Arco Vara: 2023 Annual Report of Arco Vara

GROUP CEO’S REVIEW

While 2021 and 2022 were a sprint on the real estate market, last year marked the start of a marathon in the heat of Euribor.  The base interest rates of the central bank have pushed both investors and consumers into a comfortable trot, waiting for the lowering of interest rates like a drinking station at a distance run to inject new energy into the economy.

At the same time, looking back shows us positive signs that also alleviate future business risks of Arco Vara. For example, we have come through an extremely volatile time for prices of materials, as indicated by the stabilised construction prices.

The completion of homes at Kodulahe Quarter was the peak of last year for us, as we delivered 66 new homes in the Rannakalda development. The success of the Rannakalda site was also tied to the stabilised construction costs, boosting the profits of the group to 3.6 million euros.

In addition to completing the homes, Arco Vara commenced the assessment of environmental impact, having conducted the initial lifetime analysis in the Kodulahe Rannakalda building to be used to improve the impact of future projects as early as in the designing stage. The results of the analysis are provided in more depth on page 19 of this report.

The largest factor in our Bulgarian activities last year was the sale of the Madrid Blvd building, which was successfully completed in Q2. The sale of the building was connected to the long-term strategy of focusing on developing residential real estate and reach the delivery of 200 homes every year.

The Bulgarian construction activities continued as scheduled at Botanica Lozen. At the time of publishing this report, six of the 16 houses have been pre-sold, intended to be completed at the end of 2024. The next milestone in the Botanica Lozen development is issuing the stage II construction permit, which is planned to cover 24 residential buildings.

Looking at financial indicators, Arco Vara reached a new level of 20% ROE, which is one of the long-term goals of the company. Considering the delivery of homes, the volume of assets of the company decreased while the equity-to-asset ratio increased to nearly 60%, enhancing the security and capacity of the company to continue developments as planned despite the difficult times in the world of interest rates.

The period of tension continues in 2024 while the team of Arco Vara focuses on making new investments. We are in a period where the construction costs have stabilised but the stock of the company is decreasing and interest expenses remain high, creating opportunities for us to obtain new development volumes.

KEY PERFORMANCE INDICATORS

The group’s revenue was 18,339 thousand euros, which is 36% more than the revenue of 13,494 thousand euros in 2022.

In 2023, the Group’s operating profit (=EBIT) was 3,940 thousand euros and net profit 3,550 thousand euros. In 2022, the group made operating profit of 1,062 thousand euros and net profit of 695 thousand euros.

In 2023, 66 apartments and 3 commercial spaces were sold in projects developed by the group in Estonia and three land plots in Latvia. In 2022, 72 apartments and a land plot in Latvia.

In 2023, the group’s debt burden (net loans) decreased by 6,054 thousand euros down to the level of 8,608 thousand euros as of 31 December 2022. As of 31 December 2023, the weighted average annual interest rate of interest-bearing liabilities was 8.2%. This is an increase of 2.4 percentage points compared to 31 December 2022.

OPERATING REPORT

The revenue of the Group totaled 18,339 thousand euros in 2023 (in 2022: 13,494 thousand euros), including revenue from the sale of properties in the Group’s own development projects in the amount of 17,581 thousand euros (in 2022: 12,426 thousand euros).

Most of the other revenue consisted of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 371 thousand euros in the first half of 2023. The sale process of the Madrid building was completed in July 2023. There was no profit or loss from the sale of the building in 2023, because discounts were recognized in 2022. The transaction is not reflected in the sales revenue, as it was a sale of real estate investments that is reported in the net amount in other income. Equity capital worth 4.1 million euros was released from the transaction.

Arco Vara’s own construction company Arco Tarc OÜ is the main contractor for the most premium stage of Kodulahe called Rannakalda. By the end of 2023, a pavilion, 4 commercial spaces and 108 apartments (in three separate apartment buildings), many of which have a sea view, were completed. As of the publication date of the annual report, 70 of the 113 plots have been sold.

A subsidiary of Arco Vara, Aktsiaselts Kolde, in 2021 signed an agreement for land acquisition beside Lake Harku, address Paldiski road 124b, Tallinn. More than 35,000 m² of residential and commercial real estate (GBA) is planned for development. The project is called Arcojärve. The expected development period is 6 years with the start of construction planned for 2024.

In the Pirita Kuldlehe project, a spacious and exclusive cluster housing with 5 homes was built in 2023. The sale of the project has started.

The Botanica Lozen project foresees construction of 54 homes (houses) in three stages. The construction and sale of the first 16 buildings has started – the private houses of the first stage will be completed by the end of 2024. By the date of publication of the annual report, 6 out of 16 houses have been pre-sold.

There were 3 Marsili residential plots in stock in Latvia on 31.12.2022, which were sold in 2023. As of the reporting date, there is no development activity in Latvia.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Arco Vara 2023 ENG