Castellum — Interim / Quarterly Report 2017

Apr 25, 2017

INTERIM REPORT JANUARY - MARCH

2017

Castellum Interim Report January-March 2017 a s t e l l u m I n t e r i m R e p o r t J a n u a r y - M a r c h 2 0 1 7

Interim Report January-March 2017

Castellum is one of the major listed real estate companies in Sweden. The fair value of the real estate portfolio amounts to SEK 74 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 17 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-March 2017 amounted to SEKm 1,304 (SEKm 855 previous year).
• Income from property management amounted to SEKm 592 (376), corresponding to SEK 2.17 (1.99) per share, an increase of 9%.
• Changes in value on properties amounted to SEKm 940 (489) and on derivatives to SEKm 77 (– 148).
• Net income after tax for the period amounted to SEKm 1,426 (577), corresponding to SEK 5.22 (3.05) per share.
• Net investments amounted to SEKm 2,360 (2,442) of which SEKm 2,564 (2,110) were acquisitions, SEKm 628 (335) new constructions, extensions and reconstructions and SEKm 832 (3) sales.
• Net lease for the period was SEKm 103 (0).

KEY RATIOS

	2017 Jan-March	2016 Jan-March
Rental income, SEKm	1,304	855
Net operating income, SEKm	862	556
Income of property management, SEKm	592	376
D:o SEK/share*)	2.17	1.99
D:o growth	+ 9%	+ 8%
Net income after tax, SEKm	1,426	577
Net investments SEKm	2,360	2,442
Net leasing, SEKm	103	0
Loan to value ratio	48%	50%
Interest coverage ratio	361%	338%
Long term net asset value (EPRA NAV) SEK/share*)	133	113
Actual net asset value (EPRA NNNAV) SEK/share*)	119	100

*) 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.

For more detailed information about Castellum see www.castellum.se.

Cover photo: Torsplan 2 in Stockholm, change of position took place in February 2017. The property is certifi ed according to BREEAM, level outstanding.

Another quarter with increased property-management income

Castellum's income for the fi rst quarter shows a positive trend. Property-management income increased by 9% to SEK 2.17 per share, despite the fact that we're now calculating with the full number of shares for the fi rst time since last year's new share issue.

Net leasing reached a historically high level of SEKm 103, and SEKm 84.5 of this resulted from various investment projects. In all, approximately 240 new contracts were signed from all our regions – a remarkable eff ort by every employee. Among the major contracts we can count United Spaces in Gothenburg and Genmab in Copenhagen, as well as the municipality of Uppsala.

Property values also continued to rise during the fi rst quarter, and the increase in value of portfolio properties amounted to SEK 0.9 billion.

Strengthened position in Stockholm

Business activity has been high: We came into possession of Torsplan 2 in Stockholm and completed two exchange transactions in the area of Gothenburg. Added to this, just after the end of the reporting period, we were confi rmed as buyers of the Sabbatsberg 24 property, close to Norra Bantorget. This well-known property used to house the Stockholm Vatten headquarters and currently has a leasable area of approx. 11,500 sq.m, as well as existing, unutilized building rights for about 1,500 sq.m.

Castellum already owns neighbouring properties and will join Stockholm City and other real estate owners in developing and creating a concept for the entire Torsgatan area. Castellum's intention for Sabbatsberg 24 is to establish an active mixed-use block that adds modern workplaces to a very attractive location – right in the heart of Stockholm.

This means that, during the past two years, we've built up a portfolio in central Stockholm from zero to six properties with a total area of 115,000 sq. m.

During the fi rst quarter, we sold properties for about SEK 0.8 billion and acquired as well as building new constructions, extensions and reconstructions for 3.2 billion kronor. Net investments thus amount to 2.4 billion kronor. Despite the new investments, as well as initial payout of a 50% dividend during the quarter, the loan to value ratio remained at a moderate 48%. Net asset value increased to SEK 133 per share.

High-rev industry

The real estate industry in Sweden – like the Swedish economy – is revving up.

Both the rental and real estate markets are developing at a robust pace: vacancies decrease, rents rise, and property values, construction- and transaction volumes increase. All in all, signs of a functioning market where supply, demand and high liquidity are crucial factors. Over time, in accordance with market economy theory, these should help correct market imbalances. Market effi ciency has also been supported by favourable opportunities for fi nancing, both through new issues and through various types of loans.

New taxes pose a threat

However, there are threats to this built-in market effi ciency. The government's current "packaging inquiry" concludes that the real estate industry is not undertaxed. Nevertheless, heavy proposals have been presented which, if implemented, could ultimately damage the market. In the impact assessment, the inquiry clearly states that abandoning tax exemptions in packaged sales may lead to lower property prices, reduced construction, smaller real estate portfolios and higher rents. In addition the proposal includes a retroactive element that confi scates income from previous transactions. We therefore have to hope that the proposal will be quickly disposed of.

A hesitant attitude in the transaction market has already been noted at this point, just as inquiry results have been presented. Today, it would have been highly unlikely for Castellum to manage implementation of the strategically important sales that were completed over the past six months for a total of for approx. 6.7 billion kronor.

Castellum is moving on

Whatever the outcome, we intend to proceed on our chosen path and continue to allocate the portfolio to locations where we already operate, primarily through investment in our own projects for higher profi tability. Castellum's current project portfolio totals approximately 4.5 billion kronor, and half of the portfolio will be completed this year – hence promoting continued growth.

Henrik Saxborn Verkställande direktör

Market comments

Swedish and Danish economy

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

However, geopolitical turmoil continues to dampen the mood. Both Brexit and the political moves of the newly appointed US President create uncertainty, and long-term eff ects are diffi cult to assess.

The Swedish labour market has been positively aff ected by the stronger economy. Labour demand tends to be increasing for several groups, primarily within 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 not changed signifi cantly in the fi rst quarter compared with most major currencies, but has weakened compared with the fi rst quarter of 2016.

Macro indicators, Sweden

Unemployment	7.4%	(February 2017)
Infl ation	1,3%	(March 2017 compared to March 2016)
GDP growth	1.0%	(Q4 2017 compared to Q3 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 against a backdrop of rising employment is expected to provide the primary push, but other factors include more favourable export prospects and investments. Infl ation in Denmark – expressed in terms of CPI – is also expected to rise to approximately 1.4% in 2017, compared with zero in 2016.

Swedish rental market

The rental market continues to demonstrate a stable and strong trend. It is strongest in the metropolitan areas of Stockholm and Gothenburg, which have retained historically strong rental growth over the past year, both for office space and for peri-urban warehouse premises. The new construction rate is driven by urbanization and strong growth in commercial and industrial life, but is being hampered by slow planning processes.

Specifically in Stockholm, the strong production of housing and the conversion of commercial space to residential space have led to a decrease in the proportion of commercial space, now expected to continue a decline.

During the past year, office rents have reached new record highs in several regional cities, and this means that new construction rates increase here as well.

Swedish real estate market

In 2016, the total commercial transaction volume of approximately SEK 200 billion resulted in a new record year. The fi rst quarter of 2017 has continued with high intensity, and both Swedish and foreign investors were active. During the fi rst quarter of 2017, total turnover was SEK 35 billion (29), which is higher than the corresponding quarter in both 2015 and 2016. A number of offi cebuilding transactions in Stockholm, Gothenburg and Malmö demonstrate continued strong pricing.

Interest and credit market

The Swedish Riksbank continued both its focus on the KPI goal of 2% and its 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 the fi rst half of 2017. The Swedish repo rate path indicates that some further reduction is possible in the near future. Not until the beginning of 2018 is the repo rate expected to rise slowly, according to the Riksbank.

Of particular signifi cance to Castellum, the 3-month STIBOR rate (which was -0.6% at the end of 2016) increased slightly in the fi rst quarter and was approx. -0.45 at the end of March. However, the spread between Swedish short- and long-term interest rates decreased slightly at the beginning of the year. Swedish long-term interest rates remained historically low, although the yield curve became marginally steeper compared with the autumn of 2016. Among other factors, this development was driven by the substantial fi scal stimulus measures announced by the new US President.

The trend for credit margins in the Swedish bond market pointed slightly downward in the fi rst quarter, and the availability of fi nancing in Swedish capital and banking markets is considered favourable.

In Denmark, the 3-month Cibor rate remained relatively stable at around -0.25% in the fi rst quarter of 2017.

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.

Income from property management, i.e. net income excluding transaction and restructuring costs, changes in value and tax, amounted for the period January-March 2017 to SEKm 592 (376), equivalent to SEK 2.17 (1.99) per share - an increase with 9%. Income from property management rolling four quarters amounted to SEKm 2,281 (1,571) equivalent to SEK 8.93 per share (8.31) - an increase of 7%.

During the period, changes in value on properties amounted to SEKm 940 (489) and on derivatives to SEKm 77 (–148). Net income after tax for the period was SEKm 1,426 (577), equivalent to SEK 5.22 (3.05) per share.

Rental income

Group's rental income amounted to SEKm 1,304 (855). For offi ce and retail properties, the average contracted rental level, including charged heating, cooling and property tax, amounted to SEK 1,600 per sq.m. (1,356), whereas for warehouse and logistics properties, it amounted to SEK 821 per sq.m. (808). Rental levels have in comparable portfolio increased by approx. 2.6% compared with previous year, which inter alia is an eff ect from indexation and renegotiations carried out.

The average economic occupancy rate was 89.8% (90.3%). The total rental value for vacant premises for the year amounted to approx. SEKm 660 (432). The rental income for the period includes a lump sum of SEKm 1 (4) as a result of early termination of leases.

Gross leasing (i.e. the annual value of total leasing)

Rental value and economic occupancy rate

during the period was SEKm 170 (102), of which SEKm 84 (27) were leasing of new constructions, extensions and reconstructions. Notices of termination amounted to SEKm 67 (102), of which bankruptcies were SEKm 3 (8) and SEKm 0 (0) were notices of termination with more than 18 months remaining length of contract. Net lease for the period was hence SEKm 103 (0).

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 442 (299) corresponding to SEK 397 per sq.m. (354). The increase SEK per square metres refers to the acquisition of Norrporten, whose property portfolio consists of offi ce premises with a higher costs per square metres, but also higher rental income. Consumption for heating during the year has been calculated to 90% (99%) 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	214	142	189	196
Maintenance	40	23	34	35
Ground rent	3	8	5	5
Real estate tax	94	23	69	50
Direct property costs	351	196	297	286
Leasing and property administration	–	–	100	68
Total	351	196	397	354
Previous year	354	198	354

Central administrative expenses

Central administration costs amounted to SEKm 47 (42) and have been charged with SEKm 4 in costs for ongoing restructuring activities with Norrporten for the period. This also includes costs for a profit-and-share-price related incentive plan for nine persons in executive management of SEKm 1 (3).

Net interest

Net interest items were SEKm –227 (–152). The average interest rate level was 2.6% (2.9%). Net interest income was positively aff ected by approx. SEKm 20 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. It has been noted that activity receded somewhat towards the end of the period, due to uncertainty following proposed taxation changes for real estate transactions. For Castellum, relatively strong property and rental markets meant value changes of SEKm 894, or +1%. In addition, 11 properties have been sold for a total of SEKm 832, after deduction for assessed deferred taxes and transaction costs totalling SEKm 24. The underlying property value – thus amounting to SEKm 856 – exceeded the latest valuation of SEKm 786 by SEKm 70. 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 77 (–148), mainly due to changes in long-term market interest rates.

Change in value properties 2017-03-31

202
200
230
262
46
940

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 quarter 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 2,524 (2,392). Furthermore, there are derivatives at an undervalue of SEKm 260, which are not tax deductible, as well as untaxed reserves totalling SEKm 58. Fair values for the properties exceed their fi scal value by SEKm 38,066 (36,851) of which SEKm 2,517 (1,992) 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 7,196 (7,065).

Castellum has no current tax disputes.

Income from property management per share

Income over time

Tax calculation 2017-03-31

	Basis	Basis
SEKm	current tax	deferred tax
Income from property management	592
Deductions for tax purposes
depreciations	– 270	270
reconstructions	– 21	21
Other tax allowances	14	– 25
Taxable income from property management	315	266
- current income tax is 22%, if tax losses are not utilized
Properties sold	–	– 431
Changes in value on properties	–	894
Changes in value on derivatives	– 245	–
Issue expenses	105	–91
Taxable income before tax loss carry forwards	175	638
Tax loss carry forwards, opening balance
Acquired loss CORHEI and Norrporten	– 2,392	2,392
Tax loss carry forwards, closing balance	2,524	– 2,524
Taxable income	307	506
Tax according to the income statement for the period	– 68	– 111

Current tax proposal

On 30 March 2017, the Government received a report on amended tax legislation in order to counter tax benefi ts in bundled (packaged) property transactions. The proposal has since been submitted for comment.

Simply put, the proposal implies that, for example, tax neutrality should prevail between direct or indirect sales (through companies) of real estate. A taxation will be added, compared with current regulations on indirect sales, corresponding to two taxes that normally occurs for direct transactions - income tax on capital gains and transaction cost on acquisitions. The two taxes are to be borne by the property-owning company. The formulation of the proposal also denotes that the regulations are indirectly retroactive – i.e. it is not taken into consideration when the properties were acquired/constructed in the legal entity – which means that all deferred tax linked to the properties becomes an actual liability. In Castellum's case, this would means a taxable capital gain of SEKm 38,066, and thus a current tax of SEKm 8,374, in cases where the real estate portfolio is sold directly at a fair value of SEKm 74,043. SEKm 554 of the current tax are related to asset acquisitions and are therefore not included as a liability in the balance sheet. As proposed, the new legislation will become eff ective on 1 July 2018, and will apply to all subsequent transactions.

It is diffi cult to say to what extent the proposal will aff ect the real estate market. Some uncertainties will

probably occur initially, which in turn may aff ect liquidity. If the proposal becomes reality, more direct transactions will probably be carried out, which may aff ect pricing. Moreover, the market valuation of the company's deferred tax related to the properties will likely be aff ected.

Previously, when calculating actual net asset value (EPRA NNNAV), Castellum has estimated the actual tax value to be 5%, given the assumption that two thirds are sold indirectly with a tax deduction of 6% and one third is sold directly. Instead, with an assumption that the entire portfolio is sold directly, the tax fair value becomes 10%. Because the proposal is under consideration and it is uncertain whether – and in which form – it will be adopted, this report is based on previous assumptions. However, one diff erence is that Castellum has made an 11% calculated deduction for corporate transactions instead of the previous 6%, i.e., sellers and buyers split the risk that the proposal entails.

There are two scenarios in the following calculation of net asset value as of 31/03/2017:

• a) The entire real estate portfolio is being divested as direct sales.
• b) In addition to scenario a), we are utilizing the assumption of a drop in property values corresponding to the stamp cost of 2%.

Net asset value 2017-03-31

	Outcome	a)	b)
Equity	29,294	29,294	28,162
Reversed:
- Deferred tax	7,196	7,196	6,877
- Goodwill	– 1,659	– 1,659	– 1,659
- Derivatives	1,551	1,551	1,551
Long term net asset value (EPRA NAV)	36,382	36,382	34,930
D:o SEK/share	133	133	129
Deduction:
- Derivatives as above	– 1,551	– 1,551	– 1,551
- Estimated real liability, deferred tax	– 2,207	– 3,651	– 3,460
D:o %	6%	10%	10%
Actual net asset value (EPRA NNNAV)	32,624	31,180	29,919
D:o SEK/share	119	114	110
Change		-4%	-8%

Furthermore, on 12 July 2016, the EU adopted a Directive laying down the rules against tax avoidance methods; an important cornerstone is the implementation of interest deduction limitations. The Directive is to be incorporated in respective member countries by 31/12/2018.

Real Estate Portfolio

The real estate portfolio is located in growth areas in Sweden and Copenhagen. The commercial portfolio consists of 80% 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 3% consist of projects and undeveloped land.

Castellum owns approx. 845,000 sq.m. of unutilized building rights and furthermore ongoing projects with remaining investments of approx. SEKm 2,000.

Investments

During the period, investments totalling SEKm 3,192 (2,445) were carried out, of which SEKm 2,564 (2,110) were acquisitions and SEKm 628 (355) new constructions, extensions and reconstructions. After sales of SEKm 832 (3) net investments amounted to SEKm 2,360 (2,442).

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	2,564	20
+ New constructions, extensions and reconstructions	628	2
– Sales	– 786	– 11
+/– Unrealized changes in value	894	–
+/– Currency translation	– 14	–
Real estate portfolio on March 31, 2017	74,043	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 (1,700) 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 74,043 (44,773), corresponding to SEK 17,105 per sq.m.

Average valuation yield, Mkr

(excl. project/land and building rights)	Mkr
Net operating income properties	938
+ Real occupancy rate, 94% at the lowest	90
+ Property cost annual rate	11
– Property administration, 30 SEK/sq.m.	– 33
Normalized net operating income (3 months)	1,006
Valuation (excl. building rights of SEKm 429)	71,041
Average valuation yield	5.7%

Average valuation yield over time

Castellums' real estate portfolio 31-03-2017

	31-03-2017					January-March 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	17,662	17,233	357	1,393	91.3%	326	87	338	239
West	84	482	9,916	20,573	182	1,509	88.9%	162	40	330	122
Öresund	73	576	13,598	23,626	261	1,811	86.5%	225	57	399	168
Stockholm	49	398	12,725	31,977	196	1,971	91.6%	180	35	347	145
North	28	259	4,913	18,936	100	1,547	92.9%	93	22	340	71
Total offi ce/retail	378	2,740	58,814	21,466	1,096	1,600	90.0%	986	241	351	745
Warehouse/logistics
Central	46	240	1,784	7,424	47	777	82.9%	38	10	171	28
West	108	674	5,692	8,445	128	762	92.2%	118	30	180	88
Öresund	33	229	1,599	6,975	42	730	80.6%	34	12	207	22
Stockholm	51	295	3,581	12,140	78	1,062	92.6%	73	18	244	55
Total warehouse/logistics	238	1,438	12,656	8,798	295	821	89.2%	263	70	196	193
Total	616	4,178	71,470	17,105	1,391	1,332	89.8%	1,249	311	297	938
Leasing and property administration									104	100	- 104
Total after leasing and property administration									415	397	834
Development projects	37	182	2,019	–	33	–	–	10	8	–	2
Undeveloped land	23	–	554	–	–	–	–	–	–	–	–
Total	676	4,360	74,043	–	1,424	–	–	1,259	423	–	836

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 836 accounted for above and the net operating income of SEKm 862 in the income statement is explained by the deduction of the net operating income of SEKm 50 on properties sold during the year, as well as the adjustment of the net operating income of SEKm 24 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-March	2016 Jan-March	2016 Jan-Dec
Rental value, SEK/sq.m.	1,332	1,119	1,304
Economic occupancy rate	89.8%	90.3%	91.3%
Property costs, SEK/sq.m.	397	354	376
Net operating income, SEK/sq.m.	799	656	816
Property value, SEK/sq.m.	17,105	12,506	16,558
Number of properties	676	622	665
Lettable area, thousand sq.m.	4,360	3,563	4,292
Valuation yield, on average	5.7%	6.4%	5.8%

Segment information

		Rental income	Income from property management
SEKm	2017 Jan-March	2016 Jan-March	2017 Jan-March	2016 Jan-March
Central	368	242	171	105
West	279	283	146	135
Öresund	259	163	118	71
Stockholm	247	167	133	81
North	151	–	84	–
Total	1,304	855	652	392

The diff erence between the income from property management of SEKm 652 (392) above and the groups accounted income before tax of SEKm 1,605 (733) consists of unallocated income from property management of SEKm –60 (–26), transaction and restructuring costs of SEKm –4 (–), changes in property value of SEKm 940 (489) and changes in values of derivatives of SEKm 77 (–148).

Larger investments and sales

Larger projects

Property	Area, sq.m		Rental value SEKm SEK/sq.m	Econ. occup. Jan 2017	Total inv., land incl. SEKm	Remain. inv.	SEKm Completed Comment
Olaus Petri 3:244, Örebro	14,526	35	2,400	48%	420		420 Q2 2019	New construction offi ce
Gamlestaden 22:14, Gothenburg	12,000	21	1,800	100%	234		132 Q4 2017	Reconstruction offi ce
Hisingen Logistics Park, Gothenburg	26,085	19	700	0%	220		218 Q2 2018	New construction logistics
Balltorp 1:124, Mölndal	18,000	14	750	100%	180		110 Q4 2017	New construction logistics
Varpen 11, Huddinge	7,060	14	2,550	100%	162		108 Q4 2017	New construction car retail
Nordstaden 2:16, Gothenburg	9,200	5	3,300	87%	135		2 Q3 2017	Reconstruction offi ce/retail
Spiran 12, Norrköping	7,915	18	2,300	39%	110		98 Q1 2018	Reconstruction offi ce
Söderhällby 1:2 (part of), Uppsala	5,963	8	1,313	100%	101		101 Q1 2018	New construction logistics
Spejaren 5, Huddinge	3,480	8	2,200	100%	98		73 Q3 2017	New construction car retail
Inom Vallgraven 4:1, Gothenburg	2,500	9	3,700	100%	93		15 Q2 2017	Extension and reconstruction cultural and entertainment venue
Visiret 3, Huddinge	2,440	6	2,400	100%	80		37 Q4 2017	New construction car retail
Boländerna 35:2, Uppsala	4,883	5	1,050	93%	70		38 Q4 2017	New construction retail
Tjurhornet 15, Stockholm	5,786	1	250	-	68		9 Q4 2017	Parking facilities
Generatorn 1, Mölndal	3,800	5	1,350	100%	60		48 Q4 2017	New construction car retail
Boländerna 12:1, Uppsala	3,687	5	1,400	52%	58		21 Q4 2017	New construction warehouse/ logistics
Sändaren 1, Malmö	2,771	4	1,550	100%	56		8 Q2 2017	Reconstruction offi ce
Projects completed/partly moved in
Lindholmen 30:5, Gothenburg	9,243	23	2,500	96%	267		19 Q1 2017	New construction offi ce
Kranbilen 2, Huddinge	8,571	9	1,050	40%	99		0 Q1 2017	New construction warehouse/ logistics
Majorna 163:1, Gothenburg	5,867	9	1,500	75%	88		1 Q1 2017	Reconstruction offi ce and warehouse

Larger acquisitions during 2017

		Rental value SEKm SEK/sq.m
Property	Area, sq.m			Econ. occup. Jan 2017	Acquisition SEKm	Access	Category
Isotopen 1, Stockholm	22,714	85	3,750	96%	1,642		March 2017 Offi ce/butik
14 properties in Borås	81,249	54	650	87%	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	36%	107		March 2017 Warehouse/logistics
Tibble 1:647 and 1:648, Upplands-Bro	-	-	-	-	51	March 2017 Mark

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 properties in Mölndal and Partille	39,969	41	1,050	498	-2		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/industrial and 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 March 31, 2017, a value of SEKm 77,801 (78,313) and are fi nanced by shareholders´s equity of SEKm 29,294 (29,234), deferred tax liabilities of SEKm 7,196 (7,065), interest bearing liabilities of SEKm 36,204 (38,467) and non interest bearing liabilities of SEKm 5,107 (3,547).

Interest bearing liabilities

At the end of the period Castellum had binding credit agreements totalling SEKm 54,948 (53,259) of which SEKm 44,496 (40,358) was long term and SEKm 10,452 (12,901) short term.

During the first quarter, credit agreements for SEKm 1,249 have been terminated or become due, while agreements for SEKm 12,545 have been renegotiated. This means that bank guaranties totalling SEKm 5,919 have been removed. In addition, loan agreements for 75 million euros have been entered into with the European Investment Bank (EIB). Also this period: bonds amounting to SEKm 1,000 have become due and SEKm 3,550 has been issued. After the reporting period, further bonds have been issued, totalling SEKm 700.

After deduction of cash of SEKm 304 (257), net interest bearing liabilities were SEKm 35,900 (38,210), of which SEKm 11,805 (9,256) were MTN and SEKm 7,992 (7,702) outstanding commercial papers. (Nominal SEKm 11,825 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

35,900 (38,210) of which SEKm 16,103 (21,252) were secured by the company's properties and SEKm 19,797 (16,958) unsecured. The proportion of used secured fi nancing was thus 22% of the property value. The fi nancial 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 361% respectively. The average duration of Castellum's credit agreements was 3.3 years (3.0). Margins and fees on long-term credit agreements had an average duration of 2.8 years (2.4).

Credit maturity structure 31-03-2017 Utilized in

	Credit
SEKm	agreements	Bank	MTN/Cert	Total
0-1 year	10,452	627	9,092	9,719
1-2 years	2,776	526	2,250	2,776
2-3 years	22,393	6,658	3,120	9,778
3-4 years	12,023	5,026	1,297	6,323
4-5 years	1,625	26	1,599	1,625
> 5 years	5,679	3,240	2,439	5,679
Total	54,948	16,103	19,797	35,900

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 March 31, 2017 was 2.9 years (2.4). The average effective interest rate on the same date was 2.6% (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.

Interest rate maturity structure 31-03-2017

	Credit, SEKm	Interest rate derivates SEKm	Net. SEKm	Closing interest rate	Average fi xed interest rate term
0-1 year	30,506	– 15,787	14,719	3.2%	0.3 year
1-2 years	0	1,650	1,650	2.0%	1.5 years
2-3 years	1,050	2,250	3,300	1.4%	2.7 years
3-4 years	2,847	2,687	5,534	2.0%	3.6 years
4-5 years	948	3,000	3,948	1.9%	4.5 years
5-10 years	549	6,200	6,749	2.8%	7.3 years
Total	35,900	–	35,900	2.6%	2.9 years

Currency

Castellum owns properties in Denmark with a value of SEKm 5,409 (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 March 31, 2017, the market value of the interest rate derivatives portfolio amounted to SEKm –1,538 (–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 Interest coverage ratio	Not in the long run exceeding 55% At least 200%	No more than 65% At least 175%	48% 361%
Funding risk
– average capital tied up	At least 2 years		3.3 years
– proportion maturing within 1 year	No more than 30% of outstanding loans and unutilized credit agreements		5%
– average maturing credit price	At least 1.5 years		2.8 years
– propotion capital market financing	No more than 75% of outstanding interest bearing liabilities		55%
– 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	–	2.9 years
– proportion maturing within 6 months	At least 20%, no more than 55%	–	33%
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 Jan-March	2016 Jan-March	Rolling 12 months April 16 - March 17	2016 Jan–Dec
Rental income	1,304	855	4,982	4,533
Operating expenses	– 216	– 165	– 722	– 671
Maintenance	– 40	– 28	– 201	– 189
Ground rent	– 6	– 5	– 25	– 24
Property tax	– 76	– 43	– 295	– 262
Leasing and property administration	– 104	– 58	– 397	– 351
Net operating income	862	556	3,342	3,036
Central administrative expenses	– 43	– 32	– 154	– 143
Transaction and restructuring costs	– 4	– 10	– 157	– 163
Results from joint venture	–	3	–	3
– of which income from property management	–	4	–	4
– of which tax		– 1
Net interest costs	– – 227	– 152	– – 907	– 1 – 832
Income from property management incl. results joint venture	588	365	2,124	1,901
– of which income from property management*	592	376	2,281	2,065
Revaluation of results due to stepwise
acquisition	–	27	–	27
Write-down goodwill	–	–	– 373	– 373
Changes in value
Properties	940	489	4,536	4,085
Derivatives	77	– 148	307	82
Income before tax	1,605	733	6,594	5,722
Current tax	– 68	– 1	– 90	– 23
Deferred tax	– 111	– 155	– 683	– 727
Net income for the period/year	1,426	577	5,821	4,972
Other total net income
Items that will be reclassified into net income
Translation difference of currencies	0	22	41	63
Change in value derivatives, currency hedge	0	– 7	– 50	– 57
Total net income for the period/year	0	592	5,812	4,978
Total net income for the year related to:
– Shareholders in the parent company	1,426	577	5,821	4,978
– No minority interests	–	–	–	–
Average number of shares, thousand	273,201	189,014	255,480	234,540
Income, per share	5.22	3.05	22.78	21.20

* For calculation see Finanial Key Ratios, page 17.

Condensed Consolidated Balance Sheet

SEKm	31 March 2017	31 March 2016	31 Dec 2016
Assets
Investment properties	74,043	44,773	70,757
Goodwill	1,659	140	1,659
Other fixed assets	89	30	93
Current receivables	1,706	361	5,547
Liquid assets	304	150	257
Total assets	77,801	45,454	78,313
Shareholders' equity and liabilities
Shareholders' equity	29,294	15,556	29,234
Deferred tax liability	7,196	4,593	7,065
Other provisions	8	16	9
Derivatives	1,551	1,271	1,582
Interest-bearing liabilities	36,204	22,650	38,467
Non interest-bearing liabilities	3,548	1,368	1,956
Total shareholders' equity and liabilities	77,801	45,454	78,313
Pledged assets (property mortgages)	31,786	19,058	33,130
Pledged assets (chattel mortage)	–	–	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
Net income Jan-March 2016	–	–	–	–	–		577	577
Other total net income Jan-March 2016	–	–	–	22	– 7	–	–	15
Shareholders equity 31-03-2016	164,000	86	4,096	10	4	–	11,360	15,556
Net income April-Dec 2016	–	–	–	–	–	–	4,395	4,395
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
Other total net income April-Dec 2016	–	–	–	41	– 50	–	–	– 9
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-March 2017	–	–	–	–	–	–	1,426	1,426
Other total net income Jan-March 2017	–	–	–	0	0	–	–	0
Shareholders equity 31-03-2017	273,201	137	12,434	51	– 46	– 2	16,720	29,294

Condensed Cash Flow Statement

SEKm	2017 Jan-March	2016 Jan-March	Rolling 12 months April 16-March 17	2016 Jan-Dec
Net operating income	862	556	3,342	3,036
Central administrative expenses	– 43	– 42	– 154	– 143
Reversed depreciations	12	3	23	14
Net interest rates paid	– 231	– 142	– 903	– 814
Tax paid	122	2	129	9
Translation difference of currencies	0	– 1	7	6
Cash flow from operating activities before change in working capital	722	376	2,444	2,108
Change in current receivables	– 265	– 136	– 176	– 47
Change in current liabilities	664	301	562	199
Cash flow from operating activities	1,121	541	2,830	2,260
Investments in new constructions, extensions and reconstructions	– 628	– 335	– 2,412	– 2,119
Property acquisitions	– 2,564	– 2,110	– 3,401	– 874
Change in liabilities at acquisitions of property	119	– 4	119	– 4
Property sales	832	3	7,610	6,781
Change in receivables at sales of property	4,105	17	– 865	– 4,953
Business combination	–	–	– 10,910	– 11,369
Investment joint venture	–	555	–	–
Other investments	5	– 6	– 12	– 23
Cash flow from investment activities	1,869	– 1,880	– 9,871	– 12,561
Change in long term liabilities	– 2,263	2,254	1,696	5,144
Change in long-term receivables	3	–	– 8	– 11
New issue of shares	–	–	6,190	6,190
Dividend paid	– 683	– 804	– 683	– 804
Cash flow from financing activities	– 2,943	1,450	7,195	10,519
Cash flow for the period/year	47	111	154	218
Liquid assets opening balance	257	39	150	39
Liquid assets closing balance	304	150	304	257

The Parent Company

Condensed Income statement	2017	2016	2016
SEKm	jan-mars	jan-mars	jan-dec
Income	7	5	23
Operating expenses	– 45	– 35	– 124
Net fi nancial items	– 22	4	– 35
Dividend/group contribution	–	–	5,900
Change in derivatives	57	– 148	12
Impairment of shares in ubsidiaries	–	–	– 3,900
Sales of shares in subsidiaries	–	–	2,784
Income before tax	– 3	– 174	4,660
Tax	1	38	– 66
Net income for the period/year	– 2	– 136	4,594
Comprehensive income for the parent company
Net income for the period/year	– 2	– 136	4,594
Items that will be reclassifi ed into net income
Translation diff erence foreign operations	0	7	30
Unrealized change, currency hedge	0	– 7	– 30
Total net income for the period/year	– 2	– 136	4,594

Condensed Balance sheet SEKm	31 March 2017	31 March 2016	31 Dec 2016
Participations in group companies	19,494	6,030	19,403
Receivables, group companies	33,630		20,577 32,250
Other assets	177	167	157
Liquid assets	0	0	0
Total	53,301	26,774	51,810
Shareholders' equity	16,433	3,778	17,801
Derivatives	1,292	1,271	1,259
Interest bearing liabilities	32,306	19,383	27,912
Interest bearing liabilities, group companies	2,455	2,212	4,702
Other liabilities	815	130	136
Total	53,301	26,774	51,810
Pledged assets (receivables group companies)	26,753	16,376	21,986
Contingent liability (guaranteed commitments for subsidiaries)	2,310	2,148	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.

	Jan-March 2017	Jan-March 2016	Rolling 12 months April 16-March 17	Jan-Dec 2016
Average number of shares, thousand (related to fi nancial key ratios) *	273,201	189,014	255,480	234,540
Outstanding number of shares, thousand (related to balance sheet ratios) *	273,201	189,014	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		Rolling 12 months April 16-March 17 SEKm SEK/share		Jan-Dec 2016 SEKm SEK/share
Income before tax	1,605	5.87	733	3.89	6,594	25.81	5,722	24.40
Reversed
Transaction and restructuring costs	4	0.01	10	0.05	157	0.61	163	0.69
Revaluation of results due to stepwise acquisition	–	–	– 27	– 0.14	–	–	– 27	– 0.12
Write-down goodwill	–	–	–	–	373	1.46	373	1.59
Changes in value, properties	– 940	– 3.44	– 489	– 2.60	– 4,536	– 17.75	– 4,085	– 17.42
Change in value, derivatives	–77	– 0.27	148	0.78	– 307	– 1.20	– 82	– 0.34
Tax joint venture	–	–	1	0.01	0	0.00	1	0.00
= Income from property management	592	2.17	376	1.99	2,281	8.93	2,065	8.80
EPRA Earnings (Income from prop. management after tax)
Income from property management	592	2.17	376	1.99	2,281	8.93	2,065	8.80
Reversed; Current tax Income from property management	– 69	– 0.26	22	0.12	– 167	– 0.66	– 128	– 0.54
EPRA Earnings / EPRA EPS	523	1.91	398	2.11	2,114	8.27	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	29,294	107	15,556	82	29,234	107
Reversed:
Derivatives according to balance sheet	1,551	6	1,271	7	1,582	6
Goodwill according to balance sheet	– 1,659	– 6	– 140	– 1	– 1,659	– 6
Deferred tax according to balance sheet	7,196	26	4,593	25	7,065	26
Long term net asset value (EPRA NAV)	36,382	133	21,280	113	36,222	133
Deduction
Derivatives as above	– 1,551	– 6	– 1,271	– 7	– 1,582	– 6
Estimated real liability, deferred tax 6%(2016:5%)*	– 2,207	– 8	– 1,144	– 6	– 1,558	– 6
Short term net asset value (EPRA NNNAV)	32,624	119	18,865	100	3,308	121

* Estimated real deferred tax liability net has been calculated to 6% 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 6%. Furthermore, deferred tax assets attributable to non-deductible losses in the derivatives portfolio have been valued at a nominal tax of 22%.

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 Jan-March	2016 Jan-March	Rolling 12 months April 16-March 17	Jan-Dec 2016
Income from property management	592	376	2,281	2,065
Reversed;
Net interest	227	152	907	832
Income from prop. management joint venture	–	– 4	–	– 4
Income from prop. management excl. net interest and JV	819	524	3,188	2,893
Interest coverage ratio	361%	345%	351%	348%
Loan to value ratio
Interest-bearing liabilities			36,204	38,467
Liquid assets			– 304	– 257
Net interest-bearing liabilities net			35,900	38,210
Investment properties			74,043	70,757
Acquired properties not taken into possession			– 130	– 11
Divested properties still in Castellum's possession			886	4,971
Net investment properties			74,779	75,717
Loan to value ratio			48%	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	2016	Rolling 12 months
	Jan-March	Jan-March	April 16-March 17	Jan-Dec 2016
Acquisitions	2,564	2,110	29,826	29,372
New constructions, extensions and reconstructions	628	335	2,412	2,119
Total investment	3,192	2,445	32,238	31,491
Net sales price	–832	– 3	– 7,583	– 6,754
Net investments	2,360	2,442	24,655	24,737
Proportion of the property value, %	3%	5%	55%	59%

Other Financial Key Ratios

	2017	2016	Rolling 12 months	2016 Jan-Dec
	Jan-March	Jan-March	April 16-March 17
Net operating income margin	66%	65%	67%	67%
Interest rate level, on average	2.6%	2.9%	2.6%	2.7%
Return on longterm net asset value	9.4%	17.3%	25.4%	25.3%
Return on actual net asset value	2.7%	15.6%	22.2%	20.9%
Return on total capital	9.1%	9.2%	13.0%	11.9%
Return on equity	20.0%	15.0%	29.8%	20.1%
Property value, SEK/share	271	237	271	259
Gross leasing	170	102	555	489
Net leasing	103	0	281	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	+ 50 /– 50	+	–
Vacancies	+ 57/– 57	+	–
Property costs	– 17/+ 17	–	0
Interest costs	– 57/– 114*	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 – 14,809		– 7,404	–	7,404	14,809
Loan to value ratio	60%	53%	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.

Five regions will become Four

Castellum maintains a strong presence in well-situated areas featuring strong economic growth. Local operations are organized into regions, and at the beginning of the year, the process was begun to reduce the number of regions from fi ve to four, through consolidating holdings and property management in Sundsvall and Gävle (previously Region North) with Region Stockholm.

Today's Castellum now comprises four regions:

Central: Örebro, Västerås, Uppsala, Linköping, Norrköping, Jönköping and Växjö West: Gothenburg, Borås and Halmstad Öresund: Malmö, Lund, Helsingborg and Köpenhamn Stockholm – North: Stockholm, Gävle and Sundsvall

Please see Press Release, 2017-01-25.

Events after the reporting period

On April 19 it was announced that Castellum gets access to the centrally located property Sabbatsberg 24 in Stockholm on May 2, 2017. The property has a lettable area of approx. 11,500 sq.m, as well as unutilized building rights for approx. 1,500 sq.m.

The investment amounted to approx. SEKm 780, after deduction for deferred taxes and transaction costs of approx. SEKm 27.

Castellum, which has already owned a number of neighbouring properties for some time, plans to join the City of Stockholm and other property-owners in the area to create a living mixed-activity neighbourhood that adds more modern workplaces to very attractive locations.

Annual General Meeting 2017

At the Annual General Meeting on March 23, 2017 decisions were i. e. made on;

• a dividend of SEK 5.00 per share, distributed to the shareholders in two equal payments of SEK 2.50 per share. Record days for the dividend: Monday, March 27, 2017 for the fi rst payment and Monday, September 25, 2017 for the second payment.
• re-election of present members of the Board of Directors Mrs. Charlotte Strömberg, Mr. Per Berggren, Mrs. Anna-Karin Hatt, Mrs. Nina Linander, Mr. Christer Jacobson and Mr. Johan Skoglund and Mrs. Christina Karlsson Kazeem. 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 3,215,000 in total,
• to elect Deloitte as auditor in the company for the period up until the end of the next AGM,
• to appoint a new election committee for the AGM 2018 according to previously applied model,
• guidelines for remuneration to members of the executive management and incentive program to the executive management,
• a renewed mandate for the Board to decide on purchase and transfer of the company's own shares.

Gothenburg April 25, 2017 Gothenburg April

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 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 two foreign shareholder who has fl agged for holding over 5%, Stichting Pensioenfonds ABP and Blackrock. 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 31-03-2017	Percentage of
	Number of	voting rights
Shareholders	shares thousand	and capital
Andra AP-fonden	15,199	5.5%
Sjätte AP-fonden	13,601	5.0%
AMF Pensionsförsäkring AB	6,850	2.5%
Lannebo Småbolag	6,300	2.3%
Stiftelsen Global Challenges	3,750	1.4%
AFA Sjukförsäkrings AB	2,802	1.0%
Magdalena Szombatfalvy	2,635	1.0%
SEB Sverigefond	2,285	0.8%
AMF Aktiefond Sverige	2,040	0.8%
Tredje AP-fonden	1,845	0.7%
Board and executive management Castellum	250	0.1%
Other shareholders registered in Sweden	83,013	30.4%
Shareholders registered abroad	132,632	48.5%
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 31-03-2017

The Castellum share price as at 31 December, 2016 was SEK 118.80 (112.01) equivalent to a market capitalization of SEK 32.5 billion (21.2), calculated on the number of outstanding shares.

Since the beginning of the year a total of 69 million (59) shares were traded, equivalent to an average of 1,075,000 shares (963,000) per day, corresponding on an annual basis to a turnover rate of 98% (147%). 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 133 per share (113). The share price at the end of the period was thus 89% (99%) 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 8.37 (7.97) on rolling annual basis. This results in a share price yield of 7.0% (7.1%) corresponding to a multiple of 14 (14). 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 22.78 per share (15.91), which from the share price gives a yield of 19.2% (14.2%), corresponding to a P/E of 5 (7).

Dividend yield

The recent AGM approved a dividend of 5.00 kronor (4.25), corresponding to a yield of 4.2% (3.8%), calculated on rates eff ective at the end of the period.

Total share yield

During the last 12-month period the total yield of the Castellum share has been 8.3% (2.9%), 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 2,281		2,281	2,281
Change in property value (on average 10 years)	904	209	1,599
D:o %	1.3%	0.3%	2.3%
Current tax, 6%	– 139	– 139	– 139
Earnings after tax	3,046	2,351	3,741
Earnings SEK/share	11.92	9.20	14.64
Return on actual long-term net asset value	13.8%	11.1%	16.6%
Earnings / share price	10.0%	7.7%	12.3%
P/E	10	13	8

EPRA Key ratios	31 March 2017	31 March 2016	31 Dec 2016
EPRA Earnings (Income from property management after tax), SEKm	523	398	1,937
EPRA Earnings (EPS) SEK/share	1.91	2.11	8.26
EPRA NAV (Long term net asset value), SEKm		36,382 21,280 36,222
EPRA NAV, SEK/share	133	113	133
EPRA NNNAV (Net asset value), SEKm		32,624 18,865 33,082
EPRA NNNAV, SEK/share	119	100	121
EPRA Vacancy Rate	10%	10%	9%

		3 years	10 years
		average/	average/
	1 year	year	year
Growth
Rental income SEK/share	10%	4%	6%
Income from prop. management SEK/share	7%	7%	7%
Net income for the year after tax SEK/share	43%	43%	10%
Dividend SEK/share	18%	11%	7%
Long term net asset value SEK/share	18%	13%	7%
Actual net asset value SEK/share	19%	13%	6%
Real estate portfolio SEK/share	14%	10%	7%
Change in property value	6.1%	4.2%	1.3%
Yield
Return on actual long term net asset value	25.4%	16.8%	11.5%
Return on actual net asset value	22.2%	15.4%	10.9%
Return on total capital	13.0%	8.5%	6.6%
Total yield of the share (incl. dividend)
Castellum	8.3%	11.7%	6.8%
Nasdaq Stockholm (SIX Return)	20.9%	12.4%	7.5%
Real Estate Index Sweden (EPRA)	3.3%	16.8%	8.8%
Real Estate Index Europe (EPRA)	-0.6%	10.9%	0.2%
Real Estate Index Eurozone (EPRA)	2.1%	14.0%	1.8%
Real Estate Index Great Britain (EPRA)	0.0%	5.9%	-2.1%
Financial risk
Loan to value ratio	48%	50%	50%
Interest coverage ratio	351%	346%	305%

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 March 31, 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.

Liquidity risk

The risk of not having access to liquidity or unutilized credit facilities in order to settle payments due.

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

Half-year Report January-June 2017 13 July 2017 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

Theres Svenssons gata 9, Box 8725, 402 75 Gothenburg Phone +46 31-744 09 00 goteborg@castellum.se

Stockholm - North Region in Castellum

Tjurhornsgränd 6, Box 5013, 121 05 Johanneshov 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 Kaserntorget 5 Phone +46 (0)31-60 74 00 • Email info@castellum.se • www.castellum.se Domicile: Gothenburg • Corporate identity no: 556475-5550