Throughout the current market, there is reduced demand for office and commercial space; new occupancies are generally only possible at reduced rates. The vacancy rates are significantly higher than the long-term average.

Fortunately, to a great extent AFIAA was able to stabilize the gross yield during the first three quarters of the current fiscal year in spite of a tough market environment. As of June 30, 2009, the gross yield was 6.62% based on the market values of September 30, 2008 (6.73% as of September 30, 2008). Continual improvements in cost efficiency have been recorded. The Total Expense Ratio (TERREF) declined for the first time below 60 base points as of June 30, 2009.

AFIAA was not able to completely evade pressure on valuations resulting from rising cap rates. In order to give constant consideration to market fluctuations, AFIAA has commissioned independent experts to do rolling valuations of its direct asset holdings in which each property is assessed at least once annually. In the first three quarters, about 60% of our holdings were revalued. This revealed unrealized capital losses of CHF 23.531 million.

Fund holdings currently comprise only 5.52% of the total investments. Nevertheless, valuation losses combined with extensive borrowing within the funds had a negative impact on AFIAA’s performance.

In the past fiscal quarter, the net asset value per share rose from CHF 116.2213 to CHF 118.4082 (+1.89%), which was mainly due to the rise in the rate of the British pound to the Swiss franc from £1/CHF 1.63 at the end of March to £1/CHF 1.79 at the end of June. A positive net operating result adjusted for currency effects neutralized book losses on indirect investments. Between March 31, 2009 and June 30, 2009, the currency-adjusted NAV per share sank slightly from CHF 123.0856 to CHF 122.9483(-0.12%).

We are assuming that after 2010 there will be a stabilization in the capital appreciation of the current portfolio and – with further high-yielding investments over the next few months – positive returns during the coming fiscal year.