Concentration (cluster) risk

A certain level of concentration (cluster) risk in the portfolio arises where a single investment exceeds a defined upper value in the total portfolio as regards location or investment volume. In such cases, the potential market risk is heightened significantly and the prospect of selling these properties can be diminished (especially where the market environment is constricted). On the other hand, exceptionally small properties raise the danger of excessive administration costs (in relation to rental revenue). For this reason, CA Immo seeks joint venture partners or an early (partial) exit for large-scale investment initiatives as this substantially lessens the burden of risk on the company. To bring about a suitable balance between expenditure and revenue, small properties (which are generally acquired through portfolio purchases) are regularly sold off and the composition of the portfolio is assessed on a quarterly basis. Concentration risk is also created where certain investments lead to over-representation of a particular region, country and specific usage type or tenant structure in the overall portfolio: this is because changes in the market can affect levels of demand which will impact negatively on the company’s profitability. Concentration risk as regards tenants generally arises where individual tenants are over-represented in terms of rental revenue and rentable space and thus have a significant bearing on the earnings of the CA Immo Group. As a countermeasure, especially on the target markets of Eastern and South Eastern Europe, CA Immo applies regional investment limits according to the size of the overall portfolio and, in the case of individual properties, the size of the respective market. Aside from regional distribution, efforts are made to ensure diversification in the tenant structure and usage types. In terms of tenants a concentration risk will only be accepted in case of long-term leases and an excellent credit rating.

If we define the limit value for concentration/cluster risk at 5 % of the total portfolio, only one investment (Tower 185) falls into this category. Given the current equity commitment of € 190 m on this project, an (partial) exit is planned following completion. Construction financing until is valid until the end of 2012. Due to the difficult market environment negotiation about the prolongation are already initiated. Although the package of investment properties acquired from the state of Hesse in 2006 makes up some 15 % of the overall portfolio, it comprises a total of 36 properties that the company could sell individually. In view of the long-term nature of existing lease contracts and the satisfactory creditworthiness of the tenant (the state of Hesse), this portfolio represents a calculated risk. Alongside Tower 185 and the Hesse portfolio, three more individual properties have an IFRS market value of over € 100 m. In terms of location, Prague (River City) and the logistics park in Bucharest have created concentration risk within the portfolio. As regards our land reserves and land development projects, risk arises from the high associated capital commitment; the prevailing market climate is also hampering development projects. For this reason, further property sales are in the pipeline for 2012, measures have been put in place to accelerate land development projects where possible and joint venture partners are being involved at an early stage with a view to cutting the capital commitment.

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