Management Board of Northern Horizon Capital AS has approved the unaudited
consolidated interim financial results of Baltic Horizon Fund (the Fund) for Q1
2020.
Impact of COVID-19 pandemic
At the beginning of 2020 new coronavirus (COVID-19) started spreading all over
the world, which has had an impact on businesses and economies, including in the
Baltics. The virus outbreak has caused significant shifts in the Fund's
operating environment, which will likely lead to a negative overall effect on
the Fund's expected 2020 performance.
As the situation is uncertain and developing fast the Fund management team at
this point is not yet able to assess the full financial consequences of the
virus outbreak. The results of Q1 2020 remained largely unaffected by the
pandemic and indicated a strong performance during the quarter. A significant
impact on the Fund's operating performance will be visible in Q2 2020 as the
first effects of the pandemic emerged at the end of March 2020.
In response to the COVID-19 outbreak, Northern Horizon Capital AS, the
Management Company of the Fund, has taken assertive action to manage the risks
arising from the pandemic and to protect the long-term value for the investors.
The Management Company is focusing on optimizing operating costs and continuing
active communication with the tenants to ensure long-term rent collection. The
Fund has opted to retain approx. EUR 1.8 million of distributable cash flow for
Q1 2020 results to strengthen the Fund's financial position. The Management
Company will continue to actively monitor the economic impact of the pandemic
and reassess future distribution levels depending on the upcoming operating
results.
The Fund is implementing a number of relief initiatives focused on alleviating
the financial hardship of the most vulnerable group of tenants, whose operations
were mostly severely affected by the outbreak. The Fund has agreed to grant rent
payment deferral for a period of 90 days and waive all penalties and interest
arising from the rent deferral for the most affected tenants.
Baltic Horizon Fund is having active negotiations with mainly retail tenants
regarding rent reductions and waivers during the quarantine period, which will
have a negative impact on the Fund's performance in Q2 2020. As of 15 May 2020,
the Fund management has decided on various discounts for the quarantine period
based on discussions with retail tenants. The Fund assessed the impact of COVID-
19 on each tenant's operating performance during the lockdown and granted
discounts to the most affected tenants. For those affected, the discounts from
the Fund side on average are around 50% considering the government support
measures and may be applicable only up until July 2020.
Distributions to unitholders for Q4 2019 and Q1 2020 Fund results
On 31 January 2020, the Fund declared a cash distribution of EUR 3,175 thousand
(EUR 0.028 per unit) to the Fund unitholders for Q4 2019 results. This
represents a 2.16% return on the weighted average Q4 2019 net asset value to its
unitholders.
On 24 April 2020, the Fund declared a cash distribution of EUR 1,701 thousand
(EUR 0.015 per unit) to the Fund unitholders for Q1 2020 results. This
represents a 1.12% return on the weighted average Q1 2020 net asset value to its
unitholders.
Net profit and net rental income
In Q1 2020, the Group recorded a net profit of EUR 3.4 million, which increased
by 54.3%, compared to a net profit of EUR 2.2 million for Q1 2019. Net profit
was significantly impacted by the increase in net rental income due to new
property acquisitions during 2019. The positive impact of an increase in net
rental income was partially offset by an increase in administrative expenses and
net financing costs. The increase in net financing costs arose from a higher
average cost of financing. Earnings per unit for the quarter were EUR 0.03 (Q1
2019: EUR 0.03).
During the quarter, the Group recorded net rental income of EUR 5.8 million
against EUR 3.9 million in Q1 2019. The increase was achieved through new
acquisitions that were made following the capital raisings in 2019. The
acquisition of the largest asset in the portfolio (Galerija Centrs) and North
Star office building had a significant effect on the Group's net rental income
growth in Q1 2020 as compared to Q1 2019. On an EPRA like-for-like basis,
portfolio net rental income over the year increased by 2.8% mainly due to
stronger performance in the Estonian and Latvia markets. The increase was
partially offset by the weaker performance in the Lithuanian market due to
provisions related to the lockdown in the Baltic States.
Portfolio properties in the office segment contributed 49.2% (Q1 2019: 55.1%) of
net rental income in Q1 2020 followed by the retail segment with 46.2% (Q1
2019: 38.4%) and the leisure segment with 4.6% (Q1 2019: 6.5%).
Retail assets located in the central business districts (Postimaja, Europa and
Galerija Centrs) accounted for 36.1% of total portfolio net rental income in Q1
2020. Total net rental income attributable to neighbourhood shopping centres
accounted for 10.1% in Q1 2020.
During the quarter, investment properties in Latvia and Lithuania contributed
39.9% (Q1 2019: 28.0%) and 34.6% (Q1 2019: 36.8%) of net rental income
respectively, while investment properties in Estonia contributed 25.5% (Q1
2019: 35.2%).
Gross Asset Value (GAV)
At the end of Q1 2020, the GAV increased to EUR 373.3 million (31 December
2019: EUR 371.7 million) which was a rise of 0.4% over the quarter. The increase
is mainly related to the capital investments made into the Meraki office
building development project. The Fund aims to continue the construction of the
Meraki office building throughout 2020 once the extent of the potential impact
of the COVID-19 pandemic becomes clearer. The Management Company will continue
to actively monitor the economic impact of the pandemic and ensure sufficient
liquidity levels during the construction period.
Net Asset Value (NAV)
At the end of Q1 2020, the Fund NAV was EUR 152.5, remaining stable as compared
to the end of 2019. The increase in operational performance over the quarter
was offset by a EUR 3.2 million dividend distribution to the unitholders and a
negative cash flow hedge reserve movement of EUR 0.2 million. At 31 March 2020,
NAV per unit stood at EUR 1.3452 (31 December 2019: EUR 1.3451), while NAV per
unit based on EPRA standards was EUR 1.4349 (31 December 2019: EUR 1.4333).
Investment properties
The Baltic Horizon Fund portfolio consists of 15 cash flow investment properties
in the Baltic capitals and an investment property under construction on the
Meraki land plot. At the end of Q1 2020, the appraised value of the Fund's
portfolio was EUR 360.3 million (31 December 2019: EUR 358.9 million). During
the quarter, the Group invested EUR 0.1 million in the existing property
portfolio and an additional EUR 1.3 million in the Meraki development project.
Interest bearing loans and bonds
Interest bearing loans and bonds remained at a similar level as at 31 December
2019 amounting to EUR 205.8 million. Outstanding bank loans decreased slightly
due to regular bank loan amortization. Annual loan amortization forms 0.2% of
total debt outstanding.
Cash flow
Cash inflow from core operating activities for Q1 2020 amounted to EUR 4.3
million (Q1 2019: cash inflow of EUR 3.0 million). Cash outflow from investing
activities was EUR 0.1 million (Q1 2019: cash outflow of EUR 17.9 million) due
to subsequent capital expenditure on existing portfolio properties. Cash outflow
from financing activities was EUR 4.6 million (Q1 2019: cash inflow of EUR 5.6
million). During the quarter, the Fund made a cash distribution of EUR 3.2
million and paid regular interest on bank loans and bonds. At the end of Q1
2020, the Fund had a sufficient amount of cash (EUR 9.4 million) to cover its
liquidity needs amid the COVID-19 pandemic.
Key earnings figures
EUR '000 Q1 2020 Q1 2019 Change (%)
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Net rental income 5,772 3,916 47.4%
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Administrative
expenses (889) (709) 25.4%
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Other operating income 8 6 33.3%
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Valuation gains (losses) on investment
properties (4) - -
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Operating profit 4,887 3,213 52.1%
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Net financing
costs (1,376) (897) 53.4%
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Profit before tax 3,511 2,316 51.6%
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Income tax (157) (143) 9.8%
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Net profit for the
period 3,354 2,173 54.3%
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Weighted average number of units
outstanding (units) 113,387,525 78,496,831(1) 44.4%
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Earnings per unit
(EUR) 0.03 0.03 -
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Key financial position figures
EUR '000 31.03.2020 31.12.2019 Change (%)
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Investment properties in use 356,666 356,575 0.0%
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Investment property under
construction 3,669 2,367 55.0%
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Gross asset value (GAV) 373,345 371,734 0.4%
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Interest bearing loans and
bonds 205,765 205,827 (0.0%)
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Total
liabilities 220,813 219,216 0.7%
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Net asset value (NAV) 152,532 152,518 0.0%
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Number of units outstanding
(units) 113,387,525 113,387,525 -
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IFRS Net asset value (IFRS NAV) per
unit (EUR) 1.3452 1.3451 0.0%
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EPRA Net asset value (EPRA NAV) per
unit (EUR) 1.4349 1.4333 0.1%
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Loan-to-Value ratio (%) 57.1% 57.3% -
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Average effective interest rate
(%) 2.6% 2.6% -
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1. The number of units excludes 255,969 units acquired by the Fund as part of
the unit buy-back program.
Property performance
During Q1 2020, the average actual occupancy of the portfolio was 97.6% (Q4
2019: 98.0%). Taking into account all rental guarantees, the effective occupancy
rate was 97.6% (Q4 2019: 98.0%). The occupancy rate as of 31 March 2020 was
97.4% (31 December 2019: 98.3%). The average direct property yield during Q1
2020 was 6.7% (Q4 2019: 6.6%). The net initial yield for the whole portfolio for
Q1 2020 was 6.5% (Q4 2019: 6.4%). The increase in property yields is mainly
related to the stronger like-for-like performance of the Estonian properties.
The average rental rate for the whole portfolio for Q1 2020 was EUR 13.5 per sq.
m.
Fair Direct Net Occupancy
Property name Sector value(1) NLA property initial rate for
(EUR '000) (sq. m.) yield(2) yield(3) Q1 2020
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Vilnius,
Lithuania
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Duetto I Office 16,460 8,587 7.5% 6.8% 100.0%(4)
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Duetto II Office 18,935 8,674 7.3% 7.1% 100.0%(4)
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Europa SC Retail 40,721 16,856 6.2% 5.7% 95.1%
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Domus Pro Retail
Retail Park 16,670 11,247 7.7% 7.2% 97.5%
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Domus Pro Office
Office 7,740 4,831 8.7% 7.3% 100.0%
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North Star Office 20,104 10,550 7.0% 7.3% 100.0%
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Meraki
Development 3,669 - - - -
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Total Vilnius 124,299 60,745 7.1% 6.6% 98.2%
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Riga, Latvia
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Upmalas Biroji Office
BC 24,209 10,458 7.5% 7.4% 100.0%
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Vainodes I Office 20,902 8,052 6.8% 6.9% 100.0%
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LNK Centre Office 17,007 7,453 6.4% 6.5% 100.0%
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Sky SC Retail 4,851 3,254 7.7% 8.0% 98.4%
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Galerija Centrs Retail 76,408 20,022 6.0% 5.9% 93.0%
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Total Riga 143,377 49,239 6.5% 6.4% 97.0%
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Tallinn,
Estonia
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Postimaja & CC Retail
Plaza complex 32,250 9,145 4.5% 4.8% 95.6%
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Postimaja & CC Leisure
Plaza complex 15,150 8,664 9.0% 7.1% 100.0%
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G4S Office
Headquarters 17,550 9,179 7.8% 6.9% 100.0%
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Lincona Office 17,820 10,871 8.2% 7.3% 100.0%
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Pirita SC Retail 9,889 5,508 6.0% 7.5% 86.5%
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Total Tallinn 92,659 43,367 6.5% 6.3% 97.3%
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Total portfolio 360,335 153,351 6.7% 6.5% 97.6%
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1. Based on the latest valuation as at 31 December 2019, subsequent capital
expenditure and recognised right-of-use assets.
2. Direct property yield (DPY) is calculated by dividing NOI by the acquisition
value and subsequent capital expenditure of the property.
3. The net initial yield (NIY) is calculated by dividing NOI by the market
value of the property.
4. Effective occupancy rate is 100% due to a rental guarantee.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
EUR '000 01.01.2020-31.03.2020 01.01.2019-31.03.2019
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Rental income 6,209 4,151
Service charge income 1,356 763
Cost of rental activities (1,793) (998)
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Net rental income 5,772 3,916
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Administrative expenses (889) (709)
Other operating income 8 6
Valuation losses on investment
properties (4) -
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Operating profit 4,887 3,213
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Financial income 1 2
Financial expenses (1,377) (899)
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Net financing costs (1,376) (897)
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Profit before tax 3,511 2,316
Income tax charge (157) (143)
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Profit for the period 3,354 2,173
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Other comprehensive income that is
or may be reclassified to profit
or loss in subsequent periods
Net gains (losses) on cash flow
hedges (178) (556)
Income tax relating to net gains
(losses) on cash flow hedges 13 36
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Other comprehensive income
(expense), net of tax, that is or
may be reclassified to profit or
loss in subsequent periods (165) (520)
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Total comprehensive income for the
period, net of tax 3,189 1,653
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Basic and diluted earnings per
unit (EUR) 0.03 0.03
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000 31.03.2020 31.12.2019
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Non-current assets
Investment properties 356,666 356,575
Investment property under construction 3,669 2,367
Derivative financial instruments 29 73
Other non-current assets 55 54
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Total non-current assets 360,419 359,069
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Current assets
Trade and other receivables 2,291 1,794
Prepayments 358 301
Other current assets 893 734
Cash and cash equivalents 9,384 9,836
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Total current assets 12,926 12,665
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Total assets 373,345 371,734
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Equity
Paid in capital 138,064 138,064
Cash flow hedge reserve (1,721) (1,556)
Retained earnings 16,189 16,010
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Total equity 152,532 152,518
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Non-current liabilities
Interest bearing loans and borrowings 205,661 205,718
Deferred tax liabilities 6,343 6,199
Derivative financial instruments 1,862 1,728
Other non-current liabilities 1,327 1,298
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Total non-current liabilities 215,193 214,943
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Current liabilities
Interest bearing loans and borrowings 405 414
Trade and other payables 4,546 3,171
Income tax payable - 8
Other current liabilities 669 680
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Total current liabilities 5,620 4,273
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Total liabilities 220,813 219,216
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Total equity and liabilities 373,345 371,734
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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, at
23:05 EET on 15 May 2020.
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