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 2023.
Throughout Q1-Q3 2023, the Fund secured lease extensions with anchor tenants in retail assets. Notably, the anchor grocery tenant Rimi extended its leases on the same favourable terms in both Postimaja and Galerija Centrs. The H&M store will be upgraded in Postimaja to include the H&M Home concept in November 2023, while ARKET will open in Galerija Centrs in December 2023.
Meanwhile, Europa SC demonstrated a surge in letting activity during Q1-Q3 2023, with the Fund successfully securing deals for a total of 2,941 sq. m with thirteen tenants, including prominent names like Pi Pilates, Optometrijos Centras, Codekus and others. In addition, the Fund recently finalized a new lease agreement with a prominent anchor tenant IKI at Europa SC, signing a ten-year lease for an approximate total lettable area of 1,900 sq. m. The opening of the new anchor tenant’s store, which will be at the heart of the upgraded concept of the shopping centre, is anticipated to take place early next year.
In response to evolving market dynamics, the Fund is actively engaged in reletting efforts for current office vacancies and forthcoming office spaces, particularly in light of EMERGN’s decision to reduce their rented area in LNK and the SEB exit from Upmalas Biroji. Proactive measures are being taken to fill these vacancies, with the Fund securing the Latvian State Police as a tenant for approximately 4,060 sq. m for 12 years in Upmalas Biroji to partially offset the vacancy from SEB premises. The agreement with the Latvian State Police was signed in November and the move is expected early next year. The occupancy rate of Upmalas Biroji wil increase to 60% following the takeover of these premises. Additionally, intense negotiations are underway to ensure maximum occupancy in the Lincona building with a newly signed deal with Pet24 to open a pet store on the ground floor.
An important milestone in our financial journey was the refinancing of our EUR 50 million bond issue in Q2 2023. We initiated a new bond issue, raising EUR 42 million to optimize our capital structure. The first tranche, amounting to EUR 20 million, matures in May 2024. Following the disposal of the Duetto properties, the Fund proactively redeemed EUR 7.5 million of the first tranche in August 2023. The Fund’s management team remains resolute in reducing financial leverage at the earliest viable opportunity.
Our management team remains committed to exploring additional divestment and refinancing opportunities aimed at repaying the outstanding EUR 12.5 million of the first tranche before its maturity date. As part of this commitment, we are actively engaged in negotiations with multiple financial institutions to secure additional funds and negotiating potential asset disposals, which would potentially facilitate the redemption of bonds.
Looking ahead, the Fund is determined to execute multiple early redemptions of bonds at the end of 2023/in early 2024. These actions are aligned with our overarching strategy to gradually reduce leverage levels, with the ultimate goal of reaching a leverage ratio of approximately 50% following all planned refinancing activities in the upcoming year.
Net result and net rental income
The Group recorded a net loss of EUR 15.2 million for Q1-Q3 2023 against a net profit of EUR 6.2 million for the corresponding period in 2022. The net result was strongly impacted by the negative valuation result of EUR 14.6 million. Meanwhile in Q1-Q3 2022, the valuation resulted in a net fair value gain of EUR 0.2 million. The sale of the shares in BH Domus Pro UAB which owns a retail park and an office building and BH Duetto UAB, which owns two office buildings, resulted in the loss on disposal of EUR 3.8 million. The net result was also impacted by the higher financial expenses. Earnings per unit for Q1-Q3 2023 were negative at EUR -0.13 (Q1-Q3 2022: positive at EUR 0.05).
The Group earned net rental income of EUR 11.7 million in Q1-Q3 2023 (Q1-Q3 2022: EUR 13.0 million). The results for 2023 include two months’ net rental income of the Domus Pro Retail and Office property (EUR 0.3 million) and five months’ net rental income of the Duetto properties (EUR 1.2 million), which were sold in February and May 2023, respectively. 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 4.9% year on year, mainly due to the recovery in the retail segment.
BREEAM In-Use certificates
Baltic Horizon Fund has obtained BREEAM In-Use certificates for its Estonian retail assets: Postimaja, CC Plaza and Pirita – have all achieved BREEAM In-Use certification with a ‘Good’ rating. The BREEAM In-Use certificate is one of the most important instruments for assessing sustainable commercial construction in Europe. It has been a key ESG priority for the Fund to certify its properties with the internationally recognized BREEAM standards. In 2021, the portfolio of office buildings received BREEAM certification, and in 2022, a costed retail portfolio certification plan was implemented with the goal to have a 100% certified portfolio by the end of 2023.
In Q3 2023, Baltic Horizon maintained the GRESB 4 star rating for the second year in a row. In the assessment, the fund achieved a total score of 82 out of 100, representing the third highest GRESB score in the ‘Northern Europe | Diversified – Office/Retail | Listed’ peer group. 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 2023, the Fund’s GAV was EUR 269.5 million (31 December 2022: EUR 344.0 million), 21.7% lower than at the end of the previous period. The decrease is mainly related to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB.
Net Asset Value (NAV)
At the end of Q3 2023, the Fund’s NAV was EUR 118.0 million (31 December 2022: EUR 133.7 million). Compared to the year-end 2022, the Fund’s NAV decreased by 11.7%. The increase in operational performance was offset by a EUR 14.6 million property valuation loss and EUR 3.8 million loss from the disposal of the BH Domus Pro UAB and BH Duetto UAB shares. Excluding the impact of valuations, the NAV at the end of Q3 2023 would have been EUR 132.2 million or EUR 1.1049 per unit. As of 30 September 2023, IFRS NAV per unit decreased to EUR 0.9862 (31 December 2022: EUR 1.1172), while EPRA net tangible assets and EPRA net reinstatement value were EUR 1.0195 per unit (31 December 2022: EUR 1.1865). EPRA net disposal value was EUR 0.9827 per unit (31 December 2022: EUR 1.1143).
At the end of Q3 2023, the Baltic Horizon Fund portfolio consisted of 12 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 256.7 million (31 December 2022: EUR 333.1 million) and incorporated a total net leasable area of 119.2 thousand sq. m. During Q1-Q3 2023 the Group sold the Domus PRO buildings for approximately EUR 23.5 million and the Duetto I and Duetto II buildings for approximately EUR 37 million, invested EUR 1.2 million in reconstruction projects and EUR 1.2 million in the existing property portfolio.
Interest-bearing loans and bonds
As of 30 September 2023 interest-bearing loans and bonds (excluding lease liabilities) were EUR 144.0 million (31 December 2022: EUR 194.6 million). Outstanding bank loans decreased due to the repayment of the Domus Pro and Duetto loans, part of Europa and Kontor loans and regular bank loan amortisation. Also, the Fund redeemed a part of the bonds in the amount of EUR 7.5 million on 1 August 2023. The redemption was accompanied by the reduction of the nominal value of the bonds to EUR 82,142.85 per bond. The total nominal amount of the bonds before the redemption was EUR 42,000,000 and after the redemption is EUR 34,499,997. Annual loan amortisation accounted for 1.4% of total debt outstanding.
Cash inflow from core operating activities in Q1-Q3 2023 amounted to EUR 8.7 million (Q1-Q3 2022: cash inflow of EUR 10.8 million). Cash inflow from investing activities was EUR 21.4 million (Q1-Q3 2022: cash outflow of EUR 11.1 million) due to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB. Cash outflow from financing activities was EUR 27.5 million (Q1-Q3 2022: cash outflow of EUR 10.9 million). In Q1-Q3 2023, the Fund redeemed and issued bonds, repaid the Domus Pro and part of the Europa loan, and paid regular interest on bank loans and bonds. In March 2023 the Fund repaid the Domus Pro loan (EUR 11.0 million) and EUR 6.0 million of the Europa loan using the proceeds from the sale of the shares in BH Domus Pro UAB. In May the Fund redeemed its EUR 50 million unsecured 5-year bond issue, completed a private placement of 5-year bonds and issued bonds in the total volume of EUR 42 million. In August the Fund early redeemed a part of the bonds in the amount of EUR 7.5 million. During August, the Fund successfully refinanced the Kontor SIA loan until 2028, reducing the original Kontor SIA loan by EUR 1.2 million. At the end of Q3 2023, the Fund’s consolidated cash and cash equivalents amounted to EUR 7.9 million (31 December 2022: EUR 5.3 million). Operating costs are fully covered by cash flows generated by rental activities.
Key earnings figures
|EUR ‘000||Q3 2023||Q3 2022||Change (%)|
|Net rental income||3,228||4,298||(24.9%)|
|Losses on disposal of investment properties||(59)||–||–|
|Valuation gains (losses) on investment properties||(3)||(14)||(78.6%)|
|Operating profit (loss)||2,594||3,532||(26.6%)|
|Net financial expenses||(2,817)||(1,502)||87.5%|
|Profit (loss) before tax||(223)||2,030||(111.0%)|
|Net profit (loss) for the period||(211)||1,898||(111.1%)|
|Weighted average number of units outstanding (units)||119,635,429||119,635,429||–|
|Earnings per unit (EUR)||(0.00)||0.02||–|
Key financial position figures
|EUR ‘000||30.09.2023||31.12.2022||Change (%)|
|Investment properties in use||256,662||333,123||(23.0%)|
|Gross asset value (GAV)||269,462||343,963||(21.7%)|
|Interest-bearing loans and bonds||144,006||194,569||(26.0%)|
|IFRS Net asset value (IFRS NAV)||117,984||133,655||(11.7%)|
|EPRA Net Reinstatement Value (EPRA NRV)||121,966||141,943||(14.1%)|
|Number of units outstanding (units)||119,635,429||119,635,429||–|
|IFRS Net asset value (IFRS NAV) per unit (EUR)||0.9862||1.1172||(11.7%)|
|EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR)||1.0195||1.1865||(14.1%)|
|Loan-to-Value ratio (%)||56.10%||58.40%||–|
|Average effective interest rate (%)||5.10%||3.00%||–|
During Q3 2023, the average actual occupancy of the portfolio was 79.5% (Q2 2023: 87.2%). The occupancy rate as of 30 September 2023 was 77.1% (30 June 2023: 84.6%). The overall occupancy rate was strongly influenced by the decreased occupancy in the office segment following the expiry of the lease with the anchor tenant SEB in Upmalas Biroji BC. The property management team has signed a new agreement with Latvian State Police in Upmalas Biroji BC to partially fill the space vacated by SEB in August 2023.
Sky SC and Vainodes I are now fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. The agreement with the anchor tenant ARKET in Galerija Centrs was signed in December 2022. Construction works for ARKET fit-out started in Q1 2023, with an opening planned in December 2023.
Expiry of the agreement with the main tenant in Upmalas Biroji BC and EMERGN’s decision to reduce their rented area in LNK Centre had a negative impact on the property yields in Q3 2023. The average direct property yield during Q3 2023 was 4.3% (Q2 2023: 5.3%). The net initial yield for the whole portfolio for Q3 2023 was 5.0% (Q2 2023: 5.9%).
Overview of the Fund’s investment properties as of 30 September 2023
|Property name||Sector||Fair value1||NLA||Direct property yield||Net initial yield||Occupancy rate|
|(EUR ‘000)||(sq. m)||Q3 20232||Q3 20233|
|Upmalas Biroji BC||Office||20,061||10,594||3.0%||3.6%||22.1%|
|Postimaja & CC Plaza complex||Retail||23,100||9,232||3.7%||5.7%||95.6%|
|Postimaja & CC Plaza complex||Leisure||12,432||9,139||6.2%||6.0%||94.3%|
- Based on the latest valuation as of 30 September 2023, subsequent capital expenditure and recognised right-of-use assets,
- Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.
- 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
|Service charge income||1,334||1,362||4,521||4,007|
|Cost of rental activities||(1,999)||(2,416)||(6,786)||(6,456)|
|Net rental income||3,228||4,298||11,723||12,973|
|Other operating income||–||–||15||278|
|Losses on disposal of investment properties||(59)||–||(3,810)||–|
|Valuation gains (losses) on investment properties||(3)||(14)||(14,626)||158|
|Operating profit (loss)||2,594||3,532||(8,684)||11,272|
|Net financial expenses||(2,817)||(1,502)||(7,241)||(4,462)|
|Profit (loss) before tax||(223)||2,030||(15,925)||6,810|
|Income tax charge||12||(132)||709||(673)|
|Profit (loss) for the period||(211)||1,898||(15,216)||6,137|
|Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods|
|Net gain (loss) on cash flow hedges||(341)||1,308||(514)||2,604|
|Income tax relating to net gain (loss) on cash flow hedges||32||(102)||59||(217)|
|Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods||(309)||1,206||(455)||2,387|
|Total comprehensive income (expense) for the period, net of tax||(520)||3,104||(15,671)||8,524|
|Basic and diluted earnings per unit (EUR)||(0.00)||0.02||(0.13)||0.05|
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|Property, plant and equipment||5||1|
|Derivative financial instruments||747||2,228|
|Other non-current assets||260||–|
|Total non-current assets||257,680||335,358|
|Trade and other receivables||2,558||2,693|
|Derivative financial instruments||1,028||292|
|Cash and cash equivalents||7,889||5,347|
|Total current assets||11,782||8,605|
|Paid in capital||145,200||145,200|
|Cash flow hedge reserve||1,226||1,681|
|Interest-bearing loans and borrowings||74,809||124,017|
|Deferred tax liabilities||2,792||7,490|
|Other non-current liabilities||906||1,240|
|Total non-current liabilities||78,507||132,747|
|Interest-bearing loans and borrowings||69,457||71,094|
|Trade and other payables||2,855||5,644|
|Income tax payable||–||10|
|Other current liabilities||659||813|
|Total current liabilities||72,971||77,561|
|Total equity and liabilities||269,462||343,963|
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Baltic Horizon Fund manager
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.
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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 21:50 EET on 7 November 2023.