Fund Manager Commentary Villar Arakas:
The financial results of EfTEN Real Estate Fund III AS in the first half of 2021 exceeded all expectations. 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, especially 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.
As for the management, in the first half of the year, the main focus was on our clients, that is, tenants. Customer-tailored solutions were found for all types of outages caused by the pandemic and the fund’s lease occupancy was 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 problems, we also entered into agreements with tenants to defer payment, mainly until the end of August, and we managed to keep tenant rotation to a minimum.
It is also worth noting the successful issue of shares in the first half of the year for a total of 15.13 million euros. In total, 4,564 applications for subscription were submitted in the issue, the subscription was exceeded 3.6 times. Issue costs were again minimal for investors, accounting for only about 0.4% of the issue volume. The management company involved minimally external consultants to arrange the issue, and the proposal was made only in Estonia.
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 an investment 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 warehouse buildings in Panevezys, Lithuania, for a total of EUR 10 million. The entry profitability of the transaction with a bank loan without the use of borrowed funds was 8.0%, and the purchase price of the building per square meter was 500 euros, which is lower than the restoration value of the house. 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 bankas in the amount of 6 million euros.
The successful first half of the fund allows us to look with optimism towards the second half of 2021.
The consolidated sales revenue of EfTEN Real Estate Fund III AS for the second quarter of 2021 was € 3.088 million (Q2 2020: € 2.422 million), an increase of 27.5% (€ 0.666 million) compared to the previous year. Of the increase in rental income, 349 thousand euros (52%) came from rental income from the acquisition of new investments (Pirita nursing home, Rutkausko office building and Ramygalos warehouse and industrial buildings). The remaining increase was mainly due to temporary rental discounts from last year’s Covid-19 discount on the existing property portfolio (comparable).
The consolidated sales revenue of EfTEN Real Estate Fund III AS for the first half of 2021 is 5.955 million euros (first half of 2020: 4.865 million euros), an increase of 22.4% (1.090 million euros) compared to the previous year. Rental income from investment property acquired in the last 12 months amounted to EUR 665 thousand (61%).
The Group’s profit before revaluation of investment properties, changes in fair value of interest rate swaps and income tax expense in the first half of 2021 was € 3,951 million (1H 2020: € 3,132 million), an increase of 28.3% compared to the same period last year of the year. -year.
In the first half of 2021, the fund’s consolidated profit was 4.9 million euros (first half of 2020: 3.8 million euros).
The loan agreements of the two subsidiaries of the Group will mature within the next 12 months. Most of the Group’s loans are for 5 years, which are refinanced upon termination of the loan agreement. Over the next 12 months, 7.5 million euros, or 10% of the total loan portfolio, will be refinanced from the Group’s loan obligations. As of June 30, 2021, the average interest rate under the Group’s loan agreements (including including interest rate swap agreements) is 2.2% (December 31, 2020: 2.3%), and LTV (loan amount) 46% (12/31/2020: 50). %).
In the first half of 2021, the Group generated free cash flow of EUR 2.2 million (6 months 2020: EUR 1.7 million), of which the cash flow from investment properties in the last 12 months amounted to EUR 215 thousand.
In mid-June 2021, the Group acquired one new investment property in Panevezys, Lithuania. The value of the investment property, including transaction costs, was EUR 10.011 million and the annual rental income was EUR 799 thousand.
As of the end of June 2021, the Group had 16 (31.12.2020: 15) investments in commercial real estate with a fair value of 157,162 million euros (31.12.2020: 144,235 million euros) and an acquisition cost of 147,137 million euros (31.12.2020 : 136.349 million euros) at the balance sheet date.
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 growth in the value of other properties was mainly due to a decrease in output yield by half or a quarter percentage point.
The net asset value of EfTEN Real Estate Fund III shares as at 30.06.2021 was EUR 17.60 (31.12.2020: EUR 16.93). The net asset value of EfTEN Real Estate Fund III AS increased by 4.0% in the first half of 2021.
In April 2021, the general meeting of the fund decided to distribute a total of 2,798 thousand euros (66.3 euro cents per share) in the form of net dividends from the net profit of 2020. Without dividend distribution, the net asset value of the fund’s share would have increased by 6.7% in the first half.
In June 2021, EfTEN Real Estate Fund III AS held a public offering of shares, as a result of which the authorized capital of the fund increased by 8,500 thousand euros. During the issue of shares, payments in the amount of 15 130 thousand euros were made to the authorized capital of the fund.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|II quarter||I’m half a year|
|€ thous.||2021||Feb 2020||2021||Feb 2020|
|Cost of services sold||-73||-59||-139||-147|
|General and administrative expenses||-492||-358||-876||-772|
|Profit / loss on revaluation of investment property||2,020||-3.986||2,020||-3.986|
|Other operating income and expenses||3||-five||6||0|
|Operating income||4 487||-2 029||6 876||-176|
|Other finance income and expenses||-418||-345||-839||-678|
|Profit before tax||4069||-2374||6,037||-854|
|Income tax expense||-394||201||-567||49|
|Net profit for the financial yearone||3675||-2173||5 470||-805|
|Earnings per share|
CSUPPLEMENTARY STATEMENT OF FINANCIAL POSITION
|Cash and cash equivalents||9 932||5.128|
|Accounts receivable and accrued income||2120||2,018|
|Total current assets||12,100||7,274|
|Total non-current assets||157 319||144 358|
|LIABILITIES AND CAPITAL|
|Accounts payable and prepayment||1 102||1.995|
|Total current liabilities||11,977||31,022|
|Other long-term debt||1.015||957|
|Deferred income tax liability||4944||4.583|
|Total non-current liabilities||68156||49127|
|Authorized reserve capital||1.489||1,323|
|Undestributed profits||20 783||18277|
|Total capital||89 286||71,483|
|TOTAL LIABILITIES AND CAPITAL||169,419||151632|
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