Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the twelve months of 2022.
Net result and net rental income
In 2022, the Group recorded a net profit of EUR 3.9 million against EUR 1.4 million for 2021. The net result was mainly driven by strong recovery of the Galerija Centrs operating performance as fewer COVID-19 rent reliefs were granted to tenants in 2022 and increased rent indexation. The net result in 2021 was significantly impacted by the one-off negative valuation result of EUR 7.1 million. In 2022, the valuation resulted in a net fair value loss of EUR 2.9 million (-1.8% of portfolio value). The positive impact of the increase in net rental income was partly offset by non-recovered property costs. Earnings per unit for 2022 were EUR 0.03 (2021: EUR 0.01).
The Group earned net rental income of EUR 17.4 million in 2022 compared to 17.0 million in 2021. The results for 2021 still included EUR 1.0 million of net rental income from G4S Headquarters, which was sold in Q4 2021 and did not contribute to 2022 results. 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 9.6% year on year, mainly due to higher performance in the retail segment, especially in Galerija Centrs.
Retail assets still have not fully recovered from decreased occupancy levels caused by the COVID-19 pandemic. Assuming the recovery of retail assets to pre-COVID levels and successful leasing progress on the first tower of Meraki, the portfolio yield could reach historical levels of 6.5%-7.0%.
Domus PRO complex disposal
On 9 February 2023, the Fund signed an agreement with UAB PREF III to sell 100% shares of BH Domus PRO UAB which owns Retail park and Office building in Vilnius, Lithuania. The agreed sales 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 will be 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 is expected to take place by the end of February 2023.
Europa parking house disposal
On 30 December 2022, Baltic Horizon Fund signed a real estate sale and purchase agreement with UAB Prime Location Property Fund, closing the deal for selling its share in the parking house of Europa Shopping Centre which was previously co-owned with the purchaser. The sales price was EUR 4 million. The proceeds of the transaction were used to optimise balance sheet structure and reduce the financial leverage of the Fund. Following the transaction, the Fund’s outstanding loan balance decreased by EUR 3.5 million. The sale agreement stipulates certain guarantees to ensure a sufficient number of parking spaces for the proper operation of the shopping centre as well as a possibility to ensure free parking for the customers of the Europa Shopping Centre. Baltic Horizon Fund remains the sole owner of the Europa Shopping Centre.
Gross Asset Value (GAV)
At the end of Q4 2022, the Fund’s GAV was EUR 344.0 million (31 December 2021: EUR 346.3 million), 0.7% lower than at the end of the previous period. The decrease is mainly related to a negative property revaluation of EUR 2.9 million.
Net Asset Value (NAV)
At the end of 2022, the Fund’s NAV slightly increased to EUR 133.7 million (31 December 2021: EUR 132.6 million). Compared to the year-end 2021 NAV, the Fund’s NAV increased by 0.8%. The increase in operational performance, positive cash flow hedge reserve movement of EUR 2.5 million over the period was partially offset by a EUR 5.4 million dividend distribution to the unitholders. As of 31 December 2022, IFRS NAV per unit rose to EUR 1.1172 (31 December 2021: EUR 1.1082), while EPRA net tangible assets and EPRA net reinstatement value was EUR 1.1865 per unit (31 December 2021: EUR 1.1884). EPRA net disposal value was EUR 1.1143 per unit (31 December 2021: EUR 1.1086).
Investment properties
At the end of 2022, the Baltic Horizon Fund portfolio consisted of 15 cash flow generating investment properties in the Baltic capitals. The fair value of the Fund’s portfolio was EUR 333.1 million (31 December 2021: EUR 327.4 million) and incorporated a total net leasable area of 151,870 sq. m. The first tower of the Meraki office building was commissioned in September 2022, which added additional area to the Fund’s portfolio.
Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 194.6 million, remaining at a level similar to year-end 2021 (31 December 2021: EUR 198.6 million). Outstanding bank loans decreased slightly due to repayment of part of the Europa loan, the Meraki bond and regular bank loan amortisation. Annual loan amortisation accounted for 0.7% of total debt outstanding.
Cash flow
Cash inflow from core operating activities in 2022 amounted to EUR 15.3 million (2021: cash inflow of EUR 14.7 million). Cash outflow from investing activities was EUR 9.7 million (2021: cash outflow of EUR 6.9 million) due to subsequent capital expenditure on existing portfolio properties and investments in the Meraki, Postimaja and CC Plaza complex, Europa and Galerija Centrs development projects. Cash outflow from financing activities was EUR 16.4 million (2021: cash outflow of EUR 18.7 million). 2022, the Fund made a cash distribution of EUR 5.4 million, paid regular interest on bank loans and bonds, paid premiums on interest rate caps and. In November the Fund repaid Meraki bonds and in December 2022 the Fund also repaid EUR 3.5 million of Europa loan from the sales proceeds of Europa parking house. At the end of 2022, the Fund’s consolidated cash and cash equivalents amounted to EUR 5.3 million (31 December 2021: EUR 16.1 million). Operating costs are fully covered by cash flows generated by rental activities.
Key earnings figures
| EUR ‘000 | Q4 2022 | Q4 2021 | Change (%) | ||||
| Net rental income | 4,457 | 3,798 | 17.4% | ||||
| Administrative expenses | (996) | (633) | (57.3%) | ||||
| Other operating income | – | 440 | (100.0%) | ||||
| Losses on disposal of investment properties | (423) | (71) | (495.8%) | ||||
| Valuation gains (losses) on investment properties | (3,072) | 7,103 | (143.2%) | ||||
| Operating profit | (34) | 10,637 | (100.3%) | ||||
| Net financing costs | (1,849) | (1,484) | (24.6%) | ||||
| Profit before tax | (1,883) | 9,153 | (120.6%) | ||||
| Income tax | (310) | (861) | (64.0%) | ||||
| Net profit for the period | (2,193) | 8,292 | (126.4%) | ||||
| Weighted average number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| Earnings per unit (EUR) | (0.02) | 0.07 | – | ||||
Key financial position figures
| EUR ‘000 | 31.12.2022 | 31.12.2021 | Change (%) | ||||
| Investment properties in use | 333,123 | 315,959 | 5.4% | ||||
| Investment property under construction | – | 11,400 | (100.0%) | ||||
| Gross asset value (GAV) | 343,963 | 346,338 | (0.7%) | ||||
| Interest-bearing loans and bonds | 194,569 | 198,571 | (2.0%) | ||||
| Total liabilities | 210,308 | 213,754 | (1.6%) | ||||
| IFRS Net asset value (IFRS NAV) | 133,655 | 132,584 | 0.8% | ||||
| EPRA Net Reinstatement Value (EPRA NRV) | 141,943 | 142,176 | 0.2% | ||||
| Number of units outstanding (units) | 119,635,429 | 119,635,429 | – | ||||
| IFRS Net asset value (IFRS NAV) per unit (EUR) | 1.1172 | 1.1082 | 0.8% | ||||
| EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR) | 1.1865 | 1.1884 | (0.2%) | ||||
| Loan-to-Value ratio (%) | 58.4% | 60.7% | – | ||||
| Average effective interest rate (%) | 3.0% | 2.7% | – | ||||
During Q4 2022, the average actual occupancy of the portfolio was 90.2% (Q3 2022: 92.5%). The occupancy rate as of 31 December 2022 was 90.5% (30 September 2022: 90.0%). The overall occupancy rate was impacted by the completion of the development of the first tower of the Meraki building. The first tenants moved to the premises in September 2022. As of December 2022, the occupancy rate of the portfolio, excluding the impact of the Meraki building, increased to 93.9% (Q3 2022: 93.8%). Occupancy figures were supported by new lease agreements signed in Northstar and Vainodes I. Additional premises of almost 500 and 200 sq. m were leased to the existing tenants in Vainodes I and Northstar buildings respectively in Q4 2022.
Occupancy rates in the office segment were strongly impacted by the completed Meraki office development. The building was commissioned in September with an occupancy rate of 23.4%. Excluding the Meraki building, the office segment remained strong at around 97.6% occupancy during Q4 2022. Most remaining vacancies were temporary as lease agreements have been signed and tenants will be moving in soon. Duetto II, Northstar LNK and Vainodes I are now fully occupied. The Fund’s retail and office leasing teams were expanded in 2022 to speed up the leasing process. Agreement with the anchor tenant was signed in Galerija Centrs in December 2022.
Many leases in the portfolio were prolonged during Q3 and Q4 2022 resulting in the increased Fund’s WAULT. The average direct property yield remained stable during Q4 2022 was 5.0% (Q3 2022: 5.0%). The net initial yield for the whole portfolio for Q4 2022 was 5.3% (Q3 2022: 5.3%).
Overview of the Fund’s investment properties as of 31 December 2022
| Property name | Sector | Fair value1 (EUR ‘000) |
NLA (sq. m) |
Direct property yield Q4 20222 |
Net initial yield Q4 20223 |
Occupancy rate |
| Vilnius, Lithuania | ||||||
| Duetto I | Office | 18,845 | 8,587 | 8.0% | 6.5% | 97.6% |
| Duetto II | Office | 20,253 | 8,674 | 7.9% | 7.2% | 100.0% |
| Europa SC | Retail | 35,658 | 16,901 | 3.5% | 3.9% | 85.5% |
| Domus Pro Retail Park | Retail | 17,047 | 11,226 | 8.2% | 7.7% | 98.5% |
| Domus Pro Office | Office | 8,040 | 4,831 | 8.7% | 7.0% | 91.4% |
| North Star | Office | 21,788 | 10,579 | 6.9% | 6.7% | 100.0% |
| Meraki4 | Office | 17,330 | 8,113 | (1.3%) | (1.5%) | 30.9% |
| Total Vilnius | 138,961 | 68,911 | 5.2% | 5.1% | 87.2% | |
| Riga, Latvia | ||||||
| Upmalas Biroji BC | Office | 20,961 | 10,459 | 8.0% | 8.9% | 98.8% |
| Vainodes I | Office | 18,010 | 8,128 | 6.0% | 7.2% | 100.0% |
| LNK Centre | Office | 17,000 | 7,452 | 6.5% | 6.4% | 100.0% |
| Sky SC | Retail | 5,761 | 3,241 | 9.5% | 8.5% | 98.5% |
| Galerija Centrs | Retail | 67,130 | 19,137 | 2.9% | 3.4% | 80.6% |
| Total Riga | 128,862 | 48,417 | 4.9% | 5.5% | 92.0% | |
| Tallinn, Estonia | ||||||
| Postimaja & CC Plaza complex | Retail | 26,715 | 9,232 | 3.4% | 4.5% | 95.6% |
| Postimaja & CC Plaza complex | Leisure | 14,385 | 9,094 | 4.5% | 3.7% | 100.0% |
| Lincona | Office | 15,200 | 10,775 | 6.7% | 6.5% | 91.5% |
| Pirita SC | Retail | 9,000 | 5,441 | 5.6% | 7.6% | 92.6% |
| Total Tallinn | 65,300 | 34,542 | 4.6% | 5.2% | 95.0% | |
| Total portfolio | 333,123 | 151,870 | 5.0% | 5.3% | 90.5% |
- Based on the latest valuation as of 31 December 2022, 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.
- The Fund completed the development of the first tower of the Meraki building in September 2022. Rental income is generated starting from October 2022.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
| EUR ‘000 | 01.10.2022-31.12.2022 | 01.10.2021- 31.12.2021 | 01.01.2022-31.12.2022 | 01.01.2021- 31.12.2021 |
|||
| Rental income | 5,060 | 4,651 | 20,482 | 19,495 | |||
| Service charge income | 1,967 | 1,204 | 5,974 | 4,901 | |||
| Cost of rental activities | (2,570) | (2,057) | (9,026) | (7,392) | |||
| Net rental income | 4,457 | 3,798 | 17,430 | 17,004 | |||
| Administrative expenses | (996) | (633) | (3,133) | (2,869) | |||
| Other operating income | – | 440 | 278 | 444 | |||
| Losses on disposal of investment properties | (423) | (71) | (423) | (71) | |||
| Valuation gains (losses) on investment properties | (3,072) | 7,103 | (2,914) | (7,161) | |||
| Operating profit (loss) | (34) | 10,637 | 11,238 | 7,347 | |||
| Financial income | – | – | 1 | 1 | |||
| Financial expenses | (1,849) | (1,484) | (6,312) | (5,706) | |||
| Net financial expenses | (1,849) | (1,484) | (6,311) | (5,705) | |||
| Profit (loss) before tax | (1,883) | 9,153 | 4,927 | 1,642 | |||
| Income tax charge | (310) | (861) | (983) | (229) | |||
| Profit (loss) for the period | (2,193) | 8,292 | 3,944 | 1,413 | |||
| Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods | |||||||
| Net gain on cash flow hedges | 142 | 279 | 2,746 | 898 | |||
| Income tax relating to net gain (loss) on cash flow hedges | (19) | (32) | (236) | (66) | |||
| Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods | 123 | 247 | 2,510 | 832 | |||
| Total comprehensive income (expense) for the period, net of tax | (2,070) | 8,539 | 6,454 | 2,245 | |||
| Basic and diluted earnings per unit (EUR) | (0.02) | 0.07 | 0.03 | 0.01 | |||
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR ‘000 | 31.12.2022 | 31.12.2021 | |
| Non-current assets | |||
| Investment properties | 333,123 | 315,959 | |
| Investment property under construction | – | 11,400 | |
| Intangible assets | 6 | 9 | |
| Property, plant and equipment | 1 | 2 | |
| Derivative financial instruments | 2,228 | – | |
| Other non-current assets | – | 23 | |
| Total non-current assets | 335,358 | 327,393 | |
| Current assets | |||
| Trade and other receivables | 2,693 | 2,708 | |
| Prepayments | 273 | 137 | |
| Derivative financial instruments | 292 | – | |
| Cash and cash equivalents | 5,347 | 16,100 | |
| Total current assets | 8,605 | 18,945 | |
| Total assets | 343,963 | 346,338 | |
| Equity | |||
| Paid in capital | 145,200 | 145,200 | |
| Cash flow hedge reserve | 1,681 | (829) | |
| Retained earnings | (13,226) | (11,787) | |
| Total equity | 133,655 | 132,584 | |
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 124,017 | 157,471 | |
| Deferred tax liabilities | 7,490 | 6,297 | |
| Derivative financial instruments | – | 756 | |
| Other non-current liabilities | 1,240 | 1,103 | |
| Total non-current liabilities | 132,747 | 165,627 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 71,094 | 41,676 | |
| Trade and other payables | 5,644 | 5,223 | |
| Income tax payable | 10 | 5 | |
| Derivative financial instruments | – | 109 | |
| Other current liabilities | 813 | 1,114 | |
| Total current liabilities | 77,561 | 48,127 | |
| Total liabilities | 210,308 | 213,754 | |
| Total equity and liabilities | 343,963 | 346,338 |
