Comment from fund manager Viljar Arakas:
The financial results of EFTEN Real Estate Fund III AS in the first half of 2021 were better than expected. The fund’s EBITDA for the first six months of this year amounts to € 4.89 million, which is 27% more than the EBITDA for the same period last year. At the start of the year, the extremely rapid spread of the coronavirus had severely limited business in Latvia and Lithuania, and the outlook was bleak. In Estonia, significant movement restrictions came into effect in February. Nonetheless, we were able to operate all of the fund’s assets successfully – to the extent that the restrictions allowed, and we applied very strict controls on operating costs.
In terms of management, the first half of the year mainly focused on our clients / tenants. Customer-specific solutions have been found for all kinds of business disruptions caused by the pandemic, and the occupancy rate of the rental spaces in the fund has been very good. At the end of June, the vacancy rate of the fund’s real estate portfolio was only 0.7%. Despite the payment delays due to the corona crisis (mainly in the Saules Miestas shopping center), the payment behavior of tenants has also been good. Regarding payment behavior issues, we have also made agreements with tenants to defer payments mainly until the end of August, and we have been successful in minimizing the change of tenants.
Note also the success of the issue of shares in the first half for a total amount of 15.13 million euros. A total of 4,564 subscription orders were submitted in the issue and the issue was 3.6 times oversubscribed. Share issue costs were again minimal for fund investors, representing only around 0.4% of issue volume. The offer was only made in Estonia and the external advisers were little involved.
In the first half of 2021, we made additional investments in the existing portfolio of the fund, mainly in the territory of the Saules Miestas shopping center in Šiauliai, Lithuania, where the fund subsidiary built a separate KFC fast food building. As fund managers, we are constantly looking for ways to increase the value of our existing assets through additional developments. As a further example of such investments, we can cite the construction of a solar park on the roof of the Laagri Selver shopping center.
In the first half of the year, we made a new investment by acquiring two industrial and industrial buildings in Panevezys, Lithuania, for a total amount of 10 million euros. The non-leveraged entry yield of the transaction was 8.0% and the purchase price of the building was 500 euros per square meter, which is lower than the reconstruction value. The building is let by ADAX UAB on the basis of a 16-year lease. The transaction was financed by Siauliu banka to the tune of 6 million euros.
The fund’s successful first semester allows us to look ahead to the second semester of 2021 with optimism.
The net asset value (NAV) of EfTEN Real Estate Fund III AS as of 30.06.2021 amounted to 17.6021 euros, up 3.6% in June. The net asset value of the EPRA share (net book value excluding deferred tax liabilities and fair value of interest rate derivatives) at 06/30/2021 is 18.60 euros. EPRA NAV increased 2.6% in June.
In June, the fund carried out its usual 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 is mainly due to improved cash flow forecasts for Saules Miestas and the Ulonu office building. The increase in the value of other objects is mainly due to the decrease in the output yield by a half or a quarter of a percentage point.
In June, EfTEN Real Estate Fund III AS achieved consolidated turnover of 1,097 thousand euros, i.e. 57 thousand euros more than in May, including 15-day rents for industrial buildings acquired in June in Panevezys, Lithuania. In addition, due to the phasing out of Covid-19 restrictions in June, rental income at the Saules Miestas shopping center has increased, which is now still on average 4% below normal levels.
The fund’s consolidated EBITDA amounted to 827 thousand euros in June, or 26 thousand euros less than in May due to the acquisition of industrial buildings in Panevežys and costs and expenses related to the issuance of shares.
During the six months of this year, the fund achieved an EBITDA of 4.89 million euros (2020: 3.83 million euros) with a turnover of 5.96 million euros (2020 6 months: 4.86 million euros). EBITDA increased by a total of 1.06 million euros compared to the previous year, of which 740 thousand euros were generated by the addition of new real estate investments. The EBITDA of the existing real estate portfolio before new investments during the 6 months of this year (Alike) was 3.8 million euros, or 0.32 million euros (9%) more than in the same period last year.
The fund’s consolidated outstandings amounted to 148 thousand euros at June 30, down 43 thousand euros compared to May. The outstanding debt is entirely linked to the deferred debt of Saules Miestas, which will continue in part until the end of August.
The fund’s consolidated cash balance increased by € 3.574 million in June and amounted to € 9.9 million as of 06/30/2021. In June, we repaid the parent company’s bank loan of EUR 3.1 million, which had been taken out for the investment in the Pirita retirement home in December 2020. We also partially repaid the EfTEN bank loan Riga Airport SIA of 0.9 million euros on the funds received from the issue part to respect the covenants of bank loans and made an investment in the industrial buildings of Panevezys, which required 4,011 thousand euros of funds clean. At the end of June, the fund had 7.1 million euros of uninvested capital.
The consolidated equity of EfTEN Real Estate Fund III AS amounted to 89.287 million euros as of 30.06.2021 (31.12.2020: 71.483 million euros).
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