Risk management

The main risks facing the company are listed below. For each of the listed risks, measures and procedures are in place to assess, control and monitor the effects as much as possible. These measures and procedures are also discussed below.

The board of directors regularly evaluates the company’s exposure to risks, the financial impact of these risks and the actions that must be taken to monitor these potential risks, to avoid the risks and/or (where relevant) to limit the impact of these risks.

This list of risks is based on the information that was known at the time of preparation of this report. Other unknown and unlikely risks or risks that are not expected to have a significant adverse effect on the company, its activities and its financial situation may exist. The list of risks included in this chapter is therefore not exhaustive.

Market risks

Investment market for out-of-town retail properties and retail parks

  • Description of the risk: The reduced demand from investors for out-of-town retail real estate.
  • Potential impact: The value of the portfolio is estimated each quarter by independent real estate experts. A decrease in valuation leads to a decrease in shareholder’s equity (“NAV”) and, consequently, an increase in the debt ratio of the company.
  • Limiting factors and control: The value of out-of-town retail property is mainly determined by the commercial value of the property’s location. Due to the scarcity of good locations, supply and demand tend to exert upward pressure in both the private and institutional investor markets. The values are generally inflation-proof due to indexation of the rent, but they are interest rate sensitive due to the high debt ratio of many investors. The willingness to invest on the part of institutional investors can temporarily decrease due to macroeconomic factors that affect the availability and cost of credit. Experience shows that the private investor market, which still represents a major part of investments, is less sensitive to this. The debt ratio amounts to 52.58% on 31 March 2019 (the BE-REIT legislation set the maximum debt ratio at 65%).

Inflation risks

  • Description of the risk: The Group’s lease contracts contain indexation clauses based on the health index, so that annual rental income evolves with the (indexed) inflation rate.
  • Potential impact: The Group’s exposure to inflation mainly concerns costs related to the lease, including those with respect to renovation and investment, which can be indexed on a basis different than the health index, which could allow these costs to increase more quickly than the increase in rents.
  • Limiting factors and control: The company seeks to reduce the risk of cost increases by making contractual agreements with its suppliers.

Deflation risk

  • Description of the risk: Deflation leads to a reduction in economic activity, which in turn results in a general fall in prices.
  • Potential impact: In the case of deflation, the health index will be negative, so rental income will fall.
  • Limiting factors and control: The Group is partly protected against the risk of deflation (and a corresponding decrease in rental income). Virtually all of the Group’s lease agreements specify that the rental price cannot fall below the level of the base rent (i.e. the base rent applicable when the lease agreement is concluded). But even in the case of these lease agreements, a decrease in rent to a level that is lower than the current rent but higher than the base price cannot be ruled out.


  • Description of the risk: Impact of online shopping on existing sales channels.
  • Potential impact: Reduced demand for physical shops due to increased online shopping. Demand for smaller shops (fewer m²) due to less stock being present in the shops.
  • Limiting factors and control: Leasing to retailers that integrate the “multichannel” concept into their business model and thus integrate e-commerce into existing shops. Splitting existing properties into smaller areas. The effect of the impact is also influenced by the retail segment in which the tenant is active. A large part of the activities of the Retail Estates tenants is less susceptible to e-commerce (Home furniture, voluminous, Commodities,...). Within this scope we refer to the real estate report, which includes an overview of the commercial activities of the tenants.

External factors - incidents

  • Description of the risk: Impact of external factors and serious incidents(such as terror threat, vandalism, fire, explosion, storm and water damage) that may occur in the buildings included in the real estate portfolio.
  • Potential impact: Interrupted activity and consequentially loss of the tenant and reduced rental income.
  • Limiting factors and control: The company is insured against lost rental income for a period of 18 to 36 months (depending on the type of permit to be obtained) due to external factors and serious incidents. Please refer to the management report, in which the incidents are explicitly discussed. The Real Estate Report indicates the insured values for each cluster.

Changing economic climate

  • Description of the risk: Impact of falling consumption and a declining economy.
  • Potential impact: Reduction in demand for shops. Higher vacancy rates and/or lower rents when re-letting. Decrease in the fair value of the real estate and consequently also in Net Asset Value (NAV). Possible bankruptcies of tenants.
  • Limiting factors and control: Quality of the tenants with mainly retail chains and a limited annual provision for doubtful debtors (on average about 0.50% of rent per year). Sectoral diversification of customers and low average contractual rent. Value is determined by the commercial value of the property’s location. Retail Estates spreads its investments throughout all major shopping areas in Belgium. These investments are concentrated in Flanders and Wallonia, in particular in the subregions with strong purchasing power. Usually a bank guarantee of 3 to 6 months is required.

Macroeconomic factors

  • Description of the risk: Extreme volatility and uncertainty in the international markets.
  • Potential impact: May lead to greater difficulty in accessing the stock market to acquire new capital/shareholder’s equity, or less liquidity available in the debt capital markets for refinancing outstanding bonds.
  • Limiting factors and control: The company aims to build longterm relationships with financial partners and investors, and has unused credit facilities available to absorb liquidity shortages and finance investments for which firm commitments have already been made. Please refer to note 34 et seq. of this annual report for an overview of the outstanding credits and unused credit facilities.

Operational risks

Vacancy and loss of rental income

  • Description of the risk: Risk of increased vacancy and higher re-letting costs related to the evolution in supply and demand in the rental market.
  • Potential impact: Rental income and cash flow affected by an increase in vacancy and the costs of re-letting. Reduction in the quality and solvency of tenants, resulting in an increase in doubtful debtors, thereby reducing the level of debt collection. Decrease in the fair value of the real estate portfolio and consequently a decrease in the NAV and an increase in debt ratio.
  • Limiting factors and control: Diversified customer base with a good sectoral spread. Good market knowledge via in-house operational teams with strong know-how and knowledge of the retail business. Weekly follow-up and discussion of debt collection at the property meeting. The occupancy rate has exceeded 98% for more than ten years.


  • Description of the risk: Risk of rentability and quality of the tenants.
  • Potential impact: Decrease in the quality and solvency of tenants, resulting in an increase in doubtful debtors, thereby reducing the level of debt collection.
  • Limiting factors and control:Permanent follow-up by means of a weekly debt collection and property meeting ensures a proper flow of information and a swift approach. Good market knowledge via in-house operational teams with strong know-how and knowledge of the retail business.

Structural condition of the buildings

  • Description of the risk: Risk of structural and technical deterioration during the life cycle of buildings.
  • Potential impact: Ageing of buildings, which affects commercial attractiveness. Loss of income and a long period in which the invested capital does not perform.
  • Limiting factors and control: Management makes every effort to anticipate these risks and, to this end, conducts a consistent policy with respect to maintenance and repairs. In practice, these interventions are limited mainly to the renovation of car parks and roofs.


  • Description of the risk: A large number of buildings in the company’s real estate portfolio (and in that of its subsidiaries) were acquired in the context of the acquisition of shares in real estate companies or corporate restructuring such as mergers and (partial) demergers. Real estate companies over which control is acquired are typically absorbed by Retail Estates, which transfers all of the capital, assets as well as liabilities, of these companies to Retail Estates.
  • Potential impact: There is a risk that hidden liabilities in these transactions will be transferred to Retail Estates.
  • Limiting factors and control: Management takes the necessary precautions to identify possible risks prior to acquiring control (cf. due diligence with regard to technical, financial, fiscal and accounting as well as legal risks) and strives to obtain the necessary contractual guarantees from the seller/supplier. If necessary, this due diligence is supported by external advisers and a prior valuation by an independent real estate expert.

Soil contamination

  • Description of the risk: At a number of locations where the company has shop premises, activities were carried out in the past that were potentially polluting.
  • Potential impact: Retail Estates is in principle not liable for such - by definition historical - contamination. The activities of the tenants of the company usually only result in a very limited risk of contamination and moreover are the responsibility of the tenant. However, the legislation currently applicable in the three regions provides for complex, time-consuming procedures when transferring real estate and this can result in research and study costs. The regulations relating to soil transport results in additional costs if contaminated soil must be manipulated during construction work at such contaminated sites.
  • Limiting factors and control: Retail Estates attempts to integrate environmental issues into the due diligence research that typically precedes the acquisition of real estate and, as far as possible, to place responsibility for any soil contamination (including a possible remediation obligation) with the transferor of the property or the real estate company.

Traffic infrastructure

  • Description of the risk: Out-of-town commercial real estate is by definition mainly accessible via regional roads. The road network is regularly refurbished with new roundabouts, cycle paths, tunnels etc. in the context of road safety.
  • Potential impact: The result of such refurbishment usually increases the commercial value of retail properties, since traffic flow is often slowed and the environment around the shopping areas becomes safer. However, it cannot be ruled out that in exceptional cases access to some shopping areas could become more difficult or their visibility may decrease.
  • Limiting factors and control: Dialogue with the government to develop constructive solutions in the interests of all stakeholders.

Key personnel

  • Description of the risk: The loss of key figures within the organisation.
  • Potential impact: The loss of core competencies by the company could lead to a number of objectives being achieved later than planned.
  • Limiting factors and control: Retail Estates pays the necessary attention to the well-being of its employees. The company’s remuneration policy is in line with the market. Great importance is attached to managing the competences of the team members.

ICT and fraud

  • Description of the risk: Risk of operational losses due to the failure of internal processes and systems, and human errors or external events (fraud, natural disaster, cybercrime, etc.,…).
  • Potential impact: Financial loss due to fraud, theft of sensitive data or interruption of activities.
  • Limiting factors and control: A disaster recovery plan was developed to ensure that the company’s activities can be continued in the event of a disaster or crisis. All data is also backed up in various ways (on site, off site on tape, and in the cloud). Appropriate measures have also been taken in terms of access and security. For IT-related services, Retail Estates is supported by an external partner with whom an SLA (Service Level Agreement) has been concluded.

Financial risks

Liquidity risk

  • Description of the risk: Retail Estates is exposed to a liquidity risk that could result in a lack of cash in the case of non-renewal or termination of its financing contracts.
  • Potential impact: Impossibility to finance acquisitions or developments (via shareholder’s equity as well as via debt) or increased costs that reduce the expected profitability. The lack of financing to repay interest, capital or operating expenses. Increased cost of debt due to higher bank margins, with an impact on earnings and cash flows.
  • Limiting factors and control: A conservative and cautious financing strategy with a balanced spread of expiration dates, diversification of funding sources and an extensive group of bank partners.

Interest rate volatility

  • Description of the risk: The company risks an increase in its financial costs that may arise from the evolution of interest rates.
  • Potential impact: Increased cost of debt results in an impact on earnings and cash flows, and a decrease in profitability. Strong fluctuations in the value of financial instruments with potential impact on NAV. In the current context of negative interest rates, the method used by some banks of demanding a floor for the Euribor rate (which is used as a reference in the financing contracts) of 0%, has a negative effect on the financial costs. Indeed, an asymmetry is present since Retail Estates must pay a negative interest rate for its hedging instrument while the banks use a 0% floor.
  • Limiting factors and control: The company applies a conservative policy that minimises this interest rate risk. Retail Estates nv uses interest rate swaps to hedge the interest rate risk on long-term loans concluded at a floating interest rate. The maturity of these instruments is matched to the maturity of the underlying credits. If the Euribor rate (interest rate for short-term loans) falls sharply, the market value of these instruments will undergo a negative change. However, this is an unrealised and non-cash item. With an interest rate swap, the variable interest rate is exchanged for a fixed interest rate. The company has limited the risk of “floors” with its 4 major banks as much as possible by allowing floors only for the portion of the credits that are not covered or by building in floors in the interest rate swaps. Please refer to note 34 et seq. of this annual report for more information about the hedges used by the company.

Counterparty risk

  • Description of the risk: Concluding bank loans and hedging instruments with financial institutions entails a counterparty risk for the company if these financial institutions fail.
  • Potential impact: Termination of existing credit lines, which must then be refinanced with another bank/financier, which involves restructuring costs and the risk of higher interest costs for the new credits.
  • Limiting factors and control: This risk is limited by spreading the sources of financing across different instruments and counterparties.

Covenant risk

  • Description of the risk: Risk of the requirements to meet certain financial parameters under the credit agreements not being respected.
  • Potential impact: Not respecting these covenants may result in early termination of these credits.
  • Limiting factors and control: The company generally has agreed the following covenants with its bankers and bondholders:
    • Retention of BE-REIT status
    • Minimum portfolio size
    • ICR (calculated on net rental results) = 2
    • The Belgian BE-REIT Act imposes a maximum debt ratio of 65%
    The company complies with all the covenants required by the banks. In addition, in accordance with Art. 24 of the BE-REIT Belgian Royal Decree, Retail Estates nv submits a budget forecast with an implementation schedule as long as the consolidated debt ratio, as defined in the same Belgian Royal Decree, is greater than 50%. This describes the measures that will be taken to prevent the consolidated debt ratio from exceeding 65% of consolidated assets. The evolution of the debt ratio is monitored at regular intervals and the influence of any planned investment operation on debt levels is analysed in advance. This obligation has no impact on the company’s banking covenant risk.

Regulatory risks

Risk associated with regulatory change

  • Description of the risk: Changes in regulations, including fiscal, environmental, urban planning, mobility policy and sustainable development as well as new provisions related to the leasing of real estate and the extension of permits with which the company, its real estate, and/or the users to whom the real estate is made available must comply.
  • Potential impact: Negative influence on business, profits, profitability, the financial situation and prospects.
  • Limiting factors and control: Constant monitoring of existing, potentially changing or future new laws and regulations and compliance with these, assisted by external specialist advisers.

Risk associated with non-compliance with the regulations

  • Description of the risk:There is a risk that, possibly due to the (fast) evolution of the regulations applicable to the Company (please refer in this context to “Risks associated with regulatory change”), the Company itself, its executives or its employees do not adequately comply with the relevant regulations or that these persons do not act with integrity.
  • Potential impact:Failure to comply with the relevant legislation can have a financial or legal impact on the company; the nature and extent of this impact depends on the legislation that is not complied with.
  • Limiting factors and control: The company shall make every effort to ensure that its executives and employees have the required background and knowledge to adequately implement the relevant legislation. The company has a Corporate Governance Charter and a Dealing Code. Both documents have been published on the company’s website and have been communicated to the team. The Corporate Governance Charter is based on the 2009 Code of the Corporate Governance Committee (https://www. corporategovernancecommittee. be). The Dealing Code is an integral part of the company’s Corporate Governance Charter and was drawn up in line with the applicable regulations and legislation, in particular Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (the Market Abuse Regulation), the Act of 2 August 2002 on the supervision of the financial sector and on financial services and the 2009 Corporate Governance Code.


  • Description of the risk: The lack of proper urban planning permits and permits for specific properties.
  • Potential impact: Impact on the value of the real estate, since this value is largely determined by the presence of all urban planning permits and permissions under the law on commercial establishments according to the desired use of the property. If a new use must be allocated to the property due to external circumstances, changes to the permits granted must be requested. Obtaining such changes is often time-consuming and the process lacks transparency, which causes property to be temporarily vacated, even though tenants had been found for it.
  • Limiting factors and control: Management devotes due attention to reviewing the urban planning permits when acquiring and developing retail outlets. In addition, management continuously tries to evaluate changes in urban planning permits and permissions and compliance with these, and to anticipate such changes.

Risks associated with the status of public Belgian Real Estate Investment Trust

  • Description of the risk: Risk of future changes to the legislation on BE-REITs that would make it no longer possible for the company to enjoy the favourable fiscal transparency system for BE-REITs. The company is also subject to the risk of future adverse changes to this system.
  • Potential impact: Risk of loss of recognition of the status of public BE-REIT. Loss of the favourable tax system of a BE- REIT and mandatory repayment of certain credits in the case of non-compliance with the rules.
  • Limiting factors and control: Constant monitoring of legal requirements and compliance with these, assisted by external specialist advisers. Intensive dialogue with the regulator in the context of prudential oversight of the BE-REITs. Representation of the company in organisations representing the BE-REIT sector.

Taw law

  • Description of the risk: The exit tax owed by companies whose assets are taken over by a BE-REIT in the case of (among others) a merger is calculated taking into account Circular Ci.RH. 423/567.729 of the Belgian Tax Authorities of 23 December 2004, whose interpretation or practical application could always change. The “actual value for tax purposes” referred to in this circular is calculated with a deduction of registration fees or VAT (which would apply in the event of a sale of the assets) and may differ from the fair value of the real estate as recorded in the balance sheet of the public BE-REIT in accordance with IAS 40.

Risks associated with the status of institutional BE-REIT

  • Description of the risk: The company has control over one institutional BE-REIT: Retail Warehousing Invest nv. Like Retail Estates nv, Retail Warehousing Invest nv, in its capacity as institutional BE-REIT, is subject to the Belgian BE-REIT Act.
  • Potential impact: Risk of loss of recognition of the status of public BE-REIT. Loss of the favourable tax system of an REIT and mandatory repayment of certain credits in the case of non-compliance with the rules.
  • Limiting factors and control: Constant monitoring of legal requirements and compliance with these, assisted by external specialist advisers. Intensive dialogue with the regulator in the context of prudential oversight of the BE-REITs. Representation of the company in organisations representing the BE-REIT sector.