ALM Equity AB (publ): Half-Year Report January-June 2022

Q2

Half-Year Report

JANUARY- JUNE 2022

EVENTS DURING THE QUARTER

• ALM Equity and Aros Bostadsutveckling AB signed a letter of intent to create one of Greater Stockholm's largest housing developers.
• ALM Småa Bostad has handed over its building rights portfolio of 11,000 building rights to Klövern AB, which is now part of the Group as an associated company.
• ALM Equity and Corem Property Group renegotiated the agreed property value in Klövern AB following recent months' developments on the financial market and increased inflation. This has reduced the positive impact on earnings in the current quarter by SEK 345 million.
• In connection with the structural deals for Klövern and Aros, the Project Development business area has also carried out an internal valuation of the remaining building rights and project portfolio with a total reserve of SEK 500 million. The positive net effect of the Klövern transaction and the provisions will be around SEK 1.3 billion for the quarter.

Consolidated KPIs

	2022
Summary	Apr-Jun

EVENTS AFTER THE END OF THE PERIOD

• ALM Equity has signed an agreement to dispose of a building rights portfolio of around 1,500 building rights to Aros Bostadsutveckling AB
  in return for a combined payment of ordinary shares, preference shares and convertibles corresponding to an ownership stake of around 35% in Aros Bostadsutveckling AB. The deal is conditional on the approval of financiers and Aros Bostadsutveckling AB's AGM.
• After the conditions for the transaction with Aros Bostad are met, ALM Equity will have three major holdings in independent associated companies. This frees up resources for greater focus on, and expanding, the remaining operations in the Group via strategic collaborations and acquisitions.
• ALM Equity sold 20% of 2xA Entreprenad to the company's CEO. The purpose of the transaction is to create a long-term incentive to run and develop the construction management business for continued growth. See more information on page 15.

2021	2022	2021	2021
Apr-Jun	Jan-Jun	Jan-Jun	Jan-Dec

Net sales, SEK m	4,438	752	5,333	925	2,096
Profit/loss for the period, SEK m	1,333	62	1,607	118	3,423
Return on equity (ordinary shares), %	12	-1	13	-2	54
Equity/assets ratio, %	56	38	56	38	54
Cash and cash equivalents, SEK m	1,396	966	1,396	966	1,954
Equity, SEK m	7,985	4,637	7,985	4,637	7,154
Balance sheet total, SEK m	14,273	12,161	14,273	12,161	13,132
	2022	2021	2022	2021	2021
Key figures per share	Apr-Jun	Apr-Jun	Jan-Jun	Jan-Jun	Jan-Dec
Adjusted net asset value*, per ordinary share, SEK	958	905	958	905	986
Stock market price on the balance sheet date, SEK	672	780	672	780	986
Earnings per ordinary share before dilution, SEK	122.73	0.07	132.53	-2.15	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 31.

Time to separate the wheat from the chaff!

It's going to be tough! For several years, the property sector has lived in a perfect world with high demand, low interest rates and a large amount of risk-averse capital. It has attracted many players to try their luck and allowed businesses with long-term unsustainable yield levels to exist.

During the spring the perfect world turned into a perfect storm of inflation, component shortages and macroeconomic uncertainty, much driven by the war in Ukraine. At the same time, consumption buffers, built up during the pandemic, were released and fuelled inflation further. With rapidly rising interest rates and record high inflation, it has therefore become an effective handbrake in the best James Bond style.

It will now become painfully clear which property operators have bought too expensively, with too high loans and the wrong concept and which ones have a fundamentally sound business. The greenhouse for opportunistic developers has collapsed and the investment climate for the rental market is at the same temperature as my freezer. In addi- tion, the scope for consumption and thus the willingness to pay will shrink when real wages fall at the same time as interest rates rise. The market will separate the wheat from the chaff.

Financing property projects will become more expensive with interest rates close to 4% at the turn of the year. At the same time, we will likely see that the part of the bond market impacted by cheap ECB money will not be able to enjoy the same benefits in future.

WE ARE IN THE RIGHT POSITION

Those with the right portfolio and the right offering will be able to take advantage of today's situation. ALM Equity's portfolio of holdings with its different objectives, has a clear strength in this market. The Group also has a stable balance sheet with an equity/assets ratio of 56% and cash and cash equivalents of SEK 1.4 billion.

Klövern's building rights portfolio is focused on space-efficient apartments in Stockholm and Mälardalen, where demand will continue to be strong. The starting position is optimal with an almost debt-free portfolio and upcoming production starts, which means that the rental levels in the newly-produced properties can be adjusted to achieve a satisfactory yield level.

Svenska Nyttobostäder, which has had some challenges during the pandemic with reduced demand in certain customer segments, now feels that the market has strengthened. About 85% of the company's total rental value either follows the CPI or has a fixed calculation, of which the majority of properties fully follow the CPI. Until 2025 deliveries will also take place at a fixed price from the Project Development business area. This means that the company has good conditions for delivering really good net operating income.

We have begun to notice in the Construction Management business area, that the price increases for certain inputs have culminated, for example, in installations. At the same time, the price level for many components is high, which the business area is working to handle through active choices and evaluations of building systems before each construction contract. During Q2, we took advantage of a golden opportunity to supplement the business area with a new business, 2xA Anläggning (Trans: Plant) with a focus on foundations and land development.

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After the end of the quarter, we decided to transfer 20% of 2xA Entreprenad to Thomas Carlsson, CEO of 2xA Entreprenad AB. The aim is to create a long-term commitment to drive and develop the construction management business to the next level. We see potential in growing the business more broadly with external customer groups, while at the same time turning up the sustainability perspective in the business.

After the final agreement with Aros Bostad, which was signed on 15 August, ALM Equity will become the owner of around 35% of a well-positioned developer with a mixed portfolio of building rights. We have therefore converted 1,500 building rights for the private market into a holding in a skilled and listed housing developer.

• " We will do what we have said we will do - build and develop companies and then ensure to make their values visible "

COMPANY PORTFOLIO WITH BALANCED RISK

Through the deal with Klövern and Nyttobostäder, we have taken an important long-term position in Stockholm's housing market with a focus on rental accommodation. Through the deal with Aros Bostad, we get a holding that focuses on housing development with end-customers in both the private and property management markets. These deals are important steps in our strategy to become a corporate developer in the property sector and the holdings will be managed through active self-management.

After the completion of the transaction for Klövern, ­surplus values of around SEK 1.9 billion have been realized. When the conditions for the deal with Aros are met, a further SEK 400 million or so will be made visible, which is expected to happen in the second half of 2022. In connection with these structural deals, an internal valuation of the values of the remaining building rights and project portfolio has been carried out with a total provision of SEK 500 million. Despite the provision, the positive net effect of the Klövern deal and its provisions will be around SEK 1.4 billion for the current quarter.

In addition to the strategic transactions making value visible today, ALM Equity also gets to share in future value creation in the companies through its continued holdings. ALM Equity will focus resources on expanding and further developing the remaining operations within the Group.

Our remaining operations in the Project Development business area include around 5,000 building rights with a future turnover of about SEK 10 billion until final delivery in 2026. We will continue to grow by being active in the market with the acquisition of building rights in major projects and of companies that fit into the development of our future corporate portfolio. There will now be opportunities to repeat the same fantastic value creation journey that we have made with the acquisitions of Småa and Järntorget.

Value creation at ALM Equity is not about imaginative adjustments to asset values, but about finding and creating new assets.

Now we can continue our corporate building!

Joakim Alm, CEO

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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 Mangement*	Project Development	Construction Management		Digital Services

Brands

	Group company				Associated companies

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

Share of adjusted net asset value*

SEK

11.5 bn

Property Management business area: 55% (SEK 6.4 bn)

Project Development business area: 18% (SEK 2.1 bn)

Construction Management business area: 10% (SEK 1.1 bn) Parent company's assets: 17% (SEK 1.9 bn)

* The market valuation was carried out by PwC, definition on page 31.

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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	30/06/2022	31/03/2022	31/12/2021	30/09/2021	30/06/2021
Property Management business area	6.4	3.1	3.3	3.8	3.8
Project Development business area	2.1	6.4	5.5	5.1	4.7
Construction Management business area	1.1	1.3	1.4	1.3	1.1
Parent company's assets	1.9	1.9	2.0	1.6	1.7
Total market value	11.5	12.7	12.2	11.8	11.3

The market value is distributed among ALM Equity's shareholders as follows: SEK 1.3 billion to preference shareholders and SEK 10.2 billion to ordinary sharehold- ers. This corresponds to an adjusted net asset value per ordinary share of SEK 958. The share price as of 30 June 2022 was SEK 672 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 1.2 billion.

During the period, a redistribution of value took place from the Project Development business area to the Property Management business area as a result of the formation of Klövern, where around 11,000 of ALM Småa's building rights were sold to Klövern in exchange for shares in the company.

In the valuation, ALM Equity's shareholding was valued at the book value of the shares, adjusted for unpaid unconditional shareholder contributions. There will be continued value creation in Klövern from the development and management of the building rights that were sold.

The negative effect on the market value can also be attributed to a number of other components, the main ones being the market value of Svenska Nyttobostäder, which has fallen by SEK 0.5 billion since the previous quarter, more cautious assumptions in the Project Development business area, increased return requirements on equity and higher interest rates.

Development of adjusted net asset value,* SEK bn

15
	11.3		+2.6	+0.2		11.5
12
	1.7				-2.6	+-0			1.9
9	1.1								1.1
								2.1

6 4.7

3										6.4
			3.8
0
	Q2 2021	Property		Project	Construction	Parent company's	Q2 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 asset value has increased by SEK

0.2 billion. This is attributable to unrealized changes in value from the businesses. During Q2 2022, the value of Svenska Nyttobostäder was significantly affected by the decline in the stock market and the market situation of the businesses.

*Valuation is carried out quarterly by PwC, for definition see page 31.

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