Management Board of Northern Horizon Capital AS has approved the unaudited financial results of Baltic Horizon Fund (the Fund) for the six months of 2024.
Our strategic ambitions
Over the past year, our focus has been on reshaping our strategy to foster sustainable value, concentrating efforts on avenues that promise reliable and consistent growth for our investors. In light of prevailing market conditions, we believe that the execution of the ‘Modern City Life’ strategy, is paramount to their best interests. While market conditions have been challenging over the last couple of years, we do expect a gradual recovery in 2025 and in the subsequent years.
In the coming years, we expect two thirds of the Fund’s NOI to come from centrally located multi-functional assets aligned with our ‘Modern City Life’ strategy. These spaces are meticulously designed to ignite, elevate and enrich the lives of modern citizens and communities. The remaining results are expected to be derived primarily from government-rented premises and select suburban supermarkets and other segments. Our value proposition hinges on quality, flexibility, sustainability, and remarkable service, underpinned by strategic locations tailored to meet the evolving needs of our clientele.
The Fund’s management team has made the strategic decision to implement key performance indicators (KPIs) as a means to effectively measure and track performance. This decision stems from the recognition that clear and measurable benchmarks are essential for evaluating progress towards the Fund’s objectives. By defining specific KPIs, the team aims to enhance transparency, accountability, and decision-making processes.
The focus of the Fund management team is and will be on these major objectives:
- Portfolio occupancy of at least 90% by end of 2024;
- Loan-to-Value target at 50% or lower and repayment of the bonds;
- To consider disposing of non-strategic assets over the next 18 months;
- Clear refurbishment and letting strategy for the next 1-2 years with an aim to reach the portfolio’s NOI potential of EUR 18 million by 2027.
- Maintaining 100% BREEAM or LEED certified portfolio.
- Achieving not less than 4 stars from GRESB assessment
As of today, we have successfully repaid the short-term part of the bonds that matured in July 2024, reached 100% of portfolio certification and are moving towards our occupancy goal and NOI potential.
Leasing performance
The total portfolio consists of close to 119,000 sq.m. across the Baltic Capitals in two major segments and during Q2 several major milestones were achieved on the letting side. In a challenging market environment characterized by increasing real estate market vacancies across all Baltic states in recent periods, the Fund has demonstrated its adaptability by signing a substantial number of leases in H1 2024. This success was primarily attributable to significant deals with prominent tenants including Narbutas in Meraki (3,200 sq. m), My Fitness in Galerija Centrs (1,700 sq. m) and Apollo Group in Coca-Cola Plaza (2,200 sq. m), all signed in March and April.
During H1 2024, the Fund signed new leases for 11,457 sq. m, securing an annual rental income of EUR 1,811 thousand for future periods. Furthermore, we are pleased to report that 18 new tenants have been attracted to our buildings, while 26 existing tenants have decided to continue their cooperation with us. The inflow of new leases in H1 and July by approx. 630 sq. m exceed the outflow (expiries known well in advance). Moreover, taking into account the letters of intent signed to date with tenants willing to move into our properties, the net inflow of leases would be 6,030 sq. m.
By July 2024, we had already secured 75% of the targeted leases, thus significantly advancing towards achieving the goal of reaching 90% occupancy.
Overall Q2 2024, the average actual occupancy of the portfolio was 82.3% (Q1 2024: 81.6%). The occupancy rate decreased to 79.1% as of 30 June 2024 (31 March 2024: 83.5%). The decrease was expected and was mostly related to the termination of the lease with LNK Industries in the S27 office building. Ongoing letting negotiations are taking place for the properties and when current letter of intents are converted into signed lease agreements, the portfolio occupancy is expected to increase to 84,5%.
Outlook
Given the influence of recent economic and geopolitical events on the operational performance of certain assets and financing costs, Baltic Horizon units are now traded at a price that is more than 60% below NAV. This deviation is not aligned with our standards and is unacceptable to both our valued investors and to Northern Horizon as the Management Company.
To address this challenge, the Fund is strategically focused on enhancing the strength of our centrally-located retail portfolio throughout 2024. This involves the introduction of new anchor tenants and the implementation of further concept changes aimed at revitalizing and maximizing the potential of our retail assets. Concurrently, the Fund is proactively addressing vacancy concerns within office buildings by pursuing new collaborative agreements with government tenants, implementing flexible workspace solutions and being in close dialogue with conventional office tenants. The Fund is currently in active negotiations with tenants for more than 10,500 sq. m. of office space.
Simultaneously, the Fund remains committed to improving debt service and lowering leverage levels. These efforts are essential to fortifying our financial position and enhancing overall portfolio resilience in the face of ongoing market volatility and uncertainty. By executing these strategic initiatives, Baltic Horizon aims to close the gap between the market price of the units and NAV.
In line with its strategic goals, the Fund successfully redeemed the short-term part of the bonds on 8 July 2024. The bonds in the amount of EUR 8 million were refinanced with a more cost-effective bank loan, raised by leveraging the Meraki asset.
The Fund’s Management plans to issue new units by way of private placement in H2 2024. The capital raised would be used for tenant fit-outs and would contribute to Baltic Horizon’s strategy of increasing occupancy while maintaining current LTV levels.
Maintaining a stable financial position is a key part of our long-term strategy. Through careful financial management and a proactive approach to leasing, we strive to deliver sustainable performance and achieve success for our investors.
Net result and net rental income
In H1 2024, the Group recorded a net loss of EUR 12.9 million compared with a net loss of EUR 15.0 million for H1 2023. The result was mainly driven by the property valuation loss. Earnings per unit for H1 2024 were negative at EUR 0.11 (H1 2023: negative at EUR 0.13).
The Group earned net rental income of EUR 6.0 million in H1 2024 (H1 2023: 8.5 million). The results for H1 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.
On an EPRA like-for-like basis, the portfolio net rental income in H1 2024 was 14% lower than in H1 2023, mainly due to vacancies in office properties in Latvia due to the expiry of the agreement with the main tenant in Upmalas Biroji BC and 100% vacancy of S27, as well as lower rental income in Europa due to the new anchor tenant IKI equipping the premises and opening in March.
Property valuations
In 2024 a tender process was organized, and a new external appraiser, Newsec, was approved to value the Fund’s properties for the next 3 years with the first valuation after the approval carried out as at the end of June 2024. The like-for-like fair value of the portfolio as of 30 June 2024 decreased to EUR 239.9 million compared to EUR 250.4 million as of 31 December 2023. During H1 2024, the Fund recognised valuation losses on investment properties of EUR 12.5 million (H1 2023: a loss of EUR 14.6 million). The switch to a new property appraiser often results in minor fluctuations in property values due to differences in interpretation of data, as seen in the results of the valuation conducted as of 30 June 2024 and 31 December 2023. The change in portfolio value was also driven by the changes in exit yields and upward adjustments of the weighted average cost of capital (WACC) in H1 2024.
Investment properties
At the end of H1 2024, 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 239.9 million at the end of June 2024 (31 December 2023: EUR 250.4 million) and incorporated a total net leasable area of 118.8 thousand sq. m. During H1 2024 the Group invested approximately EUR 1.9 million in tenant fit-outs.
Gross Asset Value (GAV)
At the end of H1 2024, the Fund’s GAV was EUR 250.1 million (31 December 2023: EUR 261.1 million). The decrease of approx. EUR 11 million is mainly related to the revaluation of the Fund’s investment properties at the end of H1 2024.
Net Asset Value (NAV)
As of 30 June 2024, the Fund’s NAV was EUR 96.4 million (31 December 2023: EUR 109.5 million). Compared to the year-end 2023, the Fund’s NAV decreased by 11.9%. The NAV decrease was mainly affected by the revaluation of investment properties. As of 30 June 2024 , IFRS NAV per unit amounted to EUR 0.8058 (31 December 2023: EUR 0.9156), while EPRA net tangible assets and EPRA net reinstatement value were EUR 0.8523 per unit (31 December 2023: EUR 0.9546). EPRA net disposal value was EUR 0.9056 per unit (31 December 2023: EUR 0.8057).
Interest-bearing loans and bonds
The long-term objective is clearly to have a more conservative LTV, including the repayment of the bond which was issued back in May 2023. As of 30 June 2024, interest-bearing loans and bonds (excluding lease liabilities) were EUR 146.4 million (31 December 2023: EUR 143.5 million). Outstanding bank loans increased due to the additional loans taken by Europa and North Star, which were mainly used for partial early redemption of the short-term part of the bonds in the amount of EUR 4.5 million on 8 April 2024. Annual loan amortisation accounted for 2.2% of total debt outstanding.
In February 2024, the Fund successfully refinanced Europa and North Star loans with Šiaulių bankas. Additionally, in April 2024, the Fund extended the bank loan of S27. As of 30 June 2024, the Fund’s consolidated cash and cash equivalents amounted to EUR 5.4 million (31 December 2023: EUR 6.2 million).
Cash flow
Cash inflow from core operating activities in H1 2024 amounted to EUR 3.7 million (H1 2023: cash inflow of EUR 6.2 million). Cash inflow from core operating activities decreased due to sale of Duetto and Domus Pro properties in H1 2023 and higher vacancies, mostly in S27 and Upmalas Biroji assets. Cash outflow from investing activities was EUR 2.5 million (H1 2023: cash inflow of EUR 22.3 million from disposals) due to investments in existing properties and transaction costs. Cash outflow from financing activities was EUR 2.0 million (H1 2023: cash outflow of EUR 15.6 million). In H1 2024, the Fund received additional loans in Europa and North Star in the amount of EUR 8.6 million and paid regular amortisation and interest on bank loans and bonds. Also, the Fund redeemed a short-term part of the bonds for a total amount of EUR 4.5 million in H1 2024.
Baltic Horizon achieves a 100% BREEAM certified portfolio
Successfully achieving BREEAM certification for all assets in our portfolio by the end of 2023 underlines our dedication to sustainability, and the introduction of green lease clauses in our agreements highlights our ongoing commitment to environmental responsibility.
GRESB benchmarking
In 2023 the Fund received a 4-star GRESB rating. The Fund scored 27 points (out of 30) in the Management module and 55 points (out of 70) in the Performance module.
Key earnings figures
| EUR ‘000 | H1 2024 | H1 2023 | Change (%) |
| Net rental income | 5,983 | 8,495 | (29.60%) |
| Administrative expenses | (1,114) | (1,414) | (21.20%) |
| Other operating income | (16) | 15 | (206.70%) |
| Losses on disposal of investment properties | (447) | (3,751) | (88.10%) |
| Valuation gains (losses) on investment properties | (12,524) | (14,623) | (14.40%) |
| Operating profit (loss) | (8,118) | (11,278) | (28.00%) |
| Net financial expenses | (5,135) | (4,424) | 16.10% |
| Profit (loss) before tax | (13,253) | (15,702) | (15.60%) |
| Income tax | 404 | 697 | (42.00%) |
| Net profit (loss) for the period | (12,849) | (15,005) | (14.40%) |
| Weighted average number of units outstanding (units) | 119,635,429 | 119,635,429 | – |
| Earnings per unit (EUR) | (0.11) | (0.13) | (14.40%) |
Key financial position figures
| EUR ‘000 | 30.06.2024 | 31.12.2023 | Change (%) |
| Investment properties | 239,927 | 250,385 | (4.20%) |
| Gross asset value (GAV) | 250,164 | 261,138 | (4.20%) |
| Interest-bearing loans and bonds | 146,447 | 143,487 | 2.06% |
| Total liabilities | 153,766 | 151,606 | 1.40% |
| IFRS NAV | 96,398 | 109,532 | (12.00%) |
| EPRA NRV | 101,975 | 114,205 | (10.70%) |
| Number of units outstanding (units) | 119,635,429 | 119,635,429 | – |
| IFRS NAV per unit (EUR) | 0.8058 | 0.9156 | (12.00%) |
| EPRA NRV per unit (EUR) | 0.8524 | 0.9546 | (10.70%) |
| Loan-to-Value ratio (%) | 61.30% | 57.30% | 7.00% |
| Average effective interest rate (%) | 6.40% | 5.20% | 23.10% |
Overview of the Fund’s investment properties as of 30 June 2024
| Property name | Sector | Fair value1 | NLA | Direct property yield | Net initial yield | Occupancy rate |
| (EUR ‘000) | (sq. m) | 20242 | 20243 | |||
| Vilnius, Lithuania | ||||||
| Europa SC | Retail | 36,587 | 17,081 | 2.60% | 3.10% | 80.00% |
| North Star | Office | 19,148 | 10,631 | 7.10% | 7.60% | 88.90% |
| Meraki | Office | 15,950 | 8,114 | 1.10% | 1.30% | 83.90% |
| Total Vilnius | 71,685 | 35,826 | 3.40% | 3.90% | 83.50% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 19,231 | 11,213 | 3.70% | 4.20% | 58.80% |
| Vainodes I | Office | 15,860 | 8,128 | 8.70% | 8.50% | 100.00% |
| S27 | Office | 11,570 | 7,450 | 0.80% | 0.90% | 0.00% |
| Sky SC | Retail | 4,940 | 3,259 | 8.40% | 7.90% | 100.00% |
| Galerija Centrs | Retail | 60,091 | 19,331 | 3.10% | 3.90% | 77.75% |
| Total Riga | 111,692 | 49,381 | 3.70% | 4.40% | 66.90% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 20,363 | 9,232 | 3.60% | 6.60% | 100.00% |
| Postimaja & CC Plaza complex | Leisure | 13,067 | 8,121 | 5.30% | 4.80% | 92.70% |
| Lincona | Office | 13,850 | 10,766 | 6.40% | 7.20% | 83.70% |
| Pirita SC | Retail | 9,270 | 5,425 | 6.70% | 9.50% | 96.70% |
| Total Tallinn | 56,550 | 33,544 | 5.00% | 6.80% | 92.50% | |
| Total active portfolio | 239,927 | 118,751 | 3.90% | 4.80% | 79.11% |
- Based on the latest valuation as of 30 June 2024, recognised right-of-use assets and subsequent capital expenditure.
- 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.
Ongoing letting negotiations are taking place for the properties and when current letter of intents are converted into signed lease agreements, the portfolio occupancy is expected to increase to 84,5%.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
| EUR ‘000 | 01.04.2024 | 01.04.2023 |
| – 30.06.2024 | – 30.06.2023 | |
| Rental income | 3,821 | 4,821 |
| Service charge income | 1,315 | 1,745 |
| Cost of rental activities | (1,947) | (2,273) |
| Net rental income | 3,189 | 4,293 |
| Administrative expenses | (529) | (678) |
| Losses on disposal of investment properties | (80) | (2,218) |
| Other operating income | (26) | 5 |
| Valuation losses on investment properties | (12,520) | (14,619) |
| Operating profit (loss) | (9,966) | (13,217) |
| Financial income | 15 | 1 |
| Financial expenses | (2,653) | (2,388) |
| Net financial expenses | (2,638) | (2,387) |
| Profit (loss) before tax | (12,604) | (15,604) |
| Income tax charge | 379 | 577 |
| Profit (loss) for the period | (12,225) | (15,027) |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | ||
| Net gain (loss) on cash flow hedges | (110) | 78 |
| Income tax relating to net gain (loss) on cash flow hedges | 17 | (14) |
| Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods | (93) | 64 |
| Total comprehensive income (expense) for the period, net of tax | (12,318) | (14,963) |
| Basic and diluted earnings per unit (EUR) | (0.10) | (0.13) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 30.06.2024 | 31.12.2023 |
| Non-current assets | ||
| Investment properties | 239,927 | 250,385 |
| Intangible assets | 17 | 11 |
| Property, plant and equipment | 6 | 4 |
| Derivative financial instruments | 241 | 295 |
| Other non-current assets | 742 | 647 |
| Total non-current assets | 240,933 | 251,342 |
| Current assets | ||
| Trade and other receivables | 2,842 | 2,591 |
| Prepayments | 869 | 402 |
| Derivative financial instruments | 149 | 621 |
| Cash and cash equivalents | 5,371 | 6,182 |
| Total current assets | 9,231 | 9,796 |
| Total assets | 250,164 | 261,138 |
| Equity | ||
| Paid in capital | 145,200 | 145,200 |
| Cash flow hedge reserve | 246 | 531 |
| Retained earnings | (49,048) | (36,199) |
| Total equity | 96,398 | 109,532 |
| Non-current liabilities | ||
| Interest-bearing loans and borrowings | 85,022 | 64,158 |
| Deferred tax liabilities | 2,258 | 2,774 |
| Other non-current liabilities | 1,288 | 1,079 |
| Total non-current liabilities | 88,568 | 68,011 |
| Current liabilities | ||
| Interest-bearing loans and borrowings | 61,672 | 79,584 |
| Trade and other payables | 3,114 | 3,343 |
| Income tax payable | – | 6 |
| Other current liabilities | 412 | 662 |
| Total current liabilities | 65,198 | 83,595 |
| Total liabilities | 153,766 | 151,606 |
| Total equity and liabilities | 250,164 | 261,138 |
For additional information, please contact:
Tarmo Karotam
Baltic Horizon Fund manager
E-mail tarmo.karotam@nh-cap.com
www.baltichorizon.com
Baltic Horizon Fund is a registered contractual public closed-end real estate fund 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.
Distribution: Nasdaq, GlobeNewswire, www.baltichorizon.com
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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 22:05 EET on 08 August 2024.
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