Asset Buyout Partners Annual Report 2019

Note 3 Financial Risk Management General objectives, policies and processes The Group’s principal liabilities, other than derivatives are loans and borrowings. The main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s real estate portfolio. The Group has rent and other receivables, trade and other payables, cash and cash equivalents that arise directly from its operations. The Group is exposed to different risk factors, including; market risk, interest rate risk, credit risk and liquidity risk. The risk policies are continuously being assessed by the Board of Directors and the appropriate policies and procedures to identify, measure and manage the financial risks has been implemented. The Group’s overall risk management strategy is targeted to protect the value of ABPs investments. Market risk ABP is exposed to changes in market rents, occupancy in the port- folio and the rate of inflation. Negative development will impact the property portfolio fair value and loan to value ratio. As ABP mainly has long-term lease contracts with fixed revenues over their term the risk is assessed to be minimized in short-term. The Group has all its operations in Norway; thus all lease agreements, financing and expenses are in NOK, consequently there is no exchange rate risk. Interest rate risk The Group’s interest rate risk arises in both the short and medi- um-term perspective as a share of The Group’s borrowings are held at floating interest rates. Changes in the interest rate level will have a direct impact on future cash flows and can also affect future investment opportunities. To manage the interest rate risk, the Group enters into interest rate swaps in which it agrees to exchange at specified intervals, the difference between fixed and variable rates. The purpose of these swaps is to have an economic hedge of the underlying debt obligations. However, the Group does not currently apply hedge accounting. The Group does not trade in derivatives for speculative purposes. A 1% increase in floating interest rate, assuming an average of 65% of the loans swapped to fixed rate, would have resulted in an increased interest costs of NOK 15 million. Credit risk Credit risk is the risk of loss when a party is unable to pay their obligations to the Group. The risk is mainly related to operating cashflow from rent and the value of investment property, in the event that the tenant is unable to service its rent obligation. For total credit exposure see note 9 and note 10. The credit quality of a tenant is assessed based on an extensive and thorough evaluation of the tenant when new lease agreements are entered and as part of the assessments made when acquiring new property with existing lease agreements. Further, credit risk is managed by requiring tenants to pay rentals in advance and by performing regular monitoring of credit quality of the significant tenants. Most of the tenants are large oil and gas and oil service companies and the credit risk is at an acceptable level. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its obligations at maturity, and the risk that the Group will not be able to meet its obligations without a significant increase in cost. The Group’s objective is to maintain a reasonable balance between debt and equity, and to have sufficient available cash to fulfil obligations from the Group’s activity. Currently the liquidity risk is at an accept- able level. The table below illustrates the maturity structure of liabilities 2019 Maturity structure Financial liability Booked amount Year 1 Year 2 Year 3-5 After year 5 Borrowings (bank) 4 108 060 548 154 000 000 4 009 184 099 Derivative financial intruments (interest swaps) 32 147 992 Payment of interest and interest swaps 196 465 692 192 400 799 353 155 096 Other long-term liabilities 42 139 099 4 199 412 4 166 412 21 862 648 45 272 040 Trade payables 8 011 715 8 011 715 Interest bearing short-term debt 354 000 000 354 000 000 Other short-term liabilities 72 281 558 72 281 558 Asset Buyout Partners | Annual Report 2019 25