Clarification regarding Karlatornet and the sale of building rights to Balder

Joint venture with Balder for the completion of Karlatornet

• Yesterday, December 17, 2020, Serneke and Balder entered into a share transfer agreement entailing Balder acquiring 50 percent of the shares in Karlatornet AB (“the joint venture company”).
• The joint venture comprises a newly established company with a book equity of SEK 50,000. This company has acquired from Serneke all of the assets in the Karlatornet project at their combined book value of about SEK 1.5 billion against a promissory note in the form of an interest-bearing shareholder loan.
• Accordingly, the purchase consideration of SEK 25,000 communicated by Balder corresponds to 50 percent of the book equity in the joint venture company.
• Balder and Serneke share the responsibility for financing the total cost of the project, about SEK 5.5 billion, including costs for land acquisition, production costs to date, as well as remaining expenditure for the completion of the Karlatornet tower.
• The joint venture company will be fully financed through an additional shareholder loan of SEK 500 million from Balder and a construction loan of about SEK 3 billion from Nordea.
• Balder will be pledging collateral for the entire amount borrowed from Nordea by means of a joint and several guarantee.
• For Balder’s undertaking to invest SEK 500 million in Karlatornet and to pledge a joint and several guarantee as collateral for the SEK 3 billion construction loan, Balder’s shares in the joint venture company entitle Balder to a fixed preferential dividend of SEK 600 million. The dividend will be paid in accordance with a waterfall principle following the repayment of Nordea’s construction loan.
• Once the project has been completed, Serneke will recover all of its invested capital of about SEK 1.5 billion together with remaining project profit from the joint venture company, which is estimated at SEK 300 million at least.
• The contracting agreement entered into by Serneke with the joint venture company entails Serneke conducting the remaining work at a fixed price of approximately SEK 3.2 billion. The value of the order is included in Serneke’s order bookings for the fourth quarter of 2020.
• To date, all of the contracting, including the construction of the complex foundation, has been conducted on budget, with about 70 percent of expenses for remaining work already having been fixed with suppliers and subcontractors. Based on the agreement, the profit from the contracting work is estimated at more than 10 percent.
• Following the transaction, Serneke is expected to report positive net debt for the fourth quarter of 2020.
• Serneke remains as the sole holder of the other building rights in the Karlastaden district, encompassing some 200,000 square meters of developable space. Serneke is now intensifying its discussions with potential investors and partners to realize the surplus values that exist.

Sale of building rights to Balder

• Yesterday, December 17, 2020, Serneke and Balder entered into an agreement under which Serneke will sell building rights to Balder by means of “forward funding” equivalent to a total underlying property value of about SEK 3.2 billion.
• The arrangement guarantees that Serneke will earn from the projects with attractive terms, including from the associated contracting and without additional financing being necessary.
• The building rights concerned, covering about 100,000 square meters in total and distributed between 10 projects, formed part of a competitive project portfolio of rental housing and community properties being developed by Serneke over an extended period and that was now packaged in a structured sales process. The sales process was presented in greater detail at the Capital Markets Day on September 29, 2020.
• The framework agreement for the sale of the building rights is expected to generate a total cash injection of about SEK 250 million to be realized as the final owners take possession of each project, as well as having a positive impact of about SEK 300 million on earnings, to be allocated across the duration of the project.
• Serneke will also be entering into a turnkey contract with each project company for the construction of the buildings at a predetermined property value. The profit from the contracting work is assessed to be at a level that would be typical for projects developed in-house. The order value for each of the contracting agreements will be included in the quarter in which each property is transferred to its final owners.