Interim Report January – March 20216 May 2021 11:45 CET

Interim Report January-March 2021

• On 3 February 2021, the Group accessed the NK business in Departments & Stores Europe AB. One effect of this is the elimination of intra-Group rent revenue and rental costs in the Group's income statement.
• Gross profit from property management decreased by 16 per cent, totalling
  SEK 284 million (339), which is attributable mainly to lower rent revenue for stores and restaurants as well as the elimination of intra-Group rent revenue of SEK 33.7 million (11.0).
• Net revenue from property management was SEK 425 million (471), a decrease of 10 per cent. This is attributable primarily to temporary rent reductions for stores and restaurants as a consequence of covid-19, increased rent losses and the elimi- nation of SEK 33.7 million (11.0) in intra-Group rent revenue.
• Net profit for the period was SEK 14 million (-499), equivalent to SEK 0.07 per share (-2.42). The increase can be attributed primarily to lower negative unrealised changes in value in the property holdings.
• The fair value of the property holdings was SEK 45.6 billion (45.6 at year-end), resulting in net tangible assets (EPRA NTA) of SEK 171 per share (173 at year-end) after deduction for the decided dividend of SEK 2.50 per share. Unrealised changes in the value of the property holdings amounted to SEK -236 million (-929) for the pe- riod.
• The equity ratio was 59 per cent (62), the net loan-to-value ratio was 20 per cent (18), and the interest coverage ratio multiple was 8.6 (10.8).
• The rental vacancy level at the end of the period was 8.3 per cent (6.3). Excluding current development projects, the rental vacancy level was 7.3 per cent (2.7).

Acquisition of business

	On 3 February 2021, the Group accessed the	have been offered employment in the Group
	NK business in Departments & Stores Europe	and all but one have accepted the offer. Turn-
	AB. The business encompasses the operation	over for the business amounted to approxi-
	of approximately 40 departments within fash-	mately SEK 770 million for the 2019/2020 fi-
	ion, cosmetics and jewellery at NK Stockholm	nancial year. The purchase price was SEK 58
	and NK Gothenburg, together comprising	million and corresponds to the value of the in-
	around 25 per cent of the total number of de-	ventory. The acquisition has been financed
	partments in the two department stores. All	with existing cash and cash equivalents.
	employees in the business, approximately 400
	in total,

Operating events during the first quarter

			The subsidiary NK Retail has accessed the			The Italian brand Diesel has signed a lease for
			NK business in Departments & Stores.				retail premises in the Pumpstocken 10 property
			The Skären 9 property in Norrmalmstorg				in Bibliotekstan.
						The Swedish chain Sneakers Point has
			has been environmentally certified under
			BREEAM In-Use with a rating of Excellent.				signed a lease in Fyran for its first store in
			In NK Gothenburg, Deloitte has signed a				Gothenburg.
			lease for approximately 1,800 square
			metres of office premises.
Interim report, January-March 2021	Hufvudstaden	2

COVID-19

During the first quarter of the year, a third wave of the covid-19 pandemic impacted both society and Hufvudstaden's operations. The high transmission of the virus resulted in a continued strenuous burden on health care services. Vaccination against the disease was initiated and gradually accelerated in pace with the greater availability of vaccines. The objective now is for a majority of the population to have begun vaccinations in the third quarter of the year.

Public authorities encouraged continued social distancing and recommended that people work from home. Retail and restaurants have had restrictions imposed on how their operations are to be conducted. Tourism remains sharply curtailed and has virtually ceased in the urban regions of Stockholm and Gothen- burg. A large portion of the entertainment and culture sector has been entirely shut down.

The effects of covid-19 continued to have an impact on Hufvudstaden's centrally located properties and marketplaces in the two largest cities in Sweden, as central city locations do not have as many local residents and flows of commuters have significantly decreased.

Payment capacity was weaker during the first quarter of the year for many of our retail and restaurant tenants. Earnings in the interim accounts for the first quarter of 2021 were charged with rent reductions of approximately SEK 59 million in connection with covid-19, before reserved government compensation under the commercial rent support scheme for the first quarter.

In many cases, Hufvudstaden has long-termrelationships with its tenants, which is a coreelement in our business concept. We support tenants in all matters related to prem- ises, in good times and bad. Discussions will continue in the second quarter of 2021 to find the best solutions in business terms to bridge this challenging period. The effect on operating results will therefore continue in upcoming quarters, as compared to the situation prior to the pandemic.

Hufvudstaden is following official recommendations and directives on how to manage transmission of the virus. Operations have been adapted with regard to stores, restaurants, and office premises. Current and planned development projects are proceeding as scheduled. Hufvudstaden's financial position remains strong and conditions are good for the continued development of our properties and marketplaces. While the pandemic has in all likelihood accelerated social changes, we firmly believe that people will still want to meet in the

future, both professionally and socially. Face-to-face encounters create opportunities for exchange of ideas, innovation and business, as well as culture and experi- ences. Offices, stores and restaurants are a prerequisite for this. The assessment is therefore that centrally located properties in the two largest cities in Sweden remain attractive and we are convinced that our business model will be the foundation of favourable profit growth upon return to more normal conditions going forward.

Performance measures

	Jan-Mar	Jan-Mar	Jan-Dec
SEK m	2021	2020	2020
Net revenue, property management1)	425	471	1,724
Gross profit, property management1)	284	339	1,194
Unrealised changes in property value, investment properties	-236	-929	-2,930
Operating profit/loss	52	-585	-1,702
Net profit/loss for the period	14	-499	-1,462
Fair value, properties, SEK bn	45.6	47.0	45.6
Net loan-to-value ratio, properties, %	20.0	17.5	18.8
Interest coverage ratio, multiple	8.6	10.8	9.1
Rental vacancy level, excl. projects (EPRA vacancy rate), %	7.3	2.7	6.7
Earnings from property management after nominal tax
(EPRA EPS) per share, SEK	1.15	1.36	4.80
Net tangible assets (EPRA NTA) per share, SEK	171	178	173

1. After elimination of intra-Group rent revenue of SEK 33.7 million for January-March 2021, SEK 11.0 million for January-March 2020 and SEK 43.9 million for January-December 2020.

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GROUP

RESULTS

Property management

Net revenue from property management after elimination of intra-Group rents of SEK 33.7 million (11.0) totalled SEK 425.3 million (471.2) for the period. Gross profit was SEK 283.8 million (339.1). The decrease is primarily attributable to lower rent revenue for stores and restaurants, as well as additional elimination of intra-Group rent revenue. This is offset to a certain extent by higher gross rents in conjunction with renegotiations, new leases, and indexation.

Turnover-based rent supplements are recognised in the fourth quarter. Turnover-based rent supplements for the preceding year totalled SEK 4.6 million. Apart from this, there are no other material seasonal variations in rents.

The property management results for each business area are reported on page 9.

Other segments

Other segments comprise NK Retail and other opera- tions. Other operations consist of Cecil Coworking, NK e-commerce and the parking business in Parkaden AB.

NK Retail accessed the NK business on 3 February of this year. Net revenue amounted to SEK 74.4 million (-). Costs after elimination of intra-Group rents of SEK -20.8 million (-) were SEK -59.7 million (-). The profit for NK Retail excluding intra-Group rental costs was SEK 14.7 million (-).

Net revenue for other operations amounted to SEK

17.9 million (19.2). The decrease is attributable to lower revenue from short-term parking. Costs after elimination of intra-Group leases of SEK -12.9 million (-11.0) totalled SEK -16.7 million (-2.0). Cecil Co- working and NK e-commerce were mainly charged with start-up costs. The profit excluding intra-Group rental costs was SEK 1.2 million (17.2).

For further information, see page 9.

Other profit and loss items

Central administration totalled SEK -12.2 million (-11.5). Unrealised changes in the value of investment properties totalled SEK -235.6 million (-929.4). For further information, see pages 4-5.

Financial income and expense

Net financial income and expense amounted to SEK -33.6 million (-32.0), of which SEK -28.0 million (-26.5) refers to the cost of borrowing, and SEK -5.6 million (-5.5) to leasing costs, primarily ground rents. The increase in financial expense is due to increased borrowing. For further information, see pages 5-6.

Tax

The Group's tax for the period was SEK -4.6 million (118.1), of which SEK -20.9 million (-37.7) in current tax and SEK 16.3 million (155.8) in deferred tax.

Net profit/loss for the period

The consolidated net profit was SEK 13.7 million (-498.5). The increase can be attributed primarily to lower negative unrealised changes in value in the property holdings.

PROPERTY HOLDINGS

The fair value of the Hufvudstaden property holdings is based on an internal valuation, where classification takes place on level 3 according to IFRS 13. The assessed value as at 31 March 2021 was SEK 45,552 million (45,637 at year-end). The decrease can be attributed to negative unrealised changes in the value of the property holdings, primarily regarding properties with a significant proportion of stores and restau- rants. Rentable floor space totalled approximately 386,700 square metres (386,800 at year-end).

The total rental vacancy level as at 31 March 2021 was 8.3 per cent (8.2 at year-end) and the total floor space vacancy level was 10.2 per cent (9.8 at year-end). The rental vacancy level, excluding current development projects (EPRA vacancy rate), totalled 7.3 per cent (6.7 at year-end).

Acquisitions and investments

Total investments were SEK 190.7 million (217.8), of which investments in properties and other non-current assets were SEK 150.9 million (217.8).

In recent years, Hufvudstaden has intensified its investment in development projects. At present, current and planned projects are worth approximately SEK 3-4 billion. Major projects are presented in the table below.

Current and planned development projects are progressing as scheduled despite the covid-19 pandemic.

The work on developing the NK department stores continued during the first quarter of the year. A development project is in progress on the women's floor at NK in Gothenburg, with changed customer flows and new department designs. In Stockholm, NK Padel & Social opened on the roof of NK Parkaden. To respond to changes in consumer be- haviour, NK e-commerce was launched on a limited basis in the autumn of 2020. The process of connecting more departments continued during the quarter.

Major current and planned projects in the first quarter 2021

					Of which added	Estimated	Estimated
				Project floor space	floor space	investment1)	completion
City	Property	Status	Type of premises	(sq m)	(sq m)	(SEK m)	(year)
Stockholm	Vildmannen 7	Foundation work,	Office, retail &	4,800	4,800	800	2023
		planning	residential
Stockholm	Orgelpipan 7	Local planning	Office	-	-	-	-
Gothenburg		Current		1,300		85
Inom Vallgraven	Residential	-	2021/2022
Gothenburg	3:2	Current		2,900		85
NK Gothenburg	Retail	-	2021/2022
Gothenburg		Planning		31,600		2,200
Inom Vallgraven	Office, retail &	11,600	2025/2026
Gothenburg	12 block	Local planning	restaurant	-		-
NK Gothenburg	Office, retail &	-	-
			restaurant

1. Includes estimated costs for rent losses and financing that are continuously recognised in profit and loss as well as costs for evacuation. For the property Vildmannen 7, the investment includes extraordinary costs resulting from the fire in 2017.

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The expansion and redevelopment project at the Skären 9 property in Bibliotekstan has been com- pleted. The law firm Vinge is leasing the majority of the offices. In the remaining office space, Hufv- udstaden opened Cecil Coworking under own man- agement. Total investment is SEK 675 million.

At the Vildmannen 7 property in Bibliotekstan, foundations are being laid and planning is in progress ahead of rebuilding a new construction behind the original facades facing the street, which have been secured in preparation for the new construction.

In Gothenburg, a new local plan was received at the end of 2019 for the Inom Vallgraven 12 block. Planning has commenced as part of an extensive redevelopment and expansion project. The new local plan allows for additional building permissions of around 15,000 square metres in gross area. Existing residential units in the block will be replaced by new ones in the Inom Vallgraven 3:2 property. Conversion of the property to residential use progressed during the quarter, with estimated completion in late 2021 or early 2022.

Property value and net asset value

At the end of each quarter, Hufvudstaden carries out an internal valuation of each individual property. The purpose of the valuation is to assess the fair value of the property holdings. To assure the quality of the valu- ation, external valuations of parts of the property holdings are obtained at least once a year. A continuous update is conducted during the year of the internal valuation of the properties in order to take account of pur- chases, sales and investments. Hufvudstaden also examines on a continuous basis whether there are other indications of changes in the fair value of the proper- ties. This could take the form, for example, of major let- tings, terminations, and material changes in yield re- quirements.

In the light of the above, the assessed unrealised change in the value of the property holdings for the period was SEK -235.6 million (-929.4). The total value of the property holdings at 31 March 2021 was SEK 45.6 billion, including investments made during the period. The unrealised decrease in value is due to the effects of lower market rents, primarily for properties with a significant share of stores and restaurants.

The average yield requirement is unchanged compared to the fourth quarter and stood at 3.7 per cent at the above valuation (3.7 at year-end).

Valuation method

Valuation of the property holdings is carried out by assessing the fair value of each individual property. The valuation is conducted using a variation on the location price method, known as the net capitalisation method. The method involves setting the market's yield requirement in relation to the net operating income of the properties. In the case of other project properties and undeveloped land, the valuation is based on a completed building with a deduction for construction costs, as well as financial costs and the cost of vacant space that arose during the construction period.

The yield requirement is based on information compiled about the market's yield requirement for actual purchases and sales of comparable properties in similar locations. If there have been few or no transactions within the property's subarea, an analysis is made of transactions in neighbouring areas. Even transactions that have yet to be finalised provide guidance on market yield requirements.

The yield requirement can vary between different regions and different subareas within the regions. Account is also taken of the type of property, the technical standard, the construction of the building, and

major investment requirements. For leasehold proper- ties, the calculation is based on a yield requirement that was 0.20 percentage points higher than for equivalent properties where the land is freehold. The net operating income of the properties is based on market rent revenue, the long-term rental vacancy level, and normalised operating and maintenance costs. If there is greater uncertainty than normal, this is offset by the increased direct yield requirements in the valuation.

When carrying out the valuation, the following yield requirement figures for office and retail properties have been applied:

Yield requirements, property valuation1)

Stockholm	3.3-3.7 per cent
Gothenburg	4.2-4.8 per cent
Property holdings, average	3.7 per cent

1. Valuation date: 31 March 2021

Sensitivity analysis

Fair value is an estimation of the probable sales price on the market at the time of the valuation. However, the price can only be set when a transaction has been completed. In the case of an external property valua- tion, a range is often given to indicate the degree of uncertainty surrounding the estimates of fair value. The range is usually +/- 5 per cent but can vary depending, in part, on the market situation, the technical standard of the property, and investment requirements.

Hufvudstaden's property holdings are valued at SEK

45.6 billion, with a degree of uncertainty of +/- 5 per cent, which means that the estimated fair value varies by +/- SEK 2.3 billion. Below are the key factors that influence the valuation and the consequent impact on profit or loss before tax.

Sensitivity analysis, property valuation1)

		Impact on profit or
	Change, +/-	loss before tax, +/-
Rental revenue	SEK 100/sq m		SEK 1,060 m
Property costs	SEK 50/sq m		SEK 530 m
Rental vacancy level	1.0 percentage points	SEK 590 m
Yield requirement	0.25 percentage points	SEK 3,100 m

1. Valuation date: 31 March 2021

External valuation

To assure the quality of the valuation, external estimates were obtained from two independent valuation compa- nies: Forum Fastighetsekonomi and Newsec Advice. The external valuation as at 31 March 2021 comprise

3 properties, equivalent to 29 per cent of the internally assessed fair value. The basis for selection was that the properties have a significant share of stores and restau- rants. The properties that underwent an external valuation as at 31 March 2021 were Hästen 19 and 20 (NK Stockholm) in Stockholm and Inom Vallgraven 10:9 (NK Gothenburg) and Nordstaden 8:24 in Gothenburg.

The external valuation companies set a fair value for these properties of SEK 13.6 billion. Hufvudstaden's internal valuation of the same properties was SEK 13.1 billion. The internal valuations thus concur well with the external valuations.

Net asset value

Based on the valuation of the property holdings, the current net reinstatement value (EPRA NRV) is SEK 36.7 billion or SEK 182 per share. Net tangible assets (EPRA NTA) amounted to SEK 34.5 billion or SEK 171 per share after a deduction for decided dividend and estimated deferred tax. This assessment is based on current tax legislation, which means that properties can be sold via a limited company without tax implications. The estimated deferred tax has been assumed at 5 per cent.

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