Management Board of Northern Horizon Capital AS has approved the audited financial results of Baltic Horizon Fund (the Fund) for the year 2019. The financial results remained unchanged compared to the preliminary disclosure on 14 February 2020.
Distributions to unitholders for 2019 Fund results
In total, the Fund declared a cash distribution of EUR 11,309 thousand from the operating results of 2019 (EUR 2,449 thousand from Q1 2019, EUR 2,624 thousand from Q2 2019, EUR 3,061 thousand from Q3 2019 and EUR 3,175 thousand from Q4 2019). Dividends for the operating results of 2019 correspond to a gross yield of 8.0% based on the closing price on the Nasdaq Tallinn Stock Exchange at 31 December 2019.
Net profit and net rental income
In 2019, the Group recorded a net profit of EUR 8.8 million, which was a down 12.0%, compared to net profit of EUR 10 million for 2018. The net profit was largely affected by the lower investment property value gains during the year. Portfolio valuations largely remained at the same level as at the end of 2018. Excluding the effect of valuation gains (losses), net profit from operating performance grew by 36.1%. Net profit was also significantly impacted by the increase in net rental income and net financing costs. The increase in net financing costs arose from a higher average cost of financing. Earnings per unit were EUR 0.09 (2018: EUR 0.13).
During the year, the Group recorded a net rental income of EUR 19.2 million compared to EUR 14.8 million in 2018. The increase was achieved through new acquisitions that were made following the capital raisings in 2019. The acquisition of the largest asset in the portfolio (Galerija Centrs) had a significant effect on the Group’s net rental income growth for 2019 and will continue to have a positive impact on the net rental income in the future. On an EPRA like-for-like basis, portfolio rental income decreased by 1.6% compared to 2018 mainly due to Pirita and Postimaja higher vacancies and concept change preparations.
Portfolio properties in the office segment contributed 50.8% (2018: 51.1%) of net rental income in 2019 followed by the retail segment with 43.8% (2018: 42.2%) and the leisure segment with 5.4% (6.7%).
During the year, investment properties in Latvia and Lithuania contributed 37.2% (2018: 51.1%) and 35.0% of net rental income respectively, while investment properties in Estonia contributed 27.8% (2018: 42.2%).
Gross Asset Value (GAV)
At the end of 2019, the GAV increased to EUR 371.7 million (31 December 2018: EUR 260.9 million) which was a rise of 42.5% over the year. The increase is mainly related to new acquisitions during the year and the start of the Meraki development project. The Fund completed the acquisitions of the Duetto II office building, the Galerija Centrs Shopping Centre and the North Star Business Centre and thus deployed most of the new capital raised in 2019. The Fund aims to use the remaining capital to finance the construction of the Meraki office building in 2020.
Net Asset Value (NAV)
During 2019, the Fund NAV increased from EUR 109.8 million to EUR 152.5 million as compared to the end of 2018. The increase is related to new equity raised and the Group’s operational performance over the year. The Fund raised a total of EUR 44.7 million net equity through private placements in April, May, July and October and generated almost EUR 8.8 million in net profit. The Fund NAV increase was offset by a EUR 10.3 million dividend distribution to its unitholders and a negative cash flow hedge reserve movement of EUR 0.6 million. At 31 December 2019, NAV per unit stood at EUR 1.3451 (31 December 2018: EUR 1.3988), while NAV per unit based on EPRA standards was EUR 1.4333 (31 December 2018: EUR 1.5101).
Investment properties
Baltic Horizon Fund portfolio consists of 15 cash flow investment properties in the Baltic capitals and investment property under construction on the Meraki land plot. At the end of 2019, the appraised value of the Fund’s portfolio was EUR 358.9 million (2018: EUR 245.2 million). Despite some NOI increases, valuations were also affected by a decrease in the Baltic States’ inflation rates, which are used for rent indexation, and an increase in the expected cost of debt, taken into account in the valuation discount rates. During the year, the Group invested EUR 0.7 million of capital expenditure in the existing property portfolio and an additional EUR 0.7 million in the Meraki development project.
Interest bearing loans and bonds
Interest bearing loans and bonds increased to EUR 205.8 million (2018: EUR 140.5 million) which was a rise of 46.5% over the year. During 2019, the Group received external financing of EUR 67.4 million (bank loans and bonds), which was used to further expand the Fund’s investment portfolio.
Cash flow
Cash flow from core operating activities for the year 2019 amounted to EUR 16.4 million (2018: EUR 10.4 million). Cash flow for investments amounted to EUR 78.2 million (2018: EUR 56.4 million). Investments consisted of subsequent capital expenditure and acquisitions of investment properties and the subsidiary Tampere Invest SIA, which owns Galerija Centrs. Cash flow from financing activities rose to EUR 59.4 million (2018: EUR 33.7 million). During the year, the Fund drew down several bank loans amounting to EUR 57.4 million and completed a subsequent bond subscription in an amount of EUR 10 million. The proceeds from the bank loans, bond issue and issue of new units (EUR 44.7 million) were used to acquire new properties. The Group’s total cash balance at the end of 2019 amounted to EUR 9.8 million.
Key earnings figures
| EUR ‘000 | 2019 | 2018 | Change (%) | |||||
| Net rental income | 19,219 | 14,804 | 29.8% | |||||
| Administrative expenses | (3,251) | (2,813) | 15.6% | |||||
| Other operating income | 26 | 74 | (64.9%) | |||||
| Valuation gains (losses) on investment properties | (2,064) | 2,014 | (202.5%) | |||||
| Operating profit | 13,930 | 14,079 | (1.1%) | |||||
| Net financing costs | (4,713) | (2,781) | 69.5% | |||||
| Profit before tax | 9,217 | 11,298 | (18.4%) | |||||
| Income tax | (426) | (1,308) | (67.4%) | |||||
| Net profit for the period | 8,791 | 9,990 | (12.0%) | |||||
| Weighted average number of units outstanding (units) | 96,718,348 | 78,764,8951 | 22.8% | |||||
| Earnings per unit (EUR) | 0.09 | 0.13 | (30.8%) | |||||
Key financial position figures
| EUR ‘000 | 31.12.2019 | 31.12.2018 | Change (%) | |||||
| Investment properties in use | 356,575 | 245,160 | 45.4% | |||||
| Investment property under construction | 2,367 | – | – | |||||
| Gross asset value (GAV) | 371,734 | 260,878 | 42.5% | |||||
| Interest bearing loans and bonds | 205,827 | 140,507 | 46.5% | |||||
| Total liabilities | 219,216 | 151,073 | 45.1% | |||||
| Net asset value (NAV) | 152,518 | 109,805 | 38.9% | |||||
| Number of units outstanding (units) | 113,387,525 | 78,496,8311 | 44.4% | |||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 1.3451 | 1.3988 | (3.8%) | |||||
| EPRA Net asset value (EPRA NAV) per unit (EUR) | 1.4333 | 1.5101 | (5.1%) | |||||
| Loan-to-Value ratio (%) | 57.3% | 57.3% | – | |||||
| Average effective interest rate (%) | 2.6% | 2.4% | – | |||||
- The number of units excludes 255,969 units acquired by the Fund as part of the unit buy-back program.
During 2019, the average actual occupancy of the portfolio was 96.8% (2018: 97.6%). Taking into account all rental guarantees, the effective occupancy rate was 97.5% (2018: 98.0%). Occupancy rate as of 31 December 2019 was 98.3%. Average direct property yield during 2019 was 6.6% (2018: 6.8%). The net initial yield for the whole portfolio for 2019 was 6.3% (2018: 6.5%). The decrease is mainly related to the acquisition of new properties with lower yields (e.g. Galerija Centrs) and weaker like-for-like performance of some of the retail assets in Tallinn. The average rent rate for the whole portfolio for 2019 was EUR 13.1 per sq. m.
Investment Properties Performance
| Property name | Sector | Fair value1 (EUR ‘000) |
NLA (sq. m.) |
Direct property yield2 | Net initial yield3 | Occupancy rate for 2019 |
| Vilnius, Lithuania | ||||||
| Duetto I | Office | 16,460 | 8,586 | 7.7% | 7.1% | 100.0%4 |
| Duetto II | Office | 18,935 | 8,674 | 7.1% | 7.2% | 100.0%4 |
| Europa SC | Retail | 40,711 | 16,856 | 6.6% | 6.1% | 95.9% |
| Domus Pro Retail Park | Retail | 16,670 | 11,247 | 7.3% | 6.7% | 98.0% |
| Domus Pro Office | Office | 7,740 | 4,831 | 8.7% | 7.5% | 100.0% |
| North Star | Office | 20,092 | 10,550 | 6.8% | 6.9% | 97.9% |
| Meraki Land | 2,367 | – | – | – | ||
| Total Vilnius | 122,975 | 60,744 | 7.2% | 6.7% | 98.0% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 24,198 | 10,458 | 7.2% | 6.7% | 100.0% |
| Vainodes I | Office | 20,890 | 8,052 | 6.9% | 6.9% | 100.0% |
| LNK Centre | Office | 17,000 | 7,453 | 6.3% | 6.3% | 100.0% |
| Sky SC | Retail | 4,850 | 3,254 | 7.4% | 6.9% | 99.4% |
| Galerija Centrs | Retail | 76,409 | 20,022 | 6.3% | 6.2% | 96.0% |
| Total Riga | 143,347 | 49,239 | 6.6% | 6.5% | 99.0% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 32,250 | 9,145 | 4.2% | 4.5% | 91.2% |
| Postimaja & CC Plaza complex | Leisure | 15,150 | 8,664 | 8.7% | 7.0% | 100.0% |
| G4S Headquarters | Office | 17,550 | 9,179 | 7.3% | 6.5% | 94.3% |
| Lincona | Office | 17,820 | 10,871 | 8.1% | 7.3% | 99.4% |
| Pirita SC | Retail | 9,850 | 5,508 | 3.6% | 4.4% | 91.2% |
| Total Tallinn | 92,620 | 43,367 | 5.9% | 5.8% | 95.7% | |
| Total portfolio | 358,942 | 153,350 | 6.6% | 6.3% | 97.5% |
- Based on the latest valuation as at 31 December 2019 and recognised right-of-use assets.
- Direct property yield (DPY) is calculated by dividing NOI by the acquisition value and subsequent capital expenditure of the property.
- The net initial yield (NIY) is calculated by dividing NOI by the market value of the property.
- Effective occupancy rate is 100% due to a rental guarantee.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
| EUR ‘000 | 2019 | 2018 |
| Rental income | 20,776 | 15,860 |
| Service charge income | 4,525 | 2,760 |
| Cost of rental activities | (6,082) | (3,816) |
| Net rental income | 19,219 | 14,804 |
| Administrative expenses | (3,251) | (2,813) |
| Other operating income | 26 | 74 |
| Valuation gains (losses) on investment properties | (2,064) | 2,014 |
| Operating profit | 13,930 | 14,079 |
| Financial income | 5 | 8 |
| Financial expenses | (4,718) | (2,789) |
| Net financing costs | (4,713) | (2,781) |
| Profit before tax | 9,217 | 11,298 |
| Income tax charge | (426) | (1,308) |
| Profit for the period | 8,791 | 9,990 |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | ||
| Net gains (losses) on cash flow hedges | (595) | (1,013) |
| Recognition of initial interest rate cap costs | – | (33) |
| Income tax relating to net gains (losses) on cash flow hedges | 44 | 97 |
| Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods | (551) | (949) |
| Total comprehensive income for the period, net of tax | 8,240 | 9,041 |
| Basic and diluted earnings per unit (EUR) | 0.09 | 0.13 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 31.12.2019 | 31.12.2018 |
| Non-current assets | ||
| Investment properties | 356,575 | 245,160 |
| Investment property under construction | 2,367 | – |
| Derivative financial instruments | 73 | 9 |
| Other non-current assets | 54 | 596 |
| Total non-current assets | 359,069 | 245,765 |
| Current assets | ||
| Trade and other receivables | 1,794 | 2,229 |
| Prepayments | 301 | 154 |
| Other current assets | 734 | 505 |
| Cash and cash equivalents | 9,836 | 12,225 |
| Total current assets | 12,665 | 15,113 |
| Total assets | 371,734 | 260,878 |
| Equity | ||
| Paid in capital | 138,064 | 93,673 |
| Own units | – | (335) |
| Cash flow hedge reserve | (1,556) | (1,005) |
| Retained earnings | 16,010 | 17,472 |
| Total equity | 152,518 | 109,805 |
| Non-current liabilities | ||
| Interest bearing loans and borrowings | 205,718 | 140,401 |
| Deferred tax liabilities | 6,199 | 5,844 |
| Derivative financial instruments | 1,728 | 1,069 |
| Other non-current liabilities | 1,298 | 905 |
| Total non-current liabilities | 214,943 | 148,219 |
| Current liabilities | ||
| Interest bearing loans and borrowings | 414 | 106 |
| Trade and other payables | 3,171 | 2,397 |
| Income tax payable | 8 | – |
| Other current liabilities | 680 | 351 |
| Total current liabilities | 4,273 | 2,854 |
| Total liabilities | 219,216 | 151,073 |
| Total equity and liabilities | 371,734 | 260,878 |
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 20:15 EET on 20 March 2020.
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