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Fair value of financial assets and liabilities
1
The financial instruments that are valued, subsequent to their ini-
tial recognition, at their fair value on the balance sheet, can be pre-
sented according to three levels (1 to 3), based on the degree to
which they are observable:
•
The level 1 fair value measurements are those derived from
listed prices (unadjusted) in active markets for similar assets
or liabilities.
•
The level 2 fair value measurements are those derived from
data that are observable for the assets or liabilities in question,
either directly (i.e. as prices, other than listed prices included
within level 1) or indirectly (i.e. as data derived from prices).
•
The level 3 fair value measurements are those that are not
based on observable market data for the assets or liabilities in
question.
Change in the fair value of the convertible bonds
2014
2013
(x €1,000)
Convertible 1 Convertible 2
Total
Convertible 1 Convertible 2
Total
AT 01.01
178,072
195,063
373,135
177,289
190,820
368,109
Residual change in the fair value (amongst
others) attributable to changes in the credit
risk of the instrument recognised during the
financial year
578
-3,000
-2,422
-5,746
-8,673
-14,419
Change in the fair value attributable to changes
in market conditions generating a market
risk (interest rates, share prices) during the
financial year
25
10,653
10,678
6,529
12,916
19,445
AT 31.12
178,675
202,716
381,391
178,072
195,063
373,135
Level 1
The convertible bonds issued by Cofinimmo are subject to a level 1 valuation.
At31.12.2014,theconvertiblebondshaveatotalfairvalueof€381,391,498.
If the bonds are not converted into shares, the redemption value will
amount to €364,147,180 at final maturity.
Level 2
All other financial assets and liabilities, namely the financial derivatives
stated at fair value, are subject to a level 2 valuation.
The fair value of financial assets and liabilities with standard terms and
conditions and negotiated on active and liquid markets is determined
based on stock market prices. The fair value of “trade receivables”,
“trade debts”, “loans to associated companies” as well as any float-
ing-rate debt is close to their book value. Bank debts are primarily in the
formof roll-over credit facilities drawn over onemonth.The calculation of
the fair value of “finance lease receivables” and “interest rate swaps” is
based on the discounted cash flow method by using a yield curve that
is adapted to the duration of the instruments. For the optional deriva-
tives (CAP, FLOOR), the “Black & Scholes” model is used.
More details on the finance lease receivables can be found in Note 25.
Level 3
Cofinimmo currently does not hold any financial instrument which are
be subject to a level 3 valuation.
B. MANAGEMENT OF FINANCIAL RISK
Interest rate risk
Since the Cofinimmo Group owns a (very) long-term property portfolio,
it is highly probable that the borrowings financing this portfolio will be
refinanced upon maturity by other borrowings.
Therefore, the company’s total financial debt is regularly renewed for an
indetermined future period.
For reasons of cost efficiency, the Group’s financing policy by debt sep-
arates the raising of borrowings (liquidity and margins on floating rates)
from the management of interest rates risks and charges (fixing and
hedging of future floating interest rates).
Generally, funds are borrowed at a floating rate. Some borrowings con-
tracted at a fixed rate have been converted into a floating rate through
interest rate swaps. The goal of this is to take advantage of low short-
term rates.
1
For more details on the changes which occurred during 2014, and on
the composition and conditions of our bonds, see the chapter “Management of
Financial Resources” of this Annual Financial Report.
Allocation of borrowings (non-current and current) at floating rate and at fixed rate (calculated based on their nominal values)
(x €1,000)
2014
2013
Floating-rate borrowings (incl. €100,000 of bonds converted into floating rate)
1,119,200
1,224,150
Fixed-rate borrowings
464,283
464,826
TOTAL
1,583,483
1,688,976