alstria office REIT
Annual Report 2013

Plain-text annual report

Annual Report 2013 Ω Part II/II-Financial Report Contact Name alstria office REIT-AG Adress 1 Phone Fax Adress 2 Phone Fax Bäckerbreitergang 75 20355 Hamburg, Germany + 49 (0) 40 22 63 41-300 + 49 (0) 40 22 63 41-310 Friedrichstrasse 19 40217 Düsseldorf, Germany + 49 (0)211 30 12 16-600 + 49 (0)211 30 12 16-615 E-mail info@alstria.de Website www.alstria.com alstria Financial Report 2013 Key figures five-year overview according to IFRS EUR k Revenues and earnings Revenues Net rental income Consolidated profit / loss for the period FFO Earnings per share (EUR) FFO per share (EUR) Balance sheet 2013 2012 2011 2010 2009 104,224 101,286 93,249 90,110 38,945 45,328 0.49 0.57 39,911 43,571 0.51 0.55 90,798 80,868 27,448 34,685 0.40 0.48 89,094 81,759 102,510 91,964 206 –79,651 27,541 32,690 0.00 0.45 –1.40 0.58 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Investment properties 1,632,362 1,622,988 1,528,589 1,348,400 1,425,440 Total assets Equity Liabilities NAV per share (EUR) Net LTV (%) 1,785,679 1,786,893 1,686,637 1,542,336 1,766,134 844,114 829,287 768,195 692,408 634,185 941,565 957,606 918,442 849,928 1,131,949 10.69 50.7 10.51 47.8 10.71 50.1 11.24 49.8 11.32 57.9 G-REIT key figures G-REIT ratio (%) Revenues plus other income from investment properties (%) EPRA1) key figures EPRA1) earnings per share (EUR) Diluted EPRA NAV per share (EUR) EPRA NNNAV per share (EUR) EPRA net initial yield (%) 50.9 100 0.57 10.63 10.68 5.6 EPRA ‘topped-up’ net initial yield (%) 5.8 EPRA vacancy rate (%) EPRA cost ratio (%) 6.8 18.4 50.0 100 0.55 10.98 10.50 5.7 5.7 8.0 18.5 48.7 100 0.50 11.32 10.71 5.8 5.8 6.5 n/a 49.8 100 0.44 11.68 11.24 5.5 5.7 5.1 n/a 40.3 100 0.53 12.18 11.32 5.4 5.4 3.3 n/a 1) Please refer to EPRA Best Practices Recommendations ›› www.epra.com. alstria Financial Report 2013Investment properties 1,632,362 1,622,988 1,528,589 1,348,400 1,425,440 EUR k Revenues and earnings Revenues Net rental income Consolidated profit / loss for the period FFO Earnings per share (EUR) FFO per share (EUR) Balance sheet Total assets Equity Liabilities NAV per share (EUR) Net LTV (%) G-REIT key figures G-REIT ratio (%) Revenues plus other income from investment properties (%) EPRA1) key figures EPRA1) earnings per share (EUR) Diluted EPRA NAV per share (EUR) EPRA NNNAV per share (EUR) EPRA net initial yield (%) 2013 2012 2011 2010 2009 104,224 101,286 93,249 90,110 38,945 45,328 0.49 0.57 39,911 43,571 0.51 0.55 90,798 80,868 27,448 34,685 0.40 0.48 89,094 81,759 102,510 91,964 206 –79,651 27,541 32,690 0.00 0.45 –1.40 0.58 Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2013 2012 2011 2010 2009 1,785,679 1,786,893 1,686,637 1,542,336 1,766,134 844,114 829,287 768,195 692,408 634,185 941,565 957,606 918,442 849,928 1,131,949 10.69 50.7 10.51 47.8 10.71 50.1 11.24 49.8 11.32 57.9 50.9 100 0.57 10.63 10.68 5.6 6.8 18.4 50.0 100 0.55 10.98 10.50 5.7 5.7 8.0 18.5 48.7 100 0.50 11.32 10.71 5.8 5.8 6.5 n/a 49.8 100 0.44 11.68 11.24 5.5 5.7 5.1 n/a 40.3 100 0.53 12.18 11.32 5.4 5.4 3.3 n/a EPRA ‘topped-up’ net initial yield (%) 5.8 EPRA vacancy rate (%) EPRA cost ratio (%) 1) Please refer to EPRA Best Practices Recommendations ›› www.epra.com. Contents 5 Group management report Detail index Group management report 6 Economics and strategy (business overview) 12 Financial analysis 19 Report on risks and opportunities 28 28 31 32 Sustainability report Mandatory disclosures Additional Group disclosures Reports on Post-Balance sheet date events and expected developments 34 38 Consolidated financial statements Detail index Consolidated financial statements 36 Consolidated income statement Consolidated statement of 37 comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements 40 42 44 98 Responsibility statement 99 Independent auditors’ report Coporate governance Report of the Supervisory Board Corporate governance statement Remuneration report REIT disclosures REIT declaration REIT memorandum 100 104 111 118 119 More information 120 Glossary 124 Events 2014 127 Contact / Imprint alstria Financial Report 2013Group management report 4 alstria Financial Report 2013Group management report Detail index Group managment report Economics and strategy (business overview) 6 Economic conditions 7 Strategy and structure 8 Portfolio overview Financial analysis 12 Earnings position 15 18 Financial and asset position Coporate management Report on risks and opportunities Risk report Report on opportunities 19 26 28 Sustainability report 28 Mandatory disclosures Additional Group disclosures 31 Employees 31 Remuneration report Reports on post-balance sheet date events and expected developments Report on post-balance sheet events Report on expected developments 32 32 5 alstria Financial Report 2013 Group management report Group management report ECONOMICS AND STRATEGY (BUSINESS OVERVIEW) burg (EUR  24.00  per sqm) and Stuttgart (EUR 18.50 per sqm) rents remained at pre- vious year level. Take-up in major German cities The vacancy rate of office properties in Ger- man cities decreased from 8.8 % in 2012 to 8.3 % in 2013, which represents total vacancies of 7.31 million sqm (decrease of 0.47 million sqm). Comparing the Big-7, the highest vacancy rate was noted in Düsseldorf (11.4 %), followed by Frankfurt (11.1 %), Ber- lin (8.2 %), Hamburg (7.8 %), Munich (7.3 %), Cologne (7.0 %) and Stuttgart (5.3 %). New lease-up In 2013, new lease contracts for over 2.93 million sqm of office space were signed in the seven major German cities. This re- flects a slight decrease by 0.11 million sqm or 3.5 % compared to the previous year. The greatest decreases were registered in Mu- nich (– 17.1 %), Berlin (– 16.4 %) and Frank- furt (– 14.0 %). These were partially offset by some major increases e.g. in Stuttgart (+34.7 %), Düsseldorf (+19.4 %) and Cologne (+18.1 %). New office supply In 2013, the delivery of new office and commercial space increased by approx. 890,000 sqm. This is a slight increase (+8.2 %) as compared to last year’s very low level, and is mainly due to the completions in Frankfurt (+143.3 %), Cologne (+59.0 %), and Stutt- gart (+57.2 %). For 2014, a large increase in completion volume (approx. 1,170,000 sqm) is forecasted, of which the predominant part (63.0 %) is already prelet. As a result the sup- ply of high-quality new office space will re- main at a low level in 2014. Economic conditions Despite the ongoing recessions in some Euro- pean countries, the German economy proved to be solid in 2013. Germany’s GDP increased slightly by 0.4 % which is less than its growth in 2012 (0.7 %) and its average of the last 10  years (+1.2 %).* This development was also reflected in the German labour market, resulting in a slight increase of the unemploy- ment rate by 0.2 percentage points to 6.9 % in comparison to 2012.** The German real estate market developed in a positive manner in 2013, resulting in the highest transaction volume since the boom of 2007. The total investment volume on the commercial real estate market rose to approx. EUR 31 bn and was therefore 21 % higher than in the previous year. Domestic and international investors seem to prefer the stable German real estate market, which ap- pears to be very attractive with regard to its risk/return profile.*** Overview of the German office property market Development of office rents In 2013, office rents developed positively at the most important commercial real es- tate sites, namely Berlin, Düsseldorf, Frank- furt/Main, Hamburg, Cologne, Munich und Stuttgart (‘Big-7’). On average, prime rents increased by around 1.9 %. An above average increase was registered in Frankfurt/Main at 6.1 % (EUR 35.00  per  sqm) and Düsseldorf at 5.8 % (EUR 27.50 per sqm). In Munich the rents increased by 1.6 % (EUR 31.50 per sqm). In Berlin (EUR  22.00  per  sqm), Ham- * ** Federal Statistics Office (Statistisches Bundesamt). Federal Employment Agency (Bundesagentur für Arbeit). *** All numbers referred to in this section are sourced from Jones Lang Lasalle. 6 alstria Financial Report 2013Group management report Investment markets The positive trend on the investment mar- ket continued in fiscal year 2013. Total in- vestment volume was approx. 21 % (around EUR  30.7 bn for commercial assets) above previous year results. Thus transaction vol- mes in 2013 represent the highest vol- ume since the boom of 2007. The Big-7 cities recorded a transaction volume of around EUR  19.5 bn. The highest transac- tion volumes were recorded in Munich at EUR 4.7 bn, Frankfurt at EUR 4.2 bn and Ber- lin at EUR 3.5 bn, respectively. The investment market has continued to fo- cus on high-quality core properties in pre- mium locations. The average prime yield for commercial office real estate was 4.67 %. In regards to the deal structure, approx. 75 % of the commercial investment turnover in fis- cal year 2013 related to single deals, whereas the share of portfolio transactions amounted to 25 %. Strategy and structure The alstria Group consists of the parent company alstria office REIT-AG, a real esta- te company listed on the Frankfurter stock exchange, and 19 subsidiaries, which inclu- de nine general partners, nine limited part- nerships holding assets and one REIT service company. Operations are made at the parent company. Although the major part of the as- sets is allocated to the alstria office REIT-AG, 15 properties are held by nine subsidiaries as at December 31, 2013. alstria is a long term-holder of its real estate portfolio. alstria’s strategy is structured ba- sed on the following assumptions: › The German real estate market will offer limited rental or capital value growth in the future. › Overall built environment is sufficient to host the entire demand for office space. › The market’s vacancy rates will remain rel- atively stable. Based on these assumptions, our strategy consists in owning and actively managing as- sets which: › Match a specific tenant’s demand in their immediate micro-environment. › Are rented at or below market, or if over-rented are valued as such. › Offer room for value enhancement through required refurbishments. › Have the potential to offer the best value for money to tenants in their micro-environ- ment. alstria’s aim is to provide superior real estate returns through active day - to - day manage- ment of its portfolio. › alstria has a long-term leased portfolio (around 6.8 years weighted average lease lengths). Some 69 % of rental income derives from a small number of high-quality tenants. Around 42 % of rental income is generated from public or public related entities, which are less affected by economic developments. › alstria pursues a non-trading strategy, and focuses on long-term value creation through asset management. alstria conducts real es- tate operations (i.e. asset and property man- agement) internally, which positively differ- entiates us from our competitors. › One of the key elements of alstria’s oper- ating strategy involves helping alstria’s ten- ants to optimise their real estate operating costs. There is no contradiction in reducing the overall real estate costs of alstria’s ten- ants and increasing the returns of alstria. In fact, the current environment could create opportunities for alstria at a time when most German corporations are looking to reduce costs. 7 alstria Financial Report 2013Group management report Portfolio overview As at December 31, 2013, alstria’s port- folio consisted of 75 office properties and one retail property with a total of ap- prox.  894,300  sqm of lettable area and a contractual vacancy rate of 9.1 %. The port- folio is valued at a yield of 6.5 %. Its remain- ing weighted average unexpired lease term is approximately 6.8 years. The key metrics for the portfolio1) As at December 31, 2013 Metric Number of properties Number of joint venture properties Market value (EUR bn)2) Contractual rent (EUR m/annum) Valuation yield (contractual rent/OMV) Lettable area (k sqm) Vacancy ( % of lettable area)3) WAULT (years) Average rent/sqm (EUR/month) Value 76 1 1.6 106.7 6.5 % 894 9.1 % 6.8 10.9 1) Includes assets classified under property, plant and equipment. 2) According to the year-end valuation by Colliers Inter- national. 3) Contractual vacancy rate includes vacancies in assets of the Company’s development pipeline. EPRA vacan- cy rate is at 6.8%. Transactions underline alstria´s focus on core markets Investment decisions at alstria are based on the analysis of the local markets and on the adequacy of a building within its local envi- ronment in terms of location, size and quality. alstria's strategy is to enter into new markets and build a critical mass through long-term secured assets. In light of this approach al- stria added two properties and approx. 16,900 sqm of lettable space to the portfo- lio in 2013, helping to reinforce its position in two of its core markets, namely Stuttgart and Düsseldorf. In 2013, alstria signed binding and notarised agreements for the acquisition of a piece of land in Düsseldorf and two office properties in Stuttgart and Düsseldorf. The acquisition of the land was finalised in April 2013, while the transfer of benefits and burden of the as- sets in Stuttgart and Düsseldorf took place on July 1, 2013 and September 1, 2013, re- spectively. Acquisitions 2013 Asset Freehold City Georg-Glock-Str. Düsseldorf Hauptstätter Str. Stuttgart Immermannstr. Düsseldorf Total Purchase Annual Avg. lease price rent (EUR k)1) (EUR k) length (years) 2) Signing SPA Transfer of benefits and burden 7,564 19,625 16,835 44,024 – 1,701 1,140 2,841 – Feb.13, 2013 Apr.23, 2013 3.5 May 22, 2013 Jul. 01, 2013 3.4 Jul. 11, 2013 Sep.01, 2013 1) Including transaction costs. 2) At the time of transfer of benefits and burden. Disposals and transfers of benefits and burdens 2013 Asset Zwinglistr. Benrather Schlossallee City Dresden Düsseldorf Lothar-Streit-Str. Zwickau Kanalstr. Hamburg 15,000 Schweinfurter Str. Würzburg Helene-Lange Str. Potsdam Am Roten Berg Johannesstr. Erfurt Erfurt Joliot-Curie-Platz Halle Sales price 2,640 7,620 350 4,530 5,700 1,060 5,850 610 203 614 0 914 397 422 142 577 81 947 Bornbarch Norderstedt 10,320 Total 53,680 4,297 1) Excluding transaction costs. 2) At the time of transfer of benefits and burden. Annual Avg. lease rent (EUR k) length (years)2) Signing SPA Transfer of benefits and burden 2.5 Oct. 25, 2012 Jan. 1, 2013 8.4 Nov.14, 2012 Feb. 1, 2013 - Mrz. 28, 2013 May 24, 2013 4.3 Mrz. 5, 2013 May 31, 2013 3.0 Apr. 2, 2013 Jun. 30, 2013 4.7 May 6, 2013 Jun. 30, 2013 1.5 Apr. 23, 2013 Jul. 31, 2013 3.9 Jul 18, 2013 Oct. 31, 2013 0.9 Oct. 24, 2013 Dec. 31, 2013 4.0 Oct. 31, 2013 Dec. 31, 2013 8 alstria Financial Report 2013 Group management report Transactions Acquisitions 2013 Asset City Freehold Georg-Glock-Str. Düsseldorf Hauptstätter Str. Stuttgart Immermannstr. Düsseldorf Total Purchase price (EUR k)1) Annual rent (EUR k) Avg. lease length (years) 2) Signing SPA Transfer of benefits and burden 7,564 19,625 16,835 44,024 – 1,701 1,140 2,841 – Feb.13, 2013 Apr.23, 2013 3.5 May 22, 2013 Jul. 01, 2013 3.4 Jul. 11, 2013 Sep.01, 2013 1) Including transaction costs. 2) At the time of transfer of benefits and burden. Disposals and transfers of benefits and burdens 2013 Asset Zwinglistr. Benrather Schlossallee City Dresden Düsseldorf Lothar-Streit-Str. Zwickau Sales price 2,640 7,620 350 Kanalstr. Hamburg 15,000 Schweinfurter Str. Würzburg Helene-Lange Str. Potsdam Am Roten Berg Johannesstr. Erfurt Erfurt Joliot-Curie-Platz Halle 4,530 5,700 1,060 5,850 610 Bornbarch Norderstedt 10,320 Annual rent (EUR k) Avg. lease length (years)2) Signing SPA Transfer of benefits and burden 203 614 0 914 397 422 142 577 81 947 2.5 Oct. 25, 2012 Jan. 1, 2013 8.4 Nov.14, 2012 Feb. 1, 2013 - Mrz. 28, 2013 May 24, 2013 4.3 Mrz. 5, 2013 May 31, 2013 3.0 Apr. 2, 2013 Jun. 30, 2013 4.7 May 6, 2013 Jun. 30, 2013 1.5 Apr. 23, 2013 Jul. 31, 2013 3.9 Jul 18, 2013 Oct. 31, 2013 0.9 Oct. 24, 2013 Dec. 31, 2013 4.0 Oct. 31, 2013 Dec. 31, 2013 Total 53,680 4,297 1) Excluding transaction costs. 2) At the time of transfer of benefits and burden. alstria signed binding and notarised agree- ments for the disposal of eight properties during financial year 2013: › In the first quarter, alstria signed binding and notarised agreements for the sale of two assets. The transfer of benefits and burden of the assets in Zwickau and Hamburg took place in May 2013. › In the second quarter, alstria signed bind- ing and notarised agreements for the sale of three assets. While the assets in Würzburg and Potsdam were legally transferred on June 30, 2013, the transfer of benefits and burden of one asset in Erfurt took place on July 31, 2013. › In the third quarter, alstria signed a binding and notarised agreement for the sale of an- other asset in Erfurt. The transfer of bene- fits and burden took place on October  31, 2013. › In the fourth quarter, alstria signed binding and notarised agreements for the sale of one asset in Halle and one asset in Norderstedt. The transfer of benefits and burden took place on December 31, 2013. Additionally, in the last quarter of 2012, al- stria agreed on the disposal of two proper- ties, which were classified as ‘assets held for sale’ as at December 31, 2012. These assets were transferred to the new 9 alstria Financial Report 2013 Group management report owners in the first quarter of 2013. Refurbishment projects alstria also achieved considerable progress with its refurbishment projects. › Kaiser-Wilhelm-Straße 79 – 87, Hamburg (Holstenhof) The historic Kontorhaus Holstenhof in Ham- burg, Kaiser-Wilhelm-Strasse was acquired by alstria in 2006. At the time of acquisition, the listed Art Nouveau building, which was erected in 1900/01, was in need of renovation. alstria decided to completely revitalise the building. Redevelopment measures started at the end of 2012. The modernisation includes, among others, the rebuilding of the entire roof construction and the ceiling above the 4th floor. After completion of all modifica- tions the building will offer efficient office space with high-quality equipment and mod- ern retail space on the ground floor. Further- more, the building will be certified as a ’ma- jor refurbishment`- building by the BREEAM International Green Building Standard. alstria succeeded to sign a 5-year lease con- tract for around 2,000 sqm six months before the area will be ready for occupancy. › Schaartor 1, Hamburg The building at Schaartor was acquired by alstria in 2011. The property is direct- ly located between the city centre and the new HafenCity, which is one of Ham- burg’s most important urban axis. The revitalisation of the building started in April 2013. It includes the complete in- stallation of the building’s technical facil- ities, a new construction of the 6th floor and further tenant specific developments. Although the completion of the moderni- sation is planned for 2014, alstria signed a lease agreement for 85 % of the lettable area already in September 2013. › Arndtstraße 1, Hanover The office building was erected in 1970. The technical installations dating back from 1970 mostly no longer fulfil today’s requirements. The planned revitalisation adapts the building to today's state of the art technology and tenant’s expectations. Besides the modernisation of the façade the refurbishment measures include the 10 complete refurbishment from the ground floor to the 9th floor, the replacement of central technical installations and an im- provement in the floor plan flexibility. The completion of the refurbishment is scheduled for the end of 2014. Nonetheless, at the end of 2013, alstria already succeed- ed in pre-letting a substantial part of the building to the City of Hanover on a long- term basis. › Grosse Bleichen 23 – 27, Hamburg (Kaisergalerie) In January 2010, alstria agreed on terms of a second joint venture with the Ham- burg-based Quantum Immobilien AG to refurbish the Kaisergalerie in Hamburg. The Kaisergalerie was erected from 1907- 1909 and is listed in the ‘List of recognized monuments’ (Liste erkannter Denkmäler) in Hamburg. The property is located at Grosse Bleichen 23–27 directly in the centre of Hamburg. The refurbishment of this joint venture property started after the old tenant ‘Ohnsorg-Thea- tre’ moved to its new location Bieberhaus in 2011, which was also renovated by alstria. After completion of the modernisation, the building will offer attractive retail space. Part of this redevelopment project is to add a new pedestrian bridge at the waterside of the Kaisergalerie and a passage through the building to connect the Grosse Bleichen and the Bleichenfleet. The refurbishment is pro- gressing according to plan and is scheduled to be completed in spring 2014. In 2013, alstria invested around EUR 14.5 m* in ongoing refurbishment projects. Of this EUR 14.5 m, around EUR 6.5 m refers to development projects. The main part of the 2013 capex investment was connected to the refurbishment of the Hamburg build- ings Holstenhof (Kaiser-Wilhelm-Strasse 79- 87) and Schaartor (Schaartor 1) as well as the property at Arndtstrasse 1 in Hanover. In the next two years, the Company plans to invest around EUR 48 m in the portfolio. These investments depend on ongoing lease negotiations with existing and potential ten- ants. Major projects are related to the prop- * Excluding joint ventures. alstria Financial Report 2013 Group management report alstria continued its lease progress in the de- velopment segment with a new lease in the Holstenhof. The new tenant signed a five- year lease for approximately one third of the lettable space (2,000 sqm). The lease will start on July 1, 2014. Furthermore a long-term lease for around 5,400 sqm has been signed with the City of Hanover and a lease for around 1,200 sqm with the ‘Niedersächsisches Landesmuseum Hanover’ in the property at Arndtstrasse in Hanover. Portfolio valuation alstria’s portfolio was valued by Colliers Inter- national as at December 31, 2013 pursuant to IAS 40 and in accordance with the RICS* Red Book guidance. The valuation resulted in a total value of in- vestment properties of EUR 1,632 m. For further information about the valuation of alstria’s portfolio please refer to the val- uation certificate of Colliers International, which is part of the Annual Report » Part I/II – Company Report. Tenants One of the main characteristics of the alstria portfolio is its focus on a set number of ma- jor tenants. 69 % of total revenues are gen- erated by alstria’s top ten tenants. The 2013 portfolio also reflects the clear focus on the office asset class. 94 %** of the total lettable area is office space. erties Hamburger Strasse 1–15 (Mundsburg Center) in Hamburg, Kaiser-Wilhelm-Strasse (Holstenhof) in Hamburg and Arndtsrasse 1 in Hanover. This capex plan is part of al- stria’s ongoing asset value enhancement pro- gramme. Lease-ups Leasing activities in 2013 were very success- ful. In 2013, alstria signed new leases* total- ling approx. 35,600 sqm and prolonged lease agreements of around 49,000 sqm. This resulted in a decrease of the vacancy rate by 230 basis points (bps) to 9.1 % or 81,300 sqm. Of these 81,300 sqm, 24,120 sqm rep- resent strategic vacancy (intended vacancy initiated by alstria as part of its repositioning process for certain assets), while the remain- der of this space is operational vacancy. Over 60 % (of lettable area) of the lease agree- ments, which were due to expire in 2013, could be retained during the year. With the successful lease-up of 7,700 sqm of office and ancillary space at Hans-Böck- ler-Strasse 36, alstria signed one of the larg- est new leasing contracts in Düsseldorf in the reporting year. The Company agreed a long-term lease with the State of North Rhine-Westphalia for the whole building for the accommodation of a regional tax office (Finanzamt Düsseldorf-Nord). The lease will start in the first half of 2014. Another climax in terms of letting achieve- ments was the signing of an agreement with a new tenant for the property Ernsthalden- strasse 17, Stuttgart, for which a five-year contract comprising around 2,500 sqm of office and ancillary space has been signed. The lease commenced in the fourth quarter of financial year 2013. In 2013, alstria also successfully leased areas of those assets, which are undergoing refur- bishment measures. In the third quarter of 2013 alstria signed a long-term lease for 4,000 sqm of office and ancillary space at Schaartor 1, Hamburg with a leading advertising agency in Germany. The lease will start after the completion of the de- velopment on August 1, 2014. * New leases correspond to lease of vacant space. It does not account for any lease renewals, prolongations or tenant exercise of renewal option. * Royal Institution of Chartered Surveyors. ** Office and storage. 11 alstria Financial Report 2013Group management report Total portfolio by utilisation Lease expiry profile % of total lettable area % of annual rent as at 31.12.2012 as at 31.12.2013 13.4 13.3 16.5 16.9 3.9 3.5 2014 2015 2016 FINANCIAL ANALYSIS alstria developed according to plan in the reporting period. Both revenues (ap- prox. EUR 104 m) and funds from operations (FFO) (approx. EUR 45 m) were in line with the forecast for the financial year 2013. Earnings position Compared to the previous year, revenues in- creased in 2013 by 2.9 % following the trans- fer of the newly acquired assets in the first half of 2012. Total revenues in this reporting period amounted to EUR 104,224 k (2012: EUR 101,286 k). The share of real estate op- erating expenses at revenues decreased by 0.3 percentage points to 10.0 % of total rev- enues (EUR 10,462 k) compared to 10.3 % of total revenues (EUR 10,398 k) in 2012. Net rental income for 2013 amounted to EUR 93,249 k (2012: EUR 90,110 k). The following table shows the main figures of the income statements for financial years 2013 and 2012: office retail residental others 94 2 1 3 alstria´s core tenants 2013 % of annual rent City of Hamburg Daimler AG Bilfinger SE Siemens AG Barmer GEK Deutsche Renten- versicherung Bund Württembergische Lebensversicherungs AG Rheinmetall L´Oréal Deutschland GmbH State of Baden-Württemberg Others 30 15 5 4 3 3 3 2 2 2 31 12 Funds from operations (FFO) per share up by 4 % (EUR 0.57) EUR k Pre-tax income (EBT) Net profit/loss from fair value adjustments on investment property Net profit/loss from fair value adjustments on financial derivatives Profit/loss on disposal of investment property Other adjustments1) Fair value and other adjustments in joint ventures Funds from operations (FFO)²) Maintenance capex Adjusted funds from operations (AFFO)³) 2013 38,983 – 27 7,554 – 1,398 545 – 329 45,328 – 7,963 37,365 2012 39,957 1,876 1,380 – 369 54 673 43,571 – 3,795 39,776 alstria Financial Report 2013Group management report EUR k 2013 2012 Gross rental income 104,224 101,286 Net rental income 93,249 90,110 Operational expenses – 13,115 – 12,571 Net other income Operating income 3,821 2,124 83,955 79,663 Net result from fair value adjustments on investment property Net result on disposals of investment property 27 – 1,876 1,398 369 Net operating result 85,380 78,156 Operational expenses (including admin- istrative and personnel expenses) were EUR 13,115  k for the year, compared to EUR  12,571 k in 2012, which represents 12.6 % of total revenues. Compared to 2012, the rate increased slightly by 0.2 percentage points. Net other income mainly comprised the re- versal of accruals for rental guarantees (EUR  946 k), payments for the reimburse- ment of expenses from former sharehold- ers related to a capital increase (EUR 571 k), compensation payments for not executed maintenance measures due to the early ter- mination of lease contracts (EUR 410 k) as well as other income (EUR 2,005 k). Further- more, it comprised expenses of EUR 111 k. alstria closed the financial year 2013 with a net operating result before financing costs and taxes of EUR 85,380 k which compares to EUR 78,156 k for the previous year. The increase mainly results from higher revenues, a better net result on fair value adjustments of investment properties as well as higher re- alised disposal gains compared to 2012. Funds from operations (FFO) per share up by 4 % (EUR 0.57) EUR k 2013 Pre-tax income (EBT) Net profit/loss from fair value adjustments on investment property Net profit/loss from fair value adjustments on financial derivatives Profit/loss on disposal of investment property Other adjustments1) Fair value and other adjustments in joint ventures Funds from operations (FFO)²) Maintenance capex Adjusted funds from operations (AFFO)³) 1) Non-cash income or expenses and non-recurring effects. 2) (A)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-flow meas- ures as determined in accordance with IFRS. Furthermore, no standard definition exists for (A)FFO. 38,983 – 27 7,554 – 1,398 545 – 329 45,328 – 7,963 37,365 2012 39,957 1,876 1,380 – 369 54 673 43,571 – 3,795 39,776 Thus, the (A)FFO or measures with similar names as presented by other companies may not necessarily be comparable to alstria’s (A)FFO. 3) The AFFO is equal to the FFO with adjustments made for capital expenditures used to maintain the quality of the underlying investment portfolio. from operations amounted in 2013 compared to Funds to EUR  45,328 k EUR 43,571 k in 2012. As a result, FFO per share* was EUR 0.57 in financial year 2013 (2012: EUR 0.55). The increase in comparison with 2012 resulted mainly from the growth of revenues following the acquisition and transfer of new assets. * Divided by the number of shares at the end of the reporting period (December 31, 2013: 78,933,487; December 31, 2012: 78,933,487). 13 alstria Financial Report 2013Group management report Hedging instruments The change in valuation of the financial de- rivatives was driven by the development of the yield curve in the year 2013. alstria ap- plies hedge accounting to all qualifying hedg- es in order to limit the impact of the volatility of the interest rate markets on profit and loss. This allows alstria to recognise the losses or gains on the qualifying part of the derivatives as an equity cash flow hedge reserve, having no effect on income. New derivative financial instruments were entered into in line with the Group-wide fi- nancing strategy for floating interest hedging in 2013. In financial year 2013, the effective re- valuation in the value of the swaps was EUR 11,820 k. The amount was recorded in equity as ‘hedging reserve’, and is therefore not recognised in the income statement. The fair value changes of derivatives not catego- rised as cash flow hedges are recognised in the income statement under ‘Net result from fair value adjustments on financial deriva- tives’ along with the ineffective part in fair value changes of cash flow hedges. Interest expenses on swaps and caps are recorded in the financial result. alstria’s main debt exposure is hedged by fi- nancial derivatives. The current overall cost of debt due to these hedging activities amounts to around 3.6 % for the existing portfolio. An overview of the composition and changes is described in detail in section » 10.7 of the notes. 14 Financial result The following table shows the development of the financial result for the period from Jan- uary 1 to December 31, 2013: EUR k Financial income Interest expenses syndicated loan 2013 317 2012 657 – 13,471 – 14,383 Interest expenses other loans – 9,036 – 9,385 Interest result derivatives – 13,406 – 12,589 Interest expenses convertible bond – 2,697 0 Other interest expenses – 119 – 250 Financial expenses – 38,729 – 36,607 Other financial expenses – 704 – 135 Net financial result – 39,116 – 36,085 As at December 31, 2013 alstria was not in breach of any of its financial covenants. Net financing costs increased by EUR 3,031 k to EUR 39,116 k in comparison to 2012. The increase is mainly attributable to one- off expenses in relation to the refinanc- ing of the syndicated loan of an amount of EUR 2,593 k. For details on the new loans, we refer to the section entitled ‘financial and asset position’ on » page 15. result Consolidated net result at EUR 38,945 k for financial year The pre-tax 2013 amounted to EUR 38,983 k (2012: EUR  39,957 k). Consolidated net income amounted to EUR 38,945 k for the reporting period compared to EUR 39,911 k in 2012. The reasons for the decline are mainly driven by higher financing costs as well as a lower net result from fair value adjustments on fi- nancial derivatives. These could only partly be compensated by the positive developments in revenues, in net result from fair value adjust- ments on investment property and the gain on disposal of investment property. REIT-AGs are fully exempt from German cor- porate income tax and trade tax. Hence, al- stria office REIT-AG has been exempt from income and trade tax with retrospective ef- fect since January 1, 2007. Tax payment ob- alstria Financial Report 2013Group management report ligations of EUR 38 k arose on group level in 2013 (2012: EUR 46 k) for affiliates serving as a general partner of a partnership or REIT Service Companies. Earnings per share were down by 4 % at EUR 0.49 for 2013 (2012: EUR 0.51). Financial and asset position Financial management alstria’s financial management is carried out at corporate level, with individual loans be- ing taken out at property and portfolio lev- el. The main goal of alstria’s financial policy is the establishment of secured, long-term structures to support the development of its business whilst providing the required degree of flexibility. Corporate management of debt financing forms the basis for optimised cap- ital procurement, proactive management of interest and liquidity risks and efficiency im- provements for the whole Group. In 2013, alstria signed a credit agreement amounting to EUR 544 m, replacing the exist- ing syndicated loan facility, which was due to mature on July 20, 2015. The new syndicated loan facility was initially drawn on Septem- ber 30, 2013, amortising the old syndicated loan with an amount of EUR 544 m at the same time. The new syndicated loan has a maturity of seven years and has been signed by four German banks. The early refinancing allows alstria to benefit from the attractive financing environment and significantly im- proves the overall debt maturity profile of the Company to around 5.3 years. With the new syndicated loan in place, alstria has no major refinancing needs before mid-2018. Furthermore, alstria issued its first convertible bond in June 2013. The bonds have a maturi- ty of five years, and are issued and will be re- deemed at 100 % of their principal amount. The coupon is set at 2.75 % p.a., payable quarterly in arrears. The initial conversion price was set at EUR 10.0710, representing a conversion premium of 15 % above the refer- ence share price of EUR 8.7574. The convert- ible bond has also improved the Company’s maturity profile and is considered to be an important step in diversifying the Company’s sources of financing. As one of the first refinancing measures re- sulting from the corporate bond issue, alstria terminated one non-recourse facility and re- paid it on July 22, 2013 (EUR 30,240 k). In connection with the disposal of five assets, an amount of EUR 20,619 of the old syndicat- ed loan was repaid until September 30, 2013. In connection with the disposal of two fur- ther assets, an amount of EUR 5,137 k of the new syndicated loan was repaid until Decem- ber 31, 2013. 15 alstria Financial Report 2013Group management report Existing loan agreements as at December 31, 2013 Maturity Principal amount outstanding (EUR k) Current LTV (%) LTV covenant ( %) Financing Syndicated loan Non-recourse loan #1 Non-recourse loan #2 Non-recourse loan #3¹) Non-recourse loan #4 Loan #5 Loan #6 Loan #7 Total loans Sep. 30, 2020 Oct. 20, 2015 Dec. 31, 2014 Jun. 30, 2014 Jan. 31, 2017 Dec. 31, 2015 Dec. 17, 2018 Sep. 30, 2019 Convertible bond Jun. 14, 2018 Total as at Dec. 31, 2013 538,963 47,902 42,670 28,503 69,626 11,328 56,000 39,500 834,492 79,400 913,892 53.4 70.2 64.0 54.8 61.5 51.5 46.1 40.6 50.9 55.8 70.0 80.0 80.0 62.5 75.0 80.0 60.0 65.0 1) Refinancing of EUR 28 m has already been signed with a maturity date of Sep. 30, 2019. Cash position amounting to EUR 82,782 k Cash flows from operating activities amount- ed to EUR 50,114 k in financial year 2013. The increase compared to the reporting peri- od 2012 (EUR 45,735 k) resulted mainly from higher rental revenues and lower interest ex- penses. The cash flow from investing activities is im- pacted by the cash outflows resulting from the acquisitions of two investment properties and a piece of land and investments in exist- ing properties (cash outflow EUR 58,506 k). Cash inflows of EUR 51,040 k relate to pay- ments received from the disposal of invest- ment properties. Payments for capital con- tribution in joint ventures generated cash outflows of an amount of EUR 3,370 k. Cash flows from financing activities mainly reflect refinancing activities, i.e. payments for the redemption of borrowings of an amount of EUR 606,592 k and cash proceeds from the issue of loans (EUR 544,100 k) and a convertible bond (EUR 79,400 k). Divi- dend payments resulted in cash outflows of EUR  39,467 k. Furthermore cash payments were made for the acquisition and termina- tion of financial derivatives (EUR 46,512 k). alstria’s main financial goal is to establish a sustainable long-term finance structure. An integral part of this structure is to hedge long-term loans with corresponding hedging instruments, such as swaps and caps. The aim of this strategy is to largely eliminate short- term interest volatility from the income state- ment. As at December 31, 2013 the average debt maturity was at 5.3 years compared to 3.0 years as at December 31, 2012. The av- erage cost of debt of the Group decreased to around 3.6 % (compared to 3.9 % p.a. in the previous year). Financial debt by maturities1) EUR m as at Dec. 31, 2013 539.0 135.4 39.5 71.22) 59.2 69.6 0 2016 2014 2015 2017 2018 2019 2020 1) Excluding regular amortisation. 2) Refinancing of EUR 28 m has already been signed with a maturity date of Sep. 30, 2019. 16 alstria Financial Report 2013 Group management report As a result, alstria held a cash position of EUR 82,782 k (2012: EUR 118,548 k) at the end of financial year 2013. The Group is ad- equately funded to comply with its financial obligations. NNNAV at EUR 10.68 per share NNNAV (Triple Net Asset Value according to EPRA*) increased to EUR 10.68 per share (2012: EUR 10.50 per share). Investment properties remain stable Total investment property value amounted to EUR 1,632,362 k at year-end, in comparison to EUR 1,622,988 k at the beginning of the year. The slight increase in investment prop- erty results from the acquisition of two prop- erties and a piece of land as well as the cap- italisation of modernisation measures on one hand and the disposal of eight assets on the other hand. The valuation result amounted to EUR 27 k compared to EUR – 1,876 in 2012. The fair value of immovable assets is used for the calculation of the G-REIT equity ratio. EUR k Investment properties at Dec. 31, 2012 Subsequent acquisition and production costs Acquisitions Disposals Reclassifications Revaluations Investment properties at Dec. 31, 2013 Fair value of owner-occupied properties Fair value of property held for sale Interests in real estate partnerships 1,622,988 14,483 36,865 – 42,000 0 27 1,632,362 6,078 0 21,001 Fair value of immovable assets 1,659,441 Equity ratio of 47.3 % – G-REIT equity ratio of 50.9 % The balance sheet shows a total equity posi- tion of EUR 844,114 k with an equity ratio of 47.3 % (December 31, 2012: EUR 829,287 k, 46.4 %). The G-REIT equity ratio, which is defined as total equity divided by immov- able assets, amounted to 50.9 % (Decem- ber  31,  2012: 50.0 %). According to the G-REIT Act (REITG), the minimum require- ment for compliance with the G-REIT criteria is a G-REIT equity ratio of 45 % calculated at year-end. Compared to fiscal year 2012, total equity in- creased in 2013 by EUR 14,827 k. Due to an increase in fair value of financial instruments, the hedging reserve increased by an amount of EUR 14,808 k from EUR -22,137 k as at December 31, 2012 to EUR -7,329 k as at December 31, 2013. The consolidated profit for the period resulted in equity growth of EUR 38,945 k. On the other hand the capital surplus decreased by EUR 38,926 k, main- ly due to the payments of dividends. All in all this led to a total increase in equity from EUR 829,287 k to EUR 844,114 k**. Decrease in long-term loans Long-term loans decreased by 6.8 % to a total of EUR 822,486 k in 2013. This is mainly relat- ed to the re-classification of two loans which are due to expire within the next 12 months from non-current to current liabilities. Increase in current liabilities Current liabilities amounted to EUR 88,820 k, of which EUR 73,886 k were categorised as short-term loans, mainly representing two loans which are due to expire within the next 12 months. Other current liabilities amount- ing to EUR 8,977 k mainly comprised out- standing invoices (EUR 3,435 k), deferred income (EUR 1,544 k) and other current lia- bilities (EUR 3,998 k). Please refer also to » section 11.4 of the Notes for the financial year 2013 for further details. * EPRA: European Public Real Estate Association, Best Practices Committee, Brussels, Belgium. ** See also the consolidated statement of changes in equity. 17 alstria Financial Report 2013Group management report Corporate management alstria proactively focuses on the following fi- nancial key performance indicators: revenues and funds from operations (FFO). Revenues mainly comprise rental income, which derives from the leasing activities of the Company. The FFO is the operating result from real es- tate management, excluding valuation effects and other adjustments such as non-cash ex- penses/income and non-recurring effects.* For the financial year 2013 the Company forecasted revenues of around EUR 103 m. Due to a good leasing result, this projection was exceeded by around EUR 1 m, resulting in revenues of EUR 104 m in 2013. Funds from operations (FFO) amounted to around EUR 45 m in 2013, in line with the FFO forecast for this year. Furthermore, the Company keeps track on the cash flow, the LTV, and the G-REIT eq- uity ratio. By proactively managing its balance sheet, alstria was able to improve its LTV from bank financing, reducing it from 55.0 % as at December 31, 2012 to 50.9 % as at year-end 2013. The G-REIT equity ratio was 50.9 % at year- end, exceeding a rate of 50.0 % in the prior year and the legal covenant of 45 %. * For further details, please refer to page 13. 18 alstria Financial Report 2013Group management report REPORT ON RISKS AND OPPORTUNITIES Risk report Risk management alstria has implemented a Group-wide struc- tured 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 moni- tored on an at least quarterly basis. The aim of alstria Group’s risk management strategy is to minimise or, where possible, completely avoid the risks associated with entrepreneur- ial activity in order to safeguard the Group against potential losses, and against risks to the Company going concern. The system of the early detection of risks is in active use. The Company’s risk identification process al- lows the early identification of sources of any potential new risks on an ongoing basis. Risk mitigation measures are defined in order to undertake any necessary steps to circumvent the identified risks, i.e., to insure, diversify, manage or avoid risks. For alstria, risk management is the targeted securing of existing and future potential for success, along with improving the quality of the Company’s planning processes. The risk management system of alstria office REIT-AG is an integral part of the manage- ment and control system of the alstria Group. The risk management system is integrated into the regular reporting to the Manage- ment Board and Supervisory Board in order to ensure that risks are dealt with proactive- ly and efficiently. The risk management sys- tem thereby focuses on a full coverage of the risks. The identification and assessment of opportunities is not part of the risk manage- ment system of alstria office REIT-AG. Structure of risk management system Risk management is organised as a central unit independent of the individual business divisions. The risk manager prepares a risk re- port on a quarterly basis and provides it to the Management Board. The bases for the prepa- ration of the risk report are the reports from the risk owner, who is responsible for a par- ticular area of risk. alstria Group faces various areas of risk within the context of its business activities, which are divided into the following four categories: › strategic risks › operational risks › compliance risks › financial risks Each risk category is assigned to a so-called risk owner. Inherent to his position in the Company the risk owner represents the area in which the identified risks could possibly materialise and is at the same time respon- sible for the assigned risk category: Risk category Strategic risks Operational risks Compliance risks Financial risks Risk owner » Finance & Controlling » Real Estate Operations » Legal » Finance & Controlling The risk report presents the findings that are observed during risk identification, assess- ment, evaluation and monitoring. At the same time, the comprehensive documenta- tion of this report ensures an orderly assess- ment, which is conducted by the responsible departments and by the Supervisory Board. In addition, the divisions report their respec- tive risks and opportunities to the Manage- ment Board in weekly meetings. The Man- agement Board must be notified of any risks immediately via ad-hoc announcements, which represent a potential economic loss of more than EUR 1.0 million. By monitoring the risk management system, alstria is able to continually improve and adapt its structures and processes. 19 alstria Financial Report 2013Group management report Risk valuation Risks are assessed according to their likeli- hood of occurrence and their magnitude of impact. Accordingly, they are categorised as ‘high’, ‘medium’ or ‘low’. The potential dam- age is any potential negative deviation from the forecasts and objectives of the Group. Classification according to likelihood Probability/likelihood of occurrence (in %) Description 1 to 15 16 to 35 36 to 55 56 to 75 76 to 99 Remote Unlikely Likely Highly likely Close to certain Under this framework, a remote risk is de- fined as one that will occur only under ex- ceptional circumstances and a close-to-cer- tain risk as one that can be expected to occur within a specified period of time. Classification according to degree of impact Expected impact in EUR million Degree of impact > 0.0 to 0.3 > 0.3 to 0.75 > 0.75 to 3.0 > 3.0 to 7.5 > 7.5 Insignificant Minor Moderate Major Critical Based on the likelihood that risks will occur and the impact they would have on the business, financial position, profit, and cash flow of the Group risks are classified as ‘high’, ‘medium’ or ‘low’ according to the following matrix: Key characteristics of the account- ing-related internal control and risk management system The objective of the control and risk manage- ment system regarding the (Group) reporting process is to make sure that the reporting is consistent and in line with legal require- ments, the generally accepted accounting principles and the International Financial Re- porting Standards (IFRS), and internal Group guidelines. Only then it can provide true and reliable information to the recipients of the annual financial statements. To this end al- stria has implemented an internal control and risk management system that combines all relevant principles, processes and measures. The internal control system consists of two areas: control and monitoring. In organi- sational terms, the divisions’ treasury, con- trolling and accounting divisions are respon- sible for control. The monitoring measures consist of elements incorporated in the process as well as exter- nal, independent elements. Among others, the integrated measures include process- related system-based technical controls such as the ‘dual control principle’, which is ap- plied universally, and software-based check- ing mechanisms. In addition, qualified em- ployees, who have the appropriate expertise, and specialised Group departments such as controlling, legal and treasury perform mon- itoring and control functions as part of the various processes. Probability Close to certain Highly likely Likely Unlikely Remote L L L L L M M L L L H M M L L H H M M L H H H M M Degree of impact Insignificant Minor Moderate Major Critical H = High risk M = Medium risk L = Low risk The risk management system of alstria office REIT-AG was not exposed to any significant changes compared to the previous year. 20 alstria Financial Report 2013 Group management report The Management Board and the Supervisory Board (in particular the Audit Committee) as well as an auditing company are involved in the monitoring system. They perform various checks that are independent of the Compa- ny’s processes. Group accounting acts as the central inter- locutor for special technical questions and complex reporting issues. If required, exter- nal experts (auditors, qualified accounting specialists, etc.) are consulted. In addition, monitoring related to accounting is executed by the controlling department of the Company. All items and main accounts of the income statement and the balance sheet are reviewed regularly for accuracy and plau- sibility. This is conducted both for the con- solidated financial statements and for the in- dividual financial statements of the Group’s companies. Accounting-related data is mon- itored monthly or on a quarterly basis, de- pending on the frequency of its preparation. The accounting-related risk management system forms part of the Group’s risk man- agement system. The risk owner responsible for the area of risk ‘finance’ monitors risks that are relevant for the accuracy of account- ing-related data. Risks are identified on a quarterly basis and are assessed and docu- mented by the risk management committee. Appropriate action is taken to monitor and optimise accounting-related risks throughout the alstria Group. Description and assessment of risks In accordance with alstria’s risk management system all material risks inherent to the fu- ture development of the Group’s position and performance are described in this chap- ter. The individual risks described relate to the planning period from 2014 to 2016. Strategic risks Strategic risk management is concerned with factors influencing the Company’s market environment, its regulatory environment and its strategic corporate organisation. Market environment risks to the Group are derived from macro-economic developments and their impact on real estate markets. Unfor- tunately, the impact on the situation of the financial markets and on the future macroe- conomic environment in Germany that may result from the ongoing sovereign debt crisis in Europe and the U.S. remains unclear. Compa- red to last year, no direct impact on the overall strategic risk situation that can be linked to the future macroeconomic environment can currently be identified. As long as there is no substantial change in the economic environment, the market envi- ronment risk level will remain stable at low (L) to medium (M). Risks related to the Company’s legal en- vironment result from changes to regula- tions and laws. These may, in turn, have an impact on the key regulatory requirements as well as the corporate constitution of the alstria companies. These are e.g. alstria of- fice REIT-AG’s classification as a REIT, and a currently planned stronger regulation of the European investment industry by the EU Di- rective on Alternative Investment Fund Man- agers (AIFM Directive). The directive was transposed into national law in mid-2013. It is not yet clear whether alstria will fall under the scope of the directive. If so, the new law could result in new regulatory requirements, resulting in higher expenses. Overall, risks regarding the legal environment are, like in the previous year, classified as low (L). Further risks exist as part of the strategic di- rection of the business organization, due to inefficient organisational structures and the Company’s dependence on IT systems and structures. Both the organisational structure and the IT infrastructure support strategic and operational objectives. The risk of strate- gic corporate organization therefore remains classified as low (L). 21 alstria Financial Report 2013Group management report Operational risks alstria’s operational risk management deals with property-specific risks and general busi- ness risks. This includes, among others, va- cancy risk, the credit worthiness of tenants and the risk of falling market rents. Person- nel-related risks such as loss of know-how and competences due to fluctuation of staff are also monitored in this risk area. The Group applies various early warning indica- tors to monitor these risks. Ongoing insur- ance checks such as rent projections, vacancy analyses, the control of the lease terms and termination clauses are designed to help iden- tify potential dangers and risks. An operation- al risk, which could materialise as a result of the sovereign debt crisis, is, as before, mainly due to a potential shortfall of rental payments from one or more major tenants. Due to the fact that all of alstria’s main tenants are public institutions or highly rated, the risk of shortfall in payments is currently, and as in the previ- ous year, limited (L). Refurbishment projects alstria realises a significant number of refur- bishment projects. All risks related to these projects are managed by extensive project controlling and a related budget management process. Potential risks are e.g. the risk of not- in-time completion, risk of budget overrun, as well as the risk of deficiencies in the construc- tion. Unchanged to the end of the previous reporting period the risk resulting from refur- bishment projects is categorised at a moder- ate level (M). Employees The skills and motivation of alstria’s employ- ees are decisive factors in the Group’s success. A risk of losing knowledge results from the fluctuation of staff as well as from not recruit- ing sufficiently qualified experts to fill vacan- cies in the Group in good time. Both cases could result in a shortfall of suitable experts and key personnel, which could endanger the Group’s competitive advantages in its mar- kets as well as its further growth opportuni- ties. alstria mitigates these risks through the following measures: selective, needs-orient- ed skills-development of the existing staff, strengthening its image as an attractive em- ployer, university marketing, promoting em- 22 ployee motivation through strong leadership and corporate culture and profit-oriented var- iable remuneration schemes. Overall, alstria estimates the described risks to be at a low level (L), which corresponds to the situation at the end of the previous year. IT security The majority of our business processes are supported by efficient IT systems. Any fault affecting the reliability or security of the IT system could lead to delays or interruptions of operating activities. alstria protects itself against IT risks by constant examination and enhancement of the information technology deployed. In addition, modern hardware and software solutions and safeguards against at- tacks are installed. Structural security meas- ures are in place to protect the computer centre. All data is backed up daily in an inter- nal data depository, and in an external data depository once a week. Workstations have access restrictions so that employees are only able to access the systems they need for their work. Overall, therefore IT risks are assessed to be unlikely to materialise. Equal to last year’s assessment, their possible consequenc- es are considered to be moderate (M). Property transactions alstria is exposed to risks related to the acqui- sition and disposal of real estate properties. Related risks are not revealing all or the full extent of the risks and liabilities associated with properties in the due diligence exami- nation carried out or the risks associated with or inherent to the valuation method used to value the property. In case of the disposal of real estate assets alstria usually gives certain warranties to the potential purchaser regard- ing factual and legal matters of the proper- ty in question. It cannot be fully ruled out that alstria’s management is not aware of a risk covered by certain elements and warran- ties given in the sales agreement. As a result, there is generally a risk that alstria (as the sell- er) may be charged for breach of warranty by a prospective purchaser. From a purchasing perspective, alstria is exposed to the risks that hidden deficiencies on land and/or property are not observed or unfavourable contractual agreements are transferred to the Company, resulting in additional future costs. alstria Financial Report 2013Group management report Both in acquisition and selling proceedings alstria responds to these risks by thorough technical, legal and tax analysis with respect to all relevant property and contractual is- sues. It does so by employing internal and external lawyers, tax advisors, architects, construction engineers and other required experts. As before, risks relating to transac- tions of properties are assessed to be of a low (L) to moderate (M) level. Environmental risks alstria is exposed to risks arising from en- vironmental liabilities or possible damag- es resulting from natural events like fire or flooding. alstria’s buildings may contain un- detected hazardous materials (such as asbes- tos) to an unanticipated extent. It may fur- ther be contaminated or otherwise affected by environmental risks or liabilities, such as pre-existing pollution and soil contamination. Risk mitigation is implemented by a due-dil- igence examination that alstria customarily undertakes when acquiring new properties in addition to a warranty issued by the seller. Furthermore insurances covering the impacts of natural catastrophes are in place. The en- vironmental risks described are considered to be at a low (L) level, same as in the previous year. Compliance risks G-REIT legislation alstria is registered as a German REIT-AG (G-REIT) in the commercial register. The Ger- man REIT segment allows alstria to offer a high profile to investors and distinguish it- self on the capital market as a REIT. The REIT shares are traded at the Frankfurt Stock Ex- change. The G-REIT status does not have any influence on the admission to the Regulated Market (Prime Standard). Certain requirements have to be met by the Company in order to qualify for and retain its designation as a G-REIT. The most sig- nificant requirements are as follows: The G-REIT must be a stock corporation listed on an organised market and its registered office and management must be in Germany. Its registered share capital must amount to at least EUR 15 m. All shares must be voting shares of the same class. Free float 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 profits as resulting under German GAAP accounting 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 re- corded under IFRS. Due to the consistent monitoring of the com- pliance with all described REIT criteria, the risk of non-compliance is considered to be low (L), as in the previous year REIT corpo- rations are fully exempt from German cor- porate income tax (KSt) and German trade tax (GewSt). This tax exemption has been applied with retrospective effect starting on January 1, 2007. Capital management Capital and investment management activi- ties are designed to maintain the Company’s G-REIT status in order to support its business activities and maximise shareholder value. alstria Group manages its capital structure and makes adjustments in response to changes in economic conditions. In order to maintain or adjust the capital structure, the Group can is- sue new shares or make a capital repayment to its shareholders. No changes were made to the aims, guidelines and processes as at De- cember 31, 2013 and December 31, 2012. The capital structure is monitored by the Company using key performance indicators (KPIs) relevant for classification as a G-REIT. The G-REIT equity ratio (the ratio of equi- ty to the fair value of immovable assets) is the most important KPI. Under the Group’s strategy, the G-REIT equity ratio must be be- tween 45 % and 55 %. According to § 5 of the REIT Act, altria’s eq- uity (as reported in its consolidated financial statements) must not fall short of 45 % of its immovable assets. If the minimum equity ratio is, however, not satisfied for three con- 23 alstria Financial Report 2013Group management report secutive financial years, the exemption from corporate income tax (KSt) and trade tax (GewSt) ceases at the end of the third finan- cial year. The G-REIT equity ratio is 50.9 % on the balance sheet date. Accordingly, alstria com- plies with the minimum G-REIT equity ratio requirement according to section 15 G-RE- IT-Act (REITG). Nonetheless, the risk that al- stria may fail to meet the minimum G-REIT equity ratio of 45 % in the following three consecutive years remains. As stated above it would then face the prospect of losing its status as G-REIT and its tax exemption. The three-year forecast until December 31, 2016, excludes the possibility that alstria will lose its G-REIT status by falling shortfall of the 45 % barrier. respecting Compliance risks alstria is dependent on all employees and management the compliance standards in place. alstria's business de- pends on employees and the members of the management complying with laws, pol- icies and procedures as prescribed by docu- mented policies, procedures and laws. If al- stria's senior management fails to document and reinforce the Company's policies and procedures or employees commit criminal, unlawful or unethical acts (including corrup- tion), this could have a material adverse ef- fect on alstria's business, financial condition and results of operations. It would also harm alstria's reputation in the real estate market and thereby negatively affect future busi- ness opportunities. alstria has implemented a compliance organisation, which deals with adequate and documented compliance rules and regulations and provides training to all employees concerning compliance-related topics. The materialization of compliance risks is assessed to be unlikely (L). Legal risks The Company is not involved in any major lawsuits from any individual or other kind of legal dispute outside of its day-to-day busi- ness. Thus equal to the previous year, the risk of legal disputes is classified as low (L). 24 Financial risks Due to alstria’s refinancing strategy, the fi- nancial risk situation is stable as compared to the previous year’s reporting period. The Group’s main financial instruments are bank loans and derivative financial instru- ments. The main purpose of the bank loans is to finance alstria’s business activities. De- rivative financial instruments include interest swaps and caps. The purpose of these deriv- ative financial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of finance. The main risks arising from the Group’s finan- cial instruments are cash flow risks, interest rate risks and liquidity risks. alstria’s current debt ratio is approx. 52.7 %. This is a reason- able rate compared to the average leverage of German real estate companies. alstria’s syndicated loan facility agreement allows for a loan-to-value ratio (LTV) of up to 70 %. After refinancing the main loan in financial year 2013, alstria managed to fix the LTV at 53.4 % on the relevant test date. The risk of a covenant breach was encountered effec- tively. According to plan the next refinancing of the main part of alstria’s loans will be necessary in 2018. Thus, the risk of refinancing on unfa- vourable terms is limited for the time being (L). Interest rate risk Interest rate risks result from fluctuations in market interest rates. These affect the amount of interest expenses in the financial year and the market value of derivative finan- cial instruments used by the Company. alstria’s hedging policy allows the use of a combination of plain vanilla swaps and caps in order to limit the Company’s exposure to interest rate fluctuations. It still provides enough flexibility to allow for the disposal of real estate assets, avoiding any cost linked to an over-hedged situation. The interest base for the financial liability (loan) is the three- month EURIBOR, which is adjusted every three months. A number of different deriv- ative financial instruments were acquired to manage the interest expense. The maturi- ty of the derivative financial instruments is linked to the term of maturity of the loans. alstria Financial Report 2013Group management report Derivative financial instruments mainly re- late to interest swaps, in which the Company agrees to exchange the difference between fixed and variable interest rate amounts with its contract partners at specified intervals, as calculated by reference to an agreed notional principal amount. Interest caps were further 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 is paid out. As in the previous year the interest rate risk as based on the described hedging strategy is at present, classified as moderate (M). Liquidity risk One of alstria’s core processes is cash man- agement. The Company manages its future cash position and monitors its progress on a daily basis. A cash-forecasting tool is used to prevent liquidity risks. As a basis for analysis this liquidity-planning tool makes use of the expected cash flows from business activities and the maturity of the financial investments. Having implemented refinancing in 2013, the major liquidity risk resulting from the balloon repayment on the main syndicated loan fa- cility was successfully averted. Since the new syndicated loan facility will not be due un- til mid-2020, the liquidity risk resulting from repayment obligations is currently, as in the previous year, mitigated (L). Valuation risks The fair value of the real estate properties owned by the Group reflects the market val- ue as determined by an independent apprais- er. It can be subject to change in the future. 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. These are declining rent levels, a decreasing demand or increas- ing vacancy rates. Many qualitative factors are also decisive in the valuation of a prop- erty, including a property’s expected mar- ket rents, its condition and its location. The final 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 reflect new developments or for other rea- sons, subsequent valuations of the respec- tive property may result in a decrease in the market value ascribed to such a property. If such valuations reveal significant decreases in market value compared to prior valuations, the Company can incur significant revalua- tion losses with respect to such properties. Factors such as economic changes, interest rate fluctuations and inflation may adversely affect the value of the properties. To mini- mise these risks, a regional diversification of investment portfolios, a consistent focus on the individual needs of tenants and a detailed market research and analysis (broker reports) is applied. In addition, the market value of all of alstria’s assets is determined annually at year-end by independent, internationally rec- ognised experts. In summary, the risk of un- expected devaluations is, as in the previous year, classified as moderate (M). Counterparty risk alstria hedges a portion of its risk by apply- ing third party instruments (interest rate de- rivatives, property insurances and others). alstria’s counterparties in these contracts are internationally recognised institutions, which are rated by the leading rating agencies. al- stria reviews the ratings of its counterparties on a regular basis in order to mitigate any risk of default. The financial crisis has raised doubts as to the reliability of rating agencies’ assessments. As a reaction to this objection, alstria makes use of other sources of infor- mation to challenge the rating agencies’ as- sessments. The Group is otherwise not exposed to any significant credit risks. Hence same as last year, they can be classified, as low (L). Overall risk assessment by the Management Board alstria office REIT-AG consolidates and ag- gregates all risks reported by the different business units and functions following its risk management policy. Compared to the previ- ous year, the overall risk situation of alstria remained stable. In financial year 2013 only minor or immaterial changes were noted for risks categorised as high (H) or medium (M) 25 alstria Financial Report 2013Group management report in alstria’s risk level matrix. At the end of the year, risks categorised as ‘high’ accounted for 1.1 % (2012: 1.1 %) of all identified risks while risks categorised as ‘medium’ accounted for 46.3 % (2012: 37.6 %) of all identified risks. On the one hand this is due to the econom- ic environment in Germany, which so far has proven to be relatively stable despite the sov- ereign debt crisis in some European countries and the USA. On the other hand, the Com- pany’s stable funding position, conservative level of debt and the solid-REIT equity ratio support this assessment. Sufficient precautions have been taken against identifiable risks. In our view, the risks described in our aggregated risk report do neither individually nor cumulatively threat- en our ability to continue as a going concern, considering their likelihood of occurrence and impact level. This applies both to the single Group companies and the Group. Report on opportunities Management of opportunities alstria Group’s opportunities management aims to identify and assess opportunities as early as possible and to initiate appropriate measures in order to take advantage of op- portunities and transform them into business success. Growth and earnings opportunities of alstria Group result both from the existing real estate portfolio and the acquisition of properties, which have a certain earnings potential. De- pending on the level of a property’s life cycle, opportunities may be found in the reposition- ing and development, the strengthening of tenant relationships or in selling the property. The funding that is necessary for the imple- mentation of these activities is safeguarded by the financing activities of the Group. Here, opportunities lie in ensuring sustainable fi- nancing on favourable terms. The evaluation of opportunities is partial- ly carried out in the context of the annual budget planning or on an ongoing or oc- casional basis during the year. The process starts with the careful analysis of the market environment and the market opportunities of the properties held in the portfolio. These in- clude the assessment of different criteria like tenant needs, the category of properties, as well as the regulatory changes. Regular re- porting supports the monitoring of growth initiatives within the respective budget and planning approval processes. alstria office REIT-AG’s Management Board is regularly (usually at least via a monthly report) updat- ed on the status and progress of the initiatives being implemented. In addition, the real es- tate operations department receives monthly reports in which the planned costs and rev- enues are compared to the actual budget consumption and actual revenues. Coordi- nated by the central controlling department the Management Board is provided with an indicator-based report, in which the planned performance indicators are compared to the actual figures. In addition, the financial and liquidity planning as well as forecasts are up- dated and changes to the project scope are made transparent. 26 alstria Financial Report 2013 Group management report Opportunities relating to real estate acquisitions The location of a property is essential for its attractiveness. Opportunities arise when the regional market is characterised by favour- able demographics and positive real estate dynamics. Together with an optimal proper- ty management this results in opportunities for long-term capital appreciation. alstria’s acquisition strategy aims to identify prop- erties with the described opportunity struc- ture. The acquisition will therefore only be performed if the investment volume offers prospects of achieving a sustainable increase in value. Opportunities relating to tenant relationships A structured and active property and as- set management ensures the quality of our leasing service and is the basis for a sustain- able tenant relationship. Opportunities arise through a flexible response to the needs and requirements of existing or potential ten- ants. alstria has the knowledge and resourc- es to provide solutions and to implement the requirements for the tenants of the rental property. This gives rise to opportunities for the generation of sustainable and long-term leases. Opportunities arising from real estate development As a long-term oriented owner of real estate alstria’s property portfolio also entails aging buildings that require refurbishment or repo- sitioning. The modernisation of a property opens up the opportunity for value creation by reshaping the asset for the next 20 to 30 years and strengthens its future attractive- ness in the market and for tenants. Opportunities from financing The Group's financing strategy is focused on optimal provision of funds to invest in new properties and development projects. Op- portunities arise from optimisation of the financing terms. This requires the imple- mentation of long-term and flexible fund- ing at favourable conditions as well as the safeguarding of the financial covenants at all times. A significant opportunity from fi- nancing also arises out of the low debt ratio (LTV from bank financing), which is currently at 50.9 %, representing a comfortable base for future funding and growth. Overall Summary of the Opportunities Report The current refinancing position of the Group safeguards a stable financial position at fa- vourable interest rates until mid- 2018. Con- cerning revenues, alstria benefits from long- term rental agreements of an average lease length of approx. 6.8 years and potential in- creases in rents due to decreases in vacan- cy rates and adjustments to the consumer price index. In addition, the Group possesses a range of properties available for attractive and value adding refurbishment opportuni- ties. alstria’s portfolio is well balanced and contains many first-class anchor buildings with high-quality tenants. Therefore, alstria is well positioned to contin- ue its buy-and-manage strategy and to iden- tify and implement relevant future market opportunities. alstria’s core competence is the management of assets. The asset repositioning and the re- furbishment alstria is continuously undertak- ing, both as a part of joint ventures and on its own, will strengthen the basis for an increase in organic value across the portfolio. 27 alstria Financial Report 2013Group management report SUSTAINABILITY REPORT MANDATORY DISCLOSURES In 2013, alstria published its fourth sustaina- bility report. This report shows a continuous improvement of alstria’s reporting frame- work, and the scope of coverage since the first sustainability report. It provides informa- tion about alstria’s key achievements within its sustainability framework and gives the reader a deeper insight into the respective operational impacts. The key values within the framework expressed for each and every stakeholder group are alstria’s main drivers to consider a sustainable approach in every de- cision made at every level of the organisation. For further information on our sustainabili- ty engagement and targets, please refer to our annual sustainability report 2013, which is available on our website » http://www.al- stria.com/en/sustainability/sustainability-re- ports/date/2013/ and/or to » Part I/II – Com- pany Report of the Annual Report 2013. Disclosures in accordance with Section 315 para. 4 of the German Commercial Code (HGB) for financial year 2013 and the explanatory report of the Management Board Composition of subscribed capital As at December 31, 2013, alstria’s share capi- tal amounted to EUR 78,933,487.00, divided into 78,933,487 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 deci- sive for the shareholder’s share in the Com- pany’s profit. The individual rights and duties of the shareholders result from the provisions of the German Stock Corporation Act (Ak- tiengesetz, AktG), in particular Sections 12, 53a et seq., 118 et seq. and 186. Restrictions on voting rights or the transfer of shares The exercise of voting rights and the transfer of shares are based on the general statutory requirements and alstria’s articles of associa- tion, which does not restrict either of these activities. For cases falling under Section 136 AktG, the voting rights of the affected shares are excluded by law. No other restrictions concerning voting rights or the transfer of shares apply on the reporting date or, if aris- ing from agreements between shareholders, are not known to the Management Board. Shareholdings that exceed 10 % of the voting rights alstria was not aware of any shareholders di- rectly or indirectly holding an excess of 10 % of the voting rights as at December 31, 2013. Shares with special rights alstria has not issued any shares with special rights granting control rights. 28 alstria Financial Report 2013Group management report Nature of voting rights control if employees have a share in capital and do not directly exercise their right of control Equal to other shareholders, employees, holding alstria shares, exercise their control rights in accordance with applicable law and the articles of association. Appointment and dismissal of Man- agement Board and amendments to the articles of association alstria’s Management Board consists of one or more members who are appointed or dis- missed by the Supervisory Board in accord- ance with Sections 84 and 85 AktG. The arti- cles of association do not contain any special provisions in this respect. Pursuant to Sec- tion 84 AktG, members of the Management Board are appointed for a maximum term of five years. Reappointment or extension of the term of office is permitted for a maxi- mum of five years, in each case. Amendments to the articles of association are made pursuant to Sections 179 and 133 AktG. The Supervisory Board is furthermore author- ised to make changes in, and amendments to, the articles of association that merely affect its wording without the shareholders passing a resolution in general meeting (Sec- tion 12 para. 2 of the articles of association). Pursuant to Section 15 para. 5 of the articles of association in conjunction with Sections 179 para. 2 and 133 AktG, shareholders may pass resolutions 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 law prescribes a larger majority, such majority shall be decisive. The articles of association were last amended by resolution of the An- nual General Meeting on May 29, 2013: The provisions regarding Authorized Capital 2012 were replaced by the provisions regarding Authorized Capital 2013 and the provisions regarding Conditional Capital 2010 were replaced by the provisions regarding Condi- tional Capital 2013. Authority of Management Board regarding the issue and buyback of shares 1. Authorised Capital Subject to the approval of the Superviso- ry Board the articles of association author- ise the Management Board to increase the share capital by issuing new bearer shares against contribution in cash and/or kind once or repeatedly up to a total amount of EUR  39,466,743.00 until November 28, 2014. Further details are governed by Section 5 para. 3 and 4 of the articles of association. 2. Conditional Capital alstria controls four conditional capitals (pur- suant to Sections 192 et seq. AktG, which are regulated in Sections 5 para. 5 to 8 of the Company’s articles of association. a) Conditional Capital 2013 The share capital is conditionally increased by an amount of up to EUR 38,000,000.00 by the issuance of up to 38,000,000 no par val- ue bearer shares. The Management Board is authorised to stipulate the profit entitlement for the new shares issued on the basis of the exercise of options or conversion rights or the fulfilment of a conversion obligation at variance from Section 60 para. 2 AktG. The conditional capital increase is only carried out insofar as the holders of option rights or con- version rights or those holders with conver- sion obligations from bonds with warrants or convertible bonds, profit participation rights or participating bonds, which are issued on the basis of the authorisation resolved by the shareholders in the general meeting on May 29, 2013 utilise their option rights or conver- sion rights or, insofar as such holders have conversion obligations, such holders fulfil their conversion obligations, unless a cash set- tlement is granted or treasury shares are used to fulfil the option rights or conversion rights. b) Conditional Capital II The share capital is conditionally increased by an amount of up to EUR 515,625.00 by issuing of up to 515,625 no par value bear- er shares. The sole purpose of the condition- al capital increase is to grant shares to the holders of subscription rights (stock options), which alstria issued in accordance with the 29 alstria Financial Report 2013Group management report 3. Purchase of treasury shares The shareholders in general meeting on June  8, 2011 authorised the Management Board to acquire shares until June 7, 2016 up to a total of 10 % of the Company’s share capital at the time of issuing of the authorisa- tion. The acquired shares and other treasury shares that are in the possession of or are at- tributed to alstria pursuant to Sections 71a et seq. AktG may never amount to more than 10 % of the share capital. Shares may be pur- chased through a stock exchange, by means of a public offer to all shareholders or by us- ing derivatives (put or call options or a com- bination of both). Significant agreements, which take effect upon a change of control of the Company A significant syndicate loan agreement of al- stria entitles the creditor to declare the loan due for payment should any person or com- pany acquire – directly or indirectly – 50 % of the voting rights or a controlling influence in alstria. Compensation agreements with Management Board members and employees in case of a takeover bid No compensation agreements were entered into with Management Board members or employees in case of a takeover bid. These provisions comply with statutory re- quirements or are reasonable and common practice for comparable publicly listed com- panies. They are not intended to hinder po- tential takeover bids. authorisation of the annual general meet- ing held on March 15, 2007. The conditional capital increase is only carried out insofar as the holders exercise their stock options and if no treasury shares are used to fulfil the stock options. The new shares shall participate in the Company’s profits from the beginning of the financial year in which they come into ex- istence through exercise of the option. c) Conditional Capital III The share capital is conditionally increased by an amount of up to EUR 336,874.00 by issuing of up to 336,874 no par value bear- er shares. The conditional capital increase is used solely to grant shares to the holders of convertible profit participation certificates, which were issued by the Company until March 14, 2012 in accordance with the au- thorisation of the general meeting held on March 15, 2007. The conditional capital in- crease is only carried out insofar as issued convertible profit participation certificates are converted into shares of the Company and no treasury shares are used to satisfy the certificates. The new shares shall participate in the Company’s profits from the beginning of the financial year in which they come into existence through conversion of the certifi- cates. d) Conditional Capital III 2012 Furthermore share capital is condition- ally increased by an amount of up to EUR 500,000.00 by issuing up to 500,000 no par value bearer shares. The conditional capi- tal increase shall be used solely to grant shares to the holders of convertible profit participa- tion certificates, which were issued by the Company until April 23, 2017 in accordance with the authorisation of the general meet- ing held on April 24, 2012. The conditional capital increase is only carried out insofar as issued convertible profit participation certifi- cates are converted into Company shares and no treasury shares are used to satisfy the cer- tificates. The new shares shall participate in the Company’s profits from the beginning of the financial year in which they come into ex- istence through conversion of the certificates. 30 alstria Financial Report 2013Group management report ADDITIONAL GROUP DISCLOSURES Employees As at December 31, 2013, alstria had 63 em- ployees (December 31, 2012: 59). The annual average number of employees was 61 (previ- ous year: 55). These figures exclude Manage- ment Board members. Remuneration report Management Board members’ compensation comprises a fixed and a variable component linked to the Company’s operating perfor- mance. 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 a fixed remuneration. The remuneration report (appendix to the Group management report 2013), contain- ing details of the principles for the definition of the Management Board and Supervisory Board remuneration, forms an integral part of the audited Group management report. 31 alstria Financial Report 2013Group management report REPORTS ON POST-BALANCE SHEET DATE EVEN TS AND EXPECTED DEVELOPMEN TS Outlook for the alstria-Group Based on the expected stability of the Ger- man economy and the real estate market, the Company does not expect significant chang- es in alstria’s direct environment. However, changes other than the expected concerning interest rates, further property acquisitions or disposals or other changes in the assumptions for 2014 could have an impact on the pro- jections. Due to the disposal of eight properties in financial year 2013 and taking into ac- count the already contracted rent for 2014, alstria is expecting revenues to decrease by around EUR 2 m to EUR 102 m compared to EUR 104 m revenues in 2013. For fiscal year 2014, the Company is expect- ing an FFO of around EUR 47 m. The increase in FFO compared to the FFO of EUR 45 m achieved in 2013 is mainly due to the Com- pany’s new finance structure, resulting in lower financing costs. Since the Company pays out a significant part of its funds from operations as dividends, fu- ture external growth largely depends on the Company’s ability to raise additional equity. Consequently, further portfolio growth is highly dependent on the development of the global equity markets and is therefore diffi- cult to predict for a longer period of time. Hamburg, February 14, 2014 Report on post-balance sheet date events No events occurred after the balance sheet date, which had a significant impact on the earnings, financial and assets position of the alstria-Group. Report on expected developments The report on expected developments con- tains statements relating to anticipated fu- ture developments. The development of the Company depends on various factors. Some of these factors are beyond the Company’s sphere of influence. Statements about ex- pected developments are based on current assessments and are hence, by their very na- ture, exposed to risks and uncertainty. The actual development of the alstria Group may differ positively or negatively from the pre- dicted development in the statements of this report. Expected economic development Based on a strong German economy and the expected recovery in the Euro-zone, the German government is forecasting a 1.8 % growth rate of its economy in 2014. This de- velopment is expected to positively impact the labour market, resulting in an increase in the rate of employment, especially due to im- migrations, and a further growth of income levels. Development of the real estate market: Outlook for 2014 The relevance of real estate as investment class will persist at a high level in 2014, due to the continuing very low interest rate level. On the investment market, the demand for core assets is expected to remain high and will highly exceed the supply. Therefore investor demand for value-add properties could accel- erate, although the biggest transactions still should take place in the core market. Con- sidering the continuing request for first-class office space in central locations, top rents are likely to increase slightly in 2014. 32 alstria Financial Report 2013Consolidated financial statements Detail index Consolidated financial statements 36 Consolidated income statement 37 Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements 1 Coporate Information 38 40 42 44 44 44 2 Basis of preparation 45 3 Changes in accounting policies and mandatory disclosures 51 4 Basis of consolidation 52 5 Key judgements and estimates 54 6 Seasonal or economic effects on business 54 7 Summary of significant accounting policies 62 8 Segment reporting 9 Notes to the consolidated income statement 62 9.1 Revenues 62 9.2 Income and expenses from passed-on operating expenses 62 9.3 Real estate operating expenses 63 9.4 Administrative expenses 9.5 Personnel expenses 63 9.6 Other operating income 63 9.7 Other operating expenses 64 9.8 Financial and valuation result 64 9.9 Net result on the disposal of 65 investment property 65 9.10 Income taxes 33 alstria Financial Report 2013 Consolidated financial statements Detail index Consolidated financial statements 10 Notes to the consolidated statement of financial position – assets 65 67 68 69 69 69 70 72 10.1 Investment property 10.2 Equity accounted investment 10.3 Property, plant and equipment 10.4 Intangible assets 10.5 Assets held for sale 10.6 Receivables and other assets 10.7 Derivative financial instruments 10.8 Cash and cash equivalents 11 Notes to the consolidated statement of financial position – equity and liabilities 72 11.1 Equity 73 11.2 Financial liabilities 76 11.3 Provisions 77 11.4 Trade payables and other liabilities 78 78 11.5 Trust assets and liabilities 11.6 Deferred taxes 78 12 Other notes 12.1 Compensation of Management Board and Supervisory Board 79 12.2 Other financial commitments and contingencies 80 12.3 Consolidated cash flow statement 13 Related party relationships 13.1 Preliminary remarks 13.2 Remuneration of key 80 80 management personnel 80 13.3 Related party transactions 34 alstria Financial Report 2013Consolidated financial statements 81 14 Earnings per share 81 15 Dividends paid 81 16 Employees 82 17 Stock option programme 82 18 Share-based remuneration 83 19 Convertible profit participation rigths programme 20 Financial risk management 20.1 Managing financial risk factors 20.2 Capital management 20.3 Determination of fair value 85 89 92 92 21 Significant events after the end of the reporting period 92 22 Utilisation of exempting provisions 23 Disclosures pursuant to Wertpapierhandelsgetz (German Securities Trading Act) 93 93 94 23.1 Ad - hoc - announcement 23.2 Directors´ dealings 23.3 Voting right notifications 96 24 Declaration of compliance pursuant to Section 161 AktG (Aktiengesetz: German Stock Corporation Act) 96 25 Auditor´s fees 96 26 Management Board 96 27 Supervisory Board 35 alstria Financial Report 2013EUR k Consolidated profit for the period Items which might be classified to the income statement in a future period: Cash flow hedges Reclassification from cash flow hedging reserve Other comprehensive income for the period: Total comprehensive income for the period: Total comprehensive income attributable to: Shareholders 10.7 10.7 2013 38,945 11,820 2,988 14,808 53,753 2012 39,911 – 5,363 986 – 4,377 35,534 53,753 35,534 Consolidated financial statements Consolidated financial statements CONSOLIDATED INCOME STATEMEN T for the period from January 1 to December 31, 2013 for the period from January 1 to December 31, 2013 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 result from fair value adjustments on invest- ment property Gain on disposal of investment property Net operating result Net financial result Share of the result of joint venture companies accounted for at equity Net loss from fair value adjustments on financial derivatives Pre-tax income (EBT) Income tax expenses Consolidated profit Attributable to: Shareholders 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 2013 104,224 – 513 – 10,462 93,249 – 5,325 – 7,790 3,932 – 111 27 1,398 85,380 2012 101,286 – 778 – 10,398 90,110 – 5,722 – 6,849 3,160 – 1,036 – 1,876 369 78,156 – 39,116 – 36,085 273 – 7,554 38,983 – 38 38,945 – 734 – 1,380 39,957 – 46 39,911 38,945 39,911 14 14 0.49 0.46 0.51 0.51 36 alstria Financial Report 2013for the period from January 1 to December 31, 2013 for the period from January 1 to December 31, 2013 Consolidated financial statements CONSOLIDATED STATEMEN T OF COMPREHENSIVE INCOME EUR k Consolidated profit for the period Items which might be classified to the income statement in a future period: Cash flow hedges Reclassification from cash flow hedging reserve Other comprehensive income for the period: Total comprehensive income for the period: Total comprehensive income attributable to: Shareholders 10.7 10.7 2013 38,945 11,820 2,988 14,808 53,753 2012 39,911 – 5,363 986 – 4,377 35,534 53,753 35,534 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 result from fair value adjustments on invest- ment property Gain on disposal of investment property Net operating result Net financial result Share of the result of joint venture companies accounted for at equity Net loss from fair value adjustments on financial derivatives Pre-tax income (EBT) Income tax expenses Consolidated profit Attributable to: Shareholders 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 2013 104,224 – 513 – 10,462 93,249 – 5,325 – 7,790 3,932 – 111 27 1,398 85,380 273 – 7,554 38,983 – 38 38,945 2012 101,286 – 778 – 10,398 90,110 – 5,722 – 6,849 3,160 – 1,036 – 1,876 369 78,156 – 734 – 1,380 39,957 – 46 39,911 – 39,116 – 36,085 38,945 39,911 14 14 0.49 0.46 0.51 0.51 37 alstria Financial Report 2013Consolidated financial statements CONSOLIDATED STATEMEN T OF FINANCIAL POSITION as at December 31, 2013 Assets EUR k Non-current assets Investment property Equity-accounted investments Property, plant and equipment Intangible assets Derivatives Total non-current assets Current assets Assets held for sale Trade receivables Accounts receivable from joint ventures Derivatives Other receivables Cash and cash equivalents thereof restricted Total current assets Notes 2013 2012 10.1 10.2 10.3 10.4 10.7 10.5 10.6 10.6 10.7 10.6 10.8 1,632,362 1,622,988 21,001 5,156 472 32,474 18,183 5,334 467 403 1,691,465 1,647,375 0 3,708 89 644 6,991 82,782 252 94,214 10,010 3,656 89 403 6,812 118,548 252 139,518 Total assets 1,785,679 1,786,893 38 alstria Financial Report 2013 as at December 31, 2013 Assets EUR k Non-current assets Investment property Equity-accounted investments Property, plant and equipment Intangible assets Derivatives Total non-current assets Current assets Assets held for sale Trade receivables Derivatives Other receivables Cash and cash equivalents thereof restricted Total current assets Accounts receivable from joint ventures Notes 2013 2012 1,632,362 1,622,988 10.1 10.2 10.3 10.4 10.7 10.5 10.6 10.6 10.7 10.6 10.8 1,691,465 1,647,375 21,001 5,156 472 32,474 0 3,708 89 644 6,991 82,782 252 94,214 18,183 5,334 467 403 10,010 3,656 89 403 6,812 118,548 252 139,518 Consolidated financial statements Equity and liabilities EUR k Equity Share capital Capital surplus Hedging reserve Retained earnings Total equity Non-current liabilities Long-term loans, net of current portion Derivatives Provisions Other liabilities Total non-current liabilities Current liabilities Short-term loans Trade payables Profit participation rights Provisions Other current liabilities Total current liabilities Total liabilities Notes 11.1 2013 2012 78,933 730,486 – 7,329 42,024 844,114 822,486 25,963 3,244 1,052 78,933 769,412 – 22,137 3,079 829,287 882,105 35,080 5,191 7,129 852,745 929,505 73,886 3,474 468 2,015 8,977 88,820 941,565 9,986 3,735 345 0 14,035 28,101 957,606 11.2 10.7 11.3 11.4 11.2 11.4 19 11.3 11.4 Total assets 1,785,679 1,786,893 Total equity and liabilities 1,785,679 1,786,893 39 alstria Financial Report 2013 Consolidated financial statements CONSOLIDATED STATEMEN T OF CASH FLOWS for the year ended December 31, 2013 EUR k 1. Cash flows from operating activities Consolidated profit for the period Unrealised valuation movements Interest income Interest expense Result from income taxes Other non-cash expenses (+) Notes 2013 2012 9.8 9.8 9.10 38,945 39,911 7,254 – 317 3,990 – 656 39,432 36,741 38 708 46 2,530 – 369 402 Gain (–)/loss (+) on disposal of investment properties 9.9 – 1,398 Depreciation and impairment of fixed assets (+) 10.3 10.4 549 Increase (–)/decrease (+) in trade receivables and other assets that are not attributed to investing or financing activities Increase (+)/decrease (–) in trade payables and other liabilities that are not attributed to investing or financing activities Cash generated from operations Interest received Interest paid Income taxes paid Net cash generated from operating activities 2. Cash flows from investing activities Acquisition of investment properties Proceeds from the sale of financial assets Payment of transaction cost in relation to the sale of investment properties Acquisition of other property, plant and equipment Proceeds from the equity release of interests in joint ventures Payments for capital contribution in joint ventures – 270 – 914 – 1,652 83,289 – 787 80,894 317 656 – 33,454 – 35,769 – 38 – 46 50,114 45,735 – 58,506 – 107,125 51,040 11,080 – 272 – 376 826 – 3,370 – 251 – 571 25,212 0 Proceeds from the repayment of loans granted to joint ventures 0 1,771 Net cash used in investing activities 12.3 – 10,658 – 69,884 40 alstria Financial Report 2013Consolidated financial statements Notes 2013 2012 EUR k Notes 2013 2012 9.8 9.8 9.10 7,254 – 317 38 708 549 3,990 – 656 46 2,530 – 369 402 38,945 39,911 Cash received from equity contributions 3. Cash flows from financing activities 39,432 36,741 Proceeds from the issue of a convertible bond Payment of transaction costs due to the issue of shares Proceeds from issuing of bonds and taking on loans Payments of dividends Payments for the acquisition and termination of financial derivatives 0 0 544,100 11.2 79,400 61,066 – 1,310 42,500 0 15 – 39,467 – 34,705 – 46,512 – 10,002 – 270 – 914 Net cash generated from financing activities 12.3 – 75,222 46,689 Payments due to the redemption of bonds and borrowings Payments of transaction costs – 606,592 – 10,317 – 6,151 – 543 4. Cash and cash equivalents at the end of the period Change in cash and cash equivalents (subtotal of 1 to 3) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period thereof restricted: EUR 252 k; previous year: EUR 252 k – 35,766 118,548 22,539 96,009 10.8 82,782 118,548 for the year ended December 31, 2013 EUR k 1. Cash flows from operating activities Consolidated profit 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 9.9 – 1,398 Depreciation and impairment of fixed assets (+) 10.3 10.4 Increase (–)/decrease (+) in trade receivables and other assets that are not attributed to investing or financing activities Increase (+)/decrease (–) in trade payables and other liabilities that are not attributed to investing or financing activities Cash generated from operations Interest received Interest paid Income taxes paid Net cash generated from operating activities 2. Cash flows from investing activities Acquisition of investment properties Proceeds from the sale of financial assets Payment of transaction cost in relation to the sale of investment properties Acquisition of other property, plant and equipment Proceeds from the equity release of interests in joint ventures Payments for capital contribution in joint ventures – 1,652 83,289 – 787 80,894 317 656 – 33,454 – 35,769 – 38 – 46 50,114 45,735 – 58,506 – 107,125 51,040 11,080 – 272 – 376 826 – 3,370 – 251 – 571 25,212 0 Proceeds from the repayment of loans granted to joint ventures 0 1,771 Net cash used in investing activities 12.3 – 10,658 – 69,884 41 alstria Financial Report 2013Consolidated financial statements CONSOLIDATED STATEMEN T OF CHANGES IN EQUITY for the period from January 1 to December 31, 2013 Notes Share capital Capital surplus Hedging reserve Retained earnings Total equity 78,933 769,412 – 22,137 3,079 829,287 EUR k As at Jan. 1, 2013 Changes in the financial year 2013 Consolidated profit Other comprehensive income Total comprehensive income Payments of dividends Share-based remuneration 15 19 0 0 0 0 0 0 0 0 – 39,467 541 0 38,945 14,808 14,808 0 38,945 38,945 14,808 53,753 0 0 0 0 – 39,467 541 As of Dec. 31, 2013 11.1 78,933 730,486 – 7,329 42,024 844,114 42 alstria Financial Report 2013 Consolidated financial statements for the period from January 1 to December 31, 2012 Notes Share capital Capital surplus Hedging reserve Retained earnings Total equity 71,704 751,084 – 17,760 – 36,833 768,195 EUR k As at Jan. 1, 2012 Changes in the financial year 2012 Consolidated profit Other comprehensive income Total comprehensive income Payments of dividends Share-based remuneration 15 19 0 0 0 0 39,911 – 4,377 – 4,377 0 39,911 0 0 0 0 0 – 34,705 506 39,911 – 4,377 35,534 – 34,705 506 60,948 –1,310 118 0 0 0 0 0 0 0 0 0 0 Proceeds from shares issued 11.1 7,170 53,778 Transaction costs due to issue of shares 11.1 Conversion of convertible participation rights 0 – 1,310 59 59 As of Dec. 31, 2012 11.1 78,933 769,412 – 22,137 3,079 829,287 43 alstria Financial Report 2013 Consolidated financial statements Notes to the consolidated financial statements 1 Corporate information alstria office REIT-AG is a listed real estate property corporation within the meaning of the G-REIT Act. Pursuant to Section 2 of its Articles of Association, the Company’s ob- jective is the acquisition, management, oper- ation and sale of owned real estate proper- ty, as well as the holding of participations in enterprises, which acquire, manage, operate and sell owned property. All of the afore- mentioned objectives are subject to the con- ditions of the G-REIT Act legislation. alstria office REIT-AG was transformed into a German Real Estate Investment Trust (G-RE- IT) in the financial year 2007 and was regis- tered 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 cor- porate income tax and trade tax. Hence, al- stria office REIT-AG has been exempt from tax with retrospective effect since January 1, 2007. The Company’s registered office and address is Bäckerbreitergang 75, 20355 Hamburg, Germany. Registration was made in the com- mercial register at the local court of Hamburg under HRB No. 99204. The Company’s Management Board pre- pared the consolidated financial statements of alstria office REIT-AG (hereinafter also re- ferred to as the ‘Company’ or ‘alstria office REIT-AG’) as at December 31, 2013. It passed resolution on their publication and submis- sion to the Supervisory Board on February 14, 2014. The financial year ends on December 31 of each calendar year. 44 2 Basis of preparation The consolidated financial statements of al- stria office REIT-AG and its subsidiaries (to- gether ‘the Group’) have been prepared in accordance with the International Financial Reporting Standards (IFRS) of the Interna- tional 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 financial statements have been prepared under the historical cost con- vention method except for investment prop- erty (land and buildings) and financial instru- ments that have been measured at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judge- ment in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgement or complexity, or items where assumptions and estimates have a sig- nificant impact on the consolidated financial statements, are disclosed in » Note 5. The consolidated financial statements are presented in euros. All values are rounded to the nearest thousand (EUR k) except when otherwise indicated. The consolidated financial statements pre- sented in this report were prepared for the pe- riod from January 1 to December 31, 2013. All items are summarised in the consolidat- ed statement of financial position and the in- come statement. They are commented on in the notes to the financial statements. Assets and liabilities are classified as non-cur- rent and current, respectively. Current items are defined as items that are due in less than one year and vice versa. alstria Financial Report 2013Consolidated financial statements 3 Changes in accounting policies and mandatory disclosures Effects resulting from new and amended IFRS alstria office REIT-AG prepares its consol- idated financial statements, in accordance with Section 315a of the German Commer- cial Code (HGB), under those IFRS endorsed by the European Commission for use in the European Union. The following paragraphs describe the IFRS published by the IASB and endorsed for application in the EU that were applied for the first time during the reporting period. Thereafter new Standards and Inter- pretations issued by the IASB at the reporting date are described which have not been ap- plied early, as their application is either not mandatory or endorsement by the European Commission is still pending or which are not relevant for the consolidated financial state- ments of alstria office REIT-AG. The following new standards and amend- ments to standards are mandatory for the first time for the financial year beginning on January 1, 2013: EU endorsement until Dec. 31, 2013 Standards/ Interpretationen Content Applicable for financial years beginning on/after Dec. 11, 2012 IFRS 13 Fair value measurement Jan. 1, 2013 Effects Notes disclosure Dec. 11, 2012 Mar. 4, 2013 Dec. 13, 2012 Jun. 5, 2012 Dec. 11, 2012 Jun. 5, 2012 Amendments to IFRS 1 Amendments to IFRS 1 Amendments to IFRS 7 Amendments to IAS 1 Amendments to IAS 12 Amendments to IAS 19 Severe hyperinflation and removal of fixed dates for first-time adopters Jan. 1, 2013 None Government loans Jan. 1, 2013 None Disclosures – offsetting financial assets and financial liabilities Jan. 1, 2013 Presentation of financial statements Jul. 1, 2012 Notes disclosure OCI disclosure Deferred tax: Recovery of underlying assets Amendments to IAS 19, ‘Employee benefits’ Jan. 1, 2013 None Jan. 1, 2013 None Dec. 11, 2012 IFRIC 20 Stripping costs in the production phase of a surface mine Jan. 1, 2013 None Mar. 27, 2013 Improvements to IFRSs Improvements to IFRSs 2009 – 2011 Jan. 1, 2013 None 45 alstria Financial Report 2013 Consolidated financial statements Standards, interpretations and amendments to standards and interpretations initially applied in the reporting period with an impact on the amounts and disclosures reported › IFRS 13 Fair Value Measurement The Group firstly applied IFRS 13 in the cur- rent year. IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of IFRS 13 is broad; it applies to both items classified as financial instru- ments as well as non-financial instruments. It applies to the latter if other IFRSs require or permit fair value measurements and dis- closures about fair value measurements of these items with some limited exceptions. Exceptions are share-based payment trans- actions that are within the scope of IFRS 2 ‘Share-based Payment’, leasing transactions that are within the scope of IAS 17 ‘Leases’ and similar measurement bases, such as net realisable value in IAS 2 ‘Inventories’ or val- ue in use in IAS 36 ‘Impairment of Assets’. IFRS 13 defines fair value as the price that would be received upon disposal of an asset or the price paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market on the measurement date and under current market conditions. Fair value under IFRS 13 is an exit price, regardless of whether that price is directly observable or estimated using another val- ua-tion technique. Furthermore, IFRS 13 re- quires extensive disclosures. IFRS 13 is effective for annual periods be- ginning on or after January 1, 2013 and will be prospectively applied. In addition tran- sitional provisions have been given to en- tities affected in that they need not apply the disclosure requirements set out in the standard for reporting periods prior to the initial application of the standard. In ac- cordance with this, the Group has not made any disclosures as required by IFRS 13 for the comparative period 2012 (please see » notes 7, 10.1 and 20.3 for the 2013 disclo- sures). The standard requires the inclusion of the company’s own credit risk (debt valu- 46 ation adjustment or DVA) in the valuation of derivative financial instruments for the first time. This has an immaterial impact on the total value of the Group’s financial deriva- tives. Other than the additional disclosures, the application of IFRS 13 has not had any material impact on the amounts recognised in the consolidated financial statements. › Amendment to IFRS 7 ‘financial instruments: Disclosures’ – Offsetting financial assets and financial liabilities The IASB has revised the requirements for offsetting financial assets and financial li- abilities and as a result, published amend- ments to IFRS 7 ‘financial instruments: disclosure’. A new feature is the IFRS 7 dis- closure requirements inserted in connection with certain settlement agreements. The amendments to IFRS 7 are to apply retro- spectively for annual periods beginning on or after January 1, 2013. Impact from these changes may result in terms of reporting in the event that there is a netting agreement. ›Amendments to IAS 1 ‘Presentation of financial statements’ On June 16, 2011, the International Ac- counting Standards Board (IASB) published amendments to IAS 1. The amendments in- troduce new obligations concerning the re- porting of other comprehensive results. The amendments to IAS 1 retain the ‘one or two statement’ approach at the entity’s discretion and only revise the way other comprehen- sive income is presented. The changes re- quire separate subtotals for those elements, which may be reclassified into profit and loss, and those elements that will not. The amendments are applicable to annual peri- ods beginning on or after July 1, 2012. The amendments resulted in selective effects concerning the presentation of the consoli- dated statement of comprehensive income. Apart from the effects and additional dis- closure requirements of the fore mentioned standards, alstria office REIT-AG did not ap- ply any standards or interpretations for the first time in the financial year 2013, which had an impact on the amounts and disclosure reported in the reporting period. alstria Financial Report 2013Consolidated financial statements Standards, interpretations and amendments to standards and interpretations initially applied in the reporting period without impact on the amounts and dis- closures reported ›Amendments to IFRS 1 ‘Severe hyper- inflation and removal of fixed dates for first - time adopters’ The amendment is generally applicable for financial years starting on July 1, 2011 or lat- er but was allowed to be applied not before January 1, 2013 on as a result of the Europe- an Union endorsement process. Since alstria has no exposure to hyperinflation markets, the amendments have no effect on alstria’s financial reporting. ›Amendment to IFRS 1 with regard to government grants with interest rates not in line with market level The amendment was published on March  13, 2012. It gives first-time adop- ters the same relief concerning recognition and measurement of government grants as it does existing preparers. The amendment applies to annual periods beginning on or after January 1, 2013. It has no effect on the Group’s financial reporting. ›Amendment to IAS 12 ‘Deferred tax: Recovery of underlying assets’ The Amendment was issued on December 20, 2010. It has no impact on altria’s finan- cial reporting and was generally to be ap- plied from January 1, 2012 onwards. As a result of the European Union endorsement process its adoptions was, however, also permitted for annual periods beginning on January 1, 2013. ›Amendments to IAS 19 ‘Employee benefits’ On June 16, 2011, the IASB published the final version of IAS 19. The amendments issue rules concerning the recognition of employee benefits in the financial state- ments. The amendments are applicable to annual periods beginning on or after January 1, 2013, permitting early adoption. The amendments do not affect the Group’s financial reporting. ›IFRIC 20 ‘Stripping costs in the production phase of a surface mine’ IFRIC 20 considers when and how to ac- count separately for benefits arising from the stripping activities in surface mining operations. IFRIC 20 applies to annual pe- riods beginning on or after January 1, 2013. Its interpretation has no relevance for the Group. ›Annual improvement process IFRS 2009 – 2011 The International Accounting Standards Board (IASB) issued a document called ‘An- nual Improvements 2009 – 2011’. It is a col- lection of amendments to IFRSs, in response to issues addressed during the 2009 – 2011 cycle. Five standards (IFRS 1, IAS 1, IAS 16, IAS 32 and IAS 34) are primarily affect- ed by the amendments, with consequen- tial amendments to numerous others. The mandatory, retroactive adoption applies to annual periods beginning on or after Janu- ary 1, 2013. Their effect will be of only mi- nor, if any, relevance for the Group. 47 alstria Financial Report 2013Consolidated financial statements New and amended IFRS and interpretations to existing standards which are not yet effective and have not been early adopted by the Group In its 2013 consolidated financial statements, alstria office REIT-AG did not apply the fol- lowing accounting standards or interpreta- tions which have already been adopted by the IASB but were not required to be applied for the financial year 2013. EU Endorsement Standards/ Interpre- tationen Content Applicable for financial years beginning on/after not yet endorsed IFRS 9 New Standard ‘Financial instruments: classification and measurement’ Jan. 1, 2017 Effects No material effects Dec. 11, 2012 IFRS 10 Consolidated financial statements Jan. 1, 2014 None Dec. 11, 2012 IFRS 11 Joint arrangements Jan. 1, 2014 Dec. 11, 2012 IFRS 12 Disclosure of interests in other entities Jan. 1, 2014 No material effects Notes disclosure Dec. 11, 2012 IAS 27 Separate financial statements Jan. 1, 2014 None Dec. 11, 2012 IAS 28 Investments in associates and joint ventures Jan. 1, 2014 None not yet endorsed not yet endorsed Amendments to IFRS 7 and IFRS 9 Mandatory effective date and transition disclosure Amendments to IAS 19 Defined benefit plans: employee contributions (Amendments to IAS 19 'Employee Benefits') Dec. 13, 2012 Amendments to IAS 32 Offsetting financial assets and financial liabilities Jan. 1, 2017 None Jul. 1, 2014 None Jan. 1, 2014 Notes disclosure not yet endorsed Amendment to IAS 36 Impairment of assets – clarification of disclosures required Jan. 1, 2014 None not yet endorsed Amendment to IAS 39 Novation of derivatives and conti- nuation of hedge accounting Apr. 4, 2013 not yet endorsed Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 Investment Entities Amendments to IFRS 10, IFRS 12 and IAS 27 Jan. 1, 2014 None Jan. 1, 2014 Jan. 1, 2014 No material effects No material effects not yet endorsed IFRIC 21 New interpretation: ‘levies’ Jan. 1, 2014 None not yet endorsed not yet endorsed Improvements to IFRSs Improvements to IFRSs 2010 – 2012 Improvements to IFRSs Improvements to IFRSs 2011 – 2013 Jul. 1, 2014 None Jul. 1, 2014 None 1) Shift for the mandatory application date for EU companies to January 1, 2014. 48 alstria Financial Report 2013EU Endorsement Content Standards/ Interpre- tationen Applicable for financial years beginning on/after Effects No material No material not yet endorsed IFRS 9 classification and measurement’ Jan. 1, 2017 effects Dec. 11, 2012 IFRS 10 Consolidated financial statements Jan. 1, 2014 None New Standard ‘Financial instruments: Dec. 11, 2012 IFRS 11 Joint arrangements Jan. 1, 2014 effects Dec. 11, 2012 IFRS 12 entities Jan. 1, 2014 disclosure Disclosure of interests in other Notes Dec. 11, 2012 IAS 27 Separate financial statements Jan. 1, 2014 None Dec. 11, 2012 IAS 28 joint ventures Jan. 1, 2014 None Investments in associates and not yet endorsed Amendments to IFRS 7 and IFRS 9 Mandatory effective date and transition disclosure Jan. 1, 2017 None Amendments contributions (Amendments to IAS Defined benefit plans: employee not yet endorsed to IAS 19 19 'Employee Benefits') Jul. 1, 2014 Dec. 13, 2012 to IAS 32 and financial liabilities Jan. 1, 2014 disclosure Amendments Offsetting financial assets None Notes not yet endorsed to IAS 36 of disclosures required Jan. 1, 2014 None Amendment Impairment of assets – clarification not yet endorsed to IAS 39 nuation of hedge accounting Jan. 1, 2014 None Amendment Novation of derivatives and conti- Apr. 4, 2013 Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 Investment Amendments to IFRS 10, Jan. 1, 2014 effects No material No material not yet endorsed Entities IFRS 12 and IAS 27 Jan. 1, 2014 effects not yet endorsed IFRIC 21 New interpretation: ‘levies’ Jan. 1, 2014 None Improvements Improvements to IFRSs not yet endorsed to IFRSs 2010 – 2012 Jul. 1, 2014 None not yet endorsed to IFRSs 2011 – 2013 Jul. 1, 2014 None Improvements Improvements to IFRSs 1) Shift for the mandatory application date for EU companies to January 1, 2014. Consolidated financial statements › IFRS 9 ‘Financial instruments’ New standard issued November 12, 2009. The standard addresses the classification and measurement of financial assets and is likely to affect the Group’s accounting of fi- nancial assets. Application of the standard is mandatory from January 1, 2017 onwards. However, the standard is available for early adoption subject to EU endorsement. The Group has not yet assessed the full impact of IFRS 9 on its reported figures. In May 2011, the IASB issued a set of five standards relating to group accounting, which are described below. ›IFRS 10 ‘Consolidated financial statements’ New standard issued on May 12, 2011. The objective of IFRS 10 is to establish principles for the presentation and preparation of con- solidated financial statements for an entity controlling one or more other entities. The standard supersedes the guidelines on con- solidation as outlined in the present IAS 27 ‘Consolidated and Separate Financial State- ments’ and SIC-12 ‘Consolidation – Special Purpose Entities’. IFRS 10 is applicable to annual reporting periods beginning on or after January 1, 2014*. It is not expected that the application of the new standard will lead to a change in the companies included in the consolidated Group. › IFRS 11 ‘Joint arrangements’ New standard issued on May 12, 2011. The core principle of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations. It ac- counts for those rights and obligations in accordance with that specific type of joint arrangement. The standard supersedes IAS 31 ‘Interests in Joint Ventures’ and SIC-13 ‘Jointly Controlled Entities – Non-Monetary Contributions by Venturers’. IFRS 11 is ap- plicable to annual reporting periods begin- ning on or after January 1, 2014*. It is not expected that the application of the new standard will lead to changes in accounting for joint ventures. * Shift for the mandatory application date for EU companies to January 1, 2014. ›IFRS 12 ‘Disclosures on interests in other entities’ New standard issued on May 12, 2011. The objective of IFRS 12 is to require the disclo- sure of information that enables users of fi- nancial statements to evaluate the nature of and risks associated with the interests in oth- er entities and the effects of those interests on their financial position, financial perfor- mance and cash flows. IFRS 12 is applicable to annual reporting periods beginning on or after January 1, 2014*. The Group expects additional disclosure requirements. ›IAS 27 ‘Separate financial statements’ New revised standard issued on May 12, 2011. IAS 27 (revised 2011) has the objec- tive of setting standards to be applied when accounting for investments in subsidiaries, joint ventures, and associates if an entity chooses to or is by local regulations required to present separate (non-consolidated) fi- nancial statements. Together with IFRS 10 ‘Consolidated Financial Statements’, IAS 27 (2011) supersedes the previous version of IAS 27 (2008) ‘Consolidated and Separate Financial Statements’, including the related interpretation SIC-12 ‘Consolidation – Spe- cial Purpose Entities’. IAS 27 (revised 2011) is applicable to annual reporting periods be- ginning on or after January 1, 2014*. Since none of alstria’s Group companies prepare single entity financial statements in accord- ance with IFRS, no impact on accounting procedures is expected as a result of the re- vised standard. ›IAS 28 ‘Investments in associates and joint ventures’ New standard issued on May 12, 2011. The objective of IAS 28 (revised 2011) is to set the accounting for investments in associates and to set the requirements for the applica- tion of the equity method when account- ing for investments in associates and joint ventures. IAS 28 (2011), together with IFRS 12 ‘Disclosures of interests in other entities’, supersedes the previous version of IAS 28 (2008) ‘Investments in Associates’. IAS 28 (revised 2011) is applicable to financial years beginning on or after January 1, 2014  *. 49 alstria Financial Report 2013Consolidated financial statements It is not expected that the application of the new standard will lead to a change in accounting for joint ventures. › Investment entities An entity may only adopt the aforemen- tioned standards IFRS 10 ‘Consolidated Fi- nancial Statements’, IFRS 11 ‘Joint Arrange- ments’, IFRS 12 ‘Disclosure of Interests in Other Entities’, IAS 27 ‘Separate Financial Statements (2011)’ and IAS 28 ‘Investments in Associates and Joint Ventures 2011’ early, if it then adopts all standards at the same time. ›Effective date of IFRS 7 amend- ments on application of IFRS 9 On 16 December 2011, the IASB issued Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7), which: amends the effective date of IFRS 9 Financial Instruments to annual pe- riods beginning on or after 1 January 2017 modifies the relief from restating compara- tive periods and the associated disclosures in IFRS 7 Financial Instruments: Disclosures. The amendments to IFRS 7 apply when an entity first applies the requirements of IFRS 9 and so apply to annual periods beginning on or after 1 January 2017 (or such other date as when an entity applies IFRS 9). ›IAS 32 ‘Financial instruments: presentation’ The IASB has revised the requirements for offsetting financial assets and financial lia- bilities and as a result has published amend- ments to IAS 32 ‘Financial instruments: presentation’ and IFRS 7 ‘Financial instru- ments: disclosure’. The current offsetting model in IAS 32 has basically been main- tained and has solely been substantiated by additional application guidance, which ap- plies to annual periods beginning on or after January 1, 2014*. › Transition guidance Amendments to IFRS 10 ‘Consolidated fi- nancial statements’, IFRS 11 ‘Joint arrange- ments’, and IFRS 12 ‘Disclosures of interests * Shift for the mandatory application date for EU companies to January 1, 2014. 50 in other entities’ – Transition Guidance. The amendments clarify the transition guidance in IFRS 10, which also grant additional re- lief to the application of all three standards. Similar to IFRS 10, IFRS 11 and IFRS 12 the amendments are applicable to annual peri- ods beginning on or after January 1, 2014*. ›Amendments to IAS 19 ‘Employee benefits’ On November 21, 2013, the IASB pub- lished further amendments to IAS 19. The amendments clarify the requirements that relate to how contributions from employ- ees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is inde- pendent of the number of years of service. The amendments are effective for annual periods beginning on or after July 1, 2014, with earlier application being permitted. The amendments are not affecting the pres- entation of the Group’s financial reporting. ›Amendment to IAS 36 ‘Impairment of assets’ IAS 36 was amended by recoverable amount disclosures for non-financial assets (further clarification of disclosures is required). The amendment is applicable to reporting peri- ods beginning on or after January 1, 2014 and will have no consequences for the Group’s financial reporting. › Amendment to IAS 39 ‘Financial instruments: recognition and measurement’ The amendment relates to the novation of derivatives and the continuation of hedge accounting. According to the amendment there is no need to discontinue hedge ac- counting if a hedging derivative is novat- ed, provided certain criteria are met. The amendment is applicable to reporting peri- ods beginning on or after January 1, 2014 and is available for early adoption. It is not assumed that the amendment will have consequences for the recognition and ac- counting of derivative instruments of the Group. alstria Financial Report 2013Consolidated financial statements › IFRIC 21 ‘Levies’ The interpretation provides guidance on when to recognise a liability for a levy im- posed by a government. Guidance is given for levies that are accounted for in accord- ance with IAS 37 Provisions, Contingent Li- abilities and Contingent Assets and those for which where the timing and amount of the levy is known and certain. The interpre- tation is applicable to reporting periods be- ginning on or after January 1, 2014 and is not assumed to have material consequences for the Group’s financial reporting. ›Annual improvement process IFRS 2010 – 2012 The International Accounting Standards Board (IASB) issued ‘Annual Improvements 2010 – 2012’, a collection of amendments to IFRSs, in response to issues addressed during the 2010 – 2012 cycle. Eight stand- ards (IFRS  2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24, IAS 38 und IAS 34) are affected by the amendments. The improvements ap- ply to annual periods beginning on or after July 1, 2014 and will be of only minor, if any, relevance for the Group. ›Annual improvement process IFRS 2011 – 2013 The International Accounting Standards Board (IASB) issued ‘Annual Im-provements 2011 – 2013’, a collection of amendments to IFRSs, in response to issues addressed dur- ing the 2011 – 2013 cycle. Four standards (IFRS 1, IFRS 3, IFRS 13, IAS 40) are affect- ed by the amendments. The improvements apply to annual periods beginning on or af- ter July 1, 2014 and will be of only minor, if any, relevance for the Group. The Group did not early adopt any new or amended standard or interpretation in 2013. 4 Basis of consolidation The consolidated financial statements com- prise the financial statements of alstria office REIT-AG and its subsidiaries as at December 31, 2013. The subsidiaries’ financial state- ments are prepared for the same reporting year as the parent Company. Consistent ac- counting policies are applied. Subsidiaries are entities whose financial and operating policies are controlled by the Group. Generally, the Group holds more than half of the voting rights of these companies. Subsidiaries are fully consolidated from the date onwards, on which the Group obtains control, which is generally the date of acqui- sition. They are excluded from the consol- idated financial statements on the date on which the Group ceases to have control over them. All intra-Group balances, transactions, in- come and expenses as well as profits and losses resulting from intra-Group transactions are eliminated in full upon consolidation. In accordance with IFRS 3, all business com- binations are accounted for by means of the acquisition method. The acquired assets and liabilities are fully recognised at their fair value irrespective of the ownership interest. These are reflected in their carrying amounts on the date on which control over the subsidiary is obtained. A debit difference is recognised as goodwill. Any credit difference remaining af- ter reassessment is recognised immediately in profit and loss. The disclosed hidden reserves and charges are carried forward, amortised or released, depending on the treatment of the corresponding assets in the periods fol- lowing the business combination. The Company generally applies IFRS 3 to ac- count for transactions under common con- trol. Any credit and debit differences result- ing from respective capital consolidations are recognised as an increase or decrease in the Group’s capital surplus. Significant companies where alstria office REIT-AG is directly or indirectly able to sig- nificantly influence financial and operating 51 alstria Financial Report 2013Consolidated financial statements decisions (associates), or directly or indirectly shares control (joint ventures), are accounted for using the equity method. The Group of consolidated companies in- cludes 20 companies as well as two joint ven- ture companies accounted for using the eq- uity method. Fully consolidated subsidiaries The following subsidiaries are included in the consolidated financial statements: Group entity (subsidiaries of alstria office REIT-AG) Share capital ( %) alstria Bamlerstraße GP GmbH, Hamburg 100 Interests in joint ventures The Group holds interests in two joint ven- tures resulting in a carrying amount at the end of the reporting period of EUR 21,001 k. alstria office REIT-AG holds a share of 49 % in each of the two joint ventures. The joint ventures are Alstria IV. Hamburgische Grund- besitz GmbH & Co. KG, Hamburg, and Al- stria VII. Hamburgische Grundbesitz GmbH & Co. KG, Oststeinbek. The following carrying amounts are attribut- able to the Group from its proportionate in- terest in the joint ventures. alstria Englische Planke GP GmbH , Hamburg alstria Gänsemarkt Drehbahn GP GmbH, Hamburg alstria Halberstädter Straße GP GmbH, Hamburg alstria Hamburger Straße 43 GP GmbH, Hamburg alstria Ludwig-Erhard-Straße GP GmbH, Hamburg alstria Mannheim/Wiesbaden GP GmbH, Hamburg alstria office Bamlerstraße GmbH & Co. KG, Hamburg alstria office Englische Planke GmbH & Co. KG, Hamburg alstria office Gänsemarkt Drehbahn GmbH & Co. KG, Hamburg alstria office Halberstädter Straße GmbH & Co. KG, Hamburg alstria office Hamburger Straße 43 GmbH & Co. KG, Hamburg alstria office Insterburger Straße GmbH & Co. KG, Hamburg alstria office Ludwig-Erhard-Straße GmbH & Co. KG, Hamburg alstria office Mannheim/Wiesbaden GmbH & Co. KG, Hamburg alstria office Steinstraße 5 GmbH & Co. KG, Hamburg alstria Portfolio 1 GP GmbH, Hamburg alstria solutions GmbH, Hamburg alstria Steinstraße 5 GP GmbH,Hamburg In comparison to the consolidated financial statements as at December 31, 2012 there have been no changes to the consolidated Group in financial year 2013. 52 EUR k 100 Non-current assets Current assets 2013 2012 36,530 30,896 3,649 7,417 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Non-current liabilities 18,247 17,685 Current liabilities Profit or loss for the period 2,800 273 4,187 – 734 5 Key judgements and estimates The preparation of the consolidated financial statements in accordance with IFRS requires assumptions and estimates to be made for various items, which have an effect on the re- ported figures and disclosures of assets and liabilities, as well as income and expenses. Ac- tual amounts may differ from these estimates. Judgements Management has made the following dis- cretionary decision in line with the Group’s accounting policies. Apart from decisions in- volving estimations, it has the most signifi- cant effect on the amounts recognised in the financial statements: Operating lease commitments – Group as lessor The Group has entered into commercial property leases on its investment proper- ty portfolio. Based on an evaluation of the terms and conditions of the arrangements the Group has determined that all the signifi- cant risks and rewards of ownership of these properties remain with the Group. As a result the contracts are treated and accounted for as operating leases. alstria Financial Report 2013Consolidated financial statements Estimates and assumptions Together with other key sources of estima- tion uncertainty the key assumptions con- cerning the future, which were valid on the reporting date, are discussed below. They present a significant risk, possibly resulting in necessary, material adjustments to the car- rying amounts of assets and liabilities within the next financial year. Applying estimates is in particular necessary to: › determine the fair value of investment property; › determine the fair value of derivative financial instruments; › determine the fair value of virtual shares granted to management; › determine the fair value of convertible profit participation certificates; and › determine the fair value of other provisions. Especially when determining the fair value of the investment property, alstria office REIT-AG must apply and take into account numerous estimated factors. The fair value measure- ment was performed by an independent 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 future earnings. The ef- fects of the most significant input parameters on the valuation of the Group’s investment properties are shown in » Note 10.1. An independent third party performed a fair value measurement of the derivative finan- cial instruments. The market data compiled thereof was included in the standard valua- tion models. Thus, a normal level of estima- tion uncertainty exists with respect to possi- ble deviations from the market data applied. We consider the models used to be adequate and believe there is no reason to question their applicability. Until settlement the fair value of share-based virtual shares granted to the Management Board is measured at each balance sheet date. They are accounted for as provisions. The pro- portional expense incurred in the period com- prises the addition to, and the reversal of, the provision between two reporting dates and the dividend paid during the respective peri- od. This valuation requires the Company to make estimates about certain parameters, and hence they are subject to uncertainty. The fair value of the virtual shares granted, is allocat- ed to the vesting period subject to the terms of the underlying share based incentive plan. The resulting personnel expenses incurred an addition to provisions of EUR 1,046 k (December 31, 2012: EUR 563 k) and a provi- sion of an amount of EUR 2,397 k as reported in the consolidated financial statements as at December 31, 2013. Furthermore provisions include provisions for rental guarantees of an amount of EUR 2,862 k. The amount of the provision for rental guarantees is based on the assessment of the probability of their use. This, in turn, refers to information about the situ- ation of the respective tenants and the likeli- hood of them exercising the break option. The fair value of convertible profit participation certificates granted to the Group’s employees was estimated at the respective granting dates using a binary barrier option model based on the Black-Scholes model; assumptions in- clude automatic conversion once the barrier is reached. The model takes into account the terms and conditions upon which the instru- ments were granted. This valuation requires the Company to make estimates about these parameters, and hence they are subject to un- certainty. At the end of reporting period the above-stat- ed assets, liabilities and equity instruments, which are particularly exposed to estimation uncertainties, had the following impact on the consolidated statement of financial position: EUR k Dec. 31, 2013 Dec. 31, 2012 Investment property Properties held for sale Positive fair values of derivatives Negative fair values of derivatives Other provisions Valuation of convertible profit participation rights and virtual shares 1,632,362 1,622,988 0 10,010 33,118 806 25,963 5,259 35,080 5,191 – 1,711 – 1,174 53 alstria Financial Report 2013Consolidated financial statements 6 Seasonal or economic effects on business The business activities of alstria office REIT-AG (primarily the generation of rev- enues from investment properties) are not generally affected by seasonality. However, the sale of one or more large properties can have a significant impact on revenues and operating expenses. Experience shows that the real estate market tends to fluctuate as a result of factors such as changes in consumers’ net income, GDP, interest rates, consumer confidence, demo- graphic factors and other factors inherent to the market. Changes in the interest rate might lead to a modified valuation of the in- vestment property and derivatives. 7 Summary of significant accounting policies The following accounting and valuation methods have been used to prepare the con- solidated financial statements of alstria office REIT-AG. Investment property Investment property comprises all proper- ty that is held in order to generate rental in- come or long-term value increases in assets. It is neither used in production nor for ad- ministrative purposes. It is recognised at ac- quisition cost at the time of purchase. Costs include transaction costs, which have to be capitalised (particularly real estate transfer tax). In accordance with IAS 40.17, costs in- curred subsequently for dismantling, replace- ment of parts or maintenance of property are also included. Costs of debt, which can be directly allocat- ed to the acquisition, or production of invest- ment property are capitalised in the year in which they arise. For subsequent measurement, the Company uses the fair value model according to IFRS 13.61 et seq., which reflects an income cap- italization approach combined with market conditions at the end of the reporting period. The valuation technique used is appropri- ate in the circumstances and sufficient data 54 is available to measure fair value, maximis- ing the use of relevant observable inputs and minimising the use of unobservable inputs. To increase consistency and comparability in fair value measurements and related disclo- sures, the IFRSs established a fair value hi- erarchy that categorises the inputs used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 in- puts) and the lowest priority to unobservable inputs (Level 3 inputs). › Level 1 inputs are quoted prices (unadjusted in active markets for identical assets or li- abilities that the entity can access at the measurement date. › Level 2 inputs are inputs other than quoted prices included within Level 1 that are ob- servable for the asset or liability, either di- rectly or indirectly. › Level 3 inputs are unobservable inputs for the asset or liability. The level of disclosure is more extensive for Level 3 inputs. Only inputs of level 2 and 3 are applicable for property. The majority is categorised as Level 3. In addition, if inputs are categorized in dif- ferent levels of the fair value hierarchy, the entire fair value measurement is categorized at the same level of the fair value hierarchy as the lowest level input significant to the meas- urement in question. The property valuation process is normally carried out by qualified external valuers us- ing, when available, relevant market infor- mation generated from transactions of com- parable properties. Such information can be regarded as an observable input. A high degree of judgment may be required from valuers when observable information is not available or when significant adjustments are made to the observable market informa- tion. If the adjustments made are significant to the entire measurement then the fair value is to be categorized within Level 3. alstria Financial Report 2013 Consolidated financial statements Categorization in level 2 is possible to the ex- tent that sufficient data is available and does not require significant adjustments. This will occur in the more transparent markets where there is likely to be a significant number of comparable transactions. of unobservable inputs. The analysis above showed that there was not a sufficient num- ber of official comparable transactions to derive any market values. Therefore, the fair values were determined based on an income approach in accordance with IFRS 13.61. Disclosure categorization will be determined by such factors as the nature, characteristics and risks of the asset and on the level of fair value hierarchy. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There has been no change to the valuation method during the year. The level of disaggregation of the following quantitative disclosures is largely based on asset type and geographical location (city/ country). The intention is to provide sufficient detail to reflect the different characteristics of assets and to provide enough information for users to assess whether the entity’s views about individual inputs differs from their own. Inputs used in the valuation approach adopt- ed by the Group for all its properties include rental revenues, adjusted yield figures (e.g. property based capitalization rates) and va- cancy periods. Therefore the fair value meas- urement used by the Group for valuation of all investment properties is entirely catego- rized as level 3. Information about the significant unobserva- ble inputs used and their sensitivities on the fair values of the Group’s investment proper- ty is presented in » Note 10.1. Valuation process for investment properties The fair value hierarchy does not make any statements concerning the applied valuation techniques. All market values were determined by Colliers International UK plc, London, a renowned appraiser and brokerage firm, as at Decem- ber 31, 2013. The basis for deriving the fair values as de- fined by IFRS 13.61 should, if possible, be based on valuation techniques that are ap- propriate in the circumstances and for which sufficient data is available to measure fair value, thereby maximizing the use of relevant observable inputs and minimizing the use The method used is a hard-core and top slice method, whereby rental income is horizon- tally segmented. The hard-core portion rep- resents the prevailing contractual rent. The top slice represents the difference between market rent and contractual rent. This meth- od fulfils the requirements of the Red Book, a set of international valuation standards set forth by the Royal Institution of Chartered Surveyors. In addition, the method used by Colliers International UK plc. is also appropri- ate and suitable for determining market val- ues 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 ac- cordingly. Group 1 contained properties with anchor lease terms of five years or less and Group 2 held properties with anchor lease terms of more than five years. Group 1 is for properties with leases set to expire in five years or less: Hard-core and top slice method, taking into account › the contractual rent for the remaining term of the lease; › a vacancy period of between 12 and 24 months following the expiry of the lease; › the necessary maintenance costs to re-let the properties at a comparable rent level; › re-lets at market rents; › capitalisation rates reflecting the individual risk of the property as well as the market activity (comparable transactions); › non-allocable operating costs of an amount of 5 % of market rents p.a. and › the net selling price. 55 alstria Financial Report 2013Consolidated financial statements Group 2 is for properties with anchor leases that are let to tenants with strong credit rat- ings on a long-term basis: Hard-core and top- slice method, taking into account › the contractual rent for the remaining term of the lease; › re-lets at market rents (accounting for the difference between market rent and con- tractual rent); › capitalisation rates reflecting the individual risk of the property as well as the market activity (comparable transactions); › non-allocable operating costs in the amount of 5 % of market rents p.a. and › the net selling price. Gains or losses arising from changes in the fair values of investment property are dis- closed in the income statement in the item ‘Net gain/loss from fair value adjustments on investment property’ in the year in which they arise. Operating leases Lease agreements that alstria office REIT-AG has entered into with commercial tenants are classified as operating leases under IFRS. Ac- cordingly, alstria office REIT-AG acts as a les- sor in numerous different types of operating lease agreements for investment properties. These leases generate the majority of pro- ceeds and income for alstria office REIT-AG. Furthermore, alstria office REIT-AG is, to a limited extent, lessee within the scope of op- erating lease agreements. Impairments of assets Intangible assets with an indefinite useful live are not amortised; they are tested for im- pairment on an annual basis. Assets that are amortised, however, are tested for impairment whenever triggering events or changes in circumstances indicate that the carrying amount may no longer be recoverable. Investment properties are derecognised when they have either been disposed of or when the investment property is permanent- ly withdrawn from use and no future eco- nomic benefit is to be expected from its dis- posal. Any gains or losses on the retirement or disposal of an investment property are rec- ognised in the income statement in the year of retirement or disposal. Leases In accordance with IAS 17 the lessee is consid- ered to be the beneficial owner of leased as- sets when the lessee bears all the risks and re- wards incidental to the assets (finance lease). If the lessee is deemed to be the beneficial owner, the leased asset is recognised at fair value or at the lower present value of the min- imum lease payments at the inception date of the lease. The corresponding leasing liability is recorded as a lease commitment under other non-current liabilities. The resulting lease pay- ments are separated into an interest portion and an amortizing portion, respectively. In the reporting period the Group acquired a ground lease for which the terms of IAS 17 apply. The ground lease is categorized as a financial lease and the leasehold rental payments are record- ed as lease payments. 56 An impairment loss is recorded at an amount equivalent to the excess of the carrying amount over the recoverable amount. If the reasons for an impairment loss cease to ap- ply, the impairment loss is reversed as ap- propriate, which is the maximum value that would have resulted, if normal amortisation had been charged. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and ac- cumulated impairment losses. Such costs include replacement costs part of the plant and equipment when that cost is incurred, if the recognition criteria are met. All other re- pair and maintenance costs are recognised in profit or loss as incurred. Depreciation of plant and equipment is calcu- lated on a straight-line basis over the useful life of the asset (three to 15 years). The useful life of owner-occupied property is estimated at 50 years. While the building is depreciated on a scheduled basis, the land is not subject to depreciation. An item of property, plant and equipment is derecognised upon disposal or when no fu- alstria Financial Report 2013 Consolidated financial statements ture economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net proceeds of dis- posal and the carrying amount of the asset) is recorded in profit or loss in the year the asset is derecognised. The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted if required, at the end of each finan- cial year. Borrowing costs, which can be directly al- located to the acquisition or production of property, plant and equipment are capital- ised in the year in which they arise. Intangible assets Separately acquired intangible assets are measured at cost upon initial recognition. The cost of intangible assets acquired in a business combination is its fair value on the date of acquisition. Following initial recogni- tion, intangible assets are carried at cost less any accumulated amortisation and any accu- mulated impairment losses. Internally gener- ated intangible assets are not capitalised and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are as- sessed to be either finite or infinite. Intangible assets with finite lives are amor- tised over their useful economic life and as- sessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and amor- tisation method for an intangible asset with a finite useful life is reviewed at least at the end of each financial year. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible as- sets with finite lives is recognised in profit or loss in the category of expenses consistent with the function of the intangible asset. Amortisation 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 intan- gible assets with indefinite useful lives. Gains or losses arising from derecognition of an intangible asset are measured as the dif- ference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Taxes Current tax assets and liabilities for the cur- rent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period. The financial statements do not show any de- ferred taxes as alstria office REIT-AG, is ex- empt from income taxation due to its REIT status. Financial instruments Pursuant to IAS 39, a financial instrument is any contract that gives rise to both a financial asset in one entity and a financial liability or equity instrument in another entity. Financial assets in particular comprise cash and cash equivalents, trade receivables, as well as oth- er loans and receivables issued by the enter- prise, held-to-maturity investments and orig- inal and derivative financial assets held for trading. Financial liabilities frequently feature a claim to their return in cash or by means of other financial assets. In particular these in- clude liabilities to banks and other creditors, trade payables and derivative financial liabili- ties. Financial assets and liabilities are gener- ally set off against each other. 57 alstria Financial Report 2013Consolidated financial statements Financial assets The recognition and measurement of finan- cial assets is subject to the provisions of IAS 39. Depending on the following classification as prescribed by IAS 39: › held-to-maturity; › measured at fair value through profit or loss; › available-for-sale or › loans and receivables purpose of selling it in the short term. Unless derivatives are designated as hedges they are also categorised as held for trading. Derivative financial instruments, which are not part of an effective hedge pursuant to IAS 39, must be classified as held for trading and recognised in profit or loss at fair value. If their fair value is negative, they are disclosed under financial liabilities. financial assets are either measured at amor- tised 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 market prices. If the market for a financial asset is not active (and for unlisted securities), the Group determines its fair val- ue by using valuation techniques. These in- clude the use of recent arm’s length transac- tions, reference to other instruments that are substantially the same, discounted cash flow analyses and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs. When financial assets are initially recognised, they are measured at fair value plus transac- tion costs. The former is applicable for all fi- nancial assets whose fair value is not adjusted for through profit or loss. Management de- cides on the classification of financial assets upon initial recognition and reviews the clas- sification at the end of each reporting period. A financial asset is derecognised when the entity loses control of the contractual rights that comprise the financial instrument. All customary purchases and sales of finan- cial assets are recognised on the trade date, which is the date on which the Group com- mits to purchase or sell the asset in question. A purchase or sale of financial assets is cus- tomary when it requires the delivery of as- sets within the period generally established by regulations or conventions in the market- place. assets available-for-sale Financial are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investments mature within twelve months of the end of the reporting period or management intends to dispose of them in this period or the matu- rity at the end of reporting period is less than twelve months. Available-for-sale financial assets are initially recognised at fair value and subsequently carried forward at fair value. Changes in the fair value of financial assets classified as available for sale are recognised in equity; in the case they are sold or impaired their accumulated fair value adjustments are recognised in the income statement. The Group holds no financial assets, which are classified as held to maturity according to the classification as prescribed by IAS 39. No items of financial assets have been cate- gorised as ‘at fair value through profit or loss’. Receivables Receivables are classified as loans and receiv- ables as defined by IAS 39 and initially meas- ured at fair value and subsequently at amor- tised cost, after deduction of any necessary 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 effec- tive interest rate. Financial assets held for trading are financial assets measured at fair value through profit or loss. A financial asset is classified in this category if it is acquired principally for the Within the scope of the measurement of trade receivables, a solvency check was performed on the tenants (risk associat- ed with the legal validity of receivables). 58 alstria Financial Report 2013Consolidated financial statements The result of which was that there were no reasons for a rent reduction (delcredere risk). This examination is done for each individual property and portfolio basis, respectively. Non-interest bearing receivables due in more than one year are discounted. Gains and losses resulting from receivables being derecognised or impaired or due to amortisation are recognised in profit or loss. If there is objective evidence that an impair- ment loss has been incurred, the amount of the loss is measured as the difference be- tween the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original ef- fective interest rate (i.e. the effective interest rate computed at initial recognition). The car- rying amount of the asset is reduced directly. The amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an event occur- ring after the impairment was recognised, the previously recognised impairment loss may be reversed to the extent that the carrying value of the receivable does not exceed its amortised cost at the reversal date. Any sub- sequent reversal of an impairment loss is rec- ognised in profit or loss. Provisions for impairments are made when there is objective evidence (such as the prob- ability of insolvency or significant financial dif- ficulties 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 respective receivable is reduced directly. Impaired assets are derecognised when they are assessed as uncollectable. Derivative financial instruments and hedge accounting The Group uses derivative financial instru- ments such as interest rate swaps and caps to hedge its risks associated with interest rate fluctuations. Such derivative financial in- stru-ments are initially recognised at fair val- ue on the date on which a derivative contract is entered into and are subsequently remeas- ured at fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The instruments reported as at December 31, 2013 were valued by an independent third party. The fair value of derivative financial instruments is determined by discounting the expected future cash flows over the re- maining life of the agreement based on cur- rent market rates or term structures of inter- est rates. Further details on the valuation of derivative financial instruments under the fair value hierarchy can be found in » Note 20.3. When the Group first becomes party to the contract it assesses whether embedded de- rivatives are required to be separated from host contracts. A reassessment can only oc- cur if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. 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, financial management defines the hedge relationship between the hedging instrument and the hedged item. Furthermore, the aim of the risk management measure and underlying strategy when con- cluding the hedge transaction are described. Any gains or losses arising from changes in fair value on derivatives during the period that do not qualify for hedge accounting are recognised immediately in profit or loss. For the purpose of hedge accounting, hedg- es are classified as cash flow hedges when hedging exposure to variability in cash flows is attributable to a particular risk associated with a recognised liability. 59 alstria Financial Report 2013Consolidated financial statements At the inception of a hedge relationship the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the identification of the hedging in- strument, the hedged item, the nature of the risk that is being hedged and how the entity will assess the hedging instrument’s effec- tiveness in offsetting the exposure to chang- es in the hedged item’s cash flows that are attributable to the hedged risk. The applied hedges are deemed to be highly effective in achieving offsetting changes in fair value or cash flows. They are assessed on an on-go- ing basis to determine their effectiveness throughout the financial reporting periods for which they were designated. Cash flow hedges, which meet the strict cri- teria for hedge accounting, are accounted for as follows: › The effective portion of the gain or loss on the hedging instrument is recognised direct- ly in equity, while any ineffective portion is recognised immediately in profit or loss. › Amounts taken to equity are transferred to profit or loss when the hedged trans- action affects profit or loss, such as when the hedged financial income or financial ex- pense is realised. The Group neither uses any financial deriva- tives that qualify for the hedging of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges), nor such financial derivatives that qualify for the hedging of a net investment in a foreign op- eration (net investment hedge). Cash and cash equivalents Cash and short-term deposits in the con- solidated statement of financial position are comprised of current bank balances. For the purposes of the consolidated cash flow statement, cash and cash equivalents include the cash and cash equivalents de- fined above, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 60 Current bank balances are recognised at their nominal amount. Treasury shares Company equity instruments which are re- acquired (treasury shares) are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancel- lation of the Group’s own equity instruments. Liabilities Financial liabilities, in particular trade paya- bles, are stated at the amount repayable and are discounted if classified as non-current and non-interest bearing. Fair values are determined by discounting the future contractually agreed cash flows by an appropriate interest rate from the yield curve at the end of the reporting period. The recognition and measurement of finan- cial liabilities is subject to the provisions of IAS 39. Depending on the classification as prescribed by IAS 39, which is: › at amortised cost or › measured at fair value through profit or loss Financial liabilities are either measured at am- ortised cost or at fair value and recognised accordingly at the end of reporting period. All loans and borrowings are initially recog- nised at fair value less directly attributable transaction costs. They have not been des- ignated as ‘at fair value through profit or loss’. After initial recognition, interest-bear- ing loans and borrowings are subsequently measured at amortised cost using the effec- tive interest method. Gains and losses result- ing from derecognition of amortisation are recognised in profit or loss. The component of the convertible profit participation rights (Wandelgenussrechte), which exhibits characteristics of a liability, is recognised as a liability in the balance sheet, net of transaction costs. Upon issuing the jouissance shares, the fair value of the liabil- ity component is determined using a market rate for an equivalent non-convertible bond. This amount is then classified as a financial li- alstria Financial Report 2013Consolidated financial statements Revenue recognition Revenues are recognised when it is probable that the economic benefits will flow to the Group and when it becomes reliably meas- ureable. Revenue is measured at the fair value of the consideration received, exclud- ing discounts, rebates and other sales taxes or du-ties. Revenues are recorded excluding VAT. In addition, the following specific rec- ognition criteria must be met before revenues are recognised: Rental income Rental income from operating leases on in- vestment properties is accounted for on a straightline basis over the lease terms. Interest income Interest income is recognised as interest ac- crues applying the effective interest rate. This is the rate that discounts estimated future cash receipts to the net carrying amount of the financial asset over the expected life of the financial instrument). Income taxes REIT-AGs are fully exempt from German cor- porate income tax and trade tax. Hence, al- stria office REIT-AG has been exempt from tax with retrospective effect since January 1, 2007. ability and measured at amortised cost until it is extinguished on conversion or redemption. A financial liability is derecognised when the obligation from the liability is discharged or cancelled or expires. If an existing financial liability is replaced with a liability from the same lender under substantially different terms, or the terms of an existing liability are substantially modified, the exchange or mod- ification is treated as a derecognition of the original liability. The new liability is recorded and the difference in the respective carrying amounts is recognised in profit or loss. Provisions Provisions are recognised where a present obligation to third parties exists as a result of a past event, where a future outflow of re- sources is probable and where a reliable esti- mate of that outflow can be made. Provisions are measured, taking all risks into account at the best estimate of future cash outflows required to meet the obligation. If they are non-current they are discounted. Provisions are not offset with reimbursements. Share-based payments Share-based payments comprise cash-set- tled liability awards and equity-settled equity awards. The fair value of equity awards is general- ly determined by using a modified Black- Scholes option-pricing model at the grant date. It measures the total personnel expense which is to be recognised in profit and loss for the service period and which in turn increases equity (paid-in capital) by the same amount. Until settlement liability awards are meas- ured at fair value at each balance sheet date, they are classified 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. Further details on the share-based payment schemes are given in » Notes 17, 18 and 19 and in the remuneration report, respectively. 61 alstria Financial Report 2013Consolidated financial statements 9.2 Income and expenses from passed-on operating expenses EUR k 2013 2012 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 16,361 15,967 193 434 16,554 16,401 – 16,361 – 15,967 – 706 – 1,212 – 17,067 – 17,179 Income less expenses from passed-on operating expenses – 513 – 778 The expenses from passed-on operating ex- penses that are directly attributable to invest- ment property include, in particular, operat- ing costs, maintenance and property based taxes. 9.3 Real estate operating expenses EUR k Maintenance and refurbishment Vacancy costs Running repairs Taxes on land and building Property management Other 2013 2012 5,218 3,190 1,253 170 26 605 4,900 3,166 1,203 50 427 652 10,462 10,398 8 Segment reporting IFRS 8 requires a ‘management approach’, under which information on segments is pre- sented on the same basis used for internal re- porting purposes. The services offered by alstria office REIT-AG exclusively focus on letting activities to com- mercial property tenants in Germany. In ac- cordance with IFRS 8, a single reporting seg- ment is identified which comprises all of the Groups’ operations. The manner of reporting for this segment is consistent with the internal reporting provid- ed to the chief operating decision-maker. The chief operating decision-maker is responsi- ble for allocating resources to the operating segments of an entity and assesses their per- formance. The Group’s chief operating deci- sion-maker is the Management Board. tenants. Total larg- Revenues are generated by a er number of revenues amount to EUR  104,224 k (previous year: EUR 101,286 k), of which EUR 30,097 k and EUR 15,656 k relate to leases to the two larg- est customers of the Group. No other single customer has neither in the financial year 2012 nor in the financial year 2013 contrib- uted with 10 % or more to the consolidated revenues. 9 Notes to the consolidated income statement 9.1 Revenues EUR k 2013 2012 Revenues from investment property 104,224 101,286 Revenues from investment property chiefly in- clude rental income from investment property. 62 alstria Financial Report 2013Consolidated financial statements 9.4 Administrative expenses On average the Group employed 61 employ- ees in 2013 (2012: 55). EUR k Legal and consulting fees Depreciation Communication and marketing IT maintenance Travel expenses Audit fee (audit and audit related services) Supervisory Board compensation Leasing costs Office area costs Training & workshops Recruitment Insurances Other 2013 2012 1,320 1,754 9.6 Other operating income 549 532 420 397 335 305 190 143 136 62 41 894 471 607 377 318 330 302 158 128 116 110 179 872 5,325 5,722 EUR k Compensation payments and other recharges Income due to the reversal of provisions in relation to rental guarantees Reimbursement of property taxes Property management services Income from the reversal of accrued liabilities Car use Success fee Income in relation to development projects Payments on provisions on doubtful debts 2013 2012 1,926 1,130 946 429 186 88 64 0 0 0 293 0 0 110 387 52 579 326 80 496 3,932 3,160 9.5 Personnel expenses Other EUR k Maintenance and refurbishment Vacancy costs Running repairs Taxes on land and building Property management Other 2013 2012 5,218 3,190 1,253 170 26 605 4,900 3,166 1,203 50 427 652 10,462 10,398 EUR k Salaries and wages 2013 2012 3,919 3,625 Social insurance contribution 580 524 Bonuses Expenses for share-based compensation 1,256 1,228 1,711 1,174 thereof relating virtual shares 1,046 thereof relating to the con- vertible profit participation certificates 665 564 610 Compensation payments and other reallo- cations result from the early termination of leases and refurbishment activities conduct- ed by alstria. The latter refers to refurbish- ments to which the tenants had originally committed themselves upon entering into the leasing contracts. Amounts for retirement provisi- ons and disability Management Board Other 202 122 186 112 7,790 6,849 Compensation payments also include charg- es passed on to a former majority sharehold- er in an amount of EUR 571 k. The compen- sation has been incurred in connection with the placement if alstria-shares of that share- holder in the capital markets. Convertible profit participation rights grant- ed to employees do not only grant the right to a conversion when the conditions apply, but also to an annual payment equivalent to the dividend amount paid out per share. There- fore, expenses for share-based compensation resulting from the convertible profit partici- pation rights are to be recognised in equity (for the conversion right) as well as against liabilities (for the dividend entitlement). From the total expense in relation to the profit par- ticipation rights amounting to EUR 665 k, EUR 541 k were recognised in equity (2012: EUR 506 k), while EUR 124 k were recorded in liabilities (2012: EUR 104 k). An explanation for the reversal of provi- sions for rental guarantees can be found in » Notes 11.3. The success fee for the previous year relates to alstria acting as an agent in property trans- actions. Income due to development projects relates to compensation received from tenants for the restructuring of leased premises. They can vary each year. 63 alstria Financial Report 2013 Consolidated financial statements EUR k 2013 2012 Proceeds from the disposal of investment property Carrying amount of invest- ment property disposed of Valuation result of properties held-for-sale 54,418 8,189 – 53,020 – 8,080 0 1,398 260 369 Fair value adjustments on financial deriva- tives resulted in a net loss, which is broken down as follows: EUR k 2013 2012 Transfer of cumulated loss from cash flow hedge reserve to inco- me statement Ineffective change of the fair value of cash flow hedges Change in fair value of financial derivatives not qualifying as a cash flow hedge Net loss from fair value adjust- ments on financial derivatives – 2,988 – 986 – 7,798 – 1,069 3,232 675 – 7,554 – 1,380 In 2013, a loss amounting to EUR 2,988 k related to cumulative losses from fair value adjustments of cash flow hedge derivatives, which were recorded in equity. The adjust- ments resulted from the fact that the original- ly hedged transactions are no longer expect- ed to occur. Further details and explanation on derivatives are presented in » Note 10.7. 9.7 Other operating expenses EUR k Donations Impairments on trade receivables Additions to provisions for rental guarantees Other miscellaneous 2013 2012 68 40 0 3 76 64 895 1 111 1,036 Explanations on additions to provisions for rental guarantees in the previous year can be found in » Notes 11.3. 9.8 Financial and valuation result The financial result breaks down as follows: EUR k Financial income Interest expenses syndicated loan 2013 317 2012 657 – 13,471 – 14,383 Interest expenses other loans – 9,036 – 9,385 Interest result derivatives – 13,406 – 12,589 Interest expenses convertible bond – 2,697 0 Other interest expenses – 119 – 250 Financial expenses – 38,729 – 36,607 Net present value adjust- ments due to the discount of a leasing liability Commitment fees Other Other financial expenses – 413 – 20 – 271 – 704 0 – 18 – 117 – 135 Net financial result – 39,116 – 36,085 Total interest income and expenses for finan- cial assets and liabilities which are not finan- cial derivatives were EUR 317 k interest in- come (2012: EUR 657 k) and EUR 24,011 k interest expenses; (2012: EUR 24,018 k), re- spectively. Total interest expenses calculated using the effective interest method for financial lia- bilities that are not recognised at fair value through profit or loss were EUR 4,280 k (in- terest expenses; 2012: EUR 1,700 k). Within the two former financial years the Group did not hold financial assets avail- able for sale. Therefore the net result from the disposal of financial assets available for sale amounted, like in the previous year, to EUR 0. 64 alstria Financial Report 2013Consolidated financial statements 9.9 Net result on the disposal of investment property EUR k 2013 2012 Proceeds from the disposal of investment property Carrying amount of invest- ment property disposed of Valuation result of properties held-for-sale 54,418 8,189 – 53,020 – 8,080 0 1,398 260 369 The total loss from the disposal of objects and portfolios sold below their carrying value amounted to EUR 523 k in 2013 and EUR 146 k in 2012. 9.10 Income taxes alstria office REIT-AG obtained the G-REIT status on January 1, 2007. At this time it was subject to final taxation and has been tax-ex- empt with regard to corporate tax and trade tax effective since then. Minor tax payment obligations may arise on Group level for affiliates serving as a gener- al partner of a partnership or REIT Service Companies. 10 Notes to the consolidated statement of financial position – assets 10.1 Investment property This item, which is comprised of all invest- ment properties held by the Company, breaks down as follows: EUR k Fair values As of Jan. 1 2013 2012 1,622,988 1,528,589 Property acquisition 36,865 101,844 Capital expenditure 14,483 12,867 Disposals – 42,000 – 8,080 Reclassification from investment property Transfers to held for sale Net result from the adjust- ment of the fair value of investment property 0 0 – 606 – 9,750 27 – 1,876 As of Dec. 31 1,632,362 1,622,988 alstria office REIT-AG uses the fair value mod- el pursuant to IAS 40.33 et seq. for subse- quent measurement of investment property. External appraisals were obtained for meas- urement. For a detailed description of the val- uation of assets, please see » Note 7. Deferred income tax Due to its REIT tax exemption, there were no impacts on profit and loss, the financial statements, or equity or profit and loss in 2012 and 2013 resulting from deferred income tax. The item on the income statement ‘net result from fair value adjustments on investment property’ of an amount of EUR 23,929 k is attributable to a change in unrealized losses. Investment property (in EUR) The following table provides details of the Group’s investment properties and infor- mation about the fair value hierarchy as at December 31, 2013: Level 1 Level 2 Level 3 – – 1,632,362 Fair value as at Dec., 31.13 1,632,362 There were no transfers between Levels 1 and 2 during the year. The Group has considered the nature, char- acteristics and risks of its properties as well as the level of the fair value hierarchy with- in which the fair value measurements are categorised in determining the appropriate classes of investment property. The following factors have been applied to determine the appropriate classes. 65 alstria Financial Report 2013Consolidated financial statements a) The real estate segment: Within all invest- ment portfolios the majority of the lettable area is dedicated to offices. Therefore all investment properties belong to one asset class: offices. As a result three appropriate classes of invest- ment properties have been identified: › Germany – Office – Level 3 – short WAULT (0 to 5 years), b) The geographical location of all properties › Germany – Office – Level 3 – medium is Germany. WAULT (> 5 to 10 years), c) The level of fair value hierarchy for all in- › Germany – Office – Level 3 – long WAULT vestment properties is level 3. (> 10 years). d) There are larger differences between the contractual lease terms. This also af- fects the weighted average lease length (WAULT) for each investment property. A distinction is made between objects with a short, medium and long WAULT. Quantitative information about fair value measurements using unobservable inputs (level 3) EUR k, unless stated otherwise Range Fair value at Dec. 31, 2013 Valuation technique Unobservable inputs Min. Max. Weighted average Portfolio Offices Germany 1,632,362 hard-core and top slice Estimated rental value (EUR/sqm/month) Adjusted yield (%) Void period of office leases expiring within next 5 years (months) 0 ≤ WAULT ≤ 5 years Offices Germany 715,017 hard-core and top slice Estimated rental value (EUR/sqm/month) Adjusted yield (%) Void period of office leases expiring within next 5 years (months) 5 < WAULT ≤ 10 years Offices Germany 367,325 hard-core and top slice Estimated rental value (EUR/sqm/month) Adjusted yield (%) Void period of office leases expiring within next 5 years (months) WAULT > 10 years Offices Germany 550,020 hard-core and top slice Estimated rental value (EUR/sqm/month) Adjusted yield ( %) Void period of office leases expiring within next 5 years (months) 5.7 4.3 19.2 13.2 12.0 24.0 6.2 4.9 19.1 13.2 10.6 6.1 16.2 10.3 6.7 12.0 24.0 16.2 8.4 5.2 17.1 8.0 11.9 6.1 12.0 18.0 16.5 5.7 4.3 17.0 5.8 10.3 5.0 12.0 12.0 12.0 66 alstria Financial Report 2013 Consolidated financial statements Sensitivity of measurement to variance of significant unobservable input The decrease in the estimated rental income decreases the fair value. reporting period. The transaction volume for the properties amounted to EUR 36,460 k. For more information about changes to the immovable property, please refer to the ‘Transactions’ section in the Group manage- ment report 2013 » see page 8f. An increase in the vacancy periods decreases the fair value. An increase in the adjusted yield decreases the fair value. Borrowing costs that would have had to be capitalised as construction costs were not incurred during the reporting period (2012: EUR 0 k). A decrease in the estimated rental income leads to an increase in the adjusted yield; an increase in the estimated rental income leads to a decrease in the adjusted yield. Disclosures concerning expenses/income as recorded in the income statement pursuant to IAS 40.75 (f) include: A decrease in the vacancy period leads to an increase in the adjusted yield; an increase in the vacancy period leads to a decrease in the adjusted yield. The external assessor has carried out sensitiv- ity analyses on their fair value assessments, which show the effect of changes to capitali- sation rates on fair market values. Value of investment properties (EUR million) Capitalisation rates (%) – 0.25 0.00 0.25 2013 1,713 1,632 1,560 2012 1,697 1,623 1,553 In financial year 2013 benefits and obliga- tions were transferred for ten properties, two of which were classified as ‘assets held for sale’ as at December 31, 2012. The transac- tion volume amounted to EUR 53,680 k. An area of land was acquired in Düsseldorf (owned through leasehold before) in the second quarter of 2013. This transaction led to an increase in investment property of EUR 405 k. Capital expenditure (EUR 14,483 k) is com- prised of subsequent acquisition and produc- tion costs relating to property acquisitions and refurbishment projects. Furthermore, the Group acquired two invest- ment properties for which the transfer of ben- efits and obligations was completed in the › EUR 104,224 k (2012: EUR 101,286 k) rent- al income from investment property; › EUR 7,272 k (2012: EUR 7,232 k) operat- ing expenses (including repairs and main- tenance) directly allocable to investment property from which rental income was gen- erated during the period under review; and › EUR 3,190 k (2012: EUR 3,166 k) operat- ing expenses (including repairs and main- tenance) arising from investment property which did not generate rental income dur- ing the period under review. Investment properties (including held-for- sale investment properties) of an amount of EUR 1,632,362 k (2012: EUR 1,632,998 k) served as collaterals for bank loans. 10.2 Equity accounted investment At the end of the reporting period, two companies in which alstria office REIT-AG holds a share of 49 % were treated as joint ventures and accounted for using the equi- ty method. The carrying amount of the joint ventures at the end of the reporting peri- od was EUR 21,001 k (December 31, 2012: EUR 18,183 k). For further information please refer » to Note 4. 67 alstria Financial Report 2013 Consolidated financial statements 10.3 Property, plant and equipment EUR k Acquisition and production cost As at Jan. 1, 2013 Additions As at Dec. 31, 2013 Accumulated amortization, depreciation and write-downs As at Jan. 1, 2013 Additions As at Dec. 31, 2013 Net book values as at Dec. 31, 2013 EUR k Acquisition and production cost As at Jan. 1, 2012 Additions Reclassifications from investment property Disposals As at Dec. 31, 2012 Accumulated amortization, depreciation and write-downs As at Jan. 1, 2012 Additions As at Dec. 31, 2012 Net book values as at Dec. 31, 2012 Plant Furniture and fixtures Own occupied property Total 2013 1,169 0 1,169 1,134 19 1,153 16 883 47 930 318 113 431 499 5,019 0 5,019 285 93 378 4,641 7,071 47 7,118 1,737 225 1,962 5,156 Plant Furniture and fixtures Own occupied property Total 2012 1,150 19 0 0 1,169 1,117 17 1,134 35 625 259 0 – 1 883 223 95 318 565 4,343 70 606 0 5,019 202 83 285 4,734 6,118 348 606 – 1 7,071 1,542 195 1,737 5,334 The useful life of the assets is estimated to be between three to 15 years for plant, furniture and fixtures and 33.33 to 50 years for the own-occupied properties. Plant is comprised of miscellaneous items such as fire extinguishers or a control panel for a closed-circuit television system. alstria office REIT-AG occupies areas for its own use in two of its office buildings in Ham- burg and Düsseldorf. Therefore, the own- er-occupied areas of the properties are cat- ego-rised as ‘property, plant and equipment’ according to IAS 16. In order to secure Group liabilities, the prop- erties are pledged via land charges. 68 alstria Financial Report 2013  EUR k Acquisition and production cost As at Jan. 1, 2013 Additions As at Dec. 31, 2013 Accumulated amortization, depreciation and write-downs As at Jan. 1, 2013 Additions As at Dec. 31, 2013 Net book values as at Dec. 31, 2013 EUR k Acquisition and production cost As at Jan. 1, 2012 Additions Reclassifications from investment property Disposals As at Dec. 31, 2012 Accumulated amortization, depreciation and write-downs As at Jan. 1, 2012 Additions As at Dec. 31, 2012 Net book values as at Dec. 31, 2012 Furniture and Own occupied Plant fixtures property Total 2013 Furniture and Own occupied Plant fixtures property Total 2012 1,169 0 1,169 1,134 19 1,153 16 1,150 19 0 0 1,169 1,117 17 1,134 35 883 47 930 318 113 431 499 625 259 0 – 1 883 223 95 318 565 5,019 0 5,019 285 93 378 4,641 4,343 70 606 0 5,019 202 83 285 4,734 7,071 47 7,118 1,737 225 1,962 5,156 6,118 348 606 – 1 7,071 1,542 195 1,737 5,334 Consolidated financial statements 10.4 Intangible assets 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 Licences 2013 2012 1,480 1,192 332 0 288 0 1,812 1,480 1.013 327 0 742 271 0 1.340 1.013 Net book values as at Dec. 31 472 467 The useful life of the intangible assets is es- timated to be between three to eight years. The intangible assets consist of software li- cences and licences to other rights in an amount of EUR 369 k and EUR 103 k, re- spectively. 10.5 Assets held for sale At the end of the previous reporting period only investment properties held for sale were disclosed under assets held for sale. The level of fair value hierarchy within which the fair value measurements are categorised is level 3. The valuation of the held for sale proper- ties is based on two unobservable input pa- rameters: (i) the contractual disposal price for the asset and (ii) the expected disposal costs to be borne by the Group. Since the expect- ed disposal expenses are of minor influence to the valuation the significant unobserva- ble input, the contractual disposal price, cor- responds the carrying amount of the assets held for sale. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There has been no change to the valuation method during the year. 10.6 Receivables and other assets Due to the specific nature of the business, the Group considers receivables due up to one year to be current. The following table presents an overview on the receivables of the Group: EUR k Trade receivables Rent receivables Accounts receivables from affiliates Other receivables Accrued receivables for ‘Rent free periods’ Deposit account Prepayments Receivables and other assets Other receivables Dec. 31, 2013 Dec. 31, 2012 3,708 3,656 89 89 4,768 1,639 130 454 6,991 2,998 1,624 142 2,048 6,812 Except for EUR 1,639 k of receivables (December 31, 2012: EUR 1,624 k) from an escrow holder all receivables are due within one year from the end of the reporting peri- od. The fair value of all receivables is equal to their carrying amount. Trade receivables were written down by EUR 40 k (December 31, 2012: EUR 64 k) due to rent payments in arrears. Apart from trade receivables no other receivables, were impaired. As at December 31, 2013, trade receivables of an amount of EUR 991 k (December 31, 2012: EUR 1,343 k) were past due but not yet impaired. These relate to a number of in- dependent customers for whom there is no recent history 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, 2013 Dec. 31, 2012 662 87 242 991 820 103 420 1,343 69 alstria Financial Report 2013 Consolidated financial statements All receivables from rental agreements and property disposals, as well as insurance re- ceivables and derivative financial instruments, have been assigned to the lenders » Note 11.2 in order to secure the Group’s loans. On June, 7 2013, alstria issued a convertible bond for a total amount of EUR 79,400 k. Due to the terms and conditions of the convertible bond, the conversion right has to be separate- ly accounted as an embedded derivative. A total of EUR 4,768 k of other receivables is made up of accruals resulting from the recog- nition of total rental revenues on a straight- line basis over the entire term of the lease agreements (rent smoothing). An amount of EUR 1,229 k of receivables is included in previous year’s receivables and other assets of EUR 2,048 k. They result from charges passed on to a former majori- ty shareholder that were incurred in connec- tion with the placement of that shareholder’s shares on the capital market. 10.7 Derivative financial instruments The following derivative financial instruments existed at the end of reporting period: In line with alstria’s hedging strategy, a new interest rate forward cap agreement with a notional value of EUR 380,870 k and a cap rate of 0.0000 % was entered to hedge the variable interest payments. The cap will be- come effective on July 20, 2015 and will ex- pire on September 30, 2020. This transaction was executed on September 11, 2013. The interest rate forward cap agreement will replace the existing interest rate for- ward swap with a notional amount of EUR 380,870 k, a swap rate of 2.9900 % and a maturity to July 20, 2015. Forwad-Cap3) 0.0000 Sept. 30, 2020 380,870 31,932 Strike p.a. (%) Maturity date Notional (EUR k) Fair value (EUR k) Notional (EUR k) Fair value (EUR k) Dec. 31, 2013 Dec. 31, 2012 3.0000 Sept. 30, 2019 4.6000 Oct. 20, 2015 42,500 47,902 641 3 42,500 47,9021) 2.9900 Jul. 20, 2015 380,870 – 15,769 0 471,272 – 15,125 42,500 2) 3.0000 Dec. 17, 2018 3.2500 Dec. 31, 2015 3.3000 Oct. 20, 2014 3.3000 Oct. 20, 2014 56,000 11,327 0 0 541 2 0 0 0 56,000 11,500 22,876 7,871 395 8 0 403 0 395 5 2 1 2.1940 Dec. 31, 2014 37,283 – 858 37,283 – 1,632 2.9900 Jul. 20, 2015 0 0 472,500 – 33,448 104,6104) 31,617 608,030 – 34,677 575,882 16,492 650,530 – 34,274 n/a Jun. 14, 2018 7,8845) – 9,336 7,156 0 – 34,274 Product Cap Cap Swap Interest rate derivatives – held for trading Cap Cap Cap Cap Swap Swap Interest rate derivatives – cash flow hedges4) Total Interest rate derivatives Embedded Derivative Total 1) Not effective before July 10, 2013 2) Notional excluding the EUR 47,902 k not effective before July 10, 2013 3) Not effective before July 20, 2015 4) Notional excluding the EUR 380,870 k not effective before July 20, 2015 5) Underlying number of shares for conversion in thousand 70 alstria Financial Report 2013 Consolidated financial statements For more information, please refer to the financial management section in the Group management report, » page 15. The value changes of the derivatives are re- flected in various items in the balance sheet. The following table shows the change in fi- nancial derivatives since December 31, 2012: Changes in financial derivates EUR k Hedging instruments as at Dec. 31, 2012 Effective change in fair values cash flow hedges Ineffective change in fair values cash flow hedges Net result from fair value changes in financial derivatives not qualifying for cash flow hedging Reclassification of cumulated loss from equity to income statement Changes in accrued interests concerning financial derivatives Acquisitions Disposals Hedging instruments as at Dec. 31, 2013 Financial assets Financial liabilities Cash flow hedge reserve Non-current Current Non-current Total – 22,137 403 403 – 35,081 – 34,275 11,820 49 0 0 2,988 0 0 0 – 10,129 0 0 0 42,152 0 – 7,329 32,475 0 0 114 0 0 127 0 644 11,771 11,820 2,331 – 7,798 3,118 3,232 0 0 118 118 – 12,453 29,826 4,233 4,233 – 25,963 7,156 The notional amount of the financial deriv- atives, which includes cash flow hedges and derivatives not qualifying for cash flow hedg- ing, effective at the end of the reporting pe- riod is EUR 575,882 k (December 31, 2012: EUR 650,530 k). Derivatives of a notional amount of EUR 471,272 k (December 31, 2012: EUR 42,500 k) are not designated as a cash flow hedge. An increase in the fair values of derivatives of an amount of EUR 11,820 k that are effective in a cash flow hedge has been recognised in the hedging reserve in 2013 (2012: decrease of EUR 5,363 k). The ineffective portion that arises from cash flow hedges amounted to a fair value loss of EUR 7,798 k (2012: loss of EUR 1,069 k) and is recognised in profit or loss. Further gains totalling EUR 3,232 k (2012: gain of EUR 675 k), which were due to the market valuation of derivatives not included in hedge accounting, were recorded in the in- come statement 2013. A loss of EUR 2,988 k (2012: EUR 986 k) relates to cumulative losses from cash flow hedges for which the forecast transaction is no longer expected to occur as loans were re- paid prematurely. in a total Overall, this results loss of EUR  7,554  k (2012: loss of EUR 1,380 k), which is recorded as ‘net result from fair val- ue adjustments on financial derivatives’. 71 Forwad-Cap3) 0.0000 Sept. 30, 2020 380,870 31,932 Dec. 31, 2013 Dec. 31, 2012 Strike p.a. (%) Maturity date Notional (EUR k) Fair value (EUR k) Notional (EUR k) Fair value (EUR k) 3.0000 Sept. 30, 2019 4.6000 Oct. 20, 2015 42,500 47,902 641 3 42,500 47,9021) 395 2.9900 Jul. 20, 2015 380,870 – 15,769 0 0 56,000 11,500 22,876 7,871 8 0 0 5 2 1 471,272 – 15,125 42,500 2) 403 541 395 3.0000 Dec. 17, 2018 3.2500 Dec. 31, 2015 3.3000 Oct. 20, 2014 3.3000 Oct. 20, 2014 56,000 11,327 0 0 0 2 0 0 0 2.1940 Dec. 31, 2014 37,283 – 858 37,283 – 1,632 2.9900 Jul. 20, 2015 472,500 – 33,448 104,6104) 31,617 608,030 – 34,677 575,882 16,492 650,530 – 34,274 Product Cap Cap Swap Interest rate derivatives – held for trading Cap Cap Cap Cap Swap Swap Interest rate derivatives – cash flow hedges4) Total Interest rate derivatives Embedded Derivative Total n/a Jun. 14, 2018 7,8845) – 9,336 7,156 0 – 34,274 1) Not effective before July 10, 2013 4) Notional excluding the EUR 380,870 k not effective 2) Notional excluding the EUR 47,902 k not effective before July 20, 2015 before July 10, 2013 3) Not effective before July 20, 2015 5) Underlying number of shares for conversion in thousand alstria Financial Report 2013 Consolidated financial statements 10.8 Cash and cash equivalents EUR k Dec. 31, 2013 Dec. 31, 2012 Bank balance 82,782 118,548 Bank balances earn interest at floating inter- est rates based on daily bank deposit rates. As at the end of the reporting period, EUR 252 k (December 31, 2012: EUR 252 k) of the cash and cash equivalents were restricted. The amount corresponds to accrued interest obli- gations and other amounts that are not at the Company’s free disposal. 11 Notes to the consolidated statement of financial position – equity and liabilities 11.1 Equity For detailed information on equity please re- fer to the consolidated statement of changes in consolidated equity. Share capital Thousand Dec. 31, 2013 Dec. 31, 2012 Ordinary share of EUR 1 each 78,933 78,933 Capital reserve The capital reserve changed as follows during the financial year: EUR k As of Jan. 1 Contributions to capital reserve Transaction costs of issue of shares 2013 2012 769,412 751,084 0 0 53,778 – 1,310 Payment of dividends – 39,467 – 34,705 Share-based payments Conversion of convertible participation rights 541 0 506 59 As of Dec. 31 730,486 769,412 The new shares generated from the cap- ital increase in the previous financial year were issued and sold at a price of EUR 8.50 per share. The issue proceeds by which the nominal share capital increase was exceed- ed amounted to EUR 53,778 k. They were recognised in capital reserves. The share placement resulted in an overall increase in the capital reserve of EUR 52,468 k, due to additions of EUR  53,778 k and expenses of EUR 1,310 k. On December 31, 2013 alstria office RE- IT-AG’s share capital remained unchanged at an amount of EUR 78,933,487, represented by 78,933,487 non-par value bearer shares. An increase of EUR 541 k (2012: EUR 506 k) resulted from the vesting of the convertible profit participation certificates as granted to the Group’s employees. The majority of the shares in the Company are in free float. Dividend payments released from capital re- serves totalled EUR 39,476 k (EUR 0.50 per outstanding share). The following table shows the reconciliation of the number in shares outstanding: Hedging reserve Number of shares 2013 2012 EUR k Dec. 31, 2013 Dec. 31, 2012 Shares outstanding on Jan. 1 Issue of new shares Conversion of conver- tible participation rights 78,933,487 71,703,625 0 0 7,170,362 59,500 As of Dec. 31 78,933,487 78,933,487 Hedging reserve – 7,329 – 22,137 For further details on the change in hedging reserve please refer » to Note 10.7. 72 alstria Financial Report 2013 EUR k As of Jan. 1 Contributions to capital reserve Transaction costs of issue of shares 2013 2012 769,412 751,084 0 0 0 53,778 – 1,310 506 59 Payment of dividends – 39,467 – 34,705 Share-based payments 541 Conversion of convertible participation rights As of Dec. 31 730,486 769,412 Consolidated financial statements Treasury shares As of December 31, 2013, the Company held no treasury shares. By resolution of the Annual General Meet- ing held on June 8, 2011, the Company’s au-thorisation to acquire treasury shares was renewed. According to the resolution, alstria office REIT-AG is authorised to acquire up to 10 % of the capital stock until June 8, 2016. There is no intention to make use of this au- thorisation at present. Retained earnings Retained earnings as at December 31, 2013 totalled an amount of EUR 42,024 k. Since the payment of the dividend could not be generated from positive retained earnings at the time the dividend was paid, the amount of the dividend payouts in 2013 was released from the capital reserve. 11.2 Financial liabilities EUR k Loans Syndicated loan Other loans Convertible bond Total EUR k Loans Syndicated loan Other loans Total Non-current Current Total Loan Accrued interest Total current Dec. 31, 2013 534,794 220,984 66,708 822,486 0 73,178 0 73,178 29 582 97 708 29 73,760 97 73,886 534,823 294,744 66,805 896,372 Non-current Current Total Loan Accrued interest Total current Dec. 31, 2012 555,610 326,495 882,105 5,460 4,121 9,581 26 379 405 5,486 4,500 9,986 561,096 330,995 892,091 The table shows the long-term loans, net of the current portion as stated under non-cur- rent liabilities. Furthermore, the current amount that is due within one year is shown, which is recorded as short-term loans under current liabilities. amount of EUR 896.372 k (EUR 822.486 k non-current and EUR 73.886 k current) takes into account interest liabilities and transac- tion costs to be allocated under the effec- tive interest method upon raising liabilities. Financial liabilities with a maturity of up to one year are recognised as current loans. As at December 31, 2013, the total repayable amount of the loans drawn by alstria office REIT-AG was EUR 913,892 k (December 31, 2012: EUR 896,984 k). The lower carrying In the second quarter of financial year 2013, alstria office REIT-AG issued a convertible bond generating proceeds of EUR 79,400 k. 73 alstria Financial Report 2013 Consolidated financial statements The convertible bond has a term to maturity of five years. It will be redeemed at 100 % of its principal amount. The bond has a cou- pon of 2.75 % p.a., payable in quarterly in- stalments in arrears and an initial conversion price of EUR 10.0710. The issuing volume resulting from the con- vertible bond loan amounts to EUR 79,400 k and is included in financial liabilities in full. It is divided into a loan portion and a financial liability in the form of an embedded deriva- tive. The carrying amount of the convertible bond liability therefore lies below its nominal amount. The initial recognition of these two components was at fair value, which corre- sponds to the emission volume. As a part of the allocation of the issue proceeds, the fair value of the embedded derivative was deter- mined and the residual value less transaction costs was assigned to the loan component. Subsequently, the loan component is valued at amortised cost. The derivative component is, however, valued at fair value at the end of subsequent reporting periods. Upon con- version into shares both components, which are discontinued upon conversion of the bond, are reclassified as equity. alstria office REIT-AG issued this bond based on the au- thorisation received from the Annual Gener- al Meeting in 2013. The convertible loan has a carrying amount without accrued interests of EUR 66,708 k and a fair market value of EUR 73,439 k. alstria refinanced its main credit facility on September 30, 2013. A syndicate consisting of four banks has provided a credit facility to- talling EUR 544,100 k (‘syndicated loan’). Out of this nominal amount, EUR 538,963 k had been drawn as of December 31, 2013 (De- cember 31, 2012: EUR 564,721 k under the former, replaced credit facility agreement). The carrying amount was EUR 534,794 k as of December 31, 2013 (December 31, 2012: EUR 561,070 k under the former, replaced credit facility agreement). The difference be- tween the notional amount and the carrying amount is due the allocated transaction costs accounted under the effective interest rate method. 74 The loan agreement has a term to maturity of seven years until September 30, 2020. The syndicated loan was arranged by UniCred- it Bank AG, Munich and underwritten by HSH Nordbank AG, Hamburg, Berlin-Han- noversche Hypothekenbank AG, Berlin, and Landesbank Hessen-Thüringen Girozentrale, Frankfurt on the Main. As a result of the disposal of six office buildings alstria repaid EUR 25,756 k on its syndicated loan in the reporting period 2013. To secure the liabilities of the syndicated loan, receivables from rental and property purchase agreements as well as insurance re- ceivables and derivative financial instruments were assigned to the lenders, liens were granted on bank accounts and the registra- tion of land charges was agreed » Note 10.6. alstria office REIT-AG entered into a new floating rate loan in March 2011 in connec- tion with the acquisition of two office build- ings. The interest rate on this loan is based on the three-months EURIBOR rate plus a spread of 180 basis points. The loan facility, of which EUR 11,328 k has been drawn, has a total amount of EUR 14,600 k. It matures at the end of 2015. Two other new floating rate loans were tak- en up in November 2011. Both have an in- terest rate based on the three-months EURI- BOR rate plus a spread of 135 basis points and a term to maturity until December 17, 2018. The loans serve to refinance a newly acquired portfolio of six investment proper- ties. An amount of EUR 56.000 k was drawn as at December 31, 2013. In the third quarter of 2012 a loan agreement for a credit facil- ity of EUR 42,500 k has been entered into. The floating rate loan, which is based on the three-months EURIBOR rate plus a spread of 180 basis points has a term to maturity until September 30, 2019. It was paid out to the Group on December 28, 2012. The current portion of the loan refers to scheduled repayments and accrued interest on the loans. alstria Financial Report 2013Consolidated financial statements The variable interest of the loans is payable on a quarterly basis, whereby the standard margin and borrowing costs for the market are added to the respective EURIBOR rate. Due to the variable interest rate, there are no significant differences between the carrying amounts and fair value with the exception of transaction costs. A total of EUR 98,130 k (December 31, 2012: EUR 100,945 k) in financial liabilities from non-recourse loans relates to two fixed in- terest rate loans. At the end of the report- ing period, these loans had a fair value of EUR 100,574  k (December 31, 2012: EUR 102.906 k). The fair value estimation is based on the discounted cash flows using quoted prices for loans with equivalent risk and maturity as a discount rate (level 2 in fair value hierarchy). As at December 31, 2013, the loans and the convertible bond were reduced by trans- action costs of EUR 7,087 k (December 31, 2012: EUR 5,418 k). The average debt maturity as at the end of the reporting period increased to 5.3 years com- pared to 3.0 years as of December 31, 2012. The average interest rate of the Group's loans was 3.6 % at the end of the reporting period. The carrying amounts of the loans are all reported in euros. The liabilities exposed to an interest rate risk are due as follows: EUR k Dec. 31, 2013 Dec. 31, 2012 Up to 1 year More than 1 year Total 42,843 693,520 736,363 6,646 789,393 796,039 The following loans are secured by land charges: EUR k Dec. 31, 2013 Dec. 31, 2012 Financial liabilities secured by land charges thereof on invest- ment property 829,567 892,091 824,926 887,357 75 alstria Financial Report 2013Consolidated financial statements 11.3 Provisions EUR k Provisions Due Total Due up to 1 year in more than 1 year Dec. 31, 2013 up to 1 year in more than 1 year Rental guarantee 490 2,372 Provision virtual share liabilities 1,525 2,015 872 3,244 2,862 2,397 5,259 0 0 0 3,829 1,362 5,191 Total Dec. 31, 2012 3,829 1,362 5,191 In connection with of the sale of properties, the Group has committed itself to compen- sate buyers for possible shortfalls in rental in- come for rental agreements existing with cer- tain tenants at the disposal date that are not extended. A provision amount of EUR 2.862 k was calculated as the net present value of possible cash outflow due to this rental guar- antee for which a realisation is more likely than not. The commitment relates to a six- year rental period starting in 2014 and has led to contingent liabilities see » Note 12.2. As at December 31, 2012, the provision for the rental guarantees amounted to EUR 3,829 k. The decrease in this provision of an amount of EUR 21 k results from the change in the net present value due to the expiration and discount rate changes. The remaining EUR 946 k reduction in the pro- vision for rental guarantee is based on the modification in the expectation of realisation, which takes into account new information of the tenants’ situation, with respect to them using their possible break option. In addition EUR 2,397 k (December 31,2012: EUR 1,472 k) were recognised as a provision for awarding the Long-Term and Short Term Incentive Plan see » Note 18. Due Total Due Total up to 1 year in more Dec. 31, than 1 year 2013 up to 1 year in more Dec. 31, than 1 year 2012 EUR k Trade payables Other trade payables Other current liabilities Accruals for outstanding invoices Security deposit Advance rent payments received Accrued bonuses Value added tax liabilities Customers with credit balances Supervisory Board compensation Auditing costs Building lease for disposals Consultancy costs Miscellaneous other liabilities Advance payments received 3,474 3,474 3,435 996 1,544 1,238 485 425 305 266 0 0 0 283 8,977 1,052 742 3,474 3,474 3,735 3,735 3,435 2,048 1,544 1,238 485 305 266 0 0 0 5,071 758 1,309 1,210 561 302 286 361 2,640 18 425 1,103 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,735 3,735 5,071 1,500 1,309 1,210 561 1,103 302 286 2,640 18 416 6.387 6,748 283 416 1,052 10,029 14,035 7,129 21,164 76 alstria Financial Report 2013 Consolidated financial statements 11.4 Trade payables and other liabilities EUR k Trade payables Other trade payables Other current liabilities Accruals for outstanding invoices Security deposit Advance rent payments received Accrued bonuses Value added tax liabilities Customers with credit balances Supervisory Board compensation Auditing costs Building lease Advance payments received for disposals Consultancy costs Miscellaneous other liabilities Due Total Due Total up to 1 year in more than 1 year Dec. 31, 2013 up to 1 year in more than 1 year Dec. 31, 2012 3,474 3,474 3,435 996 1,544 1,238 485 425 305 266 0 0 0 283 8,977 0 0 0 1,052 0 0 0 0 0 0 0 0 0 0 3,474 3,474 3,735 3,735 3,435 2,048 1,544 1,238 485 5,071 758 1,309 1,210 561 425 1,103 305 266 0 0 0 302 286 361 2,640 18 283 416 0 0 0 742 0 0 0 0 0 0 3,735 3,735 5,071 1,500 1,309 1,210 561 1,103 302 286 6.387 6,748 0 0 0 2,640 18 416 1,052 10,029 14,035 7,129 21,164 There are no future minimum payments ob- ligations at the end of the reporting period 2013 anymore because due to the termina- tion of the leasehold in the reporting period no leasehold liability existed. The disclosed carry- ing amounts approximate their fair values. Trade payables relate to operating costs not yet invoiced of EUR 1,489 k (December 31, 2012: EUR 2,492k), liabilities from project de- velopment, rental activities and third-party real estate management services of EUR 1,985 k (December 31, 2012: EUR 1,243 k). The property lease liability existing at the end of the previous reporting period EUR 6,748 k resulted from a property leasehold acquired within the previous financial year, that mean- while no longer exists. The leasehold original- ly matured in December 2088. 77 alstria Financial Report 2013 Consolidated financial statements The annual lease payment amounted to EUR 381 k and was attached to the development of the annual average consumer price index in Germany. The fair value of the leasehold as at Decem- ber 31, 2012 amounted to EUR 7,130 k. The following table presents the future mini- mum lease payments as per end of the report- ing period 2012 and their discounted values for future periods. EUR k Maturity property lease < 1 year 1 – 5 years > 5 years Total Less: Future financing costs Discounted value of mini- mum lease payments Dec. 31, 2013 Discounted value of minimum lease payments Minimum lease payments Dec. 31, 2012 Discounted value of minimum lease payments Minimum lease payments 0 0 0 0 0 0 361 1,263 5,124 6,748 0 0 0 0 381 1,523 27,035 28,939 22,191 6,748 At the end of the reporting period 2013 no future minimum payment obligations are shown as no leasehold liability was incurred due to its termination. 11.5 Trust assets and liabilities At the end of the reporting period, al- stria office REIT-AG held trust assets worth EUR  1,639 k (December 31, 2012: EUR 1,624 k) and liabilities worth EUR 996 k (December 31, 2012: EUR 758 k), in particu- lar from rent deposits. 11.6 Deferred taxes According to its REIT status, alstria office RE- IT-AG has been fully tax exempt regarding income taxes from January 1, 2007 onwards. Therefore, there are neither deferred taxes at the end of reporting period nor at the end of the prior years’ reporting period. 12. Other notes 12.1 Compensation of the Manage- ment Board and Supervisory Board Management Board In 2013, the over- all compensation of the members of the Management Board totalled EUR 2,192 k (2012: EUR 2,193 k). On the reporting date, liabilities for the compensation of the mem- bers of the Management Board amounted to EUR 378 k (2012: EUR 360 k). Under the stock option programme of alstria office REIT-AG members of the Management Board held non-transferable stock options for 375,000 shares of alstria office REIT-AG as at Decem- ber 31, 2013 and 2012, respectively. The stock options had been granted under the regime of the meanwhile terminated stock option programme implemented in 2007. Details of the stock option programme are also inclu- ded in » Note 17. 78 alstria Financial Report 2013 Consolidated financial statements As at December 31, 2013 379,768 virtual shares were granted to the members of the Management Board, resulting from a subse- quent cash-settled sharebased incentive plan implemented in 2010 (see also » Note 18). Supervisory Board Pursuant to the Articles of Association, Supervisory Board members’ fixed annual payment amounted to EUR 305 k (2012: EUR 302 k). Further information on disclosures according to Section 314 paragraph 1 no. 6a HGB (Ger- man Commercial Code) and IAS 24.17 is pro- vided in the remuneration report (» see pages 111 to 117) that is part of the corporate gov- ernance statement. 12.2 Other financial commitments and contingencies With respect to the sale of properties, at the disposal date the Group has committed itself to compensate buyers for possible shortfalls in rental income in case rental agreements existing with certain tenants are not extend- ed. Contingencies out of this commitment amounted to EUR 456 k (December 31, 2012: EUR 670 k). The commitment relates to a six-year rental period starting in 2014. According to the details of the rental guar- antees and the lettability of the objects, the Company does not expect any claims from these rental guarantees. The same circumstances led to provisions for rental guarantees (see » Note 11.3) The decrease in this commitment from EUR 670 k to EUR 456 k is based on the ex- tension of the lease term of part of the rental areas in question, resulting in the termination of the rental guarantee originally granted for these areas. As at December 31, 2013, there were no rental agreements for the administrative prem-ises subject to with a minimum lease term. An amount of EUR 292 k of future fi- nancial obligations arose from other leasing agreements. EUR 138 k of them have a resid- ual maturity up to one year and the remain- der, EUR 154 k, a remaining maturity of one to five years. Annual lease payments of an amount of EUR  381 k were resulted from a proper- ty leasehold that existed on December 31, 2012. The development of the lease payment rate was connected to the development of the annual average consumer price index in Germany. As at December 2013 the property leasehold ceases to exist. Operating lease commitments – Group as lessor The Group has entered into commercial prop- erty leases on its investment property portfo- lio, which consists of the Group’s offices and commercial real estate. These non-cancella- ble leases have remaining terms to maturity of between one and 22 years. Most leases in- clude an indexation clause, i.e. allowing rent- al charges to be raised annually according to prevailing market conditions. Future minimum rental charges receivable as agreed on in non-cancellable operating leas- es are as follows: EUR k Dec. 31, 2013 Dec. 31, 2012 Within 1 year 96,965 98,079 After 1 year but not longer than 5 years More than 5 years 281,798 323,480 296,037 314,741 702,243 708,857 79 alstria Financial Report 2013Consolidated financial statements 12.3 Consolidated cash flow statement The cash flow statement shows how the Group’s cash and cash equivalents have changed in the course of the financial year as a result of cash received and paid. In ac- cordance with IAS 7, a distinction is made between cash flows from operating activities and cash flows from investing and financing activities. 13 Related party relationships 13.1 Preliminary remarks Related parties are members of the manage- ment of alstria office REIT-AG (Management Board and Supervisory Board) and close fam- ily members of these persons. Related par- ties also include entities with controlling in- fluence over the Group and entities with joint control over, or significant influence on, al- stria office REIT-AG. Cash flows from investing and financing ac- tivities are calculated on the basis of pay- ments, whereas cash flows from operating activities are derived indirectly based on the consolidated profit for the year. The majority of alstria office REIT-AG’s shares are free float shares. No person or entity has a controlling influence over the Company. alstria office REIT-AG is the ultimate parent company of the Group. Joint ventures over which alstria office RE- IT-AG has joint control are also considered related parties. In the view of alstria office REIT-AG’s man- agement, all transactions with related parties entered into in financial year 2013 have been undertaken at terms of arm’s length transac- tions or under conditions in alstria office RE- IT-AG’s favour. 13.2 Remuneration of key management personnel For a detailed description of the remunera- tion of key management personnel, please refer to » Note 12.1 and the remuneration report (» see pages 111 to 117). 13.3 Related party transactions At the end of the reporting period, the Group recorded receivables of an amount of EUR  89  k (December 31, 2012: EUR 89  k) from joint ventures. Furthermore, alstria office REIT-AG received EUR 142 k (2012: EUR 701 k) from the joint venture as a compensation for services connected to real estate. No further transactions with related parties arose during the reporting period. Net cash generated from operating activi- ties for the financial year 2013 amounted to EUR 50,114 k. The increase compared to the reporting period 2012 (EUR 45,735 k) result- ed mainly from higher rental revenues and lower payments for interest expenses. Cash flow from investing activities is impact- ed by the cash outflows resulting from the acquisitions of two investment properties and a piece of land and investments in exist- ing properties (cash outflow EUR 58,506 k). Cash inflows of EUR 51,040 k relate to pay- ments received for the sale of investment properties. Payments for capital contribution in joint ventures generated cash outflows of an amount of EUR 3,370 k. Cash flows from financing activities mainly reflect refinancing activities with payments for the redemption of borrowings of an amount of EUR 606,592 k and cash proceeds from taking on loans (EUR 544,100 k) and issuing a convertible bond (EUR 79,400 k). Dividend payments resulted in cash outflows of EUR 39,467 k. Furthermore cash outflows were made for the acquisition and termina- tion of financial derivatives (EUR 46,512 k). Cash and cash equivalents reported in the cash flow statement relate to all liquidity items disclosed in the balance sheet, i.e. cash at hand and bank balances. 80 alstria Financial Report 2013Consolidated financial statements 14 Earnings per share Basic earnings per share are calculated as the quotient of the profit attributable to the shareholders and the weighted average num- ber of shares outstanding during the finan- cial year – except for the average number of treasury shares held by the Company itself. Diluted earnings per share amounts are cal- culated by dividing the profit attributable to ordinary owners of the parent company by the weighted average number of ordinary shares outstanding during the year – except for the treasury shares held by the Company itself – plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordi- nary shares into ordinary shares. The following reflects the income and share data used in the earnings per share compu- tations: Earnings per share 2013 2012 Profit attributable to the shareholders (EUR k) Average number of shares outstanding (thousands) 38,945 39,911 78,933 77,848 Basic earnings per share 0.49 0.51 (EUR per share) The potential conversion of shares in relation to the convertible bond could dilute basic earnings per share in the future: Diluted earnings per share 2013 2012 Diluted profit attributable to the shareholders (EUR k) Average diluted number of shares (thousands) Diluted earnings per share (EUR) 39,896 39,911 86,818 77,848 0.46 0.51 There were no dilution effects resulting from the granted stock options or the convertible profit participation rights during the period under review, as the related vesting condi- tions were not satisfied as at the end of the reporting period. For further information concerning granted stock options and convertible profit partici- pation rights, please see » Notes 17 and 19. There have been no other transactions in- volving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial state- ments. alstria office REIT-AG is authorised to issue up to EUR 39,353 k shares as conditional capi- tal. These contingently issuable shares could potentially dilute basic earnings per share in the future, but were not included in the cal- culation of diluted earnings per share because they are non-dilutive for the period presented. 15 Dividends paid EUR k 2013 2012 Dividends on ordinary shares1) not recognised as a liability as at Dec. 31 Dividend per share (without treasury shares) 39,467 34,705 0.50 0.44 1) Refers to all shares except treasury shares at the dividend payment date. The Annual General Meeting of alstria of- fice REIT-AG held on May 29, 2013, re- solved totalling to distribute dividends EUR 39,467 k (EUR 0.50 per outstand- ing share). The dividend was distributed on Mai 30, 2013. The dividends paid out in 2012 totalled EUR 34,705 k (EUR 0.44 per share outstanding). 16 Employees During the period from January 1 to Decem- ber 31, 2013, the Company on average em- ployed 61 employees (January 1 to Decem- ber 31, 2012: on average 55 employees). The average was calculated based the total num- ber of employees at the end of each quarter. On December 31, 2013, 63 people (Decem- ber 31, 2012: 59 people) were employed at alstria office REIT-AG, excluding the Man- agement Board members. 81 alstria Financial Report 2013Consolidated financial statements 17 Stock option programme On March 27, 2007, the Supervisory Board of the Company resolved to establish a stock op- tion programme for the members of the Man- agement Board. The Supervisory Board fixed 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 first tranche of stock options to the Management Board. The main terms of the stock option pro- gramme resolved by the Supervisory Board can be summarised as follows: Under the stock option programme, up to 2,000,000 options entitling to the subscrip- tion of a maximum of 2,000,000 shares of the Company with a total nominal value of EUR 2,000 k may be granted to members of the Management Board. The stock op- tions will be granted in annual tranches. The first tranche was granted by the Supervisory Board in 2007, subject to the conditions be- low. The exercise price for the stock options granted in 2007 is EUR 16. In 2011 the stock option programme was replaced by a new long-term incentive plan that is described in detail in » Note 18. The stock options granted in 2007 under the terminated stock option program stay unaf- fected. At the beginning of the reporting period, 515,625 stock options outstanding existed. Therefore, the amount of stock options out- standing as at the end of reporting period re- mained unchanged. None of these stock op- tions 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 2013 and 2012. The fair values of the options outstanding were estimated at the respective granting dates using a Black-Scholes model and par- tial-time barrier options, taking into account the terms and conditions upon which the in- struments were granted. The following table lists the inputs to the model used for the de- termination of the fair value of the stock op- tions granted: 82 Fair value of stock options granted on Dividend yield (%) Risk-free interest rate (%) Mar. 27, 2007 Sept. 5, 2007 3.60 4.21 3.60 4.29 Expected volatility (%) 30.00 30.00 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) 4.50 16.00 0.00 4.50 16.00 0.00 16.00 13.93 3.17 2.28 Expected volatility is based on the historical volatility of comparative listed companies and was calculated as an average of these com- parables. The term of each stock option is seven years beginning with the respective issue date. The stock options may only be exercised if the current stock exchange price of the Compa- ny’s shares exceeds the stock exchange price of the Company’s shares on the issue date by 20 % or more for at least seven non-sub- sequent trading days of the Frankfurt Stock Exchange prior to the commencement of the respective exercise period. The stock options may only be exercised after the expiration of a vesting period of two years, and then dur- ing the four exercise periods each year. Each exercise period lasts 30 days, commencing with the day of announcement of the results for the first, second and third quarter, and the day of the Company’s Annual General Meet- ing. There are no cash settlement alternatives. 18 Share-based remuneration On March 2, 2010, the Company’s super- visory board established a new share-based remuneration system as part of the success based remuneration for members of the Management Board. The share-based remu- neration is made up of a long-term compo- nent, the Long-Term Incentive Plan (LTIP), and a short-term component, the Short-Term Incentive Plan or STIP. The remuneration type is a cash-settled and share-based pay- ment transaction respectively. alstria Financial Report 2013Expected volatility (%) 30.00 30.00 Fair value of stock options granted on Dividend yield (%) Risk-free interest rate (%) 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) Mar. 27, Sept. 5, 2007 3.60 4.21 4.50 16.00 0.00 2007 3.60 4.29 4.50 16.00 0.00 16.00 13.93 3.17 2.28 Consolidated financial statements Under the LTIP, alstria office REIT-AG grants virtual shares, which give an entitlement to conversion into cash payments after four years. The development of the virtual shares until December 31, 2013 is shown in the following table: The amount of the conversion payment is based on the number of virtual shares, multi- plied by the average stock market price of al- stria’s shares on the Frankfurt Stock Exchange during the last 60 trading 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 market price of alstria’s shares on the Frank- furt Stock Exchange in the last 60 trading days prior to the relevant grant date, multiplied by a specified discretionary factor. The discretionary factor is a multiplier that can vary between 0.8 and 1.2, and is subject to the individual performance of each partici- pant during the respective holding period. The assessment of the target achievement depends on the absolute return of the alstria share price (absolute total shareholder return) and in an equal amount on the relative per- formance of alstria's share in relation to the EPRA/NA-REIT Index Europe Ex UK (relative total shareholder return). Since payment per vested virtual share de- pends on the average quoted price of alstria's shares for 60 trading days, the quoted aver- age prior to the end of the reporting period essentially represents the fair value of each virtual share. Virtual shares under the short-term varia- ble remuneration (STIP) were granted for the first time on March 3, 2011. The virtu- al shares resulting from the STI are subject to a minimum vesting period of two years. Virtual STI shares are converted into a cash amount after the expiry of the vesting pe- riod. This cash amount is calculated based on the number of virtual shares, multiplied by the share price of one alstria share at that time, which is in turn calculated based on a reference period. Number of virtual shares Dec. 31, 2013 Dec. 31, 2012 LTI STI LTI STI Jan. 1 267,665 24,629 175,711 11,718 Granted in the reporting period Converted into cash in the reporting period 86,114 13,078 91,954 12,911 0 –11,718 0 0 Dec. 31 353,779 25,989 267,665 24,629 The 11,718 virtual shares converted into cash under the STIP resulted in payments to the management board in an amount of EUR 121 k within the business year 2013. In 2013, the LTI and the STI generated remu- neration expenses amounting to EUR 1,046 k (2012: remuneration expenses of EUR 563 k) and provisions amounting to EUR 2,397  k (December 31, 2012: EUR  1,472 k). The Group recognises the liabilities arising from the vested virtual shares under other provisions. 19 Convertible profit partici- pation rights programme On September 5, 2007, the Supervisory Board of the Company resolved the issuance of convertible profit participation certificates (‘certificates’) to employees of the Compa- ny and to employees of companies in which alstria office REIT-AG, directly or indirectly, holds a majority interest. Members of alstria office REIT-AG’s Management Board are not considered employees of the Company in terms of this convertible profit participation rights programme. With its resolution, the Supervisory Board fixed the details of the convertible profit participation rights pro- gramme in accordance with an authorisation granted by the general meeting of sharehold- ers of March 15, 2007. The convertible profit participation rights programme was renewed by the Supervisory Board with minor modi- fications in 2012 in accordance with an au- thorisation granted by the general meeting of shareholders of April 24, 2012. 83 alstria Financial Report 2013Consolidated financial statements The main terms of the programme Board can be summarised as follows: The nominal amount of each certificate is EUR 1.00 and is payable upon issuance. Un- der the current programme, starting in 2012, a maximum of 500,000 certificates in an ag- gregate nominal amount of up to EUR 500 k may be issued. The certificates are issued as nontransferable rights and are neither sellable nor pledgeable or otherwise chargeable. The maximum term of each certificate is five years. During its term, each certificate entitles the holder to a preferred disbursement from the Company’s annual net profit. The profit share corresponds to the dividend per share of the Company for a full business year of the Com- pany. For certificates held by a beneficiary for less than a full business year of the Company, the profit share is reduced pro rata temporis. Each certificate shall be converted into one non-par-value bearer share of the Company on the second, third, fourth or fifth anniver- sary 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 trad- ing days (market condition). For 85,500 cer- tificates issued on June 18, 2012 and 111,800 certificates issued on June 7, 2013, this mar- ket condition was fulfilled until the end of the financial year 2013. Upon conversion of a certificate, the benefi- ciary shall pay an additional conversion price to the Company for each certificate to be converted. The conversion price shall be the aggregate proportionate amount in the Com- pany’s share capital of the shares each certif- icate entitles the holder to subscribe for and shall be payable in addition to the offer price. The fair values of the inherent options for conversion were estimated at the respective granting dates using a binary barrier option model based on the Black-Scholes model, since the conversion will be affected auto- matically once the barrier has been reached. The model takes into account the terms and conditions upon which the instruments were granted. The following share based payment agree- ments under the employee profit participation programme were in existence during the year. 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 Jun. 6, 2008 4.70 4.65 35.00 2.00 2.00 10.00 11.03 Jun. 9, Jun. 18, Jun. 7, 2011 4.23 1.67 47.00 2.00 2.00 10.00 10.40 2012 5.76 0.04 38.00 2.00 2.00 10.00 7.64 2013 5.68 0.04 25.00 2.00 2.00 10.00 8.80 8.76 8.25 5.45 6.18 Number of certificates Granting date of tranche Jan. 1, 2013 Jun. 6, 2008 Jun. 9, 2011 Jun. 18, 2012 Jun. 7, 2013 35,500 73,000 86,000 Expired due to time lapse – 35,500 0 0 Expired due to termination of employment Converted Granted Dec. 31, 2013 0 0 0 0 – 500 – 500 0 0 0 0 111,800 111,800 72,500 85,500 111,800 269,800 Total 194,500 – 35,500 – 1,000 0 0 0 0 0 Total expenses relating to convertible profit participation rights were EUR 665 k in 2013 » Note 9.5. 84 alstria Financial Report 2013Consolidated financial statements 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 histori- cal volatility of alstria and comparative listed companies and was calculated as an average of these comparable figures. 20 Financial risk management 20.1 Managing financial risk factors The group’s activities expose it to a variety of financial risks such as: interest rate risks, credit risks and liquidity risks. The group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse ef- fects on the group’s financial performance. The group makes use of derivative finan- cial instruments to hedge certain exposures to risk. Risk management is carried out by a central treasury function (group treasury) within the finance and controlling depart- ment under policies approved by the Board of Directors. Group treasury identifies, evalu- ates and hedges financial risks in close co-op- eration with the CFO. The Management Board provides written principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, credit risk, making use of derivative financial instru- ments and non-derivative financial instru- ments, and the investment of excess liquidity. The financial instruments chiefly used by the Group are bank loans and derivative financial instruments. The main purpose of the bank loans is to finance the business activities of alstria office REIT-AG. In addition, the Group also owns various financial assets, such as Jun. 6, 2008 4.70 4.65 35.00 2.00 2.00 10.00 11.03 Jun. 9, Jun. 18, Jun. 7, 2011 4.23 1.67 47.00 2.00 2.00 10.00 10.40 2012 5.76 0.04 38.00 2.00 2.00 10.00 7.64 2013 5.68 0.04 25.00 2.00 2.00 10.00 8.80 8.76 8.25 5.45 6.18 cash and shortterm deposits, which arise di- rectly from business activities. Derivative financial instruments comprise in- terest swaps and caps. The purpose of these derivative financial instruments is to hedge against interest risks arising from the Group’s business activities and its funding. The main risks arising from the Group’s fi- nancial instruments are cash flow risks, inter- est rate risks and liquidity risks. The Group is exposed to credit risks mainly where de- rivative financial instruments are held as as- sets and via its bank balances. The amount that best presents the maximum credit risk is the carrying amount of the financial assets. The Management Board decides on strate- gies and processes for managing specific risk types. These are defined in the following par- agraphs. Risks that could arise as a result of the financial crisis are seen mainly in a potential de-fault of payment by a major tenant. Due to the fact that all of the Company’s main ten-ants are public institutions or still highly rated, the risk of default of payments is currently limited. alstria office REIT-AG’s syndicated loan facility agreement allows for a loan to value (LTV) ra- tio of up to 70 %. The Company managed to keep the LTV ratio for the syndicated loan on the relevant test date at 53.4 %. The risk of a breach of covenant is effectively countered. 85 alstria Financial Report 2013Consolidated financial statements The following table presents the single LTV ratios and covenants for the Group loans as at the end of the reporting period: Existing loan agrements as per December 31, 2013 Principal amount outstanding (EUR K) Current LTV (%) LTV covenant (%) 538,963 47,902 42,670 28,503 69,626 11,328 56,000 39,500 834,492 79,400 913,892 53.4 70.2 64.0 54.8 61.5 51.5 46.1 40.6 50.9 55.8 70.0 80.0 80.0 62.5 75.0 80.0 60.0 65.0 Loan Syndicated loan Non-recourse loan #1 Non-recourse loan #2 Non-recourse loan #3 Non-recourse loan #4 Loan #5 Loan #6 Loan #7 Total loans Maturity Sept. 30, 2020 Oct. 20, 2015 Dec. 31, 2014 Jun. 30, 2014 Jan. 31, 2017 Dec. 31, 2015 Dec. 17, 2018 Sept. 30, 2019 Convertible bond Jun. 14, 2018 Total as at Dec. 31, 2013 Apart from the risks mentioned above, the Group is not exposed to any commodity or currency risks. a) Interest rate risk The following table sets out the carrying amount of the Group’s financial instruments, which are exposed to interest rate risk by ma- turity: EUR k < 1 year 1 – 2 years 2 – 3 years 3 – 4 years > 4 years Total Financial year as at Dec. 31, 2013 Variable interest Syndicated loan Other loans Total Financial year as at Dec. 31, 2012 Variable interest Syndicated loan Other loans Total 0 42,843 42,843 0 24,863 59,057 59,057 0 24,863 5,460 1,186 6,646 0 559,261 72,576 72,576 59,057 618,318 0 0 0 0 0 0 514,100 538,963 123,000 224,900 637,100 763,863 0 564,721 98,500 231,319 98,500 796,040 Due to the extensive portfolio of non-cur- rent financial liabilities with a variable interest rate, alstria office REIT-AG is exposed to risks from fluctuations in market interest rates. The interest base for the financial liability (loan) is the three-month EURIBOR rate, which is ad- justed every three months. A number of dif- ferent derivative financial instruments were acquired to secure the interest expense. The terms to maturity of the derivatives corre- sponds to the terms to maturity of the loans. The derivative financial instruments relate to interest swaps for which the Company agrees to exchange the difference between 86 Cap Cap Swap Cap Cap Cap Cap Swap Swap Total Dec. 31, 2013 Dec. 31, 2012 Product Strike p. a. Maturity Notional Fair value Notional date (EUR k) (EUR k) (EUR k) Fair value (EUR k) 3.0000 Sept. 30, 2019 42,500 641 42,500 395 4.6000 Oct. 20, 2015 47,902 3 47,9021) 2.9900 Jul. 20, 2015 380,870 – 15,769 Interest rate derivatives – held for trading 471,272 – 15,125 42,5002) Forwad-Cap3) 0.0000 Sept. 30, 2020 380,870 31,932 0 0 3.0000 Dec. 17, 2018 56,000 541 56,000 3.2500 Dec. 31, 2015 11,327 3.3000 Oct. 20, 2014 3.3000 Oct. 20, 2014 2 0 0 11,500 22,876 7,871 2.1940 Dec. 31, 2014 37,283 – 858 37,283 – 1,632 2.9900 Jul. 20, 2015 0 472,500 – 33,448 0 0 0 Interest rate derivatives – cash flow hedges Total Interest rate derivatives Embedded Derivative n/a Jun. 14, 2018 7,8845) 1) Not effective before July 10, 2013. 3) Not effective before July 20, 2015. 2) Notional excluding the EUR 47,902 k not effective before July 10, 2013. 4) Notional excluding the EUR 380,870 k not effective before July 20, 2015. 5) Underlying number of shares for conversion in thousand. 104,6104) 31,617 608,030 – 34,677 575,882 16,492 650,530 – 34,274 – 9,336 7,156 – 34,274 403 395 8 0 0 5 2 1 0 alstria Financial Report 2013 Consolidated financial statements fixed and variable interest rate amounts with contracting partners at specified intervals. The amounts are 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 ex- ceeded, the difference between the actual in- terest rate and the cap rate is paid out. The derivative financial instruments of alstria office REIT-AG are presented below: Product Strike p. a. Maturity date Notional (EUR k) Fair value (EUR k) Notional (EUR k) Fair value (EUR k) Dec. 31, 2013 Dec. 31, 2012 Cap Cap Swap 3.0000 Sept. 30, 2019 42,500 641 42,500 4.6000 Oct. 20, 2015 47,902 3 47,9021) 2.9900 Jul. 20, 2015 380,870 – 15,769 0 Interest rate derivatives – held for trading 471,272 – 15,125 42,5002) Forwad-Cap3) 0.0000 Sept. 30, 2020 380,870 31,932 0 Cap Cap Cap Cap Swap Swap 3.0000 Dec. 17, 2018 56,000 541 56,000 3.2500 Dec. 31, 2015 11,327 3.3000 Oct. 20, 2014 3.3000 Oct. 20, 2014 0 0 2 0 0 11,500 22,876 7,871 2.1940 Dec. 31, 2014 37,283 – 858 37,283 – 1,632 2.9900 Jul. 20, 2015 0 0 472,500 – 33,448 395 8 0 403 0 395 5 2 1 EUR k < 1 year 1 – 2 years 2 – 3 years 3 – 4 years > 4 years Total Financial year as at Dec. 31, 2013 Variable interest Syndicated loan Other loans Total Financial year as at Dec. 31, 2012 Variable interest Syndicated loan Other loans Total 0 42,843 42,843 0 24,863 59,057 59,057 0 24,863 514,100 538,963 123,000 224,900 637,100 763,863 5,460 1,186 6,646 0 559,261 72,576 72,576 59,057 618,318 0 564,721 98,500 231,319 98,500 796,040 0 0 0 0 0 0 Interest rate derivatives – cash flow hedges Total Interest rate derivatives 104,6104) 31,617 608,030 – 34,677 575,882 16,492 650,530 – 34,274 Embedded Derivative n/a Jun. 14, 2018 7,8845) Total – 9,336 7,156 0 – 34,274 1) Not effective before July 10, 2013. 2) Notional excluding the EUR 47,902 k not effective before July 10, 2013. 3) Not effective before July 20, 2015. 4) Notional excluding the EUR 380,870 k not effective before July 20, 2015. 5) Underlying number of shares for conversion in thousand. These interest rate swaps and interest rate caps are used to hedge the obligation under- lying the loans. The following table shows the sensitivity of the Company’s loans on consolidated profit or loss and equity due to a reasonably pos- sible change in the interest rates (due to the effect on the floating interest loans). All var- iables remain constant; the effects from the derivative financial instruments were not fac- tored into this calculation. 87 alstria Financial Report 2013 Consolidated financial statements Interest expenses p. a. EUR k + 100 bps – 50 bps 2013 8,490 2012 7,116 – 3,865 – 3,558 The fair market value of derivative financial instruments is also subject to interest rate risks. A change in the interest rate would give rise to the following changes of the respec- tive fair market values: aa) Impact on equity Financial derivates qualifying for cash flow hedge accounting EUR k + 100 bps – 50 bps 2013 17,879 – 9,556 2012 13,205 – 3,397 a b) Impact on the income statement and resulting effects on equity Financial derivates not qualifying for cash flow hedge accounting Impact from interest rate changes of the 3-month-EURIBOR: EUR k + 100 bps – 50 bps 2013 5,638 – 1,840 2012 1,254 – 263 Impact from changes in share price of the al- stria office REIT-AG share (only relates to the embedded derivative): EUR k 2013 2012 Share price compared to year end price 2013 (EUR 9.15) + 10 per cent – 10 per cent – 4,262 3,602 n/a n/a 88 b) Credit risk Except for credit risks relating to accounts re- ceivable balances, credit risks are managed at the group level. The department responsible for the operat- ing business property management manages and analyses credit risks in relation to each reletting activity, before standard payment and lease terms and conditions are offered. Credit risk arises from cash and cash equiva- lents, derivative financial instruments and de- posits with banks and financial institutions, as well as credit exposures to customers, includ- ing outstanding receivables and other com- pensatory commitments. Banks and financial institutions only are accepted as counter- parties, and only if they are independently rated parties with a minimum rating of ‘in- vestment grade’. If tenants are independent- ly rated, these ratings are applied. If there is no independent rating, the credit quality of the tenant is assessed, taking into account his financial position, past experience and other factors. Credit limits to tenants are generally not provided. Lease receivables from tenants are settled in bank transfers usually due at the beginning of each payment term. Tenants must pay a deposit or provide other warran- ties prior to the start of a lease term. c) Liquidity Risk The Company continually monitors the Group- wide risk of potential liquidity bottlenecks us- ing a liquidity-planning tool. The tool uses the expected cash flows from business activities and the maturity of the financial liabilities as a basis for analysis. The long-term refinancing strategy of the Group ensures the medium and long-term liquidity requirements. Such fore- casting takes the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet targets and, if applicable, exter- nal regulatory or legal requirements – for ex- ample, G-REIT equity ratio into consideration. At the end of the reporting period, the nom- inal financial liabilities had the following ma- turities in line with their contractual maturity (based on the three-month EURIBOR as at December 31, 2013 plus the weighted aver- age margin of 162 basis points for the Group’s loans). alstria Financial Report 2013Consolidated financial statements Financial year as at Dec. 31, 2013 EUR K Interest Loans Convertible Bond Financial derivatives Trade payables Other liabilities < 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years > 5 years Total 20,689 73,178 0 20,826 60,975 0 23,286 26,872 0 23,945 63,867 25,457 39,298 153,501 76,000 561,100 861,992 0 79,400 0 79,400 11,161 4,457 – 3,958 – 6,316 – 8,487 – 17,744 – 20,887 3,475 8,977 0 0 0 0 0 0 0 0 0 0 3,475 8,977 117,480 86,258 46,200 81,496 172,370 582,654 1,086,458 Financial year as at Dec. 31, 2012 EUR k Interest Loans Financial derivatives Trade payables Other liabilities < 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years > 5 years Total 18,346 18,502 12,814 9,461 102,911 620,236 5,887 2,009 3,581 5,026 64,156 63,867 98,500 896,984 14,220 13,464 6,555 3,735 9,180 0 7 0 7 0 0 7 0 0 8 0 0 34,239 3,735 6,713 15,922 54,942 134,884 639,612 7,903 67,456 110,239 1,015,036 The following chart shows the related future undiscounted cash flows of financial liabilities. The most significant liability is a syndicat- ed loan provided by four banks totalling EUR 538,963 k (December 31, 2012: EUR  564,721 k). The second major item in liabilities is comprised of loans entered into as a result of the Group’s refinancing strat- egy totalling an amount of EUR 295,529 k (December 31, 2012: EUR 332,264 k). To se- cure these liabilities, receivables from rental and property purchase agreements as well as insurance receivables and derivative financial instruments were assigned to the lenders; liens were granted on bank accounts and charges registered on the land. Obligations arising from floating interest bank loans were fully secured. Land charges for real estate property with a carrying amount of EUR 1,632,362 k were provided as collaterals. 20.2 Capital management Capital management activities are aimed at maintaining the Company’s classification as a REIT in order to support its business activities and maximise shareholder value. The Company actively manages its capital structure and makes adjustments in response to changes in economic conditions. In order to maintain or adjust the capital structure, the Group can make a capital repayment to its shareholders or issue new shares. No changes were made to the aims, guidelines and processes as at December 31, 2013, and as at December 31, 2012. The capital structure is monitored by the Company using the key performance indica- tors (KPIs) relevant for classification as a REIT. The REIT equity ratio, which is the ratio of equity to immovable assets, is the most im- portant KPI. According to the Group’s strat- egy, the REIT equity ratio shall be between 45 % and 55 % within the relevant term pro- vided 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 business years. 89 alstria Financial Report 2013Consolidated financial statements The following KPIs are also used to manage capital: KPI´S according to German REIT law % Equity ratio acc. to German REIT law Immovable assets Revenues gained from immovable assets Income gained from disposal of immovable assets 2013 50.87 92.93 100.00 23.66 2012 G-REIT covenant 50.04 92.74 100.00 20.99 > 45 >75 >75 < 501) 1) Within five years based on the average property value during this period. The following table shows the carrying amounts and fair value of all financial instru- ments disclosed in the consolidated financial statements: Carrying amount Non- financial assets Financial assets Assets at fair value through profit and loss 0 0 Derivatives for hedging 0 0 Total Fair value 3,708 3,708 89 89 644 32,474 33,118 33,118 Loans and receivables 3,708 89 0 0 0 0 Assets as per balance sheet (EUR k) as of Dec. 31, 2013 Trade receivables 3,708 89 33,118 Accounts receivable from joint ventures Derivatives Receivables and other assets Cash and cash equivalents 6,991 4,768 2,223 82,782 0 82,782 0 0 0 0 2,223 2,223 82,782 82,782 Total 126,688 4,768 88,802 644 32,474 121,920 121,920 Carrying amount Non- financial liabilities Financial liabilities Liabilities as per balance sheet (EUR k) as of Dec. 31, 2013 Long-term loans 822,486 Derivatives Short-term loans Trade payables Other liabilities Total 25,963 73,886 3,474 10,030 935,839 Other liabilities Derivatives for hedging Total Fair value 822,486 0 822,486 831,661 0 25,963 73,886 3,474 8,486 0 0 0 25,963 73,886 3,474 8,486 25,963 73,886 3,474 8,486 908,332 25,963 934,295 943,470 0 0 0 0 1,544 1,544 90 alstria Financial Report 2013Consolidated financial statements Carrying amount Non- financial assets Financial assets Assets as per balance sheet (EUR k) as of Dec. 31, 2012 Trade receivables 3,656 Accounts receivable from joint ventures Derivatives Receivables and other assets Cash and cash equi- valents Total 89 806 118,548 129,911 Assets at fair value through profit and loss 0 0 Derivatives for hedging Total Fair value 0 0 3,656 3,656 89 806 89 806 403 403 0 0 0 3,814 3,814 0 118,548 118,548 Loans and receivables 3,656 89 0 0 0 0 0 118,548 2,998 126,107 403 403 126,913 126,913 6,812 2,998 3,814 Carrying amount Non- financial liabilities Financial liabilities Liabilities as per balance sheet (EUR k) as of Dec. 31, 2012 Long-term loans Derivatives Short-term loans Trade payables Other liabilities Total 882,105 35,080 9,986 3,735 21,164 952,070 Other liabilities Derivatives for hedging Total Fair value 882,105 0 882,105 889,484 0 35,080 35,080 35,080 9,986 3,735 17,215 913,041 0 0 0 9,986 3,735 9,986 3,735 17,215 17,215 35,080 948,121 955,501 0 0 0 0 3,949 3,949 91 alstria Financial Report 2013Consolidated financial statements An independent expert determined the fair value of the derivative financial instruments by discounting the expected future cash flows at prevailing market interest rates. Net gains and losses from financial instru- ments are as follows: 21 Significant events after the end of the reporting period No events that must be reported pursuant to IAS 10 (Events after the Reporting Period) occurred after the end of the reporting peri- od December 31, 2013. 22 Utilisation of exempting EUR k 2013 2012 provisions Financial instruments at fair value through profit or loss – 7,554 – 1,380 Loans and receivables – 40 – 64 Total – 7,594 – 1,444 The following German subsidiaries included in the consolidated financial statements of alstria office REIT-AG have made use of the exemption granted in Section 264b HGB: Net losses during the reporting period result- ed from valuation losses and, in the case of loans and receivables, from the write-down of trade receivables. › alstria office Bamlerstraße GmbH & Co. KG, Hamburg › alstria office Englische Planke GmbH & Co. KG, Hamburg › alstria office Gänsemarkt Drehbahn GmbH & Co. KG, Hamburg › alstria office Halberstädter Str. GmbH & Co. KG, Hamburg › alstria office Hamburger Str. 43 GmbH & Co. KG, Hamburg › alstria office Insterburger Straße GmbH & Co. KG, Hamburg › alstria office Ludwig-Erhard-Straße GmbH & Co. KG, Hamburg › alstria office Mannheim/Wiesbaden GmbH & Co. KG, Hamburg › alstria office Steinstraße 5 GmbH & Co. KG, Hamburg 20.3 Determination of fair value The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valua- tion techniques maximise the use of observa- ble market data where it is available and rely on entity-specific estimates as little as possi- ble. If all significant inputs required to ascer- tain the fair value of an instrument are ob- servable, the instrument is included in level 2. An independent expert determined the fair value of the derivative financial instruments by discounting the expected future cash flows at prevailing market interest rates. Fu- ture cash flows are estimated at the end of the reporting period based on forward inter- est rates from observable yield curves as well as contractually agreed interest rates. These are discounted at a rate that reflects the cred- it risk of various counterparties. All of the Group’s financial instruments, which are measured at fair value in the balance sheet are valued applying the level 2 valuation measurement approach. This only applies to the Group’s financial derivatives, as there are no other financial instruments that are meas- ured in the balance sheet at fair value. 92 Date Topic Launch convertible bond Jun. 7, 2013 offering Aug. 5, 2013 Half-year results Sept. 10, 2013 syndicated loan Successful refinancing of Name of person subject to the disclosure requirement Olivier Elamine Member of the Management Board Alexander Stuhlmann Member of the Supervisory Board Function Classification of the financial instrument ISIN Place Transaction Transaction date Price per share (EUR) Number of shares Deal volume (EUR) Share Buy XETRA 9.087 3,000 DE000A0LD2U1 DE000A0LD2U1 Jun. 10, 2013 Dec. 12, 2013 27,263.28 26,410.08 Share Buy XETRA 8.803 3,000 alstria Financial Report 2013 Consolidated financial statements 23 Disclosures pursuant to Wertpapierhandelsgesetz (German Securities Trading Act) 23.1 Ad-hoc announcement The following table summarizes the an- nouncements pursuant to Sec. 15 para. 1 Ger- man Securities Trading Act (WpHG) as pub- lished by the Company in the reporting year: Date Topic Jun. 7, 2013 Launch convertible bond offering Aug. 5, 2013 Half-year results Sept. 10, 2013 Successful refinancing of syndicated loan 23.2 Directors’ dealings The following table summarizes the transac- tions reported to the Company pursuant to Sec. 15a para. 1 WpHG during the reporting period: Name of person subject to the disclosure requirement Function Classification of the financial instrument ISIN Transaction Place Transaction date Price per share (EUR) Number of shares Deal volume (EUR) Olivier Elamine Member of the Management Board Alexander Stuhlmann Member of the Supervisory Board Share Share DE000A0LD2U1 DE000A0LD2U1 Buy XETRA Buy XETRA Jun. 10, 2013 Dec. 12, 2013 9.087 3,000 27,263.28 8.803 3,000 26,410.08 93 alstria Financial Report 2013Consolidated financial statements 23.3 Voting right notifications Information according to Section 160 para. 1 No. 8 German Stock Corporation Act (AktG): The following table shows share holdings in the Company that were in place on the bal- ance sheet date 2013, that were commu- nicated to us pursuant to Section 21 para. 1 WpHG and have been published pursuant to Section 26 para. 1 WpHG. Moreover, share holdings were considered that were in place until the date of the preparation of the finan- cial statements, that were communicated to Voting rights (new) (%) Strike threshold (%) No. Shareholders, registered office 1 Stichting Pensioenfonds ABP, Heerlen, Netherlands 2 APG Groep N.V., Heerlen, Netherlands 3 APG Algemene Pensioen Groep N.V., Heerlen, Netherlands 4 CNP Assurances, Paris, France 5 RECM S.à r.l., Luxembourg, Luxembourg 6 Natixis S.A., Paris, France 7 Natixis Alternative Assets S.A., Luxembourg, Luxembourg 8 BPCE S.A., Paris, France 9 Ministry of Finance of the state of Norway (on behalf of the state of Norway), Oslo, Norway 10 Norges Bank (Central Bank of Norway) Oslo, Norway 11 Morgan Stanley Investment Management Limited, London, United Kingdom 12 Morgan Stanley Investments (UK), London, United Kingdom 13 Morgan Stanley Group (Europe), London, United Kingdom 14 Morgan Stanley International Limited, London, United Kingdom 15 Morgan Stanley International Holdings Inc, Wilmington, Delaware, USA 16 Henderson Global Investors (Holdings) plc, London, United Kingdom 17 Henderson Global Investors Limited, London, United Kingdom 18 Henderson Group plc, London, United Kingdom 19 Société Fédérale de Participations et d'Investissement/Federale Participa- tieen Investeringsmaatschappij SA/NV (‘SFPI/FPIM’), Brussels, Belgium 20 Belgian Ministry of Finance (on behalf of the Kingdom of Belgium), Brussels, Belgium 21 Shamrock Cedobar Limited, Dublin, Ireland 22 Cypress Grove International DL.P., New York, USA 23 CG Delaware Apellas Limited, Valletta, Malta 24 CGI Partners L.P., Delaware, USA 25 Cypress Grove International Associates LLC, Delaware, USA 26 Grove International Partners LLP, Delaware, USA 27 Coronation Fund Managers Ltd, Cape Town, South Africa 28 Coronation Investment Management (Pty) Ltd, Cape Town, South Africa 29 Coronation Asset Management (Pty) Ltd, Cape Town, South Africa 30 Morgan Stanley, Wilmington, Delaware, USA 31 BNP Paribas Investment Partners S.A., Paris, France 3.45 3.45 3.45 5.14 0 0 0 0 3.01 3.01 2.80 2.80 2.80 2.80 2.80 2.90 2.90 2.90 2.97 2.97 0 0 0 0 0 0 2.90 2.90 2.90 2.99 5.02 32 BNP Paribas Investment Partners UK Ltd, London, United Kingdom 3.001 1) Attribution pursuant to Section 22 para. 1 Sentence 1 No. 1 WpHG. 2) Attribution pursuant to Section 22 para. 1 Sentence 1 No. 6 WpHG. 94 3 3 3 5 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3,5 3,5 3,5 3,5 3,5 3,5 3 3 3 3 5 3 Attribution of voting rights Contains 3 % or more of voting rights from APG Groep N.V., APG Algemene Pensioen Groep N.V. APG Algemene Pensioen Groep N.V. Norges Bank (Central Bank of Norway) Date of change Apr. 1, 2011 Apr. 1, 2011 Apr. 1, 2011 Dec. 7, 2012 Mar. 12, 2013 Mar. 12, 2013 Mar. 12, 2013 Mar. 12, 2013 Apr. 29, 2013 Apr. 29, 2013 May 24, 2013 May 24, 2013 May 24, 2013 May 24, 2013 May 24, 2013 Sept. 16, 2013 Sept. 16, 2013 Sept. 16, 2013 Nov. 5, 2013 Nov. 5, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Dec. 10, 2013 Dec. 10, 2013 Dec. 10, 2013 Dec. 20, 2013 Jan. 02, 2014 Jan. 03, 2014 Yes1) Yes1) No No No No No No Yes1) No Yes2) Yes2), 3) Yes2), 3) Yes2), 3) Yes2), 3) Yes2), 3) Yes2) Yes2), 3) Yes1), 2), 3) Yes1), 2), 3) No No No No No No Yes2), 3) Yes2), 3) Yes2) Yes2), 3) Yes1), 2), 3) Yes1) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – alstria Financial Report 2013Consolidated financial statements us pursuant to Section 21 para. 1 WpHG and have been published pursuant to Section 26 para. 1 WpHG. The Company did not receive any notifications pursuant to Section 20 para. 1 and 4 AktG or pursuant to Section 21 para. 1a WpHG during the reporting period. Voting rights (new) (%) Strike threshold (%) No. Shareholders, registered office 1 Stichting Pensioenfonds ABP, Heerlen, Netherlands 2 APG Groep N.V., Heerlen, Netherlands 3 APG Algemene Pensioen Groep N.V., Heerlen, Netherlands 4 CNP Assurances, Paris, France 5 RECM S.à r.l., Luxembourg, Luxembourg 6 Natixis S.A., Paris, France 7 Natixis Alternative Assets S.A., Luxembourg, Luxembourg 8 BPCE S.A., Paris, France Norway), Oslo, Norway 9 Ministry of Finance of the state of Norway (on behalf of the state of 10 Norges Bank (Central Bank of Norway) Oslo, Norway 11 Morgan Stanley Investment Management Limited, London, United Kingdom 12 Morgan Stanley Investments (UK), London, United Kingdom 13 Morgan Stanley Group (Europe), London, United Kingdom 14 Morgan Stanley International Limited, London, United Kingdom 15 Morgan Stanley International Holdings Inc, Wilmington, Delaware, USA 16 Henderson Global Investors (Holdings) plc, London, United Kingdom 17 Henderson Global Investors Limited, London, United Kingdom 18 Henderson Group plc, London, United Kingdom 19 Société Fédérale de Participations et d'Investissement/Federale Participa- tieen Investeringsmaatschappij SA/NV (‘SFPI/FPIM’), Brussels, Belgium 20 Belgian Ministry of Finance (on behalf of the Kingdom of Belgium), Brussels, Belgium 21 Shamrock Cedobar Limited, Dublin, Ireland 22 Cypress Grove International DL.P., New York, USA 23 CG Delaware Apellas Limited, Valletta, Malta 24 CGI Partners L.P., Delaware, USA 25 Cypress Grove International Associates LLC, Delaware, USA 26 Grove International Partners LLP, Delaware, USA 27 Coronation Fund Managers Ltd, Cape Town, South Africa 28 Coronation Investment Management (Pty) Ltd, Cape Town, South Africa 29 Coronation Asset Management (Pty) Ltd, Cape Town, South Africa 30 Morgan Stanley, Wilmington, Delaware, USA 31 BNP Paribas Investment Partners S.A., Paris, France 32 BNP Paribas Investment Partners UK Ltd, London, United Kingdom 3.001 3.45 3.45 3.45 5.14 0 0 0 0 3.01 3.01 2.80 2.80 2.80 2.80 2.80 2.90 2.90 2.90 2.97 2.97 0 0 0 0 0 0 2.90 2.90 2.90 2.99 5.02 3 3 3 5 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 5 3 3,5 3,5 3,5 3,5 3,5 3,5 Date of change Apr. 1, 2011 Apr. 1, 2011 Apr. 1, 2011 Dec. 7, 2012 Mar. 12, 2013 Mar. 12, 2013 Mar. 12, 2013 Mar. 12, 2013 Apr. 29, 2013 Apr. 29, 2013 May 24, 2013 May 24, 2013 May 24, 2013 May 24, 2013 May 24, 2013 Sept. 16, 2013 Sept. 16, 2013 Sept. 16, 2013 Nov. 5, 2013 Nov. 5, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Nov. 11, 2013 Dec. 10, 2013 Dec. 10, 2013 Dec. 10, 2013 Dec. 20, 2013 Jan. 02, 2014 Jan. 03, 2014 Attribution of voting rights Yes1) Yes1) No No No No No No Yes1) No Yes2) Yes2), 3) Yes2), 3) Yes2), 3) Yes2), 3) Yes2), 3) Yes2) Yes2), 3) Yes1), 2), 3) Yes1), 2), 3) No No No No No No Yes2), 3) Yes2), 3) Yes2) Yes2), 3) Yes1), 2), 3) Yes1) Contains 3 % or more of voting rights from APG Groep N.V., APG Algemene Pensioen Groep N.V. APG Algemene Pensioen Groep N.V. – – – – – – Norges Bank (Central Bank of Norway) – – – – – – – – – – – – – – – – – – – – – – – 1) Attribution pursuant to Section 22 para. 1 Sentence 1 No. 1 WpHG. 2) Attribution pursuant to Section 22 para. 1 Sentence 1 No. 6 WpHG. 3) Attribution in connection with Section 22 para. 1 Sentence 2 WpHG. 4) Attribution in connection with Section 22 para. 1 Sentence 3 WpHG. 95 alstria Financial Report 2013Consolidated financial statements 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 recommen- dations of the German Corporate Govern- ance Code developed by the government commission has been submitted by the Man- agement Board and the Supervisory Board and is made permanently available to the public on alstria office REIT-AG’s website. www.alstria.com It is included in the declaration of corporate management according to Section 289a HGB. 25 Auditor’s fees On May 29, 2013, the general meeting elect- ed Deloitte & Touche GmbH Wirtschaftsprü- fungsgesellschaft, Dammtorstrasse 12, Ham- burg, to audit the separate and consolidated financial statements for the financial year 2013. The fees for auditing services amount- ed to EUR 260 k in 2013. Other consulting services accumulated to EUR 75 k. 26. Management Board During the financial year, the Company’s members of the Management Board were: Olivier Elamine, Chief Executive Officer (CEO) Alexander Dexne, Chief Financial Officer (CFO) The attached remuneration report contains details of the principles for the definition of the Management Board and Supervisory Board’s remuneration. 27 Supervisory Board Pursuant to the Company’s Articles of As- sociation (Section 9), the Supervisory Board consists of six members, who are elected by the general meeting of shareholders. The ex- piration of the term of office is identical for all members, and ends with the closing of the annual general meeting of shareholders in the year 2016. 96 During the financial year 2013, the members of the Supervisory Board were: Alexander Stuhlmann, (Chairman) Hamburg, Germany Management consultant, Managing Director, Alexander Stuhlmann GmbH › Capital Stage AG Vice-Chairman of the Supervisory Board › Euro-Aviation Versicherungs AG Chairman of the Supervisory Board › Frank Beteiligungsgesellschaft mbH Chairman of the Advisory Board › HASPA Finanzholding Member of the Board of Trustees › HCI Capital AG Chairman of the Supervisory Board › LBS Bausparkasse Schleswig-Holstein- Hamburg AG Member of the Supervisory Board › Ludwig Görtz GmbH Member of the Administrative Board › Siedlungsbaugesellschaft Hermann und Paul Frank mbH & Co. KG Chairman of the Advisory Board › Studio Hamburg Berlin Brandenburg GmbH Member of the Advisory Board Dr. Johannes Conradi, (Vice-Chairman ) Hamburg, Germany Lawyer and Partner, Freshfields Bruckhaus Deringer LLP › Freshfields Bruckhaus Deringer LLP Global Head of Real Estate Member of the German Management Group › EBS Universität für Wirtschaft und Recht – Real Estate Management Institute Member of the Board of Trustees › Elbphilharmonie Hamburg- Bau GmbH & Co. KG Member of the Supervisory Board Benoît Hérault Uzès, France Managing Director, Chambres de l'Artémise S. à r. l. › Belvédère SA Non-Executive Board Member alstria Financial Report 2013Consolidated financial statements Roger Lee Paris, France Real Estate Investment Manager, Captiva Capital Management SAS › Captiva Capital Management Ltd Director › Caposition SARL Director › Captiva Capital Management GmbH Director › Captiva International Partners LLP Partner Richard Mully Cobham (Surrey), United Kingdom Private Investor, Starr Street Limited › Starr Street Limited Director › Aberdeen Asset Management PLC Director › Hansteen Holdings PLC Director › ISG plc Director › from September 1, 2013 onwards St Modwen Properties PLC Director Marianne Voigt Berlin, Germany Businesswoman, Managing Director, bettermarks GmbH Hamburg, February 14, 2014 The Management Board Olivier Elamine CEO Alexander Dexne CFO 97 alstria Financial Report 2013Independent auditors' report Responsibility statement To the best of our knowledge we confirm that, in accordance with the applicable re- porting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group manage- ment report includes a fair review of the de- velopment and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected devel- opment of the Group. Hamburg, February 14, 2014. alstria office REIT-AG The Management Board Olivier Elamine CEO Alexander Dexne CFO 98 alstria Financial Report 2013Independent auditors' report Independent auditors' report We have audited the consolidated financial statements prepared by alstria office REIT-AG, Hamburg/Germany - comprising the income statement and statement of comprehensive income, consolidated statement of financial position, statement of cash flows, statement of changes in equity and the notes to the consolidated financial statements - and the group management report for the business year from January 1 until December 31, 2013. The preparation of the consolidated financial statements and the group management re- port in accordance with IFRS, as adopted by the European Union (EU), and the additional requirements of German commercial law pur- suant to § 315a (1) HGB (‘German Commer- cial Code’) are the responsibility of the Parent Company's Management Board. Our respon- sibility is to express an opinion on the consol- idated financial statements and on the group management report based on our audit. We conducted our audit of the consolidat- ed financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschafts- prüfer. Those standards require that we plan and perform the audit such that misstate- ments materially affecting the presentation of the net assets, financial position and re- sults of operations in the consolidated finan- cial statements in accordance with the appli- cable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit proce- dures. The effectiveness of the accounting-re- lated internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group manage- ment report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in con- solidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Management Board, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements of alstria office REIT-AG, Hamburg/Germany, comply with IFRS, as adopted by the EU, the additional requirements of German commer- cial law pursuant to § 315a (1) HGB and give a true and fair view of the net assets, finan- cial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group's position and suitably presents the op- portunities and risks of future development. Hamburg/Germany, February 14, 2014 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft Reiher Wirtschaftsprüfer ppa. Deutsch Wirtschaftsprüferin 99 alstria Financial Report 2013Corporate governance Corporate governance REPORT OF THE SUPERVISORY BOAR D Dear Shareholders, In this report we give an overview on the supervision and advising of the Company’s management by the Supervisory Board, the main topics discussed by the plenary Super- visory Board and the work of its committees, the audit of the annual and consolidated fi- nancial statements as well as the Company’s corporate governance during the reporting period. Supervision and advising of the Company’s management During the reporting period 2013, we per- formed the duties required by the statuto- ry provisions and the Company's articles of association. We advised and supervised the Management Board of the Company and the conduct of business and were intensively in- volved 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 development of the business and finan- cial situation of the Company, on planning, important business events and on current risks, on risk management and on the Com- pany’s compliance. The Management Board and Supervisory Board cooperated to set the strategic direction of the Company. Between meetings, the Management Board further in- formed the Supervisory Board of important events orally and in writing. The Chairman of the Supervisory Board regularly met with the Management Board to exchange informa- tion and advice on matters of the strategy, the planning, the business development, the current risks, the risk management and the compliance of the Company. 100 We have intensively consulted with the Man- agement Board on all transactions requiring our approval. After careful examination and consultation, the Supervisory Board vot- ed on all matters brought to its attention as dictated by law, the articles of association or rules of procedure of either the Management Board or the Supervisory Board. This includ- ed the Company’s budget planning. In financial year 2013, the Supervisory Board had four ordinary meetings and one extraor- dinary meeting. All members of the Super- visory Board attended every ordinary meet- ing of the Supervisory Board. Moreover, one written resolution was adopted based on detailed information provided to the board members for assessment. In 2014 there was one additional meeting of the Supervisory Board prior to the finalisation of this report. In all ordinary meetings of the Supervisory Board the Supervisory Board discussed the situation and development of the Company, its business performance, its market and de- velopment of risks and financial results (quar- terly and half-year financial reports, financial statements of alstria office REIT-AG and the consolidated financial statements) with the Management Board Focal points of discussion In financial year 2013, the Company is- sued a convertible bond of an amount of EUR 79.4 m and replaced and refinanced the Company’s syndicated loan with an amount of EUR 544 m. In addition to the real estate transactions executed in financial year 2013 and to the regularly recurring topics, the Su- pervisory Board and its committees particu- larly focused on these successfully executed projects in the reporting period. During its financials meeting in February 2013, the Supervisory Board dealt with the consolidated financial statements, the finan- cial statements as at December 31, 2012 and the management reports and discussed them alstria Financial Report 2013Corporate governance with the auditors. The Supervisory Board approved the financial statements of alstria office REIT-AG as well as the consolidated fi- nancial statements as at December 31, 2012, and joined the proposal of the Management Board regarding the appropriation of the profit. The Supervisory Board decided on its resolution proposals and its report to the an- nual general meeting for financial year 2012 and on the corporate governance statement, which includes the declaration of compliance with the recommendations of the German Corporate Governance Code. Based on the nomination and remuneration committee’s recommendation, the Supervisory Board dis- cussed and passed resolution on the amount of the short-term variable remuneration of the members of the Management Board for financial year 2012. It hereby considered their individual performance and also discussed the variable remuneration of the members of the Management Board for financial year 2013. Finally, Supervisory Board and Man- agement Board discussed possible real estate transactions. In its extraordinary meeting in May 2013, Management Board and Supervisory Board discussed the refinancing of the Company’s syndicated loan and granted its approval. Topics of the ordinary meeting following the annual general meeting in May 2013 were the establishment of a special committee that was authorised to issue all necessary approv- als and declarations for issuing a convertible bond. Further topics were a report from the Management Board regarding a completed acquisition and certain disposals of properties - transactions that were all not subject to the approval of the Supervisory Board. In its meeting in September 2013, the Super- visory Board approved the conclusion of an interest hedge agreement for the new syn- dicated loan agreement. Management Board and Supervisory Board discussed real estate transactions, which had been carried out to date in 2013 and those planned for the fu- ture. They approved the Company’s budget for financial year 2013, which was adapted during the year regarding acquisitions and disposals. The Supervisory Board dealt with the current amendments of the German Cor- porate Governance Code and amended the rules of procedure for the nomination and re- muneration committee. Furthermore, the Su- pervisory Board discussed the positive results of the review of the efficiency of its work, which was carried out by the members of the Supervisory Board by means of a question- naire. Finally, first management level employ- ees and the departments they manage were introduced to the Supervisory Board. After intensive discussion with the Manage- ment Board the Supervisory Board passed resolution on the business and budget plan- ning for financial year 2014 in its meeting in November 2013. Based on a corresponding recommendation from the nomination and remuneration committee, the Supervisory Board amended the rules of procedure for the Management Board. The Supervisory Board dealt with the new recommendations of the German Corporate Governance Code and with the objectives regarding the com- position of the Supervisory Board as last de- termined in November 2011 (Diversity State- ment). Furthermore, Management Board and Supervisory Board discussed acquisition and financing possibilities. The resolution passed by written circulation procedure in April 2013 concerned the pro- posals of the Supervisory Board to the share- holders to be addressed the ordinary annual general meeting for financial year 2012. In its financials meeting in February 2014, the Supervisory Board dealt with the consol- idated financial statements and the financial statements for the year ending December 31, 2013 and with the Management Board’s rec- ommendation for the profit appropriation. We passed resolution on our report to the annual general meeting for financial year 2013 and the Corporate Governance Report, which includes the declaration of compliance with the recommendations of the German Corporate Governance Code. The Superviso- ry Board also dealt with the variable remu- neration for the members of the Manage- ment Board. 101 alstria Financial Report 2013Corporate governance Committees of the Supervisory Board The Supervisory Board has six members. It has formed three permanent committees to support the Supervisory Board in its work, each of them composed of three members. The composition of the committees is de- scribed in the Company’s Corporate Govern- ance Statement on pages: » 104 to 110 of the annual report. To the extent permitted by law, the commit- tees have been given decision-making pow- ers in some cases. In other cases they prepare the resolutions of the Supervisory Board by making proposals. During the Superviso- ry Board’s meetings, the committee’s chair- men report on the result of their committees’ work. In financial year 2013, the Supervisory Board’s committees focused on the following topics: The audit committee had three meetings in financial year 2013, all of which were at- tended by the Chief Financial Officer. In the course of auditing the accounts of the Com- pany, the audit committee dealt with the consolidated financial statements and the fi- nancial statements as at December 31, 2012 and the management reports. It discussed the documents with the independent audi- tors and carried out a respective preliminary examination of the annual and consolidated financial statements and the Management Board’s recommendation for the appropri- ation of profit and submitted correspond- ing proposals for resolution. Further topics were the recommendation to the Superviso- ry Board regarding the proposed resolution to the annual general meeting for the choice of the auditors and the auditor’s independ- ence as well as the additional services per- formed by them. Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hamburg branch has been appointed as auditors and the audit committee resolved upon the en- gagement agreement, setting the key audit areas. In addition, the Company’s account- ing process, the risk management system and the included main risks, the effectiveness of the internal controlling and audit system and the compliance system were discussed. Final- ly, the audit committee dealt with the results 102 of the Company’s internal audit and exam- ined the efficiency of its own work. The eval- uation revealed a consistently high efficiency. The nomination and remuneration commit- tee, which also carries out the tasks of a nom- ination committee, met three times during the financial year. The committee discussed the amount of the short-term variable remu- neration of the members of the Management Board for financial year 2012, considering their individual performance, as well as the parameters for the variable remuneration of the Management Board members for financial year 2013. It provided the Supervisory Board with corresponding resolution proposals. The nomination and remuneration committee, furthermore, examined the efficiency of its own work and prepared the resolution of the Supervisory Board regarding the amendments to the rules of procedure for the Management Board. It also dealt with the new recommen- dations of the German Corporate Governance Code and prepared proposals regarding the handling of these recommendations for the Supervisory Board. In financial year 2013, the investment com- mittee had four meetings and made one decision in writing after circulation of de- tailed documents to the members. It gave its approval for advisory services by the law firm Freshfields Bruckhaus Deringer LLP, of which the member of the Supervisory Board, Dr Johannes Conradi, is a partner. Further- more, the investment committee examined the efficiency of its own work. The members of the investment committee discussed the real estate transactions executed in financial year 2013 with the other Supervisory Board members in the meetings of the entire Super- visory Board. Due to their size, the transac- tions were not subject to the approval of the Supervisory Board or its committee. In financial year 2013, the Supervisory Board additionally established a four-member spe- cial committee that was authorised to issue all necessary approvals and declarations in the course of issuing of a convertible bond with underlying shares of an amount of up to 10 % of the Company’s share capital, exclud- ing of the shareholder’s subscription rights. alstria Financial Report 2013Corporate governance The special committee held four telephone conferences in June 2013 to discuss matters concerning the issue of the convertible bond and approved it accordingly. The composition of the special committee is described in the Company’s Corporate Governance Statement on pages: » 104 to 110 of the annual report. No member of the committees participated in less than half of its respective committee’s meetings. Audit of the annual financial statements and consolidated financial statements Deloitte & Touche GmbH Wirtschaftsprü- fungsgesellschaft, Hamburg branch, audited the financial statements and the management report of alstria office REIT-AG and its con- solidated financial statements, including the management report of the Group for the fi- nancial year running from January 1 until De- cember 31, 2013. All reports were prepared by the Management Board, and issued with unqualified audit certificates. The members of the Supervisory Board were immediately after their preparation presented with the financial statements and the man- agement report of alstria office REIT-AG, the consolidated financial statements including the management report of the Group, along with the auditors’ report, as well as with the Management Board’s recommendation for the appropriation of the annual net profit. The Supervisory Board examined the documents provided by the Management Board in detail, both in its audit committee and at a plenary meeting. In the meeting of the audit commit- tee, the auditors presented the material find- ings of their audit (including the audit of the internal control and risk management system) and were available for questions. The audit committee prepared the Supervisory Board’ review and reported to the plenary in the presence of the auditors of the financial state- ments of alstria office REIT-AG and the con- solidated financial statements. The attendees of the plenary meeting examined and dis- cussed both the annual financial statements of the Company and the consolidated finan- cial statements prepared by Management Board and the findings of the auditors. There were no objections to the final results of the review by the Supervisory Board. The Supervi- sory Board approved the financial statements of alstria office REIT-AG and its consolidated financial statements. The financial statements are thus confirmed. The Supervisory Board also shared the Management Board’s recom- mendation for the appropriation of the profit. Corporate Governance In the reporting period the Supervisory Board also dealt with whether alstria office REIT-AG fulfils the recommendations of the German Corporate Governance Code. The Manage- ment Board and the Supervisory Board last issued the annual declaration of compliance with the German Corporate Governance Code in February 2014, in accordance with Section 161 AktG; it was subsequently made permanently available to shareholders on the Company’s website. In their declaration, the Management Board and Supervisory Board explained that most of the recommendations of the German Corporate Governance Code have been, or will be, implemented, in addition to which recommendations were, or will not be, followed, and the reasons for this decision. For its own composition the Supervisory Board decides on specific objectives (‘Diversity State- ment’), which are published in the Company’s Corporate Governance Report, together with the status of their implementation. Based on a self-assessment of the members of the Su- pervisory Board in Autumn 2013, we were able to conclude that the composition of the Supervisory Board as at December 31, 2013 meets these objectives. No conflicts of inter- est arose during the financial year 2013, nei- ther concerning members of the Supervisory Board nor the Management Board. The Supervisory Board would like to thank the Management Board and all employees for their dedication and their successful work in financial year 2013. Hamburg, February 2014 For the Supervisory Board Alexander Stuhlmann Chairman of the Supervisory Board 103 alstria Financial Report 2013Corporate governance CORPORATE GOVERNANCE STATEMEN T The Management Board and Supervisory Board of alstria office REIT-AG (‘alstria’) are aware of their responsibility for the corporate governance of the Company, which is un- dertaken with due regard to the Company’s shareholders, employees and tenants. This sense of responsibility is expressed, amongst others, in a transparent corporate governance with the aim of facilitating the confidence of alstria’s shareholders, employees, tenants and the public in the management and supervi- sion of the Company. In this statement, the Management Board and Supervisory Board report on alstria’s corporate governance ac- cording to Section 3.10 of the German Cor- porate Governance Code (‘Code’) and Sec- tion 289a para. 1 of the German Commercial Code (HGB). This statement includes the dec- laration of compliance according to Section 161 of the German Stock Corporation Act, the relevant information on corporate gov- ernance practices, a description of the oper- ating principles and the composition of the Management Board and Supervisory Board as well as corporate governance structures. German Corporate Governance Code and declaration of compliance alstria's value-oriented corporate manage- ment has already implemented many of the principles of the most recent version of the German Corporate Governance Code (dated May 13, 2013) to an extent beyond what is legally required. The principles and recom- mendations of the Government Commission appointed by the German Federal Ministry of Justice contain internationally and national- ly recognised standards for effective and re- sponsible corporate management. The Company’s declaration of compliance with the recommendations of the German Corporate Governance Code is published on the Company’s website (www.alstria.com). After careful consideration, alstria has chosen not to follow some of the recommendations of the Code. These items and the reasons for 104 the Company’s nonconformity are detailed in the declaration of compliance issued by the Management Board and the Supervisory Board on February 27, 2014: Declaration of compliance dated February 27, 2014 ‘Apart from the exceptions stated below, the Company has complied with the recom- mendations of the ‘Government Commis- sion German Corporate Governance Code as amended on May 15, 2012 since the pri- or declaration of compliance dated February 28, 2013. The Company intends to continue to comply with the recommendations of the Code as amended on May 13, 2013 with the following exceptions: Deductible for D&O insurance for the Supervisory Board, Section 3.8 The D&O insurance for the Supervisory Board of alstria office REIT-AG does not com- prise a deductible. The Management Board and Supervisory Board believe that the mem- bers of the Supervisory Board will carry out their duties responsibly irrespective of any such deductible. Change of performance targets for elements of variable remuneration, Section 4.2.3 The short-term incentive of the Management Board is mainly based on the achievement of a funds from operations (‘FFO’) target. In the event that the FFO achieved in a financial year is positively and materially impacted by new acquisitions, the Supervisory Board adjusts the FFO target accordingly. In doing so, the Su- pervisory Board makes sure that the Manage- ment Board is not incentivised to enter into ac- quisitions for short-term personal benefit. The impact of any acquisition on the management remuneration is solely linked to multi-year re- muneration elements, therefore, aligning the interest of the Management Board with those of the Company and its shareholders. Vice versa, the Supervisory Board intends to also adapt the FFO target to disposals. alstria Financial Report 2013Corporate governance Determination of a level of benefits for the private pension plan, Sec- tion 4.2.3 (newly introduced with code amendment on May 13, 2013) As the Company has opted for a defined con- tribution model for the private pension plan of the Management Board members for rea- sons of transparency and risk management, the Supervisory Board has not fixed a level of benefits for the private pension plan of the Management Board members. The Supervi- sory Board believes that it is in the best inter- est of the company to have a defined contri- bution model rather than a defined benefit model, as the defined contribution does not create any unforeseen future liability for the Company. Discussion of the half-year and quar- terly financial reports between the Supervisory Board or its audit com- mittee and the Management Board prior to publication, Section 7.1.2 Prior to their publication, the half-year and quarterly financial reports are made available to the Supervisory Board. Furthermore, the fi- nancial reports are discussed with the Super- visory Board in detail soon after their publica- tion. In the event that there are considerable differences to the budget or business plan au- thorised by the Supervisory Board, the Super- visory Board is given the opportunity to dis- cuss the figures with the Management Board before they are published. The Management Board and Supervisory Board consider this ap- proach to be appropriate and adequate.’ All other recommendations of the German Corporate Governance Code dated May 13, 2013 are fully implemented. alstria has ap- pointed a corporate governance officer with- in the Company, who will report any changes of the Code to the Management Board and the Supervisory Board at least once per year and whenever necessary. In this way, alstria ensures consistent compliance with these principles. Analysis, supervision and trans- parency are the measures undertaken to lay the foundation for fair and efficient corpo- rate management. They will remain the key criteria in future. Working methods of the Management Board and the Supervisory Board The Management Board and the Superviso- ry Board cooperate closely and faithful in the interest of the Company. The chairman of the Supervisory Board has regular contact with the Management Board. The Management Board has two members: Olivier Elamine as Chief Executive Officer and Alexander Dexne as Chief Financial Of- ficer. The Management Board is responsible for running alstria in the interest of the Com- pany with the aim of sustainably increasing the Company’s value. It sets the business goals and – in conjunction with the Super- visory Board – the strategic direction of the Company. The tasks of the Management Board and the allocation of responsibilities between the individual members of the Man- agement Board are stipulated in the rules of procedure and the role sort for the Manage- ment Board. The members of the Manage- ment Board are obligated to immediately disclose any conflicts of interest to the Su- pervisory Board. The members of the Man- agement Board may only conduct secondary activities, particularly memberships in the Supervisory Boards of companies not affiliat- ed with the Group, with the approval of the Supervisory Board. The members of alstria’s Management Board had no conflicts of in- terest in the reporting year. The members of the Management Board serve on no super- visory boards of listed companies outside of the Group or in supervisory boards of com- panies with comparable requirements. Major business transactions between the Company and members of the Management Board, or with any persons or companies in close as- sociation with them, require the approval of the Supervisory Board. All such business transactions must be concluded at customary commercial conditions. There were no such contracts during the reporting period. The Management Board pays attention to diver- sity in filling its management positions and aims to adequately consider women for these positions. As at December 31, 2013, 44.44 % of the management positions at alstria were held by female employees. 105 alstria Financial Report 2013Corporate governance The Supervisory Board appoints the mem- bers of the Management Board and monitors and advises the Management Board on man- agement issues. The Management Board in- volves the Supervisory Board in any decisions of fundamental importance for the Compa- ny. The rules of procedure for the Supervi- sory Board stipulate that certain, significant business transactions by the Company are subject to the approval of the Supervisory Board. For example, the acquisition or dis- posal of real estate property for a consider- ation of more than EUR 30 m, entering into financing agreements with a volume of more than EUR 30 m, entering or prematurely ter- minating lease contracts with an annual con- sideration of more than EUR 2 m, or investing in Company assets (modernisation meas- ures) with an annual total sum of more than EUR 2 m, if such investments have not al- ready been included in the budget approved by the Supervisory Board. In its report to the annual general meeting the Supervisory Board reports on its activities in the financial year 2013. The report is presented on pages » 100 to 103 of the annual report. Composition of the Supervisory Board In accordance with the articles of association, the Supervisory Board is composed of six members. The Supervisory Board currently is comprised of the following members: Member Profession Alexander Stuhlmann (Chairman) Management consultant, Manager, Alexander Stuhl- mann GmbH Dr. Johannes Conradi (Vice-Chairman) Lawyer and Partner, Freshfields Bruckhaus Deringer LLP Managing Director, Cham- bres de l‘Artemise SARL Director and Real Estate Investment Manager, Captiva Capital Manage- ment SAS Director, Investment Advi- sor and Manager, Starr Street Limited Businesswoman, Mana- ging Director, bettermarks GmbH Benoît Hérault Roger Lee Richard Mully Marianne Voigt 106 The periods of office of all supervisory mem- bers expire at the end of the annual general meeting in which the shareholders resolve to discharge them with respect to their activi- ties for financial year 2015. No changes took place in the composition of the Supervisory Board in 2013. No former members of the Management Board sit on the Supervisory Board. The Su- pervisory Board is composed of members who have the necessary knowledge, compe- tence and professional experience to properly carry out their duties. The Supervisory Board of alstria office REIT-AG first specified the goals for its composition in November 2010. In November 2012, the Supervisory Board re- viewed and revised the goals for its compo- sition, especially with regard to the amend- ments of the German Corporate Governance Code issued in the year 2012. With due consideration of the specific situa- tion of the Company, the Supervisory Board of alstria specified the following goals for the composition of the Supervisory Board in November 2012, which are to be considered in its nominations to the shareholders in the general meeting: 1. Diversity The members of the Supervisory Board shall have the knowledge, skills and expert experience required to successfully com- plete their tasks, especially in the capital market and the German real estate mar- ket. 2. Women At least one member of the Supervisory Board shall be female. 3. Experience abroad At least two members of the Supervisory Board shall have acquired reasonable in- ternational experience. 4. Independence At least three members of the Supervisory Board shall have no business or personal relations, which could cause a substantial and not temporary conflict of interest, with the Company, its executive bodies, alstria Financial Report 2013Corporate governance a controlling shareholder or an enterprise associated with the latter. 5. Independent financial expert At least one independent member of the Supervisory Board shall have expertise in accounting or audit of annual statements. 6. Other conflicts of interest At least three members of the Superviso- ry Board shall not have any consulting or representation duties with main tenants, lenders or other business partners of the Company. 7. Age limit Members of the Supervisory Board shall generally not be older than 70 years of age. In November 2013 the Supervisory Board as- sessed the implementation of the goals again and came to the conclusion that all of these goals are currently met. Supervisory Board committees The Supervisory Board has formed three standing committees. Each committee has its own rules of procedure to specify the con- cerns and tasks of the committee. The audit committee monitors the Compa- ny’s financial reporting process, engages the independent auditors to prepare audit re- ports, determines the key audit areas and the independent auditors’ compensation, and is responsible for issues surrounding risk man- agement, internal control, internal audit and compliance. The audit committee was com- prised of Marianne Voigt, as Chair, and Dr Jo- hannes Conradi and Roger Lee as members. The investment committee decides on the approval of the Supervisory Board concern- ing the acquisition or disposal of real estate property or other assets worth between EUR 30 m and EUR 100 m. Transactions of a value greater than this amount are to be presented to the entire Supervisory Board for approval. The investment committee, furthermore, decides on the approval of the Supervisory Board regarding the conclusion, renewal or early termination of lease agree- ments with third parties with a total annu- al consideration of more than EUR 2 m as well as regarding contracts with Superviso- ry Board members according to Section 114 German Stock Corporation Act (Aktienge- setz, AktG). Up until December 31, 2013, the investment committee was comprised of Richard Mully, as Chair, and Benoît Hérault and Alexander Stuhlmann as members. The nomination and remuneration commit- tee, which also carries out the function of a nomination committee, prepares resolutions of the entire Supervisory Board for the ap- pointment 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. Furthermore, it deals with the resolution of, or amendments to, the rules of procedure for the Management Board, as well as the approval of certain oth- er activities and primary contracts of mem- bers of the Management Board. Apart from the amount of compensation, the nomina- tion and remuneration committee decides on the conclusion, amendment, extension and termination of contracts with Management Board members as well as on the content of such contracts. Finally, the nomination and remuneration committee prepares the res- olutions of the Supervisory Board regarding the proposal of the appointment of suitable Supervisory Board members at annual gener- al meetings. The nomination and remunera- tion committee was comprised of Alexander Stuhlmann, as Chair, and Dr Johannes Conradi and Richard Mully as members. In May 2013, the Supervisory Board addi- tionally formed a special committee bonds in the course of the issue of convertible bonds. Its members were Dr Johannes Conradi, as Chair, and Roger Lee, Benoît Hérault and Richard Mully as further members. The Supervisory Board reports on the activ- ities of the committees of the Supervisory Board during the financial year 2013 in its re- port to the annual general meeting on pages » 100 to 103 of the annual report. 107 alstria Financial Report 2013Corporate governance Remuneration of the Managment Board and Supervisory Board The compensation system for the Manage- ment Board and the Supervisory Board is laid out in the remuneration report for financial year 2013. The report also entails a break- down of the remuneration of each member of the Management Board and the Supervi- sory Board for financial years 2012 and 2013. In the annual general meeting on June 16, 2010, the shareholders passed resolution on the approval of the remuneration system for the members of the Management Board with a large majority. Stock option programme and similar securities-oriented incentive systems Stock option programme and long term incentive plan In March 2007, the Supervisory Board adopt- ed a stock option programme for the mem- bers of the Management Board and issued a first and only tranche of stock option rights to the Management Board pursuant to the au- thorisation granted by the shareholders in the annual general meeting on March 15, 2007. In March 2010 the stock option programme was replaced by a long-term incentive plan, which entails a new long-term remuneration component. Nonetheless, the programme continues in the scope of the tranche granted in 2007. The term of the stock options grant- ed ends in financial year 2014. 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 in financial year 2010. The stock option programme and long-term in- centive plan are described in the remunera- tion report on pages » 111 to 117 of the an- nual report. Employee participation programme Pursuant to the authorisation granted by the shareholders in the annual general meet- ing on March 15, 2007, the Management Board was authorised to issue up to a total of 500,000 convertible profit participation certificates with a total nominal value of EUR 500,000 until March 15, 2012. The rights were issuable to alstria’s employees and employees of companies directly or in- 108 directly controlled by alstria according to the definition of the employee profit participa- tion programme. Members of the Manage- ment Board are not considered employees for the purposes of this plan. After expiration of the aforementioned au- thorisation, the annual general meeting on April 24, 2012 further authorised the Man- agement Board to issue up to a total of 500,000 convertible profit participation certif- icates until April 23, 2017. The certificates are issuable to alstria’s employees and employees of companies directly or indirectly controlled by alstria according to the definition of the employee profit participation programme. Each convertible profit participation certifi- cate issued under the employee participation programmes can be converted into an alstria bearer share once the share price exceeds the price on the day the certificate was issued by 5 % or more on at least seven non-consec- utive trading days. Conversion is only carried out on predefined dates and only when the subscriber pays the conversion price and is still employed at alstria or one of its subsidiar- ies on the date of conversion. The maximum term for a convertible profit participation cer- tificate is five years. A total of 300,100 certificates were issued in the course of this now expired employee profit participation programme 2007. So far, a total of 165,500 convertible profit partici- pation rights resulting from this programme, were converted into shares of the Company. Furthermore, up to now, 197,800 profit par- ticipation certificates have been issued in the course of the new employee profit participa- tion programme 2012. Directors' Dealings – Securities transactions subject to reporting requirement Pursuant to Section 15a of the German Secu- rities Trading Act (Wertpapierhandelsgesetz, WpHG) the Management Board and Super- visory Board of alstria office REIT-AG, as well as related parties (family members), are re- quired to notify the Company of their own transactions involving Company shares. In addition to the acquisition and sale of alstria alstria Financial Report 2013 Corporate governance shares, every buy or sale transaction related to alstria shares (e.g., the purchase or sale of options on alstria shares) has to be report- ed. The Company must be informed of such transactions within five working days and publish them immediately. However, the for- mer only applies when the total value of the transactions is EUR 5,000 or more within one calendar year. All transactions reported to al- stria were duly published in the relevant me- dia throughout Europe and can be found on the Company’s website (www.alstria.com). Relationship to the shareholders of the Company alstria office REIT-AG respects the rights of its shareholders and makes best efforts to guar- antee the exercise of those rights to the extent stipulated by law or its bylaws. In particular, these include the right to freely purchase and sell shares, appropriate access to information, an adequate number of voting rights per share (one share – one vote) and the participation in our annual general meeting. Sharehold- ers have the option of exercising their voting rights personally or by an authorised repre- sentative at the annual general meeting or by sending voting instructions to their proxies. The invitation to the annual general meeting includes an explanation of how voting instruc- tions can be issued. The articles of association do not stipulate an option to vote by mail. Now already shareholders have the possibility to vote before the date of the annual general meeting by authorising a proxy, so that the ad- ditional option of voting by mail would not fa- cilitate the exercise of the shareholders’ rights. Upon request it is possible to send invitations and documents for shareholders’ general meetings to the shareholders electronically. The invitation and the documents to be made available for viewing prior to the upcoming annual general meetings in accordance with the provisions of law will be published on the Company’s website together with additional documents pursuant to Section 124a of the German Stock Corporation Act (Aktienge- setz, AktG) and the agenda. The results of the votes will likewise be published on the website of the Company following the annu- al general meeting. Communication with the public In sharing information with people outside of the Company, the Management Board fol- lows the principles of transparency, prompt- ness, openness, clarity and equal treatment of shareholders. In particular, alstria informs its shareholders and the interested pub- lic about the situation of the Company and significant business events through financial reports, analyst and press conferences, press and ad-hoc announcements and the annual general meeting. The website of alstria in- cludes information on the Company and its shares, especially the financial reports, share price tracking and announcements about the acquisition or disposal of Company shares or related financing instruments pursuant to Section 15a WpHG. Moreover, alstria’s financial reports and website include a fi- nancial calendar which indicates all dates of importance to shareholders. All announce- ments and information are additionally pub- lished in English. Financial reporting and auditing alstria regularly informs shareholders and third parties by publishing its consolidated, half-year and quarterly financial statements in the course of each financial year. The con- solidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). For legal reasons (calculating dividends, creditor protection), financial statements for alstria office REIT-AG are also prepared in accordance with the Ger- man Commercial Code (HGB). The consolidated financial statements and the financial statements of alstria office REIT-AG are audited by both the independ- ent auditor selected by the shareholders in the general meeting, and by the Superviso- ry Board. The audit committee of the Super- visory Board appoints an external auditing firm, after examining its independence, to audit the financial statements and negotiates the auditing fees. Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hamburg branch, was appointed to audit the annual and half-year financial statements of alstria office REIT-AG and of the Group for financial year 2013. The auditors participate in the ple- nary sessions of the audit committee and the 109 alstria Financial Report 2013Corporate governance Sustainability alstria’s sustainability approach is based on a three-pillar model, taking the impact of busi- ness on the following pillars into account: the economy, the environment and social issues. As a commercial organization, alstria’s main objective is to optimize its long-term sus- tainable value. It strives to generate the best yield possible on its equity over time. alstria’s approach to sustainability does not solely fo- cus on environmental matters, but considers economic and social impacts of its actions as well. alstria balances the risk / benefit of the three aspects before making any decisions and adapts its actions to what it feels is the most viable course of action. The result of this approach is that alstria might not always take the decisions that maximize the short- term benefit, but it strives to always take the route that will yield the best long-term pros- pects. alstria's sustainability approach and its achievements in the three sustainability fields as well as future targets are described in de- tail in the Company’s yearly sustainability report which is available on the Company’s website » www.alstria.com. Hamburg, February 2014 The Management Board The Supervisory Board Supervisory Board to advise on the consoli- dated financial statements and the financial statements of alstria office REIT-AG and to present the key findings of the audit. Compliance In accordance with Section 4.1.3 of the Ger- man Corporate Governance Code, the Man- agement Board is responsible for ensuring compliance with the legal provisions and Company guidelines throughout all of the Group companies. The good reputation of alstria and the trust of its shareholders, ten- ants and employees depend crucially on the behaviour of each individual employee. For this reason, alstria developed a code of conduct, listing guidelines for behaviour and orientation for resolving conflicts (e. g. con- flicts of interest), thereby serving as a model for correct behaviour for all employees of the Group. The code of conduct is published on the Company’s website (www.alstria.com). alstria set up a compliance organisation to communicate the values inherent in the code of conduct and Company guidelines and to monitor compliance with these values. The compliance officer is responsible for commu- nicating these values by answering questions on the implementation of the code and by offering in-house training for all employees. Compliance is monitored through colleagues, supervisors and the compliance officer as well as via regular investigation by audi- tors. 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. Furthermore, the Management Board regularly discusses Company compliance with the Supervisory Board’s audit committee. Violations of the code of conduct will not be tolerated; they will be fully investigated and the violators punished. This can be anything from disciplinary measures to dismissal, a claim for damages or even prosecution. 110 alstria Financial Report 2013Corporate governance REMUNERATION REPORT* Remuneration of the Management Board members The remuneration system for the members of the Management Board is determined by the Supervisory Board and is reviewed regularly. The Supervisory Board is of the opinion that an adequate remuneration for the members of the Management Board is provided, which is based on customary market terms and con- ditions and, in particular, also takes account of the lasting success of the Company. The remuneration system for the members of the Management Board described below was de- veloped by involving an external, independ- ent remuneration expert. The shareholders approved it in the general meeting for finan- cial year 2009; since then it has been applied without changes. The remuneration structure complies with the German Stock Corporation Act (AktG) and - except for the deviations de- clared in the Compliance Statement according to Sec. 161 AktG - with the recommendations of the German Corporate Governance Code. 1 Structure of the Management Board remuneration The Supervisory Board determines a target remuneration for each board member. The target remuneration consists of a fixed basic salary, a short-term and a long-term variable component and ancillary benefits (benefits in kind) for each Management Board member. The majority of the target remuneration is made up of variable components which are dependent on achieving annual or multi-year targets as described below. The system also provides for caps for the different variable el- ements of the remuneration. Fixed remuneration The fixed remuneration is a basic salary, which is independent of performance and paid as a salary on a prorated basis each month. The fixed remuneration amounts to approx. 40 % of the total target remuneration excluding an- cillary benefits per financial year. The criteria for determining the appropriate- ness of the remuneration of the Manage- ment Board, which are used as part of the remuneration system, are among others: Variable remuneration The variable remuneration amounts to ap- proximately 60 % of the total target remuner- ation, and is composed of two parts: a Short Term Incentive and a Long Term Incentive. › the duties of each individual Management Board member, › his or her personal performance, › the financial situation of the Company, › the success and future prospects of the Company, › customary practice regarding remuneration relative to its peer companies and › the remuneration structure of the Company. * This remuneration report forms an integral part of the audited Group management report and notes to the annual financial statements. 111 alstria Financial Report 2013Start of Reference share End of defer- deferral period price in EUR ral period Number of virtual shares Number of virtual shares Olivier Elamine Alexander Dexne STI 2011 STI 2012 LTI 2010 LTI 2011 LTI 2012 LTI 2013 2012 2013 2010 2011 2012 2013 8.69 9.45 8.08 10.43 8.70 9.29 2014 2015 2014 2015 2016 2017 7,101 7,193 54,455 42,186 50,575 47,363 5,810 5,885 44,554 34,516 41,379 38,751 Corporate governance The table below summarizes the main char- acteristics of each of the two programmes: Short Term Incentive (STI) Long Term Incentive (LTI) Approx. % of total target remuneration 20 % Performance measured against (targets) Like for Like budgeted FFO 20 % 20 % Total Shareholder Return relative to EPRA NA-REIT Europe Ex-UK Absolute Total Shareholder Return (according to WACC) Min/max target achievement 50 %/150 % 50 %/150 % 50 %/150 % Discretionary factor 0.8 / 1.2 Deferred component 25 % 0.8 / 1.2 100 % Form of the deferred component Virtual shares Virtual shares Deferral period 2 years 4 years 0.8 / 1.2 100 % Virtual shares 4 years Reference share price Average share price for previous 20 days Average share price for previous 60 days Average share price for previous 60 days Payout cap for the deferred components 250 % of deferred amount Virtual shares multiplied with 250 % of reference share price on granting date Virtual shares multiplied with 250 % of reference share price on granting date Performance target FFO for STI As the amount of the STI for a financial year is mainly based on the achievement of a funds from operations (‘FFO’), the Supervisory Board adapts the FFO target for a financial year if the FFO is impacted by acquisitions and disposals. In doing so the Superviso- ry Board makes sure that the Management Board is not incentivised to enter into transac- tions for short-term personal benefit. Min. / max. target achievement Reflects the minimum performance that needs to be achieved in order for any payout to occur (threshold), as well as the maximum performance that is considered in the pay- out calculation (cap). Discretionary factor Reflects the discretionary factor that the Su- pervisory Board can apply to reflect individu- al performance of each board member. Deferred component Reflects the part of the variable remunera- tion which is deferred. Reference share price Share price used to convert the target amount into virtual shares when they are granted and to convert virtual shares into a payout amount at the end of the deferral period. Virtual shares The number of virtual shares granted is equal to the deferred component amount divided by the reference share price. Payout amount › For the STI, the payout amount at the end of the deferral period is equal to the number of virtual shares multiplied by the reference share price, thereby adding back any divi- dend per alstria share paid by the Company during the deferral period. › For the LTI, the number of virtual shares is adjusted at the end of the deferral period, reflecting the degree of achievement of the performance target. The pay-out amount is equal to the number of virtual shares (i) multiplied by the reference share price (ii) plus the dividend per alstria share paid during the deferral period and (iii) multiplied by the discretionary factor. 112 alstria Financial Report 2013 Corporate governance The table below summarizes the number of virtual shares outstanding under the existing STI and LTI program. Start of deferral period Reference share price in EUR End of defer- ral period Number of virtual shares Number of virtual shares Olivier Elamine Alexander Dexne STI 2011 STI 2012 LTI 2010 LTI 2011 LTI 2012 LTI 2013 2012 2013 2010 2011 2012 2013 8.69 9.45 8.08 10.43 8.70 9.29 2014 2015 2014 2015 2016 2017 7,101 7,193 54,455 42,186 50,575 47,363 5,810 5,885 44,554 34,516 41,379 38,751 Ancillary benefits The members of the Management Board furthermore receive ancillary benefits in the form of benefits in kind, which essentially consist of insurance premiums, pension ben- efits and the private use of a company car. 2 Remuneration of the Management Board in the financial year 2013 The total target remuneration for the mem- bers of the Management Board in the last financial year amounted to a total of EUR  2,192  k. The total amount paid to the Management Board in the last financial year amounted to a total of EUR 1,464 k (includ- ing pay-outs on vested virtual shares from the STI 2010). The individual Management Board remu- neration is presented based on model tables according to the German Corporate Govern- ance Code as amended on May 13, 2013. Reference is explicitly made to the fact that the hypothetical maximum amounts can only be attained, when all conditions named in the table ‘Conditions to attain maximum amounts’ occur at the same time. 113 alstria Financial Report 2013 Corporate governance Remuneration for the members of the management board for financial years 2012 and 2013 Benefits granted in EUR k Total amount fixed compensation and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount one-year variable compensation One-year variable compensation (STI 2012) One-year variable compensation (STI 2013) Total amount multi-year variable compensation 498 STI 2012 (1 plus 2 years) STI 2013 (1 plus 2 years) LTI 2012 (4 years) LTI 2013 (4 years) 2012 452 2013 451 440 12 173 1733) – 585) – 4407) 440 11 173 – 1733) 498 – 585) – – 4407) Total amount fixed and variable compensation 1,123 1,122 Service cost9) Total 84 84 1,207 1,206 Olivier Elamine (CEO) 2013 (min.) 2013 (max.)10) 451 440 11 0 – 0 0 – 0 – 0 451 84 535 451 440 11 312 – 3124) 2,240 – 2606) – 1,9808) 3,003 84 3,087 Total amount fixed compensation and ancillary 2012 379 2013 379 2013 (min.) 2013 (max.)10) Alexander Dexne (CFO) Benefits granted in EUR k benefits Fixed compensation1) Ancillary benefits2) Total amount one-year variable compensation One-year variable compensation (STI 2012) One-year variable compensation (STI 2013) Total amount multi-year variable compensation STI 2012 (1 plus 2 years) STI 2013 (1 plus 2 years) LTI 2012 (4 years) LTI 2013 (4 years) Service cost9) Total Total amount fixed and variable compensation 360 19 142 1423) 407 475) 3607) – – – 928 58 986 360 19 142 – – – 1423) 407 475) 3607) 928 58 986 379 360 19 0 – 0 0 – 0 – 0 379 58 437 379 360 19 255 – – – 2554) 1,833 2136) 1,6208) 2,467 58 2,525 1) annual base salary according to service contracts 2) includes benefits for company car 3) 75 % of the STI target value for the respective financial year 7) LTI target value for the respective financial year 8) maximum attainable pay-out amount for the LTI after holding period of 4 years (1.5 x granted virtual shares x (2.5 x share price on grant date) x 1.2) 4) maximum attainable pay-out amount for 75 % of the STI after 1 year (target value STI x 0.75 x 1.5 x 1.2) 9) includes benefits for insurances and pension plans 10) hypothetical maximum attainanble pay-out amount 5) 25 % of the STI target value for the respective financial year 6) maximum attainable pay-out amonut for 25 % of the STI after 1 plus further 2 years (target value STI x 0.25 x 1.5 x 1.2) x 2.5) under the condition that all assumptions described in the table ‘Conditions to attain maximum amounts’ are fulfilled Allocation/benefits paid out 2013 2012 2013 2012 Olivier Elamine (CEO) Alexander Dexne (CFO) Total amount fixed compensation and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount one-year variable compensation One-year variable compensation (STI 2011)3) One-year variable compensation (STI 2012)3) Total amount multi-year variable compensation STI 2010 (1 plus 2 years)4) Other Total amount fixed and variable compensation Service cost5) Total 451 440 11 204 – 204 67 67 0 722 84 806 452 440 12 185 185 – 0 0 0 637 84 721 379 360 19 167 – 167 54 54 0 600 58 658 379 360 19 151 151 – 0 0 0 530 58 588 1) annual base salary according to service contracts 2) includes benefits for company car 3) pay-out amount for 75% of the STI after 1 year for the respective previous year 4) pay-out amount for 25% of the STI after 1 plus further 2 years 5) includes benefits for insurances and pension plans 114 alstria Financial Report 2013 Corporate governance Benefits granted in EUR k Total amount fixed compensation and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount one-year variable compensation One-year variable compensation (STI 2012) One-year variable compensation (STI 2013) Total amount multi-year variable compensation STI 2012 (1 plus 2 years) STI 2013 (1 plus 2 years) LTI 2012 (4 years) LTI 2013 (4 years) Total amount fixed and variable compensation Service cost9) Total Alexander Dexne (CFO) 2012 379 2013 379 360 19 142 1423) – 407 475) – 3607) – 928 58 986 360 19 142 – 1423) 407 – 475) – 3607) 928 58 986 2013 (min.) 2013 (max.)10) 379 360 19 0 – 0 0 – 0 – 0 379 58 437 379 360 19 255 – 2554) 1,833 – 2136) – 1,6208) 2,467 58 2,525 Conditions to attain maximum amounts for variable remuneration elements granted in 2013: One-year variable compensation 1. FFO 2013 = EUR 69.4 m (budgeted FFO of EUR 46.3 m is achieved by 150 %) 2. SB resolves on discretionary factor of 1.2 Multi-year variable compensation LTI (4 years) 1. absolute TSR ≥ 8 %, i.e. total shareholder return for alstria investors over 4 years of 8 % p.a. or more 2. relative TSR (TSR vs. EPRA) ≥ 25 %, i.e alstria overperforming EPRA/NA-REIT Europe Index Ex UK by 25 % 3. Company share price increases by 250 % (share price of EUR 9.29 on granting date > share price of EUR 23.225 on payment date after 4 years) 4. SB resolves on discretionary factor of 1.2 STI (1 plus 2 years) share price of Company shares increases by 250 % (e.g.: share price of EUR 9 on deferral date > share price of EUR 22.5 on payment date after 2 years) 115 Allocation/benefits paid out 2013 2012 2012 Olivier Elamine (CEO) Alexander Dexne (CFO) 2013 Total amount fixed compensation and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount one-year variable compensation One-year variable compensation (STI 2011)3) One-year variable compensation (STI 2012)3) Total amount multi-year variable compensation STI 2010 (1 plus 2 years)4) Total amount fixed and variable compensation Other Service cost5) Total 451 440 11 204 – 204 67 67 0 722 84 806 452 440 12 185 185 – 0 0 0 637 84 721 379 360 19 167 – 167 54 54 0 600 58 658 379 360 19 151 151 – 0 0 0 530 58 588 alstria Financial Report 2013 Corporate governance 3 Other mandatory disclosures Benefits upon premature termina- tion of Management Board duties If membership of the Management Board is terminated, members have agreed to a post-contractual 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 this post-contractual non-compete obligation, the members of the Management Board shall receive a compen- sation payment for this period equivalent to their last fixed salary. In the event of an early termination of a Management Board service contract by mutual agreement, the members of the Management Board are still entitled to their remuneration claims during the remain- ing term of the service contract, however, are capped at a value of two years’ remunera- tion. Benefits to be paid by the Company, if the appointment is terminated by the death of the board member, amount to the fixed salary for the month in which the member died and for the following three months. The incentive payment for this period shall be paid pro rata up to and including the month of death. The Management Board contracts do not include any change of control clauses. Additional information on share- based remuneration components The long-term incentive (LTI) was imple- mented in 2010 and replaced the Company’s stock option programme 2007. The members of the Management Board were granted a single tranche of stock options in the course of the stock option programme 2007 in fi- nancial year 2007. The term to maturity for these stock options ends in financial year 2014. In financial year 2013 no expenses arose from the stock options granted in fi- nancial year 2007. The details of the stock option programme 2007 are as follows: The term of the stock options is seven years from the time they are granted. The options may only be exercised if the current share price of the Company ex- ceeds the exercise price by 20 % or more on at least seven non-consecutive trading days of the Frankfurt Stock Exchange, before the start of the respective exercise period. 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. Each exercise period lasts 30 days beginning on the date of publication of the Company’s results for the first, second and third quarters and the date of the Compa- ny’s annual general meeting. There are no cash settlement alternatives. The exercise price for the stock options granted in 2007 is EUR 16.00. The performance target for the 2007 stock options is EUR 19.20. 116 alstria Financial Report 2013Corporate governance Remuneration of the Supervisory Board members 1 Structure of the Supervisory Board remuneration The members of the Supervisory Board each receive an annual fixed remuneration in the amount of EUR 40 k. The Chairman of the Supervisory Board receives an additional an- nual amount of EUR 20 k, the Vice-Chairman receives an additional amount of EUR 10 k. Members who sit on the Supervisory Board for only part of a year receive a remuneration pro rata. Membership in the audit committee entails the member to a separate remuner- ation of EUR 10 k, whereby the chair of the audit committee receives EUR 15 k. Member- ship in other committees does not give enti- tlement to any additional remuneration. 2 Remuneration of the Supervisory Board in financial year 2013 The total remuneration for the Superviso- ry Board members in 2013 amounted to EUR 305 k. The individual remuneration of the members of the Supervisory Board for financial years 2013 and 2012 is composed as follows: EUR k Supervisory Board member Function on the Supervisory Board Function on the Audit Committee Remuneration for 2012 Remuneration for 2013 Alexander Stuhlmann chairman n/a 60.00 60.00 Chairman (until Dec. 31,2012) Dr. Johannes Conradi vice-chairman Benoît Hérault Roger Lee Richard Mully member (since Apr. 24, 2012) member member n/a member n/a Marianne Voigt member Daniel Quai Total member until Mar. 31, 2012 Chairman (since Jan. 1, 2013) member (since Apr. 24, 2012) member until Mar. 31, 2012 65.00 60.00 27.54 50.00 40.00 40.00 50.00 40.00 46.89 55.00 12.43 301.86 n/a 305.00 117 alstria Financial Report 2013REIT disclosures REIT disclosures REIT DECLARATION Statement of the management board In relation with our financial statements ac- cording to Section 264 of the German Com- mercial Code (Handelsgesetzbuch, HGB) and our consolidated financial statements ac- cording to Section 315a HGB as per Decem- ber 31, 2013, the management board issues the following declaration regarding compli- ance with the requirements of Sections 11 to 15 of the REIT Act (German Real Estate Investment Trust Act) and regarding the cal- culation of the composition of income subject to and not subject to income tax for the pur- pose of Section 19 paragraph 3 REIT Act in conjunction with Section 19a REIT Act: 1. As per balance sheet date, 82.17 % of al- stria’s shares were free float according to Section 11 paragraph 1 REIT Act. This was disclosed to the German Federal Financial Supervisory Authority (BaFin). 2. In accordance with Section 11 paragraph 4 REIT Act, as per balance sheet date, no shareholder 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 dis- tribution obligation and the reserves pur- suant to Section 12 paragraph 2 REIT Act a) as per the balance sheet date the immov- able assets amounted to EUR 1,659,441 k which equals to 92.93 % of the assets, therefore at least 75 % of the assets be- long to the immovable assets; b) the assets belonging to the property of REIT service companies as per balance sheet date which were included in the consolidated statements amount to a maximum of 20 %, namely EUR 454 k and therefore 0.03 %. movable assets pursuant to the consolidat- ed financial statements according to Sec- tion 12 paragraph 3 and 4 REIT Act a) for the financial year 2013, the entire sales revenues of the Group plus other earnings from immovable assets amounted to EUR 105.9 m. This equals 100 % of total reve- nues plus other earnings from immovable assets; b) the sum of the sales revenue plus the other earnings from immovable assets of REIT service companies amounted to EUR 186 k in the financial year 2013. This equals 0.18 % of total revenue plus other earnings from immovable assets. 5. In the financial year 2013, a dividend pay- ment of EUR 39,467 k for the prior finan- cial year was distributed to the sharehold- ers. The financial year 2012 did not result in a net income according to commercial law pursuant to Section 275 HGB. 6. alstria office REIT-AG’s dividend does not derive from already taxed parts of the profit. 7. Since 2009, the Group has realised 23.66 % 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 financial state- ments according to Section 12 paragraph 1 REIT Act was EUR 844.1 m. This equals to 50.9 % of the value of the immovable assets which are shown in the consolidated financial statements in conformance with Section 12 paragraph 1 REIT Act. alstria office REIT-AG Hamburg, February 14, 2014 4. In relation to the sum of the entire sales revenue plus the other earnings from im- Olivier Elamine CEO Alexander Dexne CFO 118 alstria Financial Report 2013REIT disclosures REIT MEMORANDUM We summarised the result of our audit in an auditor's memorandum according to Section 1 (4) Clause 5 of the Act on German Real Estate Stock Corporations with listed Shares: Auditor’s memorandum according to Sec- tion 1 (4) of the Act on German Real Estate Stock Corporations with listed Shares (REIT Act) To alstria office REIT-AG, Hamburg As auditor of the annual financial statements and the consolidated financial statements of alstria office REIT-AG, Hamburg, for the fi- nancial year from January 1 to December 31, 2013, we have audited the information giv- en in the attached declaration of the Man- agement Board members for the compliance with the requirements of Section 11 to 15 of the REIT Act and the composition of the pro- ceeds concerning the pretaxation of proceeds according to Section 19 (3) and Section 19a REIT Act as of December 31, 2013 (hereinaf- ter referred to as ‘REIT declaration’). The in- formation given in the REIT declaration is in the responsibility of the Management Board of the Company. Our responsibility is to ex- press an opinion on the information given based on our audit. We conducted our audit considering the au- dit guidance promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW): Particularities concerning the audit of a REIT stock corporation accord- ing to Section 1 (4) REIT Act, a pre-REIT stock corporation according to Section 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 judgment with reason- able assurance if the free float ratio and the maximum stock ownership per shareholder according to Section 11 (1) and (4) REIT Act agrees with the announcements due to Sec- tion 11 (5) REIT Act as of December 31, 2013 and if the provided information concerning the requirements of Section 12 to 15 REIT Act and the composition of the proceeds concern- ing the pre-taxation of proceeds according to Section 19a REIT Act is appropriate. It was not part of our engagement to fully assess the companies tax assessments or position. Within our audit procedures we compared the information concerning the free float ra- tio and the maximum stock ownership 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, 2013 and agreed the provided information concerning the requirements of Section 12 to 15 REIT Act with the information disclosed in the annual financial statements and the consolidated fi- nancial statements of the Company. Further- more we tested the adjustments made to the valuation of immovable assets held as invest- ment 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 findings of our audit, the information given in the REIT dec- laration concerning the free float 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, 2013 and the information provided concern- ing the compliance with Section 12 to 15 REIT Act and the composition of the proceeds con- cerning the pretaxation of proceeds according to Section 19a REIT Act are appropriate. This memorandum is solely provided for sub- mission to the tax authorities of the city of Hamburg within the tax declaration accord- ing to Section 21 (2) REIT Act. Hamburg/Germany, February 14, 2014 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft sgd. Gerald Reiher Wirtschaftsprüfer (German Public Auditor) sgd. p.p. Annika Deutsch Wirtschaftsprüferin (German Public Auditor) 119 alstria Financial Report 2013Other information Glossary … do you speak alstria ? The real estate industry has developed its own language with many technical terms. In order to facilitate understanding, we’ve add- ed a glossary. A AFFO (adjusted funds from operations) The AFFO is equal to the FFO (funds from oper ations) with adjustments made for capi- tal expenditures used to maintain the quality of the underlying investment portfolio. Annual financial statements The annual financial statements include the balance sheet and the profit and loss account of a company. In respect of a joint stock company, these are prepared by the Man- agement Board, audited by a chartered ac- countant 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 Meeting. This meeting elects the Su- pervisory Board and the balance sheet audi- tor. It passes resolutions on the appropriation of the annual profit shown, on mea s ures for raising capital, on changes to the articles of association and other fundamental issues; it is the only body which can approve the deci- sions made by the Supervisory Board and the Management Board. Asset management Value-driven management and /or optimisa- tion of real estate investments through let- ting management, refurbishment, reposition- ing and tenant management. 120 C Cash flow The cash flow statement shows how the cash and cash equivalents of the Group changed in the course of the financial year as a re- sult of cash received and paid. In accordance with IAS 7, a distinction is made between cash flows from operating activities and cash flows from investing and financing activities. CO2 Carbon dioxide, a gas produced primari- ly through the combustion of fossil fuels. It is believed to be the main cause of climate change. Consolidated statement of financial 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 financial state- ments. Contractual rent At a given date, the contractual rent reflects the total annualised rent taking into consider- ation all signed rental contracts. Contractual vacancy rate Contractual vacancy rate is the amount of space as a per cent of the total area of the portfolio on which there is no current or fu- ture signed lease contract. CSR (Corporate Social Responsibility) A form of corporate self-regulation integrat- ed into a business model. The term is used in- terchangeable with the terms ‘sustainability’, and ‘Environmental, Social and Governance (ESG)’. alstria Financial Report 2013Other information D DAX The German Share Index (DAX) reflects the value trend of the 30 most important Ger- man shares. In addition to the market pric- es, the dividend payments are also included here. DAX began at the end of 1987 with a value of 1,000. DGNB (Deutsche Gesellschaft für Nachhaltiges Bauen) The German Sustainable Building Council es- tablishes a system for the assessment and the certification of sustainable buildings. FFO (funds from operations) alstria calculates FFO as EBT, decreased/in- creased by the net gain/loss from fair val- ue adjustment on investment property, de- creased/increased by the net gain/loss from fair value adjustment on financial derivatives, increased/reduced by the profit/loss on dis- posal of investment property, decreased/in- creased by the net gain/loss from fair value adjustments on investment property of joint ventures, decreased/increased by non-recur- ring items, plus non-cash-expenses and less cash taxes paid. E G EPRA (European Public Real Estate Association) The EPRA index is the well-known interna- tional index which tracks the performance of the largest Euro pean and North Ameri- can listed property companies. The European Public Real Estate Association (EPRA) is an or- ganisation that represents the interests of the major European property management com- panies and supports the development and market presence of European public property companies. Its members include companies such as alstria office REIT-AG, financial ana- lysts, investors, advisors and auditors. F Fair value (or open market value [OMV]) The estimated amount for which a property should exchange on the date of valuation be- tween a willing buyer and a willing seller in an arm’s-length transaction after proper mar- keting, wherein the parties had each acted knowledgeably, prudently and without com- pulsion. The fair value for alstria’s investment properties is reviewed regularly by external appraisers. G-REIT Real Estate Investment Trusts are public listed companies, fully tax transparent, which sole- ly invest in properties. I IFRS (international financial report- ing standards) IFRS are adopted by the International Ac- counting Standards Board (IASB). The ob- jective is to achieve uniformity and trans- parency in the accounting principles that are used by companies and other organisations worldwide for financial reporting. IFRS have applied to listed companies since January 1, 2005. Investment property Property, land and buildings, which are held as financial investments to earn rents or for growth and not used for the Company’s own purpose. The value of the investment proper- ty is determined according to IAS 40. 121 alstria Financial Report 2013 Other information J O Joint venture Legally independent entity formed between two or more parties to undertake econom- ic activity together. It is jointly controlled by the parties under a contractual arrangement whereby decisions on financial and operating policies essential to the operation, perfor- mance and financial position of the venture require each party’s consent. L LTV (loan to value) and Net LTV alstria calculates loan to value (LTV) by divid- ing the total loans outstanding to finance in- vestment properties by the value of all mort- gaged 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. N NAV (net asset value) Reflects the economic equity of the Compa- ny. It is calculated from the value of assets less debt. NNNAV (triple net asset value) The Company computes NNNAV as total equity as reported in the IFRS consolidated statement of financial position, which ac- counts for the carrying amount and the fair value of financial instruments and financial li- abilities, adjusted for hidden reserves and hid- den losses in immovable assets and financial liabilities. Office building Property where at least 75 % of the lettable area is destined to office use (disregarding potential ground floor retail). P Passing rent Annual gross rental income as per a certain date, excluding the net effects of straight-lin- ing for lease incentives. Property management Property management is the management of real estate assets including the processes, sys- tems and man power required to manage the life cycle of a building. R Road shows Corporate presentations to institutional in- vestors. S 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 specified term. SDAX Small Cap Index; it contains, with variable weighting, the prices of the 50 most impor- tant, in terms of market capitalisation and turnover, German joint stock companies which are not included in DAX or MDAX. In addition to dividend payments, subscription right proceeds are also included when calcu- lating the index. 122 alstria Financial Report 2013 Other information Share The term share describes both the member- ship rights (holding in the joint stock compa- ny) and the security which embodies these rights. The holder of a share (shareholder) is a ‘sharer’ in the assets of the joint stock com- pany. Their rights are protected by the regu- lations contained in the Companies Act. Supervisory Board The Supervisory Board is one of the three executive bodies of a joint stock compa- ny: Annual General Meeting, Management Board and Supervisory Board. The Supervi- sory Board appoints the Management Board and provides supervision and advice regard- ing management of the Company’s business. Share capital The capital stipulated in a corporation’s ar- ticles of association. The articles also speci- fy the number of shares into which the share capital is divided. The Company issues shares in the amount of its share capital. Stakeholder An individual, community or organisation that affects or is affected by some aspect of an organisation’s products, operations, mar- kets, industries and outcomes. Stock exchange The stock exchange is the market (meeting place for supplies and demands) for securi- ties. Stock exchange dealing takes place in the Federal Republic of Germany in certain plac- es 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 con- tracts for securities which are not admitted to any of the market segments may not be accepted or negotiated in the dealing room during trading hours. Sustainability Alignment of an organisation’s products and services with stakeholder expectations, thereby adding economic, environmental and social value. T Transparency A principle that allows those affected by ad- ministrative decisions, business transactions or charitable work to know not only the ba- sic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predict- ably and understandably. V Vacant space Vacant space refers to the sum of all lettable space that at the end of a calendar year is un- occupied or offered for lease. Valuation yield Key performance indicator, which is deter- mined at a given date by the contractual rent in relation to the fair value of the property. 123 alstria Financial Report 2013 Other information 2014 Events January Wk M T W T 1 2 3 4 5 1 8 15 22 29 2 9 16 23 30 6 13 20 27 7 14 21 28 March Wk M T W T 9 10 11 12 13 14 3 10 17 24 31 4 11 18 25 5 12 19 26 6 13 20 27 May Wk M T W T 18 19 20 21 22 5 12 19 26 6 13 20 27 7 14 21 28 1 8 15 22 29 S 5 12 19 26 S 2 9 16 23 30 S 4 11 18 25 F 3 10 17 24 31 F 7 14 21 28 F 2 9 16 23 30 S 4 11 18 25 S 1 8 15 22 29 S 3 10 17 24 31 February Wk M T W T 5 6 7 8 9 3 10 17 24 4 11 18 25 5 12 19 26 6 13 20 27 April Wk M T W T 14 15 16 17 18 3 10 17 24 1 8 15 22 29 2 9 16 23 30 7 14 21 28 June Wk M T W T 22 23 24 25 26 27 2 9 16 23 30 3 10 17 24 4 11 18 25 5 12 19 26 July Wk M T W T 27 28 29 30 31 1 8 15 22 29 2 9 16 23 30 3 10 17 24 31 7 14 21 28 F 4 11 18 25 S 5 12 19 26 S 6 13 20 27 August Wk M T W T 31 32 33 34 35 4 11 18 25 5 12 19 26 6 13 20 27 7 14 21 28 124 F 7 14 21 28 F 4 11 18 25 F 6 13 20 27 F 1 8 15 22 29 S 1 8 15 22 S 5 12 19 26 S 7 14 21 28 S 2 9 16 23 30 S 2 9 16 23 S 6 13 20 27 S 1 8 15 22 29 S 3 10 17 24 31 alstria Financial Report 2013Other information September Wk M T W T 36 37 38 39 40 1 8 15 22 29 2 9 16 23 30 3 10 17 24 4 11 18 25 November Wk M T W T 44 45 46 47 48 3 10 17 24 4 11 18 25 5 12 19 26 6 13 20 27 F 5 12 19 26 F 7 14 21 28 S 6 13 20 27 S 1 8 15 22 29 S 7 14 21 28 S 2 9 16 23 30 October Wk M T W T 40 41 42 43 44 1 8 15 22 29 2 9 16 23 30 6 13 20 27 7 14 21 28 December Wk M T W T 49 50 51 52 1 1 8 15 22 29 2 9 16 23 30 3 10 17 24 31 4 11 18 25 F 3 10 17 24 31 F 5 12 19 26 S 4 11 18 25 S 6 13 20 27 S 5 12 19 26 S 7 14 21 28 Conferences / Roadshows March 28 Publication of the annual report Financial report (Hamburg) May 6 Publication of Q1 report Interim report (Hamburg) May 14 Annual General Meeting Hamburg August 5 Publication of Q2 report Half-year interim report (Hamburg) November 4 Publication of Q3 report Interim report (Hamburg) Publication of sustainability report 2014 Stay updated about our Investor Relations events. Visit our website: ›› www.alstria.com/investors 125 alstria Financial Report 2013Other information Augmented Reality This report will offer you Augmented Reality experience. In this report look for the ‘Aug- mented Reality’-logo. This will indicate that the picture will interact with your phone. In order to access it you need to: With an iPhone/iPad: Download and install the alstria app from apple’s App Store. Open the app, and tap on the Aurasma tab. Aim at the desired picture and you should ac- cess the augmented reality in a few seconds. With an Android phone: Download the Aur- asma Lite app from Google Play. Launch the Aurasma Lite app, and search for ‘alstria’. Once the alstria channels are found, subscribe to both of them. Now aim at the desired picture and you should access the augmented reality in a few seconds. Try it on our logo right now to see how this works. For more information about Aurasma, please visit: » www.aurasma.com 126 alstria Financial Report 2013 Other information Imprint alstria office REIT-AG is a member of DIRK (Deutscher Investor Relations Verband, the German Investor Relations Association). Other reports issued by alstria office REIT-AG are posted on the Company’s website. Forward-looking statements This annual report contains forward-looking statements. These statements represent as- sessments which we have made on the basis of the information available to us at the time. Should the assumptions on which the state- ments are based not occur, or if risks should arise the actual results could differ materially from the results currently expected. Note This report is published in German (original version) and English (non-binding transla- tion). Concept, design and realisation Teresa Henkel, Anne von Holten Contact Investor Relations Ralf Dibbern Phone › +49 (0) 40 22 63 41-329 › +49 (0) 40 22 63 41-229 Fax E-mail › rdibbern@alstria.de 127 alstria Financial Report 2013Notes 128 alstria Financial Report 2013alstria office REIT-AG www.alstria.com Bäckerbreitergang 75 20355 Hamburg, Germany Phone › + 49 (0) 40 22 63 41-300 › + 49 (0) 40 22 63 41-310 Fax Friedrichstrasse 19 40217 Düsseldorf, Germany Phone › + 49 (0) 211 30 12 16-600 › + 49 (0) 211 30 12 16-615 Fax 

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