KMC Properties ASA

Interim / Quarterly Report • Feb 28, 2020

Storm Real Estate ASA Interim report July – December 2019

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Storm Real Estate ASA's business strategy is to acquire and manage real estate. The strategy includes equities and high yield investments.

Highlights

All numbers in mill. USD	Unaudited H2 2019	Unaudited H2 2018
Total Comprehensive Income	+0.6	-1.6

Summary of the largest major items:

NOI from investment property	+1.0	+0.2
Value change investment property	+1.2	+0.1
Other operational expenses	-0.4	-0.5
Borrowing costs	-0.6	-0.9
Currency gain / loss	+0.0	-0.1
Value change on contract- and interest derivatives	0.0	-0.0
Taxes	-0.3	-0.6

Return ratios	Return on Equity (1)	Total Shareholder Return (2)
Last 1 year	+78.9%	-24.8%
Last 3 years (annualised)	-30.6%	-39.4%
Last 5 years (annualised)	-33.3%	-20.9%

(1) Return on Equity = Total Comprehensive Income (IFRS) for the period / (brought forward equity (IFRS) as at start of the period + other changes in equity than Total Comprehensive income (IFRS) for the period), annualised. *

(2) Total Shareholder Return = Movement in share price, dividend adjusted, annualised using XIRR formula. Calculated using historical share prices as adjusted by Oslo Stock Exchange post rights offering in June 2017.

*The formula used to calculate the return on equity stated above was altered on 30 June 2019. The former formula (Return on Equity = Total Comprehensive Income (IFRS) for the period / brought forward equity (IFRS) for start of the period, annualised) did not consider other changes in equity than Total Comprehensive income in the period. To show the return on other changes in equity as well, we have included it in the new formula, see note (1) above.

These return ratioes are Alternative Performance Measures, and are presented in accordance with ESMA's "Guidelines on Alternative Performance Measures" from 2015. These are reliably measured, and the company considers these relevant, because different stakeholders might consider different NAV per share in NOK and Total Shareholder Return relevant alternative performance measures.

Financial information

(all following numbers are in USD)

Summary

• The current occupancy rate of the Gasfield building, the Group's only income source, is 100%, divided on 80 lease agreements. The building has upheld a high occupancy since year end 2018, showing its attractiveness in the Moscow office rental market.
• The rental income has had a positive development during 2019 but is still too low to cover the Group's financial obligations. Hence, the Group is dependent on a refinancing in order to avoid bankruptcy.
• On 27 June 2019 the company entered into a conditional agreement with Swedbank AB and Aconcagua Management Ltd. The agreement outlines a long-term financial solution where the company will seek to refinance a share of the current debt to Swedbank in another bank. The remaining part of the debt will then be sold to Aconcagua Management Ltd at an agreed price. Aconcagua Management Ltd is the largest shareholder in Storm Real Estate ASA and is owned by Morten E. Astrup. The agreement is conditional upon achieving satisfactory terms on the financing from the other bank. Since it entered into the agreement, the company has been working on the refinancing of a share of the current debt with a local Russian bank. This process has had a slow progression, hence there have been many extensions of the conditional agreement. Still, the board find it likely that the ongoing process will lead to a successful refinancing of the Group. According to the latest extension, the agreement will lapse at the latest on 6 March 2020. If the refinancing plan is completed, the Group will have capacity to continue its operations. The board has initiated measures to ensure equal treatment of the shareholders.
• The Annual General Meeting adopted a reverse share split of 10:1 on 27 June 2019, which came into effect on 10 July 2019.

Income statement

• The Group had a total comprehensive income in H2 ²⁰¹⁹ of 0.6 million, compared to -1.6 million in H2 2018.
• The change in carrying value of the investment property Gasfield effected the total comprehensive income by 1.2 million in H2 2019 (H2 2018: +0.1 million).
• Revenues from the investment property Gasfield were 1.5 million in H2 2019 (H2 2018: 0.9 million).
• Borrowing costs were 0.6 million in the period (H2 2018: 0.9 million).

Accounting for value change on investment property:

In accordance with international accounting standards (IFRS) the movement in value of investment property are split over two separate posts, explained by the following: Our Russian subsidiary which owns the building uses Russian rubles as functional currency. According to IFRS, only the part of the fair value adjustment which can be attributed to RUB is presented over the Income Statement. The effect of currency exchange movements between RUB and USD is presented as Other Comprehensive Income and is included in term Total Comprehensive Income. We see Total Comprehensive Income as the most relevant profit measure for the Group. In every quarter we present an explanatory statement of the fair value adjustment:

Change in value, million USD	H2 2019	H2 2018
Over income statement	+0.9	+2.6
Translation difference over Other Comprehensive Income	+0.3	-2.5
Sum value adjustments properties	+1.2	+0.1

Balance sheet

• The investment property Gasfield is recorded at 24.9 million. The building's valuation, in accordance with valuation obtained from an independent valuer, is 24.8 million. In addition, values of land leases are recognised with 0.1 million. In the board's view this value is conditional upon a long-term perspective. In the event of a sale of the building within a short or medium period of time, the board believes the sale price will be significantly lower than the value presented in the balance sheet. In that case, the board believes the equity will be lost.
• On the closing date, the Group had a cash balance of 0.9 million.
• The Group's equity ratio is 17.8% as at 31 December 2019.
• The loan-to-value of the Gasfield bank loan is currently 80.0%.
• The working capital ratio (excl. prepaid tax) is currently at 0,08.
• The Company's NAV per share in NOK is NOK 4.7 as at ³¹ December 2019 (considering the reversed share split of 10:1 which came into effect on 10 July).

The company's risk is considered very high.

The financial recession in Russia and the dramatic increase in vacancy in the area surrounding the Gasfield building, due to Gazprom's move from Moscow to St. Petersburg, has had a sever negative effect on the Group's rental income. As a result, the Group is loss-making given the current financing, and is reliant on a positive outcome from the negotiation between the company, the bank and other relevant stakeholders in order to avoid liquidation. Due to this, there is a significant uncertainty related to the going concern assumption, see also note 2 below.

For further business risks than described above, please refer to the company's annual report for 2018.

Oslo, 28 February 2020,

The Board of Directors, Storm Real Estate ASA

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The company's investment areas

Real Estate in Russia (Gasfield, Moscow)

Macro snapshot

• Macro forecasts shows minor changes in the Russian economy despite the announcement of massive infrastructure investments and national projects, from the authorities.
• Unemployment is at 4.53%.
• The Central Bank has reduced the key rate to 6.25%. The key rate is down 4.75 percentage points in 4 years (The Central Bank of Russian Federation, 14.02.2020).
• Inflation outlook is 3.8% for 2019 and 3.0% for 2020.
• There was a net outflow of EUR 168m of foreign investments in 2019.

Real Estate Market

• Demand: Take-up (lease and sale deals) was at 2.0 million sq. m in Moscow in 2019, same as 2018. Still, there was a positive absorption of 234 000 sq. m in 2019, due to low construction activity. The absorption is expected to continue to be positive in the coming years.
• Vacancy: Vacancy rate for class B was at 9.7% in H1 2019 (10.2% in 2018)
• Rental rates: Average rental rate for class B was RUB 16 113 in 2019 (RUB 15 030 in 2018). Expected growth is 4-6% per year.

Sources market information Russia as at 31 December 2019: Cushman & Wakefield, Trading Economics, Ministry of Economic Development, Oxford Economics

Consolidated Statement of Comprehensive Income

		Unaudited	Unaudited	Unaudited	Audited
All numbers in 000 USD	Note	H2 2019	H2 2018	Full year 2019	Full year 2018
Continuing operations:
Rental income	3	1,544	901	2,903	1,581
Total Income		1,544	901	2,903	1,581
Property related Expenses	3	-592	-709	-1,265	-1,335
Personnel Expenses		-147	-130	-310	-282
Other Operational Expenses	8	-390	-467	-792	-969
Total Operational Expenses		-1,130	-1,306	-2,367	-2,586
Operating Profit (Loss) Before Fair Value Adjustments		414	-405	536	-1,005
Fair Value Adjustments on Investment Property	3	873	2,567	951	-904
Total Operating Profit (Loss)		1,287	2,162	1,487	-1,909
Finance Revenues	5	8	42	11	605
Finance Expenses	5	-668	-857	-1,521	-1,802
Currency Exchange Gains (Losses)	5	27	-54	43	-62
Net Financial Gains (Losses)		-634	-868	-1,466	-1,259
Earnings before Tax (EBT)		653	1,294	21	-3,168
Income Tax Expenses	7	-259	-577	-335	122
Profit (loss), attributable to owners of parent		394	717	-314	-3,046
Profit (loss), attributable to non-controlling interests		0	0	0	0
Other Comprehensive Income:
Items that are reclassified from Equity to earnings in subsequent periods:
Translation differences	3	199	-2,344	2,395	-4,287
Sum other income and expenses after tax		199	-2,344	2,395	-4,287
Comprehensive income, attributable to owners of parent		593	-1,627	2,081	-7,334
Comprehensive income, attributable to non-controlling interests		0	0	0	0
Earnings per share (EPS), attributable to owners of parent
Weighted average number of shares (after share split in July 2019)		8,834,563	8,834,563	8,834,563	8,834,563
Basic and Diluted earnings per share (USD)		0.04	0.08	-0.04	-0.34
Basic and Diluted Total Comprehensive Income per share (USD)		0.07	-0.18	0.24	-0.83

Consolidated Statement of Financial Position

		Unaudited	Audited
All numbers in 000 USD	Note	31.12.2019	31.12.2018
Fixed Assets
Investment Property	3	24,891	21,419
PP&E		3	5
Sum Fixed Assets		24,894	21,424
Current assets
Pre-paid income tax		130	208
Other Current Receivables	10	612	144
Cash and Cash Equivalents	4	861	500
Total Current Assets		1,603	852
Total Assets		26,497	22,277
Paid-in Equity
Share Capital	6	405	405
Share Premium		25,206	25,206
Other Paid-in Equity		56,600	56,600
Total Paid-in Equity		82,211	82,211
Other equity
Other equity		-77,492	-79,573
Total other equity		-77,492	-79,573
Total Equity		4,719	2,638
Non-current liabilities
Loans from Credit Institutions		0	0
Deferred Tax Liabilities	7	422	112
Financial Derivative Liabilities	4	0	0
Other Long-term Liabilities	4	259	266
Total non-current liabilities		681	378
Current liabilities
Trade Payables		50	53
Loans from Credit Institutions	4	19,917	18,678
Other Current liabilities	9	1,131	529
Total Current liabilities		21,097	19,261
Total Liabilities		21,778	19,639
Total Equity and Liabilities		26,497	22,277

Consolidated Statement of Cash Flow

All numbers in 000 USD	2019	2018
Cash Flow from Operational Activites
Earnings before Tax	21	-3,168
Adjusted for:
Depreciations	2	3
Value Adjustments on Investment Property	-951	904
Financial Income	-12	-77
Financial Expenses	1,521	1,273
Net Currency Gains	-164	130
Cash Flow Before Changes in Working Capital	418	-935
Changes in Working Capital:
Trade Receivables and Other Receivables	-390	283
Trade Payables and Other Payables	598	184
Paid Taxes	-147	-40
Net Cash Flow From Operating Activities	479	-508
Cash Flow From Investment Activities
Outflows from Investments in fixed assets	-27	0
Inflows from sale of fixed assets	0	2
Interest Received	11	118
Net Cash Flow From Investment Activities	-16	120
Cash Flow From Financing Activities
Share issue, payments/costs	0	- 6
Changes in Other Long-term Liabilities	- 7	0
Interest Paid	-185	-1,267
Net Cash flow From Financing Activities	-192	-1,273
Net Change in Cash and Cash Equivalents	271	-1,661
Carried Forward Cash and Cash Equivalents	500	2,247
FX movements on opening balance	90	-86
Cash and Cash Equivalents on Closing Date	861	500
Of which restricted Cash and Cash Equivalents	238	238

Consolidated Statement of Changes in Equity

All numbers in 000 USD		Paid-in Equity			Other Equity
	Share Capital	Share Premium	Other Paid-in Equity		Retained Earnings	Tra nsla tion Diffe re nc e s on Fore ign Ope ra tions	Total Equity
1 January 2018	4,575	21,036	56,605		-304	-71,918	9,994
Reduction of share capital	-4,170	4,170					0
IFRS 9 Application					-18		-18
Issue cost (2017)			- 6				- 6
Profit (Loss) for the Period					-3,046		-3,046
Other Comprehensive Income						-4,287	-4,287
Sum	-4,170	4,170	- 6	0	-3,064	-4,287	-7,357
31 December 2018	405	25,206	56,600		-3,368	-76,205	2,638

	Paid-in Equity Other Equity
	Share Capital	Share Premium	Other Paid-in Equity		Retained Earnings	Tra nsla tion Diffe re nc e s on Fore ign Ope ra tions	Total Equity
1 January 2019	405	25,206	56,600		-3,368	-76,205	2,638
Profit (Loss) for the Period					-314		-314
Other Comprehensive Income						2,395	2,395
Sum	0	0	0	0	-314	2,395	2,081
31 December 2019	405	25,206	56,600		-3,682	-73,810	4,719

On 27 June 2019 the Annual General Meeting adopted a reverse share split reducing the number of shares from 88 345 623 to 8 834 563. The reverse share split came into effect on 10 July 2019. The reverse share split was done in order to be compliant with the requirements of the Continuing obligations of stock exchanged listed companies, stating that the company must implement measures if the value of its shares has been lower than NOK 1 for a six-month period. The reverse share split did not affect the value of each shareholder's position.

SELECTED NOTES TO THE INTERIM FINANCIAL STATEMENT

(Unaudited)

1. Company information

Storm Real Estate ASA is a public limited liability company domiciled in Norway. The company is listed on Oslo Stock Exchange. The principal activity of the company is investment in yielding properties in Russia and the EEA.

2. Basis of Preparation and Accounting principles

Basis of Preparation

The interim financial statements for the period ending 31 December 2019 are prepared in accordance with IAS 34. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statement of 2018. The interim financial statements are unaudited. The interim financial statement was approved by the Board of Directors on 28 February 2020.

Accounting principles

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for 2018. Two new IFRS standards have been implemented for periods beginning on or after 1 January 2018: IFRS (15 Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments). These amendments have not had any material impact on the Group's financial statements for 2019.

All notes are in '000 USD, except where otherwise indicated.

Going concern

.

The interim reporting is prepared under the assumption of going concern, on the basis that no concrete decision to liquidate the company has been made. However, a liquidation can be forced by the main creditor, Swedbank AB, within a short period of time, if the parties are not able to complete an agreement securing a sustainable financing of the Group. See also note 4.

3. Investment property

	31.12.2019	31.12.2018
Value as valued by an independent valuer:
As at 1 January	21,300	26,580
Value Adjustment Investment *	3,457	-5,280
Value per Closing	24,757	21,300

Other assets regognised as part of Investment Property:
As at 1 January	119	180
Changes in carrying value of land plot lease agreements **	14	-61
Changes in embedded derivatives contract ***	0	0
Value per Closing	134	119
Carrying value 01.01	21,419	26,760
Carrying value per Closing date	24,891	21,419

* The functional currency of the Russian subsidiaries including the buildings in Russian Ruble The fair value changes has tw o elements:

• Changes in the local functional currency (RUB) are presented in the income statement

• Translation differences in the Group presentation currency (USD) are presented in

the statement of comprehensive income.

The tw o effects are presented separately below :

	H2 2019	H2 2018	Full year 2019	Full year 2018
Change in RUB over Income Statement	873	2,567	951	-904
Translation Differences over Comprehensive Income 287		-2,514	2,520	-4,437
Net Change in Fair Value	1,160	53	3,471	-5,341
NOI from Properties	H2 2019	H2 2018	Full year 2019	Full year 2018
Rental Income	1,544	901	2,903	1,581
Direct Property Related Expenses	-592	-709	-1,265	-1,335

NOI from Properties 952 192 1,638 246

** The Company has capitalised land plot lease agreements in accordance w ith IAS 40 Investment Property and IAS 17 Leases.

Variables for Independent Valuation:	31.12.2019	31.12.2018
Value investment property ('000 USD)	24,757	21,300
Discount Rate	14.00%	14.00%
Yield (cap. rate)	10.00%	10.00%
Market rates, RUB/sq.m (net of VAT and op.ex), main office areas	16,000	16,000

The investment property is valued accordin to Level 3 of the fair value analysis (see note 4).

Sensitivity analysis:	31.12.2019
Value investment property ('000 USD)	20,000
Discount Rate	14.00%
Yield (cap. rate)	11.50%
Market rates, RUB/sq.m (net of VAT and op.ex), main office areas	14,000

4. Financial Assets and Liabilities

Financial Assets and Liabilities	31.12.2019	31.12.2018
Cash and Cash Equivalents	861	500
Other financial assets	612
Interest Rate Sw aps	0	0
Bank Loan	-19,917	-18,678
Land plot lease agreements	-134	-119
Other financial liabilities	-1,306
Net Financial Assets and Liabilities	-19,883	-18,297

Bank loan

The company's lender has granted amended terms to the company's loan agreement.

The amended terms include:

• postponement of the maturity date to 6 March 2020
• no amortisation up to and including 6 March 2020 - termination of all interest rate sw ap agreements
• w aiving of covenants up to and including 6 March 2020

The purpose of these amended terms is to give the company time to arrange financing in accordance w ith the conditional agreement dated 27 June 2019, betw een the company, Sw edbank AB and Aconcagua Management Ltd. The agreement outlines a long-term financial solution w here the company w ill seek to refinance a share of the current debt to Sw edbank in another bank. The remaining part of the debt w ill then be sold to Aconcagua Management Ltd. Aconcagua Management Ltd is the largest shareholder in Storm Real Estate ASA and is ow ned by Morten E. Astrup. The agreement is conditional upon achieving satisfactory terms on the financing from the other bank. The agreement w ill automatically lapse at the latest on 6 March 2020 if the conditions in the agreement are not met.

The board has initiated measures to ensure equal treatment of the shareholders.

If the agreement is completed, it is likely that the company has the financial ability to continue operating. If it is not completed it is likely that the shareholders' values are lost.

4. Financial Assets and Liabilities (continues)

Fair value hierarchy

The table below show s an analysis of fair values of financial instruments in the Statement of Financial Position, grouped by level in the fair value hierarchy. Storm Real Estate ASA terminated all interest sw ap agreements in 2018.

Level 1 - Quoted prices in active markets that the entity can access at the measurement date. Level 3 - Use of a model w ith inputs that are not based on observable market data.

Level 2 – Use of a model w ith inputs other than level 1 that are directly or indirectly observable market data.

Financial liabilities measured at fair value	Level 1	Level 2	Level 3	Sum
Interest rate sw aps	0			0
Land plot lease agreements	134			134
Sum financial liabilities measured at fair value	134	0	0	134

Comparison per class

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are carried in the financial statements.

In accordance with IFRS 9	Financial assets at
	Carrying amount		amortised cost		Fair value
	31.12.2019	31.12.2018	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Financial assets
Accounts receivable	100	28	100	28
Other receivables	512	116			512	116
Cash and cash equivalents	861	500			861	500
Sum	1,473	644	100	28	1,373	616

In accordance with IFRS 9	Carrying amount		Debt instruments at amortised cost		Fair value
	31.12.2019	31.12.2018	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Financial liabilities
Interest-bearing loans and borrow ings	19,917	18,678			19,917	18,678
Trade liabilities	50	53			50	53
Land plot lease agreements	134	119	134	119
Other financial liabilities	1,256	676			1,256	676
Sum	21,356	19,527	134	119	21,222	19,407

In the case of a forced sale of the Gasfield building w ithin a short period of time, the board believe that the bank w ill not recover the total amount of the debt.

5. Finance income and costs

Finance income and costs:
			H2 2019 H2 2018 Full year 2019 Full year 2018
Currency
Currency Gain	164	-215	213	97
Currency Loss	-138	161	-170	-160
Net Currency Gain (Loss)	27	-54	43	-62
Finance Revenues
Interest Revenue	8	49	11	55
Fair Value Adjustment, Financial Investments	-	0	-	-
Fair Value Adjustment, Derivatives	-	-10	-	528
Dividend income, Financial Investments	-	-	-	-
Other Financial Revenues	-	3	0	21
Sum	8	42	11	605
Finance Costs
Interest Costs	-599	-816	-1,405	-1,761
Fair Value Adjustment, Derivatives	-	-	-	-
Fair Value Adjustment, Financial Investments	-	-	-	-
Other Finance expenses	-70	-41	-116	-41
Sum	-668	-857	-1,521	-1,802
Net Finance Gains (Losses)	-634	-868	-1,466	-1,259

6. Shareholder information

The 20 largest shareholders as at 31.12.2019

The list is as per the shareholders registered in VPS as 31.12.2019: The reduction in number of shares since last reporting is due to a reversed share split 10:1 in July 2019.

Shareholder	Type *	Country	Shares	%
ACONCAGUA MANAGEMENT LTD		Bermuda	2,388,040	27.03%
JPMorgan Chase Bank N.A. London	Nominee	United Kingdom	2,213,263	25.05%
SIX SIS AG	Nominee	Sw itzerland	855,496	9.68%
BANAN II AS		Norw ay	289,529	3.28%
PACTUM AS		Norw ay	279,150	3.16%
AUBERT VEKST AS		Norw ay	249,591	2.83%
ØSTLANDSKE PENSJONISTBOLIGER AS		Norw ay	154,569	1.75%
ØRN NORDEN AS		Norw ay	108,229	1.23%
HYGGEN		Norw ay	93,125	1.05%
SAMSØ AS		Norw ay	89,169	1.01%
MOTOR TRADE EIENDOM OG FINANS AS		Norw ay	86,682	0.98%
ALBION HOLDING AS		Norw ay	74,763	0.85%
Svenska Handelsbanken AB	Nominee	Luxembourg	72,235	0.82%
LANGBERG		Norw ay	70,000	0.79%
TDL AS		Norw ay	47,625	0.54%
FINANSFORBUNDET		Norw ay	41,665	0.47%
BLAKSTAD MASKIN AS		Norw ay	33,817	0.38%
LKG EIENDOM AS		Norw ay	30,392	0.34%
EILERTSEN		Norw ay	30,392	0.34%
BofA Securities Europe SA	Nominee	France	29,041	0.33%
SUM 20 LARGEST			7,236,773	81.91%
OTHER SHAREHOLDERS			1,597,790	18.09%
SUM			8,834,563	100.00%

* Nominee = Nominee Accounts; foreign institutions holding shares on behalf of clients.

Shares controlled by board members:		Shares	%
Morten E. Astrup	via Aconcagua Management Ltd and Ørn Norden AS	2,496,269	28.3 %
Kim Mikkelsen	via Strategic Investments A/S	2,212,762	25.0 %
Stein Aukner	via Banan II AS and Aukner Holding AS	304,593	3.4 %
Sum		5,013,624	56.75 %

7. Tax Expenses

Tax Expense for period				H2 2019 H2 2018 Full year 2019 Full year 2018
Current Tax	-40	0	-50	- 6
Deferred Tax	-219	-577	-285	-116
Total Tax Expense for Period	-259	-577	-335	-122

8. Transactions with Related Parties

				H2 2019 H2 2018 Full year 2019 Full year 2018
Storm Capital Management Ltd.	85	191	259	377
Storm Norge AS*	83	0	83	0
Surfside Holding AS**	18	0	36	0
Sum	185	191	379	377

*Storm Norge AS replaced Storm Capital Management Ltd as asset manager from 1 October 2019. As at 31 December 2019 Storm Norge AS w as w holly ow ned by Morten E. Astrup. **Surfside Holding AS is w holly ow ned by Morten E. Astrup. The company is providing

accounting services during the refinancing of the Group.

9. Other current liabillities

	31.12.2019	31.12.2018
Taxes and duties due	284	173
Advance rents paid by tenants	430	225
Other	417	132
Sum	1,131	529

10. Other Current Receivables

	31.12.2019	31.12.2018
Trade receivables	100	28
Inventory	2	3
Other Current receivables	510	113
Sum	612	144

Storm Real Estate ASA Haakon VIIs gate 5 0161 Oslo Norway

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Tel: +47 92 81 48 62

www.stormrealestate.no