Property-management risks refer to risks connected with day-to-day management of Castellum’s property portfolio, which can directly influence the balance sheet. These can be categorized as rental income, property costs, taxes, sustainability, liability risk and reporting.

RiskRisk managementExposure
Rental income Priority: Monitor Development:
11. Rental income
Rental income is affected by many factors, both external and internal. External factors may include falling market rents, loss of indexation and bankruptcy (see section above on macroeconomic risks). Poor management can result in disgruntled tenants, unnecessary vacancies and customer loss caused by inability to offer customers what they want.
• Maintain properties in growth areas and a contract portfolio with a large number of agreements – not dependent on a single tenant or business sector. Ensure a maturity structure spread over time
• Proximity to customers and attentiveness to customers
• Experienced and competent management and leasing staff who prevent notices of termination through active renegotiations before contract expiry
• Competitor analysis; measure customer satisfaction and follow-up of net leasing
• Strive for leases with an index clause with deflation protection and minimum indexation
For Castellum, reduced income can be derived from lower rental value, i.e. loss of potential rent obtained from vacant premises, or from lower rental income, which is the actual rent received. Rental income is hence dependent on both the market rent of the property and on how Castellum handles vacancies. Reduced rental income ultimately leads to a decline in the value of the real estate portfolio.
The acquisition of Norrporten 2016 results in a lower risk distribution in the contract portfolio due to a large proportion of public tenants as state, government and agencies and extended average lease length on the contracts.
Priority: Focus Development:
12. Disgruntled customers/tenants
The risk that several tenants or customers become disgruntled and leave the Group.
The ability to attract new customers/tenants fails, with large vacancies and value decline as a result.
• Proximity to customers and attentiveness to customers
• Experienced and competent management and leasing staff
• Annual measurement, Customer Satisfaction Index
Castellum has a strong and clear customer focus, and it is important that the Group lives up to customer expectations. Hence, an annual Customer Satisfaction Index measurement is carried out.
Property costs
Priority: Review Development:
13. Property costs
Risks concerning property costs mainly relate to cost increases beyond what Castellum can be compensated for through contractual rents, indexation and surcharge. It can also refer to unforeseen costs and extensive renovation needs.
• High percentage of cost recharging
• Compensation via minimum indexation
• Continuous optimization of operations and efficiency efforts
• Electricity hedging
• Demarcation list landlord/tenant
• Prevention of rental losses via background checks on customers and operating an “in-house” debt collecting business
• Long-term maintenance planning, in order to optimize maintenance costs over time
The price of electricity is determined by supply and demand in an open, deregulated and partly international market. Other media costs are partly controlled by local monopolies, which creates uncertainty in future costs. The basis for calculating ground rent levels may change in future renegotiations, and political decisions can change both tax rate and tax assessment value used for calculating property tax. Indirect costs for employees – such as payroll taxes and other obligations – could also be affected by political decisions.
Tax Priority: Review Development:
14. Tax
Castellum’s potential non-compliance with existing regulations or non-adaptation to changing regulations regarding income tax and VAT. Tax is also an important parameter in the context of calculation.
• Strict internal control processes and external quality assurance of, for example, income tax returns
• Open claims regarding doubtful items
• Continuous training of employees
• Closely following the development of legislation, praxis and court orders
Incorrect tax management might lead to erroneous tax being paid, to tax penalties and, in some cases, to qualified opinion. Poor fiscal management may lead either to an overestimation of the return – which means insufficient actual return. Or it could lead to an underestimation of the return, with the risk of a fundamentally profitable investment not being implemented.
Sustainability Priority: Focus Development:
15. Operational environmental risks
Environmental risks directly related to Castellum activities can include physical environments, which affect people and properties, as well as prevailing prices for natural resources, in terms of materials and energy. Castellum estimates that risks related to increased commodity prices due to potential resource shortages will increase in the long term. For new construction, extensions and reconstruction there is also a risk that the materials and methods in current use could sub-sequently prove to cause damage in the future. In addition, Castellum might be affected by uncon-trollable variables, in the form of specific environ-mental policies and environmental opinion.
• Strict internal control processes and external quality assurance of, for example, income tax returns
• Open claims regarding doubtful items
• Continuous training of employees
• Closely following the development of legislation, praxis and court orders
Inadequate efforts in working with environmental risks could affect Castellum’s brand, legal compli-ance, and direct costs. Castellum works actively with environmental certification and environ- mental inventory to reduce environmental, climate and health risks. 29% of the real estate portfolio is certified and 82% has undergone environmental inventory. Efficient management – with a focus on decreased use of resources – reduces the risk of high cost, and environmental and health impacts, as well as providing custo-mers with a healthy working environment. Since 2007, energy consumption has been reduced by 27% and carbon dioxide emissions by 78%.
Priority: Monitor Development:
16. Risks attributable to climate change • All investment issues are to be reviewed from a climate perspective, when assessing a property’s sensitivity to climate change
• All new constructions will be environmentally certified
• Prioritize environmental issues in all parts of the business
• Monitor developments in laws and regulations
Inadequate efforts in analyzing climate risks can lead to unforeseen and extensive costs for Castellum in the form of emergency measures or obsolete properties. Castellum is currently reviewing every investment issue from a climate perspective; we also work with environmental certification to reduce climate risks.
Priority: Focus Development:
17. Violation of Code of Conduct
For a major player in the construction and real estate industry, there are risks pertaining to working environment, corruption, and human rights. These risks can be found within the
company, but also with retained suppliers and partners working on behalf of Castellum. This social responsibility risk can cause significant
damage to Castellum’s operations and brand name.
• Compulsory training for Castellum employees on the internal code of conduct
• Castellum’s Code of Conduct for suppliers to be incorporated into contracts
• Compliance function to work systematically with follow-up and management
• Whistleblower function
• Compliance with standard procedures and
documentation requirements
There is some risk that a breach in code of conduct may exist internally as well as with hired suppliers and partners. Through well- integrated codes of conduct in the form of pro-curement requirements, mandatory training for all Castellum employees, an active compliance function and a whistleblower function, risk of violation is considered low.
Liability risks
Priority: Monitor Development:
18. Liability risks
All ownerships entail responsibility. For Castellum’s part, the properties may be destroyed by fire, water, theft or other damage. Moreover, Castellum may – through negligence – cause damage to a person or to the property of another. The Company might also cause environmental damage for which it will become liable.
• Preventive measures to minimize the risk of damage to property, person or environment
• All properties will be covered by full value insurance
• Subscribe to an insurance which covers liability and other economic losses
• Environmental inventory of existing portfolio and when acquiring new properties in order to identify and address environmental and health risks
Inadequate insurance coverage may result in unforeseen costs for Castellum. Liability and compensation for damage might also arise due to personal injury and third-party property damage, as well as for remediation of environmental damage.
Reporting Priority: Focus Development:
19. Reporting
The risk of an official report, in the form of interim reports or financial statements, which do not provide a true and fair view of Castellum’s operations, earnings and financial position.
• A corporate culture based on high ethical ideals and orderliness
• Close internal control with quality assurance at several levels
• Skilled and experienced staff
• Updated on development of regulations and able to implement changes in good time
• A compliance function which reports directly to the Board’s Audit and Finance Committee
• External audit full-year and half-year
A misleading report would lead to bad will and a negative reputation in the market. This may lead to uncertainty among investors, increased risk premium and, ultimately, to a negative exchange rate impact, creating economic losses for Castellum’s current owners. Other effects include: investors may make incorrect investment decisions, regulators may exercise sanctions and, ultimately, the Castellum share may become delisted.

Increased focus on risk area since latest previous year.
Reduced focus on risk area since previous year.
Unchanged focus on risk area since latest previous year.