Castellum — Interim / Quarterly Report 2017

Jul 13, 2017

HALF-YEAR REPORT JANUARY-JUNE

2017

Castellum Half-year Report January-June 2017 a s t e l l u m H a l f - y e a r R e p o r t J a n u a r y - J u n e 2 0 1 7

Half-year Report January-June 2017

Castellum is one of the major listed real estate companies in Sweden. The fair value of the real estate portfolio amounts to SEK 76 billion, and comprises of commercial properties for offi ce, retail, warehouse and logistics totaling 4.4 million sq.m. The real estate portfolio is owned and managed under the Castellum brand through a decentralized organization with strong and clear local presence in 20 cities from Copenhagen in the south to Sundsvall in the north.

Castellum is listed on Nasdaq Stockholm Large Cap.

• Rental income for the period January-June 2017 amounted to SEKm 2,563 (SEKm 1,807 corresponding period previous year).
• Income from property management amounted to SEKm 1,248 (820), corresponding to SEK 4.57 (4.20) per share, an increase of 9%.
• Changes in value on properties amounted to SEKm 1,824 (616) and on derivatives to SEKm 152 (– 223).
• Net income after tax for the period amounted to SEKm 2,647 (844), corresponding to SEK 9.69 (4.32) per share.
• Net investments amounted to SEKm 3,849 (29,658) of which SEKm 3,349 (28,889) were acquisitions, SEKm 1,356 (802) new constructions, extensions and reconstructions and SEKm 856 (33) sales.
• Net lease for the period was SEKm 199 (47).

KEY RATIOS
	2017	2016	2017	2016
	April-June	April-June	Jan-June	Jan-June
Rental income, SEKm	1,259	952	2,563	1,807
Net operating income, SEKm	915	653	1,777	1,209
Income of property management, SEKm	656	444	1,248	820
D:o SEK/share*)	2.40	2.20	4.57	4.20
D:o growth	+ 9%	+ 10%	+ 9%	+ 11%
Net income after tax, SEKm	1,221	267	2,647	844
Net investments SEKm	1,489	27,216	3,848	29,658
Net leasing, SEKm	96	47	199	47
Loan to value ratio	48%	54%	48%	54%
Interest coverage ratio	400%	357%	380%	351%
Long term net asset value (EPRA NAV) SEK/share*)	138	116	138	116
Actual net asset value (EPRA NNNAV) SEK/share*)	124	104	124	104

*) The number of historical shares that have been recalculated with reference to the bonus-issue element (i.e. the value of the subscription right) in the completed new share issue 2016. For more detailed information about Castellum see www.castellum.se.

Cover photo: Castellum´s new headquarter in Gothenburg.

An Eminent beginning to the Year

The real estate market shows massive strength, Castellum's net leasing is at a record high, and the synergy eff ects from Norrporten are gradually kicking in. This is all fi ne in the short run, but Castellum is a company with a long-term perspective. I'd like to begin by describing our long-term eff orts with projects driven by the rapid technological development prevailing today.

These include digitalization, for utilizing tech advances to best benefi t our industry, and also for determining how we can promote concepts to focus on the wellbeing of people who use our buildings.

Relating to the heading of these comments, I'd like to highlight Eminent – the fi rst WELL-certifi ed offi ce building in the Nordic region. The investment, situated in Hyllie, Malmö, amounts to SEKm 350 and comprises 9,600 sq. m. of leasable area. WELL is assessed on seven concepts which infl uence health. Most new and modern buildings already comply with four of these – air, water, light and sound. But the three remaining concepts – nourishment, fi tness and a sense of well-being (mind) – are unique for this new certifi cation method. Castellum will continue to focus on WELL certifi cation, both for entire properties and individual offi ces.

Next20 = Digitalization

We've also launched a new innovation lab, Castellum Next20, which is a testing arena for digital transformation and innovation in commercial premises. We need to understand how we property owners can help facilitate working life – and thus life in general – for our tenants' employees. Another area off ering digital optimization is effi ciency in the utilization of empty spaces. Our goal is to make Castellum the industry leader in real-estate digitalization by 2020. A couple of pilot projects will be launched this year.

Another digital trend that we're paying close attention to is e-commerce and related eff ects on requirements for premises. In fact, we started to actively reduce the proportion of retail space in our real estate portfolio several years ago. In total, retailers now account for about 10% of our leases, including their storage and offi ce spaces. The proportion of purely retail premises accounts for a mere 3-4%. An exciting opportunity here is the development of peri-urban logistics facilities for e-commerce. "The last mile" to the consumer highlights an area under strong development. With our strategically located properties, Castellum retains excellent opportunities for contributing to effi cient and eff ective solutions in all of our major growth areas, both in Sweden and Copenhagen.

Strengthened fi nances

Another long-term trend in the industry is caution when it comes to borrowing.

We've commented on the new tax proposals in the last quarterly report, and this report provides further information on how the proposals may aff ect Castellum. However, the market does not seem to have been

aff ected as much as expected, to date. This might seem surprising, as purchasers normally have to build in price buff ers for potential future tax increases. Market-price stability in the Swedish real estate market seems to be a sign of attractiveness, compared to other current investment options.

However, working with the big picture – rising property prices and falling yields, an anticipated increase in the interest-rate trend and possibly higher taxation – calls for fi nancial caution. It is therefore gratifying that Castellum has managed to maintain a solid loan-to-value ratio – despite high investment volumes. Castellum's loan-tovalue ratio is still 48%, after half the dividend was paid to the shareholders.

As initially mentioned, the year has begun robustly for Castellum. Income from property management increased by 9% during the fi rst half-year.

Leasing reaches a record high

During the fi rst six months, net leasing amounted to SEKm 199 (47), indicating prosperous years to come. It is worth noting that net leasing for existing premises is also gaining speed, SEKm 59 compared with SEKm -1 the previous year.

Market strength has also been manifested in continued value increases. Castellum's property value increased by SEKm 875 during the second quarter, and now totals SEKm 1,769 so far this year. This contributed to a further increase in net asset value per share of SEK 5 in the second quarter to SEK 138.

We expect continued growth in income from property management, SEK per share, during the rest of the year. Naturally, it will be aff ected by transactions related to Norrporten.

Looking further ahead, I'm still inclined toward being positive. Sustained high activity in our projects, the year's high leasing rate, repositioning of the portfolio, and synergy eff ects on the cost side. These all indicate great promise for the future – provided that no dramatic external events disrupt the picture.

Henrik Saxborn CEO

Market comments

Swedish and Danish economy

The Swedish economy continues to perform well, demonstrating strong GDP growth. Exports are also considered as demonstrating relatively strong development. Growth continues to be driven by investment – mainly construction and infrastructure investments – as well as domestic consumption.

Geopolitical turmoil is ongoing, but has not so far aff ected the economy in any noticeable way. However, both Brexit and continued political moves by the US president create a measure of uncertainty, and longterm eff ects are diffi cult to foresee.

The Swedish labour market has been positively aff ected by the stronger economy. Labour demands tend to be increasing for several groups, primarily in the construction and public sectors. However, only marginal eff ects are expected for the unemployment rate, due to increasing labour supply. Infl ation has begun to show signs of rising, but still remains low due to subdued commodity prices and low infl ation in the outside world. The wage agreements concluded so far in Sweden are in line with recent years' levels and are not expected to contribute to signifi cantly higher infl ation in the near future.

Development of the krona exchange rate plays a key role for infl ation in Sweden, as a weak exchange rate normally contributes to higher infl ation. The krona exchange rate has remained weak during the second quarter.

Macro indicators, Sweden

Unemployment	7.2%	(May 2017)
Infl ation	1,7%	(May 2017 compared to May 2016)
GDP growth	0.4%	(Q1 2017 compared to Q4 2016)
Source: SCB

According to Denmark's Nationalbank, Danish GDP growth is expected to increase to about 1.6% during 2017, compared with approximately 1% in 2016. Increasing private consumption is assessed as the primary growth factor here, against a backdrop of rising employment. However, more favourable export prospects and investment are also contributing factors. Infl ation in Denmark – expressed in terms of CPI – is also expected to rise to approximately 1.4% in 2017, compared with zero infl ation in 2016.

Swedish rental market

The rental market continues to show stable and strong trends. Demand is high for both new and existing office premises. The increase in demand is strongest in the metropolitan areas of Stockholm and Gothenburg, which have demonstrated historically strong rental growth over the past year, both for office space and for peri-urban warehouse premises. A strong Swedish economy, urbanization and low vacancy rates, due to

low supply in recent years, are important drivers for this development. The new-construction rate could increase in Stockholm, Gothenburg and Malmö during 2018–2019, provided there are sufficient resources for implementation and construction. During the past year, office rents have reached new record highs in several regional cities, which means that the new-construction rate is increasing for those locations as well.

Swedish real estate market

In 2016, the total commercial transaction volume of approx. SEK 200 billion resulted in a new record year. During 2017 (until May 31), transaction volumes decreased by approx. SEK 28 billion for the period, compared with last year. About SEK 26 billion of the decrease is attributable to Castellum's acquisition of Norrporten. Another plausible explanation is that a number of transactions may have been stalled by ongoing tax proposal regarding properties presented at the end of March. During Q2, domestic investors accounted for the majority of the transaction volume. About 47% of transaction volumes during 2017 have been carried out in Stockholm and Gothenburg. A number of offi ce sales in Stockholm, Gothenburg and Malmö demonstrate continued strong pricing with stable or declining yields.

Interest and credit market

The Swedish Riksbank continued to focus on both the CPI goal of 2% and an ultra-loose monetary policy. Since February 2016, when the repo rate was cut to a new historic low of -0.50%, the repo rate has remained unchanged – even while the repo-rate path has gradually been adjusted downward. The Riksbank has announced further purchases of government bonds in 2017. The Swedish repo-rate path indicates that a fi rst rise will not come until 2018 and that the zero level will not be reached until 2019.

Of particular signifi cance to Castellum, the 3-month STIBOR rate, which at the end of 2016 was -0.60%, rose slightly in the fi rst quarter before decreasing in the second one, landing at approx. -0.50% by the end of June. The spread between Swedish short- and long-term interest rates widened slightly during the fi rst half year. However, Swedish long-term interest rates remain at very low levels.

Credit margins in the Swedish bond market have gradually fallen during the fi rst half of the year, and access to fi nancing in the Swedish capital and banking markets is considered favourable.

In Denmark, the 3-month Cibor rate remained relatively stable at around -0.25% so far this 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. When calculating the historical number of shares, adjustments were made with reference to the bonus-issue element (i.e. the value of the subscription right) in the new share issue 2016.

Income from property management, i.e. net income excluding transaction and restructuring costs, changes in value and tax, amounted for the period January-June 2017 to SEKm 1,248 (820), equivalent to SEK 4.57 (4.20) per share - an increase with 9%. Income from property management rolling four quarters amounted to SEKm 2,493 (1,637) equivalent to SEK 9.13 per share (8.52) - an increase of 7%.

During the period, changes in value on properties amounted to SEKm 1,824 (616) and on derivatives to SEKm 152 (–223). Net income after tax for the period was SEKm 2,647 (844), equivalent to SEK 9.69 (4.32) per share.

Rental income

Group's rental income amounted to SEKm 2,563 (1,807). For offi ce and retail properties, the average contracted rental level, including charged heating, cooling and property tax, amounted to SEK 1,604 per sq.m. (1,532), whereas for warehouse and logistics properties, it amounted to SEK 825 per sq.m. (804). Rental levels have in comparable portfolio increased by approx. 3.1% compared with previous year, which inter alia is an eff ect from indexation and renegotiations carried out.

The average economic occupancy rate was 89.9% (91.0%). The total rental value for vacant premises for the year amounted to approx. SEKm 658 (596). The rental income for the period includes a lump sum of SEKm 2 (10) as a result of early termination of leases.

Gross leasing (i.e. the annual value of total leasing) during the period was SEKm 349 (208), of which SEKm 140 (48) were leasing of new constructions, extensions and reconstructions. Notices of termination amounted to SEKm 150 (161), of which bankruptcies were SEKm 4 (10) and SEKm 9 (1) were notices of termination with more than 18 months remaining length of contract. Net lease for the period was hence SEKm 199 (47).

The time diff erence between reported net leasing and the eff ect in income thereof is estimated to be between 9-18 months of investment properties while it is 12-24 months for investments.

Property costs

Property costs amounted to SEKm 786 (598) corresponding to SEK 358 per sq.m. (360). Consumption for heating during the period has been calculated to 92% (95%) of a normal year according to the degree day statistics.

Property costs	Offi ce/	Warehouse/	2017	2016
SEK/sq.m	Retail	logistics	Total	Total
Operating expenses	190	117	165	186
Maintenance	39	21	32	43
Ground rent	3	8	5	5
Real estate tax	95	23	70	66
Direct property costs	327	169	272	300
Leasing and property administration	–	–	86	60
Total	327	169	358	360
Previous year	360	175	360

Net leasing

Central administrative expenses

Central administration expenses amounted to SEKm 88 (68), and were charged with SEKm 5 in costs for ongoing Norrporten-restructuring work during the period, along with SEKm 6 for development activities in the Castellum Next20 innovation lab – Castellum's long-term investment in digitalization. Administrative expenses also include costs for a performance- and share-price based incentive program of SEKm 3 (11), for 9 members of Executive Group Management.

Net interest

Net interest items were SEKm –446 (–325). The average interest rate level was 2.5% (2.8%). Net interest income was positively aff ected by approx. SEKm 21 due to the average interest rate level decrease by 0.3%-units.

Changes in value

The previous year featured a strong real estate market and 2017 has continued the trend, with high activity, strong demand and robust transaction volumes. The proposal for changes in property tax from March this year created uncertainty and thus impacted the transaction market regarding both lead time and the negotiation of tax-reduction transactions. However, this impact was largely counterbalanced by ready access to fi nancing and a continued strong rental market. For Castellum's part, this resulted in a value-change of SEKm 1,769, corresponding to 1%. In addition, 12 properties have been sold for a total of SEKm 856, after deduction for assessed deferred taxes and transaction costs totalling SEKm 24. The underlying property value – thus amounting to SEKm 880 – exceeded the latest valuation of SEKm 801 by SEKm 79. As each property is valued individually, the portfolio premium that can be noted in the property market is not taken into account.

The value in the interest rate derivatives portfolio has changed by SEKm 152 (–223), mainly due to changes in long-term market interest rates.

Income from property management per share

Change in value properties 2017

SEKm
Cash fl ow	445
Project gains /building rights	410
Required yield	616
Acquisitions	298
Sales	55
Total	1,824

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.

The period was charged with SEKm 60 in paid tax for 2016. However, deferred tax was reduced by an equivalent amount as the adjustment entailed increased loss carryforwards. Hence, there was no impact on income.

Remaining tax loss carryforwards can be calculated to SEKm 2,564 (2,643). Furthermore, there are untaxed reserves of SEKm 135. Fair values for the properties exceed their fi scal value by SEKm 39,790 (35,247) of which SEKm 3,018 (2,015) relates to the acquisition of properties accounted for as asset acquisitions. As deferred tax liability, a full nominal 22% tax of the net diff erence is reported, reduced by the deferred tax relating to asset acquisitions, i.e., SEKm 7,555 (6,596).

Castellum has no current tax disputes.

Income over time

Tax calculation 2017-06-30

	Basis	Basis
SEKm	current tax	deferred tax
Income from property management	1,248
Deductions for tax purposes
depreciations	– 518	518
reconstructions	– 120	120
Other tax allowances	13	109
Taxable income from property management	623	747
- current income tax is 22%, if tax losses are not utilized	137
Properties sold	–	– 438
Changes in value on properties	–	1,769
Changes in value on derivatives	– 272	–
Issue expenses	– 152	323
Taxable income before tax loss carry forwards	199	2,401
Tax loss carry forwards, opening balance
Acquired loss CORHEI and Norrporten	– 2,392	2,392
Tax loss carry forwards, closing balance	2,564	– 2,564
Taxable income	371	2,229
Tax according to the income statement for
the period	– 82	– 490

Current tax proposal

Castellum's interim report for the fi rst quarter briefl y described a commission-report received by the government on March 30, 2017, regarding amended tax legislation designed to counter tax benefi ts in bundled transactions of properties. The proposal has subsequently been submitted for comment, and the period for comment has been extended to September 15, 2017. Simply expressed: the proposal implies that, for example, tax neutrality will prevail between direct or indirect real-estate sales (among companies). The proposed amendment would result in one additional tax compared with current regulations on indirect sales. The new tax will correspond to the taxes that normally apply for direct transactions – namely, income tax on capital gains and stamp-duty/ ownership-registration of an acquisition. The new legislation is proposed to take eff ect on July 1, 2018, and will apply to all transactions implemented subsequently.

It is diffi cult to determine precisely to what extent the proposal will aff ect the real estate market when it comes into eff ect. Castellum's assessment, however, is that a number of adjustments have already been made to the deferred tax discount that is currently available for property transactions. To refl ect this change when calculating the short-term net asset value (EPRA NNNAV), Castellum has estimated that the fair value of the tax is 7%, assuming that two thirds are sold indirectly with a tax deduction of 11% (previously 6%) when one third is sold directly.

There are two scenarios for the following calculation of net asset value, per 30/06/2017:

• a) The entire real estate portfolio is sold through direct sales.
• b) In addition to (a) above, there is the assumption of a drop in property values corresponding to a stamp cost of 2%.

Net asset value 2017-06-30

Outcome	a)	b)
30,554	30,554	29,384
7,555	7,555	7,555
– 1,659	– 1,659	– 1,659
1,431	1,431	1,431
37,881	37,881	36,381
138	138	133
– 1,431	– 1,431	– 1,431
– 2,485	– 3,994	– 3,803
7%	10%	10%
33,965	32,456	31,147
124	119	114
	-4%	-8%

Furthermore, on July 12, 2016, the EU adopted a Directive laying down rules to counter tax avoidance methods. An important cornerstone of Directive implementation includes limiting interest-deduction possibilities. The Directive is to be incorporated in each respective member country by December 31, 2018. Consequently, the government received a June-2017 proposal of new regulations for the corporate sector: the introduction of a general limitation on interest deductions for the corporate sector – primarily as an EBIT rule (deductions of up to 35%) and secondly, as an EBITDA rule (deductions of maximum 25%) – combined with a reduction in corporate income tax from 22% to 20%.

Today's strong cash fl ow from operations, combined with historically low interest rates and proposals for reduced corporate taxes, means that interest-rate limitations – in cases where the proposal becomes a reality – do not signifi cantly aff ect Castellum's paid taxes.

However, the proposal for reduced corporate taxation implies that the deferred tax liability of SEKm 7,555 will be revalued at 20% tax, resulting in a deferred tax income of SEKm 685 to June 30, 2017. This would result as above in an estimated deferred-tax market value of SEKm 2,485 – a reduction of SEKm 226. Acccordingly, the proposal to reduce corporate taxation would entail an increase in short-term net asset value of 1%.

Real Estate Portfolio

The real estate portfolio is located in growth areas in Sweden and Copenhagen. The commercial portfolio consists of 78% offi ce and retail properties as well as 17% warehouse and logistics properties. The properties are located from inner city sites to well-situated workingareas with good means of communication and services. The remaining 5% consist of projects and undeveloped land.

Castellum owns approx. 860,000 sq.m. of unutilized building rights and furthermore ongoing projects with remaining investments of approx. SEKm 2,500.

Investments

During the period, investments totalling SEKm 4,705 (29,691) were carried out, of which SEKm 3,349 (28,889) were acquisitions and SEKm 1,356 (802) new constructions, extensions and reconstructions. After sales of SEKm 856 (33) net investments amounted to SEKm 3,849 (29,658).

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, 2017	70,757	665
+ Acquisitions	3,349	21
+ New constructions, extensions and reconstructions	1,356	2
– Sales	– 801	– 12
+/– Unrealized changes in value	1,769	–
+/– Currency translation	60	–
Real estate portfolio on June 30, 2017	76,490	676

Property value Internal valuations

Castellum assesses the value of the properties through internal valuations, as at the year-end, 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. In the valuation of a property's future earnings capacity, consideration has been taken of potential changes in rental levels, occupancy rates and property costs - as well as an assumed infl ation level of 1.5%.

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 1,800 (1,600) 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 diff erence 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 76,490 (72,109), corresponding to SEK 17,395 per sq.m.

Average valuation yield, Mkr

(excl. project/land and building rights)	SEKm
Net operating income properties	1,942
+ Real occupancy rate, 94% at the lowest	177
+ Property cost annual rate	12
– Property administration, 30 SEK/sq.m.	– 66
Normalized net operating income (6 months)	2,065
Valuation (excl. building rights of SEKm 430)	72,398
Average valuation yield

Investments per region 30-06-2017

Average valuation yield over time

Castellums' real estate portfolio 30-06-2017

	30-06-2017					January-June 2017
	No. of proper ties	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
Offi ce/retail
Central	144	1,025	17,847	17,414	715	1,395	91.7%	655	160	313	495
West	84	482	10,199	21,171	356	1,478	87.8%	313	73	302	240
Öresund	73	576	13,713	23,825	528	1,835	86.5%	457	107	370	350
Stockholm	50	396	13,159	33,260	400	2,020	91.2%	364	66	337	298
North	28	259	4,916	18,951	197	1,520	94.9%	187	41	319	146
Total offi ce/retail	379	2,738	59,834	21,859	2,196	1,604	90.0%	1,976	447	327	1,529
Warehouse/logistics
Central	46	240	1,827	7,604	94	782	85.4%	80	20	165	60
West	107	676	5,725	8,463	258	763	92.6%	239	53	158	186
Öresund	33	229	1,607	7,009	84	730	79.9%	67	19	162	48
Stockholm	52	304	3,835	12,636	162	1,070	92.0%	150	31	200	119
Total warehouse/logistics	238	1,449	12,994	8,964	598	825	89.5%	536	123	169	413
Total	617	4,187	72,828	17,395	2,794	1,335	89.9%	2,512	570	272	1,942
Leasing and property administration									180	86	-180
Total after leasing and property administration									750	358	1,762
Development projects	36	189	3,103	–	64	–	–	17	14	–	3
Undeveloped land	23	–	559	–	–	–	–	–	–	–	–
Total	676	4,376	76,490	–	2,858	–	–	2,529	764	–	1,765

The table above relates to the properties owned by Castellum at the end of the period and refl ects the income and costs of the properties as if they had been owned during the period. The discrepancy between the net operating income of SEKm 1,762 accounted for above and the net operating income of SEKm 1,777 in the income statement is explained by the deduction of the net operating income of SEKm 39 on properties sold during the year, as well as the adjustment of the net operating income of SEKm 27 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

	2017 Jan-June	2016 Jan-June	2016 Jan-Dec
Rental value, SEK/sq.m.	1,335	1,294	1,304
Economic occupancy rate	89.9%	91.0%	91.3%
Property costs, SEK/sq.m.	358	360	376
Net operating income, SEK/sq.m.	842	818	816
Property value, SEK/sq.m.	17,395	15,363	16,558
Number of properties	676	742	665
Lettable area, thousand sq.m.	4,376	4,691	4,292
Valuation yield, on average	5.7%	6.0%	5.8%

Segment information

		Rental income	Income from property management
SEKm	2017 Jan-June	2016 Jan-June	2017 Jan-June	2016 Jan-June
Central	742	528	369	234
West	561	348	302	163
Öresund	524	557	256	273
Stockholm	507	341	273	178
North	229	33	121	16
Total	2,563	1,807	1,321	864

The diff erence between the income from property management of SEKm 1,321 (864) above and the groups accounted income before tax of SEKm 3,219 (1,106) consists of unallocated income from property management of SEKm –73 (–44), transaction and restructuring costs of SEKm –5 (–133), changes in property value of SEKm 1,824 (616) and changes in values of derivatives of SEKm 152 (–223).

Property value by property type Property value by region

Larger investments and sales

Larger projects

	Area,	Rental value SEKm SEK/sq.m		Econ. occup. July 2017	Total inv., land	Remain. inv.
Property	sq.m				incl. SEKm		SEKm Completed Comment
Olaus Petri 3:244, Örebro	14,526	35	2,400	91%	440		358 Q2 2019	New construction offi ce
Hyllie 4:2 (del av), Malmö	9,600	26	2,700	65%	353		353 Q1 2019	New construction offi ce
Gamlestaden 22:14, Gothenburg	12,000	21	1,800	100%	235		94 Q4 2017	Reconstruction offi ce
Hisingen Logistic Park, Gothenburg	26,085	19	700	0%	220		212 Q2 2018	New construction logistics
Balltorp 1:124, Mölndal	18,000	14	750	100%	180		79 Q1 2018	New construction logistics
Varpen 11, Huddinge	7,060	14	2,550	100%	162		88 Q4 2017	New construction car retail
Spiran 12, Norrköping	7,915	18	2,300	39%	110		84 Q1 2018	Reconstruction offi ce
Söderhällby 1:2 (part of), Uppsala	5,963	8	1,300	100%	101		71 Q1 2018	New construction logistics
Inom Vallgraven 4:1, Gothenburg	2,500	9	3,700	100%	98		1 Q4 2017	Extension and reconstruction cultural and entertainment venue
Verkstaden 14, Västerås	3,545	8	2,250	35%	97		97 Q4 2018	New construction offi ce/retail
Spejaren 5, Huddinge	3,480	8	2,200	100%	92		15 Q3 2017	New construction car retail
Tjurhornet 15, Stockholm	5,786	1	250	–	73		5 Q4 2017	Parking facilities
Boländerna 35:2, Uppsala	4,883	5	1,050	93%	77		24 Q4 2017	New construction retail
Årsta 74:3, Uppsala	2,812	7	1,700	100%	65		65 Q4 2017	Reconstruction offi ce
Visiret 3, Huddinge	2,440	6	2,400	100%	63		1 Q4 2017	New construction car retail
Generatorn 1, Mölndal	3,800	5	1,350	100%	60		25 Q1 2018	New construction car retail
Boländerna 12:1, Uppsala	3,687	5	1,400	52%	58		10 Q4 2017	New construction warehouse/ logistics
Litografen 1, Örebro	6,957	4	1,150	35%	50		41 Q4 2017	Reconstruction retail/warehouse/ offi ce
Proppen 2, Norrköping	17,531	4	650	7%	50		46 Q4 2019	Reconstruction logistics
Projects completed/partly moved in
Lindholmen 30:5, Gothenburg	9,243	27	2,800	100%	267		5 Q1 2017	New construction offi ce
Nordstaden 2:16, Gothenburg	9,200	5	3,300	87%	160		0 Q3 2017	Reconstruction offi ce/retail
Kranbilen 2, Huddinge	8,571	9	1,050	70%	94		19 Q1 2017	New construction warehouse/ logistics
Majorna 163:1, Gothenburg	5,867	9	1,500	95%	91		0 Q1 2017	Reconstruction offi ce and warehouse
Sändaren 1, Malmö	2,771	4	1,550	100%	55		2 Q2 2017	Reconstruction offi ce

Larger acquisitions during 2017

	Area,	Rental value		Econ. occup.	Acquisition
Property	sq.m		SEKm SEK/sq.m	Jan 2017	SEKm	Access	Category
Isotopen 1, Stockholm	22,714	86	3,800	96%	1,642		March 2017 Offi ce/retail
Sabbatsberg 24, Stockholm	11,716	-	-	-	781	May 2017	Project
14 properties in Borås	80,996	54	650	93%	480	April 2017	Offi ce and warehouse/industrial
Krokslätt 20:6 and 154:8, Gothenburg	8,624	16	1,900	96%	283	Dec 2017	Offi ce
Boländerna 11:2 and 11:3, Uppsala	11,525	9	750	64%	107		March 2017 Warehouse/logistics
Tibble 1:647 and 1:648, Upplands-Bro	-	-	-	-	51	March 2017 Land

Larger sales during 2017

Property	Area, sq.m	SEKm SEK/sq.m	Rental value	Underlying prop. price, SEKm	Deferred tax and Trans. costs SEKm	Net sales price, SEKm	Access	Category
9 fastigheter i Mölndal and Partille	39,969	41	1,050	498	-1		496 April 2017	Offi ce
Hönekulla 1:571 in Härryda and Kallebäck 3:4 in Gothenburg	35,072	30	850	357	-22		335 Dec 2017	Warehouse/offi ce
Österbotten 4, Jönköping	2,944	2	650	25	-1		24 May 2017	Warehouse/offi ce

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 June 30, 2017, a value of SEKm 79,635 (78,313) and are fi nanced by shareholders´s equity of SEKm 30,596 (29,234), deferred tax liabilities of SEKm 7,555 (7,065), interest bearing liabilities of SEKm 37,213 (38,467) and non interest bearing liabilities of SEKm 4,313 (3,547).

Interest bearing liabilities

At the end of the period Castellum had binding credit agreements totalling SEKm 55,727 (53,259) of which SEKm 45,065 (40,358) was long term and SEKm 10,662 (12,901) short term.

During the fi rst half-year, credit agreements of SEKm 1,249 were terminated or expired while agreements totalling SEKm 12,915 were renegotiated. SEKm 370 of these were bank overdrafts.

This means that guarantees decreased by a total of SEKm 4,687. In addition, loan agreements for EURm 75 were entered into with the European Investment Bank (EIB). Moreover, in the fi rst half of the year, MTNs for SEKm 1,350 expired while SEKm 4,650 were newly issued.

After deduction of cash of SEKm 323 (257), net interest bearing liabilities were SEKm 36,890 (38,210), of which SEKm 12,560 (9,256) were MTN and SEKm 7,991 (7,702) outstanding commercial papers. (Nominal SEKm 12,575 respectively SEKm 8,000.)

Most of Castellum's loans are short-term revolving loans, utilized in long-term binding credit agreements in Nordic banks. This means great fl exibility. Bonds issued under the MTN program and the commercial papers are a complement to the existing funding in banks and broaden the funding base. At the end of the period the fair value of the liabilities is in principle in line with the value accounted for.

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

Net interest bearing liabilities amounted to SEKm 36,890 (38,210) of which SEKm 16,339 (21,252) were secured by the company's properties and SEKm 20,551 (16,958) unsecured. The proportion of used secured financing was thus 21% of the property value. The financial covenants state a loan-to-value ratio not exceeding 65% and an interest coverage ratio of at least 175%, which Castellum fulfi ls with comfortable margins, 48% and 380% respectively. The average duration of Castellum's credit agreements was 3.1 years (3.0). Margins and fees on long-term credit agreements had an average duration of 2.6 years (2.4).

Credit maturity structure 30-06-2017

		Utilized in
SEKm	Credit agreements	Bank	MTN/Cert	Total
0-1 year	10,662	711	9,291	10,002
1-2 years	12,117	2,227	2,700	4,927
2-3 years	13,563	5,106	3,170	8,276
3-4 years	11,875	5,027	1,148	6,175
4-5 years	2,216	27	2,189	2,216
> 5 years	5,294	3,241	2,053	5,294
Total	55,727	16,339	20,551	36,890

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 as per June 30, 2017 was 2.6 years (2.4). The average effective interest rate on the same date was 2.5% (2.6%).

Castellum utilizes interest rate derivatives to achieve the desired interest rate maturity structure. Interest rate derivatives is a cost eff ective and fl exible way to achieve the desired fi xed interest term. Castellum's cost eff ectiveness is negatively aff ected at the moment due to negative Stibor interest rate. In the interest rate maturity structure, interest rate derivatives are accounted for in the earliest time segment in which they can mature.

Credit margins and fees are distributed in the table by reported underlying loans.

Secured credit facilities 30-06-2017

Interest rate maturity structure 30-06-2017

	Credit, SEKm	Interest rate derivates SEKm	Net. SEKm	Closing interest rate	Average fi xed interest rate term
0-1 year	31,491	– 15,501	15,990	2.9%	0.3 year
1-2 years	–	1,750	1,750	1.5%	1.5 years
2-3 years	1,400	2,550	3,950	1.7%	2.6 years
3-4 years	2,498	3,201	5,699	2.2%	3.5 years
4-5 years	948	2,150	3,098	1.6%	4.5 years
5-10 years	553	5,850	6,403	2.8%	7.2 years
Total	36,890	–	36,890	2.5%	2.6 years

Currency

Castellum owns properties in Denmark with a value of SEKm 5,460 (5,395), which means that the Group is exposed to currency risk. The currency risk is primarily related to when income statement and balance sheet in foreign currencies are translated into Swedish kronor.

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, notwithstanding credit margins, there is a theoretical surplus or sub value in the interest rate derivatives where the non-cash-fl ow

aff ecting changes in value are reported in the income statement. At maturity, a derivative's market value is dissolved in its entirety and the change in value over time has thus not aff ected equity. 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 eff ective portion of value changes is accounted for in other total income.

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.

As of June 30, 2017, the market value of the interest rate derivatives portfolio amounted to SEKm –1,418 (–1,608) and the currency derivative portfolio to SEKm – 13 (+26). All derivatives are, as at previous year, classifi ed in level 2 according to IFRS 13.

Castellum's financial policy and commitments in credit agreements

	Policy	Committment	Outcome
Loan to value ratio	Not in the long run exceeding 55%	No more than 65%	48%
Interest coverage ratio	At least 200%	At least 175%	380%
Funding risk
– average capital tied up	At least 2 years		3.1 years
– proportion maturing within 1 year	No more than 30% of outstanding loans and unutilized credit agreements		6%
– average maturing credit price	At least 1.5 years		2.6 years
– propotion capital market financing	No more than 75% of outstanding interest bearing liabilities		56%
– liquidity reserve*	Secured credit agreements corresponding to SEKm 750 and 4.5 months upcoming loan maturities		Fulfi lled
Interest rate risk
– average interest duration	1.0-3.5 years	–	2.6 years
– proportion maturing within 6 months	At least 20%, no more than 55%	–	38%
Credit and counterparty risk
– rating restrictions	Credit institutions with high ratings, at least S&P BBB+		Fulfi lled
Currency risk
– translation exposure	Shareholders equity is not secured	–	Not secured
– transaction exposure	Handled if exceeding SEKm 25	–	Under SEKm 25

Condensed Consolidated statement of Comprehensive Income

SEKm	2017 April-June	2016 April-June	2017 Jan-June	2016 Jan–June	Rolling 4 quarters July 16-June 17	2016 Jan-Dec
Rental income	1,259	952	2,563	1,807	5,289	4,533
Operating expenses	– 153	– 134	– 369	– 299	– 741	– 671
Maintenance	– 34	– 32	– 74	– 60	– 203	– 189
Ground rent	– 5	– 6	– 11	– 11	– 24	– 24
Property tax	– 76	– 49	– 152	– 92	– 322	– 262
Leasing and property administration	– 76	– 78	– 180	– 136	– 395	– 351
Net operating income	915	653	1,777	1,209	3,604	3,036
Central administrative expenses	– 40	– 36	– 83	– 68	– 158	– 143
Transaction and restructuring costs	– 1	– 123	– 5	– 133	–35	– 163
Results from joint venture	–	–	–	3	–	3
– of which income from property management	–	–	–	4	–	4
– of which tax
Net interest costs	– – 219	– – 173	– – 446	– 1 – 325	– – 953	– 1 – 832
Income from property management incl. results joint venture	655	321	1,243	686	2,458	1,901
– of which income from property management*	656	444	1,248	820	2,493	2,065
Revaluation of results due to stepwise
acquisition	–	–	–	27	–	27
Write-down goodwill	–	–	–	–	– 373	– 373
Changes in value
Properties	884	127	1,824	616	5,293	4,085
Derivatives	75	– 75	152	– 223	457	82
Income before tax	1,614	373	3,219	1,106	7,835	5,722
Current tax	– 14	– 9	– 82	– 10	– 95	– 23
Deferred tax	– 379	– 97	– 490	– 252	– 965	– 727
Net income for the period/year	1,221	267	2,647	844	6,775	4,972
Other total net income

Items that will be reclassified into net income

Translation difference of currencies	– 15	– 13	– 15	9	39	63
Change in value derivatives, currency hedge	54	– 13	54	– 20	17	– 57
Total net income for the period/year	1,260	241	2,686	833	6,831	4,978
Total net income for the year related to:
– Shareholders in the parent company	1,221	267	2,647	844	6,775	4,972
– No minority interests	–	–	–	–	–	–
Average number of shares, thousand	273,201	201,531	273,201	195,238	273,201	234,540
Income, per share	4.47	1.32	9.69	4.32	24.80	21.20

* For calculation see Finanial Key Ratios, page 17.

Condensed Consolidated Balance Sheet

SEKm	30 June 2017	30 June 2016	31 Dec 2016
Assets
Investment properties	76,490	72,109	70,757
Goodwill	1,659	2,032	1,659
Other fixed assets	85	63	93
Current receivables	1,078	576	5,547
Liquid assets	323	425	257
Total assets	79,635	75,205	78,313
Shareholders' equity and liabilities
Shareholders' equity	30,554	25,089	29,234
Deferred tax liability	7,555	6,596	7,065
Other provisions	7	18	9
Derivatives	1,431	1,925	1,582
Interest-bearing liabilities	37,213	39,356	38,467
Non interest-bearing liabilities	2,875	2,221	1,956
Total shareholders' equity and liabilities	79,635	75,205	78,313
Pledged assets (property mortgages)	31,699	34,803	33,130
Pledged assets (chattel mortage)	–	824	838
Contingent liability	–	–	–

Condensed Changes in Equity

SEKm	Number of outstanding shares, thousand	Share capital	Other capital contribution	Currency transl. reserve	Currency hedge reserve	Non controlling interest	Retained earnings	Total equity
Shareholders equity 31-12-2015	164,000	86	4,096	– 12	11	–	11,587	15,768
Dividend, March 2016 (4.90 SEK/share)	–	–	–	–	–	–	– 804	– 804
New issue of shares	82,000	41	6,273	–	–	–	–	6,314
Non-cash issue /Sales of own shares	27,201	10	2,160	–	–	–	905	3,075
Issue expenses	–	–	– 123	–	–	–	–	– 123
D:o Effect on tax	–	–	28	–	–	–	–	28
Acquired minority shareholding	–	–	–	–	–	– 2	–	– 2
Net income Jan-June 2016	–	–	–	–	–	–	844	844
Other total net income Jan-June 2016	–	–	–	9	– 20	–	–	– 11
Shareholders equity 30-06-2016	273,201	137	12,434	– 3	– 9	– 2	12,532	25,089
Net income July-Dec 2016	–	–	–	–	–	–	4,128	4,128
Other total net income July-Dec 2016	–	–	–	54	– 37	–	–	17
Shareholders equity 31-12-2016	273,201	137	12,434	51	– 46	– 2	16,660	29,234
Dividend, March and Sept 2017 (5.00 SEK/share)	–	–	–	–	–	–	– 1,366	– 1,366
Net income Jan-June 2017	–	–	–	–	–	–	2,647	2,647
Other total net income Jan-June 2017	–	–	–	– 15	54	–	–	39
Shareholders equity 30-06-2017	273,201	137	12,434	36	8	– 2	17,941	30,554

Condensed Cash Flow Statement

SEKm	2017 April-June	2016 April-June	2017 Jan-June	2016 Jan–June	Rolling 4 quarters July 16-June 17	2016 Jan-Dec
Net operating income	915	653	1,777	1,209	3,604	3,036
Central administrative expenses	– 40	– 36	– 83	– 68	– 158	– 143
Reversed depreciations	– 7	4	5	7	12	14
Net interest rates paid	– 227	– 134	– 458	– 276	– 996	– 814
Tax paid	– 66	42	56	44	21	9
Translation difference of currencies	– 15	– 9	– 15	– 10	1	6
Cash flow from operating activities before change in working capital	560	520	1,282	906	2,484	2,108
Change in current receivables	146	89	– 119	– 47	– 119	– 47
Change in current liabilities	– 826	110	– 162	411	– 374	199
Cash flow from operating activities	– 120	719	1,001	1,270	1,991	2,260
Investments in new constructions, extensions and reconstructions	– 728	– 467	– 1,356	– 802	– 2,673	– 2,119
Property acquisitions	– 785	– 354	– 3,349	– 391	– 3,832	– 874
Change in liabilities at acquisitions of property	153	–	272	– 4	272	– 4
Property sales	24	57	856	60	7,577	6,781
Change in receivables at sales of property	483	1	4,588	18	– 383	– 4,953
Business combination	–	– 10,728	–	– 11,187	–182	– 11,369
Other investments	– 18	11	– 13	5	– 41	– 23
Cash flow from investment activities	– 871	– 11,480	998	– 12,301	738	– 12,561
Change in long term liabilities	1,009	4,848	– 1,254	6,033	– 2,143	5,144
Change in long-term receivables	1	– 2	4	– 2	– 5	– 11
New issue of shares	–	6,190	–	6,190	–	6,190
Dividend paid	–	–	– 683	– 804	– 683	– 804
Cash flow from financing activities	1,010	11,036	– 1,933	11,417	– 2 831	10,519
Cash flow for the period/year	19	275	66	386	– 102	218
Liquid assets opening balance	304	150	257	39	425	39
Liquid assets closing balance	323	425	323	425	323	257

The Parent Company

Condensed Income statement	2017	2016	2017	2016
SEKm	Apr-June	Apr-June	Jan-June	Jan-June
Income	7	5	14	10
Operating expenses	– 44	– 20	– 89	– 55
Net fi nancial items	24	– 3	2	1
Change in derivatives	133	– 66	190	– 214
Sales of shares in subsidiaries	–	2,784	–	2,784
Income before tax		120 2,700	117	2,526
Tax	– 26	18	– 25	56
Net income for the period/year	94	2,718	92	2,582
Comprehensive income for the parent company
Net income for the period/year	94	2,718	92	2,582
Items that will be reclassifi ed into net income
Translation diff erence foreign operations	– 7	13	– 7	20
Unrealized change, currency hedge	7	–13	7	– 20
Total net income for the period/year	94	2,718	92	2,582

Condensed Balance sheet SEKm	30 June 2017	30 June 2016	31 Dec 2016
Participations in group companies		19,762 22,409	19,403
Receivables, group companies	34,629		21,410 32,250
Other assets	185	218	157
Liquid assets	0	0	0
Total		54,576 44,037	51,810
Shareholders' equity	16,527	15,788	17,801
Derivatives	1,431	1,349	1,259
Interest bearing liabilities		33,228 23,943	27,912
Interest bearing liabilities, group companies	2,582	2,719	4,702
Other liabilities	808	238	136
Total		54,576 44,037	51,810
Pledged assets (receivables group companies)	26,745	18,754	21,986
Contingent liability (guaranteed commitments for subsidiaries)	3,726	10,363	7,353

Financial Key Ratios

A number of the financial measures presented by Castellum in the interim report are not defined in accordance with the IFRS accounting standards. However, the company believes that these measures provide useful supplementary information to both investors and Castellum management, as they facilitate evaluation of company performance. It is to be noted that, since not all companies calculate financial measurements in the same manner, these are not always comparable to measurements used by other companies. Hence, these financial measures should not be seen as a substitute for measures defined according to the IFRS. Unless otherwise stated, the table below presents measures, along with their reconciliation, which are not defined according to the IFRS. Definitions for these measures appear on the page 23.

					Rolling 12 months
	April-June 2017	April-June 2016	Jan-June 2017	Jan-June 2016	July 16-June 17	Jan-Dec 2016
Average number of shares, thousand (related to fi nancial key ratios) *	273,201	201,531	273,201	195,238	273,201	234,540
Outstanding number of shares, thousand (related to balance sheet ratios) *	273,201	273,201	273,201	273,201	273,201	273,201

*) The number of historical shares that have been recalculated with reference to the bonus-issue element (i.e. the value of the subscription right) in the completed new share issue,

and utilized in all ratio calculations for SEK-per-share.

INCOME FROM PROPERTY MANAGEMENT

Castellum's operations are focused on cash-fl ow growth from ongoing management operations – i.e. income growth from property management – the prime yearly objective being a 10% increase in property management income. Income from property management also forms the basis of the annual shareholder dividend: at least 50% of property-management income. Income from property management is calculated before paid tax, as well as after the theoretical tax that Castellum would have paid on income from property management, had there been no loss carryforwards.

Income from property management		Jan-March 2017 SEKm SEK/share		Jan-March 2016 SEKm SEK/share		Jan-June 2017 SEKm SEK/share		Jan-June 2016 SEKm SEK/share		Rolling 12 months July 16-June 17 SEKm SEK/share		Jan-Dec 2016 SEKm SEK/share
Income before tax	1,614	5.91	373	1.85	3,219	11.78	1,106	5.66	7,835	28.68	5,722	24.40
Reversed
Transaction and restructuring costs	1	0.00	123	0.61	5	0.02	133	0.68	35	0.13	163	0.69
Revaluation of results due to stepwise acquisition	–	–	–	–	–	–	– 27	– 0.14	–	–	– 27	– 0.12
Write-down goodwill	–	–	– 127	– 0.63	–	–	– 616	– 3.15	373	1.37	373	1.59
Changes in value, properties	–884	– 3.24	75	0.37	– 1,824	– 6.68	223	1.14	– 5,293	– 19.37	– 4,085	– 17.42
Change in value, derivatives	– 75	– 0.27	–	–	– 152	–0.55	–	–	– 457	– 1.67	– 82	– 0.34
Tax joint venture	–	–	0	0.00	–	–	1	0.01	–	–	1	0.00
= Income from property management	656	2.40	444	2.20	1,248	4.57	820	4.20	2,493	9.13	2,065	8.80
EPRA Earnings (Income from prop. management after tax)
Income from property management	656	2.40	444	2.20	1,248	4.57	820	4.20	2,493	9.13	2,065	8.80
Reversed; Current tax Income from property management	– 68	– 0.25	– 34	– 0.17	– 137	– 0.50	– 64	– 0.33	– 201	– 0.74	– 128	– 0.54
EPRA Earnings / EPRA EPS	588	2.15	410	2.03	1,111	4.07	756	3.87	2,292	8.39	1,937	8.26

NET ASSET VALUE

Net asset value is the total equity which the company manages for its owners. Based on this equity, Castellum wants to create return and growth at a low level of risk. Net asset value can be calculated both long and short term. Long-term net asset value is based on the balance sheet, with adjustments for items that will not lead to any short-term payment. In Castellum's case, these would include such things as goodwill, derivatives and deferred tax liability. Actual net asset value is equity according to the balance sheet, adjusted for the market value of the deferred tax liability.

Net asset value		SEKm SEK/share			SEKm SEK/share	SEKm SEK/share
Equity according to the balance sheet		30,554	112	25,089	92	29,234	107
Reversed:
Derivatives according to balance sheet		1,431	5	1,925	7	1,582	6
Goodwill according to balance sheet		– 1,659	– 6	– 2,032	– 7	– 1,659	– 6
Deferred tax according to balance sheet		7,555	27	6,596	24	7,065	26
Long term net asset value (EPRA NAV)		37,881	138	31,578	116	36,222	133
Deduction
Derivatives as above		– 1,431	– 5	– 1,925	– 7	– 1,582	– 6
Estimated real liability, deferred tax 7% (2016:5%)*		– 2,485	– 9	– 1,360	– 4	– 1,558	– 6
Short term net asset value (EPRA NNNAV)		33,965	124	28,293	104	33,082	121

* Estimated real deferred tax liability net has been calculated to 7% based on a discount rate of 3%. Further, assessments have been made that tax loss carry forwards are realized in 2 years with a nominal tax of 22%, giving a present value of deferred tax liability of 21%, 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 11%, which gives a present value of deferred tax liability of 7%.

FINANCIAL RISK

Castellum's strategy is to own, develop and manage properties at low fi nancial risk. This is expressed in a loan-to-value ratio not permanently exceeding 55% and an interest-coverage ratio of at least 200%.

Interest coverage ratio	2017 April-June	2016 April-June	2017 Jan-June	2016 Jan-June	Rolling 12 months July 16-June 17	Jan-Dec 2016
Income from property management	656	444	1,248	820	2,493	2,065
Reversed;
Net interest	219	173	446	325	953	832
Income from prop. management joint venture	–	–	–	– 4	–	– 4
Income from prop. management excl. net interest and joint venture	875	617	1,694	1,141	3,446	2 893
Interest coverage ratio	400%	357%	380%	351%	362%	348%
Loan to value ratio
Interest-bearing liabilities			37,213	39,356		38,467
Liquid assets			– 323	– 425		– 257
Net interest-bearing liabilities net			36,890	38,931		38,210
Investment properties			76,490	72,109		70,757
Acquired properties not taken into possession			– 283	– 11		– 11
Divested properties still in Castellum's possession			383	–		4,971
Net investment properties			76,590	72,098		75,717
Loan to value ratio			48%	54%		50%

INVESTMENT

In order to achieve the overall objective of 10% growth, i. e. income from property management per share, annual net investments of at least 5% of the property value will be made.

Net investments	2017 April-June	2016 April-June	2017 Jan-June	2016 Jan-June	Rolling 12 months July 16-June 17	Jan-Dec 2016
Acquisitions	785	26,779	3,349	28,889	3,832	29,372
New constructions, extensions and reconstructions	728	467	1,356	802	2,673	2,119
Total investment	1,513	27,246	4,705	29,691	6,505	31,491
Net sales price	–24	–30	–856	– 33	– 7,577	– 6,754
Net investments	1,489	27,216	3,849	29,658	– 1,072	24,737
Proportion of the property value, %	2%	61%	5%	71%	– 1%	59%

Other Financial Key Ratios

	2017	2016	2017	2016	Rolling 12 months	2016
	April-June	April-June	Jan-June	Jan-June	July 16-June 17	Jan-Dec
Net operating income margin	73%	69%	69%	67%	68%	67%
Interest rate level, on average	2.4%	2.7%	2.5%	2.8%	362%	2.7%
Return on longterm net asset value	16.5%	15.5%	13.1%	15.0%	22.4%	25.3%
Return on actual net asset value	16.4%	2.3%	9.6%	7.4%	22.7%	20.9%
Return on total capital	9.0%	4.9%	9.0%	6.0%	11.7%	11.9%
Return on equity	16.7%	5.3%	18.5%	8.4%	27.7%	20.1%
Property value, SEK/share	280	264	280	264	280	259
Gross leasing	179	106	349	208	630	489
Net leasing	96	47	199	47	330	178

Accounting Principles

Castellum follows the EU-adopted IFRS standards. This interim report has been prepared according to IAS 34 Interim Financial Reporting and the Annual Accounts Act. Disclosures in accordance with IAS 34 Interim Financial Reporting are presented either in the notes or elsewhere in the interim report. Otherwise, accounting principles and methods for calculations have remained unchanged compared with the Annual Report of the previous year.

Opportunities and Risks for Opportunities and Risks for Group and Parent Company

Opportunities and risks in the cash fl ow

Over time, increasing market interest rates normally constitute an eff ect 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 eff ect on income in the short run may occur at diff erent points in time.

Sensitivity analysis - cash fl ow Eff ect on income next 12 months

	Eff ect on income, SEKm		Probable scenario
	+/– 1% (units)	Boom	Recession
Rental level / Index	+ 51 /– 51	+	–
Vacancies	+ 57/– 57	+	–
Property costs	– 15/+ 15	–	0
Interest costs	– 58/– 93*	0	–

* Due to inter alia the interest-rate fl oor in credit agreements, Castellum is not able to take full advantage of negative interest rates. This results in a negative outcome, even for a one-percentage-point reduction of the interest rate.

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 eff ect. 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 eff ect.

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	– 15,298	– 7,649	–	7,649	15,298
Loan to value ratio	60%	54%	48%	44%	40%

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.

Signing of the Report

The Board of Directors and the Chief Executive Offi cer assure that the Half-year Report provide a fair view of the parent company's and the Group's operations, fi nancial position and result as well as describes signifi cant risks and uncertainties that the parent company and the companies included in the Group are faced with.

Gothenburg July 13, 2017

Charlotte Strömberg Per Berggren Chairman Board member

Board member Board member

Christina Karlsson Kazeem Nina Linander Board member Board member

Johan Skoglund Henrik Saxborn Board member CEO

Anna-Karin Hatt Christer Jacobson

Events after the reporting period

On July 3, Castellum announced that Cecilia Fasth, MD of Region West in Castellum – that is operations mainly in Greater Gothenburg – has decided to leave Castellum. She will remain in service until year-end.

Auditors' Report

Independent Auditors' Report on Review of Half-year Financial Information.

To the Board of Directors of Castellum AB (publ) Corporate indetity number: 556475-5550

Introduction

We have reviewed the interim report for Castellum AB (publ) for the period January 1 – June 30, 2017. The Board of Directors and the President are responsible for the preparation and presentation of this half-year report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this halfyear report based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for fi nancial and accounting matters, and applying analytical and other review procedures. A review has a diff erent focus and is substantially less in scope than an audit conducted in accordance with ISA and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all signifi cant matters that might be identifi ed in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the half-year report is not, in all material respects, prepared for the Group in accordance with IAS 34 and the Annual Accounts Act, and for the Parent Company in accordance with the Annual Accounts Act.

Gothenburg July 13, 2017 Deloitte AB

Hans Warén Authorized Public Accountant

The Castellum Share

The Castellum share is listed on Nasdaq Stockholm Large Cap. At the end of the period the company had about 36,000 shareholders. Shareholders registered abroad cannot be broken down in terms of directly held and nominee registered shares except for one foreign shareholder who has fl agged for holding over 5%, Stichting Pensioenfonds ABP. Castellum has no direct registered shareholder with holdings exceeding 10%. The ten single largest shareholders registered in Sweden are presented in the table below.

Shareholders on 30-06-2017	Percentage of
	Number of	voting rights
Shareholders	shares thousand	and capital
Sjätte AP-fonden	13,601	5.0%
Lannebo Småbolag	7,160	2.6%
AMF Pensionsförsäkring AB	6,850	2.5%
Stiftelsen Global Challenges	3,750	1.4%
AFA Sjukförsäkrings AB	2,802	1.0%
Magdalena Szombatfalvy	2,635	1.0%
Tredje AP-fonden	2,325	0.9%
Länsförsäkringar fastighetsfond	2,041	0.7%
SEB Sverigefond	2,023	0.7%
Handelsbanken Svenska Småbolag	2,000	0.7%
Board and executive management Castellum	251	0.1%
Other shareholders registered in Sweden	82,402	30.2%
Shareholders registered abroad	145,361	53.2%
Total registered shares	273,201	100.0%

There is no potential common stock (eg. convertibles) Source: Information from Euroclear Sweden AB

Distribution of shareholders by country 30-06-2017

The Castellum share price as at 30 June, 2017 was SEK 123.70 (119.90) equivalent to a market capitalization of SEK 33.8 billion (32.8), calculated on the number of outstanding shares.

Since the beginning of the year a total of 146 million (115) shares were traded, equivalent to an average of 1,190,000 shares (628,000) per day, corresponding on an annual basis to a turnover rate of 109% (57%). The share turnover is based on statistics from Nasdaq Stockholm, Chi-X, Turquoise and BATS Europe.

Net asset value

The net asset value is the aggregated capital that the company manages for its owners. From this capital, Castellum wants to generate return and growth at low risk. The long term net asset value (EPRA NAV) can be calculated to SEK 138 per share (116). The share price at the end of the period was thus 90% (103%) of the long term net asset value.

Earnings

Income from property management rolling 12 months adjusted for tax attributable to income from property management (EPRA EPS) amounted to SEK 8.39 (8.06) on rolling annual basis. This results in a share price yield of 6.8% (6.7%) corresponding to a multiple of 15 (15). Income from property management must be adjusted by a longterm increase in the property value and eff ective tax paid.

Net income after tax amounted on rolling annual basis to SEK 24.80 per share (12.11), which from the share price gives a yield of 20.0% (10.1%), corresponding to a P/E of 5 (10).

Dividend yield

The recent AGM approved a dividend of 5.00 kronor (4.25), corresponding to a yield of 4.0% (3.6%), calculated on rates eff ective at the end of the period. Of the dividend related to fi scal year 2016, SEK 2.50 has been issued in March, 2017, and the remainder will be paid out in September, according to record date: September 25, 2017.

Total share yield

During the last 12-month period the total yield of the Castellum share has been 5.4% (23%), including a dividend.

Net asset yield including long-term change in value

In companies managing real assets, such as real estate, the income from property management only refl ects part – albeit a large part – of the overall result. The defi nition of a real asset is that its value is protected. This means that over time – and with proper maintenance – the real asset increases in value to compensate for infl ation.

The net asset value – i.e., the denominator of the yield ratio income/capital – is adjusted annually in accordance with IFRS regulations for changes in value. In order to provide an accurate fi gure of the yield, the numerator – i.e., income – must be similarly adjusted. Therefore, the recorded net income has to be supplemented with a component of value changes as well as with eff ective tax to provide an accurate view of income and yield.

One problem is that changes in value can vary greatly between years and quarters, thus leading to volatile results. However, by being a long-term player with stable cash fl ow and a balanced real estate portfolio, Castellum is able to make use of long-term value changes.

Net asset yield and earnings including Growth, yield and fi nancial risk long-term change in value

			Sensitivity analysis
		–1%-unit	+1%-unit
Income from prop. management rolling 12 months 2,493		2,493	2,493
Change in property value (on average 10 years)	941	217	1,665
D:o %	1.3%	0.3%	2.3%
Current tax, 7%	– 185	– 185	– 185
Earnings after tax	3,249	2,525	3,973
Earnings SEK/share	11.89	9.24	14.54
Return on actual long-term net asset value	14.1%	11.8%	16.5%
Earnings / share price	9.6%	7.5%	11.8%
P/E	10	13	9

EPRA Key ratios	30 June 2017	30 June 2016	31 Dec 2016
EPRA Earnings (Income from property management after tax), SEKm	1,111	756	1,937
EPRA Earnings (EPS) SEK/share	4.07	3.87	8.26
EPRA NAV (Long term net asset value), SEKm	37,881	31,578	36,222
EPRA NAV, SEK/share	138	116	133
EPRA NNNAV (Net asset value), SEKm		33,965 28,293 33,082
EPRA NNNAV, SEK/share	124	104	121
EPRA Vacancy Rate	10%	9%	9%

		3 years average/	10 years average/
	1 year	year	year
Growth
Rental income SEK/share	7%	4%	6%
Income from prop. management SEK/share	7%	7%	7%
Net income for the year after tax SEK/share	103%	51%	11%
Dividend SEK/share	18%	11%	7%
Long term net asset value SEK/share	20%	14%	7%
Actual net asset value SEK/share	18%	14%	6%
Real estate portfolio SEK/share	6.1%	10.4%	7.3%
Change in property value	7.0%	4.3%	1.3%
Yield
Return on actual long term net asset value	22.4%	17.6%	11.6%
Return on actual net asset value	22.7%	16.3%	11.0%
Return on total capital	11.4%	8.9%	7.3%
Total yield of the share (incl. dividend)
Castellum	5.4%	9.6%	9.4%
Nasdaq Stockholm (SIX Return)	26.1%	12.4%	7.3%
Real Estate Index Sweden (EPRA)	8.0%	17.2%	11.7%
Real Estate Index Europe (EPRA)	6.3%	9.3%	2.0%
Real Estate Index Eurozone (EPRA)	7.7%	11.6%	3.7%
Real Estate Index Great Britain (EPRA)	9.8%	6.1%	– 0.4%
Financial risk
Loan to value ratio	48%	50%	50%
Interest coverage ratio	362%	353%	307%

Yield earnings per share

The share's dividend yield Share price/net asset value

The Castellum share's price trend and turnover since the IPO May 23, 1997 until June 30, 2017

Defi nitions

Data per share

In calculating income and cash flow per share the average number of shares has been used, whereas in calculating assets, shareholders' equity and net asset value per share the number of outstanding shares has been used. The number of historical shares that have been recalculated with reference to the bonus-issue element (i.e. the value of the subscription right) in the completed new share issue.

Dividend pay out ratio

Dividend as a percentage of income from property management.

Dividend yield

Proposed dividend as a percentage of the share price at the end of the period.

Economic occupancy rate

Rental income accounted for during the period as a percentage of rental value for properties owned at the end of the period. Properties acquired/completed during the period have been restated as if they had been owned or completed during the whole year, while properties disposed of have been excluded entirely. Development projects and undeveloped land have been excluded.

EPRA EPS (Earnings Per Share)

Income from property management adjusted for nominal tax attributable to income from property management, divided with the average number of shares. With taxable income from property management means income from property management with a deduction for tax purposes of depreciation and reconstruction.

EPRA NAV (Long term net asset value)

Reported equity according to the balance sheet, adjusted for interest rate derivatives, goodwill and deferred tax.

EPRA NNNAV (Actual net asset value)

Reported equity according to the balance sheet, adjusted for actual deferred tax instead of nominal deferred tax.

Income from property management

Net income for accounted for after reversal of transaction and restructuring costs, revaluation of results due to stepwise acquisition, depreciation goodwill, changes in value and tax, both for the Group and for joint venture.

Interest coverage ratio

Income from property management after reversal of net financial items and income from property management in joint venture as a percentage of net interest items.

Loan to value ratio

Interest-bearing liabilities after deduction for liquid assets as a percentage of of the properties' fair value with deduction for acquired properties not taken in possession, and with addition for properties disposed of, still in possession, at the year-end.

Net operating income margin

Net operating income as a percentage of rental income.

Number of shares

Registered number of shares - the number of shares registered at a given point in time.

Outstanding number of shares - the number of shares registered with a deduction for the company's own repurchased shares at a given point in time.

Average number of shares - the weighted average number of outstanding shares during a given period. The number of historical shares that have been recalculated with reference to the bonus-issue element (i.e. the value of the subscription right) in the completed new share issue.

Operating expenses, maintenance, etc.

This item includes both direct property costs, such as operating expenses, maintenance, ground rent and real estate tax, as well as indirect costs for leasing and property administration.

Property type

The property's primary rental value with regard to the type of premises. Premises for purposes other than the primary use may therefore be found within a property type.

Rental income

Rents debited plus supplements such as reimbursement of heating costs and real estate tax.

Rental value

Rental income plus estimated market rent for vacant premises.

Return on actual net asset value

Income after tax as a percentage of initial net asset value during the year, but with actual deferred tax instead of nominal tax. In the interim accounts the return has been recalculated on an annual basis, disregarding seasonal variations normally occurring in operations.

Return on equity

Income after tax as a percentage of average equity. In the interim accounts the return has been recalculated on an annual basis, disregarding seasonal variations normally occurring in operations.

Return on long term net asset value

Income after tax with reversed changes in value of derivatives and deferred tax as a percentage of initial long term net asset value. In the interim reports the return has been recalculated on annual basis, disregarding seasonal variations normally occuring in operations.

Return on total capital

Income before tax with reversed net financial items and changes in value on derivatives during the year as a percentage of average total capital. In the interim accounts the return has been recalculated on an annual basis, disregarding seasonal variations normally occurring in operations.

SEK per square metre

Property-related key ratios, expressed in terms of SEK per square metre, are based on properties owned at the end of the period. Properties acquired/completed during the year have been restated as if they had been owned or completed for the whole year, while properties disposed of have been excluded entirely. Development projects and undeveloped land have been excluded. In the interim accounts key ratios have been recalculated on an annual basis, disregarding seasonal variations normally occurring in operations.

Total yield per share

Share price development with addition of the dividends during the period which was reinvested in shares that day shares traded exdividend.

Calendar

Interim Report January-September 2017 20 October 2017 Year-end Report 2017 25 January 2018 Annual General Meeting 2018 22 March 2018

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, CFO, tel +46 706 47 12 61.

Local contacts

Central Region in Castellum Rörvägen 1, Box 1824, 701 18 Örebro Phone +46 19-27 65 00 orebro@castellum.se

Öresund Region in Castellum

Lilla Nygatan 7, Box 3158, 200 22 Malmö Phone +46 40-38 37 20 malmo@castellum.se

West Region in Castellum

Östra Hamngatan 16, Box 8725, 402 75 Gothenburg Phone +46 31-744 09 00 goteborg@castellum.se

Stockholm - North Region in Castellum

Torsgatan 11, Box 1084, 101 39 Stockholm Phone +46 8-602 33 00 stockholm@castellum.se

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

Castellum AB (publ) • Box 2269, 403 14 Gothenburg • Visiting address Östra Hamngatan 16 Phone +46 (0)31-60 74 00 • Email info@castellum.se • www.castellum.se Domicile: Gothenburg • Corporate identity no: 556475-5550