Baltic Horizon Fund consolidated unaudited results for Q1-Q3 2022

Baltic Horizon Fund / Northern Horizon Capital

Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the first nine months of 2022.

Net result and net rental income
The Group recorded a net profit of EUR 6.1 million for Q1–Q3 2022 against a net loss of EUR 6.9 million for Q1-Q3 2021. The net result was mainly driven by strong recovery of the Galerija Centrs operating performance as fewer COVID-19 rent reliefs have been granted to tenants in 2022 and increased rent indexation.  The net result for Q1-Q3 2021 was significantly impacted by the one-off negative valuation result of EUR 14.3 million. Meanwhile in Q1-Q3 2022, the valuation resulted in a net fair value gain of EUR 0.2 million (+0.1% of portfolio value). The positive impact of the increase in net rental income was also supplemented by a decrease in administrative expenses and a grant of EUR 0.3 million received from the Latvian government. Earnings per unit for Q1-Q3 2022 were EUR 0.05 (Q1-Q3 2021: EUR -0.06).

The Group earned net rental income of EUR 13.0 million in Q1-Q3 2022 compared to 13.2 million in Q1-Q3 2021. The results for Q1-Q3 2021 still included EUR 0.9 million of net rental income from G4S Headquarters, which was sold in Q4 2021 and did not contribute to Q1-Q3 2022 results. Rent indexations and the recovery of income improved the net rental income of the same portfolio mix (like-for-like portfolio). On an EPRA like-for-like basis, portfolio net rental income increased by 5.9% year on year, mainly due to higher performance in the retail segment, especially in Galerija Centrs.

Retail assets still have not fully recovered from decreased occupancy levels caused by the COVID-19 pandemic. Assuming the recovery of Fund’s central retail assets to pre-COVID levels and successful leasing progress on the first tower of Meraki, the portfolio yield could reach 6.5%-7.0%.

Distributions to unitholders for Q1 2022, Q2 2022 and Q3 2022 Fund results
On 28 April 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q1 2022 results. This represents a 1.17% return on the weighted average Q1 2022 net asset value to its unitholders.

On 28 July 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q2 2022 results. This represents a 1.17% return on the weighted average Q2 2022 net asset value to its unitholders.

Cash distributions for Q3 2022 and Q4 2022 results will be announced together at the beginning of 2023.

EUR ’000	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022
(+) Net rental income	4,676	3,798	4,193	4,482	4,298
(-) Fund administrative expenses	(735)	(633)	(659)	(726)	(752)
(-) External interest expenses	(1,407)	(1,408)	(1,372)	(1,403)	(1,441)
(-) CAPEX expenditure1	(38)	(222)	(266)	(369)	(247)
(+) Extraordinary income related to investment properties2	-	440	-	261	-
(+) Added back listing related expenses	-	-	-	-	-
(+) Added back acquisition related expenses	9	32	1	5	-
Generated net cash flow (GNCF)	2,505	2,007	1,897	2,250	1,858
GNCF per weighted unit (EUR)	0.021	0.017	0.016	0.019	0.016
12-months rolling GNCF yield3 (%)	7.0%	6.8%	7.6%	8.0%	9.4%
Dividends declared for the period	2,034	2,273	1,555	1,555	-
Dividends declared per unit4 (EUR)	0.017	0.019	0.013	0.013	-
12-months rolling dividend yield3 (%)	4.5%	5.4%	6.3%	6.9%	-

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 2022: closing market price of the unit as of 30 September 2022).

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

Completion of Europa SC reconstruction
The Europa SC refurbishment project was fully completed in Q3 2022. Reconstruction works started in September 2021 with the aim to finish reconstruction in two stages. The first stage was completed with the opening of the fully leased out food hall Dialogai (900 sq. m) on 24 January 2022. The interior of the ground floor passage, the lounge zones, an amphitheatre, the bakery zone and new escalators from the ground to the 3rd floor were completed in Q1 and Q2 2022, while the shop fronts, the elevator change and final fit-out works on the 2nd and 3rd floors were completed in Q3 2022.  Reopening of the Europa SC took place on 8 September 2022.

Completion of the first Meraki office building
The Fund completed the first stage in the construction of the modern office building Meraki in September 2022 adjacent to the Fund’s Domus Pro complex. The first stage included the construction of the first Meraki office tower and the underground parking house for the entire asset. The first tower was already commissioned for rental activities in Q3 2022. In total, 8,133 sq. m of net leasable area can be offered to tenants in the first tower. The Funds aims to receive the BREEAM “Excellent” certification for the completed building.

GRESB benchmarking
In Q3 2022, Baltic Horizon received the GRESB 4 star rating for the first time, exceeding its initial goal of 3 stars. In addition, for the first time Baltic Horizon received an A-rating in the 2022 GRESB Public Disclosure Report. The GRESB Real Estate Assessment is an investor-driven global ESG benchmark and reporting framework for listed property companies, private property funds, developers and investors that invest directly in real estate. The achievement of GRESB ratings confirms the Fund’s continuous efforts in the ESG field.

Gross Asset Value (GAV)
At the end of Q3 2022, the Fund’s GAV was EUR 349.2 million (31 December 2021: EUR 346.3 million), 0.8% higher than at the end of the previous period. The increase is mainly related to a positive property revaluation of EUR 0.2 million and capital investments (EUR 5.7 million) in the Meraki office building development project during Q1-Q3 2022. An additional EUR 4.5 million was invested in other (re)development projects.

Net Asset Value (NAV)
At the end of Q3 2022, the Fund’s NAV slightly increased to EUR 135.7 million (31 December 2021: EUR 132.6 million). Compared to the year-end 2021 NAV, the Fund’s NAV increased by 2.4%. The increase in operational performance, portfolio valuations and positive cash flow hedge reserve movement of EUR 2.4 million over the period was partially offset by a EUR 5.4 million dividend distribution to the unitholders. As of 30 September 2022, IFRS NAV per unit rose to EUR 1.1345 (31 December 2021: EUR 1.1082), while EPRA net tangible assets and EPRA net reinstatement value grew to EUR 1.2071 per unit (31 December 2021: EUR 1.1884). EPRA net disposal value was EUR 1.1299 per unit (31 December 2021: EUR 1.1086).

Investment properties
The Baltic Horizon Fund portfolio consists of 15 cash flow generating investment properties in the Baltic capitals. At the end of Q3 2022, the fair value of the Fund’s portfolio was EUR 338.6 million (31 December 2021: EUR 327.4 million) and incorporated a total net leasable area of 151,401 sq. m.  The first tower of the Meraki office building was commissioned in September 2022, which added additional area to the Fund’s portfolio.

Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 198.3 million, remaining at a level similar to year-end 2021 (31 December 2021: EUR 198.6 million). Outstanding bank loans decreased slightly due to regular bank loan amortisation. Annual loan amortisation accounts for 0.3% of total debt outstanding.

Cash flow
Cash inflow from core operating activities for Q1-Q3 2022 amounted to EUR 10.8 million (Q1-Q3 2021: cash inflow of EUR 9.7 million). Cash outflow from investing activities was EUR 11.1 million (Q1-Q3 2021:  cash outflow of EUR 4.0 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 10.9 million (Q1-Q3 2021: cash outflow of EUR 4.4 million). During Q1-Q3 2022, the Fund made a cash distribution of EUR 5.4 million, paid regular interest on bank loans and bonds and paid premiums on interest rate caps. At the end of Q3 2022, the Fund’s consolidated cash and cash equivalents amounted to EUR 4.9 million (31 December 2021: EUR 16.1 million). Operating costs are fully covered by cash flows generated by rental activities.

Key earnings figures

EUR ‘000					Q3 2022	Q3 2021	Change (%)
Net rental income					4,298	4,676	(8.1%)
Administrative expenses					(752)	(735)	(2.3%)
Other operating income					-	4	(100.0%)
Valuation losses on investment properties					(14)	(5)	(180.0%)
Operating profit					3,532	3,940	(10.4%)
Net financing costs					(1,502)	(1,470)	(2.2%)
Profit before tax					2,030	2,470	(17.8%)
Income tax					(132)	(127)	(3.9%)
Net profit for the period					1,898	2,343	(19.0%)
Weighted average number of units outstanding (units)					119,635,429	119,635,429	-
Earnings per unit (EUR)					0.02	0.02	-

Key financial position figures

EUR ‘000					30.09.2022	31.12.2021	Change (%)
Investment properties in use					338,638	315,959	7.2%
Investment property under construction					-	11,400	(100.0%)
Gross asset value (GAV)					349,181	346,338	0.8%
Interest-bearing loans and bonds					198,282	198,571	(0.1%)
Total liabilities					213,457	213,754	(0.1%)
IFRS Net asset value (IFRS NAV)					135,724	132,584	2.4%
EPRA Net Reinstatement Value (EPRA NRV)					144,413	142,176	1.6%
Number of units outstanding (units)					119,635,429	119,635,429	-
IFRS Net asset value (IFRS NAV) per unit (EUR)					1.135	1.1082	2.4%
EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR)					1.2071	1.1884	1.6%
Loan-to-Value ratio (%)					59.1%	60.7%	-
Average effective interest rate (%)					2.8%	2.7%	-

During Q3 2022, the average actual occupancy of the portfolio was 92.5% (Q2 2022: 93.4%). The occupancy rate as of 30 September 2022 was 90.0% (30 June 2022: 93.3%). The overall occupancy rate in the portfolio decreased due to the completion of the development of the first tower of the Meraki building. The first tenants moved to the premises in September 2022. As of September 2022, the occupancy rate of the portfolio, excluding the impact of the Meraki building, increased to 93.8%. Increasing occupancy figures were supplemented with new leases in the Europa SC and the Pirita SC. The Europa SC leased almost 500 sq. m to the Lithuanian Red cross which moved into the premises in Q3 2022. Consumer electronics retailer Avitelos prekyba opened its shop of approx. 460 sq. m and added electronic goods products to the product mix offered in the shopping centre.

Occupancy rates in the office segment were strongly impacted by the completed Meraki office development. The building was commissioned in September with an occupancy rate of 23.4%. Excluding the Meraki building, the office segment remained strong at around 97.6% occupancy during Q3 2022. Most remaining vacancies were temporary as lease agreements have been signed and tenants will be moving in soon. Vainodes I and North Star are now fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process.

The Fund is having in-depth negotiations with potential anchor tenants for the shopping centres. Many leases in the portfolio were prolonged during Q2 and Q3 2022 resulting in a significantly increased Fund’s WAULT. The average direct property yield during Q3 2022 was 5.0% (Q2 2022: 5.3%). The net initial yield for the whole portfolio for Q3 2022 was 5.3% (Q2 2022: 5.6%). Property yields decreased compared to Q2 2022 after an increase in unrecovered property costs due to surging energy prices in the Baltics.

Overview of the Fund’s investment properties as of 30 September 2022

Property name	Sector	Fair value1 (EUR ‘000)	NLA (sq. m)	Direct property yield  Q3 20222	Net initial yield Q3 20223	Occupancy rate
Vilnius, Lithuania
Duetto I	Office	18,525	8,587	8.1%	6.6%	97.6%
Duetto II	Office	20,284	8,674	7.4%	6.7%	100.0%
Europa SC	Retail	39,610	16,901	3.0%	3.3%	87.3%
Domus Pro Retail Park	Retail	16,543	11,226	7.9%	7.5%	98.5%
Domus Pro Office	Office	8,010	4,830	8.3%	6.7%	97.3%
North Star	Office	21,593	10,579	6.3%	6.2%	98.1%
Meraki4	Office	17,194	8,113	-	-	23.4%
Total Vilnius		141,759	68,910	5.5%	5.3%	86.8%
Riga, Latvia
Upmalas Biroji BC	Office	21,979	10,459	6.3%	6.9%	98.8%
Vainodes I	Office	18,481	8,052	6.3%	7.4%	95.2%
LNK Centre	Office	17,668	7,452	6.6%	6.5%	100.0%
Sky SC	Retail	5,693	3,240	7.4%	6.6%	97.6%
Galerija Centrs	Retail	65,005	19,171	2.4%	2.8%	80.5%
Total Riga		128,826	48,374	4.3%	4.8%	91.1%
Tallinn, Estonia
Postimaja & CC Plaza complex	Retail	27,082	9,232	3.6%	4.7%	95.6%
Postimaja & CC Plaza complex	Leisure	14,525	8,664	8.1%	6.6%	100.0%
Lincona	Office	17,079	10,780	7.1%	6.7%	91.5%
Pirita SC	Retail	9,367	5,441	6.1%	8.1%	92.6%
Total Tallinn		68,053	34,117	5.4%	6.1%	95.0%
Total portfolio		338,638	151,401	5.0%	5.3%	90.0%

1. Based on the latest valuation as of 30 June 2022, 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.

4. The Fund completed the development of the first tower of Meraki building in September 2022. Rental income will be received starting from October 2022. Initial rental costs were recognised in September 2022.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

EUR ‘000		01.07.2022-30.09.2022	01.07.2021- 30.09.2021	01.01.2022-30.09.2022	01.01.2021- 30.09.2021
Rental income		5,352	5,332	15,422	14,844
Service charge income		1,362	1,271	4,007	3,697
Cost of rental activities		(2,416)	(1,927)	(6,456)	(5,335)
Net rental income		4,298	4,676	12,973	13,206
Administrative expenses		(752)	(735)	(2,137)	(2,236)
Other operating income		-	4	278	4
Valuation gains (losses) on investment properties		(14)	(5)	158	(14,264)
Operating profit (loss)		3,532	3,940	11,272	(3,290)
Financial income		1	-	1	1
Financial expenses		(1,503)	(1,470)	(4,463)	(4,222)
Net financial expenses		(1,502)	(1,470)	(4,462)	(4,221)
Profit (loss) before tax		2,032	2,470	6,812	(7,511)
Income tax charge		(132)	(127)	(673)	632
Profit (loss) for the period		1,898	2,343	6,137	(6,879)
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net gain on cash flow hedges		1,308	168	2,604	619
Income tax relating to net gain (loss) on cash flow hedges		(102)	(3)	(217)	(34)
Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods		1,206	165	2,387	585
Total comprehensive income (expense) for the period, net of tax		3,104	2,508	8,524	(6,294)
Basic and diluted earnings per unit (EUR)		0.02	0.02	0.05	(0.06)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000		30.09.2022	31.12.2021
Non-current assets
Investment properties		338,638	315,959
Investment property under construction		-	11,400
Intangible assets		7	9
Property, plant and equipment		2	2
Derivative financial instruments		2,126	-
Other non-current assets		-	23
Total non-current assets		340,773	327,393
Current assets
Trade and other receivables		2,746	2,708
Prepayments		507	137
Derivative financial instruments		301	-
Cash and cash equivalents		4,854	16,100
Total current assets		8,408	18,945
Total assets		349,181	346,338
Equity
Paid in capital		145,200	145,200
Cash flow hedge reserve		1,558	(829)
Retained earnings		(11,034)	(11,787)
Total equity		135,724	132,584
Non-current liabilities
Interest-bearing loans and borrowings		82,836	157,471
Deferred tax liabilities		7,170	6,297
Derivative financial instruments		-	756
Other non-current liabilities		1,335	1,103
Total non-current liabilities		91,341	165,627
Current liabilities
Interest-bearing loans and borrowings		115,992	41,676
Trade and other payables		5,369	5,223
Income tax payable		1	5
Derivative financial instruments		5	109
Other current liabilities		749	1,114
Total current liabilities		122,116	48,127
Total liabilities		213,457	213,754
Total equity and liabilities		349,181	346,338

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 23:00 EET on 7 November 2022.

Attachment

• BHF quarterly report Q3 2022