3 RD QUARTER INTERIM REPORT JANUARY SEPTEMBER 2016

Transcription

1 3 RD QUARTER INTERIM REPORT JANUARY SEPTEMBER

2 INTERIM REPORT JANUARY SEPTEMBER 2016 Income from property management increased by 36 per cent to SEK 206 million (152). Rental income increased by 15 per cent to SEK 519 million (451), and other income amounted to SEK 16 million (19). Operating surplus increased by 16 per cent to SEK 422 million (363). The change in property value amounted to SEK 298 million (167), and change in value of derivatives affected profit by SEK -219 million (41). Net profit amounted to SEK 502 million (531), equivalent to SEK 6.24 per ordinary share (6.56). After acquisitions of 31 properties at a total of SEK million in property value, divestments of two properties of SEK 92 million, and investments of SEK 243 million, the current fair value of the property portfolio is SEK 10,001 million (7,776). PROPERTY VALUE SEKm Q3 Q3 Q3 Q3 Q RENTAL VALUE SEKm EVENTS AFTER THE PERIOD Divestment of Bordet 1 in Borlänge, with a lettable area of 4,524 sq.m. and at a property value of SEK 97 million Q3 Q3 Q3 Q3 Q LETTABLE AREA tsqm Q3 Q3 Q3 Q3 Q COREM INTERIM REPORT JANUARY SEPTEMBER 2016

3 COREM IN BRIEF Rolling 3 mon 3 mon 9 mon 9 mon 12 mon 12 mon Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec Oct-Sep Rental income, SEKm Other income, SEKm Operating surplus, SEKm Profit from property management, SEKm Net profit, SEKm Operating margin, % Occupancy rate, economic, % Equity ratio, adjusted, % Earnings per ordinary share, % EPRA NAV per ordinary share, SEK NO. OF PROPERTIES LETTABLE AREA, SQ.M PROPERTY VALUE, SEKM COREM INTERIM REPORT JANUARY SEPTEMBER

4 COMMENTS BY THE CEO IMPORTANT EVENTS DURING THE QUARTER Acquisition of four properties in the Gothenburg area, with a total of sq.m. lettable area and at a property value of SEK 240 million. Divestment of two properties, Bildhuggaren 1 in Vaggeryd and Förrådet 12 in Huddinge, of sq.m. lettable area and at a property value of SEK 92 million. We are summing up three eventful quarters of the year to date, where our property portfolio has greatly expanded, both by acquisitions and through our own property development in the form of new construction. At the same time, Corem is reporting improved profit from property management and higher earning capacity, maintaining our positive view of the development of our business. Corem s positive development has led to a 36 per cent increase in profit from property management during the period! Our rental income and operating surplus have never been as high before. Rental income has risen by 15 per cent at the same time as we have reduced our operating costs. The operating surplus has increased by 16 per cent during the period, due both to acquisitions in the most recent period and our everyday work with new and old tenants, as well as to persistent efforts to optimize operating and maintenance costs. Our comparable portfolio also shows positive figures, net operating income has risen by 5 per cent and rental income by 3 per cent in a comparable portfolio. We have continued to work actively with transactions during the third quarter and have further expanded, complementing with four properties in the Gothenburg area, where we see a very strong growth potential for warehousing and logistics. To date, this year, we have acquired 31 properties for SEK 1.8 billion, mainly located in Stockholm, Gothenburg, Malmö and Jönköping, strong locations in our segment. Our aggregate property value exceeds SEK 10 billion and our lettable area is over 1,200,000 sq.m. We have had an intensive period integrating the acquisition of Estancia Logistik which took place before the summer and we are focusing on achieving efficient administration of the whole portfolio. However, it is already evident that the expanded volume provides opportunities for future synergies, and that the flexibility of our offer to tenants is broadened by our being able to offer more alternatives. The positive development of the most recent period indicates that this will be a profitable path in the long term. Our own property development has also contributed to our ongoing expansion. We see great potential for long-term creation of value in our project operations both in refurbishment of existing properties and new construction projects. At present, three construction projects are in process, all of them in collaboration with our tenants. When completed, they will together add around 38,000 sq.m. of warehouse and logistics space. It is stimulating to develop smart modern solutions for a sustainable society with our tenants, whetting our appetite for more projects of this kind. Our holding in Klövern has continued to develop positively and our share of earnings has to date contributed SEK 241 million. During the third quarter, we have also, in conjunction with acquisitions, sold additional shares in Klövern. During the year, we sold shares to a value of SEK 321 million with a realized capital gain of SEK 30 million. We are continuing to work actively with the goal of making Corem a recognized and knowledgeable player in the warehouse and logistics property segment. Our clear focus with stable cash flows provides a good platform for acquisitions and continued growth, even in the current competitive transaction market. I am pleased with our good results and look forward to future focus on continued growth, letting and customer care. Stockholm 26 October 2016 Eva Landén, CEO 4 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

5 INCOME, EXPENSES, AND PROFIT SEKm QUARTERLY COMPARISON Q3 Q3 Q3 Q3 Q Income Operating surplus Profit from property management Occupancy rate, economic, % % The income statement items below, like the comparative amounts for last year, refer to the period January September unless otherwise stated. The balance sheet items and comparative amounts refer to the position at the end of the period, and the end of last year. RESULT The operating surplus increased by 16 per cent to SEK 422 million (363) with an operating margin at 79 per cent (77). Profit from property management amounted to SEK 206 million (152 ), an increase by 36 per cent. Operating surplus and profit from property management have both been positively affected by net acquisitions and net occupancy. In a comparable portfolio, the operating surplus increased by 5 per cent. Profit before tax amounted to SEK 556 million (600), and was affected by value changes in properties and derivatives. INCOME Rental income for the period increased by 15 per cent to SEK 519 million (451). The positive change primarily relates to net acquisitions. Rental income for a comparable portfolio increased by 3 per cent, mainly due to net occupancy. The economic occupancy rate was 91 per cent (90). Rental income for the period include anticipated rental losses of SEK -5 million (-4). Other income amounted to SEK 16 million (19), and mainly consists of early redemption of lease contracts. NET FINANCIAL INCOME Net financial income totalled SEK -193 million (-179) and consists of interest expense and credit fees for the period. At the end of the period, the average interest rate, including margins, was 3.8 per cent (4.0). See page 8 for further information. EARNINGS FROM ASSOCIATED COMPANIES The share of earnings according to the equity method amounted to SEK 241 million (238) from Klövern AB (publ). Earnings from the sale of shares in Klövern totalled SEK 30 million (2). See page 9 and 17 for further information. CHANGES IN VALUE Changes in property value during the period amounted to SEK 298 million (167), of which unrealized changes in property value amounted to SEK 295 million (157). Unrealized changes in value are due to a combination of reduced direct yield requirements, investments and upward revaluation of building rights. See page 6 for further information. The value of Corem s derivatives is affected by changes in the long market rates. Unrealized changes in value of derivatives during the period totalled SEK -219 million (41). TAX During the period, deferred tax totalled SEK -51 million (-65) and current tax to SEK -3 million (-4). See page 17 for further information. PROPERTY COSTS Property costs during the period totalled SEK 113 million (107). The increase is primarily due to net acquisitions, and costs for a comparable portfolio decreased by 2 per cent. Central administration costs amounted to SEK 23 million (32) and consists of costs for group management and group-wide functions. Previous year, costs included circa SEK 11 million attributable to the offer made for Tribona AB (publ). The remaining difference relates to an increased costs following the years growth. COREM INTERIM REPORT JANUARY SEPTEMBER

6 THE PROPERTY PORTFOLIO Corem s property value on 30 September 2016 amounted to SEK 10,001 and consisted of 162 properties with a total lettable area of 1,219,409 sq.m. The property portfolio is divided into five geographic areas: Stockholm Region, South Region, West Region, Småland Region and Mälardalen/North Region. Corem s total rental income on an annual basis amounted to SEK 799 million per 30 September Total rental value was assessed to be 879 million, with an economic occupancy rate at 91 per cent. THE TRANSACTION MARKET After somewhat lower activity during August, the market accelerated again in September to a total of around SEK 125 billion for the first three quarters of the year. Continued strong demand from both domestic and foreign investors keep the yield requirement down and an expected bottoming-out of yield appears to have been postponed. Housing and offices account for the largest volumes, although the metropolitan cities do not geographically dominate as they usually do. The high level of demand in the current market climate creates good prerequisites for our seeing new record volumes, when we summarize the total turnover for the whole year. THE PROPERTIES VALUE AND CHANGES IN VALUE Per 30 September 2016, the market value of Corems property portfolio was SEK 10,001 million (7,776). Continued slightly lower yield requirements in combination with investments and upward revaluation of building rights have led to an increase in value of the property portfolio. The inflation figure for September was below market expectations and continued low inflation has a negative impact on market value in the period. Announced reductions in Ericsson s facilities in Borås and Kumla have also had a negative impact. The average yield requirement per 30 September 2016 is approximately 6,9 per cent (7,1). Unrealized changes in property value totaled SEK 295 million (157). Property valuation of the entire portfolio is done each quarter. During the quarter, properties corresponding to around 11 per cent of the aggregate value have been externally valued, while the rest have been valued through internal cash flow valuations. The company has used Savills Sweden AB as valuation institution for the report period. Corem obtains continuous market information from external valuation institutions in support of the internal valuation process. See Corem s Annual Report for 2015 for additional information about Corem s valuation principles. NET LETTING Net letting for the quarter totalled SEK -22 million and for the period SEK -12 million. Lettings during the quarter amounted to SEK 11 million, of which 36 per cent were new tenants, and for the period SEK 72 million. Notices of termination totalled SEK - 33 million during the quarter, and for the period SEK -84 million. Terminations for change in conditions constitutes SEK -35 million thereof. Corem has a well-diversified income base with 712 tenants. Corems three largest tenant account for 13 per cent (18) of the total rental income. Corems remaining average lease contract term is 4.5 years (5.2). SEKm NET LETTING Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Letting Bankruptcy Mälardalen/North region 14% Småland region 12% West region 17% Mälardalen/North region 13% Småland region 10% RENTAL VALUE FAIR VALUE Notice of term. Net Stockholm region 43% South region 14% Stockholm region 44% West region 17% South region 16% THE FIVE LARGEST TENANTS ON 30 SEPTEMBER 2016 Remaining avg. lease contract Tenant Share, % Region length, years Retail 4% PROPERTY TYPE, AREA Other 5% Warehouse / Industrial 73% Ericsson 5.0 Mälardalen/North, Stockholm, West 6.2 Bilia 4.5 Mälardalen/Norh, West 2.9 ELFA 3.8 Stockholm 1.7 Posten 3.3 Stockholm, Småland 11.2 NKT Cables 2.1 Mälardalen/North 8.0 Office 18%

7 CONSTRUCTIONS, EXTENSIONS AND REFURBISHMENT During the period Corem has invested SEK 243 million (110) in constructions, extensions and refurbishments. The investments are mainly tenant adaptations and energy saving measures. Three new construction projects are in process, Eneberga 3, Halmstad 7:109 and Bråta 2:136. In Västerås, Eneberga 3, where 31,000 sq.m. is being built for Svenska Retursystem, the building has already been erected as planned and tenant installations are in process. At the property Halmstad 7:109, the construction of around 5,300 sq.m. for KS Projekt is nearing completion and the tenant is expected to move in in November. In Mölnlycke, expansion of Bråta 2:136 by around 1,500 sq.m. for Svenska Retursystem is in process. Moving-in is planned for the year-end 2016/2017. Please see Corem s Annual Report for 2015, page 37A for further information about Corem s project development. TRANSACTIONS 1 JANUARY - 30 SEPTEMBER 2016 Acquisitions Divestments P Lettable Lettable r Q Property Municipality Property type area, sq.m. area, sq.m. E 1 Eneberga 3 Västerås Warehouse/Industrial Märsta 24:11 Sigtuna Warehouse/Industrial 1, Ulvö 8 Jönköping Warehouse/Industrial 5, Revisorn 2 Sollentuna Warehouse/Industrial 4, Ringpärmen 2 Sollentuna Warehouse/Industrial 7, Backa 25:6 Göteborg Warehouse/Office 3, Näringen 4:3 Gävle Warehouse/Industrial 10, Bordet 1 Borlänge Other 4, Årsta 64:2 Uppsala Warehouse/Industrial 25, Rosersberg 11:37 Sigtuna Warehouse/Industrial 11, Törnby 2:2 Upplands Väsby Warehouse/Industrial 19, Skälby 3:674 m. fl. Järfälla Warehouse/Industrial 12, Singeln 13 Stockholm Warehouse/Ind/Office 3, Magasinet 7 Stockholm Warehouse/Industrial 6, Kompassen 7 & 11 Västerås Warehouse/Industrial 4, Backa 25:1 Göteborg Warehouse/Ind/Office 8, Älgskytten 4 Jönköping Warehouse/Industrial 6, Bildhuggaren 1 Vaggeryd Warehouse/Industrial 14, Brämön 4 Malmö Warehouse/Ind/Office 16, Fornminnet 6 Malmö Warehouse/Industrial 4, Svedala 306:9 Svedala Warehouse/Industrial 17, Förrådet 12 Huddinge Warehouse/Industrial Högsbo 16:16 Göteborg Warehouse/Industrial 8,300-3 Kindbogården 1:107 Härryda Warehouse/Industrial 2,470-3 Kryptongasen 8 Mölndal Warehouse/Ind/Office 10,360-3 Törnrosen 2 Mölndal Warehouse/Industrial 6,080-3 Bildhuggaren 1 Vaggeryd Warehouse/Industrial - 14,647 Total 217,731 15,360 ACQUISITIONS AND DIVESTEMENTS OF PROPERTIES Transactions during Q1 Acquisition of Eneberga 3 in Västerås, encompassing around 66,000 sq.m. of land, from the City of Västerås was done in February, for the construction of Svenska Retursystem s new facility. The site leasehold for the property Märsta 24:11, a property of 1,345 sq.m. in Arlandastad, was acquired in March Acquisition of Ulvö 8, located at the entrance to Jönköping, was done during March The property has a lettable area of around 6,000 sq.m., of which 4,800 sq.m. warehouse and 1,200 sq.m. office area. Transactions during Q2 In april, acquisition of Revisorn 2 and Ringpärmen 2, of 11,600 sq.m. lettable area and a property value of SEK 113 million, in Bredden industrial area, Sollentuna. Also during April, acquisition of Backa 25:6 in Gothenburg was made, increasing the portfolio in that area by 3,360 sq.m. In March, agreement on the acquisition of Estancia Logistik was entered, with a warehouse and logistics portfolio consisting of 21 properties. On the 31 May taking of possession of the portfolio was made, with a total lettable area of over 168,500 sq.m. and a property value of SEK 1,315 million. The properties are mainly located in Stockholm, Malmö, Gothenburg and Jönköping. Transactions during Q3 Acquisition of four properties; Högsbo 16:16, Kindbogården 1:107, Kryptongasen 8 and Törnrosen 2, all of which situated in the Gothenburg region and with a total lettable area of approximately 27,000 sq.m. and property value of SEK 240 million. The properties are fully let with a diverse range of tenants. Taking of possession per 30 September Divestment of Förrådet 12 in Huddinge with a lettable area of 713 sq.m. warehouse, and Bildhuggaren 1 in Vaggeryd of 14,648 sq.m. Property value for the divestments totaled SEK 92 million. Handing over of possession for both properties on 30 September CHANGE IN FAIR VALUE, NUMBER OF PROPERTIES AND LEASABLE AREA SEK million Number Sq.m. Total on 31 December , ,016,000 Acquisitions¹ 1, ,731 New construction, extension and refurbishment 243-1,038 Divestments¹ ,360 Changes in value Currency translation Total on 30 Sept , ,219,409 Lyckebacken 5, a part of Estancia Logistik AB, was acquired and divested as agreed directly after taking possession back to the previous owners of Estancia Logistik. The divestment took place with no effect on Corem s earnings.

8 FINANCING INTEREST-BEARING LIABILITIES On 30 September 2016, Corem had interestbearing liabilities totalling SEK 7,140 million (5,676). Interest-bearing net liabilities, after deduction for liquidity of SEK 17 million (40) and capitalized borrowing costs of SEK 26 million (16), amounted to SEK 7,097 million (5,620). The interest coverage ratio was 2.9 multiples (2.8). At the end of the period 51 per cent (51) of the interest-bearing liabilities had hedged interest rates. 69 per cent (80) of the interest-bearing liabilities were hedged for at least 3 years. The company s average fixed interest rate for the period was 3.5 years and the average interest rate was 3.8 percent compared with 4.1 years and 4.0 per cent on 31 December An increase in the short market rates of one percentage point would increase Corem s average borrowing rate by 0.49 percentage points. At the end of the period, Corem had interest rate swaps of SEK 3,293 million (2,700) which expire between 2018 and On the 30 September 2016 the market value of the interest rate derivative portfolio amounted to SEK -673 million in comparison with SEK -454 million on 31 December During the period, Corem has raised new loans of SEK 339 million, and also availed loans within existing credit frameworks. In May 2016, Corem issued an uncovered bond loan for SEK 300 million with a term of 3.5 years. The bond loan has a framework amount of SEK 750 million, an interest rate of STIBOR 3M bps, and has been listed on Nasdaq Stockholm. The main purpose was refinancing of a bond loan. As part of the acquisition of Estancia Logistik, Corem has taken over existing bank financing and a bond loan of SEK 200 million. The bond loan is uncovered, has a framework amount of SEK 750 million, and an interest rate of STIBOR 3M +500 bps. The company s total credits of SEK 7,140 million (5,676) run with remaining credit terms of 3 months to 97 years. The company s average fixed credit term at the end of the period was 2.8 years (3.2). EQUITY, NET WORTH, AND EQUITY RATIO At the end of the period the Groups equity amounted to SEK 3,325 million (3,011), equivalent to SEK per ordinary share (28.05), SEK per preference share (144.00) and EPRA NAV SEK per ordinary share (33.50). On 30 September 2016 the adjusted equity ratio was 35 per cent (37) and the equity ratio 29 per cent (32). See page 14 for further information. CASHFLOW AND LIQUID FUNDS The Group s cash flow from operations for the period amounted to SEK 271 million (272), which corresponds to SEK 3.03 per ordinary share (3.03) taking into consideration earnings relating to preference shares. The cash flow from investment operations amounted to SEK -1,561 million (-103) during the period, and the cash flow from financing operations was SEK 1,267 million (-196). On 30 September 2016 liquid funds amounted to SEK 17 million (40), corresponding to SEK 0.24 per ordinary share (0.52). Available liquidity, including unused credit facilities of SEK 541 million (675), amounted to SEK 558 million compared to SEK 715 million per 31 December INTEREST AND LOAN MATURITY STRUCTURE FIXED INTEREST, TIED-UP CAPITAL, AND INTEREST COVERAGE Maturity, year Average interest rate Tied-up capital Average Proportion, Proportion, SEKm interest, % % SEKm % Floating 3, ¹ ¹ ¹ , Total 7, , ¹ Of which SEK 400 million referes to bond during 2017, SEK 750 million refers to bond during 2018, and SEK 500 million refers to bond during yrs 7,5 7,0 6,5 6,0 5,5 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 [x] 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0, Fixed interest, years Tied-up capital, years Interest coverage, times 8 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

9 THE SHARE SHARE FACTS, 30 SEPTEMBER 2016 Capitalization, SEK 3.7 billion Number of ordinary shares 75,896,586 Number of preference shares 7,200,000 Number of shareholders 3,729 Closing rate, ordinary share, SEK Closing rate, preference share, SEK Marketplace Nasdaq Stockholm, Mid Cap LEI nr CHXQQD7TSS1T59 ISIN, Ordinary share SE ISIN, Preference share SE Corem is listed on Nasdaq Stockholm Mid Cap and has two classes of shares: ordinary shares and preference shares. Corem has 75,896,586 ordinary shares in total. Each ordinary share entitles its holder to one vote. A dividend of SEK 1,50 per ordinary share (0.80) for 2015 has been paid out per 4 May In June 2016 Corem issued preference shares, as part of the payment of Estancia Logistik. After the emission, there are a total of 7,200,000 preference shares. Each preference share entitles its holder to one-tenth of a vote. A dividend of SEK 10 per preference share (10.00) is paid with SEK 2.50 (2.50) each quarter from July During the second quarter, Corem has repurchased 1,250,000 ordinary shares, at a total sum of SEK -45 million, equivalent to an average share price of 35,58 SEK. On 30 September 2016 Corem owned 5,695,431 repurchased ordinary shares. See for further information about the share. LARGEST SHAREHOLDERS ON 30 SEPTEMBER 2016 Preference Share of Share of Shareholder Ordinary shares shares equity, % votes, % Rutger Arnhult via bolag 28,721,342 1,024, % 40.6% Gårdarike 8,998,695 94, % 12.7% Swedbank Robur fonder 4,940, % 7.0% JP Morgan Bank 4,440, % 6.3% Länsförsäkringar fonder 3,897, % 5.5% Rasjö Staffan 2,174,975 54, % 3.1% CBNY-NORGES BANK 1,993, % 2.8% Fjärde AP-Fonden 1,947, % 2.7% Pomona Gruppen AB 1,499, % 2.1% SEB LIFE International Assurance 1,383, % 2.0% Handelsbanken fonder 1,368,280 70, % 1.9% Livförsäkrings AB Skandia 1,360, % 1.9% Patrik Tillman via bolag 1,142,882 80, % 1.6% Humle Småbolagsfond 894, % 1.3% Sjunde AP-Fonden 794, % 1.1% Other shareholders 4,643,601 5,876, % 7.4% Total number of outstanding shares 70,201,155 7,200, % 100.0% Repurchased shares¹ 5,695, % Total number of shares 75,896,586 7,200, % 100.0% 1 Repurchased shares do not have voting rights, and receive no dividends. ASSOCIATED COMPANIES Associated companies refers to holdings reported in accordance to the equity method. Corem s shareholding in Klövern amounted to 9,500,000 Class A ordinary shares and 129,400,000 Class B ordinary shares on 30 September 2016, corresponding to approximately 14 per cent of the out-standing votes and 15 per cent of the equity in the company. The holding amounted to SEK 1,322, to be compared with SEK 1,460 million on 31 december Corem s share of Klövern s profit of SEK 241 million has raised the book value of its holding. The sale of Series A and series B ordinary shares of SEK 321 million as well as dividend of SEK 58 million has reduced the book value. The share accounted consists of Corems share of Klövern's profit after tax, taking into account the dividend to Klövern's preference shareholders. The fair value of Corem s holding, based on the share price on 30 September 2016, amounted to SEK 1,480 million (1,672). See page 17 for further information. COREM INTERIM REPORT JANUARY SEPTEMBER

10 OTHER INFORMATION OPPORTUNITIES AND RISKS Corem has identified a number of important opportunities and risks in its business operations, which may affect the company s financial position and earnings. The risks identified are within the following main areas: Properties and property valuation, Sustainable entrepreneurship, Listed holdings, Tax and Finance. A detailed description of opportunities and risks and how Corem has chosen to deal with them is contained in the Annual Report for 2015 on pages 7B-9B. There have been no major changes in the company s assessment of opportunities and risks, after publication of the Annual Report for 2015 SEASONAL VARIATIONS Operating and maintenance costs are subject to seasonal variations. Snowy, cold winters entail, for example, higher costs for heating and snow clearance while hot summers entail higher costs for cooling. TRANSACTIONS WITH RELATED PARTIES Intra-group services are charged for at market prices and on commercial terms. Intra-group services consist of administrative services and charging of group interest rates. The Corem Group has administration agreements for some of the Group s properties with Locellus Förvaltning AB, which is controlled by board member Rutger Arnhult, and amounted to SEK 1 million (1) for the period. Corem also has a construction contract with Logistic Contractor (LC) for construction of a new facility in Västerås. The project started during the first quarter and the projected project cost is SEK 200 million. Transactions with LC amounted to SEK 127 million (0) during the period. LC is controlled by board member Rutger Arnhult. Corem has a lease agreement with Wonderful Times Group, at a yearly contract value of SEK 3.1 million. The board member Christina Tillman has indirect owership in Wonderful Times Group AB. In addition, the Corem Group purchase ongoing legal services from the law firm MAQS Stockholm Advokatbyrå AB in which the Group Chairman Patrik Essehorn is a partner. EVENTS AFTER THE PERIOD Divestment of Bordet 1 in Borlänge, with a lettable area of 4,524 sq.m. and at a property value of SEK 97 million. THE PARENT COMPANY On 30 September 2016, Corem s parent company owned no properties but deals with issues relating to the stock market and groupwide business functions such as administration, transactions, management, project development, accounting and financing. The parent company s net profit amounted to SEK 228 million (10) for the year. The turnover, of which the largest part consisted of group invoicing, amounted to SEK 49 million (50). The parent company s assets totalled SEK 3,467 million (3,274). Liquid funds amounted to SEK 28 million (15). Equity amounted to SEK 1,287 million (1,252). Stockholm 26 October 2016, Corem Property Group AB (publ) The Board of Directors

11 HALMSTAD 7:109, HALMSTAD REVISORN 2, RINGPÄRMEN 2 SOLLENTUNA KRYPTONGASEN 8, MÖLNDAL BACKA 25:6, GÖTEBORG FORNMINNET 6, MALMÖ DURING 2016, COREM HAS ACQUIRED 31 PROPERTIES, OF WHICH FOUR ACQUISTIONS WERE MADE IN THE THIRD QUARTER. DURING THE THIRD QUARTER, TWO PROPERTIES HAVE ALSO BEEN DIVESTED. AS AT 30 SEPTEMBER, THE PORTFOLIO CONSISTS OF 162 PROPERTIES AND THE LETTABLE AREA HAS INCREASED NET BY OVER 200,000 SQ.M. DURING THE YEAR. THE ACQUIRED PROPERTIES ARE MAINLY LOCATED IN STOCKHOLM, MALMÖ, GOTHENBURG AND JÖNKÖPING, AND COMPLEMENT AND REINFORCE COREM S EXISTING HOLDINGS AT THESE STRATEGIC LOCATIONS FOR THE COMPANY. NET CHANGE IN PROPERTY PORTFOLIO, DURING 2016 PROPERTIES: +29 LETTABLE AREA: sq.m. PROPERTY VALUE: + SEK million COREM INTERIM REPORT JANUARY SEPTEMBER

12 THE COREM GROUP INCOME STATEMENT Rolling 3 mon 3 mon 9 mon 9 mon 12 mon 12 mon SEK million Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec Oct-Sep Rental income¹ Other income¹ Property costs Operating surplus Note Central administration Note Net financial income Profit from property management Profit shares according to the equity method Note Earnings from sale of participation rights in associated companies Realized changes in value, properties Unrealized changes in value, properties Unrealized changes in value, derivatives Profit before tax Tax Note Net profit for the period Other comprehensive income Items which can be recognized as profit for the period Translation difference etc Comprehensive income for the period attributable to parent company s shareholders Number of shares and earnings per share Earning per ordinary share, SEK² Number of oustanding shares at the end of the period 70,201,155 73,391,461 70,201,155 73,391,461 73,391,461 70,201,155 Average number of oustanding ordinary shares 70,364,198 73,391,461 71,728,307 73,392,156 73,391,981 72,270,684 Number of outstanding preference shares at the end of the period 7,200,000 6,611,319 7,200,000 6,611,319 6,611,319 7,200,000 ¹ To better reflect the Group s business, the format for income has been changed as from 1 January The comparison periods have also been changed ² The measure earnings per share is calculated on the basis of the average number of shares taking into account preference shares dividend rights. There is no dilution effect as no potential shares (for example, convertibles) exists. 12 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

13 THE COREM GROUP CONSOLIDATED BALANCE SHEET SEK million 30 Sep 30 Sep 31 Dec ASSETS Non-current assets Investment properties Note 1 10,001 7,530 7,776 Holdings reported in accordance with the equity method Note 3 1,322 1,375 1,460 Other tangible assets Deferred tax asset Note Total non-current assets 11,324 8,998 9,292 Current assets Other current assets Liquid funds¹ Total current assets TOTAL ASSETS 11,443 9,048 9,370 EQUITY AND LIABILITIES Total equity attributable to parent companys shareholders 3,325 2,745 3,011 Long-term liabilities Interest-bearing long-term liabilities 4,637 4,557 4,783 Deferred tax liabilities Note 4 1 Derivatives Other long-term liabilites Total long-term liabilities 5,315 5,087 5,240 Current liabilities Interest-bearing current liabilities 2, Other current liabilities Total current liabilities 2,803 1,216 1,119 Total liabilities 8,118 6,303 6,359 TOTAL EQUITY AND LIABILITIES 11,443 9,048 9,370 ¹ Avaliable liquidity including unutilized credit facilities on 30 September 2016 and 31 December 2015 at SEK 558 million and SEK 715 million respectively. COREM INTERIM REPORT JANUARY SEPTEMBER

14 THE COREM GROUP CASH FLOW STATEMENT mon 3 mon 9 mon 9 mon 12 mon SEK million Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec Current operations Operating surplus Central administration Depreciation Interest recieved, etc Interest paid Income tax paid Cash flow from changes in working capital Change in current receivables Change in current liabilities Cash flow from operations Investment operations Investment in new construction, extensions and refurbishment Acquisition of properties , Divestment of properties Acqusition of subsidiaries, net effect on liquidity Change in tangiable assets Cash flow from investment operations , Financing operations Dividend paid to parent company shareholders Repurchase of own shares Emission of shares 89 Loans raised , ,267 Amortized loans ,224 Cash flow from financing operations , Cash flow for the period Liquid funds at beginning of period Exchange rate difference in liquid funds Liquid funds at end of period STATEMENT OF CHANGE IN EQUITY SEK million Jan-Sep Oct-Dec Jan-Sep Opening balance equity 3,011 2,745 2,343 Comprehensive income during the period Dividend to ordinary shareholders¹ Dividend to preference shareholders² Repurchase of own shares Emission of shares Closing balance equity attributable to parent company s shareholders 3,325 3,011 2,745 ¹ Of which SEK 1,50 per share 2016 and 0,80 per share ² Thereof SEK 16,5 million paid out quarterly, starting july 2015 and july 2016 respectively. 14 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

15 PARENT COMPANY INCOME STATEMENT mon 9 mon 12 mon SEK million Jan-Sep Jan-Sep Jan-Dec Net income Cost of services sold Gross profit Central administration Note Operating profit Earnings from sale of participation rights in associated companies Interest income and similar income items Interest expense and similar expense items Profit before tax Tax Net profit for the period PARENT COMPANY BALANCE SHEET SEK million 30 Sep 30 Sep 31 Dec ASSETS Non-current assets Tangible assets Machinery and equipment Total, tangible assets Financial assets Shares in group companies Shares in associated companies Receivables from group companies 2,564 2,324 2,263 Deferred tax assets Total financial assets 3,416 3,181 3,246 TOTAL NON-CURRENT ASSETS 3,417 3,183 3,248 Current assets Other current receivables Cash and bank deposits Total current assets TOTAL ASSETS 3,467 3,198 3,274 EQUITY AND LIABILITIES Equity 1,287 1,225 1,252 Interest-bearing liabilities 2,100 1,881 1,959 Non-interest bearing liabilities TOTAL EQUITY AND LIABILITIES 3,467 3,198 3,274 COREM INTERIM REPORT JANUARY SEPTEMBER

16 ACCOUNTING POLICIES AND NOTES ACCOUNTING POLICIES This interim report for the Group has been prepared in compliance with the Annual Accounts Act and IAS 34 Interim Financial Reporting and for the parent company in compliance with the Annual Accounts Act and RFR 2 Accounting for legal entities. The properties are valued in compliance with Level 3 in the IFRS value hierarchy. The fair value of financial instruments agrees essentially with the carrying amounts. No changes of the categorization of financial instruments have taken place during the period. Derivatives are valued in accordance with Level 2 of the valuation hierarchy. No new or changed standards of interpretations from IASB have had any impact on the interim report and the accounting policies applied are those described in Note 1 of Corem s Annual Report for NOTE 1 SEGMENTS Corem s property value amounted on 30 September 2016 to SEK 10,001 million and consisted of 162 properties with a total lettable area of 1,219,409 sq.m. The property portfolio is divided into five geographical areas: Stockholm, Region, South Region, West Region, Småland Region and Mälardalen/North Region, which is consistent with models used for internal reporting to the CEO and board. DISTRIBUTION PER GEOGRAPHICAL AREA Income, SEK million Costs, SEK million Op. surplus, SEK million Operating margin, % Outcome per geographical area Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Stockholm South West Småland Mälardalen/North Total Fair value, SEK million Lettable area, sq.m Rental value, SEK million Economic occupancy, % Key ratios per geographical area 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep Stockholm 4,392 3, , , South 1,560 1, , , West 1,743 1, , , Småland , , Mälardalen/North 1, , , Total 10,001 7,530 1,219, , DISTRIBUTION OF LETTABLE AREA BY TYPE OF PREMISES AND GEOGRAPHICAL AREA (see for list of properties) Warehouse/Industrial Office Retail Other Lettable area, sq.m. 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep Stockholm 251, ,364 98,381 87,737 15,287 15,287 24,617 10,666 South 165, ,075 25,785 20,163 8,000 6,511 10,617 10,089 West 168, ,062 33,061 18,414 7,954 6,099 3,700 2,475 Småland 142, ,738 23,570 18,763 5,201 5,201 11,798 10,889 Mälardalen/North 157, ,521 40,233 39,646 12,267 12,547 14,238 9,714 Total 884, , , ,723 48,709 45,645 64,970 43,833 Share, % DISTRIBUTION OF PROPERTIES, VACANCIES AND RENTAL INCOME Number of properties Vacancy, sq.m. Income¹, SEK million Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep Stockholm ,757 32, South ,499 3, West ,850 31, Småland ,825 47, Mälardalen/North ,741 35, Total , , ¹ Refers to rental income on an annual basis on 30 September 2016 and 30 September 2015 respectively. 16 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

17 NOTE 2 CENTRAL ADMINISTRATION The central administration consists of costs for group management and group-wide functions. Expenses per 31 December 2015 include one-off items of around SEK 13 million attributable to Corem s offer for Tribona AB (publ). NOTE 3 PROPERTY SHARES IN ASSOCIATED COMPANIES In November 2008, Corem acquired 10.5 per cent of the shares in Klövern and thus became the largest owner in the company. Up until the end of 2011, additional shares were acquired and the holding was reclassified as Shares in associated companies. Corem s shareholding in Klövern amounted on 30 September 2016 to 9,500,000 Class A ordinary shares and 129,400,000 Class B ordinary shares, corresponding to approximately 14 per cent of the outstanding votes and 15 per cent of the equity in the company. On 30 September 2016, the holding amounted to SEK 1,322 million. During 2016 Corem has divested 6,6 million Class A ordinary shares and 30.6 million Class B ordinary shares, at a realized change in value of SEK 30 million. Fair value of Corems holding, based on closing rate on 30 September 2016 amounted to SEK 1,480 million. KLÖVERN IN BRIEF mon 3 mon 9 mon 9 mon 12 mon Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec Income, SEKm ,138 2,013 2,718 Operating surplus, SEKm ,439 1,333 1,766 Profit from property management, SEKm ,043 Profit before tax ,101 1,888 2,541 Net profit for the period ,694 1,482 2,008 Key ratios Operating margin, % Occupancy rate, economic, % Leverage, % Equity ratio, adjusted, % Number of properties Fair property value, SEKm 37,585 32,800 37,585 32,800 35,032 NOTE 4 - TAX Through the possibility of making depreciations for tax purposes and deduction for certain refurbishments of properties as well as making use of tax loss carryforwards, virtually no paid tax expense arises. However, paid tax occurs in a few subsidiaries where there are no opportunities for making group contributions for tax purposes. Reported deferred tax on changes in value are partly attributable to classification of acquisitions and the form in which divestment takes place. The effective tax rate is affected by tax-free income in the form of profits from Klövern as well as tax-free sales of companies. The tax loss carryforwards are estimated at approximately SEK 1,450 million (1,499). The tax recoverable is attributable to tax loss carryforwards in the consolidated balance sheet amounting to SEK 271 million (271). In the consolidated balance sheet of the Corem group, deferred tax is reported net at SEK 1 million (-54). On 16 February 2016, the Administrative Court of Appeal consented to the Tax Agency s petition for an upward adjustment of previous year s earnings, entailing a tax demand of around SEK 68 million. Corem has decided not to appeal against the judgment to the Supreme Administrative Court, and has already in 2014 expensed and paid the corresponding amount of SEK 68 million. TAX 30 SEPTEMBER 2016 Current tax Deferred tax Reported tax SEK million Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Sep Current profit from property management Change in value, properties Change in value, derivatives Increased temporary difference properties attributable to depreciation for tax pruposes and direct deductions Revaluation, tax loss carryforwards etc Total COREM INTERIM REPORT JANUARY SEPTEMBER

18 QUARTERLY OVERVIEW Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Amounts in SEKm unless otherwise stated Jul-Sep Apr-Jun Jan-Mar Oct-Dec Jul-Sep Apr-Jun Jan-Mar Oct-Dec Rental income Other income Property costs Operating surplus Profit from property management Profit shares according to the equity method Changes in value, properties Unrealized changes in value, derivatives Net profit Property and finance-related Fair value of properties 10,001 9,517 7,925 7,776 7,530 7,340 7,406 7,259 Operating margin, % Occupancy rate, economic, % Return on total assets, % Return on equity, % Adjusted equity ratio, % Leverage, % Cash flow from operations Share-related EPRA NAV per ordinary share, SEK Net profit per ordinary share, SEK Share price, ordinary share, at end of period, SEK Cash flow, operations per ordinary share, SEK COREM INTERIM REPORT JANUARY SEPTEMBER 2016

19 REVIEW REPORT Corem Property group AB (publ), corporate identity number INTRODUCTION We have reviewed the condensed interim report for Corem Property Group AB (publ) as at September 30, 2016 and for the nine months period then ended. The Board of Directors and the Managing Director are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review. SCOPE OF REVIEW We conducted our review in accordance with the International Standard on Review Engagements, ISRE 2410 Review of Interim Financial Statements Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act regarding the Group, and in accordance with the Swedish Annual Accounts Act regarding the Parent Company. Stockholm, October 26, 2016, Ernst & Young AB Mikael Ikonen Authorized Public Accountant Ingemar Rindstig Authorized Public Accountant COREM INTERIM REPORT JANUARY SEPTEMBER

20 KEY RATIOS mon 3 mon 9 mon 9 mon 12 mon 12 mon Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec Jan-Dec Property related Fair value properties, SEK million 10,001 7,530 10,001 7,530 7,776 7,259 Required yield, valuation, % Rental value, SEK million Lettable area, sq.m. 1,219, ,961 1,219, ,961 1,016, ,895 Occupancy rate, economic, % Occupancy rate, area-based % Operating margin, % Number of properties Financial Return on total assets, % Return on equity, % Equity ratio, adjusted, % Equity ratio, % Net debt, SEK million 7,097 5,515 7,097 5,515 5,620 5,582 Leverage, % Leverage, properties, % Interest coverage ratio, multiples Average interest, % Average fixed interest period, years Average tied-up capital, years Share-related Earnings per ordinary share, SEK Earnings per preference share, SEK EPRA NAV per ordinary share, SEK Equity per ordinary share, SEK Equity per preference share, SEK Cash flow, operations, per ordinary share, SEK Cash flow, total, per ordinary share, SEK Dividend per ordinary share, SEK Dividend per preference share, SEK Share price per ordinary share, SEK¹ Share price per preference share, SEK¹ Number of outstanding ordinary shares² 70,201,155 73,391,461 70,201,155 73,391,461 73,391,461 73,411,661 Average number of outstanding ordinary shares² 70,364,198 73,391,461 71,728,307 73,392,156 73,391,981 75,332,965 Number of outstanding preference shares² 7,200,000 6,611,319 7,200,000 6,611,319 6,611,319 6,611,319 ¹ At the end of the period. ² Excluding repurchased shares. For definitions of key ratios, see page COREM INTERIM REPORT JANUARY SEPTEMBER 2016

21 VEDDESTA 2:90, STOCKHOLM COREM INTERIM REPORT JANUARY SEPTEMBER

22 DEFINITIONS Adjusted equity ratio Equity, adjusted for the value of derivatives including tax, reported deferred tax properties, as well as load deferred tax of 5 per cent attributable to the difference between the properties fair value and residual value for tax purposes, and as a percentage of total assets. Annual rent Rent including supplements and index on an annual basis. Cash flow per ordinary share Cash flow for the period from operations, adjusted for dividend to preference shares and total cash flow in relation to the average number of ordinary shares. Earnings per ordinary share Net profit in relation to average number of ordinary shares, taking into account the preference shares share of profit for the period. Earnings per preference share The preference shares share of profit corresponding to the period s accumulated share of annual dividend of SEK per preference share. Occupancy rate, economic Income on an annual basis divided by assessed rental value. Equity per ordinary share Reported equity, after taking into consideration the preference equity, in relation to the number of outstanding ordinary shares at the end of the period. Equity per preference share Based on the share price of the preference share at the end of the period. EPRA The European Public Real Estate Association is an interest organisation for listed real estate companies and investors in Europe. Part of their work is to set standards for financial reporting and key ratios, including EPRA NAV (Net Asset Value) which can be equated with long-term net worth. EPRA NAV per ordinary share Reported equity, after taking the preference equity into consideration, adjusted to include derivatives and deferred tax in accordance with the statement of financial position, in relation to the number of outstanding ordinary shares at the end of the period. Equity ratio Equity as a percentage of total assets. IFRS Abbreviation of International Financial Reporting Standards. International reporting standards for consolidated accounts, to be applied by listed companies within the EU from 2005 inclusive. Interest coverage ratio Profit from property management including realized changes in value, as well as the share of associated companies profit from property management, including realized changes in value, plus financial expenses, and divided by financial expenses. Lettable area Total area available for letting. Leverage Interest-bearing liabilities after deduction for the market value of listed shareholding and liquid funds, in relation to the fair value of the properties at the end of the period. Leverage, properties Interest-bearing liabilities with collateral in properties, in relation to the fair value of the properties at the end of the period. Net debt The net of interest-bearing provisions and liabilities, less financial assets including liquid funds. Net letting Annual rent for the tenancy agreements entered into during the period, reduced for terminated tenancy agreements and bankruptcies. Operating margin Operating surplus as a percentage of income. Operating surplus Rental income reduced for property costs. Outstanding ordinary shares Registered shares, after deduction of repurchased shares which are not eligible for dividends and lack voting rights. Profit from property management Operating surplus, central administration and net financial income. Realized change in value, properties Realized property sales after deduction for the most recently reported fair value of the properties and selling expenses. Rental value Contracted annual rent as applicable at the end of the period, with a supplement for assessed rent of vacant premises. Return on equity Net profit on an annual basis, as a percentage of average equity during the period. Return on total assets Net profit, excluding financial expenses and unrealized changes in value of derivatives, on an annual basis, as a percentage of total assets during the period. Required yield The required return on the residual value of property valuations. Triple net contracts Tenancy agreements where the tenant, in addition to rent, pays costs incurred at the property, which would normally have been charged to the property owner. These include, for example, operating and maintenance expenses and property tax. Total number of shares Registered shares, including repurchased shares. Unrealized changes in value, properties Change in fair value, after deduction for investments made for the property portfolio at the end of the respective period. Corem has chosen the above key ratios in accordance with customary practice in the real estate market. 22 COREM INTERIM REPORT JANUARY SEPTEMBER 2016

23 THIS IS COREM Corem Property Group is a real estate company that owns and manages properties in central and southern Sweden as well as in Denmark. Corem s property portfolio consists primarily of warehouse, logistics, industrial and retail properties. BUSINESS STRATEGY To create long-term growth and increase value by managing, acquiring, building and developing properties in the warehouse, logistics, industrial and retail spheres. BUSINESS MODEL GOALS Corem s overall goal is to become, in selected regions, the leading real estate company in its segment - as well as providing Corem s shareholders with a long-term high and stable return on equity. This is to take place alongside continuous efforts to work for sustainable development. Corem s business model is based on a continuous process of strategic transactions and optimization of the property portfolio, and creates value by always focusing on the tenant. STRATEGY Corem has four overall strategies to achieve the company s goals. INVESTMENT STRATEGY to actively seek out and carry out transactions which develop and realize value. BUSINESS STRATEGY to optimize the property portfolio through long-term commitment. ORGANIZATION STRATEGY to create long-term tenant relations by having a market-oriented and expert property management. SUSTAINABILITY STRATEGY to work for long-term sustainability for the company and its business environment. TRANSACTION GROWTH AND CONCENTRATION Careful business analysis are performed in order to identifying potential growth opportunities. Divestment opportunities arise when the geographical location does not fit in the regional structure or the property type is not consistent with the focus of the company. PROPERTY DEVELOPMENT CREATING VALUE Corem has a long-term commitment to properties in the portfolio and strives to optimize the properties yield and create long-term relationships. PROPERTY MANAGEMENT FOCUS ON TENANTS Corem s properties are to be managed by our own staff. Short and efficient decision-making processes and local market presence are prioritised. COREMS PROPERTY PORTFOLIO IS MANAGED IN FIVE REGIONS: Region Stockholm, Region South, Region West, Region Småland och Region Mälardalen/North. The Corem group head office is located in Stockholm, and regional offices are located in Stockholm, Malmö, Göteborg, Jönköping and Örebro. THROUGH A DECENTRALIZED ORGANIZATION to achieve good knowledge of the local market and closeness to tenants. On 30 September 2016, Corem had a total of 45 (46) employees, of which 12 (13) were women and 33 (33) men. WITH SUSTAINABILITY AS A NATURAL AND IMPORTANT PART of Corem s business operations. Within the framework of Corem s core activities, sustainability and environmental initiatives contribute to a long-term sustainable society, more efficient use of resources and sustainable profitability. COREM INTERIM REPORT JANUARY SEPTEMBER