"IVG Immobilien AG Zanderstrae Bonn Investor"
IVG Immobilien AG, Zanderstraße 5–7, D-53177 Bonn Investor Relations Phone: +49 (0)228 / 844-137, Fax: +49 (0)228 / 844-372 Email: email@example.com Communication Phone: +49 (0)228 / 844-300, Fax: +49 (0)228 / 844-338 Email: firstname.lastname@example.org Website: www.ivg.de Annual Report 2004 Consolidated Group Management Investor/Creditor Corporate Segments Strategy Financial Statements Report Relations Responsibilty 2004 highlights Annual report 2004 New major shareholders with long-term commitment: Sal. Oppenheim Bank and HSH Nordbank Expansion of presence in Helsinki Key figures by segment Portfolio management €m 2004 2003 Change (%) The portfolio management segment looks after our Turnover 305.3 293.8 3.9 own investment properties: Of which: Net rental income 227.2 217.4 4.5 Buying and selling properties and property port- Total operating income 414.8 370.6* 11.9 folios. Of which: Proceeds from disposals 79.3 64.5 22.9 Upgrading properties by restructuring tenancies, Operating earnings 191.5 152.3* 25.7 modernization and making use of building rights Investments 153.0 471.7 -67.6 held in reserve. Sales 428.2 370.0 15.7 Letting properties and customer relations manage- Employees 364 377 -3.4 ment. * Excluding €53.4 million income item for Polar lucky buy Project development €m 2004 2003 Change (%) We carry out property developments for our own Turnover 144.0 176.6 -18.5 portfolio and third parties. Total operating income 148.4 223.1 -33.5 Developments must meet the investment criteria Operating earnings 24.7 14.4 71.5 we apply in our own portfolio. Project value (IVG) 1,251 1,123 11.4 On principle, we only commence work on Capital commitment 382 357 7.0 developments subject to an appropriate level of Investments 89.2 55.6 60.4 pre-lettings. Employees 122 150 -18.7 Real estate investment funds €m 2004 2003 Change (%) We set up real estate investment funds for private Turnover 51.3 16.2 216.7 and institutional investors. Total operating income 55.6 20.1 176.6 Our EuroSelect real estate funds for private inves- Operating earnings 16.8 -2.7 – tors concentrate on properties in Europe. Closed-end investment funds under management 78 76 2.6 Our subsidiary Oppenheim Immobilien KAG (OIK) Subscribed closed-end investment funds 88.4 31.4 181.5 is the German market leader in real estate funds Number of institutional investment funds for institutional investors. under management 28 Value of institutional investment funds 8,760 Investments 154.5 0.2 Employees 300 40 650.0 C IVG Immobilien AG 2004 highlights Cooperation with AXA REIM intensiﬁed Acquired 50.1% of OIK, market leaders in institutional funds Successful launch of EuroSelect funds Real estate holdings, by region Real estate holdings, by type of use Total €3.28 billion Total €3.28 billion Brussels 21% Office 59% Portfolio management Budapest 2% Berlin 10% Business park 20% Helsinki 11% Düsseldorf 7% London 5% Frankfurt 3% Milan 4% Hamburg 3% Commercial, logistics 13% Paris 7% Munich 15% Other 6% Retail 4% Caverns/tank farms 6% Other 4% Project development, by region Project development, by type of use Total IVG share €1.25 billion Total IVG share €1.25 billion Paris 23% Project development Berlin 8% Office 82% Düsseldorf 5% London 15% Business park 9% Frankfurt 23% Helsinki 4% Other 9% Geneva 5% Budapest 2% Hamburg 1% Brussels 10% Munich 4% Investment funds, by country Investment funds, by type of use Total €11.98 billion Total €11.98 billion Benelux 19% Investment funds UK 6% Office 76% Italy 3% Germany 45% Commercial, logistics 3 % France 17% Retail 10% Spain/Portugal 8% Other 11% Other 2% D Annual report 2004 2004 highlights IVG Group key figures (IFRS) €m 2004 2003 Change 2003 (HGB)1 Turnover 507.3 496.1 2.3% 411.5 Portfolio management Total operating income 613.0 589.8 2 3.9% 545.7 EBITD (cash flow) 264.7 207.7 2 27.4% 224.8 EBIT (operating earnings) 202.6 130.5 2 55.2% 174.2 EBD 118.4 108.1 2 9.5% Consolidated net income 74.9 54.1 2 38.4% 66.5 Investments 398.5 530.7 -24.9% 565.2 Total assets 3,613.3 3,695.4 -2.2% 3,427.8 Equity (book values) 859.0 845.5 1.6% 917.0 Project development Equity ratio (book values) (%) 22.7 21.8 4.1% 25.6 Equity ratio (market values) (%) 39.0 39.0 0.0% 39.0 Net asset value 1,762.8 1,671.4 5.5% 1,671.4 Net asset value per share 15.20 14.41 5.5% 14.41 Employees 930 717 29.7% 717 Dividend per share (€) 0.35 3 0.34 2.9% 0.34 Portfolio (market values) 3,284 3,294 -0.3% Project development (market values) 382 357 7.0% Investment funds Fund volume 11,980 3,200 274.4% 1 HGB: German Commercial Code basis of accounting 2 Excluding €53.4 million income item for Polar lucky buy 3 Recommended Profile Contents IVG is one of Europe’s major listed real estate 02 Letter to our shareholders 06 Report of the Supervisory Board companies, managing property worth €16 bil- 10 Strategy lion. 12 Expansion with property and property-based investments Strategy 18 Real estate barometer In our business segments of portfolio manage- 20 Segments 22 Portfolio management ment, project development and investment 30 Project development Segments 34 Investment funds funds, we offer professional investment oppor- 40 Corporate responsibility tunities which count among the leaders in 42 Employees Responsibilty 46 Our commitment Corporate Europe in terms of security, flexibility and 48 Investor and creditor relations returns. 50 IVG shares Investor/Creditor 54 EPRA Relations 60 Corporate governance 62 Group Management Report Contents Group Management 63 Group Management Report Report 73 Consolidated Financial Statements Contents 73 IVG Immobilien AG Consolidated Financial Statements 79 Notes to the 2004 Consolidated Financial Statements Financial Statements Consolidated 139 Auditor’s Report 140 Table of the real estate portfolio 153 Financial calendar 154 Glossary 156 IVG Group key ﬁgures (5-year overview) 1 Annual report 2004 Letter to our shareholders Dear Shareholders, 2004 was a pivotal year for IVG. The new ownership structure with Sal. Oppenheim Bank and HSH Nordbank as major shareholders achieved the clarity regarding ownership want- ed by the markets while increasing the free ﬂoat. We also considerably expanded our market presence in investment funds by successfully positioning the IVG EuroSelect se- ries of fund products and acquiring a majority interest in OIK, the German market leader in institutional real estate funds. This added impetus fed through to a 33% rise in the IVG share price. The global shift to property among institutional and private investors continues unabated. As a European real estate investment house, IVG once again successfully capitalized on this trend in 2004: Consolidated net income and operating income both show two-digit growth IVG’s net asset value – the intrinsic value of our shares – has jumped to €15.20 per share We have invested some €400 million to further strengthen our core business The Board of Management and Supervisory Board recommend a dividend rise from €0.34 to €0.35 per share. One of the keys to success in the property business is market presence. For us, this has three dimensions: Proximity to customers in rental markets Contact to buyers and sellers in property investment markets Access to investors in indirect real estate investment markets Evenly paced progress across these three dimensions is what makes the difference be- tween a real estate company and a real estate investment house. In 2004, we reinforced our position on all three fronts. 2 IVG Immobilien AG Proximity to rental customers as well as property buyers and sellers is assured ﬁrst and foremost by our own branch ofﬁces and their growing contact network. Buying into OIK has widened IVG’s branch ofﬁce network as a whole and also deepened it in our core mar- kets of London, Brussels and Paris. IVG delivered on this strong new market presence Strategy with outstanding achievements in its own portfolio, in project development and in asset management: 544,000 m2 in new lettings, with 321,000 m2 in Germany. €2.7 billion in transactions comprising purchases worth €1.6 billion and sales worth €1.1 billion. Segments Our long-term alliance with AXA Real Estate Investment Managers (AXA REIM) – the prop- erty arm of the AXA global insurance group – further adds to our networking capabilities. Our second jointly structured investment fund, French Development Venture II, is invest- Responsibilty ing €1.2 billion in developments in the Paris region and is slated to run until at least 2011. Corporate Other attractive projects have been completed or continue to schedule in Berlin, London and Brussels. IVG’s project development segment thus goes from strength to strength. Investor/Creditor The extensive real estate experience of our new major shareholders and their close capi- Relations tal market ties combined with the strengthening of our investment funds business her- alded a step change in terms of IVG’s proximity to capital markets. We currently manage funds worth €12 billion. These include open-end institutional funds promoted by OIK, oth- er structured real estate investments for institutionals, and real estate funds for private in- Group Management vestors. Marketing began very successfully this March for EuroSelect09, based around the Report Riverside House property in London. Further investment funds are in the pipeline. Cost consciousness and transparency are core business policies at IVG. Hiving off our data processing to Deutsche Telekom assures consistently high quality together with savings. We have met international transparency requirements by making the changeover to Inter- national Financial Reporting Standards (IFRS). This heightens the attractiveness of IVG to Financial Statements foreign investors. Consolidated 3 Annual report 2004 A subject of intensive debate across Europe in 2004 was the introduction of real estate in- vestment trusts (REITs). A REIT is a listed real estate company which is subject to a high distribution requirement and whose income is taxed exclusively at investor level. The idea originated in the USA and has since become an international standard for indirect invest- ments in real estate. The German ﬁnance ministry has announced plans to allow REITs in Germany in the near future. Initiative Finanzstandort Deutschland (IFD) – a government- industry initiative to promote the German ﬁnance sector – expects that REITs will deliver a substantial boost to public and private sector real estate. IVG is well poised to reap the rewards. We expect a mild upward trend for the euro zone in 2005. This should be enough for rental markets to recover given the limited supply of new property. We are conﬁdent that our focus on ofﬁces, business parks and logistics property coupled with the magnetism of Europe’s major cities will continue to secure proﬁtable growth. We also see 2005 as being another strong business year for IVG. The purchase of the gov- ernment storage caverns at Etzel near Wilhelmshaven by IVG in international competitive bidding at the end of March adds a signiﬁcant contributor to earnings. IVG owes its success especially to the dedication and knowledge of its Europe-wide work- force. To them we extend our special thanks. We would also once again like to thank our shareholders for their trust and conﬁdence in IVG. This encourages us all in our commit- ment to enhancing your company’s earnings power and value. Europe offers attractive business opportunities. We will continue to make rigorous use of these opportunities in 2005. Yours sincerely, Eckart John von Freyend Bernd Kottmann Dirk Matthey 4 IVG Immobilien AG Strategy Segments Responsibilty Corporate Investor/Creditor Relations Group Management Dr. Bernd Kottmann (47) Dr. Eckart John von Freyend (62) Dr. Dirk Matthey (55) Chief Operating Officer Chief Executive Officer Chief Financial Officer Report Born 1958, holds a business degree and a doctor- Born 1942, holds an economics degree and a doc- Born 1949, holds a business degree and a doctor- ate. With the IVG Group since 1997. Member of torate. Chief Executive Ofﬁcer to IVG Immobilien ate. Chief Financial Ofﬁcer to IVG Immobilien AG the Board of Management of IVG Immobilien AG AG since April 1995. Previous posts included since July 1996. Previously Managing Director since July 2001. Formerly Member of the Board Head of Division in the Federal Ministry of Finance and Chief Financial Ofﬁcer to subsidiaries of the at Harpen AG, Managing Director of Deutsche from 1990 to 1995 and Managing Partner at pub- VIAG group, Munich; Director and Head of Busi- Babcock Bau GmbH and Member of the Board at lishers Verlagsgruppe Deutscher Wirtschafts- ness Administration at VEBA AG, Düsseldorf; and GERMANIA-EPE AG. dienst John von Freyend GmbH. He began his ca- Executive Assistant and Department Manager in Financial Statements Consolidated reer with the Federation of German Industry (BDI) Finance and Accounting at RWE AG, Essen. in 1970. 5 Annual report 2004 Report of the Supervisory Board Dear Reader, The Supervisory Board performed its duties in the 2004 ﬁnancial year as required by law and IVG’s Articles of Association. It regularly advised the Board of Management in managing the company and supervised the running of the company’s affairs. The Board of Management provided the Supervisory Board with full, regu- lar, timely, written reporting on all relevant issues of corporate planning, the company’s ongoing strategic development and the Group’s situation including its risk position and risk management. Departures from the planned or targeted course of business were explained in each instance. The Supervisory Board fully discussed all transactions material to the company. The Chairman of the Supervisory Board remained in regular contact with the Board of Management out- side of Supervisory Board meetings and was kept informed of the current business situation and signiﬁcant transactions. Supervisory Board and committee meetings Nine meetings were held in the 2004 ﬁnancial year. One member was unable to attend at each of three meetings and two members at one. For all transactions requiring approval from the Supervisory Board, its members were furnished with comprehensive written information on which to base their decisions so that resolutions could be adopted taking absentee votes into account. In addition to the resolutions passed at meetings, the Supervisory Board adopted ﬁve resolutions by written voting procedure on the basis of com- prehensive written information. The Supervisory Board has conferred to its Personnel Committee the power to take decisions affecting the contracts of members of the Board of Management of IVG Immobilien AG and regarding all other personnel matters requiring mandatory referral to the Supervisory Board. The committee chairman is the Chairman of the Supervisory Board. The committee met once during the 2004 ﬁnancial year, to review the Board of Management’s ﬁxed remuneration. Following a recommendation of the German Corporate Governance Code, the Supervisory Board formed an Audit Committee on 16 April 2004. This committee deals primarily with issues of ﬁnancial reporting, risk management and property portfolio valuation. Its responsibilities also include appointing the auditors and determining the scope of the audit and audit fees. The committee chairman is Dr. Manfred Lennings. The Audit Committee met three times in 2004. Its agenda items included standards for regular reporting by the Board of Management, appointment of the auditors, and the time schedule and material effects of the changeover to International Financial Reporting Standards (IFRS). Corporate governance principles for the 6 IVG Immobilien AG Detlef Bierbaum, Chairman of the Supervisory Board working relationship between IVG and OIK were also considered, as was the declaration required by the German Corporate Governance Code. The auditors were present for discussion of the annual and consoli- dated ﬁnancial statements. The committee chairmen reported in detail about the work and meetings of the various committees at meetings of the full Supervisory Board. Strategy Selected key topics discussed by the full Supervisory Board The full Supervisory Board regularly discussed the Group’s turnover, earnings and ﬁnancial position and its employment situation. The 26 March 2004 meeting centred on the annual and consolidated ﬁnancial state- ments and the company and Group management report. Segments The Supervisory Board met on 16 April 2004 for the ﬁrst time following a change in its composition. The Su- pervisory Board elected Detlef Bierbaum – personally liable partner at Sal. Oppenheim jr. & Cie. KGaA – as its new Chairman and Peter Rieck – member of the Board of Managing Directors of HSH Nordbank AG – as Responsibilty his deputy. The Supervisory Board resolved at this meeting to establish an Audit Committee. The Supervi- Corporate sory Board approved the purchase of 50.1% of shares in Oppenheim Immobilien-Kapitalanlagegesellschaft; the Supervisory Board members from Sal. Oppenheim did not participate in this decision. Investor/Creditor At the constituting meeting of the full Supervisory Board after the General Meeting of 27 May 2004, the Su- Relations pervisory Board elected Detlef Bierbaum as Chairman and Peter Rieck as Deputy Chairman. The Audit Com- mittee and Personnel Committee were formed. The chairmen and deputy chairmen were reappointed. On 8 July 2004, the Supervisory Board approved separate disclosure of remuneration for each individual Group Management member of the Board of Management and Supervisory Board as recommended by the German Corporate Report Governance Code and adopted a modiﬁed declaration of compliance. The Supervisory Board enacted ad- ditional rules for the working relationship between IVG and OIK over and above the transparency require- ments of the German Corporate Governance Code. The declarations are published on the IVG website, www.ivg.de. The Supervisory Board reviewed the efﬁciency of its activities with reference to a manual in spring 2005 and discussed the ﬁndings and the conclusions drawn at its meeting of 7 April 2005. Financial Statements The meeting of 16 September 2004 focused on property sales in Düsseldorf and Milan and the launch of a Consolidated development project in London. 7 Annual report 2004 The main agenda item on 2 November 2004 was discussion of the IVG Group’s medium term plans for 2005 to 2007 and its strategic orientation. Additional ﬁne points of the detailed plans for 2005 were adopted at the December meeting. Annual ﬁnancial statements For its meeting to discuss the ﬁnancial statements on 7 April 2005, the Supervisory Board was provided with the annual ﬁnancial statements, consolidated ﬁnancial statements, company management report and Group management report of IVG Immobilien AG, and the audit reports from PwC Deutsche Revision Ak- tiengesellschaft, Wirtschaftsprüfungsgesellschaft, Düsseldorf. The auditors were present for discussion of the annual ﬁnancial statements and the consolidated ﬁnancial statements at the Audit Committee meeting of 4 April 2005 and the full Supervisory Board meeting of 7 April 2005. They reported in depth on the course of the audit and were available to provide additional information. The auditors also afﬁrmed that the risk early warning system put in place by the Board of Management ensures timely detection of any potential threats to the company’s ongoing existence. The annual ﬁnancial statements for the year ended 31 December 2004 prepared by the Board of Manage- ment in compliance with the German Commercial Code (HGB) and the management report of IVG Immobil- ien AG were audited by PwC Deutsche Revision Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Düs- seldorf in accordance with the resolution of the General Meeting of 27 May 2004 and the subsequent audit appointment by the Supervisory Board Audit Committee. The auditor issued a clean audit certiﬁcate. The consolidated ﬁnancial statements of IVG Immobilien AG were prepared in accordance with International Financial Reporting Standards (IFRS). Preparation of consolidated ﬁnancial statements in accordance with the German Commercial Code was dispensed with under the exempting rule in Section 292a thereof. The auditor issued a clean audit certiﬁcate for the submitted IFRS-compliant consolidated ﬁnancial statements and for the Group management report. Following its scrutiny of the annual ﬁnancial statements, consolidated ﬁnancial statements, company man- agement report and Group management report, the Supervisory Board concurs with the audit ﬁndings and has no objections to raise in the conclusive ﬁndings of its own examination. On the Audit Committee’s rec- ommendation, the Supervisory Board approved the annual ﬁnancial statements and the consolidated ﬁnan- cial statements at its meeting of 7 April 2005. The annual ﬁnancial statements are therefore deemed ﬁnal as provided for in Sec. 172 of the German Stock Corporation Act. The Supervisory Board concurs with the Board of Management’s proposal for the appropriation of net income. 8 IVG Immobilien AG The report on relations with afﬁliated companies prepared by the Board of Management for the period 1 January to 23 February 2004 in compliance with Sec. 312 of the German Stock Corporations Act (AktG) was submitted to the Supervisory Board along with the auditor’s appraisal of it. The Supervisory Board has itself examined the Board of Management’s report, and has approved it together with the auditor’s ﬁndings. The Strategy auditor’s certiﬁcate for the Board of Management’s dependent company report reads as follows: »Having examined and appraised this report as by duty bound, we hereby conﬁrm 1. that the facts stated in the report are correct 2. and the Company did not render unduly high remuneration in any of the legal transactions documented in the report.« Segments In its conclusive ﬁndings from its own examination, the Supervisory Board has no objections to make to the Board of Management’s declaration on relations with afﬁliated companies for the period 1 January to 23 February 2004. Responsibilty Composition of the Supervisory Board Corporate Roland Flach, Karl-Ernst Schweikert and Dr. Michael Albertz resigned from their posts as shareholder represen- tatives on the Supervisory Board with effect from midnight on 31 March 2004. They were succeeded as share- holder representatives by Detlef Bierbaum, Matthias Graf von Krockow and Peter Rieck, who were appointed by Investor/Creditor order of court with effect from 5 April 2004. Wilhelm Friedrich Corneli’s term as employee representative on the Relations Supervisory Board ended with the General Meeting on 27 May 2004. He is succeeded by Rudolf Lutz. The Supervisory Board would like to thank its retiring members for their constructive, knowledgeable work and their commitment to the beneﬁt of the company and the workforce. Group Management Report In view of legal proceedings pending before the regional court at Bonn to challenge and nullify resolutions of the General Meeting of IVG Immobilien AG of 27 May 2004, the precaution has been taken of appoint- ing, by order of court with effect from 28 July 2004, Messrs. Bierbaum, Graf von Krockow and Rieck on a temporary basis pending ﬁnal resolution of the dispute. The Supervisory Board would like to thank the Board of Management, the workforce and the employee rep- Financial Statements resentatives for their successful work in the 2004 ﬁnancial year. Consolidated Bonn, 7 April 2005 On behalf of the Supervisory Board Detlef Bierbaum, Chairman 9 Annual report 2004 Strategy We are one of Europe’s leading real estate companies and maintain own branch offices with experienced management teams in the major European investment locations. We link up, analyse and evaluate the resulting detailed local market knowledge and capitalize on this knowledge in our core activities of portfolio management, project development and investment funds. Soho Square, London 10 11 IVG Immobilien AG Consolidated Group Management Investor/Creditor Corporate Segments Strategy Financial Statements Report Relations Responsibilty Annual report 2004 Expansion with property and property-based investments Our business model IVG is a European real estate investment house. What makes IVG special is a synthesis of highly professional real estate management with bespoke ﬁnancial products for institu- tional and private investors. Our activities for investors cover the entire real estate value chain: We locate, value and buy properties – preferentially by snapping up entire portfolios, or at points in the prop- erty cycle when the market is just starting to rise. We develop new properties, modernize properties in our portfolio and raise their commercial value by improving tenancies. We aim to sell when the market is mature and also generate additional gains by splitting out and selling properties originally bought in a package. Our branch ofﬁces assure us local presence, participation in local networks and fullest possible exploitation of local market opportunities. The IVG business model: Integrating real estate and the capital markets Institutional investors Banks Private investors Funds for institutional Shares Funds for investors private investors Corporate functions Develop Sellers Buy Upgrade Sell Investors Let Asset management at branch offices Service providers Tenants 12 IVG Immobilien AG North Gate, Brussels Our strengths Focusing on ofﬁce and logistics properties and business parks in major European cities and growth centres Exploiting cyclical differences between European real estate markets with our active buy and sell strategy Delivering full local service for tenants Upgrading our portfolio by modernizing properties and securing long-term relationships Strategy with tenants of strong ﬁnancial standing Undertaking project developments and rigorously containing development risk Marketing property investment funds to institutional and private investors Managing real estate portfolios for third parties Segments A dynamic industry requires IVG’s strategic focus as a European real estate investment house is well proven. We will efﬁcient deployment of capital build on our position at the interface between the capital and the property markets. We are and fast action in a traditional industry that is currently changing and starting to gain fresh momentum. A motivated and well qualiﬁed workforce is our key to success. They ensure responsiveness Responsibilty and effective risk control. Corporate To meet this challenge, we have built up an organization with the efﬁcacy and ﬁnancial edge to enable fast action and contain risks. A motivated and well qualiﬁed workforce is Investor/Creditor our key to success. Relations Our market is Europe Leveraging differential European property market trends do not move in step. They offer different degrees of po- growth phases with local tential and grow at different rates. Picking out and making the most of these market op- Group Management presence portunities takes a real estate company with local knowledge. Local presence combined Report with size and ﬁnancial strength is our winning competitive advantage. We signiﬁcantly strengthened our market position in 2004 by purchasing a majority share- holding in Oppenheim Immobilien-Kapitalanlagegesellschaft (OIK). We know that in the property business, size and ﬁnancial strength are the key. They are a precondition for in- volvement in future large-scale transactions. A broad market presence and ample sources Financial Statements of ﬁnance amplify our ability to purchase packages of real estate at discount prices. Consolidated 13 Annual report 2004 Buying and selling We concentrate on commercial properties in major European cities and exploit differing market cycles to buy and sell such properties. One of our specialities is carrying out com- plex property transactions. This sets us apart from the competition and means we can acquire properties at knock-down prices. Purchases of large packages of property, for ex- ample by taking over listed real estate companies, are a key part of the IVG strategy. We have positive experience in this ﬁeld with the takeovers and integration of the Swedish enterprise Asticus (1999/2000) and the Finnish company Polar (2003/2004). We sell properties when we have increased their value by well-judged lettings or by devel- opment and when we pinpoint a favourable time to sell in the local real estate cycle. European property markets Fourth quarter 1999 Fourth quarter 2004 Source: Jones Lang LaSalle �������� ��������� �������� ������ ��������� ������� ������� ������� ������ ������������� �������������� ������������� �������������� ��������� ������ �������������� �������������� �������������� �������������� ������������������� ������ ������� ������ ������� ����� ������ ������ ��������� ��������������� ����� ������� ������ �������� ��������� �������� ������ ����� ������������������� ������ ������������������� Property development and upgrading Property development will stay a key source of leverage. Large projects are carried out jointly with reputable partners such as AXA-REIM. This spreads risks and combines ex- pertise. 14 IVG Immobilien AG Perisud, Paris Another development activity consists of upgrading properties. This includes planning and implementing new uses for older properties, and making use of building rights held in re- serve. Upgrading properties in this way can signiﬁcantly increase their value. Customer support and letting Our workforce’s local market presence plays a major part in looking after our tenants and securing constantly high occupancy levels. By restructuring tenancy agreements and re- Strategy cruiting tenants of strong ﬁnancial standing, we considerably increase a property’s value. Good tenancies are a precondition for successful sale. Investment funds for private investors and institutionals In our investment funds segment, we create investment vehicles for private investors and Segments institutionals. IVG further enhanced its position in the market for closed-end real estate in- vestment funds with the successful introduction of the EuroSelect funds line. We further opened up the institutional investment market for IVG by acquiring a majority share in OIK, the German market leader in open-end real estate funds for institutionals. Our capabilities Responsibilty in the investment funds segment are supplemented by property management for institu- Corporate tional portfolios. Our workforce: A key competitive factor Investor/Creditor Our staff today are as familiar with the capital markets as they are with the property mar- Relations kets. Also, real estate is not just a matter of ﬂoor area, location or price. Properties have history and often their own unmistakable character. This means our staff must also have an understanding of architecture and town planning. They must be able to judge how far visual appearance and aesthetics affect purchase or letting decisions – in short, we expect Group Management special commitment and a passion for real estate. Such people are scarce. We therefore Report take our time selecting new recruits and invest considerable sums on training, because the biggest competitive factor of all is qualiﬁcation. As we well know, good and commit- ted workers are what assures our ability to shape the future of IVG as a real estate invest- ment house. Financial Statements Consolidated 15 Annual report 2004 Vattenfall, Stockholm IVG service spectrum Complexity Capital intensity Raising equity and structuring investment vehicles Portfolio (closed-end funds, Asset management for open-end funds, management properties and listed shares) Property (letting, value developments management enhancement) (buy, manage, sell) Facility management Project management for developments Design-and-build Labour intensity work for IVG services developments Bought-in services Proﬁt per employee Simplifying taxation We welcome the German government’s ideas on allowing real estate investment trusts (REITs) after the American model. A REIT is a real estate company that is taxed exclusively at investor level. This makes for a far simpler, more transparent tax picture. REITs already exist in the Benelux countries and France, and they are on their way in the UK and Finland. We are conﬁdent that this will give a renewed boost to real estate shares in Germany, Eu- rope’s largest property market. Light on the ofﬁce market horizon Using a multiple-level market research process, we continuously analyse property market trends. We attentively monitor trends in the economy, oil prices and the euro. Forecasts for growth in the euro zone are cautious, and unemployment remains high. 16 IVG Immobilien AG IVG Businesspark MEDIA WORKS MUNICH, Munich Rising competition for good The consolidation process has nonetheless continued in most European ofﬁce markets ofﬁce properties squeezes due to the reduced availability of new space. Another positive effect is the increasingly post-purchase yields close ties between the capital and real estate markets, which create new openings for property as an investment. Investor conﬁdence is gaining and competition for good ofﬁce properties is already putting the squeeze on top and average yields and so raising values. Challenges on the property markets Strategy Rental market trends show an uneven pattern. Many locations have recovered compared with preceding years. Turnover and rents are back on the rise, though experts are not an- ticipating widespread higher rents until 2006. Vacancy rates are still high. Most of the turn- over represents tenants moving within locations. As construction activity is generally drop- ping back, vacancies will probably stay on the decline even if new lettings hold steady. The Segments London West End, for example, has been recovering strongly since early 2004. Growth is also forecast for the Stockholm ofﬁce market thanks to a lively economy and the scarcity of new construction. Madrid would seem to have turned the corner. Among the stragglers in the European ofﬁce market are Brussels (except the EU quarter), Amsterdam and the Responsibilty major German cities with the exception of Hamburg. Corporate Targeting Europe’s major cities We want to focus our efforts effectively and will thus continue to concentrate on European Investor/Creditor locations. This market offers a unique and varied mix of market cycles. We are at home Relations with the continent’s cultural idiosyncracies and have a local presence in its major cities. Beyond our existing branch ofﬁce locations, we are also showing an interest in upcoming Central European cities like Prague and Warsaw. We also see potential in the conurbation between Amsterdam and Rotterdam, in the environs of Zurich and Milan, and in Stock- Group Management holm. Report Timely entry to the Our timely entry in Helsinki, the centre of one of Europe’s most stable economies, has Finnish market paid off. We have since acquired another ten ofﬁce properties from the Finnish insurance company Ilmarinen. Many other international investors are now looking for investment op- portunities there as well. Financial Statements Consolidated 17 Annual report 2004 ���������������������������� Peak monthly rent � � Trend forecast � � Space let 2003 (1,000 m2) average monthly rent � Average monthly rent � � Vacancy rate � � � Yield in prime locations Markets picking up � Real estate barometer (ofﬁce markets, fourth quarter 2004) ������ Our property research draws on the ����� ���� ����������� expertise of our local branch ofﬁces. �������� This is supplemented by our centrally coordinated cooperation with interna- ��������� tional property consultants Cushman ���� ���� ��������� ����������� ����� �� & Wakeﬁeld Healey & Baker (CWHB), � ���������� ����� with whom we prepare our real es- �������� ���� tate barometer for the major European �������� �������� ��������� ���������� property markets each quarter. ��������� ����� ����� ���� ���� ���� ���� ����� ���� ���� ���������� ������ ���� ���� ������ ���������� ���� ���� ���� ���� ���������� �������� � � ���������� ���������� ���� �������� �������� ���������� ����� ���� ���� ���� ��������� ���� ������ �������� �������� ���� ���� ���������� ���� ���������� ���� �������� �������� ����� ���� ����� Location Population Total space (m2 million) Space turnover (m2) Top monthly rent (€/m2) 2004 2004 2003 Change 2004 2003 Change 2004 2003 Change (%) (%) (%) Berlin 3,396,300 16.9 16.6 1.8 360,000 350,000 2.9 20.50 21.50 -4.7 Brussels 978,384 11.9 11.8 0.8 453,171 723,236 -37.3 24.20 22.90 5.7 Budapest 1,775,203 1.2 1.4 7.1 230,204 139,616 64.9 17.00 17.00 0.0 Düsseldorf 572,900 5.9 5.7 3.5 270,000 230,000 17.4 20.50 21.00 -2.4 Frankfurt 646,000 11.2 10.9 2.7 340,516 525,000 -35.1 33.00 35.00 -5.7 Hamburg 1,729,000 13.1 12.8 2.3 440,000 300,000 46.7 19.50 20.00 -2.5 Helsinki 559,716 7.5 7.4 1.3 350,000 195,000 79.5 23.50 23.50 0.0 Lisbon 560,700 3.2 3.3 -3.0 133,870 114,220 17.2 20.00 20.00 0.0 London 7,465,100 21.9 21.6 1.4 773,115 461,632 67.5 101.33 82.80 22.4 Madrid 3,290,900 9.8 9.4 4.3 683,646 531,000 28.7 26.50 26.40 0.4 Milan 1,179,500 8.9 8.8 1.1 203,904 158,820 28.4 37.50 39.60 -5.3 Munich 1,241,100 17.3 16.6 4.2 485,000 480,000 1.0 28.00 28.00 0.0 Paris 10,952,011 45.7 44.8 1.8 1,937,867 1,580,948 22.6 52.10 52.50 -0.8 Stockholm 1,845,650 10.4 10.5 -1.0 200,000 160,000 25.0 35.06 38.60 -9.2 Source: CWHB/IVG European Real Estate Barometer (year-end figures). 18 IVG Immobilien AG ������������������������� �������� ��������� ��������� ���������� ��������� ��������� ��������� ��������� ����� �������� ���� ����� ��������� ����� ���� ���� ���� ���� ������ ��������� ��������� ���������� ��������� ���� ���� ���� ������� ���� ���� ���� ������ ������ ���������� ��������� ����� ���� ���� ���� ���� ���������� ��������� ����� ���� ����� ������ ���� ������ ���� ���� ���������� ���� ���������� ���������� ���� ���� Strategy ���� ���� ���� ������ ��������� ���� ����� ���� ���� ���� ���������� ���� ���� ���� ���� ���� ������ �������� Segments ���� ���� ���������� ���� ���� ����� ��������� ���� ���� ��������� �������� ���������� ����� ���� ���� ���� ���� ���� ���� �������� ��������� ��������� Responsibilty ���������� ���� ������ Corporate ���� ���� ����� ��������� ���� ���� ���� ���� ���� ���� ����� � ���� � ���� ���� ��������� �������� ���� ���� ����� �������� Investor/Creditor ������ � � Relations ���������� ����� ���� ���� �������� ��������� ���� ��������� Average monthly rent (€/m2) Vacancy rate (%) Prime yield (%) Average yield (%) Group Management 2004 2003 Change 2004 2003 Change 2004 2003 Change 2004 2003 Change Report (%) 12.00 12.75 -5.9 9.9 9.2 0.7 6.00 6.00 0.00 7.00 7.00 0.00 15.80 17.00 -7.1 11.6 9.4 2.2 6.00 6.25 -0.25 6.40 6.60 -0.20 14.00 14.00 0.0 15.2 20.5 -5.3 8.00 8.50 -0.50 8.50 9.00 -0.50 12.25 12.25 0.0 14.5 12.3 2.2 6.00 6.00 0.00 6.50 6.50 0.00 13.50 13.50 0.0 17.1 12.4 4.7 5.50 5.50 0.00 6.50 6.50 0.00 12.25 12.50 -2.0 8.1 7.8 0.3 5.50 5.50 0.00 6.75 6.75 0.00 16.00 15.90 0.6 9.0 6.9 2.1 6.50 6.50 0.00 7.50 7.25 0.25 Financial Statements 17.50 17.50 0.0 8.9 10.0 -1.1 7.40 7.40 0.00 8.50 8.50 0.00 Consolidated 60.20 54.10 11.3 10.5 11.5 -1.0 5.50 6.00 -0.50 6.75 7.50 -0.75 15.40 15.90 -3.1 8.9 9.4 -0.5 5.75 6.00 -0.25 6.75 6.25 0.50 20.80 21.30 -2.3 11.0 10.3 0.7 5.60 5.75 -0.15 6.40 6.50 -0.10 14.00 14.00 0.0 10.7 8.1 2.6 5.25 5.25 0.00 6.75 6.75 0.00 25.80 28.00 -7.9 6.2 6.9 -0.7 5.75 6.00 -0.25 6.50 6.75 -0.25 19.40 19.40 0.0 19.1 14.4 4.7 6.25 6.50 -0.25 7.50 7.50 0.00 19 Annual report 2004 Segments Our three segments – portfolio management, project develop- ment and investment funds – combine to make IVG one of the top names for real estate investments in Europe. Our focus on office and logistics properties together with business parks in Europe’s key cities prepares the way for profitable growth. Square de Meeus, Brussels 20 21 IVG Immobilien AG Consolidated Group Management Investor/Creditor Corporate Segments Strategy Financial Statements Report Relations Responsibilty Annual report 2004 Portfolio management Portfolio management IVG’s objective in corporate portfolio management is sustained value and yield growth – Property sales and across our entire portfolio. This is consequently the level at which we make investment purchases and divestment decisions under our anti-cyclical buy and sell strategy and also where we – Management of portfolio decide on any major modernizations to portfolio properties. properties Our corporate portfolio management function works closely with our operating-level local branch ofﬁces. Our branch ofﬁces provide operational support for buying, selling and valuation and are re- sponsible for valuations and for commissioning and managing construction work. One of their key responsibilities is letting. Buying Its European network and market presence secures IVG access to attractive real estate offerings. Investment decisions are prepared in conjunction with our headquarters market research function and with an eye to other market participants. IVG prefers to buy major real estate portfolios for low purchase prices. The Ilmarinen port- folio in Helsinki (2004), the Polar acquisition (2003/2004), the Asticus takeover (1999/2000) and the takeover of the Batipromo group (1998) are successful examples. The incorporation of Polar into our network as IVG’s Helsinki branch ofﬁce is the most re- cent testimony to our successful integration of acquired companies. Portfolios acquired in the 2004 ﬁnancial year include the following: Purchases in 2004 Country Property Lettable space in m2 Investment in € million Branch office Finland Ilmarinen portfolio 63,000 63 Helsinki Germany Neuss/Ratingen business parks 60,100 58 Düsseldorf 22 IVG Immobilien AG Pakkalan Kartononski, Helsinki Active management to raise market value In addition to buying and selling, portfolio management also includes realizing existing scope for value gains on property, for example by adding space, improving tenancies or re- cruiting tenants of good ﬁnancial standing. The value of buildings can also be considerably enhanced by making use of building rights held in reserve and by refurbishment. New lettings in excess of 2,000 m2 in 2004 Location Property Tenant Lettable space in m2 Type of use Düsseldorf IVG Businesspark am Flughafen Nokia 17,319 Business park Brussels Twin House BASE 9,303 Office Munich IVG Businesspark vor München MTU CFC Solutions 7,411 Business park Brussels Le Croissant Europäische Union 6,014 Office Helsinki Sörneisten Rantatie 25 Kotimaisten Kielten 3,701 Office Segments Berlin Airport Centre Schönefeld Globe Ground 3,606 Office Munich IVG Businesspark Dornach Bavarian State Theatre 3,220 Business park Munich IVG Businesspark vor München MTU CFC Solutions 3,174 Business park Milan Via Carducci Invensys 3,058 Office Helsinki Pasilanraitio 5 Intrum 2,700 Office Berlin Spreespeicher Competence Call Center 2,494 Office Responsibilty Corporate Helsinki Pakkalan Kartanonkoski Electrolux 2,304 Office Investor/Creditor Relations Rental income, by region Rental income, by type of use Total €227 million Total €227 million Berlin 9% Offices 53% Group Management Düsseldorf 5% Report Frankfurt 3% Brussels 16% Budapest 2% Business park 20% Hamburg 15% Helsinki 16% London 3% Munich 17% Milan 4% Paris 4% Commercial/logistics 19% Financial Statements Other 6% Retail 5% Consolidated Other 3% 23 Annual report 2004 Boulevard Haussmann, Paris Selling The sale is the culmination of any investment in real estate. We parted with a number of properties over the past year and realized signiﬁcant gains on their sale: Sales in 2004 Country Property Lettable space in m2 Proceeds in € million Branch office Belgium Square de Meeus 40,400 152 Brussels France Blv. Haussmann 10,600 102 Paris Germany Global Gate 2 BA 12,600 36 Düsseldorf United Kingdom Conduit Street 2,600 33 London Our sales in Paris and London show how we can considerably increase the market value of properties by active real estate management. In Paris, we secured steady receipts for our Boulevard Haussmann property by entering into a long-term tenancy with a new, ﬁnancially well-placed tenant. This set the stage for sale of the property to an institutional investor at an attractive proﬁt. In London, we turned the market cycle to our special advantage: Growth in demand for good London property was unusually strong from early 2004. Returns on investment con- sequently fell as ofﬁce rents increased. We used this market situation to sell and made a signiﬁcant gain on a property in Conduit Street ﬁrst bought in 1999. IVG tenancies by expiry date Rental trend % of net rental income/year Average monthly rents in €/m2 41.4 11.16 11.19 11.09 11.03 9.20 9.22 7.92 15.8 15.0 11.8 11.7 4.3 2005 2006 2007 2008 2009 ff * 1998 1999 2000 2001 2002 2003 2004 * Indefinite, with exit options in 2005 and 2006 24 IVG Immobilien AG Conduit Street, London Satisﬁed tenants: The best advertisement Quality secures Gains in value and selling price are achieved through high occupancy levels and longstand- customer loyalty ing tenancies. Recruiting good new tenants is not easy, so establishing long-term relation- ships with tenants of strong ﬁnancial standing is critical to our business. Besides looking after tenants locally, one of the key aspects here is centralized customer relationship man- agement across all locations to secure high levels of customer satisfaction with uniform quality standards. Tenant loyalty is fostered by the IVG Value Service, which combines tenants’ purchasing power in order to offer a wide range of goods and services at very affordable prices. These include business consultancy, ofﬁce furniture and supplies, and travel services. Segments Satisﬁed customers are the best advertisement. Our most recent tenant satisfaction sur- vey in 2003 shows the potential available to IVG: 95% of tenants were happy and 91% would recommend IVG to others. Responsibilty Top 10 tenants Net rent (%) Corporate Régie des Bâtiments (Brussels) 7.5 EBV Erdölbevorratungsverband (Hamburg) 6.7 European Union (Brussels) 3.7 Lucent Technologies Network (Nuremberg) 3.0 Investor/Creditor Relations Vattenfall (Stockholm) 2.7 Netherlands oil stockpiling organization (COVA) (Hamburg) 2.2 L’Immobilière du CMN (Paris) 1.8 Statoil Deutschland (Hamburg) 1.7 EPCOS (Munich) 1.6 PriceWaterhouseCoopers (Luxembourg) 1.5 Group Management Report Top 10 industries Net rent (%) Public institutions, organizations and companies 25.9 Wholesale and retail trade 11.5 Telecommunications 8.3 Engineering, research and development 7.6 Financial services 7.5 Recreation and leisure 4.7 Financial Statements Real estate 4.5 Consolidated Electrical, electronics and optics 4.0 Transport and storage 3.5 Other services 3.5 We generate 32% of net rent with our 10 largest tenants. 25 Annual report 2004 Salt dome, Etzel Local expertise IVG branch offices in Europe Stockholm Helsinki IVG headquarters Hamburg Berlin Amsterdam London Düsseldorf Brussels Bonn Frankfurt Paris Munich Budapest Milan Madrid Logistics real estate Logistics real estate is a further focus of our portfolio after ofﬁce properties and business parks. IVG lets out storage capacity for crude oil, petroleum products and natural gas in caverns and tank farms – what we refer to as underground real estate. As a rule, the ten- ants are well-situated companies in the energy sector and bodies responsible for maintain- ing strategic oil reserves. The largest storage facility operated by IVG is the Etzel caverns facility near Wilhelmshav- en. This currently offers subterranean storage for 500 million m3 of gas and 13 million m3 of petroleum. The caverns are subterranean cavities in huge salt domes offering environ- mentally friendly and secure storage capacity for large quantities of natural gas and crude oil. They are approximately 1,000 metres below the earth’s surface and have an average volume of 500,000 m3 – the capacity of a supertanker. The caverns were established in the mid-1970s by IVG and thereafter operated in trust for the Federal Republic of Germany. 26 IVG Immobilien AG At the end of March 2005, IVG secured the winning bid in an international competitive tender for the caverns owned by the Federal Republic of Germany at the Etzel facility. The former government assets comprise 33 caverns for storage of crude oil and natural gas. Together with the seven already in its possession, IVG thus now has all 40 caverns at Etzel. The cavern capacity at the Etzel location can be at least doubled by virtue of extensive salt rights acquired in the 1990s. The oil caverns store parts of the statutory strategic reserves held by the bodies respon- sible for such reserves on behalf of Germany, the Netherlands and Portugal. There are also long-term leases with the Etzel Gas-Lager consortium, whose two main shareholders are E.ON Ruhrgas AG and Norway’s Statoil. Segments The Etzel facility is connected to the main international natural gas and petroleum pipelines and already serves as a hub for imported natural gas and crude oil. The oil pipelines lead to the Hamburg and Rhine-Ruhr reﬁneries. The gas pipelines connect the facility to the European natural gas grid. With a view to rising future demand for gas, the German gov- Responsibilty ernment has kept 14 of its 24 oil caverns available unlet. These can be turned over to gas Corporate storage and let out in the near future. We expect a strong take-up for the offered capacity given global growth in demand for energy and commodities and the anticipated increasing price ﬂuctuations. Investor/Creditor Relations IVG also owns four tank farms in Germany and Poland with a capacity of 230,000 m3 and part-owns two others with 320,000 m3. It is additionally contracted to operate four further facilities with a capacity of 600,000 m3. Group Management Report Financial Statements Consolidated 27 Annual report 2004 Selected portfolio properties Spreespeicher, Berlin Address: Stralauer Allee 1–2 Lettable space (m2): 35,900 IVG share: 89% Main tenant: Universal, adidas-Salomon Rental income 2004: €3,462k North Gate, Brussels Address: Bd. Roi Albert II, 6, 8 and 16 Lettable space (m2): 56,000 IVG share: 100% Main tenant: Régie des Bâtiments Rental income 2004: €16,692k Infopark Budapest (Buildings I and B), Budapest Address: Infopark sétány 1 and 3 Lettable space (m2): 16,900 IVG share: 100% Main tenant: Hewlett-Packard, Axelero Rental income 2004: €2,300k IVG Businesspark am Flughafen, Düsseldorf Address: Heltorfer Straße 1–22 Lettable space (m2): 37,600 IVG share: 100% Main tenant: Nokia Rental income 2004: €5,474k IVG Businesspark Hamburg Nord, Hamburg Address: Essener Straße 89–99 Lettable space (m2): 46,300 IVG share: 100% Main tenant: Hermes Versand, Lilly Forschung, Xylon International X-Ray Rental income 2004: €5,040k 28 IVG Immobilien AG Tapiontuuli in Espoo, Helsinki Address: Itätuutentie 1 Lettable space (m2): 6,940 IVG share: 100% Main tenant: Uudenmaan Verovirasto/Espoon Vero Rental income 2004: €1,263k Soho Square, London Address: 20 Soho Square Lettable space (m2): 5,600 IVG share: 100% Main tenant: Hill & Knowlton Segments Rental income 2004: €2,431k Responsibilty Corporate St. James’s Street, London Address: 20 St. James’s Street Lettable space (m2): 5,100 IVG share: 100% Main tenant: BNP, Inter Gen Investor/Creditor Rental income 2004: €3,313k Place de la Madeleine, Paris Relations Group Management Address: 21 Place de la Madeleine Report Lettable space (m2): 2,700 IVG share: 100% Main tenant: Hediard Rental income 2004: €2,117k Financial Statements Consolidated Place Vendôme, Paris Address: 7 Place Vendôme Lettable space (m2): 11,100 IVG share: 100% Main tenant: Cartier, BNP Paribas Rental income 2004: €6,677k For further details of our real estate portfolio, please consult page 140. 29 Annual report 2004 Project development Powerful earnings leverage Europe with its diversity, numerous centres of economic activity and business cycles is especially attractive for project development. This business has proved a powerful source of earnings leverage in recent years. Our success is based on adherence to the following principles: Strict principles for Our total share of development projects should be kept around one third the value of project development the IVG real estate portfolio. We preferentially carry out development projects where we have branch ofﬁces. The strict investment criteria we apply to portfolio properties apply equally to develop- ment projects. Selected sites are carefully analysed and marketing options weighed up with reference to internal and external sources. We work with highly capable and experienced general project contractors. We do not start building until a suitable level of pre-letting is assured. Our global project controlling function monitors each individual project and performs risk assessment on a continuous basis. Ofﬁces in attractive locations London We have redoubled our activities in the British capital to coincide with the incipient upturn in the London property market. Our new Caxton Hall project in the West End and Lombard Street project in the middle of the City are estimated at over €200 million. The Caxton Street site in the Victoria business quarter will feature a circular ofﬁce building by 2006. The listed building and former Lloyds Bank headquarters on Lombard Street is being exten- sively revitalized and extended. The project is slated for completion by the end of 2007. Paris In Paris, two project development funds due to run until 2011 have been launched jointly by IVG and a subsidiary of French insurance group AXA. The ﬁrst fund totals €700 million. Our completed projects in the Paris conurbation – such as Périsud (33,749 m2), Colgate (9,090 m2) and Aviva (40,840 m2) – are let under long-term tenancies and have mostly al- ready been sold. 30 IVG Immobilien AG Madou Plaza, Brussels The two alliance partners recently issued a second project development fund, French De- velopment Venture II (FDV II), targeting institutional investors and investing approximately €1.2 billion in ofﬁce properties in the Paris region. Landmark in the Our project in Quartier Léopold will be completed in 2005, just right to beneﬁt from EU Brussels EU quarter enlargement. Over the last few years, we have completely stripped and modernized the forty-year-old Madou Plaza, and have added an annex with additional ofﬁces, a grand foyer and a conference hall. With 32 storeys, Madou Tower is not just one of the tallest build- ings in the Belgian capital: it is also outstandingly situated on the inner ring road, on the boundary between the EU quarter and the city centre. The tower is already a landmark of the EU district. Segments Berlin A property already completed in 2004 is the Stettiner Carrée ofﬁce complex at Berlin’s Nord- bahnhof rail station, developed by IVG together with partners for €160 million. The prop- erty has been let to Deutsche Bahn and is sold to a Deutsche Bank investment fund. Responsibilty Budapest In Budapest, the centre of a fast-growing economy and increasingly of the Southeastern Corporate European economic region, we continue the phased development of the Infopark near the Danube and the Technical University. The technology park has established a reputation far outside Budapest as a centre for information and communications technology. Investor/Creditor Relations Düsseldorf In Düsseldorf, we are currently developing the third construction phase of the Global Gate Milan development. We have sold the Progetto Marelli ofﬁce building in Milan to investment fund iii-Fonds Nr. 3. Group Management Report Development projects by region IVG share of total value €1.25 billion Paris 23% Berlin 8% Düsseldorf 5% London 15% Financial Statements Consolidated Helsinki 4% Frankfurt 23% Geneva 5% Budapest 2% Hamburg 1% Brussels 10% Munich 4% 31 Annual report 2004 General project contractors Successful contract We are also successfully active as developers for other companies. Our subsidiary Tercon developments undertakes developments and project management as a general project contractor and on request also assumes the tasks of obtaining planning permission and project ﬁnancial con- trol. We are currently working in Munich as general project contractors on construction of an ofﬁce park for Siemens. In Berlin, we are building and marketing Kanada-Haus, contain- ing the Canadian Embassy together with ofﬁces and ﬂats. Selected development projects Location Project Type of use Lettable space Share Exit Percentage Com- Status (m2) IVG let/marketed pletion Projects completed in 2004 Berlin Nordbahnhof Berlin Office 61,434 72% Sold 100% 2004 Completed Brussels Tervuren Plaza Office 9,548 100% For Sale 0% 2004 Completed Milan Centro Marelli Office 16,871 45% Sold 59% 2004 Completed Munich Ottobrunn Building 3 Office 13,072 100% Portfolio 76% 2004 Completed Paris Bois Colombes Ilot 2, 3, 4 Office/residential 40,840 30% Sold 100% 2004 Completed Paris Bois Colombes Ilot 6, 7, 8 Office/residential 14,755 30% Sold 100% 2004 Completed Paris PS Cluny Office/residential 3,764 14% Sold 100% 2004 Completed Lettable space, 100% (m2) 160,284 Total investment, 100% (€m) 430 Total investment, IVG share (€m) 223 Total IVG share (%) 52 Projects in development Berlin Salzufer Office and site dvlpmt. 48,113 50% For Sale 65% 2006 Marketing Brussels Madou Plaza Office 42,739 100% For Sale 2% 2005 Construction Budapest Infopark Building C Office 13,376 100% Portfolio 38% 2005 Construction Düsseldorf Global Gate 3, BA Office 10,917 100% For Sale 0% 2006 Construction Frankfurt AIRRAIL Office, retail and hotel 124,579 45% For Sale 33% 2008 Planning Helsinki Polar Jumbo 2 Retail 28,425 60% For Sale 91% 2005 Construction London Lombard Street Office and retail 15,860 100% For Sale 0% 2007 Construction London Caxton Hall Office 5,237 100% For Sale 0% 2006 Construction Munich City Limit Retail 24,142 95% For Sale 63% 2006 Construction Paris M1 H Avenue de France Office 12,612 30% For Sale 11% 2006 Planning Paris Neuilly sur Seine Office 12,853 30% For Sale 0% 2006 Planning Paris Oise Logistics Parc Logistics 140,816 30% For Sale 28% 2006 Construction Paris PS Soufflot Office/residential 5,701 14% For Sale 95% 2005 Construction Paris Bois Colombes Ilot 9, 10, 11 Office/residential 28,214 30% For Sale 65% 2006 Construction Paris Suresnes Office 76,329 30% For Sale 53% 2007 Planning Lettable space, 100% (m2) 699,246 Total investment, 100% (€m) 2,393 Total investment, IVG share (€m) 1,251 Total IVG share (%) 52 Committed capital (€m) 382 Average proportion let, by value (%) 31 Average proportion sold (residential/sites), by value (%) 46 32 IVG Immobilien AG Selected development projects Nordbahnhof, Berlin (sold) Address: Caroline-Michaelis-Straße 5–11 Lettable space (m2): 61,434 Completion: 12/2004 IVG share: 72% Main tenant: Deutsche Bahn AG Project value: €160 million Madou Plaza, Brussels Address: Place Madou 1 Lettable space (m2): 42,739 Completion: 2005 IVG share: 100% Segments Project value: €143 million Responsibilty Corporate AIRRAIL, Frankfurt Address: Frankfurt Airport Lettable space (m2): 124,579 Completion: 2008 IVG share: 45% Investor/Creditor Project value: €570 million Lombard Street, London Relations Group Management Address: 71 Lombard Street Report Lettable space (m2): 15,860 Completion: 2007 IVG share: 100% Project value: €160 million Financial Statements Consolidated AVIVA, Paris (sold) Address: Bois Colombes Ilot 2, 3, 4 Lettable space (m2): 40,840 Completion: 2004 IVG share: 30% Main tenant: Aviva Project value: €184 million 33 Annual report 2004 Investment funds Indirect real estate Property has long featured large in the investment strategies of private and institutional in- investments are a vestors. The trend towards indirect investments, however, is a more recent phenomenon. growth market In indirect real estate investments, property is bought, structured and managed by third parties. Indirect investment vehicles already account for 17% of all commercial property in the United States and 9% in Europe. These ﬁgures are set to continue rising. Management of properties is often delegated so as to tap into external knowledge and reduce individual risks by spreading exposure. We can put together just the right products to suit private and institutional investors: Our branch ofﬁces lend us the proximity to market so essential in gaining access to suitable properties. They also ensure professional property management. The expertise in our lo- cal network is further supplemented by specialist knowledge at our Bonn headquarters in matters of property buying, legal and tax arrangements, ﬁnancing, reporting and, of course, selling real estate. The outcome is a range of innovative investments based on criteria of tax efﬁciency and diversiﬁcation. IVG is a one-stop shop for indirect real estate investments: IVG shares as an all-round investment product Institutional funds and other structured real estate investments for institutionals Real estate investment funds for private investors These products are based on different risk-return proﬁles that can be matched to an indi- vidual investment strategy. We currently manage €12 billion in real estate investment funds. Property worth €1 billion was purchased in 2004. Majority share acquired in market leader for institutional funds In July 2004, IVG acquired the majority (50.1%) of Oppenheim Immobilien-Kapitalanla- gegesellschaft (OIK). With a market share of 42%, OIK is the market leader in open-end institutional real estate funds. IVG is now one of the ten largest property managers in Europe. 34 IVG Immobilien AG EuroSelect09 Riverside House, London OIK was established in 1970, has a workforce of 255 and manages €8.8 billion worth of assets in 28 investment funds. Its real estate funds target institutional investors, primarily insurance companies, company and occupational pension funds, trusts, as well as inves- tors from other countries around Europe. Strict risk control and supervision by the German Federal Financial Supervisory Authority (BaFin) means that these funds qualify in Germany as investments to meet insurance company capital requirements – a key criterion for in- vestors in the insurance sector. Additionally, the investments are managed by external specialists, but can still be counted towards the real property part of capital requirements. Majority stake The shares in OIK were sold by Sal. Oppenheim Bank, which is also an IVG shareholder. in OIK strengthens We placed great emphasis from the outset on purchasing the shares based on a business market presence appraisal by neutral auditors in accordance with the German IDW S1 auditing standard. Segments The €125.25 million purchase price puts ongoing returns at about 8% and the value of OIK’s business just short of 3% of its assets under management. This valuation is in the normal range both nationally and internationally for an investment fund company with en- during customer relations. Responsibilty Corporate The widening and deepening of our market presence and the good ﬁnancing options ac- quired through OIK create joint potential for major portfolio and property acquisitions. There is great scope for combining expertise: Investor/Creditor Relations Both companies focus on ofﬁce properties in major European cities. Foreign properties account for more than 50% of OIK institutional funds. Both parties stress the importance of local presence. The two companies can now work jointly in key markets like London, Paris and Brussels. In economic centres where one Group Management has an ofﬁce, it can now additionally represent the interests of the other. The IVG branch Report ofﬁces in Budapest, Milan and Helsinki and the OIK branches in Amsterdam and Madrid constitute a start in this direction. The expanded presence offers even better opportunities for exploiting cyclical differ- ences between European markets. IVG and OIK have adopted additional corporate governance principles to prevent con- ﬂicts of interest. Financial Statements Consolidated We expect the ﬂow of capital into institutional real estate funds to continue growing. This is a product of investors increasing their property exposure, growth from company pen- sion schemes and the trend towards indirect investments in real estate. 35 Annual report 2004 EMI House, London Structured investments for institutionals Investors looking to buy into other types of fund besides institutional funds are also well served with attractive investment opportunities from IVG: Structured Project development funds in Paris: Following up on the success of a ﬁrst development theme funds fund issued jointly with AXA REIM, a second has now been issued. The fund again cov- ers developments around Paris worth up to €1.2 billion. European logistics fund: Likewise in cooperation with AXA REIM, we launched a fund in 2004 that invests in European logistics real estate. The fund aims to take a slice of the growing logistics market and build a highly proﬁtable network of ﬂexible logistics loca- tions. The geographical focus is on France, Spain, Germany and Benelux. The fund is set to invest about €1 billion over the next eight years. Further investment funds are currently in preparation, including a German project develop- ment fund and an international real estate fund of funds. IVG also undertakes the management of entire portfolios owned by institutional investors. In 2004, we secured the contract for management of an ofﬁce property portfolio belonging to a German occupational pension fund. From 1 January 2005, IVG looks after a domestic portfolio worth €170 million. The contract covers property and portfolio management for ten properties in Berlin, Frankfurt and the Rhineland. It will run for ﬁve years. Ofﬁce and retail buildings account for 90% of the portfolio. €88 million in equity capital placed with private investors Closed-end funds retain The popularity of closed-end real estate funds for German private investors continues un- their attraction for investors abated. With these funds, investors take a share in a company that has acquired property beforehand. They therefore know what properties they are investing in from the outset, and can gain a full advance picture of terms, tenants and other key determinants of ﬁnan- cial success. 36 IVG Immobilien AG Two real estate funds issued by IVG in 2004 stand out for their exceptional properties, property management and attractive dividends. A total of €88.4 million was taken up by investors – almost 200% more than the previous year. This positive trend continued in the ﬁrst two months of 2005 with the placement of a further €21 million in equity capital. The EuroSelect07 fund was fully subscribed in 2004. Some 2,000 investors thus now have a stake in three ofﬁce properties worth a total of €98.5 million in London, Bonn and Nuremberg. The €50 million in equity was marketed through banks and ﬁnancial advisers. A largely tax-free 6.5% dividend payout combined with secure long-term tenancies made the fund especially attractive. In October, we began marketing EuroSelect08 with an equity capital of €59.4 million. The Segments fund is invested in the Neathouse Place ofﬁce building in the West End of London and has been fully subscribed since February 2005. EuroSelect09 was issued in March 2005. This fund is likewise invested in a London ofﬁce Responsibilty property under long-term tenancy. Corporate Transparency and ﬂexibility EuroSelect funds carry We submitted two closed-end real estate funds – EuroSelect07 and EuroSelect08 – for Investor/Creditor independent analysts’ review by independent analysts for the ﬁrst time in 2004. The analysis was conducted by Relations seal of approval Feri Finance AG, who are known for their special expertise in economic trend forecasting. Both funds were awarded the top rating. The Feri rating gives a full picture of a fund, with separate marks for issuers, fund structure and fund assets. Investors can use this rating to support their investment decisions. As issuers, we use feedback from the rating agency Group Management to continuously improve our products. Report Financial Statements Consolidated 37 Annual report 2004 The rating also enhances the tradability of fund shares. Such a rating is a listing require- ment for the Düsseldorf and Hamburg stock exchanges, which have set up an organized market for shares in closed-end funds. We have now met this requirement for the two funds mentioned. Besides being open to secondary market trading, the EuroSelect funds have a buy-back option. In special circumstances such as unemployment, we buy back the fund shares on predeﬁned terms. Investment fund properties Riverside House, London Total lettable space (m2): 15,900 Main tenant: Financial Times Limited Fonds: EuroSelect09 Fund volume: €170.2 million EMI House, London; IVG Hauptverwaltung, Bonn Total lettable space (m2): 25,800 Main tenant: EMI Group plc.; IVG Immobilien AG Fonds: EuroSelect07 Fund volume: €98.5 million Lahnstraße, Frankfurt; Am Propsthof, Bonn Total lettable space (m2): 26,900 Main tenant: Dresdner Bank AG, Deutsche Telekom AG Fonds: Ertragsfonds 5 Fund volume: €107.4 million 38 IVG Immobilien AG EuroSelect08 – One Neathouse Place One Neathouse Place Address: 1 Neathouse Place, London SW 1B 1LH, UK Lettable space: 8,800 m2 of ofﬁces; 2,100 m2 of retail space Occupancy level: 100% Main tenant: BHP Billiton Petroleum Great Britain Ltd. Segments Fund volume: €118,400,000 Equity capital: €59,400,000 Debt capital: €59,000,000 Responsibilty Corporate Located adjacent to Victoria Going by the general economic data, this is a good time to be investing in London. With growth forecast at 3% and unemployment standing at 5%, the UK economy has taken over a lead position in Europe. London is consid- Station in London’s West End, ered Europe’s biggest and most dynamic property market. One Neathouse Place is an Investor/Creditor investment property in the One Neathouse Place is the European headquarters of BHP Billiton, a leading global resources company. Fully re- Relations furbished and redesigned by architects Avery Associates between 1995 and 1997, this major commercial prop- EuroSelect08 closed-end real erty with almost 8,800 m2 of ofﬁces and nearly 2,100 m2 of retail space meets the most exacting standards. This estate fund put together by is impressively corroborated by numerous architecture and design awards (including the Best Building Glassex IVG in 2004. Award and the best Urban Workplace Building award from the British Council for Ofﬁces). The property is fully let. Some 96% of total rental income is accounted for by a tenancy with BHP Billiton Petro- Group Management leum Great Britain Limited. The tenancy is guaranteed by the Australian parent, BHP Billiton Limited. The con- Report tract runs to 23 June 2017 with a special termination option as per 23 June 2012. Under the Germany-United Kingdom Double Taxation Agreement, income from private investments up to around €70,000 is virtually tax-free for German residents (although it affects the tax bracket for income from other sources). The initial dividend is forecast at 7% per annum. Private investors have a minimum investment in EuroSelect08 of €15,000 plus a 5% premium, with the option to sell their shares back to IVG Immobilien AG in the event of personal hardship. Financial Statements Consolidated Its top Feri rating means that EuroSelect08 satisﬁes the listing criteria for the Düsseldorf and Hamburg second- ary markets. 39 Annual report 2004 Corporate responsibility Running a company means accepting responsibility – including for employees, customers and the community. We are conscious of this responsibility and play our part. Place Vendôme, Paris 40 41 IVG Immobilien AG Consolidated Group Management Investor/Creditor Corporate Segments Strategy Financial Statements Report Relations Responsibilty Annual report 2004 Employees Motivated staff are critical to our success Our success depends on the motivation and skills of our workforce. Their dedication and their personal and professional aptitudes determine our business outcomes and hence our continued growth. Our personnel policies are consequently directed towards motivation and ongoing training. These policies are integral to our corporate culture, spanning work- ing conditions, social beneﬁts and the opportunities we provide. We want employees who share our passion for real estate. The workforce in our portfolio management and project development segments was re- duced as planned in the course of structural adjustments. Staff numbers increased in our investment funds activities with the acquisition of Oppenheim Immobilien-Kapitalanla- gegesellschaft mbH (OIK) which has 255 employees. The total number of employees in the IVG Group increased overall by 213 to 930 at the end of 2004. Employees by segment Employees by qualiﬁcation Project development University 122 (2003: 150) 28.8% Investment funds Portfolio management Vocational training 300 (2003: 40) 364 (2003: 377) and additional qualifications 12.5% Corporate functions Vocational 124 (2003: 133) Apprentices and trainees training 20 (2003: 17) 58.7% Through rigorous in-company controls and targeted education, we have kept the number of reportable accidents per 1,000 employees – 31 in 2004 – well below the German aver- age of 42. Progress on integration With IVG now focused on the property business as its core business, we will now press on with intersegmental workforce integration at all locations. This process is already com- plete in Berlin, where our portfolio, project, property and fund management teams oper- ate under joint leadership. This prevents functional duplication in administration, enhances 42 IVG Immobilien AG AIRRAIL, Frankfurt the ﬂow of information between segments and strengthens team spirit among Group em- ployees. We are now on the way to realizing the same organizational goals in Munich and Frankfurt. Outside of Germany, the ﬁrst step has been taken at our Paris ofﬁce with the inclusion of OIK. Concentrating on core competencies Under its policy of parting company with activities which are no longer part of its core busi- ness, IVG divested or hived off businesses in two key transactions during 2004. The new corporate surroundings offer attractive prospects for employees in the businesses con- cerned. In October 2004, we sold SWS GmbH Oberhausen – a rolling stock repair works no longer part of our core operations – to LRS Leipzig Railservice. LRS took over the com- pany’s 117 employees and plans to further expand the Oberhausen location. We also streamlined our corporate functions by hiving off IT services. From 1 January 2005, the services involved are provided by T-Systems, a subsidiary of Deutsche Telekom AG that has taken over all 26 employees. Responsibilty Corporate Personnel development Talent-spotting for IVG IVG launched its Real Estate Management Trainee Programme in 2003 for timely recruit- ment of highly qualiﬁed, ambitious management talent. On successfully completing the Investor/Creditor programme in 2004, three of the four trainees took up challenging positions in various ar- Relations eas of IVG. The second iteration of this personnel development scheme has now started, with IVG signing up ﬁve further university graduates who have training in the property business. For the ﬁrst time, selection took place using an assessment centre specially de- veloped for IVG’s needs and run with the aid of managerial employees from our business Group Management segments. We are now also transferring the successful management trainee concept to Report our corporate functions, with the ﬁrst trainees starting in our personnel management and legal affairs departments. Undergraduates, too, can acquaint themselves with IVG’s various business segments and gather initial practical experience in structured student placements. We provide support with undergraduate dissertations and remain committed to agenda4, an initiative which Financial Statements launches and promotes property-related courses of further study. Consolidated IVG also provides basic vocational training by offering apprenticeships in real estate man- agement and ofﬁce communications. 43 Annual report 2004 IVG Graduate School IVG Graduate School: The IVG Graduate School established in March 2004 by IVG and ebs Immobilienakademie Knowledge transfer and has met with a very strong positive response, above all due to the vast professional exper- exchange of experience tise of the lecturers and the opportunities to exchange experience among European col- leagues. 70 employees have so far taken part in this individual training programme. Employee participation Employee participation in business success is a tradition at IVG. Our employee loans have been in place since 1989 and the IVG Value programme since 1996. Both participation schemes are an integral part of our corporate culture. A feature of our commitment is IVG’s membership of AGP, a 400-strong alliance of companies offering employee partici- pation. The aims of employee participation are to nurture a heightened sense of belong- ing and to align workforce interests with corporate achievement. IVG employee loans are backed by bank guarantees and constitute no risk for employees, whereas the Value pro- gramme makes employees shareholders and thus co-owners of the company. The IVG Value programme: Employees as shareholders The IVG Value programme allows employees to purchase IVG shares on preferential terms. We grant an interest-free loan for 90% of the purchase price. Employees are fully ﬂedged shareholders for the two-year programme term. They are entitled to full dividends, proﬁt from increases in the share price and also face the risk of their shares decreasing in value. At the end of the two years, employees can either retain the shares or sell all or part of their holdings. 40% of our employees took part in the IVG Value programme in 2004. 44 IVG Immobilien AG Caxton Hall, London IVG employee loans: Attractive returns on borrowing We support employee loans with a year-end tax-free supplement repayable along with the employee-contributed portion with 4.5% interest on expiry of the six-year term. The maximum employee-funded portion is €480 a year and the maximum tax-free supplement from the company is currently €135. The size of the supplement varies with the employee contribution. Including the tax-free supplement, the total yield on the employee contribu- tion over the entire term approximates to 9.8% a year. 45% of employees participated in the programme in the 2004 ﬁnancial year. Share options We once again offered a share option plan for managerial staff in 2004 to create incentives for further performance growth and to give management a direct share in that growth. The €11.31 share price target stipulated in the 2002 share option plan was exceeded in December 2004, enabling participants to exercise their options for the ﬁrst time since the plan’s launch in 1999. Further information on the share option plans is provided in the Responsibilty consolidated ﬁnancial statements beginning on page 128 and in the notes to the ﬁnancial Corporate statements. Semiretirement Investor/Creditor We signed a collective agreement on semiretirement in 2001. IVG opted for a phased ar- Relations rangement where semiretirement is divided into a full-time working phase and a non-work- ing phase. Ten new semiretirement agreements were signed in 2004. This brings the total for 2002-2004 up to 43, with six agreements already terminated. Group Management Report Financial Statements Consolidated 45 Annual report 2004 Our commitment Looking beyond the company: As a company, we believe that our duty to our employees and shareholders comes before Cultural sponsorship as part all else. Beyond this primary mission, we are also serious about contributing to the well- of corporate culture being of the community and the environment in which we are active. We consider this responsibility integral to our corporate culture. We pool our resources by chieﬂy backing initiatives in our home base Bonn, and the capital, Berlin. Striking a chord with Beethoven in Bonn We are committed to maintaining the cultural legacy of Ludwig van Beethoven, the city of Bonn’s great son. Varying degrees of support have been bestowed on the Beethoven- Haus itself, the digital Beethoven-Haus and the International Beethoven Foundation. We regularly display the works of talented young artists in our headquarters. Recently, cre- ations by Professor Ansgar Nierhoff’s master class students from Mainz were on show. We also lend our backing to a series of classical concerts staged in the summer months in Brandenburg to promote the region’s arts and historical monuments. In addition, we promote exhibitions for children and young people at the Art Museum of the City of Bonn, sponsor the federal league team as well as support the youth work of the baseball club Bonn Capitals. Making a stand for science Our support for the sciences takes many forms. Sponsorship recipients include the En- dowed Chair of Real Estate at the European Business School (ebs) in Östrich-Winkel. We have also established the Infopark Foundation to encourage applied research and business start-ups at the Budapest University of Technology and Economics. In addition, IVG backs the Donors’ Association for the Promotion of Sciences and Humanities in Germany. South-East Asian outreach Immediate help for None of us have been able to forget the horriﬁc images of the tsunami ﬂoods in South- tsunami victims in East Asia that reached us shortly after Christmas last year. IVG spontaneously resolved to South-East Asia without make a contribution to education and hence also self-help in Sri Lanka. To this end, we are the red tape extending a private school together with notary Dr. Peter Frauenfeld in Bentota. This proj- ect will not only provide notably those children affected by the tsunami with a high stan- dard of education but also translate into jobs for tradesmen and school staff. 46 IVG Immobilien AG Beethoven-Haus: Reﬂecting our cultural ties with Bonn Photo by kind permission of the Beethoven-Haus, Bonn Trainees: New ideas from the halls of learning Responsibilty Corporate Art and architecture: Close partners Investor/Creditor Bonn Capitals: Youth work and federal league Relations Group Management Report Financial Statements Consolidated Sri Lanka school project: Helping people help themselves 47 Annual report 2004 Investor and creditor relations Active investor and creditor relations are an integral part of our value-driven corporate strategy. They secure trans- parency and anchor long-term, trusting relationships with investors, lenders and analysts. IVG Businesspark Hamburg Nord, Hamburg 48 49 IVG Immobilien AG Consolidated Group Management Investor/Creditor Corporate Segments Strategy Financial Statements Report Relations Responsibilty Annual report 2004 IVG shares New ownership 2004 was a good year for IVG shareholders. Our share price rose by 33.5%, easily outper- structure at IVG forming the 7.3% turned in by the DAX and the 20.3% by the MDAX index. The entry of Sal. Oppenheim Bank (25.1%) and HSH Nordbank (11.16%) as long-term investors refo- cused attention on IVG’s fundamental data. The debate about introducing real estate in- vestment trusts (REITs) in Germany lent added buoyancy to the share price. As well as IVG shares, property shares proved to be an attractive investment in 2004. The EPRA Germany index listing the main German property shares gained 22.7%, more than the DAX. The EPRA Total Return index comprising the major European real estate shares showed an increase of 40% (compared with 9.8% for the EURO STOXX 50), continuing its good performance of preceding years. IVG’s share price (%) 60 IVG 40 DAX EPRA Total Return Index 20 0 -20 30.12.03 26.3.04 18.6.04 10.9.04 31.12.04 18.3.05 50 IVG Immobilien AG IVG headquarters Zanderstrasse, Bonn IVG stock symbols Reuters IVG F Bloomberg IVG GR WKN 620 570 ISIN code DE 0006205701 Investor and creditor relations We foster trust and conﬁdence with full and timely communication and ongoing dialogue with investors, lenders and analysts. Personal contact with the capital market is vital in this regard. We thus kept the markets informed about current events in our company at a multitude of one-on-one and group meetings, bank and stock exchange forums and road shows at all key European ﬁnancial centres, and also in North America. Twice-yearly analysts’ confer- ences and conference calls in the event of signiﬁcant transactions have long been part of our capital market communications. We also provide full information about our company on www.ivg.de. In the past year, HSBC Trinkaus & Burkhardt, Commerzbank, Kepler Securities and Landes- Investor/Creditor bank Rheinland Pfalz added IVG shares to their research. The current recommendations Relations from the research houses are ‘buy’ or ‘neutral’. There are no ‘sell’ recommendations. Group Management Report Financial Statements Consolidated 51 Annual report 2004 Leibniz Kolonnaden, Berlin Stock market trading and market capitalization IVG in relevant Daily turnover in IVG shares has signiﬁcantly increased from an average of 130,000 shares share indices changing hands each day in 2003 to more than 157.000 only a year later in 2004. Since the beginning of 2005 the average has even topped the 200,000 mark. By this measure, IVG has improved its stock market ranking from 35 to 31 in the 50-share MDAX index. The same goes for IVG’s market capitalization, where IVG has risen from 29th to 23rd place. In addition to the MDAX index, IVG features domestically in the property sector indices EPRA Germany and DIMAX Deutscher Immobilienaktienindex. International indices which include IVG are MSCI Small Caps and, importantly for real estate shares, the EPRA and EPRA/NAREIT Global Real Estate index, GPR 250, the Salomon Smith Barney World Equity Index, and EPIX. Dividends Our good earnings position allows the Board of Management and Supervisory Board of IVG to submit for approval at the General Meeting an increase in dividend for the 2004 ﬁ- nancial year from €0.34 to €0.35. This corresponds to a dividend yield of 2.93% and a total distribution of €40.6 million. IVG share data (€ per no-par-value share) 2000 2001 2002 2003 2004 Number of shares (year end) million 116 116 116 116 116 Market capitalization (at year-end share price) € million 1,507 1,247 962 1,075 1,386 Year’s highest price 15.35 15.80 12.99 9.50 12.40 Year’s lowest price 12.55 9.40 8.00 5.75 8.76 Year’s closing price 12.99 10.75 8.30 9.27 11.95 2 Earnings per share1 0.73 0.55 0.58 0.45 0.61 3 4 Dividend per share 0.33 0.34 0.34 0.34 0.35 4 Total dividend € million 38.28 39.44 39.44 39.44 40.60 Dividend yield (on year-end share price) % 2.54 3.16 4.09 3.67 2.93 Price/earnings ratio (on year-end share price) 17.8 19.5 15.4 10.2 19.6 MDAX price/earnings ratio 18.7 17.5 12.9 29.1 16.4 DAX price/earnings ratio 20.4 30.0 16.4 22.4 15.5 1 IFRS basis for 2003 and 2004 and DVFA/SG basis for earlier years 2 Excluding €53.4 million income item for Polar lucky buy 3 Excluding special dividend (€0.20 per share) 4 Recommended 52 IVG Immobilien AG Good prospects for launch of German REITs The introduction of real estate investment trusts would probably deliver a considerable boost to the market for property shares. There are now good prospects for such a launch. The German ﬁnance ministry has decided in principle to legislate, bringing the introduction of a German version of REITs with all their advantages of tax transparency within reach by the beginning of 2006. REITs offer signiﬁcant beneﬁts to investors. Like open-end property funds, they are not subject to corporate tax, thus cutting out double taxation. They are also required to dis- tribute a large proportion of income. A survey of the international scene shows that real estate companies structured as REITs trade at a considerable premium on the stock mar- kets compared with peers not subject to the same exemptions. REIT vehicles have now become a global standard and are already allowed in more than 20 countries including the USA, Australia, France, Belgium and the Netherlands. We expect that REITs will ﬁnd their place as an investment category alongside other shares, bonds and investment funds and that they will further raise interest in German real estate shares. IVG is actively involved in the debate and the substantive process. Investor/Creditor Relations Group Management Report Financial Statements Consolidated 53 Annual report 2004 EPRA The European Public Real Estate Association (EPRA) is a European industry association comprising listed real estate companies, ﬁnancial analysts, banks and auditors. To ensure the greatest possible level of transparency for investors, EPRA issues Best Practices Rec- ommendations for accounting and reporting. IVG supports the harmonization of report- ing standards. Most of the required information is already included in our annual ﬁnancial statements. Additional information required by EPRA is set out on the pages that follow. European public real estate companies compared* (%) 40 33 24 20 16 15 13 9 8 8 8 4 4 0 -3 -20 -8 -8 -8 -11 -11 -12 -12 -13 -16 -19 -22 -25 -40 -32 Uniball Klepierre Corio Whilborgs Rodamco Europe Metrovacesa Wereldhave Cofinimmo Gecina Average Colonial Castellum Sponda Land Securities Hufvudsteden Deutsche Euroshop Vastned Office Hammerson PSP IVG Slough Estates Urbis Aedes British Land Beni Stabili * The chart shows share price premiums and discounts relative to net asset value. March 2005. Source: Merrill Lynch 54 IVG Immobilien AG Place de la Madeleine, Paris a) Net asset value Net asset value (NAV) is the Group’s total assets at market value less total liabilities and is equal to economic capital. The net asset value of IVG grew by 5.5% compared with the prior year, from €14.41 to €15.20 per share. The rise mainly reﬂects growth in our invest- ment funds business and in the value of our real estate portfolio. Basis of computation Market valuation of the real estate portfolio The real estate portfolio was valued as at 31 December 2004 almost in its entirety by neu- tral appraisers: Germany: Jones Lang LaSalle Belgium, Luxembourg and the Netherlands: de Crombrugghe & Partners s.a., Colliers NMS and DTZ Italy: REAG United Kingdom: FPD Savills Portugal and Spain: CB Richard Ellis Hungary: CWHB Investor/Creditor Sweden: DTZ Relations France: Alban Cooper Switzerland: Colliers AMI Finland: Kiinteistötaito Peltola & Pulkkannen Oy Group Management Market values were determined for almost all properties in accordance with IAS 40 In- Report vestment Properties, on a discounted cash ﬂow (DCF) basis or by reference to compari- son data. The valuations were performed, as appropriate, in conformity with International Valuation Standards (IVS) or the Royal Institution of Chartered Surveyors (RICS) Guidance Notes on the Valuation of Assets (the Red Book). Financial Statements Consolidated 55 Annual report 2004 Net asset value (€ m) 2004 2003 Intangible assets 6.1 Other property, plant and equipment 56.8 Investment properties 3,284.3 Development projects 49.3 Investment funds 175.5 Financial assets 136.7 Shares in associated companies 32.0 Receivables and other assets 12.7 Prepaid expenses 4.9 Non-current assets 3,758.4 Inventories 73.2 Receivables and other assets 406.2 Income tax receivables 11.2 Current asset securities 26.3 Cash at bank and in hand 69.5 Prepaid expenses 5.2 Current assets 591.6 Total assets 4,349.9 Financial liabilities 1,914.9 Pension provisions 23.5 Other provisions 33.6 Trade accounts payable/other liabilities 40.9 Deferred income 8.2 Non-current liabilities 2,021.1 Financial liabilities 272.4 Other provisions 40.3 Tax provisions 11.2 Trade accounts payable/other liabilities 229.2 Deferred income 12.9 Current liabilities 566.0 Total liabilities 2,587.1 NAV 1,762.8 1.671.4 NAV per share (€) 15.20 14.41 Deferred tax 83.2 62.5 NAV after deferred tax (NNAV) 1,679.6 1.608.9 NNAV per share (€) 14.48 13.87 56 IVG Immobilien AG Nordostpark, Nuremberg Market valuation using the DCF approach The DCF method is a net present value calculation that entails discounting a property’s future net cash inﬂows (net operating income) to a valuation date. The net operating in- come ﬁgures are the balance of receipts and payments for each year of a ten-year detailed budget period. Receipts are mostly net rental income. Payments mostly comprise running costs met by the owner and not passed on to tenants. The net operating incomes are dis- counted to the valuation date at a free market discount rate estimated for each property, giving a net present value for net operating income from each period. A residual value is then estimated for the property as at the end of the ten-year budget period. This reﬂects the price most likely then to be recovered. It is obtained by capitaliz- ing the net operating income for the tenth or eleventh year as a perpetuity at an appropri- ate capitalization rate. The net present value of this ﬁgure at the date of valuation is then found by applying the same discount rate as is used for net operating income. The sum of discounted net operating income and discounted residual value is the market value, i.e. fair value, of the property under appraisal. Development projects Development projects are included at their carrying amounts under current and non-current assets plus their discounted future contribution margin. The discount rate used is 15%. Investor/Creditor Relations Investment funds This item gives the market value of our investment funds business, comprising the value of OIK (€125 million) plus private investor funds business valued using the DCF approach. Corresponding balance sheet carrying amounts of securities, bank balances, intangible as- Group Management sets and liabilities are eliminated. Report Financial Statements Consolidated 57 Annual report 2004 Global Gate, Düsseldorf Other property, plant and equipment, ﬁnancial assets, and receivables and other assets These are adjusted for assets already included in the market value of investment properties. Derivative ﬁnancial instruments Derivative ﬁnancial instruments are eliminated from the NAV computation. Non-current ﬁnancial liabilities This comprises liabilities in the consolidated balance sheet plus the liabilities of unconsoli- dated real estate companies included in the market value of investment properties. Deferred tax liabilities Deferred tax reported in the consolidated ﬁnancial statements is restricted to temporary differences between carrying amounts in the consolidated balance sheet and the tax base, and is supplemented here by deferred tax on differences between carrying amounts in the consolidated balance sheet and IFRS market values. This is measured assuming a 35% tax rate and partial sale by way of share deals and, in line with the going concern presumption, is discounted to present value over 25 years at a discount rate of 8%. b) Financial risk management and other disclosures Derivative ﬁnancial instruments We make systematic use of derivative ﬁnancial instruments to reduce risk due to ex- change rate and interest rate changes in our Europe-wide activities. The Group Treasury exclusively uses marketable instruments with sufﬁcient market liquidity for this purpose. Contracts involving derivative ﬁnancial instruments are entered into solely with major Euro- pean banks of immaculate credit standing to ensure the lowest possible risk of counter- party default. The use of derivative ﬁnancial instruments is subject to uniform internal guidelines and strict controls, with monthly reporting and regular valuations. Following the transition to IFRS, hedge accounting is now applied to derivative ﬁnancial instruments qualifying as hedges by the strict criteria in IAS 39. In accordance with internal Group di- rectives, derivative ﬁnancial instruments are used exclusively to hedge risks in connection with speciﬁc underlying transactions. 58 IVG Immobilien AG Currencies Foreign currency exposures from investment in non-euro countries are broadly neutralized by reﬁnancing in the same currency. Most currency exposure is in Swiss francs, Swedish krona, pounds sterling, Hungarian forint and Polish zloty and is countered by systematic Group-level currency management. Interest rate exposure, loan maturities and average borrowing cost Strategy Interest rate exposures and loan maturities are geared to the investment portfolio, reﬂect- ing the typical duration of most investments in real estate. Most bank loans across the IVG Group are ﬁxed-interest, making the impact of interest rate ﬂuctuations predictable for the medium-term future. We additionally offset speciﬁc variable-interest bank loans with interest rate swaps (payer swaps). To optimize net interest income, we limit the variable- Segments interest share of borrowing, including hedges, to 30%. Based on agreed repayments and hedges outstanding, a hypothetical 1% change in interest rates would have an approxi- mate €2.0 million impact on earnings. The average year-end borrowing cost (including the cost of hedging) was approximately 4.8%. Responsibilty Corporate c) Like-for-like rental growth Investor/Creditor On a like-for-like basis, i.e. adjusted for investments and divestments, rents stayed roughly Relations level at €205.4 million compared with €205.2 million in the previous year. Group Management Report Financial Statements Consolidated 59 Annual report 2004 Corporate governance Corporate governance refers to the entire system by which a company is managed and monitored, its corporate principles and guidelines, and the system of internal and external controls and supervision to which its operations are subjected. Good, transparent corporate governance ensures that our company will be managed and monitored in a responsible man- ner geared to value creation. This fosters the conﬁdence of investors, employees, business associates and the general public in IVG’s management and supervision. Declaration of compliance with the recommendations of the German Corporate Governance Code in the version dated 21 May 2003 by the Board of Management and Supervisory Board of IVG Immobilien AG pursuant to Sec. 161 of the German Stock Corporation Act (Aktiengesetz – AktG) IVG welcomes the principles drawn up by the Government Commission on the German Corporate Governance Code. Most of these principles have already formed an integral part of our value-oriented corporate policies for some years. In September 2002, IVG also become a founding member of the Initiative Corporate Gov- ernance of the Germany Real Estate Industry. Under the chairmanship of Dr. Eckart John von Freyend, this organisation drew up corporate governance principles speciﬁcally for real estate companies which go beyond the recommendations in the Cromme Commission’s Code and which supplement the Code with requirements specially aligned to the real es- tate business. IVG follows the recommendations and suggestions of the Corporate Gov- ernance Code of the German Real Estate Industry. This Code can be downloaded from http://www.immo-initiative.de. IVG undertook numerous measures towards compliance with the German Corporate Gov- ernance Code in 2002. As a result of modiﬁcations of the Cromme Code, further recom- mendations were implemented in 2003 and 2004. These include a modiﬁcation of the terms of reference for the Board of Management and Supervisory Board and the establish- ment of an Audit Committee. Furthermore from the 2004 ﬁnancial year the remuneration of the Board of Management and Supervisory Board shall be reported on an individualized basis. In addition, the consolidated ﬁnancial statements as at 31 December 2004 and the interim reports from 2005 will be prepared in line with International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS). From 2005, IVG thus fully com- plies with the recommendations of the German Corporate Governance Code. 60 IVG Immobilien AG Airport Center Schönefeld, Berlin Treatment of capital market information capable of inﬂuencing the share price In October 2004, the EU Market Abuse Directive was transposed into German law with the Investor Protection Improvement Act (AnSVG). The directive harmonizes the law across the European Union, considerably tightening the obligations of listed companies to publish information that might affect the share price and extending investor safeguards against inadmissible market practices. In response, IVG has laid down rules governing the internal handling of insider information and ad-hoc reporting. A compliance ofﬁcer monitors compliance with the rules. Investor/Creditor Relations Group Management Report Financial Statements Consolidated 61 Annual report 2004 Group Management Report Economic environment 63 IVG: The European real estate investment house 64 Business performance 65 Financing 68 Consolidated cash ﬂow statement 68 Consolidated value added statement 69 Dependent parties report 69 Risk management system 69 Events of special importance after the close of the ﬁnancial year 71 Outlook 72 62 IVG Immobilien AG Group Management Report Strong year permits higher dividend of €0.35 per share Continued success in portfolio management and project development Investment funds business growing fast New ownership structure broadens options for IVG Economic environment The economy gained momentum in nearly all European countries in 2004. But the strength of the upturn varied across Europe’s regions. Besides the states involved in EU en- largement, the strongest growth was achieved in Scandinavian countries, whose advanced economies are boosted by favourable locational factors in areas like education, administration and regulatory pol- icy. The growth rate in the UK was also well above the European average. The three especially feeble economies in 2003 – Germany, Italy and France – likewise managed to up their growth rates but stayed among the stragglers compared with Europe as a whole. Inﬂation rates, too, followed uneven trends in 2004. Many countries successfully slowed inﬂation de- spite the livelier economy. 2004 saw interest rates hit their lowest point in decades. Even if they put in a moderate rise, interest rates will continue to offer good conditions for investing in real estate. European economic data Percentage change/interest rates GDP Inflation Interest rates 2004 2003 2004 2003 2004 2003 Germany 1.7 -0.1 1.8 1.0 3.58 4.17 Finland 3.0 2.0 0.1 1.3 3.68 4.16 Sweden 3.7 1.5 1.0 2.3 3.90 4.65 Hungary 3.9 3.0 6.8 4.7 7.17 8.36 Italy 1.3 0.3 2.3 2.8 3.79 4.32 Portugal 1.3 -1.2 2.5 3.3 3.64 4.25 Spain 2.6 2.5 3.1 3.1 3.64 4.19 Group Management Belgium 2.5 1.3 1.9 1.5 3.66 4.26 France 2.4 0.5 2.3 2.2 3.64 4.20 Report UK 3.3 2.2 1.3 1.4 4.58 4.84 EU 25 2.3 0.9 2.1 1.9 3.97 4.50 Euro zone 2.0 0.5 2.1 2.1 3.66 4.26 Financial Statements Consolidated 63 Annual report 2004 The European real estate sector European ofﬁce markets continued to show a mixed pattern in 2004, but the long-term trends point to a nascent upturn across most of the Continent. The decline in rents from previous years came to a stand- still almost everywhere by the end of 2004, and rents in some cities began rising again. The majority of key locations also showed a marked rise in space turnover. The trailblazer for the upward trend in 2004 was the London ofﬁce market, where uplift from the ﬁnan- cial sector delivered a fast, strong boost to demand, driving up top rents by 22.4% and space turnover by no less than 67.5%. Rents also rose from the second half of 2004 in the Paris ofﬁce market – the second most important in Europe after London – and in the Spanish cities of Madrid and Barcelona. Top rents in the Italian economic centre of Milan continued their downward slide into 2004 but bottomed out as the year pro- gressed. The ofﬁce markets in the ﬁve most important German locations of Berlin, Düsseldorf, Frankfurt, Ham- burg and Munich so far show neither a reduction in vacancy rates nor any upward momentum in rents. There are marked signs of consolidation, however. Space turnover had already begun to pick up rapidly in Düsseldorf and especially Hamburg, although rents in these two cities continued to decrease, as they did in Berlin and Frankfurt. The two global cities, London and Paris, retain their place as the most important investment locations in Europe. They have the largest ofﬁce markets and the highest rents by a wide margin and focus the attention of investors from all over the world. Strong demand combined with hardly any increase in sup- ply was already squeezing returns in 2004. Yields in the main Central Eastern European ofﬁce markets were also declining. This is a sign of the Bu- dapest, Prague and Warsaw markets becoming increasingly established. Investors there are demand- ing lower risk premiums than in earlier years and now work on the assumption that yields will keep up current levels for the time being and rise in the medium term. The outlook is also good in Sweden and Finland. Both these countries repeatedly grab peak rankings internationally in terms of growth potential, locational factors, education systems and freedom from corruption. Scandinavia is also the only region in Europe whose population is likely to go on rising over coming decades. All of this especially beneﬁts the two capitals, Stockholm and Helsinki. IVG: The European real estate investment house IVG is one of Europe’s major real estate managers, looking after real estate assets worth €16 billion. The real estate assets under management comprise IVG’s own properties and assets managed primar- ily for third parties in real estate investment funds. IVG attracts private and institutional investors with a synthesis of highly professional real estate management with bespoke ﬁnancial products: real estate 64 IVG Immobilien AG shares, institutional funds and closed-end funds. IVG’s activities for investors cover the entire real es- tate value chain: Locating, valuing and buying properties – preferentially at low prices by snapping up entire portfolios, or at points in the property cycle when the market is just starting to rise. IVG develops new properties, modernizes properties in its portfolio and raises their commercial value by improving tenancies. IVG aims to sell when the market is mature. When selling, it creates added value for inves- tors by splitting out properties originally bought as a package. Domestic and foreign branch ofﬁces as- sure local presence, participation in local networks and fullest possible exploitation of local market op- portunities. Business performance 2004 was another successful year for IVG. At €74.9 million, net income for the year signiﬁcantly ex- ceeded both adjusted IFRS net income for 2003 and net income for 2003 as measured in accordance with the German Commercial Code (HGB). IFRS consolidated net income after taxes for 2003 includes a €53.4 million lucky buy gain on acquisition of Polar in Finland at a price signiﬁcantly below market value. Under IFRS, this gain is recognized in income in the year of the purchase. Only a small amount of it was reported under HGB. The good business performance is also reﬂected in EBIT, EBITD and EBD, which each grew sharply. Turnover and net rental income also increased. This primarily reﬂected the acquisition of the Polar group and the Ilmarinen portfolio, plus strong letting activity. Turnover was also raised by the addition to the consolidated group of Oppenheim Immobilien Kapitalanlagegesellschaft (OIK), a majority shareholding in which was acquired in July. IVG realized gross gains on property sales of €79.3 million under its buy and sell strategy. In view of the positive trend, the Board of Management and Supervisory Board will be recommending an increased dividend of €0.35 at the General Meeting. Business performance € million Group Management IFRS IFRS IFRS HGB Report 2004 20031 2003 2003 Group turnover 507.3 496.1 496.1 411.5 Group operating performance 613.0 589.8 643.2 545.7 EBITD 264.7 207.7 261.1 224.5 EBIT 202.6 130.5 183.9 174.2 EBD 118.4 108.1 161.5 101.7 Consolidated net income after taxes 74.9 54.1 107.5 66.5 Financial Statements 1 Excluding Polar lucky buy Consolidated 65 Annual report 2004 Portfolio management After taking over the whole of Polar Kiinteistöt Oyj by a squeeze-out in mid-2004, IVG went on to pur- chase further ofﬁce properties in Helsinki with the Ilmarinen portfolio. The purchase price was €63 million; the lettable space totalled 63,000 m2. The ﬁnancially well-situated tenants include the leading telecommunications group TeliaSonera, the Finnish Sports Federation and the Nordea Life insurance group. IVG thus further strengthened its position in the up-and-coming Helsinki ofﬁce market. It also augmented its domestic portfolio, taking advantage of the favourable situation on the German ofﬁce market to acquire two business parks in Düsseldorf for a combined total of €58 million. IVG continued to realize attractive proﬁts under its active buy and sell strategy. Key examples include: London, Conduit Street Brussels, Square de Meeus Paris, Boulevard Haussmann Segment turnover increased compared with the previous year, from €293.8 million to €305.3 million. The net rental income included in this ﬁgure increased from €217.4 million to €227.2 million. Besides the acquisition of the Polar and Ilmarinen portfolios, this is also due to successful letting business: IVG let out some 176,000 m2 in 2004. Factoring out the lucky buy effect, operating earnings rose by €39.2 million. Gross gains on the sale of real estate over the ﬁnancial year were €79.3 million, up from €64.5 million in the previous year. The effective occupancy rate at the year-end was a healthy 92.7%. Project development Project development activities in 2004 were dominated by the successful joint venture with AXA, work on the Nordbahnhof ofﬁce building project in Berlin and the expansion of project development activi- ties in London. Operating earnings rose strongly to €24.7 million (2003: €14.4 million), primarily due to the sale of the Périsud and Aviva projects developed jointly with AXA in Paris and the Nordbahnhof development in Berlin. The latter has a total value of some €160 million and 60,000 m2 of ofﬁce space. The project was let to Deutsche Bahn and sold to the Deutsche Bank group, both before completion. 66 IVG Immobilien AG IVG has followed up on the success of a joint venture started in 2002 by further stepping up project development activities in Paris. A second joint venture was established with AXA. The two companies each have approximately 35% of the €350 million equity capital. Other institutional investors hold about 30%. The focus will be on commercial property developments in the Paris region. The joint venture is set to run to 2010. IVG also expanded its activities in London, where the ofﬁce markets are beginning to pick up steam. A 1,700 m2 site was acquired on Caxton Street, Victoria. The Caxton Hall ofﬁce project with 5,200 m2 of lettable space will be built on the site for €60 million from 2005 to the end of 2006. Construction work began in development of the former Lloyds Bank headquarters in the 71 Lombard Street project. Behind the listed frontage of this prime City site, IVG will develop 15,900 m2 of ofﬁce space for a total of €160 million by mid-2007. The successful Madou Plaza development project in Brus- sels is almost complete. Promising negotiations for a sale are currently underway. Investment funds A further pivotal event of 2004 was the purchase of a majority shareholding in Oppenheim Immobilien Kapitalanlagegesellschaft (OIK). The purchase price was €125 million. With currently €8.8 billion in 28 investment funds, OIK is the German market leader in real estate investment funds for institutionals. The acquisition places IVG among the major real estate managers in Europe. IVG and OIK ideally com- plement each other in their focus on major European cities, with improved market penetration in the core European markets of London, Paris and Brussels and extension of the geographical market reach with additional branch ofﬁces in Finland, Portugal and the Netherlands. The acquisition brings together complementary core competencies, too: IVG has longstanding experience in the purchase of entire companies, complex portfolios and project development. In addition to its extensive real estate experi- ence, OIK has special expertise in attracting equity capital for institutional investment funds primarily from insurance companies, pension funds and foundations. IVG’s private investor activities also performed well. IVG ImmobilienFonds GmbH (formerly Wert-Konz- ept ImmobilienFonds GmbH) placed €88 million in equity capital in 2004, almost trebling the ﬁgure for Group Management the previous year. The EuroSelect 07 fund, with €50.0 million in equity, was fully subscribed by the Report year-end. The EuroSelect 08 fund, marketing of which started at the end of 2004, was likewise fully signed-up by February 2005. Turnover rose from €16.2 million to €51.3 million. Operating earnings likewise increased, from a nega- tive €2.7 million to €16.8 million. The marked increase results from OIK’s contribution towards net in- come and the increase in volume-based commission on equity issued for closed-end funds. Financial Statements Consolidated 67 Annual report 2004 Financing Financial liabilities, mostly consisting of bank loans, decreased from €2,210 million to €2,178 million. Approximately €300 million in scheduled repayments and loans paid down due to property sales were matched by a similar amount of new borrowing for investment. Material items in this regard included the acquisition of a 50.1% shareholding in OIK and the Ilmarinen portfolio in Helsinki, and the ﬁnancing of the Berlin Nordbahnhof and Brussels Madou Plaza project developments. IVG made use of the historically favourable interest rate situation to secure ﬁnance on a long-term basis for the Polar acquisition, bank loans within Polar, and the purchase of the stake in OIK. The average annual interest rate on debt capital at the year-end, including interest rate hedging expens- es, was 4.8%. Taking existing derivative ﬁnancial instruments into account, the earnings effect of a 1% change in variable interest rates on the variable-interest portion of the loan portfolio would be approxi- mately €2.0 million to the end of 2005. To diversify its sources of ﬁnance, IVG issued a €200 million commercial paper programme in 2004. This makes it possible to draw on short-term capital market funds with a term of up to two years. Draw- ings to ﬁnance working capital under the programme reached a maximum of €157.5 million during the year and were back down to zero at the year-end. Including free credit lines and the CP programme, total liquidity at the end of 2004 was approximately €500 million. IVG provides funding to Group companies through a central treasury function. This central funding net- work makes for optimum pooling of liquidity and lowers the cost of capital across the Group. It also ensures the solvency of each participating company and monitors interest, currency and liquidity risks in the Group as a whole. Incorporating the international subsidiaries into IVG’s electronic cash pool fur- ther raises efﬁciency. Consolidated cash ﬂow statement € million 2004 2003 Cash inflow from operating activities 22.4 3.3 Cash outflow/inflow from investing activities -64.9 38.5 Cash inflow/outflow from financing activities 54.2 -129.4 Net change in cash and cash equivalents 11.7 -87.6 Cash and cash equivalents at the start of the period 62.8 150.4 Cash and cash equivalents at the end of the period 74.5 62.8 The full cash ﬂow statement appears in the Notes. 68 IVG Immobilien AG Consolidated value added statement € million 2004 2003 Source Turnover 507.3 496.1 Other income 116.2 147.3 Group performance 623.5 643.4 Material expenses -129.4 -170.4 Depreciation -62.1 -77.2 Other expenses -159.0 -161.5 Total expenses and depreciation -350.5 -409.1 Value added 273.0 234.3 Distribution Shareholders 44.6 41.2 Employees 66.4 58.1 Public sector 21.6 6.2 Creditors 110.1 62.4 Group 30.3 66.4 Value added 273.0 234.3 Value added was increased by 16.5%. Dependent parties report IVG is required to publish a dependent parties report in accordance with Sec. 312 of the German Stock Corporation Act (AktG) in respect of the relationship, extending from 1 January to 23 February 2004, with SIRIUS Beteiligungsgesellschaft mbH, Wackerow, and WCM Beteiligungs- und Grundbesitz-Ak- tiengesellschaft, Frankfurt. No business transactions were entered into with SIRIUS Beteiligungsgesell- schaft mbH or WCM Beteiligungs- und Grundbesitz-Aktiengesellschaft. The Board of Management has issued a separate report on relations with afﬁliated companies, in ac- cordance with Sec. 312 of the German Stock Corporation Act (AktG). This report includes the following statement: »In the circumstances known to us at the time legal transactions were undertaken, our company was Group Management appropriately remunerated for such transactions in all instances. We did not take or omit to take any Report measures at the behest of or in the interests of WCM Beteiligungs- und Grundbesitz-Aktiengesell- schaft, of Frankfurt, or SIRIUS Beteiligungsgesellschaft mbH, of Wackerow.« Risk management system Its Europe-wide activities expose IVG to various risks inherent to the business operations of a real es- tate group. Regular strategic review and a target-oriented control system ensure that in all business Financial Statements decisions, opportunities and risks are well balanced and are identiﬁed at an early stage. Consolidated 69 Annual report 2004 IVG’s risk management system is integral to all business processes and Group-wide directives. The in- tegration of risk analysis in the planning and monitoring process and in reporting to the Board of Man- agement and Supervisory Board ensures continuous review of the risk position. The proper operation of our risk management system is monitored by our internal auditing function and examined during independent auditing of the annual ﬁnancial statements. IVG identiﬁes market risk by drawing upon comprehensive global and local research from its own local branch ofﬁces and from internationally regarded institutions. Quarterly studies investigate the econom- ic, industry and market situation. IVG counters market risk by country and industry diversiﬁcation. IVG faces a wide range of tax, competition and environmental rules and regulations in its market envi- ronment. It stays fully informed about any potential risks by obtaining legal and technical advice and by monitoring the competition. So that it can respond quickly to negative developments in its environment, IVG is involved in various organizations and remains in constant dialogue with public authorities and political institutions. Legal risks – particularly litigation risks – are managed by a central legal department in cooperation with reputable law ﬁrms. Portfolio management risks include vacancy risk, risk relating to tenant credit standing and tenant in- solvency, and risk of declining market rent levels and insufﬁcient insurance cover. IVG uses a number of early warning indicators to monitor these risks, including rent forecasts, analysis of vacancy rates, monitoring of tenancy terms to renewal and termination clauses, observation of regional market devel- opments, reports on buying and selling activities, and insurance reviews. Risk of tenant default is reduced by IVG’s portfolio of high-quality properties in good locations and by having many ﬁnancially well-situated tenants in long-term contracts with differing terms to renewal. All properties are tested for value impairment by various methods such as discounted cash ﬂow. Major risks in project development are cost and schedule overruns during construction, and worsening of the market situation. IVG secures its capability of responding to potential such risks with a tightly run monthly reporting and control system covering all key management indicators. Criteria for commence- ment of development projects include a set quota of pre-lettings and a suitable return on investment. For particularly large developments, IVG enters into joint ventures with selected partners. 70 IVG Immobilien AG Risks in the investment funds business primarily result from placement commitments given by IVG and – depending on how each fund is set up – obligations under repurchase guarantees. Ongoing monitoring of issue progress and the operating performance of investment properties makes certain that adverse trends are spotted early and action can quickly be taken. Post-completion reports are prepared for completed projects, recording experience acquired for future reference. IVG is exposed to the usual interest rate and currency risks in its operating business and applies sys- tematic ﬁnancial and risk management to measure them. The instruments used to hedge ﬁnancial risks are described in the Notes together with the risk management objectives and methods associ- ated with the use of ﬁnancial instruments. The majority are hedged at Group level and managed by a dedicated department. Internal checks with a strict reporting system ensure responsible use of such instruments. IVG limits risks relating to the availability, reliability and efﬁciency of IT systems with service level agree- ments from IT services providers T-Systems International GmbH, to which IVG’s entire IT systems were outsourced at the end of 2004. Throughout the Group, IVG deploys a skilled management team and applies the dual control principle in decision-making at all process levels. To recruit and retain skilled specialists and managers, IVG main- tains close contact with universities and offers performance-linked compensation systems and oppor- tunities for ongoing training. There are currently no risks apparent to IVG which might represent a material and lasting threat to the Group. All identiﬁed risks are adequately covered by balance-sheet provisions. Events of special importance after the close of the ﬁnancial year For some time, IVG has been bidding to purchase the German national storage facility comprising 33 caverns at Etzel near Wilhelmshaven, put up for privatization by world-wide tender. The caverns were Group Management created in the 1970s by IVG, which has operated them in trust for the Federal Republic of Germany to- Report gether with seven caverns of its own. The German Federal Ministry of Finance accepted IVG’s bid to purchase the caverns facility for some €132 million by letter of 29 March 2005. The caverns business is characterized by stable, long-term cash ﬂows and earnings. It is a lasting en- Financial Statements hancement to IVG’s portfolio of logistics real estate. Consolidated 71 Annual report 2004 Outlook The main European rental markets remain on track for recovery. In German property locations, the decline in top rents appears to be levelling out. Given the unbroken interest in real estate invest- ments, European investment markets will probably hold steady. The German investment market in particular is currently beneﬁting from foreign investors showing an interest in buying in. IVG will proﬁt from the recovery on the ofﬁce markets, especially London West End and Paris CBD, both through its own portfolio and by expanding its project development activities in those mar- kets. Acquiring entire portfolios will continue to be a major priority for IVG. Potential value growth is sys- tematically leveraged by letting, improving the tenancy structure and modernization. IVG aims to achieve further growth in investment funds for institutionals in 2005, with OIK plan- ning to increase its real estate assets under management. This will be supplemented by attractive structured vehicles for institutional investors. Offerings for private investors will be expanded with EuroSelect funds. March 2005 will therefore see marketing of €76.7 million in equity commence for EuroSelect 09, with an ofﬁce property in London. The new ownership structure with Sal. Oppenheim Bank (25.1%) and HSH Nordbank (11.2%) as major shareholders from 2004 onwards achieved what the capital markets wanted: clarity as to ownership and an increase in the free ﬂoat. The deep real estate experience and excellent capital market links inherent to the very nature of these strategic shareholders broaden the perspectives for IVG’s future development. Europe continues to offer attractive business opportunities in 2005. IVG will systematically exploit these opportunities and expects that its business will once again perform well based on the trend in its portfolio management, project development and investment funds segments. Bonn, 31 March 2005 Eckart John von Freyend Bernd Kottmann Dirk Matthey 72 IVG Immobilien AG Consolidated Financial Statements Consolidated Balance Sheet 74 Consolidated Income Statement 76 Consolidated Statement of Changes in Equity 77 Consolidated Cash Flow Statement 78 Basis of preparation 79 Basis of consolidation 81 Consolidated group and participating interests 82 Foreign currencies 85 Accounting policies 86 Notes to the Consolidated Balance Sheet: Assets 94 Notes to the Consolidated Balance Sheet: Liabilities and equity 102 Leases 110 Notes to the Consolidated Income Statement 113 Other disclosures 117 Corporate governance 133 Supervisory Board and Board of Management 134 Board of Management declaration 138 Financial Statements Consolidated Auditor‘s Report 139 Table of the real estate portfolio 140 Selected consolidated major shareholdings 144 Advisory Committee 149 73 Annual report 2004 Consolidated Balance Sheet € million Note 31.12.2004 31.12.2003 ASSETS Non-current assets Intangible assets 6.1 131.6 22.2 Investment properties 6.2 2,398.6 2,542.7 Other property, plant and equipment 6.3 172.2 150.4 Financial assets 6.4 124.7 104.9 Shares in associated companies accounted for using the equity method 32.0 32.9 Derivative financial instruments 7.3 15.3 13.3 Deferred tax assets 7.4 49.9 56.2 Receivables and other assets 6.5 76.5 121.4 Prepaid expenses 6.9 4.9 1.9 Total non-current assets 3,005.7 3,045.9 Current assets Inventories 6.6 73.2 96.5 Receivables and other assets 6.5 406.2 450.7 Income tax receivables 11.2 8.7 Current asset securities 6.7 37.3 24.8 Cash at bank and in hand 6.8 74.5 62.8 Prepaid expenses 6.9 5.2 6.0 Total current assets 607.6 649.5 Total assets 3,613.3 3,695.4 74 IVG Immobilien AG € million Note 31.12.2004 31.12.2003 LIABILITIES AND EQUITY Equity Subscribed capital 7.1 116.0 116.0 Additional paid-in capital 7.1 459.7 459.2 Own shares 7.1 -0.2 -0.3 Other reserves 7.1 -6.4 -11.9 Revenue reserves 7.1 292.2 255.9 Equity attributable to Group shareholders 7.1 861.3 818.9 Minority interests 7.1 -2.3 26.6 Total equity 859.0 845.5 Liabilities Non-current liabilities Financial liabilities 7.2 1,906.2 1,837.2 Derivative financial instruments 7.3 31.4 24.3 Deferred tax liabilities 7.4 143.0 163.6 Pension provisions 7.5 23.6 14.9 Other provisions 7.6 33.6 35.3 Accounts payable 7.7 40.9 39.6 Deferred income 7.8 8.2 9.6 Total non-current liabilities 2,186.9 2,124.5 Current liabilities Financial liabilities 7.2 272.4 372.5 Derivative financial instruments 7.3 1.4 0.0 Other provisions 7.6 40.3 26.7 Accounts payable 7.7 229.2 297.1 Income tax liabilities 11.2 15.7 Deferred income 7.8 12.9 13.4 Total current liabilities 567.4 725.4 Total liabilities and equity 3,613.3 3,695.4 Financial Statements Consolidated 75 Annual report 2004 Consolidated Income Statement € million Note 31.12.2004 31.12.2003* Turnover 9.1 507.3 496.1 Net change in inventories and other own work capitalized 9.2 -15.6 2.4 Other operating income 9.3 121.3 144.7 Total operating income 613.0 643.2 Material expenses 9.4 -129.4 -170.4 Personnel expenses 9.5 -66.4 -58.1 Depreciation of intangible assets, property, plant and equipment, and investment properties 9.6 -62.1 -77.2 Investment property expenses 9.7 -56.0 -42.3 Other operating expenses 9.8 -103.0 -109.7 Income from associated companies accounted for using the equity method 10.5 -9.3 Income from participating interests 9.9 -4.0 7.7 Interest and investment income 9.10 39.1 99.4 Interest and investment expenses 9.10 -145.2 -169.6 Net income before tax 96.5 113.7 Income tax 9.11 -21.6 -6.2 Consolidated net income 74.9 107.5 Attributable to shareholders 70.9 105.7 Minority interests 4.0 1.8 Undiluted earnings per share 9.12 0.61 0.91 Diluted earnings per share 9.12 0.61 0.90 * including Polar lucky buy 76 IVG Immobilien AG Consolidated Statement of Changes in Equity € million Other reserves Sub- Additional scribed paid-in Own Translation Sundry Revenue Minority capital capital shares differences reserves reserves interests Balance at 1.1.2003 116.0 458.9 -0.4 0.0 0.3 191.3 -47.1 Gains and losses recognized directly in equity: - Changes in ownership shares and in the reporting entity -1.7 70.1 - Translation differences -10.9 - Securities and ownership shares available for sale -8.5 0.1 - Hedges 7.2 2.4 Total gains and losses recognized directly in equity -10.9 -1.3 -1.7 72.6 Consolidated net income 105.7 1.8 Transfer to additional paid-in capital 0.1 Own shares repurchased/sold Valuation of share options (equity-settled share-based payments) 0.3 Dividends -39.4 -0.7 Balance at 31.12.2003 116.0 459.2 -0.3 -10.9 -1.0 255.9 26.6 Gains and losses recognized directly in equity: - Changes in ownership shares and in the reporting entity 4.8 -16.9 - Translation differences 2.0 - Securities and ownership shares available for sale -0.2 - Hedges 3.7 -3.4 Total gains and losses recognized directly in equity 2.0 3.5 4.8 -20.3 Consolidated net income 70.9 4.0 Valuation of share options (equity-settled share-based payments) 0.5 Dividends -39.4 -12.6 Own shares repurchased/sold 0.1 Balance at 31.12.2004 116.0 459.7 -0.2 -8.9 2.5 292.2 -2.3 Financial Statements Consolidated 77 Annual report 2004 Consolidated Cash Flow Statement € million 2004 2003 Consolidated net income 74.9 107.5 Depreciation, impairment losses and reversals of impairment losses 59.5 75.1 Net proceeds from disposal of non-current assets -76.7 -60.5 Other non-cash income and expenses 5.4 -62.4 Undistributed net income of associated companies -10.5 -0.2 Changes in inventories and receivables -2.7 -38.5 Changes in non-financial liabilities and provisions -27.5 -17.7 Cash inflow from operating activities 22.4 3.3 Investments in intangible assets and property, plant and equipment -148.1 -153.3 Proceeds from disposal of intangible assets and property, plant and equipment 137.8 234.8 Investments in consolidated companies (excluding acquired cash and cash equivalents) -178.5 -120.5 Proceeds from disposal of consolidated companies (excluding cash and cash equivalents disposed of) 122.6 3.1 Investments in financial assets -54.6 -109.6 Proceeds from disposal of financial assets 55.9 184.0 Cash outflow/inflow from investing activities -64.9 38.5 Dividends paid by IVG Immobilien AG and to minority shareholders -52.0 -40.1 New borrowings 448.0 231.8 Repayment of borrowings -380.7 -323.9 Other proceeds from financing activities 38.9 2.8 Cash inflow/outflow from financing activities 54.2 -129.4 Net change in cash and cash equivalents from operating activities 11.7 -87.6 Cash and cash equivalents at beginning of year 62.8 150.4 Cash and cash equivalents at end of year 74.5 62.8 78 IVG Immobilien AG Notes to the 2004 Consolidated Financial Statements of IVG Immobilien AG 1. Basis of preparation The consolidated ﬁnancial statements of IVG Immobilien AG are prepared for the ﬁrst time in accor- dance with International Financial Reporting Standards (IFRS). All IASB (International Accounting Standards Board) requirements whose application is mandatory have been complied with. A number of standards have been applied in the form not mandatory until 2005, as recommended or permitted by the IASB: IFRS 2 Share-based Payment IFRS 3 Business Combinations IAS 1 Presentation of Financial Statements (revised 2003) IAS 2 Inventories (revised 2003) IAS 10 Events After the Balance Sheet Date (revised 2003) IAS 16 Property, Plant and Equipment (revised 2003) IAS 17 Leases (revised 2003) IAS 21 The Effects of Changes in Foreign Exchange Rates (revised 2003) IAS 27 Consolidated and Separate Financial Statements (revised 2003) IAS 28 Investments in Associates (revised 2003) IAS 32 Financial Instruments: Disclosures and Presentations (revised 2004) IAS 33 Earnings per Share (revised 2003) IAS 36 Impairment of Assets (revised 2004) IAS 38 Intangible Assets (revised 2004) IAS 39 Financial Instruments: Recognition and Measurement (revised 2004) IAS 40 Investment Property (revised 2004) The following exemptions under IFRS 1 were applied when preparing the ﬁrst IFRS consolidated ﬁnan- cial statements: Business combinations (past business combinations not restated) Fair value as deemed cost (for Belgian companies where there were some IAS 17 ﬁnance leases) Employee beneﬁts (actuarial gains and losses recognized immediately when measuring pension pro- visions as at 1 January 2003) Cumulative translation differences (cumulative translation differences classed as equity under the German Commercial Code deemed zero for the opening balance sheet). The IVG Immobilien AG consolidated ﬁnancial statements meet all criteria under Sec. 292a of the Ger- Financial Statements man Commercial Code (HGB) for exemption from the requirement of preparing HGB consolidated ﬁnan- Consolidated cial statements. Evaluation of these criteria is based on the German Accounting Standards Committee’s German Accounting Standard No. 1 (DRS 1). These consolidated ﬁnancial statements, together with certain disclosures and explanatory notes beyond those required by IFRS, are equivalent in informational value to consolidated ﬁnancial statements prepared in accordance with HGB requirements. 79 Annual report 2004 Domestic and foreign company ﬁnancial statements included in the consolidated ﬁnancial statements are prepared as at the same reporting date as the IVG annual ﬁnancial statements and are based on uni- form accounting policies. Various items in the consolidated balance sheet and consolidated income statement have been com- bined for greater clarity and are explained in the Notes. Assets and liabilities are classiﬁed as non-current – with lives exceeding one year – and current. The income statement uses a classiﬁcation of expenses by nature. The consolidated ﬁnancial state- ments are prepared in euros. All monetary amounts, including those for the previous year, are stated in millions of euros (€ m). Material departures from HGB in accounting, measurement and consolidation methods: Foreign currency receivables and payables are translated at the exchange rates ruling at the balance sheet date and any resulting valuation differences are recognized in income. Construction contracts are accounted for by the percentage of completion method. Long-term provisions are measured at present value. Other provisions are not allowed to be recognized if there is less than a 50% probability that the ob- ligation concerned will require settlement. Deferred tax is accounted for using the balance sheet liability method; deferred tax assets are recog- nized for tax loss carryforwards. In leases classiﬁed as ﬁnance leases under IAS 17, leased assets are recognized as assets and the present value of lease payments as liabilities. Pension provisions are measured by the projected unit credit method, taking into account projected salaries and applying the corridor rule in IAS 19. Financial instruments classed as available for sale whose fair value can be measured reliably are mea- sured at fair value and any resulting valuation differences recognized directly in equity. Financial instruments classed as held for trading are measured at fair value and any resulting valua- tion differences recognized in income. Investment properties are always measured at the lower of cost or recoverable amount as at the bal- ance sheet date. No amortization for goodwill. Caverns and tank farms are depreciated over their economic life. 80 IVG Immobilien AG 2. Basis of consolidation (a) Subsidiaries Subsidiaries are all companies (including special-purpose entities) whose ﬁnancial and operational poli- cies are controlled by the Group. The ability to exert control is generally equated with ownership of more than half of the voting rights. Potential voting rights that are currently exercisable or currently con- vertible are considered when assessing control. All material subsidiaries are included in the consolidated ﬁnancial statements (see Note 3). They are fully consolidated from the time when control is transferred to the parent and are deconsolidated when control ceases. Using exemptions under IFRS 1, past business combinations accounted for in accordance with HGB are not restated. Cumulative translation differences classed as equity under HGB are reduced to zero in the IFRS opening balance sheet as at 1 January 2003. Until 31 December 2002, subsidiaries were initially accounted for in the consolidated ﬁnancial state- ments using the book value or revaluation method required under HGB. From 1 January 2003, acquired subsidiaries are accounted for using the purchase method in accor- dance with IFRS 3. Under IFRS 3, the cost of an acquisition is the fair value, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued, plus any costs directly attributable to the acquisition. Identiﬁable assets, liabilities and contingent liabilities in a business com- bination are initially measured at fair value at the acquisition date. Any excess of the cost of an acquisition over the net fair value of the acquired assets is recognized as goodwill. If the cost of an acquisition is less than the net fair value of the subsidiary’s acquired assets (lucky buy), the purchase price allocation is reassessed and any difference then remaining recognized immediately in income. Intragroup transactions, intragroup balances and unrealised proﬁts on intragroup transactions are elimi- nated. Deferred tax assets and liabilities are recognized as required by IAS 12 for temporary differences arising on consolidation. Sales of goods and services within the IVG Group are generally made on market terms. Financial Statements Consolidated 81 Annual report 2004 (b) Associated companies Enterprises in which IVG has a signiﬁcant inﬂuence – generally, those in which it holds between a 20% and a 50% ownership share – are accounted for using the equity method. Under the equity method, an investment is initially recorded at cost and its carrying amount is increased or decreased annually to recognize IVG’s proportionate share of changes in the investee’s equity. Goodwill and negative goodwill relating to investments accounted for using the equity method are dealt with as for fully consolidated subsidiaries. Gains and losses on transactions between Group companies and associated companies are eliminated to the extent of the Group’s interest in the associated companies. Gains and losses on transactions between associated companies are not eliminated. By virtue of its ownership shares, the assets and revenues attributable to the Group are as follows: € million 2004 2003 Assets 349.3 372.9 Provisions and liabilities 334.8 351.3 Turnover 156.4 64.4 Net income for the year 11.2 -0.9 The Group has not recognized shares of losses totalling €0.3 million (2003: €0.0 million). Cumulative losses not recognized as at the balance sheet date totalled €0.3 million 3. Consolidated group and participating interests The consolidated group consists of 252 companies, with 14 associated companies accounted for using the equity method. A further 98 subsidiaries are not consolidated because they are not material to the ﬁnancial position and ﬁnancial performance of the Group as a whole. Similarly, 45 companies in which the Group has an ownership share of between 20% and 50% are not accounted for using the equity method because they are not material either singly or in combination. They are listed, along with com- panies in which the Group has an ownership share of less than 20%, under other participating inter- ests. Under IAS 27 and SIC-12, special-purpose entities (SPEs) are included in the consolidated ﬁnancial statements in certain circumstances even if the parent does not hold a majority of voting rights. The fol- lowing SPEs are included in the consolidated ﬁnancial statements because more than half of the risks and opportunities accrue to IVG: Tardis Verwaltungsgesellschaft mbH & Co. Vermietungs KG; actioplus K. u. K. Grundverwaltungs GmbH & Co. KG; Licitus Grundstücks-Vermietungsgesellschaft mbH & Co., Objekt Schrobenhausen KG; and INGLeasing GmbH & Co. Delta OHG. 82 IVG Immobilien AG Total Total Domestic Foreign 31.12.2004 31.12.2003 Number of fully consolidated companies 111 141 252 245 Number of participating interests accounted for using the equity method 10 4 14 11 Number of non-consolidated affiliated companies 44 54 98 100 Number of other participating interests 90 20 110 81 Total number of companies 255 219 474 437 Acquisitions During the 2004 ﬁnancial year, IVG acquired the majority of shares and voting rights in the OIK Group. The Ilmarinen portfolio was purchased in a combined share and asset deal. The OIK Group is the German market leader in real estate funds for institutional investors. At the time of acquisition, OIK managed 27 funds worth a total of €8.3 billion. The OIK Group consists of: OIK: Oppenheim Immobilien Kapitalanlagegesellschaft mbH, Wiesbaden OPS: Oppenheim Property Services B.V., Utrecht OIF: Oppenheim Immobilier France S.A.S., Paris OPFM: Oppenheim Property Fund Management Ltd., London PMG: PMG-Property Management Gesellschaft mbH, Wiesbaden The acquired net assets and goodwill of the OIK Group are as follows: € million OIK Group Effective date of acquisition 1.7.2004 Voting rights acquired 50.1% Purchase price (cash portion) 125.5 (of which: acquisition costs) (0.2) Cash and cash equivalents acquired 20.1 Fair value of acquired net assets 17.1 Liabilities acquired 24.0 Goodwill (+)/lucky buy (-) 108.4 Net income since acquisition date 6.9 Turnover given hypothetical acquisition date of 1.1.2004 55.6 Net income given hypothetical acquisition date of 1.1.2004 13.5 The Ilmarinen portfolio partly consists of real estate portfolio companies in Finland. It contains 63,000 m2 of lettable space and has an effective occupancy rate of 93%. The entire portfolio is in and around Helsinki. Financial Statements Consolidated 83 Annual report 2004 In addition to properties acquired directly, the Ilmarinen portfolio includes the following companies: Helsingin Radiokatu Koy, Helsinki Kumpulantie 3 Koy, Helsinki Espoon Asemakuja 2 Koy, Espoo Niitymäenpolku 9 Koy, Espoo Ykkösseppä Koy, Helsinki Kiiskinkatu 5 Koy, Helsinki Helsingin Latokartanintie 7 Koy, Helsinki Helsingin Mäkelänkatu 56 Koy, Helsinki The book value of investment properties in the Ilmarinen portfolio was €35.0 million before unrealized gains. The discount price obtained on the entire portfolio combined with revaluation of the investment properties shows the purchase to have been a lucky buy to the tune of €5.8 million. € million Ilmarinen portfolio Effective date of acquisition 1.9.2004 Voting rights acquired 100% Purchase price (cash portion) 44.4 (of which: acquisition costs) (1.0) Cash and cash equivalents acquired 0.0 Fair value of acquired net assets 50.2 Liabilities acquired 0.0 Goodwill (+)/lucky buy (-) -5.8 Net income since acquisition date -1.2 Turnover given hypothetical acquisition date of 1.1.2004 1 Net income given hypothetical acquisition date of 1.1.2004 1 1 No data due to allocation of turnover at parent Disposals Some sales of real estate by IVG take the form of disposals of property holding companies. The table below shows data on such disposals during the year under review. € million 2004 Proceeds from disposal of ownership shares in companies 133.2 Costs of disposal 8.4 Net disposal consideration 124.8 Portion of disposal consideration discharged by means of cash and cash equivalents 108.9 Amount of cash and cash equivalents disposed of 2.2 Assets and liabilities surrendered by the Group on disposal of ownership shares in companies: Investment properties 227.9 Other assets 20.6 Bank loans 99.8 Other liabilities 45.9 Deferred tax provisions 20.8 The costs of disposal mostly consist of €7.1 million in outstanding refurbishment work. 84 IVG Immobilien AG The impacts of changes in the reporting entity are shown in the tables below. Balance sheet Of which: Of which: Group Additions to Disposals from € million 31.12.2004 consolidated group consolidated group Investment properties 2,861.0 68.5 227.9 Other assets 702.4 154.7 5.7 Provisions 241.2 18.8 21.3 Financial liabilities 2,195.8 0 103.8 Other liabilities 318.0 4.7 1.8 The impacts of additions to the consolidated group in 2004 mostly relate to the acquisition of the OIK Group and the Ilmarinen portfolio taken over in Finland. The disposals mostly relate to properties dis- posed of in share deals in Finland, Belgium and France. Income statement Of which: Of which: Group Additions to Disposals from € million 31.12.2004 consolidated group consolidated group Turnover 507.3 27.8 24.2 Operating income 107.6 6.7 0.8 Operating expenses 416.8 18.0 19.8 Net income from operating activities 198.1 16.5 5.2 Net interest and investment income -106.1 0.2 -5.3 Net income before tax 96.5 16.7 -0.1 Taxes -21.6 -5.2 0.5 Consolidated net income 74.9 11.5 0.4 4. Foreign currencies Foreign currency transactions are translated in the separate ﬁnancial statements of companies included in the consolidated ﬁnancial statements using the exchange rate at the date of the transaction. Foreign currency monetary balance sheet items are translated using the middle exchange rate at the balance sheet date and any resulting translation gains and losses recognized in income. Foreign subsidiaries are generally treated as foreign entities; their ﬁnancial statements are translated into euros using the functional currency method. That is, equity items are translated using historical exchange rates, and assets and liabilities are translated using the exchange rate at the balance sheet date. Any resulting translation differences are accounted for in equity and reported in revenue reserves until a subsidiary is deconsolidated. Income and expenses of subsidiaries are translated into euros using average monthly exchange rates. Financial Statements Consolidated 85 Annual report 2004 The exchange rates used for translation are as follows: Exchange rate Exchange rate at 31.12.2004 at 31.12.2003 Currency Country € € 1 GBP United Kingdom 1.4182 1.4188 100 SEK Sweden 11.0857 11.0132 100 HUF Hungary 0.4066 0.3810 100 PLN Poland 24.4828 21.2680 5. Accounting policies 5.1 Intangible assets and property, plant and equipment Intangible assets and property, plant and equipment are carried at cost less any accumulated deprecia- tion and amortization and any accumulated impairment losses. The cost of self-constructed assets includes all costs directly related to the construction process and those construction overheads which can be allocated. Borrowing costs are not capitalized as part of cost. The cost of acquired assets comprises costs directly attributable to their acquisition. Grants received for intangible assets and property, plant and equipment are deducted from cost. Land is not depreciated. All material depreciable assets including buildings classed as investment prop- erties are depreciated on a straight-line basis, generally with depreciation periods as follows: Prime site buildings 66.7 years Other buildings 50 years Plant and equipment 10 to 15 years Motor vehicles 3 to 5 years Office equipment 3 to 10 years Computer software and licences 3 to 5 years Caverns 50 years Tank farms 20 years The residual values and economic lives of depreciable assets are reviewed at each balance sheet date and adjusted as necessary. Gains and losses arising from asset disposals, determined as the difference between the disposal proceeds and the carrying amount less any directly attributable costs of disposal, are recognized in in- come. 86 IVG Immobilien AG Goodwill is any excess of the cost of a business acquisition over the Group’s interest in the fair value of the acquiree’s net assets at the acquisition date. Goodwill arising from business acquisitions is classed as an intangible asset. Goodwill arising from acquisitions of associated companies is included in the carrying amount of shares in associated companies. Goodwill is carried at cost less any accumulated impairment losses. It is assigned to cash-generating units and tested annually for impairment. The determination of gains and losses from business disposals includes the carrying amount of any goodwill allocated to the businesses being disposed of. Licences are carried at cost less any accumulated amortization. If amortizable, they are amortized on a straight-line basis over an estimated useful life of 3 to 5 years. Salt and surface rights are not amortized as they have an indeﬁnite useful life. 5.2 Investment properties Properties held to earn rental income or for capital appreciation or both and in which not more than 10% of lettable space is owner-occupied are classed as investment property. Other properties are accounted for in other property, plant and equipment. Investment properties are carried at depreciated cost in accordance with IAS 40.56 and not at market value. As industry standards with regard to choice of model are still evolving, IVG has opted for the cost model, under which the market values of investment properties are separately disclosed in the Notes (see Note 6.2). 5.3 Impairment testing Assets with an indeﬁnite useful life are not depreciated or amortized; they are annually tested for im- pairment. Depreciable assets are tested for impairment whenever events or changes of circumstances indicate that the carrying amount exceeds the recoverable amount. Land and buildings are grouped for impair- ment testing. The amount by which an asset’s carrying amount exceeds its recoverable amount is rec- ognized as an impairment loss. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Financial Statements Consolidated 87 Annual report 2004 5.4 Financial assets Financial assets are classiﬁed as follows: Financial assets at fair value through income Loans and receivables Available-for-sale ﬁnancial assets The classiﬁcation of a ﬁnancial asset depends on the purpose for which it is acquired. All purchases and sales of ﬁnancial assets are recognized at the date the Group commits itself to pur- chase or sell the asset (trade date). The fair value of quoted shares is measured using the quoted market price. The fair value of assets for which there is no active market or no quoted market price is determined using suitable valuation tech- niques or, if this is impracticable, as the carrying amount. Financial assets and groups of ﬁnancial assets are assessed for objective evidence of impairment at each balance sheet date. In the case of equity instruments classed as available-for-sale ﬁnancial assets, a signiﬁcant or prolonged decline in fair value below cost is considered evidence of impairment. When there is such evidence that an asset has been impaired, the cumulative loss is removed from equity and recognized on the income statement. The amount of the cumulative loss is the difference between the acquisition cost and current fair value, less any impairment loss previously recognized in income. Impairment losses recognized in income for an equity instrument classiﬁed as available for sale are not reversed through income. (a) Financial assets at fair value through income, derivative ﬁnancial instruments and hedges The IVG Group makes targeted use of derivative ﬁnancial instruments for active interest rate and foreign exchange management. Changes in the value of derivative ﬁnancial instruments that are not part of an effective hedging relation- ship and of securities held for trading are recognized in income. Derivative ﬁnancial instruments are recognized at the contract date and are initially and subsequently measured at fair value. Measurement is performed both with reference to statements from ﬁnancial institutions and by mathematical analysis. 88 IVG Immobilien AG The market value of interest-rate swaps and interest-rate/currency swaps is determined by discounting the expected future cash ﬂows over the remaining life of the contract on the basis of market interest rates or interest rate yield curves. The method of recognizing gains and losses depends on whether a derivative is classed as a hedge. The Group accounts for hedging relationships as either cash ﬂow hedges or hedges of net investments. At the inception of a hedge, it therefore designates the hedging relationship between the hedging instru- ment and the hedged item, its risk management objective and its strategy for undertaking the hedge. The Group also checks at the inception of a hedge and on a continuous basis thereafter that the deriva- tives used in the hedging relationship effectively compensate changes in cash ﬂows attributable to the hedged risk. Cash ﬂow hedges hedge exposure to variability in the amounts and timing of future cash ﬂows. The hedging instrument is carried at market value. Where derivatives are designated as cash ﬂow hedges and qualify for hedge accounting under IAS 39, that portion of the change in their fair value which is deemed to be an effective hedge is recognized in equity. The ineffective portion of the change in value is recognized directly in income. When a hedging instrument expires or is sold or if a hedge no longer meets the criteria for hedge ac- counting, the cumulative gain or loss remains in equity and is not recognized in income until the hedged transaction occurs. Hedges of net investments in foreign operations – net investments being investments in net assets – are accounted for similarly to cash ﬂow hedges. That portion of the gain or loss on the hedging instru- ment which is determined to be an effective hedge is recognized in equity, and the ineffective portion is recognized directly in income. When a foreign operation is disposed of, the cumulative gain or loss recognized in equity is reclassiﬁed into income. Certain derivative ﬁnancial instruments do not qualify for hedge accounting. Changes in the fair value of such derivatives are recognized directly in income. Financial Statements Consolidated 89 Annual report 2004 (b) Loans and receivables Loans and receivables are non-derivative ﬁnancial assets that have ﬁxed or determinable payments and are not quoted in an active market. They come into being when the Group provides a debtor directly with money, goods or services without any intention of trading the debt. Loans and receivables are carried at amortized cost as at the balance sheet date. Trade receivables for construction contracts in progress at the balance sheet date where the outcome of the construction contract can be reliably estimated are recognized at cost plus proﬁt attributable to the proportion of the work completed. Other construction contracts in progress is recognized at cost to the extent that will probably be recovered from contract revenues. The carrying amount of any doubtful receivables is reduced to the recoverable amount. Besides nec- essary speciﬁc impairments, additional impairment losses are recognized for at-risk receivables on the basis of general credit risk. Receivables denominated in foreign currencies are translated using the middle exchange rate at the balance sheet date. For trade accounts payable and receivables, the nominal amount less any accumulated impairment losses is assumed to equal fair value. The fair values of ﬁnancial liabilities disclosed in the Notes are determined by discounting the contractually agreed future cash ﬂows at the market rate of return that the Group would currently obtain for similar ﬁnancial instruments. (c) Available-for-sale ﬁnancial assets Available-for-sale ﬁnancial assets are non-derivative ﬁnancial assets designated as available for sale or not coming under any of the other categories mentioned. They are accounted for in non-current assets unless the Group intends to dispose of them within 12 months of the balance sheet date. 5.5 Inventories Inventories are measured at the lower of cost and net realizable value. Cost is assigned by the weighted average cost formula. The cost of ﬁnished goods and work in progress includes costs of product design, materials and supplies, direct labour, other direct costs, and overheads allocable to production. Borrow- ing costs are not included in the cost of inventories. The net realizable value of inventories is the esti- mated selling price less necessary variable selling costs. 90 IVG Immobilien AG 5.6 Construction contracts A construction contract is deﬁned in IAS 11 as a contract speciﬁcally negotiated for the construction of an asset. If the outcome of a construction contract cannot be measured reliably, revenue is only recognized to the extent that it is probable that incurred contract costs can be recovered. If the outcome of a construction contract can be estimated reliably and it is probable that the contract will be proﬁtable, contract revenue is recognized over the duration of the contract. If it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. The Group uses the percentage of completion method to determine the revenue to be reported in a given ﬁnancial year. The percentage of completion is the percentage of expected total contract cost in- curred by the balance sheet date. The Group reports the gross amount due from customers for construction work – for all contracts in progress for which costs incurred plus reported proﬁts (or less recognized losses) exceed progress bill- ings – as an asset. Progress billings not yet paid are reported under trade receivables. The Group reports the gross amount due to customers for contract work – for all contracts in progress for which progress billings exceed costs incurred plus reported proﬁts (or less recognized losses) – as a liability. 5.7 Accounts payable Loan payables and other payables are measured initially at cost and subsequently at amortized cost. Any difference between the amount of a loan (after deduction of transaction costs) and the amount re- paid is generally recognized in income over the contractually agreed loan term using the effective inter- est method. Accounts payable are classed as non-current liabilities if a loan agreement provides for a repayment period longer than twelve months. Accounts payable denominated in foreign currencies are translated using the middle exchange rate at the balance sheet date. Derivatives recognized as liabilities are car- ried at fair (market) value. 5.8 Taxation Deferred tax assets and liabilities are recognized, using the balance sheet liability method, for tempo- Financial Statements rary differences between the tax base of assets and liabilities and their carrying amounts in the IFRS Consolidated balance sheet. 91 Annual report 2004 Deferred tax assets are recognized for temporary differences, and also for tax loss carryforwards, to the extent that it is probable that taxable net income will be available against which the temporary dif- ference and previously unused tax loss carryforwards can be utilized. Deferred tax assets and liabilities are measured using the tax rates and tax laws enacted or substan- tively enacted by the balance sheet date and expected to apply when the asset is realized or the liability settled. For German Group companies, a tax rate of 39% is applied, made up of the uniform corpora- tion tax rate, the German ‘solidarity surcharge’, and an average rate for local trade tax. The tax rates for foreign companies vary between 16% and 38%. Deferred tax liabilities are recognized for temporary differences associated with investments in subsid- iaries except to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Current tax, to the extent unpaid, is recognized as a liability. If the amount already paid for income taxes exceeds the amount due, the excess is recognized as an asset. 5.9 Pension provisions Pension provisions are determined for deﬁned beneﬁt retirement plans by independent actuaries using the projected unit credit method prescribed in IAS 19. The interest element of pension expenses is re- ported in net interest and investment income. Actuarial gains and losses from 1 January 2003 are recognized in income over the remaining working lives of participating employees providing that they exceed a corridor of plus or minus 10%. The majority of employees participate in pension plans that are ﬁnanced on a pay-as-you-go basis. Ex- penses of deﬁned contribution retirement plans are reported in personnel expenses. 5.10 Other provisions Provisions are recognized for remediation of environmental damage, legal proceedings and other obli- gations when the Group has a legal or constructive obligation to a third party, it is probable that settling the obligation will require an outﬂow of resources embodying economic beneﬁts, and the amount of the obligation can be reliably estimated. Other provisions are measured in accordance with IAS 37 and IAS 19 by using the best possible esti- mate of the amount of the obligation. Provisions are discounted if they have a remaining period exceeding one year. 92 IVG Immobilien AG 5.11 Share options Calculations relating to the share option plan for managerial staff are performed by ﬁnancial analysis using an option pricing model. Options are thus measured to market value at the grant date using the Black-Scholes formula. Under IFRS 2, for equity-settled plans the value of options at the grant date is recognized in additional paid-in capital as personnel expense pro rata temporis over the vesting period. For cash-settled plans, the value of options is determined on the basis of current measurement param- eters at each balance sheet date and recognized in provisions as personnel expense pro rata temporis over the vesting period. 5.12 Leases Leases in which substantially all the risks and rewards incidental to ownership of the leased assets re- main with the lessor are classed as operating leases. Payments received or made under an operating lease are recognized in income over the lease term. Tenancies for real estate are operating leases by this deﬁnition. Leases which transfer substantially all the risks and rewards incidental to ownership of the leased as- sets to the lessee are classed as ﬁnance leases. Where the Group is the lessee, it recognizes ﬁnance leases at the commencement of the lease term as assets at the fair value of the leased property or, if lower, the present value of the minimum lease pay- ments. Each lease payment is apportioned between ﬁnance charge and reduction of outstanding liabil- ity so as to produce a constant rate of interest on the liability. The liability is reported in other liabilities. The ﬁnance charge is recognized in expenses in the income statement. Items of property, plant and equipment held under a ﬁnance lease are depreciated over their useful lives or over the lease term. Where the Group is the lessor, it recognizes the present value of lease payments for ﬁnance leases as a receivable. Any difference between the gross receivable and the present value of the receivable is recognized in net interest and investment income over the lease term. Finance income is recognized over the lease term using the annuity method, reﬂecting a constant annual return. Financial Statements Consolidated 93 Annual report 2004 5.13 Revenue recognition Turnover comprises: Net rental income Service charges receivable Turnover from project development, in the form of either turnover under construction contracts (ac- counted for using the percentage of completion method if its criteria are met) or turnover with rev- enue recognition on completion and transfer of beneﬁcial ownership Services Revenue recognition on sales (e.g. of investment properties) takes place when: All signiﬁcant risks and rewards of ownership have been transferred to the buyer; The seller retains neither managerial involvement nor effective control over what is sold; The amount of the revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably; It is probable that the economic beneﬁts associated with the transaction will ﬂow to the enterprise. 6. Notes to the Consolidated Balance Sheet: Assets 6.1. Intangible assets Concessions, patents, trademarks, licences Goodwill arising € million and similar rights on consolidation Total Cost Balance at 1 January 2004 16.0 15.9 31.9 Translation differences 0.2 0.1 0.3 Changes in the reporting entity 5.1 109.2 114.3 Additions 0.9 0 0.9 Disposals -5.7 0 -5.7 Reclassifications 0.1 0 0.1 Balance at 31 December 2004 16.6 125.2 141.7 Amortization Balance at 1 January 2004 8.7 1.0 9.7 Translation differences 0.1 0 0.1 Changes in the reporting entity 3.9 -0.1 3.8 Additions 1.0 0.9 1.9 (of which: impairment losses) (0) (0.9) (0.9) Disposals -5.3 0 -5.3 Balance at 31 December 2004 8.4 1.8 10.2 Book value at 31 December 2004 8.2 123.4 131.6 Book value at 1 January 2004 7.3 14.9 22.2 94 IVG Immobilien AG Concessions, patents, trademarks, licences Goodwill arising € million and similar rights on consolidation Total Cost Balance at 1 January 2003 15.7 3.7 19.4 Translation differences -0.3 0 -0.3 Changes in the reporting entity 0.3 6.9 7.2 Additions 0.3 0 0.3 Reclassifications 0 5.3 5.3 Balance at 31 December 2003 16.0 15.9 31.9 Amortization Balance at 1 January 2003 7.4 0 7.4 Translation differences -0.1 0 -0.1 Changes in the reporting entity 0.2 0 0.2 Additions 1.2 1.0 2.2 (of which: impairment losses) (0) (1.0) (1.0) Reclassifications 0 0 0 Balance at 31 December 2003 8.7 1.0 9.7 Book value at 31 December 2003 7.3 14.9 22.2 Book value at 1 January 2003 8.3 3.7 12.0 Rights include salt rights and surface rights at the Etzel caverns facility with a book value of €5.0 million (2003: €5.0 million) for which no amortization is charged. The additions to goodwill arising on consolidation in 2004 are almost entirely due to the initial consoli- dation of OIK GmbH. The goodwill represents customer relationships with investors in institutional real estate funds managed by OIK GmbH. Because the probable duration of such relationships entirely de- pends on individual customer decisions –experience-based estimates are precluded by the recency of the business model – these customer relationships are attributed in their entirety to goodwill. Cash-generating units are identiﬁed in the OIK business based on the discounted future revenues and expenses of the 27 institutional real estate funds managed by OIK at the time of the acquisition. For im- pairment testing, contractually agreed revenues from fund and property administration fees in portfolio management are apportioned corresponding expenses on the basis of averaged recognized costs and discounted to present value using a discount factor ranging from 7.1% to 8.1%. The goodwill reclassiﬁcation in 2003 is due in its entirety to interim consolidation of Wertkonzept, which had been previously accounted for using the equity method and became a fully consolidated entity in 2003 following acquisition of the remaining shares. Financial Statements Consolidated 95 Annual report 2004 6.2 Investment properties € million 2004 2003 Cost Balance at 1 January 3,144.9 2,842.9 Translation differences 3.5 -15.3 Changes in the reporting entity -185.3 329.6 Additions 125.9 124.8 Disposals -106.4 -254.4 Reclassifications from property, plant and equipment 34.5 117.3 Balance at 31 December 3,017.1 3,144.9 Depreciation Balance at 1 January 602.2 511.5 Translation differences 0.1 -0.8 Changes in the reporting entity -26.5 54.9 Charge 54.4 66.5 (of which: depreciation) (43.3) (35.4) (of which: impairment losses) (11.1) (31.1) Disposals -8.1 -25.3 Reversals of impairment losses -12.1 -4.6 Reclassifications from property, plant and equipment 8.5 0 Balance at 31 December 618.5 602.2 Book value at 31 December 2,398.6 2,542.7 Book value at 1 January 2,542.7 2,331.4 Fair values at 31 December 3,104.9 3,351.4 Investment properties are initially recognized at cost. Transaction costs are included in initial cost. After initial recognition, investment properties are measured using the cost model as described in IAS 40.56 and thus in accordance with the requirements of IAS 16, i.e. at cost less any accumulated depreciation, accumulated impairment losses and reversals of impairment losses. The decrease in fair values is al- most entirely due to sales. The fair values additionally determined for investment properties are based with few exceptions on valuations performed by reputable neutral appraisers in accordance with international valuation stan- dards on the basis of comparison prices or of net cash inﬂows discounted to present value using the DCF method. The impairment losses in 2004 relate to German (€8.8 million) and Finnish (€2.3 million) investment properties. They were required under IAS 36 as book values exceeded market values for the assets concerned at the balance sheet date. This reﬂected a drop in rental income under a general business slowdown. The impairment losses in 2004 were offset by revaluations due to various indi- vidual letting successes in Germany (€9.2 million), Finland (€0.8 million), Belgium (€0.5 million) and the UK (€0.6 million). Investment properties are generally impairment tested by comparing the combined book value of land and buildings with the properties’ appraised market value. The comparison is made on the basis of gross market values, i.e. in accordance with IAS 40.37 excluding transaction costs that can arise in the event of an actual sale. 96 IVG Immobilien AG 6.3 Other property, plant and equipment 2004 Land and Technical Other facilities Advance payments buildings equipment, plant and office made and construc- € million (owner-occupied) and machinery equipment tion in progress Total Cost Balance at 1 January 2004 63.0 63.6 22.1 81.0 229.7 Translation differences 0.8 1.9 0 0 2.7 Changes in the reporting entity 0 -7.7 3.9 0 -3.8 Additions 0 0.1 2.6 48.7 51.4 Disposals -1.5 0 -6.9 -0.6 -9.0 Reclassifications -6.0 -1.1 0 -27.4 -34.5 Balance at 31 December 2004 56.3 56.8 21.7 101.7 236.5 Depreciation Balance at 1 January 2004 27.7 34.4 17.2 0 79.3 Translation differences 0 0.3 0 0 0.3 Changes in the reporting entity 0 -7.7 1.3 0 -6.4 Charge 1.1 2.5 2.2 0 5.8 Disposals -0.4 0 -5.8 0 -6.2 Reclassifications -6.4 -2.0 0 0 -8.4 Balance at 31 December 2004 22.0 27.5 14.8 0 64.3 Book value at 31 December 2004 34.3 29.3 6.9 101.7 172.2 Book value at 1 January 2004 35.3 29.2 4.9 81.0 150.4 2003 Land and Technical Other facilities Advance payments buildings equipment, plant and office made and construc- € million (owner-occupied) and machinery equipment tion in progress Total Cost Balance at 1 January 2003 58.9 62.2 20.9 137.0 279.0 Translation differences -0.7 -1.7 -0.1 -4.4 -6.9 Changes in the reporting entity 0.2 -0.2 1.4 2.3 3.7 Additions 6.4 1.8 1.7 18.2 28.1 Disposals -1.6 -0.1 -1.8 -0.7 -4.2 Reclassifications -0.2 1.6 0 -71.4 -70.0 Balance at 31 December 2003 63.0 63.6 22.1 81.0 229.7 Depreciation Balance at 1 January 2003 27.6 29.9 14.2 0.1 71.8 Translation differences 0 -0.2 -0.1 0 -0.3 Changes in the reporting entity 0 -0.2 0.9 -0.1 0.6 Charge 0.8 4.9 2.6 0.1 8.4 Disposals -0.7 -0.1 -0.5 0 -1.3 Balance at 31 December 2003 27.7 34.4 17.1 0.1 79.3 Book value at 31 December 2003 35.3 29.2 5.0 80.9 150.4 Book value at 1 January 2003 31.3 32.3 6.7 136.9 207.2 Financial Statements Consolidated 97 Annual report 2004 6.4 Financial assets 2004 Shares in associated Shares in Other companies accounted for affiliated participating Non-current € million using the equity method companies interests securities Cost Balance at 1 January 2004 32.9 49.7 16.6 0.4 Translation differences 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 0.0 0.0 0.0 Additions 5.8 1.0 26.0 0.2 Change in equity method investments 3.7 0.0 0.0 0.0 Disposals -10.4 -1.8 -9.8 -0.4 Reclassifications 0.0 0.0 -0.1 0.1 Balance at 31 December 2004 32.0 48.9 32.7 0.3 Amortization Balance at 1 January 2004 0.0 20.8 5.4 0.3 Translation differences 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 0.0 0.0 0.0 Charge 0.0 3.7 4.5 0.1 Reversals of impairment losses 0.0 0.0 0.0 0.0 Unrealized gains and losses 0.0 0.3 0.0 0.0 Disposals 0.0 0.0 0.0 -0.3 Reclassifications 0.0 0.0 0.0 0.0 Balance at 31 December 2004 0.0 24.8 9.9 0.1 Book value at 31 December 2004 32.0 24.1 22.8 0.2 Book value at 1 January 2004 32.9 28.9 11.2 0.1 2004 Long-term loans Long-term loans Other Other to affiliated to associated participating long-term Financial € million companies companies interests loans assets Cost Balance at 1 January 2004 0.8 21.1 3.3 66.8 158.7 Translation differences 0.0 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 0.0 0.0 -0.1 -0.1 Additions 0.0 6.3 1.4 13.9 48.8 Change in equity method investments 0.0 0.0 0.0 0.0 0.0 Disposals -0.6 -0.1 -3.3 -28.0 -44.0 Reclassifications 0.0 0.0 3.8 -3.8 0.0 Balance at 31 December 2004 0.2 27.3 5.2 48.8 163.4 Amortization Balance at 1 January 2004 0.0 0.0 0.1 1.5 28.1 Translation differences 0.0 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 0.0 0.0 0.0 0.0 Charge 0.0 0.0 0.2 1.1 9.6 Reversals of impairment losses 0.0 0.0 0.0 -0.1 -0.1 Unrealized gains and losses 0.0 0.0 0.0 0.0 0.3 Disposals 0.0 0.0 -0.1 -0.7 -1.1 Reclassifications 0.0 0.0 0.3 -0.3 0.0 Balance at 31 December 2004 0.0 0.0 0.5 1.5 36.8 Book value at 31 December 2004 0.2 27.3 4.7 47.3* 126.6 Book value at 1 January 2004 0.8 21.1 3.2 65.3 130.6 * Of which €1.9 million reported in current receivables. The disposals under other long-term loans in 2004 are substantially accounted for by partial repayment of a loan to the ﬁnancing company associated with the joint venture with AXA. 98 IVG Immobilien AG The additions to long-term loans to associated companies in 2004 mostly consist of loans to Airrail KG. The additions to other participating interests include the acquisition of two tank farm companies for which impairment charges were recognized (€4.0 million). 2003 Shares in associated Shares in Other companies accounted for affiliated participating Non-current € million using the equity method companies interests securities Cost Balance at 1 January 2003 33.8 41.3 23.8 0.0 Translation differences 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 36.1 53.0 0.5 Additions 6.0 35.8 15.8 0.0 Change in equity method investments -1.6 0.0 0.0 0.0 Disposals 0.0 -63.5 -75.9 -0.1 Reclassifications -5.3 0.0 -0.1 0.0 Balance at 31 December 2003 32.9 49.7 16.6 0.4 Amortization Balance at 1 January 2003 0.0 6.8 5.7 0.0 Translation differences 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 11.0 1.4 0.4 Charge 0.0 0.0 1.2 0.0 Reversals of impairment losses 0.0 0.0 0.0 0.0 Unrealized gains and losses 0.0 11.9 0.0 0.0 Disposals 0.0 -8.9 -2.9 -0.1 Reclassifications 0.0 0.0 0.0 0.0 Balance at 31 December 2003 0.0 20.8 5.4 0.3 Book value at 31 December 2003 32.9 28.9 11.2 0.1 Book value at 1 January 2003 33.8 34.5 18.1 0.0 2003 Long-term loans Long-term loans Other Other to affiliated to associated participating long-term Financial € million companies companies interests loans assets Cost Balance at 1 January 2003 2.7 2.9 14.8 107.9 193.4 Translation differences 0.0 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.9 0.0 0.0 9.1 99.6 Additions 0.1 19.5 7.2 25.2 103.6 Change in equity method investments 0.0 0.0 0.0 0.0 0.0 Disposals -3.0 -8.4 -11.5 -28.2 -190.6 Reclassifications 0.1 7.1 -7.2 -47.2 -47.3 Balance at 31 December 2003 0.8 21.1 3.3 66.8 158.7 Amortization Balance at 1 January 2003 1.4 0.0 0.1 0.4 14.4 Translation differences 0.0 0.0 0.0 0.0 0.0 Changes in the reporting entity 0.0 0.0 0.0 0.0 12.8 Charge 0.1 0.0 0.0 1.1 2.4 Financial Statements Reversals of impairment losses 0.0 0.0 0.0 0.0 0.0 Consolidated Unrealized gains and losses 0.0 0.0 0.0 0.0 11.9 Disposals -1.5 0.0 0.0 0.0 -13.4 Reclassifications 0.0 0.0 0.0 0.0 0.0 Balance at 31 December 2003 0.0 0.0 0.1 1.5 28.1 Book value at 31 December 2003 0.8 21.1 3.2 65.3* 130.6 Book value at 1 January 2003 1.3 2.9 14.7 107.5 179.0 * Of which €25.7 million reported in current receivables. 99 Annual report 2004 2004 2003 € million Book value Fair value Book value Fair value Financial assets Available-for-sale financial assets Shares in affiliated companies 24.1 28.9 Shares in other participating interests 22.8 11.2 Non-current securities 0.2 0.1 47.1 40.2 Long-term loans Long-term loans to affiliated companies 0.2 0.2 0.8 0.8 Long-term loans to associated companies 27.3 27.5 21.1 21.7 Long-term loans to other participating interests 4.7 4.7 3.2 3.2 Other long-term loans 45.4 45.7 39.6 40.1 77.6 78.1 64.7 65.8 124.7 104.9 Available-for-sale ﬁnancial assets are carried at fair value. As the ownership shares concerned are not traded on sufﬁciently active markets, they are measured using appropriate valuation techniques such as the discounted earnings method and other estimation methods with due regard to considerations of materiality and cost-effectiveness. Altogether, impairment losses of €3.3 million were recognized for long-term loans in the year under review (2003: €0.3 million). 6.5 Receivables and other assets 2004 2003 € million Total Non-current Current Total Non-current Current Trade receivables 107.8 3.8 104.0 106.0 1.2 104.8 Construction contract receivables 156.3 1.0 155.3 86.4 6.9 79.5 Finance lease receivables 62.6 40.7 21.9 129.7 75.9 53.8 Other tax receivables 16.1 0.0 16.1 19.0 0.0 19.0 Receivables from affiliated companies 19.3 0.0 19.3 21.2 0.0 21.2 Receivables from associated companies 14.3 11.6 2.7 14.7 14.4 0.3 Receivables from other participating interests 4.2 0.0 4.2 57.1 0.0 57.1 Short-term loans 1.9 0.0 1.9 25.7 0.0 25.7 Other assets 100.2 19.4 80.8 112.3 23.0 89.3 482.7 76.5 406.2 572.1 121.4 450.7 The fair values correspond to nominal values except for lease receivables (see Note 8) and receivables from associated companies (fair value €14.6 million in 2004 and €15.0 million in 2003). The fair values of ﬁxed-interest receivables are based on cash ﬂows discounted to present value using discount factors based on the current interest rate yield curve. The Group recognized €8.9 million in impairment losses on its portfolio of receivables in other expenses in 2004 (2003: €8.3 million). 100 IVG Immobilien AG Future construction contract receivables determined by the percentage of completion method are as follows: € million 2004 2003 Accumulated costs incurred 175.5 122.0 Accumulated profits and losses 26.8 16.3 Sum of accumulated costs incurred and profit and loss on construction contracts 202.3 138.3 Sum of advances received deducted on the assets side -46.0 -51.9 Future receivables from construction contracts 156.3 86.4 Turnover from construction contracts in 2004 was €110.5 million (2003: €143.7 million) and mostly re- lated to the Berlin Nordbahnhof, Jena Justizzentrum, Munich St. Martinstrasse and Berlin Canadian Em- bassy projects. Receipts recognized in income during the ﬁnancial year were €11.8 million (2003: €16.4 million). The reported future receivables from development projects relate to construction contracts for third parties. Income is recognized using the percentage of completion method, with the percentage of completion measured on a cost-to-cost basis. 6.6 Inventories € million 2004 2003 Raw materials 3.3 6.9 Work in progress 54.2 71.2 Finished goods 15.7 18.4 73.2 96.5 €24.2 million (2003: €28.3 million) of inventories will be held longer than 1 year. 6.7 Current asset securities € million 2004 2003 Held for trading 26.3 24.8 Available for sale 11.0 0.0 37.3 24.8 Securities are measured at fair value (quoted market price at the balance sheet date). Changes in the value of securities held for trading are recognized in income. Changes in the value of available-for-sale securities are taken directly to the appropriate reserve account in equity. Current asset securities com- prise quoted bonds and shares. 6. 8 Cash at bank and in hand This is mostly cash funds of IVG Immobilien AG and of companies not yet included in the cash clearing Financial Statements Consolidated system. The interest rates range between 1.5% and 2%. 101 Annual report 2004 6.9 Prepaid expenses € million 2004 2003 Non-current 4.9 1.9 Current 5.2 6.0 10.1 7.9 This item consists of payments made that will not be recognized as expense until later ﬁnancial years. 7. Notes to the Consolidated Balance Sheet: Liabilities and equity 7.1 Equity Detailed ﬁgures are provided in the Statement of Changes in Equity. The share capital of IVG Immobil- ien AG is €116,000,000.00, divided into 116 million no-par-value shares. Categories of authorized capital in existence at the balance sheet date: Class I authorized capital for issue by 30 May 2005 €24 million by AGM resolution as new no-par-value shares payable in cash of 31 May 2000 Class II authorized capital for issue by 26 May 2009 €10 million by AGM resolution as new shares payable in cash of 27 May 2004 Class III authorized capital for issue by 30 May 2005 as new registered €24 million by AGM resolution no-par-value shares payable in cash or in non-cash assets of 31 May 2000 By resolution of 23 May 2002, IVG Immobilien AG has an additional €30 million in conditional capital (to expire on 22 May 2007) for the event of a convertible bond or warrant-linked bond issue. By resolutions of 27 May 1999 and 23 May 2002, it has a further total of €5,848,856 in conditional capital for rights issues under share option plans. Sirius Beteiligungsgesellschaft mbH, Wackerow, has notiﬁed us under Sec. 21 of the German Securi- ties Trading Act (WpHG) that its share of the voting rights in our company fell below the 25%, 10% and 5% thresholds on 23 February 2004 and is now zero. This corresponds to 0 votes. WCM Beteiligungs- und Grundbesitz-AG, Frankfurt am Main, has notiﬁed us under Sec. 21 (1), WpHG that its share of the voting rights in our company fell below the 50%, 25%, 10% and 5% thresholds on 23 February 2004 and is now 1.9337%. Under Sec. 22 (1), sentence 1, indent 1, WpHG, 1.7863% of the voting rights are therefore deemed to be held by WCM Beteiligungs- und Grundbesitz-AG. 102 IVG Immobilien AG Sal. Oppenheim jr. & Cie. KGaA, Cologne, has notiﬁed us under Sec. 21 and Sec. 22 (1), sentence 1, in- dent 5, WpHG that its share of the voting rights in our company passed the 5%, 10% and 25% thresh- olds on 23 February 2004 and is now 25.1%. Under Sec. 22 (1), sentence 1, indent 5, WpHG, 25.1% of the voting rights are therefore deemed to be held in full by Sal. Oppenheim jr. & Cie. KGaA. HSH Nordbank AG, Hamburg, has notiﬁed us under Sec. 21 (1) and Sec. 24, WpHG on behalf of its wholly owned subsidiary Pellecea GmbH, Hamburg, that Pellecea GmbH’s share of the voting rights in our company passed the 5% and 10% thresholds on 26 March 2004 and is now 11.16%. HSH Nor- dbank AG’s share of the voting rights in our company continues to be 11.16% and under Sec. 22 (1), sentence 1, WpHG is deemed to have been held by HSH Nordbank AG since 26 March 2004. WGZ-Bank Westdeutsche Genossenschafts-Zentralbank eG, Düsseldorf, has notiﬁed us under Sec. 21 (1) WpHG that its share of the voting rights in our company fell below the 10% threshold on 23 March 2004 and is now 5.76%. A shareholder has taken legal action to contest and cancel the resolutions adopted at the General Meet- ing on 27 May 2004. The case is pending before Bonn Regional Court. Additional paid-in capital contains €458.9 million in premiums on IVG Immobilien AG share issues. €0.5 million was credited to additional paid-in capital in 2004 (and €0.3 million in 2003) on remeasurement of share options held by members of the Board of Management and other managerial staff. IVG Immobilien AG once again issued IVG shares to employees in 2004 as part of an employee savings scheme. 60,400 shares (representing 0.0521% or €60,400 of the share capital) were issued to employ- ees under the IVG Value programme with effect from 22 December 2004. To meet the requirements of the IVG Value programme, 40,000 shares (corresponding to 0.0345% or €40,000 of the share capital) were purchased on 7 September 2004 at a price of €9.42 per share. The number of no-par-value shares held in treasury at 31 December 2004 was thus 21,351 (2003: 41,751), representing 0.0184% or €21,351 of the share capital. The other reserves comprise cumulative translation differences and changes in the fair value of ﬁnancial instruments recognized in equity (hedges and available-for-sale securities and ownership shares). Revenue reserves contain the undistributed net income of companies included in the consolidated ﬁ- nancial statements. Financial Statements The minority interests essentially comprise minority interests in the share capital of OIK GmbH, Wies- Consolidated baden, Tardis GmbH & Co. KG, Munich, and the actioplus investment fund, Berlin. 103 Annual report 2004 7.2 Financial liabilities 2004 2004 2003 2003 € million Book value Market value Book value Market value Non-current (> 1 year) Variable-interest bank loans 908.6 908.6 732.9 732.9 Fixed-interest bank loans 997.6 1,024.3 1,104.3 1,116.9 1,906.2 1,932.9 1,837.2 1,849.8 Current (< 1 year) Variable-interest bank loans 220.7 220.7 262.2 262.2 Fixed-interest bank loans 51.7 52.1 101.9 102.2 Bonds 0 0 8.4 8.4 272.4 272.8 372.5 372.8 2,178.6 2,205.7 2,209.7 2,222.6 The fair values of the ﬁxed-interest liabilities are based on cash ﬂows discounted to present value using discount factors based on the current interest rate yield curve. The book values of current interest-bear- ing liabilities approximate to fair value. The book values of ﬁxed and variable-interest liabilities (bank loans and other liabilities) are denominated in various currencies as follows (euro equivalents): € million 2004 2003 EUR 1,778.7 1,747.5 CHF 249.8 291.9 SEK 65.9 65.4 GBP 84.2 100.1 USD 0.0 4.8 2,178.6 2,209.7 The term structure of ﬁxed and variable-interest liabilities is as follows: 2004 2003 Weighted Weighted Total Total interest- Total Total interest- variable- fixed- rate, % variable- fixed- rate, % interest interest (fixed-inter- interest interest (fixed-inter- € million liabilities liabilities est loans) liabilities liabilities est loans) < 1 year 220.7 51.7 4.42 270.7 101.8 3.34 1 – 2 years 296.4 60.2 4.60 70.1 34.9 5.32 2 – 3 years 84.2 71.1 5.29 505.2 60.5 4.62 3 – 4 years 57.4 148.5 4.97 0 90.9 5.31 4 – 5 years 88.7 249.7 5.17 113.1 150.2 5.08 > 5 years 381.9 468.1 5.04 44.6 767.9 5.0 1,129.3 1,049.3 1,003.5 1,206.2 104 IVG Immobilien AG Variable-interest rate liabilities are subject to regular rate adjustments. The adjustments are based on 1, 3, 6 or 12-month Euribor/Libor plus an average margin of 1.1% (2003: 1.0%). Fixed-interest loans are subject to an average interest rate of approximately 5.0% (2003: 4.9%). The fair values are based on cash ﬂows discounted to fair value using discount factors based on the current interest rate yield curve. The book values of current interest-bearing liabilities approximate to fair value. Certain bank loans are secured by charges on property: € million 2004 2003 Financial liabilities secured by charges on property 844.5 862.2 (of which: charges on investment properties) 706.4 816.7 (of which: on other properties (inventories and construction contracts)) 138.1 45.5 Ownership interests in various fully consolidated subsidiaries that hold investment properties are pledged as security for ﬁnancial liabilities. Due to consolidation, these interests no longer appear as ﬁnancial assets in the consolidated ﬁnancial statements. Their book value prior to consolidation at the respective consolidation level in the Group was €411.5 million (2003: €382.5 million). Fixed-term de- posits with a book value of €16.8 million (2003: €15.7 million) are additionally pledged as security for ﬁnancial liabilities. Pledged property, plant and equipment is zero (2003: €5.9 million). A bank loan with a book value of €55.6 million (2003: €65.0 million) has been secured by forfaiting fu- ture rental income from investment properties. 7.3 Derivative ﬁnancial instruments Derivative ﬁnancial instruments current at the balance sheet date are as follows: 2004 2003 € million Nominal value Market value Nominal value Market value Assets Currency derivatives 80.9 15.3 102.8 11.0 Interest rate derivatives 0.0 0.0 262.9 2.3 Total 80.9 15.3 365.7 13.3 Liabilities Currency derivatives 95.2 2.2 72.3 1.5 Interest rate derivatives 756.7 30.6 484.3 22.8 Total 851.9 32.8 556.6 24.3 The contrary changes in the value of hedged items are not taken into account when determining the mar- Financial Statements ket values of derivative ﬁnancial instruments. These therefore do not represent the combined amount Consolidated that IVG would receive for hedges and hedged items on immediate sale at current market conditions. 105 Annual report 2004 Net positive market values of €0.3 million (2003: €0.3 million) after deferred tax were deferred in equity at 31 December 2004. This is the balance of a positive €11.0 million (2003: €7.8 million) for the market values of hedges of net investments and a negative €10.7 million (2003: €7.5 million) for the market values of cash ﬂow hedges. A net amount of €0.3 million (2003: €9.6 million) after deferred tax was recognized directly in equity during the 2004 ﬁnancial year. This is made up of a €2.9 million net loss (2003: €4.1 million net gain) on cash ﬂow hedges and a €3.2 million (2003: €5.5 million) gain on hedges of net investments. The market value of derivatives designated as hedges of net investments is €14.9 million (2003: €10.6 million). The market value of derivatives in cash ﬂow hedges is a negative €18.3 million (2003: nega- tive €10.5 million). 7.4 Deferred tax liabilities Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to taxes levied by the same taxation authority. Deferred tax assets and liabilities changed as follows over the ﬁnancial year: 31.12.2004 31.12.2003 € million Assets Liabilities Assets Liabilities Investment property 37.7 171.9 46.8 197.0 Receivables (primarily construction contract and lease receivables) 4.6 22.6 2.1 32.2 Special item under Sec. 6b of the German Income Tax Act 0.0 32.8 0.0 35.2 Payables and provisions (primarily for lease payables) 15.2 13.4 24.6 19.7 Other temporary differences 4.7 7.9 7.5 4.8 Tax loss carryforwards 93.3 0.0 100.5 0.0 155.5 248.6 181.5 288.8 Offsetting of deferred tax assets and liabilities -105.6 -105.6 -125.3 -125.3 Amount on balance sheet 49.9 143.0 56.2 163.6 Of which current 29.9 5.2 31.2 3.0 Of which non-current 20.0 137.8 25.0 160.5 €0.3 million was charged to equity in 2004 (2003: €0.5 million) for deferred tax assets and liabilities recognized for hedges and available-for-sale investments. No deferred tax assets have been recognized for tax loss carryforwards totalling €339.1 million (2003: €306.8 million) that probably will not be able to be utilized. 106 IVG Immobilien AG Term structure of tax loss carryforwards for which no deferred tax assets have been recognized: € million 2004 Up to 1 year 15.6 1 to 5 years 38.0 Over 5 years 285.5 (of which: local authority trade tax carryforwards) (284.2) 339.1 Deferred tax assets have been recognized as follows for utilizable tax losses: € million 2004 2003 Deferred tax assets for domestic tax loss carryforwards Corporation tax 17.5 6.0 Local authority trade tax 2.6 1.9 Deferred tax assets for foreign tax loss carryforwards 73.2 92.6 93.3 100.5 €4.0 million (2003: €3.5 million) in deferred tax liabilities arising from temporary differences relating to investments in subsidiaries have not been recognized because the time of reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not re- verse in the foreseeable future. 7.5 Provisions for pensions and similar obligations IVG maintains both deﬁned beneﬁt and deﬁned contribution plans for its employees. These plans are described in Note 10.9, Employee Beneﬁts. Actuarial assumptions The assumptions used in actuarial valuations of beneﬁt obligations and beneﬁt costs are as follows: % 2004 2003 Discount rate 5.00 5.50 Rate of increase in salaries: Board and other managerial staff 1.00 2.50 Benefit plan 2.00 2.50 Rate of increase in benefits: Board and other managerial staff 1.25 1.25 Benefit plan 1.00 1.00 Fluctuation: Board and other managerial staff 3.50 3.50 Benefit plan 10.00 10.00 Basis of calculation: 1998 actuarial 1998 actuarial tables published by tables published by Dr. Klaus Heubeck Dr. Klaus Heubeck Financial Statements Consolidated 107 Annual report 2004 Changes in total beneﬁt obligations € million 2004 2003 Total benefit obligations at 1 January 14.8 13.9 Changes in the reporting entity 8.4 0.6 Service cost 0.7 0.6 Unrealized actuarial gains and losses 0.7 -0.1 Interest cost 1.0 0.8 Benefit payments -1.2 -1.0 Other -0.2 -0.1 Total benefit obligations at 31 December 24.3 14.8 The ﬁgure for changes in the reporting entity mostly relates to the beneﬁt obligations of OIK companies. Reconciliation of total beneﬁt obligations to pension provisions € million 2004 2003 Total benefit obligations at 31 December 24.3 14.8 Unrealized actuarial gains and losses -0.7 0.1 Pension provisions at 31 December 23.6 14.9 Changes in pension provisions Net pension provisions changed as follows in the years 2004 and 2003: € million 2004 2003 Pension provisions at 1 January 14.9 13.9 Changes in the reporting entity 8.4 0.6 Increases in provisions 0.7 0.6 Reversal of provisions 0.2 0.1 Reversal of discounting (non-current provisions) 1.0 0.8 Benefit payments 1.2 1.0 Pension provisions at 31 December 23.6 14.9 The portion of pension provisions classed as current provisions is €1.3 million (2003: €1.1 million). Pension expenses The expenses included in the Income Statement are as follows: € million 2004 2003 Defined contribution plan expenses 2.1 1.6 Service cost 0.7 0.6 Interest cost 1.0 0.8 Actuarial gains and losses recognized in income 0.0 0.0 Pension expenses 3.8 3.0 The interest cost is recorded in net interest and investment income and all other items in personnel ex- penses. Actuarial gains and losses were not recognized in 2003 and 2004 as they remained within plus or minus 10% of the total beneﬁt obligation. 108 IVG Immobilien AG 7.6 Other provisions Changes in other provisions in the 2004 ﬁnancial year: Consoli- Opening dation Additions/ Closing Non- € million balance changes increases Reversed Utilized balance current Current Onerous contracts 16.0 0.0 3.1 0.0 2.5 16.6 14.8 1.8 Other personnel provisions 5.6 6.5 6.5 1.7 6.6 10.3 0.0 10.3 Semiretirement provision 1.8 -0.1 0.8 0.1 0.1 2.3 1.2 1.1 Share option plan provision 0.0 0.0 1.1 0.0 0.0 1.1 0.0 1.1 Environmental risks provision 7.4 0.0 0.1 0.0 0.4 7.1 6.2 0.9 Rent guarantees provision 3.4 0.0 0.6 0.0 1.3 2.7 0.4 2.3 Sundry provisions 27.8 3.5 8.9 4.3 2.1 33.8 11.0 22.8 62.0 9.9 21.1 6.1 13.0 73.9 33.6 40.3 The provisions for onerous contracts primarily account for share repurchase obligations relating to real estate investment funds. The other personnel provisions include provisions for performance-linked bo- nuses and special remuneration. The environmental risks provision almost entirely consists of risks from legacy munitions sites. The sun- dry provisions mostly relate to warranties. Probable cash outﬂows from provisions are €40.3 million (2003: €26.7 million) within one year, €15.7 mil- lion (2003: €20.0 million) one to ﬁve years and €17.9 million (2003: €15.3 million) after ﬁve years. 7.7 Accounts payable Total for Short- Long- Total for Short- Long- € million 2004 term term 2003 term term Trade accounts payable 61.6 59.9 1.7 77.9 74.8 3.1 Other financial obligations to third parties 67.4 46.6 20.8 62.5 61.7 0.8 Finance lease obligations 33.2 20.4 12.8 61.4 29.4 32.0 Customer advances received 10.2 9.9 0.3 21.2 21.2 0.0 Amounts owed to affiliated companies 13.3 13.3 0.0 20.5 20.5 0.0 Amounts owed to associated companies 2.4 0.8 1.6 3.8 3.8 0.0 Amounts owed to other participating interests 3.1 3.1 0.0 3.0 3.0 0.0 Other taxes payable 12.2 12.2 0.0 30.3 30.3 0.0 Accrued interest payable 11.8 11.8 0.0 7.4 7.4 0.0 Invoices payable 10.1 10.1 0.0 16.5 16.5 0.0 Other liabilities 44.8 41.1 3.7 32.2 28.5 3.7 (of which: for social security) (0.8) (0.8) (0.0) (0.8) (0.8) (0.0) 270.1 229.2 40.9 336.7 297.1 39.6 The fair value of ﬁnance lease obligations was €40.0 million (2003: €68.5 million). All other reported book values equate to fair value. The other ﬁnancial obligations to third parties essentially consist of ob- Financial Statements Consolidated ligations to two entities in which the Group holds an indirect interest. 109 Annual report 2004 7.8 Deferred income € million 2004 2003 Non-current 8.2 9.6 Current 12.9 13.4 21.1 23.0 The deferred income is mostly prepaid rent. 8. Leases Operating leases Many contracts entered into between IVG and its tenants are classed as operating leases under IFRS. The Group is therefore the lessor in many and varied operating leases (tenancies) for investment prop- erties, from which it derives the greater part of its receipts and revenues. There are also various operat- ing leases for other properties and facilities (tank farms). Some ﬁxed-term leases provide lessees with renewal options. Tenants do not have any signiﬁcant purchase options. The operating leases related to investment properties with a book value of €2,377.0 million (2003: 2,435.8 million) and to tank farms and partly owner-occupied properties with comparatively minor (pro rata) book values. IVG stands to receive minimum lease payments as follows from existing leases: € million 2005 2006–2009 From 2010 Future minimum lease payments 207.1 492.1 288.2 The minimum lease payments are the net rent accruing over agreed the term or up to the earliest pos- sible date of termination by the lessee (tenant), regardless of the probability of the tenant terminating or not exercising an option to renew. Contingent rent totalling €0.6 million (2003: €0.5 million) was recorded in turnover over the ﬁnancial year. 110 IVG Immobilien AG Total operating lease expenses incurred as lessee were €8.4 million (2003: €8.7 million). The operat- ing leases concerned primarily relate to rented property at various locations. The individual leases do not have any material impact on the ﬁnancial position or ﬁnancial performance of the Group. The Group generates only marginal revenue from subletting. The Group is not subject as lessee or lessor to any material restrictions under ﬁnance or operating leas- es concerning ﬁnancing, dividends or further leasing. Finance leases The Group is the lessor under ﬁnance leases for investment properties and rolling stock (freight and tank cars) in its non core operations. Key data: € million 2004 2003 Book value of lease receivables 62.6 129.7 of which: investment properties 40.6 58.1 of which: rolling stock 22.0 71.6 Minimum lease payments receivable (nominal) 70.3 108.6 + Unguaranteed residual values (nominal) 30.8 82.8 = Gross investment 101.1 191.4 – Unearned finance income 30.9 54.4 = Net investment (present value of lease receivables) 70.1 137.0 – Present value of unguaranteed residual values 28.6 71.6 = Present value of minimum lease payments 41.5 65.5 Term structure € million 2005 2006 to 2009 From 2010 Total Gross investment 23.2 25.3 52.6 101.1 Present value of minimum lease payments receivable 8.6 10.5 22.4 41.5 No contingent rents were received in the year under review or the previous year. There was no accu- mulated allowance for uncollectible minimum lease payments. With regard to rolling stock, the Group is also a lessee under sale-and-leaseback transactions entered into in earlier years. The rolling stock is sublet. At the balance sheet date 2003, a now sold portion of let rolling stock was in the (legal) ownership of the Group. Investment properties are also used under ﬁnance leases to a comparatively minor extent. Financial Statements Consolidated 111 Annual report 2004 The rolling stock is subject to bargain purchase options and renewal options in the Group’s favour, which are matched by purchase options and renewal options on equal terms in the lessees’ favour under the subleases. The leases appear in the consolidated balance sheet as follows: Net lease obligation Book value of Lease receivables after deducting re- lease obligations (book value) ceivables (hypothetical) € million 2004 2003 2004 2003 2004 2003 Let rolling stock 21.9 49.1 22.0 71.6 0.0 0.0 Of which sublet 21.9 49.1 22.0 50.9 0.0 0.0 The rolling stock lessees exercised purchase options in the amount of €40.3 million over the ﬁnancial year, €20.8 million of which related to sublet rolling stock, for which the Group in turn exercised pur- chase options of its own. The term structure of the ﬁnance lease obligations (including residual values) is as follows: € million 2005 2006 to 2009 From 2010 Total Future lease payments (nominal) 21.9 14.0 7.6 43.5 Discounting 0.4 1.0 2.0 3.4 Present value 21.5 13.0 5.6 40.1 The subleases on rolling stock provide for future minimum lease payments of €5.2 million (2003: €14.7 million) plus unguaranteed purchase considerations totalling €17.9 million (2003: €40.4 million) from the exercise of bargain purchase options. Future minimum lease payments from operating subleases on ﬁnance leased investment property total €11.4 million (2003: €8.7 million). As in the previous year, there were no contingent rents. The present values of ﬁnance lease receivables and obligations are determined using discount rates based on the term structure of interest rates at the respective balance sheet date. IVG also operates the national storage caverns facility (with assets of €199.5 million and liabilities of €199.5 million) at Etzel near Wilhelmshaven in trust for the German ﬁnance ministry. 112 IVG Immobilien AG 9. Notes to the Consolidated Income Statement The income statement uses a classiﬁcation of expenses by nature. 9.1 Turnover € million 2004 2003 Net rental income from investment properties 235.8 222.5 Service charges receivable 25.1 26.4 Turnover from project development (billed developments, other than PoC) 32.3 34.0 Turnover from construction contracts 110.5 143.7 Other turnover from storage caverns and tank farms 34.8 32.5 Fund management commission and fees 43.7 10.0 Other turnover 25.1 27.0 507.3 496.1 9.2 Net change in inventories and other own work capitalized € million 2004 2003 Decrease/increase in inventories of finished goods and work in progress -16.2 1.1 Other own work capitalized 0.6 1.3 -15.6 2.4 9.3 Other operating income € million 2004 2003 Disposals of non-current assets 79.3 64.5 (of which: from sales of investment properties) (75.1) (52.0) Income from reversals of impairment losses 12.1 4.6 Reversal of provisions 6.2 2.1 Lucky buy 5.8 53.4 Other 17.9 20.1 121.3 144.7 9.4 Material expenses € million 2004 2003 Project development 105.6 147.7 Raw materials and consumables 4.8 5.6 Purchased services 19.0 15.6 Inventory write-downs 0.0 1.5 129.4 170.4 Financial Statements The project development expenses primarily consist of contracted construction work, architects’ fees, Consolidated planning costs, etc. 113 Annual report 2004 9.5 Personnel expenses € million 2004 2003 Wages and salaries 53.7 47.8 Social security 11.1 10.0 (of which: for retirement pensions) (2.8) (2.2) Share option plans 1.6 0.3 66.4 58.1 The average number of employees in 2004 was 817 (comprising 135 trade and 682 salaried employees). The average number of employees in 2003 was 786 (comprising 176 trade and 610 salaried employees). The increase is due to the addition of OIK to the consolidated group. The retirement pension expenses are mostly costs of deﬁned contribution plans. 9.6 Depreciation € million 2004 2003 Depreciation 50.0 45.1 Impairment losses 12.1 32.1 62.1 77.2 The impairment losses mainly relate to investment properties. 9.7 Investment property expenses € million 2004 2003 Let investment properties 50.1 36.6 Partially vacant investment properties 5.9 5.7 56.0 42.3 This item essentially comprises maintenance, land tax, running costs, charges and fees directly allo- cable to investment properties. The amounts for let and vacant investment properties are stated as at the balance sheet date. 114 IVG Immobilien AG 9.8 Other operating expenses € million 2004 2003 Auditing, legal and consultancy fees 19.6 17.1 Service and maintenance 12.6 18.8 Purchased external services 8.6 8.2 Impairment of receivables 8.9 8.3 Ground rents or lease payments 7.0 7.3 Communication and marketing 6.6 6.5 Data processing 3.6 4.2 Levies, fees and banking charges 3.8 8.6 Losses on disposals of fixed assets 2.6 4.0 Lease expenses 1.3 1.5 Other taxes 0.8 3.4 Other expenses 27.6 21.8 103.0 109.7 9.9 Income from participating interests € million 2004 2003 Income from participating interests 4.4 8.9 (of which: affiliated companies) (3.8) (5.4) Reduction in the carrying amount of investments in participating interests and affiliated companies -8.4 -1.2 (of which: affiliated companies) (-3.7) (-0.0) -4.0 7.7 These ﬁgures include reductions in carrying amounts due to distributions and reductions to recover- able amount. A net negative change in the value of available-for-sale ﬁnancial assets totalling €1.2 mil- lion in 2004 (2003: €8.7 million net negative change) was charged, directly in equity, to other reserves. Changes in other reserves taken to income due to disposal gains or impairment of such assets were zero (2003: €0.4 million gain). 9.10 Interest and investment income € million 2004 2003 Income from long-term loans and other interest income 26.2 37.4 (of which: affiliated companies) (0.6) (0.0) Investment income 12.9 62.0 (of which: hedging) (0.4) (14.4) (of which: securities) (2.8) (8.8) (of which: foreign currency) (9.7) (38.8) Interest and investment income 39.1 99.4 Interest expenses -125.2 -139.3 Investment expenses -20.0 -30.3 Financial Statements (of which: hedging) (-8.3) (-1.1) Consolidated (of which: securities) (-3.4) (-10.7) (of which: foreign currency) (-8.3) (-18.5) Interest and investment expenses -145.2 -169.6 Net interest and investment income -106.1 -70.2 115 Annual report 2004 The hedging income for 2003 included gains of €4.9 million arising on termination of an interest rate/ currency swap and from hedges not qualifying for hedge accounting. The foreign currency income item in 2004 mostly comprises gains of €6.9 million arising on transla- tion from HUF, SEK and PLN into euros. The 2003 ﬁgure includes gains from depreciation of CHF loans (€15.7 million). The foreign currency expense item mostly reﬂects the appreciation of SEK and CHF loans. The securities income and expense items mainly result from transactions relating to the actioplus in- vestment fund. The hedging expense item is made up of losses recognized on partial termination of a hedge and on remeasurement to market value of hedges not qualifying for hedge accounting. The foreign currency expense item includes translation losses on foreign currency transactions entered into by IVG’s Hungarian and Polish subsidiaries. There is no impact on income relating to available-for-sale ﬁnancial assets. 9.11 Income tax € million 2004 2003 Current income tax expense -10.8 -13.4 Out-of-period income tax expense -3.3 -4.8 Deferred tax -7.5 +12.0 -21.6 -6.2 The change in deferred tax mostly reﬂects impairment of investment properties in 2003, increased uti- lization of loss carryforwards and a tax rate change in Finland. Tax reconciliation The tax on consolidated net income before tax differs as follows from the hypothetical amount arrived at by applying the Group tax rate of 39% (2003: 40%) to net income before tax: 116 IVG Immobilien AG € million 2004 2003 IAS/IFRS net income before tax 96.5 113.7 Expected tax expense/income (Group tax rate) 37.7 45.5 Impact of local authority trade tax -10.8 -11.7 Differing foreign tax rates -6.7 -8.4 Tax rate changes +2.8 -4.1 Non-deductible expenses +2.6 +1.9 Tax-exempt income -15.5 -9.9 Other tax impacts relating to subsidiaries and companies accounted for using the equity method +1.7 -6.7 Tax impacts arising from acquisitions -1.7 -15.4 Unutilizable current losses less utilized uncapitalized loss carryforwards +10.6 +10.9 Out-of-period impacts +3.3 +4.8 Other -2.4 -0.7 Effective income tax (current and deferred) 21.6 6.2 9.12 Earnings per share 2004 2003 Consolidated net income attributable to shareholders (€ million) 70.9 105.7 Number of no-par-value shares in circulation (million) 116.0 116.0 Number of potential no-par-value shares under LTI plans (million) 0.7 1.5 Undiluted earnings per share (€) 0.61 0.91 Diluted earnings per share (€) 0.61 0.90 Dividend per share Dividends totalling €39.44 million (€0.34 per share) were paid out in each of 2004 and 2003 for the re- spective preceding year. It is expected that the Annual General Meeting on 31 May 2005 will approve a dividend for 2004 of €0.35 per share constituting a total distribution of €40.6 million. This dividend is not recognized as a li- ability in these consolidated ﬁnancial statements. 10. Other disclosures 10.1 Accounting estimates and assumptions Preparation of the consolidated ﬁnancial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Actual amounts may differ from these estimates. In particular, management must make estimates and assumptions in the following areas: Assessing the possibility and amount of any impairment loss or write-down, especially as relates to Financial Statements investment properties, goodwill and receivables. Consolidated Recognition and measurement of provisions. Assessing the need for inventory write-downs. Assessing the probability that deferred tax assets will be utilized. 117 Annual report 2004 Investment properties are generally valued by external appraisers. Where market values cannot be de- termined from sales of comparable properties, valuations are performed using the discounted cash ﬂow (DCF) method under which future cash ﬂows are discounted to present value as at the balance sheet date. These estimates include assumptions about future conditions. The fair values thus calculated are used in impairment testing. Due to the large number and geographical spread of properties involved, individual measurement uncertainties tend to cancel out statistically. Similar techniques are applied where IVG performs valuations itself. As at 31 December 2004, there were no estimation uncertainties giving rise to signiﬁcant risk of mate- rial adjustments to carrying amounts during the 2005 ﬁnancial year. 10.2 Financial risk management Financial risks comprise currency, credit, liquidity and interest rate risk. The Group is exposed to cur- rency risk due to its international operations as a result of changes in the exchange rates of various for- eign currencies. These risks are partially offset by entering into currency derivatives with external third parties and by same-currency borrowing for foreign currency investments. Sterling interest rate/currency swaps are also entered into that are matched within the IVG Group by net assets of sterling-functional subsidiaries. The risks associated with these ﬁnancial instruments relate to interest and exchange rate ﬂuctuations. There is no material credit risk because derivative ﬁnancial instrument contracts and ﬁnancial transac- tions are only entered into with ﬁnancial institutions with high credit ratings, keeping counterparty de- fault risk at a minimum. Liquidity risk is largely contained by using Group-wide ﬁnancial planning tools. These show expected liquidity over a planning horizon of up to three years. The twelve-month liquidity summary is kept up to date using current data. IVG additionally has sufﬁcient unused lines of credit as at 31 December 2004 and has also enhanced its short-term reﬁnancing options through a commercial paper programme with a maximum amount of €200 million under which there were no drawings at 31 December 2004. Interest rate risk results from market variations in interest rates. These affect the amount of interest expenses in the IVG Group and the market value of ﬁnancial instruments. 118 IVG Immobilien AG Approximately half of the Group’s bank loans are ﬁxed-interest, making the impact of interest rate ﬂuc- tuations predictable for the medium-term future. Variable-interest bank loans are offset to the extent of €850 million primarily by the use of interest rate swaps. IVG usually takes out variable-rate loans and uses swaps to convert them into ﬁxed-interest loan obligations. These arrangements are accounted for as cash ﬂow hedges to the extent that they qualify for hedge accounting. The Board of Management and the Supervisory Board are provided with regular reports on the Group’s ﬁnancial risks. Observance of Group directives is monitored by the internal audit function. 10.3 Contingent liabilities € million 2004 2003 Financial guarantees 170.4 237.8 (of which: bank guarantees) (88.6) (130.7) Contractual guarantees 91.1 93.0 Post-employment benefit obligations 2.0 0.0 Other contingent liabilities 1.5 6.2 265.0 337.0 The ﬁnancial guarantees are guarantees to third parties in favour of parties unrelated to the Group and Group companies not included in the consolidated ﬁnancial statements. The bank guarantees are guar- antees given by banks to third parties to cover Group company payment, performance and warranty obligations. The contractual guarantee obligations are binding letters of comfort, repurchase commit- ments, rent guarantees and similar obligations to third parties. Long-term repurchase obligations are discounted to present value at an annual discount rate of 5.5%. Letters of comfort issued to third par- ties in respect of consolidated subsidiaries are only included to the extent that they give rise to separate obligations from the point of view of the Group as a whole. It is not to be considered probable that the contingent liabilities will require a signiﬁcant outﬂow of re- sources on settlement. There are no guarantees for cheques or bills of exchange. 10.4 Other ﬁnancial obligations Financial obligations totalling €68.4 million (2003: €49.4 million) exist under contracts already awarded for commenced or planned investment projects and under contractual agreements with tenants and other parties. These mostly fall due in 2005 and relate to purchase price commitments for purchases, Financial Statements construction work and extension work on investment properties. Consolidated Future lease obligations are disclosed in the section on ﬁnance and operating leases (see Note 8). 119 Annual report 2004 10.5 Contingent assets A contingent asset of €3.7 million (2003: €3.7 million) represented the possible partial repayment of development contributions paid in earlier years. Under a settlement since reached, the amount of the contingent asset will be received during the 2005 ﬁnancial year, leading to a subsequent reduction in cost of acquisition. 10.6 Consolidated Cash Flow Statement The cash ﬂow statement shows how the Group’s cash position has changed due to inﬂows and out- ﬂows of cash and cash equivalents over the course of the ﬁnancial year. In conformity with IAS 7 Cash Flow Statements, cash ﬂows are classiﬁed into cash ﬂows from operating, investing and ﬁnancing ac- tivities. The cash and cash equivalents reported in the cash ﬂow statements include all cash and cash equiva- lents reported on the balance sheet, i.e. cash in hand, cheques, Bundesbank deposits and cash at other banks. Cash ﬂows from investing and ﬁnancing activities are determined directly from receipts and payments. Cash ﬂows from operating activities, on the other hand, are determined using the indirect method. Un- der this method, changes in balance sheet items relating to operating activities are adjusted for the ef- fects of changes in the reporting entity. As a result, the changes in balance sheet items reported in the cash ﬂow statement are not the same as they would be if they were determined using ﬁgures from the published balance sheet. € million 2004 2003 Interest paid 118.8 135.0 Interest received 25.6 34.4 Taxes paid (included in cash provided by operating activities) 12.3 16.1 Dividends received 7.1 6.5 Dividends paid by IVG Immobilien AG 39.4 39.4 Dividends paid to minority shareholders 12.6 0.7 Cash and cash equivalents were not materially affected by exchange rate changes. The increase in cash and cash equivalents between the HGB (German Commercial Code) and IFRS ﬁg- ures as at 31 December 2003 includes €8.8 million (1 January 2003: €19.0 million) due to changes in the reporting entity. The differences between HGB and IFRS in cash provided by operating activities and cash used for ﬁnancing activities are due to the different accounting treatment of leases and to changes in the reporting entity. 120 IVG Immobilien AG 10.7 Segment reporting The Group is organized in three main segments as at 31 December 2004: (1) Portfolio management: This segment contains the real estate portfolio management business. In ad- dition to ofﬁce properties and business parks, it also includes logistics properties activities (storage caverns and tank farms). (2) Project development: This segment undertakes real estate project development for IVG and third parties. (3) Investment funds: This recent segment contains investment fund activities, including Oppenheim Immobilien-Kapitalanlagegesellschaft mbH (OIK) acquired in 2004. In addition to these three main segments, segment ﬁgures are reported for non-core business (rail) and corporate functions/consolidation. Segment results* Inter-segment External Total operating turnover turnover performance € million 2004 2003 2004 2003 2004 2003 Office properties/business parks 5.8 3.0 252.2 243.6 361.4 372.6 Logistics real estate 0.0 0.0 53.1 50.2 53.4 51.4 Portfolio management total 5.8 3.0 305.3 293.8 414.8 424.0 Project development 0.9 46.5 144.0 176.6 148.4 223.1 Investment funds 2.9 2.2 51.3 16.2 55.6 20.1 Non-core business 0.0 0.0 6.5 8.7 8.1 9.1 Corporate functions/consolidation -9.6 -51.7 0.2 0.8 -13.9 -33.1 Group 0.0 0.0 507.3 496.1 613.0 643.2 Operating Segment assets Of which: Shares in earnings (book value) associated companies € million 2004 2003 2004 2003 2004 2003 Office properties/business parks 175.8 192.2 2,403.1 2,592.9 0.0 0.0 Logistics real estate 15.7 13.5 103.7 90.7 0.0 0.0 Portfolio management total 191.5 205.7 2,506.8 2,683.6 0.0 0.0 Project development 24.7 14.4 505.4 416.4 20.8 22.3 Investment funds 16.8 -2.7 243.1 98.6 11.2 10.6 Non-core business 0.5 -4.2 3.0 7.1 0.0 0.0 Corporate functions/consolidation -30.9 -29.3 59.5 72.5 0.0 0.0 Group 202.6 183.9 3,317.8 3,278.2 32.0 32.9 * Including Polar lucky buy Financial Statements Consolidated 121 Annual report 2004 Segment Of which: liabilities Depreciation Impairment € million 2004 2003 2004 2003 2004 2003 Office properties/business parks 140.0 110.1 51.7 60.4 9.8 23.7 Logistics real estate 10.2 11.2 3.7 3.6 0.0 0.0 Portfolio management total 150.2 121.3 55.4 64.0 9.8 23.7 Project development 38.7 101.8 0.7 1.9 0.0 1.4 Investment funds 29.1 5.1 4.2 5.7 2.3 4.4 Non-core business 1.7 2.3 0.3 3.3 0.0 2.6 Corporate functions/consolidation 39.5 48.8 1.5 2.3 0.0 0.0 Group 259.2 279.3 62.1 77.2 12.1 32.1 Reversals of Income from Other income from impairment losses associated companies participating interests € million 2004 2003 2004 2003 2004 2003 Office properties/business parks 12.1 4.6 0.0 -4.3 0.8 0.6 Logistics real estate 0.0 0.0 0.0 0.0 -4.6 -0.6 Portfolio management total 12.1 4.6 0.0 -4.3 -3.8 0.0 Project development 0.0 0.0 8.5 -6.3 -0.2 5.1 Investment funds 0.0 0.0 2.0 1.3 0.0 0.0 Non-core business 0.0 0.0 0.0 0.0 0.0 0.0 Corporate functions/consolidation 0.0 0.0 0.0 0.0 0.0 2.6 Group 12.1 4.6 10.5 0.1 -4.0 7.7 Investments € million 2004 2003 Office properties/business parks 135.4 465.7 Logistics real estate 17.6 6.0 Portfolio management total 153.0 471.7 Project development 89.2 55.6 Investment funds 154.5 0.2 Non-core business 0.0 0.3 Corporate functions/consolidation 1.8 2.9 Group 398.5 530.7 Segment assets comprise: Investment properties Other property, plant and equipment Intangible assets Shares in associated companies Other ownership shares Inventories Receivables not classiﬁed in ﬁnancing activities Prepaid expenses Cash and cash equivalents 122 IVG Immobilien AG Segment liabilities comprise: Pension provisions Other provisions Accounts payable not classiﬁed in ﬁnancing activities Deferred income Inter-segment business is conducted on an arm’s length basis. Investments include accounts payable assumed in acquisitions. Geographical segments 2004 Other € million UK France Benelux Germany Finland countries Group External turnover 8.8 18.1 51.3 351.2 45.7 32.2 507.3 Operating earnings 18.1 6.2 66.0 62.7 30.5 19.1 202.6 Segment assets (book value) 146.2 170.0 470.5 1.769.8 375.6 385.7 3.317.8 Investments 24.9 0.0 32.5 250.3 69.8 21.0 398.5 Geographical segments 2003 Other € million UK France Benelux Germany Finland countries Group External turnover 9.6 19.8 55.5 367.8 7.0 36.4 496.1 Operating earnings 22.3 22.6 26.2 24.9 60.7 27.2 183.9 Segment assets (book value) 132.9 254.5 572.5 1.634.9 309.2 374.2 3.278.2 Investments 0.6 1.1 58.1 136.7 328.7 5.5 530.7 The geographical segments reﬂect the geographical distribution of IVG’s real estate properties. 10.8 Notes on the transition to IFRS Reconciliation of consolidated net income for 2003 under HGB (German Commercial Code) to consoli- dated net income under IFRS: € million 2003 HGB consolidated net income 66.5 1. Income from Polar lucky buy 49.1 2. Impairment losses -28.2 3. Reversals of impairment losses on investment properties 4.6 4. Income tax changes 14.6 5. Gains and losses from remeasurement of securities, foreign currency items, hedges, etc. 5.4 6. Impairment of receivables (primarily associated companies accounted for using the equity method) -9.9 7. Income from changes in the reporting entity (before tax) 3.0 8. Discontinuation of goodwill amortization 2.9 9. Other -0.5 IFRS consolidated net income 107.5 Financial Statements Consolidated Item 1: This represents the difference between the full €53.4 million lucky buy gain from the Polar ac- quisition recognized immediately in income under IFRS and the €4.3 million instalment recognized in 2003 under HGB. 123 Annual report 2004 Item 2: Impairment losses on investment properties due to short-run market ﬂuctuations in Germany (€22.4 million) and Belgium (€6.2 million), being temporary, came under the HGB rule that recognition of such losses is not mandatory for non-current assets unless the impairment is probably lasting in na- ture. Item 3: This item comprises revaluations of investment properties for which impairment losses were recognized in past years. Item 4: The reduction in income tax is due to recognition of deferred tax assets for tax loss carryfor- wards arising principally in Germany during 2003. It also includes the negative impact of impairment losses. Reconciliation of equity reported under HGB to equity under IFRS as at 1 January 2003 and 31 Decem- ber 2003 € million 31.12.2003 1.1.2003 HGB equity 917.0 769.5 Changes in the reporting entity 28.3 -17.7 Deferred tax (net liability) -71.9 -112.3 Lease receivables and obligations (primarily for investment properties) 10.2 24.7 Remeasurement of derivative financial instruments -10.8 -31.1 Elimination of special tax-allowable reserve (Sec. 6b, German Income Tax Act) 0 31.5 Remeasurement of available-for-sale financial assets 9.3 16.5 (of which: associated companies) (9.7) (9.3) Impairment losses on investment properties -28.2 -39.7 Elimination of depreciation and impairment charges on investment properties under German tax law (balance of revaluations and charges) 0 55.8 Changes in estimated useful life of caverns and tank farms 2.2 29.2 Other -10.6 -7.4 IFRS equity 845.5 719.0 The ﬁgures for changes in estimated useful life mainly relate to caverns and tank farms (31 December 2003: €2.2 million; 1 January 2003: €29.2 million) and consist of the effect of an increase in the useful life of caverns from 33 to 50 years and of tank farms from 10 to 20 years plus the effect of changing over from the diminishing-balance to the straight-line method of depreciation. The ﬁgures for impairment losses are due to different HGB and IFRS treatment of such losses on in- vestment properties due to short-run market ﬂuctuations, mainly in Germany (31 December 2003: €22.4 million; 1 January 2003: €24.6 million) and Belgium (31 December 2003: €6.2 million; 1 January 2003: €15.1 million). Being temporary, these came under the HGB rule that recognition of such losses is not mandatory for non-current assets unless the impairment is probably lasting in nature. On measuring investment properties under IFRS as at 1 January 2003, the €33.9 million market value of certain Belgian properties was taken as their deemed cost. The transition to IFRS necessitated recognition, as a charge to equity, of €112.3 million in provisions for deferred taxes. This provision covers the maximum theoretical tax burden. 124 IVG Immobilien AG 10.9 Related party dealings Related individuals are Supervisory Board, Board of Management and managerial staff members and their close relatives. Related companies are Sal. Oppenheim jr. & Cie. KGaA of Cologne, and the un- consolidated subsidiaries and equity-accounted companies in the IVG Group. Until 23 February 2004, related companies also included Sirius GmbH of Wackerow, WCM of Frankfurt and their subsidiaries. A dependent parties report has been prepared in respect of the relationship with Sirius GmbH and WCM AG. There were no business dealings with either company or any of their subsidiaries. Relationships with members of the Supervisory Board and Board of Management are as stated in the above-mentioned disclosures. There were no business dealings with close relatives of members of the Supervisory Board or Board of Management. There were no material business dealings with managerial staff or their close relatives. Gross salaries of managerial employees totalled €11.5 million in the 2004 ﬁnancial year. All business dealings with unconsolidated subsidiaries and equity-accounted companies (inclusion in global cash management, general project contracts, etc.) were conducted at arm’s length. They com- prised €1.8 million in services rendered (income) and €0.4 million in services received (expense). IVG acquired Oppenheim Immobilien-Kapitalanlagegesellschaft mbH (OIK) from Sal. Oppenheim jr. & Cie. KGaA for a purchase consideration of €125.5 million, which was paid in 2004. IVG also purchased from Sal. Oppenheim €1.1 million in services charged on an arm’s length basis. 10.10 Employee beneﬁts a) Retirement pensions Both employer-funded and employee-funded pension plans are in operation in the IVG Group. b) Employer-funded retirement pensions The various different employers in the Group maintain different types of employer-funded pension plans for employees. Employees of IVG Immobilien AG generally have compulsory membership of Versor- gungsanstalt des Bundes und der Länder (VBL), a pension scheme operated by the German federal government and the German states. Members of the Board of Management of IVG Immobilien AG are covered by deﬁned-beneﬁt plans funded through pension provisions. Under individual and collective agreements, current and former employees of IVG Management GmbH and IVG InfoTec GmbH and certain managerial employees of IVG Immobilien AG and IVG Logistik GmbH are in deﬁned-contribution book reserve schemes under which future beneﬁts are fully provided for in the year they accrue. There Financial Statements are also current and future beneﬁt recipients under book reserve schemes originating with legal prede- Consolidated cessors of IVG Immobilien AG and IVG Logistik GmbH. 125 Annual report 2004 c) VBL retirement pensions VBL is a pay-as-you-go pension scheme. Pension beneﬁts accrue in a points system, with points accu- mulating for each year in the fund. The number of points and thus the pension accrued by a given em- ployee depends on the level of the employee’s assessable annual pay relative to a benchmark pay level determined actuarially taking an age factor into account. When the beneﬁts fall due, the accumulated number of points is multiplied by a factor equalling 0.4% of the monthly benchmark pay level. The ben- eﬁt accrual method is thus similar to that used in the German statutory pension system. Employees pay contributions of 1.41% of assessable income. IVG’s contributions to VBL, to the amount of 6.45% of assessable income, are included in personnel expenses. The employer contributions count as income for tax and social insurance purposes and partial use is made of optional ﬂat-rate deductions in this regard. The employer additionally pays a reﬁnancing contribution, currently 2.7%, for liabilities of the VBL pay-as-you-go system primarily from years preceding a major reform to the VBL charter in 2001/2002. d) Deﬁned-contribution book reserve schemes The deﬁned-contribution book reserve schemes in the IVG Group are based on a pension credit system and funded through pension provisions. Under collective agreements, the company concerned contributes 3% (for managerial employees 5%) of ﬁxed annual salary for each calendar year of pensionable service. The annual contribution is con- verted into accrued beneﬁt (pension credits) by applying an actuarially assessed commutation rate. The ﬁnal beneﬁt is the sum of the pension credits. When they fall due, annual beneﬁts are paid out in twelve equal monthly amounts. The accrued beneﬁts are independent of employees’ pensions under the statutory pension system. They are subject to mandatory insolvency insurance with the Pensions- Sicherungs-Verein (PSV). Each scheme is funded in its entirety by the company concerned. Employees pay income tax on the beneﬁts when they fall due and are paid out. The pension provisions recognized for beneﬁts accrued under individual or collective agreements are assessed annually by an independent actuary and recognized accordingly. 126 IVG Immobilien AG e) Employee-funded retirement pensions The German Retirement Savings Act (AVmG) – adopted on 26 June 2001 to reform the statutory pen- sion system and promote funded pension plans – provided from 1 January 2002 for the introduction of employee-funded top-up pensions and, by way of a new Sec. 1a (1) inserted into the German Occupa- tional Pensions Act (BetrAVG), accorded employees a personal entitlement to occupational pensions of this kind by allowing them to convert a portion of their salary to accrued beneﬁts which immediately vest by law, up to the amount of 4% of the annual upper earnings limit in the statutory pension system. Under Sec. 1a (3), BetrAVG, employees can additionally demand that the occupational pension plan is implemented in such a way as to establish entitlement to pension supplements from the state (known as Riester supplements after the former German labour minister) under Secs. 10a and 82 (2) of the Ger- man Income Tax Act (EStG). IVG responded early to the new legislation with a two-module arrangement implemented in 2002. In the ﬁrst module, IVG has secured attractive terms with an insurance company under a master agree- ment. This allows each employee to sign with the insurance company for a personal plan meeting the criteria for Riester supplements under Secs. 10a and 82 (2), EStG. The master agreement thus provides a framework for what are known as Riester pension plans taken out by employees themselves. The employee contributions must be met out of net pay (after tax and social insurance contributions). The future beneﬁts are fully taxable at the time of payment, as other income under Sec. 22, EStG. The second module is enshrined in a second master agreement and provides for the conversion of sal- ary to pension contributions, implemented in the form of a pension pool under Sec. 3, item 63, EStG. This is a straight pension plan. A salary-to-pension agreement must be signed with each employee. IVG deducts the contributions and pays them to the insurance company through payroll. The employee contributions are tax-free up to 4% of the annual upper earnings limit in the statutory pension system and until 2008 are also met out of gross pay before social insurance contributions. When the beneﬁts fall due, they are paid by the pension pool directly to the recipient and are subject to personal tax and social insurance contributions. Employees can choose between the two modules to suit their personal circumstances and income and tax position. 10.11 Severance beneﬁts Severance beneﬁts are individually agreed in some voluntary redundancy agreements and can be part of a court settlement in a labour dispute. A provision is recognized for the full amount of the resulting li- ability in the year it arises. Where liabilities under labour disputes cannot be exactly quantiﬁed, they are Financial Statements valued in accordance with the litigation risk by IVG’s independent legal counsel at the end of the ﬁnan- Consolidated cial year and a provision is recognized for the amount determined plus associated legal costs. 127 Annual report 2004 10.12 Long-term incentive plan 1999 plan rules (1999 to 2001 plans) Implementation of a long-term incentive plan was ﬁrst decided at the Annual General Meeting on 27 May 1999. The plan was open to members of the Board of Management of IVG Immobilien AG, the executive management of divisional operating companies and other IVG Group managerial employees. To this end, €2,790,000 in contingent share capital was approved for the sole purpose of issuing up to 2,790,000 ordinary (no-par-value) shares to cover share options granted under the IVG share option plan. The 1999 plan rules stipulate an overall term of seven years. A three-year minimum vesting period is supplemented by performance conditions. These are that the IVG share price must increase annually in absolute terms and must outperform the EPIX share index, whose constituents include IVG’s main competitors. The 1999 plan rules provide exclusively for settlement in shares. 2002 plan rules (2002 to 2004 plans) On 23 May 2002, the Annual General Meeting approved a new share option plan which was the ﬁrst to include the management of foreign branch ofﬁces in the IVG Group. To this end, €4,800,000 in contin- gent share capital was approved for the sole purpose of issuing up to 4,800,000 ordinary (no-par-value) shares to cover options granted under the IVG share option plan. The rules of the share option plan stipulate an overall term of ﬁve years. A two-year minimum vesting period is supplemented by a performance condition. This is an absolute rise in the IVG share price from the base price of at least 5% a year from the grant date. The rules stipulate a choice of three ways of settling the options. IVG Immobilien AG can choose: Instead of new shares from its contingent share capital, to settle the options with IVG Immobilien AG shares that have already been issued and are held in treasury, or: Instead of shares in return for payment of the exercise price, to settle each exercised option in cash. The cash amount is the difference between the exercise price and the closing auction price of IVG Immobilien AG shares in Deutsche Börse AG’s Xetra trading system on the effective date of the ex- ercise notice, less any taxes, fees and other costs. The plan is open to members of the Board of Management of IVG Immobilien AG, managing directors of afﬁliated companies and other employees. The Board of Management (and for the Board of Manage- ment the Supervisory Board) has been authorized to grant non-transferable options under the adopted share option plan to individuals in these groups. 128 IVG Immobilien AG Insider trading rules prohibiting the use of privileged non-public information apply unconditionally to all participants in both plans. 2004 option grant Holders of options granted in 2004 under the new plan rules pay an exercise price of €9.80 for each IVG share. This is the average (arithmetic mean) closing auction price of IVG shares in Xetra trading on Frankfurt Stock Exchange over the twenty trading days immediately preceding the grant date of 30 June 2004. The share options have a life of ﬁve years ending at midnight on 29 June 2009. Options granted under the share option plan cannot be exercised before the end of the two-year minimum vesting period on 30 June 2006. A further vesting condition is that the closing auction price of IVG shares in Xetra trading on Frankfurt Stock Exchange must exceed a performance target on the effective date of the exercise notice. The performance targets are as follows: €10.78 from 30 June 2006 €11.27 from 30 June 2007 €11.76 from 30 June 2008 until the options expire The Board of Management (and for the Board of Management the Supervisory Board) has adopted a resolution in principle that options granted under the share option plan in 2004 are to be settled in cash. The fair value at the grant date of options granted during the period, determined using the Black-Scholes pricing model, was €1.4 million (2003: €1.1 million). The main inputs for the pricing model are as follows: Option life Minimum vesting period Remaining term Share price on valuation: €9.87 (2003: €7.39) Exercise price: €9.80 (2003: €7.63) Volatility of the IVG share price based on weekly closing prices over a ﬁve-year time series from the valuation date: 30.87% (2003: 32.95%) Financial Statements Dividend yield on the dividend payment date: 3.45% (2003: 4.46%) Consolidated Risk-free interest rate based on zero-coupon government bonds with a term of 5 years: 3.70% (2003: 3.06%). Valuations are performed using Xetra closing prices of IVG shares. 129 Annual report 2004 The table below shows the number of options granted in the years 1999 to 2004, options expired and the number of options outstanding at the end of each year: Number of options 2004 plan 2003 plan 2002 plan 2001 plan 2000 plan 1999 plan Outstanding at 1 January 1999 – Granted in 1999 403,256 Exercised in 1999 Expired in 1999 Outstanding at 31 December 1999 403,256 Granted in 2000 377,298 Exercised in 2000 Expired in 2000 18,083 Outstanding at 31 December 2000 377,298 385,173 Granted in 2001 410,497 Exercised in 2001 Expired in 2001 48,327 49,729 Outstanding at 31 December 2001 410,497 328,971 335,444 Granted in 2002 766,350 Exercised in 2002 Expired in 2002 1,726 Outstanding at 31 December 2002 766,350 410,497 327,245 335,444 Granted in 2003 749,250 Exercised in 2003 Expired in 2003 20,100 7,575 6,904 9,042 Outstanding at 31 December 2003 749,250 746,250 402,922 320,341 326,402 Granted in 2004 756,600 Exercised in 2004 403,500 Expired in 2004 7,500 39,000 23,608 1,381 Outstanding at 31 December 2004 756,600 741,750 303,750 379,314 318,960 326,402 Of the 2,826,776 options outstanding (2003: 2,545,165), 303,750 are exercisable (2003: 0). Options ex- ercised in 2004 resulted in cash payments of €498,038. The weighted average share price at the exercise date was €11.52. At the balance sheet date, members of the Board of Management held a total of 1,159,180 options (2003: 996,630) under the 1999 to 2004 option plans. 130 IVG Immobilien AG Key data on long-term incentive plans adopted to date: 2002 plan rules 1999 plan rules 2004 plan 2003 plan 2002 plan 2001 plan 2000 plan 1999 plan Grant date 30.06.2004 30.06.2003 26.07.2002 14.06.2001 16.06.2000 10.06.1999 Term 5 years 5 years 5 years 7 years 7 years 7 years Minimum vesting period 2 years 2 years 2 years 3 years 3 years 3 years Base price (€) 9.8 7.63 10.28 14.13 14.7 15.02 Participants in grant year 52 49 52 35 30 27 Number of options granted 756,600 749,250 766,350 410,497 377,298 403,256 Of which: Board of Management 274,050 274,050 274,050 147,707 138,075 162,748 Absolute performance target (share price gain, % per year) 5 5 5 7,4 6,5 5 Relative performance target None None None Out- Out- Out- perform perform perform EPIX EPIX EPIX Option value at exercise date (€) 1.85 1.42 1.47 3.33 3.59 2.63 Remaining term at 31.12.2004 (whole months) 54 42 31 42 30 18 10.13 Supervisory Board and Board of Management The members of the Supervisory Board and Board of Management are listed in Note 12. Supervisory Board remuneration was composed as follows in 2004: Fixed Dividend-linked remuneration remuneration Total* € € € Rainer Antons 3,600.00 14,336.00 17,936.00 Detlef Bierbaum (Chairman) 5,345.75 5,345.75 Matthias Graf von Krockow 2,672.88 2,672.88 Dr. Manfred Lennings 3,600.00 14,336.00 17,936.00 Rudolf Lutz 2,160.00 2,160.00 Peter Rieck (Deputy Chairman) 4,009.32 4,009.32 Retired in 2003/2004 Dr. Michael Albertz 897.53 13,118.42 14,015.95 Wilhelm Friedrich Corneli 1,459.73 14,336.00 15,795.73 Roland Flach 1,795.07 28,672.00 30,467.07 Franz-Josef Seipelt 1,217.58 1,217.58 Karl-Ernst Schweikert 1,346.30 21,504.00 22,850.30 26,886.58 107,520.00 134,406.58 * Excluding taxes Members of the Supervisory Board, in accordance with Article 16 of the Articles of Association, receive ﬁxed annual remuneration of €3,600 plus remuneration of €512 for each percentage point by which dividends distributed on the share capital exceed 6%. The Chairman receives twice and the Deputy Chairman one-and-a-half times these amounts. The dividend-linked remuneration paid in 2004 relates to Financial Statements the 2003 ﬁnancial year and the Supervisory Board members in ofﬁce during that year. Consolidated In addition to out-of-pocket expenses for each Supervisory Board meeting, Supervisory Board mem- bers receive an attendance fee and per diem allowance of €112.48 for each meeting of the Supervisory Board or its committees. 131 Annual report 2004 The remuneration of the Board of Management for 2004 is composed as follows: The remuneration of members of the Board of Management consists of a ﬁxed and a variable compo- nent. In addition to performance bonuses, members of the Board of Management receive remunera- tion in the form of share options under the Company’s long-term incentive plan, details of which are given under the heading of Share Options. The option terms stipulate that instead of settlement by is- suing shares, they can be settled by payment of the difference between the base price and the exercise price. The Company made use of this alternative, with Supervisory Board approval, for the 2002 long- term incentive plan, which exceeded the performance target for the ﬁrst time in 2004. Remuneration of active members of the Board of Management for the 2004 ﬁnancial year was €2.129 million (2003: €2.102 million). €0.944 million (2003: €0.894 million) of this total was accounted for by ﬁxed remuneration and €1.048 million (2003: €1.166 million) by performance bonuses. Members of the Board of Management also received payments on exercising options under the 2002 long-term incentive plan, whose two-year minimum vesting period ended in mid-2004 and whose performance target (a 10% increase in share price relative to the €10.28 base price at the grant date in 2002) was exceeded for the ﬁrst time in November 2004. Further details and information on the remuneration of individual members of the Board of Management are shown in the table below. Criteria for the appropri- ateness of remuneration are personal areas of responsibility, performance of the Board of Management as a whole, the economic situation and the success and future prospects of the Company. Board of Management annual income, 2004 Annual income (€) Loans and Fixed Bonus Incentive plan Total advances Dr. John von Freyend 404,780 349,500 40,700 794,980 0 Dr. Kottmann 269,853 349,500 42,380 661,733 0 Dr. Matthey 269,853 349,500 46,800 666,153 0 Total 944,486 1,048,500 129,880 2,122,866 0 Members of the Board of Management receive normal beneﬁts in kind totalling, to the nearest thou- sand, €45,000 (2003: €41,000). This mostly represents the amount to be recognized for private use of company cars in accordance with tax regulations. The members of the Board of Management are required to declare the beneﬁts in kind for income tax purposes. Future obligations under long-term incentive plans Options under long-term incentive plans 1999–2004 (€) 1999 2000 2001 2002 2003 2004 Total Dr. John von Freyend 0 0 0 102,454.50 394,632 196,402.50 693,489 Dr. Kottmann 0 0 0 91,599.50 394,632 196,402.50 682,634 Dr. Matthey 0 0 0 77,404.50 394,632 196,402.50 668,439 Total 0 0 0 271,458.50 1,183,896 589,207.50 2,044,562 132 IVG Immobilien AG The amounts shown in the above table for individual Board of Management members under long-term incentive plans still outstanding are arrived at by taking the balance sheet date as the hypothetical due date (2004 closing price) and assuming cash settlement. On this basis, only the options under the 2002, 2003 and 2004 long-term incentive plans retain any value. Pension liabilities The members of the Board of Management have accrued pension beneﬁts. The accrued beneﬁts rep- resent a percentage of ﬁxed salary (frozen pension). The percentage depends on the position on the Board of Management and time in ofﬁce. The maximum percentage is 60% after the second term and for the Chairman 70% after the third term. One member of the Board of Management has a deﬁned- contribution plan coupled to the level of ﬁxed remuneration which will be converted on reappointment to a percentage basis. Provisions for accrued pension beneﬁts of members of the Board of Manage- ment total €3.517 million. Total beneﬁts for former members of the Board of Management and their surviving dependants totalled €0.569 million. The corresponding pension provisions come to €5.938 million. There were no loans or advances to members of the Board of Management or of the Supervisory Board as at 31 December 2004. 11. Corporate governance Corporate governance refers to the entire system by which a company is managed and monitored, its corporate principles and guidelines, and the system of internal and external controls and supervision to which the company’s operations are subjected. Good, transparent corporate governance ensures that our company will be managed and monitored in a responsible manner geared to value creation. This fosters the conﬁdence of investors, employees, business associates and the general public in IVG’s management and supervision. The Board of Management and the Supervisory Board of IVG Immobilien AG jointly issued on 8 July 2004, in accordance with Sec. 161 of the German Stock Corporations Act, a new declaration of confor- mity with the recommendations of the German Corporate Governance Code. The declaration is pub- lished on the IVG website, www.ivg.de, where shareholders can access it at any time. According to a notice under Section 15a of the German Securities Trading Act (WpHG) (directors’ deal- Financial Statements ings), Dr. Manfred Lennings purchased 5,200 no-par-value shares in IVG for €9.55 each on 28 May Consolidated 2004 and Mr. Detlef Bierbaum purchased 30,000 no-par-value shares in IVG for €9.13 each on 23 April 2004. 133 Annual report 2004 12. Supervisory Board and Board of Management Supervisory Board Detlef Bierbaum (from 5 April 2004) Peter Rieck (from 5 April 2004) Chairman Deputy Chairman Personally liable partner, Sal. Oppenheim jr. & Board of Managing Directors, Cie. KGaA HSH Nordbank AG Cologne Reinbek Notiﬁcation of seats on other supervisory Notiﬁcation of seats on other supervisory boards as per Sec. 285 (10) of the German boards as per Sec. 285 (10) of the German Commercial Code: Commercial Code: AXA Investment Managers Deutschland DEKA Immobilien Investment GmbH GmbH Deutsche Real Estate AG Douglas Holding AG DGAG Deutsche Grundvermögen AG LVM Landwirtschaftlicher Versicherungsverein HSH N Real Estate AG* (Chairman) Münster a.G. HSH Nordbank Hypo AG* (Chairman) Monega Kapitalanlagegesellschaft mbH LB Immo Invest GmbH (Chairman) Oppenheim Beteiligungs-AG* TxB Transaktionsbank GmbH Oppenheim Immobilien Kapitalanlagegesell- schaft mbH* (Chairman) Similar mandates: Oppenheim Kapitalanlagegesellschaft mbH* AGV Anlagen-, Grundstücksvermietungs- (Chairman) und Geschäftsführungsgesellschaft mbH* (Chairman) Similar mandates: GEHAG GmbH* (Chairman) Atradius N.V., Amsterdam * HSH Nordbank Group companies Dundee Realty Property Corp., Toronto Germany Fund, New York Future Germany Fund, New York Foreign-Colonial Europe Trust, London Rainer Antons Banque Sal. Oppenheim jr. & Cie. (Luxem- Mechanical engineering master craftsman bourg) S.A., Luxembourg* IVG Logistik GmbH, Etzel Ofﬁce Lloyd George Management (BVI) Limited, Wilhelmshaven Hong Kong Montgomery Oppenheim Limited, Dublin* Notiﬁcation of seats on other supervisory Oppenheim Pramerica Asset Management S.à boards as per Sec. 285 (10) of the German r.l., Luxembourg* (Chairman) Commercial Code: Tertia Handelsbeteiligungsgesellschaft mbH None * Oppenheim Group companies 134 IVG Immobilien AG Matthias Graf von Krockow Rudolf Lutz (from 27 May 2004) (from 5 April 2004) Operative employee Spokesman for the personally liable partners IVG Immobilien AG of Sal. Oppenheim jr. & Cie. KGaA Bonn Cologne Notiﬁcation of seats on other supervisory Notiﬁcation of seats on other supervisory boards as per Sec. 285 (10) of the German boards as per Sec. 285 (10) of the German Commercial Code: Commercial Code: None Fiat Automobil AG (Chairman) IV. Oppenheim AG* (Chairman) V. Oppenheim AG* (Chairman) Roland Flach (until 31 March 2004) Chairman Similar mandates: Chief Executive Ofﬁcer of WCM Beteiligungs- Sal. Oppenheim International S.A., und Grundbesitz-AG Sal. Oppenheim International S.A., Kronberg im Taunus Luxembourg* Sal. Oppenheim jr. & Cie. AG, Zurich * Notiﬁcation of seats on other supervisory Banque Sal. Oppenheim jr. & Cie. boards as per Sec. 285 (10) of the German (Luxembourg) S.A., Luxembourg* Commercial Code: German Red Cross Nurses Insurance Fund Gladbacher Aktienbaugesellschaft AG* (Chairman) KHS Maschinen- und Anlagenbau AG* (Chairman) * Oppenheim Group companies Klöckner-Werke AG* (Chairman) MATERNUS-Kliniken AG NB Beteiligungs AG* (Chairman) Dr. Manfred Lennings RSE Grundbesitz und Beteiligungs-AG* Industrial consultant RSE Projektmanagement AG* (Chairman) Essen YMOS AG* (Chairman) Notiﬁcation of seats on other supervisory Similar mandates: boards as per Sec. 285 (10) of the German GEHAG GmbH* Commercial Code: Gemeinnützige Eisenbahn-Wohnungsbau- Bauunternehmung E. Heitkamp GmbH Financial Statements Gesellschaft mbH Wuppertal* (Chairman) Consolidated Deilmann-Haniel GmbH KHS Inc.* (Chairman) Deutsche Post AG MAAG Holding AG (Vice President of the ENRO AG Advisory Board) Gildemeister AG Heitkamp-Deilmann-Haniel GmbH (Chairman) * WCM Group companies 135 Annual report 2004 Karl-Ernst Schweikert (until 31 March 2004) Dr. Michael Albertz (until 31 March 2004) Deputy Chairman Deputy Chairman of the Executive Board, Member of the Board of Management of Corpus Immobiliengruppe GmbH & Co. KG WCM Beteiligungs- und Grundbesitz-AG Bonn under Sec. 105 (2) of the German Stock Corporations Act Notiﬁcation of seats on other supervisory Männedorf (Switzerland) boards as per Sec. 285 (10) of the German Commercial Code: Notiﬁcation of seats on other supervisory DGAG Deutsche Grundvermögen AG boards as per Sec. 285 (10) of the German Commercial Code: BHE Beteiligungs-AG* Wilhelm Friedrich Corneli Gladbacher Aktienbaugesellschaft AG* Salaried corporate lawyer (Chairman) IVG Immobilien AG KHS Maschinen- und Anlagenbau AG* Cologne Klöckner-Werke AG* MATERNUS-Kliniken AG Notiﬁcation of seats on other supervisory NB Beteiligungs AG* boards as per Sec. 285 (10) of the German RSE Grundbesitz und Beteiligungs-AG* Commercial Code: WCM Beteiligungs- und Grundbesitz-AG (in None abeyance from 4 June 2003 to 3 June 2004 under Sec. 105 (2) of the German Stock Corporations Act) Similar mandates: IVG Immobilien AG Supervisory Board Bremische Gesellschaft für Stadterneuerung, committees Stadtentwicklung und Wohnungsbau mbH* (Chairman) Audit Committee Gemeinnützige Eisenbahn-Wohnungsbau- Dr. Manfred Lennings, Chairman Gesellschaft mbH Wuppertal* Peter Rieck, Stellv. Chairman Kieler Wohnungsbaugesellschaft mbH* Rudolf Lutz MAAG Holding AG* Personnel Committee * WCM Group companies Detlef Bierbaum, Chairman Dr. Manfred Lennings, Deputy Chairman Rudolf Lutz 136 IVG Immobilien AG Board of Management Dr. Bernd Kottmann Portfolio Management Dr. Eckart John von Freyend Wachtberg-Pech Chief Executive Ofﬁcer Bad Honnef Notiﬁcation of seats on other supervisory boards as per Sec. 285 (10) of the German Notiﬁcation of seats on other supervisory Commercial Code: boards as per Sec. 285 (10) of the German Infopark Fejlesztési Rt.* Commercial Code: Gerling Konzern Lebensversicherungs AG Similar mandates: Infopark Fejlesztési Rt.* Bonn Kft.* IVG Immobilien Kapitalanlagegesellschaft IT Immobilien Beteiligungsgesellschaft mbH* mbH* Parizs 2000 Kft.* Oppenheim Immobilien-Kapitalanlagegesell- Polar Kiinteistöt Oyj, Helsinki* schaft mbH* TERCON Immobilien Projektentwicklungs SIBRA Beteiligungs AG (Chairman)* GmbH* Stodiek Europa Immobilien AG* (Chairman) * IVG Group companies UTH United Technologies Holding GmbH VNR Verlag für die Deutsche Wirtschaft AG Similar mandates: Dr. Dirk Matthey Bonn Kft.* Chief Financial Ofﬁcer HANNOVER HL Leasing GmbH & Co. KG Bonn-Bad Godesberg Parizs 2000 Kft.* Polar Kiinteistöt Oyj, Helsinki* (Chairman) Notiﬁcation of seats on other supervisory TERCON Immobilien Projektentwicklungs boards as per Sec. 285 (10) of the German GmbH* (Chairman) Commercial Code: SIBRA Beteiligungs AG* * IVG Group companies Stodiek Europa Immobilien AG* Similar mandates: HANNOVER HL Leasing GmbH & Co. KG Polar Kiinteistöt Oyj, Helsinki* TERCON Immobilien Projektentwicklungs Financial Statements Consolidated GmbH* * IVG Group companies 137 Annual report 2004 13. Board of Management declaration The Board of Management of IVG Immobilien AG is responsible for the preparation, completeness and integrity of the consolidated ﬁnancial statements, the Group Management Report and other information provided in the annual report. The consolidated ﬁnancial statements of the IVG Group are prepared in accordance with International Financial Reporting Standards (IFRS). The Group Management Report contains an analysis of the Group’s net asset position, ﬁnancial posi- tion and the results of its operations, and further disclosures required by the German Commercial Code (Sec. 315). An effective internal management and control system ensures the completeness and reliability of data for consolidated ﬁnancial statements and internal reporting. This includes Group-wide ﬁnancial report- ing directives, a risk management system as required by the German Control and Transparency Act (KonTraG), an integrated approach to ﬁnancial control as part of value-driven management, plus internal audits. The Board of Management is thus able to identify material risks at an early stage and to take timely action as needed. Bonn, 31 March 2005 Eckart John von Freyend Bernd Kottmann Dirk Matthey 138 IVG Immobilien AG Auditor’s Report »We have audited the consolidated ﬁnancial statements prepared by IVG Immobilien AG, Bonn, con- sisting of the balance sheet, the income statement and the statements of changes in equity and cash ﬂows as well as the notes to the ﬁnancial statements for the business year from 1 January to 31 De- cember 2004. The preparation and the contents of the consolidated ﬁnancial statements in accordance with the International Financial Reporting Standards of the IASB (IFRS) are the responsibility of the Company’s Board of Managing Directors. Our responsibility is to express an opinion, based on our audit, whether the consolidated ﬁnancial statements are in accordance with IFRS. We conducted our audit of the consolidated ﬁnancial statements in accordance with German auditing standards and generally accepted standards for the audit of ﬁnancial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland (IDW). Those standards require that we plan and perform the audit in such way as to obtain reasonable assurance about whether the consolidated ﬁnancial state- ments are free of material misstatements. Knowledge of the business activities and the economic and legal environment of the Group as well as evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated ﬁnancial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and signiﬁcant estimates made by the Board of Managing Directors, as well as evaluating the overall presentation of the consolidated ﬁnancial state- ments. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated ﬁnancial statements give a true and fair view of the net assets, ﬁnancial position, results of operations and cash ﬂows of the Group for the business year in accordance with IFRS. Our audit, which also extends to the group management report prepared by the Board of Managing Directors for the business year from 1 January to 31 December 2004 has not led to any reservations. In our opinion, on the whole the group management report, together with the other information of the consolidated ﬁnancial statements, provides a suitable understanding of the Group‘s position and suit- ably presents the risks of future development. In addition, we conﬁrm that the consolidated ﬁnancial statements and the group management report for the business year from 1 January to 31 December 2004 satisfy the conditions required for the Company‘s exemption from its duty to prepare consolidated ﬁnancial statements and the group management report in accordance with German accounting law.« Düsseldorf, 31 March 2005 Financial Statements PwC Deutsche Revision Aktiengesellschaft Consolidated Wirtschaftsprüfungsgesellschaft Brebeck Leifels (Wirtschaftsprüfer) (Wirtschaftsprüfer) 139 Annual report 2004 Table of the real estate portfolio Lettable IVG Form of Added/last Site area w/o parking share ownership refurbished Type of use 1,000 m2 1,000 m2 Berlin Spreespeicher, Stralauer Allee 1–2, Berlin 89% Leasehold 1995/2002 Offices 12.7 35.9 Joachimstaler Straße 1–3, Berlin 98% Freehold 2000/2003 Offices/hotel 1.8 6.6 Leibniz Kolonnaden, Walter-Benjamin-Platz 6, Leibnizstraße 53, Berlin *1 *2 50% Freehold 1996/2001 Offices/retail 7.6 12.7 Bundesallee 204–206, Berlin *3 95% Freehold 1998 Offices 7.5 19.2 Hafenplatz 6/7, Köthener Straße 29, Berlin 95% Freehold 1998 Other 12.1 16.5 Airport Center Schönefeld, Mittelstraße 5/5a, Berlin 100% Freehold 2001 Offices 14.0 11.8 Montanstraße 18–26, Berlin 100% Freehold 1948/1987 Comm./logistics 44.2 7.4 Other 512.8 98.4 Berlin total 612.7 208.5 Dresden 100% Freehold 1992/2003 Business park 192.0 34.6 Berlin Office total 804.7 243.1 Brussels North Gate, Bd. Roi Albert II, 6, 8 und 16, Brussels 100% Freehold 1998 Offices 9.4 56.0 Diegem, Rue Bessenveld 9, Brussels 94% Freehold 1998/2001 Offices 19.8 19.6 Pléiade A-C, Avenue des Pléiades 11–15–19, Brussels 100% Freehold 1999 Offices 8.0 14.7 Louise Village, Avenue Louise 29–31/ Rue Dejonker 34–36, Brussels 100% Freehold 1999 Offices 7.6 12.5 Tervuren Plaza, Rue Gribaumont 1, Brussels *3 100% Freehold 1999/2003 Offices 6.5 10.5 Twin House, Rue Neerveld 105, Brussels 100% Freehold 1999 Offices 4.1 9.3 Le Croissant, Avenue Beaulieu 24–26, Brussels 100% Freehold 1999 Offices 4.4 6.2 Place St. Lambert, Brussels 100% Freehold 1999 Offices 2.0 4.9 Chaussée de la Hulpe 154, Brussels 100% Freehold 1999 Offices 3.5 4.6 Oaktree, Dreve de Bonne Odeur 20, Brussels 100% Freehold 1999 Offices 4.7 3.6 Other *3 *12 48.5 83.3 Brussels/Amsterdam total 118.5 225.2 Ariane I-III, Route d‘Esch 400, Luxembourg 94% Freehold 1999 Offices 9.5 15.1 Thomas, Rue Thomas Edison 2, Luxembourg 100% Freehold 1999 Offices 6.4 5.8 Luxembourg total 15.9 20.9 Brussels Office total 134.4 246.1 Budapest Infopark Budapest, Infopark Sétány 1 and 3, Budapest 100% Leasehold 2003 Business park 31.2 16.9 Other 1.9 7.7 Budapest Office total 33.1 24.6 Düsseldorf IVG Businesspark am Flughafen, Heltorfer Straße 1–22, Düsseldorf 100% Freehold 1999 Business park 69.4 37.6 Gotic-Haus, Westfalendamm 94-100, Dortmund 100% Freehold 1995/2002 Offices 13.3 23.6 Stockholmer Allee 32, Dortmund 100% Freehold 2001 Offices 7.3 6.7 Fashion Plaza, Karl-Arnold-Platz 2, Düsseldorf 100% Freehold 1998 Offices 1.7 6.4 Businesspark Zapp Platz 1, Ratingen 100% Freehold Oct. 2004 Comm./logistics 62.7 26.1 Businesspark Bonner Straße, Neuss 100% Freehold Dec. 2004 Comm./logistics 71.0 34.1 Other *3 16.2 2.3 Düsseldorf Office total 241.6 136.8 Frankfurt Cargo City South, Building 554, Frankfurt Airport 100% Leasehold 1997/1999 Comm./logistics 17.7 11.7 Center am Ring, Otto-von-Guericke-Ring 13–15, Wiesbaden 100% Freehold 1993/2002 Offices 9.8 9.1 Kassel 100% Freehold Comm./logistics 167.6 48.5 Other 2,492.7 21.0 Frankfurt Office total 2,687.8*4 90.3 Hamburg IVG Businesspark Hamburg Nord, Essener Str. 89–99, Hamburg 100% Freehold 1948/2001 Business park 133.9 46.3 Habichtstraße 41, Hamburg 100% Freehold 1991/1995 Offices 3.0 6.7 Other 120.0 40.5 Hamburg total 256.9 93.5 Tank storage *7 100% Freehold 1962/2004 Logistics 228.0*9 Oil storage caverns, Beim Postweg 2, Friedeburg 100% Freehold*8 1972/2004 Logistics 12,800.0*9 Gas storage caverns, Beim Postweg 2, Friedeburg 100% Freehold*8 1993/1998 Logistics 4,500.0*6 Cavern/tank storage total *7 *12 Hamburg Office total Helsinki Vallilan yhtiöt, Helsinki 100% Freehold 2003 Offices 10.0 34.8 Vantaan Liikeskus (Jumbo), Vantaa *2 21% Freehold 2003 Retail 28.5 53.8 Sisustaja KOy, Vantaa 100% Freehold 2003 Retail 25.3 15.9 Pakkalan Kartanonkoski 3 KOy, Vantaa 100% Freehold 2003 Offices 9.5 7.8 Tapiontuuli KOy, Helsinki 100% Freehold 2003 Offices 3.1 6.9 Plaza Forte KOy, Vantaa 100% Freehold 2003 Offices 4.0 6.1 Vilhonkatu 5 KOy, Helsinki 100% Freehold 2003 Offices 1.6 5.8 Munkkiniemen liiketalo, Helsinki 100% Freehold 2003 Offices 6.0 6.7 Sörnäisten Rantatie 25 KOy, Helsinki 100% Freehold 2003 Offices 3.4 6.5 140 IVG Immobilien AG Develop- Income In-Building Effective Effective ment Market Invest- Rental forecast Cash flow parking Occupancy occupancy occupancy reserve value ment income*1 2005 *10 EBIT*10 Spaces at 31 Dec.*5 at 31 Dec.*5 Jan.–Dec. 1,000 m2 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 138 83.1% 83.0% 77.8% 502 3,462 3,589 677 4,737 100.0% 100.0% 100.0% 2,042 2,054 1,271 795 283 91.9% 92.9% 86.2% 1,215 1,295 1,548 1,548 291 100.0% 13.0 9 1,923 239 1,431 1,287 250 96.2% 95.8% 96.9% 1,065 1,013 693 624 143 81.0% 76.8% 80.9% 8.0 1,004 227 1,096 -200 609 100.0% 100.0% 100.0% 28.2 12 847 846 687 589 349 215.7 1,538 7,515 6,646 4,188 2,242 1,454 80.1% 84.8% 87.3% 264.9 311,172 3,065 18,296 16,778 10,295 12,431 6 76.0% 81.1% 78.8% 28.5 22,560 596 1,918 1,878 1,484 -270 1,460 79.4% 84.4% 86.3% 293.4 333,732 3,661 20,214 18,656 11,779 12,161 1,003 100.0% 100.0% 100.0% 16,692 16,988 16,215 14,707 480 100.0% 100.0% 99.9% 3,040 3,095 2,728 2,318 251 64.5% 66.5% 65.2% 1,455 1,224 403 -15 204 97.6% 99.7% 96.0% 1,874 1,869 919 670 159 6.0% 4.9% 5.4% 1,790 121 108 -519 -672 114 100.0% 100.0% 43.0% 739 1,004 -1,641 -1,621 133 100.0% 100.0% 100.0% 1,626 1,225 1,464 1,208 69 100.0% 100.0% 95.4% 569 130*13 96 4 72 100.0% 100.0% 100.0% 639 640 326 408 88 30.0% 41.8% 32.1% 189 191 -156 -255 2,571 30,662 5,340 7,949 3,710 2,247 5,144 91.0% 90.4% 87.7% 622,149 32,452 32,284 34,423 23,545 18,999 273 100.0% 100.0% 100.0% 24 3,763 3,830 3,487 2,813 250 51.2% 51.2% 64.2% 1,050 813 858 646 523 86.4% 85.5% 89.2% 76,850 24 4,813 4,643 4,345 3,459 5,667 90.6% 89.8% 87.9% 698,999 32,476 37,097 39,066 27,890 22,458 254 87.2% 88.3% 77.6% 32.2 2,560 2,300 2,436 1,701 1,345 400 1,213 1,460 920 704 254 90.4% 91.7% 81.5% 32.2 49,228 2,960 3,513 3,896 2,621 2,049 313 100.0% 100.0% 99.0% 36.0 5,474 5,122 4,605 3,500 413 92.8% 90.8% 86.0% 96 2,879 2,706 2,344 1,728 100.0% 100.0% 98.0% 924 849 818 640 66 92.1% 93.3% 92.8% 628 1,241 1,316 916 696 83 100.0% 100.0% 100.0% 5.0 17,435 151 1,169 143 87 100.0% 100.0% 100.0% 6.0 30,200 2,579 1 10.6 6,483 132 114 -52 -69 876 97.7% 96.4% 94.0% 57.6 231,087 54,842 10,801 13,855 8,774 6,582 100.0% 100.0% 100.0% 172 1,354 1,327 896 674 213 93.3% 96.7% 96.7% 1,386 904 1,213 -1,686 86.8% 91.2% 93.6% 39.0 185 2,829 2,679 2,419 1,477 395 1,166 1,525 445 298 213 92.2% 95.4% 96.8% 39.0 90,877 752 6,735 6,435 4,973 763 326 100.0% 100.0% 100.0% 74.0 428 5,040 5,008 4,267 2,713 124 79.8% 88.6% 93.1% 895 774 689 109 8 900 1,487 1,625 280 -138 458 97.5% 97.2% 94.5% 74.0 103,745 1,328 7,422 7,407 5,236 2,684 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 206,800 6,078 27,929 29,140 20,387 16,052 99.4% 98.8% 74.0 310,545 7,406 35,351 36,547 25,623 18,736 Financial Statements 91 100.0% 100.0% 100.0% 4,653 4,025 4,298 3,602 Consolidated 1,600 100.0% 100.0% 100.0% 28.4 1.083 3,900 3,900 3,158 2,220 100.0% 100.0% 100.0% 10.0 2,526 2,537 2,475 2,283 13 90.7% 95.8% 98.8% 1,247 1,156 941 767 100.0% 100.0% 100.0% 1,263 1,273 1,099 937 151 100.0% 100.0% 99.8% 1,316 1,411 1,108 796 40 96.1% 93.6% 92.3% 1,240 1,105 859 592 100.0% 100.0% 99.2% 1,205 1,247 990 793 60 89.2% 85.8% 97.6% 94 1,025 750 771 726 141 Annual report 2004 Table of the real estate portfolio Lettable IVG Form of Added/last Site area w/o parking share ownership refurbished Type of use 1,000 m2 1,000 m2 Helsinki Pasilanraitio 5 KOy, Helsinki 92% Leasehold 2003 Offices 2.1 7.7 Sinimäentie 10 KOy, Helsinki 77% Freehold 2003 Offices 23.4 12.6 Scifin Alfa KOy, Helsinki 100% Freehold 2003 Offices 7.8 5.3 Vuorikatu 20 KOy, Helsinki 100% Freehold 2003 Offices 1.7 6.7 Kutomotie 6 KOy, Helsinki 100% Freehold 2003 Offices 3.6 7.7 Malmin Kauppatie 8 KOy, Helsinki 100% Leasehold 2003 Offices 4.1 4.7 Kilon Helmi KOy, Helsinki 100% Freehold 2003 Offices 3.7 3.8 Pakkalan Kartanonkoski 12 KOy, Helsinki 100% Freehold 2003 Offices 4.0 3.3 Kornetintie 6 KOy, Helsinki 100% Leasehold 2003 Offices 2.0 3.3 Vanha Talvitie 11 KOy, Helsinki 100% Leasehold 2003 Offices 2.8 6.7 Satomalmi KOy, Helsinki 88% Freehold 2003 Offices 2.3 4.8 Kilon Timantti KOy, Helsinki 100% Freehold 2003 Offices 3.9 4.0 Teerikukonkuja 5 KOy, Helsinki 100% Leasehold 2003 Offices 8.8 4.1 Niittylänpolku 16 KOy, Helsinki 100% Freehold 2003 Offices 2.7 3.0 Lastupolku KOy, Helsinki 100% Freehold 2003 Offices 1.5 1.2 Helsingin Kirkonkyläntie 3 KOy, Helsinki 100% Freehold 2004 Offices 1.0 1.4 Helsingin Radiokatu 20 KOy, Helsinki 100% Leasehold 2004 Offices 7.4 11.8 Helsingin Kumpulantie 3 KOy, Helsinki 100% Freehold 2004 Offices 2.3 10.9 Espoon Asemakuja 2 KOy, Espoo 100% Freehold 2004 Offices 4.7 6.0 Niittmäenpolku KOy, Espoo 100% Freehold 2004 Offices 9.8 5.3 Ykkösseppä KOy, Helsinki 100% Leasehold 2004 Other 3.4 4.7 Kiiskinkatu 5 KOy, Helsinki 100% Leasehold 2004 Other 3.3 4.2 Helsingin Latokartanontie 7 KOy, Helsinki 100% Leasehold 2004 Offices 2.8 3.6 Helsingin Elimäenkatu 26 KOy, Helsinki 94% Freehold 2004 Offices 2.7 12.1 Other 72.0 66.6 Helsinki Office total 275.2 349.8 London 20 Soho Square, London 100% Freehold 1999/2003 Offices 1.1 5.6 20 St. James‘s Street, London 100% Leasehold 1999 Offices 0.8 5.1 Other *3 3.4 3.3 London Office total 5.3 14.0 Milan Piazzale Lodi 3, Milan 100% Freehold 2001 Offices 6.0 21.0 Palazzi Fermi & Galeno, Milan 3 94% Freehold 2000 Offices 5.9 15.8 Via Carducci 125, Sesto San Giovanni, Milan 94% Freehold 1999 Offices 1.5 9.4 Via Dione Cassio 13, Milan 94% Freehold 1999 Offices 7.0 9.0 Via Cascia 5, Milan 94% Freehold 2000 Offices 2.4 5.4 Via Gobetti 2, Cernusco sul Naviglio 100% Freehold 2001 Offices 4.7 7.3 Palazzo dei Cigni, Milan 3 94% Freehold 2000 Retail 4.8 2.7 Milan Office total 32.3 70.6 Munich Nordostpark Nuremberg, Nordostpark 1–98, Nuremberg 100% Freehold 1948/2003 Business park 241.9 118.4 IVG Businesspark Media Works Munich, Finance Rosenheimer Straße, Munich *11 100% leasing 1966/2004 Business park 60.3 103.1 IVG Businesspark vor München, Einsteinstraße, Ottobrunn 100% Freehold 1960/2003 Business park 742.1 73.1 Businesspark Dornach, Margaretha-Ley-Ring 1–14, Dornach 100% Freehold 1974/2001 Comm./logistics 30.7 29.8 Businesspark Puchheim, Benzstraße 11, Siemensstraße 4, Puchheim 95% Freehold 1977 Comm./logistics 43.7 21.9 Other 482.4 19.6 Munich Offeice total 1,601.1 365.9 Paris 7 Place Vendôme, Paris 100% Freehold 1999/2002 Offices 2.5 11.1 Rue d‘Aguesseau 121–123, Paris 94% Freehold 2000 Offices 3.0 9.9 21 Place de la Madeleine, Paris 100% Freehold 1997 Offices 0.7 2.7 Paris Office total 6.2 23.7 Other 120.0 131.1 Europe (except Germany) 606.5 859.9 Germany 5,592.1 929.6 IVG portfolio management 6,198.6 1,789.5 142 IVG Immobilien AG Develop- Income In-Building Effective Effective ment Market Invest- Rental forecast Cash flow parking Occupancy occupancy occupancy reserve value ment income*1 2005 *10 EBIT*10 Spaces at 31 Dec.*5 at 31 Dec.*5 Jan.–Dec. 1,000 m2 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 62 100.0% 100.0% 97.1% 18 1,049 1,103 654 486 8 88.9% 88.2% 82.3% 1,020 1,048 710 500 61 100.0% 100.0% 100.0% 944 944 822 750 13 100.0% 100.0% 100.0% 914 382 775 744 100.0% 100.0% 100.0% 60 713 704 516 449 100.0% 100.0% 100.0% 670 675 502 455 100.0% 100.0% 100.0% 650 612 518 445 86 100.0% 100.0% 100.0% 664 623 489 397 11 100.0% 100.0% 99.8% 500 353 332 247 82.1% 75.0% 69.3% 51 464 506 231 160 31 84.5% 70.3% 84.1% 450 457 199 138 92.3% 90.8% 70.0% 9.0 434 548 279 210 100.0% 100.0% 100.0% 395 338 258 225 26 100.0% 100.0% 100.0% 323 300 271 246 100.0% 100.0% 94.8% 129 132 71 55 13 93.7% 93.7% 95.1% 77 215 59 54 65 90.2% 88.1% 90.9% 508 1,451 279 249 45 100.0% 100.0% 100.0% 528 1,595 508 441 17 88.0% 88.0% 89.8% 290 923 191 174 46 100.0% 100.0% 100.0% 273 810 169 138 11 60.6% 60.6% 66.3% 92 292 49 41 44 100.0% 100.0% 100.0% 146 457 60 -117 4 100.0% 100.0% 94.2% 162 522 104 98 140 100.0% 100.0% 100.0% 606 1,867 590 547 1,328 38 5,355 5,473 4,461 3,613 3,966 93.9% 95.3% 96.0% 47.4 354,957 1,344 35,006 39,140 25,539 16,778 93.0% 95.5% 91.0% 2,431 2,643 987 1,555 100.0% 100.0% 86.3% 3,313 3,593 1,286 680 10,752 1,349 1,349 1,259 533 96.4% 98.1% 88.4% 180,989 10,752 7,093 7,585 3,532 2,768 150 100.0% 100.0% 100.0% 2,721 417*13 3,230 2,853 178 100.0% 100.0% 100.0% 2,022 1,800 1,840 1,551 115 62.4% 61.4% 71.1% 977 965 363 186 53 100.0% 100.0% 100.0% 904 881 732 625 40 100.0% 100.0% 100.0% 573 583 500 396 150 100.0% 100.0% 100.0% 726 722 648 546 100.0% 100.0% 100.0% 575 506 318 244 686 95.0% 94.5% 95.9% 129,800 8,498 5,874 7,631 6,401 1,146 87.7% 89.6% 93.5% 99.0 2,938 11,117 11,260 8,583 6,084 963 95.3% 96.9% 98.5% 43.0 950 10,508 9,990 606 579 5 97.5% 97.1% 97.0% 197.3 6,178 8,598 5,938 4,698 4,101 430 96.0% 93.0% 92.3% 19.0 35 3,033 2,145 2,589 2,154 100.0% 100.0% 95.0% 12.0 36 2,125 1,795 1,858 1,553 3 10 2,572 2,367 -242 -261 2,547 93.8% 94.6% 96.0% 370.3 486,169 10,147 37,953 33,495 18,092 14,210 100.0% 100.0% 100.0% 6,677 6,831 5,969 5,761 197 53.9% 49.2% 41.5% 1,259 1,562 235 -91 31 100.0% 100.0% 98.6% 2,117 2,069 1,966 1,666 228 80.7% 86.1% 83.9% 222,926 10,053 10,462 8,170 7,336 1,272 81.4% 88.1% 89.0% 195,017 6,700 14,239 14,514 11,414 9,567 12,073 90.4% 91.7% 90.2% 79.6 1,831,916 54,232 116,224 121,131 90,054 74,040 5,554 91.4% 94.6% 95.0% 834.3 1,452,410 76,808 111,054 108,988 69,241 52,452 17,627 90.9% 93.0% 92.5% 913.9 3,284,326 131,040 227,278 230,119 159,295 126,492 Financial Statements Consolidated *1 Non-consolidated *7 IVG share only *2 Stated amounts are IVG share of euro total *8 Partly held under trust for German government *3 Space (partly) in development *9 1,000 m3 *4 Excluding woodland (39 ha) *10 Excluding book gains/losses and net income from participating interests *5 Includes tenancies signed up to 31 Dec. 2004 *11 Entire property reincluded due to IFRS requirements *6 Geometrical volume in 1,000 m3; gas cavern storage capacity: *12 Including other revenues 500 million m3 working gas *13 Sold in 2005 143 Annual report 2004 Selected consolidated major shareholdings4 as at 31 December 2004 Group Shareholders‘ Net share equity income (%) Country (€ ‘000) (€ ‘000) I. Affiliated, consolidated companies actioplus KG K. u. K. Grundverwaltungs GmbH & Co., Berlin 16.25 Germany 35,201 -667 3, Ada SA, Brussels 100.00 Belgium 7,966 332 Aranäs International NV, Amsterdam 100.00 Netherlands 23,430 360 Asticus (Marlborough) Ltd, London 100.00 UK 0 -294 Asticus AB, Göteburg 100.00 Sweden 143,441 15,704 Asticus Belgium II SA, Brussels 100.00 Belgium 524,413 -76 Asticus Belgium SA, Brussels 100.00 Belgium 395,522 -68 Asticus International AB, Göteborg 100.00 Sweden 76,018 344 Batipromo SA, Brussels 100.00 Belgium 119,592 41,658 Beaulieu SPV SA, Brussels 100.00 Belgium -993 -233 Beeda SA, Brussels 100.00 Belgium 5,898 215 Bolet SA, Brussels 100.00 Belgium -3,602 -306 Bonn Kft., Budapest 100.00 Hungary 1,039 -231 Bonne Odeur SA, Brussels 100.00 Belgium 32,832 756 Bosquet Immobilière SA, Brussels 100.00 Belgium 47,036 1,776 BOTAGRUND Verwaltungs GmbH, Bonn 100.00 Germany 1,471 101 BURG Grundstücksverwaltung GmbH & Co. Ristamos KG, Berlin 94.59 Germany -4,366 1,129 Bürohaus Schönefeld GRISO Verwaltungsgesellschaft mbH & Co. KG, Munich 100.00 Germany -3,473 351 Cie Foncière De Bassano, Paris 100.00 France -3,083 -302 Cabrera SA, Luxembourg 100.00 Luxembourg -9,072 -399 Ceda SA, Brussels 100.00 Belgium 5,912 215 Edison SA, Luxembourg 100.00 Luxembourg -1,517 -54 Espoon Asmakuja 2 Koy, Espoo 100.00 Finland 3,456 -108 FORSET Verwaltungsgesellschaft mbH & Co. Vermietungs KG, Munich 99.14 Germany -731 -756 FvH Grundstücksverwaltungs-GmbH & Co. Hardenbergstraße 26 KG, Berlin 98.13 Germany 4,507 973 Gertrud SA, Brussels 100.00 Belgium 26,264 394 Groenhoek SA, Brussels 100.00 Belgium 26,034 916 Hibou SA, Brussels 100.00 Belgium 56,994 1,352 IHC Immobilien AG, Luxembourg 100.00 Luxembourg 641 89 Immobilière Groenveld SA, Brussels 100.00 Belgium 10,318 503 Infopark B Épitési Terület Kft., Budapest 100.00 Hungary 5,929 479 Infopark Fejlesztesi RT, Budapest 100.00 Hungary 15,517 -638 Infopark I Épitési Terület Kft., Budapest 100.00 Hungary 4,771 288 ING Leasing GmbH & Co Delta oHG, Oststeinbek 99.00 Germany -691 11,032 IVG Schönefeld Mittelstraße GmbH & Co KG, Berlin 100.00 Germany 6,773 -227 IVG Asticus (Caxton) Ltd., London 100.00 UK 26,398 557 IVG Asticus (GMS) Ltd, London 100.00 UK 23,675 1,358 IVG Asticus (Lombard) Ltd., London 100.00 UK 2,899 -61 IVG Asticus Real Estate Ltd., London 100.00 UK 67,492 2,570 IVG Beteiligungs GmbH, Bonn 100.00 UK 30,040 -81 IVG Brussels SA, Brussels 100.00 Belgium 117,299 6,278 IVG Businesspark Media Works Munich I GmbH & Co. KG, Munich 100.00 Germany 4,732 -87 IVG Businesspark Media Works Munich II GmbH & Co. KG, Munich 100.00 Germany 14,125 -528 IVG Businesspark Micropolis Ost Grundstücks GmbH & Co. KG, Dresden 100.00 Germany 2,082 128 144 IVG Immobilien AG Selected consolidated major shareholdings4 as at 31 December 2004 (continued) Group Shareholders‘ Net share equity income (%) Country (€ ‘000) (€ ‘000) IVG Businesspark Micropolis Ost Verwaltungs GmbH & Co. KG, Dresden 100.00 Germany 3,853 -4,127 IVG Businesspark vor München I GmbH & Co. KG, Munich 100.00 Germany 11,539 -5,052 IVG Businesspark vor München II GmbH & Co. KG, Munich 100.00 Germany 23,855 -368 IVG Businesspark vor München III GmbH & Co. KG, Munich 100.00 Germany 6,591 -98 IVG Businesspark vor München IV GmbH & Co. KG, Munich 100.00 Germany 826 -7,568 IVG Businesspark vor München V GmbH & Co. KG, Munich 100.00 Germany 13,160 -1,201 IVG European Properties AB, Göteburg 100.00 Sweden 18,671 9,734 IVG European Real Estate SA, Brussels 100.00 Belgium 70,413 2,687 IVG Hungária Ingatlanfejlesztesi Kft., Budapest 100.00 Hungary 3,300 250 IVG Immobilien GmbH & Co. Berlin VIII – Objekt Neue Spreespeicher Cuvryhof-KG, Berlin 100.00 Germany 520 -176 IVG Immobilien GmbH & Co. Bonn VII – Objekt Dortmund Stockholmer Allee-KG, Bonn 100.00 Germany 337 778 IVG Immobilien GmbH & Co. Bonn X – Objekt Wiesbaden-KG, Bonn 100.00 Germany 35 1,006 IVG Immobilien GmbH & Co. Bonn XI – Objekt Frankfurt/Flughafen-KG, Bonn 100.00 Germany 51 652 IVG Immobilien GmbH & Co. Bonn XII – Objekt Dortmund, Westfalendamm-KG, Bonn 100.00 Germany 34,345 834 IVG Immobilien GmbH & Co. Bonn XIII – Objekt Düsseldorf- Karl-Arnold-Platz KG, Bonn 100.00 Germany 51 856 IVG Immobilien GmbH & Co. Bonn XIV – Objekt Heltorfer Strasse-KG, Bonn 100.00 Germany 3,528 -202 IVG Immobilienfonds GmbH, Bonn 100.00 Germany 3,421 1,169 IVG Immobiliere SAS, Paris 100.00 France 115,359 1,176 IVG InfoTec GmbH & Co. KG, Bonn 100.00 Germany 3,586 514 IVG Italia S.r.l., Mailand 100.00 Italy 10,001 317 IVG Kapitalanlagegesellschaft mbH, Bonn 100.00 Germany 3,567 -801 IVG Logistik GmbH, Bonn 100.00 Germany 100,196 10,316 IVG Management gmbH & Co. Berlin IX – Objekt Wohnpark Lückstraße-KG, Berlin 100.00 Germany 5,976 -2,424 IVG Management GmbH & Co. Bonn XV – Objekt Zanderstr.1 und 3-KG, Bonn 100.00 Germany 108 -35 IVG Management GmbH & Co. KG Liebenau X – Objekt Hessisch Lichtenau-KG, Liebenau 100.00 Germany -550 -21 IVG Management GmbH & Co. Liebenau – Objekt Lippoldsberg-KG, Liebenau 100.00 Germany 43 146 IVG Management GmbH & Co. Liebenau IX – Objekt Clausthal-KG, Liebenau 100.00 Germany 41 -97 IVG Management GmbH & Co. Liebenau VIII – Objekt Bomlitz-KG, Liebenau 100.00 Germany 774 221 IVG Management GmbH & Co. Liebenau XII – Objekt Fienerode-KG, Liebenau 100.00 Germany 1,638 30 IVG Management GmbH, Bonn 100.00 Germany 49,531 -21,516 Financial Statements IVG Media Works Munich Vermietgesellschaft mbH, Munich 100.00 Germany 219 902 Consolidated IVG Nordostpark I GmbH & Co. KG, Munich 100.00 Germany 2,941 1 IVG Nordostpark II GmbH & Co. KG, Munich 100.00 Germany 5,000 213 IVG Nordostpark III GmbH & Co. KG, Munich 100.00 Germany 3,677 260 IVG Nordostpark IV GmbH & Co. KG, Munich 100.00 Germany 3,212 62 IVG Nordostpark V GmbH & Co. KG, Munich 7.45 Germany 12,527 480 IVG Objekt Museumsmeile Bonn GmbH, Bonn 100.00 Germany 132 85 145 Annual report 2004 Selected consolidated major shareholdings4 as at 31 December 2004 (continued) Group Shareholders‘ Net share equity income (%) Country (€ ‘000) (€ ‘000) IVG Real Estate Belgium, Brussels 100.00 Belgium 69,871 -2,529 IVG Real Estate Stockholm AB, Göteborg 100.00 Sweden 764 250 IVG Schienenfahrzeuge GmbH & Co Güterwagen KG, Bonn 100.00 Germany 2,550 73 IVG Schienenfahrzeuge GmbH & Co Kesselwagen KG, Bonn 100.00 Germany 1,022 64 IVG Service GmbH & Co. Berlin– Objekt Großziethen-KG, Bonn 100.00 Germany 3,867 -133 IVG Service GmbH & Co. Berlin– Objekt Potsdam-KG, Bonn 100.00 Germany 3,850 -1,143 IVG Service GmbH & Co. Berlin– Objekt Teltow-KG, Bonn 100.00 Germany 4,840 -159 IVG Spree-Speicher GmbH & Co. KG, Berlin 88.64 Germany 6,718 -4,008 IVG Tanklager Silesia, Radzionków 100.00 Poland 5,641 3,349 IVG-Immobilien-GmbH & Co. Berlin II – Objekt Streitstraße-KG, Berlin 100.00 Germany 3,673 -4,003 IVG-Immobilien-GmbH & Co. Berlin IV – Objekt Montanstraße-KG, Berlin 100.00 Germany 1,130 585 IVG-Immobilien-GmbH & Co. Berlin V – Objekt Freiheit-KG, Berlin 100.00 Germany 294 419 IVG-Immobilien-GmbH & Co. Berlin VII – Objekt Haller-/Morsestraße-KG, Berlin 100.00 Germany 10,536 -2,879 IVG-Immobilien-GmbH & Co. Bonn I – Objekt Zandersraße-KG, Bonn 5.98 Germany 16,072 1,081 IVG-Immobilien-GmbH & Co. Bonn II – Objekt Bad Godesberg-KG, Bonn 100.00 Germany 372 -18 IVG-Immobilien-GmbH & Co. Bonn V – Objekt Homburg/Saar-KG, Bonn 100.00 Germany -5 -32 IVG-Immobilien-GmbH & Co. Bonn VI – Objekt Düsseldorf Grafenberg-KG, Bonn 100.00 Germany 8,746 3,384 IVG-Immobilien-GmbH & Co. Bonn VI – Objekt Düsseldorf Hohenzollernwerk-KG, Bonn 100.00 Germany -113 -22 IVG-Immobilien-GmbH & Co. Dresden I – Objekt Klotzsche West-KG, Dresden 100.00 Germany 2,909 -4,057 IVG-Immobilien-GmbH & Co. Dresden II – Objekt Klotzsche Ost-KG, Dresden 100.00 Germany 192 33 IVG-Immobilien-GmbH & Co. Hamburg I – Objekt Essener Str.-KG, Hamburg 100.00 Germany 4,729 1,652 IVG-Immobilien-GmbH & Co. Hamburg II – Objekt Tarpen-KG, Hamburg 100.00 Germany -130 -636 IVG-Immobilien-GmbH & Co. Hamburg V – Objekt Habichtstr.-KG, Hamburg 100.00 Germany 6,953 213 IVG-Immobilien-GmbH & Co. Kassel IX – Objekt Waldau KG-KG, Kassel 100.00 Germany 3,032 857 IVG-Immobilien-GmbH & Co. Kassel VII – Objekt Hannover-, Kassel 100.00 Germany 2,824 -788 IVG-Immobilien-GmbH & Co. Kassel VIII – Objekt Fuldabrück-Ostring-KG, Kassel 100.00 Germany 1,433 453 IVG-Immobilien-GmbH & Co. Kassel X – Objekt Lohfelden, Otto-Hahn-Straße-KG, Kassel 100.00 Germany 5,430 2,790 IVG-Immobilien-GmbH & Co. Kassel XI – Objekt Lohfelden, Forstbachweg-KG, Kassel 100.00 Germany 2,022 84 IVG-Immobilien-GmbH & Co. Kassel XII – Objekt Fuldabrück, Industrie-/Crumbacher Straße-KG, Kassel 100.00 Germany 3,107 493 IVG-Immobilien-GmbH & Co. Kassel XIII – Objekt Falderbaumstr.-KG, Kassel 100.00 Germany 772 -19 146 IVG Immobilien AG Selected consolidated major shareholdings4 as at 31 December 2004 (continued) Group Shareholders‘ Net share equity income (%) Country (€ ‘000) (€ ‘000) IVG-Immobilien-GmbH & Co. Liebenau II – Objekt Dörverden-, Liebenau 100.00 Germany 42 -60 IVG-Immobilien-GmbH & Co. Liebenau III – Objekt Liebenau-KG, Liebenau 100.00 Germany 1,198 265 IVG-Immobilien-GmbH & Co. Liebenau IV – Objekt Dragahn-KG, Liebenau 100.00 Germany -154 38 IVG-Immobilien-GmbH & Co. Liebenau V – Objekt Bremen Blumenthal-KG, Liebenau 100.00 Germany -127 -1 IVG-Immobilien-GmbH & Co. Liebenau VI – Objekt Leese-KG, Liebenau 100.00 Germany 59 -22 IVG-Immobilien-GmbH & Co. München II – Objekt Unterpfaffenhofen-KG, Munich 100.00 Germany 157 286 IVG-Immobilien-GmbH & Co. München III – Objekt Ottobrunn-KG, Munich 100.00 Germany 15,505 2,148 IVG-Immobilien-GmbH & Co. München IV – Objekt Dornach-KG, Munich 100.00 Germany 3,000 2,111 IVG-Immobilien-GmbH & Co. München VI – Objekt Puchheim-KG, Munich 94.98 Germany 4,406 1,432 IVG-Immobilien-GmbH & Co. München VIII – Objekt Rosenheimer/Anzinger Straße-KG, Munich 100.00 Germany 1,000 2,168 IVG-Immobilien-GmbH & Co. München X – Objekt Nürnberg-KG, Munich 100.00 Germany 26,523 4,231 IVG-Immobilien-GmbH & Co. München XII – Objekt Rosenheim-KG, Munich 100.00 Germany 1,270 50 Johs. Uckermann GmbH & Co. Grundstücksentwicklung KG, Bonn 92.50 Germany 2,005 -273 Kobben SA, Brussels 100.00 Belgium 88,156 898 Kolla SA, Brussels 100.00 Belgium 25,245 887 Korpen SA, Brussels 100.00 Belgium 221,568 4,403 LICITUS Grundstücks-Vermietungsgesellschaft mbH & Co. – Objekt Schrobenhausen KG, Düsseldorf 99.00 Germany 1,821 335 Madou Plaza SA, Brussels 100.00 Belgium 16,487 -2,761 MMD Bauträgergesellschaft mbH, Bonn 100.00 Germany 961 -27 Morella SA, Luxembourg 100.00 Luxembourg -7,535 -331 Nordbahnhof Berlin Grundstücksgesellschaft GbR, Berlin 66.40 Germany -12,192 -5,775 Oppenheim Immobilien Kapitalanlagegesellschaft mbH, Wiesbaden 50.10 Germany 22,433 13,318 Oppenheim Immobilier France S.A.S. , Paris 50.10 France 324 108 Oppenheim Property Fund Management Ltd. , London 50.10 UK 88 274 Oppenheim Property Services B.V. Utrecht Niederlande, Amsterdam 50.10 Netherlands 289 699 Párizs 2000 Kft., Budapest 100.00 Hungary 3,825 538 PMG: Property Management Gesellschaft mbH, Wiesbaden 50.10 Germany 102 3 Polar Kiinteistöt Oyj, Helsinki 100.00 Finland 236,994 35,000 Praten SA, Brussels 100.00 Belgium 2,399 -363 Financial Statements Property Security Belgium SA, Brussels 94.43 Belgium 14,550 1,135 Consolidated Sanara SA, Luxembourg 100.00 Luxembourg 3,701 -108 SCI 121/123 Rue d‘ Aguesseau, Paris 94.43 France -984 -1,521 Slot SA, Brussels 100.00 Belgium 15,142 317 Société Immobilière de la place de la Madeleine S.A.S, Paris 100.00 France 5,103 397 Spannen SA, Brussels 100.00 Belgium 64,803 -43 147 Annual report 2004 Selected consolidated major shareholdings4 as at 31 December 2004 (continued) Group Shareholders‘ Net share equity income (%) Country (€ ‘000) (€ ‘000) Spoor SA, Brussels 100.00 Belgium 8,294 -151 Stockned Holding BV, Amsterdam 100.00 Niederlande 60,144 0 Stodiek Ariane I S.A., Luxembourg 94.43 Luxembourg 1,852 -103 Stodiek Ariane II S.A., Luxembourg 94.43 Luxembourg 1,533 -150 Stodiek Ariane III S.A., Luxembourg 94.43 Luxembourg 1,353 -132 Stodiek ESPANA S.A., Madrid 94.43 Spain 10,748 577 Stodiek Europa Immobilien AG, Bonn 94.43 Germany 94,201 5,806 Stodiek France SAS, Paris 94.43 France -2,702 -681 Stodiek Immobiliare S.r.l., Milan 93.50 Italy 5,584 164 Stodiek Immobilien GmbH & Co. – Objekt München I-KG, Munich 94.43 Germany -1,381 -1,432 Stodiek Inmobiliaria, S.A., Madrid 94.43 Spain 4,283 -601 Stodiek Italia S.r.l., Milan 93.50 Italy 3,868 -299 Stodiek Lisboa - Promocao e Construcao de Imóveis, S.A., Lisbon 94.43 Portugal 657 229 Stodiek Portugal - Sociedade Imobiliaria, S.A., Lisbon 94.43 Portugal 657 229 Stodiek Wohnpark Kaarst GmbH & Co. KG, Bonn 94.43 Germany -202 187 Svanen SA, Brussels 100.00 Belgium -1,212 -2,311 Tardis Verwaltungsgesellschaft mbH & Co. Vermietungs KG, Munich 0.01 Germany 1 0 Tercon Bau GmbH Projektentwicklung, Jena 83.00 Germany -2,950 1,191 TERCON Immobilien Projektentwicklungs- gesellschaft mbH, Munich 83.00 Germany 8,654 1,314 Valen SA, Brussels 100.00 Belgium 135,917 4,330 Vantaanportin Liiketilat Oyj, Vantaa 60.00 Finland 7,659 -7 XXTRA Liegenschaften GmbH & Co. KG, Nuremberg 94.70 Germany 9,731 753 Zesmeer SA, Brussels 100.00 Belgium 40,759 1,669 II. Associated companies (accounted for using the equity method) AIRRAIL Center Frankfurt Verwaltungsgesellschaft mbH & Co. Vermietungs KG, Frankfurt 40.64 Germany 7,250 -2,095 CI Projektmanagement GmbH, Cologne 50.00 Germany 998 483 3 FDV II Venture S.A., Luxembourg 33.31 Luxembourg -884 -2,400 FDV Venture S.A., Luxembourg 30.00 Luxembourg 29,414 32,730 Fernleitungs-Betriebsgesellschaft mbH, Bonn 49.00 Germany 463 3 1 GELFOND Verwaltungsgesellschaft mbH & Co. Frankfurt-Niederrad Besitz KG, Berlin 48.30 Germany -4,250 -684 Grundbesitz Investitionsgesellschaft Leibniz-Kolonnaden mbH & Co. KG, Berlin 50.00 Germany -3,842 252 HANNOVER HL Leasing GmbH & Co. KG, Munich 25.00 Germany 2 Hannover HL Leasing Verwaltungs-GmbH, Munich 25.00 Germany 2 HIPPON Verwaltungsgesellschaft mbH & Co. Salzufer I Vermietungs KG, Munich 48.73 Germany -1,532 -2,289 HIPPON Verwaltungsgesellschaft mbH & Co. Salzufer II Vermietungs KG, Munich 48.73 Germany 2,585 429 LOG 1 S.C.A.( Axa Logistik Fonds), Luxembourg 50.00 Luxembourg Progetto Marelli S.r.l, Milan 45.00 Italy -655 -744 spirit at stadium GmbH & Co. Liegenschafts KG, Deisenhofen 41.50 Germany 20 -9 3 1 At and for the year to 31 December 2003 2 Undisclosed under Sec. 286 (3) 2, Commercial Code (HGB) 3 Unaudited, at and for the year to 31 December 2004 4 Complete list of shareholdings deposited with Commercial Registry 148 IVG Immobilien AG Advisory Committee Wolfgang Egger Chairman of the Board of Management, Pa- Dr. Klaus Asche trizia Immobilien AG; Advisory Committee Member of the Board of Directors, Member for Munich ZEIT-Stiftung; Advisory Committee Member for Hamburg Dr. Dierk Ernst Managing Partner, Hannover Leasing GmbH Hermann Aukamp & Co. KG; Advisory Committee Member for Head of Department, Nordrheinische Ärzte- Bonn versorgung; Advisory Committee Member for Bonn Dipl.-Volkswirt Wolfgang Fink Chairman of the Management Board, Allianz Dr. Ralf Bethke Immobilien GmbH; Advisory Committee Mem- Chairman of the Board of Executive Directors, ber for Bonn K + S Aktiengesellschaft; Advisory Committee Member for Frankfurt/Kassel Dr. Roland Fleck Nonelected councillor and Deputy Mayor for Dr. Gerold Bezzenberger Economic Affairs, City of Nuremberg; Advisory Lawyer and notary; Advisory Committee Committee Member for Munich Member for Berlin Dr. Christoph Franz Dr. Georg Brodach President and CEO, Swiss International Air Senior Vice President ABB Europe Ltd.; Lines AG; Advisory Committee Member for Advisory Committee Member for Brussels Berlin Dirk van der Broeck Michael F. Gaul Partner and Managing Director, Petercam Bank; Chairman NATO Budget Committees, NATO Advisory Committee Member for Brussels Headquarters; Advisory Committee Member for Brussels Denis Buisseret Secretary General, Ahlers N.V.; Advisory Com- Werner Gegenbauer mittee Member for Brussels Managing Partner, GegenbauerBosse Holding GmbH & Co. KG; Advisory Committee Mem- Karl-Hans Caprano ber for Berlin Managing Director, Technoform Caprano + Brunnhofer GmbH & Co. KG; Advisory Dr. Joachim Grünewald Committee Member for Frankfurt/Kassel Retired Parliamentary State Secretary; Advi- Financial Statements sory Committee Member for Bonn Consolidated Dr. Karl-Joachim Dreyer Chairman of the Board of Managing Directors, Dr. Gert Haller Hamburger Sparkasse; Advisory Committee Retired State Secretary, Chairman of the Member for Hamburg Management Board, Wüstenrot + Württem- bergische AG; Advisory Committee Member for Bonn 149 Annual report 2004 Dr. Volker Hassemer Thies J. Korsmeier Member of the Berlin Landtag, former Former Member of the Board of Management, Managing Director, Partner für Berlin – Deutsche Shell AG, Gesellschaft für Hauptstadtmarketing mbH; Chairman of the Board, Verband Schmierstoff- Advisory Committee Member for Berlin Industrie e.V.; Advisory Committee Member for Hamburg Jochen Herwig Member of the Board of Management, LVM Dr. Heinrich Kraft Landwirtschaftlicher Versicherungsverein Chairman of the Advisory Board, ECE Projekt- Münster a.G.; Advisory Committee Member management GmbH; Advisory Committee for Bonn Member for Hamburg Heinrich Hildesheim Michael A. Kremer Chairman of the Managing Board, Deutsche Chairman of the Managing Board, DB Real Post Immobilienentwicklung GmbH; Advisory Estate Management GmbH; Advisory Commit- Committee Member for Bonn tee Member for Bonn Daniel F. Just Jan-Hendrik Kulp Member of the Board of Management, Former CFO, UPM-Kymmene Group; Bayerische Versorgungskammer; Advisory Member of the Board, Polar Committee Member for Munich Dr. Thomas Kurze Dr. Karl Kauermann Chairman of the Advisory Board of VBV Ver- Chairman of the Board of Management, mögens-Beratungs- und Verwaltungsgesell- Berliner Volksbank eG; Advisory Committee schaft mbH; Advisory Committee Member for Member for Berlin Berlin Dr. Wolf Klinz Jorma Laakkonen Member of the European Parliament; Former Senior Executive, Nordea Bank; Advisory Committee Member for Brussels Member of the Board, Polar Peter Kobiela Klaus Laminet Member of the Board of Managing Direc- Managing Partner, INVESTA Projektentwick- tors, Landesbank Hessen-Thüringen; Advisory lungs- und Verwaltungs-GmbH; Advisory Committee Member for Frankfurt/Kassel Committee Member for Munich Günter Koller Prof. Dr. Kurt J. Lauk Managing Director, Wilhelm von Finck Haupt- Member of the European Parliament; verwaltung GmbH; Advisory Committee Mem- President, Wirtschaftsrat der CDU e.V.; ber for Tercon Advisory Committee Member for Brussels 150 IVG Immobilien AG Dr. Joachim Lemppenau Dr. Gerhard Niesslein Chief Executive Ofﬁcer, Volksfürsorge Chairman of the Managing Board, Versicherungsgruppe; Advisory Committee DeTeImmobilien Deutsche Telekom Member for Hamburg Immobilien und Service GmbH; Advisory Committee Member for Bonn Georg Lewandowski Former Lord Mayor of the City of Kassel; Advi- Dr. Claus Nolting sory Committee Member for Frankfurt/Kassel Senior Advisor, Cerberus Deutschland GmbH; Advisory Committee Member for Bonn Dr. Walter Lohmeier Chief Executive Manager, Kassel Chamber of Lars G. Öberg Industry and Commerce; Advisory Committee Chairman of the Board, AB Rännilen; Member for Frankfurt/Kassel Advisory Committee Member for Bonn Dr. Johannes Ludewig Dr. Andreas Odefey Executive Director, Community of European Managing Partner, BPE Private Equity Railway and Infrastructure Companies (CER); G.m.b.H.; Advisory Committee Member for retired State Secretary; Advisory Committee Hamburg Member for Brussels Dr. Jens Odewald Dr. Klaus Lukas Chairman of the Administrative Board, Chairman of the Executive Board, Kasseler Odewald & Compagnie GmbH; Sparkasse; Advisory Committee Member for Advisory Committee Member for Berlin Frankfurt/Kassel Dr. Karl Ohl Dr. Lothar de Maizière Lawyer; Advisory Committee Member for Former Prime Minister, lawyer; Bonn Advisory Committee Member for Berlin Nick J.M. van Ommen Paul Marcuse Chief Executive Ofﬁcer, EPRA European Public Chief Executive Ofﬁcer, AXA Real Estate Real Estate Association; Advisory Committee Investment Managers Limited; Advisory Member for Bonn Committee Member for Bonn Paul Orchard-Lisle Dr. Werner Martin Former Chairman and CEO, Healey & Baker Lawyer; Advisory Committee Member for Investment Advisors, Cushman & Wakeﬁeld; Berlin Advisory Committee Member for Bonn Financial Statements Consolidated Dr. Lutz Mellinger Friedrich Wilhelm Patt Former Member of the Corporates and Real Managing Partner, Hannover Leasing GmbH Estate Group Divisional Executive, Deutsche & Co. KG; Advisory Committee Member for Bank AG; Advisory Committee Member for Tercon Munich 151 Annual report 2004 Dr. Klaus Rauscher Dr. Jean-Pierre Staelens Chairman of the Management Board, Chairman of the Board of Directors, Vattenfall Europe AG; Advisory Committee CETIM S.A.; Advisory Committee Member for Member for Berlin Brussels Dr. Klaus Riebschläger Dr. Klaus Trescher Former Finance Senator, lawyer; Member of the Board of Management, TMW Advisory Committee Member for Berlin Property Funds AG; Advisory Committee Member for Munich Dr. Jochen Scharpe Chairman of the Supervisory Board, Thilo von Trott zu Solz GSW Gemeinnützige Siedlungs- und Chief Executive, Wirtschaftsförderung Region Wohnungsbaugesellschaft Berlin mbH; Kassel GmbH; Advisory Committee Member Advisory Committee Member for Tercon for Frankfurt/Kassel Dr. Udo Schlitzberger Dr. Henning Voscherau Chief Executive of the Council of the Adminis- Notary, retired Mayor and President of the trative District of Kassel; Advisory Committee Senate of the Free Hansa City of Hamburg; Member for Frankfurt/Kassel Advisory Committee Member for Hamburg Alfred Schmidt Dr. Theo Waigel Retired Minister of State; Advisory Committee Lawyer and former Federal Minister of Member for Frankfurt/Kassel Finance; Advisory Committee Member for Munich Dr. Manfred Schmidt Chairman of the Supervisory Board, Claus Wisser Philips GmbH; Advisory Committee Member Member of the Supervisory Board, AVECO for Hamburg Holding AG; Advisory Committee Member for Tercon Prof. Dr. Karl-Werner Schulte Head of Department, ebs European Business Eckhard Ziegert School; Advisory Committee Member for Former Member of the Board of Management, Bonn Esso AG; Advisory Committee Member for Hamburg Erich K. Schulthess Chairman of the Board of Management, Professor Josef Zimmermann (Dr.-Ing.) Schulthess Holding AG; Advisory Committee Ordinary professor of construction process Member for Tercon management, Technical University of Munich Klaus-Werner Sebbel Managing Partner, Inventis GmbH & Co. KG; Advisory Committee Member for Munich 152 IVG Immobilien AG Financial calendar 13 April 2005 Analysts’ conference on the 2004 annual report and ﬁnancial statements 13 April 2005 Press conference on the 2004 annual report and ﬁnancial statements 12 May 2005 Publication of interim report, 1 January–31 March 2005 31 May 2005 Annual general meeting for the 2004 ﬁnancial year 11 August 2005 Publication of interim report, 1 January–30 June 2005 15 November 2005 Publication of interim report, 1 January–30 September 2005 15 November 2005 Analysts’ conference on the interim report for the year to 30 September 2005 15 November 2005 Press conference on the interim report for the year to 30 September 2005 30 May 2006 Annual general meeting for the 2005 ﬁscal year Financial Statements Consolidated 153 Annual report 2004 Glossary Asset management EBD Management of major domestical and interna- Earnings before depreciation. tional institutional asset portfolios. EBIT Authorized capital Earnings before interest and taxes. Authorization to increase capital, e.g. for neces- sary short-term ﬁnance, approved by resolution EBITD of the Annual General Meeting and written into Earnings before interest, taxes and deprecia- the Articles of Association. tion. Business park Equity ratio (at book values) Large site designed to accommodate business Ratio of equity to total assets. For the ratio at enterprises, generally comprising several build- book values, net income available for distribu- ings and suited to use by enterprises in a range tion is deducted from equity. This equity ﬁgure of different industries. is divided by total book capital (equity plus bor- rowings, the latter being carried net in liabili- Caverns ties). Subterranean cavities created in salt domes to store petroleum and natural gas. Equity ratio (at market values) The equity ratio at market value includes unreal- Closed-end investment fund ized gains (the difference between market val- An investment fund in which the assets invest- ues and book values). ed in and the sum invested are set in advance, thus limiting the total number of shares. IFRS (International Financial Reporting Standards) Contingent capital International ﬁnancial reporting standards re- Authorization to increase capital, e.g. by issuing placing national standards for listed groups of convertible and/or warrant-linked bonds, writ- companies in the EU from 2005 and thus im- ten into the Articles of Association by resolu- proving the comparability of corporate ﬁnancial tion of the Annual General Meeting. reporting. Corporate governance LTI plan Responsible corporate management and con- Long-term incentive plan under which the trol geared to long-term value creation. Board of Management, divisional executives and other managerial employees receive share options as an incentive-based remuneration component. 154 IVG Immobilien AG Lucky buy Project development When in a business takeover the cost of acqui- Management of major real estate projects, in sition is less than the fair value of the acquired some cases from the initial idea to live opera- share of net assets at the acquisition date, the tion. difference is reported in income under IFRS and is referred to as a lucky buy. REIT (real estate investment trust) Usually listed real estate company which is tax- Market capitalization transparent, i.e. rather than the company pay- The stock market value of a company (share ing corporate tax, proﬁts are taxed after distri- price x number of shares). bution to shareholders. Net asset value (NAV) Road show Group assets at market prices less liabilities, Series of corporate presentations made to insti- equal to economic equity. tutional investors. Open-end investment fund Squeeze-out Real estate investment vehicle with no limita- Process by which majority shareholders are tion on the investment sum, duration or number allowed to take over shareholdings remaining of shares issued. with small investors for cash. Permitted in Ger- many for majority shareholdings of 95% and Operating earnings above. Earnings from operating activities, derived from net income before tax by eliminating net inter- Share options est and investment income and exceptional Options to purchase shares, primarily as a form items and adding other taxes. of employee incentive and compensation. P/E ratio Treasury Price/earnings ratio. Management of a company’s cash funds. Portfolio management Purchase, management and sale of properties. Portfolio management serves to maintain and increase the value of the portfolio. Financial Statements Consolidated 155 Annual report 2004 IVG Group key figures (5-year overview) € million 20001 20011 20021 20031 20032 20042 Turnover 321.3 319.3 471.2 411.5 496.1 507.3 3 Total operating income 434.7 486.6 637.8 545.7 589.8 613.0 3 EBITD (cash flow) 201.0 259.8 350.3 224.8 207.7 264.7 3 EBIT (operating earnings) 147.7 165.8 188.7 174.2 130.5 202.6 3 Net income for the year 61.9 68.1 70.4 66.5 54.1 74.9 Investments 306.5 432.2 358.3 565.2 530.7 398.5 Total assets 2,585.4 3,021.9 3,185.3 3,427.8 3,695.4 3,613.3 Equity (book values) 690.4 758.4 769.5 917.0 845.5 859.0 Equity ratio (book values) (%) 27.4 24.3 24.5 25.6 21.8 22.7 Equity ratio (market values) (%) 49.6 45.2 41.2 39.0 39.0 39.0 Net asset salue 1,845.0 1,894.0 1,642.3 1,671.4 1,671.4 1,762.8 Net asset salue per share 15.91 16.33 14.16 14.41 14.41 15.20 Employees 709 763 750 717 717 930 Dividend per share (€) 0.33 0.34 0.34 0.34 0.34 0.35 4 1 German Commercial Code (HGB) basis 2 IFRS basis 3 Excluding €53.4 million income item for Polar lucky buy 4 Recommended 156 The annual report of IVG Immobilien AG (IVG) contains forward-looking statements that reﬂect management’s current assumptions and estimates. These forward-looking statements are not a guarantee of future perfor- mance. External sources of information cited in this report are not veriﬁed by IVG. Published by IVG Immobilien AG Zanderstraße 5/7 53177 Bonn Germany Concept, Design and Text Kirchhoff Consult AG, Hamburg Printing Mediahaus Biering GmbH, München Pictures IVG Immobilien AG This English translation is provided for information purposes. The German original is authoritative.