Management Board of Northern Horizon Capital AS has approved the unaudited
financial results of Baltic Horizon Fund (the Fund) for the six months of 2024.
Our strategic ambitions
Over the past year, our focus has been on reshaping our strategy to foster
sustainable value, concentrating efforts on avenues that promise reliable and
consistent growth for our investors. In light of prevailing market conditions,
we believe that the execution of the 'Modern City Life' strategy, is paramount
to their best interests. While market conditions have been challenging over the
last couple of years, we do expect a gradual recovery in 2025 and in the
subsequent years.
In the coming years, we expect two thirds of the Fund's NOI to come from
centrally located multi-functional assets aligned with our 'Modern City Life'
strategy. These spaces are meticulously designed to ignite, elevate and enrich
the lives of modern citizens and communities. The remaining results are expected
to be derived primarily from government-rented premises and select suburban
supermarkets and other segments. Our value proposition hinges on quality,
flexibility, sustainability, and remarkable service, underpinned by strategic
locations tailored to meet the evolving needs of our clientele.
The Fund's management team has made the strategic decision to implement key
performance indicators (KPIs) as a means to effectively measure and track
performance. This decision stems from the recognition that clear and measurable
benchmarks are essential for evaluating progress towards the Fund's objectives.
By defining specific KPIs, the team aims to enhance transparency,
accountability, and decision-making processes.
The focus of the Fund management team is and will be on these major objectives:
* Portfolio occupancy of at least 90% by end of 2024;
* Loan-to-Value target at 50% or lower and repayment of the bonds;
* To consider disposing of non-strategic assets over the next 18 months;
* Clear refurbishment and letting strategy for the next 1-2 years with an aim
to reach the portfolio's NOI potential of EUR 18 million by 2027.
* Maintaining 100% BREEAM or LEED certified portfolio.
* Achieving not less than 4 stars from GRESB assessment
As of today, we have successfully repaid the short-term part of the bonds that
matured in July 2024, reached 100% of portfolio certification and are moving
towards our occupancy goal and NOI potential.
Leasing performance
The total portfolio consists of close to 119,000 sq.m. across the Baltic
Capitals in two major segments and during Q2 several major milestones were
achieved on the letting side. In a challenging market environment characterized
by increasing real estate market vacancies across all Baltic states in recent
periods, the Fund has demonstrated its adaptability by signing a substantial
number of leases in H1 2024. This success was primarily attributable to
significant deals with prominent tenants including Narbutas in Meraki (3,200 sq.
m), My Fitness in Galerija Centrs (1,700 sq. m) and Apollo Group in Coca-Cola
Plaza (2,200 sq. m), all signed in March and April.
During H1 2024, the Fund signed new leases for 11,457 sq. m, securing an annual
rental income of EUR 1,811 thousand for future periods. Furthermore, we are
pleased to report that 18 new tenants have been attracted to our buildings,
while 26 existing tenants have decided to continue their cooperation with us.
The inflow of new leases in H1 and July by approx. 630 sq. m exceed the outflow
(expiries known well in advance). Moreover, taking into account the letters of
intent signed to date with tenants willing to move into our properties, the net
inflow of leases would be 6,030 sq. m.
By July 2024, we had already secured 75% of the targeted leases, thus
significantly advancing towards achieving the goal of reaching 90% occupancy.
Overall Q2 2024, the average actual occupancy of the portfolio was 82.3% (Q1
2024: 81.6%). The occupancy rate decreased to 79.1% as of 30 June 2024 (31 March
2024: 83.5%). The decrease was expected and was mostly related to the
termination of the lease with LNK Industries in the S27 office building.
Ongoing letting negotiations are taking place for the properties and when
current letter of intents are converted into signed lease agreements, the
portfolio occupancy is expected to increase to 84,5%.
Outlook
Given the influence of recent economic and geopolitical events on the
operational performance of certain assets and financing costs, Baltic Horizon
units are now traded at a price that is more than 60% below NAV. This deviation
is not aligned with our standards and is unacceptable to both our valued
investors and to Northern Horizon as the Management Company.
To address this challenge, the Fund is strategically focused on enhancing the
strength of our centrally-located retail portfolio throughout 2024. This
involves the introduction of new anchor tenants and the implementation of
further concept changes aimed at revitalizing and maximizing the potential of
our retail assets. Concurrently, the Fund is proactively addressing vacancy
concerns within office buildings by pursuing new collaborative agreements with
government tenants, implementing flexible workspace solutions and being in close
dialogue with conventional office tenants. The Fund is currently in active
negotiations with tenants for more than 10,500 sq. m. of office space.
Simultaneously, the Fund remains committed to improving debt service and
lowering leverage levels. These efforts are essential to fortifying our
financial position and enhancing overall portfolio resilience in the face of
ongoing market volatility and uncertainty. By executing these strategic
initiatives, Baltic Horizon aims to close the gap between the market price of
the units and NAV.
In line with its strategic goals, the Fund successfully redeemed the short-term
part of the bonds on 8 July 2024. The bonds in the amount of EUR 8 million were
refinanced with a more cost-effective bank loan, raised by leveraging the Meraki
asset.
The Fund's Management plans to issue new units by way of private placement in H2
2024. The capital raised would be used for tenant fit-outs and would contribute
to Baltic Horizon's strategy of increasing occupancy while maintaining current
LTV levels.
Maintaining a stable financial position is a key part of our long-term strategy.
Through careful financial management and a proactive approach to leasing, we
strive to deliver sustainable performance and achieve success for our investors.
Net result and net rental income
In H1 2024, the Group recorded a net loss of EUR 12.9 million compared with a
net loss of EUR 15.0 million for H1 2023. The result was mainly driven by the
property valuation loss. Earnings per unit for H1 2024 were negative at EUR
0.11 (H1 2023: negative at EUR 0.13).
The Group earned net rental income of EUR 6.0 million in H1 2024 (H1 2023: 8.5
million). The results for H1 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.
On an EPRA like-for-like basis, the portfolio net rental income in H1 2024 was
14% lower than in H1 2023, mainly due to vacancies in office properties in
Latvia due to the expiry of the agreement with the main tenant in Upmalas Biroji
BC and 100% vacancy of S27, as well as lower rental income in Europa due to the
new anchor tenant IKI equipping the premises and opening in March.
Property valuations
In 2024 a tender process was organized, and a new external appraiser, Newsec,
was approved to value the Fund's properties for the next 3 years with the first
valuation after the approval carried out as at the end of June 2024. The like-
for-like fair value of the portfolio as of 30 June 2024 decreased to EUR 239.9
million compared to EUR 250.4 million as of 31 December 2023. During H1 2024,
the Fund recognised valuation losses on investment properties of EUR 12.5
million (H1 2023: a loss of EUR 14.6 million). The switch to a new property
appraiser often results in minor fluctuations in property values due to
differences in interpretation of data, as seen in the results of the valuation
conducted as of 30 June 2024 and 31 December 2023. The change in portfolio value
was also driven by the changes in exit yields and upward adjustments of the
weighted average cost of capital (WACC) in H1 2024.
Investment properties
At the end of H1 2024, 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 239.9 million at the end of June 2024 (31 December
2023: EUR 250.4 million) and incorporated a total net leasable area of 118.8
thousand sq. m. During H1 2024 the Group invested approximately EUR 1.9 million
in tenant fit-outs.
Gross Asset Value (GAV)
At the end of H1 2024, the Fund's GAV was EUR 250.1 million (31 December 2023:
EUR 261.1 million). The decrease of approx. EUR 11 million is mainly related to
the revaluation of the Fund's investment properties at the end of H1 2024.
Net Asset Value (NAV)
As of 30 June 2024, the Fund's NAV was EUR 96.4 million (31 December 2023: EUR
109.5 million). Compared to the year-end 2023, the Fund's NAV decreased by
11.9%. The NAV decrease was mainly affected by the revaluation of investment
properties. As of 30 June 2024 , IFRS NAV per unit amounted to EUR 0.8058 (31
December 2023: EUR 0.9156), while EPRA net tangible assets and EPRA net
reinstatement value were EUR 0.8523 per unit (31 December 2023: EUR 0.9546).
EPRA net disposal value was EUR 0.9056 per unit (31 December 2023: EUR 0.8057).
Interest-bearing loans and bonds
The long-term objective is clearly to have a more conservative LTV, including
the repayment of the bond which was issued back in May 2023. As of 30 June
2024, interest-bearing loans and bonds (excluding lease liabilities) were EUR
146.4 million (31 December 2023: EUR 143.5 million). Outstanding bank loans
increased due to the additional loans taken by Europa and North Star, which were
mainly used for partial early redemption of the short-term part of the bonds in
the amount of EUR 4.5 million on 8 April 2024. Annual loan amortisation
accounted for 2.2% of total debt outstanding.
In February 2024, the Fund successfully refinanced Europa and North Star loans
with Shiauli? bankas. Additionally, in April 2024, the Fund extended the bank
loan of S27. As of 30 June 2024, the Fund's consolidated cash and cash
equivalents amounted to EUR 5.4 million (31 December 2023: EUR 6.2 million).
Cash flow
Cash inflow from core operating activities in H1 2024 amounted to EUR 3.7
million (H1 2023: cash inflow of EUR 6.2 million). Cash inflow from core
operating activities decreased due to sale of Duetto and Domus Pro properties in
H1 2023 and higher vacancies, mostly in S27 and Upmalas Biroji assets. Cash
outflow from investing activities was EUR 2.5 million (H1 2023: cash inflow of
EUR 22.3 million from disposals) due to investments in existing properties and
transaction costs. Cash outflow from financing activities was EUR 2.0 million
(H1 2023: cash outflow of EUR 15.6 million). In H1 2024, the Fund received
additional loans in Europa and North Star in the amount of EUR 8.6 million and
paid regular amortisation and interest on bank loans and bonds. Also, the Fund
redeemed a short-term part of the bonds for a total amount of EUR 4.5 million in
H1 2024.
Baltic Horizon achieves a 100% BREEAM certified portfolio
Successfully achieving BREEAM certification for all assets in our portfolio by
the end of 2023 underlines our dedication to sustainability, and the
introduction of green lease clauses in our agreements highlights our ongoing
commitment to environmental responsibility.
GRESB benchmarking
In 2023 the Fund received a 4-star GRESB rating. The Fund scored 27 points (out
of 30) in the Management module and 55 points (out of 70) in the Performance
module.
Key earnings figures
EUR '000 H1 2024 H1 2023 Change (%)
-------------------------------------------------------------------------------
Net rental income 5,983 8,495 (29.60%)
Administrative expenses (1,114) (1,414) (21.20%)
Other operating income (16) 15 (206.70%)
Losses on disposal of investment properties (447) (3,751) (88.10%)
Valuation gains (losses) on investment
properties (12,524) (14,623) (14.40%)
Operating profit (loss) (8,118) (11,278) (28.00%)
Net financial expenses (5,135) (4,424) 16.10%
Profit (loss) before tax (13,253) (15,702) (15.60%)
Income tax 404 697 (42.00%)
-------------------------------------------------------------------------------
Net profit (loss) for the period (12,849) (15,005) (14.40%)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Weighted average number of units
outstanding (units) 119,635,429 119,635,429 -
Earnings per unit (EUR) (0.11) (0.13) (14.40%)
-------------------------------------------------------------------------------
Key financial position figures
EUR '000 30.06.2024 31.12.2023 Change (%)
-------------------------------------------------------------------------------
Investment properties 239,927 250,385 (4.20%)
Gross asset value (GAV) 250,164 261,138 (4.20%)
Interest-bearing loans and bonds 146,447 143,487 2.06%
Total liabilities 153,766 151,606 1.40%
IFRS NAV 96,398 109,532 (12.00%)
EPRA NRV 101,975 114,205 (10.70%)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Number of units outstanding (units) 119,635,429 119,635,429 -
IFRS NAV per unit (EUR) 0.8058 0.9156 (12.00%)
EPRA NRV per unit (EUR) 0.8524 0.9546 (10.70%)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Loan-to-Value ratio (%) 61.30% 57.30% 7.00%
Average effective interest rate (%) 6.40% 5.20% 23.10%
-------------------------------------------------------------------------------
Overview of the Fund's investment properties as of 30 June 2024
Direct Net
Fair property initial
Property name Sector value(1) NLA yield yield
Occupancy
(EUR '000) (sq. m) 2024(2) 2024(3) rate
-------------------------------------------------------------------------------
Vilnius,
Lithuania
Europa SC Retail 36,587 17,081 2.60% 3.10% 80.00%
North Star Office 19,148 10,631 7.10% 7.60% 88.90%
Meraki Office 15,950 8,114 1.10% 1.30% 83.90%
-------------------------------------------------------------------------------
Total Vilnius 71,685 35,826 3.40% 3.90% 83.50%
-------------------------------------------------------------------------------
Riga, Latvia
Upmalas Office
Biroji BC 19,231 11,213 3.70% 4.20% 58.80%
Vainodes I Office 15,860 8,128 8.70% 8.50% 100.00%
S27 Office 11,570 7,450 0.80% 0.90% 0.00%
Sky SC Retail 4,940 3,259 8.40% 7.90% 100.00%
Galerija Retail
Centrs 60,091 19,331 3.10% 3.90% 77.75%
-------------------------------------------------------------------------------
Total Riga 111,692 49,381 3.70% 4.40% 66.90%
-------------------------------------------------------------------------------
Tallinn,
Estonia
Postimaja &
CC Plaza Retail
complex 20,363 9,232 3.60% 6.60% 100.00%
Postimaja &
CC Plaza Leisure
complex 13,067 8,121 5.30% 4.80% 92.70%
Lincona Office 13,850 10,766 6.40% 7.20% 83.70%
Pirita SC Retail 9,270 5,425 6.70% 9.50% 96.70%
-------------------------------------------------------------------------------
Total Tallinn 56,550 33,544 5.00% 6.80% 92.50%
-------------------------------------------------------------------------------
Total active
portfolio 239,927 118,751 3.90% 4.80% 79.11%
-------------------------------------------------------------------------------
1. Based on the latest valuation as of 30 June 2024, recognised right-of-use
assets and subsequent capital expenditure.
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.
Ongoing letting negotiations are taking place for the properties and when
current letter of intents are converted into signed lease agreements, the
portfolio occupancy is expected to increase to 84,5%.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
01.04.2024 01.04.2023
EUR '000
- 30.06.2024 - 30.06.2023
-------------------------------------------------------------------------------
Rental income 3,821 4,821
Service charge income 1,315 1,745
Cost of rental activities (1,947) (2,273)
-------------------------------------------------------------------------------
Net rental income 3,189 4,293
Administrative expenses (529) (678)
Losses on disposal of investment properties (80) (2,218)
Other operating income (26) 5
Valuation losses on investment properties (12,520) (14,619)
-------------------------------------------------------------------------------
Operating profit (loss) (9,966) (13,217)
-------------------------------------------------------------------------------
Financial income 15 1
Financial expenses (2,653) (2,388)
-------------------------------------------------------------------------------
Net financial expenses (2,638) (2,387)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Profit (loss) before tax (12,604) (15,604)
-------------------------------------------------------------------------------
Income tax charge 379 577
-------------------------------------------------------------------------------
Profit (loss) for the period (12,225) (15,027)
-------------------------------------------------------------------------------
Other comprehensive income that is or may be reclassified to profit or loss in
subsequent periods
Net gain (loss) on cash flow hedges (110) 78
Income tax relating to net gain (loss) on cash flow
hedges 17 (14)
-------------------------------------------------------------------------------
Other comprehensive income (expense), net of tax,
that is or may be reclassified to profit or loss in
subsequent periods (93) 64
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total comprehensive income (expense) for the period,
net of tax (12,318) (14,963)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Basic and diluted earnings per unit (EUR) (0.10) (0.13)
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000 30.06.2024 31.12.2023
------------------------------------------------------------------
Non-current assets
Investment properties 239,927 250,385
Intangible assets 17 11
Property, plant and equipment 6 4
Derivative financial instruments 241 295
Other non-current assets 742 647
------------------------------------------------------------------
Total non-current assets 240,933 251,342
------------------------------------------------------------------
Current assets
Trade and other receivables 2,842 2,591
Prepayments 869 402
Derivative financial instruments 149 621
Cash and cash equivalents 5,371 6,182
------------------------------------------------------------------
Total current assets 9,231 9,796
------------------------------------------------------------------
Total assets 250,164 261,138
------------------------------------------------------------------
Equity
Paid in capital 145,200 145,200
Cash flow hedge reserve 246 531
Retained earnings (49,048) (36,199)
------------------------------------------------------------------
Total equity 96,398 109,532
------------------------------------------------------------------
Non-current liabilities
Interest-bearing loans and borrowings 85,022 64,158
Deferred tax liabilities 2,258 2,774
Other non-current liabilities 1,288 1,079
------------------------------------------------------------------
Total non-current liabilities 88,568 68,011
------------------------------------------------------------------
Current liabilities
Interest-bearing loans and borrowings 61,672 79,584
Trade and other payables 3,114 3,343
Income tax payable - 6
Other current liabilities 412 662
------------------------------------------------------------------
Total current liabilities 65,198 83,595
------------------------------------------------------------------
Total liabilities 153,766 151,606
------------------------------------------------------------------
Total equity and liabilities 250,164 261,138
------------------------------------------------------------------
For additional information, please contact:
Tarmo Karotam
Baltic Horizon Fund manager
E-mail tarmo.karotam@nh-cap.com
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Baltic Horizon Fund is a registered contractual public closed-end real estate
fund 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.
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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, at
22:05 EET on 08 August 2024.
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