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Diös Fastigheter

Quarterly Report Oct 25, 2017

3034_10-q_2017-10-25_95467a0d-41c3-4894-9b89-56edf71d44a7.pdf

Quarterly Report

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INTERIM REPORT JANUARY – SEPTEMBER 2017

JANUARY–SEPTEMBER 2017 OVERVIEW OF THE PERIOD

TOTAL RENTAL INCOME WAS SEK 1,263 MILLION (992)

PROPERTY MANAGEMENT INCOME WAS SEK 625 MILLION (406)

UNREALISED CHANGES IN VALUE OF PROPERTIES WERE SEK 335 MILLION (157) AND UNREALISED CHANGES IN VALUE OF DERIVATIVES WERE SEK 21 MILLION (74).

THE PROFIT AFTER TAX WAS SEK 773 MILLION (566).

EARNINGS PER SHARE WERE SEK 5.87 (5.87)

PROFIT FOR THE PERIOD, SEKm 2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Rental income 1,263 992 1,323
Other revenue 13 12 17
Operating and central costs -514 -438 -597
Net financial items -137 -160 -204
Property management income 625 406 539
Changes in value, properties and derivatives 368 221 418
Current tax -27 23 11
Deferred tax -193 -84 -136
Profit after tax 773 566 832
Surplus ratio 64 62 61
Occupancy rate, % 91 90 90
Equity ratio, % 33.9 29.8 31.0
Loan-to-value ratio, properties, % 57.8 59.6 58.6
Equity per share, SEK 49.3 42.5 45.3
EPRA NAV per share, SEK 57.8 52.8 56.0

For definitions of key ratios, see page 34.

FOR FURTHER INFORMATION, PLEASE CONTACT

Knut Rost, CEO, +46 (0)770-33 22 00, +46 (0)70-555 89 33, [email protected] Rolf Larsson, CFO, +46 (0)770-33 22 00, +46 (0)70-666 14 83, [email protected]

ABOUT DIÖS

Nearly 100 years ago Anders Diös established the building firm that would eventually grow into one of Sweden's largest property owners. Thanks to his outstanding entrepreneurship and his faith in the future, the building firm had by the 1950s become one of the largest in Sweden. Inspired by Anders' drive, we formulated our current vision: to be the most active and sought-after landlord in our market.

We drive urban development to create growth for our tenants. By taking a simple and active approach, and by working closely with our stakeholders, we create meeting places where people can live, work and enjoy life. The company's property portfolio is concentrated to central locations in priority growth cities with an emphasis on office and retail properties.

Our business model centres on using the company's assets to create value for our stakeholders with sustainability as a central aspect. Through efficient property management, risk-aware transactions and futureoriented project development, we add value to our assets. The value we create is evident in the fact that we are an attractive employer, manage our properties in a sustainable manner, conduct our business responsibly and focus on sustainable urban development.

VISION

To be the most active and sought-after landlord in our market.

BUSINESS CONCEPT

To own and develop commercial and residential properties in priority growth cities from local offices. We create long-term values with a focus on the tenant by operating in a responsible and sustainable manner.

Our promise is that everything is possible. We strive to be perceived as simple, close and active. Simple by being open and honest. Close by having a local presence, being available and taking an interest. Active by developing, growing and taking advantage of opportunities.

Contracted rental income: SEK 1,712m

SIGNIFICANT EVENTS DURING THE PERIOD

  • Completion/handover for the deal with Dcap AB in Umeå takes place on 15 August 2017.
  • Completion/handover for the deal with Norrlandspojkarna in Sundsvall takes place on 1 September 2017.
  • We sell our entire portfolio in Söderhamn. The transaction took the form of the sale of a business with a handover date of 4 September 2017.
  • Diös and Nordic Choice Hotels sign a statement of intention for the building of a new hotel in Sundsvall called Riverside. Construction is planned to commence around year-end 2018.
  • Diös wins an EPRA award for most improved sustainability reporting in accordance with EPRA's recommendations and has now reached the Gold level.
  • On 26 November 2017 Diös announces the membership of the Nominating Committee for the Annual General Meeting 2018, which consists of Bo Forsén, Bob Persson, Jonas Bengtsson and Stefan Nilsson.

QUARTERLY RESULTS IN BRIEF

30/09/2017 30/6/2017 31/3/2017 31/12/2016 30/09/2016 30/6/2016 31/3/2016 31/12/2015
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Revenue, SEKm 436 435 405 337 335 334 335 334
Operating surplus, SEKm 287 286 241 195 212 212 187 195
Property management income, SEKm 222 224 179 132 147 140 119 125
Profit for the period, SEKm 192 255 326 266 229 194 143 249
Surplus ratio, % 67 66 60 59 64 64 57 59
Economic occupancy rate, % 91 91 90 90 90 90 89 88
Return on equity, % 2.9 3.9 6.0 6.4 5.8 5.0 3.7 6.6
Equity ratio, % 33.9 33.3 33.5 31.0 29.8 28.5 29.0 27.4
Loan-to-value ratio, properties, % 57.8 58.3 59.1 58.6 59.6 60.6 61.4 60.7
Average interest rate at end of period, %¹ 1.6 1.6 1.6 2.0 1.9 2.6 2.6 2.5
Interest coverage ratio, times 5.5 5.8 5.2 3.9 3.8 3.5 3.1 3.5
Property management income per share, SEK 1.65 1.67 1.44 1.39 1.54 1.47 1.25 1.31
Earnings per share after tax, SEK 1.43 1.88 2.60 2.79 2.39 1.99 1.48 2.49
Equity per share, SEK 49.3 47.9 48.0 45.3 42.5 40.1 40.3 38.8
Earnings per share, SEK 52.0 46.6 44.0 47.1 50.8 47.1 46.9 48.0

1 Includes expenses relating to commitment fees and derivatives.

CEO'S REVIEW

KNUT ROST, CEO

DRIVING GROWTH

Diös continues to report strong earnings. Cash flow has increased as a result of a high level of activity in lettings. This has led to higher revenues, which creates growth and ensures a continued high dividend yield for our shareholders.

Our property management income increased by 54 per cent and the surplus ratio was 64 per cent. Net leasing for the quarter remained strong, at SEK 13 million, and totalled SEK 45 million (24) for the period, showing that our focus on lettings is yielding fruit. We have continued to deliver by actively looking for new business opportunities and developing our existing relationships. During the period completion and handover took place for the deals in Umeå and Sundsvall that we communicated in the summer. Handover also took place for the properties that we sold in Söderhamn. These transactions will strengthen our offering to tenants and improve our efficiency.

Our strategy of concentrating our portfolio to central locations in our target cities shows clearly that we are actively engaged in urban development. We enable our tenants and ourselves to grow by developing our properties to create more attractive meeting places, homes, retail premises and offices. A clear example of this is our Riverside hotel project in Sundsvall, where we are creating a new meeting place in a prime location that will increase density in the city centre and integrate it with the Norrmalm district, creating a lively urban buzz.

Our unique position is a competitive advantage. We have a local organisation in each city that operates in close proximity to our tenants. Good knowledge of the market coupled with an attractive portfolio of properties is a hard-to-beat combination. Yet growth doesn't occur by itself; we need to work hard to create opportunities. We still have vacant premises where we see good opportunities that we want to realise by driving our company and our target cities forward.

Our focus is on generating revenue. We have a strongly diversified revenue base in terms of geography and types of property. We have properties across all segments, a large number of tenants and a limited concentration risk to individual tenants. We are a cash flow-oriented company operating in a low-risk, high-yield market. Thanks to our growth and

strong financial position, we have become interesting to banks and the capital market. We now have very good access to capital through various sources of funding and are in a strong position to solicit competitive offers when raising new finance and refinancing. Our financial key ratios have continued to improve.

As part of our efforts to raise the level of expertise in our organisation and as a key element of our sustainability work, we have introduced an initiative to certify our workers as building maintenance technicians in accordance with industry standards. This training initiative is being implemented in collaboration with the Training Board of the Property Industry (FU) with the aim of further raising the quality of our building operating and maintenance activities, and the level of service for our tenants. We are pioneers in the industry, and are delighted that our training initiative is being implemented within the framework of our in-house Diös Academy. We are also proud to have reached EPRA's Gold level for our sustainability reporting, which is evidence of a high standard and transparency.

The macroeconomic environment is very favourable and we see a big potential in our priority cities. The property industry is facing many challenges, and I believe the key factors for meeting these challenges is that we listen to our tenants, and that we create products, services and solutions that meet their changing requirements. Our focus on urban development, deals and relationships is aimed at enabling our tenants to grow while building a foundation for our own continued success.

RESULTS AT A GLANCE JANUARY–SEPTEMBER 2017

Property management income for the period, i.e. income excluding changes in value and tax, was SEK 625 million (406). For comparable properties our property management income increased by 20 per cent year on year.

Income and expenses for the period were affected by the acquisition of 32 properties in the first quarter. Completion took place on 1 February 2017 and the properties will be consolidated in our results as of that date.

RENTAL INCOME AND OTHER INCOME

The rental income for the reporting period was SEK 1,263 million (992), representing a 91 per cent (90) economic occupancy rate. For comparable properties rental income increased by 3.4 per cent year on year. Other property management income totalled SEK 13 million (12) and consisted mainly of costs for work in leased premises that are passed on to tenants.

PROPERTY COSTS

Total property costs were SEK 462 million (393). Of total property costs, SEK 6 million (6) refers to work in leased premises for which the costs are passed on to tenants.

OPERATING SURPLUS

The operating surplus was SEK 814 million (611), representing a surplus ratio of 64 per cent (62). Our improved surplus ratio is due mainly to improved occupancy. For comparable properties our operating surplus increased by 6.0 per cent compared with the previous year.

CENTRAL ADMINISTRATION

The central administration expense was SEK 52 million (45). Central administration includes a non-recurring item of SEK 4 million, which refers to restructuring costs incurred in connection with acquisitions.

NET FINANCIAL ITEMS

Net financial items for the period were SEK -137 million (-160). The interest costs for the period, including costs for interest rate derivatives and loan commitments, represent borrowings at an average annual interest rate of 1.8 per cent (2.5). The average annual interest rate for interest-bearing liabilities based on the applicable terms and market interest rates at 30 September was 1.6 per cent (1.9).

CHANGES IN VALUE, PROPERTIES

The property market is marked by a continued high level of activity, strong demand and continued limited supply, which is pushing prices higher. Prices are increasing mainly for centrally located office properties in growth cities. The average valuation yield at the end of the period was 6.09 per cent (6.46), which at portfolio level is a decrease of 0.31 percentage points since year-end. The positive change in value of SEK 335 million (157) is primarily a one-off effect of a discount on deferred tax in connection with property transactions. The change in value represented 1.7 per cent (1.2) of market value. At 30 September the market value was SEK 19,260 million (13,357).

During the period 13 properties were sold, resulting in a realised change in value of SEK 12 million. In the same period in the previous year 42 properties were sold, resulting in a realised change in value of SEK -10 million. 38 properties (4) were acquired during the period.

MARKET VALUE AND PROPERTY MANAGEMENT INCOME1

1 The figures for property management income, operating surplus and surplus ratio in Q3 2017 are on a rolling 12-month basis.

OPERATING SURPLUS AND SURPLUS RATIO1

CHANGES IN VALUE, DERIVATIVES

The portfolio of interest rate derivatives has been measured at fair value. If the contracted interest rate deviates from the market rate, a theoretical fair value gain or loss arises on the interest rate derivatives. The change in value is of an accounting nature and does not affect cash flow.

During the period unrealised changes in value on derivatives totalled SEK 21 million (74), which have been fully recognised in the income statement. The change in the market values of derivatives is primarily attributable to the time effect.

PROFIT BEFORE TAX

The profit before tax was SEK 993 million (627). The improved profit is chiefly due to a larger property portfolio and unrealised changes in the value of properties.

PROFIT AFTER TAX

The profit after tax was SEK 773 million (566). Current tax totalled SEK -27 million (23). This is mainly attributable to tax in subsidiaries which do not have the right to offset losses against Group profits. The positive tax effect in the previous year is attributable to a partial reversal of tax provisions related to a tax case. The deferred tax liability for the third quarter was SEK -193 million (-84).

Property management income for the third quarter, i.e. income excluding changes in value and tax, was SEK 222 million (147). The operating surplus was SEK 287 million (212), representing a surplus ratio of 67 per cent (64).

Rental income for the third quarter was SEK 431 million (331), representing an economic occupancy rate of 91 per cent (90). Total property costs were SEK 149 million (123).

Net financial items for the third quarter were SEK -49 million (-52). The profit before tax was SEK 272 million (281), with changes in the value of properties having a positive impact of SEK 43 million (107) and changes in the value of interest rate derivatives adding SEK 7 million (27). Earnings after tax were SEK 192 million (229), of which SEK -70 million (-44) refers to deferred tax and SEK -10 million (-8) to current tax. In the third quarter 12 properties (0) were sold, resulting in a net realised change in value of SEK 10 million (0). In the third quarter four properties were acquired. In the same period last year Diös concluded agreements for the acquisition of one property with a completion date in December 2016.

AVERAGE INTEREST RATE AND LOAN-TO-VALUE RATIO

TAX

The nominal corporate tax rate in Sweden is 22 per cent. Due to the option of using tax depreciation allowances, recognising the full amount of expenses for certain types of conversion projects in the first year and using tax losses, tax paid was low. Tax paid arises from the fact that some subsidiaries are not able to avail themselves of the tax benefits of group contributions.

The remaining tax losses can be calculated at SEK 0 million (160). The Group also has untaxed reserves of SEK 118 million (87). The fair value of the properties exceeds their tax base by SEK 5,313 million (4,419). The tax on the net balance of these items at the full nominal tax rate of 22 per cent less the deferred tax attributable to asset purchases has been recognised as a deferred tax liability.

TAX CALCULATION FOR THE PERIOD

SEKm Basis for
current tax
Basis for
deferred tax
Property management income 625
Tax-deductible
depreciation and amortisation -170 170
conversion projects -51 51
Other tax adjustments -55 82
Taxable property management income 350 303
Income tax at 22% if tax losses are not used 77
Sale of properties 2 -2
Change in value, properties 0 347
Issue costs -51 51
Taxable profit before tax losses 301 699
Tax losses, opening balance -177 177
Tax losses, closing balance 0 0
Taxable profit 124 876
Tax for the period as per income statement 27 193

While the reporting of taxes complies with the applicable accounting rules it should be noted that the amount of tax paid over the period generally differs from the reported amount. In addition, tax regulations are complex and hard to interpret. The application of the regulations may also change over time. Diös has no ongoing tax disputes.

OUR PROPERTIES

PROPERTY PORTFOLIO

The portfolio comprises a well balanced mix of residential, office, retail and industrial space with a range of small and large premises, creating wide scope to offer flexible solutions and build long-term relationships. At the end of the period the portfolio comprised 93 per cent (92) commercial properties and 7 per cent (8) residential properties based on rental value by type of premises.

INVESTMENTS

Our project investments cover new builds, conversions and extensions as well as energy-saving measures. The investments must result in a higher occupancy rate, lower costs and a reduced impact on the environment. During the period SEK 388 million (310) was invested in 578 projects (452). At the end of the period 17 major1 development projects were ongoing, with a remaining investment volume of SEK 92 million and a total investment volume of SEK 196 million. During the period 54 new project investments were approved.

1 Initial investment volume > SEK 4 million.

PROPERTY VALUATION

At each closing date all properties are measured at fair value. The aim is to determine the properties' individual values in a sale executed through an orderly transaction between market players. Any portfolio effects are thus not taken into account. The valuation model includes an annual external valuation of the 100 largest properties in terms of value, of which 25 per cent are valued each quarter. The external valuation is carried out by Savills. In addition to the largest properties in terms of value, properties are valued internally and properties in which significant changes have taken place are valued by Savills. These are properties were new leases have been signed or where leases have been terminated as well as new builds and properties that have undergone extensive conversions. All propertyvaluations are based on a number of a number of assumptions about the future and the market. Savills' calculations therefore have an uncertainty range of +/-7.5 per cent, which is also applied for the property portfolio as a whole. For Diös, this translates into a value range of SEK 17,816-20,704 million. No changes in terms of valuation methodology or approach were made during the period. The valuations were made in accordance with IFRS 13 level 3.

CHANGES IN THE PORTFOLIO

Our strategy is to continually concentrate our portfolio to priority locations in our target cities.

In the third quarter Diös sold the Furan 1, Furan 9, Furan 10 and Svalan 6 properties in Söderhamn. On 1 September Diös completed on two properties in central Sundsvall and sold three industrial properties in Birsta, Sundsvall in a deal with Norrlandspojkarna. The acquisition was communicated in the second quarter. On 15 August we completed on a commercial property in central Umeå and sold four industrial properties in Umeå in a deal with Dcap AB. The acquisition was communicated in the second quarter.

In the second quarter Diös sold the Näringen 22:3 land property in Gävle to Gävle Local Authority. We communicated the acquisition of two central properties in Umeå and the sale of two residential properties in Umeå in a deal with Lerstenen. Completion took place on 2 October.

On 10 January 2017 we completed on the Luleå Office Building, an acquisition that was communicated in the second quarter of 2016. On 1 February 2017 we completed on the 32 properties in Umeå, Luleå and Sundsvall that we acquired from Castellum, as communicated in the fourth quarter of 2016. The acquisitions increased the value of Diös' property portfolio by SEK 4,997 million.

New builds, conversions and extensions added SEK 388 million (310) to the value of Diös' property portfolio for the period. We are continually adjusting our portfolio in order to create improvements and efficiencies for our tenants.

Unrealised changes in value for the period totalled SEK 335 million (157) and were mainly due to the one-off effect of a discount on deferred tax and lower required rates of return.

NET LEASING

Net leasing for the period was SEK 45 million (24). Noteworthy new leases concluded during the period were those with Dalarna County Council in Stranden 20:4, Mora, Cubus in Abborren 11, Luleå, and the IT Department of the Swedish Social Insurance Agency in Porsön 1:423, Luleå. At 30 September the average contract term for commercial premises was 3.6 years (3.3).

VACANCIES

Vacancies remained unchanged during the period, with economic vacancies standing at 9 per cent (10) and physical vacancies at 14 per cent (16) at 30 September. Economic vacancies are highest in office and retail premises while physical vacancies are highest in office and industrial premises. The economic vacancy rate for the period, excluding discounts, was 8 per cent (10).

VALUATION ASSUMPTIONS

30 Sep 2017 30 Sep 2016
Office Retail Residen
tial
Industrial/
ware
house
Other Office Retail Residen
tial
Industrial/
ware
house
Other
Analysis period 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years
Yield for assessing residual value1
, %
7.0-5.7 6.8-5.9 5.3-4.7 8.1-7.0 7.0-6.2 7.3-6.3 7.2-6.2 5.6-4.8 8.3-7.4 7.5-6.7
Cost of capital for discounting to present value, % 8.1 8.2 7.3 9.8 8.8 8.6 8.5 7.5 9.7 9.1
Long-term vacancy, % 5.0 3.5 1.7 11.9 6 5.3 3.5 1.7 11.6 6.5
Inflation, % 2 2 2 2 2 2 2 2 2 2

1 From lower to upper quartiles in the portfolio.

ENERGY USE AND CARBON DIOXIDE EMISSIONS

Heating1 kWh/sq.m 57.2 57.2
District cooling2 kWh/sq.m 14.5 15.4
Electricity3 kWh/sq.m 40.7 42.0
Carbon dioxide, total4 g CO2/kWh 22.8 22.7
Water m3
/sq.m
0.3 0.3

1Heating has been adjusted to a normal year.

2 District cooling does not include self-produced cooling.

3 Electricity from energy use and tenants where electricity is included in the lease.

4 Carbon dioxide from electricity and heating.

All values have been provided by the suppliers. Floor area refers to tempered area. The comparative figures have been updated for the current portfolio and thus show changes for comparable properties.

Total use of heating and electricity was down by 1.3 per cent on the same period in 2016. Diös' ambition for the full year 2017 is to reduce energy use by 4 per cent, partly through a greater focus on geo-energy solutions and smart control systems in the energy projects and partly through a stronger emphasis on optimisation. Use of district cooling is increasing as we replace cooling machine solutions with district cooling

solutions, and thus cut electricity and refrigerant use. To reduce our environmental impact, we only buy electricity from renewable sources and take an active role in dialogues with district heating suppliers, and we can now see that 99 per cent of our district heating also comes from non-fossil sources. During the period we extended our green electricity contracts for a further four years.

LEASE MATURITIES AT 30 SEPTEMBER 2017

Maturity year Concluded contracts
no. of
Rented area
sq.m
Contracted rental income
SEKm
Share,
%
Leases for premises 2017 312 61,021 71 4
2018 827 218,944 258 15
2019 692 257,048 314 19
2020 661 244,835 313 18
2021+ 519 432,504 569 33
Total, leases for premises 3,011 1,214,352 1,525 89
Residential leases 1,748 121,004 130 8
Other leases 4,078 - 57 3
TOTAL 8,837 1,335,356 1,712 100

LARGEST TENANTS AT 30 SEPTEMBER 2017

TENANT No. of contracts Annual contract
value, SEK '000
Share of total annual
contract value, %
Average contract
term, years
Swedish Transport Administration 25 62,578 3.7 2.2
Municipality of Östersund 110 36,782 2.2 3.0
Swedish Public Employment Service 43 32,663 1.9 2.1
Åhléns AB 5 22,443 1.3 5.2
Telia Sverige AB 25 19,547 1.2 10.5
Swedish Police Authority 35 19,517 1.1 3.5
Municipality of Falun 9 19,045 1.1 2.5
Swedish Social Insurance Agency 21 18,719 1.1 3.0
Folksam ömsesidig sakförsäkring 40 18,463 1.1 5.8
Swedbank AB 9 18,153 1.1 1.7
Total, largest tenants 322 267,910 15.8 3.5

OUR MARKET

We are the market-leading public property company in our priority cities. Our portfolio is concentrated to central locations in growth cities, from Borlänge in the south to Luleå in the north. Our operations are divided into seven business areas, of which six are defined geographically. Our seventh business area, Retail, has no geographical boundary but consists of our shopping centre and retail properties. The business area organisation consists of property management staff and letting agents and one business manager. All technical management services are sourced internally and performed by Diös staff at each location.

MARKET COMMENTARY

The Swedish economy remains strong and GDP is expected to grow by 2.8 per cent in 2017, according to the National Institute of Economic Research. Employment has grown rapidly over the past few years and there is still a strong need to recruit.

Population growth was positive in all our locations in 2016, with a total increase of 7,000 people.

The Swedish government's decision to relocate government agencies to several of our cities will have a positive impact on the local economy. New direct and indirect jobs will be created, and demand for offices and homes will increase.

RENTAL VALUE BY TYPE OF PREMISES RENTAL VALUE BY TYPE OF PREMISES

RETAIL

SHARE OF TOTAL PROPERTY VALUE

Retail, 16% Other business areas, 84%

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

PROPERTY HOLDINGS

No. of properties 15
Area, '000 sq.m 167
Property value, SEKm 3,140
Operating surplus, SEKm 123
Surplus ratio, % 59

LARGEST TENANTS

No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
4 16,796 5.9 2.5
5 12,142 4.3 1.4
4 10,229 3.6 1.5
5 9,099 3.2 4.5
3 6,481 2.3 5.2
21 54,747 19.3 2.7

*In relation to the annual contract value for each business area.

DALARNA BORLÄNGE/FALUN/MORA

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

PROPERTY HOLDINGS

No. of properties 43
Area, '000 sq.m 225
Property value, SEKm 2,072
Operating surplus, SEKm 107
Surplus ratio, % 67
LARGEST TENANTS
TENANT
No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Swedish Transport Administration 3 40,204 18.8 2.7
Swedish Police Authority 8 10,042 4.7 1.9
Internationella Engelska Skolan AB 1 9,270 4.3 18.3
Pysslingen Förskolor och Skolor AB 1 8,419 3.9 6.8
County Administrative Board of Dalarna 13 7,393 3.5 2.2
Total, largest tenants 26 75,328 35.2 4.9

*In relation to the annual contract value for each business area.

GÄVLEBORG GÄVLE

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

Office, 45% Industrial/warehouse, 17% Retail, 17% Residential, 4%

PROPERTY HOLDINGS

No. of properties 44
Area, '000 sq.m 228
Property value, SEKm 1,800
Operating surplus, SEKm 89
Surplus ratio, % 67
LARGEST TENANTS
TENANT
No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Gävleborg County Council 7 9,439 5.5 3.2
Swedish Transport Administration 3 7,143 4.1 1.0
Internationella Engelska Skolan AB 2 5,720 3.3 6.0
Swedish Public Employment Service 6 5,259 3.1 3.0
Åhléns AB 1 4,363 2.5 4.3
Total, largest tenants 19 31,924 18.5 3.3

*In relation to the annual contract value for each business area.

VÄSTERNORRLAND SUNDSVALL

SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE

RENTAL VALUE BY TYPE OF PREMISES

No. of properties 50
Area, '000 sq.m 192
Property value, SEKm 2,530
Operating surplus, SEKm 98
Surplus ratio, % 64
LARGEST TENANTS
TENANT
No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Livförsäkringsbolaget Skandia 3 14,123 6.6 5.5
Sweco Sverige AB 5 8,448 4.0 5.1
Folksam ömsesidig sakförsäkring 7 7,985 3.7 8.9
Norrlidens Kunskapscentrum AB 3 7,085 3.3 8.2
Municipality of Sundsvall 16 7,001 3.3 2.5
Total, largest tenants 34 44,642 20.9 6.0

SUNDSVALL

*In relation to the annual contract value for each business area.

JÄMTLAND ÅRE/ÖSTERSUND

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

Residential, 18%

PROPERTY HOLDINGS

No. of properties 113
Area, '000 sq.m 289
Property value, SEKm 2,949
Operating surplus, SEKm 133
Surplus ratio, % 63
LARGEST TENANTS
TENANT
No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Municipality of Östersund 110 36,782 13.1 3.0
Region Jämtland Härjedalen 20 13,253 4.7 3.3
Swedbank AB 4 5,895 2.1 0.7
Swedish Public Employment Service 3 5,886 2.1 3.2
Deloitte AB 1 3,888 1.4 2.3
Total, largest tenants 138 65,704 23.4 2,8

VÄSTERBOTTEN SKELLEFTEÅ/UMEÅ

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

Office, 62% Industrial/warehouse, 5% Retail, 13% Residential, 7% Other, 13%

PROPERTY HOLDINGS

No. of properties 49
Area, '000 sq.m 287
Property value, SEKm 4,022
Operating surplus, SEKm 151
Surplus ratio, % 65

LARGEST TENANTS

TENANT No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Skellefteå Municipality 21 15,778 5.0 4.1
Swedish Courts 8 14,941 4.7 9.4
County Administrative Board of Västerbotten 3 10,565 3.3 4.1
Swedish Tax Agency 16 10,192 3.2 2.6
Tieto Sweden AB 2 9,804 3.1 1.3
Total, largest tenants 50 61,280 19.3 4.7

*In relation to the annual contract value for each business area.

NORRBOTTEN LULEÅ

RENTAL VALUE BY TYPE OF PREMISES SHARE OF TOTAL PROPERTY VALUE RENTAL VALUE BY TYPE OF PREMISES

  • Office, 71% Industrial/warehouse, 1% Retail, 15%
  • Residential, 3% Other, 10%

PROPERTY HOLDINGS

No. of properties 25
Area, '000 sq.m 165
Property value, SEKm 2,747
Operating surplus, SEKm 113
Surplus ratio, % 70
LARGEST TENANTS
TENANT
No. of
contracts
Annual
contract
value,
SEK '000
Share
of total
contract
value, %*
Average
contract
term,
years
Telia Sverige AB 8 14,365 6.6 13.3
Municipality of Luleå 14 13,110 6.0 3.4
Swedish Transport Administration 3 11,816 5.4 1.0
Sweco Sverige AB 4 8,406 3.9 5.5
County Administrative Board of Norrbotten 5 8,263 3.8 1.2
Total, largest tenants 34 55,960 25.7 5.4

*In relation to the annual contract value for each business area.

DIÖS FASTIGHETER AB INTERIM REPORT JANUARY–SEPTEMBER 2017 Anders Wesström, Technical Manager, and Diös tenant Amberline at the Falu kontorshotell business centre, Sofie Lofors-Läck, owner. 17

FINANCING

CAPITAL STRUCTURE

At 30 September 2017, 34 per cent (30) of Diös' total assets of SEK 19,570 million were financed through equity, 57 per cent (59) through debt and 9 per cent (11) through other capital. The equity/assets ratio was 33.9 per cent (29.8), which exceeds the target of 30 per cent. Interest-bearing liabilities comprise bank financing and covered bonds while other capital consists mainly of deferred tax liabilities.

EQUITY

The Castellum property acquisition, for which the completion date was 1 February, was part-financed through a rights issue of 59,783,304 shares, which raised around SEK 1,853 million in new equity for Diös. Equity at 30 September was SEK 6,631 million (4,047).

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities in the Group were SEK 11,133 million (7,960). Of total interest-bearing liabilities, SEK 10,118 million (7,019) refers to bank financing and SEK 1,015 million (941) to covered bonds. The covered bonds are issued through a jointly controlled company, Svensk FastighetsFinansiering AB (SFF). The loan-to-value ratio in the Group was 57.8 per cent (59.6) at the end of the period. The annual average interest rate including the cost for derivatives was 1.6 per cent (1.9), including loan commitments, and the interest coverage ratio was 5.5 times (3.5) at 30 September.

DERIVATIVES

Of total interest-bearing liabilities in the Group, SEK 4,600 million (2,200) had been hedged through derivatives, including SEK 4,000 million through interest rate caps. The market value of the derivatives at 30 September 2017 was SEK -24 million (-60). The financial instruments limit the impact of changes in interest rates on our average borrowing cost. All financial instruments are measured at fair value and are classified in Level 2 in accordance with IFRS 13, which means that the measurement is based on observable market data (see Note 21 in the Annual Report 2016). Changes in value are recognised through profit or loss.

FIXED-RATE TERMS AND LOAN MATURITIES

The average fixed-rate term and average loan maturity were 1.5 years (0.3) and 2.2 years (1.9), respectively. Taking account of the impact of the derivatives portfolio, the average fixed-rate term was 2.7 years (0.5). Using derivatives and fixed-rate loans, all of the Group's outstanding loans have been hedged (33.9 per cent).

CASH AND CASH EQUIVALENTS

Consolidated cash and cash equivalents at the end of the period were SEK 19 million (0) and drawn overdraft facilities were SEK 0 million (118). The agreed limit on the overdraft facility was SEK 600 million (450).

SENSITIVITY ANALYSIS AS AT 30 SEPTEMBER 2017

If market interest rates increase by 1 percentage point Fixed-rate term, years Maturity, years Average annual interest rate, % Market value, SEKm Change in average annual interest rate, % Change in average annual interest rate, SEKm Change in market value, SEKm Loan portfolio excl. derivatives 1.5 2.2 1.31 11,133 0.4 +39 Derivatives portfolio 2,8 0.2 -24 -1.0 -6 +10 Loan portfolio incl. derivatives 2.7 2.2 1.6 0.3 +33 +10

1The cost for undrawn credit facilities has been included.

INTEREST RATE AND DEBT MATURITY STRUCTURE AT 30 SEPTEMBER 2017

Interest rate and margin expiration Loan maturity
Maturity year Loan amount, SEKm
Average annual interest rate1
, %
Credit agreements, SEKm Drawn, SEKm
2017 991 1.0 1,158 991
2018 2,965 1.0 2,245 2,245
2019 1,856 1.3 1,856 1,856
2020 5,321 1.4 5,321 5,321
2021 - - 1,080 23
2027 - - 1,000 697
Drawn credit facilities 11,133 1.3 12,659 11,133
Undrawn credit facilities2 1,526 0.1
Financial instruments 4,600 0.2
TOTAL 1.6

1Average annual interest rate refers to the average interest rate based on interest rate terms and the outstanding liability at 30 September 2017.

2 The impact of costs related to undrawn credit facilities on the average annual interest rate is 0.05 percentage points.

SHARE INFORMATION

SHARE PERFORMANCE

Diös' share price at the end of the period was SEK 52.0 (50.8), which represents a market capitalisation of SEK 6,995 million (4,839), and the return for the past 12 months was 2.4 per cent (16.7). If the adopted dividend of SEK 2.00 per share is included, the total return on the shares for the period was 7.0 per cent (22.3). The graph shows share prices for the past 12 months for both Diös and the indexes. The return on the OMX Stockholm 30 Index was 13.8 per cent (3.4) and the return on the OMX Stockholm Real Estate PI index 3.9 per cent (28.3).

At 30 September Diös Fastigheter AB had 15,409 shareholders (11,291). The proportion of foreign-owned shares was 20.5 per cent (16.8) of the total number of shares, which increased over the period to 134,512,438,(74,729,134) The single largest shareholder was AB Persson Invest, with 15.4 per cent (15.4) of the shares. The ten largest shareholders accounted for 56.2 per cent (59.6) of the total number of shares and votes.

The Annual General Meeting 2017 resolved to authorise the company to buy back ten per cent of the total number of outstanding shares of the company. No repurchases were made during the period.

No new changes of ownership were flagged during the period. A list of the ten largest owners of Diös Fastigheter AB according to Euroclear Sweden AB is shown below.

Diös Fastigheter AB is a publicly traded company listed on the NASDAQ OMX Nordic Exchange Stockholm, Mid Cap list. The ticker symbol is DIOS and the ISIN code SE0001634262.

RETURN AND NET ASSET VALUE

Our goal is to generate a return on equity in excess of the risk-free rate plus 6 per cent. The target return for the past 12 months was 5.9 per cent (5.9). On an annualised basis, the return for the period was 18.8 per cent (19.2).

Equity at the end of the second quarter was SEK 6,631 million (4,047) and the long-term net asset value, EPRA NAV, was SEK 7,776 million (5,036). On a per share basis, EPRA NAV was SEK 57.8 (52.8), which means that the share price at 30 September represented 90 per cent (96) of the long-term net asset value. The net asset value per share for the period, expressed as EPRA NNNAV, was SEK 56.1 (50.4).

EARNINGS

Earnings per share for the period were SEK 5.87 (5.87) while long-term earnings per share, expressed as EPRA EPS, were SEK 4.15 (3.86). EPRA EPS, which is designed to show an entity's long-term earnings per share, is calculated as property management income after deducting 22 per cent corporation tax attributable to property management income less minority share of earnings.

SHARE PRICE PERFORMANCE

Diös Fastigheter OMX Stockholm 30 Index OMX Stockholm Real Estate PI SHARE PRICE (SEK) VOLUME ('000)

LARGEST SHAREHOLDERS

OF DIÖS FASTIGHETER AB AT 30 SEPTEMBER 2017

SHAREHOLDER No. of shares Capital and votes,
%
AB Persson Invest 20,699,443 15.4
Backahill Inter AB 14,095,354 10.5
Bengtssons Tidnings Aktiebolag 13,574,748 10.1
Pensionskassan SHB Försäkringsförening 8,096,827 6.0
Försäkringsaktiebolaget, Avanza Pension 5,127,065 3.8
SEB Investment Management 4,150,335 3.1
Handelsbankens Fonder 2,921,777 2.2
Fourth Swedish National Pension Fund (AP4) 2,535,311 1.9
Ssb Client Omnibus Ac Om07 (15 pct) 2,394,359 1.8
Staffan Rasjö 2,000,000 1.5
Total, largest shareholders 75,595,219 56.2
Other shareholders 58,917,219 43.8
TOTAL 134,512,438 100.0

20 DIÖS FASTIGHETER AB INTERIM REPORT JANUARY–SEPTEMBER 2017 Blomsterservice, a Diös tenant in the In: shopping centre, Jenny Söderberg, florist.

OTHER DISCLOSURES

EMPLOYEES AND ORGANISATION

The number of employees at 30 September 2017 was 155 (152), of whom 63 were women (61). The majority of Diös' employees, 107 people (103), work in our seven business areas. During the spring we have been in a recruitment phase, strengthening our business-driving roles in lettings and property management as well as our operational organisation.

PARENT COMPANY

The activities of the parent company consist of central Group functions as well as the ownership and operation of the Group's subsidiaries. Sales totalled SEK 128 million (105) and the profit after tax was SEK 326 million (-315). Profit after tax includes dividends from Group companies in the amount of SEK 300 million (300). Net sales refer chiefly to services sold to the Group's subsidiaries. Cash and cash equivalents at 30 September 2017 were SEK 16 million (0) and drawn overdraft facilities were SEK 0 million (118). External interest-bearing liabilities, excluding overdraft facilities, totalled SEK 3,457 million (2,037). The average annual interest rate based on the situation at 30 September 2017 was 1.2 per cent (0.8). The parent company prepares its financial reports in compliance with RFR 2 Financial Reporting for Legal Entities.

OPPORTUNITIES AND RISKS

Diös Fastigheters' principal risks and uncertainties are described on pages 52-54 of the 2016 annual report. Apart from what is stated in the following, there have been no material changes to Diös' risks and uncertainties.

At its monetary policy meeting on 6 September the Riksbank decided to keep its repo rate unchanged at -0.5 per cent. Only in the second half of 2018 does the executive board deem that it will be appropriate to start raising interest rates at a modest pace. The central bank continues to purchase government bonds in accordance with its previous decision, with the aim of stabilising inflation at around 2 per cent.

In the August 2017 edition of Swedish Economy the National Institute of Economic Research (KI) upgraded its forecast for Swedish GDP growth in 2017 to 3 per cent as a result of strong growth in the second quarter, which was due to increased business investment, including investment in housing, which has increased at a faster pace.

Thanks to Sweden's strong public finances, healthy banks and growing GDP, the prospects for growth in our markets are deemed to be good. As our property operations continue to generate strong cash flows, we are seeing a stabilisation of yields in market valuations of our properties and of our property values. In aggregate, these factors should strengthen property as an asset class.

RELATED-PARTY TRANSACTIONS

There were no significant related party transactions in the period. Those related party transactions which did occur are deemed to have been concluded on market terms.

ACCOUNTING POLICIES

Diös complies with EU-adopted IFRS standards and the interpretations of these (IFRIC). This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The report for the parent company is prepared in accordance with RFR 2 Financial Reporting for Legal Entities and the Swedish Annual Accounts Act. The accounting policies applied in preparing the interim report are consistent with the accounting policies applied in preparing the consolidated financial statements and annual accounts for 2016, Note 1.

IMPACT OF NEW OR REVISED IFRS FROM 1 JANUARY 2018 OR LATER

IFRS 9 Financial Instruments is applicable from 2018 and replaces IAS 39 Financial Instruments. Under the recommendation, Diös will be required to assess expected future credit losses. We do not expect the standard to have a material impact on Diös' financial statements.

IFRS 15 Revenue Recognition will be applied from 1 January 2018. Diös' revenue consists essentially of rental income from properties as well as sales income from the sale of properties. The recommendation introduces increased disclosure requirements for sales, such as disclosures on variable or conditional considerations and/or financing arrangements. Clarifications have also been introduced, which, in brief, require that performance obligations for the principal versus agent be identified. This can have an impact on the recognition of revenue when costs are passed on tenants, which in turn depends on whether Diös is acting as principal or agent in such situations. As Diös recognises the sale of properties at the completion date, this is not expected to have a significant impact. Having initiated a review to assess what impact the standard will have, our assessment is that the standard may affect Diös' financial statements.

IFRS 16 Leases applies for financial years beginning on 1 January 2019. The accounting treatment for lessors will remain essentially unchanged. For lessees, the standard will have the effect that most leases will be recognised in the balance sheet. For Diös, the main impact will be on the recognition of leasehold contracts and car leases, which will be recognised in the balance sheet and will thus have an impact on total assets.c The lease payment will be accounted for as depreciation of the right-of-use asset and as an interest expense, and will thus no longer be included in net operating income. As Diös has a limited number of contracts, the impact on the financial statements is expected to be limited.

SEASONAL VARIATIONS

Costs for operations and maintenance are subject to seasonal variations. Cold weather and snow affect the costs for heating, snow clearance and roof snow removal. The costs are normally higher in the first and fourth quarters.

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME, SEKM

INCOME STATEMENT 2017
3 mths
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Rental income 431 331 1,263 992 1,323
Other property management income 5 4 13 12 17
Property costs -149 -123 -462 -393 -534
Operating surplus 287 212 814 611 806
Central administration -16 -13 -52 -45 -63
Net financial items -49 -52 -137 -160 -204
Property management income 222 147 625 406 539
Change in value, properties 43 107 347 147 327
Change in value, interest rate derivatives 7 27 21 74 91
Profit before tax 272 281 993 627 957
Current tax -10 -8 -27 231 111
Deferred tax -70 -44 -193 -84 -136
Profit after tax 192 229 773 566 832
Profit attributable to shareholders of the parent 192 228 770 559 825
Profit attributable to non-controlling interests 0 1 3 7 7
Total 192 229 773 566 832
STATEMENT OF COMPREHENSIVE INCOME
Profit after tax 192 229 773 566 832
Comprehensive income for the period 192 229 773 566 832
Comprehensive income attributable to shareholders of the parent 192 228 770 559 825
Comprehensive income attributable to non-controlling interests 0 1 3 7 7
Total 192 229 773 566 832
Earnings per share, SEK 1.43 2.39 5.87 5.87 8.66
Number of shares at end of period ('000) 134,512 95,290 134,512 95,290 95,290
Average number of shares ('000) 134,512 95,290 131,208 95,290 95,290
Number of treasury shares at end of period 0 0 0 0 0
Average number of treasury shares 0 0 0 0 0

1Current tax for 2016 includes a reversal of SEK 37 million related to a provision that was recognised in 2017.

CONDENSED CONSOLIDATED BALANCE SHEET, SEKM

ASSETS 2017
30 Sep
2016
30 Sep
2016
31 Dec
Non-current assets
Investment properties 19,260 13,357 13,683
Other property, plant and equipment 4 4 3
Intangible assets 2 3 2
Financial assets 40 39 36
Total non-current assets 19,306 13,403 13,724
Current assets
Current receivables 245 190 196
Cash and cash equivalents 19 - -
Total current assets 264 190 196
TOTAL ASSETS 19,570 13,593 13,920
EQUITY AND LIABILITIES
Equity 6,631 4,047 4,313
Deferred tax liability 1,202 957 1,009
Provisions 9 9 9
Interest-bearing liabilities 11,133 7,960 8,013
Overdraft facilities - 118 15
Current liabilities 595 502 561
TOTAL LIABILITIES AND EQUITY 19,570 13,593 13,920

CONDENSED STATEMENT OF CHANGES IN EQUITY, SEKM

Equity Attributable to
shareholders of the
parent
Attributable to
minority interests
Equity, 31 Dec 2015 3,694 3,658 36
Profit for the period after tax 566 559 7
Comprehensive income for the period 566 559 7
Dividend -213 -213 -
Equity, 30 Sep 2016 4,047 4,004 43
Profit for the period after tax 266 266 0
Comprehensive income for the period 266 266 0
Equity, 31 Dec 2016 4,313 4,270 43
Profit for the period after tax 773 770 3
Comprehensive income for the period 773 770 3
Issue of new shares 1,853 1,853 -
Issue costs -51 -51 -
Tax effect of issue costs 11 11 -
Dividend -269 -269 -
Equity, 30 Sep 2017 6,631 6,584 46

CONDENSED CONSOLIDATED CASH FLOW STATEMENT, SEKM

OPERATING ACTIVITIES 2017
3 months
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Operating surplus 287 212 814 611 806
Central administration -16 -13 -52 -45 -63
Reversal of depreciation, amortisation and impairment 2 -11 2 -11 5
Interest received 1 1 2 1 1
Interest paid -32 -43 -154 -161 -184
Tax paid -10 -8 -27 -14 -26
Operating cash flow before changes in working capital 232 138 585 381 539
Changes in working capital
Decrease (+)/increase (-) in receivables 1 -3 -11 -82 -92
Decrease (-)/increase (+) in current liabilities 9 6 -89 -6 35
Total changes in working capital 10 3 -100 -88 -57
Operating cash flow 242 141 485 293 482
INVESTING ACTIVITIES
Investments in new builds, conversions and extensions -141 -70 -385 -327 -452
Acquisition of properties -175 -21 -2,491 -100 -136
Sale of properties 149 - 152 637 641
Other property, plant and equipment - - - - -
Other financial assets - - - -30 -26
Investing cash flow -167 -91 -2,724 180 27
FINANCING ACTIVITIES
Dividends paid - - -269 -213 -213
Issue of new shares - - 1,802 - -
New borrowing, interest-bearing liabilities 10 - 3,134 263 370
Repayment and redemption of interest-bearing liabilities -18 -9 -2,394 -414 -454
Change in overdraft facility -48 -41 -15 -109 -212
Financing cash flow -56 -50 2,258 -473 -509
Cash flow for the period 19 0 19 0 0
Cash and cash equivalents at beginning of period 0 0 0 0 0
Cash and cash equivalents at end of period 19 0 19 0 0

DIÖS FASTIGHETER AB INTERIM REPORT JANUARY–SEPTEMBER 2017 Stefan Jönsson, Technical Manager, Östersund. 25

PROPERTY PORTFOLIO AT 30 SEP 2017

Diös owned 339 properties in 10 locations, from Borlänge in the south to Luleå in the north. The total leasable area was 1,552,544 square metres. The economic occupancy rate based on the number of concluded leases at 30 September was 91 per cent. During the period Diös invested SEK 388 million in new builds, extensions and conversions. In terms of value, Västerbotten, Retail and Jämtland accounted for the largest share of the portfolio. The total market value of the properties was SEK 19,260 million.

Figures refer to SEK million unless otherwise indicated.

By business area Retail Dalarna Gävleborg Västernorrland Jämtland Västerbotten Norrbotten The Diös
Group
Rental income 210 160 133 154 212 233 161 1,263
Other revenue 1 3 3 1 2 1 2 13
Repair and maintenance -6 -7 -7 -7 -9 -13 -6 -55
Tariff-based costs -23 -21 -15 -19 -32 -28 -15 -153
Property tax -14 -6 -7 -7 -10 -12 -10 -66
Other property costs -34 -14 -12 -14 -20 -22 -14 -129
Property management -9 -8 -6 -10 -11 -8 -7 -60
Operating surplus 123 107 89 98 133 151 113 814
Undistributed items
Central administration - - - - - - - -52
Net financial items - - - - - - - -137
Property management income - - - - - - - 625
Changes in value
Property, realised - - -1 1 - 12 - 12
Property, unrealised -16 14 53 59 110 77 38 335
Interest rate derivatives - - - - - - - 21
Profit before tax - - - - - - - 993
Current tax - - - - - - - -27
Deferred tax - - - - - - - -193
Non-controlling interests - - - - - - - -3
Profit for period attributable to
shareholders of the parent
- - - - - - - 770
Leasable area, sq.m 166,759 224,594 228,309 192,079 289,336 286,677 164,790 1,552,544
Rental value 233 177 150 177 234 254 170 1,395
Economic occupancy rate, % 90 90 89 87 91 92 95 91
Surplus ratio, % 59 67 67 64 63 65 70 64
Change in property portfolio
Property portfolio, 1 January 2017 2,042 2,003 1,756 1,397 2,776 2,219 1,490 13,683
Acquisitions 1,066 1 - 1,047 - 1,706 1,177 4,997
Investments in new builds, extensions and
conversions
72 54 24 60 63 73 42 388
Sales -24 - -33 -33 - -53 - -143
Unrealised changes in value -16 14 53 59 110 77 38 335
Property portfolio, 30 September 2017 3,140 2,072 1,800 2,530 2,949 4,022 2,747 19,260

Columns/rows may not add up due to rounding.

PROPERTY PORTFOLIO AT 30 SEP 2016

Diös owned 313 properties in 10 locations, from Borlänge in the south to Luleå in the north. The total leasable area was 1,351,198 square metres. The economic occupancy rate based on the number of concluded leases at 30 September was 90 per cent. During the period Diös invested SEK 310 million in new builds, extensions and conversions. In terms of value, Jämtland Västerbotten and Retail accounted for the largest share of the portfolio. The total market value of the properties was SEK 13,357 million.

Figures refer to SEK million unless otherwise indicated.

By business area Retail Dalarna Gävleborg Västernorrland Jämtland Västerbotten Norrbotten The Diös
Group
Rental income 151 155 127 103 196 161 99 992
Other revenue 2 2 1 2 2 1 2 12
Repair and maintenance -4 -9 -8 -6 -11 -10 -6 -53
Tariff-based costs -18 -21 -15 -15 -32 -22 -9 -131
Property tax -10 -6 -7 -4 -9 -8 -5 -50
Other property costs -26 -14 -12 -13 -20 -15 -9 -108
Property management -6 -7 -6 -8 -11 -7 -6 -50
Operating surplus 88 100 82 60 116 99 66 611
Undistributed items
Central administration - - - - - - - -45
Net financial items - - - - - - - -160
Property management income - - - - - - 406
Changes in value
Property, realised - - - -3 -3 -4 - -10
Property, unrealised -27 -9 29 24 40 31 68 157
Interest rate derivatives - - - - - - - 74
Profit before tax - - - - - - 627
Current tax - - - - - - - 23
Deferred tax - - - - - - - -84
Non-controlling interests - - - - - - - -7
Profit for period attributable to
shareholders of the parent
- - - - - - - 559
Leasable area, sq.m 123,260 224,594 235,862 143,993 287,010 226,119 110,360 1,351,198
Rental value 167 172 145 122 220 176 106 1,107
Economic occupancy rate, % 91 90 88 85 89 91 93 90
Surplus ratio, % 59 65 65 58 59 62 66 62
Change in property portfolio
Property portfolio, 1 January 2016 2,071 1,938 1,663 1,632 2,712 2,046 1,319 13,381
Acquisitions - - - - 102 68 - 170
Investments in new builds,
extensions and conversions
28 52 20 29 67 79 36 310
Sales - - - -341 -256 -64 - -661
Unrealised changes in value -27 -9 29 24 40 31 68 157
Property portfolio, 30 September 2016 2,072 1,981 1,712 1,344 2,665 2,160 1,423 13,357

Columns/rows may not add up due to rounding.

FINANCIAL KPIS

The company presents certain financial measures in the interim report that have not been defined in accordance with IFRS. The company considers that these measures provide valuable additional information for investors, analysts and the company's management, as they enable the evaluation of relevant trends and the company's performance. As not all companies calculate

measures used by other companies. These financial measures should therefore not be viewed as substitutes for IFRS-defined measures. The following table presents non-IFRS measures unless otherwise stated. Definitions of these measures are found on page 34.

. Figures refer to SEK million unless otherwise indicated.

financial measures in the same way, these are not always comparable with the 2017
3 months
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Number of shares at end of period (balance sheet-related key ratios)1 134,512 95,290 134,512 95,290 95,290
Average number of shares (income statement-related key ratios)1 134,512 95,290 131,208 95,290 95,290

1 Historical data for the number of shares has been restated to take account of the effect of bonus issues (i.e. the value of the subscription rights) in issues of new shares and has been used in all KPI calculations for SEK per share. The conversion factor is 1.28.

OPERATING RESULTS

The company governs its operations based partly on the objective of generating capital growth by increasing the surplus ratio and thereby the cash flow from operating activities, i.e. increased income from property management. The target for the year is a surplus ratio in excess of 63 per cent. The income from property management is also the basis for what is distributed annually to the shareholders – around 50 per cent of the profit for the year after tax, excluding unrealised changes in value and deferred tax. Diös also reports the alternative performance indicators property management income, EPRA earnings and surplus ratio, as these are deemed to be relevant for investors and analysts, and provide additional information on the company's operating results. The indicators provide a picture which excludes factors that are partly beyond the control of the company, such as changes in the value of properties and derivatives.

Property management income 2017
3 months
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Profit before tax 272 281 993 627 957
Reversal
Change in value, properties -43 -107 -347 -147 -327
Change in value, derivatives -7 -27 -21 -74 -91
Property management income 222 147 625 406 539
EPRA earnings (property management income after tax)
Property management income 222 147 625 406 539
Reversal, current tax property management income -27 -8 -77 -31 -42
Minority share of earnings 0 -1 -3 -7 -7
EPRA earnings / EPRA EPS 195 138 545 368 490
EPRA earnings / EPRA EPS per share 1.45 1.45 4.15 3.86 5.14
Surplus ratio
Operating surplus as per income statement 287 212 814 611 806
Rental income as per income statement 431 331 1,263 992 1,323
Surplus ratio, % 67 64 64 62 61

NET ASSET VALUE

Net asset value is the total capital which the company manages on behalf of its owners. Based on this capital, Diös aims to generate returns and growth while maintaining a low risk. Net asset value can also be calculated on a long-term and short-term basis. Long-term NAV is based on the balance sheet after adjusting for items which involve no near-term outgoing payments, which in Diös' case refers, for example, to the fair value of financial instruments (derivatives) and deferred tax on temporary differences. The current net asset value consists of equity according to the balance sheet after adjusting for the market value of the deferred tax liability. EPRA NAV and EPRA NNNAV are designed to show the size of the company's equity in case of a liquidation in the short and long term. These performance indicators can be compared with the company's share price to obtain a picture of how the shares are valued in relation to equity.

Net asset value 2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Equity as per balance sheet 6,631 4,047 4,313
Minority share of equity -46 -43 -43
Reversal as per balance sheet
Fair value of financial instruments 22 60 43
Deferred tax on temporary differences 1,169 972 1,023
EPRA NAV (long-term net asset value) 7,776 5,036 5,336
EPRA NAV (long-term net asset value) per share, SEK 57.8 52.8 56.0
Deductions
Fair value of financial instruments -22 -60 -43
Estimated actual deferred tax on temporary differences, approx. 4%1 -208 -177 -180
EPRA NNNAV (short-term net asset value) 7,547 4,799 5,113
EPRA NNNAV (short-term net asset value) per share, SEK 56.1 50.4 53.7

1 Estimated actual deferred tax has been calculated at approx. 4 per cent based on a discount rate of 3 per cent. The calculation is based on the assumption that the property portfolio will be realised over a period of 50 years, with 10 per cent of the portfolio being sold directly subject to a nominal tax rate of 22 per cent, and the remaining 90 per cent being sold indirectly through companies subject to a nominal tax rate of 6 per cent.

FINANCIAL RISK

The company's strategy is to own, develop and manage properties in a value-creating sustainable manner that promotes development while maintaining a stable financial risk. This is expressed in the ambition to ensure that the loan-to-value ratio does not exceed 60 per cent over extended periods and to maintain an equity/assets ratio in excess of 30 per cent. The loan-to-value ratio and equity ratio show the company's financial stability while the interest coverage ratio shows the company's ability to pay interest. These key ratios are deemed to be relevant for investors and analysts from a financial risk perspective. They also constitute covenants from the company's lenders and the Board has defined targets for these key ratios, which are used to govern the company's activities.

Loan-to-value ratio 2017
3 months
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Interest-bearing liabilities 11,133 7,960 8,013
Investment properties 19,260 13,357 13,683
Loan-to-value ratio, % 57.8 59.6 58.6
Equity ratio
Equity 6,631 4,047 4,313
Total assets 19,570 13,593 13,920
Equity ratio, % 33.9 29.8 31.0
Interest coverage ratio
Property management income 222 147 625 406 539
Reversal
Financial costs 49 52 139 161 204
Total 271 199 764 567 743
Financial costs 49 52 139 161 206
Interest coverage ratio, times 5.5 3.8 5.5 3.5 3.6

OTHER KEY RATIOS

Other key ratios refer to a number of measures of return which the company uses to describe various aspects of the statement of financial position and to give investors and analysts further information about the operations. The company reports return on equity, equity per share and cash flow per share, as these performance indicators show the company's results and profitability, equity on a per share basis, and the company's ability to fulfil its obligations and pay dividends to the shareholders. These alternative performance indicators supplement the picture given of Diös' financial performance and enable investors and analysts to gain a better understanding of the company's return and results. Yield is a measure of the results generated by the properties in relation to their market value. It shows the profitability of the properties and is considered to provide supplementary information for investors and analysts concerning the risk in the portfolio. The debt/equity ratio is presented in order to supplement the picture of Diös' financial situation. It shows the ratio of interest-bearing liabilities to equity. The measure is considered to enhance investors' and analysts' ability to assess the company's financial stability.

Return on equity, %
Operating surplus, SEKm
Yield, %
2.9
287
1.5
5.8
212
14.1
814
14.4 6.4
611 806
1.6 4.2 4.6 5.9
Equity per share, SEK 49.3 42.5 49.3 42.5 45.3
Rental income, SEKm 431 331 1,263 992 1,323
Cash flow per share, SEK
Profit before tax 272 281 993 627 957
Reversal, unrealised change in value
Properties -33 -107 -335 -157 -337
Derivatives -7 -27 -21 -74 -91
Depreciation and amortisation 1 1 2 2 2
Current tax -10 -8 -27 23 -26
Total 223 140 612 421 504
Average number of shares ('000) 134,512 95,290 131,208 95,290 95,290
Cash flow per share, SEK 1.66 1.47 4.66 4.42 5.29
Earnings per share, SEK 1.43 2.39 5.87 5.87 8.66
Debt/equity ratio, times 1.7 2.0 1.9

OTHER INFORMATION

Diös also reports data for economic occupancy, rental value and net leasing, as these performance indicators provide a more in-depth picture of the company's financial performance with regard to revenues in the properties and thus also in the company. These performance indicators are widely used in the industry, and enable investors and analysts to make comparisons between different property companies.

2017
3 months
Jul-Sep
2016
3 months
Jul-Sep
2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Rental value, SEKm 475 368 1,395 1,107 1,478
Economic occupancy rate, % 91 90 91 90 90
No. of properties at end of period 339 313 314
Leasable area at end of period, sq.m 1,552,544 1,351,198 1,353,525
Market value of properties, SEKm 19,260 13,357 13,683

TARGETS

OPERATIONAL TARGETS Target 2017 Outcome Q3 2017
Economic occupancy rate, % 92 91
Surplus ratio, % 63 64
Energy use, % -4 -1
Employee satisfaction index 76 -
Customer satisfaction index 70 -

FINANCIAL TARGETS Target 2017 Outcome Q3 2017 Return on equity, % Risk-free rate1 +6% 18.82 Distribution of profit for the year3, % ~50 - Loan-to-value ratio, % < 60 57.8 Equity ratio, % > 30 33.9

1 Risk-free rate as represented by an average five-year government bond +6%.

2 Return on equity has been annualised.

3 Profit after tax, excluding unrealised changes in value and deferred tax.

SHARE CAPITAL HISTORY

Date Event Increase in number of
shares
Increase in share capital,
SEK
Total number of
shares
Total share capital,
SEK
Face value,
SEK
1 Jan 2005 At beginning of period - - 10,000 100,000 10.00
21 Jun 2005 Share split 990,000 - 1,000,000 100,000 0.10
21 Jun 2005 Issue of new shares 1,489,903 148,990 2,489,903 248,990 0.10
14 Sep 2005 Non-cash issue 1,503,760 150,376 3,993,663 399,366 0.10
2 Jan 2006 Bonus issue - 39,537,264 3,993,663 39,936,630 10.00
2 Jan 2006 Share split 15,974,652 - 19,968,315 39,936,630 2.00
18 May 2006 Issue of new shares 8,333,400 16,666,800 28,301,715 56,603,430 2.00
11 Jul 2006 Non-cash issue 5,000,000 10,000,000 33,301,715 66,603,430 2.00
19 Apr 2007 Non-cash issue 666,250 1,332,500 33,967,965 67,935,930 2.00
29 Oct 2010 Non-cash issue 99,729 199,458 34,067,694 68,135,388 2.00
14 Dec 2010 Issue of new shares 3,285,466 6,570,332 37,353,160 74,705,720 2.00
17 Dec 2010 Issue of new shares 11,407 22,814 37,364,567 74,728,534 2.00
5 Dec 2011 Issue of new shares 22,854,136 45,708,272 60,218,703 120,436,806 2.00
14 Dec 2011 Issue of new shares 14,510,431 29,020,862 74,729,134 149,457,668 2.00
27 Jan 2017 Issue of new shares 59,629,748 119,259,496 134,358,882 268,717,164 2.00
31 Jan 2017 Issue of new shares 153,556 307,112 134,512,438 269,024,276 2.00

CONDENSED PARENT COMPANY INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME, SEKM

INCOME STATEMENT 2017
9 months
Jan-Sep
2016
9 months
Jan-Sep
2016
12 months
Jan-Dec
Net sales 128 105 137
Gross profit 128 105 137
Central administration -157 -137 -178
Operating profit -29 -32 -41
Income from interests in Group companies 300 300 300
Financial income 217 191 236
Financial costs -162 -144 -184
Profit after financial items 326 315 311
Current tax - - -
Profit after tax 326 315 311
STATEMENT OF COMPREHENSIVE INCOME
Profit after tax 326 315 311
Comprehensive income for the year 326 315 311

CONDENSED PARENT COMPANY BALANCE SHEET, SEKM

Condensed parent company balance sheet, SEKm
ASSETS
2017
30 Sep
2016
30 Sep
2016
31 Dec
Interests in Group companies 2 124 270 270
Receivables from Group companies 11 223 8 764 8 719
Other receivables 23 17 28
Cash and cash equivalents 16 - -
TOTAL ASSETS 13 386 9 051 9 017
EQUITY AND LIABILITIES
Equity 2 986 1 131 1 127
Liabilities to credit institutions 3 457 2 037 2 145
Liabilities to Group companies 6 908 5 738 5 692
Overdraft facilities - 118 17
Other liabilities 35 27 36
TOTAL EQUITY AND LIABILITIES 13 386 9 051 9 017

FINANCIAL CALENDAR

Year-end Report January–December 2017 16 February 2018
Annual Report 2017 29 March 2018
Interim Report January–March 2018 24 April 2018
Annual General Meeting 2018 24 April 2018
Interim Report January–June 2018 6 July 2018
Interim Report January–September 2018 25 October 2018

EVENTS AFTER THE REPORTING DATE

On 2 October 2017 Diös completed on two central commercial properties with a combined floor space of around 6,500 sq.m and sold two residential properties with a combined floor space of around 6,500 sq.m in a deal with Lerstenen in Umeå. The underlying property values were SEK 110 million for the acquired properties and SEK 90 million for the divested properties. The deal was communicated on 16 June 2017.

The Board of Directors and Chief Executive Officer declare that the interim report gives a true and fair view of the company's and Group's operations, financial position and income, and describes the principal risks and uncertainties faced by the company and the companies in the Group.

Financial reports can be viewed in full on Diös' website, www.dios.se

Östersund, 25 October 2017

Bob Persson Chairman

Ragnhild Backman Board member

Anders Bengtsson Board member

Maud Olofsson Board member

Anders Nelson Board member

Tomas Mellberg Board member Employee representative

Knut Rost Chief Executive Officer

c c c AUDITOR'S REVIEW REPORT

To the Board of Directors of Diös Fastigheter AB (publ), corp. ID no. 556501-1771

INTRODUCTION

We have conducted a review of the interim report of Diös Fastigheter AB (publ) for the period 1 January 2017 to 30 September 2017. Responsibility for the preparation and presentation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act rests with the Board of Directors and Chief Executive Officer. Our responsibility is to express a conclusion on the interim report based on our review.

FOCUS AND SCOPE OF THE REVIEW

We have conducted our review in accordance with the International Standard on Review Engagements (ISRE) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review involves making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review has a different focus and significantly smaller scope than an audit in accordance with ISA and generally accepted auditing standards. The procedures taken when conducting a review do not enable us to obtain a degree of certainty that would make us aware of all material circumstances that would have been identified if an audit had been performed. The conclusion expressed on the basis of a review therefore does not have the same level of certainty as a conclusion expressed on the basis of an audit.

CONCLUSION

Based on our review, no circumstances have come to light that would give us reason to believe that the interim report has not, in all material respects, been prepared, in respect of the Group, in accordance with IAS 34 and the Annual Accounts Act, and in respect of the parent company, in accordance with the Swedish Annual Accounts Act.

Östersund, 25 October 2017 Deloitte AB Richard Peters Authorised Public Accountant

DEFINITIONS

NUMBER OF SHARES AT END OF PERIOD

Actual number of shares outstanding at the end of the period.

RETURN ON EQUITY

Profit for the period in relation to average equity. Average equity is defined as the sum of the opening and closing balance divided by two.

LOAN-TO-VALUE RATIO, PROPERTIES

Interest-bearing and other liabilities relating to properties, divided by the carrying amount of the properties at the end of the period.

YIELD

Operating surplus for the period divided by the properties' market value at the end of the period.

EQUITY PER SHARE

Equity at the end of the period divided by the number of shares outstanding at the end of the period.

ECONOMIC OCCUPANCY RATE

Rental income for the period divided by rental value at the end of the period.

ECONOMIC OCCUPANCY RATE

Estimated market rent for unused premises divided by total rental value.

EPRA EPS

Property management income less nominal tax attributable to property management income, divided by average number of shares. Taxable property management income refers to property management income less, inter alia, tax-deductible depreciation and amortisation and redevelopments.

EPRA NAV/LONG-TERM NET ASSET VALUE PER SHARE

Equity at the end of the period after reversal of interest rate derivatives and deferred tax attributable to temporary differences in properties and minority share of equity, divided by the number of outstanding shares at the end of the period.

EPRA NNNAV/CURRENT NET ASSET VALUE PER SHARE

Equity at the end of the period adjusted for actual deferred tax instead of nominal deferred tax and minority share of equity, divided by the number of shares outstanding at the end of the period.

PROPERTY MANAGEMENT INCOME

Revenue less property costs, costs for central administration and net financial items.

AVERAGE NUMBER OF SHARES

Number of shares outstanding at the beginning of the period, adjusted by the number of shares issued or repurchased during the period weighted by the number of days that the shares were outstanding, in relation to the total number of days in the period.

RENTAL INCOME

Rents invoiced for the period less rent losses and rent discounts.

RENTAL VALUE

Rent at the end of the period plus a supplement for the estimated market rent for unoccupied floor space.

CASH FLOW PER SHARE

Profit before tax, adjusted for unrealised changes in value plus depreciation/amortisation less current tax, divided by the average number of shares.

NET LEASING

Net annual rent, excluding discounts and supplements, for newly signed, terminated and renegotiated contracts. No account is taken of the length of contracts.

EARNINGS PER SHARE

Profit for the period after tax, attributable to shareholders, divided by the average number of shares.

INTEREST COVERAGE RATIO

Income from property management after reversal of financial costs, divided by financial costs for the period.

DEBT/EQUITY RATIO

Interest-bearing liabilities in relation to shareholders' equity at the end of the period.

EQUITY/ASSETS RATIO

Equity divided by total assets at the end of the period.

SURPLUS RATIO

Operating surplus for the period divided by the rental income for the period.

DIÖS FASTIGHETER AB (PUBL) FRITZHEMSGATAN 1A, BOX 188, SE-831 22 ÖSTERSUND, TEL: +46 (0)770-33 22 00 CRN: 556501-1771, REGISTERED OFFICE ÖSTERSUND, WWW.DIOS.SE

DIÖS KOMMUNIKATION 2017, PHOTOGRAPHS: TINA STAFRÉN

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