Comment of the fund manager
The most important economic events of EfTEN Real Estate Fund III AS in 2019 were
the ABC Motors dealership purchase-leaseback transaction, successful issue of
shares in volume of EUR 16 million and opening of Hortes Tähesaju Gardening
Center in the fourth quarter. After the balance sheet date, we announced that in
the first quarter of 2020 EfTEN Real Estate Fund III will acquire Latvian
national airline, airBaltic's headquarters in Riga Airport and a production and
warehouse facility in the Kekava near Riga, thereby investing a significant
amount of its equity raised in 2019 into cash-generating real estate. In
addition, the fund's management proposes to the 2020 general meeting of
shareholders to approve the merger with EfTEN Kinnisvarafond AS, which will
result in a real estate fund of approximately EUR 350 million.
The Group's cash balance allows dividends to be paid from the 2019 profit to
investors in a total amount of EUR 3,465 million (82 cents per share), which is
35% more than determined by the dividend policy of EfTEN Real Estate Fund III.
The dividend pay-out from the year 2019 profit will proceed after the general
shareholders' meeting in spring 2020.
Financial overview
The consolidated sales revenue of EfTEN Real Estate Fund III AS for 12 months of
2019 was EUR 9,512 million (12 months of 2018: EUR 8,672 million), which
increased by 10% in a year. The Group's profit before revaluation of investment
properties, cost of performance fee, depreciation and financial income/-costs
and income tax expense in 2019 totalled EUR 7,571 million (2018: 6,822 million
euros), which increased by 11% in a year. The Group's net profit for the same
period amounted to EUR 7,737 million (12 months of 2018: EUR 6,299 million). The
higher net profit in 2019 is due to additional property profit and higher
investment property revaluation profit, which in the current year was EUR 3,101
million, but EUR 1,562 million last year.
The consolidated gross profit margin in the 12 months of 2019 was 97% (12 months
of 2018: 96%). Therefore, expenses directly related to management of properties
(incl. land tax, insurance, maintenance and improvement costs) accounted for 3%
(12 months of 2018: 4%) of the revenue. The Group's expenses related to
properties, marketing costs, general expenses, other income and expenses
accounted for 22% of the revenue in 2019. The respective indicator was 22.3% in
the 12 months of 2018.
As at 31.12.2019, the Group's total assets were in the amount of EUR 132,829
million (31.12.2018: 108,503 million), including fair value of investment
property, which accounted for 85% (31.12.2018: 95%) of the total assets.
During 2019, the net asset value of the share of EfTEN Real Estate Fund III AS
increased by 7.6%. From the 2018 profit, EUR 3,061 million (in spring 2018: EUR
2.191 million) was paid out in dividends in May 2019. Without the dividend
payment, the Fund's NAV would have increased by 12% in 2019. Return on invested
capital (ROIC) was 17.1% in the 2019 financial year (12 months of 2018: 17.6%).
Access to flexible financing conditions will help to increase the Group's
competitiveness. In 2019, the Group entered into new loan contracts in the total
amount of EUR 6,768 million in connection with the acquisition of new investment
properties. As at the end December, the average interest rate on Group's loan
agreements (including interest swap contracts) was 1.8% (31.12.2018: the same)
and the LTV (Loan to Value) ratio was 52% (31.12.2018: the same).
During 2019, the Group earned a free cash flow of EUR 3,381 million (12 months
of 2018: EUR 3,197 million). Following the deduction of Lithuanian income tax
expense and the calculation of the dividend income tax expense in Estonian and
Latvian companies, EfTEN Real Estate Fund III would be able to pay net dividends
to the shareholders in the total amount of EUR 2,545 million (60 cents per
share) from the profit earned in this year. However, the Group's cash balance at
the end of 2018 allows to pay more dividends than the dividend policy
establishes, which is why the Management Board of the Fund proposes to the
Council in the spring of 2019 to pay a dividend of EUR 3,465 million (82 cents
per share). For the entire previous year, the fund paid the shareholders a net
dividend of 95 cents per share.
Real estate portfolio
The Group invests in commercial real estate with a strong and long-term tenant
base. At the end of 2019, the Group had 11 (31.12.2018: 10) commercial
investment properties with a fair value as at the balance sheet date of EUR
113.011 million (31.12.2018: EUR 102.787 million) and acquisition cost of EUR
101.746 million (31.12.2018: EUR 94.627 million).
On the 6th of February 2019, the Group's subsidiary EfTEN Autokeskus OÜ acquired
the properties of ABC Motor's sales and service center on Paldiski highway. The
acquisition cost of the properties was EUR 3,018 million and a loan agreement
was entered into in the amount of EUR 1.8 million for the acquisition. The
maturity of the loan is 25.02.2024 and the interest rate is 2.95% + 6 month
Euribor. A 0% floor is set for the Euribor rate. The expected annual rental
income from the investment property is EUR 258 thousand.
In november of 2019 the subsidiary of the Group, EfTEN Tähesaju tee OÜ,
completed the construction of Tähesaju Hortses in Tallinn. Tähesaju Hortes was
opened to visitors in early November. The acquisition cost of the horticultural
center totaled EUR 5,458 million and the fair value of the investment property
as at 31.12.2019 was EUR 6,180 thousand. For the construction of Tähesaju
Hortes, the Group subsidiary took a bank loan in amount of of EUR 3.29 million
at an interest rate of 1.95% + 1 month EURIBOR. The maturity of the loan is
11.01.2024.
After the balance sheet date, on January 13, 2020, a subsidiary of the Group
signed debt-purchase agreements for the acquisition of two commercial buildings
in Latvia to acquire the airBaltic headquarters office building at Riga Airport
and a production and warehouse facility in ?ekava, Riga. AirBaltic's main
building was completely renovated in 2016 and the current lease agreement
expires in 2026. The major tenants of the production and warehouse building in
?ekava are Fristads Kansas Production SIA and Forans SIA. The acquisition of the
two buildings totals to EUR 15.8 million, of which EUR 7.2 million is financed
by Swedbank and Luminor.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
4th quarter 12 months
---------------------------
2019 2018 2019 2018
-------------------------------------------------------------------------------
EUR thousands
-------- --------
Revenue 2,512 2,329 9,512 8,672
-------- --------
Cost of services sold -100 -135 -329 -319
---------------------------
Gross profit 2,412 2,194 9,183 8,353
-------- --------
-------- --------
Marketing costs -126 -103 -429 -435
-------- --------
General and administrative expenses -870 -389 -1,847 -1,225
-------- --------
Gain / loss from revaluation of investment
properties 1, 641 600 3,101 1,562
-------- --------
Other operating income and expense 38 -4 37 3
---------------------------
Operating profit 3,095 2,298 10,045 8,258
-------- --------
-------- --------
Interest income 0 0 14 0
-------- --------
Finance costs -161 -380 -1,197 -1,096
---------------------------
Profit before income tax 2,934 1,918 8,862 7,162
-------- --------
-------- --------
Income tax expense -333 -167 -1,125 -863
---------------------------
Total comprehensive income for the financial period 2,601 1,751 7,737 6,299
-------------------------------------------------------------------------------
Earnings per share
-------- --------
- Basic 0.62 0.54 2.05 1.96
-------- --------
- Diluted 0.62 0.54 2.05 1.96
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31.12.2019 31.12.2018
--------------------------
EUR, thousands
--------------
ASSETS
--------------
Cash and cash equivalents 12,986 4,859
--------------
Short - term deposits 6,000 0
--------------
Receivables and accrued income 667 673
--------------
Prepaid expenses 51 46
--------------
Total current assets 19,704 5,578
--------------
--------------
Long-term receivables 0 24
--------------
Investment property 113,011 102,787
--------------
Property, plant and equipment 114 114
--------------
Total non-current assets 113,125 102,925
--------------------------
TOTAL ASSETS 132,829 108,503
-----------------------------------------------------------
--------------
LIABILITIES AND EQUITY
--------------
Borrowings 21,147 8,105
--------------
Derivative instruments 271 189
--------------
Payables and prepayments 1,132 1,019
--------------------------
Total current liabilities 22,550 9,313
--------------
--------------
Borrowings 34,225 44,743
--------------
Other long-term liabilities 609 457
--------------
Deferred income tax liability 4,274 3,496
--------------------------
Total non-current liabilities 39,108 48,696
--------------------------
Total liabilities 61,658 58,009
--------------
--------------
Share capital 42,225 32,225
--------------
Share premium 9,658 3,658
--------------
Statutory reserve capital 936 621
--------------
Retained earnings 18,352 13,990
--------------------------
Total equity 71,171 50,494
--------------------------
TOTAL LIABILITIES AND EQUITY 132,829 108,503
-----------------------------------------------------------
Marilin Hein
CFO
Phone 655 9515
E-mail: marilin.hein@eften.ee (mailto:marilin.hein@eften.ee)
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