Fund Manager Villar Arakas comments:
The financial results of EfTEN Real Estate Fund III AS in the first half of 2021 were better than expected. EBITDA of the fund for the first six months of this year is 4.89 million euros, which is 27% higher than EBITDA for the same period last year. By the start of the year, the alarmingly rapid spread of the coronavirus severely limited businesses in Latvia and Lithuania, and forecasts were pessimistic. In Estonia, significant travel restrictions came into effect in February. Nevertheless, we managed to maintain the successful operation of all the fund’s assets – as far as the restrictions allowed, and we very tightly controlled running costs.
In terms of management, the first half of the year was primarily focused on our clients / tenants. Customer-tailored solutions were found for all types of outages caused by the pandemic, and the fund’s rental rates were very good. At the end of June, the vacancy rate in the fund’s real estate portfolio is only 0.7%. Despite delays in payments due to the corona crisis (mainly at the Saules Miestas), tenants’ payment behavior was also good. Due to payment behavior problems, we also entered into agreements with tenants to defer payments, mainly until the end of August, and we managed to keep tenant changes to a minimum.
Also worth noting is the successful issue of shares in the first half of the year for a total of 15.13 million euros. In the issue, 4,564 applications for subscription were submitted, and the subscription for the issue was exceeded 3.6 times. The cost of issuing shares was again minimal for fund investors and amounted to only about 0.4% of the issue volume. The proposal was made only in Estonia, with minimal involvement of external consultants.
In the first half of 2021, we made additional investments in the existing portfolio of the fund, mainly on the territory of the Saules Miestas shopping center in Siauliai, Lithuania, where the fund’s subsidiary has built a separate building for the KFC fast food restaurant. As fund managers, we are constantly looking for ways to add value to our existing assets through additional development. An additional example of such investments is the construction of a solar park on the roof of the Laagri Selver shopping center.
In the first half of the year, we made one new investment, acquiring two industrial and industrial buildings in Panevezys, Lithuania, for a total of EUR 10 million. The profitability of the transaction without leverage was 8.0%, and the purchase price of the building was 500 euros per square meter, which is lower than the cost of reconstruction. The building is leased by ADAX UAB on the basis of a lease agreement for a period of 16 years. The deal was financed by Siauliu banka in the amount of 6 million euros.
The successful first half of the fund allows us to look with optimism at the second half of 2021.
The net asset value (NAV) of EfTEN Real Estate Fund III AS as of June 30, 2021 was EUR 17,6021, up 3.6% in June. The net asset value of the EPRA share (net book value excluding deferred tax liability and fair value of derivative financial instruments at an interest rate) as at 30.06.2021 was EUR 18.60. EPRA NAV rose 2.6% in June.
In June, the fund carried out a conventional valuation of investment properties, during which the value of the fund’s real estate portfolio increased by 1.4% (€ 2.020 million). The change in value was mainly due to improved cash flow expectations for Saules Miestas and the Ulonu office building. The increase in the value of other properties was mainly due to a decrease in output yield by half or a quarter percentage point.
In June, EfTEN Real Estate Fund III AS earned € 1,097,000 in consolidated sales revenue, € 57,000 more than in May, including a 15-day rental income of industrial buildings acquired in June in Panevezys, Lithuania. In addition, due to the phased lifting of the Covid-19 restrictions in June, rental income for the Saules Miestas shopping center increased, which is now still 4% below normal on average.
The consolidated EBITDA of the fund in June was 827 thousand euros, which is 26 thousand euros less than in May, due to the acquisition of industrial buildings in Panevezys and related costs and expenses related to the issue of shares.
In the six months of this year, the fund earned EBITDA of 4.89 million euros (2020: 3.83 million euros) on sales revenue of 5.96 million euros (6 months of 2020: 4.86 million euros ). EBITDA increased by 1.06 million euros compared to the previous year, of which 740 thousand euros came from new real estate investments. EBITDA of the existing real estate portfolio before new investments for 6 months of the current year (how for something like that) amounted to 3.8 million euros, which is 0.32 million euros (9%) more than in the same period last year.
The fund’s consolidated overdue debt as of June 30 amounted to 148 thousand euros, which is 43 thousand euros less than in May. The arrears are entirely related to the deferred debt of Saules Miestas, which will partially last until the end of August.
The fund’s consolidated cash balance increased by € 3.574 million in June to € 9.9 million as at 30.06.2021. In June, we repaid a bank loan from the parent company in the amount of EUR 3.1 million, which was taken for Pirita’s investment in a nursing home in December 2020. We also partially repaid a bank loan from EfTEN Riga Airport SIA in the amount of 0.9 million euros using the funds received from the share. issue in accordance with the terms of a bank loan and invest in the industrial buildings of Panevezys, which required 4,011 thousand euros of capital. As of the end of June, the fund has € 7.1 million of uninvested capital.
The consolidated capital of EfTEN Real Estate Fund III AS at 30.06.2021 was 89.287 million euros (31.12.2020: 71.483 million euros).
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