Castellum — Interim / Quarterly Report 2014

Apr 22, 2014

The pictures shows parts of the property portfolio of nine properties in Halmstad which was acquired in March 2014.

Interim Report January-March 2014

Interim Report January-March 2014

Castellum is one of the major listed real estate companies in Sweden. The fair value of the real estate portfolio amounts to SEK 39 billion, and comprises of commercial properties.

The real estate portfolio is owned and managed by six wholly owned subsidiaries with strong local roots in five growth regions: Greater Gothenburg (incl. Borås and Halmstad), the Öresund Region (Malmö, Lund, Helsingborg and Copenhagen), Greater Stockholm, Mälardalen (Örebro, Västerås and Uppsala) and Eastern Götaland (Jönköping, Linköping, Värnamo and Växjö).

Castellum is listed on NASDAQ OMX Stockholm AB Large Cap.

• Rental income for the period January-March 2014 amounted to SEKm 820 (SEKm 814 previous year).
• Income from property management amounted to SEKm 323 (300), corresponding to 1.97 SEK (1.83) per share, an increase of 8%.
• Changes in value on properties amounted to SEKm 52 (32) and on derivatives to SEKm –170 (166).
• Net income after tax for the period amounted to SEKm 171 (403), corresponding to SEK 1.04 (2.46) per share.
• Net investments amounted to SEKm 864 (333) of which SEKm 324 (407) were new constructions, extensions and reconstructions, SEKm 636 (6) acquisitions and SEKm 96 (80) sales.

	2014 Jan-March	2013 Jan-March	2013	2012	2011	2010	2009	2008	2007	2006	2005
Income from property management, SEK/share	1.97	1.83	8.21	7.65	7.15	6.96	6.89	5.93	5.63	5.38	5.00
Change previous year	+8%	+10%	+7%	+7%	+3%	+1%	+16%	+5%	+5%	+8%	+11%
Net income after tax, SEK/share	1.04	2.46	10.41	8.98	4.34	11.98	0.98	– 4.04	9.07	10.21	7.89
Change previous year	–58%	+11%	+16%	+107%		–64% +1,122%	pos.	neg.	–11%	+29%	+41%
Dividend, SEK/share			4.25	3.95	3.70	3.60	3.50	3.15	3.00	2.85	2.62
Change previous year			+8%	+7%	+3%	+3%	+11%	+5%	+5%	+9%	+11%
Properties fair value, SEKm	38,668	36,683	37,752	36,328	33,867	31,768	29,267	29,165	27,717	24,238	21,270
Net investments, SEKm	864	333	1,081	2,545	1,908	1,279	1,129	2,710	2,559	1,823	889
Loan to value	54%	54%	52%	53%	51%	50%	52%	50%	45%	45%	45%
Interest coverage ratio	291%	270%	292%	284%	278%	299%	309%	255%	287%	343%	315%

Key ratios

For more detailed information see Castellum Annual Report.

2 Castellum Interim Report January-March 2014

Henrik Saxborn, CEO at Castellum

High activity and continued growth - this is how to best describe Castellum's fi rst quarter. In a well-functioning rental market, Castellum has continued its positive trend of growth in income from property management which amounted to 8% for the fi rst quarter. This growth rate is stable and it is gratifying that all segments contributed through higher rental revenues as well as lower property and fi nancing costs. When comparing with the fi rst quarter of last year, it should be taken into consideration that we then had a non-recurring income of SEKm 11, which renders the fi rst quarter of 2014 even stronger.

High net leasing is proof that the rental market remains positive. During the period, Castellum's employees signed 200 new leases. This contributed to a continued positive net leasing of SEKm 26, which is on par with last year. In contrast to the end of 2013, leasing within the existing portfolio now defi nitely accounts for a major share of net leasing performance.

I can also state that during these fi rst months of the year we have continued to strengthen our positions in those locations in which we operate. We are particularly pleased with our acquisition of a larger portfolio, comprising 43,000 sq.m, in Halmstad - a substantial portfolio with Halmstad University as the main tenant. This means that Castellum achieved critical mass and can thus be involved in developing Halmstad: A city that exhibits high growth.

The capital market continues to be well-functioning and is a good complement to our traditional bank fi nancing. It is gratifying to note that we during the fi rst quarter issued a new fi ve-year bond of SEKm 500 on favourable terms and with a longer term to maturity than before - equivalent of 5.25 years. In total, currently issued bonds amount to SEK 3.7 billion.

I see an active real estate market with a strong demand in our primary locations. Meanwhile, there are no signs of a need for adjustments regarding required yields. The volume of completed transactions has increased, particularly outside the most central areas of the big cities where Castellum is well positioned.

Castellum has been actively working on sustainability issues for many years, and we're now enhancing our efforts even further by establishing a stronger, common, corporate unit within the realm of sustainability.

During the period, our shareholders received a dividend of SEK 4.25 per share, totalling SEKm 697, and this means that the dividend has increased 16 years in a row by an average of 12% per year. In my opinion this is the best possible stamp of approval for pursuing steady growth at low risk. After the dividend, the loan-to-value ratio at the end of the Quarter amounted to 54%.

In the Annual Report, I dared to believe in continued growth in Castellum's income from property management for 2014 despite the prevailing macro picture at year end. The beginning of 2014 has turned out stronger than expected; and in spite the recent growing geopolitical uncertainty, my positive assessment remains unchanged.

Henrik Saxborn CEO

Business Concept

Castellum's business concept is to develop and add value to its real estate portfolio, focusing on the best possible earnings and asset growth, by offering customised commercial properties, through a strong and clear presence in fi ve Swedish growth regions.

Strategy for the property portfolio and its management

Development of commercial properties in growth regions

Geography and category

Castellum's real estate portfolio is located in the fi ve growth regions Greater Gothenburg, Öresund Region, Greater Stockholm, Mälardalen and Eastern Götaland. This together with rational property management and a strong presence in the market, provide for good business opportunities.

The real estate portfolio shall consist of commercial properties with general and fl exible premises for offi ce, retail, warehouse, logistics and industry purposes.

Property portfolio

The real estate portfolio shall be continuously enhanced and developed in order to improve cash fl ow. Castellum shall continue to grow with customers' demand, mainly through new constructions, extensions and reconstructions but also through acquisitions.

All investments shall contribute to the objective of growth in income from property management within 1-2 years and have a potential asset growth of at least 10%. Sales of properties will take place when justifi ed from a business standpoint.

Customer focus through local organizations

Customers

Castellum shall be perceived as a customer focused company. This is achieved by developing long-term relations and supplying premises and service meeting customer demands.

Organization and employees

Service and property management shall be delivered by a decentralized organization with wholly owned subsidiaries with strong local presence. Property management shall be carried out mainly by own personnel.

Castellum shall have skilled and committed employees, which is achieved by being an attractive workplace with good development possibilities.

The business shall contribute to a sustainable development, in view of ecological, social and economic aspects.

Strategy for funding

Strong balance sheet with low financial and operational risk

Capital structure

Castellum shall have low fi nancial risk. The choosen risk key ratios are loan to value and interest coverage ratio. Purchase or transfer of own shares shall be available as a method for adjusting the company's capital structure to the company's capital need and as payment or funding of real estate investments. Company owned shares may not be traded for short term purpose of capital gain.

The stock and credit markets

Castellum will work for a competitive total return on the company's share relative to risk and also strive for high liquidity.

All actions will be made from a long-term perspective and the company will hold frequent, open and fair reports to shareholders, the capital and credit markets and the media, without disclosing any individual business relationship.

Low operational risk

Castellum's real estate portfolio have a geographical distribution to fi ve Swedish growth region and shall consist of different types of commercial premises. The risk with in the customer portfolio shall be kept low.

Overall objective

Castellum's overall objective is an annual growth in cash fl ow, i.e.income from property management per share, of at least 10%

Strategic tools Outcome

Capital structure

Loan to value ratio not permanently exceeding 55%. Interest coverage ration of at least 200%.

Dividend

At least 50% of pre-tax property management income shall be distributed. Investment plans, consolidation needs, liquidity and fi nancial position in general will be taken into account.

The stock and credit markets

In the long term, Castellum shall be one of the largest listed real estate companies in Sweden.

Low operational risk

Risk within the customer portfolio shall be kept low using diversifi cation over many fi elds of business, length and size of contracts.

Loan to value ratio Interest coverage ratio

4,700 commercial contracts where the single largest contact accounts for approx. 2%

Market comments

Swedish economy

Sweden's GDP grew more than expected during last year's fourth quarter. The increase was broadly based, although some of the economic growth can be attributed to temporary effects such as investments in inventory. Reduced economic uncertainty, tax cuts and an expansive monetary policy are contributing to increased household consumption in 2014, and the export industry benefi ts from stronger global growth. The recent growing geopolitical uncertainty means that the conditions for the export industry might change.

The stronger economy will have a positive impact on the labour market and employment is expected to increase at the same time as unemployment rates decrease. However, infl ation in Sweden remains low primarily due to low wage pressures and continued low import prices.

Macro indicators

Unemployment	8.5%	(February 2014)
Inflation	– 0.6%	(March 2014 compared to March 2013)
GDP growth	3.1%	(Q4 2013 compared to Q4 2012)
Source: SCB

Rental market

The rental market remained stable with a strong demand for both new constructions and existing premises. The addition of new space remained at a low level, but increased somewhat in Gothenburg and Stockholm in 2013. Rental levels were largely unchanged, although a slight increase in rental levels was discerned in locations where supply was limited.

Property market

Transaction volumes for the Swedish real estate market amounted to approx. SEK 27 billion (16) for the period. Furthermore, the number of transactions increased: A total of 58 transactions were completed, at a total value of more than SEKm 100, compared with SEKm 34 for the previous year. The increased activity was partly due to increased demand and improved opportunities for bank financing.

The market is still characterized by strong domestic demand and growing interest outside the city centres of Sweden's major cities. Activities were high throughout the country, although the predominant markets during the period were Stockholm and Gothenburg.

Swedish real estate companies dominated on both the seller and the buyer side, and Swedish players accounted for 97% (88%) of the volume. The percentage of transactions involving office premises increased compared with last year, and the commercial segment totalled approx. 86% (69%) in all.

Castellum believes that pricing is stable in all segments and geographic markets.

Interest and credit market

At its April meeting, the Riksbank decided to leave the repo rate unchanged at 0.75%. However, the Riksbank chose to shift the forecast for the repo-rate down, which means that the Riksbank increased the probability of a rate cut in the near future. The STIBOR rate has remained unchanged, whereas long-term interest rates have fallen since the beginning of the year.

Access to fi nancing from banks as well as the capital market is considered favourable. During the fi rst few months of the year, credit margins in the capital market dropped with higher access to slightly longer durations compared with the same period last year.

Income, Costs and Results

Comparisons, shown in brackets, are made with the corresponding period previous year except in parts describing assets and fi nancing, where comparisons are made with the end of previous year. For defi nitions see Castellum's website www.castellum.se

Income from property management, i.e. net income excluding changes in value and tax, amounted for the period January-March 2014 to SEKm 323 (300), equivalent to SEK 1.97 (1.83) per share - an increase with 8%. Income from property management rolling four quarters amounted to SEKm 1,369 (1,282) equivalent to SEK 8.35 per share (7.82) - an increase of 7%.

During the period, changes in value on properties amounted to SEKm 52 (32) and on derivatives to SEKm –170 (166). Net income after tax for the period was SEKm 171 (403), equivalent to SEK 1.04 (2.46) per share.

Rental income

Group rental income amounted to SEKm 820 (814). For offi ce and retail properties, the average contracted rental level, including charged heating, cooling and property tax, amounted to SEK 1,270 per sq.m., whereas for warehouse and industrial properties, it amounted to SEK 771 per sq.m. Rental levels, which are considered to be in line with the market, have in comparable portfolio increased by 1% compared with previous year, which mainly is an effect from indexation and can be compared with the usual industry index clause (October to October), which was –0.1% in 2014. Castellum's higher indexation is due to the Groups focus on index clauses with minimum upward adjustment in the contract portfolio, which offers some protection against defl ation and a higher than usual indexation in a low infl ationary environment.

The average economic occupancy rate was 87.9% (88.4%). The total rental value for vacant premises on yearly basis amounted to approx. SEKm 496 (436).

The rental income for the period includes a lump sum of SEKm 0 (11) as a result of early termination of a lease.

Gross leasing (i.e. the annual value of total leasing) during the period was SEKm 81 (84), of which SEKm 5 (4) were leasing of new constructions, extensions and reconstructions. Notices of termination amounted to SEKm 55 (57), of which bankruptcies were SEKm 3 (4) and SEKm 1 (1) were notices of termination with more than 18 months remaining length of contract. Hence net leasing for the period was SEKm 26 (27).

The time difference between reported net leasing and the effect in income thereof is estimated to be between 9-18 months.

Property costs

Property costs amounted to SEKm 302 (317) corresponding to SEK 334 per sq.m. (352). Consumption for heating during the period has been calculated to 84% (109%) of a normal year according to the degree day statistics.

Property costs	Offi ce/	Warehouse/	2014	2013
SEK/sq. m	Retail	Industrial	Total	Total
Operating expenses	226	144	189	214
Maintenance	42	23	33	32
Ground rent	8	7	8	7
Real estate tax	68	21	47	44
Direct property costs	344	195	277	297
Leasing and property administration (indirect)	–	–	57	55
Total	344	195	334	352
Previous year	369	217	352

Rental value and economic occupancy rate

Net leasing

Central administrative expenses

Central administrative expenses totalled SEKm 26 (21). This includes costs for a profi t-and-share-price related incentive plan for 10 persons in executive management of SEKm 5 (1).

Net interest

Net interest items were SEKm –169 (–176). The average interest rate level was 3.5% (3.8%). Net fi nancial income was positively affected by approx. SEKm 13 due to the average interest rate level decrease by 0.3%-units.

Changes in value

The change in value in Castellum's portfolio amounted to SEKm 52 (32) and refers mainly to acquisitions. The sales of 2 properties resulted in a change in value of SEKm –1. The net sales price amounted to SEKm 96 after reduction for assessed deferred tax and transaction costs of SEKm 6 in total. Hence the underlying property price, which amounted to SEKm 102, exceeded the latest valuation of SEKm 97 with SEKm 5.

Since the demand and prices have been generally stable no general yield change has been made in the internal valuations during the period.

The value in the interest derivatives portfolio has changed by SEKm –169 (166), mainly due to changes in long-term market interest rates. Castellum's currency derivatives, with the purpose to hedge currency fl uctuations in the Danish investments, has during the period changed SEKm –1 (7) where the effective portion of the value changes of SEKm 0 (7) is accounted for in other total net income.

Tax

The nominal corporate tax rate in Sweden is 22%. Due to the possibility to deduct depreciation and reconstructions for tax purposes, and to utilize tax loss carry forwards, the paid tax is low. Paid tax occurs since a few subsidiaries have no possibilities to group contributions for tax purpose.

Remaining tax loss carryforwards can be calculated to SEKm 980 (921). Fair values for the properties exceed their fi scal value by SEKm 18,770 (18,570) of which SEKm 830 relates to the acquisition of properties accounted for as asset acquisitions. As deferred tax liability, a full nominal 22% tax of the net difference is reported, reduced by the deferred tax relating to asset acquisitions, i.e., SEKm 3,731 (3,700).

Castellum has no current tax disputes.

Tax calculation 31-03-2014

SEKm	Basis current tax	Basis deferred tax
Income from property management	323
Deductions for tax purposes
depreciations	– 168	168
reconstructions	– 20	20
Other tax allowances	– 12	17
Taxable income from property management	123	205
Properties sold	0	– 59
Changes in value on properties	–	53
Changes in value on interest rate derivatives	–170	–
Taxable income before tax loss carry forwards	–47	199
Tax loss carry forwards, opening balance	– 921	921
Tax loss carry forwards, closing balance	980	– 980
Taxable income	12	140
Tax accoring to the income statement	– 3	– 31

Income from Property Management per share Income over time

Real Estate Portfolio

The real estate portfolio are located in Greater Gothenburg, the Öresund Region, Greater Stockholm, Mälardalen and Eastern Götaland. The main focus, which represents approx. 73% of the portfolio, is in the three major urban regions.

The commercial portfolio consists of 66% offi ce and retail properties as well as 30% warehouse and industrial properties. The properties are located from inner city sites (except in Greater Stockholm from inner suburbs) to wellsituated working-areas with good means of communication and services. The remaining 4% consist of projects and undeveloped land.

Castellum owns approx. 770 sq.m. of unutilized building rights and ongoing projects with remaining investments of approx. SEKm 950.

Investments

During the period, investments totalling SEKm 960 (413) were carried out, of which SEKm 324 (407) were new constructions, extensions and reconstructions and SEKm 636 (6) were acquisitions. Of the total investments SEKm 724 refers to Greater Gothenburg, SEKm 119 to Mälardalen, SEKm 44 to the Öresund Region, SEKm 40 to Eastern Götaland and SEKm 33 to Greater Stockholm.

After sales of SEKm 96 (80) net investments amounted to SEKm 864 (333).

During the period the real estate portfolio has changed according to the table below.

Changes in the real estate portfolio

	Value, SEKm	Number
Real estate portfolio on 1 January, 2014	37,752	626
+ Acquisitions	636	9
+ New constructions, extensions and reconstructions	324	–
– Sales	– 97	– 2
+/– Unrealized changes in value	53	–
+/– Currency translation	0	–
Real estate portfolio on 31 March, 2014	38,668	633

Property value

Internal valuations

Castellum assesses the value of the properties through internal valuations, corresponding to level 3 in IFRS 13. The valuations are based on a 10-year cash fl ow based model with an individual valuation for each property of both its future earnings capacity and the required market yield. Projects in progress have been valued using the same principle, but with deductions for remaining investments. Properties with building rights have been valued on the basis of an estimated market value per square metre, on average approx. SEK 1,100 (1,100) per sq.m. In order to ensure and validate the quality of the internal valuations, an external valuation – representing over 50% of the portfolio – is made every year-end. The difference between the internal and external valuations has historically been small.

Based on these internal valuations, property value at the end of the period were assessed to SEKm 38,668 (37,752), corresponding to SEK 10,394 per sq.m.

Average valuation yield

SEKm
570
76
40
– 27
659
36,414
7.2%

Investments Average valuation yield over time

Castellums' real estate portfolio 31-03-2014

	31-03-2014			January-March 2014
	No. of properties	Area thous. sq.m	Property value SEKm	Property value SEK/sq.m	Rental value SEKm	Rental value SEK/sq.m	Economic occupancy rate	Rental income SEKm	Property costs SEKm	Property costs SEK/sq.m	Net operating income SEKm
Office/retail
Greater Gothenburg	86	483	7,445	15,408	161	1,332	90.7%	146	40	328	106
Öresund Region	65	402	5,940	14,772	143	1,419	84.3%	120	41	408	79
Greater Stockholm	49	336	4,344	12,940	114	1,359	82.9%	94	30	355	64
Mälardalen	71	393	4,379	11,142	110	1,123	90.3%	100	30	309	70
Eastern Götaland	57	341	3,405	9,990	93	1,087	87.1%	81	28	324	53
Total offi ce/retail	328	1,955	25,513	13,051	621	1,270	87.2%	541	169	344	372
Warehouse/industrial
Greater Gothenburg	101	650	5,112	7,861	123	760	91.6%	113	30	187	83
Öresund Region	43	316	1,982	6,278	60	756	89.4%	54	17	208	37
Greater Stockholm	51	275	2,496	9,086	68	993	86.3%	59	17	250	42
Mälardalen	37	183	1,112	6,069	33	732	90.0%	30	9	194	21
Eastern Götaland	31	178	753	4,237	24	536	85.1%	20	5	122	15
Total warehouse/industrial	263	1,602	11,455	7,152	308	771	89.3%	276	78	195	198
Total	591	3,557	36,968	10,394	929	1,045	87.9%	817	247	277	570
Leasing and property administration									51	57	– 51
Total after leasing and property administration									298	334	519
Development projects	18	105	1,443	–	23	–	–	11	5	–	6
Undeveloped land	24	–	257	–	–	–	–	–	–	–	–
Total	633	3,662	38,668	–	952	–	–	828	303	–	525

The table above relates to the properties owned by Castellum at the end of the year and reflects the income and costs of the properties as if they had been owned during the whole year. The discrepancy between the net operating income of SEKm 525 accounted for above and the net operating income of SEKm 519 in the income statement is explained by the deduction of the net operating income of SEKm 1 on properties sold during the year, as well as the adjustment of the net operating income of SEKm 7 on properties acquired/completed during the year, which are recalculated as if they had been owned or completed during the whole period.

Property related key ratios Segment information

	2014 Jan-March	2013 Jan-March	2013 Jan-Dec
Rental value, SEK/sq.m.	1,045	1,025	1,036
Economic occupancy rate	87.9%	89.3%	88.4%
Property costs, SEK/sq.m.	334	352	307
Net operating income, SEK/sq.m.	584	562	608
Property value, SEK/sq.m.	10,394	10,006	10,285
Number of properties	633	634	626
Lettable area, thousand sq.m.	3,662	3,616	3,623

		Rental income	Income from property management
SEKm	2014 Jan-March	2013 Jan-March	2014 Jan-March	2013 Jan-March
Greater Gothenburg	251	260	110	116
Öresund Region	174	166	64	58
Greater Stockholm	157	154	63	54
Mälardalen	137	137	55	46
Eastern Götaland	101	97	38	34
Total	820	814	330	308

The discrepancy between the income from property management of SEKm 330 (308) above and the groups accounted income before tax of SEKm 205 (498) consists of unallocated income from property management of SEKm –7 (–8), changes in property value of SEKm 52 (32) and changes in values of interest rate derivatives of SEKm –170 (166).

Property value by property type Property value by region

Larger investments and sales

Larger projects	Area,	Econ. occup.	Total inv., land	Remain. inv.
Property	sq.m	April 2014	incl. SEKm		SEKm Completed	Comment
Lundbyvassen 8:1, Gothenburg	8,900	100%	219		88 Q4 2014	New construction office
Dragarbrunn 20:4, Uppsala	10,020	87%	227		34 Q4 2014	Extension and reconstruction office
Algen 1, Jönköping	4,509	15%	136		77 Q1 2015	New construction retail/office/restaurant
Jägmästaren 1, Linköping	7,750	93%	109		76 Q1 2015	New construction retail
Spejaren 3, Huddinge	6,331	100%	83		41 Q4 2014	New construction retail
Kulan 3, Helsingborg	9,689	100%	82		11 Q2 2014	New construction logistic
Solsten 1:108, Härryda	6,516	100%	58		24 Q3 2014	New construction warehouse
Högspänningen 1, Västerås	4,040	70%	47		7 Q3 2014	New construction logistics/office
Boländerna 35:1, Uppsala	8,750	65%	38		7 Q3 2014	Reconstruction retail
Kärra 74:3, Gothenburg	9,305	0%	33		32 Q4 2014	Extension and reconstruction warehouse
Projects completed / partly moved in
Lindholmen 28:3, Gothenburg	9,459	76%	280		30 Q2 2013	New construction office*
Fullriggaren 4, Malmö	5,599	46%	157		24 Q1 2013	New construction office*
Atollen 3, Jönköping	5,958	47%	153		19 Q4 2013	New construction office/retail/residentials*
Larger acquisitions during 2014		Econ. occup	Acquisition
Property	Area, sq.m	April 2014	SEKm		Access	Category
Fanan 26, 30, 39, 43, 47, 49, 51,						Offi ce/retail/education facilities/warehouse
Fanborgen 3 and 4, Halmstad	43,485	97%	636		March 2014	and library
Larger sales during 2014		Underlying prop.	Trans. costs	Net sales
Property	Area,,sq.m	price, SEKm	deferred tax, SEKm	price, SEKm Access		Category

Renseriet 25, Stockholm 4,215 79 –4 75 Feb 2014 Offi ce/warehouse Erik Dahlberg 2, Helsingborg 842 23 –2 21 April 2014 Offi ce/retail

* The remaining investment volume will be used as the vacant spaces are rented.

11

Financing

Castellum shall have a low fi nancial risk, meaning a loan to value ratio not permanently exceeding 55% and an interest coverage ratio of at least 200%. Castellum's assets had on March 31, 2014, a value of SEKm 39,108 (38,113) and these are fi nanced by SEKm 12,601 (13,127), deferred tax liabilities of SEKm 3,731 (3,700), interest bearing liabilities of SEKm 20,730 (19,481) and non interest bearing liabilities of SEKm 2,046 (1,805).

Interest bearing liabilities

At the end of the period Castellum had binding credit agreements totalling SEKm 24,749 (24,300) of which SEKm 21,857 (21,859) were long term binding and SEKm 2,892 (2,441) short term binding.

During the period SEKm 500 were issued under the MTN-program.

After deduction of cash of SEKm 185 (70), net interest bearing liabilities were SEKm 20,545 (19,411), of which SEKm 3,700 (3,200) were MTN and SEKm 965 (1,014) outstanding commercial papers.

Most of Castellum's loans are short-term revolving loans, utilized in long-term binding credit agreements in the largest nordic banks. This means great fl exibility in the choice of interest rate base, interest rate period and tied up capital. The MTN-program and the commercial papers are a complement to the existing funding in banks and broadens the funding base.

Long-term loan commitments in banks are secured by pledged mortgages in poperties and/or fi nancial covenants. Outstanding commercial papers and the MTN-program are unsecured.

Net interest bearing liabilities amounted to SEKm 20,545 (19,411) of which SEKm 15,880 (15,197) were secured by the company's properties and SEKm 4,665 (4,214) unsecured. The proportion of used secured fi nancing was thus 41% of the property value. The fi nancial covenants state a loan-tovalue ratio not exceeding 65% and an interest coverage ratio of at least 150%, which Castellum fulfi ls with comfortable margins, 54% and 291% respectively. The average duration of Castellum's long-term credit agreements was years 3.2 (3.4). Margins and fees on long-term credit agreements had an average duration of 2.2 years (2.4).

Credit maturity structure 31-03-2014

SEKm	Credit
	agreements	Bank	MTN/Cert	Total
0-1 year	2,892	823	1,465	2,288
1-2 years	6,008	2,308	1,200	3,508
2-3 years	5,007	3,807	1,000	4,807
3-4 years	7,707	6,807	–	6,807
4-5 years	508	8	500	508
> 5 years	2,627	2,127	500	2,627
Total	24,749	15,880	4,665	20,545

Unutilized credit in long term credit agreements	1,312
--------------------------------------------------	-------

Interest rate maturity structure

In order to secure a stable and low net interest cash fl ow the interest rate maturity structure is distributed over time. The average fi xed interest term on the same date was 2.4 years (2.7). The average effective interest rate as per March 31, 2014 was 3.4% (3.5%).

Castellum utilizes interest rate derivatives to achieve the desired interest rate maturity structure. Interest rate derivatives is a cost effective and fl exible way of extending loans with short term interest rates to achieve the desired fi xed interest term. In the interest rate maturity structure, interest rate derivatives are accounted for in the earliest time segment in which they can mature.

Credit margins are distributed in the interval of the underlying loans.

Interest rate maturity structure 31-03-2014

		Interest rate		Closing
	Credit, SEKm	derivates SEKm	Net, SEKm	interest rate
0-1 year	20,420	– 8,850	11,570	3.2%
1-2 years	125	550	675	5.0%
2-3 years	–	1,000	1,000	3.9%
3-4 years	–	1,500	1,500	3.4%
4-5 years	–	1,450	1,450	3.4%
5-10 years	–	4,350	4,350	3.8%
Total	20,545	–	20,545	3.4%

Currency

Castellum owns properties in Denmark with a value of SEKm 467 (466), which means that the Group is exposed to a currency risk. The currency risk is primarily related to when income statement and balance sheet in foreign exchange are translated into Swedish currency. In accordance with the fi nancial policy, between 60-100% of investments in foreign subsidiaries are to be fi nanced in local currency.

Interest rate and currency derivatives

Castellum utilizes interest rate derivatives to achieve the desired interest rate maturity structure. According to the accounting standard IAS 39, derivatives are subject to

market valuation. If the agreed interest rate deviates from the market interest rate, there is a theoretical surplus or sub value in the interest rate derivatives where the non-cashfl ow affecting changes in value are reported in the income statement. Castellum also has derivatives in order to hedge currency fl uctuation in its investment in Denmark. As for currency derivatives, a theoretical surplus/sub value occurs if the agreed exchange rate deviates from the current exchange rate, where the effective portion of value changes is accounted for in other total income. At maturity, a derivative's market value is dissolved in its entirety and the change in value over time has thus not affected equity.

To calculate the market value of derivatives, market rates for each term and, where appropriate, exchange rates, as quoted on the market at the closing date are used. Interest rate swaps are valued by discounting future cash fl ows to present value while instruments containing options are valued at current repurchase price, which is obtained from the counter-party.

As of March 31, 2014, the market value of the interest rate derivatives portfolio amounted to SEKm –856 (–687) and the currency derivative portfolio to SEKm 3 (4). All derivatives are classifi ed in level 2 according to IFRS 13.

	Policy	Committment	Outcome
Loan to value ratio	Not in the long run exceeding 55%	No more than 65%	54%
Interest coverage ratio	At least 200%	At least 150%	291%
Interest rate risk
– average fixed interest term	0.5-3 years	–	2.4 years
– proportion maturing within 6 months	No more than 50%	–	48%
Currency risk
– investment	60%-100% funded in local currency	–	79%
– other currency risks	Not allowed	–	No exposure
Funding risk	At least 50% of interest bearing liabilities have a duration of at least 2 years	–	77%
Counterparty risk	Credit institutions with high ratings, at least "investment grade"	–	Satisfi ed
Liquidity risk	Liquidity reserve in order to fulfi ll payments due	–	SEKm 1,312 unutilized credit agreements

Credit agreement maturity structure Interest rate maturity structure

Consolidated statement of Comprehensive Income

SEKm	2014 Jan–March	2013 Jan–March	Rolling 4 quarters April 13 - March 14	2013 Jan–Dec
Rental income	820	814	3,255	3,249
Operating expenses	– 172	– 193	– 562	– 583
Maintenance	– 30	– 28	– 127	– 125
Ground rent	– 7	– 7	– 26	– 26
Property tax	– 43	– 40	– 172	– 169
Leasing and property administration	– 50	– 49	– 203	– 202
Net operating income	518	497	2,165	2,144
Central administrative expenses	– 26	– 21	– 101	– 96
Net interest costs	– 169	– 176	– 695	– 702
Income from property management	323	300	1,369	1,346
Changes in value
Properties	52	32	348	328
Derivatives	– 170	166	93	429
Income before tax	205	498	1,810	2,103
Current tax	– 3	– 2	– 7	– 6
Deferred tax	– 31	– 93	– 328	– 390
Net income for the period/year	171	403	1,475	1,707
Other total net income Items that will be reclassified into net income
Translation difference of currencies	0	– 7	17	10
Change in value derivatives, currency hedge	0	7	– 14	– 7
Total net income for the period/year	171	403	1,478	1,710

Since there are no minority interests the entire net income is attributable to the shareholders of the parent company.

Data per Share

	2014 Jan–March	2013 Jan–March	Rolling 4 quarters April 13 - March 14	2013 Jan–Dec
Average number of shares, thousand	164,000	164,000	164 000	164,000
Income from property management, SEK	1.97	1.83	8.35	8.21
Income from property management after tax (EPRA EPS*), SEK	1.80	1.77	8.07	8.04
Earnings after tax, SEK	1.04	2.46	8.99	10.41
Outstanding number of shares, thousand	164,000	164,000	164,000	164,000
Property value, SEK	236	224	236	230
Long term net asset value (EPRA NAV*), SEK	105	99	105	107
Actual net asset value (EPRA NNNAV*), SEK	94	88	94	97

Since there is no potential common stock (e.g. convertibles), there is no effect of dilution.

Financial Key Ratios

	2014 Jan–March	2013 Jan–March	Rolling 4 quarters April 13–March 14	2013 Jan–Dec
Net operating income margin	63%	61%	67%	66%
Interest coverage ratio	291%	270%	297%	292%
Return on actual net asset value	5.2%	12.3%	11.7%	13.2%
Return on total capital	5.6%	5.5%	6.4%	6.4%
Net investments, SEKm	864	333	1,612	1,081
Loan to value ratio	54%	54%	54%	52%

*EPRA, European Public Real Estate Association, is an association for listed real estate owners and investors in Europe, which among other things, sets standards for financial reporting. A part of that is key ratios EPRA EPS (Earnings Per Share), EPRA NAV (Net Asset Value) and EPRA NNNAV (Triple Net Asset Value).

Consolidated Balance Sheet

SEKm	31 March 2014	31 March 2013	31 Dec 2013
Assets
Investment properties	38,668	36,683	37,752
Other fixed assets	31	26	31
Current receivables	224	257	260
Cash and bank	185	18	70
Total assets	39,108	36,984	38,113
Shareholders' equity and liabilities
Shareholders' equity	12,601	11,820	13,127
Deferred tax liability	3,731	3,403	3,700
Derivatives	853	932	683
Long term interest-bearing liabilities	20,730	19,773	19,481
Non interest-bearing liabilities	1,193	1,056	1,122
Total shareholders' equity and liabilities	39,108	36,984	38,113
Pledged assets (property mortgages)	19,538	18,642	18,375
Contingent liabilities	–	–	–

Changes in Equity

SEKm	Number of outstanding shares, thousand	Share capital	Other capital contribution	Currency transl. reserve	Currency hedge reserve	Retained earnings	Total equity
Shareholders equity 31-12-2012	164,000	86	4,096	–12	8	7,887	12,065
Dividend, March 2013 (3.95 SEK/share)	–	–	–	–	–	– 648	– 648
Net income Jan - March 2013	–	–	–	–	–	403	403
Other total net income Jan - March 2013	–	–	–	– 7	7	–	0
Shareholders equity 31-03-2013	164,000	86	4,096	– 19	15	7,642	11,820
Net income April - Dec 2013	–	–	–	–	–	1,304	1,304
Other total net income April - Dec 2013	–	–	–	17	– 14	–	3
Shareholders equity 31-12-2013	164,000	86	4,096	– 2	1	8,946	13,127
Dividend, March 2014 (4.25 SEK/share)	–	–	–	–	–	– 697	– 697
Net income Jan - March 2014	–	–	–	–	–	171	171
Other total net income Jan - March 2014	–	–	–	0	0	–	0
Shareholders equity 31-03-2014	164,000	86	4,096	– 2	1	8,420	12,601

Cash Flow Statement

	2014	2013	Rolling 4 quarters	2013
SEKm Net operating income	Jan-March 518	Jan-March 497	April 13 - March 14 2,165	Jan-Dec 2,144
Central administrative expenses	– 26	– 21	– 101	– 96
Reversed depreciations	3	2	12	11
Net interest rates paid	– 177	– 141	– 737	– 701
Tax paid	– 2	– 9	– 5	– 12
Translation difference of currencies	0	0	– 5	– 5
Cash fl ow from operating activities before change in working capital	316	328	1,329	1,341
Change in current receivables	46	– 22	46	– 22
Change in current liabilities	79	– 29	164	56
Cash fl ow from operating activities	441	277	1,539	1,375
Investments in new constructions, refurbishments and extensions	– 324	– 407	– 1,500	– 1,583
Property acquisitions	– 636	– 6	– 815	– 185
Change in liabilities at acquisitions of property	– 1	–	13	14
Property sales	96	80	703	687
Change in receivables at sales of property	– 10	0	– 16	– 6
Other investments	– 3	– 4	– 17	– 18
Cash fl ow from investment activities	– 878	– 337	– 1,632	– 1,091
Change in long term liabilities	1,249	679	957	387
Change long term receivables	–	3	–	3
Dividend paid	– 697	– 648	– 697	– 648
Cash fl ow from fi nancing activities	552	34	260	– 258
Cash fl ow for the period/year	115	– 26	167	26
Cash and bank opening balance	70	44	18	44
Cash and bank closing balance	185	18	185	70

The Parent Company

The parent company Castellum AB is responsible for matters concerning the stock market, such as consolidated reports and stock market information, as well as the credit market, such as funding and fi nancial risk management.

The parent company takes part in property-related operations through capital allocation and involvement in subsidiary Boards.

Income statement SEKm	2014 Jan-March	2013 Jan-March	2013 Jan-Dec
Income	4	4	18
Operating expenses	– 19	– 15	– 71
Net financial items	8	3	15
Dividend / Group contributions	–	–	718
Changes in value, interest rate derivatives	–170	166	429
Income before tax	–177	158	1,109
Tax	39	–35	– 119
Net income for the period/year	–138	123	990
Comprehensive income for the parent company
Net income for the period/year	–138	123	990
Items that will be reclassified into net income
Translation diff. foreign operations	1	–7	7
Unrealized change, currency hedge	0	7	– 7
Total net income for the period/year	–137	123	990
Balance sheet, SEKm		31 March 2014 31 March 2013	31 Dec 2013
Participations in group companies	5,869	5,838	5,869
Receivables, group companies	18,457	17,732	18,137
Other assets	159	203	119
Cash and bank	166	0	52
Total	24,651	23,773	24,177
Shareholders' equity	4,204	4,171	5,038
Derivatives	853	932	683
Interest bearing liabilities	18,566	17,606	17,315
Interest bearing liabilities, group companies	894	892	998
Other liabilities	134	172	143
Total	24,651	23,773	24,177
Pledged assets (receivables group companies)	16,092	14,973	14,928
Contingent liabilities (guaranteed com mitments for subsidiaries)	2,164	2,164	2,166

Accounting Principles

Castellum follows the EU-adopted IFRS standards and interpretations (IFRIC). This interim report has been prepared according to IAS 34 Interim Financial Reporting and the Annual Accounts Act. Accounting principles and methods for calculations have remained unchanged compared with the Annual Report of the previous year.

Opportunities and Risks for Group and Parent Company

Opportunities and risks in the cash flow

Over time, increasing market interest rates normally constitute an effect of economic growth and increasing infl ation, which is expected to result in higher rental income. This is partly due to the fact that the demand for premises is thought to increase. This leads, in turn, to reduced vacancies and hence to the potential for increasing market rents. It is also partly due to the fact that the index clause in commercial contracts compensates for increased infl ation.

An economic boom therefore means higher interest costs but also higher rental income, while the opposite relationship is true during a recession. The changes in rental income and interest cost do not take place at the exact same time, which is why the effect on income in the short run may occur at different points in time.

Sensitivity analysis - cash fl ow Effect on income next 12 months

	Effect on income, SEKm		Probable scenario
	Boom +/– 1% (units)		Recession
Rental level / Index	+ 33/– 33	+	–
Vacancies	+ 38/– 38	+	–
Property costs	– 12/+ 12	–	0
Interest costs	– 79/+ 60	–	+

Opportunities and risks in property values

Castellum reports its properties at fair value with changes in value in the income statement. This means that the result in particular but also the fi nancial position may be more volatile. Property values are determined by supply and demand, where prices mainly depend on the properties' expected net operating incomes and the buyers' required yield. An increasing demand results in lower required yields and hence an upwarded adjustment in prices, while a weaker demand has the opposite effect. In the same way, a positive development in net operating income results in an upward adjustment in prices, while a negative development has the opposite effect.

In property valuations, consideration should be taken of an uncertainty range of +/– 5-10%, in order to refl ect the uncertainty that exists in the assumptions and calculations made.

Sensitivity analysis - change in value

Properties	–20%	–10%	0	+10%	+20%
Changes in value, SEKm	– 7,734	– 3,867	0	3,867	7,734
Loan to value ratio	67%	60%	54%	49%	45%

Financial risk

Ownership of properties presumes a working credit market. Castellum's greatest fi nancial risk is to lack access to funding. The risk is reduced by a low loan-to-value ratio and long-term credit agreements.

Annual General Meeting 2014

At the Annual General Meeting on March 20, 2014 decisions were i. e. made on;

• a dividend of SEK 4.25 per share,
• re-election of present members of the board of directors Mrs. Charlotte Strömberg, Mr. Per Berggren, Mrs. Marianne Dicander Alexandersson, Mr. Christer Jacobson, Mr. Jan Åke Jonsson and Mr. Johan Skoglund. Mrs. Nina Linander was elected as new member of the Board of Directors. Mrs. Charlotte Strömberg was re-elected as chairman of the board of directors. Further the AGM decided that the level of remuneration to the members of the board of directors shall be SEK 2,445,000 in total,
• new election of the authorized public accountant Mr. Hans Warén (Deloitte) to new auditor and re-election of the authorized public accountant Mr. Magnus Fredmer (EY). Furthermore, the authorized public accountant Mr. Fredrik Walméus (Deloitte) was elected as new deputy auditor. The AGM decided that remuneration to the auditors during their term of offi ce shall be based on approved accounts,
• to appoint a new election committee for the AGM 2015 according to previously applied model,
• a renewed mandate for the Board to decide on purchase and transfer of the company's own shares.

Gothenburg April 22, 2014

Henrik Saxborn Chief Executive Offi cer

This Interim Report has not been examined by the company's auditors.

The Castellum Share

The Castellum share is listed on NASDAQ OMX Stockholm AB Large Cap. At the end of the period the company had about 13,500 shareholders. Shareholders registered abroad cannot be broken down in terms of directly held and nominee registered shares except for one foreign shareholders who has fl agged for holding over 5%, Stichting Pensioenfonds ABP. Castellum has no direct registered shareholders with holdings exceeding 10%. The ten single largest Swedish shareholders are presented in the table below.

Shareholders on 31-03-2014 Shareholders	Number of shares thousand	Percentage of voting rights and capital
Magdalena Szombatfalvy	4,935	3.0%
Lannebo Småbolag	3,600	2.2%
Länsförsäkringar Fastighetsfond	3,152	1.9%
Stiftelsen Global Challenges Foundation	2,500	1.5%
László Szombatfalvy	2,500	1.5%
Kåpan Pensioner	2,180	1.3%
SEB	1,453	0.9%
Tredje AP-fonden	1,450	0.9%
Andra AP-fonden	1,045	0.6%
SEB Sverigefond Småbolag	941	0.6%
Board and executive management Castellum	295	0.2%
Other shareholders registered in Sweden	41,955	25.6%
Shareholders registered abroad	97,994	59.8%
Total registered shares	164,000	100.0%
Repurchased shares	8,007
Total registered shares	172,007

There is no potential common stock (eg. convertibles)

Distribution of shareholders by country 31-03-2014

The Castellum share price as at 31 March, 2014 was SEK 107.60 (92.80) equivalent to a market capitalization of SEK 17.6 billion (15.2), calculated on the number of outstanding shares.

During the period a total of 35 million (29) shares were traded, equivalent to an average of 564,000 shares (461,000) per day, corresponding on an annual basis to a turnover rate of 86% (70%). The share turnover is based on statistics from NASDAQ OMX, Chi-X, Burgundy, Turquoise and BATS Europe.

Net asset value

Net asset value is the total equity which the company manages to its owners by creating profi t and growth given a certain level of risk.

The long term net asset value (EPRA NAV) can be calculated to SEK 105 per share (99). The share price at the end of the year was thus 102% (94%) of the long term net asset value.

Net asset value	SEKm	SEK/share
Equity according to the balance sheet	12,601	77
Reversed
Derivatives according to balance sheet	853	5
Deferred tax according to balance sheet	3,731	23
Long term net asset value (EPRA NAV)	17,185	105
Deduction
Derivatives as above	– 853	– 5
Estimated real liability, deferred tax 5.0%*	– 886	– 6
Actual net asset value (EPRA NNNAV)	15,446	94

* Estimated real deferred tax liability net has been calculated to 5.0% based on a discount rate of 3%. Further, assessments have been made that tax loss carry forwards are realized in 3 years with a nominal tax of 22%, giving a present value of deferred tax liability of 20.7%, and that the properties are realized in 50 years where 33% are sold directly with a nominal tax of 22% and that 67% are sold indirect through company disposals where the buyers tax discount is 6%, which gives a present value of deferred tax liability of 5.8%.

Growth, yield and financial risk

During the last 12-month period the total yield of the Castellum share has been 21% (17%), including dividend of SEK 4.25.

	1 year	3 years average/year	10 years average/year
Growth
Rental income SEK/share	4%	5%	6%
Income from prop. management SEK/share	7%	6%	7%
Net income for the year after tax SEK/share	neg.	neg.	15%
Dividend SEK/share	8%	6%	7%
Long term net asset value SEK/share	6%	5%	7%
Actual net asset value SEK/share	7%	4%	6%
Real estate portfolio SEK/share	5%	6%	8%
Change in property value	0.9%	0.4%	1.4%
Yield
Return on actual long term net asset value	10.9%	10.0%	11.1%
Return on actual net asset value	11.7%	10.5%	11.3%
Return on total capital	6.4%	6.3%	7.0%
Total yield of the share (incl. dividend)
Castellum	21%	10%	13%
NASDAQ OMX Stockholm (SIX Return)	22%	11%	12%
Real Estate Index Sweden (EPRA)	27%	12%	16%
Real Estate Index Europe (EPRA)	18%	10%	6%
Financial risk
Interest coverage ratio	297%	287%	295%
Loan to value ratio	54%	52%	49%
Unutilized long term credit agreements	1,312	1,721	1,597

Valuation

Dividend yield

The latest carried dividend of SEK 4.25 (3.95) corresponds to a yield of 3.9% (4.2%) based on the share price at the end of the period.

Earnings

Income from property management adjusted for nominal tax attributable to income from property management (EPRA EPS) amounted to 8.07 (7.45) on rolling annual basis. This results in a share price yield of 7.5% (8.0%) Net income after tax amounted on rolling annual basis to SEK 8.99 per share (9.23), which from the share price gives a yield of 8.4% (9.9%).

Net asset yield and earnings including long-term change in value

Change in value of both properties and derivatives can fl uctuate greatly from year to year and result in volatile earnings. As a long term actor with stable cash fl ow and a balanced property portfolio, change of property value over time should be at least in line with infl ation. From a shareholder valuation perspective, the long-term value can be used to achieve comparability with other industries. For Castellum it means a return on owner's capital, i. e. long-

The share's divident yield

term net asset value, amounting to 11.7%. From a valuation perspective earnings after tax in relation to share price is 10.4%. The calculation, as shown in the table below, is based on Castellum income from property managment rolling 12 months, the property portfolio's average change in value last 10 years, that the derivatives portfolio's value over time is zero and the an effective current tax of 5%. The table also shows a sensitivity analysis on long-term value change of -/+1% unit.

Net asset yield and earnings including long-term change in value
		Sensitivity analysis

		–1%-unit	+1%-unit
Income from prop. management rolling 12 months 1,369		1,369	1,369
Change in property value (on average 10 years)	536	153	920
D:o %	1.40%	0.40%	2.40%
Current tax, 5%	– 72	– 72	– 72
Earnings after tax	1,833	1,450	2,217
Earnings SEK/share	11.18	8.84	13.52
Return on actual long-term net asset value	11.7%	9.3%	14.1%
Earnings / share price	10.4%	8.2%	12.6%
	Actual share price:

Share price/net asset value

The Castellum share's price trend and turnover since the IPO May 23, 1997 until March 31, 2014

Calendar

Half-year Report January-June 2014 16 July 2014, around 2 pm Interim Report January-September 2014 15 October 2014 Year-end Report 2014 21 January 2015 Annual General Meeting 2015 19 March 2015

www.castellum.se

On Castellum's website it is possible to download as well as subscribe to Castellum's Pressreleases and Interim Reports. For further information please contact Henrik Saxborn, CEO, tel +46 705 60 74 50 or Ulrika Danielsson, Finance Director, tel +46 706 47 12 61.

Subsidiaries

Aspholmen Fastigheter AB

Rörvägen 1, Box 1824, 701 18 Örebro Telephone +46 19-27 65 00 Telefax +46 19-27 65 19 orebro@aspholmenfastigheter.se www.aspholmenfastigheter.se

Fastighets AB Corallen

Bataljonsgatan 10, Box 7, 551 12 Jönköping Telephone +46 36-580 11 50 info@corallen.se www.corallen.se

Fastighets AB Briggen Riggaregatan 57, Box 3158,

211 18 Malmö Telephone +46 040-38 37 20 Telefax +46 40-38 37 37 fastighets.ab@briggen.se www.briggen.se

Eklandia Fastighets AB

Theres Svenssons gata 9, Box 8725, 402 75 Göteborg Telephone +46 31-744 09 00 Telefax +46 31-744 09 50 info@eklandia.se www.eklandia.se

Fastighets AB Brostaden

Tjurhornsgränd 6, Box 5013, 121 05 Johanneshov Telephone +46 8-602 33 00 Telefax +46 8-602 33 30 info@brostaden.se www.brostaden.se

Harry Sjögren AB

Kråketorpsgatan 20, 431 53 Mölndal Telephone +46 31-706 65 00 Telefax +46 31-706 65 29 info@harrysjogren.se www.harrysjogren.se

In the event of confl ict in interpretation or differences between this report and the Swedish version, the latter will have priority.

Castellum AB (publ) • Box 2269, 403 14 Göteborg • Besöksadress Kaserntorget 5 Telefon 031-60 74 00 • Telefax 031-13 17 55 • E-post info@castellum.se • www.castellum.se Säte: Göteborg • Org nr: 556475-5550