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

Q3

Interim Report

JANUARY- SEPTEMBER 2022

EVENTS DURING THE QUARTER

• ALM Equity signed an agreement to sell a building rights portfolio of around 1,500 building rights to Aros Bostadsutveckling AB in return for payment of a combination of ordinary shares, preference shares and convertibles corresponding to an ownership stake of about 35% in Aros Bostadsutveckling AB. The deal is conditional on the approval of financiers and Aros Bostadsutveckling AB's AGM.
• ALM Equity sold 20% of 2xA Entreprenad to the CEO of the company. The purpose of the transaction is to create a long-term incentive to run and develop the construction management business for continued growth.
• ALM Equity has revalued the holding of ordinary shares in Svenska Nyttobostäder AB as a result of external factors changing. This resulted in a negative impact on revenue of SEK 654 million in the quarter.

Consolidated KPIs

	2022
Summary	Jul-Sep

EVENTS AFTER THE PERIOD'S END

• ALM Equity has handed over the building rights portfolio consisting of 23 projects to Aros Bostadsutveckling AB. The remaining 11 projects will be transferred when the contractual conditions are met. In connection with this, ALM Equity has received ordinary and preference shares in Aros Bostadsutveckling AB.
• ALM Equity has added around SEK 30 million through the subscription of shares by warrants being exercised within the framework of the 2017/2022 option scheme. The company's share capital therefore increased by SEK 850,900 and the number of ordinary shares by 85,090, which resulted in a dilution of approximately 0.3%.

2021	2022	2021	2021
Jul-Sep	Jul-Sep	Jul-Sep	Jan-Dec

Net sales, SEK m	393	615	5,726	1,540	2,096
Profit/loss for the period, SEK m	-762	98	845	216	3,423
Return on equity (ordinary shares), %	-7	1	6	0	54
Equity/assets ratio, %	53	38	53	38	54
Cash and cash equivalents, SEK m	1,346	1,242	1,346	1,242	1,954
Equity, SEK m	7,160	4,856	7,160	4,856	7,154
Balance sheet total, SEK m	13,634	12,802	13,634	12,802	13,132
	2022	2021	2022	2021	2021
Key figures per share	Jul-Sep	Jul-Sep	Jul-Sep	Jul-Sep	Jan-Dec
Adjusted net asset value*, per ordinary share, SEK	810	948	810	948	986
Stock market price on the balance sheet date, SEK	554	786	554	786	986
Earnings per ordinary share before dilution, SEK	-75.79	2.48	56.75	0.42	314.42

*Adjusted net asset value is based on the actual net asset value adjusted for the estimated market value of ALM Equity's activities, definition on page 30.

We're not going to sit still

Since my last CEO's statement, a lot has happened in the market and now the situation is really tough. Demand has become significantly gloomier and the capital market

has found itself in a tailspin.

The handbrake is still on and even though I've been around for a while, I've never seen a more powerful brake on the market before. Uncertainty breeds risk aversion, which is clearly seen in the capital market's greater demand for liquidity and self-financing. At the same time, the bond market is largely closed and the Riksbank (Central Bank of Sweden) has put its foot down and will reduce its bond purchases.

And now the possibilities are there!

VIBRATIONS THAT MULTIPLY

The property market has reacted by restructuring its companies and portfolios to free up capital and reduce risks. Ongoing productions will end, but many planned construction starts have been postponed when there is great uncertainty about financing and demand. And you don't have to be an economist to understand the consequences for the construction industry. The component crisis that the industry previously suffered from turned into a demand crisis. The number of warnings is not so large yet, but we have already been able to see that the price picture for construction has begun to stabilize, which is a clear sign of lower demand.

ALM Equity's companies have also been affected by this reality. In October, Bomodul announced that they are letting 25 people go. 2A Entreprenad has deliveries to Svenska Nyttobostäder in 2023 and full occupancy at least 9 to 10 months ahead.

In its quarterly valuation of its property values, Klövern has

identified a downward adjustment totalling SEK 190 million which will be carried out in Q3. At the same time, Klövern has the advantage of having a largely debt-free portfolio and the option to adapt the completion of properties both on time and at sustainable yield levels.

Svenska Nyttobostäder's stock of rental accommodation is adapted to the prevailing conditions, where the newly built, space-efficient housing means low actual rent and energy costs per tenant. A large part of Nyttobostäder's existing stock has agreements linked to the CPI or other indices that partially compensate for increased costs and interest. As a result that the financing costs cannot be fully compensated, a review of the stock and the delivery rate for future properties will have to be carried out. During the quarter, the stock of existing housing was revalued based on new market conditions and resulted in a downward adjustment of property values by around 7%.

We had seen indications that the value of the holding in Svenska Nyttobostäder needed to be analysed as a result of many factors in the outside world changing and affecting future flows. Our assessment resulted in a write-down of around 20%. At the same time, our assessment is that Svenska Nyttobostäder is a long-termvalue-creating asset with a well-positioned property portfolio in today's housing market.

NOT THE PLACE TO SIT STILL

We are now working with the liquidity we have and reviewing all our holdings. An advantage of not having finished products, in other word completed properties, is the flexibility it creates in this market situation. We can now choose the pace of completion and, to use a well-known phrase, "flatten the curve". Through the Project Development business area, ALM Equity has its own building rights portfolio, the majority of which are intended for Svenska Nyttobostäder, but also the holding in Klövern, which has a portfolio of around 24,000 building rights. We are working actively to optimize our own building rights portfolio and, as the owner, ensure that our associated companies are equally active.

And we are not alone - many companies are currently reviewing their portfolios. This is when business opportunities appear!

We see significant opportunities of finding attractive structural deals in this market. Staying on the sidelines and waiting for better times only creates even greater locked-in capital and right now more lubricant is needed, not less, to keep the capital market flowing.

We have good liquidity and financial strength. Historically, we have financed ourselves with bonds and preference shares, and it is obviously on the table to review and optimize our capital structure going forward.

BELIEF IN A CHANGE BY THE END OF 2023

My belief is that the Riksbank will start lowering interest rates in the middle of 2023 at the earliest and that we will see a stabilization in the market during the second half of the year. But in the next 12 months we will see several structural deals in the property sector, a number of bankruptcies in the

construction industry and certainly some new company names and ownership constellations.

The worst thing you can do now is sit still and wait for the storm to blow over. We have always seen opportunities to build new companies and will actively take advantage of the business opportunities.

Joakim Alm, CEO

The worst thing you can do now is sit still and wait for the storm to blow over.

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This is ALM Equity

ALM Equity develops and invests in companies in the property sector that are run in a cost-effective way with good margins for high risk-adjusted returns.

The operations are structured in four business areas with independent companies and brands in property management, project development, construction management and digital services. The companies are united in a common vision of a sustainable housing concept for the future.

ALM Equity's operations can be categorized into two different parts: Group companies and Associates respec- tively. The Group companies are run operationally by ALM Equity, which has a direct influence over them. The associated companies are made up of both listed and unlisted companies, where ALM Equity's impact and influence over these companies is primarily via board representation. ALM Equity's strategy is not to acquire minority holdings via the stock exchange.

The business model is based on acquiring, strategically developing and organizing businesses to optimize value creation. In the long-term, when the operations reach the right degree of maturity, continued development towards becoming independent companies is enabled. All associated companies originate from previous operations in ALM Equity according to this model and the value creation that occurred along the way has been made visible.

	Property Management*	Project Development	Construction Management		Digital Services

Brands

	Group company				Associated companies

Share of adjusted net asset value*

* The business area also includes management of a number of project properties. The holding in Klövern was taken over on 28 April 2022.

SEK

10.0 bn

Property Management business area: 53% (5.3 bn)

Project Development business area: 19% (1.9bn)

Construction Management business area: 10% (1.0 bn) Parent company's assets: 18% (1.8 bn)

* The market valuation was carried out by PwC, definition on page 30.

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Market valuation and adjusted net asset values

Since 2021, value created within ALM Equity's holdings in the Group have been made visible through external valuations carried out quarterly by PwC. Svenska Nyttobostäder AB (publ) is listed, so the value is based on the closing price for the quarter.

Estimated market value

SEK bn	30/09/2022	30/06/2022	31/03/2022	31/12/2021	30/09/2021
Property Management business area	5.3	6.4	3.1	3.3	3.8
Project Development business area	1.9	2.1	6.4	5.5	5.1
Construction Management business area	1.0	1.1	1.3	1.4	1.3
Parent company's assets	1.8	1.9	1.9	2.0	1.6
Total market value	10.0	11.5	12.7	12.2	11.8

The market value is distributed among ALM Equity's shareholders as follows: SEK 1.4 billion to the preference shareholders and SEK 8.6 billion to the ordinary share- holders. This corresponds to an adjusted net asset value per ordinary share of SEK 810. The share price as of

30 September 2022 was SEK 554 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 1.5 billion.

During Q2 2022, the Klövern transaction was completed and the value was moved from the Project Development business area to the Property Management business area.

In the valuation, ALM Equity's shareholding in Klövern AB was valued at the book value of the shares adjusted for unpaid unconditional shareholder contributions. Svenska Nyttobostäder is valued at the closing price on the closing date.

The negative effect on the market value can be attributed to a number of components, but the main one is that the market value of Svenska Nyttobostäder has fallen by SEK 0.9 billion since the previous quarter. In addition, the values are affected by a more cautious estimation in the Project Development business area's deals regarding, above all, schedules, contracting and financing costs.

Development of adjusted net asset value,* SEK bn

15
11.8		+1.5
12				1.6					-3.2		-0.3		+.,2		10.0
9				1.3													1.8
																	1.0
6				5.1													1.9
3																	5.3
			3.8
0
	Q3 2021	Property		Project	Construction	Parent company's	Q3 2022
					Management	Development	Management		assets
			Property Management		Construction Management
			Project Development		Parent company's assets

Since the corresponding quarter of 2021, ALM Equity's net worth has fallen by SEK 1.8 billion, which is mainly due to the value of the holding in Svenska Nyttobostäder, which was significantly affected by the decline in the stock market. At the same time, the value has moved from Project Development to Project Management in connection with the implementation of the deal for Klövern AB.

*Valuation is carried out quarterly by PwC, for definition see page 30.

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Market comments

MACRO INDICATORS

In 2022, there has been a dramatic reversal in the macro picture with inflation that we have not seen for many years and a Riksbank that has done a complete turnaround and carried out three major increases in the key interest rate, reduced bond purchases and is now doing everything to push inflation down to normal levels. Today's key interest rate of 1.75% is expected to rise further and the Riksbank's forecast is 2.5% over the next year. Mortgage rates are expected to rise and end up a bit over 4%. It's a dramatic change of scene in a very short time. Seen in a longer perspective, however, the interest rates are not extreme. In the early 2000s, mortgage rates were 5 to 6% and the repo rate was over 4% in 2002.

Consumer prices have risen and the rolling twelvemonth CPI was at 9.7% in September, largely driven by imported inflation and energy prices. Households are depressed and consumer indicators are very low. At the same time, we have high employment and production rates in industry. But indications of lower activity and less orders are starting to appear. There is a palpable nervousness in the market and capital is moving away from risk. The Riksbank has clearly indicated that it will throttle the flow to the capital market, among other things, by reducing its bond purchases by three quarters in the second half of this year.

THE PROPERTY MARKET

Reduced access to capital and higher interest rates are driving many property companies to review their financing and liquidity. Many companies are shifting their weight towards an increased proportion of bank loans and a greater degree of interest hedging. At the same time, lenders are demanding a higher percentage of self-financing and lower loan-to-value ratios. This has led to a number of sales on the property market with the aim of increasing liquidity and reducing indebtedness.

The property sectors with depressed yield levels and

where­ CPI calculations are more difficult, including residential property, are most clearly affected in this market.

Postponed projects will lead to reduced activity in project development and new construction, which will have negative consequences for many contracting companies. At the same time, a clear slowdown in the price rise of input materials is already noticeable.

OUTLOOK 2023

2023 will be characterized by continued concern and a risk-averse capital market. The bond market will periodically be more accessible but very selective and volatile.

Provided that the central banks do not drive each other into mass psychosis, our assessment is that the Riksbank will start lowering interest rates around the middle of the year at the earliest after a significant reduction in demand and inflation during the first half of the year. We will see the market stabilising and increased consumer demand at the end of the year, and then we may possibly see another interest rate cut from the Riksbank.

Many property companies will work intensively on restructuring their portfolios to strengthen the balance sheets and be prepared to handle future loan maturi- ties. It will drive new business and structures within the industry.

Population growth and new ­production in Stockholm­ County, per quarter 2016-2022

15,000

12,000

9,000

6,000

3,000

0

2016	2017	2018	2019	2020	2021	2022
						Q2

Population growth

Residencies produced in Stockholm

* Source: SCB

3.2

In Q2, there were 3.2 newly migrated Stockholmers for every new residence. The sharp slowdown in newly started productions is not yet visible in the statistics. The gap between the number of new Stockholmers and the number of new residencies will increase dramatically in the coming quarters.

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