174 / 220
168
/
Annual Accounts /
Notes to the Consolidated Accounts
In accordance with its hedging policy, the Group hedges at least 50% of its
portfolio of total debts for at least three years by entering into interest rate
derivatives (CAPs bought, fixed listed IRS, FLOORs sold).
The hedging period of minimum three years was chosen, on the one
hand, to offset the depressive effect this time lag would have on the net
income and, on the other hand, to forestall the adverse impact of any rise
in European short-term interest rates not accompanied by a simultane-
ous increase in national inflation. Finally, a rise in real interest rates would
probably be accompanied or rapidly followed by a revival of the overall
economic activity which would give rise to more robust rental conditions
and subsequently benefit the net result.
The banks that sign these contracts are generally different from the ones
providing the funds, but the Group makes sure that the periods of the
interest rate derivatives and the dates at which they are contracted corre-
spond to the renewal periods of its borrowing contracts and the dates at
which their rates are set.
If a derivative instrument hedges an underlying debt contracted at a float-
ing rate, the hedge relationship is qualified as a cash flow hedge.
If a derivative instrument hedges an underlying debt contracted at a fixed
rate, it is qualified as a fair value hedge.
For optional instruments, only the intrinsic element is designated as a
hedging instrument.
The average rate without margin of the debt at the closing date, as well as
the fair value of the derivative instruments, are shown below. In accord-
ance with IFRS 7, a 1% sensitivity analysis was carried out of the various
market interest rates without margin applied to the debt and the derivative
instruments.
Summary of the potential effects, on equity and on the income statement, of a 1% change in the interest rate resulting from changes in the fair value of the
financial instruments
(derivatives + convertibles)
, changes in the floating payments of the financial derivatives and changes in the floating-rate credits
(x €1,000)
2013
2012
Change
Income statement
Equity Income statement
Equity
+1%
57,312
30,411
33,284
4,957
-1%
-53,268
-38,288
-25,843
-2,765
If the future interest rate curve at 31.12.2013 increases in parallel by 1%, the
fair value of the valued financial derivatives increases by €77.22 million
(2012: €+31.21 million). Given the actual level of short-term interest rates
and the exercise price of the financial instruments, this would result in an
increase by €30.41 milllion (2012: €+4.96 million) of equity and by €46.81
million (2012: €+26.26 million) of the income statement.
If the curve decreases in parallel by 1%, the fair value of the financial deriv-
atives decreases by €79.83 million (2012: €-10.62 million). Given the cur-
rent level of short-term interest rates and the exercise price of the finan-
cial instruments, this would result in a decrease by €38.29 million (2012:
€-2.76 million) of equity and by €41.54 million (2012: €-7.85 million) of the
income statement.
Credit risk
By virtue of Cofinimmo's operational business, it deals with two main
counterparties: banks and customers.
The Group maintains a minimum rating standard for its financial coun-
terparties. All financial counterparties have an external investment grade
rating.
Customer risk is mitigated by a diversification of customers and an anal-
ysis of their solvency before and during the lease contract. The two main
office clients come from the public sector. Also see pages 26 and 34 of
this Annual Financial Report, which contains a table with the top ten cus-
tomers and their rating as assigned by an external rating agency.
Price risk
The Group could be exposed to a price risk linked to the Cofinimmo stock
options tied to its convertible bonds. However, given that this option is
out-of-the-money, the risk is considered unlikely.
Foreign exchange risk
The Group is not currently exposed to any foreign exchange risk.
Liquidity risk
The liquidity risk is limited by the diversification of the financing sources
and by the refinancing which is done one year before the maturity date of
the financial debt.
1
The figures shown exclude the changes in payments related to the current year and the convertible bonds.
Impact of a 1% change in the interest rate on the average interest rate of the debt, the notional principal amount and the fair value of the financial
instruments (based on the debt and the derivative positions at the closing date)
1
(x €1,000,000)
Change
Average interest rate
Notional principal amount
Changes in the fair value of
the financial derivatives
Changes in the fair value of
the convertible bonds
2013
2012
2013
2012
2013
2012
2013
2012
Fair value at
31.12
3.79%
4.58%
1,224
1,458
-105
-188
373
175
+1%
3.86%
4.46%
/
/
77
31
-11
-5
-1%
3.78%
4.60%
/
/
-79
-11
12
20