Risk and sensitivity analysis
Minimizing risks and optimizing opportunities is an integrated part of our business plan. Wallenstam’s employees participate in both the risk inventory process and the preventative work.
All events cannot be foreseen. For this reason, part of Wallenstam’s risk work involves being prepared for crisis management. We make a conscious effort to make the best of opportunities and manage and mitigate potential risk factors.
Operational risks are those related to core activities. There are risks in production and management of properties, for example for occupational accidents and unforeseen events, which are handled by adopting a working environment plan at an early stage and appointing coordinators. We develop long-term relationships with contractors and suppliers and have established routines for random inspections and checks to ensure that our partners follow agreements entered into and our Code of Conduct.
Clear processes and templates for procurements and sourcing help offset the risk of corruption. For example, there are routines to ensure that two persons jointly review and authorize lettings and sourcing and also check tenders and agreements prior to signing.
Good relationships with several lenders provides good financing possibilities. Financing is always ensured before new construction starts, which eliminates the risk of low liquidity.
We work continually to maintain well-functioning and fit-forpurpose IT security for our operations and ensure that information is handled securely. Focus on employees is considered important for quality and satisfied customers. By offering a good working environment, attractive and market-related employment conditions, health and wellness training, skills development etc., we can recruit and retain employees with the right profile and competencies. Recruitment is prioritized as a strategic area.
Heating is a major expense item for every property company. It is impacted by seasonal effects such as temperature and weather. Costs are higher during the first and fourth quarters when heating and property maintenance expenses are affected by cold, snowy winter months.
External risks are mainly those that lie outside our scope of operations, for example in the form of changing market conditions.
Property values are affected by our own property management activities and general market conditions. Having properties in attractive locations lowers the risk of falling values during an economic downturn. As of June 30, 2020, the estimated market value amounted to about SEK 55 billion. A change in value of +/- 10 percent is equivalent to a change in value of around SEK 5.5 billion. Small changes in the yield requirement can result in large changes in value. A general change of plus/minus 0.25 percentage points in property yield requirements is equivalent to about SEK -3.2 billion or SEK +3.8 billion.
Factors such as interest rate increases result in higher costs and have a large impact on profits. Wallenstam’s management includes a loan portfolio with different maturities, where the loans are spread among various forms of credit and lenders. Interest rate derivatives are used to spread risk.
Supply and demand for Wallenstam’s products can vary over time. Wallenstam owns and manages properties in attractive areas, which are characterized by growth and strong demand. We have a flexible business model, which provides the possibility to adapt supply, form of tenure etc. in the event of changing demand. A keen awareness for market trends as well as advance planning are two key factors.
Wallenstam follows developments in legislation and regulations linked to issues concerning our operations. Legal cases and regulatory changes, which may result in changed conditions are interpreted and we are proactive in meeting new requirements, practice and laws.
|Sensitivity Analysis, Cash Flow 12/31/2019||SEK million|
|Change in rental income, residential, 1%||9.4|
|Change in rental income in renegotiable
commercial contracts, 1%
|Change in operating costs, 1%||5.0|
|Change in loan interest rate
1 percentage point (annual)
|Sensitivity Analysis, Property value using
other yield requirements 12/31/2019
|0.50 percentage points lower||60,377|
|0.25 percentage points lower||56,027|
|0.10 percentage points lower||53,753|
|Property value according to our estimate||52,354|
|0.10 percentage points higher||51,104|
|0.25 percentage points higher||49,233|
|0.50 percentage points higher||46,289|