EfTEN Real Estate Fund III AS 4th Quarter and 12 Months 2022 Unaudited Results

Comments from fund managers on 2022 financial results

In 2022, the commercial real estate market in Europe and the Baltic Sea has undergone significant changes. The rapid acceleration in inflation has prompted central banks to end their so-called zero interest rate policy, which lasted for almost a decade. At the beginning of 2022, his EURIBOR rate, used as the basis for most loans issued in Euros, was negative, but by the end of the year his EURIBOR for 6 months was 2.7%, compared to 1 month. EURIBOR rose to 1.9%. In the real estate sector, where investments are typically made with financial leverage, this meant a significant increase in borrowing costs and a decrease in transaction activity.

The use of leverage is generally lower in the Baltic real estate markets than in the so-called developed European countries. Primarily because of this, the rise in interest rates here did not immediately lead to a fall in property prices. In particular, rising interest rates have been accompanied by a significant decline in the number of real estate transactions in the region. Uncertainty and low transaction activity in the Baltic commercial real estate market will likely continue until the first half of 2023.

In December 2022, the shareholders of EfTEN Real Estate Fund III AS approved the merger of the fund with EfTEN Kinnisvarafond AS (the fund was acquired), resulting in the largest commercial real estate fund in the Baltics. rice field. The balance sheet date of the merger is his January 1, 2023 and after the merger EfTEN Real Estate Fund III AS’s consolidated assets will more than double his. The combined trade name of EfTEN Real Estate Fund III AS will be EfTEN Real Estate Fund AS. At the beginning of the year, one of the management company’s key priorities is successfully completing a legal merger of the funds.

Financial overview

Consolidated turnover of EfTEN Real Estate Fund III AS for the 12 months of 2022 was €14.299 million (12 months 2021: €12.921 million), an increase of 10.7% for the year. His 2022 net rental income for the Group totaled €13,665,000 in 2022 (2021: €12,412,000), an increase of 10.1%. Group net profit for the same period was €11.408 million (12 months 2021: €13.099 million). The decline in net income is related to a reduction in the revaluation of real estate investments, which amounted to €3.119 million this year and €6.442 million in 2021. The fund generated a total return of €3,699,000 in his fourth quarter of 2022, an increase of €191,000. compared to the same period last year. In Q4 2022, the Fund’s net rental income was €2,948,000, an increase of 1.1% year-on-year. The Fund’s fourth quarter consolidated net income was €1,199,000 (Q4 2021: €5,355,000).

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The Group’s total assets as at 31 December 2022 were €181,956 million (31 December 2021: €176,401 million). Fair value of investment properties representing 93% of total assets (31 December 2021: 92%).

As at the end of December 2022, the Group had 18 (31 December 2021: 16) commercial real estate investments with a fair value of EUR 168,875 million at the balance sheet date (31 December 2021: 16). : €161.96 million) at an acquisition cost of $151.426 million. EUR (31 December 2021: EUR 147.63 million).

In April, EfTEN Valkla OÜ, a subsidiary of the fund, acquired a property at Valklaranna tee 36, Valkla, Harju county. The fund will rebuild the building from a nursery school to a general nursery school that can accommodate up to 250 customers in the future. The renovation work will be carried out in stages. The purchase price of the property parcel is €2,005,000, plus the subsidiary of the fund must make his €2,000,000 investment. Purchases and investments in real estate parcels are funded by the Fund’s equity.

In April, EfTEN Ermi OÜ, a subsidiary of the fund, acquired the rights to a building located at Ermi tn 13, Thira village, Tartu parish, Tartu county. The fund intends to develop a nursery school for a minimum of 120 customers on land used under building rights. The building right is valid for 50 years, but can be extended up to 99 years by agreement with the landowner. After building a daycare center on the site, it will be leased to Südamekodud AS under a long-term lease agreement. The purchase price of the building rights was €233 thousand. Building rights and investment purchases are funded by the Fund’s equity.

In 2022, the Group generated rental income totaling €13,489,000. The rental income calculated on a comparable basis totaled €12,588,000 in 2022, an increase of 7% compared to 2021.

EfTEN Real Estate Fund III AS reassessed its investment properties twice this year, in June and December. In connection with the merger with EfTEN Kinnisvarafond AS, the fund also valued his special investment property as of November 30, 2022. As of December 31, 2022, the fair value of the Fund’s real estate portfolio is EUR 168,875,000. In 2022, as a result of the revaluation, the Fund’s investment value increased by 1.9% and the Fund received a profit of €3,119,000 from changes in fair value. Investment property values ​​increased primarily as a result of higher expected rental cash flows due to rising inflation. Rising EURIBOR and investors’ expected returns have increased the discount rate used to calculate the present value of cash flows in appraisals for nearly all investments in 2022.

loan

Over the next 12 months, the loan agreements of the Group’s three subsidiaries (EfTEN Evolution UAB, Saules Miestas UAB and EfTEN Piepilsetas SIA) will expire, with outstanding loans of €19.841 million as of December 31, 2022. With his LTV on expiring loan contracts between 30% and 40% and the investment property having stable and strong rental cash flow, the group’s management expects no problem extending the loan contract. will be

The weighted average interest rate of the Group’s loan contracts (including those taking into account interest rate swap contracts) due to the increase in EURIBOR is 3.7% (31 December 2021: 2.3%) and the LTV (Loan to Value) is 40% (2021 December 31, 2012). : 44%) as of the end of December). All loan agreements of the Fund’s subsidiaries are linked to floating interest rates. To mitigate the risk of interest rates rising on one loan contract, an interest rate swap contract has been entered into with a fixed Euribor of 0.35%. The swap agreement expires in 2023 and its fair value as at 31 December 2022 is €53,000.

Stock information

The net value of EfTEN Real Estate Fund III AS shares as of 31 December 2022 was €20.55 (31 December 2021: €19.11). The net value of EfTEN Real Estate Fund III AS shares increased by 7.5% during 2022. In May 2022, the Fund paid a total dividend of €4,058,000 from his 2021 earnings (June 2021: €2,798,000). Without the dividend payment, the net value of the Fund’s shares would have increased by 12.0% during 2022.

During 2022, the Group generated free cash flow of €6.182 million (12 months of 2021: €4.55 million). Of this, according to the Fund’s dividend policy, the total net dividend amounted to €4.638 million (2021: €3.401 million). Given the obligation to maintain a minimum cash balance arising from the special terms and short-term liquidity needs of the loans of the subsidiary of the fund, and the possibility that the current situation could lead to an increase in the loan amount of € 1 million, Under the financing agreement of subsidiary EfTEN Laagri OÜ, the Fund’s Board of Directors has proposed to the Board to pay a dividend in excess of the amount stipulated in the 2022 Dividend Policy.

With the merger of F-ten Real Estate Fund III AS (the acquiring fund) and F-ten Kinisvalafond AS (the target fund), in addition to the dividend of F-ten Real Estate Fund III AS, free cash flow of F-ten Kinisvalafond AS will be , to the extent that EfTEN Real Estate Fund III AS issues new shares for the shareholders of EfTEN Kinnisvarafond AS in accordance with the Share Exchange Ratio and the number of shares of EfTEN Real Estate Fund III AS. The exact net dividend per share will be announced through the stock exchange system in March 2023, as it will increase as a result of the issuance.

Consolidated Statement of Comprehensive Income

Consolidated statement of financial position

marilyn hine
CFO
Phone +372 6559 515
Email: marilin.hein@eften.ee

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