ALM Equity AB(publ): Interim Report January-March 2022

Q1

Interim Report

JANUARY- MARCH 2022

EVENTS DURING THE QUARTER

• ALM Equity and Corem Property Group signed an agreement to form a joint property management company under the Klövern brand. The deal consists of around 24,000 building rights, of which approximately 11,000 are from ALM Equity. The transaction is expected to highlight a surplus value of around SEK 2 billion.
• ALM Equity decided to integrate the Financing business area's activities into the Group-wide staff.

EVENTS AFTER THE END OF THE PERIOD

• ALM Equity and Aros Bostadsutveckling AB have signed a letter of intent to create one of Greater Stockholm's largest housing developers through ALM Equity selling a project portfolio of around 1,600 building rights intended for the private market to Aros Bostad. Payment is being made through a non-cash issue, which means that ALM Equity will then become a new major shareholder in Aros Bostad.

Consolidated KPIs

	2022	2021	2021
Summary	Jan-Mar	Jan-Mar	Jan-Dec
Net sales, SEK m	895	173	2,096
Profit/loss for the period, SEK m	274	56	3,423
Return on equity (ordinary shares), %	1	1	54
Equity/assets ratio, %	54	40	54
Cash and cash equivalents, SEK m	1,747	732	1,954
Equity, SEK m	7,217	3,892	7,154
Balance sheet total, SEK m	13,329	9,723	13,132

	2022	2021	2021
Key figures per share	Jan-Mar	Jan-Mar	Jan-Dec
Adjusted net asset value*, per ordinary share, SEK	1,042	863	986
Stock market price on the balance sheet date, SEK	968	710	986
Earnings per ordinary share before dilution, SEK	9.80	-2.23	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.

Klövern launched and potentially a new listed company

To summarise, another very intense quarter. We have launched the newly formed company Klövern with our partner Corem Property Group and we have signed a letter of intent for ownership in another listed company, Aros Bostad.

THE DEAL WITH KLÖVERN IS READY

On 28 April we became the formal owner of the new Klövern through the transfer of 11,000 building rights and capital contributions of SEK 900 million to the company. About 20 of our colleagues in the Project Development business area now form the core of the new Klövern. The effect of the transaction means that we make visible a surplus value of almost SEK 2 billion. In order to provide Klövern with a stable base of investment properties from the start, the circle of owners will be supplemented with more parties through non-cash contributions of completed investment properties. During the summer, a couple of hundred residential units will be started. The next step is a stock exchange listing, as we will also capitalize the company for continued development. ALM Equity will then, through the Property Management business area, be a partner in two large, but different, listed property management companies with a focus on housing.

NEXT COMPANY IN THE LISTED PORTFOLIO

As I have hinted and probably many have understood, we have of course had more plans in progress. On 16 May we could say what they were, when we announced that we had signed a letter of intent with the First North-listed housing developer Aros Bostad. The intention is for ALM Equity to sell a project portfolio with building rights aimed at the private market for a non-cash issue in Aros Bostad. This means that ALM Equity will become a major shareholder in Aros Bostad, which after the deal will be one of the dominant housing developers in the Stockholm market with a total portfolio of over 6,500 building rights. In this way, we directly gain a visible value in our building rights portfolio through our share in a listed company.

OWNERSHIP STRUCTURE CLEARER

Following these transactions and the listing of Klövern, ALM Equity will therefore be the owner of three listed companies in the property sector. We have used the assets we bought and refined and made them visible in new structures. During Q1, we also streamlined the structure of the Group and reduced the number of business areas from five to four.

The Project Development business area will have a new focus on major urban development projects. We see great potential here to build up a completely new segment within maybe five years and have our binoculars set on areas far outside Stockholm as well. The Construction Management business area will have full focus on deliveries to ALM Equity-owned companies and in the future also to external customers. Digital Services will continue to develop smart solutions for property managers.

PRICE INCREASES AND SHORTAGES HAVE EFFECTS

It is turbulent in the outside world and our business areas are of course also affected, to a greater or smaller extent. Price increases and shortages have consequences in the Construction Management business area in the first place, where we have seen price increases ranging from 10 to 12% on the materials side. This will mean a slowdown in the entire market, including for ALM Equity's companies. This can lead to a slower pace of construction starts and a certain delay in some deliveries to our customers. But the market will eventually calibrate and within 12 months I believe and hope that we will land in a more balanced market.

We live in an unsettled world right now and that is why I am very proud that we have achieved what we have done. We are simply doing what we have been told to do. And as you know, I see potential in everything. So despite the fact that it may be a bit uneven ground in the future, I see exciting business development opportunities around the next corner. But without all our fantastic staff, this would not have been possible. A warm thank you to those who I know work very intensively to make this a reality.

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.

	Property Mangement*	Project Development	Construction		Digital Services
	Management

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 12.7 bn

Property Management business area: 24% (SEK 3.1 bn)

Project Development business area: 50% (SEK 6.4 bn)

Construction Management business area: 10% (SEK 1.3 bn) Parent company's assets: 15% (SEK 1.9 bn)

* The market valuation was carried out by PwC, definition on page 26.

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Market valuation and adjusted net asset values

The holding in Svenska Nyttobostäder has had its market value assessed continually after the listing in 2020, which makes the values created in that transaction visible. From 2021, value created in other holdings in the Group have been made visible through external valuations carried out quarterly by PwC.

Estimated market value

SEK bn	31/03/2022	31/12/2021	30/09/2021	30/06/2021	31/03/2021
Property Management business area	3.1	3.3	3.8	3.8	3.8
Project Development business area	6.4	5.5	5.1	4.7	4.1
Construction Management business area	1.3	1.4	1.3	1.1	1.1
Parent company's assets	1.9	2.0	1.6	1.7	1.0
Total market value	12.7	12.2	11.8	11.3	10.0

The market value is distributed between ALM Equity shareholders as follows: SEK 1.6 billion to preference shareholders and SEK 11.6 billion to ordinary sharehold- ers. This corresponds to an adjusted net asset value per ordinary share of SEK 1,042. The share price as of 31 March 2022, was SEK 968 per ordinary share.

Since the previous quarter, ALM Equity's shareholders have received dividends corresponding to SEK 30 million and the market value has increased by SEK 0.5 billion, attributable to ordinary shareholders.

The unrealized changes in value come primarily from the operations within the Project Development business area included in the deal with Klövern have been adjusted to the sales value.

After the takeover, the holding is classified as an associated company in the Property Management business area, which means that values linked to Klövern will be transferred in the coming quarters.

Development of adjusted net asset value,* SEK bn

+0.2

+0.9

12.7

-0.7

+2.3

1.9

10.0

1.3

1.0

1.1

4.1

6.4

3.8

3.1

Q1 2021

Property

Project

Construction

Parent company's

Q1 2022

Management

Development

Management

assets

Property Management

Construction Management

Project Development

Parent company's assets

ALM Equity's net asset value increased by SEK 2.2 billion in 2021. Unrealized changes in value from the operations contributed a total change in value of SEK 1.5 billion. The remaining change in value stems from new issues of around SEK 0.3 billion in ordinary share capital and SEK 0.4 billion in preference share capital.

*Valuation is carried out quarterly by PwC, for definition see page 26.

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Market commentary

MACRO INDICATORS

For some time we have had a strong property market with rising housing prices in the private market and a huge demand for investment properties in all segments of both property management companies and institutions. The central banks have had a generous monetary policy and there has been a good supply of capital on the market. Society's impact on the pandemic has gradually diminished and in Sweden all restrictions have been lifted. The effects of the pandemic have been limited for the operations at ALM Equity.

In recent months, inflation has risen to levels we have not seen in Sweden for a very long time. One of the explanations is the disruption in world trade and the shortage of certain input goods that the strict pandemic restrictions in China have entailed. Another important explanation for the rising inflation is the effects of the war in Ukraine. This has partly meant a shortage of certain raw materials and input goods, but has also pushed up the price of energy as a result of trade restrictions against Russia.

The Riksbank has acted by rapidly changing the interest rate path and indicating several sharp increases in key interest rate in future, which will have effects on both market interest rates and thus access to capital, but also purchasing power among private individuals.

THE PROPERTY MARKET

ALM Equity operates in the property sector and the effects of shortages of intermediate goods, inflation and higher interest rates affect operations to varying degrees. Property management companies are more affected by the interest rate position. Increased borrowing and operating costs can be transferred to rent increases to some extent, but depend in part on what purchasing power looks like for

different housing segments. For additional new construction of homes in locations where demand is weak and perhaps dependent on government investment support to reduce rental levels, we believe that the opportunities are small to pass on price increases to the tenant. The same applies

to inefficient housing that is not planned in the best way to optimally suit the target group living in them. ALM Equity's property management company mainly offers space-efficient housing in markets with strong demand and a good willingness to pay, and there will therefore still be demand for housing even at higher rental levels. Higher interest rates will be fully or partially offset by higher rental levels where you have a good location and an attractive product.

Property development is less affected by the interest rate position, but higher prices, a lack of input goods and lower purchasing power will contribute to a temporary reduction in the rate of completion. The contracts that have been started will be completed, but thereafter the pace will gradually decrease.

In the construction and contracting industry, there is still a threat against limestone quarrying in Slite on Gotland, where the temporary permit expires on 31 December

2022. A total stop will have major consequences in the short term, but in the longer term it is of course possible to find other suppliers who can increase their production and replace the production that falls away.

TRENDS/OBSERVATIONS

As contracts are terminated and fewer are started, capacity in the market will be released. The market is calming down at the same time as new capacity will be added where there is a shortage. Within a 12-month period, we judge that the market will have found a new equilibrium level with more stable prices after stabilization and decline.

Population growth and new ­production in Stockholm­ County, per quarter 2016-2021

15,000

12,000

9,000

6,000

3,000

0

Q4	Q4	Q4	Q4	Q4	Q4
2016	2017	2018	2019	2020	2021

Population growth

Residencies produced in Stockholm

* Source: SCB

3.1

During Q4 2021, the gap again increased between the number of completed homes and popu­­ lation growth. For the full year 2021, the number of new Stockholmers increased by just over 55%, while the number of completed residencies fell by 10%. In Q4, there were 3.1 newly migrated Stockholmers per new residence.

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