ALM Equity AB (publ): Annual Report 2023

2023

A N N U A L R E P O R T

Contents

About this report

The formal Annual Report can be found on pages 57-98. Sustainability is an integral part of the business and therefore the Annual Report. ALM Equity's Sustainability Report in accordance with the Swedish Annual Accounts Act is on pages 23-42.

INTRODUCTION

This is ALM Equity

The year in brief

Message from the CEO

THE BUSINESS

Vision, business concept and strategy

Business model

Our adaptability

MARKET

Driving forces and trends Macro perspective

The property market

The housing market

	COMPANY PORTFOLIO		FINANCIAL INFORMATION
3	Our holdings	16	The ALM Equity share	58
4	Klövern	17	Directors' report	60
5	Svenska Nyttobostäder	18	Financial statements and notes	72
	Aros Bostad	19	The Board's signatures	98
	ALM Småa Bostad	20	Auditors' report	99
8	2xA Entreprenad	21
	Your Block	22	DEFINITIONS	102
9
10	SUSTAINABILITY REPORT	23	RECONCILIATION TABLES, KPIS	103
	CORPORATE GOVERNANCE		SHAREHOLDER INFORMATION	104
12	REPORT
13	Board of Directors and auditors	44
13	Group management	45
14	Corporate governance in ALM Equity	46
	Risks and risk management	51

2

ALM EQUITY ANNUAL REPORT 2023	INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY	CORPORATE GOVERNANCE REPORT	FINANCIAL INFORMATION	CONTENTS

We are developing the property sector

ALM Equity creates value by acquiring and improving assets that become new activities or independent companies based on the market's future needs. Our strength is being able to quickly adapt the activities, act and adjust in the event of changes, and dare to challenge and find new paths to profitable investments.

SEK 4.3 bn	SEK 4.3 bn
Estimated market value	Market capitalization

Estimated market		Market capitalization:		Market capitalization:
			Estimated market		Estimated market			Market value
value: SEK 7.9  bn		SEK 1.9 bn		SEK 2.8 bn		value: SEK 0.5  bn		value: SEK 1.2  bn			not estimated
Shareholding: 19%		Shareholding: 39%		Shareholding: 27%		Shareholding: 100%		Shareholding: 80%		Shareholding: 50%

Shareholding refers to nominal holding. The definition of estimated market value can be found on page 102. More information about the market valuation can be found in ALM Equity's interim reports.

3

ALM EQUITY ANNUAL REPORT 2023	INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY

The year in brief

ALM Equity has put a challenging year behind it as it looks back on a period of adjustments to the prevailing market conditions. We have used our creativity, drive and adaptability to open up new avenues for value creation.

CORPORATE GOVERNANCE REPORT

FINANCIAL INFORMATION

CONTENTS

Summary	2023	2022
Revenue, SEK m	2,386	6,902
Profit/loss for the period, SEK m	-2,708	-576

Capitalization of Klövern ready for the future

• ALM Equity, together with other Klövern shareholders, divested 51% of Klövern to property investor Nrep, which intends to invest up to SEK 4 billion in new issues over a sixyear period. The deal enables the completion of Klövern's project portfolio of 18,000 homes. At the end of the year, new issues of SEK 480 million were carried out, which reduced ALM Equity's shareholding to 19%.

Financial restructuring of Svenska Nyttobostäder

• On the initiative of ALM Equity, together with other shareholders, changes were made to Svenska Nyttobostäder's capital structure and financing model during the year. The changes mainly involved an offer to exchange preference shares for ordinary shares.See Note 22 and Note 37 for more information.

Project portfolio handover by ALM Småa Bostad

• When Svenska Nyttobostäder's exchange offer took place, the terms of the company's agreed deliveries from ALM Equity's subsidiary, ALM Småa Bostad, were also amended. A total of 13 projects were handed over during the year as building rights instead of completed properties. Payment was made with newly issued ordinary shares of a value of approximately SEK 1,270 million. SEK 963 million of ordinary shares were also received as an advance payment for properties under construction.

A healthy order book for 2xA Entreprenad

• During the year, ALM Equity's subsidiary 2xA Entreprenad gained a total of seven new turnkey contracts for housing construction. The total order value amounted to approximately SEK 1.5 billion, covering around 1,130 homes.
• In November, the company obtained ISO certification in the areas of the Environment, Quality and the Work Environment, demonstrating that the company has well-established structures and continually works to develop and improve its operations.

Events after the end of the year

• Aros Bostad is merging with Besqab to together create a new leading player in the development of housing in Greater Stockholm and Uppsala. ALM Equity's shareholding in the merged company, which will be called Besqab, amounts to approximately 15%. ALM Equity no longer has a representative on the company's Board and therefore has limited influence. The holding has therefore been reclassified as a financial asset.
• ALM Equity intends to combine with associated company Svenska Nyttobostäder AB (publ) through a merger. The Boards have adopted a joint merger plan. The proposal will be submitted for resolution to the companies' AGMs in June. See Note 40 for more information.

Return on equity, ordinary shares %	- 44	-10
Equity/assets ratio, %	39	50
Cash and cash equivalents, SEK m	444	1,073
Equity, SEK m	2,972	5,756
Balance sheet total, SEK m	7,662	11,518

Key figures per share

Share price on the closing day, SEK	280	525
Adjusted net asset value per ordinary share, SEK	281	558
Earnings per ordinary share before dilution, SEK	-194	-79

4

ALM EQUITY ANNUAL REPORT 2023	INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY	CORPORATE GOVERNANCE REPORT	FINANCIAL INFORMATION	CONTENTS

Daring to rethink and set a new course

In 2023, ALM Equity has shown that our true character is not defined by the challenges that we face, but by how we deal with them. When the world changes, you must have the courage to question previous decisions and take control of your own destiny.

During one of the most difficult periods ever experienced in the property and capital markets, we have chosen not to sit idly by. We have instead taken important, and sometimes difficult, decisions and used our creativity, drive and adaptability to create new opportunities for

value creation.

A year of historic difficulties

Conditions have not been this difficult for the construction and property sector since the financial crisis of the 1990s. Given rapidly rising inflation and a record-breaking rate of increase in interest rates, we have seen over 50% fewer housing starts and more than 1,700 bankruptcies in the construction industry. No one has escaped unscathed, and matters relating to business restructuring and capital structures have been constantly on the agenda for Boards and management across the property sector. ALM Equity has of course also been affected by developments in the market and ended the year with a SEK -2.7 billion loss, mainly due to the decrease in our holdings' asset values.

The turnaround is coming but will take time

Interest rates may have peaked according to the Riksbank. But the ending of interest rate hikes doesn't mean that economic curves will immediately start sloping upwards again. It may be a while before we see an upswing in new construction projects, and although there may be greater predict- ability, home buyers will continue to be cautious. The challenges in the industry will remain for some time and it will be more important than ever

to take a fresh look at things, perhaps abandon previously cherished ideas and, above all, take a new approach.

Capitalization of Klövern, which has a new principal owner

Our original plan when we invested in Klövern was to inject capital into the company through an IPO. But it is important to dare to change strategy when conditions change. During the year, we therefore brought in Nrep as Klövern's principal owner, with an initial 51% interest and an intention to invest up to SEK 4 billion. This was a strategically important decision for the acceleration of the return on our investment. By selling part of our stake and at the same time increasing Klövern's capital, we are providing Klövern with a long-term and well-capitalized principal owner and giving it the chance to start developing its 18,000 building rights.

Klövern aims to build 2,000 units annually and so become one of Sweden's leading housing developers. The transaction reduced our shareholding from 46% to 19%, but we have retained a long-term position and our influence on Klövern's Board. With the proceeds from Nrep, we have also been able to reduce our indebtedness and redeem SEK 600 million of bonds maturing in December, which gives us financial flexibility going forward.

5

ALM EQUITY ANNUAL REPORT 2023	INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY

CORPORATE GOVERNANCE REPORT

FINANCIAL INFORMATION

CONTENTS

Aros and Besqab become a leading housing developer

The record fall in construction starts and building right prices in 2023 created opportunities for new and advantageous business deals. One such deal is the merging of our associated company Aros Bostad­s- utveckling with Besqab. This is a strong match with clear synergies,

and also broadens the property portfolio, which will provide great development opportunities in the future. Through the transaction, we have gained ownership of a significantly larger company with a building rights portfolio of more than 8,000 attractive homes and strong potential for the future with a current construction volume of approximately 2,500 homes a year in Greater Stockholm and Uppsala from 2025.

Restructuring of Svenska Nyttobostäder and merging with ALM Equity

Svenska Nyttobostäder was created with a business model based on low complexity and a predictable financing structure. The completely new situation on the capital market and the rise in the base rate from 0% to 4% since the IPO meant that conditions quickly changed and action needed to be taken. During the first half of the year, we therefore actively worked with the company to create a new financing structure. As a result of a Supreme Court ruling in December 2022, the prerequisites for Svenska Nytt­o­ bostäder's original business model also changed, which meant that the company was subject to completely new demands.

In order to get the best return on the value of Svenska Nyttobostäder's assets, in March 2024, the Boards of ALM Equity and Svenska Nytt­o­ bostäder therefore proposed a merger of the companies through a share exchange. This will enable us to benefit from ALM Equity's project development expertise while creating better financing conditions and cost synergies. This was not our plan when Svenska Nyttobostäder was listed at the end of 2020, but when conditions change, you have to be able to take a fresh look at things and a new approach.

Taking the helm and setting our own course

In recent years, we have worked hard to improve and enhance our assets, build up companies and restructure. In 2023, we focused strongly on proactively responding to the changing conditions in the property and

capital markets. As Stephen Hawking once said, "Intelligence is the ability to adapt to change" and when the world changes, you must have the courage to question previous decisions and seize your own destiny.

ALM Equity is not, and never will be, a passive asset manager. Our core competence is the transforming of projects to greatly enhance their original value.

The merger with Svenska Nyttobostäder means that ALM Equity is now refocusing on developing and expanding the company's own activities while generating operating cash flows. We will build and develop the building rights portfolio while streamlining the accompanying management activities.

This creates a good balance between continuous cash flows from property management and deal flows from property development. Our plan for the merged company will result in a management portfolio of around 2,300 homes, the conversion of around 1,000 homes to suit the cooperative housing market and the development of 2,100 homes. This is expected to generate a positive impact on earnings of SEK 1.7 billion and liquidity flows of SEK 3.7 billion over the next six-year period.

In line with our efforts to create value for shareholders, we are exploring the possibility of changing our listing to Nasdaq Stockholm in 2025 to increase our shares' liquidity.

You can choose to either be carried by the wind or take the helm and steer your own course. Taking a passive attitude is not our way; we will continue to launch new initiatives and business opportunities that generate value for our shareholders.

Joakim Alm

CEO ALM Equity

6

THE BUSINESS

We acquire, develop and adapt businesses for value creation

ALM EQUITY ANNUAL REPORT 2023	INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY	CORPORATE GOVERNANCE REPORT	FINANCIAL INFORMATION	CONTENTS

Strategic business development

ALM Equity acquires and develops assets in the property sector in order to create greater value. Value creation takes place through packaging, financing and restructuring to build independent and stable businesses with long-term ­sustainable growth.

Vision

ALM Equity will be the most profitable and innovative company in the property sector.

Business concept

ALM Equity develops and invests in assets and businesses within the property sector based on the needs of the future market. The company actively works to drive through the initiatives that it believes will create the highest value in the long term.

Objectives

For our businesses to achieve a maximum risk-adjusted return on equity, combined with optimized growth.

Core values

Our four core values guide our decision-making to create long-term value for the Group and for society at large.

• Decency
• Development
• Results-focused
• Commitment

Strategy

• Invest in assets and business concepts where profitable growth opportunities can be realized and developed to result in high and long-term returns.  
• Pursue value-creating initiatives when building and developing the businesses.
• Work to ensure that the businesses have a sustainable and scalable business model with the flexibility to adapt to changes in the environment and future challenges.
• Work innovatively and quickly to find profitable investments and potential financing opportunities.
• Run the businesses with a focus on essential sustainability issues and contribute to the achievement of
  ALM Equity's overall business objectives as well as a sustainable society.

8

ALM EQUITY ANNUAL REPORT 2023

ALM Equity's business model

ALM Equity's business model is based on our ambition of building businesses that develop the property sector. Development is achieved by daring to challenge and find new paths to profitable ­investments based on the market's future needs.

INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY	CORPORATE GOVERNANCE REPORT	FINANCIAL INFORMATION	CONTENTS

Model of the flow from investment to reinvestment

Investments are made in business opportunities and assets with good growth potential where ALM Equity can add greater value and

Investment

Value-creating shareholder interventions

Returns

work for sustainable development. Investments are evaluated based on value, potential and risk, as well as how well they complement the company's strategy.

Our interventions as a shareholder are adapted to the needs and maturity of the businesses. Value creation is achieved by packaging, financing and restructuring assets to maximize returns.

Acquisitions take place according to the company's investment criteria of assets with good growth potential, to which ALM Equity can contribute greater value and sustainable development.

Build-up phase

During the build-up phase, operational work is carried out to structure and optimize assets and seize new business opportunities in order to create independent businesses that grow sustainably over the long term.

Development phase

Together with the businesses, initiatives aimed at increased growth and further development are pursued in order to achieve and maintain maximum risk- adjusted returns on equity.

Capital is released through returns from the businesses, secondary offerings or IPOs.

Capital that is freed up through secondary offerings, IPOs or continuous dividends is reinvested in existing businesses and new business opportunities.

Reinvestment

Freed-up capital is reinvested in new deals and in existing businesses.

9

ALM EQUITY ANNUAL REPORT 2023

INTRODUCTION	THE BUSINESS	MARKET	COMPANY PORTFOLIO	SUSTAINABILITY	CORPORATE GOVERNANCE REPORT	FINANCIAL INFORMATION	CONTENTS

Adaptability is the key to our success

Since ALM Equity was founded in 2006, we have been very responsive to demand on the market and how this has changed. This, together with our entrepreneurship, is one of the keys to our success.

The last two years have been really challenging for anyone involved in	At the same time, rising inflation had a considerable impact on construc-
property. We have seen the base rate go from 0% to 4% in 20 months,	tion costs and the number of construction starts on apartments decreased
a complete freezing of the bond market, and a sharply depreciation in	by almost 60% in the first half of 2023. In other words, conditions changed
property values. In such a market, adaptability is what separates the	within a short space of time.
winners from the losers.

Kista Square Garden is one of the projects that was included in the initial portfolio when the new Klövern was started up.

Klövern founded with the intention of going public

When we laid the foundations for Klövern, alongside Corem, at the end

of 2021, we saw the opportunity to create one of Sweden's largest housing management companies. Our investment in Klövern consisted of a portfolio of 11,000 building rights whose sources included the acquisition of ALM Småa Bostad and Järntorget.

Capital was needed to realize the value of the initial portfolio of 24,000 building rights, and this was to be obtained through an IPO.

Conditions changed by a market slowdown

By the time the deal had gone through in mid-2022, market conditions had started to change. In May 2022, the base rate was raised to 0.25, rising above the zero mark for the first time since 2014. The listing climate quickly became colder, as the number of IPOs dropped from 150

to 50 between 2021 and 2022, with a much sharper fall in capital.

In the bond market, interest rates rose and the risk premium for riskier bonds increased significantly, while the Riksbank stopped injecting new capital into the market and reduced its bond purchases.

A future value journey assured by rapid adaptation

With an asset like Klövern, it was possible to wait out the market situation or take steps to create the conditions allowing Klövern to gear up and move forward on its journey. It is not in our nature to wait and see. Shortly before midsummer this year, we secured an agreement with Nrep, a large and very well-capitalized investor, which acquired 51% of Klövern's shares with the intention of investing SEK 4 billion in the company. This enabled Klövern to start the construction of around 800 homes before the end of the year and so get out of the starting blocks.

In addition to an immediate liquidity injection of approximately SEK 700 million, ALM Equity has ensured that it will participate in Klövern's value- creation journey going forward without having to inject more capital. Being a small shareholder in an asset whose financing and future value creation we have secured is not only smart - it is our way of taking resolute action and showing adaptability.

10