Financing
The holding company is responsible for the financing of Corio on the basis of defined guidelines and procedures. In consultation with the Supervisory Board the financing framework is periodically evaluated and confirmed by the Management Board, with ranges being determined for interest rate fixing, currency hedging and the optimum structure of the loan portfolio as part of this process. Information on the financing structure and key ratios is provided in the Report of the Management Board.
Availability risk
The risk that lenders will not be willing to lend at acceptable rates is reduced by spreading the maturity dates of long-term loans and facilities and by taking steps to ensure sufficient credit facilities are immediately available. The total amount available in committed credit facilities,cash and cash equivalents is sufficient to cover interest and repayment obligations on short-term and long-term loans.
Liquidity risk
Corio must at all times meet its obligations under the loans it has taken out, including the interest cover ratio obligation. The interest cover ratio is calculated by dividing the net rental income by the net interest payable. This may not be less than 2.2. Corio must also meet leverage requirements: The total amount of borrowings may not exceed 55% of the balance sheet total less intangible assets.
The ratios to which Corio has committed itself in its loan agreements are monitored monthly and also every quarter (projections looking two years ahead). The consolidated cash flow plan, which is updated on the basis of investment and disposal proposals and any fluctuations in income and expenditure, is the most important basis for this analysis.
Exchange risk
With the exception of Turkey and Bulgaria, Corio operates in euro countries only. For acquisitions in Turkey we use functional currencies based on the economic risk attached to the rental cash flows. These currencies are either the euro or the US dollar. Exchange risks are hedged to a large extent by financing investments with loans in the same currency or by making use of currency swaps. The net cash-flow in US dollars for the next five quarters has been hedged.
Interest rate risk
Although the automatic inflation adjustment in leases provides a certain degree of protection, this is insufficient to cover any increase in interest rates in the same period. Since 2003, Corio has applied the principle that interest rates must be fixed for periods of over one year for at least 1/3 and no more than 2/3 of its loan portfolio. During the year under review, approximately 65% of interest rates had been fixed for long periods.
Source: Annual Report 2008, Chapter Corporate governance, page 131 (PDF, 72 kB)
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