17 February 2022/08.30 CET – Q4 2020/Selvaag Bolig ASA earnings presentation

Translation from the original Norwegian, which remains the definitive version

Corporate participants Sverre Molvik, CEO, Selvaag Bolig ASA

Presentation

Sverre Molvik, CEO, Selvaag Bolig ASA Good morning, and welcome to this presentation of the fourth-quarter results for Selvaag Bolig. My name is Sverre Molvik, and I will be taking you through today’s agenda. We’ll start by looking at some highlights for the year and the quarter, then go through operations and finance and look at the market before covering the outlook and take questions at the end. This was the best fourth quarter in the company’s history in terms of sales value. We sold more in both fourth and third quarters than we have ever done. That’s good, since we had a very poor first half. Our results during the fourth quarter were also very good, with both strong revenues and good margins. The year as a whole set a record without parallel. That was naturally driven to a great extent by the Urban Property transaction, but underlying operating results were also very strong. On that basis, we are recommending a dividend of NOK 3.00 per share for the second half. This is the same as in the first half – in other words, NOK 6.00 per share in ordinary dividend for the full year. We also implemented the Urban Property transaction in January, and paid in that connection an extraordinary dividend of NOK 22.00 per share. That means we have paid out NOK 28.00 per share for events in 2020. We have conducted an annual valuation of our land bank. Large parts of this were sold to Urban Property, of course, but some of it remained. This has an added value of NOK 600 million. Turning then to key financial figures, I will not comment much on these here because I’m going to talk more about them a little later. As you can see, however, we have good margins all in all pursuant to both the IFRS and the percentage of completion method, and for both the full year and the quarter. I’ll come back to that. If we look at operations, we had – as I have already said – a very good quarter in sales terms. We sold 199 units with a value of NOK 1 010 million. That was very good. We have never sold so much in the fourth quarter before. This quarter is normally a weak part of the year for selling houses, and so for that matter is the third quarter. The first half is normally the best period. But the first half of this year was very poor because of the coronavirus outbreak, while the second half was very good. Viewed overall, therefore, we sold 683 units. That may not appear to be such a lot, but is a great deal given the poor start to the year. I can also say that sales remain good in the first quarter, so that is very promising. Looking at the 12-monthly rolling sales figures, we have also increased our tempo here and are almost up to NOK 3.5 billion for the annual rate of sales. And, as I’ve said, that’s continuing into the first quarter. The good sales performance meant that we succeeded in starting construction of many units during the second half. We did well in the previous quarter and began 254 units in this quarter, while we’re completing 286. This also means we’re maintaining a good pace, with 1 310 units in production worth just over NOK 6.4 billion. That’s far better than I guided on last spring, when we thought we’d decline towards perhaps 1 100 units. So that’s very positive. Seventy-four per cent of the units under construction had been sold at 31 December, and that proportion is naturally higher now. Another noteworthy aspect is that 92 per cent of this is in Greater . In recent quarters, this proportion has been 99 per cent. Among other developments, we’ve now got a project going in . Where forthcoming completions are concerned, our guidance remains the same as it was for the previous quarter – 867 units over the next four quarters. In other words, in 2021. There’s no indication that any delays are likely to be experienced now as a result of the coronavirus. Eighty-six per cent of this quantity had been sold at 31 December, and more now. If we look at results, we delivered 272 units worth NOK 1 347 million in the fourth quarter. In ball-park terms, that’s the same level as in 2019 if you correct for joint ventures. In 2019, we also had a one-off effect from the sale of a commercial property for NOK 320 million. Project costs totalled NOK 935 million. That was as expected, I’d say. We’re very good at keeping costs under control in our projects. That means we usually expect to end up with costs which are higher than the

actual figure we forecast at sales start compared with the level at completion. That’s good cost control, which rests on good standard contracts and using reliable contractors. We achieve this with a good contractual basis. NOK 24 million of the figure is previously capitalised interest on land and construction loans for these units delivered. Other costs came to NOK 83 million, down by NOK 9 million from the same period of 2019. That reflects several factors. We had somewhat higher extraordinary costs in connection with the Urban Property transaction in 2019. At the same time, we had an extra payroll expense last year because of a settlement related to restructuring and lower sales and marketing costs. That’s a trend we’ve seen over the whole year, and undoubtedly reflects that our marketing is becoming ever more efficient and precisely targeted. We report an adjusted EBITDA, of course, in order to give expression to the financial expenses which form part of project costs pursuant to the IFRS. In order to arrive at earnings before interest, we exclude these financial expenses and thereby end up with NOK 358 million, corresponding to a margin of 24 per cent. So margins were also good in the quarter. Earnings per share for the quarter came to NOK 2.62, which is comparable with 2019 – particularly when corrected for the one-off effect. Looking at the full year, we delivered 720 units and have earnings per share of NOK 5.31. That was slightly weaker than in 2019, which was a record-strong year. Corrected for one-off effects, however, the figures were relatively comparable. So operations have been very good. In addition, we have NOK 11.02 in earnings per share from the Urban Property transaction. Viewed overall, therefore, we set a record without parallel for earnings, at NOK 16.33 per share. Where the accounts compiled in accordance with the percentage of completion method are concerned, I usually say that these reflect value creation from current production and recognise profit on a straight-line basis between construction start and completion, since production, costs incurred and the sales ratio are taken into account. With the IFRS, on the other hand, the whole profit is recognised at delivery to the end customer. These figures show a turnover of NOK 949 million and a margin of 18 per cent, down slightly from the previous quarter. That reflects many factors. A number of projects are included here and, given that we have had so many construction starts, there’s a tendency to begin a little weakly and perhaps deliver a little better down the road. Time will tell. But margins here remain good. About 400 units of the 1 300 now in production have been repurchased from Urban Property. We had an annual turnover of about NOK 3.2 billion and a margin of 20 per cent. If we look at cash flow, we had an opening balance of NOK 361 million and a positive cash flow from operations of well over NOK 900 million. With a flat contribution from the investment side, where we repaid a good deal of debt, we ended up with NOK 885 million in cash and cash equivalents. Other changes to the balance sheet include a rise of just over NOK 260 million in the book value of equity to NOK 25.9 per share, corresponding to an equity ratio of 40.8 per cent. Inventory decreased a little – I’ll come back to that. Accounts receivable fell by NOK 373 million. That’s quite a lot, but reflects settlement for the one project at Lørenskog, which was delayed into the fourth quarter. Cash then rose by NOK 524 million. Returning to inventory, the land bank was cut by NOK 70 million – mainly through construction starts. This land bank is, of course, intended to reduce towards zero because we’re not going to have land on our own balance sheet in the future thanks to our the collaboration with Urban Property. Work in progress declined by NOK 261 million owning to many deliveries and the fact that the construction starts have not necessarily got going properly with invoicing yet. Finished goods are virtually unchanged at a low level of NOK 120 million. Much of that has already been sold – we have very few unsold completions in the company. We have had an annual external valuation of our remaining land bank, which has a book value of just over NOK 900 million. The reason this land was not sold to Urban Property is that it involves varying degrees of planning risk. We sold Urban Property only assets which had a low planning risk. The added value here is almost NOK 600 million. Turning to debt, the structure is the same as before. There has been some decline in both construction and land loans, interest-bearing debt totals NOK 2 468 million and net interest-bearing debt is NOK 1 583 million. The terms of these loans are unchanged, with the same range as before. We have a dividend policy which specifies that we will pay out at least 40 per cent of earnings per share and will not go below an equity ratio of 30 per cent. We are now paying a ball-park figure of 80 per cent in relation to profit for the second half – in other words, NOK 3.00 per share – and more than 100 per

cent on an annual basis, where our earnings per share are just over NOK 5.30 and we are paying NOK 6.00 in ordinary dividend. Looking at accumulated dividend, including the extraordinary payout in relation to the Urban Property transaction, we have earned a ball-park figure of roughly NOK 47.47 per share after tax since we secured a stock exchange listing and have paid out NOK 43.80 in dividend. That represents a high level of dividend yield. It is roughly a year since our collaboration with Urban Property started, and I’ll summarise that briefly and go through how it functions. I’ve had a number of questions about this, so it could be sensible to go over the position again. We have a collaboration with Urban Property, which comprises financially sound owners – including pension funds – who are pleased with a good, secure, moderate return on their equity. It has then purchased our land bank and is buying the properties we propose it should acquire within the parameters we have set. This means that, every time we find a property, Urban Property has a first right of refusal to purchase it. What we do then is to pay the company a one-off transaction fee of 2.5 per cent – half a per cent in and two out – and an ongoing interest charge or option premium of 3.75 per cent plus Nibor. That corresponds today to about 4.2 per cent per annum plus that one-off effect spread over the number of years the land remains with Urban Property. In other words, an agreed price exists for Urban Property at the time of purchase and an agreed price at Selvaag Bolig’s future repurchase date. The only variable is how long it takes before the land is ready to be repurchased, which is at the point when construction starts. One advantage of this for Selvaag Bolig is that it eliminates the need for equity to buy land. That in turn substantially increases the return on equity in the company and not least the payout ratio in relation to earnings per share after tax. In principle, we therefore don’t need to allocate a single krone of profit for purchasing land and could pay 100 per cent of it as dividend. A further benefit is that we have a predictable financing. We know what we’re going to pay for the financing and we know what parameters we have. Say that we find a property which is naturally sensible. It will then be bought into Urban Property. This also increases our competitiveness for purchasing land over other companies who have to turn to the banks or are dependent on other players, and who do not have these terms available in advance. Another aspect which represents an advantage for Selvaag Bolig is that we have capped the downside risk in our land bank if a crisis were to occur. That is because we have a break fee – should we refuse to exercise our option for a property, we would have to pay four years of option premiums. Today, that would mean a ball-park figure of 18 per cent, say. So if something should go totally wrong, we can then pay 18 per cent and escape. That’s not very probable, but at least it caps the downside. There is another important consideration, which is that we have a finely tuned balance of power here. It would take a great deal for us to turn down a property. Similarly, it would take a lot for Urban Property to refuse to buy a property we recommend – within the parameters which have been set, naturally. This illustration gives you some indication of how the collaboration works. Selvaag Bolig functions actually exactly as before in the value chain. We have precisely the same people in place with the same functions. The only difference is that, when our acquisition team finds that property, it is purchased by and carried on the balance sheet of Urban Property. The interest charges then begin to accrue. When you buy land in the ordinary way, of course, as our competitors do, without cash flow, you normally pay 50 per cent equity capital and 50 per cent land loan. We now avoid that equity share. Urban Property fixes that, and we pay a fixed interest rate of 3.75 per cent plus Nibor. When we have sold 60 per cent of the project, we buy the property back from Urban Property but pay only 50 per cent of the price at the start of construction. The construction loan covers that, and we pay 3.75 per cent plus Nibor on the remaining half until completion. Once we have got the money in from our customers, we pay the rest. That’s the reason we can eliminate the need for equity to buy land. The only equity we then use is devoted to paying development costs in the company. Since we’re already talking about property purchases, we also bought land during the quarter. This includes a site in Lilleakerveien, acquired in exactly the way I’ve now explained. We have found the property, we have bought it, and it is placed in Urban Property. We have purchased three-four sites of this kind during the year, but these have been earlier purchase commitments which we have not reported because the obligation has lain with Selvaag Bolig and Urban Property has entered into it in our place. We have also secured two land allocations in which are very interesting. These are the Slakthus area and the Årstadfältet. All told, these purchases amount to 420 units.

It is gratifying to see that we have started to build a land bank in Stockholm. It will be a few years before we get going with these two sites, but we expect perhaps to begin selling on them in 2024-25. We can turn now to the market. Looking at the demand side, housing need in Oslo is now forecast – in a medium case – to be about 3 400 units per annum over the next three years. Roughly 3 000 units per annum were completed there over the past 15 years. This year and looking forward, construction in Oslo – at 1 900, 1 500 and 1 100 units over the next three years – is well below the average which used to be produced and far below what Prognosesenteret now believes to be required. So a gap exists between supply and demand, which will naturally have a big effect and which you have certainly read a lot about and which some of you have perhaps experienced directly. This graph shows the position very clearly. At 31 December 2019, just over 1 800 units were available in the market. Developers have put a ball-park figure of roughly 1 600 onto the market during the year and some 2 500 have been sold. In other words, the available inventory of new units in Oslo at 31 December 2020 was about 950 homes. That is a very, very low figure in relation to the city’s size. Turning to Akershus, then, or Viken excluding Buskerud and Østfold, the trend is somewhat the same with a declining inventory. A knock-on effect is naturally felt from Oslo – those who cannot buy in the capital will turn to buying in Lørenskog, Ski, Follo and other places where we have land and can obviously welcome them. But we also see increased demand and price growth in these areas, which is naturally driven or helped considerably by the limited availability in Oslo. If we look at the other towns where we’re involved in , you can start by seeing the levels available in the market now. There’s a very good balance between supply and demand here – sales roughly match the units put on offer – but the levels are the same as in Oslo. In other words, Sandnes, Stavanger, and Trondheim have roughly the same level of availability in the market as in Oslo. That says a lot – Oslo is after all several times larger. The second-hand market has seen record turnover in Oslo, and the inventory of second-hand homes is very low as well. Bergen has also had a very high turnover of homes, but at a more moderate or sensible level – not especially low, but low also there. Trondheim also has a good balance, with a lot being sold – probably driven very strongly by such factors as low interest rates and the relaxation in the residential mortgage rules during 2020. In our view, the most gratifying feature is the reduction in inventory in Stavanger. You have to go back to 2012 to find a comparable level, and it’s very satisfying and also strange that this market is now starting to recover a little. We’re starting to sell a little more. That’s good to see. It’s been depressed for many years. Where price developments in the areas where we operate are concerned, the strong rise is being seen in Oslo for the reason we’ve just covered – the big gap between supply and demand. We also see fairly good price growth in the other areas, which is undoubtedly driven by interest rates and changes to the mortgage regulations. So this market looks very positive. As I mentioned earlier, we’re also continuing to sell well into the first quarter. And we have projects ready to roll out. We have lot in the market and are putting more on sale. We have these big projects in Lørenskog – two of them, Stasjonsby and Skårerbyen. We’re putting units on sale as the market absorbs them. As I mentioned in the last quarter, we also have this Pluss concept which has been very well received at Lørenskog, which also sells in parallel with our regular units. We have many of those. A ball-park figure is 500 units under construction. Bjerke will be coming along eventually, and is in a planning process. This is a large and interesting project with 200 units. And Fornebu, of course, is progressing and will first be on the market three years from now. A large and very interesting development. And Fornebuveien is in production. We also have a Pluss project in Trondheim which we’ve talked about in earlier quarters, but it has been a little delayed because of planning issues with the county governor’s office. However, we hope and expect to get going with it this year. Sandsli in Bergen is under way and selling well. The first construction stage will be starting any moment now. We then have a highly interesting project with 500 units as our share of a joint venture in Sandnes, Elveparken. This is actually in the town centre. And we have a large joint venture project with Jotne in Fredrikstad with about 1 800 units where we expect to start sales this year and next. As a ball-park figure, we currently have about 400 units on the market in these towns we operate in, and another 400 ready which we’re going to put on offer during the first half of 2021 depending on progress with existing sales. So we have a lot to sell.

Turning to the outlook, it’s actually very difficult to find anything negative. It’s all very positive – low interest rates, a high level of demand and the residential mortgage regulations functioning sensibly as they are now. We have high demand in our areas, and particularly in Greater Oslo, where we have a lot of units – more than 9 000 – so that looks positive. We also see signs of improvement in Stavanger and Bergen, which is very good. We also have new areas where we’ve considering an involvement, particularly here in eastern Norway. We can come back to that when it becomes a reality. To sum up, then, we had record sales in value terms in the second half. That was positive in terms of permitting many construction starts and looking ahead. Margins were good. Generally speaking, we had a record year including Urban Property, with a dividend of NOK 28 per share for the year including the extraordinary payout. We have a valuation of our land bank which shows an added value of NOK 600 million on the properties we didn’t sell to Urban Property. And we have a lot of projects, which are ready on the shelf to supply the market which we now anticipate. That was what I had planned to say. So if there’s anyone who has any questions, we’re ready for them.

Simen Mortensen, DNB Markets How are you placed with planning processes for new projects in Oslo? And how do you find the city council’s building services agency today?

Molvik We have our former head office, among other things, and we have two projects at Løren – three, actually, including Bjerke. The last of these is going very well, and we feel were on track there. Løren and Sinsenveien have taken far too long, but they’re on a good track and we hope to be able to put Sinsenveien on sale during the year. It takes a long time. The process now lasts an average of four years, and if we go back seven-eight years it used to average less than two. So it’s clearly not predictable, and that’s a problem. For me to stand here now, for example, and say when a project will be coming has become difficult in Oslo. It’s much better elsewhere.

Mortensen What were other gains, (losses) net of NOK 16 436 000 in profit and loss during the quarter?

Molvik This is a tax issue which comes out at plus/minus zero in connection with the Urban Property transaction.

Mortensen According to events after the balance sheet date in 2021, agreement has been reached with Urban Property that property classified as portfolio A will be converted to portfolio C with effect from 1 January 2021. What will this mean in accounting terms, and when?

Molvik What will happen is that portfolio A represents the land which originally involved first rights of refusal for us. From that perspective, this could in theory create an uncertainty over whether the land should be bought back at its market value or its original consideration plus the option premium. This was, as I have said throughout, a purely theoretical possibility. The difference is that these are 100 per cent options – everything is options. In accounting terms, this means that the option premium for portfolio A will be manifested on an ongoing basis in the future instead of being incorporated in the purchase price.

Mortensen What are your plans for the Selvaag Bolig organisation in Stockholm? What plans do you have for size, the timetable for expansion, and so forth?

Molvik

We’ll grow organically in Stockholm. We have been allowed to acquire a couple of sites now. They are some time off. We will be staffing up in relation to what we manage to get hold of in terms of land. We are buying property in Stockholm on market sharing terms and will be building stone by stone in that respect. So the answer is that it will depend on how clever we are. We’re getting good sites now from the City of Stockholm. It’s curious about us, we have built a couple of Pluss projects there earlier in partnership with Veidekke. We have been involved there for many years, actually. So we know it, and it knows what our projects are like – particularly the Pluss ones. It’s interested in collaborating with us. So the answer is really that we could quickly become large in Stockholm. That depends on how clever we are.

Mortensen At 10 February, you say you have 400 sales starts in 2021 and 430 out on sale. How does that level compare with 2020?

Molvik That’s a good question. I would guess that we have, as a ball-park figure, the same number of units on sale because our sales ratio and units in production are roughly the same. So I would assume that units for sale are approximately the same. However, the point of that comment is that we have things ready so that, when we’ve sold a stage, we’ll put a new stage on sale. We don’t put too much out on the market in the same area, because that won’t work. So we make a new stage available when the previous one is more or less ready to start construction. But I’m not sure about how many we had oven-ready last year in relation to the number on sale. But I would imagine that the ball-park figure is about the same. That’s a fixed approach as long as we have goods on the shelf.

Per Erik Bernts How will possible earlier interest-rate projections from Norges Bank influence Selvaag Bolig?

Molvik Interest rates and unemployment normally influence Selvaag Bolig, of course. We offer what you might call “necessary” homes – for ordinary people in a sensible price category – so they’re not actually that sensitive. But the interest-rate projection could naturally exert an influence in that you’re buying a forward when you purchase something which will be ready in a couple of years. So if Norges Bank says that interest rates are going to shoot up, that will obviously exert an influence. On the other hand, interest rates are so low now that if they rise from the low point today by 25 or 50 points, that won’t be very much. It won’t have much of an effect. But interest rates are naturally important in relation to people’s ability to service them.

Fredrik Höglund Is there a possibility that an extra dividend will be paid this year?

Molvik We are very financially sound. As you saw, we have an equity ratio of 41 per cent. I’ve said in connection with the Urban Property transaction that we actually don’t need equity for land any more. From that perspective, we have too much equity in relation to our needs. However, we’re conservative and so we will advance calmly. But opportunities do exist for that. However, I don’t want to anticipate them now.

Petter Nilsen You write about added value in the land bank which has not been sold. What is the added value of the land bank which has been sold? This rise will, of course, fall to you as an increase in sales price as projects are realised.

Molvik Quite correct. I haven’t looked at the land bank which has been sold, but you can almost apply a percentage growth. If you want an estimate, you can simply look at how prices have behaved in the market since we sold the bank about a year ago. So it is substantial – several hundred million kroner.

That will obviously find expression in an improved margin compared to what it would otherwise have been.

No more questions? Good. Then it only remains for me to thank you for attending, and see you again in May for the next quarter.