Kungsleden bases its business model on properties being financed with equity and external borrowings to attain a good return on invested capital. This also means that operations are exposed to various forms of financial risk. To manage, and to some extent exploit, these risks, the company utilises a Finance Policy, approved by the Board of Directors.

Financial risk

Description

Financial risk is defined as the risk of funding not being forthcoming, or only arranged on unfavourable terms.

Management

Kungsleden’s finance policy stipulates the maximum share of the loan portfolio that may be held by a single lender. The policy also regulates the share of loans that may become due for re-financing within one year. These guidelines, combined with good advance planning, limit Kungsleden’s re-financing risk. 

Interest risk

Description

Interest risk is defined as the risk of a profit and cash flow effect from a change in market interest rates.

Management

Interest risk is managed at an overall group level. The interest fixing strategy is expressed in maturity intervals and divergence intervals. Adjustments between short and long fixed interest terms are made on the basis of the state of the bond market, the company’s capacity to cope with negative scenarios and the current view of risk. The Board determines intervals for the share of loan interest that should be fixed in various maturity intervals annually.

The desired risk level is achieved through interest swaps or interest caps. All the financial instruments utilised must be liquid, and the Finance function must maintain thorough knowledge of such instruments’ function, risk and pricing.

Liquidity risk

Description

Liquidity risk is defined as the risk of not having access to cash and cash equivalents or credit facilities to cover payment obligations.

Management

The scale of liquid financial assets should satisfy the requirement of a good liquidity reserve. Surplus liquidity is primarily used to redeem interest-bearing loans because this generates better returns than if these funds were invested with credit institutions. Overdraft facilities are also in place to enable flexible cash management. At any time, liquidity should correspond to at least three months’ known payments, including interest payments and loan re-arrangements.

Credit risk

Description

Credit risk is defined as the risk that a counterparty does not fulfil all or parts of its obligations. Credit risk exists in derivative agreements, when issuing vendor notes and investing surplus liquidity. Credit risk also relates to the risk that a counterparty does not make its payments of rent or sales proceeds. 

Management

Historically, rent losses have been low. Security is normally obtained to mitigate credit risk. 

Sensitivity analysis, interest rate changes

As of 30 September 2016Effect on net financial position (12 mth.), SEK m

Average interest of the loan portfolio changes, +/– 1% point

-166

Short market rate (<6 mth.) changes, +/– 1% point

36

 

As of 30 Juni 2017Effect on net financial position / Reserve on realised value, SEK m

Market interest rate changes on all maturities, +/– 1% point

+391 / - 414

Detailed information

For more detailed information about our risks and opportunities we refer to our latest Annual Report.