SWISS PRIME INSIGHT ANNUAL REPORT AS AT 31 DECEMBER

Transcription

1 SWISS PRIME INSIGHT ANNUAL REPORT AS AT 31 DECEMBER 2005

2 CONTENTS SWISS PRIME INSIGHT AS AT 31 DECEMBER Brief summary of the key figures 4 Corporate Governance 7 Valuation expert s report 21 Financial commentary 27 Consolidated annual financial statements Group auditor s report 36 Consolidated income statement 37 Consolidated balance sheet 38 Consolidated cash flow statement 39 Consolidated statement of changes in shareholders equity 40 Notes to the consolidated annual financial statements 41 Annual financial statements of Swiss Prime Site AG Auditor s report 92 Income statement 93 Balance sheet 94 Notes to the annual financial statements 95 Proposed appropriation of balance sheet profit 99 Property details Figures taken from the balance sheet and income statement as at /104/106/108/110 General property details 103/105/107/109/111 Property structure part 1, commercial properties 112/114/116/118/120 Property structure part 2, residential properties 113/115/117/119/121 Translation: The original of this annual report is written in German. In the case of inconsistencies between the German original and this English translation, the German version shall prevail.

3 BRIEF SUMMARY OF THE KEY FIGURES Selected Company figures Financial year Financial year Change % Group Investment properties CHF m 3, , Rental income from investment properties CHF m Earnings before interest, taxes, depreciation and amortisation (EBITDA) CHF m Operating profit before interest and taxes (EBIT) CHF m Change in fair market value (IAS 40) CHF m Profit for the period CHF m Shareholders equity before minority interests CHF m 1, , Equity ratio % Borrowed capital CHF m 2, ,294.3 (12.24) Borrowed capital ratio % (12.94) ROE (weighted) % ROIC ( weighted) % Net cash inflow from operational activities CHF m Net cash drain from investment activity CHF m Net cash inflow from financing activity CHF m Details without effect of revaluation* Operating profit before interest and taxes (EBIT) CHF m EBIT margin % (4.35) Profit for the period CHF m Earnings per share (weighted) CHF /share 3.54 ** ROE (weighted) % *Revaluations (IAS 40) and deferred taxes **The share was split in May 2005 at a ratio of 1:5. The figures for the previous period have been adjusted accordingly.

4 BRIEF SUMMARY OF THE KEY FIGURES 4 5 Development of the (reinvested) SPS share total return Share price As at CHF High CHF Low CHF SPS TR SPI TR SWX IG Real Estate TR Source: Bloomberg Details of the share Share price ( ) as at CHF high CHF low CHF Market capitalisation as at CHF 1,552.0 m NAV (before deferred taxes)* as at CHF as at CHF change 0.20% NAV (after deferred taxes)* as at CHF as at CHF change 1.61% Earnings per share (weighted) as at CHF 3.67 as at CHF 2.46 Share statistics total registered shares securities no ISIN no. CH SWX symbol SPSN first trading day The share was split in May 2005 at a ratio of 1:5. The figures for the previous period have been adjusted accordingly. *Possible minority interests in the shareholders equity are not considered in the calculation of the NAV.

5 BRIEF SUMMARY OF THE KEY FIGURES Portfolio split by type of use Based on the net rental income as at Based on the net rental income as at Retail 20% Cinemas/ restaurants 5% Retail 20% Cinemas/ restaurants 5% Storage 6% Storage 7% Residential 2% Other 4% Parking 4% Residential 2% Other 5% Parking 5% Offices 59% Offices 56% Portfolio split by region Zurich 45% Based on the market value as at Eastern Switzerland 6% Central Switzerland 10% Zurich 45% Based on the market value as at Eastern Switzerland 7% Central Switzerland 8% Northwestern Switzerland 17% Northwestern Switzerland 17% Western Switzerland 1% Bern 11% Southern Switzerland 1% Geneva 9% Western Switzerland 2% Geneva 9% Bern 11% Southern Switzerland 1% Lease expiry profile Based on rental income as at end of contract in number of years % 10.48% % 3.28% % 8.14% % 11.77% % 12.42% 8.90% 7.22% % 11.79% % 12.03% 10.88% 7.40% % 7.74% % 12.40% 0% 2% 4% 6% 8% 10% 12% 14% 16 % as a percentage of net rental income

6 6 7 CORPORATE GOVERNANCE

7 CORPORATE GOVERNANCE Group structure Holding Financing company SPS Finance Limited, Jersey Real estate company SPS Immobilien AG, Olten Real estate company SPS Immobilien Residenz AG, Olten Real estate company Société Immobilière Rue Céard Nº14, Wangen b. Olten Real estate company Maag Property Company AG, Olten Service company eport solutions ag, Zurich Holding company Serimo Holding AG, Binningen Business properties with no or very little residential space Business properties with a larger amount of residential space Business properties Business properties Participations Share capital Participation in % Participations in CHF 1,000 (direct or indirect ownership) SPS Immobilien AG Real estate company Olten, Switzerland 225, SPS Immobilien Residenz AG Real estate company Olten, Switzerland 36, Société Immobilière Rue Céard Nº14 Real estate company Wangen b. Olten, Switzerland Maag Property Company AG Real estate company Olten, Switzerland 100, SPS Finance Ltd. Financing company Jersey, United Kingdom 1, eport solutions ag Service company Zurich, Switzerland Serimo Holding AG Holding company Binningen, Switzerland 1,

8 CORPORATE GOVERNANCE 8 9 The participation of Maag Holding AG, reported in the annual report 2004, has been merged by absorption retroactively as per with Swiss Prime Site AG. Within the scope of the integration of the Maag Group, further mergers took place. The former subsidiaries Maag Management AG and Maag Real Estate Services AG were merged retroactively as per with Swiss Prime Site AG. Maag Prime Real Estates AG and Maag-Zahnräder AG were also merged retroactively as per with SPS Immobilien AG. All the participations, with the exception of Maag Holding AG, are unlisted companies. They are consolidated on the basis of the shareholding interest. The holding company itself, Swiss Prime Site AG, is listed on the SWX Swiss Exchange. Details will be found in the chapter Details of the share under the heading Brief summary of the key figures. Shareholder structure As of Breakdown according to Registered shareholders Registered shares shares Number % Number %* 1 to 5,000 1, ,247, ,001 to 50, ,440, ,001 to 500, ,025, ,001 to 1,282, ,120, ,282,680 and more ,431, Total registered shares 1, , 265, Unrecorded shares 5,387, T otal shares issued 25, 653, *In%of shares issued Breakdown according to Registered shareholders Registered shares country/region Number % Number % Switzerland 1, ,272, Europe (excl. Switzerland) , Other countries , Total registered shares 1, , 265, Breakdown according to Registered shareholders Registered shares shareholder categories Number % Number % Natural persons 1, ,101, Legal entities ,533, Pension funds ,974, Insurance companies ,352, Funds , Others , Total registered shares 1, , 265,

9 CORPORATE GOVERNANCE As of the balance sheet date, the Company is aware of the following major shareholders: Stake as at Stake as at Major shareholders in % in % Winterthur Life, Winterthur > > Pension Fund of Credit Suisse Group (Switzerland), Zurich < > Pension Fund of the Swiss Federal Railways, Bern > 5.00 > 5.00 Cross-investments At present, there are no cross-investments. Capital structure as at Capital Total Number of registered shares Nominal per share Share capital CHF 808,088 m 25,653,598 CHF Authorised capital CHF 28,642 m 909,280 CHF Conditional capital CHF 142,695 m 4,530,000 CHF All outstanding shares are voting and dividend shares. There are no preferential rights whatsoever. Authorised capital The Board of Directors has been authorised to increase the share capital to the extent indicated above at any time until The subscription right of the shareholders is guaranteed. The precise wording can be found in the Company s Articles of Association. Conditional capital The conditional capital is divided into an amount of up to CHF 95,130, for the exercise of option and/or conversion rights granted in connection with bonds and similar commitments, and an amount of up to CHF 47,565, for option rights granted to the shareholders. The precise wording can be found in the Company s Articles of Association. Share capital changes over the last three years Nominal Number of Total per share registered nominal value Changes in CHF shares in CHF 1,000 Share capital as at ,026, Reduction of nominal value on (10.00) 4,026,667 (40267) Share capital as at ,026, Reduction of nominal value on (12.00) 4,026,667 (48 320) Share capital as at ,026, Share split at a ratio of 1:5 on ,133, Share capital increase on by share exchange (Maag) , Reduction of nominal value on (2.50) 20,522,878 (51 307) Share capital increase on ,130, Share capital as at ,653,

10 CORPORATE GOVERNANCE Supplementary details on the capital changes can be found in note 25 Shareholders equity. Swiss Prime Site AG only has registered shares outstanding. Restrictions on transferability and nominee registrations Pursuant to Article 5 of the Articles of Association, every shareholder and usufructuary may request to be registered in the share register. Only those persons whose names appear in the share register are recognised as shareholders or usufructuaries by the Company. The Company recognises only one beneficiary per share. Convertible bonds and options As at , Swiss Prime Site AG issued a convertible bond with the following key data: Volume CHF million Interest rate 2.00% p.a., payable annually on , starting on Time to maturity 5 years ( ) Conversion price CHF Listing SWX Swiss Exchange Security number (SPS05) Each individual bond with a nominal value of CHF 5, can be converted into registered shares of the Company at any time. The new shares that must be issued are secured by conditional capital. On the basis of the present conversion price of CHF 63.60, a maximum of 2,672,955 new registered shares with a nominal value of CHF could be issued (equals a maximum share capital of CHF million). No conversions have taken place to date. The outstanding convertible bond issue is therefore valued at CHF million. Board of Directors Hans Peter Wehrli Prof. Dr. oec. publ. (1952), Zurich Chairman of the Board of Directors Member since: elected until: GA 2008 Professor of Business Management, Chair in Marketing at the University of Zurich, Chairman of the Board of Directors of Belimo Holding AG, Hinwil, and of Greater Zurich Area AG, Zurich, and member of other boards of directors Thomas Wetzel Dr. iur., Attorney-at-law (1956), Küsnacht Vice-Chairman of the Board of Directors Member since: elected until: GA 2008 Partner in the law office of Wenger Plattner, Basel Zurich Bern, Chairman of the Board of Directors of EBV Immobilien AG, Urdorf, of Brandenberger + Ruosch AG, Dietlikon, and of sechzigplus Projektentwicklungs AG, Freienbach, member of the Board of Directors of Geschäftshaus City AG Dübendorf, Dübendorf, of Thyssen Krupp Aufzüge AG, Rümlang, and member of other boards of directors

11 CORPORATE GOVERNANCE Urs Bracher Engineer HTL, Graduate Swiss Pension Insurance Expert (1955), Lindau Member of the Board of Directors Member since: elected until: GA 2006 Managing Director of the Pension Fund of Credit Suisse Group (Switzerland) Bernhard M. Hammer Dr. iur., Advocate and Notary (1950), Kammersrohr Member of the Board of Directors Member since: elected until: GA 2007 Chairman of the Board of Directors of Comet Holding AG, Bern, of Etavis AG, Volketswil, and of Bator Holding AG, Herzogenbuchsee, member of the Board of Directors of Flumroc AG, Flums, and of Sofisa Holding AG, Fribourg, and member of other boards of directors Rudolf Huber Dr. oec. publ., Management consultant (1955), Wilen SZ Member of the Board of Directors Member since: elected until: GA 2006 Member of the Board of Directors of Forbo Holding AG, Baar, and of Kardex AG, Zurich; part-time lecturer at the Business University in Lucerne; from , member of the Executive Board and CFO of Geberit AG, Jona Hans F. Lauber Lic. rer. pol., Swiss Federal diploma as financial analyst and asset manager (1962), Langnau am Albis Member of the Board of Directors Member since: elected until: GA 2007 CIO and member of the Executive Board of Winterthur Group Mario F. Seris Lic. phil. (1955), Zurich Member of the Board of Directors Member since: elected until: GA 2007 Regional head of the Asset Management Division Switzerland and Global Head Real Estate Asset Management of Credit Suisse Peter Wullschleger Bookkeeper with Swiss Specialist Qualification (1965), Oftringen Secretary of the Board of Directors and CFO (not member of the Board of Directors) In these functions since: Director, head of Finance and Administration Real Estate Asset Management (Switzerland) at Credit Suisse, Zurich, and member of the Management Board of Serimo Holding AG, Binningen

12 CORPORATE GOVERNANCE All members of the Board of Directors are Swiss nationals. The Board of Directors consists entirely of non-executive members who have not served on the Management Board of Swiss Prime Site AG or another Group company for the past three years. With the exception of the business relations as indicated (see Management contract and note 29 Transactions with shareholders and related parties ), the Company has no other significant business relations with Credit Suisse. Retirements during the period under review Stefan Mächler Chairman of the Board of Directors Member since: Retired on: Reinhard Giger Member of the Board of Directors Member since: Retired on: Cross-links As stated on pages 11/12 (Board of Directors), some members have seats on the boards of directors of other listed companies. However, these are not cross-links as defined by Section 3.3 of the DCG (Directive on Information Relating to Corporate Governance) as they are not reciprocal seats. Elections and period of office After expiry of the personal period of office (maximum of three years), the member must be re-elected by the General Assembly of Shareholders. The aim is to replace the members of the Board of Directors progressively. Members of the Board of Directors shall submit their resignation at the ordinary General Assembly of the year in which they reach the age of 65. Regulation of the powers and duties of the Board of Directors The Board of Directors is responsible for the control of the Company and the supervision and monitoring of the Management Board. The Board of Directors adopts the fundamental decisions that determine the activity of the Company. Within the framework of its activities, the Board of Directors ensures a profitfocused and competent conduct of the Company by the Management Board according to the provisions of the Articles of Association, the regulations and the applicable legislation. The Board of Directors exercises its powers jointly. If needed, it can elect a committee from amongst its members and allocate powers to this committee in a separate set of regulations or by amending the existing Organisational Regulations. The Board of Directors acts as a collective body. Unless the contrary is laid down in the resolutions of the Board of Directors and the Organisational Regulations, its members shall have no personal powers vis-à-vis the Company and for this reason cannot issue any instructions of their own accord. The Board of Directors exercises the control, supervision and monitoring of the management of the Company. It issues guidelines for business and investment policy and is regularly informed about the course of business.

13 CORPORATE GOVERNANCE The Board of Directors delegates the conduct of the business in full to the Management Board unless laid down otherwise by law, the Articles of Association or the Organisational Regulations. The Board of Directors can allocate the preparation and performance of its resolutions or the monitoring of transactions to one or more committees, individual members or the Management Board. It shall ensure appropriate reports to its members. The Board of Directors can entrust functions for the conduct of the business to third parties on a contractual basis. On the basis of the Organisational Regulations, the Board of Directors currently has two committees (the Audit Committee and the Compensation Committee), which are described in detail below. Audit Committee The functions, duties and powers of the Audit Committee are set out in separate rules and essentially comprise the following fields: Monitoring the management of Swiss Prime Site AG with respect to financial reporting, compliance with legislation, requirements, internal rules and guidelines and with respect to risk management as well as monitoring external corporate activities. Monitoring and assessing the independence and the work, auditing costs, extent of audit and the results of the external auditors and/or the external group auditor, the quality, implementation and disclosure of the accounting principles and the suitability of the financial control mechanisms. Monitoring and assessing the independence and the work of the valuation experts and the valuation principles. The Audit Committee exercises its powers as a joint collective body. Its members have no personal powers as against the Company, and for this reason cannot of themselves issue instructions. The Audit Committee has a right of proposal vis-àvis the Board of Directors as a whole. The Audit Committee reports regularly to the Board of Directors about its activities and submits the necessary motions. The Audit Committee is composed as follows: Rudolf Huber, Chairman Bernhard M. Hammer, member Hans F. Lauber, member Compensation Committee The functions, duties and powers of the Compensation Committee are set out in separate rules and essentially comprise the following fields: Preparation of the guidelines and proposals for the compensation payable to the Board of Directors and its committees and to the management (including participation plans), the Real Estate Asset Manager and the property administrations, related persons and the external valuation experts.

14 CORPORATE GOVERNANCE The Compensation Committee monitors compliance with the compensation principles determined by the Board of Directors, the committee itself and the management. The Compensation Committee exercises its powers as a joint collective body. Its members have no personal powers vis-à-vis the Company, and for this reason cannot issue instructions of their own accord. The Compensation Committee has a right of proposal vis-à-vis the Board of Directors as a whole. The Compensation Committee reports regularly to the Board of Directors about its activities and submits the necessary motions. The Compensation Committee is composed as follows: Thomas Wetzel, Chairman Urs Bracher, member Mario F. Seris, member Management Board Markus Graf (1949), Feldbrunnen CEO In this function since: Managing Director, head of Real Estate Asset Management (Switzerland) at Credit Suisse, Real Estate Asset Management, Zurich, member of the Board of Directors of Wincasa, Winterthur, and of Société Internationale de Placements, Basel, Chairman of the Supervisory Board of Credit Suisse Asset Management Immobilien Kapitalanlagegesellschaft, Frankfurt am Main (D), member of the Board of Trustees of Credit Suisse Investment Foundation, Zurich, Chairman of the Real Estate Investment Funds Expert Committee of the Swiss Funds Association Peter Wullschleger (1965), Oftringen CFO and Secretary of the Board of Directors In these functions since: Director, head of Finance and Administration Real Estate Asset Management (Switzerland) at Credit Suisse, Zurich, and member of the Board of Directors of Serimo Holding AG, Binningen Peter Lehmann (1958), Wilen SZ CIO In this function since: Director, head of Development Real Estate Asset Management (Switzerland) at Credit Suisse, Zurich All members of the Management Board are Swiss nationals.

15 CORPORATE GOVERNANCE Principles of the distribution of powers between Board of Directors and Management Board The basic principles and the separation of functions and powers between the Board of Directors and the Management Board are regulated in detail in organisation and competence regulations. The Board of Directors is the highest governing body of the Company and supervises and monitors the Management Board of the Company. It issues directives on the business and investment policy and keeps itself regularly informed of the progress of business. The Management Board is responsible for the operational management of the Company and represents the Company vis-à-vis third parties. Arrangement of the information and control instruments applied to the Management Board The Management Board informs the Board of Directors regularly (at least every quarter) in detail about the course of business by means of a standardised report. In addition, meetings are held regularly with the Audit and Compensation Committees. Remuneration, shareholdings and loans to members of the Board of Directors and the Management Board Basic fee Expenses Function Basic fee lump sum BD Chairman CHF 150, CHF 3, BD Vice-Chairman CHF 75, CHF 3, BD member CHF 45, CHF 3, Secretary BD CHF 15, CHF 3, Member of Audit Committee CHF 15, CHF 3, Member of Compensation Committee CHF 10, CHF 3, Member of Investment Committee CHF 15, CHF 5, The members of the Board of Directors receive one half of their basic fee in cash and one half in shares of Swiss Prime Site AG. There are no stock option programmes. The shares are allocated at the end of the financial year on the basis of the market price at the beginning of the financial year, less a 10% discount. The delivered shares remain blocked for a period of four years. The fee for the same function within the group of companies is only paid once. In the case of multiple functions within the group of companies, the maximum fee shall be the first fee plus 50% of the second fee. In the case of multiple functions, a maximum lump sum for expenses of CHF million is paid. The basic fees are proposed by the Compensation Committee and adopted by the Board of Directors. No separate basic fees/salaries are paid in respect of the activity of the persons who serve as members of the Management Board if they are employed by the

16 CORPORATE GOVERNANCE Asset Manager, as their remuneration is included in the management fee. One member of the Management Board sits on the Investment Committee and another member of the Management Board also serves as secretary to the Board of Directors. The fees for these duties are included in the compensation stated below and do not form part of the management fee. Payments to current and former members of executive bodies Total payments CHF 352, (excl. allocation of shares and options) of which to current members of executive bodies: executive members of the Board of Directors CHF 0.00 (0) non-executive members of the Board of Directors CHF 275, (7) members of the Management Board CHF 38, (2) of which to former members of executive bodies: executive members of the Board of Directors CHF 0.00 (0) non-executive members of the Board of Directors CHF 39, (2) members of the Management Board CHF 0.00 (0) Neither additional separate severance payments nor compensations have been paid to former members of executive bodies who retired in previous reporting periods. The figures in brackets are the number of persons benefiting. Maximum total remuneration The maximum total remuneration amounts to CHF 128, (including issue of shares and options) of which: basic fee CHF 63, share allocations CHF 65, option allocations CHF 0.00 Share allocation in the period under review Total share allocations ,371 shares of which to: executive members of the Board of Directors 0 shares non-executive members of the Board of Directors 4,371 shares members of the Management Board 0 shares Shares held Total shares held as at ,081 shares of which by: executive members of the Board of Directors 0 shares non-executive members of the Board of Directors 11,987 shares members of the Management Board 5,094 shares Options No options are outstanding or have been issued.

17 CORPORATE GOVERNANCE Additional fees and remunerations No additional fees were paid. Loans to members of executive bodies At present, no loans to members of executive bodies are outstanding. Shareholder participation rights The current Articles of Association can be found on the homepage at under the heading Corporate Governance. The following are references to selected articles: Register of shares and registration provisions (Article 5) Powers of the General Assembly of Shareholders (Article 9) Convening/agenda of the General Assembly of Shareholders (Article 11) Voting rights and the adoption of resolutions (Article 13) Special quorums (Article 14) Change of control and defence measures Anyone who directly, indirectly or in joint agreement with third parties acquires shares and, together with the shares already in his possession, exceeds the limit of 49% of the voting rights whether exercisable or not, must submit an offer for all the listed shares of the Company. There are no other provisions, agreements or plans. Auditors and group auditors Duration of the mandate and period of office of the auditor in chief Since the Company was founded (1999), the statutory auditors and group auditors of Swiss Prime Site have been KPMG Klynveld Peat Marwick Goerdeler AG, Badenerstrasse 172, 8004 Zurich. The latter also acts as independent auditor for all fully consolidated Swiss subsidiaries of Swiss Prime Site AG. KPMG Jersey acts in this function for SPS Finance Ltd. The auditors and the group auditors are elected each year by the General Assembly of Shareholders. The auditor in chief has been in office since His period of office shall end with the financial year 2007 (subject to re-election of the auditor and group auditor). Fee No audit fees have yet been invoiced for the current period. Swiss Prime Site is expecting total costs for regular auditing of approximately CHF million for the 2005 financial year. Fees totalling CHF million were billed in connection with the issue of the convertible bond in February Fees amounting to around CHF million were charged for the reduction in the nominal value implemented in July 2005, while fees amounting to a further CHF million were invoiced on the occasion of the share capital increase carried out in the autumn of 2005.

18 CORPORATE GOVERNANCE Management contracts Swiss Prime Site has transferred the asset management functions to Credit Suisse, Asset Management, Zurich (Real Estate Asset Management department, hereinafter referred to as CSAM ). All the details are regulated in the management contract dated August The contract can be terminated in writing at 12 months notice, for the first time as at In addition, the parties are entitled to terminate this contract immediately at any time for sound cause. Principle Swiss Prime Site contracts CSAM to implement, monitor and supervise the financial matters of the Company, the administrative and technical administration and the controlling of the properties. CSAM assists, advises, prepares proposals and handles the property transactions within the framework of the Investment Regulations of Swiss Prime Site. Management fee (basic remuneration) Per year % of the total assets (total of all valued consolidated assets, at the beginning of each quarter). Calculation example Share of total assets up tochf 0.5 billion 0.35% Next share of total assets up tochf 1.0 billion 0.33% Next share of total assets from CHF 1.0 billion 0.31% Next share of total assets from CHF 2.0 billion 0.25% Construction management fee (building trustee, owner representation) 1.50% of the total building costs in question (construction of buildings, comprehensive renovations and conversions). Purchase and sales commission % of the purchase or sales price (without purchase costs) of each property acquired, contributed or sold by Swiss Prime Site: Purchase and sales price under CHF 1.0 million 5.00% Purchase and sales price under CHF 3.0 million 3.00% Purchase and sales price from CHF 3.0 million 1.50% Compensation paid to the Asset Manager is stated in note 29 Transactions with shareholders and related parties of the consolidated annual financial statements.

19 CORPORATE GOVERNANCE Information policy Frequency Each six months, the Company publishes a Newsletter with information about the latest events of the preceding six months. The financial reporting is in the form of half year and annual reports according to the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB). Other information media Further information about the Company can be found on the Web site Major changes since the balance sheet date No significant changes have taken place since the balance sheet date.

20 20 21 VALUATION EXPERT S REPORT

21 VALUATION EXPERT S REPORT Valuation expert s report by Wüest & Partner AG, Zurich The properties in the Swiss Prime Site AG portfolio are valued by Wüest & Partner half-yearly at their current market value. The present valuation is valid as at Valuation standards and principles Wüest & Partner values the properties according to the principle of the fair value, i.e., the established market value is defined as the selling price most likely to be obtained on the free market under fair conditions at the time of the valuation between well-informed parties (IAS 40). Extremely high and extremely low positions are thus eliminated. Properties under construction and development sites are valued at acquisition costs less any necessary impairments (IFRS/IAS 16). The valuation guarantees a high degree of transparency, uniformity, relevance and completeness. The relevant legal regulations, as well as the specific national and international standards, are respected (regulations for property companies listed on the SWX, IFRS, etc.). In order to ensure an independent valuation and thus the highest possible level of objectivity, the business activity of Wüest & Partner excludes both trade and transactions on a commission basis, as well as the management of properties. The valuation is based on the most recent information available concerning the properties and the property market. The data and documents pertaining to the properties are made available by the owner. These documents are assumed to be correct. All property market data come from the continuously updated databases held by Wüest & Partner (Immo-Monitoring 2006). Valuation methods As a rule, investment properties are valued by Wüest & Partner according to the discounted cash flow method. This corresponds to international standards and is also used in business valuations. It is recognised within the framework of the freedom of choice of basic method to be a best practice. Using the DCF method, the current market value of a property is established according to the sum of all net earnings (before taxes, interest, depreciation and amortisation = EBITDA) and considering investments and repair costs expected in the future and discounted to the present. The net earnings (EBITDA) per property are individually discounted in the light of the relevant prospects and risks and depending on the market and an adjustment for risks. A detailed financial report per property reports all expected cash flows, thus creating the greatest degree of transparency possible. In the report, attention is drawn to substantial changes as compared with the previous valuation. Valuation results as at The real estate portfolio of the SPS Group underwent further changes in the period under review ( ). In the 2005 financial year, a total of 18 relatively small properties were sold as part of the restructuring of the portfolio. No new acquisitions were made. The Maag site, which was previously shown as a single property, has now been divided into three different properties. As a result, the portfolio has been reduced by16 properties to a total of 135 properties. The portfolio comprises 127 existing investment properties, three plots of building land, one project under construction ( Sihlcity in Zurich), the Maag development site in Zurich comprising three properties ( Prime Tower, Gleiszeile and Maaghof+Event ), and one industrial property (Grünfeldstrasse 25 in Jona).

22 VALUATION EXPERT S REPORT The following properties were sold: Vorstadt 28/30 in Wangen an der Aare, Alleestrasse 10a in Langnau im Emmental, Bahnhofstrasse 4 in Malters, Grossfeldstrasse 19 in Sargans, Hauptgasse 8in Lichtensteig, Bahnhofstrasse 11 in Chur, Dürracker in Oberbuchsiten, Bälliz1 in Thun, Avenue de la Gare12 in Bulle, Bahnhofstrasse 20 in Wolhusen, Rue Henry-Grandjean 5 in Le Locle, St. Gallerstrasse 57 in Gossau, Stauffacherstrasse 36 in Schaffhausen, Zentralstrasse 2 6 in Neuhausen am Rheinfall, Hauptstrasse 37 in Kreuzlingen, Zürcherstrasse 144 in Frauenfeld, Bahnhofstrasse 39 in Bülach and Bahnhofstrasse 47 in Rüschlikon. Sales prices overall were up 12.2% from the total market value of CHF 57.4 million reported as at and The properties were sold under private contract at normal market conditions. The Opus 2 property in Zug previously reported as a project was valued as at and is carried for the first time as an investment property. Further progress has been made on the Sihlcity project currently under construction and the development of the Maag site in Zurich, and these properties are valued at cost. The sustainability of the at cost valuations has been confirmed by an impairment test. In the period under review, no transactions were concluded with affiliates. As at , the market value of the entire portfolio of the SPS Group (a total of 135 properties) is reported as CHF 3,310.6 million, thereby increasing by CHF 38.1 million or 1.16% year-on-year. The increase is made up of investments in new buildings (CHF 41.7 million for Sihlcity and the Maag site in Zurich), the completion/new valuation of Opus 2 in Zug (CHF 49.9 million), changes in the value of pre-existing properties (CHF 3.9 million) and the 18 disposals referred to above (CHF 57.4 million). Of 131 properties (excluding the project and development site, four properties), 63 properties are valued higher than at ; the values of four properties remained unchanged and 64 are carried at a lower value. The added values are justified by the completion of maintenance and investment measures (refurbishment, finishing work for tenants), higher rental income, successful letting or the signing of new contracts and some yield criteria which have changed because of prevailing market conditions. The value impairments can be attributed mainly to changed rental potential, sales forecasts and vacancies or risks of vacancies and higher estimates of the cost of future repairs. Overall, the portfolio is particularly stable in the present market environment due to the fact that the major part of income has been secured for a number of years and thanks to attractive site qualities especially as far as the new projects are concerned. However, where there are vacancies, reletting is made difficult in some cases because of prevailing market conditions. The implementation of the Prime Site strategy has been furthered by selling some smaller properties in less advantageous locations. The development of the Maag site in Zurich is progressing on schedule. Zurich, Wüest & Partner AG Andreas Ammann Graduate architect ETH/SIA, partner Dr. Christoph Zaborowski Dr. econ., partner

23 VALUATION EXPERT S REPORT Annex: Valuation assumptions Valuation assumptions as at Further to the above comments on the valuation standards and method, the main general valuation assumptions for the present valuations are set out below: Investment properties These properties are as a rule valued on a going concern basis. The valuation is based on the current rental situation and the condition of the property. On expiry of the existing rental agreements, the earnings forecast is based on the current market level. On the cost side, allowance is made for the repair and maintenance costs required to ensure sustainable income and to cover recurring facility management costs. In principle, we work on the basis of an average and clear facility management strategy. The specific circumstances of the owner are disregarded or taken into account only to the extent that specific agreements have been included in the rental contract or if they appear plausible and feasible to third parties or do not differ substantially as far as the resulting market value is concerned. Possible optimisation measures consistent with the market such as an improved rental situation in future are taken into account only in so far as they guarantee the continuation of the property on a going concern basis. Changes in use, repositioning, conversion work, conversion into freehold apartments, etc., are not included in the valuation. The valuation or calculation period (DCF method) runs for 100 years from the valuation date. A more detailed cash flow forecast is prepared for the first ten years, while approximate annualised assumptions are made for the rest of the term. The valuation implicitly assumes a current annual inflation rate of 1.00%. However, cash flow and discount rates are usually reported on a real basis. The specific indexing of existing rental relationships is taken into account. On expiry of the contracts, an average indexing rate of 80% is used for the calculation and rents are adjusted to the market level once every five years. Payments are generally assumed to be made monthly in advance on expiry of the rental agreements. On the operating cost side (owner s costs), we generally assume that completely separate ancillary cost accounts are kept and that ancillary and operating costs are outsourced in so far as this is permitted by law. Maintenance costs (repair and maintenance costs) are determined on the basis of benchmarks and model calculations. The residual lifetime of the individual parts of buildings is determined on the basis of a rough estimate of their condition, the regular renewal is modelled and the resulting annual income calculated. The values arrived at in this way are subjected to a plausibility check based on benchmarks set by Wüest & Partner and figures for comparable properties. Maintenance costs are included in full (100%) for the first ten years, while the earnings forecast takes account, where appropriate, of possible increases in rent. From the eleventh year, maintenance costs of 50 70% are allowed (value-preserving components only) without including possible rent increases. Costs for removing residual pollution are not included in the individual valuations; they must be considered separately by the principal.

24 VALUATION EXPERT S REPORT The discounting method used is based on a real interest rate which is made up of the risk-free interest rate (long-term government bonds) plus general property risks plus property-specific supplements, and the risk is then adjusted for each individual property. The average real discount rate weighted by the market value applied to the investment properties for the purposes of the current valuation is 4.94%; if inflation of 1.00% is assumed, this rate equals a nominal discount rate of 5.99%. The lowest real discount rate used for a particular property is 4.10% and the highest is 7.00%. The valuations are based on the rental tables of the facility managers as at and on the floor space as indicated by the principal/facility managers. The creditworthiness of the individual tenants is not explicitly taken into account in the valuation, as it is assumed that appropriate contractual safeguards have been obtained. Properties under construction and development sites Properties under construction and development sites are also valued and carried at the acquisition costs less any necessary impairments (IFRS/IAS 16). The planned or possible built-up space after completion is valued on the basis of the same assumptions used for the investment properties. To determine the current market value on the reporting date, outstanding investment costs are deducted from the value of the building after completion. Information on projected construction work, timetable, building costs and future rentals are provided by the principal if available (building permits, plans, cost calculations/investment applications, etc.) or as believed to be plausible.

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26 26 27 FINANCIAL COMMENTARY

27 FINANCIAL COMMENTARY Significant events and developments Swiss Prime Site in the financial year 2005 New record turnover and profit 2005 was a successful financial year with three main highlights: the placing of the 2% convertible bond issue for an amount of CHF million with a term to maturity of five years, the acquisition and integration of the Maag Group and the increase in share capital completed in the autumn, with CHF million raised by the new issue. Although the measures arising from the integration of the Maag Group did not yet all come to fruition in the financial year 2005 and transaction-related non-recurring expenditure (including impairment of goodwill) placed a burden on the annual accounts, significant profit growth was reported. At CHF million, rental income was around 46% higher year-on-year (CHF million). The operating result (EBIT) was up by over 42% at CHF million [CHF million]. The profit (after revaluation effects*) was CHF million higher at CHF million. The net profit before revaluation effects* was increased by around 23% to CHF million [CHF million]. In view of the excellent result, the Board of Directors is proposing to the General Assembly of a higher distribution in the form of a nominal value reduction to CHF 2.80 [CHF 2.50] per share. This is equivalent to a cash return of 4.63% (based on the year-end price). Rental income from investment properties In the financial year 2005, rental income from investment properties rose to CHF million. This represents growth of CHF million compared to the previous year and is explained by new accessions (in particular, the Maag portfolio), new income from completed projects and higher rental income from existing properties. At 5.34%, the net return on the property portfolio was more or less on a par with the previous year [5.42%]. The loss of earnings rate rose from 5.00% to 6.27%, mainly under the influence of the properties acquired from the Maag Group, but remains well below the estimated Swiss average of more than 10%. Thanks to good tenant creditworthiness and the favourable expiry structure of the rental agreements (nearly 55% of the rental agreements still have four or more years to run), Swiss Prime Site is very well positioned. Proceeds of property sales As part of the portfolio restructuring, 18 smaller properties with a total market value of CHF million were sold. These were for the most part properties from the former Maag portfolio. The resulting sales proceeds stood at CHF million net [CHF million]. Nearly half of this profit was contributed by the property at Bahnhofstrasse 11 in Chur. Substantial increase in operating and net profit The net profit was around 57% or CHF million higher at CHF million [CHF million]. For reasons related to growth, direct operating expenses increased to CHF million [CHF million]. This also applies to other operating expenses which rose by CHF million to CHF million year-on-year [CHF million]. The increase in personnel expenses by CHF million to *Revaluations (IAS 40) and deferred taxes

28 FINANCIAL COMMENTARY CHF million can be attributed exclusively to the acquisition of Maag. In the financial year 2006, personnel expenses will again revert to the level reported in the year 2004 of around CHF million as the staff who were taken over will no longer appear on the Company payroll. Following the acquisition, the EBIT margin at 72.76% is below the equivalent figure for the previous year [76.07%], but still represents an excellent value. Positive valuation result The revaluation of the property portfolio effected by the independent expert as at showed a net valuation gain of CHF million [CHF million]. This figure is made up as follows: total revaluations of CHF million [CHF million] as against devaluations of CHF million [CHF million]. The completion of the Opus complex in Zug made an important contribution to the positive result. Because of the transition of Opus 2 from the project stage to investment properties, a non-recurring valuation gain of CHF million was made and appears in the figures mentioned above. The property portfolio value rose by CHF million or 1.16% year-on-year to CHF 3, million. This change consists of investments in new construction projects, value changes on existing properties and sales. The new construction project Sihlcity in Zurich is proceeding on schedule and the costs are also on budget. An application for a building permit was submitted in February 2006 for the 126 metre high Prime Tower planned for the Maag site in Zurich. Financial situation The balance sheet ratios changed following the share capital increase referred to earlier. As at , shareholders equity stood at CHF 1, million, representing an increase on the previous year (disregarding minority interests) of CHF million or nearly 30%. Borrowings were reduced by CHF million to CHF 2, million [CHF 2, million including minority interests]. The equity ratio improved to 40.24% [31.36%]. The return on equity (ROE) rose by 2.26 percentage points to 6.98% [4.72%]. Although the new money generated by the share capital increase was used initially to repay short-term, and hence more favourable, outstanding loans, the average weighted borrowing rate fell from 3.56% to 3.01% with a simultaneous increase in the average weighted residual term to 4.6 years [3.0 years]. The convertible bond issue referred to earlier and the successful new loans arranged in February 2005 for the former Maag Group contributed to this improvement. Given the long remaining term to maturity referred to above, the low financing costs and an equity ratio of around 40%, the financial situation of Swiss Prime Site can be described as very sound and comfortable. Information on the share / distribution In the year 2005, the Swiss Prime Site AG share once again performed very well. With an overall return in excess of 13%, the share ended the year at a price of CHF The NAV (net asset value) after deferred tax was CHF on , i.e. 1.61% above the equivalent figure for the previous year [CHF 52.14]. The share was trading at a premium of 14.19% as at [8.95%] and therefore falls short of the branch average of almost 20% at the end of 2005.

29 FINANCIAL COMMENTARY Because of the excellent annual result with earnings per share of CHF 3.67 [CHF 2.46] and the positive prospects for the coming year, the Board of Directors has decided to propose to the General Assembly of a further increase in the distribution by CHF 0.30 to CHF 2.80 per share. As was already the case in previous years, the plan is once again to make the distribution in the form of a nominal value reduction which is an attractive proposition from the tax angle for private persons. The distribution of CHF 2.80 [CHF 2.50] is equivalent to a cash return of 4.63% [4.40%] based on the yearend closing price. Outlook Although the commercial property market is unlikely to show a recovery on a broad front as yet in 2006, interest in properties on prominent sites which give their occupants the benefit of a perfect infrastructure, high flexibility and an agreeable working environment has risen noticeably. With its portfolio concentrated on urban sites, Swiss Prime Site has an offer which corresponds very well to the demands made by exacting tenants. The cost savings/synergies from the Maag acquisition will show their full benefits in the financial year We are therefore confident in our ability to achieve still stronger earnings in the current financial year. Result from operating income Operating income in CHF 1, Rental income from investment properties 188, ,688 Proceeds of sale of properties, net 4, Other operating income 1,155 1,807 Total operating income 193, ,746 The main business activity of Swiss Prime Site is renting investment properties. The rental income from investment properties amounted to CHF million. [CHF million] and included rental income from [ ] or from the time that the individual properties were acquired, as the case may be. Rent revenue was achieved in the period under review from a total floor space (excluding projects under construction) of roughly 746,217 m 2 [471,544 m 2 ]. The floor space can be divided into 732,472 m 2 [458,734 m 2 ] commercial space and 13,745 m 2 [12,810 m 2 ] residential space. Income failure (vacancy and collection losses) in the period under review amounted to CHF million [CHF million], resulting in an income failure rate of 6.27% [5.00%]. Income failures were deducted from the gross rent revenue. For details, see property details from page 101 onwards.