Baltic Horizon: Baltic Horizon Fund consolidated unaudited results for Q1 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 three months of 2023.

Net result and net rental income

The Group recorded a net profit of EUR 22 thousand against EUR 1,996 thousand for Q1 2022. The net result was mainly impacted by the one-off sale of BH Domus Pro UAB, which owns a retail park and an office building in Vilnius, Lithuania. The net profit was also impacted by the increased financial expenses. The positive impact of the increase in net rental income was partly offset by temporary vacancy related non-recoverable property costs.

The Group earned net rental income of EUR 4.2 million in both Q1 2023 and Q1 2022. The results for 2023 include only two months’ net rental income of Domus Pro Retail and Office property (EUR 0.3 million), which was sold in February 2023. 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 1.9% year on year, mainly due to higher performance in the office segment. The increase was also impacted by the relatively stable performance of the retail segment.

Portfolio properties in the office segment contributed 61.0% (Q1 2022: 58.4%) of net rental income in Q1 2023, followed by the retail segment with 34.3% (Q1 2022: 36.5%) and the leisure segment with 4.7% (Q1 2022: 5.1%).

Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 22.4% of total portfolio net rental income in Q1 2023. Total net rental income attributable to neighbourhood shopping centres was 11.9% in Q1 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 mature in May 2023. Closing of the transaction took place on 6 March 2023.

Gross Asset Value (GAV)

At the end of Q1 2023, the Fund’s GAV was EUR 321.3 million (31 December 2022: EUR 344.0 million), 6.6% lower than at the end of the previous period. The decrease is mainly related to the sale of BH Domus Pro UAB.

Net Asset Value (NAV)

At the end of Q1 2023, the Fund’s NAV was EUR 133.5 million (31 December 2022: EUR 133.7 million). Compared to the year-end 2022 NAV, the Fund’s NAV decreased by 0.1%. As of 31 March 2023, IFRS NAV per unit decreased to EUR 1.1156 (31 December 2022: EUR 1.1172), while EPRA net tangible assets and EPRA net reinstatement value was EUR 1.1668 per unit (31 December 2022: EUR 1.1865). EPRA net disposal value was EUR 1.1130 per unit (31 December 2022: EUR 1.1143).

Investment properties

At the end of Q1 2023, the Baltic Horizon Fund portfolio consisted of 14 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 309.0 million (31 December 2022: EUR 333.1 million) and incorporated a total net leasable area of 135,990 sq. m.  During Q1 2023 the Group sold the Domus PRO buildings for approx. EUR 23.5 million, invested EUR 0.7 million in reconstruction project and EUR 0.3 million in the existing property portfolio.

Interest-bearing loans and bonds

Interest-bearing loans and bonds (excluding lease liabilities) were EUR 177.1 million (31 December 2022: EUR 194.6 million). Outstanding bank loans decreased due to the repayment of part of the Domus Pro and Europa loans and regular bank loan amortisation. Annual loan amortisation accounted for 1.2% of total debt outstanding. Average effective interest rate of the Fund at the end of Q1 2023 was 3.4%.

Cash flow

Cash inflow from core operating activities in 2023 amounted to EUR 2.9 million (Q1 2022: cash inflow of EUR 2.8 million). Cash inflow from investing activities was EUR 7.7 million (Q1 2022:  cash outflow of EUR 4.6 million) due to the sale of BH Domus Pro UAB. Cash outflow from financing activities was EUR 8.5 million (Q1 2022: cash outflow of EUR 3.8 million). In Q1 2023, the Fund repaid the Domus Pro loan 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 repaid EUR 6.0 million of the Europa loan using the proceeds from the sale of the shares in BH Domus Pro UAB. At the end of Q1 2023, the Fund’s consolidated cash and cash equivalents amounted to EUR 7.5 million (31 December 2022: EUR 5.3 million). Operating costs are fully covered by cash flows generated by rental activities.

Key earnings figures

EUR ‘000       Q1 2023 Q1 2022 Change (%)
Net rental income       4,202 4,193 0.2%
Administrative expenses (736) (659) 11.7%
Other operating income 10 7 (42.9%)
Losses on disposal of investment properties (1,533)
Valuation gains (losses) on investment properties (4) (6) (33.3%)
Operating profit       1,939 3,535 (45.1)
Net financing costs (2,037) (1,442) (41.3%)
Profit before tax       (98) 2,093 (104.7%)
Income tax 120 (97) (223.7%)
Net profit for the period     22 1,996 (98.9%)
Weighted average number of units outstanding (units) 119,635,429 119,635,429
Earnings per unit (EUR)     0.00 0.02

Key financial position figures

EUR ‘000       31.01.2023 31.03.2022 Change (%)
Investment properties in use 309,047 333,123 (7.2%)
Gross asset value (GAV)     321,302 343,963 (6.6%)
Interest-bearing loans and bonds 177,124 194,569 (9.0%)
Total liabilities       187,835 210,308 (10.7%)
IFRS Net asset value (IFRS NAV)     133,467 133,655 (0.1%)
EPRA Net Reinstatement Value (EPRA NRV)     139,592 141,943 (1.7%)
     
Number of units outstanding (units) 119,635,429 119,635,429
IFRS Net asset value (IFRS NAV) per unit (EUR) 1.1156 1.1172 (0.1%)
EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) 1.1668 1.1865 (1.7%)
Loan-to-Value ratio (%) 57.3% 58.4%
Average effective interest rate (%) 3.4% 3.0%

During Q1 2023, the average actual occupancy of the portfolio was 89.6% (Q4 2023: 90.2%). The occupancy rate as of 31 March 2023 was 88.8% (31 December 2022: 90.5%).

Excluding the Meraki building which is in search for an anchor tenant, the office segment occupancy remained at around 97.4% during Q1 2023. Duetto II, Vainodes I, LNK and CC Plaza are fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. The agreement with the new international anchor tenant in Galerija Centrs was signed in December 2022. Construction works for anchor tenant fit-out started in Q1 2023, with an opening planned in November 2023.

The average direct property yield during Q1 2023 was 4.7% (Q4 2022: 5.0%). The net initial yield for the whole portfolio for Q1 2023 was 5.0% (Q4 2022: 5.3%). The decrease is mainly attributable to the short-term vacancy due to the construction works related to anchor tenant fit-out and one-off cost related to “BURZMA” opening.

Overview of the Fund’s investment properties as of 31 March 2023

Property name Sector Fair value1
(EUR ‘000)
NLA
(sq. m)
Direct property yield
 Q1 20232
Net initial yield
Q1 20233
Occupancy rate
Vilnius, Lithuania
Duetto I Office 18,845 8,587 8.4% 6.7% 97.6%
Duetto II Office 20,253 8,674 7.6% 6.9% 100.0%
Europa SC Retail 35,795 16,929 3.7% 4.1% 80.9%
North Star Office 21,790 10,579 7.2% 7.0% 97.7%
Meraki Office 17,422 8,113 1.3% 1.4% 30.9%
Total Vilnius 114,105 52,882 5.3% 5.1% 82.4%
Riga, Latvia
Upmalas Biroji BC Office 20,960 10,459 7.3% 8.4% 98.8%
Vainodes I Office 18,010 8,128 6.3% 7.6% 100.0%
LNK Centre Office 17,000 7,450 6.9% 6.9% 100.0%
Sky SC Retail 5,773 3,259 7.8% 6.9% 98.5%
Galerija Centrs Retail 67,885 19,142 1.3% 1.5% 81.3%
Total Riga 129,628 48,566 3.9% 4.4% 92.2%
Tallinn, Estonia
Postimaja & CC Plaza complex Retail 26,715 9,232 3.6% 4.9% 95.6%
Postimaja & CC Plaza complex Leisure 14,396 9,094 6.6% 5.5% 100.0%
Lincona Office 15,203 10,775 6.8% 7.2% 87.6%
Pirita SC Retail 9,000 5,441 5.6% 7.9% 92.6%
Total Tallinn 65,314 34.542 5.1% 6.0% 93.8%
Total portfolio 309,047 135,990 4.7% 5.0% 88.8%

1. Based on the latest valuation as of 31 December 2022, 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 ‘000 01.01.2023-31.03.2023 01.01.2022-31.03.2022
Rental income 5,274 4,959
Service charge income 1,442 1,304
Cost of rental activities (2,514) (2,070)
Net rental income 4,202 4,193
Administrative expenses (736) (659)
Other operating income 10 7
Losses on disposal of investment properties (1,533)
Valuation gains (losses) on investment properties (4) (6)
Operating profit (loss) 1,939 3,535
Financial expenses (2,037) (1,442)
Net financial expenses (2,037) (1,442)
Profit (loss) before tax (98) 2,093
Income tax charge 120 (97)
Profit (loss) for the period 22 1,996
 
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net gain (loss) on cash flow hedges (251) 721
Income tax relating to net gain (loss) on cash flow hedges 41 (64)
Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods (210)  657
     
Total comprehensive income (expense) for the period, net of tax (188) 2,653
     
Basic and diluted earnings per unit (EUR) 0.00 0.02

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000   31.03.2023 31.12.2022
Non-current assets  
Investment properties 309,047 333,123
Intangible assets 6 6
Property, plant and equipment 1 1
Derivative financial instruments                 1,577 2,228
Total non-current assets   310,631 335,358
   
Current assets  
Trade and other receivables 2,247 2,693
Prepayments 292 273
Derivative financial instruments 637 292
Cash and cash equivalents 7,495 5,347
Total current assets   10,671 8,605
Total assets   321,302 343,963
   
Equity  
Paid in capital 145,200 145,200
Cash flow hedge reserve 1,471 1,681
Retained earnings (13,204) (13,226)
Total equity   133,467 133,655
   
Non-current liabilities  
Interest-bearing loans and borrowings 58,349 124,017
Deferred tax liabilities 5,203 7,490
Other non-current liabilities 998 1,240
Total non-current liabilities   64,550 132,747
   
Current liabilities  
Interest-bearing loans and borrowings 119,151 71,094
Trade and other payables 3,356 5,644
Income tax payable 1 10
Other current liabilities 777 813
Total current liabilities   123,285 77,561
Total liabilities   187,835 210,308
Total equity and liabilities   321,302 343,963

BHF quarterly report Q1 2023

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