alstria office REIT
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 Five-year overview KEY FIGURES Five-year overview according to IFRS EUR k Revenues and Earnings Revenues Net rental income Consolidated profit for the period FFO Earnings per share (EUR) FFO per share (EUR)1) 1) Without minority shares. EUR k Balance sheet 2015 2014 2013 2012 2011 115,337 102,140 -111,379 59,998 -1.15 0.61 101,782 104,224 101,286 90,020 36,953 47,626 0.47 0.60 93,249 38,945 45,328 0.49 0.57 90,110 39,911 43,571 0.51 0.55 90,798 80,868 27,448 34,685 0.40 0.48 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2011 Investment property 3,260,467 1,645,840 1,632,362 1,622,988 1,528,589 Total assets Equity1) Liabilities NAV per share (EUR) 1) Diluted NAV per share (EUR)1), 2) Net LTV (%) 3,850,580 1,769,304 1,785,679 1,786,893 1,686,637 1,619,377 2,192,916 10.64 10.68 49.3 846,593 922,711 10.71 10.67 50.4 844,114 941,565 10.69 10.60 50.7 829,287 957,606 10.51 n/a 47.8 768,195 918,442 10.71 n/a 50.1 1) Without minority shares. 2) Dilution based on potential conversion of convertible bond. G-REIT figures G-REIT equity ratio (%) Revenues incl. other income from investment properties (%) EPRA1) key figures EPRA earnings per share (EUR) EPRA cost ratio A (%)2) EPRA cost ratio B (%)3) EPRA NAV per share (EUR)4) EPRA NNNAV per share (EUR) EPRA net initial yield (%) EPRA ‘topped-up` net initial yield (%) EPRA vacancy rate (%) Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2011 49.4 100 2015 0.42 26.1 22.1 50.2 100 2014 0.59 22.9 19.8 50.9 100 2013 0.57 21.7 18.6 50.0 100 2012 0.55 21.6 18.5 48.7 100 2011 0.50 n/a n/a Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2011 10.91 10.66 5.0 5.3 11.2 11.22 10.58 4.8 5.0 11.0 10.97 10.55 5.6 5.8 6.8 10.98 10.50 5.7 5.7 8.0 11.32 10.71 5.8 5.8 6.5 1) For further information, please refer to EPRA Best Practices Recommendations, www.epra.com. 2) Including vacancy costs. 3) Excluding vacancy costs. 4) Based on cumulated fair value adjustments on financial derivatives as at December 31, 2015, December 31, 2014 and December 31, 2013; based on fair values of financial derivatives as at December 31, 2012 and before. alstria Annual Report 2015 CONTENT CONTENT ................................................................................................ 1 DETAIL INDEX GROUP MANAGEMENT REPORT .................................................... 2 GROUP MANAGEMENT REPORT ...................................................................... 3 ECONOMICS AND STRATEGY ....................................................................................... 3 FINANCIAL ANALYSIS ............................................................................................. 12 RISK AND OPPORTUNITY REPORT .............................................................................. 23 SUSTAINABILITY REPORT ........................................................................................ 40 DISCLOSURES REQUIRED BY TAKEOVER LAW ................................................................. 40 ADDITIONAL GROUP DISCLOSURE .............................................................................. 44 REPORTS ON POST-BALANCE SHEET DATE EVENTS AND EXPECTED DEVELOPMENTS .................. 45 DETAIL INDEX CONSOLIDATED FINANCIAL STATEMENTS ....................................... 47 CONSOLIDATED FINANCIAL STATEMENTS ......................................................... 48 CONSOLIDATED INCOME STATEMENT .......................................................................... 48 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................................ 49 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...................................................... 50 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................ 52 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...................................................... 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................................. 56 RESPONSIBILITY STATEMENT ................................................................................... 146 INDEPENDENT AUDITORS' REPORT ............................................................................ 147 CORPORATE GOVERNANCE ........................................................................ 149 REPORT OF THE SUPERVISORY BOARD ....................................................................... 149 CORPORATE GOVERNANCE STATEMENT ...................................................................... 157 REMUNERATION REPORT ....................................................................................... 167 REIT DISCLOSURES .................................................................................. 174 REIT DECLARATION .............................................................................................. 174 REIT MEMORANDUM ............................................................................................. 176 OTHER INFORMATION .............................................................................. 178 FINANCIAL CALENDAR ........................................................................................... 178 CONTACT/IMPRINT .............................................................................................. 178 alstria Annual Report 2015 Group management report DETAIL INDEX GROUP MANAGEMENT REPORT ECONOMICS AND STRATEGY ....................................................................................... 3 ECONOMIC CONDITIONS ......................................................................................... 3 STRATEGY AND STRUCTURE .................................................................................... 4 PORTFOLIO OVERVIEW ........................................................................................... 6 FINANCIAL ANALYSIS ............................................................................................. 12 EARNINGS POSITION ............................................................................................ 13 FINANCIAL AND ASSET POSITION ............................................................................. 17 CORPORATE MANAGEMENT ................................................................................... 23 RISK AND OPPORTUNITY REPORT .............................................................................. 23 RISK REPORT .................................................................................................... 23 REPORT ON OPPORTUNITIES .................................................................................. 38 SUSTAINABILITY REPORT ........................................................................................ 40 DISCLOSURES REQUIRED BY TAKEOVER LAW ................................................................. 40 ADDITIONAL GROUP DISCLOSURE .............................................................................. 44 EMPLOYEES ...................................................................................................... 44 REMUNERATION REPORT ...................................................................................... 44 REPORTS ON POST-BALANCE SHEET DATE EVENTS AND EXPECTED DEVELOPMENTS .................. 45 REPORT ON POST-BALANCE SHEET DATE EVENTS ......................................................... 45 REPORT ON EXPECTED DEVELOPMENTS..................................................................... 45 2 alstria Annual Report 2015 Group management report GROUP MANAGEMENT REPORT ECONOMICS AND STRATEGY ECONOMIC CONDITIONS The German economy again proved to be solid in 2015. Germany’s GDP increased by 1.7%, which showed a similar growth level as in 2014 (1.6%) and again above the average growth of the last 10 years (+1.3%).* This development was also reflected in the German labour market, resulting in a decrease of the unemployment rate by 0.3 percentage points to 6.4% in comparison to 2014. The employment level reached a peak of 43.03 million employees, or 0.8% more than last year.** The German real estate market developed in a positive manner in 2015. The total investment vol- ume on the commercial real estate market rose to approx. EUR 55.1 bn and was therefore 38% high- er than in the previous year. Domestic and international investors preferred the stable German real estate market, which appears to be very attractive with regard to its risk/return profile, to oth- ers.*** Overview of the German office property market Development of office rents In 2015, prime rents for office space developed positively at the most important commercial real estate sites, namely Berlin, Düsseldorf, Frankfurt/Main, Hamburg, Cologne, Munich and Stuttgart – the “Big-7”. They were at EUR 35.50 per sqm in Frankfurt and at EUR 34.00 per sqm in Munich. In Hamburg, prime rents were at EUR 25.00 per sqm, in Berlin at EUR 24.00 per sqm and at EUR 20.00 per sqm in Stuttgart. Prime rents in Düsseldorf (EUR 26.00 per sqm) and Cologne (EUR 22.00 per sqm) remained at the previous year’s level. Take-up in major German cities The vacancy rate of office properties in German cities decreased from 7.6% in 2014 to 6.4% in 2015, which represents a total vacancy of 5.69 million sqm (decrease of 1.12 million sqm). Comparing the Big-7, the highest vacancy rate was noted in Frankfurt (9.1%), followed by Düsseldorf (8.8%), Berlin (6.3%), Hamburg (5.9%), Cologne (5.6%), Munich (5.3%) and Stuttgart (4.6%). * Federal Statistics Office (Statistisches Bundesamt). ** Federal Employment Agency (Bundesagentur für Arbeit). *** All further numbers referred to in this section are sourced from Jones Lang Lasalle´s Market Report. alstria Annual Report 2015 3 Group management report New lease-ups In 2015, new lease contracts for more than 3.65 million sqm of office space were signed in the sev- en major German cities. This reflects an increase of 0.6 million sqm, or 20.6%, compared to the previous year. The highest increases were registered in Düsseldorf (46.0%), Berlin (42.6%), Munich (19.3%) and Cologne (18.2%), followed by minor increases in Stuttgart (4.2%), Frankfurt/Main (3.5%) and Hamburg (2.9%). New office supply In 2015, the delivery of new office and commercial spaces amounted to approx. 870,000 sqm. Com- pared to last year this was a decrease of around 12.0%, which is mainly due to a decrease in com- pletion volume in Frankfurt (-61.7%), Düsseldorf (-36.3%), Munich (-12.5%) and Hamburg (-3.5%). On the other hand, completion of developments increased in Cologne (246.3%), Berlin (60.9%) and Stuttgart (17.7%). For 2016, an increase of the completion volume (approx. 1,300,000 sqm) is fore- casted. Investment markets The positive trend in the investment markets continued in fiscal year 2015. Total investment vol- ume was about 40% (EUR 55.1 bn for commercial assets) higher than the previous year’s results. The transaction volume in 2015 thus represents the highest volume since 2007. The Big-7 cities recorded a transaction volume of around EUR 31.0 bn, of which one quarter was registered in Berlin (EUR 8.0 bn). Although the investors still focus on core assets (approx. 50% of the transaction volume in 2015), which are characterized by their good condition, good location and a long-term, attractive letting status, the investments in Value-Add, Core-plus or opportunistic assets rose by EUR 5.0 bn up to EUR 28.0 bn compared to 2014. With regard to the deal structure, approx. 65% of the commercial investment turnover in fiscal year 2015 related to single asset deals, whereas the share of portfolio transactions amounted to 35%. STRATEGY AND STRUCTURE alstria office REIT-AG (hereafter referred to as “company”) is a real estate company listed on the Frankfurter stock exchange. In August 2015, alstria published an offer document for a voluntary public takeover offer of DO Deutsche Office AG (hereafter referred to as “Deutsche Office AG”) by means of an exchange into new alstria shares. The acceptance rate was 90.6%. Upon registration of the new alstria shares in the Commercial Register on October 27, 2015, alstria obtained control over Deutsche Office AG and all of its subsidiaries (hereafter referred to as “Deutsche Office”), leading in the consolidation of the Deutsche Office into the alstria Group. As of December 31, 2015, the alstria Group consisted of the corporate parent alstria office REIT-AG as well as 66 direct and indirect subsidiaries (hereafter referred to as “alstria” or “Group”). Operational decisions are made at parent-company level. As a result of the consolidation, 62 assets were held by subsidiaries (of which 49 assets are held by 4 alstria Annual Report 2015 Group management report Deutsche Office AG or its subsidiaries) and 58 assets were held directly by alstria office REIT-AG as of December 31, 2015. alstria follows a long term investment strategy for its portfolio, which is essentially based on the following assumptions:  The German real estate market will offer limited growth in terms of rents and capital value in the future.  Overall, the currently existing office space is sufficient to host the entire demand for office space.  The markets’ vacancy rates will remain relatively stable in average. alstria faces these challenges with a long-term strategy, characterized by a high price discipline in terms of its acquisitions as well as by an active Asset and Property Management. Key aspects of this management approach are as follows:  The focus is on the tenant. Only those who know the needs of their tenants will be successful with their letting activities in the long-run.  Continuous investments secure the quality of the assets. Increase in value can only be realized by a constant level of modernization measures and reduction of vacancy.  Realizing the potential of value enhancements through comprehensive repositioning and development of assets.  The best value for money secures the lettability of the assets. Many tenants are price sensitive, and only the lessor who offers better conditions than the competition is successful. The aim of this strategy is the steady development of revenues and operating profit (FFO). Due to its active Asset Management approach and its high level of discipline regarding prices, alstria has been able to achieve above-average returns throughout the past years. The pre-conditions that this will be also true for the future are supported by the following facts:   alstria has a long-term leased portfolio (around 5.2 years weighted average unexpired lease term - WAULT). Approx. 60% of the rental income is derived from a small number of high- quality tenants. Around 30% of rental income is generated from public authorities or institutionals, which are not immediately affected by economic developments. alstria pursues a non-trading strategy and focuses on long-term value creation through conducting work on and with the building (i.e., classic Asset and Property Management). At alstria these activities are handled internally, which positively differentiates the Company from competitors. In the course of financial year 2016, the Real Estate Operations Management (Asset and Property Management) for the former Deutsche Office assets, which is momentarily partly conducted by external service providers, will also be integrated into alstria’s operations. alstria Annual Report 2015 5 Group management report  A key element of alstria’s strategy is supporting tenants in optimizing their real estate operating costs. From the tenants’ point of view, low real estate operating expenses are crucial in the decision-making process for or against a rental agreement. alstria believes that active Asset and Property Management in terms of optimizing costs offers new potential for future successful letting activities. PORTFOLIO OVERVIEW Key metrics of the portfolio Key metrics Number of properties Number of joint-venture properties Market value (EUR bn)1) Annual contractual rent (EUR m) Valuation yield (contractual rent/market value) Lettable area (sqm) Vacancy (% of lettable area)2) WAULT (years) Average rent/sqm (EUR/month) Dec. 31, 2015 Dec. 31, 2014 120 1 3.3 208.3 6.3 74 1 1.7 99.7 6.0 1,724,100 875,100 11.8 5.2 11.5 12.6 6.8 10.9 1) Incl. fair value of owner-occupied properties. 2) Contractual vacancy rate includes vacancies in assets of the Company’s development pipeline. Real Estate Operations Letting metrics1) New leases (in sqm)2) Renewals of leases (in sqm) 2015 35,700 38,800 2014 55,300 32,600 Change -19,600 6,200 1) Includes the letting metrics from the Deutsche Office portfolio for November and December 2015. 2) New leases refer to letting vacant space. It does not account for any lease renewals, prolongations or a tenant’s exercise of its renewal option. Vacancy metrics Vacancy rate (%)1) EPRA vacancy rate (%) Vacancy (sqm) thereof vacancy in development projects (sqm) 1) Without assets held for sale. Dec. 31, 2015 Dec. 31, 2014 11.8 11.2 198,300 27,700 12.6 11.0 110,400 19,600 Change -0.8 pp 0.2 pp 87,900 8,100 In fiscal year 2015, letting activities (as measured by new leases and lease extensions) were at a good level. A significant letting success was the initial lease to a new tenant in Berlin, Darwinstraße. The ten- ant signed an 11-year lease for approximately 4,800 sqm of office and ancillary space. The lease started on December 1, 2015. Furthermore, alstria contracted a new tenant for an asset in Hofmannstraße, Munich, for approxi- mately 1,700 sqm of office and ancillary space. The lease began on June 1, 2015. 6 alstria Annual Report 2015 Group management report Additional leases involving approximately 2,500 sqm of office and ancillary space were signed with two tenants for offices in the Bamler Service Park in Essen. Both leases already commenced on June 1, 2015 and will not expire before the end of 2020. In August 2015, a new lease for 2,000 sqm of office and ancillary space in Düsseldorf, Elisabeth- straße, was signed. The lease started on January 1, 2016. For financial year 2016, the reduction of vacancy remains the operational focus. Portfolio Valuation and Regions As at December 31, 2015, alstria’s portfolio was valued by external appraisers (Colliers International for the assets held by alstria before the takeover of Deutsche Office and CBRE GmbH for the assets of the Deutsche Office subgroup) pursuant to IFRS 13. The valuation resulted in a total market value of investment properties of EUR 3,296 m.* Of this total market value, approx. EUR 2,690 m, or over 80%, are located in the regions Rhine-Ruhr, Hamburg, Rhine-Main and Stuttgart. Herewith the in- vestment focus on selected locations becomes obvious: Total portfolio by regions % of market value Dec. 31, 2015 Dec. 31, 2014 Change (pp) Rhine-Ruhr Hamburg Rhine-Main Stuttgart Berlin Munich Hanover Saxony Others 25 23 20 14 7 3 1 1 6 18 42 7 17 2 4 3 2 5 7 -19 13 -3 5 -1 -2 -1 1 For further information on the valuation of alstria’s portfolio, please refer to the valuation certifi- cates of Colliers International and CBRE GmbH, which are published on pages 79 to 109 of the Com- pany Report 2015. The Company Report is published on the alstria site www.alstria.com/en/investors/. * Incl. assets held for sale. alstria Annual Report 2015 7 Group management report Tenants Another main characteristic of alstria’s portfolio is the focus on a small number of major tenants. alstria’s main tenants % of annual rent City of Hamburg Daimler AG GMG Generalmietgesellschaft Allianz Deutschland AG HOCHTIEF Aktiengesellschaft Zürich Versicherung AG Bilfinger SE Residenz am Dom gemeinn. Betriebsgesellschaft mbH Württembergische Lebensversicherung AG Others Dec. 31, 2015 Dec. 31, 2014 Change (pp) 14 11 9 7 4 4 3 2 1 45 29 16 n/a n/a n/a n/a 6 n/a 3 46 -15 -5 n/a n/a n/a n/a -3 n/a -2 -1 Furthermore the focus is cleary on one asset class: Of the total lettable area approx. 87% accounts to office space.* Lease expiry profile % of annual rent 2016 2017 2018 Transactions Dec. 31, 2015 Dec. 31, 2014 Change (pp) 6.7 17.3 12.0 17.3 6.1 15.1 -10.6 11.2 -3.1 alstria´s investment decisions are based both on the analyses of local markets and the individual inspection of each asset. The latter is focused on location, size and quality as compared to assets belonging to direct competitors and their long-term potential for value growth. alstria´s strategy is aimed at increasing its portfolio to a critical size at every respective location and, at the same time, to retract from those markets, which do not adhere to alstria´s core investment focus. Fol- lowing this strategy, alstria sold three assets in Munich with a total lettable area of 35,000 sqm, one asset in Frankfurt/Main with a total lettable area of 9,300 sqm and two assets in Ditzingen with a total lettable area of 24,000 sqm in 2015. Additionally, the Company signed a sale and purchase agreement for the sale of one asset in Magdeburg with a total lettable area of 7,500 sqm. While the assets at Siemensstraße in Ditzingen, Halberstädter Straße in Magdeburg, Arnulfstraße in Munich and the asset at Emil-von-Behring-Straße in Frankfurt have been legally transferred to the new owner in the last quarter of the reporting period, the transfer of benefits and burden of the remaining three assets is expected to take place in the course of 2016. * Office and storage. 8 alstria Annual Report 2015 Group management report Furthermore, alstria signed one sale and purchase agreement for the acquisition of an asset in Düs- seldorf and one sale and purchase agreement for the acquisition of an asset in Hamburg. Ownership of the Düsseldorf-asset was transferred to the Company on September 3, 2015. The asset in Ham- burg was legally transferred on January 1, 2016, after the reporting period. On August 21, 2015, alstria published the offer document for its voluntary public takeover offer. After the acceptance period, which expired on October 2, 2015, the minimum acceptance rate of 69.6% had been exceeded and the respective closing condition had therefore been fulfilled. Until the end of the additional acceptance period on October 21, 2015, the takeover offer had been ac- cepted for a total of 163,563,065 Deutsche Office Shares. This corresponds to approximately 90.6% of the total share capital and the voting rights in Deutsche Office. Based on an exchange rate of 0.381 new alstria shares for one Deutsche Office share, 62,317,526 new alstria shares have been issued. The implementation of the capital increase was registered in the Commercial Register on October 27, 2015. Upon registration, alstria obtained control over the Deutsche Office AG. On No- vember 3, 2015, alstria acquired another 7,217,967 Deutsche Office Shares (corresponding to around 4% of the share capital and the voting rights of Deutsche Office) outside of the stock market. While alstria is currently holding 94.6% of the share capital and the voting rights of Deutsche Office AG, the minority shareholders hold a 5.4%-share. In conjunction with the takeover of Deutsche Office alstria included 51 assets from the Deutsche Office portfolio into the alstria-Group. Of these 51 assets, one property in Bonn and one property in Frankfurt had already been sold until the end of the reporting period. While the Bonn asset has been legally transferred to the new owner by the end of November 2015, the transfer of benefits and burdens of the Frankfurt asset took place on December 31, 2015. alstria Annual Report 2015 9 Group management report In summary, alstria was involved in the following transactions in 2015: Asset Disposals City Sales price (EUR k)1) Annual rent (EUR k) 2) Avg. Lease length (years)2) Signing SPA Transfer of benefits and burdens Siemensstr. 31-33 (Disposal portion of a plot) Ditzingen Arnulfstr. 150 Landshuter Allee 1744) Emil-von-Behring Str. 2 Siemensstr. 31-33 Dieselstr. 184) Munich Munich Frank- furt/Main Ditzingen Ditzingen Halberstädter Str. 17 Magdeburg Hofmannstr. 514) Potsdamer Platz6) Westerbachstraße 162-1666) Total Acquisitions Munich Bonn Frank- furt/Main 1,0443) 16,500 14,000 - - 72 - Mar. 03, 2015 May 11, 2015 - June 18, 2015 Dec. 31, 2015 2.5 June 11, 2015 May 31, 20165) 12,800 998 5.1 July 09, 2015 Dec. 31, 2015 19,200 1,537 4.2 Aug. 28, 2015 Oct. 31, 2015 12,685 6,200 44,387 888 717 989 20.0 Aug. 31, 2015 April 01, 20165) 2.5 Oct. 27, 2015 Nov. 30, 2015 2.7 Nov. 05, 2015 May 31, 20165) 24,000 1,523 5.5 Aug. 05, 2015 Nov. 30, 2015 3,960 340 3.7 Nov. 11, 2015 Dec. 31, 2015 154,776 7,064 Karlstr. 123-127 Düsseldorf 11,576 743 8.3 July 01, 2015 Sep. 03, 2015 Gasstr. 18 Total Hamburg 38,000 2,336 3.2 Nov. 26, 2015 Jan. 01, 2016 49,576 3,079 1) Excluding transaction costs. 2) At the time of transfer of benefits and burdens. 3) Only the payment of the purchase price, without the swap of the plot. 4) Reported under “assets held for sale” on the balance sheet. 5) Expected. 6) From the Deutsche Office portfolio. Refurbishment projects alstria has achieved significant progress with respect to its development projects: 〉 Mundsburg Center, Hamburg The Mundsburg Center in Hamburg was built in 1969. The property is located directly adjacent to the mall “Hamburger Meile” in the Barmbek/Uhlenhorst district. The Center was fundamentally restructured by alstria. The redesign of the public mall has increased the attractiveness of the retail space significantly. As part of the modernization the central building equipment and safety devices have also been extensively renovated to conform to today’s standards. During the project, several units, as well as the restaurant areas were already let. The occupancy rate amounts to approx. 95%. The fundamental construction was completed in 2015. The completion of the whole refurbishment project is expected in summer 2016. 10 alstria Annual Report 2015 Group management report 〉 Harburger Ring, Hamburg In 2007, alstria acquired the asset at Harburger Ring 17 in Hamburg. This seven-floor building ac- commodates a retail area on the ground floor and apartments on the three top floors. The office space in between accounts for around 50% of the total lettable area. The building will be revitalized substantially in order to conform to the contemporary technical and energetic requirements. This particularly includes the restauration of the building’s envelope. To establish the contemporary heating technology standard, the property has been equipped with fa- çade insulation and with new thermal windows. Furthermore, the complete building’s technical facilities will be re-engineered, and the heating pipeline as well as the electrotechnology and sani- tary facilities will be renewed. The new heating system was shifted to the basement to create additional residential space on the top floor. The 33 apartments in the residential zone will be refurbished substantially. The three floors of office space, which are located below the residential zone, offer individually divisible let- table areas between 150 and 600 sqm per floor, a total of approx. 1,830 sqm. The refurbishment started in March 2015, in October 2015 the interior works began. The apart- ments, as well as the office and retail space, will be available for use beginning in spring 2016. The city center of Harburg starting at Lüneburger Straße will significantly benefit from the redevelop- ment of the asset. 〉 Wehrhahn Center, Düsseldorf The Wehrhahn Center, which was built in 1985, is situated in the well-established city submarket. alstria acquired the complex of buildings, which consists of five interconnected parts, as part of a portfolio transaction. While the basement of each building hosts retail areas, the other six stories contain office space. The two underground carparks, which are situated in two of the basements, provide space for more than 500 vehicles/cars. Since the office spaces no longer meet the current demands regarding building services and flexibility, alstria decided to fundamentally revitalize the building. This comprises, among others, the total gutting of the building down to the shell construc- tion and the application of a new façade with a modern axis grid, which allows a highly flexible and complete restructuring of the office floorplans. The new building technology corresponds to the highly flexible new design. Apart from the office areas, the new two-story entrances will be high- lighted. Partial heightening of particular building parts, efficient building equipment and the design of roof terraces will heighten the lettable area. The refurbishment, which will start in March 2016, is expected to be completed by the end of 2017. 〉 Dieselstraße, Ditzingen In 2007 alstria acquired the asset at Siemenstraße in Ditzingen, where two office and two storage buildings had been located. After the main tenant terminated his lease contract of 40% of the office alstria Annual Report 2015 11 Group management report and storage space, alstria revised the concept for all buildings located on the plot. The office space has been completely let to a new tenant, leading to an occupancy rate of 100%. As the vacant storage building did not fulfill today’s requirements, alstria decided on demolition and a new construction. This part of the plot has been separated legally from the rest of the asset. At this plot, at Dieselstr. 18, alstria developed a new DIY Hagebau Center in co-operation with Hagebaucentrum Bolay GmbH & Co. KG. The concept of Hagebaucentrum Bolay comprises a buildable inner zone with a total of 8,000 sqm and an outdoor area of approx. 11,000 sqm as well as 252 visitor’s parking spaces. In the course of the construction project, the city of Ditzingen set up a new traffic plan for the sur- rounding industrial area to grant optimized accessibility for the whole area, including the plot at Dieselstraße. The construction process was completed in March 2016. In conjunction with alstria’s core investment focus on office buildings the Company signed a pur- chase agreement for the sale of the asset at Dieselstraße in Ditzingen. The transfer of benefits and burdens is expected in April 2016. In 2015, alstria invested around EUR 28 m in ongoing refurbishment projects.* Around EUR 11.7 m referred to development projects, while the remainder was invested in value-increasing tenant im- provement measures. The main part of the capex investment in 2015 was linked to the Hamburg asset, Mundsburg Center (Hamburger Straße 1–15), the asset at Arndtstraße in Hanover as well as the asset at Kaiser-Wilhelm-Straße in Hamburg. Within the next two years, alstria is planning to invest around EUR 95.4 m into its portfolio. The major single project is the development of the Wehrhahn Center in Düsseldorf. This investment plan is part of alstria’s ongoing asset-value- enhancement program. The volume of these investments, however, also depends on ongoing lease negotiations with existing and potential tenants. FINANCIAL ANALYSIS Due to the takeover of Deutsche Office, the earnings, financial and assets position of the consoli- dated financial statement as of December 31, 2015 and the earnings, financial and assets position as of December 31, 2014 are not directly comparable. In the management report as of December 31, 2014, alstria forecasted revenues of EUR 98 m and funds from operations (FFO) of EUR 49 m for the financial year 2015. Due to the expected takeover of Deutsche Office, alstria amended the forecast as of September 30, 2015. For financial year 2015, the Company expected revenues in an amount of EUR 116 m and an FFO of EUR 59 m for the whole alstria Group. Against this background, financial year 2015 developed as expected for alstria. * Without Joint Venture Kaisergalerie. 12 alstria Annual Report 2015 Group management report Revenues of approx. EUR 115.3 m (EUR 97.2 m from the alstria subgroup, EUR 18.1 m from Deutsche Office) were slightly lower than the amended forecast as of September 30, 2015 for financial year 2015. FFO amounted to approx. EUR 60.0 m in the reporting period and is in line with the forecast- ed level of EUR 59 m for the alstria Group. EARNINGS POSITION Revenues In the reporting period, revenues increased by 13.3% or EUR 13,555 k compared to the revenues in the last year. This includes revenues in an amount of EUR 18,142 k from Deutsche Office. The reve- nues of the alstria subgroup decreased as expected by around 4.5% due to disposals in 2014 and expired leases. Revenues totaled EUR 115,337 k (2014: EUR 101,782 k). Net rental income amounted to EUR 102,140 k (2014: EUR 90,020 k). Real estate operating expenses Real estate operating expenses amounted to EUR 12,774 k, or 11.1%, of total revenues for the re- porting period (2014: EUR 11,130 k, or 10.9% of revenues). The increase of total real estate operat- ing expenses results in an amount of EUR 1,919 k from the Deutsche Office subgroup. Administrative and personnel expenses Administrative expenses of EUR 6,383 k increased by EUR 1,628 k compared to financial year 2014 (EUR 4,755 k). An increase of EUR 491 k relates to the administrative expenses of Deutsche Office, another EUR 580 k relate to consulting costs for a strategic project. Personnel expenses were at EUR 12,068 k for the reporting period (2014: EUR 7,807 k). On one hand, the personnel expenses from the consolidation of the Deutsche Office (+ EUR 1,662 k), mostly from a one-time compensa- tion in conjunction with the takeover (EUR 1,200 k), increased total personnel expenses. On the other hand, higher non-cash expenses resulting from share-based remuneration (+ EUR 1,867 k) con- tributed to higher personnel expenses. The sum of the administrative and personnel expenditures corresponds roughly to 16.0% of total revenues (2014: 12.3%). Other operating result and goodwill impairment alstria’s other operating result including goodwill impairment amounted to EUR -154,611 k in the reporting period (2014: EUR 4,116 k). Other operating income of the previous reporting period was mainly driven by a one-time compensation payment in conjunction with the expiry of a lease. In the current reporting period alstria received only lower compensation payments. Furthermore, an in- crease of EUR 9,765 k resulted from higher legal and advisory costs from the takeover of Deutsche Office. The main decrease in 2015 is caused by the amortization of the goodwill, which resulted from the takeover of Deutsche Office at the time of the first-time consolidation, in an amount of EUR 144,795 k. As of December 31, 2015 the goodwill has been amortized in the total amount. alstria Annual Report 2015 13 Group management report Net result on disposals of investment property alstria was able to achieve a positive result of EUR 12,655 k from the disposals of properties in 2015. The realized disposal gains mainly resulted from the sale of the asset at Hofmannstraße in Munich. Net operating result alstria closed its financial year 2015 with a net operating result before financing costs and taxes of EUR -62,459 k, which compares to EUR 86,964 k for the previous year. Higher net rental income and higher gains achieved from disposals as compared to the previous year were offset by higher admin- istrative and personnel expenses, a lower other operating result and a lower valuation result. The following table shows the main figures of the income statements for financial years 2015 and 2014: EUR k Revenues Net rental income Administrative and personnel expenses Other operating result Operating income Net result from fair value adjustments on investment property Net result on disposals of investment property Net operating result Net financial result EUR k Interest expenses syndicated loan Interest expenses Herkules & Homer loan portfolios Interest expenses other loans Interest result derivatives Interest expenses convertible bond Interest expenses corporate bond Other interest expenses Financial expenses Financial income/Interest income Other financial expenses Net financial result 2015 -8,531 -3,969 -9,013 -6,650 -4,623 -1,241 -3 -34,030 128 -9,431 -43,333 2015 2014 115,337 101,782 102,140 -18,451 -154,611 -70,922 -4,192 12,655 90,020 -12,562 4,116 81,574 824 4,566 -62,459 86,964 2014 -9,950 0 -9,172 -10,838 -4,871 0 0 -34,831 113 -611 -35,329 Change (%) 14.3 n/a 1.7 38.6 5.1 n/a n/a 2.3 13.3 n/a -22.7 Net financing costs increased by EUR 8,004 k to EUR 43,333 k in comparison to financial year 2014. Despite a higher average amount of outstanding loans in 2015 compared to 2014 (mainly caused by the inclusion of the Deutsche Office loans), financial expenses had been reduced slightly. This de- velopment is mainly due to a lower year-on-year average loan interest rate. An increase of 14 alstria Annual Report 2015 Group management report EUR 9,162 k of the net financing costs results from refinancing costs in terms of prepayment fees which are accounted under other financial expenses. For details on the new loans, we refer to the section “financial and asset position” on page 17. Share of the result of joint venture companies The share of earnings from joint venture companies in an amount of EUR 1,988 k (2014: EUR 12,798 k) in 2015 is mainly attributable to the valuation of the asset Kaisergalerie, Hamburg. The completion of extensive renovation measures and the moving in of the first tenants in 2014 led to a corresponding higher increase in value that could be realized in the previous year. Valuation result of financial derivatives To minimize the impact of interest rate volatility on profit and loss, alstria uses financial derivatives in the form of caps and swaps to hedge of floating interest-rate loans. At the balance sheet date, more than 90% of all floating interest-rate loans of the Group were hedged by such derivative finan- cial instruments. The borrowing costs of the existing loan portfolio amounted to 2.8% as of the end of the reporting period. The net result from fair value adjustments on financial derivatives amount- ed to EUR -6,763 k in the period from January 1, to December 31, 2015 (2014: EUR -27,461 k). An amount of EUR 9,338 k of this valuation loss resulted from the embedded derivative in relation to the convertible bond. The reason for this is the strong development of alstria’s share price, which increases the market value of the potential repayment obligation in case the convertible bond is converted. This is reflected in the negative fair value of the embedded derivative. Addition- al EUR 6,198 k valuation gains refer to an interest-rate swap with a notional value of EUR 380,870 k that ended in the business year 2015. A loss shown in the income statement of EUR 3,269 k (2014: loss of EUR 4,135 k) relates to cumulative losses reclassified from cash flow hedges for which the forecast transaction is no longer expected to occur, as the respective loans were repaid premature- ly. Apart from this, the slight decline of the yield curve compared to the end of the business year 2014 resulted only in a corresponding low additional valuation loss from interest-rate derivatives. Over- all, the valuation of derivative financial instruments resulted in a net loss of EUR -6,763 k. Further details and a tabular reconciliation can be found in section 10.5 of the consolidated finan- cial statements. Consolidated net result The consolidated net result amounted to EUR -111,379 k (2014: EUR 36,953 k) in the reporting peri- od, hence decreasing by EUR 148,332 k. A key driver for the change compared to the previous year was the amortization of the goodwill, which resulted from the first-time consolidation of Deutsche Office. As at December 31, 2015 the goodwill has been amortized in the full amount of EUR 144,795 k. Furthermore, higher net rental alstria Annual Report 2015 15 Group management report income could not compensate the administrative and personnel expenses and the financing costs. On the other hand, the valuation loss of investment property as well as the valuation loss in finan- cial derivatives could be compensated by gains on the disposal of investment property and earnings from joint venture companies. Undiluted earnings per share amounted to EUR -1.15 for the report- ing period (2014: EUR 0.47). REIT-AGs are fully exempt from German corporate income tax and trade tax. On the level of the REIT subsidiaries, tax obligations can arise to a minor extent. Through the takeover of Deutsche Office, companies that are not subject to REIT tax exemption have been consolidated into the Group. Hence, in financial year 2015, higher tax-payment obligations arose at the group level com- pared to the previous year. Funds from operations (FFO) Funds from operations amounted to EUR 59,998 k in 2015 compared to EUR 47,626 k in 2014. The FFO ratio could be increased to 52.0% (i.e. by 5.2 percentage points). As a result, FFO per share* was EUR 0.61 in financial year 2015 (2014: EUR 0.60). The increase compared to the prior year resulted mainly from an increase in net rental income of EUR 12,120 k. * Divided by the average number of shares in 2015 (96,718,329) due to the takeover of Deutsche Office during the reporting period. Number of shares as at December 31, 2014: 79,018,487. 16 alstria Annual Report 2015 Group management report 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 from the disposal of investment property Fair value and other adjustments in joint venture Other adjustments1) Thereof: Amortization of goodwill Legal and advisory costs in conjunction with the takeover Prepayment fees for the premature termination of loans Funds from operations (FFO)2) Attributable to minority shareholders Attributable to alstria office REIT-AG shareholders Maintenance and re-letting Adjusted funds from operations (AFFO)3) Number of shares (k) 4) FFO per share (EUR k) 2015 -110,567 4,192 6,763 -12,655 -1,301 173,566 144,795 9,765 9,162 59,998 -601 59,397 -16,162 43,235 96,718 0.61 2014 36,972 -824 27,461 -4,566 -12,179 762 - - - 47,626 - 47,626 -9,452 38,174 79,018 0.60 1) Non-cash income or expenses and non-recurring effects. The main effect in financial year 2015 was the amortization of the goodwill in an amount of EUR 144,795 k, higher legal and advisory costs, which were incurred in connection with the takeover of Deutsche Office in an amount of EUR 9,765 k, as well as non-recurring effects from repayment fees for the premature termination of loans of EUR 9,162 k. 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 measures as determined in accordance with IFRS. Furthermore, there is no standard definition for (A)FFO. Thus, the (A)FFO or measures with similar names as presented by other companies may not neces- sarily 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 and expenses for lease-ups. 4) Average number of shares in 2015 due to the takeover of Deutsche Office during the reporting period. 2014 number of shares as of Decem- ber 31, 2014. FINANCIAL AND ASSET POSITION Investment properties The total value of investment property amounted to EUR 3,260,467 k at year-end, in comparison to EUR 1,645,840 k at the beginning of the year. The increase results in an amount of 1,645,210 from the properties acquired in conjunction with the takeover of Deutsche Office. Furthermore, on the one hand, the acquisition of an asset in Düsseldorf as well as the prepayment for an acquired asset, which was legally transferred after the reporting period, and the capitalization of modernization measures increased the investment property. On the other hand, the disposal of seven assets led to a decrease of investment property. The valuation result amounted to EUR -4,192 k compared to EUR 824 k in 2014. alstria Annual Report 2015 17 Group management report EUR k Investment properties as of Dec. 31, 2014 Adjustment from initial consolidation Investments Acquisitions Disposals Reclassifications Net loss/gain from fair value adjustments on investment property Property portfolio as of Dec. 31, 2015 Prepayment Investment properties as of Dec. 31, 2015 Carrying amount of owner occupied properties Fair value of properties held for sale Interests in joint ventures Carrying amount of immovable assets Adjustments to fair value of owner occupied properties Fair value of immovable assets 1,645,840 1,645,210 27,813 12,710 -53,575 -53,245 -4,192 3,220,561 39,906 3,260,467 4,448 69,143 23,900 3,357,958 1,382 3,359,340 For a detailed description of the investment properties, please refer to pages 28 to 37 of the Com- pany Report 2015. Financial management alstria’s financial management is carried out at corporate level. Individual loans and corporate bonds are taken out at both property level and portfolio level. alstria’s main financial goal is to establish a sustainable long-term finance structure. An integral part of this structure is for example the coverage of long-term floating loans by corresponding hedging instruments, more precisely swaps and caps. A substantial extension of the financing strategy is the issuance of an unsecured, fixed-rated bond. Depending on the individual situation, fixed interest-rate loans are used. The aim of this strategy is to largely eliminate short-term interest-rate volatility from the profit and loss account while providing the Group with operational flexibility. In November 2015, alstria placed an unsecured, fixed-rated bond with a nominal value of EUR 500 m. The corporate bond maturing March 24, 2021, bears a fixed coupon of 2.25%. The pro- ceeds from the bond serve for the refinancing of higher-yielding bank liabilities of Deutsche Office. Through the issuance of the bond, alstria could terminate a Deutsche Office loan in an amount of EUR 332 m which was due to mature on December 31, 2018 prematurely. The loan was repaid on February 22, 2016, after the reporting period. In addition, two loans of the Deutsche Office- portfolio with a total amount of EUR 103 m have been withdrawn as of December 31, 2015. Furthermore, alstria was able to repay another loan, partially from the proceeds from the bond, prematurely as of December 31, 2015. This loan in an amount of EUR 66 m had an original maturity until January 31, 2017 and a fixed interest of 4.62%. 18 alstria Annual Report 2015 Group management report In financial year 2015, alstria made further repayments of EUR 102.8 m, mainly triggered by proper- ty disposals. The loan facilities in place as of December 31, 2015 are as follows: Liabilities Maturity Syndicated loan #1 Sept. 30, 2020 Syndicated loan #21) Feb. 22, 2016 Syndicated loan #3 Sept. 30, 2018 Non-recourse loan #12) Dec. 31, 2015 Loan #23) Loan #3 Loan #4 Loan #5 Loan #6 Loan #7 Loan #8 Loan #9 Loan #10 Total loans Bond Dec. 31, 2014 Sept. 30, 2019 June 30, 2017 Apr. 30, 2021 Mar. 28, 2024 Dec. 17, 2018 Dec. 31, 2018 Dec. 30, 2017 July 30, 2021 Mar. 24, 2021 Convertible bond June 14, 2018 Total Net LTV Principal amount drawn as of Dec. 31, 2015 EUR k LTV as of Dec. 31, 2015 % Principal amount drawn as of Dec. 31, 2014 EUR k LTV cove- nant % 470,556 331,910 336,320 0 0 67,000 58,868 60,048 56,500 56,000 53,432 18,507 15,423 47.1 58.6 58.6 - - 45.2 58.4 50.5 50.2 45.9 57.3 51.1 52.1 1,524,564 52.1 500,000 79,200 2,103,764 - – 63.1 49.3 70.0 72.0 75.0 - - 65.0 n/a 66.0 75.0 60.0 65.0 73.0 60.0 – - – – 501,070 0 0 68,260 2,617 67,000 0 60,739 60,000 56,000 0 0 0 815,686 0 79,400 895,086 1) Loan agreement terminated, withdrawal occurred on February 22, 2016. 2) Loan agreement terminated as at December 31, 2015. 3) Loan agreement terminated taking effect on December 31, 2014, withdrawal occurred on January 02, 2015. Average term to maturity of loans/bond/convertible bond (years) 3.6 5.3 Dec. 31, 2015 Dec. 31, 2014 The average term to maturity of loans/bond/convertible bond of 3.6 years as of December 31, 2015 takes a Deutsche Office loan into account, which was terminated before maturity as of February 22, 2016. Excluding this loan, which was repaid after the reporting period, the average term to maturi- ty is 4.3 years as of December 31, 2015. alstria Annual Report 2015 19 Group management report Maturity profile of financial debt as of December 31, 20151) in EUR m 525 575 471 332²) 77 67 57 2016 2017 2018 2019 2020 2021 from 2022 1) Excluding regular amortization. 2) Loan agreement terminated, withdrawal occurred on February 22, 2016. Average cost of debt (% p.a.) 2015 2.8 2014 3.4 As of December 31, 2014, no covenants under the loan agreements and/or the terms and conditions of the bond have been breached. 20 alstria Annual Report 2015 Group management report Compliance with and calculation of the Covenants referring to §11 of the Terms and Conditions of the bond* In case of the incurrence of new FINANCIAL INDEBTEDNESS, which is not drawn for refinancing pur- poses of existing liabilities, alstria needs to comply with the following covenants:  The ratio of the CONSOLIDATED NET FINANCIAL INDEBTEBNESS over TOTAL ASSETS will not exceed 60%  The ratio of the SECURED CONSOLIDTAED NET FINANCIAL INDEBTENESS over TOTAL ASSETS will not exceed 45%  The ratio of UNENCUMBERED ASSETS over UNSECURED CONSOLIDATED NET FINANCIAL INDEBTENESS will be more than 150% Following the issuance of the bond on November 24, 2015 up to the reporting date alstria did not incur any new FINANCIAL INDEBTEDNESS. Furthermore, starting from the fifth reporting date following the issuance of the bonds, alstria needs to maintain a ratio of the CONSOLIDATED ADJUSTED EBITDA over NET CASH INTEREST of not less than 1.80 to 1.00. The initial calculation and publication of the ratio will be done together with the 2016 annual report. Cash position Cash and cash equivalents increased from EUR 63,145 k to EUR 460,253 k in the reporting period. In addition to the issuance of the bond in an amount of EUR 500,000 k, net increases of cash and cash equivalents of EUR 116,029 k resulted from the takeover of Deutsche Office and EUR 102,725 k from the capital increase against contribution in cash. On the opposite, repayment of loans led to a cash outflow of EUR 292,512 k, while the cash flows from property transactions almost balance each other. Cash and cash equivalents in an amount of EUR 32,036 k were held for contractual cash re- serves or repayment amounts (“cash traps” under loan agreements) and were therefore restricted as of December 31, 2015. Equity Metrics Equity metrics Equity (EUR k) Thereof non-controlling interests NAV per share (EUR) Equity ratio (%) G-REIT equity ratio (%)1) Dec. 31, 2015 Dec. 31, 2014 1,657,664 846,593 38,287 10.64 43.0 49.4 - 10.71 47.8 50.2 Change 95.8% n/a -0.7% -4.8 pp -0.8 pp 1) Is defined as total equity divided by carrying amount of immovable assets. Minimum requirement according to G-REIT regulations: 45%. * The following section refers to the Terms and Conditions of the Fixed Rate Notes issued on November 24, 2015 with a total nominal amount of EUR 500 million with a coupon amounting to 2.25% per annum, maturing on March 24, 2021 (for further information please refer to www.alstria.de). Capitalized terms have the meaning as defined in the Terms and Conditions. alstria Annual Report 2015 21 Group management report Compared to fiscal year 2014, total equity increased by EUR 811,071 k as of December 31, 2015. The increase results mainly from the capital increase in conjunction with the takeover of Deutsche Office. The capital increase against contribution in kind accounted for EUR 65,068 k of the increase of the share capital. An increase of the capital surplus of net (after the deduction of transaction costs) EUR 756,619 results from the placement of the new shares. Furthermore, a capital increase against contribution in cash contributed to an increase in equity of net EUR 101,387 k. This was contrasted by the net consolidated result of EUR -111,379 k as well as the dividend payment of EUR 43,470 k. Overall, the developments led to an increase in equity from EUR 846,593 k to EUR 1,657,664 k.* Long-term loans Long-term loans increased by 96.3%, from EUR 874,025 k as of December 31, 2014 to a total of EUR 1,715,590 k as of December 31, 2015. The increase resulted from the issuance of a bond in the amount of EUR 500,000 k as well as the takeover of the Deutsche Office-loans in the amount of EUR 471,131 k. This was contrasted by repayments of EUR 89,055 k as well as reclassifications of loans from long-term to short-term debt (EUR 39,357 k). Short-term loans The short-term loan obligations amounted to EUR 376,402 k on the reporting date (previous year: EUR 7,702 k). Besides the amounts for scheduled repayments in 2016, the position also includes an unscheduled repayment resulting from the premature termination of a loan from the Deutsche Of- fice subgroup, which has been repaid as of February 22, 2016, after the reporting period. In total, an increase of EUR 346,355 k results from the short-term loans of the Deutsche Office-subgroup. Furthermore, the increase compared to the previous year results from the reclassification of long- term loans of EUR 39,357 k. Again this is contrasted by repayments of EUR 16,728 k. Current liabilities The current liabilities amounted to EUR 448,911 k and mainly consisted of the above-mentioned short-term loan obligations of EUR 376,402 k. EUR 8,687 k were attributable to tax obligations, which arose nearly exclusively at the level of the consolidated Deutsche Office companies. Moreo- ver, current liabilities include trade payables (EUR 20,477 k) and other current liabilities (EUR 41,189 k). Other current liabilities contain, among others, liabilities of real estate transfer tax of EUR 13,199 k, which were incurred at the Deutsche Office level. In addition, other current liabili- ties contain provisions for outstanding invoices (EUR 8,682 k), prepayment of rents (EUR 3,960 k) and received deposits (EUR 4,129 k). * See also the consolidated statement of changes in equity. 22 alstria Annual Report 2015 Group management report CORPORATE MANAGEMENT alstria proactively focuses on the following key financial performance indicators: revenues and funds from operations (FFO). Revenues are mainly comprised of rental income, which derives from the leasing activities of the Company. FFO is the operating result deriving from real estate man- agement, excluding valuation effects and other adjustments, such as non-cash expenses/income and non-recurring effects.* For financial year 2015, the Company originally forecasted revenues of EUR 98 m. The forecast has been amended to around EUR 116 m due to the takeover of Deutsche Office. In essence, this fore- cast has been achieved. The forecast of the FFO has also been amended due to the takeover of Deutsche Office (from originally EUR 49 m to EUR 59 m). In financial year 2015, FFO totaled EUR 60.0 m and is in line with the amended forecast. The Company also monitors the progress of its LTV, the G-REIT equity ratio and its liquidity. alstri- as’s LTV of the loan financing was at 52.1% as of December 31, 2015, compared to 49.3% as at the end of financial year 2014. The G-REIT equity ratio accounted for 49.4%, compared to 50.2% in the previous year and the statutory rate of minimum 45%. RISK AND OPPORTUNITY REPORT RISK REPORT Risk Management alstria has implemented a Group-wide structured risk management and an early warning system in accordance with Section 91 (2) of the German Stock Corporation Act (AktG). All risks are recorded, evaluated and monitored on an at least quarterly basis. The aim of alstria risk management strategy is to minimize or, where possible, completely avoid the risks associated with entrepreneurial activi- ty in order to safeguard the company against potential losses, and against risks to the company go- ing concern. The company’s risk identification process allows the early identification of sources of any potential new risks on an ongoing basis. Risk mitigation measures are defined in order to under- take 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 management and control system of the alstria. The risk management system is integrated into the regular reporting to the Management Board and Supervisory Board in order to ensure that risks are dealt with proac- * For further details, please refer to page 17. alstria Annual Report 2015 23 Group management report tively and efficiently. The risk management system thereby focuses on a full coverage of the risks. The identification and assessment of opportunities is not part of the risk management system of alstria office REIT-AG. Structure of risk management system Risk management is coordinated independent from the individual business divisions. The risk man- ager prepares a risk report on a quarterly basis and provides it to the Management Board. The bases for the preparation of the risk report are the reports from the risk owner, who is responsible for a particular area of risk. alstria 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 materialize and is at the same time responsible for the assigned risk category: alstria‘s areas of risk and risk categories 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, assessment, evalu- ation and monitoring. At the same time, the comprehensive documentation of this report ensures an orderly assessment, which is conducted by the responsible departments and by the Supervisory Board. In addition, the divisions report their respective risks and opportunities to the Management Board in weekly meetings. The Management Board must be notified of any risks immediately via ad-hoc an- nouncements, which represent a potential economic loss of more than EUR 2.0 m. Risk valuation Risks are assessed according to their likelihood of occurrence and their magnitude of impact. Ac- cordingly, they are categorized as “high”, “medium” or “low”. The potential damage is any poten- tial negative deviation from the forecasts and objectives of the alstria. 24 alstria Annual Report 2015 Group management report Classification according to likelihood Probability/likelihood of occurrence 1 to 15% 16 to 35% 36 to 55% 56 to 75% 76 to 99% Description very unlikely unlikely possible likely highly likely According to this framework, a very unlikely risk is defined as one that will occur only in exceptional circumstances and a highly likely 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 m Between 0.0 and 0.6 Between 0.6 and 1.5 Between 1.5 and 6.0 Between 6.0 and 15 Greater than 15 Degree of impact minor low moderate high critical The magnitude of the classification by degree of impact has been changed compared to the previous year. Due to the takeover of the Deutsche AG Group essential financial figures such as revenues, investment property and finance expenses have roughly doubled. Accordingly, both the expected potential impact and the risk-bearing capacity increased. For this reason, the values were doubled compared to the end of the previous year reporting period. Based on the likelihood that a risk will occur and the impact it would have on alstria’s business, financial position, profit, and cash flow, risks are classified as “high”, “medium” or “low” according to the following matrix. Risk classification Probability highly likely likely possible unlikely very unlikely Degree of impact L = low risk. M = medium risk. H = high risk. 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 minor low moderate high critical The Company’s risk management system was not exposed to any significant changes, apart from the increase in the risk impact classification amounts, compared to the previous year. alstria Annual Report 2015 25 Group management report Key characteristics of the accounting-related internal control and risk management system The objective of the control and risk management system regarding the reporting process is to make sure that the reporting is consistent and in line with legal requirements, the generally accepted accounting principles and the International Financial Reporting Standards (IFRS), and internal guide- lines. Only then can it provide true and reliable information to the recipients of the annual financial statements. To this end alstria 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 organizational terms, the divisions’ treasury, controlling and accounting divisions are responsible for control. The monitoring measures consist of elements incorporated in the process as well as external, inde- pendent elements. Among others, the integrated measures include process related system based technical controls such as the “dual control principle”, which is applied universally, and software- based checking mechanisms. In addition, qualified employees, who have the appropriate expertise, and specialized departments such as controlling, legal and treasury perform monitoring and control functions as part of the various processes. The Management Board and the Supervisory Board (in particular the Audit Committee) as well as a firm of auditors are involved in the monitoring system. They perform various checks that are inde- pendent of the Company’s processes. The accounting acts as the central interlocutor for special technical questions and complex report- ing issues. If required, external experts (auditors, qualified accounting specialists, etc.) are con- sulted. In addition, monitoring related to accounting is executed by the controlling department of the Company. All items and main accounts of the income statements and the balance sheets of the con- solidated companies as well as the consolidated income statements and the consolidated statement of financial position are reviewed regularly for accuracy and plausibility. This is conducted both for the consolidated financial statements and for the individual financial statement of alstria. Account- ing-related data are monitored monthly or on a quarterly basis, depending on the frequency of their preparation. The accounting-related risk management system forms part of the alstria Group’s risk management system. The risk owner responsible for the area of risk “finance” monitors risks that are relevant for the accuracy of accounting-related data. Risks are identified on a quarterly basis and are assessed and documented by the risk management committee. Appropriate action is taken to monitor and optimise accounting-related risks throughout the alstria-Group. 26 alstria Annual Report 2015 Group management report Description and assessment of risks In accordance with alstria’s risk management system, all material risks inherent to the future de- velopment of alstria Group’s position and performance are described in this chapter. The individual risks described relate to the planning period from 2016 to 2018. Corporate risks Strategic risks Likelihood Risk impact Risk level Change since prior year Market environment unlikely moderate Risks in relation to changes to the legal environment Risk due to inefficient organisational structures Operational risks Maintenance risks Refurbishment projects Vacancy risk Risks relating to property transactions HR-related risks IT risks Shortfall of rental payments Environmental risks Compliance risks Risks resulting from not complying with G-REIT legislations Risks arising from fraud/ non-compliance Litigation risks Financial risks Valuation risks Breach of covenants Tax risks Liquidity risk Refinancing on unfavourable terms Interest rate risk Counterparty risk Strategic risks unlikely moderate unlikely moderate possible possible unlikely unlikely possible possible very unlikely unlikely high high high moderate low low high low unlikely moderate unlikely unlikely possible unlikely unlikely unlikely unlikely unlikely very unlikely moderate moderate high high high moderate high high high L L L M M M L L L L L L L L M M M L M M L unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged increased increased unchanged Strategic risk management addresses factors influencing the Company’s market environment, its regulatory environment and its strategic corporate organization. Market environment risks For alstria Group, market environment risks are derived from macro-economic developments and their impact on respective real estate markets. An economic downturn in the German market could result in a decreasing number of employees and in turn be reflected in lower demand for rental alstria Annual Report 2015 27 Group management report areas in office properties. For alstria this would lead to a higher risk of vacant space or lower rental income. The further development of growth in developing and emerging countries, particularly Chi- na and Russia, has recently slowed. Further uncertainties may arise from the increasing political instability in certain countries in crisis. The impact of the recent decline in oil prices and the con- tinuing low interest rate policy of the European Central Bank cannot yet be concluded. The unclear situation in the financial markets and the discussion about the high debt of certain states as well as the efforts of these countries to consolidate their budgets are not yet over. These developments might also affect the German markets through a decrease in demand for goods and services from these markets. To date, however, the German market has proven to be unimpressed and stable in spite of such circumstances. No direct impact on the overall strategic risk situation that can be linked to the macroeconomic environment can currently be identified. As long as there is no substantial change in the economic environment, the market environment risk level will remain at a stable low (L). Risks in relation to changes to the legal environment Risks related to the Company’s legal environment result from changes to regulations 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 office REIT-AG’s classification as a REIT and other regulations concerning publicly listed companies. New laws and regulations may 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). Risk of inefficient organisational structures Further risks exist as part of the strategic direction of the business organization, due to inefficient organizational structures and the Company’s dependence on IT systems and -structures. Both the organizational structure and the IT infrastructure support strategic and operational objectives. The risk of strategic corporate organization therefore remains classified as low (L). Operational risks alstria’s operational risk management deals with property-specific risks and general business risks. This includes, among others, vacancy risk, the creditworthiness of tenants and the risk of falling market rents. Personnel-related risks such as loss of know-how and competences due to fluctuation of staff are also monitored in this risk area. alstria applies various early warning indicators to moni- tor these risks. Ongoing insurance checks such as rent projections, vacancy analyses, the control of lease terms and termination clauses are designed to help identify potential dangers and risks. 28 alstria Annual Report 2015 Group management report Vacancy risk In the case of lease terminations, non-extended leases or existing vacancy there is a risk that the rental area cannot be re-let as planned. Consequentially this results lower than anticipated reve- nues. alstria’s budgeting is based on the assumption that rental areas can be re-let within a defined peri- od following the end of a lease. During the reporting period leases for some larger rental areas ex- pired. At the same time the re-letting activities for these areas achieved a high positive response. As in the previous year, the overall vacancy risk is assessed as medium (M). Shortfall of rental payments An operational risk, which could still materialize as a result of the sovereign debt crisis, is, as be- fore, 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 previous year, limited (L). Maintenance risk In order to plan for the requirements for maintenance measures, the Company makes assumptions about the condition and the intended standard of the property. Undetected defects, repair re- quirements resulting from external damage, new legal requirements regarding the condition of the building or an incorrect assessment of the maintenance requirement, could result in higher than planned maintenance costs. Due to alstria’s high maintenance budgets the maintenance risk is cate- gorized as medium (M), as in the previous year. Refurbishment projects alstria realises a significant number of refurbishment 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 construction. Unchanged from the end of the previous reporting period the risk resulting from refurbishment projects is categorised as moderate (M). Employees The skills and motivation of alstria’s employees are decisive factors in the company’s success. A risk of losing knowledge results from the fluctuation of staff and from not recruiting sufficiently quali- fied experts to fill vacancies in the company in good time. Both cases could result in a shortfall of suitable experts and key personnel, which could endanger alstria’s competitive advantages in its markets as well as its further growth opportunities. alstria mitigates these risks through the follow- ing measures: selective, needs-oriented skills-development of the existing staff, strengthening its image as an attractive employer, university marketing, promoting employee motivation through strong leadership and corporate culture and profit-oriented variable remuneration schemes. Over- all, alstria estimates the described risks to be at a low level (L), which corresponds to the situation at the end of the previous year. alstria Annual Report 2015 29 Group management report 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 attacks are installed. Structural security measures are in place to protect the computer center. All data is backed up daily in an internal data depository, and in a separate 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 materialize and as in the prior year, their possible consequences are considered to be low (L). Last year, the risk was classified as low risk as well. Property transactions alstria is exposed to risks related to the acquisition and disposal of real estate properties. Related risks are the partial or complete non-detection of the risks and liabilities associated with properties in the due diligence process. In case of the disposal of real estate assets alstria usually gives certain warranties to the potential purchaser regarding factual and legal matters of the property in ques- tion. It cannot be fully ruled out that alstria’s management is not aware of a risk covered by certain elements and warranties given in the sales agreement. As a result, there is generally a risk that alstria (as the seller) 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 prop- erty are not observed or unfavorable contractual agreements are transferred to the Company, re- sulting in additional future costs. Both in acquisition and selling proceedings alstria responds to these risks with thorough technical, legal and tax analysis with respect to all relevant property and contractual issues. It does so by em- ploying internal and external lawyers, tax advisors, architects, construction engineers and other required experts. As before, risks relating to transactions of properties are assessed to be of a low (L) to moderate (M) level. Environmental risks alstria is exposed to risks arising from environmental liabilities or possible damages resulting from natural events like fire or flooding. alstria’s buildings may contain undetected hazardous materials (such as asbestos) to an unanticipated extent. It might further be contaminated or otherwise af- fected by environmental risks or liabilities, such as pre-existing pollution and soil contamination. Risk mitigation is implemented by a due-diligence 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 environmen- tal risks described are considered to be at a low (L) level, similar to the previous year. 30 alstria Annual Report 2015 Group management report Compliance risks G-REIT legislation alstria is registered as a German REIT-AG (G-REIT) in the commercial register. The German REIT segment allows alstria to offer a high profile to investors and distinguish itself on the capital market as a REIT. The REIT shares are traded at the Frankfurt Stock Exchange. 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 significant requirements are as follows: The G-REIT must be a stock corporation listed on an organized 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 recorded under IFRS. Due to the consistent monitoring of the compliance with all described REIT criteria, the risk of non- compliance is considered to be low (L), as in the previous year REIT corporations are fully exempt from German corporate income tax (KSt) and German trade tax (GewSt). This tax exemption has been applied for the Company with retrospective effect starting on January 1, 2007. Capital and investment management activities maintain the Company’s G-REIT status in order to support its business activities and maximize shareholder value. alstria manages its capital structure and makes adjustments in response to changes in economic conditions. In order to maintain or adjust the capital structure, the company can issue new shares or make a capital repayment to its shareholders. According to Section 15 of the REIT Act, altria’s equity (as reported in its consolidated financial statements) must not fall short of 45% of its immovable assets. If the minimum equity ratio is, how- ever, not satisfied for three consecutive financial years, the exemption from corporate income tax (KSt) and trade tax (GewSt) ceases at the end of the third financial year The G-REIT equity ratio is 49.4% on the balance sheet date. Accordingly, alstria complies with the minimum G-REIT equity ratio requirement according to section 15 G-REIT-Act (REITG). Nonetheless, the risk that alstria 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. Therefore alstria cannot lose its G-REIT status as a result of failing to meet the 45% threshold within the three-year forecast period through December 31, 2018. alstria Annual Report 2015 31 Group management report Compliance risks alstria is dependent on all employees and management respecting the compliance standards in place. alstria's business depends on employees and the members of management complying with laws, policies and procedures as prescribed by documented policies, procedures and laws. If alstria's senior management fails to document and reinforce the Company's policies and procedures or employees commit criminal, unlawful or unethical acts (including corruption), this could have a material adverse effect 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 business opportunities. alstria has implemented a compliance organization, 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) unchanged from the previous year. Litigation alstria office REIT-AG or any of its subsidiaries could be involved in pending or foreseeable court or arbitration proceedings which might have a significant impact on the Group’s business position at any time. Other risks might arise from legal actions taken addressing, warranty claims, repayment claims or any other claims brought forward in connection with divested properties or implemented development projects over the last few years. Risks associated with the merger of Deutsche Office and Prime Office REIT-AG (PO REIT) in the year 2014 Some shareholders of PO REIT, which was dissolved due to the merger, have taken the view that the exchange ratio set for former PO REIT shares to shares of the Company was too low at their expense. For this reason, they used the opportunity to have the fairness of the exchange ratio reviewed in judicial arbitration proceedings and filed the necessary applications to the Munich District Court for the initiation of such proceedings. After an exchange of various written pleadings by the parties to the proceedings, a first court hearing was held on February 12, 2015. At first instance, the Munich District Court rejected the applications for an additional cash payment in favor of the former PO REIT shareholders in a ruling on August 21, 2015. Four applicants and their common legal representative have appealed against this ruling, and the proceedings will now be continued at second instance before the Munich Higher Regional Court. In the event that the court rules in a final decision that the exchange ratio has to be improved by means of a cash payment to be made by the Company, such a decision will be effective for and against all the shareholders of PO REIT in accordance with Section 13 of the German Arbitration Proceedings Act. This means that the additional cash payment fixed by the court will also be paid to shareholders who have not filed an application in the arbitration proceedings. As of the date of the merger notice published by the acquiring entity in the Commercial Register, the additional cash payment will have to be made with an annual interest of five percentage points above the base lending rate effective at that time. This right to an additional payment of an unlimited amount with interest, which in itself may be 32 alstria Annual Report 2015 Group management report substantial due to the length of the proceedings and the level of the statutory interest rate, might result in a significant financial burden and hence have a considerable adverse impact on the net assets, financial position and results from operations of the Deutsche Office Group. Mutual due diligence was performed prior to the merger, and the Company obtained an expert opinion with a view to establish the enterprise values and the exchange ratio. Subsequently, the calculated exchange ratio was subject to a mandatory merger audit by an independent expert, as prescribed by law. In addition to measures implemented before the litigation to reduce the risk of an additional cash payment, the Company receives legal support from external advisors in the current proceedings. Due to the takeover of the Deutsche Office Group in business year 2015 this lawsuit was no matter the alstria Group at the end of the previous reporting period. Apart from this lawsuit neither alstria office REIT-AG nor any of its subsidiaries are involved in pending or foreseeable court or arbitration proceedings that might have a significant impact on the Group’s business position. This also applies to legal actions addressing warranty claims, repayment claims or any other remuneration brought forward in connection with divested properties or implemented development projects over the last few years. The respective Group companies have accounted for appropriate provisions to cover any potential financial charges from court or arbitration proceedings. Since none of the Group’s companies are currently exposed to any civil rights proceedings or any other kind of legal dispute, nor is this expected to occur, the risk of legal disputes is classified as low (L), as in the previous year. Financial risks Due to alstria’s refinancing strategy, its financial risk situation remained stable compared to the previous year’s reporting period. Refinancing risks The Group’s main financial instruments are bank loans and derivative financial instruments as well as a corporate bond with a notional amount of EUR 500m placed in the capital market for the first time in the business year 2015. The main purpose of the bank loans and the bond is to finance alstria’s business activities. Derivative financial instruments include interest swaps and caps. The purpose of these derivative financial instruments is to hedge against interest risks arising from the Company’s business activities and its sources of finance. The main risks arising from the Group’s financial instruments are cash flow risks, interest rate risks and liquidity risks. The alstria Group’s current Net LTV is 49.3%. This is a reasonable rate compared to the average leverage of German real estate companies. The Group’s bank’ loans LTVs on the balance sheet date are well below the LTVs permitted under the respective loan agreement (see overview of loan facilities on page 19). The risk of a covenant breach was thus encountered effectively. The creditworthiness of alstria was classified by the rating agency, Standard & Poor's as unchanged at BBB ("Investment Grade") at the end of the reporting period. The rating has been applied for the first time in the business year 2015. alstria Annual Report 2015 33 Group management report The refinancing of the majority of alstria's bank loan is not required prior to financial year 2020 (see maturity profile of loans on page 20). The corporate bond has a term through March 2021. However, in line with alstria’s funding strategy, it is intended to refinance some of the existing loans by the mid-2016. As a result the risk of refinancing on unfavorable terms is to be classified at the present time as moderate (M), whereas this risk was assessed a year earlier as low (L). The next refinancing of the main part of alstria’s loans will be necessary in 2020. The corporate bond has a maturity through March 2021. Thus, the risk of refinancing on unfavorable terms is lim- ited for the time being (L) as it was the year before. Breach of Covenants In the process of taking out loans alstria agrees to comply with certain covenants, such as not to exceed a certain level of debt (loan to value) or to achieve a minimum income (debt service cover- age ratios) from mortgaged properties. In the event of a breach of these covenants consequences, such as increased credit margins or in the worst case an extraordinary termination of a loan by the lender, would arise. The Group’s current LTV ratios as described above, give significant leeway to the permitted leverage ratios. Hence, the risk of a breach of covenants is at present classified as medium (M) as it was in the previous year. 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 financial instruments used by the Company. alstria’s hedging policy allows the use of a combination of plain vanilla caps and swaps 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. The maturity of the derivative financial instruments is linked to the term of maturity of the loans. Derivative financial instruments mainly relate 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 compensated. Part of the loans including the bond are structured as fixed rate loans and therefore bear until their maturity date no interest rate risks. Loans with a volume of approximately EUR 93.0 million are based on the floating 3-month EURIBOR interest rate, without being hedged by an interest rate derivative. The reason for this is the structure of the current yield curve of the 3-month EURIBOR. Moreover, these loans are to be refinanced by fixed-interest corporate bonds until mid-2016. 34 alstria Annual Report 2015 Group management report As consequence the interest rate risk is currently considered to be medium (M). At the end of the previous reporting date the risk was categorized as low (L). Liquidity risk One of alstria’s core processes is cash management. 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 the previous years including the placement of a convertible bond and corporate bond, the major liquidity risk resulting from balloon repayments on loan facilities was successfully averted. Since the main part of the loans and bonds will not be due until the year 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 company reflects the market value as determined by independent appraisers. 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 factors include declining rent levels, a decreasing demand or increasing vacancy rates. Many qualitative factors are also decisive in the valuation of a property, including a property’s expected market 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 reasons, subsequent valuations of the respective 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 revaluation 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 minimize these risks, a regional diversification of investment portfolios, a consistent focus on the individual needs of tenants and detailed market research and analysis (broker reports) are applied. In addition, the market value of all of alstria’s assets is determined annually at year-end by independent, internationally recognized experts. In summary, the risk of unexpected devaluations is, as in the previous year, classified as moderate (M). Counterparty risk alstria hedges a portion of its risk by applying third party instruments (interest rate derivatives, property insurances and others). alstria’s counterparties in these contracts are internationally recognized institutions, which are rated by the leading rating agencies. alstria reviews the ratings of its counterparties on a regular basis in order to mitigate any risk of default. The financial crisis has raised doubts regarding the reliability of rating agencies’ assessments. As a reaction to this alstria Annual Report 2015 35 Group management report objection, alstria makes use of other sources of information to challenge the rating agencies’ assessments. alstria is otherwise not exposed to any significant credit risks. Hence same as last year, they can be classified as low (L). Tax risks REITs are completely exempt from corporate income tax and trade tax. As a result tax risks can only arise in the case of loss of REIT status or at subsidiary level. Additionally the Group as a whole faces risks from value added tax, real estate transfer tax and property tax. Furthermore, it is possible that changes in tax laws or their interpretations can result in a higher tax liability for prior tax periods that have not yet been finally approved. As consequence of the takeover of the Deutsche Office AG Group companies are included in the consolidated financial statements, which are not subject to the regulations of the REIT legislation. The planned restructuring, in particular the transformation of the legal form of the acquired companies in limited partnerships, will result in the taxable disclosure of existing hidden reserves and built-in losses. The resulting tax expenses are taken into account until December 31, 2015 by tax provisions. Due to the income tax exemption as a REIT and consistent monitoring of tax relevant issues by internal and external tax experts, the probability of a tax loss is considered to be limited. Since certain tax-related issues, such as real estate transactions or valuations of assets and liabilities as well as a re-entry into the tax liability could result in high tax obligations over the three-year risk period, the risk impact is considered to be significant. This fact results in an overall tax risk level, which is unchanged from the previous year’s average (M) control risk. Overall risk assessment by the Management Board alstria office REIT-AG consolidates and aggregates all risks reported by the different business units and functions adhering to its risk management policy. Compared to the previous year, the overall risk situation of alstria remained stable. In financial year 2015 only minor or immaterial changes were noted in alstria’s risk level matrix for risks categorized as high (H) or medium (M). At the end of the year, as well as at the end of the preceding fiscal year 2014 risks categorised as “high” accounted for 0.0% of all identified risks while risks categorized as “medium” accounted for 47.1% (December 31, 2014: 44.0%) of all identified risks. On the one hand this is due to the economic environment in Germany, which still proves to be relatively stable despite the expected decline in growth in the emerging markets, the continued smouldering financial problems in some European countries and the uncertainty of the further development in certain “failed state” countries. On the other hand, the company’s stable funding position, conservative level of debt and its solid-REIT equity ratio support this assessment. Due to the similar structure of the acquired Deutsche Office during the business year no significant effects regarding risk exposures are expected to arise, except for the expected increase in the potential 36 alstria Annual Report 2015 Group management report risk impact amount. The risks associated with the implementation of organizational employee- related and system-based integration, have been considered in the individual risk areas. Sufficient precautionary measures have been undertaken to counteract identifiable risks. In addition to assessing the potential impact of the realization of risks on the value of the Group’s net assets the potential liquidity requirements for selected key risks are identified to cover a period of three years. The assessed amount of liquidity amounted to EUR 33.1 m as of the balance sheet date. In our view, the risks described in our aggregated risk report neither threaten our ability to continue as a going concern individually nor cumulatively in terms of their likelihood of occurrence and level of impact. This applies both to the single Group companies and the Group. alstria Annual Report 2015 37 Group management report REPORT ON OPPORTUNITIES Management of opportunities alstria’s opportunities management aims to identify and assess opportunities as early as possible and to initiate appropriate measures in order to take advantage of those opportunities and trans- form them into business success. Growth and earnings opportunities result both from alstria’s existing real estate portfolio and from its acquisition of properties, that earnings potential. Depending on the property’s place in the life cycle, opportunities may be found in repositioning and development, in strengthening of tenant relationships or in selling the property. The Company’s financing activities safeguard the necessary funding to implement these activities. Here, opportunities are based on ensuring sustainable financing, including equity funding, on favor- able terms. The Company’s financing activities safeguard the necessary funding to implement these activities. Here, opportunities are based on ensuring sustainable financing, including equity funding, on favor- able terms. The evaluation of opportunities is carried out in the context of annual budget planning and on an ongoing, occasional basis during the year. The process starts with a careful analysis of the market environment and of the market opportunities related to the properties held in the portfolio. These include the assessment of criteria such as tenant needs, property categories, and regulatory chang- es. Regular reporting supports the monitoring of growth initiatives within the budget and planning- approval processes. The Management Board of alstria office REIT-AG is regularly (usually via a monthly report) updated on the status and progress of the initiatives being implemented. In addition, the real estate opera- tions department receives monthly reports in which the planned costs and revenues are compared to the actual budget consumption and revenues. An indicator-based report coordinated by the cen- tral controlling department is provided to the Management Board; in this report, the planned per- formance indicators are compared to the actual figures. In addition, financial and liquidity planning and forecasts are updated, and changes to the project scope are clarified. Opportunities related to real estate acquisitions The location of a property is essential for its attractiveness. Opportunities arise when a regional market is characterized by favorable demographics and real estate dynamics. Together with optimal property management, this results in opportunities for long-term capital appreciation. Alstria’s ac- quisition strategy aims to identify properties with the described opportunity structure. Its invest- ment strategy therefore focuses on the acquisition of properties and portfolios that have higher vacancy rates and thus are open to additional growth opportunities through the stabilization of 38 alstria Annual Report 2015 Group management report these properties’ leases. The acquisition will only be performed if the investment volume offers the prospect of achieving a sustainable increase in value. Opportunities related to tenant relationships Structured and active property and asset management both ensures the quality of our leasing ser- vice and is the basis for sustainable tenant relationships. Opportunities arise through a flexible re- sponse to existing or potential tenants’ needs. The Company has the knowledge and resources to provide solutions and to implement the tenants’ requirements. This gives rise to opportunities to generate sustainable, 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 repositioning. The modernization of a property opens up the oppor- tunity for value creation by reshaping the asset for the next 20 to 30 years and strengthening its future attractiveness in the market and for tenants. Opportunities arising from financing alstria’s financing strategy is focused on the optimal provision of funds to invest in new properties and development projects. Opportunities arise from the optimization of these financing terms. This requires implementing long-term and flexible funding at favorable conditions and safeguarding fi- nancial covenants at all times. A significant opportunity also arises out of a low debt ratio (the net LTV of bank loans is currently 49.3%; see the overview of loan facilities on page 19), representing a comfortable base for future funding and growth. Funding options include mortgage loans, corporate bonds and equity funding. Opportunities arise from the diversification of funding sources and with respect to the first rating obtained in the business year. Overall Summary of the Opportunities Report alstria’s current financial situation involves a stable financial position at favorable interest rates until about mid-2020. The rating received from S&P allows for greater flexibility in terms of new funding sources. Concerning revenues, alstria benefits from long-term rental agreements with an average lease length of approximately 5.2 years and potential increases in rents due to decreases in vacancy rates and adjustments to the consumer price index. In addition, the Company possesses a range of properties that are available for attractive and value-adding refurbishment opportunities. alstria’s portfolio is well-balanced and contains many first-class anchor buildings with high-quality tenants. The takeover of the Deutsche Office AG Group provides opportunities because this group’s portfolios open up growth opportunities through the lease of vacant office space. Furthermore, the Deutsche Office portfolio enables a better focus on office properties and a geographical focus on Germany’s metropolitan regions; in addition to the synergies and other economies of scale, the portfolio also allows a greater presence and more efficiency in alstria’s key markets. alstria Annual Report 2015 39 Group management report Therefore, alstria is well-positioned to continue its buy-and-manage strategy and to successfully identify and implement relevant future market opportunities. alstria’s core competence is the management of assets. The asset repositioning and refurbishment that alstria is continuously undertaking, both as a part of joint ventures and on its own, will strengthen the basis for increased organic value across the portfolio. SUSTAINABILITY REPORT In November 2015, alstria published its sixth sustainability report. This year’s report is organized and presented based on the latest reporting framework (GRI G4), and it is substantially improved in its scope of coverage regarding nonfinancial information. It provides information about alstria’s next steps toward a carbon-neutral economy and familiarizes the reader with the Company’s corpo- rate responsibility strategy. alstria’s vision with regard to sustainability goes beyond the reporting exercise itself. Its sustainabil- ity approach is embedded in every decision and at every level of the organization. To alstria, pursu- ing a path of continuous improvement and innovation is what sustainability is all about. Over the course of 2015, alstria has set up its energy management system for operational processes, according to ISO 50001. In addition, alstria received its second “CDP Climate Action Award” for the substantial reduction (-73%) of its controlled greenhouse gas emissions (scope 1 and 2). This result was achieved through the systematic procurement of energy produced from solely renewable sources. For further information on the Company’s sustainability engagement, please refer to alstria´s annual sustainability report 2015 on: www.alstria.com or to the Company Report. DISCLOSURES REQUIRED BY TAKEOVER LAW Disclosures and the explanatory report pursuant to Section 289, paragraph 4, and Section 315, paragraph 4 of the German Commercial Code (Handelsgesetzbuch, or HGB). COMPOSITION OF SUBSCRIBED CAPITAL On the balance sheet date of December 31, 2015, alstria’s share capital amounted to EUR 152,164,285.00, which was divided into 152,164,285 no-par-value bearer shares. All shares have equal rights and obligations. Each share entitles the bearer to one vote at general shareholders’ meeting and is decisive for the shareholder’s share in the profit of the Company. The individual rights and duties of the shareholders result from the provisions of the German Stock Corporation Act (Aktiengesetz, or AktG), particularly Sections 12, 53a et seq., 118 et seq. and 186. 40 alstria Annual Report 2015 Group management report 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 require- ments and on alstria’s Articles of Association, which do not restrict either of these activities. Ac- cording to Section 136 of AktG, the voting rights of the affected shares are excluded by law. No other restrictions on voting rights or on the transfer of shares exist - or, as far as they arise from agreements between shareholders, they are not known to the Management Board. SHAREHOLDINGS EXCEEDING 10% OF THE VOTING RIGHTS On the balance sheet date of December 31, 2015, alstria was not aware of any shareholders who directly held more than 10% of the voting rights. Oaktree Fund GP I, L.P.; Oaktree Capital I, L.P.; OCM Holdings I, LLC; Oaktree Holdings, LLC; Oaktree Capital Group, LLC; Oaktree Capital Group Holdings, LP; and Oaktree Capital Group Holdings GP, LLC, each notified us that, via subsidiaries, they held a share in alstria of approximately 25.4% as of October 27, 2015. In addition, please refer to the disclosures in the Consolidated Financial Statements under Note 21.3, Voting Right Notifica- tions. SHARES WITH SPECIAL RIGHTS alstria has not issued any shares with special rights of control. SYSTEM OF CONTROL FOR ANY EMPLOYEE SHARE SCHEME IN WHICH THE EMPLOYEES DO NOT DIRECTLY EXERCISE THE CONTROL RIGHTS The employees who hold alstria shares exercise the same rights of control as any other shareholders in accordance with applicable law and with the Articles of Association. APPOINTMENT AND DISMISSAL OF THE MANAGEMENT BOARD AND AMENDMENTS TO THE ARTICLES OF ASSOCIATION alstria’s Management Board consists of one or more members who may be appointed or dismissed in accordance with Sections 84 and 85 of AktG. The Articles of Association do not contain any special provisions in this respect. Pursuant to Section 84 of AktG, members of the Management Board are appointed by the Supervisory Board for a maximum term of five years. Reappointment or extension of the term of office is permitted for a maximum of five years in each case. Amendments to the Articles of Association are made pursuant to Sections 179 and 133 of AktG. Pur- suant to Section 12, paragraph 2, of the Articles of Association, the Supervisory Board is further- more authorized to make changes in and amendments to the Articles of Association without the shareholders passing a resolution in the general meeting if those changes merely affect wording. The Supervisory Board has also been authorized to adapt the wording of the Articles of Association to the utilization of the Conditional Capital 2013 and the Authorized Capital 2015 and after expira- tion of the applicable authorization periods by resolutions of the annual general meetings on May 29, 2013, and May 6, 2015. alstria Annual Report 2015 41 Group management report Pursuant to Section 15, paragraph 5 of the Articles of Association and to Section 179, paragraph 2, and Section 133 of 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 repre- sented. Insofar as a larger majority is prescribed by law, such a majority shall be decisive. The Articles of Association were last amended by a resolution passed by the Supervisory Board on November 19, 2015: In Section 5 of the Articles of Association, paragraphs 1, 2, 5 and 8, were for- mally adapted to the capital increases executed from the Company’s conditional capitals. Further- more, the provisions regarding Conditional Capital III in Section 5, paragraph 7, of the Articles of Association were deleted without substitution, as the Management Board’s corresponding authoriza- tion had expired. Thus, the Conditional Capital III became redundant, and the Articles of Association were editorially amended. AUTHORITY OF MANAGEMENT BOARD REGARDING THE ISSUE AND BUYBACK OF SHARES 1. Authorized Capital The Articles of Association authorize the Management Board, with the approval of the Supervisory Board, to increase the share capital until May 5, 2017, by issuing new no-par-value bearer shares against contributions in cash and/or kind, once or repeatedly, up to a total amount of EUR 36,759,200.00. Further details are governed by Section 5, paragraphs 3, 4 and 4a, of the Arti- cles of Association. 2. Conditional Capital alstria holds three conditional capitals (pursuant to Sections 192 et seq. of AktG), which are regu- lated in Section 5, paragraphs 5, 6 and 8, of the Company’s Articles of Association. a) Conditional Capital 2013 The share capital is conditionally increased in an amount of up to EUR 37,979,618.00 by issuing up to 37,979,618 no-par-value bearer shares. The Management Board is authorized to determine 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, paragraph 2, of AktG). This conditional capital increase is only carried out to the extent that the holders of option or conversion rights or those holders with conversion obligations from bonds with warrants or, con- vertible bonds, profit-participation rights or participating bonds which were issued based on the authorization resolved by the shareholders in the general meeting on May 29, 2013, utilize their option or conversion rights or, insofar as such holders have conversion obligations, such holders ful- fil their conversion obligations, unless a cash settlement is granted or treasury shares are used to fulfill option or conversion rights. b) Conditional Capital III 2012 The share capital is conditionally increased in an amount of up to EUR 318,500.00 by issuing up to 318,500 no-par-value bearer shares. This conditional capital increase exclusively serves shares to 42 alstria Annual Report 2015 Group management report the holders of convertible profit-participation certificates, which the Company issued until April 23, 2017, in accordance with the authorization of the general meeting that was held on April 24, 2012. The conditional capital increase is only carried out to the extent that the convertible profit- participation certificates are converted into shares of the Company and no treasury shares are used for servicing 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 as a result of the conversion of certificates. c) Conditional Capital III 2015 Furthermore, the share capital is conditionally increased in an amount of up to EUR 500,000.00 by issuing up to 500,000 no-par-value bearer shares. This conditional capital increase shall be used exclusively for granting shares to the holders of convertible profit-participation certificates, which the Company issued until May 5, 2020, in accordance with the authorization of the general meeting held on May 6, 2015. The conditional capital increase is only carried out to the extent that the con- vertible 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 as a result of the conver- sion of certificates. 3. Purchase of Treasury Shares In the general meeting held on June 8, 2011, the shareholders authorized the Management Board to acquire shares of up to 10% of the Company’s share capital at the time of the authorization until June 7, 2016. The acquired shares and other treasury shares that are in alstria’s possession or oth- erwise attributed to it, pursuant to Sections 71a et seq. of AktG, may at no point amount to more than 10% of the share capital. Shares may be purchased through a stock exchange, by means of a public offer to all shareholders or by making use of financial derivatives (put or call options or a combination of both). ALSTRIA OFFICE REIT-AG’S SIGNIFICANT AGREEMENTS THAT TAKE EFFECT UPON A CHANGE OF CONTROL FOLLOWING A TAKEOVER BID alstria office REIT-AG’s significant financing agreements contain the clauses common to such con- tracts regarding a change of control. In particular, the agreements entitle the lenders to request repayment of the loans or oblige alstria to repay them in case any person, company or group should directly or indirectly acquire 50% of the voting rights or a controlling influence in alstria. The terms and conditions of the convertible bond that the Company issued in financial year 2013 also provide termination rights or an adaptation of the conversion price in case of a change of con- trol. Such change of control occurs, in particular, if a person – or persons acting in concert – directly or indirectly acquire more than 50% of the Company’s voting rights. alstria Annual Report 2015 43 Group management report The terms and conditions of the fixed-interest bonds the Company issued in financial year 2015 enti- tle each bondholder to request that the Company redeem or purchase such bonds for 101% of the principal amount of such bond plus unpaid interest accrued if any person, company or group should directly or indirectly acquire more than 50% of alstria’s voting rights and within 120 days after such a change of control, the rating for the Company or the bond is downgraded. The total volume of obligations under those agreements that have corresponding change of control clauses amounted to approximately EUR 1,050 m on the balance sheet date. COMPENSATION AGREEMENTS WITH MANAGEMENT BOARD MEMBERS AND EMPLOYEES IN CASE OF A TAKEOVER BID No compensation agreements that take effect in case of a takeover bid are in place with Manage- ment Board members or employees. These provisions comply with statutory requirements or are reasonable and common practice at comparable publicly listed companies. They are not intended to hinder potential takeover bids. ADDITIONAL GROUP DISCLOSURE EMPLOYEES As of December 31, 2015, alstria had 93 employees (compared to 63 on December 31, 2014). The annual average number of employees was 72 (compared to 62 in the previous year). These figures exclude Management Board members. REMUNERATION REPORT Management Board members’ compensation comprises a fixed and a variable component that is linked to the Company’s operating performance. In addition to the bonus, members of the Manage- ment Board receive share-based remuneration as a long-term incentive. Members of the Supervisory Board receive fixed remuneration. The remuneration report (see pages 167 to 173), which contains details of the principles for the remuneration of the Management Board and Supervisory Board, forms an integral part of the audit- ed Group Management Report. 44 alstria Annual Report 2015 Group management report REPORTS ON POST-BALANCE SHEET DATE EVENTS AND EXPECTED DEVELOPMENTS REPORT ON POST-BALANCE SHEET DATE EVENTS On November 26, 2015, alstria signed a purchase agreement for the acquisition of an asset in Ham- burg. The transfer of benefits and burdens took place on January 1, 2016, after the reporting peri- od. One Deutsche Office loan was terminated prematurely as of December 14, 2015. The loan was re- paid after the reporting period, on February 22, 2016. REPORT ON EXPECTED DEVELOPMENTS The report on expected developments contains statements related to anticipated future develop- ments. The Company’s development depends on various factors. Some of these factors are beyond the Company’s control. Statements about expected developments are based on current assessments and are hence, by their very nature, exposed to risks and uncertainty. The actual development of the alstria Group may differ positively or negatively from the predicted development presented in the statements of this report. Expected economic development The German economy is still in good condition. This is reflected by the strongest economic growth in the last five years and by the employment rate, which remained at a record level in 2015. For 2016, the German government expects driven by strong consumption of private households and by the positive developments in the German labor market the macroeconomic situation to develop at the same level as it did in 2015. Thus, the German government forecasts a growth rate of 1.7% for the German economy in 2016.* Development of the real estate market: Outlook for 2016 The relevance of real estate as an investment will persist at a high level in 2016 due to the continu- ing very low interest rates. On the investment market, the demand for core assets is expected to remain high and to greatly exceed the supply. Therefore, the trend to invest in value-adding prop- erties will persist and could even accelerate. Outlook for the alstria Group Based on the expected stability of the German economy and of the real estate market, the Compa- ny does not expect significant changes in alstria’s direct environment. However, changes other than the expected in terms of interest rates, further property acquisitions or property disposals or other changes in the assumptions for the financial year 2016 could have an impact on the projections. Due to the takeover of Deutsche Office AG, alstria is expecting 2016 revenues to increase in 2016 by approx. EUR 85 m to EUR 200 m as compared to revenues in 2015. * Please refer to Annual Economic Report 2016 (Bundesministerium für Wirtschaft und Energie) alstria Annual Report 2015 45 Group management report For fiscal year 2016, the Company is expecting an FFO of around EUR 115 m, of which around EUR 3 m will be attributable to minority interests. The increase in FFO as compared to the FFO of EUR 60.0 m (therof EUR 0.6 m attributable to minority interests) as achieved in 2015 is mainly due to the full-year consolidation effect of Deutsche Office in comparison to a 2-months consolidation period in 2015 and to the further reduction of the financing costs. Since the Company pays out a significant part of its funds from operations as dividends, future ex- ternal 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 difficult to predict over a longer period of time. Hamburg, March 18, 2016 46 alstria Annual Report 2015 Consolidated financial statements DETAIL INDEX CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS ......................................................... 48 CONSOLIDATED INCOME STATEMENT .......................................................................... 48 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................................ 49 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...................................................... 50 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................ 52 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...................................................... 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................................. 56 1. CORPORATE INFORMATION .............................................................................. 56 2. BASIS OF PREPARATION .................................................................................. 56 3. CHANGES IN ACCOUNTING POLICIES AND MANDATORY DISCLOSURES ........................... 57 4. BASIS OF CONSOLIDATION ............................................................................... 62 5. KEY JUDGMENTS AND ESTIMATES ...................................................................... 72 6. SEASONAL OR ECONOMIC EFFECTS ON BUSINESS .................................................... 75 7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ................................................. 75 8. SEGMENT REPORTING .................................................................................... 90 9. NOTES TO THE CONSOLIDATED INCOME STATEMENT ............................................... 91 10. 11. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –ASSETS ............. 100 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –EQUITY AND LIABILITIES ................................................................................................ 112 12. OTHER NOTES .......................................................................................... 120 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. RELATED PARTY RELATIONSHIPS ................................................................... 122 EARNINGS PER SHARE ................................................................................ 123 DIVIDENDS PAID ........................................................................................ 124 EMPLOYEES ............................................................................................. 124 SHARE-BASED REMUNERATION ...................................................................... 124 FINANCIAL RISK MANAGEMENT ...................................................................... 128 SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD .......................... 136 UTILISATION OF EXEMPTING PROVISIONS ......................................................... 137 DISCLOSURES PURSUANT TO THE WERTPAPIERHANDELSGESETZ .............................. 137 DECLARATION OF COMPLIANCE PURSUANT TO AKTG SECTION 161 ........................... 141 AUDITOR’S FEES ....................................................................................... 141 24. MANAGEMENT BOARD ................................................................................ 142 25. SUPERVISORY BOARD ................................................................................. 143 alstria Annual Report 2015 47 Consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT for the period from January 1 to December 31, 2015 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 Goodwill impairment Net result from fair value adjustments to investment 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 to financial derivatives Pretax income Income tax expenses Consolidated profit Attributable to: Shareholders of alstria office REIT-AG Noncontrolling interests 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 9.7 10.1 9.8 9.9 4.4 2015 115,337 -423 -12,774 102,140 -6,383 -12,068 4,043 -13,859 -144,795 -4,192 12,655 -62,459 -43,333 2014 101,782 -632 -11,130 90,020 -4,755 -7,807 6,141 -2,025 0 824 4,566 86,964 -35,329 1,988 12,798 9.9; 10.5 -6,763 9.10 14 14 -110,567 -812 -111,379 -110,970 -409 -1.15 -1.04 -27,461 36,972 -19 36,953 36,953 0 0.47 0.45 48 alstria Annual Report 2015 Consolidated financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period from January 1 to December 31, 2015 EUR k Consolidated profit for the period Items that might be classified on the income statement in a future period: Valuation 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 Noncontrolling interest Notes 10.5 10.5 2015 -111,379 -444 3,269 2,825 -108,554 2014 36,953 99 4,135 4,234 41,187 -108,145 -409 41,187 0 alstria Annual Report 2015 49 Consolidated financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION as of December 31, 2015 ASSETS EUR k Noncurrent assets Investment property Equity-accounted investments Property, plant, and equipment Intangible assets Derivatives Total noncurrent assets Current assets Trade receivables Accounts receivable from joint ventures Income tax receivables Other receivables Cash and cash equivalents thereof restricted Assets held for sale Total current assets Notes 2015 2014 10.1 10.2 10.3 10.4 10.5 10.6 10.6 10.5 10.6 10.7 10.8 3,260,467 1,645,840 23,900 34,534 5,161 607 8,462 5,085 344 6,643 3,298,597 1,692,446 12,578 3,498 0 226 9,783 460,253 32,036 69,143 88 0 10,127 63,145 0 0 551,983 76,858 Total assets 3,850,580 1,769,304 50 alstria Annual Report 2015 Consolidated financial statements EUR k Equity Share capital Capital surplus Hedging reserve Retained earnings Notes 11.1 EQUITY AND LIABILITIES 2015 2014 152,164 1,499,477 -270 -31,994 79,018 691,693 -3,095 78,977 Equity attributable to owners of the parent company 1,619,377 846,593 Noncontrolling interests Total equity Noncurrent liabilities Long-term loans and bonds, net of current portion Derivatives Other provisions Other liabilities Deferred tax liabilities Total noncurrent liabilities Current liabilities Short-term loans Trade payables Profit participation rights Derivatives Income tax liabilities Other provisions Other current liabilities Total current liabilities Total liabilities 38,287 0 1,657,664 846,593 1,715,590 23,208 3,221 1,854 132 874,025 13,488 3,628 2,036 0 1,744,005 893,177 376,402 20,477 362 0 8,687 1,794 41,189 448,911 7,702 4,389 424 6,198 0 461 10,360 29,534 2,192,916 922,711 11.2 10.5 11.3 11.4 9.10 11.2 11.4 9.5; 17.2 10.5 11.5 11.3 11.4 Total equity and liabilities 3,850,580 1,769,304 alstria Annual Report 2015 51 Consolidated financial statements CONSOLIDATED STATEMENT OF CASH FLOWS for the year ending December 31, 2015 EUR k Notes 2015 2014 1. Cash flows from operating activities Consolidated profit or loss for the period Interest income Interest expense Result from income taxes Unrealized valuation movements Impairment of goodwill Other noncash income (–)/expenses (+) Gain (–)/loss (+) on disposal of investment properties Depreciation and impairment of fixed assets (+) Increase (–)/decrease (+) in trade receivables and other assets not attributed to investing or financing activities Increase (+)/decrease (–) in trade payables and other liabilities 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 investment properties 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 Net cash due to business combination -111,379 36,953 9.9 9.9 9.10 9.8 10.3; 10.4 -128 43,461 812 8,952 144,795 2,329 -12,654 426 -113 35,442 19 13,937 0 -731 -4,566 179 2,642 844 1,916 81,172 128 -35,559 -110 45,631 -78,531 80,698 -1,980 -142 12,636 0 116,029 128,710 1,435 83,399 113 -30,604 -19 52,889 -75,264 65,467 -291 22 1,470 -2,205 0 -10,801 Net cash generated from/used in investing activities 12.3 52 alstria Annual Report 2015 Consolidated financial statements EUR k Notes 2015 2014 3. Cash flows from financing activities Cash received from cash equity contributions Payments of transaction costs for capital contributions in cash and in kind Proceeds from issuing of bonds and taking on loans Proceeds from the issuing of a corporate bond Payments of dividends Payments due to the redemption of bonds and borrowings Payments of transaction costs for taking out loans Payments for the termination/change of financial derivatives Net cash generated from/used in financing activities 11.1 11.1 11.2 15 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 32,036 k; previous year: EUR 0 k 102,725 -2,336 0 500,000 -43,470 -292,512 -5,899 -35,741 222,767 170 0 173,823 0 -39,467 -192,629 -740 -2,882 -61,725 397,108 -19,637 63,145 82,782 10.7 460,253 63,145 alstria Annual Report 2015 53 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period from January 1 to December 31, 2015 EUR k Notes Share capital Capital surplus Hedging reserve Retained earnings Equity at- tributable to the alstria shareholders Non- controlling interests Total equity As of Jan. 1, 2015 79,018 691,693 -3,095 78,977 846,593 0 846,593 Changes in the financial year 2015 Consolidated profit Other comprehen- sive income Total comprehen- sive income Noncontrolling interest from Deutsche Office takeover Payments of divi- dends Proceeds from shares issued against contribu- tion in cash Proceeds from shares issued against contribu- tion in kind 0 0 0 0 0 0 0 0 0 -43,470 4.2 15 11.1 7,903 94,822 11.1 65,067 757,616 Transaction costs of issuing shares 11.1 0 0 9.5 17.2 156 11.1 20 -2,336 752 156 243 Share-based remuneration (convertible partic- ipation rights) Conversion of convertible partic- ipation rights Conversion of convertible bond As of Dec. 31, 2015 0 -110,970 -110,970 -409 -111,379 2,825 0 2,825 0 2,825 2,825 -110,970 -108,145 -409 -108,554 0 0 0 0 0 0 0 0 0 0 0 38,696 38,696 -43,470 0 -43,470 0 102,725 0 102,725 0 0 0 0 0 822,683 -2,336 752 312 263 0 0 0 0 0 822,683 -2,336 752 312 263 11.1 152,164 1,499,477 -270 -31,994 1,619,377 38,287 1,657,664 54 alstria Annual Report 2015 Consolidated financial statements for the period from January 1 to December 31, 2014 EUR k Notes As of Jan. 1, 2014 Share capital 78,933 Capital surplus Hedging reserve Retained earnings Total equity 730,486 -7,329 42,024 844,114 Changes in the financial year 2014 Consolidated profit Other comprehensive income Total comprehensive income Payments of dividends Share-based remuneration Conversion of convertible participation rights 0 0 0 0 0 15 9.5 17.2 85 0 0 0 -39,467 589 85 0 36,953 36,953 4,234 0 4,234 4,234 36,953 0 0 0 0 0 0 41,187 -39,467 589 170 As of Dec. 31, 2014 11.1 79,018 691,693 -3,095 78,977 846,593 alstria Annual Report 2015 55 Consolidated financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION alstria office REIT-AG is a listed real estate property corporation under the scope of the G-REIT Act. Pursuant to Section 2 of its Articles of Association, the Company’s objective is the acquisition, man- agement, operation, and sale of owned real estate property, as well as the holding of participations in enterprises that acquire, manage, operate, and sell owned property. All of the aforementioned objectives are subject to the conditions and rules of the G-REIT Act legislation. alstria office REIT-AG was established in January 2006 and transformed into the first German real es- tate investment trust (G-REIT) in the financial year 2007. The registration as a REIT corporation (here- inafter also referred to as a “REIT-AG”) in the commercial register took place on October 11, 2007. On June 16, 2015, alstria office REIT-AG published its decision to the shareholders of DO Deutsche Office AG (hereinafter referred to as “Deutsche Office AG”) for the acquisition of all no-par-value bearer shares of Deutsche Office AG by way of a voluntary public takeover bid. The offer was accept- ed by a majority of the shareholders, and the conditions for the completion of the offer were fulfilled. The ordinary capital increase of alstria was entered in the Commercial Register at the Local-Regional Court of Hamburg on October 27, 2015. With the registration of the new alstria shares in the commer- cial register, the Company gained control over the Deutsche Office AG, resulting in the first-time con- solidation of Deutsche Office AG on October 27, 2015. alstria office REIT-AG’s registered office and address is Bäckerbreitergang 75, 20355 Hamburg, Germany. Registration was made in the commercial register at the local court of Hamburg under HRB No. 99204. The Company’s Management Board prepared the consolidated financial statements of alstria office REIT-AG (hereinafter also referred to as the “Company” or “alstria office REIT-AG”) as of December 31, 2015. The Board passed resolution on their publication and submission to the Supervisory Board on March 18, 2016. The financial year ends on December 31 of each calendar year. 2. BASIS OF PREPARATION The consolidated financial statements of alstria office REIT-AG and its subsidiaries (together “alstria” or “the Group”) have been prepared in accordance with the International Financial Report- ing Standards (IFRSs) of the International Accounting Standards Board (IASB), including the interpre- tations of the IFRS interpretations committee (IFRIC), as adopted in the European Union and accord- ing to the additional requirements in accordance with Sec. 315a, Para. 1 of the German Commercial Code (HGB). Apart from investment property (land and buildings) and certain financial instruments that are measured at fair values at the end of each reporting period and as explained in the accounting poli- 56 alstria Annual Report 2015 Consolidated financial statements cies below, the consolidated financial statements have been prepared based on historical cost. The preparation of financial statements in conformity with the IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgement or com- plexity, or items wherein assumptions and estimates have a significant 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. In some cases, this may result in minor dis- crepancies in the tables included in these Consolidated Financial Statements and in the totals pro- vided in the Notes. The consolidated financial statements presented in this report were prepared for the period from January 1 to December 31, 2015. Single items are summarized in the consolidated statement of financial position and the income statement. They are commented on in the notes to the financial statements. Assets and liabilities are classified as noncurrent and current, respectively. Current items are de- fined as items that are due in less than one year, and vice versa. Due to the merger with Deutsche Office AG, implemented on October 27, 2015, Group data for 2015 are only comparable to a limited extent with figures posted for 2014. 3. CHANGES IN ACCOUNTING POLICIES AND MANDATORY DISCLOSURES Effects resulting from new and amended IFRSs alstria office REIT-AG prepares its consolidated financial statements in accordance with IFRSs endorsed for use in the European Union (EU) and the additional requirements of Section 315a, para. 1 of the German Commercial Code (HGB). The following paragraphs describe the IFRSs 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 interpretations that have been issued by the IASB as of the reporting date are described but have not been applied early, as their application is either not mandatory or endorsement by the European Commission is still pending. The following new standards and amendments to standards have been adopted by the Company for the first time for the financial year beginning on January 1, 2015: EU endorsement until Dec. 31, 2015 Standard/ interpretation Content Applicable for FY beginning on/after Effects June 13, 2014 IFRIC 21 New interpretation of levies June 17, 2014 Interim re- porting Dec. 18, 2014 Annual Improve- ments to IFRSs Improvements to IFRSs 2011–2013 Jan. 1, 2015 None alstria Annual Report 2015 57 Consolidated financial statements Effects resulting from new and amended IFRSs and interpretations to be applied for the first time in the reporting period  IFRIC 21 “Levies” The interpretation provides guidance on when to recognize a liability for a levy imposed by a government on the basis of legal regulations. The obligating event for recognition of a liability is identified as the activity that triggers payment by the relevant legislation. Only when the obligating event arises are fees recognized in the balance sheet. The obligating event may also arise over a period of time, leading to a pro rata recognition of the liability. IFRIC 21 has been applied retrospectively. The adoption of this interpretation had no material impact on the annual consolidated financial statements. For the interim reporting, however, there was an impact on effects arising during the year with respect to the presentation of the property tax burden, which was recognized in full in the first quarter and was not distributed evenly throughout the year.  Annual improvement process for IFRSs 2011–2013 The IASB issued “Annual Improvements 2011–2013,” a collection of amendments to IFRSs, in response to issues addressed during the 2011–2013 cycle. Four standards (IFRS 1, IFRS 3, IFRS 13, and IAS 40) are affected by the amendments. The improvements concern clarifications and are of only minor, if any, relevance for the Group. New and amended IFRSs and interpretations to existing standards which are not yet effective and have not been adopted early by the Group In its 2015 consolidated financial statements, alstria office REIT-AG did not apply the following ac- counting standards or interpretations, which have already been adopted by the IASB but were not required to be applied for the financial year 2015. EU endorsement not yet endorsed Standard/ interpretation IFRS 9 standard shall not be endorsed IFRS 14 not yet endorsed not yet endorsed IFRS 15 IFRS 16 Content New standard “Financial instruments: classification and measurement” New standard “Regulatory deferral accounts” New standard “Revenue from contracts with customers” New standard “Leases” Nov. 24, 2015 Amendments to IFRS 11 Accounting for acquisitions of interests in joint operations not yet endorsed not yet endorsed 58 Amendments to IFRS 7 and IFRS 9 Mandatory effective date and transition disclosure Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its alstria Annual Report 2015 Applicable for FY beginning on/after Effects Under review Jan. 1, 2018 (Jan. 1, 2016) None Jan. 1, 2018 Jan. 1, 2019 Notes disclo- sure No material effects Jan. 1, 2016 None Jan. 1, 2018 None postponed Under review EU endorsement Standard/ interpretation Consolidated financial statements Content associate or joint venture Investment entities: applying the consolidation exception Disclosure initiative Disclosure initiative Applicable for FY beginning on/after Effects Jan. 1, 2016 None Jan. 1, 2016 Jan. 1, 2017 Notes disclo- sure Notes disclo- sure Recognition of deferred tax assets for unrealized losses Jan. 1, 2017 Under review Amendments to IFRS 10, IFRS 12, and IAS 28 Amendments to IAS 1 Amendments to IAS 7 Amendments to IAS 12 Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation Jan. 1, 2016 None Amendments to IAS 16 and IAS 41 Amendments to IAS 19 Amendments to IAS 27 Annual improve- ments to IFRSs Annual improve- ments to IFRSs Agriculture: bearer plants Jan. 1, 2016 None Defined benefit plans: employee contributions (Amendments to IAS 19 “Employee Benefits”) Equity method in separate financial statements Feb. 1, 2015 None Jan. 1, 2016 None Improvements to IFRSs 2010–2012 Feb. 1, 2015 None Improvements to IFRSs 2012–2014 Jan. 1, 2016 Under review not yet endorsed Dec.18, 2015 not yet endorsed not yet endorsed Dec. 2, 2015 Nov. 23, 2015 Dec. 17, 2014 Dec. 18, 2015 Dec. 17, 2014 Dec. 15, 2015  IFRS 9 “Financial instruments” This is a 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 financial assets. Application of the standard is mandatory from January 1, 2018, onward. 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.  IFRS 15 “Revenues from contracts with customers” IFRS 15 is a new standard and was issued on May 28, 2014. It applies to an annual reporting period beginning on or after January 1, 2018. IFRS 15 specifies how and when an entity reporting in accordance with IFRSs shall recognize revenue as well as requires such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based, five-step model to be applied to all contracts with customers. Apart from the additional disclosures, no impact on the net assets, financial statements, and earnings position of the Group is expected. alstria Annual Report 2015 59 Consolidated financial statements  IFRS 16 “Leases” On January 13, 2016, the IASB issued IFRS 16, the new accounting standard for leases. The new requirements in this standard apply in particular to the recognition of leases by lessees, introducing significant changes to lease accounting. As a matter of principle, the so-called “right-of-use approach” (RoU approach) will now have to be applied to the recognition of all leasing agreements. Under IAS 17 “Leases,” it is currently still possible to structure agreements in such a way that leases will not be reported on a company’s balance sheet (off-balance-sheet leases). This will no longer be possible in the future when the RoU approach is applied. For operating leases, lessees currently only recognize the expense from lease payments on the income statement, while the assets used are not accounted for. For lessors, IFRS 16 carries forward the lessor accounting requirements in IAS 17, so that a lessor continues to classify its leases as operating leases or finance leases. IFRS 16 will be effective starting January 1, 2019. The application of this IFRS will not have any material effects on the Company’s Consolidated Financial Statements because the Company primarily has commercial property lease agreements for its investment property portfolio and, hence, mainly acts as a lessor. The scope of transactions in which the Company is engaged as a lessee is not material.  Amendments to IFRS 11 “Joint arrangements” The amendments to IFRS 11 relate to the accounting for acquisitions of interests in joint operations. It clarifies the accounting treatment in the event that these shares constitute a business. The amendments were published on May 6, 2014. They are effective for annual periods beginning on or after January 1, 2016. The Group does not expect an impact on its reporting resulting from the amendments.  Effective date of IFRS 7 amendments on application of IFRS 9 On December 16, 2011, the IASB issued “Mandatory effective date and transition disclosures” (Amendments to IFRS 9 and IFRS 7), which amend the effective date of IFRS 9 “Financial Instruments” to annual periods beginning on or after January 1, 2018, and modify the relief from restating comparative 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 January 1, 2018 (or such other date as when an entity applies IFRS 9).  Amendments to IAS 28 and IAS 10 “Sale or Contribution of Assets between an Inves- tor and its Associate or Joint Venture” These amendments were proposed due to the conflict between the requirements of IAS 28 “Investments in Associates and Joint Ventures” and IFRS 10 “Consolidated Financial Statements.” The main consequence of the amendments is that a full gain or loss is 60 alstria Annual Report 2015 Consolidated financial statements recognized when a transaction involves a business, whether it is housed in a subsidiary or not. A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The effective date has been postponed indefinitely.  Amendments to IFRS 10, IFRS 12, and IAS 28 “Investment entities: applying the con- solidation exception” These amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. They are effective for annual periods beginning on or after January 1, 2016. Since alstria office REIT-AG does not constitute as investment entity and the group does not include investment entities, the amendments will not have an effect on the Group’s financial statements.  Amendments to IAS 1 “Disclosure initiative” These amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports. They are effective for annual periods beginning on or after January 1, 2016, with earlier application being permitted. Minor changes in the presentation of financial statements are expected.  Amendments to IAS 7 “Statement of cash flows—disclosure initiative” These amendments are clarifications with regard to the finance activities of a company. Users of financial statements shall be put in the condition to better assess financial debt.  Amendments to IAS 12 “Statement of cash flows—disclosure initiative” The amendment to IAS 12 provides the guidance that unrealized losses on the fair value of debt instruments lead to deductible, temporary differences. It also clarifies that it has to be assessed for all deductible, temporary differences together if it is probable that sufficient taxable income will be generated to use these and, thus, to recognize them. IAS 12 is supplemented by rules and examples that clarify how the future taxable income shall be determined for the accounting of deferred tax assets.  Amendments to IAS 16 and IAS 38 “Clarification of acceptable methods of deprecia- tion and amortization” These amendments were issued on May 12, 2014, and relate to the clarification of acceptable methods of depreciation and amortization. The revenue-based depreciation method is not an acceptable depreciation method under IAS 16. Impacts on the Group’s financial position and results of operations are not expected. alstria Annual Report 2015 61 Consolidated financial statements  Amendments to IAS 16 and IAS 41 “Agriculture: bearer plants” These amendments were issued on June 30, 2014, and add bearer plants, which are used solely to grow produce, to the scope of IAS 16. There will be no consequent impact on the Group’s financial accounting.  Amendments to IAS 19 “Employee benefits” On November 21, 2013, the IASB published further amendments to IAS 19. The amendments clarify the requirements related to how contributions from employees 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 independent of the number of years of service. The amendments are effective for annual periods beginning on or after February 1, 2015, with earlier application being permitted. The amendments are not affecting the presentation of the Group’s financial reporting.  Amendments to IAS 27 “Equity method in separate financial statements” These amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures, and associates in an entity’s separate financial statements. The amendments are effective for annual periods beginning on or after January 1, 2016, with earlier application being permitted.  Annual improvement process for IFRSs 2010–2012 The International IASB issued “Annual Improvements 2010–2012,” a collection of amendments to IFRSs, in response to issues addressed during the 2010–2012 cycle. Eight standards (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24, and IAS 38) were affected by the amendments. The improvements apply to annual periods beginning on or after February 1, 2015, and will be of only minor, if any, relevance to the Group.  Annual improvement process for IFRSs 2012–2014 The IASB issued “Annual Improvements 2012–2014,” a collection of amendIments to IFRSs, in response to issues addressed during the 2012–2014 cycle. Four standards (IFRS 5, IFRS 7, IAS 19, and IAS 34) were affected by the amendments. The improvements apply to annual periods beginning on or after July 1, 2016, and will be of only minor, if any, relevance to the Group. The Group did not adopt any new or amended standard or interpretation early in 2015. 4. BASIS OF CONSOLIDATION 4.1 Subsidiaries The consolidated financial statements incorporate the financial statements of alstria office REIT- AG and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: 62 alstria Annual Report 2015 Consolidated financial statements  has power over the investee;  is exposed, or has rights, to variable returns from its involvement with the investee; and  has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:  the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;  potential voting rights held by the Company, other vote holders, or other parties;   rights arising from other contractual arrangements; and any additional facts and circumstances that indicate the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholder meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and the noncontrolling interests. The total comprehensive income of subsidiaries is attributed to the owners of the Company and to the noncontrolling interests, even if this results in the noncontrolling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to align their accounting policies with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. a) Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the alstria Annual Report 2015 63 Consolidated financial statements Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any noncontrolling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e., reclassified to profit or loss or transferred to another category of equity, as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary on the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under lAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. b) Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:  deferred tax assets or liabilities, as well as assets or liabilities related to employee benefit arrangements, are recognized and measured in accordance with lAS 12 “Income taxes” and lAS 19, respectively;   liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share- based payment arrangements of the acquiree are measured in accordance with IFRS 2 at the acquisition date (see note 3.16.2); and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 “Noncurrent assets held for sale and discontinued operations” are measured in accordance 64 alstria Annual Report 2015 Consolidated financial statements with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree fit and the excess is recognized immediately in profit or loss as a bargain purchase gain. Noncontrolling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the noncontrolling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made on a transaction-by-transaction basis. Other types of noncontrolling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in the business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. A contingent consideration that is classified as equity is not remeasured at subsequent reporting dates, and its subsequent settlement is accounted for within equity. A contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with lAS 39, or lAS 37 “Provisions, contingent liabilities, and contingent assets,” as appropriate, with the corresponding gain or loss being recognized in profit or loss. When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition-date fair value, and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive incomes are reclassified as profit or loss where such treatment would be appropriate if that interest were disposed of. alstria Annual Report 2015 65 Consolidated financial statements If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date and that, if known, would have affected the amounts recognized at that date. Significant companies wherein alstria office REIT-AG is directly or indirectly able to significantly influence financial and operating decisions (associates), or directly or indirectly share control (joint ventures), are accounted for using the equity method. 4.2 Business combinations In the consolidated financial statements of the Company as of December 31, 2015, the Deutsche Office AG, with its subsidiaries, was fully consolidated according to IFRS 3 for the first time. Deutsche Office AG is engaged in the acquisition and management of real estate and investment companies. The principal focus of these business operations is Germany. The Deutsche Office AG- Group (in the following referred to as “Deutsche Office”) owns real estate all over Germany. The portfolio consists primarily of office and retail premises, including two hotels and three retirement residences. On the date of the first-time consolidation, as of October 27, 2015, the fair value of the real estate portfolio of Deutsche Office amounted to EUR 1.645 m. Besides the anticipated efficiency gains and an improved financing structure, the main reason for the acquisition was to expand alstria’s market leadership in the field of office real estate, based on a combined entity portfolio of a value of approximately EUR 3.5 bn. On June 16, 2015, alstria office REIT-AG published its decision to the shareholders of DO Deutsche Office AG (hereinafter referred to as “Deutsche Office AG”) for the acquisition of all no-par-value bearer shares of Deutsche Office AG by way of a voluntary public takeover bid. alstria offered to the shareholders of Deutsche Office AG 0.381 alstria shares in exchange for one share of Deutsche Office AG. The tender offer was subject to a minimum acceptance rate of 69.6%, which was exceeded. The acceptance period was August 21, 2015, to October 2, 2015, 24:00; the extended acceptance period was October 8, 2015, to October 21, 2015, 24:00. The acceptance rate was at 90.6%. With the regis- tration of the new alstria shares in the commercial register, the company gained control over Deutsche Office AG. After making use of the exercise of an option, an additional 4.0% of the Deutsche Office AG shares were acquired as of November 3, 2015. As a result, alstria office REIT-AG holds 94.6% of the shares of Deutsche Office AG as of December 31, 2015. The minority shareholders hold, accordingly, a total of 5.4% of Deutsche Office AG. Total acquisition costs for Deutsche Office AG (fair value of the total consideration transferred) amounted to EUR 822,683 k. The acquisition cost (i.e., the consideration accorded in return for the assets and liabilities transferred from Deutsche Office) was determined by the value of the compa- 66 alstria Annual Report 2015 Consolidated financial statements ny’s shares issued (new alstria shares). The takeover was implemented through the issue of 65,067,569 new shares in the Company: 62,317,526 new shares were issued for the acquisition of 90.6% at an alstria share price of EUR 12.66 (XETRA closing price on the acquisition date, October 27, 2015), resulting in a purchase price for the 90.6% share of Deutsche Office AG of EUR 788,940 k. The acquisition of the additional 4% stake in Deutsche Office AG became effective (registration of 2,750,043 new alstria shares in the commercial register) on November 3, 2015, at an XETRA closing price of EUR 12.27 per share, resulting in a purchase price of EUR 33,743 k. The takeover has been regarded as one transaction. Acquisition date for all acquired shares was thus October 27, 2015. The Deutsche Office was consolidated starting October 27, 2015. The cost for the acquired assets and liabilities at their estimated fair market values were assigned as follows: EUR k Asset Investment property Derivative financial instruments, noncurrent Other noncurrent assets Assets held for sale Derivative financial instruments, current Other current assets Cash and cash equivalents Assets acquired Liabilities Derivative financial instruments, noncurrent Other noncurrent liabilities Derivative financial instruments, current Other noncurrent liabilities Liabilities acquired Net assets at 100% Fair value at acquisition date 1,645,210 60 624 27,620 31 12,386 116,029 1,801,960 25,555 899,512 8,074 152,236 1,085,377 716,583 The goodwill resulting from the acquisition was calculated as follows: EUR k Acquisition costs Noncontrolling interests Net assets at 100% Goodwill Fair value at acquisition date 822,683 38,695 -716,583 144,795 For carrying out the takeover total legally, consulting and other costs amounting to EUR 10,762 k were incurred. A part of these costs (EUR 997 k) was attributable to the capital in- crease to generate the new shares required for the exchange offer. These costs have been exclud- ed from the consideration transferred and directly deducted from the capital reserve. The remain- alstria Annual Report 2015 67 Consolidated financial statements ing part relates to the costs incurred for the transaction as acquisition-related costs in the amount of EUR 9,765 k. These were also excluded from the transferred consideration, recognized as an expense of the business year and included in other operating expenses in the income statement. Contingent consideration and indemnification assets were not agreed upon. The gross amount of receivables acquired within the transaction, mainly consisting of trade receivables, amounted to EUR 10,755 k. Adjustments were made for doubtful receivables totaling EUR 634 k, so the fair val- ue of the receivables acquired amounted to EUR 10,121 k. Assessing the noncontrolling interests’ use was made through the option under IFRS 3.19 to meas- ure the shares of noncontrolling interests with their corresponding percentages of net assets, ex- cluding the goodwill of EUR 144,795 k. As part of the purchase price allocation (PPA), no hidden reserves or hidden liabilities were identi- fied. Thus, the difference between the purchase price of EUR 822,683 k and the net book value of the 94.6% share in Deutsche Office AG at the time of the business combination of EUR 677,888 k related in full to the goodwill of EUR 144,795 k. The goodwill was mainly based on an increase in the share price of alstria office REIT-AG and the simultaneous drop in net book value of Deutsche Office, induced by devaluation of investment property, during the takeover period. In economic terms, the goodwill mainly resulted from a better financial position. From the acquisition, a net cash inflow of EUR 116,029 k was generated, though there was no pay- ment in the form of cash since the consideration was made in new shares. If Deutsche Office AG and its subsidiaries would have been fully consolidated from January 1 to December 31, 2015, the consolidated revenue, consisting of rental income, would have been EUR 106,668 k, and the net loss would have amounted to EUR 78,975 k. Attributable to the actual consolidation period are revenues of EUR 18,142 k and a net loss of EUR 19,302 k. For goodwill resulting from the acquisition, no tax deductibility is expected. No business combinations took place in financial year 2014. 4.3 Fully consolidated subsidiaries The Group of consolidated companies comprised, including alstria office REIT-AG, 93 companies in the financial year (2014: 20). As of the balance sheet date, 67 companies (prior year balance sheet date: 20 companies) existed. In addition, two joint ventures have been accounted for using the equity method. In addition to this, in the consolidated financial statements of alstria office REIT-AG, the following companies are included: No. Company 1 alstria office REIT-AG Head- quarters Equity interest in % Held by No. Hamburg Parent company Business activity Asset-management; holding 68 alstria Annual Report 2015 Consolidated financial statements Equity interest in % Held by No. No. Company 2 3 4 5 6 7 8 9 alstria Bamlerstraße GP GmbH alstria Gänsemarkt Drehbahn GP GmbH alstria Englische Planke GP GmbH alstria Halberstädter Straße GP GmbH alstria Hamburger Straße 43 GP GmbH alstria Ludwig-Erhard-Straße GP GmbH alstria Mannheim/Wiesbaden GP GmbH alstria Portfolio 1 GP GmbH 10 alstria Steinstraße 5 GP GmbH 11 alstria solutions GmbH Head- quarters Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg alstria office Bamlerstraße GmbH & Co. KG alstria office Gänsemarkt Drehbahn GmbH & Co. KG alstria office Englische Planke GmbH & Co. KG alstria office Halberstädter Straße GmbH & Co. KG alstria office Hamburger Straße 43 GmbH & Co. KG alstria office Insterburger Straße GmbH & Co. KG alstria office Ludwig-Erhard-Straße GmbH & Co. KG alstria office Mannheim/Wiesbaden GmbH & Co. KG Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 Hamburg 100.0 12 13 14 15 16 17 18 19 20 alstria office Steinstraße 5 GmbH & Co. KG Hamburg 21 beehive GmbH & Co. KG 1) Hamburg 22 DO Deutsche Office AG 23 German Acorn PortfolioCo I GmbH 2) 2) Cologne Cologne 24 GA PortfolioCo I Verwaltungs GmbH 2);3) Cologne 25 GA Regionen PortfolioCo I GmbH 26 GA Objekt 2001 Beteiligungs GmbH 27 GA Objekt 2003 Beteiligungs GmbH 28 GA Objekt 2005 Beteiligungs GmbH 29 GA Objekt 2007 Beteiligungs GmbH 30 GA Objekt 2008 Beteiligungs GmbH 31 GA Objekt 2009 Beteiligungs GmbH 32 GA Objekt 2010 Beteiligungs GmbH 33 GA Objekt 2011 Beteiligungs GmbH 34 GA Objekt 2012 Beteiligungs GmbH 35 GA Fixtures and Facility Management PortfolioCo I GmbH 36 German Acorn PortfolioCo II GmbH 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne 37 GA 5. Objekt 1004 Verwaltungs GmbH 2);3) Cologne 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 Business activity General partner General partner General partner General partner General partner General partner General partner General partner General partner Service company Own property Own property Own property No activity Own property Own property Own property Own property Own property Service company Immobilien- management; Intermediate holding Intermediate holding No activity Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Intermediate holding No activity 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 22 23 23 23 23 23 23 23 23 23 23 23 23 22 36 alstria Annual Report 2015 69 Consolidated financial statements No. Company Head- quarters Equity interest in % Held by No. Business activity 38 GA 6. Objekt 1007 Verwaltungs GmbH 2);3) Cologne 39 GA 7. Objekt 1008 Verwaltungs GmbH 2);3) Cologne 40 GA 8. Objekt 1011 Verwaltungs GmbH 2);3) Cologne 41 GA 10. Objekt 1014 Verwaltungs GmbH 2);3) Cologne 42 GA 11. Objekt 1015 Verwaltungs GmbH 2);3) Cologne 43 GA 12. Objekt 1016 Verwaltungs GmbH 2);3) Cologne 44 GA 13. Objekt 1019 Verwaltungs GmbH 2);3) Cologne 45 GA 14. Objekt 1020 Verwaltungs GmbH 2);3) Cologne 46 GA 15. Objekt 1021 Verwaltungs GmbH 2);3) Cologne 47 GA 17. Objekt 1024 Verwaltungs GmbH 2);3) Cologne 48 GA 18. Objekt 1027 Verwaltungs GmbH 2);3) Cologne 49 GA 19. Objekt 1028 Verwaltungs GmbH 2);3) Cologne 50 GA 20. Objekt 1030 Verwaltungs GmbH 2);3) Cologne 51 GA 21. Objekt 1034 Verwaltungs GmbH 2);3) Cologne 52 GA 23. Objekt 1036 Verwaltungs GmbH 2);3) Cologne 53 GA 24. Objekt 1037 Verwaltungs GmbH 2);3) Cologne 54 GA 25. Objekt 1038 Verwaltungs GmbH 2);3) Cologne 55 GA 26. Objekt 1039 Verwaltungs GmbH 2);3) Cologne 56 GA 27. Objekt 1040 Verwaltungs GmbH 2);3) Cologne 57 GA 28. Objekt 1042 Verwaltungs GmbH 2);3) Cologne 58 GA 29. Objekt 1043 Verwaltungs GmbH 2);3) Cologne 59 GA 32. Objekt 1046 Verwaltungs GmbH 2);3) Cologne 60 GA 34. Objekt 1048 Verwaltungs GmbH 2);3) Cologne 61 GA 35. Objekt 1049 Verwaltungs GmbH 2);3) Cologne 62 GA 5. Objekt 1004 Beteiligungs GmbH 63 GA 6. Objekt 1007 Beteiligungs GmbH 64 GA 7. Objekt 1008 Beteiligungs GmbH 65 GA 8. Objekt 1011 Beteiligungs GmbH 66 GA 10. Objekt 1014 Beteiligungs GmbH 67 GA 11. Objekt 1015 Beteiligungs GmbH 68 GA 12. Objekt 1016 Beteiligungs GmbH 69 GA 13. Objekt 1019 Beteiligungs GmbH 70 GA 14. Objekt 1020 Beteiligungs GmbH 71 GA 15. Objekt 1021 Beteiligungs GmbH 72 GA 17. Objekt 1024 Beteiligungs GmbH 73 GA 18. Objekt 1027 Beteiligungs GmbH 74 GA 19. Objekt 1028 Beteiligungs GmbH 75 GA 20. Objekt 1030 Beteiligungs GmbH 76 GA 21. Objekt 1034 Beteiligungs GmbH 77 GA 23. Objekt 1036 Beteiligungs GmbH 78 GA 24. Objekt 1037 Beteiligungs GmbH 79 GA 25. Objekt 1038 Beteiligungs GmbH 80 GA 26. Objekt 1039 Beteiligungs GmbH 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity No activity Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property 70 alstria Annual Report 2015 Consolidated financial statements No. Company 81 GA 27. Objekt 1040 Beteiligungs GmbH 82 GA 28. Objekt 1042 Beteiligungs GmbH 83 GA 29. Objekt 1043 Beteiligungs GmbH 84 GA 32. Objekt 1046 Beteiligungs GmbH 85 GA 34. Objekt 1048 Beteiligungs GmbH 86 GA 35. Objekt 1049 Beteiligungs GmbH 87 GA Region Nord GmbH 88 GA Region Süd GmbH 89 GA Region Mitte GmbH 90 GA Fixtures and Facility Management PortfolioCo II GmbH 91 DO PortfolioCo III GmbH 92 DO Objekt 3001 Stuttgart GmbH 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) 2) Head- quarters Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne 93 DO Fixtures and Facility Management PortfolioCo III GmbH 2) Cologne Equity interest in % Held by No. Business activity 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 94.6 36 36 36 36 36 36 36 36 36 36 22 91 91 Own property Own property Own property Own property Own property Own property Own property Own property Own property Own property Intermediate holding Own property Own property 1) Established in December 2015. 2) As result of the Deutsche Office takeover on October 27, 2015, for the first time included in the consolidated financial statements. 3) Terminated as a result of a step-up merger in December 2015. Alongside alstria office REIT-AG, the consolidation embraced companies in which the Company directly or indirectly held the majority of voting rights. The consolidated group at balance sheet date consisted of the Company, 21 domestic subsidiaries, and 45 domestic second-tier subsidiaries. One subsidiary is a new entity that was established in the second half of 2015. By way of business combination effective October 27, 2015, Deutsche Office AG and 71 companies held indirectly via Deutsche Office AG were consolidated in the consolidated financial statements for the first time. In the further course of the financial year, 26 second-tier subsidiaries in the legal form of a stock corporation were merged to their respective parent companies. As a result of these mergers, 67 companies were included in the scope of consolidation as of December 31, 2015. The reporting date for the Consolidated Financial Statements is the same as the reporting date for the Company and the consolidated subsidiaries. There have been no further changes to the consolidated Group in financial year 2015 in comparison to the consolidated financial statements as of December 31, 2014. All Group companies are property management companies, holding companies, or general partner companies. 4.4 Interests in joint ventures The Group holds interests in two joint ventures that had a carrying amount of EUR 23,900 k at the end of the reporting period. alstria Annual Report 2015 71 Consolidated financial statements Details of the Group’s joint ventures at the end of the reporting period are as follows: Proportion of ownership, interest and voting rights held by the Group Place of incorporation and business Dec. 31, 2015 (%) Dec. 31, 2014 (%) Name of joint venture Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG Principal activity Hold and manage of real property Alte Post General Partner GmbH i.L. n/a Oststeinbek, Germany Hamburg, Germany 49.0 49.0 49.0 n/a Terminated December 30, 2015: Alstria VII. Hamburgische Grundbesitz GmbH & Co. KG Hold and manage of real property Oststeinbek, Germany n/a 49.0 The abovementioned joint ventures were accounted for by applying the equity method in these consolidated financial statements. The following table provides the aggregated information of joint ventures that are not individually material: EUR k The Group’s share of profit (loss) from continuing operations The Group’s share of other comprehensive income The Group’s share of total comprehensive income 2015 1,988 0 1,988 2014 12,798 0 12,798 EUR k Aggregate carrying amount of the Group’s interests in these joint ventures Dec. 31, 2015 Dec. 31, 2014 23,900 34,534 There were neither unrecognized shares of losses of a joint venture nor any significant restrictions as to the ability of joint ventures to transfer cash funds to the Group. 5. KEY JUDGMENTS AND ESTIMATES To a certain degree, estimates, assessments, and assumptions have to be made in the course of preparing the Group’s consolidated financial statements. These can affect the reported amounts and recognition of assets and liabilities, contingent assets and liabilities on the balance sheet date, and the amounts of income and expenses reported for the period overall. The major items affected by such estimates, assessments, and assumptions are described hereafter. Actual amounts may differ from the estimates. Changes in the estimates, assessments, and assumptions can have a material impact on the consolidated financial statements. 5.1 Judgements Management has made the following discretionary decision in line with the Group’s accounting policies. Apart from decisions involving estimations, it has the most significant effect on the amounts recognized in the financial statements: 72 alstria Annual Report 2015 Consolidated financial statements Operating lease commitments—Group as lessor The Group has entered into commercial property leases in its investment property portfolio. Based on an evaluation of the terms and conditions of the arrangements, the Group has determined that all significant 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. 5.2 Estimates and assumptions Together with other key sources of estimation uncertainty, the key assumptions concerning 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 carrying 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, including the embedded deriva- tive,  determine the purchase price allocation in the course of the business combination with Deutsche Office (see Note 4.2).  determine the goodwill accounting and impairment test,  determine the fair value of virtual shares granted to management,  determine the fair value of other provisions,  determine the fair value of convertible profit participation certificates, and  determine the deferred tax assets. Fair value of investment property Especially when determining the fair value of an investment property, alstria office REIT-AG must apply and take into account numerous estimated factors. The fair value measurement was performed by accredited, external, and independent experts (CBRE GmbH, Frankfurt am Main, Germany, and 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 effects of the most significant input parameters on the valuation of the Group’s investment properties are shown in Note 10.1. Fair value of derivative financial instruments Independent external experts performed the fair value measurements of the derivative financial instruments. The market data compiled thereof were included in the standard valuation models. alstria Annual Report 2015 73 Consolidated financial statements Thus, a normal level of estimation uncertainty exists with respect to possible deviations from the market data applied. We consider the models used to be adequate and believe there is no reason to question their applicability. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash- generating units (CGUs) to which goodwill has been allocated. The value in use calculation requires directors to estimate the future cash flows expected to arise from the CGUs and a suitable discount rate in order to calculate present value. When the actual future cash flows are less than expected, a material impairment loss may arise. The carrying amount of goodwill as of December 31, 2015, proved to be unrecoverable, as the value in use was below the carrying amount of the CGUs excluding goodwill. Details of the impairment loss calculation are set out in Note 10.4. Fair value of virtual shares 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 proportional expense incurred in the period comprises the addition to, and the reversal of, the provision between two reporting dates and the dividend paid during the respective period. 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 allocated 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 2,616 k (December 31, 2014: EUR 749 k) and a provision of EUR 3,470 k, as reported in the consolidated financial statements as of December 31, 2015 (December 31, 2014: EUR 1,490 k). Other provisions Furthermore, provisions included those for rental guarantees of EUR 1,244 k (December 31, 2014: EUR 2,325 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 situation of the respective tenants and the likelihood of them exercising the break option. Fair value of convertible profit participation certificates The Group’s employees were granted convertible profit participation certificates, the fair value of which was estimated at the respective granting dates by applying a binary barrier option model based on the Black-Scholes model; assumptions included an automatic conversion once the barrier was reached. The model took the terms and conditions upon which the instruments were granted into account. This valuation required the Company to make estimates concerning these parameters, which are hence subject to uncertainty. 74 alstria Annual Report 2015 Consolidated financial statements At the end of the reporting period, the above-stated assets, liabilities, and equity instruments, which are particularly exposed to estimation uncertainties, had the following impact on the consoli- dated statement of financial position: EUR k Investment property and properties held for sale excluding prepayments made Dec. 31, 2015 Dec. 31, 2014 3,289,705 1,645,840 Goodwill Positive fair values of derivatives Negative fair values of derivatives Other provisions Valuation of convertible profit participation rights and virtual shares 0 8,462 23,208 5,014 -3,428 n/a 6,643 19,686 4,089 -1,410 6. SEASONAL OR ECONOMIC EFFECTS ON BUSINESS The business activities of alstria office REIT-AG (primarily, the generation of revenues from invest- ment 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, demographic factors, and other factors inherent to the market. Changes in the interest rate might lead to a modified valuation of the investment property and derivatives. 7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting and valuation methods have been used to prepare the consolidated financial statements of alstria office REIT-AG. Fair-value measurement The Group measures financial instruments, such as derivatives, and non-financial assets, such as investment property, at their fair value at each reporting date. The fair value of an asset or liability is determined based on the assumptions market participants would use in pricing the asset or liability, regardless of whether that price is directly observable or estimated by applying another valuation technique. In estimating the fair value, it is assumed that the transaction during which the disposal of the asset or the transfer of the liability occurs takes place either   in the principal market for the asset or the liability or in the most advantageous market for the asset or the liability if there is no principal market. The Group must have access to the principal market or the most advantageous market. In estimating the fair value of an asset or a liability, the group takes the characteristics of the asset alstria Annual Report 2015 75 Consolidated financial statements or liability into account, whether market participants were also to take them into account when pricing the asset or liability on the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such basis. Hereby excluded are the following:   share-based payment transactions that are within the scope of IFRS 2 “Share-based payments,” leasing transactions that are within the scope of IAS 17 “Leases,” and  measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 “Inventories” or value in IAS 36 “Impairment of assets.” The fair value is not always available as a market price. It often has to be determined based on various valuation parameters. In addition, for financial-reporting purposes, fair-value measurements are categorized as Level 1, 2, or 3 based on the degree to which the inputs to the fair-value measurements are observable and the significance of the inputs to the fair-value measurement in its entirety, which are described as follows:    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observa- ble for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The level of disclosure is more extensive for Level 3 inputs. Investment property Investment properties are properties held to earn rental income and/or for capital appreciation (including property under construction for such purposes). It is neither used in production nor for administrative purposes. This includes properties that are in production and are intended to serve the aforementioned purposes. Investment properties are measured initially at cost at the time of purchase or construction, including transaction costs. In accordance with IAS 40.17, costs incurred subsequently for dismantling, replacement of parts, or maintenance of property are also included. Costs of debt, which can be directly allocated to the acquisition or production of investment property are capitalized 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-capitalization approach combined with market conditions at the end of the reporting period. In the context of the fair-value hierarchy as described above, only inputs of Levels 2 and 3 are ap- plicable for property. The majority is categorized as Level 3. Inputs used in the valuation approach 76 alstria Annual Report 2015 Consolidated financial statements adopted by the Group for all its properties include rental revenues, adjusted yield figures (e.g., property-based capitalization rates), and vacancy periods. These inputs can hardly be observed in markets, and they are considered to be significant inputs. Therefore, the fair-value measurement used by the Group for valuation of all investment properties is entirely categorized as Level 3. In- formation about the significant unobservable inputs used and their sensitivities on the fair values of the Group’s investment property is presented in Note 10.1. Gains and losses arising from changes in the fair value of investment properties are included in prof- it or loss in the period in which they arise. An investment property derecognized upon disposal or when the investment property is permanently withdrawn from use and future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal pro- ceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized. Investment properties are transferred to property, plant, and equipment when there is a change in use evidenced by the commencement of owner occupation. The properties’ deemed cost for subsequent accounting corresponds to the fair value at the date of reclassification. Valuation process for investment properties The fair-value hierarchy does not make any statements concerning the applied valuation tech- niques. The basis for deriving the fair values as defined by IFRS 13.61 should, if possible, be based on valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, thereby maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The analysis above showed that there was not a sufficient number 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. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There has been no fundamental change to the valuation method during the year. The valuation of investment property was carried out at fair value on December 31, 2015—as last year—by external real estate experts according to internationally accepted valuation methods, in accordance with IFRS. A part of the property was evaluated using the “Hardcore and top slice” method, whereas the remaining properties were evaluated based on a “discounted cash flow” method. The properties of the first category are the properties already held by the alstria Group prior to the acquisition of the Deutsche Office. They have been evaluated by Colliers International UK plc, Lon- don (hereinafter “Colliers”) according to the “Hardcore and top slice” method. The properties of alstria Annual Report 2015 77 Consolidated financial statements the second category are the objects held by the subgroup Deutsche Office. These were assessed by CBRE GmbH, Frankfurt using the “discounted cash flow” (DCF) method on the balance sheet date. Description of the “Hardcore and top slice” method According to the hardcore and top slice method, rental income is horizontally segmented. The hardcore portion represents the prevailing contractual rent. The top slice represents the difference between market rent and contractual rent. This method fulfills 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 is also appropriate and suitable for determining market values in accordance with the provisions of the International Valuation Standards (IVS, or the White Book). In order to derive the fair value the properties, evaluated by Colliers, were divided into two groups and valued accordingly. Group 1 contained properties with anchor lease terms of five years or few- er, 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 fewer: Hard-core and top-slice method, taking into account      the contractual rent for the remaining term of the lease, a vacancy period of between 6 and 18 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, capitalization rates reflecting the individual risk of the property and market activity (com- parable transactions),  non-allocable operating costs of an amount of 5% of market rents per annum,  the net selling price. Group 2 is for properties with anchor leases that are let to tenants with strong credit ratings on a long-term basis: Hardcore 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 contractual rent), capitalization rates reflecting the individual risk of the property and market activity (com- parable transactions),  non-allocable operating costs in the amount of 5% of market rents per annum,  the net selling price. 78 alstria Annual Report 2015 Consolidated financial statements Description of the DCF method The DCF method compares all cash inflows and outflows associated with the investment property over a detailed period (ten years) in order to derive the net cash flows emanating from the property for each year of the period under review. This involves considering a number of parameters, such as the following:    rent levels for initial tenants and follow-on leases, fitting and finishing costs and lease costs for initial tenants and follow-on leases, vacancy rates and costs,  non-recoverable ancillary costs and expected capital expenditures by the owner,  total returns on the capital employed in the investment, specific to each property and lease. At the end of the period under review, a sale of the property is simulated, and the property is measured using the income-capitalization method, based on an assumption of stable rental income and an appropriate return on investment. Contrary to the DCF method, the income-capitalization method is a static, single-period valuation technique that does not involve an explicit presentation of rent trends over time. The impact of changing rents over time and of other market and financial factors is implicitly reflected in the cap- italization rate. Net present value is calculated by discounting the cash flow in the period under review, including proceeds from the simulated sale to the valuation date, using an estimated discount rate derived from the capital markets. The market value of the property is then obtained by deducting incidental acquisition costs (proper- ty-transfer tax, notary fees, commission) from the net present value. This valuation method complies with the Practice Statements contained in the Valuation Standards (vs 3.2) published by the Royal Institution of Chartered Surveyors. The market values of alstria’s investment properties correspond to the fair value defined in IFRS 13. Gains or losses arising from changes in the fair values of investment property are disclosed in the income statement under the item “Net gain/loss from fair value adjustments on investment proper- ty” in the year in which they arise. Investment properties are derecognized when they have either been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is to be expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the income statement in the year of retirement or disposal. alstria Annual Report 2015 79 Consolidated financial statements Assets held for sale Non-current assets intended for disposal under an asset deal are reported separately as held for sale in the consolidated financial statements if the formally required resolution of the Board—and, when above a certain level of transaction volume, the Supervisory Board—for the sale of a property is met while the consolidated financial statements were being prepared. If the disposal is to take the form of a share deal, non-current assets and other assets and liabilities held for sale are reported separately on the consolidated balance sheet. Assets held for sale are measured at fair value on the date of reclassification and on each subse- quent reporting date. Gains or losses from measuring individual assets held for sale and disposal groups are reported under gain or loss on disposal of investment property until they have been sold. Leases In accordance with IAS 17, the lessee is considered to be the beneficial owner of leased assets when the lessee bears all the risks and rewards incidental to the assets (finance lease). If the lessee is deemed to be the beneficial owner, the leased asset is recognized at fair value or at the lower present value of the minimum 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 payments are separated into an interest portion and an amortizing portion, respectively. Operating leases Lease agreements that alstria has entered into with commercial tenants are classified as operating leases under IFRS. Accordingly, alstria acts as a lessor in many different types of operating lease agreements for investment properties. All of the Group’s leases are classified as operating leases, as all significant risks and rewards of the Group’s real estate remain at alstria. These leases generate the majority of proceeds and income for alstria. Furthermore, alstria is, to a limited extent, the lessee within the scope of operating lease agreements. Revenue and expense recognition Revenues and other operating expenses are basically recognized when it is probable that the eco- nomic benefits will flow to the Group and only when the amount becomes reliably measureable. This is usually the case when services are rendered or goods or products have been delivered and the risk has thus been transferred. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duties. Revenues are recorded, excluding VAT. In addition, the following specific recognition criteria must be met before revenues are recognized: Rental income from operating leases on investment properties is recognized on a straight-line basis over the term of the relevant lease, regardless of the payment date. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset. 80 alstria Annual Report 2015 Consolidated financial statements Operating expenses Operating expenses are recognized at the time of the service or when they are incurred. Interest expenses and interest income are recognized when it is probable that the economic benefits will flow out from the Group or to the Group and the amount of expenses or income can be measured reliably. Interest expenses and income are allocated to the period to which they apply, taking the principal amount outstanding into account and measured at the applicable effective interest rate. The latter is defined as the rate that is—on initial recognition—used to discount all estimated future cash outflows or receipts from the financial liability or asset over its expected term. Income taxes Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive incomes or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively. When current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. As a REIT-AG, the parent company, alstria office REIT-AG, is exempt from corporation and trade taxes. Current tax assets and liabilities Current tax assets and liabilities for the current and prior periods are shown as the amount expected to be recovered from or paid to the tax authorities. The determination of the amount is based on the tax rates and tax laws applicable on the reporting date or soon after to take effect. Deferred taxes Deferred taxes are recognized using the liability method for temporary differences at the reporting date between the carrying amounts of recognized assets or liabilities and their respective tax bases. Deferred tax liabilities are recognized for all taxable temporary differences, except  when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the net profit or loss for the period nor taxable profit or loss; and  in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforwards of alstria Annual Report 2015 81 Consolidated financial statements unused tax credits, and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforwards of unused tax credits and unused tax losses can be used, except  when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the net profit or loss for the period nor taxable profit or loss; and  in terms of deductible temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, a deferred tax asset is recognized only to the extent that it is probable that the temporary differences will not reverse in the foreseeable future and no sufficient taxable profit will be available against which the temporary differences can be used. The carrying amount of deferred tax assets is reviewed on each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax assets to be used. Unrecognized deferred tax assets are reassessed on each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply in the period in which the asset is realized or the liability is settled, based on tax rates (and tax laws) applicable on the reporting date or soon after to take effect. Deferred taxes relating to items recognized directly in equity or in other comprehensive income are recognized in equity or in other comprehensive income and not in the income statement. Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and if these relate to income taxes declared by the same taxable entity to the same tax authority. Earnings per share Basic earnings per share are calculated by dividing the profit attributable to the shareholders of the parent company by the weighted-average number of shares outstanding during the business year. Diluted earnings per share are calculated based on the assumption that all potentially dilutive securities and share-based payments are converted or exercised. Impairments of assets Intangible assets with an indefinite useful life are not amortized; they are tested for impairment on an annual basis. Assets that are amortized, however, are tested for impairment whenever triggering events or changes in circumstances indicate that the carrying amount may no longer be recoverable. 82 alstria Annual Report 2015 Consolidated financial statements 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 apply, the impairment loss is reversed as appropriate, which is the maximum value that would have resulted if normal amortization had been charged. Goodwill Goodwill arising from an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the com- bination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other as- sets of the unit pro rata, based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. Any impairment loss recognized for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Property, plant, and equipment Property, plant, and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Such costs include replacement costs as part of the plant and equipment when that cost is incurred, if the recognition criteria are met. All other repair and maintenance costs are recognized in profit or loss as incurred. Depreciation of plant and equipment is calculated on a straight-line basis over the useful life of the asset (three to 23 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 derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net proceeds of disposal and the carrying amount of the asset) is recorded in profit or loss in the year the asset is derecognized. The assets’ residual values, useful lives, and methods of depreciation are reviewed—and adjusted if required—at the end of each financial year. Borrowing costs, which can be directly allocated to the acquisition or production of property, plant, and equipment, are capitalized in the year in which they arise. alstria Annual Report 2015 83 Consolidated financial statements 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. Fol- lowing initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or infinite. Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and amortization 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 amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on in- tangible assets with finite lives is recognized in profit or loss in the category of expenses consistent with the function of the intangible asset. Amortization of licenses is calculated on a straight-line basis over the useful life of the asset (three to 30 years). Currently, the Company does not have intangible assets with indefinite useful lives. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in prof- it or loss when the asset is derecognized. 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 particu- lar comprise cash and cash equivalents, trade receivables, as well as other loans and receivables issued by the enterprise, held-to-maturity investments, and original 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 include liabilities to banks and other creditors, trade payables, and derivative financial liabilities. Financial assets and liabilities are generally set off against each other. 84 alstria Annual Report 2015 Consolidated financial statements Financial assets The recognition and measurement of financial assets is subject to the provisions of IAS 39. Depend- ing 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 financial assets are either measured at amortized cost or at fair value and are recognized as of 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 value by using valuation techniques. These include the use of recent arm’s-length transactions, 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 recognized, they are measured at fair value plus transaction costs. The former is applicable for all financial assets whose fair value is not adjusted for through profit or loss. Management decides on the classification of financial assets upon initial recognition and reviews the classification at the end of each reporting period. A financial asset is derecognized when the entity loses control of the contractual rights that comprise the financial instrument. All customary purchases and sales of financial assets are recognized on the trade date, which is the date on which the Group commits to purchase or sell the asset in question. A purchase or sale of financial assets is customary when it requires the delivery of assets within the period generally es- tablished by regulations or conventions in the marketplace. 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 purpose of selling it in the short term. Unless derivatives are designated as hedges, they are also categorized 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 recognized in profit or loss at fair value. If their fair value is negative, they are disclosed under financial liabilities. Financial assets available for sale 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, management intends alstria Annual Report 2015 85 Consolidated financial statements to dispose of them in this period, or the maturity at the end of reporting period is fewer than twelve months. Available-for-sale financial assets are initially recognized at fair value and subsequently carried forward at fair value. Changes in the fair value of financial assets classified as available for sale are recognized in equity; in the case that they are sold or impaired, their accumulated fair-value adjustments are recognized in the income statement. The Group holds no financial assets that are classified as held to maturity according to the classifi- cation as prescribed by IAS 39. Apart from financial derivatives, not designated in a cash flow hedge position, no items of financial assets have been categorized as “at fair value through profit or loss.” Receivables Receivables are classified as loans and receivables as defined by IAS 39 and initially measured at fair value and subsequently at amortized cost, after deduction of any necessary impairment. Amortized costs are computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Non-interest bearing receivables due in more than one year are discounted. Gains and losses resulting from receivables being derecognized, impaired, or due to amortization are recognized in profit or loss. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced directly. The amount of the loss is recognized 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 occurring after the impairment was recognized, the previously recognized impairment loss may be reversed to the extent that the carrying value of the receivable does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or loss. Provisions for impairments are made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the respective receivable is reduced directly. Impaired assets are derecognized when they are assessed as uncollectable. 86 alstria Annual Report 2015 Consolidated financial statements Derivative financial instruments and hedge accounting The Group uses derivative financial instruments, such as interest rate swaps and caps, to hedge its risks associated with interest-rate fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured 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 of December 31, 2015 and December 31, 2014 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 remaining life of the agreement based on current market rates or term structures of interest rates. Further details on the valuation of derivative financial instruments under the fair-value hierarchy can be found in Note 18.3. When the Group first becomes party to the contract, it assesses whether embedded derivatives are required to be separated from host contracts. A reassessment can only occur 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 concluding 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 recognized immediately in profit or loss. For the purpose of hedge accounting, hedges are classified as cash-flow hedges when hedging expos- ure to variability in cash flows is attributable to a particular risk associated with a recognized liability. 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 object- ive and strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item, the nature of the risk that is being hedged, and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes 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 ongoing basis to determine their effectiveness throughout the financial-reporting periods for which they were designated. Cash-flow hedges that meet the strict criteria for hedge accounting are accounted for as follows: alstria Annual Report 2015 87 Consolidated financial statements  The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while any ineffective portion is recognized immediately in profit or loss.  Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is realized. The Group neither uses any financial derivatives that qualify for the hedging of the fair value of recognized 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 operation (net investment hedge). Cash and cash equivalents Cash and short-term deposits in the consolidated statement of financial position are comprised of current bank balances. These also include the deposits received from tenants. The deposits are offset by liabilities in the same amount, reported under other liabilities. For the purposes of the consolidated cash-flow statement, cash and cash equivalents include the cash and cash equivalents defined above, other short-term, highly liquid investments with original maturities of three months or fewer, and bank overdrafts. Current bank balances are recognized at their nominal amount. Treasury shares Company equity instruments that are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue, or cancellation of the Group’s own equity instruments. Liabilities Financial liabilities, in particular trade payables, are stated at the amount repayable and are dis- counted if classified as non-current and non-interest bearing. Fair values are determined by discounting the future, contractually agreed cash flows by an appro- priate interest rate from the yield curve at the end of the reporting period. The recognition and measurement of financial liabilities is subject to the provisions of IAS 39. De- pending on the classification as prescribed by IAS 39, which include  at amortized cost or  measured at fair value through profit or loss, financial liabilities are either measured at amortized cost or at fair value and are recognized ac- cordingly at the end of reporting period. All loans and borrowings are initially recognized at fair value less directly attributable transaction 88 alstria Annual Report 2015 Consolidated financial statements costs. They have not been designated as “at fair value through profit or loss.” After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses resulting from derecognition of amortization are recognized in profit or loss. The component of the convertible profit participation rights (Wandelgenussrechte), which exhibits characteristics of a liability, is recognized as a liability in the balance sheet, net of transaction costs. Upon issuing the jouissance shares, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is then classified as a fi- nancial liability and measured at amortized cost until it is extinguished upon conversion or redemp- tion. A financial liability is derecognized when the obligation from the liability is discharged, 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 modification is treated as a derecognition of the original liability. The new liability is recorded and the difference in the respective carrying amounts is recognized in profit or loss. Provisions Provisions are recognized when a present obligation to third parties exists as a result of a past event, when a future outflow of resources is probable, and when a reliable estimate 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. A restructuring provision is recognized when the Group has developed a detailed formal plan for restructuring and has raised a valid expectation among those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. A debt resulting from the termination of employment (severance) is recognized when the Group may not withdraw the offering of such services or, if earlier, the Group has recorded costs related to restructuring. Share-based payments Share-based payments comprise cash-settled liability awards and equity-settled equity awards. alstria Annual Report 2015 89 Consolidated financial statements The fair value of equity awards is generally determined by using a modified Black-Scholes option- pricing model at the grant date. It measures the total personnel expense, which is to be recognized 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 measured at fair value on 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 Note 17 and in the remuneration report, respectively. 8. SEGMENT REPORTING IFRS 8 requires a “management approach” under which information on segments is presented on the same basis used for internal reporting purposes. The services offered by alstria office REIT-AG exclusively focus on letting activities to commercial- property tenants in Germany. In accordance with IFRS 8, a single reporting segment is identified, which comprises all of the Groups’ operations. The manner of reporting for this segment is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is responsible for allocating resources to the operating segments of an entity and assesses their performance. The Group’s chief operating decision-maker is the Management Board. Revenues are generated by a larger number of tenants. Total revenues amount to EUR 115,337 k (2014: EUR 101,782 k), of which EUR 28,387 k (2014: EUR 30,986 k) and EUR 15,656 k (2014: EUR 15,656 k) relate to leases to the two largest customers of the Group. No other single customer has either in financial year 2015 or in financial year 2014 contributed with 10% or more to the consolidated revenues. 90 alstria Annual Report 2015 Consolidated financial statements 9. NOTES TO THE CONSOLIDATED INCOME STATEMENT 9.1 Revenues EUR k Revenues from investment property 2015 115,337 2014 101,782 Revenues from investment property are mainly comprised of rental income from investment property. The rental income includes effects totaling EUR 423 k (2014: EUR 1,770 k) that are attributable to rent-free periods. Since the date of the acquisition, the properties formerly owned by Deutsche Office have contributed EUR 18,142 k to rental revenues from investment properties. If the business combination had taken place by January 1, 2015, the rental income from investment properties would have amounted to EUR 203,863 k. Rental income from property leases contains variable rental income amounting to EUR 844 k (2014: 0). These are rental agreements in which the rental payments are linked to the operating results of the tenants. 9.2 Income less expenses from passed-on operating expenses EUR k Income from passed-on operating expenses Income from passed-on operating expenses related to the prior years Expenses from passed-on operating expenses Expenses from passed-on operating expenses related to the prior years Income less expenses from passed-on operating expenses 2015 18,652 564 19,216 -18,710 -929 -19,639 -423 2014 15,586 836 16,422 -15,695 -1,359 -17,054 -632 The expenses from passed-on operating expenses, which are directly attributable to investment property, include, in particular, operating costs, maintenance expenses, and property-based taxes. alstria Annual Report 2015 91 Consolidated financial statements 9.3 Real estate operating expenses EUR k Maintenance and refurbishment Vacancy costs Ongoing repairs Property management Legal and advisory fees Taxes on land and buildings Other expenses 9.4 Administrative expenses EUR k Legal and consulting fees Audit fee (audit and audit-related services) Communication and marketing Travel expenses Depreciation Supervisory Board compensation Leasing costs Office-area costs IT maintenance Recruitment Insurances Donations Training & workshops Other 2015 4,796 4,689 1,605 543 450 101 590 2014 5,156 3,210 1,656 57 524 101 426 12,774 11,130 2015 2,514 568 465 446 426 353 214 170 195 161 160 78 76 557 2014 1,383 335 550 319 420 305 181 144 433 60 100 0 85 440 The increase in legal and consulting fees resulted from the realization of an innovative leasing con- cept and a strategic project in business year 2015. 6,383 4,755 92 alstria Annual Report 2015 Consolidated financial statements 9.5 Personnel expenses EUR k Salaries and wages Social-insurance contribution Bonuses Severance expenses Expenses for share-based compensation thereof relating to virtual shares thereof relating to the convertible profit participation certificates Amounts for retirement provisions and disability Management Board Other 2015 4,826 730 1,679 1,200 3,428 2,616 812 203 2 2014 4,150 623 1,260 0 1,410 749 661 209 155 12,068 7,807 The rise in personnel costs resulted from the inclusion of the Deutsche Office in the consolidated financial statements. On the other hand, a higher amount of share-based compensation resulted due to the rise in the share price of the alstria share. The severance expenses resulted from the socially acceptable termination of employment relation- ships in the course of the integration of Deutsche Office. Convertible profit-participation rights granted to employees do not only grant the right to a conver- sion when the conditions apply but also to an annual payment equivalent to the dividend amount paid out per share. Therefore, expenses for share-based compensation resulting from the convertible profit-participation rights must be accounted for in equity (for the conversion right) as well as in liabilities (for the dividend entitlement). Of the total expenses related to the profit participation rights, which amounted to EUR 812 k, EUR 752 k were recognized in equity (2014: EUR 589 k), while EUR 60 k were recorded as an item in liabilities (2014: EUR 72 k). The employer’s contribution to statutory pension insurance, which are included in wages and sala- ries amount for the financial year 2015 to EUR 446 k. On average, the Group employed 72 employees in 2015 (2014: 62). alstria Annual Report 2015 93 Consolidated financial statements 9.6 Other operating income EUR k Income from the reversal of accrued liabilities Compensation payments and other recharges Income from the reversal of provisions in relation to rental guarantees Property management services Compensation for damages Capital funding fee Car use Other 2015 1,107 1,026 882 144 120 0 0 764 4,043 2014 459 3,622 570 179 0 491 95 725 6,141 Compensation payments and other charges result from the early termination of leases and refurbishment activities conducted by alstria. The latter refers to refurbishments to which the tenants had originally committed themselves upon entering into the leasing contracts. The capital funding fee in 2014 resulted from the funding of additional equity intended for a joint- venture company. An explanation for the reversal of provisions for rental guarantees can be found in Note 11.3. 9.7 Other operating expenses and goodwill impairment Other operating expenses EUR k Transaction costs Deutsche Office takeover Impairment of operating-costs receivables Rating expenses Impairment on trade receivables Legal and advisory fees Land tax Donations Other 2015 9,765 1,253 975 363 300 292 0 911 2014 0 1,060 0 114 577 0 12 262 13,859 2,025 The increase in other expenses relates directly to the transaction costs for the takeover of Deutsche Office. On the one hand, this includes the costs of legal advice, confirmation services, and the transaction fee to the consulting bank incurred for the preparation and implementation of the takeover. Impairment on operating-costs receivables relate to property-operating costs for the years 2013 and 2014, which were chargeable to the tenant and finally could not be collected. Last year, the prop- 94 alstria Annual Report 2015 Consolidated financial statements erty-operating costs of previous years (EUR 1,060 k) were reported under other real estate operat- ing expense. This was adapted for the consolidated financial statements 2015. They were reclassi- fied for the 2014 financial year from the item “other operating costs” retroactively in the item “other operating expenses”. Under rating expenses, the one-time costs of obtaining a credit classification (issuer rating) of the Company were recorded. Impairment on trade relates mainly to tenants who are subject to insolvency or eviction proceedings. The item also includes valuation allowances related to disputed invoicing of ancillary costs. Legal and consulting fees of an amount of EUR 300 k were added to litigation provisions. In the previous year, expenses in the amount of EUR 303 k were incurred as a result of non-recurring strategic projects related to the further development of the Group, and EUR 274 k have been added to litigation provisions. Goodwill impairment For further information on goodwill impairment in the amount of EUR 144,795 k, please refer to Note 10.4. 9.8 Net result on the disposal of investment property EUR k Proceeds from the disposal of investment property Carrying amount of investment property disposed of 2015 159,350 -146,695 12,655 2014 71,650 -67,084 4,566 The total loss from the disposal of objects and portfolios sold below their carrying value amounted to EUR 846 k in 2015 and EUR 4 k in 2014. alstria Annual Report 2015 95 Consolidated financial statements 9.9 Financial and valuation result The financial result breaks down as follows: EUR k Income from financial instruments Interest expenses, syndicated loan alstria Interest expenses, loan Herkules and Homer Portfolio Interest expenses, other loans Interest result derivatives Interest expenses, convertible bond Interest expenses, corporate bond Other interest expenses Financial expenses Prepayment penalty Commitment fees Agency fees Other Other financial expenses Net financial result 2015 128 -8,531 -3,969 -9,013 -6,650 -4,623 -1,241 -3 -34,030 -9,162 0 -268 -1 -9,431 -43,333 2014 113 -9,950 0 -9,172 -10,838 -4,871 0 0 -34,831 0 -22 -300 -289 -611 -35,329 Total interest income and expenses for financial assets and liabilities other than financial deriva- tives amounted to an interest income of EUR 128 k (2014: EUR 113 k) and EUR 27,380 k of interest expenses (2014: EUR 21,654 k), respectively. Total interest expenses calculated by applying the effective interest method for financial liabilities (i.e., not recognized at fair value through profit or loss) amounted to EUR 3,113 k (interest expens- es, 2014: EUR 1,548 k). The prepayment penalty is due to the termination of loans before the normal end of the term. In neither of the two former financial years did the Group hold any financial assets available for sale. Therefore, the net result from the disposal of financial assets available for sale amounted, like in the previous year, to EUR 0. Fair-value adjustments on financial derivatives resulted in a net loss, which is broken down as fol- lows: EUR k Transfer of cumulated loss from cash-flow hedge reserve to income 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 adjustments on financial derivatives 2015 -3,269 -66 -3,428 2014 -4,135 -18,146 -5,180 -6,763 -27,461 96 alstria Annual Report 2015 Consolidated financial statements In 2015, a loss amounting to EUR 3,269 k related to cumulative losses from fair-value adjustments of cash-flow hedge derivatives, which were recorded in equity. The adjustments resulted from the fact that the originally hedged transactions are no longer expected to occur. Further details and explanations on derivatives are presented in Note 10.5. 9.10 Income tax expenses On January 1, 2007, alstria office REIT-AG obtained G-REIT status. At this time, it was subject to final taxation and has been tax exempt with regard to corporate tax and trade tax effectively since then. Minor tax-payment obligations may arise at Group level for affiliates serving as a general partner of a partnership or for REIT Service Companies. With the acquisition of the Deutsche Office, however, companies were included in the consolidated financial circle that are not subject to the REIT exemption. This results in expenses for income tax- ation at the level of the Deutsche Office subgroup. The tax expense that is incurred in the compa- nies of the subgroup is accounted for according to the temporary integration of the companies in the consolidated financial statements of alstria office REIT-AG. Due to the REIT exemption of alstria office REIT-AG, which extended virtually to the entire Group until the consolidation of Deutsche Office, details for the previous year are not contained in the following tables (essentially no amounts). The sources of income tax expenses can be broken down as follows: Consolidated Statement of Income EUR k Current tax expenses Deferred tax result From temporary differences Tax result 2015 -804 -8 -812 The deferred tax expenses resulted primarily from the change in value of derivative financial in- struments. The impact of the valuation of investment properties and changes in the recognition of tax losses carried forward to the deferred tax result are nearly balanced. alstria Annual Report 2015 97 Consolidated financial statements The reconciliation between theoretical income tax based on pre-tax earnings and reported income tax is based on a taxation rate of 15.83% (15.0% as the rate of corporate income tax and 5.5% soli- darity surcharge): TEUR k Loss before income taxes Thereof not considered due to REIT regime Relevant loss before taxes Average tax rate Theoretical tax income (+) Effect of unrecognized deferred tax assets on losses carried forward in prior years Loss of losses carried forward due to majority shareholder Tax effects, prior periods Other Income tax income 2015 -110,567 -103,808 -6,759 15.83% 1,070 -1,301 -1,215 571 63 -812 Deferred tax assets and deferred tax liabilities from temporary differences between the carrying amounts in the consolidated financial statements and the tax base of individual assets and liabilities in 2015 and 2014 reflect the following data: EUR k Deferred tax assets Measurement of investment properties Tax loss carried forward Deferred tax assets recognized in other comprehensive income Measurement of interest rate swap (effective portionl) Total deferred tax assets Deferred tax liabilities Measurement of loans using the effective interest method Total deferred tax liabilities Deferred taxes net Dec. 31, 2015 Consolidated balance sheet 252 0 - 252 384 384 -132 The management plays the key role in establishing the value of deferred tax assets by assessing the extent to which deferred tax assets are likely to be realized. Due to the takeover by alstria, the Deutsche Office Group companies will be transferred to a tax-free REIT structure in the future. The management assumes that these companies’ deferred tax assets can be realized, at least to the extent of reversals of deferred tax liabilities. Additional deferred tax assets, as well as tax losses, will not be usable in a tax-free REIT structure. EUR 252 k of deferred tax assets were offset against deferred tax liabilities of EUR 384 k, resulting overall in net deferred tax liabilities of EUR 132 k. 98 alstria Annual Report 2015 Consolidated financial statements As of December 31, 2015, the Deutsche Office Subgroup has corporate income tax losses carried forward amounting to EUR 16,532 k and business tax losses carried forward of EUR 13,337 k. For corporate income tax losses carried forward of EUR 16,523 k, no deferred tax liabilities have been recognized. In business year 2014, due to its REIT-status and resulting tax exemption, there were no material impacts on the Group’s financial statements, its equity, or profit and loss, which resulted from de- ferred income taxes. alstria Annual Report 2015 99 Consolidated financial statements 10. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –ASSETS 10.1 Investment property This item, comprised of all investment properties held by the Company, breaks down as follows: Fair Values in EUR k As of January 1 Additions due to business combination Deutsche Office Property acquisition Capital expenditure Disposals Transfers to held for sale Net result from the adjustment of the fair value of investment property Subtotal Prepayments made As of December 31 2015 1,645,840 1,645,210 12,710 27,813 -53,575 -53,245 -4,192 3,220,561 39,906 3,260,467 2014 1,632,362 0 42,390 33,234 -62,970 0 824 1,645,840 0 1,645,840 In financial year 2015, seven properties were reclassified to assets held for sale. The transfer of benefits and burdens of four of these office properties, with a transaction volume of EUR 54,700 k, was made still during financial year 2015. For the remaining three properties the notarial purchase agreement was signed during the fiscal year, the transfer of benefits and burdens is expected for the year 2016. The transaction volume of assets held for sale amounted to EUR 71,071 k. Furthermore, a plot of land and a real servitude were sold by means of exchange. The real estate assets obtained in return had a fair value of EUR 5,879 k. Capital expenditure (EUR 27,813 k) is comprised of subsequent acquisition and production costs relating to property acquisitions and refurbishment projects. Furthermore, the Group acquired one investment property for which the transfer of benefits and burdens was completed in the reporting period. The transaction volume for the properties amount- ed to EUR 12,710 k, including incidental acquisition costs. For more information on changes to the immovable property, please refer to the “Transactions” section in the Group management report for the business year 2015 (see page 8). Additions from prepayments relate to a building, that has been transferred on January 1, 2016. Borrowing costs that would have had to be capitalized as construction costs were not incurred dur- ing the reporting period (2014: EUR 0). The alstria office REIT-AG applied the fair value model pursuant to IAS 40.33 et seq. for subsequent measurement of investment property. External appraisals were obtained for measurement. For a detailed description of the valuation of assets, please see Note 7. 100 alstria Annual Report 2015 Consolidated financial statements As the Group gained control of the Deutsche Office, it accounted for the properties acquired for at fair value, generally as recognized at the Deutsche Office as of October 27, 2015. The item on the income statement “net result from fair value adjustments on investment property” of an amount of EUR 41,810 k is attributable to a change in unrealized losses. The following table provides details of the Group’s investment properties and information about the fair value hierarchy as of December 31, 2015: Investment property without prepayments made Level 1 EUR k Level 2 EUR k Level 3 EUR k Fair value at Dec. 31, 2015 EUR k - - 3,220,561 3,220,561 There were no transfers between Levels 1, 2 and 3 during the year. The Group has considered the nature, characteristics, and risks of its properties as well as the level of the fair value hierarchy within which the fair value measurements are categorized in determining the appropriate classes of investment property. The Deutsche Office acquired in the context of the business combination as of end October 2015 uses a DCF valuation method for property valuation, while alstria subgroup makes use of the so called “hardcore and top slice” method for real estate valuation. Both valuation techniques are generally accepted methods for fair value determination. Both use non-observable input parameters. However, the non-observable input parameters differ in part. For the representation of the range of the respective unobservable input parameter, must therefore be distinguished. Valuation according to the “hardcore and top slice” method for the investment properties of alstria subgroup The following factors help determine the appropriate classes. a) The real estate segment: Within all investment portfolios the majority of the lettable area is dedicated to offices. Therefore all investment properties belong to one asset class: offic- es. b) The geographical location of all properties is Germany. c) The level of fair-value hierarchy for all investment properties is level 3. d) There are larger differences between the contractual lease terms. This also affects the weighted average unexpired lease term (WAULT) for each investment property. A distinc- tion is made between objects with a short, medium, and long WAULT. As a result, three appropriate classes of investment properties have emerged: alstria Annual Report 2015 101 Consolidated financial statements Germany – Office – Level 3 – short WAULT (0 to 5 years), Germany – Office – Level 3 – medium WAULT (> 5 to 10 years), Germany – Office – Level 3 – long WAULT (> 10 years). Quantitative information about fair value measurements using unobservable inputs (alstria port- folio) (level 3) EUR k, unless stated otherwise Portfolio Fair Value at Dec. 31, 2015 German offices 1,579,351 Number of properties: Valuation tech- nique hardcore and top slice Unobservable inputs Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within next 5 years [months] Range Min. Max. Weighted average 6.6 3.8% 18.9 9.5% 11.2 5.9% 6.0 24.0 16.4 831,751 hardcore and top slice Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within next 5 years [months] 291,960 hardcore and top slice Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within next 5 years [months] 455,640 hardcore and top slice Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within next 5 years [months] 6.7 4.9% 18.9 9.5% 11.2 6.4% 6.0 24.0 16.4 8.4 4.5% 17.1 6.8% 12.1 5.8% 12.0 18.0 12.0 6.6 3.8% 12.4 5.9% 10.3 4.6% 12.0 12.0 12.0 68 0 ≤ WAULT ≤ 5 Years German offices Number of properties: 42 5 < WAULT ≤ 10 Years German offices Number of properties: 13 WAULT > 10 Years German offices Number of properties: 13 Valuation according to the DCF method for the investment properties of Deutsche Office sub- group The table below sets out key assumptions used by the independent expert to determine fair value with the aid of the discounted cash flow method: 102 alstria Annual Report 2015 Consolidated financial statements Quantitative information about fair value measurements using unobservable inputs (Deutsche Office portfolio) (level 3) EUR k, unless stated otherwise Portfolio Properties Germany Total number of buildings: 49 Office Number of build- ings: 44 Nursing home Number of buildings: 3 Logistics Number of buildings: 2 Fair Value at Dec. 31, 2015 Valuation tech- nique Unobservable inputs 1,641,210 DCF Average market rent (EUR/m²/month) Capitalization rates Discount rates Long-term vacancy rate Inflation forecast and annual market rent growth 1,492,710 DCF Average market rent (EUR/m²/month) 116,600 DCF 31,900 DCF Capitalization rates Discount rates Long-term vacancy rate Inflation forecast and annu- al market rent growth Average market rent (EUR/m²/month) Capitalization rates Discount rates Long-term vacancy rate Inflation forecast and annual market rent growth Average market rent (EUR/m²/month) Capitalization rates Discount rates Long-term vacancy rate Inflation forecast and annual market rent growth Range Min. Max. Weighted average 4.25 17.00 5.0% 5.8% 2.0% 7.8% 8.5% 30.6% 1.4% 2.0% 5.00 17.00 12.07 5.0% 5.8% 2.0% 7.8% 8.5% 30.6% 5.87% 6.51% 15.23% 1.4% 2.0% 1.94% 9.50 5.3% 6.0% 5.0% 11.50 6.3% 6.8% 8.2% 10.64 5.67% 6.30% 6.88% 1.4% 2.0% 1.94% 4.25 6.8% 7.3% 8.1% 4.45 7.0% 7.5% 4.33 6.9% 7.4% 15.3% 10.90% 1.4% 2.0% 1.94% All the properties are in Germany. The average for all significant non-observable input parameters was weighted on the basis of real estate market values as of December 31, 2015. The span of the average long-term vacancy rate was calculated over a period of 10 years. The “office property” category includes a small proportion of spaces let to retailers and hotels. The weighted average market rent for retail is EUR 21.14 per square meter per month (2014: EUR 16.60 per m²/month), and 11.54 for the hospitality sector (2014: EUR 11.57 per m²/month). alstria Annual Report 2015 103 Consolidated financial statements Key non-observable input parameters at hierarchy level 3 to determine the fair value of investment properties are:  Average market rent in euros per square meter per month  Capitalization rate  Discount rate   Long-term vacancy rate Inflation forecast and annual market rent growth Sensitivity of measurement to variance of significant unobservable input A decrease in the estimated rental income or average market rent decreases the fair value. An increase in the vacancy periods or long-term vacancy rate decreases the fair value. An increase in the adjusted yield, capitalization rates, or discount rates decreases the fair value. A decrease in the estimated rental income leads to an increase in the adjusted yield, capitalization rates, or discount rates; an increase in the estimated rental income leads correspondingly to a de- crease of these input parameters. A decrease in the vacancy period leads to an increase in the adjusted yield, capitalization rates, or discount rates; an increase in the vacancy period leads correspondingly to a decrease of these input parameters. The external assessors have carried out sensitivity analyses on their fair value assessments, which show the effect of changes in capitalization rates (adjusted yield) on fair market values. Fair value of investment properties (EUR m) Capitalization rates Dec. 31, 2015 Dec. 31, 2014 –0.25 % 0.00 % 0.25 % 3,374 3,221 3,078 1,723 1,646 1,577 Disclosures concerning expenses/income as recorded in the income statement pursuant to IAS 40.75 (f) include: > EUR 115,337 k (2014: EUR 101,782 k) rental income from investment property; > EUR 8,086 k (2014: EUR 8,980 k) operating expenses (including repairs and maintenance) directly allocable to investment property from which rental income was generated during the period under review; and > EUR 4,689 k (2014: EUR 3,210 k) operating expenses (including repairs and maintenance) arising from investment property which did not generate rental income during the period under review. 104 alstria Annual Report 2015 Consolidated financial statements Investment properties, held-for-sale properties, and own used properties of an amount of EUR 3,036,702 k (December 31, 2014: EUR 1,645,840 k) served as collateral 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 49.0% were treated as joint ventures and accounted for using the equity method. The carrying amount of the joint ventures at the end of the reporting period was EUR 23,900 k (December 31, 2014: EUR 34,534 k). For further information, please refer to Note 4.4. 10.3 Property, plant, and equipment EUR k Acquisition and production cost As of January 1, 2015 Additions due to business combinations Additions Disposals As of December 31, 2015 Accumulated amortization, deprecia- tion, and write-downs As of January 1, 2015 Additions Disposals As of December 31, 2015 Net book values as of December 31, 2015 EUR k Acquisition and production cost As of January 1, 2014 Additions Disposals As of December 31, 2014 Accumulated amortization, deprecia- tion, and write-downs As of January 1, 2014 Additions Disposals As of December 31, 2014 Net book values as of December 31, 2014 Plant 1,048 150 0 -345 853 933 25 -345 613 240 Plant 1,169 121 -242 1,048 1,153 22 -242 933 115 Furniture and fixtures Owner occupied property Total 2015 975 73 59 0 5,002 7,025 0 1 0 223 60 -345 1,107 5,003 6,963 540 92 0 632 475 467 90 0 557 1,940 207 -345 1,802 4,446 5,161 Furniture and fixtures Owner occupied property Total 2014 930 45 0 975 431 109 0 540 435 5,019 16 -33 5,002 378 89 0 467 4,535 7,118 182 -275 7,025 1,962 220 -242 1,940 5,085 The useful life of the assets is estimated to be from 3 to 23 years for plant, furniture, and fixtures and 33.33 to 50 years for the own-occupied properties. alstria Annual Report 2015 105 Consolidated financial statements A plant is comprised of miscellaneous items such as fire extinguishers and operational devices. The furniture and fixtures include the devices used in the administrative offices. The alstria office REIT-AG occupies areas for its own use in two of its office buildings in Hamburg and Düsseldorf. Therefore, the owner-occupied areas of the properties are categorized as “property, plant, and equipment” according to IAS 16. To secure Group liabilities, both properties are pledged via land charges. 10.4 Intangible assets EUR k Licenses Goodwill Total 2015 Licenses 2015 2014 Acquisition and production cost As of Jan. 1 Additions due to business combinations Additions As of Dec. 31 Accumulated amortization, depreciation, and write-downs As of Jan. 1 Additions As of Dec. 31 Net book values as of Dec. 31 1,883 400 80 0 1,883 1,812 144,795 145,195 0 80 - 71 2,363 144,795 147,158 1,883 1,539 218 1,756 607 0 144,795 1,539 145,013 144,795 146,552 0 607 1,340 199 1,539 344 The useful life of the intangible assets is estimated to be between three to 30 years. The intangible assets consist of software licenses and licenses to other rights of an amount of EUR 555 k and EUR 53 k, respectively. The acquisition of the 94.6% stake in Deutsche Office AG resulted at the time of the first time con- solidation of Deutsche Office in goodwill of EUR 144,795 k (see Note 4.2). For the purpose of the impairment test the goodwill was identified at the level of the acquired Deutsche Office subgroup as cash generating unit (CGU). The recoverable amount of the cash-generating unit was identified by a value-in-use calculation based on cash flow projections from financial budgets approved by management for the period of five years and a subsequent transformation to a sustainable level of results under consideration of prevailing market rent and vacancy levels and a discount rate of 4.5% (pre tax rate). The starting point for these assumptions is the available information about the existing investment properties and leases, as well as analysis of future market developments. The cash flow projections for the period after the transformation to a sustainable level of results were extrapolated using a steady 106 alstria Annual Report 2015 Consolidated financial statements growth rate of 0.5%. This corresponds to the long-term assumption about the enforceable growth rates of rents for office and retail space. On December 31, 2015, an impairment test for goodwill led to the following results: EUR k Carrying amount of the CGU Value in use of CGU Shortfall Dec. 31, 2015 1,780,718 1,602,899 -177,819 The budgeted cash flows were discounted using a weighted cost of capital rate of 4.5% (pre tax rate). This interest rate reflects the current interest level and specific risks of the cash-generating unit Deutsche Office compared to relevant market portfolio The sum of the discounted cash flow resulted in a value in use of EUR 1,602,899 k and thus to a shortfall in the carrying amount by EUR 177,819 k. The goodwill of EUR 144,795 k therefore was amortized in the full amount. The impairment loss is included in the item other operating expenses. As a result of the write-off of goodwill, a disclosure of sensitivities is not given. A further shortfall of the book value of the cash-generating unit resulted in no further impairment, since the other acquired assets are deemed to be recoverable. alstria Annual Report 2015 107 Consolidated financial statements 10.5 Derivative financial instruments The following derivative financial instruments were in place at the end of reporting period: Product Strike p.a. Maturity date Notional Fair value Notional Fair value Dec. 31, 2015 Dec. 31, 2014 Swap Cap Swap Cap Cap Swap Swap Cap Swap (%) 0.1100 Dec. 18, 2020 0.2500 Dec. 31, 2017 0.0000 Dec. 30, 2019 3.0000 Sept. 30, 2019 1,2500 Sept. 30, 2018 0.0000 Dec. 18, 2018 0.0000 Sept. 30, 2018 4.6000 Oct. 20, 2015 2.9900 July 20, 2015 Financial derivatives - held for trading Cap1) Cap Cap Cap Cap 0.0000 Sept. 30, 2020 3.0000 Apr. 30, 2021 3.0000 Mar. 29, 2024 3.0000 Dec. 17, 2018 3.2500 Dec. 31, 2015 Financial derivatives - cash flow hedges Total interest rate derivatives (EUR k) 172,156 340,000 53,155 50,250 174,370 155,944 117,000 - - 1,062,875 380,870 47,854 10,900 56,000 - (EUR k) (EUR k) (EUR k) 651 213 133 43 70 -180 -202 - - 728 7,113 100 116 23 - - 340,000 - 50,250 - - - 47,902 380,870 819,022 380,8701) 48,591 10,900 56,000 11,155 - 402 - 49 - - - 0 -6,198 -5,747 5,874 147 140 31 0 495,624 7,352 126,6461) 6,192 1,558,499 8,080 945,668 445 Embedded derivative Total n/a June 14, 2018 8,2412) -22,862 -14,746 8,0922) -13,488 -13,043 1) Effective in a hedging relationship since July 20, 2015; held as forward-cap as of December 31, 2014 and thus not included in the sum of the nominal value of the hedged loan volume. 2) Underlying number of shares subject to conversion in thousands. The notional amount of the financial derivatives effective at the end of the reporting period is EUR 1,177,629 k (December 31, 2014: EUR 945,668 k). This includes cash flow hedges and derivatives not qualifying for cash flow hedging. Derivatives of a notional amount of EUR 1,062,875 k (December 31, 2014: EUR 819,022 k) are not designated as a cash flow hedge. On June 7, 2013, alstria issued a convertible bond for a total amount of EUR 79,400 k. After the conversion of two units, the bond has a notional value of EUR 79,200 k as of December 31, 2015. Due to the terms and conditions of the convertible bond, the conversion right has to be separately accounted as an embedded derivative. The derivative financial instruments, listed for the first time as of December 31, 2015 in the table, are additions due to the business combination with Deutsche Office. The value changes of the derivatives are reflected in various items in the balance sheet. 108 alstria Annual Report 2015 Consolidated financial statements The following table shows the change in financial derivatives since December 31, 2014: EUR k Hedging instruments as of January 1, 2015 Additions due to business combina- tion 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 Adjustments Termination Hedging instruments as of December 31, 2015 Cash flow hedge reserve Financial assets Financial liabilities Non-current Current Non-current Current Total -3,095 6,643 0 -444 0 0 3,269 0 0 0 91 0 1,140 -195 - 0 783 0 -270 8,462 0 0 0 0 0 - 0 0 0 0 -13,488 -6,198 -13,043 -33,629 0 -33,538 -444 -1,205 0 0 -444 -65 -9,400 6,167 -3,428 - 0 17,794 17,164 - 31 0 0 - 31 18,577 17,164 -23,208 0 -14,746 A decrease in the fair values of derivatives of EUR 444 k effective in a cash flow hedge was recognized in the equity in the hedging reserve in 2015 (2014: increase of EUR 99 k). The ineffective portion that arises from cash flow hedges amounted to a fair value loss of EUR 65 k (2014: loss of EUR 18,145 k) and is recognized in profit or loss. Further losses totaling EUR 3,428 k (2014: loss of EUR 5,181 k), which were due to the market value of the derivatives not included in hedge accounting, were recorded in the income statement 2015. A loss shown in the income statement of EUR 3,269 k (2014: loss of EUR 4,135 k) relates to cumulative losses reclassified from cash flow hedges for which the forecast transaction is no longer expected to occur, as the respective loans were repaid prematurely. Overall, this results in a total loss of EUR 6,763 k (2014: loss of EUR 27,461 k), which is presented as the “net loss from fair value adjustments on financial derivatives.” The adjustments of derivative financial instruments in the amount of EUR 18,577 k are down pay- ments made to reduce the respective exercise price of the derivative while realizing negative fair values. alstria Annual Report 2015 109 Consolidated financial statements 10.6 Receivables and other assets Due to the specific nature of the business, the Group considers receivables due in 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 receivable from joint ventures Other receivables Accrued receivables for “Rent free periods’ Deposit account VAT receivables Prepayments made and deferred assets Purchase price retention Receivables and other assets Other receivables Dec. 31, 2015 Dec. 31, 2014 12,578 0 7,143 629 506 266 0 1,239 9,783 3,498 88 6,538 1,653 111 99 1,000 726 10,127 A total of EUR 7,143 k of other receivables is made up of accruals resulting from the recognition of total rental revenues on a straight-line basis over the entire term of the lease agreements (rental smoothing). Purchase price retentions shown at the previous year in an amount of EUR 1,000 k relate to the sale of one investment property. Except for EUR 629 k of receivables (December 31, 2014: EUR 1,653 k) due from an escrow holder, all receivables are due within one year from the end of the reporting period. The fair value of all receivables is equal to their carrying amount. Trade receivables were written down by EUR 753 k (December 31, 2014: EUR 114 k) due to rent payments in arrears. Apart from trade receivables no other receivables, were impaired. As of December 31, 2015, trade receivables of an amount of EUR 3,719 k (December 31, 2014: EUR 1,010 k) were past due but not yet impaired. These relate to a number of independent tenants for whom there is no recent history of default. The aging analysis of these trade receivables is as follows: EUR k Trade receivables Up to 3 months 3 to 6 months Over 6 months Dec. 31, 2015 Dec. 31, 2014 2,471 403 845 3,719 608 95 307 1,010 110 alstria Annual Report 2015 Consolidated financial statements The increase in receivables due and impaired results from the first-time inclusion of the leases of Deutsche Office, which led to a significant increase in revenues and trade receivables and also has a less favorable payment behavior and maturity profile. All receivables from rental agreements and property disposals, as well as insurance receivables and derivative financial instruments, have been assigned to the lenders (Note 11.2) in order to secure the Group’s loans. 10.7 Cash and cash equivalents EUR k Bank balances Dec. 31, 2015 Dec. 31, 2014 460,253 63,145 Current accounts held with banks attract variable interest rates for on-call balances. At the report- ing date, cash in an amount of EUR 32,036 k were subject to restrictions. It relates to deferred in- terest obligations and other amounts not freely available to the Company. Credit balances of EUR 29,055 k are liquidity reserves under loan agreements to which the Company has no access without the consent of the financing banks. Cash and cash equivalents include an amount of EUR 2,981 k earmarked exclusively for the next payment of interest and principal to the banks. In addition, cash and cash equivalents include EUR 4,154 k in rent deposits received from tenants and held in trust by the Group. These tenant deposits, recognized under cash and cash equivalents, are offset by an item included under Other Liabilities. 10.8 Assets held for sale The assets held for sale comprise three properties. The transfer of benefits and burdens is still pending until the date of completion of these consolidated financial statements. The sale of properties resulted in a disposal gain of EUR 71,071 k. Further production costs of EUR 1,928 k for a property held for sale are expected to be incurred from the balance sheet date until the transfer date, therefore the carrying amount stated as assets held for sale amounts to EUR 69,143 k. EUR 10,374 k out of the income statement item “gain on disposal of investment property” relate to the assets held for sale shown at the balance sheet date. The valuation of assets held for sale is based on the contract prices and therefore included within level 1 of the fair value hierarchy. The Group did not disclose any assets held for sale at the previous year’s balance sheet date. alstria Annual Report 2015 111 Consolidated financial statements 11. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –EQUITY AND LIABILITIES For detailed information on equity please refer to the consolidated statement of changes in consoli- dated equity. 11.1 Equity Share Capital Please refer to the consolidated statement of changes in equity for details. Thousand Ordinary shares of EUR 1 each Dec. 31, 2015 Dec. 31, 2014 152,164 79,018 A total of 7,901,847 new shares were issued for cash considerations. They increased alstria office REIT-AG’s share capital by EUR 7,901,847.00. The capital increase was entered into the commercial register on March 26, 2015. Two parts of a notional amount of EUR 200 k of the convertible bond were converted in the first quarter of 2015. The conversion resulted in an issue of 20,382 new shares by making use of the con- ditionally increased capital provided for such purposes (Conditional Capital 2013). The conversion of profit participation rights (Note 17.2) in the second quarter of 2015 resulted in the issue of 156,000 new shares by using the conditionally increased capital provided for such pur- poses. The takeover of the Deutsche Office involved capital increase in kind: 65,067,569 new alstria shares were issued in exchange for shares of the Deutsche Office AG (see Note 4.2 for further details). There was a corresponding increase in share capital. In total and due to the capital measures stated above, alstria office REIT-AG’s share capital in- creased by EUR 73,230,798.00 to EUR 152,164,285.00 value bearer shares from December 31, 2014 to December 31, 2015. The majority of the Company’s shares are in free float. The following table shows the reconciliation of the number in shares outstanding: Number of shares Shares outstanding on Jan. 1 Issue of new shares against contribution in cash Conversion of convertible bond Conversion of convertible participation rights Issue of new shares against contribution in kind for takeover of Deutsche Office AG As of Dec. 31 2015 79,018,487 7,901,847 20,382 156,000 65,067,569 152,164,285 2014 78,933,487 0 0 85,000 0 79,018,487 112 alstria Annual Report 2015 Consolidated financial statements Capital reserve The capital reserve changed as follows during the financial year: EUR k As of Jan. 1 Issue of new shares against cash Transaction costs of issue of shares against cash Payment of dividends Conversion of convertible bond Share-based remuneration Conversion of convertible participation rights Issue of new shares against contribution in kind for takeover of Deutsche Office AG Transaction costs of issue of shares against contribution in kind As of Dec. 31 2015 691,693 94,822 -1,338 -43,470 243 752 156 757,616 -997 1,499,477 2014 730,486 0 0 -39,467 0 589 85 0 0 691,693 The new shares generated from the capital increase went onto the capital markets and sold at EUR 13.00 per share. The issue proceeds exceeded the nominal share capital by EUR 94,822 k, as recognized in capital reserves. After having deducted placement costs of EUR 1,338 k caused by the share placements, the increase of the capital reserve amounted to a net EUR 93,484 k. The share premium resulting from the partial conversion of the convertible bond amounted to EUR 243 k. It was recognized in the capital reserve. The conversion of 156,000 profit participation rights resulted in an increase in the capital reserves of EUR 156 k. An increase of EUR 752 k (2014: EUR 589 k) resulted from the vesting of the convertible profit par- ticipation certificates as granted to the Group’s employees. Dividend payments released from capital reserves totaled EUR 43,470 k (EUR 0.50 per outstanding share) in 2015. The issuance of new shares against contribution in kind took place in two steps. First, 90.6% of the shares outstanding in Deutsche Office AG were received through the issue of 62,317,526 new shares in the Company. The acquisition at an alstria-share price of EUR 12.66 (XETRA closing price on the acquisition date, October 27, 2015) resulted in a purchase price for the 90.6% share of the Deutsche Office AG of EUR 788,940 k. The acquisition of an additional 4% stake in the Deutsche Office AG became effective (registration of 2,750,043 new alstria shares in the commercial register) on No- vember 3, 2015 at a XETRA closing price of EUR 12.27 per share, resulting in a purchase price of EUR 33,743 k. Overall, this results in capital increase in the amount of EUR 822,683 k. EUR 65,067 k of the capital increase was credited to share capital. This corresponds to one Euro per newly issued share. The remaining amount of EUR 757,616 k was allocated to the capital reserve. After deducting the cost of the capital increase as EUR 997 k, the placement of shares lead to an increase of the capital reserve of EUR 756,618 k. alstria Annual Report 2015 113 Consolidated financial statements Hedging reserve EUR k Hedging reserve Dec. 31, 2015 Dec. 31, 2014 –270 –3,095 For further details on the changes in the hedging reserve please refer to Note 10.5. Treasury shares As of December 31, 2015, the Company held no treasury shares. By resolution of the Annual General Meeting held on June 8, 2011, the Company’s authorization to acquire treasury shares was renewed. The resolution authorized alstria office REIT-AG to acquire up to 10% of the capital stock until June 8, 2016. There is no intention to make use of this authorization at present. Retained earnings Retained earnings as of December 31, 2015 totaled an amount of EUR 31,994 k. Alstria office REIT- AG’s standalone positive retained earnings could not generate the payment of the dividend, accord- ing to German GAAP [HGB] at the dividend’s due date. This is why the amount of the dividend pay- outs was released from the capital reserve in 2015. Authorized capital Due to a capital increase in the first quarter of 2015, EUR 7,902 k of the authorized capital ap- proved by the Annual General Meeting in May 2014 was used. By approval of the Annual General Meeting 2015, the remaining authorized capital 2014 was re- placed by the authorized capital 2015, which amounted to EUR 39,509 k. On the occasion of the acquisition of Deutsche Office AG, authorized capital in the amount of EUR 2,750 k was used. Thus, an amount of EUR 36,759 k remains as per December 31, 2015. The authorization expires on May 5, 2017. Conditional capital As of December 31, 2014, alstria’s conditional capital amounted to EUR 38,752 k. It was divided into conditional capital 2013 (EUR 38,000 k), conditional capital III (EUR 337 k), and conditional capi- tal III 2012 (415 k), respectively. In the reporting period, EUR 20 k of the conditional capital 2013 was used to convert two shares of a convertible bond issued by the company. On May 6, 2015, the Annual General Meeting approved the increase of conditional capital by EUR 500 k (conditional capi- tal III 2015). An amount of EUR 59 k of conditional capital III was used due to the conversion of prof- it participation rights, and the remaining amount has matured. An amount of EUR 97 k of condition- al capital III 2012 was used due to another conversion of profit participation rights. As of December 31, 2015, the Company’s conditional capital amounted to a total of EUR 38,798 k. 114 alstria Annual Report 2015 11.2 Financial liabilities EUR k Loans Syndicated loan alstria Loan Prime Office portfolio Loan Herkules portfolio Loan Homer portfolio Other loans Corporate bond Convertible bond Total EUR k Loans Syndicated loan Other loans Convertible bond Total Consolidated financial statements Current Accrued interest Total Total current Dec. 31, 2015 Non-current 440,217 127,574 Loan 27,401 2,937 20 0 27,421 2,937 0 330,472 5,154 335,626 328,330 252,451 495,378 71,640 7,052 1,298 0 0 1,715,590 369.160 595 208 1,168 97 7.242 7,647 1,507 1,168 97 376,402 2,091,992 467,638 130,511 335,626 335,977 253,957 496,546 71,737 Non-current 497,516 307,114 69,395 874,025 Loan 0 5,923 0 5,923 Current Accrued interest Total Total current Dec. 31, 2014 0 1,779 0 1,779 0 7,702 0 497,516 314,816 69,395 7,702 881,727 The table presents the long-term loans, net of the current portion as stated under non-current lia- bilities. Furthermore, it shows the current amount due within one year, recorded as an item in short-term loans in current liabilities. As of December 31, 2015, the total repayable amount of the loans, the corporate bond and the convertible bond drawn by alstria office REIT-AG was EUR 2,103,764 k (December 31, 2014: EUR 895,086 k). The lower carrying amount of EUR 2,091,992 k (EUR 1,715,590 k non-current and EUR 376,402 k current) takes interest liabilities and transaction costs to be allocated under the effective interest method, taking liabilities into account. Financial liabilities with a maturity of up to one year are recognized as current loans. Syndicated loan alstria On September 30, 2013, alstria refinanced its main credit facility. A syndicate consisting of four banks has provided a credit facility totaling EUR 544,100 k (“syndicated loan”). Of this nominal amount, EUR 470,556 k had been drawn as of December 31, 2015 (December 31, 2014: EUR 501,070 k under the former, replaced credit facility agreement). The carrying amount was EUR 467,618 k as of December 31, 2015 (December 31, 2014: EUR 497,516 k under the former, replaced credit facility agreement). The difference between the notional amount and the carrying amount is due the allocated transaction costs accounted for applying the effective interest rate method. alstria Annual Report 2015 115 Consolidated financial statements To secure the liabilities of the loans, receivables from rental and property purchase agreements as well as insurance receivables and derivative financial instruments were assigned to the lenders. In addition, liens were granted on bank accounts and the registration of land charges was agreed (Note 10.6). More information on terms and conditions of the syndicated loan and the other loans can be found in the table on page 129 in Section 18.1 of the notes. Loans Deutsche Office portfolio Secured loans were acquired with fair values of EUR 1,000,804 k as a result of the business combination with Deutsche Office as of October 27, 2015. All loans are property-related and have been concluded with various banks. Mortgages and other bank collateral secure the loans. By the reporting date, EUR 186,729 k of these loans were repaid and refinanced with a portion of EUR 149,275 k by the corporate bond. Corporate bond In the fourth quarter of the reporting period, a bond loan in a total amount of EUR 500,000 k and a coupon of 2.25% p.a. were issued. The bond has a maturity until March 24, 2021, and was recognized with its carrying amount of EUR 495,378 k; additionally, interest liabilities in the amount of EUR 1,168 k were recognized as per the balance sheet date. The fair value amounted at balance sheet date to EUR 498,000 k. Convertible bond In the second quarter of financial year 2013, alstria office REIT-AG issued a convertible bond generating proceeds of EUR 79,400 k. The convertible bond has a term to maturity of five years. It will be redeemed at 100% of its principal amount. It has a coupon of 2.75% p.a., payable in quarterly instalments in arrears and an initial conversion price of EUR 10.0710. In line with the terms and conditions of the convertible bond the conversion price was adjusted to EUR 9.6104 during financial year 2015. The issuing volume resulting from the convertible bond loan amounted to EUR 79,400 k. After having exercised conversion rights for a notional value of EUR 200 k, an amount of EUR 79,200 k of the convertible bond remains included in the financial liabilities. It is divided into a loan portion and a financial liability in the form of an embedded derivative. 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 corresponds to the emission volume. As a part of the allocation of the issue proceeds, the fair value of the embedded derivative was determined and the residual value less transaction costs was assigned to the loan component. Subsequently, the loan component is valued at amortized cost. The derivative component is, however, valued at fair value at the end of subsequent reporting periods. Upon conversion into shares, both components, which are 116 alstria Annual Report 2015 Consolidated financial statements discontinued upon conversion of the bond, are reclassified as equity. The alstria office REIT-AG issued this bond based on the authorization received from the Annual General Meeting in 2013. The convertible loan has a carrying amount without accrued interests of EUR 71,640 k and a market value of EUR 103,871 k. Under consideration of the embedded derivative amounting to -EUR 22,826 k contained in the convertible bond, which is accounted for under the non-current derivative liabilities and reflects part of the difference between carrying amount and market value, the fair value of the convertible bond liability amounts to EUR 81,045 k. Further details regarding the loan liabilities The current portion of the loans refers to scheduled repayments and accrued interest on the loans. 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 37,100 k (December 31, 2014: EUR 105,360 k) in financial liabilities from non- recourse loans relates to a fixed interest rate loan. At the end of the reporting period, the loan had a fair value of EUR 41,338 k (December 31, 2014: EUR 114,060 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 of December 31, 2015, the loans and the convertible bond were reduced by accrued transaction costs of EUR 12,352 k (December 31, 2014: EUR 6,336 k). The average debt maturity decreased from 5.3 years as of December 31, 2014 to 3.7 years as of December 31, 2015. The Group's average interest rate decreased from 3.4% to 2.8% from balance sheet date to balance sheet date. The carrying amounts of the loans are all reported in euros. With the exception of the fixed rate loans, the corporate bond and the convertible bond described above, the fair values of the Group’s financial liabilities approximate their carrying values at the end of the reporting period. This does not apply to their accrued transaction costs. The liabilities exposed to an interest rate risk are due as follows: EUR k Up to 1 year More than 1 year Total Dec. 31, 2015 Dec. 31, 2014 371,069 1,115,704 1,486,773 3,539 706,787 710,326 alstria Annual Report 2015 117 Consolidated financial statements The following loans are secured by land charges: EUR k Financial liabilities secured by land charges thereof on investment property thereof on held for sale property thereof on own used property 11.3 Other Provisions Dec. 31, 2015 Dec. 31, 2014 1,523,710 1,462,806 56,458 4,446 812,332 807,796 0 4,536 Due Due up to 1 year in more than1 year Total Dec. 31, 2015 up to 1 year in more than 1 year Total Dec. 31, 2014 EUR k Other provisions Rental guarantee Provision virtual share liabilities Other 0 1,494 300 1,794 1,244 1,976 0 3,221 1,244 3,470 300 5,014 48 139 274 461 2,277 1,351 0 3,628 The development of other provisions is shown in the following overview: EUR k development of other provisions Rental guarantee Provision virtual share liabilities Other Dec. 31, 2014 Consumption Resolution Additions 2,325 1,490 274 4,089 -119 -636 -274 -1,029 -962 0 0 -962 0 2,616 300 2,916 In connection with property sales, the Group has committed itself to compensate buyers for possible shortfalls in rental income for rental agreements that are in place with certain tenants and are not extended at the disposal date. A provision amounting to EUR 1,244 k was calculated as the net present value of possible cash outflows from this rental guarantee, for which a realization is more likely than not. The commitment relates to a six-year rental period starting in 2014. As of December 31, 2014, the provision for the rental guarantees amounted to EUR 2,325 k reflecting a decrease of EUR 1,081 k. In addition EUR 3,470 k (December 31, 2014: EUR 1,490 k) were recognized as a provision for awarding the Long- and Short-Term Incentive Plan (Note 17.1). Other provisions were made for potential costs of litigation. At the balance sheet date, there were no significant legal proceedings in which it was assumed that alstria office REIT-AG or its affiliates could be subject to claims for payments. The main part of the provision was therefore made for the litigation costs for lawyers and court fees for cases in which alstria office REIT-AG or its subsidiaries act as plaintiff. 118 alstria Annual Report 2015 2,325 1,490 274 4,089 Dec. 31, 2015 1,244 3,470 300 5,014 Consolidated financial statements 11.4 Trade payables and other liabilities Due up to 1 year in more than 1 year Total Dec. 31, 2015 Due up to 1 year in more than 1 year Total Dec. 31, 2014 EUR k Trade payables For structural improvements For property management For surplus advance payments on service charges For sale of properties Other trade payables 5,767 4,895 4,774 534 4,507 20,477 Other current liabilities Real estate transfer tax 14,909 Accruals for outstanding invoices Rent and security deposits Personnel liabilities Advance rent payments received Value added tax liabilities Auditing costs Customers with credit balances Supervisory Board compensation Miscellaneous other liabilities 8,682 5,094 4,528 3,960 1,381 743 439 353 1,100 41,189 0 0 0 0 0 0 0 0 1,854 0 0 0 0 0 0 0 5,767 4,895 4,774 534 4,507 1,588 967 943 0 891 20,477 4,389 14,909 0 8,682 6,948 4,528 3,960 1,381 743 439 353 1,100 4,798 1,064 1,238 1,468 157 271 415 305 644 0 0 0 0 0 0 0 0 2,036 0 0 0 0 0 0 0 1,588 967 943 0 890 4,389 0 4,798 3,100 1,238 1,468 157 271 415 305 644 1,854 43,042 10,360 2,036 12,396 Real estate transfer tax in an amount of EUR 13,199 k resulted from the merger between Deutsche Office and the Prime Office REIT-AG in the year 2013. For three properties transferred within the merger, the real estate transfer tax obligation is still due. Since this commitment has been consoli- dated as result of the business combination with Deutsche Office in the financial year 2015, a dis- closure in the consolidated financial statements of alstria as of December 31, 2014 was not to be made. Furthermore, EUR 1,710 k real estate transfer tax liability was made for the purchase of a property acquired by agreement of November 26, 2015, but was transferred economically as of January 1, 2016 to the Company. The increase in personnel liabilities was mainly due to severance payments for employees amount- ing to EUR 1,200 k, based on signed termination agreements in connection with the closure of the Cologne office as a result of the take-over of Deutsche Office AG by alstria, and to the final pay- ment of EUR 1,384 k for a Management Board member who made use of his change-in-control clause in connection with the takeover by alstria. The disclosed carrying amounts approximate their fair values. alstria Annual Report 2015 119 Consolidated financial statements 11.5 Deferred taxes liabilities and income tax liabilities The recognition of deferred tax liabilities and tax liabilities as of December 31, 2015 is described in Note 9.10 income tax expenses. Obligations arising from income taxes arise almost exclusively at the level of the Deutsche Office companies acquired through business combination on October 27, 2015. The tax liabilities mainly resulted from taxes arising out of the realization of hidden reserves in the context of reorganization measures in the Deutsche Office companies and the corresponding rever- sal of deferred tax assets from the previous year. The reorganization measures concern in particular the intra-group sale of real estate at market prices and the corresponding realization of hidden re- serves under use of tax loss carryforwards. Due to its REIT status, alstria office REIT-AG has been fully exempt from income taxes from January 1, 2007 onwards. Therefore, deferred taxes are not reported at the end of the prior years’ reporting period. 11.6 Trust assets and liabilities At the end of the reporting period, alstria office REIT-AG held trust assets worth EUR 629 k (December 31, 2014: EUR 1,653 k) and liabilities worth EUR 4,154 k from rent deposits and EUR 2,794 k from security deposits. As of December 31, 2014, EUR 1,064 k rent deposits and EUR 2,034 k security deposits existed. 12. OTHER NOTES 12.1 Compensation of the Management Board and Supervisory Board Management Board The following total remuneration was granted to the members of the Manage- ment Board according to IAS 24.17 and HGB Section 314, para. 1, no. 6: EUR k Short-term benefits Share-based payments Post-employment benefits Total 2015 1,162 125 905 2,192 2014 1,156 125 905 2,186 On the reporting date, liabilities for the compensation of the members of the Management Board amounted to EUR 378 k (2014: EUR 378 k). As of December 31, 2015, 356,256 virtual shares had been granted to the members of the Management Board (compared to 363,347 on December 31, 2014; see also Note 17.1). For services as a member of the supervisory board of a subsidiary, a board member received a further remuneration of EUR 5 k. Supervisory Board Pursuant to the Articles of Association, Supervisory Board members’ fixed 120 alstria Annual Report 2015 Consolidated financial statements annual payments amounted to EUR 353 k (2014: EUR 305 k). For services as member of the supervisory board of a subsidiary, four members of the Supervisory Board of alstria office REIT-AG received in addition remunerations of EUR 10 k. Further information on disclosures from HGB Section 314, para. 1, no. 6a (German Commercial Code) and IAS 24.17 is provided in the remuneration report (see pages 167 to 173), which is an inte- gral part of these Notes. This information is also presented in the corporate governance chapter. 12.2 Other financial commitments and contingencies Other financial obligations from refurbishment projects and ongoing maintenance amounted to EUR 17,250 k (2014: EUR 10,645 k). With respect to property sales, the Group has committed to compensating buyers for possible shortfalls in rental income in case the rental agreements that exist with certain tenants are not extended at the disposal date. Contingencies resulting from this commitment do not exist, as the whole obligation was recognized as a provision. The commitment relates to a six-year rental period that started in 2014. As of December 31, 2015, no rental agreements for the administrative premises were subject to a minimum lease term. Future financial obligations of EUR 644 k arose from other leasing agreements. Of these, obligations totaling EUR 233 k have a residual maturity of up to one year; the remainder, EUR 411 k, has a remaining maturity of one to five years. Operating lease commitments – Group as lessor The Group has entered into commercial property leases on its investment property portfolio, which consists of the Group’s offices and commercial real estate. These noncancelable leases have remaining maturity of between one and 20 years. Most leases include an indexation clause that allows rental charges to be raised annually according to prevailing market conditions. Future minimum rental charges receivable as agreed on in noncancelable operating leases are as follows: EUR k Within 1 year After 1 year but not longer than 5 years More than 5 years Dec. 31, 2015 Dec. 31, 2014 210,785 519,953 393,134 1,123,872 95,768 274,190 305,032 674,990 12.3 Consolidated cash flow statement The cash flow statement shows how the Group’s cash and cash equivalents have changed over the course of the financial year as a result of cash received and paid. In accordance with IAS 7, a dis- tinction is made between cash flows from operating activities and cash flows from investing and financing activities. alstria Annual Report 2015 121 Consolidated financial statements Cash flows from investing and financing activities are calculated based on payments, whereas cash flows from operating activities are derived indirectly based on the consolidated profit for the year. The net cash generated from operating activities for financial year 2015 amounted to EUR 45,631 k, which was higher than the amount in the 2014 comparison period (EUR 52,889 k). This mainly resulted from the payment of transaction costs in relation to the takeover of Deutsche Office. The cash flow from investing activities is affected by the net inflow of cash and cash equivalents from the merger with Deutsche Office in the amount of EUR 116,029 k and capital distributions from joint ventures in the amount of EUR 12,636 k; the cash flows from real estate transactions were roughly balanced. The cash flows from financing activities mainly reflect refinancing activities, with EUR 292,512 k in payments for the redemption of borrowings and EUR 500,000 k in cash proceeds from the issuance of a corporate bond. Dividend payments resulted in cash outflows of EUR 43,470 k. Furthermore, cash outflows occurred due to terminations and adjustments of financial derivatives (EUR 35,741 k). Cash and cash equivalents reported in the cash flow statement relate to all the liquidity items disclosed in the balance sheet (e.g., cash at hand and bank balances). At the reporting date, cash in an amount of EUR 32,036 k was subject to restrictions. 13. RELATED PARTY RELATIONSHIPS 13.1 Preliminary remarks Related parties are the Management Board, the members of the Supervisory Board, the managing directors of subsidiaries and second-tier subsidiaries, and their close relatives. Related parties also include entities with a controlling influence over the Group and entities with joint control or significant influence over alstria office REIT-AG. The majority of alstria office REIT-AG’s shares are free-floating 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 REIT-AG has joint control are also considered related parties. In the view of alstria office REIT-AG’s management, all transactions with related parties entered into in financial year 2015 have been undertaken in terms of arm’s-length transactions or under conditions in alstria office REIT-AG’s favor. 13.2 Remuneration of key management personnel For a detailed description of the remuneration of key management personnel, please refer to Note 12.1 and the remuneration report (see pages 167 to 173 of the Corporate Governance Section). 122 alstria Annual Report 2015 Consolidated financial statements 13.3 Related party transactions At the end of the reporting period, the Group recorded no further receivables from joint ventures. As of December 31, 2014 receivables from joint ventures amounted to EUR 88 k. Furthermore, alstria office REIT-AG received EUR 87 k (2014: EUR 610 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. 14. EARNINGS PER SHARE Basic earnings per share are calculated as the quotient of the profit attributable to the shareholders and the weighted average number of shares outstanding during the financial year – except for the average number of treasury shares held by the Company itself. Diluted earnings per share are calculated 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 as all the dilutive potential ordinary shares are converted into ordinary shares. The following reflects the income and share data used in the earnings per share computations: Earnings per share Profit attributable to the shareholders (EUR k) Average number of shares outstanding (thousands) Basic earnings per share (EUR per share) 2015 -110,970 96,718 -1.15 2014 36,953 78,980 0.47 The potential conversion of shares in relation to the convertible bond could dilute basic earnings per share in the future: Diluted earnings per share Diluted profit attributable to the shareholders (EUR k) Average diluted number of shares (thousands) Diluted earnings per share (EUR) 2015 -108,792 104,959 -1.04 2014 39,137 87,072 0.45 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 conditions had not been satisfied as of the end of the reporting period. There were no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. alstria Annual Report 2015 123 Consolidated financial statements alstria office REIT-AG is authorized to issue up to EUR 38,798 k in shares as conditional capital. These contingently issuable shares could dilute basic earnings per share in the future, but they were not included in the calculation of diluted earnings per share because they are non-dilutive for the period presented. 15. DIVIDENDS PAID EUR k Dividends on ordinary shares1 not recognized as a liability as of Dec. 31 Dividend per share 2015 2014 43,470 0.50 39,467 0.50 1 Refers to all shares except treasury shares at the dividend payment date. At the Annual General Meeting held on May 6, 2015, alstria office REIT-AG resolved to distribute dividends totaling EUR 43,470 k (EUR 0.50 per outstanding share). The dividends were distributed on May 7, 2015. By comparison, the dividends paid out in 2014 totaled EUR 39,467 k (EUR 0.50 per outstanding share). 16. EMPLOYEES During the period from January 1 to December 31, 2015, the Company had 72 employees on average (January 1 to December 31, 2014: 62 employees on average). The average was calculated based the total number of employees at the end of each quarter. On December 31, 2015, 93 people were employed at alstria, excluding the Management Board members (December 31, 2014: 63 people). 17. SHARE-BASED REMUNERATION 17.1 Share-based remuneration for management board members On March 2, 2010, the Company’s supervisory board established a new share-based remuneration system as part of providing success-based remuneration for members of the Management Board. The share-based remuneration is made up of a long-term component, the Long-Term Incentive Plan (LTIP), and a short-term component, the Short-Term Incentive Plan (STIP). These plans offer cash- settled and share-based payment transactions, respectively. Under the LTIP, alstria office REIT-AG grants virtual shares, which give entitle the recipient to a conversion into cash payments after four years. The amount of the conversion payment is based on the number of virtual shares multiplied by the average stock market price of alstria’s shares on the Frankfurt Stock Exchange during the 60 trading days prior to the relevant maturity date, plus an amount equal to the sum of the dividend per share the Company paid to its shareholders between the grant date and the maturity date; in no event can the payment be higher than 250% of the average stock market price of alstria’s shares on the Frankfurt Stock Exchange in the 60 trading days prior to the relevant grant date multiplied by a specified discretionary factor. 124 alstria Annual Report 2015 Consolidated financial statements The discretionary factor is a multiplier that can vary between 0.8 and 1.2; it is subject to each participant’s individual performance during the holding period. The assessment of the target achievement depends equally on the absolute return of the alstria share price (absolute total shareholder return) and on the relative performance of alstria’s share in relation to the EPRA/NA-REIT Index Europe Ex UK (relative total shareholder return). Since the payment per vested virtual share depends on the average quoted price of alstria’s shares for 60 trading days, the quoted average prior to the end of the reporting period essentially represents the fair value of each virtual share. The virtual shares resulting from the STI remuneration are subject to a minimum vesting period of two years. Virtual STI shares are converted into a cash amount after the expiration of the vesting period. This cash amount is calculated based on the number of virtual shares multiplied by the share price of one alstria share at that time, which is in turn calculated based on a reference period. The table below summarizes the number of virtual shares granted under the existing STIP and LTIP that remain outstanding as of December 31, 2015. Start of defer- ral period Reference share price in EUR End of deferral period Number of virtual shares Number of virtual shares Olivier Elamine Alexander Dexne STIP 2013 STIP 2014 LTIP 2012 LTIP 2013 LTIP 2014 LTIP 2015 2014 2015 2012 2013 2014 2015 9.57 10.97 8.70 9.29 9.44 10.97 2016 2017 2016 2017 2018 2019 5,914 5,370 50,575 47,363 46,610 40,109 4,839 4,393 41,379 38,751 38,136 32,817 The development of the virtual shares until December 31, 2015, is shown in the following table: Number of virtual shares January 1 Granted in the reporting period Converted into cash in the reporting period December 31 2015 LTI 339,516 72,926 -76,702 335,740 STI 23,831 9,763 -13,078 20,516 2014 LTI 353,779 84,746 -99,009 339,516 STI 25,989 10,753 -12,911 23,831 The 13,078 virtual shares converted into cash under the STIP resulted in payments to the manage- ment board in an amount of EUR 156 k within the 2015business year. The conversion amount is the weighted average price of the first 20 trading days in the 2015 calendar year plus the dividend paid during the vesting period. It amounted to EUR 11.97, of which EUR 10.97 related to the share price alstria Annual Report 2015 125 Consolidated financial statements and EUR 1.00 related to the dividend paid. Under the LTIP, 76,702 virtual shares were converted, resulting in a payout of EUR 480 k. In 2015, the LTIP and the STIP generated remuneration expenses amounting to EUR 2,616 k (2014: EUR 749 k) and provisions amounting to EUR 3,470 k (2014: EUR 1,490 k). The Group recognizes the liabilities arising from the vested virtual shares under other provisions. 17.2 Convertible profit participation rights program On September 5, 2007, the Supervisory Board of the Company resolved the issuance of convertible profit participation certificates (“certificates”) to employees of the Company and of companies in which alstria office REIT-AG directly or indirectly holds a majority interest. Members of alstria office REIT-AG’s Management Board are not considered employees of the Company in terms of this convertible profit participation rights program. With a resolution, the Supervisory Board fixed the details of the convertible profit participation rights program in accordance with an authorization granted by the general meeting of shareholders on March 15, 2007. The convertible profit participation rights program was renewed by the Supervisory Board with minor modifications in 2012 in accordance with an authorization granted by the general meeting of shareholders on April 24, 2012. The main terms of the program’s Board can be summarized as follows: The nominal amount of each certificate is EUR 1.00, which is payable upon issuance. Under the program, a maximum of 500,000 certificates may be granted for using the conditional capital III (2012-2017) created by the Annual General Meeting in 2012. By the end of the reporting period, certificates were granted corresponding to EUR 426,050 of conditional capital. In 2015, the Annual General Meeting approved the establishment of additional conditional capital III (2015-2020) with an aggregate nominal value of up to EUR 500 k for the conversion of 500,000 certificates. At the end of the reporting period, no certificates in relation to this conditional capital (2015-2020) had been granted. The certificates are issued as nontransferable rights and are neither sellable, pledgeable, nor otherwise chargeable. The maximum term of each certificate is five years. During its term, each certificate entitles the holder to a disbursement corresponding to the amount of the dividend per share that the Company paid for a full business year. For certificates held by a beneficiary for less than a full business year, the profit share is reduced pro rata temporis. Each certificate shall be converted into one non-par-value bearer share in the Company on the second, third, fourth or fifth anniversary date of the issue date if the Company’s then-current stock exchange share price has exceeded the price on the issue date by 5% or more on at least seven non- subsequent trading days (market condition). For the 102,750 certificates issued on May 7, 2014, and 126 alstria Annual Report 2015 Consolidated financial statements the 121,000 certificates issued on May 7, 2015, this market condition was fulfilled until the end of the financial year 2015. Upon conversion of a certificate, the beneficiary shall pay an additional conversion price to the Company for each certificate to be converted. The conversion price shall be the aggregate proportionate amount of the Company’s share capital to which the certificate entitles the holder; this amount 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, and the conversion will be affected automatically once the barrier has been reached. The model takes into account the terms and conditions upon which the instruments were granted. The following share-based payment agreements under the employee profit participation program were in existence during the year. Number of Certificates Granting date of tranche June 9, 2011 June 7, 2013 May 22, 2014 May 7, 2015 Total January 1, 2015 59,500 96,800 107,250 Expired due to termination of employment Converted Granted December 31, 2015 0 -59,500 0 0 -300 -96,500 0 0 0 0 0 263,550 -4,800 -156,000 121,000 121,000 -4,500 0 0 102,750 121,000 223,750 The relevant amount for the conversion of 59,500 of the 2011 convertible profit participation rights certificates was the XETRA closing price on the conversion date: EUR 11.32 per share. For the con- version of 96,500 of the 2013 convertible profit participation rights certificates, the XETRA closing price on the conversion date was EUR 11.51 per share. Total expenses relating to convertible profit participation rights amounted to EUR 812 k in 2015 (see Note 9.5). The following table lists the inputs used to determine 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) Labor turnover rate (%) Stock price as of valuation date (EUR) Estimated fair value of one option for conversion at the granting date June 9, 2011 June 7, 2013 May 22, 2014 May 7, 2015 4.23 1.67 47.00 2.00 2.00 10.00 10.40 5.68 0.04 25.00 2.00 2.00 10.00 8.80 5.18 0.06 21.50 2.00 2.00 10.00 9.65 4.15 -0.18 19.30 2.00 2.00 9.1 12.05 8.25 6.18 6.77 8.77 alstria Annual Report 2015 127 Consolidated financial statements Expected volatility is based on an average of the historical volatility of alstria and the comparable listed companies. 18. FINANCIAL RISK MANAGEMENT 18.1 Managing financial risk factors The group’s activities expose it to a variety of financial risks related to interest rates, credit, and liquidity. The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the group’s financial performance. The group uses derivative financial instruments to hedge certain exposures to risk. The treasury function (group treasury) within the finance and controlling department carries out the management of financial risks. The group treasury identifies, evaluates, and hedges financial risks in close cooperation with the CFO. The Management Board provides written principles for overall risk management and policies that cover specific areas, such as interest rate risk and credit risk, making use of derivative and nonderivative financial instruments and of excess liquidity investment. The financial instruments that the Group chiefly uses are bank loans and derivative financial instruments. In addition, a corporate bond with a nominal amount of EUR 500,000 k was issued in the 2015 financial year. The main purpose of the bank loans and the corporate bond is to finance the alstria office REIT-AG’s business activities. In addition, the Group also owns various financial assets, such as cash and short-term deposits, which arise directly from business activities. Derivative financial instruments comprise interest swaps and caps. The purpose of these derivative financial instruments is to hedge against the interest risks that arise from the Group’s business activities and funding. The main risks arising from the Group’s financial instruments relate to cash flow, interest rates, and liquidity. The Group is exposed to credit risks mainly due to derivative financial instruments being held as assets and due to 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 strategies and processes for managing specific risk types. These are defined in the following paragraphs. Risks that could arise as a result of an economic slowdown are seen mainly in the potential default of payment by a major tenant. Due to the fact that all of the Company’s main tenants are public institutions or are still highly rated, the risk of such defaults is currently limited. The loan agreements of alstria Group allow for loan-to-value (LTV) ratios as outlined by the following table. As represented in the overview, the Group managed to keep its LTV below the LTV of the loan at the relevant date – in some cases significantly. The risk of a breach of covenant is effectively countered. The following table presents the single-LTV ratios and covenants for the Group’s loans as of the end of the reporting period 128 alstria Annual Report 2015 Consolidated financial statements Existing loan agreements as per December 31, 2015 Liabilities Syndicated loan #1 Syndicated loan #21) Syndicated loan #3 Non-recourse loan #12) Loan #23) Loan #3 Loan #4 Loan #5 Loan #6 Loan #7 Loan #8 Loan #9 Loan #10 Total loans Bond Convertible bond Total Net LTV Maturity Sept. 30, 2020 Feb. 22, 2016 Sept. 30, 2018 Dec. 31, 2015 Dec. 31, 2014 Sept. 30, 2019 June 30, 2017 Apr. 30, 2021 Mar. 28, 2024 Dec. 17, 2018 Dec. 31, 2018 Dec. 30, 2017 July 30, 2021 Mar. 24, 2021 June 14, 2018 Principal amount drawn as of Dec. 31, 2015 EUR k LTV as of Dec. 31, 2015 % LTV cove- nant % 470,556 331,910 336,320 0 0 67,000 58,868 60,048 56,500 56,000 53,432 18,507 15,423 1,524,564 500,000 79,200 2,103,764 47.1 58.6 58.6 - - 45.2 58.4 50.5 50.2 45.9 57.3 51.1 52.1 52.1 - – 63.1 49.3 70.0 72.0 75.0 - - 65.0 n/a 66.0 75.0 60.0 65.0 73.0 60.0 – - – – Principal amount drawn as of Dec. 31, 2014 EUR k 501,070 0 0 68,260 2,617 67,000 0 60,739 60,000 56,000 0 0 0 815,686 0 79,400 895,086 1) Loan agreement terminated; withdrawal occurred on February 22, 2016. 2) Loan agreement terminated as of December 31, 2015. 3) Loan agreement termination took effect on December 31, 2014; withdrawal occurred on January 02, 2015. Apart from the risks mentioned above, the Group is not exposed to any commodity or currency risks. alstria Annual Report 2015 129 Consolidated financial statements a) Interest rate risk The following table sets out the carrying amount of the Group’s financial instruments, which are ex- posed to interest rate risk by maturity: EUR k Financial year ending Dec. 31, 2015 Variable interest Syndicated loans alstria Deutsche Office portfolio loans Other loans Total < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total 27,401 0 0 0 443,155 470,556 342,516 1,152 84,094 921 372,892 56,921 371,069 85,015 429,813 155 67,921 68,076 14,803 74,841 814,460 201,757 532,799 1,486,773 EUR k < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total Financial year ending Dec. 31, 2014 Variable interest Syndicated loan Other loans Total 0 3,538 3,538 0 921 921 0 921 921 15,000 56,921 486,070 146,953 501,070 209,254 71,921 633,023 710,324 Due to the extensive portfolio of noncurrent financial liabilities with variable interest rates, 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 adjusted every three months. A number of derivative financial instruments were acquired to secure the interest expense. The derivatives’ terms to maturity generally correspond to those of the loans. The derivative financial instruments relate to interest swaps, for which the Company agrees to exchange with contracting partners the difference between the fixed and variable interest rate amounts at specified intervals. The amounts are calculated by reference to an agreed-upon notional principal amount. In addition, the Company acquired interest caps; that is, the interest is capped at a predetermined maximum. If the maximum interest rate is exceeded, the difference between the actual interest rate and the cap rate is paid out. The derivative financial instruments of alstria office REIT-AG, as of December 31, 2015, are pre- sented on page 108. These interest rate swaps and caps are used to hedge the obligation underlying the loans. The following table shows the sensitivity of the Company’s loans to consolidated profit or loss and equity due to a reasonably possible change in interest rates (due to the effect on the floating interest loans). All variables remain constant; the effects from the derivative financial instruments 130 alstria Annual Report 2015 Consolidated financial statements were not factored into this calculation. Interest expenses per annum EUR k + 100 bps – 50 bps 2015 7,382 -484 2014 7,103 -3,552 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 in respective fair market values: aa) Impact on equity Financial derivatives qualifying for cash flow hedge accounting EUR k + 100 bps – 50 bps 2015 13,771 -3,574 ab) Impact on income statements and on equity Financial derivatives not qualifying for cash flow hedge accounting Impact from 3-month EURIBOR interest rate changes: EUR k + 100 bps – 50 bps 2015 19,361 -8,926 2014 21,157 -6,473 2014 11,643 -1,309 Impact from changes in alstria office REIT-AG’s share price (only relating to the embedded derivative): EUR k Share price compared to the 2015 year- end price (EUR 9.15) + 10 percent  –  10 percent 2015 2014 -8,512 7,587 -6,774 5,417 alstria Annual Report 2015 131 Consolidated financial statements b) Credit risk Except for those relating to accounts receivable balances, credit risks are managed at the group level. The department responsible for managing the operating business property oversees and analyses credit risks in relation to each re-letting activity, before the standard payment and lease terms and conditions are offered. Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, and credit exposures to customers (including outstanding receivables and other compensatory commitments). Only banks and financial institutions are accepted as counterparties – and only if they are independently rated parties with a minimum rating of “investment grade.” If tenants are independently rated, these ratings are applied. If there is no independent rating, the tenant’s credit quality is assessed, taking into account his or her financial position, past experience, and other factors. Credit limits are generally not provided to tenants. Lease receivables from tenants are settled in bank transfers, which are usually due at the beginning of each payment term. Tenants must pay a deposit or provide other warranties prior to the start of a lease term. c) Liquidity risk The Company continually monitors the Group-wide risk of potential liquidity bottlenecks using 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 Group’s long-term refinancing strategy ensures that these medium- and long-term liquidity requirements are met. Such forecasting considers the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet targets, and, if applicable, external regulatory or legal requirements (i.e., G-REIT equity ratio). At the end of the reporting period, the nominal financial liabilities had the following maturities in line with their contractual maturity (based on the three-month EURIBOR) as of December 31, 2015. 132 alstria Annual Report 2015 Consolidated financial statements The following chart shows the related future undiscounted cash flows of financial liabilities. EUR k < 1 year 1–2 years 2–3 years 3–4 years 4–5 years >5 years Total Financial year ending Dec. 31, 2015 Interest Loans Corporate Bond Convertible Bond Financial derivatives Trade payables Other liabilities 32,669 33,369 31,407 23,961 21,868 16,767 160,041 370,838 85,015 429,813 68,076 444,232 126,359 1,524,333 0 0 374 20,477 47,970 0 0 290 0 309 0 79,200 0 0 0 0 -385 -1,613 -2,059 0 309 0 309 0 309 500,000 500,000 0 0 0 309 79,200 -3,393 20,477 49,515 472,328 118,983 540,344 90,733 464,350 643,435 2,330,173 EUR k < 1 year 1–2 years 2–3 years 3–4 years 4–5 years >5 years Total Financial year ending Dec. 31, 2014 Interest Loans Convertible Bond Financial derivatives Trade payables Other liabilities 18,138 18,090 16,064 15,164 13,694 16,141 97,291 5,923 2,930 64,789 71,921 77,921 592,202 815,686 0 0 0 79,400 0 0 79,400 6,106 4,389 10,360 -281 -704 -1,268 -1,896 -1,954 0 0 0 0 0 0 0 0 0 0 3 4,389 10,360 44,916 20,739 80,149 165,217 89,719 606,389 1,007,129 Details on the loans, borrowings, and bonds can be found in Note 11.2. The maturity profile of the loans is shown on page 20 in the Group Management Report. To secure these liabilities, receivables from rental and property purchase agreements and from insurance and derivative financial instruments were assigned to the lenders; liens were granted on bank accounts, and charges were registered on the land. Obligations arising from floating interest bank loans were fully secured. Land charges for real estate properties with a carrying amount of EUR 3,036,702 k (December 31, 2014: EUR 1,645,840 k) were provided as collateral. 18.2 Capital management Capital management activities are aimed at maintaining the Company’s classification as a REIT in order to support its business activities and maximize shareholder value. The Company actively manages its capital structure and makes adjustments in response to changes in economic conditions. To maintain or adjust the capital structure, the Group can make a capital repayment to its shareholders or issue new shares. No changes had been made to the aims, guide- lines, and processes as of December 31, 2015, or as of December 31, 2014. The Company monitors its capital structure by using the performance indicators relevant for its classification as a REIT. The REIT equity ratio, which is the ratio of equity to immovable assets, is the most important of these indicators. According to the Group’s strategy, the REIT equity ratio is alstria Annual Report 2015 133 Consolidated financial statements aimed at between 45% and 55%, within the relevant term provided by the REIT law. G-REIT status is unaffected as long as the G-REIT ratio is not below 45% at the end of the business year for three consecutive business years. The following ratios are also used to manage capital: Ratios according to G-REIT law % Equity ratio acc. to G-REIT law Immovable assets Revenues gained from immovable assets Income gained from disposal of immova- ble assets 2015 49.37 87.21 100.00 14.64 2014 50.25 95.23 100.00 18.67 G-REIT covenant > 45 > 75 > 75 < 501 1) Within five years based on the average property value during this period. The following table shows the carrying amount and fair value of all financial instruments disclosed in the consolidated financial statements: Carrying amount Nonfinan- cial assets Financial assets Financial assets at fair value through p/l2) Fair value derivatives for Hedging3) 0 0 0 0 Total 12,578 Fair value 12,578 0 0 1,110 7,352 8,462 8,462 Loans and receivables1) 12,578 0 0 0 0 0 Assets as per balance sheet (EUR k) as of Dec. 31, 2014 Trade receivables 12,578 Accounts receivable from joint ventures Derivatives Receivables and other assets Cash and cash equiva- lents 0 8,462 10,008 7,305 2,703 460,253 0 460,253 0 0 0 0 2,703 2,703 460,253 460,253 Total 491,301 7,305 475,535 1,110 7,352 483,996 483,996 134 alstria Annual Report 2015 Consolidated financial statements Carrying amount Nonfinancial liabilities Financial liabilities Liabilities as per balance sheet (EUR k) as of Dec. 31, 2015 Long-term loans 1,715,590 Derivatives Short-term loans Trade payables Other liabilities 23,208 376,402 20,477 51,670 Total 2,187,347 Liabilities at fair value through p/l4) Financial Liabilities5) Total Fair value 0 0 0 0 3,960 3,960 0 1,715,590 1,715,590 1,718,212 23,208 0 0 376,402 16,007 30,228 4,470 17,481 23,208 376,402 20,477 47,709 23,208 376,402 20,477 49,923 69,443 2,113,943 2,183,386 2,188,222 63,145 83,514 Carrying amount Carrying amount Nonfinancial assets Loans and receiva- bles1) 3,498 88 0 0 0 0 3,498 88 6,643 10,140 6,538 3,602 0 63,145 Financial assets Financial assets at fair value through p/l 2) Fair value derivatives for Hedging3) 0 0 0 0 Total 3,498 Fair value 3,498 88 88 451 6,192 6,643 6,643 0 0 0 0 3,602 3,602 63,145 63,145 6,538 70,333 451 6,192 76,976 76,976 Nonfinancial liabilities Liabilities at fair value through p/l4) 0 19,686 0 0 0 Financial liabilities Financial Liabilities5) Total Fair value 874,025 874,025 882,725 0 19,686 19,686 7,702 4,389 7,702 4,389 7,702 4,389 11,091 11,091 11,091 19,686 897,207 916,893 925,593 874,025 19,686 7,702 4,389 12,396 918,198 0 0 0 0 1,305 1,305 Assets as per balance sheet (EUR k) as of Dec. 31, 2014 Trade receivables Accounts receivable from joint ventures Derivatives Receivables and other assets Cash and cash equiva- lents Total Liabilities as per balance sheet (EUR k) as of Dec. 31, 2014 Long-term loans Derivatives Short-term loans Trade payables Other liabilities Total 1) The category "loans and receivables" includes all valued at amortized cost financial assets. 2) The "fair value - financial assets" does not include the part of a designated hedging relationship, held for trading derivatives, which are valued at fair value. 3) The "fair value - hedging instruments" includes derivatives designated to be measured at fair value as effective hedging instruments. 4) The category "fair value - financial liabilities" includes not as part of a designated hedging relationship, held for trading derivatives, which are valued at fair value. 5) The category "financial liabilities" includes all valued at amortized cost financial liabilities. alstria Annual Report 2015 135 Consolidated financial statements Independent experts determined the fair value of the derivative financial instruments by discount- ing the expected future cash flows at prevailing market interest rates. The net gains and losses from these financial instruments are as follows: EUR k Fair value - financial assets Fair value - hedging instruments Fair value - financial liabilities Loans and receivables Total 2015 -195 -2,890 -3,233 -430 -6,748 2014 -1,069 -22,181 4,122 -114 -27,476 The net losses during the reporting period resulted from valuation losses and, in the case of loans and receivables, from write-downs of trade receivables. 18.3 Determination of fair value The fair value of financial instruments that are not traded in an active market (i.e., over-the- counter derivatives) is determined using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely on entity-specific estimates as little as possible. If all significant inputs that are required to ascertain the fair value of an instrument are observable, the instrument is included in level 2. An independent expert determined the fair value of the derivative financial instruments by dis- counting the expected future cash flows at prevailing market interest rates. Future cash flows were estimated at the end of the reporting period based on forward interest rates from observable yield curves and on contractually agreed interest rates. These rates are discounted to reflect the credit risk of the various counterparties. All of the Group’s financial instruments, which are measured at fair value in the balance sheet, are valued by applying the level 2 valuation measurement approach. This only applies to the Group’s financial derivatives, as no other financial instruments are measured in the balance sheet at fair value. 19. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD In November 2015, alstria signed a purchase agreement for the acquisition of an asset in Hamburg. The transfer of benefits and burdens took place on January 1, 2016, after the reporting period had ended. The Herkules loan was terminated prematurely on December 14, 2015 and repaid in an amount of EUR 330,472 k on February 22, 2016 – after the reporting period. 136 alstria Annual Report 2015 Consolidated financial statements 20. UTILISATION OF EXEMPTING PROVISIONS 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:          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 21. DISCLOSURES PURSUANT TO THE WERTPAPIERHANDELSGESETZ [GERMAN SECURITIES TRADING ACT] 21.1 Ad hoc announcement The following table summarizes the announcements pursuant to Section 15, para. 1 of German Secu- rities Trading Act (WpHG) as the Company published during the reporting period: Date Topic Mar. 24, 2015 Capital increase, up to 7,901,847 new shares to finance further growth Mar. 24, 2015 alstria office REIT-AG successfully executed capital increase with gross proceeds of EUR 102.7 m June 16, 2015 July 23, 2015 Oct. 2, 2015 Oct. 27, 2015 Exchange offer and capital increase Extraordinary shareholders’ meeting approves capital increase in connection with takeover offer to the shareholders of DO Deutsche Office AG Regarding the takeover offer to DO Deutsche Office AG - minimum acceptance rate exceeded alstria office REIT-AG announces the successful closing of its voluntary public takeover offer to the share- holders of DO Deutsche Office AG Nov. 3, 2015 alstria office REIT-AG acquires additional 4.00% of DO Deutsche Office AG against issuance of new shares Nov. 17, 2015 alstria office REIT-AG issues corporate bond with a nominal value of EUR 500 m alstria Annual Report 2015 137 Consolidated financial statements 21.2 Directors’ dealings The following table summarizes the transactions reported to the Company pursuant to Section 15a, para. 1 of WpHG during the reporting period: 1. Transaction 2. Transaction Alexander Stuhlmann Alexander Stuhlmann Member of the supervisory board Member of the supervisory board Name of person subject to the disclosure requirement Function Classification of the financial instrument ISIN Transaction Place Share DE000A0LD2U1 Sell XETRA Transaction date Jan. 23, 2015 Price per share in EUR Number of shares Deal volume in EUR 11.33225 2,000 22,664.50 21.3 Voting right notifications Share DE000A0LD2U1 Sell XETRA Feb. 2, 2015 11.461545 1,000 11,461.55 This information is according to Section 160, para. 1, No. 8 of the German Stock Corporation Act (Aktiengesetz, AktG). The following table shows shareholdings in the Company that were in place on the 2015 balance sheet date and that were communicated to the Company pursuant to Section 21, para. 1 of WpHG and published pursuant to Section 26, para. 1 of WpHG. Moreover, shareholdings were considered if they were in place until the date of the preparation of the financial statements, if they were communicated to us pursuant to Section 21, para. 1 of WpHG and if they were pub- lished pursuant to Section 26, para. 1 of WpHG. The Company did not receive any notifications pur- suant to Section 20, paras. 1 and 4 of AktG or pursuant to Section 21, para. 1a of WpHG during the reporting period. 138 alstria Annual Report 2015 No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Shareholders, registered office BlackRock Advisors Holdings, Inc., New York, NY, USA BlackRock Group Limited, London, United Kingdom BlackRock International Holdings, Inc., New York, NY, USA BR Jersey International Hold- ings L.P., St. Helier, Jersey, Cayman Islands Deutsche Bank AG, Frankfurt am Main, Germany BlackRock, Inc., Wilmington, Delaware, USA BlackRock Holdco 2, Inc., Wilmington, Delaware, USA BlackRock Financial Manage- ment, Inc., Wilmington, Delaware, USA BNP Paribas Investment Partners UK Ltd, London, United Kingdom BNP Paribas Investment Partners Belgium S.A., Brussels, Belgium FMR LLC, Boston, USA OCM Luxembourg EPOF Her- kules Holdings S.à.r.l, Lux- embourg, Grand Duchy of Luxembourg OCM Luxembourg EPOF S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM European Principal Opportunities Fund, L.P., George Town, Grand Cay- man, Cayman Islands OCM European Principal Opportunities Fund GP, L.P., George Town, Grand Cay- man, Cayman Islands OCM European Principal Opportunities Fund GP, Ltd., George Town, Grand Cay- man, Cayman Islands Oaktree Fund GP I, L.P., Wilmington, Delaware, USA Oaktree Capital I, L.P., Wilmington, Delaware, USA OCM Holdings I, LLC, Wil- mington, Delaware, USA Oaktree Holdings, LLC, Wil- mington, Delaware, USA Consolidated financial statements Voting rights (new) (in %) 2.95 2.97 2.9996 2.9996 Strike threshold (in %) 3 3 3 3 Date of change Feb. 10, 2015 Mar. 6, 2015 Mar. 13, 2015 Mar. 13, 2015 0.00 3 and 5 Mar. 30, 2015 2.9998 2.9998 2.9998 2.45 2.45 2.86 3.56 3.56 3 3 3 3 3 3 3 3 May 22, 2015 May 22, 2015 May 22, 2015 July 20, 2015 July 20, 2015 Oct. 6, 2015 Oct. 27, 2015 Oct. 27, 2015 3.56 3 Oct. 27, 2015 3.56 3 Oct. 27, 2015 3.56 3 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 Attribution of voting rights Contains 3% or more of voting rights from Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes - - - - - - - - - - - - - - - - UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG alstria Annual Report 2015 139 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Oaktree Capital Group, LLC, Wilmington, Delaware, USA Oaktree Capital Group Hold- ings, LP, Wilmington, Dela- ware, USA Oaktree Capital Group Hold- ings GP, LLC, Wilmington, Delaware, USA OCM Luxembourg POF IV Herkules Holdings S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM Luxembourg POF IV S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM Principal Opportunities Fund IV, L.P., George Town, Grand Cayman, Cayman Islands OCM Principal Opportunities Fund IV GP, L.P., George Town, Grand Cayman, Cay- man Islands OCM Principal Opportunities Fund IV GP Ltd, George Town, Grand Cayman, Cay- man Islands OCM Luxembourg OPPS VII Homer Holdings S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM Luxembourg OPPS VII S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM Opportunities Fund VII, L.P., George Town, Grand Cayman, Cayman Islands OCM Opportunities Fund VII GP, L.P., George Town, Grand Cayman, Cayman Islands OCM Opportunities Fund VII GP Ltd., George Town, Grand Cayman, Cayman Islands OCM Luxembourg OPPS Her- kules Holdings S.à.r.l, Lux- embourg, Grand Duchy of Luxembourg OCM Luxembourg OPPS VI S.à.r.l, Luxembourg, Grand Duchy of Luxembourg OCM Opportunities Fund VI L.P., Wilmington, Delaware, USA OCM Opportunities Fund VI GP, L.P., Wilmington, Dela- ware, USA J.P. Morgan Investment Management Inc., New York, USA JPMorgan Asset Management (UK) Limited, London, United Kingdom Consolidated financial statements 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 25.38 3, 5, 10, 15, 20, 25 Oct. 27, 2015 5.97 3 and 5 Oct. 27, 2015 5.97 3 and 5 Oct. 27, 2015 5.97 3 and 5 Oct. 27, 2015 5.97 3 and 5 Oct. 27, 2015 5.97 3 and 5 Oct. 27, 2015 4.63 4.63 4.63 4.63 4.63 3 3 3 3 3 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 7.31 3 and 5 Oct. 27, 2015 7.31 3 and 5 Oct. 27, 2015 7.31 3 and 5 Oct. 27, 2015 7.31 3 and 5 Oct. 27, 2015 1.77 1.77 3 3 Nov. 3, 2015 Nov. 3, 2015 140 alstria Annual Report 2015 UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG - - - - - - - - - - UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG UBS Deutschland AG; UniCredit Bank AG - - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Consolidated financial statements 40 41 42 43 44 45 46 47 48 49 JPMorgan Chase Bank, Na- tional Association, Columbus, Ohio, USA Cohen & Steers Capital Man- agement, Inc., New York, USA CNP Assurances SA, Paris, France BNP Paribas Investment Partners S.A., Paris, France BNP Paribas Asset Manage- ment SAS, Paris, France BNP Paribas Investment Partners Luxembourg, Hespe- range, Luxembourg UBS Finanzholding GmbH, Frankfurt am Main, Germany UBS Beteiligungs-GmbH & Co. KG, Frankfurt am Main, Germany UBS Deutschland AG, Frank- furt am Main, Germany UBS Group AG, Zurich, Switzerland 50 UBS AG, Zurich, Switzerland 51 UniCredit S.p.A., Rome, Italy 52 53 54 UniCredit Bank AG, Munich, Germany Cohen & Steers, Inc., New York, USA Brookfield Investment Man- agement, Inc., New York, USA 1.77 2.20 2.71 4.51 2.42 1.96 0.00 0.00 0.00 1.04 1.04 0.00014 0.00014 2.92 2.96 3 3 3 5 3 3 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3, 5, 10, 15, 20 3 5 Nov. 3, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 27, 2015 Oct. 29, 2015 Oct. 29, 2015 Oct. 29, 2015 Oct. 29, 2015 Oct. 29, 2015 Oct. 29, 2015 Oct. 29, 2015 Feb. 24, 2016 Mar. 10, 2016 Yes Yes No Yes Yes Yes No No No Yes Yes Yes No Yes Yes - - - - - - - - - - - - - - - 22. DECLARATION OF COMPLIANCE PURSUANT TO AKTG SECTION 161 The Management Board and the Supervisory Board have submitted the declaration of compliance that is required by AktG Section 161 with respect to the recommendations of the German Corporate Governance Code as developed by a government commission. It is permanently available to the pub- lic on alstria office REIT-AG’s website (www.alstria.com) and is included in the declaration of cor- porate management according to HGB Section 289a. 23. AUDITOR’S FEES On May 6, 2015, the general meeting elected Deloitte & Touche GmbH Wirtschaftsprüfungsgesell- schaft (Dammtorstrasse 12, Hamburg) as auditors of the separate and consolidated financial state- ments for the 2015 financial year. The fees for these auditing services amounted to EUR 439 k in 2015. Other consulting services accumulated EUR 364 k in fees. alstria Annual Report 2015 141 Consolidated financial statements 24. 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 used to define the Management Board’s and Supervisory Board’s remuneration. 142 alstria Annual Report 2015 Consolidated financial statements 25. SUPERVISORY BOARD Pursuant to the Company’s Articles of Association (Section 9), the Supervisory Board consists of six members who are elected at the general meeting of the shareholders. During the 2015 financial year, the members of the Supervisory Board were: Alexander Stuhlmann Chairman Hamburg, Germany Management Consultant Alexander Stuhlmann GmbH (i. L.) Managing Director, (Liquidator) Capital Stage AG since November 4, 2015 DO Deutsche Office AG Euro-Aviation Versicherungs AG Frank Beteiligungsgesellschaft mbH GEV AG (Frank-Gruppe) HASPA Finanzholding HCI Capital AG Siedlungsbaugesellschaft Hermann und Paul Frank mbH & Co. KG Vice-Chairman of the Supervisory Board Member of the Supervisory Board Chairman of the Supervisory Board Chairman of the Advisory Board Chairman of the Supervisory Board Member of the Board of Trustees Chairman of the Supervisory Board Chairman of the Advisory Board Hermann T. Dambach Vice-Chairman since October 27, 2015 until November 3, 2015 Dr. Johannes Conradi Vice Chairman until October 27, 2015 Bad Homburg, Germany Oaktree GmbH, Managing Director DO Deutsche Office AG Railpool GmbH Hamburg, Germany Chairman of the Supervisory Board Chairman of the Advisory Board Lawyer and Partner, Fresh- fields Bruckhaus Deringer LLP Freshfields Bruckhaus Deringer LLP EBS Universität für Wirtschaft und Recht – Real Estate Management Insti- tute Elbphilharmonie Hamburg Bau GmbH & Co. KG Global Head of Real Estate, Member of the German Manage- ment Group Member of the Board of Trustees Member of the Supervisory Board alstria Annual Report 2015 143 Consolidated financial statements Benoît Hérault Uzès, France since April 1, 2015 EUROSIC Belvédère SA until April 1, 2015 SIIC de Paris Westbrock Partners Managing Director, Chambres de l’Artémise S.à r.l Chairman of the Board Board member, Chairman of the remuneration committee Board member, Chairman of the audit committee Senior advisor for France Roger Lee until October 27, 2015 London, United Kingdom Caposition SARL Partner, Captiva International Partners LLP Director until February 4, 2015 Captiva Capital Management Ltd Director since November 4, 2015 DO Deutsche Office AG Member of the Supervisory Board Richard Mully Cobham (Surrey), United Kingdom Director, Starr Street Limited until June 8, 2015 Hansteen Holdings PLC Aberdeen Asset Management PLC until September 30, 2015 ISG plc Praxis Capital Limited Director Director Director Director St. Modwen Properties PLC Director Marianne Voigt Berlin, Germany since November 4, 2015 DO Deutsche Office AG Managing Director, bettermarks GmbH Member of the Supervisory Board At the Company’s July 23, 2015, Extraordinary General Meeting , the shareholders elected Mr. Her- mann T. Dambach, director of Oaktree GmbH, Bad Homburg, as a member of the supervisory board of alstria office REIT-AG, effective with the completion of the exchange offer as described in Note 4.2. 144 alstria Annual Report 2015 Consolidated financial statements At this same Extraordinary General Meeting, the supervisory board member Mr. Roger Lee declared his resignation from office as a member of the supervisory board, effective with the completion of the exchange offer. The completion of the exchange offer took place on October 27, 2015, with the registration of the new alstria shares in the commercial register of the local court. Hamburg, March 18, 2016 alstria office REIT-AG The Management Board Olivier Elamine Alexander Dexne CEO CFO alstria Annual Report 2015 145 Consolidated financial statements RESPONSIBILITY STATEMENT To the best of our knowledge we confirm that, in accordance with the applicable reporting 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 management report includes a fair review of the development 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 development of the Group. Hamburg, March 18, 2016 alstria office REIT-AG The Management Board Olivier Elamine Alexander Dexne CEO CFO 146 alstria Financial Report 2014 Independent auditor’s report INDEPENDENT AUDITOR’S 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, 2015. The preparation of the consolidated financial statements and the group management report in accordance with IFRS, as adopted by the European Union (EU), and the additional requirements of German commercial law pursuant to § 315a (1) HGB (‘German Commercial Code’) are the responsibility of the Parent Company's Management Board. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer. Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group 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 procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, 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. alstria Annual Report 2015 147 Independent auditor’s report 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 commercial law pursuant to § 315a (1) HGB and give a true and fair view of the net assets, financial 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 opportunities and risks of future development. Hamburg/Germany, March 18, 2016 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft [seal] Signed: Reiher Wirtschaftsprüfer Signed: Deutsch Wirtschaftsprüferin [German Public Auditor] [German Public Auditor] 148 alstria Annual Report 2015 Corporate Governance CORPORATE GOVERNANCE REPORT OF THE SUPERVISORY BOARD Dear shareholders, In this report, we present an overview on the supervision and advising activities of the Supervisory Board in order to monitor the Company’s management. Furthermore, the main topics discussed by the plenary Supervisory Board and the work of its committees are presented, in addition to the audit of the annual and consolidated financial statements and the Company’s corporate governance during the reporting period and report on changes in the supervisory board. MAIN POINTS OF DISCUSSION During financial year 2015, the centers of discussion within the Supervisory Board and its committees were the takeover of DO Deutsche Office AG and the capital increases executed in this connection. After comprehensive assessment of the takeover offer, including the exchange ratio and the agreement entered with the majority shareholders of DO Deutsche Office AG, the Company published its decision to submit a voluntary public-takeover offer (in the form of an exchange offer) of alstria office REIT-AG to the shareholders of DO Deutsche Office AG on June 16, 2015. As consideration for each share of DO Deutsche Office AG, 0.381 new shares of alstria office REIT-AG were offered. The Extraordinary General Meeting of the Company on July 23, 2015 approved the necessary capital increase against contribution in kind in order to create the shares in alstria office REIT-AG to be offered within the exchange offer. On August 21, 2015, the Company published the offer document for the exchange offer. After expiry of the acceptance period and the additional acceptance period, the exchange offer was accepted, corresponding to approximately 90.6% of the share capital and voting rights in DO Deutsche Office AG. The exchange offer was completed with registration of the capital increase against contribution in kind in the Company’s commercial register on October 27, 2015. On the basis of the agreement entered with the majority shareholders of DO Deutsche Office AG, in November 2015, alstria office REIT-AG acquired further shares in DO Deutsche Office AG, corresponding to a share of approximately 4% of the share capital of DO Deutsche Office AG. Thus, now alstria office REIT-AG holds a share of approximately 94.6% of the share capital of DO Deutsche Office AG. The consideration for the acquisition amounted to each 0.381 new share of alstria office REIT-AG for each share of DO Deutsche Office AG. The new shares of alstria office REIT-AG were granted by partially using the Company’s Authorized Capital 2015 against contributions in kind and excluding subscription rights. Additional main points of the discussions of the Supervisory Board and its committees were the execution of a capital increase against cash contributions with the exclusion of subscription rights in March 2015 and the issuance of a bond by alstria office REIT-AG with a total nominal amount of EUR 500 million in November 2015. alstria Annual Report 2015 149 Corporate Governance SUPERVISION AND ADVISING OF THE COMPANY’S MANAGEMENT BOARD During reporting period 2015, we performed the duties required by the statutory provisions and the Company’s Articles of Association. We advised and supervised the Management Board of the Company and its conducting of business and were intensively involved in matters of material importance to the Company. During the meetings of the Supervisory Board and its committees, the Management Board provided us with regular, prompt and detailed reports on the development of the business and financial situation of the Company. Furthermore, we were informed about issues concerning the Company’s planning, important business events and on current risks, risk management and the Company’s compliance. The Management Board and Supervisory Board cooperated to set the strategic direction of the Company. Between meetings, the Management Board further informed the Supervisory Board of important events orally and in writing. The Chairman of the Supervisory Board regularly met with the Management Board to exchange information and advice on matters concerning the Company’s business strategy, its planning, business development, current risks, risk management and compliance. We have intensively consulted with the Management Board on all transactions requiring our approval. After careful examination and consultation, the Supervisory Board voted 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 also extended to the Company’s budget planning. MEETINGS OF THE SUPERVISORY BOARD In financial year 2015, the Supervisory Board held four ordinary and four extraordinary meetings. All members attended a minimum of at least half of the meetings of the Supervisory Board. The presence of the members in the meetings of the Supervisory Board was approximately 96% on average. Additionally, we passed written resolutions on six issues based on detailed documents. In 2016, the Supervisory Board met for two additional meetings and passed one written resolution prior to the finalization of this report. In all ordinary meetings, the Supervisory Board and the Management Board discussed the situation and development of the Company, its business performance, its market situation and its financial results (quarterly and half-year financial reports, financial statements and consolidated financial statements). During its financial meeting in February 2015, the Supervisory Board dealt with the consolidated financial statements, the financial statements as of December 31, 2014 and the management reports, and discussed them with the auditors. The Supervisory Board approved the financial statements of alstria office REIT-AG, as well as the consolidated financial statements as of December 31, 2014, and confirmed the Management Board’s proposal regarding the appropriation of the profit for financial year 2014. The Supervisory Board passed a resolution on its report to the 150 alstria Annual Report 2015 Corporate Governance Annual General Meeting for financial year 2014 and on the corporate governance statement, the latter of which included the declaration of compliance with the recommendations of the German Corporate Governance Code. The Supervisory Board and the Management Board discussed matters of company strategy, and the Supervisory Board approved the entrance into all necessary advisory and service agreements in connection with a possible capital increase against contribution in cash of up to 10% of the share capital using the Authorized Capital 2014 of the Company and excluding the subscription rights of the shareholders. In this connection, the Supervisory Board established a special committee and authorized it to make any and all necessary approvals and declarations required in connection with the execution of this capital increase. The Management Board and Supervisory Board also discussed the agenda and proposals for resolution for the Annual General Meeting of the Company and possible real-estate transactions. Finally, the Supervisory Board discussed and decided on the amount of the long-term variable remuneration of the members of the Management Board for financial year 2011 and of the short-term variable remuneration for financial year 2014, based on the nomination and remuneration committee’s recommendation and after carrying out a vertical remuneration comparison. It thereby considered the board members’ individual performance and also discussed the parameters for the variable remuneration for the members of the Management Board for financial year 2015. In the extraordinary meeting in March 2015, which was held as a telephone conference, the Supervisory Board decided on its proposals for resolution for the Annual General Meeting. In April 2015, the Supervisory Board joined, by way of written circular resolution, the Management Board’s amendment of the proposal for resolution to the Annual General Meeting on the appropriation of the annual net profit. The proposal was amended against the background of an increase of shares entitled to the dividend for financial year 2014 due to a conversion regarding a part of the convertible bonds issued in 2013 and to the issuance of new shares against the background of the capital increase executed in March 2015. In the ordinary meeting in May 2015, the Management Board and Supervisory Board discussed the Company’s strategic orientation, and the Supervisory Board consented to the commencement of negotiations with the majority shareholders of DO Deutsche Office AG on the execution of an acquisition of DO Deutsche Office AG by the Company. In this connection, the Supervisory Board established a special committee in order to make the decisions necessary for this transaction efficient and, in the short term, available. Topics of the extraordinary meeting in May 2015, which was held as a telephone conference, were the planned takeover of DO Deutsche Office AG, the corresponding negotiations with the majority shareholders of DO Deutsche Office AG, the structure of the transaction and the corporate governance of the Company after the completion of the exchange offer. Subject to the approval of the special committee for the execution of the transaction, the Supervisory Board resolved its proposals for resolution to the Extraordinary General Meeting of the Company in July 2015 as well as alstria Annual Report 2015 151 Corporate Governance on the conclusion of and approved a bridge financing in the amount of EUR 1.1 billion in order to allow the repayment DO Deutsche Office AG’s loans in case the lending banks declared them due with reference to change-of-control clauses. In June 2015, the Supervisory Board resolved again—subject to the approval of the special committee for the execution of this transaction—by way of written circular resolution, the amendment of the proposals for resolution to the Extraordinary General Meeting and elected Mr. Dambach, subject to his election as member of the Supervisory Board by the Extraordinary General Meeting of the Company, as Vice Chairman of the Supervisory Board. In July 2015, the Supervisory Board resolved how to deal with possible procedural motions during the Extraordinary General Meeting by way of written circular resolution. Topics of the extraordinary meeting subsequent to the Extraordinary General Meeting in July 2015 were further steps with regard to the takeover of DO Deutsche Office AG and, relatedly, the takeover document to be prepared. In August 2015, the Supervisory Board resolved the consent to the conclusion of an amendment agreement for the agreement entered with the majority shareholders of DO Deutsche Office AG by way of written circular resolution. Moreover, the Supervisory Board decided to use the Authorized Capital 2015 of the Company under exclusion of subscription rights of the shareholders within the framework of a possible right to sell out in connection with the takeover offer to the shareholders of DO Deutsche Office AG and servicing the option to tender more shares outside of the exchange offer agreed upon with the majority shareholders of DO Deutsche Office AG. In September 2015, the Supervisory Board resolved the conclusion of a reorganization agreement with DO Deutsche Office AG by way of written circular resolution. In its ordinary meeting in September 2015, the Supervisory Board discussed topics in connection with the takeover of DO Deutsche Office AG and approved that the CFO of the Company acts as a member of the Management Board of DO Deutsche Office AG and Managing Director of its subsidiaries. In addition, the Management Board and Supervisory Board discussed the issuance of bonds. The Supervisory Board established a special committee that was authorized to make all necessary approvals and declarations in connection with the issuance of bonds. The Supervisory Board further approved the disposal of a real-estate asset and the conclusion of an amendment agreement to a loan agreement of the Company. The Supervisory Board discussed and resolved target quotas for women in the Supervisory Board and Management Board of the Company and dealt with the succession planning for the Supervisory Board and the amendments of the German Corporate Governance Code. After intensive discussion with the Management Board, the Supervisory Board passed resolutions regarding business and budget planning for financial year 2016 in its ordinary meeting in November 2015 and approved a loan grant in the amount of EUR 500 million and a credit line in the amount of 152 alstria Annual Report 2015 Corporate Governance EUR 40 million to DO Deutsche Office AG or its subsidiaries, respectively. The Supervisory Board discussed and resolved the detailed objectives regarding the composition of the Supervisory Board (Diversity Statement), the composition of the committees of the Supervisory Board and editorial amendments to the Company’s Articles of Association due to conditional capital increases of EUR 176,382 executed during 2015. The Supervisory Board discussed the succession planning for the Supervisory Board and reviewed the positive result of the efficiency check of its work, which the Supervisory Board members had performed with the support of an external advisor by means of questionnaires and one-on-one interviews. Finally, employees of the first management level below the Management Board, the departments for which they are responsible and their projects were introduced to the Supervisory Board during this reporting period. In its financials meeting in March 2016, the Supervisory Board particularly dealt with the consolidated financial statements and financial statements for the year ending on December 31, 2015. It further reviewed the Management Board’s recommendation for profit appropriation. The Supervisory Board passed a resolution on its report for the Annual General Meeting for financial year 2015, as well as the Corporate Governance Report. The Supervisory Board also dealt with variable remuneration for the members of the Management Board. COMMITTEES OF THE SUPERVISORY BOARD The Supervisory Board has six members. It has formed three permanent committees to support it in its work, each of them composed of three members. The composition of the committees is de- scribed in the Company’s Corporate Governance Statement on pages 157 to 166 of the annual re- port. The committees have been given decision-making powers in some cases, to the extent permitted by law. In all other cases, they prepare the resolutions that the Supervisory Board will pass by making proposals. During the Supervisory Board’s meetings, the committee’s chairmen report on their committees’ work. In financial year 2015, the Supervisory Board’s committees focused on the following topics: The audit committee held three meetings in financial year 2015. All of them were attended by the Chief Financial Officer. The Company’s current risk position was discussed in all meetings. In the course of auditing the accounts of the Company, the audit committee dealt with the consolidated financial statements and financial statements as of December 31, 2014, as well as the management reports. It discussed the documents with the independent auditors and carried out a respective preliminary examination of the annual and consolidated financial statements and the Management Board’s recommendation for the appropriation of profit. As a result, the committee submitted corresponding proposals for resolution to the Supervisory Board. Further topics were the recommendation to the Supervisory Board regarding the proposed resolution for the Annual General Meeting for the choice of the auditors, the auditors’ independence and any additional services to be performed by them. Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hamburg branch was alstria Annual Report 2015 153 Corporate Governance appointed as an auditor. The audit committee decided on the engagement agreement and set the key audit areas. In addition, the Company’s accounting process, its risk-management system and key risks were discussed. Moreover, the effectiveness of the Company’s internal controlling, audit system and compliance system were discussed. Finally, the audit committee dealt with the results of the Company’s internal audit. The nomination and remuneration committee, which also carries out the tasks of a nomination committee, met six times during financial year 2015. The committee discussed the amount of variable remuneration for the members of the Management Board. In light of this discussion, each Management Board member’s individual performance was discussed. The committee furthermore discussed the target quota for including women in the Supervisory Board and Management Board and the objectives regarding the composition of the Supervisory Board, providing the Supervisory Board with corresponding resolution proposals. The nomination and remuneration committee dealt with the succession planning for the Supervisory Board and, with regard to the remuneration of the Supervisory Board and election of Supervisory Board members, prepared proposals for resolution to the Annual and the Extraordinary General Meeting for the Supervisory Board. In financial year 2015, the investment committee deliberated with the Management Board on a real- estate transaction in two meetings and resolved twice by way of written circular resolution. It gave its approval for one acquisition carried out in financial year 2015 and for advisory services from the law firm Freshfields Bruckhaus Deringer LLP, of which a member of the Supervisory Board, Dr. Johannes Conradi, is a partner. During financial year 2015, the Supervisory Board established overall three special committees: In February 2015, the Supervisory Board additionally established a special committee that was comprised of four members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the execution of a capital increase of up to 10% of the share capital against cash contributions under exclusion of subscription rights. The special committee came together in March in two meetings and discussed matters of executing the capital increase under exclusion of subscription rights and approved the execution of the capital increase against cash contributions and all actions and resolutions connected to it. Dr. Johannes Conradi could only participate in one of the two meetings due to an important competing appointment. In May 2015, the Supervisory Board established a special committee that was comprised of three members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the takeover of DO Deutsche Office AG. The special committee came together in five meetings between May and November and intensively discussed the execution and economic conditions of the exchange offer while increasing the share capital of the Company under exclusion of subscription rights of the shareholders, as well as the agreement with the majority shareholders of DO Deutsche Office AG, with the Management Board, 154 alstria Annual Report 2015 Corporate Governance complementing the discussions in the Supervisory Board. The special committee approved the conclusion of an agreement with the majority shareholders of DO Deutsche Office AG, the publication of the decision to make an exchange offer, the execution of a capital increase against contribution in kind under exclusion of subscription rights of the shareholders and resolved editorial amendments of the Articles of Association due to the increase in the share capital. In September 2015, the Supervisory Board established a special committee that was comprised of four members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the issuance of bonds. The special committee came together in November over two meetings and approved the issuance of a bond, as well as all connected actions and resolutions. Benoît Hérault could only participate in one of the two meetings due to an important competing appointment. The composition of the special committees is also described in the Company’s Corporate Govern- ance Statement on pages 158 to 166 of the annual report. AUDIT OF THE ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hamburg branch, audited the financial statements and management report of alstria office REIT-AG and its consolidated financial statements, including the management report of the Group for the financial year from January 1 to December 31, 2015. All reports were prepared by the Management Board and issued with unqualified audit statements. Immediately after their preparation, the members of the Supervisory Board were presented with the financial statements and management report of alstria office REIT-AG. Likewise, the consolidated financial statements, including the management report of the Group, the auditors’ report and the Management Board’s recommendation for the appropriation of the annual net profit, were presented. The Supervisory Board examined the documents provided by the Management Board in detail in both its audit committee and at a plenary meeting. In the meeting of the audit committee, the auditors presented the essential results of their audit (including the audit of the internal control and risk-management system) and were available to answer questions. The audit committee conducted the Supervisory Board’s audit and reported to the plenary Supervisory Board in the presence of the auditors of the financial statements of alstria office REIT-AG and its consolidated financial statements. The plenary meeting examined and discussed both the annual financial statements of the Company and the consolidated financial statements as prepared by the Management Board, as well as the auditors’ results. There were no objections to the results, concluding the review as conducted by the Supervisory Board. The Supervisory Board approved the financial statements of alstria office REIT-AG and its consolidated financial statements. The annual financial statements are thus endorsed. The Supervisory Board also shared the Management Board’s recommendation for the appropriation of the profit. alstria Annual Report 2015 155 Corporate Governance CORPORATE GOVERNANCE In the reporting period, the Supervisory Board also dealt with whether alstria office REIT-AG fulfilled the recommendations of the German Corporate Governance Code. The Management Board and the Supervisory Board last issued the annual declaration of compliance with the German Corporate Governance Code in February 2016, 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, adopted. Furthermore information on the recommendations that have not been, or will not be, followed, is presented together with the reasons for making these decisions. Concerning its own composition, the Supervisory Board decides on specific objectives (Diversity Statement), 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 Supervisory Board in winter 2015, we were able to conclude that the composition of the Supervisory Board met these objectives as of December 31, 2015, with the exception of the women quota of 30% in the Supervisory Board, which has to be achieved by June 30, 2017. No conflicts of interest arose during financial year 2015, concerning both members of the Supervisory Board and the Management Board. CHANGES IN THE SUPERVISORY BOARD Mr. Roger Lee, who has belonged to the Supervisory Board since 2009, resigned from his office with the completion of the exchange offer to the shareholders of DO Deutsche Office AG on October 27, 2015. The Supervisory Board would like to thank Mr. Lee for his long-term and valuable commitment to the Company. In the Extraordinary General Meeting 2015, Mr. Hermann Dambach was elected as a member of the Supervisory Board, effective with the completion of the exchange offer. Mr. Dambach has been elected Vice Chairman of the Supervisory Board. The Supervisory Board would like to thank the Management Board and all employees for their dedication and their successful work in financial year 2015. Hamburg, March 2016 For the Supervisory Board Alexander Stuhlmann Chairman of the Supervisory Board 156 alstria Annual Report 2015 CORPORATE GOVERNANCE STATEMENT Corporate Governance The Management Board and Supervisory Board of alstria office REIT-AG (‘alstria’) are aware of their responsibility concerning the corporate governance of the Company. It is undertaken with due regard to the Company’s shareholders, employees, tenants and business partners. This sense of responsibility is expressed, amongst other ways, in a transparent corporate governance with the aim of promoting the confidence of alstria’s shareholders’, employees’, tenants’, business partners’ and the public’s trust in the management and supervision of the Company. In this statement, the Management Board and Supervisory Board report on alstria’s corporate governance according to Section 3.10 of the German Corporate Governance Code (‘Code’) and Section 289a para. 1 of the German Commercial Code (HGB). This statement includes a description of the composition of the Company’s Management Board and Supervisory Board as well as its corporate governance structures, information on the target quota for women’s participation in the Supervisory Board, Management Board and the first management level below the Management Board and information on corporate governance practices as well as the declaration of compliance according to Section 161 of the German Stock Corporation Act. MANAGEMENT BOARD AND SUPERVISORY BOARD The Management Board and the Supervisory Board cooperate closely and faithfully in the interest of the Company. The chairman of the Supervisory Board has regular contact with the Management Board. Management Board The Management Board has two members: Olivier Elamine as Chief Executive Officer and Alexander Dexne as Chief Financial Officer. The Management Board is responsible for running alstria in the interest of the Company with the aim of sustainably increasing the Company’s value. It sets the business goals and – in conjunction with the Supervisory Board – the strategic direction of the Company. The tasks of the Management Board and the allocation of responsibilities between the individual members of the Management Board are stipulated in the rules of procedure and the role sort for the Management Board. The members of the Management Board are obligated to immediately disclose any conflicts of interest to the Supervisory Board. The members of the Management Board may only conduct secondary activities, particularly memberships in the supervisory boards of companies not affiliated with the Group, with the approval of the Supervisory Board. The members of alstria’s Management Board had no conflicts of interest in the reporting year. The members of the Management Board serve on no supervisory boards of listed companies outside of the Group or in supervisory boards of companies with comparable requirements. Major business transactions between the Company and members of the Management Board, or with any persons or companies in close association with them, require the approval of the Supervisory Board. All such business transactions must be concluded at customary commercial conditions. There were no contracts with regard to such business transaction during the reporting period. alstria Annual Report 2015 157 Corporate Governance The members of the Management Board are appointed by the Supervisory Board, who monitors and advises the Management Board on management issues. The Management Board involves the Supervisory Board in all decisions of fundamental importance to the Company. The rules of procedure for the Supervisory Board stipulate that certain, significant business transactions by the Company are subject to the approval of the Supervisory Board. For example, the acquisition or disposal of real estate property for a consideration of more than EUR 30 m, entering into financing agreements with a volume of more than EUR 30 m, entering or prematurely terminating lease contracts with an annual consideration of more than EUR 2 m, or investing in Company assets (modernization measures) with an annual total sum of more than EUR 2 m, if such investments have not already been included in the budget as approved by the Supervisory Board. Supervisory Board In accordance with the Articles of Association, the Supervisory Board is composed of six members. The Supervisory Board is currently comprised of the following members: Member Alexander Stuhlmann (Chairman) Hermann Dambach (Vice-Chairman) Dr Johannes Conradi Benoît Hérault Richard Mully Marianne Voigt Profession Management consultant Managing Director, Oaktree GmbH Lawyer and Partner, Freshfields Bruckhaus Deringer LLP Managing Director, Chambres de l‘Artémise S.à r.l Director, Starr Street Limited Managing Director, bettermarks GmbH 1) each until the end of the Annual General Meeting. Appointed until1) 2016 2016 2019 2020 2019 2020 The following changes took place in the composition of the Supervisory Board in 2015: Roger Lee resigned as member of the Supervisory Board, effective October 27, 2015. As his successor, Hermann Dambach was elected to the Supervisory Board, also on October 27, 2015. Effective the same date, Hermann Dambach took over the position as Vice-Chairman from Dr Johannes Conradi. A list on all memberships of the Supervisory Board members in supervisory or similar controlling bodies in companies external to the Company group pursuant to Section 285 No. 10 of the HGB is presented on pages 143 to 145 of the annual report. No former members of the Management Board sit on the Supervisory Board. The Supervisory Board is composed of members who have the necessary knowledge, competence and professional 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, 2015, the Supervisory Board reviewed and revised the goals for its composition, especially with regard to the amendments of the German Corporate Governance Code as issued in 2015. 158 alstria Annual Report 2015 Corporate Governance With due consideration of the specific situation of alstria, the Supervisory Board specified the following goals for its composition in November 2015, which are to be considered in its proposals to the shareholders in the General Meeting regarding new elections to the Supervisory Board: 1. Diversity The members of the Supervisory Board should have the knowledge, skills and expert experience required to successfully complete their tasks, especially in the capital market and the German real estate market. 2. Women For the female representation in the Supervisory Board a quota of at least 30% is determined. This target quota must be achieved by June 30, 2017. 3. Experience abroad At least two members of the Supervisory Board shall have acquired reasonable international experience. 4. Independence At least three members of the Supervisory Board shall have no business or personal relationships, which could cause a substantial and not temporary conflict of interest, with the Company, its executive bodies, a controlling shareholder or an enterprise associated with the latter. 5. Independent financial expert At least one independent member of the Supervisory Board should have expertise in accounting or the audit of annual statements. 6. Other conflicts of interest At least three members of the Supervisory 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 not be older than 70 years of age. 8. Length of membership The membership in the Supervisory Board is limited to 20 years. In November 2015, the Supervisory Board assessed the implementation of these targets and came to the conclusion that all of them are currently met with the exception of the women quota in the Supervisory Board, which has to be achieved by June 30, 2017. Beside the objectives for its composition, the Supervisory Board also regularly reviews its efficiency. Therefore, the work of the entire Supervisory Board and its committees is analyzed in a structured and transparent manner in order to sustainably improve the processes and structure. In its report to the Annual General Meeting, the Supervisory Board reports on its activities undertaken in financial year 2015. The report is presented on pages 149 to 156 of the annual report. alstria Annual Report 2015 159 Corporate Governance Supervisory Board committees The Supervisory Board has formed three standing committees. Each committee has its own rules of procedure to specify its concerns and tasks. The audit committee monitors the Company’s financial reporting process, engages the independent auditors to prepare audit reports, determines the key audit areas and the independent auditors’ compensation, and is responsible for issues concerning risk management, internal control, internal audit and compliance. In the complete financial year 2015, the audit committee was comprised of Marianne Voigt as Chair and Dr Johannes Conradi as member. In addition, Roger Lee was a member of the audit committee until he resigned from the Supervisory Board on October 27, 2015. Benoît Hérault has been elected as his successor to become a member of the audit committee, effective December 1, 2015. The investment committee decides on the approval of the Supervisory Board concerning 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 agreements with third parties with a total annual consideration of more than EUR 2 m, as well as regarding contracts with Supervisory Board members according to Section 114 of the German Stock Corporation Act (Aktiengesetz, AktG). In the complete financial year 2015, the investment committee was comprised of Richard Mully as Chair and Benoît Hérault as a member. In addition, Alexander Stuhlmann was a member of the investment committee until November 30, 2015. As of December 1, 2015, Hermann Dambach was elected as his successor to become a member of the investment committee. The nomination and remuneration committee, which also carries out the function of a nomination committee, prepares resolutions for the entire Supervisory Board for the appointment and dismissal of members of the Management Board, for the Management Board’s compensation system and for the total remuneration of individual members of the Management Board. 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 other activities and primary contracts of members of the Management Board. Apart from the amount of compensation, the nomination 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 committee prepares the resolutions for the Supervisory Board regarding the proposal of the appointment of suitable Supervisory Board members at Annual General Meetings. In the complete financial year 2015 the nomination and remuneration committee was comprised of Alexander Stuhlmann as Chair and Dr Johannes Conradi and Richard Mully as members. 160 alstria Annual Report 2015 Corporate Governance By resolution dated February 24, 2015, the Supervisory Board additionally established a special committee, which was comprised of four members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the execution of a capital increase of up to 10% of the share capital against cash contributions under exclusion of subscription rights. The committee was comprised of Alexander Stuhlmann as Chair and Dr Johannes Conradi, Benoît Hérault and Richard Mully as members. By resolution dated May 6, 2015, the Supervisory Board established a special committee, which was comprised of three members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the takeover of DO Deutsche Office AG. The committee was comprised of Dr Johannes Conradi as Chair as well as Benoît Hérault and Richard Mully as members. By resolution dated September 24, 2015, the Supervisory Board established a special committee, which was comprised of four members. The committee was authorized to grant all necessary approvals and make all other declarations required in connection with the issuance of bonds. The committee was comprised of Dr Johannes Conradi as Chair and Benoît Hérault, Richard Mully and – effective October 27, 2015 - Hermann Dambach as members. The Supervisory Board reports on the activities of the committees of the Supervisory Board during financial year 2015 in its report to the Annual General Meeting on pages 149 to 156 of the annual report. TARGET QUOTAS FOR WOMEN’S PARTICIPATION The Management Board pays attention to diversity in filling its management positions and aims to adequately consider women for these positions. In September 2015 the Management Board determined that the women quota for the first management level below the Management Board shall not fall below 27.3%. This target quota has already been achieved as per December 31, 2015 and applies for the time being until June 30, 2017. A target quota of women’s participation for the second management level was not to be determined, since the Company has no further management level with decision-making competence and budget responsibility. Also in September, 2015, the Supervisory Board determined a target quota of 0% for the participation of women in the Management Board. This quota has been achieved and applies until June 30, 2017. Since both Management Board members are appointed until December 31, 2017, no changes in the composition of the Management Board are foreseeable until June 30, 2017 from today’s perspective. The Supervisory Board is of the opinion that the appointment of another Management Board member or the dismissal of a Management Board member solely to comply with a women quota is not in the best interest of the Company and its shareholders. A quota of 30% was determined for the Supervisory Board, which must be achieved until June 30, 2017. On December 31, 2015, the woman quota in the Supervisory Board amounted to 16.67%. alstria Annual Report 2015 161 COMMUNICATION AND TRANSPARENCY Corporate Governance A transparent corporate governance and good communication with the shareholders and public contribute to strengthening investor and public trust in alstria’s work. Communication with the public When sharing information with people outside of the Company, the Management Board follows the principles of transparency, promptness, openness, clarity and a policy of equal treatment of its shareholders. In particular, alstria informs its shareholders and the interested public 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 alstria website includes information on the Company and its shares, especially its financial reports, share price tracking and announcements about the acquisition or disposal of Company shares or related financing instruments pursuant to Section 15a WpHG (Directors’ Dealings). Moreover, alstria’s financial reports and website include a financial calendar that indicates all dates of importance to shareholders. The announcements and pieces of information are additionally published in the English language. Relationship to the shareholders alstria office REIT-AG respects the rights of its shareholders and makes best efforts to guarantee the exercise of those rights to the extent stipulated by law or its bylaws. In particular, these include the right to freely purchase and sell shares, to have an appropriate level of access to information, an adequate number of voting rights per share (one share – one vote) and participation in our Annual General Meeting. Shareholders have the option of exercising their voting rights personally, via an authorized representative present 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 instructions can be issued. The Articles of Association do not stipulate an option to vote by written mail. By means of authorizing a proxy, shareholders now have the possibility to vote prior to the date of the Annual General Meeting. This is why an additional option of being able to vote by written mail would not facilitate the exercise of the shareholders’ rights. It is possible to send invitations and documents for General Meetings to the shareholders electronically upon request. The invitation and the documents are to be made available for viewing prior to the upcoming Annual General Meetings pursuant to the legal provisions that will be published on the Company’s website together with additional documents pursuant to Section 124a of the German Stock Corporation Act (Aktiengesetz, AktG) and the agenda. The results of the votes will likewise be published on the Company’s website following the Annual General Meeting. 162 alstria Annual Report 2015 Corporate Governance Financial reporting 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 consolidated 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 HGB. The consolidated financial statements and the financial statements of alstria office REIT-AG are audited by both the independent auditor as appointed by the shareholders in the Annual General Meeting and by the Supervisory Board. After having examined its independence, the audit committee of the Supervisory Board appoints an external auditing firm to audit the financial statements and negotiate the respective 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 2015. The auditors participate in the plenary sessions of the audit committee and the Supervisory Board to advise on the consolidated financial statements and the financial statements of alstria office REIT-AG and to present the key findings of the audit. SUSTAINABILITY alstria’s sustainability approach is based on a three-pillar model, taking the impact of business 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 sustainable value. It strives to generate the best yield possible on its equity over time. alstria’s approach to sustainability does not solely focus on environmental matters, but it considers the economic and social impacts of its actions as well. alstria weighs the risk-benefit ratio of the three areas before making any decisions and adapts its actions to what it feels is the most viable course of action in each case. The result of this approach is that alstria might not always take the decisions that maximize its short-term benefit, striving to always take the path that will yield the best long-term prospects for the Company. alstria's sustainability approach, its achievements in its three defined areas of sustainability, as well as the Company’s related future targets, are described in detail in the Company’s yearly sustainability report. The report is available on the Company’s website. alstria Annual Report 2015 163 Corporate Governance COMPLIANCE It is one of alstria’s most important principles to comply with the legal provisions and treat business partners and competitors fairly. In doing so, alstria regards itself as not only being bound to the law. In accordance with Section 4.1.3 of the German Corporate Governance Code, the Management Board ensures the compliance with the legal provisions and Company guidelines throughout all of the Group’s companies. The entire Company shares the understanding that the trust of alstria’s shareholders, tenants, employees and business partners crucially depend on the behavior of each individual employee. For this reason, alstria has developed a code of conduct, listing guidelines for behavior and providing orientation to resolve conflicts (e.g. conflicts of interest), thereby serving as a model for correct behavior for all employees of the Group. The code of conduct is published on the Company’s website (www.alstria.com). alstria has set up a compliance organization to communicate the values laid out in the code of conduct and Company guidelines and to monitor compliance with these values. The compliance officer is responsible for communicating these values by answering questions on the implementation of the code and by offering in-house training for all employees. Compliance is monitored by colleagues, supervisors and the compliance officer as well as via regular investigation by auditors. alstria has also set up a hotline through which employees can anonymously report any violations of the code of conduct or the Company’s 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 its violators punished. This can be anything from disciplinary measures to dismissal, a claim for damages or even prosecution. GERMAN CORPORATE GOVERNANCE CODE alstria's value-oriented corporate management has already implemented many of the principles of the most recent version of the German Corporate Governance Code (dated May 5, 2015) to an extent beyond what is legally required. The principles and recommendations of the Government Commission as appointed by the German Federal Ministry of Justice contain internationally and nationally recognized standards for effective and responsible corporate management. The Company’s declaration of compliance with the recommendations of the German Corporate Governance Code is published on the Company’s website (www.alstria.com). After careful consideration, alstria has chosen not to comply with some of the recommendations of the Code. These items and the reasons for the Company’s nonconformity are set out in the declaration of compliance as issued by the Management Board and the Supervisory Board on February 25, 2016: 164 alstria Annual Report 2015 Corporate Governance DECLARATION OF COMPLIANCE DATED FEBRUARY 25, 2016 “Since the prior declaration of compliance dated February 24, 2015, the company has – apart from the exceptions stated below – complied with the recommendations of the ‘Government Commission German Corporate Governance Code’ as amended on May 5, 2015 and until then as set out in the version dated June 24, 2014. The Company intends to continue to comply with the recommendations of the Code as amended on May 5, 2015 to the same extent: Deductible for D&O insurance for the Supervisory Board, Section 3.8 The D&O insurance for the Supervisory Board of alstria office REIT-AG does not comprise a deductible. The Management Board and Supervisory Board believe that the members 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 remuneration element 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 Supervisory Board makes sure that the Management Board is not incentivized to enter into acquisitions by means of achieving personal short-term benefits. The impact of any acquisition on the management remuneration is solely linked to multi-year remuneration elements; therefore, aligning the interest of the Management Board with those of the Company and its shareholders. Vice versa, the Supervisory Board adapts the FFO target to disposals. Determination of a level of benefits for the private pension plan, Section 4.2.3 As the Company has opted for a defined contribution model for the private pension plan of the Management Board members for reasons 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 Supervisory Board believes that it is in the best interest of the Company to have a defined contribution 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 quarterly financial reports by the Supervisory Board or its audit committee and the Management Board prior to their 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 financial reports are discussed with the Supervisory Board in detail soon after their publication. In the event that there are considerable differences to the budget or business plan as authorized by the Supervisory Board, the Supervisory Board is given the opportunity to discuss the figures with the Management Board before they are published. The Management Board and Supervisory Board consider this approach to be appropriate and adequate.” alstria Annual Report 2015 165 Corporate Governance All other recommendations of the German Corporate Governance Code dated May 5, 2015 have been fully implemented. alstria has appointed a corporate governance officer within 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 transparency are the measures undertaken to lay the foundation for fair and efficient corporate management. They will remain the key criteria in the future. March 2016 The Management Board The Supervisory Board 166 alstria Annual Report 2015 Corporate Governance REMUNERATION REPORT* REMUNERATION OF THE MANAGEMENT BOARD MEMBERS The remuneration system for the members of the Management Board is determined by the Supervi- sory Board and is reviewed regularly. The Supervisory Board is of the opinion that an adequate re- muneration for the members of the Management Board is provided, which is based on customary market terms and conditions and it also takes the long-term success of the Company into account. The remuneration system for the members of the Management Board as described below was devel- oped by involving an external and independent remuneration expert. The shareholders approved it in the general meeting for financial 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 declared in the Compliance Statement according to Sec. 161 of AktG – and with the rec- ommendations of the German Corporate Governance Code. The criteria for determining the appropriateness of the remuneration of the Management Board, which are used as part of the remuneration system, include among others: • 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 peer companies; and • The remuneration structure of the Company, taking into account the level of compensation of the Management Board in comparison to that of the Company’s senior management and its staff in general, particularly in terms of its development over time. 1. STRUCTURE OF THE REMUNERATION OF MANAGEMENT BOARD MEMBERS The Supervisory Board determines the target remuneration for each board member. The target re- muneration for each Management Board member is comprised of a fixed basic salary, short-term and long-term variable components, and ancillary benefits (benefits in kind). The majority of the target remuneration is made up of variable components that are dependent on achieving annual or multi-year targets as described below. The system also establishes caps for the different variable elements of the remuneration. * This remuneration report forms an integral part of the audited Group management report and notes to the annual financial statements. alstria Annual Report 2015 167 Corporate Governance Fixed Remuneration The fixed element of the remuneration is a basic salary, which is independent of performance and is paid as a salary on a pro-rata basis each month. The fixed element of the remuneration amounts to approximately 40% of the total target remuneration, excluding any ancillary benefits for the finan- cial year. Variable Remuneration The variable element of the remuneration amounts to approximately 60% of the total target remu- neration excluding any ancillary benefits for the financial year, and it is composed of two parts: a short-term incentive and a long-term incentive. The table below summarizes the main characteristics of each of the two programs: short-term incentive (STI) long-term incentive (LTI) Proportion of total target remuneration 20% Targets to assess perfor- mance Like-for-like budgeted FFO Min./Max. target achieve- ments Discretionary factor 50%/150% 0.8 / 1.2 Deferred component 25% 20% 20% Total Shareholder Re- turn (relative to EPRA NA-REIT Europe Ex-UK) Absolute Total Shareholder Return 50%/150% 0.8 / 1.2 100% 50%/150% 0.8 / 1.2 100% Form of the deferred com- ponent Deferral period Reference share price Virtual shares 2 years Virtual shares Virtual shares 4 years 4 years Average share price for the previous 20 days Average share price for the previous 60 days Average share price for the previous 60 days Payout cap for the deferred components 250% of deferred amount Virtual shares multiplied by 250% of the refer- ence share price on grant date Virtual shares multiplied by 250% of the reference share price on grant 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 its FFO target for a financial year if the FFO is ma- terially impacted by acquisitions and/or disposals. In doing so, the Supervisory Board makes sure that the Management Board is not incentivized to enter into transactions to achieve any personal short-term benefits. Min./Max. target achievements This category reflects the minimum performance that needs to be achieved in order for any pay-out to occur (threshold), as well as the maximum performance that is considered in the pay-out calcu- lation (cap). Discretionary factor This category reflects the factor that the Supervisory Board can apply to reflect the individual per- formance of each board member. 168 alstria Annual Report 2015 Corporate Governance Deferred component This category reflects the part of the variable remuneration, that is subject to a multi-year lock-up. Reference share price This is the share price used to convert the target amount into virtual shares when they are granted and to convert virtual shares into a pay-out amount at the end of the deferral period. Virtual shares The number of virtual shares granted is equal to the amount of the deferred component amount divided by the reference share price. Pay-out amount • • For the STI, the pay-out 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 dividend per al- stria 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, reflect- ing the degree of achievement of the performance target. The pay-out amount is equal to the number of virtual shares multiplied by the reference share price, then added to the dividend per alstria share paid during the deferral period and then multiplied by the discretionary fac- tor. The table below summarizes the number of virtual shares granted under the existing STI and LTI programs in the reporting period and outstanding as of December 31, 2015. Start of de- ferral period Reference share price in EUR End of deferral period Olivier Elamine Number of virtual shares Alexander Dexne Number of virtual shares STI 2013 STI 2014 LTI 2012 LTI 2013 LTI 2014 LTI 2015 2014 2015 2012 2013 2014 2015 9.57 10.97 8.70 9.29 9.44 10.97 2016 2017 2016 2017 2018 2019 Ancillary Benefits 5,914 5,370 50,575 47,363 46,610 40,109 4,839 4,393 41,379 38,751 38,136 32,817 Furthermore, the members of the Management Board receive ancillary benefits granted as benefits in kind, which essentially consist of insurance premiums, pension benefits and the private use of a company car. 2. REMUNERATION OF THE MANAGEMENT BOARD IN THE FINANCIAL YEAR 2015 In the last financial year, the total target remuneration for the members of the Management Board amounted to EUR 2,192 k. The total amount paid to the Management Board in that financial year amounted to EUR 1,930 k (including pay-outs on multi-year remuneration elements). The correct- ness of the calculation of the pay-out amounts for the multi-year variable remuneration elements was confirmed by an independent remuneration expert. alstria Annual Report 2015 169 Corporate Governance Remuneration for the members of the Management Board for financial years 2014 and 2015 The remuneration of individual Management Board members is presented based on model tables pursuant to the German Corporate Governance Code as amended on May 5, 2015. The table “benefits granted” shows the fixed remuneration and the target values of the variable remuneration elements granted in the respective business year as well as hypothetical minimum and maximum amounts of a future payout of the variable remuneration elements. We explicitly make reference to the fact that the hypothetical maximum amounts can only be attained in the extraor- dinary situation that all the conditions named in the table “Conditions to attain maximum amounts for variable remuneration elements granted in 2015” occur at the same time. in EUR k Benefits granted Olivier Elamine CEO Alexander Dexne CFO 2014 2015 2015 (Min) 2015 (Max)10) 2014 2015 2015 (Min) 2015 (Max)10) Total amount of fixed compensa- tion and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount of one-year variable compensation One-year variable compensation (STI 2014) One-year variable compensation (STI 2015) 454 440 11 450 440 10 173 173 1733) - - 1733) Total amount of multi-year varia- ble compensation 498 498 STI 2014 (1 plus 2 years) STI 2015 (1 plus 2 years) LTI 2014 (4 years) LTI 2015 (4 years) 585) - 4407) - - 585) - 4407) Total amount of fixed and varia- ble compensation Service costs9) Total 1,125 1,121 85 84 1,210 1,205 450 84 534 450 440 10 450 440 10 369 360 9 380 360 20 380 360 20 0 - 0 0 - 0 - 0 312 142 142 - 1423) - 3124) - 1423) 2,240 407 407 - 2606) - 1,9808) 3,002 84 3,086 475) - 3607) - 918 58 976 - 475) - 3607) 929 58 987 0 - 0 0 - 0 - 0 380 58 438 380 360 20 255 - 2554) 1,833 - 2136) - 1,6208) 2,468 58 2,526 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. 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). 5) 25% of the STI target value for the respective financial year. 6) Maximum attainable pay-out amount 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). 7) LTI target value for the respective financial year. 8) Maximum attainable pay-out amount for the LTI after the holding period of 4 years: (1.5 x granted virtual shares x (2.5 x share price on grant date) x 1.2). 9) Includes benefits for insurance and pension plans. 10) Hypothetical maximum attainable pay-out amount under the condition that all assumptions described in the table “Conditions to attain maximum amounts” are fulfilled. 170 alstria Annual Report 2015 Corporate Governance Conditions to attain maximum amounts for variable remuneration elements granted in 2015 One-year variable compensation 1. Stand-alone alstria FFO 2015 = EUR 73,628 m (budgeted FFO of EUR 49.085 m is achieved by 150%) and 2. SB passes resolution on discretionary factor of 1.2 Multi-year variable compensation LTI (4 years) and and and STI (1 plus 2 years) 1. Absolute TSR ≥9%, i.e. total shareholder return for alstria investors over 4 years of 9% 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 10.97 on granting date --> share price of EUR 27.43 on payment date after 4 years) 4. SB passes resolution on discretionary factor of 1.2 Share price of Company shares increases by 250% (e.g.: share price of EUR 9 on deferral date --> share price of EUR 22.50 on payment date after 2 years) The table “allocation/benefits paid out” shows the fixed remuneration and the amounts paid out in the respective business year as variable remuneration element. in EUR k Allocation/benefits paid out Total amount of fixed compensation and ancillary benefits Fixed compensation1) Ancillary benefits2) Total amount of one-year variable compensation One-year variable compensation (STI 2013)3) One-year variable compensation (STI 2014)3) Total amount of multi-year variable compensation STI 2011 (1 plus 2 years)4) STI 2012 (1 plus 2 years)4) LTI 2011 (4 years)5) LTI 2010 (4 years) 5) Other Total amount of fixed and variable compensation Service cost6) Olivier Elamine CEO Alexander Dexne CFO 2015 2014 2015 2014 450 440 10 177 - 177 350 - 86 264 - 0 977 84 454 440 14 170 170 - 911 75 - - 836 0 1,535 85 380 360 20 145 - 145 286 - 70 216 - 0 811 58 869 369 360 9 139 139 - 745 61 - - 684 0 1,253 58 1,311 Total 1,061 1,620 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) Pay-out amount for LTI after holding period of 4 years. 6) Includes benefits for insurances and pension plans. In 2015, the LTI 2011 was paid out. Over the four-year holding period, the Absolute Total Share- holder Return of the alstria share was 5.8% per annum, and the average Relative Total Sharehold- er Return of the alstria share was -10.9% per annum. The threshold for the performance target of the Relative Total Shareholder Return was missed. As a result, a total of approximately 48% of the virtual shares vested leading to a final LTI payout amounting to approximately 60% of the target value for the LTI 2011. alstria Annual Report 2015 171 Corporate Governance In 2014, the LTI 2010 was paid out. Over the four-year holding period, the Absolute Total Sharehold- er Return of the alstria share was 11.1% per annum, and the performance target Absolute Total Shareholder Return was capped at 150%. The average Relative Total Shareholder Return of the al- stria share was 1.2% per annum. As a result, a total of approximately 135% of the virtual shares vested leading to a final LTI payout amounting to approximately 190% of the target value for the LTI 2010. 3. OTHER MANDATORY DISCLOSURES 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-month notice period. As long as alstria exercises this post-contractual non-compete agreement, the mem- bers of the Management Board shall receive a compensation 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 will remain entitled to their remu- neration claims during the remaining term of the service contract. These are, however, capped at a value of two years’ worth of remuneration. If the appointment is terminated due to the board member’s death, the benefits to be paid by the Company amount to the fixed salary for the month in which the member died in addition to an equal payment for the following three months. The in- centive 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. No individual member of the Management Board was granted or rendered any benefits by third par- ties with regard to Management Board’s work in the financial year 2015. 172 alstria Annual Report 2015 Corporate Governance REMUNERATION OF THE SUPERVISORY BOARD MEMBERS 1. Structure of the Supervisory Board Remuneration On May 6, 2015, the Annual General Meeting of the company resolved upon a slight modification of the Supervisory Board remuneration. Before that, the Supervisory Board remuneration had not been changed since 2007. As of January 1, 2015, the members of the Supervisory Board each receive an annual fixed remuneration of an amount of EUR 42 k (formerly EUR 40 k). The Chairman of the Su- pervisory Board receives an additional annual amount of EUR 21 k (formerly EUR 20 k), the Vice- Chairman receives an additional amount of EUR 10.5 k (formerly EUR 10 k). Membership in the audit committee entitles the member to an additional remuneration of EUR 10 k, wheras the chair of the audit committee receives EUR 15 k per year. Membership in the nomination and remuneration committee as well as the investment committee entitles the member to an additional annual remu- neration of EUR 5 k. The chairmen of these committees are compensated with another EUR 2.5 k per year. Members who sit on the Supervisory Board for only part of a year receive a remuneration pro rata temporis. 2. Remuneration of the Supervisory Board in the Financial Year 2015 The total remuneration for the Supervisory Board members in 2015 amounted to EUR 353 k. The remuneration for the individual Supervisory Board members for the financial years 2015 and 2014 is as follows: in EUR k Supervisory Board member Alexander Stuhlmann Hermann Dambach Dr Johannes Conradi Benoît Hérault Roger Lee Richard Mully Marianne Voigt Total Function on the Su- pervisory Board Chairman Vice Chairman2) Vice Chairman2) Member member2) member member Function on the Committees1) in 2015 B (ch), C2) C2) A, B A2), C A2) B, C (ch) A (ch) Remuneration for 2015 75.08 Remuneration for 2014 60.00 9.92 65.63 47.85 42.74 54.50 57.00 - 60.00 40.00 50.00 40.00 55.00 352.72 305.00 1) A= audit committee, B=nomination and remuneration committee, C= investment committee, ch=chair. 2) Temporarily. alstria Annual Report 2015 173 REIT disclosures REIT DISCLOSURES REIT DECLARATION Statement of the management board In relation with our financial statements according to Section 264 of the German Commercial Code (Handelsgesetzbuch, HGB) and our consolidated financial statements according to Section 315a HGB as per December 31, 2015, the management board issues the following declaration regarding compliance with the requirements of Sections 11 to 15 of the REIT Act (German Real Estate Investment Trust Act) and regarding the calculation of the composition of income subject to and not subject to income tax for the purpose of Section 19 paragraph 3 REIT Act in conjunction with Section 19a REIT Act: 1. As per balance sheet date, 62.48% of alstria’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 distribution obligation and the reserves pursuant to Section 12 paragraph 2 REIT Act a) as per the balance sheet date the immovable assets amounted to EUR 3,357,957 k which equals to 87.21 % of the assets, therefore at least 75 % of the assets belong 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 435 k and therefore 0.01 %. 4. In relation to the sum of the entire sales revenue plus the other earnings from immovable assets pursuant to the consolidated financial statements according to Section 12 paragraph 3 and 4 REIT Act a) for the financial year 2015, the entire sales revenues of the Group plus other earnings from immovable assets amounted to EUR 125.8 m. This equals 100% of total revenues plus other earnings from immovable assets; b) the sum of the sales revenue plus the other earnings from immovable assets of REIT service companies amounted to EUR 149 k in the financial year 2015. This equals 0.12 % of total revenue plus other earnings from immovable assets. 174 alstria Annual Report 2015 REIT disclosures 5. In the financial year 2015, a dividend payment of EUR 43,470 k for the prior financial year was distributed to the shareholders. The financial year 2014 resulted in a net income amounted to EUR 3,380 k 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 2011, the Group has realised 14.64 % 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 statements according to Section 12 paragraph 1 REIT Act was EUR 1,657.7 m. This equals to 49.37 % of the value of the immovable assets which are shown in the consolidated financial statements in conformance with Section 12 paragraph 1 REIT Act. Hamburg, March 18, 2016 alstria office REIT-AG The Management Board Olivier Elamine Alexander Dexne CEO CFO alstria Annual Report 2015 175 REIT MEMORANDUM REIT disclosures We summarized 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 section 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 financial year from January 1 to December 31, 2015, we have au- dited the information given in the attached declaration of the management board members for the compliance with the requirements of Section 11 to 15 of the REIT Act and the composition of the proceeds concerning the pre-taxation of proceeds according to Section 19 (3) and Section 19a REIT Act as of December 31, 2015 (hereinafter referred to as ‘REIT declaration’). The information given in the REIT declaration is in the responsibility of the management board of the Company. Our responsi- bility is to express an opinion on the information given based on our audit. We conducted our audit considering the audit guidance promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW): Particularities concerning the audit of a REIT stock corporation according to Section 1 (4) REIT Act, a pre-REIT stock corporation accord- ing 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 reasonable assurance if the free float ratio and the maximum stock ownership per shareholder according to Sec- tion 11 (1) and (4) REIT Act agrees with the announcements due to Section 11 (5) REIT Act as of De- cember 31, 2015 and if the provided information concerning the requirements of Section 12 to 15 REIT Act and the composition of the proceeds concerning 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 ratio and the maximum stock ownership per shareholder according to Section 11 (1) and (4) REIT Act provided within the REIT declaration with the announcements due to Section 11 (5) REIT Act as of December 31, 2015 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 financial statements of the Company. Furthermore we tested the adjustments made to the valuation of immovable assets held as investment for their compliance with Section 12 (1) REIT Act. We believe that our audit provides a reasonable basis for our opinion. 176 alstria Annual Report 2015 REIT disclosures In our opinion based on the findings of our audit, the information given in the REIT declaration con- cerning 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 De- cember 31, 2015 and the information provided concerning the compliance with Section 12 to 15 REIT Act and the composition of the proceeds concerning the pre-taxation of proceeds according to Sec- tion 19a REIT Act are appropriate. This memorandum is solely provided for submission to the tax authorities of the city of Hamburg with- in the tax declaration according to Section 21 (2) REIT Act. Hamburg/Germany, March 18, 2018 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft (Seal) Signed: Reiher Signed: Deutsch Wirtschaftsprüfer Wirtschaftsprüferin [German Public Auditor] [German Public Auditor] alstria Annual Report 2015 177 Other information Publication of Q1 Interim report Publication of Q2 Half-year interim report Publication of Q3 Interim report Publication of sustainability report OTHER INFORMATION FINANCIAL CALENDAR Events 2016 May 10 August 9 November 8 CONTACT/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 assessments which we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based not occur, or if risks should arise the actual results could differ materially from the results currently expected. Note This report is published in German (original version) and English (non-binding translation). Contact Investor Relations Ralf Dibbern Phone +49 (0) 40 22 63 41-329 Fax +49 (0) 40 22 63 41-229 E-mail rdibbern@alstria.de 178 alstria Annual Report 2015 alstria office REIT-AG www.alstria.com info@alstria.de Bäckerbreitergang 75 20355 Hamburg, Germany T + 49 (0) 40 22 63 41-300 F + 49 (0) 40 22 63 41-310 Platz der Einheit 1 60327 Frankfurt am Main, Germany T + 49 (0) 69 153 256-740 F + 49 (0) 69 153 256-745 Elisabethstrasse 11 40217 Düsseldorf, Germany T + 49 (0) 211 30 12 16-600 F + 49 (0) 211 30 12 16-615 Danneckerstrasse 37 70182 Stuttgart, Germany BUILDING YOUR FUTURE

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