Heba Fastighets : Earnings and Finance Reports

Q3

Interim Report

1 January-30 September 2023

The quarter: 1 July-30 September

• The loss for the quarter amounted to SEK -265.9m(-309.4), corresponding to SEK -1.61(-1.87) per share.
• Income from property management was SEK 60.3m (63.6), a decrease of 5.2% compared to last year.
• Rental income amounted to SEK 147.6m (129.2).
• Net operating income (NOI) was SEK 113.3m (96.1).
• Unrealised change in the value of properties was SEK -356.4m(-483.8).
• Heba completed the renovation of the Pennteckningen pilot project in Johanneshov during the quarter. By making optimal choices of materials and methods, Heba reduced the climate impact of the renovation by 30% compared to an earlier renovation project for which a climate estimate was performed.

The period: 1 January-30 September

• The loss for the interim period was SEK -654.5m (53.8),
  corresponding­to SEK -3.96 (0.33) per share.
• Income from property management was SEK 222.9m (185.2), an increase of 20.4% over last year.
• Ten properties in Hökarängen were sold in June at an agreed property value of SEK 605m. The sale had a positive impact on profit of about SEK 10m for Heba after reversal of deferred tax.
• Rental income amounted to SEK 436.9m (372.5).
• Net operating income (NOI) was SEK 315.3m (265.3).
• Unrealised change in the value of properties was SEK -1,003.8m(-337.6).
• Net asset value (NAV) decreased by 12.9% to SEK 47.05 per share (54.00).
• At the end of the period, the property portfolio was valued at SEK 14,339.1m, compared to SEK 15,718.2m in the same period in 2022.

Key figures

	2023	2022	2022
	Jan-Sep	Jan-Sep	Jan-Dec
Property-related key figures
Rental income, SEKm	436.9	372.5	509.9
Lettable time-weighted area, 000s m2	294.3	281.9	282.9
Property yield, %	3.0	2.3	2.3
Carrying amount per m2, SEK	48,935	52,114	51,344
Financial key figures
Cash flow, SEKm	207.8	157.1	196.6
Investments, SEKm	271.2	1,098.6	1,648.8
Average interest rate, %	2.57	1.85	2.3
Property management margin, %	51.0	49.7	46.7
Loan-to-value (LTV) ratio, %	48.1	47.2	47.9
Net LTV, %	49.0	46.0	48.3
NOI margin, %	72.2	71.2	70.9
Per share data
Loss before tax, SEK	-5.18	0.50	-0.84
Loss after tax, SEK	-3.96	0.33	-0.82
Dividend, SEK	0.45	0.80	0.45
Share price at 30 September, SEK	23.95	31.50	36.30
NAV, SEK	47.05	54.00	52.73

Contact person:

Patrik Emanuelsson, CEO

[phone], [e-mail]

HEBA FASTIGHETS AB

Heba continues to strengthen results

We willingly accept our responsibilities at Heba and are taking action to contribute in our areas of expertise

• safe and secure homes, sustainability and stable finances. In recent weeks, Heba has carried out all pre- viously announced sales. In so doing, we have freed up nearly SEK 2bn in capital that we will use to reduce our leverage. We have gathered the strength to withstand a protracted period of high interest rates with no need to raise additional capital. In addition, we have deliv- ered income from property management of SEK 222.9m for the first three quarters of the year, an improvement by 20.4% compared to last year.

In uncertain times, we believe it is essential to be transparent to the market. Accordingly, we set new financial targets in the third quarter for the period of 2023-2025. After 2025, we will focus on new growth targets designed for a more stable market. Until that time, Heba will deliver income from property management of SEK 200m or better, adjusted for income from commonhold apartments; maintain LTV below 50%; ensure an NOI margin above 70%; increase the share of consolidated NOI generated by public buildings; and distribute minimum dividends of 40% of income from property management adjusted for tax. Our strategy for the past five years is working. Even though we sold nearly 25% of our residential properties in 2023, we can still deliver income from property management on par with the best Heba has ever achieved. The underlying key figures show that we are a stronger company with greatly improved earnings capacity. In addition, almost 25% of Heba's NOI is generated by our senior living facilities.

The bottom line for income from property management was SEK 222.9m, an improvement by more than 20% over the same period last year. The property management margin was 51.0% (49.7).

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With its strong financial position, Heba will stand firm in times of economic uncertainty.

HEBA FASTIGHETS AB

Business environment

Russia's war of aggression in Ukraine and the war that has now broken out between Hamas and Israel are causing indescribable human suffering. In Sweden, callous and cold- hearted gang crime is out of control. Inflation and interest rate hikes, punishing increases in tariffs and tax increases starting in 2024 are having serious impact on businesses and consumers alike. Who is taking responsibility for what is happening in our society? As a landlord, we are working actively with matters related to safety and security and the results are illustrated by Heba's security index of 87.4%. The police must take responsibility for putting criminals behind bars and society must show restraint in matters of taxes and fees.

Property owners must shoulder tremendous responsibility, considering that rent increases do not cover all cost increases. Once again this year, the Swedish Union of Tenants is asking all property owners to exercise restraint in their demands. Even before the steep increases in costs, residential property was a stable, low-margin business. It is thus important that we are able to work under reasonable commercial terms and condi- tions. The Union of Tenants' monopoly on negotiations and subsidised rent-setting on older residential properties need to stop. The system is currently leading to housing shortages, lock-in effects and longer waits in housing queues.

Heba in the first three quarters

Heba generated net operating income of SEK 315.3m for the period, an increase of 19% compared to the same period last year. The NOI increase is primarily attributable to an increased number of properties, which generated growth of 17% in rental income. The NOI margin ended at a record-high for Heba of 72.2% (71.2). Income from property management for the period was SEK 222.9m (195.2). A comparison to the corresponding period last year shows that the explanation is found in the positive trend in income from commonhold apartments, which has outweighed the steep increase in interest expenses. If income from commonhold apartments is excluded, however, income from property management has decreased by 9% compared to the same period in 2022.

New builds and renovations at Heba

We completed Älvdansen in Enköping, a property of 154 rental apartments, in Q3. Tenants also moved into the 40 apartments at the climate-friendly renovated Penn­ teckningen property on Gullmarsplan during the quarter.

When the economy turns around Heba, with its long-term approach and low risk, is a company to be reckoned with.

Our renovation project in Huddinge, comprising about 400 rental apartments, will be completed in 2024. Following our property sales within the renovation programme, we have only 100 apartments in two properties left to be renovated. In addition, we have one new build project in the planning stage that will be started if finances permit.

Market value

The total market value of the company's properties as at 30 September 2023 was SEK 14,331.9m, as compared to SEK 15,718.2m at the same date in 2022. The change in value is due to a combination of property sales and a negative change in value due to the market situation. The change in value for the first three quarters of the year was -6.4%, of which almost 1% is attributable to a change in the value of properties for which sales have been agreed but not yet closed. There have been few deals closed due to market con- ditions, which makes it difficult to pin down the yield requirements on which property valuations are based.

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Financing

We maintained strong focus on financial matters. The average rate of interest for our current borrowings is 2.57% (1.85) and we have interest rate-hedged 83% (61) of our total interest -bearing liabilities of SEK 6.9bn (7.3). We received about SEK 1,045m in proceeds of our property sales in October and our current focus is to reduce our interest-bearing liabilities.

Sustainability

Energy use remains low at Heba. Energy use for the first three quarters of 2023 was 85 kWh/m2.

In partnership with the contractor, Husab, we have tested solutions and methods for reducing climate impact in connection with renovations in our Pennteckningen pilot project. When we compare the project with an earlier renovation

project­ for which a climate estimate was performed, the improved choices of materials and methods reduced climate impact by 30%. In addition to choosing the optimal products and materials, we focused on waste management, especially increasing recycling of plastics. We were able to recycle a full 47% of plastic materials generated in the project - far above the industry average of 2.5%. A report on the project will be published this autumn.

Climate risks were inventoried for all properties in Q3. Planned activities for the next year are based on the annual climate inventory.

A stable market participant

Heba is a stable company that will, thanks to its dynamic capacity and proactive measures, demonstrate its strength over upcoming years. Heba takes social responsibility by providing safe, secure and economical housing and taking strong action to protect the environment. With its strong financial position, Heba will stand firm in times of economic uncertainty. It is only reasonable to briefly pause growth, but when the economy turns around Heba, with its long-term approach and low risk, is a company to be reckoned with.

Heba is the safer, more secure landlord!

Patrik Emanuelsson

Chief Executive Officer

Heba Fastighets AB

HEBA FASTIGHETS AB

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Heba Fastighets AB

Our core business is to own, manage and develop residential rental properties and public buildings in the Stockholm-Mälaren Region.

Our vision

Our value-creating business model

Income from property management		Value generated

We shall be the best in Sweden at creating secure and ­attractive homes and communities.

Our business concept

For shareholders Long-term profitability and growth, returns to shareholders

For employees

Committed employees

For the environment Resource-efficient and sustainable solutions

For customers

Attractive communities

For the community

Responsible partners

Contributions to UN Global SDGs Heba has identified eight global SDGs that guide us in our ESG and sustainability work

Heba is a long-term and experienced property owner that develops, owns and manages residential properties and public buildings in the Stockholm-Mälaren Region. On the strength of our expertise and commitment, we offer safe, secure and sustainable homes for people throughout various phases of their lives. We create value for shareholders and society through satisfied tenants, safer and more attractive communities and trustful partnerships.

Long-term and efficient management of 65 properties in the Stockholm- Mälaren Region.

55 residential rental properties and

10 public buildings

New builds

Land allocations

Acquisitions

New build projects

Built properties

Property development

Densification, upgrading and renewal (ROT)

Input values	• Borrowed and internal capital	• Buildings and building rights
	• Expertise, experience	• Tenant relationships
	• Resources - energy, water, building materials	• Partner relationships

HEBA FASTIGHETS AB

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Increased profitability through growth while maintaining financial stability

Four reasons to invest in Heba

New financial targets

Heba's annual financial targets, 2023-2025:

• Income from property management above SEK 200m excluding income from commonhold apartments.
• LTV ratio below 50%.
• NOI margin above 70%.
• Increase the share of consolidated NOI generated by public buildings during the period.
• Annual dividend of at least 40% of income from property management, adjusted for tax.

1Desirable properties in attractive locations with potential

With its concentrated holdings of residential rental properties in the Stockholm-Mälaren Region, Heba is in prime position continue increasing earnings capacity in the existing portfolio by means of efficient management and a total concept for renovation, rebuilds and additions.

Modernisation and maintenance of the properties are oriented towards sustainabil- ity, with additional focus on saving energy and opportunities to create new housing units in existing buildings. This is also expected to generate rising property values over the long term.

2Increased share of new builds and public buildings with higher property yield

Heba is maintaining its focus on new builds and public buildings. Total investment volume for ongoing rental property and senior housing projects is about SEK 1.6bn, including ongoing and planned projects in 2023-2030. If all projects are carried out, it will generate NOI of about SEK 76m p.a. The number of geographical areas within the Stockholm-Mälaren Region will increase over time. Demand for public buildings is rising steadily for reasons including the ageing population in Sweden. Heba is targeting an increase in the share of consolidated NOI generated by public buildings during the period of 2023-2025.

3Strong financial position and cost-effective borrowing provide scope for profitable growth

Heba has stable underlying cash flow and a good financial position. As the company is listed and has access to a range of cost-­ effective financing options, Heba has the capacity to sustain long-term growth without its growth ambitions being limited by the target of long-term LTV below 50%.

4Stable dividend level

Heba will achieve growth while maintaining value growth and financial performance that safeguards dividends to shareholders. The company's target is for an annual dividend of at least 40% of income from property management adjusted for tax during the period of 2023-2025. Over the past ten years, the dividend has been at 39-73% of income from property management after estimated tax.

HEBA FASTIGHETS AB

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Long-term and sustainable corporate citizen

Sustainability is reflected in everything Heba does, today and in the future, proceeding from our responsibility as an employer, our social responsibility and our environmental responsibility. The ESG programme is meant to ensure that the company meets its long-term ESG objectives in alignment with the UN Global Sustainable Development Goals (SDGs). Future-proofing the business is intertwined with successful enterprise.

Overall ESG targets

Our targets are:

• Heba shall be committed to an active sustainability programme that is reflected in everything the company does. In the day-to-day work as well as the company's long-term approach to property development and management. Property manage- ment shall be climate-neutral by 2030 and all operations by 2045.
• Heba shall have satisfied tenants with a service index on par with our above the median value for privately owned housing companies in large cities.
• Heba shall be perceived as an attractive employer that encourages skills develop- ment and cooperation among its employees.

Our three focus areas
1Our organisation	2Our role in society 3Our environment

Our employees are our most important resource. Making sure that each and every one of our employees can thrive and develop ensures long-term sustainability. Heba is working actively to be an equal and inclusive workplace that creates the conditions for a sustainable, customer-oriented com- pany. Our working environment shall be safe and secure from the physical, psychological and social perspectives. Heba takes a proactive approach to avoiding occupational accidents and illness and preventing risks.

The foundation of our role in society is running Heba's business in an ethically, socially and environmentally responsible manner. We offer an opportunity for a safe, secure and suit­ able home to people of all ages and with a variety of needs for social care and service. We are also committed to social initiatives through partnering with and donating to charity organisations whose work is compatible with our business.

Heba's long-term sustainability target is for property management to be climate-neutral by 2030 and for the entire organisation to be climate-neutral by 2045. Heba supports the 1.5 degree target of the Paris Agreement. Limiting the indirect emissions of the business is the most important component for attaining that goal. It is also important to ­prepare the organisation for various scenarios caused by climate impact.

HEBA FASTIGHETS AB

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Källberga Nynäshamn

Källberga is an entirely new neighbourhood surrounded by nature in Nynäshamn Municipality. When fully built, it will contain 600-700 homes around a village centre with businesses, public services, shops and a preschool. Small-scale living and closeness to nature are found here in a new and exciting form, with environmental and social sustainability at the heart of it all.

HEBA FASTIGHETS AB

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Interim Report 1 January-30 September 2023

Revenue and profit

Q3

Rental income increased to SEK 147.6m (129.2). Property costs amounted to SEK 34.3m (33.1). Income from property management decreased by 5.2% to SEK 60.3m (63.6), due to poorer performance of investments in jointly controlled enti- ties, which posted a loss of SEK -17.1m(-0.3), and net financial expense of SEK -39.5m(-21.3). Unrealised changes in the value of investment properties and interest rate derivatives amounted to SEK -368.1m(-445.6). The loss before tax was SEK -320.9m(-382.0), corresponding to SEK -1.94 per share (-2.31) and the loss after tax was SEK -265.9m (309.4) or SEK -1.61 per share (-1.87).

The first nine months

Rental income increased to SEK 436.9m (372.5). Property costs amounted to SEK 121.6m (107.2). Income from property management increased by 20.4% to SEK 222.9m (185.2). The improved income from property management is the result of acquisitions in 2022 in Nyköping and Uppsala. In addition, financial performance was improved by profit from investments in jointly controlled entities of SEK 41.5m (-0.7) generated by sales of commonhold apartments. The capital loss from disposals of property was SEK -48.1m(-0.1). Unrealised changes in the value of investment properties and interest rate derivatives amounted to SEK -1,017.8m(-101.9). The loss before tax was SEK -856.0m (83.2), corresponding to SEK -5.18 per share (0.50) and the loss after tax was SEK -654.5m (53.8) or SEK -3.96 per share (0.33).

HEBA FASTIGHETS AB

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Property holdings and market

At the end of the interim reporting period, the Group's property portfolio contained 65 (71) properties in the Stock- holm-Mälaren Region, including 54 (59) residential proper- ties, 10 (8) public buildings and 1 (1) project property. Total lettable space is 289,100 m2 (285,000) including 3,800 (3,714) residential units and 345 (361) non-residential units. The vacancy rate for residential and non-residential units remains very low at 0.21% for residential and 0.55% for non-residential at the end of the reporting period.

Investments and disposals

Källberga Nynäshamn

Heba closed an agreement in October 2021 with a company controlled by MAMA Management AB to acquire rental apartments in Källberga Nynäshamn. The deal will be executed as a forward funding transaction in which Heba acquires the shares in the company, which enters into a turnkey contract. The properties comprise 123 rental apartments. Ownership was transferred in November 2022. Procurement of contractors is in progress. Construction start is planned in 2024, with completion in 2026. Costs incurred amount to SEK 69.1m including SEK 11.7m during the first three quarters of 2023. The investment is estimated at about SEK 373m.

Enköping

Heba closed an agreement with Bergsundetgruppen in June 2021 to acquire two residential properties in Enköping. The deal will be executed as a forward funding transaction in which Heba acquires the shares in the company, which enters into a turnkey contract with Lindbäcks Bygg AB. The residential properties comprise a total of 154 rental apartments. The previously planned assisted living facility was replaced by rental apartments. Ownership was transferred in Novem- ber 2021 and project construction began in December 2021. The project will be completed in Q3 2023. Costs incurred amount to SEK 308.1m including SEK 48.7m during the first three quarters of 2023. The investment is estimated at about SEK 321m.

Other investments

Other new investments amount to SEK 26.8m (11.2).

SEK 184.0m (224.8) was invested in value-add measures in other properties during the period.

The total investment in investment properties during the first three quarters of 2023 amounted to SEK 271.2m (1,092.6).

SEK 2.7m (5.2) was invested in other non-current assets during the period.

Disposals

A contract with Arbetarebostadsfonden on the sale of ten properties was signed in June 2023. The deal was executed as a corporate transaction in which Heba sells the shares and thus, indirectly, the properties. The transaction closed on 1 June 2023.

A contract with Resinova Bostads AB on the sale of four properties was signed in June 2023. The deal was executed as a corporate transaction in which Heba sells the shares and thus, indirectly, the properties. The transaction closed on 4 October 2023.

Heba closed an agreement in July 2023 with Tage Liljedahls Fastighets AB, Fastighets AB Senator and Jan Fredegård regarding the sale of five properties. The deal will be executed as a corporate transaction regarding four of the prop- erties, in which Heba sells the shares and thus, indirectly, the properties. The fifth property will be disposed of through a property transfer agreement. The transaction closed on 2 October 2023.

Investments

				Transfer of			Estimated
Property	Location	No. of apts	Property type	ownership	Construction start	Completion year	investment, SEKm
Källberga	Nynäshamn	123	Rental apartments	Nov 2022	2024	2026	373
Two properties	Enköping	154	Rental apartments	Nov 2021	Dec 2021	Q3 2023	321
Total		277					694

HEBA FASTIGHETS AB

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Partnerships

Bredäng

Heba and Åke Sundvall Byggnads AB are running a com- monhold apartment project in Bredäng through a partnership agreement. Construction of the project began in Q4 2020. Under the agreement, the parties each own 50% of the project. The total investment is estimated at about SEK 500m and will be completed in 2023. Tenant owners began moving into the first building, comprising 72 commonhold apartments, in Q1 2023 and into the second building of 72 commonhold apartments in Q2 2023. The total impact on profit from investments in jointly controlled entities is SEK 52.1m. An agreement with Resinova Bostads AB on the sale of the third building, which includes 56 rental apartments, was signed in June 2023. The deal was executed as a corporate transaction in which Resinova will acquire the shares and thus, indirectly, the properties. The planned exit date is 30 November 2023.

Uppsala

Heba and Åke Sundvall Byggnads AB are running a rental and commonhold apartment project in Uppsala through a partnership agreement. Construction of the project began in Q2 2021. Under the agreement, the parties each own 50%

of the project. The total investment is estimated at about SEK 376m.

The project comprises four buildings that were completed in spring 2023, including one building of 42 commonhold apartments, which have all been sold. The other three buildings are rental properties comprising a total of 117 apartments that were sold to Resinova Bostads AB. The transaction closed on 29 September 2023. The deal was executed as a corporate transaction in which Resinova acquired the shares and thus, indirectly, the properties. In total, the deals generated a negative impact on profit of SEK -8.4m from investments in jointly controlled entities, of which SEK 13m corresponds to a negative change in the value of the residential rental properties.

Vårbergstoppen

Heba and Åke Sundvall Byggnads AB are running a com- monhold apartment project in Vårbergstoppen through a partnership agreement. The commonhold project comprising 300 apartments will be distributed among two buildings. Construction of the project began in Q2 2021. Under the agreement, the parties each own 50% of the project. The total investment is estimated at about SEK 800m and will be completed in 2024 and 2025.

Framtidens Stora Sköndal

Heba and Åke Sundvall Byggnads AB are building 600 homes in Framtidens Stora Sköndal, phase 2a, through a partnership agreement. The housing project is divided among 260 rental apartments and 340 commonhold apart- ments. Under the agreement, the parties each own 50% of the project. The total investment is estimated at about SEK 2bn.

Skärgårdsskogen Skarpnäck

Heba and Åke Sundvall Byggnads AB are running a com- monhold apartment project of approximately 100 apartments in Skärgårdsskogen Skarpnäck, through a partnership agreement. Under the agreement, the parties each own 50% of the project. The total investment is estimated at about SEK 250m.

Partnerships

							Estimated
Property	Location	No. of apts	Property type	Acquisitions	Construction start	Completion year	investment, SEKm
Vårbergstoppen	Vårberg	300	Commonhold apartments	Oct 2020	Q2 2021	2024/ 2025	800
Stora Sköndal	Sköndal	260	Rental apartments	Nov 2020			2,000
		340	Commonhold apartments
Skärgårdsskogen	Skarpnäck	100	Commonhold apartments	Sep 2021			250
Total		1,000					3,050