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RISK FACTORS
DESCRIPTION OF THE RISK
POTENTIAL IMPACT
MITIGATING FACTORS AND MEASURES
Changes in (future) market
interest rates
1. Revaluation of financial
instruments
1
.
2. Negative impact on financial
charges.
3. Negative impact on the net
asset value and on the result of
the period.
4. Downward adjustment of the
Group’s rating with negative
impact on cost of financing
and on liquidity (see “Change
of the Group’s public rating”).
5. Negative impact under IAS
39 and on the result of the
period: in 2014, given the
persistent low interest rates
(Euribor 3 months at 0.078%
at the end of 2014), Cofinimmo
cancelled FLOOR options until
the end of 2017, with a 3%
strike for a nominal amount
of €600 million. The total cost
of the restructuring stood at
€57 million, booked under the
income statement at 31.12.2014.
Part of the debt is contracted at floating rate or immediate
conversion from fixed to floating rate.
Interest rates locked in over a minimum of three years and for at
least 50% of the debt.
Use of derivative instruments (Interest Rate Swaps and CAP and
FLOOR options) to lock the interest rate into a corridor between a
minimum and a maximum rate. (1, 2, 3)
In 2015, assuming the structure and the level of debt remain
identical to those at 31.12.2014, and taking into account the
hedging instruments put in place for 2015, a 0.5% increase or
decrease in interest rates would not have a significant impact on
the cost of financing.
At 31.12.2014, 29.3% of the debt is financed at fixed rate while
70.7% is financed at floating rate.
In the absence of any hedging, an interest rate increase of ten
base points would increase charges by €1.23 million.
Over 70% of the floating debt is hedged using derivatives until
2018.
Immediate outlay which will be compensated by lesser financial
charges during the coming years. In the future, Cofinimmo will
continue its cautious hedging policy. Cofinimmo fixed new
hedges in the form of IRS until the end of 2017 for a notional
amount of €400 million with an average strike of 0.51%.
Increase in credit margins
Increase in financial charges.
Diversification of sources of borrowing designed to optimise
average credit margins and capital raised over the medium and
the long term at fixed margins.
Non-renewal or termination of
financing contracts
Negative impact on liquidity.
Ten renowned banks.
Different sources of financing: bank debt, issue of convertible and
non-convertible bonds, etc.
Refinancing carried out at least 12 months in advance in order to
optimise conditions and liquidity.
Change in the fair value of
hedging instruments
Positive or negative effect on
shareholder’s equity and intrinsic
value per share.
If Cofinimmo had closed its
positions at 31.12.2014, the
settlement amount would have
stood at €-125.16 million (vs.
€-105.44 million at 31.12.2013).
The cost of closing the positions
if the interest rates had been 1%
above or below the reference
rates would have stood at
€-57.93 million (vs. €-28.21 million
at 31.12.2013) and €-169.35 million
(vs. €-185.26 million at 31.12.2013)
respectively.
Cofinimmo uses hedging for its entire portfolio, not for specific
credit lines.
Deflation risk
Negative impact on rental income.
The leases usually provide that the new rent may not be lower
than either the previous rent or the rent of the first year of the
lease.
Indexation of a minority of technical charges may be higher than
that applied to rents.
1
Interest rate derivatives being stated at market value.
6