GROUP CEO’S REVIEW

The Estonian real estate market in the third quarter of 2025 was characterized by stable and moderately recovering activity. The number of transactions remained at a comparable level to the previous quarter, indicating that the market is adapting after the cooling of recent years. The average price per square meter of apartments showed a slight upward trend, particularly in the more active areas of Tallinn, where demand for high-quality residential space remains strong.

The market continued to be influenced by high interest rates and buyer caution, which kept transaction activity under control. At the same time, improved confidence and stabilized economic expectations supported steady demand. Overall, the situation suggests that the Estonian real estate market has reached a phase of balance — following periods of rapid growth and sharp decline, both prices and transaction volumes have stabilized. Provided the macroeconomic environment remains stable and interest rates begin to decline, moderate market recovery can be expected in the first half of 2026, particularly in the new development segment.

One of the most notable events of the quarter for Arco Vara was its first public bond offering, which attracted exceptionally strong investor interest and was oversubscribed more than twofold. This marks the largest single bond issue among real estate developers listed on the Baltic stock exchanges to date.

The purpose of the bond issue was to finance the development of the Luther Quarter — one of the largest urban projects in central Tallinn — transforming a historic industrial area into a modern residential and business environment. Arco Vara’s vision for the Luther Quarter is to create a balanced and human-scale urban space that combines homes, workplaces, cafés, culture, and high-quality public areas. At the heart of the quarter, a green area is planned for public use, supporting the creation of an integrated living environment.

Our goal is not merely to construct new buildings, but to create a “city within a city” — a vibrant and versatile quarter where life unfolds around the clock, offering a pleasant environment for living, working, and leisure. Tallinn needs more comprehensive urban solutions — residential quarters that function as independent environments while remaining organically connected to the surrounding city structure.

Rannakalda development: Five apartments were sold in the third quarter, reflecting continued interest in high-quality residential properties near the city center. By the end of the quarter, 101 out of 113 apartments/commercial units had been sold. The sales target is to complete the sale of the remaining units by the end of 2025.

Soodi 6 development: Construction works began on 30 June. By the end of the quarter, 19 out of 66 apartments/commercial units had been sold under binding preliminary agreements. The project is attractive to young families, investors, and more demanding clients thanks to its excellent location and well-thought-out layouts.

Spordi development: Construction also began in June. By the end of the quarter, 12 out of 56 apartments had been sold under preliminary agreements — a significant sales result achieved within just four months. The Spordi project enhances Arco Vara’s portfolio with a development in a highly desirable Kristiine district location, where new projects are scarce but housing demand remains high. The project features modern and smart solutions.

Arcojärve development: The detailed spatial plan was approved after the reporting period, on 15 October. This is a strategically important project that lays the foundation for further investments in new inner-city developments.

Bulgarian development: Arco Vara initiated a strategic exit from the Bulgarian market to focus on development projects in Estonia and enhance operational efficiency and value creation. Negotiations regarding the Bulgarian subsidiary are ongoing, and decisions will be made shortly in coordination with the Supervisory Board.

Kuldlehe development: One apartment was reserved and one sold at the end of August. Only one apartment remains available, whose exclusive character and limited availability keep the project well-positioned in Tallinn’s premium segment.

The main objectives for the fourth quarter focus on active sales efforts and the steady progress of development projects. Priorities include selling the final apartment in the Kuldlehe development and realizing at least six additional units in the Rannakalda project. Preparations will also begin for the presale of the first phase of the Luther development. Construction and active sales will continue at the Spordi and Soodi 6 developments, with the goal of signing at least six additional preliminary agreements for each project by the end of the year.

In summary, the third quarter of 2025 was a period of stable progress and key achievements for Arco Vara. The quarter was marked by a successful first public bond issue, ongoing construction across several developments, and accelerated sales activity. The advancement of preparations for the Luther Quarter and the approval of the Arcojärve detailed plan provide a strong foundation for the company’s next strategic steps. Arco Vara’s position in the Estonian real estate market remains solid, built on well-considered developments, quality, and sustainable growth.

KEY PERFORMANCE INDICATORS

The Group’s sales revenue for the first nine months of 2025 amounted to EUR 5,624 thousand, which is EUR 1,537 thousand more than in the same period of 2024. For the first nine months of 2025, the Group recorded an operating profit (=EBIT) of EUR 622 thousand and a net profit of EUR 214 thousand. In comparison, during the first nine months of 2024, the Group incurred an operating loss (=EBIT) of EUR 158 thousand and a net loss of EUR 845 thousand.

In Q3 2025, a total of 25 apartments were sold in the Group’s development projects, including 20 under preliminary purchase agreements and 5 under real right contracts. During the first nine months of 2025, 35 apartments were sold, 21 under preliminary purchase agreements and 14 under real right contracts. For comparison, in Q3 2024, 10 apartments and 2 commercial units were sold in the Group’s development projects (7 apartments under real right contracts, 3 apartments, and 2 commercial units under preliminary purchase agreements). A total of 17 apartments and 2 commercial units were sold during the first nine months of 2024 (14 apartments under real right contracts, 3 apartments, and 2 commercial units under preliminary purchase agreements).

As of 30 September 2025, the inventory included 12 completed apartments and 1 commercial unit, compared to 37 completed apartments and 1 commercial unit as of 30 September 2024.

As of 30 September 2025, the Group’s total assets had more than doubled compared to 30 September 2024. The main reason for the increase in assets was the acquisition of new development projects, including the Luther Quarter and Spordi 3a/3b development projects.

As of the end of the first nine months of 2025, the Group’s net debt amounted to EUR 47,407 thousand, which is EUR 31,585 thousand higher than at the end of the same period in the previous year. The increase in net debt was mainly due to the acquisition of the Luther Quarter, which was partially financed with a bank loan. In addition, during the third quarter of 2025, the Group issued bonds totaling EUR 15,000 thousand. The weighted average interest rate on the Group’s interest-bearing liabilities was 9.09% as of 30 September 2025.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

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