ANNUAL REPORT 2015 AB Sagax Is a Property Company Whose

ANNUAL REPORT 2015

AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment

At the Bulten 1 property in Danderyd, Sagax has built a car showroom comprising 7,200 square meters of lettable area on behalf of the tenant Bavaria Stock- holm. The tenant is part of Bavaria Nordic, one of the largest BMW dealerships in the Nordic region. Sagax’s total investment amounted to SEK 113 M and SEK 17 M was invested in 2015. Occupancy took place in the first quarter of 2015, refer also to page 25 on investments in 2015. The car showroom will enhance Danderyd’s position as one of Stockholm’s strongest areas for sales of cars in the premium segment. The area, in which Sagax owns five other properties of the same type, has a strategic location along the E18 expressway, by the approach to Djursholm.

Contents

The year in brief 1 Current earnings capacity 54 Consolidated statement of financial position 88 Sagax in brief 2 Risks and risk management 56 Comments on the consolidated statement Sagax’s performance 3 The Sagax share and shareholders 60 of financial position 89 Chief Executive Officer’s comments 4 Parent Company 65 Consolidated statement of cash flows 90 Environmental work 66 Consolidated changes in shareholders’ equity 91 Directors’ Report Organization and employees 70 Parent Company income statement 92 Business concept, goals and strategies 6 Corporate Governance Report 72 Parent Company balance sheet 93 Market overview 8 Board of Directors 78 Parent Company statement of cash flows 94 Summary of the Sagax property portfolio 18 Company management 80 Parent Company changes in shareholders’ equity 95 Changes in the property portfolio 22 Auditors 81 Accounting policies and notes 96 Market area Stockholm 26 Multi-year summary 82 Proposed appropriation of profits 126 Market area Helsinki 30 Events after the end of the year 85 Auditor’s Report 128 Market area Rest of Sweden 34 Market area Rest of Finland 38 Financial reports Articles of Association 130 Market area Other 40 Consolidated statement of Notice of the Annual General Meeting 132 Market value of property portfolio 42 comprehensive income 86 Definitions 136 Financing 44 Comments on the consolidated statement Press releases 137 Joint ventures and associated companies 51 of comprehensive income 87 Calendar 137

In the event of any discrepancies between the Swedish and the English Annual Report, the former should have precedence.

AB SAGAX ANNUAL REPORT 2015 THE YEAR IN BRIEF The year in brief

Profit from property management increased 27% to SEK 895 M (703). Cash flow from operating activities before changes in working capital rose 25% to SEK 750 M (600).

REVENUE INCREASED 18% PROFIT AFTER TAX FOR THE YEAR WAS SEK 1,681 M Rental revenue increased 18% to SEK 1,291 M (1,093 for Profit after tax for the period amounted to SEK 2014). Rental revenue was positively impacted primarily by 1,681 M (753), corresponding to SEK 9.85 (4.05) per property acquisitions, as well as revenue-increasing invest- common share. ments in the existing property portfolio. SAGAX’S NET INVESTMENTS AMOUNTED TO SEK 2,364 M PROFIT FROM PROPERTY MANAGEMENT INCREASED 27% Sagax’s net investments in properties during the year amount- Profit from property management rose 27% to SEK 895 M ed to SEK 2,364 M (1,863). 43 properties were acquired and (703), of which joint ventures and associated companies two properties divested. accounted for SEK 233 M (178). The increase in profit from property management was primarily attributable to property CASH FLOW INCREASED 25% investments and profit participation in joint ventures. Profit Cash flow from operating activities before changes in working from property management per common share after dilution capital rose 25% to SEK 750 M (600), corresponding to SEK rose 31% to SEK 4.90 (3.73). 3.99 (2.99) per common share.

PROPERTY REVALUATIONS AMOUNTED TO SEK 946 M PROPOSED DIVIDEND 2015 The properties were revalued by SEK 946 M (687), of which The Board of Directors proposes a dividend per common the revaluation of properties in joint ventures accounted for share of SEK 1.15 (0.80). The Board also proposes a dividend SEK 269 M (246). The value performance for Sagax’s proper- of SEK 2.00 (2.00) per preference share through a quarterly ties in Sweden amounted to SEK 675 M and for properties payment of SEK 0.50. abroad to SEK 2 M. The market value of Sagax’s properties amounted to SEK 16,189 M (13,428) at year-end. The yield in 2015 was 7.4% (7.6).

FIXED-INCOME DERIVATIVES WERE REVALUED TO SEK 106 M The revaluation of fixed-income derivatives had a positive impact of SEK 106 M (neg: 485) on earnings, of which revaluation of fixed-income derivatives in joint ventures accounted for a positive SEK 52 M (neg: 226). The reason for the revaluation was the time factor and that market interest rates increased during the year.

Selected key performance indicators

2015 2014 2013 2012 2011 Profit from property management per common share, SEK 4.90 3.73 2.73 2.15 2.06 Change from the preceding year, % 31 37 27 4 14 Earnings per common share, SEK 9.85 4.05 4.44 1.82 0.31 Dividend per common share, SEK (2015 proposed) 1.15 0.80 0.55 0.43 0.36 Dividend per preference share, SEK (2015 proposed) 2.00 2.00 2.00 2.00 2.00 Market value of properties, SEK M 16,189 13,428 10,825 9,396 8,961 Lettable area, 000s of square meters 1,860 1,634 1,336 1,159 1,144 Property yield, % 7.4 7.6 7.7 7.8 7.7 Lease term, years 7.4 8.2 8.0 8.4 7.9 Debt ratio, % 59 59 60 62 68

Multi-year summary, see page 82. «READ MORE Proposed appropriation of retained earnings, see page 126.

AB SAGAX ANNUAL REPORT 2015 1 SAGAX IN BRIEF Sagax in brief

AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment. Sagax’s property holdings at December 31, 2015 amounted to SEK 16.2 billion, distributed over 225 properties. AB Sagax (publ) is listed on Nasdaq Stockholm, Mid Cap.

PROPERTY PORTFOLIO Sagax’s financial expenses in 2015 amounted to SEK 390 At December 31, 2015, the property portfolio comprised 225 M (366), corresponding to 61% (64) of the company’s total (184) properties with a lettable area of 1,860,000 square expenses before changes in value and tax. Sagax’s interest- meters (1,634,000). The main focus of the portfolio is in the rate sensitivity is low. At the end of the year, a change in the Stockholm region where 39% (40) of the rental value and general interest rate of +/– 1 percentage point would have 43% (42) of the market value is concentrated (see diagram changed Sagax’s borrowing costs by SEK –33 M/SEK –20 M below). At year-end, the rental value and contractual annual in the year ahead, corresponding to –3%/–2% of forecast rent totaled SEK 1,453 M (1,267) and SEK 1,394 M (1,193), profit from property management for 2016. respectively. This corresponds to an economic occupancy rate of 96% (94). THE SAGAX SHARE Sagax has three classes of shares: Class A and Class B com- CUSTOMERS mon shares, and preference shares. All three classes of shares Sagax had 698 leases at the end of the year. The average are listed on Nasdaq Stockholm, Mid Cap. At the end of the remaining lease term was 7.4 years (8.2). The total annual year, the company had 7,616 (7,545) shareholders. Sagax’s rent from the ten largest customers corresponds to approxi- market capitalization amounted to SEK 13,255 M (8,965) at mately 36% of Sagax’s annual contractual rent, represented year-end. by 57 separate leases. The average remaining term for these In 2015, profit from property management per common leases was 9.9 years. Sagax has many major reputable com- share after dilution amounted to SEK 4.90 (3.73) which, panies as tenants. 87% of the rental revenue derives from the compared with the year-end share price of the Class B com- government, municipalities or companies with sales exceeding mon share, corresponded to a multiple of 14.6 (11.8). SEK 100 M per year. Equity per common share after dilution amounted to SEK 25.93 (17.44) at year-end. EPRA NAV per common share FINANCING amounted to SEK 35.52 (27.23). For definitions of key ratios, Interest-bearing liabilities amounted to SEK 10,568 M see page 136. The share price for the Class B share at the end (8,525) with an average interest rate of 3.3% (4.1) at year- of the period was 277% (252) of equity per common share end. The debt ratio amounted to 59% (59) and the interest and 202% (162) of EPRA NAV per common share. coverage ratio to 285% (260); refer to the trend diagram below. The fixed interest and loan maturity period amounted to 3.0 years (3.0) and 4.2 years (3.2), respectively.

Market value of properties Debt ratio and interest coverage ratio

Other 6% (SEK 957 M) Interest coverage ratio, % Debt ratio, % 300 100 Other Finland 14% (SEK 2,266 M) 240 80

Stockholm 43% 180 60 Other Sweden 17% (SEK 6,906 M) (SEK 2,854 M) 120 40

Helsinki 20% 60 20 (SEK 3,206 M) 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Interest coverage ratio Debt ratio

READ MORE» Business concept, goals and strategies, see page 6. «READ MORE Summary of property portfolio, see page 18. Financing, see page 44. 2 AB SAGAX ANNUAL REPORT 2015 SAGAX’S PERFORMANCE Sagax’s performance

Price trend of the Sagax class B share

SEK

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sagax Carnegie Real Estate Index Sagax (total yield) SIX Real Estate Index (total yield)

1) Sagax’s Class B shares were registered for trading on April 4, 2013. Previous share price was calculated by dividing the previous share price for the Class A share by 11. The conditions of the bonus issue were ten Class B shares for each Class A share.

2006 2007 2008 2009 2010 During 2006, the company On October 8, the The financial turmoil in the The financial markets star- 50% of the shares in issued its first preference company’s shares were business world resulted in ted their recovery following Sagax’s joint venture, shares. The issue proceeds listed on OMX Nordic significantly declining share the turmoil of 2008. Sagax Söderport, were acquired. generated scope for con- Stockholm Stock Exchange prices and falling values for continued its growth, SEK 1.1 billion was net in- tinued growth. The size of (Small Cap) after being properties. Market interest with profit from property vested in properties. Sagax the Group was doubled by traded on First North. SEK rates also fell sharply. management rising 29% issued its first bond loan, property acquisitions in an 1.7 billion was net invested compared with 2008. SEK 250 M. amount of SEK 1.1 billion. in properties.

2011 2012 2013 2014 2015 In January 2011, trading in During 2012, a loan of SEK During 2013, the company Rental revenue exceeded Sagax’s net investments in the Sagax share was moved 4.2 billion was refinanced issued its first Class B sha- SEK 1 billion. SEK 1.9 properties amounted to to the Mid Cap list on prematurely, in parallel res. SEK 1.2 billion was billion was net invested in SEK 2.4 billion. 43 proper- NASDAQ OMX Stockholm. with implementation of a net invested in properties. properties. Sagax opened ties were acquired and two Market interest rates again new issue of preference Sagax acquired 15% of the offices and acquired its properties divested. It was started to fall after having shares in an amount of shares in Hemsö Fastighets first property in Paris. announced in the year-end risen during 2010. SEK 376 M. Sagax was AB. Historically low interest report that the forecast positioned for continued rates. profit from property ma- growth. nagement for 2016 would exceed SEK 1 billion.

Equity Proﬁt from property management and cash ﬂow SEK M SEK M 6,000 1,000 5,000 800 4,000 600 3,000 400 2,000

1,000 200

0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Proﬁt from property management, rolling annual value Cash ﬂow from operating activities before changes in working capital, rolling annual value

READ MORE» The Sagax share and shareholders, see page 60. «READ MORE Multi-year summary, see page 82.

AB SAGAX ANNUAL REPORT 2015 3 CHIEF EXECUTIVE OFFICER’S COMMENTS Chief Executive Officer’s comments

DEAR SHAREHOLDERS, Both the profit from property management and cash flow are the best that Sagax has ever reported (for the eleventh Status quo for Sagax consecutive year) and are only surpassed by the forecast for The operations in 2015 did not essentially change in relation 2016. The occupancy rate was 96% at year-end. Sagax leased to either the preceding year or as to how the business was 62,000 square meters and renegotiated more than 70,000 conducted a decade ago. This is positive. Some of the compa- square meters of premises. The number of leases at year-end ny’s strengths are its consistent standpoint on risk, cash flow was 698. In terms of its operations and finances, I believe that and organizational issues. Another is the simplicity of the Sagax is in a strong position and I hope to be able to report operations. Sagax invests in properties that generate stable similar key performance indicators for the operations for net operating income and manages them based on a very long- 2016. term time horizon. The company focuses on a relatively small segment of the property market, properties for warehousing Risks and light industry, with limited leasing potential yet high sta- I consider the simplicity of the operations to be a significant bility. We have been active in this segment for many years and advantage in terms of risk. The company does not need to have built up the company from the ground. The operations keep track of multiple risk factors and can instead concentrate have generated high profitability and positive cash flows from on just one or a small number of issues that could have a nega- the very start. We have never encountered any financial prob- tive impact on the company’s earnings capacity or capital. The lems or incurred any rent losses of significance. probability of an unintentional oversight occurring is thus Put simply, the operations in 2015 can be described as low, as are the costs for monitoring the company’s risks. follows: Properties that we invested our shareholders’ equity As mentioned above, the risks inherent in Sagax’s opera- in generated a return of 7.4%, of which 0.4 percentage points tions are primarily of a financial nature, the most central of were used to cover management and administration costs. which in my opinion is refinancing risk. We monitor and work Sagax financed 65% of its properties using long-term loans proactively to limit this type of risk. At the start of 2015, our that cost 4.0% in 2015, meaning that 2.6 percentage points assessment was that the market was favorable and we refi- of the return was used to pay the interest expenses on these nanced more than 50% of Sagax’s interest-bearing liabilities loans. The remaining 4.4 percentage points of the ongoing for up to seven years. return accrued to the shareholders, corresponding to a 15% I do not believe that Sagax has any significant operational return on equity including joint ventures and 14% excluding risks. A source of Sagax’s relative success is its organizational them. structure and corporate culture, which in brief I would Operational risks consist primarily of the fact that we describe as a combination of high customer and shareholder could misjudge the stability of a property’s net operating focus, high organization skills, a lack of prestige and a clear income or the cost of, or access to, long-term financing. We focus on implementation. The organization grows in line with attempt to manage the risk related to net operating income by Sagax leveraging one of the greatest strengths of its business carefully selecting our investments, diversifying income and model – its scalability – which does entail a certain level of entering into long-term leases. We manage our financial risks operational risk since the company’s original DNA could be by structuring loan maturity, fixing interest in the company’s changed for the worse. However, there is much to suggest that financing in the long term and by maintaining strong liquidity this will not be the case. Sagax has a low turnover of person- resources. nel and strong culture. The company’s managers and those These three short paragraphs present nine-tenths of a who ultimately shape its culture – the Board and operational complete description of Sagax and its operations. Gratifyingly, management – have worked together for an average of slightly the operations are no more complex than that. Sagax is not more than nine and seven years, respectively, and are thus dependent on making gains through property transactions, strong representatives of this culture. The Board and manage- construction operations or project development to generate ment are also collectively by far the company’s largest inves- high returns on shareholders’ capital. tors. All Board members have shareholdings valued at several It is partly due to the simplicity of the business model, millions of SEK, many times higher than the rather modest and in turn its scalability, that Sagax continued to perform Board fee that we pay. My colleagues also make continuous well in 2015. Profit from property management increased 27% net investments in the company's shares year after year in to SEK 895 M. Cash flow from operating activities before addition to the share incentive plan offered. The organiza- changes in working capital, including our participations in tion’s focus on the company as a whole is unmistakable. That the associated companies Söderport and Hemsö, amounted to is why I believe that Sagax will retain its DNA despite the SEK 750 M, corresponding to a 14.3% cash return on equity. organization constantly evolving.

4 AB SAGAX ANNUAL REPORT 2015 CHIEF EXECUTIVE OFFICER’S COMMENTS

Investing activities The overall focus that I mentioned above is of significant importance to a loyal workplace and also to our capital alloca- tion. We do not have a preset template for how shareholders’ capital is to be allocated between our various markets. Sagax allocates shareholders’ capital to new investments solely on the basis of optimal risk-adjusted return. It would not be any cause for concern for us if this were to lead to Sagax only investing in, for example, Helsinki for two years, or only in Paris, despite Stockholm being our largest market. If we do not find any promising investments – our target is to generate a 15% return on shareholders’ equity – we will be comfortable with managing what we already own while waiting for new opportunities to arise. Sagax’s growth places increasing demands on the company. An investment that ten years ago would have had a material impact on profit from property management now has far less of an impact. Sagax’s financial capacity has grown in pace with the company, although unfortunately the number of attractive and available investments has not grown at the same rate. Neither do we expect that it should. This factor, behind this trend. It does not mean that there are no attrac- combined with Sagax’s slight aversion to major transactions tive investments at all, but that there is reason to be cautious and their very rare occurrence in our market segment, creates and thoroughly analyze investment undertakings. Market great challenges for continued (profitable) growth. The solu- prices are at high levels and a false step could be costly. I do tion for Sagax is to establish operations in additional markets not believe that the Stockholm market will be significantly so that the company can continuously make small transactions stronger in 2016. It is more likely that it will weaken slightly in several markets. Sagax entered the Finnish market in 2004, in our segment due to the less favorable financing conditions a venture that proved to be highly successful. In 2014, Sagax that have prevailed since autumn 2015. The Finnish market, decided to establish operations in Paris, beginning with two which is considerably smaller than the Swedish market, suf- attractive acquisitions for a total of SEK 560 M at the start fered from a weak economic outlook, which led to higher of 2016. I am considering expanding our Paris venture to also yield requirements and thus slightly larger safety margins, include Lyon, the second largest city in France, which similar even taking into account the risks associated with a weaker to Paris is experiencing robust growth. We continuously ana- economic climate. It was difficult to find attractive invest- lyze and visit potential new markets. It cannot be ruled out ments in the Paris market at the start of 2015. We were more that Sagax will begin investing in an additional geographic successful in the second half of the year, and it resulted in the market, and if so in the light industry segment, at the end abovementioned investments being finalized at the beginning of 2016 or 2017. In my opinion, several geographic markets of 2016. All three market trends appear to be continuing as expand the company’s investment universe and thus the num- we enter 2016. ber of potential investments. I believe that a large volume of It is worth stating that the earnings trend and position investment opportunities in turn leads to better investment for the future as described above are the result of the extra decisions. Put differently, a 6.0% yield in Stockholm appears ordinary efforts of highly skilled and dedicated colleagues. expensive if the alternative is 8.5% in Helsinki or 7.5% in Accordingly, on behalf of the Board of Directors and share- Paris. Without these two other alternatives, the lower yield in holders, I would like to thank my colleagues for their hard my example appears worse by contrast, and a potentially erro- work over the past year. neous investment decision could be made. Speaking in general pricing terms, it is clear that the Swedish investment market was very strong in 2015. This trend is particularly evident in the substantial, positive Stockholm, April 2016 revaluations that Sagax can report for 2015. The combination of low interest rates, high volumes of capital seeking to DAV ID MINDUS be invested and strong economic growth were the drivers Chief Executive Officer

AB SAGAX ANNUAL REPORT 2015 5 DIRECTORS’ REPORT Business concept, goals and strategies

Sagax invests primarily in warehouse and industrial properties in regions characterized by stable population growth and diversified business operations and focuses on achieving a high continuous yield and strong cash flows. The company endeavors to enter into long-term leases with reputable and creditworthy tenants.

BUSINESS CONCEPT FINANCIAL TARGETS AB Sagax is a property company whose business concept is to ■■ The return on equity, measured over a five-year period, invest in commercial properties, primarily in the warehouse should not fall below 15% per year. During 2015, it was and light industry segment. 32%. The average return over the past five years has been 21% per year. COMPANY GOALS ■■ Profit from property management per common share should The overriding goal is the long-term generation of the maxi- increase by a minimum of 15% per year. In 2015, it increased mum risk-adjusted return to the company’s owners. To reach to SEK 4.90 per common share, up 31% year-on-year. The this goal, Sagax has set the following business targets: average annual increase over the past five years has been 22%.

■■ Operations must generate a long-term sustainable return ■■ The long-term target for the interest coverage ratio is a mini- and strengthen cash flow. mum of 150%. The interest coverage ratio in 2015 was 285%

■■ The company is to continue to grow through property and the average over the past five years has been 250%.

acquisitions after taking into account the risk-adjusted ■■ The long-term target for the debt ratio is that it should be return. less than 70%. The debt ratio was 59% at year-end and the

■■ Measured in real terms, the company is to create cash-flow average over the past five years has been 63%. growth from the existing property portfolio. The following diagram illustrates the outcome for the past five years in relation to the financial targets.

Debt ratio Return on equity

% % 80 50 70 40 60

50 30 40 30 20 20 10 10 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Debt ratio Return on equity Must not exceed 70% over the long term Return on equity, rolling 5 years Objective for return on equity over a ﬁve-year period is 15%

Interest coverage ratio Proﬁt from property management per common share

% SEK % 300 5 50

250 4 40 200 3 30 150 2 20 100 1 10 50

0 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Interest coverage ratio Proﬁt from property management per common share, Must never be less than 150% over the long term rolling 12 months Annual percentage growth rate, rolling 12 months Objective for annual growth rate is not less than 15%

READ MORE» Financing, see page 44. «READ MORE The Sagax share and shareholders, see page 60

6 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

STRATEGIES steady stream of dividends. The preference shares diversify Investment strategy Sagax’s capital base and allow the company to increase the Sagax invests primarily in warehouse and industrial properties. Group’s equity without increasing the number of common Properties designed as warehouses and for light industries are shares. Class B shares have been issued to positively impact attractive investment objects, as a result of a high continuous the liquidity and pricing of common shares while contributing yield in combination with a low rate of new production and to enhancing Sagax’s financial flexibility. stable occupancy rates. Sagax also invests in complementary acquisitions and in existing properties. Property acquisitions Management strategy and investments in the existing portfolio are aimed at increas- Sagax pursues efficiency and a long-term approach in its man- ing cash flow and diversifying rental revenue to thereby reduce agement strategy. The management strategy includes actively the company’s operational and financial risks. The following pursuing long leases. This applies equally to new leases and diagram illustrates Sagax’s rate of growth over a ten-year period to the management of existing leases. The company’s policy in terms of the properties’ market value and lettable area since is to abstain from attempting to maximize rent levels at all 2006. points of time in favor of reaching lease agreements of a longer duration with financially strong tenants. This is regarded Financing strategy as being more advantageous since it reduces the risk of vacan- The financing structure of Sagax is designed with a clear focus cies, while leading to reduced costs for letting premises and on operating cash flow and the interest coverage ratio. This is adapting premises to tenant needs. On December 31, 2015, expected to create excellent prerequisites for expansion and the average remaining term under the company’s leases was an attractive return on shareholders’ capital. The diagram 7.4 years (8.2). below shows Sagax’s profit from property management and cash flow from operating activities. As illustrated, cash flow Strategy for tenants corresponds closely to profit from property management. The Sagax endeavors to attract well-reputed and creditworthy ten- deviation is due mainly to profit from joint ventures, which is ants. The company mainly enters into leases that exclude the reinvested in the cash flows of proprietary operations. Only cost of heating and hot water and that are thus only affected the dividends actually received from joint ventures is recog- to a limited extent by changes in consumption or changed nized as cash flow from operating activities. rates, pertaining to such utilities as heating, electricity, prop- Sagax adopts a conservative approach to the assumption erty tax, water and sewage. of risk and thus endeavors to achieve well-balanced fixed interest and maturity structures to secure operating cash Strategy for the rental market flow. The average fixed-interest period was 3.0 years (3.0) at Sagax invests primarily in regions experiencing stable popu- year-end. The long fixed-interest period reduces interest-rate lation growth and that have diversified business activities. sensitivity but results in a higher average interest rate than a Sagax’s greatest exposure to the rental market occurs in shorter fixed-interest period. The company also endeavors to Stockholm and Helsinki, markets that Sagax regards as offer- have a low refinancing risk. The average maturity period at ing the best potential for long-term growth in the Nordic year-end was 4.2 (3.2) years. region. The risk of a decline in the occupancy rate and rent The company has three classes of shares: Class A com- levels due to a weaker rental market is regarded as low in view mon shares, Class B common shares, and preference shares. of the stable demographic growth and the diversified business The preference shares attract investor categories that value a operations in these regions.

Market value and area of properties Proﬁt from property management and cash ﬂow

1,000 sqm SEK M SEK M 2,000 20,000 1,000

1,600 16,000 800

1,200 12,000 600

400 800 8,000

200 400 4,000

0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Lettable area Proﬁt from property management, rolling annual value Market value Cash ﬂow from operating activities before changes in working capital, rolling annual value

READ MORE» Summary of property portfolio, see page 18. «READ MORE The investment market, see page 8.

AB SAGAX ANNUAL REPORT 2015 7 DIRECTORS’ REPORT Market overview

Stockholm, Helsinki and Paris belong to the most prosperous regions of Europe. Larger regions have higher economic, population and employment growth than smaller regions. They also have more developed economies, with a more diversified business sector and a lower risk of long-term vacancies in the property portfolio.

BACKGROUND and diversifying rental revenue. The fragmented owner situ- As a property company, Sagax is exposed to changes in the ation entails favorable long-term opportunities for Sagax to market for the leasing of premises. Because Sagax has a high achieve such growth. economic occupancy rate (96%) and long-term leases (average of 7.4 years), the company’s exposure to changes in the rental Transaction market market will be relatively low in the immediate future. Sagax’s Parameters driving interest in property investments include greatest exposure to the rental market occurs in Stockholm the general economic climate, interest rate scenario and access and Helsinki, which are among the markets that Sagax regards to equity and loan financing. as offering the best potential for long-term growth in the Nordic According to the consulting company Cushman & Wake- region. On the whole, the risk of a decline in occupancy rates field, the total transaction volume in Sweden was SEK 146 and rent levels due to a weaker rental market are regarded as billion (158) in 2015. Although this figure is lower than in low in view of the stable demographic growth and the diversi- 2014, it can be considered a historically high transaction vol- fied business operations in these regions. ume. In 2015, the total Finnish transaction volume according Sagax is also exposed to the investment market, the mar- to the consulting company Pangea Property Partners increased ket for the acquisition and sale of properties. The market for to EUR 6 billion (4), one of the largest transaction volumes property investments is affected to a considerable extent by recorded in Finland. conditions in the credit market and by the general economic outlook. Yield profile The warehouse and light industry segment offers many INVESTMENT MARKET opportunities for generating attractive yield on invested capi- The market for warehouse and industrial properties repre- tal despite a low risk profile. IPD Sweden Annual Property sents less than 10% of the total property market in Sweden Index and KTI Index measure the yield on unleveraged direct and Finland, making it one of the smaller segments. Owner- property investments in Sweden and Finland, respectively. ship of warehouse and industrial properties is fragmented The index is divided into the segments of retail, office, indus- and no one player is dominant. Few investors specialize in trial, residential and other. Sagax’s main property segment, warehouse and industrial properties, although interest in warehouse and light industry segment, is included in the investing in the segment has increased in the past ten years. industrial category. In 2015, yield for the industrial segment A large proportion of the supply usually comprises user prop- in Sweden and Finland amounted to 6.9% (8.1) and 8.0% erties, properties in which the operating company also owns (7.9), respectively, which was the highest of all segments the property. for both countries. This can be compared with the yield for Sagax’s strategy is to grow through acquisitions of new Sagax’s property portfolio, which amounted to 6.5% (6.8) properties. The acquisitions are aimed at increasing cash flow in Sweden and 8.6% (8.7%) in Finland in 2015. The yield for

Total yield annual rate through 2015 % 14 12 10 8 6 4 2 0 Sagax Sagax Sagax Sagax All properties All properties All properties All properties All properties All properties All properties All properties Industrial properties Industrial properties Industrial properties Industrial properties Industrial properties Industrial properties Industrial properties Industrial properties Sweden Finland Sweden Finland Sweden Finland Sweden Finland 1 year 3 years 5 years 10 years

8 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Sagax’s property portfolio as a whole was 7.4% (7.6) during Sagax believes that the property markets in Stockholm and 2015. The reasons for the changed yield for Sagax’s properties Helsinki are among the European markets that offer the best were a changed composition of the property portfolio due to potential for long-term growth. One of the characteristics of property acquisitions and rising property values primarily in these markets is a limited supply of undeveloped land, which the Stockholm region. means that centrally located areas for warehouse and indus- The total yield, the total of the yield of the properties and trial properties are converted for other uses to meet increased the change in value, for the index as a whole in 2015 was 14.1% demand for new housing, offices and retail premises. While (8.1) for Sweden and 6.0% (5.6) for Finland. The correspond- the supply of existing industrial and warehouse properties is ing figure for properties in the industrial segment were 9.7% declining, production of new buildings is limited, thus result- (7.6) and 6.2% (4.5), respectively. As can be seen in these ing in the supply generally remaining unchanged despite the figures, the total yield was significantly higher in Sweden, par- growth of the regions. This entails that demand for ware- ticularly at 16.2% in 2015 in the office segment that is more house and industrial properties remains strong. This supply sensitive to economic fluctuations. The total yield for Sagax’s and demand situation means that premises in the warehouse property portfolio in 2015 was 11.9% (11.6). However, Sagax and light industry segment are expected to continue to report had a higher total yield than the index as a whole in the past stable rent levels and high occupancy rates. three, five and ten years. An analysis of the warehouse and light industry markets in the Stockholm, Helsinki and Paris regions, which are RENTAL MARKET regarded as being most relevant for Sagax over the next future Sagax’s primary exposure to the rental market is through the years, is presented below. properties situated in Stockholm and Helsinki. Combined, these markets account for 62% of Sagax’s rental value. Most Growth of the properties situated outside Stockholm and Helsinki are Studies show that larger regions have higher economic leased based on triple net leases (see definitions on page 136) growth, stronger employment growth and higher population and have an average term of more than ten years. Exposure to growth than smaller regions. This applies both nationally the rental market in these locations is thus relatively low for and at a European level. Larger regions have more developed the next few years. The properties in Stockholm and Helsinki economies with companies in a large number of industries and have leases with relatively shorter terms, which means that a wider range of culture, retail and education. The pattern vacating of premises, new leases and renegotiations of exist- also shows that larger regions (measured as regional GDP) are ing leases continuously take place. Consequently, Sagax’s richer (measured as GDP). As shown in the diagram below, properties in Stockholm and Helsinki are exposed to a greater Stockholm, Helsinki and Paris are among the most prosperous extent to changes in the rental market than the company’s regions in Europe. The diagram is based on the EU’s subdivi- other properties. sions of countries, where NUTS1 corresponds to regions and

Regional GDP and GDP/capita per region 2013 Regional GDP (EUR M) 250,000

Lombardia Île de France (Paris) Inner London (Milan) Oberbayern (Munich) Rhône-Alpes (Lyon) Madrid 200,000 Düsseldorf Rome Stuttgart

Cologne Darmstadt (Frankfurt) Southern and Eastern (Dublin) 150,000 Stockholm Rotterdam Sør-Østlandet (Drammen)

Berkshire, Buckingham-shire and OxfordshireHamburg Oslo 100,000 Vienna Region Hovedstaden (Copenhagen) Région de Bruxelles-Capitale Helsinki Vestlandet (Bergen) 50,000 Luxembourg Groningen Agder og Roga-land (Stavanger)

0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Regional GDP per capita (EUR) Source: Eurostat and Evidens

Sagax’s property portfolio in brief, see page 18. «READ MORE

AB SAGAX ANNUAL REPORT 2015 9 DIRECTORS’ REPORT

NUTS2 to national area. The Stockholm region as a national Sagax’s Swedish property portfolio is found in regions with area (NUTS2) also includes Uppsala due to the extensive population growth, of which 84 percentage points is found in commuting to the capital. The Stockholm national area has the three metropolitan regions. 71% of the Swedish portfolio, a larger population than the Helsinki area. The Helsinki area corresponding to a property value of SEK 6.9 billion, is found also has a lower regional GDP per capita than the Stockholm in the Stockholm region, which is the most rapidly growing region. Each dot in the diagram on page 9 corresponds to a labor market in Sweden. Total employment in the Stockholm European region. More recent data than from 2013 is not yet region grew by slightly more than 2% in 2015. Growth of available from Eurostat. employment in Stockholm has amounted to approximately Only a few regions can be said to be richer than Sagax’s 7% in the past five years, compared with total employment largest market of Stockholm. It is interesting to note that the growth for the EU of about 0.7% during the period. economic downturn following the financial crisis appears to A corresponding 97% of Sagax’s property value in Finland have had less of an impact on Stockholm than comparable is found in regions with population growth. 71% is found in regions. The position of Stockholm has clearly strengthened the Helsinki region with an average annual population growth in recent years. of more than 1.2% since 1995. Some of the fastest growing The average population growth in the three Swedish regions with a population between 100,000 and 500,000 are, metropolitan regions amounted to slightly more than 1% per for example, Oulu, Tampere and, to a certain extent, Turku. year during the period 1995-2015. For Stockholm, the growth Demographic growth in 2015 was greater in Helsinki than rate was 1.3% during the period and over the past five years for Finland as a whole, and the net domestic migration to the the growth rate has peaked at a historic high of 1.6% per year. region is very high. In Helsinki, 0.8 million are employed and Other regions in Sweden have, on average, had significantly employment has risen approximately 1% over the past five weaker population growth and the population is declining or years despite total employment in Finland declining during is unchanged in all regions with fewer than 50,000 inhabit- the period. ants. Sagax’s exposure to the underlying rental market var- In France, the trend is similar to that of Sweden and Fin- ies between different geographic markets. A total of 90% of land, subject to one distinct difference. In France, the small-

Annual percentage population growth in Sweden’s Percentage population growth in regions of France local labor markets 1995-2015 (departments) by size category 1990-2013 90% % % Sagax 100% 2.0 0.7 Sagax 0% Sagax 8% Sagax 1% Sagax 6% Sagax 84% 0.6 1.5 0.6 1.1 0.5 0.5 1.0 0.5 0.3 0.5 0.4 0.4 0.0 –0.0 0.3 –0.5 0.2 –0.4 –1.0 0.2 –0.9 –1.5 0.1 –2.0 0.0 0-10,000 10,000-50,000 50,000-100,000 100,000-500,000 500,000- -250,000 250,000-500,000 500,000-750,000 750,000-1,000,000 1,000,000- Size category (number of inhabitants) Size category (number of inhabitants) Population growth Population growth Share of Sagax’s rental value Source: Statistics Sweden and Evidens Share of Sagax’s rental value Source: Evidens

Annual percentage population growth in Finland’s 120 largest labor markets in Europe local labor markets 1995-2015 % 97% % 60 2.0 Sagax 0% Sagax 0% Sagax 3% Sagax 26% Sagax 71% 1.5 50 1.2 1.0 0.7 40 0.5 Stockholm Helsinki 0.0 30 Paris –0.1 –0.5 20 –1.0 –0.7 –1.5 10 –1.5 –2.0 0-10,000 10,000-50,000 50,000-100,000 100,000-500,000 500,000- 0 Size category (number of inhabitants) Proportion employed Population growth in the highly productive Share of Sagax’s rental value Source: Statistics Finland and Evidens service sector Source: Evidens

READ MORE » Market area Stockholm, see page 26. Market area Helsinki, see page 30. Market area Other, see page 40. 10 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

est local labor markets are much larger than in Sweden and colleges influences regional growth and regions with a high Finland and all French regions displayed positive population educational level also tend to display a more varied industry growth during the period 1990-2013. In other respects, the structure, with a more distinct focus on knowledge-intensive trend is the same as for Sweden and Finland, with the largest sectors. According to a study by Eurostat of people in the regions, headed by the Paris region (Île de France), showing 30-34-year age category, 58% of people in Stockholm have the highest annual growth rate at 0.6%. In total, the popula- university/college education, 53% in Helsinki and 52% in tion of Paris has grown by 1.1 million since 2000, in absolute Paris. This may be compared with the EU average of 38%. figures, the fourth fastest growing region in Europe. The Paris region has a population of 12 million and is the region Market dynamics in region Europe that employs most people, 5.2 million. The A combination of healthy growth and minor changes in sup- second largest region in the EU is Milan with 4.2 million ply benefits the demand for premises in the warehouse and people employed. However, it should be noted that London, light industry segment. The Stockholm and Helsinki regions, due to its size, is divided into two regions. The employment Sagax’s largest markets, have historically had strong popula- rate in Paris has been about 1% for the past five years. A factor tion trends and solid economic growth. In terms of relative that is important for economic growth is a strong and grow- population growth, Stockholm and Helsinki are among the ing service sector, particularly the highly productive service richer regions performing the best; see table below. Popula- sector that includes financial and corporate services. After London and Copenhagen, Stockholm is the region in Europe that has the highest proportion of employees in this sector. As shown in the diagram on page 10, Helsinki and Paris also Population growth in European regions 2000-2015 account for considerable shares of the highly productive ser- Population Population- vice sector. growth growth Population- The educational level among the population is an impor- 2000-2015 2000-2015 growth 2000- tant factor for a region’s growth. Access to universities and Region (%) (% per year) 2015 (total) Luxembourg 29.8 1.76 129,358 Oslo 26.5 1.58 258,335 Brussels Capital Region 24.8 1.49 237,513 Regional GDP per capita 2013 Community of Madrid 23.1 1.4 1,199,367 EUR Inner London 22.8 1.38 634,247 70,000 Dublin 22.3 1.35 620,968 60,000 Stockholm 21.9 1.33 394,667 50,000 Agder and Rogaland (Stavanger) 20.8 1.26 130,952 40,000 Helsinki 16.2 1.01 223,676 30,000 Vienna 15.9 0.99 246,262 20,000 Rome 15.1 0.94 773,102 10,000 Rhône-Alpes (Lyon) 14.5 0.9 822,037 0 Stockholm Helsinki Paris Average in EU South-Eastern Norway (Drammen) 13.2 0.83 113,841 Source: Evidens Western Norway (Bergen) 12.5 0.79 98,350 Berkshire, Buckinghamshire and Oxfordshire 12.5 0.79 260,692 Upper Bavaria (Munich) 12.1 0.76 486,336 Lombardy (Milan) 11.5 0.73 1,031,467 Average annual growth in regional GDP 2000-2013 Provence-Alpes-Côte d'Azur % (Nice) 9.9 0.63 447,927 3.0 Île de France (Paris) 9.6 0.61 1,053,923 Capital Region (Copenhagen) 8 0.52 131,376 2.4 Rotterdam 6 0.39 202,267 1.8 Darmstadt (Frankfurt) 3.9 0.25 144,464 Groningen 3.8 0.25 21,296 1.2 Hamburg 3.4 0.22 58,056 0.6 Stuttgart 2.3 0.15 90,983 Cologne 2.3 0.15 98,049 0.0 Stockholm Helsinki Paris Average in EU Düsseldorf –3 –0.2 –156,178

Source: Evidens Median growth, all EU regions 4.4 0.29 21,492,678

Source: Evidens and Eurostat

AB SAGAX ANNUAL REPORT 2015 11 DIRECTORS’ REPORT

tion growth is of great importance to demand for premises in Changes in supply in Stockholm and Helsinki the warehouse and light industry segment. Sagax analyzes how growth and associated conversion pres- Since 2000, the number of inhabitants in the Stockholm sure in Sagax’s two largest markets, Stockholm and Helsinki, region has risen 1.3% per year. During this period, the num- affect the supply of premises for warehouse and light industry. ber of inhabitants in the Stockholm region has risen about In Stockholm, 23 business zones specialized in the property 20%, corresponding to 395,000 inhabitants. The positive taxation categories of warehouse, light industry and industrial trend also applies to economic growth, with an annual growth offices were studied during 1998–2014. The areas studies were rate of slightly less than 3%; see diagram on page 11 of regional divided into three sub-markets: central areas, inner suburbs GDP and annual growth since 2000. and outer suburbs (see map on page 13). A similar method was In common with Stockholm, Helsinki is numbered among utilized in Helsinki and 22 business zones specialized in the the regions that have performed the best since 2000. The property taxation categories of warehouse and light industry population of Helsinki has increased an average of slightly were studied between 1998 and 2014. The areas studied in more than 1% per year, while annual GDP growth in the Helsinki were divided into three sub-markets based on the region was three times as high as the EU average during the three ring roads: within Ring I, between Ring I and Ring III period. and outside Ring III (see map on page 14). The areas studied in During the period, the Paris region also experienced an Stockholm and Helsinki are shown on the maps. economic and population trend that clearly exceeded the EU Between 1998 and 2014, the supply of warehouse, light average. In absolute terms, Paris belongs to the regions that industry and industrial offices in Stockholm fell by a total have developed best, with population growth of 1.1 million of 6%, while population growth was 23%. The difference in since 2000. the change in supply is very large between the various sub- Growth in the largest and most affluent regions has been markets. Centrally located business zone show a 49% decline favorable since 2000 in terms of both economic performance in supply during the period. and the population trend. Demand for housing, offices and The areas in which the decrease took place were Södra retail premises increases in line with population growth. This Hammarbyhamnen, Globen/Johanneshov and Värtan. The means that existing warehouse and industrial properties are change in supply is particularly clear in Värtan and Södra used for other purposes. While the supply of existing indus- Hammarbyhamnen, where warehouse, light industry and trial and warehouse properties is declining, production of new industrial offices have made way for homes and office buildings. premises of this type is limited. The pattern is the same in the inner suburbs, with a 21% The tenant categories found in these premises in the decline. The areas in which supply has reduced the most are warehouse and light industry segment have relatively low Ulvsunda and Solna Station. profit margins that do not often allow the rent level required In the outer suburbs, supply has increased by 13%. for newly produced premises in metropolitan regions. An Growth is generally due to newly build logistics and ware- earlier study commissioned by Sagax revealed that the aver- house facilities, primarily in the areas of Jordbro and Länna age profit margin (EBITDA) was double as high among offices (southern Stockholm) and Rosersberg (northern Stockholm). in purely office areas (10-25%) compared with companies in If the analysis is divided by type of premises, primarily areas dominated by warehouse and light industry premises premises for light industry have been divested or converted (4-7%). As a result, companies in the latter category look for for other uses. The supply of premises for light industry in areas with existing and less expensive premises. Stockholm has declined a total of 26%. The supply of indus- The supply of development land in prime locations is trial offices has fallen 9%, while the supply of warehouse limited, while demand for housing, offices and retail premises premises has risen 6%. The supply of warehouse and logistics is increasing. These factors lead to incentives for owners of premises has fallen in central areas and inner suburbs, while it warehouse and industrial properties to convert their premises has increased in the outer suburbs. for other uses and thus meet demand from stakeholders with high payment capacity. The conversion pressure means that the supply of premises for warehouse and light industry is declining per capita. The occupancy rate for warehouse and industrial properties is thus expected to remain high in the foreseeable future in metropolitan regions with high population growth and stable economic development.

12 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

ARLANDA 1 Bredden/InfraCity AIRPORT 2 Eriksberg Sigtuna 3 Farsta 4 Globen/Johanneshov 5 Hagalund 12 6 Jordbro 7 Kista/Akalla 8 Kungens Kurva 9 Lunda 10 Länna Upplands Väsby 11 Mariehäll 1 12 Rosersberg 13 Segeltorp/Sätra 14 Skärholmen 15 Solna Station Täby 16 Södra Hammarbyhamnen Sollentuna 17 Tureberg industrial zone 18 Ulvsunda Järfälla 17

19 Veddesta 7 19 20 Värtan 9 21 Västberga

22 Årsta 5 23 Älvsjö BROMMA 11 15 AIRPORT 18 Central areas 20

Inner suburbs Stockholm 16 21 22 4 14 Changes in supply 1998-2014 in Stockholm (area) 13 8 Type of premises 23 Huddinge Ware- Light Industrial 3 Tyresö Area house industry offices Total Central areas – 61% –39% –24% –49% 2 Inner suburbs –16% –32% –17% –21% Botkyrka Outer suburbs 39% –20% 1% 13% 10 Total 6% –26% –9% –6%

The change in the population during the corresponding period Haninge was +23%. 6 Source: Evidens

Market area Stockholm, see page 26. «READ MORE Sagax’s properties in Stockholm, see page 28.

AB SAGAX ANNUAL REPORT 2015 13 DIRECTORS’ REPORT

Helsinki has experienced a similar trend to Stockholm, with The supply outside Ring III has increased most considerably reduced supply in central areas due to conversion pressure in the area around Helsinki Airport, which has excellent from a growing region. Between 1998 and 2014, the supply of infrastructure close to all of the major roadways and good premises for warehouse and light industry increased by a total transport links to Vuosaari Harbour. The supply outside Ring of 5%, while population growth in the region was 18%. III has risen a total of 66%. This has resulted in premises for light industry and warehouse The supply of warehouse premises in Helsinki has being divested or converted for other purposes in the most increase a total of 33%, while the supply of premises for light central areas (within Ring I). The supply outside Ring III has industry has fallen 8%. Conversion pressure in Helsinki is risen 27% since 1998. expected to continue. A total of 37% of Helsinki’s premises However, the supply in the areas between Ring I and Ring for warehouse and light industry remains within Ring I, com- III has risen 12% since 1998. The increased supply of ware- pared with slightly more than 50% in 1998. house premises in these areas is attributable to Helsinki’s new port, Vuosaari Harbour.

Changes in supply 1998–2014 in Helsinki (area)

Type of premises Light Area Warehouse industry Total Within Ring I –34% –24% –27% Between Rings I and III 36% –2% 12% Outside Ring III 99% 37% 66% Total 33% –8% 5% The change in the population during the corresponding period was +18%. Source: Evidens

140 1 Sörnäinen 152 2 Ruoholahti HELSINKI 3 Jätkäsaari E12 AIRPORT 4 Munkkisaari 120 21 E75 5 Konala 22 19 20 6 Tattarisuo E18 17 Vantaa 7 Herttoniemen Teoll.Al. 18 16 8 Roihupellon Teoll.Al. Ring III E18 9 Pitäjänmäen Teoll.Al. 10 Vuosaaren Peruspiiri 6 170 11 Kilo-karakallio 5 101 12 Niittykumpu Ring I 3 13 Kivenlahti 11 9 14 Kaitaa/Suomenoja 8 15 Kauklahti Espoo E75 10 16 Niipper/Juvanmalmi 7 E12 170 17 Martinlaakso 15 102 170 1 18 Petikko 12 E75 Helsinki 19 Viinikkala 14 20 Veromies 2 E12 21 Lentokenttä 13 4 22 Hakkila

READ MORE » Market area Helsinki, see page 30. Sagax’s properties in Helsinki, see page 32.

14 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Rent trends the stable rent levels for the segment of warehouse and light The combination of healthy growth and minor changes in sup- industrial properties compared with offices. Sagax’s three ply benefits the demand for premises in warehouse and light properties in Paris are marked on the map of Paris below. industry segment. Rent trends for warehouse and industrial The diagrams illustrate that rent trends for warehouse and properties are stable; see diagram below concerning inflation- industrial properties in the three regions have only a slight indexed rents in Stockholm, Helsinki and Paris. In Stock- correlation to rent trends for offices and that the rent level for holm, the rent level has increased slightly with low variation warehouse and industrial premises has shown low covariance since the mid-1990s. Compared with 1990, the rent level since the start of the measurement period. Also for occupancy has actually declined. In Helsinki, rent levels have been ris- rates, warehouse and industrial properties generally show less ing moderately with minor fluctuations since 1994. However, variation over time compared with occupancy rates for offices. the growth rate in Helsinki has been somewhat more robust The occupancy rate for warehouse and industrial premises in than in Stockholm. The time series reported for Paris extends the Stockholm region has amounted to approximately 90% over the period from 2005 to 2015 and this also indicates over the past ten years.

Rents in Stockholm in 1990 prices Rents in Helsinki in 1994 prices SEK per sqm EUR per sqm 2,500 300

2,000 240

1,500 180

1,000 120

500 60

0 0 1990 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015

Warehouse/industry in Stockholm City Warehouses in Helsinki Offices in Stockholm City Offices in Helsinki CBD Source: Evidens Offices in Stockholm inner city Source: Evidens

La Francilienne Rents in Paris in 2005 prices Cergy-Pontoise EUR per sqm 600 1 A15 AÉROPORT CHARLES-DE-GAULLE 500 3 Ring II 1 400 A1 2 A3 A13 Ring I A86 300 A14 A3 200 B. P. Paris A4 100 A13 Marne-la-Vallée A4 A12 0 A6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 A86 A86 Saint-Quentin-en-Yvelines Offices in Paris CBD Other offices outside southern ring Offices in La Defense Warehouse/light industry inside first ring Warehouse/light industry between A10 AÉROPORT Other offices inside PARIS-ORLY northern ring first and second ring

A6 Source: Evidens A10 Èvry Melun-Sénart A5 1 Taverny 2 Tremblay 3 Herblay

AB SAGAX ANNUAL REPORT 2015 15 DIRECTORS’ REPORT

COMPETITORS Corem’s current property portfolio primarily comprises The warehouse and light industry segment is characterized industrial, warehouse, logistics and retail properties. Ware- by diversified ownership and a large proportion of owners are house and industrial properties encompass 742,000 square own users. As a result, there is no dominant investor. Sagax’s meters and comprise 73% of Corem’s total lettable area. competitors comprise several different investor categories, such as Swedish and foreign property funds, institutions and Fastpartner privately owned and listed property companies. FastPartner is a property company focusing on commercial Sagax’s main competitors include listed Swedish prop- properties. FastPartner’s properties are mainly located in the erty companies. Examples of listed property companies that Stockholm region and in Gävle. Production and warehouse partly invest in the same segment as Sagax are: Castellum, properties encompass 677,000 square meters and comprise Corem, Fastpartner, Klövern, Kungsleden and Wihlborgs, see 49% of FastPartner’s total lettable area. presentations below. 84% of Sagax’s lettable area comprises warehouse and industrial premises. Compared with these Klövern competitors, Sagax has a high degree of specialization based Klövern is a property company that focuses on commercial on the percentage of warehouse and industrial premises in premises. The company’s business units are divided into four relation to the total portfolio. regions Stockholm, East, Central/North and South. Ware- Sagax’s year-end debt ratio amounted to 59% and interest house and industrial properties encompass 951,000 square coverage ratio to 285%. Key ratios are in line with those for meters and comprise 34% of Klövern’s total lettable area. competitors, see comparative diagram below. For comparabil- ity, the reported key ratios have been recalculated in accor- Kungsleden dance with Sagax’s definitions. Kungsleden is a property company with operations organized in four geographical areas: Stockholm, Mälardalen/North, Castellum Gothenburg and Malmö. Warehouse and industrial properties Castellum is a property company with a property portfolio encompass 1,253,000 square meters and comprise approxi- comprising commercial premises. The properties are owned mately 42% of Kungsleden’s total lettable area. and managed by six wholly owned subsidiaries with presence in five regions: Greater Gothenburg, Öresund Region, Greater Wihlborgs Fastigheter Stockholm, Mälardalen and Eastern Götaland. Warehouse and Wihlborgs is a property company focusing on commercial industrial properties encompass 1,474,000 square meters and properties in the Öresund region. The property portfolio is comprise approximately 45% of Castellum’s total lettable area. located in Malmö, Helsingborg, Lund and Copenhagen. Ware- house and industrial properties encompass 617,000 square Corem Property Group meters and comprise 35% of Wihlborgs’ total lettable area. Corem is a property company that owns and manages properties in Central and Southern Sweden and in Denmark. Source: The companies’ websites and reports for 2015.

Holdings of warehouse and industrial premises Debt ratio and interest coverage ratio Interest coverage ratio, %, Debt ratio, %, Company Area, sqm Share bars points Sagax 1,558,000 84% 350 100 Castellum 1,474,000 45% 280 80 Kungsleden 1,123,000 42% Klövern 951,000 34% 210 60 Corem 742,000 73% 140 40 Fastpartner 677,000 49% 70 20 Wihlborgs 617,000 35%

Total/average 7,142,000 52% 0 0 Castellum Corem FastPartner Klövern Kungsleden Sagax Wihlborgs Source: The companies’ financial reports for 2015 and websites.

READ MORE » Sagax’s financing, see page 44. Sagax’s key performance indicators, see page 84.

16 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

In 2015, Sagax acquired the Hangaren 3 property in Stockholm. The property is located Skarpnäck och encompasses 3,600 square meters of lettable area. The property is fully let to 12 different tenants. Visible in the background of the photo below is also the Hangaren 1 property, with 10,800 square meters of lettable area, which is also owned by Sagax. The properties are located next to Tyresövägen and a subway station, from which it takes 10 minutes to central Stockholm.

AB SAGAX ANNUAL REPORT 2015 17 DIRECTORS’ REPORT Summary of the Sagax property portfolio

At December 31, 2015, Sagax’s property portfolio comprised 225 properties with a lettable area of 1,860,000 square meters. The focus of the portfolio is on the Stockholm region. The annual rental value and contractual annual rent amounted to SEK 1,453 M and SEK 1,394 M, respectively. The average remaining economic occupancy rate and lease term were 96% and 7.4 years, respectively.

MARKET AREAS ment and maintenance, under what is known as triple net lease. Sagax’s property portfolio is divided into the market areas The contracting party is responsible for the supply of utilities, of Stockholm, Helsinki, Rest of Sweden, Rest of Finland and whereby there are differences between the heating, electricity Other. The Stockholm market area represents 43% of the and water supply and sewer systems in the portfolio in Stock- total market value and 39% of rental value. holm and Helsinki compared with other market areas. At December 31, 2015, Sagax’s rental revenue was distrib- LEASES uted between 698 leases. Most properties outside Stockholm Sagax mainly enters into leases that exclude the cost of heat- and Helsinki have only one tenant per property. These proper- ing and hot water, which means that the tenant pays the costs ties are usually leased under triple net leases with long terms. for such items as heating, electricity, property tax, water and Sagax works actively to agree in advance on lease exten- sewage in addition to the contractual rent. Accordingly, Sagax sions. Company policy is to abstain from attempting to is only affected to a limited extent by changed costs due to maximize rent levels in favor of reaching longer terms. This is changes in consumption or changed rates for such utilities as regarded as being more advantageous since it reduces the risk heating and electricity. Outside Stockholm and Helsinki, ten- of vacancies, while leading to reduced costs for letting prem- ants normally manage and defray costs for property manage- ises and adapting premises to tenant needs.

Market value of properties by market area Group rental value by market area

Other 6% Other 7%

Other Finland 14% Stockholm 39% Other Finland 14%

Stockholm 43% Other Sweden 17% Other Sweden 17%

Helsinki 20% Helsinki 23%

Summary of property portfolio

Dec 31, 2015 2015

Number Market value Rental value Property expenses Net of SEK SEK Economic Rental Other operating Market proper- Lettable per SEK per occupancy revenue, revenue, SEK per income, area ties area, sqm SEK M sqm M sqm rate SEK M SEK M SEK M1) sqm1) SEK M1) Yield1) Stockholm 73 592,000 6,906 11,700 561 948 94% 490 2 99 –167 393 6.0% Helsinki 52 361,000 3,206 8,900 337 934 96% 300 – –51 –141 250 8.5% Rest of Sweden 57 478,000 2,854 6,000 242 506 97% 234 – –18 –38 216 7.6% Rest of Finland 33 336,000 2,266 6,700 209 622 100% 165 – –10 –30 155 8.8% Other 10 93,000 958 10,300 104 1,118 94% 102 – –5 –54 97 10.0% Sub-total 225 1,860,000 16,189 8,700 1,453 781 96% 1,291 2 –182 –98 1,111 7.4%

Unallocated – – – – – – – – 1 –6 –3 –6 – Total 225 1,860,000 16,189 8,700 1,453 781 96% 1,291 2 –188 –101 1,104 7.4%

1) Expenses for property administration are included in recognized property expenses.

READ MORE» Market overview, see page 8 «READ MORE

18 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

The percentage of rental revenue related to leases with rent MAJOR TENANTS supplements linked to the Consumer Price Index (CPI) At year-end, the rental value attributable to the ten largest amounted to 97% (98) at year-end. tenants corresponded to 36% of the total contractual rental revenue, distributed between 57 separate leases. The term for SAGAX’S TENANTS these leases was an average of 9.9 years. The lease term at December 31, 2015 was 7.4 years (8.2). The The single largest tenant is the US medical products year-end maturity structure is presented in the table below. group Baxter, which has a total of 61,500 employees in more The lease term is shorter in Stockholm and Helsinki, which than 100 countries. At year-end, Baxter accounted for 9.8% have more liquid rental markets, high growth and a high of Sagax’s contractual rental revenue. An additional eight degree of business diversification. tenants each pay an annual rent that exceeds 2% of the com- Sagax has many major reputable companies as tenants. pany’s total annual rents. The five largest tenants in alphabeti- 87% of the rental revenue derives from the government, cal order are Axfood, Baxter Group, BE Group, Konecranes municipalities or companies with sales exceeding SEK 100 and Sanoma Group. The largest tenants by market area are M per year. 65% of rental revenue derives from the govern- presented in the descriptions of market areas on pages 26-41. ment, municipalities or companies with equity exceeding Sagax has categorized tenants based on the industry that SEK 100 M. they are primarily deemed to be dependent on, see diagram below.

Rental revenue broken down by size of the tenants’ equity Rental revenue broken down by size of the tenants’ sales State, municipality, 3% State, municipality, 3%

SEK 100 – 500 M, 18% SEK 10 – 100 M, 22% >SEK 1,000 M, 48% >SEK 1,000 M, 60%

SEK 500 – 1,000 M, 6% SEK 100 – 1,000 M, 14%

Lease terms Industry exposure

Contractual annual rent Other, 7% Service for properties, infrastructure, 5% No. of Building products, 6% Year of maturity leases Area, sqm SEK M Share Manufacturing 2016 193 100,000 88 6% industry, 17% New builds, properties, infrastructure, 8% 2017 135 91,000 94 7% State, municipality, 3% Medicine, medical 2018 103 171,000 149 11% technology, 12% Media, 6 % 2019 66 71,000 67 5% IT, development, Automotive, 11% 2020 45 262,000 191 14% education, 8% Logistics, 8% >2020 156 1,103,000 805 58% Food and drink, 9% Total 698 1,798,000 1,394 100%

Lease term

No. of No. of Lease Market area properties leases term, years Stockholm 73 355 5.0 Helsinki 52 227 5.5 Rest of Sweden 57 70 10.3 Rest of Finland 33 32 10.3 Other 10 14 14.1 Total/average 225 698 7.4

READ MORE» Risks and risk management, see page 52 «READ MORE

AB SAGAX ANNUAL REPORT 2015 19 DIRECTORS’ REPORT

RENT LOSSES new leases in Söderport is SEK 107 M. Agreements were also Historically, Sagax has reported low rent losses and a occu- reached in 2015 regarding extensions of leases corresponding pancy rate of more than 90%; see table below. Rent losses in to a total area of 22,000 square meters and a total rental value 2015 amounted to SEK 0.6 M (0.2). Losses corresponded to of SEK 82 M. 0.0% (0.0) of sales during the year. The bar chart below shows how Sagax had a low turnover rate of tenants of 2.1% (2.0) during 2015. The turnover rate LEASE ACTIVITIES IN 2015 was calculated as the contractual annual rent for vacating ten- In 2015, Sagax’s management organizations in Sweden and ants for the year in relation to average contractual annual rent Finland signed a total of 86 new leases with a total annual for the year. value of SEK 53 M and total area of 62,000 square meters. The diagram on net tenant occupancy below shows that The total rental value over the term of these new leases is net occupancy in 2015 was 0% (4.0). Net occupancy was cal- SEK 274 M. Agreements were also reached during the year culated by comparing contractual annual rents for occupying regarding extensions of leases corresponding to a total area of and vacating tenants during the year with the average rental 70,000 square meters and to total rental value of SEK 154 M. value for the year. The management organization in Söderport, the associat- The diagram showing rental value and economic occu- ed company administered by Sagax, signed 56 new leases dur- pancy rate clearly illustrates how the occupancy rate has ing the year with a total annual value of SEK 22 M and total stably exceeded 90% over the years, while the rental value per area of 24,000 square meters. The total rental value of these square meter has risen gradually over time.

Rent losses Tenant turnover rate Rent losses, Share Economic % Year SEK M of sales, % occupancy rate, % 6 2006 0.3 0.1 93 2007 0.5 0.1 97 5 2008 1.0 0.2 96 4 2009 0.2 0.0 95 2010 0.1 0.0 94 3 2011 0.2 0.0 93 2 2012 2.5 0.3 93 2013 0.0 0.0 92 1 2014 0.2 0.0 94 0 2015 0.6 0.0 96 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tenants, net occupancy Rental value and economic occupancy rate % SEK per sqm, bars %, curve 5 1,000 100 4 800 90 3 2 600 80

1 400 70 0 200 60 –1 –2 0 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rental value, SEK per sqm Occupancy rate, %

20 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

VACANCY RATE higher than the vacancy rate in terms of area because already Change in economic vacancy rate provided rent discounts are included in the calculation of the The economic occupancy rate was 96%, compared with 94% economic vacancy rate. at year-end 2015. During the year, the vacancy value rose SEK 28 M (22) Future vacancy changes due to tenants vacating premises and declined SEK 28 M (38) Notice of termination had been served for leases with a due to occupancies. Discounts provided on a fixed-term basis rental value of SEK 30 M (18) at year-end, of which notice of amounted to SEK 17 M (28) on an annual basis at year-end. renegotiation accounted for SEK 2 M (1) and notice of vacat- The terms for the discounts are described in the table below. ing the premises for SEK 28 M (17). Of the leases for which The closing vacancy value was SEK 59 M (74), a net notice of vacating the premises had been received, vacancies decline of SEK 15 M during 2015, of which SEK 11 M was due corresponding to SEK 8 M will occur in 2016 and SEK 17 M to a reduction in discounts provided. Stockholm and Helsinki in 2017. The rate of vacating premises is described in the table account for a total of 76% (74) of the vacancy value. The rental below. New lettings that have not yet been occupied reduced markets in Stockholm and Helsinki have shorter lease terms the adjusted vacancy value by SEK 23 M (2). and the turnover of tenants is higher, thus leading to relocation The adjusted closing vacancy value was SEK 66 M (90), vacancies. down SEK 24 M net during 2015, primarily due to the reduc- At year-end, the total vacancy rate in the portfolio in tion in discounts provided and successful lease activities in terms of area was 3% (5%). The economic vacancy rate is 2015.

Vacancies, January 1, 20161)

Number of Lettable area, Rental value, Vacancy value, Economic Vacant Vacancy rate Area properties sqm SEK M SEK M vacancy rate area, sqm by area Stockholm 73 592,000 561 32 6% 30,000 5% Helsinki 52 361,000 337 13 4% 13,000 4% Rest of Sweden 57 478,000 242 7 3% 19,000 4% Rest of Finland 33 336,000 209 – – – – Other 10 93,000 104 7 6% – – Total 225 1,860,000 1,453 59 4% 62,000 3% 1) The vacancy value and vacancy rate take into account vacancies as well as discounts provided to tenants.

Terms for discounts provided Vacancy changes

Year of maturity SEK M SEK M 2015 2014 2016 13 Opening vacancy for each year 74 80 2017 2 Vacancies 28 22 2018 1 Occupancies –28 –38 2019 – Change in discounts provided –11 5 2020 – Vacancy value, acquired properties 2 5 >2020 1 Vacancy value, sold properties –5 – Total 17 Closing vacancy value 59 74

Terminated for renegotiation 2 1 Terminated lease, not vacated 28 17 Leases terminated for vacancy New letting, not occupied –23 –2

Rental value, Adjusted closing vacancy value 66 90 Year of vacancy No. of leases SEK M 2016 10 8 2017 4 17 2018 2 3 Total 16 28

Sagax’s market areas, see pages 26-41. «READ MORE

AB SAGAX ANNUAL REPORT 2015 21 DIRECTORS’ REPORT Changes in the property portfolio

During the year, Sagax invested SEK 2,401 M (1,962), of which SEK 2,199 M (1,722) referred to acquisitions and SEK 202 M (240) to investments in the existing property portfolio. SEK 1,503 M of the investments pertained to Stockholm, Helsinki and Paris, meaning that 63% of the investments during the year were made in Sagax’s principal markets.

PROPERTY ACQUISITIONS PROPERTY SALES During 2015, Sagax acquired 43 properties for a total of SEK During 2015, two properties were sold in separate transac- 2,199 M; see page 23. In Stockholm, properties were acquired tions. The sold properties’ lettable area totaled 20,700 square for SEK 533 M, in Helsinki for SEK 721 M and in Paris for SEK meters. The total sales price was SEK 37 M. The property 60 M, corresponding to a total of 60% of the acquisition costs. sales are reported in the table on page 23. The acquired properties are also presented under the market area concerned.

In 2016, Sagax signed an agreement to acquire the industrial property Blanc Mesnil, situated 16 km from central Paris and 12 km from Charles de Gaulle airport. The property encompasses 13,500 square meters of lettable area, divided between 38 units ranging in size from 200 to 600 square meters. The property encompasses 25,000 square meters of freehold land. The property was acquired from the Municipality of Blanc Mesnil and possession was taken in February 2016.

READ MORE» Statement of cash flows, see page 90. «READ MORE Transaction-related risks, see page 56.

22 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Property acquisitions 2015

Lettable area, Acquisition Acquisitions sqm cost, SEK M Tenant Municipality Segment Hangaren 3 3,600 48 Several different tenants Stockholm Stockholm Olarinluoma 8 4,900 62 Bilia Oy Ab Espoo Helsinki Vantaanlaaksontie 6 8,600 138 Bilia Oy Ab Vantaa Helsinki Vantaanlaaksontie 6 5,200 Bilia Oy Ab Vantaa Helsinki Puusepänkatu 2 7,900 60 Bilia Oy Ab Helsinki Helsinki Lyhtytie 7 900 12 Several different tenants Helsinki Helsinki Porttisuontie 9 4,500 44 Helsingin Kukkatoimitus Oy Helsinki Helsinki 25 rue Henri Farman 1,800 14 Medi Tremblay Other Subtotal quarter 1 37,400 378

Elektrikern 2 2,500 18 Several different tenants Sollentuna Stockholm Hällsätra 2 10,800 73 Several different tenants Stockholm Stockholm Telegrafen 1 1,500 16 Swedish Police Authority Huddinge Stockholm Mörtö 9 3,300 40 Brand Factory Sverige AB Stockholm Stockholm Säteritaket 1 2,500 24 Several different tenants Stockholm Stockholm Runö 7:73 and Runö 7:74 2,500 26 Byggmax AB Österåker Stockholm Hakamäenkuja 4-6 2,600 19 Several different tenants Vantaa Helsinki Trukkikuja 1 2,600 107 Oy Grundfos Pumput Ab Vantaa Helsinki Subtotal quarter 2 28,300 323

Veddesta 2:20 13,000 134 Several different tenants Järfälla Stockholm Kaapelitie 4 67,600 601 Nokia Solutions and Networks Oy Oulu Rest of Finland 16 Rue de la Patelle 7,400 46 Several different tenants Herblay Other Subtotal quarter 3 88,000 781

Skarpnäs 12:9 2,500 19 Å.G. Emballage AB Nacka Stockholm Veddesta 1:27 2,700 27 Several different tenants Järfälla Stockholm Ackumulatorn 1 9,300 109 Several different tenants Huddinge Stockholm Ansatie 3 11,800 95 Alfa Laval Vantaa Oy Vantaa Helsinki Kärkikuja 2 4,700 67 Several different tenants Vantaa Helsinki Luomannotko 5 1,700 24 Onninen Oy Espoo Helsinki Nimismiehenpelto 4A 1,100 92 Wurth Oy Espoo Helsinki Nimismiehenpelto 4B 2,900 Oy Conma Ab Espoo Helsinki Nimismiehenpelto 6 8,800 Several different tenants Espoo Helsinki Kungsängen 32:6 700 10 Bertil Wik Marin AB Uppsala Rest of Sweden Ansiokatu 8 2,400 34 Onninen Oy Lahti Rest of Finland Hakakalliontie 7 1,700 14 Onninen Oy Hyvinkää Rest of Finland Joentaustankatu 3 7,400 56 Onninen Oy Tampere Rest of Finland Jääsalontie 17 4,500 46 Onninen Oy Oulu Rest of Finland Kiskotie 2 1,000 4 Onninen Oy Ylivieska Rest of Finland Larin Kyöstinkatu 28 2,700 35 Onninen Oy Hyvinkää Rest of Finland Mestarinkatu 5 2,600 18 Onninen Oy Kuopio Rest of Finland Raja-Hiltantie 8 1,700 10 Onninen Oy Pori Rest of Finland Ratakatu 26 1,600 11 Onninen Oy Lohja Rest of Finland Teollisuustie 28 1,300 7 Onninen Oy Rovaniemi Rest of Finland Yrittäjäntie 2 3,000 21 Onninen Oy Seinäjoki Rest of Finland Äyhönjärventie 5 1,200 9 Onninen Oy Rauma Rest of Finland Koikkurintie 2 1,600 9 Onninen Oy Forssa Rest of Finland Subtotal quarter 4 78,900 717

Total 2015 232,600 2,199

Properties divested 2015

Lettable area, Sales Property sqm price, SEK M Municipality Segment Bränninge 2:136, etc. 17,100 20 Habo Rest of Sweden Subtotal quarter 3 17,100 20

108756, 9M Ølsemagle By 3,600 16 Køge, Denmark Other Subtotal quarter 4 3,600 16

Total 2015 20,700 37

READ MORE» Sagax’s market areas, see pages 26-41. «READ MORE

AB SAGAX ANNUAL REPORT 2015 23 DIRECTORS’ REPORT

SAGAX’S INVESTMENTS IN EXISTING PORTFOLIO 15 M will be invested in the existing property portfolio During 2015, Sagax invested SEK 202 M (240) in the existing due to these undertakings. Agreements concerning invest- property portfolio, of which SEK 156 M (161) was invested in ment undertakings are normally reached in connection with Stockholm and SEK 33 M (18) in Helsinki. SEK 24 M (63) of property acquisitions and the investments occur in return the investments pertained to adaptation of premises on behalf for rent supplements. The investments have a yield exceed- of existing tenants in return for compensation in the form of an ing the yield prevailing at the time of the various property increased rent level and longer leases. SEK 19 M (25) was invested acquisitions. The agreements are limited in time and are only in connection with new leases. SEK 115 M (115) was invested in reached with tenants adjudged as having satisfactory cred- new builds during the year and SEK 42 M (37) in periodic main- itworthiness and whose leases have a long remaining term. tenance of, for example, roofs. In addition, the cost of regular The investments are intended to raise value by adapting the maintenance in an amount of SEK 25 M (22) was expensed in premises to the tenants’ operations. These high-yield invest- the consolidated financial statements during 2015. ments are made in order to contribute to Sagax’s earnings and Sagax has contractual undertakings of SEK 34 M con- operating cash flow. All investments will be financed with cerning future tenant-specific modifications, all pertaining internally generated funds and be within the framework of to Sweden. In 2016, it is estimated that a maximum of SEK existing credit facilities.

Properties acquired 2015, acquisition price Properties acquired 2015, ﬂoor area Other, 3% (SEK 60 M) Stockholm, 24% Other, 4% (9,200 sqm) Stockholm, 23% (SEK 533 M) (54,200 sqm)

Rest of Finland, Rest of Sweden, Rest of Finland, 43% 40% (SEK 875 M) 0% (SEK 10 M) (100,300 sqm) Helsinki, Helsinki, 30% 33% (SEK 721 M) (68,200 sqm)

Investments in current property portfolio Reason for investments in current property portfolio Rest of Sweden, 7% (SEK 13 M)

Helsinki, 16% Maintenance, 21% (SEK 42 M) (SEK 33 M) New leasing, 9% New builds, 58% (SEK 19 M) Stockholm, 77% (SEK 115 M) (SEK 156 M) Increase in rental revenue, 12% (SEK 24 M)

24 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

SAGAX’S NET INVESTMENTS 2015 Koivuvaarankuja 2 in Vantaa, SEK 19 M Sagax’s net investments in properties during 2015 correspond- Adjustments were made to the property due to changed ed to 18% of the opening property value; see diagram below. requirement in connection with lease to tenants including During the most recent five-year period, net investments have Dinair & Fimatic, Arffman Consulting and Fit24. Tenant- averaged 15%. Net investments have been calculated as the specific modifications and adaptations for new tenants were net of property acquisitions and investments in the current made for a total of SEK 8 M. Pipes and ventilation, for example, property portfolio, as well as sales of properties. were repaired at a cost of SEK 5 M. The renovation of the ventilation and heating system has SAGAX’S FIVE LARGEST INVESTMENTS IN CURRENT started to reduce electricity costs. The renovation is taking PROPERTY PORTFOLIO DURING 2015 place in cooperation with the Finnish Centre for Economic Sagax’s five largest investments in the current property port- Development, Transport and the Environment, which is also folio during the year are described below. These five invest- paying for some of the renovation work. Sagax’s expenses are ments totaled SEK 148 M, corresponding to 74% of the total estimated at SEK 6 M and renovation is scheduled for comple- investments in the current property portfolio during the year. tion in 2016. The renovation work is expected to generate savings of almost SEK 1 M per year. Induktorn 35 in Stockholm, SEK 44 M The construction of catering wholesaler Martin Olsson’s new Jordbromalm 3:1 in Haninge, SEK 14 M store, warehouse and offices commenced in 2014. Construction SEK 14 M was invested in the Jordbromalm 3:1 property in will be completed according to schedule in the second quarter Haninge, near Stockholm, during 2015. The investment per- of 2016. The total investment is estimated at SEK 64 M, of tains partly to tenant-specific modifications of SEK 11 M, on which SEK 19 is expected to be invested in 2016 and SEK 1 M behalf of the tenants, Drinks Logistic Partners, Axstore and was invested in 2014. Arc E Commerce, and, in part, to roof and wall maintenance in the amount of SEK 3 M. Bulten 5 in Danderyd, SEK 54 M Construction of a new car showroom in Danderyd started at the ONGOING INVESTMENTS AT YEAR-END end of 2014. The car showroom was completed in the fourth At year-end, Sagax had five ongoing investments with a remain- quarter of 2015. The total investment amounted to SEK 54 M, ing investment volume exceeding SEK 10 M. These projects will with almost all of the investment made in 2015. Mercedes-Benz result in 8,200 square meters of additional lettable area. The leases 4,410 square meters and NCH Retail Nordic leases the company’s ongoing investments at year-end are listed below. remaining 3,500 square meters for the sale of Jaguar cars.

Sagax’s net investments 2011-2015 Bulten 1 in Danderyd, SEK 17 M SEK M, bars %, curve The former office building, Bulten 1 in Danderyd, was demol- 2,500 50 ished and construction of a new building commenced in 2014 2,000 40 and was concluded during the first quarter of 2015. The total investment was SEK 113 M and SEK 96 M was invested in 1,500 30

2014. Bavaria, a car dealer of such makes as BMW, will lease 1,000 20 the entire property, which comprises 7,200 square meters of lettable area. Bavaria, which moved in during the first quarter 500 10 of 2015, has showrooms for new and used cars, an auto repair 0 0 shop and offices in the property. 2011 2012 2013 2014 2015 Net investments, SEK M % of opening property values Average of 14% during the period

Ongoing projects exceeding SEK 10 M

Estimated Remaining Estimated Project investment, investment, year of Property Municipality Regarding area, sqm SEK M SEK M completion Romben 2 Sollentuna Tenant-specific modifications 9,730 126 125 2017 Induktorn 35 Stockholm New build of warehouse/stores/offices 3,610 64 19 2016 Njursta 1:23 Upplands Väsby Tenant-specific modifications 7,600 22 22 2016 Koivuvaarankuja 2 Vantaa Renovation of ventilation and heating system 28,308 17 11 2016 Virkatie 7 Vantaa Tenant-specific modifications 7,600 15 14 2016 Total 24,293 244 191

Ongoing projects of less than SEK 10 M

Estimated Remaining Estimated year investment, SEK M investment, SEK M of completion Total 86 51 2016 Total, ongoing projects, December 31, 2015 331 242

AB SAGAX ANNUAL REPORT 2015 25 DIRECTORS’ REPORT Market area Stockholm

In Stockholm, Sagax’s property portfolio comprised 73 properties with 592,000 square meters of lettable area. The rental value was SEK 561 M. The average lease term at year-end was 5.0 years.

Data in brief The five largest tenants accounting for 27% of the market area’s rental value in alphabetical order 2015 2014 No. of properties 73 61 Arvid Nordquist Coffee roasting facility and food imports Lettable area, sqm 592,000 532,000 Axfood The subsidiary, Dagab, supplies a range of conve- Rental value, SEK M 561 497 nience goods to stores in the Axfood group Economic vacancy rate, % 6 9 Axstores The warehouse of the subsidiary, Åhlens, for department stores operations. Lease term, years 5.0 5.6 Properties’ market value, SEK M 6,906 5,691 Recipharm Contract-based development and manufacture of pharmaceuticals Profit from property management, SEK M 271 157 City of Stockholm Vocational higher secondary school run by Yield at December 31, % 6.0 6.3 Stockholm City

Share of Sagax Share of Sagax’s property value % 50

n Rental value 39% n Market value 43% n Lettable area 33% 20

0 2011 2012 2013 2014 2015

Stockholm is one of Sagax’s principal markets. This market marily as a result of net investments in the market area and accounts for 43% and 39% of the Group’s total market value the completion of new builds. The term of Sagax’s leases and rental value, respectively. Sagax’s property portfolio in in the Stockholm area at December 31, 2015 was 5.0 (5.6) the Stockholm area comprises 73 properties covering a total years. The economic vacancy rate in Stockholm during 2015 of 592,000 square meters of lettable area. At year-end, the declined from 9% to 6%. During the year, Sagax signed 25 number of leases was 355. new leases covering a lettable area totaling 33,068 square Sagax’s properties in Stockholm are located outside cen- meters, while eight leases encompassing a total of 15,008 tral Stockholm, alongside the major highways such as the E4/ square meters were extended. During the year, tenants served E20, E18 and Nynäsvägen. Most of the properties are located notice of termination on a total of 32,414 square meters, in established business zones such as Lunda, Ulvsunda and which means that net leasing amounted to 654 square meters Kista in northern Stockholm as well as in Älvsjö, Segeltorp, for 2015. Jordbro and Årsta in southern Stockholm. During 2015, SEK 155 M (161) was invested in the mar- In the Stockholm area, Sagax has shorter leases than in ket area’s current property portfolio. Investments in Bulten 1 the rest of the property portfolio. Vacancy changes, new in Danderyd, Bulten 5 in Danderyd, Induktorn 35 in Stock- leases and the renegotiation of existing leases occur continu- holm and Jordbromalm 3:1 in Haninge are presented on page ously and the potential to find tenants for vacant premises is 25 and corresponded to a total of SEK 129 M, 83%, of the deemed favorable. market area’s investments in existing property holdings during 2015. PROPERTY MANAGEMENT Rental revenue totaled SEK 490 M (435) while profit from ACQUISITIONS AND SALES property management was SEK 271 M (157) for 2015. Net During 2015, 11 properties with total lettable area of 54,200 operating income increased 12% to SEK 393 M (350), pri- square meters were acquired for SEK 533 M; see page 23.

READ MORE» Changes in supply in Stockholm, see page 13.

26 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

In the second quarter of 2015, Sagax took possession of seven properties in the Stockholm area. The image at the top of the page depicts the Säteritaket 1 property in Stockholm, which comprises 2,500 square meters of lettable area. The property is located in Hässelby Gård, close to Bergslagsvägen with an attractive location directly adjacent to residential areas. The image below depicts the Hällsätra 2 property in Stockholm, which comprises 10,800 square meters of lettable area. The property is located in Sätra adjacent to the E4 expressway, an area where Sagax already owns a number of properties.

AB SAGAX ANNUAL REPORT 2015 27 DIRECTORS’ REPORT

Property listing – Stockholm

Lettable area in sqm Ware- Tax assess- house/ ment value, Ref Property listing Address Municipality Industrial Offices Other Total SEK M 1 Kumla Hage 7 Segersbyvägen 5 Botkyrka 1,050 900 – 1,950 10.8 2 Tumba 7:234 Gustav de Lavals Väg 10-12 Botkyrka 16,531 540 – 17,071 – 3 Tuna Äng 3 Tuna Gårdsväg 4 Botkyrka 5,300 1,896 – 7,196 39.8 4 Bulten 1 Danderydsvägen 142 Danderyd 7,200 – – 7,200 52.7 5 Bulten 2 Danderydsvägen 144 Danderyd – – 850 850 4.1 6 Bulten 4 Ryttarvägen 5 Danderyd 888 349 – 1,237 7.6 7 Bulten 5 Ryttarvägen 4 Danderyd 7,910 – – 7,910 43.0 8 Bulten 6 Rinkebyvägen 9 Danderyd 1,700 – – 1,700 10.3 9 Bulten 10 Ryttarvägen 2 Danderyd 2,800 – – 2,800 31.4 10 Jordbromalm 3:1 Dåntorpsvägen 4-30 Haninge 91,997 2,351 – 94,348 397.5 11 Jordbromalm 6:101) Rörvägen 7 Haninge 4,690 1,328 – 6,018 36.6 12 Jordbromalm 6:13 Lagervägen 7 Haninge 13,300 2,800 – 16,100 120.8 13 Jordbromalm 6:82 Rörvägen 7 Haninge – – – 0 18.8 14 Jordbromalm 4:3 Lillsjövägen 7 Haninge 47,329 4,106 – 51,435 238.3 15 Söderbymalm 7:49 Hantverkarvägen 31 Haninge 8,020 800 – 8,820 34.5 16 Ackumulatorn 1 Regulatorvägen 21 Huddinge 5,333 3,942 – 9,275 42.6 17 Cirkelsågen 1 Speditionsvägen 18 Huddinge 8,609 – – 8,609 21.7 18 Heden 1 Mälarvägen 15 Huddinge 3,410 650 – 4,060 17.6 19 Heden 4 Lövbacksvägen 4, 6 Huddinge 4,658 – – 4,658 19.8 20 Kugghjulet 3 Lännavägen 62 Huddinge 5,214 206 – 5,420 35.0 21 Slänten 17 G:a Södertäljevägen 125 Huddinge 3,485 850 – 4,335 14.3 22 Telegrafen 1 Kommunalvägen 27 B Huddinge – 1,526 – 1,526 6.6 23 Jakobsberg 22:14 Brantvägen 2 Järfälla 2,000 650 – 2,650 19.4 24 Veddesta 1:13 Veddestavägen 2 Järfälla 5,292 276 – 5,568 30.4 25 Veddesta 2:20 Kontovägen 1-5 Järfälla 10,892 2,182 – 13,074 15.8 26 Veddesta 1:27 Saldovägen 22 Järfälla 2,520 192 – 2,714 16.0 27 Skarpnäs 12:9 Svarvarvägen 8 Nacka 2,200 300 – 2,500 12.1 28 Trosta 1:27 Trosta 187 Sigtuna 3,810 – – 3,810 9.1 29 Märsta 17:2 Maskingatan 8 A Sigtuna 3,621 – – 3,621 14.3 30 Märsta 24:18 Turbingatan 2 Sigtuna 1,033 862 – 1,895 10.6 31 Rosersberg 11:105 Metallvägen 47 Sigtuna 6,345 855 – 7,200 49.0 32 Elektrikern 2 Djupdalsvägen 27 Sollentuna 2,145 357 – 2,502 9.5 33 Rankan 1 Sollentunaholmsvägen 13, 15 Sollentuna 6,798 540 – 7,338 54.4 34 Reglaget 2 Bergkällavägen 20-22 Sollentuna 1,334 1,761 – 3,095 19.3 35 Romben 3 Staffans väg 4 Sollentuna 10,390 7,105 – 17,495 96.4 36 Verkmästaren 4 Ekensbergsvägen 117 Solna 10,907 5,045 – 15,952 60.9 37 Domnarvet 161) Fagerstagatan 7 Stockholm 2,419 1,997 – 4,416 21.7 38 Domnarvet 171) Fagerstagatan 5 Stockholm 6,549 1,402 – 7,951 29.8 39 Domnarvet 341) Garpenbergsgatan 3 Stockholm 1,484 530 – 2,017 14.9 40 Domnarvet 401) Gunnebogatan 34 Stockholm 2,045 532 – 2,577 10.7 41 Fabrikören 91) Konsumentvägen 9-11 Stockholm 3,110 955 – 4,065 16.2 42 Finspång 61) Finspångsgatan 49-51 Stockholm 6,417 1,952 – 8,369 36.6 43 Flyghallen 11) Flygfältsgatan 15 Stockholm 763 2,310 – 3,073 13.7 44 Gjutmästaren 8 Bryggerivägen 7, 9, 13, 15 Stockholm 5,000 – – 5,000 39.6 45 Hangaren 11) Flygfältsgatan 1-11 Stockholm 6,769 4,015 – 10,784 55.7 46 Hangaren 31) Postflygsgatan 2-12 Stockholm 2,680 938 – 3,618 29.8 47 Horndal 11) Fagerstagatan 29 Stockholm 7,053 1,270 – 8,323 39.2 48 Hällsätra 21) Stensätravägen 3 Stockholm 9,887 942 – 10,829 50.1 49 Induktorn 15 Ranhammarsvägen 6 Stockholm 340 60 – 400 4.5 50 Induktorn 24 Ranhammarsvägen 12, 14 Stockholm 8,100 4,662 – 12,762 104.6 51 Induktorn 351) Ranhammarsvägen 10 Stockholm – – – – 11.7 52 Instrumentet 14 Instrumentvägen 16 Stockholm 272 1,578 – 1,850 11.8 53 Kolsva 11) Fagerstagatan 26 Stockholm 4,800 365 – 5,165 24.8 54 Miklaholt 3 Haukadalsgatan 2-8 Stockholm 3,000 3,000 – 6,000 37.8 55 Murmästare-Ämbetet 11) Murmästarvägen 21-45 Stockholm 11,461 – – 11,461 58.8 56 Murmästare-Ämbetet 31) Murmästarvägen 1 Stockholm 9,449 1,635 – 11,084 44.1 57 Mörtö 91) Fryksdalsbacken 38 Stockholm 3,297 – – 3,297 15.3 58 Panncentralen 11) Partihandlarvägen 50-52 Stockholm 10,457 2,092 – 12,549 66.9 59 Sillö 31) Edsvallabacken 20-24 Stockholm 6,150 910 – 7,060 28.5 60 Skultuna 31) Finspångsgatan 44 Stockholm 8,828 2,926 – 11,754 48.1 61 Stensätra 161) Stensätravägen 2-4 Stockholm 9,139 2,234 – 11,381 8.4 62 Säteritaket 11) Maltesholmsvägen 88 Stockholm 1,377 1,089 – 2,466 8.3 63 Tillverkaren 1 Grossistvägen 1-5 Stockholm 2,675 – – 2,675 19.8

1) Held on a leasehold Acquired in 2015

28 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Property listing – Stockholm

Lettable area in sqm Ware- Tax assess- house/ ment value, Ref Property listing Address Municipality Industrial Offices Other Total SEK M

64 Valsverket 101) Karlsbodavägen 2-4 Stockholm 14,615 1,490 – 16,105 84.8 65 Varubalen 31) Upplagsvägen 2-10 Stockholm 7,271 3,219 – 10,490 44.4 66 Varubilen 11) Konsumentvägen 13-17 Stockholm 8,935 1,110 – 10,045 36.6 67 Vitå 1 Torshamnsgatan 10 Stockholm 9,449 – – 9,449 – 68 Vitå 2 Viderögatan 3-5 Stockholm 5,708 3,296 – 9,004 61.2 69 Stolen 1 Gribbylundsvägen 2 Täby 1,534 1,317 – 2,851 13.6 70 Njursta 1:23 Saturnusvägen 2 Upplands Väsby 7,032 – – 7,032 34.0 71 Runö 7:164 Näsvägen 19 Österåker 800 650 – 1,450 24.0 72 Runö 7:73 and 7:74 Sågvägen 26 Österåker 2,490 – – 2,490 13.5 Total 500,066 90,845 850 591,774 2,784.5

1) Held on a leasehold Acquired in 2015

ARLANDA AIRPORT Sigtuna 29 28 30

Upplands Väsby

70 34 71 35 72 33

32 Täby Sollentuna 69

Järfälla 4 68 5 9 67 6 54 38 37 7 8 47 40 23 25 39 60 42 26 24 53 62 36 BROMMA 64 AIRPORT 44 50 51 49 27

Stockholm 52 Nacka 65 61 56 58 55 48 19 18 21 66 46 41 45 63 43 Huddinge 22 57 59 Tyresö

1 16 20 3 Botkyrka 17 2

Haninge 15 10 11 14 12 13

Market analysis for Stockholm, see page 12. «READ MORE

AB SAGAX ANNUAL REPORT 2015 29 DIRECTORS’ REPORT Market area in Helsinki

Sagax’s property portfolio in Helsinki encompassed 52 properties with 361,000 square meters of lettable area. The rental value was SEK 337 M. The average lease term at year-end was 5.5 years.

Data in brief The five largest tenants accounting for 41% of the market area’s rental value in alphabetical order 2015 2014 No. of properties 52 38 DSV Transport and logistics Lettable area, sqm 361,000 280,000 Rental value, SEK M 337 280 Nokia Solutions and Networks Supplier of mobile broadband solutions Economic vacancy rate, % 4 4 Lease term, years 5.5 6.0 Bilia Car chain

Properties’ market value, SEK M 3,206 2,544 Sanoma Media and educational company Profit from property management, SEK M 172 130 Strålfors Supplier of customer communications Yield at December 31, % 8.5 8.5 solutions.

Share of Sagax Share of Sagax’s property value % 20

n Rental value 23% n Market value 20% n Lettable area 19% 8

0 2011 2012 2013 2014 2015

At year-end, Sagax’s property portfolio in the Helsinki mar- ing 2015, tenants served notice of termination on a total of ket area consisted of 52 properties, offering 361,000 square 23,205 square meters, which means that net leasing amounted meters of lettable area. The market area represents 19% of to a decline of 1,816 square meters for 2015.In total, the Sagax’s lettable area and 23% of the rental value in the Group. investments reported on page 25 on Koivuvaarankuja 2 in The Helsinki market area consists of the municipalities of Vantaa accounted for 58% of the investments in the market Espoo, Vantaa, Helsinki and Tuusula. Sagax’s properties are area’s existing property portfolio during 2015. strategically located along ring roads and other key roadways. ACQUISITIONS AND SALES PROPERTY MANAGEMENT During 2015, Sagax acquired 14 properties in Helsinki with a At year-end, the market area’s rental revenue derived from total of 68,200 square meters of lettable area. An agreement 227 leases, with an average lease term of 5.5 years. Rental was also signed in 2015 for the acquisition of a property in revenue totaled SEK 300 M (237) while profit from property Vantaa for which possession will be taken in the second quar- management was SEK 172 M (130) for 2015. Net operating ter of 2016. A total of SEK 689 M was invested in the market income increased 28% to SEK 250 M (192), primarily as a area, corresponding to 29% of Sagax’s investments in 2015. result of property acquisitions during 2014 and 2015. Read more about Sagax’s property acquisitions on page 22-23. During 2015, Sagax invested SEK 33 M (18) in the exist- No property sales were undertaken during 2015. ing property portfolio in the market area, of which periodic maintenance accounted for by far the most. Over the course of the year, Sagax signed new leases covering a lettable area totaling 21,389 square meters, while leases on a total of 54,903 square meters were extended. Dur-

READ MORE» Market overview, Stockholm, Helsinki and Paris, see page 8. Changes in supply in Helsinki, see page 14.

30 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Lyhtytie 7 (91-40-153-22) in Helsinki was acquired during the first quarter of 2015. The property is situated in a well-established industrial zone along Ring III.

Sagax’s property Hyttitie 8 (91-38-172-4) in Helsinki encompasses 4,200 square meters of lettable area and is situated at Helsinki-Malmi Airport, in a prime location on Ring I. The airport is now used for general aviation but the City of Helsinki wants to build housing on the area and the Finnish government has made a principle decision to discontinue operations at the airport so that the area can be used for housing production no later than by the start of the 2020s.

AB SAGAX ANNUAL REPORT 2015 31 DIRECTORS’ REPORT

Property listing – Helsinki

Lettable area in sqm Warehouse/ Ref Property listing Address Municipality Industrial Offices Other Total 1 Kiilaniityntie 1 (49-82-3-5) Kiilaniityntie 1 Espoo 3,230 – – 3,230 2 Luomannotko 5 (49-22-6-5-L) Luomannotko 5 Espoo 1,497 120 43 1,660 3 Nimismiehenpelto 4 A (49-47-2-6) Nimismiehenpelto 4 A Espoo 1,150 – – 1,150 4 Nimismiehenpelto 4 B (49-47-2-7) Nimismiehenpelto 4 B Espoo 2,899 – – 2,899 5 Nimismiehenpelto 6 (49-47-2-5) Nimismiehenpelto 6 Espoo 7,170 1,600 – 8,770 6 Tillinmäentie 1 (49-42-11-5)1) Tillinmäentie 1 Espoo 7,403 5,237 – 12,640 7 Karaportti 8 (49-54-21-8) Karaportti 8 Espoo 10,561 5,552 – 16,113 8 Olarinluoma 8 (49-22-3-4) Olarinluoma 8 Espoo 3,537 943 – 4,933 9 Hyttitie 8 (91-38-172-4) Hyttitie 8 Helsinki 3,786 421 – 4,207 10 Konalankuja 2 (91-32-38-6) Konalankuja 2 Helsinki 3,909 494 – 4,403 11 Hernepellontie 11 (91-36-66-1-L1)1) Hernepellontie 11 Helsinki 700 300 – 1,000 12 Linnanpajantie 26 (91-47-262-5-L1)1) Linnanpajantie 26 Helsinki 2,000 172 – 2,172 13 Lyhtytie 7 (91-40-153-22)1) Lyhtytie 7 Helsinki 576 287 – 863 14 Puusepänkatu 2 (91-43-59-5)1) Puusepänkatu 2 Helsinki 7,460 400 – 7,860 15 Ruosilantie 1 (91-32-41-3) Ruosilantie 1 Helsinki 5,342 1,735 – 7,077 16 Ristipellontie 17 (91-32-36-6) Ristipellontie 17 Helsinki 2,158 565 – 2,723 17 Palkkitie 3 (858-401-3-355) Palkkitie 3 Tuusula 12,313 1,450 – 13,763 18 Pakkasraitti 4 (858-411-1-150 och -172) Pakkasraitti 4 Tuusula 2,917 377 – 3,294 19 Ansatie 3 (92-40-502-2) Ansatie 3 Vantaa 9,421 2,427 – 11,848 20 Ansatie 4 (92-40-502-2) Ansatie 4 Vantaa 9,774 1,608 646 12,028 21 Hakamäenkuja 8 (92-68-106-3) Hakamäenkuja 8 Vantaa 550 550 – 1,100 22 Hakamäenkuja 4-6 (92-68-106-5) Hakamäenkuja 4-6 Vantaa 2,229 376 – 2,605 23 Hakamäenkuja 10 (92-68-106-4) Hakamäenkuja 10 Vantaa 550 550 – 1,100 24 Honkanummentie 3 (92-96-101-4) Honkanummentie 3 Vantaa 24,094 2,019 176 26,289 25 Honkanummentie 7 (92-96-101-7) Honkanummentie 7 Vantaa 5,431 130 150 5,711 26 Juhanilantie 1 (92-41-102-8) Juhanilantie 1 Vantaa 1,600 600 – 2,200 27 Juhanilantie 3 (92-41-102-3) Juhanilantie 3 Vantaa 1,150 838 – 1,988 28 Juhanilantie 4 (92-41-103-5) Juhanilantie 4 Vantaa 5,701 1,000 370 7,071 29 Kiitoradantie 14 (92-52-253-1) Kiitoradantie 14 Vantaa 3,132 1,044 437 4,613 30 Koivuhaankuja 1 (92-68-200-1) Koivuhaankuja 1 Vantaa 1,576 1,118 – 2,694 31 Kärkikuja 2 (92-41-109-7) Kärkikuja 2 Vantaa 3,072 1,326 310 4,708 32 Porraskuja 1 (92-41-102-4) Porraskuja 1 Vantaa 560 290 – 850 33 Porraskuja 3 (92-41-102-5) Porraskuja 3 Vantaa 800 280 – 1,080 34 Sarkatie 2 (92-14-203-2) Sarkatie 2 Vantaa 990 810 – 1,800 35 Tiilitie 9 (92-26-118-16) Tiilintie 9 Vantaa 4,469 588 – 5,057 36 Martinkyläntie 9 (92-17-113-1) Martinkyläntie 9 Vantaa 33,303 11,394 8,109 52,806 37 Koivuvaarankuja 2 (92-1-202-1) Koivuvaarankuja 2 Vantaa 17,705 10,260 344 28,308 38 Taivaltie 4 (92-16-119-4) Taivaltie 4 Vantaa 3,264 894 – 4,158 39 Tulkintie 29 (92-40-503-1) Tulkintie 29 Vantaa 10,128 4,192 740 15,060 40 Manttaalitie 12 (92-52-308-10) Manttaalitie 12 Vantaa 3,247 1,440 – 4,687 41 Sähkötie 8 (92-50-1-13) Sähkötie 8 Vantaa 6,175 737 – 6,912 42 Vantaanlaaksontie 6 (92-16-114-9) Vantaalaaksontie 6 Vantaa 6,140 2,488 – 8,626 43 Vantaanlaaksontie 6 (92-16-114-11) Vantaalaaksontie 6 Vantaa 3,905 1,275 – 5,180 44 Virkatie 7 (92-52-105-1) Virkatie 7 Vantaa 971 60 9,978 11,009 45 Virkatie 8 A (92-52-101-22) Virkatie 8 A Vantaa 10,075 – – 10,075 46 Virkatie 8 A (92-52-101-24) Virkatie 8 A Vantaa – – – – 47 Virkatie 8 B (92-52-101-21) Virkatie 8 B Vantaa 3,816 2,157 – 5,973 48 Virkatie 10 (92-52-101-5) Virkatie 10 Vantaa 1,558 1,432 – 2,990 49 Trukkikuja 1 (92-75-200-1) Trukkikuja 1 Vantaa 2,573 1,910 1,105 5,588 50 Porttisuontie 9 (92-64-0004-0003) Porttisuontie 9 Vantaa 3,860 610 – 4,470 51 Sanomatie 3 (92-17-113-3) Sanomatie 3 Vantaa 2,854 474 – 3,328 Total 263,281 74,530 22,408 360,769

1) Held on a leasehold Acquired in 2015

32 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

140 17152 18 HELSINKI E12 AIRPORT 120 33 30 32 47 48 E75 28 49 27 26 46 45 29 22 44 21 23 31 19 E18 24 20 39 50 Vantaa 35 51 25 36 41 13 34 Ring III 42 43 E18 1 38 37 170 9 10 16 15 40 101 Ring I 12 7 11 3 4 5 Espoo E75

14 E12 170 102 170 8 2 E75 Helsinki 6 E12

AB SAGAX ANNUAL REPORT 2015 33 DIRECTORS’ REPORT Market area the Rest of Sweden

In the Rest of Sweden market area, Sagax had a property portfolio comprising 57 properties with 478,000 square meters of lettable area on December 31, 2015. The rental value amounted to SEK 242 M. The average remaining rental duration was 10.3 years.

Data in brief The five largest tenants accounting for 65% of the market area’s rental value in alphabetical order 2015 2014 No. of properties 57 57 Gambro Lundia Medical technology and accompanying Lettable area, sqm 478,000 493,000 services Rental value, SEK M 242 244 Imtech Elteknik Electrical wholesaler and electricity contractor Economic vacancy rate, % 3 5 OBOS Sverige AB Manufacturer of wooden houses Lease term, years 10.3 11.2 Properties’ market value, SEK M 2,854 2,744 Optimera Building products chain owned by Saint Profit from property management, Gobain SEK M 142 122 S:t Eriks Manufacturer of land, roofing and water/ Yield at December 31, % 7.6 8.0 sewage systems

Share of Sagax Share of Sagax’s property value % 35

n Rental value 17% n Market value 17% n Lettable area 26% 14

0 2011 2012 2013 2014 2015

Sagax’s property portfolio in the Rest of Sweden market area average lease term was 10.3 years. By far the majority of the comprised 57 properties with 478,000 square meters of letta- market area’s properties are leased under triple net leases. ble area. This market area represents 26% of Sagax’s total let- During 2015, Sagax invested SEK 13 M (60) in the exist- table area and 17% of rental value. Sagax’s property portfolio ing property portfolio in the market area. in the market area includes Gambro’s headquarters in Lund, St Eriks’ manufacturing of concrete products in Uppsala and ACQUISITIONS AND SALES the BE Group’s central warehouse in Norrköping. In 2015, one property, with total lettable area of 1,000 square meters, was acquired for SEK 10 M; see page 23.In addition, PROPERTY MANAGEMENT SEK 13 M was invested in existing properties. At year-end, rental revenue for the market area derived from One property, Bränninge 2:136 in Habo, with lettable 70 leases. Rental revenue totaled SEK 234 M (205) while area of 17,100 square meters, was sold during the year. profit from property management was SEK 142 M (122) for 2015. Net operating income increased 12% to SEK 216 M (193). The change was due primarily to property acquisitions in 2014 that impacted earnings for 2015. During the year, Sagax signed three new leases regarding lettable area totaling 7,703 square meters. During 2015, no tenants served notice of termination, which means that net leasing during the year amounted to 7,703 square meters. The

34 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

The properties Kristianstad 3:35 in Kristianstad, Plankan 2 in Höganäs, Sköldmön 9 in Nässjö and Fiskmåsen 14 are leased to the building products chain Optimera, which has stores throughout Sweden and sales exceeding SEK 2 billion. The Optimera group is owned by Saint-Gobain of France, which is headquartered in Paris and is one of Europe’s largest suppliers of building materials. In addition to Sweden, Optimera is established in Denmark, Norway, Estonia and Latvia, with a total of more than 160 building products stores.

AB SAGAX ANNUAL REPORT 2015 35 DIRECTORS’ REPORT

Property listing – Rest of Sweden

Lettable area in sqm Ware- Tax assess- house/ ment value, Ref Property listing Address Municipality Industrial Offices Other Total SEK M 1 Traktorn 4, Traktorn 5 Traktorvägen 4 Aneby 2,002 – – 2,002 5.6 2 Nygårdarna 14:202 Nygårdsvägen 11 Borlänge 828 665 – 1,493 5.7 3 Blåsbälgen 1 Mästargatan 8 Borlänge 14,886 1,935 1,296 18,117 33.0 4 Grävskopan 2 Mästargatan 10 Borlänge 1,287 115 – 1,402 – 5 Brädan 1 Tuvängsgatan 2 Eksjö 5,174 – – 5,174 24.5 6 Romberga 11:5 Sämskarbogatan 6 Enköping 510 633 – 1,143 5.2 7 Nollplanet 81) Fabriksgatan 7 Eskilstuna 905 346 – 1,251 4.2 8 Mörten 17 Bruksgatan 7 C Eslöv 7,640 – – 7,640 22.1 9 Geväret 1, Värjan 2 Mossvägen 16 Falköping 6,115 – – 6,115 9.2 10 Bårebo 1:17 Bårebo 3-5 Gnosjö 6,010 917 200 7,127 4.7 11 Hillerstorp 3:106 Industrigatan 14-22 Gnosjö 20,830 2,620 – 23,450 23.3 12 Sörby Urfjäll 38:1 Elektrikergatan 3 Gävle 1,850 500 – 2,350 9.5 13 Arendal 1:10 Synnerödsvägen 7 Gothenburg 3,381 1,115 – 4,496 22.7 14 Högsbo 34:181) J A Wettergrens Gata 10 Gothenburg 2,914 1,870 – 4,784 30.8 15 Bronsen 1 Industrigatan 87 Helsingborg 8,426 – – 8,426 17.9 16 Kokosnöten 2 Industrigatan 83 Helsingborg 844 4,434 – 5,278 12.5 17 Plankan 2 Stålvägen 4 Höganäs 7,187 – – 7,187 16.1 18 Terminalen 10 Magasinsvägen 5 Karlskoga 7,632 1,552 – 9,184 21.2 19 Spärren 21) Spärrgatan 7 Karlstad 923 1,031 – 1,954 5.4 20 Kristianstad 3:35 Björkhemsvägen 12 Kristianstad 8,737 – – 8,737 17.3 21 Grepen 9, Grepen 12, Grepen 14 Skogvaktarevägen 11, 15 & 17 Lidköping 6,954 – – 6,954 23.9 22 Inteckningen 5 Magistratsvägen 16-18 Lund 12,924 7,506 3,359 23,789 87.1 23 Stockholm 9 Emdalavägen 5 Lund 5,438 380 – 5,818 21.3 24 Bredablick 4 Sallerupsvägen 34 Malmö 17,795 – – 17,795 50.0 25 Båtyxan 51) Järnyxegatan 15-17 Malmö 4,865 775 – 5,640 17.2 26 Båtyxan 61) Stenyxegatan 1 Malmö 11,075 1,660 300 13,035 45.6 27 Vevaxeln 4 Vevaxelgatan 2 Malmö 1,080 1,758 – 2,838 18.8 28 Lommen 6, Anden 1 Långgatan 74 & 80 Mellerud 7,225 – – 7,225 6.2 29 Pollaren 1 Barlastgatan 10 Norrköping 40,730 – – 40,730 72.1 30 Pollaren 2 Barlastgatan 10 Norrköping 7,700 – – 7,700 33.3 31 Sköldmön 9 Anneforsvägen 63 Nässjö 6,314 – – 6,314 8.9 32 Kamaxeln 61) Batterivägen 11 Skövde 1,267 1,013 – 2,280 8.6 33 Borggård 1:344 Industrivägen 4 Staffanstorp 8,976 324 – 9,300 25.8 34 Eksjöhovgård 7:5 Svetsaregatan 4 Sävsjö 8,791 1,170 – 9,911 7.0 35 Gästgivaregården 1:305 Vrigstad Sävsjö 13,735 620 – 14,355 10.1 36 Sågen 5 Västra Järnvägsgatan 2 Sävsjö 1,490 – – 1,490 1.4 37 Fiskmåsen 14 Hermelinsgatan 12 Tranås 7,625 1,651 9,276 9.7 38 Trävaran 1 Tommarpsvägen 116 Trelleborg 11,199 – – 11,199 25.2 39 Ratten 6 Kardanvägen 28 Trollhättan 1,161 1,481 – 2,642 6.6 40 Librobäck 4:23 Börjegatan 77 B-C Uppsala 13,725 1,260 – 14,985 117.2 41 Kungsängen 32:8 Kungsängsesplanaden 9 Uppsala 756 392 – 1,148 10.6 42 Kungsängen 32:6 Mältargatan 19 Uppsala 678 300 – 978 4.0 43 Listen 10 Stålvägen 4 Vetlanda 5,849 – – 5,849 5.9 44 Nedervara 3:4 Vara Vara 10,220 – – 10,220 6.1 45 Gräsanden 7 Skaragatan 15 Vara 6,946 1,801 – 8,747 20.4 46 Bockaberg 2:2 Solbergavägen 44 Vetlanda 16,720 2,807 – 19,527 9.7 47 Snickaren 3 Snickarvägen 4 Vetlanda 11,430 1,570 – 13,000 18.0 48 Lilla Hillhult 2:4 Lilla Hillhult 13 Vetlanda 2,050 150 – 2,200 1.6 49 Myresjö 31:2 Myresjö Vetlanda 54,120 3,875 – 57,995 38.0 50 Sågklingan 9 Pilgatan 19 Västerås 1,340 2,240 – 3,580 16.2 51 Snäppan 5 Drottning Kristinas väg 6 Åmål 4,190 – – 4,190 4.0 52 Hissmontören 2 Klerkgatan 18 Örebro 7,455 2,876 – 10,331 28.8 Total 419,854 53,342 5,155 478,351 1,050.2

1) Held on a leasehold Acquired in 2015

36 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

12 2 4 3

Västerås 40 41 Uppsala 42 Karlstad 50 6 19 Örebro Stockholm 18 52 7 51

Norrköping 28 29 30 21 32 39 Skövde 45 9 44 37 13 1 Jönköping Gothenburg 14 31 5 E22 34 46 E6 35 36 11 47 49 10 43 48 50

E6 17 20 Helsingborg 15 16 E22 33 22 8 23 25 24 38 Malmö 27 26

AB SAGAX ANNUAL REPORT 2015 37 DIRECTORS’ REPORT Market area Rest of Finland

Sagax’s Rest of Finland market area encompasses 33 properties with 336,000 square meters of lettable area. The rental value amounted to SEK 209 M. The average lease term at year-end was 10.3 years.

Data in brief The five largest tenants accounting for 91% of the market area’s rental value in alphabetical order 2015 2014 No. of properties 33 19 BE Group Steel wholesaler Lettable area, sqm 336,000 241,000 Rental value, SEK M 209 144 Konecranes Manufacturer of hoisting equipment Economic vacancy rate, % – – Nokia Solutions and Lease term, years 10.3 10.7 Networks Supplier of mobile broadband solutions Properties’ market value, SEK M 2,266 1,475 Onninen Lighting wholesaler, logistics and distribution Profit from property management, SEK M 107 80 Volvo Service facilities for trucks Yield at December 31, % 8.8 9.0

Share of Sagax Share of Sagax’s property value % 15

6 n Rental value 14% n Market value 14% n Lettable area 18% 3

0 2011 2012 2013 2014 2015

The Rest of Finland market area comprises a property port- in 2015. No leases were extended during the year and no new folio of 33 properties with 336,000 square meters of lettable leasing occurred because there are no vacancies in the prop- area. The market area represents 18% of Sagax’s lettable area erty portfolio. Accordingly, net leasing in the market area was and 14% of the rental value in the Group. minus 1,909 square meters. During 2015, Sagax invested SEK 0 M (1) in the existing PROPERTY MANAGEMENT property portfolio in the market area. At year-end, rental revenue for the market area derived from 32 leases. The average lease term was 10.3 years. All leases ACQUISITIONS AND SALES are triple net leases. Sagax has no vacant premises in the mar- In 2015, 14 properties with lettable area of 100,300 square ket area and, thus, net new occupancy was zero during 2015. meters were acquired in this market area for a total of SEK Rental revenue totaled SEK 165 M (129) while profit 875 M, which corresponds to 36% of the company’s invest- from property management was SEK 107 M (80). Net operat- ments in 2015. Read more about Sagax’s property acquisitions ing income for 2015 increased 28% to SEK 155 M (121), pri- on page 23. marily as a result of property acquisitions during the year. No property sales were undertaken during 2015. During 2015, Sagax received a lease-termination notice regarding 1,909 square meters, with the premises to be vacated

38 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Property listing – Rest of Finland

Lettable area in sqm Ware- house/ Ref Property listing Address Municipality Industrial Offices Other Total 1 Korjaamonkatu 1 (609-33-5-3) Korjaamonkatu 1 Pori 2,393 227 – 2,620 2 Raja-Hiltantie 8 (609-30-4-1) Raja-Hiltantie 8 Pori 1,278 276 159 1,713 3 Koikkurintie 2 (61-6-165-7-4) Koikkurintie 2 Forssa 1,230 250 72 1,552 4 Murrontie 3 (61-15-277-12) Murrontie 3 Forssa 26,176 4,880 – 31,056 5 Koneenkatu 8 (106-7-606-16) Koneenkatu 8 Hyvinkää – 1,200 – 1,200 6 Koneenkatu 8 (106-7-606-25) Koneenkatu 8 Hyvinkää 7,107 – – 7,107 7 Koneenkatu 8 (106-7-606-26) Koneenkatu 8 Hyvinkää 1,764 – – 1,764 8 Koneenkatu 8 (106-7-606-28) Koneenkatu 8 Hyvinkää 24,977 3,601 – 28,578 9 Koneenkatu 8 (106-7-606-27) Koneenkatu 8 Hyvinkää 13,091 10,329 – 23,420 10 Hakakalliontie 7 (106-24-2307-2-D) Hakakalliontie 7 Hyvinkää 895 741 42 1,678 11 Kisällinkatu 10 ( 285-46160-1) Kisällinkatu 10 Kotka 2,110 214 – 2,324 12 Mestarinkatu 5 (297-24-14-3-3) Mestarinkatu 5 Kuopio 1,368 778 496 2,642 13 Ansiokatu 8 (398-23-116-7-W) Ansiokatu 8 Lahti 1,656 636 119 2,411 14 Jatkokatu 1 (398-9-9050-2) Jatkokatu 1 Lahti 4,680 300 – 4,980 15 Vanhanradankatu 42 (398-20-246-8) Vanhanradankatu 42 Lahti 26,441 646 – 27,087 16 Metsäkiventie 4 (408-14-1413-1) Metsäkiventie 4 Lappo 5,456 657 – 6,113 17 Ratakatu 26 (444-15-360-6-4) Ratakatu 26 Lolo 1,168 385 – 1,553 18 Avantintie 20 (423-455-1-502) Avantintie 20 Lieto 4,998 602 – 5,600 19 Äyhönjärnentie 5 (684-11-1104-1-8) Äyhönjärnentie 5 Rauma 999 126 27 1,152 20 Teollisuustie 28 (698-9-9025-10-H) Teollisuustie 28 Rovaniemi 1,019 234 34 1,287 21 Yrittäjäntie 2 (743-5-24-8-U) Yrittäjäntie 2 Seinäjoki 2,435 373 161 2,969 22 Nuutisarankatu 19 ( 837-302-785-17) Nuutisarankatu 19 Tampere 3,704 340 – 4,044 20 23 Tuotekatu 3 (837-330-6123-11)1) Tuotekatu 3 Tampere 10,047 639 – 10,686 24 Joentaustankatu 3 (837-230-3555-9-B) Joentaustankatu 3 Tampere 6,199 941 232 7,327 25 Ruununmyllyntie 13 (109-16-86-8) Ruununmyllyntie 13 Hämeenlinna 14,760 2,925 – 17,685 26 Larin Kyöstinkatu 28 (109-8-38-3-K) Larin Kyöstinkatu 28 Hämeenlinna 2,398 193 74 2,665 27 Jääsalontie 17 (564-9-31-1-S) Jääsalontie 17 Oulu 3,300 1,188 348 4,836 28 Kaapelitie 4 (564-84-8-6) Kaapelitie 4 Oulu 26,189 41,400 – 67,589 29 Hiidenmäentie 20 (927-454-4-0) Hiidenmäentie 20 Vihti 16,956 3,316 – 20,272 30 Kiskotie 2 (977-3-7-1) Kiskotie 2 Ylivieska 724 234 90 1,048 31 Paakarlantie 3 (853-66-3-15) Paakarlantie 3 Turku 25,691 1,483 – 27,174 32 Vanha Vaasantie 13 ( 980-428-17-3) Vanha Vaasantie 13 Ylöjärvi 6,872 2,083 – 8,955 33 Teollisuustie 11 (980-428-39-8) Teollisuustie 11 Ylöjärvi 4,700 397 – 5,097 Total 252,781 81,594 1,854 336,184 1) Held on a leasehold Acquired in 2015

Oulu 27 28

Vaasa 16 21 12

33 32 Tampere 1 19 22 23 2 24 Hämeenlinna 25 14 26 13 3 Lahti 4 10 15 7 8 6 18 5 9 Hyvinkää 11 Turku 31 29 17 Helsinki

AB SAGAX ANNUAL REPORT 2015 39 DIRECTORS’ REPORT Market area Other

In Germany, Denmark and France, Sagax had a property portfolio comprising ten properties with 93,000 square meters of lettable area on December 31, 2015. The average remaining lease term was 14.1 years.

Data in brief The five largest tenants accounting for 97% of the market area’s rental value in alphabetical order 2015 2014 No. of properties 10 9 Baxter Medical technology and accompanying Lettable area, sqm 93,000 88,000 services Rental value, SEK M 104 102 Cogne France Steel wholesaler Economic vacancy rate, % 6 7 Lease term, years 14.1 15.6 Sego Graphics production Properties’ market value, SEK M 958 964 Sergi France Manufacturer of fire protection for Profit from property management, transformers SEK M 55 43 Yield at December 31, % 10.0 9.8 Volvo Service facilities for trucks

Share of Sagax Share of Sagax’s property value % 10

n Rental value 7% n Market value 6% n Lettable area 5% 4

0 2011 2012 2013 2014 2015

Sagax’s property portfolio in the Other market area consists Rental revenue amounted to SEK 102 M (87) and profit from of ten properties with 93,000 square meters of lettable area. property management totaled SEK 55 M (43). Net operating The market area represents 5% of Sagax’s lettable area and 7% income for 2015 increased 15% to SEK 97 M (84), primarily of the rental value. as a result of property acquisitions during the year. No investments occurred during 2015 in the market area’s PROPERTY MANAGEMENT existing property portfolio. At year-end, rental revenue for the market area derived from 14 leases. The average lease term was 14.1 years. Sagax has ACQUISITIONS AND SALES no vacant premises in the market area, resulting in zero net During 2015, two properties with a lettable area of 9,200 leasing during 2015. The reported economic vacancies reflect square meters were acquired in Paris, France, for a total of discounts provided on a fixed-term basis till tenants. SEK 60 M. A property in Køge, Denmark, was divested in 2015.

READ MORE » Market overview, Stockholm, Helsinki and Paris, see page 8.

40 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Property listing rest – Other

Lettable area in sqm Ware- house/ Property listing Address Municipality Industrial Offices Other Total Holger-Crafoord Strasse 26 Holger-Crafoord Strasse 26 Hechingen, Germany 8,836 287 1,083 10,206 Holger-Crafoord Strasse 26 Holger-Crafoord Strasse 26 Hechingen, Germany 10,213 10 12 10,235 Holger-Crafoord Strasse 26 Holger-Crafoord Strasse 26 Hechingen, Germany 18,205 91 865 19,161 Holger-Crafoord Strasse 26 Holger-Crafoord Strasse 26 Hechingen, Germany 6,644 4,074 1,680 12,398 Holger-Crafoord Strasse 26 Holger-Crafoord Strasse 26 Hechingen, Germany 10,531 1,456 – 11,987 9 bc Tranders Skjernvej 6 Aalborg, Denmark 2,003 887 – 2,890 1 ru Trollesminde Lokesvej 1 Hillerød, Denmark 3,055 514 – 3,569 46 Rue Constantin Pecqueur 46 Rue Constantin Pecqueur Taverny, France 13,500 – – 13,500 25 rue Henri Farman 25 rue Henri Farman Tremblay, France 1,793 – – 1,793 16 Rue de la Patelle 16 Rue de la Patelle Herblay, France 7,107 293 – 7,400 Total 81,887 7,612 3,640 93,139

Acquired in 2015

Aalborg

Copenhagen

Odense Køge

Hamburg

Amsterdam Berlin

Düsseldorf

Cologne Frankfurt

Prague La Francilienne Cergy-Pontoise Luxembourg

A15 AÉROPORT Nuremberg CHARLES-DE-GAULLE Stuttgart Ring II 1 Paris A1 Munich A3 A13 Ring I A86 Hechingen A14 Wien A3 B. P. Paris A4 A13 Marne-la-Vallée A4 Zürich A12 A6

A86 A86 Saint-Quentin-en-Yvelines Geneva A10 AÉROPORT PARIS-ORLY Milan A6

A10 Èvry Melun-Sénart A5

AB SAGAX ANNUAL REPORT 2015 41 DIRECTORS’ REPORT Market value of property portfolio

At December 31, 2015, the market value of the property portfolio was SEK 16,189 M. All properties were appraised by independent valuation companies. Sagax’s yield in 2015 was 7.4%.

INTERNATIONAL ACCOUNTING STANDARDS entails that Sagax’s calculations now comply with calcula- Sagax prepares its consolidated financial statements according tion methods applied by the majority of other listed property to the EU-approved International Financial Reporting Stan- companies. Unrealized changes in value excluding prior years’ dards (IFRS). acquired deferred tax amounts to SEK 636 M. Sagax has elected to recognize its properties at fair value according to the Fair Value Method, meaning their commer- REVALUATION OF PROPERTIES cial market value. The value of the property portfolio rose by SEK 84 M (56) net as a result of lease renegotiations, new lettings and ten- MARKET VALUE ants moving during the year; refer to the table below entitled At December 31, 2015, the market value of Sagax’s 225 Unrealized changes in value. The general change in market (184) properties was SEK 16,189 M (13,428). The change value impacted Sagax’s property values by a total of SEK in the carrying amount of the properties during 2015 is 593 M (380). Overall, the value trend for properties in Sweden explained below. Net investments during 2015 amounted to was a positive SEK 675 M (412), while the value trend for for- SEK 2,364 M (1,863) or 18% (17%) of the opening property eign properties was SEK 2 M (24). value. In addition, translation from foreign currency was Accumulated unrealized changes in value for the past ten undertaken at the closing rate. The value trend of the proper- years are presented in Note 29 on page 120. ties has been positive since 2010. The weighted yield requirement was 7.4% (7.6%) at December 31, 2015. The recognized unrealized changes in value for the year amounted to SEK 677 M (436), of which SEK 41 M (–) was attributable to a change in the assessment of how acquired deferred tax that has impacted the purchase consideration is Change in carrying amount of properties taken into account in the calculation of the fair values of the SEK M No. properties in the balance sheet. A large number of parameters Carrying amount, December 31, 2014 13,387 184 and factors are taken into account when calculating fair value. Acquisition of properties 2,199 43 The price-impacting deferred tax accruing on properties Investments in the current portfolio 202 acquired via companies was previously taken into account Property sales –37 –2 and this reduced the fair value of the properties in the bal- Translation difference attributable to ance sheet. The applied valuation technique was reviewed foreign property values –239 in 2015, which resulted in acquired deferred tax no longer Change in value 677 being included in the calculation. The changed assessment Property portfolio, December 31, 2015 16,189 225

Market value of properties by segment, 2011-2015 Unrealized changes in value Total, % SEK M Amounts in SEK M 2015 16,189 2015 43 17 20 614 New lettings/Renegotiations 128 Vacancies/Renegotiations –18 13,428 2014 42 20 71119 General market value changes 565 10,825 2013 46 22 15 711 Sub-total, Sweden 675

9,395 2012 47 24 81110 New lettings/Renegotiations 12 Vacancies/Renegotiations –38 8,961 2011 48 25 51111 General market value changes 29 0 5,000 10,000 15,000 20,000 Sub-total, Foreign 2

Stockholm Helsinki Other Total unrealized changes in value 677 Rest of Sweden Rest of Finland

READ MORE» Summary of the Sagax property portfolio, see page 18. «READ MORE Market overview, see page 8. Accounting policies, see page 96. 42 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

SAGAX’S PROPERTIES WITH THE HIGHEST MARKET VALUE VALUE OF CONTRACTUAL RENTAL REVENUE At December 31, 2015, the total market value of Sagax’s ten Most of Sagax’s properties are leased under long-term triple largest properties was SEK 5.0 billion (4.7), corresponding net leases, a circumstance that entails that the value deriving to 31% of the property portfolio’s total market value. Sagax’s from the future rental revenue that current leases are expect- ten properties with the highest appraised value, categorized ed to generate represents a relatively large share of the market alphabetically, are presented in the table below. value of Sagax’s properties. The present value of the estimated future net operating EXTERNAL MARKET VALUATIONS income from current leases amounts to SEK 6.6 billion, cor- Sagax has chosen independent valuation companies to assess responding to 41% of the market value of the properties, as the fair value of its properties. The external market valuations estimated by external appraisers. The present value of the are undertaken each quarter and encompass all of Sagax’s net operating income from existing leases in relation to the properties, with the exception of the properties in Germany market value of the properties is lowest in Stockholm at 26% which, during 2015, were appraised externally as of June 30 and Helsinki at 35%. This implies that the market values of and December 31. The properties in Germany were appraised properties in Stockholm and Helsinki are most dependent on internally by Sagax as of March 31 and September 30 for cost future letting potential. In the Other market area, the current reasons. value of net operating income from existing leases represents Property valuation is subject to some uncertainty and 81%. This means that the properties in the Other market area frequently based on assumptions regarding future trends for are least dependent on future letting potential. To estimate a number of parameters. Sagax believes that the use of well- how large this share is, Sagax has proceeded on the basis of known, independent valuation companies creates the optimal the external market valuations. The net operating income long-term conditions for a fair and trustworthy assessment estimated to be generated during the remainder of the lease of the properties’ market value. The table below on the value term for each property has been estimated on the basis of its distribution of appraised objects shows the valuation compa- present value using the cost of capital that external appraisers nies that were employed at year-end and how many properties have assigned to each property. they appraised. The valuation methodology and analyses are presented on page 107.

Market value and area of properties Estimated share of market value corresponding to the present value of net operating income from existing leases 1,000 sqm SEK M 2,000 20,000 Percentage Lease Weighted of market 1,600 16,000 Market area term, years cost of capital value Stockholm 5.0 8.4% 26% 1,200 12,000 Helsinki 5.5 8.7% 35%

800 8,000 Rest of Sweden 10.3 8.9% 53% Rest of Finland 10.3 7.9% 63% 400 4,000 Other 14.1 9.9% 81%

0 0 Average 7.4 8.5% 41% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Lettable area Market value

Distribution of valuation objects Properties with the highest market value, in alphabetical order

Property appraisers Country No. of properties Lettable area, Savills Sweden Sweden 130 Property Municipality sqm Peltola & Co Finland 85 Holger-Craaford Strasse 26 Hechingen, Germany 64,000 Savills Immobilien Germany 5 Inteckningen 5 Lund, Sweden 23,800 DTZ Egeskov Denmark 2 Jordbromalm 3:1 Haninge, Sweden 93,800 Savills France France 3 Jordbromalm 4:3 Haninge, Sweden 51,400 Total 225 Jordbromalm 6:13 Haninge, Sweden 16,100 Kaapelitie 4 Oulu, Finland 67,600 Karaportti 8 Espoo, Finland 16,100 Koneenkatu 8 Hyvinkää, Finland 67,100 Martinkyläntie 9 A Vantaa, Finland 52,800 Romben 3 Sollentuna, Sweden 17,500 Total 470,200

READ MORE» Valuation techniques and analyses, see page 107. «READ MORE Accumulated unrealized changes in the value, see page 120.

AB SAGAX ANNUAL REPORT 2015 43 DIRECTORS’ REPORT Financing

Sagax’s shareholders’ equity totaled SEK 5,981 M (4,544) at year-end 2015. Interest-bearing liabilities amounted to SEK 10,568 M (8,525), corresponding to a debt ratio of 59% (59%). The interest coverage ratio was 285% (260%).

BACKGROUND Sagax pursues highly capital-intensive operations. Access SHAREHOLDERS’ EQUITY to capital is an essential condition for the development of a Sagax seeks to gain a balance between an attractive return on successful property business. Assets totaled SEK 17,843 M equity and an acceptable level of risk. At year-end, sharehold- (14,381) at year-end. Operations are funded using a combina- ers’ equity totaled SEK 5,981 M (4,544), corresponding to an tion of shareholders’ equity, interest-bearing liabilities and equity/assets ratio of 34% (32). other liabilities. Shareholders’ equity and interest-bearing At December 31, 2015, shareholders’ equity was rep- liabilities represent the two principal sources of capital, and, resented by three types of shares: Class A and B common at December 31, 2015, accounted for 34% (32%) and 59% shares, and preference shares. Sagax’s shares are listed on (59%), respectively, of Sagax’s financing. Nasdaq Stockholm, Mid Cap. There are a total of 13,416,822 Financial expenses amounted to SEK 390 M (366), rep- Class A shares, 144,858,130 Class B shares and 58,250,000 resenting the largest operational expense. During 2015, the preference shares outstanding. Holdings of treasury shares interest coverage ratio was 285% (260%), while the debt ratio amounts to 1,000,000 Class B shares. was 59% (59%). The financial structure is designed with a In addition to other capital sources, the preference shares clear focus on operating cash flow and interest coverage ratio. enable operations to be funded at the lowest possible risk- This is expected to create excellent prerequisites for expan- adjusted cost. The extent of the company’s preference equity sion and an attractive return on shareholders’ capital. will vary, depending on demand, capital costs and Sagax’s Sagax seeks relatively long-term fixed interest and loan total capital requirement. maturity periods as part of efforts to ensure operating cash Sagax has a goal to the effect that preference equity is to flow. The average fixed-interest period was 3.0 years (3.0) correspond to 20% to 50% of consolidated equity in the long at year-end. This fixed-interest period reduces sensitivity to term. At December 31, 2015, preference equity totaled SEK interest rates but leads to a higher average interest rate than a 1,864 M (1,776), or 31% (39) of consolidated equity. shorter fixed-interest period. The company also endeavors to Sagax also has an aim that the dividend on preference have a low refinancing risk. At year-end, the average maturity shares will be lower than 50% of cash flow from operating period was 4.2 (3.2) years, which is viewed as offering a low activities. The 2015 AGM resolved that the dividend on prefer- refinancing risk, considering the company’s debt ratio and ence shares for 2014 should amount to SEK 116 M, correspond- position in general. ing to 19% of cash flow from operating activities in 2014. The The Group has financial covenants in its loan contracts. proposed dividend on preference shares in 2016 corresponds to The covenants are cash-flow based or are related to the debt 15% of cash flow from operating activities in 2015. ratio; see the compilation on page 46. Sagax fulfills all cov- Sagax calculates shareholders’ equity per share in the enants. Since it is unlikely that these covenants will result in following manner: Of shareholders’ equity, SEK 30.00 is any premature refinancing requirement, the company’s finan- distributed per preference share, in line with the Articles of cial position is robust. Association (see page 130), plus an accumulated but unpaid

Trend in capital structure Preference equity

% SEK M SEK M SEK M SEK M SEK M 100 Amounts in SEK M Dec 31, 2015 Dec 31, 2014 809 1,042 975 1,365 1,363 Preference equity 1,864 1,776 80 2,223 2,794 3,723 4,544 5,981 Portion of shareholders’ equity, % 31 39

60 2015 2014

40 Preference dividend (proposal for 2015) 116 116 6,557 6,300 6,985 8,472 10,499 Portion of cash flow from operating 20 activities, % 15 19

0 2011 2012 2013 2014 2015

Interest-bearing liabilities Shareholders’ equity Other liabilities

READ MORE» The Sagax share and shareholders, see page 60 «READ MORE Financial targets, see page 6

44 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

dividend on preference shares of SEK 2.00 per year. Subse- Sagax evaluates its net debt in relation to the market value of quently, the remaining shareholders’ equity is distributed the property portfolio and in relation to operational earnings. among common shares.At December 31, 2015, shareholders’ Interest-bearing net debt average 8.6 (8.4) times net operat- equity amounted to SEK 26.01 (17.49) per common share ing income for 2015. The historical trend in the relationship and to SEK 32.00 (32.00) per preference share. The diagram between net debt and the covered net debt in relation to net below shows the trend in shareholders’ equity since 2006, operating income is shown in the diagram below. As can be with explanations of the reasons for the changes. seen, Sagax’s payment capacity in relation to net debt has developed positively over the past ten years. INTEREST-BEARING LIABILITIES General information on Sagax’s interest-bearing liabilities Covenants in loan contracts Interest-bearing liabilities represented 59% (59%) of Sagax’s Bank loans financing at year-end and was Sagax’s main source of financing. Bank loans corresponded to 49% (50%) of the year-end mar- Interest-bearing liabilities consist partly of bilateral bank loans ket value of the properties. Bank loans frequently include var- using the subsidiaries’ properties as collateral, and partly of ious types of covenants that must be fulfilled by the debtor. five uncovered bond loans, as well as an uncovered commercial In the event of any breach of the covenants, the bank may paper program of SEK 399 M. Bank loans have been provided request Sagax to repay the loan prematurely. Typically, the by Deutsche Pfandbriefbank, Nordea, SEB, Swedbank, Svenska covenants consist of certain key financial data that must be Handelsbanken and Danske Bank. At year-end, interest-bearing fulfilled. One example of the covenants is that the debt ratio liabilities amounted to SEK 10,568 M (8,525), of which must not exceed a specific level or that interest coverage ratio SEK 4,019 M (3,366) was denominated in EUR. Interest- must exceed a certain level. bearing liabilities during 2015 increased primarily as a result The financial covenants in loan contracts are cash-flow of property acquisitions in Sweden and Finland. Interest- based or are related to the debt ratio. Other covenants are that bearing liabilities declined SEK 133 M (increase: 227), due borrowing subsidiaries must be fully owned, that they must to exchange-rate fluctuations in 2015. In accordance with not raise further loans, that the lease terms are observed and IFRS, allocated borrowing costs of SEK 69 M (53) reduced that creditors are provided with financial information, such as interest-bearing liabilities in the balance sheet. Accordingly, annual reports, in addition to other non-financial covenants. interest-bearing liabilities are recognized in an amount of Should a mandatory bid be made for the shares in Sagax, SEK 10,499 M (8,472) in the balance sheet. the banks are entitled, in certain cases, to request the renegotiation of loan contracts and, ultimately, demand early repayment of the loans. Change in shareholders’ equity SEK M 1,800 Bond loans 1,500 Uncovered bond loans corresponded to 14% (14%) of the 1,200 year-end market value of the properties. The bond loans 900 totaled SEK 2,272 M (1,821) and are registered on the private 600 bond list at Nasdaq Stockholm. During the year, bond loans 300 totaling SEK 550 M and EUR 30 M were issued while a bond 0 loan totaling SEK 350 M with maturity in 2017 was redeemed –300 prematurely. Note 17 includes an account of the interest-rate –600 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 terms for bond loans. Comprehensive income New share issues Dividends

Change in interest-bearing liabilities Net debt/net operating income

Amounts in SEK M Times 12 Interest-bearing liabilities, December 31, 2014 8,525 Refinancing 3,133 11

Loan repayment –957 10 Change in exchange rates –133 9 Interest-bearing liabilities, December 31, 2015 10,568 8 Allocated borrowing costs –69 7 Recognized interest-bearing liabilities, 6 December 31, 2015 10,499 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net debt/net operating income Secured net debt/net operating income

READ MORE» Risks and risk management, see page 56. «READ MORE Sensitivity analysis, see page 59.

AB SAGAX ANNUAL REPORT 2015 45 DIRECTORS’ REPORT

The bond loans contain just one financial covenant, which Financial policy could affect the dividend on common shares. Other covenants The financial policy indicates guidelines and rule as to how include a requirement that the bond loan be market listed financial operations in Sagax are to be pursued. The financial and that the company publish quarterly reports. In the event policy is adopted by the Board each year and states how the of a mandatory bid for the shares in Sagax, bondholders are various risks in Sagax’s financial operations are to be limited entitled to request early repayment of the loan. and the risks that Sagax may assume. The aim is that financial management must: Commercial paper program ■■ Ensure the short and long-term supply of capital. Sagax established a program for issuing commercial paper in ■■ Adjust the financial strategy and management of finan- October 2015. The program allows the company to imple- cial risks on the basis of the development of operations to ment issues in SEK and EUR. The framework amount is SEK ensure that a long-term stable capital structure is attained 1,500 M and the maximum term is one year. At year-end, and maintained.

commercial paper totaling SEK 399 M was outstanding with ■■ Attain optimal net financial items within the set risk frame- an average remaining term of 0.4 years. Outstanding commer- work. cial paper corresponded to 2% of the year-end market value of the properties. Tied-up capital Sagax has an obligation to have long-term, unutilized Sagax’s recognized long-term interest-bearing liabilities credit facilities available that cover all outstanding commer- amounted to SEK 9,959 M (8,332), or 95% (98%) of the total cial paper at any time. interest-bearing liabilities. Recognized, current interest-

Interest-bearing liabilities, December 31, 2015

Primary financial covenants Interest Debt Creditor SEK M Final date Debt ratio Equity ratio coverage ratio coverage ratio Loans raised in SEK: Deutsche Pfandbriefbank 2,344 2022 Yes, fulfilled No Yes, fulfilled No Den Danske Bank 198 2018 No Yes, fulfilled Yes, fulfilled No Svenska Handelsbanken 345 2018 No No No No Svenska Handelsbanken 92 2019 No No No No Nordea Bank 503 2017 No Yes, fulfilled Yes, fulfilled No Nordea Bank 327 2017 Yes, fulfilled No Yes, fulfilled No Nordea Bank 338 2021 Yes, fulfilled No Yes, fulfilled No SEB 25 2017 No Yes, fulfilled Yes, fulfilled No Swedbank 19 2016 Yes, fulfilled No Yes, fulfilled No Swedbank 122 2018 Yes, fulfilled No Yes, fulfilled No Swedbank 334 2020 Yes, fulfilled Yes, fulfilled Yes, fulfilled No Bond loan 2013:2018 600 2018 No No No No Bond loan 2014:2019 550 2019 No No No No Bond loan 2015:2020 300 2020 No No No No Commercial paper program 399 2016 No No No No Sub-total 6,496 Loans raised in DKK: Swedbank 53 2019 Yes, fulfilled No Yes, fulfilled No Sub-total 53 Loans raised in EUR: SEK/Proventus 384 2017 No No No No Swedbank 103 2019 Yes, fulfilled No Yes, fulfilled No Swedbank 131 2019 Yes, fulfilled No Yes, fulfilled No Nordea 434 2019 Yes, fulfilled No Yes, fulfilled No Nordea 306 2021 Yes, fulfilled No Yes, fulfilled No Nordea 320 2019 Yes, fulfilled No Yes, fulfilled No Den Danske Bank 285 2018 Yes, fulfilled Yes, fulfilled Yes, fulfilled No Deutsche Pfandbriefbank 1,234 2022 Yes, fulfilled No Yes, fulfilled No Bond loan 2014:2019 548 2019 No No No No Bond loan 2015:2020 274 2020 No No No No Sub-total 4,019 Total 10,568

READ MORE» Correlation between the debt ratio and property values, see page 57. «READ MORE The interest coverage ratio’s dependence on the occupancy rate, see page 57. Financial key figures, see page 84. 46 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

bearing liabilities amounted to SEK 540 M (140), or 5% (2) of Fixed-interest periods interest-bearing liabilities, of which SEK 399 M (–) pertained Sagax’s loan contracts extend primarily for three months with to commercial paper since commercial paper can never have Stibor or EURIBOR as the interest rate base. The short-term a term of more than 364 days. During 2016, current capital fixed-interest period in loan contracts permits the company repayment is expected to amount to SEK 122 M. Tied-up to change its borrowing more easily. However, a flexible inter- capital for 2016 according to the table below amounted to est rate does not provide the long-term flexibility that Sagax SEK 141 M, of which SEK 122 M referred to current capital seeks. To limit the interest-rate risk, defined as the risk of repayment and SEK 19 M to loans maturing in 2016. Com- an impact on earnings or cash flow due to changes in market mercial paper amounting to SEK 399 M is recognized in this interest rates, and thus increase the predictability in profit table with maturity in 2017 since the commercial paper is from property management, the company uses various types covered at any time by unutilized long-term revolving credit of fixed-income derivatives. facilities that mature in 2017. The average fixed-interest period was 3.0 years (3.0) at Current interest-bearing liabilities express the financ- year-end, which is regarded as satisfactory. The longer fixed- ing requirement in the short term and affect the company’s interest period reduces sensitivity to interest rates but leads to refinancing risk. In addition to regular bank loans which, a higher average interest rate than a shorter interest coverage contractually, have to be paid within twelve months, current ratio. Combined with Sagax’s high economic occupancy rate repayment and construction credits represent typical current (96%), long leases (7.4 years) and a low element of property interest-bearing liabilities in the balance sheet. The current expenses, the company’s profit from property management interest-bearing liabilities are repaid via the company’s cash and cash flow are predictable in the foreseeable future. The flow by restructuring the type of loan from, for example, cost of fixing interest rates is a consequence of the size of a construction credit to a first mortgage loan or through hedging, maturities and the choice of financial derivatives. new borrowing for the refinancing of loans that are about to Changes in STIBOR and EURIBOR interest rates also result expire. in changes in the relative cost of fixing interest rates. Sagax seeks to maintain a low share of short-term, inter- The average interest rate on the company’s interest- est-bearing financing in an effort to minimize the company’s bearing liabilities was 3.3% (4.1), including the effect of refinancing risk. The company curtails its refinancing risk by derivatives, at year-end. The bar chart below presents the agreeing on a certain maturity in connection with new bor- Group’s average interest rates and the share that corresponds rowing. Sagax also seeks refinancing of the long-term interest- to marginal costs, costs for the underlying STIBOR or EURI- bearing liabilities well in advance. Overall, this working BOR interest rates and the cost of fixing interest rates. The approach is deemed effective in limiting the company’s refi- main change compared with the preceding year-end is that nancing risk. The average remaining capital maturity period the underlying base rates reduced Sagax’s average interest-rate was 4.2 years (3.2) at year-end. level by 0.4 percentage points in 2015. The average marginal cost fell by 0.1 percentage point in 2015, while the cost of fix- Collateral for interest-bearing liabilities ing interest rates declined by 0.3 percentage points. As collateral for the interest-bearing liabilities, deeds totaling SEK 11,559 M (9,509) were mortgaged at year-end. Bank Fixed-income derivatives deposits totaling SEK 12 M (16) had also been placed as col- Consequently, Sagax’s fixed-income derivatives totaling SEK lateral. In addition, collateral is provided in the form of shares 6,124 M (5,228) curbed the interest-rate risk at December 31, and participations in the property-owning Group companies. 2015, corresponding to 58% (68%) of the company’s interest- The company is of the opinion that the terms of the mortgage bearing liabilities subject to variable interest rates. Taking deeds are commercial. into account fixed-income derivatives, the average fixed-interest period was 3.0 (3.0) at year-end. In the foreseeable future,

Genomsnittlig räntenivå 31 december 2009-2015 Fixed-interest and loan maturity period, December 31, 2015 % 5 Fixed-interest period Tied-up capital 4.5% 4.6 % 4.4% 4.3% 4.3% 4.1% Year of 4 1.2% 3.3% maturity SEK M Interest rate Share SEK M Share 3 1.6% 2.0% 1.8% 1.7% 1.0% 1.4% 2016 4,095 2.3% 39% 141 1% 2 2.8% 1.0% 2017 352 5.8% 3% 1,646 16% 1.6% 1.9% 2.2% 2018 1,642 3.2% 16% 1,280 12% 1 1.0% 2.1% 0.5% 1.7% 2.3% 1.0% 0.7% 2019 698 2.5% 7% 2,263 21% 0 0.2% –0.2% 2020 700 4.3% 7% 1,268 12% –1 >2020 3,082 4.5% 29% 3,970 38% 2009 2010 2011 2012 2013 2014 2015 Total/ STIBOR/EURIBOR Margin Fixed interest rate average 10,568 3.3% 100% 10,568 100%

READ MORE» Derivative contracts at year-end, see page 48. «READ MORE Interest-rate risk, see page 58.

AB SAGAX ANNUAL REPORT 2015 47 DIRECTORS’ REPORT

the company’s profit from property management will be contract results in Sagax gaining a variable rate of interest impacted only marginally by general changes in interest rates. (corresponding to the interest rate on the loan contract) at the Derivatives consist of interest-rate swaps and interest- same time that a fixed interest rate (the swap rate of interest) rate caps. Sagax’s counterparties for the derivative contracts is paid. An interest swap can be completed for various maturi- are Nordea, Svenska Handelsbanken, SEB, Swedbank, Den ties such as for 2, 5 or 10 years. The nominal interest-rate Danske Bank and Deutsche Pfandbriefbank. Fixed-income swaps on the closing date had an average term of 5.5 years derivatives are denominated in SEK or EUR, in relation to the (4.7). At year-end, Sagax’s interest-rate swaps consisted of a company’s borrowing in each currency. nominal amount of SEK 4,426 M (4,404), corresponding to The year’s changes in the value of financial derivatives is 72% (84) of Sagax’s fixed-income derivatives. No premium is recognized as realized or unrealized changes in value in profit paid for this type of derivative and the value of the derivative or loss. Unrealized changes in value affect profit for the year is zero on maturity dates. but not cash flow or the profit from property management. A presentation of Sagax’s exposure to changes in value of Interest-rate caps financial derivatives is available on page 58, as part of the Sagax’s interest-rate cap covered a nominal amount of SEK section entitled “Risks and risk management”. 1,698 M (824) at year-end. The interest-rate cap entails that the company pays a variable interest rate that can change but Nominal interest-rate swaps not exceed a predetermined interest rate (strike rate). Sagax An interest-rate swap is a contract between two parties cover- pays a premium for this type of derivative contract. The value ing an exchange of interest payments during a certain period. of the interest-rate cap is zero on the maturity dates. At year- By combining a variable interest rate loan (STIBOR or EURI- end, Sagax’s interest-rate cap had an average maturity of 3.5 BOR) and an interest-rate swap, a predetermined interest rate years (3.0) and an average strike rate of 2.0% (1.9). during the term of the interest-rate swap can be ensured. The

Derivative contracts, December 31, 2015

Remaining Nominal maturity, Average Amounts in SEK M No. amount Share years interest rate Market value Nominal interest-rate swaps: Deutsche Pfandbriefbank 9 2,211 36% 6.9 2.3% –206 Svenska Handelsbanken 5 324 5% 5.6 4.2% –61 Nordea 10 943 15% 3.1 3.5% –102 Swedbank 2 320 5% 2.9 0.5% –5 SEB 5 629 10% 5.5 3.6% –96 Sub-total 31 4,426 72% 5.5 2.7% –469

Interest-rate cap: Deutsche Pfandbriefbank 2 753 12% 2.0 1.9%1) 0 Den Danske Bank 1 100 2% 3.0 2.0%1) 0 Nordea 4 645 11% 4.9 2.0%1) 3 Swedbank 1 200 3% 4.5 2.7%1) 1 Sub-total 8 1,698 28% 3.5 2.0% 3

Total 39 6,125 100% 5.0 2.6%1) –466 1) Average strike rate has been used for the interest-rate cap.

Fixed-income derivatives, December 31, 2015

Fixed interest, years Nominal amount, SEK M Market value, SEK M Average interest1) 2016 3 0 3.2% 2017 – – – 2018 1,642 –53 2.2% 2019 698 –15 1.2% 2020 798 –82 3.5% >2020 2,984 –316 2.8% Total/average 6,125 –466 2.6% 1) Average strike rate has been used for the interest-rate cap.

READ MORE » Interest-rate risk, see page 58. Revaluation in the event of changes in swap curves, see page 57.

48 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Valuation of fixed-income derivatives Time factor of fixed-income derivatives In accordance with the accounting rules (IAS 39), fixed- The diagram below shows the pace at which the deficit value income derivatives must be measured at market value and the of financial derivatives, at December 31, 2015, will be dis- change in value recognized in profit or loss. Sagax values all solved simply as a result of the time factor, with all other fac- derivatives on a market basis through reconciliation with each tors assumed to remain the same as those at year-end. During counterparty. Valuations are also confirmed internally using a 2016, SEK 117 M of the reserve of SEK 466 M for deficit value valuation system called Nordkap. would be reversed and expensed, and after five years SEK The value of all derivatives amounted to a negative SEK 439 M would have been reversed and recognized as revenue 466 M (neg: 551) at December 31, 2015. The entire amount simply as a result of the time factor. has been expensed and recognized as a liability in the consoli- In addition to this effect, corresponding provisions for dated financial statements. deficit values on fixed-income derivatives may be utilized in The value of derivatives is affected by current interest joint ventures. Changes in the value of fixed-income deriva- rates, the rate of interest on the derivatives and the remain- tives are included in Sagax’s shares in profit from joint ven- ing term to maturity. Should the rate of interest change in tures. relation to the interest rate applying when the derivative contracts are concluded, this entails a change in the value of the Other financial expenses derivatives. The market value of a nominal interest-rate swap In connection with the raising of new or renegotiated credit is calculated by discounting to present value the difference facilities, expenses arise that are accrued over the maturity between the fixed interest rate on the derivative and the pre- of the particular facility. These expenses may consist of, for vailing market interest rates for the corresponding maturity. If example, legal fees, valuation costs and non-recurring agree- the prevailing interest rate exceeds the fixed interest rate on ment fees for the creditor. At December 31, 2015, SEK 69 M the derivative, a surplus value is gained, or conversely, a defi- (53) was recognized as allocated borrowing costs in Sagax’s cit value. The calculation period corresponds to the remain- balance sheet. ing exercise period of the derivative. The cost of capital for During 2015, a total of SEK 35 M (16) was recognized each discounting period is the prevailing swap rate of interest as amortization of allocated borrowing costs, of which SEK for the corresponding period. Thus, the market value of a 19 M was non-recurring in connection with early refinancing. nominal interest-rate swap changes during the lifetime of the In addition, compensation for early redemption of bond loans derivative but the value is always zero on the maturity date. of SEK 350 M was charged to earnings in the amount of SEK The quarterly market valuations of derivative contracts affect 9 M during the year. Other financial expenses also include Sagax’s recognized earnings and shareholders’ equity, but expenses for loan pledges to credit institutions. Expenses for do not impact the company’s cash flow or debt ratio. Note 1 these loan pledges in 2015 amounted to SEK 2 M (2). Accounting policies provides more details regarding the principles underlying the valuation of financial derivatives. The Other liabilities section dealing with risks and risk management, on page 57, Other liabilities amounted to SEK 1,363 M (1,365), corre- shows the effects on Sagax’s earnings on the basis of assump- sponding to 7% (9%) of the company’s total financing. Other tions regarding changes in the underlying swap curves. liabilities consist mainly of provisions for market-appraised The effect on earnings for 2015 resulting from revalua- fixed-income derivatives, deferred tax liabilities and prepaid tions of Sagax’s derivative contracts was a positive SEK 54 income and accrued expenses. M (neg: 259), of which realized changes in value accounted Prepaid income arises as a result of Sagax receiving rental for a positive SEK 67 (neg: 260). Sagax’s earnings were also payments in advance. This liability is settled by Sagax provid- impacted by a positive SEK 52 M (neg: 226) due to the reval- ing premises during the period for which rent is paid. Accrued uation of fixed-income derivatives in joint ventures. expenses consist primarily of accrued interest expenses relating to the company’s interest-bearing liabilities for the immediately preceding quarter. Overall, the payment struc-

Market value of ﬁxed-income derivatives, time factor ture entails that Sagax has no need to fund working capital by means of interest-bearing liabilities or shareholders’ equity. SEK M 0 Working capital –100 Sagax is of the opinion that the existing working capital for –200 the forthcoming twelve-month period is sufficient to meet current requirements. In this context, working capital refers –300 to Sagax’s potential to gain access to cash and cash equivalents –400 to meet its payment obligations as they fall due. The current operations tie up a limited amount of working capital, since –500 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 most rental revenue is received in advance, while expenses are Sagax paid in arrears.

AB SAGAX ANNUAL REPORT 2015 49 DIRECTORS’ REPORT

At year-end, the company had available liquidity of SEK 912 M agement primarily due to cash flow from joint ventures and (530), of which unutilized lines of credit totaling SEK 661 M associated companies being reinvested in 2015 in these opera- (463). At year-end, Sagax had contracts with SEB, Nordea, Den tions. Dividends of SEK 63 M (75) were received during the Danske Bank and Swedbank covering revolving credit facilities year from joint ventures and associated companies. totaling SEK 1,513 M (450), of which SEK 369 M had been Changes in working capital had a negative impact of unutilized at year-end. In addition, Sagax has an agreement with SEK 13 M (25) on cash flow. Investing activities had a nega- Swedbank covering a revolving credit facility of EUR 5 M, which tive impact of SEK 2,524 M (neg: 1,924) on cash flow, and is at the disposal of the company for certain specific Finnish pertained mainly to property acquisitions and investments properties through January 2019. The facility was unutilized at in the existing property portfolio. Cash flow from financing year-end. Sagax has also reached an agreement with SEB and activities contributed SEK 1,945 M (1,236) net to Sagax dur- Nordea covering( short-term ) credit facilities totaling SEK 200 M ing the year, of which SEK 3,085 M (2,397) as a result of the that were unutilized at year-end. No additional collateral needs refinancing of property acquisitions and investments in the to be pledged to utilize these abovementioned credit facilities. existing property portfolio. A total of SEK 957 M (1,132) in capital repayments was charged to cash flow from financ- SAGAX’S RECOGNIZED CASH FLOW DURING 2015 ing activities and SEK 242 M (192) was paid in dividends to Cash flow from operating activities before changes in work- shareholders during the year. In total, cash and cash equiva- ing capital amounted to SEK 750 M (600). Cash flow from lents increased SEK 184 M (decrease: 63) during 2015, refer operating activities deviates from profit from property man- to the cash-flow statement on page 90.

Bank/ bond loans Investments S EK 3 4 M ,0 2 8 ,5 5 2 Operating K Repayment M E operations SEK S 7 M 50 7 Share M 5 issue S 9 Dividend EK K 9 E M 9 S 42 2 M K E M Other S K 27 SE

SEK 67 M SEK 251 M Disposable at beginning of the year Cash and cash at year-end Additional liquidity equivalents SEK 661 M SEK 912 M in the form of unutilized lines of credit

READ MORE» Consolidated cash flow, see page 90. «READ MORE

50 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT Joint ventures and associated companies

Sagax’s joint ventures and associated companies contributed a total of SEK 233 M to profit from property management during 2015, at the same time as SEK 63 M was provided in dividends to Sagax.

Sagax owns 50% of Söderport Holding AB, with the remain- amounted to SEK 1,259 M (796) at December 31, 2015. ing share owned by Hemfosa Fastigheter AB. Via Hemsö Sagax’s share of profit from property management in joint Intressenter AB, the company indirectly owns 15% of Hemsö ventures and associated companies amounted to SEK 233 M Fastighets AB, with the remaining share owned by the Third (178) during the year. The company’s share of changes in the Swedish National Pension Fund. Sagax also owns shares in value of properties amounted to SEK 269 M (246) and the smaller associated companies. The carrying amount of the share of changes in the value of fixed-income derivatives was share of equity in joint ventures and associated companies SEK 52 M (neg: 226) during the year.

Sagax’s joint ventures

Söderport Hemsö 2015 2014 2015 2014 Dec 31 Dec 31 Dec 31 Dec 31 Sagax’s participating interest, % 50 50 15 15 Rental revenue, SEK M 542 450 1,988 2,054 Profit from property management, SEK M 261 196 959 833 Profit/loss for the year, SEK M 537 425 1,357 –360 Sagax’s share of profit from property management, SEK M 131 98 98 80 Rental value, SEK M 585 541 2,098 2,003 Properties’ market value, SEK M 5,631 5,028 26,502 24,668 No. of properties 61 45 317 313 Lettable area, sqm 697,000 614,000 1,499,000 1,524,000 Lease term, years 6.2 5.0 7.6 7.2 Economic vacancy rate, % 7 7 4 3 Interest-bearing liabilities. SEK M 3,271 3,201 17,454 16,507 Capital tied-up, years 4.1 5.1 2.8 3.0 Fixed interest, years 3.2 4.1 3.6 3.5 Market value for fixed-income derivatives, SEK M –412 –465 –670 –826

READ MORE» Additional information on Sagax’s joint ventures, see Note 23 on page 116. «READ MORE Consolidated statement of comprehensive income, see page 86.

AB SAGAX ANNUAL REPORT 2015 51 DIRECTORS’ REPORT

SÖDERPORT

Capital structure, December 31, 2015 Property value per segment, December 31, 2015 Other non-interest- Deferred tax liability 3% bearing liabilities 4% Reserve for ﬁnancial derivatives 7% Equity 26% Non-covered loans 5%

Rest of Sweden 46% Stockholm 54%

Covered loans 54%

Summary of property portfolio Contractual rental value, Lettable Lease term, Economic Property Segment No. of properties SEK M area, sqm years occupancy rate value, SEK M Stockholm 35 317 314,000 4.4 94% 3,044 Rest of Sweden 26 268 383,000 8.4 91% 2,587 Total 61 585 697,000 6.2 93% 5,631

SÖDERPORT HOLDING AB than SEK 20 M, corresponding to 46% of the total vacancy Sagax owns 50% of Söderport Holding AB, with the remain- value. At year-end, Stockholm accounted for a total of 45% of ing share owned by Hemfosa Fastigheter AB. Commissioned Söderport’s lettable property area and 40% of the company’s by Söderport, Sagax accounts for property management and vacant area. financial administration of the Söderport Group. Property The yield in 2015 was 7.7% (7.9). The change was due pri- management activities in Gothenburg are performed by Hem- marily to positive revaluations of property values in 2015. fosa’s organization in Gothenburg. Söderport contributed In 2015, net investments amounted to SEK 293 M (1,508) SEK 131 M (98) to Sagax’s profit from property management consisting of acquisitions of SEK 383 M, investments in the in 2015. existing portfolio of SEK 80 M and property sales of SEK Cooperation between Hemfosa and Sagax is governed by 171 M. In 2015, Söderport acquired and took possession of a long-term shareholder agreement, according to which the 23 properties for a combined purchase consideration of SEK parties have equally large controlling rights regarding Söder- 383 M. All of these properties are situated in the Rest of port. The shareholder agreement determines, inter alia, rules Sweden market area. Söderport since divested seven of these for decision making in respect of investments and sales. The properties for a total of SEK 171 M in 2015. shareholder agreement also regulates pre-emption rights and In December 2015, a agreement was signed for the reno- how share sales in Söderport may be conducted. vation and modernization of parts of Volvo Cars’ offices and The economic occupancy rate amounted to 93% (93) business premises in Torslanda for approximately SEK 110 M. at year-end. Söderport’s economic vacancies amounted to The leases were extended to 2025 and 2028 with a total addi- SEK 44 M ( 38), SEK 9 M (12) comprised fixed-term rent tional rental value of SEK 770 M. discounts provided for new lettings. These discounts corre- Söderport has a revolving credit facility of SEK 3,000 M sponded to 20% (31) of the economic vacancies, equivalent to with a term until 2020, of which SEK 2,188 M was utilized 1.5 percentage points of the vacancy rate. at year-end. The company also had SEK 775 M in additional The Swedish Police Authority vacated its premises in secured bank loans, with a term until 2019. Kamelen 14 in central Malmö on October 1, 2015. The vacancy value for this individual property amounts to slightly more

READ MORE» Please visit sagax.se for a property listing. «READ MORE

52 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

HEMSÖ

Capital structure, December 31, 2015 Other non-interest- Property value per segment, December 31, 2015 bearing liabilities 2% Deferred tax liability 6% Judicial system 10% Reserve for ﬁnancial derivatives 3% Equity 25% Healthcare 18% Retirement homes 41%

Non-covered Covered loans 15% loans 49% Schools 31%

Summary of property portfolio Contractual rental value, Lettable Lease term, Economic Property Segment No. of properties SEK M area, sqm years occupancy rate value, SEK M Retirement homes 144 830 611,000 9.0 98% 10,902 Schools 88 588 450,000 7.7 95% 8,181 Healthcare 76 427 333,000 4.4 94% 4,764 Judicial system 9 193 105,000 8.6 95% 2,655 Total 317 2,038 1,499,000 7.6 96% 26,502

HEMSÖ INTRESSENTER AB The occupancy rate remained high, at 96% (97%), at year- Via Hemsö Intressenter AB, Sagax indirectly owns 15% of end. The yield was 5.7% (6.0%) during 2015. Hemsö Fastighets AB, with the remaining 85% owned by the During 2015, 20 properties were acquired while 16 were Third Swedish National Pension Fund. Hemsö contributed divested. Net investments amounted to SEK 1,343 M (1,951), SEK 98 M (80) to Sagax’s profit from property management consisting of new production of SEK 590 M, investments of during 2015 after profit for Hemsö Intressenter was charged SEK 458 M in the existing portfolio, property acquisitions of with interest expenses. SEK 1,154 M and property sales of SEK 853 M. The acquisition Cooperation between the Third Swedish National included a property portfolio with a retirement home property Pension Fund and Sagax is governed by a long-term shareholder and three school properties in the Stockholm region, and the agreement. The shareholder agreement regulates, inter alia, acquisition of three elderly care properties in Germany and two the composition of the Board, the focus of operations, profit elderly care properties in Finland. The largest sale that took appropriation and certain financing issues as well as put and place was a development portfolio comprising three healthcare call options between the two shareholders regarding Sagax’s properties that were vacated at the beginning of 2015. shareholding in the company. At year-end, Hemsö’s external borrowing totaled SEK Hemsö owns and develops public properties, properties 17,433 M, of which secured bank borrowing accounted for for retirement homes, schools, healthcare and judicial system. SEK 4,103 M, uncovered bond loans for SEK 8,330 M and Hemsö has long-term leases and stable tenants. The proper- outstanding commercial paper for SEK 5,000 M. ties are located in Sweden, Finland and Germany. In Sweden, Hemsö Fastighets AB has had a credit rating of A– from tenants are largely the government, county councils and Standard & Poor´s since March 2015. More information on municipalities. In Finland, tenants comprise municipalities Hemsö Fastighets AB is available on the company’s website, and private companies. Tenants in Germany include private hemso.se. operators of retirement homes, profit or non-profit. Stockholm, Gothenburg and Malmö account for about half of the property portfolio’s market value. The foreign property portfolio accounted for 13% of the properties’ market value.

READ MORE» Please visit hemso.se for more information. «READ MORE

AB SAGAX ANNUAL REPORT 2015 53 DIRECTORS’ REPORT Current earnings capacity

Sagax has a distinct focus on the long-term growth of the company’s profit from property management. To facilitate assessments of the company’s position, Sagax’s estimated earnings capacity on an annual basis and a summary of the trend in the earnings capacity at each year-end since 2010 are presented below.

CURRENT EARNINGS CAPACITY CHANGE IN CURRENT EARNINGS CAPACITY IN 2015 The table below shows Sagax’s earnings capacity on a 12-month In the table on the right, Sagax’s reported earnings capacity basis. It is important to note that this capacity cannot be com- at December 31 during the years 2010-2015 and the changes pared with a forecast for the forthcoming 12 months because it between the various year-ends are reported broken down into does not contain assessments about, for example, future vacancies, changes in the existing property portfolio, property acquisi- the interest-rate scenario, currency effects, rent trends or changes tions, property divestments and currency effects. Data on in value. Nor does it take into account repayments, when agreed investments and divestments during the years concerned is rent supplements come into effect or when discounts provided also presented in the table. It can be noted that investments cease to apply. Sagax reports its current earnings capacity in con- in the existing property portfolio can have an impact on the junction with interim reports and year-end reports. earnings capacity subject to a certain time lag, depending on The rental value is based on contractual rental revenue on whether these are still classed as ongoing investments and if, an annual basis, with supplements for estimated market rents for example, occupancy has occurred. for vacant premises. Property expenses are based on the actual Property acquisitions in 2015 resulted in an increase of outcome in the past year adjusted for the holding period. Costs SEK 200 M in rental value and a net increase of SEK 19 M in for central administration are based on actual outcomes over the property expenses. The EUR price trend resulted in a decline most recent 12-month period. Net financial items are calculated of SEK 21 M in rental value. based on interest-bearing liabilities and assets on the balance The vacancy value of the existing property portfolio sheet date. Expenses for interest-bearing liabilities are based on declined SEK 11 M due to lower discounts provided in 2015. the Group’s estimated average interest rate, with the addition of In connection with property sales, the vacancy value fell by financing costs allocated over time. Tax is calculated at the stan- SEK 5 M. dard tax rate of 22% (22) and is deemed to almost exclusively Net financial items rose 2.5% to an expense of SEK comprise deferred tax. Sagax’s share of profit in associated com- 371 M, mainly due to the company increasing its interest- panies is calculated in accordance with the same assumptions as bearing liabilities during the year in connection with financing for Sagax, taking into account the size of the participation. of property acquisitions. However, early refinancing of out- For the purpose of comparison, it should be noted that in standing loans in 2015 led to a decline in average financing. Sagax’s year-end report for 2015, it was communicated that Profit after standard tax that accrues to holders of common Sagax’s profit from property management for 2016, meaning shares increased 28% (50) to SEK 670 M (522), corresponding profit before revaluations and tax, is expected to amount to to SEK 4.22 (3.29) per common share. SEK 1,020 M based on the current property portfolio and announced acquisitions and divestments.

Current earnings capacity Current earnings capacity before tax

Amounts in SEK M Jan 1, 2016 Jan 1, 2015 SEK M Rental value 1,453 1,267 1,200 Vacancy –59 –74 1,000 Rental revenue 1,394 1,193 Property expenses –195 –170 800 Net operating income 1,199 1,023 Central administration –57 –47 600

Share of profit of joint ventures 236 198 400 Net financial items –371 –362 Profit from property management 1,008 812 200

Tax –222 –179 0 Profit after tax 786 633 2011 2012 2013 2014 2015 – of which, holders of preference shares 117 111 Proﬁt from property management – of which, holders of common shares 670 522

READ MORE» The Sagax share and shareholders, see page 60 «READ MORE

54 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Trend in current earnings capacity 2010–2015

2010 2011 2012 Pro- Pro- Pro- Pro- Pro- Pro- Change Cur- perty perty 31 Change Cur- perty perty 31 Change Cur- perty perty existing rency acquisi- divest- Dec existing rency acquisi- divest- Dec existing rency acquisi- divest- Jan 1 Amounts in SEK M portfolio effect tions ments 2010 portfolio effect tions ments 2011 portfolio effect tions ments 2013 Rental value 14 –22 104 –5 713 18 –1 128 –19 838 50 –9 31 –8 901 Vacancy –10 – –8 – –44 –10 – –2 – –56 –10 0 –0 – –66 Rental revenue 4 –22 96 –5 669 8 –1 125 –19 782 40 –9 31 –8 835

Property expenses –9 1 –14 0 –97 0 – –21 1 –117 –0 +0 –1 1 –117 Net operating income –5 –21 82 –5 572 8 –1 104 –18 665 39 –9 30 –7 718

Central administration –30 –34 –38 Share of profit of joint ventures 29 27 48 Net financial items –245 –294 –298 Profit from property 326 364 430 management

Tax –86 –96 –95 Profit after tax 240 268 335 of which, accrues to – holders of preference shares 74 74 100 – holders of common shares 166 194 235

Investments and divestments 180 992 –73 136 1,421 –246 260 203 –68

2013 2014 2015 Pro- Pro- Pro- Pro- Change Cur- perty Property Change Cur- Property perty Change Cur- perty perty existing rency acquisi- divest- Jan 1 existing rency acquisi- divest- Jan 1 existing rency acquisi- divest- Jan 1 Amounts in SEK M portfolio effect tions ments 2014 portfolio effect tions ments 2015 portfolio effect tions ments 2016 Rental value 16 10 133 –9 1,051 5 23 199 –11 1,267 16 –21 200 –9 1,453 Vacancy –9 – –5 – –80 10 –1 –5 1 –74 11 1 –2 5 –59 Rental revenue 7 10 129 –9 971 15 22 194 –10 1,193 27 –20 198 –4 1,394

Property expenses –7 – –15 0 –138 –3 –2 –27 0 –170 –7 –0 –19 1 –195 Net operating – 10 114 –9 833 12 20 167 –10 1,023 20 –20 179 –3 1,199 income

Central administration –42 –47 –57 Share of profit of joint ventures 106 198 236 Net financial items –323 –362 –371 Profit from property 574 812 1,008 management

Tax –126 –179 –222 Profit after tax 448 633 786 of which, accrues to – holders of preference shares 100 111 117 – holders of common shares 348 522 670

Investments and divestments 137 1,126 –94 236 – 1,726 –94 200 – 2,200 –36

READ MORE» Changes in the property portfolio, see page 22. «READ MORE

AB SAGAX ANNUAL REPORT 2015 55 DIRECTORS’ REPORT Risks and risk management

Sagax is continuously exposed to various risks that may be of significance to the company’s future business, earnings and financial position. The company works actively to identify and manage the risks and opportunities that are of considerable importance to the operations.

RENTAL REVENUE AND RENT TRENDS of these expenses, tenants are either charged directly or the Sagax’s revenue is impacted by long-term demand for prem- expense is passed on by Sagax at cost price. Sagax’s exposure ises in the warehouse and light industry segment, the proper- to changes in operating expenses is thus relatively limited. ties’ occupancy rate and the rent level received. In the event of vacancies, the company’s profit is not only The rental markets for warehouse and light industry impacted by lost rental revenue but also by expenses for such premises in the Stockholm and Helsinki regions are Sagax’s items as power, which were previously paid by the tenants. principal markets and account for 61% of the Group’s rental revenue. These markets are characterized by relatively low TRANSACTION-RELATED RISKS volatility and a limited level of relocation. To limit Sagax’s Property acquisitions are a feature of the company’s day-to- exposure to vacancies and rent losses, Sagax endeavors to day operations and are, by their very nature, associated with offer leases with long average terms and to prioritize tenants uncertainty. Risks related to the acquisition of properties with a high credit rating, despite these entailing slightly lower include the future loss of tenants, environmental conditions, immediate earnings. This is particularly important in rela- limitations on the right of use and technical faults. Risks con- tion to major tenants. Dependency on individual tenants is nected with the acquisition of property companies include reduced in pace with the acquisition of properties by Sagax. taxes and legal disputes. It is therefore vital to have the right Rent-level risk is attributable to trends in current market expertise for property acquisitions in the organization and to rents. Sagax’s management strategy stipulating long-term leases engage external expertise where necessary. Sagax contends mitigates this risk for the foreseeable future. Sagax works that the company has adequate expertise to implement acqui- continuously to renegotiate existing leases with the aim of sitions and to integrate these into the property management minimizing the short-term risk. Leases with a term in excess operation. of three years normally include a supplement linked to the In connection with property divestments, it is common Consumer Price Index (CPI) in Sweden and to similar indexes for the seller to provide guarantees regarding the validity of in other markets, meaning they are fully or partially inflation the leases, environmental risks and so forth. When selling a indexed. At year-end, 97% of Sagax’s contractual rents were property company, it is also common to provide guarantees linked to the CPI or similar indexes. that no tax disputes or other legal disputes exist that could impact the company in the future. The guarantees are nor- CREDIT RISK mally limited in time. It is important that such commitments The primary counterparty risk to which Sagax is exposed is are correctly formulated and, in Sagax’s opinion, the company that tenants could fail to make the payments required by their has adequate competence to assess and formulate such docu- lease. In conjunction with acquisitions and leases, counter- ments. party risk assessments are carried out and contracts are supplemented, if necessary, by collateral in the form of deposits, CHANGES IN VALUES OF PROPERTIES bank guarantees, surety provided by the Parent Company or a Sagax is exposed to changes in the market value of the property similar instrument. Sagax works continuously to monitor and portfolio. To assess the properties’ market value, Sagax engages evaluate the financial position of its tenants. Sagax’s opinion the services of external valuation companies. The company is that the company’s tenants, with a small number of excep- believes that the use of well-known, independent valuation tions, stand on solid financial ground. firms creates the optimal long-term conditions for a fair and trustworthy assessment of the properties’ market values. OPERATING AND MAINTENANCE COSTS Sagax recognizes its property holdings at fair value Regarding the rental situation for premises in the warehouse according to the accounting standard IAS 40 Investment and light industry segment, tenants in this area often assume Property, stipulating that the properties’ consolidated car- relatively far-reaching responsibility for operations and main- rying amounts correspond to their assessed market value. tenance. The most significant operating expenses include Accordingly, declining market values for the company’s prop- electricity and heating costs for the premises. For the bulk erties will negatively impact the company’s income statement

READ MORE» Market overview, see page 8. «READ MORE Valuation techniques used for properties, see page 107.

56 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

and balance sheet. Declining market values may occur due to To understand the valuation effects on Sagax’s fixed-income a weakened economy, rising interest rates or property-specific derivatives in the event of changes in the underlying swap circumstances, including tenant relocation, a deterioration curves, the effects on Sagax’s profit before tax in connection in the technical standard or accidents resulting in material with a simulated parallel shift of, for example, +1.0 percentage damages. The company takes continuous actions to limit its point (100 basis points) in the underlying swap curves is pre- exposure to these events through, for example, proactive man- sented in the diagram below. All other things being equal, this agement , the signing of property insurance agreements and by would entail a positive revaluation of Sagax’s fixed-income formulating leases with adequate contractual terms. derivatives by SEK 238 M. The corresponding shift of –1.0 To prepare the accounts in accordance with generally percentage point would entail a negative revaluation of SEK accepted accounting policies, company management must 254 M. Sagax’s earnings are also affected by the company’s make judgments and assumptions that affect asset and liability share in profit of associated companies, which – like Sagax – items, revenue and expense items recognized in the accounts use fixed-income derivatives to reduce their interest-rate risk and other information provided. The actual outcome may and measure their derivatives at market value on a quarterly differ from these judgments. The valuation of investment basis. properties can be significantly affected by the judgments and assumptions made by company management. To reduce the FINANCING risk of incorrect valuations, Sagax has engaged authorized Sagax’s financing primarily comprises equity and interest- external appraisers to assess the market value of all of the bearing liabilities. Sagax endeavors to secure a long, average properties. remaining term of interest-bearing liabilities in a bid to limit its refinancing risk, defined as the risk that refinancing existing CHANGE IN VALUES OF FINANCIAL DERIVATIVES debt cannot take place on reasonable terms. To limit the interest-rate risk, defined as the risk of an impact The company’s long-term financing comprises bilateral on earnings or cash flow due to changes in market interest credit facilities and listed bond loans. The counterparties of rates, and thus increase the predictability of profit from prop- the credit facilities are Swedish and foreign commercial banks. erty management, Sagax uses nominal interest-rate swaps and In certain cases, the facilities may be subject to special condi- interest-rate caps. Sagax’s fixed-income derivatives comprised tions, such as maintaining a specific interest coverage ratio. a nominal total of SEK 6,124 M at year-end. This means that creditors may be entitled to demand repay- The financial derivatives are measured at market value ment of granted credit lines prematurely or request changed each quarter and their value is affected by the financial mar- conditions if these special commitments are not met by the kets’ expectations regarding the development of underlying borrower. Sagax is subject to financial covenants and complies market interest rates over the term of the derivative. The with all of them. The company complies with all of its finan- changes in value are recognized as an expense in profit or loss cial covenants. Sagax is of the opinion that the facilities are on and as a liability in the balance sheet, but do not affect cash commercial terms. flow. Over time, all other things being equal, the provision in The tables below show both the debt ratio’s sensitivity to the balance sheet will be gradually reversed and recognized as changes in property values and the interest coverage ratio’s revenue until the end of the derivative’s term. sensitivity to changes in the properties’ occupancy rate.

Revaluation in the event of changes in swap curves Effect on debt ratio upon change in value of SEK M property portfolio at December 31, 2015 250 200 Change, % –20 –10 0 +10 +20 150 Change in value, SEK M –3,238 –1,619 – 1,619 3,238 100 Debt ratio, % 72 65 59 54 50 50 0 –50 –100 Effect on interest coverage ratio upon change –150 in occupancy rate at December 31, 2015 –200 Change, percentage –250 points –10 –5 0 +4 +10 – 100 bp shift – 50 bp shift + 50 bp shift + 100 bp shift Occupancy rate, % 86 91 96 100 N/A Interest coverage ratio, % 253 269 286 299 N/A

READ MORE» Financing, see page 44. «READ MORE Fixed-income derivatives, see page 47.

AB SAGAX ANNUAL REPORT 2015 57 DIRECTORS’ REPORT

Sagax seeks to maintain a low share of short-term, interest- entailing exposure to the EUR exchange rate. The properties bearing financing in an effort to minimize the company’s are financed with shareholders’ equity and external loans. At refinancing risk. Sagax curtails its refinancing risk by agree- December 31, 2015, interest-bearing liabilities denominated ing on a certain maturity in connection with new borrowing. in EUR corresponded to SEK 4,019 M (3,366). At the same Sagax also strives to refinance its long-term interest-bearing date, the market value of properties in Finland, Germany and liabilities well in advance. Overall, this working approach is France was SEK 6,345 M (4,482). Net exposure on December deemed effective in limiting the company’s refinancing risk. 31, assets less liabilities in EUR, amounted to SEK 1,918 M (1,151). Because Sagax reports in line with IAS 21, most of LIQUIDITY RISK the currency effects are recognized directly against sharehold- Sagax has positive operating cash flow and will have limited ers equity. Only a small portion of the currency effects are refinancing requirements over the next few years; see Note recognized in profit or loss. Sagax also owns 2 (3) properties 17 where the maturity dates for the Group’s financing are in Denmark. The market value of the properties in Denmark presented. At year-end, Sagax had available liquidity of SEK amounted to SEK 84 M. Mortgaging of these properties cor- 912 M (530), of which unutilized lines of credit totaling SEK responded to a total of SEK 53 M at year-end. 661 M (463); see the section Working capital on page 49. No additional collateral needs to be pledged to utilize these lines ORGANIZATIONAL RISK of credit. The company has a relatively small organization, which creates a dependency on certain employees. The company’s INTEREST-RATE RISK growth has helped to alleviate this risk in recent years. Sagax’s Interest expenses are the Group largest current cost item. future development is highly dependent on the expertise, Interest-rate risk is defined as the risk that changes in the experience and commitment of company management and interest-rate scenario will affect Sagax’s financing cost. The other key individuals. The company could be negatively interest-rate risk is attributable to the trend in current inter- impacted should one or more of these key individuals ter- est rates. In an effort to limit the interest-rate risk, derivatives minate their employment. Employee turnover has been low are regularly entered into in the form of interest-rate swaps at Sagax in recent years. The employment contracts reached and interest-rate caps. At December 31, 2015, interest-bear- are considered to be on commercially competitive terms and ing liabilities amounted to SEK 10,568 M (8,525). Sagax has also established annual incentive plans to attract Calculated on the Group’s interest-bearing liabilities at new employees and retain existing ones. December 31, an increase in market interest rates of 1 percentage point would increase Sagax’s interest expenses by SEK OPERATIONAL RISKS 35 M (33) on an annual basis. A reduction in market interest Within the framework of its day-to-day current operations, rates of 1 percentage point would have increased Sagax’s inter- Sagax could potentially incur losses due to flawed procedures, est expenses by SEK 20 M (reduced: 33) on an annual basis, inadequate control or impropriety. Well-adapted administra- since many of Sagax’s contracted loan facilities include base- tive systems, effective internal control, skills development and rate clauses that do not permit base-rates to drop below zero access to reliable valuation and risk models provide a sound when setting interest rates for the interest period. Had the basis for reducing the operational risks. Sagax works continu- company not utilized fixed-income derivatives to mitigate the ously to develop the company’s administrative security and interest-rate risk, an increase in variable market interest rates of controls. one percentage point would have affected interest expenses by SEK 74 M (85).A reduction in market interest rates of 1 per- ENVIRONMENTAL RISKS centage point would have increased interest expenses by SEK According to applicable environmental legislation, the opera- 17 M (reduced: 85) on an annual basis. tor is ultimately responsible for pollution and other environ- Taking into account Sagax’s derivatives, the average fixed- mental damage. Under the Swedish Environmental Code, interest period was 3.0 (3.0) at year-end. Accordingly, this Sagax has no operations requiring any special permits. How- entails that Sagax’s profit from property management is only ever, there may be tenants who conduct operations requiring impacted to a limited extent in the event of changes in the special permits under the Environmental Code, meaning that general interest-rate scenario. they are regarded as operators as stipulated in the Environ- mental Code. CURRENCY RISK If the operator is unable to perform or defray post- At year-end, Sagax owned 85 (55) properties in Finland, 5 (5) treatment of a property, however, the party who acquired the properties in Germany and 3 (1) properties in France, thereby property and who knew of or should have detected the pollu-

READ MORE» Taxes, see page 105. «READ MORE Organization and employees, see page 70. Environmental work, see page 66. 58 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

tion when the property was acquired is to assume responsibil- are known as temporary differences; see Note 14. Sagax has ity. This means that under certain circumstances, claims may also taken into account deferred tax assets regarding accu- be directed at Sagax for land remediation or post-treatment mulated loss carryforwards in its Group companies. The in the event of the occurrence or suspicion of contamination consequence is that Sagax’s earnings and equity are exposed of land, catchment area or ground water for the purpose of to changes in tax laws in those countries in which the Group returning the property to the condition required according conducts operations. to the Environmental Code. Such claims could have a nega- Changes in ownership, which entail a change in the con- tive impact on Sagax. It is therefore crucial that the property trolling influence over the company, could result in partial owner and the operator cooperate on issues concerning the or entire restrictions on the ability to utilize these losses. environmental impact of a particular operation. Sagax per- The possibility to utilize the loss carryforwards may also be forms regular environmental analyses of the properties that impacted by amendments to legislation. are acquisition candidates. The company pays property tax on all of its properties There are currently no material environmental claims except for one special property, and most of its leases stipu- directed at any of the Group companies. Nor has Sagax iden- late that this cost is to be reimbursed by the tenants. tified any significant environmental risks. Other factors that may have negative implications for the company include amendments to legislation or legal practices, TAXES AND AMENDED LEGISLATION including law of tenancy and legislation governing acquisitions In its financial statements, Sagax has taken into account and the environment. deferred tax based on the difference between an asset’s or Sagax’s tax expenses are accounted for in Note 12 on page liability’s carrying amount and its tax-assessment value, which 105.

SENSITIVITY ANALYSIS Sagax’s exposure to material risks in the company’s operations is presented below.

Sensitivity analysis at December 31, 2015

Effect on profit from property ma- Effect on profit nagement, annual before tax, annual Amounts in SEK M Change basis basis Effect on equity5) Economic occupancy rate +/–1% +/–15 +/–12 +/–12 Rental revenue +/–1% +/–14 +/–11 +/–11 Property expenses +/–1% +2% +/–2 +2% Borrowing costs assuming current fixed-interest periods and changed interest rates1) +/–1% point –35/–20 –27/–16 –27/–16 Borrowing costs resulting from change in average interest rate level2) +/–1% point +74/–17 +58/–13 +58/–13 Revaluation of fixed-income derivatives attributable to shift in interest rate curves3) +/–1% point N/A +186/–198 +186/–198 Change in SEK/EUR exchange rate4) +/–10% +/–42 +/–20 +/–150 Changed rent level for contract maturity in 2015 +/–10% +/–9 +/–7 +/–7

1) Taking into account financial derivatives. 2) Not taking into account financial derivatives. 3) Excluding share in profit of joint ventures and associated companies. 4) Sagax’s net exposure to the SEK/EUR exchange rate comprises assets and liabilities recognized in EUR, in addition to revenue and expenses in EUR. 5) Including standard tax at 22%.

READ MORE» Summary of the Sagax property portfolio, see page 18. «READ MORE

AB SAGAX ANNUAL REPORT 2015 59 DIRECTORS’ REPORT The Sagax share and shareholders

Sagax has three types of shares, which are all listed on Nasdaq Stockholm, Mid Cap. The company’s market capitalization on December 31, 2015 amounted to SEK 13,255 M (8,965).

At year-end, Sagax had 7,616 (7,545) shareholders. Market There are a total of 13,416,822 Class A shares, 144,858,130 capitalization amounted to SEK 13,255 M (8,965). Sagax has Class B shares and 58,250,000 preference shares outstanding. three classes of shares: Class A common shares, Class B com- In addition, 1,000,000 Class B shares bought back in 2013 are mon shares, and preference shares. Sagax’s shares are listed on held in treasury. Nasdaq Stockholm, Mid Cap.

Price performance for Class A share 2015 Price performance for Class B share since listing SEK Number SEK Number 80 60 80 4,500

70 4,000 50 70 3,500 60 60 40 3,000 50 50 2,500 40 30 40 2,000 30 30 20 1,500 20 20 1,000 10 10 10 500 0 0 0 Jan Feb MarApr May DecNovOctSepAugJulJun 0 DecOctAugJunAprFebDecOctAugJunAprFebDecOctAugJunApr 2013 2014 2015 Sagax, total return Carnegie Real Estate Index Sagax, total return Carnegie Real Estate Index SIX Real Estate Index Number of shares traded per week, thousands SIX Real Estate Index Number of shares traded per week, thousands © SIX Telekurs © SIX Telekurs

Preferential share price performance 2015 Shareholder category, share of equity SEK Number 40 1,200 Insurance companies and pension institutions 5% Interest organizations 3% 35 1,050 Social insurance 30 900 funds 6% Other Swedish legal entities 50% Owners resident 25 750 abroad 7%

20 600 Swedish physical persons 12% 15 450

10 300 Fund companies 14%

5 150

0 0 DecNovOctSepAugJulJunMayAprMarFebJan

The preference share Number of shares traded per week, thousands © SIX Telekurs

Trading in the shares 2015 © Transactions Turnover rate on an Average Price paid, SEK per trading day annual basis, % trading volume, SEK M

Dec 31, 2015 Dec 31, 2014 2015 2014 2015 2014 2015 2014 Class A shares 72.00 44.20 12 7 5 12 0.2 0.2 Class B shares 71.75 44.00 103 37 11 10 3.6 2.6 Preference shares 31.30 36.00 62 50 32 40 2.6 2.9

READ MORE» Events after the end of the year, see page 85. «READ MORE Corporate Governance Report, see page 72. Notification of the 2016 Annual General Meeting (AGM), see page 132. 60 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Each preference share entails a preferential right to SEK 2.00 DIVIDEND POLICY in annual dividends. The share price trend and information Sagax’s dividend policy is that the dividend, including prefer- about share trading are provided below. ence dividend, will amount to about one third of profit from property management per year. The Board is also authorized SHARE CAPITAL to propose the distribution of non-recurring profits to share- The share capital in Sagax at year-end amounted to SEK holders. 380,668,666 distributed among a total of 217,524,952 shares, In accordance with this dividend policy, the Board of of which 1,000,000 Class B shares are held in treasury. Directors proposes the 2016 Annual General Meeting resolve The quotient value per share is SEK 1.75. Each Class A to pay dividend of SEK 1.15 (0.80) per Class A and Class B share carries one voting right and each Class B share, as well common share. The proposed dividend amounts to SEK 299 M as each preference share, carries one tenth of a voting right. (243) including the dividend on preference shares, correspond- Each voting member is entitled to vote for the full number of ing to 33% (35) of the profit from property management. owned and represented shares at the AGM. The Sagax share is The preference shares entail preferential rights ahead of subject to trading on Nasdaq Stockholm. The shares are trad- common shares to annual dividend of SEK 2.00 per share, ed on Mid Cap (symbol SAGA A, SAGA B and SAGA PREF). with quarterly payment of SEK 0.50 per share. The record A private placement totaling 2,750,000 preference shares dates for payments are the last workdays in June, September supported by authorization from the 2014 AGM was imple- and December following the Annual General Meeting, as well mented in the first quarter of 2015. The aim was to generate as March the year after the AGM. If no such dividend is paid additional financial capacity for continued expansion through or if only dividend less than SEK 2.00 per preference share supplementary acquisitions of properties and investments in is paid for one or more years, the preference shares will carry the existing property portfolio. The subscription price was the right to also receive the accrued amount of the following SEK 36.55 per share, corresponding to a discount of 2.5% year’s distributable funds before paying dividend on common compared with the volume-weighted average price paid over shares. In other respects, the preference shares will not carry the most recent ten trading days. any entitlement to dividend.

Largest shareholders, December 31, 20151)

No. of shares Percentage of Preference Class A shares Class B shares shares Share capital Votes2) David Mindus and companies 5,000,000 37,693,025 775 19.6% 26.0% Salén family and companies 1,998,733 17,485,330 78,595 9.0% 11.1% Rutger Arnhult and companies 2,825,571 15,940,000 65,000 8.7% 13.1% Länsförsäkringar Fastighetsfond – 12,093,919 – 5.6% 3.6% Third Swedish National Pension Fund – 12,046,755 – 5.5% 3.6% Catella Hedgefond – – 7,673,360 3.5% 2.3% Swedish Foundation for Strategic Research – – 2,232,466 1.4% 0.9% Avanza Pension 24,916 739,235 – 1.4% 1.0% Volvo Pensions Foundation – – 2,940,000 1.4% 0.9% Robur Realinvest 250,000 2,500,000 – 1.3% 1.5% Erik Selin Fastigheter 425,000 1,675,000 – 1.0% 1.8% Robur Småbolagsfond Sverige 133,731 1,863,275 – 0.9% 0.9% Sifonen 145,000 1,668,450 10,033 0.8% 0.9% Stiftelsen Stockholms Sjukhem – – 1,800,000 0.8% 0.5% Fourth Swedish National Pension Fund 2,858 1,761,627 – 0.8% 0.5% Advisor Världen – 1,744,342 – 0.8% 0.5% SEB S.A. 72,750 281,790 1,370,734 0.8% 0.7% Banque Carnegie Luxembourg 696,382 917,000 31,666 0.8% 2.3% Second Swedish National Pension Fund – 1,621,005 – 0.7% 0.5% ICA-Handlarnas Förbund Finans – – 1,579,796 0.7% 0.5% Total 20 largest shareholders 11,574,941 110,030,753 20,832,425 65.5% 73.1% Other shareholders 1,841,881 34,827,377 37,417,575 34.1% 26.9% Sub-total 13,416,822 144,858,130 58,250,000 99.5% 100.0% Treasury shares held by AB Sagax – 1,000,000 – 0.5% 0.0% Total 13,416,822 145,858,130 58,250,000 100.0% 100.0% – of which, Board and employees 7,433,161 59,869,105 191,578 31.0% 39.8%

1) Ownership structure at December 31 is based on information from Euroclear Sweden and the Swedish Financial Supervisory Authority’s insider register. 2) Voting rights for treasury shares held by AB Sagax have been excluded. READ MORE» Change in share capital, see page 119. «READ MORE Proposed appropriation of retained earnings, see page 126.

AB SAGAX ANNUAL REPORT 2015 61 DIRECTORS’ REPORT

If no preference dividend is paid for a certain year, the dividend Should the company liquidate, the preference shares will on preference shares will accumulate with 7% annual interest entail preferential rights to receive from the company’s share- until dividend is paid. Dividend will not be paid to holders of holders’ equity an amount per share calculated as the total common shares until full dividend is paid to holders of prefer- of SEK 30 and any accrued amount prior to distribution to ence shares including accumulated dividend and accrued inter- holders of common shares. In other respects, the preference est. Sagax has a unilateral entitlement, but no obligation, to shares will not carry any entitlement to a proportion of the redeem preference shares at SEK 35 per share with additional distribution. payment for any accumulated preference dividend.

Ownership structure, december 31, 20151) No. of Shareholder Share of Shareholders Share of No. of shares shareholders category No. voting power by country No. voting power 1–500 3,464 Private individuals Sweden 7,220 93% residing in Sweden 6,535 9% 501–1,000 837 Luxembourg 19 3% 1,001–2,000 829 Private individuals residing abroad 61 1% UK 46 1% 2,001–5,000 1,101 Companies/institu- Norway 25 1% 5,001–10,000 547 tions in Sweden 685 83% USA 47 1% 10,001–50,000 587 Companies/institu- 50,001– 251 tions abroad 335 7% Other countries 259 1% Total 7,616 Total 7,616 100% Total 7,616 100% 1) Including shares repurchased by AB Sagax.

Key data per common share1)

2015 2014 2013 2012 2011 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Price of Class B share at the end of the year, SEK 71.75 44.00 24.20 17.14 15.00 Profit from property management after dilution, SEK 2) 4.90 3.73 2.73 2.15 2.06 Cash flow after dilution, SEK 2) 3) 3.99 2.99 2.12 1.79 1.87 Equity after dilution, SEK 25.93 17.44 13.40 8.09 6.99 EPRA NAV, SEK 4) 35.52 27.23 19.05 14.86 12.76 Price of Class B share/Profit from property management, multiple 2) 14.6 11.8 8.9 8.0 7.3 Price of Class B share/Cash flow, multiple 2) 3) 18.0 14.7 11.4 9.6 8.0 Price of Class B share/Equity, % 277 252 181 212 215 Price of Class B share/EPRA NAV, % 202 162 127 116 118 1) Comparative figures have been adjusted for the bonus issue of Class B shares in 2013, by multiplying the number of shares by 11. The conditions of the bonus issue were ten Class B shares for each Class A share. 2) Profit from property management and cash flow pertain to a rolling 12 months. 3) Cash flow pertains to cash flow from operating activities before changes in working capital. 4) See page 136 for definition.

Share price performance and volatility

Sagax Sagax Carnegie Real OMX Performance1), 2) Sagax Class A share Class B share3) preference share Estate Index Stockholm PI 1 year 63% 63% 13% 26% 7% 2 years 169% 196% –1% 71% 19% 3 years 321% 234% 6% 101% 47% 4 years 380% N/A 18% 131% 64% 5 years 366% N/A 19% 99% 37%

Sagax Class B Sagax Carnegie Real OMX Volatility1) Sagax Class A share share3) preference share Estate Index Stockholm PI 1 year 45% 38% 12% 18% 15% 2 years 40% 36% 7% 14% 13% 3 years 38% 36% 8% 13% 13% 4 years 37% N/A 8% 14% 14% 5 years 35% N/A 8% 16% 16%

1) Calculated on December 30, 2015. 2) The trend does not include reinvested dividend for Sagax shares or the Carnegie Real Estate Index and OMX Stockholm PI. 3) Calculated since the Class B shares were listed on April 8, 2013.

READ MORE» Articles of Association, see page 130. «READ MORE

62 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

INCENTIVE PLANS FOR EMPLOYEES According to the agreement, Remium is to ensure that a vol- Sagax has three warrant plans for the company’s employees. ume corresponding to at least SEK 30,000 each for purchases In total, Sagax’s employees hold 1,500,700 warrants corre- and sales of Sagax shares is placed in the order book, subject sponding to 0.9% of the number of common shares outstand- to a maximum spread of 3% between the buy and sell prices ing. The company’s CEO and Board members are not involved for Class A and Class B shares and a maximum of 2% for pref- in the plans. erence shares. These plans are valid for three years, encompassing the periods 2013-2016, 2014-2017 and 2015-2018. Warrants SHARE PRICE RELATIVE TO THE COMPANY’S PERFORMANCE entitle the holder to subscribe for new common shares in June Profit from property management per common share 2016, June 2017 and June 2018, respectively. The subscrip- Profit from property management per common share after tion price corresponds to the price paid for the common share dilution amounted to SEK 4.90 (3.73) which, compared with at the start of the warrant plans converted using the average the share price of the common share at the end of the period, share price trend for the listed property companies in accor- corresponded to a multiple of 14.6 (11.8). dance with Carnegie’s property index (CREX) during the corresponding period. Accordingly, the warrants will have a Equity per common share value on condition that the price performance of the Sagax Equity per common share after dilution amounted to SEK share exceeds the average for all listed property companies 25.93 (17.44). EPRA NAV per common share amounted to during each three-year period. SEK 35.52 (27.23). The share price for the Class B share at The Sagax Board of Directors has proposed to the Annual the end of the period was 277% (252) of equity per common General Meeting (AGM) on May 3, 2016 that it resolve to share and 202% (162) of EPRA NAV per common share. approve a corresponding incentive plan providing entitlement EPRA (the European Public Real Estate Association) is an to the company’s employees, with the exception of the Presi- interest organization for listed property companies and inves- dent and CEO and the Board members, to subscribe for new tors in Europe, whose assignment includes setting the stan- common shares in June 2019. dard for the key figure EPRA NAV (Net Asset Value). EPRA No additional warrants or convertibles are outstanding. NAV is used for calculating long-term net asset value and is defined as recognized equity according to the balance sheet LIQUIDITY PROVIDER following reversal of reserves for fixed-income derivatives, Remium is the liquidity provider for Sagax on Nasdaq Stock- deferred tax pertaining to temporary differences on property holm. The objective is to promote favorable liquidity in the values and deferred tax pertaining to reserves for fixed- share and to ensure a low spread between buy and sell prices income derivatives. in ongoing share trading.

Share price/proﬁt from property management per Class B share Share price in relation to equity and EPRA NAV, respectively

Multiple % 25 350

20 280

15 210

10 140

5 70

0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Share price/proﬁt from property management per Share price/equity per Class B share Class B share, rolling 12 months Share price/NAV per Class B share

READ MORE» History of the business, see page 3. «READ MORE Changes in consolidated shareholders’ equity, see page 91.

AB SAGAX ANNUAL REPORT 2015 63 DIRECTORS’ REPORT

INSIDER-REGISTERED TRANSACTIONS JANUARY 1, 2015 ‑ APRIL 1, 2016 Below are the transactions conducted in the period between January 1, 2015 and April 1, 2016 by Board members and employees of AB Sagax registered in the Swedish Financial Supervisory Authority’s insider register.

Date Name Position Transaction Securities No. March 30, 2016 Werdelin, Ulrika Board member Buy Class A share +24,661

March 30, 2016 Werdelin, Ulrika Board member Buy Class B share +282,750

March 22, 2016 Larsson, Göran E Board member Divestment Preference share –13,156

March 21, 2016 Larsson, Göran E Board member Divestment Preference share –41,427

March 18, 2016 Larsson, Göran E Board member Divestment Preference share –22,850

March 17, 2016 Larsson, Göran E Board member Divestment Preference share –9,946

March 14, 2016 Larsson, Göran E Board member Divestment Preference share –20,412

March 11, 2016 Larsson, Göran E Board member Divestment Preference share –4,338

Feb 16, 2016 Werdelin, Ulrika Board member Divestment Class A share –24,661

Feb 16, 2016 Werdelin, Ulrika Board member Divestment Class B share –282,750

Jan 8, 2016 Larsson, Göran E Board member Divestment Preference share –35

Dec 21, 2015 Werdelin, Ulrika Board member Divestment Class B share –1,300

Dec 21, 2015 Werdelin, Ulrika Board member Divestment Class B share –1,500

Dec 15, 2015 Larsson, Göran E Board member Divestment Preference share –40,000

Dec 11, 2015 Larsson, Göran E Board member Divestment Preference share –30,611

Dec 9, 2015 Larsson, Göran E Board member Divestment Preference share –18,560

Sep 3, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +1,489

Sep 2, 2015 Sjölund, Urban Other position, Board member of subsidiary Buy Class B share +5,000

Sep 2, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +1,500

Aug 31, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +1,706

Aug 28, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +10,305

Aug 27, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class B share +3,650

Aug 27, 2015 Dahlberg, Mikael Other position Buy Class B share +3,577

Aug 27, 2015 Werdelin, Ulrika Board member Divestment Class B share –1,650

Aug 27, 2015 Werdelin, Ulrika Board member Divestment Class B share –2,000

Aug 26, 2015 Dahlberg, Mikael Other position Buy Class B share +1,023

Jun 25, 2015 Larsen, Peter Other position, deputy Board member of subsidiary Buy Class B share +2,700

Jun 22, 2015 Larsen, Peter Other position, deputy Board member of subsidiary Buy Class B share +6,100

Jun 12, 2015 Sjölund, Urban Other position, Board member of subsidiary Buy Warrant B +21,500

Jun 12, 2015 Larsen, Peter Other position, deputy Board member of subsidiary Divestment Warrant A –6,000

Jun 12, 2015 Larsen, Peter Other position, deputy Board member of subsidiary Divestment Warrant B –60,000

Jun 12, 2015 Larsen, Peter Other position, deputy Board member of subsidiary Buy Warrant B +20,500

Jun 12, 2015 Dahlberg, Mikael Other position Divestment Warrant A –4,250

Jun 12, 2015 Dahlberg, Mikael Other position Divestment Warrant B –42,500

Jun 12, 2015 Dahlberg, Mikael Other position Buy Warrant B +10,400

Jun 12, 2015 Garat, Björn Executive Vice President, other position Buy Warrant B +27,400

Jun 1, 2015 Mindus, David Board member, CEO, major shareholder, etc. Share futures Class A share –15,000

Jun 1, 2015 Mindus, David Board member, CEO, major shareholder, etc. Share futures Class B share –150,000

Jun 1, 2015 Mindus, David Board member, CEO, major shareholder, etc. Exercise of futures Share futures A –15,000

Jun 1, 2015 Mindus, David Board member, CEO, major shareholder, etc. Exercise of futures Share futures B –150,000

64 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Date Name Position Transaction Securities No. Jun 1, 2015 Garat, Björn Executive Vice President, other position Share futures Class A share +20,000

Jun 1, 2015 Garat, Björn Executive Vice President, other position Share futures Class B share +200,000

Jun 1, 2015 Garat, Björn Executive Vice President, other position Exercise of futures Share futures A –20,000

Jun 1, 2015 Garat, Björn Executive Vice President, other position Exercise of futures Share futures B –200,000

May 29, 2015 Salén, Staffan Board member, major shareholder Exercise of futures Class A share –5,000

May 29, 2015 Salén, Staffan Board member, major shareholder Exercise of futures Class B share –50,000

May 29, 2015 Salén, Staffan Board member, major shareholder Exercise of futures Share futures A –5,000

May 29, 2015 Salén, Staffan Board member, major shareholder Exercise of futures Share futures B –50,000

May 26, 2015 Salén, Staffan Board member, major shareholder Buy Class A share +5,000

May 26, 2015 Salén, Staffan Board member, major shareholder Buy Class B share +50,000

May 26, 2015 Salén, Staffan Board member, major shareholder Divestment Class A share –5,000

May 26, 2015 Salén, Staffan Board member, major shareholder Divestment Class B share –50,000

May 18, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +2,997

May 15, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +2,842

May 13, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +37,534

May 8, 2015 Sjölund, Urban Other position, Board member of subsidiary Buy Class B share +6,036

May 8, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class B share +100,000

Mar 2, 2015 Mindus, David Board member, CEO, major shareholder, etc. Divestment Class B share –300,000

Feb 25, 2015 Sjölund, Urban Other position, Board member of subsidiary Buy Class B share +1,500

Feb 20, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +23,500

Feb 2, 2015 Sjölund, Urban Other position, Board member of subsidiary Holding registration Class B share +8,000

Jan 9, 2015 Mindus, David Board member, CEO, major shareholder, etc. Divestment Class B share –60,000

Jan 9, 2015 Mindus, David Board member, CEO, major shareholder, etc. Buy Class A share +58,450

Jan 5, 2015 Werdelin, Ulrika Board member Divestment Class B share –2,000

Parent Company

Loss after tax for the Parent Company amounted to SEK 7 M Cash flow from operating activities before changes in work- (profit: 11). During the year, the Parent Company’s fees for ing capital amounted to SEK 106 M (116). A net of SEK 437 property and company management from Group companies M (681) was invested in 2015, mainly in the form of share amounted to SEK 31 M (31) and fees from joint ventures to acquisitions and loans to Group companies in connection SEK 16 M (13). with property investments. During the year, cash flow from The Parent Company’s assets amounted to SEK 6,058 M financing activities contributed SEK 603 M (804), mainly in (3,951), of which cash and cash equivalents were SEK 67 M the form of the raising of bond loans in SEK and EUR. Parent (2). The Parent Company’s assets primarily comprise shares Company’s cash-flow statement is presented on page 94. and participations in subsidiaries or joint ventures, as well as receivables from Group companies.

AB SAGAX ANNUAL REPORT 2015 65 DIRECTORS’ REPORT Environmental work

Combining conscientious environmental work with successful property management generates clear financial advantages.

SAGAX’S LEGAL RESPONSIBILITY dependence on fossil fuels, increasing energy recovery from Under the Environmental Code, it is the operator, meaning heating and reducing electricity consumption. The bar chart the tenant, who is primarily responsible for any impact on below shows that oil heating in the property portfolio has the environment caused by the operations. If the operator is been reduced from 17% to 12% in the past five years, while unable to perform or defray post-treatment of a property, the heating based on district heating has increased from 70% to party who acquired the property and who knew of or should 76% during the period. have detected the pollution when the property was acquired is to assume responsibility. Energy declaration Sagax does not conduct any operations that require a spe- As a property owner, Sagax is responsible for energy declara- cial permit in accordance with the Swedish Environmental tion of the buildings subject to legal requirements for such Code, but still assumes environmental responsibility, which declarations. Sagax’s property portfolio mainly comprises consists of conducting controls and reporting to authorities. industrial and workshop buildings, which are exempted from Sagax also ensures that tenants do not conduct operations that the energy declaration requirement. Sagax still prepares contravene applicable legislation or authority permits. energy declarations as part of the energy analysis for properties where energy-saving potential is deemed to exist or where REASONS FOR CONDUCTING ENVIRONMENTAL WORK major investments in, for example, heating or ventilation need Combining conscientious environmental work with successful to be implemented. property management generates clear financial advantages. Sagax’s objective is to work actively to reduce the negative Energy analyses impact on the environment that arises in the properties Most of Sagax’s tenants, corresponding to 78% of the lettable owned by the company and to strive for sound management of area, are responsible for their own heating accounts and Sagax finite natural resources and a careful environmental impact. re-invoices 67% of the costs that the company nevertheless Sagax believes that the following three areas have the incurs. It is important to find solutions that allocate the ben- greatest environmental impact: efits of energy savings between Sagax and tenants, in order to

■■ Energy consumption. create an incentive to make changes.

■■ Hazardous substances. Sagax performs energy analyses of selected properties in

■■ Indoor climate. a bid to identify additional energy saving measures. These energy analyses result in proposed measures, together with ENERGY CONSUMPTION estimated investment costs. The most common efficiency The negative environmental impact of Sagax’s properties measures applied to date are installing ventilation units with arises mainly in the shape of energy consumption for heating greater recovery and improved control and regulation equip- the properties. Sagax is able to reduce the negative environment, replacing light fittings and lighting controls and install- mental impact of the properties by, for example, reducing its ing new environment-friendly heating sources.

Heating sources in the property portfolio % 80 70 60 50 40 30 20 10 0

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 District heating Oil Electricity Wood chips Other form of heating

66 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Energy projects perature during the winter. A property’s electricity consump- The simplest way to reduce energy consumption is to opti- tion for purposes other than heating are ordinarily lower, mize the operational times of the ventilation system as an and do not exhibit the same seasonal fluctuation as energy initial step. Sagax always tries to help its tenants with this expenditure for heating. This is the case for residential, ware- type of measure. Another effective measure is to evaluate house and office properties. For industrial properties, energy heating sources and replace them when it is possible to realize expenditure for electric power could naturally be significantly efficiency benefits. higher than for heating, depending on the industrial process. Investments in new heating systems are profitable, while In many industries, waste energy from the process may they also help to reduce carbon emissions. A modern heating also be used for heating. The relatively large share of wood and power plant converts over 90% of the energy in the fuel chips as a heat source, 6%, consists of waste from the produc- to electricity and heat. Sagax intends to gradually convert its tion of prefabricated house manufacturers Myresjöhus and properties that are heated with oil to another heat source. Trivselhus. 22% of the premises in the Rest of Sweden market Some examples of environmental and energy-enhancing mea- area are heated using wood chips. sures are: Oil was used to heat 19 of Sagax’s properties at year-end, A former building at Induktorn 35 in Stockholm was representing 11% of area in the premises. When oil-heated demolished and replaced by stores, warehouses and offices for properties are located close to an installed district heating the catering wholesaler Martin Olsson. In connection with network, the potential for converting to district heating is this, oil heating was replaced with district heating. explored. As we have reported in the past, heating with oil At Njursta 1:23 in Upplands Väsby, oil heating was is gradually being reduced, while heating with other sources, replaced with district heating when tenant-specific modifica- primarily district heating is increasing in the property port- tions were made for food wholesaler Svensk Cater. folio. In Stockholm, Helsinki and the Rest of Finland, district In Bulten 5 in Danderyd, a completely new car sales heating is the dominant heating source. No of the Finnish facility was built for selling Jaguars and Landrovers, which is properties are heated using oil. designed to meet environmental requirements for energy consumption according to Green Building regulations. The prop- Origin-marked electricity erty has been equipped with a geothermal heating installation In Sweden, Sagax and its joint venture, Söderport, have that supply cooling to the building. reduced annual carbon emissions from 11,214 tons to 0 tons by At Koivuvaarankuja 2 in Vantaa, Helsinki, the energy and entering into supply agreements for origin-marked electricity water system was renovated and an energy-control system was up to 2017. Emissions are calculated by applying the reporting installed for SEK 8.3 M in 2015. The annual saving is expect- rules of the Greenhouse Gas Protocol (an international stan- ed to total SEK 1.0 M. dard for calculating emissions of greenhouse gases). 100% of the electricity is generated by hydro power and purchased from Heat sources in Sagax’s property portfolio Bergen Energi. The electricity is delivered from Naddvik Kraft- Heating buildings accounts for a large part of society’s energy station in Årdal, Norway. In this connection, the additional consumption. This energy consumption varies widely by cost for origin-marked electricity is marginal and Sagax has season. The size of the disparity depends on the average tem- experienced higher demand from tenants for this.

HEATING SOURCES

Geothermal Heating sources in Sagax’s Stockholm heating 2% Helsinki property portfolio Waste heat Electricity 4% Other Electricity 1% 1% Oil 5% form of Wood chips 6% Geothermal heating 1% District heating 1% heating Electricity 4% 99 % Oil 11% Other District form of heating heating 1% 88% District heating 76 %

Rest of Sweden Geothermal Rest of Finland Other heating 2% Waste heat 3% Other Gas 1% form of District District Wood heating 4% heating heating 31 % Oil 69% chips District 100% 22 % heating 35% Electricity 8% Oil 26%

AB SAGAX ANNUAL REPORT 2015 67 DIRECTORS’ REPORT

HAZARDOUS SUBSTANCES In leases where the tenant is the party responsible for opera- PCBs, asbestos and refrigerants tion and maintenance, known as triple net leases, it can be The most common hazardous substances that Sagax handles agreed that the tenant will be the one to perform the practical in its existing properties are PCBs, asbestos and various work. However, it is not possible to sign contracts to totally refrigerants. remove responsibility. PCBs are primarily found in sealants, insulating glass panes and some floor coverings. All of Sagax’s Swedish prop- Electricity audit erties built between 1956 and 1973 have undergone a special Fires in properties cause damage costing millions every year. examination. If needed, actions have been taken or these Electrical defects are the largest single cause of fires. The properties will be the subject of future measures. Electricity Board was formed back in 1925 to combat the When alterations are made to buildings, we always test growing number of electrical-related fires in Sweden. The for asbestos. Asbestos may be present in floors and ventilation Board’s mission is to authorize inspectors and perform audit systems as insulation. All asbestos is ordinarily removed and inspections on electrical installations. The insurance compa- destroyed according to a special regulation. Since other haz- nies operating in the Swedish market require regular audit ardous substances are found in buildings or the ground during inspections of the electrical installations of insured objects alterations or additions to properties, the property is always above a certain size. The audit inspection entails that an remediated and the hazardous substances are destroyed inspection engineer conducts regular inspections of the elec- according to a special regulation. For example, PCD and trical installation at intervals of one to five years depending asbestos were remediated in the buildings Slänten 17 in Hud- on the nature of the business and the type of electrical instal- dinge and Virkatie 7 in Vantaa, respectively, in 2015 in con- lation and documents the results. nection with construction. In the case of inspections performed on Sagax’s property As owner, Sagax is responsible for periodic inspections portfolio in 2015, the properties were approved after an of refrigerants in facilities. Sagax has service agreements action program had been completed. with accredited inspection bodies, which perform the annual inspections. Refrigerants are found in refrigeration and freez- ENVIRONMENTAL CERTIFICATION OF PROPERTIES er equipment, heat pumps and air conditioners. Any problems Several environmental certification systems have gained noted during the inspections in 2015 have been addressed. a foothold in Sweden. The four largest systems are Green Building, Breeam, LEED and the Sweden Green Building Environmental analyses when acquiring properties Council (formerly Miljöklassad Byggnad), all of which are Sagax generally has environmental analyses performed on structured differently. properties it acquires. Sagax primarily performs what are termed Green Building focuses only on the building’s energy Phase I inspections. Specialist consultants assist in performing consumption and can be applied to both new builds and older these inspections. A Phase I inspection comprises searches in buildings. Sagax’s property Rosersberg 11:105 in Upplands public databases, visits to the property and interviews with Väsby was built as a Green Building and Group company tenants and authorities. The Phase I inspection is performed Sagax Rosersberg AB is a partner in the European Green- in order to assess the risk of possible environmental impacts. Building Program. If the assessment is that an environmental impact could occur, Aside from Rosersberg 11:105, Sagax has no other proper- a Phase II inspection is performed, where the ground and ties that have been certified according to any of the systems groundwater are tested to establish whether the property has listed above, although the buildings Bulten 1 and Bulten 5 any environmental liabilities. in Danderyd, for example, were constructed to meet these The results of the analyses performed in connection with energy consumption requirements. Since most of the tenants property acquisitions in 2015 were satisfactory. in the company’s property portfolio bear individual responsibility for their media supply, the ability to affect energy con- INDOOR CLIMATE sumption largely lies with them. Accordingly, environmental Mandatory ventilation inspection certification has not been a priority, because such programs The Mandatory Ventilation Inspection Act, OVK, was passed have been difficult to administer. Instead Sagax focuses its to address shortcomings in the indoor climate. As a prop- environmental and energy efforts on potential energy effi- erty owner, Sagax is responsible for ensuring that a property ciency measures within its property portfolio. When major undergoes an OVK inspection and any necessary corrections building additions and alterations are conducted, we study are undertaken. The following items are checked: the potential for heat recovery where there is none, replacing

■■that the functioning and properties of the ventilation system heating systems, more energy-efficient lighting and similar comply with applicable regulations, measures since the potential savings are often significant. In

■■that the ventilation system does not contain contaminants Sagax’s experience, there is excellent potential for tenant that could be spread within the building, cooperation to cut operating costs while reducing environ-

■■that operating and maintenance instructions are correct and mental impact. readily available to the party who is to maintain the system,

■■that the ventilation system otherwise works as intended.

68 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

At Induktorn 15 and Induktorn 35 in Ulvsunda, in the City of Stockholm, new build of a wholesale store for the catering wholesaler, Martin Olsson Cashar, is underway. The existing buildings on Induktorn 35 and large parts of Induktorn 15 were demolished during the second quarter of 2015. The new building will comprise lettable area of 3,610 square meters. Construction work is scheduled to be completed during the second quarter of 2016.

AB SAGAX ANNUAL REPORT 2015 69 DIRECTORS’ REPORT Organization and employees

For the company to be competitive, it is important for employees to take responsibility and to feel a sense of involvement in the business, and for the organization to have a shared foundation of knowledge and values to the extent possible. A competent organization is critical to the company’s development.

ORGANIZATION Hemsö Intressenter AB, which in turn owned 30% of Hemsö The company’s domicile and head office are in Stockholm. At Fastighets AB. Sagax also owns shares in smaller associated year-end, 25 of 37 employees were employed by the Parent companies. No properties are owned by the Parent Company. Company and located in Stockholm. Eight employees were employed by a Finnish subsidiary with an office in Helsinki, EMPLOYEES and one employee was employed in France and works in Paris. It is important to be an attractive employer in order to recruit The company’s property management in Stockholm and retain competent employees. Sagax offers a flexible and is headed by the Head of Asset Management. The finance creative environment where decision paths are short. Profes- department in Stockholm is headed by the CFO. Business sional development and updating of skills are important to development is headed directly by the CEO. Sagax also has Sagax, since employees are one of the company’s principal a Finance Director in Stockholm. In Finland and France, the success factors. operations are headed by the CEO of each operation. The Career development discussions are held annually, to pro- CFO and Finance Director in Stockholm also have overall vide incentives for the development of each employee. When responsibility for accounting and financing issues throughout hiring, great importance is attached to personal qualifications the Group. Sagax’s business development in Stockholm also and qualities. works closely with colleagues in Helsinki and Paris. Sagax also holds an annual conference attended by all of its employees, where the company’s development, challenges LEGAL STRUCTURE and opportunities are discussed for two days. The purpose At year-end, the Group consisted of 170 Group companies of the conference is to create a shared knowledge and values with domiciles in Sweden, Finland, Denmark and France; see foundation for the entire organization, with an important aim below. Sagax’s properties in Germany are directly owned by that Sagax’s employees take responsibility and feel a sense of five Swedish companies. involvement in the business. The Parent Company wholly owned, directly or indirect- Sagax has managed to remain a relatively small organiza- ly, 169 subsidiaries. In addition, the Parent Company owned tion despite its rapid expansion. Of Sagax’s 37 employees, 15 50% of the associated companies Söderport Holding AB and were women and the average age was 40. During the year, the

Operating structure Number of Group companies

Domicile No. Sweden 92 CHIEF EXECUTIVE OFFICER Finland 74 Denmark 2 France 2 Head of Asset CFO1) Finance Business CEO in Helsinki CEO in Paris Management Director1) Development1) Total 170

Asset Finance Finnish Management Department organization Department Age distribution Number 14 1) Overall Group responsibility for specialist area. 12 10 8 6 4 2 0 Under 30-39 40-49 50-59 60-69 30 Women Men

READ MORE» Corporate Governance Report, see page 72. «READ MORE Board of Directors, see page 78. Company management, see page 80. 70 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

average number of employees was 34. Eight employees were rights and obligations. Working conditions and opportuni- recruited in 2015. ties for training and promotion must be independent of The guidelines for remuneration of senior executives are gender and the wage structure at Sagax must be equitable. shown on page 76 in the corporate governance section. Equal opportunity efforts are to be pursued as a partnership between employer and employees. Sagax’s philosophy is INCENTIVE PLANS FOR EMPLOYEES that everyone must be provided with the same opportunities Sagax has three warrant plans for the company’s employees. regardless of gender, age, religion or ethnic background. The plans are for three years and are targeted at all employees Every employee bears an individual responsibility for except for the CEO and the company’s Board members. In actively participating in equal opportunity efforts. total, Sagax’s employees hold 1,500,700 warrants corresponding to 0.9% of the number of common shares outstanding. PROPERTY MAINTENANCE In Stockholm and Helsinki, property maintenance and on- ETHICS AND EQUAL OPPORTUNITIES call duties are outsourced. Tenants outside Stockholm and The company has an equal opportunities plan. Sagax’s objec- Helsinki are responsible for property maintenance them- tive is for women and men to be given the same opportunities, selves.

For the company to be competitive, it is important for employees to take responsibility and to feel a sense of involvement in the business, and for the organization to have a shared foundation of knowledge and values to the extent possible. This photograph was taken at the annual conference at which the development of the company, challenges and opportunities are discussed.

READ MORE» Incentive plan, see page 103. «READ MORE

AB SAGAX ANNUAL REPORT 2015 71 DIRECTORS’ REPORT Corporate Governance Report

Sagax’s owners govern the company directly and indirectly through various decision-making systems. The important corporate governance systems are discussed below. The corporate governance applied at Sagax meets the requirements stated in the Swedish Companies Act, the Swedish Annual Accounts Act, the Swedish Corporate Governance Code (the Code) and Nasdaq Stockholm’s Rule Book for Issuers.

ARTICLES OF ASSOCIATION Property maintenance and on-call services have been out- According to the Articles of Association, AB Sagax is a public sourced, and a large share of the tenants are responsible for company (publ.). The Board is domiciled in Stockholm, Sweden. their own property maintenance. Administrative services have The company is to, directly or through subsidiaries, own, been purchased for the German, French and Danish operations manage, buy and sell real estate and conduct other compatible concerning taxation and accounting. Administrative property operations. For further information, see the relevant section management in Finland is handled by Sagax’s Helsinki offices. of the Articles of Association. Sagax also has an employee in Paris who is building up an organization to handle long-term administrative management in SWEDISH CORPORATE GOVERNANCE CODE Paris. Control and follow-up of the business take place mainly The Swedish Corporate Governance Code came into effect on from the Stockholm office, based on the principles of follow- July 1, 2005. As of July 1, 2008, the Code applies to all com- up, clear divisions of responsibility and limited mandates. panies with shares traded on Nasdaq Stockholm. The Code is Internal control is also governed by the decision-making intended to serve as one component of self-regulation in the paths, powers and responsibilities that have been documented Swedish business sector. It is based on the “comply or explain” and communicated in governing documents such as the Board’s principle, meaning that it is not necessary to comply with all formal work plan, financial policy, authorization manuals and of the regulations all of the time, and that it is not wrong to reporting instructions. Internal policies, guidelines and manu- deviate from one or more individual regulations in the Code if als are also important to internal control. there is a reason which is explained. The Code addresses the decision-making systems through which the owners directly Risk assessment or indirectly govern the company. The main emphasis is on Risk management is built into the company’s processes and the Board in its capacity as the central player in corporate various methods are used to evaluate and limit risks and to governance. The Swedish Corporate Governance Code is ensure that the risks faced by Sagax are managed in accor- managed by the Swedish Corporate Governance Board and is dance with established policies and guidelines. available at www.corporategovernanceboard.se. Regulations In accordance with the formal work plan, the Audit Com- in the corporate governance area for listed companies can be mittee reviews internal control at least once annually with the found in the Swedish Companies Act, the stock exchanges’ company’s auditors, and the review is presented to the Board at listing requirements and regulations and opinions from the the following Board meeting. Risks are identified, and measures Swedish Securities Council. The most recently revised Code are established to reduce these risks. The significant risks that came into effect on November 1, 2015. Sagax has identified are misstatements in the accounts and the The Board has chosen to add only two members to the valuation of properties, financial derivatives, taxes and VAT, Audit and Remuneration Committees rather than three in and the risk of fraud, losses or misappropriation of assets. accordance with the Code. The reason is that the Board of Directors consists of seven members in total, and having two Control activities members on these committees is considered more appropriate. The identified risks concerning financial reporting are managed The entire Board of Directors has chosen to only meet via the company’s control structures, resulting in several con- the company’s auditors in the presence of the CEO, which is trol activities. These activities are intended to prevent, detect natural since he is the company’s largest shareholder. and correct errors and discrepancies and include analytical follow-up at several levels of the organization and comparison INTERNAL CONTROL of profit/loss items, account reconciliations, follow-up and According to the Swedish Companies Act and the Swedish reconciliation of Board resolutions and policies adopted by the Corporate Governance Code, the Board is responsible for Board, approval and accounting of business transactions, proxy internal control. This report on the company’s internal con- and authority structures, authorized signatories, Group-wide trol has been prepared in accordance with the Swedish definitions, templates, reporting tools and accounting and valu- Corporate Governance Code. It concerns the company’s ation principles. Standardized reporting procedures and clear financial statements. and documented formal work plans and divisions of responsibility are important parts of Sagax’s control activities. Control environment When Sagax’s financial reports are prepared, significant The basis for internal control consists of the control environ- income statement and balance sheet items are examined and ment, which comprises various parts that jointly form the cul- analyzed with extra thoroughness. Risk management concern- ture and values governing Sagax. The company has a relatively ing these items is the top priority. In the income statement, small organization. these items are primarily rental revenue, financial items and

72 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT changes in value since these amount to significant sums, and ment. As a result of these considerations, the company does in the case of changes in value they are highly dependent on not see a need for a special internal audit unit. judgments. With respect to the income statement, properties and interest-bearing liabilities are analyzed with extra care. BOARD OF DIRECTORS System controls, process description and various intra-Group According to the Articles of Association, the Board is to com- directives are used to prevent misstatements from occurring prise at least three (3) and at most eight (8) members, not and to ensure that no material misstatements occur. including deputies. Sagax’s Board of Directors consists of seven Having an organization abroad entails the need to coordi- members, who were elected at the 2015 AGM. Company CEO nate administrative procedures and having systems to prevent David Mindus is a member of the Board. The Board comprises deterioration of the control environment. Accordingly, Sagax’s Board Members Johan Cederlund, Filip Engelbert, Göran E Helsinki office shares the same systems and procedures as the Larsson, Staffan Salén, Johan Thorell, Ulrika Werdelin and Stockholm office. Both organizations use the same IT systems CEO David Mindus. Göran E Larsson was appointed Chair- on the same servers, and the two offices are in close commu- man of the Board at the 2015 AGM. The term of all Board nication. Members runs until the end of the next AGM. For further Property managers have a clear profit responsibility for information about the Members of the Board, see page 78. the properties in their charge. Together with the analysis performed at Group level, their regular analyses of the prop- BOARD OF DIRECTORS’ WORK PROCEDURES erties’ financial statements are an important part of internal The Board’s tasks are governed by Swedish Companies Act controls to ensure that the financial statements is free of and the Articles of Association. The Board’s work is also gov- material misstatements. Sagax continuously develops its erned by the formal work plan adopted by the Board every system support for the operation. year at the statutory Board meeting or the AGM. The formal work plan describes the Board’s tasks and the division of Information and communication responsibility between the Board and the CEO. The directive The aim of Sagax’s information and communications policy is issued to the CEO and the instructions on financial reporting to provide efficient and accurate information about its finan- are adopted at the same time. cial statements. The company’s insider and financial policies ■■the Board’ tasks include deciding on the acquisition and also address information and communication about the finan- disposal of companies and properties, procurement of loans cial statements. Policies and guidelines for financial state- and guarantees, organizational issues, forecasts and full-year ments, as well as updates and amendments, are available to and interim reports. the relevant employees, and the executive management team ■■According to the Board’s work plan, it is the Chairman of annually reviews the rules and regulations with all employees. the Board’s responsibility to ensure that the Board performs The company’s rules and regulations are designed according to its work effectively and fulfills its obligations. Swedish law, Nasdaq Stockholm regulations and the Swedish In particular, the Chairman of the Board must:

Corporate Governance Code. ■■Organize and lead the Board’s work, encourage an open and Company management presents the quarterly report to all constructive discussion within the Board and facilitate the employees after it has been communicated in accordance with Board’s work to the greatest possible extent. the rules and regulations. The Board receives additional infor- ■■Ensure that the Board continuously updates and deepens its mation about risk management, internal control and financial knowledge of the company and its operations, and otherwise statements from the auditors via the Audit Committee, or at receives the training necessary to perform Board work effec- Board meetings attended by the auditors. tively.

■■Maintain ongoing contact with and serve as a discussion Governance and follow-up partner and support for the CEO, and consult with the CEO Profit outcomes are continuously followed up at several levels on strategic issues. of the company, i.e. at both the property and Group levels. ■■Ensure that the Board receives satisfactory information and They are checked against both budget and forecasts. The decision-making support documentation for its work. result is analyzed by both the administration and accounts ■■Ensure that the CEO continuously provides Board Members departments and presentations are made to both the CEO and with the information needed to follow the company’s posi- the Board. According to the Board’s instruction to the Audit tion and performance.

Committee, the company’s auditors must report directly to ■■Chair Board meetings, consult with the CEO on the agenda the Audit Committee at least twice annually. The auditors and ensure that the CEO summons Board Members to must report their observations from their examination and meetings. their assessment of the internal control. Their observations ■■Verify that Board resolutions are effectively enacted. are then presented to the Board at the following Board meet- ■■Ensure that Board matters are not handled in a way that ing. The Board enters the presentation into the minutes and contravenes the provisions of the Swedish Companies Act then follows up the minutes at a later meeting. and the Articles of Association.

■■Ensure that Board Members are familiar with legislation on Internal auditing requirements insiders and the company’s insider policy. The effectiveness of internal auditing largely depends on ■■Ensure that the Board’s work is evaluated once a year. the company’s organizational structure and the size of the According to the formal work plan, the Board must meet at organization. Sagax has a relatively small organization, with least five times per calendar year in addition to the statu- the administration of finance, accounting and leases managed tory meeting and strategy days. The work plan discusses the from the company’s Stockholm and Helsinki offices. Profit/ issues that must always be considered at these five meetings loss and the balance sheet are followed up quarterly, by the and the statutory meeting. Sagax’s Board held 15 minuted various functions in the company and by company manage- meetings in 2015, one of which was a statutory meeting. The

AB SAGAX ANNUAL REPORT 2015 73 DIRECTORS’ REPORT

main issues at the meetings for the year were acquisition and Committee are to be independent in relation to the company divestment of properties, financing issues and the adoption of and company management. At least one of the Nomination interim reports and forecasts. The Board was also informed of Committee’s members must be independent in relation to the the current state of the business. In addition to the minuted company’s largest shareholder or the group of shareholders, in meetings, the Board also met once for a special discussion of terms of votes, that works together in respect of the adminis- the company’s future strategies and financial objectives. The tration of the company. The CEO or another member of execu- Chairman of the Board ensured that the Board’s work was tive management must not be a member of the Nomination evaluated and the results then discussed by the Board. The Committee. Board members may be appointed to the Nomi- financial objectives adopted by the Board were followed up as nation Committee but are not to constitute a majority of its budgets and quarterly reports were adopted. members. If more than one Board member is appointed to the Nomination Committee, at least one of them is required to be PERFORMANCE MANAGEMENT dependent in relation to the company’s major shareholders. The According to its investment strategy, Sagax aims to continue Nomination Committee is to elect its chairman from among its its growth through the acquisition of new properties and own members. The Chairman of the Board or any other Board investments in existing properties. The company invests in member is not to be elected chairman of the Nomination Com- properties that fulfill the Group’s requirements for a healthy mittee. The composition of the Nomination Committee is to return and balanced risk. Each investment is considered sepa- be announced no later than six months prior to the 2016 AGM. rately when decisions are made. The Nomination Committee announced on November 2, The Board must also ensure that the company has good 2015 has the following composition:

internal control in place, and must continuously keep itself ■■Björn Alsén, representing David Mindus and companies.

informed of and evaluate whether the internal control systems ■■Håkan Engstam, representing Rutger Arnhult and companies.

are working. In addition, the Board must maintain an ongoing ■■Erik Salén, representing the Salén family and companies.

dialog with the company’s auditors and management in order to ■■Göran E Larsson, Chairman of the Sagax Board of Directors. further assure itself that the internal control system is working. The Nomination Committee held a minuted meeting ahead A simplified view of how Sagax’s Board work proceeds of the 2016 AGM, and also communicated with each other by during the course of a year and the issues that must always be telephone and e-mail. considered at the Board meetings referred to in the work plan is presented below. Remuneration Committee At its statutory meeting on May 7, 2015, the Board appointed NOMINATION COMMITTEE AND BOARD COMMITTEES a Remuneration Committee consisting of Göran E Larsson Nomination Committee and Staffan Salén. The Board has adopted an instruction The 2015 AGM resolved to assign the Chairman of the Board concerning the work of the Remuneration Committee. The to contact the three largest shareholders or groups of share- task of the Remuneration Committee is to prepare issues holders in terms of votes, pertaining to directly registered concerning remuneration and other terms and conditions of shareholders and nominee-registered shareholders, according employment for company management. The Remuneration to Euroclear’s transcript of the shareholders’ register at Sep- Committee held one meeting about remuneration, as well as tember 30, 2015 and ask each to appoint one representative, conferring with one other on multiple occasions by telephone plus the Chairman of the Board, to constitute the Nomination and email during the year. The Committee’s report on its Committee for the period until a new Nomination Commit- evaluation of senior executives is available at the Sagax web- tee has been appointed according to authorization from the site, www.sagax.se. next AGM. The majority of the members of the Nomination

FUNDAMENTAL STRUCTURE FOR BOARD WORK AT SAGAX

December Board meeting February Board meeting • Budget for coming year • Year-end report and forecast • State of the business • Accounting and auditing issues, • Financing issues and risks r Jan as well as the audit report mbe uary ce • Capital structure e • Proﬁt outcomes D Fe b • Evaluation of the Board of Directors ru • State of the business r a r • Evaluation of company management e y • Financing issues and risks b

m • Organizational issues e • Organizational issues

v M o a • Reports from Board N r c

h committees

• Forthcoming AGM

October Board meeting c

• Interim ﬁnancial report and forecast

• Accounting and auditing issues, b

as well as the audit report e

t May Board meeting

p y

• Proﬁt outcomes

• Interim ﬁnancial report and forecast

t u

• State of the business n

e • Proﬁt outcomes

l • Financing issues and risks y • State of the business • Internal control • Financing issues and risks • Organizational issues • Organizational issues • Strategy issues • Forthcoming AGM

Strategy days in September August Board meeting Board statutory meeting Over the course of two days, the • Semi-annual report and forecast • Formal work plan and policy Board of Directors holds strategic • Proﬁt outcomes documents discussions and receives more • State of the business • Board Committees in-depth information through • Financing issues and risks • Signatory power presentations by both internal • Organizational issues • Authorization manual and external experts. • Meeting plan

74 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Audit Committee by the Board and states how to limit various risks in Sagax’s The members of the Audit Committee, who were appointed financial affairs and the risks that the company may take. It at the Board’s statutory meeting on May 7, 2015, are Johan also states how to report on Sagax’s financial affairs to the Thorell and Göran E Larsson. The Audit Committee nor- Board. The financial policy establishes the division of respon- mally meets the company’s auditors twice per year. The Board sibility and administrative rules, and must also provide guid- has adopted an instruction concerning the work of the Audit ance in the daily work of the finance staff unit. The financial Committee. The task of the Audit Committee is to maintain policy applies to all Sagax companies. and increase the efficiency of contacts with the Group’s auditors, exercise supervision over accounting and financial state- Information policy ments procedures, evaluate the auditors’ work and monitor The purpose of Sagax’s information policy is to ensure that the development of accounting policies and requirements. stock market players receive rapid, simultaneous, accurate, The Audit Committee held two minuted meetings with the relevant and reliable information about the company. The auditors in 2015, as well as one minuted meeting in 2016. information policy must be adhered to by all employees, During these meetings, topics including the auditors’ exami- Board Members and externally retained consultants. Infor- nation of the company’s financial reporting and internal con- mation to the public is primarily issued in the form of press trols were presented and discussed. The auditors’ observations releases and financial reports. and opinions were subsequently reported to the Board. Insider Policy AUDIT Sagax’s insider policy is intended to reduce the risk that a The auditors are required to examine the company’s annual Sagax employee could violate applicable insider laws. The report and accounting, as well as the management by the insider policy is a supplement to the insider laws in force and, Board and the CEO. The auditors are required to attend, and in some respects, its requirements are stricter than those of present a report at, the Board meeting where the decision is the law. The insider policy applies to all people in an insider made whether to adopt the annual accounts for the preceding situation, parties closely related to these insiders and other fiscal year. The auditors are required to submit an auditor’s people who have been informed that the policy applies to report to the AGM after every fiscal year. The auditors also them. All employees and consultants are obligated to report reviewed the interim report for January-September 2015, and insider transactions to Sagax’s CEO. submitted a review report concerning the interim financial information for that period. The auditors are elected by the Dividend policy AGM for a one-year term. Sagax’s dividend policy is intended to allow for continued The 2015 AGM elected the authorized accounting firm growth and adequate preparedness to take advantage of busi- Ernst & Young AB, with Authorized Public Accountant Mag- ness opportunities. As in the past, the Board also considers it nus Fredmer as the signing auditor in charge for the period to be of great importance that expansion can occur while pre- until the 2016 AGM. Magnus Fredmer has been Sagax’s audi- serving freedom of action and financial stability. Accordingly, tor since 2012. the Board considers it to be appropriate for the dividend, The company’s auditors attended one Sagax Board meet- including the dividend on preference shares, to correspond to ing in 2015 and one in 2016. about one third of profit from property management annually. The Board is also authorized to propose the distribution of STOCK MARKET INFORMATION non-recurring profits to shareholders. The company is required to provide rapid, correct, relevant According to Sagax’s Articles of Association, holders of and reliable information to existing and potential sharehold- preference shares have first priority to a dividend of SEK 2.00 ers and other investors that not only meet the requirements of per preference share. The dividend on preference shares is Nasdaq Stockholm and the stock market at all times, but the paid quarterly, in the amount of SEK 0.50 on each occasion. company’s own strict requirements as well. The company sub- mits interim reports concerning the business on a quarterly Equal Opportunities Plan basis, and a year-end report and annual report for the entire According to the Swedish Equal Opportunities Act, every fiscal year. Sagax uses its website to rapidly provide informa- employer that employs ten or more people is obligated to tion to the stock market. Significant events are announced prepare a plan for its equal opportunity efforts. Sagax’s objec- through separate press releases. tive for the equal opportunities plan that it has developed is for women and men to have the same rights, opportunities POLICY DOCUMENTS and obligations in all areas of working life. Working condi- The company’s Board of Directors has adopted the following tions and opportunities for training and promotion must be policies: a financial policy, information policy, insider policy and independent of gender and the wage structure at Sagax must dividend policy and an equal opportunities plan. On an annual be equitable. Equal opportunity efforts are to be pursued as a basis, the Board also decides on the directive it issues to the partnership between employer and employees. Every employ- CEO, the instruction for financial statements, the authorization ee bears an individual responsibility for actively participating manual and its own work plan. Policies are to be revised when in equal opportunity efforts. this is required in order to ensure that they are up to date and support the business in meeting its stated objectives and targets. OTHER DISCLOSURES CONCERNING THE BOARD AND MANAGEMENT Financial policy There are no conflicts of interest between the Board or man- The financial policy indicates guidelines and rule as to how agement on the one hand and the company on the other. financial operations in Sagax are to be pursued. It is adopted Board Members Göran E Larsson, Filip Engelbert, Johan

AB SAGAX ANNUAL REPORT 2015 75 DIRECTORS’ REPORT

Thorell, Ulrika Werdelin and Johan Cederlund are indepen- the AGM. Termination salary must not exceed six monthly dent according to the Swedish Corporate Governance Code salaries. Severance pay is not to be applied. in relation to Sagax, company management and the company’s The Board is entitled to deviate from the aforementioned principal owners. David Mindus, who is Sagax’s CEO, holds guidelines if it finds specific reasons to motivate this in iso- in excess of 10% of the voting rights and is thereby considered lated cases." to be dependent in relation to the company. Staffan Salén AB Sagax has complied with the guidelines resolved by also represents in excess of 10% of the voting rights and is the AGM. For further information about remuneration of considered to be dependent in relation to the company. Inde- company management, see Note 5. The Board will propose pendence in relation to the company and its principal owners to the 2016 AGM that corresponding guidelines also apply in entails that there are no extensive business connections with the future. the company, and that the Board Members represent less than 10% of the shares or voting rights at year-end. ANNUAL GENERAL MEETING (AGM) No special agreements have been reached between Sagax The AGM is the company’s highest decision-making body. and major shareholders, customers, suppliers or other parties At the AGM, all shareholders are given the opportunity to that caused any Board members or executive management exercise influence over the company represented by their to be chosen for these posts. There are no restrictions on the respective shareholdings. Considering the current ownership rights of Board Members or senior executives to sell their group, it has not been viewed as justified to implement such Sagax securities. None of the Group’s member companies measures as simultaneous interpretation at the AGM or trans- has entered into agreements that entitle Board Members or lating presentations into other languages. members of executive management to benefits after their respective assignments end. However, members of executive MANAGEMENT STRUCTURE management are entitled to a salary for a certain period after their employment has been terminated by the company; see Note 5, page 103. Shareholders Nomination Committee via the AGM Auditors Remuneration Committee REMUNERATION OF THE BOARD AND SENIOR EXECUTIVES Board of Directors The AGM on May 7, 2015 resolved to pay a total of SEK Audit Committee 1,125,000 in director fees, of which SEK 300,000 to the CEO Chairman of the Board and SEK 165,000 to each other non-executive Board member elected by the AGM. The CEO receives Management Team no remuneration for his Board assignment for AB Sagax. Fees to the auditors are to be paid based on approved invoices. Board fees to five of the Board members were paid to companies in accordance with agreements reached between AGM on May 7, 2015 the individuals in question and Sagax, which are cost-neutral At the AGM of AB Sagax on May 7, 2015, it was resolved for Sagax. that:

The 2015 AGM passed the following guidelines for remu- ■■the income statements and balance sheets, and the Board’s neration of senior executives: proposed appropriation of profits be adopted. "Remuneration paid to the CEO is prepared by the Remuner- ■■the Board’s proposed dividend of SEK 0.80 per Class A and ation Committee and established by the Board at a scheduled Class B common share and SEK 2.00 per preference share Board meeting. The CEO does not participate in this deci- for the 2014 fiscal year, with quarterly payments of SEK sion. The Board assigns the CEO the task of negotiating with 0.50 per preference share, be adopted. May 11, 2015 be other senior executives in accordance with the guidelines adopted as the record day for payment of dividends on com- below. Agreements with other senior executives are reached mon shares; Tuesday June 30, 2015; Wednesday September by the CEO jointly with the Chairman of the Board. 30, 2015; Wednesday December 30, 2015 and Thursday The company is to offer commercially competitive remu- March 31, 2016 be adopted as the record days for the pay- neration levels and terms and conditions of employment in ments of dividends on preference shares. The dividend is order to retain and, where necessary, recruit senior executives expected to be paid by Euroclear on the third working day with the necessary expertise and experience. Remuneration to after each record day.

the company’s management is to essentially take the form of ■■the Board members and the CEO be discharged from per- cash salary. Remuneration may comprise a combination of fixed sonal liability for the 2014 fiscal year.

and variable salary. Remuneration is to mainly comprise fixed ■■the number of Board members was to amount to seven for salary and be considered to correspond to commercially com- the period until the next AGM.

petitive compensation for doing an adequate job. The variable ■■Board members Johan Cederlund, Filip Engelbert, Göran salary supplement is to pertain to additional compensation for E Larsson, David Mindus, Staffan Salén, Johan Thorell and work that has been exceptionally well performed, an excep- Ulrika Werdelin be reelected. Göran E Larsson be appoint- tional workload or another similar circumstance. Unless there ed Chairman of the Board.

are special reasons for not applying this rule, the variable salary ■■fees be paid in the amount of SEK 300,000 to the Board supplement is not to exceed 50% of the fixed annual salary. In Chairman and SEK 165,000 to each other non-executive addition, the Board is to annually assess whether or not a share- Board member elected by the AGM. The fees also include based or share-price-based incentive plan is to be proposed to remuneration for committee work.

76 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

■■Ernst & Young AB be reelected as auditors for the forthcom- with or without disapplying the shareholders’ preferential ing one-year period, with Magnus Fredmer as the auditor in rights, all or portions of the company’s holding of treasury charge. Class A common shares, Class B common shares, preference

■■guidelines for remuneration of the company’s senior execu- shares and/or warrants as payment for acquisitions of prop- tives be adopted. erties or property companies, or parts of properties or prop-

■■the Incentive Plan 2015-2018 , based on the issue of a erty companies, at a price corresponding to the share price maximum of 400,000 Series 2015/2018 warrants be imple- or, regarding warrants the market value, on the date of sale. mented. Disapplying the preferential rights of shareholders, Transfer of all or portions of the company’s holdings of trea- subscription entitlement will accrue to the wholly owned sury Class A common shares, Class B common shares and/or subsidiary, Satrap Kapitalförvaltning AB. The warrants will preference shares may also occur, on one or more occasions be issued free of charge. Each warrant entitles the holder to prior to the next AGM, to finance such acquisitions, for subscribe for one new Class B common share in the com- which shares are to be sold on Nasdaq Stockholm at a price pany. that is within the price interval applicable at any time.

■■Satrap Kapitalförvaltning be permitted to transfer a maximum of 400,000 warrants in AB Sagax of the 2015/2018 Ahead of the AGM on May 3, 2016 series, to employees, or to have control over the warrants in Ahead of the AGM on May 3, 2016, at 5:00 p.m., the Board some other manner in order to secure obligations pursuant proposes the AGM resolve:

to Incentive Plan 2015-2018. It is estimated that the maxi- ■■to pay a dividend to shareholders of SEK 1.15 per common mum number of additional Class B common shares will not share for Class A and Class B shares.

exceed 400,000, corresponding to approximately 0.27% of ■■to pay dividend to shareholders of SEK 2.00 per preference the total number of Class B common shares in the company, share for the 2015 fiscal year, with quarterly payments of subject to full subscription and full exercise of all warrants. SEK 0.50 per preference share.

The increase in share capital in such a case will amount to a ■■that AB Sagax’s non-restricted fund and unappropriated maximum of SEK 700,000. The Incentive Plan is targeted at earnings, less dividend, be carried forward. individuals who are or will be employees of AB Sagax or its to authorize the Board for the period until the next AGM to subsidiaries, except for the CEO. acquire and transfer Sagax shares or warrants, or a combina-

■■authorization be granted to the Board, within the frame- tion thereof, to a maximum amount corresponding to 10% work of the applicable Articles of Association, with or with- of shares outstanding.

out disapplying the shareholders’ preferential rights, on one ■■to authorize the Board for the period until the next AGM or more occasions prior to the next AGM, to make decisions to decide on the new issue of shares, warrants or convertible to increase AB Sagax’s share capital through the new issue promissory notes, or a combination thereof, to a maximum of Class A common shares, Class B common shares, prefer- amount corresponding to 10% of votes outstanding.

ence shares, warrants and/or convertibles in the company. ■■guidelines for remuneration of senior executives and

The total number of shares encompassed by such share ■■the proposed the Incentive Plan Incentive Plan 2016-2019. issues may not exceed 10% of the number of votes in the Notice to convene the AGM, with decision proposals are pre- company, based on the total number of votes in the company sented on page 132. on the date of the 2015 Annual General Meeting.

■■the new preference shares that may be issued under the The Nomination Committee proposes that the AGM resolve authorization granted by the Meeting are to provide entitle- as follows:

ment to dividends from the date on which they are entered ■■the number of Board members be six and no deputies be into the shareholders' register administered by Euroclear appointed. Sweden AB. Board members David Mindus, Filip Engelbert, Johan

■■authorization be granted to the Board, on one or more occa- Cederlund, Johan Thorell, Staffan Salén and Ulrika sions prior to the next AGM, to make a decision to acquire Werdelin be reelected. a total of as many Class A common shares, Class B common Göran E Larsson has declined reelection to the Board.

shares, preference shares, warrants and/or convertibles as ■■Staffan Salén be elected as the new Chairman of the Board.

necessary so that the company’s holdings at any time do not ■■that fees be paid in the unchanged amount of SEK 300,000 exceed a tenth of the total number of shares in the company. to the Board Chairman and SEK 165,000 to each other Acquisitions of treasury shares are to take place on Nasdaq non-executive Board member elected by the meeting for Stockholm and may only take place at a price within the the period between the 2016 and 2017 AGMs. Accordingly, price span applicable at any time, meaning the span between Board fees will total SEK 960,000.

the highest bid and lowest offer price, or on the basis of an ■■appointment of Ernst & Young AB as auditors for the forth- acquisition offering directed to all shareholders, whereby coming one-year period, with Magnus Fredmer as the sign- the acquisition is to take place at a price that on the deci- ing auditor in charge.

sion date corresponds to a minimum of the applicable share ■■ auditors’ fees are to be paid in accordance with a company- price and a maximum of 150% of the applicable share price. approved invoice.

Acquisition of treasury warrants and/or convertibles is to ■■the principles for the appointment of the Nomination Com- take place at a price that on the decision date corresponds to mittee remain unchanged. a maximum of the market value.

■■authorization be granted to the Board, on one or more occasions prior to the next AGM, to make decisions to transfer,

AB SAGAX ANNUAL REPORT 2015 77 DIRECTORS’ REPORT Board of Directors

GÖRAN E LARSSON STAFFAN SALÉN Board member since 2001 and Chairman of the Board since Board member since 2004. Member of the Remuneration 2004. Member of the Remuneration and Audit Committees. Committee. Born 1967. Born 1943. Education: Bachelor’s degree in Business Administration Education: Civil engineer from the Royal Swedish Institute of from Stockholm University. Technology, Stockholm. Bachelor’s degree in Business Admin- Other Board assignments: Chairman of eWork Scandinavia istration from the Stockholm School of Economics. AB and Amapola AB. Board member of Westindia AB, Other Board assignments: Board member of Strand Kapitalförvaltning AB, Landauer Ltd and SNS (the Effnetplattformen AB, Habia Cable AB and OrganoClick AB. Center for Business and Policy Studies). Senior Advisor of Evli Bank. Current position: CEO of Salénia AB. Work experience: Previously CEO of the Effnet Group AB, Work experience: Previously Executive Vice President and Micronic Laser Systems AB, Tidningarnas Telegrambyrå AB, Communications Director of FöreningsSparbanken AB, Norstedts Tryckeri AB, Interforward AB, Salén & Wicander Managing Editor of the financial magazine and financial Marin AB and Ferag Inc. Previously Chairman of the Board analysts company Proctor & Gamble. of AB Readsoft, Bygg-Oleba Olle Engqvist AB, QlikTech Dependent in relation to the company and its principal owners. International AB, Tidningstryckarna Aftonbladet/Svenska Holding in AB Sagax as of December 31, 2015: 1,998,733 Dagbladet AB, Sandrew Metronome AB, Standard Radio AB Class A shares, 17,485,330 Class B shares and 78,595 prefer- and Stiftelsen Hildur Nordins Minnesfond. ence shares. Independent in relation to the company and its principal owners. Holding in AB Sagax as of December 31, 2015: 102,400 Class JOHAN THORELL A shares, 1,024,000 Class B shares and 112,164 preference Board member since 2004. Member of the Audit Committee. shares. Born 1970. Education: Bachelor’s degree in Business Administration from JOHAN CEDERLUND the Stockholm School of Economics. Board member since 2010. Born 1970. Other Board assignments: Board member of Tagehus Holding Education: Bachelor’s degree in Business Administration and AB, Hemsö Fastighets AB, Delarka Holding AB, Oscar Prop- Graduate in Law from Stockholm University. erties Holding AB, Kallebäck Property Investors AB, K2A Other Board assignments: Including Chairman of the industrial Knaust & Andersson Fastigheter AB and Nicoccino Holding AB. and retail group Lotorp and Chairman and Board member of Current position: CEO of Gryningskust Holding AB. other companies in the Lotorp Group. Work experience: Active in property management since 1996. Work experience: Previously lawyer and partner of the law firm Independent in relation to the company and its principal owners. Vinge, with a focus on company acquisitions, financing and Holding in AB Sagax as of December 31, 2015: 101,627 Class the stock market. A shares and 1,016,270 Class B shares. Independent in relation to the company and its principal owners. Holding in AB Sagax as of December 31, 2015: 77,080 Class ULRIKA WERDELIN B shares. Board member since 2010. Born 1969. Education: Bachelor’s degree in Business Administration from FILIP ENGELBERT the Stockholm School of Economics. Board member since 2007. Born 1969. Other Board assignments: Board member on the boards of all Education: Bachelor of Science from Babson College, USA. Altor Funds GP. Other Board assignments: President of Avito AB, with board Current position: Advisor and Project Manager in the financial assignments in the Avito Group. Board member of sector through her company Werdelin Advisory. Matterhorn Advisors AB and Gornetgrat Capital AB. Work experience: Most recently as COO of the Lapithus Work experience: Previously CEO of Kontakt East Holding AB Group, which manages loan portolios for the European and Remium AB. Principal Finance Fund (EPF), one of the funds managed by Independent in relation to the company and its principal owners. the US company Apollo Capital Management, which invests Holding in AB Sagax as of December 31, 2015: 122,500 Class in private equity and property loans. Previously Managing A shares and 1,090,892 Class B shares. Director of Goldman Sachs International, COO in Europe for Goldman Sachs Principal Investment Area, the division DAVID MINDUS within Goldman Sachs that operates Goldman Sachs Capital Board member and CEO since 2004. Partners and Goldman Sachs Mezzanine Partners funds. Born 1972. Independent in relation to the company and its principal owners. Education: Bachelor’s degree in Business Administration from Holding in AB Sagax as of December 31, 2015: 24,661 Class Stockholm University. A shares and 518,300 Class B shares. Other Board assignments: Hemsö Fastighets AB. Work experience: Previously analyst and business developer in property companies and consulting companies. Dependent in relation to the company and its principal owners. Holding in AB Sagax as of December 31, 2015: 5,015,795 Class A shares, 37,854,595 Class B shares, 821 preference shares and 37,500 Class B share futures (sell).

The holding includes own holdings, those of related parties and holdings in related companies as of December 31, 2015.

READ MORE» Corporate Governance Report, see page 72. «READ MORE

78 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Sagax’s Board of Directors consists of Johan Thorell, Staffan Salén, David Mindus, Ulrika Werdelin, Johan Cederlund, Filip Engelbert and Göran E Larsson.

Remuneration paid to the Board

Participation in total number of Board meetings Remuneration, Board Remuneration Audit Name Assignment Elected Independent1) SEK meetings Committee Committee Göran E Larsson Chairman 2001 Yes 300,000 15 of 15 1 of 1 2 of 2 Filip Engelbert Member 2007 Yes 165,000 14 of 15 David Mindus CEO/Member 2004 No – 15 of 15 Staffan Salén Member 2004 No 165,000 14 of 15 1 of 1 Johan Thorell Member 2004 Yes 165,000 15 of 15 2 of 2 Ulrika Werdelin Member 2010 Yes 165,000 15 of 15 Johan Cederlund Member 2010 Yes 165,000 15 of 15 1) Independent in relation to the company and its principal owners means that there are no extensive business connections with the company and that Board members represented less than 10% of the shares or votes at the end of the year.

READ MORE» Remuneration of the Board and CEO, see Note 5 on page 102. «READ MORE

AB SAGAX ANNUAL REPORT 2015 79 DIRECTORS’ REPORT Company management

DAVID MINDUS PETER LARSEN See page 78. CFO of Sagax since 2004. Born 1961. Education: Bachelor’s degree in Business Administration from BJÖRN GARAT Stockholm University. Finance Director and Executive Vice President since August Work experience: CEO of HSB Sverige AB and Chairman of 2012. Born 1975. the Board of HSB Bank AB, HSB Produktion AB, HSB Education: International economics program at Linköping Fastighets AB, HSB Förvaltning AB och HSB Data AB. University. Holding in AB Sagax as of December 31, 2015: 9,586 Class Work experience: Responsible for Corporate Finance at A shares, 104,660 Class B shares, 44 preference shares and Remium Nordic AB and financial analyst. 147,800 warrants for Class B shares. Holding in AB Sagax as of December 31, 2015: 60,765 Class A shares, 800,000 Class B shares and 211,000 warrants for URBAN SJÖLUND Class B shares. Head of Asset Management since 2015. Born 1962. Education: Civil Engineer from the Royal Swedish Institute JOHAN HEDANDER of Technology. Business Developer at Sagax since 2007. Born 1980. Work experience: Head of Asset Management and Leasing Education: Civil Engineer from the Royal Swedish Institute of Manager at Fabege AB, executive positions in Storheden and Technology. Wihlborgs. Work experience: Investment analysis and transactions in the Holding in AB Sagax as of December 31, 2015: 20,536 Class property sector. B shares and 21,500 warrants for Class B shares. Holding in AB Sagax as of December 31, 2015: 100 Class A shares, 1,000 Class B shares and 126,200 warrants for Class JAAKKO VEHANEN B shares. CEO of Sagax Finland Oy since 2007. Born 1976. Education: Certified engineer from Helsinki University of Technology. Work experience: Responsible for the Finnish operation at Addici Facility Management Oy and property management for Sponda Abp. Holding in AB Sagax as of December 31, 2015: 4,000 Class B shares, 113,700 warrants for Class B shares and 37,500 Class B share futures (buy ).

The holding includes own holdings, those of related parties and holdings in related companies as of December 31, 2015. Sagax has incentive plans for all employees, which do not include the company’s CEO.

READ MORE» Remuneration of senior executives, see Note 5 on page 103. «READ MORE

80 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Sagax’s company management consists of Jaakko Vehanen, Peter Larsen, David Mindus, Björn Garat, Johan Hedander and Urban Sjölund.

Auditors

MAGNUS FREDMER Born 1964. Auditor of the company since 2012. Authorized Public Accountant at Ernst & Young and member of FAR. Other audit assignments include Castellum AB, Heba Fastighets AB, Vasakronan AB, Jernhusen AB, Niam Fonder and Svenska Bostäder AB. No holding in AB Sagax as of December 31, 2015. Magnus Fredmer

READ MORE» Remuneration of auditors, see Note 6 on page 103. «READ MORE Auditor’s Report, see page 128.

AB SAGAX ANNUAL REPORT 2015 81 DIRECTORS’ REPORT Multi-year summary

Consolidated statement of comprehensive income

Amounts in SEK M 2015 2014 2013 2012 2011

Rental revenue 1,291 1,093 919 824 783 Other revenue 2 2 9 2 2 Operating and maintenance costs –108 –94 –76 –66 –62 Site leaseholds –17 –14 –13 –13 –13 Property tax –40 –30 –25 –20 –20 Property administration –23 –22 –17 –18 –16 Net operating income 1,104 935 796 709 673

Central administration –57 –47 –42 –38 –34 Profit/loss from joint ventures 439 145 140 33 –48 – of which, profit from property management 233 178 79 43 24 – of which, change in the value of properties and financial 320 20 70 –1 –85 instruments – of which, tax –115 –53 –9 –9 12 Financial income 4 4 1 7 3 Financial expenses –390 –366 –313 –303 –288 Profit including changes in value in joint ventures 1,100 671 583 408 306 – of which, profit from property management 895 703 521 418 378

Realized changes in value Properties 1 5 –4 1 –6 Financial instruments –13 1 –4 – 13 Receivables/shares in joint ventures – – 16 – – Unrealized changes in value Properties 677 436 136 134 129 Financial instruments 67 –260 201 –70 –263 Profit before tax 1,832 853 928 473 180

Deferred tax –139 –89 –146 –107 –44 Current tax –12 –11 –5 6 –14 Profit for the year 1,681 753 784 370 123

Translation differences for foreign operations –92 122 55 –27 –7 Share of other comprehensive income for joint ventures –8 8 – – – Translation differences pertaining to hedge accounting in foreign operations 10 –40 – – –

Tax on items that may be reversed to profit and loss 8 –6 –7 2 –1 Comprehensive income for the year 1,599 837 832 345 115

82 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT

Condensed consolidated statement of financial position

Amounts in SEK M Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011

Investment properties 16,189 13,387 10,790 9,361 8,925 Participations in joint ventures 1,259 796 669 245 0 Receivables from joint ventures – – – 17 220 Other fixed assets 32 10 11 17 18 Total fixed assets 17,480 14,193 11,470 9,640 9,163

Cash and bank balances 251 67 128 379 343 Other assets 112 121 85 68 69 Total current assets 363 188 213 448 412

Total assets 17,843 14,381 11,683 10,088 9,575

Equity 5,981 4,544 3,723 2,794 2,223

Long-term interest-bearing liabilities 9,959 8,332 6,822 6,019 6,230 Deferred tax liabilities 479 434 336 187 89 Other long-term liabilities 483 560 320 523 456 Total long-term liabilities 10,921 9,326 7,478 6,730 6,775

Current interest-bearing liabilities 540 140 163 233 313 Other current liabilities 401 371 319 331 264 Total current liabilities 940 511 482 564 577

Total liabilities 11,861 9,837 7,960 7,294 7,352

Total equity and liabilities 17,843 14,381 11,683 10,088 9,575

AB SAGAX ANNUAL REPORT 2015 83 DIRECTORS’ REPORT

Key figures and data per share, December 31, 2015

2015 2014 2013 2012 2011

Property-related key figures Yield, % 7.4 7.6 7.7 7.8 7.7 Occupancy rate by area, % 97 95 93 95 97 Economic occupancy rate, % 96 94 92 93 93 Lease term, years 7.4 8.2 8.0 8.4 7.9 Lettable area, 000s of square meters 1,860 1,634 1,336 1,159 1,144 No. of properties 225 184 141 134 136

Financial key figures Return on total capital, % 7 7 7 7 7 Return on equity, % 32 18 24 15 6 Average interest rate, % 3.3 4.1 4.4 4.6 4.5 Average fixed-interest period incl. derivatives, year 3.0 3.0 3.7 5.2 4.3 Average maturity period, years 4.2 3.2 3.5 4.3 2.9 Equity/assets ratio, % 34 32 32 28 23 Debt ratio, % 59 59 60 62 68 Net debt/market value of the properties, % 64 63 64 63 69 Interest coverage ratio, multiple 2.9 2.6 2.4 2.2 2.2

Other key figures Number of employees at the close of the period 37 29 29 27 27

Data per common share1) Share price at the end of period, SEK 71.752) 44.002) 24.202) 17.14 15.00 Equity per share, SEK 26.01 17.49 13.41 8.09 6.99 Equity per share after dilution, SEK 25.93 17.44 13.40 8.09 6.99 Earnings per share, SEK 9.88 4.06 4.44 1.82 0.33 Earnings per share after dilution, SEK 9.85 4.05 4.44 1.82 0.33 Profit from property management, SEK 4.92 3.74 2.74 2.15 2.07 Profit from property management after dilution, SEK 4.90 3.73 2.73 2.15 2.06 Cash flow per share, SEK 4.00 3.00 2.12 1.79 1.88 Cash flow per share after dilution, SEK 3.99 2.99 2.12 1.79 1.87 No. of shares at end of period, millions 158.3 158.3 158.3 147.6 147.6 No. of shares at end of period after dilution, millions 158.8 158.7 158.4 147.6 147.6 Average no. of shares, millions 158.3 158.3 153.9 147.6 146.8 Average number of shares after dilution, millions 158.8 158.6 154.0 147.6 147.4 Dividend per share, SEK (proposed for 2015) 1.15 0.80 0.55 0.43 0.36

Data per preference share Share price at the end of period, SEK 31.30 36.00 31.50 29.60 26.50 Equity per share, SEK 32.00 32.00 32.00 32.00 32.00 Earnings per share, SEK 2.00 2.00 2.00 2.00 2.00 Cash flow per share, SEK 2.00 2.00 2.00 2.00 2.00 No. of shares at end of period, millions 58.2 55.5 50.0 50.0 37.3 Average no. of shares, millions 57.8 52.2 50.0 37.8 37.3 Dividend per share, SEK (proposed for 2015) 2.00 2.00 2.00 2.00 2.00

1) Comparative figures have been adjusted for the bonus issue of Class B shares in 2013, by multiplying the number of shares by 11. The conditions of the bonus issue were ten Class B shares for each Class A share. The bonus issue was registered on April 4, 2013. 2) Pertains to the share price for the Class B share.

READ MORE» The Sagax share and shareholders, see page 60. «READ MORE

84 AB SAGAX ANNUAL REPORT 2015 DIRECTORS’ REPORT Events after the end of the year

On February 9, 2016, Sagax announced in a press release that On March 14, 2016, Sagax also announced in a press release it had signed an agreement to acquire the industrial property that it has signed an agreement to acquire a property port- Blanc Mesnil, situated 16 km from central Paris and 12 km folio in France comprising 14 industrial properties, of which from Charles de Gaulle airport. The property encompasses eight in Paris, four in Lyon and two smaller properties outside 13,500 square meters of lettable area, divided between 38 these markets. The investment amounts to a corresponding units ranging in size from 200 to 600 square meters. The SEK 455 M, of which 74% pertains to properties in Paris, property encompasses 25,000 square meters of freehold land. 23% to properties in Lyon and 3% to the other properties. Sagax’s investment amounts to SEK 106 M, corresponding The property portfolio encompasses 79,000 square meters to SEK 7,800 per square meters of lettable area. The yield of lettable area with an average occupancy rate of 83%. The and occupancy rate are initially estimated to amount to 4.3% two properties in Paris comprising 9,000 square meters of let- and 68%, respectively. The average remaining lease term is table area are acquired vacant. The 12 remaining properties 1.3 years. The property was acquired from the Municipality encompass 70,000 square meters and have a occupancy rate of Blanc Mesnil. Sagax aims to increase the occupancy rate of 91% distributed between 50 tenants. The average yield is and adjust rent levels to market conditions with the target of initially calculated to amount to 6.4% for the entire portfolio achieving a yield of 7.0-7.5% within three years. and to 7.3% excluding the two completely vacant properties. On February 12, 2016, Sagax announced in a press release For property acquisitions in France, the relevant municipali- that it had signed a conditional agreement to acquire a prop- ties have pre-emptive rights to buy the properties within the erty portfolio in Finland comprises two superstores and 184 municipality’s boarders, as is the cases for these acquisitions. local supermarkets for a total of SEK 850 M. The superstores Sagax is expected to receive a decision on this matter at the have been leased to S-Gruppen and the local supermarkets end of May 2016. On the condition that acquire the proper- to SLK. The superstores are located in Turku and Tampere, ties in advance to the extent that the composition of the prop- while the local supermarkets are situated throughout Finland. erty portfolio would be disadvantageous for Sagax, possession The lettable area encompasses 156,000 square meters, of will be taken on September 15, 2016. which 94% has been leased. The property portfolio’s rental On March 29, 2016, Sagax announced in a press release revenue currently corresponds to SEK 100 M per year. The that it had acquired six leases comprising a total of 64,000 average remaining lease term is 6.1 years. The Finnish retail square meters pertaining to Sagax’s properties in Hechingen, group Kesko announced on November 18, 2015 that Kesko Germany. The new leases expire in August 2037, representing had agreed on the acquisition of SLK and that one of the a five-year extension. The total rental value of the agreements conditions for the acquisition was the approval of the Finnish is estimated at SEK 1.4 billion. The premises are utilized by Competition and Consumer Authority. Sagax’s acquisition of the Baxter Group for manufacturing of medical products as the property portfolio is in turn condition on Kesko’s acquisi- well as research and development. tion of SLK. The property portfolio is acquired from a Brit- ish fund that acquired the properties from SLK in a sale and leaseback transaction in 2006. The purchase consideration will be financed by available liquidity and existing credit facilities. On March 14, 2016, Sagax announced in a press release that it had decided to establish a program to issue commercial paper in Finland. The framework amount amounts to EUR 150 M, corresponding to approximately SEK 1.4 billion. The commercial paper program diversified Sagax’s sources of financing and is a cost-efficient supplement to existing financing. The arranger of the commercial paper program is Swed- bank and the issuing institutes are Swedbank and Danske Bank.

READ MORE» The Parent Company’s income statement, see page 92. «READ MORE Parent Company’s balance sheet, see page 93. Parent Company’s cash flow, see page 94. AB SAGAX ANNUAL REPORT 2015 85 FINANCIAL REPORTS

Consolidated statement of comprehensive income

Amounts in SEK M Note 2015 2014

Rental revenue 2 1,291 1,093 Other revenue 2 2 Operating expenses 4 –83 –72 Maintenance costs 4 –25 –22 Site leaseholds 4, 9 –17 –14 Property tax 4 –40 –30 Property administration 4 –23 –22 Net operating income 3 1,104 935

Central administration 5, 6, 21 –57 –47 Profit from joint ventures and associated companies 10 439 145 – of which, profit from property management 233 178 - of which, change in value of properties and financial instruments 320 20 – of which, tax –115 –53 Financial income 7 4 4 Financial expenses 8 –390 –366 Profit including changes in value in joint ventures and associated companies 1,100 671 – of which, profit from property management 3 895 703

Changes in value: Change in value of properties, realized 1 5 Change in value of properties, unrealized 13, 29 677 436 Changes in value of financial instruments, realized 18 –13 1 Changes in value of financial instruments, unrealized 18, 29 67 –260 Profit before tax 1,832 853

Deferred tax 12 –139 –89 Current tax 12 –12 –11 Profit for the year1) 3 1,681 753

Other comprehensive income – items that may be reversed to profit and loss: Translation differences for foreign operations –92 122 Share of other comprehensive income for joint ventures –8 8 Translation differences pertaining to hedge accounting in foreign operations 10 –40 Tax on items that may be reversed to profit and loss 8 –6 Comprehensive income for the year1) 1,599 837

Earnings per common share, SEK 28 9.88 4.02 Earnings per common share after dilution, SEK 28 9.85 4.01 Average number of common shares, millions 158.3 158.3 Average number of common shares after dilution, millions 158.8 158.6

1) Profit for the year and comprehensive income are attributable in their entirety to the Parent Company’s shareholders.

86 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS Comments on the consolidated statement of comprehensive income

REVENUE FINANCIAL INCOME Rental revenue increased to SEK 1,291 M (1,093). Revenue was Sagax’s financial income amounted to SEK 4 M (4) and mainly positively affected primarily by property acquisitions, as well as comprised interest income from the Group’s cash and cash revenue-increasing investments in the existing property portfolio. equivalents and interest income pertaining to advance payments Other revenue of SEK 2 M (2) primarily comprised com- in connection with an acquisition. pensation from tenants who had been permitted to prematurely vacate their premises during the year. FINANCIAL EXPENSES Sagax’s financial expenses amounted to SEK 390 M (366). The PROPERTY EXPENSES company’s average interest rate was 3.3% (4.1%) at December Operating and maintenance costs rose to a total of SEK 108 31. In 2015, due to financing of property acquisitions, interest- M (94). Property tax and site leaseholds amounted to SEK 57 M bearing liabilities increased to SEK 10,568 M (8,525), which (44). Costs for property administration amounted to SEK 23 M also explains the increase in financial expenses. However, in (22). The increased property costs were due primarily to prop- recent years, the debt ratio declined while the interest coverage erty acquisitions in 2014-2015. ratio increased, resulting in a relative reduction in the financial expenses compared with the Group’s income. For more informa- CENTRAL ADMINISTRATION tion about financing at Sagax, see Note 17. Central administration includes Group management and other central functions. The Parent Company, AB Sagax, is responsible EARNINGS for such issues as financial reporting and stock market informa- Profit from property management rose 27% to SEK 895 M (703), tion. The Parent Company is also responsible for credit market of which joint ventures and associated companies accounted for issues, such as borrowing and financial risk management. Central SEK 233 M (178). The increase was attributable to property administration costs also include costs for employees in Helsinki investments and improved profit from associated companies. and Paris. Costs amounted to SEK 57 M (47). The cost increase Profit from property management per common share after dilu- was attributable to a larger organization and generally higher tion rose 31% to SEK 4.90 (3.73). costs. Central administration costs corresponded to 0.4% (0.4) of The properties were revalued by SEK 946 M (687), of which the properties’ market value. the revaluation of associated companies accounted for SEK 269 M (246). PROFIT FROM JOINT VENTURES AND Financial instruments were revalued upward by SEK 54 M ASSOCIATED COMPANIES (downward: 259), of which a upward revaluation of SEK 67 M Profit from joint ventures and associated companies amounted to (downward: 260) pertained to unrealized changes in the value of SEK 233 M (178) and pertained to Sagax’s shares in the earnings fixed-income derivatives and SEK 13 M (upward: 1) to realized of the company’s joint ventures and associated companies; refer changes in the value of fixed-income derivatives. Sagax’s earn- also to page 51 for more information. Profit from joint ventures ings were also impacted by a positive SEK 52 M (neg: 226) due to including changes in the value of properties and fixed-income the revaluation of fixed-income derivatives in joint ventures. The derivatives, amounted to SEK 439 M (145), of which profit from main reason for the revaluation was that long-term market inter- property management accounted for SEK 233 M (178) M, chang- est rates declined during the year. es in the value of fixed-income derivatives for SEK 52 M (nega- Profit after tax for the year was SEK 1,681 M (753). tive: 226) and changes in the value of properties for SEK 269 M (246). Refer also to Note 23-24. TAX Deferred tax expense for joint ventures amounted to SEK Sagax recognizes a current tax expense of SEK 12 M (11) primar- 115 M (53) and pertains to Sagax’s share of the companies’ tax ily pertaining to foreign operations. The deferred tax expense for expense. the year amounted to SEK 139 M (95).Refer also to Note 12.

Rental revenue Proﬁt from property management

SEK M/quarter SEK M/year SEK M/quarter SEK M/year 350 1,400 300 1,000 300 1,200 240 800 250 1,000 600 200 800 180 150 600 120 400 100 400 60 200 50 200 0 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Rental revenue per quarter Rental revenue per quarter Rolling annual amounts Rolling annual amounts

AB SAGAX ANNUAL REPORT 2015 87 FINANCIAL REPORTS

Consolidated statement of financial position

Amounts in SEK M Note December 31, 2015 December 31, 2014

ASSETS Fixed assets Investment properties 13 16,068 13,387 Investment properties for sale 13 121 – Deferred tax assets 14 – 1 Tangible fixed assets 21 3 1 Participations in joint ventures and associated companies 23 1,259 796 Financial receivables 15 25 8 Financial derivatives 18 4 – Total fixed assets 17,480 14,193

Current assets Rents receivables 3 1 Prepaid expenses and accrued income 16 82 79 Receivables from joint ventures 24 – 2 Other receivables 27 14 Financial investments – 25 Cash and bank balances 31 251 67 Total current assets 363 188

TOTAL ASSETS 17,843 14,381

EQUITY AND LIABILITIES Equity 28 Share capital 381 376 Other contributed capital 1,698 1,604 Reserves, translation differences 2 84 Retained earnings including profit/loss for the year 3,899 2,479 Total shareholders’ equity 5,981 4,544

Long-term liabilities Interest-bearing liabilities 17 9,959 8,332 Deferred tax liabilities 14 479 434 Financial derivatives 18 470 551 Other long-term liabilities 19 13 9 Total long-term liabilities 10,921 9,325

Current liabilities Interest-bearing liabilities 17 540 140 Accounts payable 13 19 Accrued expenses and deferred income 20 262 254 Other liabilities 126 99 Total current liabilities 940 511

Total liabilities 11,861 9,837

TOTAL EQUITY AND LIABILITIES 17,843 14,381

Pledged assets 30 14,272 11,437 Contingent liabilities 30 None None

88 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS Comments on the consolidated statement of financial position

ASSETS Long-term liabilities Fixed assets The Group’s interest-bearing liabilities are described in Note 17. At December 31, 2015, the property portfolio comprised 225 Interest-bearing liabilities declined SEK 133 M (increase: 227), (184) properties with a lettable area of 1,860,000 square meters due to exchange-rate fluctuations during the year. (1,634,000). The change in value recognized for investment proper- Sagax’s fixed-income derivatives comprise only interest-rate ties during the year totaled SEK 677 M (441), of which SEK 677 M cap and nominal interest-rate swaps. The deficit value of the (436) pertained to unrealized changes in value. All properties were derivatives declined due to lower long-term market interest rates, market appraised by independent valuation agencies. The change in at the same time as one year has passed and the time value of the carrying amount of the properties is explained in Note 13. the derivatives has thus declined. The derivatives were revalued Shares in joint ventures and associated companies totaling upwards by SEK 67 M (downwards: 260) during the year. The SEK 1 259 M (796) largely consist of shares in Hemsö Intressent- total market value of the fixed-income derivatives was a negative er AB and Söderport Holding AB. Pursuant to the equity method, SEK 466 M (neg: 551) on the balance sheet date. The surplus val- profit participations, share of other comprehensive income, capi- ue and deficit value, respectively, of the fixed-income derivatives tal contributions and dividends received are recognized in this are recognized gross in the balance sheet with a liability of SEK balance item. 466 M (551). The quarterly market valuations of derivative con- The purpose of recognizing deferred tax is to take into tracts affect Sagax’s recognized earnings and shareholders’ equity, account the tax consequences of, for example, future sales of but do not impact the company’s cash flow or debt ratio. assets or the utilization of tax-loss carryforward. Comments on tax are presented in Notes 12 and 14. The debt is recognized net Current liabilities per country, which is why Sagax recognizes deferred tax assets of Sagax’s current interest-bearing liabilities amounted to SEK SEK 0 M (1) and deferred tax liabilities of SEK 479 M (434) in 540 M (140), of which SEK 399 M (–) comprised commer- the balance sheet. Loss carryforwards in the Group amounted to cial paper. During 2016, a total of SEK 122 M is expected to SEK 1,516 M (359) at year-end. be repaid in accordance with borrowing agreements and SEK 19 M in connection with an contracted property sale. At year- Current assets end, accrued expenses and deferred income consisted mainly of Prepaid costs and accrued income of SEK 82 M (79) consist accrued interest expenses and prepaid rental revenue. mainly of accrualed borrowing costs, as well as accrualed rent discounts and brokerage discounts. CASH FLOW Cash and bank balances amounted to SEK 251 M (67) at year- Cash flow from operating activities before changes in working end. Sagax also had unutilized lines of credit totaling SEK 661 M capital amounted to SEK 750 M (600). Cash flow from operating (463) at year-end. activities deviates from profit from property management primarily due to cash flow from joint ventures being reinvested in 2015 SHAREHOLDERS’ EQUITY AND LIABILITIES in these operations. Equity Changes in working capital had a negative impact of SEK 13 M In 2015, equity increased by SEK 1,437 M as a result of compre- (25) on cash flow. Investing activities had a negative impact of SEK hensive income generated and by SEK 99 M due to the new issue 2,524 M (neg: 1,924) on cash flow, and pertained mainly to prop- of preference shares. During the year, dividend to shareholders erty acquisitions and investments in the existing property portfo- reduced equity by SEK 246 M. The change in shareholders’ equi- lio. Cash flow from financing activities contributed SEK 1,945 M ty is recognized on page 91. (1,236) to Sagax during the year, of which SEK 2,128 M net as a result of the refinancing of investments and repayments to banks. In total, cash and cash equivalents increased SEK 184 M (decrease: 63) during 2015, refer to the cash-flow statement on page 90.

Profit from property management and cash flow Cash flow from operating activities SEK M, bars SEK M, curve SEK M 250 1,000 1,000

800 200 800

600 150 600

400 100 400

200 50 200

0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Profit from property management, rolling annual value Cash flow from operating activities before change in working capital, per quarter Cash flow from operating activities before changes Rolling annual value in working capital, rolling annual value

AB SAGAX ANNUAL REPORT 2015 89 FINANCIAL REPORTS

Consolidated statement of cash flows

Amounts in SEK M Note 31 2015 2014

Profit before tax 1,831 853

Items not affecting cash flow Change in value of financial instruments –54 259 Change in value of properties –677 –441 Loss from ownership of joint ventures –438 –145 Dividend from joint ventures 63 75 Dissolution of accrued borrowing costs 35 14 Other items not included in cash flow –1 –11 Tax paid –10 –4 Cash flow from operating activities before 750 600 changes in working capital

Cash flow from changes in current receivables –15 –1 Cash flow from changes in current liabilities 28 26 Cash flow from operating activities 763 625

Property acquisitions –2,199 –1,713 Property sales 37 100 Investments in existing properties –202 –240 Acquisition of shares –114 –21 Capital contribution to joint ventures –45 –49 Lending to joint ventures – –425 Repayment from joint ventures – 425 Increase in other fixed assets –1 –1 Cash flow from investing activities –2,524 –1,924

Issue of common shares – – Issue of preference shares 99 186 Dividend paid to shareholders –242 –192 Incentive Plan –15 –8 New loans 3,085 2,397 Repayment of loans –957 –1,132 Redemption of financial derivatives –30 –22 Increase in other long-term liabilities 5 6 Cash flow from financing activities 1,945 1,236

Cash flow for the year 184 –63

Exchange-rate differences in cash and cash equivalents – 2

Cash and cash equivalents, January 1 67 128 Cash and cash equivalents, December 31 251 67

90 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

Consolidated changes in shareholders’ equity

Profit Other Reserves, translation earned incl. Total Amounts in SEK M Share capital contributed capital differences profit for the year equity

Equity, December 31, 2013 366 1,149 – 1,928 3,723

New issue of preference shares 10 177 – – 187 Transaction costs – –1 – – –1 Dividends – – – –194 –194 Incentive Plan – – – –1 –1 Redemption of Incentive Plan – – – –7 –7 Comprehensive income, January-December 2014 – – 84 753 837 Equity, December 31, 2014 376 1,604 84 2,479 4,544

New issue of preference shares 5 94 – – 99 Transaction costs – –1 – – –1 Dividends – – – –246 –246 Redemption of Incentive Plan – – – –14 –14 Incentive Plan – – – –1 –1 Comprehensive income, January-December 2015 – – –82 1,681 1,599 Equity, December 31, 20151) 381 1,698 2 3,899 5,981

1) Equity is attributable in its entirety to the Parent Company’s shareholders.

AB SAGAX ANNUAL REPORT 2015 91 FINANCIAL REPORTS

Parent Company Income Statement

Amounts in SEK M Note 2015 2014

Net sales 27 47 45 Administration costs 5, 6, 21 –62 –53 Loss before financial income and expenses –15 –8

Profit/loss from participations in Group companies 11 –16 –1 Profit from participations in joint ventures 10 11 12 Financial income 7 195 236 Financial expenses 8 –204 –190 Profit before appropriations –28 49

Group contributions received/paid 19 –38 Profit before tax –9 11

Tax on net profit for the year 12 2 – Profit for the year –7 11

Parent Company statement of comprehensive income

Amounts in SEK M 2015 2014

Profit for the year –7 11

Other comprehensive income – – Comprehensive income/loss for the year –7 11

92 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

Parent Company Balance Sheet

Amounts in SEK M Note December 31, 2015 December 31, 2014

ASSETS Fixed assets Tangible fixed assets Equipment 21 1 1

Financial fixed assets Participations in Group companies 22 2,004 982 Participations in joint ventures 23 286 285 Receivables from Group companies 25 1,844 1,078 Deferred tax assets 14 1 – Financial receivables 15 4 4 Total fixed assets 4,139 2,350

Current assets Receivables from Group companies 25 1,817 1,578 Prepaid expenses and accrued income 16 33 19 Other receivables 2 1 Cash and bank balances 31 67 2 Total current assets 1,919 1,601

TOTAL ASSETS 6,058 3,951

EQUITY AND LIABILITIES Equity Restricted shareholders’ equity 28 Share capital 381 376 Statutory reserve 121 121 Total restricted shareholders’ equity 502 497

Non-restricted equity Repurchased shares –24 –24 Share premium reserve 1,066 1,209 Retained earnings –14 – Profit for the year –7 11 Total unrestricted shareholders’ equity 1,021 1,196 Total shareholders’ equity 1,524 1,693

Liabilities Long-term interest-bearing liabilities 17 2,297 1,958 Long-term liabilities to Group companies 26 738 – Deferred tax liabilities – 2 Current interest-bearing liabilities 399 – Current liabilities to Group companies 26 989 190 Accounts payable 1 – Other liabilities 60 55 Accrued expenses and deferred income 20 49 53 Total liabilities 4,533 2,258

TOTAL EQUITY AND LIABILITIES 6,058 3,951

Pledged assets 30 1,486 772 Contingent liabilities 30 8,104 6,574

AB SAGAX ANNUAL REPORT 2015 93 FINANCIAL REPORTS

Parent Company Statement of cash flows

Amounts in SEK M Note 31 2015 2014

Profit before tax –9 11

Items not affecting cash flow Intra-Group interest income –147 –155 Intra-Group interest expenses 21 11 Appropriations –19 38 Unrealized exchange-rate differences 29 –29 Other items not included in cash flow 19 6 Cash flow from operating activities before –106 –116 changes in working capital

Cash flow from changes in current receivables –12 –9 Cash flow from changes in current liabilities 17 –6 Cash flow from operating activities –101 –131

Participations in Group companies –372 –398 Receivables from Group companies 592 –282 Shareholder contributions to Group companies –662 Increase in other fixed assets – –1 Decrease in other fixed assets 5 – Cash flow from investing activities –437 –681

Issue of preference shares 99 186 Dividend paid to shareholders –242 –192 Incentive Plan –15 –8 New loans 1,224 1,068 Repayment of loans –462 –250 Cash flow from financing activities 603 804

Cash flow for the year 65 –8

Cash and cash equivalents, January 1 2 10 Cash and cash equivalents, December 31 67 2

94 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

Parent Company Changes in shareholders’ equity

Unrestricted shareholders’ Total Amounts in SEK M Note 28 Share capital Statutory reserve equity equity

Equity, December 31, 2013 366 121 1,208 1,695

Newly issued preference shares 10 – 177 187 Transaction costs – – –1 –1 Dividends – – –194 –194 Incentive Plan 2014-2017 – – –1 –1 Redemption of Incentive Plan 2013-2014 – – –7 –7 Profit for 2014 – – 11 11 Equity, December 31, 2014 376 121 1,196 1,693

Newly issued preference shares 5 – 94 99 Transaction costs – – –1 –1 Dividends – – –246 –246 Incentive Plan 2015-2018 – – –1 –1 Redemption of Incentive Plan 2012-2015 – – –14 –14 Loss for 2015 – – –7 –7 Equity, December 31, 2015 381 121 1,021 1,524

AB SAGAX ANNUAL REPORT 2015 95 FINANCIAL REPORTS Accounting policies and notes

NOTE 1 Accounting policies

INFORMATION ABOUT THE COMPANY or indirectly, 100% of the voting rights in all of its subsidiaries. The Annual Report and consolidated financial statements for AB The consolidated financial statements are presented in accordance Sagax (publ), Corporate Registration Number 556520-0028, with the acquisition method, whereby an acquisition of a sub- relating to the 2015 fiscal year have been approved by the Board of sidiary is considered a transaction in which the Parent Company Directors for publication on April 12, 2016. The year-end report indirectly acquires the assets of the subsidiary and assumes its was presented on February 11, 2016. The Parent Company is a liabilities. The acquired company’s revenues and costs and its Swedish public limited-liability company with its registered office identifiable assets and liabilities are included in the consolidated in Stockholm, Sweden. AB Sagax is a property company whose financial statements as of the date of the acquisition. Companies business concept is to invest in commercial properties, primar- that are divested are included in the consolidated financial state- ily in the warehouse and light industry segment. The company is ments until the Parent Company’s controlling influence ceases. listed on Nasdaq Stockholm, Mid Cap. The Group’s operations are Intra-Group transactions, receivables and liabilities between the described in the Board of Directors’ Report. The Annual Report companies in the Group, are eliminated in their entirety. and consolidated financial statements will be proposed for adoption A joint venture is a joint arrangement through which the par- at the Annual General Meeting on May 3, 2016. ties who have joint controlling interests are entitled to the net assets. Associated companies are companies over which the hold- BASIC ACCOUNTING POLICIES ing company exercises significant influence and are classified as General neither a subsidiary nor shares in a joint venture. Shares in joint The consolidated financial statements have been prepared in ventures and associated companies are recognized according to accordance with International Financial Reporting Standards the equity method, meaning that shares in a company are recog- (IFRS), approved by the EU, and the interpretations of the Inter- nized at cost at the date of acquisition and subsequently adjusted national Financial Reporting Interpretations Committee (IFRIC). with the holding company’s share of the change in the investment The consolidated financial statements have also been prepared entity’s net assets. The holding company’s result includes the in accordance with Swedish law applying Recommendation RFR holding company’s share of profit/loss in the investment entity. 1 Supplementary Accounting Rules for Corporate Groups of the Due to negative shares in profit, the carrying amount of the shares Swedish Financial Reporting Board. may be impaired to zero according to this principle. Any further The functional currency for the Parent Company is SEK, negative shares in profit are recognized against any capital claims which is also the presentation currency for the Parent Company on the company in question. and the Group. All amounts are in millions of SEK (SEK M) When Sagax acquires a company with one or more properties, unless otherwise specified, and refer to the fiscal year from Janu- the acquisition is classified as an asset deal or a business combi- ary 1 to December 31, 2015. Figures in parentheses refer to the nation. An acquisition of a property company with a property corresponding date or period in the preceding year. In accordance business (employees, personnel, company management and busi- with IAS 21 The Effects of Changes in Foreign Exchange Rates, ness systems are indications of a property business) entails that Sagax regards the EUR as the functional currency of the operations the acquisition is regarded as a business combination, whereby in Finland, Germany and France. For the operations in Denmark, the full amount of deferred tax is recognized on the difference the DKK is regarded as the functional currency. In preparing the between the assessed property value and the residual value for consolidated financial statements, the balance sheets of the Group’s tax purposes. The acquisition of a property company without the foreign operations are translated from their functional currencies abovementioned components is to be regarded as an asset deal, into SEK based on the exchange rates applying at the balance sheet whereby no deferred tax attributable to the acquisition is recog- date. Revenue and expense items are translated at the average nized. All of the Group’s corporate acquisitions during the year exchange rate for the year. Any translation differences that arise were classified as asset deals. are recognized in other comprehensive income and as a change of The Group has no goodwill items to report. the reserves in consolidated shareholders’ equity. When a foreign operation is divested, the accumulated translation differences are Parent Company recognized together with the gain or loss from the divestment. The Parent Company prepares its annual report in accordance Assets and liabilities are recognized at cost, except for invest- with the Annual Accounts Act and the Swedish Financial Report- ment properties, financial investments and financial derivatives, ing Board’s recommendation RFR 2 Accounting for legal entities. which are measured at fair value. RFR 2 implies that in the annual report of the legal entity, the Parent Company must apply all EU-approved IFRS and state- Group ments as far as possible within the framework of the Annual The consolidated financial statements encompasses AB Sagax Accounts Act and taking into consideration the connection and subsidiaries. Subsidiaries are companies in which the Parent between accounting and taxation. Company has a controlling influence, directly or indirectly, on Shares in subsidiaries are recognized in the Parent Company the operational or financial governance. AB Sagax holds, directly according to the cost method. The carrying amount is tested on

96 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 1 Accounting policies, cont’d. a continuous basis by reference to the subsidiaries’ consolidated New or amended accounting standards and equity. In the event the carrying amount is less than the consoli- interpretations applicable after 2015 dated value of the subsidiaries, an impairment charge is applied IFRS 16 Leases. This standard entails extensive changes to the and charged to profit or loss. If an earlier impairment is no longer recognition of leases for lessees and requires that most leases are justified, it is reversed. recognized in the statement of financial position as assets and liabilities. Sagax is a lessee regarding office premises and site CRITICAL ASSESSMENTS leaseholds. For lessors, the new standard does nor entail any major IFRS and Swedish GAAP require that Sagax makes assessments changes to recognition. Sagax has not yet evaluated the effect of and assumptions that affect the Group’s reported assets, liabilities, IFRS 16. The standard becomes mandatory on January 1, 2019 revenues and expenses, and other information. These assessments with early adoption permissible, if IFRS 15 Revenue from Con- are based on historical experience and other factors deemed appro- tracts with Customers is also applied. priate under the prevailing circumstances. The actual outcome IFRS 9 Financial Instruments addresses the classification and may differ from these assessments if other assumptions are made or measurement of financial assets and liabilities, impairment of finan- other conditions are present. Additional factors that can affect the cial instruments and hedge accounting. The standard becomes man- assessment of the Group are discussed in Note 32. datory on January 1, 2018 with early adoption permissible. Sagax has Concerning the valuation of investment properties, the assess- not yet examined the complete impact of the new standard. ments can have a significant influence on the Group’s earnings and IFRS 15 Revenue from Contracts with Customers. This stan- financial position. The valuation requires an assessment of future dard is a new framework of rules for revenue recognition. It intro- cash flow and the establishment of a yield requirement. The valu- duces a five-step model that is to be applied to contracts with ations are carried out on a quarterly basis by independent valu- customers to determine how and when revenue is to be recog- ation companies, except for the German properties, which have nized. Since the new standard does not encompass rental revenue, been valued externally biannually for cost reasons. The valuations it is not expected to have any major impact on Sagax’s financial and assessments made are discussed under Investment properties statements. The effective date of this standard was changed in in Note 13. External valuations of financial instruments, based on 2015 from January 1, 2017 to January 1, 2018, with early adop- observable market data, such as derivatives are obtained quarterly tion permissible. and provide the basis for unrealized changes in value that, pursuant to IFRS, affect the Group’s earnings and financial position. Amendments to Swedish regulatory framework Another significant assessment issue is the manner in which No amendments that impact Sagax were made in 2015. deferred tax should be treated in the consolidated financial statements – see the “Taxes” section in this Note. CLASSIFICATION Sagax’s operations are focused on growth of the cash flow Fixed assets and long-term liabilities consist exclusively of from the operating activities, meaning growth in profit from amounts expected to be recovered or paid after more than twelve property management. As a result, financial objectives, forecasts months from the balance sheet date. Current assets and current and dividend policies, for example, are based on profit from prop- liabilities consist only of amounts expected to be recovered or erty management. No target is set for amounts of changes in value paid within twelve months of the balance sheet date. and these amounts are not included in the basis for dividends or any other basis. The statement of comprehensive income has been REPORTING FOR SEGMENTS presented with respect for this in order to provide a true and fair The company’s internal reporting procedures are based primarily view of the operations. Changes in value (not affecting cash flow) on the geographic division of the market, which reflects assessed are recognized after items affecting cash flow and a revenue line, market risks. The division of segments corresponds to the Group’s profit from property management, was added to the statement. internal reporting structure. The classification of Sagax’s preference shares as equity instruments in accordance with IAS 32 is also a significant assess- REVENUE ment made by the Board of Directors. The Board believes that Revenues consist primarily of rents for the provision of premises. the outstanding preference shares in accordance with IAS 32 Rental revenue is distributed linearly, in accordance with IAS 17. comprise an equity instrument since no contractual obligation to Rental revenue, which in an accounting perspective is designated pay dividends or repay contributed capital exists. A payment is operating lease agreements, is recognized in the period to which dependent on a resolution on payment being made by the Annual it applies. In cases where rental contracts involve reduced rent General Meeting, a resolution that can only be made after the during a portion of the lease period that corresponds to a higher Board has proposed that the Meeting pay dividends. There is also rent at a different time, the lower or higher-than-normal rent is no obligation or contractual financial incentive for the company to distributed over the lease term of the contract. redeem the preference shares. Rent paid in advance is reported in the balance sheet as prepaid rental revenue. Rental revenue from acquired properties is CHANGED REPORTING RULES, IFRS recognized as of the occupancy date. Amendments to IFRSs with an impact or a potential impact on Interest income is recognized as it is earned (the calculation Sagax’s financial statements are presented below. being based on the yield on the underlying asset, using the effective interest rate). Changed accounting rules that came into effect in 2015 The net gain/loss from property sales is recognized when No new or amended standards in 2015 applied to Sagax. properties are vacated, unless special provisions have been stipu-

AB SAGAX ANNUAL REPORT 2015 97 FINANCIAL REPORTS

NOTE 1 Accounting policies, cont’d.

lated in the purchase agreement. If properties have been vacated premium payments for future pensions. Payments are made to after the close of a quarter, when the properties are to be mea- stand-alone entities that administer the plans. There are no com- sured at market value, they are recognized in the following inter- mitments for defined-benefit ITP plans or other benefits after im report at a value corresponding to that agreed between the termination of employment. parties. The changes in the value of these properties are included For the operations in Finland and France, Sagax pays statutory under the heading “Unrealized changes in value” in the interim pension premiums. No further payments are made regarding the report. Consequently, no realized changes in the value are recog- regarding the employees’ pension benefits. There are no commit- nized in the quarter in which the properties have been vacated. ments after termination of employment. If Sagax concludes a sales agreement and vacates the properties during the same quarter, the changes in value are recognized as EQUITY realized changes in value. Buyback of treasury shares In connection with the buyback of treasury shares, equity is reduced EXPENSES by the purchase consideration paid including any transaction costs. Expenses, including loan expenses, are charged to earnings for the period in which they arose. Central administration costs in the Dividends consolidated income statement comprise expenses for such items Dividends paid by AB Sagax are recognized as a reduction in as company administration and expenses for maintaining the shareholders’ equity after the Annual General Meeting has stock exchange listing. The Parent Company’s expenses for items approved the payment of a dividend. such as Group management, IT, auditing and financial reporting Dividends received from holdings in joint ventures and asso- are included in the concept of central administration. Parts of the ciated companies are recognized in the Group as a reduction of expenses for Sagax offices in Helsinki and Paris are also catego- the participations’ value since the earnings from these companies rized as central administration costs. are continuously recognized as revenue. Dividends in the Parent Company are recognized as financial income since shares in profit FINANCIAL EXPENSES are not included in the accounts. “Financial expenses” refers to interest, fees and other expenses that arise when Sagax takes up interest-bearing liabilities. Expen- Earnings per common share ditures for obtaining mortgage deeds are expenses in the company Earnings per common share are defined as profit in relation to accounts while the item is capitalized in the consolidated balance the average number of common shares after taking into account sheet. Financial expenses are charged to earnings for the period to preference shares’ portion of profit for the period; refer also to which they refer. Note 28. Financial expenses also include expenses for fixed-income derivatives. Payment streams arising from these contracts are rec- Incentive plan ognized as income for the period to which they refer. Unrealized Payment of option premiums in connection with incentive plans changes in value are recognized under a separate heading in the is recognized in the Group as an increase of consolidated equity. income statement and do not affect financial income or expenses. Salary payments attributable to incentive plans are recognized in Interest expenses during the production periods of large projects the Group as a reduction of equity and, in the Parent Company, involving new construction, additions or renovations, are capital- as administration costs. Settlement for any exercise of warrants ized and do not affect financial expenses. from outstanding warrant plans is recognized directly against equity. GROUP AND SHAREHOLDER CONTRIBUTIONS Group contributions received or granted by the Parent Company CASH FLOW have been recognized as appropriations pursuant to the alterna- The cash flow statement has been prepared according to the tive rule under RFR 2 Accounting for Legal Entities. Shareholder indirect method, meaning that net profit or loss is adjusted for contributions are recognized in accordance with a statement by non-cash transactions during the year as well as any income or the Swedish Financial Reporting Board. expenses associated with the cash flow from investing or financing activities. Reversals of dissolved, allocated borrowing costs were COMPENSATION TO EMPLOYEES included in 2015 in cash flow from operating activities and com- Compensation to employees, such as wages, salaries and social parative figures regarding 2014 were adjusted. security expenses, paid vacations and paid sick leave, etc., are recognized as the employees perform services in return for the com- INVESTMENT PROPERTIES pensation. Bonuses are paid and expensed as they are granted and Sagax’s properties are held for the purpose of generating rental pension premiums are paid and expensed on a monthly basis. revenue, and are referred to as “investment properties” in accordance with IAS 40. Sagax has elected to measure its properties PENSIONS at fair value and has commissioned independent valuation agen- For employees in Sweden who are entitled to allocations to a pen- cies to value all of the Group’s properties. The properties were sion fund, Sagax pays pension premiums in accordance with a valued in accordance with these externally conducted valuations defined-contribution plan. In term of the amounts allocated, the at December 31, 2015. Properties for which sale agreements have premiums should reflect the customary ITP provisions. Sagax has been reached are valued, in accordance with Sagax’s accounting no remaining obligations or commitments resulting from these policies, at the agreed amount.

98 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 1 Accounting policies, cont’d.

According to IFRS 13, the aim of fair value measurement is to esti- Receivables and liabilities in foreign currencies mate the price of the asset on the measurement date in an orderly Transactions in foreign currencies are reported at the transaction- transaction between market participants under current market con- day rate. Monetary assets and liabilities in foreign currencies ditions. The highest and best use of the asset is taken into account are translated at the closing rate, and exchange-rate differences in this respect. The valuation is carried out in line with Level 3 of are recognized in profit for the year. Exchange rate differences the fair value hierarchy in IFRS 13, unobservable inputs. relating to external Group operating receivables and operating According to accepted theory, the value of an property con- liabilities are recognized in operating profit/loss. Exchange rate sists of the discounted present value of the future cash flows differences arising on loans raised in foreign currency in order to that the asset is expected to generate. The principle method of currency hedge net investments in foreign operations are recog- appraisal used was cash flow calculations in which the present nized in other comprehensive income value of net operating income, investments and residual values was calculated. The residual value is calculated by perpetually Cash and bank balances capitalizing the estimated net operating income the year follow- Cash and bank balances are reported at their nominal value at ing the last year of calculation by the assigned yield requirement. year-end. The present value of cash flow and residual value is calculated by discounting the cash flow and residual value by the cost of capital. Financial liabilities For further information about measurement, see Note 13. Long-term liabilities are liabilities that fall due for payment after more than one year from the balance sheet date. Current TANGIBLE FIXED ASSETS liabilities are liabilities that fall due for payment within one year. Tangible fixed assets consist of equipment and machinery report- Liabilities refer to loans and operating liabilities, such as accounts ed at acquisition value less accumulated depreciation according to payable. Loans are recognized at cost and reported in the state- plan and any impairment carried out. ment of financial position on the settlement date. The nominal liability is recognized on the liabilities side, while the costs of DEPRECIATION raising the loan reduce the interest-bearing liabilities. These bor- Tangible fixed assets are reported in the Group companies at their rowing costs that are subject to accrual accounting are expensed acquisition value less accumulated depreciation. In accordance linearly over the duration of the loan. Operating liabilities are with IFRS, property values are not depreciated in the consoli- recognized when the counterparty has delivered the goods or ser- dated financial statements. Depreciation carried out in the Group vices, regardless of whether or not an invoice has been received. companies is therefore reversed in the consolidated financial Accounts payable are recognized when the invoice is received and statements. valued at their nominal value. Equipment and machinery is depreciated at the rate of 20% The Group has a loan totaling EUR 42 M, at a fixed inter- per year. est rate. The interest terms pertaining to the remainder of the loans are based on Stibor 1 months, Stibor 3 months or Euribor FINANCIAL INSTRUMENTS 3 months, plus margin, and interest is set every three months, According to IFRS, cash and bank balances, rent receivables, other which is why the carrying amount represents a reasonable approx- receivables, shares, loan receivables, derivatives, accounts payable, imation of the fair value of the loans. Accrued interest is recog- other liabilities and loan liabilities are considered to be financial nized under accrued expenses. Accumulated unrealized changes instruments. Financial instruments are initially recognized at in the value of derivatives are recognized as current or long-term cost, corresponding to fair value with the addition of transaction liabilities, depending on the remaining duration of the contract. expenses. The exception is the category of financial instruments that is measured at fair value via profit or loss and for which any Derivatives and hedge accounting transaction expenses have not been taken into account. The clas- Sagax uses fixed-income derivatives to reduce interest-rate risks sifications below determine how the financial instruments are and achieve the desired fixed-interest period. Borrowing at a vari- subsequently treated in the accounts. For financial instruments able interest rate is replaced by a fixed interest rate through inter- that are not measured at fair value, the fair value is, in all material est swaps or, alternatively, the interest-rate risk is limited using an respects, considered to correspond to the cost. interest-rate cap aimed at restricting changes in future cash flows relating to interest payments. Receivables In the statement of financial position, derivatives with Receivables are reported at the lower of their nominal value and negative values are recognized as long-term liabilities since the the amount in which they are expected to be received. A provi- amounts will not be settled in cash. However, a theoretical sion is made for doubtful receivables when there is believed to be maturing amount during 2016 can be mathematically calculated. a risk that the Group will not receive the entire receivable. Cur- All other things being equal, the time factor alone entails that rent receivables fall due for payment within one year of the bal- reserves for the deficit value of fixed-income derivatives in Sagax ance sheet date. Because the Group recognizes property sales on will be dissolved in a total amount of SEK 117 M during 2016. the date of vacancy, receivables do not normally arise as a result Derivatives are initially recognized in the statement of of property sales. Accumulated unrealized changes in the value financial position at cost on the date of transaction. All deriva- of derivatives are recognized as current or long-term receivables, tives are valued in accordance with IAS 39 at fair value in the depending on the remaining duration of the contract. balance sheet on the balance sheet date and changes in value are recognized in profit or loss. The fair value of interest-rate swaps

AB SAGAX ANNUAL REPORT 2015 99 FINANCIAL REPORTS

NOTE 1 Accounting policies, cont’d.

is based on a discounting of calculated future cash flows in accor- If the acquisition constitutes a business combination, full deferred dance with the contract’s terms and due dates, based on market tax is recognized on the difference between the assessed property interest rates. To calculate the market value, market interest rates value and the tax residual value. for each term as quoted on the balance sheet date and generally If the acquisition is an asset deal, no deferred tax is recog- accepted calculation methods are used, entailing that the fair nized on the acquisition date. Deferred tax is recognized on dif- value was established according to observable inputs, meaning ferences between the carrying amounts of the properties and their Level 2, of the fair value hierarchy according to IFRS 13. “Unreal- tax residual values arising after the acquisition date. ized change in value” refers to the change arising during the fiscal Deferred tax is recognized at the nominal value, with no year in the value of the derivatives held by the Group at year-end. discounting. Aside from the time factor, neither is the fact that The Group does not apply hedge accounting. Instead, it has elect- properties can often be sold in a tax-efficient manner taken into ed to report changes in value directly in the income statement. account. The real tax expense for a property sale can thus differ from the tax liability previously recognized by Sagax in its TAXES INCLUDING DEFERRED TAX accounts. Income tax refers to current and deferred tax. In 2015, tax attributable to items associated with other Income statement is charged to the consolidated statement of comprehensive income was transferred to other comprehensive comprehensive income. Deferred tax is recognized in accordance income and comparative figures were adjusted in the amount of with the balance sheet method. With this method, deferred tax SEK 6 M. liabilities and assets are reported for all differences between an asset’s or liability’s carrying amount and its tax value – that is, LEASING temporary differences. This implies that a tax liability or tax asset Leasing contracts in which essentially all risks and advantages is triggered when the asset or liability is realized. For Sagax, there associated with ownership are transferred to the lessee are classi- are temporary differences relating to properties and derivatives. fied as operating leases. Deferred tax assets attributable to loss carryforwards are recog- Leases attributable to Sagax’s investment properties are to be nized, given the likelihood of future tax surpluses being available considered as operating leases. The recognition of these contracts that can be applied to loss carryforwards. is determined by the revenue principle and Note 2. Deferred tax assets and tax liabilities are calculated using the Given that the lessor retains the financial risk, site leaseholds tax rates that are expected to apply to the period when the receiv- are also recognized as operating leases in Note 9. ables or liabilities are settled, based on the tax legislation in effect Sagax has signed several short-term leases for passenger cars on the balance sheet date. and office machines. The total amount of these leases is not signif- Reporting of deferred tax complies with IAS 12. Sagax icant. The lease fees are recognized as a cost in profit or loss and reports in accordance with the following: are distributed straight line over the term of the lease.

NOTE 2 Operating leases – rental revenue

The Group’s rental revenue for 2015 amounted to SEK 1,291 M Contractual future rental revenue Dec 31, 2015 Dec 31, 2014 (1,093). The increase in rental revenue was primarily an effect of Contractual rental revenue, year 1 1,394 1,193 a larger property portfolio and revenue-increasing investments in Contractual rental revenue, years 2 and 5 4,577 4,006 the existing property portfolio. Contractual rental revenue, after year 5 4,376 4,570 Rental revenue consists of the rental value less the value of Total 10,347 9,769 premises that were vacant during the year, as well as rent discounts granted. “Rental value” refers to rental revenue received plus the estimated market rent for vacant spaces. Rental value Contractual annual rent includes additional expenses that are debited, such as surcharges Year of for heating, electricity, property taxes and indexation. The expi- maturity No. of leases Area, sqm SEK M Share 2016 193 100,000 88 6% ration year for signed leases is shown in the following table, in 2017 135 91,000 94 7% which “contractual annual rent” refers to the annual value of an 2018 103 171,000 149 11% existing lease. The table also illustrates Sagax’s management strat- 2019 66 71,000 67 5% egy of long-term leases, where 58% of the contractual annual rent 2020 45 262,000 191 14% falls due for renegotiation after 2020. >2020 156 1,103,000 805 58% The average remaining lease term amounted to 7.4 (8.2) Total 698 1,798,000 1,394 100% years. The economic occupancy rate amounted to 96% (94) at year-end. The total rental value of unleased premises and rent discounts granted was SEK 59 M (74) at year-end. Sagax’s strategy is to focus on minimizing the operating risk through, for example, long-term leases. The following table shows contractual future rental revenue relating to existing leases.

100 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 3 Reporting of the Group’s market areas

Unallocated Total Stockholm Rest of Sweden Helsinki Rest of Finland Other items Group Revenue 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Rental revenue 490 435 234 205 300 237 165 129 102 87 – – 1,291 1,093 Other revenue 2 2 – – – 1 – – – –1 1 – 2 2 Property expenses –99 –87 –18 –12 –50 –46 –10 –8 –9 –2 –6 –6 –189 –160 Net operating income 393 350 216 193 250 192 155 121 93 84 –6 –6 1,104 935

Financial income – – – – – – 1 – – – 2 4 4 4 Financial expenses –97 –193 –59 –71 –55 –62 –17 –41 –26 –41 136 42 –390 –366 Central administration costs – – – – – – – – – – –57 –47 –57 –47 Profit from joint ventures – – – – – – – – – – 233 178 233 178 Profit from pro- 270 157 142 122 172 130 107 80 55 43 148 171 895 703 perty management Unrealized changes in value1) 488 366 40 46 19 37 –6 –3 –11 –11 214 –260 744 176 Realized changes in value1) 4 – –33 3 – – – 2 11 – 5 1 –13 6 Changes in value related to joint ventures – – – – – – – – – – 320 20 269 20 Current tax – – – – – – – – – – –12 –11 –12 –11 Deferred tax – – – – – – – – – – –254 –148 –254 –148 Profit for the year 762 523 149 171 191 167 101 79 55 33 421 –227 1,681 747

Investment properties2) 6,906 5,683 2,854 2,712 3,206 2,554 2,266 1,475 958 964 – – 16,189 13,387 Cash and cash 251 67 251 67 equivalents Unallocated items: Deferred tax assets – 1 – 1 Other assets 1,403 926 1,403 926 Total assets 17,843 14,381

Property loans 3,190 2,192 1,496 1,499 1,426 1,534 657 814 438 487 2,445 1,946 10,499 8,472 Unallocated items: Deferred 479 434 479 434 tax liabilities Other liabilities 884 931 884 931 Total liabilities 11,861 9,837

Consolidated shareholders’ equity 5,981 4,544

Total liabilities 17,843 14,381 and shareholders’ equity

Other information Investments in properties 156 161 13 60 33 18 – 1 – – – – 202 240 Items not affecting cash flow Unrealized changes in value 488 366 40 46 19 37 –6 –3 –11 –11 – –260 744 176 Profit from joint ventures – – – – – – – – – – 554 198 554 198 Deferred tax – – – – – – – – – – –254 –148 –254 –148 Total items not affecting cash flow 488 366 40 46 19 37 –6 –3 –11 –11 300 –210 1,044 226

1) Changes in value of financial instruments have not been distributed by market area. 2) The property values for 2014 were reduced by the acquired deferred tax totaling SEK 41 M, see Note 13.

AB SAGAX ANNUAL REPORT 2015 101 FINANCIAL REPORTS

Reporting of the Group’s NOTE 3 market areas, cont’d. NOTE 5 Employees and HR expenses

The operating segments match Sagax’s internal operational moni- Group Parent Company toring as it is reviewed by the company’s highest decision-making 2015 2014 2015 2014 individual, the CEO of Sagax. Number of employees According to IFRS 8, disclosure must be made if revenue Average number of employees 32.2 29.3 22.8 21.0 from a single customer exceeds 10%. Sagax has one tenant from of whom, men 19.5 18.5 13.9 13.0 which it derives revenue in excess of 10% of total rental revenue. The total rental revenue from the tenant amounted to SEK 136 M Wages, salaries and other (139) distributed as follows: Rest of Sweden market area SEK remuneration Board, CEO and other 52 M (52), Stockholm market area SEK 8 M (8) and Other mar- 13.9 13.1 12.1 11.5 senior executives ket area SEK 76 M (79). of which, bonus 2.2 2.7 1.8 2.5 Other employees 20.9 17.1 11.9 9.4 Total 34.8 30.2 24.0 20.9

NOTE Property expenses Social security expenses 4 Board, CEO and other senior executives 5.4 4.5 5.0 4.3 In 2015, property expenses amounted to SEK 188 M (161). of which, pension expenses 1.8 1.1 1.5 0.8 This amount includes direct property expenses, such as opera- Other employees 7.8 6.3 5.4 4.4 tion, maintenance, site leaseholds and property taxes, as well as of which, pension expenses 2.7 2.2 1.2 1.2 indirect property expenses for property administration. Most of Total 13.2 10.8 10.4 8.7 Sagax’s leases state that certain property expenses are to be borne by the tenant. Sagax has also signed triple net leases, meaning the tenant itself is the contractual party and bears all operating and BOARD OF DIRECTORS AND CEO maintenance costs. Properties outside Stockholm and Helsinki In 2015, the Parent Company had seven (7) Board members, account for the predominant part of the triple net leases. including one (1) woman. If the CEO is included, the Group and the Parent Company had six (6) senior executives. OPERATING AND MAINTENANCE COSTS In 2015, the CEO was paid a salary of SEK 3.5 M (2.9), Operating and maintenance costs include expenses for electricity, including benefits of SEK 5,000, and SEK 0.5 M (0.6) in bonus heating, water, property maintenance, insurance and maintenance. for the 2014 fiscal year. For 2015, contractual remuneration and In cases where Sagax signs contracts for operating and maintenance benefits to the CEO were SEK 3.0 M per year in fixed salary plus costs, the costs are generally passed on to the tenant in the form of variable remuneration of a maximum of four times the monthly rent surcharges. Operating expenses for 2015 amounted to SEK 83 salary, which is payable in relation to individually set targets. M (72) and maintenance costs to SEK 25 M (22). In 2016, the CEO will be paid a contractual amount of SEK 0.5 M in bonus for the 2015 fiscal year. For 2016, contractual SITE LEASEHOLDS remuneration to the CEO amounted to SEK 3.0 M in fixed sal- The site leasehold is the annual fee Sagax pays for the use of the ary plus variable remuneration of a maximum of four times the land. At year-end, the number of properties held on leasehold monthly salary, which is payable in relation to individually set amounted to 39 (33). In 2015, site leaseholds including ground targets. The CEO does not receive any pension benefits. In the rents amounted to SEK 17 M (14) and refer primarily to Sagax’s event of termination initiated by the company, the CEO is enti- leaseholds in the City of Stockholm. For 2016, current site lease- tled to three months’ salary. holds and tenancy contracts amount to SEK 16 M. Fees totaling SEK 1.1 M (1.1) were paid to the Board of Directors, in accordance with a resolution passed by the Annual PROPERTY TAX General Meeting (AGM) on May 7, 2015. Of this total, the In Sweden, the property tax is a state-levied tax paid annually as Chairman of the Board received SEK 300,000 (300,000), while a percentage of the assessed property tax value. For Sagax, prop- each of the other five (five) non-executive members received SEK erty tax varies between 0.5 and 1.0%, depending on whether the 165,000 (165,000). Board fees to five of the Board members property is classified as warehouse/industrial premises (0.5%) or were paid to companies in accordance with agreements reached as office/retail premises (1.0%). Sagax also has a special property between the individuals in question and Sagax, which are cost- in which it does not pay property tax. In Finland, property tax is neutral for Sagax. The CEO receives no remuneration for his a municipal charge and tax rates vary among the municipalities. Board assignment for AB Sagax. For Sagax’s properties, the tax is between 0.8 and 1.35% of the assessed property tax value. German property tax is set locally, OTHER SENIOR EXECUTIVES and amounted to 1.26% of the property tax value for Sagax. Other senior executives consist of the CFO, Financial Manager, In 2015, property tax totaled SEK 40 M (30). Property Manager, CEO of the Finnish operations and one of Sagax’s Business Development Manager. In 2015, the five (5) PROPERTY ADMINISTRATION other senior executives were paid a total salary of SEK 9.3 M “Property administration” refers to indirect property expenses, (9.2), including a cash bonus of SEK 1.7 M (1.9). A total of SEK such as leasing expenses and management expenses. Property 1.8 M (1.1) relating to pension insurance was also paid for other administration amounted to SEK 23 M (22) in 2015. senior executives.

102 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 5 Employees and HR expenses, cont’d. NOTE 6 Remuneration of auditors

Remuneration and benefits will be paid to other senior executives Group Parent Company as per contract in the amount of SEK 7.5 M per year in fixed sala- 2015 2014 2015 2014 ry plus a variable remuneration component for 2016. The variable Ernst & Young AB: Remuneration for audit 2.2 1.7 0.3 0.4 remuneration component may not exceed SEK 1.8 M. Pension premiums are paid into defined-contribution pension plans as Remuneration for audit activity in addition to described in Note 1. Upon termination initiated by the company, auditing assignment 0.3 0.2 0.3 0.1 these executives are entitled to four months’ salaries or the terms Other consulting services stipulated by current legislation. The period of notice upon ter- provided by the audit mination of employment by the senior executives, excluding the company – – – – CEO, is four months. Total 2.5 1.9 0.6 0.5

INCENTIVE PLAN Sagax has three warrant plans for the company’s employees. These plans are valid for three years, encompassing the periods NOTE 7 Financial income 2013-2016, 2014-2017 and 2015-2018. Warrants entitle the holder to subscribe for new Class B common shares in June 2016, June 2017 and June 2018, respectively. The subscription price cor- Group Parent Company responds to the price paid for the Sagax share at the start of the 2015 2014 2015 2014 warrant plans converted using the average share price trend for Interest income, subsidiaries – – 147 156 Interest income, joint the listed property companies in accordance with Carnegie’s prop- – 2 – – ventures erty index (CREX) during the corresponding period. Accord- Interest income 2 1 – – ingly, the warrants will have a value on condition that the price Other financial income 2 1 48 80 performance of the Sagax share exceeds the average for all listed Total 4 4 195 236 property companies during each three-year period. At year-end, Sagax employees held 1.5 million warrants with the right to sub- The Group’s interest income primarily derives from the Group’s scribe for common shares corresponding to 0.9% of the number of cash and cash equivalents and interest income pertaining to common shares outstanding. advance payments in connection with an acquisition. During 2015, AB Sagax bought back warrants issued under the Incentive Plan 2012-2015 from the employees at the market value on the date of the repurchase. Costs for the repurchase of the warrants totaled SEK 14 M. The company’s CEO and Board members are not involved in the plans. No additional warrants or convertibles are outstanding. Employees acquired a total of 318,650 warrants during 2015. Employees who participated in the Incentive Plan 2015- 2018 received a premium subsidy in the form of extra salary in an amount corresponding to one-twelfth of an annual salary, depending on the number of acquired warrants. This procedure was in accordance with the resolution of the 2015 AGM.

SICK LEAVE 2015 Sick leave during 2015 amounted to 0.5% (0.7), of which the proportion of employees on long-term sick leave was 0% (0). Sick leave distributed by age category and gender is shown below.

Age Sick leave 20–29 0.5% 30–49 0.6% 50> 0.2%

Gender Sick leave Men 0.9% Women 0.3%

AB SAGAX ANNUAL REPORT 2015 103 FINANCIAL REPORTS

NOTE Financial expenses Profit from participations in joint 8 NOTE 10 ventures and associated companies Group Parent Company Group 2015 2014 2015 2014 2015 2014 Interest expenses 342 345 97 108 Profit from property management: Other financial Hemsö Intressenter AB 98 80 48 21 87 77 expenses Söderport Holding AB 131 98 Interest expenses to E-Logistikk AS 2 – subsidiaries – – 20 5 Fastighetsaktiebolaget Apicius – – Total 390 366 204 190 Total 233 178

Interest expenses and financial expenses are expenses that arise Changes in value of properties for interest-bearing loans and financial derivatives. Hemsö Intressenter AB 86 –35 The Group’s interest expenses totaling SEK 342 M (345) M Söderport Holding AB 183 282 included SEK 216 M (231) that were direct interest expenses Total 269 246 for loans raised, excluding interest expenses pertaining to fixed- Changes in value of financial instruments: income derivatives. Hemsö Intressenter AB 23 –114 Financial expenses correspond primarily to closing costs in Söderport Holding AB 29 –112 the amount of SEK 35 M (16) and early redemption of bond loans Total 52 –226 of SEK 9 M (–). Tax: Hemsö Intressenter AB –42 2 Söderport Holding AB –74 –55 E-Logistikk AS –1 – NOTE Operating leases – site leaseholds Fastighetsaktiebolaget Apicius – – 9 Total –115 –53

Group Dec 31, 2015 Dec 31, 2014 Fall due for payment within 1 year 16 16 Fall due for payment within 2–5 years 53 53 Fall due for payment in more than Profit/loss from participations 5 years 43 48 NOTE in Group companies Total 112 117 11 Parent Company The summary relates to costs for contracted future site leaseholds. 2015 2014 Share in profit from Bilhornet KB –5 –1 Loss from divestment of subsidiary –11 – Total –16 –1

104 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 12 Tax expense

Sagax recognizes tax expenses in the form of current tax and The income tax is allocated in profit or loss to two items; current deferred tax. Current tax is defined as tax to be paid or received tax and deferred tax. Current tax is based on the year’s taxable relating to taxable profit for the current year. Adjustments of income, which may differ from recognized income, with the tax current tax for prior years are also included here. rate for each country. The differences are due to the company’s Deferred tax is defined as the future tax implications of ability to: events that have been addressed in the company’s accounts or tax 1) perform tax-related depreciation, returns. Based on the tax-corrected net present value approach, a 2) make direct deductions for certain property-related invest- comparison is made between the carrying amounts and tax bases ments that are capitalized in the company’s financial state- of assets and liabilities. The difference between these amounts is ments, and multiplied by the applicable tax rate and recognized as deferred 3) utilize existing loss carryforwards. tax. The intention is to make allowances for the tax implications Deferred tax was calculated using the tax rate applicable for each in connection with, for example, future sales of assets or the utili- country for 2016. zation of loss carryforwards.

Group Parent Company Recognized tax expense/tax revenue 2015 2014 2015 2014 Current tax expense: Computed tax expense –12 –11 – – Tax resulting from changes in tax value – – – – Total current tax –12 –11 – –

Deferred tax expense/tax revenue: Deferred tax relating to untaxed reserves –7 – – – Deferred tax relating to loss carryforwards 173 26 2 – Deferred tax relating to temporary differences in financial derivatives –58 45 – – Deferred tax relating to temporary differences in properties –247 –160 –1) –1) Total deferred tax –139 –89 2 –

Total recognized tax expense/tax revenue –150 –100 2 – 1) The Parent Company recognizes deferred tax for a directly owned limited partnership.

The tax revenue and tax expenses that affected Sagax’s recognition of current tax and deferred tax are presented below. Group Parent Company Reconciliation of recognized tax on the basis of tax expenses 2015 2014 2015 2014 Profit/loss before tax 1,832 853 –9 11

Reversal of profit from joint ventures and associated companies1) –439 –145 – – Profit/loss before tax excluding joint ventures and associated companies 1,393 708 –9 11

Expected tax expense according to Swedish tax rate of 22% –306 –156 2 –2 Difference in foreign tax rates 3 4 – – Non-deductible expenses –3 –1 – –1 Non-taxable revenue 4 2 – 3 Taxable revenue recognized against other comprehensive income – – – – Tax resulting from changes in tax value – – – – Tax in conjunction with property divestments –13 1 – – Loss carryforwards in conjunction with company acquisitions 166 50 – – Recognized tax –150 –100 2 –

1) Since the tax expense is already taken into account in profit from joint ventures and associated companies, this profit has been reversed in the reconciliation.

AB SAGAX ANNUAL REPORT 2015 105 FINANCIAL REPORTS

NOTE 12 Tax expense, cont’d.

The items impacting profit that affected the Group’s recognition of current tax and deferred tax for the 2015 fiscal year are presented below. Basis, Basis, Difference in relation Reconciliation of recognized tax on the basis of income and expense items. current tax deferred tax Total tax basis to recognized profit Profit from property management, excluding shares in profit from joint 662 – 662 – ventures and associated companies Tax deductible depreciation and investments –408 408 – – Non-deductible expenses 15 – 15 15 Non-taxable revenue –17 – –17 –17 Deductible expenses recognized against other comprehensive income –35 35 – – Other tax adjustments –19 33 14 14 Taxable profit from property management 197 476 673 11

Changes in value, properties – 689 689 12 Property divestments 17 31 48 47 Changes in value, financial derivatives –224 278 54 – Taxable profit before tax-loss carryforwards –11 1,473 1,463 70

Loss carryforwards, opening balance –360 360 – – Loss carryforwards in conjunction with company acquisitions –1,082 326 –756 –756 Loss carryforwards in conjunction with company sales 1 – 1 1 Loss carryforwards, closing balance 1,510 –1,510 – – Taxable profit 58 650 708 –684

Recognized tax –12 –139 –150

NOTE 13 Investment properties

The change in the carrying amounts of properties is presented value. The price-impacting deferred tax accruing on properties below. acquired via companies was previously taken into account and Group this reduced the fair value of the properties in the balance sheet. Specification of the year’s changes Dec 31, 2015 Dec 31, 2014 The applied valuation technique was reviewed in 2015, which Carrying amount, December 31, 2014 13,387 10,825 resulted in acquired deferred tax no longer being included in Acquisition of properties 2,199 1,722 the calculation. The changed assessment entails that Sagax’s cal- Investments in the current portfolio 202 240 culations now comply with calculation methods applied by the Carrying amount of sold properties –37 –94 majority of other listed property companies. Unrealized changes Translation difference attributable to in value excluding prior years’ acquired deferred tax amounts to foreign property values –239 299 SEK 636 M, refer to the description in Note 1 Accounting poli- Change in value 677 436 Fair value, December 31, 2015 16,189 13,428 cies. All properties were valued externally as at December 31, 2015. The valuation techniques and general conditions are pre- Acquired deferred tax reduces sented on the following pages. No properties are owned by the property values in accordance with IFRS – –41 Parent Company. Carrying amount, December 31, 2015 16,189 13,387

During 2015, unrealized changes in value amounted to SEK 677 M MARKET VALUES as follows: The total market value of Sagax’s properties and site leaseholds was SEK 16,189 M. Currency effects account for SEK 239 M in Amounts in SEK M 2015 2014 value appreciation. Amounts were translated from EUR and DKK New lettings/Renegotiations 128 79 at the closing rate: EUR 1 is equivalent to SEK 9.14 and DKK 1 Vacancies/Renegotiations –18 –12 is equivalent to SEK 1.22. The recognized unrealized changes in General market value changes 565 345 value for the year amounted to SEK 677 M (436), of which SEK Sub-total, Sweden 675 412 41 M (–) was attributable to a change in the assessment of how New lettings/Renegotiations 12 13 acquired deferred tax that has impacted the purchase consider- Vacancies/Renegotiations –38 –24 ation is taken into account in the calculation of the fair values of General market value changes 29 35 the properties in the balance sheet. A large number of param- Sub-total, Foreign 2 24 eters and factors are taken into account when calculating fair Total unrealized changes in value 677 436

106 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 13 Investment properties, cont’d.

vacancy rate can be taken into consideration via the cash flow Properties with the highest market value, in alphabetical order statement. Lettable Operating and maintenance costs are based on an analysis of Property Municipality area, sqm the historical costs associated with the various properties and on Holger-Crafoord Strasse 26 Hechingen, Germany 64,000 experience and statistics pertaining to similar properties, including Inteckningen 5 Lund, Sweden 23,800 statistics presented by IPD. However, these expenses are of minor Jordbromalm 3:1 Haninge, Sweden 93,800 importance when valuing Sagax’s property portfolio since tenants Jordbromalm 4:3 Haninge, Sweden 51,400 Jordbromalm 6:13 Haninge, Sweden 16,100 normally pay these expenses in addition to the agreed rent. Kaapelitie 4 Oulu, Finland 67,600 Karaportti 8 Espoo, Finland 16,100 ADJUSTMENT OF NET OPERATING INCOME Koneenkatu 8 Hyvinkää, Finland 67,100 IN CONNECTION WITH VALUATION Martinkyläntie 9A Vantaa, Finland 52,800 Net operating income for 2016, as computed by the appraisers, Romben 3 Sollentuna, Sweden 17,500 totaled approximately SEK 1,206 M in the valuations. This net Total 470,200 operating income can be compared with the net operating income of SEK 1,199 M that Sagax recognizes in “Current earnings capac- VALUATION TECHNIQUE ity” as per January 1, 2016. Accordingly, Sagax’s net operating The valuations were carried out in Sweden in accordance with income, according to “Current earnings capacity” at year-end, is the guidelines in the IPD Swedish Property Index. Each valua- generally consistent with the net operating income on which the tion entity is valued individually by a property appraiser certified appraisers based their estimated market value. by ASPECT (Association for Surveying, Property Evaluation and valuation, Competence development and Transaction). The cor- CHANGES IN VALUE RELATIVE TO INFLATION responding applies to Sagax’s foreign properties. The principle The table below shows the actual changes in value of the properties method of appraisal used was cash flow calculations in which the when inflation expressed as a change of the Consumer Price Index present value of cash flows and residual values was calculated. (CPI) is taken into account. Changes in value refer to the change in The residual value is calculated by perpetually capitalizing the market value of the property portfolio that exceeds investments. estimated net operating income the year following the last year of calculation with a set yield requirement. The present value of cash flow and residual value is calculated by discounting the cash Changes in values, properties 2006–2015 flow and residual value by the cost of capital. The value of any CPI Actual change development rights is added to the present value. Year Change in value1) change2) in value The properties are inspected by the appraisers according to 2006 SEK 158 M 6.0% 1.6% 4.4% a rolling schedule. All properties have been inspected in the past 2007 SEK 507 M 12.1% 3.4% 8.7% three years. These inspections include public areas and a selection 2008 SEK –148 M –2.7% 1.5% –4.2% of premises with specific emphasis placed on major tenants and 2009 SEK –244 M –3.9% 0.5% –4.4% vacant premises. The purpose of the inspections is to assess the 2010 SEK 176 M 2.5% 2.0% 0.5% properties’ overall standard and condition, maintenance require- 2011 SEK 129 M 1.6% 2.6% –1.0% ments, market position and the attractiveness of the premises. 2012 SEK 134 M 1.5% 0.7% 0.8% 2013 SEK 136 M 1.3% 0.5% 0.8% ANALYSIS AND GENERAL CONDITIONS 2014 SEK 436 M 3.3% 0.2% 3.1% The calculation period was adjusted to the remaining term of 2015 SEK 677 M 4.5% 0.0% 4.5% existing leases and varies between five and 20 years. As a rule, the 1) Changes in value in excess of investments. calculation period is ten years. Cash flow calculations are based 2) Weighted change in CPI or the equivalent in the markets wh ere Sagax owns properties. on inflation assumptions made by valuation companies that are between 0 and 2% per year for the calculation periods with differences between the various countries. Assessments of future net Summary of Sagax’s property valuations operating income are based on an analysis of current leases and the current rental market. The calculations consider each lease Fair value SEK 16,189 M individually. Normally, existing lease agreements are assumed to Savills Sweden, Savills Immobilien, Independent valuation companies Savills SA,Peltola & Co and DTZ remain in effect until the end of the lease period. In cases where Egeskov & Lindquist. the rental terms and conditions have been assessed as being on a Calculation period 5-20 years competitive market level, it has been assumed that the leases can Assumed inflationary trend 0-2% be extended with no change in the terms and conditions or that Long-term vacancy rate Normally 5-20% the premises can be leased to new tenants on comparable terms. Historical costs for the respective In cases where the outgoing rent is not considered to be in line Operating and maintenance costs properties and experience and statis- with the competitive market level, it has been adjusted to cor- tics from comparable properties. respond to such a level. The highest and best use of the properties Cost of capital, cash flow 6.3-12.2% was assumed when valuing the properties. The market position, Cost of capital, residual value 7.2-16.0% rent level, future trend of market rents, other use, and long-term Yield requirement 5.6-15.0%

AB SAGAX ANNUAL REPORT 2015 107 FINANCIAL REPORTS

NOTE 13 Investment properties, cont’d.

COST OF CAPITAL AND YIELD REQUIREMENT VALUATION COMPANIES The cost of capital represents a nominal yield requirement on Savills total capital. The cost of capital is based on the nominal yield Savills plc is a property services supplier that is listed on the on five-year government bonds, plus a general risk premium for London Stock Exchange. The company has an international net- properties and an entity-specific additional amount. The yield work of 30,000 employees in more than 700 offices and partners requirement for the assessment of residual value was selected on across the globe. www.savills.com the basis of market information from the sub-market in question, and adapted to the property’s phase in its economic lifecycle at Peltola & Co the end of the calculation period. The cost of capital for the pres- Kiinteistötaito Peltola & Co Oy is specialized in the valuation of ent value calculation of cash flows (6.3–12.2%), the cost of capital retail, office, industrial and warehouse properties in the Finnish for the present value calculation of residual values (7.2–16.0%) property market. Each year, it conducts valuations of approxi- and the yield requirement for the residual value calculations mately 1,200 properties. www.kiinteistotaito.fi (5.6–15.0%) are based on analyses of transactions carried out and on individual assessments of the risk level and market position of DTZ Egeskov & Lindquist each property. DTZ Egeskov & Lindquist merged with DTZ and will join At December 31, 2015, the weighted cost of capital for dis- Newsec in 2016. Newsec is a property service company with counting cash flows and residual values was 8.5% (8.9) and 9.2% operation in northern Europe and more than 600 employees. In (9.8), respectively. The weighted yield requirement was 7.7% Sweden, the company has office in Stockholm, Gothenburg and (7.9%). This means that if Sagax’s property portfolio was theo- Malmö. www.newsec.com retically viewed as one single property, the market value of SEK 16,189 M would correspond to a yield requirement of 7.7% for Yield compared with yield requirement the calculation of the residual value, a cost of capital of 8.5% for cash flow and a cost of capital of 9.2% for discounting the residual % 10 value to present value. 9 The tables below present the recognized property values’ 8 7 sensitivity to changes in net operating income and yield require- 6 ments. 5 4 3 Sensitivity analysis, property values, Dec 31, 2015, SEK M 2 1 0 Change in net operating income, % 2008 2009 2010 2011 2012 2013 2014 2015 –5.0 0.0 +5.0 Recognized yield Change –0.5 +305 +1,173 +2,041 Yield requirement used in valuations Required yield, 0.0 –809 0 +809 Yield on 10-year government bonds percentage points +0.5 –1,783 –1,025 –266

The properties’ expected future cash flow during the Sensitivity analysis, property values, Dec 31, 2014, SEK M selected calculation period is measured as follows:

Change in net operating income, % + Rent payments –5.0 0.0 +5.0 – Operational payments Change –0.5 +190 +910 +1,620 – Maintenance Required yield, 0.0 –670 0 +670 = Net operating income percentage points +0.5 –1,430 –800 –170 As the diagram illustrates, the recognized yield for Sagax corre- – Investments sponds well with the yield requirement established in conjunction = Cash flow with property valuations.

Cost of capital and yield requirement

Cost of capital, cash flow Cost of capital, residual value Yield requirement Market area 2015 2014 2015 2014 2015 2014 Stockholm 6.3-10.2% 7.0 -10.1% 10.0-16.0% 7.0 -10.1% 5.6-8.0% 6.2-7.9% Rest of Sweden 7.2-12.2% 7.5-12.2% 7.2-12.2% 7.5-12.2% 5.8-10.0% 6.2-10.0% Helsinki 7.0 -11.8% 7.5-13.0% 9.0-12.5% 9.5-13.0% 6.5-10.5% 7.5-11.0% Rest of Finland 7.0 -9.5% 7.0 -9.5% 10.0-16.0% 10.3-18.0% 8.0-14.0% 8.3-16.0% Other 8.0-11.0% 8.0-10.5% 8.0-11.0% 9.0-12.0% 7.8-15.0% 8.0-10.0% Weighted average 8.5% 8.9% 9.2% 9.8% 7.7% 7.9%

108 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 14 Deferred tax liabilities and tax assets

Deferred tax was calculated using the tax rate applicable for each Sagax’s total deferred tax asset and tax liability are recognized country for 2016, see Note 1 Accounting policies. gross below. The Group’s loss carryforwards amounted to SEK 1,516 M (359), taking into account earnings for 2015. The opportunity to Group Parent Company utilize the loss carryforwards is affected by tax regulations gov- Deferred tax assets 2015 2014 2015 2014 erning time-limited restrictions. Derivatives 57 115 – – The Parent Company has a loss carryforward of SEK 12 M (–) Loss carryforwards 333 80 3 – Deferred tax, other for the 2016 tax year. temporary differences – – – – In the consolidated statement of financial position, the Total 390 195 3 – deferred tax assets and tax liabilities are netted by country in accordance with the table below. From 2015, acquired deferred Deferred tax liabilities tax is no longer recognized as a deduction from deferred tax Temporary differences in assets and the property asset item, see Note 13. properties 861 660 2 2 Untaxed reserves 8 9 – – Group Total 869 669 2 2 Recognized deferred tax asset 2015 2014 Net deferred tax liabilities 479 474 2 2 Denmark – 1 Net recognition against Total – 1 property values of acquired Adjustment for acquired deferred tax, deferred tax liabilities – –41 – – see Note 12 – – Deferred tax liabilities, net 479 434 2 2 Total deferred tax asset – 1 according to Statement of financial position The residual values for tax purposes for the Group’s properties amount to SEK 8,156 M (6,786). Recognized deferred tax liabilities Finland 221 182 Sweden 239 277 Germany 19 16 Prepaid costs and Total 479 475 NOTE 16 accrued income Adjustment for acquired deferred tax, – –41 Total deferred tax liabilities according to Group Parent Company Statement of financial position 479 434 Dec 31, Dec 31, Dec 31, Dec 31, 2015 2014 2015 2014 Allocated borrowing costs – – 25 17 Rent discounts distributed over the period and arrangement fees 71 70 – – Accrued rental revenue 1 – Accrued interest income – 2 7 5 NOTE 15 Financial receivables Other 10 7 1 1 Total 82 79 33 23 Group Dec 31, 2015 Dec 31, 2014 The Group does not recognize any allocated borrowing costs in Interest-bearing receivables 25 8 this balance sheet item since in accordance with IAS 39, these Total 25 8 costs reduced interest-bearing liabilities by SEK 69 M (53) in the consolidated statement of financial position.

AB SAGAX ANNUAL REPORT 2015 109 FINANCIAL REPORTS

NOTE 17 Interest-bearing liabilities

Group Parent Company tion credits represent typical current, interest-bearing liabilities Dec 31, Dec 31, Dec 31, Dec 31, in Sagax’s statement of financial position. The current, interest- 2015 2014 2015 2014 bearing liabilities are repaid via the company’s cash flow by restruc- Interest-bearing liabilities, long-term portion 9,959 8,332 2,297 1,958 turing the type of loan from, for example, a construction credit to a Interest-bearing liabilities, first mortgage loan or through new borrowing for the refinancing of current portion 540 140 399 – loans that are about to expire. Total 10,499 8,472 2,696 1,958 Sagax seeks to maintain a low share of short-term, interest- bearing financing in an effort to minimize the company’s refi- Interest-bearing liabilities represented 59% (59) of the company’s nancing risk. Sagax curtails its refinancing risk by agreeing on financing at December 31, 2015 and was Sagax’s main source of a predetermined maturity in connection with new borrowing. financing. Interest-bearing liabilities consist partly of bilateral bank Sagax also seeks to refinance its long-term interest-bearing liabili- loans using the subsidiaries’ properties as collateral, and partly of ties well in advance. Overall, this working approach is deemed five uncovered listed bond loans, as well as an uncovered commer- effective in limiting the company’s refinancing risk. The average cial paper program of SEK 399 M. Bank loans have been provided remaining capital maturity period was 4.2 years (3.2) at year-end. by Deutsche Pfandbriefbank, Nordea, SEB, Swedbank, Handels- At year-end, Sagax had listed outstanding bond loans totaling banken and Danske Bank. The company’s properties are funded in SEK 2,272 M (1,821). In 2015, a bond loan of SEK 350 M with local currency. At year-end, interest-bearing liabilities amounted maturity in 2017 was redeemed prematurely, while bond loans of to SEK 10,568 M (8,525), of which SEK 4,019 M (3,366) was SEK 450 M and EUR 30 M were issued. The bonds are registered denominated in EUR. Interest-bearing liabilities during 2015 on the private bond list on Nasdaq Stockholm. Bond loans issued increased primarily as a result of property acquisitions in Sweden by Sagax as per December 31, 2015 are presented below. and Finland. Interest-bearing liabilities declined SEK 133 M (increase: 227), due to exchange-rate fluctuations during the year. In accordance with IAS 39, allocated borrowing costs of Uncovered bond loans SEK 69 M (53) reduced interest-bearing liabilities in the balance Maturity Amount Currency Interest terms sheet. Accordingly, interest-bearing liabilities of SEK 10,499 M 2013-2018 600 SEK STIBOR 3 months + 3.1% margin (8,472) were recognized. In connection with the raising of new or 2014-2019 550 SEK STIBOR 3 months + 2.9% margin renegotiated credit facilities, expenses arise that are accrued over 2014-2019 60 EUR EURIBOR 6 months + 3.2% margin 2015-2020 300 SEK STIBOR 3 months + 3.2% margin the maturity of the particular facility. These expenses may con- 2015-2020 30 EUR EURIBOR 6 months + 3.5% margin sist of, for example, legal fees, valuation costs and non-recurring agreement fees for the creditor. During 2015, a total of SEK 35 M (16) was recognized as amortization of allocated borrowing costs, At year-end, Sagax had available liquidity of SEK 912 M (530), of which SEK 19 M was non-recurring in connection with early of which unutilized lines of credit totaling SEK 661 M (463). At refinancing. year-end, Sagax had contracts with SEB, Nordea, Den Danske Sagax’s long-term interest-bearing liabilities amounted to Bank and Swedbank covering revolving credit facilities totaling SEK 10,028 M (8,385), or 95% (98%) of the total interest-bearing SEK 1,513 M (450) available to Sagax, of which SEK 369 M had liabilities. Less allocated borrowing costs, long-term interest- been unutilized at year-end. In addition, Sagax has an agree- bearing liabilities of SEK 9,959 M (8,332) were recognized at ment with Swedbank covering a revolving credit facility of EUR year-end. Sagax’s current interest-bearing liabilities amounted 5 M, which is at the disposal of Sagax for certain specific Finnish to SEK 540 M (140), or 5% (2) of the interest-bearing liabilities. properties through January 2019. The facility was unutilized at During 2016, current capital repayment is expected to amount year-end. Sagax has also reached an agreement with SEB and Nordea to SEK 122 M. SEK 399 M (–) in outstanding commercial paper covering short-term credit facilities totaling SEK 200 M that was termed “current” in the balance sheet since such commercial were unutilized at year-end. No additional collateral needs to be paper always has a terms of less than one year. However, the com- pledged to utilize these lines of credit. mercial paper was recognized as long-term on the table of Sagax’s Sagax’s refinancing needs in 2016, the short-term portion of capital tied-up at year-end on page 111 since the paper’s back-up interest-bearing liabilities excluding current capital repayments facilities have a term of more than one year. The commercial and commercial paper program, amount to SEK 19 M (–). The paper was issued by AB Sagax. following table shows the years in which Sagax’s interest-bearing Current interest-bearing liabilities express Sagax’s financing liabilities fall due for final payment or capital repayment. requirement in the short term and affect the company’s refinancing Long-term interest-bearing liabilities primarily have a short risk. In addition to regular bank loans which, contractually, have fixed-interest period entailing that the amortized cost essentially to be paid within twelve months, current repayment and construc- corresponds to the fair value.

110 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 17 Interest-bearing liabilities, cont’d.

The following table shows the fixed-interest structure of the interest-rate cap of SEK 1,698 M is recognized in the table below loans. Purchased interest rate swaps have been taken into consid- at the interest rate applying on the balance sheet date and the eration in view of their contractual interest rates and terms. An year of maturity when the various interest-rate caps expire.

Capital tied-up, years Amount Share Fixed interest, years Amount Average interest Share 2016 141 1% 2016 4,095 2.3% 39% 2017 1,646 16% 2017 352 5.8% 3% 2018 1,280 12% 2018 1,642 3.2% 16% 2019 2,263 21% 2019 698 2.5% 7% 2020 1,268 12% 2020 700 4.3% 7% >2020 3,970 38% >2020 3,082 4.5% 29% Total 10,568 100% Total/average 10,568 3.3% 100% The average loan maturity was 4.2 years (3.2) The average fixed-interest period was 3.0 years (3.0).

NOTE 18 Financial instruments Group Derivatives consist of nominal interest rate swaps and an interest- Derivatives Dec 31, 2015 Dec 31, 2014 rate cap. Sagax’s counterparties for the derivative contracts are Surplus values of financial derivatives 4 – Nordea, Svenska Handelsbanken, SEB, Swedbank and Deutsche Deficit values of financial derivatives –470 –551 Pfandbriefbank. Sagax’s fixed-income derivatives are denominat- Total –466 –551 ed in SEK or EUR, in relation to borrowing in each currency. The table below shows the fixed-interest structure of the Group derivatives. The average interest rates for the derivatives are Changes in value of financial recognized at the terms applying at year-end. On December 31, instruments, unrealized 2015 2014 2015, Sagax’s fixed-income derivatives portfolio had a negative Unrealized changes in value of financial derivatives 67 –260 market value of SEK 466 M (neg: 551). Total 67 –260 Sagax’s fixed-income derivatives comprised a nominal total of SEK 6,124 M (5,228) at year-end. The fixed-income derivatives Group curbed Sagax’s interest-rate risk at year-end, corresponding to Changes in value of financial 58% (68%) of the company’s interest-bearing liabilities subject to instruments, realized 2015 2014 variable interest rates. Sagax’s derivatives distributed by counter- Realized changes in value of party are presented below. The weighted average interest rate was financial derivatives –13 1 2.6%, but because none of Sagax’s interest-rate caps had a strike Total –13 1 rate at year-end that impacted the weighted average interest rate for the company, it was the interest rate swaps’ average weighted interest rate of 2.7% that impacted the Group’s recognized inter- Sagax’s financial strategy is based on low interest-rate risk, to est rate of 3.3% at year-end. be achieved through measures such as fixed-income derivatives. Taking into account fixed-income derivatives, the average According to IFRS, fixed-income derivatives are to be measured fixed-interest period was 3.0 (3.0) at year-end. In the foreseeable on market terms. The valuation principles are stated in Note 1 future, the company’s profit from property management will be Accounting Policies. Changes in the value of the fixed-income impacted only marginally by general changes in interest rates. derivatives portfolio arise, for example, as an effect of changed The year’s changes in the value of financial derivatives is rec- market interest rates and changes to the remaining lease term. ognized as realized or unrealized changes in value in profit or loss. Fixed-income derivatives have been measured at market value Unrealized changes in value affect Sagax’s profit before tax but in accordance with valuations received from the counterparties. not cash flow or the profit from property management.

AB SAGAX ANNUAL REPORT 2015 111 FINANCIAL REPORTS

NOTE 18 Financial instruments, cont’d.

Derivative contracts, December 31, 2015

Average Number Nominal amount Share Remaining maturity interest rate Market value

Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Amounts in SEK M 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Nominal interest rate swaps: Deutsche Pfandbriefbank 9 7 2,211 2,078 36% 40% 6.9 4.3 2.3% 3.0% –206 –239 Svenska Handelsbanken 5 5 324 339 5% 6% 5.6 6.3 4.2% 4.1% –61 –72 Nordea 10 11 943 1,025 15% 20% 3.1 3.9 3.5% 3.5% –102 –125 Swedbank 2 2 320 333 5% 6% 2.9 3.9 0.5% 0.5% –5 –4 SEB 5 5 629 629 10% 12% 5.5 6.5 3.6% 3.6% –96 –111 Sub-total 31 30 4,426 4,404 72% 84% 5.5 4.7 2.7% 3.1% –469 –551

Interest-rate caps: Deutsche Pfandbriefbank 2 2 753 824 12% 16% 2.0 3.0 1.9%1) 1.9%1) – – Den Danske Bank 1 – 100 – 2% – 3.0 – 2.0%1) – – – Nordea 4 – 645 – 11% – 4.9 – 2.0%1) – 3 – Swedbank 1 – 200 – 3% – 4.5 – 2.7%1) – 1 – Sub-total 8 2 1,698 824 28% 16% 3.5 3.0 2.0% 1.9% 3 – Total 39 32 6,125 5,228 100% 100% 5.0 4.4 2.6%1) 2.9%1) –466 –551

1) Average strike rate for Sagax’s interest-rate cap.

The effect on earnings for 2015 was a SEK 54 M (neg: 259), of Fixed-income derivatives, December 31, 2015 which SEK a negative 13 M (pos: 1) was a realized change in value.

Nominal Market value, Average Fixed interest, years amount, SEK M SEK M interest1) OTHER FINANCIAL INSTRUMENTS IN THE STATEMENT 2016 3 0 3.2% OF FINANCIAL POSITION 2017 – – – The statement of financial position includes receivables and liabil- 2018 1,642 –53 2.2% ities to be considered as financial instruments measured at cost. 2019 698 –15 1.2% Cost essentially corresponds to market value at year-end. 2020 798 –82 3.5% >2020 2,984 –316 2.8% Total/average 6,125 –466 2.6%

1) Average strike rate has been used for the interest-rate cap.

The table above presents the distribution of fixed-income deriva- To calculate the variable component of a fixed-income derivatives over time and how average interest rates and market values tive, STIBOR and EURIBOR rates were used across the entire are allocated per final year. The liquidity flows attributable to term of the derivatives as they were quoted on the balance sheet credits are presented below. Assumptions have also been applied date. The above assumption includes the total payment obligation to these regarding STIBOR and EURIBOR rates as they were for contractual loans and fixed-income derivatives totaling SEK quoted on the balance sheet date. Other liabilities are short term 12,190 M (9,861) over the remaining term. For comparison, the and fall due for payment within one year. estimated liquidity flows as per December 31, 2015 and Decem- The tables below also show future liquidity flows attributable ber 31, 2014 are recognized. to fixed-income derivatives, which comprise interest paid minus interest received.

Future liquidity flows for interest-bearing Future liquidity flows for interest-bearing liabilities and fixed-income derivatives, Dec 31, 2015 liabilities and fixed-income derivatives, Dec 31, 2014

Ope- Ope- ning Closing Deri- ning Closing Deri- liabili- To be liabili- Interest vative Total liabili- To be liabili- Interest vative Total Year ties repaid ties payment payment payments Year ties repaid ties payment payment payments 2016 10,568 –141 10,427 –215 –135 –491 2015 8,525 –140 8,385 –225 –127 –492 2017 10,427 –1,646 8,781 –190 –135 –1,971 2016 8,385 –127 8,258 –222 –126 –475 2018 8,781 –1,280 7,501 –163 –120 –1,563 2017 8,258 –1,619 6,639 –177 –125 –1,921 2019 7,501 –2,263 5,238 –119 –110 –2,492 2018 6,639 –4,623 2,016 –66 –85 –4,774 2020 5,238 –1,268 3,970 –88 –96 –1,452 2019 2,016 –2,016 – –16 –78 –2,110 >2020 3,970 –3,970 – –84 –167 –4,221 >2019 – – – – –89 –89 Total –10,568 –859 –763 –12,190 Total –8,525 –706 –630 –9,861

112 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 18 Financial instruments, cont’d.

Categorization of financial instruments

Financial liabilities measured Financial liabilities measured Loans and accounts receivable at fair value in profit/loss at amortized cost Dec 31, 2015 Dec 31, 2014 Dec 31, 2015 Dec 31, 2014 Dec 31, 2015 Dec 31, 2014

Assets Fixed-income derivatives – – 4 – – – Rents receivables 3 1 – – – – Other receivables 27 41 – – – – Prepaid costs and accrued income 82 79 – – – – Cash and bank balances 251 67 – – – –

Liabilities Fixed-income derivatives – – 470 551 – – Interest-bearing liabilities – – – – 10,499 8,472 Accounts payable – – – – 13 19 Other liabilities – – – – 72 64 Accrued expenses and deferred income – – – – 262 254 Total 363 188 466 551 10,846 8,809

NOTE 19 Other long-term liabilities NOTE 21 Tangible fixed assets

Group Parent Company Group Parent Company Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 2015 2014 2015 2014 2015 2014 2015 2014 Deposits from Accumulated cost at the tenants 13 9 – 1 beginning of the year 5 5 5 5 Total 13 9 – 1 Investments during the year 1 – – – Disposals – – – – Total 6 5 5 5

Accrued expenses and Accumulated NOTE deferred income depreciation at the beginning 20 of the year –4 –3 –4 –3 Depreciation for the year – –1 – –1 Disposals – – – – Group Parent Company Total –4 –4 –4 –4 Dec 31, Dec 31, Dec 31, Dec 31, 2015 2014 2015 2014 Carrying amount 2 1 1 1 Accrued property tax – – – – Accrued financial expenses 60 95 42 50 Tangible fixed assets comprise equipment and office adaptations for Prepaid rental revenue 159 116 – – Sagax’s offices in Stockholm and Helsinki. Other interim liabilities 43 43 7 3 Total 262 254 49 53

AB SAGAX ANNUAL REPORT 2015 113 FINANCIAL REPORTS

NOTE 22 Participations in Group companies

The Parent Company AB Sagax’s directly owned and indirectly owned subsidiaries are shown below. All of the following directly owned subsidiaries in which the participation is less than 100% are owned jointly with other wholly owned Group companies.

Number of Carrying Carrying shares/ amount amount Directly owned subsidiaries Corp. Reg. No. Domicile participations Share Dec 31, 2015 Dec 31, 2014 Bergkvarnen Fastigheter AB 556373-2840 Stockholm 1,000 100% 3 3 Bilhornet KB 969685-9124 Stockholm 1 100% 0 –10 Firethorne AB 556014-2571 Stockholm 14,372,924 100% 661 – Sagax Alpha AB 556527-1540 Stockholm 1,000 100% 1 1 Sagax Alpha KB 969667-5777 Stockholm 0 – – 86 Sagax Beta AB 556546-4558 Stockholm 1,000 100% 0 0 Sagax Beta KB 969680-2256 Stockholm 0 – – 41 Sagax Bruket Fastigheter AB 556022-3934 Stockholm 20,000,000 100% 740 168 Sagax Europa AB 556715-1914 Stockholm 1,000 100% 0 0 Sagax Finland Holding AB 556923-4262 Stockholm 50,000 100% 0 0 Sagax Finland Oy 2104952-4 Helsinki 2,500 82% 27 27 Sagax Initiativ AB 559029-0416 Stockholm 1,000 100% 0 – Sagax Invest AB 556640-8547 Stockholm 1,000 100% 30 – Sagax Jordbro AB 556734-4741 Stockholm 1,000 100% 75 75 Sagax Köge A/S 30598938 Køge, Denmark – – – 13 Sagax Komplementär AB 556597-9191 Stockholm 1,000 100% 45 – Sagax Lund AB 556740-3505 Stockholm 1,000 100% 0 0 Sagax Macrohuset AB 559025-5013 Stockholm 1,000 100% 0 – Sagax Projektutveckling AB 559029-0473 Stockholm 1,000 100% 0 – Sagax Skarphallen AB 556979-4588 Stockholm – – – 10 Sagax Småland AB 556768-9509 Stockholm 1,000 100% 61 1 Sagax Sthlm 13 AB 559019-6837 Stockholm 1,000 100% 0 – Sagax Stockholm Tio AB 556954-1955 Stockholm 500 100% 0 0 Sagax Stockholm Två AB 556713-4837 Stockholm 500 100% 0 0 Sagax Stockholm 6 AB 556909 - 6117 Stockholm 1,000 100% 5 5 Sagax Stockholm 7 AB 556909-6109 Stockholm 1,000 100% 0 0 Sagax Stockholm 8 AB 556909-6091 Stockholm 500 100% 4 4 Sagax Åptimera AB 556200-9844 Stockholm – – – 207 Satrap Kapitalförvaltning AB 556748-3309 Stockholm 1,000 100% 334 334 Storstockholms Industrifastigheter AB 556695-9572 Stockholm 1,000 89% 4 4 Svenskasagax Holding SAS 808512826 Paris 1,000 100% 0 0 Veddesta Properties AB 556573-9124 Stockholm 1,000 100% 13 13 Total 2,004 982

114 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 22 Participations in Group companies, cont’d.

Indirectly owned subsidiaries Corp. Reg. No. Domicile Indirectly owned subsidiaries Corp. Reg. No. Domicile Alpha 1 Oy 2155931-3 Helsinki KOy Vantaan Hakamäenkulma 2696847-4 Helsinki Cephyr AB 556646-0753 Stockholm KOy Vantaan Honkanummentie 5 104 4118- 4 Helsinki EVAF B-FROST Finland Propertie 2115360 - 4 Helsinki KOy Vantaan Kiitoradantie 14 1898385-0 Helsinki Fastighets AB Bergörnen 559019-6910 Stockholm KOy Vantaan Kärkikuja 1832321-1 Helsinki Fastighets AB Microhuset 559016-3159 Stockholm KOy Vantaan Martinkyläntie 9 2599495-3 Vantaa Fastighets AB Uppsalaängen 559019-6902 Stockholm KOy Vantaan Niittyvillankuja 2 2731626-7 Vantaa Fastighetsbolaget Bårebo Gräsanden AB 556737-4151 Stockholm KOy Vantaan Porttisuontie 9 2112915-3 Helsinki Fastighetsbolaget Reglaget AB 556591-6706 Stockholm KOy Vantaan Sarkatie 2 1971094-2 Vantaa Fastighetsförv Skultuna 3 KB 969646-0196 Stockholm KOy Vantaan Taivaltie 4 0625322-8 Vantaa Förvaltnings AB Varubilen 556549-9851 Stockholm KOy Vantaan Tiilitie 9 2591653-3 Vantaa Förvaltningsbolaget Hedenhög i Huddinge AB 556468-6615 Stockholm KOy Vantaan Trukkikuja 1 2613719-5 Helsinki Grepen KB 916452-1354 Lidköping KOy Vantaan Tulkintie 29 1635180-9 Helsinki IJA Fastighets AB 556801-3956 Stockholm KOy Vantaanlaaksontie 6 2298116 -1 Helsinki Jobegu AB 556697-8937 Stockholm KOy Virkatie 10 2475125-5 Helsinki KB Kolsva 1 916608-8386 Stockholm KOy Virkatie 7 2565952-2 Vantaa KB Slänten 17 969667-0604 Stockholm KOy Virkatie 8 A 2565960-2 Vantaa KB Titania 969636-7763 Stockholm KOy Virkatie 8 B 2565956-5 Vantaa KB Upplagsvägen 969667-3038 Stockholm KOy Ylivieskan Kiskotie 2 2731628-3 Ylivieska Kiinteistö Oy Vantaan Sanomati 2634936-6 Helsinki KOy Ylöjärven Teollisuustie 11 2607210-9 Ylöjärvi Koskelo Holding Oy 2009577-2 Espoo KOy Ylöjärven Vanha Vaasantie 2607206-1 Ylöjärvi KOy Ansakulma 2705230-2 Vantaa KOy Ärrävaara 2404395-3 Vantaa KOy Espoon Karaportti 8 2547952-1 Espoo Kugghjulet 3 AB 556034-5901 Stockholm KOy Espoon Olarinluoma 8 2298118-8 Helsinki Marcato Fastigheter AB 556438-8527 Stockholm KOy Espoon Ruukintie 20 0783679-1 Espoo Marcato Förvaltnings AB 556248-7982 Stockholm KOy Forssan Koikkurintie 2 2731647-8 Forssa Mastvik AB 556932-4568 Stockholm KOy Hakamäenkuja 8-10 2541642-4 Helsinki Mörtö 9 AB 559007-2012 Stockholm KOy Helsingin Puusepänkatu 2 1589532-9 Helsinki Panncentralen 1 Fastighets AB 556606-2583 Stockholm KOy Hyvinkään Hakakalliontie 7 2731622-4 Hyvinkää Sagax Ackumulatorn i Huddinge 556623-1170 Stockholm KOy Juhanilanmäki 0734652-2 Helsinki Sagax Alpha KB 969667-5777 Stockholm KOy Koivuhaanportti 10 0741876-8 Helsinki Sagax Beta KB 969680-2256 Stockholm KOy Konalankuja 2 0119121-6 Helsinki Sagax Beta Komplementär AB 556646-6891 Stockholm KOy Kotkan Kisällinkatu 10 2612405-2 Helsinki Sagax Bokbindaren 1 AB 556757-8504 Stockholm KOy Kuopion Mestarinkatu 5 2731637-1 Kuopio Sagax Borlänge AB 556674-7373 Stockholm KOy Lahden Ansiokatu 8 2731639-8 Lahti Sagax Danderyd AB 556162-4338 Stockholm KOy Lahden Jatkokatu 1 2612409-5 Helsinki Sagax Finland AB 556759-7975 Stockholm KOy Lapuan Metsäkiventie 4 2119444-9 Lapua Sagax Finland Asset Management Oy 2513597-2 Helsinki KOy Larin Kyöstinkatu 28 2731644-3 Hämeenlinna Sagax Finland Holding 10 Oy 2709703-3 Helsinki KOy Liedon Avantintie 20 2612411-6 Helsinki Sagax Finland Holding 2 Oy 2547955-6 Helsinki KOy Lohjan Ratakatu 26 2731642-7 Lohja Sagax Finland Holding 4 Oy 2590939-2 Helsinki KOy Luomannotko 5 2731645-1 Espoo Sagax Finland Holding 5 Oy 2607209-6 Helsinki KOy Lyhtykulma 2681286-7 Helsinki Sagax Finland Holding 6 Oy 2608825-8 Helsinki KOy Nimismiehenpelto 0658624-1 Helsinki Sagax Finland Holding 7 Oy 2655160-1 Helsinki KOy Oulun Jääsalontie 17 2731625-9 Oulu Sagax Finland Holding 8 Oy 2676625-8 Helsinki KOy Oulun Kaapelitie 4 2303033-3 Helsinki Sagax Finland Holding 9 Oy 2681285-9 Helsinki KOy Porin Korjaamokatu 1 2612408-7 Helsinki Sagax Finland Real Estate Oy 2553679-2 Helsinki KOy Porin Raja-Hiltantie 8 2731631-2 Pori Sagax Haninge AB 556730-5080 Stockholm KOy Rauman Äyhönjärventie 5 2731635-5 Rauma Sagax Helsingborg KB 969716-9374 Stockholm KOy Ristipellontie 17 2447642-5 Helsinki Sagax Holding 1 ApS 35669752 Stockholm KOy Rovaniemen Teollisuustie28 2731633-9 Rovaniemi Sagax Huskvarna AB 556703-0555 Stockholm KOy Ruosilankulma 1937007-9 Helsinki Sagax Jönköping KB 969700-5099 Stockholm KOy Seinäjoen Yrittäjäntie 2 2731618-7 Seinäjoki Sagax Karlskoga AB 556728-6843 Karlskoga KOy Sähkötie 8 2565951-4 Vantaa Sagax Kista AB 556855-5006 Stockholm KOy Tampereen Joentaustankatu3 2731623-2 Tampere Sagax Korsberga AB 556715-1963 Stockholm KOy Tampereen Nuutisarankatu 19 2612407-9 Helsinki Sagax Lillsjö AB 556674-7365 Stockholm KOy Tuusulan Pakkasraitti 4 2652079-2 Tuusula Sagax MIX AB 559003-7213 Stockholm KOy Vantaan Ansatie 4 0598169-6 Helsinki Sagax NEEAH AB 556715-8521 Stockholm

AB SAGAX ANNUAL REPORT 2015 115 FINANCIAL REPORTS

NOTE 22 Participations in Group companies, cont’d.

Indirectly owned subsidiaries Corp. Reg. No. Domicile Indirectly owned subsidiaries Corp. Reg. No. Domicile Sagax PLP Holding AB 556668-8643 Stockholm Sagax Stockholm 16 AB 559037-4970 Stockholm Sagax Postflyg AB 556791-5052 Stockholm Sagax Stockholm 17 AB 559037-4988 Stockholm Sagax Real Estate ApS 35669744 Herlev Sagax Stockholm Nio AB 556954-1963 Stockholm Sagax Rosersberg AB 556740-3596 Stockholm Sagax Sätra AB 556930-2085 Stockholm Sagax Sapla 1 AB 556740-5187 Stockholm Sagax Tyskland AB 556715-1930 Stockholm Sagax Sapla 2 AB 556740-5294 Stockholm Sagax Varubilen AB 559035-3149 Stockholm Sagax Sapla 3 AB 556740-5286 Stockholm Sagax Vetlanda AB 556687-2262 Stockholm Sagax Sapla 4 AB 556740-5278 Stockholm Sagax Åptimera AB 556200-9844 Stockholm Sagax Sapla 5 AB 556683-0377 Stockholm Storsthlms Industrifast KB 969695-2648 Stockholm Sagax Skarphallen AB 556979-4588 Stockholm Stubbehagen Fastighets AB 556698-0891 Stockholm Sagax Skarpnäck AB 556852-4531 Stockholm Svenska Sagax 1 SAS 808495303 Paris Sagax Solna AB 556073-1407 Stockholm T E Real Estate KB 969712-2852 Stockholm Sagax Staffanstorp AB 556805-3762 Stockholm Tillverkaren 1 Fastighets AB 556730-4307 Stockholm Sagax Stockholm 15 AB 559037-4962 Stockholm

NOTE 23 Participations in joint ventures and associated companies

Parent Company Sagax owns 50% of the Group company Söderport Dec 31, Dec 31, Holding AB together with Hemfosa Fastigheter AB. Joint venture Corp. Reg. No. Domicile Share 2015 2014 Söderport contributed SEK 131 M (98) to Sagax’s Hemsö Intressenter AB 556917-4336 Stockholm 50% 285 285 Fastighetsaktiebolaget profit from property management in 2015. At year-end, Apicius 559015-8902 Stockholm 50% 1 – Söderport owned 61 (45) properties with a lettable area Total 286 285 of 697,000 square meters (614,000). 45% (50%) of the Group lettable area is in Stockholm, of which the main por- Joint ventures/ Dec 31, Dec 31, tion comprises industrial and warehouse properties in associated companies Corp. Reg. No. Domicile Share 2015 2014 Årsta and Västberga. In 2015, Söderport Holding AB Hemsö Intressenter AB 556917-4336 Stockholm 50% 381 234 recognized revenue of SEK 542 M, and posted profit Söderport Holding AB 556819-2230 Stockholm 50% 825 562 from property management of SEK 261 M. On behalf 999204-325 Oslo 21% 53 – E-Logistikk AS of Söderport, AB Sagax provides property management Fastighetsaktiebolaget and financial management services to the Söderport Apicius 559015-8902 Stockholm 50% 0 – Total 1,259 796 Group. Hemfosa’s organization in Gothenburg performs property management activities in Gothenburg.

116 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 23 Participations in joint ventures and associated companies, cont’d.

Sagax owns 50% of Hemsö Intressenter AB, which in turn owns accounted for 13% of the properties’ market value. More informa- 30% of Hemsö Fastighets AB, with the remaining share owned tion on Hemsö Fastighets AB is available on the company’s web- by the Third Swedish National Pension Fund. Hemsö Intressenter site, hemso.se. Sagax also owns participations in Fastighetsbolaget AB contributed SEK 98 M (80) to Sagax’s profit from property Apicius and, via Group companies, participations in the associ- management during 2015. Hemsö Fastighets AB owns and develops ated company E-Logistikk AS. public properties, properties for retirement homes, schools, health- Sagax recognizes shares in profit and participating interests in care and judicial system. The company has long-term leases, stable joint ventures and associated companies according to the equity tenants and strong owners. The properties are located in Sweden, method; the companies are thus not consolidated. Shares in prof- Finland and Germany. In Sweden, tenants are largely government, it, as well as additional acquisition costs, are recognized across the county councils and municipalities. In Finland, tenants comprise values of participations in the consolidated financial statements. municipalities and private companies. Tenants in Germany include Consolidated comprehensive income includes the Group’s share private operators of retirement homes, profit or non-profit. of comprehensive income in the investment entity. Stockholm, Gothenburg and Malmö account for 48% of the property portfolio’s market value. The foreign property portfolio

Sagax’s joint ventures Reconciliation of share value

Söderport Hemsö Hemsö Intressenter AB Söderport Holding AB Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 2015 2014 2015 2014 2015 2014 2015 2014 Sagax’s participating interest, % 50 50 15 15 Sagax’s share of 381 234 833 570 Rental revenue, SEK M 542 450 1,988 2,054 equity, % Profit from property Carrying amount for 381 234 825 562 management, SEK M 261 196 959 833 participation Profit/loss for the year, SEK M 537 425 1,357 –360 Sagax’s share of profit from Hemsö Intressenter AB Söderport Holding AB property management, SEK M 131 98 98 80 Parent Parent Group Company Group Company No. of properties 61 45 317 313 Opening balance Rental value, SEK M 585 541 2,098 2,003 January 1, 2015 234 285 562 – Properties’ market value, SEK M 5,631 5,028 26,502 24,668 Percentage of com- Lettable area, sqm 697,000 614,000 1,499,000 1,524,000 prehensive income 159 – 268 – Lease term, years 6.2 5.0 7.6 7.2 Capital contribution – – 45 – Economic vacancy rate, % 7 7 4 3 Dividends –11 – –50 – Interest-bearing liabilities, SEK M 3,271 3,201 17,454 16,507 Closing balance Capital tied-up, years 4.1 5.1 2.8 3.0 December 31, 2015 381 285 825 – Fixed interest, years 3.2 4.1 3.6 3.5 Market value for fixed-income derivatives, SEK M –412 –465 –670 –826

Aggregated income statements Aggregated balance sheets

Hemsö Intressenter AB1) Söderport Holding AB Hemsö Intressenter AB Söderport Holding AB Dec 31, Dec 31, Dec 31, Dec 31, 2015 2014 2015 2014 2015 2014 2015 2014 Profit from property 197 160 261 196 Investment properties 0 0 5,631 4,975 management Other fixed assets 2,273 1,062 58 9 Changes in value, 172 –71 366 564 properties Cash and cash equivalents 0 0 61 49 Changes in value, 47 –228 57 –225 financial instruments Other current assets 0 0 46 63 Tax –84 4 –147 –111 Total assets 2,273 1,062 5,797 5,096 Profit/loss for the year 332 –135 537 424 Other comprehensive Equity 762 467 1,665 1,139 income/loss –15 16 – – Interest-bearing Comprehensive in- long-term liabilities 1,470 570 3,257 3,183 come/loss for the year 317 –119 537 424 Derivatives 0 0 412 465 Sagax’s participation, Other long-term 50% of comprehensive liabilities 0 0 246 109 income for the year 159 –59 268 212 Current liabilities 41 25 217 200 1) Hemsö Intressenter AB owns 30% of Hemsö Fastighets AB. Total equity and liabilities 2,273 1,062 5,797 5,096

AB SAGAX ANNUAL REPORT 2015 117 FINANCIAL REPORTS

NOTE 24 Receivables from joint ventures NOTE 26 Liabilities to Group companies

Group Parent Company Parent Company Current receivables Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, from joint ventures 2015 2014 2015 2014 Group companies 2015 2014 Söderport Holding AB – 2 – – Current liabilities to Group companies Firethorne AB 590 – Total – 2 – – Cephyr AB – 14 Jobegu AB 2 – Sagax Ackumulatorn AB 1 – Sagax Beta Komplementär AB 170 – Sagax Finland Oy 43 – NOTE Receivables from Group companies 25 Sagax Finland Asset Management Oy – – Sagax Komplementär AB 7 –

Parent Company Sagax Solna AB 138 – Group companies Dec 31, 2015 Dec 31, 2014 Sagax Stockholm 6 AB 11 – Current receivables from Group companies Sagax Finland Holding 6 Oy 5 6 Bergkvarnen Fastigheter AB 2 3 Sagax Finland Holding 8 Oy 17 – Fastighets AB Microhuset AB 8 – Sagax Holding 1 ApS 5 2 Sagax Beta Komplementär AB – 236 Sagax Sätra AB – 3 Sagax Beta AB 10 – Satrap Kapitalförvaltning AB – 12 Sagax Finland AB 66 36 Stubbehagen Fastigheter AB – 1 Sagax Finland Asset Management Oy – 1 Total 989 190 Sagax Finland Oy – 42 Sagax Finland Holding 9 Oy 8 – Parent Company Sagax Finland Holding 10 Oy 227 – Dec 31, Dec 31, Group companies 2015 2014 Sagax Macrohuset AB 7 – Sagax Finland Holding 5 Oy – 174 Long-term liabilities to Group companies Sagax Projektutveckling AB 1 – Sagax Beta Komplementär AB 738 – Sagax Finland Real Estate Oy 297 163 Total 738 – Sagax Initiativ AB 131 – Sagax Invest AB 117 103 Sagax Jordbro AB 8 2 Sagax Köge A/S – 16 NOTE Transactions with related parties Sagax Skarphallen AB – 6 27 Sagax Småland AB 187 215 Sagax Stockholm 6 AB – 34 BOARD OF DIRECTORS AND SENIOR EXECUTIVES Sagax Stockholm 7 AB 22 61 No transactions took place between Sagax and members of the Sagax Stockholm 8 AB 12 11 company’s Board of Directors, other senior executives or relatives Sagax Stockholm Nio AB 18 18 of these during 2015. For remuneration of the Board of Directors Sagax Stockholm 10 AB 118 – and senior executives, see Note 5. Sagax Stockholm 12 AB 10 – Sagax Stockholm 13 AB 157 – Sagax Tyskland AB 293 286 PARENT COMPANY Sagax Åptimera AB – 109 The Parent Company, AB Sagax, is responsible for stock market Satrap Kapitalförvaltning AB 3 – issues, such as financial reporting and stock market informa- Svenskasagax Holding SAS 2 – tion. The Parent Company is also responsible for credit market Svenskasagax 1 SAS 113 53 issues, such as borrowing and financial risk management. Services Total 1,817 1,569 between Group companies are charged on commercial terms and conditions and in accordance with market-based pricing. Parent Company Intra-Group services comprise management services and internal Group companies Dec 31, 2015 Dec 31, 2014 interest charging. During the year, the Parent Company’s fees Long-term receivables from Group companies for property and company management from Group companies Sagax Finland Holding 2 Oy 330 28 amounted to SEK 31 M (31) and fees from joint ventures to SEK Sagax Finland Holding 4 Oy 68 80 16 M (13). Sagax Finland Holding 5 Oy 34 – Sagax Finland Holding 6 Oy 33 49 Sagax Finland Holding 7 Oy 64 – Sagax Finland Holding 8 Oy 125 – Sagax Finland Holding 9 Oy 178 – Sagax Holding 1 ApS 14 14 Sagax Invest AB 186 186 Sagax Jordbro AB 527 527 Sagax Finland Real Estate Oy 23 24 Sagax Småland AB 171 171 Sagax Stockholm 7 AB 91 – Total 1,844 1,078

118 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 28 Equity

SHARE CAPITAL In March 2015, 2,750,000 new preference shares were issued as Voting rights and proportion of share capital part of a private placement. The issue was implemented with the support of the authorization granted to the Board of Directors at Voting Propor- Propor- the 2014 AGM. In total, the company’s share capital increased by rights Total tion of tion of No. of per number voting share SEK 4.8 M (9.6) following the share issue. Class of share shares share of votes rights capital The number of treasury shares amounted to 1,000,000 Class Class A shares 13,416,822 1.00 13,416,822 40% 6% B shares at December 31, 2015. The treasury shares were repur- Class B shares 145,858,130 0.10 14,585,813 43% 67% chased in 2013. Preference The shares have a quotient value of SEK 1.75 per share. All shares 58,250,000 0.10 5,825,000 17% 27% shares were fully paid up. Voting rights and the proportion of Total 217,524,952 33,827,635 100% 100% share capital per class of share are presented below. The share capital trend during the years 2006-2015 as registered by the Swedish Companies Registration Office is described below.

Changes in share capital, 2006-2015

Increase in Increase in Increase in Total Total Total Increase in number number number of number number number of Total share Total of Class A of Class B preference of Class A of Class B preference number of Date Event capital share capital shares shares shares shares shares shares shares Jan 25, 2006 Warrants 250,000 59,584,110 50,000 – – 11,916,822 – – 11,916,822 Jan 28, 2006 Bonus issue 2,966,705 62,563,315 – – 595,841 11,916,822 – 595,841 12,512,663 Feb 21, 2006 Private placement 30,000,000 92,563,315 – – 6,000,000 11,916,822 – 6,595,841 18,512,663 May 17, 2006 Private placement 5,000,000 97,563,315 – – 1,000,000 11,916,822 – 7,595,841 19,512,663 Dec 22, 2006 Private placement 20,000,000 117,563,315 – – 4,000,000 11,916,822 – 11,595,841 23,512,663 Jul 9, 2007 Warrants 552,500 118,115,815 110,500 – – 12,027,322 – 11,595,841 23,623,163 Oct 5, 2007 Warrants 250,000 118,365,815 50,000 – – 12,077,322 – 11,595,841 23,673,163 Dec 28, 2007 Non-cash issue 1,820,000 120,185,815 – – 364,000 12,077,322 – 11,959,841 24,037,163 Jan, 9, 2008 Private placement 15,000,000 135,185,815 – – 3,000,000 12,077,322 – 14,959,841 27,037,163 Dec 29, 2008 Private placement 652,175 135,837,990 – – 130,435 12,077,322 – 15,090,276 27,167,598 Apr 3, 2009 Non-cash issue 6,875,000 142,712,990 – – 1,375,000 12,077,322 – 16,465,276 28,542,598 Apr 14, 2009 Non-cash issue 700,000 143,412,990 – – 140,000 12,077,322 – 16,605,276 28,682,598 Jun 4, 2009 Private placement 20,000,000 163,412,990 – – 4,000,000 12,077,322 – 20,605,276 32,682,598 Apr 13, 2010 Rights issue 54,470,995 217,883,985 – – 10,894,199 12,077,322 – 31,499,475 43,576,797 Apr 13, 2010 Private placement 20,000,000 237,883,985 – – 4,000,000 12,077,322 – 35,499,475 47,576,797 Jul 9, 2010 Private placement 8,762,735 246,646,720 – – 1,752,547 12,077,322 – 37,252,022 49,329,344 Nov 9, 2010 Warrants 256,875 246,903,595 51,375 – – 12,128,697 – 37,252,022 49,380,719 Nov 23, 2010 Warrants 1,191,555 248,095,150 238,311 – – 12,367,008 – 37,252,022 49,619,030 Dec 17, 2010 Warrants 1,066,405 249,161,555 213,281 – – 12,580,289 – 37,252,022 49,832,311 Dec 30, 2010 Warrants 743,750 249,905,305 148,750 – – 12,729,039 – 37,252,022 49,981,061 Jan 27, 2011 Warrants 885,625 250,790,930 177,125 – – 12,906,164 – 37,252,022 50,158,186 Mar 1, 2011 Warrants 2,553,290 253,344,220 510,658 – – 13,416,822 – 37,252,022 50,668,844 Dec 21, 2012 Private placement 63,739,890 317,084,110 – – 12,747,978 13,416,822 – 50,000,000 63,416,822 Mar 26, 2013 Bonus issue1) 28,689,713 345,773,824 – 134,168,220 – 13,416,822 134,168,220 50,000,000 197,585,042 Mar 26, 2013 Private placement 20,457,342 366,231,166 – 11,689,910 – 13,416,822 145,858,130 50,000,000 209,274,952

Apr 25, 2014 Private placement 5,250,000 371,481,166 – – 3,000,000 13,416,822 145,858,130 53,000,000 212,274,952 Dec 22, 2014 Private placement 4,375,000 375,856,166 – – 2,500,000 13,416,822 145,858,130 55,500,000 214,774,952 Mar 24, 2015 Private placement 4,812,500 380,668,666 – – 2,750,000 13,416,822 145,858,130 58,250,000 217,524,952

1) The quotient value per share was reduced to SEK 1.75 in conjunction with the bonus issue of common Class B shares.

AB SAGAX ANNUAL REPORT 2015 119 FINANCIAL REPORTS

NOTE 28 Equity, cont’d.

WARRANTS The total proposed dividend amounts to SEK 298,516,194.80. Sagax has three warrant plans for the company’s employees. These The dividend corresponds to 33% (35) of consolidated profit from plans are valid for three years, encompassing the periods 2013-2016, property management for 2015 and 40% (42) of consolidated cash 2014-2017 and 2015-2018. Warrants entitle the holder to subscribe flow for 2015 before changes in working capital, which is in line for new common shares in June 2016, June 2017 and June 2018, with Sagax’s dividend strategy to distribute about one-third of respectively. The subscription price corresponds to the price paid the annual profit from property management in total dividend for the Sagax share at the start of the warrant plans converted using payments on common and preference shares. the average share price trend for the listed property companies in The dividend policy is intended to allow for continued growth accordance with Carnegie’s property index (CREX) during the corre- and adequate preparedness to take advantage of business oppor- sponding period. Accordingly, the warrants will have a value on condi- tunities. The Board is also authorized to propose the distribution tion that the price performance of the Sagax share exceeds the average of non-recurring profits to shareholders. for all listed property companies during each three-year period. At year-end, Sagax employees held 1.5 million warrants with the right EARNINGS PER SHARE to subscribe for common shares corresponding to 0.9% of the number In the calculation of earnings per common share, income for the year of common shares outstanding. During 2015, AB Sagax bought back was reduced by the preferential right of preference shares to SEK warrants issued under the Incentive Plan 2012-2015 from the employ- 2.00 in annual dividend, in accordance with the Articles of Associa- ees at the market value on the date of the repurchase. Costs for the tion, to a total of SEK 116,500,000. The calculation is based on the repurchase of the warrants totaled SEK 14 M. The company’s CEO total number of preference shares at year-end, 58,250,000 prefer- and Board members are not involved in the plans. ence shares. When calculating earnings per share after dilution due No additional warrants or convertibles are outstanding. to the warrants outstanding, in accordance with IAS 33, the dilution has been calculated as the number of common shares that must be CONSOLIDATED SHAREHOLDERS’ EQUITY issued to cover the difference between the strike price and market The share capital corresponds to the Parent Company’s share price of all potential common shares (warrants) outstanding assum- capital. Other contributed capital refers to capital contributed by ing it is probable that they will be exercised. shareholders. Reserves pertain to currency translation differences arising as a result of foreign operations, shares in the other comprehensive income of joint ventures and currency translation differences pertaining to hedge accounting from foreign operations. NOTE Unrealized changes in value Profit earned relates to profit earned in the Group. 29

PARENT COMPANY’S RESTRICTED AND Unrealized changes in value recognized in profit or loss over the NON-RESTRICTED SHAREHOLDERS’ EQUITY past five-year period are presented below, taking into account the Under the Swedish Companies Act, shareholders’ equity consists deferred tax effect and year. The standard tax rate was changed of restricted (non dividend-carrying) and non-restricted (dividend- from 26.3% to 22.0% in 2012. carrying) shareholders’ equity. Distributions to shareholders may not exceed an amount that ensures full coverage of restricted 2015 2014 2013 2012 2011 Total shareholders’ equity following the dividend payment. Moreover, a Properties 677 436 136 134 130 1,513 dividend may only be paid if it is defensible taking into account the Financial instruments 67 –260 201 –70 –263 –325 requirements arising from the nature, scope and inherent risks of the Deferred tax –164 –39 –74 –14 35 –256 operations on the size of the shareholders’ equity and the company’s Total 580 137 263 50 –98 932 and the Group’s consolidation needs, cash and cash equivalents and At December 31, 2015, Sagax’s closing accumulated and unreal- position otherwise. Dividends are proposed by the Board of Direc- ized changes in the value of the property portfolio totaled SEK tors in accordance with the stipulations of the Companies Act, and 1,753 M for the past ten years. This means that the property port- are approved by the Annual General Meeting. folio, as assessed by independent valuation companies, is expected to rise in value by this net amount since 2006. DIVIDEND On February 11, 2016, Sagax’s Board announced in its year-end report for 2015 that it intended to propose to the 2016 AGM that Unrealized changes in value of properties 2006-2015 a dividend of SEK 1.15 (0.80) be paid per common share for each Recognized Divestment of Accumulated unrealized changes properties with a unrealized changes Class A share and Class B share existing as of the record date. Year in value, SEK M change of value, SEK M in value, SEK M A total of SEK 182,016,194.80 in dividends is proposed to be 2006 152 –1 151 distributed to the company’s holders of common shares. 2007 492 –151 492 2008 –128 –84 280 The Board proposes that the 2016 AGM approve a dividend of 2009 –245 0 35 SEK 2.00 (2.00) per preference share to be paid on a quarterly 2010 175 –7 203 basis in the amount of SEK 0.50 per preference share during 2011 130 –6 327 2012 134 –2 459 the period between the 2016 and 2017 AGMs. A total of SEK 2013 136 2 597 116,500,000.00 in dividends is proposed to be distributed to the 2014 436 4 1,037 company’s holders of preference shares. 2015 677 39 1,753 Total 1,959 –206

120 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 30 Pledged assets and contingent liabilities

Group Parent Company Pledged assets for interest-bearing liabilities Dec 31, 2015 Dec 31, 2014 Dec 31, 2015 Dec 31, 2014 Property mortgages1) 11,559 9,509 – – Chattel mortgages 8 8 – – Pledged bank accounts 12 16 – – Pledged participations in subsidiaries2) 2,694 1,903 959 245 Pledged Group receivables – – 526 526 Total 14,272 11,437 1,486 772

1) In Finland, mortgage deeds obtained exceed interest-bearing liabilities by SEK 3,064 M (2,283), in accordance with market practices. 2) Pledged participations in subsidiaries refer to the companies’ share of the Group’s net assets less a deduction for pledged property mortgages and chattel mortgages.

Group Parent Company Contingent liabilities Dec 31, 2015 Dec 31, 2014 Dec 31, 2015 Dec 31, 2014 Sureties for subsidiaries’ interest rate swaps – – 46 7 Sureties for subsidiaries’ credits – – 8,058 6,567 Total contingent liabilities – – 8,104 6,574

NOTE 31 Cash-flow statements

Group Parent Company of credit. No additional collateral needs to be pledged to utilize Items included in Dec 31, Dec 31, Dec 31, Dec 31, these lines of credit. cash and cash equivalents 2015 2014 2015 2014 Cash flow from operating activities before changes in working Cash and bank balances 251 67 67 2 capital amounted to SEK 750 M (600). Cash flow from operating Other current – – – – activities deviates from profit from property management primar- investments ily because the cash flow from joint ventures was reinvested in Total 251 67 67 2 these operations in 2015. Changes in working capital had a negative impact of SEK 13 M (25) on cash flow. Investing activities negatively impacted cash flow by SEK Sagax’s financial expenses amounted to SEK 390 M (366). The 2,524 M (neg: 1,924) M and related primarily to net investments company’s average interest rate was 3.3% (4.1%) at December 31. of SEK 2,364 M in the property business. Investments in new Interest-bearing liabilities increased to SEK 10,499 M (8,472) in construction, additions and renovations amounted to SEK 202 M 2015, due to property acquisitions. Interest paid by the Group for (240) during the fiscal year. Property acquisitions impacted con- the fiscal year amounted to SEK 342 M (344). The lower interest solidated cash flow in the amount of SEK 2,199 M (1,713). Prop- expenses, despite the increases in interest-bearing liabilities, were erty divestments contributed SEK 37 M (100) to cash flow. due to the decline in the Group’s average interest rate level dur- Cash flow from financing activities contributed SEK 1,945 M ing the year. (1,236) to Sagax. The Group raised SEK 3,085 M (2,397) in new Sagax’s financial income amounted to SEK 4 M (4). loans and repaid SEK 957 M (1,132). A total of SEK 242 M (192) The Group’s working capital, excluding current interest-bearing was distributed to shareholders during the yea and SEK 99 M liabilities, amounted to negative SEK 37 M (neg: 183) at Decem- (186) was received from the new share issue. ber 31, 2015. Sagax’s available access to funds was SEK 912 M In total, cash and cash equivalents increased SEK 184 M (530), of which SEK 251 M (67) in the form of bank deposits (decrease: 61) during 2015. and SEK 661 M (463) in the form of unutilized committed lines

AB SAGAX ANNUAL REPORT 2015 121 FINANCIAL REPORTS

NOTE 32 Operational risks

Sagax is continuously exposed to various risks that may be of sig- TRANSACTION-RELATED RISKS nificance to the company’s future business, earnings and financial Property acquisitions form part of the company’s day-to-day opera- position. tions and are, by their very nature, associated with uncertainty. Risks related to the acquisition of properties include the future loss RENTAL REVENUE AND RENT TRENDS of tenants, environmental conditions and technical faults. Risks Sagax’s revenue is impacted by the long-term demand for prem- connected with the acquisition of property companies include tax- ises in the warehouse and light industry segment, the properties’ es and legal disputes. It is therefore vital to have the right expertise occupancy rate and the rent level received. for property acquisitions in the organization and to engage external The rental markets for warehouse and light industry prem- expertise where necessary. Sagax contends that the company has ises in the Stockholm and Helsinki regions are Sagax’s principal adequate expertise to implement acquisitions and to integrate markets and account for 62% of the Group’s rental revenue. these in the property management operation. These markets are characterized by relatively low volatility and In connection with property divestments, it is common for a limited level of relocation. To limit Sagax’s exposure to vacan- the seller to provide guarantees regarding the validity of the cies and rent losses, Sagax endeavors to offer leases with long leases, environmental risks and so forth. When selling a property average terms and to prioritize tenants with a high credit rating, company, it is also common to provide guarantees that no tax despite these entailing slightly lower immediate earnings. This is disputes or other legal disputes exist that could impact the com- particularly important in relation to major tenants. Dependency pany in the future. The guarantees are normally limited in time. on individual tenants is reduced in pace with the acquisition of It is important that such commitments are correctly formulated properties by Sagax. and, in Sagax’s opinion, the company has adequate competence to Rent-level risk is attributable to trends in current market assess and formulate such documents. rents. Sagax’s management strategy stipulating long-term leases mitigates this risk for the foreseeable future. Sagax works con- CHANGES IN VALUES OF PROPERTIES tinuously to renegotiate existing leases with the aim of minimiz- Sagax is exposed to changes in the market value of the property ing the short-term risk. Leases with a term in excess of three portfolio. To assess the properties’ market value, Sagax engages years are normally linked to the Consumer Price Index (CPI) in the services of external valuation companies. The company Sweden and to similar indexes in other markets, meaning they are believes that the use of well-known, independent valuation com- fully or partially inflation indexed. At year-end, 97% of Sagax’s panies creates optimal long-term conditions for a fair and trust- contractual rents were linked to the CPI or similar indexes. The worthy assessment of the properties’ market values. average remaining lease term in Sagax’s lease portfolio was 7.4 Sagax recognizes its property holdings at fair value according years (8.2) at year-end. to the accounting standard IAS 40 Investment Property, which stipulates that the properties’ consolidated carrying amounts CREDIT RISK match their assessed market value. Accordingly, declining market The primary counterparty risk to which Sagax is exposed is that values for the company’s properties will negatively impact the tenants could fail to make the payments required by their lease. company’s income statement and balance sheet. Declining market In conjunction with acquisitions and leases, counterparty risk values may occur due to a weakened economy, rising interest rates assessments are carried out and contracts are supplemented, if or property-specific circumstances, including tenant relocation, necessary, by collateral in the form of deposits, bank guarantees, a deterioration in the technical standard or accidents resulting in surety provided by the Parent Company or a similar instrument. material damages. The company takes continuous actions to limit Sagax works continuously to monitor and evaluate the financial its exposure to these events through, for example, proactive man- position of its tenants. Sagax’s opinion is that the company’s ten- agement , the signing of property insurance agreements and by ants, with a small number of exceptions, stand on solid financial formulating leases with adequate contractual terms. ground. To prepare the accounts in accordance with generally accepted accounting policies, company management must make OPERATING AND MAINTENANCE COSTS judgments and assumptions that affect asset and liability items, Regarding the rental situation for premises in the warehouse and revenue and expense items recognized in the accounts and other light industry segment, tenants in this area often assume rela- information provided. The actual outcome may differ from these tively far-reaching responsibility for operations and maintenance. judgments. The valuation of investment properties can be sig- The most significant operating expenses include electricity and nificantly affected by the judgments and assumptions made by heating costs for the premises. For the bulk of these expenses, company management. Sagax has engaged authorized external tenants are either charged directly or the expense is passed on appraisers to assess the market value of all of the properties in by Sagax at cost price. Sagax’s exposure to changes in operating accordance with the Fair Value Method in order to reduce the risk expenses is thus relatively limited. In the event of vacancies, the of incorrect valuations. company’s profit is not only impacted by lost rental revenue but also by expenses for such items as power, which were previously CHANGE IN VALUES OF FINANCIAL DERIVATIVES paid by the tenants. To limit the interest-rate risk, defined as the risk of an impact on earnings or cash flow due to changes in market interest rates, and

122 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 32 Operational risks, cont’d.

A sensitivity analysis is presented below, showing the effects of a Revaluation in the event of changes in swap curves change in the occupancy rate on Sagax’s interest coverage ratio. SEK M 250 200 Effect on debt ratio upon change in value of 150 property portfolio at December 31, 2015 100 50 –20% –10% 0% +10% +20% 0 Change in value, SEK M –3,238 –1,619 – 1,619 3,238 –50 –100 Debt ratio, % 72 65 59 54 50 –150 –200 –250 – 100 bp shift – 50 bp shift + 50 bp shift + 100 bp shift A sensitivity analysis is presented below, showing the effects of a change in the occupancy rate on Sagax’s interest coverage ratio. thus increase the predictability of profit from property manage- Effect on interest coverage ratio upon change of ment, Sagax uses nominal interest-rate swaps and interest-rate occupancy rate at December 31, 2015 caps. Sagax’s fixed-income derivatives comprised a nominal total of SEK 6,124 M (5,228) at year-end. –10% –5% 0% +4% +10% The financial derivatives are measured at market value each Occupancy rate, % 86 91 96 100 N/A quarter and their value is affected by the financial markets’ Interest coverage expectations regarding the development of underlying market ratio, % 253 269 286 299 N/A interest rates over the term of the derivative. The changes in value are recognized as an expense in profit or loss and as a liability LIQUIDITY RISK in the balance sheet, but do not affect cash flow. Over time, all Sagax has positive operating cash flow and will have limited refi- other things being equal, the provision in the balance sheet will nancing requirements over the next few years; see Note 17 where be gradually reversed and recognized as revenue until the end of the maturity dates for the Group’s financing are presented. At the derivative’s term. year-end, Sagax also had unutilized lines of credit totaling SEK To understand the valuation effects on Sagax’s fixed-income 661 M (463), of which SEK 369 M pertained to revolving credit derivatives in the event of changes in the underlying swap curves, facilities and SEK 200 M to short-term credit facilities. Sagax had the effects on Sagax’s profit before tax in connection with a simu- favorable solvency with a total of SEK 912 M (530) in available lated parallel shift of, for example, +1.0 percentage point (100 liquidity at year-end. For the Finnish operation, Sagax also has an basis points) in the underlying swap curves is presented in the agreement with Swedbank covering an unutilized revolving credit diagram above. All other things being equal, this would entail a facility of EUR 5 M, which is at the disposal of Sagax to use on positive revaluation of Sagax’s fixed-income derivatives by SEK certain properties through January 2019. 238 M. The corresponding shift of –1.0 percentage point would Sagax established a program for issuing commercial paper in entail a negative revaluation of SEK 254 M. Sagax’s earnings 2015. The program will allow Sagax to implement issues in SEK are also affected by the company’s share in profit of associated and EUR. The framework amount is SEK 1,500 M and the maxi- companies, which – like Sagax – use fixed-income derivatives to mum term is one year. At year-end, commercial paper totaling reduce their interest-rate risk and measure their derivatives at SEK 399 M was outstanding with an average remaining term of market value on a quarterly basis. 0.4 years, but with unutilized long-term credit facilities that cover all outstanding commercial paper at any time. Consequently, FINANCING SEK 399 M in unutilized credit facilities was not included in the Sagax’s financing primarily comprises equity and interest-bearing information on available liquidity above since this amount serves liabilities. Sagax endeavors to secure a long, average remaining as a back-up for the commercial paper program. term of interest-bearing liabilities in a bid to limit its refinancing Sagax seeks to maintain a low share of short-term, interest- risk, defined as the risk that refinancing existing debt cannot take bearing financing in an effort to minimize the company’s refi- place on reasonable terms. nancing risk. Sagax curtails its refinancing risk by agreeing on a The company’s long-term financing comprises bilateral credit certain maturity in connection with new borrowing. Sagax also facilities and listed bond loans. The counterparties of the credit strives to refinance its long-term interest-bearing liabilities well facilities are Swedish and foreign commercial banks. In certain in advance. Overall, this working approach is deemed effective in cases, the facilities may be subject to special conditions, such as limiting the company’s refinancing risk. maintaining a specific interest coverage ratio. This means that creditors may be entitled to demand repayment of granted credit INTEREST-RATE RISK lines prematurely or request changed conditions if these special Interest expenses are the Group's largest current cost item. Inter- commitments are not met by the borrower. Sagax is subject to est-rate risk is defined as the risk that changes in the interest-rate financial covenants and complies with all of them. The company scenario will affect Sagax’s financing cost. The interest-rate risk complies with all of its financial covenants. Sagax is of the opinion is attributable to the trend in current interest rates. In an effort that the facilities are on commercial terms. to limit the interest-rate risk, derivatives are regularly entered

AB SAGAX ANNUAL REPORT 2015 123 FINANCIAL REPORTS

NOTE 32 Operational risks, cont’d.

into in the form of interest-rate swaps and interest-rate caps. At OPERATIONAL RISKS December 31, 2015, interest-bearing liabilities amounted to SEK Within the framework of its day-to-day current operations, Sagax 10,568 M (8,525). could potentially incur losses due to flawed procedures, inad- With the capital structure applying on December 31, 2015, a equate control or impropriety. Well-adapted administrative sys- change in variable market interest rates of one percentage point tems, effective internal control, skills development and access to would affect interest expenses by SEK 35 M (33) annually, tak- reliable valuation and risk models provide a sound basis for reducing Sagax’s fixed-income derivatives into account. A reduction in ing the operational risks. Sagax works continuously to develop the market interest rates of 1 percentage point would have increased company’s administrative security and controls. Sagax’s interest expenses by SEK 20 M (lowered: 33) on an annual basis. If the underlying market interest rates (base rates) rise to ENVIRONMENTAL RISKS 2.0%, which is the average weighted strike rate for Sagax’s inter- According to applicable environmental legislation, the operator est rate cap, the effect on Sagax’s interest expenses is reduced to is ultimately responsible for pollution and other environmental SEK 17 M (8) for each additional percentage point increase of the damage. Under the Swedish Environmental Code, Sagax has no underlying market interest rates. Had the company not utilized operations requiring any special permits. However, there may be fixed-income derivatives to mitigate the interest-rate risk, an tenants who conduct operations requiring special permits under increase in variable market interest rates of one percentage point the Environmental Code, meaning that they are regarded as oper- would have affected interest expenses by SEK 106 M (85). ators as stipulated in the Environmental Code. Taking into account Sagax’s derivatives, the average fixed- If the operator is unable to perform or defray post-treatment interest period was 3.0 (3.0) at year-end. Accordingly, this entails of a property, however, the party who acquired the property and that Sagax’s profit from property management is only impacted who knew of or should have detected the pollution when the to a limited extent in the event of changes in the general interest- property was acquired is to assume responsibility. This means rate scenario. that under certain circumstances, claims may be directed at Sagax for land remediation or post-treatment in the event of the CURRENCY RISK occurrence or suspicion of contamination of land, catchment area At year-end, Sagax owned 85 (55) properties in Finland, five or ground water for the purpose of returning the property to the (five) properties in Germany and three properties (one) in France, condition required according to the Environmental Code. Such thereby entailing exposure to the EUR exchange rate. The proper- claims could have a negative impact on Sagax. It is therefore cru- ties are financed with shareholders’ equity and external loans. At cial that the property owner and the operator cooperate on issues December 31, 2015, interest-bearing liabilities denominated in concerning the environmental impact of a particular operation. EUR corresponded to SEK 4,019 M (3,366). At the same date, Sagax performs regular environmental analyses of the properties the market value of properties in Finland, Germany and France that are acquisition candidates. was SEK 6,345 M (4,482). Net exposure on December 31, assets There are currently no material environmental claims direct- less liabilities in EUR, amounted to SEK 1,918 M (1,151). Because ed at any of the Group companies. Nor has Sagax identified any Sagax reports in line with IAS 21, most of the currency effects are significant environmental risks. recognized directly against shareholders equity. Only a small portion of the currency effects are recognized in profit or loss. TAXES AND AMENDED LEGISLATION Sagax also owns two properties in Denmark. The market Sagax has accumulated loss carryforwards. Changes in ownership, value of the property in Denmark amounted to SEK 84 M. Mort- which entail a change in the controlling influence over the com- gaging of these properties corresponded to a total of SEK 53 M at pany, could result in partial or entire restrictions on the ability year-end. to utilize these losses. The possibility to utilize the loss carryforwards may also be impacted by amendments to legislation. ORGANIZATIONAL RISK The company pays property tax on all of its properties except The company has a relatively small organization, which creates for one special property, and most of its leases stipulate that this a dependency on certain employees. The company’s growth has cost is to be reimbursed by the tenants. helped to alleviate this risk in recent years. Sagax’s future devel- Other factors that may have negative implications for the opment is highly dependent on the expertise, experience and company include amendments to legislation or legal practices, commitment of company management and other key individuals. including law of tenancy and legislation governing acquisitions The company could be negatively impacted should one or more and the environment. of these key individuals terminate their employment. Employee Sagax is not involved in any tax disputes. turnover has been low at Sagax in recent years. The employment contracts reached are considered to be on commercially competitive terms and Sagax has also established annual incentive plans to attract new employees and retain existing ones.

124 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

NOTE 32 Operational risks, cont’d.

SENSITIVITY ANALYSIS Sagax’s exposure to material risks in the company’s operations is presented below.

Sensitivity analysis at December 31, 2015 Effect on profit from Effect on profit property manage- before tax, Effect on Amounts in SEK M Change ment, annual basis annual basis5) equity5) Economic occupancy rate +/–1% +/–15 +/–12 +/–12 Rental revenue +/–1% +/–14 +/–11 +/–11 Property expenses +/–1% +2% +/–2 +2% Borrowing costs assuming current fixed-interest periods and changed interest rates1) +/–1% point –35/–20 –27/–16 –27/–16 Borrowing costs resulting from change in average interest rate level2) +/–1% point +74/–17 +58/–13 +58/–13 Revaluation of fixed-income derivatives attributable to shift in interest rate curves3) +/–1% point N/A +186/–198 +186/–198 Change in SEK/EUR exchange rate4) +/–10% +/–42 +/–20 +/–150 Changed rent level for contract maturity in 2015 +/–10% +/–9 +/–7 +/–7

NOTE 33 Key events after the close of the fiscal year

On February 9, 2016, Sagax announced in a press release that it responding to approximately SEK 1.4 billion. The commercial had signed an agreement to acquire the industrial property Blanc paper program diversified Sagax’s sources of financing and is a cost- Mesnil, situated 16 km from central Paris and 12 km from Charles efficient supplement to existing financing. The arranger of the com- de Gaulle airport. The property encompasses 13,500 square meters mercial paper program is Swedbank and the issuing institutes are of lettable area, divided between 38 units ranging in size from 200 Swedbank and Danske Bank. to 600 square meters. The property encompasses 25,000 square On March 14, 2016, Sagax also announced in a press release meters of freehold land. Sagax’s investment amounts to SEK 106 M, that it has signed an agreement to acquire a property portfolio in corresponding to SEK 7,800 per square meters of lettable area. The France comprising 14 industrial properties, of which eight in Paris, yield and occupancy rate are initially estimated to amount to 4.3% four in Lyon and two smaller properties outside these markets. The and 68%, respectively. The average remaining lease term is 1.3 years. investment amounts to a corresponding SEK 455 M, of which 74% The property was acquired from the Municipality of Blanc Mesnil. pertains to properties in Paris, 23% to properties in Lyon and 3% to Sagax aims to increase the occupancy rate and adjust rent levels to the other properties. The property portfolio encompasses 79,000 market conditions with the target of achieving a yield of 7.0-7.5% square meters of lettable area with an average occupancy rate of within three years. 83%. The two properties in Paris comprising 9,000 square meters On February 12, 2016, Sagax announced in a press release that it of lettable area are acquired vacant. The 12 remaining properties had signed a conditional agreement to acquire a property portfolio in encompass 70,000 square meters and have a occupancy rate of 91% Finland comprises two superstores and 184 local supermarkets for a distributed between 50 tenants. The average yield is initially calcu- total of SEK 850 M. The superstores have been leased to S-Gruppen lated to amount to 6.4% for the entire portfolio and to 7.3% exclud- and the local supermarkets to SLK. The superstores are located ing the two completely vacant properties. For property acquisitions in Turku and Tampere, while the local supermarkets are situated in France, the relevant municipalities have pre-emptive rights to buy throughout Finland. The lettable area encompasses 156,000 square the properties within the municipality’s boarders, as is the cases for meters, of which 94% has been leased. The property portfolio’s rent- these acquisitions. Sagax is expected to receive a decision on this al revenue currently corresponds to SEK 100 M per year. The aver- matter at the end of May 2016. Possession is expected to be taken on age remaining lease term is 6.1 years. The Finnish retail group Kesko September 15, 2016 on the condition that the municipalities do not announced on November 18, 2015 that Kesko had agreed on the use their pre-emptive rights to purchase the properties to the extent acquisition of SLK and that one of the conditions for the acquisition that the composition of the property portfolio would be disadvanta- was the approval of the Finnish Competition and Consumer Author- geous for Sagax. ity. Sagax’s acquisition of the property portfolio is in turn condition On March 29, 2016, Sagax announced in a press release that it on Kesko’s acquisition of SLK. The property portfolio is acquired had acquired six leases comprising a total of 64,000 square meters from a British fund that acquired the properties from SLK in a sale pertaining to Sagax’s properties in Hechingen, Germany. The new and leaseback transaction in 2006. The purchase consideration will leases expire in August 2037, representing a five-year extension. The be financed by available liquidity and existing credit facilities. total rental value of the agreements is estimated at SEK 1.4 billion. On March 14, 2016, Sagax announced in a press release that The premises are utilized by the Baxter Group for manufacturing of it had decided to establish a program to issue commercial paper medical products as well as research and development. in Finland. The framework amount amounts to EUR 150 M, cor-

AB SAGAX ANNUAL REPORT 2015 125 FINANCIAL REPORTS Proposed appropriation of profits

The following amount is at the disposal of the AGM:

Unrestricted shareholders’ equity SEK 1,026,977,219.89 Loss for the year SEK –6,415,774.70 Total SEK 1,020,561,445.18

To holders of common shares, SEK 1.15 per Class A and Class B common share SEK 182,016,194.80 To holders of preference shares, SEK 2.00 per share SEK 116,500,000.00 To be carried forward in share premium reserve SEK 722,045,250.38 Total SEK 1,020,561,445.18

STATEMENT OF THE BOARD OF DIRECTORS ON THE the proposed dividend payment will instead correspond to a PROPOSED DISTRIBUTION OF UNAPPROPRIATED EARNINGS maximum of 41% of consolidated profit from property manage- AND AUTHORIZATION TO BUY BACK TREASURY SHARES ment for 2015 and a maximum of 49% of consolidated cash flow Pursuant to Chapter 18, Section 4 of the Swedish Companies from operating activities before changes in working capital during Act, the Board of Directors must make a statement in respect of 2015. The Board has established that the company will have full the proposed distribution of unappropriated earnings. It is also coverage for its restricted equity after the proposed dividend. stated in Chapter 19, Section 22 of the Act that the Board must The Board considers that the proposed dividend to the share- make a statement on the proposal to pass a resolution concerning holders and the proposed authorization to buy back shares are the buyback of treasury shares. defensible based on the criteria contained in the second and third The Group’s equity has been calculated in compliance with paragraphs, Section 3, Chapter 17 of the Swedish Companies Act IFRS standards, as adopted by the EU, the interpretations of these (nature, scope and risks of the business, consolidation require- (IFRIC) and Swedish law through the application of Recommen- ments, liquidity and other financial circumstances). dation RFR 1 Supplementary Accounting Rules for Corporate In the Board’s opinion, the company’s and the Group’s equity Groups of the Swedish Financial Reporting Board. The Parent after the proposed dividend, and after any utilization of the autho- Company’s equity has been calculated in accordance with Swed- rization to buy back shares, will be sufficient in view of the nature ish law, applying recommendation RFR 2 Accounting for Legal and scope of the business and the associated risks. In this context, Entities of the Swedish Financial Reporting Board. the Board has taken account such factors as the company’s and the The Board of Directors proposes that the Annual General Group’s historical and budgeted performance, investment plans Meeting (AGM) resolve to pay shareholders a dividend of SEK and the general economic environment. The proposed dividend 1.15 per common share for Class A and Class B shares for the constitutes 20% of the Parent Company’s equity and 5% of consoli- 2015 fiscal year. May 6, 2016 is proposed as the record day for dated equity at December 31, 2015. Should the authorization to payment of dividends on common shares. issue preference shares, as proposed to the 2016 AGM, be utilized The Board of Directors also proposes that the AGM resolve in full, the proposed dividend payment will instead correspond to to pay dividend to shareholders SEK 2.00 per preference share a maximum of 24% of Parent Company equity and a maximum for the 2015 fiscal year, with quarterly payments of SEK 0.50 per of 6% of consolidated equity at December 31, 2015. In view of preference share. The Board of Directors proposes Thursday June the nature and performance of the business, the company and the 30, 2016; Friday September 30, 2016; Friday December 30, 2016 Group have a solid equity/assets ratio. Against this background, and Friday March 31, 2017 as the record days for the payments of the Board considers that the company and the Group are in a good dividends on preference shares. The Board of Directors’ proposal position to cope with future business risks and withstand any on the payment of dividends to the holders of preference shares losses that may be incurred. Planned investments have been taken is in accordance with the Articles of Association, which stipulate into account in the proposed dividend payment and the proposed the terms and conditions for the preference shares. authorization to buy back treasury shares. Nor will the payment The Board also proposes that the AGM resolve that the new of the dividend and utilization of the authorization to buy back preference shares that may be issued under the authorization treasury shares have any adverse impact on the company’s or the granted according to Item 14 at the AGM provide entitlement to Group’s ability to make further commercially motivated invest- dividends from the date on which they are entered into the share- ments in accordance with adopted plans. holders' register administered by Euroclear Sweden AB. If the full The proposed dividend and any utilization of the authorization extent of the authorization is utilized, dividends for the forth- to buy back shares will not affect the company’s and the Group’s coming preference shares will be payable in a maximum amount ability to meet its payment obligations in a timely manner. of SEK 67,655,260. The Board has assessed other known circumstances that may The proposed dividend payment in 2016 corresponds to 33% be significant to the company’s and the Group’s financial position of consolidated profit from property management for 2015 and and that have not been addressed in the above. No circumstance 40% of consolidated cash flow from operating activities before was discovered during the assessment that would cast doubt on changes in working capital in 2015. If the authorization to issue the defensibility of the proposed dividend or the proposed autho- preference shares, proposed at the 2016 AGM, is utilized in full, rization to buy back treasury shares.

126 AB SAGAX ANNUAL REPORT 2015 FINANCIAL REPORTS

SIGNING OF THE ANNUAL REPORT The undersigned signatories give their assurance that the consolidated financial statements and Annual Report have been prepared in accordance with the IFRS standards adopted by the EU and generally accepted accounting policies and provide a true and fair view of the Group’s and the company’s financial position and results, and the Board of Directors’ Report on the Group provides a true and fair overview of the development of the Group’s and the company’s business, position and results and describe significant risks and uncertainties faced by the companies included in the Group.

Stockholm, April 12, 2016

Göran E Larsson Chairman of the Board

Filip Engelbert Staffan Salén Board Member Board Member

Ulrika Werdelin Johan Cederlund Board Member Board Member

Johan Thorell David Mindus Board member Board member and Chief Executive Officer

Our audit report was submitted on April 12, 2016

Magnus Fredmer Authorized Public Accountant Ernst & Young AB

AB SAGAX ANNUAL REPORT 2015 127 AUDITOR’S REPORT Auditor’s Report

To the Annual General Meeting of AB Sagax, Corp. Reg. No. Opinion 556520-0028 In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all REPORT ON THE ANNUAL ACCOUNTS material respects, the financial position of the Parent Company AND CONSOLIDATED ACCOUNTS as of December 31, 2015 and of its financial performance and its We have audited the annual accounts and consolidated accounts cash flows for the year then ended in accordance with the Annual of AB Sagax for the 2015 fiscal year , with the exception of Accounts Act. The consolidated accounts have been prepared the Corporate Governance Report on pages 72-77. The annual in accordance with the Annual Accounts Act and present fairly, accounts and consolidated accounts of the company are included in all material respects, the financial position of the Group as of in the printed version of this document on pages 6-127. December 31, 2015 and of their financial performance and cash flows in accordance with International Financial Reporting Stan- Responsibilities of the Board of Directors and the CEO dards, as adopted by the EU, and the Annual Accounts Act. Our for the annual accounts and consolidated accounts opinions do not encompass the Corporate Governance Report on The Board of Directors and the CEO are responsible for the pages 72-77. The statutory Directors’ Report is consistent with preparation and fair presentation of these annual accounts and the other parts of the annual accounts and consolidated accounts. consolidated accounts in accordance with International Financial We therefore recommend that the annual meeting of share- Reporting Standards , as adopted by the EU, and the Annual holders adopt the income statement and balance sheet for the Accounts Act, and for such internal control as the Board of Direc- Parent Company and the statement of comprehensive income and tors and the CEO determine is necessary to enable the prepara- the statement of financial position for the Group. tion of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In addition to our audit of the annual accounts and consolidated Auditor’s responsibility accounts, we have examined the proposed appropriations of the Our responsibility is to express an opinion on these annual company’s profit or loss and the administration of the Board of accounts and consolidated accounts based on our audit. We con- Directors and the CEO of AB Sagax for the year 2015. We have ducted our audit in accordance with International Standards on also performed a statutory review of the Corporate Governance Auditing and generally accepted auditing standards in Sweden. Report. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable Responsibilities of the Board of Directors and the CEO assurance about whether the annual accounts and consolidated The Board of Directors is responsible for the proposal for appro- accounts are free from material misstatement. priations of the company’s profit or loss, and the Board of Direc- An audit involves performing procedures to obtain audit evi- tors and the CEO are responsible for administration under the dence about the amounts and disclosures in the annual accounts Companies Act and for ensuring that the Corporate Governance and consolidated accounts. The procedures selected depend on Report on pages 72-77 has been prepared in accordance with the the auditor’s judgement, including the assessment of the risks of Annual Accounts Act. material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk Auditor’s responsibility assessments, the auditor considers internal control relevant to Our responsibility is to express an opinion with reasonable assur- the company’s preparation and fair presentation of the annual ance on the proposed appropriations of the company’s profit or accounts and consolidated accounts in order to design audit pro- loss and on the administration based on our audit. We conducted cedures that are appropriate in the circumstances, but not for the audit in accordance with generally accepted auditing stan- the purpose of expressing an opinion on the effectiveness of the dards in Sweden. company’s internal control. An audit also includes evaluating the As a basis for our opinion on the Board of Directors’ proposed appropriateness of accounting policies used and the reasonable- appropriations of the company’s profit or loss, we examined the ness of accounting estimates made by the Board of Directors and Board of Directors’ reasoned statement and a selection of sup- the CEO, as well as evaluating the overall presentation of the porting evidence in order to be able to assess whether the pro- annual accounts and consolidated accounts. posal is in accordance with the Companies Act. We believe that the accounting records we have obtained are As a basis for our opinion concerning discharge from liability, sufficient and appropriate as the basis of our opinion. in addition to our audit of the annual accounts and consolidated

128 AB SAGAX ANNUAL REPORT 2015 AUDITOR’S REPORT

accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the CEO is liable to the company. We also examined whether any member of the Board of Directors or the CEO has, in any other way, acted in contra- vention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the accounting records we have obtained as per the above are sufficient and appropriate as the basis of our opinion. We have also read the Corporate Governance Report and, based on this reading and our knowledge of the company and the Group, we believe that we have sufficient grounds for our opinions. This means that our statutory review of the Corporate Governance Report has a different orientation and a significantly more limited scope than the orientation and scope of an audit conducted in accordance with the International Standards on Auditing and generally accepted auditing practices in Sweden.

Opinion We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the CEO be discharged from liability for the fiscal year. A Corporate Governance Report has been prepared and its statutory information is compliant with the other features of the annual accounts and consolidated accounts.

Stockholm, April 12, 2016 Ernst & Young AB

Magnus Fredmer Authorized Public Accountant

AB SAGAX ANNUAL REPORT 2015 129 ARTICLES OF ASSOCIATION Articles of Association AB SAGAX (PUBL) 556520-0028

§1 Amount. The deduction shall occur as of the dividend payment The Company’s registered name is AB Sagax. AB Sagax is a public date to preference shareholders and shall thus be deemed equiva- company (publ.). lent to settlement of the portion of the Withheld Amount that was first to arise. The Withheld Amount shall be increased by a §2 factor corresponding to an annual interest rate of seven (7) per- The Board of Directors is to have its registered office in cent (“Indexation Amount”), and the accrual start date shall be Stockholm City. the date of payment for the quarterly dividend. Furthermore, the amount shall be based on the difference between SEK 0.50 and §3 the paid dividend amount per preference share on that same date The company, directly or through subsidiaries, is to own, manage of payment for the quarterly dividend. In instances where that and operate activities involving real estate trading and to conduct payment occurs at some other point in time than the date that is other compatible operations. one full year subsequent to the date when the addition or deduction from the Withheld Amount occurred, the upwards adjust- §4 ment of the amount that was added or deducted shall occur by The share capital shall amount to not less than SEK 320,000,000 an amount corresponding to the indexation factor multiplied by and not more than SEK 1,280,000,000. the fraction of the year that has elapsed. The accrued Indexation Amount is added to the Withheld Amount and it shall thereafter §5 be included in the calculation of the Indexation Amount. 5.1 Class of shares The number of shares shall not be fewer than 160 million and not 5.3 Dissolution of the company exceed 640 million. Shares may be issued in three classes: Class A Upon dissolution of the company, preference shares will entitle common shares, Class B common shares, and preference shares. Pref- the holder to receive from the company's remaining assets, an erence shares and Class A and Class B common shares may be issued amount per share that is calculated as the sum of thirty (30) SEK in an amount corresponding to at most 100% of the share capital. and any Withheld Amount in accordance with item 5.2 (includ- Class A common shares carry one vote each and Class B common ing, to avoid any confusion, accrued Indexation Amount on the shares and the preference shares carry one tenth of a vote each. Withheld Amount) before any distributions are made to owners of common shares. The preference shares shall otherwise not 5.2 Dividends entitle the holder to any distribution proceeds. The preference shares are to entail preferential rights ahead of common shares to an annual dividend of SEK 2 per share, with 5.4 Share issues quarterly payment of SEK 0.50 per share. The record dates for pay- For new share issues paid in cash or via offset, shareholders ments are to be the last workdays in June, September and Decem- have preferential rights to the new shares in the following way: ber following the Annual General Meeting, as well as March the old shares shall entitle the holder to preferential rights on new year after the AGM. The profit in accordance with the adopted shares of the same class; any shares not subscribed for by such balance sheet that may be distributed as dividends according to the eligible shareholders will be offered to all holders of shares and, clause concerning the protection of the company’s restricted equity in instances where the entire number of shares are not subscribed and the prudence clause in Chapter 17, Section 3 of the Swedish for via the latter offer, the shares will then be distributed amongst Companies Act and which is encompassed by the Board of Direc- holders in relation to the number of shares they owned before tors’ proposal of dividends, may not be excepted from the dividend and, to the extent that this not possible, through lottery. to preference shareholders unless a resolution to that effect is For new share issues paid in cash or via offset of only one class supported by shareholders representing at least two-thirds of the of shares, shareholders have preferential rights to the new shares preference shares represented at the AGM. If no such dividend is in relation to the number of shares they owned before. paid or if only a dividend less than SEK 2 per preference share is For issues of warrants in exchange for cash or via offset, paid during one or more years, the preference shares will carry the shareholders have preferential rights to subscribe for warrants as right to also receive from the following year’s distributable funds if the issue pertained to the shares that could possibly be newly the Withheld Amount (as defined below) (including, to avoid ambi- subscribed for because of the warrant. Likewise, for issues of guity, the Indexation Amount accruing on the Withheld Amount convertibles in exchange for cash or via offset, shareholders have as defined below) before a dividend on common shares is paid. If no preferential right to subscribe for convertibles, as if the issue dividend is paid or if a dividend of less than SEK 2 per preference pertained to the shares that the convertibles could possibly be share is paid for one or more years, it is incumbent on the AGM of exchanged for. the following year to resolve upon the distribution of the quarterly The above provisions shall not in any way limit the ability to payment of the Withheld Amount. In other respects, the prefer- make decisions on issues of shares, warrants or convertibles with ence shares will not carry any entitlement to dividend. deviation from the shareholders' preferential rights. At each individual quarter, the difference between SEK 0.50 An increase in share capital through a bonus issue may only and the paid dividend per preference share will be added to the occur through the issuance of common shares, which, if both Withheld Amount (provided that the dividend decided at the Class A and Class B common shares were previously issued, the AGM is less than SEK 2 per preference share). If the dividend per interrelationship between the Class A and Class B common shares preference share is made in accordance with a decision at a gen- that were issued by the bonus issue and the previously issued eral meeting of shareholders other than the AGM, the distributed Class A and Class B common shares shall remain unchanged. In amount per preference share shall be deducted from the Withheld such instances, only the holders of common shares will be entitled

130 AB SAGAX ANNUAL REPORT 2015 ARTICLES OF ASSOCIATION

to the new shares. If both Class A and Class B common shares are Sunday, other public holiday, Saturday, Midsummer Eve, Christ- issued, bonus shares will be distributed amongst common share- mas Eve or New Year's Eve and neither may it be a day that is less holders according to the number of common shares of the same than five working days prior to the general meeting. share type that the owned before. The foregoing shall not impose any restriction on the possibility of, via a bonus issue or requisite §9 change to the Articles of Association, issue shares of a new class. Decisions on the following matters shall be valid only if they are supported by at least two-thirds of representatives of preference 5.5 Redemption shareholders in attendance at a general meeting, unless the Swed- A reduction of share capital, however not below the minimum ish Companies Act stipulates a higher majority. amount, may occur subsequent to a general meeting of sharehold- a) Decisions on changes to the Articles of Association that ers’ decision via a redemption of preference shares in accordance impact the rights that come with preference shares in any with the following grounds. The general meeting of shareholders respect; and decides the number of preference shares to be redeemed each b) Decisions on a new issue of preference shares that in any way time. Exactly which preference shares will be redeemed is decid- entitles the holder to better rights to the company's results ed at the general meeting by lottery. If the decision is supported than the preference shares. by all preference shareholders, however, the general meeting may decide which preference shares will be redeemed. §10 Holders of a preference share that has been ordered for The calendar year shall be the Company’s fiscal year. redemption shall be obliged to accept payment for the share at an amount calculated as the sum of SEK 35 plus any With- §11 held Amount as per item 5.2 (including, to avoid any confusion, The AGM shall be held no earlier than the day after the last accrued Indexation Amount on the Withheld Amount up to and working day of the month of March and no later than June 15. including the date when payment of the redemption amount falls The following items of business shall be addressed at the Annual due). This shall occur either three months after the holder has General Meeting: been notified of the redemption decision, or, in instances where 1. Election of Chairman of the Meeting. court approval for the decrease is required, three months after 2. Preparation and approval of the voting list the holder has been notified of the fact that the court's legally 3. Approval of the agenda binding decision approving the redemption has been registered. 4. Election of one or two minutes checkers From the day when payment of the redemption amount falls due, 5. Determination of whether the Meeting has been duly convened. all calculations of interest shall cease thereafter. 6. Presentation of the annual report and the auditors' report and, when appropriate, the consolidated financial statements and 5.6 Share conversion clause the auditor's report for the Group. Class A common shares shall, upon request by the owner of such 7. Resolutions shares, be converted to Class B common shares. The conversion a) concerning adoption of the Income Statement, the Balance request, must be submitted in writing to the Board of Directors Sheet and, where applicable, the consolidated Income State- and it must state the number of Class A common shares that are ment and the consolidated Balance Sheet to be converted to Class B common shares and, if the request does b) the disposition of the Company’s profit or loss not apply to the entire holding, which Class A common shares the in accordance with the adopted Balance Sheet conversion pertains to. The company must immediately notify the c) discharge of the members of the Board and the CEO from Swedish Companies Registration Office so that the conversion can personal liability for the fiscal year be registered in the Register of Companies. The conversion is com- 8. Determination of the fees to be paid to the Board members and pleted once registration has occurred and is recorded in the CSD auditors. register. 9. Election of Board members and, where applicable, auditors and any deputy auditors. §6 10. Other business to be addressed by the Meeting in accordance The Board of Directors shall be comprised of at least three (3) with the Swedish Companies Act or the Articles of Association. and at most eight (8) members, not including deputies. §12 §7 In the event of a dispute between the company and its Board of The company shall have one or two auditors with or without Directors, a Board member or a shareholder, the dispute shall be deputy auditor(s) or one registered audit firm. settled by an arbitrator in accordance with the Swedish Arbitra- tion Act. §8 Notice of a general meeting of shareholders shall be published in §13 Post- och Inrikes Tidningar as well as on the company’s website. The Company's shares shall be registered in a CSD register in The fact that notice has been published shall be advertised in accordance with the Swedish Financial Instruments Accounts Act Svenska Dagbladet newspaper. In order to participate in a general (1998:1479). meeting, the shareholder must submit registration to the Board of ______Directors no later than 4.00 p.m. on the day that is stipulated in Adopted at the Extraordinary General Meeting of March 19, the notice of the general meeting. However, that day may not be a 2013.

AB SAGAX ANNUAL REPORT 2015 131 NOTICE OF THE ANNUAL GENERAL MEETING Notice to the Annual General Meeting of AB Sagax (publ)

Shareholders in AB Sagax (publ), Corporate Registration Number 556520-0028, (“the company”) are hereby officially convened to the Annual General Meeting (AGM) which will be held on Thursday, May 3, 2016 at 5:00 p.m. at Spårvagnshallarna, Birger Jarlsgatan 57 A, Stockholm, Sweden.

PARTICIPATION IN THE AGM 6. Presentation of the annual report and the auditors’ report Shareholders intending to participate in the AGM must: and of the consolidated financial accounts and the auditor’s – be registered in the share register maintained by Euroclear report on the consolidated financial accounts. Sweden AB (“Euroclear”) on Wednesday, April 27, 2016, and 7. Resolutions register participation to the Company at the following address: a) adoption of the income statement, the balance sheet, AB Sagax, attention: Coco Thorin, Engelbrektsplan 1, SE-114 the consolidated income statement and the consolidated 34 Stockholm or by e-mail to: [email protected], not later balance sheet, than Wednesday, April 27, 2016 at 4:00 p.m. b) disposition of the company’s earnings in accordance with the adopted balance sheet, and Notification should include name, personal identification number c) discharge of the members of the Board and the CEO from or corporate registration number, address and telephone number. personal liability for the fiscal year 8. Resolution concerning the number of Board members REPRESENTATIVES AND POWER OF ATTORNEY FORM 9. Determination of the fees to be paid to the Board members Shareholders who wish to represented by proxy must issue a power and auditors of attorney for the proxy. Proxies representing a legal entity must 10. Election of the Board of Directors, Chairman and Auditors produce a registration certificate (or corresponding authorization 11. Resolution concerning principles for appointing the Nomina- document) showing that the parties who have signed the power of tion Committee attorney are authorized signatories for the shareholder. To facilitate 12. Resolution concerning guidelines for remuneration of senior entry at the Annual General Meeting, an original version of the executives power of attorney (together with any authorization document) 13. Resolution concerning the introduction of a Incentive Plan should be sent to the company, together with the notification to 2016-2019 through the a) issue of warrants to the subsidiary attend. The power of attorney may not have been issued earlier Satrap Kapitalförvaltning AB and b) approval of the transfer of than five years prior to the Meeting. A form for notifying power of the warrants to employees of the company or its subsidiaries attorney is available on the company’s www.sagax.se website and 14. Resolution concerning authorization of the Board of Direc- will be sent free of charge to those shareholders who request such a tors to increase the share capital through new issue of shares, form and notify their postal or e-mail address. To order a power of warrants and/or convertibles attorney form, apply to the postal and e-mail address stated above. 15. Resolution concerning authorization of the Board of Direc- tors to make decisions on the company’s acquisition of trea- TRUSTEE-REGISTERED SHARES sury shares, warrants and/or convertibles and/or transfers of Shareholders whose shares are held in the name of a trustee must transfer treasury shares and/or warrants temporarily re-register the shares in their own name at Euroclear 16. Closing of the Meeting. Sweden AB to be entitled to participate in the Meeting. Such registration, which normally takes three days, must be completed MOTIONS (registered with Euroclear) no later than Wednesday, April 27, Item 1 2016, and must be requested from the trustee well in advance of The Nomination Committee proposes that Göran E Larsson be this date. elected Chairman of the AGM.

NO. OF SHARES Item 7 b) On the date of issue of the official announcement of the AGM, The Board proposes that the AGM resolve in favor of a dividend of the company had a total of 217,524,952 shares, of which SEK 1.15 per Class A and Class B common share and that the AGM 58,250,000 were preference shares (each carrying one tenth of a also resolve in favor of a dividend of SEK 2.00 per preference share vote), 13,416,822 were Class A common shares (each carrying one for the 2015 fiscal year, with quarterly payments of SEK 0.50 per vote) and 145,858,130 were Class B common shares (each carry- preference share. The Board proposes May 6, 2016 as the record day ing one tenth of a vote), corresponding to a total of 33,827,635 for payment of dividends on common shares. The dividend is expect- votes. The company holds 1,000,000 Class B treasury shares, ed to be paid by Euroclear on the third working day after the record corresponding to 100,000 voting rights. day. The Board of Directors proposes Thursday June 30, 2016; Friday September 30, 2016; Friday December 30, 2016 and Friday PROPOSED AGENDA March 31, 2017 as the record days for the payments of dividends on The Board of Directors’ proposed agenda for the AGM: preference shares. The dividend is expected to be paid by Euroclear 1. Opening of the Meeting and election of Chairman of the on the third working day after each record day; Meeting The Board of Directors also proposes that the AGM resolve 2. Preparation and approval of the voting list that the new preference shares that may be issued under the 3. Approval of the agenda authorization granted according to Item 14 provide entitlement to 4. Election of one or two minutes checkers dividends from the date on which they are entered into the share- 5. Determination of whether the Meeting has been duly convened. holders' register administered by Euroclear.

132 AB SAGAX ANNUAL REPORT 2015 NOTICE OF THE ANNUAL GENERAL MEETING

Item 8 Nomination Committee. Board members may be appointed to the The Nomination Committee proposes that the number of Board Nomination Committee but are not to constitute a majority of its members amount to six for the period until the next AGM. members. If more than one Board member is appointed to the Nom- ination Committee, at least one of them is required to be dependent Item 9 in relation to the company’s major shareholders. The Nomination Committee proposes that fees be paid in the The Nomination Committee is to elect its chairman from amount of SEK 300,000 to the Chairman of the Board and SEK among its own members. The Chairman of the Board or any other 165,000 to each other non-executive Board member elected by Board member is not to be elected chairman of the Nomination the AGM. The fees also include remuneration for committee Committee. The composition of the Nomination Committee is to work. The Nomination Committee’s proposal concerning the be announced no later than six months prior to the 2017 AGM. If composition of the Board entails that director fees will total SEK a member leaves the Nomination Committee before its work has 960,000. On condition that it is cost-neutral for the company, been completed and if the Nomination Committee considers that the possibility to invoice director fees from the Board member’s it is necessary to replace this member, the Nomination Committee own company will be provided. It is proposed that the auditors be is to appoint a new member according to the principles above, but remunerated in return for approved invoices. using Euroclear’s transcript of the shareholders’ register as its point of departure, as soon as possible after the member has vacated his/ Item 10 her position. Changes in the composition of the Nomination Com- The Nomination Committee proposes that the AGM resolve to mittee must be immediately announced. No fee is to be paid to the re-elect as Board members Johan Cederlund, Filip Engelbert, members for their work on the Nomination Committee. David Mindus, Staffan Salén, Johan Thorell and Ulrika Werdelin. The Nomination Committee is to submit proposals concerning The Nomination Committee also proposes that Staffan Salén be the following matters to the 2017 AGM for resolution: elected Chairman of the Board. Should the assignment as Chair- a) proposal regarding the Chairman of the Meeting man of the Board cease prematurely, the Board of Directors is to b) proposal regarding members of the Board of Directors elect a new Chairman from among own members. It was noted c) proposal regarding Chairman of the Board that Göran E Larsson, who had served as a Board member since d) proposals regarding auditors 2001 and been Chairman of the Board since 2004, declined re- e) proposal regarding director fees, distributed between the election. Chairman and other members of the Board of Directors Details about the proposed members of the Board are avail- f) proposal regarding remuneration of the company’s auditors able on the company’s website www.sagax.se. g) proposals regarding principles for the Nomination Committee The Nomination Committee proposes that the AGM resolve ahead of the 2018 AGM. to re-elect Ernst & Young AB as auditors for the forthcoming one- year period, with Magnus Fredmer as the auditor-in-charge. Item 12 The Board of Directors’ proposes that the AGM adopt guidelines Item 11 for remuneration of the company’s senior executives, essentially The Nomination Committee proposes that the AGM appoint a as follows: Nomination Committee according to the following principles. Remuneration paid to the CEO is prepared by the Chairman The AGM assigns the Chairman of the Board to contact the and established by the Board at a scheduled Board meeting. The three largest shareholders or groups of shareholders in terms of CEO does not participate in this decision. The Board assigns the votes (this pertains to both directly registered shareholders and CEO the task of negotiating with other senior executives in accor- nominee-registered shareholders), according to Euroclear’s tran- dance with the guidelines below. Agreements with other senior script of the shareholders’ register at September 30, 2016, who are executives are reached by the CEO jointly with the Chairman of each to be asked to appoint one representative, plus the Chairman the Board. of the Board, to constitute the Nomination Committee for the The company is to offer commercially competitive remunera- period until a new Nomination Committee has been appointed tion levels and terms and conditions of employment in order to according to authorization from the next AGM. In the event that retain and, where necessary, recruit senior executives with the nec- one of the three largest shareholders or groups of shareholders does essary expertise and experience. Remuneration to the company’s not wish to appoint such a representative, the fourth largest share- management is to essentially take the form of cash salary. Remu- holder or group of shareholders is to asked to do so, and so forth neration may comprise a combination of fixed and variable salary. until the Nomination Committee consists of four members. Remuneration is to mainly comprise fixed salary and be considered The majority of the members of the Nomination Committee are to correspond to commercially competitive compensation for doing to be independent in relation to the company and executive manage- an adequate job. The variable salary supplement is to pertain to ment. At least one of the Nomination Committee’s members must additional compensation for work that has been exceptionally well be independent in relation to the company’s largest shareholder, or performed, an exceptional workload or another similar circum- the group of shareholders, in terms of votes, that works together in stance. Unless there are special reasons for not applying this rule, respect of the administration of the company. The CEO or another the variable salary supplement is not to exceed 50% of the fixed member of executive management must not be a member of the annual salary. In addition, the Board is to annually assess whether

AB SAGAX ANNUAL REPORT 2015 133 NOTICE OF THE ANNUAL GENERAL MEETING

or not a share-based or share-price-based incentive plan is to be participate in a well-balanced Incentive Plan, thus providing them proposed to the AGM. Termination salary must not exceed six with an opportunity to participate in the company’s long-term monthly salaries. Severance pay is not to be applied. value performance. The Board of Directors is entitled to deviate from the aforementioned guidelines if the Board finds specific reasons to moti- B. Approval of transfer of warrants to Employees vate this in isolated cases. If the Board of Directors deviates from The Board of Directors also proposes that the AGM resolve to the remuneration guidelines for senior executives, a report on this approve that the subsidiary be permitted to transfer a maximum must be made to the immediately following AGM. of 400,000 warrants in the company, of the 2016/2019 series, to Employees, or to have control over the warrants in some other Item 13 manner in order to secure obligations pursuant to Incentive Plan The Board of Directors proposes that the AGM resolve on the 2016-2019. introduction of Incentive Plan 2016-2019, whereby the company As part of Incentive Plan 2016-2019, each Employee is to be will implement an issue of warrants and transfer the warrants to offered an opportunity to acquire warrants in an amount corre- individuals who are or become employees of the company or its sponding to a maximum of one twelfth (1/12) of the Employee’s subsidiaries, except for the CEO of the company, (“Employees”) annual salary before income tax. If the Employee has been on a subject to the terms and conditions specified below (“Incentive lease of absence, parental leave, long-term sick leave or similar Plan 2016-2019”). during the twelve-month period immediately prior to the date on which the Employee is offered acquisition of warrants under Issue of warrants to the subsidiary the framework of the Incentive Plan 2016-2019, the number of The Board of Directors proposes that the AGM resolve on an warrants that the Employee is offered is to be adjusted. Such issue of a maximum of 400,000 warrants of the 2016/2019 series. adjustment is to entail that the number of warrants offered to the Disapplying the preferential rights of shareholders, subscription Employee is to be reduced in proportion to the number of months entitlement will accrue to the wholly owned subsidiary, Satrap that the Employee has not rendered services to the company. Kapitalförvaltning AB, Corp. Reg. No. 556748-3309, (“Subsid- The warrants are to be offered to Employees at a price corre- iary”). The warrants will be issued free of charge. Each warrant sponding to the estimated market value of the warrants, applying entitles the holder to subscribe for one (1) new Class B common the options valuation model based on the Monte Carlo simula- share in the company. The warrants will be subscribable during tion. The calculation is to be based on an subscription price for the period starting on May 3, 2016 through May 11, 2016 on a Class B common shares corresponding to the volume-weighted separate subscription list. The Board of Directors is to be autho- average purchase price during the period of May 9, 2016 through rized to extend the subscription period. May 16, 2016 according to Nasdaq Stockholm. When exercising warrants, the subscription price for a share Since the warrants are to be transferred to Employees at estimat- is to correspond to the average price of Class B common shares ed market price, Incentive Plan 2016-2019 is not expected to result at the time of the issue of the warrants, adjusted upwards or in any expenses, apart from certain minor costs for its establishment downwards depending on the average performance of all publicly and administration. However, the intention is that employees who traded property companies, measured in accordance with the choose to participate in Incentive Plan 2016-2019 will receive a Carnegies Property index (CREX), during the period commenc- premium subsidy in the form of extra salary in an amount after tax, ing May 16, 2016 through May 31, 2019. The average price of calculated using a tax rate of 50 percent, corresponding to 50% of Class B common shares at the time of the issue of the warrants the warrant premium. Based on full participation in Incentive Plan corresponds to the volume-weighted average purchase price dur- 2016-2019, the cost of this premium subsidy, excluding social secu- ing the period of May 9, 2016 through May 16, 2016 according to rity contributions, is estimated to amount to a maximum of SEK Nasdaq Stockholm. The subscription price may not be lower than 2,600,000. Nor will the warrants have any accounting consequences, the current quotient value of Class B common shares. other than the aforementioned premium subsidy. However, the dilu- The warrants will be exercisable through notification to sub- tion effect of the warrants could affect certain key data per share in scribe for new shares during the period June 3, 2019 through June accordance with the accounting standard IAS 33. 13, 2019. Shares subscribed for through exercise of warrants will At an assumed price per warrant of SEK 9.40, existing carry entitlement to dividends for the first time on the record date Employees will be offered an opportunity to acquire a total of for dividends occurring immediately after subscription has occurred. 278,000 warrants. The company will then receive a total warrant It is estimated that the maximum number of additional Class premium of SEK 2,613,200 (without deduction for the premium B common shares will not exceed 400,000, corresponding to subsidy). Upon full exercise of the warrants and at an assumed approximately 0.27 percent of the total number of Class B com- subscription price of SEK 90, the company will also be credited mon shares in the company, subject to full subscription and full with issue proceeds of about SEK 25 M. If, under these circum- exercise of all warrants. The increase in share capital in such a stances, additional warrants were to be acquired by Employees case will amount to a maximum of SEK 700,000. who join the company during the year, the company could receive The reason for disapplying the shareholders’ preferential an additional warrant premium of a maximum of SEK 1,146,800. rights is that the Board of Directors wishes to promote the com- Upon full exercise of the these warrants, the company could pany’s long-term interests by giving Employees the opportunity to moreover receive additional issue proceeds of about SEK 11 M.

134 AB SAGAX ANNUAL REPORT 2015 NOTICE OF THE ANNUAL GENERAL MEETING

The warrants are to be transferred to Employees no later than of sale. All or portions of the company’s holdings of treasury Class prior to the 2017 AGM, following which non-transferred warrants A common shares, Class B common shares and/or preference shares will be declared null and void. may also be transferred, on one or more occasions prior to the next The reason for disapplying the shareholders’ preferential Annual General Meeting, to finance such acquisitions, for which rights is that the Board of Directors wishes to promote the com- shares are to be sold on the Nasdaq Stockholm at a price that is pany’s long-term interests by giving Employees the opportunity to within the price interval applicable at any time. participate in a well-balanced Incentive Plan, thus providing them The main reason for the authorization is to provide the com- with an opportunity to participate in the company’s long-term pany with flexibility in connection with the financing of acquisi- value performance. tions of properties or property companies, or parts of properties or property companies, while increasing the Board of Directors’ Item 14 latitude in its efforts to optimize the company’s capital structure. Authorization for the Board, within the framework of the applicable Articles of Association, with or without disapplying the share- MAJORITY REQUIREMENTS holders’ preferential rights, on one or more occasions prior to the For valid resolutions pursuant to the Board of Directors’ motions next Annual General Meeting, to make decisions to increase the under Items 14 and 15 above, the resolutions must have the sup- company’s share capital on the basis of a new issue of Class A com- port of not less than two-thirds of both the votes cast and the mon shares, Class B common shares, preference shares, warrants number of shares represented at the Meeting. For a valid resolution and/or convertibles in the company. The total number of shares pursuant to the Board of Directors’ motions under Item 13, the res- encompassed by such share issues may not exceed 10% of the num- olution must have the support of not less than nine-tenths of both ber of votes in the company, based on the total number of votes the votes cast and the number of shares represented at the Meeting. in the company on the date of the 2016 Annual General Meeting. The shares are to be issued at the market subscription price, subject INFORMATION ABOUT THE AGM to the market issue discount, where applicable, and, in addition to The Board of Directors and the CEO must, if a shareholder so cash payment, payment for the shares in kind or by offsetting debt, requests and the Board of Directors considers it possible without or in some other manner that complies with terms and conditions, this resulting in material damage to the company, provide infor- is to be possible. The reason for the authorization and for possibly mation concerning conditions that could influence the assessment disapplying the shareholders’ preferential rights is to make it pos- of an item on the agenda, conditions that could influence assess- sible to issue shares for the financing of acquisitions of properties or ments of the financial condition of the company or subsidiar- property companies, or parts of properties or property companies. ies and the company’s relationship to other Group companies. Anyone who wants to submit questions in advance may do so to Item 15 AB Sagax, attention: Coco Thorin, Engelbrektsplan 1, SE-114 34 The Board proposes that the AGM resolves to authorize the Board, Stockholm or by e-mailing: [email protected]. on one or more occasions prior to the next Annual General Meet- ing, to make a decision to acquire a total of as many Class A com- OTHER mon shares, Class B common shares, preference shares, warrants The Annual Report and the Auditors’ Report, the Board of Direc- and/or convertibles as necessary so that the company’s holdings at tors’ complete proposals concerning the resolutions above and any time do not exceed a tenth of the total number of shares in the documentation pursuant to Chapter 18, Section 4 and Chapter company. Acquisitions of treasury shares are to take place on the 19, Section 22 of the Swedish Companies Act, as well as the Nasdaq Stockholm and may only take place at a price within the Board of Directors’ evaluation of the company’s guidelines for price span applicable at any time, meaning the span between the remuneration of senior executives and the auditor’s opinion highest bid and lowest asked price, or on the basis of an acquisition regarding the application of the guidelines for remuneration of offering directed to all shareholders, whereby the acquisition is senior executives are available at the company’s office, at the to take place at a price that on the decision date corresponds to a above address, on the company’s website www.sagax.se no later minimum of the applicable share price and a maximum of 150% of than Thursday, April 12, 2016. Copies of the said documentation the applicable share price. Acquisition of treasury warrants and/or will also be sent to shareholders requesting such documentation convertibles is to take place at a price that on the decision date cor- and who have provided their postal address. The Nomination responds to a maximum of the market value; Committee’s reasoned statement concerning the proposed Board The Board of Directors also proposes that the AGM resolve on of Directors, as well as a form for notifying power of attorney, are authorization of the Board, on one or more occasions prior to the also available on the company’s website. next Annual General Meeting, to make decisions to sell, with or without disapplying the shareholders’ preferential rights, all or portions of the company’s holding of treasury Class A common shares, Class B common shares, preference shares and/or warrants as payment for acquisitions of properties or property companies, or parts Stockholm, April 2016 of properties or property companies, at a price corresponding to AB Sagax (publ) the share price or, regarding warrants the market value, on the date Board of Directors

AB SAGAX ANNUAL REPORT 2015 135 DEFINITIONS Definitions

Cash flow per common share Joint venture Profit before tax adjusted for items not included in cash flow and less current Partnership form whereby several owners have a shared controlling influence. tax in relation to the average number of common shares. The preferential rights of preference shares to dividends for the period were also deducted Lease term from profit before tax. Dividends received from joint ventures have been Remaining term of a lease. added to profit before tax. Occupancy rate by area Debt ratio Contracted area at year-end as a percentage of total lettable area at year-end. Interest-bearing liabilities at year-end as a percentage of total assets at year-end. Net debt Dilution Interest-bearing liabilities less interest-bearing assets and cash and cash Dilution due to outstanding warrants has been calculated, in accordance with equivalents. IAS 33, as the number of common shares that are to be issued to cover the difference between the redemption price and share price for all outstanding Preference equity potential common shares (warrants), to the extent it is probable that they will Calculated as equity per preference share multiplied by the number of out- be utilized. standing preference shares.

Earnings per common share Profit from property management Profit in relation to the average number of common shares after taking into Profit excluding changes in value and tax. account the portion of profit for the year represented by preference shares. Profit from property management per common share after dilution Economic occupancy rate Profit from property management for the period reduced by preference Contractual annual rent at year-end as a percentage of rental value at year-end. shares’ preferential rights to dividends, divided by the average number of common shares after dilution. EPRA NAV Recognized equity according to the balance sheet with reversal of reserves Property for fixed-income derivatives, deferred tax pertaining to temporary differences Pertains to properties held under title or site leasehold. on property values and deferred tax pertaining to reserves for fixed-income derivatives. Rental value The contractual annual rent applicable at the end of the period, with supple- Equity/assets ratio ments for estimated market rents for vacant premises. Equity as a percentage of total assets. Return on equity Equity per common share Profit for the year, recalculated to 12 months, as a percentage of average Equity at year-end as a percentage of the number of common shares at year- equity (opening and closing balances)/2 for the year. end after taking into account preference equity. Return on total capital Equity per preference share Profit for the year, recalculated to 12 months, after net financial items after Equity per preference share corresponds to the preferential right of the pref- reversal of financial expenses as a percentage of average total assets for the erence share on liquidation of the Company (SEK 30 per preference share) year. and the share’s accumulated preferential right to dividends (SEK 2 per year). STIBOR EURIBOR STIBOR, or Stockholm Interbank Offered Rate, is a daily reference rate based EURIBOR, or the Euro Interbank Offered Rate, is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other on the average of the interest rates at which euro interbank term deposits banks in the Swedish wholesale money market. are being offered by one prime bank to another within the EMU zone. Surplus ratio Financial derivatives Net operating income for the year as a percentage of the rental revenue. Agreements on lending rates that may include the factors of time, inflation and/or maximum interest-rate levels. Usually signed to hedge interest-rate Total return on share levels for interest-bearing loans. Total of the change in the share price during the year and the dividend paid during the year as a percentage of the share price at the end of the preced- IFRS ing year. International Financial Reporting Standards. IFRS is to be applied for consolidated financial statements by listed companies within the EU. Total yield on property Total of EBITDA and property revaluations during the year as a percentage of Interest coverage ratio the average property value adjusted for revaluations for the year. Profit from property management, excluding profit from joint ventures but including dividends from joint ventures, after reversal of financial expenses in Triple net lease relation to financial expenses. A type of lease whereby the tenant pays, in addition to the rent, all costs incurred on the property that would normally have been paid by the property Interest-rate swap owner. These include operating expenses, maintenance, property tax, site An interest-rate swap is an agreement between two parties to swap inter- leasehold fees, insurance, and property management, etc. est rate conditions on loans in the same currency. The swap entails that one party exchanges its variable interest rate for a fixed rate, while the other Yield party receives a fixed rate in exchange for a variable rate. The purpose of an Net operating income for the year (including property administration), recal- interest-rate swap is to reduce interest-rate risk. culated to 12 months, adjusted for the holding periods of the properties during the year as a percentage of the carrying amounts of the properties at year-end.

136 AB SAGAX ANNUAL REPORT 2015 DEFINITIONSPRESS RELEASES, CALENDAR Press releases

April 1, 2016 Notice of the Annual General Meeting of September 3, 2015 Sagax issues five-year bond loan in EUR AB Sagax (publ) August 27, 2015 Sagax acquires property in Helsinki March 29, 2016 Sagax extends lease of 64,000 square meters August 26, 2015 Interim report for the period January-June 2015 March 14, 2016 Sagax signs agreement to acquire 14 properties July 16, 2015 Sagax publishes prospectus and lists bonds for SEK 455 M on Nasdaq Stockholm March 14, 2016 Sagax establishes EUR commercial paper program July 10, 2015 Sagax acquires property in Stockholm February 12, 2016 Sagax signs agreement for conditional acquisition June 18, 2015 Sagax acquires property for SEK 690 M of 14 properties in Finland for SEK 850 M June 11, 2015 Sagax issues five-year bond loan February 11, 2016 Year-end report 2015 May 7, 2015 Annual General Meeting of AB Sagax February 9, 2016 Sagax acquires industrial property in Paris for SEK 106 M May 7, 2015 Interim report for the period January-March 2015 January 27, 2016 Sagax publishes bond prospectus May 7, 2015 Sagax extends its tied-up capital and fixed-interest periods by refinancing SEK 4,250 M corresponding December 21, 2015 Sagax’s joint venture Söderport invests to 49% of the Group’s interest-bearing liabilities and extends leases May 6, 2015 Sagax repays outstanding bond loan of SEK 350 M December 9, 2015 Sagax expands 2014/2019 bond loan by SEK 250 M April 16, 2015 Sagax’s Annual Report now available on the www. sagax.se website December 8, 2015 Sagax makes acquisition for SEK 435 M April 7, 2015 Notice of the Annual General Meeting of AB Sagax November 11, 2015 Sagax acquires four properties in Helsinki (publ) for SEK 156 M March 31, 2015 Revised number of preference shares November 9, 2015 Sagax acquires three properties in Stockholm for SEK 156 M March 27, 2015 Sagax acquires industrial properties in Sweden November 4, 2015 Sagax establishes commercial paper program March 27, 2015 Sagax publishes prospectus November 2, 2015 Sagax’s Nomination Committee appointed March 25, 2015 Sagax acquires property in Helsinki October 22, 2015 Sagax’s joint venture Söderport makes divestment February 20, 2015 Sagax implements issue of private placement of of SEK 154 M preference shares of SEK 100 M to institutional investors October 22, 2015 Interim report for the period January-September 2015 February 13, 2015 Year-end report 2014 October 21, 2015 Sagax publishes prospectus and lists EUR bonds on January 20, 2015 Sagax publishes prospectus and lists bonds on Nasdaq Stockholm Nasdaq Stockholm October 5, 2015 Sagax buys and sells January 12, 2015 Sagax makes first acquisition in Paris

Calendar

Interim Report January-March 2016 May 3, 2016 Annual General Meeting 2016 May 3, 2016 Interim Report January-June 2016 July 13, 2016 Interim Report January-September 2016 October 26, 2016

Schedule of dividend payments to preference shareholders

June 2016 December 2016

■■Final day for trading including dividend rights June 28, 2016 ■■Final day for trading including dividend rights December 28, 2016

■■First day for trading excluding dividend rights June 29, 2016 ■■First day for trading excluding dividend rights December 29, 2016

■■Record date for dividend payment June 30, 2016 ■■Record date for dividend payment December 30, 2016 1) ■■Expected payment date by Euroclear July 5, 2016 ■■Expected payment date by Euroclear1) January 4, 2017

September 2016 March 2017

■■Final day for trading including dividend rights September 28, 2016 ■■Final day for trading including dividend rights March 29, 2017

■■First day for trading excluding dividend rights September 29, 2016 ■■First day for trading excluding dividend rights March 30, 2017 ■■Record date for dividend payment September 30, 2016 ■■Record date for dividend payment March 31, 2017 1) ■■Expected payment date by Euroclear October 5, 2016 ■■Expected payment date by Euroclear1) April 5, 2017

1) Payment is made on the third bank day following the record date for Swedish issuers. Sagax is unable to affect this date.

NORDIC ECOLABEL 341 001

AB SAGAX ANNUAL REPORT 2015 137 AB Sagax (publ), Engelbrektsplan 1, SE-114 34 Stockholm, Sweden Corp. Reg. No. 556520-0028 Tel: + 46 8 545 83 540, fax: + 46 8 545 83 549 www.sagax.se