Castellum — Interim / Quarterly Report 2016

Jan 19, 2017

Year-end report 2016

Castellum is one of the major listed real estate companies in Sweden. The fair value of the real estate portfolio amounts to SEK 71 billion, and comprises of commercial properties for offi ce, retail, warehouse and logistics totaling 4.3 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 fi ve growth regions in Sweden and Denmark. The fi ve growth regions are Central (Örebro, Västerås, Uppsala, Linköping, Norrköping, Jönköping and Växjö), West (Greater Gothenburg incl. Borås and Halmstad), Öresund (Malmö, Lund, Helsingborg and Copenhagen), Stockholm and North (Gävle and Sundsvall).

Castellum is listed on Nasdaq Stockholm Large Cap.

• Rental income 2016 amounted to SEKm 4,533 (SEKm 3,299 previous year).
• Income from property management amounted to SEKm 2,065 (1,533), corresponding to SEK 8.80 (8.11) per share, an increase of 9%.
• Changes in value on properties amounted to SEKm 4,085 (1,837) and on derivatives to SEKm 82 (216).
• Net income after tax for the year amounted to SEKm 4,972 (2,881), corresponding to SEK 21.20 (15.24) per share.
• Net investments amounted to SEKm 24,737 (2,413) of which SEKm 29,372 (2,321) were acquisitions, SEKm 2,119 (1,232) new constructions, extensions and reconstructions and SEKm 6,754 (1,140) sales.
• During the year a new share issue of SEK 6.2 billion and a directed share issue of Castellum shares corresponding to a value of SEK 3.1 billion were carried out in order to fi nance the acquisition of Norrporten.
• Net lease for the year was SEKm 178 (18).
• The Board proposes a dividend of SEK 5.00 (4.25) per share, equivalent to an increase of 18%, distributed in two equal payments of SEK 2.50.

	2016 Oct-Dec	2015 Oct-Dec	2016 Jan-Dec	2015 Jan-Dec
Rental income, SEKm	1,367	850	4,533	3,299
Net operating income, SEKm	860	550	3,036	2,225
Income of property management, SEKm	573	381	2,065	1,533
D:o SEK/share*)	2.10	2.02	8.80	8.11
D:o growth	+ 4%	13%	+ 9%	6%
Net income after tax, SEKm	2,481	1,260	4,972	2,881
Net investments SEKm	– 5,460	1	24,737	2,413
Dividend SEK/share (2016 proposed)	–	–	5.00	4.25
D:o growth	–	–	18%	7%
Net leasing, SEKm	84	11	178	18
Loan to value ratio	50%	49%	50%	49%
Interest coverage ratio	331%	353%	348%	351%
Long term net asset value (EPRA NAV) SEK/share*)	133	112	133	112
Actual net asset value (EPRA NNNAV) SEK/share*)	121	100	121	100

KEY RATIOS

*) 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.

A year when many missions were accomplished!

"Everything" happened at Castellum in 2016: a major acquisition, coupled with major sales, reorganization and brand positioning. I'd like to broaden the perspective and – through a few key fi gures – highlight the great change in strategic position that Castellum has carried out:

	2013	2016
Property value, SEK billion	38	71
	230	259
Property value, SEK/share Central location, proportion	30%	54%
Retail, proportion	12%	10%
Public tenants, proportion	9%	21%
Remaining lease length	3.3 years	3.8 years
Ongoing/decided company projects, SEK billion 3.3		4.5
Building rights, SEK billion	0.9	1.5
Loan to value ratio	51%	50%/47%

Illustrated here is the overall eff ect of a large number of transactions, as well as a process that was initiated three years ago: more centrally located portfolio; a lower proportion of retail space; longer leases and more public tenants. Due to the foreseeable impact of e-commerce on traditional retail, we have worked towards a lower proportion of retail space. And this entire transformation occurred while the loan to value ratio was reduced.

The picture that emerges is that of a new Castellum, positioned for higher growth at even lower fi nancial risk. With a loan to value ratio of 50% (corresponding to 47% after received payment from autumn's large sales) we now have the fi nancial muscle to develop our existing in-house projects at a higher yield than at acquisitions. In addition, new projects can be initiated with our extended building rights in high-growth locations, and we also retain the capacity to make strategic acquisitions.

Property values have increased signifi cantly during the year. The increase in value totalled SEK 4 billion (SEK 17.42 per share). The acquisition of Norrporten alone meant an increase in value totalling SEK 1.6 billion. In short, a robust business deal. We are particularly pleased that the sellers are now on board as shareholders, to take part in Castellum's continued growth.

"Dare to make changes – even when successful" was the title of the CEO Comments in 2013. And that's what we have done. Alongside all real estate transactions, the company has now been converted into a cohesive Group under one brand name: Castellum. Close to one thousand Castellum fl ags are now fl ying across the country, from Sundsvall in the north to Öresund in the south. Many things came together in 2016, but as I mentioned, it's been a systematic and well-planned process over a number of years.

So, what about the future?

Naturally, we mean to reinforce our hard work of realizing the synergies of acquisition and reorganization. Tangible synergy eff ects, along with our announced savings programs, will gradually materialize during 2017 and achieve full impact in 2018. This also applies to eff ects from our record-high net leasing during 2016 and the continuing renegotiations that will be implemented in 2017. Add to that our increasing project volumes featuring high occupancy rates.

Concern for the real estate market?

It's true, not everyone sees a bright future for real estate shares in the short term. The real estate index has fallen considerably since fears of higher interest rates began to take off in early autumn.

Are these concerns justifi ed? My take on the subject is that they are not. Lower interest rates since the fi nancial crisis have served their purpose as eff ective medicine for a sickly patient. If interest rates are now slowly beginning to normalize, it's rather a sign that the patient – the global economy – is starting to recover. This does not constitute bad news for business and commerce. Quite the contrary. For real estate companies, improved market conditions means higher interest rates, lower vacancy rates, higher infl ation and increased rents. This normally contributes to rising property values. Of course, there may be a time gap between these various eff ects, but generally speaking: what's good for business in general is also good for commercial real estate companies. In the long run, increased interest expense will be well compensated for by other positive eff ects. Particularly for real estate companies like Castellum, featuring low fi nancial risk.

First strong eff ects start to arrive in 2017

Concerning 2017, the extensive 2016 property sales, comprising nearly SEK 7 billion, will naturally dampen growth in income from property management. On the other hand, these sales created fi nancial resources for in-house project investments, generating a yield which is actually a couple of percentage points higher than the divested properties. Moreover, the sales also enhanced Castellum's ability to take advantage of acquisitions under optimal conditions. The larger remaining portion of Norrporten's properties retained by Castellum will join our other investments in contributing to solid growth. In combination with other synergies and savings programs, income from property management per share will continue to increase 2017, even if it remains somewhat shy of our long-term goal. I'm convinced that we'll get to enjoy the full positive eff ects of Castellum's repositioning in 2018. The Board's 2016 dividend proposal of SEK 5.00 per share – compared with SEK 4.25 for 2015 – will also be interpreted as a belief in Castellum's continued long-term positive development.

Henrik Saxborn CEO

Mission and vision

One of the largest real estate companies, while remaining equipped to act as close to the market as the smallest.

Business concept

To develop and add value to the real estate portfolio, focusing on the best possible earnings and asset growth, by off ering customized commercial properties, through a strong and clear presence in fi ve growth regions.

Business model

Investments and developmen of commercial premises managed in a decentrilized and customerfocused organization. Castellum focus on cash-fl ow and operates with low fi nancial risk.

Sustainable business

STRATEGY

Castellum has a dedicated focus on long-term eff orts and strategies, and this goes hand-in-hand with all sustainability perspectives. Business operations are to contribute to sustainable development taking ecological, social and economic aspects into account. It's crucial for the long-term success of the company that operations are conducted in a responsible manner, wherein all actions should be characterized by high skills levels, high ethical standards and a high, hands-on sense of responsibility.

By being locally present and engaged in the cities where the company operates, prosperous developed and managed. Castellum is to be fi nancially strong, as this enables us to act wisely, with a long-term perspective.

Sustainability eff orts focus on:

• responsibly and eff ectively reducing resource use and
• creating a resilient and sus tainable real estate portfolio,
• promoting health, wellness and productivity,
• creating better communities with increased employment opportunities and involve-

Development of commercial properties in growth regions

The real estate portfolio is located in fi ve growth regions in Sweden and Denmark. The fi ve regions are Central, West, Öresund, Stockholm and North. This high-growth approach, along with effi cient and eff ective management and strong presence in the market, off ers favourable business opportunities.

The real estate portfolio is to consist of commercial properties with sustainable, fl exible premises for offi ce/retail and logistics/warehouse purposes. Castellum shall continue to grow with customer demand, mainly through new constructions, extensions and reconstructions, but also through acquistions. The density and quality of the real estate portfolio will increase constantly to create conditions for sustained growth as well as effi cient and eff ective management.

All investments will contribute to the objective of growth in income from property management within 3 years and have a potential asset growth of at least 10%. Sales of properties will take place when justifi ed from a business standpoint.

Customer focus through local organizations

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

Service and management will be carried out in a decentralized organization with a strong local presence. Business decisions should be made locally, on site, with short decision-making processes and quick responses. Property management will be carried out mainly by our own employed personnel.

Castellum actively works to attract, recruit, develop and retain top-of-the-range managers and employees. These will be highly skilled at delivering competitive off ers and make it possible for customers to be employer-of-choice in their respective industries. The Castellum Group itself is to provide an attractive workplace with many opportunities for development.

Strong balance sheet with low fi nancial risk

Castellum will have low fi nancial risk. The chosen risk key ratios are loan to value and interest coverage ratio.

Castellum will work for a competitive total return on the company's share relative to risk and also strive for high liquidity. All actions will be made from a long-term perspective and the company will hold frequent, open and fair reports to shareholders, the capital and credit markets and the media, without disclosing any individual business relationship.

Purchase or transfer of own shares will be available as a method for adjusting the company's capital structure to the company's capital need and as payment or funding of real estate investments. Company owned shares may not be traded for short term purpose of capital gain.

Castellum's real estate portfolio has a geographical distribution covering fi ve growth regions and will consist of various types of commercial premises. The risk within in the customer portfolio will be a risk diversifi cation.

STRATEGIC TOOLS

OUTCOME

• In order to achieve the overall objective of 10% cash-fl ow growth, i. e. income from property management per share, annual net investments of at least 5% of the property value will be made. This is currently equivalent to approx. SEK 3.5 billion.
• One of the three largest real estate owners in each local market.
• In order to develop the Group as well as customer relations, the customers' and employees' level of satisfaction will be measured regularly and be on a high level.

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

• At least 50% of pre-tax property management income will be distributed. Investment plans, consolidation needs, liquidity and fi nancial position in general will be taken into account.
• Castellum will be one of the largest listed real estate companies in Sweden.
• Risk within the customer portfolio will be kept low using diversifi cation over many fi elds of business, length and size of contracts.

Loan to value ratio

Interest coverage ratio

50% 57% Loan-to-value ratio 2016 Dividend ratio 2016 (proposed)

Objective 10%

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

Customers and Organization

Castellum's knowledge of and feel for the local market are key success factors. This is why the operations are conducted in a decentralized organization comprising 20 local business areas integrated into fi ve regions. This approach makes Castellum a close and present partner to customers and can thus contribute to growth in their respective businesses. Also, by being locally present, Castellum has the opportunity to make business decisions where business is conducted, and customers are off ered shorter decision-making processes as well as effi cient and quick response performance.

Customers - a refl ection of the diverse Swedish economy

Castellum holds approx. 6,000 commercial contracts, with good risk diversifi cation regarding size of contracts, geography, type of premises, length of contracts and various customer industries. The single largest contract corresponds to approx. 2% of Castellum's total rental income.

Nine out of ten customers recommend Castellum

It is important that Castellum meets customer expectations: delivering what we promise. An external customer survey is therefore carried out annually, the Customer Satisfaction Index. The latest survey, conducted in 2016, showed continued and consistent high marks for Castellum, with a weighted index of 79 on a 100-point scale. This is higher than the industry benchmark of 73.

Nine out of ten customers surveyed, 89%, replied that they want to lease from Castellum again and gladly recommend Castellum as a landlord to others.

High leasing activity

Castellum's leasing activity is high. During the fi rst quarter 2016, the organization has signed 757 new leases with a total annual value of SEKm 488. Robust leasing activities indicate the importance of taking care of customers and networks.

Local business areas provide knowledge of districts

Castellum manages properties through a decentralized organization in order to be close to customers and facilitate both quick decision-making processes and local decision-making. Operations are divided into fi ve regions: Central, West, Öresund, Stockholm and North. The regions, in turn, comprise a total of 20 business areas.

Castellum is involved in the local business community through business associations where important contacts are forged with both current and prospective customers. Castellum, as one of the largest real estate owners on each local market, also contributes to regional development through co-operation with municipalities and universities/colleges.

Satisfi ed employees

Castellum works actively to recruit and retain top-notch employees by off ering a stimulating work environment, competence development and experience sharing.

Employee viewpoints about Castellum are regularly measured and the latest survey shows a continued high index, 85 on a 100-point scale.

Castellum has about 408 (299) employees.

Sustainable business

Sustainability involves creating long-term solutions from economic, ecological and social perspectives to create long-term shareholder value. In addition to taking responsibility and creating value for our society, the planet and future generations, Castellum's sustain-ability eff orts also provide the Group with a competitive advantage. Moreover, well integrated sustainability eff orts contribute to better management and improved control of the properties. This means more satisfi ed customers, dedicated employees and increased profi tability. In other words, sustainability is about taking the right decisions today so that the stakeholders upon whom Castellum's operations depend will choose Castellum in the future.

Castellum's sustainability work is based on continuous improvement with a focus on reducing resource use and carbon emissions responsibly and eff ectively; creating a resilient and sustainable real estate portfolio; promoting health, wellness and productivity; and creating better communities with increased employment opportunities and involvement.

Castellum's energy consumption today is about 43% below the industry average. Moreover, 24% of the real estate portfolio is certifi ed according to Green Building, Miljöbyggnad, BREEAM or LEED. In addition, another 11% of the portfolio is currently undergoing certifi cation.

In 2016, Castellum won numerous international awards for sustainability eff orts: One of these – "Global Sector Leader" from GRESB (Global Real Estate Sustainability Benchmark) – means that Castellum is ranked number one in the world in the real estate industry, in the sector for offi ce and logistics premises. And fi rst prize was awarded from EPRA (European Public Real Estate Association), for Best Sustainability Reporting. Moreover, Castellum was appointed to join the prestigious Dow Jones Sustainability Index (DJSI), which includes worldwide companies that perform best in terms of sustainability. Castellum was also the highest-rated real estate company in Sweden, with a climate assessment of A- from CDP (Carbon Disclosure Project).

The Code of Conduct provides a basis for how Castellum employees should behave toward each other as well as toward customers and other external stakeholders. It is based on Castellum's values and the UN Global Compact principles and clarifi es Castellum's position regarding human rights, labour, business ethics and information. Castellum also has a Code of Conduct for suppliers and partners.

Market comments

Swedish and Danish economy

The Swedish economy continues to perform well, with relatively strong GDP growth – even if forecasts have been revised slightly downwards. Growth continues to be driven by investment – mainly construction and infrastructure investments – and domestic private consumption.

Exports are also relatively strong. Geopolitical turmoil continues to dampen the mood. The result of the British EU referendum and the outcome of the US presidential election have created further uncertainty, and it is diffi cult to foresee what the long-term impact will be.

The labour market has been positively aff ected by the stronger economy. Labour shortages are expected to increase 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. 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 has gradually weakened, primarily during the second half of 2016, although part of the decline was recovered closer to year end.

Macro indicators, Sweden

Unemployment	6.2%	(November 2016)
Infl ation	1,7%	(December 2016 compared to December 2015)
GDP growth	0.5%	(Q3 2016 compared to Q2 2016)
Source: SCB

According to Denmark's Nationalbank, Danish GDP growth is expected to increase to about 1.5% during 2017, compared with just under 1% in 2016. Increasing private consumption against a backdrop of rising employment is expected to provide the primary push, but favourable export prospects and investments are also contributing factors. Infl ation in Denmark – expressed in terms of CPI – is also expected to rise to approximately 1.5% in 2017, compared with just over zero in 2016.

Swedish rental market

The rental market has generally been strong, exhibiting high demand in most of Castellum's submarkets. In a few markets, office space is becoming scarce, due to low newconstruction levels as well as strong growth (and hence a strong labour market).

The current logistics market is characterized by changes in trade patterns, where increased e-commerce volume has led to higher demand for logistics facilities near city centres, as well as large, efficient facilities in strategic outer locations.

Swedish property market

Transaction year 2016 set a new record. Never before had the Swedish transaction market traded real estate at these levels. Estimated total transaction level for the full year amounted to about SEK 200 billion.

Castellum's acquisition of Norrporten was the largest single transaction in 2016, and Castellum's sale of real estate portfolios in Luleå, Umeå and parts of Sundsvall added up to the fourth largest transaction.

The transaction market was characterized by high activity in all segments: offi ce, residential, warehouse and logistics premises as well as community buildings. Domestic players were most active; international players mainly comprised various types of investors.

In 2016, the required yield continued to decline across all segments due to a strong rental market and falling vacancy rates in most of Sweden's growth areas.

Interest and credit market

In 2016, the Swedish Riksbank continued both its unequivocal focus on the KPI goal of 2% and its ultra-loose monetary policy. Since February, 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 bought government bonds during the year and announced further purchases during the fi rst half of 2017. The Swedish repo rate path indicates that some further reduction is possible in the near future. The repo rate is not expected to begin a slow rise until the beginning of 2018.

Of particular signifi cance to Castellum, the 3-month STIBOR rate moved downward after the Riksbank's lowering of the repo rate in February; since then it has traded in the range of –0.4% to –0.6%, ending at –0.6% by year end. The spread between short- and long-term interest rates increased during the year, even though the long-term interest rates remained historically low. During the latter part of the year, development was primarily driven by slightly higher long-term interest rates, due at least in part to strong fi scal stimulus measures announced by the US president-elect.

Availability of bank fi nancing as well as funding in the Swedish capital market is considered favourable. Credit margins have been relatively stable during the year.

In Denmark, the 3-month Cibor rate was traded in the range of –0.05% to –0.25%, closing just under –0.25% at year end.

Income, Costs and Results

Comparisons, shown in brackets, are made with the corresponding period 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 in the concern as well as in the joint venture, amounted 2016 to SEKm 2,065 (1,533), equivalent to SEK 8.80 (8.11) per share - an increase with 9%.

During the year, changes in value on properties amounted to SEKm 4,085 (1,837) and on derivatives to SEKm 82 (216). Net income after tax for the year was SEKm 4,972 (2,881), equivalent to SEK 21.20 (15.24) per share.

Rental income

Group's rental income amounted to SEKm 4,533 (3,299). For offi ce and retail properties, the average contracted rental level, including charged heating, cooling and property tax, amounted to SEK 1,561 per sq.m., whereas for warehouse and logistics properties, it amounted to SEK 818 per sq.m. Rental levels, which are considered to be in line with the market, have in comparable portfolio increased by approx. 2% compared with previous year, which inter alia is an eff ect from indexation (and can be compared with the usual industry index clause October to October which was 0.1% in 2016) and renegotiations carried out. Castellum's higher indexation is due to the Groups focus on index clauses with minimum upward adjustment in the contract portfolio, which off ers protection against low defl ation and infl ation.

The average economic occupancy rate was 91.3% (90.3%). The total rental value for vacant premises for the year amounted to approx. SEKm 550 (392). The rental income for the year includes a lump sum of SEKm 20 (8) as a result of early termination of leases.

Rental value and economic occupancy rate

Gross leasing (i.e. the annual value of total leasing) during the period was SEKm 489 (316), of which SEKm 152 (55) were leasing of new constructions, extensions and reconstructions. Notices of termination amounted to SEKm 311 (298), of which bankruptcies were SEKm 17 (11) and SEKm 5 (18) were notices of termination with more than 18 months remaining length of contract. Net lease for the year was hence SEKm 178 (18) and for the fourth quarter isolated SEKm 84 (11).

The time diff erence between reported net leasing and the eff ect in income thereof is estimated to be between 9-18 months.

Property costs

Property costs amounted to SEKm 1,497 (1,074) corresponding to SEK 376 per sq.m. (316). 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 92% (88%) of a normal year according to the degree day statistics.

Property costs SEK/sq.m	Offi ce/ Retail	Warehouse/ logistics	2016 Total	2015 Total
Operating expenses	199	110	168	149
Maintenance	58	26	47	39
Ground rent	3	8	5	6
Real estate tax	95	23	70	50
Direct property costs	355	167	290	244
Leasing and property administration	–	–	86	72
Total	355	167	376	316
Previous year	307	166	316

Central administrative expenses

Central administrative expenses totalled SEKm 143 (113) and has been charged with SEKm 11 for non-recurring costs related to ongoing work to collect the Group under the joint name Castellum and coordination of support

functions. This also includes costs for a profit-andshare-price related incentive plan for 10 persons in executive management of SEKm 20 (11).

Transaction and restructuring costs

During 2016, Castellum acquired Norrporten, resulting in transaction costs of SEKm 126. In addition, a major business restructuring was initiated, and this is expected to generate synergies of SEKm 150.

The cost of restructuring has been estimated at approx. SEKm 40 of which SEKm 37 have been charged to the period's result.

Income from joint venture

In Q2 2015, Castellum AB (publ) closed a deal with Heimstaden AB (publ), which meant that Castellum acquired 50% of the property management company CORHEI Fastighets AB (previously Ståhls) for SEKm 505. Castellum gained access in May/June 2015. The agreement provided an opportunity to acquire, through an option, the remaining 50% at market value during the autumn 2016 at the earliest. Thus, the option was used already during Q1 2016: Castellum has thereby owned 100% of CORHEI Fastighets AB since the beginning of March this year. The acquisition price for the remaining 50% amounted to SEKm 555.

The acquisition constitutes a company acquisition in phases, resulting in a revaluation of SEKm 27 of the 50% already owned. The revaluation is the diff erence between the purchase price paid, SEKm 555, and the previously recognized net asset value of SEKm 528 on the access date in March. As a result of the stepwise company acquisition, there is a goodwill entry of SEKm 141, corresponding to the net deferred tax liability.

Income from joint ventures amounted to SEKm 3 (21) and refers to Castellum's 50% share of the income in CORHEI Fastighets AB (former Ståhls). Of this income, SEKm 4 (23) refers to income from property management and SEKm –1 (–5) to tax.

Income from property management per share

Net interest

Net interest items were SEKm –832 (–602). The average interest rate level was 2.7% (3.0%). Net interest income was positively aff ected by approx. SEKm 150 due to the average interest rate level decrease by 0.3%-units.

Changes in value and goodwill

In 2016, the real estate market was characterized by high activity, high demand and limited supply, resulting in rising prices. The price increase was mainly attributable to centrally located offi ce properties in growth areas, properties with long-term leases and well-located warehouse and logistics properties. This price rise is refl ected in Castellum's internal valuation through lower required yield, which at portfolio level corresponds to approximately 27 points. This, primarily in combination with project profi ts and improved cash fl ow results, resulted in a change in value for the year of SEKm 3,793, corresponding to 6%. Norrporten's change in value of SEKm 638 – or 3% – for the fi rst six months, is included in the purchase price allocation (PPA) and therefore does not aff ect Castellum's income. Moreover, 80 properties were sold for SEKm 6,754 after deduction for assessed deferred tax and transaction costs totalling SEKm 233. The underlying property value – thus amounting to SEKm 6,986 – exceeded the latest valuation of SEKm 6,461 by SEKm 525. The sales in the North Region means that the goodwill that occurred in conjunction with the acquisition of Norrporten has changed with SEKm –373. 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 82 (220), mainly due to changes in long-term market interest rates. Castellum's currency derivatives has during the year changed SEKm 19 (20) where the eff ective part of the value change of SEKm 19 (24) is accounted for in other total net income.

Tax

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

Remaining tax loss carryforwards can be calculated to SEKm 2,392 (809). Furthermore, there are derivatives at an undervalue of SEKm 385, which are not tax deductible, as well as untaxed reserves totalling SEKm 31. Fair values for the properties exceed their fi scal value by SEKm 36,851 (22,239) of which SEKm 1,992 (1,893) 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 7,065 (4,299).

Castellum has no current tax disputes.

Tax calculation 2016

SEKm	Basis current tax	Basis deferred tax
Income from property management	2,065
D:o attributable to joint venture	– 4
Deductions for tax purposes
depreciations	– 1,044	1,044
reconstructions	– 485	485
Other tax allowances	48	212
Taxable income from property management	580	1,741
- current income tax is 22%, if tax losses are not utilized	– 128
Properties sold	44	– 2,577
Changes in value on properties	–	3,793
Changes in value on derivatives	– 245	70
Issue expenses	– 123	123
Taxable income before tax loss carry forwards	256	3,150
Tax loss carry forwards, opening balance	– 809	809
Acquired loss CORHEI and Norrporten	– 1,736	1,736
Tax loss carry forwards, closing balance	2,392	– 2,392
Taxable income	103	3,303
Tax according to the income statement for
the period	– 23	– 727

Acquisition of Norrporten

On 13 April 2016, Castellum signed an agreement with the Second AP Fund and the Sixth AP Fund to acquire all shares in Norrporten AB (publ). Access to the shares was gained on 15 June 2016, for an acquisition value of SEKm 13,468, distributed as follows: SEKm 10,393 in cash and 27.2 million shares worth approx. SEKm 3,075, divided among 19,194,458 newly issued shares and 8,006,708 shares held in treasury. The valuation of these shares was made at market value on the date of transaction, amounting to SEK 113/share (market price quoted on Nasdaq). Acquisition costs amounted to SEKm 126 and are accounted for in the income statement.

The acquisition is accounted for as a business combination, hence the occurrence of a goodwill item of SEKm 1,891 – corresponding to net deferred-tax liabilities at the time of acquisition.

Norrporten has been one of Sweden's largest real estate companies focused on managing and developing modern, high-quality offi ce space centrally located in growth areas in Sweden and Copenhagen. The acquisition completed and strengthened Castellum's market position: the supply of various types of properties and premises increased, and the Group's geographical presence expanded. Furthermore, the acquisition strengthened Castellum's presence and market position in fi ve cities where the Group was already established: Stockholm, Copenhagen, Helsingborg, Örebro and Jönköping. The acquisition also provided Castellum with scale as well as attractively located properties in Gävle, Sundsvall, Östersund, Umeå, Luleå and Växjö. Norrporten's tenant structure also brought longer leases into the lease portfolio, along with increased levels of public tenants. During Q4, 2016, sales were completed for the entire portfolios of Luleå, Östersund and Umeå – along with portions of the Sundsvall portfolio.

The acquisition is expected to result in synergies of approx. SEKm 150, of which about SEKm 120 are estimated to be realized successively until the end of 2017. The remaining SEKm 30, primarily attributable to operating costs, will be realized over a 3-year period from the date of acquisition.

Balance sheet Norrporten

31 December 2016	15 June 2016
22,736	26,415
36	38
5,249	278
930	–
28,951	26,731
14,205	11,918
1,584	1,590
11,968	11,858
1,194	1,365
28,951	26,731

Income statement Norrporten

SEKm	2016	Jan - Dec 2016
Rental income	1,042	1,917
Property costs	– 350	– 656
Central administrative expenses	– 40	– 73
Net interest income/expense	–189	– 329
Income from property management	463	859
Change in value properties	1,620	2,258
Change in value derivatives	70	– 165
Current tax	– 14	– 31
Deferred tax	45	– 131
Net income	2,184	2,790
Translation currencies	10	31
Total net income for the period	2,194	2,821

ÖSTERSUND (Entire real estate UMEÅ (Entire real estate portfolio was sold Q4 2016)

LULEÅ (Entire real estate portfolio was sold Q4 2016)

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 18% 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 4% consist of projects and undeveloped land.

Castellum owns approx. 920,000 sq.m. of unutilized building rights and furthermore ongoing projects with remaining investments of approx. SEKm 1,500.

Investments

During the year, investments totalling SEKm 31,491 (3,553) were carried out, of which SEKm 29,372 (2,321) were acquisitions and SEKm 2,119 (1,232) new constructions, extensions and reconstructions. After sales of SEKm 6,754 (1,140) net investments amounted to SEKm 24,737 (2,413).

During the fi rst quarter Castellum acquired the remaining 50% of the shares in CORHEI Fastighets AB (former Ståhls) corresponding to a property value of SEKm 2,083. During the second quarter Castellum acquired Norrporten with un underlying property value of SEKm 26,415. During the last quarter 2015 agreements have also been concluded for the acquisition of one offi ce property under construction, in Hagastaden, Stockholm for SEK 1.6 billion with

change of possession scheduled to February 2017. The property will be accounted for when the change of possession has taken place due to the agreements which is conditional upon i.e. completion.

Changes in the real estate portfolio

	Value, SEKm	Number
Real estate portfolio on 1 January, 2016	41,818	597
+ Acquisitions	29,372	149
+ New constructions, extensions and reconstructions	2,119	– 1
– Sales	– 6,462	– 80
+/– Unrealized changes in value	3,793	–
+/– Currency translation	117	–
Real estate portfolio on December 31, 2016	70,757	665

Castellums' real estate portfolio 31-12-2016

			31-12-2016			January - December 2016
	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	17,517	17,092	1,401	1,367	92.5%	1,296	361	352	935
West	81	458	9,115	19,894	651	1,420	93.7%	610	144	315	466
Öresund	71	575	13,502	23,479	1,069	1,858	88.2%	942	232	403	710
Stockholm	47	369	10,514	28,538	683	1,854	93.6%	639	128	348	511
North	28	259	4,751	18,315	389	1,501	93.2%	363	87	334	276
Total offi ce/retail	371	2,686	55,399	20,626	4,193	1,561	91.8%	3,850	952	355	2,898
Warehouse/logistics
Central	45	225	1,653	7,346	168	744	89.3%	149	40	178	109
West	104	674	5,781	8,581	519	770	90.5%	470	103	152	367
Öresund	33	228	1,596	6,963	169	737	83.4%	141	36	159	105
Stockholm	51	290	3,516	12,143	304	1,051	91.2%	278	58	199	220
Total warehouse/logistics	233	1,417	12,546	8,851	1,160	818	89.5%	1,038	237	167	801
Total	604	4,103	67,945	16,558	5,353	1,304	91.3%	4,888	1,189	290	3,699
Leasing and property administration									351	86	– 351
Total after leasing and property administration									1,540	376	3,348
Development projects	40	189	2,310	–	146	–	–	61	33	–	28
Undeveloped land	21	–	502	–	–	–	–	–	–	–	–
Total	665	4,292	70,757	–	5,499	–	–	4,949	1,573	–	3,376

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 3,376 accounted for above and the net operating income of SEKm 3,036 in the income statement is explained by the deduction of the net operating income of SEKm 220 on properties sold during the year, as well as the adjustment of the net operating income of SEKm 560 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

	2016	2015
Rental value, SEK/sq.m.	1,304	1,095
Economic occupancy rate	91.3%	90.3%
Property costs, SEK/sq.m.	376	316
Net operating income, SEK/sq.m.	816	673
Property value, SEK/sq.m.	16,558	12,282
Number of properties	665	597
Lettable area, thousand sq.m.	4,292	3,392
Valuation yield, on average	5.8%	6.5%

Segment information	Rental income		Income from property management
SEKm	2016 Jan-Dec	2015 Jan-Dec	2016 Jan-Dec	2015 Jan-Dec
Central	1,258	854	533	393
West	1,108	1,091	561	557
Öresund	933	651	421	300
Stockholm	809	703	431	343

Total 4,533 3,299 2,201 1,593 The diff erence between the income from property management of SEKm 2,201 (1,593) above and the groups accounted income before tax of SEKm 5,722 (3,584) consists of unallocated income from property management of SEKm –136 (–60), transaction and restructuring costs of SEKm –163 (–), change in goodwill of SEKm – 373 (–) changes in property value of SEKm 4,085 (1,837) and changes in values of derivatives of SEKm 82 (216) and stepwise acquisition tax in joint venture of SEKm 27 (–) respectively SEK –1 (0).

North 425 – 255 –

Property value by property type Property value by region

Larger investments and sales

Larger projects

	Area,	Rental value		Econ. occup.	Total inv., land	Remain. inv.
Property	sq.m		SEKm SEK/sq.m	Jan 2017	incl. SEKm		SEKm Completed Comment
Olaus Petri 3:244, Örebro	14,526	35	2,400	48%	420		420 Q2 2019	New construction offi ce
Lindholmen 30:5, Gothenburg	9,243	23	2,500	96%	265		27 Q1 2017	New construction offi ce
Balltorp 1:124, Mölndal	18,000	14	750	100%	180		137 Q4 2017	New construction logistic
Varpen 11, Huddinge	7,060	14	2,550	100%	162		131 Q4 2017	New construction car retail
Nordstaden 2:16, Gothenburg	9,200	5	3,300	28%	135		53 Q1 2017	Reconstruction offi ce/retail
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		85 Q3 2017	New construction car retail
Kranbilen 2, Huddinge	8,571	9	1,050	40%	97		9 Q1 2017	New construction warehouse/ logistics
Inom Vallgraven 4:1, Gothenburg	2,500	9	3,700	100%	92		36 Q2 2017	Extension and reconstruction cultural and entertainment venue
Majorna 163:1, Gothenburg	5,867	9	1,500	75%	88		1 Q1 2017	Reconstruction offi ce/warehouse
Tjurhornet 15, Stockholm	5,786	1	250	–	68		9 Q4 2017	Parking facilities
Visiret 3, Huddinge	2,440	6	2,400	100%	61		45 Q4 2017	New construction car retail
Boländerna 12:1, Uppsala	3,687	5	1,400	52%	58		35 Q4 2017	New construction warehouse/ logistic
Sändaren 1, Malmö	2,771	4	1,550	100%	53		14 Q2 2017	Reconstruction offi ce
Gamla Rådstugan 1, Norrköping	2,185	5	2,100	30%	48		17 Q4 2016	Reconstruction offi ce
Verkstaden 14, Västerås	1,844	4	2,000	85%	45		15 Q1 2017	New construction offi ce
Bangården 4, Solna	4,120	4	1,100	100%	42		7 Q1 2017	Reconstruction apartment hotel
Projects completed/partly moved in
Drottningparken, Örebro	4,237	8	2,000	100%	103		0 Q3 2016	New construction offi ce
Verkstaden 14, Västerås	6,100	9	1,400	100%	84		3 Q1 2016	Extension and reconstruction educations facilities
Varpen 10, Huddinge	2,520	5	2,100	100%	72		9 Q4 2016	New construction car retail
Ringspännet 5, Malmö	3,333	5	1,450	100%	46		1 Q3 2016	New construction car retail/ garage

Larger acquisitions during 2016

	Area,		Rental value	Econ. occup.	Acquisition
Property	sq.m	SEKm SEK/sq.m		Jan 2017	SEKm	Access	Category
Norrporten	1,114,274	2,053	1,850	93%	26,415	Jun 2016	Offi ce and retail
CORHEIs portfolio in Linköping and Norrköping	162,714	202	1,200	79%	2,083	Mar 2016	Offi ce and logistics
Mässhallen 2, Malmö	7,318	20	2,712	100%	328	Apr 2016	Offi ce
Örnäs 1:17, Upplands-Bro	–	–	–	–	205	Dec 2016	Land
Pilgrimen 5, Växjö	6,036	13	2,146	90%	196	Nov 2016	Offi ce
Lerstenen 1 and 2, Lund	3,649	3	700	95%	26	Feb 2016	Warehouse
Hamnen 22:28 and 22:31, Malmö	5,107	1	300	85%	25	May 2016	Warehouse

Larger sales during 2016

	Area,		Rental value	Underlying prop.	Deferred tax and Trans.	Net sales price,
Property	sq.m		SEKm SEK/sq.m	price, SEKm	costs SEKm	SEKm	Access	Category
Portfolio i Sundsvall, Umeå and Luleå	214,750	364	1,700	4 592	– 153		4,439 Feb 2017	Offi ce and retail
Portfolio i Malmö and Lund	113,249	120	1,050	949	– 38		911 Dec 2016	Offi ce and warehouse
Lejonet 11, Luleå	21,839	32	1,500	489	– 3		486 Dec 2016	Offi ce
Portfolio i Sundsvall and Östersund	48,571	51	1,050	491	– 20		471 Mar 2017	Offi ce and warehouse
Portfolio i Östersund	18,494	21	1,150	269	– 15		254 Dec 2016	Offi ce
Smörkärnan 1, Lund	7,807	11	1,350	115	– 8		107 Nov 2016	Offi ce
Tågarp 16:22, Malmö	9,862	7	700	46	0		46 Nov 2016	Logistics and warehouse
Sadelknappen 1 & 4, Stångbettet, Malmö	5,248	4	800	28	1		27 Jul 2016	Warehouse and offi ce

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 1,700 (1,700) per sq.m. The required market yield can be calculated according to the following chart.

Required yield		Warehouse/
	Offi ce/Retail	logistics
Real interest rate	1.5%	1.5%
Infl ation	1.5%	1.5%
Risk	3.7 - 12.3%	7.9 - 12.5%
Return on equity	6.7 - 15.3%	10.9 - 15.5%
Interest rate	5.0%	5.0%
Loan to value ratio	65%	55%
Return on total capital	5.6% - 8.6%	7.7% - 9.7%
Weighted d:o, disc. factor year 1-9	7.0%	8.5%
Weighted disc. factor residual value*	5.5%	7.0%
*(Required yield on total capital minus growth equal to inflation)

Based on these internal valuations, the value of the properties at year-end were assessed to SEKm 70,757 (41,818), corresponding to SEK 16,558 per sq.m. (12,282).

Average valuation yield

The average valuation yield for Castellum's real estate portfolio, excluding development projects and undeveloped land, can be calculated to 5.8% (6.5%). The lower valuation yield can partly be explained by major reallocations in the property portfolio.

Average valuation yield, Mkr

(excl. project/land and building rights)	2016	2015
Net operating income properties		3,699	2,443
+ Estimated index adjustment 2016, 1.2% (1%)		62	35
+ Real occupancy rate, 94% at the lowest		265	216
– Property administration, 30 SEK/sq.m.		– 129	– 100
Normalized net operating income		3,897	2,594
Valuation (excl. building rights of SEKm 388)		67,557	39,824
Average valuation yield		5.8%	6.5%

Average valuation yield over time

Uncertainity range

A property's market value can only be confi rmed when sold. The value range of +/– 5-10%, often used in property valuations in a normal market, should therefore be seen as an indication of the uncertainty that exists in assumptions and calculations. In a market with lower liquidity, the range may be wider. For Castellum, an uncertainty range of +/– 5% means a range in value of the property portfolio of +/– SEKm 3,538, corresponding to SEKm 67,219 - 74,295.

External valuation

In order to provide further assurance and validation of the valuation, 180 properties - representing 57% of the value of the portfolio - have been valued externally by Forum Fastighetsekonomi AB in Sweden and CBRE and Cushman & Wakefi eld in Denmark. The properties were selected on the basis of the largest properties in terms of value, but they also refl ect the composition of the portfolio as a whole in terms of category and geographical location of the properties. The external valuations of the selected properties amounted to SEKm 41,180, within an uncertainty range of +/- 5-10% on property level, depending on each property's category and location. Castellum's valuation of the same properties totalled SEKm 40,642, i. e., a net deviation of SEKm 538, corresponding to –1%. The gross deviation was SEKm +1,563 and SEKm –1,025 respectively, with an average deviation of 6%.

In addition, Cushman & Wakefi eld made a desk-top valuation of 54 properties corresponding in value to 27% of the portfolio. Cushman & Wakefi eld's valuation of the selected properties amounted to SEKm 18,229. Castellum's valuation of the same properties amounted to SEKm 19,088, i.e. a net deviation of SEKm –859 corresponding to –5%. The other external valuations of the same properties amounted to SEKm 19,382, i.e. en net deviation of SEKm +294 corresponding to 2% compared to Castellum's valuation.

It can be noted that Castellum's deviation from the external valuers accommodated well within the uncertainty range of +/–5-10%.

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 December 31, 2016, a value of SEKm 78,313 (42,652) and are fi nanced by shareholders´s equity of SEKm 29,234 (15,768), deferred tax liabilities of SEKm 7,065 (4,299), interest bearing liabilities of SEKm 38,467 (20,396) and non interest bearing liabilities of SEKm 3,547 (2,189).

Shareholders' equity

As part of the acquisition of Norrporten, Castellum completed a rights issue as well as a directed share issue.

The rights issue of 82,000,000 new shares, which ended in June, meant that Castellum raised approximately SEK 6.3 billion before deduction of issue costs of about SEKm 123 (SEKm 95 net after deduction of deferred tax). In addition, a total of 27,201,166 Castellum shares constituted part of the consideration for the Norrporten shares, corresponding to a value of SEKm 3,075 at the time of access. Relying on the share-issue authorization from the Extraordinary General Meeting on 20 May 2016, the Castellum Board decided on a directed share issue to the Second and Sixth Swedish National Pension Funds totalling 19,194,458 consideration shares. Pursuant to the authorization from the AGM on 17 March 2016, the Castellum Board also decided to transfer all previously repurchased shares, representing 8,006,708 shares. Castellum's repurchased shares were acquired in year 2000 for a total purchase price of SEKm 194.

After the rights and directed share issues, the number of outstanding Castellum shares totals 273,201,166.

Interest bearing liabilities

At the end of the year Castellum had binding credit agreements totalling SEKm 53,259 (30,325) of which SEKm 40,358 (25,141) was long term and SEKm 12,901 (5,184) short term.

The acquisition of Norrporten meant the takeover of SEKm 14,172 in credit agreements. Of these, SEKm 5,498 was terminated or expired. Of the remaining volume, SEKm 3,269 were renegotiated and guaranteed commitments totalling SEKm 6,059 were signed. In addition, Castellum entered into new agreements totalling SEKm 5,300; extended existing agreements by SEKm 1,000; and renegotiated and extended credit agreements for a total of SEKm 8,150. During the year, funding for SEKm 1,069 from the previous joint venture

Distribution of interest bearing fi nancing 31-12-2016

CORHEI company was also included in Castellum's interest-bearing fi nancing – SEKm 447 of which has expired. In 2016, MTNs totalling SEKm 500 expired and SEKm 3,275 were issued, of which SEKm 1,000 were green MTN bonds issued under Castellum's new "Green Bond Framework".*

After deduction of cash of SEKm 257 (39), net interest bearing liabilities were SEKm 38,210 (20,357), of which SEKm 9,256 (6,499) were MTN and SEKm 7,702 (3,157) outstanding commercial papers. (Nominal SEKm 9,275 respectively SEKm 7,710.)

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 38,210 (20,357) of which SEKm 21,252 (10,460) were secured by the company's properties and SEKm 16,958 (9,897) unsecured. The proportion of used secured fi nancing was thus 28% 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, 50% and 348% respectively. The average duration of Castellum's credit agreements was 3.0 years (3.1). Margins and fees on long-term credit agreements had an average duration of 2.4 years (3.1).

Credit maturity structure 31-12-2016

	Credit		Utilized in
SEKm	agreements	Bank	MTN/Cert	Total
0-1 year	12,901	3,090	9,302	12,392
1-2 years	7,745	1,695	2,250	3,945
2-3 years	19,291	7,104	1,447	8,551
3-4 years	5,857	4,085	1,772	5,857
4-5 years	3,027	2,027	1,000	3,027
> 5 years	4,438	3,251	1,187	4,438
Total	53,259	21,252	16,958	38,210
	* Castellum collaborated with Handelsbanken on designing the Green Framework.

Secured credit facilities 31-12-2016

Interest rate maturity structure 31-12-2016

	Credit, SEKm	Interest rate derivates SEKm	Net. SEKm	Closing interest rate	Average fi xed interest rate term
0-1 year	34,120	– 16,887	17,233	3.0%	0.2 year
1-2 years	0	2,400	2,400	2.0%	1.3 years
2-3 years	297	1,800	2,097	1.7%	2.5 years
3-4 years	847	4,337	5,184	2.0%	3.5 years
4-5 years	2,350	2,900	5,250	2.3%	4.4 years
5-10 years	596	5,450	6,046	2.7%	6.5 years
Total	38,210	–	38,210	2.6%	2.4 years

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 December 31, 2016 was 2.4 years (2.5). The average effective interest rate on the same date was 2.6% (2.9%).

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.

Currency

Castellum owns properties in Denmark with a value of SEKm 5,395 (954), 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 December 31, 2016, the market value of the interest rate derivatives portfolio amounted to SEKm –1,608 (–1,124) and the currency derivative portfolio to SEKm +26 (7). 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%	50%
Interest coverage ratio	At least 200%	At least 175%	348%
Funding risk
– average capital tied up	At least 2 years		3.0 years
– proportion maturing within 1 year	No more than 30% of outstanding loans and unutilized credit agreements		10%
– average maturing credit price	At least 1.5 years		2.4 years
– propotion capital market financing	No more than 75% of outstanding interest bearing liabilities		44%
– 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	–	2.4 years
– proportion maturing within 6 months	At least 20%, no more than 55%	–	40%
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	2016 Oct-Dec	2015 Oct-Dec	2016 Jan–Dec	2015 Jan–Dec
Rental income	1,367	850	4,533	3,299
Operating expenses	– 223	– 137	– 671	– 507
Maintenance	– 80	– 48	– 189	– 133
Ground rent	– 7	– 7	– 24	– 27
Property tax	– 81	– 43	– 262	– 172
Leasing and property administration	– 116	– 65	– 351	– 235
Net operating income	860	550	3,036	2,225
Central administrative expenses	– 39	– 31	– 143	– 113
Transaction and restructuring costs	– 13	–	– 163	–
Results from joint venture	–	10	3	21
– of which income from property management	–	9	4	23
– of which changes in property values	–	3	–	3
– of which tax		– 2
Net interest costs	– – 248	– 147	– 1 – 832	– 5 – 602
Income from property management incl. results joint venture	560	382	1,901	1,531
– of which income from property management*	573	381	2,065	1,533
Revaluation of results due to stepwise acquisition	–	–	27	–
Write-down goodwill	– 373	–	– 373	–
Changes in value
Properties	2,020	1,019	4,085	1,837
Derivatives	306	163	82	216
Income before tax	2,513	1,564	5,722	3,584
Current tax	3	– 3	– 23	– 16
Deferred tax	– 35	– 301	– 727	– 687
Net income for the period/year	2,481	1,260	4,972	2,881
Other total net income
Items that will be reclassified into net income
Translation difference of currencies	4	– 25	63	– 32
Change in value derivatives, currency hedge	5	19	– 57	24
Total net income for the period/year	2,490	1,254	4,978	2,873
Total net income for the year related to:
– Shareholders in the parent company	2,490	1,254	4,978	2,873
– No minority interests	–	–	–	–
Average number of shares, thousand	273,201	189,014	234,540	189,014
Income, per share	9.08	6.67	21.20	15.24

* For calculation see Finanial Key Ratios, page 22.

Condensed Consolidated Balance Sheet

SEKm	31 Dec 2016	31 Dec 2015
Assets
Investment properties	70,757	41,818
Share in joint venture	–	526
Goodwill	1,659	–
Other fixed assets	93	27
Current receivables	5,547	242
Liquid assets	257	39
Total assets	78,313	42,652
Shareholders' equity and liabilities
Shareholders' equity	29,234	15,768
Deferred tax liability	7,065	4,299
Other provisions	9	14
Derivatives	1,582	1,117
Interest-bearing liabilities	38,467	20,396
Non interest-bearing liabilities	1,956	1,058
Total shareholders' equity and liabilities	78,313	42,652
Pledged assets (property mortgages)	33,130	18,164
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 31-12-2014	164,000	86	4,096	20	– 13	–	9,460	13,649
Dividend, March 2015 (4.60 SEK/share)	–	–	–	–	–	–	– 754	– 754
Net income 2015	–	–	–	–	–	–	2,881	2,881
Other total net income 2015	–	–	–	– 32	24	–	–	– 8
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 2016	–	–	–	–	–	–	4,972	4,972
Other total net income 2016	–	–	–	63	–57	–	–	6
Shareholders equity 31-12-2016	273,201	137	12,434	51	– 46	– 2	16,660	29,234

Condensed Cash Flow Statement

SEKm	2016 Oct-Dec	2015 Oct-Dec	2016 Jan-Dec	2015 Jan-Dec
Net operating income	860	550	3,036	2,225
Central administrative expenses	– 39	– 31	– 143	– 113
Reversed depreciations	4	3	14	12
Net interest rates paid	– 253	– 153	– 814	– 605
Tax paid	– 27	– 1	9	– 8
Translation difference of currencies	8	– 3	6	– 7
Cash flow from operating activities before change in working capital	553	365	2,108	1,504
Change in current receivables	60	7	– 47	– 66
Change in current liabilities	– 16	– 132	199	69
Cash flow from operating activities	597	240	2,260	1,507
Investments in new constructions, extensions and reconstructions	– 735	– 385	– 2,119	– 1,232
Property acquisitions	– 478	– 477	– 874	– 2,321
Change in liabilities at acquisitions of property	–	– 3	– 4	– 17
Property sales	6,673	856	6,781	1,135
Change in receivables at sales of property	– 4,971	– 3	– 4,953	238
Business combination	– 56	–	– 11,369	–
Investment joint venture	–	– 6	–	– 505
Other investments	– 11	– 4	– 23	– 9
Cash flow from investment activities	422	– 22	– 12,561	– 2,711
Change in long term liabilities	– 1,144	– 284	5,144	1,950
Change in long-term receivables	– 9	–	– 11	–
New issue of shares	–	–	6,190	–
Dividend paid	–	–	– 804	– 754
Cash flow from financing activities	– 1,153	– 284	10,519	1,196
Cash flow for the period/year	– 134	– 66	218	– 8
Liquid assets opening balance	391	105	39	47
Liquid assets closing balance	257	39	257	39

The Parent Company

Condensed Income statement	2016	2015	2016	2015
SEKm	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
Income	9	7	23	21
Operating expenses	– 42	– 27	– 124	– 90
Net fi nancial items	– 15	8	– 35	9
Dividend/group contribution	5,900		815 5,900	815
Change in derivatives	222	163	12	216
Impairment of shares in ubsidiaries	– 3,900		– – 3,900	–
Sales of shares in subsidiaries	–	–	2,784	–
Income before tax	2,174		966 4,660	971
Tax	– 131	– 75	– 66	– 76
Net income for the period/year	2,043		891 4,594	895
Comprehensive income for the parent company
Net income for the period/year	2,043		891 4,594	895
Items that will be reclassifi ed into net income
Translation diff erence foreign operations	– 3	– 19	30	– 24
Unrealized change, currency hedge	3	19	– 30	24
Total net income for the period/year	2,043		891 4,594	895

Condensed Balance sheet SEKm	31 Dec 2016	31 Dec 2015
Participations in group companies	19,403	6,030
Receivables, group companies	32,250	19,918
Other assets	157	112
Liquid assets	0	0
Total		51,810 26,060
Shareholders' equity	17,801	4,718
Derivatives	1,259	1,117
Interest bearing liabilities	27,912	18,005
Interest bearing liabilities, group companies	4,702	2,105
Other liabilities	136	115
Total		51,810 26,060
Pledged assets (receivables group companies)	21,986	15,309
Contingent liability (guaranteed commitments for subsidiaries)	7,353	2,150

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 31.

	Oct - Dec 2016	Oct - Dec 2015	Jan - Dec 2016	Jan - Dec 2015
Average number of shares, thousand (related to fi nancial key ratios) *	273,201	189,014	234,540	189,014
Outstanding number of shares, thousand (related to balance sheet ratios) *	273,201	189,014	273,201	189,014

*) 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. The conversion factor is 1.15.

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		Oct - Dec 2016 SEKm SEK/share		Oct - Dec 2015 SEKm SEK/share		Jan - Dec 2016 SEKm SEK/share		Jan - Dec 2015 SEKm SEK/share
Income before tax	2,513	9.20	1,564	8.28	5,722	24.40	3,584	18.96
Reversed
Transaction and restructuring costs	13	0.05	–	–	163	0.69	–	–
Revaluation of results due to stepwise acquisition	–	–	–	–	– 27	– 0.12	–	–
Write-down goodwill	373	1.36	–	–	373	1,59	–	–
Changes in value, properties	– 2,020	– 7.39	– 1,019	– 5.39	– 4,085	– 17.42	– 1,837	– 9.72
Change in value, derivatives	– 306	– 1.12	– 163	– 0.86	– 82	– 0.34	– 216	– 1.14
Changes in value, properties joint venture	–	–	– 3	– 0.02	–	–	–3	–0.02
Tax joint venture	–	–	2	0.01	1	0.00	5	0.03
= Income from property management	573	2.10	381	2.02	2,065	8.80	1,533	8.11
EPRA Earnings (Income from prop. management after tax)
Income from property management	573	2.10	381	2.02	2,065	8.80	1,533	8.11
Reversed; Current tax Income from property management	– 18	– 0.07	17	0.09	– 128	– 0.54	– 52	– 0.28
EPRA Earnings / EPRA EPS	555	2.03	398	2.11	1,937	8.26	1,481	7.84

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
Equity according to the balance sheet		29,234	107	15,768	83
Reversed:
Derivatives according to balance sheet		1,582	6	1,117	6
Goodwill according to balance sheet		– 1,659	– 6	–	–
Deferred tax according to balance sheet		7,065	26	4,299	23
Long term net asset value (EPRA NAV)		36,222	133	21,184	112
Deduction
Derivatives as above		– 1,582	– 6	– 1,117	– 6
Estimated real liability, deferred tax 5%*		– 1,558	– 6	– 1,121	– 6
Short term net asset value (EPRA NNNAV)		33,082	121	18,946	100

* Estimated real deferred tax liability net has been calculated to 5% 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 6%, which gives a present value of deferred tax liability of 4%. 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	Oct - Dec 2016	Oct - Dec 2015	Jan - Dec 2016	Jan - Dec 2015
Income from property management	573	381	2,065	1,533
Reversed;
Net interest	248	147	832	602
Income from prop. management joint venture	–	– 9	– 4	– 23
Income from prop. management excl. net interest and JV	821	519	2,893	2,112
Interest coverage ratio	331%	353%	348%	351%
Loan to value ratio
Interest-bearing liabilities			38,467	20,396
Liquid assets			– 257	– 39
Net interest-bearing liabilities net			38,210	20,357
Investment properties			70,757	41,818
Acquired properties not taken into possession			– 11	– 15
Divested properties still in Castellum's possession			4,971	18
Net investment properties			75,717	41,821
Loan to value ratio			50%	49%

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
	Oct - Dec 2016	Oct - Dec 2015	Jan - Dec 2016	Jan - Dec 2015
Acquisitions	478	477	29,372	2,321
New constructions, extensions and reconstructions	735	385	2 119	1,232
Total investment	1,213	862	31,491	3,553
Net sales price	– 6,673	– 861	– 6,754	– 1,140
Net investments	– 5,460	1	24,737	2,413
Proportion of the property value, %	– 7%	0%	59%	6%

Other Financial Key Ratios

	2016	2015	2016	2015
	Oct - Dec	Oct - Dec	Jan - Dec	Jan – Dec
Net operating income margin	63%	65%	67%	67%
Interest rate level, on average	2.7%	2.9%	2.7%	3.0%
Return on longterm net asset value	30.0%	27.7%	25.3%	18.2%
Return on actual net asset value	37.4%	33.2%	20.9%	20.4%
Return on total capital	14.8%	14.6%	11.9%	10.0%
Return on equity	37.1%	34.7%	20.1%	21.7%
Property value, SEK/share	259	221	259	221
Gross leasing	161	90	489	316
Net leasing	84	11	178	18

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.

Quarterly Summary	Jan-March 2016	Apr-June 2016	July-Sept 2016	Oct-Dec 2016	2016	Jan-March 2015	Apr-June 2015	July-Sept 2015	Oct-Dec 2015	2015
Income Statement, SEKm
Rental income	855	952	1,359	1,367	4,533	801	816	832	850	3,299
Property costs	– 299	– 299	– 392	– 507	– 1,497	– 283	– 256	– 235	– 300	– 1,074
Net operating income	556	653	967	860	3,036	518	560	597	550	2,225
Central administrative expenses	– 42	– 36	– 36	– 39	– 143	– 29	– 32	– 21	– 31	– 113
Joint venture (Income from prop mgmnt)	3	–	–	–	3	–	2	12	9	23
Net interest costs	– 152	– 173	– 259	– 248	– 832	– 151	– 152	– 152	– 147	– 602
Income from property management incl.
results joint venture	365	444	672	573	2,065	338	378	436	381	1,533
Transaction and restructuring costs	–	– 123	– 17	– 13	– 163	–	–	–	–	–
Write-down goodwill	–	–	–	– 373	– 373
Changes in value. properties	489	127	1,449	2,020	4,085	329	551	– 62	1,019	1,837
Changes in value. derivatives	– 148	– 75	– 1	306	82	– 102	239	– 84	163	216
Revaluation of results due to stepwise acquisition	27	–	–	–	27	–	0	– 3	1	– 2
Current tax	– 1	– 9	– 16	3	– 23	– 5	– 4	– 4	– 3	– 16
Deferred tax	– 155	– 97	– 440	– 35	– 727	– 109	– 216	– 61	– 301	– 687
Net income for the period/year	577	267	1,647	2,481	4,972	451	948	222	1,260	2,881
Other total net income	15	– 26	8	9	6	– 6	0	4	– 6	– 8
Total net income for the period/year	592	241	1,655	2,490	4,978	445	948	226	1,254	2,873
Balance Sheet, SEKm
Investment properties Joint venture	44,773 –	72,109 –	74,220 –	70,757 –	70,757 –	38,951 –	40,187 479	40,826 510	41,818 526	41,818 526
Goodwill	140	2,032	2,032	1,659	1,659
Other fixed assets	391	639	714	5,640	5,640	599	489	270	269	269
Liquid assets	150	425	391	257	257	73	55	105	39	39
Total assets	45,454	75,205	77,357	78,313	78,313	39,623	41,210	41,711	42,652	42,652
Shareholders' equity	15,556	25,089	26,744	29,234	29,234	13,340	14,288	14,514	15,768	15,768
Deferred tax liability	4,593	6,596	7,030	7,065	7,065	3,721	3,937	3,998	4,299	4,299
Other provisions	16	18	15	9	9	21	19	18	14	14
Derivatives	1,271	1,925	1,950	1,582	1,582	1,447	1,202	1,299	1,117	1,117
Long term interest-bearing liabilities	22,650	39,356	39,611	38,467	38,467	19,791	20,483	20,680	20,396	20,396
Non-interest-bearing liabilities	1,368	2,221	2,007	1,956	1,956	1,303	1,281	1,202	1,058	1,058
Total shareholders' equity and liabilities	45,454	75,205	77,357	78,313	78,313	39,623	41,210	41,711	42,652	42,652
Financial key ratios
	65%	69%	71%	63%	67%	65%	69%	72%	65%	67%
Net operating income margin	2.9%	2.7%	2.6%	2.7%	2.7%	3.2%	3.0%	3.0%	2.9%	3.0%
Interest rate, avarage	338%	357%	359%	331%	348%	324%	349%	379%	353%	351%
Interest coverage ratio Return on actual net asset value	15.6%	2.3%	27.8%	37.4%	20.9%	13.1%	26.0%	5.5%	33.2%	20.4%
Return on total capital	9.2%	4.9%	12.6%	14.8%	11.9%	8.5%	10.8%	5.0%	14.6%	10.0%
Return on equity	15.0%	5.3%	26.3%	37.1%	20.1%	13.6%	28.4%	6.2%	34.7%	21.7%
Investments in properties, SEKm	2,445	27,246	587	1,213	31,491	1,117	834	740	862	3,553
Sales, SEKm	3	30	48	6,673	6,754	78	183	18	861	1,140
Loan to value ratio	50%	54%	53%	50%	50%	50%	51%	50%	49%	49%
Data per share (since there are no potential common stock there is no effect of dilution)
Average number of shares, thousand	189,014	201,531	273,201		273,201 234,540	189,014	189,014	189,014	189,014	189,014
Income from property management, SEK	1.99	2.20	2.46	2.10	8.80	1.79	2.00	2.31	2.02	8.11
Income prop mgmt after tax (EPRA EPS), SEK	1.83	2.03	2.29	2.03	8.26	1.69	1.95	2.08	2.11	7.84
Earnings after tax, SEK	3.05	1.32	6.03	9.08	21.20	2.39	5.02	1.17	6.67	15.24
Outstanding number of shares, thousand	189,014	273,201	273,201		273,201 273,201	189,014	189,014	189,014	189,014	189,014
Property value, SEK	237	264	272	259	259	206	213	216	221	221
Long term net asset value (EPRA NAV), SEK	113	116	123	133	133	98	103	105	112	112
Actual net asset value (EPRA NNNAV), SEK	100	104	111	121	121	86	91	93	100	100
Dividend, SEK (2016 proposed)	–	–	–	–	5.00	–	–	–	–	4.25
Dividend ratio	–	–	–	–	57%	–	–	–	–	52%
Property related key ratios
Rental value, SEK/sq,m,	1,119	1,292	1,314	1,311	1,304	1,082	1,092	1,103	1,095	1,095

Economic occupancy rate 90.3% 90.6% 89.9% 91.9% 91.3% 88.7% 88.7% 89.6% 91.5% 90.3% Property costs, SEK/sq,m, 354 346 339 442 376 336 302 276 348 316 Property value, SEK/sq,m, 12,506 15,363 15,817 16,558 16,558 11,384 11,602 11,758 12,282 12,282

Multi-Year Summary

	2016	2015	2014	2013	2012	2011	2010	2009	2008	2007
Income Statement, SEKm
Rental income	4,533	3,299	3,318	3,249	3,073	2,919	2,759	2,694	2,501	2,259
Property costs	– 1,497	– 1,074	– 1,096	– 1,105	– 1,042	– 1,003	– 960	– 942	– 831	– 771
Net operating income	3,036	2,225	2,222	2,144	2,031	1,916	1,799	1,752	1,670	1,488
Central administrative expenses	– 143	– 113	– 108	– 96	– 93	– 83	– 84	– 81	– 71	– 69
Joint venture (Income from prop mgmnt)	3	23	–	–	–	–	–	–	–	–
Net interest costs	– 832	– 602	– 664	– 702	– 683	– 660	– 574	– 541	– 626	– 495
Income from property management incl. re
sults joint venture	2,065	1,533	1,450	1,346	1,255	1,173	1,141	1,130	973	924
Transaction and restructuring costs	– 163	1 837	344	328	– 69	194	1,222	– 1,027	– 1,262	920
Write-down goodwill	– 373	–	–	–	–	–	–	–	–	–
Changes in value, properties	4,085	1 837	344	328	– 69	194	1,222	– 1,027	– 1,262	920
Changes in value, derivatives	82	216	– 660	429	– 110	– 429	291	102	– 1,010	99
Revaluation of results due to stepwise acquisition	27	– 2	–	–	–	–	–	–	–	–
Current tax	– 23	– 16	– 11	– 6	– 7	– 10	– 5	– 10	–14	– 22
Deferred tax	– 727	– 687	88	– 390	404	– 217	– 685	– 35	650	– 434
Net income for the year	4,972	2,881	1,211	1,707	1,473	711	1,964	160	– 663	1,487
Other total net income	6	– 8	8	3	– 4	0	–	–	–	–
Total net income for the year	4,978	2,873	1,219	1,710	1,469	711	1,964	160	– 663	1,487
Balance Sheet, SEKm
Investment properties	70,757	41,818	37,599	37,752	36,328	33,867	31,768	29,267	29,165	27,717
Joint venture	–	526	–	–	–	–	–	–	–	–
Goodwill	1,659	–	–	–	–	–	–	–	–	–
Other fixed assets	5,640	269	442	291	259	207	156	201	230	123
Liquid assets	257	39	47	70	44	97	12	8	9	7
Total assets	78,313	42,652	38,088	38,113	36,631	34,171	31,936	29,476	29,404	27,847
Shareholders' equity	29,234	15,768	13,649	13,127	12,065	11,203	11,082	9,692	10,049	11,204
Deferred tax liability	7,065	4,299	3,612	3,700	3,310	3,714	3,502	2,824	2,785	3,322
Other provisions	9	14	23	–	–	–	–	–	–	–
Derivatives	1,582	1,117	1,357	683	1,105	1,003	574	865	966	– 44
Long term interest-bearing liabilities	38,467	20,396	18,446	19,481	19,094	17,160	15,781	15,294	14,607	12,582
Non-interest-bearing liabilities	1,956	1,058	1,001	1,122	1,057	1,091	997	801	997	783
Total shareholders' equity and liabilities	78,313	42,652	38,088	38,113	36,631	34,171	31,936	29,476	29,404	27,847
Financial key ratios
Net operating income margin	67%	67%	67%	66%	66%	66%	65%	65%	67%	66%
Interest rate, avarage	2.7%	3.0%	3.3%	3.7%	3.9%	4.1%	3.7%	3.7%	4.7%	4.2%
Interest coverage ratio	348%	351%	318%	292%	284%	278%	299%	309%	255%	287%
Return on actual net asset value	20.9%	20.4%	7.6%	13.2%	7.9%	6.4%	21.5%	1.6%	– 8.3%	16.20%
Return on total capital	11.9%	10.0%	6.5%	6.4%	5.3%	6.2%	9.8%	2.1%	1.2%	9.1%
Return on equity	20.1%	21.7%	9.5%	14.6%	13.5%	6.6%	20.9%	1.6%	– 6.1%	14.9%
Investments in properties, SEKm	31,491	3,553	2,525	1,768	2,798	2,015	1,506	1,165	2,738	2,598
Sales, SEKm	6,754	1,140	3,054	687	253	107	227	36	28	39
Loan to value ratio	50%	49%	49%	51%	52%	50%	50%	52%	50%	46%
Data per share (since there are no potential common stock there is no effect of dilution)
Average number of shares, thousand	234,540	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014
Income from property management, SEK	8.80	8.11	7.67	7.12	6.64	6.21	6.04	5.98	5.15	4.89
Income prop mgmt after tax (EPRA EPS), SEK	8.26	7.84	7.17	6.97	6.31	6.08	5.75	6.02	5.08	4.77
Earnings after tax, SEK	21.20	15.24	6.41	9.03	7.79	3.76	10.39	0.85	– 3.51	7.87
Outstanding number of shares, thousand	273,201	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014
Property value, SEK	259	221	199	200	192	179	168	155	154	147
Long term net asset value (EPRA NAV), SEK	133	112	99	93	87	84	80	71	73	77
Actual net asset value (EPRA NNNAV), SEK	121	100	87	84	78	75	74	63	65	74
Dividend, SEK (2015 proposed)	5.00	4.25	3.99	3.69	3.43	3.21	3.12	3.04	2.73	2.60
Dividend ratio	57%	52%	52%	52%	52%	52%	52%	51%	53%	53%
Property related key ratios
Rental value, SEK/sq,m,	1 304	1 095	1 064	1 036	1 015	995	974	969	921	896
Economic occupancy rate	91.3%	90.3%	88.7%	88.4%	88.6%	89.3%	89.0%	89.8%	89.7%	87.9%
Property costs, SEK/sq,m, Property value, SEK/sq,m,	376 16,558	316 12,282	307 11,118	307 10,285	298 9,916	300 9,835	298 9,499	300 9,036	268 8,984	262 9,098

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	+ 49/– 49	+	–
Vacancies	+ 55/– 55	+	–
Property costs	– 16/+ 16	–	0
Interest costs	– 26/– 118*	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	– 14,151	– 7,076	–	7,076	14,151
Loan to value ratio	62%	56%	50%	46%	42%

Financial risk

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

Annual General Meeting

For the AGM on March 23, 2017 the Board of Directors proposes a dividend of SEK 5.00 per share, distributed to the shareholders in two equal payments of SEK 2.50 per share. The fi rst record day for distribution is proposed to be March 27, 2017, and the second record day for distribution is proposed to be September 25, 2017.

The election committee, which consists of Mr. Johan Strandberg representing SEB Fonder (chairman), Mr. Martin Jonasson representing Andra AP-fonden, Mr. Rutger van der Lubbe representing Stichting Pensioenfonds ABP and Castellum's Chairman of the Board of Directors Charlotte Strömberg, proposes for the AGM;

• re-election of the present Board members Mrs. Charlotte Strömberg, Mr. Per Berggren, Mrs. Anna-Karin Hatt. Mrs. Nina Linander, Mr. Christer Jacobson, Mrs. Christina Karlsson Kazeem and Mr. Johan Skoglund, as members of the Board of Directors. Mrs. Charlotte Strömberg is proposed to be re-elected as Chairman of the Board of Directors.
• that remuneration to the Board of Directors is proposed to be the following. The Chairman of the Board of Directors: SEK 825,000, to each of the other members of the Board of Directors: SEK 350,000, member of the Remuneration Committee, including the Chairman: SEK 30,000, Chairman of the Audit and Finance Comd

mittee: SEK 100,000, to each of the other members of the Board of Directors' Audit and Finance Committee: SEK 50,000. The proposed total remuneration to the members of the Board of Directors, including remuneration for committee work, accordingly amounts to SEK 3,215,000 (SEK 2,820,000 previous year).

• electing Deloitte as auditor. Deloitte has announced that the current authorised auditor in the company, Hans Warén, will be the main responsible auditor at Deloitte,
• for AGM to decide on appointing a new Election Com mittee for the AGM 2018 and for the Chairman of the Board of Directors to contact the three largest owner ship registered or otherwise known shareholders as per the last share trading day in August 2017 and invite them each to appoint one member, and that the three members appointed constitute, together with the Chairman of the Board of Directors, the Election Committee. The Elec tion Committee appoints a Chairman amongst its members. p

Gothenburg January 19, 2017 Januar

Henrik Saxborn Henrik

Chief Executive Offi cer

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

Board of Directors

Christer Jacobson Board member

Christina Karlsson Kazeem Board member

Board member

Johan Skoglund Board member

Executive Group Management

Charlotte Strömberg Chairman of the Board

Henrik Saxborn CEO

Ulrika Danielsson

CFO

Per Berggren Board member

MD Region West

tions Director

Board member

Jörgen Lundgren MD Region North

Anders Nilsson MD Region Stockholm Erika Olsén CIO

Ola Orsmark MD Region Öresund

Anne Thelin-Ehrling HR Manager

Ingalill Östman assume her duties as Corporate Communications Director

The Castellum Share

The Castellum share is listed on Nasdaq Stockholm Large Cap. At the end of the period the company had about 30,000 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 31-12-2016		Percentage of
	Number of	voting rights
Shareholders	shares thousand	and capital
Andra AP-fonden	15,199	5.6%
Sjätte AP-fonden	13,601	5.0%
Lannebo Fonder	8,288	3.0%
SEB Fonder	8,016	2.9%
AMF Försäkring & Fonder	7,926	2.9%
AFA Försäkring	4,167	1.5%
Stiftelsen Global Challenges	3,750	1.4%
Länsförsäkringar Fonder	2,854	1.0%
Handelsbanken Fonder	2,659	1.0%
Magdalena Szombatfalvy	2,635	1.0%
Board and executive management Castellum	309	0.1%
Other shareholders registered in Sweden	65,066	23.8%
Shareholders registered abroad	138,731	50.8%
Total registered shares	273,201	100.0%

There is no potential common stock (eg. convertibles)

Source: Modular Finance AB acoording to information from Euroclear Sweden AB

Distribution of shareholders by country 31-12-2016

The Castellum share price as at 31 December, 2016 was SEK 124.90 (104,73) equivalent to a market capitalization of SEK 34.1 billion (19.8), calculated on the number of outstanding shares.

Since the beginning of the year a total of 285 million (188) shares were traded, equivalent to an average of 780,000 shares (751,000) per day, corresponding on an annual basis to a turnover rate of 71% (114%). 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 (112). The share price at the end of the year was thus 94% (94%) of the long term net asset value.

Earnings

Income from property management adjusted for tax attributable to income from property management (EPRA EPS) amounted to SEK 8.26 (7.84) on rolling annual basis. This results in a share price yield of 6.6% (7.5%) corresponding to a multiple of 15 (13). 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 21.20 per share (15.24), which from the share price gives a yield of 17.0% (14.6%), corresponding to a P/E of 6 (7).

Dividend yield

The proposed dividend of SEK 5.00 (4.25) corresponds to a yield of 4.0% (4.1%) based on the share price at the end of the period.

Total share yield

During the last 12-month period the total yield of the Castellum share has been 23.8% (2.3%), including a dividend of SEK 4.25.

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.

The Castellum share's price trend and turnover since the IPO May 23, 1997 until December 31, 2016

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

			Sensitivity analysis
		–1%-unit	+1%-unit
Income from prop. management rolling 12 months 2,065 2,065			2,065
Change in property value (on average 10 years)	867	200	1,533
D:o %	1.3%	0.3%	2.3%
Current tax, 5%	– 102	– 102	– 102
Earnings after tax	2,830	2,163	3,496
Earnings SEK/share	13.27	10.14	16.39
Return on actual long-term net asset value	12.7%	10.2%	15.4%
Earnings / share price	10.6%	8.1%	13.1%
P/E	9	12	8

EPRA Key ratios	2016	2015
EPRA Earnings (Income from property management after tax), SEKm	1,937	1,481
EPRA Earnings (EPS) SEK/share	8.26	7.84
EPRA NAV (Long term net asset value), SEKm	36,222	21,184
EPRA NAV, SEK/share	133	112
EPRA NNNAV (Net asset value), SEKm	33,082	18,946
EPRA NNNAV, SEK/share	121	100
EPRA Vacancy Rate	9%	10%

1 year 3 years average/ year 10 years average/ Growth Rental income SEK/share 11% 4% 6% Income from prop. management SEK/share 9% 7% 7% Net income for the year after tax SEK/share 39% 33% 7% Dividend SEK/share 18% 11% 7% Long term net asset value SEK/share 19% 13% 7% Actual net asset value SEK/share 21% 13% 6% Real estate portfolio SEK/share 17% 9% 7% Change in property value 6.3% 3.9% 1.3% Yield Return on actual long term net asset value 25.3% 15.9% 11.6%

Growth, yield and fi nancial risk

year

Return on actual net asset value 20.9% 14.7% 11.2% Return on total capital 11.9% 8.0% 6.5% Total yield of the share (incl. dividend) Castellum 23.8% 17.0% 8.5% Nasdaq Stockholm (SIX Return) 9.6% 11.9% 7.6% Real Estate Index Sweden (EPRA) 7.2% 22.6% 10.2% Real Estate Index Europe (EPRA) – 4.5% 12.6% 0.3% Real Estate Index Eurozone (EPRA) 4.7% 14.8% 2.4% Real Estate Index Great Britain (EPRA) – 8.5% 7.5% – 2.7% Financial risk Loan to value ratio 50% 51% 50% Interest coverage ratio 348% 341% 303%

Yield earnings per share

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

Since 1997, Castellum's share has been listed on Nasdaq, Stockholm Large Cap under the name CAST.

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 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, 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

Annual report 2016 mid-February 2017 Annual General Meeting 2017 23 March 2017 Interim Report January-March 2017 24 April 2017 Half-year Report January-June 2017 12 July 2017 Interim Report January-September 2017 19 October 2017 Year-end Report 2017 24 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.

Invitation to Annual General Meeting 2015

The Annual General Meeting of shareholders will be held on Thursday 23 March 2017 at 5 pm at Chalmers Kårhus, RunAn, at Chalmersplatsen 1 in Gothenburg. The entrance opens at 4 pm. Shareholders wishing to attend the Annual General Meeting must be registered as shareholders in the share register kept by Euroclear Sweden AB by Friday 17 March 2017 and must also have notified their attendance to the company on Friday 17 March 2017, preferably before 4 pm.

Summons to the Annual General Meeting will be around 16 February 2017 and the summons will be available at www.castellum.se. Also Castellum's annual report and other documents which will be presented at the Annual General Meeting will be available on the website by then. The summons will include the items to be addressed at the Annual General Meeting. Shareholders who wish to attend the Annual General Meeting are already welcome to notify their attendance as described below.

Notification of attendance at the Annual General Meeting can be made by post to Castellum AB (publ), Box 2269, 403 14, Gothenburg, by phone +46 (0)31-60 74 00, by e-mail info@castellum.se, or by filling out a notification form on www.castellum.se. The notification must state name/business name, personal identification number/company registration number, address and telephone number. For those shareholders, who wish to be represented by proxy, the company provides a proxy form on www.castellum.se.

Shareholders with nominee registered shares must temporarily register such nominee shares in their own name in order to have the right to participate at the Annual General Meeting. Such registration must have been carried out at Euroclear Sweden AB no later than Friday 17 March 2017. Shareholders must, in good time before this date, instruct their nominees to effect such registration.

A shareholder have the right to have a matter addressed at the coming Annual General Meeting. For practical reasons the request should be received by the company no later than 30 January, 2017. The request should be addressed to Castellum AB, Att: Henrik Saxborn, Box 2269, 403 14 Gothenburg.

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

North Region in Castellum Landsvägsallén 4, Box 225,

851 04 Sundsvall Phone +46 60-64 12 00 sundsvall@castellum.se

Stockholm Region in Castellum

Tjurhornsgränd 6, Box 5013, 121 05 Johanneshov Phone +46 8-602 33 00 stockholm@castellum.se

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