Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial results of Baltic Horizon Fund (the Fund) for Q1 2020.
Impact of COVID-19 pandemic
At the beginning of 2020 new coronavirus (COVID-19) started spreading all over the world, which has had an impact on businesses and economies, including in the Baltics. The virus outbreak has caused significant shifts in the Fund’s operating environment, which will likely lead to a negative overall effect on the Fund’s expected 2020 performance.
As the situation is uncertain and developing fast the Fund management team at this point is not yet able to assess the full financial consequences of the virus outbreak. The results of Q1 2020 remained largely unaffected by the pandemic and indicated a strong performance during the quarter. A significant impact on the Fund’s operating performance will be visible in Q2 2020 as the first effects of the pandemic emerged at the end of March 2020.
In response to the COVID-19 outbreak, Northern Horizon Capital AS, the Management Company of the Fund, has taken assertive action to manage the risks arising from the pandemic and to protect the long-term value for the investors. The Management Company is focusing on optimizing operating costs and continuing active communication with the tenants to ensure long-term rent collection. The Fund has opted to retain approx. EUR 1.8 million of distributable cash flow for Q1 2020 results to strengthen the Fund’s financial position. The Management Company will continue to actively monitor the economic impact of the pandemic and reassess future distribution levels depending on the upcoming operating results.
The Fund is implementing a number of relief initiatives focused on alleviating the financial hardship of the most vulnerable group of tenants, whose operations were mostly severely affected by the outbreak. The Fund has agreed to grant rent payment deferral for a period of 90 days and waive all penalties and interest arising from the rent deferral for the most affected tenants.
Baltic Horizon Fund is having active negotiations with mainly retail tenants regarding rent reductions and waivers during the quarantine period, which will have a negative impact on the Fund’s performance in Q2 2020. As of 15 May 2020, the Fund management has decided on various discounts for the quarantine period based on discussions with retail tenants. The Fund assessed the impact of COVID-19 on each tenant’s operating performance during the lockdown and granted discounts to the most affected tenants. For those affected, the discounts from the Fund side on average are around 50% considering the government support measures and may be applicable only up until July 2020.
Distributions to unitholders for Q4 2019 and Q1 2020 Fund results
On 31 January 2020, the Fund declared a cash distribution of EUR 3,175 thousand (EUR 0.028 per unit) to the Fund unitholders for Q4 2019 results. This represents a 2.16% return on the weighted average Q4 2019 net asset value to its unitholders.
On 24 April 2020, the Fund declared a cash distribution of EUR 1,701 thousand (EUR 0.015 per unit) to the Fund unitholders for Q1 2020 results. This represents a 1.12% return on the weighted average Q1 2020 net asset value to its unitholders.
Net profit and net rental income
In Q1 2020, the Group recorded a net profit of EUR 3.4 million, which increased by 54.3%, compared to a net profit of EUR 2.2 million for Q1 2019. Net profit was significantly impacted by the increase in net rental income due to new property acquisitions during 2019. The positive impact of an increase in net rental income was partially offset by an increase in administrative expenses and net financing costs. The increase in net financing costs arose from a higher average cost of financing. Earnings per unit for the quarter were EUR 0.03 (Q1 2019: EUR 0.03).
During the quarter, the Group recorded net rental income of EUR 5.8 million against EUR 3.9 million in Q1 2019. The increase was achieved through new acquisitions that were made following the capital raisings in 2019. The acquisition of the largest asset in the portfolio (Galerija Centrs) and North Star office building had a significant effect on the Group’s net rental income growth in Q1 2020 as compared to Q1 2019. On an EPRA like-for-like basis, portfolio net rental income over the year increased by 2.8% mainly due to stronger performance in the Estonian and Latvia markets. The increase was partially offset by the weaker performance in the Lithuanian market due to provisions related to the lockdown in the Baltic States.
Portfolio properties in the office segment contributed 49.2% (Q1 2019: 55.1%) of net rental income in Q1 2020 followed by the retail segment with 46.2% (Q1 2019: 38.4%) and the leisure segment with 4.6% (Q1 2019: 6.5%).
Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 36.1% of total portfolio net rental income in Q1 2020. Total net rental income attributable to neighbourhood shopping centres accounted for 10.1% in Q1 2020.
During the quarter, investment properties in Latvia and Lithuania contributed 39.9% (Q1 2019: 28.0%) and 34.6% (Q1 2019: 36.8%) of net rental income respectively, while investment properties in Estonia contributed 25.5% (Q1 2019: 35.2%).
Gross Asset Value (GAV)
At the end of Q1 2020, the GAV increased to EUR 373.3 million (31 December 2019: EUR 371.7 million) which was a rise of 0.4% over the quarter. The increase is mainly related to the capital investments made into the Meraki office building development project. The Fund aims to continue the construction of the Meraki office building throughout 2020 once the extent of the potential impact of the COVID-19 pandemic becomes clearer. The Management Company will continue to actively monitor the economic impact of the pandemic and ensure sufficient liquidity levels during the construction period.
Net Asset Value (NAV)
At the end of Q1 2020, the Fund NAV was EUR 152.5, remaining stable as compared to the end of 2019. The increase in operational performance over the quarter was offset by a EUR 3.2 million dividend distribution to the unitholders and a negative cash flow hedge reserve movement of EUR 0.2 million. At 31 March 2020, NAV per unit stood at EUR 1.3452 (31 December 2019: EUR 1.3451), while NAV per unit based on EPRA standards was EUR 1.4349 (31 December 2019: EUR 1.4333).
Investment properties
The Baltic Horizon Fund portfolio consists of 15 cash flow investment properties in the Baltic capitals and an investment property under construction on the Meraki land plot. At the end of Q1 2020, the appraised value of the Fund’s portfolio was EUR 360.3 million (31 December 2019: EUR 358.9 million). During the quarter, the Group invested EUR 0.1 million in the existing property portfolio and an additional EUR 1.3 million in the Meraki development project.
Interest bearing loans and bonds
Interest bearing loans and bonds remained at a similar level as at 31 December 2019 amounting to EUR 205.8 million. Outstanding bank loans decreased slightly due to regular bank loan amortization. Annual loan amortization forms 0.2% of total debt outstanding.
Cash flow
Cash inflow from core operating activities for Q1 2020 amounted to EUR 4.3 million (Q1 2019: cash inflow of EUR 3.0 million). Cash outflow from investing activities was EUR 0.1 million (Q1 2019: cash outflow of EUR 17.9 million) due to subsequent capital expenditure on existing portfolio properties. Cash outflow from financing activities was EUR 4.6 million (Q1 2019: cash inflow of EUR 5.6 million). During the quarter, the Fund made a cash distribution of EUR 3.2 million and paid regular interest on bank loans and bonds. At the end of Q1 2020, the Fund had a sufficient amount of cash (EUR 9.4 million) to cover its liquidity needs amid the COVID-19 pandemic.
Key earnings figures
| EUR ‘000 | Q1 2020 | Q1 2019 | Change (%) | |||||
| Net rental income | 5,772 | 3,916 | 47.4% | |||||
| Administrative expenses | (889) | (709) | 25.4% | |||||
| Other operating income | 8 | 6 | 33.3% | |||||
| Valuation gains (losses) on investment properties | (4) | – | – | |||||
| Operating profit | 4,887 | 3,213 | 52.1% | |||||
| Net financing costs | (1,376) | (897) | 53.4% | |||||
| Profit before tax | 3,511 | 2,316 | 51.6% | |||||
| Income tax | (157) | (143) | 9.8% | |||||
| Net profit for the period | 3,354 | 2,173 | 54.3% | |||||
| Weighted average number of units outstanding (units) | 113,387,525 | 78,496,8311 | 44.4% | |||||
| Earnings per unit (EUR) | 0.03 | 0.03 | – | |||||
Key financial position figures
| EUR ‘000 | 31.03.2020 | 31.12.2019 | Change (%) | |||||
| Investment properties in use | 356,666 | 356,575 | 0.0% | |||||
| Investment property under construction | 3,669 | 2,367 | 55.0% | |||||
| Gross asset value (GAV) | 373,345 | 371,734 | 0.4% | |||||
| Interest bearing loans and bonds | 205,765 | 205,827 | (0.0%) | |||||
| Total liabilities | 220,813 | 219,216 | 0.7% | |||||
| Net asset value (NAV) | 152,532 | 152,518 | 0.0% | |||||
| Number of units outstanding (units) | 113,387,525 | 113,387,525 | – | |||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 1.3452 | 1.3451 | 0.0% | |||||
| EPRA Net asset value (EPRA NAV) per unit (EUR) | 1.4349 | 1.4333 | 0.1% | |||||
| Loan-to-Value ratio (%) | 57.1% | 57.3% | – | |||||
| Average effective interest rate (%) | 2.6% | 2.6% | – | |||||
- The number of units excludes 255,969 units acquired by the Fund as part of the unit buy-back program.
Property performance
During Q1 2020, the average actual occupancy of the portfolio was 97.6% (Q4 2019: 98.0%). Taking into account all rental guarantees, the effective occupancy rate was 97.6% (Q4 2019: 98.0%). The occupancy rate as of 31 March 2020 was 97.4% (31 December 2019: 98.3%). The average direct property yield during Q1 2020 was 6.7% (Q4 2019: 6.6%). The net initial yield for the whole portfolio for Q1 2020 was 6.5% (Q4 2019: 6.4%). The increase in property yields is mainly related to the stronger like-for-like performance of the Estonian properties. The average rental rate for the whole portfolio for Q1 2020 was EUR 13.5 per sq. m.
| Property name | Sector | Fair value1 (EUR ‘000) | NLA (sq. m.) | Direct property yield2 | Net initial yield3 | Occupancy rate for Q1 2020 |
| Vilnius, Lithuania | ||||||
| Duetto I | Office | 16,460 | 8,587 | 7.5% | 6.8% | 100.0%4 |
| Duetto II | Office | 18,935 | 8,674 | 7.3% | 7.1% | 100.0%4 |
| Europa SC | Retail | 40,721 | 16,856 | 6.2% | 5.7% | 95.1% |
| Domus Pro Retail Park | Retail | 16,670 | 11,247 | 7.7% | 7.2% | 97.5% |
| Domus Pro Office | Office | 7,740 | 4,831 | 8.7% | 7.3% | 100.0% |
| North Star | Office | 20,104 | 10,550 | 7.0% | 7.3% | 100.0% |
| Meraki Development | 3,669 | – | – | – | – | |
| Total Vilnius | 124,299 | 60,745 | 7.1% | 6.6% | 98.2% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 24,209 | 10,458 | 7.5% | 7.4% | 100.0% |
| Vainodes I | Office | 20,902 | 8,052 | 6.8% | 6.9% | 100.0% |
| LNK Centre | Office | 17,007 | 7,453 | 6.4% | 6.5% | 100.0% |
| Sky SC | Retail | 4,851 | 3,254 | 7.7% | 8.0% | 98.4% |
| Galerija Centrs | Retail | 76,408 | 20,022 | 6.0% | 5.9% | 93.0% |
| Total Riga | 143,377 | 49,239 | 6.5% | 6.4% | 97.0% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 32,250 | 9,145 | 4.5% | 4.8% | 95.6% |
| Postimaja & CC Plaza complex | Leisure | 15,150 | 8,664 | 9.0% | 7.1% | 100.0% |
| G4S Headquarters | Office | 17,550 | 9,179 | 7.8% | 6.9% | 100.0% |
| Lincona | Office | 17,820 | 10,871 | 8.2% | 7.3% | 100.0% |
| Pirita SC | Retail | 9,889 | 5,508 | 6.0% | 7.5% | 86.5% |
| Total Tallinn | 92,659 | 43,367 | 6.5% | 6.3% | 97.3% | |
| Total portfolio | 360,335 | 153,351 | 6.7% | 6.5% | 97.6% |
- Based on the latest valuation as at 31 December 2019, subsequent capital expenditure and recognised right-of-use assets.
- Direct property yield (DPY) is calculated by dividing NOI by the acquisition value and subsequent capital expenditure of the property.
- The net initial yield (NIY) is calculated by dividing NOI by the market value of the property.
- Effective occupancy rate is 100% due to a rental guarantee.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
| EUR ‘000 | 01.01.2020-31.03.2020 | 01.01.2019-31.03.2019 |
| Rental income | 6,209 | 4,151 |
| Service charge income | 1,356 | 763 |
| Cost of rental activities | (1,793) | (998) |
| Net rental income | 5,772 | 3,916 |
| Administrative expenses | (889) | (709) |
| Other operating income | 8 | 6 |
| Valuation losses on investment properties | (4) | – |
| Operating profit | 4,887 | 3,213 |
| Financial income | 1 | 2 |
| Financial expenses | (1,377) | (899) |
| Net financing costs | (1,376) | (897) |
| Profit before tax | 3,511 | 2,316 |
| Income tax charge | (157) | (143) |
| Profit for the period | 3,354 | 2,173 |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | ||
| Net gains (losses) on cash flow hedges | (178) | (556) |
| Income tax relating to net gains (losses) on cash flow hedges | 13 | 36 |
| Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods | (165) | (520) |
| Total comprehensive income for the period, net of tax | 3,189 | 1,653 |
| Basic and diluted earnings per unit (EUR) | 0.03 | 0.03 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 31.03.2020 | 31.12.2019 |
| Non-current assets | ||
| Investment properties | 356,666 | 356,575 |
| Investment property under construction | 3,669 | 2,367 |
| Derivative financial instruments | 29 | 73 |
| Other non-current assets | 55 | 54 |
| Total non-current assets | 360,419 | 359,069 |
| Current assets | ||
| Trade and other receivables | 2,291 | 1,794 |
| Prepayments | 358 | 301 |
| Other current assets | 893 | 734 |
| Cash and cash equivalents | 9,384 | 9,836 |
| Total current assets | 12,926 | 12,665 |
| Total assets | 373,345 | 371,734 |
| Equity | ||
| Paid in capital | 138,064 | 138,064 |
| Cash flow hedge reserve | (1,721) | (1,556) |
| Retained earnings | 16,189 | 16,010 |
| Total equity | 152,532 | 152,518 |
| Non-current liabilities | ||
| Interest bearing loans and borrowings | 205,661 | 205,718 |
| Deferred tax liabilities | 6,343 | 6,199 |
| Derivative financial instruments | 1,862 | 1,728 |
| Other non-current liabilities | 1,327 | 1,298 |
| Total non-current liabilities | 215,193 | 214,943 |
| Current liabilities | ||
| Interest bearing loans and borrowings | 405 | 414 |
| Trade and other payables | 4,546 | 3,171 |
| Income tax payable | – | 8 |
| Other current liabilities | 669 | 680 |
| Total current liabilities | 5,620 | 4,273 |
| Total liabilities | 220,813 | 219,216 |
| Total equity and liabilities | 373,345 | 371,734 |
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, at 23:05 EET on 15 May 2020.
