Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the six months of 2022.
Distributions to unitholders for Q1 2022 and Q2 2022 Fund results
On 28 April 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q1 2022 results. This represents a 1.17% return on the weighted average Q1 2022 net asset value to its unitholders.
On 28 July 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q2 2022 results. This represents a 1.17% return on the weighted average Q2 2022 net asset value to its unitholders.
With reduced payouts over 2020, 2021 and 2022 in the light of prevailing market uncertainty, the Fund has opted to retain EUR 7.2 million of distributable cash flow.
| EUR ’000 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 |
| (+) Net rental income | 4,357 | 4,676 | 3,798 | 4,193 | 4,482 |
| (-) Fund administrative expenses | (756) | (735) | (633) | (659) | (726) |
| (-) External interest expenses | (1,311) | (1,407) | (1,408) | (1,372) | (1,403) |
| (-) CAPEX expenditure1 | (92) | (38) | (222) | (266) | (369) |
| (+) Extraordinary income related to investment properties2 | – | – | 440 | – | 261 |
| (+) Added back listing related expenses | – | – | – | – | – |
| (+) Added back acquisition related expenses | 5 | 9 | 32 | 1 | 5 |
| Generated net cash flow (GNCF) | 2,203 | 2,505 | 2,007 | 1,897 | 2,250 |
| GNCF per weighted unit (EUR) | 0.018 | 0.021 | 0.017 | 0.016 | 0.019 |
| 12-months rolling GNCF yield3 (%) | 7.0% | 7.0% | 6.8% | 7.6% | 8.0% |
| Dividends declared for the period | 1,316 | 2,034 | 2,273 | 1,555 | 1,555 |
| Dividends declared per unit4 (EUR) | 0.011 | 0.017 | 0.019 | 0.013 | 0.013 |
| 12-months rolling dividend yield3 (%) | 5.0% | 4.5% | 5.4% | 6.3% | 6.9% |
- The table provides actual capital expenditures for the quarter. Future dividend distributions to unitholders are aimed to be based on the annual budgeted capital expenditure plans equalised for each quarter. This will reduce the quarterly volatility of cash distributions to unitholders.
- 12-month rolling GNCF and dividend yields are based on the closing market price of the unit as at the end of the quarter (Q2 2022: closing market price of the unit as of 30 June 2022).
- Based on the number of units entitled to dividends.
Property valuations
In June 2022, the portfolio valuations were conducted by an independent real estate appraiser Colliers. As of 30 June 2022, the fair value of the Baltic Horizon Fund portfolio increased to EUR 335.6 million (31 December 2021: 327.4 million). In June 2022, the portfolio revaluation resulted in a fair value gain of EUR 0.2 million (+0.1% of portfolio value) primarily due to the upward revision of rent indexation and cash flow assumptions associated with high inflation across Europe.
Net result and net rental income
The Group recorded a net profit of EUR 4.2 million for H1 2022 against a net loss of EUR 9.2 million for H1 2021. The net result was mainly driven by strong recovery of the Galerija Centrs operating performance as fewer COVID-19 rent reliefs have been granted to tenants in 2022 and increased rent indexation. The net result for H1 2021 was significantly impacted by the one-off negative valuation result of EUR 14.3 million. Meanwhile in H1 2022, the valuation resulted in a net fair value gain of EUR 0.2 million (+0.1% of portfolio value). The positive impact of the increase in net rental income was also supplemented by a decrease in administrative expenses and a grant of EUR 0.3 million received from the Latvian government. Earnings per unit for H1 2022 were EUR 0.04 (H1 2021: EUR -0.08).
The Group earned net rental income of EUR 8.7 million in H1 2022 compared to 8.5 million in H1 2021. The results for H1 2021 still included EUR 0.6 million of net rental income from G4S Headquarters, which was sold in Q4 2021 and did not contribute to H1 2022 results. Rent indexations and recovery of income improved the net rental income of the same portfolio mix (like-for-like portfolio).
Gross Asset Value (GAV)
At the end of H1 2022, the Fund’s GAV was EUR 347.5 million (31 December 2021: EUR 346.3 million), 0.3% higher than at the end of the previous period. The increase is mainly related to a positive property revaluation of EUR 0.2 million and capital investments (EUR 4.1 million) in the Meraki office building development project during H1 2022. The Fund aims to carry on with the construction of the Meraki office building throughout 2022 and 2023. An additional EUR 3.3 million was invested in other (re)development projects.
Net Asset Value (NAV)
At the end of H1 2022, the Fund’s NAV slightly increased to EUR 134.2 million (31 December 2021: EUR 132.6 million). Compared to the year-end 2021 NAV, the Fund’s NAV increased by 1.2%. The increase in operational performance, portfolio valuations and positive cash flow hedge reserve movement of EUR 1.2 million over the period was partially offset by a EUR 3.8 million dividend distribution to the unitholders. As of 30 June 2022, IFRS NAV per unit rose to EUR 1.1215 (31 December 2021: EUR 1.1082), while EPRA net tangible assets and EPRA net reinstatement value grew to EUR 1.2016 per unit (31 December 2021: EUR 1.1884). EPRA net disposal value was EUR 1.1177 per unit (31 December 2021: EUR 1.1086).
Investment properties
The Baltic Horizon Fund portfolio consists of 14 cash flow generating investment properties in the Baltic capitals and an investment property under construction on the Meraki land plot. At the end of Q2 2022, the fair value of the Fund’s portfolio was EUR 335.7 million (31 December 2021: EUR 327.4 million) and incorporated a total net leasable area of 144,215 sq. m. During H1 2022, the Fund invested EUR 0.6 million in the existing property portfolio and EUR 7.5 million in the reconstruction or development projects.
Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 198.4 million, remaining at a level similar to year-end 2021 (31 December 2021: EUR 198.6 million). Outstanding bank loans decreased slightly due to regular bank loan amortisation. Annual loan amortisation accounts for 0.3% of total debt outstanding. All loans expiring during H1 2022 were prolonged with the original loan providers.
Cash flow
Cash inflow from core operating activities for H1 2022 amounted to EUR 7.3 million (H1 2021: cash inflow of EUR 6.4 million). Cash outflow from investing activities was EUR 7.6 million (H1 2021: cash outflow of EUR 2.7 million) due to subsequent capital expenditure on existing portfolio properties and investments in the Meraki, Postimaja and CC Plaza complex and Europa development projects. Cash outflow from financing activities was EUR 7.1 million (H1 2021: cash outflow of EUR 1.6 million). During H1 2022, the Fund made a cash distribution of EUR 3.8 million and paid regular interest on bank loans and bonds. At the end of H1 2022, the Fund’s consolidated cash and cash equivalents amounted to EUR 8.7 million (31 December 2021: EUR 16.1 million), which demonstrates sufficient liquidity and financial flexibility. Available cash will be used to continue with development projects.
Key earnings figures
| EUR ‘000 | Q2 2022 | Q2 2021 | Change (%) | ||||
| Net rental income | 4,482 | 4,357 | 2.9% | ||||
| Administrative expenses | (726) | (756) | 4.0% | ||||
| Other operating income | 271 | – | – | ||||
| Valuation gains (losses) on investment properties | 178 | (14,255) | 101.2% | ||||
| Operating profit (loss) | 4,205 | (10,654) | 139.5% | ||||
| Net financing costs | (1,518) | (1,361) | (11.5%) | ||||
| Profit (loss) before tax | 2,687 | (12,015) | 122.4% | ||||
| Income tax | (444) | 888 | (150.0%) | ||||
| Net profit (loss) for the period | 2,243 | (11,127) | 120.2% | ||||
| Weighted average number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| Earnings per unit (EUR) | 0.02 | (0.09) | 120.2% | ||||
Key financial position figures
| EUR ‘000 | 30.06.2022 | 31.12.2021 | Change (%) | ||||
| Investment properties in use | 320,029 | 315,959 | 1.3% | ||||
| Investment property under construction | 15,620 | 11,400 | 37.0% | ||||
| Gross asset value (GAV) | 347,495 | 346,338 | 0.3% | ||||
| Interest-bearing loans and bonds | 198,360 | 198,571 | (0.1%) | ||||
| Total liabilities | 213,319 | 213,754 | (0.2%) | ||||
| IFRS Net asset value (IFRS NAV) | 134,176 | 132,584 | 1.2% | ||||
| EPRA Net Reinstatement Value (EPRA NRV) | 143,752 | 142,176 | 1.1% | ||||
| Number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 1.1215 | 1.1082 | 1.2% | ||||
| EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) | 1.2016 | 1.1884 | 1.1% | ||||
| Loan-to-Value ratio (%) | 59.1% | 60.7% | – | ||||
| Average effective interest rate (%) | 2.8% | 2.7% | – | ||||
During Q2 2022, the average actual occupancy of the portfolio was 93.4% (Q1 2022: 92.3%). The occupancy rate as of 30 June 2022 was 93.3% (31 March 2022: 92.4%). The overall occupancy rates in the portfolio rose after the successful launch of the North Star office hotel and filling the premises with small tenants. Increasing occupancy figures were supplemented with new leases in Europa, Postimaja and Galerija Centrs. During the quarter, Sportland relocated and expanded its premises to almost 1,000 sq. m in Galerija Centrs. In Europa, Huracan Coffee opened its café of approx. 140 sq. m creating a new attraction point for clients coming in from the main square of CBD. The opening of Huracan marked the full reopening of Europa’s entrances and public areas to clients after the refurbishment.
Occupancy rates in the office segment remain strong at around 98%. Positive momentum in office leasing is expected to continue in Q3 2022. Retail leasing teams were expanded in H1 2022 to fasten the leasing process. The Fund is having in-depth negotiations with potential anchor tenants for shopping centres. The average direct property yield during Q2 2022 was 5.3% (Q1 2022: 5.0%). The net initial yield for the whole portfolio for Q2 2022 rose to 5.6% (Q1 2022: 5.3%). Property yields increased compared to Q1 2022 after a strong recovery of Galerija Centrs results following the lift of lockdowns at the end of 2021 and positive rent indexations across the portfolio.
Overview of the Fund’s investment properties as of 30 June 2022
| Property name | Sector | Fair value1 (EUR ‘000) | NLA (sq. m) | Direct property yield Q2 20222 | Net initial yield Q2 20223 | Occupancy rate |
| Vilnius, Lithuania | ||||||
| Duetto I | Office | 18,525 | 8,587 | 7.7% | 6.5% | 100.0% |
| Duetto II | Office | 20,253 | 8,674 | 7.7% | 7.1% | 100.0% |
| Europa SC | Retail | 38,757 | 16,844 | 1.8% | 1.9% | 84.5% |
| Domus Pro Retail Park | Retail | 16,535 | 11,226 | 8.4% | 8.1% | 98.5% |
| Domus Pro Office | Office | 8,010 | 4,831 | 8.7% | 7.1% | 97.3% |
| North Star | Office | 21,538 | 10,550 | 6.7% | 6.8% | 98.2% |
| Meraki Development | Office | 15,620 | – | – | – | – |
| Total Vilnius | 139,238 | 60,712 | 5.6% | 5.4% | 94.9% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 21,978 | 10,459 | 7.5% | 8.2% | 100.0% |
| Vainodes I | Office | 18,470 | 8,052 | 6.6% | 7.8% | 100.0% |
| LNK Centre | Office | 17,660 | 7,452 | 6.8% | 6.8% | 100.0% |
| Sky SC | Retail | 5,693 | 3,244 | 8.1% | 7.8% | 97.6% |
| Galerija Centrs | Retail | 64,910 | 20,075 | 3.1% | 3.6% | 77.2% |
| Total Riga | 128,711 | 49,282 | 5.0% | 5.6% | 90.6% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 26,975 | 9,242 | 9.2% | 7.6% | 95.6% |
| Postimaja & CC Plaza complex | Leisure | 14,525 | 8,664 | 3.6% | 4.5% | 100.0% |
| Lincona | Office | 16,900 | 10,871 | 7.3% | 6.8% | 90.8% |
| Pirita SC | Retail | 9,300 | 5,444 | 5.1% | 6.7% | 90.4% |
| Total Tallinn | 67,700 | 34,221 | 5.5% | 6.0% | 94.4% | |
| Total portfolio | 335,649 | 144,215 | 5.3% | 5.6% | 93.3% |
- Based on the latest valuation as of 30 June 2022 and recognised right-of-use assets.
- 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.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
| EUR ‘000 | 01.04.2022-30.06.2022 | 01.04.2021-30.06.2021 | 01.01.2022-30.06.2022 | 01.01.2021-30.06.2021 | |
| Rental income | 5,111 | 4,835 | 10,070 | 9,512 | |
| Service charge income | 1,341 | 1,209 | 2,645 | 2,426 | |
| Cost of rental activities | (1,970) | (1,687) | (4,040) | (3,408) | |
| Net rental income | 4,482 | 4,357 | 8,675 | 8,530 | |
| Administrative expenses | (726) | (756) | (1,385) | (1,501) | |
| Other operating income | 271 | – | 278 | – | |
| Valuation gains (losses) on investment properties | 178 | (14,255) | 172 | (14,259) | |
| Operating profit (loss) | 4,205 | (10,654) | 7,740 | (7,230) | |
| Financial income | – | 1 | – | 1 | |
| Financial expenses | (1,518) | (1,362) | (2,960) | (2,752) | |
| Net financial expenses | (1,518) | (1,361) | (2,960) | (2,751) | |
| Profit (loss) before tax | 2,687 | (12,015) | 4,780 | (9,981) | |
| Income tax charge | (444) | 888 | (541) | 759 | |
| Profit (loss) for the period | 2,243 | (11,127) | 4,239 | (9,222) | |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | |||||
| Net gain on cash flow hedges | 575 | 241 | 1,296 | 451 | |
| Income tax relating to net gain on cash flow hedges | (51) | (16) | (115) | (31) | |
| Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods | 524 | 225 | 1,181 | 420 | |
| Total comprehensive income (expense) for the period, net of tax | 2,767 | (10,902) | 5,420 | (8,802) | |
| Basic and diluted earnings per unit (EUR) | 0.02 | (0.09) | 0.04 | (0.08) | |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 30.06.2022 | 31.12.2021 | |
| Non-current assets | |||
| Investment properties | 320,029 | 315,959 | |
| Investment property under construction | 15,620 | 11,400 | |
| Intangible assets | 8 | 9 | |
| Property, plant and equipment | 2 | 2 | |
| Derivative financial instruments | 439 | – | |
| Other non-current assets | 22 | 23 | |
| Total non-current assets | 336,120 | 327,393 | |
| Current assets | |||
| Trade and other receivables | 2,214 | 2,708 | |
| Prepayments | 423 | 137 | |
| Cash and cash equivalents | 8,738 | 16,100 | |
| Total current assets | 11,375 | 18,945 | |
| Total assets | 347,495 | 346,338 | |
| Equity | |||
| Paid in capital | 145,200 | 145,200 | |
| Cash flow hedge reserve | 352 | (829) | |
| Retained earnings | (11,376) | (11,787) | |
| Total equity | 134,176 | 132,584 | |
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 102,765 | 157,471 | |
| Deferred tax liabilities | 6,959 | 6,297 | |
| Derivative financial instruments | – | 756 | |
| Other non-current liabilities | 1,261 | 1,103 | |
| Total non-current liabilities | 110,985 | 165,627 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 96,153 | 41,676 | |
| Trade and other payables | 5,479 | 5,223 | |
| Income tax payable | – | 5 | |
| Derivative financial instruments | 15 | 109 | |
| Other current liabilities | 687 | 1,114 | |
| Total current liabilities | 102,334 | 48,127 | |
| Total liabilities | 213,319 | 213,754 | |
| Total equity and liabilities | 347,495 | 346,338 |
