Risks and risk management

Vasakronan has been tasked with delivering a high and stable, long-term return to its owners. At the same time, consideration needs to be given to people, the environment and professionalism. To best reach these goals, several external and internal factors that affect our operations need to be taken into consideration and managed.

Reasonable and desirable levels for risk taking

All business operations are associated with risks, which when managed correctly can give rise to opportunities. When managed incorrectly, risks can have considerable negative consequences in the form of lower revenue, higher costs or reduced credibility.

Efforts to identify, analyse, manage and follow up risks are therefore a prioritised area at Vasakronan.

Ultimately, it is the Board’s responsibility to establish appropriate and effective systems for risk management and internal control. The Board has delegated day-to-day responsibility to the CEO and has established guidelines in terms of how to conduct these efforts.

The CEO is supported by a steering committee for internal control that, in addition to the CEO, comprises the CFO, General Counsel and Group Controllers. The steering committee’s responsibilities include follow up and ongoing development of internal control. Vasakronan’s day-to-day risk efforts involve all employees and follow a structured process.

Process for risk efforts

Risk inventory – Material risks are determined through an inventory by the Management Team and the Board carried out in collaboration with the steering group for internal control.
Risk assessment – The Management Team assesses material risks based on likelihood and impact. Material risks are reported to the Audit Committee and the Board.
Risk management – Workshops are held with the relevant representatives for each risk area to determine causes, impact and management. Preparation of overall action plans and integration into the company’s business plan.
Follow-up – Ongoing follow-up by the Management Team. Yearly reporting of risk efforts to the Audit Committee and Board.

Energy prices

Risk description
The management of properties is an energy-intensive operation. Accordingly, the cost of energy has a considerable impact on property companies’ earnings, but also impacts tenants and their payment capacity.

Risk management
A large portion of Vasakronan’s energy costs are price hedged through electricity derivatives. Investments are also made in energy efficiency projects, such as facilities for on-site produced electricity. Agreements with tenants mean that a large portion of the energy costs can be invoiced on to tenants, even if Vasakronan can be indirectly impacted if their payment capacity deteriorates.

Financing – access

Risk description
Property is a capital–intensive industry and it is important to secure access to borrowed capital. An increasingly turbulent operating environment and/or system problems as a result of company-specific problems in the financial sector could lead to new financing or re-financing becoming more expensive or impossible.

Risk management
Vasakronan has a stable ownership structure and a strong financial position. The company’s A3 rating from Moody’s provides wider access to sources of finance as well as financing with longer tenors. The company strives for an even maturity structure for its liabilities, with a low portion of short-term financing. Altogether, this reduces the risk in new financing and refinancing. Vasakronan also has a credit facility from its owners of SEK 18 billion.

Financing – interest rates

Risk description
Interest on borrowed capital is a large cost item for property companies. Rising interest rates negatively affect borrowing costs and financial key metrics. Moreover, they lead to higher yield requirements and a consequent decline in property values.

Risk management
Vasakronan strives for a long fixed-interest tenor, which reduces the effect of large, rapid changes in borrowing expenses. The financial policy sets guidelines for the company’s financial decisions and reduces risk in the debt portfolio. The company’s strong credit rating of A3 stable outlook creates possibilities for advantageous funding.

Projects

Risk description
Redevelopments, extensions and new construction projects entail risks across all phases, which increases with the project’s complexity. Risks in construction projects are primarily financial, technical or time-related, but can also impact the company’s reputation.

Risk management
There is a high level of expertise within the project organisation. Vasakronan has quality-assured internal processes for procurement and project development, including risk analysis, and structured evaluations are held throughout the length of the project. Risks are regulated through contractual agreements with partners.

Suppliers

Risk description
Violations of human rights, unethical behaviour or operations that are not conducted according to good business practice from any of our partners or anyone acting on behalf of Vasakronan can lead to reduced confidence in Vasakronan and therefore entail harm to financial performance and the brand.

Risk management
The company has a supplier code of conduct and a clear, proactive process for procurement that is governed by framework agreements and the procurement policy. Audits and sample tests are conducted regularly throughout the course of the project.

Unethical business operations – tenants

Risk description
Tenants who violate human rights, engage in unethical behaviour or operations that are not conducted according to good business practice can lead to reduced confidence in Vasakronan and therefore entail harm to financial performance and the brand.

Risk management
Vasakronan has a large lease portfolio with many tenants, which makes it difficult to detect deficiencies in tenant behaviour. That is why structured checks of tenants are carried out during contract procurement and regularly during tenancy periods.

Changed needs of tenants

Risk description
Changed patterns of working and increased digitalisation set new requirements for premises and the offering. Companies who do not adapt their operations and offerings to new conditions risk losing customers, employees and market shares. In the long run this can lead to becoming unprofitable.

Risk management
Vasakronan aims to be at the forefront as regards the use of modern technical solutions, and of service and product offerings. Vasakronan strives to develop the right skills internally in combination with close partnerships with customers, suppliers and other companies.

Lettings – retail

Risk description
Digitalisation, the economy and new consumption patterns are affecting the lettings market for retail premises and resulting in downward pressure on rents and increased vacancies.

Risk management
Vasakronan’s retail locations are primarily in central locations with heavy foot traffic. The company believes demand will remain firm for these types of properties, even for other uses. Close and proactive dialogues are held with existing tenants and the lease portfolio consists of a large spread of tenants and lease terms.

Lettings – offices

Risk description
Technological development, the economy and new work patterns are affecting the lettings market for office premises and resulting in downward pressure on rents and increased vacancies.

Risk management
Vasakronan’s office premises are located in attractive areas in growth areas. The company offers office solutions that are in demand in the market and continuously broadens its offering. The lease portfolio consists of a large spread of tenants and lease terms.

Information and data security

Risk description
In pace with increasing property sector digitalisation, there is a growing vulnerability to data hacking, virus attacks and fraud.

Risk management
A high degree of security awareness among employees is ensured through regular training and internal communication. Vasakronan has chosen the highest level of back-up solutions, firewalls, access solutions, antivirus programmes and incident reporting systems. Regular penetration tests are held to test security.

Regulatory compliance

Risk description
All companies must adhere to the applicable laws, rules and regulations, which are often extensive and complex. At the same time, noncompliance with regulations can lead to economic consequences or damaged confidence.

Risk management
To ensure regulatory compliance, Vasakronan continuously strives to stay updated vis-à-vis current and new regulations, to assess the effects of changes and to take necessary internal measures. Employees are trained in relevant portions and compliance is continuously followed up.

Climate changes

Risk description
Higher temperatures, extreme weather events and rising sea levels entail risks that properties and/or buildings will be damaged. In the long term, properties in areas that are close to the sea risk permanent flooding.

Risk management
The climate scenario analyses for the property portfolio are prepared every five years. External trends in research and the consequences of climate change are also monitored continuously. The existing property portfolio is inventoried continuously for surveying risks and developing action plans, and specialised risk analyses are made of new construction and acquisitions.

Sustainability

Risk description
Sustainability is a relatively young area. It lacks traditional concepts and definitions. Legal requirements are constantly changing or growing more stringent. This entails high requirements for internal and external communication as well as solid monitoring.

Risk management
Vasakronan has clearly defined sustainability targets. In 2018, the climate targets that Vasakronan had then established were analysed by the Science Based Targets initiative, who stated that they easily met the requirements for reaching the Paris Agreement. In 2022, the company’s new, more stringent targets were analysed with the same result, in other words that they were in line with reaching the 1.5°C target. Skills development for existing personnel is held continuously and internal building management systems are developed. Vasakronan’s Sustainability Report is of a high quality and reviewed by the company’s auditor.

Employees

Risk description
Employees with the right skills are essential if operations are to function and deliver the desired results. Technological developments impose new requirements. Retaining and developing existing employees as well as recruiting new staff is therefore critical.

Risk management
Vasakronan strives to be an attractive employer for existing as well as potential new employees. Vasakronan has development plans for employees and succession planning for key personnel. The corporate culture promotes curiosity, diversity, innovation and flexibility. There is a close collaboration with colleges and universities in order to reach newly qualified expertise.

Do you have questions about risks and risk management?

Please contact Stina Carlson.

Stina Carlson

Head of Group Controlling 076-784 88 43
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