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Fund risk factors

The value of the shares in the Fund is dependent on developments in the financial markets and real estate markets. The Fund considers the following risk factors of relevance for investments in this Fund. This list of risk factors is limited, but other circumstances and events may arise which are not mentioned but that do affect the value of the Fund. Investors are therefore asked to take note of this section and other sections to arrive at a well-informed opinion on the risks in this Fund.

The risk factors are listed below and organised along the lines of the risk categories outlined in the AIFMD. The order of the risks does not reflect the importance or relevance of these risks, as these are clustered in line with the risk categories required by the AIFMD.

1 Market risks

This is the risk that the value of the real estate in the Fund fluctuates due to supply and demand mechanisms in the markets in which the Fund operates. Some of the underlying risk factors may influence the direct return and cash flows of the Fund, while others primarily affect the indirect return. A drop in the value of direct real estate in the Fund has a direct impact on the Fund's indirect return.

The following risk factors may also influence the specific assets in the Fund:

Occupancy rate

Occupancy depends on market demand, availability of competitive propositions and fund portfolio positioning in the market. Occupancy is an important driver for the Fund’s expected direct return. In the event of an oversupply of properties in (parts of) the Fund´s operating market, financial occupancy rates (rental cash flows as a percentage of cash flows at market rates when fully let) may be lower than anticipated and affect the Fund's cash flows and returns.

Operational expenditure

In order to rent out properties and to keep the Fund’s assets in good condition, the Fund has to incur operational expenses. If these expenses are higher than anticipated, this may reduce the return of the Fund.

Inflation risk

Inflation risk is the risk that future inflation is lower than expected or rental markets deviate from these future inflation trends. Rental contracts usually contain inflation indexation clauses, which influences the (future) cash flows of the Fund. Real estate prices in general are also influenced by general price rise assumptions.

Valuation risk

The risk that the value of the property changes and does not reflect fair value. This risk is mitigated by having all properties owned by the Fund revalued by external appraisers on a quarterly basis. This revaluation is the most important driver for the Fund’s indirect return. 

Concentration risk

Part of the strategy of the Fund is to select geographies where rental markets and rental properties are growing faster than the market as a whole. This strategy results in concentrations in geographical areas or property categories. Therefore, the Fund is vulnerable when unexpected trends have a negative impact on these concentrations.

2 Credit risk & Counterparty risk

Credit risk

This is the risk that a counterparty cannot fullfil its contractual financial obligation. Defaults or payment problems may result in clients not paying their contractual rents and service costs and this may affect cash flows and the value of the property.

Counterparty risk

The Fund may have to incur unexpected losses due to the default of one or more counterparties, such as banks or developers. The Fund’s liquidity is deposited with reliable, highly rated banks in the Netherlands.

Since the Funds strategy is to acquire properties that are sometimes under construction or even at the start of the building process, the Fund relies on these counterparties to complete these properties and has often already paid instalments to the developer in line with the progress of the construction. Should the developer run into financial difficulties, the Fund may incur additional costs to complete the property.

3 Liquidity Risk

This is the risk that the Fund has insufficient resources to pay current or future commitments. This risk consists of two parts:

  • Financing liquidity: the liquidity required to pay the Fund's current expenses and dividends to its shareholders.

  • Market liquidity: the liquidity required in the market to dispose of assets (as part of its hold-sell analysis, or to finance redemptions by investors) at prices in line with valuations (i.e. no distressed prices).

4 Operational risk

The Fund is subject to the following operational risks:

  • Fiscal risk: the risk that changes in tax laws unexpectedly influence the value of the underlying properties or the value of the certificates in the Fund.

  • Legal risk: the risk that interpretations of contracts and legal clauses unexpectedly influence the value of these contracts.

  • Regulatory risk: the risk that the value of the Fund changes due to changes in regulations.

  • Model and return risk: the additional risk that expected (modelled) returns have not materialised at the time of sale or valuation and the risk that the Fund may not meet its IRR.

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