Note 17 Shareholders’ Equity and Net Asset Value

Items in equity

The share capital as of 31 December 2020 consisted of 277,262,911 registered A shares with one vote per share and a quotient value of 0.5 per share. All shares are fully paid.

There are no restrictions regarding dividend or other types of repayment. There is no potential common stock, such as convertibles, or preferential rights to accumulated dividend (preference shares).

Other capital contribution

Other capital contribution is equity contributed by shareholders.

Currency translation reserve

Currency translation differences as a result of foreign operations.

Currency hedge reserve

Refers to the effective part of unrealised changes in value related to currency derivatives used to hedge investments in foreign operations.

Retained earnings

Retained earnings relates to earnings earned within the Group. The Group’s earlier appropriations to the statutory reserves is also included in this item.

Restricted and non-restricted equity in the Parent Company

According to the Swedish Companies Act, equity is made up of restricted (non-distributable) and non-restricted (distributable) equity. Dividends to the shareholders may only be such that after the distribution there is full coverage for restricted equity in the Parent Company. Further, distribution of profits may only be made if it is justified with respect to the demands put on the amount of equity needed by the type of business, the extent and risk of operations, company and Group consolidation needs, liquidity and financial position in general.

Repurchase of own shares

In 2000, Castellum repurchased 8,006,708 own shares for a total of MSEK 194, equivalent to 4.7% of the total registered number of shares. These repurchased shares were used in connection with the acquisition of Norrporten as a share issue in kind. In May 2020, Castellum repurchased 170,203 own shares at an average price of SEK 165.12.

Dividend

Dividend is proposed by the Board of Directors according to the rules of the Companies Act and decided by the Annual General Meeting. The proposed dividend, not yet paid out, for the financial year 2020 is SEK 6.90 per share, MSEK 1,801 in total. The proposal is to split the dividend into two payments, where the proposed record date for the first payment is 25 March 2021 and the proposed record date for the second payment is 27 September 2021. The amount is recorded as a liability only after the Annual General Meeting has approved the dividend.

Net asset value

Net asset value can be calculated both long and short term. Long term net reinstatement value (EPRA NRV) is based on the balance sheet, with adjustments for items that will not lead to any short-term payment such as – in Castellum’s case – derivatives, goodwill attributable to deferred tax and deferred tax liability. This means that equity according to the balance sheet is to increase by MSEK 1,132 and MSEK 11,437 respectively. At the same time, MSEK 1,480 is to be deducted.

Short-term net tangible assets (EPRA NTA) is equity according to the balance sheet, adjusted for the deferred tax liability and goodwill attributable to the acquisition of United Spaces. Present accounting policies state that the deferred tax liabilities are recognised at nominal tax rates, while the real deferred tax is substantially lower, due to the possibility to sell properties in a tax-efficient manner, as well as the time factor. The current assessment is that the actual discounted deferred tax liability is equivalent to MSEK 2,349 and that the aforementioned goodwill totals MSEK 193. An even more short-term net asset value is visible equity adjusted for goodwill of MSEK 1,673.

The value range of +/– 5–10% often used in property valuations should be viewed as indication of the uncertainty that exists in assessments and calculations made. For Castellum, an uncertainty range of +/– 5% is equal to MSEK +/– 4,091 after tax (based on a nominal tax rate of 20.6%).

Capital structure

Castellum should have a stable capital structure with low financial risk, meaning a loan-to-value ratio not permanently exceeding 50% and an interest coverage ratio of at least 200%.

In the balance sheet, there are, in addition to equity, liabilities that in principle are both interest free and amortisation free and therefore can be considered as shareholders’ equity. The property industry therefore uses the loan-to-value ratio as a key metric for capital structure instead of solidity. For the same reason the net asset value can be calculated in different ways, as shown above.

Castellum’s target is based on growth in cash flow and is not directly related to the net asset value. The target is an annual growth in cash flow, i.e. income from property management per share, of at least 10%. In order to achieve this objective, net investments of at least 5% of the property value will be made yearly. At the moment, this is equivalent to approximately SEK 5 billion, net, in annual investment volume. All investments are to contribute to the objective of growth in income from property management within 1–2 years and have a potential asset growth of at least 10%. Sales of properties will take place when justified from a business standpoint and when an alternative investment with a higher return can be found.

Appropriation of profits

The Board has proposed that the earnings at the Annual General Meeting’s disposal, SEK 18,225,536,070, are to be appropriated as follows: a dividend to shareholders of SEK 6.90/share – totalling SEK 1,908,593,185 (excluding 655,203 treasury shares) – and SEK 16,316,942,855 to be carried forward.