Interest expenses and financial instruments
The interest rate risk refers to the risk that changes in market interest rates will impact Fabege’s borrowing costs. Under the company’s finance policy, the fixed-rate period is to be based on the estimated interest rate trend, cash flow and capital structure. Fabege employs financial instruments, mainly in the form of interest rate swaps, in order to limit the interest rate risk, and to flexibly influence the average fixed-rate period of the loan portfolio.
Derivatives are recognised at fair value. If agreed interest rates deviate from the market rate, a theoretical surplus or deficit value arises which is recognised in profit or loss.
Interest-bearing liabilities and financial risks
The property sector is capital intensive and requires a functioning capital market. The liquidity risk refers to the borrowing requirement that can be covered by refinancing or new borrowing in a strained market scenario. Fabege aims to strike a balance between short and longterm borrowing divided among a number of financing sources. Long-term credit facilities, with predetermined terms and conditions, and revolving credit facilities have been signed with lenders.
Key figures in Fabege’s loan portfolio
The fixed-rate term of the loan portfolio was about 3.0 years at 31 March 2013. The average fixed-term maturity period at yearend was 5.0 years and available unutilised facilities amounted to SEK 4.0m.
Sensitivity analysis financing
1-percentage point change in the market interest rate will generate an earnings impact of SEK 66m (refers to 2012).
By interest-hedging 81 per cent of the loan portfolio, interest-rate changes will have a limited impact on Fabege’s borrowing costs. Fabege believes that its available facilities are sufficient and that the existing agreements will be refinanced.
Other opportunities and risks
Deferred taxes and loss carryforwards Fabege recognises deferred tax liabilities attributable to the difference between market value and the taxable residual value of properties. However, sales are normally conducted through packaging, resulting in a lower effective tax rate.
Fabege is pursuing several tax cases in the Administrative Court and the Administrative Court of Appeal related to property sales through limited partnerships. As a result of the Tax Agency accepting Fabege’s submitted residual tax value for a number of transactions, the total increase in taxable income was reduced by SEK 605m to SEK 7,763m. Following this adjustment, the decisions have resulted in a combined tax demand, including charges and fees, totalling SEK 2,476m, a decrease of SEK 228m since year-end 2012.
Under the Swedish Environmental Code, commercial businesses are responsible for any contamination or other environmental damages, and for the remediation thereof. The Swedish Environmental Code also stipulates that even if a commercial business is unable to pay for the remediation of a property, the party who owns the property is responsible. Accordingly, Fabege could be subject to such remediation requirements. However, Fabege deems this risk to be minor since its property portfolio primarily comprises commercial office premises.
Fabege continuously investigates and identifies potential environmental risks in its property portfolio. In the event of any such risks arising, action and remediation plans for these are prepared.