Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the three months of 2023.
Net result and net rental income
The Group recorded a net profit of EUR 22 thousand against EUR 1,996 thousand for Q1 2022. The net result was mainly impacted by the one-off sale of BH Domus Pro UAB, which owns a retail park and an office building in Vilnius, Lithuania. The net profit was also impacted by the increased financial expenses. The positive impact of the increase in net rental income was partly offset by temporary vacancy related non-recoverable property costs.
The Group earned net rental income of EUR 4.2 million in both Q1 2023 and Q1 2022. The results for 2023 include only two months’ net rental income of Domus Pro Retail and Office property (EUR 0.3 million), which was sold in February 2023. 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 1.9% year on year, mainly due to higher performance in the office segment. The increase was also impacted by the relatively stable performance of the retail segment.
Portfolio properties in the office segment contributed 61.0% (Q1 2022: 58.4%) of net rental income in Q1 2023, followed by the retail segment with 34.3% (Q1 2022: 36.5%) and the leisure segment with 4.7% (Q1 2022: 5.1%).
Retail assets located in the central business districts (Postimaja, Europa and Galerija Centrs) accounted for 22.4% of total portfolio net rental income in Q1 2023. Total net rental income attributable to neighbourhood shopping centres was 11.9% in Q1 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 mature in May 2023. Closing of the transaction took place on 6 March 2023.
Gross Asset Value (GAV)
At the end of Q1 2023, the Fund’s GAV was EUR 321.3 million (31 December 2022: EUR 344.0 million), 6.6% lower than at the end of the previous period. The decrease is mainly related to the sale of BH Domus Pro UAB.
Net Asset Value (NAV)
At the end of Q1 2023, the Fund’s NAV was EUR 133.5 million (31 December 2022: EUR 133.7 million). Compared to the year-end 2022 NAV, the Fund’s NAV decreased by 0.1%. As of 31 March 2023, IFRS NAV per unit decreased to EUR 1.1156 (31 December 2022: EUR 1.1172), while EPRA net tangible assets and EPRA net reinstatement value was EUR 1.1668 per unit (31 December 2022: EUR 1.1865). EPRA net disposal value was EUR 1.1130 per unit (31 December 2022: EUR 1.1143).
Investment properties
At the end of Q1 2023, the Baltic Horizon Fund portfolio consisted of 14 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 309.0 million (31 December 2022: EUR 333.1 million) and incorporated a total net leasable area of 135,990 sq. m. During Q1 2023 the Group sold the Domus PRO buildings for approx. EUR 23.5 million, invested EUR 0.7 million in reconstruction project and EUR 0.3 million in the existing property portfolio.
Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 177.1 million (31 December 2022: EUR 194.6 million). Outstanding bank loans decreased due to the repayment of part of the Domus Pro and Europa loans and regular bank loan amortisation. Annual loan amortisation accounted for 1.2% of total debt outstanding. Average effective interest rate of the Fund at the end of Q1 2023 was 3.4%.
Cash flow
Cash inflow from core operating activities in 2023 amounted to EUR 2.9 million (Q1 2022: cash inflow of EUR 2.8 million). Cash inflow from investing activities was EUR 7.7 million (Q1 2022: cash outflow of EUR 4.6 million) due to the sale of BH Domus Pro UAB. Cash outflow from financing activities was EUR 8.5 million (Q1 2022: cash outflow of EUR 3.8 million). In Q1 2023, the Fund repaid the Domus Pro loan 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 repaid EUR 6.0 million of the Europa loan using the proceeds from the sale of the shares in BH Domus Pro UAB. At the end of Q1 2023, the Fund’s consolidated cash and cash equivalents amounted to EUR 7.5 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 | Q1 2023 | Q1 2022 | Change (%) | ||||
| Net rental income | 4,202 | 4,193 | 0.2% | ||||
| Administrative expenses | (736) | (659) | 11.7% | ||||
| Other operating income | 10 | 7 | (42.9%) | ||||
| Losses on disposal of investment properties | (1,533) | – | – | ||||
| Valuation gains (losses) on investment properties | (4) | (6) | (33.3%) | ||||
| Operating profit | 1,939 | 3,535 | (45.1) | ||||
| Net financing costs | (2,037) | (1,442) | (41.3%) | ||||
| Profit before tax | (98) | 2,093 | (104.7%) | ||||
| Income tax | 120 | (97) | (223.7%) | ||||
| Net profit for the period | 22 | 1,996 | (98.9%) | ||||
| Weighted average number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| Earnings per unit (EUR) | 0.00 | 0.02 | – | ||||
Key financial position figures
| EUR ‘000 | 31.01.2023 | 31.03.2022 | Change (%) | ||||
| Investment properties in use | 309,047 | 333,123 | (7.2%) | ||||
| Gross asset value (GAV) | 321,302 | 343,963 | (6.6%) | ||||
| Interest-bearing loans and bonds | 177,124 | 194,569 | (9.0%) | ||||
| Total liabilities | 187,835 | 210,308 | (10.7%) | ||||
| IFRS Net asset value (IFRS NAV) | 133,467 | 133,655 | (0.1%) | ||||
| EPRA Net Reinstatement Value (EPRA NRV) | 139,592 | 141,943 | (1.7%) | ||||
| Number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 1.1156 | 1.1172 | (0.1%) | ||||
| EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) | 1.1668 | 1.1865 | (1.7%) | ||||
| Loan-to-Value ratio (%) | 57.3% | 58.4% | – | ||||
| Average effective interest rate (%) | 3.4% | 3.0% | – | ||||
During Q1 2023, the average actual occupancy of the portfolio was 89.6% (Q4 2023: 90.2%). The occupancy rate as of 31 March 2023 was 88.8% (31 December 2022: 90.5%).
Excluding the Meraki building which is in search for an anchor tenant, the office segment occupancy remained at around 97.4% during Q1 2023. Duetto II, Vainodes I, LNK and CC Plaza are fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. The agreement with the new international anchor tenant in Galerija Centrs was signed in December 2022. Construction works for anchor tenant fit-out started in Q1 2023, with an opening planned in November 2023.
The average direct property yield during Q1 2023 was 4.7% (Q4 2022: 5.0%). The net initial yield for the whole portfolio for Q1 2023 was 5.0% (Q4 2022: 5.3%). The decrease is mainly attributable to the short-term vacancy due to the construction works related to anchor tenant fit-out and one-off cost related to “BURZMA” opening.
Overview of the Fund’s investment properties as of 31 March 2023
| Property name | Sector | Fair value1 (EUR ‘000) |
NLA (sq. m) |
Direct property yield Q1 20232 |
Net initial yield Q1 20233 |
Occupancy rate |
| Vilnius, Lithuania | ||||||
| Duetto I | Office | 18,845 | 8,587 | 8.4% | 6.7% | 97.6% |
| Duetto II | Office | 20,253 | 8,674 | 7.6% | 6.9% | 100.0% |
| Europa SC | Retail | 35,795 | 16,929 | 3.7% | 4.1% | 80.9% |
| North Star | Office | 21,790 | 10,579 | 7.2% | 7.0% | 97.7% |
| Meraki | Office | 17,422 | 8,113 | 1.3% | 1.4% | 30.9% |
| Total Vilnius | 114,105 | 52,882 | 5.3% | 5.1% | 82.4% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 20,960 | 10,459 | 7.3% | 8.4% | 98.8% |
| Vainodes I | Office | 18,010 | 8,128 | 6.3% | 7.6% | 100.0% |
| LNK Centre | Office | 17,000 | 7,450 | 6.9% | 6.9% | 100.0% |
| Sky SC | Retail | 5,773 | 3,259 | 7.8% | 6.9% | 98.5% |
| Galerija Centrs | Retail | 67,885 | 19,142 | 1.3% | 1.5% | 81.3% |
| Total Riga | 129,628 | 48,566 | 3.9% | 4.4% | 92.2% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 26,715 | 9,232 | 3.6% | 4.9% | 95.6% |
| Postimaja & CC Plaza complex | Leisure | 14,396 | 9,094 | 6.6% | 5.5% | 100.0% |
| Lincona | Office | 15,203 | 10,775 | 6.8% | 7.2% | 87.6% |
| Pirita SC | Retail | 9,000 | 5,441 | 5.6% | 7.9% | 92.6% |
| Total Tallinn | 65,314 | 34.542 | 5.1% | 6.0% | 93.8% | |
| Total portfolio | 309,047 | 135,990 | 4.7% | 5.0% | 88.8% |
1. Based on the latest valuation as of 31 December 2022, subsequent capital expenditure and recognised right-of-use assets,
2. Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.
3. 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 | 01.01.2023-31.03.2023 | 01.01.2022-31.03.2022 |
| Rental income | 5,274 | 4,959 |
| Service charge income | 1,442 | 1,304 |
| Cost of rental activities | (2,514) | (2,070) |
| Net rental income | 4,202 | 4,193 |
| Administrative expenses | (736) | (659) |
| Other operating income | 10 | 7 |
| Losses on disposal of investment properties | (1,533) | – |
| Valuation gains (losses) on investment properties | (4) | (6) |
| Operating profit (loss) | 1,939 | 3,535 |
| Financial expenses | (2,037) | (1,442) |
| Net financial expenses | (2,037) | (1,442) |
| Profit (loss) before tax | (98) | 2,093 |
| Income tax charge | 120 | (97) |
| Profit (loss) for the period | 22 | 1,996 |
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | ||
| Net gain (loss) on cash flow hedges | (251) | 721 |
| Income tax relating to net gain (loss) on cash flow hedges | 41 | (64) |
| Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods | (210) | 657 |
| Total comprehensive income (expense) for the period, net of tax | (188) | 2,653 |
| Basic and diluted earnings per unit (EUR) | 0.00 | 0.02 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 31.03.2023 | 31.12.2022 | |
| Non-current assets | |||
| Investment properties | 309,047 | 333,123 | |
| Intangible assets | 6 | 6 | |
| Property, plant and equipment | 1 | 1 | |
| Derivative financial instruments | 1,577 | 2,228 | |
| Total non-current assets | 310,631 | 335,358 | |
| Current assets | |||
| Trade and other receivables | 2,247 | 2,693 | |
| Prepayments | 292 | 273 | |
| Derivative financial instruments | 637 | 292 | |
| Cash and cash equivalents | 7,495 | 5,347 | |
| Total current assets | 10,671 | 8,605 | |
| Total assets | 321,302 | 343,963 | |
| Equity | |||
| Paid in capital | 145,200 | 145,200 | |
| Cash flow hedge reserve | 1,471 | 1,681 | |
| Retained earnings | (13,204) | (13,226) | |
| Total equity | 133,467 | 133,655 | |
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 58,349 | 124,017 | |
| Deferred tax liabilities | 5,203 | 7,490 | |
| Other non-current liabilities | 998 | 1,240 | |
| Total non-current liabilities | 64,550 | 132,747 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 119,151 | 71,094 | |
| Trade and other payables | 3,356 | 5,644 | |
| Income tax payable | 1 | 10 | |
| Other current liabilities | 777 | 813 | |
| Total current liabilities | 123,285 | 77,561 | |
| Total liabilities | 187,835 | 210,308 | |
| Total equity and liabilities | 321,302 | 343,963 |
