Our risks and how we manage them

Risk description

Impact

Mitigation
Liability structure
  • Future fall in property values may impact LTV ratio and reduce availability of future financing.
  • Inability to fund operations and capital expenditure programme.
  • Liquidity and gearing kept under constant review.
  • Utilise the credit support of a ring-fenced group of assets (the Security Group) that comprises the majority of the Group’s investment property portfolio.
  • These assets are available to sell/provide security for raising new debt.
  • Limited debt market capacity.
  • Unable to meet existing debt maturities and forward cash requirements.
  • Long-term facilities in place.
    Notes

    During 2009/10 we increased the average duration of our debt from 9.6 years to 11.8 years.

  • Ongoing monitoring and management of the forecast cash position.
  • Commitments are not taken on if funding is not available.
Treasury risk
  • Failure of bank and financial institution counterparties.
  • Loss of cash and deposits.
  • Only use independently-rated banks and financial institutions with a minimum rating of A.
  • Weekly review of credit ratings of all financial institution counterparties.
  • Group Treasury ensures that funds deposited with a single financial institution remain within the Group’s policy limits.
  • Treasury loss or fraud.
  • Loss of cash and deposits.
  • Clear segregation of duties between the treasury front office and back office operations.
  • Counterparty reconciliations.
  • Clearly defined delegations of authority.

Risk description

Impact

Mitigation
People skills
  • Failure to have the right people and skills in the business.
  • Lack the skills required to deliver the business objectives.
  • Succession planning and skill gaps reviewed by Nominations Committee and processes established.
  • Unable to retain and attract the best talent.
  • Loss of knowledge and key skills.
  • Implementation of talent management processes.
  • Remuneration review undertaken by the Board.
  • Breadth and quality of portfolio and development projects.

Risk description

Impact

Mitigation
Consumers
  • Change in consumer behaviours.
  • Cutbacks in retailer opening programme.
  • Increasing voids.
  • Reduced rental growth.
  • Bespoke research commissioned on the impact of structural change in the Retail sector, the results of which are factored into our Retail business plans.
  • Diversified tenant base.
  • Strong established locations and relationships with occupiers.
  • Pre-letting of key units before committing to development.
  • Void management through temporary lettings and void mitigation strategies.
  • Large portfolio allows portfolio leasing deals and flexibility to further reduce voids.
Asset illiquidity
  • Asset concentration and lot size.
  • Assets may be illiquid and therefore difficult to flex balance sheet gearing.
  • Large multi-asset portfolio.
  • No one asset is more than 6.6% of our combined portfolio.
  • Average investment property lot size of £48.2m.
  • Asset liquidity of the portfolio kept under regular review.
Environment
  • Increasing Government intervention and customers’ expectations.
  • Inhibit the viability of our development programme and place greater demand on our resources.
  • Dedicated specialist environment personnel.
  • Established policy and procedures including ISO 14001 certified environmental system.
  • Active environmental programme addressing key areas of impact (energy and waste).
Lease expiries
  • Leases are not renewed.
  • Increased levels of voids.
  • Impact on revenue if major occupier fails to renew lease.
  • Profile of future lease expiry dates kept under regular review.
  • Target for maximum % of leases subject to expiry in any one year.
  • Diversified tenant base.
  • Strong established locations and relationships with occupiers.
  • Of our income 65.1% is derived from tenants who make less than a 1% contribution to rent roll.
  • Variety of asset types and geographic spread.
  • Experienced and skilled in-house leasing teams.
  • Void management and empty rates mitigation.
Asset volatility
  • Volatility of asset values.
  • Risk of negative interaction between falling property values and balance sheet gearing.
  • Asset liquidity of the portfolio kept under regular review.
  • Target ranges for balance sheet gearing.
  • Secure income flows under UK lease structure.

Risk description

Impact

Mitigation
Development pipeline
  • Size of development pipeline and associated leasing risk.
  • Major impact on resources, in particular funding, income and potentially dividend cover.
  • Risk analysis of speculative development pipeline on capital and income basis.
  • Clearly defined delegations of authority.
  • Failure to manage development activity in line with market cycle.
  • Capital expenditure programme does not deliver required returns.
  • Strategy of flexing size of development programme according to the outlook for the market cycle.
  • In-house property market research capability.
  • Skilled in-house development teams.