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

Description of the risk Potential impact Limiting factors and control


The reduced demand from investors for out-of-town retail real estate

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.

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 more than 60% of investments, is less sensitive to this.


The Group’s lease contracts contain indexation clauses based on the health index, so that annual rental income evolves with the (indexed) inflation rate.

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.

The company seeks to reduce the risk of cost increases by making contractual agreements with its suppliers.


Deflation leads to a reduction in economic activity, which in turn results in a general fall in prices.

In the case of deflation, the health index will be negative, so rental income will fall.

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.


Impact of online shopping on existing sales channels

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.

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


Impact of external elements such as terrorism

Interrupted activity and consequentially loss of the tenant and reduced rental income.

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 acts of vandalism or terror.


Impact of falling consumption and a declining economy

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.

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.


Extreme volatility and uncertainty in the international markets

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 bond loans.

The company aims to build long-term relationships with financial partners and investors, and has unused credit facilities available to absorb liquidity shortages.

Operational risks

Description of the risk Potential impact Limiting factors and control


Risks in different domains: vacancy, but also lease potential, tenant quality, the ageing of buildings and the evolution in supply and demand in the rental market.

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

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.


Risk of structural and technical deterioration during the life cycle of buildings.

Ageing of buildings, which affects commercial attractiveness. Loss of income and a long period in which the invested capital does not perform.

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.


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.

There is a risk that hidden liabilities in these transactions will be transferred to Retail Estates. Management takes the necessary precautions to identify possible risks prior to acquiring control (cf. due diligence with regard among others to technical, financial, fiscal and accounting as well as legal risks) and strives to obtain the necessary contractual guarantees from the seller/supplier.


At a number of locations where the company has shop premises, activities were carried out in the past that were potentially polluting.

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.

Retail Estates attempts to integrate environmental issues into 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.


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.

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.

Dialogue with the government to develop constructive solutions in the interests of all stakeholders.


The loss of key figures within the organisation

The loss of core competencies by the company could lead to a number of objectives being achieved later than planned.

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.


Risk of operational losses due to the failure of internal processes and systems, and human errors or external events (fraud, natural disaster, cybercrime, etc.,…)

Financial loss due to fraud, theft of sensitive data or interruption of activities.

The company has in place a corporate governance charter and trading rules. The trading rules are published on the company’s website and are also communicated to the team.

A disaster recovery plan was also 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).

The necessary measures have also been taken regarding access and security.

For ICT-related services, Retail Estates is supported by an external partner with which an SLA (Service Level Agreement) has been concluded.

Financial risks

Description of the risk Potential impact Limiting factors and control


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.

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

A conservative and cautious financing strategy with a balanced spread of expiration dates, diversification of funding sources and an extensive group of bank partners.


The company risks an increase in its financial costs that may arise from the evolution of interest rates.

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.

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.


Concluding bank loans and hedging instruments with financial institutions entails a counterparty risk for the company if these financial institutions fail.

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.

This risk is limited by spreading the bank loans and hedging instruments across different bankers.


Risk of the requirements to meet certain financial parameters under the credit agreements not being respected.

Not respecting these covenants may result in early termination of these credits.

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

Description of the risk Potential impact Limiting factors and control


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.

Negative influence on business, profits, profitability, the financial situation and prospects. Constant monitoring of existing, potentially changing or future new laws and regulations and compliance with these, assisted by external specialist advisers.


The lack of proper urban planning permits and permits for specific properties.

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.

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.


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.

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.

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.


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.




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.

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.

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.