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Risk management

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Market risk

Occupancy rate risk

The Fund has a different leasing strategy for each individual retail asset to achieve an optimal occupancy rate. In most locations, but especially in district shopping centres, it is also vital to have the right mix of complementary tenants to ensure the long-term success of a shopping centre. In 2021, the leasing activities were under severe pressure due to the Covid-19 crisis. However, the Fund still managed to maintain the average occupancy at a high level. Many tenants in financial difficulties survived thanks to government support combined with the Funds’ payment arrangements.

Credit risk

The Fund’s process is focused on strong, reputable tenants and includes risk assessment of potential tenants, deposits and or bank guarantees. During the Covid-19 crisis, the Fund mitigated this risk further through an active payment collection strategy with a dedicated department, supported by a Covid-19 Taskforce. Furthermore, the Fund reached payment settlements with many tenants. This resulted in outstanding tenant receivables of 5.2% at year end (of which 1.2% was deferred), much lower than the peak in Q2 (13.1%), with a provision for doubtful debtors of € 1.5 million. After deduction of the provision for doubtful debtors, the credit risk related to the receivables is maximised to € 1.4 million in 2021 (2020: € 1.8 million). The Fund expects another increase of the outstanding receivables in the first half of 2022, due to the new Covid-19 restrictions that came into effect at the end of December 2021.

Liquidity risk

Within the area of liquidity risk, no material risks occurred in 2021.

Business risk

Business environment risk

In 2021 the Dutch Ministry of Finance started the evaluation of the Fiscal Investment Institution (FII) regime that was announced in 2020. This evaluation should be finalised in 2022. Bouwinvest is taking into account the possibility that this evaluation will lead to a change of law as a result of which the Fund might no longer apply the respective regime. Bouwinvest has mitigated this risk by anticipating and preparing a restructuring of the Fund into the legal form of a so-called closed Fund for Mutual Account (FMA)

Given its fiscal transparency, the closed FMA prevents double taxation for investors and is therefore the most appropriate alternative for an FII. Future amendments to the Dutch tax transparency rules, which are expected to be announced in 2022, should not alter this conclusion.

In the course of 2022, Bouwinvest will decide whether to propose a restructuring of the Fund to the Shareholders’ Meeting and, if so, by which date such restructuring must be effected. Bouwinvest will take into account all uncertainties, including the future of the FII regime and the impact on all investors, when taking such a decision.

ESG risk

Last year was another year with exceptional weather conditions, and as such a reminder of the need to deal with climate change and related risks. In line with the recommendations from the Task Force on Climate Financial Disclosures (TCFD), the Fund recognises two main risks related to climate change:

  • Physical risks directly affecting the Fund's real estate and/or tenants (heat stress, pluvial flood, subsidence and coastal / river flood)

  • Transition risks, or risks related to the adaptation of the Fund's real estate to future climate changes (an environment in which greenhouse gases should be minimised to limit future temperature rises to 2˚C or less).

Core elements of the recommended disclosures include the organisation’s governance related to climate risks, the strategy, the risk management and resulting metrics and targets.

Within Bouwinvest, the Sustainability & Innovation department is dedicated to advising the Executive Board of Directors on preparing the management organisation and the Fund for the necessary steps and related changes. These climate risks affect a large number of risks within Bouwinvest's risk taxonomy, and it will adapt its risk taxonomy to incorporate climate risk where necessary. As an example of recent initiatives, the Fund has started a pilot for the next phase of identifying physical climate risks. The purpose of the pilot is to identify the net risk of all four physical climate risks based on both geographical location and building characteristics. The Fund is aiming to perform the same analysis for the total portfolio during 2022.

Operational risk

Within the area of operational risk, no material risks occurred in 2021.

Compliance risk

Within the area of compliance risk, no material risks occurred in 2021.

Early 2022, Bouwinvest was notified of a data breach from a software supplier that is used by Bouwinvest’s property managers. Bouwinvest has notified the appropriate authorities and informed its tenants about the data breach and possible consequences. The data breach was the result of a cyberattack. The software supplier is investigating the attack.