Investments 44 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

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1 Investments Long-term and sustainable growth means that we continuously refine and develop the real estate portfolio by investing in new construction, extensions and reconstructions, as well as making new acquisitions. Investments are to be sustainable, while meeting customer demand and matching tenant requirements for premises and workplaces. New development projects are gradual ly added to Castellum s portfolio through the acquisition of attractive and promising properties, as well as unutilized building rights. 44 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

2 INVESTMENTS Continued focus on developing Castellum s real estate portfolio One of Castellum s strategies for reaching an overall growth target of 10% involves enhancement the real estate portfolio. This requires annual investments in new construction, extensions and reconstruction of properties in the existing portfolio actions which often result in higher yield than acquisition investments. In the last 10 years, Castellum has invested SEK 56 billion, corresponding to an average of SEK 5.6 billion per year. In 2017, Castellum experienced lower activity in the portfolio compared with previous year, and investments totalled SEKm 6,488 (31,491), of which SEKm 3,595 (29,372) were acquisitions and SEKm 2,893 (2,119) were new constructions, extensions and reconstructions. After sales of SEKm 875 (6,754), net investments amounted to SEKm 5,613 (24,737). The proposal in March 2017 for tax changes regarding real estate transactions created uncertainty and thus had some impact during the year on the transaction market in terms of lead time and negotiations for transaction-related tax rebates. Castellum carried out several real estate acquisitions and changes of possession in In February, Castellum gained access to Torsplan 2 in Stockholm and also acquired the property on Torsgatan 26 (Sabbatsberg 24, previously Stockholm Vatten s headquarters), near Bantorget in Stockholm. The latter has a leasable area of 13,000 sq.m. with estimated opportunities for new building rights. Castellum already owns the neighbouring property and plans to join Stockholm City and other real estate owners in the area to create a concept for all of Torsgatan. At the end of the year, Castellum was announced winner of Stockholm City s land allocation competition in Söderstaden an extensive development area south of central Stockholm. The city-development project is one of Castellum s largest projects and will be carried out in a consortium with real estate companies Wallenstam AB and Åke Sundvall AB. The proposal amounts to approx. 100,000 sq.m, of which Castellum will answer for 30,000 sq.m. of commercial real estate, such as office, hotel and restaurant space. The remaining 70,000 sq.m. are intended for residential buildings as well as new hockey-practice rinks. These examples underline that Castellum has the knowledge, the drive and the financing it takes to build further on a strong project portfolio. Also during 2017, Castellum completed a transaction with Klövern, involving the acquisition of 14 properties in Borås and the sale of 9 properties in Mölndal and Partille. The transaction led to Castellum becoming the largest private commercial property owner in Borås, and the company s portfolio in Borås increased by approx. 80% to about 185,000 sq.m, equivalent to a property value of SEKm 479. The transaction meant that Castellum left Partille, and the Mölndal portfolio was reallocated through the selling of offices. In the future, investments will instead be made for new projects with favourable growth conditions in the Investments and sales per year Investments and sales per region CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT 45

3 GENERAL SUSTAINABILITY PROGRAM FOR NEW CONSTRUCTION AND RECONSTRUCTION Procurement < SEKm 10 Generally, the following items are required: Code of Conduct, sustainability policy, environmental management system, waste plan, environmental plan, an Environmental project manager and energy-efficient product choices such as LED lighting and A-certified goods. All of this presumes the selection of sustainable building materials from both environmental and health perspectives, according to the assessments of the organization created for specifically this purpose: Byggvarubedömningen. COMPREHENSIVE SUSTAINABILITY PROGRAM FOR NEW CONSTRUCTION AND RECONSTRUCTION Procurement > SEKm 10 Miljöbyggnad level Gold* Choosing renewable energy sources Healthy indoor climate and carefully prepared moisture work Sustainable building materials Nearly zero-energy buildings* Always investigate the WELL health certification ** Create a more attractive building through artistic decoration. Engage local artists in projects** Install solar cells** Investigate the possibilities of outdoor offices according to Castellum s WorkOut concept** Create inviting stairwells** Energy-efficient and environmentally-friendly construction sites Fossil-independent vehicles at construction sites Reconstruct, recompose and increase amount of eco system services Climate-risk management Incentives for entrepreneurs to create job opportunities in projects * Miljöbyggnad level Gold applies to new construction or reconstruction of office or retail premises. Lower certification levels may only be used if there are special reasons why Gold cannot be achieved. ** Only applies for construction of office premises nearby Åbro area. At the end of the first quarter, Castellum also completed transactions with Wallenstam, in which Castellum acquired two properties in Gothenburg as well as an office building-right, while selling two properties in Kallebäck and Mölnlycke centre, respectively. These transactions corresponded to a property value of SEKm 335. In addition, a number of major construction projects were initiated during the year; for example, the construction of Eminent a unique office building in the Hyllie district of Malmö began in May Eminent is the first property in the Nordic region to be registered for certification according to the WELL Building Standard, a new international building standard that takes responsibility for people s well-being in working life. The investment is estimated at SEKm 353, including land acquisition. Castellum also started the construction of a logistics building in the Gothenburg port area part one of a venture that enables the establishment of large-scale logistics premises and supports the expansion of the Port of Gothenburg. The investment is estimated at SEKm 220, including land acquisition. During the year, the investment in the construction of a new car showroom and other commercial premises began in Smista Allé, Huddinge. During the 21 st century, this area has been rapidly developing into Stockholm s leading car dealership cluster. The investment is estimated at SEKm 334. Sustainable investments By directing Castellum towards more sustainable investments, we don t only take into account our own impact on the environment. Our approach also contributes to making the buildings more attractive for our stakeholders, reducing property management problems and costs, and facilitating closer monitoring. All Castellum investments are made from a sustainable perspective. Each investment issue is scrutinized by the Group s Head of Sustainability and must be approved from a sustainability perspective. These criteria are included in the planning stage, follow the entire project life-cycle and, in the next step, become a natural part of daily management. In recent years, Castellum has worked with sustainability issues in connection with new construction and larger reconstructions. In 2017, the Group s joint sustainability program was further developed and divided into two different levels: investments < SEKm 10 and investments > SEKm 10. Castellum environmentally certifies all new constructions and larger reconstructions. If the projects are office and retail premises in Sweden, they have to be certified according to Miljö byggnad, level Gold. A lower certification level may only be used if there are special reasons why Gold cannot be achieved. New projects in Denmark are to be certified according to BREEAM, level Excellent. Castellum owns the highest number of environmentally certified properties of the Swedish listed real estate companies, and a total of 29% of Castellum s 676 buildings (1,269, 000 sq.m.) are environmentally certified. Castellum currently owns 78 of Sweden s 376 Green Building-certified buildings. Development of Castellum s cities For Castellum, as a long-term real estate owner and urban developer, it is important to contribute in various ways to sustainable urban enrichment through the development of new and existing areas. Collaboration also takes place within approx. 309 city networks and corporate associations to develop both the districts in which Castellum operates as well as actively engaging in other social activities in our cities. We also cooperate continously with other parties to push development, share knowledge about new technologies and exchange experiences. Castel lum is, for example, a member of the following organizations: EPRA Sustainability Committee, GRESB Benchmark Committee, The Energy Agency s Beställargrupp för lokaler (BELOK), CMB at Chalmers University of Technology, and Sweden Green Building Council. In addition, the company cooperates closely with local energy companies and sanitation companies, as well as universities and colleges. 46 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

4 INVESTMENTS Building rights and potential projects - building the future Castellum Part of Castellum s strategy is to develop the project portfolio through new construction. In this context, it is a competitive advantage to own building rights in attractive locations with local zoning plans already in place as this implies the shortest possible lead-time until customers can occupy the premises. At year-end, Castellum had approximately 864 thousand sq.m. of unutilized building rights (leasable area). A number of these include finalized project plans which can be launched relatively promptly. During the year, Castellum made several major potential projects public, and these are summarized on the following pages. The projects are characterized by being situated in attractive development areas, in combination with Castellum s clear sustainability focus. Building rights by value and region Torsgatan 26 in Stockholm In spring 2017, Castellum acquired Stockholm Vatten s former headquarters, situated on Torsgatan 26 in central Stockholm. The property was designed by Ferdinand Boberg in the early 20th century and has a leasable area of 13,000 sq.m., with estimated opportunities for new building rights. In 2018, Castellum will renovate stage 1, comprising approximately 9,000 sq.m., into modern premises and access is planned during The idea is to preserve the building s historical and unique impression, while adding the modern technology associated with versatile and sustainable premises. Castellum already owns some of the neighbouring properties to Torsgatan 26 and sees great development potential in the area. Castellum s Torsgatan plan is to join Stockholm City and other property owners in creating a lively mixed-use neighbourhood in an attractive and central location. CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT 47

5 Cont. Building rights and potential projects Söderstaden in the Globen area, Stockholm At year end, it was announced that Castellum had won the City of Stockholm s land allocation competition for Söderstaden, a major development area south of Stockholm s city centre. The city development project is one of Castellum s largest and has been taken on by a consortium including Wallenstam AB and Åke Sundvall AB. The project includes a total of approx. 100,000 sq.m., and Castellum s 30,000 sq.m. share will comprise commercial properties, such as office space, hotels and restaurants. The remaining 70,000 sq.m. will be designated as residential premises and space for new hockey-training rinks. Depending on the final design and volume, and on condition that the proposal is implemented, Castellum estimates that the total investment, after the acquisition of building rights as well as property development, will amount to about SEKm 1,200 1,400. Through the site registration, Castellum and the other parties gain the exclusive right to negotiate with SGA Properties, the City of Stockholm s wholly owned subsidiary, about how the site is to be exploited followed by the opportunity to purchase building rights. It is still too early to comment in detail on a time schedule for the project, but the consortium estimates implementation over 6 8 years, with the earliest possible start in The opportunity to contribute to developing an entire new city district in one of Stockholm s most exciting areas featuring major arenas, a subway line and proximity to Södermalm of course constitutes a very thrilling project for Castellum. Unutilized building rights are valued at SEKm 1,508 (1,530) corresponding to approx. SEK 1,700 (1,700) per sq.m. on average. Of the building rights approx. 316,000 sq.m. corresponding to approx. SEKm 939 (1,141) are reported as development projects and undeveloped land. The remaining are reported among office/retail and warehouse/logistics properties since they are additions to already developed properties. 48 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

6 INVESTMENTS Kungspassagen in Uppsala Castellum is planning to construct Kungspassagen, comprising 7,500 sq.m. of leasable space, in one of the best locations in Uppsala, close to both the Travel Centre and an entire city s range of restaurants, services and shopping facilities. At the moment the building is pre-leased to 35%. The office building will be built according to the Miljöbyggnad environmental classification system (Gold level), which includes solar cells, green electricity and carbon-neutral district heating. In addition to tailor-made office solutions, Kungspassagen will also provide a roof garden with outdoor offices, access to changing rooms with showers, a bicycle storage room and charging posts for electric cars. Mölndalsvägen in Mölndal, south of Gothenburg In 2017, Castellum acquired an office building-right with completed zoneplanning in the city district of Krok slätt in Gothenburg an exciting district consisting of several beautiful early 20 th -century brick factory buildings. Castellum conducted an architectural competition for the design of a new office building of approx. 7,500 sq.m, and Wingårdh Arkitektkontor was appointed winner with the following motivation: Wingårdh s presents an exciting and dynamic brick facade design that ties in with the area. The design of the house creates warmth and openness in a city environment, and the entrance level becomes a natural meeting place for both the public and for our tenants in the building. Projecting is currently underway for the new building whose facade design and floor plans must meet the certification criteria for Miljöbyggnad level Gold. CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT 49

7 Larger ongoing projects Olaus Petri 3:244 in Örebro LOCATION: At the Travel Centre in Örebro AREA: 14,526 sq.m. TIME PLAN: Completed Q2, 2019 INVESTMENT: SEKm 465 CERTIFICATION: Miljöbyggnad level Silver In 2016, construction began of Citypassagen, a new office property in Örebro, situated at the northern route to Örebro and directly adjacent to the Travel Centre. There is high demand for downtown office premises in fast-expanding Örebro, and this central, seven-storey building will increase the supply of modern and flexible office space. The investment, one of the largest new constructions in the history of Castellum, is estimated at SEKm 465, of which SEKm 45 relates to the value of the property lot owned by the Group. The building is expected to be completed during the second quarter of 2019 and is 91% leased. Hyllie 4:2 (part of), Malmö LOCATION: Hyllie part of Malmö AREA: 9,600 sq.m. TIME PLAN: Completed Q2, 2019 INVESTMENT: SEKm 353 CERTIFIERING: Miljöbyggnad level Gold and WELL In the expansive area of Hyllie, in Malmö, Castellum plans for the construction of modern, highly sustainable office space totalling close to 9,600 sq. m. The project, called Eminent, is being planned as one of the first office buildings in the Nordic countries to be certified according to WELL an international construction standard that factors-in workplace well-being for people. The WELL standard is based on seven concepts that affect health: air, water, lighting, sound, diet, exercise and wellness, which implies particularly high requirements for ventilation, heating, lighting and sound. In addition to WELL, the intention is also to certify the building according to the Miljöbyggnad level Gold. The investment is estimated to SEKm 353 and the building is expected to be completed during the second quarter of 2019 and is 65% leased. Hisingen Logistics park in Gothenburg LOCATION: Hisingen, Gothenburg AREA: 26,085 sq.m. TIME PLAN: Completed Q2, 2018 INVESTMENT: SEKm 220 CERTIFICATION: Miljöbyggnad level Silver During the year, Castellum began construction of a new logistics building in the port area of Gothenburg. The building, the first part of Hisingen Logistics Park, comprises more than 26,000 sq.m. and is expected to be completed during the second quarter of The logistics facility is built to be versatile, and can be divided into two or three units. It will feature modern standards for fully automated warehouses with tall ceilings, high load capacity and weatherproof docking stations. The facility will be environmentally certified according to Miljöbyggnad, with the ambition of reaching Silver level. The investment is estimated at SEKm 220 and is 38% leased. The investment is estimated to SEKm 220 and is 38% leased. 50 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

8 INVESTMENTS Spejaren 4 in Huddinge LOCATION: Smista-area in Huddinge AREA: 9,300 sq.m. TIME PLAN: Completed Q1, 2019 INVESTMENT: SEKm 334 CERTIFICATION: Miljöbyggnad level Silver Spejaren 4 is the final project of Castellum s development of the area around Smista Allé. The building is planned to be 9,300 sq.m. and will include a car dealership business. The investment is estimated at SEKm 334 and will be completed during the first quarter of The new building will be constructed according to the Miljöbyggnad environmental certification system, with the ambition of reaching Silver level. The building is 40% leased. Generatorn 1 in Mölndal LOCATION: Mölndal AREA: 6,800 sq.m. TIME PLAN: Completed Q3, 2019 INVESTMENT: SEKm 141 CERTIFICATION: Miljöbyggnad level Silver During the year, Castellum began the construction of a new regional office and store for Ahlsell in Mölndal. The building is planned for 6,800 sq.m, and the investment is estimated at SEKm 141, with completion during the third quarter of The new building will be constructed according to the Miljöbyggnad environmental certification system, with the ambition of reaching Silver level. The building is fully leased. LARGER ONGOING PROJECTS 2017 Property Rental value Area sq.m. SEKm SEK/sq.m. Econ. occup. Jan 2018 Total inv. incl. land, SEKm Remaining inv., SEKm Completed Comment Olaus Petri 3:244, Örebro 14, ,400 91% Q New construction office Hyllie 4:2 (part of), Malmö 9, ,700 65% Q New construction office Spejaren 4, Huddinge 9, ,700 40% Q New construction car retail Hisingen Logistics park, Gothenburg 26, % Q New construction logistics Balltorp 1:124, Mölndal 18, % Q New construction logistics Varpen 11, Huddinge 5, , % Q New construction car retail Generatorn 1, Mölndal 6, , % Q New construction office/warehouse Rosersberg 11:130, Sigtuna 12, % Q New construction logistics Spiran 12, Norrköping 7, ,300 46% Q Reconstruction office Söderhällby 1:2 (part of), Uppsala 5, , % Q New construction logistics BREEAM evaluates and rates the overall environmental impact of buildings. Miljöbyggnad is a certification system that aims to create environmentally sustainable buildings. It takes into account energy, indoor environment and building materials. Green Building means that energy consumption is 25% lower than the energy requirements in Boverkets building regulations. CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT 51

9 Larger completed projects Lindholmen 30:5 in Gothenburg LOCATION: Lindholmen Science Park in Gothenburg AREA: 9,243 sq.m. COMPLETED: Q1, 2017 INVESTMENT: SEKm 273 CERTIFICATION: BREEAM level excellent In the thriving centre of Lindholmen Science Park, an international engineering cluster, Castellum started construction of the Blenda high-quality office property (9,243 sq.m.) in May, Blenda has been built according to the BREEAM environmental certification system, with the ambition of reaching BREEAM s Excellent level. The new building was completed during the first quarter of 2017 and is fully leased. Vallgraven 4:1 in Göteborg LOCATION: Central Gothenburg AREA: 2,500 sq.m. COMPLETED: Q4, 2017 INVESTMENT: SEKm 124 CERTIFICATION: Miljöbyggnad level Silver In December 2017, the reconstruction and extension of Kungsportshuset in central Gothenburg was completed. The property is fully leased and has been converted into a cultural and entertainment venue featuring new-construction standard while a genuine historic atmosphere has been preserved. The ambition is for the building to reach Miljöbyggnad s Silver level. Nordstaden 2:15 in Gothenburg LOCATION: Central Gothenburg AREA: 12,300 sq.m. COMPLETED: Q3, 2017 INVESTMENT: SEKm 156 CERTIFICATION: Miljöbyggnad level Silver In central Gothenburg, overlooking the Gothenburg Opera and the harbour, an office-and-retail construction totalling 12,000 sq.m. was completed in one of the city s prime office locations. It is close to public transit, and in a few years time the area will be further refined with a new West Link train station. The new building is certified according to Miljöbyggnad level Silver. LARGER COMPLETED 2017 Area Rental value Econ.occup. Total inv., land Remain. inv. Property sq.m. SEKm SEK/sq.m. Jan 2018 incl. SEKm SEKm Completed Comment Lindholmen 30:5, Gothenburg 9, , % Q New construction office Gamlestaden 22:14, Gothenburg 12, , % Q Reconstruction office Nordstaden 2:16, Gothenburg 12, ,300 95% Q Reconstruction office/retail Extension and reconstruction cultural Inom Vallgraven 4:1, Gothenburg 2, , % Q and entertainment venture Spejaren 5, Huddinge 3, , % Q New construction car retail BREEAM evaluates and rates the overall environmental impact of buildings. Miljöbyggnad is a certification system that aims to create environmentally sustainable buildings. It takes into account energy, indoor environment and building materials. Green Building means that energy consumption is 25% lower than the energy requirements in Boverkets building regulations. 52 CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT

10 INVESTMENTS Larger acquisitions 14 properties in Borås LOCATION: 14 properties in Borås AREA: 80,996 sq.m. ACCESS: April 2017 INVESTMENT: SEKm 479 Castellum acquired 14 properties in Borås, following a transaction with Klövern in February The acquisition comprises a total area of approx. 81,000 sq.m, mainly consisting of office and warehouse/logistics premises. The investment amounted to SEKm 479 and change-of-possession was in April, The portfolio s occupancy rate amounts to 93%. Isotopen 1 in Stockholm LOCATION: Torsplan, Stockholm AREA: 22,714 sq.m. ACCESS: March 2017 INVESTMENT: SEKm 1,642 In March, Castellum gained access to the property situated on Torsplan 2 in central Stockholm, part of the expansive Hagastaden area. The building is certified according to BREEAM Outstanding, the highest environmental classification an office building can achieve, and has won several awards. The property comprises approx. 23,000 sq.m, of which 18,000 sq.m. comprises office space. The investment amounted to SEKm 1,642 and is 96% leased. LARGER ACQUISITIONS DURING 2017 Property Rental value Area sq.m. SEKm SEK/sq.m. Econ.occup. Jan 2018 Acquisition SEKm Access Category Isotopen 1, Stockholm 22, ,850 96% 1,642 March 2017 Office/retail Sabbatsberg 24, Stockholm 13, May 2017 Klassföreståndaren Project 3, Stockholm 14 properties in Borås 80, % 479 April 2017 Office/Warehouse/logistics Krokslätt 20:6 and 154:8, Gothenburg 8, ,900 96% 282 Dec 2017 Office Boländerna 11:2 and 11:3, Uppsala 11, % 107 March 2017 Warehouse/logistics Majorna 720:19, Gothenburg 3, ,056 91% 102 Dec 2017 Office LARGER SALES DURING 2017 Property Rental value 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, , April 2017 Office Hönekulla 1:571, Härryda and Kallebäck 3:4, Gothenburg 35, Dec 2017 Warehouse/logistics/office CASTELLUM ANNUAL REPORT 2017 DIRECTORS REPORT 53