2017

Year-end report 2017

Castellum is one of the major listed real estate companies in Sweden. The fair value of the real estate portfolio amounts to SEK 81 billion, and comprises of commercial properties for offi ce, retail, warehouse and logistics totaling 4.4 million sq.m. The real estate portfolio is owned and managed under the Castellum brand through a decentralized organization with strong and clear local presence in 20 cities from Copenhagen in the south to Sundsvall in the north. Castellum is listed on Nasdaq Stockholm Large Cap.

Rental income for 2017 amounted to SEKm 5,182 (SEKm 4,533 previous year).
Income from property management amounted to SEKm 2,530 (2,065), corresponding to SEK 9.26 (8.80) per share. An increase in absolute terms of 23% and in SEK/share of 5%.
Changes in value on properties amounted to SEKm 4,540 (4,085) and on derivatives to SEKm 247 (82).
Net income after tax for the year amounted to SEKm 5,876 (4,972), corresponding to SEK 21.51 (21.20) per share.
Long term net asset value amounted to SEK 153 (133) per share. An increase of 15%.
Net investments amounted to SEKm 5,613 (24,737) of which SEKm 3,595 (29,372) were acquisitions, SEKm 2,893 (2,119) new constructions, extensions and reconstructions and SEKm 875 (6,754) sales.
Net lease for the year was SEKm 310 (178).
The Board proposes a dividend of SEK 5.30 (5.00) per share, equivalent to an increase of 6%, distributed in two equal payments of SEK 2.65.

	2017 Oct-Dec	2016 Okt-Dec	2017 Jan-Dec	2016 Jan-Dec
Rental income, SEKm	1,316	1,367	5,182	4,533
Net operating income, SEKm	846	860	3,577	3,036
Income of property management, SEKm	574	573	2,530	2,065
D:o SEK/share*)	2.10	2.10	9.26	8.80
D:o growth	0%	+ 4%	+ 5%	+ 9%
Net income after tax, SEKm	2,452	2,481	5,876	4,972
Net investments SEKm	1,053	– 5,460	5,613	24,737
Dividend SEK/share (2017 proposed)	–	–	5.30	5.00
D:o growth	–	–	6%	18%
Net leasing, SEKm	59	84	310	178
Loan to value ratio	47%	50%	47%	50%
Interest coverage ratio	356%	331%	386%	348%
Long term net asset value (EPRA NAV) SEK/share*)	153	133	153	133
Actual net asset value (EPRA NNNAV) SEK/share*)	138	121	138	121

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, visit www.castellum.com

Cover: The cover of Castellum's Year-end Report is taken from the company's brand awareness campaign that was launched in various media during 2017. The campaign message seeks to establish Castellum as a real estate company that helps enterprises and people to develop and thrive.

The dividend tradition continues

"A year when many missions were accomplished". This is how I characterized 2016 in last year's Year-end Report. While true, the statement does not mean that Castellum has stopped developing. On the contrary: 2017 was a very intensive year focusing on leasing, increased effi ciency and new projects. In addition, we've succeeded in consolidating our leading sustainability position in the real estate industry, and we're also at the forefront of digitalization.

Net leasing was at a record high. We have probably signed Sweden's highest number of commercial contracts during the past year: 930 contracts, adding up to a value of SEKm 600. Net leasing, which will impact the income statement in 9-18 months, thereby amounted to SEKm 310.

Increased effi ciency includes our merging of seven different corporate units and creating a new, leaner organization. Results of this action are becoming increasingly visible in cost development: property costs have decreased by SEK 10/sq.m, compared with 2016. Further, the synergy eff ects of our Norrporten acquisition have been largely realized, and we will reach our cost-reduction goal of SEKm 120 by the end of the second quarter this year. Some of the new projects include Eminent in Malmö, Torsgatan 26 in Stockholm, and our new logistics centre at the Port of Gothenburg. Total project volume for the year amounted to SEK 2.9 billion, corresponding to approximately half of total investments.

In the context of Castellum's focus on digitalization – Castellum Next20 – three initiatives have been launched: Beambox, Handly and Oraklet. The aim of these initiatives is to simplify people's everyday lives as they balance work and family, as well as to assist customers with utilizing premises more effi ciently and eff ectively.

In terms of sustainability, we've retained our internationally leading position, as evidenced by Castellum's standing as the only Nordic company in the construction and real estate sector to be included in the Dow Jones Sustainability Index. Moreover, we are also Global Sector Leader with the highest in rank in Northern Europe – in our sector by GRESB (Global Real Estate Sustainability Benchmark).

Diverging markets

At this moment in time, the market for commercial premises (offi ces and logistics) is diverging more from the residential market than it has for years. This is due to a shortage of modern and convenient facilities at prime locations in our largest cities; quite unlike the residential market where, for a number of segments, a surplus has been produced rapidly. A shortage of modern and effi cient premises has led to a steady year-end value increase on the commercial side, while the opposite has been true for the residential market. For Castellum's part, the high-demand commercial market means, an increase in value amounting to approx. SEK 4.5 billion, which contributes to the long-term net asset value now reaching SEK 153 per share, and a loan-to-value ratio which remains stable at 47%, despite major investments. Looking at the prospects for Swedish industry and service production, they indicate continued growth, which in turn will entail a growing demand for premises – thereby strengthening Castellum's cash fl ow.

Focus on offi ces and logistics - two growing segments Castellum's two primary focus areas are offi ce buildings and logistics facilities. We feel less certain about future developments in the retail segment and have therefore deliberately and gradually reduced our proportion of retail space. It's worth repeating that retail stores (including our only shopping centre in Uppsala) currently only account for about 10% of Castellum's total rental income.

The logistics segment is a chapter of its own. Perhaps it is less known that Castellum is currently Sweden's largest owner and developer of logistics facilities. Total area is 1,470 thousand sq.m., rental value amounts to SEK 1.2 billion, and property value totals SEK 13.7 billion. Net operating income from this segment amounts to approx. SEKm 900.

HUI Research reports a very strong increase in Swedish e-commerce for 2017. E-commerce is currently estimated to account for approx. 35% of seasonal Christmas shopping and the trend has increased every month by 15-20% compared with same period last year. This development has a heavy impact on the demand for premises throughout the entire supply chain, all the way to the end-customer. Castellum is perfectly positioned in the e-commerce logistics chain to assume a leading role by managing well-situated buildings and properties – from the Port of Gothenburg and peri-urban locations around high-growth cities, all the way to the last mile to the consumer, which can be accessible through our new digital initiative, Handly.

As for offi ces, it is mainly about how to satisfy customer demand in the two growing cities of Stockholm and Gothenburg. The total production of offi ce space is still less than these cities require, leading to increased rents and a focus on streamlined utilization of offi ce premises. In a continuously growing economy, increased effi ciency and eff ectiveness are crucial, and this process will be led by us in collaboration with our customers by utilizing new technologies.

Continued growth in 2018

Last year, income from property management increased by 5%, an increase that was aff ected by major property sales at the end of 2016. From where Castellum stands and operates today, we're looking at great possibilities to achieve our objective of 10% growth in income from property management in 2018. We intend to continue on this path and increase the quality and density of the portfolio, which means that we have to remain open to acquisitions as well as sales, alongside our comprehensive investment program.

And in conclusion, I'm proud to announce that Castellum's dividend tradition continues strong, and that for the 20th year in a row, the Board has proposed an increase in the dividend.

Gothenburg, January 25, 2018

Henrik Saxborn CEO

Customers and conducting responsible business

Customer oriented business

Through local organizations close to the customer, Castellum makes business decisions right where operations take place, thereby off ering customers shorter decision-making processes and prompt responses facilitating everyday life. We know that business is conducted between people. In dialogue with customers, we create customized solutions that increase wellbeing, effi ciency, profi tability and job satisfaction. That's how we get whole regions, vast development areas and tenants to fl ourish – and always, by focusing on the people.

Castellum shall off er existing and potential customers the best and most appropriate premises possible, and we are to position ourselves as innovative and sustainable players. A clear customer focus is obtained through long-term relationships, local presence and service that consistently exceeds customer expectations.

Castellum holds approx. 6,200 commercial leases with a favourable risk spread in terms of industry, maturity and individual customers. The customers are found among industrial circles and government agencies from customer segments that include public authorities and agencies, retail as well as commercial services and fi nance sectors. Castellum's single largest contract accounts for about 2% of our total rental income.

Every year, a Satisfi ed Customer Index Survey is carried out. In the latest survey, conducted in the autumn of 2017, Castellum continued to enjoy consistently high ratings with a weighted index of 78 on a scale of 100. The industry benchmark index for offi ces amounted to 73 on the same scale.

High leasing activity

During the year, Castellum experienced high leasing activity, resulting in the signing of 930 new leases for a total annual value of SEKm 600. These successful leasing activities indicate the importance of taking care of customers and cultivating networks.

Local presence develops growth regions

Castellum operations are divided into four regions: Central, Öresund, West and Stockholm-North. Altogether, the regions encompass 20 business areas. Castellum is one of the largest property owners in each location, collaborating broadly with business associations. Important contacts are forged with both existing and potential customers, as well as with municipalities and universities/colleges, to contribute to regional development.

Responsible business

Castellum's sustainability eff orts are all about conducting operations in a responsible manner and creating longterm solutions from economic, ecological and social perspectives.

Sustainability eff orts have long been a natural part of business operations at Castellum. Over the years, the company's ambitious goals have contributed to sustainability gains for both tenants and the environment. For example, Castellum has reduced CO2 emissions by 78% since 2007. Thus, well-integrated sustainability eff orts contribute to increased social value as well as to better management and monitoring of the company's properties. New ambitious and measurable sustainability goals were developed in 2017. These has been summarized in Castellum's agenda for the sustainable city and consists of a number of ongoing goals on an annual basis and a number of milestones to be reached by 2030. Among those are; to achieve net-zero carbon emissions by 2030 and to attain a completely gender equal organization for all occupational categories.

Today, Castellum owns more environmentally certifi ed buildings than any other listed real estate company in Sweden and 48% of Castellum's buildings are more energy effi cient than the Swedish benchmark for premises. 29% of the real estate portfolio (676 properties) is certifi ed according to Green Building, Miljöbyggnad, BREEAM or LEED, and certifi cation is underway for another 7% of the portfolio.

In 2017, Castellum continued to be awarded several international awards for sustainability activities. Castellum was awarded "Global Sector Leader" by GRESB (Global Real Estate Sustainability Benchmark), which means that Castellum is ranked number one in the world in the real estate industry within the sector of offi ce and logistics premises. The company was also awarded gold for best sustainability reporting by EPRA (European Public Real Estate Association). Castellum was also included in the prestigious Dow Jones Sustainability Index (DJSI), which includes the world's top performing companies in sustainability.

Castellum's Code of Conduct permeates the business and is based on the UN Global Compact principles, and clarifi es Castellum's position on human rights, working conditions, the precautionary principle, environmental issues and anti-corruption. The Code of Conduct also provides a basis for how Castellum's employees are to act toward each other and toward customers and other external players. Castellum has also drawn up a Code of Conduct for Suppliers.

Market comments

Swedish and Danish economy

The Swedish economy is performing well, with relatively strong GDP growth. However, in the autumn of 2017, the prospects for housing construction were adversely aff ected, which may contribute to slightly lower GDP growth rates in the future. Even so, household optimism has not been signifi cantly aff ected to date, and this could contribute to continued high private consumption. Increased investment in infrastructure can also counteract the dampening eff ects of the housing construction rate. Additionally, exports are also expected to develop relatively strongly. However, geopolitical turmoil continues to dampen the mood somewhat, and long-term eff ects are challenging to monitor.

The Swedish labour market has been positively aff ected by the stronger economy and the unemployment rate is on the lowest level since 2007. Still, only marginal eff ects are expected for the unemployment rate, due to increasing labour supply and skill-matching problems. Infl ation has begun to show signs of rising, and has now reached the Riksbank's target level of +2%. 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 (TCW index) during most of Q4, 2017, but remained relatively unchanged compared with the end of 2016.

Macro indicators, Sweden

Unemployment	5.8%	(November 2017)
Infl ation	1.9%	(December 2017 compared to December 2016)
GDP growth	0.8%	(Q3 2017 compared to Q2 2017)
Source: SCB

Danish GDP growth is also developing well. According to Danmark Nationalbank's forecasts (September 2017), GDP is expected to increase by about 2.3% during 2017 and then to fall back slightly to about 1.8% in 2018-2019. Increasing private consumption, against a backdrop of rising employment, is thought to be the primary contributor, but more favourable export prospects and investments will also contribute. Infl ation in Denmark – expressed in terms of HICP – is expected to be approx. 1% in 2017 and then rise to 1.4%, then 1.7%, in 2018 and 2019 respectively.

Rental markets

The office rental market was strong in 2017 and characterized by high demand in most of Castellum's 20 cities. This development was mainly driven by a strong Swedish economy, urbanization and reduced vacancy rates following low new-production volumes compared with demand in recent years. The markets were strongest in the big-city regions of Stockholm, Gothenburg and Uppsala. In the Copenhagen CBD (Central Business District), rents remained relatively stable as rental potential was limited by the large number of building rights.

Rents for logistics facilities showed a positive trend in peri-urban locations outside major cities. Strong logistics hubs were also characterized by rising rents. This was mainly due to the change in trade where increased e-commerce volumes led to greater demand.

Real estate markets

Transaction volumes for the Swedish real estate market totalled approx. SEK 148 billion for 2017, which is in line with the volume for 2015, but about 26% lower than last year's highest quotation. Compared with 2016, when Castellum acquired Norrporten, there were no major company transactions in the Swedish market. The largest offi ce transaction was carried out in the Stockholm CBD, amounting to SEK 2.2 billion. The transaction volume for the Danish real estate market was estimated at approx. DKK 86 billion for the full year 2017 – about 30% higher than the previous year. Swedish investors were active in the Danish market in 2017 and are expected to have acquired properties for a total volume of approx. SEK 24 billion.

2017 was characterized by high transaction activity in most segments of the Swedish real estate market. As a percentage of the total transaction volume, the offi ce segment decreased slightly compared with the previous year, whereas warehouse/logistics premises increased – in part due to increased attractiveness fueled by the expansion of e-commerce. National players were most active on the Swedish market. Foreign investors accounted for just above 23% of the volume, but carried out some of the largest transactions in offi ce, warehouse/logistics and retail properties during the past year. In most of Castellum's cities, the required yield continued to sink during 2017 compared with 2016, this was largely due to a strong rental market, falling vacancy rates and continuously favourable interest rates for real estate.

Interest and Credit markets

In 2017, the Swedish Riksbank continued both its clear-cut focus on the CPI (Int fi xed) goal of 2% and its ultra-loose monetary policy. Since February 2016, when the repo rate was cut to a new historic low of -0.50%, the repo rate has remained unchanged, while the repo rate path has gradually been adjusted downward and increases have been postponed. The repo rate is not expected to start rising slowly until the second half of 2018.

Developments in the Swedish interest market were characterized by relatively small interest rate movements. During the year, the spread between short- and long-term interest rates only increased marginally, and interest rates remained historically low. Of particular signifi cance to Castellum, the 3-month STIBOR rate was -0.5% at the end of 2017, after having fl uctuated within the range of -0.4% to -0.65% during the year, reaching record lows at the end of November. The fi ve-year interest rate swap was traded in the range of 0.2% to 0.5%, ending up at 0.5% at year-end 2017.

Availability of bank fi nancing as well as funding in the Swedish capital market is considered favourable. Castellum's credit margins in the capital market gradually went down the fi rst three quarters and increased slightly in the fourth quarter. However, compared with the beginning of the year, credit margins were lower at year end.

In Denmark, the 3-month Cibor rate was traded in the range of -0.2% to-0.3% in 2017, closing at a level of about -0.3% 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. 2016

Income from property management, i.e. net income excluding transaction and restructuring costs, changes in value and tax in the concern amounted to SEKm 2,530 (2,065), equivalent to SEK 9.26 (8.80) per share - an increase with 5%.

During the year, changes in value on properties amounted to SEKm 4,540 (4,085) and on derivatives to SEKm 247 (82). Net income after tax for the year was SEKm 5,876 (4,972), equivalent to SEK 21.51 (21.20) per share.

Rental income

Group's rental income amounted to SEKm 5,182 (4,533). For offi ce and retail properties, the average contracted rental level, including charged heating, cooling and property tax, amounted to SEK 1,617 (1,561) per sq.m., whereas for warehouse and logistics properties, it amounted to SEK 827 (818) per sq.m. Rental levels have in comparable portfolio increased by approx. 3% compared with previous year, which inter alia is an eff ect from indexation and renegotiations carried out.

The average economic occupancy rate was 90.9% (91.3%). The rental income for the year includes a lump sum of SEKm 6 (20) as a result of early termination of leases.

Gross leasing (i.e. the annual value of total leasing) during the period was SEKm 600 (489), of which SEKm 198 (152) were leasing of new constructions, extensions and reconstructions. Notices of termination amounted to SEKm 290 (311), of which bankruptcies were SEKm

7 (17) and SEKm 18 (5) were notices of termination with more than 18 months remaining length of contract. Net lease for the period was SEKm 310 (178) and for the fourth quarter isolated SEKm 59 (84).

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

			Region
Net leasing
SEKm	Central	West	Öresund	Sthlm	North	Total
New leases
Existing properties	145	83	75	91	8	402
Investments	50	89	29	27	3	198
Totalt	195	172	104	118	11	600
Notices of terminiations
Existing properties	- 84	- 73	- 59	- 52	- 15	- 283
Bankruptcies	- 1	- 1	0	- 4	- 1	- 7
Total	- 85	- 74	- 59	- 56	- 16	- 290
Net leasing	110	98	45	62	- 5	310

Contract maturity for Castellum's portfolio appears on the table, below. The relatively low proportion of contracts to reach maturity during 2018 is primarily due to the fact that most contracts have already been renegotiated.

Lease maturity structure SEKm	No. of leases	Lease value SEKm	Percentage of value
Commercial, term
2018	1,731	340	6%
2019	1,639	1,057	20%
2020	1,298	973	18%
2021	880	890	17%
2022	271	455	9%
2023+	388	1,455	28%
Total commercial	6,207	5,170	98%
Residential	463	41	1%
Parking spaces and other	6,041	69	1%
Total	12,711	5,280	100%

Rental value and economic occupancy rate

Property costs

Property costs amounted to SEKm 1,605 (1,497) corresponding to SEK 366 per sq.m. (376). Consumption for heating during the period has been calculated to 91.5% (92%) of a normal year according to the degree day statistics.

Property costs SEK/sq.m	Offi ce/ Retail	Warehouse/ logistics	2017 Total	2016 Total
Operating expenses	184	109	157	168
Maintenance	51	26	43	47
Ground rent	3	8	5	5
Real estate tax	95	23	70	70
Direct property costs	333	166	275	290
Leasing and property administration	-	–	91	86
Total	333	166	366	376
Previous year	355	167	376

Central administrative expenses

Central administrative expenses totalled SEKm 162 (143) and has been charged with SEKm 12 for development costs for Castellum's Innovation lab Next 20 - the Group's long-term focus on digitalization. Included in the central administrative expenses are also costs related to the profit-and-share-price related incentive plan for 9 persons in executive management of SEKm 12 (20). Further the result has been charged with costs related to the ongoing Norrporten restructuring work amounting to SEKm 5 (37) which has now been completed.

Net interest

Net interest items were SEKm –885 (–832). The average interest rate level was 2.4% (2.7%). Net interest income was positively aff ected by approx. SEKm 81 due to the average interest rate level decrease by 0.3%-units.

Changes in value

The real estate market in 2017 was characterized by great demand leading to high transaction volumes, while these did not beat the record year of 2016, they were in line with the volumes of 2015. The proposal presented in March 2017 for a change in taxation for real estate transactions created some uncertainty and thus had an impact on the transaction market, both for lead time and for negotiations on transaction-tax rebates. This impact was off set by continued strong demand and, above all, a very strong rental market – the latter resulting in low vacancy rates and real rental growth. For Castellum's part, the above meant a change in value of SEKm 4,540 the equivalent of 6%. Further, 16 properties were sold for SEKm 875 after deduction for assessed deferred tax and expenses totalling SEKm 38. The underlying property price, which amounted to SEKm 913, exceeded the last valuation of SEKm 848 by SEKm 65. As every property is valuated individually, consideration has not been given to the portfolio premium that can be seen in the real estate market.

The market value of the derivatives changed by SEKm 247 (82) mainly due to changes in long-term market interest rates.

Changes in value properties 2017

SEKm

27

579
1,290
1,103
1,541

Income from property management per share

Income over time

Tax

The nominal corporate tax rate in Sweden is 22%. Due to the possibility to deduct depreciation and reconstructions for tax purposes, and to utilize tax loss carry forwards, the paid tax is low. Paid tax occurs since a few subsidiaries have no possibilities to group contributions for tax purpose. The period was charged with SEKm 60 in paid tax for 2016. However, deferred tax was reduced by an equivalent amount as the adjustment entailed increased loss carry-forwards. Hence, there was no impact on income.

Remaining tax loss carryforwards can be calculated to SEKm 2,437 (2,392). Furthermore, there are derivatives at an undervalue of SEKm 135. Fair values for the properties exceed their fi scal value by SEKm 44,271 (36,851) of which SEKm 3,763 (1,992) relates to the acquisition of properties accounted for as asset acquisitions. As deferred tax liability, a full nominal 22% tax of the net diff erence is reported, reduced by the deferred tax relating to asset acquisitions, i.e., SEKm 8,405 (7,065).

Castellum has no current tax disputes.

Tax calculation 2017-12-31

	Basis	Basis
SEKm	current tax	deferred tax
Income from property management	2,530
Deductions for tax purposes
depreciations	– 1,054	1,054
reconstructions	– 437	437
Other tax allowances	48	73
Taxable income from property management	1,087	1,564
- current income tax 22%, if tax losses are not utilized	239
Properties sold	–	– 465
Changes in value on properties	–	4,513
Adjustment for last year	– 272	199
Changes in value on derivatives	– 423	323
Taxable income before tax loss carry forwards	392	6,134
Tax loss carry forwards, opening balance	– 2,392	2,392
Tax loss carry forwards, closing balance	2,437	– 2,437
Taxable income	437	6,089
Tax according to the Income statement for
the year	– 96	– 1,340

Current tax proposal

Castellum's interim reports for the fi rst three quarters briefl y described a commission-report received by the government on March 30, 2017, regarding amended tax legislation designed to counter tax benefi ts in bundled transactions of properties. The proposal has subsequently been submitted for comment, and the period for comment expired on September 15, 2017. Simply expressed: the proposal implies that, for example, tax neutrality will prevail between direct or indirect real-estate sales (among companies). The proposed amendment would result in one additional tax compared with current regulations on indirect sales. The new tax will correspond to the taxes that normally apply for direct transactions – namely, income tax on capital gains and stamp-duty/ownership-registration of an acquisition. According to current assessment, the proposed legislation will not be dealt with until after the 2018 election, even if this has not been offi cially confi rmed.

Furthermore, on July 12, 2016, the EU adopted a Directive laying down rules to counter tax avoidance methods. An important cornerstone of Directive implementation includes limiting interest-deduction possibilities. The Directive is to be incorporated in each respective member country by December 31, 2018. Consequently, the government received a June 2017 proposal of new regulations for the corporate sector: the introduction of a general limitation on interest deductions for the corporate sector – primarily as an EBIT rule (deductions of maximum 35%) and secondly, as an EBITDA rule (deductions of maximum 25%) – combined with a reduction in corporate income tax from 22% to 20%. Consultation period for the proposal expired at the end of September 2017, and the government intends to present a proposal to the Swedish Riksdag on April 16, 2018.

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

However, the proposal for reduced corporate taxation implies that the deferred tax liability of SEKm 8,405 will be revalued at 20% tax, resulting in a deferred tax income of SEKm 764 to December 31, 2017. This would result as above in an estimated deferred-tax market value of SEKm 2,850– a reduction of SEKm 259. Acccordingly, the proposal to reduce corporate taxation would entail an increase in short-term net asset value of 1%.

Real estate Portfolio

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

Castellum owns approx. 864,000 sq.m. of unutilized building rights and furthermore ongoing projects with remaining investments of approx. SEKm 2,200.

Investments

During the year, investments totalling SEKm 6,488 (31,491) were carried out, of which SEKm 3,595 (29,372) were acquisitions and SEKm 2,893 (2,119) new constructions, extensions and reconstructions. After sales of SEKm 875 (6,754) net investments amounted to SEKm 5,613 (24,737).

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

Changes in the real estate portfolio

	Value SEKm	Number
Real estate portfolio on January 1, 2017	70,757	665
+ Acquisitions	3,595	26
+ New constructions, extensions and reconstructions	2,893	1
– Sales	– 848	– 16
+/– Unrealized changes in value	4,513	–
+/– Currency translation	168	–
Real estate portfolio on December 31, 2017	81,078	676

Investments per region

Castellum's Real estate portfolio 2017-12-31

	2017-12-31					January - December 2017
	No. of proper	Area thous.	Property value	Property value	Rental value	Rental value	Econom ic occu pancy	Rental income	Property costs	Property costs	Net operating income
Offi ce/retail	ties	sq.m	SEKm	SEK/sq.m	SEKm	SEK/sq.m	rate	SEKm	SEKm	SEK/sq.m	SEKm
Central	140	1,014	18,238	17,983	1,413	1,394	92.6%	1,310	342	337	968
West	86	508	11,553	22,777	751	1,480	90.8%	681	150	296	531
Öresund	71	560	13,906	24,847	1,053	1,882	86.7%	913	216	386	697
Stockholm	52	401	14,454	36,013	817	2,036	92.7%	758	127	316	631
North	28	259	5,118	19,728	399	1,536	93.9%	374	78	302	296
Total offi ce/retail	377	2,742	63,269	23,075	4,433	1,617	91.0%	4,036	913	333	3,123
Warehouse/logistics
Central	48	254	1,967	7,733	199	784	86.6%	173	45	177	128
West	105	675	5,744	8,509	516	765	92.8%	479	100	149	379
Öresund	31	237	1,702	7,181	175	736	80.6%	141	44	186	97
Stockholm	52	304	4,270	14,035	326	1,073	93.2%	304	55	180	249
Total warehouse/ logistics	236	1,470	13,683	9,304	1,216	827	90.2%	1,097	244	166	853
Total	613	4,212	76,952	18,268	5,649	1,341	90.9%	5,133	1,157	275	3,976
Leasing and property administration									384	91	-384
Total after leasing and property administration									1,541	366	3,592
Development projects	41	169	3,651	–	128	–	–	41	29	–	12
Undeveloped land	22	–	476	–	–	–	–	–	–	–	–
Total	676	4,381	81,078	–	5,777	–	–	5,174	1,570	–	3,604

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 3,604 accounted for above and the net operating income of SEKm 3,577 in the income statement is explained by the deduction of the net operating income of SEKm 59 on properties sold during the year, as well as the adjustment of the net operating income of SEKm 86 on properties acquired/completed during the year, which are recalculated as if they had been owned or completed during the whole year.

Property related key ratios

	2017	2016
Rental value, SEK/sq.m.	1,341	1,304
Economic occupancy rate	90.9%	91.3%
Property costs, SEK/sq.m.	366	376
Net operating income, SEK/sq.m.	853	816
Property value, SEK/sq.m.	18,268	16,558
Number of properties	676	665
Lettable area, thousand sq.m.	4,381	4,292
Average valuation yield	5.5%	5.8%

Segment information

		Rental income	Income from property mgmt.
SEKm	2017 Jan-Dec	2016 Jan-Dec	2017 Jan-Dec	2016 Jan-Dec
Central	1,508	1,258	730	533
West	1,152	1,108	626	561
Öresund	1,053	933	537	421
Stockholm North	1,469	809	768	431
Total	5,812	4,533	2,661	2,201

The diff erence between the income from property management of SEKm 2,661 (2,201) above and the groups accounted income before tax of SEKm 7,312 (5,722) consists of unallocated income from property management of SEKm – 131 (–136), transaction and restructuring costs of SEKm – 5 (– 163), change in goodwill of SEKm – (– 373) changes in property value of SEKm 4,540 (4,085) and changes in values of derivatives of SEKm 247 (82)

Larger investments and sales

Larger projects			Rental value
Property	Area	sq.m SEKm	SEK/ sq.m	Econ. occup. Jan 2018	Total inv., land SEKm	Of which inv. 2017,SEKm	Remain. inv.	SEKm Completed Comment
Olaus Petri 3:244, Örebro	14,526	36	2,400	91%	465	136		325 Q2 2019	New construction offi ce
Hyllie 4:2 (part of), Malmö	9,600	26	2,700	65%	353	96		257 Q2 2019	New construction offi ce
Spejaren 4, Huddinge	9,300	25	2,700	40%	334	35		299 Q1 2019	New construction car retail
Hisingen Logistikpark, Gothenburg	26,085	19	700	38%	220	96		73 Q2 2018	New construction logistics
Balltorp 1:124, Mölndal	18,000	15	850	100%	192	99		1 Q1 2018	New construction logistics
Varpen 11, Huddinge	5,555	14	2,550	100%	177	71		35 Q1 2018	New construction car retail
Generatorn 1, Mölndal	6,800	11	1,600	100%	141	9		131 Q3 2019	New construction offi ce/ warehouse
Rosersberg 11:130, Sigtuna	12,200	11	950	0%	137	56		36 Q2 2018	New construction logistics
Spiran 12, Norrköping	7,915	18	2,300	46%	110	59		43 Q1 2018	Reconstruction offi ce
Söderhällby 1:2 (part of), Uppsala	5,963	8	1,300	100%	101	72		29 Q1 2018	New construction logistics
Projects completed/partly moved in
Lindholmen 30:5, Gothenburg	9,243	27	2,900	100%	273	37		0 Q1 2017	New construction offi ce
Gamlestaden 22:14, Gothenburg	12,000	21	1,800	100%	204	177		23 Q4 2017	Reconstruction offi ce
Nordstaden 2:16, Gothenburg	12,300	9	3,300	95%	156	74		0 Q3 2017	Reconstruction offi ce/ retail
Inom Vallgraven 4:1, Gothenburg	2,500	9	3,700	100%	124	62		0 Q4 2017	Extension and recon struction cultural and entertainment venue
Spejaren 5, Huddinge	3,480	8	2,200	100%	103	86		3 Q3 2017	New construction car retail
Total project >SEKm 100					3,090	1,165	1,255

Larger acquisitions during 2017 Rental value

Property	Area,	sq.m SEKm	SEK/ sq.m	Econ. occup. Jan 2018	Acquisition SEKm	Access	Category
Isotopen 1, Stockholm	22,714	87	3,850	96%	1,642	March 2017	Offi ce/retail
Sabbatsberg 24, Stockholm	13,716	-	-	-	781	May 2017	Project
14 properties in Borås	80,996	54	700	93%	479	April 2017	Offi ce/warehouse/ logistics
Krokslätt 20:6 and 154:8, Gothenburg	8,624	16	1,900	96%	282	Dec 2017	Offi ce
Boländerna 11:2 and 11:3, Uppsala	11,525	9	800	66%	107	March 2017	Warehouse/logistiks
Majorna 720:19, Gothenburg	3,210	7	2,056	91%	102	Dec 2017	Offi ce

Larger sales during 2017

		Rental value
Property	Area, sq.m SEKm		SEK/ sq.m	Underlying prop. price, SEKm	Deferred tax and Trans. costs SEKm	Net sales price, SEKm	Access	Category
9 properties in Mölndal and Partille	39,969	41	1,050	498	-1		497 April 2017	Offi ce
Hönekulla 1:571 in Härryda and Kallebäck 3:4 in Gothenburg	35,072	30	850	357	-22		335 Dec 2017	Warehouse/logistics/ 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	2.4 - 11.2%	7.6 - 12.4%
Return on equity	5.4 - 14.2%	10.6 - 15.4%
Interest rate	5.0%	5.0%
Loan to value ratio	65%	55%
Return on total capital	5.1 - 8.2%	7.5 - 9.7%
Weighted d:o, disc. factor year 1-9	6.7%	8.4%
Weighted disc. factor residual value*	5.2%	6.9%

*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 81,078 (70,757), corresponding to SEK 18,268 per sq.m. (16,558).

Average valuation yield

The average valuation yield for Castellum's real estate portfolio, excluding development projects and undeveloped land, can be calculated to 5.5% (5.8%).

Average valuation yield, SEKm

(excl. project/land and building rights)	2017	2016
Net operating income properties	3,976	3,699
+ Estimated index-linking 2018, 2% (1%)	92	62
+ Real occupancy rate, 94% at the lowest	295	265
– Property administration, 30 SEK/sq.m.	– 133	– 129
Normalized net operating income	4,230	3,897
Valuation (excl. building rights of SEKm 569)	76,383	67,557
Average valuation yield	5.5%	5.8%

Average valuation yield over time

Uncertainty 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 77,024 - 85,132 corresponding to +/– SEKm 4,054.

External valuation

In order to validate the valuation, 177 properties – representing 53% of the value of the portfolio – were valuated externally by Forum Fastighetsekonomi in Sweden and CBRE in Denmark. The properties were selected on the basis of the largest properties in terms of value, but they also refl ected the composition of the portfolio as a whole in terms of category and geographical location. The external valuations of the selected properties amounted to SEK 43,147, 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 43,277, i.e., a net deviation of SEKm 130, corresponding to -0%. The gross deviations were SEKm +1,328 and SEKm −1,458, respectively, with an average deviation of 6%.

In addition, Cushman & Wakefi eld made a desk-top valuation of 56 properties corresponding in value to 25% of the portfolio. Cushman & Wakefi eld's valuation of the selected properties amounted to SEKm 19,659. Castellum's valuation of the same properties amounted to SEKm 20,524, i.e., a net deviation of SEKm −865, corresponding to −4%. The other external valuations of the same properties amounted to SEKm 20,500, i.e., a net deviation compared with Castellum's valuation of SEKm −24, corresponding to 0%.

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, 2017, a value of SEKm 83,712 (78,313) and are fi nanced by shareholders´s equity of SEKm 33,736 (29,234), deferred tax liabilities of SEKm 8,405 (7,065), interest bearing liabilities of SEKm 38,226 (38,467) and non interest bearing liabilities of SEKm 3,345 (3,547).

Interest bearing liabilities

At the end of the year Castellum had binding credit agreements totalling SEKm 57,240 (53,259) of which SEKm 45,120 (40,358) was long term and SEKm 12,120 (12,901) short term. During 2017, credit agreements of SEKm 1,367 were terminated or expired while agreements totalling SEKm 12,915 were renegotiated. SEKm 370 of these were bank overdrafts. This means that guarantees decreased by a total of SEKm 4,804. In addition, loan agreements for EURm 75 were entered into with the European Investment Bank (EIB). Moreover, during the year, MTNs for SEKm 1,600 expired while SEKm 6,500 were newly issued.

After deduction of cash of SEKm 203 (257), net interest bearing liabilities were SEKm 38,023 (38,210), of which SEKm 14,162 (9,256) were MTN and SEKm 7,994 (7,702) outstanding commercial papers, (nominal SEKm 14,175 respectively SEKm 8,000).

Most of Castellum's loans are short-term revolving loans, utilized in long-term binding credit agreements in Nordic banks. This means great fl exibility. Bonds issued under the MTN program and the commercial papers are a complement to the existing funding in banks and broaden the funding base. At the end of the year 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 38,023 (38,210) of which SEKm 15,867 (21,252) were secured by the company's properties and SEKm 22,156 (16,958) unsecured. The proportion of used secured financing was thus 20% of the property value. The financial covenants state a loan-to-value ratio not exceeding 65% and an interest coverage ratio of at least 175%, which Castellum fulfi ls with comfortable margins, 47% and 386% respectively. The average duration of Castellum's credit agreements was 2.7 years (3.0). Margins and fees on long-term credit agreements had an average duration of 2.2 years (2.4).

Credit maturity structure 2017-12-31

			Utilized in
SEKm	Credit agreements	Bank	MTN/Cert	Total
0-1 year	12,120	875	10,244	11,119
1-2 years	20,657	4,844	3,298	8,142
2-3 years	7,470	4,949	2,521	7,470
3-4 years	10,019	2,019	2,300	4,319
4-5 years	2,959	19	2,940	2,959
> 5 years	4,015	3,161	853	4,014
Total	57,240	15,867	22,156	38,023

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 was 2.4 years (2.4). The average effective interest rate as per of December 31, 2017 was 2.4% (2.6%).

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

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

Interest rate maturity 2017-12-31

		Derivates
Löptid	Credit, SEKm	Closing average interest rate	Volume fi xed interest rate, SEKm	Closed fi xed interest rate**	Volume variable interest rate, SEKm	Closing variable interest rate***	Closing interest rate	Average fi xed interest rate term
0 - 1 year	31,128	1.1%*	1,750	2.0%	-16,823	-0.6%	2.8%	0.3 year
1 - 2 years	950	0.7%	2,100	1.7%	-	-	1.4%	1.7 years
2 - 3 years	1,598	1.4%	3,373	2.0%	-	-	1.8%	2.5 years
3 - 4 years	2,999	1.7%	2,800	1.9%	-	-	1.8%	3.4 years
4 - 5 years	1,148	2.1%	1,250	2.3%	-	-	2.2%	4.5 years
5 - 10 years	200	2.3%	5,550	3.0%	-	-	2.9%	7 years
Total	38,023	1.1%	16,823	2.3%	-16,823	-0.6%	2.4%	2.4 years

* Including credit-agreement fees and exchange rate differences for MTNs

** Castellum pays fixed interest rates

*** Castellum receives variable interest rates

Currency

Castellum owns properties in Denmark with a value of SEKm 5,671 (5,395), which means that the Group is exposed to currency risk. The currency risk is primarily related to when income statement and balance sheet in foreign currencies are translated into Swedish kronor.

Interest rate and currency derivatives

Castellum utilizes interest rate derivatives to achieve the desired interest rate maturity structure. According to the accounting standard IAS 39, derivatives are subject to market valuation. If the agreed interest rate deviates from the market interest rate, notwithstanding credit margins, there is a theoretical surplus or sub value in the interest rate derivatives where the non-cash-fl ow aff ecting changes in value are reported in the income statement. At maturity, a derivative's market value is dissolved in its entirety and the change in value over

time has thus not aff ected equity. Castellum also has derivatives in order to hedge currency fl uctuation in its investment in Denmark. As for currency derivatives, a theoretical surplus/sub value occurs if the agreed exchange rate deviates from the current exchange rate, where the eff ective portion of value changes is accounted for in other total income.

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

As of December 31, 2017, the market value of the interest rate derivatives portfolio amounted to SEKm – 1,299 (– 1,608) and the currency derivative portfolio to SEKm – 53 (26). All derivatives are, as at previous year, classifi ed in level 2 according to IFRS 13.

Policy		Commitment	Outcome
Loan to value ratio	Not in the long run exceeding 55%	No more than 65%	47%
Interest coverage ratio	At least 200%	At least 175%	386%
Funding risk
– average capital tied up	At least 2 years		2.7 years
– proportion maturing within 1 year	No more than 30% of outstanding loans and unutilized credit agreements		8%
– average maturing credit price	At least 1.5 years		2.2 years
– propotion capital market financing	No more than 75% of outstanding interest bearing liabilities		58%
– 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%	–	38%
Credit and counterparty risk
– rating restrictions	Credit institutions with high ratings, at least S&P BBB+		Fulfi lled
Currency risk
– translation exposure	Shareholders equity is not secured	–	Not secured
– transaction exposure	Handled if exceeding SEKm 25	–	Under SEKm 25

Castellum's financial policy and commitments in credit agreements

Condensed Consolidated statement of Comprehensive Income

SEKm	2017 Oct-Dec	2016 Oct-Dec	2017 Jan–Dec	2016 Jan–Dec
Rental income	1,316	1,367	5,182	4,533
Operating expenses	- 194	– 223	- 699	– 671
Maintenance	- 77	– 80	- 194	– 189
Ground rent	- 5	– 7	- 23	– 24
Property tax	- 78	– 81	- 305	– 262
Leasing and property administration	- 116	– 116	- 384	– 351
Net operating income	846	860	3,577	3,036
Central administrative expenses	- 48	– 39	- 162	– 143
Transaction and restructuring costs	–	– 13	- 5	– 163
Results from joint venture	–	–	–	3
– of which income from property management	–	–	–	4
– of which tax	–	–	–	– 1
Net interest costs	- 224	– 248	-885	– 832
Income from property management incl. results joint venture	574	560	2,525	1,901
– of which income from property management*	574	573	2,530	2,065
Revaluation of results due to stepwise
acquisition	–	–	–	27
Write-down goodwill	–	– 373	–	– 373
Changes in value
Properties	2,471	2,020	4,540	4,085
Derivatives	43	306	247	82
Income before tax	3,088	2,513	7,312	5,722
Current tax	18	3	– 96	– 23
Deferred tax	- 654	– 35	– 1,340	– 727
Net income for the period/year	2,452	2,481	5,876	4,972
Other total net income
Items that will be reclassified into net income
Translation difference of currencies	60	4	72	63
Change in value derivatives, currency hedge	- 119	5	– 80	– 57
Total net income for the period/year**	2,393	2,490	5,868	4,978
Average number of shares, thousand	273,201	273,201	273,201	234,540
Income, per share	8.98	9.08	21.51	21.20

* For calcuation, Financial Key Ratios, page 19

** Net income and total net income for the period/year is entirely assignable to the parent company's shareholders.

Condensed Consolidated Balance Sheet

SEKm	Dec 31, 2017	Dec 31, 2016
Assets
Investment properties	81,078	70,757
Goodwill	1,659	1,659
Other fixed assets	107	93
Current receivables	665	5,547
Liquid assets	203	257
Total assets	83,712	78,313
Shareholders' equity and liabilities
Shareholders' equity	33,736	29,234
Deferred tax liability	8,405	7,065
Other provisions	5	9
Derivatives	1,352	1,582
Interest-bearing liabilities	38,226	38,467
Non interest-bearing liabilities	1,988	1,956
Total shareholders' equity and liabilities	83,712	78,313
Pledged assets (property mortgages)	32,397	33,130
Pledged assets (chattel mortage)	–	838
Contingent liability	–	–

Condensed Changes in Equity

SEKm	Number of outstanding shares, thousand	Share capital	Other capital contribution	Currency transl. reserve	Currency hedge reserve	Non controlling interest	Retained earnings	Total equity
Shareholders' equity 2015-12-31	164,000	86	4,096	- 12	11	-	11,587	15,768
Dividend, March 2016 (4.25 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 income 2016	-	-	-	63	- 57	-	-	6
Shareholders' equity 2016-12-31	273,201	137	12,434	51	- 46	- 2	16,660	29,234
Dividend, March and Sept 2017 (5.00 SEK/share)	-	-	-	-	-	-	- 1,366	- 1,366
Net income 2017	-	-	-	-	-	-	5,876	5,876
Other total income 2017	-	-	-	72	- 80	-	0	- 8
Shareholders' equity 2017-12-31	273,201	137	12,434	123	- 126	- 2	21,170	33,736

Condensed Cash Flow Statement

SEKm	2017 Oct-Dec	2016 Oct-Dec	2017 Jan-Dec	2016 Jan-Dec
Net operating income	846	860	3,577	3,036
Central administrative expenses	– 48	– 39	– 162	– 143
Reversed depreciations	7	4	14	14
Net interest rates paid	– 221	– 253	– 878	– 814
Tax paid	– 47	– 27	– 3	9
Translation difference of currencies	– 41	8	– 8	6
Cash flow from operating activities before change in working capital	496	553	2,540	2,108
Change in current receivables	169	60	– 74	– 47
Change in current liabilities	198	– 16	– 223	199
Cash flow from operating activities	863	597	2,243	2,260
Investments in new constructions, extensions and reconstructions	– 913	– 735	– 2,893	– 2,119
Property acquisitions	– 143	– 478	– 3,595	– 874
Change in liabilities at acquisitions of property	– 332	–	12	– 4
Property sales	3	6,673	875	6,781
Change in receivables at sales of property	410	– 4,971	4,956	– 4,953
Business combination	–	– 56	–	– 11,369
Other investments	– 21	– 11	– 48	– 23
Cash flow from investment activities	– 996	422	– 693	– 12,561
Change in long term liabilities	79	– 1 ,144	– 241	5,144
Change in long-term receivables	– 1	– 9	3	– 11
New issue of shares	–	–	–	6,190
Dividend paid	–	–	– 1,366	– 804
Cash flow from financing activities	78	– 1,153	– 1,604	10,519
Cash flow for the period/year	– 55	– 134	– 54	218
Liquid assets opening balance	258	391	257	39
Liquid assets closing balance	203	257	203	257

The Parent company

Condensed Income statement	2017	2016	2017	2016
SEKm	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
Income	49	9	72	23
Operating expenses	– 54	- 42	- 179	- 124
Net fi nancial items	– 15	- 15	- 5	- 35
Dividend/group contribution	3,970	5,900	3,970	5,900
Change in derivatives	27	222	284	12
Impairment of shares in subsidiaries		- 2,700 - 3,900 -2,700 - 3,900
Sales of shares in subsidiaries	–	-	–	2,784
Income before tax	1,277	2,174	1,442	4,660
Tax	–47	- 131	–83	- 66
Net income for the period/year	1,230	2,043	1,359	4,594
Comprehensive income for the parent company
Net income for the period/year	1,230	2,043	1,459	4,594
Items that will be reclassifi ed into net income
Translation diff erence foreign operations	66	- 3	67	30
Unrealized change, currency hedge	–66	3	–67	- 30
Total net income for the period/year	1,230	2,043	1,359	4,594

Condensed Balance sheet SEKm	Dec 31 2017	Dec 31 2016
Participations, group companies		19,161 19,403
Receivables, group companies		30,914 32,250
Other assets	8,206	157
Liquid assets	0	0
Total	58,281	51,810
Shareholders' equity	17,794	17,801
Derivatives	1,352	1,259
Interest bearing liabilities	34,303	27,912
Interest bearing liabilities, group companies	4,687	4,702
Other liabilities	145	136
Total	58,281	51,810
Pledged assets (receivables group companies) Contingent liability (guaranteed	27,688	21,986
commitments for subsidiaries)	3,609	7,353

Financial Key Ratios

A number of the financial measures presented by Castellum in the interim report are not defined in accordance with the IFRS accounting standards. However, the company believes that these measures provide useful supplementary information to both investors and Castellum management, as they facilitate evaluation of company performance. It is to be noted that, since not all companies calculate financial measurements in the same manner, these are not always comparable to measurements used by other companies. Hence, these financial measures should not be seen as a substitute for measures defined according to the IFRS. Unless otherwise stated, the table below presents measures, along with their reconciliation, which are not defined according to the IFRS. Definitions for these measures appear on the page 27.

	Oct–Dec 2017	Oct–Dec 2016	Jan–Dec 2017	Jan–Dec 2016
Average number of shares, thousand
(related to fi nancial key ratios) *	273,201	273,201	273,201	234,540
Outstanding number of shares, thousand
(related to balance sheet ratios) *	273,201	273,201	273,201	273,201

*) The number of historical shares that have been recalculated with reference to the bonus-issue element (i.e. the value of the subscription right) in the completed new share issue 2016 and utilized in all ratio calculations for SEK-per-share.

INCOME FROM PROPERTY MANAGEMENT

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

Income from property management		Oct–Dec 2017 SEKm SEK/share		Oct–Dec 2016 SEKm SEK/share		Jan-Dec 2017 SEKm SEK/share		Jan-Dec 2016 SEKm SEK/share
Income before tax	3,088	11.30	2,513	9.20	7,312	26.76	5,722	24.40
Reversed
Transaction and restructuring costs	–	–	13	0.05	5	0.02	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	- 2,471	- 9.04	– 2,020		– 7.39 – 4,540	- 16.62	– 4,085	– 17.42
Change in value, derivatives	- 43	- 0.16	– 306	– 1.12	– 247	- 0.90	– 82	– 0.34
Tax joint venture	–	-	–	–	–	–	1	0.00
= Income from property management	574	2.10	573	2.10	2,530	9.26	2,065	8.80
EPRA Earnings (Income from prop. management after tax)
Income from property management	574	2.10	573	2.10	2,530	9.26	2,065	8.80
Reversed; Current tax Income from property management	-1	0	– 18	– 0.07	- 239	– 0.87	– 128	– 0.54
EPRA Earnings / EPRA EPS	575	2.10	555	2.03	2,291	8.39	1,937	8.26

NET ASSET VALUE

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

Net asset value	SEKm SEK/share		SEKm SEK/share
Equity according to the balance sheet	33,736	123	29,234	107
Reversed:
Derivatives according to balance sheet	1,352	5	1,582	6
Goodwill according to balance sheet	– 1,659	–6	– 1,659	– 6
Deferred tax according to balance sheet	8,405	31	7,065	26
Long term net asset value (EPRA NAV)	41,834	153	36,222	133
Deduction
Derivatives as above	– 1,352	–5	– 1,582	– 6
Estimated real liability, deferred tax 7% (2016:5%)*	– 2,850	–10	– 1,558	– 6
Short term net asset value (EPRA NNNAV)	37,632	138	33,082	121

* Estimated real deferred tax liability net has been calculated to 7% based on a discount rate of 3%. Further, assessments have been made that tax loss carry forwards are realized in 2 years with a nominal tax of 22%, giving a present value of deferred tax liability of 21%, and that the properties are realized in 50 years where 33% are sold directly with a nominal tax of 22% and that 67% are sold indirect through company disposals where the buyers tax discount is 11%, which gives a present value of deferred tax liability of 8%.

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 interestcoverage ratio of at least 200%.

Interest coverage ratio	Oct-Dec 2017	Oct-Dec 2016	Jan-Dec 2017	Jan-Dec 2016
Income from property management	574	573	2,530	2,065
Reversed;
Net interest	224	248	885	832
Income from prop. management joint venture	–	–	–	– 4
Income from prop. management excl. net interest and JV	798	821	3,415	2,893
Interest coverage ratio	356%	331%	386%	348%
Loan to value ratio
Interest-bearing liabilities			38,226	38,467
Liquid assets			–203	– 257
Net interest-bearing liabilities net			38,023	38,210
Investment properties			81,078	70,757
Acquired properties not taken into possession			– 23	– 11
Divested properties still in Castellum's possession			15	4,971
Net investment properties			81,070	75,717
Loan to value ratio			47%	50%

INVESTMENT

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

Net investments
	Oct–Dec 2017	Oct–Dec 2016	Jan-Dec 2017	Jan-Dec 2016
Acquisitions	143	478	3,595	29,372
New constructions, extensions and reconstructions	913	735	2,893	2,119
Total investment	1,056	1,213	6,488	31,491
Net sales price	– 3	- 6,673	– 875	– 6,754
Net investments	1,053	- 5,460	5,613	24,737
Proportion of the property value, %	1%	- 7%	7%	59%

Other Financial Key Ratios

	Oct-Dec 2017	Oct-Dec 2016	Jan-Dec 2017	Jan-Dec 2016
Net operating income margin	64%	63%	69%	67%
Interest rate level, on average	2.4%	2.7%	2.4%	2.7%
Return on long-term net asset value	31.3%	30.0%	19.6%	25.3%
Return on actual net asset value	32.1%	37.4%	18.3%	20.9%
Return on total capital	16.0%	14.8%	10.1%	11.9%
Return on equity	31.3%	37.1%	20.6%	20.1%
Property value, SEK/share	297	259	297	259
Gross leasing	140	161	600	489
Net leasing	59	84	310	178

Quarterly summary

	2017 Jan-March	2017 Apr-June	2017, July-Sept	2017, Oct-Dec	2017	2016 Jan-March	2016 Apr-June	2016 July-Sept	2016 Oct-Dec	2016
Income Statement, SEKm
Rental income	1,304	1,259	1,303	1,316	5,182	855	952	1,359	1,367	4,533
Property costs	– 442	– 344	– 349	– 470	– 1,605	– 299	– 299	– 392	– 507	– 1,497
Net operating income	862	915	954	846	3,577	556	653	967	860	3,036
Central administrative expenses	– 43	– 40	– 31	– 48	– 162	– 42	– 36	– 36	– 39	– 143
Joint venture (Income from prop mgmt.)	–	–	–	–	–	3	–	–	–	3
Net interest costs	– 227	– 219	– 215	– 224	– 885	– 152	– 173	– 259	– 248	– 832
Income from prop.mgmt incl. results JV	592	656	708	574	2,530	365	444	672	573	2,065
Transaction and restructuring costs	– 4	– 1	–	–	– 5	-	– 123	– 17	– 13	– 163
Write-down goodwill	–	–	–	–	–	–	–	–	– 373	– 373
Changes in value. properties	940	884	245	2,471	4,540	489	127	1,449	2,020	4,085
Changes in value. derivatives	77	75	52	43	247	– 148	– 75	– 1	306	82
Revaluation of results due to stepwise acquisition	-	–	–	–	–	27	–	–	–	27
Current tax	– 68	– 14	– 32	18	– 96	– 1	– 9	– 16	3	– 23
Deferred tax	– 111	– 379	– 196	– 654	– 1,340	– 155	– 97	– 440	– 35	– 727
Net income for the period/year	1,426	1,221	777	2,452	5,876	577	267	1,647	2,481	4,972
Other total net income	0	39	12	– 59	– 8	15	– 26	8	9	6
Total net income for the period/year	1,426	1,260	789	2,393	5,868	592	241	1,655	2,490	4,978
Balance Sheet, SEKm
Investment properties	74,043	76,490	77,382	81,078	81,078	44,773	72,109	74,220	70,757	70,757
Joint venture	–	–	–	–	–	–	–	–	–	–
Goodwill	1,659	1,659	1,659	1,659	1,659	140	2,032	2,032	1,659	1,659
Other fixed assets	1,795	1,163	1,353	772	772	391	639	714	5,640	5,640
Liquid assets	304	323	258	203	203	150	425	391	257	257
Total assets	77,801	79,635	80,652	83,712	83,712	45,454	75,205	77,357	78,313	78,313
Shareholders' equity	29,294	30,554	31,343	33,736	33,736	15,556	25,089	26,744	29,234	29,234
Deferred tax liability	7,196	7,555	7,751	8,405	8,405	4,593	6,596	7,030	7,065	7,065
Other provisions	8	7	5	5	5	16	18	15	9	9
Derivatives	1,551	1,431	1,365	1,352	1,352	1,271	1,925	1,950	1,582	1,582
Long term interest-bearing liabilities	36,204	37,213	38,147	38,226	38,226	22,650	39,356	39,611	38,467	38,467
Non-interest-bearing liabilities	3,548	2,875	2,041	1,988	1,988	1,368	2,221	2,007	1,956	1,956
Total shareholders' equity and liabilities	77,801	79,635	80,652	83,712	83,712	45,454	75,205	77,357	78,313	78,313
Financial key ratios
Net operating income margin	66%	73%	73%	64%	69%	65%	69%	71%	63%	67%
Interest rate, avarage	2.6%	2.4%	2.4%	2.4%	2.4%	2.9%	2.7%	2.6%	2.7%	2.7%
Interest coverage ratio	361%	400%	429%	356%	386%	338%	357%	359%	331%	348%
Return on actual net asset value	2.7%	16.4%	10.2%	32.1%	18.3%	15.6%	2.3%	27.8%	37.4%	20.9%
Return on total capital	9.1%	9.0%	5.8%	16.0%	10.1%	9.2%	4.9%	12.6%	14.8%	11.9%
Return on equity	20.0%	16.7%	10.2%	31.3%	20.6%	15.0%	5.3%	26.3%	37.1%	20.1%
Investments in properties, SEKm	3,192	1,513	727	1,056	6,488	2,445	27,246	587	1,213	31,491
Sales, SEKm	832	24	16	3	875	3	30	48	6,673	6,754
Loan to value ratio	48%	48%	49%	47%	47%	50%	54%	53%	50%	50%
Data per share (since there are no potential common stock there is no effect of dilution)
Average number of shares, thousand	273,201	273,201	273,201	273,201	273, 201	189,014	201,531	273,201	273,201	234,540
Income from property management, SEK	2.17	2.40	2.59	2.10	9.26	1.99	2.20	2.46	2.10	8.80
Income prop mgmt after tax (EPRA EPS), SEK	1.91	2.15	2.21	2.10	8.39	1.83	2.03	2.29	2.03	8.26
Earnings after tax, SEK	5.22	4.47	2.84	8.98	21.51	3.05	1.32	6.03	9.08	21.20
Outstanding number of shares, thousand	273,201	273,201	273,201	273,201	273,201	189,014	273,201	273,201	273,201	273,201
Property value, SEK	271	280	283	297	297	237	264	272	259	259
Long term net asset value (EPRA NAV), SEK	133	139	142	153	153	113	116	123	133	133
Actual net asset value (EPRA NNNAV), SEK	119	124	127	138	138	100	104	111	121	121
Dividend, SEK (2017 proposed)	–	–	–	–	5.30	–	–	–	–	5.00
Dividend ratio	–	–	–	–	57%	–	–	–	–	57%
Property related key ratios
Rental value, SEK/sq,m,	1,332	1,338	1,341	1,356	1,341	1,119	1,292	1,314	1,311	1,304
Economic occupancy rate	89.9%	90.0%	91.6%	91.4%	90.9%	90.3%	90.6%	89.9%	91.9%	91.3%
Property costs, SEK/sq,m,	397	320	327	423	364	354	346	339	442	376
Property value, SEK/sq,m,	17,105	17,395	17,569	18,268	18,268	12,506	15,363	15,817	16,558	16,558

Multi-Year summary

	2017	2016	2015	2014	2013	2012	2011	2010	2009	2008
Income Statement, SEKm
Rental income	5,182	4,533	3,299	3,318	3,249	3,073	2,919	2,759	2,694	2,501
Property costs	– 1,605	– 1,497	– 1,074	– 1,096	– 1,105	– 1,042	– 1,003	– 960	– 942	– 831
Net operating income	3,577	3,036	2,225	2,222	2,144	2,031	1,916	1,799	1,752	1,670
Central administrative expenses	– 162	– 143	– 113	– 108	– 96	– 93	– 83	– 84	– 81	– 71
Joint venture (Income from prop mgmt)	–	3	23	–	–	–	–	–	–	–
Net interest costs	– 885	– 832	– 602	– 664	– 702	– 683	– 660	– 574	– 541	– 626
Income from prop. mgmt incl. results JV	2,530	2,065	1,533	1,450	1,346	1,255	1,173	1,141	1,130	973
Transaction and restructuring costs	–5	– 163	–	–	–	–	–	–	–	–
Write-down goodwill	–	– 373	–	–	–	–	–	–	–	–
Changes in value, properties	4,540	4,085	1 837	344	328	– 69	194	1,222	– 1,027	– 1,262
Changes in value, derivatives	247	82	216	– 660	429	– 110	– 429	291	102	– 1,010
Revaluation of results due to stepwise acquisition	–	27	– 2	–	–	–	–	–	–	–
Current tax	– 96	– 23	– 16	– 11	– 6	– 7	– 10	– 5	– 10	–14
Deferred tax	– 1,340	– 727	– 687	88	– 390	404	– 217	– 685	– 35	650
Net income for the year	5,876	4,972	2,881	1,211	1,707	1,473	711	1,964	160	– 663
Other total net income	– 8	6	– 8	8	3	– 4	0	–	–	–
Total net income for the year	5,868	4,978	2,873	1,219	1,710	1,469	711	1,964	160	– 663

Balance Sheet, SEKm
Investment properties	81,078	70,757	41,818	37,599	37,752	36,328	33,867	31,768	29,267	29,165
Joint venture	–	–	526	–	–	–	–	–	–	–
Goodwill	1,659	1,659	–	–	–	–	–	–	–	–
Other fixed assets	772	5,640	269	442	291	259	207	156	201	230
Liquid assets	203	257	39	47	70	44	97	12	8	9
Total assets	83,712	78,313	42,652	38,088	38,113	36,631	34,171	31,936	29,476	29,404
Shareholders' equity	33,736	29,234	15,768	13,649	13,127	12,065	11,203	11,082	9,692	10,049
Deferred tax liability	8,405	7,065	4,299	3,612	3,700	3,310	3,714	3,502	2,824	2,785
Other provisions	5	9	14	23	–	–	–	–	–	–
Derivatives	1,352	1,582	1,117	1,357	683	1,105	1,003	574	865	966
Long term interest-bearing liabilities	38,226	38,467	20,396	18,446	19,481	19,094	17,160	15,781	15,294	14,607
Non-interest-bearing liabilities	1,988	1,956	1,058	1,001	1,122	1,057	1,091	997	801	997
Total shareholders' equity and liabilities	83,712	78,313	42,652	38,088	38,113	36,631	34,171	31,936	29,476	29,404
Financial key ratios
Net operating income margin	69%	67%	67%	67%	66%	66%	66%	65%	65%	67%
Interest rate, avarage	2.4%	2.7%	3.0%	3.3%	3.7%	3.9%	4.1%	3.7%	3.7%	4.7%
Interest coverage ratio	386%	348%	351%	318%	292%	284%	278%	299%	309%	255%
Return on actual net asset value	18.3%	20.9%	20.4%	7.6%	13.2%	7.9%	6.4%	21.5%	1.6%	– 8.3%
Return on total capital	10.1%	11.9%	10.0%	6.5%	6.4%	5.3%	6.2%	9.8%	2.1%	1.2%
Return on equity	20.6%	20.1%	21.7%	9.5%	14.6%	13.5%	6.6%	20.9%	1.6%	– 6.1%
Investments in properties, SEKm	6,488	31,491	3,553	2,525	1,768	2,798	2,015	1,506	1,165	2,738
Sales, SEKm	875	6,754	1,140	3,054	687	253	107	227	36	28
Loan to value ratio	47%	50%	49%	49%	51%	52%	50%	50%	52%	50%

Data per share (since there are no potential common stock there is no effect of dilution)
Average number of shares, thousand	273,201	234,540	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014
Income from property management, SEK	9.26	8.80	8.11	7.67	7.12	6.64	6.21	6.04	5.98	5.15
Income prop mgmt after tax (EPRA EPS), SEK	8.39	8.26	7.84	7.17	6.97	6.31	6.08	5.75	6.02	5.08
Earnings after tax, SEK	21.51	21.20	15.24	6.41	9.03	7.79	3.76	10.39	0.85	– 3.51
Outstanding number of shares, thousand	273,201	273,201	189,014	189,014	189,014	189,014	189,014	189,014	189,014	189,014
Property value, SEK	297	259	221	199	200	192	179	168	155	154
Long term net asset value (EPRA NAV), SEK	153	133	112	99	93	87	84	80	71	73
Actual net asset value (EPRA NNNAV), SEK	138	121	100	87	84	78	75	74	63	65
Dividend, SEK (2017 proposed)	5.30	5.00	4.25	3.99	3.69	3.43	3.21	3.12	3.04	2.73
Dividend ratio	57%	57%	52%	52%	52%	52%	52%	52%	51%	53%
Property related key ratios
Rental value, SEK/sq,m,	1,341	1,304	1,095	1,064	1,036	1,015	995	974	969	921
Economic occupancy rate	90.9%	91.3%	90.3%	88.7%	88.4%	88.6%	89.3%	89.0%	89.8%	89.7%
Property costs, SEK/sq,m,	364	376	316	307	307	298	300	298	300	268
Property value, SEK/sq,m,	18,268	16,558	12,282	11,118	10,285	9,916	9,835	9,499	9,036	8,984

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	+ 52/– 52	+	–
Vacancies	+ 58/– 58	+	–
Property costs	– 16/+ 16	–	0
Interest costs	– 69/– 94*	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	– 16,216	– 8,108	–	8,108	16,216
Loan to value ratio	59%	52%	47%	43%	39%

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.

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.

New accounting principles from January 1, 2018

Castellum's income primarily consists of rental income, which is governed by IAS 17 Leasing. The transition to IFRS 15 Revenue from Contracts with Customers will be reported according to the retroactive method, i.e., the comparative fi gures for 2017 will be presented in accordance with IFRS 15. In conjunction with the transition to IFRS 15, a review of the Group's total income was conducted, resulting in Castellum identifying that part of the Group's debited income is governed by IFRS 15. This means that Castellum's income should be divided into two parts – Rental income and Service income. The former includes the customary rent charged, including index, additional charges for investments, and property tax; the latter refers to all other additional charges in the form of extra services such as heating, cooling, waste removal, water, snow removal, etc. Castellum has made a careful analysis of whether Castellum is the principal or the agent for these services and concluded that the Group, in the role as real estate owner, primarily acts as the principal. This means that if a corresponding assessment had been made for 2017, the Group's turnover of SEKm 5,182 would have been allocated between Rental income totalling SEKm 4,783 and Service income amounting to SEKm 399, respectively. Hence, the transition to IFRS 15 is deemed to have no material impact on total income or on reported income.

Interiör från Castellums Göteborgskontor. IFRS 9 replaces IAS 39 on the fi rst of January, 2018. The accounting standard introduces new principles for the classifi cation of fi nancial assets, for edge accounting and for credit reservations. The Group analyzed the eff ects of the introduction of the new standard in 2017. The new principles for classifi cation of fi nancial assets are based on an analysis of both the business model in which the asset is managed and of the asset's cash-fl ow character. The single largest item within the scope of IFRS 9 comprises derivatives that are still reported at fair value in the income statement. The analysis shows that the new principles do not have any signifi cant impact on Castellum's account. IFRS 9 further implies that the principles for credit loss provision are made in a model based on expected losses. The analysis and Castellum's application of the model show that the eff ect of the transition will have no signifi cant eff ect on the reported values due to the risk character of the receivables. Castellum applies hedge accounting in Denmark. Castellum will continue to apply hedge accounting in accordance with IFRS 9 and estimates that the hedging relationship is eff ective even under the new standard. Consequently, the transition will have no impact, and the Group will not recalculate the comparative fi gures.

Annual General Meeting 2018

For the AGM on March 22, 2018 the Board of Directors proposes a dividend of SEK 5.30 per share, distributed to the shareholders divided in two equal payments of SEK 2.65 per share, which is an increase by 6% compared with previous year. The fi rst record day for distribution is proposed to be March 26, 2018, and the second record day for distribution is proposed to be September 24, 2018.

The Election Committee consists of Torbjörn Olsson (Chairman) representing Sjätte AP-fonden, Vincent Fokke representing Stichting Pensioenfonds ABP, Hans Op't Veld representing PGGM, and Charlotte Strömberg, Chairman of the Board of Directors, proposes for the AGM;

re-election of the present Board members Mrs. Charlotte Strömberg, Mr. Per Berggren, Mrs. Anna-Karin Hatt, Mr. Christer Jacobson, Mrs. Christina Karlsson Kazeem, Mrs. Nina Linander 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 850,000 to each of the other members of the Board of Directors: SEK 370,000, member of the

This Year-end Report has not been examined by the company's auditors.

Remuneration Committee, including the Chairman: SEK 50,000, Chairman of the Audit and Finance Committee: SEK 150,000, to each of the other members of the Board of Directors' Audit and Finance Committee: SEK 75,000 The proposed total remuneration to the members of the Board of Directors, including remunera tion for committee work, accordingly amounts to SEK 3,520,000 (SEK 3,215,000 previous year),

re-election of 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 2019 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 2018 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.

Gothenburg, January 25, 2018

Henrik Saxborn CEO

Board of Directors

Nina Linander

Erika Olsén CIO

Charlotte Strömberg Chairman of the Board

Per Berggren Board member

Anna Karin Hatt Board member

Christer Jacobson Board member

Christina Karlsson Kazeem Board member

Board member

Johan Skoglund Board member

Executive Group Management

Henrik Saxborn CEO

Ulrika Danielsson

Anne Thelin-Ehrling HR Director

24 Castellum Year-end Report 2017 a s t e l l u m Y e a r - e n d R e p o r t 2 0 1 7

Ingalill Östman Corporate Communications Director

Mariette Hilmersson assume her duties as MD Region West on February 1, 2018.

Anders Nilsson

Ola Orsmark MD Region Öresund

The Castellum share

The Castellum share is listed on Nasdaq Stockholm Large Cap. At the end of the period the company had about 38,000 shareholders. The ten individual largest owner constellations confi rmed as of December 31, 2017 are presented in the table below.

Shareholders on 2017-12-31*		Percentage of
	Number of	voting rights
Shareholders	shares thousand	and capital
Stichting Pensioenfonds ABP	15,793	5.8%
Sjätte AP-fonden	11,851	4.3%
Rutger Arnhult	11,289	4.1%
AMF Försäkringar & Fonder	11,028	4.0%
PGGM Pensioenfonds	10,234	3.7%
SEB Fonder & Liv	9,560	3.5%
Szombatfalvy-sphere	9,112	3.3%
Lannebo Fonder	9,055	3.3%
Vanguard	8,140	3.0%
SHB Fonder & Liv	7,655	2.8%
Board and executive management Castellum	265	0.1%
Other shareholders registered in Sweden	66,785	24.4%
Shareholders registered abroad	102,434	37.5%
Total registered shares	273,201	100.0%

* As of January 24, 2018 Blackrock has notifi ed for holding of 5.01%.

Source: Holdings by Modular Finance AB. Collected and analyzed data from Euroclear, Morningstar, Finansinspektionen, Nasdaq och Millistream.

Distribution of shareholders by country 2017-12-31

The Castellum share price as of December 31, 2017 was SEK 138.40 (124.90) equivalent to a market capitalization of SEK 37.8 billion (34.1), calculated on the number of outstanding shares.

Since the beginning of the year a total of 273 million (285) shares were traded, equivalent to an average of 1,086,000 shares (780,000) per day, corresponding on an annual basis to a turnover rate of 99% (71%). 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 153 per share (133). The share price at the end of the year was thus 90% (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 8.39 (8.26) on rolling annual basis. This results in a share price yield of 6.1% (6.6%) corresponding to a multiple of 16 (15). Income from property management must be adjusted by a longterm increase in the property value and eff ective tax paid.

Net income after tax amounted on rolling annual basis to SEK 21.51 per share (21.20), which from the share price gives a yield of 15.5% (17.0%), corresponding to a P/E of 6 (6).

Dividend yield

The proposed dividend of SEK 5.30 (5.00) corresponds to a yield of 3.8% (4.0%) based on the share price at the end of the year.

Total share yield

During the last 12-month period the total yield of the Castellum share has been 15.4% (23.8%), including a dividend of SEK 5.00.

Net asset yield including long-term change in value

In companies managing real assets, such as real estate, the income from property management only refl ects part

– albeit a large part – of the overall result. The defi nition of a real asset is that its value is protected. This means that over time – and with proper maintenance – the real asset increases in value to compensate for infl ation.

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

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

Net asset yield and earnings including

long-term change in value			Sensitivity analysis
		–1%-unit	+1%-unit
Income from prop. management rolling 12 months 2,530		2,530	2,530
Change in property value (on average 10 years) 1,148		383	1,913
D:o %	1.5%	0.5%	2.5%
Current tax, 7%	–189	–189	–189
Earnings after tax	3,489	2,724	4,254
Earnings SEK/share	12.77	9.97	15.57
Return on actual long-term net asset value	9.8%	7.7%	12.0%
Earnings / share price	9.2%	7.2%	11.3%
P/E	11	14	9

EPRA Key ratios	Dec 31	Dec 31
	2017	2016
EPRA Earnings (Income from property
management after tax), SEKm	2,291	1,937
EPRA Earnings (EPS) SEK/share	8.39	8.26
EPRA NAV (Long term net asset value), SEKm		41,834 36,222
EPRA NAV, SEK/share	153	133
EPRA NNNAV (Net asset value), SEKm		37,632 33,082
EPRA NNNAV, SEK/share	138	121
EPRA Vacancy Rate	9%	9%

Growth, yield and fi nancial risk		3 years	10 years
		average/	average/
	1 year	year	year
Growth
Rental income SEK/share	–2%	3%	5%
Income from prop. management SEK/share	5%	6%	7%
Net income for the year after tax SEK/share	1%	50%	11%
Dividend SEK/share	6%	10%	7%
Long term net asset value SEK/share	15%	16%	7%
Actual net asset value SEK/share	14%	17%	6%
Real estate portfolio SEK/share	15%	14%	7%
Change in property value	6.1%	5.6%	1.5%
Yield
Return on actual long term net asset value	19.6%	18.9%	11.8%
Return on actual net asset value	18.3%	17.9%	11.1%
Return on total capital	10.1%	9.4%	6.7%
Total yield of the share (incl. dividend)
Castellum	15.4%	13.3%	13.1%
Nasdaq Stockholm (SIX Return)	9.5%	9.8%	8.8%
Real Estate Index Sweden (EPRA)	15.9%	15.9%	14.2%
Real Estate Index Europe (EPRA)	13.4%	8.8%	5.5%
Real Estate Index Eurozone (EPRA)	17.7%	13.1%	7.0%
Real Estate Index Great Britain (EPRA)	12.7%	4.9%	3.0%
Financial risk
Loan to value ratio	47%	49%	50%
Interest coverage ratio	386%	363%	312%

Yield earnings per share The Castellum share's price trend and turnover since the IPO May 23, 1997 until December 31, 2017.

Defi nitions

Data per share

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

Dividend pay out ratio

Dividend as a percentage of income from property management.

Dividend yield

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

Economic occupancy rate

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

EPRA EPS (Earnings Per Share)

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

EPRA NAV (Long term net asset value)

Reported equity according to the balance sheet, adjusted for interest rate derivatives 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.

Financial Calendar

Annual Report 2017	Mid-February 2018
Annual General Meeting 2018	March 22, 2018
Interim Report January-March 2018	April 17, 2018
Half-year Report January-June 2018	July 13, 2018
Interim Report January-September 2018	October 17, 2018
Year-end Report 2018	January 23, 2019
Annual General Meeting 2019	March 21, 2019

www.castellum.com

On Castellum's website it is possible to download and subscribe to Castellum's Pressreleases and Financial Reports. For further information please contact Henrik Saxborn, CEO, tel +46 31 60 74 50 or Ulrika Danielsson, CFO, tel +46 706 47 12 61.

Invitation to Castellum's Annual General Meeting 2018

The Annual General Meeting of shareholders in Castellum (publ) will be held on Thursday March 22, 2018 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 March 16, 2018 and must also have notified their attendance to the company on Friday March 16, 2018 (preferably before 4 pm).

Summons to the Annual General Meeting will be around February 19, 2018 and the summons will be available at www.castellum.com. 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 filling out a notification form on www.castellum.com, by post to Castellum AB (publ), Box 2269, 403 14, Gothenburg, by phone +46 (0)31-60 74 00 or by e-mail [email protected], or. 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.com.

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 March 16, 2018. 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 January 31, 2018. The request should be addressed to Castellum AB, Att: Henrik Saxborn, Box 2269, 403 14 Gothenburg, Sweden.

Castellum Year-end Report 2017 a s t e l l u m Y e a r - e n d R e p o r t 2 0 1 7 Castellum AB (publ) • Box 2269, 403 14 Gothenburg • Visiting address: Östra Hamngatan 16, Gothenburg Phone: 031-60 74 00 • Email: [email protected] • www.castellum.com Domicile: Gothenburg • Corp. identity no: 556475-5550

AI assistant

Castellum — Interim / Quarterly Report 2017

2900_10-k_2018-01-25_5c401622-a55a-4f62-a2f2-ec21b3e419e3.pdf

Year-end report 2017

KEY RATIOS

The dividend tradition continues

Diverging markets

Continued growth in 2018

Customers and conducting responsible business

Customer oriented business

High leasing activity

Local presence develops growth regions

Responsible business

Market comments

Swedish and Danish economy

Macro indicators, Sweden

Rental markets

Real estate markets

Interest and Credit markets

Income, Costs and Results

Rental income

Rental value and economic occupancy rate

Property costs

Central administrative expenses

Net interest

Changes in value

Changes in value properties 2017

SEKm

Income from property management per share

Income over time

Tax

Tax calculation 2017-12-31

Current tax proposal

Real estate Portfolio

Investments

Changes in the real estate portfolio

Investments per region

Castellum's Real estate portfolio 2017-12-31

Property related key ratios

Segment information

Larger investments and sales

Larger acquisitions during 2017 Rental value

Larger sales during 2017

Property value

Internal valuations

Required yield

Based on these internal valuations, the value of the properties at year-end were assessed to SEKm 81,078 (70,757), corresponding to SEK 18,268 per sq.m. (16,558).

Average valuation yield

Average valuation yield, SEKm

Average valuation yield over time

Uncertainty range

External valuation

Financing

Interest bearing liabilities

Credit maturity structure 2017-12-31

Interest rate maturity structure

Interest rate maturity 2017-12-31

Currency

Interest rate and currency derivatives

Castellum's financial policy and commitments in credit agreements

Condensed Consolidated statement of Comprehensive Income

Condensed Consolidated Balance Sheet

Condensed Changes in Equity

Condensed Cash Flow Statement

The Parent company

Financial Key Ratios

INCOME FROM PROPERTY MANAGEMENT

NET ASSET VALUE

FINANCIAL RISK

INVESTMENT

Other Financial Key Ratios

Quarterly summary

Multi-Year summary

Opportunities and Risks for Group and Parent Company

Opportunities and risks in the cash fl ow

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

Opportunities and risks in property values

Sensitivity analysis - change in value

Financial risk

Accounting principles

Castellum Interim / Quarterly Report 2017