Arco Vara: Unaudited consolidated interim report for Q4 and 12 months of 2021

Arco VaraGROUP CEO’S REVIEW

Due to the cyclical nature of real estate development, Q4 of 2021 had a predictably low sales volume and the focus was on preparing new projects. Across 12 months, the current team of Arco Vara has raised the bar of ROE to the next level, but the objective of raising it to 20% still needs more work.

Out of the developments being built, all 72 homes of Kodulahe have found their owners and final sales will be formalised in Q2 of 2022. We have managed to stay on schedule in terms of both time and budget, meaning that expectations are also high for the next stage of Kodulahe – Rannakalda.

Pre-sales of Kodulahe Rannakalda have commenced at the time of publishing this report – over 1,000 people are listed as interested. Commencement of construction works at Rannakalda was somewhat delayed, since it was difficult to find a main contractor. The primary hindrance in concluding a building contract was uncertainty on the construction market. Arco Vara made use of the uncertainty as an opportunity to recruit its own construction team, so that Arco Vara would be able to be the master of its own time when going forward with future developments, ensuring that construction works can commence at pre-planned times.

At the end of 2021, we began the designing works for a boutique building at Lehiku tee 11, which continued developments under the name Kuldlehe. The Kuldlehe building will contain only five apartments, all of which include underground parking and storage spaces as part of the price. Construction is expected to begin in Q3 of 2022 and sales in Q2 of 2022.

The Bulgarian team has been designing the private homes of Botanica Lozen Residences, the first 3D photos of which are now also available at the website of the development. 54 residences are to be developed in three stages. Construction works of the first stage should commence in Q3 of 2022.

A usual challenge is the building at Madrid BLVD in Sofia, where two office premises out of nine are available at the time of publishing this report. Unoccupied net area is less than 900 m2, but finding new tenants has turned out to be more time-consuming than initially hoped. There are no unoccupied trade premises at Madrid BLVD.

The objective of 2022 is to increase volumes and grow via new investments. The equity position of 2021 of Arco Vara was at an all-time high and we face 2022 with caution, but from a strong standpoint.

KEY PERFORMANCE INDICATORS

In Q4 2021, the group’s revenue was 330 thousand euros, which is several times less than the revenue of 10,298 thousand euros in Q4 2020, which was related to the realization of the Iztok Parkside and Soodi 4 house in Kodulahe project in December 2020. In 12 months 2021, the group’s revenue was 11,613 thousand euros, which is 17% less than the revenue of 14,056 thousand euros in 12 months 2020.

In Q4 2021, the group’s operating loss (=EBIT) was 155 thousand euros and net loss 354 thousand euros (in 12 months 2021: operating profit 2,569 thousand euros and net profit of 2,071 thousand euros). In Q4 2020, the group had operating profit of 1,400 thousand euros and net profit of 1,289 thousand euros. In 12 months 2020, the group made operating profit of 1,449 thousand euros and net profit of 1,012 thousand euros.

In Q4 2021, final sales were made in garages and commercial space in Lahepea 9, but as the sale of real estate investments is recorded in the net amount as other operating income, the revenue from the sale of own real estate in the Q4 was only 37 thousand euros. In 12 months 2021 a total of 63 apartments and two commercial spaces were sold. In Q4 2020, 64 apartments were sold (81 apartments and a land plot in Latvia in 12 months).

In the 12 months of 2021, the group’s debt burden (net loans) increased by 485 thousand euros up to the level of 11,184 thousand euros as of 31 December 2021. As of 31 December 2021, the weighted average annual interest rate of interest-bearing liabilities was 5.2%. This is an increase of 0.4 percentage points compared to 31 December 2020.

OPERATING REPORT

The revenue of the group totalled 330 thousand euros in Q4 2021 (in Q4 2020: 10 298 thousand euros,) and 11,613 thousand euros in 12 months 2021 (in 12 months 2020: 14,056 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 37 thousand euros in Q4 and 10,478 thousand euros in 12 months 2021 (2020: 10,015 thousand euros in Q4 and 13,129 thousand euros in 12 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 202 thousand euros in Q4 2021 and 810 thousand euros in 12 months (2020: 211 thousand euros in Q4 and 699 thousand euros in 12 months). By the time of publishing the present report, two office spaces were vacant, but all commercial spaces, together with parking places, were rented out. The free office spaces make 11.7% of the rented office and retail area.

In Q4 2020, construction finished in Stage III of Kodulahe project, a residential building with 50 apartments at Soodi 4. All apartments were sold in 2021 and the house has the usage permit.

At the end of 2020, the joint construction of Stages IV and V of Kodulahe started. Two 36-apartment residential buildings at Pagi 3 and Pagi 5 are under construction. The apartment buildings will become ready for final sale in the summer of 2022. All 72 apartments have been presold.

The construction of the Stage VI of Kodulahe project at Lammi 8 started in February 2022 by Arco Vara’s own construction company Arco Tarc OÜ. The plan is to build a pavilion, 4 commercial areas and 108 apartments, out of which many have sea view. The apartment buildings will become ready in about 2 years after the construction begins.

A subsidiary of Arco Vara, Aktsiaselts Kolde, signed an agreement for land acquisition beside Lake Harku, address Paldiski road 124b, Tallinn. More than 35,000 m2 of residential and commercial real estate (GBA) is planned for development. The expected development period is 6 years with the start of construction planned for 2023. The detailed planning is in process.
In Q2 2021, sales on the apartments of Oa street in Tartu ended, where 4 smaller apartment buildings with a total of 30 apartments were built under the Kodukalda project name. In 2021, Kodukalda houses also received a usage permit.

In Iztok Parkside project in Sofia, the majority of final sales of apartments started in December 2020, after receiving a usage permit. The last apartment was sold in April 2021. As the apartments were handed over a year later than promised due to bureaucratic obstacles, 2 clients want compensation in the total amount of 21 thousand euros. A provision has been prepared for the claim.

The last vision of the Botanica Lozen project foresees construction of 54 homes (houses) in three stages. The expected start time of construction is the autumn of 2022, when the construction of the first 16 buildings will start. Minimum construction period is 2 years.

As of 31 December 2021, 4 Marsili residential plots were unsold in Latvia, of which 1 has found an owner as of the date of publication of the interim report.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros 12m 2021 12m 2020 Q4 2021 Q4 2020
Revenue from sale of own real estate 10,478 13,129 37 10,015
Revenue from rendering of services 1,135 927 293 283
Total revenue 11,613 14,056 330 10,298
Cost of sales -8,578 -11,313 -123 -8,332
Gross profit 3,035 2,743 207 1,966
Other income 277 10 5 10
Marketing and distribution expenses -200 -89 -91 -23
Administrative expenses -1,106 -922 -475 -268
Other expenses -95 -273 -37 -265
Gain on investment property 658 -20 236 -20
Operating profit/ loss 2,569 1,449 -155 1,400
Financial income and costs -390 -437 -91 -111
Profit/ loss before tax 2,179 1,012 -246 1,289
Income tax -108 0 -108 0
Net profit/ loss for the period 2,071 1,012 -354 1,289
 

Total comprehensive income/ expense for the period

2,071 1,012 -354 1,289
     
Earnings per share (in euros)
– basic 0.22 0.11 -0.03 0.14
– diluted 0.22 0.11 -0.03 0.14

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of euros 31 December 2021 31 December 2020
Cash and cash equivalents 1,863 2,200
Receivables and prepayments 3,701 1,344
Inventories 15,761 14,960
Total current assets 21,325 18,504
Receivables and prepayments 5 5
Investment property 9,943 9,564
Property, plant and equipment 154 22
Intangible assets 87 136
Total non-current assets 10,189 9,727
TOTAL ASSETS 31,514 28,231
Loans and borrowings 6,043 3,482
Payables and deferred income 2,368 3,308
Total current liabilities 8,411 6,790
Loans and borrowings 5,141 7,217
Total non-current liabilities 5,141 7,217
TOTAL LIABILITIES 13,552 14,007
     
Share capital 7,272 6,299
Unregistered share capital 0 273
Share premium 3,835 2,285
Statutory capital reserve 2,011 2,011
Retained earnings 4,844 3,356
Total equity attributable to owners of the parent 17,962 14,224
TOTAL EQUITY 17,962 14,224
TOTAL LIABILITIES AND EQUITY 31,514 28,231

AV Q4 ENG

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