We actively work to identify, assess and address the risks that are considered to have the greatest impact on Platzer. Good internal control, control by auditors and well-functioning administrative systems and policies are fundamental factors in managing and minimising risks. Ultimately, it is the responsibility of the Board of Directors to create effective systems for risk management and internal control (see pages 136–137). In operating activities the responsibility lies with the CEO.
We have also graded each risk according to the probability that the risk may be realised and, if so, the extent of the impact on Platzer. The risk rating comprises three levels: low (L), medium (M) and high (H). The selection of risks is based on historical experience as well as assessments regarding the future. Risks that we have not previously been exposed to and which we consider less likely have been excluded from the list.
All page references are made to Platzer's Annual report 2021.
External risks are factors that are outside the company's own operations but which still affect Platzer. The real estate industry is largely affected by factors such as general economic development, employment, production rate for new homes and premises, changes in infrastructure, population growth and demography, inflation and interest rates.
Low 1,2
Medium 3, 4
High 5, 6
Risk | Description | Management |
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Economic cycle Impact M |
Economic growth affects the rate of employment, which is a fundamental basis for supply and demand in the rental market and which therefore impacts vacancy rates and rent levels - particularly in the commercial property sector. Our operations are focused on Gothenburg and therefore depend on economic developments in this region. Because the motor industry in Gothenburg is larger than in the rest of Sweden, the performance of this industry sector is very important for Gothenburg and therefore Platzer too. |
We carefully prepare for every investment and focus our property portfolio in areas which are considered to be attractive even in less favourable economic conditions. In addition, we have a diversified contract portfolio, which minimises exposure to individual industries and customers. We only have minimal exposure to the retail sector (1% of rental income) – the segment which is currently assessed to represent the largest risk. For a description, see section External factors and markets on pages 14–20. Another factor is the slow speed of the property sector, with long leases and rent paid in advance, making it possible to cut costs before any fall in income. This was clearly noticeable at the start of the pandemic. |
Inflation and interest rate Impact M |
Inflation assumptions affect interest rates and therefore also our net financial income/expense. Interest expense is our largest single expense. Large changes in interest rates have an impact on our results and cash flow. Inflation also affects our property costs. Additionally, in the long term, changes in interest rates and inflation also affect property yield requirements and thus the market value of the properties. |
Most leases are adjusted for inflation as rents are linked to the Consumer Price Index (KPI). We take a systematic approach to variable interest rates and the use of interest rate derivatives to manage interest rate risk in accordance with our financial policy, which is described in more detail in Note 3 on page 96. |
Legislation and taxes Impact M |
Property tax is a large expense for us. Changes in the regulatory framework for corporate, value added and property taxes, as well as other state and municipal taxes, may therefore affect our business environment. | We monitor developments in legislation and taxes, both from the perspective of the company itself and as a member of industry organisations. As far as possible, we seek to take measures to mitigate the effect of any changes. We limit the risk relating to property taxes by recharging these to tenants. |
Local political risk and detailed development plan risks Impact L |
Local political risk primarily consists of delays in major infrastructure projects and the risk of programmes and plans being postponed, subject to appeal or cancelled altogether. The risk may occur within the political system or through strong public opinion. | We closely follow political developments in order to quickly spot signs indicating changes in programmes and plans. Prior to undertaking our own investments and development projects, we enter into a dialogue with the relevant stakeholders in order to respond to and deal with any criticism that could otherwise lead to delays in the projects. We also take into account any delays in the planning process, etc. |
Supply of commercial Impact M |
The supply of commercial property affects both the occupancy rate and rents. Vacancy rates in Gothenburg have been very low for a long time but as more and more major construction projects are completed, supply will increase. | Our portfolio is focused on attractive locations in places where we can actively contribute to the development of the area. This helps ensure continued strong demand to meet the increase in supply. Our assessment is that attractive locations will play an increasingly crucial part as a result of changes in demand and a growing trend towards using the office as meeting place. |
Commodity price risk Impact M |
Commodity price risk primarily occurs in connection with long-term development projects involving purchases of large volumes of materials. | The commodity price risk is not managed through financial hedging and is limited to the respective development projects. |
Electricity supply Impact H |
An increasingly high degree of electrification of society means increased demands on capacity and a future peak demand shortfall in electricity infrastructure. | We have a good and proactive dialogue with energy companies in every municipality and have a good opportunity to contribute to this dialogue because of our size and internal knowledge and competence. We are actively working on peak demand distribution in energy demand management. |
Operational risks refer to risks that are related to the core business, ie property management, city, property and project development as well as real estate transactions.
We work continuously to review our operational risks. In 2020, we will, among other things, further analyze risks related to human rights and anti-corruption.
Risk | Description | Management |
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Change in the value of Impact H |
Changes in the value of properties impacts both our results and our financial position. Our investment properties are recognised at fair value and changes in value are recognised through profit and loss. Property values are calculated on the basis of several factors. These are property-specific factors, such as vacancy rate, rent level and operating costs, and market-specific factors, such as required yields and cost of capital, which are based on comparable transactions in the property market. The valuation process includes the risk that assumptions made are incorrect, which would also impact valuation. | By concentrating properties in attractive locations with good development potential in the Gothenburg region, the risk of negative changes in value is reduced. The fact that we actively work with maintenance and development of properties also reduces the risk. Property valuations are carried out every quarter. Around 50% of the property portfolio is valued by external parties. Our internal valuations are quality assured by independent valuation specialists. See Note 12 on pages 105–106. |
Rental income and occupancy rate Impact M |
Platzer’s income is affected by rent levels and property occupancy rates, as well as the solvency of tenants. Both occupancy rates and rents in turn are affected by the economy, population growth and the supply of similar premises. | Our property portfolio is concentrated in attractive areas in the Gothenburg region which have shown stable economic development, with growing demand for premises and low vacancy rates. We take a long-term perspective in our letting operations and do not initiate any new projects without a satisfactory occupancy rate. Lease terms vary from one to 20 years, with the majority of leases being for a term of three years or more. By working in close cooperation with tenants, employing our own staff to do so, and by sharing tenants’ values, we ensure a high level of customer satisfaction. We are also working to develop the areas where we operate. We also reduce risk by having a large percentage of public sector tenants, long lease terms, a large proportion of multi-purpose buildings, and by monitoring the solvency of tenants. We also have a wide range of leases. At year-end, the 20 largest leases accounted for 36% (34) of rental income on an annual basis, of which the largest one accounted for 4% (3). |
Property costs Impact L |
Property operating expenses to a large extent comprise public utility costs (e.g. costs of electricity, waste collection, water and heating). Several of these services can only be purchased from a single supplier, limiting the opportunities to impact the cost. Additionally, costs include property taxes, property maintenance costs and administrative expenses. Unforeseen and extensive repairs may also have a negative impact on results. |
We recharge more than 90% of public utility costs to tenants. We are also continuously working on optimising and improving the energy efficiency of our properties. A structured approach and preventive maintenance also reduce the risk of unforeseen costs. A separate maintenance plan has been drawn up for each property. For a description, see the section on property management on pages 38–39. |
Investments and projects Impact M |
Platzer develops and builds its own buildings. This involves risks in the form of higher than expected projects costs as a result of incorrect calculations, changes in conditions or higher acquisition costs, etc. Delays may also result in income starting to be generated later than expected. | The projects are implemented through different forms of construction contracts, resulting in flexible and cost-effective production. We are always in direct contact with customers, the decision-making process is short and handover to the property management organisation is quick and simple. The company applies the precautionary principle to all its investments. This means that no investments can be undertaken until it is possible to secure a reasonable return by signing leases. |
Property transactions Impact M |
All property transactions are associated with uncertainty, for example, loss of tenants, unforeseen costs of handling technical problems or environmental cleanup. |
Prior to an acquisition, we conduct legal, financial, technical and environmental due diligence. In addition, all acquisition agreements contain customary, as well as transaction-specific, guarantees and other commitments on the part of the seller. With regard to disposals, we seek to achieve well-balanced terms of agreement with the usual limitations on liability and open and transparent disclosure. For a description, see the section on property transactions on page 56. |
Organisational risk and operational risks Impact M |
Platzer’s continued success is largely due to its staff, both senior executives and other employees, and also the fact that the company’s contractors have access to skilled workers. Currently, there is a lot of competition for staff and competence, which raises the risk of increased turnover of staff and therefore a slowdown in operations. |
We are actively working to improve employee engagement and encourage loyalty to the company. Employees have annual performance appraisals and follow-up meetings. We carry out annual employee engagement surveys. Every member of staff is awarded a lot of freedom and responsibility. Company-wide core values underpin day-to-day work and serve as guidelines for decision-making. For a description, see section on employees on pages 33–36. In order to ensure access to competence in development projects, we work in close cooperation with our contractors. In some cases, we and the contractor are joint owners of the property during the development phase. This gives both parties an added incentive to finish the project. |
Dispute risk Impact L |
As in all business activities, there is a risk that Platzer could become involved in legal processes, which could have an adverse effect on the company’s operations, financial results and financial position. | We prepare for this risk by taking a structured approach in accordance with policies and established guidelines. |
It-risk Impact M |
IT systems are a vital and integral part of Platzer’s operations. These systems can be attacked, operations manipulated, information could end up in the wrong hands and be distributed to the wrong people. There is also a risk that Platzer does not comply with applicable legal requirements. | We are continuously implementing measures to improve IT security and update firewalls, virus protection software and systems on a continuous basis. We also conduct penetration testing and continuously review our procedures for IT protection. |
Supplier risk Impact L |
There is a lot of competition for contractors, resulting in stringent requirements for procurement and for ensuring that contracts are accurately drafted. Otherwise there is a risk of a lack of clarity around responsibilities and of increased costs. Another risk linked to relationships with suppliers is that suppliers do not comply with contracts or our Code of Conduct. |
Good local knowledge and understanding of the market have enabled us to create long-term, well-established partnerships with contractors and suppliers. We also have tried and tested procedures and processes for procurement and purchasing. We are engaged in a continuous dialogue with contractors on requirements for compliance with our rules. Our core values also provide clear directions and responsibilities for project managers and other staff. |
Risk | Description | Management |
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Interest rate risk Impact M |
The Group has interest-bearing financial assets and liabilities, changes in which due to market rates affect results and cash flow from operating activities. We do not apply hedge accounting. Interest rate risk refers to the risk that changes in general interest rates will have an adverse effect on consolidated net results. | We minimise interest rate risk by means of varying loan terms and fixed rate periods in order to create an optimal maturity structure. The company continuously monitors its borrowing at variable interest rates. A benchmark portfolio with an associated interest rate risk framework which the Group must remain within, is used to manage risk. In 2021, the Group’s borrowing comprised borrowing in Swedish krona at variable and fixed interest rates. Management of interest rate risk is described in more detail in Note 3 on pages 96. |
Credit risk Impact L |
The credit risk is primarily associated with the company’s investments of cash and cash equivalents and losses incurred on customers. The latter occurs when customers are declared bankrupt or otherwise are unable to meet their payment obligations. | Our investment policy is to choose counterparties with a high credit rating and to use instruments with a high liquidity. The Group’s credit control means that before credit is granted, a credit check is carried out which involves obtaining information on the customer’s financial position from a credit information company. Rent is invoiced in advance and normally paid in advance. Management of credit risk is described in more detail in Note 3 on pages 96. |
Liquidity risk Impact H |
Liquidity risk is the risk of the Group not having sufficient liquid assets to meet its payment obligations with regard to financial liabilities. | In order to ensure good solvency in the operating activities, we must aim to maintain no more than a sufficient amount of cash and cash equivalents to be able to meet liquidity reserve requirements. We aim to have efficient payment procedures and efficient liquidity planning. In order to identify payment flows, liquidity forecasts are carried out on a rolling basis. Management of liquidity risk is described in more detail in Note 3 on pages 96. |
Refinancing risk Impact H |
Refinancing risk refers to the risk that refinancing of a loan that is maturing cannot be implemented, or the risk that refinancing must take place in unfavourable market conditions at unfavourable interest rates. | We limit refinancing risk by spreading the maturity structure of the loan portfolio over a long period of time, and by distributing financing between several counterparties to prevent liquidity problems from arising. Our policy is to always maintain good forward planning in refinancing negotiations and to ensure that no more than 35% of loan agreements should fall due for refinancing within the next rolling 12-month period. Management of refinancing risk is described in more detail in Note 3 on pages 96.
|
Seasonal risk Impact L |
As a property owner, the winter months in particular involve higher property costs due to heating and snow clearance, resulting in seasonal variations. | Because the majority of our leases with customers are basic leases that do not include utility costs, variations in outdoor temperature have a fairly small impact on us. Another mitigating factor is Gothenburg’s relatively mild climate and winters with little snow. In terms of income, there are no significant seasonal variations. |
Risk | Description | Management |
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Environmental risk Impact L |
Environmental risks in our business comprise the following risks: - that contamination or toxic substances are found in properties and buildings - greenhouse gas emissions (indirect and direct) - waste management All of these may present a risk to humans, the local environment and climate in general |
We take a systematic approach to day-to-day environmental activities, which are integrated into our business; an increased percentage of environmentally certified properties and a higher level of certification are part of this. We also have ambitious targets for reducing energy consumption. We are engaged in an active dialogue with our tenants and are working together to increase the volume of waste than can be recovered. Materials selection awareness is an important issue in new construction but also in conversion projects. For more information on our sustainability work, see pages 29–31, 47–51, 59–60 and 121–129. |
Climate-related risks Impact M |
Climate change, such as rising temperatures, increased risk of heavy rains and rising sea levels, resulting in flooding, means increased risk of damage to our properties, but also rising costs due to increased demand for cooling and humidity and damage control in properties. |
We are actively working to reduce the climate impact of our own property management through environmental certification of our properties and other measures aimed at reducing our greenhouse gas emissions. In the reporting period the SMHI carried out an analysis of the climate-related risks in our property portfolio. This analysis forms an important part of our continued efforts to focus and prioritise our contributions where the climate risk is biggest and proactive measures have the biggest impact. |
Social risks Impact L |
Social risks are risks associated with areas where we own properties. There risks can range from perceived lack of security to criminality. In the long run, social risks may result in tenants leaving the area, which in turn results in falling rents and lower property values. |
We try to focus our property holdings in attractive locations where we can be an active participant and contribute to the development of the area. This involves both managing and developing our own properties and playing an active role in area development in collaboration with other stakeholders. |
Political risk and capital Impact M |
Climate and sustainability are central issues for both political decision-makers and leading players in the capital market, resulting in constantly new requirements for listed property companies like us. The requirements involve both increased reporting of partly new parameters and expectations of increased transparency; for example, reporting in accordance with some parts of the EU taxonomy will be applied with effect from 2021 and will increase in scope in the future. Companies which fail to meet standards risk losing out on both business opportunities and financing. |
We continuously comply with any new requirements and guidelines and ensure our expertise in this area. We decided early on to obtain environmental certification of our properties. Our actions have ensured that we now have a large percentage of green financing. |