EfTEN: EfTEN Real Estate Fund III AS unaudited results for 4th quarter and 12 months 2021

Comment of the fund manager regarding the 2021. year’s results

The year 2021 turned out to be a successful year above expectations for EfTEN Real Estate Fund III AS. Despite the two coronavirus waves that occurred during the year, the group increased both rental income and EBITDA in each commercial real estate segment, even excluding revenues from the new commercial buildings. The portfolio’s commercial areas’ vacancy rate remained at a record low of less than 1%. The revaluation of investment property generated a total profit of EUR 6.4 million for 2021 and the portfolio’s unleveraged primary net yield was 7.1% at year-end. The fund generated total free cash flow of EUR 4.55 million in 2021, of which the total gross dividend would be EUR 3.64 million according to the fund’s dividend policy. Taking into account the obligation to maintain minimum cash balances resulting from the special terms of the Fund’s subsidiaries’ loans and the short-term liquidity needs, the Fund’s Management Board proposes to the Supervisory Board to pay dividends in excess of the dividend policy, totalling EUR 4.06 million (80 cents per share).

As at 31.12.2021, the Fund has EUR 5.9 million of uninvested equity, the safe investment of which is a priority for the Fund’s management. In view of the fact that the level of yield on transactions in the Baltic commercial real estate market has been steadily declining in recent years, the Fund’s management does not plan to organise a new share issue in the current financial year.

Financial overview

EfTEN Real Estate Fund III AS’s consolidated revenue for the 12 months of 2021 amounted to EUR 12.921 million (12 months 2020: EUR 10.731 million), up 20% year-on-year. The group’s net rental income for 2021 totalled EUR 12.412 million (2020: EUR 10.103 million), increasing 23%. The Group’s net profit for the same period amounted to EUR 13.099 million (2020 12 months: EUR 3.317 million).

The Fund generated total revenue of €3.508 million in the fourth quarter of 2021, up €475 thousand (16%) on the same period last year. The Fund’s net rental income for the fourth quarter of 2021 amounted to EUR 2,916 thousand, an increase of 17.7% compared to the same period last year.

In December 2021, Colliers International carried out a regular valuation of the Fund’s real estate portfolio, which resulted in an increase of 2.8% (EUR 4.423 million) in the value of the real estate portfolio, mainly due to the expected rental cash flow and lower exit yields. The Fund’s consolidated net profit for Q4 amounted to EUR 5.355 million (Q4 2020: EUR 2,310 million).

Consolidated net rental income margin for the 12 months of 2021 was 96% (2020 12 months: 94%), so costs directly related to property management (including land tax, insurance, maintenance and improvement costs) and marketing costs accounted for 4% (2020: 6%) of revenue. Interest expenses have increased in 2021 due to the addition of loans taken out for the acquisition of new real estate investments, but also due to an increase in the interest rate of 0.3-0.5 percentage points as a result of the refinancing of loans taken out for the Ulonu office building and the DSV logistics centres.

The Group’s assets as at 31.12.2021 amounted to EUR 176.401 million (31.12.2020: EUR 151.632 million), i.e. the fair value of investment properties accounted for 92% of the assets (31.12.2020: 95%).

2021, the Group received bank loans for the acquisition and development of new real estate investments totalling EUR 6.3 million. The weighted average interest rate on the Group’s loan agreements (including interest rate swap agreements) at the end of December is 2.3% (31.12.2020: same) and LTV (Loan to Value) 44% (31.12.2020: 50%).

Real estate portfolio

In mid-June 2021, the Group acquired a new real estate investment in Panevežyse, Lithuania. The total cost of the real estate investment, including transaction costs, amounted to EUR 10.011 million and the annual rental income of the building is EUR 799 thousand.

At the end of December 2021, the Group has 16 (31.12.2020: 15) commercial property investments with a fair value at the balance sheet date of EUR 161.961 million (31.12.2020: EUR 144.235 million) and an acquisition cost of EUR 147.557 million (31.12.2020: EUR 136.349 million).

In 2021, the Group earned a total rental income of EUR 12,165 thousand. Rental income calculated on a comparable basis totalled EUR 9,283 thousand in 2021, 7% more than in 2020. In 2021, the Group granted a total of EUR 369 thousand in write-downs related to the Covid-19 crisis, i.e. without these write-downs, the Group’s rental income in 2021 would have been 2.9% higher.

Information on shares

The net asset value per share of EfTEN Real Estate Fund III AS as of 31.12.2021 was EUR 19.11 (31.12.2020: EUR 16.93). The net asset value of the share of EfTEN Real Estate Fund III AS increased by 12.9% during 2021. In June 2021, the fund paid dividends from the profit for 2020 totalling EUR 2.798 million (spring 2020: EUR 2.745 million). Without the payment of dividends, the Fund’s net asset value would have increased by 16.3% in 2021.

In addition to the net asset value per share calculated in accordance with the IFRS mentioned above, EfTEN Real Estate Fund III AS also calculates the net asset value per share recommended by EPRA (European Public Real Estate Association) to provide investors with the most appropriate fair value of net assets. EPRA’s recommended guidance assumes a long-term economic strategy for real estate companies, so temporary differences in a situation where no sale of assets is likely to take place in the foreseeable future will cloud the transparency of the fair value of the net assets of the fund. Therefore, the deferred income tax charge related to investment property and the fair value of financial instruments (interest rate swaps) are eliminated from the net asset value calculated under IFRS in arriving at the net asset value of EPRA.

During 2021, the Group has generated a free cash flow of EUR 4.550 million (2020 12 months: EUR 3.747 million), of which the total gross dividend would be EUR 3.64 million, in line with the Fund’s dividend policy. In view of the obligation to maintain minimum cash balances resulting from the special terms of the Fund’s subsidiaries’ loans and the short-term liquidity needs, the Fund’s Board of Directors proposes to the Board of Governors to pay a dividend in excess of the dividend policy of EUR 4.06 million (80 cents per share).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EREFIII 12 months 2021 interim report