Diös Fastigheter: Diös Acquires Property Portfolio for Sek 4.5bn from Castellum and Carries out a Fully Guaranteed Rights Issue of SEK 1.8Bn

Regulatory News:

Diös Fastigheter AB (STO: DIOS)

Diös has entered into an agreement to acquire a property portfolio from Castellum for SEK 4.5bn, considered a valuation of deferred tax liabilities of SEK 0.1bn. In order to partly finance the acquisition, Diös’ Board of Directors proposes to the extraordinary general meeting to resolve on a rights issue with preferential rights for the company’s existing shareholders, and to authorise the Board of Directors to resolve on the final terms of the issue. The fully guaranteed rights issue will raise Diös approximately SEK 1.8bn before issue costs. The remaining part of the consideration of approximately SEK 2.7bn, is financed through new interest-bearing credit facilities.

The transaction in brief

· Diös acquires 32 centrally located properties in Umeå, Luleå and Sundsvall with a leasable area of 216 thousand sq.m.

· Through the acquisition Diös strengthens its position in prioritised growth cities and adds a high quality property portfolio and stable cash flows.

· Diös’ property value pro forma increases with SEK 4.5bn to SEK 17.9bn and the rental value increases with approximately SEK 360m to SEK 1,829m, based on the current earnings capacity as of 30 September 2016.

· The main shareholders; AB Persson Invest, Backahill Inter AB and Bengtssons Tidnings Aktiebolag, which together represent approximately 36 per cent of the capital and votes in the company, have committed to subscribe for their respective pro-rata shares of the rights issue. Nordea and Swedbank have agreed to underwrite, subject to customary conditions, the remaining part of the rights issue.

· In addition to the three main shareholders, Pensionskassan SHB Försäkringsförening, representing approximately 6 per cent of the capital and votes in the company, has committed to vote in favour of the rights issue at the extraordinary general meeting.

· The final terms of the rights issue, including subscription price, are expected to be announced no later than 28 December 2016.

· The acquisition is subject to the extraordinary general meeting’s resolution on the rights issue. Assuming that the extraordinary general meeting resolves on the rights issue, the subscription period will run from, and including, 9 January 2017 up to, and including, 23 January 2017.

· Diös will seek customary antitrust clearance from the Swedish Competition Authority.

"To acquire this well-maintained and centrally located property portfolio is a great opportunity for us. We are strengthening our operations and presence in important growth cities, especially in Umeå and Luleå where we have had an ambition to grow for a long period of time. Many of the acquired properties are located in direct connection to our current properties and, in a long-term perspective, we see both revenue synergies as well as economies of scale through the acquisition. We are becoming a larger and more stable company with improved cash flow and even greater opportunities to create value for our shareholders” says Knut Rost, CEO of Diös.

"The acquisition is completely in line with Diös’ long-term strategy and targets of owning and developing properties with proximity to city centres. The Board of Directors has great confidence that the management together with all the employees will incorporate these properties into Diös in a manner that will strengthen the entire company. It is also reassuring that Diös’ three largest shareholders are supporting the expansion and have committed to subscribe for their pro-rata shares in the upcoming rights issue” says Bob Persson, Chairman of the Board of Diös.

Background and reasons

Diös owns and develops commercial and residential properties in growth cities in northern Sweden. The operations are organized into six business areas: Dalarna, Gävleborg, Västernorrland, Jämtland, Västerbotten and Norrbotten. The head office is located in Östersund. The company has since the start in 2005 experienced a continuous growth in the property portfolio, which has grown from approximately SEK 1.7bn to approximately SEK 13.4bn as of 30 September 2016. The company owned 313 properties as of 30 September 2016 with a total leasable area of 1,351 thousand sq.m. Diös’ vision is to be the most active and sought-after landlord in its market.

The acquisition is an important strategic transaction for Diös’ further development. The main reasons are:

· Diös adds a well-maintained property portfolio with focus on centrally located commercial properties in Umeå, Luleå and Sundsvall, where Diös already operates.

· The acquisition complements the existing portfolio and increases the potential to contribute to sustainable urban development.

· Through the acquisition, the company adds an attractive and diversified tenant base, from which a significant share of rental income is generated by public sector tenants.

· The average lease term of the acquired properties amounts to approximately 4.4 years, which extends Diös’ average lease term from 3.2 to 3.5 years.

· Diös believes that the acquisition enables revenue synergies and economies of scale, inter alia through a strengthened tenant offering, increased diversification of the tenant base, improved position in city centre retail trade as well as with regards to central and property administration.

· Through the acquisition, Diös strengthens its position as northern Sweden’s largest private real estate company.

Overall, the acquisition is expected to increase the interest in Diös from a number of perspectives; Diös becomes a more interesting and stronger partner to, among others, tenants, suppliers and municipalities and a higher market capitalisation may lead to increased interest from a capital markets perspective. The acquisition will not lead to any changes in the financial targets or dividend policy of Diös. The acquisition

Diös acquires 32 properties in Umeå, Luleå and Sundsvall for SEK 4.5bn considered a valuation of deferred tax liabilities of SEK 0.1bn. Through the acquisition, the number of properties of Diös increases from 313 to 345 properties and the annual rental value increases from SEK 1,469m to approximately SEK 1,829m. In addition, the company’s property value will increase from SEK 13.4bn to SEK 17.9bn and leasable area from 1,351 thousand sq.m to 1,567 thousand sq.m. During 2016, a number of major investments in the property portfolio have been performed or initiated. The deal is based on Castellum’s completion of the remaining investments during 2017. The acquisition is structured as a company acquisition and the change of possession is preliminary scheduled to 1 February 2017. In connection with the transfer of title to the properties, Diös takes over personnel from Castellum. The acquisition is subject to the extraordinary general meeting’s resolution on the rights issue. Diös will seek customary antitrust clearance from the Swedish Competition Authority.

The initial yield on the acquired properties amounts to approximately 5.3[1] (http://#_ftn1) per cent. The economic occupancy rate amounts to 93 per cent. The largest tenants are Swedish courts, Livförsäkringsbolaget Skandia, Swedish Transport Administration, County Administrative Board of Västerbotten, and Trygg Hansa which together represent 19 per cent of the total rental income. The distribution of the leasable area per location is 40 per cent in Umeå 35 per cent in Luleå and the remaining 25 per cent in Sundsvall.

SUNDSVALL

LULEÅ

UMEÅ

Acquired property portfolio as of 30 September 2016

Pro forma balance sheet

In order to describe the financial position before and after the acquisition, a preliminary pro forma balance sheet as of 30 September 2016 is presented below. The pro forma balance sheet is only intended to describe a hypothetical situation and has been prepared for illustrative purposes to inform and is not intended to report the financial position of Diös if the acquisition had been completed on 30 September 2016.

The acquisition of SEK 4.5bn is partly financed by the proceeds of the rights issue of approximately SEK 1.8bn as well as through new credit facilities of approximately SEK 2.7bn. After the acquisition and the proposed rights issue, pro forma as of 30 September 2016, Diös’ long-term interest-bearing liabilities will amount to approximately SEK 10.7bn, corresponding to a loan-to-value ratio of 59.7 per cent and an equity ratio of 32.3 per cent.

The acquisition is made through takeover of property owning company with preliminary transfer of title 1 February 2017. The acquisition is considered an asset purchase, meaning, inter alia, that no deferred tax attributable to the acquired assets should be reported. Transaction or issue costs were not taken into consideration in the preliminary pro forma balance sheet.

Preliminary pro forma balance sheet as of 30 September 2016

Pro forma earnings capacity Presented below is the estimated current earnings capacity pro forma on a 12-month basis as of 30 September 2016 for Diös before and after the acquisition.

Current earnings capacity as of 30 September 2016

The current earnings capacity is not a forecast and should only be regarded as a theoretic snapshot presented for illustrative purposes. The estimated current earnings capacity does not include an estimation of the future development of rents, vacancy levels, operating costs, interest rates or other factors. Diös’ result is also affected by changes in the value of the property portfolio and derivatives as well as by any future acquisitions and divestments of properties and investments in new builds, extensions and conversions.

The following information has formed the basis of the earnings capacity

· Contracted rental income and estimated market rental value for vacant premises as of 30 September 2016. Other income is based on a rolling 12-months basis and consists of onward invoicing of work in leased premises.

· Property costs are based on a rolling 12-months basis for Diös’ property portfolio as of 30 September 2016 and the acquisition on a rolling 12-months basis regarding operating costs as well as an estimation of long-term maintenance costs and property management costs on an annual basis.

· Property tax is based on the taxable value of the properties as of 30 September 2016.

· Central administration costs have been calculated based on actual costs during the last 12 months as well as estimated implications of the acquisition.

· The Net financial items are based on an average interest level (including costs related to derivatives) and interest-bearing liabilities for Diös as of 30 September 2016 with addition for the estimated cost of financing for the acquisition.

The rights issue

Diös’ Board of Directors proposes that an extraordinary general meeting is to be held on 21 December 2016 and that the extraordinary general meeting resolves on the terms of the rights issue including authorisation for the Board of Directors to resolve on the final terms of the rights issue on 27 December 2016 at the latest. The rights issue is expected to generate proceeds of approximately SEK 1.8bn before issue costs. The issue proceeds will be used to partly finance the acquisition.

Those who on the record date of the rights issue are registered as shareholders shall have a preferential right to subscribe for new shares. Every shareholder shall have preferential right to subscribe for new shares in relation to the number of shares previously held by the owner. Subscription for shares can also be made without support of subscription rights.

In case not all new shares in the rights issue are subscribed for with support of subscription rights the Board of Directors shall, within the limits of the maximum amount of the rights issue, resolve on allotment of shares subscribed for without subscription rights as follows:

· Firstly, to those who have also subscribed for shares with support of subscription rights, regardless if they are shareholders on the record date or not. If allotment to these cannot be completed fully the allotment shall be completed pro-rata in relation to the number of subscription rights that each has exercised in the subscription of shares, and in case this cannot be completed, by way of lottery.

· Secondly, to others who have subscribed for shares in the rights issue without support of subscription rights. If allotment to these cannot be completed fully the allotment shall be pro-rata in relation to the number of shares subscribed for, and in case this cannot be completed, by way of lottery.

· Lastly, to Nordea and Swedbank as underwriters, distributed in relation to their respective underwriting commitments according to the underwriting agreement and, if this is not possible, by way of lottery.

The final terms of the rights issue, i.e. the increase of the share capital, the number of shares issued and the subscription price are expected to be announced on 28 December 2016 at the latest.

The subscription period is expected to run from, and including, 9 January 2017 until, and including, 23 January 2017, or until the later date resolved by the Board of Directors. Trading in subscription rights is expected from, and including, 9 January 2017 until, and including, 19 January 2017.

The main shareholders, which together represent approximately 36 per cent of the capital and votes in the company, have committed to subscribe for their respective pro-rata shares in the rights issue and committed to vote in favour for the rights issue at the extraordinary general meeting. In addition to the three main shareholders, Pensionskassan SHB Försäkringsförening, representing approximately 6 per cent of the capital and votes in the company has committed to vote in favour of the rights issue on the extraordinary general meeting

For the amount not covered by the subscription undertakings of the principal shareholders the company has entered into an underwriting agreement on customary conditions with Nordea and Swedbank, according to which Nordea and Swedbank have committed to subscribe for shares not subscribed or paid in the rights issue up to an amount corresponding to the rights issue’s maximum amount with deduction for amounts covered by the subscription undertakings. Thereby, the rights issue is fully guaranteed.

The rights issue is conditional upon that the extraordinary general meeting resolves according to the proposal by the Board of Directors. For further information, please refer to separate press release regarding the extraordinary general meeting, which is to be published shortly.

Indicative timetable

Financial and legal advisors

Nordea and Swedbank are joint global coordinators in the rights issue. Cushman & Wakefield is financial advisor to Diös in the acquisition. Savills performed the property valuations. Law Firm Glimstedt is legal advisor to Diös and Linklaters is legal advisor to the joint global coordinators in the rights issue.

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[1] Value of building permissions have been excluded in estimations of the initial yield

Diös Fastigheter owns and develops both commercial and residential properties in prioritized growth areas in northern Sweden. With a market value of SEK 13.4 billion, a portfolio of 313 properties and a lettable area of 1.351 sq., our vision is to be the most active and sought-after landlord in our market. The properties are located from Borlange to Lulea with its head office in Östersund. The company has since 2005 had a continuous growth in value in the property portfolio and the share is listed on Nasdaq OMX Stockholm, Mid Cap. Learn more about Diös on www.dios.se

Important notice

This press release does not contain or constitute an invitation or an offer to acquire, sell, subscribe for or otherwise trade in shares, subscription rights or other securities in Diös. An invitation directed towards concerned parties to subscribe for shares in Diös will only be made through the prospectus that Diös intends to publish at the company’s website, following the approval and registration thereof by the Swedish Financial Supervisory Authority (Sw. Finansinspektionen). The prospectus will contain, among other things, risk factors, financial statements as well as information regarding the company’s Board of Directors. This press release has not been approved by any regulatory authority and is not a prospectus. Accordingly, investors should not subscribe for or purchase any securities referred to in this press release except on the basis of information provided in the prospectus to be published.

This press release may not be published or distributed in jurisdictions that are subject to restrictions according to law and persons in those jurisdictions where this press release has been published or distributed should inform themselves about and abide by such restrictions.

This press release is not directed to persons located in the United States (including its territories and possessions, any state of the United States and the District of Columbia), Canada, Japan, Australia, Hong Kong, New Zealand, Singapore, South Africa or in any other country where the offer or sale of the subscription rights, paid subscribed shares (Sw. BTA) or new shares is not permitted. This press release may not be announced, published or distributed, directly or indirectly, in or into the United States, Canada, Japan, Australia, Hong Kong, New Zealand, Singapore, South Africa or any other country where such action is wholly or partially subject to legal restrictions or where such action would require additional prospectuses, other offer documentation, registrations or other actions in addition to what follows from Swedish law.

The information in this press release may not be forwarded, reproduced or disclosed in such a manner that would contravene such restrictions or would require such additional prospectuses, other offer documentation, registrations or other actions. Failure to comply with this instruction may result in a violation of the United States Securities Act of 1933, as amended (the "Securities Act”) or laws applicable in other jurisdictions.

In addition, if and to the extent that this press release is communicated in any European Economic Area member state that has implemented Directive 2003/71/EC (together with any applicable implementing measures, including Directive 2010/73/EC, in any member state, the "Prospectus Directive"), this press release is only addressed to and directed at persons in Sweden and the member states who are "qualified investors" within the meaning of the Prospectus Directive and must not be acted on or relied on by other persons in that member state. This press release does not constitute a prospectus within the meaning of the Prospectus Directive or an offer to the public.

In the United Kingdom, this press release is being distributed only to, and is directed only at (i) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Financial Promotion Order"), (ii) persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order, or (iii) other persons to whom it may otherwise be lawfully communicated (all such persons together being referred to as "relevant persons"). This press release is directed only at relevant persons and must not be acted on or relied on by anyone who is not a relevant person.

No subscription rights, paid subscribed shares (BTAs) or new shares have been or will be registered under the Securities Act, or with any other securities regulatory authority of any state or other jurisdiction of the United States and no subscription rights, paid subscribed shares (BTAs) or new shares may be offered, sold, resold, transferred, delivered or distributed, directly or indirectly, into or within the United States other than pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable securities laws of any state or jurisdiction of the United States. There is no intention to register any securities referred to herein in the United States or to make a public offering of the securities in the United States.

This press release may contain certain forward-looking statements which reflect Diös current view on future events and financial and operational development. Words such as "intend”, "will”, "expect”, "anticipate”, "may”, "plan”, "estimate” and other expressions than historical facts which imply indications or predictions of future development or trends, constitute forward-looking statements. Forward-looking statements inherently involve both known and unknown risks and uncertainties as they depend on future events and circumstances. Forward-looking statements do not guarantee future results or development and the actual outcome could differ materially from the forward-looking statements. The information, opinions and forward-looking statements concluded in this announcement speak only as of its date and are subject to change without notice.

This information is information that Diös Fastigheter AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation, the Swedish Securities Markets Act and/or the Swedish Financial Instruments Trading Act. The information was submitted, through the agency of the contact persons above, for publication at 08:00 on November 22, 2016.

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