alstria office REIT
Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2016 PROF ITABI LITY TRANS PAREN CY CONTI NUITY SOL VENCY DIA LOGUE SUS TAIN ABIL ITY Five-year overview KEY FIGURES FIVE-YEAR OVERVIEW ACCORDING TO IFRS EUR k Revenues and Earnings Revenues Net rental income Consolidated profit1) FFO1) Earnings per share (EUR)1) FFO per share (EUR)1) 1) Without minority shares. EUR k Balance sheet 2016 2015 2014 2013 2012 202,663 179,014 115,337 102,140 176,872 −110,970 116,410 59,397 1.16 0.76 −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 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 Investment property 2,999,099 3,260,467 1,645,840 1,632,362 1,622,988 Total assets Equity1) Liabilities NAV per share (EUR)1) Diluted NAV per share (EUR)1),2) Net LTV (%) 3,382,633 3,850,580 1,769,304 1,785,679 1,786,893 1,728,438 1,619,377 1,654,195 2,192,916 11.28 11.28 40.9 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 1) Without minority shares. 2) Dilution based on potential conversion of convertible bond. G-REIT figures G-REIT equity ratio (%) Revenues including 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) EPRA NNNAV per share (EUR) EPRA net initial yield (%) EPRA “topped-up” net initial yield (%) EPRA vacancy rate (%) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 56.7 100 2016 0.57 20.6 16.6 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 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 11.31 10.81 5.0 5.4 9.2 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 1) For further information, please refer to EPRA Best Practices Recommendations, www.epra.com. 2) Including vacancy costs. 3) Excluding vacancy costs. alstria Annual Report 2016 CONTENT DETAIL INDEX GROUP MANAGEMENT REPORT .................................................... 2 GROUP MANAGEMENT REPORT ...................................................................... 3 ECONOMICS AND STRATEGY ....................................................................................... 3 FINANCIAL ANALYSIS ............................................................................................. 11 RISK AND OPPORTUNITY REPORT .............................................................................. 23 SUSTAINABILITY REPORT ........................................................................................ 40 DISCLOSURES REQUIRED BY TAKEOVER LAW ................................................................. 41 ADDITIONAL GROUP DISCLOSURE .............................................................................. 44 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 ................................................................................... 123 INDEPENDENT AUDITOR’S REPORT ............................................................................ 124 CORPORATE GOVERNANCE ........................................................................ 126 REPORT OF THE SUPERVISORY BOARD ....................................................................... 126 CORPORATE GOVERNANCE STATEMENT ...................................................................... 133 REMUNERATION REPORT ....................................................................................... 143 REIT DISCLOSURES .................................................................................. 150 REIT DECLARATION .............................................................................................. 150 REIT MEMORANDUM ............................................................................................. 152 OTHER INFORMATION .............................................................................. 154 FINANCIAL CALENDAR ........................................................................................... 154 CONTACT/IMPRINT .............................................................................................. 154 alstria Annual Report 2016 Group Management Report DETAIL INDEX GROUP MANAGEMENT REPORT ECONOMICS AND STRATEGY ....................................................................................... 3 ECONOMIC CONDITIONS ......................................................................................... 3 STRATEGY AND STRUCTURE .................................................................................... 5 PORTFOLIO OVERVIEW ........................................................................................... 6 FINANCIAL ANALYSIS ............................................................................................. 11 EARNINGS POSITION ............................................................................................ 11 FINANCIAL AND ASSET POSITION ............................................................................. 16 CORPORATE MANAGEMENT ................................................................................... 22 RISK AND OPPORTUNITY REPORT .............................................................................. 23 RISK REPORT .................................................................................................... 23 REPORT ON OPPORTUNITIES .................................................................................. 38 SUSTAINABILITY REPORT ........................................................................................ 40 DISCLOSURES REQUIRED BY TAKEOVER LAW ................................................................. 41 ADDITIONAL GROUP DISCLOSURE .............................................................................. 44 EMPLOYEES ...................................................................................................... 44 REMUNERATION REPORT ...................................................................................... 44 CORPORATE GOVERNANCE DECLARATION PURSUANT TO SECTION 289A HGB (“HANDELS-GESETZBUCH”: GERMAN COMMERCIAL CODE) .......................................... 45 DIVIDEND ......................................................................................................... 45 EXPECTED DEVELOPMENTS ...................................................................................... 45 2 alstria Annual Report 2016 Group Management Report GROUP MANAGEMENT REPORT ECONOMICS AND STRATEGY ECONOMIC CONDITIONS Framework The German economy proved to be solid again in 2016. Germany’s GDP increased by 1.9%, a slightly higher growth rate than in 2015 (1.7%) and again above the average growth for the last 10 years (+1.4%).* This development was also reflected in the German labor market, as the unemployment rate decreased by 0.6 percentage points to 5.8%. The employment level reached a peak of 43.8 m employees, which is 0.7% more than last year.** The German real estate market developed in a slightly negative manner in 2016 after six years (2010−2015) of continued rises. The total investment volume on the commercial real estate market dropped to approx. EUR 52.9 b, which was 4% lower than in the previous year. This volume reduction was caused by a shortage of adequate commercial real estate. Germany still offers great investment opportunities due to its strong economic and real estate key figures.*** Overview of the German office-property market Development of office rents In 2016, the average rents for office space remained mostly at previous year’s level in the most important commercial real estate markets – Berlin, Düsseldorf, Frankfurt/Main, Hamburg, Cologne, Munich, and Stuttgart – known as the Big 7. Average rent slightly decreased to EUR 18.70 per sqm in Frankfurt and increased to EUR 16.30 per sqm in Berlin. Average rents were EUR 16.00 per sqm in Munich, EUR 15.10 per sqm in Hamburg, EUR 14.90 per sqm in Düsseldorf, EUR 13.00 per sqm in Stuttgart, and EUR 11.85 per sqm in Cologne. Take-up in major German cities The vacancy rate of office properties in German cities decreased from 6.4% in 2015 to 5.5% in 2016, which represents a total vacancy of 5.1 m sqm (a decrease of 0.6 m sqm). Among the Big 7, the highest vacancy rate was noted in Frankfurt (9.1%), followed by those in Düsseldorf (8.1%), Hamburg (5.6%), Cologne (4.7%), Munich (4.5%), Berlin (4.3%), and Stuttgart (3.7%). * Federal Statistics Office (Statistisches Bundesamt). ** Federal Employment Agency (Bundesagentur für Arbeit). *** Numbers referred to in this section are sourced from Jones Lang Lasalle’s market reports, except of the numbers in the chapter “Develop- ment of office rents”, which are sourced from Collier’s office market report. alstria Annual Report 2016 3 Group Management Report New lease-ups In 2016, new lease contracts were signed for more than 3.98 m sqm of office space in the Big 7 German cities. This reflects an increase of 0.3 m sqm, or 9.3%, compared to the previous year. The highest increases were registered in Cologne (41.2%), Stuttgart (38.6%), and Frankfurt (34.2%), followed by minor increases in Berlin (3.9%), Munich (2.0%), and Hamburg (1.9%). A decrease was registered only in Düsseldorf (−19.6%). New office supply In 2016, the delivery of new office and commercial spaces amounted to approx. 1,100,000 sqm. Compared to last year, this was an increase of around 28%. The most significant increase took place in Hamburg (109.3%), followed by smaller increases in Stuttgart (42.3%), Frankfurt (28.9%), Munich (26.1%), Berlin (16.8%), and Cologne (6.1%). In Düsseldorf (−40.2%), the delivery of new office and commercial spaces was lower than the previous year‘s. For 2017, a slight decrease of the completion volume (approx. 800,000 to 1,000,000 sqm) is forecasted. Investment markets The positive trend in the investment markets did not continue in fiscal year 2016. Total investment volume was about 4% (EUR 52.9 bn for commercial assets) lower than the previous year’s result. The transaction volume in 2016 also did not reach previous year’s result. The Big 7 cities recorded a transaction volume of around EUR 29.6 bn, of which approx. one quarter was registered in Frankfurt (EUR 7.3 bn). With regard to the deal structure, approx. 65% of the commercial investment turnover in fiscal year 2016 was related to single-asset deals, and the share of portfolio transactions amounted to 35%; these values are in accordance with those from the previous year. There was no apparent fundamental change in investment strategies due to the price increase of real estate, although there were indications of a slightly higher risk tolerance. Although investors still focused on core assets, which are characterized by their good condition, good location, and long- term, attractive letting status, the investments in Value-Add, Core-Plus, and opportunistic assets expanded. 4 alstria Annual Report 2016 Group Management Report STRATEGY AND STRUCTURE alstria office REIT-AG (hereafter referred to as “the Company”) is a real estate company listed on the Frankfurt Stock Exchange. In December 2016 DO Deutsche Office AG, which had been consolidated into the alstria Group by the end of 2015, was converted into alstria office Prime Portfolio GmbH & Co. KG (hereafter referred to as “alstria office Prime”) and relocated to Hamburg. Hence, as of De- cember 31, 2016, the alstria Group consisted of the corporate parent, alstria office REIT-AG, and 62 direct and indirect subsidiaries (hereafter referred to as “alstria” or “the Group”). Operational deci- sions are made at the parent-company level. While alstria office REIT-AG directly held more than 50% of the Company’s assets, 36 subsidiaries held 52 assets as of December 31, 2016. For its portfolio, alstria pursues a long-term investment strategy, 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 extant office space is sufficient to meet the demand for office space.  The markets’ vacancy rates will remain relatively stable on average. alstria faces these challenges with a long-term strategy that is characterized by high price discipline in terms of its acquisitions and by 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 have successful letting activities in the long run.  Continuous investments secure the quality of the assets. Increased value can only be realized through constant modernization measures and reduced vacancy.  Value enhancements’ potential is realized through comprehensive repositioning and asset de- velopment.  Providing the best value for the money secures the lettability of the assets. Many tenants are price sensitive, and only lessors who offer better conditions than the competition are suc- cessful. 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 in past years. The precondition that this will remain true for the future is supported by the following facts:  alstria has a long-term lease portfolio (with a weighted average unexpired lease term – WAULT – of around 4.9 years). Approx. 60% of its rental income is derived from a small number of high-quality tenants. Around 30% of its rental income is generated from public authorities or institutions, which are not immediately affected by economic developments. alstria Annual Report 2016 5 Group Management Report  alstria pursues a nontrading-strategy and focuses on long-term value creation by conducting work on and within each building (i.e., classic Asset and Property Management). At alstria, these activities are handled internally, which positively differentiates the Company from its competitors. In the end of financial year 2016, alstria office Prime’s Real Estate Operations Management (Asset and Property Management), which had been partly conducted by external service providers, was also integrated into alstria’s operations.  A key element of alstria’s strategy is supporting tenants in optimizing their real estate operating costs. From the tenants’ point of view, real estate operating expenses are crucial in the decision-making process for rental agreements. alstria believes that optimizing costs using active Asset and Property Management will offer new potential for successful letting activities. PORTFOLIO OVERVIEW Key metrics of the portfolio Key metrics Number of properties Number of joint-venture properties Market value (EUR b)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, 2016 Dec. 31, 2015 108 1 3.0 188.4 6.2 120 1 3.3 208.3 6.3 1,524,300 1,724,100 11.3 4.9 11.6 11.8 5.2 11.5 1) Including fair value of owner-occupied properties. 2) The contractual vacancy rate includes vacancies in assets of the Company’s development pipeline. Real Estate Operations Letting metrics New leases (in sqm)2) Renewals of leases (in sqm) 2016 76,600 118,153 20151) 35,700 38,800 Change 40,900 79,353 1) This includes the letting metrics from the alstria office Prime portfolio for November and December 2015. 2) New leases refer to letting of vacant space. This category does not include lease renewals, prolongations, or exercised renewal options. Vacancy metrics Vacancy rate (%)1) EPRA vacancy rate (%) Vacancy (sqm) thereof vacancy in development projects (sqm) 1) Without assets held for sale. Dec. 31, 2016 Dec. 31, 2015 11.3 9.2 171,700 35,200 11.8 11.2 198,300 27,700 Change −0.5 pp −2 pp −26,600 7,500 In fiscal year 2016, letting activities (as measured by new leases and lease extensions) were at a good level. 6 alstria Annual Report 2016 Group Management Report A new lease with the City of Berlin at Darwinstraße 14-18 had a substantial impact on the positive development of new leases in the year 2016. The lease at Darwinstraße 14-18 for around 17,600 sqm of office and ancillary space is expected to start on March 1, 2017, and has a lease term of ten years. With the signature of this lease, the building is now fully let. Furthermore, alstria signed three new leases in Frankfurt at Platz der Einheit 1 (KASTOR TOWER). The first lease, for approx. 5,600 sqm of office and ancillary space, started on June 15, 2016. The second lease, totalling approx. 3,500 sqm of office and ancillary space, will commence by the end of the first quarter of 2017. The third lease, signed in December, is for approx. 4,300 sqm of office and ancillary space; it will start on April 1, 2017. These new leases have reduced the vacancy in the 30,600 sqm building from 71% to 26%. Moreover, alstria signed a new lease in Hamburg-Bergedorf, at Ludwig-Rosenberg-Ring 41, for approx. 3,800 sqm of office and ancillary space. This lease will start on June 1, 2017 and has a term of 10 years. For financial year 2017, reducing vacancy remains the operational focus. Portfolio Valuation and Regions As of December 31, 2016, external appraisers (Colliers International for alstria’s assets and CBRE GmbH for the alstria office Prime subgroup’s assets) valued alstria’s portfolio pursuant to IFRS 13. The valuation resulted in a total market value for the investment properties of EUR 3,022 m.* Of this total market value, approx. EUR 2,747 m, or over 91%, was located in the Rhine-Ruhr, Hamburg, Rhine-Main, and Stuttgart regions. In the table below, the investment focus on the selected locations becomes obvious: Total portfolio by region % of market value Rhine-Ruhr Hamburg Rhine-Main Stuttgart Berlin Hanover Saxony Munich Others * Inclusive assets held for sale Dec. 31, 2016 Dec. 31, 2015 Change (pp) 29 27 21 14 3 1 1 0 4 25 23 20 14 7 1 1 3 6 4 4 1 0 −4 0 0 −3 −2 alstria Annual Report 2016 7 Group Management Report Tenants Another main characteristic of alstria’s portfolio is its focus on a small number of major tenants. alstria’s main tenants % of annual rent Stadt Hamburg Daimler AG GMG Generalmietgesellschaft Zürich Versicherung AG HOCHTIEF Aktiengesellschaft Bilfinger SE Residenz am Dom gemeinn. Betriebsgesellschaft mbH Württembergische Lebensversicherung AG Stadt Berlin Allianz Deutschland AG Others Dec. 31, 2016 Dec. 31, 2015 Change (pp) 13 12 10 5 4 3 2 1 1 0 49 14 11 9 4 4 3 2 1 0 7 45 −1 1 1 1 0 0 0 0 1 −7 4 Furthermore, the focus is clearly on one asset class. Of the total lettable area, approx. 88% is office space.* Lease expiry profile % of annual rent 2017 2018 2019 Transactions Dec. 31, 2016 Dec. 31, 2015 Change (pp) 11.8 18.0 18.1 17.3 12.0 22.3 −5.5 6.0 −4.2 alstria’s investment decisions are based on both the analyses of local markets and individual inspec- tions of each asset. The latter focuses on the attributes of location, size, and quality (relative to those of direct competitors’ assets) and the long-term potential for value growth. alstria’s strategy is aimed at both increasing its portfolio to a critical size at every location and retracting from the markets that do not adhere to alstria’s core investment focus. Following this strategy, alstria sold the Frankenportfolio (two assets in Nuremberg, one in Erlangen, and one in Weiterstadt), two assets in Ismaning and individual assets in Munich, Hamburg, Berlin, Leipzig, and Heilbronn. While the asset in Hamburg was legally transferred in the second quarter, the assets in Munich, Berlin, and Leipzig were transferred in the third quarter of the reporting period. The transfer of benefits and burdens of the Frankenportfolio and the assets in Ismaning and Heilbronn took place in the last quarter of fiscal year 2016. Furthermore, alstria sold one asset in Dortmund and one in Dresden. The transfer of benefits and burdens for the Dresden asset took place on February 1, 2017. The transfer of the Dortmund asset is * Office and storage. 8 alstria Annual Report 2016 Group Management Report expected during the first quarter of 2017. In financial year 2016, alstria signed a purchase agreement for the acquisition of an asset in Berlin, which was transferred on November 1, 2016. In summary, alstria was involved in the following transactions in 2016: 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 14,000 13,395 44,387 5,920 26,830 228,431 9,450 14,100 18,400 33,650 7,350 11,200 15,100 17,000 4,200 10,500 55 888 1,222 78 1,774 13,996 832 1,050 1,304 2,161 442 1,377 1,075 998 4 695 473,913 27,951 38,000 8,350 46,350 2,336 526 2,862 Landshuter Allee 174 Munich Dieselstraße 18 Ditzingen Hofmannstraße 51 Munich Wandsbeker Chaussee 220 Hamburg Taunusstraße 34−36 An den Treptowers 33) Munich Berlin Ludwig-Erhard-Straße 49 Leipzig Gutenbergstraße 1 Ismaning Oskar-Messter-Straße 22−24 Ismaning Bahnhofstraße 1−5 Heilbronn Feldstraße 16 Weiterstadt Nägelsbachstraße 26 / Nürnberger Straße 41 Erlangen Lina-Ammon-Straße 19 Nuremberg Richard-Wagner-Platz 1 Nuremberg Max-Eyth-Straße 24) Dortmund Zellescher Weg 21−25a4) Dresden Total Acquisitions Gasstraße 18 Hamburg Tempelhofer Damm 146 Berlin Total 1) Excluding transaction costs. 2) At the time of the transfer of benefits and burdens. 3) Share deal. 4) Balance sheet as reported under assets held for sale. 5) Expected. Refurbishment projects 0.2 June 11, 2015 June 30, 2016 19.8 Aug. 31,2015 June 25, 2016 2.0 2.7 Nov. 5, 2015 June 30, 2016 May 19, 2016 June 30, 2016 5.4 June 27, 2016 Aug. 31, 2016 2.7 1.5 6.7 3.7 5.1 2.1 2.3 4.0 3.6 1.0 1.9 3.2 7.8 July 8, 2016 Sep. 30, 2016 Aug. 3, 2016 Sep. 30, 2016 Sep. 13, 2016 Dec. 31, 2016 Sep. 13, 2016 Dec. 31, 2016 Sep. 28, 2016 Nov. 30, 2016 Sep. 30, 2016 Dec. 31, 2016 Oct. 11, 2016 Dec. 31, 2016 Oct. 11, 2016 Dec. 31, 2016 Oct. 11, 2016 Dec. 31, 2016 Oct. 14, 2016 Feb. 28, 20175) Dec. 15, 2016 Feb. 1, 2017 Nov. 26, 2015 Jan. 1, 2016 Aug. 25, 2016 Nov. 1, 2016 alstria has achieved significant progress with respect to its development projects:  Momentum (Wehrhahn Center), Düsseldorf The Momentum complex, which was built in 1985, is situated in the well-established city submarket. alstria acquired the complex, which consists of five interconnected parts, as part of a portfolio transaction. While the basements of the buildings host 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. Since the office spaces no longer meet the current demands regarding building services and flexibility, alstria decided to fundamentally revitalize the building. This alstria Annual Report 2016 9 Group Management Report comprises, among other improvements, the total gutting of the building down to the shell construction and the application of a new façade with a modern axis grid. These changes allow for a highly flexible and complete restructuring of the office floor plans. 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, more efficient building equipment, and roof terraces will heighten the lettable area. The refurbishment, which started in March 2016, is expected to be completed by the end of 2017.  Bieberhaus, Hamburg The listed Bieberhaus was built in 1909 and purchased by alstria in 2007. The building, with its historic façade, is located close to the central station in Hamburg. The ground floor hosts retail areas, and the other six stories contain office space. Moreover, the Ohnsorg Theater (which was fully refurbished in 2012) is located in part of the building. As the tax authority has moved out, the office spaces no longer meet current demands regarding building services and flexibility, so alstria has decided to fundamentally revitalize the building. This comprises, among other improvements, the gutting of the offices spaces and the attic. The roof will also be partly renewed to enlarge the space on the 7th floor so as to convert this floor from storage to office space. The refurbishment, which started in October 2016, is expected to be completed by mid-2018. In 2016, alstria invested around EUR 31 m in ongoing refurbishment projects.* Around EUR 9 m of this amount was for development projects, and the remainder was invested in value-increasing tenant- improvement measures. The main part of the 2016 capital expenditure investment was linked to the Berlin asset at Darwinstraße, the Momentum in Düsseldorf, the KASTOR TOWER in Frankfurt, and the asset at Harburger Ring in Hamburg. Within the next two years, alstria is planning to invest around EUR 100 m into its portfolio. The major single projects are the developments of the Momentum (Wehrhahn Center) in Düsseldorf and the Bieberhaus in Hamburg. 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. * Without Joint Venture Kaisergalerie. 10 alstria Annual Report 2016 Group Management Report FINANCIAL ANALYSIS Due to the takeover of alstria office Prime on October 27, 2015, the earnings position and the financial and asset position shown on the consolidated financial statement as of December 31, 2016, and December 31, 2015, are not directly comparable. Financial year 2016 developed as expected for alstria. Its 2016 revenues of approx. EUR 203 m were slightly higher than the revenues of EUR 200 m that were forecasted in 2015. The funds from operations (FFO) amounted to EUR 116 m in the reporting period, which is in line with the forecasted level of EUR 115 m for the alstria Group. EARNINGS POSITION Revenues In the reporting period, revenues totalled EUR 202,663 k (2015: EUR 115,337 k), which corresponds an increase of EUR 87,326 k (or 75.7%) compared to the revenues in the previous year. This includes revenues of EUR 103,483 k from alstria office Prime. The revenues of the alstria subgroup increased by around 2.0%. The main reasons for this increase were the acquisition of new assets and the letting of vacant areas. As a result, net rental income for the overall Group amounted to EUR 179,014 k (2015: EUR 102,140 k). Real estate operating expenses Real estate operating expenses amounted to EUR 23,445 k (2015: EUR 12,774 k). Of this amount, EUR 12,329 k is attributable to the alstria office Prime subgroup. The cost ratio slightly increased from 11.1% in 2015 to 11.6% in 2016. This is mainly caused by fire-protection measures for two assets in the alstria office Prime portfolio. Administrative and personnel expenses Administrative expenses were EUR 8,464 k, an increase of EUR 2,081 k compared to financial year 2015 (EUR 6,383 k). The growth was caused by the generally higher administrative expenses due to the takeover of alstria office Prime. Personnel expenses were EUR 12,683 k for the reporting period in comparison to EUR 12,068 k for the previous year. In 2015 a one-time settlement payment of EUR 1,200 k was included in the personnel expenses. In 2016 the increase is mostly a result of taking over the employees of alstria office Prime and integrating the property management of the subgroup. The sum of the administrative and personnel expenditures corresponds to roughly 10.4% of total revenues (2015: 16.0%). Other operating result alstria’s other operating result amounted to EUR −9,028 k during the reporting period (2015: EUR −154,611 k). The other operating result in 2015 was mainly influenced by the amortization of the goodwill in the amount of EUR 144,795 k; this was caused by the initial consolidation after the takeover of alstria office Prime. alstria Annual Report 2016 11 Group Management Report Net result from fair value adjustments on investment property In financial year 2016, the net result from fair value adjustments to investment properties was EUR 72,806 k, an increase of EUR 76,998 k compared to the value for financial year 2015. The growth was mainly influenced by the new, positive valuations of Darwinstraße in Berlin (EUR 24,333 k), Momentum in Düsseldorf (EUR 19,540 k), and KASTOR TOWER (EUR 17,856 k). Net result on disposals of investment property In 2016, alstria was able to achieve a positive result of EUR 25,464 k from the disposal of properties. The realized disposal gains mainly resulted from the sale of the Treptowers asset in Berlin. Net operating result alstria closed its financial year 2016 with a net operating result (before financing costs and taxes) of EUR 247,109 k, which compares to EUR −62,459 k for the previous year. As compared to the previous year, alstria had a higher net rental income, a higher other operating result, and a higher valuation result. The following table shows the main figures of the income statements for financial years 2016 and 2015: EUR k Revenues Net rental income Administrative and personnel expenses Other operating result Operating income Net result from fair value adjustments to investment properties Net result from disposals of investment properties Net operating result 2016 202,663 179,014 −21,147 2015 115,337 102,140 −18,451 −9,028 −154,611 148,839 −70,922 72,806 25,464 −4,192 12,655 247,109 −62,459 12 alstria Annual Report 2016 Group Management Report Net financial result EUR k Interest expenses, corporate bonds Interest expenses, Deutsche Office portfolio loans Interest expenses, syndicated loans Interest expenses, convertible bonds Interest expenses, other loans Interest result Schuldschein Interest result derivatives Other interest expenses Financial expenses Financial income/interest income Other financial expenses Net financial result 2016 −20,496 −6,728 −6,723 −5,116 −4,074 −2,036 −207 0 −45,380 535 −5,949 −50,794 2015 −1,241 −3,969 −8,531 −4,623 −9,013 0 −6,650 −3 −34,030 128 −9,431 −43,333 Change (%) n/a −69.5 +21.2 −10.7 +54.8 n/a 96.9 n/a −33.4 n/a +36.9 −17.2 The negative net financial result increased by EUR 7,461 k to EUR 50,794 k. Despite the fact that alstria office Prime was consolidated for the entire reporting period, financial expenses only increased by EUR 11.350 k (or 33%) to EUR 45.380 k. The reasons for this disproportionately low growth are, first, an improved debt ratio, and second, the refinancing of bonds and Schuldschein under more favourable conditions. The “Other financial expenses” include prepayment penalties for the premature repayment of loans. For details on the new loans, also refer to the “Financial and asset position” section on page 16. Share of the result of joint venture companies In 2016, alstria’s share of earnings from joint venture companies was EUR 5,480 k (2015: EUR 1,988 k), which is mainly attributable to the higher valuation of the Kaisergalerie asset in Hamburg. 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 or swaps to hedge on floating-interest-rate loans. On the balance sheet date, all the Group’s floating-interest-rate loans were hedged using such derivative financial instruments. Due to refinancing with fixed-interest bonds and the reduction of floating-interest-rate loans, the nominal value of the interest-hedging instruments decreased from EUR 1,558,499 k to EUR 504,266 k. The net result from fair value adjustments on these financial derivatives amounted to EUR −8,101 k in 2016 (2015: EUR −6,763 k). Due to the still-low yield curve in financial year 2016, the interest-rate derivatives were devalued by an amount of EUR 10,558 k. An opposing effect increased the valuation of the embedded derivate in relation to the convertible bond by EUR 2,727 k. The value of the embedded derivate is essentially determined by alstria’s share-price development because this influences the market value of potential alstria Annual Report 2016 13 Group Management Report repayment obligations in case of a conversion of the convertible bond. Further details and a tabular reconciliation can be found in section 6.6 of the consolidated financial statements. Consolidated net result The consolidated net result amounted to EUR 182,376 k (2015: EUR -111,379 k) in the reporting period; hence, it increased by EUR 293,755 k. The growth of the net result was mainly influenced by the positive result from the disposal of assets and the positive valuation of investment properties. Furthermore, the full-year consolidation of alstria office Prime has conducted to a higher operating result. A significant main driver of the previous year’s negative result was the amortization of the goodwill that resulted from the first-time consolidation of alstria office Prime. As of December 31, 2015, this goodwill has been amortized in the full amount of EUR 144,795 k. Undiluted earnings per share amounted to EUR 1.16 for the reporting period (2015: EUR -1.15). REIT-AGs are fully exempt from the German corporate income tax and trade tax. However, tax obligations can arise to a minor extent for REIT subsidiaries. Because of the takeover of alstria office Prime, companies that are not yet subject to the REIT tax exemption have been consolidated into the Group. With the transformation of alstria office Prime, its subsidiaries are now included in the tax- free REIT structure. Any hidden reserves with a significant taxable amount had to be disclosed. Hence, the Group had higher tax-payment obligations in financial year 2016 than in the previous year. 14 alstria Annual Report 2016 Group Management Report Funds from operations FFO amounted to EUR 121,558 k (including minority shareholders) or EUR 116,410 k (excluding minor- ity shareholders) in 2016, compared to EUR 59,998 k (including) or EUR 59,397 k (excluding) in 2015. The FFO ratio increased to 60.0% (i.e., by 8.0 percentage points; including minority shareholders). As a result, FFO per share* was EUR 0.79 (including minority shareholders) or EUR 0.76 (excluding minor- ity shareholders) in financial year 2016 (2015: EUR 0.62 including minority shareholders; EUR 0.61 excluding minority shareholders). The reasons for this increase are the integration of alstria office Prime, more favourable refinancing, and synergy effects in administrative and personnel expenses. EUR k Pretax income (EBT) Net profit/loss from fair value adjustments on investment properties Net profit/loss from fair value adjustments on financial derivatives Profit/loss from the disposal of investment properties Fair value and other adjustments in joint venture Other adjustments1) Funds from operations (FFO)2) Attributable to minority shareholders Attributable to alstria office REIT-AG shareholders Maintenance and re-letting Adjusted funds from operations – (A)FFO3) Number of shares (k)4) FFO per share (EUR k) 2016 193,694 −72,806 8,101 −25,464 −3,852 21,885 121,558 −5,148 116,410 −22,226 94,184 153,231 0.76 2015 −110,567 4,192 6,763 −12,655 −1,301 173,566 59,998 −601 59,397 −16,162 43,235 96,718 0.61 1) This is noncash income or expenses plus nonrecurring effects. The main effects in financial year 2015 were the amortization of the goodwill (EUR 144,795 k), the higher legal and advisory costs that were incurred in connection with the takeover of alstria office Prime (EUR 9,765 k), and the nonrecurring effects from repayment fees for the premature termination of loans (EUR 9,162 k). The main effects in financial year 2016 were cost related to the takeover of alstria office Prime (EUR 6,686 k), the cost of sales (EUR 4,771 k) and the noncash effect from the dissolution of effective interests due to the premature repayment of loans (EUR 3,392 k). 2) (A)FFO is not a measure of operating performance or liquidity under generally accepted accounting principles, in particular IFRS, and it should not be considered 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, alstria’s (A)FFO values and the measures with similar names presented by other companies may not be comparable. 3) (A)FFO is equal to FFO after adjustments are made for capital expenditures used to maintain the quality of the underlying investment portfolio and expenses for lease-ups. 4) The number of shares as of December 31, 2016 was 153,231,217; in 2015, the average number of shares was 96,718,329 due to the takeover of alstria office Prime. * This is calculated using the number of shares as of December 31, 2016, which was 153,231,217; the average number of shares in 2015 was 96,718,329. alstria Annual Report 2016 15 Group Management Report FINANCIAL AND ASSET POSITION Investment properties The total value of investment properties at year end was EUR 2,999,099 k, compared to EUR 3,260,467 k at the beginning of the year. This decrease in investment property value is mainly the result of the disposal of 13 assets. The valuation result amounted to EUR 72,806 k, compared to EUR −4,192 k in 2015. EUR k Investment properties as of Dec. 31, 2015 Investments Acquisitions Disposals Reclassifications Net loss/gain from fair value adjustments on investment properties Property portfolio as of Dec. 31, 2016 Prepayment Investment properties as of Dec. 31, 2016 Carrying amount of owner occupied properties Fair value of properties held for sale Interests in joint ventures Carrying amount of immovable assets Financial management 3,260,467 31,277 9,146 −360,500 −14,097 72,806 2,999,099 5,967 14,700 30,381 3,050,147 2,575 3,052,722 alstria’s financial management is carried out at the corporate level. Individual loans and corporate bonds are taken out at both the property level and the portfolio level. alstria’s main financial goal is to establish a sustainable long-term financial structure. Therefore, alstria diversifies its sources of financing and strives for a balanced maturity profile to enable coordinated and constant refinancing. On February 22, 2016, the loan to finance the Herkules portfolio, with a nominal value of EUR 332 m, was repaid prematurely. The refinancing was made using proceeds from a bond that had been issued in November 2015. On April 12, 2016, alstria issued a second unsecured, fixed-rate bond with a nominal value of EUR 500 m. This corporate bond, which matures in April 2023, bears a fixed coupon of 2.125%. The proceeds from the bond serve to refinance bank liabilities. With the proceeds from the second bond, the Company was able to refinance further bank liabilities. On May 31, 2016, the loan agreement for the financing of the Homer portfolio (with a nominal value of EUR 333 m), which had been terminated prematurely, was repaid in total. Furthermore, as of June 30, 2016, another three loans from the alstria office Prime portfolio (with a total nominal value of EUR 129 m) were terminated prior to maturity. In addition to the placement of the bond on May 6, 2016, the Company issued a Schuldschein (senior 16 alstria Annual Report 2016 Group Management Report unsecured debt) with a nominal value of EUR 150 m. The Schuldschein, with an average coupon of 2.07%, has an average maturity of 7.1 years. The proceeds have been used to refinance existing bank debt. Furthermore, during the reporting period, alstria extended two loans. One loan, for a nominal amount of EUR 67 m, was extended for another eight years. The second prolongation concerns a loan with a nominal amount of EUR 56 m and a maturity of ten years. In the process of the prolongation, the margin on these two loans reduced from 1.29% to 0.84% on average. The syndicated loan, which has existed since September 30, 2013 and which had an initial amount of EUR 544 m, was repaid prematurely on December 30, 2016. The loan had validated EUR 471 m as of December 31, 2015. In financial year 2016, alstria made further repayments of EUR 159 m. The loan facilities in place as of December 31, 2016, are as follows: Liabilities Syndicated loan #11) Syndicated loan #22) Syndicated loan #33) Loan #14) Loan #24) Loan #35) Loan #46) Loan #5 Loan #6 Loan #76) Loan #8 Total loans Bond (1st tranche) Bond (2nd tranche) Convertible bond Schuldschein 10y/fixed Schuldschein 4y/fixed Schuldschein 7y/fixed Schuldschein 7y/variable Schuldschein 4y/variable Total Net LTV Maturity Sep. 30, 2020 Feb. 22, 2016 Sep. 30, 2018 June 30, 2017 Dec. 31, 2018 Dec. 30, 2017 June 28, 2024 Apr. 30, 2021 Mar. 28, 2024 June 30, 2026 July 31, 2021 Mar. 24, 2021 Apr. 12, 2023 June 14, 2018 May 6, 2026 May 8, 2023 May 6, 2020 May 8, 2023 May 6, 2020 Principal amount drawn as of Dec. 31, 2016 EUR k LTV as of Dec. 31, 2016 % Principal amount drawn as of Dec. 31, 2015 EUR k LTV cove- nant % 0 0 0 0 0 0 67,000 58,896 56,500 56,000 15,268 253,664 500,000 500,000 79,200 40,000 37,000 38,000 17,500 17,500 - - - - - - 39.1 49.0 47.8 44.0 50.6 44.7 - - - - - - - - 1,482,864 49.1 40.9 - - - - - - 65.0 65.0 75.0 65.0 60.0 – - - – - - - - - – 470,556 331,910 336,320 58,868 53,432 18,507 67,000 60,048 56,500 56,000 15,423 1,524,564 500,000 - 79,200 - - - - - 2,103,764 1) Loan agreement terminated; withdrawal occurred on December 30, 2016. 2) Loan agreement terminated; withdrawal occurred on February 22, 2016. 3) Loan agreement terminated; withdrawal occurred on May 31, 2016. 4) Loan agreement terminated; withdrawal occurred on June 30, 2016. 5) Loan agreement terminated; withdrawal occurred on June 30, 2016 / July 4, 2016. 6) Refinanced in the second quarter of 2016. alstria Annual Report 2016 17 Group Management Report Average term to maturity for loans/bonds/convertible bonds (years) 5.4 3.6 Dec. 31, 2016 Dec. 31, 2015 Maturity profile of financial debt as of December 31, 20161) in EUR m 774 574 79 56 - - 2017 2018 2019 2020 2021 from 2022 1) Excluding regular amortization. Average cost of debt (% p.a.) 2016 2.2 2015 2.8 18 alstria Annual Report 2016 Group Management Report Compliance with and calculation of the Covenants, referring to §11 of the Terms and Conditions* In case of the incurrence of new Financial Indebtedness for purposes other than the refinancing of existing liabilities, alstria needs to comply with the following covenants:  The ratio of Consolidated Net Financial Indebtedness to Total Assets will not exceed 60%.  The ratio of Secured Consolidated Net Financial Indebtedness to Total Assets will not exceed 45%.  The ratio of Unencumbered Assets to Unsecured Consolidated Net Financial Indebtedness will be more than 150%. From the issuance date of the first bond (November 24, 2015) up to the reporting date, alstria incurred two further Financial Indebtednesses to refinance existing Secured Financial Indebtedness. Additionally, in the second quarter of 2016, alstria prolonged two existing loans prior to maturity. Furthermore, 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 should be done after the fifth reporting date following the issuance of the bond and thus together with this 2016 annual report. EUR k Earnings Before Interest and Taxes (EBIT) Net profit/loss from fair value adjustments to investment properties Net profit/loss from fair value adjustments to financial derivatives Profit/loss from the disposal of investment properties Other adjustments1) Fair value and other adjustments in joint venture Consolidated Adjusted EBITDA Cash interest and other financing charges One-off financing charges Net Cash Interest Consolidated Coverage Ratio (min. 1.80 to 1.00) Cumulative 2016 244,488 −72,806 8,101 −25,464 11,843 −3,852 162,310 −26,631 1,617 −25,014 6.49 1) Depreciation and amortization and nonrecurring or exceptional items. The main effects in financial year 2016 were cost related to the takeover of alstria office Prime (EUR 4,337 k) and the cost of sales (EUR 4,771 k). As of December 31, 2016, no covenants have been breached under the loan agreements, the bond’s terms and conditions, and/or the conditions of the Schuldschein. * The following section refers to the Terms and Conditions of the Fixed Rate Notes, issued on November 24, 2015, and on May 6, 2016 as well as to the Terms and Conditions of the Schuldschein issued on April 12, 2016 (for further information, please refer to www.alstria.com). Capitalized terms have the meanings defined in the Terms and Conditions. alstria Annual Report 2016 19 Group Management Report Cash position Cash and cash equivalents decreased from EUR 460,253 k to EUR 247,489 k during the reporting period. This reduction is essentially due to refinancing measures. In financial year 2016, alstria raised new debt equal to EUR 650,000 k in the form of a bond (EUR 500,000 k) and a Schuldschein (EUR 150,000 k). In return, the repayment of loans led to a cash outflow of EUR 1,273,926 k, and the payment of dividends led to a cash outflow of EUR 76,564 k. Net cash inflow from property transactions increased to EUR 341,951 k, and a positive cash flow of EUR 120,495 k was generated from operating activities. Equity Metrics Equity metrics Equity (EUR k) Thereof non-controlling interests NAV per share (EUR) Equity ratio (%) G-REIT equity ratio (%)1) Dec. 31, 2016 Dec. 31, 2015 Change 1,728,438 1,657,664 - 11.28 51.1 56.7 38,287 10.64 43.0 49.4 4.3% n/a 6.0% 8.1 pp 7.3 pp 1) This is defined as total equity divided by the carrying amount for immovable assets. The minimum requirement according to G-REIT regulations is 45%. Total equity increased by EUR 70,774 k in 2016, reaching 1,728,438 k as of December 31, 2016. The net consolidated result for financial year 2016 contributed to a higher equity of EUR 182,376 k. On the other hand, dividend payments decreased the equity by EUR 76,564 k. The Non-controlling interests refer to the equity of the minority shareholders of alstria office Prime. Following the conversion of the legal form, the shares are no longer shown as equity. The capital of minority shareholders is now shown as liabilities.* Capital of noncontrolling shareholders Liabilities due to minority interests are the limited-partner capital of noncontrolling shareholders in alstria office Prime. The limited-partner capital of the minority shareholders, according to IFRS, is treated as a liability in the consolidated statements (as applicable). Long-term loans Long-term loans decreased by 14.5%, from EUR 1,715,590 k as of December 31, 2015 to EUR 1,466,521 k as of December 31, 2016. The decrease resulted essentially from the repayment of the syndicated loan on December 30, 2016, as this loan had amounted to EUR 470,556 k as of December 31, 2015. Moreover, in the first half of financial year 2016, alstria completely repaid its loans for the financing of the Herkules Portfolio and the Homer Portfolio, which had amounted to EUR 668,230 k as of December 31, 2015 (EUR 343,272 k of this amount was reported under short-term loans in 2015). * See also the consolidated statement of changes in equity at page 54. 20 alstria Annual Report 2016 Group Management Report Three additional loans from the alstria office Prime portfolio were repaid prior to maturity; these had amounted to EUR 130,808 k as of December 31, 2015. By contrast, in the second quarter of the reporting year, alstria issued a bond with a total nominal amount of EUR 500,000 k and placed a Schuldschein in the amount of EUR 150,000 k. Short-term loans Short-term loan obligations amounted to EUR 19,330 k on the reporting date (previous year: EUR 376,402 k) and hence were EUR 357,072 k lower than in the previous year. A main reason for the high amount in 2015 was the premature repayment of a loan for the financing of the Herkules Portfolio, which was already reported under short-term loans in 2015. As of December 31, 2016, short-term loans were mainly influenced by the interest for the bonds (2016: EUR 16,408 k; 2015: EUR 1,168 k) and the Schuldschein (2016: EUR 1,738 k; 2015: EUR 0 k). Current liabilities Current liabilities amounted to EUR 104,996 k (2015: EUR 448,911 k) and mainly consisted of the above- mentioned short-term loan obligations of EUR 19,330 k (2015: EUR 376,402 k) and of the current liabilities to minority shareholders of EUR 12,966 k (2015: EUR 0 k). Another EUR 20,104 k of this total was attributable to tax obligations (2015: EUR 8,687 k), which arose nearly exclusively at the level of the consolidated alstria office Prime companies. Moreover, current liabilities include trade payables (2016: EUR 4,584 k; 2015: EUR 9,415 k) and other current liabilities (2016: EUR 45,334 k; 2015: EUR 52,251 k). The other current liabilities include liabilities from the real estate transfer tax (EUR 11,869 k; 2015: EUR 13,199 k), which were incurred at the alstria office Prime level, provisions for outstanding invoices (2016: EUR 16,223 k; 2015: EUR 19,744 k), prepayment of rents (2016: EUR 2,758 k; 2015: EUR 3,960 k), and received deposits (2016: EUR 4,944 k; 2015: EUR 5,094 k). Trade payables of the previous year’s balance sheet have been adjusted in line with the presentation in the previous year’s consolidated financial statement. As of December 31, 2015, an amount of EUR 20,477 k was shown. This included outstanding invoices in the amount of EUR 11,062 k, which have been reclassified under other current liabilities. alstria Annual Report 2016 21 Group Management Report CORPORATE MANAGEMENT alstria proactively focuses on the following key financial performance indicators: revenues and FFO. Revenues mainly comprise rental income derived from the Company’s leasing activities. FFO is the operating result and is derived from real estate management. It excludes valuation effects and other adjustments, such as non-cash expenses/income and non-recurring effects.* For financial year 2016, the Company forecasted revenues of EUR 200 m and an FFO of EUR 115 m. Due to the Company’s good letting performance in financial year 2016, its revenues were approx. EUR 203 m, slightly higher than in the forecast. In financial year 2016, FFO totalled EUR 116 m (without minorities), which is in line with the forecast. The Company also monitors the progress of its LTV, its G-REIT equity ratio, and its liquidity, whereby these are not classified as for the internal control of the Company most relevant performance indicators. alstria’s LTV for the loan financing was 44.7% as of December 31, 2016, compared to 52.1% at the end of financial year 2015. The G-REIT equity ratio was 56.7%, compared to 49.4% in the previous year and the minimum statutory rate of 45%. * For further details, please refer to page 15. 22 alstria Annual Report 2016 Group Management Report RISK AND OPPORTUNITY REPORT RISK REPORT Risk Management alstria has implemented a Group-wide system for structured risk management and early warning 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’s risk-management strategy is to minimize – or, where possible, completely avoid – the risks associated with entrepreneurial activity in order to safeguard the company against losses and against risks to the company’s going concerns. The company’s risk identification allows for the early identification of potential new risks on an ongoing basis. Risk-mitigation measures are defined so that alstria can undertake the necessary steps to circumvent any identified risks (i.e., to insure, diversify, manage, or avoid those risks). For alstria, risk management involves the targeted securing of existing and future potential for success and improvements in the quality of the Company’s planning processes. alstria’s risk-management system is an integral part of its management and control system. The risk- management system is integrated into its regular reporting to the Management Board and Supervisory Board, which ensures that risks are dealt with proactively and efficiently. The risk-management system thereby focuses on full coverage of the risks. The identification and assessment of opportunities is not part of alstria’s risk-management system. Structure of the risk-management system Risk management is coordinated independently from individual business divisions. The risk manager prepares a risk report on a quarterly basis and provides it to the Management Board. This report is based on the reports from the risk owners – those who are responsible for particular areas of risk. alstria faces various areas of risk within the context of its business activities; these are divided into the following four risk categories: > strategic risks > operational risks > compliance risks > financial risks Each risk category is assigned to a so-called risk owner. Inherent to the risk owner’s position in the Company is that he or she represents the area in which the identified risks could materialize; the risk owner is also responsible for the assigned risk category: alstria Annual Report 2016 23 Group Management Report 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, evaluation, and monitoring. At the same time, the comprehensive documentation of this report ensures an orderly assessment, which the responsible departments and the Supervisory Board conduct. In addition, the divisions report their respective risks and opportunities to the Management Board in weekly meetings. The Management Board must be immediately notified of any risks that represent a potential economic loss of more than EUR 2.0 m via ad hoc announcements. Risk valuation Risks are assessed according to their likelihood of occurrence and their magnitude of impact. Accordingly, they are categorized as “high,” “medium” or “low.” The potential damage includes any potential negative deviation from alstria’s forecasts and objectives. 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 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, each risk is classified as “high,” “medium” or “low” according to the following matrix. 24 alstria Annual Report 2016 Group Management Report l 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 Risk classification Probability highly likely likely possible unlikely very unlikely Degree of impact L = low risk M = medium risk H = high risk In 2016, the Company’s risk-management system was not exposed to any significant changes from the previous year. Key characteristics of the accounting-related internal control and risk-management system Regarding the reporting process, the objective of the control and risk-management system is to make sure that the reporting is consistent and in line with legal requirements, generally accepted accounting principles, the International Financial Reporting Standards (IFRS), and internal guidelines. 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 that are incorporated in the process as well as independent external elements. 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 with 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, the Supervisory Board (in particular, the Audit Committee), and a firm of auditors are all involved in the monitoring system. These groups perform various checks that are independent of the Company’s processes. Accounting acts as the central interlocutor for special technical questions and complex reporting issues. If required, external experts (auditors, qualified accounting specialists, etc.) are consulted. In addition, monitoring related to accounting is executed by the Company’s controlling department. All items and main accounts for the consolidated companies’ income statements and balance sheets, 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 alstria Annual Report 2016 25 Group Management Report financial statements and for alstria’s individual financial statement. Accounting-related data are monitored monthly or quarterly, 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 “finance” area monitors the risks that are relevant to 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 optimize accounting-related risks throughout the Group. Description and assessment of risks In accordance with alstria’s risk-management system, all material risks inherent to the future devel- opment of the Group’s position and performance are described in this chapter. The individual risks that are described relate to the planning period from 2017 to 2019. Corporate risks Strategic risks Likelihood Risk impact Risk level Change since prior year Market environment unlikely moderate unlikely moderate unlikely moderate Shortfalls of rental payments very unlikely Risks in relation to changes to the legal environment Risk due to inefficient organizational structures Operational risks Maintenance risks Refurbishment projects Vacancy risk Risks relating to property transactions HR risks IT risks Environmental risks Compliance risks Risks resulting from not complying with G-REIT legislation Risks arising from fraud or non-compliance Litigation risks Financial risks Valuation risks Breaches of covenants Tax risks Liquidity risks possible possible unlikely unlikely possible possible unlikely unlikely unlikely unlikely unlikely unlikely unlikely Refinancing on unfavourable terms very unlikely Interest rate risks Counterparty risks very unlikely very unlikely high high high moderate low low high low moderate moderate high high high moderate high high high unlikely moderate 26 alstria Annual Report 2016 L L L M M M L L L L L L L L M M M L L L L unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged unchanged decreased decreased unchanged Group Management Report Strategic risks Strategic risk management addresses the factors that influence the Company’s market environment, regulatory environment, and strategic corporate organization. Market environment risks For the Group, market environment risks are derived from macroeconomic 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 lower demand for rental areas in office properties. For alstria, this would lead to a higher risk of vacant space or to lower rental income. The slowing of growth in developing and emerging countries, the increasing political instability of certain countries in crisis, the continuing low interest rates of the European Central Bank, and the discussion about certain states’ high debt were all been identified as factors causing uncertainty in the previous year’s balance sheet. While the developments described are no longer the focus of public debate, the planned exit of Great Britain from the EU and the change of government in the USA have been added as uncertainties. 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, as it has been stable in spite of such circumstances. Regarding the overall strategic risk situation that can be linked to the macroeconomic environment, no direct risk can currently be identified. As long as there is no substantial change in the economic environment, the market environment’s risk level will remain stable and low (L). Risks in relation to changes in 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 key regulatory requirements and on the corporate constitution of the alstria companies. These include alstria’s classification as a REIT and other regulations concerning publicly listed companies. New laws and regulations may result in new regulatory requirements and thus in higher expenses. Overall, risks regarding the legal environment are, like in the previous year, classified as low (L). Risk of inefficient organizational structures Further risks exist as part of the business organization’s strategic direction due to inefficient organi- zational structures and the Company’s dependence on IT systems and structures. Both the organiza- tional structure and the IT infrastructure support strategic and operational objectives. The risk of strategic corporate organization therefore remains low (L). Operational risks alstria’s operational risk management deals with property-specific risks and with general business risks. This includes vacancy risk, tenants’ creditworthiness, and the risk of falling market rents. alstria Annual Report 2016 27 Group Management Report Personnel-related risks, such as loss of know-how and competencies due to staff fluctuations, are also monitored in this risk area. alstria applies various early-warning indicators to monitor these risks. Ongoing insurance checks, such as rent projections, vacancy analyses, and the control of lease terms and termination clauses, are designed to help identify potential dangers and risks. Vacancy risk In the case of lease terminations, leases that are not extended, and existing vacancies, there is a risk that the rental area will not be re-let as planned, resulting in lower-than-anticipated revenues. alstria’s budgeting is based on the assumption that rental areas can be re-let within a defined period following the end of a lease. During the reporting period, leases for some large rental areas expired. However, the re-letting activities for these areas achieved a highly positive response. As in the previous year, the overall vacancy risk is medium (M). Shortfall of rental payments An operational risk is a potential shortfall of rental payments from one or more major tenants; it could be realized as a result of an economic downturn or a particular case. Because all of alstria’s main tenants are public or highly rated institutions, the risk of a shortfall in payments is currently, as in the previous year, limited (L). Maintenance risk To plan for the requirements of maintenance measures, the Company makes assumptions about a property’s condition and the intended standard. Undetected defects, repair requirements resulting from external damage, new legal requirements regarding the condition of the building, and an incorrect assessment of the maintenance requirements could all result in higher-than-planned maintenance costs. Due to alstria’s still-high maintenance budgets, the maintenance risk is categorized as medium (M), as it was in the previous year. Refurbishment projects alstria realizes a significant number of refurbishment projects. All risks related to these projects are managed through extensive project control and through a related budget-management process. Potential risks include those of delayed completion, budget overrun, and deficiencies in construction. The risk resulting from refurbishment projects is categorized as moderate (M), which is unchanged from the end of the previous reporting period. Employees The skills and motivations of alstria’s employees are decisive factors in the company’s success. The risk of losing knowledge results from the fluctuation of staff and from the inability to recruit sufficiently qualified experts to fill vacancies 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 following 28 alstria Annual Report 2016 Group Management Report measures: selective, needs-oriented skill development for existing staff; strengthening of its image as an attractive employer; university marketing; promotion of employee motivation through strong leadership and corporate culture; and profit-oriented variable remuneration schemes. Overall, alstria estimates the described risks to be at a low level (L), which corresponds to the situation at the end of the previous year. IT security The majority of alstria’s 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 in operating activities. alstria protects itself against IT risks through constant examination and enhancement of the information technology that it deploys. In addition, it has installed modern hardware and software solutions and safeguards against attacks. Structural security measures are in place to protect the computer center. All data are backed up daily in an internal data depository and once per week in a separate data depository. Workstations have access restrictions so that employees are only able to access the systems that they need for their work. Therefore, overall IT risks are assessed to be unlikely to materialize; as in the prior year, their possible consequences are considered to be low (L). Property transactions alstria is exposed to risks related to the acquisition and disposal of real estate properties. Related risks include the partial or complete failure to detect the risks and liabilities associated with properties during 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 for the property in question. The possibility that alstria’s management is not aware of risks that are covered by certain elements and warranties given in a sales agreement cannot be fully ruled out. As a result, there is generally a risk that a prospective purchaser may charge alstria (as the seller) with breach of warranty. From a purchasing perspective, alstria is exposed to the risks that hidden deficiencies on land and/or property are not observed or that unfavourable contractual agreements are transferred to the Company, resulting in additional future costs. In both acquisition and selling proceedings, alstria responds to these risks with thorough technical, legal, and tax analyses of all relevant property and contractual issues. It does so by employing 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 and from possible damage resulting from natural events such as fire or flooding. In some cases, alstria’s buildings may contain undetected hazardous materials (such as asbestos) to an unanticipated extent. These buildings might also be affected by environmental risks or liabilities, such as pre-existing pollution and soil contamination. alstria Annual Report 2016 29 Group Management Report To mitigate these risks, alstria undertakes a due-diligence examination when acquiring new properties in addition to warranties issued by the sellers. alstria’s environmental risk management considers climate change. Specific insurance policies cover- ing the impacts of natural catastrophes are in place, where applicable. All the environmental risks described above are considered to be at a low (L) level, the same as in the previous year. For a detailed description of the Company’s environmental risks, please refer to the “Climate effect on our business” section in the 2015/2016 sustainability 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 an attractive profile to investors and to distinguish itself in the capital markets as a REIT. The REIT shares are traded on 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. Following are the most significant requirements. 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 compliance with all described REIT criteria, the risk of non-com- pliance is considered to be low (L), as in the previous year. REIT corporations are 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 Janu- ary 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 con- ditions. In order to maintain or adjust the capital structure, the Company can issue new shares or make a capital repayment to its shareholders. 30 alstria Annual Report 2016 Group Management Report According to Section 15 of the REIT Act, alstria’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 56.7% on the balance sheet date. Accordingly, alstria complies with the minimum G-REIT equity ratio requirement according to Section 15 of the 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 a 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, 2019. Compliance risks alstria depends on all employees and management respecting the compliance standards in place. alstria’s business expects employees and the members of management to comply with laws, policies, and procedures as prescribed by the 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 an adverse material 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), which is 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 that might have a significant impact on the Group’s business position at any time. Other risks might arise from legal actions taken to address 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 change of legal form of DO Deutsche Office AG into the limited part- nership alstria office Prime Portfolio GmbH & Co. KG in the year 2016 Some shareholders of former DO Deutsche Office AG have filed voidance and nullity suits (Sec. 246, 249 AktG) against the resolution of the annual general meeting of former DO Deutsche Office AG on July 12, 2016, to transform DO Deutsche Office AG into the limited partnership alstria office Prime Portfolio GmbH & Co. KG (associated with the transfer of the company’s domicile and changes to the company name). alstria Annual Report 2016 31 Group Management Report On the basis of the clearance decision taken by the 18th Civil Chamber of the Cologne Higher Regional Court on December 7, 2016, the change of legal form was registered with the commercial register of the local court in Cologne and subsequently on the same day with the commercial register of the local court in Hamburg. With this, the change of the legal form has become effective. After an exchange of various written pleadings by the parties to the proceeding, a first court hearing was held on January 13, 2017. A decision has yet not been made. If the suits were found to be successful, alstria office Prime Portfolio GmbH & Co. KG would be obliged to compensate the plaintiffs for damages incurred by them as a consequence of the registration of the transformation. These potential claims for compensation might result in a financial burden and hence have an adverse im- pact on the net assets, financial position, and results from operations of the Group. However, the registration of the transformation is not affected by the outcome of the proceeding. Furthermore, several shareholders of former DO Deutsche Office AG have taken the view that the amount of the cash compensation that was offered to those former DO Deutsche Office AG sharehold- ers who declared an objection during the annual general meeting of DO Deutsche Office AG on July 12, 2016, and declared to exit the limited partnership alstria office Prime Portfolio GmbH & Co. KG, was set too low. For this reason, these shareholders used the opportunity to have the fairness of the cash compensation reviewed in a judicial arbitration proceeding and filed the necessary appli- cation for the initiation of such proceeding. In the event that the court rules in a final decision that the cash compensation has to be improved by the company, such a decision will, in accordance with Section 13 of the German Arbitration Proceedings Act, be effective for and against all the shareholders of former DO Deutsche Office AG who are entitled to cash compensation, e.g., all shareholders who declared an objection during the annual general meeting of DO Deutsche Office AG on July 12, 2016. This means that the additional cash compensation fixed by the court will also be paid to shareholders who have not filed an application in the arbitration proceeding and/or have already declared their exit to the limited partnership. As of the date of the transformation notice published with the com- mercial register of the local court in Hamburg, the additional cash compensation 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 cash compensation of an unlimited amount with interest might result in a financial burden and hence have an adverse impact on the net assets, financial position, and results from operations of the Group. Prior to the transformation, the company obtained an expert opinion with a view to establish the enterprise value and the adequate cash compensation. Subsequently, the adequate cash compensation was subject to a mandatory audit by an independent expert, as pre- scribed by law. In addition to measures implemented before the litigation to reduce the risk of an additional cash compensation, the company receives legal support from external advisors in the cur- rent proceeding. 32 alstria Annual Report 2016 Group Management Report 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 favour 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 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 an adverse impact on the net assets, financial position, and results from operations of the alstria 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. The effects of the described lawsuits on the risk of litigation as well as the general risk situation are considered low due to the expected low likelihood of occurrence. Provisions were not made. Apart from these lawsuits, 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 alstria Annual Report 2016 33 Group Management Report 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 it was 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 main financial instruments used by the Group are fixed-interest bonds. In addition, there are mortgage-backed bank loans and derivative financial instruments. The main purpose of the bonds and the bank loans is to finance alstria’s business activities. Derivative financial instruments include interest 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 40.9%. This is a reasonable or even low ratio compared to the average leverage of German real estate companies. The Group’s bank loan LTVs on the balance sheet date are well below the LTVs permitted under the respective loan agreements (see an overview of loan facilities on page 17). 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 refinancing of the majority of alstria’s bonds and bank loans is not required prior to financial year 2021 (see the maturity profile of the loans on page 18). As a result, the risk of refinancing on unfavourable terms is to be classified at the present time as low (L). As of the previous year’s reporting date, the risk was still moderate (M) due to outstanding short-term refinancing. Breach of Covenants In the process of taking out loans and the issuance of a Schuldschein, alstria agrees to comply with certain covenants, such as not to exceed a certain level of debt (loan-to-value) or to achieve a mini- mum income (debt service coverage ratios) from mortgaged properties. In the event of a breach of these covenants, consequences would arise, such as increased credit margins or, in the worst case, an extraordinary termination of a loan by the lender. The Group’s current LTV ratios as described above, give significant leeway to the permitted leverage ratios. Hence, the risk of a breach of cove- nants 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 if applicable in order to limit the Company’s exposure to interest rate fluctuations. It still provides enough 34 alstria Annual Report 2016 Group Management Report flexibility to allow for the disposal of real estate assets, avoiding any costs associated with 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 relate to interest caps in order to cap the interest at a set maximum. As of the balance sheet date, the main part of funding consists of fixed-interest bonds and is therefore not subject to interest rate risk up to its maturity. As a consequence of the hedging of floating interests and long-term fixed-interest loans and bonds, the interest rate risk is currently considered to be low (L). At the end of the previous reporting date the risk was categorized as medium (M). 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 a 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 2021, the liquidity risk resulting from repayment obligations is currently, as in the previous year, low (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, decreasing demand, and 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, regional diversification of investment portfolios, 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 alstria Annual Report 2016 35 Group Management Report 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 insurance, and others). alstria’s counterparties in these contracts are internationally recognized institutions that 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. In response to this concern, alstria makes use of other sources of information to verify 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 a subsidiary level. Additionally the Group as a whole faces risks from value-added tax, real 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 alstria office Prime Group, companies are included in the consolidated financial statements that are not subject to the regulations of the REIT legislation. The planned restructuring, which has already been implemented in part during the business year, and in particular the conversion of the legal form of these companies into limited partnerships, results in the taxation of hidden reserves and hidden liabilities existing within the acquired companies. The resulting tax expenses are taken into account through December 31, 2016, given the current 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 a tax liability status could result in high tax obligations over the three-year risk period, the risk impact is considered to be significant. This results in an overall tax risk level that is moderate (M), which is unchanged from the previous year’s average tax 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 the financial year 2016, 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, risks categorized as “high” accounted for 1.0% (December 31, 2015: 0.0%) of all identified risks 36 alstria Annual Report 2016 Group Management Report while risks categorized as “medium” accounted for 42.6% (December 31, 2015: 47.1%) 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 market risks described above. On the other hand, the company’s stable funding position, conservative level of debt, and solid REIT equity ratio support this assessment. The integration of alstria office Prime, taken over in the previous year, is proceeding as planned. 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 27.5 m as of the balance sheet date. In our view, the risks described in our aggregated risk report do not threaten our ability to continue as a going concern either individually or cumulatively, given their likelihood of occurrence and po- tential level of impact. This applies both to the individual Group companies and the Group. alstria Annual Report 2016 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 transform them into business success. Growth and earnings opportunities result both from alstria’s existing real estate portfolio and from its acquisition of properties. Depending on the property’s position in the life cycle, opportunities may be found in repositioning and development, in strengthening 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 favourable 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 changes. Regular reporting supports the monitoring of growth initiatives within the budget and planning- approval processes. The alstria Management Board is regularly (usually via a monthly report) updated on the status and progress of the initiatives being implemented. In addition, the real estate operations 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 central controlling depart- ment is provided to the Management Board; in this report, the planned performance 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 favourable 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 investment 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 these proper- ties’ 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 service 38 alstria Annual Report 2016 Group Management Report and is the basis for sustainable tenant relationships. Opportunities arise through a flexible response to existing or potential tenants’ needs. The Company has the knowledge and resources to provide solutions and to implement 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 favourable conditions and safeguarding financial covenants at all times. A significant opportunity also arises out of a low debt ratio (the net LTV of bank loans is currently 40.9%; see the overview of loan facilities on page 17), 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 regard to the rating obtained in the previous year. Overall summary of the Opportunities Report alstria’s current financial situation involves a stable financial position at favourable interest rates until about mid−2021. 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 4.9 years and potential increases in rents due to decreasing vacancy rates and adjustments on the consumer price index. In addition, the Company possesses a range of properties that offer 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 alstria office Prime provides opportunities because this group’s portfolios open up growth opportunities through the lease of vacant office space. Furthermore, the alstria office Prime portfolio enabled 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 allowed a greater presence and more efficiency in alstria’s key markets. 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 will strengthen the basis for increased organic value across the portfolio. alstria Annual Report 2016 39 Group Management Report SUSTAINABILITY REPORT In November 2016, alstria published its seventh sustainability report. The report is organized and presented based on the GRI G4 reporting framework and has received for the first time a third-party assurance for all disclosed environmental performance indicators. It provides information about al- stria’s next steps toward a carbon-neutral economy and familiarizes the reader with the Company’s corporate responsibility strategy. alstria’s vision with regard to sustainability goes beyond the reporting exercise itself. Its sustainability approach is embedded in every decision across all levels of the organization. To alstria, pursuing a path of continuous improvement and innovation is what sustainability is all about. Over the course of 2016, alstria has successfully implemented a framework agreement for procuring 100% of its electricity from renewable sources and 100% climate-neutral natural gas over a four-year period. This contract covers all landlord-shared services in alstria’s portfolio as well as its corporate offices. Because of this action, alstria was able to save approximately 11,000 t CO2, which is equiva- lent to the amount needed to power approximately 600 German households. With a focus on increas- ing the operational control of its own offices, alstria has continued to utilize an energy management system that complies with the ISO 50001 standard. Finally, alstria continues to play a pivotal role in real estate and has been recognized for the second consecutive year by the Climate Disclosure Project as a sector and country leader (A-rating). For further information on the Company’s sustainability engagement, please refer to alstria’s annual sustainability report 2015/2016 at www.alstria.com. 40 alstria Annual Report 2016 Group Management Report DISCLOSURES REQUIRED BY TAKEOVER LAW Disclosures and the explanatory report pursuant to Sections 289 para. 4, 315 para. 4 of the German Commercial Code (Handelsgesetzbuch, HGB). COMPOSITION OF SUBSCRIBED CAPITAL On the balance sheet date as of December 31, 2016, the share capital of alstria amounted to EUR 153,231,217.00, divided into 153,231,217 no-par-value bearer shares. All shares have equal rights and obligations. Each share entitles the bearer to one vote at the general shareholders’ meetings and is decisive for the shareholder’s share in the profits of the Company. The individual rights and duties of the shareholders result from the provisions of the German Stock Corporation Act (Aktiengesetz, AktG), in particular Sections 12, 53a et seq., 118 et seq. and 186. RESTRICTIONS ON VOTING RIGHTS OR THE TRANSFER OF SHARES The exercise of voting rights and the transfer of shares are based on the general statutory requirements and alstria’s Articles of Association, which do not restrict either of these activities. According to Section 136 AktG, the voting rights of the affected shares are excluded by law. Other restrictions as to voting rights or the transfer of shares do not exist, or, as far as they arise from agreements between shareholders, are not known to the Management Board. SHAREHOLDINGS EXCEEDING 10% OF THE VOTING RIGHTS On the balance sheet date as of December 31, 2016, alstria was not aware of any shareholders directly holding more than 10% of the voting rights. The Government of Singapore notified us in April 2016 that via controlled undertakings they held approximately 12.61% of alstria’s shares. In addition, please refer to the disclosures in the Notes under no. 17.3 Voting Right Notifications. SHARES WITH SPECIAL RIGHTS alstria has not issued any shares with special rights of control. SYSTEM OF CONTROL OF ANY EMPLOYEE SHARE SCHEME WHERE THE CONTROL RIGHTS ARE NOT EXERCISED DIRECTLY BY THE EMPLOYEES The employees who hold alstria shares exercise their rights of control as any other shareholders, in accordance with the applicable law and the Articles of Association. APPOINTMENT AND DISMISSAL OF 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 AktG. The Articles of Association do not contain any special provisions in this respect. Pursuant to Section 84 AktG, members of the Management Board are alstria Annual Report 2016 41 Group Management Report 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 AktG. Pursuant to Section 12 para. 2 of the Articles of Association, the Supervisory Board is furthermore authorized to make changes in, and amendments to, the Articles of Association that merely affect the wording without passing a resolution of the shareholders in the general meeting. The Supervisory Board has, in addition, been authorized to adapt the wording of the Articles of Association to the utilization of the Conditional Capital 2013 and the Authorized Capital 2016 and, after expiration of the applicable authorization periods, by resolution of the Annual General Meetings on May 29, 2013, and May 12, 2016. Pursuant to Section 15 para. 5 of the Articles of Association in conjunction with Sections 179 para. 2 and 133 AktG, shareholders may make resolutions regarding such amendments at a general meeting with a simple majority of the votes cast and a simple majority of the share capital represented. Insofar as a larger majority is prescribed by law, such majority shall be decisive. The Articles of Association were last amended by resolution passed by the Supervisory Board on Sep- tember 8, 2016: Section 5 para. 1, 2 and 8 of the Articles of Association were formally adapted to a capital increase executed from the Company’s Conditional Capitals III 2012. 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 through May 11, 2018, 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 76,082,142.00. Further details are governed by Section 5 para. 3, 4 and 4a of the Articles of Association. 2. Conditional Capital alstria holds three conditional capitals (pursuant to Sections 192 et seq. AktG), which are regu- lated in Sections 5 para. 5, 6 and 8 of the Company’s Articles of Association. a) Conditional Capital 2013 The share capital is conditionally increased by an amount of up to EUR 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 para. 2 AktG. The conditional capital increase is only carried out to the extent that the holders of option rights or conversion rights or those holders with conversion obligations from bonds with warrants or convertible bonds, profit participation rights, or participating bonds that were issued through November 28, 2014, based on the authorization resolved by 42 alstria Annual Report 2016 Group Management Report the shareholders in the general meeting on May 29, 2013, utilize their option rights or conversion rights or, insofar as such holders have conversion obligations, such holders fulfil their conversion obligations, unless a cash settlement is granted or treasury shares are used to fulfil the option rights or conversion rights. b) Conditional Capital III 2012 The share capital is conditionally increased in an amount of up to EUR 215,750.00 by issuing up to 215,750 no-par-value bearer shares. The conditional capital increase exclusively serves shares to the holders of convertible profit participation certificates issued by the Company through April 23, 2017, in accordance with the authorization of the general meeting held on April 24, 2012. The conditional capital increase is only carried out to the extent that issued 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. The conditional capital increase shall be used exclusively to grant shares to the holders of convertible profit participation certificates issued by the Company through 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 issued convertible profit participation certificates are converted into shares of the Company and no treasury shares are used to satisfy the certificates. The new shares shall participate in the Company’s profits from the beginning of the financial year in which they come into existence as a result of the conversion of certificates. 3. Purchase of treasury shares In the general meeting held on May 12, 2016, the shareholders authorized the Management Board to acquire shares of up to a total of 10% of the Company’s share capital in place at the time of the issuance of the authorization until May 11, 2021. The acquired shares and other treasury shares that are in the possession of, or to be attributed to, alstria pursuant to Sections 71a et seq. AktG may at no point in time amount to more than 10% of the share capital. Shares may be purchased through a stock exchange, by means of a public offer to all shareholders, or by making use of financial derivatives (put or call options or a combination of both). alstria Annual Report 2016 43 Group Management Report SIGNIFICANT AGREEMENTS OF ALSTRIA OFFICE REIT-AG THAT TAKE EFFECT UPON A CHANGE OF CONTROL FOLLOWING A TAKEOVER BID Significant financing agreements of alstria office REIT-AG 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 an obligation of alstria to repay the loans in the event that any person, company, or a group of persons should acquire, directly or indirectly, 50% of the voting rights or a controlling influence in alstria. However, for some financing agreements, the repayment obligation is subject to a downgrade of the Company’s rating, occurring within 120 days of the change of control. The terms and conditions of the convertible bond issued by the Company in the financial year 2013 also provided termination rights or an adaption of the conversion price in the case of a change of control. Such change of control occurs, in particular, if a person or persons acting in concert acquire, directly or indirectly, more than 50% of the voting rights in the Company. The terms and conditions of the fixed-interest bonds the Company issued in financial years 2015 and 2016 entitle each bond holder to request the Company to redeem or purchase his bond for 101% of the principal amount of such bond plus unpaid interest accrued, if any person, company, or group of persons should acquire, directly or indirectly, more than 50% of the voting rights in alstria and within 120 days after such change of control the rating for the Company or the bond is downgraded. The total volume of obligations under those agreements with corresponding change of control clauses amounted to approximately EUR 1,288 m on the balance sheet date. COMPENSATION AGREEMENTS WITH MANAGEMENT BOARD MEMBERS AND EMPLOYEES IN CASE OF A TAKEOVER BID No compensation agreements with Management Board members or employees are in place that take effect in case of a takeover bid. 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, 2016, alstria had 114 employees (compared to 93 on December 31, 2015). The annual average number of employees was 105 (compared to 72 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 Management Board receive share-based remuneration as a long-term incentive. 44 alstria Annual Report 2016 Group Management Report Members of the Supervisory Board receive fixed remuneration. The remuneration report (see pages 143 to 149), which contains details of the principles for the remuneration of the Management Board and Supervisory Board, forms an integral part of the audited Group Management Report. CORPORATE GOVERNANCE DECLARATION PURSUANT TO SECTION 289A HGB (“HANDELS-GE- SETZBUCH”: GERMAN COMMERCIAL CODE) The complete corporate governance declaration is published on alstria office REIT-AG’s website (www.alstria.com). DIVIDEND At the Annual Shareholders’ Meeting, the Managing Board intends, in agreement with the Supervisory Board, to submit the following proposal to allocate the unappropriated net income of alstria office REIT-AG for the business year 2016: to distribute a dividend of EUR 0.52 on each share of no par value entitled to the dividend for business year 2016 existing at the date of the Annual Shareholders’ Meeting, with the remaining amount to be carried forward. Payment of the proposed dividend is contingent upon approval by alstria shareholders at the Annual Shareholders’ Meeting on Mai 16, 2017. The proposed dividend of EUR 0,52 per share for the business year 2016 represents a total payment of EUR 79.7 m based on the number of shares entitled to dividend at the balance sheet date. EXPECTED DEVELOPMENTS The report on expected developments contains statements related to anticipated future developments. 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 in a very good condition. The GDP growth was at 1.9% compared to the previous year, which is the strongest economic growth since 2011. The employment rate also developed positively in 2016. The German government expects a GDP growth of 1.4% and a positive development in the German labor market of 0.7% for 2017.* German economic associations also estimate a positive economic development for 2017, although they expect lower growth in comparison to 2016. The construction industry and related industries, in particular, look confidently to the future. * Please refer to Annual Economic Report 2017 (Bundesministerium für Wirtschaft und Energie), as well as the economic forecast of Tagesschau. alstria Annual Report 2016 45 Group Management Report Development of the real estate market: Outlook for 2017 In connection with low interest rates, the importance of real estate as a class of investment is still going to be at a high level. In 2017 a continuing high demand for real estate in core areas is estimated. Due to the limited investment offerings, the tendency to invest in value-added assets will continue. Outlook for the alstria Group Based on the expected stability of the German economy and of the real estate market, the Company does not expect significant changes in alstria’s direct environment. However, unexpected changes in terms of interest rates, further property acquisitions, property disposals, or other changes in the assumptions for the financial year 2017 could have an impact on the projections. Due to the disposals in 2016, alstria is expecting revenues to decrease in 2017 by approximately EUR 18 m to EUR 185 m as compared to revenues in 2016. For fiscal year 2017, the Company is expecting an FFO of around EUR 108 m. The year-on-year decrease in FFO compared the 2016 FFO of EUR 116 m is mainly due to lower revenues resulting from the disposals in financial year 2016. This effect will be partially offset by a further reduction of financing costs. Since the Company pays out a significant part of its funds from operations as dividends, future external growth largely depends on the Company’s ability to raise additional equity. Consequently, further portfolio growth is highly dependent on the development of the global equity markets and is therefore difficult to predict over a longer period of time. Hamburg, February 21, 2017 46 alstria Annual Report 2016 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. BASIS OF PRESENTATION .................................................................................. 56 2. BASIS OF PREPARATION ................................................................................... 56 3. SEASONAL OR ECONOMIC EFFECTS ON BUSINESS ..................................................... 75 4. SEGMENT REPORTING ..................................................................................... 75 5. NOTES TO THE CONSOLIDATED INCOME STATEMENT ................................................ 75 6. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –ASSETS .................. 83 7. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –EQUITY AND LIABILITIES .................................................................................................. 93 8. OTHER NOTES .............................................................................................. 101 9. RELATED PARTY RELATIONSHIPS ....................................................................... 102 10. EARNINGS PER SHARE..................................................................................... 103 11. DIVIDENDS PAID ............................................................................................ 104 12. EMPLOYEES ................................................................................................. 104 13. SHARE-BASED REMUNERATION .......................................................................... 104 14. FINANCIAL RISK MANAGEMENT .......................................................................... 109 15. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD .............................. 117 16. UTILISATION OF EXEMPTING PROVISIONS ............................................................. 118 17. DISCLOSURES PURSUANT TO THE WERTPAPIERHANDELSGESETZ [GERMAN SECURITIES TRADING ACT] AND EUROPEAN MARKET ABUSE REGULATION [MAR] .............. 118 18. DECLARATION OF COMPLIANCE PURSUANT TO AKTG SECTION 161 ............................... 120 19. AUDITORS’ FEES ........................................................................................... 120 20. MANAGEMENT BOARD ..................................................................................... 120 21. SUPERVISORY BOARD ..................................................................................... 121 RESPONSIBILITY STATEMENT ................................................................................... 123 INDEPENDENT AUDITOR’S REPORT ............................................................................ 124 alstria Annual Report 2016 47 Consolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT For the period from January 1 to December 31, 2016 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 Notes 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.7 6.1 5.8 2016 202,663 −204 −23,445 179,014 −8,464 −12,683 5,417 −14,445 2015 115,337 −423 −12,774 102,140 −6,383 −12,068 4,043 −13,859 0 −144,795 72,806 25,464 −4,192 12,655 247,109 −62,459 Net financial result 5.9 −50,794 −43,333 Share of the result of companies accounted for at equity Net loss from fair value adjustments to financial derivatives Pretax result 2.2.3 5,480 1,988 5.9;6.6 −8,101 −6,763 193,694 −110,567 Income tax expenses Consolidated profit/loss 5.10 −11,318 182,376 −812 −111,379 Attributable to: Shareholders of alstria office REIT-AG Noncontrolling interests Earnings per share in EUR Basic earnings per share Diluted earnings per share 176,872 5,504 −110,970 −409 10 10 1.16 1.11 −1.15 −1.04 48 alstria Annual Report 2016 Consolidated Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the period from January 1 to December 31, 2016 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 6.6 6.6 2016 182,376 2015 −111,379 0 270 270 −444 3,269 2,825 182,646 −108,554 177,142 5,504 −108,145 −409 alstria Annual Report 2016 49 Consolidated Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2016 ASSETS EUR k Noncurrent assets Investment property Equity-accounted investments Property, plant, and equipment Intangible assets Financial assets Derivatives Notes 2016 2015 6.1 6.2 6.3 6.4 6.5 6.6 2,999,099 3,260,467 30,381 6,858 329 34,803 109 23,900 5,161 607 0 8,462 Total noncurrent assets 3,071,579 3,298,597 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 6.7 7,257 12,578 6.7 6.8 6.9 5 25 41,578 247,489 0 14,700 311,054 0 226 9,783 460,253 32,036 69,143 551,983 Total assets 3,382,633 3,850,580 50 alstria Annual Report 2016 Consolidated Financial Statements EUR k Equity Share capital Capital surplus Hedging reserve Retained earnings Notes 7.1 EQUITY AND LIABILITIES 2016 2015 153,231 152,164 1,434,812 1,499,477 0 140,395 −270 −31,994 Equity attributable to owners of the parent company 1,728,438 1,619,377 Noncontrolling interests Total equity Noncurrent liabilities Limited partnership capital noncontrolling interests Long-term loans and bonds, net of current portion Derivatives Other provisions Other liabilities Deferred tax liabilities Total noncurrent liabilities Current liabilities Limited partnership capital noncontrolling interests Short-term loans Trade payables Profit participation rights Income tax liabilities Other provisions Other current liabilities Total current liabilities Total liabilities 7.2 0 38,287 1,728,438 1,657,664 7.2 7.3 6.6 7.4 7.5 5.10; 7.6 7.2 7.3 7.5 5.5;13.2 7.6 7.4 7.5 58,458 0 1,466,521 1,715,590 20,099 23,208 1,313 2,808 0 3,221 1,854 132 1,549,199 1,744,005 12,966 19,330 4,584 421 20,104 2,257 45,334 0 376,402 9,415 362 8,687 1,794 52,251 104,996 448,911 1,654,195 2,192,916 Total equity and liabilities 3,382,633 3,850,580 alstria Annual Report 2016 51 Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS For the year ending December 31, 2016 EUR k Notes 2016 2015 1. Cash flows from operating activities Consolidated profit or loss for the period 182,376 −111,379 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 5.9 5.9 5.10 6.4 8.3 5.8 −535 51,329 11,318 −69,947 0 494 −128 43,461 812 8,952 144,795 2,329 −25,464 −12,654 Depreciation and impairment of fixed assets (+) 6.3;6.4 678 426 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, plants, and equipment Proceeds from the equity release of interests in joint ventures Payments for capital contribution in affiliates Payments for investment in financial assets Net cash due to business combination 4,202 2,642 −7,293 147,158 64 −26,695 −32 120,495 −43.740 426.764 −4.771 −499 1,916 81,172 128 −35,559 −110 45,631 −78,531 80,698 −1,980 −142 0 12,636 −1.000 −34.803 0 0 0 116,029 128,710 Net cash generated from investing activities 8.3 341,951 52 alstria Annual Report 2016 Consolidated Financial Statements EUR k Notes 2016 2015 3. Cash flows from financing activities Cash received from cash equity contributions Payments of transaction costs for capital contributions in cash and in kind Payments for the acquisition of minority interests Proceeds from the issuing of a ‘Schuldschein’ Proceeds from the issuing of a corporate bond Payments of dividends Payments due to the redemption of bonds and borrowings 7.1 7.1 7.1 7.3 7.3 11 34,803 102,725 0 −113 150,000 500,000 −76,564 −2,336 0 0 500,000 −43,470 −1,273,926 −292,512 Payments of transaction costs for taking out loans −6,817 −5,899 Payments for the termination/change of financial derivatives Net cash used in/generated from financing activities −2,593 −675,210 −35,741 222,767 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 0 k; previous year: EUR 32,036 k −212,764 397,108 460,253 63,145 6.8 247,489 460,253 alstria Annual Report 2016 53 Consolidated Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the period from January 1 to December 31, 2016 EUR k Notes Share capital Capital surplus Hedging reserve Retained earnings Equity at- tributable to the alstria shareholders Noncon- trolling interests Total equity As of Jan. 1, 2016 152,164 1,499,477 −270 −31,994 1,619,377 38,287 1,657,664 Changes in the financial year 2016 Consolidated profit Other comprehensive in- come Total comprehensive income Payments of dividends 11 0 0 0 0 0 0 0 −76,564 Proceeds from shares is- sued against contribu- tion in kind Change of minority in- terest share within eq- uity due to the sale of minority shares Change of minority in- terest share within eq- uity due to the purchase of minority shares Share-based remuneration (converti- ble participation rights) Conversion of converti- ble participation rights 7.1 964 10,847 7.1 7.1 5.5; 13.2 0 0 0 13.2 103 0 0 949 103 Conversion of legal form of minority interests to a limited partnership As of Dec. 31, 2016 7.2 7.1 0 0 153,231 1,434,812 0 176,872 176,872 5,504 182,376 270 0 270 0 270 270 176,872 177,142 5,504 182,646 0 0 0 0 0 0 0 0 0 0 0 0 0 0 −76,564 0 −76,564 11,811 −11,811 0 0 34,803 34,803 0 −113 −113 949 206 0 0 949 206 −4,483 −4,483 −66,670 −71,154 140,395 1,728,438 0 1,728,438 54 alstria Annual Report 2016 Consolidated Financial Statements 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 Noncon- trolling 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 comprehensive in- come Total comprehensive income Noncontrolling interest from Deutsche Office takeover Payments of dividends 11 0 0 0 0 0 0 0 0 0 −43,470 Proceeds from shares is- sued against contribu- tion in cash Proceeds from shares is- sued against contribu- tion in kind 7.1 7,903 94,822 7.1 65,067 757,616 Transaction costs of issu- ing shares Share-based remuneration (converti- ble participation rights) 7.1 5.5; 3.2 0 0 Conversion of converti- ble participation rights Conversion of converti- ble bonds 13.2 156 7.1 20 −2,336 752 156 243 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 0 0 0 0 0 0 38,696 38,696 −43,470 0 −43,470 102,725 0 102,725 822,683 −2,336 752 312 263 0 0 0 0 0 822,683 −2,336 752 312 263 As of Dec. 31, 2015 7.1 152,164 1,499,477 −270 −31,994 1,619,377 38,287 1,657,664 alstria Annual Report 2016 55 Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION alstria office REIT-AG (the Company) is a listed real estate property corporation under the scope of the G-REIT Act. The Company’s objective is the acquisition, management, operation, and sale of owned real estate property and the holding of participations in enterprises that acquire, manage, operate, and sell owned property. The accompanying consolidated financial statements present the operations of alstria office REIT-AG and its subsidiaries (the Group or alstria). They have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, and with the additional re- quirements set forth in Section 315a (1) of the German Commercial Code (HGB). The financial state- ments are also in accordance with IFRS, as issued by the International Accounting Standards Board (IASB). The consolidated financial statements were authorized for issue by the managing board on Feb- ruary 21, 2017. In the previous business year, alstria office REIT-AG acquired the majority of the shares in former DO Deutsche Office AG, Cologne, Germany (hereinafter referred to as “Deutsche Office AG”). The ordi- nary capital increase of alstria generating the new alstria shares required as compensation for the ac- quisition was entered in the commercial register at the local-regional court of Hamburg on Octo- ber 27, 2015. With the registration of the new alstria shares in the commercial register, the Company gained control over the Deutsche Office AG, resulting in the first-time consolidation of Deutsche Office AG on October 27, 2015. With an effective date of December 9, 2016, Deutsche Office AG was legally converted into the legal form of a Kommanditgesellschat [limited partnership]. At the same time, the company name of Deutsche Office AG was changed to “alstria office Prime Portfolio GmbH & Co. KG” (hereinafter “alstria office Prime KG” or “alstria office Prime,” if the subgroup of alstria office Prime KG is designated). alstria office REIT-AG’s registered office and address is Bäckerbreitergang 75, 20355 Hamburg, Germany. Registration was done at the commercial register at the local court of Hamburg under HRB No. 99204. alstria prepares and reports its consolidated financial statements in euros (EUR). Due to rounding, numbers presented may not add up precisely to the totals provided. The financial year ends on December 31 of each calendar year. The consolidated financial statements presented in this report were prepared for the period from January 1 to December 31, 2016. 2. BASIS OF PREPARATION Apart from investment property (land and buildings) and certain financial instruments that are meas- ured at fair values at the end of each reporting period and as explained in the accounting policies below, the consolidated financial statements have been prepared based on historical cost. 56 alstria Annual Report 2016 Consolidated Financial Statements The preparation of financial statements in conformity with the IFRSs requires the use of certain crit- ical 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 complexity or items wherein assumptions and estimates have a significant impact on the consolidated financial statements are disclosed in Note 2.3. Single items are summarized in the consolidated statement of financial position and the income state- ment. They are commented on in the notes to the financial statements. Assets and liabilities are classified as noncurrent and current, respectively. Current items are defined as items that are due in less than one year and vice versa. Due to the merger with alstria office Prime KG, which was at that time still under the company name Deutsche Office AG, implemented on October 27, 2015, Group data for 2016 are only comparable to a limited extent with figures posted for 2015. 2.1 Changes in accounting policies and mandatory disclosures Effects resulting from new and amended IFRSs The Company adopted the following new standards and amendments to standards for the first time for the financial year beginning January 1, 2016: Applicable for f/y beginning on/af- ter Effects Jan. 1, 2016 None Jan. 1, 2016 None EU Endorsement Nov. 24, 2015 Sept. 22, 2016 Standard/ interpretation Amendments to IFRS 11 Amendments to IFRS 10, IFRS 12 and IAS 28 Content Accounting for acquisitions of interests in joint operations Investment entities: applying the consolidation exception Dec. 18, 2015 Amendments to IAS 1 Disclosure initiative Dec. 02, 2015 Nov. 23, 2015 Dec. 17, 2014 Dec. 18, 2015 Dec. 17, 2014 Dec. 15, 2015 Amendments to IAS 16 and IAS 38 Amendments to IAS 16 and IAS 41 Amendments to IAS 19 Amendments to IAS 27 Annual Improvements to IFRSs Annual Improvements to IFRSs Clarification of acceptable methods of depreciation Agriculture: bearer plants Jan. 1, 2016 Jan. 1, 2016 Jan. 1, 2016 Notes disclo- sure None None Defined benefit plans: employee contributions (Amendments to IAS 19, ‘Employee Benefits’) Equity method in separate financial statements Improvements to IFRSs 2010−2012 Feb. 1, 2015 Improvements to IFRSs 2012−2014 Jan. 1, 2016 Feb. 1, 2015 None Jan. 1, 2016 None None None The amendments to IAS 1 aim to clarify perceived impediments to preparers exercising their judge- ment in presenting financial reports. In doing so, assessments of the materiality, presentation, and disclosures are to be performed in such a way that the relevance of the information for the final addressee is retained and not obscured by a sprawling generic repetition by standard quotes and redundancies by the presentation of the same facts at different points in the annual report. The Group has implemented these requirements. alstria Annual Report 2016 57 Consolidated Financial Statements Furthermore, there are no significant impacts on financial reporting from the listed amendments and annual improvement projects. New and amended IFRSs and interpretations to existing standards that are not yet effective and that the Group has not adopted early Applicable for f/y beginning on/af- ter Jan. 1, 2018 Effects No material effects Jan. 1, 2016 n/a Jan. 1, 2018 Jan. 1, 2019 Jan. 1, 2018 Jan. 1, 2018 Notes disclo- sure No material effects No material effects No material effects postponed Under review EU Endorsement Standard/ interpretation Nov. 22, 2016 IFRS 9 Standard shall not be en- dorsed IFRS 14 Sep. 22, 2016 IFRS 15 Content New standard “Financial instruments: classification and measurement” New standard “Regulatory deferral accounts” New standard “Revenue from contracts with customers” IFRS 16 New standard “Leases” Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Not yet endorsed Amendments to IFRS 2 Amendments to IFRS 4 Amendments to IFRS 10 and IAS 28 Amendments to IAS 7 Amendments to IAS 12 Amendments to IAS 40 Annual Improvements to IFRSs IFRIC 22 clarifications IFRS 15 Classification and measurement of share-based payment transactions Applying IFRS 9 financial instruments with IFRS 4 insurance contracts Sale or contribution of assets between an investor and its associate or joint venture Disclosure initiative Jan. 1, 2017 Notes disclo- sure Recognition of deferred tax assets for unrealised losses Jan. 1, 2017 Under review Transfers of investment property Jan. 1, 2018 Under review Improvements to IFRSs 2014−2016 Foreign currency transactions and ad- vance consideration Clarifications issued for IFRS 15, “Reve- nue from Contracts with Customers” Jan. 1, 2017/ Jan. 1, 2018 Jan. 1, 2018 Jan. 1, 2018 None None None The Group has not yet assessed the full impact of IFRS 9 on its reported figures. The classification and measurement of the currently used financial instruments is not expected to be affected by IFRS 9. The provisions on the revenues from contracts with customers, which were recast in accordance with IFRS 15, in all likelihood do not have any significant impact on the presentation of the Group's reve- nues. The same applies to the first-time adoption of IFRS 16. The standard will not have any material effects on the Company’s consolidated financial statements because the Company primarily has com- mercial property lease agreements for its investment property portfolio and thus mainly acts as a lessor. The scope of transactions in which the Company is engaged as a lessee is immaterial. No significant impact on financial reporting is expected from the other new standards and amend- ments to existing standards as listed above. The Group did not adopt any new or amended standards or interpretations early in 2016. 58 alstria Annual Report 2016 Consolidated Financial Statements 2.2 Basis of consolidation 2.2.1 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 does the following:  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 it controls an investee if facts and circumstances indicate changes to one or more of the three elements of control listed above. 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 Company’s owners and noncontrolling interests. The total comprehensive income of the subsidiaries is attributed to the Company’s owners and 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 upon 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 Group’s interests and 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 alstria Annual Report 2016 59 Consolidated Financial Statements (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). 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. Good will 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. After reassessment, if 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 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 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. 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 60 alstria Annual Report 2016 Consolidated Financial Statements ventures), are accounted for using the equity method. 2.2.2 Fully consolidated subsidiaries The Group of consolidated companies, including alstria office REIT-AG, comprised 69 companies in the financial year (2015: 93). As of the balance-sheet date, 63 companies (prior year balance-sheet date: 67 companies) existed. In addition, two joint ventures and a noncontrolling interest acquired in December 2016 have been accounted for using the equity method. In the consolidated financial statements of alstria office REIT-AG, the following companies are in- cluded: No. Company 1 2 3 4 5 6 7 8 9 alstria office REIT-AG 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 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 12 13 14 15 16 17 18 19 20 21 22 alstria office Ludwig-Erhard-Straße GmbH & Co. KG 1) Hamburg alstria office Mannheim/Wiesbaden GmbH & Co. KG alstria Prime Portfolio GP GmbH alstria Prime Portfolio 2 GP GmbH 2) 2) alstria office Steinstraße 5 GmbH & Co. KG 23 beehive GmbH & Co. KG alstria office Prime Portfolio GmbH & Co. KG (former DO Deutsche Office AG) 24 25 German Acorn PortfolioCo I GmbH 26 GA Regionen PortfolioCo I GmbH 3) Cologne 27 GA Objekt 2001 Beteiligungs GmbH 28 GA Objekt 2003 Beteiligungs GmbH 29 GA Objekt 2005 Beteiligungs GmbH Cologne Cologne Cologne Head- quarters Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Cologne Equity interest in % Held by No. Business activity Parent company Asset-management; holding 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.9 90.9 90.9 90.9 90.9 90.9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 24 25 25 25 25 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 General partner General partner Own property Service company Intermediate holding Intermediate holding Own property Own property Own property Own property alstria Annual Report 2016 61 Consolidated Financial Statements No. Company 30 GA Objekt 2007 Beteiligungs GmbH 31 GA Objekt 2008 Beteiligungs GmbH 32 GA Objekt 2009 Beteiligungs GmbH 33 GA Objekt 2010 Beteiligungs GmbH 3) 3) 34 GA Objekt 2011 Beteiligungs GmbH Head- quarters Cologne Cologne Cologne Cologne Cologne 35 GA Objekt 2012 Beteiligungs GmbH 4) Cologne GA Fixtures and Facility Management PortfolioCo I GmbH 36 37 German Acorn PortfolioCo II GmbH 38 GA 5. Objekt 1004 Beteiligungs GmbH GA 6. Objekt 1007 Beteiligungs GmbH GA 7. Objekt 1008 Beteiligungs GmbH Cologne Cologne Cologne Cologne Cologne 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 GA 8. Objekt 1011 Beteiligungs GmbH 3) Cologne GA 10. Objekt 1014 Beteiligungs GmbH GA 11. Objekt 1015 Beteiligungs GmbH GA 12. Objekt 1016 Beteiligungs GmbH GA 13. Objekt 1019 Beteiligungs GmbH GA 14. Objekt 1020 Beteiligungs GmbH GA 15. Objekt 1021 Beteiligungs GmbH GA 17. Objekt 1024 Beteiligungs GmbH GA 18. Objekt 1027 Beteiligungs GmbH GA 19. Objekt 1028 Beteiligungs GmbH GA 20. Objekt 1030 Beteiligungs GmbH GA 21. Objekt 1034 Beteiligungs GmbH GA 23. Objekt 1036 Beteiligungs GmbH GA 24. Objekt 1037 Beteiligungs GmbH GA 25. Objekt 1038 Beteiligungs GmbH GA 26. Objekt 1039 Beteiligungs GmbH GA 27. Objekt 1040 Beteiligungs GmbH GA 28. Objekt 1042 Beteiligungs GmbH GA 29. Objekt 1043 Beteiligungs GmbH GA 32. Objekt 1046 Beteiligungs GmbH GA 34. Objekt 1048 Beteiligungs GmbH GA 35. Objekt 1049 Beteiligungs GmbH GA Region Nord GmbH GA Region Süd GmbH GA Region Mitte GmbH GA Fixtures and Facility Management PortfolioCo II GmbH DO PortfolioCo III GmbH DO Objekt 3001 Stuttgart GmbH DO Fixtures and Facility Management PortfolioCo III GmbH Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Cologne Equity interest in % Held by No. Business activity 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 90.9 25 25 25 25 25 25 25 24 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 37 24 67 67 Own property Own property Own property Own property Own property Own property Own property Intermediate holding 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 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) Terminated as a result of a step-up merger to limited partner in 2016. 2) Established in December 2016. 3) Terminated as a result of a step-up merger in 2016. 4) Disposal in 2016. 62 alstria Annual Report 2016 Consolidated Financial Statements 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, 22 domestic subsidiaries, and 40 domestic second-tier subsidiaries. Two subsidiaries (limited partner companies) were established in the 2016 business year. Five subsidiaries were terminated as a result of a step-up merger, and one subsidiary was sold. The reporting date for the consolidated financial statements is the same as the reporting date for the Company and consolidated subsidiaries. In the period under review, a real estate company was deconsolidated. The following tables show the effects of these changes on the Group: Consideration received EUR k Deferred sales proceeds Consideration received in cash and cash equivalents Total consideration received Assets and liabilities over which control was lost EUR k Cash and cash equivalents Investment property Receivables and other assets Liabilities Prepaiments received Net assets disposed of Gain on disposal of a subsidiary EUR k Consideration received Net assets disposed of Gain on disposal The gain on disposal was included in the income statement as a “gain on disposal of investment property.” Net cash inflow on disposal of a subsidiary EUR k Consideration received in cash and cash equivalents Less cash and cash equivalents balances disposed of Net assets disposed of 2016 228,357 228,357 228,357 2016 1,769 209,300 209 −188 −1,469 209,621 2016 228,357 209,621 18,736 2016 228,357 −1,769 226,588 alstria Annual Report 2016 63 Consolidated Financial Statements There have been no further changes to the consolidated Group in the 2016 financial year in comparison to the consolidated financial statements as of December 31, 2015. All Group companies are property- management, holding, or general partner companies. 2.2.3 Interests in joint ventures and noncontrolling interests The Group holds interests in two joint ventures that had a carrying amount of EUR 29,401 k at the end of the reporting period. Details of the Group’s joint ventures at the end of the reporting period are as follows: Name of joint venture Alstria IV. Hamburgische Grundbesitz GmbH & Co. KG Principal activity Hold and manage of real estate Alte Post General Partner GmbH i.L. n/a Oststeinbek, Germany Hamburg, Germany 49.0 49.0 49.0 49.0 Proportion of ownership, interest and voting rights held by the Group Place of incorporation and business Dec. 31, 2016 (%) Dec. 31, 2015 (%) The abovementioned joint ventures were accounted for by applying the equity method in these con- solidated financial statements. The following table provides the aggregated information of joint ventures that are not individual material: EUR k The Group’s share of profit (loss) from continuing operations The Group’s share of total comprehensive income 2016 5,500 5,500 2015 1,988 1,988 EUR k Aggregate carrying amount of the Group’s interests in these joint ventures Dec. 31, 2016 Dec. 31, 2015 29,401 23,900 There were no unrecognized shares of losses of a joint venture or any significant restrictions as to the ability of joint ventures to transfer cash funds to the Group. Furthermore, alstria holds a noncontrolling interest in an affiliate in an amount of EUR 980 k. The company was acquired in the 2016 business year and is considered immaterial. Its business is the investment in innovative real estate technology concepts. The company recorded a loss of EUR 20 k in the reporting period. 64 alstria Annual Report 2016 Consolidated Financial Statements 2.3 Key judgments and estimates To a certain degree, estimates, assessments, and assumptions must 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 that such estimates, assessments, and assumptions affect 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. 2.3.1 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: 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 oper- ating leases. 2.3.2 Estimates and assumptions Significant key sources of estimation uncertainty and key assumptions concerning the future as of the balance-sheet date relate to the following balance-sheet items. 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 (see section 6.1),  determine the fair value of derivative financial instruments, including the embedded derivative (see section 6.6),  determine the fair value of virtual shares granted to management (see section 13.1),  determine the fair value of limited partnership capital of noncontrolling interests (see section 7.2),  determine the fair value of other provisions (see section 7.4), and  determine the fair value of convertible profit participation certificates (see section 13.2). alstria Annual Report 2016 65 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 consolidated statement of financial position: EUR k Dec. 31, 2016 Dec. 31, 2015 Investment property and properties held for sale excluding prepayments made Positive fair values of derivatives Negative fair values of derivatives Limited partnership capital of noncontrolling interests Other provisions Valuation of convertible profit participation rights and virtual shares 3,013,799 3,289,705 114 20,099 71,424 3,570 −2,069 8,462 23,208 0 5,014 −3,428 2.4 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 in- vestment property, at their fair value at each reporting date. The fair value of an asset or liability is determined based on the assumptions that 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 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 liability or in the most advantageous market for the asset or the liability if no principal market exists. The Group must have access to the principal market or the most advantageous market. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a 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.” Fair value is not always available as a market price. It often must be determined based on various valuation parameters. In addition, for financial-reporting purposes, fair value measurements are 66 alstria Annual Report 2016 Consolidated Financial Statements 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 observable 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). They are not used in production or 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 appli- cable for property. The majority is categorized as Level 3. Inputs used in the valuation approach the Group has adopted for all of its properties include rental revenues, adjusted yield figures (e.g., prop- erty-based capitalization rates), and vacancy periods. These inputs can hardly be observed in markets, and they are considered significant inputs. Therefore, the fair value measurement used by the Group for valuation of all investment properties is entirely categorized as Level 3. Information about the significant unobservable inputs used and their sensitivities on the fair values of the Group’s invest- ment property is presented in Note 6.1. Gains and losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. alstria Annual Report 2016 67 Consolidated Financial Statements 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 upon derecognition of the property (calculated as the difference between the net disposal proceeds 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, plants, 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 techniques. The basis for deriving fair value 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, fair value was 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. No fundamental change to the valuation method has occurred during the year. External real estate experts conducted the valuation of investment property at fair value on Decem- ber 31, 2016 — as of last year — according to internationally accepted valuation methods in accord- ance with IFRS using the “hardcore-and-top-slice” method. The fair value measurement was per- formed by accredited, external, and independent experts (CBRE GmbH, Frankfurt am Main, Germany, and Colliers International UK Plc., London). The fair value of the investment properties held by alstria office Prime were determined using a different valuation method in the previous year. A DCF-based evaluation method was used. The change in the valuation method did not have any impact on the consolidated financial statements because both methods lead to the same valuation result. 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 and contractual rent. This method fulfills the requirements of the Red Book, a set of international valuation standards the Royal Institution of Chartered Surveyors set forth. In addition, the method used by the independent experts is also appropriate and suitable for determining market values in accordance with the provisions of the International Valuation Standards (IVS, or the White Book). 68 alstria Annual Report 2016 Consolidated Financial Statements To derive the fair value, the properties, which the independent experts evaluated, were divided into two groups and valued accordingly. Group 1 contained properties with anchor lease terms of five years or fewer, 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: hardcore-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 (compa- rable transactions),  non-allocable operating costs of an amount of 5% of market rents per annum, and  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 and contractual rent), capitalization rates reflecting the individual risk of the property and market activity (compa- rable transactions),  non-allocable operating costs in the amount of 5% of market rents per annum, and  the net selling price. 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 prop- erties are shown in Note 6.1. The valuation method described also applies to investment properties in which development projects are realized. 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 property” in the year in which they arise. Investment properties are derecognized when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its alstria Annual Report 2016 69 Consolidated Financial Statements 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. Assets held for sale Non-current assets intended for disposal under an asset deal are reported separately as being 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 are being prepared. If the disposal is to take the form of a share deal, noncurrent 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 each subsequent 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 interest and amortizing portions. 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, to a limited extent, alstria is 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 economic benefits will flow to the Group and only when the amount becomes reliably measurable. 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. 70 alstria Annual Report 2016 Consolidated Financial Statements Rental income from operating leases on investment properties is recognized on a straight-line basis over the terms 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. Operating expenses Operating expenses are recognized at the time of the service or when they are incurred. Interest expenses and interest income are recognized using the effective interest method. Income taxes Current and deferred tax are recognized in profit or loss, except when they relate to items 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. As a REIT-AG, the parent company, alstria office REIT-AG, is exempt from corporation and trade taxes. 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. 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 Assets are tested for impairment when triggering events or changes in circumstances indicate that the carrying amount may no longer be recoverable. 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 but not above the maximum value that would have resulted if normal amortization had been charged. Property, plants and equipment Property, plants, and equipment are stated at cost less the 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. The depreciation of plant and equipment is calculated on a straight-line basis over the useful life of the asset (three to 22 years). The useful life of owner-occupied property is estimated at 33 to 50 years. While the building is depreciated on a scheduled basis, the land is not subject to depreciation. alstria Annual Report 2016 71 Consolidated Financial Statements Intangible assets The Group amortizes intangible assets with finite useful lives on a straight-line basis over their respective estimated useful lives. Estimated useful lives for patents, licenses and other similar rights generally range from three to five years. Currently, the Company does not have intangible assets with indefinite useful lives. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. alstria does not use the option to designate financial assets or financial liabilities at fair value through profit or loss at inception (fair value option). Based on their nature, financial instruments are classified as the following:  held-to-maturity,    financial assets and financial liabilities measured at cost or amortized cost, financial assets and financial liabilities measured at fair value, and receivables from finance leases. Regular purchases or sales of financial assets are accounted for at the trade date. Initially, financial instruments are recognized at their fair value. Transaction costs are only included in determining the carrying amount if the financial instruments are not measured at fair value through profit or loss. Receivables from finance leases are recognized at an amount equal to the net investment in the lease. Subsequently, financial assets and liabilities are measured according to the category to which they are assigned the following:      cash and cash equivalents, available-for-sale financial assets, loans and receivables, financial liabilities measured at amortized cost, or financial assets and liabilities classified as held for trading. Cash and cash equivalents The Company considers all highly liquid investments with less than three months’ maturity from the date of acquisition to be cash equivalents. 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 matur- ities of three months or fewer, and bank overdrafts. Cash and cash equivalents are measured at cost. 72 alstria Annual Report 2016 Consolidated Financial Statements Available-for-sale financial assets Investments in equity instruments, debt instruments and fund shares are measured at fair value, if reliably measurable. Unrealized gains and losses, net of applicable deferred income tax expenses, are recognized in line item other comprehensive income net of income taxes. Provided that fair value cannot be reliably determined, alstria measures available-for-sale financial assets at cost. During the last two reporting periods and to the date of this note, alstria did not use any available-for-sale financial assets. Loans and receivables Financial assets classified as loans and receivables are measured at amortized cost using the effective- interest method less any impairment losses. The allowance for doubtful accounts involves significant management judgment and review of individual receivables based on individual customer creditworthiness, current economic trends and analysis of historical bad debts. Allowances on a portfolio basis are not made. Financial liabilities alstria measures financial liabilities, except for derivative financial instruments, at amortized cost using the effective-interest method. Derivative financial instruments Derivative financial instruments, such as interest rate swap contracts are measured at fair value and classified as being held for trading unless they are designated as hedging instruments, for which hedge accounting is applied. Changes in the fair value of derivative financial instruments are recognized either in net income or, in the case of a cash flow hedge, in line item other comprehensive income, net of income taxes (applicable deferred income tax). Certain derivative instruments embedded in host contracts are also accounted for separately as derivatives. Cash flow hedges The effective portion of changes in the fair value of derivative instruments designated as cash flow hedges are recognized in line item other comprehensive income, net of income taxes (applicable deferred income tax), and any ineffective portion is recognized immediately in net income. Amounts accumulated in equity are reclassified into net income during the same periods in which the hedged item affects net income. Other Hedges 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). alstria Annual Report 2016 73 Consolidated Financial Statements Provisions Provisions are recognized when a present obligation to third parties exists as a result of a past event, a future outflow of resources is probable, and 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 not current, they are discounted. Provisions are not offset with reimbursements. 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. The fair value of equity awards is generally determined 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. Equity settled awards are granted to the Group’s employees in the form of 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 therefore subject to uncertainty. 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 reversal of the provision between two reporting dates and the dividend equivalent paid during the period. Cash-settled liability awards relate to virtual shares granted to the management board. The virtual shares are measured at each balance-sheet date and are accounted for as provisions. The proportional expense incurred in the period comprises the addition to and 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 1,001 k (December 31, 2015: EUR 2,616 k) and a provision of EUR 2,890 k, as reported in the consolidated financial statements as of December 31, 2016 (December 31, 2015: EUR 3,470 k). Further details on the share-based payment schemes are given in Note 13 and the remuneration report, respectively. 74 alstria Annual Report 2016 Consolidated Financial Statements 3. 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 interest rates might lead to a modified valuation of the investment property and derivatives. 4. 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 that 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, who is responsible for allocating resources to the operating segments of an entity and assessing their performance. The Group’s chief operating decision maker is the management board. A larger number of tenants generate revenues. Total revenues amount to EUR 202,663 k (2015: EUR 115,337 k), of which EUR 26,192 k (2015: EUR 28,387 k) and EUR 23,098 k (2015: EUR 15,656 k) relate to leases to the Group’s two largest customers. No other single customer has either in the 2015 or 2016 financial year contributed 10% or more to the consolidated revenues. 5. NOTES TO THE CONSOLIDATED INCOME STATEMENT 5.1 Revenues EUR k Revenues from investment properties 2016 202,663 2015 115,337 Revenues from investment properties are mainly comprised of rental income from investment properties. The rental income includes effects totaling EUR 1,175 k (2015: EUR 423 k) are attributable to rent-free periods. 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 5,014 k (2015: 844 k). These are rental agreements in which the rental payments are linked to the operating results of the tenants. alstria Annual Report 2016 75 Consolidated Financial Statements 5.2 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 2016 36,349 1,799 38,148 −36,349 −2,003 −38,352 −204 2015 18,652 564 19,216 −18,710 −929 −19,639 −423 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. 5.3 Real estate operating expenses EUR k Maintenance and refurbishment Vacancy costs Ongoing repairs Rent expenses Facility management costs Legal and advisory fees Insurance expenses Electricity costs Property management Taxes on land and buildings Nondeductable VAT Other expenses 2016 8,056 7,950 4,357 549 419 385 308 224 151 127 97 822 2015 4,796 4,689 1,605 0 0 450 168 0 543 101 0 422 23,445 12,774 76 alstria Annual Report 2016 Consolidated Financial Statements 5.4 Administrative expenses EUR k Legal and consulting fees Communication and marketing Depreciation Audit fee (audit and audit-related services) Travel expenses IT maintenance Supervisory Board compensation Recruitment Leasing costs Insurances Office area costs Contributions Training & workshops Donations Other 5.5 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 2016 2,425 734 678 634 487 375 347 300 264 259 232 126 122 76 1,405 8.464 2016 6,717 1,088 2,346 0 2,069 2015 2,514 465 426 568 446 195 353 161 214 160 170 87 76 78 470 6,383 2015 4,826 730 1,679 1,200 3,428 1,001 1,068 2,616 812 144 319 12,683 203 2 12,068 The increase in salaries and wages, social insurance contribution, and bonuses is the result of the full- year inclusion of alstria office Prime in the consolidated financial statements. Share-based payments and severance costs were lower than in the previous year. Regarding balance, this resulted in a slight increase in personnel expenses. The severance expenses in the 2015 business year resulted from the socially acceptable termination of employment relationships in the course of the integration of alstria office Prime. Convertible profit participation rights granted to employees do not only grant the right to a conversion when the conditions apply but to an annual payment equivalent to the dividend amount paid out per alstria Annual Report 2016 77 Consolidated Financial Statements share. Therefore, expenses for share-based compensation resulting from the convertible profit participation rights must be accounted for in equity (for the conversion right) and in liabilities (for the dividend entitlement). Of the total expenses related to the profit participation rights — which amounted to EUR 1,068 k — EUR 949 k were recognized in equity (2015: EUR 752 k), while EUR 119 k were recorded as an item in liabilities (2015: EUR 60 k). The employer’s contribution to statutory pension insurance, included in wages and salaries, amount to EUR 559 k for the 2016 financial year. On average, the Group employed 105 employees in 2016 (2015: 72). 5.6 Other operating income EUR k Compensation payments and other recharges Income from the reversal of accrued liabilities Income from the reversal of provisions in relation to rental guarantees Refunded property tax from previous years Property management services Payments on provisions on doubtful debts Compensation for damages Other 2016 2,001 1,432 931 345 165 43 0 500 2015 1,026 1,107 882 0 144 0 120 764 5,417 4,043 Compensation payments and other charges result from early termination of leases and refurbishment activities conducted by alstria. The latter refers to refurbishments the tenants had originally committed themselves to upon entering into the leasing contracts. An explanation for the reversal of provisions for rental guarantees can be found in Note 7.4. 5.7 Other operating expenses and goodwill impairment Other operating expenses EUR k Property disposal costs Transaction costs alstria office Prime takeover Impairment of operating costs receivables Impairment on trade receivables Rating expenses Legal and advisory fees Land tax Remaining other operating expenses 2016 4,771 4,337 2,214 176 0 0 0 2,947 14,445 2015 0 9,765 1,253 363 975 300 292 911 13,859 78 alstria Annual Report 2016 Consolidated Financial Statements Other operating expenses are at the previous year’s level. Though the consequential costs resulting from the takeover of the Prime Portfolio declined significantly, there was a considerable amount of additional costs resulting from the high volume of property disposals. In the previous year, property disposal costs of EUR 689 k were shown under other administrative expenses. Because the costs of disposal are not allocated to the Group’s general organizational expenses, they were reclassified from other administrative expenses to other operating expenses starting in the 2016 financial year. The transaction costs of the takeover in the reporting period are essentially expenses for legal advice and confirmation services for the conversion implementation of the acquired companies’ legal form. Impairment on operating costs receivables relate to property operating costs for the years 2014 and 2015, which were chargeable to the tenant and, finally, could not be collected. Under rating expenses in 2015, the onetime costs of obtaining a credit classification (issuer rating) of the Company were recorded. The remaining other operating expenses include EUR 2.5 m donations made in the year under review for the promotion of charitable purposes. Impairment on trade mainly relates to tenants subject to insolvency or eviction proceedings. The item also includes valuation allowances related to disputed invoicing of ancillary costs. Goodwill impairment The amortization of goodwill in the previous year amounting to EUR 144,795 k relates to goodwill from the business combination with alstria office Prime (formerly Deutsche Office) in 2015. 5.8 Net result on the disposal of investment property EUR k Proceeds from the disposal of investment property Carrying amount of investment property disposed 2016 459,213 −433,749 25,464 2015 159,350 −146,695 12,655 The total loss from the disposal of objects and portfolios sold below their carrying value amounted to EUR 7,952 k in 2016 and EUR 846 k in 2015. alstria Annual Report 2016 79 Consolidated Financial Statements 5.9 Financial and valuation result The financial result breaks down as follows: EUR k Income from financial instruments Interest expenses, corporate bond Interest expenses, loan Deutsche Office Portfolio Interest expenses, syndicated loan alstria Interest expenses, convertible bond Interest expenses, other loans Interest result “Schuldschein” Interest result derivatives Other interest expenses Financial expenses Fees and effective interest costs for repayment of loans before maturity Bank charges Agency fees Other Other financial expenses Net financial result 2016 535 −20,496 −6,728 −6,723 −5,116 −4,074 −2,036 −207 0 −45,380 −5,111 −161 −134 −543 −5,949 −50,794 2015 128 −1,241 −3,969 −8,531 −4,623 −9,013 0 −6,650 −3 −34,030 −9,162 0 −268 −1 −9,431 −43,333 The total interest income and expenses for financial assets and liabilities other than financial deriv- atives amounted to an interest income of EUR 535 k (2015: EUR 128 k) and EUR 44,154 k of interest expenses (2015: EUR 27,380 k), respectively. The total interest expenses calculated by applying the effective interest method for financial liabili- ties (i.e., not recognized at fair value through profit or loss) amounted to EUR 4,210 k (interest ex- penses, 2015: EUR 3,113 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: 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 2016 −270 −4,971 −2,860 2015 −3,269 −66 −3,428 −8,101 −6,763 80 alstria Annual Report 2016 Consolidated Financial Statements In 2016, a loss amounting to EUR 270 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 6.6. 5.10 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. With the acquisition of the alstria office Prime, however, companies were included in the consolidated financial circle that are not subject to the REIT exemption. This resulted in expenses for income taxation at the level of the alstria office Prime Subgroup. The sources of income tax expenses can be broken down as follows: EUR k Current tax expenses Deferred tax result From temporary differences Tax result 2016 −11,450 132 −11,318 2015 −804 −8 −812 At the beginning of the financial year, alstria office Prime and its group companies had the legal form of a corporation. The determination of the tax expense is based on the assumption that the legal form of the companies were converted from corporations to partnerships with a tax effect within the 2016 financial year. As a result, the alstria office Prime Group has been included in a tax-exempt REIT structure with the effect that all hidden reserves and liabilities contained in the assets and liabilities have to be realized. Taxation of hidden reserves and liabilities resulted in current tax expenses of EUR 7,193 k. alstria Annual Report 2016 81 Consolidated Financial Statements The reconciliation between theoretical income tax based on pretax 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% solidarity surcharge): EUR k Loss before income taxes 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 2016 193,694 153,752 39,942 15.825% −6,321 −4,881 0 −32 −84 −11,318 2015 −110,567 −103,808 −6,759 15.825% 1,070 −1,301 −1,215 571 63 −812 Due to the inclusion of alstria office Prime in the tax-exempt REIT structure, temporary differences may not result in any future tax assets or tax liabilities. As a result, there are no deferred tax deferrals to be formed as of December 31, 2016. As of December 31, 2016, the alstria office Prime Subgroup has no corporate income tax losses carried forward and business tax losses carried forward of EUR 13,717 k, for which no deferred tax assets have been recognized. 82 alstria Annual Report 2016 Consolidated Financial Statements 6. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –ASSETS 6.1 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 Transfers to property, plant, & equipment (own used property) Transfers from property, plant, & equipment (own used property) Net result from the adjustment of the fair value of investment property Subtotal Prepayments made As of December 31 2016 3,260,467 0 9,146 31,277 −360,500 −12,499 −1,920 322 72,806 2,999,099 - 2,999,099 2015 1,645,840 1,645,210 12,710 27,813 −53,575 −53,245 0 0 −4,192 3,220,561 39,906 3,260,467 In the 2016 financial year, thirteen properties were reclassified to assets held for sale. Two of the properties are still included in the items held for sale at the end of the financial year. The transaction volume of assets held for sale amounted to EUR 14,700 k. Property disposals Contract signed in 2015, transferred in 2016 Number of properties 3 Contract signed and transferred in 2016 Contract signed in 2016, transfer expected for 2016 11 2 16 Transaction amount in EUR k 71,782 387,431 14,700 473,913 Capital expenditure (EUR 31,277 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 amounted to EUR 9,146 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 2016 business year (see page 8). Borrowing costs that would have had to be capitalized as construction costs were not incurred during the reporting period (2015: EUR 0). alstria Annual Report 2016 83 Consolidated Financial Statements 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 2.4. The item on the income statement “net result from fair value adjustments on investment property” of an amount of EUR 42,530 k is attributable to a change in unrealized losses. As in the previous year, all real estate held as investment property measured at fair value are classi- fied as level 3 in the valuation hierarchy. 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 unobservable input parameters. However, the unobservable input parameters differ in part. 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: offices. 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 distinction is made between objects with a short, medium, and long WAULT. As a result, three appropriate classes of investment properties have emerged: Germany – Office – Level 3 – short WAULT (0–5 years), Germany – Office – Level 3 – medium WAULT (> 5–10 years), and Germany – Office – Level 3 – long WAULT (> 10 years). 84 alstria Annual Report 2016 Consolidated Financial Statements 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, 2016 German offices 2,999,099 Number of properties: Valuation tech- nique hardcore and top slice Unobservable inputs Range Min. Max. Weighted average Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within the next 5 years months] 3.9 3.7% 19.6 8.7% 11.1 5.9% 3.0 30.0 9.4 106 0 ≤ WAULT ≤ 5 Years German offices Number of properties: 72 5 < WAULT ≤ 10 Years German offices 1,880,109 hardcore and top slice Estimated rental value (EUR/m2/mo.) Adjusted yield Void period of office leases expiring within the next 5 years months] 4.5 4.0% 19.6 8.7% 11.2 6.2% 3.0 30.0 12.4 802,759 hardcore and top slice Estimated rental value (EUR/m2/mo.) 3.9 17.8 10.7 Number of properties: Adjusted yield 4.0% 7.0% 5.4% 26 WAULT > 10 Years German offices Void period of office leases expiring within the next 5 years months] 3.0 18.0 3.3 316,231 hardcore and top slice Estimated rental value (EUR/m2/mo.) 9.5 17.2 12.2 Number of properties: Adjusted yield 3.7% 6.9% 4.5% 8 Void period of office leases expiring within the next 5 years [months] 3.0 18.0 1.3 Sensitivity of measurement to variance of significant unobservable input A decrease in the estimated rental income decreases the fair value. An increase in the vacancy periods decreases the fair value. An increase in the adjusted yield decreases the fair value. A decrease in the estimated rental income leads to an increase in the adjusted yield; an increase in the estimated rental income leads to a decrease in the adjusted yield. A decrease in the vacancy period leads to an increase in the adjusted yield; an increase in the vacancy period leads to a decrease in the adjusted yield. The external 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. alstria Annual Report 2016 85 Consolidated Financial Statements Fair value of investment properties (EUR m) Capitalization rates Dec. 31, 2016 Dec. 31, 2015 –0.25 % 0.00 % 0.25 % 3,144 2,999 2,861 3,374 3,221 3,078 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 19 years. Most leases include an indexation clause allowing 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 Longer than 5 years Dec. 31, 2016 Dec. 31, 2015 187,897 449,649 333,474 971,020 210,785 519,953 393,134 1,123,872 Disclosures concerning expenses/income as recorded in the income statement pursuant to IAS 40.75 (f) include: > EUR 202,663 k (2015: EUR 115,337 k) rental income from investment properties; > EUR 15,495 k (2015: EUR 8,086 k) operating expenses (including repairs and maintenance) directly allocable to investment properties from which rental income was generated during the period under review; and > EUR 7,950 k (2015: EUR 4,689 k) operating expenses (including repairs and maintenance) arising from investment properties that did not generate rental income during the period under review. Investment properties, held-for-sale properties, and own used properties of an amount of EUR 567,315 k (December 31, 2015: EUR 3,036,702 k) served as collateral for bank loans. 6.2 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 29,401 k (December 31, 2015: EUR 23,900 k). In addition, alstria holds interests in an entity with a carrying amount of EUR 980 k. For further information, please refer to Note 2.2.3. 86 alstria Annual Report 2016 Consolidated Financial Statements 6.3 Property, plant and equipment EUR k Acquisition and production cost As of January 1, 2016 Transfer from investment property Transfer to investment property Additions Disposals As of December 31, 2016 Accumulated amortization, deprecia- tion, and write-downs As of January 1, 2016 Additions Transfer to investment property Disposals As of December 31, 2016 Net book values as of December 31, 2016 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 Plant Furniture and fixtures Owner-occupied property Total 2016 853 0 0 30 0 883 613 21 0 −2 632 251 1,107 0 0 333 −150 1,290 632 145 0 −128 649 641 5,003 1,920 −322 56 0 6,657 557 153 −19 0 691 6,963 1,920 −322 419 −150 8,830 1,802 319 −19 −130 1,972 5,966 6,858 Plant Furniture and fix- tures Owner-occupied property Total 2015 5,002 7,025 1,048 150 0 −345 853 933 25 −345 613 240 1,107 5,003 975 73 59 0 540 92 0 632 475 0 1 0 467 90 0 557 223 60 −345 6,963 1,940 207 −345 1,802 4,446 5,161 The useful life of the assets is estimated to be from 2 to 22 years for plant, furniture, and fixtures and from 33.33 to 50 years for owner-occupied properties. 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 three of its office buildings in Hamburg, Düsseldorf, and Frankfurt. Therefore, the owner-occupied areas of the properties are categorized as “property, plant, and equipment,” according to IAS 16. alstria Annual Report 2016 87 Consolidated Financial Statements To secure Group liabilities, one of the properties is pledged via land charges. During the previous year, two own used properties served as pledge for mortgage loans. 6.4 Intangible assets EUR k Licenses Licenses Goodwill Total 2015 2016 2015 Acquisition and production cost As of Jan. 1 2,363 1,883 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 0 80 400 80 0 144,795 0 1,883 145,195 80 2,443 2,363 144,795 147,158 1,757 357 2,114 329 1,539 218 1,756 607 0 144,795 1,539 145,013 144,795 146,552 0 607 The useful life of the intangible assets is estimated to be between three to five years. The intangible assets consist of software licenses and licenses to other rights of an amount of EUR 266 k and EUR 63 k, respectively. The goodwill of EUR 144,795 k resulting from the alstria office Prime takeover was to be amortized in the full amount in the 2015 business year. 6.5 Assets held for sale The financial assets of EUR 34,803 k relate to long-term bank deposits with a maturity until the 2021 financial year. 88 alstria Annual Report 2016 Consolidated Financial Statements 6.6 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, 2016 Dec. 31, 2015 Cap Cap Cap Swap Swap Cap Swap Swap Financial derivatives – held for trading Cap Cap Cap Financial derivatives – cash flow hedges Total interest rate derivatives Embedded derivative Total (%) 3.0000 0.2500 0.0000 0.1100 0.0000 1,2500 0.0000 0.0000 3.0000 3.0000 3.0000 (EUR k) (EUR k) Sep. 30, 2019 50,250 Dec. 31, 2017 340,000 Sep. 30, 2020 Dec. 18, 2020 Dec. 30, 2019 Sep. 30, 2018 Dec. 18, 2018 Sep. 30, 2018 Mar. 29, 2024 Apr. 30, 2021 Dec. 17, 2018 - - - - - - 390,250 10,900 47,116 56,000 114,016 10 5 - - - - - - 15 50 46 3 99 (EUR k) 50,250 340,000 380,870 172,156 53,155 174,370 155,944 117,000 (EUR k) 43 213 7,113 651 133 70 −180 −202 1,443,745 7,841 10,900 47,854 56,000 114,754 116 100 23 239 504,266 114 1,558,499 8,080 n/a June 14, 2018 8,4081) −20,099 8,2411) −19,985 −22,826 −14,746 1) 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 504,266 k (December 31, 2015: EUR 1,558,499 k). This includes cash flow hedges and derivatives not qualifying for cash flow hedging. Derivatives of a notional amount of EUR 390,250 k (December 31, 2015: EUR 1,443,745 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, 2016. Due to the terms and conditions of the convertible bond, the conversion right has to be separately ac- counted as an embedded derivative. The value changes of the derivatives are reflected in various items in the balance sheet. alstria Annual Report 2016 89 Consolidated Financial Statements The following table shows the change in financial derivatives since December 31, 2015: EUR k Hedging instruments as of January 1, 2016 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 Termination Reclassification due to change of maturity Hedging instruments as of December 31, 2016 Cash flow hedge reserve Financial assets Financial liabilities Noncurrent Current Noncurrent Total −270 8,462 0 0 270 0 0 0 −4,971 −1,293 - −2,084 −5 109 0 0 0 - 0 5 5 −23,208 −14,746 0 −4,971 −1,567 −2,860 - 4,676 0 - 2,592 0 −20,099 −19,985 A decrease in the fair values of derivatives effective in a cash flow hedge was not recognized in the equity’s hedging reserve anymore in the 2016 business year. During the 2015 business year, a decrease of EUR 444 k was still recorded. The ineffective portion that arises from cash flow hedges amounted to a fair value loss of EUR 4,971 k (2015: loss of EUR 65 k) and is recognized in profit or loss. Further losses totaling EUR 2,860 k (2015: loss of EUR 3,428 k), which were due to the market value of the derivatives not included in hedge accounting, were recorded in the 2016 income statement. A loss of EUR 270 k (2015: loss of EUR 3,269 k) shown in the income statement 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 8,101 k (2015: loss of EUR 6,763 k), which is presented as the “net loss from fair value adjustments on financial derivatives.” 90 alstria Annual Report 2016 Consolidated Financial Statements 6.7 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 Other receivables Pending purchase prices from real estate sales Accrued receivables for “Rent free periods” Security deposits and other deposits granted Creditors with debit balance Prepayments made Deposit account VAT receivables Receivables and other assets Other receivables Dec. 31, 2016 Dec. 31, 2015 7,257 29,005 8,318 1,673 688 492 313 38 1,051 41,578 12,578 0 7,143 20 100 266 629 506 1,119 9,783 A total of EUR 8,318 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). The payment of the outstanding purchase price for sold properties in the amount of EUR 29,005 k was made at the beginning of January 2017. The fair value of all receivables is equal to their carrying amount. Trade receivables were written down by EUR 196 k (December 31, 2015: EUR 753 k), due to rent payments in arrears. Apart from trade receivables, no other receivables were impaired. As of December 31, 2016, trade receivables of an amount of EUR 5,859 k (December 31, 2015: EUR 3,719 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 From 3 to 6 months More than 6 months Dec. 31, 2016 Dec. 31, 2015 4,375 970 514 5,859 2,471 403 845 3,719 Receivables from rental agreements and property disposals, as well as insurance receivables and derivative financial instruments, have been assigned to the lenders (Note 7.3) to secure the Group’s mortgage-backed loans. alstria Annual Report 2016 91 Consolidated Financial Statements 6.8 Cash and cash equivalents EUR k Bank balances Dec. 31, 2016 Dec. 31, 2015 247,489 460,253 Current accounts held with banks attract variable interest rates for on-call balances. At the reporting date, no cash amounts were subject to restrictions. As of the balance sheet date, EUR 18,254 k accrued for interest payment liabilities exists, which will be payable in the course of the next twelve months (December 31, 2015: EUR 7,242 k). In addition, cash and cash equivalents include EUR 4,821 k in rent deposits received from tenants and held in trust by the Group (December 31, 2015: EUR 4,154 k). These tenant deposits, recognized under cash and cash equivalents, are offset by an item included under Other Liabilities. 6.9 Assets held for sale The assets held for sale comprise two properties. The transfer of benefits and burdens is still pending until the completion date of these consolidated financial statements. The sale of properties resulted in disposal revenues of EUR 14,700 k. The properties reported are not the properties shown in the previous year, which were sold as planned in 2016. EUR 2,200 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. 92 alstria Annual Report 2016 Consolidated Financial Statements 7. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION –EQUITY AND LIABILITIES 7.1 Equity For detailed information on equity, please refer to the consolidated statement of changes in consol- idated equity. Share Capital Please refer to the consolidated statement of changes in equity for details. Thousand Ordinary shares of EUR 1 each Dec. 31, 2016 Dec. 31, 2015 153,231 152,164 The conversion of profit participation rights (Note 13.2) in the second quarter of 2016 resulted in the issuance of 102,750 new shares by making use of the conditionally increased capital provided for such purposes. The share capital increased by EUR 102,750. In the course of the previous year’s acquisition of Deutsche Office, the former majority shareholder of Deutsche Office was granted an option for later conversion of shares. In exercising this option, alstria office REIT-AG acquired additional shares of Deutsche Office. In return for each share of Deutsche Office, 0.381 new shares of alstria office REIT-AG were granted. The exchange ratio is equal to the exchange ratio of the 2015 tender offer. To create the new shares of alstria office REIT-AG, the Company made a capital increase in the amount of EUR 964,182 by partially making use of authorized capital and by excluding the sharehold- ers’ subscription rights. In total, due to the capital measures stated above, alstria office REIT-AG’s share capital increased to EUR 153,231,217 (EUR 1,066,932 higher than on December 31, 2015). As of June 30, 2016, it is repre- sented by 153,231,217 no-par value bearer shares. 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 alstria office Prime KG (former Deutsche Office AG) As of Dec. 31 2016 152,164,285 0 0 102,750 964,182 153,231,217 2015 79,018,487 7,901,847 20,382 156,000 65,067,569 152,164,285 alstria Annual Report 2016 93 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 alstria office Prime KG (former Deutsche Office AG) Transaction costs of issue of shares against contribution in kind As of Dec. 31 2016 1,499,477 0 0 −76,564 0 949 103 10,847 0 1,434,812 2015 691,693 94,822 −1,338 −43,470 243 752 156 757,616 −997 1,499,477 The exchange in shares described above was made based on alstria’s stock exchange share price of EUR 12.25 per share. Consequently, the 964,182 newly created alstria shares led to proceeds of EUR 11,811 k. These proceeds exceeded the nominal share capital by EUR 10,847 k and were recog- nized in the capital reserves. The share premium resulting from the conversion of 102,750 profit participation rights resulted in an increase in capital reserves of EUR 103 k. Hedging reserve EUR k Hedging reserve Dec. 31, 2016 Dec. 31, 2015 0 –270 This reserve relates to the accumulated portion of the gain or loss on hedging instruments within the cash flow hedge (which has been determined to be an effective hedge). The net change of EUR 270 k relates to reclassifications of the cumulated devaluations for the cash flow hedges; the forecasted and hedged transactions are no longer expected to occur due to the redemption of loans prior to their maturity. At the balance sheet date, the Group has no further derivative financial instruments (that are designated in an effective hedging relationship and that have an effective change in value), and the amount of the reserve at the end of the reporting period is EUR 0. Treasury shares As of December 31, 2016, the Company held no treasury shares. By resolution of the Annual General Meeting held on May 12, 2016, 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 May 11, 2021. There is no intention to make use of this authorization at present. 94 alstria Annual Report 2016 Consolidated Financial Statements Retained earnings Retained earnings as of December 31, 2016, totaled an amount of EUR 140,395 k (December 31, 2016: loss carried forward of EUR 31,994 k). alstria office REIT-AG’s standalone positive retained earnings could not generate the payment of the dividend, according to German GAAP [HGB] at the dividend’s due date. This is why the amount of the dividend payouts was released from the capital reserve in 2016. Authorized capital On the occasion of the alstria office Prime KG acquisition in the fourth quarter of the 2015 business year (at that time named ‘Deutsche Office AG’), authorized capital in the amount of EUR 2,750 k was used of the authorized capital of EUR 39,509 k approved by the Annual General Meeting in May 2015 (2015 authorized capital). In the 2016 business year, another EUR 964 k of the 2015 authorized capital was used for the takeover of shares in Deutsche Office AG. Thus, an amount of EUR 35,759 k remains per December 31, 2016. The approval of 2016 authorized capital enables a capital increase of EUR 76,082 k. The authorization expires on May 11, 2018. Conditional capital The share capital is conditionally increased to grant option and conversion rights, as well as to redeem option and conversion obligations. As of December 31, 2015, alstria’s conditional capital amounted to EUR 38,798 k. It was divided into conditional capital 2013 (EUR 37,980 k), conditional capital III 2012 (EUR 318 k), and conditional capital III 2015 (500 k), respectively. In the reporting period, con- ditional capital III 2012 was used in an amount of EUR 103 k. As of December 31, 2016, the Company’s conditional capital amounted to a total of EUR 38,695 k. 7.2 Noncontrolling interests of limited partners The change in legal form of the alstria office Prime from a stock corporation [AG] into a private limited partnership [KG] with effect from December 9, 2016, meant the share capital changed into limited partnership capital. Limited shareholders became limited partners. Whereas equity capital of minority shareholders in the consolidated balance sheet is shown under “noncontrolling interest” as a component of equity, this, according to IFRS, does not apply to the contributions of limited partners. Though they are equity under German commercial law, they are to be reported as liabilities in the consolidated financial statements according to IFRS. As a result, the noncontrolling interests were to be reclassified into long-term or short-term liabilities, depending on the term. The value of the first-time recognition under liabilities was at the fair value at the time the resolution was adopted by the Annual General Meeting of Deutsche Office AG. The resulting difference in the value of the noncontrolling interests was recorded in retained earnings without effect on income statements. A reconciliation is shown in the consolidated statement of changes in equity on page 54. alstria Annual Report 2016 95 Consolidated Financial Statements At the end of the reporting period, there was an increase in the value of the noncontrolling interests of EUR 271 k. From the Group’s point of view, this means an increase in liabilities amounting to EUR 239 k as other operating expenses and in the amount of TEUR 32 k as other interest expenses. As of the balance sheet date, the fair value of this financial liability approximates its carrying amount. 7.3 Financial liabilities EUR k Loans Syndicated loan alstria Mortgage loans Schuldschein Convertible bond Total EUR k Loans Syndicated loan alstria Loan Prime Office portfolio Loan Herkules portfolio Loan Homer portfolio Other loans Corporate bond Convertible bond Total Noncurrent Current Total Loan 0 1,075 0 0 Accrued interest Total current Dec. 31, 2016 16,408 16,408 1,007,130 12 1,738 97 1,087 252,840 1,738 151,206 97 74,675 990,722 251,753 149,468 74,578 1,466,521 1,075 18,255 19,330 1,485,851 Noncurrent Current Total Accrued interest Total current Dec. 31, 2015 Loan 27,401 2,937 440,217 127,574 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 The table presents the long-term loans and the net of the current portion as stated under noncurrent liabilities. 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, 2016, the total repayable amount of the corporate bonds, the bank loans, the Schuldscheindarlehen, and the convertible bond drawn by alstria was EUR 1,482,864 k (December 31, 2015: EUR 2,103,764 k). The carrying amount of EUR 1,485,851 k (EUR 1,466,521 k, noncurrent, and EUR 19,330 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. Corporate bond I In the fourth quarter of the 2015 business year, a bond loan in a total amount of EUR 500,000 k and a coupon of 2.25% p.a. was issued. The bond has a maturity until March 24, 2021, and was recognized 96 alstria Annual Report 2016 Consolidated Financial Statements with its carrying amount of EUR 496,225 k; additionally, interest liabilities in the amount of EUR 8,723 k were recognized per the balance sheet date. The fair value amounted at balance sheet date to EUR 528,300 k. Corporate bond II In the second quarter of the reporting period, a second bond loan in a total amount of EUR 500,000 k and a coupon of 2.125% p.a. was issued. The bond has a maturity until April 12, 2023, and was recognized with its carrying amount of EUR 494,467 k; additionally, interest liabilities in the amount of EUR 7,685 k were recognized per the balance sheet date. The fair value amounted at balance sheet date to EUR 523,650 k. Mortgage loans These are property-related—mainly floating-rate—bank loans. The loans are secured by mortgages and other collateral customary for bank loans. Schuldschein As of May 6, 2016, alstria issued a Schuldschein [debenture bond] with a nominal value of EUR 150,000 k. The Schuldschein has an average coupon of 2.07% p.a. payable according to end-of- year convention and a staggered term of between four to ten years (see table on page 110). The fair value amounted to EUR 169,624 k at the balance sheet date. Convertible bond In the second quarter of the 2013 financial year, alstria office REIT-AG issued a convertible bond, generating proceeds of EUR 79,400 k. The convertible bond has a maturity term 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 9.4192 during the 2016 financial year. 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, 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 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 discontinued upon conversion of the bond— are reclassified as equity. The alstria office REIT-AG issued this bond based on the authorization alstria Annual Report 2016 97 Consolidated Financial Statements received from the Annual General Meeting in 2013. The convertible loan has a carrying amount without accrued interests of EUR 74,578 k and a market value of EUR 100,941 k. Under consideration of the embedded derivative amounting to EUR−20,099 k contained in the convertible bond, which is accounted for under the noncurrent 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 80,842 k. Syndicated loan alstria The syndicated loan facility existing from September 30, 2013, and totaling EUR 544,100 k was completely repaid on December 30, 2016. As of the previous year’s balance sheet date, the outstanding loan amount was EUR 470,556 k. More information on terms and conditions of the syndicated loan and the other loans can be found in the table on page 110 in Section 14.1 of the notes. 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 of the main part of the mortgage loans, there are no significant differences between the carrying amounts and the fair value of these loans, with the exception of transaction costs. A total of EUR 37,100 k (December 31, 2015: EUR 37,100 k) in financial liabilities from mortgage loans relates to a fixed interest rate loan. At the end of the reporting period, the loan had a fair value of EUR 42,089 k (December 31, 2015: EUR 41,338 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, 2016, the loans and the convertible bond were reduced by accrued transaction costs of EUR 11,186 k (December 31, 2015: EUR 12,352 k). The average debt maturity increased from 3.6 years as of December 31, 2015, to 5.7 years as of December 31, 2016. The Group’s average interest rate decreased from 2.8% to 2.2% 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 loan, the corporate bonds, the Schuldschein, 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. 98 alstria Annual Report 2016 Consolidated Financial Statements The liabilities exposed to an interest rate risk are due as follows: EUR k Up to 1 year More than 1 year Total 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 7.4 Other Provisions Dec. 31, 2016 Dec. 31, 2015 1,076 251,564 252,640 371,069 1,115,704 1,486,773 Dec. 31, 2016 Dec. 31, 2015 256,930 256,158 0 772 1,523,710 1,462,806 56,458 4,446 EUR k Other provisions Rental guarantee Provision virtual share liabilities Other Total Due Due up to 1 year in more than1 year Total Dec. 31, 2016 up to 1 year in more than 1 year Total Dec. 31, 2015 0 1,577 680 2,257 0 0 0 1,244 1,313 0 1,313 2,890 680 1,494 300 3,570 1,794 1,976 0 3,220 1,244 3,470 300 5,014 The development of other provisions is shown in the following overview: EUR k development of other provisions Rental guarantee Provision virtual share liabilities Other Total Dec. 31, 2015 Consumption Resolution Additions Dec. 31, 2016 1,244 3,470 300 5,014 −385 −1,581 0 −1,966 −859 0 0 −859 0 1,001 380 1,381 0 2,890 680 3,570 In connection with property sales, the Group had committed itself to compensating buyers for possible shortfalls in rental income for rental agreements in place with certain tenants and not extended at the disposal date. In the 2016 financial year, it was agreed all claims and obligations arising from the original rental guarantee agreement would be extinguished in return for a final payment of EUR 385 k. In addition, EUR 2,890 k (December 31, 2015: EUR 3,470 k) were recognized as a provision for awarding the Long- and Short-Term Incentive Plan (Note 13.1). alstria Annual Report 2016 99 Consolidated Financial Statements Other provisions were made for potential litigation costs. At the balance sheet date, there were no significant legal proceedings in which it was assumed 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. 7.5 Trade payables and other liabilities EUR k Trade payables Due Due up to 1 year 4,584 in more than 1 year Total Dec. 31, 2016 up to 1 year in more than 1 year Total Dec. 31, 2015 0 4,584 9,415 0 9,415 Other current liabilities Accruals for outstanding invoices Real estate transfer tax Rent and security deposits received Value added tax liabilities Advance rent payments received Customers with credit balances Salary obligations Auditing costs Supervisory Board compensation Miscellaneous liabilities Total 16,223 11,869 4,944 2,798 2,758 2,288 2,177 495 271 1,511 45,334 0 0 2,808 0 0 0 0 0 0 0 16,223 11,869 7,752 2,798 2,758 2,288 2,177 495 271 19,744 14,909 5,094 1,381 3,960 439 4,528 743 353 1,511 1,100 0 0 1,854 0 0 0 0 0 0 0 19,744 14,909 6,948 1,381 3,960 439 4,528 743 353 1,100 2,808 48,142 52,251 1,854 54,105 The disclosed carrying amounts approximate their fair values. Trade payables of the previous year’s balance sheet date have been adjusted in line with the presen- tation in the previous year’s consolidated financial statements. As of December 31, 2015, EUR 20,477 k had been reported. EUR 11,062 k were related to outstanding invoices and were reclas- sified accordingly. They are included in other liabilities in the amount of EUR 19,744 k. Real estate transfer tax in an amount of EUR 11,869 k resulted from the merger between Deutsche Office and the Prime Office REIT-AG in the year 2013. For two properties transferred within the mer- ger, the real estate transfer tax obligation is still due. The decrease in salary obligations is mainly due to the restructuring charges payable for the previous year as a result of the takeover of alstria office Prime. 100 alstria Annual Report 2016 Consolidated Financial Statements 7.6 Deferred tax liabilities and income tax liabilities The recognition of deferred tax liabilities and income tax liabilities as of December 31, 2016, is de- scribed in Note 5.10 regarding income tax expenses. Obligations from income taxes arise almost ex- clusively at the level of the Alstria office Prime companies acquired through the business combination on October 27, 2015. The tax liabilities mainly resulted from taxes arising out of the realization of hidden reserves as a result of the inclusion of the companies in the tax-exempt REIT structure. As of December 31, 2016, deferred tax liabilities were no longer to be formed. 7.7 Trust assets and liabilities At the end of the reporting period, alstria office REIT-AG held trust assets worth EUR 313 k (December 31, 2015: EUR 629 k) and liabilities worth EUR 4,944 k from rent deposits and EUR 2,808 k from security deposits. As of December 31, 2015, EUR 4,154 k rent deposits and EUR 2,794 k security deposits existed. 8. OTHER NOTES 8.1 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 Postemployment benefits Total 2016 1,159 905 124 2,188 2015 1,162 905 125 2,192 On the reporting date, liabilities for the compensation of the Management Board members amounted to EUR 378 k (2015: EUR 378 k). As of December 31, 2016, 332.684 virtual shares had been granted to the members of the Management Board (compared to 356,256 on December 31, 2015; see also Note 13.1). Supervisory Board Pursuant to the Articles of Association, Supervisory Board members’ fixed annual payments amounted to EUR 347 k (2015: EUR 353 k). For services as member of the Supervisory Board of a subsidiary, four members of the Supervisory Board of alstria office REIT-AG received remunerations of EUR 56 k in addition. 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 143–149), which is an integral part of these Notes. This information is also presented in the corporate governance chapter. alstria Annual Report 2016 101 Consolidated Financial Statements 8.2 Other financial commitments and contingencies Other financial obligations from refurbishment projects and ongoing maintenance amounted to EUR 30.381 k (2015: EUR 17,250 k). As of December 31, 2016, no rental agreements for the administrative premises were subject to a minimum lease term. Future financial obligations of EUR 243 k arose from other leasing agreements. Of these, obligations totaling EUR 134 k have a residual maturity of up to one year; the remainder — EUR 109 k — has a remaining maturity of one to five years. 8.3 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 distinc- tion is made between cash flows from operating activities and cash flows from investing and financing activities. 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 the 2016 financial year amounted to EUR 120,495 k, which was considerably higher than the amount in the 2015 comparison period (EUR 45,631 k). This is due to the inclusion of alstria office Prime in the consolidated financial statements for the whole year and the shift in the interest payment date in the next business year for most of the interest expense. The cash flow from investing activities is affected by the inflow of cash and cash equivalents from property disposals in the amount of EUR 426,764 k, while investments in the investment property portfolio resulted in cash outflows of EUR 43,740 k and EUR 34,803 k in other financial instruments. The cash flows from financing activities mainly reflect refinancing activities, with EUR 1.273,926 k in payments for the redemption of borrowings, EUR 500,000 k in cash proceeds from the issuance of a corporate bond, and EUR 150.000 k proceeds from the issuance of a Schuldschein. Dividend payments resulted in cash outflows of EUR 76,564 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). 9. RELATED PARTY RELATIONSHIPS 9.1 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. 102 alstria Annual Report 2016 Consolidated Financial Statements 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 2016 have been undertaken in terms of arm’s-length transactions or under conditions in alstria office REIT-AG’s favor. 9.2 Remuneration of key management personnel For a detailed description of the remuneration of key management personnel, please refer to Note 9.1 and the remuneration report (see pages 143–149 of the Corporate Governance Section). 9.3 Related party transactions At the end of the reporting period, the Group recorded no further receivables from or liabilities to joint ventures. Furthermore, alstria office REIT-AG received EUR 129 k (2015: EUR 87 k) from the joint venture as compensation for services connected to real estate. No further transactions with related parties were completed during the reporting period. 10. 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) 2016 176,872 152,866 1.16 2015 −110,970 96,718 −1.15 alstria Annual Report 2016 103 Consolidated Financial Statements 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) 2016 179,039 161,282 1.11 2015 −108,792 104,959 −1.04 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 office REIT-AG is authorized to issue up to EUR 38,695 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 nondilutive for the period presented. 11. DIVIDENDS PAID EUR k Dividends on ordinary shares1) not recognized as a liability as of Dec. 31 Dividend per share 1) Refers to all shares except treasury shares on the dividend payment date 2016 2015 76,564 0.50 43,470 0.50 At the Annual General Meeting held on May 12, 2016, alstria office REIT-AG resolved to distribute dividends totaling EUR 76,564 k (EUR 0.50 per outstanding share). The dividends were distributed on May 13, 2016. By comparison, the dividends paid out in 2015 totaled EUR 43,470 k (EUR 0.50 per outstanding share). 12. EMPLOYEES During the period from January 1 to December 31, 2016, the Company had 105 employees on average (January 1 to December 31, 2015: 72 employees on average). The average was calculated based on the total number of employees at the end of each quarter. On December 31, 2016, 114 people were employed at alstria, excluding the Management Board members (December 31, 2015: 93 people). 13. SHARE-BASED REMUNERATION 13.1 Share-based remuneration for Management Board members On March 2, 2010, the Company’s supervisory board established a new share-based remuneration system as a means 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 104 alstria Annual Report 2016 Consolidated Financial Statements (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 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. 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 remained outstanding as of December 31, 2016. 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 STI 2014 STI 2015 LTI 2013 LTI 2014 LTI 2015 LTI 2016 2015 2016 2013 2014 2015 2016 10.97 11.63 9.29 9.44 10.97 11.71 2017 2018 2017 2018 2019 2020 5,370 5,949 47,363 46,610 40,109 37,575 4,393 4,868 38,751 38,136 32,817 30,743 alstria Annual Report 2016 105 Consolidated Financial Statements The development of the virtual shares through December 31, 2016, 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 2016 LTI 335,740 68,318 −91,954 312,104 STI 20,516 10,817 −10,753 20,580 2015 LTI 339,516 72,926 −76,702 335,740 STI 23,831 9,763 −13,078 20,516 The 10,753 virtual shares converted into cash under the STIP resulted in payments to the Management Board in an amount of EUR 136 k within the 2016 business year. The conversion amount was the weighted average price of the first 20 trading days in the 2016 calendar year plus the dividend paid during the vesting period. It amounted to EUR 12.64, of which EUR 11.64 related to the share price and EUR 1.00 related to the dividend paid. Under the LTIP, 91,954 virtual shares were converted, resulting in a payout of EUR 1,446 k. In 2016, the LTIP and the STIP generated remuneration expenses amounting to EUR 1,001 k (2015: EUR 2,616 k) and provisions amounting to EUR 2,890 k (2015: EUR 3,470 k). The Group recognizes the liabilities arising from the vested virtual shares under other provisions. 13.2 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 can be summarized as follow: 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 2016, 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, certificates in relation to this conditional capital (2015–2020) had been granted for EUR 144.750. 106 alstria Annual Report 2016 Consolidated Financial Statements The certificates are issued as nontransferable rights and are not sellable, pledgeable, or 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 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 nonsubsequent trading days (market condition). For the 111,000 certificates issued on May 7, 2015, and the 144,750 certificates issued on May 18, 2016, this market condition was fulfilled until the end of the 2016 financial year. 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 on 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 January 1, 2016 Expired due to termination of em- ployment Converted Granted December 31, 2016 May 22, 2014 May 7, 2015 May 18, 2016 102.750 121.000 Total 223.750 −10.000 −102.750 0 0 0 0 −102.750 0 0 −10.000 0 0 111.000 144.750 255.750 144.750 144.750 The relevant amount for the conversion of 102,750 of the 2014 convertible profit participation rights certificates was the XETRA closing price on the conversion date: EUR 11.46 per share. Total expenses relating to convertible profit participation rights amounted to EUR 1,068 k in 2016 (see Note 5.5). alstria Annual Report 2016 107 Consolidated Financial Statements 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 on the granting date May 22, 2014 May 7, 2015 May 18, 2016 5.18 0.06 21.50 2.00 2.00 10.00 9.65 4.15 −0.18 19.30 2.00 2.00 9.10 12.05 4.28 −0.54 21.20 2.00 2.00 8.10 11.67 6.77 8.77 8.57 Expected volatility is based on an average of the historical volatility of alstria and the comparable listed companies. 108 alstria Annual Report 2016 Consolidated Financial Statements 14. FINANCIAL RISK MANAGEMENT 14.1 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. Therefore, sources of funding are diversified and a balanced maturity profile is planned, enabling a coordinated and continuous refinancing process. The financial instruments that the Group chiefly uses are corporate bonds, bank loans, a Schuldschein, a convertible bond, and derivative financial instruments. The main purpose of the debt funding is to finance alstria’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. The Group uses derivative financial instruments to hedge floating rate loans. 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 as well as excess liquidity investment. Derivative financial instruments comprise interest 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 the Company’s main tenants are public institutions or are 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. alstria Annual Report 2016 109 Consolidated Financial Statements The following table presents the single-LTV ratios and covenants for the Group’s loans as of the end of the reporting period: Existing loan agreements as per December 31, 2016 Liabilities Maturity Interest rate p.a. Syndicated loan #11) Sep. 30, 2020 Syndicated loan #22) Feb. 22, 2016 Syndicated loan #33) Sep. 30, 2018 Loan #14) Loan #24) Loan #35) Loan #46) Loan #5 Loan #6 Loan #76) Loan #8 Total loans Bond (1st tranche) Bond (2nd tranche) June 30, 2017 Dec. 31, 2018 Dec. 30, 2017 June 28, 2024 Apr. 30, 2021 Mar. 28, 2024 June 30,2026 July 31, 2021 Mar. 24, 2021 Apr. 12, 2023 Convertible bond June 14, 2018 Schuldschein 10J./fixed May 6, 2026 Schuldschein 4J./fixed May 8, 2023 Schuldschein 7J./fixed May 6, 2020 Schuldschein 7J./variable May 8, 2023 Schuldschein 4J./variable May 6, 2020 Total Net LTV 3M-EURIBOR + 1.150% 3M-EURIBOR + 1.300% 3M-EURIBOR + 1.280% 3M-EURIBOR + 1.142% 3M-EURIBOR + 1.150% 2.250% 2.125% 2.750% 2.750% 2.270% 1.547% 6M-EURIBOR + 2.000% 6M-EURIBOR + 1.600% Principal amount drawn as of Dec. 31, 2016 EUR k LTV as of Dec. 31, 2016 % LTV cove- nant % Principal amount drawn as of Dec. 31, 2015 EUR k 0 0 0 0 0 0 - - - - - - - - - - - - 67,000 39.1 65.0 470,556 331,910 336,320 58,868 53,432 18,507 67,000 58,896 49.0 65.0 60,048 56,500 47.8 75.0 56,500 56,000 44.0 65.0 56,000 15,268 253,664 500,000 500,000 79,200 40,000 37,000 38,000 17,500 17,500 50.6 44.7 - - - - - - - - 1,482,864 49.1 40.9 60.0 15,423 – - - – - - - - - – 1,524,564 500,000 - 79,200 - - - - - 2,103,764 1) Loan agreement terminated, withdrawal occurred on December 30, 2016. 2) Loan agreement terminated, withdrawal occurred on February 22, 2016. 3) Loan agreement terminated, withdrawal occurred on May 31, 2016. 4) Loan agreement terminated, withdrawal occurred on June 30, 2016. 5) Loan agreement terminated, withdrawal occurred on June 30, 2016 /July 4, 2016. 6) Refinanced in the second quarter of 2016. Apart from the risks mentioned above, the Group is not exposed to any commodity or currency risks. 110 alstria Annual Report 2016 Consolidated Financial Statements a) Interest rate risk The following tables display the carrying amount of the Group’s financial instruments that are exposed to interest rate risk by maturity: EUR k < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total Financial year end- ing Dec. 31, 2016 Variable interest Mortgage bank loans Schuldschein Total 1,076 0 1,076 1,076 0 1,076 1,076 0 1,076 1,076 212,258 216,562 17,500 18,576 17,500 35,000 229,758 251,562 EUR k < 1 year 1–2 years 2–3 years 3–4 years > 4 years Total Financial year end- ing Dec. 31, 2015 Variable interest Syndicated loans al- stria Deutsche Office portfolio loans Other loans Total 27,401 0 0 0 443,155 470,556 342,516 1,152 84,094 921 372,892 56,921 155 67,921 14,803 74,841 814,460 201,757 371,069 85,015 429,813 68,076 532,799 1,486,773 With its noncurrent financial liabilities with variable interest rates, alstria 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 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, 2016, are presented on page 89. These interest rate caps are also 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 were not factored into this calculation. Interest expenses per annum EUR k + 100 bps – 50 bps 2016 2,516 −753 2015 7,382 −484 111 alstria Annual Report 2016 Consolidated Financial Statements 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 2016 321 −65 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 2016 1,247 −13 2015 13,771 −3,574 2015 19,361 −8,926 Impact from changes in alstria office REIT-AG’s share price (only relating to the embedded derivative): EUR k Share price compared to the 2016 year- end price (EUR 11.91) + 10 percent  –  10 percent b) Credit risk 2016 2015 −8,850 7,802 −8,512 7,587 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 reletting 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. 112 alstria Annual Report 2016 Consolidated Financial Statements 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 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. g., 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, 2016. 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, 2016 Corporate bond Loans Interest Schuldschein Convertible bond Trade payables Other liabilities 0 0 0 0 500,000 500,000 1,000,000 1,076 1,076 1,076 1,078 69,858 179,500 30,376 29,368 28,481 28,727 27,801 39,007 0 0 0 79.200 4,584 65,438 0 562 0 0 0 55,500 0 0 0 0 0 94,500 0 0 562 562 561 561 253,664 183,760 150,000 79.200 4,584 68,246 101,474 110,206 30,119 85,867 598,220 813,568 1,739,454 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 9,415 59,032 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 9,415 60,577 472,328 118,983 540,344 90,733 464,350 643,435 2,330,173 Details on the loans, borrowings, and bonds can be found in Note 7.3. The maturity profile of the loans is shown on page 18 in the Group Management Report. To secure the bank loans, 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 567,315 k (December 31, 2015: EUR 3,036,702 k) were provided as collateral. The decline compared to the previous year’s balance alstria Annual Report 2016 113 Consolidated Financial Statements sheet date is based on the repayment of mortgage bank loans in favor of corporate bonds and promissory notes. 14.2 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 Group 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 re- payment to its shareholders or issue new shares. No changes had been made to the aims, guidelines, and processes as of December 31, 2016, or as of December 31, 2015. The Company monitors its capital structure by using the LTV indicator as well as 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 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 according to G-REIT law Immovable assets Revenues gained from immovable assets Income gained from disposal of immovable assets 2016 56.67 90.17 100.00 32.75 2015 49.37 87.21 100.00 14.64 G-REIT covenant > 45 > 75 > 75 < 501) 1) Within five years based on the average property value during this period. 114 alstria Annual Report 2016 Consolidated Financial Statements 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 Loans and receivables at amor- tized costs Fair value through p/l) Fair value – other in- come Assets as per balance sheet (EUR k) as of Dec. 31, 2016 Financial assets Derivatives Total long-term Trade receivables Derivatives Tax receivables Receivables and other assets Cash and cash equiva- lents Total short-term Total 34,803 109 34,912 7,257 5 25 0 0 0 0 0 34,803 0 34,803 7,257 0 25 41,578 8,318 33,260 247,489 296,354 331,266 0 247,489 8,318 8,318 288,031 322,834 0 10 10 0 5 0 0 0 5 0 99 99 0 0 0 0 0 0 Total Fair value 34,803 34,803 109 109 34,912 34,912 7,257 7,257 5 25 5 25 33,260 33,260 247,489 247,489 288,036 288,036 15 99 322,948 322,948 Carrying amount Nonfinancial liabilities Financial liabilities Liabilities as per balance sheet (EUR k) as of Dec. 31, 2016 Ltd. equity of noncontrolling interests 58,458 Long-term loans 1,466,521 Derivatives Other liabilities 20,099 2,808 Total long-term 1,547,886 Ltd. equity of noncontrolling interests Short-term loans Trade payables Tax liabilities Other liabilities 12,966 19,330 4,584 20,104 45,334 Total short-term 102,319 Total 1,650,205 Fair value through p/l Loans and re- ceivables at amortized costs Total Fair value 0 0 0 0 0 0 0 0 0 2,758 2,758 2,758 0 0 20,099 0 58,458 58,458 58,458 1,466,521 1,466,521 1,546,813 0 2,808 20,099 2,808 20,099 2,808 20,099 1,527,787 1,547,886 1,628,178 0 0 0 0 0 0 12,966 19,330 4,584 20,104 42,576 12,966 19,330 4,584 20,104 42,576 12,966 19,330 4,584 20,104 42,576 99,560 99,560 99,560 20,099 1,627,347 1,647,446 1,727,738 alstria Annual Report 2016 115 Consolidated Financial Statements Carrying amount Nonfinan- cial assets Financial assets Assets as per balance sheet (EUR k) as of Dec. 31, 2015 Derivatives Total long-term Trade receivables Derivatives Tax receivables Receivables and other assets Cash and cash equiva- lents Total short-term Total Loans and receivables at amor- tized costs 0 0 12,578 0 226 0 0 0 0 8,462 8,462 12,578 0 226 9,783 7,305 2,478 460,253 482,840 491,302 0 460,253 475,535 7,305 7,305 Fair value through p/l) Fair value – other in- come 1,110 1,110 7,352 7,352 0 0 0 0 0 0 0 0 0 0 0 0 Total 8,462 8,462 12,578 0 226 Fair value 8,462 8,462 12,578 0 226 2,478 2,478 460,253 460,253 475,535 475,535 475,535 1,110 7,352 483,997 483,997 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 Other liabilities 23,208 1,854 Total long-term 1,740,652 Short-term loans 376,402 Trade payables Tax liabilities Other liabilities 9,415 8,687 52,251 Total short-term 446,755 Total 2,187,407 Fair value through p/l) Loans and re- ceivables at amortized costs Total Fair value 0 1,715,590 1,715,590 1,718,212 23,208 1,854 25,062 0 9,415 8,687 0 18,102 43,164 0 0 23,208 1,854 23,208 1,854 1,715,590 1,740,652 1,743,274 376,402 376,402 376,402 0 0 9,415 8,687 48,291 48,291 9,415 8,687 49,923 424,693 442,795 444,427 2,140,283 2,183,447 2,187,701 0 0 0 0 0 0 0 3,960 3,960 3,960 116 alstria Annual Report 2016 Consolidated Financial Statements Independent experts determined the fair value of the derivative financial instruments by discounting 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 - hedging instruments Fair value - financial liabilities Loans and receivables Total 2016 −10,558 −1,484 −467 −12,509 2015 −2,890 −3,233 −625 −6,748 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. 14.3 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 pos- sible. If all significant inputs 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 discount- ing the expected future cash flows at prevailing market interest rates. Future cash flows were esti- mated 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. 15. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD In October 2016, alstria signed a purchase contract for the disposal of an asset in Dortmund. The transfer of benefits and burden is expected to take place on February 28, 2017, after the reporting period. Additionally, alstria signed a purchase contract for the disposal of an asset in Dresden on December 15, 2016. The transfer of benefits and burden took place on February 1, 2017, after the reporting period. alstria Annual Report 2016 117 Consolidated Financial Statements 16. 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 Mannheim/Wiesbaden GmbH & Co. KG, Hamburg alstria office Prime Portfolio GmbH & Co. KG, Hamburg alstria office Steinstrasse 5 GmbH & Co. KG, Hamburg  beehive GmbH & Co. KG, Hamburg 17. DISCLOSURES PURSUANT TO THE WERTPAPIERHANDELSGESETZ [GERMAN SECURITIES TRAD- ING ACT] AND EUROPEAN MARKET ABUSE REGULATION [MAR] 17.1 Ad hoc announcements The following table summarizes the announcements pursuant to Section 15 para. 1 German Securities Trading Act (WpHG) or Art. 17 MAR published by the Company during the reporting period: Date Apr. 5, 2016 May 3, 2016 July 8, 2016 Topic alstria office REIT-AG issues additional corporate bond alstria office REIT-AG acquires additional approximately 1.4% of DO Deutsche Office AG alstria office REIT-AG: DO Deutsche Office AG sells ‘An den Treptowers 3’ building in Berlin 118 alstria Annual Report 2016 Consolidated Financial Statements 17.2 Directors’ dealings The following transaction has been reported to the Company pursuant to Section 15a para. 1 WpHG during the reporting period: Name of person subject to the disclosure requirement Olivier Elamine Transaction Function Classification of the financial instrument ISIN Transaction Place Transaction date Price per share in EUR Number of shares Deal volume in EUR 17.3 Voting right notifications CEO Share DE000A0LD2U1 Buy Direct trade May 13, 2016 11.722615 6,500 76,197.00 Information according to Section 160 para. 1 No. 8 German Stock Corporation Act (Aktiengesetz, AktG). The following table shows shareholdings in the Company that were in place on the 2016 balance sheet date and that were communicated to us pursuant to Section 21 para. 1 WpHG and have been published pursuant to Section 26 para. 1 WpHG. Moreover, shareholdings were considered that were in place until the date of the preparation of the financial statements, that were communicated to us pursuant to Section 21 para. 1 WpHG and have been published pursuant to Section 26 para. 1 WpHG. The Company did not receive any notifications pursuant to Section 20 paras. 1 and 4 AktG or pursuant to Section 21 para. 1a WpHG during the reporting period. Shareholders, registered office No. Voting rights (new) (in %) Date of change Attribution of voting rights Contains 3% or more of voting rights from 1 2 3 4 5 6 7 8 9 10 11 BNP Paribas Asset Management S.A.S., Paris, France Prédica, Paris, France SAS Rue la Boétie, Paris, France Government of Singapore, acting by and through the Ministry of Finance, Singapore, Singapore GIC Private Limited, Singapore, Singapore GIC (Realty) Private Limited, Singapore, Singapore Europe Realty Holdings Pte Ltd, Singapore, Singapore Euro Periwinkle Private Limited, Singa- pore, Singapore Oaktree Capital Group Holdings GP, LLC, Wilmington, Delaware, USA Cohen & Steers, Inc., New York, USA Brookfield Investment Management Inc., New York, USA 3.08 Mar. 18, 2016 3.0265 Apr. 5, 2016 5.7691 Apr. 12, 2016 12.61 12.61 Apr. 22, 2016 Apr. 22, 2016 Yes No Yes Yes - - Prédica GIC Private Limited (4.71%) Euro Periwinkle Private Limited (7.90%) Yes Euro Periwinkle Private Limited 7.90 Apr. 22, 2016 Yes Euro Periwinkle Private Limited 7.90 Apr. 22, 2016 Yes Euro Periwinkle Private Limited 7.90 Apr. 22, 2016 1.08 3.32 Sep. 9, 2016 Oct. 10, 2016 3.01 Jan. 9, 2017 No Yes Yes Yes - - - - alstria Annual Report 2016 119 Consolidated Financial Statements 18. 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 Gov- ernance Code as developed by a government commission. It is permanently available to the public on alstria office REIT-AG’s website (www.alstria.com) and is included in the declaration of corporate management according to HGB Section 289a. 19. AUDITORS’ FEES On May 12, 2016, the general meeting elected Deloitte & Touche GmbH Wirtschaftsprüfungsgesell- schaft (Dammtorstrasse 12, Hamburg) as auditors of the separate and consolidated financial state- ments for the 2016 financial year. The fees totaled EUR 704 k in 2016. Of this, EUR 517 k was attribut- able to audit services and EUR 187 k to other audit services. 20. 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. 120 alstria Annual Report 2016 Consolidated Financial Statements 21. 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 2016 financial year, the members of the Supervisory Board were as follow: Dr. Johannes Conradi Chairman since May 12, 2016 Hamburg, Germany Lawyer and Partner, Freshfields Bruckhaus Deringer LLP Freshfields Bruckhaus Deringer LLP EBS Universität für Wirtschaft und Recht – Real Estate Manage- ment Institute 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 Richard Mully Vice-Chairman since November 30, 2016 Cobham (Surrey), United Kingdom Director, Starr Street Limited Aberdeen Asset Management PLC Director since December 1, 2016 Great Portland Estates plc until April 4, 2016 ISG plc St Modwen Properties PLC Nonexecutive Director Director Director Stefanie Frensch office started on May 12, 2016 Berlin, Germany BBV Verband Berlin-Brandenbur- gischer Wohnungsunternehmen e.V. Benoît Hérault Uzès, France Belvédère SA EUROSIC Westbrock Partners Marianne Voigt Berlin, Germany since December 8, 2016 BDO AG Wirtschafts- prüfungsgesellschaft DO Deutsche Office AG until December 9, 2016 Managing Director, HOWOGE Wohnungsbaugesellschaft mbH Chairman of the audit committee Managing Director, Chambres de l’Artémise S.à r.l. Chairman of the Board Board member, Chairman of the remuneration committee Senior advisor for France Managing Director, bettermarks GmbH Member of the Supervisory Board Member of the Supervisory Board Hermann T. Dambach Vice-Chairman office ended October 31, 2016 Bad Homburg, Germany Investment Manager, Oaktree GmbH Railpool GmbH Chairman of the Advisory Board alstria Annual Report 2016 121 Alexander Stuhlmann Chairman office ended May 12, 2016 since July 1, 2016 until December 9, 2016 Consolidated Financial Statements Hamburg, Germany Management Consultant Bauhaus Wohnkonzept GmbH Capital Stage AG C.E. Danger GmbH & Co. KG DO Deutsche Office AG Ernst Russ AG Euro-Aviation Versicherungs AG Frank Beteiligungs- gesellschaft mbH GEV AG (Frank-Gruppe) HASPA Finanzholding Siedlungsbaugesellschaft Hermann und Paul Frank mbH & Co. KG Chairman of the Advisory Board Vice-Chairman of the Supervisory Board Member of the Advisory Board Member of the Supervisory Board Chairman 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 Advisory Board At the Company’s May 12, 2016, Annual General Meeting, the shareholders elected Ms. Stefanie Frensch, director of HOWOGE Wohnungsbaugesellschaft mbH, Berlin, Germany, as a member of the Supervisory Board of alstria office REIT-AG. At the end of the Annual General Meeting held on May 12, 2016, Mr. Alexander Stuhlmann’s supervi- sory membership term ended. With an effective date of October 31, 2016, Mr. Hermann T. Dambach, investment manager of Oaktree GmbH, Bad Homburg, Germany, resigned as a member of the Supervisory Board. After the end of the reporting period, Dr. Bernhard Düttmann, executive consultant, Meerbusch, Ger- many, was appointed as a member of the Supervisory Board on January 3, 2017. Hamburg, February 21, 2017 alstria office REIT-AG The Management Board Olivier Elamine Alexander Dexne CEO CFO 122 alstria Annual Report 2016 Responsibility Statement RESPONSIBILITY STATEMENT To the best of our knowledge we confirm that, in accordance with the applicable reporting principles, the consolidated financial statements 2016 give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group management report 2016 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, February 21, 2017 alstria office REIT-AG The Management Board Olivier Elamine Alexander Dexne CEO CFO alstria Annual Report 2016 123 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, the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity and the notes to the consolidated financial statements, as well as the group management report for the financial year from January 1 until December 31, 2016. 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 Sec. 315a (1) German Commercial Code (HGB) 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 Sec. 317 German Commercial Code (HGB) and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group 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. 124 alstria Annual Report 2016 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, as well as the additional requirements of German commercial law pursuant to Sec. 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, complies with the legal requirements 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, February 21, 2017 Deloitte GmbH Wirtschaftsprüfungsgesellschaft [seal] Signed: Reiher Wirtschaftsprüfer Signed: Deutsch Wirtschaftsprüferin [German Public Auditor] [German Public Auditor] alstria Annual Report 2016 125 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, the Company’s corporate governance during the reporting period and the report on changes to the supervisory board. MAIN POINTS OF DISCUSSION The main points of discussion for the Supervisory Board and its committees during financial year 2016 were the financial reports, asset transactions and leases, the issuance of a bond by alstria office REIT- AG with a total nominal amount of EUR 500 million, the placement of alstria’s first promissory note (Schuldscheindarlehen) with a nominal value of EUR 150 million, the preparation for the reappointment of the members of the Management Board for another term of office, the refinement of the Management Board remuneration system and the succession planning for the supervisory board due to two vacancies. SUPERVISION AND ADVISING OF THE COMPANY’S MANAGEMENT BOARD During the 2016 reporting period, 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 the financial situation of the Company. Furthermore, we were informed about issues concerning the Company’s planning, important business events and 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. 126 alstria Annual Report 2016 Corporate Governance 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. This also included the Company’s budget planning. MEETINGS OF THE SUPERVISORY BOARD In financial year 2016, the Supervisory Board held four ordinary and three extraordinary meetings. All members of the Supervisory Board attended a minimum of at least half of the meetings. The presence of the members in the meetings of the Supervisory Board averaged approximately 92%. Additionally, we passed written resolutions on five issues based on detailed documents. In 2017, 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 interim statements and half-year financial reports, financial statements and consolidated financial statements). In its extraordinary meeting in January 2016, the Supervisory Board deliberated with the Management Board on the strategy for the Company, a lease project, a potential portfolio acquisition and corporate governance issues. The Supervisory Board further dealt with succession planning for the Supervisory Board. In February 2016, the Supervisory Board decided by way of written circular resolution on the annual compliance statement regarding the recommendations by the German Corporate Governance Code. During its financial meeting in March 2016, the Supervisory Board dealt with the consolidated financial statements, the financial statements as of December 31, 2015 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, 2015, and confirmed the Management Board’s proposal regarding the appropriation of the profits for financial year 2015. The Supervisory Board passed a resolution on its report to the Annual General Meeting for financial year 2015 and on the corporate governance statement. The Management Board and Supervisory Board also discussed the agenda and proposals for resolution for the Annual General Meeting of the Company and the sale of shares in a subsidiary, and the Supervisory Board gave its consent on a capital expenditure and a lease of an asset in Berlin. Furthermore, the Supervisory Board gave its consent to the placement of a promissory note (Schuldscheindarlehen). Finally, the Supervisory Board discussed and decided on the amount of the long-term variable remuneration for the members of the Management Board for financial year 2012 and of the short-term variable remuneration for financial year 2015, based on the nomination and remuneration committee’s recommendation, and after carrying out a vertical remuneration comparison. It thereby considered alstria Annual Report 2016 127 Corporate Governance the board members’ individual performances and also discussed the parameters for the variable remuneration for the members of the Management Board for financial year 2016. In April 2016, the Supervisory Board passed three written circular resolutions on the sale of shares in a subsidiary, the appointment of the Management Board members as managing directors of a newly established subsidiary and the entering into a put option agreement. In its extraordinary meeting, held as telephone conference in May 2016, the Supervisory Board joined the Management Board’s amendment of the proposal for a resolution, presented to the Annual General Meeting, on the appropriation of the annual net profit for financial year 2015. The proposal was amended because, due to the takeover of former DO Deutsche Office AG and resulting capital increase from authorized capital executed in May 2016, new shares were issued. In turn, this increase resulted in an increase in the number of shares entitled to the dividend for financial year 2015, making the amendment necessary. In its regular meeting in May 2016, the Supervisory Board elected a new chairman after the term of office for its former chairman had come to an end. Further topics have included the composition of the permanent committees of the Supervisory Board, the risk profile of the Company and a disposal of an asset in Berlin. In June 2016, the Supervisory Board approved, by way of written resolution, two amendment agreements regarding two financing agreements. In its extraordinary meeting in July 2016, which was held as telephone conference, the supervisory board deliberated with the Management Board on the disposal of an asset in Berlin and gave its approval. The Management Board and the Supervisory Board discussed potential acquisitions, lease projects and capital expenditures on single assets in the regular Supervisory Board Meeting in September 2016. After having deliberated in detail the day before with an external lawyer, in this meeting, the Supervisory Board resolved on updates for the rules of procedures for the Supervisory Board and its permanent committees as well as for the Management Board. The Supervisory Board further resolved on editorial amendments to the Company’s Articles of Association due to conditional capital increases of EUR 102,750.00, executed in May 2016 for the purposes of the Company’s employee participation program. The Supervisory Board finally deliberated and resolved on the composition of its permanent committees. After intensive discussion with the Management Board, the Supervisory Board passed resolutions regarding business and budget planning for financial year 2017 in its ordinary meeting in November 2016. The Supervisory Board discussed the succession planning for the Supervisory Board and the personnel planning for the Management Board in the light of the terms of office of the Management Board members, which will come to an end at the end of financial year 2017. The Supervisory Board deliberated in detail, with an external independent remuneration expert, on a proposal made by its nomination and remuneration committee regarding the further development of the remuneration system in place, and the further terms and conditions of the Management Board service contracts for a new term of office. The Supervisory Board discussed a review made by the external independent 128 alstria Annual Report 2016 Corporate Governance remuneration expert on the appropriateness of the Supervisory Board remuneration in place. The Supervisory Board discussed and resolved the detailed objectives regarding the composition of the Supervisory Board (Diversity Statement), and reviewed the positive result of the efficiency check of its work, which the Supervisory Board members had performed by means of questionnaires. In its extraordinary meeting in January 2017, the Supervisory Board and the Management Board discussed the strategy for the Company in detail, and discussed and resolved on the further appointment of the members of the Management Board for another term of office and the amendments to the Management Board remuneration system. In February 2017, the Supervisory Board resolved by way of written circular resolution on the annual compliance statement regarding the recommendations by the German Corporate Governance Code. In its financials meeting in March 2017, the Supervisory Board particularly dealt with the consolidated financial statements and financial statements for the year ending on December 31, 2016. 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 2016 as well as the Corporate Governance Report. Management Board and Supervisory Board discussed the agenda and proposals for resolution for the annual General Meeting of the Company for financial year 2016. The Supervisory Board also dealt with variable remuneration for the members of the Management Board. COMMITTEES OF THE SUPERVISORY BOARD According to the Company’s Articles of Association, the Supervisory Board has six members. It has formed three permanent committees to support it in its work, each of which are composed of at least three members. The composition of the committees is described in the Company’s Corporate Govern- ance Statement on pages 133 to 142 of the annual report. 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 2016, the Supervisory Board’s committees focused on the following topics: The audit committee held four meetings in financial year 2016. 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, 2015, 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 included 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 alstria Annual Report 2016 129 Corporate Governance performed by them. Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hamburg branch, was appointed as 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 seven times during financial year 2016. 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 objectives regarding the composition of the Supervisory Board, providing the Supervisory Board with corresponding resolution proposals. The nomination and remuneration committee dealt in detail with the personnel planning for the Management Board in the light of the office terms of both Management Board members coming to an end in financial year 2017. The committee discussed with an external independent remuneration expert possibilities to further develop the Management Board remuneration system as well as the appropriateness of the Supervisory Board remuneration system in place. Finally, the committee dealt twice with the succession planning for the Supervisory Board, each time appointing an external advisor, and in two cases prepared proposals for resolution to the Annual General Meeting for the Supervisory Board with regard to the election of Supervisory Board members. In financial year 2016, the finance and investment committee deliberated with the Management Board on a real-estate transaction in three meetings and approved three disposals executed in financial year 2016. The committee resolved by way of written circular resolution on advisory services from the law firm Freshfields Bruckhaus Deringer LLP, of which the Chairman of the Supervisory Board is a partner. During financial year 2016, two special committees held meetings: 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 former DO Deutsche Office AG. In financial year 2016, the special committee came together in one meeting and resolved on editorial amendments of the Articles of Association due to the increase in the share capital by EUR 964,182.00 against contributions in kind executed in May 2016. 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 one meeting to discuss the issuance of a corporate bond, and approved by way of written circular a resolution on the issuance of a bond as well as all connected actions and resolutions. Benoît Hérault 130 alstria Annual Report 2016 Corporate Governance and Hermann Dambach could not participate in the meeting due to important competing appointments. The composition of the special committees is also described in the Company’s Corporate Governance Statement on pages 133 to 142 of the annual report. AUDIT OF THE ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS Deloitte 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, 2016. 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 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. 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 2017, 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. alstria Annual Report 2016 131 Corporate Governance 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 autumn 2016, we were able to conclude that the composition of the Supervisory Board met these objectives as of December 31, 2016. The Supervisory Board member Hermann Dambach abstained from voting on the proposal for the appropriation of the annual net profit for financial year 2015 due to a conflict of interest, and did not attend the extraordinary Supervisory Board meeting scheduled for this purpose in May 2016. When the Supervisory Board elected its Chairman and the Vice-Chairman, the candidates abstained from voting. No conflicts of interest concerning members of the Management Board arose during financial year 2016. CHANGES IN THE SUPERVISORY BOARD The term of Mr. Alexander Stuhlmann, who had been a member of the Supervisory Board and chaired the Supervisory Board since 2007, came to an end with the Annual General Meeting in financial year 2016. Thereupon, the Annual General Meeting elected Mrs. Stefanie Frensch as member of the Supervisory Board until the Annual General Meeting in financial year 2021. In its meeting on May 12, 2016, the Supervisory Board elected Mr. Johannes Conradi as new chairman of the Supervisory Board. Mr. Hermann Dambach, who had been elected as member of the Supervisory Board until the Annual General Meeting in financial year 2021 and who used to be Vice-Chairman of the Supervisory Board, resigned from the Supervisory Board effective October 31, 2016. The local court (Amtsgericht) of Hamburg appointed Mr. Bernhard Düttmann as successor for Mr. Hermann Dambach on the Supervisory Board, effective January 3, 2017. In the meeting on November 30, 2016, the Supervisory Board elected Mr. Richard Mully as Vice-Chairman of the Supervisory Board. The Supervisory Board would like to thank Mr. Stuhlmann and Mr. Dambach for their valuable commitment to the Company. The Supervisory Board would like to thank the Management Board and all employees for their dedication and their successful work in financial year 2016. Hamburg, March 2017 For the Supervisory Board Johannes Conradi Chairman of the Supervisory Board 132 alstria Annual Report 2016 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, among 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 Company’s Management Board and Supervisory Board composition, 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 and 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 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 2016 133 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 Profession Appointed until Dr. Johannes Conradi (Chairman) Richard Mully (Vice-Chairman) Lawyer and partner, Freshfields Bruckhaus Deringer LLP Director, Starr Street Limited Dr. Bernhard Düttmann Independent business consultant Stefanie Frensch Managing Director, HOWOGE Wohnungsbaugesellschaft mbH Benoît Hérault Marianne Voigt Managing Director, Chambres de l’Artémise S.à r.l. Managing Director, bettermarks GmbH 1) Until the end of the Annual General Meeting. 2) Judicial Appointment. 20201) 20191) 20171),2) 20211) 20191) 20201) The following changes took place in the composition of the Supervisory Board in 2016: Stefanie Frensch was elected as member of the Company’s Supervisory Board by the Annual General Meeting held on May 12, 2016. With the close of this Annual General Meeting, the office term of the Chairman of the Supervisory Board, Alexander Stuhlmann, ended. On the same day, the Supervisory Board elected Dr. Johannes Conradi as Chairman of the Supervisory. Vice-Chairman Hermann Dambach resigned from the Supervisory Board, effective October 31, 2016. In the meeting on November 30, 2016, the Supervisory Board elected Richard Mully as new Vice-Chairman of the Supervisory Board. Dr. Bernhard Düttmann was appointed successor of Mr. Dambach by resolution of the Hamburg Local Court (Registration Court) to the Supervisory Board in January 2017. 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 121 to 122 of the annual report. 134 alstria Annual Report 2016 Corporate Governance No former Management Board members 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. With due consideration of the specific alstria situation, the Supervisory Board specified the following goals for its composition as recently as November 2016, 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 be reliable and, as a group, possess the knowledge, competence and professional experience necessary to properly carry out their duties as Supervisory Board members. 2. Women For the female representation in the Supervisory Board, a quota of at least 30% is determined. 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 should not be older than 70 years of age as a general rule. 8. Length of membership The membership in the Supervisory Board shall not exceed 20 years as a general rule. In November 2016, the Supervisory Board assessed the implementation of these targets and came to the conclusion that all targets named above are met as of the reporting date. Aside from the objectives for its composition, the Supervisory Board also regularly reviews its efficiency. Therefore, the work of the Supervisory Board is analyzed in a structured and transparent manner 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 2016. The report is presented on pages 126 to 132 of the annual report. alstria Annual Report 2016 135 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 2016 financial year, the audit committee was comprised of Marianne Voigt as Chair and Benoît Hérault as a member. Dr. Johannes Conradi was a member of the audit committee until May 12, 2016. On the same date, Richard Mully was elected as his successor to become a member of the audit committee. The finance and investment committee discusses the Company’s financing strategy and approves the acquisition or disposal of real estate property or other assets worth between EUR 30 m and EUR 100 m, as well as financing agreements with a financing volume 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 finance and investment committee, furthermore, approves 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 contracts with Supervisory Board members, according to Section 114 of the German Stock Corporation Act (Aktiengesetz, AktG). In the complete 2016 financial year, the finance and investment committee comprised Richard Mully as Chair and Benoît Hérault as a member. Hermann Dambach was a member of the finance and investment committee until he resigned as a member of the Supervisory Board effective October 31, 2016. Effective September 8, 2016, Stefanie Frensch was elected to become a further member of the finance and investment committee. The nomination and remuneration 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 and 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 financial year 2016, the nomination and remuneration committee was comprised as follows: Alexander Stuhlmann was Chairman of the committee until his term of office ended with the close of the Annual General Meeting on May 12, 2016. Effective the same date, Dr. Johannes Conradi was elected to be the Chairman of the committee. Richard Mully was a member of the nomination and remuneration 136 alstria Annual Report 2016 Corporate Governance committee during the entire 2016 financial year. Furthermore, Hermann Dambach was a member of the committee until he resigned from the Supervisory Board, effective October 31, 2016. Effective September 8, 2016, Stefanie Frensch was elected to become a further member of the nomination and remuneration committee. Additionally, two special committees established by the Supervisory Board in 2015 acted in the 2016 financial year: In May 2015, the Supervisory Board established a special committee authorized to grant all necessary approvals and make all other declarations required in connection with the takeover of DO Deutsche Office AG. The committee comprised Dr. Johannes Conradi as Chair and Benoît Hérault and Richard Mully as members. In September 2015, the Supervisory Board established a further special committee authorized to grant all necessary approvals and make all other declarations required in connection with the issuance of bonds. The committee comprised Dr. Johannes Conradi as Chair and Hermann Dambach, Benoît Hérault and Richard Mully as members. The Supervisory Board reports on the activities of the committees of the Supervisory Board during 2016 financial year in its report to the Annual General Meeting on pages 126 to 132 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 the women quota for the first management level below the Management Board shall not fall below 27.3%. This target quota has been achieved as of December 31, 2016, and applies, for the time being, until June 30, 2017. In lack of a further management level with decision-making competence and budget responsibility, a target quota of women’s participation for the second management level was not to be determined. Also, in September 2015, the Supervisory Board determined—and in November 2016, confirmed—a target quota of at least 30% for the Supervisory Board. This quota is currently achieved: On December 31, 2016, the women quota in the Supervisory Board amounted to 33.34%. For the participation of women in the Management Board, the Supervisory Board determined a quota of 0% in September 2015. This quota has been achieved and applies until June 30, 2017. alstria Annual Report 2016 137 COMMUNICATION AND TRANSPARENCY Corporate Governance A transparent corporate governance and good communication with the shareholders and the public contribute to strengthening investor and public trust in alstria’s work. Communication with the public When sharing information with people outside 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 Company’s situation 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 concerning its financial reports, share price tracking and Managers’ Transactions Disclosure pursuant to Article 19 of the Market Abuse Regulation (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 English. Relationship to the shareholders alstria respects the rights of its shareholders and makes the 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, to an adequate number of voting rights per share (one share, one vote) and to participate 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 voting 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 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. 138 alstria Annual Report 2016 Corporate Governance Financial reporting alstria regularly informs shareholders and third parties by publishing its consolidate and half-year financial statements, as well as quarterly interim 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 the independent auditor as appointed by the shareholders in the Annual General Meeting and by the Supervisory Board. After examining its independence and following the election of the Annual General Meeting, the audit committee of the Supervisory Board appoints an external auditing firm to audit the financial statements and negotiate the respective auditing fees. Deloitte 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 the 2016 financial year and for further interim financial reports until the next ordinary general meeting in 2017. 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 make decisions that maximize its short-term benefits, 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 and 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. COMPLIANCE Complying with the legal provisions and treating business partners and competitors fairly is one of alstria’s most important principles. 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 compliance with the legal provisions and Company guidelines throughout all of the Group’s alstria Annual Report 2016 139 Corporate Governance 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 Company. The code of conduct is published on the Company’s website. 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 the violators punished. This can include 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 Code’s recommendations. 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 15, 2017: 140 alstria Annual Report 2016 Corporate Governance DECLARATION OF COMPLIANCE, DATED FEBRUARY 15, 2017 “Since the prior declaration of compliance, dated February 25, 2016, 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. 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 alstria office REIT-AG Supervisory Board does not comprise a deductible. The Supervisory Board believes its members 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 ensures 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 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 financial reports by the Supervisory Board or its audit committee and the Management Board prior to their publication, Section 7.1.2 The quarterly interim statements are made available to the Supervisory Board prior to their publication and are discussed with the Supervisory Board in detail soon after publication. In the event of considerable differences to the budget or business plan as approved by the Supervisory Board, the Supervisory Board is given the opportunity to discuss the figures with the Management Board before they are published. Half-year financial reports will be discusses with the audit committee of the Supervisory Board prior to publication beginning financial year 2017. The Management Board and Supervisory Board consider this approach appropriate and adequate.” alstria Annual Report 2016 141 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 2017 The Management Board The Supervisory Board 142 alstria Annual Report 2016 Corporate Governance REMUNERATION REPORT* REMUNERATION OF THE MANAGEMENT BOARD MEMBERS The remuneration system for the members of the Management Board is determined by the Supervisory Board and is reviewed regularly. The Supervisory Board is of the opinion that adequate remuneration for the members of the Management Board is provided, which is based on customary market terms and conditions and 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 developed by involving an external and independent remuneration expert. The shareholders approved it in the general meet- ing for the 2009 financial year. Since then, it has been applied without changes. The remuneration structure complies with the German Stock Corporation Act (AktG) and—except for the deviations de- clared in the Compliance Statement according to Sec. 161 of the AktG—with the recommendations 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. THE MANAGEMENT BOARD REMUNERATION STRUCTURE The Supervisory Board determines the target remuneration for each board member. The target remu- neration 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 multiyear 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 2016 143 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 financial 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 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 re- muneration 20% Targets to assess perfor- mance Min. / max. target achieve- ments Discretionary factor Like-for-like budgeted FFO 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 Virtual shares Virtual shares Virtual shares Deferral period 2 years 4 years 4 years Reference share price Average share price for the pre- vious 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 funds from operations (FFO), the Supervisory Board adapts its FFO target for a financial year if the FFO is materially impacted by acquisitions and/or disposals. In doing so, the Supervisory Board ensures 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 payout to occur (threshold), as well as the maximum performance that is considered in the payout calcula- tion (cap). Discretionary factor This category reflects the factor that the Supervisory Board can apply to reflect the individual per- formance of each board member. 144 alstria Annual Report 2016 Corporate Governance Deferred component This category reflects the part of the variable remuneration that is subject to a multiyear lockup. 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 payout 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 divided by the reference share price. Payout amount  For the STI, the payout amount at the end of the deferral period is equal to the number of virtual shares multiplied by the reference share price, thereby adding back any dividend per alstria share paid by the Company during the deferral period.  For the LTI, the number of virtual shares is adjusted at the end of the deferral period, reflecting the degree of performance target achievement. The payout amount is equal to the number of achieved virtual shares multiplied by the reference share price, added to the dividend per alstria share paid during the deferral period, and then multiplied by the discretionary factor. 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, 2016. Start of de- ferral period Reference share price in EUR End of deferral period Number of virtual shares Number of virtual shares Olivier Elamine Alexander Dexne STI 2014 STI 2015 LTI 2013 LTI 2014 LTI 2015 LTI 2016 2015 2016 2013 2014 2015 2016 10.97 11.63 9.29 9.44 10.97 11.71 2017 2018 2017 2018 2019 2020 5,370 5,949 47,363 46,610 40,109 37,575 4,393 4,868 38,751 38,136 32,817 30,743 Ancillary Benefits 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 2016 FINANCIAL YEAR In the last financial year, the total target remuneration for the members of the Management Board amounted to EUR 2,188 k. The total amount paid to the Management Board in that financial year amounted to EUR 2,928 k (including payouts on multiyear remuneration elements). The correctness of the calculated payout amounts for the multiyear variable remuneration elements was confirmed by an independent remuneration expert. alstria Annual Report 2016 145 Corporate Governance The remuneration of individual Management Board members is presented based on model tables pur- suant to the German Corporate Governance Code, as amended on May 5, 2015. The “Benefits granted” table 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 for a future payout of the variable remuneration elements. We explicitly make reference to the fact that the hypothetical maximum amounts could only be attained in the extraor- dinary situation where all the conditions named in the “Conditions to attain maximum amounts for variable remuneration elements granted in 2016” table occurred at the same time. The “Allocation/benefits paid out” table shows the fixed remuneration and the amounts paid out in the respective business year as variable remuneration elements. Benefits granted in EUR k Benefits granted Olivier Elamine CEO Alexander Dexne CFO 2015 2016 2016 (Min) 2016 (Max)10) 2015 2016 2016 (Min) 2016 (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 2015) One-year variable compensation (STI 2016) Total amount of multiyear varia- ble compensation STI 2015 (1 plus 2 years) STI 2016 (1 plus 2 years) LTI 2015 (4 years) LTI 2016 (4 years) Total amount of fixed and varia- ble compensation Service costs9) Total 450 440 10 448 440 8 173 173 1733) - - 1733) 498 585) - 4407) 498 - 585) - - 4407) 448 440 8 0 - 0 0 - 0 - 0 448 440 8 380 360 20 378 360 18 378 360 18 312 142 142 - 1423) - 3124) - 1423) 2,240 407 407 - 2606) 475) - - 3607) - 475) - 1,9808) - 3607) 0 - 0 0 - 0 - 0 1,121 1,119 84 84 1,205 1,203 448 84 532 3,000 84 3,084 929 58 987 927 58 985 378 58 436 378 360 18 255 - 2554) 1,833 - 2136) - 1,6208) 2,466 58 2,524 1) Annual base salary according to service contracts. 2) Includes benefits related to company car. 3) 75% of the STI target value for the respective financial year. 4) Maximum attainable payout 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 payout amount for 25% of the STI after 1 year plus 2 further 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 payout 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 payout amount under the condition that all assumptions described in the “Conditions to attain maximum amounts” table are fulfilled. 146 alstria Annual Report 2016 Corporate Governance Conditions to attain maximum amounts for variable remuneration elements granted in 2016 One-year variable compensation and Multiyear variable compensation LTI (4 years) and and and 1. alstria FFO 2016 = EUR 172.5 m (budgeted FFO of approx. EUR 115 m is achieved by 150%) 2. Supervisory Board passes resolution on discretionary factor of 1.2 1. Absolute Total Shareholder Return ≥ 9% (i.e., total shareholder return for alstria investors over 4 years of 9% p.a. or more) 2. Relative Total Shareholder Return (TSR vs. EPRA) ≥ 25% (i.e., alstria overper- forming EPRA/NA-REIT Europe Index Ex UK by 25%) 3. Company share price increases by 250% (share price of EUR 11.71 on granting date --> share price of EUR 29.28 on payment date after 4 years) 4. Supervisory Board passes resolution on discretionary factor of 1.2 STI (1 plus 2 years) Price of Company shares increases by 250% (e.g., share price of EUR 11 on de- ferral date --> share price of EUR 27.50 on payment date after 2 years) Benefits paid out 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 2014)3) One-year variable compensation (STI 2015)3) Total amount of multiyear variable compensation STI 2012 (1 plus 2 years)4) STI 2013 (1 plus 2 years)4) LTI 2011 (4 years)5) LTI 2012 (4 years)5) Total amount of fixed and variable compensation Service cost6) Total 1) Annual base salary according to service contracts. 2) Includes benefits related to company car. 3) Payout amount for 75% of the STI after 1 year for the respective previous year. 4) Payout amount for 25% of the STI after 1 year plus 2 further years. 5) Payout amount for LTI after holding period of 4 years. 6) Includes benefits for insurance and pension plans. Olivier Elamine Alexander Dexne CEO CFO 2015 2016 2015 2016 450 440 10 177 177 - 350 86 - 264 - 977 84 448 440 8 208 - 208 870 - 75 - 795 1,526 84 1,061 1,610 380 360 20 145 145 - 286 70 - 216 - 811 58 869 378 360 18 170 - 170 712 - 61 - 651 1,260 58 1,318 In 2016, the LTI for 2012 was paid out. Over the four-year holding period, the Absolute Total Share- holder Return on an alstria share was 11.90% per annum, and the Absolute Total Shareholder Return performance target was capped at 150%. The average Relative Total Shareholder Return for an alstria share was 1.68% per annum. As a result, approximately 115% of the virtual shares vested, leading to a final LTI payout amounting to approximately 181% of the target value for the LTI for 2012. alstria Annual Report 2016 147 Corporate Governance In 2015, the LTI for 2011 was paid out. Over the four-year holding period, the Absolute Total Share- holder Return for an alstria share was 5.8% per annum, and the average Relative Total Shareholder Return for an alstria share was −10.9% per annum. The threshold for the performance target of the Relative Total Shareholder Return was not met. As a result, approximately 48% of the virtual shares vested, leading to a final LTI payout amounting to approximately 60% of the target value for the LTI for 2011. 3. OTHER MANDATORY DISCLOSURES If membership to the Management Board is terminated, members have agreed to a postcontractual noncompete agreement of up to twelve months, which may be waived by alstria with a six-month notice period. As long as alstria exercises this postcontractual noncompete agreement, the members 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 remuneration 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 incentive payment for this period shall be paid pro rata up to and including the month of death. The Management Board contracts do not include any change of control clauses. No individual member of the Management Board was granted or rendered any benefits by third parties with regard to the Management Board’s work in the 2016 financial year. 148 alstria Annual Report 2016 Corporate Governance REMUNERATION OF THE SUPERVISORY BOARD MEMBERS 1. STRUCTURE OF THE SUPERVISORY BOARD REMUNERATION The members of the Supervisory Board each receive an annual fixed remuneration of EUR 42 k. The Chairman of the Supervisory Board receives an additional annual amount of EUR 21 k; the Vice-Chair- man receives an additional amount of EUR 10.5 k. Membership in the Audit Committee entitles the member to an additional remuneration of EUR 10 k, while the chair of the audit committee receives EUR 15 k per year. Membership in the nomination and remuneration committee as well as the finance and investment committee entitles the member to an additional annual remuneration 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 pro rata temporis remuneration. 2. REMUNERATION OF THE SUPERVISORY BOARD IN THE 2016 FINANCIAL YEAR The total remuneration for the Supervisory Board members in 2016 amounted to EUR 347 k. The remu- neration for the individual Supervisory Board members for the 2015 and 2016 financial years is as follows: in EUR k Supervisory Board member Function on the Su- pervisory Board Dr. Johannes Conradi Chairman2) Function on the Committees1) in 2016 A2), B (ch)2) A2), B, C (ch) B2), C2) A, C A (ch) Vice-Chairman2) Member2) Member Member Chairman2) B (ch)2), C2) Vice-Chairman2) B2), C2) Member2) Remuneration for 2015 Remuneration for 2016 65.63 54.50 - 47.85 57.00 75.08 9.92 42.74 352.72 65.66 61.81 29.99 57.00 57.00 25.62 50.28 - 347.36 Richard Mully Stefanie Frensch since May 12, 2016 Benoît Hérault Marianne Voigt Alexander Stuhlmann until May 12, 2016 Hermann Dambach until October 31, 2016 Roger Lee until October 27, 2015 Total 1) A=audit committee, B=nomination and remuneration committee, C=finance and investment committee, ch=chair. 2) Temporarily. alstria Annual Report 2016 149 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, 2016, 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, 75.22% 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 3,050,147 k which equals to 90.17 % 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 1,546 k and therefore 0.05 %. 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 2016, the entire sales revenues of the Group plus other earnings from immovable assets amounted to EUR 306.4 m. This equals 100% of total revenues plus other earnings from immovable assets; b) the sum of the sales revenue plus the other earnings from immovable assets of REIT service companies amounted to EUR 186 k in the financial year 2016. This equals 0.06 % of total revenue plus other earnings from immovable assets. 150 alstria Annual Report 2016 REIT Disclosures 5. In the financial year 2016, a dividend payment of EUR 76,564 k for the prior financial year was distributed to the shareholders. The financial year 2015 resulted in a net loss amounted to EUR 174,132 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 2012, the Group has realised 32.75 % 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 1,728.4 m. This equals to 56.67 % of the value of the immovable assets which are shown in the consolidated financial statements in conformance with Section 12 paragraph 1 REIT Act. alstria office REIT-AG Hamburg, February 21, 2017 Olivier Elamine CEO Alexander Dexne CFO alstria Annual Report 2016 151 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, 2016, we have audited 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 con- cerning the pre-taxation of proceeds according to Section 19 (3) and Section 19a REIT Act as of Decem- ber 31, 2016 (hereinafter referred to as ‘REIT declaration’). The information given in the REIT decla- ration is in the responsibility of the management board of the Company. Our responsibility is to express an opinion on the information given based on our audit. We conducted our audit considering the audit 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 according to Section 2 Clause 3 REIT Act and the audit according to Section 21 (3) Clause 3 REIT Act (IDW PH 9.950.2). Therefore we have planned and performed our audit to make a judgment with reasonable assurance if the free float ratio and the maximum stock ownership per shareholder according to Section 11 (1) and (4) REIT Act agrees with the announcements due to Section 11 (5) REIT Act as of December 31, 2016 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, 2016 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 state- ments 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. 152 alstria Annual Report 2016 REIT Disclosures In our opinion based on the findings of our audit, the information given in the REIT declaration concerning the free float ratio and the maximum stock ownership per shareholder due to Section 11 (1) and (4) REIT Act agrees with the announcements made according to Section 11 (5) REIT Act as of December 31, 2016 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 Section 19a REIT Act are appropriate. This memorandum is solely provided for submission to the tax authorities of the city of Hamburg within the tax declaration according to Section 21 (2) REIT Act. Hamburg/Germany, February 21, 2017 Deloitte GmbH Wirtschaftsprüfungsgesellschaft (Seal) Signed: Reiher Wirtschaftsprüfer Signed: Deutsch Wirtschaftsprüferin [German Public Auditor] [German Public Auditor] alstria Annual Report 2016 153 Other information OTHER INFORMATION FINANCIAL CALENDAR Events 2017 May 9 May 16 August 8 November 7 CONTACT/IMPRINT Publication of Q1 Interim report Annual General Meeting Publication of Q2 Half-year interim report Publication of Q3 Interim report Publication of sustainability report 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 mate- rially 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 154 alstria Annual Report 2016 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 / 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 T + 49 (0) 711 / 33 50 01-50 F + 49 (0) 711 / 33 50 01-55 BUILDING YOUR FUTURE

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