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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 (CAP bought, fixed listed IRS, FLOOR 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
simultaneous increase in national inflation. Finally, a rise in real inter-
est 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 peri-
ods of the interest rate derivatives and the dates at which they are
contracted correspond to the renewal periods of its borrowing con-
tracts and the dates at which their rates are set.
If a derivative instrument hedges an underlying debt contracted at
a floating rate, the hedge relationship is qualified as a cash flow
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 accordance 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)
2014
2013
Change
Income
statement
Equity
Income
statement
Equity
+1%
57,442
7,171
57,312
30,411
-1%
-37,791
-13,135
-53,268
-38,288
If the future interest rate curve at 31.12.2014 increases in parallel
by 1%, the fair value of the valued financial derivatives increases
by €67.23 million (2013: €+77.22 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 €7.17 milllion (2013:
€+30.41 million) of equity and by €60.06 million (2013: €+46.81 mil-
lion) of the income statement
2
.
If the curve decreases in parallel by 1%, the fair value of the finan-
cial derivatives decreases by €44.19 million (2013: €-79.83 million).
Given the current level of short-term interest rates and the exercise
price of the financial instruments, this would result in a decrease by
€13.13 million (2013: €-38.29 million) of equity and by €31.05 million
(2013: €-41.54 million) of the income statement
2
.
Credit risk
By virtue of Cofinimmo’s operational business, it deals with two main
counterparties: banks and clients.
The Group maintains a minimum rating standard for its finan-
cial counterparties. All financial counterparties have an external
“investment grade” rating.
Client risk is mitigated by a diversification of clients and an analysis
of their solvency before and during the lease contract. The two main
office clients come from the public sector. Also see pages 32 and 47
of this Annual Financial Report, which contains a table with the top
ten clients 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.
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.
2
These figures differ from those presented in the table above because they do not
include the impact of the convertible bonds and of the floating-rate credit lines.
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
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
Change in the fair value of
the financial derivatives
Change in the fair value of
the convertible bonds
2014
2013
2014
2013
2014
2013
2014
2013
Fair value at
31.12
3.43%
3.79%
1,119
1,224
-125
-105
381
373
+1%
3.57%
3.86%
67
77
-9
-11
-1%
3.40%
3.78%
-44
-79
9
12