Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the six months of 2023.
Property valuations
In June 2023, the portfolio valuations were conducted by the independent real estate appraiser Colliers International. As of 30 June 2023, the fair value of the Baltic Horizon Fund like-for-like portfolio decreased to EUR 255.7 million (31 December 2022: EUR 268.9 million). Compared to the previous valuations, the change in portfolio value was mainly driven by the changes in exit yields and upward adjustments of the weighted average cost of capital (WACC) due to the rise in interest rates (EURIBOR) over H1 2023.
Net result and net rental income
The Group recorded a net loss of EUR 15.0 million for H1 2023 against a net profit of EUR 4.2 million. The net result was strongly impacted by the negative valuation result of EUR 14.6 million. Meanwhile in H1 2022, the valuation resulted in a net fair value gain of EUR 0.2 million. The sale of the shares in BH Domus Pro UAB which owns a retail park and an office building and BH Duetto UAB, which owns two office buildings, resulted in the loss on disposal of EUR 3.8 million. The net result was also impacted by the higher financial expenses. Earnings per unit for H1 2023 were negative at EUR -0.13 (H1 2022: positive at EUR 0.04).
The Group earned net rental income of EUR 8.5 million in H1 2023 (H1 2022: EUR 8.7 million). The results for 2023 include two months’ net rental income of the Domus Pro Retail and Office property (EUR 0.3 million) and five months’ net rental income of the Duetto properties (EUR 1.2 million), which were sold in February and May 2023, respectively. 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 7.5% year on year, mainly due to the recovery in the retail segment. The increase was also supported by the relatively stable performance of the office segment.
Portfolio properties in the office segment contributed 56.7% (H1 2022: 57.3%) of net rental income in H1 2023, followed by the retail segment with 38.5% (H1 2022: 37.1%) and the leisure segment with 4.8% (H1 2022: 5.6%).
Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 29.0% of total portfolio net rental income in H1 2023. Total net rental income attributable to neighbourhood shopping centres was 9.5% in H1 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 matured in May 2023. Closing of the transaction took place on 6 March 2023.
Sale of BH Duetto UAB shares
On 17 May 2023, the Fund signed a share sale and purchase agreement with ECRE IV (Lux) S.a.r.l. to sell 100% of the shares of BH Duetto UAB, which owns Duetto I and II office buildings in Vilnius, Lithuania. The agreed price of the property was approximately EUR 37 million. The Fund first acquired the properties in 2017 and 2019 from the international developer and earned an IRR of approximately 13.7% and an equity multiple of 1.8x over the period. The proceeds of the transaction will be used to partially redeem new bonds and to invest in the centrally located assets of the Fund. Closing of the transaction took place on 6 June 2023.
Bond issue
On 8 May 2023, the Fund completed the subscription for its 5-year secured bonds of EUR 42 million. The bonds bear a fixed-rate coupon of 8.0% and a floating rate of 3-month EURIBOR payable quarterly. The transaction took place under the private placement regime. The bonds will be redeemed in tranches: the first tranche of EUR 20 million will be redeemed in 1 year from the issue date, the second tranche of EUR 22 million in 5 years from the issue date. The Fund redeemed a part of the bonds in the amount of EUR 7,500,003 early on 1 August 2023. The redemption was accompanied by the reduction of the nominal value of the bonds to EUR 82,142.85 per bond. The total nominal amount of the bonds before the redemption was EUR 42,000,000 and after the redemption is EUR 34,499,997.
Gross Asset Value (GAV)
At the end of H1 2023, the Fund’s GAV was EUR 278.8 million (31 December 2022: EUR 344.0 million), 18.9% lower than at the end of the previous period. The decrease is mainly related to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB.
Net Asset Value (NAV)
At the end of H1 2023, the Fund’s NAV was EUR 118.5 million (31 December 2022: EUR 133.7 million). Compared to the year-end 2022 NAV, the Fund’s NAV decreased by 11.3%. The increase in operational performance was offset by a EUR 14.6 million property valuation loss and EUR 3.8 million loss from the disposal of the BH Domus Pro UAB and BH Duetto UAB shares. Excluding the impact of valuations, the NAV at the end of H1 2023 would have been EUR 132.7 million or EUR 1.1093 per unit. As of 30 June 2023, IFRS NAV per unit decreased to EUR 0.9905 (31 December 2022: EUR 1.1172), while EPRA net tangible assets and EPRA net reinstatement value were EUR 1.0208 per unit (31 December 2022: EUR 1.1865). EPRA net disposal value was EUR 0.9869 per unit (31 December 2022: EUR 1.1143).
Investment properties
At the end of H1 2023, the Baltic Horizon Fund portfolio consisted of 12 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 255.7 million (31 December 2022: EUR 333.1 million) and incorporated a total net leasable area of 119.1 thousand sq. m. During H1 2023 the Group sold the Domus PRO buildings for approximately EUR 23.5 million and the Duetto I and Duetto II buildings for approximately EUR 37 million, invested EUR 0.7 million in reconstruction projects and EUR 0.8 million in the existing property portfolio.
Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 153.1 million (31 December 2022: EUR 194.6 million). Outstanding bank loans decreased due to the repayment of part of the Domus Pro, Europa and Duetto loans and regular bank loan amortisation. Annual loan amortisation accounted for 1.5% of total debt outstanding.
Cash flow
Cash inflow from core operating activities in H1 2023 amounted to EUR 6.2 million (H1 2022: cash inflow of EUR 7.3 million). Cash inflow from investing activities was EUR 22.3 million (H1 2022: cash outflow of EUR 7.6 million) due to the sale of the shares in BH Domus Pro UAB and BH Duetto UAB. Cash outflow from financing activities was EUR 15.6 million (H1 2022: cash outflow of EUR 7.1 million). In H1 2023, the Fund redeemed and issued bonds, repaid the Domus Pro 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 EUR 6.0 million of the Europa loan using the proceeds from the sale of the shares in BH Domus Pro UAB. In May the Fund redeemed its EUR 50 million unsecured 5-year bond issue, completed a private placement of 5-year bonds and issued bonds in the total volume of EUR 42 million. At the end of H1 2023, the Fund’s consolidated cash and cash equivalents amounted to EUR 18.2 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 | Q2 2023 | Q2 2022 | Change (%) | |||||
| Net rental income | 4,293 | 4,482 | (4.2%) | |||||
| Administrative expenses | (678) | (726) | (6.6%) | |||||
| Other operating income | 5 | 271 | (98.5%) | |||||
| Losses on disposal of investment properties | (2,218) | – | – | |||||
| Valuation gains (losses) on investment properties | (14,619) | 178 | (8,312.9%) | |||||
| Operating profit (loss) | (13,217) | 4,205 | (414.3%) | |||||
| Net financial expenses | (2,387) | (1,518) | 57.2% | |||||
| Profit (loss) before tax | (15,604) | 2,687 | (680.8%) | |||||
| Income tax | 577 | (444) | 230.0% | |||||
| Net profit (loss) for the period | (15,027) | 2,243 | (770.0%) | |||||
| Weighted average number of units outstanding (units) | 119,635,429 | 119,635,429 | – | |||||
| Earnings per unit (EUR) | (0.13) | 0.02 | – | |||||
Key financial position figures
| EUR ‘000 | 30.06.2023 | 31.12.2022 | Change (%) | ||||||||||
| Investment properties in use | 255,734 | 333,123 | (23.2%) | ||||||||||
| Gross asset value (GAV) | 278,822 | 343,963 | (18.9%) | ||||||||||
| Interest-bearing loans and bonds | 153,144 | 194,569 | (21.3%) | ||||||||||
| Total liabilities | 160,318 | 210,308 | (23.8%) | ||||||||||
| IFRS Net asset value (IFRS NAV) | 118,504 | 133,655 | (11.3%) | ||||||||||
| EPRA Net Reinstatement Value (EPRA NRV) | 122,123 | 141,943 | (14.0%) | ||||||||||
| Number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||||||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 0.9905 | 1.1172 | (11.3%) | ||||||||||
| EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) | 1.0208 | 1.1865 | (14.0%) | ||||||||||
| Loan-to-Value ratio (%) | 59.9% | 58.4% | – | ||||||||||
| Average effective interest rate (%) | 4.2% | 3.0% | – | ||||||||||
During Q2 2023, the average actual occupancy of the portfolio was 87.2% (Q1 2023: 89.6%). The occupancy rate as of 30 June 2023 was 84.6% (31 March 2023: 88.8%). The overall occupancy rate was impacted by the decreased occupancy in Galerija Centrs, LNK and Lincona.
Excluding the Meraki building, the office segment remained strong at around 94.0% occupancy during Q2 2023. Sky SC, Vainodes I and CC Plaza are now fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. The agreement with the anchor tenant ARKET in Galerija Centrs was signed in December 2022. Construction works for ARKET fit-out started in Q1 2023, with an opening planned in November 2023.
The average direct property yield during Q2 2023 was 5.3% (Q1 2023: 4.7%). The net initial yield for the whole portfolio for Q2 2023 was 5.9% (Q1 2023: 5.0%). Rent indexation across the portfolio had a positive impact on the property yields albeit the short-term vacancy in Galerija Centrs due to construction works related to ARKET fit-out is still affecting the Fund’s performance.
Overview of the Fund’s investment properties as of 30 June 2023
| Property name | Sector | Fair value1 (EUR ‘000) |
NLA (sq. m) |
Direct property yield Q2 20232 |
Net initial yield Q2 20233 |
Occupancy rate |
| Vilnius, Lithuania | ||||||
| Europa SC | Retail | 35,747 | 17,051 | 3.8% | 4.3% | 83.6% |
| North Star | Office | 20,368 | 10,579 | 7.0% | 7.0% | 98.5% |
| Meraki | Office | 16,240 | 8,275 | 0.0% | 0.0% | 32.2% |
| Total Vilnius | 72,355 | 35,905 | 4.8% | 5.0% | 76.1% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 20,045 | 10,459 | 8.1% | 9.4% | 98.8% |
| Vainodes I | Office | 17,220 | 8,128 | 6.7% | 8.2% | 100.0% |
| LNK Centre | Office | 15,260 | 7,450 | 6.4% | 6.6% | 46.9% |
| Sky SC | Retail | 5,480 | 3,259 | 8.2% | 7.4% | 100.0% |
| Galerija Centrs | Retail | 66,854 | 19,293 | 4.1% | 4.7% | 80.9% |
| Total Riga | 124,859 | 48,589 | 5.6% | 6.3% | 84.0% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 23,088 | 9,232 | 3.8% | 5.4% | 95.6% |
| Postimaja & CC Plaza complex | Leisure | 12,432 | 9,139 | 7.2% | 6.2% | 100.0% |
| Lincona | Office | 14,180 | 10,775 | 6.8% | 7.4% | 85.8% |
| Pirita SC | Retail | 8,820 | 5,425 | 6.4% | 8.9% | 98.1% |
| Total Tallinn | 58,520 | 34,571 | 5.4% | 6.5% | 94.1% | |
| Total portfolio | 255,734 | 119,065 | 5.3% | 5.9% | 84.6% |
- Based on the latest valuation as of 30 June 2023, subsequent capital expenditure and recognised right-of-use assets,
- Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.
- 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 | 01.04.2023- 30.06.2023 |
01.04.2022- 30.06.2022 |
01.01.2023- 30.06.2023 |
01.01.2022- 30.06.2022 |
|
| Rental income | 4,821 | 5,111 | 10,095 | 10,070 | |
| Service charge income | 1,745 | 1,341 | 3,187 | 2,645 | |
| Cost of rental activities | (2,273) | (1,970) | (4,787) | (4,040) | |
| Net rental income | 4,293 | 4,482 | 8,495 | 8,675 | |
| Administrative expenses | (678) | (726) | (1,414) | (1,385) | |
| Other operating income | 5 | 271 | 15 | 278 | |
| Losses on disposal of investment properties | (2,218) | – | (3,751) | – | |
| Valuation gains (losses) on investment properties | (14,619) | 178 | (14,623) | 172 | |
| Operating profit (loss) | (13,217) | 4,205 | (11,278) | 7,740 | |
| Financial income | 1 | – | 1 | – | |
| Financial expenses | (2,388) | (1,518) | (4,425) | (2,960) | |
| Net financial expenses | (2,387) | (1,518) | (4,424) | (2,960) | |
| Profit (loss) before tax | (15,604) | 2,687 | (15,702) | 4,780 | |
| Income tax charge | 577 | (444) | 697 | (541) | |
| Profit (loss) for the period | (15,027) | 2,243 | (15,005) | 4,239 | |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | |||||
| Net gain (loss) on cash flow hedges | 78 | 575 | (173) | 1,296 | |
| Income tax relating to net gain (loss) on cash flow hedges | (14) | (51) | 27 | (115) | |
| Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods | 64 | 524 | (146) | 1,181 | |
| Total comprehensive income (expense) for the period, net of tax | (14,963) | 2,767 | (15,151) | 5,420 | |
| Basic and diluted earnings per unit (EUR) | (0.13) | 0.02 | (0.13) | 0.04 | |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 30.06.2023 | 31.12.2022 | |
| Non-current assets | |||
| Investment properties | 255,734 | 333,123 | |
| Intangible assets | 6 | 6 | |
| Property, plant and equipment | 2 | 1 | |
| Derivative financial instruments | 1,557 | 2,228 | |
| Other non-current assets | 210 | – | |
| Total non-current assets | 257,509 | 335,358 | |
| Current assets | |||
| Trade and other receivables | 2,072 | 2,693 | |
| Prepayments | 377 | 273 | |
| Derivative financial instruments | 646 | 292 | |
| Cash and cash equivalents | 18,218 | 5,347 | |
| Total current assets | 21,313 | 8,605 | |
| Total assets | 278,822 | 343,963 | |
| Equity | |||
| Paid in capital | 145,200 | 145,200 | |
| Cash flow hedge reserve | 1,535 | 1,681 | |
| Retained earnings | (28,231) | (13,226) | |
| Total equity | 118,504 | 133,655 | |
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 64,760 | 124,017 | |
| Deferred tax liabilities | 2,798 | 7,490 | |
| Other non-current liabilities | 712 | 1,240 | |
| Total non-current liabilities | 68,270 | 132,747 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 88,648 | 71,094 | |
| Trade and other payables | 2,510 | 5,644 | |
| Income tax payable | – | 10 | |
| Other current liabilities | 890 | 813 | |
| Total current liabilities | 92,048 | 77,561 | |
| Total liabilities | 160,318 | 210,308 | |
| Total equity and liabilities | 278,822 | 343,963 |
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, 23:30 EEST on 8 August 2023.
