Annual Report 2014/2015 - AFIAA€¦ · 2014/2015 Zurich New York Sydney Swiss Foundation for...

Annual Report 2014/2015

Zurich New York Sydney

Swiss Foundation for International Real Estate Investments

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Translation of the Annual ReportThis annual report was prepared in German and later translated into French and English. The Ger-man version was reviewed by auditors and is le-gally binding.

To improve readability, the male form has been used throughout the text. However, the male form should be read as including the female in all cases.

PhotographsThe photographs included in this Annual Report show prop-

erties from the AFIAA portfolio. They illustrate both the

diversity of the properties in terms of location, size and use

and their consistently high quality. The photographs were

taken in the ten years since AFIAA’s establishment by Eliane

Rutishauser, Zurich, Paul Zanre, Edinburgh José Almeida,

Lisbon, Manfred Zentsch, Heidelberg and Kuvatoimisto Ku-

vio Oy, Helsinki.

Title picture: Quartermile 2, Edinburgh.

AFIAA Annual Report 2014/2015 1

Annual ReportReport from the Foundation Board 4Report from the Investment Committee 8Report from the Management 10Investors 16Organisational Sturcture 17Key Figures as of 30/09/2015 18Report on Portfolio Management 19Report on Asset Management 26Acquisitions 30Corporate Governance 34

Annual Financial StatementSeparate Trust AssetsConsolidated Asset Account 47Consolidated Income Statement 48Changes in Net Assets 49Appropriation of Profit (Separate Trust Assets) 49

Administrative AccountsConsolidated Balance 52Consolidated Income Statement 52Permanent Assets Balance 53Permanent Assets Profit Statement 53Proposed Appropriation of Profits (Permanent Assets) 53

Appendix1 Principles and Organisation 552 Principles of Valuation and Reporting; Continuity 573 Notes on Investment Activity and Net Performance of Assets 614 Notes on Other Balance Sheet Items and Income Statement 665 Key Figures as Required by KGAST 706 Events After the Balance Sheet Date 73

Report of the Statutory AuditorReport of the Statutory Auditor on the Financial Statements as of 30 September 2015 76

Additional InformationStatement of Valuation Submitted by the Independent Swiss Property Valuation Experts 80Foundation Headquarters 81Professional Memberships 81

Dock 13, Düsseldorf

Annual Report

4 AFIAA Annual Report 2014/2015Annual Report | Foundation Board

Ladies and gentlemen, dear colleagues!

On behalf of myself and my colleagues on the Foundation Board, I am pleased to present this report on the development of your Investment Foundation in financial year 2014/2015, a year that presented AFIAA and its executive bodies with a double challenge: Externally, the Founda-tion had to assert itself in a difficult investment environment dominated by low returns, and inter-nally, it had to continue the strategic partnership with the Avadis Group which had been launched in October 2014. The Foundation Board would like to comment as follows – Management’s view is reflected in the report by the CEO (p. 10) and the Investment Committee’s opinion by the report of its Chairman (p. 8):

Unstable Economic and Political EnvironmentIn the reporting year, the economic and political climate was dominated by insecurity: insecurity about interventions by the central banks and their effects on the real economy, insecurity about the future interest rate development and finally in-security caused by escalating geopolitical risks in China, Syria and Ukraine.

In the USA, a first adjustment of the FED’s inter-est-rate, which has been languishing at 0.25% for seven years, had been expected in September due to the robust development of the US economy. As it turned out, the FED did not go through with it.

The slowdown of the Chinese economy and the devaluation of the Renminbi challenged the na-ive belief of some investors that China’s economy would continue to go from strength to strength. Even though the initial shock has now been ab-sorbed, insecurity remains.

Renewed massive migration flows and insecurity regarding their impact on the development of gov-ernment budgets, on the economy and especially on social cohesion have pushed other persistent geopolitical risks into the background, among them the threat of a Grexit, insolvency of other EU countries or a reescalation of the Ukraine crisis.

The most crucial event impacting the Swiss econo-my, and hence investors focussing on Switzerland, in the past financial year was the SNB’s suspen-sion of the minimum Euro exchange rate and the simultaneous introduction of negative interest rates. Although this may not be obvious in the short run, current developments may neverthe-less challenge confidence in the predictability of legal decisions and consistency within the Swiss

Foundation Board Report

economic region in the long term. These develop-ments include the gradual dismantling of bank-ing secrecy and associated fiscal conflicts with the USA, Germany and other countries as well as an increasing tendency towards seclusion which is expressed not only in the Anti-Mass Immigration Initiative but also in imminent legislative activities including the implementation of the Expulsion Initiative, which will be put to a vote on 26 Febru-ary 2016, the so-called Self-Determination Initia-tive, which will presumably attract the required number of signatures and, particularly significant for the Swiss real estate market and its investors, the tightening of the Lex Koller which – although rejected by Parliament – has been put back on the agenda by the Federal Council.

Challenging Investment EnvironmentOn the financial markets, the climate of insecurity led to significant spikes in economic and corpo-rate announcements. With late summer and au-tumn 2015 affected by the highest levels of vola-tility since 2011, the year will go down in history as a difficult investment year, especially for the Swiss pension funds. It appears that three excel-lent investment years will now be followed by an, at most, just about positive overall performance by the majority of pension funds in 2015. This result is reflected in almost all of the popular investment classes.

Given the weakness of the stock markets and a lack of prospects in the field of fixed-interest in-vestments, long-term investors are beginning to seek returns and diversification in alternative in-vestment categories: Both institutional and private investors are increasingly focussing on private eq-uity investments, infrastructure investments and hedge funds. Thanks to predictable cash flows, real estate is also attracting a lot of attention, es-pecially among investors whose investment deci-sions are restricted by regulatory requirements. In general, investors have caught on to the fact that they should differentiate not only within asset classes but also across regions. AFIAA’s business model is a perfect fit for this environment.

Development of the Domestic Real Estate MarketThe Swiss real estate market is primarily driven by domestic forces and has so far been relatively unaffected by transnational risks. For more than a decade, the main drivers of very stable and posi-tive value and income trends have been declining interest rates, stable economic development and strong demand due to rising floor space consump-tion per person, particularly in the residential seg-ment.

AFIAA Annual Report 2014/2015 5Annual Report | Foundation Board

However, the conclusion of new tenancies in the office and retail property segments, AFIAA’s main fields of activity abroad, is becoming increasingly difficult. Due to restructuring and optimisation, tenants require less floor space while increased construction activities, especially in major com-mercial centres, are expanding the range of at-tractive modern properties. Peripheral and older properties are turning into a challenge and rent concessions or letting incentives, such as rent-free periods at the beginning of the tenancy, are often unavoidable. Nevertheless, it should be noted that the pressure on rent levels has not yet affected premium properties in prime locations.

While economic development is slowing down, investment pressure, which predominantly af-fects institutional investors, is still driving prices and may result in a decoupling of price and value trends from fundamental economic data.

Interest in Real Estate Investments Abroad is RisingAs a consequence of Switzerland’s high price lev-els and lack of attractive real estate investment opportunities, Swiss pension funds have become more open to investments abroad in the last few years. Although initial returns in the prime seg-ment abroad are likely to be no higher than in Switzerland, foreign real estate makes a noticeable contribution to portfolio diversification. Some eco-nomic regions also promise higher growth rates than the domestic market and some early-cycle in-vestment opportunities are associated with signifi-cant additional returns.

Established suppliers, such as AFIAA, which have a solid long-term track record in this field as well as certified know-how in the establishment and management of globally diversified real estate portfolios, are having a positive impact on the seg-ment.

Combined with a low-risk investment approach which focusses on transparent, constitutional markets that are free of corruption and offer un-restricted access as well as a clearly defined core orientation, this acts as a counter-force to the strong home bias that still prevails among many real estate investors.

Activities of the Foundation BoardOverviewIn the reporting year, the Foundation Board held five ordinary and two extraordinary meetings. In addition, circular resolutions were passed in re-spect of 20 transactions, including routine mat-ters, such as the acceptance of new investors, as well as matters that required quick decisions and related to acquisitions, financing, key contracts and the commissioning of mandates.

Aside from recurring agenda items, the Board held further intensive discussions of AFIAA’s strate-gic options in regard of the Foundation’s conflict-ing return and quality objectives. In conclusion, the Foundation decided to maintain its previous, quality-oriented growth strategy.

The Foundation Board’s work was supported by comprehensive and transparent information pro-vided by Management and the Investment Com-mittee. At the Foundation Board meetings, Man-agement was represented by the CEO, the CFO and, in the case of individual agenda items, by the respective Management Board members while the Investment Committee was sporadically repre-sented by its Chairman.

Aside from its ongoing strategy review, the Foun-dation Board addressed three other key issues: the target return, balanced investment conditions for both original and new investors and cost efficien-cy. Further details are provided in the Manage-ment Board’s report and a short summary follows below:

Target ReturnAt the end of 2011, AFIAA announced a target property return of 4.5% (net after total acquisition costs, inclusive of accounting currency hedging costs). As it turns out, this return is now practi-cally unachievable, even by core properties in first-class locations abroad.

With the assistance of the Investment Commit-tee, the Foundation Board discussed three options suitable to achieve the envisaged target return:

• Reversal of the exclusive focus on top-quality properties,

• Compromise regarding locations in respect of countries and/or reversal of exclusive prime lo-cation principle,

• Foundation Board’s approval in exceptional cases.

All of the above options were rejected since any curtailment in quality would have been in contra-vention of AFIAA’s investment policy on which its investors have come to rely, and approval of ex-ceptions becomes unsatisfactory when exceptions may become the rule.

Increased debt financing was also rejected. At 13%, the Foundation’s debt financing is currently below half the statutory ceiling of 33%. This leaves the specific equity-debt ratio across the portfolio to the discretion of the investors.

Instead, the Foundation Board has decided to introduce a new target return model that can be generally applied to all markets. The model is based on the returns achievable by comparable

6 AFIAA Annual Report 2014/2015Annual Report | Foundation Board

properties in Switzerland to which currency hedg-ing costs, and in exceptional cases market- and property-specific mark-ups, are added. This is to ensure that investors will receive at least the same returns as they would from real estate invest-ments in Switzerland, taking into consideration the special characteristics particular to invest-ments abroad. Under this model, investors profit from a diversification effect arising from a nega-tive correlation between the foreign market and the Swiss market. The new model was prepared in close cooperation with the Investment Committee and Management and was validated by an external expert appraisal.

Fair Trade-off Between Original and New InvestorsAcquisitions during premium price periods may lead to a dilution of total return. AFIAA confronts this problem by favouring a conservative but fair portfolio valuation and acquiring investments that promise attractive returns, at least in the long term.

In these conditions, any expansion strategy inevi-tably leads to transaction expenses, such as real estate transfer tax and due diligence costs. These expenses are partially covered by the initial charge payable by new investors: Effective transaction costs of an approximate average 4% are juxta-posed with a current initial charge of 1 to 2%.

Such subsidies employed in the interest of growth are, to some extent, justified since original inves-tors also benefit from improved portfolio quality, greater diversification and relative administrative cost degression. Nevertheless, the Foundation is creating a balance by adjusting the initial charge and competently differentiating between investor groups in two respects:

Envisaged adjustment of the initial charge for all capital commitments made after the 2016 inves-tors’ meeting

Introduction of a new Tranche A-II for investors making initial commitments after 1 October 2014 which, compared to the previous Tranche (now referred to as A-I) carries an additional fee of up to 25 basis points, depending on the amount of the envisaged investment capital, which is used to cover management costs.

It should also be mentioned that capital calls have been optimised to facilitate the placing of small and residual commitments: The threshold below which capital commitments are called in their en-tirety as opposed to quotas has been raised from CHF 0.5 million to CHF 3 million.

Cost Effectiveness and ReportingThe Foundation Board has delegated the audit of the budgeted administrative costs to Avadis Im-mobilien AG, which is also entrusted with man-agement responsibilities. The administrative costs have declined further in relation to the invested equity. Hence, the Avadis/AFIAA cooperation is expected to create certain synergies even though the primary objective of this cooperation is the expansion of the investor base in support of the growth strategy.

AFIAA is working to consolidate its cost leader-ship, an aim that has not been properly reflected in the published TER figure until now: Competi-tors capitalise various common fees for services rendered, in particular purchase fees, as part of their total investment costs and do not include them in the TER. Up until now, AFIAA was not fa-miliar with such commissions.

AFIAA has endeavoured to negotiate uniform, comprehensive TER presentation at the industry level, including all fee components. Regrettably, its proposals have not met with the approval of the majority of its competitors. AFIAA has there-fore decided to adopt the industry standard with the aim of improving the comparability of its fig-ures: As of this reporting year, the mandate holder Avadis Immobilien AG is directly charging indi-vidual properties for part of the administrative costs in the form of fees for services rendered in the fields of acquisitions and sales as well as com-prehensive renovations and conversions. These charges will be reflected in the properties’ balance sheets. The costs will be credited to the ordinary mandate fees and will therefore not increase the total cost, nor will they provide any false growth incentives. Instead, they will improve compara-bility of the reported TER figures at the industry level.

Acquisitions and DisinvestmentsIn the reporting year, the Foundation’s fresh in-vestments in the amount of approx. CHF 250 mil-lion focussed on two top-quality, modern prop-erties in first-class, highly-frequented central locations in the USA. These purchases increased our US investment quota from just under 15% to 24% in September 2015.

As cyclic investments, the acquisitions made in financial year 2014/2015 carry comparably low initial returns which are partially offset by long tenancies, foreseeably low letting costs and po-tential further returns via the reduction of va-cancies. Early-cycle or counter-cyclic acquisition opportunities could not be identified in AFIAA’s worldwide target markets. AFIAA will continue to search for such opportunities, both in established and in new markets.

AFIAA Annual Report 2014/2015 7Annual Report | Foundation Board

The disinvestment of properties which are no longer a perfect fit with our strategy also repre-sented an important step in the strategic devel-opment of our portfolio. All in all, the total sales volume in the reporting year amounted to approx. CHF 80 million, while capital gains of CHF 6 mil-lion contributed 55 basis points to the return on equity.

Cooperation with the Avadis GroupAvadis Immobilien AG has been entrusted with the operational management and administration of our Investment Foundation since October 2014. All of AFIAA’s staff members in Switzerland were taken on by the newly established management company, Avadis Immobilien AG (AVIM). The strategic partnership between Avadis and AFIAA is underpinned by interlocking membership of the Board of Directors / Foundation Board as well as the co-optation of an Avadis representative to AFIAA’s Investment Committee.

Staffing ChangesIn his capacity as representative of the pension fund of Basel-Stadt, Mr Beat Bommer had been a member of the Foundation Board since Janu-ary 2009 and of the Investment Committee since August 2014. Having been appointed Head of Property Management of the city of Biel in August 2015, he left both executive bodies in the course of this change of career. The Foundation Board would like to take this opportunity to thank Mr Beat Bommer for his outstanding commitment and work on behalf of AFIAA and his constructive cooperation on the two executive bodies. We wish him all the best for his future.

Since the pension fund of Basel-Stadt is AFIAA’s second biggest investor, the Foundation Board would like to count a new representative of Basel-Stadt among its members. It will therefore nomi-nate Mr Max-Eric Laubscher, Head of Asset In-vestments at the pension fund of Basel-Stadt, for election at the investors’ meeting in 2016.

Among AFIAA’s priorities is the strengthening of the investor base in French-speaking Switzerland. We are convinced that Mr Marçal Decoppet, Di-rector of the Copré Foundation, who will be nomi-nated for co-optation to the Foundation Board at the next investors’ meeting, will make a valuable contribution in this field.

In the reporting year, Mr Bardo Magel joined the Foundation as new member of the Management team and Global Head of Asset Management. Mr. Matt Scholl, Head of Acquisitions North America, took over the management of our Manhattan of-fice from Mr. Chris Duisberg, who has embarked on a new career.

Development of the Investor Base In financial year 2014/2015, AFIAA gained three new investors from West Switzerland, namely the pension funds of the Swiss Association of Phar-macists, the Canton of Jura and CAP Prévoyance. A further three institutions from the German-speaking region, Swissbroke Vorsorgestiftung and the pension funds of the Swiss Salvation Army and Thurgauer Kantonalbank, also became members. The Foundation Board extends a cordial welcome to the new investors and thanks all previous in-vestors for the trust they are placing in us and the support they are giving us in the pursuit of our growth strategy.

Outlook and AcknowledgementThe Foundation Board is convinced that invest-ment in AFIAA will become even more attractive to pension funds in the future. This attractiveness will no longer be based on significant additional returns on foreign real estate investments com-pared to the Swiss market, as it used to in the past, but instead on the growing importance of diver-sification in markets with a weak or negative cor-relation.

The excellent operational result achieved in the past financial year is primarily due to the out-standing commitment shown by Management and staff, both in Switzerland and abroad. The Foun-dation Board would like to take this opportunity to thank the entire staff for their successful work on behalf of the Foundation. We trust that we can continue to count on you in the years to come!

Zurich, December 2015

On behalf of the Foundation Board

Prof. Dr. Peter Forstmoser, Chairman

8 AFIAA Annual Report 2014/2015Annual Report | Investment Committee

Progress ReportIn financial year 2014/2015, the Investment Com-mittee (IC) held three ordinary meetings and a two-day workshop. Four transactions were decid-ed via teleconference and two selling applications by correspondence.

The annual IC workshop took place in Lisbon and Málaga in June 2015, giving the committee an opportunity to inspect the property and location quality as well as the occupancy situation at the ‘Espace & Explorer’ properties, which had been acquired at the end of 2013. The two buildings have benefited from Portugal’s economic recovery and are currently fully occupied. From an own-er’s perspective, the ‘Poligono Industrial’ logis-tics property near Málaga, which was acquired in 2008, appeared less promising. Low rent levels, high vacancy rates in the region and slow redevel-opment of the grounds, not to mention the overall economic situation, would have complicated any follow-up rental after the planned departure of the current tenant. According to on-site analysis, given the fact that the property was no longer in line with the Foundation’s strategy, its swift sale to the current user was the right strategy. The sale was performed after the balance sheet date in Oc-tober 2015.

As requested by the Foundation Board, the In-vestment Committee assessed a model designed to define a target return for property acquisitions. In contrast to the previous static target return of 4.5%, the proposed dynamic model is based on al-ternative acquisition returns that can be generated on the Swiss market. Among other factors, it also includes the additional costs incurred in countries outside Switzerland, for instance investors’ cur-rency hedging costs. The last details of the model are still under discussion.

Also at the Foundation Board’s request, the IC conducted a self-evaluation. The results will be used to facilitate the Foundation Board’s human resources planning.

Well-established Assessment ProcessCooperation within the IC and with Management is well-established. The decision-making docu-ments are extensive, transparent and well-sup-ported. The operational management subjects property quality, return prospects and risks to a realistic, straightforward and factual assessment. Furthermore, at the beginning of the due diligence process, at least one committee member inspects the acquisition properties in person and, in addi-

Investment Committee Report

tion to Management, delivers a report directly to the IC.

Acquisition applications are generally approved subject to further due diligence procedures. Man-agement records the results of the additional pro-cedures together with the previous conclusions from the due diligence process in a comprehensive report.

Also after the acquisition of a property, Manage-ment prepares regular reports on the development of the acquired buildings. Any deviations from the requested total investment costs are accounted for in the form of a final purchase price statement. Further audits are conducted during the warranty periods beyond the acquisition date and respective reports are submitted to the IC.

Improved Portfolio QualityThe IC is not only consulted in respect of all acqui-sition and sales transactions, Management mem-bers also submit regular reports on successful and challenging developments in the portfolio and on their specific areas of responsibility. The Portfolio Management compiles the relevant details relat-ing to the investment group in a comprehensive Investment Report which is subject to continuous improvement and provides information on trans-actions, portfolio structure, occupancy situation, performance aspects and strategic orientation.

In the last few years. AFIAA has classified a num-ber of properties as out of line with strategy and prepared them for sale according to a defined order of priority. In the reporting year, the sales team managed to dispose of five properties, thus taking a big step towards adjusting the portfolio. Based on current market values, approx. 5% of the Foundation’s properties are still for sale.

Thanks to this step and the acquisitions described below as well as a positive rental performance, the portfolio stabilised further. Aside from a reduc-tion of the rent default rate by approx. 1.7 percent-age points, the Foundation’s positive operational performance is also reflected in a longer average tenancy term of 5.5 years and an increase in the property rating to 4.7. Ten properties have been awarded a sustainability rating.

Acquisitions in Prime LocationsAs regards acquisitions, the identification and se-curing of suitable investments with acceptable ac-quisition returns remains one of the Foundation’s biggest challenges. Global pressure exerted by institutional and wealthy private investors, as well


as the record-low interest rate level, have been driving prices up for years. Competition is in-creasingly based on concessions in the acquisition process and extremely seller-friendly agreements. The exclusive periods granted for due diligence processes are getting shorter on the market and sellers’ warranties and guarantees are being mini-mised. In the case of several properties, AFIAA’s bids were not accepted because its quality-based due diligence process was not compatible with the seller’s timetable. In the case of some other prop-erties, competitors’ bids were significantly higher.

Nevertheless, the acquisition of as many as three high-quality, thoroughly renovated core proper-ties with a total volume of approx. CHF 250 mil-lion made an important contribution to growth in the reporting year. In December 2014, the ‘Bron-dankulma’ property was acquired in Finland. The office building is located in the centre of Helsinki, directly on ‘Esplanadi’ promenade. Both the prop-erty’s excellent location and the above-average length of its tenancy agreements were decisive for the acquisition.

In the following quarter, AFIAA acquired the ‘Arch Square’ retail and office building in a prime retail location on the gates of China Town in Washing-ton D.C. Again, the building distinguishes itself through its highly frequented location and long-term tenancy agreements.

The US allocation was raised further in summer 2015 thanks to the acquisition of the ‘501 Con-gress Avenue’ property in Austin, Texas. ‘Congress Avenue’ is the most illustrious street in down-town Austin. The building complex also borders 6th Street, which is part of the main nightlife and shopping district.

I would like to take this opportunity to thank all those involved for their outstanding commitment.


On behalf of the Investment Committee,

Dr. Thomas Wetzel, Chairman

Annual Report | Investment Committee

10 AFIAA Annual Report 2014/2015Annual Report | Management Board

Corporate DevelopmentIn the past financial year, we consistently con-centrated on implementing our strategic parame-ters. In line with our investors’ interests, AFIAA’s defined portfolio-specific priorities consisted of quality-oriented and budget-conscious growth fo-cussing on the North-American market, a further increase in the portfolio’s quality in keeping with the dedicated core strategy, the sale of non-stra-tegic properties, a reduction of vacancy rates and the preparation of imminent large-scale tenancy agreements.

As regards structures and processes, the consoli-dation of our collaboration with Avadis, the inte-gration of the new Global Head of Asset Manage-ment and organisational adjustments in our New York office took precedence.

Given the current conflict between rising pres-sure on acquisition returns and our consistently high quality requirements, the Foundation’s tar-get return threshold had to be revised in consid-eration of the interests of the current investors. In the context of our regular investment profile review, initial studies of new investment markets were conducted on the basis of our tried and test-ed exclusion criteria relating to the rule of law, transparency and corruption.

Cooperation with our new colleagues within the Avadis structure has commenced. Thanks to regular assessments in the context of workshops and mutual exchanges between staff members in daily business situations, this collaboration is be-ing optimised on an ongoing basis, including the definition of responsibilities and the enhance-ment of processes. At present, our focus is on the operational implementation of growth support and a concentration of the different sites in Ger-man-speaking Switzerland.

The joint provision of a number of support func-tions promises certain synergies as well as great-er stability and improved availability. Since a number of existing service agreements have flexible expiry dates, external partners can be switched in the short-term, allowing the organi-sations to benefit from their combined buying power.

As regards our joint market appearance, the advantages of the new structure consist of pro-duct range complementation and an expansion of customer relationships in view of providing comprehensive customer service to our investors. A central CRM solution is to secure the required

Report of the Management Board

system and technological support for our sales activities.

Successful Letting PerformanceBoth new and extended tenancies performed well. In the reporting year, the letting rate im-proved substantially while rent levels remained stable or increased slightly.

Numerous conclusions of tenancy agreements in our multi-tenant buildings made a substan-tial contribution to this performance. At 95% and 97%, respectively, as per the balance sheet date or just thereafter, the ‘400 West 15th Street’ property (previously ‘Wells Fargo Tower’) in Austin and the ‘Westfalen Center’ in Dortmund achieved the best letting rates ever. Vacancy rates were also reduced in the ‘Classical Service Center’ property in Münster Wolbeck and in our Salz-burg sub-portfolio while remaining lease terms went up. The ‘Romeo & Julia’ building, which was acquired in 2013, developed as planned. Ten-ancy agreements were extended for several floors and vacant space was rented. Since its acquisi-tion, the vacancy rate has dropped substantially, from 15% to 11%, and the weighted average lease term has increased considerably to 5.5 years.

The ‘Elston Logan’ property in Chicago, the ‘Espace & Explorer’ in Lisbon and the ‘Quarter-mile 2’ in Edinburgh are all fully rented. Thanks to our investment in the facade of the ‘Big Biz’ building in Vienna, the property’s visual appear-ance has become even more attractive and the entire building is now rented. Its weighted aver-age lease term almost doubled to approximately eight years.

The sale of the ‘Datacolor’ properties in Lüne-burg and Öh rin gen, which had been vacant due to bankruptcy, also improved our rent default rate. The latter dropped from 8.25% in the previ-ous year to 6.61%.

The ‘Campus Bravo’ property in Munich, which has been practically empty since June 2015, has been placing a strain on the letting performance in the last few months. Negotiations are currently ongoing with several prospective tenants.

As of 2018, further large-scale tenancy agree-ments in the portfolio will be up for extension. In this context, a budget for extensive construction measures has been planned. This will affect two key tenants in the ‘Garrard House’ property, Lon-don, and a number of single tenants in the ‘Atri-um’ building, Sydney. An early opportunity for

AFIAA Annual Report 2014/2015 11Annual Report | Management Board

more profitable occupancy through repositioning and reletting may come up for the ‘Arch Street’ building in Philadelphia. A detailed overall con-cept is currently being prepared.

The conditions necessary for a successful relet-ting performance are being created through an expansion of the Asset Management’s construc-tion management unit (since 1 October 2015) and the preparation of new development projects and letting concepts.

Portfolio Development in Line with StrategyAccording to the Portfolio Management, the central objectives for the past financial year con-sisted of a continuous increase in the portfolio quality via the purchase of core properties and the performance-maintaining sale of properties that are no longer in line with strategy. In geo-graphical terms, the focus has been, and still is, on the further expansion of a balanced weighting between the global regions, with a higher North-American quota taking precedence. Ideally, ear-ly-cycle priorities in the acquisition strategy will make a positive contribution to performance.

In the context of this strategic direction, Manage-ment regularly assesses individual property strat-egies and adjusts sales priorities and concepts where necessary.

In the course of the regular country selection review, market studies have been prepared, lo-cal research conducted and local networks estab-lished in preparation for the Foundation’s entry into new regions. In specific, the focus is current-ly on New Zealand and may include Japan and Poland in the future. We are also looking into several South-American markets.

Before embarking on any costly, in-depth as-sessment of a concrete investment opportunity, Management requests the Foundation Board to release the specific investment country and the Investment Committee to add the respective cit-ies to the investment profile.

Thanks to booming investment markets with dy-namic growth rates, our sales team made further progress with portfolio optimisation based on the Foundation’s clearly defined core strategy. The reporting year saw the successful disposal of as many as four non-strategic logistics/production properties (the two manufacturing and logistics buildings in Lüneburg and Öhringen, Germany, the logistics centre in Groveport, Ohio and the ‘Tele Haase’ commercial property in Vienna).

On top of this, the logistics property in Casaber-meja near Málaga, Spain, the last of its kind in the portfolio, was sold after the balance sheet

date. The ‘Market Street’ building in Philadel-phia was disposed of during the reporting year at a price far in excess of its book value. Owing to various factors, such as size, unusually high an-cillary costs, a maintenance bottleneck and high local letting costs, the office building no long-er complied with our quality requirements. All other disposals also made a positive performance contribution – a clear sign of near-market to con-servative valuation rates.

Breakthrough in the USAIn the reporting year, the Foundation managed to acquire as many as two first-class, modern com-mercial properties on the highly competitive US market. The ‘Arch Square’ in Washington D.C. and the ‘501 Congress Avenue’ in Austin, two prime properties, are both situated in a highly-frequented central location. Thanks to these ac-quisitions, the US allocation has risen to 24.1% (14.6% as per September 2014). Not long after this success, in December 2014, the Foundation announced the purchase of the ‘Brondankulma’ building in Helsinki, another trophy property that had been thoroughly renovated in the recent past.

Aside from their impressive property and loca-tion quality, all three acquisitions also share the advantages of optimum property volumes, mixed office and retail use and above-average lease terms of 8 to 13 years on average. These qualities are reflected in the high ranks the three proper-ties already occupy in our internal rating system.

The quality level of the ‘501 Congress Avenue’ property, Austin, is set to rise further with planned LEED Silver or LEED Gold sustainabil-ity certification and the conclusion of tenancies for any remaining vacant floor space. Thanks to its expertise in this market, AFIAA is confident that any vacant floor space in the ‘501 Congress Avenue’ property will be rented in the near fu-ture, leading to increased returns.

The excellent letting performance, the disposal of lower-quality properties and the above-men-tioned acquisitions all combined to push up the portfolio’s weighted average rating from 4.46 in the previous year to 4.70 in the reporting year.

The successful acquisitions in 2014/2015 should be seen as cyclic investments. To some degree, comparably low acquisition returns are being offset by long tenancies, foreseeably low letting costs and potential returns through vacancy re-duction. Hardly any early-cycle or counter-cyclic acquisition opportunities were identified in the established global investment markets we focus on. We will continue to search for such opportu-nities, both in established and in new markets.

12 AFIAA Annual Report 2014/2015

Record-breaking Operational Performance and Exchange Rate LossesDue to exchange rate developments and portfo-lio adjustments, the direct investment portfolio grew by a mere 7.66% to CHF 1 279.7 in the re-porting year despite the three acquisitions. All in all, properties with a total volume of approx. CHF 250 million were acquired while the sale of five properties brought in total net proceeds of around CHF 80 million.

The impact of exchange rate developments on the real estate portfolio amounted to CHF −100.4 million. Changes in value amount-ing to CHF 19.5 million, which were on balance clearly positive, contributed 175 basis points to the return on equity and originated predomi-nantly from the USA. At plus 16.26%, the ‘400 West 15th Street’ (previously ‘Wells Fargo Tow-er’) property in Austin which had been acquired in 2008, recorded a significant gain in value compared to last year’s appraisal. This is mainly due to the substantially higher occupancy rate of 95% compared to 78% in the previous year, an increase in market rents of up to 7% and fewer letting incentives. The valuation also reflects the current pressure on acquisition returns. The property’s discount rate has declined by 50 ba-sis points to 7.50% while the other US properties in the portfolio recorded a two to seven per cent increase in value.

The disposal of the ‘Rohr Road’, Groveport, and ‘Market Street’, Philadelphia, properties brought in net proceeds of 6.26% and 27.53% above book value, respectively.

The ‘Poligono Industrial’ property in Málaga, the last remaining logistics property in the portfolio, recorded a substantial value correction of CHF 3.0 million. With its rent significantly exceeding the market level in the last few years, the tenant exercised its option to terminate the agreement as per 2016. The chances of an attractive relet are remote. Numerous logistics properties in the re-gion are vacant and very few large-scale tenancy agreements have been concluded in the recent past. Due to this dearth of market transactions, a reliable valuation is difficult to prepare. In the context of the last valuation, the assumed rent level for a relet was revised down by around 40% and substantial reletting costs were added. As per the balance sheet date, the property was offered for sale at its book value and was successfully dis-posed of in October 2015.

As expected, ‘Espace & Explorer’, the early-cycle acquisitions made in 2013, recorded further in-creases in value due to full occupancy. All in all, these Portuguese properties gained as much as 13.03% in the reporting year.

Value fluctuations in the UK, Austrian and Ger-man sub-portfolios were of minor significance, with German properties following heterogeneous developments. The 16.38% decline in value of the ‘Campus Bravo’ building in Munich is due to the departure of the tenant. Higher reletting costs and a higher property yield were assumed in the valuation. A significant value recovery is ex-pected after the conclusion of the ongoing relet-ting negotiations. The increase in value achieved through successful letting activities, especially at the ‘Westfalen-Center’ in Dortmund and the ‘Ro-meo & Julia’ building in Frankfurt, largely offset the decline in value of the Munich property.

The value of our French ‘Rue Lauriston’ prop-erty declined by 3.06%. Due to its planned sale to a developer, no further tenancies were con-cluded and the vacancy rate increased. Although this development affects the property’s estimated value, it has no impact on the negotiated pur-chase price. At minus 0.34%, the overall value of the Australian sub-portfolio remained more or less stable. Market-related increases in the val-ues of the ‘HQ South’ property in Brisbane and the ‘Flinders Street’ property in Melbourne were juxtaposed with an expected property-specific de-cline in the value of the ‘Atrium’ in Sydney owing to a reduction in the remaining lease term of the main tenant.

Further cuts in administrative expenses were achieved in relation to the invested equity. Ac-cording to our calculation methodology, which has been adapted to industry practice, a TERISA (NAV) of 63 basis points results for original investors and considerable reletting costs in Tranche A-I. Taking the management commis-sion into account, the resulting ex ante expense ratio for investors in Tranche A-II is 88 basis points.

With invested equity of CHF 1 111.0 million, AFIAA’s net result of CHF 62.9 million (previous year: 51.6 million) is the best cash flow result in the Foundation’s history. Aside from the highest occupancy rate ever achieved, a few non-recur-ring effects also contributed to this above-aver-age result: Maintenance reserves set up for the commercial properties in Lüneburg und Öhrin-gen (Germany), which had not been used before the sale of the properties, were released with an effect on net income. On top of this, a tenant at the ‘Market Street’ building in Philadelphia, which has meanwhile been sold, made a substan-tial compensation payment and, lastly, a liquida-tion dividend was collected from AFIAA Invest-ment AG, a former management company owned by the Foundation. These non-recurrent effects contributed around CHF 4.3 million to the Foun-dation’s net result. The ensuing return on equity, including appreciation gains and before currency

Annual Report | Management Board


gains/losses, amounts to 6.85% (previous year: 6.31%).

The Foundation’s excellent operational perfor-mance was overshadowed by the suspension of the CHF/EUR minimum exchange rate on 15 January 2015. As a non-securitized product for foreign investment, AFIAA is fully subject to translation risks. The investors are responsi-ble for the currency hedging concept. Weighted at the respective net currency allocations, the Swiss Franc went up around 8% against our in-vestment currencies in the reporting year. This placed a corresponding strain on the net asset and earnings positions, which are measured in Swiss Francs. Margins are hardly affected by the new currency relations since, with the exception of administrative costs incurred in Switzerland, both income and expenses are denominated in foreign currencies. The operating profit margin remained more or less stable at 84.05% (85.14% as per September 2014).

Considerable Inflow of Fresh MoneyIn support of the Foundation’s sales strategy, previous activities and publications, such as newsletters, press releases and expert articles, were maintained and optimised in close collabo-ration with the communications officers at the joint service centre of the Avadis Group. As in the past, aside from our regular presence in the spe-cialised media and our attendance at panel dis-cussions, we are concentrating on individual and personal exchanges with our investors at the cen-tre. An excellent sales performance was achieved via Avadis’ local structures, particularly in the French-speaking part of Switzerland, and three new investors from this region joined AFIAA in the reporting year.

In addition, a further three pension funds in the German-speaking region have placed their trust in us. Regular direct enquiries from investors reflect a rising interest in real estate investments abroad.

Regrettably, we also lost an investor for the first time in the history of the Foundation. A smaller public-law pension fund withdrew from the for-eign property investment segment due to the re-organisation and streamlining of its asset invest-ments. Two further pension funds have failed to confirm their investment intent after the launch of Tranche A-II, which is subject to charges.

In the reporting year, AFIAA received capital commitments in the amount of CHF 120 million. Increases by existing investors account for half of the fresh commitments, the other half was made by new investors. At present, as many as 40 pen-sion funds are working with AFIAA. Capital com-mitments of CHF 221.5 million outstanding as

per the balance sheet date secure the financing of two further acquisitions. This financial lead time is perfectly within our target range. After the bal-ance sheet date, a further release order was trig-gered in the context of a debt capital repayment and a further property acquisition. Fresh capital commitments are still being accepted.

Staffing MattersIn the course of our cooperation with Avadis a number of staff members transferred to a joint service centre. In the reporting year, three staff members left and three new employees joined the Foundation. The fluctuation rate amounts to 11.11% (previous year: 7.41%).

Bardo Magel, the new member of the Manage-ment Board responsible for global asset manage-ment, took up his post in December 2014. After a short familiarisation phase, he soon went on to set important priorities in the letting field. The newly created position of Senior Develop-ment Manager was filled in October 2015. This expansion of the Asset Management department creates the staffing conditions necessary to deal with imminent large-scale tenancies and prop-erty re-positioning. A further expansion of the acquisition department is scheduled for financial year 2015/2016. In June 2015, our New York of-fice was reorganised under its new manager Matt Scholl (Head of Acquisitions North America). At the same time, the administrative management of the office was conferred to Albena Ramche-va. In summer 2105, once the previous tenancy agreement had expired, the five members of our US staff in 7 Penn Street, Manhattan, moved to a new, modern office close to the station.

Outlook and Future ChallengesIn the coming financial year, we will continue to strive for a positive letting performance. It is our ambitious aim to keep the vacancy rate at the current low level, or even reduce it further, de-spite the expiry of several tenancy agreements. With a view to preparing major medium-term ex-pansion and reletting projects, further key objec-tives consist of the integration and induction of the Senior Development Manager and the estab-lishment of the respective project structures. We also intend to sell further non-strategic proper-ties in 2015/2016.

As regards the implementation of our growth strategy, the identification and securing of suita-ble acquisition properties with acceptable returns will remain a major challenge. AFIAA wants to be seen as a professional and reliable partner of-fering market-driven investments. With respect to managing investor expectations, we primarily focus on reconciling the interests of original and new investors and creating a consensus on realis-tic target returns.



While in the past, market players with foreign real estate holdings expected, were promised and, in some cases, actually received significant additional returns compared to the Swiss mar-ket, for comparable quality, sound arguments in favour of the segment are now availability and di-versification. In the future market environment, value gains are increasingly losing their role as a performance lynchpin. Reliable due diligence in the acquisition phase, dependable income re-turns and consistent management of the portfo-lio via close control of local partners by our own staff onsite are thus becoming all the more im-portant.

As regards our collaboration with Avadis Vor-sorge AG, the next step is further consolidation of our core market cultivation activities.


On behalf of the Management of Avadis Immobilien AG,

Norbert Grimm



Romeo & Julia, Frankfurt


PKE Pensionskasse Energie Genossenschaft

PKE Vorsorgestiftung Energie


KPMG Pension Fund

Annual Report | Investors

Investors


1 without voting rights

Organisational Structure

Foundation BoardProf. Dr. Peter Forstmoser, ChairmanProf. Dr. Alfred Storck, Vice ChairmanBeat Bommer, MemberCarlo Garlant, MemberChristoph Oeschger, MemberAdrian Wipf, MemberLivia Gallati, Secretary 1

Investment CommitteeDr. Thomas Wetzel, ChairmanDr. Christoph Caviezel, Vice ChairmanBeat Bommer, Member 1

Thomas Frutiger, MemberDr. Steffen Metzner, MemberIvana Reiss, Member 1

Stefan Schädle, MemberLivia Gallati, Secretary 1

Management CommitteeNorbert Grimm, CEOMartin Brendel, Head of Acquisitions GlobalBardo Magel, Global Head of Asset Management Reto Schnabel, CFOGabriele Wolfram, Head of Portfolio Management

AuditorsErnst & Young AG, Zurich

Valuation ExpertsWüest & Partner AG, Zurich Pascal Marazzi-de Lima

Custodian BankZürcher Kantonalbank, Zurich

Annual Report | Organisational Structure


Market valuesin thousand CHF 30.09.2015 30.09.2014 In/decreaseMarket value of direct investments 1 279 726 1 188 686 + 7.66%Market value of indirect investments 5 147 5 354 − 3.87%Total investments 1 284 873 1 194 041 + 7.61%

Outside capitalin thousand CHF 30.09.2015 30.09.2014 In/decreaseMortgage loans (direct investments) 171 202 207 517 − 17.50%As % of market value of total investments 13.32% 17.38% − 23.33%As % of market value of direct investments 13.38% 17.46% − 23.37%

Net assetsin thousand CHF 30.09.2015 30.09.2014 In/decreaseNet assets as per the asset account 1 110 950 1 038 277 + 7.00%Net asset value per share (CHF) 108.2669 114.0223 − 5.05%Net assets per share, adjusted for dividend (CHF) 122.4539 125.1180 − 2.13%

Sharesin units 30.09.2015 30.09.2014 In/decreaseOutstanding shares 10 261 217.2288 9 105 916.0690 + 12.69%Redeemed shares 0 39 587.5689 − 100.00%

Capital commitments by investorsin thousand CHF 30.09.2015 30.09.2014 In/decreaseCapital commitments 1 340 962 1 224 958 + 9.47%Capital calls (1 119 512) (990 633) + 13.01%Capital call rate 83.49% 80.87% + 3.23%

Each capital call transaction is calculated retro-spectively and converted into shares. There were no unconverted capital calls as per the reporting date. (previous year: CHF 0).

Key Figures as of 30/09/2015

AFIAA’s Key Qualities

Strong Values (USPs)

• Risk-adequate performance

• Cost-efficient management

• Optimum structure not based on fees (no con-flicts of interest)

• High degree of stability

• High level of transparency

• Independence from banks

• Qualified partners (independent valuation ex-perts, auditors, custodian bank)

• Active participation of investors

• Management by well-established pension funds and reputable real estate experts

• ‘Swissness’: Swiss staff assigned to target markets

• Over ten years of successful investment per-formance

• Professionalism

Annual Report | Key Figures


Reference Values from the Investment ProfileOur management approach in the past financial year continued to be dominated by the consistent pursuit of our core acquisition strategy and the envisaged development of our portfolio in terms of volume and quality. Both the numerous transac-tions required to achieve our targets and the franc shock in January resulted in significant regroup-ing of the portfolio.

Thanks to a positive transaction balance in North America, we managed to achieve the long-term envisaged expansion of our geographic alloca-tion in this region. The North America quota now amounts to 24%, an increase of 10 percentage points over the previous year. The two acquisi-tions in Washington D.C. and Austin meet our high quality requirements in every respect and are making a positive contribution to the diversifica-tion of the portfolio.

Our purchase of the ‘Brondankulma’ property in Helsinki has also contributed to further diversifi-cation and has opened up a new market on top of this. With AFIAA having expanded its focus on the Nordics (Finland, Sweden, Norway, Denmark) for some time now, the ‘Brondankulma’ property was a perfect opportunity to acquire a recently reno-vated and fully rented building in a prime Helsinki location.

The sale of properties in Lüneburg, Öhringen, Groveport (Ohio), Philadelphia and Vienna has also had a positive impact on the portfolio. Among other objectives, these strategic sales were carried out to achieve a further long-term improvement of the portfolio’s quality and risk profile. Thanks to the sales, the logistics/production occupancy category was removed from the portfolio. This objective was largely achieved in financial year 2014/2015 when the share of the logistics/pro-duction occupancy category was reduced to 0.1%, from 5.3% in the previous year. The last remaining logistics property in Málaga was sold shortly after the end of the financial year.

The properties’ age and location structure has also improved. Despite natural ageing in the portfolio, compared to the last financial year, the average property age was reduced by half a year to approx-imately 12 years. In addition, due to regrouping in the portfolio, 75% of the properties (weighted according to market value) are now in CBD loca-tions. Furthermore, the number of buildings with a Green Building Rating was raised from five to

Portfolio Management Report

ten, accounting for approximately 42% of the total property volume.

At the strategic level, the consistent global decline in yields continues to represent a major challenge. In this environment, given the current returns associated with the location and property qual-ity required by AFIAA, it is particularly difficult to maintain the portfolio’s return level for new in-vestments without taking additional risks. Hence, aside from intentional cyclical investment in core markets, we consider the addition of top locations in alternative markets with an attractive risk/re-turn profile to be an expedient strategy. In this context, we continue to view Poland as an attrac-tive medium-term market.

The consistent implementation of our core strat-egy will continue to dominate AFIAA’s activities in the future. Our main objective has been, and con-tinues to be, the provision of a first-class product with an attractive risk/return profile to potential investors.

Sales Progress ReportIn terms of sales, the past financial year was ex-ceptionally successful. All in all, the company sold five properties in three countries with a total vol-ume of approximately CHF 80 million. The sales, which were of a strategic nature, were carried out to remove properties from the portfolio that no longer meet the requirements of AFIAA’s core strategy.

To start with, the company concentrated on the sale of two smaller production properties in Ger-many which had been vacant due to the tenant’s bankruptcy. Owing to restricted alternative uses, marketing of this property was difficult. Following intensive efforts, both properties were sold to new owner-occupiers during the financial year: the property in Lüneburg in November 2014 and the property in Öhringen in June 2015.

Further real estate in the logistics/production category was sold in January 2015. The logistics property covering an area of approximately 15 football pitches in Groveport, Ohio, was bought by a US value-add investor. Both the occupancy category and an impending medium-term deterio-ration in tax terms were the main reasons for the transaction.

At the beginning of September, another US prop-erty was sold. The office building in Philadelphia, which had a fragmented tenancy structure, no longer fitted into the company’s strategy due to

Annual Report | Portfolio Management


several reasons, chief among them high base va-cancy, above-average letting and ancillary costs and high internal administrative expenses for a comparably small volume. The property looked particularly attractive to project developers and was swiftly sold to a local developer.

Sales in financial year 2014/2015 were rounded off by the sale of a production property on the outskirts of Vienna at the end of September. The property, which no longer fitted into the portfolio due to its occupancy category, was sold to a group of private investors.

On average, the sales were effected at approx. 10% above book value. Not only did our active adjust-ment strategy generate attractive additional re-turns for our investors, it also resulted in a sub-stantial improvement of the portfolio quality.

With the aim of continuously optimising our pro-duct, we are envisaging further sales in the com-ing financial year. This proactive approach allows AFIAA to offer investors a portfolio whose quality and risk/return profile meet the highest stand-ards.

In the following, we will juxtapose the ranges specified in the investment guidelines with the actual portfolio breakdown as per 30 September 2015.

0 10 20 30 40 50 60 70 80 90 100%

24.1%

60.2%

0.0%

0.0%

0.0%

15.7%

Specified bandwidth

All other countries

East and South East Asia, Oceania

Central and South America

North America

Non-EU member states

EU member states as at 01/01/2013

Geographical Allocation

Investment GuidelinesEurope (excluding CH) 20 – 80%

EU member states as at 01/01/2013

20 – 80%

Non-EU member states 0 – 20%America 0 – 40%

North America 0 – 40%Central and South America 0 – 20%

Asia/Oceania 10 – 40%East and South East Asia, Oceania

10 – 40%

All other countries 0 – 20%

Restriction per country max. 40%.

Breakdown by RegionIn the past financial year, our direct and indirect investments were located on three different con-tinents. Europe remains our main focal point. A 10 percentage point increase over the previous year ensured that the envisaged rise in the propor-tion of North American investments was achieved during the reporting year.



24.1%

60.2%

15.7%

North America

Europe

Asia/Oceania

24.7%

18.6%

24.1%

0.1%1.3%

15.7%

7.2%

3.0%5.3%

Spain

United Kingdom

Germany

Australia

USA

Austria

FrancePortugal

Finland


Breakdown by CountryOur three core markets consist of the UK, the USA and Germany which, together, account for just under 70% of the portfolio. Thanks to the acquisi-tion of the ‘Brondankulma’ property in Helsinki, Finland has become the latest new market to join the portfolio.

22 AFIAA Annual Report 2014/2015Annual Report | Portfolio Management

Allocation According to Investment Strategy

Investment GuidelinesCore / Core+ 75 – 100%Value Added 0 – 20%Opportunistic 0 – 5%

In the past financial year, the share of the ‘value added’ segment was reduced by just under 3% mainly due to the sale of properties that were no longer in line with our strategy. The small ‘oppor-tunistic’ segment consists of our indirect invest-ment in the AIG U.S. Residential Fund.

Investments Broken Down by CurrencyBoth before and after outside capital, the largest share of our investments remains denominated in euro, followed by the British pound and the US dollar.

0 10 20 30 40 50 60 70 80 90 100%

Opportunistic

Value Added

Core / Core+

0.3%

10.0%

89.7%

Specified bandwidth

0 5 10 15 20 25 30 35 40%

CHF

AUD

USD

GBP

EUR36.1%

35.7%

24.4%

26.5%

24.2%

21.8%

15.3%

16.0%

0.0%

0.0%

Net

Gross (before deduction of outside capital)

AFIAA Annual Report 2014/2015 23Annual Report | Portfolio Management

Allocation According to Type of Use

Investment GuidelinesOffices 35 – 100%Retail 0 – 50%Logistics 0 – 15%Miscellaneous (hotels, parking, residential, restaurants)

0 – 10%

The aim of divesting the portfolio of all logistics properties was almost fully achieved in the past financial year. The only remaining property near Málaga, which was still part of the portfolio as per 30 September 2015, was sold after the balance sheet date.

Tenant SectorsMost of our tenants are active in the financial and insurance sector, followed by consultancy firms (law firms, etc.). Together with trading companies,

0 10 20 30 40 50 60 70 80 90 100%

84.7%

12.1%

0.1%

3.1%

Specified bandwidth

Miscellaneous

Logistics

Retail

Offices

0 5 10 15 20 25 30%

28.2%

22.0%

11.4%

8.9%

5.4%

4.5%

3.1%

2.8%

1.9%

1.8%

9.9%Other

Tourism / Hotel and Restaurant Industry

Energy/Utilities

Gastronomy

Transport/Infrastructure

Public Administration

IT/Telecom/Electronics

Retail

Real Estate / Construction

Consulting Companies

Finance & Insurance

The substantial increase in the share of the ‘re-tail’ segment compared to the previous year was predominantly due to the acquisition of the ‘Arch Square’ property in Washington, D.C.

which have made it into the top 3, these three sec-tors account for close to two-thirds of our portfo-lio.

The 10 main sectors in the AFIAA portfolio broken down by share in net rent

24 AFIAA Annual Report 2014/2015Annual Report | Portfolio Management

Residual Terms of Tenancy AgreementsAround two-thirds of net rental income in the portfolio is generated from tenancy agreements with residual terms of three years or longer. The weighted residual term of the tenancy agreements is 5.5 years.

0

5

10

15

20

25

30%

1.4%

24.8%

11.7%

28.5%29.6%

3.9%

> 15 y

ears

10–1

5 yea

rs

5–10

year

s

3–5 y

ears

1–3 y

ears

< 1 ye

ar

The Five Largest TenantsThe five largest tenants account for more than 40% of the net rental income in the portfolio.

1. Schroders Investment Management

2. American Express

3. Jones Day

4. Leighton Contractors

5. Walgreen

AFIAA Annual Report 2014/2015 25Annual Report | Portfolio Management

Age Distribution of Direct InvestmentsProperties under ten years old account for close to 60% of the direct investment portfolio. Based on market values, the weighted average age was re-duced from 12.9 years to 12.2 years despite natu-ral aging. This was mainly due to the sale of older properties and the simultaneous acquisition of almost new properties.

0

100

200

300

400

500

600

> 1511–155–10< 5

363.3

156.0

511.1

249.3

∅ weighed: 12.2 years

years

Mio CHF

0

2

4

6

8

10

12

09/201509/201409/201309/201209/201109/201009/200909/200809/2007

6.8%7.4%

11.4%

14%

9.7% 9.5%

8.2% 8.3%

10.2%

6.6%

Rent Default RateCompared to the preceding year, the rent default rate went down 1.7 percentage points to 6.6%.


Rental ActivityIn the reporting period, despite the expiry of sev-eral tenancy agreements, AFIAA managed to fur-ther reduce the vacancy rate and rented out close to 35 000 m² either on the basis of new or extend-ed tenancy agreements. This corresponds to just under 13% of the total square metres held by the company. In relation to the rented space, the va-cancy rate as per the reference date of 30 Septem-ber 2015 had declined from 12.0% to 11.7%. The incentives typically offered in the current market environment (rent-free period, conversion allow-ance) also declined and the terms reflected in the valuation reports were generally exceeded.

Approx. 4 750 m² in the ‘Romeo & Julia’ office block, which had been acquired in 2013, were ei-ther rented to new tenants or to follow-up tenants ahead of time, reflecting the building’s high qual-ity. After a long-term tenancy agreement relating to 2 300 m² in our ‘Westfalen Center Dortmund’ in Dortmund was concluded with a leading Euro-pean customer relationship manager, the building is now almost fully rented for the first time. Sev-eral new tenancy agreements were also concluded and existing ones extended in our ‘Classical Ser-vice Center’ building in Münster Wolbeck. Again, the occupancy rate and the average term of the agreements rose substantially.

The tenancy agreement with the telecom compa-ny Telefónica relating to approx. 8 500 m² in the ‘Campus Bravo’ building in Munich was terminat-ed at the end of May as expected. At the end of the reporting period, we were negotiating a tenancy agreement for the entire building with a number of prospective tenants.

The default rate in Germany rose to 14.8% due to the current vacancy at the ‘Campus Bravo’ build-ing.

In Munich, London and Sydney, new tenants will be sought in the coming years. Proactive talks have been initiated with the current subtenants of the main tenant in Sydney. The negotiations were still ongoing at the end of the reporting period.

The Senior Development Manager, who was spe-cifically appointed to meet future refurbishment and modernisation responsibilities, is currently designing the project structure for the ‘Garrard House’ building in London. Talks with develop-ers, estate agents and architects are taking place in preparation of the main tenant’s relocation in the year 2018.

Asset Management Report

The situation has improved significantly in Vi-enna’s ‘Big Biz, Bauteil C’ office complex. After the tenancy agreement with the City of Vienna relating to approx. 8 700 m² was extended by ten years, the remaining vacant space of close to 600 m² is now also rented. The property is thus fully occupied. Thanks to these tenancies, the WALE (weighted average lease term) has almost doubled from four to eight years.

Due to the expected termination of two main tenancy agreements in our ‘Speicher’ building in Düsseldorf, the vacancy rate will increase substan-tially at the end of 2015. Our marketing efforts are in full swing and have had some initial success in the form of two new tenancy agreements relating to two floors.

In the reporting period, the ‘Quartermile 2’ in Ed-inburgh property was fully rented after the expiry of the developer’s rent guarantee. A semi-govern-mental tenant is renting the vacant space for a pe-riod of ten years.

All other properties in the UK and Australia are virtually fully rented. Advance talks regarding our ‘HQ South’ building in Brisbane are taking place with the main tenant. The talks are focussing on an extension of the tenancy agreement for a mini-mum period of ten years.

In the USA, the ‘Elston Logan’ building in Chica-go is now once again fully occupied. Several new tenancy agreements were also concluded for the ‘Moody’s Tower’ property in Austin, thereby re-ducing the vacancy rate to approx. 13%. Negotia-tions with a financing institute regarding the rent-al of a whole floor in the ‘501 Congress Avenue’ building in Austin, which was acquired in August, were still ongoing at the end of the reporting pe-riod.

The vacancy rate of the ‘Arch Street’ property in Philadelphia declined slightly to 17.5% thanks to the conclusion of a tenancy agreement with a medical company.

Major Renovation WorkAside from the usual tenant improvements, the modernisation of the cooling system in the ‘Mar-ket Street’ property in Philadelphia was the only major building measure we carried out in the financial year. Large-scale building projects en-visaged for the coming financial year include the modernisation of the lift system in ‘Moody’s Tow-er’ in Austin and the modernisation of the boilers in Hotel Steigenberger in the ‘Westfalen Center Dortmund’ in Dortmund.

Annual Report | Asset Management


Energy Efficiency and SustainabilityAsset Management is still working to have the properties certified as sustainable green buildings and to continuously enhance the quality of the portfolio. In the reporting year, the ‘Westfalen-Center’ in Dortmund was awarded a ‘very good’ rating by BREEAM DE, the environmental profil-er, thus becoming the first green building in Dort-mund to receive this distinction. Furthermore, the ‘Espace’ and ‘Explorer’ buildings in Lisbon and ‘Campus Bravo’ in Munich also received a ‘very good’ rating by BREEAM DE.



The direct investment portfolio comprised the fol-lowing properties as at 30 September 2015:

Property Address Year of construction

Type of use Rental floor space m²

Purchase date

Target rental income

in FC

Net rental income

in FC

Vacancy rate in FY

in FC 2

Vacancy rate as per

30/09/15 2

Campus Bravo, Munich Georg-Brauchle-Ring 52 – 54 2005 Office 8 525 2005 1 0 1 100.00%Speicher, Düsseldorf Speditionstrasse 13 1930/2001 Office 4 295 2005 1 122 822 897 480 225 342 15.90%Forum Zehlendorf, Berlin Teltower Damm 35 1998 Office/Retail 3 844 2006 909 468 853 760 55 708 2.50%Classical Service Center, Wolbeck Münsterstrasse 109 + 111 1992/1997/2000 Office 16 880 2006 2 081 784 1 481 533 600 251 16.40%Westfalen-Center, Dortmund Lindemann-/Wittekind-/Berswordtstrasse 1996 – 1998 Office/Hotel 28 605 2007 4 228 316 3 752 734 468 920 13.40%Romeo & Julia, Frankfurt Ulmenstrasse 37 – 39 1972/2009 Office 14 278 2013 5 721 488 5 231 329 494 159 11.10%Twin Office, Salzburg Münchner Bundesstrasse 142 2005 Office 3 457 2007 583 136 583 136 0 0.00%Arkade Mitte, Salzburg Peilsteiner Strasse 5 – 7 1985 Office 5 776 2007 605 026 563 314 41 712 7.44%Fashion Park, Salzburg Wickenburgallee 2 2003/2004 Retail 1 581 2007 286 447 267 149 19 298 9.80%Gusswerk „Lofts“, Salzburg Söllheimer Strasse 16 2006 Retail 2 590 2007 433 172 421 183 11 989 0.00%Gusswerk „Turm“, Salzburg Söllheimer Strasse 16 2007 Office/Retail 1 455 2007 281 124 258 840 22 284 12.60%Gusswerk „Esprit“, Salzburg Söllheimer Strasse 16 1980/2007 Retail 2 506 2007 1 1 5 394 0.00%BigBiz, Bauteil C, Vienna Dresdner Strasse 91 2005 Office 18 891 2007 3 546 711 3 442 470 104 241 3.45%Rue Lauriston, Paris 46/48 Rue Lauriston 1950/1984 Office 2 024 2005 982 273 677 890 304 383 34.40%Poligono Industrial, Málaga Casabermeja 2007 Logistik 8 479 2008 1 1 0 0.00%Garrard House, London 3 31 – 45 Gresham Street 1998 Office 13 492 2009 1 1 0 0.00%Quartermile 2, Edinburgh 2 Lister Square 2009 Office/Retail 5 458 2010 1 639 603 1 500 658 138 945 0.00%Tudor Street, London 3 21 Tudor Street 2003 Office 9 032 2012 1 1 0 0.00%Arch Street, Philadelphia 1401 Arch Street 1900/1930 Office 16 560 2005 2 433 268 1 964 175 469 093 17.48%Elston Logan, Chicago 2700 N Elston Avenue 1928/2007 Retail 4 596 2008 1 590 081 1 531 780 58 301 0.00%400 West 15th St, Austin (ex WFT) 400 West 15th Street 1981 Office 25 752 2008 6 163 188 5 380 968 782 220 13.70%Arch Square, Washington, D.C. H-Street NW 675 1890/2013 Office/Retail 5 141 2015 * 3 034 671 * 3 034 671 * 0 0.00%501 Congress Avenue, Austin 501 Congress Avenue 1963/2015 Office/Retail 10 909 2015 * 373 791 * 201 079 * 172 712 42.00%Atrium, Sydney 60 Union Street 2006 Office/Retail 20 176 2009 12 425 966 12 425 966 0 0.00%HQ South, Brisbane 512 Wickham Street 2010 Office/Retail 14 674 2010 8 880 171 8 763 691 116 480 4.70%Flinders Street, Melbourne 525 Flinders Street 2008 Office 10 283 2012 4 425 141 4 350 036 75 105 0.00%Espace, Lisbon Alameda dos Oceanos 59 2010 Office 10 000 2013 1 853 727 1 816 612 37 115 0.00%Explorer, Lisbon Alameda dos Oceanos 57 2010 Office 5 153 2013 804 806 804 806 0 0.00%Brondankulma, Helsinki Eteläesplanadi 20 1975/2013 Office/Retail 6 650 2015 * 2 570 579 * 2 337 277 * 233 302 5.73%

All properties are in the sole ownership of AFIAA.

1 Rental income is not disclosed for reasons of confidentiality.

2 Vacancy rates are based on target rental income: Vacancy rates in foreign currencies (FC) for finan-cial year (FY) 2014/2015. Calculation for % va-cancy: Vacancy in foreign currencies/gross rental income. Vacancy rates are based on primary rental floor space (excluding warehousing and parking areas) and may include floor space that is physi-cally occupied but subject to rent-free periods.

3 Building law

* Acquisitions made during the year



Property Address Year of construction

Type of use Rental floor space m²

Purchase date

Target rental income

in FC

Net rental income

in FC

Vacancy rate in FY

in FC 2

Vacancy rate as per

30/09/15 2

Campus Bravo, Munich Georg-Brauchle-Ring 52 – 54 2005 Office 8 525 2005 1 0 1 100.00%Speicher, Düsseldorf Speditionstrasse 13 1930/2001 Office 4 295 2005 1 122 822 897 480 225 342 15.90%Forum Zehlendorf, Berlin Teltower Damm 35 1998 Office/Retail 3 844 2006 909 468 853 760 55 708 2.50%Classical Service Center, Wolbeck Münsterstrasse 109 + 111 1992/1997/2000 Office 16 880 2006 2 081 784 1 481 533 600 251 16.40%Westfalen-Center, Dortmund Lindemann-/Wittekind-/Berswordtstrasse 1996 – 1998 Office/Hotel 28 605 2007 4 228 316 3 752 734 468 920 13.40%Romeo & Julia, Frankfurt Ulmenstrasse 37 – 39 1972/2009 Office 14 278 2013 5 721 488 5 231 329 494 159 11.10%Twin Office, Salzburg Münchner Bundesstrasse 142 2005 Office 3 457 2007 583 136 583 136 0 0.00%Arkade Mitte, Salzburg Peilsteiner Strasse 5 – 7 1985 Office 5 776 2007 605 026 563 314 41 712 7.44%Fashion Park, Salzburg Wickenburgallee 2 2003/2004 Retail 1 581 2007 286 447 267 149 19 298 9.80%Gusswerk „Lofts“, Salzburg Söllheimer Strasse 16 2006 Retail 2 590 2007 433 172 421 183 11 989 0.00%Gusswerk „Turm“, Salzburg Söllheimer Strasse 16 2007 Office/Retail 1 455 2007 281 124 258 840 22 284 12.60%Gusswerk „Esprit“, Salzburg Söllheimer Strasse 16 1980/2007 Retail 2 506 2007 1 1 5 394 0.00%BigBiz, Bauteil C, Vienna Dresdner Strasse 91 2005 Office 18 891 2007 3 546 711 3 442 470 104 241 3.45%Rue Lauriston, Paris 46/48 Rue Lauriston 1950/1984 Office 2 024 2005 982 273 677 890 304 383 34.40%Poligono Industrial, Málaga Casabermeja 2007 Logistik 8 479 2008 1 1 0 0.00%Garrard House, London 3 31 – 45 Gresham Street 1998 Office 13 492 2009 1 1 0 0.00%Quartermile 2, Edinburgh 2 Lister Square 2009 Office/Retail 5 458 2010 1 639 603 1 500 658 138 945 0.00%Tudor Street, London 3 21 Tudor Street 2003 Office 9 032 2012 1 1 0 0.00%Arch Street, Philadelphia 1401 Arch Street 1900/1930 Office 16 560 2005 2 433 268 1 964 175 469 093 17.48%Elston Logan, Chicago 2700 N Elston Avenue 1928/2007 Retail 4 596 2008 1 590 081 1 531 780 58 301 0.00%400 West 15th St, Austin (ex WFT) 400 West 15th Street 1981 Office 25 752 2008 6 163 188 5 380 968 782 220 13.70%Arch Square, Washington, D.C. H-Street NW 675 1890/2013 Office/Retail 5 141 2015 * 3 034 671 * 3 034 671 * 0 0.00%501 Congress Avenue, Austin 501 Congress Avenue 1963/2015 Office/Retail 10 909 2015 * 373 791 * 201 079 * 172 712 42.00%Atrium, Sydney 60 Union Street 2006 Office/Retail 20 176 2009 12 425 966 12 425 966 0 0.00%HQ South, Brisbane 512 Wickham Street 2010 Office/Retail 14 674 2010 8 880 171 8 763 691 116 480 4.70%Flinders Street, Melbourne 525 Flinders Street 2008 Office 10 283 2012 4 425 141 4 350 036 75 105 0.00%Espace, Lisbon Alameda dos Oceanos 59 2010 Office 10 000 2013 1 853 727 1 816 612 37 115 0.00%Explorer, Lisbon Alameda dos Oceanos 57 2010 Office 5 153 2013 804 806 804 806 0 0.00%Brondankulma, Helsinki Eteläesplanadi 20 1975/2013 Office/Retail 6 650 2015 * 2 570 579 * 2 337 277 * 233 302 5.73%


30 AFIAA Annual Report 2014/2015Annual Report | Acquisitions

New RecordsDespite the various crises that have been playing out around the world, among them the European Grexit debate, the unexpected slowdown of the Chinese economy and the war led by the so-called Islamic State, the boom on the global real estate markets has not lost any momentum. In fact, it has accelerated further in the past financial year.

From an international perspective, macroeconom-ic framework conditions have improved slightly in recent months. Moderate economic growth is boosting income and employment and buoying up consumer sentiment. As yet, however, key para-meters do not appear sufficiently stable to per-suade central banks to abandon their ‘cheap mon-ey’ policies. As a consequence, money continues to be diverted into supposedly stable ‘real assets’ which promise positive returns.

Commercial property transaction volumes are therefore constantly breaking new records. In Portu gal, for instance, properties worth over EUR 1 billion changed hands in the first six months of the year. This is an all-time high since records began more than 15 years ago and five times the turnover of the entire year 2012.

Although many institutional and private investors have recently relaxed their investment criteria and are focussing increasingly on B- or C- locations as well as core-plus or value-add properties, the multipliers for top-class commercial properties are still rising. Among the main reasons for this development is the fact that a consistently grow-ing global middle class is now starting to invest in pension products for the first time. In many plac-es, cap rates have dropped to record lows which are often substantially below those of the record year 2007. Even though the spread between fixed-interest bonds and real estate returns is currently very high in historical comparison, we believe that risks are increasing.

Despite rising pressure from both the market and our successful fund-raising activities, we have con-sistently pursued out defined core strategy – no growth at the expense of quality or at any price. Our focus continues to be on trophy properties in prime locations with reliable long-term conditions and moderate operating expenses. We exclusively consider new or as-new properties in countries with stable legal systems and positive economic indicators, ideally with environmental certifi-cates. In this segment, we select prime locations in a handful of big, historically grown cities which act as central hubs in their region. The emphasis

Acquisitions

of our conservative, value-preserving investment strategy in the reporting year was once again on office buildings supplemented by high-street retail properties.

In the past financial year, the staff of our acquisi-tion departments at the New York and Sydney of-fices and the Zurich headquarters examined over 2 000 investment opportunities. Following a strict selection process, bids were submitted for no more than around 2% of these prospective investments. The acquisition of three top-class properties, two of which are located in the extremely competitive US market, is seen as a great success at AFIAA and will be described in further detail below. The con-clusion of three acquisitions in one year substan-tially exceeds our past acquisition performance.

With the aim of minimising our cost risk, we con-sistently applied our two-stage due diligence pro-cess to all potential acquisitions. During the initial ‘red flag’ stage, which usually lasts a week, essen-tial parameters, such as building and occupancy permits and key tenancy agreements are examined in close detail. Once these major issues have been clarified by the respective experts, the – generally more costly – detailed due diligence stage com-mences. In the reporting period, for instance, a planned transaction in Lisbon was suspended very early in the game at the end of the red flag stage after non-correctable formal errors were found in a key tenancy agreement.

Since a decline in global demand for premium property is unlikely in the near future, there are further challenging times ahead for AFIAA’s ac-quisition department. However, thanks to our de-centralised and focused positioning, we are confi-dent that the coming financial year will be another successful one for AFIAA.

Brondankulma, Helsinki

AFIAA Annual Report 2014/2015 31Annual Report | Acquisitions

Acquisitions Concluded in the Financial YearBrondankulma, HelsinkiThe conclusion of the purchase agreement for this premium property in the heart of Helsinki was al-ready described in the last annual report. Owner-ship was transferred in December 2014 as sched-uled. The investment volume amounts to around EUR 60 million. Built in 1975, the 8 200 square metre property was fully renovated in 2013 and is located on Esplanadi promenade, the best busi-ness area in Helsinki, directly on Esplanadi Park. The property is nearly fully rented through long-term agreements to companies with top credit ratings.

Nearly 70% of tenancy income is derived from of-fice space. The main tenant is the highly-respected law firm Hannes Snellmann whose agreement runs for another eleven years. The retail area is di-vided into a restaurant and two stores. The ‘Bron-da’ restaurant is operated by renowned Finnish chefs Matti Wikberg and Tomi Björk whose agree-ment runs for another nine years. In March 2015, UK daily ‘The Guardian’ included Bronda in its top ten restaurants with “the world’s coolest res-taurant interiors”. Other tenants include the ‘Siwa’ convenience store and the ‘Alko’ beverages store.

Arch Square, Washington, D.C.

32 AFIAA Annual Report 2014/2015Annual Report | Acquisitions

Arch Square, Washington D.C.The conclusion of the purchase agreement for this property was also described in the last an-nual report. Since the acquisition also involved external financing, protracted negotiations took place with the financing bank and ownership was finally transferred in February 2015. Located at the junction of 7th Street and H Street in the East End north of the National Mall at the entrance to China Town, the 5 100 square metre property rep-resents a genuine landmark investment. The in-vestment volume amounts to approximately USD 100 million.

The five-storey building with its red brick façade was built before World War I. In 2012/2013, the owners extensively renovated the building. Since then, ‘Arch Square’ has been used as an office and retail facility. The building is fully rented to ten-ants with top credit ratings and long-term agree-ments.

501 Congress Avenue, Austin

AFIAA Annual Report 2014/2015 33Annual Report | Acquisitions

501 Congress Avenue, AustinThe acquisition of the ‘501 Congress Avenue’ of-fice building in downtown Austin, Texas, in Au-gust 2015 represents a valuable addition to our US portfolio. Extensively renovated in 2014/2015, the office building offers retail space on the ground floor and has a connected, newly built multi-storey car park. Thanks to the renovation work, the 1963 building was turned into a class A office building stretching over five floors and an atrium/base-ment. A total of 297 parking spaces are available within the building complex.

The 11 400 square metre office complex is situated in a busy central location at the heart of Austin’s business district. Congress Avenue, the most dis-tinguished street in downtown Austin, was already a main thoroughfare in the 19th century. The building complex also borders 6th Street, which is part of the city’s main shopping and nightlife district, and is surrounded by first-class hotels. The investment volume for this Austin property amounts to approximately USD 75 million.

AFIAA considers the building, which has a current occupancy rate of 76.3% (based on floor space), as a cyclic investment. Thanks to its expertise in the Austin rental market, AFIAA is confident that the vacant floor space will be rented in the near fu-ture, leading to increased returns.

The building’s multi-tenant structure involves long-term tenancy agreements and is broadly di-versified. The main tenant is Dropbox, an inter-nationally leading provider of cloud file-sharing solutions. Other tenants include the US financial service provider Charles Schwab, the wine storage, handling and shipping company Vine Vault, Allen Edmonds, an upscale shoe manufacturing and re-tail company, and EMC-Corporation, the world’s largest provider of data storage services.

Thanks to its highly accessible and central loca-tion, this office building is a classic long-term property that can be retained in the portfolio be-yond the normal renovation cycle (20 to 30 years).


AFIAAArch Street, LLC

Delaware

AFIAA Austria GmbHVienna

AFIAA Real Estate Spain, S.L.

Madrid

AFIAA Portugal SGPS, S.A.

Lisbon

AFIAA AnlagestiftungZurich

AFIAA Holding AGZurich

AFIAA Deutsche Holding GmbH

Munich

AFIAADeutschland GmbH

Munich

AFIAA Germany AG

Zurich

AFIAA Australia Pty. Ltd.Sydney

AFIAA London 1 AG

Zurich

AFIAA London 2 AG

Zurich

AFIAA Scotland AG

Zurich

AFIAA Australia 1 Pty. Ltd.Sydney




AFIAA R&J AGZurich

AFIAA Campus GmbHMunich

AFIAA Dock 13-Speicher GmbH

Munich

AFIAA CSC GmbHMunich

AFIAA Teltower 35 GmbHMunich

AFIAA Log 1 GmbHMunich

AFIAA Büroturm Hafen D 1 GmbH

Munich

AFIAA Büroturm Hafen D 2 GmbH

Munich

AFIAA 46 Lauriston SAS

Gagny (F)

AFIAA Finland Bronda Holding Oy

Helsinki

AFIAA Brondankulma Oy

Helsinki

AFIAA Espace & Explorer

Investimentos Imobiliários, S.A.

Lisbon

AFIAA Gestión 1, S.L.

Madrid

AFIAA Betriebs1 GmbHVienna

AFIAA Betriebs2 GmbH (6 Objekte)

Vienna



Optimax Gamma Liegenschaftsver-wertungsgmbH &

Co KGVienna

AFIAA U.S. Investment, Inc.

Delaware

AFIAA U.S. Real Estate, Inc.Delaware

AFIAA 1760 Market Street, LLCDelaware

AFIAAElston Logan, LLC

Delaware

AFIAARohr Road, LLC

Delaware

AFIAAWFT, LLCDelaware

AFIAA 501 Congress, LLC

Delaware

AFIAA Arch Square Holdings, LLC

Delaware

AFIAA Arch Square, LLC

Delaware

in liquidation

Annual Report | Corporate Governance

This corporate governance report was prepared in consideration of the specific form and nature of a Foundation and the SIX guidelines relating to corporate governance. The applicable versions of the Regulations and Articles of Incorporation can be downloaded from AFIAA’s website, www.afiaa.com, under “Publications”.

1 IntroductionAFIAA has been a member of the ASIP Swiss Pen-sion Fund Association since 2009 and has agreed to internally implement the Swiss Association of Pension Funds (ASIP) Charter and professional

Corporate Governance

guidelines, and to allow the compliance to be re-viewed during the annual audit. AFIAA is also a member of KGAST (Conference of Managers of Swiss Investment Foundations) and applies its quality standards. AFIAA’s external auditors mon-itor compliance with these quality standards once a year.

The aim of both sets of regulations is to ensure reliability and integrity in the asset management field (Art. 48f ff. BVV 2) and to protect investors and beneficiaries.

2 AFIAA’s Group Structure2.1 Overview of AFIAA companiesThe foundation owns property indirectly through domestic or international property companies.

Management companiesOwnership entities/Operating companiesHolding companiesInactive shelf companies

As per 30 September 2015

AFIAA Annual Report 2014/2015 35Annual Report | Corporate Governance

2.2 Strategic Partnership with AvadisAs part of the implementation of the strategic partnership, the management and all Swiss em-ployees of AFIAA transferred to the newly estab-lished Avadis Immobilien AG (AVIM) with ef-fect from 1 October 2014 which, from this date, is mandated to exercise the operational management and administration of the Investment Founda-tion (including management of the staff employed abraod). Thereby, AFIAA Investment Foundation, with its direct and indirect subsidiaries, as well as AFIAA Global, focused on direct real estate invest-ments abroad, remain unchanged in structure. The members of the AVIM management fulfil an executive function at AFIAA Investment Founda-tion and its direct and indirect subsidiaries.

Avadis and AFIAA have taken this step to unify their competence in direct real estate investment in Switzerland and abroad and have clustered their skills in this field. Together, they manage approximately 4 billion Swiss francs for Swiss pension funds by investing in direct real estate in Switzerland and abroad.

2.3 New Companies in the Reporting Year• AFIAA 501 Congress, LLC Delaware was estab-

lished with effect from 22 June 2015.• AFIAA Finland Bronda Holding Oy, Helsinki

(and its subsidiary AFIAA Brondankulma Oy), was acquired as per 18 December 2014 in the context of a share deal.

2.4 Companies Dissolved in the Reporting Year• AFIAA Investment AG, Zurich, was deleted

from the commercial register with effect from 20 March 2015.

• AFIAA Country Hills AG, Zurich, was deleted from the commercial register with effect from 27 August 2015.

• AFIAA 250 Dundas AG, Zurich, and AFIAA 2550 Argentia AG, Zurich, were deleted from the commercial register with effect from 17 September 2015.

3 Capital StructureAFIAA currently has 40 investors. As at 30 Sep-tember 2014, there were 10 261 217.2288 shares in circulation, an increase of 12.68% on the previous financial year.

During the reporting year, no shares were re-deemed. Aided by the foundation, two transac-tions took place in which a total of 39 587.5689 shares were assigned to other investors by way of compensation.

3.1 InvestorsSix investors joined the Foundation in the report-ing year while one investor departed.

All tax-exempt occupational pension institutions headquartered in Switzerland, pension institu-tions of local authorities and cantons, and other tax-exempt bodies and institutions for occupation-al pensions governed by public law are permitted to invest funds with AFIAA.

The Foundation Board examines whether the requirements to become an investor have been fulfilled. It may refuse admission without giving reasons. Investors expressing interest must, on admission, sign a declaration confirming their ful-filment of the requirements outlined in the previ-ous paragraph and their recognition of the Articles of Incorporation, Regulations, Investment and Finance Guidelines and Prospectus. In addition, they are obliged to purchase or to make a capital commitment to purchase at least one share.

In the reporting year, the Foundation Board intro-duced two tranches for the AFIAA Global product, tranche A-I for existing investors as per 30 Sep-tember 2014 and tranche A-II for all new investors who made their first capital commitment after 1 October 2015. The two tranches differ in their fee structure. The management fee for tranche A–II is up to 0.25% higher than for tranche A-I. The Foundation Board considers this decision justi-fied since existing investors were paying the setup costs during the first ten years while new investors are now benefitting from substantial cost degres-sion. The two tranches do not differ in any other respects.

The status of investor is granted provided at least one share or a capital commitment exists.

The representatives of the investors form the In-vestors’ Assembly, which is the Foundation’s high-est executive body.

3.2 Capital CommitmentsThe Foundation accepts binding capital commit-ments made for fixed amounts. The rights and obligations of both investors and the Foundation, which stem from capital commitments, only ap-ply once approval by the Management has been received. The Management shall be unrestricted with regard to the acceptance of capital commit-ments.

3.3 Issue of SharesShares are acquired, in principle, through capital calls carried out by the Foundation. An exception to this is made in the following cases:

• direct subsequent placement of redeemed shares by the Foundation;

• transfer of shares within the scope of regulato-ry stipulations;

• as a substitute for foregoing income distribu-tion (reinvestment).

36 AFIAA Annual Report 2014/2015Annual Report | Corporate Governance

Free trading of shares is not possible. Claims can-not be made against the Foundation based on acquired shares without the involvement of the Foundation.

Name Function Professional occupation Nationality Member since

Term of office until 1

Prof. Dr. Peter Forstmoser Chairman 2 Partner in Niederer Kraft & Frey law firm

CH 19/01/2011 28/01/2016

Prof. Dr. Alfred Storck Vice Chairman

Chairman of the Foundation Board at Avadis Investment Trusts

CH 28/08/2014 28/01/2016

Beat Bommer Member Head of Real Estate Investments and Deputy Head of Asset Management at Basel-City Pension Fund 3

CH 21/01/2009 28/01/2016

Carlo Garlant Member 4 Head of Asset Management at ASGA Pension Fund

CH 19/08/2004 28/01/2016

Christoph Oeschger Member CEO Avadis Vorsorge AG CH 28/08/2014 28/01/2016Adrian Wipf 5 Member Head of Asset Management at BVK

Personalvorsorge of the Canton of Zurich

CH 01/01/2013 –

The profiles of individual members of the Foun-dation Board are published on AFIAA’s website: www.afiaa.com

4.2 Election and Term of OfficeThe Foundation Board consists of three to seven expert members. The members of the Founda-tion Board are elected individually at the Investor Meeting, once a year, for a period of one year (un-til the next Investor Meeting). The Foundation’s founder, BVK, has the right to appoint one mem-ber of the Board, provided it has an interest in the Foundation.

4.3 Responsibilities of the Foundation BoardThe Foundation Board is the highest executive body and governs the Foundation in accordance with the relevant laws and decrees, provisions of the Articles of Incorporation and Regulations, and the instructions of the supervisory authority. It sets overall strategy and supervises its implemen-tation.

The Foundation Board acts as a collective body. Unless otherwise approved by the Board, its mem-bers have no personal powers with respect to the Foundation and are therefore unable to give in-structions of their own.

The Chairman and all other members of the Board are authorised joint signatories.

With the possession of a share, the investor has the right to participate in and vote at the Investor Meeting, to receive information, and benefit from earnings.

4 Foundation Board4.1 Members of the Foundation Board

1 Re-elections took place at the Investor Meeting on 22 January 2015. The next ordinary Investor Meeting will be held on 28 January 2016.

2 Prof. Dr. Forstmoser has been Chairman of the Foundation Board since 28 August 2014 (previously ordinary member of the Board).

3 Head of Real Estate, Stadt Biel, since 1 August 2015.

4 Vice Chairman of the Foundation Board until 28 August 2014.

5 Appointed by founder BVK.


The Foundation Board delegates the task of im-plementing the investment strategy, which it has prescribed, to the Investment Committee, and all aspects of operational management to Manage-ment 1, unless otherwise prescribed by the law, Regulations, Articles of Incorporation or Organi-sational Regulations. It supervises the Investment Committee and Management and issues the nec-essary instructions.

The Foundation Board is entitled to delegate the tasks of preparing and implementing its resolu-

1 With effect from 1 October 2014, the Foundation Board delegated the management responsibility to Avadis Immobilien AG (formerly management of AFIAA Investment Foundation); cf. para. 2.2 above.

tions or supervising transactions to committees, individual members or Management. It is respon-sible for providing adequate reports to its mem-bers.

At present, the Foundation Board has not formed any committees.

The Foundation Board has the right of veto against specific purchases and sales which have been approved by the Investment Committee.

5 Investment Committee5.1 Members of the Investment Committee (IC)

Name Function Professional occupation Nationality Member since

Dr. iur. Thomas Wetzel Chairman Partner at Wenger Plattner Law Firm CH 13/02/2006Dr. iur. Christoph Caviezel Vice Chairman 2 CEO Mobimo CH 10/02/2005Thomas Frutiger Member Co-owner and member of the Management of the

Frutiger GroupCH 13/02/2006

Dr. Steffen Metzner Member Managing Partner of RES Consult GmbH DE 19/08/2004Stefan Schädle Member Head of Real Estate Management of BVK CH 01/04/2008Beat Bommer Member

without voting rights

Head of Real Estate Investments and Deputy Head of Asset Investment at Basel City Pension Fund 3

CH 28/08/2014

Ivana Reiss Member without voting rights

Head of Asset Management at Avadis Vorsorge AG SK 28/08/2014

2 Vice Chairman since 3 March 2011.

3 As of 1 August 2015 Head of Real Estate, Biel City.

The profiles of individual IC members are pub-lished on AFIAA’s website: www.afiaa.com

5.2 Election and Term of OfficeThe IC consists of a minimum of three mem-bers. The members and Chairman of the Invest-ment Committee (IC) are elected once a year by the Foundation Board for a period of office of one year. Beat Bommer, representing the Foundation Board, and Ivana Reiss, representing Avadis Vor-sorge AG, joined the Investment Committee (both without voting rights).

When populating the IC, the Foundation Board takes into account the training and experience re-quired and each individual’s reputation as well as independence and professionalism. The IC must include at least one proven expert in foreign prop-erty investment, who is involved in all investment

decisions. The IC is otherwise self-constituting. Members of the IC can be re-elected.

Details of their mandate are specified in separate contracts.

5.3 Responsibilities of the Investment CommitteeThe Investment Committee is responsible for in-vestments (purchases/sales) and management of the real estate assets. It implements the invest-ment strategy defined by the Board according to the Foundation’s Investment Guidelines. The IC carefully selects and professionally manages the properties and investment products.

The IC acts as a collective body. Unless otherwise approved by the Foundation Board, its members have no personal powers with respect to the Foun-


dation and are therefore unable to give instruc-tions of their own.

Members of the IC are not authorised to sign for the Foundation.

The IC delegates the task of preparing transac-tions and implementing resolutions to the Man-agement, unless otherwise prescribed by the law, Regulations, Articles of Incorporation or Organi-sational Regulations of the Foundation. Excep-tions to this require prior approval from the Foun-dation Board.

6 ManagementAVIM took over the operational management and administration of AFIAA with effect from 1 Oc-tober 2014. The respective details were settled in a management agreement concluded between AFIAA Investment Foundation and AVIM. AVIM is a fully-owned subsidiary of Avadis Vorsorge AG and is domiciled in Baden.

Since the Ordinance on Investment Foundations (Verordnung über die Anlagestiftungen – ASV) does not permit AFIAA in its capacity of Invest-ment Foundation to hold a stake in AVIM, Avadis Vorsorge AG has granted the Investment Founda-tion certain rights to AVIM on a contractual basis, thus guaranteeing AFIAA rights of participation

and control in respect of the company’s manage-ment and administration and securing the inter-ests of AFIAA and its investors.

In particular, the Investment Foundation has the right to appoint two members to the AVIM Board of Directors. Amendments of the Articles of Incor-poration concerning corporate objectives, head-quarter location and the liquidation and closure of AVIM require the prior consent of AFIAA. In addition, AFIAA has been granted right of first re-fusal and purchasing rights to all shares in AVIM. Pursuant to Art. 9 Point 5 Para. 5 of the Invest-ment Foundation’s Articles of Incorporation, the Foundation Board has the non-transferable right to appoint the Management team. The appointees must be independent from providers of invest-ment products and services to the Foundation, both personally and economically. This condition was implemented via the requirement of a unani-mous decision by the Board of Directors (includ-ing the two AFIAA representatives) regarding all appointments and dismissals of AVIM manage-ment members. Furthermore, certain other deci-sions also require the approval of all members of the Board of Directors (e.g. determining strategy and organisation, approval of the annual budget, amendments of the organisational regulations, delegation of management responsibilities to third parties, etc.).

6.1 Members of the AVIM Board of Directors

Name Function Nationality Member sinceYann Moor 1 Chairman CH 25.09.2014Prof. Dr. Peter Forstmoser 2 Vice Chairman CH 25.09.2014 3

Christoph Oeschger 1 Member CH 25.09.2014Ivana Reiss 1 Member SK 25.09.2014Adrian Wipf 2 Member CH 25.09.2014

6.2 Election and Term of OfficeThe Board of Directors of AVIM consists of a mini-mum of three members. Once a year, the General Meeting elects the Directors for a one-year term. Directors can be re-elected.

The AVIM Board of Directors constitutes itself, with the exception of the Chairman who is elected by the General Meeting.

6.3 Division of Competencies / Responsibilities of the Board of DirectorsThe Board of Directors is the supreme manage-ment body of AVIM. It delegates the management responsibilities to Management unless the law, the Articles of Incorporation or the organisational regulations provide otherwise. To the extent per-mitted by law, the Articles of Incorporation and the practical approach taken by the supervisory

1 Representative of Avadis Vorsorge AG.

2 Representative of AFIAA Investment Founda-tion.

3 Vice Chairman since 21 January 2015.


authorities, the Board of Directors may delegate further responsibilities to third parties, provided the AFIAA representatives of the Board agree. The Board of Directors represents the highest manage-ment level of the Foundation and is responsible for supervising Management. All members of the Board have joint signatory power in conjunction with a second member.

6.4 Members of the AVIM Management

Name Function Nationality Member since 1

Norbert Grimm CEO CH 18.08.2011Reto Schnabel CFO CH 01.10.2006Martin Brendel Head of Acquisitions Global DE 11.06.2012 2

Bardo Magel Global Head of Asset Management DE 01.12.2014Gabriele Wolfram Head of Portfolio Ma nagement DE 01.10.2006

The profiles of individual AVIM Management members are published on AFIAA’s website: www.afiaa.com

6.5 Election and Term of OfficeThe Management team consists of the CEO of AVIM and at least two further members. The AVIM Board of Directors appoints the Manage-ment team in consideration of the qualification profile prepared by it. The appointment and dis-missal of the members of the Management team requires unanimity (and hence the approval of the AFIAA representatives on the Board). The CEO has the right to request the replacement or dis-missal of the other members of the Management.

The Management constitutes itself subject to the approval of the AVIM Board of Directors.

Existing employment contracts of the Manage-ment are for an unlimited period.

6.6 Division of Responsibilities Among Foundation Board, Investment Committee and ManagementThe basic principles and separation of functions and powers among the Foundation Board, Invest-ment Committee and Management Guidelines are stipulated in the Foundation’s Organisational Guidelines.

The Foundation Board exercises supervision and overall management of the Foundation.

Based on the concept of integral delegation, AVIM performs all management and administrative responsibilities that serve AFIAA’s purpose as a

foundation and are not reserved for other bodies, valuation experts or other external offices.

The members of the AVIM Management fulfil an executive role at AFIAA Investment Foundation. Two members are jointly authorised to sign. In addition, they fulfil executive roles at the direct and indirect subsidiaries. Again, two members are jointly authorised to sign (subject to local statu-tory provisions).

The tasks of individual members of the AVIM Management are based on their employment con-tracts and associated job descriptions subject to manadatory legal requirements and regulatory provisions.

6.7 Structure of Information and Control Systems Relating to IC and ManagementThe Foundation Board ensures that the persons entrusted with management responsibilities are informed in due time and manner about all busi-ness-related decisions of the Board.

The IC ensures that the Foundation Board re-ceives comprehensive, transparent information in good time, and reports periodically, at least twice a year, on its activities.

Persons entrusted with management responsi-bilities regularly inform the Foundation Board, at Board meetings, about the general progress of business and, in particular, about special dealings undertaken and decisions taken. The AVIM CEO informs the Chairman of the Board immediately regarding exceptional circumstances that have a significant impact on business.

1 Member of AVIM Management (since 1 October 2014) / previously AFIAA.

2 First period in office from 1 May 2009 to 30 September 2010.


Each member of the Foundation Board can re-quest information on the Foundation’s affairs. At meetings, Board members as well as those en-trusted with Management are obliged to provide information. Outside the meetings, each Founda-tion Board member can request information from those entrusted with Management concerning business progress and, upon written consent of the Chairman of the Board, concerning individual dealings.

Access to AFIAA’s records and documents is only permitted when this is necessary to fulfil a task and has been approved in writing by the Chairman of the Board.

The Foundation Board is informed periodically, and according to the requirements of the quarterly and annual reports, about important key figures as well as about AFIAA’s financial and operating risks.

AFIAA received its ISO 9001:2008 certification by SQS on 1 October 2014. The company thus fulfils Art. 15 Para. 3 of AFIAA’s Regulations according to which the company entrusted with manage-ment responsibilities is required to have its pro-cesses certified according to relevant ISO quality standards. The risk management system operated by AFIAA and AVIM is integrated into existing processes (QMS) and does not involve a parallel organisation.

The Foundation Board determines the basic prin-ciples of the risk policy, the risk management pro-cess and the risk management concept. It defines the key risks and monitors these. Risk manage-ment is carried out by Management, monitored by the Foundation Board and can be applied to the strategic framework across the company. The aim is to make all relevant risks controllable and manageable where possible through efficient pro-cesses and consistent risk awareness. The cur-rent risk management concept was approved by the Board on 28 May 2013 and is periodically reviewed (most recently at the Board meeting on 25 August 2015). Risk management at AVIM is carried out by Management and supervised by the Board of Directors.

7 Remuneration of Members of the Foundation Board, Investment Committee and Management7.1 Method of Determining Remuneration7.1.1 Foundation BoardIn accordance with Art. 4.7 of the Foundation’s Organisation Regulations, members of the Foun-dation Board are entitled to receive appropriate remuneration, in accordance with their activi-ties, which is set by the Foundation Board every year. Exceptional efforts outside the usual scope of Board activities are also compensated.

In the reporting year, at Group level, the annual flat rates were set at CHF 30 000 for the Chair-man, CHF 15 000 for the Vice Chairman and CHF 10 000 for the remaining Board members. The allocation per meeting and member is CHF 1 500 for attendance and CHF 100 for expenses. For tel-ephone conferences, Board members receive CHF 1 500 (no expenses). Circular resolutions are not paid.

During the reporting year, five ordinary meetings, two extraordinary meetings (one of them exclu-sively involving a Foundation Board committee formed on the spot) and one telephone conference were held.

On top of his Foundation Board fee, Prof Dr Pe-ter Forstmoser received additional remuneration on the basis of a specific mandate of CHF 25 750 (excluding VAT). The law firm Niederer Kraft & Frey AG was commissioned for certain mandates during the reporting year and received customary fees commensurate to the market totalling CHF 18 576.15 (excluding VAT).

The five members of the Foundation Board were paid total remuneration of CHF 140 800 during the reporting year. The total payments made to the Chairman of the Foundation Board amounted to CHF 41 200 (excluding fee on mandate basis).

There are no contractually agreed termination benefits.

7.1.2 Investment CommitteeMembers of the IC are entitled to receive appro-priate remuneration, in accordance with their activities, which is set periodically by the Founda-tion Board (Art. 5.5.4 of the Organisation Regula-tions). Exceptional efforts outside the usual scope of Board activities are also compensated.

The annual flat rates are set at CHF 35 000 for the Chairman and CHF 6 000 for the Vice Chairman and the remaining IC members. The allocation per meeting and member is CHF 1 500 for attendance and CHF 100 for expenses (members abroad re-ceive compensation for their actual expenses). For telephone conferences, IC members receive CHF 1 500 (no expenses) and for circulated resolutions CHF 750.

In the reporting year, three meetings and a 2-day workshop were held at which office property ‘Es-pace & Explorer’ in Lisbon and logistics property Casabermeja in Málaga were inspected. In addi-tion, four telephone conferences were held and two circular resolutions passed.

For inspections of investment properties (incl. reporting), remuneration is set at CHF 3 500 per day (plus actual expenses).


In the reporting year, four potential investment properties in Finland, Portugal and the USA were inspected by IC members of which AFIAA ulti-mately acquired three (‘Brondankulma’, Helsinki; ‘Arch Square’, Washington D.C.; ‘501 Congress Avenue’, Austin).


The six members of the IC were paid total remu-neration of CHF 218 879.75 during the reporting year. The total payments made to the IC Chairman amounted to CHF 50 500.

7.1.3 ManagementMandate FeeFor the management and processing of ongoing business activities, AFIAA pays AVIM a fee calcu-lated according to the following principles:

AVIM’s charges for its services rendered in con-nection with ongoing business activities are con-sistent with its effective expenses (net costs). Every year, AVIM prepares an annual budget for the coming financial year that is submitted to the AFIAA Foundation Board for approval.

Cost of Services RenderedFor its services rendered in connection with the acquisition and sale of real estate and its servic-es rendered in connection with comprehensive renovations and conversions, AVIM charges the Investment Group’s real estate companies a max-imum annual rate of 0.25% of the entire Invest-ment Group’s assets (including cash holdings). This compensation is calculated on the basis of the Investment Group’s assets as per 1 October. The invoice is submitted during the first quarter of each financial year and is offset against the man-date fee.

Remuneration of the AVIM Board of DirectorsIn the reporting year, the annual flat rates amounted to CHF 117 500 for the Chairman and CHF 15 000 for the other Board members. The AVIM Board of Directors has decided that the Chairman’s mandate should be restricted to a 20% workload in the first year.

Attendance fees or expense reimbursements were not paid.

Total remuneration of the Board of Directors amounted to CHF 177 500 in the reporting year.

Remuneration of the AVIM ManagementTotal remuneration to the five members of Man-agement during the reporting year amounted to CHF 1 603 434. This sum includes the basic salary (including employer contributions to pensions) and gratuities as well as anniversary gifts for the financial year 2014/2015. Total remuneration to the CEO amounted to CHF 568 836.


The notice period for terminating employment contracts of the Management is three to six months.

At its meeting on 9 December 2013, the AFIAA Foundation Board agreed on a long-term based remuneration plan for the Management team who have now transferred to AVIM. Qualitative and quantitative targets covering multiple years were set for management with remuneration depend-ent on the achievement of specific targets. The re-view period extends from 1 October 2013 through to 30 September 2016 with the maximum value of the overall plan amounting to 750 000 Swiss francs. A pro rata payment is accounted for on a quarterly basis. The plan is envisaged for members of the management, but is not legally binding. In the context of the implementation of the strategic partnership with Avadis, this remuneration plan was transferred to AVIM as per 1 October 2014. As of this date, the target achievement evaluation has thus been among the responsibilities of the AVIM Board of Directors.

Arrangements are currently being made to estab-lish a suitable remuneration plan for the employ-ees.

8 Participation Right of Investors8.1 Voting Power and RepresentationIn accordance with Art. 8 of the Articles of Incor-poration, the voting power of investors is deter-mined by their share of holdings.

There are no statutory voting right restrictions.

Investors have the right to be represented by an-other investor or an independent proxy-holder ap-pointed by the Foundation.

8.2 Statutory QuorumsIn accordance with Art. 8 of the Articles of Incor-poration, the Investor Meeting passes its resolu-tions by a simple majority of the votes cast, with the following exceptions:

• A majority of two-thirds of the votes cast is nec-essary for applications to the supervisory au-thority (Supervisory Commission for Occupa-


tional Pension Plans (OAK BV), to amend the Articles of Incorporation;

• A majority of three-quarters of the votes cast is necessary for an application to the supervisory authority to dissolve the Foundation 1.

8.3 Convening of the Investor MeetingIn accordance with Art. 12 of the Regulations, the General Investor Meeting is convened by written invitation from the Foundation Board within six months of the end of the financial year. The invita-tion must be sent at least 20 days before the meet-ing date.

A duly convened meeting constitutes a quorum ir-respective of the number of votes represented. The Board keeps a list of investment groups, investors and their shares. Individuals eligible to attend the meeting are those who are registered in the Inves-tor Directory at the time invitations are sent out.

Investors may submit applications to the Investor Meeting before the invitation is issued. Applica-tions made after issue of the invitation and up to the meeting date are admitted for discussion by decision of the meeting. However, a resolution is only possible at the next meeting.

An extraordinary Investor Meeting can be con-vened by the Foundation Board or, if required, by the Audit Committee. An extraordinary Inves-tor Meeting can also be requested in writing by one or more investors, who together represent at least 10% of the investment capital, by declaring the subject matter of the meeting and any possi-ble motions. The Foundation Board is obliged to call the extraordinary Investor Meeting within one month of receiving the request.

9 Auditors 9.1 Mandate Term and Term of Office of Auditor in ChargeSince the establishment of the AFIAA Investment Foundation (2004), the role of statutory auditors has been assigned to the Ernst & Young auditing firm in Zurich, which was last re-elected at the In-vestor Meeting 22 January 2015 for a term of one year (until the Investor Meeting in 2016). Ernst & Young AG also serves as the independent auditors for AFIAA Holding AG.

Based on Swiss stock corporation law (Art. 730a Para. 2 of the Swiss Code of Obligations, or OR), the auditor in charge should be replaced periodi-cally. Since 1 October 2007, the auditor in charge

has been Daniel Zaugg and his term in office is due to end in the financial year 2014/2015. In view of changes in the Foundation Board’s com-position, the Board will re-assess the duration of the auditor in charge’s term in office with the new Board Chairman and define it for financial year 2015/2016. If the Investor Meeting of 28 January 2016 confirms the re-election of Ernst & Young AG as auditor, Christian Krämer will become new auditor in charge. He will take up his new post on the date following the Investor Meeting.

In accordance with Art. 19 of the Regulations, an independent authority periodically monitors compliance with the Investment and Financial Guidelines and submits a report to the Foundation Board at the end of each financial year. This task is currently being carried out by Ernst & Young AG.

The Foundation Board regularly checks that the auditor is independent.

At the Investor Meeting on 28 January 2016, the Foundation Board will propose the re-election of Ernst & Young AG as auditors for the financial year 2015/2016.

9.2 FeesIn financial year 2014/2015, auditing fees for Ernst & Young AG amounted to CHF 211 352. In addition to auditing fees, Ernst & Young AG charged a consultancy fee of CHF 23 500.

9.3 ApproachIn conjunction with the Audit Committee and Management, the Foundation Board sets an audit plan for several years, leaving the Audit Commit-tee scope to set its own inspection points. The Au-dit Committee submits the auditing budget for the following financial year to the Foundation Board at the first meeting after the Investor Meeting.

The Audit Committee periodically presents the Foundation Board (usually at the Board meeting in December) with the auditors’ Letter to the Man-agement.

If there are special circumstances, the Audit Com-mittee informs the Foundation Board immedi-ately.

The Foundation Board can, if required, entrust the Audit Committee with particular inspection tasks.

1 If the purpose of the Foundation cannot or can no longer be achieved with reasonable effort.


In the reporting year, the auditor had the follow-ing special responsibilities:

• Audit of the amendments of the Accounting Manual

• Audit of the TER calculation• Audit of fees (cost of services rendered)

The Audit Committee submits an annual report to the Investor Meeting.

10 Investors’ Right to InformationAFIAA informs its investors in an open and timely manner and with the greatest possible transpar-ency.

Financial reporting occurs in the form of quar-terly and annual reports. These are prepared in accordance with the Swiss GAAP FER 26 profes-sional recommendations for financial reporting and the Swiss Ordinance on Investment Founda-tions (ASV).

The investors have the right at any time to ask the Foundation Board to be informed about the man-agement and to inspect the accounts. The Foun-dation is particularly required to inform the in-vestors upon request about purchases, sales and other transactions arranged. They are also entitled to information on investment in collective invest-ment vehicles. Information relating to other inves-tors is excluded, with the exception of the number of shares held by an investor in the same group. The information or access to it may be refused with the approval of the chairman of the Founda-tion Board if it would endanger interests requiring protection or business secrets.

Campus Bravo, Munich

Annual Financial Statement

AFIAA Immobilien CHF Swiss Securities No. 1.957.472

AFIAA Global Investment Group*

* Currently the only invested investment group

Espace & Explorer, Lisbon


Consolidated Asset AccountMarket value in CHF Notes 1 30/09/2015 30/09/2014

AssetsReal estate 1 284 873 181 1 194 040 686Indirect investments I 5 147 328 5 354 316Direct investments II 1 279 725 853 1 188 686 370Other assets 65 794 518 35 771 892Receivables from third parties IX 28 334 492 4 574 752Trade receivables 2 055 850 2 048 213Accrued income X 6 225 478 1 745 547Prepaid finance charges 439 030 308 079Deferred tax III 28 739 668 27 095 391Liquid funds 43 215 502 92 037 756Bank balances 38 281 152 85 229 044Fixed-term deposits/call money 4 934 350 6 808 712Total assets 1 393 883 201 1 321 850 424

LiabilitiesLong-term mortgage loans IV 144 723 962 149 222 050Short-term mortgage loans IV 26 478 487 58 295 226Trade payables 5 593 733 2 468 401Liabilities to third parties XI 38 093 688 10 699 036Deferred income 12 700 510 13 241 660Total liabilities 227 590 380 233 926 373

Net assetsNet assets before liquidation costs 1 166 292 820 1 087 924 051Estimated liquidation costs V (55 342 909) (49 646 638)Net assets 1 110 949 911 1 038 277 413

SharesNumber of shares issued (units) 10 261 217.2288 9 105 916.0690Redeemed shares (units) 0 39 587.5689Capital value per share (CHF) 102.1354 108.3572Earnings per share (CHF) 6.1315 5.6651Inventory value (net assets) per share (CHF) 108.2669 114.0223

1 Notes I – XI see Section 4 in the Appendix.

Annual Financial Statement | AFIAA Global


Consolidated Income Statementin CHF Notes 01/10/2014 –

30/09/201501/10/2013 –

30/09/2014

Operational PerformanceIncome from real estate assets 99 239 732 97 015 663Rental income 105 142 037 104 314 340Reduced earnings due to vacancies (5 926 350) (7 247 090)Change in del credere (bad debt) 24 044 (51 587)Upkeep of properties (8 728 409) (6 518 116)Maintenance (3 542 666) (2 932 782)Repairs (5 185 743) (3 585 334)Operating expenses (23 743 364) (23 165 525)Supply and waste disposal costs (5 124 796) (5 004 701)Heating and operating costs (incl. servicing) (5 525 602) (5 349 161)Insurance (1 040 782) (1 026 184)Property management fees (1 028 461) (1 005 307)Letting expenses (1 743 603) (1 524 204)Taxes and duties (4 765 914) (4 205 964)Costs of local management companies VI (3 224 913) (3 350 467)Other operating expenses (1 289 293) (1 699 537)Operating profit 66 767 959 67 332 022

Other income 6 457 828 1 522 764Capital yield from funds 2 000 587 1 295 002Interest receivable 60 137 115 519Other income (expenditures) 4 397 104 112 243Financial expenditure (8 370 890) (11 815 275)Mortgage loan interest (6 424 975) (9 477 734)Other interest payable (137 166) (523 061)Ground rent (1 808 749) (1 814 480)Administrative expenses VII (3 591 619) (6 340 175)Legal and consultancy fees (64 905) (105 650)Auditing expenses (241 503) (222 393)Valuation expenses (147 262) (169 811)Remuneration to administrative accounts (304 000) (347 000)Remuneration to custodian bank (85 000) (77 500)Management fees (2 674 053) (4 760 759)Acquisition expenses (21 487) (590 305)Other administrative expenses (53 409) (66 759)Tax on capital and corporate income tax VIII (2 084 859) 873 648Income and expenditure arising from share transactions

3 738 397 12 789

Commission on share transactions 1 759 626 12 789Purchases in current period 1 978 771 0Net profit for the reporting period 62 916 816 51 585 772Realised capital and currency gains (45 965 845) (12 938 423)Realised profit 16 950 971 38 647 349Unrealised capital and currency gains (18 747 037) 40 517 093Change in currency differential due to consolidation (16 761 612) 1 841 964Change in estimated liquid costs V (5 696 271) 610 575Total profit for the reporting period (24 253 949) 81 616 982Total currency gains 1 (100 396 909) 16 050 459Total currency-adjusted profit 76 142 960 65 566 523

1 Foreign currency effects have a decisive influence on the overall performance expressed in Swiss francs. Hence, alongside the total profit, we also show the total profit adjusted for foreign-exchange

effects. The composition of the total foreign- exchange transactions is presented on page 65.



Changes in Net Assetsin CHF 30/09/2015 30/09/2014Assets at start of financial year 1 038 277 413 908 334 505Subscriptions for shares 127 886 560 78 373 462Distributions (30 960 115) (30 047 536)Net profit 62 916 816 51 585 772Realised capital and currency gains (45 965 845) (12 938 423)Unrealised capital and currency gains (18 747 037) 40 517 093Change in currency differential due to consolidation (16 761 612) 1 841 964Change in estimated liquidation costs (5 696 271) 610 575Total profit for the reporting period (24 253 949) 81 616 982Net assets 1 110 949 911 1 038 277 413

Appropriation of Profit (Investment Group)For the 2014/2015 reporting period, the net profit forms the basis for the appropriation of profits. At its meeting on 4 December 2015, the Founda-tion Board resolved to pay a dividend of CHF 3.40 per share with the option to reinvest this amount commisssion-free under Article 8 of the Founda-tion Regulations.

Appropriation of profitin CHF 30/09/2015 30/09/2014Net profit for the period 62 916 816 –Realised profit for the period – 38 647 349Capital gains to be distributed 0 0Retained earnings from previous year 12 548 757 12 548 757Available dividend payout 75 465 572 51 196 106Proposed dividend payout 34 888 139 30 960 115Profit retained for reinvestment 0 7 687 234Balance carried forward 40 577 433 12 548 757


Administrative Accounts

Garrard House, London


Administrative Accounts of the AFIAA Investment FoundationIn the reporting year, the consolidated group of the administrative accounts comprises the Foun-dation’s capital and the minimum expenses nec-essary to operate the Foundation, in particular the costs associated with executive boards. This accounting area is reproduced on page 52 in the form of separate financial statements. Further-more, the consolidated group includes the sepa-rate financial statements of the US management company AFIAA U.S. Investment, Inc. which is owned by the Foundation.

AFIAA U.S. Investment, Inc. is financed via an asset management fee charged directly to the US property companies. The asset management fee is based on the market values of the managed prop-erties. The respective expenses are reported in the ‘local administrative company costs’ item for the AFIAA Global Investment Group in which the US property companies are consolidated. This item also includes the other local administrative costs.

In the comparative period, the Foundation-owned management unit at the Investment Foundation’s main office in Zurich was also part of the con-solidated group. Avadis Immobilien AG, a third party, took over the operational management and administration of the Investment Foundation, as well as its entire staff, with effect from 1 October 2014. Accordingly, in the reporting year, this ac-counting area was no longer consolidated within AFIAA, which explains the notable changes that have arisen in comparison with the previous year’s period.

Income from ServicesThe income from services in the comparative pe-riod is consistent with the total cost reimburse-

ments paid by the AFIAA Global Investment Group to the previously Foundation-owned man-agement unit at the main office. In the income statement of the AFIAA Global Investment Group, the respective cost reimbursements were record-ed in the ‘management fee’ item and the services charged directly to the property companies in the ‘local administrative company costs’ item.

Other IncomeBoth in the reporting year and in the compara-tive period, this item comprises the remunera-tion transferred by the AFIAA Global Investment Group to AFIAA U.S. Investment, Inc. and to the separate financial statements of the administra-tive accounts. Corresponding expense items of the AFIAA Global Investment Group consist of the ‘local administrative company costs’ for the remu-neration transferred to AFIAA U.S. Investment, Inc. and the ‘remuneration to the administrative accounts’ for the remuneration transferred to the separate financial statements of the administrative accounts.

In the comparative period, non-recurrent income from the liquidation of the previously Foundation-owned AFIAA Investment AG management com-pany arose in the amount of CHF 905 332. Since, due to tax reasons, this subsidiary had to invoice the administrative accounts for its costs plus a 5% mark-up charged to the Investment Group, a prof-it was carried forward in the years 2006 to 2012. In the period 2013/2014, this profit was reflected as liquidation income in the separate financial statements of the administrative accounts. The liquidation income was distributed to the AFIAA Global Investment Group via the profit appropria-tion from the administrative accounts.

Annual Financial Statement | Administrative Accounts

52 AFIAA Annual Report 2014/2015Annual Financial Statement | Administrative Accounts

Consolidated Balance Sheetin CHF 30/09/2015 30/09/2014

AssetsTangible assets (movables) 4 962 38 779Total fixed assets 4 962 38 779Accrued income 122 635 67 623Receivables from investment groups 241 338 197 435Other receivables 73 914 854 537Banks/post 419 029 1 585 518Total current assets 856 917 2 705 113Total assets 861 878 2 743 892

LiabilitiesDedicated assets 100 000 100 000Reserve funds 170 000 160 000Currency differential due to consolidation (15 050) (27 008)Retained earnings 463 293 338 546Net profit for the financial year 59 011 1 090 791Total capital assets 777 254 1 662 329Deferred income 68 975 940 518Trade payables 0 102 750Other liabilities 15 649 38 295Total debt capital 84 624 1 081 563Total liabilities 861 878 2 743 892

Consolidated Income Statementin CHF 01/10/14 – 30/09/15 01/10/13 – 30/09/14

IncomeIncome from services 0 5 111 366Other income 1 671 185 2 500 311Total operating income 1 671 185 7 611 677

ExpenditurePersonnel costs (900 843) (4 965 644)Occupancy expenses (76 759) (240 676)Office and administrative expenses (455 937) (943 058)Consulting fees (45 464) (108 688)Marketing fees 0 (143 515)Auditing fees (5 000) (2 000)Depreciation (3 434) (53 065)Operating profit 183 748 1 155 031Financial income 38 13 920Financial costs and currency gains (568) (14 723)Pre-tax profit 183 218 1 154 227Taxes on income (124 206) (63 437)Net profit for the financial year 59 011 1 090 791


Balance Sheet Capital Assetsin CHF 30/09/2015 30/09/2014

AssetsAccounts receivable from/payable to investment groups 241 339 197 435Financial investment AFIAA US Investment, Inc. 61 750 0Settlement account AFIAA Global 0 1 005 332Total assets 303 089 1 202 767

LiabilitiesDedicated assets 100 000 100 000Reserve fund 170 000 160 000Retained earnings 27 768 31 887Net profit for the financial year 321 905 880Total liabilities 298 089 1 197 767Accrued expenses/Deferred income 5 000 5 000Total assets 303 089 1 202 767

Income Statement Capital Assetsin CHF 01/10/14 – 30/09/15 01/10/13 – 30/09/14

IncomeFinancial contributions from Investment Group 366 049 1 252 332Total income 366 049 1 252 332

ExpenditureOrganisational bodies 1, Investor Meeting 360 728 341 452Other expenses 5 000 5 000Total expenditure 365 728 346 452Net profit (loss) for the financial year 321 905 880

Appropriation of Profits (Capital Assets)The Foundation Board has resolved to assign CHF 10 000 of the balance sheet profit of CHF 28 089 to the general reserves and carry the remaining amount of CHF 18 089 forward to new account.

Proposal to the Investors’ Meetingin CHF 30/09/2015 30/09/2014Retained earnings from previous year 27 768 31 888Net profit for the financial year 321 905 880Balance sheet profit 28 089 937 768Allocation to the reserve fund (10 000) (10 000)Dividend to investment group 0 (900 000)Retained earnings to be carried over to next financial year 18 089 27 768

1 The item includes remuneration to the Foun-dation Board and Investment Committee. The Corporate Governance Report on page 34 details individual remuneration to the chairmen and the committees.

Annual Financial Statement | Administrative Accounts

Westfalen-Center, Dortmund

Appendix

AFIAA Annual Report 2014/2015 55Annual Financial Statement | Appendix

Statement of Charter and RegulationsThe legal basis for the Foundation’s activity is formed by the following deeds and regulations:

• Foundation Charter of 12/08/2004, in the up-dated version 07/10/2004

• Articles of Association of 12/08/2004 ap-proved by the Supervisory Authority, in the up-dated version 17/01/2013

• Regulations of 19/08/2004, in the updat-ed version 17/01/2013

• Organisational Regulations of 14/12/2007, in the updated version 09/12/2013

• Investment Guidelines of 29/05/2006, in the updated version 04/12/2014

• Financial Guidelines of 29/05/2006, in the up-dated version 04/12/2014

Legal Form and PurposeThe Swiss Foundation for International Real Es-tate Investments (“AFIAA”) is a foundation serv-ing occupational pension funds. Since codification at the beginning of 2012, the Foundation has been built on the following legal basis: Art. 53g to Art. 53k of the Bundesgesetz über die berufliche Vor-sorge, or BVG (Federal Law on Occupational Pen-sions) , the Verordnung über die Anlagestiftungen, or ASV (Ordinance on Investment Foundations), and references to Statutory Instruments BVV 1 and BVV 2 (regulations regarding investments, integ-rity and good faith of the participants, financial reporting, appraisal and transparency). The pur-pose of AFIAA is to collectively invest and manage the pension fund assets entrusted to it by investors in international real estate. All tax-exempt “second pillar” pension institutions domiciled in Switzer-land are entitled to invest with the Foundation.

1 Principles and Organisation

OrganisationThe governing body of AFIAA is the General In-vestor Meeting, which is formed by the investors’ representatives. The General Investor Meeting takes place annually, within six months of the end of the financial year, following the written invita-tion of the Chairman of the Foundation Board. Re-sponsibilities and powers of the Investor Meeting are stipulated in the Articles of Association. As per 30 September 2015, AFIAA’s investors comprised 40 pension funds (previous year: 35). The distri-bution of net assets as per balance sheet date was as follows:

Amount of total investment in CHF Number of investors Total investment (in thousand CHF)30.09.15 30.09.14 30.09.15 30.09.14

0 (no calls yet transacted) 6 6 0 0< 20 million 23 20 218 952 196 12120 – 50 million 6 3 191 277 85 080> 50 million 5 6 700 721 757 076Total 40 35 1 110 950 1 038 277

AFIAA’s management and auditing organisation comprises the following seven levels: Foundation Board, Investment Committee, Management, Val-uation Experts, Audit Committee, External Body for Review of Compliance with the Investment Guidelines and the custodian bank.

The Foundation Board has essentially delegated the management and administrative responsibili-ties to Avadis Immobilien AG to the extent that neither the law or the Foundation’s Regulations, Articles of Incorporation or Organisational Regu-lations provide otherwise.

The composition and responsibilities of the Foun-dation Board, Investment Committee and Man-agement are outlined in the Corporate Governance Report on page 34.

Valuation ExpertsThe Foundation Board elects at least two natural persons of good reputation, with the appropri-ate qualifications and experience to perform their tasks, or a renowned legal person, to act as inde-pendent Swiss valuers. The valuers must reside or have their registered office in Switzerland. In the event of two natural persons being elected as valu-ers, one is appointed head valuer and is account-

56 AFIAA Annual Report 2014/2015Annual Financial Statement | Appendix

able to the Foundation Board for the uniformity and consistency of all valuations. The duration of the term of office is one year. Valuers may be re-elected.

The Foundation arranges for all its properties, whether held directly or indirectly through sub-sidiary companies, to be valued individually by one of these independent valuation experts at least once a year at the end of a business quarter and on other specially designated occasions. The Swiss valuation expert may call in a foreign expert to carry out the valuation in his place, provided the latter’s qualifications fulfil the above-mentioned requirements. The independent Swiss valuation experts review all reports provided by local for-eign experts. In particular, they ascertain that the valuation standards laid down in the Foundation’s regulations have been correctly applied, and verify the valuation using recognised methods. These methods are contained in Section 4 (II Direct In-vestments).

The Board has appointed Wüest & Partner AG (responsible manager, Pascal Marazzi-de Lima, MRICS & dipl. Architekt ETH, Partner) as inde-pendent Swiss valuers.

Audit CommitteeAFIAA’s statutory auditing firm is Ernst & Young AG, Zürich. The Audit Committee is elected annu-ally at the Investor Meeting.

Custodian BankThe custodian bank administers the accounts of the Foundation and carries out transactions for payments and short-term financial investment. The Foundation’s custodian bank is the Zürcher Kantonalbank, Zurich.

Sales Commissions and Account Management Fees / RefundsNeither AFIAA nor any of its subsidiaries have re-ceived or provided fees or other payments for sales and management in the financial year under re-view. There has been no reimbursement of fees or commissions paid to investors. The compensation due to Avadis Immobilien AG is covered via the management fees.

AFIAA Annual Report 2014/2015 57Annual Financial Statement | Appendix

Financial ReportingThe financial reporting standards accord with Swiss legislation, with the professional recom-mendations for financial reporting (the Swiss GAAP FER 26) (applied appropriately) and the Verordnung über die Anlagestiftungen, or ASV (Ordinance on Investment Foundations). These rules serve to enhance comparability of the an-nual report and increase transparency and clar-ity. With regard to the consolidated annual report, please refer to the subsequent explanations. For the consolidated annual statement, the same fi-nancial reporting principles were applied as in the previous year.

AFIAA’s business year 2014/15 represents a regu-lar business year for the period between 1 October 2014 and 30 September 2015.

Principles of Valuation and Financial ReportingDirect Investments Property valuation is carried out according to the professional recommendations of Swiss GAAP FER 26 and the “Fair Value” principle in accord-ance with the guidelines of the International Valu-ation Standards (IVS). These guidelines define market value as the most probable price reason-ably obtainable in the market at the time of valu-ation for an exchange between well-informed parties in an open market under fair market con-ditions. Methods approved for determining mar-ket value include the standard approaches, e.g. the market-orientated sales comparison approach, the cost approach or the income approach. The most commonly used method is the discounted cash flow method, whereby the property’s value is determined by the sum of discounted future net earnings at the date of valuation.

The valuation reports are carried out by independ-ent local valuers. Those carried out by foreign lo-cal valuers are reviewed by an independent Swiss valuer, who checks the validity of the valuation by verifying that methods have been applied correctly and by determining any divergences. The report by the independent Swiss valuer forms an integral part of this financial report.

AFIAA has the value of each of its properties cal-culated at least once a year. AFIAA’s valuation guidelines propose continuous valuation through-out the year. Valuations at the close of various quarters should record changes in market values promptly. All market values determined at a valu-ation date prior to the balance sheet date have been examined critically at the end of the financial

2 Principles of Valuation and Financial Reporting; Continuity

year and checked as to whether they remain valid as at the closing date.

Indirect Investments The financial reporting of indirect investments is based on statements provided by the relevant management company derived from quarterly and year-end accounts. In all cases, the latest calculat-ed net asset values are taken into account.

Mortgage Loans The reporting of mortgage loans is based on the mortgage loan sum minus any repayments. The mortgage loans are adjusted in the local currency relevant to the investment property in question.

In order to hedge against the risks resulting from fluctuating interest rates, swap transactions were performed in the majority of cases. Combining variable interest rate mortgages with swap trans-actions results in a fixed burden of interest over the term of the respective loan. Replacement val-ues for the swap transactions are disclosed in note IV. Negative replacement values are applied only when a concrete decision has been made on early loan repayment. Positive replacement values are not capitalised.

Liquidation CostsLiquidation costs are covered by reserves for even-tual sales of real estate assets. These include de-ferred tax assets and liabilities as well as addition-al transaction costs.

With regard to those subsidiaries holding proper-ties, the positive differences between corporate value and tax values reported at the balance sheet date are taken into account as deferred tax liabili-ties (liability method). Deferred tax on properties is calculated, a s a rule, according to the tax rates applicable at the balance sheet date and the tax system applicable to each property. The compa-nies holding the properties are assessed, in rela-tion to deferred tax liabilities, on the basis of the tax consequences resulting from sale of the prop-erties (even if a sale of the company’s shares were possible).

Deferred tax credits are calculated based on nega-tive differences in valuation, where they can be offset against profits for tax purposes.

Additional transaction costs which are deferred include, in particular, estimated costs for advisory and brokerage services and fees deriving from a sale. They will be taken into account provided they have to be borne by the seller, directly or indi-


rectly, via a deduction from the sale price, in ac-cordance with locally applicable standards. These transaction costs generally present a negative dif-ference between corporate and taxable revenues. As a result, deferred tax credits are activated, pro-vided it appears certain they can be offset against taxable revenues.

Any penalty costs in relation to early repayment of mortgage loans are not deferred as transaction costs. This also includes liquidation costs arising from hedge transactions. These costs are depend-ent on the level of interest rates at the time of sale and reflect the market price of the mortgage.

The provisions for liquidation costs are taken di-rectly into the equity capital and have no effect on performance.

Principles of Consolidation Methods of ConsolidationThe consolidated annual financial statements comprise the annual financial statement of the Foundation (parent company) and the accounts of the companies it controls after elimination of internal group transactions and holdings. The Foundation owns directly or indirectly 100% of all subsidiary companies and these are fully con-solidated. The accounts of the investment group AFIAA Global are kept separately from the Ad-ministrative Accounts.

Consolidation of CompaniesThe following companies are assigned to either the consolidation of the AFIAA Global Investment Group or the consolidation of the Administra-tive Accounts. The consolidated annual financial statement of AFIAA Global Investment Group represents investors’ interests, while the actual activities of the Foundation are represented in the consolidated Administrative Accounts.

The liquidation of AFIAA Investment AG was finalised in the Administrative Accounts. In the financial year under review, AFIAA 501 Congress, LLC was established in the group of consolidat-ed companies of the AFIAA Global Investment Group, which holds the 501 Congress Avenue in Austin, USA. AFIAA Paris 1, Paris, was liquidated. The liquidations of AFIAA Dundas AG, AFIAA Country Hills AG and AFIAA Argentia AG were finalised. In the context of a share deal, the Foun-dation acquired AFIAA Finland Bronda Holding Oy, in conjunction with AFIAA Brondankulma Oy, which holds the ‘Brondankulma’ property, in Hel-sinki, Finland. No company was disposed of.

As at the reporting date, the following companies are included in the consolidation of the AFIAA Global Investment Group:

Annual Financial Statement | Appendix


Country Company Head-quarters

Holding Function Capital 6

30.09.15 30.09.14 30.09.15 30.09.14

AFIAA Global Investment GroupSwitzerland AFIAA Holding AG Zurich 100% 100% 1 CHF 5 000 000 CHF 5 000 000

AFIAA 250 Dundas AG (liquidated) Zurich 0% 100% 5 CHF 0 CHF 1 000 000AFIAA Country Hills AG (liquidated) Zurich 0% 100% 5 CHF 0 CHF 350 000AFIAA 2550 Argentia AG (liquidated) Zurich 0% 100% 5 CHF 0 CHF 100 000AFIAA London 1 AG Zurich 100% 100% 2, 3 CHF 550 000 CHF 550 000AFIAA London 2 AG Zurich 100% 100% 2, 3 CHF 100 000 CHF 100 000AFIAA Scotland AG Zurich 100% 100% 2, 3 CHF 1 020 000 CHF 1 020 000AFIAA Germany AG Zurich 100% 100% 2, 3 CHF 100 000 CHF 100 000AFIAA R&J AG Zurich 100% 100% 2, 3 CHF 100 000 CHF 100 000

Germany AFIAA Deutschland GmbH Munich 100% 100% 1 EUR 76 570 EUR 76 570AFIAA Deutsche Holding GmbH Munich 100% 100% 1 EUR 4 157 550 EUR 4 157 550AFIAA Campus GmbH Munich 100% 100% 2, 3 EUR 5 155 289 EUR 5 155 289AFIAA Dock 13-Speicher GmbH Munich 100% 100% 2, 3 EUR 3 053 908 EUR 3 053 908AFIAA CSC GmbH Munich 100% 100% 2, 3 EUR 10 902 311 EUR 10 902 311AFIAA Teltower 35 GmbH Munich 100% 100% 2, 3 EUR 5 682 893 EUR 5 682 893AFIAA Log 1 GmbH Munich 100% 100% 2, 3 EUR 2 880 377 EUR 2 880 377AFIAA Büroturm Hafen D1 GmbH Munich 100% 100% 5 EUR 376 500 EUR 376 500AFIAA Büroturm Hafen D2 GmbH Munich 100% 100% 5 EUR 105 000 EUR 175 000

France AFIAA 46 Lauriston SAS Gagny (Paris) 100% 100% 2, 3 EUR 4 075 550 EUR 4 075 550AFIAA Paris 1 SAS (liquidated) Gagny (Paris) 0% 100% 5 EUR 0 EUR 37 000

Spain AFIAA Real Estate Spain S.L.U. Madrid 100% 100% 1 EUR 5 000 EUR 5 000AFIAA Gestión 1 S.L. Madrid 100% 100% 2, 3 EUR 4 707 664 EUR 4 707 664

Portugal AFIAA Portugal SGPS Lisbon 100% 100% 1 EUR 5 218 076 EUR 5 218 076AFIAA Espace & Explorer S.A. Lisbon 100% 100% 2, 3 EUR 7 152 621 EUR 6 085 774

Finland AFIAA Finland Bronda Holding Oy Helsinki 100% – 1 EUR 377 241 –AFIAA Brondankulma Oy Helsinki 100% – 2 EUR 20 693 453 –

USA AFIAA U.S. Real Estate, Inc. Clayton 100% 100% 1 USD 128 402 238 USD 43 402 500AFIAA Arch Street, LLC Philadelphia 100% 100% 2, 3 USD 13 383 544 USD 13 565 028AFIAA Market Street, LLC Philadelphia 100% 100% 2, 3 USD 1 669 933 USD 21 222 500AFIAA Elston Logan, LLC Rosemont 100% 100% 2, 3 USD 5 345 450 USD 6 172 254AFIAA Rohr Road, LLC Columbus 100% 100% 2, 3 USD (13 292 475) USD 38 052 885AFIAA WFT, LLC Austin 100% 100% 2, 3 USD 57 394 040 USD 61 647 859AFIAA Arch Square Holding Washington 100% 100% 5 USD 55 690 640 USD 0AFIAA Arch Square, LLC Washington 100% 100% 5 USD 55 690 640 USD 0AFIAA 501 Congress, LLC Austin 100% – 1 USD 73 369 473 –

Austria AFIAA Austria GmbH Vienna 100% 100% 1 EUR 15 089 500 EUR 15 089 500AFIAA Betriebs 1 GmbH Vienna 100% 100% 2, 3 EUR 739 500 EUR 989 500AFIAA Betriebs 2 GmbH Vienna 100% 100% 2, 3 EUR 4 632 500 EUR 5 632 500AFIAA Betriebs 3 GmbH Vienna 100% 100% 1 EUR 35 000 7 EUR 35 000 7

AFIAA Betriebs 4 GmbH Vienna 100% 100% 1 EUR 8 520 000 7 EUR 8 520 000 7

Optimax Gamma Liegenschaften-verwertungsgmbH & Co KG

Vienna 100% 100% 2, 3 EUR 7 535 050 EUR 7 535 050

Australia AFIAA Australia Pty Ltd Sydney 100% 100% 1 AUD 75 225 002 AUD 75 225 002AFIAA Australia 1 Pty Ltd Sydney 100% 100% 2, 3 AUD 36 500 001 AUD 36 500 001AFIAA Australia 2 Pty Ltd Sydney 100% 100% 2, 3 AUD 25 000 000 AUD 25 000 000AFIAA Australia 3 Pty Ltd Sydney 100% 100% 2, 3 AUD 14 375 001 AUD 14 375 001AFIAA Australia 4 Pty Ltd Sydney 100% 100% 5 AUD 0 AUD 0

Administrative AccountSchweiz AFIAA Investment AG (liquidated) Zurich 0% 100% 4 CHF 0 CHF 0USA AFIAA U.S. Investment, Inc. New York 100% 100% 4 USD 50 000 USD 50 000

1 Holding2 Ownership entity3 Operating company4 Management company

5 Inactive6 Share capital and further paid-in capital7 thereof EUR 17 500 paid in



Foreign CurrencyThe AFIAA Foundation operates in the Euro Zone, Great Britain, North America and Australia. Cur-rency fluctuations therefore influence the financial position and earnings of the Foundation which are expressed in Swiss Francs.

Conversion of Subsidiary Company Earnings The assets and liabilities of the foreign subsidi-aries are converted into Swiss francs at the daily average exchange rate at the balance sheet date. The income statement position is converted at the average exchange rate during the reporting period. The foreign currency effects resulting from the fluctuating exchange rates are recorded as “cur-rency differential due to consolidation” and are profit neutral.

Other Foreign Currency Transactions Foreign currency transactions are converted at the daily average exchange rate at the date of transac-tion. Effects of fluctuations in exchange rates are entered under Shareholders’ Equity with no im-pact on profit.

Currency Hedging No currency hedging is undertaken within the in-vestment group. Any hedging of foreign currency risk is a matter for the investors.

Currency Conversion RatesCurrency exchange rates as at the reporting date were obtained from the custodian bank, and pub-licly accessible inter-bank rates are used for the annual average rate of exchange.

Currency Exchange rate at balance sheet date 30/09/2015

CHF

Exchange rate at balance sheet date 30/09/2014

CHF

Average exchange rate

01/10/14 – 30/09/15 CHF

Average exchange rate

01/10/13 – 30/09/14 CHF

EUR 1.0907 1.2070 1.0982 1.2211USD 0.9771 0.9555 0.9555 0.9000CAD 0.7288 0.8550 0.7803 0.8321GBP 1.4801 1.5490 1.4763 1.4908AUD 0.6862 0.8361 0.7515 0.8288



Organisation of Investment Activity; Investment GuidelinesAs the senior executive body, the Foundation Board sets the strategic direction of the Founda-tion and issues the investment guidelines in ac-cordance with Art. 9 Para. 5 Point 11 of the Articles of Association of the AFIAA Swiss Foundation for International Real Estate Investments.

The investment guidelines relevant to the report-ing period were adopted by the Foundation on 7 April 2014. These guidelines are subordinated to the regulations of BVV 2, in particular, Art. 49 ff. and the practice of the supervisory authorities for investment foundations derived from it, as well as the statutes and rules of the Foundation. The in-vestment guidelines define types of properties eli-gible for investment, investment principles to be observed and the method of risk distribution.

Each investment decision is made by the Invest-ment Committee at the request of the Manage-ment. The Management is responsible for im-plementation of the guidelines and investment decisions. The investment strategy selected fo-cuses on a diversified portfolio with stable direct investments and the addition of fund units with a medium-term holding period. Compliance with the investment guidelines is scrutinised with every investment decision by the Investment Commit-tee, and by a body independent of management on

3 Notes on Investment Activities and Net Performance of Assets

a quarterly basis. All bodies and persons involved in the area of capital investment are subject to a strict duty of confidentiality. In addition, these persons are obliged to abide by the “ASIP” Char-ter” and the KGAST code of conduct. Care is taken that AFIAA only collaborates with partners who can demonstrate local and/or worldwide experi-ence, depending on their responsibilities, in order to minimise risk, and to benefit as much as possi-ble from the partners’ international know-how.



Presentation of Investments in relation to the Investment Guidelines The table below shows the actual distribution of the portfolio as at 30 September 2015 next to the ranges prescribed by the Investment Guidelines.

Presentation of investment guidelines of 06/12/2014

Direct investments and called-in fund investments as of 30/09/2015

Distribution by markets

Europe (excluding CH) 20 – 80%EU member states as at 01/01/2013

20 – 80%

Non-EU member states 0 – 20%America 0 – 40%

North America 0 – 40%Central and South America 0 – 20%

Asia/Oceania 10 – 40%East and South East Asia, Oceania

10 – 40%

All other countries 0 – 20%

Distribution by asset classDirect real estate investments in properties and via subsidiaries

90 – 100%

Investments in non-listed collective investments

0 – 5%

Investments in listed collective investments

0 – 5%

Investments in real estate companies

0 – 10%

0

10

20

30

40

50

60

70

80%

18.6% DEU

24.7% GBR

7.2% AUT

3.0% PRT 1.3% FRA 0.1% ESP

5.3% FIN

15.7% AUS 24.1% USA

60.2%

24.1%

15.7%

Specified bandwidth

Europe North America

Asia /Oceania

0 10 20 30 40 50 60 70 80 90 100%

0.4%

0.0%

0.0%

99.6%

Investments inreal estate companies

Investments in listedcollective investments

Investments in non-listedcollective investments

Direct real estate

Specified bandwidth



Distribution by investment strategyCore / Core+ 75 – 100%Value Added 0 – 20%Opportunistic 0 – 5%

Distribution by type of useOffices 35 – 100%Retail 0 – 50%Logistics 0 – 15%Miscellaneous (hotels, parking, residential, restaurants)

0 – 10%

0 10 20 30 40 50 60 70 80 90 100%

84.7%

12.1%

0.1%

3.1%

Specified bandwidth

Miscellaneous

Logistics

Retail

Offices

0 10 20 30 40 50 60 70 80 90 100%

Opportunistic

Value Added

Core / Core+

0.3%

10.0%

89.7%

Specified bandwidth



Details on Overall Performance The overall results for the financial year can be broken down into various components, differenti-ating between current performance and valuation outcome, yields from direct investments and in-vestment funds, and between performance in lo-cal currency and overall performance adjusted for currency fluctuations.

Net performance (excluding funds) represents the current revenues earned from assets after de-duction of all costs. Unlike overall performance, which reflects the total value contribution, it in-cludes neither capital gains/losses nor currency gains/losses.

The return on equity capital, as defined by the KGAST bulletin dated 23 August 2013, is ex-plained in Section 5, along with the other key indicators. It is broken down into various compo-nents, as shown below.

The KGAST summary of “key indicators of real estate special assets (investment groups) in invest-ment foundations” makes clear that the net assets as at the end of the period, and not the average net assets, should be taken as the reference value for calculating the return on equity capital. Hence, the individual components of the return on equity capital have been calculated on the same basis.

Overall performance during the period under reviewin thousand CHF 2014/2015 Sector per-

formance2013/2014 Sector per-

formanceNet assets at end of financial year 1 110 950 1 038 277Net performance (excluding funds) 60 916 5.48% 50 291 4.84%Capital gain (loss) on direct investments (after liquidation costs)

13 462 1.21% 13 856 1.33%

Capital yield from funds 2 001 0.18% 1 295 0.12%Capital gain on funds (236) (0.02%) 125 0.01%Currency gain (loss) (100 397) (9.04%) 16 050 1.55%Total profit (loss) (24 254) (2.18%) 81 617 7.86%

Value-adding components 01/10/2014 – 30/09/2015 in million CHF

0

10

-10

-20

20

30

40

50

60

70

80

-24.3

60.9

19.5 -5.7

-62.7

-100.4-0.22.0

+ -+ -

-21.0

-16.8

74.776.1

Capital gain,direct invest-ments

Capital yield, funds

Capital gain, funds

Currency gain 2

Total profit

Total profit, currency-adjusted

Total profit, AFIAA direct investments

not realizedrealizedChange in currency differential

Liquidation costs 1

Net perfor-mance (excl. funds)

1 Change in estimated liquidation costs2 Incl. change in currency differential resulting

from consolidation



Net performance for the period (including and excluding funds)in thousand CHF 2014/2015 2013/2014Net assets at end of financial year 1 110 950 1 038 277Net performance (including funds) 62 917 51 586Capital yield from shareholdings 2 001 1 295Net performance (excluding funds) 60 916 50 291Net performance (including funds) in relation to net assets at end of financial year

5.66% 4.97%

Capital gains on direct investments (including change in liquidation costs)in thousand CHF 2014/2015 2013/2014Net assets at end of financial year 1 110 950 1 038 277Capital gain (loss) on direct investments 19 477 13 245Change in estimated liquidation costs (5 696) 611Realised liquidation costs (318) 0Capital gain (loss) on direct investments (including change in liquidation costs)

13 462 13 856

Market value of direct investments at start of financial year 1 188 686 1 125 192Market value of direct investments at end of financial year 1 279 726 1 188 686Average market value of direct investments 1 234 206 1 156 939Return from change in value of direct investments 1.09% 1.20%In relation to net assets at end of financial year 1.21% 1.33%

Capital gains arising from fundsin thousand CHF 2014/2015 2013/2014Net assets at end of financial year 1 110 950 1 038 277Capital gains arising from funds (236) 125Return from change in fund value in relation to net assets at end of financial year

(0.02%) 0.01%

Currency gainsin thousand CHF 2014/2015 2013/2014Net assets at end of financial year 1 110 950 1 038 277Realised currency gains (20 965) (9 587)Unrealised currency gains (62 671) 23 795Change in currency differential due to consolidation (16 762) 1 842Total currency gains (100 397) 16 050in relation to net assets at end of financial year (9.04%) 1.55%

The realised and unrealised capital and currency gains (losses) contained in the preceding sections are grouped differently in the following tables. The following information serves as a transition to the financial statement.

Realised capital and currency gainsin Tausend CHF 2014/2015 2013/2014Realised capital gains on direct investments (24 683) 0Realised capital gains on indirect investments 0 (3 352)Realised currency gains (20 965) (9 587)Realised liquidation costs (318) 0Total (45 966) (12 939)

Unrealised capital and currency gainsin thousand CHF 2014/2015 2013/2014Unrealised capital gains on direct investments 44 160 13 245Unrealised capital gains on indirect investments (236) 3 477Unrealised currency gains (62 671) 23 795Total (18 747) 40 517



The following notes refer to the relevant bal-ance sheet items of the AFIAA Global Investment Group.

I Indirect InvestmentsThe indirect investments are reported according to information provided by the respective manage-ment companies and are based on the quarterly and annual financial statements. The most recent net asset values are included. There is a certain delay in the transmission of the data to the invest-ment company. The fund values presented in the Report are based on figures valid as per 31 Sep-tember 2015 as provided by AIG.

4 Notes on Other Balance Sheet Items and Income Statement

Indirect investments (non-listed real estate funds)In thousands in the respective foreign currencyCountry Fund Commitment in

foreign currencyOf which

drawn downOpen

liabilitiesNAV

30/09/15 CHF

NAV 30/09/14

CHFUSA AIG U.S. Residential USD 20 000 USD 18 919 USD 1 081 5 147 5 354Total 5 147 5 354

As per 30 September 2015, outstanding liabilities from capital commitments after currency adjust-ments had risen to CHF 1 056 245 (previous year: CHF 1 032 896).

Indirect investments (non-listed real estate funds)in thousand CHF 2014/2015 2013/2014Balance at start of financial year 5 354 28 611Capital invested 0 0Capital gain (236) 125Sales 0 (23 249)Currency gain 29 (133)Balance at end of financial year 5 147 5 354

II Direct InvestmentsDirect real estate investments comprise the in-come-earning properties held through property companies. These structural measures serve to re-duce liability risks.

All market values of direct investments have been reviewed in the reporting year by independent val-uation experts, and revalued in accordance with the prevailing guidelines. The valuations comply with the professional recommendations of Swiss GAAP FER 26, as well as with the International Valuation Standards (IVS), which are laid down by the International Valuation Standards Committee (IVSC).

The valuations are mainly carried out using the Discounted Cash Flow Method. The discount rates

range between 5% and 10% (previous year: 5% to 10%).

The total value of the 29 direct real estate invest-ments was CHF 1 279 725 853 as per the report-ing date.



Direct Investmentsin thousand CHF 2014/2015 2013/2014Balance at start of financial year 1 188 686 1 125 192Additional purchases at acquisition cost (incl. incidental expenses) 250 839 33 212Value-adding expenditures (investments) 0 0Revaluation result 19 477 13 245Sales (78 468) 0Currency gain (loss) (100 808) 17 037Balance at end of financial year 1 279 726 1 188 686

III Deferred Tax Creditsin thousand CHF 2014/2015 2013/2014Tax credits from losses carried forward for future offsetting 18 748 19 384Tax credits from tax deferrals 9 991 7 711Total deferred tax credits 28 739 27 095

Allowable losses carried forward for future offset-ting reduce the future basis for calculating taxes. Deferred tax credits arising from losses carried forward are taken into account where it is prob-able that there will be taxable income, against which losses carried forward can be offset.

The rise in these tax credits is predominantly at-tributable to accumulated depreciation. These fi-nancial assets are matched by deferred tax liabili-ties arising from positive differences in valuation or, as the case may be, reduced deferred tax cred-its arising from negative differences in valuation, a fact that is reflected in the balance sheet item “estimated liquidation expenses”.

IV Mortgage LoansExternal financing taken up in connection with direct investments showed an outstanding prin-cipal totalling CHF 171 202 449 as per the report-ing date (previous year: CHF 207 517 276). Across all mortgage loans and currencies, the weighted

in thousands in the respective foreign currencyForeign currency

Amount Book value 30/09/2015

CHF

Book value 30/09/2014

CHF

Weighted av. fixed interest period

in years

Weighted av. interest rate

USD 70 898 69 275 17 975 6.11 3.97%EUR 60 674 66 177 91 360 2.65 3.35%GBP 12 100 17 909 76 334 6.73 4.34%AUD 26 000 17 841 21 739 0.27 5.17%Total 171 202 207 517

The following table shows the values of mortgaged investment properties:

in thousand CHF 30/09/2015 30/09/2014Book value of mortgaged properties 436 977 530 950Outstanding loans or cover 171 202 207 517

average interest rate at the balance sheet date was 3.89% (previous year: 3.76%). The weighted aver-age residual fixed-interest period for all loans is 4.23 years (previous year: 2.31 years).



The variable interest rates on mortgage loans for the following properties have been hedged by means of swap trades:

in thousands in the respective foreign currencyProperty Currency Contract

value 30/09/2015

Replacement value

30/09/2015

Contract value

30/09/2014

Replacement value

30/09/2014CSC Münster Wolbeck EUR 0 0 15 090 (1 111)Westfalen-Center, Dortmund EUR 18 000 (2 015) 18 000 (2 801)Forum Zehlendorf, Berlin EUR 8 730 (764) 8 730 (1 158)Optimax, Vienna EUR 17 000 (262) 17 000 (332)Optimax, Vienna EUR 13 000 (285) 13 000 (388)Twin Office, Salzburg EUR 4 723 (126) 4 723 (173)The Atrium, Sydney AUD 26 000 (145) 26 000 (223)

In all hedge transactions, the contract values equal the amount of the corresponding underlying transaction, whereby the risk of a change in inter-est rate is eliminated completely. The financial ex-penses resulting from the underlying and hedged transaction remain unchanged, as with a normal fixed mortgage. No market valuation of the finan-cial liability is put into the balance sheet for either normal fixed mortgages or hedged variable mort-gages. In the same way, replacement values of swap trades are not shown in the balance sheet.

V Liquidation CostsThe calculation of the provisions for deferred liquidation taxes was carried out as described in Section 2 and calculated by the local tax experts at individual property level at the time of purchase. The provisions for deferred liquidation taxes are adjusted to correspond to the altered valuations of the individual properties.

In the reporting period, the transaction costs re-lating to all properties were reviewed, recalculated and adjusted per property if required. The respec-tive calculations include brokerage, preparatory measures, consultancy expenses and property transfer tax if the latter is charged directly to the seller. This resulted in a total increase in the pro-vision for transaction costs of CHF 1.1 Mio.

in thousand CHF Book value 30/09/2015

Book value 30/09/2014

In/decrease

Deferred tax credits arising from negative differences in valuation

5 702 4 332 1 370

Deferred tax liabilities arising from positive differences in valuation

(41 577) (34 225) (7 352)

Additional transaction costs (19 468) (19 754) 286Total (55 343) (49 647) (5 696)



VI Local Management ExpensesIn this report, the costs subsumed under this heading are the decentralised costs incurred in the companies that own and operate the properties, but which lie outside actual operating costs. They are itemised as follows:

in thousand CHF 01/10/2014 – 30/09/2015

01/10/2013 – 30/09/2014

In/decrease

Consultancy expenses (456) (453) (3)Asset management and bookkeeping (2 594) (2 756) 162Other (175) (141) (34)Total (3 225) (3 350) 125

in thousand CHF 01/10/2014 – 30/09/2015

01/10/2013 – 30/09/2014

In/decrease

Legal and consultancy fees (65) (106) (41)Auditing expenses (242) (222) 19Valuation expenses (147) (170) (23)Remuneration to the Administrative Accounts (304) (347) (43)Remuneration to custodian bank (85) (77) 8Remuneration to administrative bodies (2 674) (4 761) (2 087)Acquisition expenses (21) (590) (569)Other administrative expenses (53) (67) (13)Total (3 592) (6 340) (2 749)

VII Administrative ExpensesThis cost pool comprises Foundation as well as auditing and valuation expenses, which in total can be defined as relevant to TERISA (see Section 5). In contrast to previous years when the respec-tive remuneration was paid to the Foundation’s Administrative Accounts, the full remuneration to

administrative bodies was paid to Avadis Immo-bilien AG (detailed explanations are provided in Section 5: total expense ratio TERISA). Acquisition expenses are costs such as due diligence and travel expenses associated with property purchases that did not come to fruition.

VIII Tax on Capital and Corporate Income TaxIn the reporting year, a tax adjustment charge in the amount of USD 1 489 675 arose from the Hines US Core Office Fund (HUSCOF) invest-ment which had been held from 2005 to the end of 2013. The tax rate estimate relating to the capi-tal gains tax deducted at source was too low. The outstanding tax charge was reported in the current income statement as expenses from tax on capital and earnings and was accrued under the accrued expenses/deferred income item. The outstanding amount was paid to the tax office after the balance sheet date.

IX Receivables from Third PartiesAmong other items, the receivables from third parties include sales proceeds and collateral lodged on trust accounts in the amount of EUR 5.8 million for the ‘Tele Haase’ property in Vi-enna as well as USD 20.0 million for the ‘Market Street’, Philadelphia, and ‘Rohr Road’, Groveport, properties. The total balance on these frozen ac-counts was disbursed to AFIAA at the beginning of October 2015.

X Accrued IncomeThe increase in the accrued income is due to an accrual posting of CHF 4.1 million between Avadis and the Investment Foundation.

XI Liabilities Due to Third PartiesLiabilities due to third parties include a short-term loan taken out from the custodian ZKB in the amount of CHF 20 million which was used for in-terim financing purposes and was repaid after the balance sheet date.



In accordance with Art. 38 Para. 7 of the ASV, investment foundations are to show key figures for the costs, returns and risks of each investment group in the Annual Report. The following fig-ures comply with the professional KGAST bulletin dated 23 August 2013:

Rate of Rental Income LossThe rate of rental income loss is defined as the rental shortfall (losses from unoccupied premises and collection losses) as a percentage of the net

5 Key Figures as Required by KGAST

budgeted rental income for the reporting period. It is an important indicator of the letting status for completed buildings held as investment properties.

in thousand CHF 2014/2015 2013/2014Budgeted rental income per balance sheet 105 142 104 314Absorbed ancillary costs (15 783) (15 851)Budgeted net rental income 89 359 88 463Reduced earnings due to vacancies (5 926) (7 247)Collection losses / changes to bad-debt provision 24 (52)Total rental income loss (5 902) (7 299)As a percentage of net budgeted rental income 6.61% 8.25%

Borrowing RatioThe borrowing ratio shows the amount of exter-nal financing in relation to the market value of the properties. It shows the level of external real es-tate debt financing.

in thousand CHF 2014/2015 2013/2014Market value of direct investments 1 279 726 1 188 686Long-term mortgages 162 565 149 222Short-term mortgages 8 637 58 295Total mortgages 171 202 207 517As a percentage of market value of direct investments 13.38% 17.46%

Operating Profit MarginThe operating profit margin is one of the most important indicators in corporate analysis. It ex-presses the operating profit that is left after de-duction of operating expenses as a percentage of the net rental income. In international practice, the ancillary operating costs are generally pre-sented as gross figures; that is to say, the amount invoiced to the tenants is shown as income and

the payments are shown in full as expenses. This contrasts with Swiss practice, whereby expenses are netted. Hence, the revenue from properties ac-cording to the income statement below is shown after deduction of ancillary costs, in order to en-sure comparability at the level of net rental in-come.

in thousand CHF 2014/2015 2013/2014Income from real estate assets per income statement 99 240 97 016Absorbed ancillary costs (15 783) (15 851)Net rental income 83 457 81 164Operating income 66 768 67 332Leasehold fees (1 809) (1 814)Repairs 5 186 3 585Operating profit per KGAST definition 70 145 69 103As a percentage of net rental income 84.05% 85.14%



Total Expense Ratio (TERISA)The assessment of cost efficiency based on the pre-viously published TER figure is not sufficient. The industry standard involves various fees for ser-vices rendered, in particular purchase fees, which are capitalised as part of total investments and are not included in the TER figure. Up until now, AFIAA was not familiar with such commissions. So far, various attempts at introducing a transparent, comprehensive TER presentation including all fee components at the industry level have not met with majority approval. AFIAA has therefore decided to adopt the industry standard.

As of the this reporting year, the mandate holder Avadis Immobilien AG is directly charging indi-vidual properties for part of the administrative costs in the form of fees for services rendered in the fields of acquisitions and sales as well as com-prehensive renovations and conversions. These charges will be reflected in the properties’ balance sheets. The total fees for services rendered charged in the reporting year amounted to CHF 2 643 701. The costs will be credited to the ordinary mandate fees and will therefore not increase the total cost.

This new approach will facilitate comparison of the TER figure at the industry level. To allow com-parison with AFIAA’s previous approach, the TER calculations for the reporting year will be present-ed according to both the previous method (1) and the new method.

The current TERISA (NAV) of 0.63% applies to in-vestors in tranche A-I. An ex ante TERISA (NAV) of 0.88% applies to investors in tranche AII which was launched in November 2015. Tranche A-II comprises investors who made their initial com-mitments after 1 Oct. 2014. In contrast to the pre-vious tranche A-I, tranche A-II carries a manage-ment fee of 25 basis points p.a.

Total Expense Ratio (TERISA) GAVThe Total Expense Ratio, or TER, of ISA (Immo-bilien Sondervermögen Anlagestiftungen, real es-tate investment foundation assets) GAV is a meas-ure of the total costs associated with managing and operating the Investment Group as a percent-age of the total assets. It is an indicator of the op-erating expense liability of the investment group. Acquisition expenses for non-finalised purchases are not included.

in thousand CHF 2014/2015 2014/2015 1 2013/2014Total assets at start of financial year 1 321 850 1 321 850 1 285 537Total assets at end of financial year 1 393 883 1 393 838 1 321 850Average total assets 1 357 866 1 357 866 1 303 694Administrative expenses (Separate Trust Assets) 3 592 6 235 6 340Acquisition expenses (21) (21) (590)Management fees (properties) 3 225 3 225 3 350Operating expenses (Separate Trust Assets) 6 796 9 439 9 100As a percentage of average total assets 0.50% 0.70% 0.70%



Total Expense Ratio (TERISA) NAVThe Total Expense Ratio, or TER, of ISA (Immo-bilien Sondervermögen Anlagestiftungen, real estate investment foundation assets) NAV is a measure of the total costs associated with man-aging and operating the Investment Group as a percentage of the net assets. It is an indicator of

the operating expense liability of the investment group. Per definition, property management costs are explicitly relevant to this ratio. Acquisition ex-penses for non-finalised purchases are not includ-ed. This figure complies with the OAK BV directive W-02/2013 Reporting Asset Management Costs.

in thousand CHF 2014/2015 2014/2015 1 2013/2014Net assets at start of financial year 1 038 277 1 038 277 908 335Net assets at end of financial year 1 110 950 1 110 950 1 038 277Average net assets 1 074 614 1 074 614 973 306Administrative expenses (Separate Trust Assets) 3 592 6 235 6 340Acquisition expenses (21) (21) (590)Local administrative company costs 3 225 3 225 3 350Operating expenses (Separate Trust Assets) 6 795 9 439 9 100As a percentage of average net assets 0.63% 0.88% 0.93%

Return on Equity (ROE)The Return on Equity (ROE) represents the over-all performance of the financial year as a percent-age measure of the net assets of the real estate investment foundation assets as at the end of the reporting period. It expresses return on share-holder equity. The purchases with current income, when shares were issued, and adjustments to current income, when shares were repurchased, ensure direct comparability of the overall perfor-mance of net assets at the end of the period.

in thousand CHF 2014/2015 2013/2014Net assets at end of financial year 1 110 950 1 038 277Total profit (loss) (24 254) 81 617As a percentage of net assets at end of financial year (2.18%) 7.86%

Return on InvestmentReturn on investment is defined as the relative change in the net inventory value of the shares in the period under review, assuming the re-invest-ment of any distributed proceeds. It expresses the overall return achieved for the investors.

in CHF 2014/2015 2013/2014Net assets per share at start of financial year 115.1180 115.2827Net assets per share at end of financial year (adjusted for dividends)

122.4539 125.1180

Change in net assets per share (2.6641) 9.8353As a percentage of net assets at start of financial year (2.13%) 8.53%



Distribution YieldThe distribution yield relates the dividend amount distributed per share to the capital value per share.

in CHF 2014/2015 2013/2014Dividend per share 3.40 3.40Capital value per share 114.0223 108.4592Distribution yield 2.98% 3.13%

Distribution RatioThe distribution (or pay-out) ratio shows the amount distributed as a proportion of the total net profit for the financial year. It provides a means of assessing the distribution and financing policy of a company (or of the real estate investment foun-dation).

in thousand CHF 2014/2015 2013/2014Total amount distributed 30 960 30 048Net profit for financial year 51 586 50 871Distribution ratio (of total distribution) 60.02% 59.07%

The logistics building in Málaga, Spain, was sold at the beginning of October 2015.

6 Events after the Balance Sheet Date


HQ South, Brisbane

Report of the Statutory Auditor

76 AFIAA Annual Report 2014/2015Report of the Statutory Auditor

To the General Meeting of Investors of AFIAA Foundation for International Real Estate Investments, Zurich

Report of the Statutory Auditor on the Financial StatementsAs statutory auditor, we have audited the finan-cial statements of AFIAA Foundation for Interna-tional Real Estate Investments, which comprise the consolidated balance sheet and income state-ment, changes in net assets and appropriation of profit of the AFIAA global Investment group as well as the administrative accounts, including the consolidated balance sheet and income statement of capital assets and the proposed appropriation of profits, and the appendix (pages 47 to 73), for the year ended 30 September 2015.

Foundation Board’s ResponsibilityThe Foundation Board is responsible for the preparation of the financial statements in ac-cordance with the requirements of Swiss law and with the articles of incorporation and the regu-lations. This responsibility includes designing, implementing and maintaining an internal con-trol relevant to the preparation of financial state-ments that are free from material misstatement, whether due to fraud or error. The Foundation Board is further responsible for selecting and ap-plying appropriate accounting policies and mak-ing accounting estimates that are reasonable in the circumstances.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to ob-tain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to ob-tain audit evidence about the amounts and dis-closures in the financial statements. The proce-dures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, wheth-er due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circum-

Report of the Statutory Auditor with Financial Statements as of 30 September 2015 of AFIAA Foundation for International Real Estate Investments, Zurich

stances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s inter-nal control system. An audit also includes evalu-ating the appropriateness of the accounting poli-cies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We be-lieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements for the year ended 30 September 2015 comply with Swiss law and with the articles of incorporation and the regulations.

Report on Additional Legal and Other RequirementsWe confirm that we meet the legal requirements on licensing (article 9 Ordinance on Investment Funds ASV/OFP) and independence (article 34 Occupational Pensions Ordinance 2 [OPO 2]) and that there are no circumstances incompatible with our independence.

We have carried out the audits required by article 10 ASV/OFP and article 35 OPO 2. The Founda-tion Board is responsible for ensuring that the legal requirements are met and that the statu-tory and regulatory provisions on organization, management and investments are applied, to the extent that these duties are not performed by the General Meeting of Investors.

We have assessed whether:

• organization and management comply with the requirements of the law, articles of incor-poration and regulations and whether an in-ternal control exists that is appropriate to the size and complexity of the foundation

• funds are invested in accordance with the re-quirements of the law, articles of incorpora-tion and regulations, including the investment guidelines

• measures have been taken to ensure loyalty in fund management and whether the responsi-ble governing body has ensured to a sufficient

AFIAA Annual Report 2014/2015 77Report of the Statutory Auditor

degree that fund managers fulfill their duties of loyalty and disclosure of interests

• the legally required information and reports have been given to the supervisory authority

• the investment foundation’s interests are safe-guarded in disclosed transactions with related entities

We also assessed the foundation’s rationale for the valuation of real estate in accordance with ar-ticle 10 para. 3 ASV/OFP.

We confirm that the applicable requirements of the law, articles of incorporation and regulations, including the investment guidelines, have been met.

We recommend that the financial statements submitted to you be approved.

Ernst & Young Ltd

Zurich, 4 December 2015

Daniel Zaugg Licensed audit expert (Auditor in charge)

Daniel Lanfranconi Licensed audit expert

Classical Service Center, Münster Wolbeck

Additional Information

80 AFIAA Annual Report 2014/2015Additional Information

CommissionIn accordance with Art. 3, Para. 8 and 9 of the AFIAA Regulations dated 17 January 2013, as well as the AFIAA Valuation Process updated on 6 March 2014, the properties held by AFIAA are to be valued annually at their market value by inde-pendent local valuation experts. These valuations are carefully checked and verified by a Swiss valu-ation expert to ensure uniform and correct appli-cation of the valuation methods prescribed in the regulations.

Mr. Pascal Marazzi-de Lima MRICS, Wüest & Partner AG, Zurich, has been selected as the Swiss valuation expert. The company meets the require-ments laid out in Art. 11, Para. 3 of the Swiss Ordi-nance on Investment Foundations (ASV).

Valuation StandardsThe valuation depicts the gross market value. Property valuations are carried out according to the principle of Fair Value, i.e., the estimated market value is taken as the sales price that can be agreed upon under fair market conditions at the time of the valuation between well-informed inde-pendent parties in a free market.

Mr. Pascal Marazzi-de Lima MRICS confirms that the methods used by the local valuation experts conform to the AFIAA Guidelines and those of the International Valuation Standards Committee (IVSC), and/or nationally recognised and cus-tomary standards under Point 1 of Para. 3 of the above-named guidelines.

Valuation MethodsThe independent local valuation experts generally use the Discounted Cash Flow Method or the Cash Value Method for their valuations. In the former case, the value of the property is defined as the sum of future net revenues, discounted back to the valuation date. The discount rate chosen is deter-mined by the market conditions for each property.

The Swiss valuation experts verify the valuations by checking for methodological accuracy and for any discernible material divergences.

Independent StatusAll local valuation experts and the Swiss valuation expert confirm that they are independent from AFIAA and from persons associated with AFIAA.

Valuation Statement for the AFIAA Real Estate Portfolio of Direct Investments Submitted by the Independent Swiss Property Valuation Experts for the 2014/2015 Financial Year

The following local valuation experts were en-gaged to provide valuations:

• Bentley, Fraser JLL, Australia

• Bolt, William D. Integra Realty Resources, USA

• Borges de Castro, Frederico CBRE, Portugal

• Clark, Andy Colliers, Scotland

• Eriksson, Janne DTZ, Finland

• Espadero, Sergio Gesvalt, Spain

• Gunkel, Stefan CBRE, Germany

• Hornsby, Paul Paul Hornsby, USA

• Kral, Thomas REAG, France

• Levine, Martin B. Metropolitan Valuation Services, USA

• Masters, Ben Colliers, Australia

• Methuen, David Cushman & Wakefield, England

• Niemeyer, Jochen ENA, Germany

• Perl, Alan Metropolitan Valuation Services, USA

• Reynolds, Martin JLL, Australia

• Wagner, Wolfgang EHL Immobilien, Austria

Wüest & Partner AG

Zurich, 20 November 2015

Pascal Marazzi-de Lima MRICS & dipl. Architekt ETH

AFIAA Annual Report 2014/2015 81Additional Information

Foundation Headquarters

Head Office SwitzerlandAFIAA Swiss Foundation for International Real Estate Investments Gartenhofstrasse 17 8004 Zurich Switzerland Tel. +41 44 245 49 44 Fax +41 44 245 49 49 [email protected] www.afiaa.com

Branch Office USAAFIAA U.S. Investment, Inc. 7 Penn Plaza, Suite 804 New York, NY 10001 U.S.A. Tel. +1 212 748 7684 Fax +1 212 608 8098

Branch Office AustraliaAFIAA Australia Pty Ltd Suite 1705, 109 Pitt Street Sydney 2000, NSW Australia Tel. +61 2 9231 5991

Professional Memberships

The AFIAA Investment Foundation is a member of the following professional organisations and as-sociations:

• KGAST Conference of Managers of Invest-ment Foundations, Zurich, www.kgast.ch

• ASIP Swiss Association of Pension Funds, Zurich, www.asip.ch

• Swiss Circle International Real Estate Marketing, www.swisscircle.ch

• AFIRE Association of Foreign Investors in Real Estate, www.afire.org

CreditsDesign: sappari design/development

Oliver Walkhoff, Zurich

Translation: text translate ag, Zurich

8 December 2015

AFIAA Swiss Foundation for International Real Estate Investments

Gartenhofstrasse 17 8004 Zurich Switzerland

Tel. +41 44 245 49 44 Fax +41 44 245 49 49

[email protected] www.afiaa.com

Quartermile 2, Edinburgh

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