Year-End Report 202018 February 2021 11:45 CET

Year-End Report 2020

• • Net revenue from property management decreased by 7 per cent to SEK 1,768 million (1,896), which is mainly attributed to temporary rent reductions and in-creased rental and bad debt losses for stores and restaurants as a result of covid-19.

• • Gross profit from property management amounted to SEK 1,237 million (1,373). The decrease of 10 per cent can be attributed mainly to lower rental revenue for stores and restaurants.

• • The net loss for the year was SEK -1,462 million (3,146), equivalent to SEK -7.13 per share (15.25). The decrease can be attributed mainly to negative unrealized changes in the value of the property holdings regarding properties with a signifi-cant proportion of stores and restaurants.

• • The Board of Directors proposes a dividend of SEK 2.50 per share (3.90). The lower dividend was determined in the light of the share buy-back, future invest-ments and the lower results of operations in 2020.

• • The property holdings fair value was SEK 45.6 billion (47.7), resulting in net tan-gible assets (EPRA NTA) of SEK 173 per share (185). The unrealized changes in the value of the property holdings for the year was SEK -2,930 million (2,727).

• • The equity ratio was 60 per cent (62), the net loan-to-value ratio was 19 per cent (16), and the interest coverage ratio multiple was 9.1 (11.4).

• • The rental vacancy level at the year-end was 8.2 per cent (5.0). Excluding current development projects, the rental vacancy level was 6.7 per cent (1.7).

Operating events during the fourth quarter

Hufvudstaden placed first in the "Office and Retail" category in Europe in the interna-tional Global Real Estate Sustainability Benchmark (GRESB) evaluation of ESG per- formance by property companies.

A lease has been signed with the Swedish brand ASKET for retail premises at Norrmalmstorg in Bibliotekstan.

TRR has leased 1,070 square metres of office space at the Femman property in Gothenburg.

NK Gothenburg has been environmentally certified and rated Very Good according to BREEAM In-Use.

Agreement has been signed with contractor for NK's padel sports venture, NK Padel & Social, on the roof of NK Parkaden. The padel sports and fitness centre will open in the spring of 2021.

The Scandinavian furniture designer MELIMELI has leased retail premises in the property Achilles 1 in Gamla Stan.

Events after the end of the period

NK RETAIL

AB Nordiska Kompaniet reached an agree-ment on January 27, 2021 with RNB Retail and Brands to acquire the NK business within their subsidiary Departments & Stores Europe AB. The business was acquired by NK Retail AB, a wholly owned subsidiary of NK. Revenue for the business during the financial year 2019/ 2020 amounted to SEK 773 million. The purchase price for inventories and equipmentamounted to approximately SEK 58 million and access took place on February 3, 2021. NK Retail runs about 40 departments within fashion, cosmetics and jewellery at NK Stockholm and NK Gothenburg, together comprising around 25 per cent of the total number of departments in the two depart-ment stores. All employees in the business, approximately 400 employees, have been offered employment in NK Retail.

COVID-19

The stabilisation of the covid-19-pandemic in the third quarter faltered when a second wave hit during the last quarter of the year. The burden on the health care system increased, mortality rates rose and economic activity slowed.

Public authorities encouraged further social distancing and recommended that people work from home. Christmas retail sales were severely impacted by restrictions and direc-tives. Tourism remained strictly limited and has virtually ceased in the urban regions of Stockholm and Gothenburg. Much of the en-tertainment and culture sector has been en-tirely shut down. In one bright spot, vaccina-tion against covid-19 began in late 2020 and will continue at a faster pace during the first half of 2021.

The effects of covid-19 continued to have impact on Hufvudstaden's centrally located properties and marketplaces in the two larg-est cities in Sweden, as central city locations do not have as many local residents and flows of commuters have significantly de-creased. The stabilisation and moderate re-covery of retail customers and sales figures in the third quarter was displaced by lower flows of customers and higher sales losses in the fourth quarter.

Payment capacity was weaker during Q2-Q4 for many of our retail and restaurant ten-ants. Rent reductions related to covid-19 amount to around SEK 123 million for 2020 adjusted for government compensation under the commercial rent support scheme received in Q2. Around SEK 31 million of that amount refers to reductions in rent in Q4.

Results of operations for the period were also affected by higher rental and bad debt losses.

In many cases, Hufvudstaden has long-term relationships with its tenants, which is a core element in our business concept. We support tenants in all matters related to premises, in good times and bad. Discus-sions will continue in the first 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.

Hufvudstaden is following official recom-mendations and directives on how to man-age transmission of the virus. Operations have been adapted with regard to stores, restaurants, and office premises. Current and planned development projects are pro-ceeding as scheduled. Hufvudstaden's finan-cial position remains strong and conditions are good for the continued development of our properties and marketplaces.

While the pandemic has in all likelihood ac-celerated social changes, we firmly believe that people will still want to meet in the fu-ture, both professionally and socially. Face-to-face encounters create opportunities for exchange of ideas, innovation and business, as well as culture and experiences. Offices, stores and restaurants are a prerequisite for this. The assessment is therefore that cen-trally located properties in the two largest cit-ies 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.

Performance measures

Jan-Dec	Jan-Dec
SEK m	2020	2019
Net revenue, property management	1,768	1,896
Gross profit, property management	1,237	1,373
Unrealized changes in property value, investment properties	-2,930	2,727
Operating profit or loss	-1,702	4,087
Net profit or loss for the period	-1,462	3,146
Fair value, properties, SEK bn	45.6	47.7
Net loan-to-value ratio, properties, %	18.8	15.5
Interest coverage ratio, multiple	9.1	11.4
Rental vacancy level, excl. projects (EPRA vacancy rate), %	6.7	1.7
Earnings from property management after nominal tax
(EPRA EPS) per share, SEK	4.80	5.49
Net tangible assets (EPRA NTA) per share, SEK	173	185

GROUP

RESULTS

Property management

Net revenue from property management during the year amounted to SEK 1,767.9 million (1,896.4). Gross profit was SEK 1,237.4 million (1,373.0). The decrease can be attributed mainly to temporary rent reductions and higher rental and bad debt losses for stores and restaurants due to covid-19. This is off-set to a certain extent by higher gross rents in con-junction with new and renegotiated leases and in-dexation.

The turnover-based rent supplement is reported dur-ing the fourth quarter and amounted to SEK 4.6 million (11.1), of which the NK properties accounted for SEK 3.3 million (8.9). Apart from the turnover-based rent supplement, there are no other material seasonal vari-ations in rents.

The property management results for each busi-ness area are reported on page 9.

Other operations

Other operations comprise the parking business in Parkaden AB, NK e-commerce and Cecil Coworking. Net revenue for Parkaden AB was SEK 71.4 million (84.8). The decrease can be attributed to reduced revenue from short-term parking. Expenses totalled SEK -52.2 million (-52.5) and gross profit totalled SEK 19.2 million (32.3). NK e-commerce and Cecil Coworking are operations in the start-up phase. The gross profit for NK e-commerce was SEK -12.8 mil-lion and for Cecil Coworking SEK -3.9 million.

Other profit and loss items

Central administration totalled SEK -47.4 million (-49.2). Unrealized changes in the value of invest-ment properties totalled SEK -2,929.9 million (2,726.9) and changes in interest derivatives totalled SEK 0.0 million (3.7). For further information, see pages 4-6. Items affecting comparability were SEK 35.9 million (-) and refer to insurance compensation for loss in rental revenue and emergency response costs after the fire in 2017 in the property Vildmannen 7.

Financial income and expense

Net financial income and expense amounted to SEK -131.7 million (-118.7), of which SEK -109.3 million (-96.7) refers to the cost of borrowing, and SEK -22.4 million (-22.4) to leasing costs, primarily ground rents. The increase in financial expense related to borrowing is due to a higher average rate of interest on loans and in-creased borrowing. For further information, see page 6.

Tax

The Group's tax for the year was SEK 371.5 million (-821.6), of which SEK -99.3 million (-142.3) in cur-rent tax and SEK 470.8 million (-679.3) in deferred tax.

Net profit or loss for the period

The consolidated net loss was SEK -1,461.7 million (3,146.4). The decrease can be attributed mainly to negative unrealized changes in the value of the prop-erty holdings regarding properties with a significant proportion of stores and restaurants.

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 as-sessed value as at December 31, 2020 was SEK 45,637 million (47,681). The decrease can be at-tributed to negative unrealized changes in value in the property holdings. Rentable floor space totalled approximately 386,800 square metres (384,200).

The rental vacancy level as at December 31, 2020 was 8.2 per cent (5.0) and the total floor space va-cancy level was 9.8 per cent (6.7). The rental vacancy level, excluding current development projects (EPRA vacancy rate), totalled 6.7 per cent (1.7). The increase in the rental vacancy rate, excluding current develop-ment projects, is partly attributed to a few store tenants bankruptcies and vacating the premises, as well as a couple of office tenants relocating, of which new leases have already been signed for several of these spaces.

Acquisitions and investments

The total investment in properties and other non-cur-rent assets during the period was SEK 948.9 million (928.2).

In recent years, Hufvudstaden has intensified its in-vestment in development projects. At present, current and planned projects are worth approximately SEK 3-4 billion. Major projects are presented in the table on page 5.

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

Extensive redevelopment has taken place in recent years at NK in Stockholm with the aim of strengthening its position as a world-class department store. Most of the project has been completed and NK's padel sports venture, NK Padel & Social, will open on the roof of NK Parkaden in the spring of 2021. The total investment, including the parts remaining, amounted to approxi-mately SEK 680 million. Development of the NK department store will continue in response to changes in consumer behaviour. NK e-commerce, launched on a limited basis in the autumn of 2020, is a key aspect of NK's ongoing journey of change.

The expansion and redevelopment project at the Skären 9 property in Bibliotekstan is largely complete. The law firm of Vinge has moved back into new and attractive offices. Hufvudstaden opened its own coworking concept Cecil, in the remaining office space in February 2021.

At the Vildmannen 7 property in Bibliotekstan, foun-dations are being laid for rebuilding behind the original façades 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 redevelop-ment 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. Con-version of the property to residential use progressed during the quarter, with estimated completion at the turn of the year 2021/2022.