alstria office REIT Annual Report 2010

Plain-text annual report

alstria Edition 2010 Annual Report 2010 Part II/II – Financial Report PROFILE alstria ofﬁ ce REIT-AG is an internally managed Real Estate Investment Trust (REIT) focused solely on acquiring, owning and managing ofﬁ ce real estate in Germany. alstria was founded in January 2006 and was con- verted into the ﬁ rst German REIT in October 2007. Its headquarters are in Hamburg. alstria ofﬁ ce REIT-AG owns a diversiﬁ ed portfolio of proper- ties across attractive German ofﬁ ce real estate markets. Its portfolio as of December 31, 2010 comprises 70 properties with an aggre gate lettable space of approx. 778,000 sqm and is valued at approx. EUR 1.4 bn. alstria intends to expand its portfolio in the upcoming years as part of a sustainable growth strategy. This strategy is based on selective invest- ments and active asset and portfolio management, as well as on estab- lishing and maintaining good relationships with key customers and decision-makers. alstria focuses on long-term real estate value creation. KEY FIGURES 2010 EUR k Revenues and earnings Revenues Net rental income Consolidated proﬁ t/loss for the period FFO Earnings per share (EUR) Balance sheet Investment property Total assets Equity Liabilities NAV/share (EUR) NNNAV/share (EUR) G-REIT key ﬁ gures G-REIT ratio Revenues plus other income from investment properties Share data Number of shares (m) Number of own shares (m) Total (m) 2010 2009 Change (%) 89,094 81,759 206 27,541 0.00 102,510 91,964 −79,651 32,690 −1.40 Dec. 31, 2010 Dec. 31, 2009 1,348,400 1,425,440 1,542,336 1,766,134 692,408 849,928 11.24 11.24 634,185 1,131,949 11.32 11.32 −13.1 −11.1 100.3 −15.8 100.3 −5.4 −12.7 9.2 −24.9 −0.7 −0.7 49.8 % 40.3 % 9.5 pp 100 % 100 % 0.0 pp 61.6 0.0 61.6 56.0 0.0 56.0 PROFILE alstria ofﬁ ce REIT-AG is an internally managed Real Estate Investment Trust (REIT) focused solely on acquiring, owning and managing ofﬁ ce real estate in Germany. alstria was founded in January 2006 and was con- verted into the ﬁ rst German REIT in October 2007. Its headquarters are in Hamburg. alstria ofﬁ ce REIT-AG owns a diversiﬁ ed portfolio of proper- ties across attractive German ofﬁ ce real estate markets. Its portfolio as of December 31, 2010 comprises 70 properties with an aggre gate lettable space of approx. 778,000 sqm and is valued at approx. EUR 1.4 bn. alstria intends to expand its portfolio in the upcoming years as part of a sustainable growth strategy. This strategy is based on selective invest- ments and active asset and portfolio management, as well as on estab- lishing and maintaining good relationships with key customers and decision-makers. alstria focuses on long-term real estate value creation. CONTENTS Group Management Report (separate content) Economics and strategy (business overview) Financial analysis Report on risks and opportunities Sustainability report Mandatory disclosure Additional Group disclosures Subsequent events and outlook Consolidated Financial Statements (separate content) Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of ﬁ nancial position Consolidated statement of changes in equity Consolidated statement of cash ﬂ ows Notes to the consolidated ﬁ nancial statements Management Compliance Statement Auditors’ Report Corporate Governance Report of the Supervisory Board Corporate governance statement Remuneration report REIT Disclosures REIT declaration REIT memorandum Other Information Glossary Financial calendar Contact/Imprint 5 6 12 17 22 23 25 26 28 30 31 32 34 36 38 78 79 80 80 84 90 94 94 95 96 96 100 DETAIL INDEX GROUP MANAGEMENT REPORT Economics and strategy (business overview) Economic conditions Strategy and structure Corporate management Portfolio overview Financial analysis Earnings position Financial and asset position Report on risks and opportunities Risk reporting Opportunities of the Group Sustainability report Mandatory disclosure Disclosure requirements in accordance with Section 315 (4) of the German Commercial Code (HGB) for the ﬁ nancial year 2010 and explanatory report of the Management Board Additional Group disclosures Employees Remuneration report Group and dependent-company report Subsequent events and outlook Subsequent events Outlook 6 6 7 8 8 12 12 14 17 17 21 22 23 23 25 25 25 26 26 26 27 DETAIL INDEX GROUP MANAGEMENT REPORT Economics and strategy (business overview) Economic conditions Strategy and structure Corporate management Portfolio overview Financial analysis Earnings position Financial and asset position Report on risks and opportunities Risk reporting Opportunities of the Group Sustainability report Mandatory disclosure Disclosure requirements in accordance with Section 315 (4) of the German Commercial Code (HGB) for the ﬁ nancial year 2010 and explanatory report of the Management Board Additional Group disclosures Employees Remuneration report Group and dependent-company report Subsequent events and outlook Subsequent events Outlook 6 6 7 8 8 12 12 14 17 17 21 22 23 23 25 25 25 26 26 26 27 6 Group management report alstria Financial Report 2010 GROUP MANAGEMENT REPORT ECONOMICS AND STRATEGY (BUSINESS OVERVIEW) Economic conditions In 2010 the German economy enjoyed a strong rebound in activity after 2009. Germany’s GDP was up 3.6 % in 2010*. The gov- ernment stimulus programmes have had a posi- tive impact. This positive development of the economy feeds the recovery of the labour market. The unemployment rate for the full year was 7.7 %** which reﬂ ects a decrease of 0.5 percentage points compared to 2009. However, the German economy is still catching up from the deep recession of 2008 and 2009. The outcome of the economic crisis is still signi- ﬁ cant for the national budget. Again the public def- icits standing reached a record level and therefore it might possibly exceed the 3 % deﬁ cit limit of the Maastricht treaty. Nevertheless all expectations for 2010 have been exceeded. The fast economic recovery and the con- ﬁ dence of companies for 2011 is reﬂ ected impres- sively by the real estate market. Never before have large single lease-ups of over 20,000 sqm had such a remarkable inﬂ uence on the revenues for the Ger- man ofﬁ ce property market as was the case in 2010. Their share was around 17.0 % for the whole take- up volume in Germany, the highest level throughout the last ten years. More importantly, it is uncertain whether all banks have been able to strengthen their balance sheets in a meaningful manner. Granting of loans remained relatively limited in 2010, and although there was improved liquidity in the mortgage credit market towards the end of the year, the volumes on offer appear far lower than are required to sustain global recovery in the market. It is also evident that the Commercial Mortgage Backed Securities (CMBS) market will remain inactive for the foreseeable future. Overview of the German ofﬁ ce property market*** Development of ofﬁ ce rents The overall develop- ment of rents in the German ofﬁ ce property market did not mirror the growth of the German economy, with the rental level remaining ﬂ at over the period with limited changes of +/– 2 % year on year. During the ﬁ rst three quarters of 2010, prime rents stabilised in the largest cities in Germany. They decreased by around 2 % in Hamburg (EUR 22.50 per sqm) and in Frankfurt by 3 % (EUR 33.00 per sqm), Berlin prime rents (EUR 20.50 per sqm) increased by 2.5 %, Munich (EUR 29.00 per sqm) by 1.8 % and Düs- seldorf (EUR 23.00 per sqm) by 4.5 % compared to 2009. Take-up in major German cities The vacancy rate of ofﬁ ce properties in German cities increased from 9.9 % in 2009 to 10.6 % in 2010, which represents total vacancies of 8.47 million sqm. Comparing the six-biggest German cities, the highest vacancy rate was noted in Frankfurt (14.7 %), followed by Düsseldorf (12.9 %), Munich (10.5 %), Hamburg (9.6 %), Berlin (9.1 %) and Stuttgart (7.1 %). Despite strong tenant demand and ﬂ uid leasing markets, total net absorption of ofﬁ ce space in Germany remains negative, pushing vacancy rates up. This is mainly the effect of an increasing search for efﬁ ciency by tenants who tend to rent less but more efﬁ cient space than previously. New lease-up New lease contracts for over 2.66 mil- lion sqm of ofﬁ ce space have been signed in the six major German cities. This reﬂ ects an increase of 0.56 million sqm or 26.4 % compared to the previ- ous year. In Munich and Stuttgart the rise ranged between 11 % and 19 %, in Berlin and Frankfurt between 25 % and 32 %, whereas the highest per- centage increase in total new lease-ups was registered in Düsseldorf (55 %). In Hamburg, new lease-ups totalled 502,800 sqm, representing an increase of 28 % in comparison with 2009. This high increase however needs to be taken on a relative basis, as the year 2009 saw a strong decrease of tenant take-up as a consequence of ﬁ nancial turmoil. * Statistisches Bundesamt (German Federal Statistics Ofﬁ ce). ** Bundesagentur für Arbeit (German Federal Labour Agency). *** All numbers referred to in this section are sourced from Jones Lang Lasalle and BNP Paribas. alstria Financial Report 2010 Group management report 7 New ofﬁ ce supply With approx. 1 million sqm, the delivery of new ofﬁ ce and commercial space remained at the same level as in 2009. For 2011, it is expected that newly completed ofﬁ ce space will decline by around 21 %. Investment markets The positive trend on the invest- ment market in the ﬁ rst six months of 2010 contin- ued for the rest of the year, and even accelerated during the last quarter of 2010. Total year on year investment volume was up by approx. 85 % (around EUR 19.60 bn for commercial assets). In the six most important German locations for ofﬁ ce space, invest- ment markets rose by over 90 % from EUR 5.8 bn to EUR 11.1 bn. The ﬁ nancial year 2010 was dominated by a number of transactions up to EUR 50 m. Therewith the aver- age transaction volume has increased by approx. 94 % to EUR 31 m. In 2010 there were a small number of completed portfolio transactions, which represent around 22 % of the total investment mar- ket. However, despite the strong increase in volumes, the investment market has continued to focus on core long-term leased properties, while the mar- ket for higher-risk properties remained restrained for the year. Outlook for 2011 Economic conditions are expected to be positive in 2011, which will continue to push tenant demand in the leasing market. The main driver for the investment market outside of the core area will most notably be driven by reﬁ nancing needs which will start to increase from 2011 on. Overall, the euro debt crisis might have a negative impact on the general market development as it can increase economic and political instability over the eurozone. Whether or not interest rates would be increased will also be key to the development of the investment market which as of today is partly fuelled by the low interest rate environment. Strategy and structure The alstria Group consists of the parent company alstria ofﬁ ce REIT-AG, a real estate company listed on the Frankfurter stock exchange, and 17 subsidiaries. Operations are made within the parent company. Although the major part of the assets is allocated in the alstria ofﬁ ce REIT-AG, 13 properties are held by seven subsidiaries. alstria’s buy-and-manage strategy proved to be the right track for the changing economic environment. alstria focused on regular reviews of its business situation, assets and liabilities, and on its short- and long-term perspectives. In strengthening its balance sheet, alstria’s strategy of reducing the balloon pay- ment of its main credit facility step-by-step and of selective asset sales paid off. > alstria has a long-term lease portfolio (around 8.4 years weighted average lease lengths). Some 80 % of rental income derives from a small number of high-quality tenants. Around 50 % of rental income is generated from public or public related entities, which are or were less affected by the economic changes. > alstria pursues a non-trading strategy, and focuses on long-term value creation through asset manage- ment. The recovery of the investment market will bring new opportunities for the Company’s buy- and-manage strategy. > The operating strategy involves helping alstria’s tenants to optimise their real estate operating costs. There is no contradiction in reducing the overall real estate costs of alstria’s tenants and increasing the returns of alstria. In fact, the current environ- ment could create opportunities for alstria at a time when most German corporations are looking to reduce costs. 8 Group management report alstria Financial Report 2010 In 2010, revenues were down from EUR 102.5 m to EUR 89 m and funds from operations (FFO)* were down 15.7 %, from EUR 32,690 k in 2009 to EUR 27,541 k. These results fulﬁ l the ﬁ nancial guid- ance of EUR 89 m in revenues and EUR 27 m of FFO. The announced year-on-year decrease in revenues and funds from operations was mainly driven by the disposal of fully let assets, as part of the overall plan of the Company deleveraging. Portfolio overview On December 31, 2010, alstria’s portfolio consisted of 70 ofﬁ ce buildings with approx. 778,000 sqm of lettable area and a contractual vacancy rate of 7.6 %. The portfolio is valued at a yield of 6.4 % and the remaining weighted average unexpired lease term is approx. 8.4 years. THE KEY METRICS FOR THE PORTFOLIO1 AS OF DECEMBER 31, 2010 Metric Number of properties Number of joint ventures Market value (EUR bn) Contractual rent (EUR m/annum) Valuation yield (contractual rent/OMV) Lettable area (k sqm) Vacancy (% of lettable area) WAULT (years) Average rent/sqm (EUR/month) Value 70 2 1.4 86.6 6.4 % 778 7.6 % 8.4 10.0 1 Includes assets classiﬁ ed under property, plant and equipment. Transactions In 2010, alstria continued to dispose of selected mature properties at favourable terms. Binding and notarised sale agreements for six properties were concluded in 2010. Ownership of these six pro perties was legally transferred during the ﬁ nancial year. Corporate management alstria proactively focuses on the following indicators: revenues, FFO, LTV, WAULT and the G-REIT equity ratio. Returns are expected to be realised through the Company’s active asset management model. In 2010, the Grosse Bleichen joint venture, the ATOS Origin letting in the Mundsburg Ofﬁ ce Tower and the AOS letting in alstria’s headquarters at Bäckerbreitergang, as well as the letting activities in the Alte Post joint venture, represent good examples of alstria’s suc- cessful leasing management. The various refurbish- ment projects such as Bieberhaus, Mundsburg Ofﬁ ce Tower and the Alte Post joint venture are more proof of alstria’s management potential. After reducing the balloon payment of its main loan step-by-step in 2008 and 2009, alstria has been able to complete the reﬁ nancing of its EUR 1.1 bn credit facility in July 2010 by replacing the remaining EUR 646 m of loan with a credit facility from a new banking syndicate. As a result, the Company has no further reﬁ nancing needs until mid-2014. By proactive management of its balance sheet, alstria was able to meet its short-term LTV target on the new syndicated loan, being below 61 % (Decem- ber 31, 2010: 57.4 %). Selective asset sales of EUR 154 m (last valuation) as well as the successfully executed ﬁ rst capital increase since the Company’s IPO have put alstria in the posi- tion to meet the target of restoring the required 45 % G-REIT equity ratio. At year end the G-REIT equity ratio was at 49.8 %. Facing investment opportunities in the upcoming market, alstria agreed terms and conditions for the acquisition of four assets. While one asset had been transferred in January 2011 the remaining trans- actions are expected to be completed at the end of the ﬁ rst quarter or the beginning of the second quarter of 2011. alstria will stay focused on its buy-and-manage strategy and will constantly review growth oppor- tunities if and when they arise. Please refer to the section “recent development and outlook” for fur- ther details. * For further details, please refer to the pages 12 and 13. alstria Financial Report 2010 Group management report 9 DISPOSALS IN 2010 SUPPORT ALSTRIA’S VALUATIONS DISPOSALS Assets City Portfolio transaction Hamburg Portfolio transaction Hamburg Portfolio transaction Hamburg Total Number of assets Last valuation (EUR k) Annual rent (EUR k) Av. lease length (years) Sales price (EUR k) Yield (%) Surplus (EUR k) Sur- plus (%) 2 2 2 6 75,825 52,200 25,700 153,725 3,900 2,800 1,500 8,200 5.1 5.4 5.8 5.3 15.8 17.2 11.4 84,200 52,201 29,500 8,375 11.0 1 0.0 3,800 14.8 165,901 12,176 7.9 ACQUISITIONS 2011 Assets City Friedrich-Scholl-Platz 1 Karlsruhe Portfolio transaction Hamburg Suederstrasse 24 Hamburg Total Number of assets Purchase price (EUR k) Annual rent (EUR k) Av. lease length (years) Yield (%) 1 2 1 4 36,200 20,000 11,000 2,600 1,200 800 67,200 4,600 7.2 6.0 7.3 6.8 14.9 3.2 8.1 Investment decisions at alstria are based on the analysis of the local markets and on adequacy of a building within its local environment in terms of location, size and quality. alstria’s strategy is to enter new markets and build critical mass through long-term secured assets, which are mainly acquired through sale-and-leaseback transactions. In light of this approach alstria signed a binding and notar- ised agreement for the acquisition of one asset in Karlsruhe in 2010 which is leased back by the seller under a 15-year lease. The transfer of beneﬁ ts and burden of this asset took place at the beginning of January 2011. No further acquisitions occurred in 2010. In the ﬁ rst quarter of 2011, alstria agreed on the acquisition of three more assets. The transfer of bene- ﬁ ts and burden is expected to take place at the end of the ﬁ rst, or the beginning of the second, quarter of 2011. In January 2010, alstria agreed the terms of a sec- ond joint venture with the Hamburg-based Quantum Immobilien AG to refurbish Kaisergalerie in Hamburg. alstria’s share in this joint venture is 49 %. It is planned that the joint venture refurbishes the property after the move of the Hamburg Ohnsorg- Theater to its new location, in the also alstria-owned Bieberhaus. Refurbishment projects Considerable progress was also made with alstria’s refurbishment projects. > Poststrasse 11, Alte Post, Hamburg The building permit for the refurbishment of Alte Post, Hamburg, was granted in the third quarter of 2009. The Alte Post building is one of the best- known buildings in the Hanseatic City of Hamburg. It is located at the corner of Poststrasse and Grosse Bleichen, and was built between 1845 and 1847 on the basis of plans by the artist and architect Alexis de Chateauneuf. It was last refurbished in the 1970s. This ﬁ rst joint venture is part of alstria’s plans to fund organic growth of the Company. Whilst alstria’s main contribution to the joint ven- ture is the building, its two partners mainly contrib- ute equity funding. The core removal took place at the beginning of 2010 and the building has, since then, been rebuilt step by step. About 40 % of the work is completed. The refurbishment is progress- ing and is scheduled to be completed on time by the end of 2011. > Steinstrasse 5–7, Hamburg The refurbishment was completed in mid-2010. Hamburger Hochbahn AG, which pre-let the space, moved in on time and is now occupying around 13,000 sqm on a 20-year basis. 10 Group management report alstria Financial Report 2010 > Bäckerbreitergang 75, Hamburg The property at Bäckerbreitergang 75 has been refurbished with the aim of converting the stor- age facility into a modern ofﬁ ce building. The refurbishment was completed by mid-2010. The newly built ﬁ fth ﬂ oor, of which over 70 % had been pre-let on a ﬁ ve-year basis, has been equipped for the needs of its new tenant. > Hamburger Strasse 1–15, Hamburg The retroﬁ tting of the landmark Mundsburg Ofﬁ ce Tower in Hamburg started in early 2010. This building, which was erected in the seventies, had never been upgraded. The main objective of this refurbishment project is to create efﬁ cient ofﬁ ce space and reduce energy consumption and occupancy costs for the future tenants. It was therefore one of the ﬁ rst buildings in Germany to be certiﬁ ed as a sustainable building by the DGNB (Deutsche Gesellschaft für nachhaltiges Bauen e.V.) in accordance with the new “mod- ernisation of ofﬁ ce and administrative build- ings” certiﬁ cation programme. The DGNB silver pre-certiﬁ cate demonstrates the project’s sus- tainability, particularly with regard to space and energy efﬁ ciency, as well as tenant comfort. The refurbishment of the Mundsburg Ofﬁ ce Tower is scheduled to be completed in 2012. Please refer to page 22 for more information about sustain- ability within alstria. > Ernst-Merck-Strasse 9, Hamburg The building permit for the refurbishment of this building was granted in the ﬁ rst quarter of 2010. The refurbishment of the Bieberhaus is on sched- ule. A great part of this property is refurbished to move the famous Ohnsorg-Theater from the Grosse Bleichen asset to the Bieberhaus. By this means the theatre will get access to a new modern facility, which it will rent on a long-term basis. The refurbishment is scheduled to be completed by summer 2011. In 2010 alstria invested around EUR 16 m* in on- going refurbishment projects. The main part of the 2010 capex investment was linked to the refurbish- ment of the Hamburg building Steinstrasse 5–7. In the next two years, the Company plans to invest between EUR 40 and 50 m in the portfolio. These investments depend on on going lease discussions with existing and potential tenants. Major projects are related to the property Hamburger Strasse 1–15 (EUR 13.5 m) in Hamburg and the property Ernst-Merck-Strasse 9, Bieberhaus, in Hamburg, which comprises the construction of the new Ohnsorg-Theater (EUR 7.4 m). This Capex plan is part of alstria’s on going asset value enhancement programme. Lease-ups Leasing activity in 2010 was very successful. In 2010, alstria signed new leases** totalling approx. 20,000 sqm. The increase of the vacancy rate by 190 basis points (bps) to 7.6 % or 59,300 sqm is due to the sale of leased properties, the deconsolidation of the leased asset Grosse Bleichen and strategically orientated broadening of the vacancy rate. Of these 59,300 sqm, 26,400 sqm represents strategic vacancy (intended vacancy implemented by alstria as part of its repositioning process for certain assets), while the remainder is operational vacancy. Based on the strong tenant relationship with its tenants and the strong competence of identifying the tenants’ needs, alstria was able to sign a lease agreement with a new tenant for nearly half of the area in the Mundsburg Ofﬁ ce Tower in Hamburg. This underlines the strong competence of alstria’s asset management. The tenant will lease the space starting in January 2013, following the full refur- bishment of the asset by alstria. Further key re-letting achievements are the new lease agreements within the joint venture Alte Post. The ofﬁ ce space of around 3,500 sqm has been leased to the law firm Graf von Westphalen for 10 years. Moreover, the retailer Tommy Hilﬁ ger has taken out a long-term lease on around 800 sqm space, and Abercrombie and Fitch has rented another 1,750 sqm in order to implement its Ham- burg ﬂ agship store in the asset. The renovation work is proceeding on schedule and will probably be ﬁ nished in the fourth quarter of 2011. The total annual rental income secured with the 90 % lease- up on this project amounts to EUR 3.9 m which represents an incremental yield on cost of 8.9 %. In the last three months of 2010, the leasing activ- ities continued on a high level. alstria was able to let over 70 % of the ﬁ fth ﬂ oor of the recently refurbished asset Bäckerbreitergang to AOS, a real estate advisory company, who moved in in Febru- ary 2011. Around 95 % of this asset is occupied. * Excluding joint ventures. ** New leases correspond to lease of vacant space. It does not account for any lease renewal, prolongation or tenant exercise of renewal option. alstria Financial Report 2010 Group management report 11 Portfolio valuation alstria’s portfolio was valued in accordance with the RICS* Red Book guidance by Colliers International at December 31, 2010. Following the slow rebound of the investment market, alstria’s assets trailed the recovery of the overall property prices. However, the recovery is making steady but slow progress. The total valuation result on investment proper- ties was around EUR –12.8 m for the full year. This valuation adjustment takes the overall value of all alstria properties to EUR 1,358 m. For further infor- mation about the valuation of alstria’s portfolio please refer to the valuation certiﬁ cate of Colliers International. Tenants Our key focus on a set number of major tenants is still one of the main characteristics of the alstria portfolio. More than 80 % of total revenues are generated by alstria’s top nine tenants. The 2010 portfolio also reﬂ ects the clear focus on the ofﬁ ce asset class. 93 %** of the total lettable area is dedi- cated to ofﬁ ces. TOTAL PORTFOLIO BY UTILISATION % of total lettable area Ofﬁ ce Retail Residential Others ALSTRIA’S CORE TENANTS % of annual rent City of Hamburg Daimler AG Bilﬁ nger Berger AG Siemens AG Barmer GEK Deutsche Renten - versicherung Bund Rheinmetall Württembergische 93 2 1 4 34 16 7 6 5 4 4 Lebensversicherung AG1 3 HUK-COBURG Others 2 19 1 Württembergische Lebensversicherung AG as of January 4, 2011. LEASE EXPIRY PROFILE % 2011 2012 2013 As at Dec. 31, 2010 5.7 8.3 7.9 * Royal Institution of Chartered Surveyors. ** Ofﬁ ce and storage. 12 Group management report alstria Financial Report 2010 FINANCIAL ANALYSIS The year 2010 was a busy year for alstria, and an inﬂ exion point where alstria left behind any legacy from the pre-crisis situation and built a strong foun- dation for the future. The Company sold around EUR 154 m worth of properties and was also able to reﬁ nance the remaining EUR 646 m of debt out- standing. Another important milestone for alstria was the executed capital increase in 2010. These measures made it possible to achieve a strong oper- ating income, and to get back on to a sustainable growth path. Earnings position Following asset disposals and the deconsolida- tion of the Grosse Bleichen asset, the revenues dropped in 2010 compared to the previous year. Total revenues in this reporting period amount to EUR 89,094 k (2009: EUR 102,510 k). Real estate operating expenses decreased to 7.7 % of revenues or EUR 6,893 k compared to 9.9 % of revenues or EUR 10,189 k in 2009. Net rental income for 2010 was EUR 81,759 k (2009: EUR 91,964 k). The following table shows the key operating ﬁ gures of the audited income statements for the ﬁ nancial years 2010 and 2009: EUR k Gross rental income Net rental income 2010 2009 89,094 102,510 81,759 91,964 Operational expenses –11,670 –11,177 Net other income 410 1,258 Net operating income 70,499 82,045 Net result from fair value adjustments on investment properties Net result on disposals of investment properties Net operating result before ﬁ nance costs –12,804 –85,887 9,278 –25 66,973 –3,867 Operational expenses (including administrative and personnel expenses) were EUR 11,670 k for the year, compared to EUR 11,177 k in 2009. Accord- ingly, total operating expenses represent 13.1 % of total revenues (compared to 10.9 % for 2009). Net other income mainly comprises income from the reversal of accruals (EUR 367 k), income from the management of assets for third parties (EUR 148 k) and other income (EUR 1,514 k). On the other hand, it comprises expenses of EUR 1,619 k, which represent allowance for doubtful debt (EUR 472 k), deconsolidation expenses (EUR 181 k) and other expenses (EUR 966 k). alstria closed the ﬁ nancial year 2010 with a net operating result before ﬁ nance costs and taxes of EUR 66,973 k. This compares to EUR –3,867 k for the previous year, which was signiﬁ cantly inﬂ u- enced by the valuation result. FUNDS FROM OPERATIONS AT EUR 0.45 PER SHARE EUR k Pre-tax income (EBT) 2010 2009 206 –79,541 +/– Net loss from fair value adjustments on investment property +/– Net loss from fair value adjustments on ﬁ nancial derivatives +/– Proﬁ t/loss on disposal of investment property 12,804 85,887 35,672 23,294 –9,278 25 +/– Other adjustments1 238 3,025 +/– Net gain from fair value adjustments on investment property of joint ventures –12,101 0 Funds from operations (FFO)2 27,541 32,690 1 Non-cash income or expenses and non-recurring effects. 2 FFO 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 ﬂ ow measures as determined in accordance with IFRS. Furthermore, no standard deﬁ nition exists for FFO. Thus, the FFO or measures with similar names as presented by other companies may not necessarily be comparable to alstria’s FFO. Funds from operations amount to EUR 27,541 k in 2010 as against EUR 32,690 k in 2009. As a result, FFO per share* was EUR 0.45 in the ﬁ nan- cial year 2010 (2009: EUR 0.58). * Divided by the number of shares at the end of the reporting period (December 31, 2010: 61,599,999; December 31, 2009: 56,000,000). alstria Financial Report 2010 Group management report 13 The reduction in comparison with 2009 resulted mainly from the decrease of revenues after the sale of fully let assets. Non-cash expenses mainly comprise expenses for depreciation and proﬁ t par- ticipation rights. Hedging instruments The devaluation of the ﬁ nancial derivatives was driven by the development of the yield curve in the year 2010. alstria applies hedge accounting on all qualifying hedges in order to limit the impact on proﬁ t and loss of the volatility of the interest rate markets. This allows the losses or gains on the quali fying part of the derivatives to be recognised under the equity cash ﬂ ow hedge reserve with no effect on income. The implementation of the Group-wide reﬁ nancing strategy in 2010 resulted in the termination of existing derivatives and the acquisition of new derivatives. Hedged forecast transactions are no longer expected to occur due to pre-drawing in the loan repayment schedule as a result of the reﬁ nanc- ing strategy. The cumulative loss that was reported in the equity’s hedging reserve in these cases was transferred to the income statement within “Net loss from fair value adjustments on ﬁ nancial deriva- tives”. As a result, EUR 33,338 k had been trans- ferred from equity to the income statement as expenses. For the EUR 33,338 k expense relating to the transfer out of equity, the corresponding book- ing entry is an equity account, which increased by the same amount. Therefore, this expense entry has no effect on the Group’s net asset value. In the ﬁ nancial year 2010, the effective change in the value of the swaps, which is recorded in equity as “hedging reserve”, was EUR 4,940 k. The fair value changes of derivatives not categorised as cash ﬂ ow hedges are recognised in the income state- ment under “Net result from fair value adjustments on ﬁ nancial derivatives”. The interest expenses on swaps and caps are stated in the ﬁ nancial result. Financial result The following table shows the ﬁ nancial result for the period January 1 to December 31, 2010: EUR k 2010 2009 Syndicated loan – interest –17,623 –25,638 Interest loan reﬁ nanced –7,599 –3,918 Interest result derivatives –17,902 –22,433 Others –1 –1 Financial expenses –43,125 –51,990 Financial income Other ﬁ nancial expenses 700 –740 593 –720 Net ﬁ nancing costs –43,165 –52,117 alstria complied with all ﬁ nancial covenants as at December 31, 2010. Net ﬁ nancing costs decreased by EUR 8,952 k to EUR 43,165 k in comparison with the year 2009. The decrease is partly attributable to a lower average loan level compared with the previous reporting period, which results from the extensive reﬁ nancing activities carried out in 2009 and 2010. On the other hand, the termination of derivatives with comparably high swap rates led to a drop in average interest costs. For details on the reﬁ nancing of the main syndicated loan, we refer to the section entitled “ﬁ nancial and asset position” on page 14. Consolidated net result at EUR 206 k Although the revenues decreased from 2009 to 2010 by 13.1 %, the consolidated net result for 2010 was EUR 206 k compared to EUR –79,651 k in 2009. The reason for the improvement is mainly driven by a signiﬁ cant decline of the net loss from fair value adjustments in investment property (2010: EUR 12,804 k, 2009: EUR 85,887 k). The decrease in real estate operating expenses as well as the proﬁ t of disposals of investment property of EUR 9,278 k and a reduction in the ﬁ nancial costs of EUR 8,952 k also affected the consolidated result for the year. The fact that alstria’s debt exposure is fully hedged by ﬁ nancial derivatives ﬁ xes the current overall cost of debt for the existing portfolio at 4.3 %. Result per share is EUR 0.00 for 2010 (2009 result per share: EUR –1.40). An overview of the composition and changes is described in detail in Note 10.8. 14 Group management report alstria Financial Report 2010 Financial and asset position Financial management In 2010 the Company successfully ﬁ nalised the ﬁ nancial reﬁ nancing process. In January alstria entered into a new non-recourse loan amount- ing to EUR 75.8 m. Starting in September 2008 by following a staggered approach, alstria replaced its remaining syndicated loan by a new corporate facility in the amount of EUR 630 m with a new banking syndicate in the second quarter of 2010. Thus, the Company has totally reﬁ nanced the EUR 1.1 bn initial corporate loan which was put in place at the genesis of the Company 1.3 years earlier than the agreed maturity. The new corporate loan was provided by a syn- dicate of five banks, arranged by UniCredit Bank AG and underwritten by Berlin-Hannoversche Hypothekenbank AG, Eurohypo Aktiengesell schaft, HSH Nordbank AG and Natixis Zweignieder lassung Deutschland. It has a maturity of ﬁ ve years. The spread on the loan depends on the LTV ratio according to the following grid. MARGIN GRID FOR THE NEW SYNDICATED LOAN LTV 65 % < LTV ≤ 70 % 61 % < LTV ≤ 65 % 56 % < LTV ≤ 61 % 51 % ≤ LTV ≤ 56 % LTV < 51 % Spread 200 bps p.a. 175 bps p.a. 160 bps p.a. 150 bps p.a. 135 bps p.a. The current margin amounts to 160 bps basing on an LTV ratio of 58.4 % at drawdown date. Due to partial repayments caused by the property dispo- sals in the third quarter, the LTV ratio was at 57.4 % as of December 31, 2010. The next test date for the LTV ratio and the margin is March 31, 2011. Including the existing non-recourse loans alstria’s consolidated debt amounts to EUR 796.9 m. The corporate LTV ratio is therefore 58.7 %. Taking into account the Company’s free cash of EUR 117 m, the net LTV stands currently at around 50.1 %. EXISTING LOAN AGREEMENTS AS PER DECEMBER 31, 2010 Loan Syndicated loan Non-recourse loan #1 Non-recourse loan #2 Non-recourse loan #3 Non-recourse loan #4 Non-recourse loan #5 Total as at Dec. 31, 2010 Principal amount outstanding (EUR k) Current LTV (%) Maturity Jul. 20, 2015 572,809 Oct. 19, 2015 Dec. 31, 2014 Jun. 30, 2014 Oct. 20, 2014 Jan. 31, 2017 47,902 37,283 31,552 32,774 74,644 796,964 57.4 74.6 56.5 60.9 59.0 61.6 58.7 Net LTV1 (%) LTV cov- enant (%) Next test date 70.0 Mar. 31, 2011 80.0 Sept. 30, 2012 80.0 Dec. 31, 2011 65.0 Dec. 31, 2011 61.0 Mar. 31, 2011 75.0 Dec. 31, 2011 Total net as at Dec. 31, 2010 680,1312 50.1 1 The net LTV is not a measure under generally accepted accounting principles, in particular IFRS. 2 Assuming that the free cash at year-end (EUR 117 m) is used to pay down the loan amount. alstria Financial Report 2010 Group management report 15 Cash position is at EUR 120,788 k The cash ﬂ ow from operating activities for 2010 amounted to EUR 29,274 k, down on the report- ing period for 2009 (EUR 33,171 k). This is mainly based on lower rental revenues due to the disposal of assets, which is only partly compensated by a decrease in real estate operating expenses. The cash ﬂ ow from investing activities comprises the cash inﬂ ow resulting from the sale of real estate (EUR 163,003 k) and EUR 13,546 k from repay- ment of loans granted to joint venture companies. A cash outﬂ ow of EUR 17,331 k relates to pay- ments for refurbishment measures for re-letting, subsequent acquisition costs on investment pro- perties and prepayments on asset acquisition. The cash ﬂ ow from ﬁ nancing activities reﬂ ects loan repayments of EUR 950,216 k and payments for the termination of ﬁ nancial derivatives amounting to EUR 15,345 k. Cash inﬂ ows of EUR 738,629 k relate to loans taken out during reﬁ nancing. The capital increase led to a cash inﬂ ow of EUR 47,378 k net. As a result, alstria ended the ﬁ nancial year 2010 with a cash position of EUR 120,788 k (2009: EUR 146,818 k). The Group is adequately funded to comply with its ﬁ nancial obligations. The completion of the debt restructuring sup- ported alstria’s main ﬁ nancial goal to establish a long-term ﬁ nance structure which is stable in respect of maturities and interest burden. An inte- gral part of this structure is the long-term loans covered by corresponding hedging instruments, such as swaps and caps, against the risk of increas- ing interest rates. As a result of the completed restructuring process the average debt maturity increased signi ﬁ cantly to 4.6 years compared to 2.5 years as of December 31, 2009, whereas the aver- age cost of debt of the Group remained stable at around 4.3 % p.a. (compared to 4.4 % p.a. in the previous year). Taking alstria’s long-term lease pro- ﬁ le into account, the current debt structure signiﬁ - cantly improves the visibility of alstria’s cash ﬂ ow for the next ﬁ ve years. alstria has no reﬁ nancing needs before mid-2014. alstria intends to add the newly acquired asset in Karlsruhe to the collateral pool of the syndicated loan. According to the provisions under the loan agreement, this would lead to a margin reduc- tion of 10 bps to 150 bps. This transaction is planned to be closed before the next test date as of March 31, 2011. FINANCIAL DEBT BY MATURITIES1 EUR k 2011 0 2012 0 2013 0 2014 94,200 2015 2016 0 2017 62,900 As at Dec. 31, 2010 1 Excluding regular amortisation. 620,700 16 Group management report alstria Financial Report 2010 Investment properties down by 5.0 % Total investment property value amounts to EUR 1,348,400 k* in comparison with EUR 1,425,440 k at the beginning of the year. The decline in investment properties reflects the asset sales realised by alstria during the year (EUR 78 m)*, the reclassiﬁ cation of assets held for sale (EUR 0.6 m) and the revaluation of the remainder of the portfolio (EUR –13 m). EUR k Investment properties at Dec. 31, 2009 1,425,440 Capital expenditure Disposals Reclassiﬁ cation Revaluations 14,264 – 77,900 – 600 – 12,804 Investment properties at Dec. 31, 2010 1,348,400 Fair value of owner-occupied properties Fair value of properties held for sale Interests in real estate partnerships 8,500 600 32,385 Fair value of immovable assets 1,389,885 Reclassiﬁ cations comprise one asset which has been classiﬁ ed as investments held for sale following the conclusion of a binding sale agreement by alstria at the end of 2010. The fair value of immovable assets will be used for the G-REIT equity ratio calculation. Equity ratio of 44.9 % – G-REIT equity ratio at 49.8 % The balance sheet reﬂ ects a total equity position of EUR 692,408 k with an equity ratio of 44.9 % (December 31, 2009: EUR 634,185 k or 35.9 %). The G-REIT equity ratio, which is deﬁ ned as total equity divided by immovable assets, is 49.8 % (December 31, 2009: 40.3 %). According to the G-REIT Act (REITG), the minimum requirement for compliance is a G-REIT equity ratio of 45 % calcu- lated at year-end. NNNAV at EUR 11.24 per share NNNAV (Triple Net Asset Value according to EPRA**) dropped from EUR 11.32 per share to EUR 11.24 per share. Changes in cashﬂ ow hedges and reclas- siﬁ cation of loss from equity’s hedging reserve (EUR 38,278 k), the executed capital increase (EUR 47,378 k) and the consolidated gain for the period (EUR 206 k) were primarily respon sible for the rise in alstria’s equity. In total, this leads to an increase in equity from EUR 634,185 k to EUR 692,408 k***. The decrease in NNNAV per share is the result of a change in the amount of shares after the capital increase in 2010 (Decem- ber 31, 2010: 61,599,999; December 31, 2009: 56,000,000). Anticipation decreases ﬁ nancial debt In 2010, long-term loans were reduced by 17.0 % to EUR 786,410 k. This is mainly related to active management under the reﬁ nancing pro- cess, including measures such as the replacing of the remaining EUR 646 m syndicated loan with a credit facility from a new banking syndicate and over EUR 154 k of selective disposals. Decrease in current liabilities Current liabilities amounted to EUR 39,172 k, of which EUR 7,796 k is categorised as short-term loans, representing ﬁ nancial liabilities that will be repaid in the ﬁ rst quarter. Other current liabil- ities amounting to EUR 6,990 k mainly comprised accruals for outstanding invoices (EUR 1,268 k), deferred income (EUR 1,700 k) and other cur- rent liabilities (EUR 4,022 k). Derivative ﬁ nancial instruments in the amount of EUR 21,007 k refer to interest rate swaps not designated in a cash- ﬂ ow hedge relationship. (Please refer also to sec- tion 10.8 of the notes for the ﬁ nancial year 2010). * Excluding assets held for sale. ** EPRA: European Public Real Estate Association, Best Practices Committee, Schiphol Airport, Netherlands. *** See also the consolidated statement of changes in equity on page 34. alstria Financial Report 2010 Group management report 17 REPORT ON RISKS AND OPPORTUNITIES Risk reporting Risk management alstria has implemented a Group-wide structured risk management and an early warning system in accordance with Section 91 (2) of the German Stock Corporation Act (AktG). All risks are recorded, evaluated and monitored on at least a quarterly basis. The goal of alstria Group’s risk management strategy is to minimise or, where possible, com- pletely avoid the risks associated with entrepreneur- ial activity in order to safeguard the Group against potential losses, and against risks to the Company as a going concern. The system of the early detec- tion of risks is in active use. The Company’s risk identiﬁ cation process allows the early identiﬁ cation of sources of any potential new risks on an ongoing basis. Risk mitigation measures are deﬁ ned in order to undertake any necessary steps to circumvent the identiﬁ ed risks, i. e., to insure, diversify, manage or avoid risks. For alstria, risk management means the targeted securing of existing and future potential for success, and improving the quality of the Company’s planning processes. Organisationally, risk management is assigned to the controlling group. A risk report is prepared by the risk manager on a quarterly basis and provided to the Management Board. The basis for the pre paration of the risk report are the reports from the risk owner responsible for a particular risk area. The risk report presents the organisational measures and regulations that are to be observed with regard to risk identiﬁ cation, assessment, response, reporting and monitoring. At the same time, the comprehen- sive documentation of this report ensures an orderly assessment, which is conducted by the responsible departments and by the Supervisory Board. Risks are assessed according to their likelihood of occurrence and their magnitude of impact. Overall risk is calculated and updated over a speciﬁ c period of time by linking various parameters. By monitor- ing the risk management system, alstria is able to continually advance and adapt its structures and processes. Key characteristics of the accounting-related internal control and risk management system The objective of the control and risk management system regarding the (Group) reporting pro cess is to make sure that the reporting is uniform and in line with the legal requirements, the generally accepted accounting principles and the Inter national Finan- cial Reporting Standards (IFRS), as well as inter- nal Group guidelines, so as to give recipients of the annual ﬁ nancial statements true and reliable information. To this end alstria has implemented an internal control and risk management system that combines all relevant principles, pro cesses and measures. The internal control system consists of two areas, namely control and monitoring. In organisational terms, the treasury, controlling and accounting divi- sions are responsible for control. The monitoring measures consist of elements in corporated in the process and external, independ- ent elements. Among others, the integrated measures include manual controls such as the “dual control principle”, which is applied universally, and tech- nical controls, essentially software-based checking mechanisms. In addition, qualiﬁ ed employees with the appropriate powers as well as specialised Group departments such as controlling, legal and treasury perform monitoring and control functions as part of the various processes. The Management Board and the Supervisory Board (in particular the audit committee) as well as a ﬁ rm of auditors are involved in the monitoring system with various checks that are independent of the Company’s processes. For special technical questions and complex report- ing issues Group accounting acts as the central interlocutor. If required external experts (audi- tors, qualiﬁ ed accounting specialists, etc.) will be consulted. In addition, the accounting-related monitoring is executed by the controlling department of the Com- pany. All items and main accounts of the income statement and the balance sheet are reviewed regu- larly for accuracy and plausibility. This refers both to the consolidated ﬁ nancial statements and to the individual ﬁ nancial statements of the Group’s companies. Accounting-related data is monitored monthly or on a quarterly basis, depending on the frequency of preparation. 18 Group management report alstria Financial Report 2010 The accounting-related risk management system forms part of the Group’s risk management system. Risks that are relevant for the accuracy of account- ing-related data are monitored by the risk owner who is responsible for the risk area of ﬁ nance. Risks are identiﬁ ed quarterly, and assessed and documented by the risk management committee. Appropriate action is taken in order to monitor and optimise accounting-related risks throughout the alstria Group. Risk areas Within the context of its business activities, the alstria Group faces various risks, which are explained in greater detail below. alstria’s risks are divided into four categories: > strategic risks; > operational risks; > compliance risks; > ﬁ nancial risks. All material risks to the future development of the Company’s position and performance are described in this chapter in accordance with alstria’s risk man- agement system. The individual risks described relate to the planning horizon of 2011 to 2013. Strategic risks Strategic risk management consists mainly of the implementation of guidelines contained in the investment policy, asset management policy and management rules governing the relationship with the Group’s core tenants. Furthermore, risks resulting from the effect of key market dynamics on alstria’s business are cat- egorised as strategic risks. In view of the ongoing stabilisation in the ﬁ nancial markets, the general strategic risks situation has improved due to the future macroeconomic environment as compared to the previous year. As long as there is no material change in the economic environment, alstria’s stra- tegic risk situation will remain stable. Operational risks alstria’s operational risk management refers to property-speciﬁ c risks and general business risks. This includes, among others, vacancy risk, the credit worthiness of tenants and the risk of falling market rents. Personnel-related risks such as loss of know-how and competences are also monitored in this risk area. The Company uses various early warning indicators to monitor these risks. Rent pro- jections, vacancy analyses, the control of the lease terms and termination clauses, and on going insur- ance checks are designed to help identify potential dangers and risks. Operational risks that could arise as a result of the ﬁ nancial crisis are viewed mainly in terms of a potential shortfall of payment by a major tenant. Due to the fact that all of alstria’s main ten- ants are public institutions or still highly rated, the risk of shortfall in payments is currently limited. alstria realises refurbishment projects to a material extent. All risks related to these projects, e.g., risk of not-in-time completion, risk of budget exceedance, as well as the risk of deﬁ ciencies in the construction, is encountered with the implementation of an exten- sive project controlling and a budget management process. Employees The skills and motivation of alstria’s employees are decisive factors in the Group’s suc- cess. A risk of knowledge loss exists from staff ﬂ uc- tuations as well as from not recruiting sufﬁ ciently qualiﬁ ed experts to ﬁ ll vacancies in the Group in good time. In both cases, this could result in a shortfall of suitable experts and key personal that could inﬂ uence the competitive advantages on the markets as well as the further growth opportun- ities for the Group. alstria mitigates these risks by selective, needs-oriented development of skills of the existing staff, strengthening the image as an attractive employer, university marketing, promot- ing employee motivation through strong leadership and corporate culture and proﬁ t-oriented variable remuneration schemes. Overall alstria estimates the described risks to be at a low level. alstria Financial Report 2010 Group management report 19 IT security The majority of our business processes are supported by efﬁ cient IT systems. Any fault affecting the reliability or security of the IT system could lead to delays or interruptions to operating activities. alstria has protected itself against IT risks by constant examination and enhancement of the information technology deployed, modern hard- ware and software solutions and safeguards against attacks. Structural security measures are in place to protect the computer centre. All data are backed up daily in an internal, and once a week in an external, data depository. Detailed rules on access rights ensure that employees can only access the systems they need for their work. Overall, therefore IT risks are assessed to be unlikely and their possible con- sequences are assessed to be moderate. Compliance risks G-REIT legislation alstria is registered in the com- mercial register as a German REIT-AG (G-REIT). The German REIT segment allows alstria to offer a high proﬁ le to investors and distinguish itself as a REIT on the capital market. The REIT shares are traded at the Frankfurt Stock Exchange. The G-REIT status does not have any inﬂ uence on the admission on the Regulated Market (Prime Standard). Certain requirements have to be met by the Com- pany in order to qualify for and retain its desig- nation as a G-REIT. The most relevant of these requirements are as follows: The G-REIT must be a stock corporation listed on an organised market and its registered seat and management must be in Germany. The registered share capital must amount to at least EUR 15 m, and all shares must be voting shares of the same class. The free ﬂ oat must be at least 15 % and no investor may directly hold 10 % or more of the shares, or shares that represent 10 % or more of the voting rights. Furthermore, at least 75 % of assets must consist of real estate and at least 75 % of gross income must be generated from real estate. At least 90 % of annual proﬁ ts under German GAAP must be distributed to shareholders and the G-REIT’s equity may not fall below 45 % of the fair value of its real estate assets as recorded under IFRS. REIT corporations are fully exempted from German corporate income tax (KSt) and German trade tax (GewSt). This tax transparency applied with retro- spective effect starting January 1, 2007. Capital management Capital management activ- ities are designed to maintain the Company’s G-REIT status in order to support its business activ- ities and maximise shareholder value. The Company manages its capital structure and makes adjustments in response to changes in eco- nomic 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, 2010 and Decem- ber 31, 2009. The capital structure is monitored by the Company using key performance indicators (KPIs) relevant for classiﬁ cation as a G-REIT. The G-REIT equity ratio, (the ratio of equity to the fair value of immova- ble assets) is the most important KPI. Under the Group’s strategy, the G-REIT equity ratio must be between 45 % and 55 %. In particular, the exemption from corporate income tax (KSt) and trade tax (GewSt) would cease at the end of the third ﬁ nancial year if the minimum equity ratio (alstria’s equity must not fall short of 45 % of its immovable assets, based on alstria’s consolidated ﬁ nancial statements) has not been sat- isﬁ ed for three consecutive ﬁ nancial years. The G-REIT equity ratio at the balance sheet date is 49.8 %. Accordingly alstria complied with the min- imum G-REIT equity ratio requirement according to section 15 G-REIT-Law (REIT-G) calculated at year- end of 45 %. Generally the risk remains that alstria may fail to meet the minimum G-REIT equity ratio of 45 % in the following three consecutive years and faces the prospect of losing its status as G-REIT and its tax exemption. Within a three-year forecast- ing period until December 31, 2013, it is excluded that alstria will lose its G-REIT status by reason of shortfall of the 45 % barrier. 20 Group management report alstria Financial Report 2010 Legal risks The Company is not subject to major legal proceedings arising from any individual or other kind of legal dispute outside of its day-to- day business. Financial risks With respect to the current overcoming of the ﬁ nancial crisis and alstria’s reﬁ nancing performed in 2010, the ﬁ nancial risk situation improved as com- pared to the previous year’s end of the reporting period. The Group normally uses ﬁ nancial instruments such as bank loans and derivative ﬁ nancial instruments. The main purpose of the bank loans is to ﬁ nance alstria’s business activities. Derivative financial instruments include interest swaps and caps. The purpose of these derivative ﬁ nancial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of ﬁ nance. The main risks arising from the Group’s ﬁ nancial instruments are cash ﬂ ow interest rate risks and liquidity risks. alstria’s current debt-to-equity ratio is approx. 55 %. This is a reasonable rate com- pared to the average leveraging rate of German real estate companies. alstria’s syndicated loan facility agreement allows for a loan-to-value ratio (LTV) of up to 70 %. After the reﬁ nancing of the main loan in 2010, alstria managed to keep the LTV at 58.7 % at the relevant test date. Together with the additional measures implemented starting at the beginning of 2009, the risk of covenant breach was resolved proactively. The reﬁ nancing of the main loan in 2010 before maturity led to the postponement of the next re ﬁ nancing requirement for the syndicated loan by 3.5 years from end-2011 to mid-2015. Thus the risk of reﬁ nancing on unfavourable terms has decreased for the time being. The Group is not otherwise exposed to any signiﬁ - cant credit risks. Interest rate risk Interest rate risk results from ﬂ uctu ations in market interest rates. These affect the amount of interest expenses in the ﬁ nancial year and the market value of derivative ﬁ nancial 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 ﬂ uctuations, but still provides enough ﬂ exibility to allow the disposal of real estate assets, avoiding any cost linked to an over- hedged situation. The interest base for the ﬁ nancial liability (loan) is the three-month EURIBOR, which is adjusted every three months. A number of differ- ent derivative ﬁ nancial instruments were acquired to manage the interest expense. The maturity of the derivative ﬁ nancial instruments is based on the term of the borrowings. The derivative ﬁ nan- cial instruments relate to interest swaps in which the Company agrees to exchange with contract- ing partners, at speciﬁ ed intervals, the difference between ﬁ xed and variable interest rate amounts calculated by reference to an agreed notional prin- cipal amount. The swaps alstria uses to hedge its interest rate payments qualify as cash ﬂ ow hedges. Interest caps were also acquired in order to cap the interest at a set maximum. If the maximum interest rate is exceeded, the difference between the actual interest rate and the cap rate will be paid out. Liquidity risk One of alstria’s core processes is cash management. The Company manages its future cash position and monitors progress on a daily basis. A cash-forecasting tool is used to pre- vent liquidity risk. This liquidity-planning tool uses the expected cash ﬂ ows from business activities and the maturity of the ﬁ nancial investments as a basis for analysis. With the reﬁ nancing implemented in 2010, the major liquidity risk resulting from the balloon repay- ment on the main syndicated loan facility was suc- cessfully averted. Since the new syndicated loan facility will not be due until mid-2015, the liquidity risk resulting from repayment obligations is currently mitigated. alstria Financial Report 2010 Group management report 21 Overall assessment Compared to the previous year, the risk situation of alstria ofﬁ ce REIT-AG has improved. On the one hand, this is based on the economic environment recovering after the ﬁ nancial crisis; on the other hand, the successful reﬁ nancing and the improve- ment of the G-REIT equity ratio contributes to signi ﬁ cantly ease the risks still stated as key risks at the end of the previous year. Sufﬁ cient precau- tions have been taken against identiﬁ able risks. No risk speciﬁ c to the Company that would threaten its continued existence can be identiﬁ ed from past or future events. This applies as well to the single Group companies as to the Group. Opportunities of the Group The reﬁ nancing activities undertaken by alstria have safeguarded the Company’s ﬁ nancial position until mid-2014 at favourable interest rates. On the rev- enue side, alstria beneﬁ ts from long-term rent agreements of approx. 8.4 years’ average lease length and potential rent increases due to consumer price indexation. The alstria portfolio is well bal- anced and contains many ﬁ rst-class anchor build- ings with high-quality tenants. Therefore, alstria is well positioned to continue its buy and manage strategy and to beneﬁ t from future market opportunities using the next growth cycle of the markets. alstria’s core competence is asset management. The asset repositioning and refurbishment alstria is plan- ning to undertake, both as part of joint ventures and on its own, will strengthen the basis for organic value increase across the portfolio. Valuation risks The fair value of the real estate properties owned by the Group reﬂ ects the market value as determined by an independent appraiser, and can be subject to change. Generally, the market value of real estate properties depends on a variety of factors, some of which are exogenous and may not be under alstria’s control, such as declining rent levels, decreasing demand or increasing vacancy rates. Many qualitative factors are also decisive in the valuation of a property, including a property’s expected rental stream, its condition and its location. Finally, the particular assessment of the mandated appraiser is, to a certain extent, discretionary and may differ from the opinion of another appraiser. Should the factors considered or assumptions made in valuing a property change, in order to reﬂ ect new developments or for other reasons, subsequent valu ations of the respective property may result in a decrease in the market value ascribed to such prop- erty. If such valuations reveal signiﬁ cant decreases in market value compared to prior valuations, the Company would incur signiﬁ cant revaluation losses with respect to such properties. By factors such as economic changes, interest rate ﬂ uctuations and inﬂ ation, the value of the prop- erties may be adversely affected. To minimise the risk of regional diversiﬁ cation of investment port- folios, a consistent focus on the individual needs of tenants and a detailed market research and ana- lysis (broker reports) is used. In addition, the market value of all alstria assets will be determined annually at year-end by independent, internationally recog- nised experts. Counterparty risk alstria hedges a portion of its risk by using third-party instruments (interest rate de rivatives, property insurances and others). alstria’s counterparties in these contracts are inter- nationally recognised institutions, which are rated by the leading rating agencies. alstria reviews the ratings of its counterparties on a regular basis in order to mitigate any risk of default. The ﬁ nancial crisis has raised doubts as to the reliability of rating agencies’ assessments. As a reaction to this objec- tion, alstria started to perform a review of the main counterparties in order to reinforce the rating agen- cies’ assessments. 22 Group management report alstria Financial Report 2010 SUSTAINABILITY REPORT In 2010 alstria published its ﬁ rst sustainability report. This report was a natural step following alstria’s con- tinuous engagement in national and international initiatives with respect to sustainability. The report contains information about alstria’s economic, environ mental and social strategy towards sustain- ability. It is alstria’s aim to incorporate sustain ability criteria into all its decisions. The ﬁ rst sustainability report produced by the Company emphasises alstria’s interest in improv- ing its environmental and social behaviour towards stakeholders, such as investors, tenants, employees and the community. alstria’s approach towards sus- tainability is based on the three-pillar model, basing the impact of business on the following pillars: eco- nomy, environment and social. The day-to-day business decisions can impact each and every one of alstria’s stakeholders through one or the other pil- lar. Being sustainable is trying to strike the right bal- ance for every stakeholder, and every pillar. There- fore, alstria has built up a sustainability framework which deﬁ nes the main values for each and every stakeholder group and its operational impacts. Investors > Promote transparency > Retain reliability > Create long-term value Tenants > Maintain long-term tenant relationship > Improve transparency and property management > Provide efﬁ cient and sustainable ofﬁ ce space Employees > Support entrepreneurship > Encourage initiative > Promote equal chances Community > Be responsible citizens > Support local economy > Remain fair and open partner To monitor its performance and the performance of its assets alstria started compiling data with respect to the three pillars. The outcome is a different view on the economic performance, more information about the performance of alstria’s assets and the diversity of alstria’s team. In 2010, the asset Mundsburg Ofﬁ ce Tower was among the ﬁ rst buildings to receive the German Sustainable Building Council Silver (DGNB) pre-cer- tiﬁ cate for the new certiﬁ cation standard. The main objective of this refurbishment project is to create efﬁ cient ofﬁ ce space and reduce energy consump- tion and occupancy costs for the future tenants. In particular, primary energy consumption will be cut by approx. 80 % or 2.5 MWh annually compared to the existing situation, leading to a reduction in CO2 emission by approx. 875 tons p.a. Being part of the community, alstria feels respon- sible for supporting projects which improve our social and cultural environment. As a real estate company, alstria always has vacant space available for a limited amount of time which can be offered on a temporary basis to organisations which need it while it is being marketed. alstria is also engaged in a number of national and international initiatives where the Company actively participates in industry discussions and positioning with regard to issues ranging from accounting, regulation and investor relations to sustainable reporting. Among others, alstria is a member of the German Sustainable Building Council (DGNB), EPRA (European Public Real Estate Association), ZIA (Zentraler Immobilienausschuss), the Real Estate Share Initiative, NAREIT (National Associ- ation of Real Estate Investment Trusts) and DIRK (Deutscher Investor Relations Verband e.V.). On a company level, the diversity of alstria’s team mirrors the Company’s awareness of its role as a sus- tainably acting company. As of December 31, 2010, alstria employed 13 men and 26 women, showing a female to male ratio of 200 %. More than half of the employees are dedicated to the management, the acquisition and the development of real estate. The remainder of alstria’s workforce is spread between supportive departments such as ﬁ nance reporting and controlling, legal and compliance and administration. A total of 50 % of the management positions* are ﬁ lled by female employees. * Management positions are deﬁ ned as employees who report directly to the Management Board. alstria Financial Report 2010 Group management report 23 Although alstria published its ﬁ rst sustainability report in 2010, a sustainability approach to real estate has always been embedded in the DNA of alstria. alstria will be able to create a signiﬁ cant value for its shareholders. The ﬁ nancial beneﬁ t of the refurbish- ment will overtake by far the costs of moving the theatre to its new location. The Company draws attention to some of the fol- lowing actions implemented or supported by alstria where decision-making was partly driven by sustain- ability considerations: The move will also enhance the whole area around the Central Station by creating additional cultural life in the neighbourhood. Property Management In January 2010, alstria started to incorporate Property Management within the Company’s struc- ture. The aim is to better serve alstria’s tenants and increase the control over the assets by integrating the team that performs the day-to-day management of the assets. The objective is to expand the Company’s direct communication approach to better understand tenants’ needs and more quickly be able to deliver adequate solutions, as well as to recognise improve- ment potential. Bäckerbreitergang In 2009, alstria started the refurbishment of the asset at Bäckerbreitergang 75 in Hamburg. alstria occupies around half of the asset as its headquar- ters, while the rest of the asset is or will be rented out to other tenants. The Company has used the oppor tunity of the refurbishment to install a new technology of a solar energy-producing roof where solar panels are embedded into the roof cover. The installation of a rain water harvesting system was also part of the sustainable refurbishment of this asset as well as shower facilities, lockers and a secure cycle storage, which facilitate bicycle commuting. Ohnsorg-Theater In 1936, the famous Ohnsorg-Theater moved into its current location at Grosse Bleichen in Hamburg, an alstria asset. While the area has developed as a prime A retail street, what used to be a great space for a theatre has trouble adapting to new techno l- ogy and audience demands. There was a common interest shared by alstria and the Ohnsorg-Theater. Moving the theatre out of its current location to the vicinity of the Central Station achieves the most sustainable result for all stakeholders involved. The Ohnsorg-Theater will get access to a new modern facility, which it will rent on a long-term basis, thus securing its future for the coming years. The ﬁ rst sustainability report produced by the Com- pany is the starting point for alstria’s continuous reporting to the market on CSR key performance indicators, in order to demonstrate the Company’s improvement and commitment to its values over time. For more information about sustainability within alstria please see the sustainability report 2010 on alstria’s website. MANDATORY DISCLOSURES Disclosure requirements in accordance with Section 315 (4) of the German Commercial Code (HGB) for the ﬁ nancial year 2010 and the explanatory report of the Management Board Composition of subscribed capital, voting rights and special rights As per the balance sheet date of Decem- ber 31, 2010, the share capital of alstria is EUR 61,599,999.00, divided into 61,599,999 no par value bearer shares. All shares have equal rights and obligations. Each share entitles the bearer to one vote at general shareholders’ meetings and is decisive for the shareholder’s share in the proﬁ t of the Company. This does not include treasury shares held by alstria, which do not entitle the Company to any rights. The individual rights and duties of the shareholders result from the provisions of the German Stock Corporation Act (AktG), in particular Sections 12, 53a et seq., 118 et seq. and 186. Restrictions on the transfer of shares or voting rights There are no restrictions as to the transfer of shares or voting rights or, as far as they arise from agree- ments between shareholders, they are not known to the Management Board. The exercise of voting rights and the transfer of shares are based on the general statutory requirements and alstria’s articles of association, which do not restrict either of these activities. 24 Group management report alstria Financial Report 2010 Shareholders with a shareholding of more than 10 % As per the balance sheet date of December 31, 2010, alstria was not aware of any shareholders whose direct shareholding exceeded 10 % of the share capital. Captiva 2 Alstria Holding S.à r.l. holds an indirect participation of approx. 56 % in alstria. None of these companies has a direct shareholding of more than 10 % of alstria’s share capital. Holders of shares with special rights alstria has not issued any shares with special rights that grant control rights. Nature of voting rights control if employees have a share in capital and do not directly exercise their right of control This arrangement does not exist at alstria. Appointment and dismissal of Management Board and Supervisory Board members and amendments to the articles of association alstria’s Management Board consists of one or more members who may be appointed or dis- missed by the Supervisory Board in accordance with Sections 84 and 85 of the German Stock Corpor- ation Act (AktG). The articles of association do not contain any special provisions in this respect. Pursu- ant to Section 84 of the German Stock Corporation Act (AktG), members of the Management Board are appointed for a maximum term of ﬁ ve years. Re- appointment or extension of the term of ofﬁ ce is permitted, in each case for a maximum of ﬁ ve years. Amendments to the articles of association may be made pursuant to Sections 179 and 133 of the German Stock Corporation Act (AktG). The Super- visory Board is also authorised to make changes in and amendments to the articles of association that merely affect the wording without a resolution of the shareholders at the general meeting. Pursuant to Section 15 (5) of the articles of association in conjunc- tion with Sections 179 (2) and 133 of the German Stock Corporation Act, shareholders may make resolu tions regarding such amendments at a general meeting with a simple majority of the votes cast and a simple majority of the share capital represented. Insofar as a larger majority is prescribed by law, such majority shall be decisive. The articles of association were last amended in the annual general meeting held on June 16, 2010: Conditional Capital II was reduced. The provisions regarding Conditional Cap- ital 2009/A and Conditional Capital 2009/B were replaced by the provision regarding Conditional Capital 2010. In addition, the English version of the articles of association as a component of the articles of association in a legal sense was rescinded. Authority of Management Board regarding issuance and buyback of shares 1. Authorised Capital The articles of association authorise the Man- agement Board, with the approval of the Supervisory Board, to increase the share cap- ital until March 14, 2012 by issuing new bearer shares against contribution in cash and/or kind once or repeatedly up to a total amount of EUR 21,900,001.00. 2. Conditional Capital alstria has three conditional capital (pursuant to Sections 192 et seq. of the German Stock Cor- poration Act, AktG), which are regulated in Sec- tions 5 (5) to (8) of the Company’s articles of association. a) Conditional Capital 2010 The share capital is conditionally increased by an amount of up to EUR 26,500,000.00 by the issuance of up to 26,500,000 no par value bearer shares. The Management Board is authorised to stipulate the proﬁ t entitlement for the new shares issued on the basis of the exer- cise of options or conversion rights or the fulﬁ l- ment of a conversion obligation at variance from Section 60 (2) of the German Stock Corporation Act. The conditional capital increase is only car- ried out insofar as the holders of option rights or conversion rights, or those holders with con- version obligations from bonds with warrants or convertible bonds, proﬁ t participation rights or participating bonds issued or guaranteed on the basis of the authorisation resolved by the share- holders in general meeting on June 16, 2010, utilise their option rights or conversion rights or, insofar as such holders have conversion obliga- tions, such holders fulﬁ l their conversion obli- gations, unless a cash settlement is granted or treasury shares or shares of another listed com- pany are used to fulﬁ l the option rights or con- version rights. alstria Financial Report 2010 Group management report 25 b) Conditional Capital II The share capital is conditionally increased by an amount of up to EUR 515,625 by the issuance of up to 515,625 no par value bearer shares. The sole purpose of the conditional capital increase is to grant shares to the holders of sub- scription rights (stock options) which are issued by alstria in accordance with the authorisation of the annual general meeting held on March 15, 2007. The conditional capital increase is only carried out insofar as the holders exercise their stock options and no treasury shares are used to fulﬁ l the stock options. The new shares shall participate in the Company’s proﬁ ts from the beginning of the ﬁ nancial year in which they come into existence to satisfy the exercise of the stock options. c) Conditional Capital III Change of control clauses in key agreements entered into by the Company A signiﬁ cant syndicate loan agreement of alstria entitles the creditor to declare the loan due for payment in the event alstria’s shares are no longer admitted for trading on an organised market within the EU and the current majority shareholder is not in a position to control alstria, or a person other than the current majority shareholder holds a larger shareholding in alstria than the current majority shareholder. Compensation agreements with Management Board members and employees in case of a takeover bid There are no compensation agreements with Man- agement Board members or employees in case of a takeover bid. The share capital is conditionally increased by an amount of up to EUR 500,000 by the issu- ance of up to 500,000 no par value bearer shares. The conditional capital increase shall be used solely to grant shares to the holders of convertible proﬁ t participation certiﬁ cates which are issued by the Company in accordance with the authorisation of the general meeting held on March 15, 2007. The conditional cap- ital increase shall only be carried out insofar as issued convertible proﬁ t participation certiﬁ cates are converted into shares of the Company and no treasury shares are used to satisfy the certiﬁ - cates. The new shares shall participate in the Company’s proﬁ ts from the beginning of the ﬁ nancial year in which they come into existence as a result of the conversion of certiﬁ cates. 3. Purchase of treasury shares The shareholders at the general meeting on June 16, 2010 authorised the Management Board to acquire shares up to a total of 10 % of the Company’s share capital at the time of the issu- ance of the authorisation until June 15, 2015. The acquired shares and other treasury shares that are in the possession of, or to be attributed to, alstria pursuant to Sections 71a et seq. of the German Stock Corporation Act (AktG) may at no point in time amount to more than 10 % of the share capital. Shares may be purchased through a stock exchange, by means of a public offer to all shareholders or by using derivatives (put or call options or a combination of both). These provisions comply with statutory require- ments or are reasonable and common practice by comparable publicly listed companies. They are not intended to hinder potential takeover bids. ADDITIONAL GROUP DISCLOSURES Employees As of December 31, 2010, alstria had 39 employ- ees (December 31, 2009: 32). The annual aver- age number of employees was 37 (previous year: 31). These ﬁ gures exclude Management Board members. Remuneration report Management Board members’ compensation com- prises a ﬁ xed and a variable component linked to the Company’s operating performance. In addition to the bonus, members of the Management Board received share-based remuneration as a long-term incentive component of remuneration. Members of the Supervisory Board receive ﬁ xed remuneration. The remuneration report (pages 90 to 93), con- taining details of the principles for the deﬁ nition of the Management Board and Supervisory Board remuneration, forms an integral part of the audited Group management report. 26 Group management report alstria Financial Report 2010 Group and dependent-company report Captiva Capital II S.à r.l., Luxembourg, holds a majority interest in alstria. In accordance with Sec- tion 290 of the German Commercial Code (HGB), alstria is required to prepare consolidated statements and a Group management report with respect to the Group companies controlled by alstria. Therefore, alstria ofﬁ ce REIT-AG and all associated companies as stated in the notes are consolidated in the alstria Group. Due to the majority interest in alstria held by Captiva Capital II S.à r.l, Luxembourg, we issued a separate dependent-company report with afﬁ liated com panies, in accordance with Section 312 of the German Stock Corporation Act (AktG). This report includes the following statement: “Our Company received appropriate remuneration for all the legal transactions stated in the report on related party relationships. This appraisal is based on the circumstances, which were known to us at the time when the events, which are subject to reporting, occurred.” SUBSEQUENT EVENTS AND OUTLOOK Subsequent events In the last quarter of 2010, alstria signed a binding and notarised agreement about the acquisition of one asset in Karlsruhe. The transfer of beneﬁ ts and burden took place in January 2011. alstria intends to add the newly acquired asset in Karlsruhe to the collateral pool of the syndicated loan. Accord- ing to the provisions under the loan agreement, this would lead to a margin reduction of 10 bps to 150 bps. This transaction is planned to be closed before the next test date as of March 31, 2011. Binding and notarised agreements for three more assets, all located in Hamburg, were signed at the beginning of 2011. The transfer of beneﬁ ts and burden is expected to take place at the end of the ﬁ rst quarter or the beginning of the second quar- ter of 2011. THE KEY METRICS OF THE PORTFOLIO1 POST TRANSACTIONS2 Metric Number of properties Number of joint ventures Market value (EUR bn) Contractual rent (EUR m/annum) Valuation yield (contractual rent/OMV) Lettable area (k sqm) Vacancy (% of lettable area) WAULT (years) Average rent/sqm (EUR/month) Value 74 2 1.4 91.2 6.4 % 820 7.6 % 8.5 10.0 1 Includes assets classiﬁ ed under property, plant and equipment. 2 Includes the publicised acquisitions of one property in Karlsruhe and three properties in Hamburg. alstria Financial Report 2010 Group management report 27 Outlook Based on the expected closing of the latest trans- actions and the contracted rent for 2011, alstria expects revenues of around EUR 86 m and funds from operations of EUR 30 m. This projection could be impacted by changes in interest rates and further property disposals or acquisitions in 2011. Since the Company pays out a signiﬁ cant part of its funds from operations as dividends, future external growth largely depends on the Company’s ability to raise additional equity. Consequently, further port- folio growth is highly dependent on the develop- ment of the global equity markets and therefore difﬁ cult to predict over a longer period of time. On a like-for-like basis, however, the Company expects revenues and funds from operations to be stable in 2012. Again, these results may be impacted by fur- ther disposals or interest rate changes. The management report contains statements relat- ing to anticipated future developments. These statements are based on current assessments and are, by their very nature, exposed to risks and uncertainty. Actual developments may differ from those predicted in these statements. Hamburg, February 18, 2011 DETAIL INDEX Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of ﬁ nancial position Consolidated statement of changes in equity Consolidated statement of cash ﬂ ows Notes to the consolidated ﬁ nancial statements 30 31 32 34 36 38 1 2 3 4 5 6 7 8 9 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 10 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 38 38 39 41 42 43 43 49 50 50 Corporate information Basis of preparation Changes in accounting policy and disclosures Basis of consolidation Key judgments and estimates Seasonal or economic effects on business Summary of signiﬁ cant accounting policies Segment reporting Notes to the consolidated income statement Revenues Income and expenses from passed-on 50 operating expenses 50 Real estate operating expenses 50 Administrative expenses 50 Personnel expenses 51 Other operating income 51 Other operating expenses Financial and valuation result 51 Gain or loss on disposal of investment property 52 Income taxes 52 Notes to the consolidated statement of ﬁ nancial position – assets Investment property Equity accounted investment Property, plant and equipment Intangible assets Financial assets Assets held for sale Receivables and other assets Derivative ﬁ nancial instruments Cash and cash equivalents 52 52 53 53 54 54 54 54 55 57 CONSOLIDATED FINANCIAL STATEMENTS 11 11.1 11.2 11.3 11.4 11.5 11.6 11.7 12 12.1 12.2 12.3 13 13.1 13.2 13.3 14 15 16 17 18 19 20 21 22 23 24 Notes to the consolidated statement of ﬁ nancial position – equity and liabilities Equity Financial liabilities Other provisions Trade payables and other liabilities Trust assets and liabilities Deferred taxes Liabilities of current tax Other notes Compensation of Management Board and Supervisory Board Commitments and contingencies Consolidated cash ﬂ ow statement Related party relationships Preliminary remarks Remuneration of key management personnel Related party transactions Earnings per share Dividends paid Employees Stock option programme Share-based remuneration Convertible proﬁ t participation rights programme Financial risk management Signiﬁ cant events after the end of the reporting period U tilisation of exempting provisions Disclosures pursuant to Wertpapierhandels - gesetz [German Securities Trading Act] Declaration of compliance pursuant to Section 161 AktG [Aktiengesetz: German Stock Corporation Act] Auditor’s fees 25 26 Management Board 27 Supervisory Board 57 57 58 59 60 60 60 60 60 60 61 61 62 62 62 62 62 63 63 63 64 64 65 71 71 72 76 76 76 76 30 Consolidated ﬁ nancial statements alstria Financial Report 2010 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT for the period from January 1 to December 31, 2010 EUR k Revenues Income less expenses from passed on operating expenses Real estate operating expenses Net rental income Administrative expenses Personnel expenses Other operating income Other operating expenses Net loss from fair value adjustments on investment property Gain/loss on disposal of investment property Net operating result Net ﬁ nancial result Share of the result of joint venture accounted for using the equity method Net loss from fair value adjustments on ﬁ nancial derivatives Pre-tax result (EBT) Income tax expense Consolidated proﬁ t or loss for the period Attributable to: Shareholder Earnings per share in EUR Basic earnings per share Diluted earnings per share Notes 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 9.9 9.8 4 9.8 9.10 2010 89,094 – 442 – 6,893 81,759 – 6,073 – 5,597 2,029 – 1,619 2009 102,510 – 358 – 10,189 91,964 – 6,187 – 4,990 3,124 – 1,866 – 12,804 – 85,887 9,278 66,973 – 25 – 3,867 – 43,165 – 52,117 12,070 – 35,672 206 0 206 – 264 – 23,294 – 79,541 – 110 – 79,651 206 – 79,651 14 14 0.00 0.00 – 1.40 – 1.40 alstria Financial Report 2010 Consolidated ﬁ nancial statements 31 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period from January 1 to December 31, 2010 EUR k Consolidated proﬁ t or loss for the period Fair value gain on available-for-sale ﬁ nancial assets Cash ﬂ ow hedges Reclassiﬁ cation from cash ﬂ ow hedging reserve Other comprehensive income for the period: Total comprehensive income for the period: Total comprehensive income attributable to: Owners of the Company Notes 10.8 10.8 2010 206 0 4,940 33,338 38,278 38,484 2009 – 79,651 123 – 9,952 16,331 6,502 – 73,149 38,484 – 73,149 32 Consolidated ﬁ nancial statements alstria Financial Report 2010 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at December 31, 2010 ASSETS EUR k Non-current assets Investment property Equity-accounted investments Property, plant and equipment Intangible assets Financial assets Derivatives Total non-current assets Current assets Assets held for sale thereof investment property held for sale thereof other assets held for sale Trade receivables Accounts receivable from joint ventures Derivatives Tax receivables Other receivables Cash and cash equivalents thereof restricted Total current assets Notes 2010 2009 10.1 10.2 10.3 10.4 10.5 10.8 10.6 10.7 10.7 10.8 10.7 10.7 10.9 1,348,400 1,425,440 32,385 7,826 319 1 181 9,046 5,897 311 351 0 1,389,112 1,441,045 600 600 0 4,117 1,967 17,615 0 8,137 120,788 3,955 153,224 136,621 135,825 796 5,694 1,855 615 3 33,483 146,818 61,848 325,089 Total assets 1,542,336 1,766,134 alstria Financial Report 2010 Consolidated ﬁ nancial statements 33 EQUITY AND LIABILITIES EUR k Equity Share capital Capital surplus Hedging reserve Treasury shares Retained earnings Total equity Non-current liabilities Long-term loans, net of current portion Derivatives Other provisions Other liabilities Total non-current liabilities Current liabilities Liabilities associated with the sale of non-current assets held for sale Short-term loans Trade payables Proﬁ t participation rights Derivatives Other current liabilities Total current liabilities Total liabilities Notes 11.1 2010 2009 61,600 700,036 – 4,922 – 26 – 64,280 692,408 786,410 21,842 2,180 324 56,000 685,897 – 43,200 – 26 – 64,486 634,185 947,257 48,859 1,550 344 810,756 998,010 0 7,796 3,024 355 21,007 6,990 39,172 28,176 91,941 3,692 231 0 9,899 133,939 849,928 1,131,949 11.2 10.8 11.3 11.4 10.6 11.2 11.4 19 10.8 11.4 Total equity and liabilities 1,542,336 1,766,134 34 Consolidated ﬁ nancial statements alstria Financial Report 2010 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period from January 1 to December 31, 2010 EUR k As of Jan. 1, 2010 Changes in the ﬁ nancial year 2010 Total comprehensive income Reclassiﬁ cation to retained earnings Proceeds from shares issued Transaction costs of issue of shares As of Dec. 31, 2010 Payments of dividends Share-based remuneration 15 19 Notes Share capital Capital surplus Hedging reserve Treasury shares Retained earnings Total equity 56,000 685,897 – 43,200 – 26 – 64,486 634,185 0 38,278 0 0 0 0 – 27,999 0 360 0 0 0 0 0 11.1 5,600 43,400 11.1 11.1 0 – 1,622 0 0 0 0 0 0 206 38,484 27,999 0 – 27,999 – 27,999 0 0 0 360 49,000 – 1,622 61,600 700,036 – 4,922 – 26 – 64,280 692,408 alstria Financial Report 2010 Consolidated ﬁ nancial statements 35 for the period from January 1 to December 31, 2009 EUR k As of Jan. 1, 2009 Notes Share capital Capital surplus Hedging reserve Treasury shares Retained earnings Total equity 56,000 726,885 – 49,579 – 14,983 11,344 729,667 15 11.1 Changes in the ﬁ nancial year 2009 Total comprehensive income Payment of dividends Reclassiﬁ cation to retained earnings Result of disposal of treasury shares Intrinsic value of exchange option for treasury shares Exchange of cash dividend claims for shares in the Company Disposal of treasury shares Share-based payments 17, 19 0 0 0 0 0 0 0 0 123 0 – 28,423 – 13,076 1,744 0 – 14,820 388 6,379 0 0 0 0 0 0 0 0 0 0 – 79,651 – 73,149 – 28,423 – 28,423 28,423 0 14,957 3,821 5,702 0 0 – 1,744 0 5,565 5,565 14,957 0 0 0 137 388 As of Dec. 31, 2009 11.1 56,000 685,897 – 43,200 – 26 – 64,486 634,185 36 Consolidated ﬁ nancial statements alstria Financial Report 2010 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended December 31, 2010 EUR k 1. Cash ﬂ ows from operating activities Consolidated proﬁ t or loss for the period Unrealised valuation movements Interest income Interest expense Result from income taxes Other non-cash expenses (+) Gain (–)/loss (+) on disposal of investment properties 9.8 9.8 9.10 9.9 Depreciation and impairment of ﬁ xed assets (+) 10.3, 10.4 Decrease (+)/increase (–) in trade receivables and other assets that are not attributed to investing or ﬁ nancing activities Decrease (–)/increase (+) in trade payables and other liabilities that are not attributed to investing or ﬁ nancing activities Cash generated from operations Interest received Interest paid Income tax paid Net cash generated from operating activities 2. Cash ﬂ ows from investing activities Acquisition of investment properties Proceeds from the sale of ﬁ nancial assets Acquisition of other property, plant and equipment Proceeds from the disposal of interests in joint ventures and ﬁ nancial instruments Proceeds from the sale of ﬁ nancial assets Proceeds from the repayment of loans granted to joint ventures Proceeds from the disposal of Group companies Notes 2010 2009 206 36,646 – 700 43,865 0 732 – 9,278 570 – 79,651 109,180 – 593 52,710 110 545 25 473 2,858 – 4,356 270 75,169 4,202 82,645 700 593 – 46,595 – 49,957 0 29,274 – 110 33,171 – 17,331 163,003 – 2,508 2,710 0 13,546 0 – 21,295 132,565 – 2,421 0 25,156 0 6,622 140,627 Net cash generated from investing activities 12.3 159,420 alstria Financial Report 2010 Consolidated ﬁ nancial statements 37 EUR k 3. Cash ﬂ ows from ﬁ nancing activities Cash received from equity contributions Payment of transaction costs of issue of shares Proceeds from the disposal of own shares Proceeds from the issue of bonds and borrowings Notes 2010 2009 49,000 – 1,622 0 738,629 – 27,999 – 15,345 0 0 137 128,821 – 22,858 – 6,218 Payments of dividends 15 Payments for the acquisition and termination of ﬁ nancial derivatives Payments of the redemption of bonds and borrowings – 950,216 – 153,058 Payments of transaction costs Net cash used in ﬁ nancing activities – 6,950 12.3 – 214,503 – 4,357 – 57,533 4. 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 Cash and cash equivalents at the end of the period thereof restricted: EUR 3,955 k; previous year: EUR 61,848 k thereof cash in disposal group Cash and cash equivalents reported on the consolidated statement of ﬁ nancial position – 25,809 – 555 147,152 120,788 116,264 – 538 31,426 147,152 0 334 10.9 120,788 146,818 38 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Corporate information The consolidated ﬁ nancial statements of alstria ofﬁ ce REIT-AG (hereinafter also referred to as the “Compan” or “alstria ofﬁ ce REIT-AG”) as at Decem- ber 31, 2010 were authorised for issue by resolution of the Management Board on February 18, 2011. alstria ofﬁ ce REIT-AG was transformed into a German Real Estate Investment Trust (G-REIT) in the ﬁ nancial year 2007 and was registered as a REIT corporation (hereinafter also referred to as a “REIT-AG”) in the commercial register on October 11, 2007. REIT-AGs are fully exempt from German corporate income tax and trade tax. Hence, alstria ofﬁ ce REIT-AG has been exempt from tax with retrospective effect since January 1, 2007. The Company is a real estate property company within the meaning of the G-REIT Act. Pursuant to Section 2 of its Articles of Association, the Com- pany’s objective is the acquisition, management, operation and sale of owned real estate property, as well as the holding of participations in enter- prises, which acquire, manage, operate and sell owned property. All of the aforementioned objec- tives are subject to the conditions of the G-REIT Act legislation. The Company’s registered ofﬁ ce and address is Bäckerbreitergang 75, 20355 Hamburg, Germany. Registration was made in the commercial register at the local court of Hamburg under HRB No. 99204. The ﬁ nancial year ends on December 31 of each calendar year. 2 Basis of preparation The consolidated ﬁ nancial statements of alstria ofﬁ ce REIT-AG and its subsidiaries (together “the Group”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB), including the interpretations of the standards (IFRIC). All IFRS and IFRIC were observed as adopted and prescribed by the EU as of the reporting date. The consolidated ﬁ nancial statements have been prepared under the historical cost convention method except for investment property (land and buildings) and ﬁ nancial instruments that have been measured at fair value through proﬁ t or loss. The preparation of ﬁ nancial statements in con- formity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involv- ing a higher degree of judgement or complexity, or areas where assumptions and estimates are signiﬁ - cant to the consolidated ﬁ nancial statements, are disclosed in Note 5. The consolidated ﬁ nancial statements are presented in euros. All values are rounded to the nearest thou- sand (EUR k) except when otherwise indicated. These consolidated ﬁ nancial statements are ﬁ nan- cial statements for the period from January 1 to December 31, 2010. Items are summarised in the consolidated state- ment of ﬁ nancial position and income statement and commented on in the notes to the ﬁ nancial statements. Assets and liabilities are classiﬁ ed as non-current – for items due in more than one year – or current. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 39 3 Changes in accounting policy and disclosures New and amended IFRS adopted by the Group The following new standards and amendments to standards are mandatory for the ﬁ rst time for the ﬁ nancial year beginning January 1, 2010: > Revised IFRS 1 “First-time adoption of inter- national ﬁ nancial reporting standards (rev. 2008)” > Amendments to IFRS 1 “Additional exemptions > Revised IFRS 3 “Business combinations (rev. 2008)” and IAS 27 “Consolidated and separate ﬁ nancial statements (rev. 2008)” > Amendment to IAS 39 “Financial instruments: recognition and measurement: eligible hedged items (amendment 2008)” > IFRIC 12 “Service concession arrangements” > IFRIC 15 “Agreements for the construction of real estate” > IFRIC 16 “Hedges of a net investment in a for- for ﬁ rst-time adopters (amendment 2009)” eign operation” > Amendment to IFRS 1 “First-time adoption of IFRS”, and IAS 27, “Consolidated and separate ﬁ nancial statements” on the cost of an invest- ment in a subsidiary, jointly controlled entity or associate > Amendment to IFRS 2 and IFRIC 11 “Group cash- settled and share-based payment transactions (amendment 2009)” > IFRIC 17 “Distributions of non-cash assets to owners” > IFRIC 18 “Transfers of assets from customers” > Improvements to IFRSs (Improvement project 2009) In the course of the annual improvements project “improvement to IFRS” (published in April 2009), the IASB approved revisions to IFRS that are listed in the following table: IFRS Subject of amendment IFRS 2 Share-based payment Scope of IFRS 2 and revised IFRS 3 IFRS 5 Non-current assets held for sale and discontinued operations Disclosures of non-current assets (or disposal groups) classiﬁ ed as held for sale or discontinued operations IFRS 8 Operating segments Disclosure of information about segment assets IAS 1 Presentation of ﬁ nancial statements Current/non-current classiﬁ cation of convertible instruments IAS 7 Statement of cash ﬂ ows Classiﬁ cation of expenditures on unrecognised assets Classiﬁ cation of leases of land and buildings IAS 17 Leases IAS 18 Revenue Effective for annual period beginning Jul. 1, 2009 Jan. 1, 2010 Jan. 1, 2010 Jan. 1, 2010 Jan. 1, 2010 Jan. 1, 2010 Determining whether an entity is acting as a principal or as an agent None – amendment to non-mandatory guidance IAS 36 Impairment of assets Unit of accounting for goodwill impairment test IAS 38 Intangible assets IAS 39 Financial instruments: recognition and measurement IFRIC 9 Reassessment of embedded derivatives IFRIC 16 Hedges of a net investment in a foreign operation Additional consequential amendments arising from revised IFRS 3 Measuring the fair value of an intangible asset acquired in a business combination Treating loan prepayment penalties as closely related embedded derivatives Scope exemption for business combination contracts Cash ﬂ ow hedge accounting Scope of IFRIC 9 and revised IFRS 3 Amendment to the restriction on the entity the entity that can hold hedging instruments The initial application of the adopted IFRS had no material effect on the Group and the presentation of the consolidated ﬁ nancial statements. Jan. 1, 2010 Jul. 1, 2009 Jan. 1, 2010 Jul. 1, 2009 Jul. 1, 2009 40 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 New and amended IFRS to existing standards which are not yet effective and have not been early adopted by the Group In its 2010 consolidated ﬁ nancial statements, alstria ofﬁ ce REIT-AG did not apply the following account- ing standards or interpretations which have already been adopted by the IASB but were not required to be applied for the ﬁ nancial year 2010. Standard/Interpretation IFRS 1 (amendment) Limited exemption from compara- tive IFRS 7 disclosures for ﬁ rst-time adopters IFRS 9 (new standard) Financial instruments – classiﬁ cation and measurement Issued by the IASB Effective date Adopted by the EU Expected effects Jan. 28, 2010 Jul. 1, 2010 Yes None Nov. 12, 2009 Jan. 1, 2013 No No material effects Notes disclosure IAS 24 (revised) IAS 32 (amendment) IFRIC 14 (amendment) IFRIC 19 Improvements to IFRS IFRS 1 (amendment) IFRS 1 (amendment) IFRS 1 (amendment) IFRS 3 (amendment) Related party disclosures – revised deﬁ nition of related parties Nov. 4, 2009 Jan. 1, 2011 Yes Classiﬁ cation of rights issues Oct. 8, 2009 Feb. 1, 2010 Yes None IAS 19 – The limit on a deﬁ ned beneﬁ t asset, minimum funding requirements and their interaction Extinguishing ﬁ nancial liabilities with equity instruments Improvement project 2010 First-time adoption of IFRSs – accounting policy changes in the year of adoption Nov. 26, 2009 Jan. 1, 2011 Yes None Nov. 26, 2009 Jul. 1, 2010 Yes None May 6, 2010 Various, earliest Jul. 1, 2010 No No material effects May 6, 2010 Jan. 1, 2011 No None Revaluation basis as deemed cost May 6, 2010 Jan. 1, 2011 No None May 6, 2010 Jan. 1, 2011 No None May 6, 2010 Jul. 1, 2010 No None Use of deemed cost for operations subject to rate regulation Business combinations – transition requirements for contingent consid- eration from a business combination that occurred before the effective date of the revised IFRS measurement of non-controlling interests IFRS 3 (amendment) IFRS 3 (amendment) Measurement of non-controlling interests Unreplaced and voluntarily replaced share-based payment awards IFRS 7 (amendment) Financial instruments: disclosures – clariﬁ cation of disclosures IAS 1 (amendment) IAS 27 (amendment) Presentation of ﬁ nancial statements clariﬁ cation of statement of changes in equity Consolidated and separate ﬁ nancial statements – transition requirements for amendments arising as a result of IAS 27 May 6, 2010 Jul. 1, 2010 No None May 6, 2010 Jul. 1, 2010 No None May 6, 2010 Jan. 1, 2011 No Notes disclosure May 6, 2010 Jan. 1, 2011 No None May 6, 2010 Jul. 1, 2010 No None IAS 34 (amendment) Interim ﬁ nancial reporting – signiﬁ cant events and transactions May 6, 2010 Jan. 1, 2011 No No material effects alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 41 4 Basis of consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial statements of alstria ofﬁ ce REIT-AG and its subsidiaries as at December 31, 2010. The ﬁ nan- cial statements of the subsidiaries are prepared for the same reporting year as for the parent company, using consistent accounting policies. Subsidiaries are entities over which the Group has the power to govern the ﬁ nancial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which the Group obtains control, which generally coincides with the date of acquisition. Inclusion in the consolidated ﬁ nancial statements ends on the date on which the Group ceases to have control. All intra-Group balances, transactions, income and expenses and proﬁ ts and losses resulting from intra-Group transactions are eliminated in full upon consolidation. In accordance with IFRS 3, all business combinations are accounted for using the acquisition method. The recognised 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 recog- nised as goodwill. After reassessment, any remaining credit difference is recognised immediately as proﬁ t. In the periods following the business combination, the disclosed hidden reserves and charges are car- ried forward, amortised or released, depending on the treatment of the corresponding assets. The Company generally applies IFRS 3 to account for transactions under common control. However, for transactions under common control, any credit and debit differences resulting from capital consoli- dation are recognised as an increase or decrease in capital surplus. Signiﬁ cant companies where alstria ofﬁ ce REIT-AG is able, directly or indirectly, to signiﬁ cantly inﬂ u- ence ﬁ nancial and operating policy decisions (asso- ciates), or directly or indirectly shares control (joint ventures), are accounted for using the equity method. Fully consolidated subsidiaries The following subsidiaries are included in the con- solidated ﬁ nancial statements: Group entity alstria Bamlerstrasse GP GmbH, Hamburg alstria Gänsemarkt Drehbahn GP GmbH, Hamburg alstria Grundbesitz 2 GP GmbH, Hamburg alstria Halberstädter Strasse GP GmbH, Hamburg alstria Hamburger Str. 43 GP GmbH, Hamburg alstria Ludwig-Erhard-Strasse GP GmbH, Hamburg alstria Mannheim/Wiesbaden GP GmbH, Hamburg alstria ofﬁ ce Bamlerstrasse GmbH & Co. KG, Hamburg alstria ofﬁ ce Gänsemarkt Drehbahn GmbH & Co. KG, Hamburg alstria ofﬁ ce Grundbesitz 2 GmbH & Co. KG, Hamburg alstria ofﬁ ce Halberstädter Str. GmbH & Co. KG, Hamburg alstria ofﬁ ce Hamburger Str. 43 GmbH & Co. KG, Hamburg alstria ofﬁ ce Ludwig-Erhard-Strasse GmbH & Co. KG, Hamburg alstria ofﬁ ce Mannheim/Wiesbaden GmbH & Co. KG, Hamburg alstria ofﬁ ce Steinstrasse 5 GmbH & Co. KG, Hamburg alstria solutions GmbH, Hamburg alstria Steinstrasse 5 GP GmbH, Hamburg Share in capital (%) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Due to a joint venture agreement closed in 2010, a former subsidiary is treated as a joint venture as at the reporting date. alstria ofﬁ ce REIT-AG holds a share of 49 % in the joint venture company accounted for in the consolidated ﬁ nancial state- ments using the equity method. Accordingly, the subsidiary was deconsolidated and is no longer included in the consolidated group. The result from deconsolidation amounted to EUR –181 k. Two former Group companies were wound up dur- ing the reporting period. The companies served as general partners and had insigniﬁ cant total assets and results. The Group of consolidated companies includes 18 companies as well as two joint venture companies accounted for using the equity method. There have been no further changes to the consoli- dated Group since the consolidated ﬁ nancial state- ments as at December 31, 2009. 42 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 EFFECTS FROM DISPOSAL OF GROUP COMPANIES EUR k 2010 2009 Total disposal consideration 13,722 15,932 Disposal consideration discharged by means of cash and cash equivalents Amount of cash and cash equivalents in the subsidiary disposed of Assets except cash and cash equivalents in the subsidiaries disposed of 2 6,622 556 100 Investment property 60,000 41,440 Trade receivables Other Liabilities in the subsidiaries disposed of Bank loans Shareholder loans Trade payables Other 7 36 16 88 32,835 13,546 63 227 24,750 1,854 0 21 The amounts shown in 2010 have been stated under assets held for sale and liabilities associated with the sale of non-current assets held for sale. Interests in joint ventures By means of a capital contribution from a joint ven- ture partner into the former subsidiary Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG, Ham- burg, at the beginning of the reporting period and the contractual agreement of a joint control, this company is treated as a joint venture. Together with the joint venture Alstria VII. Hamburgische Grund- besitz GmbH & Co. KG, Hamburg, at the end of the reporting period the Group holds interests in two joint ventures resulting in a carrying amount at the end of the reporting period of EUR 32,385 k. alstria ofﬁ ce REIT-AG holds a share of 49 % in each of the two joint ventures. The following carrying amounts are attributable to the Group from its proportionate interest in the joint ventures. EUR k Dec. 31, 2010 Dec. 31, 2009 Non-current assets 62,749 17,807 Current assets 4,085 4,028 Non-current liabilities 34,515 12,065 Current liabilities 939 Proﬁ t or loss for the period 12,070 1,103 – 264 5 Key judgments and estimates The preparation of the consolidated ﬁ nancial state- ments in accordance with IFRS requires assump- tions 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 account- ing policies, management has made the follow- ing judgement, apart from those involving estima- tions, which has the most signiﬁ cant effect on the amounts recognised in the ﬁ nancial 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 conditions of the arrangements, that it retains all the signiﬁ cant risks and rewards of ownership in these properties and so accounts for the contracts as operating leases. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the end of reporting period that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are discussed below. Estimates are required in particular in order to: > determine the fair value of investment property; > determine the fair value of ﬁ nancial instruments; > determine the fair value of virtual shares granted to management; and > determine the fair value of convertible proﬁ t participation certiﬁ cates. In particular, in determining the fair value of the investment property, alstria ofﬁ ce REIT-AG must apply and take account of numerous factors. A fair value measurement was performed by an inde- pendent third party (Colliers International UK plc, London; see Note 7). If the future development of these properties differs from the estimate, large- scale losses resulting from the change in the fair value may be incurred. This can have a negative impact on the future results of operations. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 43 The external assessors have carried out sensitiv- ity analyses on their fair value assessments, which show the effect of the changes to capitalisation rates on fair market values. The assets, liabilities and equity instruments stated above, which are particularly exposed to estimation uncertainty, had the following impact on the con- solidated statement of ﬁ nancial position as at the end of reporting period: VALUE OF THE PROPERTIES (EUR M) Capitalisation rates – 0.25 % 0.00 % 0.25 % 2010 1,420 1,349 1,289 2009 1,676 1,601 1,533 A fair value measurement of the derivative ﬁ nan- cial 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. We consider the models used to be ade- quate and believe that they do not engender any uncertainty as to their applicability. The fair value of virtual shares granted to the Man- agement Board is measured at each balance sheet date until settlement and is classiﬁ ed as provisions. The expense of the period comprises the addition to, and the reversal of, the provision between two reporting dates and the dividend equivalent paid during the period. This valuation requires the Com- pany to make estimates about certain parameters, and hence they are subject to uncertainty. The fair value of the virtual shares granted as at March 2, 2010, is allocated to the vesting period accord- ing to the determinations in the underlying Long Term Incentive Plan (LTIP). The resulting person- nel expenses caused an addition to provisions of EUR 351 k (December 31, 2009: EUR 0 k) in the consolidated ﬁ nancial statements as at Decem- ber 31, 2010. The fair value of convertible proﬁ t participation cer- tiﬁ cates granted to the employees of the Group was estimated at the respective granting dates using a binary barrier option model based on the Black- Scholes model; 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. This valuation requires the Company to make estimates about these parameters, and hence they are subject to uncertainty. EUR k Dec. 31, 2010 Dec. 31, 2009 Investment property 1,348,400 1,425,440 Positive fair values of derivatives Negative fair values of derivatives Valuation of stock options, convertible proﬁ t participation rights and virtual shares 17,796 615 42,849 48,859 830 466 6 Seasonal or economic effects on business The activities of alstria ofﬁ ce REIT-AG (primarily the generation of revenues from investment prop- erties) are not generally affected by seasonal fac- tors. However, the sale of one or more large prop- erties may have a signiﬁ cant impact on revenues and operating expenses. Experience shows that the real estate market tends to ﬂ uctuate as a result of factors such as the net income of consumers or GDP, changes in interest rates, consumer conﬁ dence, 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. 7 Summary of signiﬁ cant accounting policies The following accounting and valuation methods have been used to prepare the consolidated ﬁ nan- cial statements of alstria ofﬁ ce 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 rec- ognised at acquisition costs at the time of addition. The costs include the transaction costs which have to be capitalised (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; how- ever, no costs of this kind had been incurred as of the end of reporting period. 44 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 Costs of debt which can be directly allocated to the acquisition or production of investment property are capitalised in the year in which they arise. > the capitalisation rates reﬂ ecting the individual risk of the property as well as market activity (comparable transactions); and For subsequent measurement, the Company uses the fair value model according to IAS 40.33 et seq., which reﬂ ects market conditions at the end of reporting period. All market values were determined by Colliers Inter- national UK plc, London, a renowned appraiser and brokerage ﬁ rm, as at December 31, 2010. The basis for deriving the fair values as deﬁ ned 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 sufﬁ - cient number of ofﬁ cial 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 hard-core and top-slice method, whereby rental income is horizontally seg- mented, with the hard-core portion representing the prevailing contractual rent. The top slice repre- sents the difference between market rent and con- tractual rent. This method fulﬁ ls the requirements of the Red Book, a set of international valuation standards set forth by the Royal Institution of Char- tered Surveyors. The method used by Colliers Inter- national UK plc 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 accord- ingly. Group 1 contained properties with anchor lease terms of ﬁ ve years or less and Group 2 held prop erties with anchor lease terms of more than ﬁ ve years. Group 1 is for properties with leases set to expire in ﬁ ve years or less: Hard-core and top-slice method, taking account of > the contractual rent for the remaining term of the lease; > a vacancy period of at least 18 months following expiry of the lease; > the necessary maintenance costs to re-let the properties at a comparable rent level; > re-lets at market rents; > non-allocable operating costs in the amount of 5 % of rental income p.a. Group 2 is for properties with anchor leases that are leased on a long-term basis to tenants with strong credit ratings: Hard-core and top-slice method, tak- ing account of > the contractual rent for the remaining term of the lease; > re-lets at market rents (accounting for the differ- ence between market rent and contractual rent); > the capitalisation rates reﬂ ecting 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 > the 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 beneﬁ t is expected from its dis- posal. Any gains or losses on the retirement or dis- posal of an investment property are recognised in proﬁ t or loss in the year of retirement or disposal. Leases The lessee is considered to be the beneﬁ cial owner of leased assets when the lessee bears all of the risks and rewards incidental to the assets (ﬁ nance lease) in accordance with IAS 17. If the lessee is deemed the beneﬁ cial owner, the leased asset is recognised at fair value or the lower present value of the minimum lease payments at the inception of the lease. Operating leases Lease agreements that alstria ofﬁ ce REIT-AG has entered into with commercial tenants are classiﬁ ed as operating leases under IFRS. Accordingly, alstria ofﬁ ce REIT-AG is lessor in numerous different types of operating lease agreements for investment prop- erties. These leases generate the majority of pro- ceeds and income for alstria ofﬁ ce REIT-AG. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 45 Impairment of assets Intangible assets with indeﬁ nite useful lives are not amortised; they are tested for impairment on an annual basis. Assets that are amortised are tested for impairment whenever triggering events or changes in circum- stances indicate that the carrying amount may no longer be recoverable. recognition, intangible assets are carried at cost less any accumulated amortisation and any accumu- lated impairment losses. Internally generated intan- gible assets are not capitalised and expenditure is reﬂ ected in proﬁ t or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either ﬁ nite or indeﬁ nite. An impairment loss is charged in the amount of the excess of the carrying amount over the recover- able amount. If the reasons for an impairment loss cease to apply, the impairment loss is reversed as appropriate. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impair- ment losses. Such cost includes the cost of replac- ing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. All other repair and maintenance costs are recognised in proﬁ t or loss as incurred. Depreciation of plant and equipment is calculated on a straight-line basis over the useful life of the asset (three to 15 years). The useful life of own occupied property is estimated at 50 years. While the building is depreciated on a scheduled basis, the land is not part of a scheduled depreciation. An item of property, plant and equipment is derec- ognised upon disposal or when no future economic beneﬁ ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net dis- posal proceeds and the carrying amount of the asset) is included in proﬁ t or loss in the year the asset is derecognised. The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted if appro- priate, at each ﬁ nancial year end. Cost of debt items which can be directly allocated to the acquisition or production of property, plant and equipment are capitalised in the year in which they arise. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial Intangible assets with ﬁ nite lives are amortised over the useful economic life and assessed for impair- ment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intan- gible asset with a ﬁ nite useful life are reviewed at least at each ﬁ nancial year end. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁ ts embodied in the asset are accounted for by chang- ing the amortisation period or method, as appro- priate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with ﬁ nite lives is recognised in proﬁ t or loss in the expense category consistent with the func- tion of the intangible asset. Depreciation of licences is calculated on a straight- line basis over the useful life of the asset (three to eight years). Currently, the Company does not have intangible assets with indeﬁ nite useful lives. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carry- ing amount of the asset and are recognised in proﬁ t or loss when the asset is derecognised. 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 author- ities. The tax rates and tax laws used to compute the amount are those that are enacted or substan- tively enacted by the end of the reporting period. There are no deferred taxes because, according to the REIT status, the whole Group is tax transparent and exempt from income taxation. 46 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 Financial instruments Pursuant to IAS 39, a ﬁ nancial instrument is any contract that gives rise to both a ﬁ nancial asset to one entity and a ﬁ nancial liability or equity instru- ment to another entity. Financial assets comprise in particular cash and cash equivalents, trade receiv- ables, as well as other loans and receivables orig- inated by the enterprise, held-to-maturity invest- ments and original and derivative ﬁ nancial assets held for trading. Financial liabilities frequently underlie a claim to their return in cash or another ﬁ nancial asset. These include in particular liabilities to banks and other creditors, trade payables and derivative ﬁ nancial liabilities. Financial assets and liabilities are generally not offset. Financial assets The recognition and measurement of ﬁ nancial assets are subject to the provisions of IAS 39. Depending on the classification prescribed by IAS 39: > held-to-maturity; > measured at fair value through proﬁ t or loss; > available-for-sale; or > loans and receivables ﬁ nancial assets are either measured at amortised cost or at fair value and recognised as at the end of the reporting period. The fair value of quoted investments is based on current bid prices. If the market for a ﬁ nancial asset is not active (and for unlisted securities), the Group determines fair value by using valuation techniques. These include the use of recent arm’s length trans- actions, reference to other instruments that are sub- stantially the same, discounted cash ﬂ ow analyses and option pricing models, making maximum use of market inputs and relying as little as possible on entity-speciﬁ c inputs. When ﬁ nancial assets are recognised initially, they are measured at fair value plus transaction costs for all ﬁ nancial assets not carried out at fair value through proﬁ t or loss. Management decides on the classiﬁ cation of ﬁ nancial assets on initial recognition and reviews the classiﬁ cation at the end of each reporting period. A ﬁ nancial asset is derecognised when the entity loses control of the contractual rights that comprise the ﬁ nancial instrument. All regular way purchases and sales of ﬁ nancial assets are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. A purchase or sale of ﬁ nancial assets is customary when it requires the delivery of assets within the period generally established by regula- tion or convention in the marketplace. Financial assets measured at fair value through proﬁ t or loss are ﬁ nancial assets held for trading. A ﬁ nancial asset is classiﬁ ed in this category if it is acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classiﬁ ed as cur- rent assets. Derivative ﬁ nancial instruments which are not part of an effective hedge pursuant to IAS 39 must be classiﬁ ed as held for trading and recognised in proﬁ t or loss at fair value. If their fair value is negative, the instruments are disclosed under ﬁ nancial liabilities. Available-for-sale ﬁ nancial assets are non-deriva- tives that are either designated in this category or not classiﬁ ed in any of the other categories. They are included in non-current assets unless the invest- ment matures or management intends to dispose of it within twelve months of the end of the reporting period, or unless the maturity at the end of report- ing period is less than twelve months. The avail- able-for-sale ﬁ nancial assets are initially recognised at fair value and subsequently carried at fair value. Changes in the fair value of ﬁ nancial assets classi- ﬁ ed as available for sale are recognised in equity; when they are sold or impaired their accumulated fair value adjustments are included in the income statement. The Group holds no ﬁ nancial assets which are clas- siﬁ ed as held to maturity according to the classi- ﬁ cation prescribed by IAS 39 classiﬁ ed as held to maturity. Financial assets have not been designated as “at fair value through proﬁ t or loss”. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 47 Receivables Receivables are classiﬁ ed as loans and receivables as deﬁ ned by IAS 39 and measured initially at fair value and subsequently at amortised cost, if ne cessary after deduction of any impairment. Amortised 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 is done for each individual property and portfolio basis, respectively. Derivative ﬁ nancial instruments and hedge accounting The Group uses derivative ﬁ nancial instruments such as interest rate swaps and caps to hedge its risks associated with interest rate ﬂ uctuations. Such derivative ﬁ nancial instruments are initially recog- nised at fair value on the date on which a deriva- tive contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabil- ities when the fair value is negative. The instruments were measured as at December 31, 2010 by an independent third party. The fair value of derivative ﬁ nancial instruments is determined by discounting the expected future cash ﬂ ows over the remaining life of the agreement based on current market rates or term structures of interest rates. Non-interest bearing receivables due in more than one year are discounted. Gains and losses are recognised in proﬁ t or loss when the receivables are derecognised or impaired as well as through the amortisation process. The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group ﬁ rst becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that signiﬁ cantly modiﬁ es the cash ﬂ ows that would otherwise be required. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is meas- ured as the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows discounted at the ﬁ nancial asset’s orig- inal effective interest rate (i. e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced directly. The amount of the loss is recognised in proﬁ t 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 recog- nised impairment loss is reversed to the extent that the carrying value of the receivable does not exceed its amortised cost at the reversal date. Any subse- quent reversal of an impairment loss is recognised in proﬁ t or loss. Provision for impairment is made when there is objective evidence (such as the probability of insolv ency or signiﬁ cant ﬁ nancial difﬁ culties 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 reduced directly. Impaired assets are derecognised when they are assessed as uncollectable. The method used for recording gains and losses depends upon whether the derivative was assigned to an underlying transaction as a hedge. To this end, ﬁ nancial management deﬁ nes the hedge rela- tionship between the hedging instrument and the hedged item and the aim of the risk management measure and underlying strategy when concluding the hedge transaction. Any gains or losses arising from changes in fair value on derivatives during the period that do not qualify for hedge accounting are recognised imme- diately in proﬁ t or loss. For the purpose of hedge accounting, hedges are classiﬁ ed as cash ﬂ ow hedges when hedging expos- ure to variability in cash ﬂ ows is attributable to a particular risk associated with a recognised liability. At the inception of a hedge relationship, the Group formally designates and documents the hedge rela- tionship to which the Group wishes to apply hedge accounting and the risk management object ive and strategy for undertaking the hedge. The documen- tation includes identiﬁ cation of the hedging instru- ment, the hedged item, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the expo- sure to changes in the hedged item’s cash ﬂ ows 48 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offset- ting changes in fair value or cash ﬂ ows, and are assessed on an ongoing basis to determine their effectiveness throughout the ﬁ nancial reporting periods for which they were designated. Cash ﬂ ow hedges which meet the strict criteria for hedge accounting are accounted for as follows: > The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in proﬁ t or loss. > Amounts taken to equity are transferred to proﬁ t or loss when the hedged transaction affects proﬁ t or loss, such as when the hedged ﬁ nancial income or ﬁ nancial expense is realised. The Group uses no ﬁ nancial derivatives that qual- ify for the hedging of the fair value of recognised assets or liabilities or a ﬁ rm commitment (fair value hedges), nor such ﬁ nancial derivatives that qualify for the hedging of a net investment in a foreign operation (net investment hedge). Cash and cash equivalents Cash and short-term deposits in the consolidated statement of ﬁ nancial position comprise current bank balances. For the purposes of the consolidated cash ﬂ ow statement, cash and cash equivalents include the cash and cash equivalents deﬁ ned above, other short-term highly liquid investments with origin al maturities of three months or less, and bank overdrafts. Current bank balances are recognised in the nom- inal amount. Treasury shares Company equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised in proﬁ t or loss on the pur- chase, sale, issue or cancellation of the Group’s own equity instruments. Liabilities Financial liabilities, in particular trade payables, are stated at the amount repayable and are, if non-cur- rent and non-interest bearing, discounted. The fair values are determined by discounting the future contractually agreed cash ﬂ ows at the inter- est rates from the term structure of interest rates to the end of the reporting period. The recognition and measurement of ﬁ nancial liabil- ities is subject to the provisions of IAS 39. Depend- ing on the classiﬁ cation prescribed by IAS 39: > at amortised cost or > measured at fair value through proﬁ t or loss ﬁ nancial liabilities are either measured at amortised cost or at fair value and recognised as at the end of reporting period. All loans and borrowings are initially recognised at fair value less directly attributable transaction costs, and have not been designated as “at fair value through proﬁ t or loss”. After initial recog- nition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in proﬁ t or loss when the liabilities are derecognised as well as through the amortisation process. The component of the convertible proﬁ t participa- tion rights (Wandelgenussrechte) which exhibits characteristics of a liability is recognised as a liabil- ity in the balance sheet, net of transaction costs. On issuance of the jouissance shares, the fair value of the liability component is determined using a mar- ket rate for an equivalent non-convertible bond, and this amount is classiﬁ ed as a ﬁ nancial liability measured at amortised cost until it is extinguished on conversion or redemption. A ﬁ nancial liability is derecognised when the obli- gation underlying the liability is discharged or can- celled or expires. When an existing ﬁ nancial liabil- ity is replaced with another liability from the same lender under substantially different terms, or the terms of an existing liability are substantially mod- iﬁ ed, such an exchange or modiﬁ cation is treated as a derecognition of the original liability and the rec- ognition of a new liability, and the difference in the respective carrying amounts is recognised in proﬁ t or loss. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 49 Revenue recognition Revenue is recognised to the extent that it is prob- able that the economic beneﬁ ts will ﬂ ow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consid- eration received, excluding discounts, rebates and other sales taxes or duty. The following speciﬁ c rec- ognition criteria must also be met before revenue is recognised: Rental income Rental income arising from operat- ing 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 discounts estimated future cash receipts through the expected life of the ﬁ nancial instru- ment to the net carrying amount of the ﬁ nancial asset). Income taxes REIT-AGs are fully exempt from German corporate income tax and trade tax. Hence, alstria ofﬁ ce REIT-AG has been exempt from tax with retrospective effect since January 1, 2007. 8 Segment reporting IFRS 8 requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. As the type of services offered by alstria ofﬁ ce REIT- AG is comprised exclusively of lessor activities for commercial property tenants in Germany, accord- ing to IFRS 8, a single reporting segment can be identiﬁ ed that is comprised of the Groups’ total operations. This reporting segment is reported in a manner con- sistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identiﬁ ed as the Manage- ment Board. Provisions Provisions are recognised where a present obliga- tion exists to third parties as a result of a past event, where a future outﬂ ow of resources is probable and where a reliable estimate of that outﬂ ow can be made. Provisions are measured, taking account of all risks, at the best estimate of future cash outﬂ ows required to meet the obligation, and – if non-cur- rent – are discounted. Provisions are not offset with reimbursements. Share-based payment transactions Share-based payment comprises cash-settled liabil- ity awards and equity-settled equity awards. The fair value of equity awards is generally deter- mined by using a modiﬁ ed Black-Scholes option pricing model at the grant date and represents the total payment expense to be recognised during the service period with a corresponding increase in equity (paid-in capital). Liability awards are measured at fair value at each balance sheet date until settlement and are classi- ﬁ ed as provisions. The expense of the period com- prises the addition to, and the reversal of, the provi- sion between two reporting dates and the dividend equivalent paid during the period. Further details on the share-based payment schemes are given in Notes 17, 18 and 19, and in the remuneration report, respectively. Minority interests in partnerships Under IAS 32.16 and IAS 32.19, a ﬁ nancial instru- ment is an equity instrument if, and only if, an entity has no conditional or unconditional obliga- tion to deliver cash or another asset. In addition, IAS 32.18 (b) states that the right of a partner to return their investment to the partnership for com- pensation at any time must be disclosed as a lia- bility, even when, in legal terms, the partner is an investor. Speciﬁ cally, equity must be reclassiﬁ ed as liability when the shareholders have a right of ter- mination and the exercise of that right justiﬁ es a settlement claim against the Company. Therefore minority interests in fully consolidated partnerships are disclosed under liabilities. The minority interests’ share in net proﬁ t or loss is recorded in the income statement as income or expense (ﬁ nancial result) in accordance with IAS 32.35. 50 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 9 Notes to the consolidated 9.4 Administrative expenses income statement 9.1 Revenues EUR k Revenues from investment property EUR k Legal and consulting fees 2010 2009 Communication and marketing 2010 2,332 621 2009 2,066 800 89,094 102,510 Revenues from investment property chieﬂ y include rents from investment property. 9.2 Income and expenses from passed-on operating expenses EUR k 2010 2009 Audit fees (audit and audit-related services) Depreciation Supervisory Board compensation Travel expenses Leasing costs IT maintenance Insurances Recruitment Stock exchange 580 485 305 270 175 125 113 69 43 427 359 299 264 185 91 122 25 162 13,902 17,202 Other 955 6,073 1,387 6,187 Income from passed-on operating expenses Income from passed-on operating expenses related to the prior year Expenses from passed-on operating expenses Expenses from passed-on operating expenses related to the prior year Income less expenses from passed-on operating expenses 1,781 2,031 15,683 19,233 9.5 Personnel expenses – 13,902 – 17,202 EUR k Salaries and wages – 2,223 – 2,389 Social insurance contribution – 16,125 – 19,591 Bonuses – 442 – 358 Expenses for share-based compensation thereof relating to stock options and virtual shares thereof relating to the convertible proﬁ t participation certiﬁ cates Amounts for retirement provisions and disability Management Board The expenses from passed-on operating expenses which are directly attributable to investment prop- erty include, in particular, operating costs, main- tenance and property-based taxes. 9.3 Real estate operating expenses Other 2010 2,823 363 1,228 830 351 2009 2,477 312 1,320 466 91 479 375 144 209 131 284 5,597 4,990 EUR k Maintenance and refurbishment Vacancy Running repairs Property management Tax on land and building Non-deductable VAT Depreciation of own occupied property Other 2010 2009 2,244 1,558 1,366 858 284 105 85 393 4,778 2,076 1,149 869 275 408 114 520 6,893 10,189 Convertible proﬁ t participation rights granted to employees entitle not only a conversion when the conditions apply, but also an annual payment equiva lent to the dividend per share. Therefore, expenses for share-based compensation resulting from the convertible proﬁ t participation rights are to be recognised in equity (for the conversion right) as well as against liabilities (for the dividend entitle- ment). Out of the EUR 479 k expense in relation to the proﬁ t participation rights, EUR 360 k was recog- nised in equity (2009: EUR 297 k) while EUR 119 k was reﬂ ected in the liabilities (2009: EUR 78 k). Within the course of 2010 the Group had 37 employees on average (2009: 31). alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 51 9.6 Other operating income 9.8 Financial and valuation result The ﬁ nancial result breaks down as follows: EUR k 2010 2009 Income in relation to development projects Income from the reversal of accrued liabilities Property management services Income from insurance compensation Payments on provisions on doubtful debts Car use Proﬁ t on deconsolidation Income from the consumption of accrued liabilities Other 727 367 148 123 71 22 0 0 571 2,029 327 323 0 82 221 42 1,290 170 669 3,124 Income in relation to development projects relates to compensation received from tenants in individual cases for the restructuring of leased premises and can vary each year. 9.7 Other operating expenses EUR k Legal and consulting fees Impairment on trade receivables Loss on deconsolidation Impairment on ﬁ nancial assets Allocation to provision for rental guarantees Other 2010 868 472 181 91 0 7 2009 0 311 0 0 1,550 5 1,619 1,866 Legal and consulting fees were incurred as a result of a non-recurring strategic project related to the further development of the Group. EUR k Financial income 2010 700 2009 593 Syndicated loans – interest – 17,623 – 25,638 Interest non-recourse loans – 7,599 – 3,918 Interest result derivatives – 17,902 – 22,433 Bank overdraft – 1 – 1 Financial expenses – 43,125 – 51,990 Bank charges – 292 – 80 Expense resulting from net present value adjustments due to the discount of provisions Transaction costs Commitment fees Other Other ﬁ nancial expenses – 278 0 0 – 170 – 740 0 – 524 – 75 – 40 – 720 Net ﬁ nancing result – 43,165 – 52,117 Total interest income and expenses for ﬁ nancial assets and liabilities which are not ﬁ nancial deriva- tives were EUR 700 k (interest income; 2009: EUR 593 k) and EUR 25,222 k (interest expenses; 2009: EUR 29,557 k), respectively. Total interest expenses calculated using the effect- ive interest method for ﬁ nancial liabilities that are not recognised at fair value through proﬁ t or loss were EUR 5,545 k (interest expenses; 2009: EUR 2,362 k). Net losses from ﬁ nancial assets available for sale amounted to EUR 91 k (2009: EUR 0 k). The net loss from the fair value loss from the fair value adjustments on ﬁ nancial derivatives is shown below: EUR k 2010 2009 Transfer of cumulated loss from cash ﬂ ow hedge reserve to income statement Ineffective change of the fair value of cash ﬂ ow hedges Change in fair value of ﬁ nan- cial derivatives not qualifying as a cash ﬂ ow hedge Net loss from fair value adjust- ments on ﬁ nancial derivatives – 33,338 – 16,331 – 961 – 6,002 – 1,373 – 961 – 35,672 – 23,294 52 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 In 2010, EUR 33,338 k relates to cumulative loss in the fair value of cash ﬂ ow hedge derivatives which was reported in equity and for which a forecast transaction is no longer expected to occur. Further details and explanation on derivatives are shown under Note 10.8. 9.9 Gain or loss on disposal of investment property EUR k Investment property disposal proceeds Carrying value of investment property disposals 2010 2009 163,003 134,115 – 153,725 134,140 9,278 – 25 The loss from objects and portfolios sold below their carrying value amounts to EUR 248 k in 2010 and EUR 375 k in 2009. 9.10 Income taxes Because of obtaining the G-REIT status, alstria ofﬁ ce REIT-AG was subject to ﬁ nal taxation on the effective date of the transfer into a G-REIT in 2007 and is tax-exempt with regard to corporate tax and trade tax effective as of January 1, 2007. Deferred income tax Due to the REIT tax exemp- tion, there were no impacts on proﬁ t and loss, the ﬁ nancial statements, or equity or proﬁ t and loss in 2009 and 2010. 10 Notes to the consolidated statement of ﬁ nancial position – assets 10.1 Investment property This item, which comprises all investment proper- ties held by the Company, breaks down as follows: alstria ofﬁ ce REIT-AG uses the fair value model pur- suant to IAS 40.33 et seq. for subsequent meas- urement of investment property. External apprais- als were obtained for measurement. For a detailed description of the valuation of assets, please see Note 7. alstria ofﬁ ce REIT-AG concluded the acquisition of one investment property located in Karls ruhe in 2010. This property was transferred to alstria ofﬁ ce REIT-AG on January 4, 2011. At the end of the reporting period, prepayments in an amount of EUR 2,961 k have been made on the acquisi- tion. They are stated under “other receivables” (see Note 10.7). In the course of the meanwhile completed property disposal process, the transfer of possession, beneﬁ ts and burden of seven properties took place in 2010. One of them has been transferred in the course of deconsolidation of a former Group company. This object was already reclassiﬁ ed to the disposal group in the previous year (see Note 4). Due to a probable sale transaction, one property in a total amount of EUR 600 k was categorised as “held for sale” in the consolidated ﬁ nancial state- ments as at December 31, 2010. Capital expenditure (EUR 14,264 k) is made up of subsequent acquisition and production costs in relation to property acquisitions and refurbishment projects. Borrowing costs have been capitalised as construc- tion cost of an asset in an amount of EUR 71 k during the reporting period. The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation was 2.5 %. 2010 2009 Expenses/income disclosed in the income statement pursuant to IAS 40.75 (f): EUR k Fair values As of Jan. 1 Changes in the consolidated Group Property acquisition Capital expenditure Disposals 1,425,440 1,805,265 0 0 – 41,440 3,480 14,264 13,987 – 77,900 – 134,140 Transfers to held for sale – 600 – 135,825 Net result from the adjust- ment of the fair value of investment property As of Dec. 31 – 12,804 – 85,887 1,348,400 1,425,440 > EUR 89,094 k (2009: EUR 102,510 k) rental income from investment property; > EUR 5,335 k (2009: EUR 8,166 k) operating expenses (including repairs and maintenance) directly allocable to investment property from which rental income was generated during the period under review; and > EUR 1,558 k (2009: EUR 2,023 k) operating expenses (including repairs and maintenance) arising from investment property which did not generate rental income during the period under review. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 53 Investment properties (including held-for-sale investment properties) have been used as security for bank loans in the amount of EUR 1,349,000 k (2009: EUR 1,561,265 k). 10.2 Equity accounted investment At the end of the reporting period, two com panies in which alstria ofﬁ ce REIT-AG holds a share of 49 % were treated as joint ventures and accounted for using the equity method. The carrying amount of the joint ventures at the end of the reporting period was EUR 32,385 k. For further information please refer to Note 4. 10.3 Property, plant and equipment EUR k Acquisition and production cost As at Jan. 1, 2010 Additions Disposals As at Dec. 31, 2010 Accumulated amortisation, depreciation and write-downs As at Jan. 1, 2010 Additions Disposals As at Dec. 31, 2010 Net book values as at Dec. 31, 2010 EUR k Acquisition and production cost As at Jan. 1, 2009 Additions Disposals As at Dec. 31, 2009 Accumulated amortisation, depreciation and write-downs As at Jan. 1, 2009 Additions Disposals As at Dec. 31, 2009 Net book values as at Dec. 31, 2009 Furni- ture and ﬁ xtures Own occupied property 202 385 – 25 562 101 59 – 18 142 420 5,655 1,858 0 7,513 114 85 0 199 7,314 Furni- ture and ﬁ xtures Own occupied property 159 43 0 202 58 43 0 101 101 3,381 2,274 0 5,655 0 114 0 114 5,541 Plant 1,100 1 0 1,101 846 164 0 1,010 91 Plant 1,100 0 0 1,100 659 187 0 846 254 Total 2010 6,957 2,244 – 25 9,176 1,060 308 – 18 1,350 7,826 Total 2009 4,640 2,317 0 6,957 717 343 0 1,060 5,897 54 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 The useful life of the assets is estimated to be between three to 15 years for plant, furniture and ﬁ xtures and 50 years for the own occupied property by the Group. The plants consist of miscellaneous items such as ﬁ re extinguishers or a control panel for a closed- circuit television system. alstria ofﬁ ce REIT-AG occupies one of its ofﬁ ce buildings in Hamburg for its own use. Therefore the property is categorised as owner-occupied prop- erty according to IAS 16. In order to secure Group li abilities, the property is pledged with a land charge as security. 10.4 Intangible assets The assets and liabilities of the disposal Group were as follows: EUR k Assets Dec. 31, 2010 Dec. 31, 2009 Investment property 600 135,825 Receivables and other assets Cash and cash equivalents Total assets 0 0 462 334 600 136,621 Liabilities Short-term loans Other liabilities Total liabilities 0 0 0 27,500 676 28,176 Licences 2010 2009 10.7 Receivables and other assets Due to the speciﬁ c nature of the business, the Group considers receivables due up to one year to be current. The following table presents an over- view on the receivables of the Group: EUR k Acquisition and production cost As of Jan. 1 Additions Disposals As of Dec. 31 Accumulated amortisation, depreciation and write-downs As of Jan. 1 Additions Disposals As of Dec. 31 Net book values as at Dec. 31 580 270 – 1 849 269 262 – 1 530 319 475 105 0 580 139 130 0 269 311 The useful life of the intangible assets is estimated to be between three to eight years. The intangible assets consist of software licences and licences to other rights in an amount of EUR 175 and EUR 144 k, respectively. 10.5 Financial assets A minority interest in a former Group company is stated in this line item. 10.6 Assets held for sale Assets held for sale as shown refer to an investment property which has been sold in January 2011. Assets held for sale as shown in the previous year’s end of the reporting period refer mainly to invest- ment properties which have been sold in 2010. EUR k Trade receivables Rent receivables Accounts receivable from afﬁ liates Tax receivables Other receivables Prepayments “Rent-free period” receivables Deposit account Receivables from disposal group Other assets Other receivables Dec. 31, 2010 Dec. 31, 2009 4,117 5,694 1,967 1,855 0 3 3,367 2,755 1,550 2,361 1,831 1,550 0 465 27,500 241 8,137 33,483 All receivables except EUR 1,550 receivables against a deposit account are due within one year from the end of the reporting period. The fair value of all receivables is equal to their carrying amount in the balance sheet. Trade receivables were written down by EUR 472 k (2009: EUR 311 k) due to rent payments in arrears. Other receivables, other than trade receivables, were not impaired. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 55 As of December 31, 2010, trade receivables of EUR 869 k (2009: EUR 724 k) were past due but not impaired. These relate to a number of inde- pendent customers for whom there is no recent his- tory of default. The ageing analysis of these trade receivables is as follows: EUR k Trade receivables Up to 3 months 3 to 6 months Over 6 months Total Dec. 31, 2010 Dec. 31, 2009 367 217 285 869 76 648 0 724 To secure the loans of the Group, all receivables from rental and property purchase agreements, as well as insurance receivables and derivative ﬁ nan- cial instruments, were assigned to the lenders (Note 11.2). A total of EUR 2,755 k of the other receivables is made up of accruals resulting from the recognition of total rental revenues on a straight-line basis over the term of the lease agreements (rent smoothing). Prepayments in an amount of EUR 2,961 k relate to payments that have been made on the acquisi- tion of a property (compare Note 10.1) and annual insurance premiums that are payable in advance. 10.8 Derivative ﬁ nancial instruments The following derivative ﬁ nancial instruments existed as at the end of reporting period: Reverse swap 3.6165 Nov. 29, 2011 – 625,000 17,595 Product Cap Swap Swap Interest rate derivatives – held for trading Cap Cap Swap Swap Swap Swap Swap Swap Swap Dec. 31, 2010 Dec. 31, 2009 Strike p.a. (%) Maturity date Notional (EUR k) Fair value (EUR k) Notional (EUR k) Fair value (EUR k) 4.9000 Dec. 20, 2012 75,000 20 75,000 100 4.1160 Jul. 10, 2013 47,902 – 3,412 100,000 – 7,331 3.6165 Nov. 29, 2011 625,000 – 17,595 0 0 0 0 – 7,231 383 132 3.3000 Oct. 20, 2014 25,139 3.3000 Oct. 20, 2014 8,649 – 3,392 135 46 25,139 8,649 3.6165 Nov. 29, 20111 3.9087 Jan. 20, 20121 4.9000 Dec. 20, 20121 3.1925 Nov. 29, 20111 0 0 0 0 0 0 0 0 625,000 – 27,895 148,785 – 7,828 34,100 – 3,170 21,880 – 781 2.1940 Dec. 31, 2014 37,283 – 420 0 0 4.6000 Oct. 20, 2015 95,000 – 3,346 95,000 – 1,854 2.9900 Jul. 20, 2015 472,500 – 18,076 0 0 Interest rate derivatives – cash ﬂ ow hedges Total 1 Meanwhile terminated before original maturity date. The changes of the derivatives result from various effects. The following table shows the changes of alstria ofﬁ ce REIT-AG’s ﬁ nancial instruments since December 31, 2009 by category: – 21,661 – 25,053 – 41,013 – 48,244 56 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 CHANGES IN FINANCIAL DERIVATIVES EUR k Hedging instruments as at Dec. 31, 2009 Effective change in fair value cash ﬂ ow hedges Ineffective change in fair value cash ﬂ ow hedges Net loss from fair value changes in ﬁ nancial derivatives not qualifying for cash ﬂ ow hedging Reclassiﬁ cation of cumulated loss from equity to income statement Changes in accrued interests concerning ﬁ nancial derivatives Acquisitions Disposals Financial derivatives Cash ﬂ ow hedge reserve – 43,200 4,940 0 0 Financial assets 615 – 70 – 7,514 Financial liabilities – 48,859 5,010 6,553 Total – 48,244 4,940 – 961 – 81 – 1,292 – 1,373 33,338 0 0 0 0 0 0 3,316 21,530 0 1,924 – 43,060 36,875 – 42,849 5,240 – 21,530 36,875 – 25,053 Hedging instruments as at Dec. 31, 2010 – 4,922 17,796 The notional amount of the ﬁ nancial derivatives, which includes cash ﬂ ow hedges and derivatives not qualifying for cash ﬂ ow hedging, effective at the end of the reporting period is EUR 638,571 k (December 31, 2009: EUR 1,039,553 k). One swap with a notional amount of EUR 95,000 k will not become effective before July 10, 2013. Derivatives with a notional amount of EUR 122,902 k (Decem- ber 31, 2009: EUR 175,000 k) are not designated as a cash ﬂ ow hedge. In total, EUR 4,940 k of changes in the fair values of derivatives effective in a cash ﬂ ow hedge have been recognised in the hedging reserve. The ineffective portion recognised in the proﬁ t or loss that arises from cash ﬂ ow hedges amounts to a loss of EUR 961 k (2009: EUR 6,002 k). Losses totalling EUR 1,373 k (2009: loss of EUR 961 k) due to the market valuation of de rivatives not included in hedge accounting were recorded in the income statement in the period of the ﬁ nancial statements to December 31, 2010. A loss of EUR 33,338 k (2009: 16,331 k) relates to the cumulative losses that were reported in equity and for which the forecast transaction is no longer expected to occur. It was immediately transferred to the income statement within net loss of fair value adjustments on ﬁ nancial derivatives (see Note 9.8). Together, this results in a loss of EUR 35,672 k (2009: EUR 23,294 k) shown as net loss from fair value adjustments on ﬁ nancial derivatives. For the EUR 33,338 k expense relating to the trans- fer out of equity, the corresponding booking entry is an equity account, which increased by the same amount. Therefore this expense entry in the amount of EUR 33,338 k has no effect on the Group’s net asset value. On April 15, 2010, alstria ofﬁ ce REIT-AG entered into an interest swap with a notional amount of EUR 37,283 k at a swap rate of 2.1940 %, expiring on December 31, 2014. This transaction became effective as per April 20, 2010. The hedging rela- tionship was concluded with a fair value of EUR 0 at the inception. In line with its hedging strategy, alstria ofﬁ ce REIT-AG entered into a new interest rate swap with a notional amount of EUR 472,500 k and a swap rate of 2.99 %, expiring on July 20, 2015. This transaction became effective as at July 20, 2010. The aforementioned swap replaced an exist- ing interest rate swap with a notional value of EUR 625,000 k, which was terminated with effect from July 20, 2010. The new interest rate swap, which has a notional value of EUR 472,500 k and hedges the new syndicated loan, started with a negative fair value of EUR 21,530 k, which cor- responds to the negative termination value of the old interest rate swap with a notional value of EUR 625,000 k. The switchover was cash-neutral since the new swap stepped into the negative fair value of the terminated swap. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 57 In total, interest rate swaps with a notional value of EUR 881,863 k were terminated in 2010. This reduced ﬁ nancial liabilities from the nega- tive fair value of these swaps by EUR 36,875 k. EUR 21,530 k of this amount was attributed to the new swap with a notional value of EUR 472,500 k, leaving a EUR 15,345 k ﬁ nancial liability reduction for which cash outﬂ ow was provided. One interest rate swap with a notional amount of EUR 625,000 k and a corresponding reverse interest rate swap with the same notional amount had been entered into for technical reasons in the course of reﬁ nancing. All terms and conditions of the two derivatives are identical, except the fact that the ﬂ oating rate payer of the one interest rate swap is the ﬁ xed rate payer of the reverse interest rate swap. 10.9 Cash and cash equivalents registered in the commercial register on September 23, 2010. The nominal amount was paid in on Sep- tember 24, 2010. In the balance sheet of the consolidated ﬁ nan- cial statements as at December 31, 2010, the share capital of alstria ofﬁ ce REIT-AG amounts to EUR 61,600 k. Captiva 2 Alstria Holding S.à r.l., Luxembourg, directly and indirectly holds a majority of the shares in the Company, the remaining shares are free ﬂ oat. Treasury stock Non-par value bearer shares (quantity) Non-par value bearer shares (amount in EUR k) Dec. 31, 2010 Dec. 31, 2009 2,374 2,374 26 26 EUR k Bank balances Dec. 31, 2010 Dec. 31, 2009 120,788 146,818 On December 31, 2010, the Company held 2,374 non-par value bearer shares, each with a value of EUR 1. Bank balances earn interest at ﬂ oating rates based on daily bank deposit rates. As at the end of the reporting period, EUR 3,955 k (December 31, 2009: EUR 61,848 k) of the cash and cash equivalents were restraint on disposal. The amount corresponds to accrued interest obligations and amounts on other bank accounts for which the Company does not have free disposition. 11 Notes to the consolidated statement of ﬁ nancial position – equity and liabilities 11.1 Equity For detailed information on equity we refer to the consolidated statement of changes in consolidated equity. Share capital Thousand Dec. 31, 2010 Dec. 31, 2009 Ordinary share of EUR 1 each 61,600 56,000 By partially using its authorised capital, the share capital was increased against contribution in cash in the amount of EUR 5,599,999 as part of an accelerated book-building process. The share cap- ital increased from EUR 56,000,000 in 2009 to EUR 61,599,999 in 2010. This capital increase was By resolution of the Annual General Meeting held on June 16, 2010, the Company’s authorisation to acquire treasury shares was renewed. According to the resolution, alstria ofﬁ ce REIT-AG is authorised to acquire up to 10 % of the capital stock until June 15, 2015. There is no intention to make use of this authorisation as at the reporting date. Capital surplus The capital surplus changed as follows during the ﬁ nancial year: EUR k As of Jan. 1 Contributions to capital surplus Transaction costs of issue of shares Reclassiﬁ cation to retained earnings 2010 2009 685,897 726,885 43,400 – 1,622 0 0 – 27,999 – 28,423 Share-based payments 360 Valuation of available-for-sale ﬁ nancial assets Result of the disposal of treasury shares Intrinsic value of exchange option for treasury shares Disposal of treasury shares 0 0 0 0 388 123 – 13,076 1,744 – 14,820 As of Dec. 31 700,036 685,897 58 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 The new shares generated from the capital increase were placed at a price of EUR 8.75 per share. The issue proceeds by which the nominal share capital was exceeded amounted to EUR 43,400 k and were booked to the capital surplus. The placement of the shares resulted in an increase in the capital surplus of EUR 41,778 k, thereof contributions amounting to EUR 43,400 k and expenses to EUR 1,622 k. An increase of EUR 360 k (2009: EUR 297 k) resulted from the vesting of the convertible proﬁ t participation certiﬁ cates granted to employees of the Group. In 2009, there was an additional increase of EUR 91 k from the allocation of the fair values of the granted stock options (Note 17) over the respective vesting period. In the course of dividend payments, in 2010 the Company distributed dividends totalling EUR 27,999 k (EUR 0.50 per outstanding share) out of retained earnings to their shareholders. Hedging reserve EUR k Hedging reserve Dec. 31, 2010 Dec. 31, 2009 – 4,922 – 43,200 For further details on the change in hedging reserve please refer to Note 10.8. 11.2 Financial liabilities EUR k Loans Syndicated loan (new) Non-recourse loans Total EUR k Loans Syndicated loan (old) Non-recourse loans Total Non-current 566,891 219,519 786,410 Current Accrued interest 3,674 541 4,215 Loan 0 3,581 3,581 Total Total current Dec. 31, 2010 3,674 4,122 7,796 570,565 223,640 794,206 Non-current Current Accrued interest Loan Total Total current Dec. 31, 2009 751,387 195,870 947,257 86,632 1,930 88,562 2,716 663 3,379 89,348 2,593 91,941 840,735 198,463 1,039,198 The table shows the long-term loans, net of the current portion as stated under non-current liabil- ities and the current amount that is due within one year, and shown as short-term loans under current liabilities. As at December 31, 2010, the loans used by alstria office REIT-AG are repayable in the amount of EUR 796,964 k (December 31, 2009: EUR 1,041,387 k). The lower carrying amount of EUR 794,206 k (EUR 786,410 k non-current and EUR 7,796 k current) takes into account interest li abilities and transaction costs to be allocated under the effective interest method upon the raising of liabilities. Financial liabilities with a maturity of up to one year are recognised as current loans. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 59 alstria successfully reﬁ nanced its main credit facility on July 20, 2010. A new syndicate consisting of ﬁ ve banks has provided a new credit facility totalling EUR 630 m (“syndicated loan (new)”). Together with EUR 16 m of alstria’s own cash, this reﬁ nanc- ing has entirely replaced the previous syndicated loan facility (“syndicated loan (old)”, EUR 646 m), which was due to mature in November 2011. The new loan agreement has a maturity of ﬁ ve years. As a result of the completed restructuring proc- ess the average debt maturity increased signiﬁ - cantly to 4.6 years compared to 2.6 years as of December 31, 2009. The new loan was arranged by UniCredit Bank AG and underwritten by Ber- lin-Hannoversche Hypothekenbank AG, Eurohypo Aktiengesellschaft, HSH Nordbank AG and Natixis. The terminated syndicated loan (old) was arranged with J.P. Morgan Plc., Natixis Banques Populaires, German Branch, and HSH Nordbank AG for a nom- inal amount of EUR 1,139,800 k. Out of this nom- inal amount, EUR 842,837 k had been drawn as of December 31, 2009. The carrying amount due to deducted transaction costs to be allocated under the effective interest method upon raising the liabil- ities was EUR 838,019 k as of December 31, 2009. To secure the liabilities concerning the syndicated loan (old) as well as the syndicated loan (new), receivables from rental and property purchase agreements as well as insurance receivables and derivative ﬁ nancial instruments were assigned to the lenders, liens were granted on bank accounts and the registration of land charges was agreed (Notes 10.3 and 10.7). The variable interest of the loans is payable on a quarterly basis, with the standard margin and bor- rowing costs for the market added to the respective EURIBOR rate. Due to the variable interest rate, there are no signiﬁ - cant differences between the carrying amounts and fair value with the exception of transaction costs. A total of EUR 105,661 k (December 31, 2009: EUR 32,540 k) in ﬁ nancial liabilities from non- recourse loans relates to a ﬁ xed interest rate loan. As at the end of the reporting period, this loan has a fair value of EUR 106,758 (December 31, 2009: EUR 32,872 k). As at December 31, 2010, loans were reduced by transaction costs of EUR 6,974 k (December 31, 2009: EUR 5,568 k). The carrying amounts of the loans are all denom- inated in euros; the fair value of all financial li abilities, with the exception of the transaction cost and the ﬁ xed interest rate loan, approximates their nominal value at the end of the reporting period. The liabilities exposed to an interest rate risk are due as follows: EUR k Up to 1 year More than 1 year Total Dec. 31, 2010 Dec. 31, 2009 1,014 88,562 689,754 914,717 690,768 1,003,279 The following loans are secured by land charges: EUR k Financial liabilities secured by land charges thereof on investment property Dec. 31, 2010 Dec. 31, 2009 794,206 1,035,819 786,891 1,030,278 11.3 Other provisions In respect of the sale of properties, the Group has accepted the commitment to compensate the buyer for possible rent income shortfalls in case of non- extension of rental agreements existing with certain tenants at the disposal date. A provision amount of EUR 1,829 k was calculated as the net present value of possible cash outﬂ ow due to this rental guaran- tee for which a realisation is expected more likely than not. The commitment relates to a six-year rental period starting in 2014. The same circum- stances led to contingent liabilities (see Note 12.2). At December 31, 2009, the provision for the rental guarantees amounted to EUR 1,550 k. The increase in this provision is solely based on the change in the net present value of EUR 279 k due to the time shift and discount rate changes. In addition EUR 351 k is recognised as provision for awarding the Long Term Incentive Plan (Note 18). 60 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 11.4 Trade payables and other liabilities EUR k Trade payables Other trade payables Other current liabilities Accruals for outstanding invoices Advance rent payments received Accrued bonuses Received deposits Supervisory Board compensation Liability for real estate transfer tax Auditing costs Consultancy costs VAT liabilities Security deposit Miscellaneous other liabilities Due Total Due Total Up to 1 year In more than 1 year 3,024 3,024 2,408 1,700 900 462 305 214 210 166 0 0 625 6,990 0 0 0 0 0 0 0 0 0 0 0 324 0 324 Up to 1 year In more than 1 year 3,692 3,692 4,134 2,410 1,320 434 299 220 137 316 110 0 519 0 0 0 0 0 0 0 0 0 0 0 344 0 2009 3,692 3,692 4,134 2,410 1,320 434 299 220 137 316 110 344 519 2010 3,024 3,024 2,408 1,700 900 462 305 214 210 166 0 324 625 7,314 9,899 344 10,243 The disclosed carrying amounts approximate their fair values. Other trade payables relate to operating costs not yet invoiced of EUR 1,706 k (December 31, 2009: EUR 2,981 k), liabilities from third-party real estate management services and rental activities of EUR 725 k (December 31, 2009: EUR 711 k) and tenant payables of EUR 593 k (December 31, 2009: EUR 0 k). The liabilities for real estate transfer tax result from the acquisition of properties in 2008 and 2009. 11.5 Trust assets and liabilities As at the end of the reporting period, alstria ofﬁ ce REIT-AG had trust assets worth an amount of EUR 2,050 k (December 31, 2009: EUR 1,550 k) and liabilities of EUR 462 k (December 31, 2009: EUR 434 k), in particular from rent deposits. 11.6 Deferred taxes According to its REIT status, alstria ofﬁ ce REIT-AG has been fully tax transparent for income taxes starting from January 1, 2007. Therefore, at the end of reporting period, as well as at the end of the prior years’ reporting period, deferred taxes do not exist. 11.7 Liabilities of current tax As at the reporting date, as well as at the end of the prior year’s reporting period, no liabilities for current tax existed. 12 Other notes 12.1 Compensation of Management Board and Supervisory Board Management Board In 2010, the overall compen- sation of the members of the Management Board totalled EUR 2,458 k (2009: EUR 1,529 k). As at the reporting date, liabilities for the compensation of the members of the Management Board amounted to EUR 300 k (2009: EUR 550 k). Under the stock option programme of alstria ofﬁ ce REIT-AG, mem- bers of the Management Board held non-trans- ferable stock options for 375,000 shares of alstria ofﬁ ce REIT-AG as at December 31, 2010 and 2009, respectively. Details of the stock option programme are also included in these notes (see Note 17). Out of the new Long Term Incentive Plan implemented in 2010, 99,009 virtual shares were granted to the members of the Management Board as at Decem- ber 31, 2010 (see Note 18). alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 61 Supervisory Board Pursuant to the Articles of Association, Supervisory Board members’ ﬁ xed annual payment amounted to EUR 305 k (2009: EUR 299 k). Further information on disclosures according to Section 314 paragraph 1 no. 6a HGB (German Commercial Code) and IAS 24.16 is provided in the remuneration report (see pages 90 to 93) that is an integral part of these notes and, at the same time, presented in the corporate governance chapter. 12.2 Commitments and contingencies Other ﬁ nancial obligations from refurbishment projects and ongoing maintenance amounted to EUR 13,955 k (2009: EUR 3,862 k). In respect of the sale of properties, at the disposal date the Group accepted the commitment to com- pensate the buyer for possible rent income short- falls in case rental agreements existing with certain tenants are not extended. Contingencies out of this commitment amounted to EUR 5,486 k (Decem- ber 31, 2009: EUR 4,768 k). The commitment relates to a six-year rental period starting in 2014. According to the details of the rental guarantees and the lettability of the objects, the Company does not expect a claim to come out of the rental guar- antees. The same circumstances led to provisions (see Note 11.3). The increase in this commitment from EUR 4,768 k to EUR 5,486 k is solely based on the change in net present value of EUR 718 k due to the time shift and discount rate changes. As at December 31, 2010, there was no rental agreement for the administrative premises with a minimum lease length. Out of other leasing agree- ments, future ﬁ nancial obligations arose in an amount of EUR 260 k. 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 ofﬁ ce and manufacturing build- ings. These non-cancellable leases have remaining terms of between one and 25 years. Most leases include an indexation clause, i. e. the rental charges may be raised annually according to prevailing mar- ket conditions. Future minimum rental charges receivable under non-cancellable operating leases are as follows: EUR k Within 1 year After 1 year but not longer than 5 years More than 5 years Dec. 31, 2010 Dec. 31, 2009 79,048 91,707 258,189 309,248 367,996 519,158 705,233 920,113 12.3 Consolidated cash ﬂ ow statement The cash ﬂ ow statement shows how the cash and cash equivalents of the Group changed in the course of the ﬁ nancial year as a result of cash received and paid. In accordance with IAS 7, a dis- tinction is made between cash ﬂ ows from operating activities and cash ﬂ ows from investing and ﬁ nanc- ing activities. The cash flows from investing and financing activities are calculated on the basis of payments, whereas the cash ﬂ ows from operating activities are derived indirectly based on the consolidated proﬁ t for the year. Cash ﬂ ows from operating activities for 2010 amounted to EUR 29,274 k, which represents a decrease to the 2009 reporting period amount of EUR 33,171 k. The decrease resulted mainly from lower rental revenues due to the disposal of assets that were only partly compensated by lower real estate operating expenses. The cash ﬂ ows from investing activities are mainly comprised of the cash inﬂ ows resulting from the sale of investment properties (EUR 163,003 k) and EUR 13,546 k from repayments of loans granted to joint ventures. A cash outﬂ ow of EUR 17,331 k relates to payments for refurbishment measures for re-letting, subsequent acquisition costs on investment properties and prepayments on asset acquisition. The cash ﬂ ows from ﬁ nancing activities reﬂ ect loan repayments of EUR 950,216 k and payments for the termination of ﬁ nancial derivatives amounting to EUR 15,345 k. Cash inﬂ ows of EUR 738,629 k relate to loans taken out during reﬁ nancing. The capital increase led to a net cash inﬂ ow of EUR 47,378 k. The cash and cash equivalents in the cash ﬂ ow statement relate to all cash disclosed in the balance sheet, i. e. cash on hand and bank balances. 62 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 13 Related party relationships 13.1 Preliminary remarks Related parties are members of the management of alstria ofﬁ ce REIT-AG (Management Board and Supervisory Board) and close family members of these persons. Related parties also include en tities with controlling inﬂ uence over the Group and en tities with joint control over, or signiﬁ cant inﬂ u- ence on, alstria ofﬁ ce REIT-AG. Captiva 2 Alstria Holding S.à r.l. (the parent com- pany), Captiva Capital Partners II SCA and Captiva Capital II S.à r.l. (ultimate parent company) are con- sidered to have a controlling inﬂ uence over alstria ofﬁ ce REIT-AG. There was no group of entities with joint control or signiﬁ cant inﬂ uence, with which business was conducted in the ﬁ nancial year. 14 Earnings per share Basic earnings per share are calculated as the quo- tient of the proﬁ t attributable to the shareholders and the weighted average number of shares out- standing during the ﬁ nancial year – except for the average number of treasury shares held by the Company itself. Diluted earnings per share amounts are calculated by dividing the proﬁ t attributable to ordinary own- ers of the parent company by the weighted aver- age 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. Joint ventures in which alstria ofﬁ ce REIT-AG has joint control over are also related parties. The following reﬂ ects the income and share data used in the earnings per share computations: Three members of the Supervisory Board of alstria ofﬁ ce REIT-AG are also executive managers of Natixis Capital Partners Limited and Natixis Capital Partners GmbH. Therefore, related parties during the ﬁ nancial year also included Natixis Capital Part- ners Limited and Natixis Capital Partners GmbH. In the view of alstria ofﬁ ce REIT-AG’s manage- ment, all transactions with related parties have been entered into on arm’s length terms or under condi- tions in alstria ofﬁ ce REIT-AG’s favour. 13.2 Remuneration of key management personnel For a detailed description of the remuneration of key management personnel, please refer to Note 12.1 and the remuneration report (see pages 90 to 93 in the corporate governance chapter). 13.3 Related party transactions At the end of the reporting period, the Group had receivables of EUR 1,967 k (December 31, 2009: EUR 1,855 k) against the joint ventures. Further- more, alstria ofﬁ ce REIT-AG received EUR 168 k (2009: EUR 327 k) from the joint venture as com- pensation for services connected to real estate. Natixis Corporate and Investment Bank S.A. is one of the lenders under the new syndicated loan and provides up to EUR 60 million out of the up to EUR 630 m available under the syndicated loan. Further transaction with related parties did not arise during the reporting period. Proﬁ t attributable to the shareholders (EUR k) Average number of shares outstanding (thousands) Basic earnings per share (EUR per share) 2010 2009 206 – 79,651 57,525 56,833 0.00 – 1.40 There were no dilution effects resulting from the granted stock options or the convertible proﬁ t par- ticipation rights during the period under review, as the related vesting conditions were not satisﬁ ed as at the end of the reporting period. For further information concerning granted stock options and convertible proﬁ t participation rights, please see Notes 17 and 19. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these ﬁ nancial statements. alstria ofﬁ ce REIT-AG is authorised to issue up to EUR 27,516 k shares as conditional capital. These contingently issuable shares could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are non-dilutive for the period presented. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 63 15 Dividends paid EUR k 2010 2009 Equity dividends on ordinary shares1 not recognised as a liability as at Dec. 31, 2010 Dividend per share (without treasury shares) 27,999 28,423 0.50 0.52 1 Refers to all shares except treasury shares at the date of distribution. The Annual General Meeting of alstria ofﬁ ce REIT-AG held on June 16, 2010, resolved to distribute divi- dends totalling EUR 27,999 k (EUR 0.50 per out- standing share). The dividend was distributed on June 17, 2010. The dividends paid out in 2009 totalled EUR 28,423 k (EUR 0.52 per share outstanding). 16 Employees During the period from January 1, 2010 to Decem- ber 31, 2010, the Company had an average of 37 employees (January 1, 2009 to December 31, 2009: on average 31 employees). The average was calcu- lated by the fourth part of the total of employed people at the end of each quarter. On Decem- ber 31, 2010, 39 people (December 31, 2009: 32 people) were employed at alstria ofﬁ ce REIT-AG, excluding the Management Board. 17 Stock option programme On March 27, 2007, the Supervisory Board of the Company resolved to establish a stock option pro- gramme for the members of the Management Board. The Supervisory Board ﬁ xed the details of the stock option programme in accordance with the authorisation granted by the General Meeting of Shareholders of March 15, 2007, and granted a ﬁ rst tranche of stock options to the Management Board. The main terms of the stock option programme resolved by the Supervisory Board can be summa- rised as follows: Under the stock option programme, up to 2,000,000 options entitling to the subscription of a maximum of 2,000,000 shares of the Com- pany with a total nominal value of EUR 2,000 k may be granted to members of the Management Board. The stock options will be granted in annual tranches. The ﬁ rst tranche was granted by the Supervisory Board in 2007, subject to the condi- tions below. The exercise price for the stock options granted in 2007 is EUR 16. The Supervisory Board did not grant any stock options in 2010. In 2010 the stock option programme was replaced by a new long-term incentive plan that is described in detail in Note 18. At the beginning of the reporting period, 515,625 stock options outstanding existed. Therefore, the amount of stock options outstanding as at the end of reporting period remained unchanged. None of these stock options are exercisable. The personnel expenses resulting from the allocation of the fair values of the stock options at the granting date over the vesting period amounted to EUR 0 k in 2010 (2009: EUR 91 k; Note 9.5). The fair values of the options outstanding were estimated at the respective granting dates using a Black-Scholes model and partial-time barrier options, taking into account the terms and condi- tions 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 Mar. 27, 2007 Sept. 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 the granting date (EUR) 3.60 4.21 30.00 4.50 16.00 0.00 3.60 4.29 30.00 4.50 16.00 0.00 16.00 13.93 3.17 2.28 Expected volatility is based on the historical volatil- ity of comparative listed companies and was calcu- lated as an average of these comparables. The term of each stock option is seven years beginning with the respective issue date. The stock options may only be exercised if the cur- rent stock exchange price of the Company’s shares exceeds the stock exchange price of the Com pany’s shares on the issue date by 20 % or more for at least seven non-subsequent trading days of the Frankfurt Stock Exchange prior to the commence- ment of the respective exercise period. 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 64 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 period lasts 30 days, commencing with the day of announcement of the results for the ﬁ rst, second and third quarter, and the day of the Company’s Annual General Meeting. There are no cash settle- ment alternatives. 18 Share-based remuneration On March 2, 2010, the Company’s Supervisory Board resolved to establish a new share-based remuneration system, the Long Term Incentive Plan (LTIP), for members of the Management Board and granted the ﬁ rst tranche of virtual shares to the Management Board. Under the LTIP, alstria ofﬁ ce REIT-AG grants virtual shares which give an entitlement to conversion into cash payments after four years. The amount of the conversion payment is based on the number of virtual shares, multiplied by the average stock market price of alstria’s shares on the Frankfurt Stock Exchange during the last 60 trad- ing days prior to the relevant maturity date, plus an amount equal to the sum of the dividend per share paid by the Company to its shareholders between the grant date and the maturity date, but in no event higher than 250 % of the average stock mar- ket price of alstria’s shares on the Frankfurt Stock Exchange in the last 60 trading days prior to the relevant grant date, multiplied by a speciﬁ ed dis- cretionary factor. The discretionary factor shall be a multiplier that can vary between 0.8 and 1.2, and is subject to the individual performance of each participant during the respective holding period. The determination of virtual shares that vest will depend, on a 50/50 basis, on the achievement of the alstria share price (absolute total shareholder return) and on the relative performance of alstria’s share in relation to the EPRA REIT Index Continental Europe (relative total shareholder return). Since payment per vested virtual share depends on the quoted 60 trading days average price of alstria’s shares, the quoted average price of the last 60 trad- ing days prior to the end of the reporting period essentially represents the fair value of each virtual share. At the end of the reporting period, there were 99,009 virtual shares that were granted on March 2, 2010. In 2010, this generated remuneration expenses amounting to EUR 351 k, which equals the provi- sion set aside for virtual shares. The Group recog- nises the liabilities arising from the vested virtual shares under other provisions. 19 Convertible proﬁ t participation rights programme On September 5, 2007, the Supervisory Board of the Company resolved the issuance of convertible proﬁ t participation certiﬁ cates (“certiﬁ cates”) to employees of the Company and to employees of companies in which alstria ofﬁ ce REIT-AG, directly or indirectly, holds a majority interest. Members of alstria ofﬁ ce REIT-AG’s Management Board are not considered employees of the Company in terms of this convertible proﬁ t participation rights pro- gramme. With its resolution, the Supervisory Board ﬁ xed the details of the convertible proﬁ t partici- pation rights programme in accordance with an authorisation granted by the general meeting of shareholders of March 15, 2007. The main terms of the programme resolved by the Supervisory Board can be summarised as follows: The nominal amount of each certiﬁ cate is EUR 1.00 and is payable upon issuance. Under the pro- gramme, a maximum of 500,000 certiﬁ cates in an aggregate nominal amount of up to EUR 500 k may be issued; 3,600 certiﬁ cates were issued on September 6, 2007, 42,000 certiﬁ cates on June 6, 2008, 114,000 certiﬁ cates on June 11, 2009 and a further 61,500 certiﬁ cates on June 17, 2010. Total expenses relating to convertible proﬁ t participation rights were EUR 479 k in 2010 (Note 9.5). In 2010, 3,100 participation rights have been terminated (2009: 1,100 participation rights). None of the convertible proﬁ t participation rights expired during the reporting period. At the end of the reporting period, 216,900 convertible proﬁ t participation rights were outstanding. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 65 The certiﬁ cates are issued as non-transferable rights and are neither sellable nor pledgeable or otherwise chargeable. the 61,500 certiﬁ cates issued on June 17, 2010, this market condition was fulﬁ lled until the end of the ﬁ nancial year 2010. The maximum term of each certiﬁ cate is ﬁ ve years. During its term, each certiﬁ cate entitles the holder to a preferred disbursement from the Company’s annual net proﬁ t. The proﬁ t share corresponds to the dividend per share of the Company for a full business year of the Company. For certiﬁ cates held by a beneﬁ ciary for less than a full business year of the Company, the proﬁ t share is reduced pro rata temporis. Each certiﬁ cate shall be converted into one non- par-value bearer share of the Company on the sec- ond, third, fourth or ﬁ fth 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 (market condition). For the 114,000 certiﬁ cates issued on June 11, 2009, and Upon conversion of a certiﬁ cate, the beneﬁ ciary shall pay an additional conversion price to the Company for each certiﬁ cate to be converted. The conversion price shall be the aggregate proportion- ate amount in the Company’s share capital of the shares each certiﬁ cate entitles the holder to sub- scribe for and shall be payable in addition to the offer price. The fair values of the inherent options for conver- sion were estimated at the respective granting dates using a binary barrier option model based on the Black-Scholes model, 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: Granting date of tranche 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 option for conversion at the granting date Expected volatility is based on the historical volatil- ity of comparative listed companies and was calcu- lated as an average of these comparables. 20 Financial risk management The ﬁ nancial instruments chieﬂ y used by the Group are bank loans and derivative ﬁ nancial instruments. The main purpose of the bank loans is to ﬁ nance the business activities of alstria ofﬁ ce REIT-AG. The Company also has various ﬁ nancial assets, such as cash and short-term deposits, which arise directly from business activities. Sept. 6, 2007 Jun. 6, 2008 Jun. 11, 2009 Jun. 17, 2010 3.70 4.20 30.00 2.00 2.00 10.00 13.18 4.70 4.65 35.00 2.00 2.00 10.00 11.03 8.68 1.71 73.00 2.00 2.00 10.00 5.99 6.06 0.47 58.00 2.00 2.00 10.00 8.25 10.77 8.76 4.01 6.19 Derivative ﬁ nancial instruments include interest swaps and caps. The purpose of these derivative ﬁ nancial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of ﬁ nancing. The main risks arising from the Group’s ﬁ nancial instruments are cash ﬂ ow interest rate risks and liquidity risks. The Group is not exposed to any sig- niﬁ cant credit risks. The amount that best presents the maximum credit risk is the carrying amount of ﬁ nancial assets. The Management Board decides on strategies and processes for managing speciﬁ c risk types. These are presented on the following pages. 66 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 Risks that could arise as a result of the ﬁ nancial cri- sis are seen mainly in a potential default of payment by a major tenant. Due to the fact that all of the Company’s main tenants are public institutions or still highly rated, the risk of default of payments is currently limited. alstria ofﬁ ce REIT-AG’s syndicated loan facility agreement allows for a loan to value (LTV) ratio of up to 70 %. After the loan restructuring, the Company managed to keep the LTV ratio on the relevant test date at 58.73 %. With the measures implemented since the beginning of 2010, the risk of a breach of covenant was effectively countered. EXISTING LOAN AGREEMENTS AS PER DECEMBER 31, 2010 Loan Syndicated loan Non-recourse loan #1 Non-recourse loan #2 Non-recourse loan #3 Non-recourse loan #4 Non-recourse loan #5 Total on Dec. 31, 2010 Principle amount outstanding (EUR k) LTV covenant (%) Maturity Jul. 20, 2015 572,809 Oct. 20, 2015 Dec. 31, 2014 Jun. 30, 2014 Oct. 20, 2014 Jan. 31, 2017 47,902 37,283 31,552 32,774 74,644 796,964 70.0 80.0 80.0 65.0 61.0 75.0 LTV (%) 57.38 74.63 56.49 60.85 58.98 61.64 58.73 Apart from this, the Group is not exposed to any commodity or currency risks. Interest rate risk The following table sets out the carrying amount, by maturity, of the Group’s ﬁ nancial instruments which are exposed to interest rate risk: EUR k < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total Financial year as at Dec. 31, 2010 Variable interest Syndicated loan Non-recourse loans Total EUR k Financial year as at Dec. 31, 2009 Variable interest Syndicated loan Non-recourse loans Total 0 1,014 1,014 0 1,014 1,014 0 1,014 1,014 0 572,809 572,809 67,016 47,902 117,959 67,016 620,711 690,768 < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total 86,632 751,387 927 971 87,559 752,358 0 1,013 1,013 0 1,065 1,065 0 838,019 161,517 165,493 161,517 1,003,512 Due to the extensive portfolio of non-current ﬁ nan- cial liabilities with a variable interest risk, alstria ofﬁ ce REIT-AG is exposed to risks from ﬂ uctu ations in market interest rates. The interest base for the ﬁ nancial liability (loan) is the three-month EURIBOR rate, which is adjusted every three months. A number of different derivative ﬁ nancial instruments were acquired to manage the interest expense. The derivative ﬁ nancial instruments relate to interest swaps in which the Company agrees to exchange with contracting partners, at speciﬁ ed intervals, the difference between ﬁ xed and variable interest rate amounts calculated by reference to an agreed-upon notional principal amount. In addition, interest caps were acquired; that is, the interest is capped at a predetermined maximum. If the maximum interest rate is exceeded, the difference between the actual interest rate and the cap rate is paid out. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 67 The derivative ﬁ nancial instruments of alstria ofﬁ ce REIT-AG are presented below: Reverse swap 3.6165 Nov. 29, 2011 −625,000 17,595 Product Cap Swap Swap Interest rate derivatives – held for trading Cap Cap Swap Swap Swap Swap Swap Swap Swap Dec. 31, 2010 Dec. 31, 2009 Strike p.a. (%) Maturity date Notional (EUR k) Fair value (EUR k) Notional (EUR k) Fair value (EUR k) 4.9000 Dec. 20, 2012 75,000 20 75,000 100 4.1160 Jul. 10, 2013 47,902 −3,412 100,000 −7,331 3.6165 Nov. 29, 2011 625,000 −17,595 0 0 0 0 −7,231 383 132 3.3000 Oct. 20, 2014 25,139 3.3000 Oct. 20, 2014 8,649 −3,392 135 46 25,139 8,649 3.6165 Nov. 29, 20111 3.9087 Jan. 20, 20121 4.9000 Dec. 20, 20121 3.1925 Nov. 29, 20111 0 0 0 0 0 0 0 0 625,000 −27,895 148,785 −7,828 34,100 −3,170 21,880 −781 2.1940 Dec. 31, 2014 37,283 −420 0 0 4.6000 Oct. 20, 2015 95,000 −3,346 95,000 −1,854 2.9900 Jul. 20, 2015 472,500 −18,076 0 0 Interest rate derivatives – cash ﬂ ow hedges Total 1 Meanwhile terminated before original maturity date. −21,661 −25,053 −41,013 −48,244 These interest rate swaps and interest rate caps are used to hedge the obligation underlying the loans. a) Impact on equity The following table shows the sensitivity of the Company’s loans on consolidated proﬁ t or loss and equity accordingly to a reasonably possible change in the interest rates (due to the effect on the ﬂ oat- ing interest loans). All variables remain constant; the effects from the derivative ﬁ nancial instruments were not factored into this calculation. FINANCIAL DERIVATIVES QUALIFYING FOR CASH FLOW HEDGE ACCOUNTING EUR k + 80 bps – 100 bps 2010 2009 18,222 11,670 – 23,810 – 14,794 b) Impact on income statement INTEREST EXPENSES P.A. EUR k + 80 bps – 100 bps 2010 5,733 2009 6,674 – 7,938 – 12,764 FINANCIAL DERIVATIVES NOT QUALIFYING FOR CASH FLOW HEDGE ACCOUNTING EUR k + 80 bps – 100 bps 2010 1,011 2009 5,797 – 1,230 – 7,555 The fair market value of derivative ﬁ nancial instru- ments 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: Liquidity Risk The Company continually monitors the Group-wide risk of potential liquidity bottlenecks using a liquidity planning tool, which uses the expected cash ﬂ ows from business activities and the maturity of the ﬁ nancial liabilities as a basis for analy- sis. The long-term reﬁ nancing strategy of the Group 68 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 ensures the medium and long-term liquidity require- ments. Such forecasting takes into consideration the Group’s debt ﬁ nancing plans, covenant compliance, compliance with internal balance sheet targets and, if applicable, external regulatory or legal require- ments – for example, G-REIT equity ratio. As at the end of the reporting period, the nominal ﬁ nancial liabilities had the following maturities in line with their contractual maturity (the basis is the three-month EURIBOR as at December 31, 2010 plus the weighted average margin of 154 basis points for the Group’s loans). EUR k < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years Total Financial year as at Dec. 31, 2010 Interests Loans 22,709 22,431 22,485 21,505 12,468 3,255 104,853 3,581 3,698 3,829 97,352 622,630 65,876 796,965 Financial derivatives 26,503 11,314 12,398 13,596 8,542 Trade payables Other current liabilities 3,024 4,222 0 0 0 0 0 0 0 0 0 0 0 72,353 3,024 4,222 60,039 37,443 38,712 132,453 643,640 69,131 981,417 EUR k < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years Total Financial year as at Dec. 31, 2009 Interests Loans 20,057 23,471 88,573 758,189 Financial derivatives 25,386 18,923 Trade payables Other current liabilities 3,692 6,599 0 0 6,447 2,027 3,274 0 0 6,681 2,079 2,070 0 0 6,269 3,042 65,968 95,519 95,000 1,041,387 1,917 0 0 0 0 0 51,570 3,692 6,599 144,307 800,584 11,747 10,831 103,705 98,042 1,169,216 The most signiﬁ cant liability consists of syndicated loans from ﬁ ve banks with a nominal amount of EUR 572,809 k. The second major part of liabilities is made up of loans entered into with several banks as a result of the Group’s reﬁ nancing strategy, with a nominal amount of EUR 224,156 k (December 31, 2009: EUR 198,550 k). The entire amount of the loans has been utilised as at the end of the reporting period. To secure these liabilities, receiva- bles from rental and property purchase agreements as well as insurance receivables and derivative ﬁ nancial instruments were assigned to the lenders; liens were granted on bank accounts and charges on the land registered. The obligations arising from the ﬂ oating interest bank loans were fully secured. Land charges for real estate property with a carry- ing amount of EUR 1,356,314 k were furnished as security. Capital management Capital management activ- ities are aimed at maintaining the Company’s clas- siﬁ cation as a REIT in order to support its business activities and maximise shareholder value. The Company manages its capital structure and makes adjustments in response to changes in eco- nomic 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, 2010, and at Decem- ber 31, 2009. The capital structure is monitored by the Com- pany using the key performance indicators (KPIs) re levant for classiﬁ cation as a REIT. The REIT equity ratio, being the ratio of equity to immovable assets, is the most important KPI. According to the Group’s strategy, the REIT equity ratio shall be between 45 % and 55 % within the relevant term provided by the REIT law. The G-REIT status is unaffected as long as the G-REIT ratio at the end of the business year is not below 45 % for three consecutive busi- ness years. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 69 The following KPIs are also used to manage capital: KPIS ACCORDING TO G-REIT LAW % Equity ratio acc. to G-REIT law Immovable assets Revenues gained from immovable assets Income gained from disposal of immovable assets 2010 2009 G-REIT covenant 49.82 40.26 90.12 89.20 > 45 > 75 100 100 > 75 20.34 9.93 < 501 1 Within ﬁ ve years based on the average property value during this period. Fair value The following table shows the carrying amount and fair value of all ﬁ nancial instruments disclosed in the consolidated ﬁ nancial statements: Carrying amount Non- ﬁ nancial instruments Financial instruments Assets as per balance sheet (EUR k) as of Dec. 31, 2010 Equity-account- ed investments Financial assets Trade receivables Accounts receivable from joint ventures Derivatives Receivables and other assets Cash and cash equivalents Total Liabilities as per balance sheet (EUR k) as of Dec. 31, 2010 Long-term loans Derivatives Short-term loans Trade payables Other liabilities Total Derivative hedge accounting Available for sale Assets at fair value through proﬁ t and loss 32,385 0 0 0 Loans and receivables 0 0 4,117 1,967 0 0 0 0 32,385 1 4,117 1,967 17,796 0 0 0 0 0 0 17,615 181 0 0 0 0 8,137 5,382 2,755 120,788 185,191 0 120,788 5,382 129,627 50,000 181 Total Fair value 32,385 32,385 1 1 4,117 4,117 1,967 1,967 17,796 17,796 2,755 2,755 120,788 120,788 179,809 179,809 0 1 0 0 0 0 0 1 Carrying amount Non- ﬁ nancial instruments Financial instruments Liabilities at fair value through proﬁ t and loss Other liabilities Derivative hedge accounting Total Fair value 786,410 42,849 7,796 3,024 7,315 847,394 0 0 0 0 6,528 6,528 0 793,384 0 793,384 793,384 21,007 0 21,842 42,849 42,849 0 0 0 7,796 3,024 787 0 0 0 7,796 3,024 787 7,796 3,024 787 21,007 804,991 21,842 847,840 847,840 70 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 Carrying amount Non- ﬁ nancial instruments Financial instruments Assets as per balance sheet (EUR k) as of Dec. 31, 2009 Equity-account- ed investments Financial assets Trade receivables Accounts receivable from joint ventures Derivatives Tax receivables Receivables and other assets Cash and cash equivalents Total Liabilities as per balance sheet (EUR k) as of Dec. 31, 2009 Long-term loans Derivatives Short-term loans Trade payables Other liabilities Total Assets at fair value through proﬁ t and loss 9,046 0 0 0 0 0 0 0 100 515 0 0 0 0 0 0 Loans and receivables 0 0 0 0 0 0 0 0 5,694 1,855 0 3 9,046 351 5,694 1,855 615 3 33,483 4,152 29,331 146,818 197,866 0 146,818 Derivative hedge accounting Available for sale Total Fair value 0 351 9,046 351 9,046 351 0 0 0 0 0 0 5,694 5,694 1,855 615 3 1,855 615 3 29,331 29,331 146,818 146,818 4,152 183,701 9,146 515 351 193,713 193,713 Carrying amount Non- ﬁ nancial instruments Financial instruments Liabilities at fair value through proﬁ t and loss Other liabilities Derivatives hedge accounting Total Fair value 947,257 48,859 91,941 3,692 10,243 1,101,992 0 0 0 0 9,465 9,465 0 952,825 0 952,825 952,825 18,328 0 30,531 0 0 0 91,941 3,692 778 0 0 0 48,859 91,941 3,692 778 48,859 91,941 3,692 778 18,328 1,049,236 30,531 1,098,095 1,098,095 The fair value of the derivative ﬁ nancial instruments and the loans was determined by an independent expert by discounting the expected future cash ﬂ ows at prevailing market interest rates. alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 71 Net gains and losses from ﬁ nancial instruments are as follows: 21 Signiﬁ cant events after the end of the reporting period EUR k 2010 2009 Financial instruments at fair value through proﬁ t or loss – 35,672 – 23,294 Loans and receivables – 472 – 311 Total – 36,144 – 23,605 Net losses during the reporting period resulted from valuation losses and, in the case of loans and receiv- ables, from the write-down on trade receivables. Fair value estimation Financial instruments which are measured in the balance sheet at fair value require the disclosure of fair value measurements by level of the following fair value measurement hierarchy: > Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) > Inputs other than quoted prices included within level 1 which are observable for the asset or liabil- ity, either directly (i. e. as prices) or indirectly (i. e. derived from prices) (level 2) > Inputs for the asset or liability which are not based on observable market data (that is, unob- servable inputs) (level 3) The transfer of the possession, beneﬁ ts and burden of the property acquisition in Karlsruhe as described in Note 10.1 took place in January 2011. Binding and notarised agreements for three more properties located in Hamburg were signed in Janu- ary and February 2011. The transfer of the posses- sion, beneﬁ ts and burden is expected to take place at the end of the ﬁ rst quarter of 2011. The transfer of the possession, beneﬁ ts and burden of the asset held for sale as shown at the end of the reporting period became effective in January 2011. 22 Utilisation of exempting provisions The following German subsidiaries included in the consolidated ﬁ nancial statements of alstria ofﬁ ce REIT-AG have made use of the exemption granted in Section 264b HGB: > alstria ofﬁ ce Bamlerstrasse GmbH & Co. KG, Hamburg > alstria ofﬁ ce Gänsemarkt Drehbahn GmbH & Co. KG, Hamburg > alstria ofﬁ ce Grundbesitz 2 GmbH & Co. KG, Hamburg > alstria ofﬁ ce Halberstädter Str. GmbH & Co. KG, Hamburg All of the Group’s ﬁ nancial instruments which are measured in the balance sheet at fair value are valued using the level 2 valuation measurement approach. This only applies to the Group’s ﬁ nancial derivatives, as there are no other ﬁ nancial instru- ments that are measured in the balance sheet at fair value. > alstria ofﬁ ce Hamburger Str. 43 GmbH & Co. KG, Hamburg > alstria ofﬁ ce Ludwig-Erhard-Strasse GmbH & Co. KG, Hamburg > alstria ofﬁ ce Mannheim/Wiesbaden GmbH & Co. KG, Hamburg > alstria ofﬁ ce Steinstrasse 5 GmbH & Co. KG, Hamburg > Alstria Sechste Hamburgische Grundbesitz GmbH & Co KG, Hamburg The fair value of ﬁ nancial instruments that are not traded in an active market (for example, over-the- counter derivatives) is determined by using valu- ation techniques. These valuation techniques max- imise the use of observable market data where it is available and rely as little as possible on entity- speciﬁ c estimates. If all signiﬁ cant inputs required to ascertain the fair value of an instrument are observ- able, the instrument is included in level 2. 72 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 23 Disclosures pursuant to Wertpapier handelsgesetz [German Securities Trading Act] 1 Ad-hoc announcement Date Topic Jul. 20, 2010 alstria successfully reﬁ nanced EUR 646 m Language German/English Sept. 22, 2010 Capital increase of up to 5,599,999 new shares to ﬁ nance further growth German/English Sept. 22, 2010 alstria ofﬁ ce REIT-AG successfully executed capital increase German/English 2 Directors’ dealings The following transactions were executed in 2010 and reported to alstria ofﬁ ce REIT-AG: Name of person – sub ject to the disclosure requirement Function Classiﬁ cation of the ﬁ nancial instrument Olivier Elamine Alexander Dexne Member of the Management Board Member of the Management Board Share Share 3 Voting rights notiﬁ cations No. Date Shareholders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Mar. 11, 2010 Mourant Limited Mar. 11, 2010 Mourant & Co. Limited Mar. 11, 2010 Juris Limited Apr. 8, 2010 Mourant Limited Apr. 8, 2010 State Street AIS Europe LLC Apr. 8, 2010 State Street Corporation Sept. 30, 2010 JPMorgan Chase & Co. Sept. 30, 2010 JPMorgan Chase Bank Sept. 30, 2010 J.P. Morgan International Inc. Sept. 30, 2010 Bank One International Holdings Corporation Sept. 30, 2010 J.P. Morgan International Finance Limited Sept. 30, 2010 J.P. Morgan Capital Holdings Limited Sept. 30, 2010 J.P. Morgan Chase (UK) Holdings Limited Sept. 30, 2010 J.P. Morgan Chase International Holdings Sept. 30, 2010 J.P. Morgan Securities Ltd. Sept. 30, 2010 JPMorgan Chase & Co. Sept. 30, 2010 JPMorgan Chase Bank Sept. 30, 2010 J.P. Morgan International Inc. Sept. 30, 2010 Bank One International Holdings Corporation Sept. 30, 2010 J.P. Morgan International Finance Limited Sept. 30, 2010 J.P. Morgan Capital Holdings Limited Sept. 30, 2010 J.P. Morgan Chase (UK) Holdings Limited Sept. 30, 2010 J.P. Morgan Chase International Holdings Sept. 30, 2010 J.P. Morgan Securities Ltd. ISIN DE000A0LD2U1 DE000A0LD2U1 Voting rights (new) (%) 52.04 52.04 52.04 0 52.98 52.98 7.31 7.31 7.31 7.31 7.31 7.31 7.31 7.31 7.31 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 73 Trans action Place Trans action date (EUR) Number of shares Buy Buy XETRA XETRA Apr. 7, 2010 Apr. 7, 2010 8.47 8.55 10,500 8,500 Price per share Deal volume (EUR) 88,935 72,670 Strike threshold (%) Date of change Attributed shares Disclosure according to Language 50, 30, 25, 20, 15, 10, 5, 3 Dec. 22, 2008 Yes 50, 30, 25, 20, 15, 10, 5, 3 Dec. 22, 2008 Yes 50, 30, 25, 20, 15, 10, 5, 3 Dec. 22, 2008 Yes 50, 30, 25, 20, 15, 10, 5, 3 Apr. 1, 2010 No § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG 50, 30, 25, 20, 15, 10, 5, 3 Apr. 1, 2010 Yes § 26 (1) WpHG 50, 30, 25, 20, 15, 10, 5, 3 Apr. 1, 2010 Yes § 26 (1) WpHG 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 5, 3 Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 No Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 Yes Sept. 24, 2010 No § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG English English English German/ English German/ English German/ English English English English English English English English English English English English English English English English English English English 74 74 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 No. Date Shareholders Voting rights (new) (%) 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Oct. 5, 2010 Oct. 5, 2010 Oct. 5, 2010 Oct. 5, 2010 Oct. 5, 2010 Oct. 5, 2010 Morgan Stanley Investment Management Limited Morgan Stanley International Holdings Inc Morgan Stanley International Limited Morgan Stanley Group (Europe) Morgan Stanley Investments (UK) Morgan Stanley Oct. 14, 2010 Juris Limited Oct. 14, 2010 State Street Corporation Oct. 14, 2010 State Street AIS Europe LLC Oct. 14, 2010 State Street (Jersey) Limited Oct. 14, 2010 State Street Administration Services (Ireland) Limited Jan. 5, 2011 Jan. 5, 2011 Jan. 5, 2011 Jan. 5, 2011 Jan. 5, 2011 Jan. 5, 2011 Morgan Stanley Morgan Stanley International Holdings Inc Morgan Stanley International Limited Morgan Stanley Group (Europe) Morgan Stanley Investments (UK) Morgan Stanley Investment Management Limited Jan. 10, 2011 Morgan Stanley Jan. 10, 2011 Morgan Stanley International Holdings Inc Jan. 10, 2011 Morgan Stanley International Limited Jan. 10, 2011 Morgan Stanley Group (Europe) Jan. 10, 2011 Morgan Stanley Investments (UK) Jan. 10, 2011 Morgan Stanley Investment Management Limited Feb. 16, 2011 Morgan Stanley Feb. 16, 2011 Morgan Stanley International Holdings Inc Feb. 16, 2011 Morgan Stanley International Limited Feb. 16, 2011 Morgan Stanley Group (Europe) Feb. 16, 2011 Morgan Stanley Investments (UK) Feb. 16, 2011 Morgan Stanley Investment Management Limited 3.22 3.22 3.22 3.22 3.22 3.25 0 48.17 48.17 48.17 48.17 2.99 2.99 2.99 2.99 2.99 2.99 3.02 3.02 3.02 3.02 3.02 3.02 2.99 2.99 2.99 2.99 2.99 2.99 alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 75 75 Strike threshold (%) Date of change Attributed shares Disclosure according to Language 3 3 3 3 3 3 Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes 50, 30, 25, 20, 15, 10, 5, 3 May 13, 2010 No 50 50 50 50 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 Yes Sept. 23, 2010 No Dec. 23, 2010 Yes Dec. 23, 2010 Yes Dec. 23, 2010 Yes Dec. 23, 2010 Yes Dec. 23, 2010 Yes Dec. 23, 2010 Yes Jan. 3, 2011 Yes Jan. 3, 2011 Yes Jan. 3, 2011 Yes Jan. 3, 2011 Yes Jan. 3, 2011 Yes Jan. 3, 2011 Yes Feb. 9, 2011 Yes Feb. 9, 2011 Yes Feb. 9, 2011 Yes Feb. 9, 2011 Yes Feb. 9, 2011 Yes Feb. 9, 2011 Yes § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG § 26 (1) WpHG English English English English English English English English English English English English English English English English English English English English English English English English English English English English English 76 Notes to the consolidated ﬁ nancial statements alstria Financial Report 2010 24 Declaration of compliance pursuant to Section 161 AktG [Aktiengesetz: German Stock Corporation Act] The declaration of compliance required by Section 161 AktG regarding the recommendations of the German Corporate Governance Code developed by the government commission has been submit- ted by the Management Board and the Super- visory Board and is made permanently available to the shareholders on alstria ofﬁ ce REIT-AG’s web- site (www.alstria.com). It is included in the declar- ation of corporate management according to Sec- tion 289a HGB. 25 Auditor’s fees At June 16, 2010, the general meeting elected PricewaterhouseCoopers AG Wirtschaftsprüfungs- gesellschaft, Lise-Meitner-Strasse 1, Berlin, to audit the separate and consolidated ﬁ nancial statements for the ﬁ nancial year 2010. The fee expenses in 2010 are comprised as follows: EUR k Audit services Other audit-related services 2010 419 161 2009 366 61 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 meet- ing of shareholders. The expiration of the term of ofﬁ ce is identical for all members, i. e. the close of the annual general meeting of shareholders in the year 2011. During the ﬁ nancial year 2010, the members of the Supervisory Board were: Alexander Stuhlmann (Chairman) Hamburg, Germany Management Consultant; Manager of Alexander Stuhlmann GmbH > until Jun. 25, 2010: BVV Versicherungsverein des Bankgewerbes a.G., Member of the Supervisory Board > until Jun. 25, 2010: BVV Versorgungskasse des Bankgewerbes e.V., Member of the Supervisory Board > until Jun. 25, 2010: BVV Pensionsfonds des Bankgewerbes AG, Member of the Supervisory Board > Capital Stage AG, Vice-chairman of the Supervisory Board 26 Management Board During the ﬁ nancial year, the Company’s members of the Management Board were: > Euro-Aviation Versicherungs AG, Chairman of the Supervisory Board > Frank Beteiligungsgesellschaft mbH, Mr Olivier Elamine, Chief Executive Ofﬁ cer (CEO) Mr Alexander Dexne, Chief Financial Ofﬁ cer (CFO) The attached remuneration report (see pages 90 to 93) contains details of the principles for the deﬁ - nition of the Management Board’s and Supervisory Board’s remuneration. Chairman of the Advisory Board > until May 10, 2010: Hamburger Feuerkasse Versicherung AG, Vice-chairman of the Supervisory Board > HASPA Finanzholding, Member of the Board of Trustees > HCI Capital AG, Member of the Supervisory Board > until Jun. 15, 2010: Jahr Holding GmbH & Co. KG, Chairman of the Advisory Board > LBS Bausparkasse Schleswig-Holstein- Hamburg AG, Member of the Supervisory Board > Ludwig Görtz GmbH, Member of the Administrative Board > Otto Dörner GmbH & Co. KG, Chairman of the Advisory Board > Siedlungsbaugesellschaft Hermann und Paul Frank mbH & Co. KG, Chairman of the Advisory Board > Studio Hamburg Berlin Brandenburg GmbH, Member of the Advisory Board alstria Financial Report 2010 Notes to the consolidated ﬁ nancial statements 77 John van Oost (Vice Chairman) Singapore, Singapore Managing Partner at Natixis Capital Partners > agapia Holding GmbH (formerly Captiva Healthcare Holding GmbH), Director > Axiom Asset 1 GmbH & Co. KG, Director > Axiom Asset 2 GmbH & Co. KG, Director > Axiom Immo GP GmbH Richard Mully Dublin, Ireland Investment Manager at Grove International Partners (UK) Ltd. > Grove International Partners (UK) Ltd, Managing Partner > Grove International Partners LLP, Managing Partner > until Jul. 12, 2010: Apellas Holdings B.V., Director (formerly Captiva Industrial GP GmbH), Director > Douglasshire International Holdings B.V., > Axiom Immo Holding GmbH Director (formerly Captiva Industrial Holding GmbH), Director > Axiom Immo Management GmbH, Director > Captiva Capital LP. Inc., Director > Captiva Capital Partners Pte Ltd., Director > Captival International Partners LLP, Director > CDS Costruzioni SpA, Board Member > CDS Holding SpA, Board Member > Fluxus Right Management, Director > Green Cove Capital Management SaRL, > Event Hospitality Group B.V., Director > Hansteen Holdings PLC, Director > until Nov. 9, 2010: Hellenic Land Holdings B.V., Director > Karta Realty Ltd., Director > until Jan. 10, 2010: Nowe Ogrody 2 Sp. z o.o., Director > until Jan. 10, 2010: Nowe Ogrody 3 Sp. z o.o., Director > until Jan. 10, 2010: Nowe Ogrody 4 Sp. z o.o., Board Member Director > Natixis Capital Partners GmbH, Board Member > Natixis Capital Partners Ltd., > until Jan. 10, 2010: Nowe Ogrody Sp. z o.o., Director Managing Partner > Polish Investment Real Estate Holding B.V., > Natixis Capital Partners Srl, Board Member > Ocala Capital Management LLC, Board Member Dr Johannes Conradi Hamburg, Germany Lawyer and Partner at Freshﬁ elds Bruckhaus Deringer LLP > Freshﬁ elds Bruckhaus Deringer LLP, Global Head of Real Estate Sector Group, Managing Partner of the Hamburg Ofﬁ ce, Member of the German Management Group > Elbphilharmonie Hamburg Bau GmbH & Co. KG, Member of the Supervisory Board Roger Lee Paris, France Real Estate Investment Manager at Natixis Capital Partners Ltd. > Natixis Capital Partners Ltd., Director > Caposition SARL, Director Director > Polish Investments Real Estate Holding II B.V., Director > SI Real Estate Holding B.V., Director > until Jan. 10, 2010: Spazio Industriale II B.V., Director > SREI DI Properties, Inc., Director Daniel Quai Crans, Switzerland Partner at Natixis Capital Partners Ltd. > Captiva International Partners LLP, Partner > CDS Costruzioni SpA, Director > CDS Holdings SpA, Director > CDS Project Development BV, Director > Mercurio Asset Management SGR SpA, Director > Natixis Capital Partners Ltd., Director > Natixis Capital Partners GmbH, Director 78 Management compliance statement alstria Financial Report 2010 MANAGEMENT COMPLIANCE STATEMENT “We conﬁ rm that, to the best of our knowledge, the consolidated ﬁ nancial statements give a true and fair view of the net assets, ﬁ nancial posi- tion and results of operations of the Group, and the Group management report gives a true and fair view of the business performance including the results of operations and the situation of the Group, and describes the main opportunities and risks and anticipated development of the Group in accordance with the applicable ﬁ nancial reporting framework.” Hamburg, February 18, 2011 The Management Board Olivier Elamine CEO Alexander Dexne CFO alstria Financial Report 2010 Auditors’ report 79 AUDITORS’ REPORT We have audited the consolidated ﬁ nancial state- ments prepared by alstria ofﬁ ce REIT-AG, Hamburg, comprising the statement of financial position, income statement and statement of comprehen- sive income, statement of changes in equity, cash ﬂ ow statement and notes to the consolidated ﬁ nan- cial statements, together with the group manage- ment report for the business year from January 1 to December 31, 2010. The preparation of the consoli- dated ﬁ nancial statements and the group manage- ment report in accordance with the IFRSs, as adopted by the EU, and/or the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetzbuch”: German Commercial Code) is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated ﬁ nancial statements and on the group management report based on our audit. We conducted our audit of the consolidated ﬁ nan- cial statements in accordance with § 317 HGB and German generally accepted standards for the audit of ﬁ nancial 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 misstate- ments materially affecting the presentation of the net assets, ﬁ nancial position and results of opera- tions in the consolidated ﬁ nancial statements in accordance with the applicable ﬁ nancial reporting framework and in the group management report are detected with reasonable assurance. Knowl- edge of the business activities and the economic and legal environment of the Group and expecta- tions as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related inter- nal control system and the evidence supporting the disclosures in the consolidated ﬁ nancial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual ﬁ nancial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and signiﬁ cant esti- mates made by the Company’s Board of Managing Directors, as well as evaluating the overall presen- tation of the consolidated ﬁ nancial 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 ﬁ ndings of our audit the consolidated ﬁ nancial statements comply with the IFRSs, as adopted by the EU, and/or the addi- tional requirements of German commercial law pur- suant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, ﬁ nancial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated ﬁ nancial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development. Berlin, February 23, 2011 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft sgd. Gregory Hartman Wirtschaftsprüfer (German Public Auditor) sgd. i.V. Dr. Kay Lubitzsch Wirtschaftsprüfer (German Public Auditor) 80 Corporate governance alstria Financial Report 2010 CORPORATE GOVERNANCE REPORT OF THE SUPERVISORY BOARD Supervision and advising of the Company’s management During the reporting year, the Supervisory Board advised and supervised the Management Board of the Company in accordance with statutory provi- sions and the Company’s articles of association. The Supervisory Board was also intensively involved in matters of material importance to the Company. During the meetings of the Supervisory Board and its committees, the Management Board reported regularly, promptly and in detail on the develop- ment of the business and ﬁ nancial situation of the Company, and on important business events, cur- rent risks, risk management and on company com- pliance. The Management and Supervisory Boards cooperated to set the strategic direction of the Com- pany. Between meetings, the Management Board further informed the Supervisory Board orally and in writing of important events. The chairman of the Supervisory Board regularly met with the Manage- ment Board to exchange information and advice. The Management Board consulted the Supervi- sory Board intensively on all transactions requiring its approval. After careful examination and consul- tation, the Supervisory Board voted on all matters brought to its attention as the law, the articles of association or rules of procedure of either the Man- agement Board or the Supervisory Board dictated. This included the Company’s budget planning. In the ﬁ nancial year 2010, the Supervisory Board had four ordinary and two extraordinary meetings. All members of the Supervisory Board were present for nearly every meeting or participated by telecon- ference; the entire Supervisory Board convened in all but one meeting. Moreover, one written resolution was adopted after circulation of detailed documents to the members. Two additional meetings of the Supervisory Board took place in 2011, before the ﬁ nalisation of this report. The ﬁ nancial results of the Company (quarterly and half-year ﬁ nancial reports, consolidated ﬁ nancial statements and the ﬁ nancial statements of alstria ofﬁ ce REIT-AG), the market, the situation and development of the Company, the development of risks, and the business performance were discussed with the Management Board during all ordinary meetings of the Supervisory Board. Focal points of discussion During the extraordinary meeting in February 2010, the Management Board and Supervisory Board discussed the long-term strategic direction of the Company. During the Supervisory Board meeting in March 2010, the Supervisory Board dealt with the consoli- dated ﬁ nancial statements and the ﬁ nancial state- ments for the year ending December 31, 2009, the management reports and the report on relation- ships with afﬁ liated companies for the ﬁ nancial year running from January 1 until December 31, 2009. After careful examination and due consideration, the Supervisory Board agreed with the proposal of the Management Board regarding the proﬁ t appro- priation in the spirit of a stable dividend policy. Fur- thermore, during its meeting the Supervisory Board drew up resolutions on its report to the annual general meeting and on the Corporate Governance Statement, including the declaration of compliance with the recommendations of the German Corpo- rate Governance Code, and made technical amend- ments to the employee proﬁ t participation plan. It debated and resolved on the variable remuneration for the members of the Management Board for the ﬁ nancial year 2009 based on the recommendation alstria Financial Report 2010 Corporate governance 81 of its nomination and remuneration committee. As recommended by an external remuneration expert and the nomination and remuneration committee, the Supervisory Board adapted the remuneration system and the service contracts of the Manage- ment Board members to the new legal requirements of the German Act on Appropriateness of the Man- agement Board Compensation. The remuneration report describes the details of the modiﬁ ed remu- neration system. It also deals with the parameters for the variable compensation for the members of the Management Board for the ﬁ nancial year 2010 on the basis of this new remuneration system. During its extraordinary meeting in April 2010, the Supervisory Board discussed the strategic direction of the Company again and dealt with the agenda and proposed resolutions for the annual general meeting of the Company on June 16, 2010, and adopted its report on the agenda item regarding the sharehold- ers’ resolution on the approval of the system for the remuneration of Management Board members. During the meeting following the annual general meeting in June 2010, discussions focused on the strategy to maintain the minimum equity ratio in accordance with the REIT Act, and the reﬁ nancing of the existing syndicate loan and the correspond- ing approval to conclude a loan agreement. During its meeting in September 2010, the Supervi- sory Board dealt extensively with the development and possible strategies to maintain the minimum equity ratio. The Supervisory Board extensively dis- cussed with the Management Board the possibility of carrying out an up to 10 % capital increase under the exclusion of subscription rights. The Supervisory Board granted its approval of the acquisition of real estate situated in Karlsruhe and discussed the mod- iﬁ cations of the German Corporate Governance Code, in particular, the requirements regarding the diverse composition of the Supervisory Board and the corresponding effects on alstria. The Supervi- sory Board resolved to assign its nomination and remuneration committee with the task of estab- lishing concrete goals for the composition of the Supervisory Board. During its meeting in November 2010, the Super- visory Board resolved after intensive discussions with the Management Board on the Company and budget planning for the ﬁ nancial year 2010. As recommended by its nomination and remuneration committee, the Supervisory Board speciﬁ ed con- crete goals for its composition, which, in particu- lar, include the adequate participation of women, and resolved to publish the corresponding diver- sity statement and the status of the implementa- tion of its goals in the corporate governance report. Furthermore, the Supervisory Board discussed the positive results of the review of the efﬁ ciency of its work, which was carried out by the members of the Supervisory Board on the basis of a questionnaire. The decision by way of written circular resolution in September 2010 dealt with the carrying out of a possible capital increase by up to 10 % of the share capital of the Company. At the start of 2011, the Supervisory Board dis- cussed the Company’s long-term strategic direc- tion with the Management Board. At its meeting to discuss balance sheets in March 2011, the Super- visory Board dealt with the consolidated ﬁ nancial statements and the ﬁ nancial statements for the year ending December 31, 2010, the report on relation- ships with afﬁ liated companies for the ﬁ nancial year 2010, the Management Board’s recommen- dation for the proﬁ t appropriation as well as the variable compensation of the Management Board. Committees of the Supervisory Board To increase the efﬁ ciency of its work, the six-per- son Supervisory Board formed three standing com- mittees, each composed of three members. To the extent permitted by law, the committees have been given decision-making powers in some cases, and in some cases they prepare the resolutions of the Supervisory Board by making proposals. During the Supervisory Board meetings, the committee chairs reported on the results of their committees’ work. 82 Corporate governance alstria Financial Report 2010 In the ﬁ nancial year 2010, the audit committee had four meetings, which were always attended by the Chief Financial Ofﬁ cer. The audit commit- tee reviewed the consolidated ﬁ nancial statements and the ﬁ nancial statements for the year ending December 31, 2009 and the management reports, discussed these with the independent auditors, and conducted a preliminary examination of these doc- uments and the Management Board’s proposed appropriation of the annual net proﬁ t. Additional topics included the Supervisory Board’s proposed resolution on the annual general meeting regard- ing the choice of independent auditor, examining the independence of the external auditor and the additional services performed by the auditor, grant- ing the audit contract to PwC, setting the key audit areas and discussing the risk management system and the included main risks, the effectiveness of the internal controlling and audit system, and the com- pliance system. Finally, the audit committee exam- ined the efﬁ ciency of its own work. The evaluation showed a high efﬁ ciency. During the ﬁ nancial year 2010, the investment committee met once in person and once in a tele- phone conference in which its members decided on the sale of a real estate portfolio and discussed the Company’s investment options. The nomination and remuneration committee, which also carries out the tasks of a nomination committee, met ﬁ ve times during the ﬁ nancial year 2010. A focus of the consultations was on the establishment of a new concept for the vari- able compensation of the members of the Manage- ment Board together with an external remuneration expert, the corresponding amendment of the serv- ice contracts as well as the variable compensation for the members of the Management Board. The nomination and remuneration committee provided the entire Supervisory Board with corresponding proposed resolutions. The nomination and remu- neration committee, furthermore, dealt with the approval of the consulting services of Freshﬁ elds Bruckhaus Deringer LLP and the new recommen- dation of the German Corporate Governance Code for speciﬁ cation of concrete goals for the composi- tion of the Supervisory Board. In addition, the Supervisory Board established a special committee in the ﬁ nancial year 2010: In September 2010, the entire Supervisory Board established a committee that was authorised to issue all necessary approvals and declarations within the framework of the execution of a capital increase in return for cash contribution in the amount of up to 10 % of the share capital under the exclusion of subscription rights. This special committee met in three telephone conferences in September 2010 and approved of the execution of a capital increase in return for cash contribution under the exclu- sion of subscription rights and all related acts and resolutions. Audit of the annual ﬁ nancial statements and consolidated ﬁ nancial statements PricewaterhouseCoopers Aktiengesellschaft Wirt- schaftsprüfungsgesellschaft, Berlin Branch, audited the ﬁ nancial statements and management report of alstria ofﬁ ce REIT-AG, as well as the consolidated ﬁ nancial statements, including the management report of the Group for the ﬁ nancial year running from January 1 until December 31, 2009, all pre- pared by the Management Board, and issued its unqualiﬁ ed opinion on these documents. The ﬁ nancial statements and management report of alstria ofﬁ ce REIT-AG, the consolidated ﬁ nancial statements including the management report of the Group, as well as the Management Board’s recom- mendation for the appropriation of the net proﬁ t were immediately presented to the members of the Supervisory Board after being prepared, as was the auditors’ report. The Supervisory Board exam- ined the documents provided by the Management Board in detail, both in its audit committee and at a plenary meeting. The auditors were present for the meeting of the audit committee, reported on the material ﬁ ndings of their audit (including the audit of the internal control and risk management system) and answered questions. The audit com- mittee prepared the examination of the Supervi- sory Board and, in the presence of the auditors of the ﬁ nancial statements of alstria ofﬁ ce REIT-AG and consolidated ﬁ nancial statements, reported to the plenary session. The plenary meeting exam- ined and discussed both the documents prepared alstria Financial Report 2010 Corporate governance 83 by the Management Board and the ﬁ ndings of the auditors. Finding no objections, it concurred with the results of the audit and approved the ﬁ nancial statements of alstria ofﬁ ce REIT-AG and the con- solidated ﬁ nancial statements. The ﬁ nancial state- ments are thus conﬁ rmed. The Supervisory Board also concurred with the recommendation for the appropriation of net proﬁ t. Furthermore, the Management Board also pre- sented the Supervisory Board with its report on the relationships with afﬁ liated companies for the ﬁ nancial year running from January 1, 2010 until December 31, 2010 pursuant to Section 312 of the German Stock Corporation Act, in which the Man- agement Board reports on the relationships with afﬁ liated companies. Likewise, Pricewaterhouse- Coopers Aktiengesellschaft Wirtschaftsprüfungs- gesellschaft, Berlin Branch, presented the Supervi- sory Board with its audit report on the dependency report. The auditors’ opinion is as follows: “On the basis of our dutiful audit and judgement we conﬁ rm that 1. the factual statements of the report are correct, 2. the consideration of the Company for the legal transactions stated in the report was not inad- equately high.” The Supervisory Board concurred with the Manage- ment Board’s dependency report and the related auditors’ report. After conducting its own exami- nation, the Supervisory Board concurred with the report notes of the Management Board pursuant to Section 312 paragraph 3 of the German Stock Corporation Act. The Supervisory Board found no objections. Corporate governance During the reporting period, the Supervisory Board also dealt with the issue of alstria ofﬁ ce REIT-AG fulﬁ lling the recommendations of the German Cor- porate Governance Code. The Management Board and the Supervisory Board last issued the annual declaration of compliance with the German Corpo- rate Governance Code in March 2011, in accord- ance with Section 161 of the German Stock Corpo- ration Act; it was subsequently made permanently available to shareholders on the Company web- site. In its declaration, the Management Board and Supervisory Board explained that most of the rec- ommendations of the German Corporate Govern- ance Code have been, or will be, implemented, as well as which recommendations were, or will not be, followed, and the reasons why not. In the ﬁ nancial year 2010 and thereafter, conﬂ icts of inter- est arose in two cases. The respective Supervisory Board members Dr Johannes Conradi and Daniel Quai informed the plenum of the conﬂ ict of inter- est and abstained from participating in the related discussions and voting on the related resolutions. The Supervisory Board delegated these issues to committees in which the respective member of the Supervisory Board does not participate. The Supervisory Board would like to thank all employees and the Management Board for their dedication and hard work in the ﬁ nancial year 2010. Hamburg, March 2011 Alexander Stuhlmann Chairman of the Supervisory Board 84 Corporate governance alstria Financial Report 2010 CORPORATE GOVERNANCE STATEMENT The Management Board and Supervisory Board of alstria ofﬁ ce REIT-AG are conscious of their respon- sibility for the corporate governance of the Com- pany, which is undertaken with due regard to the Company’s shareholders, employees and tenants. This sense of responsibility is expressed, among other things, in transparent corporate govern- ance with the aim of facilitating the conﬁ dence of alstria’s shareholders, employees, tenants and the public in the management and supervision of the Company. In this statement, the Management Board and Supervisory Board report on alstria ofﬁ ce REIT-AG’s corporate governance according to no. 3.10 of the German Corporate Governance Code (“Code”) and Section 289a of the German Com- mercial Code (HGB). German Corporate Governance Code and declaration of compliance Many of the principles of the most recent version of the German Corporate Governance Code (dated May 26, 2010) have already become part of our value-oriented corporate management, which are therefore stricter than the legal requirements. The principles and recommendations of the Govern- ment Commission appointed by the German Fed- eral Ministry of Justice contain internationally and nationally recognised standards for effective and responsible corporate management. The Company’s declaration of compliance with the recommendations of the German Corporate Governance Code is published on alstria’s web- site (www.alstria.com). After careful consideration, alstria chose not to follow the recommendations of the Code in regard to a few points. These points and the reasons for nonconformity are detailed in the declaration of compliance issued by the Man- agement Board and the Supervisory Board on March 3, 2011. Declaration of compliance dated March 3, 2011 The recommendations of the “Government Com- mission of the German Corporate Governance Code” as amended on May 26, 2010 and previ- ously in the version dated June 18, 2009, were complied with since the prior declaration of com- pliance, dated March 2, 2010 with the following exceptions. The Company intends to continue to comply with the recommendations of the Code as amended on May 26, 2010 to the same extent: Deductible for D&O insurance for the Supervisory Board, Section 3.8 The D&O insurance for the Supervisory Board of alstria ofﬁ ce REIT-AG does not include a deduc tible. The Management Board and Supervisory Board believe that the members of the Supervisory Board carry out their duties responsibly without any such deductible. Performance-related compensation for Supervisory Board members, Section 5.4.6 The members of the Supervisory Board do not receive any performance-related remuneration in addition to their ﬁ xed compensation. The Manage- ment Board and Supervisory Board believe that the members of the Supervisory Board carry out their duties responsibly without any such performance- related compensation. Discussion of the half-year and quarterly ﬁ nancial reports between the Supervisory Board or its audit committee and the Management Board prior to publication, Section 7.1.2 Prior to their publication, the half-year and quar- terly ﬁ nancial reports will be made available to the Supervisory Board. Furthermore, the ﬁ nancial reports will be discussed with the Supervisory Board in detail and soon after their publication. In the event that there are considerable differences to the budget or business plan authorised by the Super- visory Board, the Supervisory Board will have the opportunity to discuss the ﬁ gures with the Manage- ment Board before they are published. The Man- agement Board and Supervisory Board consider this approach appropriate and adequate. All other recommendations of the German Corpo- rate Governance Code dated May 26, 2010 and formerly in the version dated June 18, 2009 have been, or will be, fully implemented. alstria has appointed a corporate compliance ofﬁ cer within the Company, who will report any changes of the Code to the Management Board and the Super- visory Board at least once per year and whenever necessary. In this way, alstria ensures consistent compliance with these principles. Analysis, super- vision and transparency are the tools with which alstria lays the foundation for fair and efﬁ cient cor- porate management. They will also remain the key criteria in future. alstria Financial Report 2010 Corporate governance 85 The Supervisory Board appoints the members of the Management Board and monitors and advises the Management Board on management issues. The Management Board involves the Supervisory Board in any decisions of fundamental importance for the Company. The rules of procedure for the Supervi- sory Board stipulate that certain, signiﬁ cant busi- ness transactions by the Company are subject to the approval of the Supervisory Board, for example acquiring or disposing of real estate property for a consideration of more than EUR 30 m, entering ﬁ nancing agreements with a volume of more than EUR 30 m, entering or prematurely terminating leasing contracts with an annual consideration of more than EUR 2 m, or investing in Company assets (modernisation measures) with an annual total sum of more than EUR 2 m when such investments were not already included in the budget approved by the Supervisory Board. The Supervisory Board reports on its activity in the ﬁ nancial year 2010 in its report to the ﬁ nancial general meeting on pages 78 to 81 of the ﬁ nancial report. Composition of the Supervisory Board In accordance with the articles of association, the Supervisory Board comprises six members. The following are members of the Supervisory Board at present: Alexander Stuhlmann as Chair of the Supervisory Board, John van Oost as Vice-chair, as well as Dr Johannes Conradi, Roger Lee, Richard Mully and Daniel Quai. The terms of ofﬁ ce of all members of the Supervisory Board expire at the end of the general meeting which resolves to discharge them in respect to their activities for the ﬁ nancial year 2010. Working methods of the Management Board and the Supervisory Board The Management Board and the Supervisory Board cooperate closely with conﬁ dence in the interest of the Company. The chair of the Supervisory Board has regular contact with the Management Board. The Management Board has two members: Olivier Elamine as the Chief Executive Ofﬁ cer and Alexander Dexne as the Chief Financial Ofﬁ cer. The Management Board is responsible for running alstria in the interest of the Company with the aim of sustainably increasing the Company’s value. It sets the business targets and – in conjunction with the Supervisory Board – the strategic direction of the Company. The work of the Management Board and the allocation of responsibilities between the individual members of the Management Board are stipulated in the rules of procedure and the role sort for the Management Board. The members of the Management Board are obligated to immediately disclose any conﬂ icts of interest to the Supervisory Board. The members of the Management Board may only conduct secondary activities, particularly membership in the Supervisory Boards of compa- nies not afﬁ liated with the Group, with the approval of the Supervisory Board. The members of alstria’s Management Board had no conﬂ icts of interest in the reporting year. The members of the Manage- ment Board serve on no more than three Super- visory Boards of listed companies outside of the Group or in Supervisory Boards of companies with comparable requirements. Major business transac- tions between the Company and members of the Management Board, or with any persons or com- panies in close association with them, require the approval of the Supervisory Board. All such busi- ness transactions must be concluded at standard commercial conditions. There were no such con- tracts during the reporting period. The Manage- ment Board pays attention to diversity in ﬁ lling its management positions and aims to adequately con- sider women for these positions. As of December 31, 2010, 50 % of the management positions at alstria were held by female employees. 86 Corporate governance alstria Financial Report 2010 No former members of the Management Board sit on the Supervisory Board. The Supervisory Board is composed of members who have the necessary knowledge, competence and professional experi- ence to properly carry out their duties. On Novem- ber 23, 2010, with due consideration of the speciﬁ c situation of the Company, the Supervisory Board of alstria ofﬁ ce REIT-AG speciﬁ ed the following goals for the composition of the Supervisory Board which are to be considered in its nominations to the share- holders in general meeting: > The members of the Supervisory Board as a group should possess the diversity of knowledge, com- petence and experience necessary to successfully carry out their duties. > At least one member of the Supervisory Board should have notable experience gained abroad. > At least one member of the Supervisory Board should not serve as a consultant or managing body at principal tenants, creditors or other busi- ness partners of the Company. > At least one independent member of the Super- visory Board must have expert knowledge in the area of ﬁ nancial accounting or auditing of ﬁ nan- cial statements. > Within the next two appointment periods, at least one member of the Supervisory Board should be female. > Members of the Supervisory Board should, as a rule, be no older than 70 years old. It will need to be noted in future nominations to the shareholders in general meeting that the goals speciﬁ ed by the Supervisory Board regarding the representation of women are currently not yet met. The other goals have, however, currently been met. Supervisory Board committees The Supervisory Board has formed three standing committees. Each committee has its own rules of procedure to specify the concerns and tasks of the committee. The audit committee monitors the Company’s ﬁ nancial reporting process, engages the independ- ent auditors to prepare audit reports, determines the key audit areas and the independent audi- tors’ compensation, and is responsible for issues surrounding risk management, internal control and compliance. The audit committee consists of Dr Johannes Conradi, as Chairman, as well as Roger Lee and Daniel Quai. The investment committee decides whether the Supervisory Board will approve the acquisition or disposal of real estate property or other assets worth between EUR 30 m and EUR 30 m. The entire Super- visory Board is needed to approve such transactions if the value is greater than this amount. The invest- ment committee consists of John van Oost, as chair, as well as Richard Mully and Alexander Stuhlmann. The tasks of the nomination and remuneration committee, which also carries out the function of a nomination committee, include preparations for the appointment and dismissal of members of the Management Board, for the Management Board’s compensation system and for the total remuneration of individual members of the Management Board, the resolution of, or amendments to, the rules of procedure of the Management Board, as well as the approval of certain other activities and primary contracts of members of the Management Board. It is also responsible for entering into, amending, extending and terminating contracts with Man- agement Board members, as well as for decisions regarding compensation beyond the terms of the contracts. Finally, the nomination and remunera- tion committee prepares the resolutions of the Supervisory Board regarding the proposal of the appointment of suitable Supervisory Board mem- bers at annual general meetings. The nomination and remuneration committee consists of Alexander Stuhlmann, as chair, as well as Richard Mully and John van Oost. alstria Financial Report 2010 Corporate governance 87 In the ﬁ nancial year 2010, the Supervisory Board formed a special committee for the execution of a capital increase as of September 23, 2010. The spe- cial committee consisted of John van Oost as chair, as well as Dr Johannes Conradi and Richard Mully. For information on the activities of the commit- tees of the Supervisory Board during the ﬁ nancial year 2010, see its report to the general meeting on pages 78 to 81 of the ﬁ nancial report. Remuneration of the Management Board and Supervisory Board The compensation system for the Management Board and the Supervisory Board is laid out in the remuneration report for the ﬁ nancial year 2010. The remuneration of each member of the Management Board and the Supervisory Board is also broken down there for the ﬁ nancial years 2009 and 2010. By way of a resolution of the shareholders in general meet- ing on January 16, 2010, the shareholders approved the new remuneration system for the members of the Management Board with a large majority. Stock option program and similar securities-oriented incentive systems Stock option program and Long Term Incentive Plan In March 2007, the Supervisory Board adopted a stock option program for the members of the Man- agement Board and issued a ﬁ rst and only tranche of stock option rights to the Management Board pursuant to the authorisation granted by the share- holders in general meeting on March 15, 2007. The stock option program was replaced in March 2010 by a Long Term Incentive Plan as a new long term remuneration component, but the program contin- ues in the scope of the tranche granted in 2007. Within the framework of the Long Term Incentive Plan, the members of the Management Board will be issued virtual shares with a four year term each year starting with the ﬁ nancial year 2010. The stock option program and Long Term Incentive Plan are described in the remuneration report on pages 90 to 93. Employee proﬁ t participation program The employee proﬁ t participation plan regulates the granting of convertible proﬁ t participation rights to employees of alstria and companies directly or indi- rectly controlled by alstria. Members of the Man- agement Board are not considered employees for the purposes of this plan. The nominal value of each convertible proﬁ t partici- pation certiﬁ cate is EUR 1. The plan stipulates that a maximum of 500,000 convertible proﬁ t partici- pation certiﬁ cates can be issued for a total nominal value of EUR 500,000. To date, 220,100 certiﬁ cates have been issued. Each convertible proﬁ t participation certiﬁ cate can be converted into an alstria bearer share once the share price exceeds the price on the day the certiﬁ - cate was issued by 5 % or more on at least seven non-consecutive trading days. Conversion is only carried out on predeﬁ ned dates and only when the subscriber pays the conversion price and is still employed at alstria or one of its subsidiaries on the date of conversion. The maximum term for a con- vertible proﬁ t participation certiﬁ cate is ﬁ ve years. Presumably 106,000 convertible proﬁ t participation rights will be converted into shares of the Company for the ﬁ rst time in June 2011. Directors’ dealings – securities transactions subject to reporting requirement The Management Board and Supervisory Board of alstria ofﬁ ce REIT-AG, as well as related parties (family members) are required, pursuant to Section 15a of the German Securities Trading Act, to notify the Company of their own transactions involving Company shares. Every buy or sale transaction related to alstria shares (e.g. the purchase or sale of options on alstria shares) has to be reported. The Company shall be informed of such transac- tions within ﬁ ve working days and publish them immediately. This only applies when the total of the transactions is EUR 5,000 or more within one calendar year. 88 Corporate governance alstria Financial Report 2010 The following transactions were reported to alstria in 2010: Name of person subject to the disclosure requirement Olivier Elamine Alexander Dexne Position Member of the Manage- ment Board Member of the Manage- ment Board Classiﬁ - cation of ﬁ nancial instru ment ISIN Trans- action Share DE000A0LD2U1 Buy Place XETRA Share DE000A0LD2U1 Buy XETRA Trans- action date Price per share (EUR) Number of shares Total value (EUR) Apr. 7, 2010 Apr. 7, 2010 8.47 10,500 88,935 8.55 8,500 72,670 These transactions were the transfer of Company shares as performance incentives for the ﬁ nan- cial year 2009. The members of the Management Board each invested approx. 25 % of their perform- ance incentives in shares of the Company. Share ownership by members of Manage- ment Board and Supervisory Board Section 6.6 of the German Corporate Govern- ance Code recommends indicating the ownership of Company shares or related ﬁ nancing instru- ments by members of the Management Board and Supervisory Board if such ownership directly or indirectly exceeds 1 % of the shares issued by the Company. If the total shares owned by all members of the Management Board and Supervisory Board together exceed 1 % of the total shares issued by the Company, the total share ownership is to be broken down by Management Board and Super- visory Board. No member of the Management Board or Super- visory Board of alstria ofﬁ ce REIT-AG directly or indirectly owns more than 1 % of the subscribed capital of the Company. The total share ownership of all members of the Management Board and the Supervisory Board does not exceed 1 % of the total shares issued by the Company. Relationship to the shareholders of the Company alstria ofﬁ ce REIT-AG respects the rights of its shareholders and makes best efforts to guarantee the exercise of those rights to the extent stipulated by law or the bylaws. In particular, these include the right to freely purchase and sell shares, appropri- ate access to information, an adequate number of voting rights per share (one share – one vote) and participation in our annual general meeting. Share- holders have the possibility of exercising their vot- ing rights personally or by authorised representative at the general meeting, or sending voting instruc- tions to their proxies. The invitation to the general meeting includes voting instructions. The articles of association currently do not stipulate an option to vote by mail. Shareholders already have the option of voting before the general meeting by authorising a proxy in such that the additional option of vot- ing by mail would not facilitate the exercise of the shareholders’ rights. After the shareholders in general meeting in 2008 approved the provision of information to share- holders electronically, it is now possible to send invitations and documents for general sharehold- ers’ meetings to shareholders electronically upon request. The invitation and the documents to be made available for viewing prior to the upcoming general meetings in accordance with the provisions of law will be published together with additional documents pursuant to Section 124a of the Ger- man Stock Corporation Act and the agenda on the Company website. The results of the votes will like- wise be published on the website of the Company following the general meeting. alstria Financial Report 2010 Corporate governance 89 Communication with the public In sharing information with people outside of the Company, the Management Board follows the principles of transparency, promptness, openness, clarity and equal treatment of shareholders. In par- ticular, alstria informs its shareholders and the inter- ested public about the situation of the Company and signiﬁ cant business events through ﬁ nancial reports, analyst and press conferences, press and ad-hoc announcements and the general meeting. The website of alstria includes information on the Company and its shares, especially the ﬁ nancial reports, share price tracking and announcements about the acquisition or disposal of Company shares or related ﬁ nancing instruments pursuant to Section 15a of the German Securities Trading Act. Moreover, alstria’s ﬁ nancial reports and web- site include a ﬁ nancial calendar which indicates all dates of importance to shareholders. All announce- ments and information is additionally published in English. The Annual Document (pursuant to Sec- tion 10 of the German Securities Prospectus Act) includes a detailed list of all capital market-related announcements issued in 2010; it can be found on our website (www.alstria.com). Financial reporting and auditing During the ﬁ nancial year, alstria regularly informs shareholders and third parties by publishing its consolidated, half-year and quarterly financial statements. The consolidated ﬁ nancial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). For legal rea- sons (calculating dividends, creditor protection), ﬁ nancial statements for alstria ofﬁ ce REIT-AG are also prepared in accordance with the German Com- mercial Code (HGB). The consolidated ﬁ nancial statements and the ﬁ nancial statements of alstria ofﬁ ce REIT-AG are audited by both the independent auditor selected by the general meeting, and by the Supervisory Board. The audit committee of the Supervisory Board appoints an external auditing ﬁ rm, after examining its independence, to audit the ﬁ nan- cial statements and negotiates the auditing fees. PricewaterhouseCoopers Aktiengesellschaft Wirt- schaftsprüfungsgesellschaft, Berlin, was appointed to audit the annual and half-year ﬁ nancial state- ments of alstria ofﬁ ce REIT-AG and of the Group for the ﬁ nancial year 2010. The auditors partici- pate in the meetings of the audit committee and the Supervisory Board in plenum, to advise on the consolidated ﬁ nancial statements and the ﬁ nancial statements of alstria ofﬁ ce REIT-AG, and to present the key ﬁ ndings of the audit. Compliance In accordance with Section 4.1.3 of the German Corporate Governance Code, the Supervisory Board is responsible for ensuring compliance with the legal provisions and Company guidelines throughout all of the consolidated companies. The good reputa- tion of alstria and the trust of its shareholders, ten- ants and employees depend entirely on the behav- iour of each individual employee. For this reason, alstria drew up a code of conduct, listing guidelines for behaviour and orientation for resolving conﬂ icts (e.g. conﬂ icts of interest), thereby serving as a model of correct behaviour for all employees of the Group. The guidelines are pub- lished on our website (www.alstria.com). alstria set up a compliance organisation to commu- nicate the values inherent in the code of conduct and Company guidelines, and to monitor com- pliance with these values. The compliance ofﬁ cer is responsible for communicating these values by answering questions on the implementation of the code and through in-house training for all employ- ees. Compliance is monitored through colleagues, supervisors and the compliance ofﬁ cer, as well as via regular investigation by auditors. alstria has also set up a hotline through which employees can anonymously report any violations of the code of conduct or the Company-internal guidelines. Fur- thermore, the Management Board regularly dis- cusses Company compliance with the Supervisory Board’s audit committee. Violations of the code of conduct will not be toler- ated; they will be fully investigated and the viola- tors punished. This can be anything from discipli- nary measures to dismissal, a claim for damages or even prosecution. 90 Corporate governance alstria Financial Report 2010 REMUNERATION REPORT * Management Board remuneration The remuneration system for the members of the Management Board is determined by the Supervi- sory Board and is reviewed regularly. In its meet- ing in March 2010, the Supervisory Board resolved, as recommended by the remuneration expert, to amend the remuneration system and the serv- ice contracts of the members of the Management Board in accordance with the new legal require- ments of the German Act on Appropriateness of the Management Board Compensation (VorstAG). The Supervisory Board is of the opinion that this remu- neration system provides adequate remuneration for the members of the Management Board, which is based on customary market terms and conditions and, in particular, also takes account of the last- ing success of the company. The remuneration sys- tem for the members of the Management Board described below was approved by the shareholders in general meeting for the ﬁ nancial year 2009 by a large majority. In the new remuneration system, the criteria for determining the appropriateness of the remunera- tion of the members of the Management Board are the duties of each individual Management Board member, his or her personal performance, the ﬁ nan- cial situation, the success and future prospects of the company, as well as the customary practice regard- ing remuneration relative to its peer companies and the remuneration structure of the Company. The remuneration structure, furthermore, consists of a ﬁ xed basic salary, a short term and a long term variable component and ancillary beneﬁ ts (beneﬁ ts in kind) for each Management Board member. The majority of the remuneration is made up of the vari- able components which each are partially or pri- marily based on several years of assessment. Limits were introduced for extraordinary developments. The ﬁ xed remuneration is a basic salary independ- ent of performance which is paid as salary on a prorated basis each month. The ﬁ xed remuneration amounts to approx. 40 % of the designated total remuneration without ancillary beneﬁ ts. The short term variable remuneration (Short Term Incentive or STI) is determined for each year on the basis of a performance target, the Budgeted Funds from Operations (FFO). The amount of the Short Term Incentive depends on the degree to which the target is reached, whereby the target value must be met by at least 50 % for the incentive to be paid out and by no more than a maximum of 150 % (cap). The individual performance of each Manage- ment Board member will be taken into account in a multiplier (0.8 to 1.2). The maximum amount to be paid is limited by a cap. Only 75 % of the perform- ance incentive will be paid to a Management Board member in cash. A total of 25 % of the perform- ance incentive will be converted to virtual shares, which are subject to a minimum vesting period of two years. The number of virtual shares granted is calculated from the amount corresponding to 25 % of the Short Term Incentive divided by the share price of one alstria share at the time, which is cal- culated on the basis of one reference period. The virtual shares will be converted into a cash amount after the expiry of the vesting period. This cash amount is calculated based on the number of virtual shares multiplied by the share price of one alstria share at the time, and is calculated on the basis of a reference period. This component of the remu- neration amounts to approx. 20 % of the prescribed total remuneration without ancillary beneﬁ ts. A new performance share plan (Long Term Incentive Plan, LTI Plan) replaces the previous stock option program for the Management Board as a long term variable remuneration component. Virtual shares with a four-year term are issued to the members of the Management Board each year. The number of virtual shares to be granted results, in principle, from a target value divided by the share price of one alstria share upon the issue of the virtual share (calculated on the basis of a reference period). The amount of virtual shares issued from the LTI plan will be adjusted at the end of each performance period depending on the degree to which the target is met. A total of 50 % of the performance targets determined by the Supervisory Board is the absolute total shareholder return derived from the Weighted Average Cost of Capital (WACC) and 50 % is the relative total shareholder return calculated on the * This remuneration report forms an integral part of the audited Group management report or notes to the annual ﬁ nancial statements and also forms part of the corporate governance report. alstria Financial Report 2010 Corporate governance 91 basis of the reference index EPRA NAREIT Europe Ex UK. The virtual shares will be converted into a one-time cash payment after the expiry of the term. The amount will be calculated by the number of vir- tual shares after adjustment multiplied by the share price of one alstria share at the time (calculated on the basis of a reference period) and a multiplier (0.8 to 1.2) which takes into consideration the individ- ual performance of the Management Board mem- ber. Just as with the Short Term Incentive, a certain degree of the target must be reached in order for a payment to be made. Furthermore, the amount of the payment is also limited by a cap in the LTI plan. This component of the remuneration amounts to approx. 40 % of the planned total remuneration without ancillary beneﬁ ts. The members of the Management Board, further- more, receive ancillary beneﬁ ts in the form of ben- eﬁ ts in kind which essentially consist of insurance premiums, pension beneﬁ ts and the private use of a company car. As a component of remuneration, each individual member of the Management Board is to pay taxes on such ancillary beneﬁ ts. Each member of the Management Board is, in principle, equally entitled to such ancillary beneﬁ ts though the amount varies in accordance with each personal situation. For the purpose of pension, the Company grants the members of its Management Board an annual amount, i. e. EUR 75,000 for Olivier Elamine and EUR 50,000 for Alexander Dexne, each pay- able in prorated monthly instalments. The total remuneration for the active members of the Management Board in the last ﬁ nancial year amounted to EUR 2,453 k. The members of the Management Board did not receive any advance salary payments, loans or pension beneﬁ ts. A total of approximately 25 % of the incentive pay- ment was paid out as shares in the company for the ﬁ nancial year 2009. The members of the Man- agement Board were promised short term variable remuneration at the terms and conditions of the new Short Term Incentive Plan for the ﬁ rst time for the ﬁ nancial year 2010. The target of the commit- ment amounts to EUR 220 k for Olivier Elamine and EUR 180 k for Alexander Dexne. The members of the Management Board, furthermore, received a ﬁ rst tranche of the new long term remunera- tion component in the ﬁ nancial year 2010. Mr Ela- mine was issued 54,455 virtual shares with a tar- get cash value of EUR 440 k and Mr Dexne was issued 44,554 virtual shares with a target cash value of EUR 360 k. Former members of the Manage- ment Board received payments in the ﬁ nancial year 2010 totalling EUR 5 k. No provisions needed to be set aside for former members of the Management Board. The legal speciﬁ cations for the self-deducti- ble of the members of the Management Board for D&O insurance were implemented with effect as of July 1, 2010. 92 Corporate governance alstria Financial Report 2010 INDIVIDUAL MANAGEMENT BOARD REMUNERATION 2010 EUR k Management Board member Olivier Elamine, Chief Executive Ofﬁ cer Alexander Dexne, Chief Financial Ofﬁ cer Former members of the Management Board Total Long-term variable remun - e ration Ancillary beneﬁ ts 3 Total remune- ration Fixed amount Short-term variable remuneration 1 Cash component Share component 440 360 0 800 300 240 0 540 90 72 0 162 440 2 360 2 0 800 93 58 5 156 1,363 1,090 5 2,458 1 For performance in 2009, granted according to old remuneration system for the last time. 2 Virtual shares with speciﬁ ed cash value and four-year term. 3 Includes beneﬁ ts for company car, insurance and pension. Due to the change in the remuneration system in the ﬁ nancial year 2010, in accordance with the new legal requirements of the German Manage- ment Board Remuneration Appropriateness Act ( VorstAG), the numbers in the table are hardly com- parable and include variable remuneration elements for performance in the ﬁ nancial year 2009 (short term variable remuneration) and the new long term variable remuneration element (virtual shares with a four year term) granted for the ﬁ rst time in the ﬁ nancial year 2010. Therefore, the total remunera- tion for the ﬁ nancial year 2010 is hardly compara- ble to the total remuneration for the previous ﬁ nan- cial year. Due to the expiring short term incentive plan, the generally intended allocation of the remu- neration elements without ancillary beneﬁ ts under the new remuneration system (40 % ﬁ xed, 20 % short term variable, 40 % long term variable) is not yet existent in the ﬁ nancial year 2010. INDIVIDUAL MANAGEMENT BOARD REMUNERATION 2009 EUR k Management Board member Olivier Elamine, Chief Executive Ofﬁ cer Alexander Dexne, Chief Financial Ofﬁ cer Former members of the Management Board Total Long-term variable remun- eration Ancillary beneﬁ ts 2 Total remune- ration Fixed amount Short-term variable remuneration 1 Cash component Share component 438 360 0 798 262.5 87.5 150 0 50 0 412.5 137.5 0 0 0 0 94 74 13 181 882 634 13 1,529 1 For performance in 2008. 2 Includes beneﬁ ts for company cars, insurance and pensions. If membership of the Management Board is ter- minated, members have agreed to a post-con- tractual non-compete agreement of up to twelve months, which may be waived by alstria with a six months’ notice period. As long as alstria exercises alstria Financial Report 2010 Corporate governance 93 options may only be exercised if the current share price of the Company exceeds the exercise price by 20 % or more on at least seven non-consecu- tive trading days of the Frankfurt Stock Exchange before the start of the respective exercise period. The performance target for the 2007 stock options amounts to EUR 19.20. The stock options may only be exercised after expiry of a vesting period of two years and during one of the four exercise periods of each year. The exercise period amounts to 30 days beginning on the date of publication of the Com- pany’s results for the ﬁ rst, second and third quar- ters and the date of the Company’s annual general meeting. There are no cash settlement alternatives. Remuneration of the Supervisory Board The total remuneration for the Supervisory Board in 2010 amounted to EUR 305 k. The members of the Supervisory Board each receive an annual ﬁ xed remuneration in the amount of EUR 40 k. The chair- man of the Supervisory Board also receives an addi- tional annual amount of EUR 20 k and the deputy chairman receives an additional EUR 10 k. Members who only sit on the Supervisory Board for part of a year receive pro rata remuneration. Membership of the audit committee entails separate remuneration of EUR 10 k and the chair of the audit commit- tee receive EUR 15 k. Membership in other com- mittees does not give entitlement to any additional remuneration. No advance remuneration payments were made to members of the Supervisory Board, nor were any loans made. No remuneration was paid out for individual services. this post-contractual non-compete obligation, the members of the Management Board shall receive a compensation payment for this period equivalent to their last ﬁ xed salary. Beneﬁ ts to be paid by the company if the appointment is terminated by the death of the board member amount to the ﬁ xed salary for the month in which the member died and for the following three months. The incentive pay- ment for this period shall be paid pro rata up to and including the month of death. Stock option scheme 2007 On March 27, 2007, the Supervisory Board estab- lished a stock option program for members of the Management Board (hereinafter, the “stock option scheme 2007”), stipulated the details of this stock option scheme based on the authorisation by the annual general meeting of March 15, 2007, and issued the ﬁ rst tranche of stock options to members of the Management Board. No stock options were granted in 2008, 2009 or 2010. The stock option scheme 2007 has, meanwhile, been replaced by a new long term remuneration component but will continue in the scope of the tranche granted in 2007. No expenses arose in the ﬁ nancial year 2010 from the stock options granted in the ﬁ nancial year 2007. The details of the stock option program 2007 are as follows: The exercise price for the stock options granted in 2007 is EUR 16. The term of the stock options is seven years from the time they are granted. The INDIVIDUAL SUPERVISORY BOARD MEMBER REMUNERATION EUR k Supervisory Board member Supervisory Board membership Audit committee membership Remuneration for 2009 (EUR k) Remuneration for 2010 (EUR k) Alexander Stuhlmann Chairman John van Oost Deputy Chairman Dr Johannes Conradi Roger Lee Richard Mully Daniel Quai Total Member Member Member Member n.a. n.a. Chairman Member n.a. Member 60 57.5 55 36.6 40 50 299.1 60 50 55 50 40 50 305 94 REIT disclosures alstria Financial Report 2010 REIT DISCLOSURES REIT DECLARATION Statement of the Management Board Regarding the compliance with the requirements of Section 11 to 15 REIT Act (Real Estate Invest- ment Trust Law) as per December 31, 2010, we declare the following in relation with our ﬁ nancial statement according to Section 264 HGB (German Commercial Code) and our consolidated ﬁ nancial statement according to Section 315a HGB as per balance sheet date: 1. As per balance sheet date, 40.86 % of alstria’s shares were free ﬂ oat according to Section 11 paragraph 1 REIT Act. This was stated to the German Federal Financial Supervisory Author- ity (BaFin). 2. In accordance with Section 11 paragraph 4 REIT Act, as per balance sheet date, no share- holder owned directly 10 % or more of our shares or shares of such an amount, that he holds 10 % or more of the voting rights. 3. In relation to the sum of the assets pursuant to the consolidated statements less the distri bution obligation and the reserves pursuant to Sec- tion 12 paragraph 2 REIT Act a) as per the balance sheet date the immovable assets amounted to EUR 1,389,885 k which equals to 90.12 % of the assets, therefore at least 75 % of the assets belong to the immov- able assets; b) the assets belonging to the property of REIT service companies which were included in the consolidated statements amount to a maxi- mum of 20 %, namely EUR 277 k and there- fore 0.02 %. 4. In relation to the sum of the sales revenue plus the other earnings from immovable assets pur- suant to Section 12 paragraph 3 and 4 REIT Act a) for the ﬁ nancial year 2010, the entire sales revenues of the Group plus other earnings from immovable assets amounted to EUR 98.4 m. This equals 100 % of total revenues plus other earnings from immovable assets; b) the sum of the sales revenue plus the other earnings from immovable assets of REIT serv- ice companies amounted to EUR 163 k in the ﬁ nancial year 2010. This equals 0.17 % of total revenue plus other earnings from immovable assets. 5. In 2010 a dividend payment of EUR 28.0 m for the prior ﬁ nancial year was distributed to the shareholders. The ﬁ nancial year 2009 did not result in a net income according to commer- cial law pursuant to Section 275 of the German Commercial Code. 6. alstria ofﬁ ce REIT-AG’s dividend does not derive from already taxed parts of the proﬁ t. 7. Since 2007 the Group has realised 20.34 % of the average portfolio of its immovable assets and therefore did not trade with real estate according to Section 14 REIT Act. 8. On balance sheet date the Group’s equity as shown in the consolidated statements accord- ing to Section 12 paragraph 1 REIT Act was EUR 692.4 m. This equals to 49.8 % of the value of the immovable assets which are shown in the consolidated statements in conformance with Section 12 paragraph 1 REIT Act. Hamburg, February 18, 2011 Olivier Elamine CEO alstria ofﬁ ce REIT-AG Alexander Dexne CFO alstria ofﬁ ce REIT-AG alstria Financial Report 2010 REIT disclosures 95 REIT MEMORANDUM Auditor’s Memorandum according to Section 1 (4) of the Act on German Real Estate Stock Corporations with Listed Shares (REIT Act) To alstria ofﬁ ce REIT-AG, Hamburg As auditor of the ﬁ nancial statement and the consolidated ﬁ nancial statement of alstria ofﬁ ce REIT-AG, Hamburg, for the ﬁ scal year from Jan- uary 1, to December 31, 2010, we have audited the information given in the attached declaration of the Management Board members for the com- pliance with the requirements of Section 11 to 15 of the REIT Act and the composition of the pro- ceeds concerning the pre-taxation of proceeds according to Section 19 (3) and 19a REIT Act as of December 31, 2010 (hereinafter referred to as ”REIT declaration“). The information given in the REIT declaration is in the responsibility of the Man- agement Board of the company. Our responsibility is to express an opinion on the information given, based on our audit. We conducted our audit considering the audit guid- ance promulgated by the Institut der Wirtschaft- sprüfer (Institute of Public Auditors in Germany) (IDW): Particularities concerning the audit of a REIT stock corporation according to Section 1 (4) REIT Act, a pre-REIT stock corporation according to Sec- tion 2 Clause 3 REIT Act and the audit according to Section 21 (3) Clause 3 REIT Act (IDW PH 9.950.2). Therefore we have planned and performed our audit to make a judgement with reasonable assur- ance if the free ﬂ oat ratio and the maximum stock ownership per shareholder according to Section 11 (1) and (4) REIT Act agrees with the announce- ments due to Section 11 (5) REIT Act as of Decem- ber 31, 2010 and if the provided information con- cerning the requirements of Section 12 to 15 REIT Act and the composition of the proceeds concern- ing the pre-taxation of proceeds according to Sec- tion 19 a REIT Act is appropriate. It was not part of our engagement to fully assess the companies tax assessments or position. Within our audit pro- cedures we compared the information concerning the free ﬂ oat ratio and the maximum stock own- ership per shareholder according to Section 11 (1) and (4) REIT Act provided within the REIT-declara- tion with the announcements due to Section 11 (5) REIT Act as of December 31, 2010 and agreed the provided information concerning the requirements of Section 12 to 15 REIT Act with the information disclosed in the ﬁ nancial statement and the consoli- dated ﬁ nancial statements of the company. Further- more we tested the adjustments made to the valu- ation of immovable assets held as investment for their compliance with Section 12 (1) REIT Act. We believe that our audit provides a reasonable basis for our opinion. In our opinion based on the ﬁ ndings of our audit, the information given in the REIT declaration con- cerning the free ﬂ oat ratio and the maximum stock ownership per shareholder due to Section 11 (1) and (4) REIT Act agrees with the announcements made according to Section 11 (5) REIT Act as of December 31, 2010 and the information provided concerning the compliance with Section 12 to 15 REIT Act and the composition of the proceeds con- cerning the pre-taxation of proceeds according to Section 19a REIT Act are appropriate. This memorandum is solely provided for submission to the tax authorities of the city of Hamburg within the tax declaration according to Section 21 (2) REIT Act. Berlin, February 23, 2011 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft sgd. Gregory Hartman Wirtschaftsprüfer (German Public Auditor) sgd. i. V. Dr. Kay Lubitzsch Wirtschaftsprüfe (German Public Auditor) 96 Other information alstria Financial Report 2010 OTHER INFORMATION GLOSSARY Annual ﬁ nancial accounts The annual ﬁ nancial accounts include the balance sheet and the proﬁ t and loss account of a com- pany. In respect of a joint stock company, these are prepared by the Management Board, audited by a chartered accountant for compliance and checked by the Supervisory Board. Annual General Meeting At least once a year the shareholders of a joint stock company convene for the Annual General Meet- ing. This meeting elects the Supervisory Board and the balance sheet auditor. It passes resolutions on the appropriation of the annual proﬁ t shown, on measures for raising capital, on changes to the Arti- cles of Association and other fundamental issues; it is the only body which can approve the decisions made by the Supervisory Board and the Manage- ment Board. Asset management Value-driven running and/or optimisation of real estate investments through letting manage- ment, refurbishment, repositioning and tenant management. Bearer share A share whereby the rights of the holder can be exercised. In this instance, the company does not know who its shareholders are. Cash ﬂ ow Indicator that shows the net inﬂ ow of cash from sales activities and other current activities during a given period. CMBS (commercial mortgage-backed securities) Securities or loans that are backed by commercial real estate mortgages. CO2 Carbon dioxide, a gas produced primarily through the combustion of fossil fuels. It is believed to be the main cause of climate change. Consolidated statement of ﬁ nancial position Balancing assets against liabilities, that is, “debits” and “credits”, at the end of the ﬁ nancial year. As a result one can see the net asset position of the joint stock company. A component part of the annual ﬁ nancial statements. Corporate Governance An instrument which is required by professional ﬁ nancial analysts and investors when performing modern company analyses. It can also redress cur- rent deﬁ cits in the traditional valuation processes particularly in respect of growth values. Compe- tences, communications and control by the deci- sion-making committees for companies quoted on the stock exchange are viewed and inspected. These supposed soft facts are of crucial importance when evaluating a company with increasingly non- material production processes. DAX The German Share Index (DAX) reﬂ ects the value trend of the 30 most important German shares. In addition to the market prices, the dividend pay- ments are also included here. DAX began at the end of 1987 with a value of 1,000. Derivative ﬁ nancial instruments Derivative ﬁ nancial instruments or derivatives are contracts to hedge and compensate ﬁ nancial risk positions. The pricing is based on a market-linked underlying value (e.g. interest rate, shares or indices). DGNB (Deutsche Gesellschaft für Nachhaltiges Bauen) The German Sustainable Building Council estab- lishes a system for the assessment and the certiﬁ ca- tion of sustainable buildings. Dividend Each shareholder is entitled to a share in the annual proﬁ t of their company which is paid out. This will correspond to the amount of their shareholding. This part of the proﬁ t is called a dividend. alstria Financial Report 2010 Other information 97 EPRA index The EPRA index is the well-known international index which tracks the performance of the largest European and North American listed property com- panies. The European Public Real Estate Associa- tion (EPRA) is an organisation that represents the interests of the major European property manage- ment companies and supports the development and market presence of European public property companies. Its members include companies such as alstria ofﬁ ce REIT-AG, ﬁ nancial analysts, investors, advisors and auditors. Fair value (or open market value (OMV)) The estimated amount for which a property should exchange on the date of valuation between a will- ing 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 fair value for alstria’s investment properties is reviewed regularly by external appraisers. FFO (funds from operations) alstria calculates FFO as EBT (Earnings before Taxes), increased/decreased by the net loss/gain from fair value adjustment on investment property, increased/decreased by the net loss/gain from fair value adjustment on ﬁ nancial derivatives, reduced/ increased by the proﬁ t/loss on disposal of invest- ment property, increased/decreased by the net loss/ gain from fair value adjustments on joint ventures, increased/decreased by non-recurring items, plus non-cash-expenses and less cash taxes paid. G-REIT Real Estate Investment Trusts are public listed com- panies, fully tax transparent, which solely invest in properties. ICR (interest coverage ratio) The interest coverage ratio/interest service cover- age ratio is a commonly used ratio which belongs in a loan agreement to the debtor’s contractual assur- ances (covenants) for the duration of the loan and which is also used to assess the ability to service interest payments. It indicates to which propor- tion the interest payments have to be/are covered by the earnings of the Company or the respective portfolio (sometimes after allowance for operating and/or maintanance expenses) by the earnings of the investment property. IFRS IFRS are adopted by the International Accounting Standards Board (IASB). The objective is to achieve uniformity and transparency in the accounting principles that are used by companies and other organisations worldwide for the ﬁ nancial report- ing. IFRSs have applied to listed companies since January 1, 2005. Investment property Property, land and buildings, which are held as ﬁ nancial investments to earn rents or for growth, and not used for the company’s own purpose. The value of the investment property is determined according to IAS 40. 98 Other information alstria Financial Report 2010 Joint venture Legally independent entity formed between two or more parties to undertake economic activ- ity together. It is jointly controlled by the parties under a contractual arrangement whereby decisions on ﬁ nancial and operating policies essential to the operation, performance and ﬁ nancial position of the venture require each party’s consent. NNNAV (triple net asset value) NNNAV reﬂ ects the economic equity of the Com- pany. The Company computes NNNAV as total equity as reported in the IFRS balance sheet, which accounts for the carrying amount and the fair value of ﬁ nancial instruments and ﬁ nancial liabilities, adjusted for hidden reserves and hidden losses in immovable assets and ﬁ nancial liabilities. LTV (loan to value) alstria calculates loan to value (LTV) by dividing the total loans outstanding to ﬁ nance investment properties by the value of all mortgaged investment properties. The calculation of alstria’s net LTV also deducts the available non-restricted cash on the respective balance sheet date, which is deducted from the gross debt amount. Management Board The Supervisory Board and the Management Board head the management of a joint stock company. The Management Board manages the company’s day-to-day business and dealings. Market value or MV Market value is the estimated amount for which a property should exchange on the date of valu- ation 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 (PS 3.2 of the Appraisal and Valuation Standards issued by The Royal Institution of Chartered Surveyors). NAV (net asset value) Reﬂ ects the economic equity of a company. It is cal- culated from the value of assets less debt. Ofﬁ ce building Property where at least 75 % of the lettable area is destined for ofﬁ ce use (disregarding potential ground ﬂ oor retail). Passing rent Annual gross rental income as per a certain date, excluding the net effects of straight-lining for lease incentives. Prime Standard Market segment of the Frankfurt Stock Exchange with the greatest relevance and degree of regula- tion. Being quoted on the Prime Standard is a pre- requisite for admission to DAX, MDAX, SDAX and TecDAX. Property management Property management is the management of real estate assets including the processes, systems and manpower required to manage the life cycle of a building. Sale-and-leaseback transaction Form of arrangement in which one party sells an asset to another party in exchange for cash and contracts to lease the asset for a speciﬁ ed term. SDAX Small Cap Index; it contains, with variable weight- ing, the prices of the 50 most important, in terms of market capitalisation and turnover, German joint stock companies which are not included in DAX or MDAX. In addition to dividend payments, sub- scription right proceeds are also included when cal- culating the index. alstria Financial Report 2010 Other information 99 Vacancy rate Determines the vacancy within the portfolio and is calculated by comparing the vacancy area and the total lettable area. Vacant space Vacant space refers to the sum of all ofﬁ ce space that at the end of a calendar year is unoccupied or offered for lease or sale, and that is available for occupation within the next three months. Vacant space consequently does not include space that is unlettable because it is undergoing major refurbish- ments during the relevant three-month period. Valuation yield Key performance indicator, which is determined at a given date by the contractual rent in relation to the fair value of the property. WAULT (weighted average unexpired lease term) The weighted average unexpired lease term shows the average remaining lease length of a portfolio and is deﬁ ned as the total contractual rent to be collected in relation to the contractual rent of the date of the report. Share The term share describes both the membership rights (holding in the joint stock company) and the security which embodies these rights. The holder of a share (shareholder) is a “sharer” in the assets of the joint stock company. Their rights are protected by the regulations contained in the Companies Act. Share capital The capital stipulated in a corporation’s articles of association. The articles also specify the number of shares into which the share capital is divided. The company issues shares in the amount of its share capital. Stock exchange The stock exchange is the market (meeting place for supplies and demands) for securities. Stock exchange dealing takes place in the Federal Republic of Germany in certain places and at certain times. The German stock exchanges are subject to state control. The Stock Exchange Commission decides which persons are authorised to deal on the stock exchanges. A listing committee supervised by the federal state decides on the admission of securities for stock exchange dealing. There are various sub- markets on the German stock exchanges which are also called trading or market segments. Purchase and sales contracts for securities which are not admitted to any of the market segments may not be accepted or negotiated in the dealing room dur- ing trading hours. Supervisory Board The Supervisory Board is one of the three execu- tive bodies of a joint stock company: Annual Gen- eral Meeting, Management Board and Supervisory Board. The Supervisory Board appoints the Man- agement Board and provides supervision and advice regarding management of the company’s business. 100 Other information alstria Financial Report 2010 FINANCIAL CALENDAR Date Event May 06, 2011 Jun. 08, 2011 Aug. 08, 2011 Nov. 07, 2011 Publication of Q1 Report Interim Report (Hamburg) Annual General Meeting Hamburg Publication of Q2 Report Half-Year Interim Report (Hamburg) Publication of Q3 Report Interim Report (Hamburg) 4 Other information alstria Financial Report 2010 FINANCIAL CALENDAR Date Event May 06, 2011 Jun. 08, 2011 Aug. 08, 2011 Nov. 07, 2011 Publication of Q1 Report Interim Report (Hamburg) Annual General Meeting Hamburg Publication of Q2 Report Half-Year Interim Report (Hamburg) Publication of Q3 Report Interim Report (Hamburg) alstria ofﬁ ce REIT-AG is a member of DIRK (Deutscher Investor Relations Verband, the German Investor Relations Association). Other reports issued by alstria ofﬁ ce REIT-AG are posted on the Company’s homepage. Forward-looking statements This Annual Report contains forward-looking statements. These statements represent assess- ments which we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based not occur, or if risks should arise – as mentioned in the risk report – the actual results could differ materially from the results currently expected. Note This report is published in German (original version) and English (non-binding translation). CONTACT alstria ofﬁ ce REIT-AG Bäckerbreitergang 75 20355 Hamburg, Germany Phone: +49 (0)40 226341-300 www.alstria.com www.alstria.blogspot.com www.twitter.com/alstria_REIT Investor Relations Ralf Dibbern Phone: +49 (0)40 226341-329 Fax: +49 (0)40 226341-310 E-mail: rdibbern@alstria.de IMPRINT Concept, design and realisation Kirchhoff Consult AG, Hamburg, Germany alstria ofﬁ ce REIT-AG Bäckerbreitergang 75 20355 Hamburg, Germany Phone: +49 (0)40 226341-300 Fax: +49 (0)40 226341-310 www.alstria.com

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