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D I R E C T O R S ’ R E P O R T

Valuation and Calculation of Net Asset ValueValuationCastellum carried out an internal valuation of all prop-

erties as of December 31st 2002. The valuation was

carried out in a uniform manner, and was based on a

ten-year cash flow model, which was described in

principle on the previous page.

This internal valuation was based on an individual

assessment for each property of both its future earn-

ings capacity and its required yield. In assessing a

property’s future earnings capacity we took into

account not only an assumed level of inflation of 1.5 %

but also the potential rental income from each con-

tract’s rent and expiry date compared with the esti-

mated current market rent, as well as changes in occu-

pancy rate and property costs. Included in property

costs are operating expenses, maintenance, tenant

improvements, ground rent, real estate tax, and leasing

and property management.

Assumptions on the required yield etcThe assumptions that are the basis for Castellum’s

valuation are shown in the table below.

The required yield on equity is different for each

property, and is based on the following assumptions:

The risk parameters are different for each property,

and can be divided into two parts – general risk and

individual risk. The general risk is a payment for the

fact that a real estate investment is not as liquid as a

bond, and that the asset is affected by the general eco-

nomic situation. The individual risk is specific to each

property, and comprises a weighted assessment of the

following considerations:

• The property’s category.

• The town/city in which the property is located.

• The property’s location within the town/city with ref-

erence to the property’s category.

• “The right property”, i.e. it has the right design, is

appropriate and makes efficient use of space.

• Technical standard with regard to such criteria as the

choice of material, the quality of public installations,

furnishing and equipment in the premises and apart-

ments.

• The nature of the lease agreement, with regard to such

issues as the length, size and number of agreements.

The cost of borrowed capital varies depending on the

property category, and amounts to 6.0–7.0 %.

The required yield on total capital is calculated by

weighting the required yield on equity and the cost of

borrowing on the basis of equity/assets ratio levels of

25–45 %, depending on the property category. The

required yield on total capital is used to discount the

expected 10-year future cash flow, while the residual

value is discounted by calculating the return on total

capital minus inflation.

The apartments have been valued as rental apart-

ments and not as tenant-owner’s rights.

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ASSUMPTIONS PER PROPERTY CATEGORY 31-12-2002

Office/Retail Warehouse/Industrial Residential

Real interest rate 4.0% 4.0% 4.0%

Inflation 1.5% 1.5% 1.5%

Risk 5.8%–12.0% 7.9%–15.3% 4.4%–8.5%

Return on equity 11.3%–17.5% 13.4%–20.8% 9.9%–14.0%

Interest rate 6.5% 7.0% 6.0%

Equity/assets ratio 35% 45% 25%

Return on total capital 8.2%–10.4% 9.9%–13.2% 7.0%–8.0%

Rental value, SEK/sq.m. year 1 1 044 575 898

Occupancy rate year 1 91.1% 92.8% 99.1%

Property costs, SEK/sq.m. year 1 299 160 359

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D I R E C T O R S ’ R E P O R T

of value, but also in order to reflect the composition of

the portfolio as a whole in terms of category and geo-

graphical location of the properties. Svefa’s valuation

of the selected properties amounted to SEK 9,816 mil-

lion, within a value range of +/–5–10 %. Castellum’s

valuation of the same properties amounted to SEK

9,702 million. It can be confirmed that at the level of

the portfolio the external and internal valuations corres-

pond, although there are individual differences.

Net asset valueNet asset value per share was SEK 183, compared to

SEK 171 per share at the end of the previous year. The

net asset value calculation and changes over the years

are shown in the tables above.

Uncertainty rangeIt should, however, be emphasised that a property’s

true value can only be confirmed when it is sold. Prop-

erty valuations are calculations performed according

to accepted principles and on the basis of certain

assumptions. The value ranges stated for property valu-

ations, which are usually between +/–10 %, should be

viewed as indications of the uncertainty that may exist

in such assessments. The table on the following page

Development projects and building permissionsProjects in progress have been valued using the same

principle, but with deductions for outstanding invest-

ment. Sites with building permission and land have

been valued on the basis of an estimated market value

per square metre.

The value of the property portfolioThe internal valuation reveals a long-term value deter-

mined on an earnings basis of SEK 17,348 million,

equivalent to a surplus value of SEK 4,211 million.

The change in property value, net less than 1 %, is

chiefly explained by a smaller increase in value in

Greater Gothenburg, while other regions has basically

remained unchanged with the exception of Greater

Stockholm that shows a smaller decrease in value.

The table above show the long-term value deter-

mined on an earnings basis and the distribution of sur-

plus value per property category.

External valuationIn order to guarantee the valuation more than 100

properties, representing 56 % of the value of the port-

folio, were valued by Svefa AB. The properties were

selected on the basis of the largest properties in terms

REAL ESTATE VALUE AND NET ASSET VALUE

Book Surplus/netValuation, Valuation, value, asset value,

Category SEKm SEK/sq.m. SEKm SEKm

Office/Retail 10 392 9 645 7 874 2 518

Warehouse/Industrial 4 942 4 464 3 847 1 095

Residential 1 056 9 286 745 311

Projects and land 958 — 671 287

Total 17 348 — 13 137 4 211

Deferred tax, 28% –1 179

Disclosed equity 4 470

Net asset value 7 502

Net asset value per share (41,000,000 shares), SEK 183

CHANGE IN NET ASSET VALUE

SEKm SEK/share

Net asset value 31-12-2001 6 993 171

Dividend –266 –7

Cash flow after tax +663 +16

Change in value after tax +112 +3

Net asset value 31-12-2002 7 502 183

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D I R E C T O R S ’ R E P O R T

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shows how each parameter is affecting the valuation

and the net asset value.

It can, however, be confirmed that during 2002

Castellum sold properties for a total sales price of

around SEK 503 million, which was SEK 91 million

above the previous year’s valuation of the properties

sold. This is chiefly explained by residential proper-

ties valued as rental apartments being sold to tenant

owner’s associations and the sales of undeveloped

land with building permissions.

BALANCE SHEET

Valuation, SEKm Net asset value, SEKm Net asset value, SEK/share

Outcome as on 31-12-2002 17 348 7 502 183

Uncertainly range, –/+10% in valuation 15 613 – 19 083 6 253 – 8 751 153 – 214

Real growth in rental value, –/+1% 15 000 – 20 200 5 811 – 9 555 142 – 233

Required yield, +/–1 percentage unit 15 700 – 19 400 6 315 – 8 979 154 – 219

Tax rate, 14% instead of 28% 17 348 8 091 197

SENSITIVITY ANALYSIS

31-12-2002 31-12-2002 31-12-2001 31-12-2000SEKm as per accounts Surplus value adjusted adjusted adjusted

AssetsProperties 13 137 +4 211 17 348 16 551 14 790

Other fixed assets 55 — 55 55 56

Current receivables 117 — 117 339 62

Cash and bank 20 — 20 20 11

Total assets 13 329 +4 211 17 540 16 965 14 919

Shareholders’ equity and liabilities Shareholders equity 4 470 +3 032 7 502 6 993 6 339

Equity/assets ratio 34% 43% 41% 42%

SEK per share 109 183 171 155

Deferred tax liability 9 +1 179 1 188 1 098 781

Interest-bearing liabilities 8 264 — 8 264 8 254 7 245

Non-interest-bearing liabilies 586 — 586 620 554

Total shareholders’ equity and liabilities 13 329 +4 211 17 540 16 965 14 919