolidated Group Key Judgments and Estimates Seasonal or Economic Effects on Business Summary of Significant Accounting Policies Segment Reporting 4. 5. 6. 7. 8. 9. 10. Notes to the Consolidated Balance Sheet – Assets 10.1 Investment Property 10.2 Property, plant and equipment 10.3 Intangible assets 10.4 Receivables 10.5 Cash and Cash Equivalents 11. Notes to the Consolidated Balance Sheet – Equity and Liabilities 11.1 Equity 11.2 Financial Liabilities 11.3 Trade Payables and Other Liabilities 11.4 Trust Assets and Liabilities 11.5 Deferred Taxes 11.6 Liabilities of Current Tax 12. Notes to the Consolidated Income Statement 12.1 Revenues 12.2 Income From Passed on Operating Expenses 12.3 Expenses From Passed on Operating Expenses 12.4 Administrative Expenses 12.5 Personnel Expenses 48 50 53 54 55 61 62 63 69 70 70 73 75 77 79 80 80 83 85 86 86 86 86 86 86 87 87 87 12.6 Other Operating Income 12.7 Other Operating Expenses 12.8 Financial and Valuation Result 12.9 Income Taxes 13. Other Notes 13.1 Compensation of Management Board and Supervisory Board 13.2 Commitments and contingencies 13.3 Consolidated Cash Flow Statement 14. 14.1 Preliminary Remarks 14.2 Remuneration of Key Related Party Relationships Management Personnel 14.3 Related Party Transactions 15. Earnings per Share 16. Dividends Proposed 17. 18. Convertible Profit Participation Employees 19. 20. 21. Rights Program Financial Risk Management Financial Instruments Significant Events after the End of the Reporting Period 22. Utilization of Exempting Provisions 23. Disclosures Pursuant to Wertpapierhandelsgesetz [German Securities Trading Act] 24. Declaration of Compliance Pursuant to Sec. 161 AktG [“Aktiengesetz”: German Stock Corporation Act] 25. Auditor’s Fees 26. Management Board 27. 28. Management Compliance Statement Supervisory Board 87 88 88 89 90 90 90 91 91 91 92 92 96 97 97 97 98 103 105 105 106 111 111 111 111 114 1. Corporate Information The consolidated financial statements of alstria office REIT-AG, formerly Alstria Office AG (hereinafter also referred to as the “Company” or “alstria office REIT-AG”) as of December 31, 2007 were authorized for issue by resolution of the management board on March 18, 2008. alstria office REIT-AG was transformed into a German Real Estate Investment Trust (G-REIT) in fiscal year 2007. The Company was registered as a REIT corporation (hereinafter also referred to as “REIT-AG”) in the commercial register on October 11, 2007; the company name was changed to alstria office REIT-AG. REIT-AGs are fully exempt from German corporate income tax and trade tax. Hence, alstria office REIT-AG has been exempt from tax with retrospective effect since January 1, 2007. The Company is a real estate property company in the meaning of the G-REIT Act. Pursuant to Section 2 of its Articles of Association, the Company’s objective is the acquisition, the management, the operation and the sale of owned real estate property as well as the holding of participations in enterprises, which acquire, manage, operate and sell owned property. All the aforementioned objectives are subject to the conditions of the G-REIT Act legislation. The Company is a stock corporation which was founded in Germany and has its registered office in Hamburg. The Company is registered in the commercial register at the local court of Hamburg under HRB No. 99204. The Company’s address is Fuhlentwiete 12, D-20355 Hamburg, Germany. The fiscal year ends on December 31 of each calendar year. With effect as of October 1, 2007 the respective general partners withdrew from the following German GmbH & Co. KGs: Alstria Erste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Neunte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Zehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Elfte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Zwölfte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Dreizehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Vierzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Fünfzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Sechzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Siebzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Achtzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Neunzehnte Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Zwanzigste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria Einundzwanzigste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg and Juna Property GmbH & Co. KG, Hamburg. Therefore these GmbH & Co. KGs ceased to exist and the assets and liabilities were automatically transferred to alstria office REIT-AG, in accordance with Sec. 738 BGB (Anwachsung). Furthermore, the following general and limited partner companies | 48 | alstria Annual Report 2007 alstria Annual Report 2007 | 49 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Verwaltung Alstria Zweite Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Neunte Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Zehnte Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Elfte Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Zwölfte Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Dreizehnte Hamburgische Grundbesitz GmbH, Hamburg Verwaltung Alstria Erste Hamburgische Mobilien GmbH, Hamburg JUNA Beteiligungs GmbH, Hamburg, and JUNA Verwaltungsgesellschaft mbH, Hamburg were merged with alstria office REIT-AG as of October 1, the transfer agreements dated 2007 on the basis of August 21, 2007. The transaction was entered into the commercial register on October 1, 2007 and became commercially effective on January 1, 2007. After the merger the following investments in subsidiaries still exist: 2. Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis except for investment instruments property (land and buildings) and financial that have been measured at fair value. The consolidated financial statements are presented in Euros. All values are rounded to the nearest thousand (EUR k) except when otherwise indicated. These consolidated financial statements are financial the period from January 1, 2007 to statements for December 31, 2007. As the Company was founded on January 20, 2006, the figures for 2007 can only be compared with those of the prior-year to a limited extent. items are summarized in the For the sake of clarity, consolidated balance sheet and income statement and commented on in the notes to the financial statements . Assets and liabilities are classified as non-current - for items due in more than one year - or current. The consolidated financial statements of alstria office REIT-AG and its subsidiaries (the “Group”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Capital Share capital interest % Dec. 31, 07 EUR k Net loss/ profit in 07 EUR k Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH, Hamburg Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg 100.00 51.00 100.00 100.00 25 20 6,501 5,043 11,589 -7 -6 -4,935 -3,689 Board (IASB) including the interpretations of the standards (IFRIC). All IFRS and IFRIC were observed as adopted and prescribed by the EU. alstria office REIT-AG did not prematurely adopt the following standards that were revised and published by the IASB in 2006 and 2007 and 2008 respectively, but only became mandatory for fiscal years beginning on or after January 1, 2009: • IFRS 8 ”Operating Segments” replaces IAS 14 ”Segment Reporting”. However, standard issued in this November 2006 has not been taken into consideration. The application is not expected to result in any impact on the financial position or significant performance of the Group. • IAS 23 “Borrowing Costs” was issued in March 2007 as it has not yet been adopted revised version, but by EU. The standard requires the capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or In accordance with the transitional requirements in the Standard, the Group will adopt this as a prospective change. The application is not expected to result in any significant impact on the financial position or performance of the Group. sale. • IAS 1- “Presentation of Financial Statements” was issued in September 2007 as revised version, but it has not yet been adopted by EU. The standard requires a couple of changes in equity, income statement and other presentation subjects. The application is not expected to result in any significant impact on the financial position or performance of the Group. vesting conditions only concerns the requirement to provide services and performance conditions. On the other hand, it also extends the regulations on the accounting treatment of premature cancellation of share-based payment plans to include cancellation by employees. The transitional provisions provide for retrospective application of the new regulation. As the opinion expressed by the IASB corresponds to the accounting method used by the group up to now, application of this new regulation does not have any effect on the financial position or performance of the Group. • IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements” were issued in February 2008 as revised versions but were not yet been adopted by the EU. The revision mainly concerns the classification of puttable shareholder contributions as equity or financial liabilities. The previous regulation forced entities in some cases to report the entity’s liabilities as a consequence of capital as financial statutory termination rights on the part of the shareholder. In future, such shareholder contributions are to be classified as equity insofar as settlement at fair value is agreed and the contributions made constitute the most subordinated claim to the net assets of the entity. The transitional provisions provide for retrospective application of the new regulation. The new regulation is not expected to significantly impact the shareholder contributions in the consolidated financial statements. the disclosure or measurement of alstria office REIT-AG did also not prematurely adopt the following standards that were revised and published by the IASB in 2008, but only became mandatory for fiscal years beginning on or after July 1, 2009: • IFRS 2 “Share-based Payment” was issued in January 2008 as revised version, but it has not yet been adopted by the EU. The revision clarifies that the definition of • IFRS 3 “Business Combinations” was issued in January it has not yet been 2008 as revised version but | 50 | alstria Annual Report 2007 alstria Annual Report 2007 | 51 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties interests when control adopted by the EU. The standard was subject to comprehensive revision as part of the IASB and FASB convergence project. The significant revisions relate in particular to the introduction of an option for the measurement of minority interests between the purchased goodwill method and the full goodwill method, in which the entire goodwill of the acquired entity must be recognized, including that part attributable to minority interests. Other important aspects include the revaluation to profit or loss of initially existing capital obtained (business combination achieved in stages), mandatory accounting for contingent consideration at the date of acquisition and the recognition of transaction costs in profit or loss. The transitional provisions provide for prospective application of the new regulation. As the Group is planning to continue using the purchased goodwill method for future the new regulation will business combinations, not have any effect. The revaluation for business combination achieved in stages and the mandatory recognition of contingent considerations at the time of acquisition will mean that the goodwill recognized will tend to be higher. is The revisions primarily • IAS 27 “Group and Separate Financial Statements” was issued in January 2008 as revised version but it has not yet been adopted by the EU. The revisions are a product of the joint project by IASB and FASB to revise accounting regulations relating to business combinations. relate to accounting for shares not involving control (minority interests) that will in the group’s losses and for transactions that lead to loss of control of a subsidiary and the effects of which are to be recognized in profit or loss. In contrast, the effects of disposal of shares that do not lead to loss of control should be recorded directly in equity. The transitional provisions that generally require retrospective application of revisions made, provide for prospective application in future participate in full in the cases listed above. Application of this new regulation is not expected to result in any significant impact on the financial position or performance of the Group. the following IFRIC interpretations In addition, alstria office REIT-AG did not prematurely that were adopt revised and published by IFRIC in 2006 and 2007, respectively, but only became mandatory for fiscal years beginning on or after January 1, 2008: • IFRIC Interpretation “Service Concession 12 Arrangements” was issued in November 2006, but it has not been yet adopted by EU. This Interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. No member of the Group is an operator and hence this Interpretation will have no impact on the Group. • IFRIC Interpretation 13 “Costumer Loyality Programmes” was issued in June 2007, but it has not been yet adopted by EU. This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. that interpretation will have no impact on the this Group's financial statements as no such schemes currently exist. The Group expects • IFRIC Interpretation 14 IAS 19 – “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” was issued in July 2007, but it has not been yet adopted by EU. This Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 Employee Benefits. The Group expects that this Interpretation will have no impact on the financial position or performance of the Group. alstria office REIT-AG did prematurely adopt IFRIC Interpretation 11 IFRS 2 – “Group and Treasury Share Transactions” as of January 2007, in so far as it applies to consolidated financial statements. This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. alstria office REIT-AG will apply the abovementioned standards and interpretations from the date on which its application becomes binding. Furthermore, additional standards and interpretations have been adopted, the application of which has no material effects for alstria office REIT-AG. 3. Changes in Accounting Policy and Disclosures The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures, including in some cases, revisions to accounting policies. • IFRS 7 Financial Instruments: Disclosures • IAS 1 Amendment - Presentation of Financial Statements - Capital Disclosures • IFRIC 9 Reassessment of Embedded Derivatives • IFRIC 8 Scope of IFRS 2 • IFRIC 10 Interim Financial Reporting and Impairment The principal effects of these changes are as follows: IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group's financial instruments and the nature and extent of instruments. The new risks arising from those financial disclosures are included throughout the financial statements. While there has been no effect on the financial position or results, comparative information has been revised where needed. IAS 1 PRESENTATION OF FINANCIAL STATEMENTS - CAPITAL DISCLOSURES This amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group's objectives, policies and processes for managing capital. These new disclosures are shown in Note 19. IFRIC 8 SCOPE OF IFRS 2 This interpretation requires IFRS 2 to be applied to any arrangements in which the entity cannot identify specifically some or all of the goods received, in particular where equity instruments are issued for consideration which appears to be less than fair value. As equity instruments are only issued to the management board and employees in accordance with the stock option program and the convertible profit participation rights program, respectively, the interpretation had no impact on the financial position or performance of the Group. IFRIC 9 REASSESSMENT OF EMBEDDED DERIVATIVES IFRIC 9 states that the date to assess the existence of an embedded derivative is the date that an entity first becomes a party to the contract, with reassessment only that significantly if there is a change to the contract | 52 | alstria Annual Report 2007 alstria Annual Report 2007 | 53 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties modifies the cash flows. As the Group has no embedded derivative requiring separation from the host contract, the interpretation had no impact on the financial position or performance of the Group. Subsidiaries are fully consolidated from the date of acquisition, i.e. the date on which the group obtains control. Inclusion in the consolidated financial statements ends as soon as the parent ceases to have control. 5. Consolidated Group The following subsidiaries are included in the consolidated financial statements: IFRIC 10 INTERIM FINANCIAL REPORTING AND IMPAIRMENT The Group adopted IFRIC Interpretation 10 as of January 1, 2007, which requires that an entity must not reverse an impairment interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. As the Group had no impairment losses previously reversed, the interpretation had no impact on the financial position or performance of the Group. recognised in a previous loss 4. Basis of Consolidation The consolidated financial statements comprise the financial statements of alstria office REIT-AG and its subsidiaries as of December 31, 2007. The financial statements of the subsidiaries are prepared for the same reporting year as for the parent company, using consistent accounting policies. Subsidiaries are entities where group controls their business policies. Among other criteria it is possible to exercise control with more than 50 % of voting rights. All intragroup balances, transactions, income and expenses and profits and losses resulting from intragroup transactions that are recognized in the carrying amounts of assets are eliminated in full. In accordance with IFRS 3, all business combinations are stated using the purchase method. The recognized assets and the acquired liabilities are measured in full at their fair value regardless of the ownership interest. The carrying values on the date on which control over the subsidiary was obtained are relevant. Any remaining debit difference is reassessment, any remaining credit difference is recognized immediately as profit (“lucky buy”). In the periods following the business combination, the disclosed hidden reserves and charges are carried forward, amortized or released depending on the treatment of the corresponding assets. recognized as goodwill. After The Company generally applies IFRS 3 to account for transactions under common control. However, for transactions under common control, any credit and debit resulting from capital consolidation are differences recognized as an increase or decrease in capital surplus. Group entity Share in voting rights Date of formation/ acquisition Acquisition Costs EUR k Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH, Hamburg Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg 100 % 4/1/2007 51 % 94 % 6 % 94 % 6 % 4/1/2007 3/31/2007 6/30/2007 3/31/2007 6/30/2007 15 0 2,095 154 12,942 860 The following business combinations and formations took place between January 1, 2007 and December 31, 2007: • During the reporting period, alstria office REIT-AG acquired a 94 % interest in Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH, Hamburg, and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH, Hamburg. • In addition, Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte respectively, Hamburgische Grundbesitz GmbH, acquired an interest of 1 % in Alstria Vierte Hamburgische Grundbesitz S.à.r.l. & Co. KG, Hamburg, and Alstria Siebte Hamburgische Grundbesitz S.à.r.l. & Co. KG, Hamburg, respectively, from its general partner, and therefore expanded their interests in these companies to 100 %. Thereafter, the general partner withdrew from the partnerships, and, as a consequence, the partnerships ceased to exist and the assets and liabilities were automatically transferred to Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH, respectively, in accordance with Sec. 738 BGB (Anwachsung) with effect as of March 31, 2007. • On June 28, 2007, the conversion of Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH into Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG and Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, respectively, became effective. Thereafter, alstria office REIT-AG acquired the remaining interest of 6 % in Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG and Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG with effect from June 30, 2007. • With effect as of April 1, 2007 Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH transferred a limited partner’s interest of Alstria Sechste Hamburgi- sche Grundbesitz S.à.r.l. & Co. KG amounting to EUR 9,600 to Alstria Hanseatische Grundbesitz Holding S.à.r.l. and another limited partner’s interest of EUR 10,200 to | 54 | alstria Annual Report 2007 alstria Annual Report 2007 | 55 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties alstria office REIT-AG. Furthermore, the general partner Alstria Hanseatische Grundbesitz S.à.r.l. transferred its capital contribution of EUR 200 to Alstria Hanseatische Grundbesitz Holding S.à.r.l. As a result Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH ceased to be limited partner and alstria office REIT-AG became limited in Alstria Sechste partner with 51 % of Hamburgische Grundbesitz S.à.r.l. & Co. KG. Regarding the transfers of these interests no purchase prices were paid since the capital contribution is still outstanding and the net asset value of the KG amounts to EUR 0. the interest • In addition, alstria office REIT-AG acquired a 100 % interest in Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH from Alstria Hanseatische Grundbesitz Holding S.à.r.l. effective from April 1, 2007. • By shareholder’s resolution of Alstria Sechste Hambur- gische Grundbesitz S.à.r.l. & Co. KG dated April 1, 2007, Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH joined Alstria Sechste Hamburgische Grundbesitz S.à.r.l. & Co. KG as general partner without capital contribution and without participation in losses and profits of the KG. At the same time Alstria Sechste Hamburgische Grundbesitz S.à.r.l. & Co. KG was renamed to Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG. • alstria office REIT-AG acquired 100 % of JUNA Beteiligungs GmbH from Captiva 2 JUNA Holding S.à.r.l. The transaction was notarized on July 30, 2007. JUNA Beteiligungs GmbH holds a 5.1 % share in JUNA Property GmbH & Co. KG, the company holding the West (Barmer Ersatzkasse) Portfolio. With the pay off of the minority shareholders alstria office REIT-AG then, directly and indirectly, owned 100 % of JUNA Property GmbH & Co. KG. Both companies merged with alstria office REIT-AG with effect from October 1, 2007. Regardless of their legal structure, the transactions are disclosed in accordance with their economic substance in the consolidated financial statements as of December 31, 2007. The acquisition of a 94 % interest in Verwaltung Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG (formerly Verwaltung Alstria Vierte and Siebte Hamburgische Grundbesitz GmbH) as of March 31, 2007 as well as the acquisition of 6 % of the shares in Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG and Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG as of June 30, 2007 were stated as a business combination as well as the acquisition of minority shares involving entities under common control since the seller of the shares, Alstria Hanseatische Grund- besitz Holding S.à.r.l., was also a subsidiary of Captiva Capital Partners II SCA, Luxembourg. Also, the acquisition of a 51 % interest in Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG was stated as a transaction under common control as of April 1, 2007 since the seller of the shares, Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH, was a subsidiary of Captiva Capital Partners II SCA, Luxembourg, as well. The same type of business combination applies for the acquisition of a 100 % interest in JUNA Beteiligungs GmbH. The seller of the shares, Captiva 2 JUNA Holding S.à.r.l., Luxembourg, was also a subsidiary of the Captiva Capital Partners II SCA, Luxembourg, and the transaction is therefore stated as a business combination involving entities under common control as of July 30, 2007. In the course of this business combination a minority interest in Juna Property GmbH & Co. KG was acquired. IFRS 3 does not apply to business combinations under joint control. As a consequence of the gap in legislation after the introduction of IFRS 3, the transactions were stated using the purchase method (in line with IFRS 3). The difference amount resulting from the acquisition costs of the minority interest and the minority interest stated in the consolidated balance sheet was recorded in the capital surplus. Altogether, fair values of the following assets and liabilities accrued to the Group in the course of first-time consolidation of the Company: (in EUR k) Assets Investment property Receivables Other assets Cash and cash equivalents Prepaid expenses Deferred tax assets Total assets Equity and Liabillties Equity and reserves Deferred tax liabilities Other provisions Current liabilities 50,000 679 650 597 18 732 52,676 3,148 263 149 49,116 Total equity and liabilities 52,676 No adjustments had to be made to account for differences between the carrying amounts determined by the Company in its separate financial statements in accordance with IFRS and the fair values of the acquired assets and liabilities. A contribution or withdrawal in kind in the amount of the differences between the purchase prices of the interests and the pro-rated fair values of the net assets acquired as of March 31, 2007, April 1, 2007, June 30, 2007 and July 30, 2007, respectively, are assumed. Accordingly, the respective remaining debit or credit difference from capital consolidation resulted in a decrease or increase in the captal surplus of the consolidated financial statements of alstria office REIT-AG without effect on income. The main business objective of Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG (formerly Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH) is the leasing of office property throughout Germany. The key figures of the acquisition of 94 % of the shares as of March 31, 2007 are as follows: (in EUR k) Cost of the investment Carrying amount of the acquired assets (excluding cash and cash equivalents) Purchased cash and cash equivalents Liabilities acquired Carrying amount of the acquired net assets Thereof 94% Remaining credit difference 52,079 597 -49,528 3,148 -2,959 2,095 -2,959 -864 The remaining credit difference has been contributed in full to the capital surplus of alstria office REIT-AG. | 56 | alstria Annual Report 2007 alstria Annual Report 2007 | 57 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties The cost of the investment in terms of actual acquisition costs and incidental acquisition costs break down as follows: (in EUR k) Acquisition costs pursuant to the purchase agreement dated March 15, 2007 Legal advice Non-deductible input VAT on legal advice Additional incidental costs concerning legal advice which amount to EUR 25k arose in the 4th quarter and were capitalized. The additional consolidated net profit for a theoretical acquisition as of January 1, 2007 was calculated as follows (pro forma figures only): (in EUR k) Revenues Other operating income Cost of materials Other operating expenses Deferred income tax Other interest and similar income Interest and similar expenses Extraordinary expenses Other taxes 520 5 -70 -43 554 1 -685 -3,613 -21 Additional consolidated loss for the period for a theoretical acquisition as of January 1, 2007 -3,352 2,006 76 13 2,095 (in EUR k) Acquisition costs pursuant to the purchase agreement dated June 29, 2007 Legal advice are amounting to EUR 154k. In consideration of 6 % of the equity taken over amounting to EUR 189k a remaining credit difference of EUR 35k results, which has been surplus of alstria to the capital contributed in full office REIT-AG. The cost of the investment in terms of actual acquisition costs and incidental acquisition costs break down as follows: The main business objective of Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG (formerly Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH) is the leasing of office property throughout Germany. The key figures of the acquisition of 94 % of the shares as of March 31, 2007 are as follows: (in EUR k) Cost of the investment Carrying amount of the acquired assets (excluding cash and cash equivalents) Purchased cash and cash equivalents Liabilities acquired Carrying amount of the acquired net assets thereof 94% 45,491 575 -33,728 12,338 -11,598 128 26 154 12,942 -11,598 1,344 The acquisition costs of the remaining minority interest of 6 % of Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG Remaining debit difference The remaining debit difference has been attributed in full to the capital surplus of alstria office REIT-AG. The cost of the investment in terms of actual acquisition costs and incidental acquisition costs break down as follows: Altogether, fair values of the following assets and liabilities accrued to the Group in the course of first-time consolidation of the Company: (in EUR k) Assets Investment property Receivables Other assets Cash and cash equivalents Prepaid expenses Deferred tax assets Total assets Equity and Liabillties Equity and reserves Other provisions Current liabilities Deferred tax liabilities 45,000 32 422 575 11 26 46,066 12,338 104 30,496 3,128 Total equity and liabilities 46,066 No adjustments had to be made to account for differences between the carrying amounts determined by the Company in its separate financial statements in accordance with IFRS and the fair values of the acquired assets and liabilities. (in EUR k) Acquisition costs pursuant to the purchase agreement dated March 15, 2007 Legal advice Non-deductible input VAT on legal advice 12,853 76 13 12,942 Additional incidental costs concerning legal advice which amount to EUR 25k arose in the 4th quarter and were capitalized. The additional consolidated net profit for a theoretical acquisition as of January 1, 2007 was calculated as follows (pro forma figures only): (in EUR k) Revenues Other operating income Cost of materials Other operating expenses Deferred income tax Other interest and similar income Interest and similar expenses Extraordinary Income Extraordinary expenses Other taxes Additional consolidated profit for the period for a theoretical acquisition as of January 1, 2007 313 9 -3 -97 -3,219 1 -436 10,750 -10 -13 7,295 | 58 | alstria Annual Report 2007 alstria Annual Report 2007 | 59 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties The acquisition costs of the remaining minority interest of 6 % of Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG are amounting to EUR 860k. In consideration of 6 % of the equity taken over amounting to EUR 740k a remaining debit difference of EUR 120k as of June 30, 2007 results, which has been attributed in full to the capital surplus of alstria office REIT-AG. The cost of the investment in terms of actual acquisition costs and incidental acquisition costs break down as follows: (in EUR k) Acquisition costs pursuant to the purchase agreement dated June 29, 2007 Legal advice 835 25 860 The business objective of Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG is the leasing of mainly office property throughout Germany. Regarding the transfer of the interest no purchase price was concluded and no incidental acquisition costs had to be considered. As the Company did not have material equity, no difference from capital consolidation had to be recognized in the capital surplus of alstria office REIT-AG. The consolidated financial statements include the expenses and income of Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG for the period since the acquisition as of April 1, 2007. Minority interests represent the portion of profit or loss and net assets in Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG not held by the Group. In accordance with IAS 32, minority interests in partnerships are disclosed under liabilities. The additional consolidated net loss for the period for a theoretical acquisition as of January 1, 2007 was amounting to EUR 312. The main business objective of JUNA Beteiligungs GmbH is the holding of 5,1% interests in JUNA Property GmbH & Co. KG. The key figures of the acquisition of the interests are as follows: (in EUR k) Cost of the investment Omission of the liability against the minority shareholder Carrying amount of the acquired assets (excluding cash and cash equivalents) Purchased cash and cash equivalents Liabilities acquired Carrying amount of the acquired net assets thereof 100% Remaining debit difference 1,791 1 254 -249 1,797 -1,797 6,764 -1,797 4,967 The remaining debit difference has been attributed in full to the capital surplus of alstria office REIT-AG. Altogether, the following assets and liabilities accrued to the Group in the course of first-time consolidation of the Company: (in EUR k) Assets Cash and cash equivalents Prepaid expenses Total assets Equity and Liabillties Equity and reserves Tax accruals Other provisions Current liabilities Total equity and liabilities 254 1 255 6 223 12 14 255 No adjustments had to be made to account for differences between the carrying amounts determined by the Company in its separate financial statements in accordance with IFRS and the fair values of the acquired assets and liabilities. the sole interest of JUNA The acquisition costs of Beteiligungs GmbH are amounting to EUR 6,764k. Apart from the purchase price of 1,848k this amount contains real estate transfer tax of EUR 4,910k that resulted from the aggregation of 100 % of the shares in JUNA Property GmbH & Co. KG in the hand of alstria office REIT-AG. Furthermore, additional costs for legal advice amount investment in terms of actual to EUR 6k. The cost of acquisition costs and incidental acquisition costs breaks down as follows: (in EUR k) Acquisition costs pursuant to the purchase agreement dated July 30, 2007 Property Transfer Tax Legal advice Non-deductible input VAT on legal advice 1,848 4,910 6 0 6,764 6. Key Judgments and Estimates The preparation of the consolidated financial statements in accordance with IFRSs requires assumptions and estimates to be made for various items which have an effect on the amount and disclosure of the assets and liabilities as well as income and expenses. Actual amounts may differ from these estimates. Judgements In the process of applying the Group's accounting policies, management has made the following judgement, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements: Operating Lease Commitments – Group as Lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and retains all conditions of the arrangements, the significant risks and rewards of ownership of these properties and so accounts for the contracts as operating leases. that it | 60 | alstria Annual Report 2007 alstria Annual Report 2007 | 61 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimates are required in particular in order to: • determine the fair values of investment property; • determine the fair values of financial instruments; and • determine the fair value of stock options granted to management; and • determine the amount of tax liabilities concerning the G-REIT conversion tax. in determining the fair values of In particular, the investment property, alstria office REIT-AG must apply and take account of numerous factors. If the future development of these properties differs from the estimate, large-scale impairment losses may incur. This can have a negative impact on future results of operations. the derivative financial A fair value measurement of instruments was performed by an independent third party and the market data compiled thereof were included in the standard measurement models. Thus, the usual estimation uncertainties exist regarding possible deviations from the market data used. Depending on the paramete- rization of the these deviations at between maximum range for EUR -10,000 and EUR 10,000. We consider the models used to be adequate and believe that they do not engender any uncertainty as to their applicability. the models, alstria office REIT-AG put The fair value of stock options granted to the management board has been determined as of the granting date and has been valued based on the expected volatility, life of option and labor turn rate using current discount rates applicable for items with similar terms and risk characteristics. This valuation requires the Company to make estimates about these parameters, and hence they are subject to uncertainty. The fair value of the stock options granted as of April 3, 2007 and September 5, 2007, respectively, is allocated to the vesting period according to the determinations in the underlying stock option program. The resulting personnel expenses caused an addition to capital surplus of EUR 806k (December 31, 2006: EUR 0) in the consolidated financial statements as of December 31, 2007. The assets, liabilities and equity instruments stated above, which are particularly exposed to estimation uncertainty, had the following impact on the consolidated balance sheet as of the balance sheet date: (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Investment property Positive fair values of derivatives Tax accruals (G-REIT conversion tax) Valuation of stock options Deferred tax assets thereof loss carryforwards 1,693,718 1,289,536 27,202 14,563 5,100 806 0 0 0 0 12,513 7,605 7. Seasonal or Economic Effects on Business The activities of alstria office REIT-AG (primarily the generation of revenues from investment properties) are not generally affected by seasonal factors. However, the sale of one or more large properties may have a significant impact on revenues and operating expenses. From experience, the real estate market tends to fluctuate as a result of factors such as the net income of consumers or GDP, changes in interest rates, consumer confidence, and demographic and other factors inherent to the market. The change of the interest rate might lead to a lower valuation of the investment property and derivatives. 8. Summary of Significant Accounting Policies The following accounting and valuation methods have been used to prepare these consolidated financial statements of alstria office REIT-AG. Investment Property Investment property comprises all property that is held in order to generate rental income or long-term value increases in assets and is used neither in production nor for administrative purposes. It is recognized at acquisition costs at the time of addition. The costs include the transaction costs which have to be capitalized (particularly real estate transfer tax). In accordance with IAS 40.17, costs incurred subsequently for dismantling, replacing in parts or maintenance of property are also included; no costs of this kind, however, had been incurred as of the balance sheet date. For subsequent measurement the Company uses the fair value model according to IAS 40.33 et seq. which reflects market conditions at the balance sheet date. All market values were determined by Colliers CRE, London, a renowned appraiser and brokerage firm, as of December 31, 2007. The basis for deriving the fair values as defined by IAS 40.33 should be, where possible, prices in an active market for similar property (IAS 40.45). An analysis showed that there was not a sufficient number of official comparable transactions to derive any market values. In accordance with IAS 40.46, therefore, the fair value was determined on the basis of an income approach. The method used is a hardcore and top slice method, income is horizontally segmented, with whereby rental the hardcore portion representing the prevailing contractual rent. The top slice represents the difference between market rent and contractual rent. This method fulfills the international requirements of the Red Book, a set of valuation standards set forth by the Royal Institution of Chartered Surveyors. The method used by Colliers is also appropriate and suitable for determining market values in accordance with the provisions of the International Valuation Standards (IVS, or the White Book). In order to derive the fair value, the properties were divided into two groups and valued accordingly. Group 1 contained properties with anchor lease terms of less than five years and Group 2 properties with anchor lease terms of more than five years. Group 1 for properties with leases set to expire in five years or less: Hardcore and top slice method, taking account of • contractual rent for the remaining term of the lease; • a vacancy period of at least 18 months following expiry of the lease; • necessary maintenance costs to re-let the properties at a comparable rent level; • re-lets at market rents; • capitalization rates reflecting the individual risk of the property as well as market activity (comparable transactions); and • non-allocable operating costs in the amount of 5 % of rental income p.a. Group 2 for properties with anchor leases that are leased on a long-term basis to tenants with high credit ratings: Hardcore and top slice method, taking account of • contractual rent for the remaining term of the lease; • re-lets at market rents (accounting for the difference between market rent and contractual rent); | 62 | alstria Annual Report 2007 alstria Annual Report 2007 | 63 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report • capitalization rates reflecting the individual risk of the property as well as market activity (comparable transactions); • non-allocable operating costs in the amount of 5 % of rental income p.a.; and • net selling price. Gains or losses arising from changes in the fair values of investment property are disclosed in the item “Net gain from fair value adjustments on investment property” in the income statement in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement or disposal. incidental Leases The lessee is considered to be the beneficial owner of leased assets when the lessee bears all the risks and in to the assets rewards accordance with IAS 17. If the lessee is deemed beneficial owner, the leased asset is recognized at fair value or the lower present value of the minimum lease payments at the inception of the lease. (finance lease) Operating Leases Lease agreements that alstria office REIT-AG has entered into with commercial tenants are classified as operating leases under IFRS. Accordingly, alstria office REIT-AG is lessor in numerous different types of operating lease agreements for investment properties with a carrying amount of EUR 1,693,718k (December 31, 2006: EUR 1,289,536k). These leases generate the majority of proceeds and income for alstria office REIT-AG. amortized; they are tested for impairment on an annual basis. that are amortized are tested for impairment Assets whenever triggering events or changes in circumstances indicate that the carrying amount may no longer be recoverable. An impairment loss is charged in the amount of the excess of the carrying amount over recoverable amount. If the reasons for an impairment loss cease to apply, the impairment loss is reversed as appropriate. Property, Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Depreciation of plant and equipment is calculated on a straight line basis over the useful life of the asset (5 to 15 years). An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Impairment of Assets Intangible assets with indefinite useful lives are not Borrowing costs are recognised as an expense when in- curred. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalised and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. The useful either finite or indefinite. lives of intangible assets are assessed to be Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation life is method for an intangible asset with a finite useful reviewed at least at each financial year end. Changes in the expected useful the expected pattern of consumption of future economic benefits embodied in the is accounted for by changing the amortisation asset period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. life or Taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred taxes are carried forward using the liability method. Deferred tax assets are the amounts of income tax that are recoverable in future fiscal years and result from deductible temporary differences and from unused tax loss carryforwards. Deferred tax liabilities are the amounts of income tax payable on taxable temporary differences in future fiscal years. A deferred tax liability was recognized for all temporary differences. taxable Deferred tax assets were recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. A deferred tax asset was recognized for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Depreciation of licence is calculated on a straight line basis over the useful life of the asset (3 to 8 years). Currently, the Company does not have intangible assets with indefinite useful lives. Deferred tax assets and deferred tax liabilities were measured at the tax rates that are expected to apply for the period when the asset is realized or the liability is settled using tax rates and tax laws that have been enacted or substantively enacted as of the balance sheet date. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. | 64 | alstria Annual Report 2007 alstria Annual Report 2007 | 65 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Financial Instruments Pursuant to IAS 39, a financial instrument is any contract that gives rise to both a financial asset at one entity and a liability or equity instrument at another entity. financial Financial assets comprise in particular cash and cash equivalents, trade receivables, as well as other loans and receivables originated by the enterprise, held-to-maturity investments and original and derivative financial assets held for trading. Financial liabilities frequently underlie a claim to their return in cash or another financial asset. These include in particular liabilities to banks and other creditors, trade payables and derivative financial liabilities. Financial assets and liabilities are generally not offset. financial assets is Recognition and measurement of subject to the provisions of IAS 39. Depending on the classification prescribed by IAS 39 • held-to-maturity; • measured at fair value through profit or loss; • available-for-sale; or • loans and receivables, financial assets are either measured at amortized cost or the lower net realizable value or at fair value and recognized as of the balance sheet date. When financial assets are recognized initially, they are measured at fair value. A financial asset is derecognized when the entity loses control of the contractual rights that instrument. Management decides comprise the financial financial assets on first-time on the classification of recognition and reviews the classification on every balance sheet date. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. instruments that are not part of an Derivative financial effective hedge pursuant to IAS 39 must be classified as “held for trading” and recognized in profit or loss at fair value. If their fair value is negative, the instruments are disclosed under financial liabilities. The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if the contract that significantly modifies the cash flows that would otherwise be required. there is a change in the terms of Receivables Receivables are classified as loans and receivables as defined by IAS 39 and measured initially at fair value and subsequently at amortized cost, if necessary after deduction of any valuation adjustments. Amortized costs are computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Within the scope of the measurement of trade receivables, a solvency check was performed on the tenants (risk associated with the legal validity of receivables) and certainty gained that there were no reasons for a rent reduction (delcredere risk). This takes place on an individual property and portfolio basis respectively. Non-interest bearing receivables due in more than one year are discounted. Gains and losses are recognized in profit or loss when the receivables are derecognized or impaired as well as through the amortization process. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced directly. The amount of the loss shall be recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent that the carrying value of the receivable does not the reversal date. Any exceed its amortised cost at subsequent reversal of an impairment loss is recognised in profit or loss. Provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is Impaired debts are derecognized when they are assessed as uncollectible. reduced directly. agreement based on current market structures of interest rates. rates or term The method used for recording gains and losses depends on whether the derivative was assigned to an underlying transaction as a hedge. To this end, financial management defines the hedge relationship between the hedging instrument and the hedged item and the aim of the risk management measure and underlying strategy when concluding the hedge transaction. As of December 31, 2007 and during the period under review, the derivative financial instruments concluded by alstria office REIT-AG do not qualify for hedge accounting. The changes in the fair value of these derivatives are recognized directly in profit or loss. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when the rights to receive cash flows from the asset have expired. Cash and Cash Equivalents Cash and short-term deposits in the balance sheet comprise current bank balances. Assets, Derivative Financial Assets and Hedging Instruments Measured at Fair Value through Profit or Loss alstria office REIT-AG makes targeted use of derivative financial instruments as part of its financial management to minimize risks and optimize interest charges. For the purposes of the consolidated cash flow statement, cash and cash equivalents include the cash and cash equivalents defined above and short-term deposits. Current bank balances are recognized in the nominal amount. Derivative financial value upon initial and subsequent recognition. instruments were measured at fair The instruments were measured as of December 31, 2007 by an independent third party. The fair value of derivative financial instruments is determined by discounting the expected future cash flows over the remaining life of the Treasury shares Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. | 66 | alstria Annual Report 2007 alstria Annual Report 2007 | 67 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Liabilities Financial liabilities, in particular trade payables, are stated at the amount repayable and are, if non-current and non-interest bearing, discounted. The fair values are determined by discounting the future contractually agreed cash flows at the interest rates from the term structure of interest rates to the balance sheet date. All loans and borrowings are initially recognized at fair value less directly attributable transaction costs, and have not been designated as ‘at fair value through profit or loss’. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process . The component of the convertible profit participation rights (Wandelgenussrechte) that exhibits characteristics of a liability is recognized as a liability in the balance sheet, net of transaction costs. On issuance of the jouissance is shares, determined using a market rate for an equivalent non is classified as a convertible bond; and this amount financial it is extinguished on conversion or redemption. liability measured at amortized cost until the liability component the fair value of A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Provisions Provisions are set up if the entity currently has a legal or constructive external obligation and it is probable that meeting this obligation will result in an outflow of economic benefits that can be reliably estimated. The provisions are measured, taking account of all risks at the best estimate of future cash outflows required to meet the obligation, and - if non-current - discounted. They may not be offset against reimbursements. Share-based payment transactions The members of the management board as well as employees of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’). The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The fair value is determined using an appropriate pricing model, further details of which are given in Note 18 and in the compensation report, respectively. The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant assignee become fully entitled to the award (‘the vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective the market condition is satisfied, of whether or not provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the assignee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share as far as at the balance sheet date the related contingencies are achieved (further details are given in Note 15). Minority Interests in Partnerships Under IAS 32.16 and IAS 32.19, a financial instrument is an equity instrument if, and only if, an entity has no conditional or unconditional obligation to deliver cash or another asset. In addition, IAS 32.18(b) states that the right of a partner to return his investment to the partner- ship for compensation at any time must be disclosed as a liability, even when, in legal terms, the partner is an investor. Specifically, equity must be reclassified as liabilities when the shareholders have a right of termination and the exercise of that right justifies a settlement claim against the company. Therefore minority interests in fully consolidated partnerships are disclosed under liabilities. The minority interests’ share in net profit or loss is recorded in the income statement as income or an expense (financial result) in accordance with IAS 32.35. Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognised: RENTAL INCOME Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease terms. INTEREST INCOME Revenue is recognised as interest accrues (using the effective interest rate, that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset). Income Taxes from The following effects on profit and loss result the transformation of the Company into a G-REIT. For a detailed description of the transformation, please see note 1. The tax assets and liabilities reported as of December 31, 2006 for prior periods which amount to EUR 12,513k and EUR 19,869k, respectively, were recognized in profit and loss in 2007. 9. Segment Reporting IAS 14 requires segment reporting for business segments and geographical segments with distinguishable and significant risks and returns. The type of services offered by alstria office REIT-AG exclusively comprises lessor activities. There is also no differentiation by tenant group since alstria office REIT-AG’s | 68 | alstria Annual Report 2007 alstria Annual Report 2007 | 69 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties portfolio consists almost entirely of commercial properties, with only a very few exceptions. When selecting tenants, alstria office REIT-AG places high demands on tenants’ credit ratings, such that no different risks and returns pursuant to IAS 14.9 can be derived from this criterion. For the valuation of the properties, a differentiation is made between properties with anchor lease terms of less than five years and more than five years; however, this allocation is made on a rolling basis and therefore depends on the date. Furthermore, this differentiation does not result in any structurally different cash flows for the fiscal year. Different risks are only snapshots and change immediately when new anchor leases are concluded. However, is not possible to identify a segment from these criteria. it From a geographical perspective, alstria office REIT-AG operates exclusively in the German market and is present all over Germany. As there are therefore no reportable segments within the meaning of IAS 14.9, the criteria for segment reporting pursuant to IAS 14 are not met. 10. Notes to the Consolidated Balance Sheet – Assets As of December 31, 2007, prepayments are broken down as follows: 10.1 Investment Property This item, which comprises all properties held by the Company, breaks down as follows: (in EUR k) 2007 2006 Fair values As of January 1 Changes in the consolidated group Additions Disposals Net result from the adjustment of the fair value of investment property Subtotal Prepayments 1,289,536 0 95,000 293,448 -3,525 191,125 1,032,009 0 11,170 1,685,629 8,089 22,871 1,246,005 43,531 As of Dec. 31. 1,693,718 1,289,536 (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Alstria Zwölfte Hamburgische Grundbesitz GmbH & Co. KG Alstria Vierzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Fünfzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Sechzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Siebzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Achtzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Neunzehnte Hamburgische Grundbesitz GmbH & Co. KG Alstria Zwanzigste Hamburgische Grundbesitz GmbH & Co. KG Alstria Einundzwanzigste Hamburgische Grundbesitz GmbH & Co. KG alstria office REIT-AG 0 0 0 0 0 0 0 0 0 8,089 35,346 1,019 281 593 1,022 1,070 982 1,455 1,763 0 Total prepayments 8,089 43,531 alstria office REIT-AG uses the fair value model pursuant to IAS 40.33 et seq. for subsequent measurement. External appraisals were obtained for measurement in 2007. For a detailed description of the valuation of assets, please see Note 8. Under the purchase agreement effective on December 18, 2006, Alstria Vierzehnte to Einundzwanzigste Hamburgische Grundbesitz GmbH & Co. KGs, Hamburg, – subsidiaries of alstria office REIT-AG then and represented by their general partner, Verwaltung Alstria Dreizehnte Hamburgische Grundbesitz GmbH, Hamburg, – concluded a purchase agreement on the acquisition of further property with a purchase price value of EUR 217,950k, with the properties being transferred to the buyers with the effect of April 1, 2007 (AURORA portfolio). Additional acquisition costs arose in the amount of EUR 170k. price of EUR 10,700k, with the property being transferred to the buyer with the effect of June 6, 2007 (SIGMA portfolio). Additional acquisition costs arose in the amount of EUR 606k. Under the purchase agreement effective on September 9, 2007, alstria office REIT-AG, Hamburg, concluded a purchase agreement on the acquisition of another property with a purchase price of EUR 2,851k. The property has been transferred to the buyer effective from October 1, 2007 (Bäckerbreitergang 73). Additional acquisition costs arose in the amount of EUR 253k. Two residential assets held for sale were economically transferred at the beginning of July. In March 2007 alstria office REIT-AG had agreed to dispose these two residential assets for total net proceeds of EUR 3,700k versus an IFRS fair value of EUR 3,525k as of December 31, 2006. Under the purchase agreement effective on May 10, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of one further property with a purchase Under the purchase agreement effective on November 19, 2007, alstria office REIT-AG concluded a purchase | 70 | alstria Annual Report 2007 alstria Annual Report 2007 | 71 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties agreement on the acquisition of further properties with a total value of EUR 58,587k. alstria office REIT-AG paid the full purchase price for the transaction in December 2007 and the transfer of possession, benefits and burdens took place in December 2007. Additional acquisition costs arose in the amount of EUR 2,175k. Under the purchase agreement dated December 17, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 50,262k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Furthermore, additional acquisition costs arose for the existing portfolios in the amount of EUR 156k. The prepayments include incidental acquisition costs for the above mentioned purchases. Under the purchase agreement effective on December 11, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 52,350k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Under the purchase agreement dated December 12, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 105,770k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Expenses/income disclosed in the income statement pursuant to IAS 40.75(f): • EUR 82,552k (2006: EUR 30,063k) rental income from investment property; • EUR 4,277k (2006: EUR 466k) operating expenses (including repairs and maintenance) directly allocable to investment property from which rental income was generated during the period under review; and • EUR 688k (2006: EUR 147k) operating expenses (including repairs and maintenance) arising from to investment property that did not generate rental income during the period under review. lives of 10.2 Property, plant and equipment The useful is estimated with 3 the assets to 15 years. Within the merger, for further information we the plants were transferred from refer Verwaltung Alstria Dreizehnte Hamburgische Grundbesitz to Sec. 1, GmbH, Hamburg, to alstria office REIT-AG. The plants constist of miscellaneous items like fire extinguishers or a control panel for a closed-circuit television system. (in EUR k) Acquisition and production cost As of January 1 Additions Disposals Reclassifications Prepayments As of December 31 Accumulated amortization, depreciation and write-downs As of January 1 Additions Disposals As of December 31 Net book values Fixed assets plant furniture and fixtures 0 1,727 0 0 0 1,727 0 285 0 285 1,442 0 75 0 0 0 75 0 23 0 23 52 Total 2007 0 1,802 0 0 0 1,802 0 308 0 308 1,494 | 72 | alstria Annual Report 2007 alstria Annual Report 2007 | 73 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties (in EUR k) Acquisition and production cost As of January 1 Additions Additions due to Sec. 738 BGB (Anwachsung) Disposals Reclassifications Prepayments As of December 31 Accumulated amortization, depreciation and write-downs As of January 1 Additions Disposals As of December 31 Net book values Fixed assets plant furniture and fixtures Total 2006 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10.3 Intangible assets The useful lives of the intangible assets is estimated with 3 to 8 years. The intangible assets mainly consist of software licenses which amount to EUR 350k (2006: EUR 0). Intangible assets Development costs Licences Goodwill Total 2007 (in EUR k) Acquisition and production cost As of January 1 Additions Additions due to Sec. 738 BGB (Anwachsung) Disposals Reclassifications Prepayments As of December 31 0 0 0 0 0 0 0 Accumulated amortization, depreciation and write-downs As of January 1 Additions Disposals 0 0 0 As of December 31 Net book values 0 0 0 392 7 0 0 0 399 0 40 0 40 359 0 0 0 0 0 0 0 0 0 0 0 0 0 392 7 0 0 0 399 0 40 0 40 359 | 74 | alstria Annual Report 2007 alstria Annual Report 2007 | 75 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Intangible assets Development costs Licences Goodwill Total 2006 (in EUR k) Acquisition and production cost As of January 1 Additions Additions due to Sec. 738 BGB (Anwachsung) Disposals Reclassifications Prepayments As of December 31 0 0 0 0 0 0 0 Accumulated amortization, depreciation and write-downs As of January 1 Additions Disposals 0 0 0 As of December 31 Net book values 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10.4 Receivables Due to the specific nature of the business, the Group considers receivables due up to one year to be current. The following overview breaks down receivables into those due within the next twelve months and those due in more than one year. Due (in EUR k) Trade receivables Rent receivables Due in more up to one year one year total than Dec. 31, 2006 99 99 0 0 99 99 (in EUR k) in more up to one year one year total than Dec. 31, 2007 Trade receivables Rent receivables 2,646 2,646 0 0 2,646 Positive fair value derivatives 27,202 0 27,202 Tax receivables 1,949 0 1,949 Other receivables Other assets Prepayments 4,728 311 5,039 0 0 0 4,728 311 5,039 Positive fair value derivatives 14,563 2,646 Tax receivables 0 Other receivables Other assets Prepayments 3,564 97 3,661 0 14,563 0 0 0 0 0 3,564 97 3,661 Trade receivables were written down by EUR 0k (December 31, 2006: EUR 6k) due to rent payments in arrears. Other assets mainly relate to capitalized transaction costs, which have not yet been allocated to a liability (EUR 1,071k) (December 31, 2006: EUR 2,491k). Furthermore, costs of EUR 3,500k (December 31, 2006: EUR 0) relating security payments for the Bamler portfolio are included. Prepayments relate to annual insurance premiums that are payable in advance. | 76 | alstria Annual Report 2007 alstria Annual Report 2007 | 77 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties The following derivative financial instruments classified as “held for trading” existed as of the balance sheet date: Euribor) for fixed interest rates (3.617 % p.a.) with a quarterly payment term. The fair value of the swap was Profit of EUR 635k (December 31, 2006: EUR 541k) was recognized in the 2007 income statement. Product Notional EUR k Strike p.a. Maturity Date Fair Value Dec. 31, 07 EUR k Fair Value Dec. 31, 06 EUR k Profit/ Loss 07 EUR k Profit/ Loss 06 EUR k Cap Cap Swap Swap Cap Cap 41.721 26.184 625,000 80,880 80,880 150,000 3,800 3,800 3,617 3,193 4,000 4,900 31.03.2011 31.03.2011 29.11.2011 29.11.2011 29.11.2011 20.12.2012 961 604 18,939 3,761 1,811 1,126 0 1 0 2 10,430 2,986 1,147 0 264 166 7,139 635 560 -678 0 0 -1,201 541 -70 0 Total 1,004,665 27,202 14,563 8,086 -730 Profit totaling to EUR 8,086k (December 31, 2006: losses of EUR 730k) due to market valuations for hedge transactions not included in hedge accounting were recorded in the income statement in the period of the financial statements to December 31, 2007. Alstria Erste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, and JP Morgan Chase Bank entered into a swap agreement effective May 31, 2006. Alstria Erste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, and JP Morgan Chase Bank entered into a further swap agreement effective July 6, 2006. The two abovementioned swap transactions were transferred from Alstria Erste Hamburgische Grundbesitz to alstria office REIT-AG GmbH & Co. KG, Hamburg, effective October 20, 2006. Hence, since this date, a swap agreement in the amount of EUR 625,000k has been in place between alstria office REIT-AG, Hamburg, and JP Morgan Chase Bank. This agreement provides for a payer interest rate swap under which the Company (3-month- exchanges variable-interest liabilities its EUR 18,939k (December 31, 2006: EUR 10,430k) as of the balance sheet date. The agreement expires on November 29, 2011. Profit of EUR 7,139k (December 31, 2006: Losses of EUR 1,201k) were recognized in the 2007 income statement. JUNA Property GmbH & Co. KG and NATIXIS Corporate & Investment Bank entered into a swap agreement with a nominal value of EUR 80,880k as of December 31, 2007 (January 2, 2006: EUR 81,000k). This agreement provides for an interest rate swap under which the Company exchanges its variable-interest liabilities for fixed interest rates. The fair value of the swap was EUR 3,761k (December 31, 2006: EUR 2,986k) as of the balance sheet date. For consolidation purposes, the cost incurred (and the fair value) on the date of first-time consolidation of JUNA Property GmbH & Co. KG as of May 31, 2006 amounted to EUR 2,444k. The fair value initial measurement as of January 2, 2006 was at EUR 0k. The swap expires on November 29, 2011. Also effective January 2, 2006, JUNA Property GmbH & Co. KG and NATIXIS Corporate & Investment Bank entered into a cap agreement with a nominal value of EUR 80,880k, which serves to hedge interest rate risks. For consolidation purposes, the cost incurred (and the fair value) on the date of first-time consolidation of JUNA Property GmbH & Co. KG as of May 31, 2006 amounted to EUR 1,296k. The fair value at initial measurement as of January 2, 2006 was EUR 940k. The fair value of the cap was EUR 1,811k (December 31, 2006: EUR 1,147k) as of the balance sheet date. The cap expires on November 29, 2011. A profit of EUR 560k (December 31, 2006: Losses of EUR 70k) was recognized in the 2007 income statement. The two abovementioned swap and cap transactions were transferred from Juna Property GmbH & Co. KG, Hamburg, to alstria office REIT-AG effective January 24, 2007. Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, and JP Morgan Chase Bank entered into a cap agreement with a nominal value of EUR 41,721k effective July 20, 2006, which serves to hedge interest rate risks. For consolidation purposes, the cost incurred (and the fair value) on the date of first-time consolidation of Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG as of March 31, 2007 amounted to EUR 627k. The fair value at initial measurement as of July 20, 2006 was EUR 475k. The fair value of the cap was EUR 961k as of the balance sheet date. The cap expires on March 31, 2011. agreement with a nominal value of EUR 26,184k effective July 20, 2006, which serves to hedge interest rate risks. For consolidation purposes, the cost incurred (and the fair value) on the date of first-time consolidation of Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG as of March 31, 2007 amounted to EUR 393k. The fair value at initial measurement as of July 20, 2006 was EUR 298k. The fair value of the cap was EUR 604k as of the balance sheet date. The cap expires on March 31, 2011. A profit of EUR 166k was recognized in the 2007 income statement. The two abovementioned cap agreements were transferred from Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, respectively Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, to alstria office REIT-AG effective October 1, 2007. alstria office REIT-AG and JP Morgan Chase Bank entered into a cap agreement with a nominal value of EUR 150,000k effective December 20, 2007, which serves to hedge interest rate risks. The fair value at initial measurement was EUR 1,804k.The fair value of the cap was EUR 1,126k as of the balance sheet date. The cap expires on December 20, 2012. A loss of EUR 678k was recognized in the 2007 income statement. 10.5 Cash and Cash Equivalents (in EUR k) Dec. 31, 2007 Dec. 31, 2006 A profit of EUR 264k was recognized in the 2007 income statement. Bank balances 103,036 24,304 Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, and JP Morgan Chase Bank entered into a cap Bank balances earn interest at floating rates based on daily bank deposit rates. 1 As of December 31, 2006 Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, did not belong to the Group of alstria office REIT-AG. Therefore the fair value of the cap as of December 31, 2006 amounting to EUR 643k can not be shown in the consolidated financial statements. 2 As of December 31, 2007 Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg, did not belong to the Group of alstria office REIT-AG. Therefore the fair value of the cap as of December 31, 2006 amounting to EUR 404k can not be shown in the consolidated financial statements. | 78 | alstria Annual Report 2007 alstria Annual Report 2007 | 79 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 11. Notes to the Consolidated Balance Sheet – Equity and Liabilities Treasury Stock 11.1 Equity For detailed information on equity we refer to the consolidated statement of changes in consolidated equity. Share Capital Authorised (in EUR k) Ordinary share of EUR 1 each Dec. 31, 2007 Dec. 31, 2006 56,000 8,000 By resolution of the extraordinary general meeting of shareholders held on December 21, 2006 the nominal share capital was increased against contribution in kind by EUR 32,000k from EUR 8,000k to EUR 40,000k. The capital increase has been registered in the commercial register on March 9, 2007. By resolution of the annual general meeting of shareholders held on March 15, 2007, the Company was authorized to further increase the nominal share capital by up to EUR 20,000k from EUR 40,000k up to EUR 60,000k. On the basis of this resolution, the share capital was increased against contribution in cash in the amount of EUR 16,000k. This capital increase has been registered in the commercial register on March 30, 2007. The nominal amount was paid in on March 30, 2007. In the balance sheet of the consolidated financial statements as of December 31, 2007, the share capital of alstria office REIT-AG amounted to EUR 56,000k. Captiva 2 Alstria Holding S.à.r.l., Luxembourg, held, directly and indirectly, the remaining 54.0 % of 44.8 % of the shares are free float and the remaining 1.2 % are treasury shares. the shares in the Company, (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Non-par value bearer shares of EUR 1 each -7,115 0 By resolution of the shareholder meeting on March 15, 2007, the Company was authorized to acquire treasury shares up to 10 % of the capital stock during the period from November 7, 2007 to September 14, 2008. On November 6, 2007, the Company’s management board resolved to acquire up to 2.5 % of the shares outstanding in connection with the above authorization. The shares the stock exchange by a credit were acquired over institution. The credit institution decides on when to acquire treasury shares independently and without the involvement of the Company. Capital Surplus The capital surplus changed as follows during the fiscal year: (in EUR k) 2007 2006 As of January 1 Changes in the consolidated group Valuation shareholder loan/other IFRS adjustments Share-based payments Contributions to capital surplus Transaction costs of issue of shares Other contributions to capital surplus -5,531 8,763 647 813 1,576 0 240,000 -11,038 154,690 364,727 0 0 As of Dec. 31 754,647 375,066 shareholder resolution of By January 22, 2007, EUR 49,008k was paid in the capital surplus. By way of a loan agreement dated November 23, 2006, Captiva 2 Alstria Holding S.à.r.l. granted to alstria office REIT-AG a shareholder loan. On March 15, 2007 said shareholder loan amounting to EUR 104,500k plus accrued interests of EUR 1,182k was contributed to capital surplus as agreed on March 15, 2007. The valuation of this shareholder loan resulted in a further increase of the capital surplus of EUR 447k. The capital surplus was additionally increased by EUR 200k due to the relating deferred taxes. Furthermore, the first consolidation of Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG resulted in a decrease of EUR 429k and the first consolidation of the remaining minority interest of 6 % of Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG resulted in a decrease of EUR 50k of the capital surplus. Additional for acquisition costs these acquisitions (EUR 50k in total). The additional acquisition costs decreased the capital surplus. Further additional acquisition costs for these acquisitions arose in the fourth quarter (EUR 35k in total). The additional acquisition costs decreased the capital surplus. third quarter in the arose In the initial public offering of Since April 3, 2007, the shares of alstria office REIT-AG have been listed on the Regulated Market of the Frankfurt Stock Exchange. the Company’s shares, a total of 25,778k shares were placed at a price of EUR 16 per share, of which 16 million shares increase, 9,778,324 shares were resulted from a capital sold by the selling shareholder (including 378,324 shares from the exercise of the Greenshoe option). The initial public offering of the Company’s shares resulted in an increase of the capital surplus of EUR 228,962k, thereof contributions amounting to EUR 240,000k and expenses of EUR 11,038k. Additionally, a stock option program was resolved on March 27, 2007 by the supervisory board of the Company and accordingly stock options with a fair value of EUR 1,997k were issued to members of the management board of the Company on April 3, 2007 and September 5, 2007, respectively. Thereof stock options with a fair value of EUR 446k were forfeited as of December 31, 2007 in relation with the retirement of Dr. Michael Börner- Kleindienst. As of December 31, 2007, this resulted in a further increase of the capital surplus of EUR 806k from the granted stock the fair values of the allocation of options over the respective vesting period. In connection with, and for purposes of, the initial public offering (IPO) of the Company on April 3, 2007, the Company increased its subscribed capital, based on the resolution of the annual general shareholders meeting of March 15, 2007, from EUR 40 mio by EUR 16 mio to EUR 56 mio by issuing 16 mio no-par value bearer shares. The issued shares were subscribed at an issue price of EUR 1,00 per share on March 30, 2007 by the bank J.P. Morgan Securities Limited in its own name and for the syndicate of banks, which were the account of accompanying the IPO, with the obligation to offer them to investors at an offer price still to be determined and to pay the proceeds of the offering – after deduction of an appropriate commission and of the expenses – to the Company. The capital increase became effective upon registration in the commercial register of the Company on March 30, 2007. The shares were offered and sold in the IPO at an offer price of EUR 16,00 per share; the proceeds by which the issue price was exceeded amounted to EUR 240 mio and were booked into the capital reserve the German pursuant Commercial Code (HGB). to sec. 272 para. 2 no. 1 of 375,066 0 Additionally, the first consolidation of JUNA Beteiligungs GmbH resulted in a decrease of EUR 4,967k. | 80 | alstria Annual Report 2007 alstria Annual Report 2007 | 81 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Minority Interests in Partnerships Under IAS 32.16 and IAS 32.19, a financial instrument is an equity instrument if, and only if, an entity has no conditional or unconditional obligation to deliver cash or another asset. In addition, IAS 32.18(b) states that the right of a partner to the to return his partnership for compensation at any time must be disclosed as a liability, even when, in legal terms, the partner is an investor. Specifically, equity must be reclassified as liabilities when the shareholders have a right of termination and the exercise of that right justifies a settlement claim against the Company. investment In accordance with these regulations, the Company disclosed reclassified equity in its balance sheet in the item “other liabilities” as minority interests in partnerships under other current liabilities. The share of income attributable to minority shareholders of EUR 0k (December 31, 2006: EUR 309k) was disclosed as part of the financial result in the income statement. Minority interests break down as follows: 11.2 Financial Liabilities (in EUR k) Minority interests in equity As of January 1, 2007 or June 30, 2006 Less withdrawal As of December 31 Minority interests in net profit or loss Dec. 31, 2007 Dec. 31, 2006 0 0 0 0 0 1,550 -102 1,448 309 1,757 (in EUR k) Loans Payables to affiliates Shareholder loans Other Total (in EUR k) Loans Payables to affiliates Shareholder loans Other Non-current Current Dec. 31, 2007 927,400 8,936 936,336 0 0 0 0 0 0 927,400 8,936 936,336 Non-current Current Dec. 31, 2006 813,466 0 0 1,712 82,447 24 815,178 82,447 24 Total 813,466 84,183 897,649 31, EUR 940,352k (December Nominal 2006: EUR 819,275k) of the loans are repayable. The carrying amount takes into account interest liabilities and transaction costs to be allocated under the effective interest method upon raising the liabilities. These liabilities relate to a loan arranged with J.P. Morgan Plc., Natixis Banques Populaires, German Branch, and HSH Nordbank AG for a nominal amount of EUR 1,139,800k. EUR 931,416k (December 31, 2006: EUR 655,743k) of this nominal amount had been drawn as of the balance sheet date. To secure these liabilities, receivables from rental and property purchase agreements as well as insurance receivables and derivative financial instruments were assigned to the lenders, liens were granted on bank accounts and the registration of land charges was agreed. Furthermore, a loan totaling EUR 79,492k existed between Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG, respectively, and HSH Nordbank AG, Hamburg, until September 28, 2007. Within the refinancing of Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG this loan has been repaid. The repayment was funded by additional borrowings from the syndicated loan amounting to EUR 52,250k and by operating cash. The variable interest is payable on a quarterly basis, with the standard margin and borrowing costs for the market added to the respective Euribor rate. | 82 | alstria Annual Report 2007 alstria Annual Report 2007 | 83 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Due to the variable interest rate, there are no significant differences between the carrying amounts and fair value. As of December 31, 2007, loans were reduced by transaction costs of EUR 4,017k (December 31, 2006: EUR 4,097k). The decrease in shareholder loans can be largely attributed to the refinancing of alstria office REIT-AG, which involved the reclassification of shareholder loans from Captiva 2 Alstria Holding S.à.r.l. to the capital reserves. Please see Note 11.1. for further information. The shareholder loan of EUR 161,820k from NATIXIS Corporate & Investment Bank was repaid on January 22, 2007. The carrying amounts of the loans are all denominated in euros; liabilities with the transaction cost approximates their exception of nominal value on the balance sheet date. the fair value of all financial The liabilities exposed to an interest rate risk are due as follows: 11.3 Trade Payables and Other Liabilities Due Due (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Up to one year More than one year 0 927,400 0 813,466 Total 927,400 813,466 The following loans are secured by land charges: (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Financial liabilities secured by land charges thereof on investment property 927,400 813,466 927,400 813,466 in more up to one year one year total than Dec. 31, 2007 (in EUR k) in more up to one year one year total than Dec. 31, 2006 (in EUR k) Trade payables Liabilities from the utilization of services Other trade payables 0 3,068 3,068 Other current liabilities Liabilities to minority interests VAT liabilities Liability for real estate transfer tax Miscellaneous other liabilities 0 194 9,897 9,741 0 0 0 0 0 0 0 3,068 3,068 0 194 9,897 561 9,797 Trade payables Liabilities from the utilization of services 1,979 Other trade payables 3,384 5,363 Other current liabilities Liabilities to minority interests VAT liabilities Liability for real estate transfer tax Miscellaneous other liabilities 1,757 155 18,079 4,149 0 0 0 0 0 0 1,979 3,384 5,363 1,757 155 18,079 56 1 4,205 19,832 56 19,888 24,140 56 24,196 the interest Miscellaneous other liabilities include substantially a refund of running costs 2006 of EUR 1,063k (2006: EUR 0). item comprises outstanding costs Furthermore this in JUNA resulting from the acquisition of Property GmbH & Co. KG amounting to EUR 4,895k (2006: EUR 0). Additionally, management bonuses amounting to EUR 400k (2006: EUR 20k) and liabilities resulting from the acquisition of treasury shares amounting to EUR 409k (2006: EUR 0) are included. Miscellaneous other liabilities also include costs of the registration of ownerships in the amount of EUR 686k (2006: EUR 0). The disclosed carrying amounts approximate the fair values. Liabilities from the utilization of services did not occur in 2007 ( 2006: EUR 1,979k). Other trade payables relate to operating costs not yet invoiced of EUR 2,376k (December 31, 2006: EUR 3,347k) and liabilities from third-party real estate management services and rental activities of EUR 692k (December 31, 2006: EUR 37k). The liabilities for real estate transfer tax result from the acquisition of Bamler Servicepark and the projects Blue, HUK and Darwinstraße. 1 This position is shown under Non-Current Liabillities in the Consolidated Balance Sheet | 84 | alstria Annual Report 2007 alstria Annual Report 2007 | 85 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 11.4 Trust Assets and Liabilities alstria office REIT-AG has trust assets in the amount of EUR 3,500k resulting from the provision of securities relating to the acquisition of Bamler Service Park. Additionally alstria office REIT-AG has trust liabilities of EUR 285k (December 31, 2006: EUR 161k), in particular from rent deposits. 11.5 Deferred Taxes Deferred tax assets and liabilities break down as follows: CONSOLIDATED BALANCE SHEET (in EUR k) Dec. 31, 2007 Dec. 31, 2006 11.6 Liabilities of Current Tax Liabilities of current tax break down as follows: CONSOLIDATED BALANCE SHEET (in EUR k) Liabilities resulting from final taxation Liabilities resulting from taxation of operating income 2006 Dec. 31, 2007 Dec. 31, 2006 5,072 260 5,332 0 0 0 Deferred income tax liabilities Revaluation of investment property to fair value Revaluation of a cap to fair value Revaluation of interest rate swaps to fair value Financial liabilities (transaction costs) Deferred income tax assets Revaluation of investment property to fair value Prepaid expenses (transaction costs) Shareholder Loan Tax loss carryforwards 0 0 0 0 0 0 0 0 0 0 16,044 96 2,091 1,638 19,869 4,760 30 118 7,605 12,513 For a detailed description of the significant accounting policies with respect to the taxes please see Note 8. For a description of the influences on the consolidated income statement we refer to Note 12.9. 12. Notes to the Consolidated Income Statement 12.1 Revenues Revenues from investment property chiefly include net rents from investment property. (in EUR k) Revenues from investment property Jan. 20 - 2007 Dec. 31, 06 82,552 30,063 12.2 Income From Passed on Operating Expenses (in EUR k) Income from passed on operating expenses Income from passed on operating expenses prior year Jan. 20 - 2007 Dec. 31, 06 11,007 5,870 -2,559 8,448 5,870 12.3 Expenses From Passed on Operating Expenses 12.5 Personnel Expenses (in EUR k) Jan. 20 - 2007 Dec. 31, 06 (in EUR k) Jan. 20 - 2007 Dec. 31, 06 Expenses from passed on operating expenses Expenses from passed on operating expenses prior year 2,873 -11,007 -5,887 -8,134 -5,887 The expenses from passed on operating expenses that are directly attributable to investment property include in particular operating costs, maintenance and property-based taxes. Salaries and wages3 Social insurance contribution Bonuses Expenses for share-based compensation (including 7k expenses for share-based compensation transactions with compensation by the use of equity instruments) 1,814 143 762 813 3,532 0 1 0 1 0 0 0 12.4 Administrative Expenses Within the course of 2007 the Company has employed 15 employees on the average (2006: 4). (in EUR k) Jan. 20 - 2007 Dec. 31, 06 12.6 Other Operating Income (in EUR k) Jan. 20 - 2007 Dec. 31, 06 Compensation payment (rent) From the reversal of liabilities From insurance compensation Car use From the exercise of a swaption Other 227 121 50 25 0 165 0 63 0 0 5,991 63 588 6,117 Income from exercise of a swaption relates to the cash settlement of an option to conclude a swap. Legal and consulting fees IPO expenses Registration fees Audit fee Depreciation Supervisory Board Compensation Communication Recruitment costs Travel expenses Allocation Other personnel expenses1 Salaries2 Other 4,118 1,402 470 428 348 301 264 208 201 174 0 0 1,337 3,527 0 0 0 0 0 0 397 0 483 22 249 845 9,251 5,523 1 In 2007 shown as personnel expenses. 2 In 2007 shown as personnel expenses. 3 In 2006 the positions are shown as administrative expenses. We refer to 12.4. | 86 | alstria Annual Report 2007 alstria Annual Report 2007 | 87 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 12.7 Other Operating Expenses (in EUR k) Jan. 20 - 2007 Dec. 31, 06 Loan charges Bad debts, bad debt allowance Other 0 0 5 5 91 49 27 167 (in EUR k) Net gain from the fair value adjustments on investment property 11,170 22,871 The net gain (2006: loss) from the fair value adjustments on financial derivatives relates exclusively to derivatives that do not qualify for hedge accounting. It breaks down as follows: 12.8 Financial and Valuation Result The financial result breaks down as follows: (in EUR k) Jan. 20 - 2007 Dec. 31, 06 (in EUR k) Jan. 20 - Dec. 31, 06 2007 Financial Income 6,184 128 Financial Expenses -38,683 -23,006 Transaction costs Commitment fees Guarantee Fees Minority interest Other financial expenses -876 -796 -504 0 -440 -9,116 0 0 -309 0 -2,616 -9,425 The effect on profit or loss of the fair value measurement of financial instruments and investment property is as follows: (in EUR k) Net gain from the fair value adjustments on financial derivatives Jan. 20 - 2007 Dec. 31, 06 8,086 -730 1 Formerly Alstria Erste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg 2 Formerly JUNA Property GmbH & Co. KG, Hamburg 3 Formerly Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg 4 Formerly Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg Payer interest rate swap alstria office REIT-AG 1 EUR 625,000k dated December 11, 2006 Interest rate swap alstria office REIT-AG 2 EUR 80,880k dated January 2, 2006 Cap alstria office REIT-AG 2 EUR 80,880k dated January 2, 2006 Cap alstria office REIT-AG 3 EUR 41,721k dated July 20, 2006 Cap alstria office REIT-AG 4 EUR 26,184k dated July 20, 2006 Cap alstria office REIT-AG EUR 150,000k dated December 20, 2007 7,139 -1,201 635 541 560 264 166 -678 -70 0 0 0 Net profit/loss from fair value adjustments on financial derivatives 8,086 -730 Jan. 20 - 2007 Dec. 31, 06 Further details on derivatives are shown under Note 10.4 following the order of the table. 12.9 Income Taxes The tax income/expense breaks down as follows: (in EUR k) Jan. 20 - 2007 Dec. 31, 06 Consolidated income statement Current income tax expenses -5,110 Deferred income tax income 9,788 -3 -4,087 4,678 -4,090 Because of obtaining the G-REIT status alstria office REIT-AG is subject to final taxation on the effective date of the transfer into a G-REIT. For a detailed description of the transformation into a G-REIT, please see note 1. Tax expenses of EUR 5,110k result from the final taxation and from the taxation of operating income as by December 31, 2006. alstria office REIT-AG is tax exempted as by January 1, 2007. Deferred tax liabilities and assets have tax income of to be released to income. As a result EUR 9,788k (2006: loss EUR 4,087) arises. The overall tax profit of alstria office REIT-AG amounts to EUR 4,678k in EUR 2007. This amount considers the release of deferred tax liabilities and assets as by December 31, 2006 (EUR 7,356k), the release of deferred tax liabilities and assets that were booked against the shareholder loan (EUR 62k), the acquisition of Alstria Vierte Hamburgische Grundbesitz GmbH, Hamburg (EUR 438k) and the acquistition of Alstria Siebte Hamburgische Grund- besitz GmbH (EUR 2,932k). surplus because of the capital The Group’s tax expense differs from the theoretical amount calculated by multiplying the Group tax rate of 0 % (2006: 26.375 %) by profit before taxes, as follows: (in EUR k) Jan.20 - 2007 Dec. 31, 06 IFRS profit before taxes 48,133 18,623 Tax expense at a tax rate of 0% (2006: 26.375 %) Income not subject to tax (constructive contribution) Expense not subject to tax (constructive dividend) Expense not subject to tax (interest paid for shareholder loan) Loss of the general partners subject to corporate income tax for which no deferred tax assets have been recognized Expense not subject to tax (capital consolidation) Loss generated by JUNA Property GmbH & Co. KG which was not recognized for tax purposes (deferral) Release of deferred tax liabilities and assets (conversion into G-REIT) Current taxes result from final taxation and from taxation of operating income as by December 31, 2006 0 0 0 0 0 0 0 -9,788 5,110 4,912 -1,580 188 370 15 86 99 0 0 Income tax expenses -4,678 4,090 | 88 | alstria Annual Report 2007 alstria Annual Report 2007 | 89 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Deferred Income Tax For a detailed description of the effect on the consolidated balance sheet, please see Note 11.5 CONSOLIDATED INCOME STATEMENT (in EUR k) 2007 Jan. 20- Dec. 31, 06 13. Other Notes 13.1 Compensation of Management Board and Supervisory Board With respect to disclosures according to Sec. 314 par.1 no. 6 HGB (“Handelsgesetzbuch”) and IAS 24.16 we refer to the Compensation Report attached, which is part of the Notes to the consolidated financial statements. Deferred income tax liabilities Revaluation of investment property to fair value Revaluation of a cap to fair value Revaluation of interest rate swaps to fair value Financial liabilities (transaction costs) 18,826 96 2,152 1,961 -11,465 18 -1,436 -1,638 23,035 -14,521 Deferred income tax assets Revaluation of investment property to fair value Prepaid expenses (transaction costs) Shareholder Loan Tax loss carryforwards -30 -180 -7,605 -5,432 2,652 -3 180 7,605 -13,247 10,434 Deferred income tax / income expense 9,788 -4,087 13.2 Commitments and contingencies There were no contingent liabilities as of the balance sheet date. Other financial obligations from ongoing maintenance amount to EUR 2,000k (2006: EUR 51k as of December 31, 2006, the there was administrative premises). still no rental agreement for Under the purchase agreement effective on December 11, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 52,350k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Under the purchase agreement dated December 12, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 105,770k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Under the purchase agreement dated December 17, 2007, alstria office REIT-AG concluded a purchase agreement on the acquisition of further properties with a total value of EUR 50,262k. The transfer of possession, benefits and burdens is expected to take place in the first months of 2008. Operating lease commitments - Group as lessor The Group has entered into commercial property leases on its investment property portfolio, consisting of the Group’s surplus office and manufacturing buildings. These non-cancellable leases have remaining terms of between 5 and 20 years. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. (2006: EUR 1,071,637k) were funded by additional borrowings and by operating cash. The residual amount was financed by using the cash and cash equivalents especially received from the IPO. Future minimum rentals receivable under non-cancellable operating leases are as follows: (in EUR k) Dec. 31, 2007 Dec. 31, 2006 Within one year After one year but not longer than five years More than five years 89,201 61,895 324,411 952,629 237,354 629,766 1,366,241 929,015 13.3 Consolidated Cash Flow Statement The cash flow statement shows how the cash and cash equivalents of the Group changed in the course of the In fiscal year as a result of cash received and paid. accordance with IAS 7, a distinction is made between cash flows from operating activities and cash flows from investing and financing activities. The cash and cash equivalents in the cash flow statement relate to all cash disclosed in the balance sheet, i.e. cash on hand and bank balances. The cash flows from investing and financing activities are calculated on the basis of payments. Whereas, the cash flows from operating activities are derived indirectly based on the consolidated profit for the year. Under the indirect method, changes to the balance sheet items recognized in connection with operating activities are adjusted for effects arising from changes to the consolidated group. The payments for investing activities (EUR 306,498k) The repayments of borrowings (EUR 243,262k) (2006: EUR 625,180k) were financed by additional borrowings, by operating cash and by using the cash and cash equivalents especially received from the IPO. Thus changes to the relevant balance sheet items cannot always be reconciled to the corresponding amounts from the published consolidated balance sheet. 14. Related Party Relationships 14.1 Preliminary Remarks Related parties are members of management of alstria office REIT-AG (Management Board and Supervisory these persons. Board) and close family members of Related parties also include entities with controlling influence over the Group and entities with joint control over or significant influence on alstria office REIT-AG. Captiva 2 Alstria Holding S.à.r.l. (parent company), Captiva Capital Partners II SCA and Captiva Capital II S.à.r.l. (ultimate parent company) are considered to have a controlling influence over alstria office REIT-AG. There was no group of entities with joint control or significant influence, with which business was conducted in the fiscal year. Related parties during the fiscal year also included NATIXIS Capital Partners Limited and NATIXIS Capital Partners GmbH. In the view of alstria office REIT-AG’s management, all transactions with related parties have been entered into on arm's length terms or under conditions to alstria office REIT-AG’s favor. | 90 | alstria Annual Report 2007 alstria Annual Report 2007 | 91 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 14.2 Remuneration of Key Management Personnel For a detailed description of the remuneration of key management personnel, please see the compensation report. 14.3 Related Party Transactions The following table provides the total amount of transactions which have been entered into with related parties in 2007: (in EUR k) 2007 2006 Acquisition of shares in Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG (former Verwaltung Alstria Vierte and Siebte Hamburgische Grundbesitz GmbH) Total Acquisition of shares in Juna Beteiligungs-GmbH, Frankfurt a.M. Interest expense shareholder loan alstria office REIT-AG (including interest expenses former JUNA Beteiligungs GmbH) Performance guarantees Service Agreement with Natixis Capital Partners GmbH Use of office space Interest expense shareholder loan Alstria IV. Hamburgische Grundbesitz S.à.r.l. & Co. KG (former Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH) Interest expense shareholder loan Alstria VII. Hamburgische Grundbesitz S.à.r.l. & Co. KG (former Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH) Laid out expenses EY for Captiva Capital Partners II SCA Asset Management fees expensed for Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG (former Verwaltung Alstria Vierte and Siebte Hamburgische Grundbesitz GmbH) Management fees in line with the asset management agreement of June 1, 2006 (Natixis Capital Partner GmbH). The agreement was terminated with effect from March 1, 2007 Acquisition of shares in Verwaltung Alstria Sechste GmbH, Hamburg Interest income for permission loan to Alstria Fünfte Hamburgische Grundbesitz GmbH & Co. KG Compensation for liability coverage of Juna Property GmbH & Co. KG liability Compensation for liability coverage of Alstria Vierte and Siebte Hamburgische Grundbesitz S.à.r.l. & Co. KG Shareholder loan (including valuation) Service Agreement with Natixis Capital Partner Ltd. Advisory Agreement with Captiva 2 Alstria Holding S.à.r.l. 15,821 1,848 1,206 418 210 71 64 45 40 31 27 15 9 2 1 0 0 0 0 0 244 32 0 0 0 0 0 0 182 0 0 2 0 82,447 1,332 700 Acquisition of shares in Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG (former Alstria Vierte and Siebte Hamburgische Grundbesitz GmbH) alstria acquired from Alstria Hanseatische Grundbesitz Holding S.à.r.l. in total 100 % of Alstria IV. and VII. Hamburgische Grundbesitz GmbH & Co. KG (former Verwaltung Alstria Vierte and Siebte Hamburgische Grundbesitz GmbH), for an amount of EUR 15.821k. The acquisition process was made up as follows: • During the reporting period, alstria office REIT-AG acquired a 94% interest in Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH, Hamburg, and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH, Hamburg. • In addition, Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH respectively, acquired an interest of 1% in Alstria Vierte Hamburgische Grundbesitz S.à.r.l. & Co. KG, Hamburg, and Alstria Siebte Hamburgische Grundbesitz S.à.r.l. & Co. KG, Hamburg, respectively, from its general partner, and therefore expanded their interests in these companies to 100%. Thereafter, the general partner withdrew from the partnerships, and, as a consequence, the partnerships ceased to exist and the assets and liabilities were automatically transferred to Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH respectively, in accordance with Sec. 738 BGB (Anwachsung) with effect as of March 31, 2007. • On June 28, 2007, the conversion of Verwaltung Alstria Vierte Hamburgische Grundbesitz GmbH and Verwaltung Alstria Siebte Hamburgische Grundbesitz GmbH into Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG and Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, respectively became effective. Thereafter, alstria office REIT-AG acquired the remaining interest of 6 % in Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG and Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG with effect from June 30, 2007. Acquisition of shares in Verwaltung Alstria Sechste GmbH, Hamburg alstria office REIT-AG acquired a 100 % interest in Verwal- tung Alstria Sechste Hamburgische Grundbesitz GmbH from Alstria Hanseatische Grundbesitz Holding S.à.r.l. effective from April 1, 2007 at a price of EUR 15k. limited partner’s interest of Alstria Acquisition of shares in Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG • With effect as of April 1, 2007 Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH transferred a Sechste Hamburgische Grundbesitz S.à.r.l. & Co. KG amounting to EUR 9,600 to Alstria Hanseatische Grundbesitz Holding S.à.r.l. and of EUR 10,200 to alstria office REIT-AG (equals 51 %). Furthermore, the general S.à.r.l. partner Alstria Hanseatische Grundbesitz transferred its capital contribution of EUR 200 to Alstria Hanseatische Grundbesitz Holding S.à.r.l. Regarding the transfers of these interests no purchase prices were paid since the capital contribution is still outstanding and the net asset value of the KG amounts to EUR 0. • By shareholder’s resolution of Alstria Sechste Hambur- gische Grundbesitz S.à.r.l. & Co. KG dated April 1, 2007, Verwaltung Alstria Sechste Hamburgische Grundbesitz GmbH joined Alstria Sechste Hamburgi- sche Grundbesitz S.à.r.l. & Co. KG as general partner without capital contribution and without participation in losses and profits of the KG. At the same time Alstria Sechste Hamburgische Grundbesitz S.à.r.l. & Co. KG was renamed to Alstria Sechste Hamburgische Grund- besitz GmbH & Co. KG. | 92 | alstria Annual Report 2007 alstria Annual Report 2007 | 93 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Acquisition of Shares in JUNA Property GmbH & Co. KG alstria office REIT-AG acquired 100 % of JUNA Beteiligungs GmbH, Frankfurt am Main, from Captiva 2 JUNA Holding S.à.r.l. The transaction was notarized on July 30, 2007. JUNA Beteiligungs GmbH holds a 5.1 % share in JUNA the Property GmbH & Co. KG, Frankfurt am Main, company holding the Barmer Portfolio. The purchase price was EUR 1,848k. With the pay off of the minority shareholders alstria office REIT-AG now, directly and indirectly, owns 100 % of JUNA Property GmbH & Co. KG. Shareholder Loan On November 23, 2006, Alstria Office AG entered into a loan agreement with Captiva 2 Alstria Holding S.à.r.l. pursuant to which Captiva 2 Alstria Holding S.à.r.l. granted a loan in the amount of EUR 155.000k to Alstria Office AG. The loan is unsecured and bears from January 1, 2007 an interest rate of 5.4125 % p.a. According to the conditions of the agreement the loan was to be repaid on the date of the initial public offering for shares in alstria office REIT-AG. By shareholder resolution of Captiva 2 Alstria Holding S.à.r.l. dated December 14, 2006, EUR 73,000k of the repayable amount was booked in the capital surplus of the Company. In the course of a capital increase effective March 9, 2007 further EUR 32,000k of the loan have been allocated to the Company’s equity. By shareholder resolution dated March 15, 2007 Captiva 2 Alstria Holding S.à.r.l. increased the shareholder loan by EUR 54,500k. Together with the EUR 50,000k still outstanding the shareholder loan amounted to EUR 104,500k plus accrued interests. With shareholder resolution of the same day the total loan amount has been allocated to the capital surplus at the first trading day of alstria’s stock (April 3, 2007). Thus at April 3, 2007 no obligations out of the loan existed against Captiva 2 Alstria Holding S.à.r.l. any more. Transactions with Parties Related to Members of the supervisory board Advisory Agreement with NATIXIS Capital Partners Limited terminated on June 30, 2007 John van Oost, the chairman of the Supervisory Board, is a managing partner of NATIXIS Capital Partners Limited and Daniel Quai, a member of the Supervisory Board, is employed at NATIXIS Capital Partners Ltd. and is a managing director of NATIXIS Capital Partners GmbH. alstria office REIT-AG concluded an advisory agreement with NATIXIS Capital Partners Limited. Pursuant to this agreement, NATIXIS Capital Partners Limited assisted the Company in identifying potential acquisition opportunities relating to real estate assets in Germany, drafting proposals to and approaching potential sellers, coordination of due diligence processes, coordination with the Company's other advisors in defining the appropriate consideration, structure and other financial terms for acquisitions of real estate, negotiations with sellers and development of related strategies and completion of acquisitions. The services could be performed by NATIXIS Capital Partners Limited itself or by other entities affiliated to it. The term of the agreement is from February 1, 2006 until June 30, 2007. NATIXIS Capital Partners Limited received a success fee based on the transaction volume of real estate acquisitions completed by alstria office REIT-AG. The Company also agreed to indemnify and hold harmless Limited and any person NATIXIS Capital Partners performing the services from and against any and all actions, proceedings, claims, demands, losses, liabilities, damages, costs, charges and expenses in relation with the services performed and not arising primarily from such person's gross negligence or willful misconduct. Service Agreement with Natixis Capital Partners GmbH (expired on June 30, 2007) On March 16, 2007 Natixis Capital Partners GmbH and the Company entered into a service agreement under which Natixis Capital Partners GmbH shall assist the Company in accounting, finance and working capital the Company’s matters and shall make available, at request, two duly qualified and competent professionals who shall assist the Company within the scope of the engagement at the premises of the Company. The services can also be rendered by an affiliate of Natixis Capital Partners GmbH at its discretion, provided that any entity or person rendering services agree to confidentiality of the matters of the Company. The agreement has a term of three months, commencing March 15, 2007 and the Company has a recurring option to request an extension of such term provided that the maximum term of the agreement must not exceed six months. The Company has the right to terminate the agreement at any time upon 15 days prior written notice to the other party, while Natixis Capital Partners GmbH is only entitled to terminate the agreement for good cause. The agreement provides for a monthly fee of EUR 60k flat (plus any VAT) provided that if the agreement terminates during a month such fee shall only be payable pro rata temporis. In addition, the Company must reimburse Natixis Capital Partners GmbH for all reasonable costs and expenses incurred, including travel expenses and expenses, in connection with the agreement. Asset Management Agreement with NATIXIS Capital Partners GmbH (terminated on March 1, 2007) JUNA Property GmbH & Co. entered into an asset management agreement with NATIXIS Capital Partners GmbH, a subsidiary of NATIXIS Capital Partners Limited as of June 1, 2006, regarding asset management services for the real estate properties comprised by the Barmer Portfolio. Payment to NATIXIS Capital Partners GmbH for the services provided to JUNA Property GmbH & Co. KG was EUR 27k in 2007. Use of Office Space For its head office in Hamburg, alstria office REIT-AG uses office space that is let by NATIXIS Capital Partners GmbH under a lease agreement with HIH. NATIXIS Capital Partners GmbH has indicated that it might assign the lease agreement to alstria office REIT-AG subject to the consent of the lessor. So far, alstria office REIT-AG has reimbursed NATIXIS Capital Partners GmbH on an at-cost basis for the use of office space. Expenses amounted to EUR 60k for 2007 and EUR 11k for 2006. Advisory Agreement with Captiva 2 Alstria Holding S.à.r.l. (terminated on March 5, 2007) The Company and the Captiva 2 Alstria Holding S.à.r.l. entered into an advisory agreement relating to financial and strategic advice. According to the terms of this agreement, the Captiva 2 Alstria Holding S.à.r.l. assisted the Company in the areas of capital structure, arranging and assisting with the closing and funding process. In addition, the Captiva 2 Alstria Holding S.à.r.l. advised on strategy and related matters and assisted in other areas upon the Company's request. The original term of the agreement was from June 30, 2006 until June 30, 2007. As consideration, the Captiva 2 Alstria Holding S.à.r.l. received a lump sum payment of EUR 700k and had to be reimbursed for all reasonable costs and expenses. The Company also agreed to indemnify and hold harmless the Captiva 2 Alstria Holding S.à.r.l. and any person performing the services from and against any and all actions, proceedings, claims, demands, losses, liabilities, damages, costs, charges and expenses in relation with the services performed and not arising primarily from such person's gross negligence or willful misconduct. With contract dated February 16, 2007 this agreement was terminated effective March 5, 2007. | 94 | alstria Annual Report 2007 alstria Annual Report 2007 | 95 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Performance Guarantees Captiva Capital Partners II SCA has granted a number of payment guarantees for the benefit of NATIXIS Corporate & Investment Bank, S.A. in relation to the Company’s obligation arising from transaction with respect to the acquisition of real estate properties. Generally, the seller real estate property demands a performance of guarantee from a bank for the period from signing of the sale-and-purchase agreement until payment of the purchase price. NATIXIS Corporate & Investment Bank, S.A. has issued such performance guarantees for the benefit of the respective sellers regarding sale-and-purchase agreements concluded by alstria office REIT-AG. Captiva Capital Partners II SCA has arranged the issuance of such performance guarantees and may be liable for any amounts paid by NATIXIS Corporate & Investment Bank, S.A. to the respective purchaser under such performance guarantees. Captiva Capital Partners II SCA is entitled to receive a guarantee fee from alstria office REIT-AG. In 2007 alstria office REIT-AG paid to Captiva Capital Partners II SCA guarantee fees amounting to EUR 418k. Loan Agreement with Alstria Fünfte Hamburgische Grundbesitz GmbH & Co. KG Dated September 21, 2007 alstria and (lender) Alstria Fünfte Hamburgische Grundbesitz GmbH & Co. KG, term loan Hamburg (Borrower), entered into a short agreement. The credit facility was EUR 1,250k, with an interest rate of 5.8%. The loan was drawn to EUR 1,200k and repaid on November 7, 2007. For the interest period Alstria Fünfte Hamburgische Grundbesitz GmbH & Co. KG received interest payments of EUR 9k . 15. Earnings per Share Basic earnings per share are calculated as the quotient of the profit attributable to the shareholders and the weighted average number of shares outstanding during the fiscal year - except for the average number of treasury shares held by the Company itself. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year - except for the treasury shares held by the Company itself - plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the earnings per share computations: Profit attributable to the shareholders (in EUR k) Average number of shares outstanding (in thousands) 2007 2006 52,811 14,533 46,082 1,042 Basic earnings per share (in EUR per share) 1.15 13.95 There were no dilution effects resulting from the granted stock options or the convertible profit participation rights during the period under review as the related contingencies were not achieved as of the balance sheet date. For further information concerning granted stock option and convertible profit participation rights we refer to the compensation report respectively section 18. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. alstria is authorised to issue up to EUR 20,000 k shares as conditional capital. These contingently issuable shares could potentially dilute basic earnings per share in the included in the calculation of future, but were not diluted earnings per share because they are antidilutive for the period presented. the details of the convertible profit participation rights program in accordance with an authorization granted by the general meeting of shareholders of March 15, 2007. The main terms of the program resolved by the supervisory board can be summarized as follows: 16. Dividends Proposed Proposed for approval at annual general meeting (not recognized as a liability as of December 31): (in EUR k) 2007 2006 Equity dividends on ordinary shares Dividend per share (without treasury shares) 28,400 0.5133 0 0 17. Employees During the period from January 1, 2007 to December 31, 2007, on an average 15 employees (January 20, 2006 to December 31, 2006: on an average 4 employees) were employed at the Company. The average was calculated by the fourth part of the total of employed people at the end of each quarter. On December 31, 2007, 20 people (December 31, 2006: 4 people) were employed at alstria office REIT-AG, excluding the management board. 18. Convertible Profit Participation Rights Program On September 5, 2007 the supervisory board of the Company resolved the issuance of Convertible Profit Participation Certificates (“certificates”) to employees of the Company and to employees of companies in which alstria office REIT-AG, directly or indirectly, holds a majority interest. Members of alstria office REIT-AG’s management board are not considered employees of the Company in terms of this convertible profit participation rights program. With its resolution, the supervisory board fixed The nominal amount of each certificate is EUR 1.00 and is payable upon issuance. Under the program, a maximum of 500,000.00 certificates in an aggregate nominal amount of up to EUR 500,000.00 may be issued. 3,600 certificates were issued on September 6, 2007. The certificates are issued as non transferable rights. The sellable nor pledgeable or certificates are neither otherwise chargeable. The maximum term of each certificate is five years. During its term, each certificate entitles to a preferred disbursement from the Company’s annual net profit. The profit share corresponds to the dividend per share of the Company for a full business year of the Company. For certificates held by a beneficiary for less than a full business year of the Company, the profit share is reduced pro rata temporis. Each certificate shall be converted into one non-par value bearer share of the Company on the second, third, fourth or fifth anniversary date of the issue date if the then current stock exchange price of the Company’s shares has exceeded the stock exchange price of the Company’s shares on the issue date by 5 % or more on at least seven non subsequent trading days. Upon conversion of a certificate, the beneficiary shall pay an additional conversion price to the Company for each certificate to be converted. The conversion price shall be the aggregate proportionate amount in the Company’s the shares each certificate entitles to share capital of | 96 | alstria Annual Report 2007 alstria Annual Report 2007 | 97 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 19. Financial Risk Management The financial instruments chiefly used by the Group are bank loans and derivative financial instruments. The main purpose of the bank loans is to finance the business activities of alstria office REIT-AG. The Company also has various financial assets, such as cash and short-term deposits, which arise directly from business activities . Derivative financial instruments include interest swaps and caps. The purpose of these derivative financial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of financing. The main risks arising from the Group’s financial instruments are cash flow interest rate risks and liquidity risks. The Group is not exposed to any significant credit risks. The management board decides on strategies and processes for managing specific risk types. These are presented below. Interest Rate Risk The following table sets out the carrying amount, by maturity, of the Group’s financial instruments that are exposed to interest rate risk: FISCAL YEAR AS AT DECEMBER 31ST, 2007 < 1 year EUR k 1- 2 years EUR k 2-3 years EUR k 3-4 years EUR k >4 years EUR k Total EUR k Variable interest Loan facility of EUR 1,139,800k - - - 927,400 - 927,400 FISCAL YEAR AS AT DECEMBER 31ST, 2006 < 1 year EUR k 1- 2 years EUR k 2-3 years EUR k 3-4 years EUR k >4 years EUR k Total EUR k Variable interest Loan facility of EUR 1,139,800k - - - - 813,466 813,466 subscribe for and shall be payable in addition to the offer price. The management board, subject to the approval of the supervisory board, shall be entitled to amend the program at any time. This also applies to the administration of certificates which have already been issued provided that such amendment does not affect the commercial value of the certificates and/or a respective compensation is paid. The fair values of the inherent options for conversion were estimated at the respective granting dates using a binary barrier option model based on the black-scholes- assumptions since the conversion will be affected automatically once the barrier has been reached. The model takes into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the model used for the determination of the fair value of the options for conversion granted on September 6, 2007: The estimated fair value of one option for conversion at the granteing date was EUR 10.77. Dividend yield (%) Risk-free interest rate (%) Expected volatility (%) Expected life of option (years) Exercise share price (EUR) Labor turnover rate (%) Stock price as of valuation date (EUR) 3.70 4.20 30.00 2.00 1.00 10 13.18 | 98 | alstria Annual Report 2007 alstria Annual Report 2007 | 99 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Due to the extensive portfolio of non-current financial lia- bilities with a variable interest risk, alstria office REIT-AG is exposed to risks from fluctuations in market interest rates. liability (loan) is the The interest base for the financial 3-month EURIBOR, which is adjusted every three months. A number of different derivative financial instruments were acquired to manage the interest expense. The derivative financial instruments relate to interest swaps in which the Company agrees to exchange with contracting partners, at specified intervals, the difference between fixed and variable interest rate amounts calculated by reference to an agreed-upon notional principal amount. In addition, interest caps were acquired; here the interest is capped at a set maximum. If the maximum interest rate is exceeded, interest rate and the the difference between the actual cap rate is paid out. The derivative financial instruments of alstria office REIT-AG are presented below: These interest swaps and interest caps are used to hedge the obligation underlying the loans. The following table shows the sensitivity of consolidated profit or loss to a reasonably possible change in the interest rates (due to the effect on the floating interest loans). All variables remain constant, the effects from the derivative financial instruments were not factored into the calculation. Consolidated equity is not affected. (in EUR k) 2007 2006 +80 basis points -100 basis points 5,714 - 7,143 423 - 528 Product Strike p.a. Notional Maturity Date Carrying Amount 2006 2007 Fair Value 2007 2006 Cap Cap Swap Swap Cap Cap Total 3.8000% 3.8000% 3.6165% 3.1925% 4.0000% 4.9000% 41,720,700 26,184,540 625,000,000 80,880,000 80,880,000 150,000,000 31.03.2011 31.03.2011 29.11.2011 29.11.2011 29.11.2011 20.12.2012 961,194 603,260 18,939,326 3,760,776 1,811,391 1,125,871 na na 10,429,881 2,985,671 1,147,246 na 961,194 603,260 18,939,326 3,760,776 1,811,391 1,125,871 na na 10,429,881 2,985,671 1,147,246 na 27,201,818 14,562,798 27,201,818 14,562,798 Liquidity Risk The Company continually monitors the risk of potential liquidity bottlenecks using a liquidity planning tool, which uses the expected cash flows from business activities and the maturity of the financial investments as a basis for analysis. FISCAL YEAR AS AT DECEMBER 31, 2007 the balance sheet date, As of financial liabilities had the following maturities in line with their contractual maturity (basis is the 3-month EURIBOR as of December 31, 2007 plus 60 basispoints). the nominal < 1 year EUR k 1- 2 years EUR k 2-3 years EUR k 3-4 years EUR k >4 years EUR k Total EUR k Interests Loans Financial Derivatives Trade payables Other Liabilites 57,940 48,868 48,868 - 3,068 25,164 - - - - - - 44,648 927,400 - - - 86,172 48,868 48,868 972,048 - - - - - 200,324 927,400 - 3,068 25,164 1,155,956 FISCAL YEAR AS AT DECEMBER 31, 2006 < 1 year EUR k 1- 2 years EUR k 2-3 years EUR k 3-4 years EUR k >4 years EUR k Total EUR k Interests Loans Financial Derivatives Trade payables Other Liabilites 48,922 82,471 134 5,363 24,140 42,984 42,864 42,864 - - - - - - - - - 39,163 813,466 - - - 216,797 895,937 134 5,363 24,140 161,030 42,984 42,864 42,864 852,629 1,142,371 | 100 | alstria Annual Report 2007 alstria Annual Report 2007 | 101 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties As of December 31, 2007, EUR 936,336k was outstanding on the financial liabilities (December 31, 2006: EUR 897,649k). The carrying amount takes into liabilities and transaction costs to be account allocated under the effective interest method upon raising the liabilities. interest The most significant liability is a syndicated loan from J.P. Morgan Plc., Natixis and HSH Nordbank AG for a nominal EUR 1,139,800k. EUR 931,416k of this nominal amount the balance sheet date had been utilized as of (December 31, 2006: EUR 655,743k). To secure these liabilities, receivables from rental and property purchase agreements as well as insurance receivables and instruments were assigned to the derivative financial lenders, liens were granted on bank accounts and the registration of land charges was agreed. The obligations arising from the floating interest bank loans were fully secured. Land charges with a carrying amount of EUR 1,235,565k were furnished as security. Capital Management Capital management activities are aimed at maintaining the Company’s classification as a REIT in order to support its business activities and maximize shareholder value. The Company manages its capital structure and makes adjustments in response to changes in economic conditions. In order to maintain or adjust the capital structure, the Group can make a capital repayment to its shareholders or issue new shares. No changes were made to the aims, guidelines and processes as of December 31, 2007 and December 31, 2006. The capital structure is monitored by the Company using the KPIs relevant for classification as a REIT. The REIT equity ratio, being the ratio of equity to investment property, is the most important Key Performance Indicators (KPI). According to the Group’s strategy, the REIT equity ratio must be between 45 % and 55 %. The following KPIs are also used to manage capital: KPIS ACCORDING TO G-REIT LAW (in %) Equity Ratio acc. G-REIT law Investment properties Revenues from investment properties Income from disposal of investment properties 2007 51.4 % 92.3 % 100 % 0.25 % 2006 Guideline 30.8 % 95,9 % 100 % - > 45 % > 75 % > 75 % < 50 % 1 1 Within five years based on the average property value during this periode 20. Financial Instruments Fair Value The following table shows the carrying amount and instruments disclosed in the fair value of all consolidated financial statements. financial DECEMBER 31, 2007 Assets as per balance sheet in EUR k Loans and receivables Assets at fair value through the profit and loss Derrivates used for hedging Available for sale Total Available-for-sale financial assets Derivative financial instruments Trade and other receivables Cash and cash equivalents - - 7,685 103,036 Total 110,721 DECEMBER 31, 2007 - - - - - - 27,202 - - 27,202 - - - - - - 27,202 7,685 103,036 137,923 Liabillities as per balance sheet in EUR k Liabillities at fair value through the profit and loss Derrivates used for hedging Other financial liabillities Total Borrowings Derivative financial instruments Total - - - - - - 936,336 - 936,336 - 936,336 936,336 | 102 | alstria Annual Report 2007 alstria Annual Report 2007 | 103 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties DECEMBER 31, 2006 Assets as per balance sheet in EUR k Loans and receivables Assets at fair value through the profit and loss Derrivates used for hedging Available for sale Total Available-for-sale financial assets Derivative financial instruments Trade and other receivables Cash and cash equivalents Total - - 3,760 24,304 28.064 DECEMBER 31, 2006 - - - - - - 14,563 - - 14,563 - - - - - - 14,563 3,760 24,304 42,627 Liabillities as per balance sheet in EUR k Liabillities at fair value through the profit and loss Derrivates used for hedging Other financial liabillities Total Borrowings Derivative financial instruments Total - - - - - - 897,649 - 897,649 - 897,649 897,649 instruments and The fair value of the derivative financial the loans was determined by an independent expert by discounting the expected future cash flows at prevailing market interest rates. Interest Rate Risk The fair market value of derivative financial instruments is also subject to interest rate risks. A change in the interest rate would give rise to the following changes of the respective fair market values: 22. Utilization of Exempting Provisions The following German subsidiaries included in the consolidated financial statements of alstria office REIT-AG the exemption granted in Sec. have made use of 264b HGB: (in EUR k) 2007 2006 • Alstria Sechste Hamburgische Grundbesitz GmbH & Co. KG, Hamburg • Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg • Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG, Hamburg +80 basis points -100 basis points 6,568 - 7,456 555 - 695 21. Significant Events after the End of the Reporting Period alstria office REIT-AG and HSH Nordbank AG entered into a swap agreement with a nominal value of EUR 100,000k effective July 10, 2008, which serves to hedge interest rate risks. The swap expires on July 10, 2013. As to the acquisition of investment property expected in the first month of 2008 we refer to Note 10.1. | 104 | alstria Annual Report 2007 alstria Annual Report 2007 | 105 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties 23. Disclosures Pursuant to Wertpapierhandels- gesetz [German Securities Trading Act] 1. AD-HOC ANNOUNCEMENTS Date 27.03.2007 28.03.2007 03.04.2007 11.10.2007 06.11.2007 12.12.2007 Topic Language alstria announces offer price range Extraordinary general meeting of shareholders established framework for conversion into G-REIT alstria sets offer price and placement size Registration as REIT-stock corporation Buy back of own shares alstria office REIT-AG: agrees on the acquisition of a German office real estate portfolio English / German English / German English / German English / German English / German English / German The following transactions were executed in 2007 and reported to alstria: DIRECTORS’ DEALINGS IN 2007 Name of the Board Member Function Classification of the share Olivier Elamine Member of the Management Board Share ISIN Place Transaction Transaction Date Price Per share in EUR Number of Shares Deal Volume DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 DE000A0LD2U1 Xetra Xetra Xetra Xetra Xetra Purchase Purchase Purchase Purchase Purchase 25.07.2007 10.08.2007 14.08.2007 19.10.2007 21.11.2007 13.89 13.20 12.22 12.75 10.48 2,650 1,200 1,200 2,000 1,000 36,808.5 15,840 14,664 25,500 10,480 VOTING RIGHTS NOTIFICATIONS No. Date Shareholders Voting rights (new) Strike threshold Date of Additional Disclosure Language Change shares 1 2 4 5 13.04.07 13.04.07 Cohen & Steers Capital Management Inc. Cohen & Steers Inc. Captiva Capital Partners II SCA Captiva 2 Alstria Holding S.à.r.l. 13.04.07 Captiva Capital II S.à.r.l. Deutsche Bank AG 13.04.07 3a 13.04.07 3b 13.04.07 6 13.04.07 7 13.04.07 Union Investment Privatfonds GmbH JPMorgan Chase & Co. 8 13.04.07 JPMorgan Chase Bank 9 13.04.07 JPMorgan International Inc. 3,67 % 3 % 03.04.07 no § 26 (1) WpHG German 4,73 % 3 % 03.04.07 71,43 % n/a 02.04.07 71,43 % n/a 02.04.07 71,43 % n/a 02.04.07 10,00 % n/a 02.04.07 0,00 % 4,29 % 10%, 5 %, 3 % 3 % 05.04.07 05.04.07 17,14 % n/a 02.04.07 24,10 % 0,33 % 17,14 % 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 23,82 % 0,05 % 17,14 % 23,82 % 0,05 % 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 20 % 20%, 15 %, 10 %, 5 %, 3 % 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG German German German German German German German § 26 (1) WpHG Engl § 26 (1) WpHG Engl § 26 (1) WpHG Engl yes yes yes yes no no yes yes yes yes yes yes yes yes yes yes | 106 | alstria Annual Report 2007 alstria Annual Report 2007 | 107 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties No. Date Shareholders Voting rights (new) Strike threshold Date of Additional Disclosure Language Change shares No. Date Shareholders Voting rights (new) Strike threshold Date of Additional Disclosure Language Change shares 17,14 % n/a 02.04.07 10 13.04.07 11 13.04.07 Bank One International Holdings Corporation J.P. Morgan International Finance Limited 12 13.04.07 13 13.04.07 J.P. Morgan Capital Holdings Limited J.P. Morgan Chase (UK) Holdings Limited 14 13.04.07 J.P. Morgan Chase International Holdings 15 13.04.07 J.P. Morgan Securities Ltd. 16 16.04.07 17 16.04.07 Bank One International Holdings Corporation J.P. Morgan International Finance Limited 23,82 % 0,05 % 17,14 % 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 23,82 % 0,05 % 17,14 % 23,82 % 0,00 % 17,14 % 23,82 % 0,00 % 17,14 % 23,82 % 0,00 % 17,14 % 23,82 % 0,00 % n/a 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 20 % 20%, 15 %, 10 %,5 %, 3 % n/a 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 20 % 20%, 15 %, 10 %, 5 %, 3 % n/a 20 % 20%, 15 %, 10 %, 5 %, 3 % 25 % exceeded and fell below n/a 25 % exceeded and fell below 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 02.04.07 03.04.07 05.04.07 30.03.07 yes yes yes yes yes yes yes yes yes yes yes yes yes yes yes no no no yes § 26 (1) WpHG Engl § 26 (1) WpHG Eng § 26 (1) WpHG Engl § 26 (1) WpHG Engl § 26 (1) WpHG Engl. § 26 (1) WpHG Engl. § 20 (6) AktG German 30.03.07 yes § 20 (6) AktG German 18 16.04.07 JPMorgan Chase & Co 19 16.04.07 20 16.04.07 21 16.04.07 J.P. Morgan Chase International Holdings J.P. Morgan Capital Holdings Limited JPMorgan Chase Bank 22 16.04.07 J.P. Morgan Securities Ltd. 23 16.04.07 24 16.04.07 25 30.05.07 26 24.07.07 27 18.09.07 28 18.09.07 29 18.09.07 J.P. Morgan Chase (UK) Holdings Limited JPMorgan International Inc. Cohen & Steers Inc. Union Investment Privatfonds GmbH CCT Corporate Nominees Limited Captiva Alstria S.à.r.l. Captiva Alstria 1 S.à.rl. n/a n/a 25 % exceeded and fell below 25 % exceeded and fell below 30.03.07 yes 30.03.07 yes 30.03.07 yes 30.03.07 yes 30.03.07 no 30.03.07 yes 30.03.07 yes n/a n/a n/a n/a n/a 5,174 % 25 % exceeded and fell below 25 % exceeded and fell below 25 % exceeded and fell below 25 % exceeded and fell below 25 % exceeded and fell below 5 % 1,83 % 3 % 20.07.07 23.05.07 yes no § 20 (6) AktG § 20 (6) AktG § 20 (6) AktG § 20 (6) AktG § 20 (6) AktG § 20 (6) AktG § 20 (6) AktG § 26 (1) WpHG § 26 (1) WpHG German German German German German German German German German 48,9 % 9,78 % 3%, 5 %, 10 %, 15 %, 20 %, 30 % 3%, 5 % 14.09.07 no 14.09.07 yes 9,78 % 3%, 5 % 14.09.07 yes § 26 (1) WpHG Engl. § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) | 108 | alstria Annual Report 2007 alstria Annual Report 2007 | 109 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties No. Date Shareholders Voting rights (new) Strike threshold Date of Additional Disclosure Language Change shares 30 18.09.07 31 18.09.07 32 18.09.07 Captiva Alstria 2 S.à.rl. Captiva Alstria 3 S.à.rl. Captiva Alstria 4 S.à.rl. 9,78 % 3%, 5 % 14.09.07 yes 9,78 % 3%, 5 % 14.09.07 yes 9,78 % 3%, 5 % 14.09.07 yes 33 10.10.07 Cohen & 4,813 % 5 % 02.10.07 yes 34 21.11.07 35a 29.11.07 35b 05.12.07 Steers Inc. Stanley Morgan Investment Management Limited Stichting Pensioenenfonds ABP Stichting Pensioenenfonds ABP 36 17.01.08 Morgan Stanley Investment Management Limited 5,03 % 5 % 20.11.07 no 3,02 % 3 % 21.11.07 3,02 % 3 % 21.09.07 no no 4,83 % 5 % 14.01.08 no § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) § 26 (1) WpHG German (Engl.) Correction of the notification of 29.11.07 § 26 (1) WpHG § 26 (1) WpHG German (Engl.) German (Engl.) Dr. Michael Börner-Kleindienst Chief Operating Officer (COO) from March 1, 2007 until October 31, 2007 Dr. Robert Hannemann Chief Financial Officier (CFO) until February 1, 2007 The attached compensation report contains details of the principles for the definition of the Management Board and Supervisory Board remuneration. 27. Supervisory Board Pursuant to the Company’s articles of association (section 9), the supervisory board consists of six members, which are elected by the general meeting of shareholders. With the extraordinary general meeting of resolution of January 16, 2007, having become shareholders of effective on February 15, 2007, the number of members of the supervisory board was increased from three to six. The expiration of the term of office is identical for all members, i.e., the close of the annual general meeting of shareholders in the year 2011. 24. Declaration of Compliance Pursuant to Sec. 161 AktG [“Aktiengesetz”: German Stock Corporation Act] The declaration of compliance required by Sec. 161 AktG regarding the recommendations of the German Corporate Governance Code developed by the government commission has been submitted by the management board and the supervisory board and has been made permanently available to the shareholders on alstria office REIT-AG’s website (www.alstria.de). 25. Auditor’s Fees On March 15, 2007, the shareholder meeting elected PricewaterhouseCoopers AG Wirtschaftsprüfungsgesell- schaft, Lise-Meitner-Straße 1, Berlin, to audit the separate and consolidated financial statements for fiscal year 2007.The fee expenses in 2007 comprise as follows: (in EUR k) Audit services Other audit-related services Tax advisory services Other services 2007 419 0 30 504 26. Management Board During the fiscal year the Company’s general managers were: Mr. Olivier Elamine Chief Executive Officer (CEO) Mr. Alexander Dexne Chief Financial Officier (CFO) since June 1, 2007 | 110 | alstria Annual Report 2007 alstria Annual Report 2007 | 111 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties During the fiscal year 2007 the members of supervisory board were: the Mr. Alexander Stuhlmann (Chairman) Hamburg West LB AG Berlin-Brandenburg Media GmbH BVV Pensionsfonds des Bankgewerbes AG BVV Versicherungsverein des Bankgewerbes a.G. BVV Versorgungskasse des Bankgewerbes e.V. DekaBank Deutsche Girozentrale Deutsche Hypothekenbank AG Frank Beteiligungsgesellschaft mbH CEO Member of the Advisory Board Member of the Supervisory Boards Member of the Supervisory Boards Member of the Supervisory Boards Capital Stage AG Vice-Chairman of the Supervisory Board Member of the Administrative Board Chairman of the Supervisory Board Member of the Advisory Board Hamburger Feuerkasse AG Vice-Chairman of the Supervisory Board HCI Capital AG Vice-Chairman of the Supervisory Board Member of the trustees board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Vice-Chairman of the Advisory Board Member of the Supervisory Board Mr. John van Oost (Vice-Chairman) HSBA Hamburg School of Business Administration GmbH HSH Real Estate AG LBS Bausparkasse Hamburg AG LBS Bausparkasse Schleswig-Holstein-Hamburg AG Siedlungsgesellschaft Hermann + Paul Frank mbH & Co. KG Stiftung Schloss Neuhardenburg GmbH Hamburg NATIXIS Capital Partners Ltd. Arman Amberley SaRL Arman Mentelle SaRL Arman Plantagenet BV Arman Voyager SPRL Axiom Asset 1 GmbH & Co. KG Axiom Asset 2 GmbH & Co. KG Axiom Immo Management GmbH Captiva Capital Management SaRL Captiva Healthcare Holding GmbH Captiva Industrial GP GmbH Captiva Industrial Holding GmbH Express Holding Srl Green Cove Capital Management SaRL La Jolla Capital Management SaRL Natixis Capital Partners GmbH NATIXIS Capital Partners Srl Ocala Capital Management LLC Ocala Capital Management S.a.r.l. Managing Partner Board Member Board Member Board Member Board Member Director Director Director Board Member Director Director Director Board Member Board Member Board Member Board Member Board Member Board Member Board Member Dr. Johannes Conradi Richard Mully Dr. Christian Olearius Hamburg Freshfields Bruckhaus Deringer Dublin Grove International Partners LLP Apellas Holdings B.V. Dolce International Limited Douglasshire International Holdings B.V. Hansteen Holdings PLC Hellenic Land Holdings B.V. Karta Realty Limited MED Group Leisure Investments B.V. Natixis Capital Partners Limited Nowe Ogrody 2 Sp. z o.o. Nowe Ogrody 3 Sp. z o.o. Nowe Ogrody 4 Sp. z o.o. Nowe Ogrody Sp. z o.o. Oliver's Wharf (Management) Limited Polish Investment Real Estate Holding II B.V Polish Investments Real Estate Holding B.V. SB Capital Europe B.V. Spazio Industriale B.V. Spazio Industriale II B.V. Stichting Administratiekontoor Douglasshire International Holding Hamburg M.M. Warburg & CO KGaA Bankhaus Carl F. Plump & Co., Bremen Bankhaus Hallbaum AG & Co. KG, Hannover Bankhaus Löbbecke AG, Berlin Degussa Bank GmbH, Frankfurt GEDO Grundstücksentwicklungs- und Verwaltungsgesellschaft mbH & Co KG, Grünwald Hannover Finanz GmbH, Hannover KanAM Grund Kapitalanlagegesellschaft mbH, Frankfurt am Main Liquiditäts-Konsortialbank GmbH, Frankfurt am Main Partner Managing Partner Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Spokesman of the Partners and General Partner Chairman of the Partners' Committee Chairman of the Supervisory Board Chairman of the Supervisory Board Chairman of the Supervisory Board Member of the Supervisory Board Vice-Chairman of the Advisory Board Member of the Supervisory Board Deputy Member of the Administrative Board | 112 | alstria Annual Report 2007 alstria Annual Report 2007 | 113 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties M.M. Warburg & Co. Geschäftsführungs-AG, Hamburg M.M. Warburg & Co. Hypothekenbank AG, Hamburg M.M. Warburg Bank (Schweiz) AG, Zürich M.M. Warburg-Hansa Ltd., Tortola/British Virgin Islands Marcard, Stein & Co., Hamburg VTG Aktiengesellschaft, Hamburg Warburg Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main London NATIXIS Capital Partners Ltd. Express Holdings Srl Natixis Capital Partners GmbH Hamburg Natixis Capital Partners GmbH Chairman of the Supervisory Board Chairman of the Supervisory Board President of the Administrative Board Director Chairman of the Administrative Board Member of the Supervisory Board Member of the Supervisory Board Partner Board Member Managing Director Director Daniel Quai Stephan Fritsch Until January 16, 2007 With effect as of April 1, 2007, the supervisory board elected Alexander Stuhlmann as Chairman and John van Oost as Vice-Chairman. and anticipated development of the Group in accordance with the applicable financial reporting framework.” the net assets, 28. Management Compliance Statement “We confirm that, to the best of our knowledge, the consolidated financial statements give a true and fair view of financial position and results of operations of the Group and the group management report gives a true and fair view of business performance including the results of operations and the situation of the Group, and describes the main opportunities and risks Hamburg, March 18, 2008 The Management Board Olivier Elamine Chief Executive Officer Alexander Dexne Chief Financial Officer COMPENSATION REPORT Management board compensation The total compensation paid to the members of the management board in the financial year 2007 was 1,397k. Management board compensation EUR comprises fixed and variable components, as well as performance incentives to increase the Company’s value in the long run. Long-term compensation components consist of stock options. The intention of this is to create performance incentives aimed at sustained corporate success. Success benchmarks may not be changed subsequently. There were no advance payments to board members and no granting of pension benefits. Following his departure, Dr. Michael Börner-Kleindienst received an immediate one time payment of EUR 250k. Furthermore he is entitled to a second payment of EUR 250k in 2008 subject to certain conditions being met. His stock options have been reduced from 281,250 to 140,625. DETAILED OVERVIEW OF INDIVIDUAL MANAGEMENT BOARD MEMBER COMPENSATION: In EUR k Management board member Fixed compensation Performance Other based payments 2 Long-term incentives 4 Total renumeration compensation 1 Olivier Elamine Chief Executive Officer Alexander Dexne since June 1, 2007 Chief Financial Officer Dr. Michael Börner-Kleindienst from March 1 to October 31, 2007 former Chief Operating Officer Dr. Robert Hannemann until February 1, 2007 former Chief Financial Officer Total 265 175 427 3 50 917 350 n/a n/a 50 400 43 25 7 5 80 502 1,160 53 251 n/a 806 253 685 105 2,203 1 Related to 2006 performance 2 Comprise benefits like company cars or relocation allowances 3 Includes severance payment of EUR 250k 4 Total non-cash expenses recognised for 2007 | 114 | alstria Annual Report 2007 alstria Annual Report 2007 | 115 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties The Company has agreed to assume the premiums of a combined disability and risk life insurance policy for both members of the management board, providing each for an insurance sum of EUR 5k per month (until reaching the age of 65) in case of invalidity as well as EUR 2,500k as lump sum coverage in case of death. If Mr. Elamine or Mr. Dexne should die during the term of their service contract, the fixed remuneration shall be paid for the month of death and the following three months. The bonus shall be paid on a pro rata temporis basis until the end of the month of death. Mr. Elamine and Mr. Dexne are subject to a post-contractual non-compete obligation for up to 12 months after termination of their respective service contracts and are entitled to a compensation amounting to their last fixed salary for the duration of such post-contractual non-compete obligation. the supervisory board of Stock Option Program the On March 27, 2007, Company resolved on the establishment of a stock option program for the members of the management board. The supervisory board fixed the details of the stock option program in accordance with an authorization granted by the general meeting of shareholders of March 15, 2007 and granted a first tranche of stock options to the management board. The main terms of the stock option program resolved by the supervisory board can be summarized as follows: Under the stock option program, up to 2,000,000 options entitling to the subscription of a maximum of 2,000,000 shares of the Company with a total notional value of EUR 2,000,000 may be granted to members of the management board. The stock options will be granted in annual tranches. The first tranche was granted by the supervisory board, subject to the above said conditions, with granting date April 3. Under this tranche 281,250 stock options (fair value at granting date: EUR 892k; i.e. EUR 3.17 per option) were granted to each of Olivier Elamine and Dr. Michael Börner-Kleindienst. The stock options granted to Dr. Michael Börner-Kleindienst were reduced from 281,250 to 140,625 (remaining fair value at granting date: EUR 446k; i.e. EUR 3.17 per option). With resolution from September 5, 2007, the supervisory board granted 93,750 stock options to Alexander Dexne (fair value at granting date: EUR 213k; i.e. EUR 2.28 per option). The exercise price for the stock options granted in 2007 is EUR 16.The total fair value at granting date of all stock options granted in 2007 is EUR 1,551k. The term of each stock option is seven years beginning with the respective issue date. The stock options may only be exercised if the current stock exchange price of the Company’s shares exceeds the stock exchange price of the Company’s shares on the issue date by 20 % or more for at least seven non subsequent trading days of the Frankfurt Stock Exchange prior the respective exercise period. to the commencement of The stock options may only be exercised after the expiration of a vesting period of two years and then during the four exercise periods each year. Each exercise period lasts 30 days, commencing with the day of announcement of the results for the first, second and third quarter, and the day of the Company’s annual general meeting, respectively. There are no cash settlement alternatives. The options may not be exercised before April 3, 2009 (Mr. Olivier Elamine and Dr. Michael Börner-Kleindienst) and September 7, 2009 (Mr. Alexander Dexne). the options were estimated at The fair values of the respective granting dates using a black-scholes-model and partial-time barrier options, taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the model used for the determination of the fair value of the stock options granted: Fair value of stock options granted on March 27, 2007 September 5, 2007 Dividend yield (%) Risk-free interest rate (%) Expected volatility (%) Expected life of option (years) Exercise share price (EUR) Labour turnover rate (%) Stock price as of valuation date (EUR) Estimated fair value of one stock option at granting date (EUR) 3.60 4.21 30.00 4.50 16.00 0.00 16.00 3.17 3.60 4.29 30.00 4.50 16.00 0.00 13.93 2.28 Supervisory board compensation Supervisory board compensation totalled EUR 283k in 2007 and EUR 18k in 2006. The supervisory board members receive a fixed compensation amount. As of fiscal year 2007, members of the supervisory board receive a fixed annual remuneration of EUR 40k each. The chairman of the supervisory board receives additional remuneration of EUR 20k p.a., his deputy receives an additional EUR 10k p.a.. Members who only sit on the board for part of the year receive pro rata remuneration for that part of the year. Furthermore, membership in the audit committee and chairmanship of the audit committee are taken into account in the evaluation of the supervisory board members’ compensation amount. Membership in other committees is not taken into account. No advance payments were made to the supervisory board. No compensation was paid for individually performed services. Member Compensation (in EUR k) Alexander Stuhlmann - chairman John van Oost - vice chairman Dr. Johannes Conradi - member Richard Mully - member Dr. Christian Olearius - member Daniel Quai - member Stephan Fritsch - former member 50.0 52.5 48.1 38.3 43.8 48.8 1.7 Total 283.2 | 116 | alstria Annual Report 2007 alstria Annual Report 2007 | 117 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties VALUATION REPORT 1 Our Ref: international/ CFT/Alstria Office REIT AG/Alstria AG Year End Accounts/Alstria AG portfolio certificate December 31, 2007 Date December 31, 2007 9 Marylebone Lane London W1U 1HL Tel: 020 7935 4499 Fax: 020 7344 6539 Direct Line 020 7344 6609 Direct Fax 020 7344 6539 Mobile 07768 500 202 chris.fowler-tutt@collierscre.co.uk The Directors alstria office REIT-AG Fuhlentwiete 12 20355 Hamburg Germany The Directors HSH Nordbank AG Gerhart-Hauptmann-Platz 50 20095 Hamburg Germany FAO: Alexander Dexne FAO: Oliver Waldeck THE ALSTRIA OFFICE REIT-AG PORTFOLIO VALUATION AS AT 31 DECEMBER 2007 We refer to your instructions to provide you with our opinion of the Market Value of the above portfolio, as at December 31, 2007, for balance sheet purposes, debt covenant calculation and inclusion within your annual accounts. We have pleasure in presenting our report. INSPECTIONS AND QUALIFICATIONS The properties have been inspected and valued by suitably qualified surveyors who fall within the requirements as to competence set out in PS 1.1 and 1.2 of the Appraisal and Valuation Standards issued by the Royal Institution of Chartered Surveyors (the “Red Book”). We confirm that Colliers CRE falls within the definition of Independent Valuers and that we have no conflict of interest in acting on your behalf in this matter. The properties were all inspected between June and October 2006 by either Christopher J Fowler-Tutt, BSc MRICS, Robert Mayhew BSc (Hons) MRICS, Nick Harris BSc (Hons) MRICS, Charlie Henry BSc (Hons) MRICS and Adrian Camp BSc (Hons) MRICS. A further sample of 5 properties were re-inspected in December 2007, namely • Hamburg, Steinstr. 7 (Bartholomay-Haus) • Hamburg, Drehbahn 36 • Hamburg, Gänsemarkt 36 • Düsseldorf, Mecumstr 10 • Köln, Bonner Str 351 The extent of our investigations and the sources of information on which we have relied upon are as described in Section 4 – Valuation Procedures and Assumptions contained within the Red Book. We confirm that our valuation complies with the requirements of IAS 40 – Investment Property. Where an entity opts to account for investment property the using the fair value model, requirements of this model are met by the valuer adopting Market Value IVSC considers that Our General Assumptions and Definitions form Appendix I to this report. THE PORTFOLIO AND ITS LOCATION The portfolio comprises 70 office investment properties located throughout Germany. The largest concentration of investment property is held in the city of Hamburg, The second the portfolio is situated. where 53 % of largest concentration of properties is in Baden Wuerttem- berg which accounts for 19 % of The portfolio also comprises properties in the cities of Augsburg, Bonn, Darmstadt, Dresden, Erfurt, Koln, Magdeburg, Mannheim, Munchen, Potsdam, Stuttgart, Wurzburg and Zwickau. the portfolio. 1 Exerp from the valuation report prepared by Colliers CRE on December 31, 2007 FLOOR AREAS In accordance with your instructions we have not measured the subject premises and have relied upon the the time the properties were floor areas adopted at purchased. TENURE We have been provided with the following reports, which we have had regard to in arriving at our opinions of value. All of the above reports were prepared by your lawyers Messrs. Alpers & Stenger Freshfields and Lovells. Our valuations assume that, with the exception of the matters disclosed within the aforementioned reports, there are no unusual, onerous or restrictive covenants in the titles which are likely to affect the value. Dated September 26,2006 Due Diligence Report Dated December 12, 2005 Draft Due Diligence Report Summary of Major Findings Legal Due Diligence Report Legal Due Diligence Report Dated September 26, 2006 Dated September 27, 2005 Dated October 24, 2006 LETTINGS We have relied upon the letting details contained within the following reports prepared by your lawyers Messrs. Alpers & Stenger and Freshfields: RENT ROLL We have been provided with a tenancy schedule dated 31 December 2007 by alstria office REIT-AG to which we have had regard in arriving at our opinions of value. We have compared the new rent roll with the one provided to us on the 31 December 2006 and have enquired about any changes. We have assumed all accurate, up-to-date and complete. information provided to be CONDITION We have not carried out building surveys of the properties and neither have we tested the drainage or service installations in the buildings as this was outside the scope of our instructions. If there is significant capital expenditure required on a property this sum will have been deducted from the value reported. We have been provided with the following reports prepared on your behalf by URS Deutschland GmbH (URS): Dated December 19, 2005 Technical Due Diligence Report Technical and Environmental Due Diligence Assessment Dated August 25, 2006 Intermediate Environmental Bullet Point Report Technical Due Diligence Report Dated December 29, 2006 Dated October 9, 2006 Dated September 26,2006 Due Diligence Report Dated December 12, 2005 Draft Due Diligence Report Summary of Major Findings Legal Due Diligence Report Legal Due Diligence Report Dated September 26, 2006 Dated September 27, 2005 Dated October 24, 2006 | 118 | alstria Annual Report 2007 alstria Annual Report 2007 | 119 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties ENVIRONMENTAL MATTERS We have been provided with the following reports, prepared on your behalf by URS Deutschland GmbH (URS), which we have relied upon in arriving at our opinions of value. Dated December 19, 2005 Technical Due Diligence Report Technical and Environmental Due Diligence Assessment Dated August 25, 2006 Intermediate Environmental Bullet Point Report Technical Due Diligence Report Dated December 29, 2006 Dated October 9, 2006 TOWN PLANNING We have not made any formal searches or enquiries in respect of the properties and are, therefore, unable to accept any responsibility in this connection. We have, however, relied upon the following reports: Due Diligence Report Dated December 12, 2005 Draft Due Diligence Report, Summary of Major Findings, Legal Due Diligence Report, Dated September 26, 2006 Dated September 26, 2006 Dated September 27, 2005 All of the above were prepared by your lawyers Messrs. Alpers & Stenger and Freshfields search information, town planning and permit issues and we have had regard to this information in arriving at our opinions of value. formal for MARKET APPROACH In preparing our valuations we have taken into account market trends in the locality and except where you have advised us to the contrary, or our other enquiries have alerted us to this, we have assumed that there have been no material changes to any of the properties or their surroundings that might have a material effect on value, since the time of our inspection. In arriving at our opinions of value we have had regard to comparable investment transactions in determining the net initial yield which we have adopted in capitalising the current income stream. Where properties have less than 5 years of term certain left we have adopted income void periods which range from 18 to 24 months depending upon the type of property prior to reletting. In addition, where appropriate, we have allowed for capital expenditure either to undertake works necessary to relet properties at the end of the lease or deal with extra ordinary items of disrepair that are the responsibility of the lessor. We are of the opinion that this portfolio as a whole or each of its individual assets would appeal to a wide range of purchasers including funds, property companies and institutions. to overseas investors attracted by the high quality income stream secured over long unexpired lease terms. We consider that demand for the portfolio would be strong. It would also be of interest NON-RECOVERABLE EXPENSES In arriving at our opinion of the value we have made a total deduction of 5 % from the income receivables to allow for non-recoverable costs. Such costs relate to items which cannot be recovered from the tenant and generally includes the expense of maintaining and repairing all structural components of the property and associated access roads, as well as being financially responsible for maintenance and repair items and management expenses etc. However, it does not include tenant improvement measures that have been taken into consideration. Moreover, when the technical due diligence reports showed that additional Capital Expenditure was required, we have deducted all, or parts of those additional costs from our valuation. MARKET RENT In preparing our valuation we have made an analysis of the Market Rent of the portfolio and compared it to the passing rent (as shown in Appendix III). Any difference between the Market Rent and the passing rent has been taken into consideration in our valuation. We estimate that the portfolio is approximately 10.86 % reversionary. MARKET VALUE We are of the opinion that the aggregate Market Value, as at 31 December 2007, of these 70 freehold properties is EUR 1,621,250,000 (One billion six hundred and twenty one million two hundred and fifty thousand euros). We confirm that all of the foregoing opinions of value, the requisite with the exception of one, are net of the Daimler In respect of purchaser’s costs of 5 %. Chrysler HQ investment property in Stuttgart purchaser’s costs of 4.25 % were adopted reflecting the high value of this single asset and the relatively low costs associated in managing it. The valuations of the individual properties are set out in the attached schedule forming Appendix II to this report. the portfolio is the sum of the The market value of individual market values of each of its assets. This aggregate figure makes no allowance for any effect that placing the whole portfolio on the market may have on the overall realisation. the portfolio sold as in a single transaction would not necessarily be the same as the aggregate figure reported. The market value of DISCLOSURES In accordance with UK Practice Statement 5.4 we confirm the following: i. Colliers CRE have valued this portfolio since 2006. ii. The total fees earned in the latest financial year from alstria office REIT-AG amounted to substantially less than 5 % of our Company turnover. iii. We do not undertake any non-valuation fee earning work for alstria office REIT-AG. LIABILITY AND PUBLICATION This report is private and confidential and for the sole use of alstria office REIT-AG for publication in its reports and accounts and HSH Nordbank AG for calculation of debt covenant. HSH Nordbank AG is an agent and security agent under the facility agreement to be entered into with Alstria Office AG as borrower (the “Facility Agreement”) for and on behalf of itself and each of HSH Nordbank AG, Natexis Banques Populaires and J. P. Morgan Plc as mandated lead arrangers under the Facility Agreement. HSH Nordbank AG, Natexis Banques Populaires and J. P. Morgan Chase Bank N.A. as original lenders under the Facility Agreement and each of their respective assignees or transferees (the “Finance Parties”) and to each such Finance Party. We do not accept any responsibility to any third party for the whole or any part of its contents. Neither the whole nor any part of this valuation or any reference thereto may be included within any published document, circular or statement or disclosed in anyway to the form and without our prior written consent context this In breach of in which it may appear. condition, no responsibility can be accepted to third parties for the comments or advice contained in this report. Yours faithfully Christopher J Fowler-Tutt BSc MRICS Director For and behalf of Colliers CRE | 120 | alstria Annual Report 2007 alstria Annual Report 2007 | 121 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties APPENDIX I GENERAL ASSUMPTIONS AND DEFINITIONS GENERAL ASSUMPTIONS AND DEFINITIONS The valuations have been prepared by a suitably qualified valuer, as defined by PS1.1 of the Appraisal and Valuation Standards, on the basis set out below unless any variations have been specifically referred to under the heading “Special Remarks”: 1 Market Value (MV) Where we have been instructed to value the properties on the basis of Market Value, we have done so in accordance with PS 3.2 of the Appraisal and Institution Valuation Standards issued by The Royal of Chartered Surveyors, which is defined as follows: “The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.” The interpretative commentary on Market Value, as published in International Valuation Standards 1, has been applied. 2 Market Rent (MR) Valuations based on Market Rent (MR), as set out in PS 3.4 of the Appraisal and Valuation Standards, adopt the definition as settled by the International Valuation Standards Committee which is as follows: ‘The estimated amount for which a property, or space within a property, should lease (let) on the date of valuation between a willing lessor and a willing lessee on appropriate lease terms in an arm’s-length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.’ slightly lower professional fees than usual. In respect of the Daimler Chrysler HQ investment property in Stuttgart purchaser’s costs of 4.25 % were adopted reflecting the high value of this single asset and the relatively low costs associated in managing it which are in the nature of tenants’ trade fittings and equipment. We have had regard to landlords’ fixtures such as lifts, escalators, central heating and the air conditioning forming an integral part of buildings. such as MR will vary significantly according to the terms of the assumed lease contract. The appropriate lease terms will normally reflect current practice in the market in which the property is situated, although for certain purposes unusual terms may need to be stipulated. Matters the the duration of frequency of rent reviews, and the responsibilities of the parties for maintenance and outgoings, will all impact on MR. In certain States, statutory factors may either the terms that may be agreed, or influence the impact of terms in the contract. These need to be taken into account where appropriate. The principal lease terms that are assumed when providing MR will be clearly stated in the report. the lease, restrict Rental values are provided for the purpose described in this report and are not to be relied upon by any third party for any other purpose. 3 Rental Assessment We have been provided with an updated tenancy schedule and rent roll to which we have had regard in arriving at our opinions of value. 4 Purchase and Sale Costs In arriving at our opinion of value we have allowed for purchaser’s costs of 5 %. This reflects 3.5 % for land tax with the remainder being apportioned between agents and legal fees. Because of the high value of the portfolio we consider it appropriate to adopt 5 Condition As this was outside the scope of our instruction, we have not carried out a building survey, nor have we inspected the woodwork or other parts of the structure which are covered, unexposed or inaccessible. We have been provided with a Technical Due Diligence Report prepared by on behalf of the alstria office REIT-AG as listed in our certificate which we have had regard to in arriving at our opinion. Where we have noticed items of disrepair during the course of our inspections, they have been reflected in our valuation which we comment upon in the individual reports attached hereto. 6 Environmental Matters We have relied upon the environmental investigation undertaken in respect of the property as listed in our certificate. We have been provided with a report highlighting the potential risks at the subject property and have had regard to this report in arriving at our opinion of value. We comment upon the environmental issue in the report attached hereto. 7 Fixtures and Fittings In arriving at our opinions of value we have disregarded the value of all process related plant, fixtures and fittings and those items machinery, it Where the properties are valued as an operational entity and includes the fixtures and fittings, is assumed that to any hire these are not subject purchase or lease agreements or any other claim on title. No equipment or fixtures and fittings have been tested in respect of Electrical Equipment Regulations and Gas Safety Regulations and we assume that where appropriate all such equipment meets the necessary legislation. Unless otherwise specifically mentioned the value attributable to plant and machinery. valuation excludes any 8 Tenure, Lettings and Reports on Title and/or Tenancies We have not inspected the title deeds, lease and related legal documents and have instead relied upon the Legal Due Diligence as listed in our certificate. We confirm we have relied upon the information contained therein in arriving at our opinions of value. 9 Taxation Whilst we have had regard to the general effects of taxation on market value, we have not taken into account any liability for tax which may arise on a disposal, whether actual or notional, and neither have we made any deduction for Capital Gains Tax, Valued Added Tax or any other tax. 10 Mortgages We have disregarded the existence of any mortgages, | 122 | alstria Annual Report 2007 alstria Annual Report 2007 | 123 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties debentures or other charges to which the properties may be subject. 11 Operational Entities Where the properties are valued as an operational entity and reference has been made to the trading history or trading potential of the property, reliance has been placed on information supplied to us. Should this information subsequently prove to be inaccurate or unreliable, the valuations reported could be adversely affected. enabling the property to be put to the uses ascertained at the date of our inspection have been obtained and that there are no outstanding works or conditions local or other required by lessors or competent authorities. statutory, 13 Arrears We have assumed that all rents and other payments payable by virtue of the leases have been paid to date. If there are rents or other arrears, we recommend that that we may we should be informed in order consider whether our valuation should be revised. Our valuations do not make any allowance for goodwill 14 Insurance 12 Local authorities, Statutory Undertakers and Legal Searches We have relied upon the Legal Due Diligence Report formal as listed in our certificate with respect of searches and enquiries for the property and are therefore unable to accept any responsibility in the connection. We have, however, made informal enquiries of the local planning authority in whose areas the properties are situated as to whether or not they are affected by planning proposals. We have not received a written reply and, accordingly, have had to rely upon information obtained verbally. We have also relied upon the Legal Due Diligence licences and Report fire certificates, permissions in respect of all consents, inter alia, including, In arriving at our valuation we have assumed that the buildings are capable of being insured by reputable insurers at reasonable market rates. If, for any reason, insurance would be difficult to obtain or would be subject to an abnormally high premium, it may have an effect on value. 15 Liability Cap We confirm that the extent of our liability in respect of this valuation and report is limited to a maximum sum of £50 million. 16 Standard Terms of Business We confirm that this valuation report has been provided in accordance with our Standard Terms of Business. Cologne | 124 | alstria Annual Report 2007 alstria Annual Report 2007 | 125 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties LIST OF ALL PROPERTIES LIST OF ALL PROPERTIES Address HAMBURG Alte Königsstrasse 29 Alter Steinweg 4 Amsinckstr. 28 Amsinckstr. 34 Bäckerbreitergang 73 2 Basselweg 73 Besenbinderhof 41 Buxtehuder Strasse 9-11a Drehbahn 36 Düsternstrasse 10 Eppendorfer Landstr. 59 Ernst-Merck-Str. 9 (Bieberhaus) Gänsemarkt 36 Garstedter Weg 13 Gorch-Fock-Wall 11 Gorch-Fock-Wall 15 / 17 Grindelberg 62-66 Grosse Bleichen 23 / 27 Hamburger Strasse 1-15 Hamburger Strasse 43-49 Hammer Steindamm 129 Harburger Ring 17 Herthastrasse 20 Johanniswall 4 Kaiser-Wilhelm-Strasse 79-87 Kattunbleiche 19 Kümmelstrasse 5-7 Lenhartzstrasse 28 Ludwig-Rosenberg-Ring 41 Max-Brauer-Allee 89-91 Öjendorfer Weg 9-11 Osterbekstr. 96 Ottenser Marktplatz 10 / 12 Poststr. 11 (Alte Post) 1 Based on the valuation of Colliers CRE as of December 31, 2007 2 Based on company information City Total Lettable Area Office Area (SQM) Vancancy (SQM) Passing Rent (EUR) (SQM) ERV 1 (EUR) OMV 1 (EUR) Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg 4,300 32,000 8,100 6,200 2,400 2,700 5,000 7,700 26,200 2,200 3,300 17,500 20,900 3,600 8,700 7,700 18,400 17,700 19,600 20,500 7,200 3,100 3,300 14,100 5,500 12,400 15,700 1,100 5,000 9,800 6,100 7,400 900 6,600 4,300 32,000 8,100 6,200 2,400 2,300 5,000 6,300 26,200 2,200 2,900 15,600 20,600 3,600 8,700 7,700 18,400 15,800 8,500 20,500 7,200 1,600 3,300 12,500 5,100 12,400 15,700 1,100 4,800 9,800 6,100 7,400 900 4,900 - - - - 2,400 313 - - - - - 1,309 59 - - - - 4,826 2,352 - - 36 - 383 - - - - - - - - - 111 534,600 3,772,600 904,900 690,900 - 248,400 476,000 536,500 3,094,200 263,800 389,900 2,128,800 2,986,800 327,400 977,300 769,700 1,983,100 1,827,600 2,078,200 2,356,400 520,200 328,300 281,500 1,589,400 577,600 1,441,100 1,305,900 96,000 440,000 858,000 534,300 526,500 147,900 1,202,500 547,800 4,310,300 990,000 690,000 407,800 290,400 474,600 531,600 3,096,000 264,000 387,300 2,274,100 3,034,900 358,800 981,000 768,000 2,022,000 3,627,400 2,714,700 2,865,900 522,000 336,000 318,000 1,790,300 604,000 1,434,000 1,350,000 110,400 499,200 882,000 684,000 645,000 153,600 2,160,000 | 126 | alstria Annual Report 2007 alstria Annual Report 2007 | 127 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Address City Total Lettable Area Office Area (SQM) Vancancy (SQM) Passing Rent (EUR) (SQM) ERV 1 (EUR) OMV 1 (EUR) Poststrasse 51 Rahlstedter Strasse 151-157 Schlossstrasse 60 Steckelhörn 12 Steinstrasse 10 Steinstrasse 7, Bartholomay-Haus Wandsbeker Chaussee 220 STUTTGART Epplestrasse 225 Siemensstrasse 33 DUSSELDORF AREA Bamler Str. 1-5 Friedrichstrasse 19 Gathe 78 Jagenbergstrasse 1 Max-Eyth-Strasse 2 Mecumstrasse 10 MUNICH Arnulfstrasse 150 Hofmannstrasse 51 Landshuter Allee 174 HANOVER Arndtstrasse 1 1 Based on the valuation of Colliers CRE as of December 31, 2007 Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Stuttgart Ditzingen Essen Dusseldorf Wuppertal Neuss Dortmund Dusseldorf Munich Munich Munich 1,600 2,900 11,900 14,700 26,800 21,900 3,200 415,900 107,300 29,100 136.400 36,400 2,100 8,500 24,700 6,300 8,600 86,600 5,900 22,100 7,000 35,000 1,400 2,900 11,900 14,300 26,800 19,900 2,500 96 - - - - 2,772 - 353,400 276,600 919,600 1,786,500 3,095,000 3,070,400 366,000 348,600 324,000 1,041,000 1,974,300 2,928,000 3,392,600 359,600 389,800 14,657 46,063,800 52,493,200 908,931,111 107,300 12,300 - 3,307 14,513,300 1,789,400 14,914,200 1,848,500 119,600 3,307 16,302,700 16,762,700 317,000,000 36,400 1,300 4,500 24,700 6,300 8,600 3,971 137 140 - 5,179 - 3,762,200 421,500 1,014,500 3,133,000 92,200 1,228,100 4,222,700 358,700 1,313,100 2,958,000 908,400 1,253,900 81,800 9,427 9,651,500 11,014,800 160,150,000 5,900 22,100 7,000 - - 5,600 974,500 2,227,500 900,000 1,098,600 2,778,000 1,113,000 35,000 5,600 4,102,000 4,989,600 77,150,000 Hanover 10,200 9,300 342 1,005,200 1,118,400 | 128 | alstria Annual Report 2007 alstria Annual Report 2007 | 129 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Address City Total Lettable Area Vahrenwalder Strasse 133 Werner-von-Siemens-Platz 1 SAXONY Lothar-Streit-Strasse 10b Ludwig-Erhard-Strasse 49 Nikolaistrasse 16 Washingtonstrasse 16-16a Zellescher Weg 21-25a COLOGNE / BONN Bertha-von-Suttner-Platz 17 Bonner Strasse 351 OTHERS Im Gräslein 12 Emil-von-Behring-Strasse 2 Eserwallstrasse 1-3 Halberstädter Strasse 17 Helene-Lange-Strasse 6-7 Johannesstrasse 164-165 Regensburger Strasse 223-231 Rheinstrasse 23 Schweinfurter Strasse 4 Steubenstrasse 72-74 TOTAL PORTFOLIO as of Dec. 31, 2007 1 Based on the valuation of Colliers CRE as of December 31, 2007 2 Disregarding prepayments and acquisition related sundry expenses Hanover Hanover Zwickau Leipzig Leipzig Dresden Dresden Bonn Cologne Nuremberg Frankfurt Augsburg Magdeburg Potsdam Erfurt Nuremberg Darmstadt Wurzburg Mannheim 7,100 21,700 39,000 1,000 6,300 1,000 20,700 6,500 35,500 1,400 10,900 12,300 2,700 9,300 5,600 7,600 3,400 5,800 8,900 2,700 5,100 4.100 55,200 815,000 Office Area (SQM) Vancancy (SQM) Passing Rent (EUR) (SQM) ERV 1 (EUR) OMV 1 (EUR) 7,000 21,700 - - 991,400 1,862,700 997,100 1,986,000 38,000 342 3,859,300 4,101,500 63,525,000 1,000 6,300 800 20,700 5,600 - - 325 5,362 402 140,100 751,700 153,300 1,182,800 743,300 140,400 686,900 169,000 1,701,500 649,200 34,400 6,089 2,971,200 3,347,000 41,880,000 1,000 10,500 11,500 2,400 9,300 5,500 7,600 3,100 4,400 7,900 2,600 4,700 4,100 - - - 521 - - 592 55 308 386 - 1,084 - 178,800 1,475,100 200,400 1,482,800 1,653,900 1,683,200 28,150,000 261,800 1,495,200 710,000 607,800 384,100 518,700 1,004.100 317.200 415,200 532,700 341,600 1,524,000 728,900 658,200 402,800 520,800 1,085,400 334,100 523,600 547,500 51,600 2,946 6,246,800 6,666,900 89,315,000 761,700 47,943 90,851,200 101,058,900 1,686,101,111 2 | 130 | alstria Annual Report 2007 alstria Annual Report 2007 | 131 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | > Compensation Report > Valuation Report > List of all Properties Address City Total Lettable Area Office Area (SQM) Vancancy (SQM) Passing Rent (EUR) (SQM) ERV 1 (EUR) OMV 1 (EUR) NEW ACQUISITIONS SUBJECT TO CLOSING Am Roten Berg 5 Benrather Schlossallee 29-33 Carl-Reiss-Platz 1,3,5 Darwinstr. 14-16 / Quedlinburger Str. 1-3 Doktorweg 2-4 / Bismarkstr. 3 Ernsthaldenstr. 17 Gereonsdriesch 13 Goldsteinstr. 114 Gustav-Nachtigal-Str. 3 Gustav-Nachtigal-Str. 4 Holzhauser Str. 175-177 Horbeller Str. 11 Joliot-Curie-Platz 29-30 Kanalstr. 44 Marburger Str. 10 Nagelsweg 41-45 Spitzweidenweg 107 Zwinglistr. 11-13 TOTAL ALSTRIA PORTFOLIO Erfurt Dusseldorf Mannheim Berlin Detmold Stuttgart Cologne Frankfurt Wiesbaden Wiesbaden Berlin Cologne Halle Hamburg Berlin Hamburg Jena Dresden 4,200 5,000 18,600 22,200 9,800 2,600 2,400 8,500 18,400 700 7,400 6,700 1,100 8,300 6,200 6,200 2,900 3,200 134,400 949,400 4,200 5,000 18,400 22,200 9,800 2,500 2,200 8,500 18,200 700 7,400 6,700 1,100 8,300 6,100 6,100 2,900 3,200 1,813 - 2,119 - - 194 - 195 - - 3,069 2,028 - 244 717 - 571 1,842 172,600 522,200 1,561,800 3,245,500 803,600 239,900 345,600 1,079,600 2,411,400 108,900 421,400 465,200 112,200 912,700 800,400 880,100 148,300 86,500 288,900 530,400 1,732,400 3,245,500 755,900 261,600 344,100 1,354,800 2,412,000 119,000 709,400 680,400 110,400 957,400 908,400 957,000 204,600 230,400 133,500 12,792 14,317,900 15,802,600 215,970,000 895,200 60,734 105,169,100 116,861,500 1,902,071,111 1 Based on the valuation of Colliers CRE as of December 31, 2007 | 132 | alstria Annual Report 2007 alstria Annual Report 2007 | 133 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | AUDITORS' REPORT "We have audited the consolidated financial statements prepared by the alstria office REIT-AG, Hamburg, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from January 1 to December 31, 2007. The preparation of the consolidated financial statements and the group management report in accordance with the IFRSs, as adopted by the EU, and the additional law (paragraph) 1 HGB pursuant (“Handelsgesetzbuch”: German Commercial Code) are the responsibility of the parent Company's Board of Managing Directors. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. requirements of German commercial to § (Article) 315a Abs. We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group report are detected with reasonable management assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group the audit. The audit management report are examined primarily on a test basis within the framework of includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company's Board of Managing Directors, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion based on the findings of our audit the consolidated financial statements comply with the IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, financial the Group in position and results of operations of accordance with these The group management report is consistent with the consolidated financial statements and and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development." requirements. Berlin, March 19, 2008 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Gregory Hartmann Wirtschaftsprüfer (German Public Auditor) ppa. Markus Salzer Wirtschaftsprüfer (German Public Auditor) REIT DECLARATION Statement of the Management Board Regarding the compliance with the requirements of Section 11 to 15 REIT Act (Real Estate Investment Trust Law) as per December 31, 2007, we declare the following in relation with our financial statements according to Section 264 HGB (German Commercial Code) and our consolidated financial statements according to Section 315a HGB as per balance sheet date: 1. As per balance sheet date, 33,14 percent of alstria’s shares were free floating shares according to Section 11 paragraph 1 REIT Act. This was disclosed to the German Federal Financial Supervisory Authority (BaFin). 2. 3. In accordance with Section 11 paragraph 4 REIT Act, as per balance sheet date, no shareholder owned directly 10 percent ore more of our shares or shares of such an amount, that he holds 10 percent or more of the voting rights. In accordance with Section 12 paragraph 2 the Group held immovable assets in an amount of EUR 1,694m as per balance sheet date, which equals 92 percent of assets. No REIT service companies were included into the consolidated financial statement. 4. As to the balance sheet date the entire sales revenues of the Group plus other earnings from immovable assets in compliance with Section 12 paragraphs 3 and 4 REIT Act amounted to EUR 83m. This equals 100 percent of total revenues. 5. A dividend payment to the shareholders in 2007 according to Section 13 REIT Act was not required, since the REIT status was not obtained before 2007. 6. In the financial year 2007 the Group sold 0.2 percent of its immovable assets and therefore did not trade with real estate according to Section 14 REIT Act. 7. The Group’s equity as per balance sheet date accounted for in the consolidated financial statements pursuant to Section 12 paragraph 1 REIT Act amounted to 871m. This equals in conformance with Section 15 REIT Act 51 percent of the amount with which the immovable assets are determined in the consolidated accounts pursuant to Section 12 paragraph 1 REIT Act. Hamburg, March 18, 2008 Olivier Elamine Chief Executive Officer alstria office REIT-AG Alexander Dexne Chief Financial Officer alstria office REIT-AG The Auditor of the financial statements and the consolidated financial statements for the financial year from January 1 to December 31, 2007 has summarized the results of his audit according to Sec. 1 para. 4 REITG concerning the REIT statement of the management board in an unqualified audit opinion. | 134 | alstria Annual Report 2007 alstria Annual Report 2007 | 135 | | Preface | Strategy | The Shares | Corporate Governance | MD&A | Financial Statement Tables | Notes | Auditors Report | REIT Declaration | Calendar | Imprint | FINANCIAL CALENDAR FINANCIAL CALENDER January 10, 2008 January 15, 2008 January 21-22, 2008 January 22, 2008 February 4, 2008 February 5, 2008 February 11-12, 2008 February 22, 2008 February 27, 2008 March 6-7, 2008 March 10-14, 2008 April 2, 2008 April 4, 2008 April 9, 2008 April 10, 2008 April 14-15, 2008 April 29, 2008 May 6, 2008 May 20, 2008 May 28-29, 2008 June 5, 2008 June 20, 2008 August 19, 2008 October 6, 2008 November 19, 2008 Morgan Stanley's 3rd German Property Day Deutsche Bank 2008 Real Estate Outlook Conference New York London at the Renaissance Chancery Court Roadshow Munich/Frankfurt Roadshow JPMorgan Frankfurt Roadshow M.M. Warburg Kopenhagen Roadshow M.M. Warburg Edinburgh 3. DVFA-Immobilien-Konferenz Frankfurt Roadshow JPMorgan Brussels 3. HSBC Trinkaus Real Estate Conference Frankfurt Kempen & Co. European Property Seminar New York mipim Cannes Publication of the annual financial results for 2007 Sal. Oppenheim Roadshow Paris Real Estate Investors Conference Dresdner Kleinworth London US REIT Day Frankfurt Roadshow JPMorgan Japan Sal. Oppenheim Roadshow Zurich Sal. Oppenheim Roadshow Vienna/Munich Publication of financial results of Q1 2008 Hamburg Kempen & Co 6th European Property Seminar Amsterdam General Meeting Hamburg Sal. Oppenheim Real Estate Conference Vienna Publication of financial results of Q2 2008 Hamburg EXPO REAL Munich Publication of financial results of Q3 2008 Hamburg IMPRINT Contact alstria office REIT-AG Fuhlentwiete 12 20355 Hamburg Phone: +49 (0) 40 22 63 41 -300 e-mail: info@alstria.de Photos Michael Zahlten Hamburg Design PrasserSander Markengestaltung Hamburg | 136 | alstria Annual Report 2007 alstria Annual Report 2007 | 137 | alstria office REIT-AG Fuhlentwiete 12 20355 Hamburg Phone: +49 (0) 40 22 63 41 -300 e-mail: info@alstria.de 

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