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Baltic Horizon Fund Consolidated Unaudited Results for Q1 2021

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Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the three months of 2021.

Property management tender
In February 2021, the Fund started an international tender for property management and accounting services across the whole portfolio. The international competition was announced in accordance with the Fund’s operating policies which states that the property managers are selected every three years. The Fund has received offers from top international and local companies and intends to announce the winner(s) of the tender and future service provider(s) in May this year.

Europa SC reconstruction
At the beginning of 2021, the Fund has announced intentions to invest approx. EUR 5 million in the reconstruction of Europa SC during 2021 with the aim of creating a food court and upgrading interior design. The shopping centre will remain open throughout the whole reconstruction period.

Postimaja and CC Plaza complex expansion
In Q1 2021, the Fund announced intentions to invest up to EUR 20 million in the Postimaja and CC Plaza complex expansion during 2021-2024 with the aim of building new retail and office premises in the joined buildings.

S&P affirms credit rating
On 12 April 2021, S&P Global Ratings affirmed Baltic Horizon Fund “MM3” mid-market rating despite the pandemic. The indicative corresponding rating for “MM3” on the global rating scale is “BB+/ BB”. The full report of the S&P Global Ratings analysis can be found on the S&P Global Ratings website.

Impact of COVID-19 pandemic
At the beginning of 2020, a new coronavirus (COVID-19) started spreading all over the world, which has had a strong impact on businesses and economies, including in the Baltics. The virus outbreak has caused significant shifts in the Fund’s operating environment, which has had a negative overall impact on the Fund’s performance in 2020 and 2021.

At the end of 2020, the Baltic countries entered the second round of lockdowns and heavy government restrictions for residents and businesses to fight the spread of the COVID-19 virus. Shopping centres were forced to close for a limited period except for essential retail shops (groceries, pharmacies). At the date of release of this report, the situation is slowly stabilizing in all three countries. As of 19 April 2021, Lithuania has lifted restrictions for shopping centres, while Latvia and Estonia are expected to follow during the first half of Q2 2021.

The operating results of Q1 2021 were affected by the COVID-19 lockdown effects on the tenants’ financial performance and the relief measures taken to deal with the pandemic. However, broad diversification of the portfolio should allow the Fund to limit the COVID-19 impacts and maintain healthy consolidated operational performance throughout the year. The Fund’s operational performance is expected to recover once heavy restrictions are lifted in all Baltic countries.

The Fund has opted to retain approx. EUR 5.1 million of distributable cash flow from the results to strengthen the its financial position. The Management Company believes that it is in the best interest of the investors and the Fund to reduce its quarterly cash distributions during the outbreak of COVID-19 in order to protect and strengthen the Fund’s financial position. The management team will continue to actively monitor the economic impact of the pandemic and reassess future distribution levels depending on the upcoming operating results.

In summary, the COVID virus induced lockdown in the Baltics has impacted mainly Baltic Horizon’s centrally located retail and entertainment centres. Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 19.1% of total portfolio NOI in Q1 2021.

Distributions to unitholders for Q4 2020 and Q1 2021 Fund results
On 4 February 2021, due to introduced restrictions and increased market uncertainty the Fund applied a more conservative approach and declared a cash distribution of EUR 1,316 thousand (EUR 0.011 per unit) to the Fund unitholders for Q4 2020 results. This represents a 0.93% return on the weighted average Q4 2020 net asset value to its unitholders.

On 29 April 2021, due to introduced restrictions and increased market uncertainty the Fund applied a more conservative approach and declared a cash distribution of EUR 1,316 thousand (EUR 0.011 per unit) to the Fund unitholders for Q1 2021 results. This represents a 0.96% return on the weighted average Q1 2021 net asset value to its unitholders.

With reduced payouts over 2020 and 2021 in the light of prevailing market uncertainty, the Fund has opted to retain EUR 5.1 million of distributable cash flow. The Management Company of the Fund will continue to actively monitor the economic impact of the pandemic and reassess future distribution levels depending on the upcoming operating results.

Dividend capacity calculation

EUR ’000

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

(+) Net rental income

5,772

4,618

4,799

4,745

4,173

(-) Fund administrative expenses

(889)

(634)

(682)

(713)

(745)

(-) External interest expenses

(1,331)

(1,327)

(1,327)

(1,362)

(1,346)

(-) CAPEX expenditure1

(95)

(97)

(230)

(131)

(79)

(+) Added back listing related expenses

39

29

114

85

-

(+) Added back acquisition related expenses

-

-

-

26

31

Generated net cash flow (GNCF)

3,496

2,589

2,674

2,650

2,034

GNCF per weighted unit (EUR)

0.031

0.023

0.024

0.022

0.017

12-months rolling GNCF yield2 (%)

11.5%

9.6%

9.4%

8.6%

7.4%

Dividends declared for the period

1,701

1,701

3,111

1,316

1,316

Dividends declared per unit3 (EUR)

0.015

0.015

0.026

0.011

0.011

12-months rolling dividend yield2 (%)

9.6%

7.2%

7.5%

5.8%

5.4%

  1. The table provides actual capital expenditures for the quarter. Future dividend distributions to unitholders are aimed to be based on the annual budgeted capital expenditure plans equalised for each quarter. This will reduce the quarterly volatility of cash distributions to unitholders.

  2. 12-month rolling GNCF and dividend yields are based on the closing market price of the unit as at the end of the quarter (Q1 2021: closing market price of the unit as of 31 March 2021).

  3. Based on the number of units entitled to dividends.

Net profit and net rental income
Portfolio properties in the office segment contributed 65.3% (Q1 2020: 49.2%) of net rental income in Q1 2021 followed by the retail segment with 31.0% (Q1 2020: 46.2%) and the leisure segment with 3.7% (Q1 2020: 4.6%). Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 19.1% of total portfolio net rental income in Q1 2021. Total net rental income attributable to neighbourhood shopping centres was 11.9% in Q1 2021.

In Q1 2021, the Group earned net rental income of EUR 4.2 million, a decrease of 27.7% compared to the net rental income of EUR 5.8 million for Q1 2020. Net rental income decreased due to the relief measures granted to tenants during the pandemic.

The Group recorded a net profit of EUR 1.9 million for Q1 2021 against a net profit of EUR 3.4 million for Q1 2020. The net result was significantly impacted by the weaker operational performance of investment properties in Q1 2021. The negative impact of the decrease in net rental income was partially offset by a decrease in administrative expenses. Earnings per unit for Q1 2021 were EUR 0.02 (Q1 2020: EUR 0.03).

On an EPRA like-for-like basis, portfolio net rental income decreased by 27.7% year on year mainly due to weaker performance in the retail and leisure segments. The decrease was partially offset by the relatively stable performance of the office segment which remained largely unaffected by the lockdown in the Baltic states.

During Q1 2021, investment properties in Latvia and Lithuania contributed 34.8% (Q1 2020: 39.9%) and 37.9% (Q1 2020: 34.6%) of net rental income respectively, while investment properties in Estonia contributed 27.3% (Q1 2020: 25.5%).

Gross Asset Value (GAV)
At the end of Q1 2021, the Fund’s GAV was EUR 356.0 million (31 December 2020: EUR 355.6 million), 0.1% higher than at the end of Q4 2020. The increase is mainly related to the capital investments made in the Meraki office building development project. The Fund aims to carry on with the construction of the Meraki office building throughout 2021. The Management Company will continue to actively monitor the economic impact of the pandemic and ensure sufficient liquidity levels during the construction period.

Net Asset Value (NAV)
By the end of Q1 2021, the Fund’s NAV increased to EUR 137.1 million (31 December 2020: EUR 136.3 million). The increase in operational performance and positive cash flow hedge reserve movement of EUR 0.2 million over the quarter was offset by a EUR 1.3 million dividend distribution to the unitholders. At 31 March 2021, IFRS NAV per unit stood at EUR 1.1460 (31 December 2020: EUR 1.1395), while EPRA net tangible assets and EPRA net reinstatement value were EUR 1.2284 per unit (31 December 2020: EUR 1.2219). EPRA net disposal value was EUR 1.1492 per unit (31 December 2020: EUR 1.1435).

Investment properties
The Baltic Horizon Fund portfolio consists of 15 cash flow investment properties in the Baltic capitals and an investment property under construction on the Meraki land plot. At the end of Q1 2021, the fair value of the Fund’s portfolio was EUR 341.2 million (31 December 2020: EUR 340.0 million) and incorporated a total net leasable area of 153,351 sq. m. During the quarter, the Group invested EUR 0.2 million in the existing property portfolio and an additional EUR 1.1 million in the Meraki development project.

Interest bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 205.6 million, remaining at a level similar to year-end 2020 (31 December 2020: EUR 205.6 million). Outstanding bank loans decreased slightly due to regular bank loan amortisation. Annual loan amortisation accounts for 0.2% of total debt outstanding.

Financial covenants for bonds

Covenant

Requirement

Ratio
31.03.2020

Ratio
30.06.2020

Ratio
30.09.2020

Ratio
31.12.2020

Ratio
31.03.2021

Equity Ratio



>25%1/35.0%

42.4%

40.0%

40.2%

40.3%

40.3%

Debt Service Coverage Ratio



> 1.20

3.35

3.30

3.16

3.05

2.71

  1. On 28 July, the bondholders adopted the decision by the way of written procedure to temporarily reduce the equity ratio bond covenant to 25% or greater, until 31 July 2021

Cash flow
Cash inflow from core operating activities for Q1 2021 amounted to EUR 2.8 million (Q1 2020: cash inflow of EUR 4.3 million). Cash outflow from investing activities was EUR 1.6 million (Q1 2020: cash outflow of EUR 0.1 million) due to subsequent capital expenditure on existing portfolio properties and investments in the Meraki development project. Cash outflow from financing activities was EUR 2.8 million (Q1 2020: cash inflow of EUR 4.6 million). During the quarter, the Fund made a cash distribution of EUR 1.3 million and paid regular interest on bank loans and bonds. At the end of Q1 2021, the Fund’s consolidated cash and cash equivalents amounted to EUR 11.8 million (31 December 2020: EUR 13.3 million) which demonstrates sufficient liquidity and financial flexibility.

Key earnings figures

EUR ‘000

Q1 2021

Q1 2020

Change (%)

Net rental income

4,173

5,772

(27.7%)

Administrative expenses

(745)

(889)

(16.2%)

Other operating income

-

8

(100.0%)

Valuation (losses) on investment properties

(4)

(4)

-

Operating profit

3,424

4,887

(29.9%)

Net financing costs

(1,390)

(1,376)

1.0%

Profit before tax

2,034

3,511

(42.1%)

Income tax

(129)

(157)

(17.8%)

Net profit for the period

1,905

3,354

(43.2%)

Weighted average number of units outstanding (units)

119,635,429

113,387,525

5.5%

Earnings per unit (EUR)

0.02

0.03

(33.3%)

Key financial position figures

EUR ‘000

31.03.2021

31.12.2020

Change (%)

Investment properties in use

334,699

334,518

0.1%

Investment property under construction

6,537

5,474

19.4%

Gross asset value (GAV)

355,985

355,602

0.1%

Interest-bearing loans and bonds

205,551

205,604

0.0%

Total liabilities

218,880

219,281

(0.2%)

IFRS Net asset value (IFRS NAV)

137,105

136,321

0.6%

EPRA Net Reinstatement Value (EPRA NRV)

146,961

146,180

0.5%

Number of units outstanding (units)

119,635,429

119,635,429

-

IFRS Net asset value (IFRS NAV) per unit (EUR)

1.1460

1.1395

0.6%

EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR)

1.2284

1.2219

0.5%

Loan-to-Value ratio (%)

60.2%

60.5%

-

Average effective interest rate (%)

2.6%

2.6%

-


Property performance

During Q1 2021, the average actual occupancy of the portfolio was 94.1% (Q4 2020: 94.5%). The occupancy rate as of 31 March 2021 was 94.1% (31 December 2020: 94.3%). Occupancy rates in the retail segment dipped due to some small new vacancies in Europa SC, SKY SC and Galerija Centrs. The change in occupancy rates was partially offset by take-up of approx. 4% of the total NLA in Pirita SC. Occupancy rates in the office segment remained strong and unchanged during Q1 2021. The average direct property yield during Q1 2021 was 4.8% (Q4 2020: 5.5%). The net initial yield for the whole portfolio for Q1 2021 was 5.0% (Q4 2020: 5.6%). The decrease is mainly attributable to the COVID-19 related restrictions imposed on the retail sector by governments and rent concessions granted by the Fund to tenants whose operations were affected by the restrictions. The average rental rate for the whole portfolio for Q1 2021 was EUR 10.6 per sq. m.

Overview of the Fund’s investment properties as of 31 March 2021

Property name

Sector

Fair value1
(EUR ‘000)

NLA
(sq. m.)

Direct property yield
Q1 20212

Net initial yield
Q1 20213

Occupancy rate for

Vilnius, Lithuania

Duetto I

Office

16,419

8,587

8.0%

7.3%

100.0%

Duetto II

Office

18,765

8,674

7.4%

7.3%

100.0%

Europa SC

Retail

38,852

16,856

3.0%

2.9%

88.8%

Domus Pro Retail Park

Retail

16,142

11,247

6.1%

5.9%

99.8%

Domus Pro Office

Office

7,590

4,831

7.6%

6.5%

100.0%

North Star

Office

19,135

10,550

5.7%

6.2%

86.3%

Meraki Development

6,537

-

-

-

Total Vilnius

123,440

60,745

5.6%

5.4%

94.5%

Riga, Latvia

Upmalas Biroji BC

Office

23,478

10,459

7.3%

7.4%

100.0%

Vainodes I

Office

19,970

8,052

6.7%

7.2%

100.0%

LNK Centre

Office

16,063

7,453

6.3%

6.7%

100.0%

Sky SC

Retail

4,970

3,254

8.5%

8.6%

96.7%

Galerija Centrs

Retail

67,447

20,022

1.5%

1.7%

83.2%

Total Riga

131,928

49,240

4.1%

4.4%

92.9%

Tallinn, Estonia

Postimaja & CC Plaza complex

Retail

29,836

9,145

2.6%

3.1%

95.6%

Postimaja & CC Plaza complex

Leisure

14,170

8,664

5.2%

4.3%

100.0%

G4S Headquarters

Office

16,161

9,179

8.0%

7.7%

100.0%

Lincona

Office

16,121

10,870

7.3%

7.1%

90.3%

Pirita SC

Retail

9,580

5,508

4.9%

6.4%

85.8%

Total Tallinn

85,868

43,366

5.0%

5.3%

94.8%

Total portfolio

341,236

153,351

4.8%

5.0%

94.1%

  1. Based on the latest valuation as at 31 December 2020, subsequent capital expenditure and recognised right-of-use assets.

  2. Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.

  3. The net initial yield (NIY) is calculated by dividing annualized NOI by the market value of the property.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

EUR ‘000

01.01.2021-
03.31.2021

01.01.2020-
03.31.2020

Rental income

4,677

6,209

Service charge income

1,217

1,356

Cost of rental activities

(1,721)

(1,793)

Net rental income

4,173

5,772

Administrative expenses

(745)

(889)

Other operating income

-

8

Valuation (losses) gains on investment properties

(4)

(4)

Operating profit

3,424

4,887

Financial income

-

1

Financial expenses

(1,390)

(1,377)

Net financing costs

(1,390)

(1,376)

Profit before tax

2,034

3,511

Income tax charge

(129)

(157)

Profit for the period

1,905

3,354

Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods

Net gains (losses) on cash flow hedges

210

(178)

Income tax relating to net (losses) gains on cash flow hedges

(15)

13

Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods

195

(165)

Total comprehensive income for the period, net of tax

2,100

3,189

Basic and diluted earnings per unit (EUR)

0.02

0.03

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000

31.03.2021

31.12.2020

Non-current assets

Investment properties

334,699

334,518

Investment property under construction

6,537

5,474

Property, plant and equipment

3

2

Other non-current assets

23

22

Total non-current assets

341,262

340,016

Current assets

Trade and other receivables

2,525

1,901

Prepayments

408

352

Cash and cash equivalents

11,790

13,333

Total current assets

14,723

15,586

Total assets

355,985

355,602

Equity

Paid in capital

145,200

145,200

Cash flow hedge reserve

(1,466)

(1,661)

Retained earnings

(6,629)

(7,218)

Total equity

137,105

136,321

Non-current liabilities

Interest bearing loans and borrowings

169,816

195,670

Deferred tax liabilities

6,152

6,009

Derivative financial instruments

1,493

1,736

Other non-current liabilities

1,040

1,026

Total non-current liabilities

178,501

204,441

Current liabilities

Interest bearing loans and borrowings

36,019

10,222

Trade and other payables

3,335

3,640

Income tax payable

-

1

Derivative financial instruments

60

27

Other current liabilities

965

950

Total current liabilities

40,379

14,840

Total liabilities

218,880

219,281

Total equity and liabilities

355,985

355,602


For more information, please contact:

Tarmo Karotam
Baltic Horizon Fund manager
E-Mail: tarmo.karotam@nh-cap.com
www.baltichorizon.com

The Fund is a registered contractual public closed-end real estate fund that is managed by Alternative Investment Fund Manager license holder Northern Horizon Capital AS. Both the Fund and the Management Company are supervised by the Estonian Financial Supervision Authority.
This announcement contains information that the Management Company is obliged to disclose pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the above distributors, at 19:35 EET on 6 May 2021.

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