ALM Equity AB (publ): Interim Report January-March 2022

Q1

Interim Report

JANUARY- MARCH 2023

The quarter in brief

Events during the quarter

• An extraordinary general meeting of Svenska Nyttobostäder decided on changes to the company's capital structure and financing model, involving an offer to all preference shareholders to convert each preference share into two ordinary shares. Furthermore, changed conditions were decided for the deliveries agreed from ALM Småa Bostad where investors' commitment for contributions for future properties will take the form of ordinary shares instead of preference shares, and that the building rights not yet in production are sold at a market value of around SEK 1.3 billion. After the directed issue and the exchange procedure, ALM Equity will have an ownership stake in Svenska Nyttobostäder of around 39%.
• Via subsidiaries, ALM Equity has provided a credit facility of SEK 80 million to Svenska Nyttobostäder, which aims to provide a financing space until it is replaced by liquid from the proposed rights issue of SEK 250 million, which is expected to take place during May/June 2023.

Events after the end of the quarter

• ALM Equity and the other co-owners of Klövern have signed a letter of intent with an international investor who intends to acquire 25% of the shares in Klövern, at a value of around SEK 1,350 million and invest up to SEK 3,000 million through new issues to finance the construction of planned projects. After investment in the buildings is complete, their total ownership is estimated to amount to 51% and the deal is planned to be concluded in Q2 2023.
• The registration period of Svenska Nyttobostäder's exchange offer ran between 3-17 April and the outcome was around 82%, which corresponds to a total of 18,041,206 new ordinary shares to former preference shareholders. At the beginning of May, the exchange was carried out and Svenska Nyttobostäder took possession of the properties that had not started production in accordance with the decision at the extraordinary general meeting.
• ALM Equity called an extraordinary general meeting on 10 May 2023 to decide on the distribution
  of ordinary shares in Aros Bostadsutveckling AB, in accordance with the agreement made in connec- tion with the acquisition last year. After the distribution in kind, through Group companies ALM Equity will have an indirect shareholding in Aros Bostad amounting to 8,470,971 ordinary shares, 2,263,161 preference shares and 5,462,076 convertibles, corresponding to an Shareholding of 26%

Consolidated KPIs

	2023	2022	2022
Summary	Jan-Mar	Jan-Mar	Jan-Dec
Revenue, SEK m	266	895	6,902
Profit/loss for the period, SEK m	-84	274	-576
Return on equity (ordinary shares),%	-2	1	-10
Equity/assets ratio,%	49	54	50
Cash and cash equivalents, SEK m	971	1,747	1,073
Equity, SEK m	5,667	7,217	5,756
Balance sheet total, SEK m	11,474	13,329	11,518

	2023	2022	2022
Key figures per share	Jan-Mar	Jan-Mar	Jan-Dec
Adjusted net asset value1), per ordinary share, SEK	508	1,042	558
Stock market price on the balance sheet date, SEK	494	968	525
Earnings per ordinary share before dilution, SEK	-10.19	9.80	-78.63

1. Adjusted net asset value is based on actual net asset value adjusted for the estimated market value of ALM Equity's holdings, definition on page 26, and more information on estimated market value on page 5. Information about significant holdings can be found on pages 6-9.

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INTERIM REPORT JANUARY - M ARCH 2023

Crisis is the mother of innovation

A few months into the year, we can state that we now have a key interest rate that is 100 points higher than at the turn of the year, but that interest rates may flatten out towards the end of the year. The situation in the property market remains turbulent and many firms need to review their balance sheets and adjust their workforce. Transaction volumes have fallen by 75% and the number of construction starts is down to record low levels. Those who do not adapt will perish or be swallowed up by some industry colleagues.

Major focus on the portfolio companies

At ALM Equity, there has been a lot of activity to create the best conditions for our portfolio companies. We initiated a restructuring of the financing model at Svenska Nyttobostäder, where the company needed to ease the burden from preference share dividends and strengthen its balance sheet. The exchange offer was completed in April, and just under 82% of the preference shares have been converted to ordinary shares. To strengthen the balance sheet, the company plans to also carry out a new share issue of around SEK 250 million. The credit facility that ALM Equity provided in March of SEK 80 million will be off-set against our share in the new issue. This creates stability in Svenska Nyttobostäder at the same time that the company will have to continue to adapt to the market situation. We will likely see more deals like the planned sale of the Lignum project.

Together with the other owners of Klövern, we have also signed a letter of intent with an international investor to acquire 25% of the shares

in Klövern at a value of around SEK 1.35 billion and to invest up to SEK 3 billion in the company for future construction. This shows that good assets have the potential to find capital even in this market. With SEK 3 billion, Klövern would gain leverage on the values in the building rights portfolio. If we can achieve this in the near future and have the

opportunity to add new capital to continue building Klövern to make the values visible in this way, it feels almost optimal. The possibility of then starting construction in an otherwise collapsed construction market is also what I would call "perfect timing".

The importance of liquidity planning

Another major area of focus is planning liquidity and financing, which with today's conditions is at its peak. At the end of the quarter, there was SEK 971 million in the account, but we see, just like many others, the importance of acting and working to maintain a stable treasury. Today's market situation means that property-related businesses require more liquidity than before, while capital structures are being questioned and need to be adapted. We try to be creative and flexible in our work in order to ensure financing in both our own operations and for our associated companies. Evaluation of what creates the best long-term conditions for the future takes place on a continual basis.

The perfect portfolio for the recession

When Thedéen is finished, we will likely be in a recession and households will seriously review their costs. Many people will ask how much they can, and want to, spend on accommodation. The demand for smaller, and cheaper, homes, regardless of whether they are tenant- owned apartments or rental properties, will therefore increase. Our portfolio companies can meet this trend with perfectly adapted stocks of properties and building rights with cheap, space-efficient housing.

Crisis is the mother of innovation

Placing prestige in sticking to existing structures is just stupid. In a situation like the one we are in right now, it is more important than ever to dare to be opportunistic. It's now about being good at finding solutions and making the right deals. All our portfolio companies are adapting

to the situation and as owners we are a strong driving force in this. It is highly likely that all 24,000 building rights in Klövern will not be under self-­­management at the end of the day. There is no end in itself to strive for the largest management volume, but rather maximized risk-adjusted

returns. Swedish Nyttobostäder will also have a greater degree of freedom when it gets control over the entire property portfolio. To some extent, our three associated companies will become a little more similar to each other when the portfolios are adjusted to optimize returns. Some of the properties will go to the tenant-owned market and others will be kept for self-management.

Securing long-term value in our portfolio companies has of course taken a considerable amount of our time in recent months. We believe that our holdings have good conditions and assets for the future and can find a way past today's challenges of inflation, high interest rates and recessionary conditions. The situation provides an opportunity to develop, improve and gear up our sustainability work.

In parallel, we are actively working on a number of exciting ideas and potential new JV projects for tomorrow's property

market. As I mentioned earlier, opportunities are created in this type of market situation for smart and innovative businesses that can create new values in the long run. But I will tell you more about this in future.

Joakim Alm, CEO

It's now about being good at finding solutions and making the right deals.

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INTERIM REPORT JANUARY - M ARCH 2023

Comments on the market

Macro indicators

The outside world continued to be unstable in Q1 2023. Although some improvement has been noted recently, inflation remains at a high level and interest rate hikes have continued to affect the global economy. Recently, we witnessed something of a banking crisis with a number of US niche banks at the centre, including Silicon Valley Bank (SVB), the sixteenth largest bank in the US. The events in the United States caused ripples and spread to Europe, where the major Swiss bank Credit Suisse was next in line.

In Sweden, the Central Bank (the Riksbank) continues to do its utmost to keep inflation down. In total, five major increases in the base rate have been implemented. There is still a total freeze on bond purchases and issues on the bond market are slow to say the least. During 2023, the Riksbank will not carry out any further purchases of bonds. The base rate as of 31 March was 3%, and on 26 April a further increase of 0.5 percentage points was implemented. The Riksbank's forecast indicates a further increase of 0.25 percentage points in June or September. Mortgage rates are predicted to peak at between 4.5-5% at the end of 2023. Sweden's GDP in March was 0.7% lower than the corresponding month of the previous year, while Q1 as a whole was 0.3% above Q1 2022. The slightly positive increase is due to a strong January, followed by two months where economic activity was slightly lower. At the same time, consumer prices have continued to rise since Q4, and the rolling twelve-month low CPI was 10.6% in March 2023. The increased inflation rate can be attributed to, among other things, rent increases and increased interest costs for tenant-owned apartments'. Consumer sentiment is still very weak as a result of inflation. We have continued high employment in the industry, despite the fact that there are indications that production rates and incoming orders are decreasing.

Property market

The prevailing situation on the capital market and the continued strained interest rate position make financing opportunities and the availability

of liquidity difficult for property companies. Those who previously depended on the bond market have re-evaluated their financing strategy and increasingly preferred bank loans as the primary financing option. The banks, in turn, have stricter requirements on both interest coverage and the loan-to-value ratio. Consequently, many companies have been forced to review their balance sheets and in some cases carry out major transactions to reduce indebtedness and increase liquidity.

The property market continues to be risk-averse, which is reflected in a significant reduction in transaction volume by 75% and a record low number of construction starts. Prices on the housing market stabilized somewhat during March, largely as a result of many seeing an end to inflation and interest rate increases towards the end of 2023. We will not see full stabilization of housing prices until inflation begins to fall, and more price reductions may occur before then. Sales of newly produced housing are still at low levels despite a slightly positive increase from Q4. This has led to a sharp decrease in the number of project starts and the forecast for the number of housing starts is more than halved for 2023 compared to 2021, which has negative consequences for construction companies.

Outlook 2023

Towards the end of the year, we see it as likely that interest rates will begin to turn downwards again. The market, which is usually a bit ahead, should experience some recovery before the rate cuts happen. When banks and the bond market finally become more certain about which valuations and yield levels apply, the financing situation will improve.

The following year will be characterized by adjustments according to the prevailing market situation. We will see both staff cuts and structural deals with the aim of strengthening balance sheets and income statements and to be prepared for future loan maturities.

Mortgage rate and Key interest rate

%

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022	2023
	Q1

Mortgage rate (refers to three-month commitment period after interest rate rebate) Key interest rate

Source: https://www.ekonomifakta.se/Fakta/Ekonomi/Hushallens-ekonomi/prognos-for-ranta-pa-bolan/

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Market valuation and adjusted net asset value

ALM Equity values its holdings quarterly. Unlisted holdings are valued externally by PwC. Svenska Nyttobostäder AB (publ) and Aros Bostadsutveckling AB (publ) are listed companies whose values are based on the share prices as of the current balance sheet date. Klövern AB is valued at the share of reported equity.

The market value is distributed among ALM Equity's shareholders as follows: SEK 1.3 billion to preference shareholders and SEK 5.4 billion to ordinary shareholders. This corresponds to an adjusted net asset value per ordinary share of SEK 508. The share price on 31 March 2023 was SEK 494 per ordinary share. Since the previous quarter, ALM Equity's shareholders have received a dividend corresponding to SEK 30 million and the market value has decreased by SEK 0.5 billion.

Comments on the changes in value

The quarter's negative effect on the market value is mainly due to the market value of Svenska Nyttobostäder falling by SEK 0.4 billion since the previous quarter. The assessment is that the current economic situation, changed market conditions and greater uncertainty around asset values continue to drive the decline. Above all, it is yield requirements, interest rates and the capital structure that have effects. The carrying amount was SEK 1.7 billion, which differs from the current market value, which as of 31 March 2023 amounted to SEK 2.5 billion, of which ALM Equity's share was SEK 1.0 billion. The carrying amount is defended instead by a discounted cash flow model for future operations, which corresponds to an average price of around SEK 56 per share. After the end of Q1, the exchange offer for the distribution of the preference share structure was implemented as well as changes in the agreements between Svenska Nyttobostäder and ALM Småa Bostad. More information on the expected effects are on page 12 and in Note 4.

The value of Aros Bostad includes values for convertibles regarding future deliveries, which are thus also excluded from ALM Småa Bostad. The market value of Aros Bostad has decreased by SEK 0.1 billion

in relation to the market value at the turn of the year as a result of the sale of parts of the shareholding and the fact that the market price on the closing date of 31 March 2023 was SEK 39.40 per share versus SEK 40.90 per share at the end of the year. The carrying amount for ALM Equity's shares was SEK 0.6 billion and for the issued convertibles, SEK 0.2 billion.

The holding in Klövern is valued at booked equity adjusted for unpaid unconditional shareholder contribu- tions, which is the same as the reported share value of SEK 3.1 billion. If the letter of intent between the international investor and Klövern's shareholders is implemented, 25% of the holding in Klövern will first

SEK bn	31/03/2023	31/12/2022	30/09/2022	30/06/2022	31/03/2022
ALM Småa Bostad	0.3	0.3	1.9	2.1	6.4
2xA Entreprenad	0.5	0.5	1.0	1.1	1.3
Svenska Nyttobostäder	1.0	1.4	1.7	2.6	3.1
Klövern	3.1	3.1	3.6	3.8	-
Aros Bostad	1.0	1.1	-	-	-
Other assets	0.8	0.8	1.8	1.9	1.9
Total market value	6.7	7.2	10.0	11.5	12.7

The values stated above are estimated market values to make the real values in ALM Equity's operations visible. They do not correspond to reported values. This valuation is carried out quarterly by PwC, for a definition see page 26.

be divested and then the investor will, through gradual contributions of up to SEK 3 billion, finance the continued development of the company. If the deal is carried out, ALM Equity's shareholding will fall as additions are made in that case.

New designations

In Q4 2022, ALM Equity adjusted its reporting structure by moving away from the business area structure and instead starting from the company portfolio. In order to clarify how values in the Group are connected to the larger holdings, the market valuation has also been redistributed among the companies. More information and carry amounts for each holding presented can be found on pages 6-9.

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