Baltic Horizon: Baltic Horizon Fund consolidated unaudited results for H1 2023

Baltic Horizon FundManagement 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 2023.

Property valuations

In June 2023, the portfolio valuations were conducted by the independent real estate appraiser Colliers International. As of 30 June 2023, the fair value of the Baltic Horizon Fund like-for-like portfolio decreased to EUR 255.7 million (31 December 2022: EUR 268.9 million). Compared to the previous valuations, the change in portfolio value was mainly driven by the changes in exit yields and upward adjustments of the weighted average cost of capital (WACC) due to the rise in interest rates (EURIBOR) over H1 2023.

Net result and net rental income

The Group recorded a net loss of EUR 15.0 million for H1 2023 against a net profit of EUR 4.2 million. The net result was strongly impacted by the negative valuation result of EUR 14.6 million. Meanwhile in H1 2022, the valuation resulted in a net fair value gain of EUR 0.2 million. The sale of the shares in BH Domus Pro UAB which owns a retail park and an office building and BH Duetto UAB, which owns two office buildings, resulted in the loss on disposal of EUR 3.8 million. The net result was also impacted by the higher financial expenses. Earnings per unit for H1 2023 were negative at EUR -0.13 (H1 2022: positive at EUR 0.04).

The Group earned net rental income of EUR 8.5 million in H1 2023 (H1 2022: EUR 8.7 million). The results for 2023 include two months’ net rental income of the Domus Pro Retail and Office property (EUR 0.3 million) and five months’ net rental income of the Duetto properties (EUR 1.2 million), which were sold in February and May 2023, respectively. Rent indexations and the recovery of income improved the net rental income of the same portfolio mix (like-for-like portfolio).

On an EPRA like-for-like basis, portfolio net rental income increased by 7.5% year on year, mainly due to the recovery in the retail segment. The increase was also supported by the relatively stable performance of the office segment.

Portfolio properties in the office segment contributed 56.7% (H1 2022: 57.3%) of net rental income in H1 2023, followed by the retail segment with 38.5% (H1 2022: 37.1%) and the leisure segment with 4.8% (H1 2022: 5.6%).

Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 29.0% of total portfolio net rental income in H1 2023. Total net rental income attributable to neighbourhood shopping centres was 9.5% in H1 2023.

Domus PRO complex disposal

On 8 February 2023, the Fund signed a share sale and purchase agreement with UAB PREF III to sell 100% shares of BH Domus Pro UAB which owns a retail park and an office building in Vilnius, Lithuania. The agreed price of the property was approximately EUR 23.5 million. The internal rate of return (IRR) for the holding period of more than 9 years was around 15.8%, while equity multiple was 2.1. The proceeds of the transaction were used mainly to decrease the loan obligations of the Fund and partially to redeem the Fund’s bonds which matured in May 2023. Closing of the transaction took place on 6 March 2023.

Sale of BH Duetto UAB shares

On 17 May 2023, the Fund signed a share sale and purchase agreement with ECRE IV (Lux) S.a.r.l. to sell 100% of the shares of BH Duetto UAB, which owns Duetto I and II office buildings in Vilnius, Lithuania. The agreed price of the property was approximately EUR 37 million. The Fund first acquired the properties in 2017 and 2019 from the international developer and earned an IRR of approximately 13.7% and an equity multiple of 1.8x over the period. The proceeds of the transaction will be used to partially redeem new bonds and to invest in the centrally located assets of the Fund. Closing of the transaction took place on 6 June 2023.

Bond issue

On 8 May 2023, the Fund completed the subscription for its 5-year secured bonds of EUR 42 million. The bonds bear a fixed-rate coupon of 8.0% and a floating rate of 3-month EURIBOR payable quarterly. The transaction took place under the private placement regime. The bonds will be redeemed in tranches: the first tranche of EUR 20 million will be redeemed in 1 year from the issue date, the second tranche of EUR 22 million in 5 years from the issue date. The Fund redeemed a part of the bonds in the amount of EUR 7,500,003 early on 1 August 2023. The redemption was accompanied by the reduction of the nominal value of the bonds to EUR 82,142.85 per bond. The total nominal amount of the bonds before the redemption was EUR 42,000,000 and after the redemption is EUR 34,499,997.

Gross Asset Value (GAV)

At the end of H1 2023, the Fund’s GAV was EUR 278.8 million (31 December 2022: EUR 344.0 million), 18.9% lower than at the end of the previous period. The decrease is mainly related to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB.

Net Asset Value (NAV)

At the end of H1 2023, the Fund’s NAV was EUR 118.5 million (31 December 2022: EUR 133.7 million). Compared to the year-end 2022 NAV, the Fund’s NAV decreased by 11.3%. The increase in operational performance was offset by a EUR 14.6 million property valuation loss and EUR 3.8 million loss from the disposal of the BH Domus Pro UAB and BH Duetto UAB shares. Excluding the impact of valuations, the NAV at the end of H1 2023 would have been EUR 132.7 million or EUR 1.1093 per unit. As of 30 June 2023, IFRS NAV per unit decreased to EUR 0.9905 (31 December 2022: EUR 1.1172), while EPRA net tangible assets and EPRA net reinstatement value were EUR 1.0208 per unit (31 December 2022: EUR 1.1865). EPRA net disposal value was EUR 0.9869 per unit (31 December 2022: EUR 1.1143).

Investment properties

At the end of H1 2023, the Baltic Horizon Fund portfolio consisted of 12 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 255.7 million (31 December 2022: EUR 333.1 million) and incorporated a total net leasable area of 119.1 thousand sq. m.  During H1 2023 the Group sold the Domus PRO buildings for approximately EUR 23.5 million and the Duetto I and Duetto II buildings for approximately EUR 37 million, invested EUR 0.7 million in reconstruction projects and EUR 0.8 million in the existing property portfolio.

Interest-bearing loans and bonds

Interest-bearing loans and bonds (excluding lease liabilities) were EUR 153.1 million (31 December 2022: EUR 194.6 million). Outstanding bank loans decreased due to the repayment of part of the Domus Pro, Europa and Duetto loans and regular bank loan amortisation. Annual loan amortisation accounted for 1.5% of total debt outstanding.

Cash flow

Cash inflow from core operating activities in H1 2023 amounted to EUR 6.2 million (H1 2022: cash inflow of EUR 7.3 million). Cash inflow from investing activities was EUR 22.3 million (H1 2022:  cash outflow of EUR 7.6 million) due to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB. Cash outflow from financing activities was EUR 15.6 million (H1 2022: cash outflow of EUR 7.1 million). In H1 2023, the Fund redeemed and issued bonds, repaid the Domus Pro and part of the Europa loan, and paid regular interest on bank loans and bonds. In March 2023 the Fund repaid the Domus Pro loan (EUR 11.0 million) and EUR 6.0 million of the Europa loan using the proceeds from the sale of the shares in BH Domus Pro UAB. In May the Fund redeemed its EUR 50 million unsecured 5-year bond issue, completed a private placement of 5-year bonds and issued bonds in the total volume of EUR 42 million. At the end of H1 2023, the Fund’s consolidated cash and cash equivalents amounted to EUR 18.2 million (31 December 2022: EUR 5.3 million). Operating costs are fully covered by cash flows generated by rental activities.

Key earnings figures

EUR ‚Äė000 ¬† ¬† ¬† ¬† Q2 2023 Q2 2022 Change (%)
Net rental income         4,293 4,482 (4.2%)
Administrative expenses (678) (726) (6.6%)
Other operating income 5 271 (98.5%)
Losses on disposal of investment properties (2,218)
Valuation gains (losses) on investment properties (14,619) 178 (8,312.9%)
Operating profit (loss)         (13,217) 4,205 (414.3%)
Net financial expenses (2,387) (1,518) 57.2%
Profit (loss) before tax         (15,604) 2,687 (680.8%)
Income tax 577 (444) 230.0%
Net profit (loss) for the period       (15,027) 2,243 (770.0%)
Weighted average number of units outstanding (units) 119,635,429 119,635,429
Earnings per unit (EUR)       (0.13) 0.02

Key financial position figures

EUR ‚Äė000 ¬† ¬† ¬† 30.06.2023 31.12.2022 Change (%)
Investment properties in use 255,734 333,123 (23.2%)
Gross asset value (GAV)     278,822 343,963 (18.9%)
Interest-bearing loans and bonds 153,144 194,569 (21.3%)
Total liabilities 160,318 210,308 (23.8%)
IFRS Net asset value (IFRS NAV)     118,504 133,655 (11.3%)
EPRA Net Reinstatement Value (EPRA NRV)     122,123 141,943 (14.0%)
Number of units outstanding (units) 119,635,429 119,635,429
IFRS Net asset value (IFRS NAV) per unit (EUR) 0.9905 1.1172 (11.3%)
EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) 1.0208 1.1865 (14.0%)
Loan-to-Value ratio (%) 59.9% 58.4%
Average effective interest rate (%) 4.2% 3.0%

During Q2 2023, the average actual occupancy of the portfolio was 87.2% (Q1 2023: 89.6%). The occupancy rate as of 30 June 2023 was 84.6% (31 March 2023: 88.8%). The overall occupancy rate was impacted by the decreased occupancy in Galerija Centrs, LNK and Lincona.

Excluding the Meraki building, the office segment remained strong at around 94.0% occupancy during Q2 2023. Sky SC, Vainodes I and CC Plaza are now fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. The agreement with the anchor tenant ARKET in Galerija Centrs was signed in December 2022. Construction works for ARKET fit-out started in Q1 2023, with an opening planned in November 2023.

The average direct property yield during Q2 2023 was 5.3% (Q1 2023: 4.7%). The net initial yield for the whole portfolio for Q2 2023 was 5.9% (Q1 2023: 5.0%). Rent indexation across the portfolio had a positive impact on the property yields albeit the short-term vacancy in Galerija Centrs due to construction works related to ARKET fit-out is still affecting the Fund’s performance.

Overview of the Fund’s investment properties as of 30 June 2023

Property name Sector Fair value1
(EUR ‚Äė000)
NLA
(sq. m)
Direct property yield
 Q2 20232
Net initial yield
Q2 20233
Occupancy rate
Vilnius, Lithuania            
Europa SC Retail 35,747 17,051 3.8% 4.3% 83.6%
North Star Office 20,368 10,579 7.0% 7.0% 98.5%
Meraki Office 16,240 8,275 0.0% 0.0% 32.2%
Total Vilnius   72,355 35,905 4.8% 5.0% 76.1%
Riga, Latvia            
Upmalas Biroji BC Office 20,045 10,459 8.1% 9.4% 98.8%
Vainodes I Office 17,220 8,128 6.7% 8.2% 100.0%
LNK Centre Office 15,260 7,450 6.4% 6.6% 46.9%
Sky SC Retail 5,480 3,259 8.2% 7.4% 100.0%
Galerija Centrs Retail 66,854 19,293 4.1% 4.7% 80.9%
Total Riga   124,859 48,589 5.6% 6.3% 84.0%
Tallinn, Estonia            
Postimaja & CC Plaza complex Retail 23,088 9,232 3.8% 5.4% 95.6%
Postimaja & CC Plaza complex Leisure 12,432 9,139 7.2% 6.2% 100.0%
Lincona Office 14,180 10,775 6.8% 7.4% 85.8%
Pirita SC Retail 8,820 5,425 6.4% 8.9% 98.1%
Total Tallinn   58,520 34,571 5.4% 6.5% 94.1%
Total portfolio   255,734 119,065 5.3% 5.9% 84.6%
  1. Based on the latest valuation as of 30 June 2023, subsequent capital expenditure and recognised right-of-use assets,
  2. Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.
  3. 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 ‚Äė000 ¬† 01.04.2023-
30.06.2023
01.04.2022-
30.06.2022
01.01.2023-
30.06.2023
01.01.2022-
30.06.2022
Rental income   4,821 5,111 10,095 10,070
Service charge income 1,745 1,341 3,187 2,645
Cost of rental activities (2,273) (1,970) (4,787) (4,040)
Net rental income   4,293 4,482 8,495 8,675
Administrative expenses (678) (726) (1,414) (1,385)
Other operating income 5 271 15 278
Losses on disposal of investment properties (2,218) (3,751)
Valuation gains (losses) on investment properties (14,619) 178 (14,623) 172
Operating profit (loss)   (13,217) 4,205 (11,278) 7,740
Financial income 1 1
Financial expenses (2,388) (1,518) (4,425) (2,960)
Net financial expenses   (2,387) (1,518) (4,424) (2,960)
Profit (loss) before tax (15,604) 2,687 (15,702) 4,780
Income tax charge 577 (444) 697 (541)
Profit (loss) for the period   (15,027) 2,243 (15,005) 4,239
 
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net gain (loss) on cash flow hedges 78 575 (173) 1,296
Income tax relating to net gain (loss) on cash flow hedges (14) (51) 27 (115)
Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods   64 524 (146) 1,181
Total comprehensive income (expense) for the period, net of tax   (14,963) 2,767 (15,151) 5,420
           
Basic and diluted earnings per unit (EUR)   (0.13) 0.02 (0.13) 0.04

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‚Äė000 ¬† 30.06.2023 31.12.2022
Non-current assets      
Investment properties 255,734 333,123
Intangible assets 6 6
Property, plant and equipment 2 1
Derivative financial instruments                  1,557 2,228
Other non-current assets 210
Total non-current assets   257,509 335,358
Current assets
Trade and other receivables 2,072 2,693
Prepayments 377 273
Derivative financial instruments 646 292
Cash and cash equivalents 18,218 5,347
Total current assets   21,313 8,605
Total assets   278,822 343,963
Equity
Paid in capital 145,200 145,200
Cash flow hedge reserve 1,535 1,681
Retained earnings (28,231) (13,226)
Total equity   118,504 133,655
Non-current liabilities
Interest-bearing loans and borrowings 64,760 124,017
Deferred tax liabilities 2,798 7,490
Other non-current liabilities 712 1,240
Total non-current liabilities   68,270 132,747
Current liabilities
Interest-bearing loans and borrowings 88,648 71,094
Trade and other payables 2,510 5,644
Income tax payable 10
Other current liabilities 890 813
Total current liabilities   92,048 77,561
Total liabilities   160,318 210,308
Total equity and liabilities   278,822 343,963

For more information, please contact: 

Tarmo Karotam
Baltic Horizon Fund manager
E-mail tarmo.karotam@nh-cap.com
www.baltichorizon.com

The Fund is a registered contractual public closed-end real estate fund that is managed by Alternative Investment Fund Manager license holder Northern Horizon Capital AS. Both the Fund and the Management Company are supervised by the Estonian Financial Supervision Authority.

This announcement contains information that the Management Company is obliged to disclose pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the above distributors,  23:30 EEST on 8 August 2023.

BHF semi-annual report H1 2023

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