2019 Enriching and simplifying life through Friendly Homes HEIMSTADEN BOSTAD ANNUAL REPORT WITH SUSTAINABILITY REPORT Contents OUR BUSINESS 1 Our journey of growth 2 A comment from our CEO • 5 Significant events in 2019 6 Our vision and the path ahead 8 Values we generate 10 Our strategy 12 Our business model 13 Our core values 14 Heimstaden as an investment 15 Earning capacity • 16 Importance of partnerships 18 OUR MARKET 20 Heimstaden’s market 26 Regulated and unregulated market 28 Geographic distribution 32 Sweden 34 Denmark Administration Report and Financial information Heimstaden Bostad’s Annual Report is published in Swedish and English. The Swedish version is the original and has 36 Norway been audited by Heimstaden’s auditor. The annual accounts for the 2019 financial year 38 Germany and the Administration Report are presented on pages 5, 16 –17, 44 – 54, 74– 85 and 96–137 of this document. The Audit Report is also presented on pages 138–140. 40 Netherlands Other external review The Auditor has reviewed the Corporate Governance Report on pages 86–93, in accordance with FAR’s auditing standard RevU 16 The auditor’s 42 HOW WE WORK examination of the corporate governance statement. The Auditor has reviewed the • 44 Analysis and transaction Sustainability Report on pages 144–159, in accordance with FAR’s recommendation RevR 12 Auditor’s opinion regarding the statutory Sustainability Report. • 46 Project and property development Report inspired by GRI Standards Heimstaden Bostad’s Sustainability Report has • 50 Property management been inspired by the GRI guidelines and selected areas of sustainability have been reported in accordance with the GRI Standards’ appli- SUSTAINABILITY cation level Core. An overview of the GRI index is found on pages 149–150. 56 Responsible business 64 Employees Heimstaden and the Global Compact Since 2019, Heimstaden Bostad AB has been affiliated to the UN 68 Environmentally efficient properties Global Compact, an initiative for responsible business, focusing on human rights, working conditions, the HOW OUR OPERATIONS ARE GOVERNED environment and anti-corruption. This Sustainability Report represents our “Communication on Progress” to • 74 Capital structure the UN and the GRI index includes references to where • 80 Risks and risk management the data are presented in the report. 86 Corporate governance and internal control 90 Board of Directors 92 Senior executive 95 FINANCIAL INFORMATION • 96 Consolidated financial statements • 104 Accounting principles and notes to the consolidated accounts • 126 Parent Company financial statements • 130 Parent Company accounting principles and notes • 136 Appropriation of profit • 137 Signing of the Annual Report 138 Audit Report 142 Multi-year overview 144 SUSTAINABILITY REPORT 162 Definitions and glossary Refers to audited sections. Pages 5, 16–17, 44–54, 74–85 and 96–137 form part of Heimstaden Bostad’s formal Annual Report and have been subject to review by the company’s auditors. HEIMSTADEN BOSTAD ANNUAL REPORT 2019 HEIMSTADEN IN BRIEF A broad perspectiveStrategiska pelare v 5B on Friendly Homes VISION BUSINESS MODEL LONG-TERM BUSINESS GOALS STRATEGIC PILLARS Customer Exeptional Sustainable satisfaction employer development Role model Innovative Sustainable for societal portfolio and competitive contribution management growth CODE OF CONDUCT VALUES Heimstaden Bostad acquires, develops and manages residential properties in growth communities in Scandinavia, Germany and the Netherlands. In 2019, we decided to expand our operations to other European countries with strong demographics and favourable market conditions, resulting in a major acquisition in the Czech Republic at the beginning of 2020. Our vision is to enrich and simplify life for our customers through Friendly Homes. We hold a lifelong per- spective on our properties, meaning that we build, develop and manage sustainable and modern homes of a good standard. In this way, we generate lasting value for shareholders, partners and customers, but also for society as a whole. Our ambition is to grow responsibly and sustainably alongside partners who share our values. Within the framework of our strategy, we will work with other stakeholders and create opportunities by contributing experience, knowledge and capital. Heimstaden Bostad's main owner is Heimstaden AB, followed by the Folksam Group, Alecta and Sandvik and Ericsson pension foundations. HEIMSTADEN BOSTAD ANNUAL REPORT 2019 HEIMSTADEN IN BRIEF Our business model Heimstaden Bostad generates long-term values through its three core processes: • Analysis and transaction • Project and property development • property management These processes interact as we actively manage the property portfolio, expanding and optimising it, with sustainability in focus, and refining and developing individual properties. Read Darres gate 2, Oslo more about our approach on pages project development careful analyses and long-term and acquisitions refinement of properties in line 54,863 of the property portfolio with our strategy Residental units local, in-house property management through our values Total area 4 million SQUARE METERS Market value, SEK 113 million HEIMSTADEN BOSTAD ANNUAL REPORT 2019 OUR OPERATIONS – OUR JOURNEY OF GROWTH Property value Since the company was founded in 2016, Heimstaden Bostad’s property value has grown to SEK 113 billion at the end of 2019. Qualitative and sustainable growth PROPERTY VALUE Heimstaden Bostad is the largest private residential property company in Denmark, Norway and the Czech 113 Republic and we are among the largest owners in Sweden and the Netherlands. At the end of 2019 we SEK BILLION expanded our operations in Germany, and in early 2020 a major acquisition was made in the Czech Republic. The rapid expansion imposes high demands on our ability to grow sustainably from many aspects. We invest considerable effort in all investment decisions and conduct thorough due diligence with regard to financial, social and environmental aspects. We take care of our staff and make sure all customers – new and old – receive the same degree of attention and high level of service. By staying true to our core values (Care – Dare – Share), we ensure high quality growth in markets throughout Europe. Rental income Through a well-developed business model and strategy, we have continuously created growth with quality. During 2019, rental income increased to SEK 4.3 billion. RENTAL INCOME 4.3 SEK BILLION HEIMSTADEN BOSTAD ANNUAL REPORT 2019 1 OUR OPERATIONS – A COMMENT FROM OUR CEO A year to remember In a few years time, as we look back at 2019, I think we will see it as a very important year for Heimstaden Bostad. We implemented structural changes and broadened the scope of our operations to build a company able to achieve good performance, favourable key data and a high level of customer satisfaction. Back in 2018, we took the decision to broaden our horizon from In the second half of 2019, considerable effort was invested into Scandinavia and to extend our operations through Northern the acquisition, presented by Heimstaden Bostad in early 2020, Europe. In 2019, we took an additional step in that direction by of slightly fewer than 43,000 apartments in the Czech Republic. determining that we should view most of Europe as our home Although I have received a number of questions regarding the market. We have, in recent years, built up a stable company, with choice of market, in my view the Czech Republic has favourable sound finances and the capacity to operate in more markets infrastructure, a very good labour market and other important than previously. drivers of development of a standard comparable to Sweden. We had the opportunity to acquire a well-managed company Several major acquisitions during the year with a favourably composed and attractive portfolio, as well as Over the year, we acquired two major portfolios in the Nether- advanced systems for property management and customer lands from Heimstaden AB, becoming a player there, with 10,447 apartments in that country. The Dutch market is of interest, both from a macroeconomic perspective, as well as with regard to housing policy and we have quickly become a major » Action is what matters and player there. Although we also acquired a large portfolio in manifests our unequivocal Germany, political discussions regarding the decision to impose a five-year embargo on rent increases in Berlin and the conse- promise to future generations.« quences for property maintenance and investment cause us to maintain a cautious attitude towards the Berlin market for the time being. 2 HEIMSTADEN BOSTAD ANNUAL REPORT 2019 OUR OPERATIONS – A COMMENT FROM OUR CEO service. It also applies a customer philosophy that is, in many ways, similar to Heimstaden’s. The energy mix in the Czech Republic is challenging and we will be working actively to » Together, we now stand transition to more sustainable alternatives where possible and to implement measures to improve energy efficiency. The acqui- prepared to make 2020 sition is the largest in Heimstaden Bostad’s history in terms of another memorable year for the number of units and has provided valuable knowledge prior to entering our next new market. Heimstaden Bostad.« I see a strength in Heimstaden Bostad now having the capacity to conduct truly large-scale acquisitions, while our entrepreneurial culture means that no opportunities are missed to acquire individual properties complementing the existing portfolio. It is important to be able to balance large-scale matters against smaller- scale ones to be able to achieve a favourable risk diversification and long-term profitability. I wish we could have made more acquisitions in Scandinavia in 2019. It is possible that we were somewhat cautious in our assessments of markets and proper- ties and we are reviewing our strategy to be able to increase the pace in 2020. We did, however, successfully replenish our new production portfolio and now have agreements in place for the production of approximately 2,000 apartments over the next five years. It looks as though much of this new production will involve wood buildings, which pleases me greatly from a sustainability perspective.