Corem Property : Annual Report and Sustainability Report 2023

Annual Report and Sustainability Report 2023

COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023

Annual Report and Sustainability Report 2023

CONTENTS

Contents

Corem Property Group	5
2023 in brief	6
Statement by the CEO	8
BUSINESS MODEL, GOALS AND STRATEGY	11
Vision, business concept, and business model	12
Goals	14
REAL ESTATE OPERATIONS	19
Management	20
Concepts and service offering	28
Transactions	31
Project development	35
Property valuation	41
FINANCE	47
Financing	48
Shares	54
RISKS AND OPPORTUNITIES	58
CORPORATE GOVERNANCE	65
Corporate Governance Report	66
Board of directors	76
Executive management	77
FINANCIAL REPORTS	79
Consolidated Statement of Income	80
Consolidated Report of Comprehensive Income	80
Consolidated Balance Sheet	81
Consolidated Statement of Cash Flow	82
Change in Consolidated Shareholders' Equity	83
Parent Company Income Statement	84
Parent Company Statement of Comprehensive Income	84
Parent Company Balance Sheet	85
Parent Company Statement of Cash Flow	86
Change in Parent Company Shareholders' Equity	87
Notes	88
Appropriation of profits and allocation of earnings	117
Audit report	119
SUSTAINABILITY REPORT	123
Sustainability notes including GRI index	128
The auditor's sustainability report	144
PROPERTY LIST AND OVERVIEW	145
Property list	146
Historical overview and key figures	170
Definitions	172

		Uppsala
		Västerås
		Örebro	Stockholm
		Nyköping
			Norrköping
		Linköping
Gothenburg	Borås	Jönköping
New York
Halmstad		Kalmar
Köpenhamn	Malmö

Property value SEK >10bn

Property value SEK 2-10bn

Property value SEK 1-2bn

Property value SEK 0-1bn

The Administration Report consists of pages 19-78 and page 117.

STATUTORY SUSTAINABILITY REPORT UNDER THE ANNUAL ACCOUNTS ACT

Corem's sustainability efforts for the 2023 business and financial year are described in accordance with the regulatory requirements on sustainability reporting. The Group's sustainability report under the Annual Accounts Act comprises pages 11-17,26-27, 30, 40, 44-45,61-63, and 123-143.

THIS IS COREM

Corem Property Group

Corem is a commercial real estate company focusing on sustainable ownership, management and development of properties. The portfolio comprises

326 investment properties with a combined 2,428,000 sq.m. of lettable area valued at SEK 58,033 million.

The properties are locally managed in-house - with a closeness to the tenant, a long-term view and engagement. The portfolio is geographically well concentrated, located in metropolitan cities and growth areas.

326	58,0	4,3	55	83
Investment	Value of investment	Rental value,	Loan-to-value	Net letting,
properties	properties, SEKbn	SEKbn	ratio, %	SEKm

PROFIT FROM PROPERTY

MANAGEMENT, SEKm

1,800
1,500
1,200
900
600
300
0	19	20	21	22	23

LOAN-TO-VALUE RATIO, %

60
50
40
30
20
10
0	19	20	21	22	23

NET ASSET VALUE (NAV) PER ORDINARY SHARE OF CLASS A/B, SEK

30
25
20
15
10
5
0	19	20	21	22	23

LETTABLE AREA BY TYPE, %

Offices 49

Logistics 25

Retail 10

Other 16

PROPERTY VALUE PER CITY, SEKm

25,000
20,000	40%	12%	10%
15,000
	Stockholm	Gothenburg		New York
10,000
5,000
0
Stockholm	New	York	VästeråsUppsala	Malmö		Nyköping
	Norrköping
Gothenburg*	Linköping**			Copenhagen	Jönköping***
*incl. Borås and Halmstad	**incl. Örebro ***incl. Kalmar

2023 IN BRIEF

2023 in brief

A transactions-intensive year

2023 was a transactions-intensive year, during which divestments have been used as a means of strengthening Corem's long-term financial capacity. From a real estate market perspective, it has been a challenging year, but there has nevertheless existed a functioning transactions market in properties in attractive locations. In total, Corem handed over 132 properties for an underlying property value of SEK 14.6 billion during the year.

Read more about property transactions on pages 31-34.

Stronger finances in focus

Corem continued to strengthen its balance sheet by repaying bank loans and redeeming bonds. Interest-bearing liabilities were reduced from SEK 47.6 billion at the end of 2022 to SEK 33.6 billion at year-end 2023. All of the bonds maturing in 2023 were redeemed instead of being refinanced, as the bond market has been weak throughout the year. Corem is continuing to work proactively to secure stable, long-term financing and to reduce its interest rate risk using interest swaps and ceilings.

Read more about financing on pages 47-52.

The First Office business centre in Malmö.

Punkt and Gallerian in Västerås.

Projects developing the portfolio

The project development side of the business has been focused on completing projects that have already begun, as well as carrying out tenant adaptations. Among other things, the renovations of the city malls Punkt and Gallerian in Västerås were completed during the year. Another example is the refurbishment and completion of the Orgelpipan 4 office property on Klarabergsgatan 33-35 in central Stock- holm. In total, SEK 1,993 million (2,903) were invested in project development during the year.

Read more about project development on pages 35-40.

Energy efficiency remains high

During the year, considerable emphasis was placed on continuing the efforts to reduce energy consumption. The foundation of these efforts is a continual and active work to optimize energy use, and through prioritized investments. For the year, the average energy consumption was

78.7 kWh/sq.m., which is a strong outcome. Corem also works with its tenants to improve energy efficiency, oriented toward achieving a long-term energy consumption target of 65 kWh/sq.m. by 2030.

Read more about energy efficiency and caring for the climate on pages 130-137.

6	COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023

Solar panels on the roof of Uppsala Gate, Kungsängen 10:1 and 10:2.

Positive net letting

The lettings and management activities have been robust and enjoyed good demand on the rental market in 2023. Net letting amounted to SEK 83 million during the year. In total, Corem signed and renegotiated 944 lease agreements, corresponding to a contract value of SEK 469 million. 42 per cent of these were agreements with existing customers and

58 per cent new customers.

At year-end, Corem had around 5,800 lease agreements with around 3,200 tenants in various industries. Among oth- ers, new agreements were signed with Bahnhof and Samhall, with Save the Children in Copenhagen, and with Shinrai Management in New York. Renegotiations to extend leases have been completed with, inter alia, HMS Industrial Networks, Santander Bank and Ica.

Read more about property management on pages 20-27.

2023 IN BRIEF

Toward a sustainable development

Corem's sustainability efforts are organized into four strategic areas: Good business partner and long-term development of value, Reduced impact on the climate, Attractive employer, and Sustainable and vibrant city. Taken together, these aims provide the conditions to combine a financially sustainable business with a high degree of business ethics, social responsibility, and a deep care for the en- vironment. Corem actively participates in collaborations with others on the market, including customers, aiming to work toward a sustainable construction and real estate industry, and a broader positive impact. Corem is active, inter alia, in Klimatarena Stockholm and as a part of FIHL, the Swedish real estate industry's initiative for sustainable supply chains, the purpose of which is to unite around industry-wide methods to promote sustainability and monitor supply chains.

Read more about sustainability efforts on pages 12-17,26-27,30-40,44-45, 63, and 123-143.

COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023

7

STATEMENT BY THE CEO

A transactions-intensive year with a focus on the financial key figures

The work to optimise our financial structure goes on. Through our proactive transaction efforts, we have been able in 2023 to continue to strengthen the balance sheet by gradually reducing borrowings. Meanwhile, we have a strong and stable core business in lettings and property management. This is shown by the many fine new lettings signed during the year.

A TRANSACTIONS-INTENSIVE YEAR

We can look back at a very transaction-intensive year. In

27 separate transactions, we divested an entire 132 properties in 2023, with a total transaction volume of nearly SEK 15 billion. This enabled us to reduce interest-bearing liabilities by SEK 14 billion during the year, while we have also invested nearly SEK 2 billion in ongoing projects and tenant customizations in order to develop the portfolio in the long term.

We completed, inter alia, two major deals whereby we divested 24 properties to Blackstone and two office properties in Copenhagen to AP Pension. Taken together, these two deals amounted to a combined property value of around SEK 5 billion. To strengthen the balance sheet in the long term, our strategy also includes reducing the future volume of development projects, which is why we are prioritising the completion of ongoing projects over starting new projects. In the fourth quarter, we chose to divest one of our planned projects in the US. The property on 118 10th Avenue in New York, with a building right for around 13,000 square metres, was sold to a local project developer that will carry on developing the project.

The transactions market is not as deep nor as strong as a few years ago, but exhibits a stability and a reasonably high activity in spite of high interest rates. We therefore feel secure in our continued ability to complete attractive deals as a tool to strengthen our balance sheet.

SATISFIED CUSTOMERS AND MANAGEMENT

THAT CREATES VALUE

Corem's core business is in letting, managing and developing our properties. Net letting was positive in 2023 and landed at SEK 83 million. During the year, a number of new lettings were signed in Sweden as well as in the US, for

8	COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023

STATEMENT BY THE CEO

example with the Swedish central bank, the Riksbank, in Stockholm, and AcadeMedia in Nyköping. In Copenhagen, an agreement was signed with Save the

Children and SOS International. Several contracts were signed for lettings in the new construction projects in the US, e.g. with Shinrai Management and Peachy.

In total, we signed around 950 lease contracts during the year, for a combined value of nearly SEK 470 million. We are particularly pleased about contracts that are extended, as tenants that know us well opt to extend their leases and develop within our portfolio. Thanks to continued good work by our locally based management organization, we have satisfied customers and customers that stay with us.

Net operating income in a comparable portfolio increased by 10 per cent during the year, even though the net operating income in real numbers fell apace with divestments. Profit from property management is held back by increased financial expenses as a consequence of rising market interest ra- tes, as well as by the reduction in volume of the portfolio, and amounted to SEK 1,239 million for the full year.

For many years, we have been able to present good results on the energy side, having gradually reduced energy consumption. In 2023, we ended up with an average energy consumption of 79 kWh per square metre. This is a good outcome, and shows that our continued efforts to reduce energy consumption is paying dividends.

As for project development, we have completed a number of projects, contributing positively to net operating income. The property Orgelpipan 4 on Klarabergsgatan in central Stockholm was completed during the year, and then fully let to the Swedish Riksbank and the restaurant AMI. The property was sold in the first quarter of 2024.

PRESSURE ON PROPERTY VALUES

As many other real estate companies, we have had to adjust the value of our properties to reflect current market conditions. In total, property values were brought down by

11 per cent during 2023 and by 14 per cent from the highest recorded values, as recorded in the spring of 2022. These values changes are primarily driven by changing yield requi- rements, as a consequence of financing becoming more ex- pensive. The average yield requirement increased in both 2022 and 2023, amounting at the end of 2023 to 5.8 per cent. The corresponding figure in Q1 2022 was 4.9 per cent.

Value changes in the property portfolio and higher interest rates go hand in hand, and have twin effects on us. The effect of the interest rate rises over the last few years have driven up financial expenses, at the same time as it drives

down property values. This speaks volumes as to how the interest rate increases over the past few years have affected us and many other property companies.

If the interest rate develops in line with the Riksbank's forecasts for the coming years, this would conversely have a positive effect on us, as relates the development of net financial income as well as property values.

BRIGHTER DAYS AHEAD ON THE BOND MARKET Based on the transactions completed in 2023, we have been able to continue to strengthen the balance sheet by repaying bank debt and redeeming bonds. In 2023, we redeemed all bonds maturing during the year and have reduced interest -bearingliabilities from SEK 47.6 billion at the beginning of 2023 to SEK 33.6 billion at the end of the year.

After the turn of the year, conditions seem to be improving on the bond market. In January 2024, we announced that we have issued new green bonds of SEK 1 billion. These were issued under a framework of SEK 2 billion with a term of 2.25 years and with a variable interest rate of 3-month Stibor plus 375 basis points. The bond attracted considerable interest from institutional investors as well as private in- dividuals, which could be interpreted as a sign that capital markets are beginning to work again. This is of course a good thing for us, even if interest rates remain at a high level. We will continue to invest considerable focus into our financing and on reducing our loan-to-value ratio in the long term.

THE WORK GOING FORWARD

The Board proposes that the AGM adopt a dividend for the financial year of SEK 0.10 per ordinary share of class A and B, and SEK 20.00 per ordinary share of class D and per preference share.

Our entire focus, for now and going forward, is to trim and optimise the business and thus to improve the property portfolio occupancy rate and operating margin. We will also continue to optimise our financial structure to suit the prevailing circumstances.

Together with all of our staff, we continue our efforts to strengthen our profitability and optimise the business for the prevailing circumstances. We have a stable property portfolio with properties that are attractive to our tenants, now and in the future.

Stockholm, 26 March 2024

Rutger Arnhult, Chief Executive Officer

COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023

9

Properties for the future

Tele2's head office at the property Isafjord 8 in Kista, Stockholm. The property is certified under Miljöbyggnad Silver.

10	COREM - ANNUAL REPORT AND SUSTAINABILITY REPORT 2023