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BALTIC HORIZON FUND CONSOLIDATED UNAUDITED INTERIM RESULTS FOR Q3 2021

·17-min read

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

Baltic Horizon wins EPRA Gold award
Baltic Horizon Fund received a prestigious award at the European Public Real Estate Association (EPRA) virtual annual conference 2021 for the second year in a row. The Fund scored a “Gold Award” for the adoption of EPRA Best Practices Recommendations (BPR) – widely accepted industry standards for the highest level of transparency, comparability and compliance in financial reporting. EPRA assessed the financial statements of 181 European listed real estate entities as part of its annual award process.

Extension of bank loans
On 14 July 2021, the Fund extended a EUR 7.8 million bank loan to finance G4S Headquarters. According to the agreement, the maturity date of the loan is 31 October 2022.

On 19 July 2021, the Fund extended a EUR 2.1 million bank loan to finance Sky SC. According to the agreement, the maturity date of the loan is 31 January 2022.

Property management
As of 1st September 2021, CBRE Baltics and Censeo became the partners of Baltic Horizon Fund and will be providing property management, leasing and accounting services for the entire portfolio of the Fund. Censeo will provide services to the Lithuanian business centres Duetto and North Star, as well as to the Domus Pro shopping centre and office complex. CBRE Baltics will provide services to the remaining portfolio.

Two buildings receive BREEAM certification
Baltic Horizon is aiming to certify all currently operational office assets by the end of 2021 using BREEAM In-Use environmental assessment method. During Q3 2021, the Fund’s North Star and G4S Headquarters properties were awarded the BREEAM In-Use “Very Good” environmental certification.

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). In summer 2021, all three Baltics countries eased COVID-19 restrictions as new virus cases dropped and the situation stabilised. However, COVID-19 cases in all three countries started to substantially increase at the end of Q3 2021. As a result of spiking cases, Latvian government decided to reimpose the lockdown for a period between 21 October to 15 November. At the date of this report, Galerija Centrs is operating with heavy restrictions.

BHF’s operating results of Q3 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 has largely recovered once heavy restrictions were lifted in all Baltic countries.

Distributions to unitholders for Q2 2021 and Q3 2021 Fund results
On 28 July 2021, the Fund declared a cash distribution of EUR 1,316 thousand (EUR 0.011 per unit) to the Fund unitholders for Q2 2021 results. This represents a 0.98% return on the weighted average Q2 2021 net asset value to its unitholders.

On 28 October 2021, the Fund declared a cash distribution of EUR 2,034 thousand (EUR 0.017 per unit) to the Fund unitholders for Q3 2021 results. This represents a 1.63% return on the weighted average Q3 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 6.4 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

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

(+) Net rental income

4,799

4,745

4,173

4,357

4,676

(-) Fund administrative expenses

(682)

(713)

(745)

(756)

(735)

(-) External interest expenses

(1,327)

(1,362)

(1,346)

(1,311)

(1,407)

(-) CAPEX expenditure1

(230)

(131)

(79)

(92)

(38)

(+) Added back listing related expenses

114

85

-

-

-

(+) Added back acquisition related expenses

-

26

31

5

9

Generated net cash flow (GNCF)

2,674

2,650

2,034

2,203

2,505

GNCF per weighted unit (EUR)

0.024

0.022

0.017

0.018

0.021

12-months rolling GNCF yield2 (%)

9.4%

8.6%

7.4%

7.0%

7.0%

Dividends declared for the period

3,111

1,316

1,316

1,316

2,034

Dividends declared per unit3 (EUR)

0.026

0.011

0.011

0.011

0.017

12-months rolling dividend yield2 (%)

7.5%

5.8%

5.4%

5.0%

4.5%

  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 (Q3 2021: closing market price of the unit as of 30 September 2021).

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

Net profit and net rental income
In Q1-Q3 2021, the Group earned net rental income of EUR 13.2 million, a decrease of 13.1% compared to the net rental income of EUR 15.2 million for Q1-Q3 2020. Net rental income decreased due to the relief measures granted to tenants during the pandemic and a one-off rental guarantee write-off at Pirita Shopping Centre in the amount of EUR 0.2 million.

Portfolio properties in the office segment contributed 62.4% (Q1-Q3 2020: 55.1%) of net rental income in Q1-Q3 2021 followed by the retail segment with 33.0% (Q1-Q3 2020: 40.6%) and the leisure segment with 4.6% (Q1-Q3 2020: 4.3%). Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 21.8% of total portfolio net rental income in Q1-Q3 2021. Total net rental income attributable to neighbourhood shopping centres was 11.2% in Q1-Q3 2021.

During Q1-Q3 2021, investment properties in Latvia and Lithuania contributed 36.6% (Q1-Q3 2020: 39.4%) and 37.1% (Q1-Q3 2020: 35.3%) of net rental income, respectively, while investment properties in Estonia contributed 26.3% (Q1-Q3 2020: 25.3%).

During Q1-Q3 2021, the Group recorded a net loss of EUR 6.9 million (Q1-Q3 2020: a net loss of EUR 6.9 million). The net result was significantly impacted by the one-off negative valuation result of EUR 14.3 million recognised in June 2021 (a valuation loss of EUR 15.8 million recognised in June 2020). Compared to Q1-Q3 2020, the Fund recognised smaller valuation losses on investment properties but a decrease in net rental income throughout Q1-Q3 2021 led to similar net results in Q1-Q3 2021 and 2020. Even with COVID-19 restrictions, the Fund managed to maintain positive operational performance of investment properties. Excluding the valuation impact on the net result, net profit for Q1-Q3 2021 would have amounted to EUR 7.4 million (Q1-Q3 2020: EUR 8.9 million). Earnings per unit for Q1-Q3 2021 were negative at EUR 0.06 (Q1-Q3 2020: negative at EUR 0.06). Earnings per unit excluding valuation losses on investment properties amounted to EUR 0.06 (Q1-Q3 2020: EUR 0.08).

Gross Asset Value (GAV)
At the end of September 2021, the Fund’s GAV was EUR 349.6 million (31 December 2020: EUR 355.6 million), which was a drop of 1.7% over the period. The decrease is mainly related to the negative property revaluation of EUR 14.3 million which was slightly offset by capital investments in assets and an increase in the cash balance. The Group made capital investments (EUR 4.0 million) in the Meraki office building development project during Q1-Q3 2021. The Fund aims to carry on with the construction of the Meraki office building throughout 2021. An additional EUR 0.7 million was invested in other (re)development projects. 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)
At the end of September 2021, the Fund’s NAV decreased to EUR 126.1 million (31 December 2020: EUR 136.3 million) as a result of a negative portfolio revaluation. Compared to the year-end 2020 NAV, the Fund’s NAV decreased by 7.5%. The increase in operational performance and positive cash flow hedge reserve movement of EUR 0.6 million over the period was offset by a EUR 3.9 million dividend distribution to the unitholders. As at 30 September 2021, IFRS NAV per unit stood at EUR 1.0539 (31 December 2020: EUR 1.1395), while EPRA net tangible assets and EPRA net reinstatement value were EUR 1.1273 per unit (31 December 2020: EUR 1.2219). EPRA net disposal value was EUR 1.0552 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 Q3 2021, the fair value of the Fund’s portfolio was EUR 330.9 million (31 December 2020: EUR 340.0 million) and incorporated a total net leasable area of 153,351 sq. m. During Q3 2021, the Group invested EUR 0.1 million in the existing property portfolio, EUR 0.2 million in the reconstruction projects and an additional EUR 2.1 million in the Meraki development project.

Interest bearing loans and bonds
During Q1-Q3 2021, the Fund completed a private placement of 18 months secured bonds of EUR 4.0 million. The bonds bear a fixed-rate coupon of 5.0% payable semi-annually. The net proceeds from the issuance of the bonds will be used for financing the construction of the Meraki office building. The bonds are issued in tranches to match the financing and investment cash flows for the project. After the bond subscription interest-bearing loans and bonds (excluding lease liabilities) increased to EUR 209.3 million (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.

Cash flow
Cash inflow from core operating activities for Q1-Q3 2021 amounted to EUR 9.7 million (Q1-Q3 2020: cash inflow of EUR 11.9 million). Cash outflow from investing activities was EUR 4.0 million (Q1-Q3 2020: cash outflow of EUR 2.5 million) due to subsequent capital expenditure on existing portfolio properties and investments in the Meraki, Postimaja and CC Plaza complex and Europa development projects. Cash outflow from financing activities was EUR 4.4 million (Q1-Q3 2020: cash outflow of EUR 10.9 million). During Q1-Q3 2021, the Fund made a cash distribution of EUR 3.9 million and paid regular interest on bank loans and bonds. At the end of Q3 2021, the Fund’s consolidated cash and cash equivalents amounted to EUR 14.6 million (31 December 2020: EUR 13.3 million) which demonstrates sufficient liquidity and financial flexibility.

Key earnings figures

EUR ‘000

Q3 2021

Q3 2020

Change (%)

Net rental income

4,676

4,799

(2.6%)

Administrative expenses

(735)

(682)

7.8%

Other operating income

4

-

-

Valuation losses on investment properties

(5)

(4)

25.0%

Operating profit

3,940

4,113

(4.2%)

Net financing costs

(1,470)

(1,367)

7.5%

Profit before tax

2,470

2,746

(10.1%)

Income tax

(127)

(153)

(17.0%)

Net profit for the period

2,343

2,593

(9.6%)

Weighted average number of units outstanding (units)

119,635,429

113,387,525

5.5%

Earnings per unit (EUR)

0.02

0.02

-

Key financial position figures

EUR ‘000

30.09.2021

31.12.2020

Change (%)

Investment properties in use

324,788

334,518

(2.9%)

Investment property under construction

6,072

5,474

(10.9%)

Gross asset value (GAV)

349,555

355,602

(1.7%)

Interest-bearing loans and bonds

209,346

205,604

1.8%

Total liabilities

223,476

219,281

1.9%

IFRS Net asset value (IFRS NAV)

126,079

136,321

(7.5%)

EPRA Net Reinstatement Value (EPRA NRV)

134,864

146,180

(7.7%)

Number of units outstanding (units)

119,635,429

119,635,429

-

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

1.0539

1.1395

(7.5%)

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

1.1273

1.2219

(7.7%)

Loan-to-Value ratio (%)

63.3%

60.5%

-

Average effective interest rate (%)

2.7%

2.6%

-


Property performance
During Q3 2021, the average actual occupancy of the portfolio was 93.1% (Q2 2021: 93.9%). The occupancy rate as of 30 September 2021 was 92.9% (30 June 2021: 93.7%). Occupancy rates in the retail segment dipped, mostly due to the Europa SC reconstruction as part of the premises were temporarily vacated to be reconstructed in upcoming months. Occupancy rates in the office segment remained strong, but slightly decreased resulting from a temporary vacancy in Domus PRO Office at the end of Q3 2021. This building was once again fully occupied at the beginning of November as a new tenant moved to the vacant premises. The average direct property yield during Q3 2021 was 5.4% (Q2 2021: 5.2%). The net initial yield for the whole portfolio for Q3 2021 was 5.8% (Q2 2021: 5.5%). Property yields increased compared to Q2 2021 albeit rent vacancies and relief measures are still affecting the Fund’s performance. The average rental rate for the whole portfolio for Q3 2021 was EUR 12.2 per sq. m (Q2 2021: EUR 11.3 per sq. m).

Overview of the Fund’s investment properties as of 30 September 2021

Property name

Sector

Fair value1
(EUR ‘000)

NLA
(sq. m.)

Direct property yield
Q3 20212

Net initial yield
Q3 20213

Occupancy rate for

Vilnius, Lithuania

Duetto I

Office

16,569

8,587

8.0%

7.2%

100.0%

Duetto II

Office

19,455

8,674

7.4%

7.1%

100.0%

Europa SC

Retail

35,284

16,856

2.7%

2.9%

82.0%

Domus Pro Retail Park

Retail

16,241

11,247

8.3%

8.0%

99.5%

Domus Pro Office

Office

7,620

4,831

8.9%

7.6%

91.6%

North Star

Office

18,999

10,550

6.0%

6.6%

89.7%

Meraki Land

6,072

-

-

-

-

Total Vilnius

120,240

60,745

5.9%

5.9%

92.5%

Riga, Latvia

Upmalas Biroji BC

Office

21,244

10,459

7.4%

8.3%

100.0%

Vainodes I

Office

18,141

8,052

6.7%

8.0%

100.0%

LNK Centre

Office

16,124

7,453

6.4%

6.8%

100.0%

Sky SC

Retail

4,916

3,254

7.3%

7.5%

96.9%

Galerija Centrs

Retail

65,181

20,022

2.6%

3.0%

80.6%

Total Riga

125,606

49,240

4.6%

5.3%

91.9%

Tallinn, Estonia

Postimaja & CC Plaza complex

Retail

29,852

9,145

3.4%

4.1%

92.9%

Postimaja & CC Plaza complex

Leisure

14,260

8,664

9.1%

7.6%

100.0%

G4S Headquarters

Office

15,401

9,179

7.7%

7.8%

100.0%

Lincona

Office

15,911

10,870

7.2%

7.1%

90.3%

Pirita SC

Retail

9,590

5,508

5.9%

7.7%

88.5%

Total Tallinn

85,014

43,366

5.9%

6.3%

94.6%

Total portfolio

330,860

153,351

5.4%

5.8%

92.9%

  1. Based on the latest valuation as at 30 June 2021, 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

01.07.2021- 30.09.2021

01.07.2020- 30.09.2020

01.01.2021-
30.09.2021

01.01.2020-
30.09.2020

Rental income

5,332

5,267

14,844

16,549

Service charge income

1,271

1,245

3,697

3,749

Cost of rental activities

(1,927)

(1,713)

(5,335)

(5,109)

Net rental income

4,676

4,799

13,206

15,189

Administrative expenses

(735)

(682)

(2,236)

(2,205)

Other operating income

4

-

4

186

Valuation losses on investment properties

(5)

(4)

(14,264)

(15,757)

Operating profit (loss)

3,940

4,113

(3,290)

(2,587)

Financial income

-

1

1

3

Financial expenses

(1,470)

(1,368)

(4,222)

(4,118)

Net financing costs

(1,470)

(1,367)

(4,221)

(4,115)

Profit (loss) before tax

2,470

2,746

(7,511)

(6,702)

Income tax charge

(127)

(153)

632

(161)

Profit (loss) for the period

2,343

2,593

(6,879)

(6,863)

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

Net gain (loss) on cash flow hedges

168

(3)

619

(227)

Income tax relating to net gain (loss) on cash flow hedges

(3)

(2)

(34)

13

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

165

(5)

585

(214)

Total comprehensive income (expense) for the period, net of tax

2,508

2,588

(6,294)

(7,077)

Basic and diluted earnings per unit (EUR)

0.02

0.02

(0.06)

(0.06)


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000

30.09.2021

31.12.2020

Non-current assets

Investment properties

324,788

334,518

Investment property under construction

6,072

5,474

Property, plant and equipment

3

2

Other non-current assets

22

22

Total non-current assets

330,885

340,016

Current assets

Trade and other receivables

3,523

1,901

Prepayments

549

352

Cash and cash equivalents

14,598

13,333

Total current assets

18,670

15,586

Total assets

349,555

355,602

Equity

Paid in capital

145,200

145,200

Cash flow hedge reserve

(1,076)

(1,661)

Retained earnings

(18,045)

(7,218)

Total equity

126,079

136,321

Non-current liabilities

Interest-bearing loans and borrowings

140,611

195,670

Deferred tax liabilities

5,407

6,009

Derivative financial instruments

1,060

1,736

Other non-current liabilities

1,136

1,026

Total non-current liabilities

148,214

204,441

Current liabilities

Interest-bearing loans and borrowings

69,220

10,222

Trade and other payables

4,719

3,640

Income tax payable

4

1

Derivative financial instruments

84

27

Other current liabilities

1,235

950

Total current liabilities

75,262

14,840

Total liabilities

223,476

219,281

Total equity and liabilities

349,555

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 20:10 EET on 4 November 2021.

Attachment


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