FUENTE :

Capital structure and other financial information

CrEDIT AgrEEMENTS

As per 31 December 2013, Hemfosa had MSEK 10,190 in interest-bearing liabilities, corresponding to a loan-to- value ratio of approximately 63 per cent. The average interest rate on the credit facilities was 4.5 per cent.

As per 31 December 2013, the average fixed-rate period, including effects of derivative instrument agree- ments, amounted to 2.5 years. The average fixed-term maturity was 3.0 years. The maturity structure of the borrowing agreements is presented in the table below.

Derivative instruments are continuously recognised at fair value in the balance sheet with value changes being recognised in the item changes in value of financial instruments unrealised in the profit and loss statement, without applying hedge accounting. Changes in the value of derivative instruments arise upon changes in interest rates and do not affect cash flow. The market value of the swap agreements decreases with falling reference interest rates and increases with rising reference interest rates. If the aforementioned derivative instruments are not divested during their duration, the sum of the market value changes is always SEK 0 at the maturity date, but they have affected earnings with higher or lower interest expenses during the duration of the agreement.

Hemfosa’s loan facilities contain customary guaran- tees and covenants, including covenants for Hemfosa and its subsidiaries to achieve certain financial key indicators, such as loan-to-value ratio and interest-coverage ratio. If Hemfosa does not achieve these covenants and guaran- tees, the banks can cancel the loan facilities and demand repayment. Other loans may be terminated for imme- diate payment, or seizure of collateral by the relevant credit institution through crossdefault provisions. Figure 63 – Interest and loan maturity structure as per 31 December 20131)

Fixed-rate period Fixed-term credit Year MSEKProportion, % MSEKProportion, %

Within one year 2,036 20 1,660 16 1–2 years 1,436 14 136 1 2–3 years 3,995 39 4,585 45 3–4 years 700 7 61 1 4–5 years 1,994 20 3,702 36 >5 years 29 0 46 0 Total 10,190 100% 10,190 100%

1) the average interest rate for hemfosa’s loan portfolio was 4.48 per cent as per 31 December 2013. interest-rate swap agreements entered into with a total volume of mseK 9,079 have been taken into account. the underlying loans carry interest at a variable rate that is mainly based on three months stiBOr.

rEFINANCINg SHArEHOLDEr LOANS

Set-off issue

As part of Hemfosa’s previous financing structure, as per 31 December 2013, there were shareholder loans totalling MSEK 3,470, of which MSEK 500 is to be repaid through the bridge financing mentioned below, resulting in remaining shareholder loans amounting to MSEK 2,970. On 6 March 2014, through authorisation from the annual general meeting on 4 March 2014, the board of directors resolved to implement an set-off issue, in which MSEK 2,970 of the shareholder loans are to be converted to newly issued shares in the company. The conversion of shareholder loans resulted in an increase of MSEK 2,970 in the Company’s equity. For more information, refer to the section “Shares, share capital and ownership struc- ture” under the heading “Set-off issue, offsetting agree- ment,” and the section on “Pro forma financial informa- tion.”

Bridge financing

With the aim of obtaining a more appropriate capital structure in connection with the stock exchange listing and increasing flexibility when selecting future refi- nancing instruments, Hemfosa signed an agreement on 18 February 2014 with SEB and Swedbank to raise a loan for MSEK 500 to be repaid not later than 1 April 2015. The loan will be available for drawdown until 31 March 2014 and will be paid out in connection with, and is conditional upon, a stock exchange listing. For more information refer to the section “Pro forma financial information.”

Financial consequences of the set-off issue and bridge financing

The above mentioned set-off issue and bridge financing will have an impact on Hemfosa’s loan-to-value ratio, which will decrease from approximately 84 per cent to approximately 66 per cent.

NEW SHArE ISSUE

Through authorisation from the annual general meeting held on 4 March 2014, the board of Hemfosa intends to resolve on a new issue of shares in connection with the Offer. Through the new share issue, Hemfosa will receive at least approximately MSEK 478 and at most approxi- mately MSEK 522 before issue expenses. Furthermore, the Company has also undertaken, at the request of the Managers, to sell additional new shares of maximum 4,347,826 to cover any overallotment in connection with the Offer. The new share issue will, upon full exercise of the over-allotment option, increase the share capital by a maximum of SEK 9,782,608 by an issue of maximum

Capital structure and other financial information

9,782,608 number of shares, corresponding to a dilution of close to 15 per cent. For more information refer to the section “Offer to acquire shares”.

THE CAPITAL STrUCTUrE’S IMPACT ON HISTOrICAL EArNINgS

With the new capital structure, Hemfosa’s interest expenses are significantly lower than the level during the financial year of 2013 and earlier during the current financial year. The yearly interest expenses will decrease further following a stock exchange listing.

FINANCE POLICY

The overall objectives of Hemfosa’s financing activities are to:

● Ensure that the financing activities are conducted

under sound control and orderly financing conditions

● Ensure that Hemfosa is perceived as a professional

business partner

● Secure the Company’s loan financing

● Formulate financial strategies and risk management

that match operating conditions

● Achieve the best possible net financial items within

given risk mandates

Hemfosa shall be a professional borrower and work to ensure that the Company is always able to be offered financing on the best market terms for comparable bor- rowers and comparable securities. In financing activities where the financing constitutes a part of the property acquisition, the terms of the financing shall be assessed in consideration of the entire business arrangement.

Hemfosa’s activity in the financial market should be clearly linked to the Company’s business idea to develop and manage the property portfolio and to be active in the real estate transaction market. In order to minimize interest rate and funding risks, the bullet points below act as guidelines for Hemfosa’s finance policy:

● The Company’s total loan-to-value ratio may not

exceed 75% (based on market value)

● The Company shall have four to six primary creditors ● A maximum of 25% of the outstanding loans may

mature for renegotiation during a 12-month period

● The average duration for the loans may not be less

than 1.5 years

The basis for the Company’s choice of strategy for interest-risk management comprises the choice of fixed- interest strategy for the loans together with the selection of derivative instruments in order to manage the interest risk.

PrOPErTY MOrTgAgES

Hemfosa’s properties are generally subject to mortgages and the pledged securities are pledged to the banks and credit institutions who provided the financing to compa- nies within the Group. As per 31 December 2013, property mortgages in Hemfosa’s property portfolio totalled MSEK 14,750.

rEPOrT ON WOrKINg CAPITAL MANAgEMENT AND CAPITAL rEQUIrEMENT

In the opinion of the board of directors of Hemfosa, the working capital is adequate for Hemfosa’s current needs for the coming 12-month period. Here, working capital refers to Hemfosa’s possibility of obtaining access to cash and cash equivalents to meet its payment obligations as they fall due for payment. Hemfosa’s operating activities tie up limited working capital since Hemfosa receives most of its rental income in advance while expenses are primarily paid in arrears.

FINANCIAL POSITION

Hemfosa does not, as of today, know of any issues regarding public, economic, tax political, monetary or other political actions which, direct or in-direct, can have a significant effect on Hemfosa’s operations. With the exemption of the convertion of the shareholder loans to equity as per 6 March 2014, no material change in Hemfosa’s financial or market position has taken place since 31 December 2013.

INVESTMENTS

The table below presents Hemfosa’s total property invest- ments for the financial years 2013, 2012 and 2011. The investments comprise new constructions, expansions or renovations of existing properties, as well as investments in equipment.

Figure 64 – Investments

MSEK 2013 2012 2011

Investments in

equipment 0 5 0

Investments in new con- structions, expansions or

Capital structure and other financial information

Ongoing and approved investments

Hemfosa has no significant commitments to carry out repairs and maintenance other than what is pursuant to good property management. However, there are commit- ments to finish commenced investments in the invest- ment properties. Ongoing project investments and reno- vations are currently taking place in 105 properties. Future commitments total MSEK 367 and are intended to be financed with bank financing, cash and cash equiva- lents.

DEFErrED TAX LIABILITY

As per 31 December 2013, the properties’ residual value for tax purposes amounted to MSEK 10,809. At the same date, the recognised deferred tax liability attributable to properties amounted to MSEK 575. All of Hemfosa’s property acquisitions have been classified as acquisitions of assets, resulting that no deferred tax is recognised initially.

PrOPErTY, PLANT AND EQUIPMENT

Hemfosa’s property, plant and equipment totalled MSEK 16,285 as per 31 December 2013. Of the total property, plant and equipment , MSEK 16,284 constituted proper- ties and MSEK 1 machinery and equipment. Mortgages amounting to MSEK 14,750 were charged to Hemfosa’s property, plant and equipment as per 31 December 2013. As per 31 December 2013, there were no decisions on future material investments in tangible fixed assets beyond what is presented above in the section “Ongoing and approved investments”.

Figur 65 – Property, plant and equipment

MSEK 31 December 2013

Investment property 16,284

Machinery and equipment 1

Total 16,285

SENSITIVITY ANALYSIS

The table below presents the theoretical earnings effect before tax on Hemfosa’s annual earnings capacity, with regards to cash flow affecting items.

Figure 66 – Sensitivity analysis – cash flow as per 31 December 2013

Change

Earnings effect,

MSEK

Contracted rental income +/–1% +/–16

Economic occupancy rate +/–1% +/–18

Property costs +/–1% +/–5

Net operating income +/–5% +/–52

Finance costs at current rental levels and change in the interest rate

environment1) _{+/–1% +/–14,4}

Finance cost due to change in

the average interest rate 2) _{+/–1% +/–102,7}

Revaluation of interest rate derivatives

due to shift in interest rate yield curves +/–1% +/–247

1) including derivative agreements. 2) excluding derivative agreements.

FINANCIAL rISK MANAgEMENT

The Group is exposed to various kinds of financial risks through its operations. Financial risks refers to fluctua- tion in the Company’s earnings and cash flow as a result of changes in interest rate levels, liquidity and re- financing risks.

The board of directors of Hemfosa has adopted a finance policy which governs how these risks shall be managed and controlled. The management of the Compa- ny’s financial risks takes place at Hemfosa’s financial department, who has the task of identifying and mini- mising the earnings impact of these risks to the greatest extent possible. All financial risks shall be be reported and analysed by Hemfosa’s financial department. This shall take place in accordance with the Company’s current procedures, which are intended to limit the Company’s financial risks.

Liquidity risk management

Liquidity risk is the risk that the Company cannot meet its payment obligations on the due date without the cost of obtaining means of payment increasing substantially. According to the Company’s current procedures, liquidity management is centralised to Hemfosa’s accounting and financing departments in order to optimise the utilisa- tion of cash and cash equivalents and minimise the need for financing. A liquidity forecast is made by the accounting and financing departments every week, in addition to a liquidity plan for a rolling twelve months period. The forecasts are uppdated on a weekly and quarterly basis respectively.

Capital structure and other financial information

refinancing risk management

Refinancing risk is the risk that the Company will not be able to finance or re-finance its debt or operations, to the same extent, or that it can only be obtained at a substan- tially higher cost.

Hemfosa is guided by a finance policy, which has been approved by the board of directors. The finance policy dictates general procedures for how the Company should work with financing and how the risks associated with financing activities shall be limited. Hemfosa has a con- tionus discussion with current and potential future debt providers in order to secure that necessary financing can be obtained in all situations.

Market risk management

Market risk is the risk that the fair value of or future cash flows from a financial instrument will vary due to changes in market prices. Under to IFRS, market risks are classi- fied as three kinds: foreign exchange risk, interest rate risk and other price risks. The market risk impacting the Company consists mainly of interest rate risk. The Com- pany’s objective is to identify, manage and minimise the market risks. This is conducted by Hemfosa’s financial department according to existing routines.

Interest rate risk management

Interest rate risk refers to the risk that changes in interest rates could affect the Company’s interest expenses. Interest rate risk can lead to a change in fair value, changes in cash flows and fluctuations in the Company’s earnings. The Company is exposed to interest rate risk due to its borrowings. The management of interest rate risk is centralised to the Company’s financial depart- ment, which is responsible for identifying and managing interest rate risks. For a proportion of the loans subject to variable interest rates, the interest rate risk is managed through interest rate swaps. Even after the stock exchange listing, the Company’s operations will be debt financed, which means that the Company will also bear an interest rate risk going forward.

TrENDS

Although the future is difficult to assess, the market rents and occupancy rates, within the segments Hemfosa oper- ates, are expected to continue to improve in 2014. The investor appetite for real estate is also expected to have a positive development in the coming years, mainly as a result of stable macroeconomic development relative to the rest of Europe in combination with favorable Swedish interest rates. This creates a solid foundation for con- tinued liquidity in the Swedish property transaction market.

Sigurd 5 Västerås

collage technique on canvas by Hans von Corswant