KMC Properties : Annual report 2023 (incl. sustainability report)

Annual report

2023

KMC Properties ASA

CONTENTS | LETTER FROM THE CEO | THIS IS KMC PROPERTIES | EXECUTIVE MANAGEMENT | BOARD OF DIRECTORS | BOARD OF DIRECTORS' REPORT | ESG REPORT | CORPORATE GOVERNANCE | FINANCIAL STATEMENTS | PROPERTY PORTFOLIO | APPENDIX | CONTACT

The preferred real estate partner for logistic and industrial companies

Contents

Letter from the CEO	4
This is KMC Properties	6
Executive management	18
Board of directors	20
Board of directors' report	23
ESG report	34
Corporate governance	52
Financial statements	60
Consolidated financial statements	62
Notes to the consolidated financial statements	66
Statement of comprehensive income - KMC Properties ASA	96
Notes to the financial statements - KMC Properties ASA	100
Property portfolio	112
Appendix	116

2 About KMC Properties

Annual report 2023 | KMC Properties

KMC Properties | Annual report 2023

About KMC Properties 3

CONTENTS LETTER FROM THE CEO THIS IS KMC PROPERTIES EXECUTIVE MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS' REPORT ESG REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS PROPERTY PORTFOLIO APPENDIX CONTACT

Letter from the CEO

The year 2023 marked a transformation for KMC Properties. We strengthened our platform through substantial debt refinancing and growth in our property portfolio, supported by a wider range of committed banks and investors.

Despite challenges posed by escalating inflation and interest rates marking 2023 one of the toughest years within commercial real estate in a long time, we successfully reduced our overall interest margins and executed strategic accretive acquisitions that added significant value to our company.

Through changing macroeconomic conditions, our tenants demonstrated resilience in line with our expectations. We closed the year with a mere 1.8 per cent vacancy rate, while simultaneously achieving a 50 per cent increase in rental income compared to 2022. Notably, 7.5 per cent of this growth was related to CPI adjustments, with most of the increase related to the expansion of our property portfolio.

By year-end, our gross asset value was at NOK 6 153 million, representing a 15 per cent rise from the close of 2022. Transactions added NOK 672 million, developments and upgrades NOK 205 million, and currency effects NOK 129 million. Fair value adjustments of properties experienced a negative impact of NOK 117 million, representing a modest adjustment of 2.2 per cent, and showcasing the strength of our portfolio of logistic and light industrial properties.

The current portfolio has a net yield of 7.3 per cent, while the all-in interest rate following the significant refinancing and portfolio expansion in 2023 is at 6.3 per cent. This leaves us with a positive margin generating value for our shareholders

- a favorable "yield gap".

Looking ahead to the first half of 2024, we anticipate further widening of this yield gap. Our commitment to acquire five additional value-accretive properties is already in motion, with financing secured through low-interest bank debt. Upon completion, we estimate a net yield of 7.4 per cent and the all-in interest rate at 6.2 per cent.

KMC Properties is also working on refinancing of current debt, including the bond loan, which is also likely to improve the yield gap.

• Our commitment to acquire five additional value-accretive properties is already in motion.

During the second half of 2023 we got a new strategic and institutional investor - the Swedish real estate fund Nordika, broadening and diversifying our shareholder base in line with company strategy. Nordika increased its position in February 2024.

At the end of 2023, six of our properties have installed solar panels on the ground, roofs, or facades. At our pilot in Fre- drikstad, Norway, a total of 463 mWh was produced in 2023. We will continue to explore mutually beneficial renewable energy solutions with our tenants in line with our strategy.

Since our inception in 2020, KMC Properties has had a clear strategy and vision of becoming the preferred real estate partner for logistics and industrial companies, proven resilient in changing macroeconomic conditions. We continue to work in close collaboration with our strong tenants, while actively exploring new attractive opportunities with a value creation potential for our shareholders.

Liv Malvik

Chief executive officer, KMC Properties ASA

4 About KMC Properties

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KMC Properties | Annual report 2023

About KMC Properties 5

CONTENTS | LETTER FROM THE CEO | THIS IS KMC PROPERTIES | EXECUTIVE MANAGEMENT | BOARD OF DIRECTORS | BOARD OF DIRECTORS' REPORT | ESG REPORT | CORPORATE GOVERNANCE | FINANCIAL STATEMENTS | PROPERTY PORTFOLIO | APPENDIX | CONTACT

66

Industrial and logistics properties in seven countries

6 153 million

Gross asset value

404 million

Net operating income

7.3%

Net yield

56%

Loan to value

11.4 years

WAULT

Synprodo by BEWI: Produces EPS and EPP products to a variety of industries including Horticulture, automotive industry, food sector and pharmaceutical industry.

This is KMC Properties

The preferred real estate partner for logistics and industrial companies across strategic locations

KMC Properties is a listed real estate company specialising in high-yield industrial and logistic properties within well-established industries that the company has extensive expertise in. Through increased size and diversification KMC Properties is continuously improving its financing terms and making the investments more accretive, resulting in higher returns to its shareholders. Currently, the company owns 66 properties across the Northern Europe for a total value of NOK 6.2 billion with a combined net yield of 7.3 per cent.

1.8%

Vacancy

Rental agreements with tenants are structured as long-term triple net bare house contracts, meaning that maintenance, insurance, and property tax are covered by the tenant and that KMC Properties has limited exposure to property related expenses. In 2023, these contracts generated a net operating income of NOK 404 million.

KMC Properties tenants have solid track records in their industries and typically have a long-term perspective. This is reflected in the weighted average contractual length (WAULT) of 11.4 years, giving KMC Properties visible contractual cash flows into 2035, and for KMC Properties' 17 tenants a solid long-term real estate partner.

The company's properties are typically used in business -critical operations for the tenant and often located close to transport hubs or in industrial clusters. This gives

both high flexibility for alternative use and high tenant stick- iness, which is reflected in the low vacancy rate of 1.8 per cent.

KMC Properties is financed by a combination of common equity, bank loans, a revolving credit facility, and a senior secured bond facility. Bank loans represent 68 per cent of the overall interest-bearing debt and the loan to value is 56 per cent.

KMC Properties has a 2024 target of reaching a gross asset value of NOK 8 billion through value accretive growth within prudent long-term financial structures. Increased portfolio size and long-term financing create a solid platform for growth, benefiting KMC Properties' tenants while creating value for the company's shareholders.

6 About KMC Properties

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CONTENTS | LETTER FROM THE CEO | THIS IS KMC PROPERTIES | EXECUTIVE MANAGEMENT | BOARD OF DIRECTORS | BOARD OF DIRECTORS' REPORT | ESG REPORT | CORPORATE GOVERNANCE | FINANCIAL STATEMENTS | PROPERTY PORTFOLIO | APPENDIX | CONTACT

Our business model

Investing in and developing high-yield industrial and logistics properties

KMC Properties' business model is intended to create accretive and durable values, with a clear focus on profitability and sustainability.

JACKON Insulation by BEWI: Producing high-qualityinsulation materials and construction products for over 35 years. Their expertise lies in creating materials from extruded polystyrene foam (XPS)

The company has an overall long-term objective to generate a high risk-adjusted sustainable return on invested capital based on its pillars of value creation:

• High cash-flow from company operations
• Long-termsustainable return
• A clear focus on environmental, social and governance (ESG) issues in all aspects of the company's operations
• Growth through investments in current portfolio and proactive property management
• Growth through strategical acquisitions
• Growth through building new facilities for new and existing clients

The company will invest in new properties with existing and new tenants, as well as investments in upgrading existing properties. Close collaboration with tenants is crucial for KMC Properties to become a preferred real estate partner for industrial and logistics companies.

New investments increase cash flow and contribute to diversifying the company's property portfolio, hence reducing the company's operational and financial risks. All investments are made with a focus on creating long-term value for investors and tenants.

Four strategy pillars:

Investment strategy:

Acquisitions

Continuous expansion of and execution on M&A pipeline based on a defined set of investment criteria.

KMC Properties invests in industrial and warehouse properties due to the segment's high returns, long lease agreements, and stable occupancy rates. Investments are based on a defined set of investment criteria that is aimed at being resilient through economic cycles. Solidity of the tenants, the long-term rental contracts, and the strategic importance of the location of the properties are key elements of the strategy.

Financing strategy:

Capital Optimisation

Continuously pursuing minimised cost of capital within prudent long-term financial struc- tures.

KMC Properties currently finances its operations through common equity, a senior secured bond loan, bank loans, a revolving credit facility and retained cash from operations. The finance team is at all times pursuing minimised cost of capital with prudent long-term structures, and in accordance with covenants. The company pursues a diverse source of debt financing and will continue its focus on minimising the financing cost while still creating growth and basis for dividend.

Investments in portfolio properties:

CAPEX

Investments in existing properties and client relations to yield higher rent and contract extensions.

KMC Properties is continuously working with its tenants on contract renewals and extensions, as well as in discussions on potential development investments in its current portfolio. The company maintains a close relationship with its clients to identify and actively engage in business development activities. The company expects the high activity level to continue in the coming years. Development makes it possible to meet the changing needs of customers as well as to further develop and refine the property portfolio.

Newbuilding projects:

Greenfield

Development of new facilities with current or new tenants at mutually attractive terms

Through its continuous dialogue with both existing and potential new tenants, KMC Properties seeks to identify opportunities to expand its portfolio through investments in new facilities for new and existing clients. The company seeks to utilise available land plots in the existing portfolio for development of new facilities in collaboration with potential tenants, focusing on business-critical locations for the tenants. KMC Properties will also acquire and develop land plots based on long term contract commitments from new and existing tenants.

8 About KMC Properties

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CONTENTS | LETTER FROM THE CEO | THIS IS KMC PROPERTIES | EXECUTIVE MANAGEMENT | BOARD OF DIRECTORS | BOARD OF DIRECTORS' REPORT | ESG REPORT | CORPORATE GOVERNANCE | FINANCIAL STATEMENTS | PROPERTY PORTFOLIO | APPENDIX | CONTACT

JACKON Insulation by BEWI: Producing high-qualityinsulation materials and construction products for over 35 years. Their expertise lies in creating materials from extruded polystyrene foam (XPS)

Strategy and progress

A transformative year - positioning KMC Properties for continued growth

Strategy pillars	2023 Progress: Key events	Targets
Acquisitions	■ Completed agreement announced in 2022 with BEWI ASA to	■ Gross asset value (GAV)
Continuous expansion of	acquire 24 properties for NOK 1.9 billion at a gross yield of 7.3	of NOK 8 billion by the end
and execution on M&A	per cent and WAULT of 16.7 years. 13 properties were acquired in	of 2024
pipeline based on a defined	2022, six in 2023, and five are agreed to be acquired in 2024.	■ Expand of and execute on
set of investment criteria.	- Acquired one Danish and three Finnish properties for a total	M&A pipeline based on a
	transaction value of NOK 310 million at a gross yield of 7.7 per	defined set of investment
	cent and WAULT of 17 years.	criteria:
	- Acquired two of seven properties in the last part of the	- Solid tenants with long
	agreement with BEWI ASA for NOK 209 million, with remaining	track records
	five to be acquired in the first half 2024 for NOK 431 million. The	- Strategic location for
	properties have a gross yield of 8.75 per cent and a WAULT of	industry, logistics and/
	17 years.	or tenant
	■ Acquired one logistics property in Narvik, Norway, for NOK 90	- Long-term value
	million, leased to Kuraas AS and Servicegrossistene.	accretive potential
	■ Sold three properties for a total value of NOK 101 million.

Capital optimisation Continuously pursuing min- imised cost of capital within prudent long-termfinancial structures.

• Refinanced NOK 1 850 million senior secured bond facility that matured in December 2023 and a fully drawn Revolving Credit Facility (RCF) of NOK 200 million, through a NOK 900 million senior secured bond, NOK 1 080 million bank debt and NOK 100 million shareholder loan, which was refinanced with a revolving credit facility in DNB.
• • Increased share of bank debt from 40 per cent to 68 per cent through refinancing and financing of acquisitions.
  • Decreased overall interest margin from 3.59 per cent to 3.21 per cent through refinancing and financing of acquisitions.
• Entered swap-agreements securing 47 per cent of floating interest with a 1.54 percentage point reduction effect.
• All-ininterest rate at 31 December 2023 of 6.29 per cent compared to 5.74 per cent at 31 December 2022, up only 0.55 percentage points despite a 1.5 percentage points increase in floating interests during the year.
• Raised NOK 275 million equity from the strategic investor Nordika, equivalent of 12.7 per cent of the shares in KMC Properties.

• Pursuing minimised cost of capital within prudent long- term financial structures, and within debt covenants:
• • Interest coverage ratio 1.5x
  • Net loan to value below 75%
  • Group liquidity equal to three months net interest cost
• Interest rate hedge ratio between 40 and 60 per cent, and a weighted average length to maturity on the hedges from 2-8 years.

CAPEX	■ Invested a total of NOK 78 million in improvements and upgrades,	■ Solidifying tenant relations
Investments in existing	identified in collaboration with tenants.	by identifying mutually
properties and client rela-	■ Conducted planning phase of improving energy labelling of all	beneficial improvements,
tions to yield higher rent	properties, including hiring a sustainability manager.	upgrades, and extensions,
and contract extensions.	■ Started construction of 3 300 square meters extension at property	based on KMC Properties
	in Thorsø in Denmark, with a yield-on-cost of 8.5 per cent,	investment criteria
	expected to be completed in the first half of 2024.
Greenfield	■ Invested a total of NOK 127 million in development of new	■ Build new facilities on
Development of new facil-	properties.	attractive terms, relative to
ities with current or new	■ Added two new properties through the completion of a packaging	overall property portfolio
tenants at mutually attrac-	hub and adjacent storage building with a yield-on-cost of 7.5 per
tive terms	cent and a WAULT of 15 and 10 years.

For a detailed review of the 2023 key events, se important events in the board of directors' report, page 24.

10 About KMC Properties

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CONTENTS LETTER FROM THE CEO THIS IS KMC PROPERTIES EXECUTIVE MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS' REPORT ESG REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS PROPERTY PORTFOLIO APPENDIX CONTACT

Completion of Greenfield project for BEWI ASA

Through its continuous dialogue with both existing and potential new tenants, KMC Properties seeks to identify opportunities to expand its portfolio through investments in new facilities for new and existing clients.

In 2023, KMC Properties completed the development of a packaging hub at Hitra in Norway for its largest tennant BEWI ASA. In connection with the packaging hub, the company also developed an adjacent storage building. The WAULT of the lease contracts are 15 and 10 years.

The buildings are strategically located close to an industrial cluster for aquaculture and are of strategic importance for KMC Properties' client.

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CONTENTS LETTER FROM THE CEO THIS IS KMC PROPERTIES EXECUTIVE MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS' REPORT ESG REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS PROPERTY PORTFOLIO APPENDIX CONTACT

Our properties

Long lease agreements with solid tenants across strategic locations

KMC Properties' property portfolio consisted of 66 industrial- and logistics properties in Northern Europe. Through 2023 the company acquired seven properties, sold three properties and completed two greenfield projects.

BEWI Insulation Scandinavia, Previously Jackon: Industrial company that delivers building systems and insulation solutions of EPS and XPS to the construction and engineering industry.

Five additional properties were in 2023 agreed to be acquired through the first half of 2024, bringing the total number of properties on a pro forma basis to 71.

BEWI ASA, Insula AS, Grøntvedt Group, and Scana ASA represent the company's four largest tenants accounting for 81 per cent of net operating income (NOI) in 2023.

• The listed packaging and insulation company BEWI ASA accounts for 50 per cent of NOI in 2023. In 2023 KMC Properties completed a large property transaction agreement with BEWI ASA which was announced in 2022, adding a total of 6 new properties to the portfolio in 2023 and five additional property transactions to be completed in 2024. BEWI ASA is exposed to a variety of end markets. BEWI had ales of EUR 1.1 billion for 2023, with 3 216 employees and 63 production facilities at the end of the year.

• The Nordic seafood group Insula AS accounts for 15 per cent of NOI in 2023. Insula is vertically integrated from fish stations through processing to strong consumer brands. The company has approximately 1 100 employees in Norway, Sweden, Denmark, Finland, and Iceland and is owned by Kverva Industrier. The company leases 10 properties from KMC Properties.
• The pelagic fish producer Grøntvedt Group accounts for 8 per cent of NOI in 2023. The company is a leading platform within industrial processing of pelagic fish, and the world's largest producer of marinated herring. The company is headquartered outside of Trondheim. The location is strategic given the rich resources of pelagic fish in the North Sea. The company leases 2 properties from KMC Properties.
• The listed industrial owner company Scana ASA accounts for 8 per cent of NOI in 2023, through its subsidiary PSW Technology. Scana is an industrial owner company in the ocean industries creating value through active ownership in market-leading portfolio companies.

BEWI	Insula	Grøntvedt	Scana	Other	Total
Share of operating	Share of operating	Share of operating	Share of operating	Share of operating	Share of operating
income	income	income	income	income	income

50%

15%

8%

8%

19%

100%

Operating income	Operating income	Operating income	Operating income	Operating income	Operating income
by country	by country	by country	by country	by country	by country

											100%
						77%											74%
			52%																		55%
37%
25%	18%		26%			23%												26%			18%
14%		13%	9%																	13%	9%
	7%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%	0%			5%	0%
	0%			0%

14 About KMC Properties

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About KMC Properties 15

CONTENTS LETTER FROM THE CEO THIS IS KMC PROPERTIES EXECUTIVE MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS' REPORT ESG REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS PROPERTY PORTFOLIO APPENDIX CONTACT

Shifting gear in the energy transition

KMC Energy, a KMC Properties subsidiary, offers solutions that secure tenants' reliable access to renewable energy and contribute to a more stable capacity on the grid, which will benefit local communities.

After a successfully complete pilot with one of the tenants from BE Form in 2022, the Kampenveien 5 facility produced 463 079.5 kWh of renewable energy in 2023.

The demand for renewable energy increases due to technological developments and a need for carbon reduction. However, renewable energy supply is unpredictable and requires high grid capacity to ensure access.

KMC Energy's storage solution optimises the production of solar power on sites and provides a feasible solution to manage peak load periods. This creates stability and predictability for tenants, as well as reduces costs for operators of the power grid.

Six of KMC Properties have installed solar cells on the ground, facades and/or roofs.

See ESG report, page 34, for more information

16 About KMC Properties

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About KMC Properties 17

Executive management

CONTENTS LETTER FROM THE CEO THIS IS KMC PROPERTIES EXECUTIVE MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS' REPORT ESG REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS PROPERTY PORTFOLIO APPENDIX CONTACT

Executive management

Liv Malvik

Chief executive officer (CEO)

Liv Malvik has more than 10 years' experience as CEO for various real estate companies, including Heimdal Eiendomsmegling AS and Grilstad Marina AS. In addition, she was CEO for Inter Revisjon Norge AS for three years, and has close to 20 years' experience from banking, including management positions in Sparebank1 SMN and Fokus Bank AS. Malvik has a MSc in Business Administration from the Norwegian School of Economics (NHH).

At 31 December 2023, Malvik held

179 285 shares and 392 598 options in KMC Properties.

Kristoffer Holmen

Chief financial officer (CFO)

Kristoffer Holmen previously held the position as CFO of Storm Capital Management, and from 2018 to 2020

as CEO/CFO of Storm Real Estate ASA. Holmen is previously a state certified public accountant and prior to joining Storm Capital Management, he worked for PwC. He holds a BSc in Business and Administration and MSc in Auditing and Accounting from the Norwegian School of Economics (NHH). In addition, he has three years of law school at the University of Oslo.

At 31 December 2023, Holmen held 125 000 shares and 392 598 options in KMC Properties.

Audun Aasen

Chief operating officer (COO)

Audun Aasen has more than 15 years' experience from the construction and real estate sector, including as a property manager and real estate developer. He also has construction work experience.

Aasen has a university degree as real estate appraiser and technical construction controller, in addition to a carpentry master's degree.

At 31 December 2023, Aasen held

577 000 shares and 392 598 options in KMC Properties.

Ove Rød Henriksen

Chief accounting officer (CAO)

Ove Rød Henriksen previously held the position as CFO of Siva - Selskapet for industrivekst SF (The Industrial Development Corporation of Norway). Henriksen is a state authorised public accountant and prior to joining Siva, he worked as a Manager for Deloitte. He holds a MSc in Finance from Norwegian University of Science and Technology and a MSc in Accounting and Auditing from the Norwegian School of Economics (NHH).

At 31 December 2023, Henriksen held 9 630 shares and 392 598 options in KMC Properties.

Christian Linge

Interim head of M&A

Christian Linge has experience from the investment company Fredensborg where he spent three years at the company's investment team focusing on real estate. Prior to the position at Fredensborg Linge worked in the Investment Banking team at Pareto Securities.

Linge has a MSc in Finance and Accounting from Imperial Collage Business School and holds a Bachelor of Business Administration (BBA) from Norwegian Business School BI.

At 31 December 2023, Linge held 196 299 options in KMC Properties.

18 Executive management

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Executive management 19