ALM Equity AB(publ): Year- end Report 2022

Q4

Year-end Report

JANUARY- DECEMBER 2022

Global conditions continue to affect figures

EVENTS DURING THE QUARTER OCTOBER - DECEMBER 2022

• ALM Equity handed over 23 projects to Aros Bostad, in accordance with the agreement signed on 15 August. The remaining projects will be transferred when the contractual prerequisites are met and ALM Equity receives compensation for them. Joakim Alm was elected as a board member of Aros Bostad and ALM Equity's ownership in the company was 23% at the turn of the year and holds convertibles which, after conversion, increase our ownership stake to 30%.
• ALM Equity added around SEK 30 million through the subscription of shares within the framework of the 2017/2022 option scheme. The share capital increased by around SEK 0.85 million and the number of ordinary shares by 85,090, which led to a dilution of about 0.3%.
• ALM Equity wrote-down its holding in Svenska Nyttobostäder AB (publ) by SEK 811 million. This does not affect cash flow, meaning a total downward adjustment of SEK 1,500 million for the year. The underlying factors are changes in the global situation, which entails higher costs, increased yield requirements and more difficult financing conditions.
• The associated company Klövern AB reported negative results driven by write-downs of assets not affecting cash flow in the annual accounts of SEK 1,470 million, which means that ALM Equity's profit share from the associated company had a negative earnings effect of SEK 684 million for the quarter.

EVENTS AFTER THE END OF THE QUARTER

• ALM Equity initiated changes to Svenska Nyttobostäder's capital structure and financing model. The proposal involves a conversion of existing preference shares to ordinary shares and changed conditions for future deliveries of property, meaning, among other things, that the investors' contri- butions to future properties will take place in the form of ordinary shares instead of preference shares. The Board of Svenska Nyttobostäder is positive about the plan and the next step is for them to put together a complete proposal and call an extraordinary general meeting to decide on its implementation.
• The Board proposes a cash dividend of SEK 8.40 (8.40) per preference share to be paid at SEK 2.10 (2.10) quarterly. Furthermore, it is proposed that no dividend be paid to ordinary shareholders.

Consolidated KPIs

	2022	2021	2022	2021
Summary	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
Revenue, SEK m	1,176	556	6,902	2,096
Profit/loss for the period, SEK m	-1,421	3,207	-576	3,423
Return on equity (ordinary shares),%	-17	51	-10	54
Equity/assets ratio,%	50	54	50	54
Cash and cash equivalents, SEK m	1,073	1,954	1,073	1,954
Equity, SEK m	5,756	7,154	5,756	7,154
Balance sheet total, SEK m	11,518	13,132	11,518	13,132

	2022	2021	2022	2021
Key figures per share	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
Adjusted net asset value*, per ordinary share, SEK	558	986	558	986
Stock market price on the balance
sheet date, SEK	525	986	525	986
Earnings per ordinary share before dilution, SEK	-134.76	307.80	-78.63	314.42

• 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.

2 | A L M EQ U I T Y A B

YE AR - END REPORT JANUARY- DECEMBER 2022

A spoke in the wheel

Everyone feels right now that 2022 was a terrible year in more ways than one. However, it started with huge optimism and capital was flowing. The property sector enjoyed all-time high valuations and all-time low yields. Then everything happened. But I will avoid being sector parrot and repeat what many people have already said. Of course, our business has been affected and we have had to show that we are creative even when the sun isn't shining.

WE BECAME MAJOR OWNERS OF AROS BOSTAD

We signed a letter of intent with Aros Bostad in Q2 and created one of Greater Stockholm's largest housing developers by selling a project portfolio of around 1,500 building rights against payment in shares. In October, we formally became Aros Bostad's largest owner when we took over the portfolio. The market for housing development projects turned into a real challenge in 2022 in line with rising interest rates and a gloomy trend for households. Aros Bostad therefore showed admirable planning in June with the sale of 878 rental apartments, corresponding to a value of SEK 3.6 billion. This means that they have ensured certain future deliveries at attractive price levels.

KLÖVERN EXPANSION IS ADAPTABLE

During the spring, a deal was completed with Corem and the new property management company Klövern was created. During the summer, preparations were made to start constructing around a hundred residential units, but as the market deteriorated during the autumn, the level of activity decreased. Klövern has the great advantage that it can adjust pace with a largely unleveraged portfolio that enables it to pause building until reasonable yield levels are in place. We have had to put our ambition to list Klövern on hold as the conditions on the stock market have not been favourable due to the gloomy market over the past year. We don't usually rest on our laurels, but we are naturally looking at possible options going forward.

RESTRUCTURING OF SVENSKA NYTTOBOSTÄDER

When we laid the foundations for Nyttobostäder, we created a predictable delivery and financing model for the properties where the project development risk was not on the company. Nyttobostäder received a fixed price for the contracted properties while the investors bore the development risk and undertook to receive payment in newly issued preference shares.

With a capital market collapsing and a completely new interest rate situation, we saw that this model was not financially sustainable. ALM Equity is both the main owner and supplier to Nyttobostäder and we therefore took the initiative to restructure the company's financing. A proposal has been presented to Nyttobostäder's Board and given that decisions are taken by the annual general meeting, they will have a significantly stronger capital base with SEK 3.3 billion in preference shares being converted

to ordinary shares and the burden of continuously distributing around SEK 165 million in preference returns disappearing. Nyttobostäder will simultaneously take over the project development of future properties and need to build up an organization to handle this additional business. The appointment of Fredrik Arpe as acting CEO was part of that.

FREER ROLE FOR 2xA ENTREPRENAD

Things are currently fairly busy with deliveries of continuing projects to Nyttobostäder and Aros Bostad. 2xA Entreprenad, like many others in the same sector, is facing a tougher time when a lack of input goods and a deflated capital market has led to delayed procurement and production. At the same time, the company has quickly gone from having only one internal customer to mainly only having external customers. There are two sides to every coin, and this can mean greater opportunities for the company.

VALUATIONS OF ASSETS

It can feel depressing when the closing accounts for the year are weighed down by asset values being adjusted downwards due to a situation where uncertainty is rocking the market. I remain of the view that our assets are of fundamentally good quality and will increase in value as

the situation stabilizes. It feels right not to close our eyes to the current situation and cling to the old values, but rather see it as an opportunity to create better conditions to face the future market.

THE FOG WILL CLEAR IN 2023

No, I'm not surprised. Sweden has had an upward property market for over 12 years with a small temporary dip in 2017, when ALM Equity showed that we could quickly adapt to new conditions. The Ukraine war was of course an important part of 2022 being a very messy year, but we all stepped in, in the best Scrooge McDuck style. When we see bonds trading above the 10% level, it is more a sign of great uncertainty than a real lack of capital. We will most certainly not return to previous interest rate levels, but when the fog clears in 2023, people will be able to rely on their calculations again. The capital market will start

working again and projects will find financing at higher, but more stable, yield levels. For the creative and solution-oriented, opportunities arise to both dare to follow new paths and deal with the challenges the situation creates.

It is not my style to sit still, and as before we will continue to work actively with our holdings going forward to optimize structures and find new opportunities that create value. If there's a spoke in the wheel, it just means that you have to remove it, accelerate on and adapt to the opportunities of the future!

Joakim Alm, CEO

If there's a spoke in the wheel it just means that you have to remove it and accelerate on.

3 | A L M EQ U I T Y A B

YE AR - END REPORT JANUARY- DECEMBER 2022

Comments on the market

MACRO INDICATORS

In 2022, the macroeconomic situation changed drastically with sky-high inflation challenging the financial position of individuals as well as businesses. The Swedish Central Bank (Riksbank) has done its utmost to push inflation down to ordinary levels, which has resulted in five major increases in the key interest rate and a complete stop to bond purchases. As of 2023, the Riksbank will not carry out any further purchases of bonds. The key interest rate is currently 3% and mortgage interest rates are around 4%. The actions of the European Central Bank going forward will play an important role for the Swedish interest rate situation.

Preliminary figures show that Sweden's GDP decreased by 0.6% during Q4, compared to Q3. The weak performance at the end of the year is mainly due to relatively low economic activity during the last quarter. At the same time, consumer prices have continued to rise and the rolling twelve-month low CPI was 10.2% in December, which was the highest figure throughout the year. The increased rate of inflation can be attributed, among other things, to record high and highly volatile electricity prices, which increased by around 45% in 2022. Consumer sentiment is currently very low as a result of inflation. There is continued high employment in the industry, despite the fact that there are indications that the pace of production and incoming orders are decreasing. The market is currently characterized by uncertainty and the flow of capital is risk-averse.

THE PROPERTY MARKET

The situation on the capital market and current interest rates make financing and the availability of liquidity difficult for many property companies. Those who were previously dependent on the bond market have started to move towards bank loans, which come with tougher requirements on interest coverage and loan-to-value ratio. Consequently, there have been a number of transactions in the market to improve liquidity and reduce indebtedness.

At the same time, the property market has been characterized by a wait-and-see attitude with fewer property acquisitions and postponed project starts. This is most clearly felt in the housing sector, where home buyers have been noticeably cautious in line with falling housing prices on the secondary market. Sales of newly produced homes have reduced drastically. This has led to a sharp decrease in the number of project starts and the forecast for the number of housing starts has more than halved for 2023 compared to 2021, which will have negative consequences for many construction companies. At the same time, we see that construction costs have started to come down, which will lead to the situation stabilizing at a new level.

OUTLOOK 2023

The coming year will probably be characterized by increasingly stable market conditions as well as various types of new issues and capital increases, as we are now seeing signs that inflation will worsen. Aggressive interest rate hikes are deemed less likely and we may soon see interest rates peak. At the same time, the capital market in the property sector will continue to be risk-averse.

If the Riksbank reduces the interest rate at the end of 2023, stabilization should be possible during the year as the market is normally a little ahead. When banks and the bond market become more certain about which values apply, the financing situation will improve.

For property companies, a lot is about liquidity. Many will focus on adapting business to aftermarket conditions. In all probability, this will lead to a number of structural deals aimed at strengthening balance sheets and being prepared to handle 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

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/

4 | A L M EQ U I T Y A B

YE AR - END REPORT JANUARY- DECEMBER 2022

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 shareholders as follows: SEK 1.2 billion to preference shareholders and SEK 6.0 billion to ordinary shareholders. This corresponds to an adjusted net asset value per ordinary share of SEK 558. The share price as of 31 December 2022 amounted to SEK 525 per ordinary share. Since the last quarter, ALM Equity's shareholders have received a dividend corresponding to SEK 30 million and the market value has fallen by SEK 2.8 billion.

COMMENTS ON THE CHANGES IN VALUE

During Q4, listed shares in Aros Bostad were acquired in return for the acquisition of a portfolio of ongoing projects and building rights. This reduced the value of ALM Småa Bostad and new values were calculated for Aros Bostad. The shares and convertibles are valued at the market price on the balance sheet date.

The value of Aros Bostad includes values for the projects that have not yet been commissioned, which are therefore also excluded from ALM Småa Bostad.

During Q2 2022, the transaction for Klövern was carried out, which also meant that the value in

ALM Småa Bostad fell and new values appeared in Klövern. ALM Equity's shareholding in Klövern is valued at reported as equity adjusted for unconditional shareholder contributions not yet paid.

The negative effect on market value can be attributed to various factors. One of the main ones is that the market value of Svenska Nyttobostäder has fallen by SEK 0.7 billion since the last quarter and a total of SEK 1.6 billion for the year. The assessment is that the prevailing economic situation, changed market conditions and greater uncertainty around asset values have driven this decline. Above all, it is yield requirements, interest rates and capital structure that have influenced the valuation.

In addition, property development and contracting operations have had their values adjusted downwards, primarily due to changing schedules, increasing contracting costs, restrictive financing options and a stagnant housing market.

NEW DESIGNATIONS

In its year-end report, ALM Equity has adjusted its reporting structure by moving away from the business area structure to basing it on 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.

SEK bn	31/12/2022	30/09/2022	30/06/2022	31/03/2022	31/12/2021
ALM Småa Bostad	0.3	1.9	2.1	6.4	5.5
2xA Entreprenad	0.5	1.0	1.1	1.3	1.4
Svenska Nyttobostäder	1.4	1.7	2.6	3.1	3.3
Klövern	3.1	3.6	3.8	-	-
Aros Bostad	1.1	-	-	-	-
Other assets	0.8	1.8	1.9	1.9	2.0
Total market value	7.2	10.0	11.5	12.7	12.2

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.

5 | A L M EQ U I T Y A B

YE AR - END REPORT JANUARY- DECEMBER 2022