MRM_REGISTRATION_DOCUMENT_2017

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General information on the issuer and its share capital

Consolidated financial statements for the year ended 31 December 2017

Note 8

Exposure to risk and hedging strategy

8.1 Foreign exchange risk At the date of this document, M.R.M. engages in no business which could expose it to any foreign exchange risks. 8.2 Interest rate risk The Group has an interest rate cap in place to reduce the interest rate risk on its variable-rate debt. As of 31 December 2017, 71% of variable-rate bank debt was hedged by way of an interest rate cap of 3% based on the three-month Euribor. A 100 basis point increase in interest rates would have a €227 thousand impact on the Group’s financial expenses. Since current interest rates are very low, or even negative, the cap taken out by the Group is not in the money. 8.3 Liquidity risk The Company’s level of leverage could affect its capacity to take out further loans. The Group’s liquidity policy is to ensure that the total amount of rents is at all times higher than its working capital requirements to cover operating expenses, interest and repayment of its entire existing debt and the leverage it seeks to implement its investment programme. Certain loan agreements entered into or that may be entered into by the Group or its subsidiaries contain or may in the future contain standard early repayment clauses and covenants. These covenants define the thresholds to be respected for a number of ratios, in particular the loan to value (LTV) ratio, defined as the ratio of the amount of the loan to the market value of the property financed, the interest coverage rate (ICR), representing the coverage rate of interest expenses by rents, and the debt service coverage ratio (DSCR), representing the coverage rate of debt repayments and interest expenses by rents. Covenants relating to LTV ratios set maximum thresholds of between 59.9% and 65%. Covenants relating to the ICR and DSCR set minimum thresholds of between 130% and 300%. It is at the level of Group subsidiaries, which own the property assets financed, that the covenants are tested. As of 31 December 2017, the Group complied with all commitments in respect of LTV, ICR and DSCR covenants agreed with its banking partners.

8.4 Credit risk Credit risk represents the risk of financial losses for the Group should a customer or counterparty to a financial instrument fail to meet their contractual obligations. For the Group, this risk comes from its trade receivables. The Group’s counterparties to its financial assets are lending institutions with the highest ratings. Financial assets are limited to derivatives (interest rate caps). The Company has drawn up a credit policy to limit its exposure. As a rule, solvency checks are conducted on potential customers to ensure their creditworthiness meets the Group’s risk requirements. Certain tenants account for a significant proportion of the Company’s annual invoiced rents. The termination of one or several leases could have an impact on the level of rents received by the Company, and on its profitability. Nonetheless, the principal leases were signed recently and some tenants are bound by firm leases that can run from between three and nine years. 8.5 Property asset valuation risk The Group’s property portfolio is appraised twice a year. The valuation of the property portfolio depends on a number of factors, relating primarily to the balance between supply and demand on the market, economic conditions and applicable regulations, which can vary substantially, directly affecting the value of the Company’s assets and indirectly affecting the various LTV ratios giving an indication of the Group’s credit risk. The appraised value of the Group’s properties and their final value on disposal may not be identical. In addition, such valuations are based on a number of assumptions which may not prove to be correct. Because the Group’s property assets are booked at market value by outside appraisers, the value thereof can be affected by variations in the bases used in the valuation methods (property market trends, mainly in terms of received rents, changing interest rates especially with regard to discount and capitalisation rates employed).

M.R.M. 2017 REGISTRATION DOCUMENT

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