Risk management

Internal bodies responsible for risk management are the Control and Risk Committee, an advisory body that supports the Board of the Directors in the evaluation, guidance and adequacy of the internal control and risk management system, and the Risk Management Function, which prepares the risk map to which the company is or could be exposed and constantly evaluates the possible onset of new risks taking into consideration all significant elements in the reference or business context.

Risk Management process phases

The company's risk map is updated at least once a year and is submitted to the Control and Risk Committee for approval and, afterwards, to the Board of Directors. The structure of the company's risk map is inspired by the main best practices of the financial sector even if not directly applicable to COIMA RES. The risks exposed in the map also take into account the investment strategy adopted by the company and its status as an SIIQ from which there are constraints on the nature of revenues and capital assets.

The Risk Management Model

The Company adopts an advanced Risk Management Model that combines quantitative analyses for rate, credit and market risks and qualitative analyses for other risks (operational, reputational and strategic) and includes the use of scenario analyses and stress tests aimed at evaluating the degree of exposure to the main risks in adverse conditions.

Market risk

The risk of losses related to the fluctuation in the prices of properties in the portfolio resulting from adverse changes of macroeconomic variables, the property market and/or the specific characteristics of the properties owned by the Company. This risk also includes the effects resulting from properties in the portfolio that are vacant (vacancy risk) and potential losses associated with investment in “value-added” projects, in particular relating to restructuring or refurbishment works of certain real estate projects.

COIMA RES Mitigation

The Company’s investment strategy is focused on high-quality assets (real estate or fund units) in large urban areas, specifically in Milan, which have demonstrated high income capacities and good resilience during negative market cycles, partly due to a less volatile level of demand compared with smaller assets located in secondary cities. Regarding vacancy risk, the Company favours long-term rental agreements with adequate protection clauses. Tenant-specific asset management initiatives are designed in order to understand the situation and needs of each tenant, and to identify and address potential problems proactively. Furthermore, the high quality of the Company’s real estate assets mitigates the vacancy risk.

Credit and counterparty risk

The risk of losses resulting from the non-compliance of counterparties due to the deterioration of their creditworthiness, with them defaulting in extreme cases with reference to:

  • - tenants;

  • - counterparties in real estate development operations (manufacturer, operator);

  • - counterparties in real estate transactions.

COIMA RES Mitigation

During the on-boarding phase, the Company analyses and continuously monitors the risks of non-compliance of tenants and other significant counterparties (e.g. solvency and creditworthiness analyses, analysis of the financial situation, references, prejudicial and negative information, etc.), also resorting to external databases. In this regard, the Company’s investment strategy favours reputable and well-capitalized counterparties and those belonging to large international groups.

Concentration risk

The risk resulting from properties leased to individual counterparties or groups of legally connected counterparties, counterparties from the same economic sector or which carry out the same activity, or are located in the same geographical area.

COIMA RES Mitigation

The Company analyses and monitors this risk regularly and has also defined the limits in its Articles of Association with regard to concentration of individual properties/tenants. The Company’s strategy involves increasing the number of tenants and the number of industrial sectors in which our tenants are active, in order to mitigate the risks associated with excessive concentration.

Interest rate risk

The risk related to adverse changes in the rate curve that change the current value of assets, liabilities and their net value (ALM), and cash flows (assets and liabilities) based on changes in interest expense (assets and liabilities).

COIMA RES Mitigation

The Company purchases hedging instruments or otherwise contractually fixes an adequate amount of its floating rate exposure in order to reduce the impact of adverse changes in interest rates.

Liquidity risk

The risk of not being able to meet one’s payment obligations due to:

  • - the inability to obtain funds in the market (funding liquidity risk);

  • - the inability to monetise one’s assets (market liquidity risk).

COIMA RES Mitigation

The Company continuously monitors the level of its liquidity based on detailed cash-flow analyses and projections as well as through cash flow and ALM risk management activities, utilizing among other tools scenario analyses and stress tests.From the perspective of optimising the financial and capital structure, the Company limits financial leverage to 40% of the total value of assets.

Other financial risks

Other financial risks not associated with real estate assets such as, for example, counterparty risks and/or other market risks on any financial instruments in the portfolio.

COIMA RES Mitigation

The strategy currently adopted by the Company involves a limited investment in assets other than real estate assets except for treasury bills and instruments needed to hedge interest rate risk; this also takes into account statutory restrictions related to the SIIQ status to which we are subject. Exposure to any financial risks, not connected with real estate assets, is subject to periodic monitoring and is also mitigated through our use of reputable and well-capitalized banking counterparties.

Operating risk

The risk of suffering losses resulting from the inadequacy or malfunction of procedures, human resources and internal systems or external events. This risk includes the risk of outsourcing, i.e. the operating losses arising from the performance of the outsourced activities.

COIMA RES Mitigation

Operating risks are addressed by adopting adequate internal procedures and the structuring of the internal control system on three levels:

  • - Level One: Scheduled checks carried out by the business units and staff functions;

  • - Level Two: Checks carried out by the Legal, Compliance and Risk Management functions;

  • - Level Three: Checks carried out by the internal audit function based on the Audit Plan.

Legal and compliance risk

The risk of changes in performance due to changes in the legislative framework.

COIMA RES Mitigation

The Company continuously monitors the risk of non-compliance with current legislation and compliance requirements. Our compliance checks include asset and profit tests to ensure that legal requirements, necessary to maintain the SIIQ status are met now and in the future, as indicated in the Articles of Association.

Reputational risk

The current or future risk of a fall in profits or capital, resulting from a negative perception of the Company’s image by customers, counterparties, shareholders, investors or the Regulatory Authorities.

COIMA RES Mitigation

Reputational risk, like operating risk, is mitigated by adopting an adequate organizational and control structure, consistent with international best-practices. We also mitigate reputational risk by putting in place stringent and specific procedures such as supervising external communication, overseeing interaction with stakeholders (e.g. governmental authorities) and monitoring contact with investors (e.g. complaint management).

Strategic risk

Pure risk and business risk; this consists of the current or prospective risk of a fall in profits or capital, resulting from changes in the operating environment or from incorrect corporate decisions, inadequate implementation of decisions, poor reaction to changes in the competitive environment, customer behaviour or technological developments.

COIMA RES Mitigation

In addition to a comprehensive strategic planning and evaluation process for analysis of investments, strategic risk is mitigated by the high level of experience and professionalism of Company management, with regard to the real estate market, operational/financial management, and internal controls.