Arco Vara: Unaudited consolidated interim report for Q3 and 9 months of 2020

GROUP CEO’S REVIEW

We can consider the Q3 2020 positive. The sales recovery turned out to be faster than expected, which confirms that Arco Vara’s developments meet the expectations of our clients. Construction work has also continued as planned on ongoing developments.

The most significant shift in the Q3 2020 may be considered the change of the Bulgarian manager as of 30 July. The main tasks of the new manager are to complete the usage permit’s process for Iztok Parkside and to initiate the development of at least two new residential properties in the first half of 2021.

By the time of submitting the report, more than ¾ of the Kodulahe complex in Stage III had been pre-sold. The sales revenue is expected in the Q1 2021, but if favourable construction conditions continue, the start of the final sales in the Q4 2020 is not ruled out. In Stage IV and V of the Kodulahe apartments, negotiations are underway for the prime contracting, but the start of the construction depends on the achievement of the desired construction price.

We started designing the Stage VI of the Kodulahe complex (formerly Paldiski road 74), where the construction of approximately 120 apartments is planned. The completion date of the design process and the estimated start of the construction works is the Q4 2021.

In Tartu, the development of Kodukalda 30 apartments is in the phase of construction according to the schedule and presale contracts have been concluded for the sale of 16 apartments. The buildings are expected to be completed in December 2020. The sales revenue is expected by the Q4 2020.

Bulgaria Iztok Parkside apartment buildings have not received the expected permit for use. In the Q3, we re-launched the application process of the usage permit. Thus, we have reached the final stage of the development process, the result of which we are expecting in the first quarter of 2021. The interest of customers who have entered into a presale contract has continued up to this day.

The Madrid BLVD building offices were slightly refurbished to return to 100% tenant occupancy.

Due to the change of the Bulgarian manager, we are witnessing structural changes in the development team, which has boosted the motivation of the team. The Estonian development team has also obtained good results in managing the constraints related to the Covid-19 crisis. In conclusion, the Management Board of Arco Vara is optimistic about the realisation of ongoing developments, potentially resulting in an increase in sales and construction volumes in the coming years.

KEY PERFORMANCE INDICATORS

In Q3 2020, the group’s revenue was 569 thousand euros, which is 20% more than the revenue of 476 thousand euros in Q3 2019. In 9 months 2020, the group’s revenue was 3,758 thousand euros, which is 69% more than the revenue of 2,222 thousand euros in 9 months 2019.

In Q3 2020, the group’s operating loss (=EBIT) was 126 thousand euros and net loss 228 thousand euros (in 9 months 2020: operating profit 49 thousand euros and net loss of 277 thousand euros). In Q3 2019, the group had operating loss of 64 thousand euros and net loss of 174 thousand euros. In 9 months 2019, the group made operating loss of 118 thousand euros and net loss of 460 thousand euros.

In Q3 2020, 2 apartments were sold in projects developed by the group (in 9 months 2020 17 apartments). In Q3 2019, 2 apartments were sold (12 apartments in 9 months).

In the 9 months of 2020, the group’s debt burden (net loans) increased by 1,901 thousand euros up to the level of 15,771 thousand euros as of 30 September 2020. As of 30 September 2020, the weighted average annual interest rate of interest-bearing liabilities was 5.0%. This is an increase of 0.8 percentage points compared to 31 December 2019.

OPERATING REPORT

The revenue of the group totalled 569 thousand euros in Q3 2020 (in Q3 2019: 476 thousand euros,) and 3,758 thousand euros in 9 months 2020 (in 9 months 2019: 2,222 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 337 thousand euros in Q3 and 3,114 thousand euros in 9 months 2020 (2019: 224 thousand euros in Q3 and 1,487 thousand euros in 9 months).

Most of the other revenue of the group consisted of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 178 thousand euros in Q3 2020 and 488 thousand euros in 9 months (2019: 186 thousand euros in Q3 and 536 thousand euros in 9 months). The Q2 of 2020 and Covid-19 brought changes in the economic situation of tenants. Several tenants have been replaced during the last months, but surprisingly in a more favourable direction for Arco Vara, that is why starting from the autumn 2020 all retail and office spaces with the accompanying parking spaces are rented out.

In the II Stage of the Kodulahe project, which was completed at the end of 2019, commercial space remains unsold – the last apartment was sold in Q2 2020. In 2020, Lahepea 9 house received permit of use.

In Q3 2020, construction works continued in Stage III of Kodulahe project, where a building with 50 apartments will be located at Soodi 4 Merimetsa. The project was expected to be finalized by the Q1 2021, but in continuing favourable construction conditions, the house can be finished by the end of 2020. By the publishing date of the interim report, 38 apartments have been presold.

Stages IV-V of Kodulahe have construction permits, design works are finished. The joint construction of Stages IV and V is scheduled to start latest in 2021. The apartment buildings will become ready for final sale in about 1,5 years after the construction begins.

In Q3 2020, construction works of Oa street plots in Tartu continued, where of 4 smaller apartment buildings are constructed under Kodukalda project name. The construction is scheduled to end in Q4 2020. By the publishing time of the interim report, 16 apartments have been presold.

In Iztok Parkside project in Sofia, the final sale of apartments continued in Q3 2020, but the main sales are planned to take place during Q1 2021 after receiving an occupancy permit. By the publishing date of the interim report, presale agreements for 9 apartments have not been concluded. Iztok project consists of three apartment buildings with a total of 67 apartments.

In the Lozen project near Sofia in Bulgaria, design works have been completed and construction tender is in process. As the development was designed as a premium class product, it has been decided to temporarily freeze the project and wait for the market to recover from Covid-19. Under favourable market conditions, construction may start in 2021, divided into smaller sub-stages. The project foresees construction of 179 homes (apartments and houses), commercial spaces and a kindergarten. Minimum construction period is 2 years.

In Q3 2020 a land plot without accounting value was sold in Latvia. As of 30 September 2020 and the date of this report, 4 Marsili residential plots remained unsold in Latvia.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION