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Valuation

Assumptions on the required yield etc

ASSUMPTIONS PER PROPERTY CATEGORY 31-12-2002

Office/Retail Warehouse/Industrial Residential

Real interest rate Inflation Risk Return on equity Interest rate Equity/assets ratio Return on total capital Rental value, SEK/sq.m. year 1 Occupancy rate year 1 Property costs, SEK/sq.m. year 1

4.0% 1.5% 5.8%12.0% 11.3%17.5% 6.5% 35% 8.2%10.4% 1 044 91.1% 299

4.0% 1.5% 7.9%15.3% 13.4%20.8% 7.0% 45% 9.9%13.2% 575 92.8% 160

4.0% 1.5% 4.4%8.5% 9.9%14.0% 6.0% 25% 7.0%8.0% 898 99.1% 359

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The assumptions that are the basis for Castellums 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-

The cost of borrowed capital varies depending on the property category, and amounts to 6.07.0 %. 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 2545 %, 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 apartments and not as tenant-owners rights.

M O D E L / V A L U A T I O N

Castellum carried out an internal valuation of all properties 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 earnings capacity and its required yield. In assessing a propertys 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 contracts rent and expiry date compared with the estimated current market rent, as well as changes in occupancy rate and property costs. Included in property costs are operating expenses, maintenance, tenant improvements, ground rent, real estate tax, and leasing and property management.

nomic situation. The individual risk is specific to each property, and comprises a weighted assessment of the following considerations: The propertys category. The town/city in which the property is located. The propertys location within the town/city with reference to the propertys 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 apartments. The nature of the lease agreement, with regard to such issues as the length, size and number of agreements.

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Valuation and Calculation of Net Asset Value

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REAL ESTATE VALUE AND NET ASSET VALUE

Book Surplus/net value, asset value, SEKm SEKm

CHANGE IN NET ASSET VALUE

Category

Valuation, Valuation, SEKm SEK/sq.m.

SEKm

SEK/share

Office/Retail Warehouse/Industrial Residential Projects and land Total Deferred tax, 28% Disclosed equity Net asset value

10 392 4 942 1 056 958 17 348

9 645 4 464 9 286

7 874 3 847 745 671

2 518 1 095 311 287 4 211 1 179 4 470 7 502 183

Net asset value 31-12-2001 Dividend Cash flow after tax Change in value after tax Net asset value 31-12-2002

6 993 266 +663 +112 7 502

171 7 +16 +3 183

13 137

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

Development projects and building permissions

Projects in progress have been valued using the same principle, but with deductions for outstanding investment. 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 portfolio

The internal valuation reveals a long-term value determined 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 determined on an earnings basis and the distribution of surplus value per property category.
External valuation

of value, but also in order to reflect the composition of the portfolio as a whole in terms of category and geographical location of the properties. Svefas valuation of the selected properties amounted to SEK 9,816 million, within a value range of +/510 %. Castellums 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 correspond, although there are individual differences.
Net asset value

Net 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 range

In order to guarantee the valuation more than 100 properties, representing 56 % of the value of the portfolio, were valued by Svefa AB. The properties were selected on the basis of the largest properties in terms

It should, however, be emphasised that a propertys true value can only be confirmed when it is sold. Property valuations are calculations performed according to accepted principles and on the basis of certain assumptions. The value ranges stated for property valuations, 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

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SEKm

31-12-2002 as per accounts

Surplus value

31-12-2002 adjusted

31-12-2001 adjusted

31-12-2000 adjusted

Assets Properties Other fixed assets Current receivables Cash and bank Total assets Shareholders equity and liabilities Shareholders equity Equity/assets ratio SEK per share Deferred tax liability Interest-bearing liabilities Non-interest-bearing liabilies Total shareholders equity and liabilities

13 137 55 117 20 13 329

+4 211 +4 211

17 348 55 117 20 17 540

16 551 55 339 20 16 965

14 790 56 62 11 14 919

4 470 34% 109 9 8 264 586 13 329

+3 032

7 502 43% 183

6 993 41% 171 1 098 8 254 620 16 965

6 339 42% 155 781 7 245 554 14 919

+1 179 +4 211

1 188 8 264 586 17 540

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

Outcome as on 31-12-2002 Uncertainly range, /+10% in valuation Real growth in rental value, /+1% Required yield, +/1 percentage unit Tax rate, 14% instead of 28%

17 348 15 613 19 083 15 000 20 200 15 700 19 400 17 348

7 502 6 253 8 751 5 811 9 555 6 315 8 979 8 091

183 153 214 142 233 154 219 197

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BALANCE SHEET

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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 years valuation of the properties sold. This is chiefly explained by residential properties valued as rental apartments being sold to tenant owners associations and the sales of undeveloped land with building permissions.

V A L U E