Management Board of Northern Horizon Capital AS (the Management Company) has
approved the unaudited consolidated interim financial statements of Baltic
Horizon Fund (the Fund) for the first six months of 2020.
Impact of COVID-19 pandemic
At the beginning of 2020, a new coronavirus (COVID-19) started spreading all
over the world, which has had an impact on businesses and economies, including
in the Baltics.
It is evident that the operating results of Q2 2020 and property valuations were
affected by the COVID-19 effects on the tenants' financial performance and
relief measures taken to deal with the pandemic. However based on the currently
available information, the Management Company believes that the COVID-19
pandemic should rather have a temporary effect on the Fund's results and less
than was previously expected. Broad portfolio diversification should allow the
Fund to limit the COVID-19 impact on the whole portfolio and maintain healthy
consolidated operational performance.
The Fund has opted to retain approx. EUR 2.7 million of distributable cash flow
for H1 2020 results to strengthen the Fund's financial position. Over the past
two quarters, the Fund has increased its cash distribution reserve to EUR 3.5
million. The Management Company believes that it is in the best interest of the
investors and the Fund to reduce its cash distribution at this time in order to
protect and strengthen the Fund's financial position. The management team will
continue to actively monitor the economic impact of the pandemic and reassess
future distribution levels depending on the upcoming operating results.
On 27 July 2020, S&P Global Ratings affirmed Baltic Horizon Fund "MM3" mid-
market rating and removed the Fund from CreditWatch with negative implications,
where the Fund was placed on 7 May 2020. The indicative corresponding rating for
"MM3" on the global rating scale is "BB+/ BB".
In summary, it may be concluded that the COVID virus induced lockdown in the
Baltics has impacted mainly Baltic Horizon's centrally located retail and
entertainment centres, more specifically increasing their vacancies to
approximately 15%. Retail assets located in the central business districts
(Postimaja, Europa and Galerija Centrs) accounted for 31.5% of total portfolio
NOI in H1 2020. Overall, the portfolio has remained resilient to the crisis and
the total negative effect on the portfolio NOI for the year of 2020 is not
expected to exceed 10%.
Distributions to unitholders for Q1 2020 and Q2 2020 Fund results
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.
On 24 July 2020, the Fund declared a cash distribution of EUR 1,701 thousand
(EUR 0.015 per unit) to the Fund unitholders for Q2 2020 results. This
represents a 1.14% return on the weighted average Q2 2020 net asset value to its
unitholders.
Dividend capacity calculation
The Fund reduced cash distribution for Q1-Q2 2020 due to COVID-19 outbreak.
Generated net cash flow (GNCF) for Q1-Q2 2020 reached EUR 0.054 per unit.
EUR '000 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
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(+) Net rental income 4,256 5,412 5,635 5,772 4,618
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(-) Fund administrative expenses (817) (879) (846) (889) (634)
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(-) External interest expenses (1,043) (1,295) (1,346) (1,331) (1,327)
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(-) CAPEX expenditure(1) (180) (178) (225) (95) (97)
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(+) Added back listing related
expenses 51 60 - 39 29
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(+) Added back acquisition related
expenses 39 16 - - -
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Generated net cash flow (GNCF) 2,306 3,136 3,218 3,496 2,589
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GNCF per weighted unit (EUR) 0.024 0.031 0.029 0.031 0.023
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12-months rolling GNCF yield(2 )(%) 7.8% 8.4% 8.6% 11.5% 9.6%
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Dividends declared for the period 2,624 3,061 3,175 1,701 1,701
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Dividends declared per unit(3 )(EUR) 0.026 0.027 0.028 0.015 0.015
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12-months rolling dividend yield(2
)(%) 7.5% 7.8% 8.0% 9.6% 7.2%
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1. The table provides actual capital expenditures for the quarter. Future
dividend distributions to unitholders are aimed to be based on the annual
budgeted capital expenditure plans equalised for each quarter. This will
reduce the quarterly volatility of cash distributions to unitholders.
2. 12-month rolling GNCF and dividend yields are based on the closing market
price of the unit as at the end of the quarter (Q2 2020: closing market
price of the unit as of 30 June 2020).
3. Based on the number of units entitled to dividends.
Net profit and net rental income
In H1 2020, the Group recorded a net loss of EUR 9.5 million against a net
profit of EUR 2.3 million for H1 2019. The net result was significantly
impacted by the one-off negative valuation result of EUR 15.8 million during H1
2020. The negative impact of valuation losses on investment properties was
partially offset by an increase in net rental income, other operating income and
a slight decrease in administrative expenses. Excluding the valuation impact on
the net result, the net profit for H1 2020 would have amounted to EUR 6.3
million (H1 2019: EUR 4.8 million). Earnings per unit for H1 2020 were negative
at EUR 0.08 (H1 2019: positive EUR 0.03). Earnings per unit excluding valuation
gains/losses on the investment properties amounted to EUR 0.06 (H1 2019: EUR
0.05).
In H1 2020, the Group earned net rental income of EUR 10.4 million exceeding the
previous year's net rental income for the same period by EUR 2.2 million (H1
2019: 8.2 million). The increase was achieved through new acquisitions that were
made following the capital raisings in 2019. The acquisition of Galerija Centrs
and North Star had a significant effect on the Group's net rental income growth
in H1 2020 as compared to H1 2019, albeit rental income growth in Q2 2020 was
slower due to relief measures granted to tenants during the COVID-19 pandemic.
The addition of Galerija Centrs added EUR 1.8 million to the net rental income
for H1 2020, while North Star added EUR 0.7 million.
On an EPRA like-for-like basis, portfolio net rental income decreased by 3.8%
year on year mainly due to weaker performance in retail and leisure segments.
The decrease was partially offset by the strong performance of the office
segment which remained largely unaffected by the lockdown in the Baltic
States.
Portfolio properties in the office segment contributed 54.1% (H1 2019: 56.0%) of
net rental income in H1 2020 followed by the retail segment with 41.9% (H1
2019: 37.8%) and the leisure segment with 4.0% (H1 2019: 6.2%).
Retail assets located in the central business districts (Postimaja, Europa and
Galerija Centrs) accounted for 31.5% of total portfolio net rental income in H1
2020. Total net rental income attributable to neighbourhood shopping centres
accounted for 10.4% in H1 2020.
During H1 2020, investment properties in Latvia and Lithuania contributed 40.0%
(H1 2019: 30.7%) and 33.7% (H1 2019: 38.5%) of net rental income respectively,
while investment properties in Estonia contributed 26.3% (H1 2019: 30.8%).
Gross Asset Value (GAV)
At the end of H1 2020, the GAV decreased to EUR 356.8 million (31 December
2019: EUR 371.7 million) which was a drop of 4.0% over the period. The decrease
is mainly related to the negative property revaluation of EUR 15.8 million or
3.7% of the portfolio value at the end of 2019. The Group made a small capital
investment (EUR 0.1 million) in the Meraki office building development project
during Q2 2020. 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 June 2020, the Fund net asset value (NAV) decreased to EUR 138.0
million (31 December 2019: EUR 152.5 million) as a result of negative portfolio
revaluation which was impacted by the high market uncertainty surrounding the
COVID-19 pandemic. Compared to the year-end 2019 NAV, the Fund's NAV decreased
by 9.5%. Eliminating the impact of valuations, the NAV at the end of H1 2020
would have been EUR 153.7 million or EUR 1.3558 per unit. Positive operational
performance over the period was offset by EUR 4.9 million dividend distributions
to the unitholders and a negative cash flow hedge reserve movement of EUR 0.2
million. At 30 June 2020, NAV per unit stood at EUR 1.2169 (31 December 2019:
EUR 1.3451), while NAV per unit based on EPRA standards was EUR 1.3044 (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 investment property under construction on the Meraki
land plot. At the end of Q2 2020, the appraised value of the Fund's portfolio
was EUR 345.5 million (31 December 2019: EUR 358.9 million) and incorporated a
total net leasable area of 153,351 sq. m.
The valuation losses on the property portfolio came to EUR 15.8 million during
H1 2020 (H1 2019: EUR 2.4 million). Valuations were negatively affected
primarily due to downward adjustments to valuation assumptions resulting from
the uncertainty associated with the COVID-19 pandemic. Due to global market
uncertainty caused by the virus, valuations were reported on the basis of
"material valuation uncertainty". During Q2 2020, the Group invested EUR 0.1
million in the existing property portfolio and an additional EUR 0.1 million in
the Meraki development project.
Interest bearing loans and bonds
Interest bearing loans and bonds (excluding lease liabilities) remained at a
similar level of EUR 205.7 million compared to year-end 2019 figures (31
December 2019: 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.
Financial covenants for bonds
Ratio Ratio Ratio Ratio
Covenant Requirement 30.09.2019 31.12.2019 31.03.2020 30.06.2020
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Equity Ratio >25%(1)/35.0% 40.5% 42.6% 42.4% 40.0%
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Debt Service
Coverage Ratio > 1.20 3.39 3.32 3.35 3.30
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1. On 28 July, the bondholders adopted the decision by the way of written
procedure to temporarily reduce the equity ratio bond covenant to 25% or
greater, until 31 July 2021
Cash flow
Cash inflow from core operating activities for H1 2020 amounted to EUR 6.7
million (H1 2019: cash inflow of EUR 6.2 million). Cash outflow from investing
activities was EUR 1.7 million (H1 2019: cash outflow of EUR 52.3 million) due
to subsequent capital expenditure on existing portfolio properties and
investments in the Meraki development project. Cash outflow from financing
activities was EUR 7.8 million (H1 2019: cash inflow of EUR 38.8 million).
During H1 2020, the Fund made two cash distributions of EUR 4.9 million and paid
regular interest on bank loans and bonds. At the end of H1 2020, the Fund had a
sufficient amount of cash (EUR 7.1 million) to cover its liquidity needs amid
the COVID-19 pandemic.
Key earnings figures
EUR '000 Q2 2020 Q2 2019 Change (%)
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Net rental income 4,618 4,256 8.5%
Administrative expenses (634) (817) (22.4%)
Other operating income 178 - -
Valuation losses on investment properties (15,749) (2,439) 545.7%
Operating (loss)
profit (11,587) 1,000 (1,258.7%)
Net financing costs (1,372) (1,076) 27.5%
Loss before tax (12,959) (76) 16,951.3%
Income tax 149 220 (32.3%)
Net (loss) profit for the
period (12,810) 144 (8,995.8%)
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Weighted average number of units
outstanding (units) 113,387,525 94,949,766 19.4%
Earnings per unit (EUR) (0.11) 0.00 -
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Key financial position figures
EUR '000 30.06.2020 31.12.2019 Change (%)
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Investment properties in
use 342,267 356,575 (4.0%)
Investment property under
construction 3,274 2,367 38.3%
Gross asset value (GAV) 356,751 371,734 (4.0%)
Interest bearing loans and
bonds 205,712 205,827 (0.1%)
Total
liabilities 218,774 219,216 (0.2%)
Net asset value (NAV) 137,977 152,518 (9.5%)
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Number of units outstanding
(units) 113,387,525 113,387,525 -
IFRS Net asset value (IFRS NAV) per unit
(EUR) 1.2169 1.3451 (9.5%)
EPRA Net reinvestment value (EPRA NRV)
per unit (EUR) 1.3044 1.4333 (9.0%)
EPRA Net tangible assets (EPRA NTA) per
unit (EUR) 1.3044 1.4333 (9.0%)
EPRA Net disposal value (EPRA NDV) per
unit (EUR) 1.2179 1.3400 (9.1%)
EPRA Net asset value (EPRA NAV) per unit
(EUR) 1.3044 1.4333 (9.0%)
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Loan-to-Value ratio (%) 59.5% 57.3% -
Average effective interest
rate (%) 2.6% 2.6% -
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Property performance
During Q2 2020, the average actual occupancy of the portfolio was 96.4% (Q1
2020: 97.6%). Taking into account Duetto I and Duetto II rental guarantees, the
effective occupancy rate was 96.4% (Q1 2020: 97.6%). The occupancy rate as of
30 June 2020 was 96.0% (31 March 2020: 97.4%). Although the COVID-19 pandemic
had a negative impact on the occupancy rate of the portfolio as a result of some
smaller tenants vacating retail premises, the Fund's tenant base still remains
strong. Occupancy rates in the office segment remain at record levels with
almost fully occupied premises throughout all Baltic countries (99.9%
occupancy).
The average direct property yield during Q2 2020 was 5.3% (Q1 2020: 6.7%). The
net initial yield for the whole portfolio for Q2 2020 was 5.2% (Q1 2020: 6.5%).
Property yields across the leisure and retail segments took the biggest hit
mainly due to the COVID-19 incentives, while the office segment continued to
perform well and remained largely unaffected. The average rental rate for the
whole portfolio for Q2 2020 was EUR 11.2 per sq. m.
Net
Direct initial
Property name Sector Fair property yield Occupancy
value(1) NLA yield Q2 rate for
(EUR '000) (sq. m.) Q2 2020(2) 2020(3) Q2 2020
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Vilnius,
Lithuania
Duetto I Office 16,250 8,587 8.0% 7.3% 100.0%
Duetto II Office 18,665 8,674 7.4% 7.2% 100.0%
Europa SC Retail 39,691 16,856 1.9% 1.8% 92.8%
Domus Pro Retail
Retail Park 16,170 11,247 5.8% 5.5% 97.6%
Domus Pro Office
Office 7,590 4,831 7.3% 6.1% 100.0%
North Star Office 19,743 10,550 6.6% 6.8% 100.0%
Meraki
Development 3,274 - - - -
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Total Vilnius 121,383 60,745 5.3% 5.0% 97.5%
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Riga, Latvia
Upmalas Biroji Office
BC 23,001 10,458 7.3% 7.3% 100.0%
Vainodes I Office 20,830 8,052 6.9% 7.0% 100.0%
LNK Centre Office 16,490 7,453 6.3% 6.4% 100.0%
Sky SC Retail 4,960 3,254 7.8% 8.1% 98.4%
Galerija Centrs Retail 71,277 20,022 3.6% 3.6% 86.9%
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Total Riga 136,558 49,239 5.2% 5.3% 94.6%
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Tallinn,
Estonia
Postimaja & CC Retail
Plaza complex 30,550 9,145 3.7% 4.0% 95.6%
Postimaja & CC Leisure
Plaza complex 14,250 8,664 4.9% 3.8% 100.0%
G4S Office
Headquarters 16,790 9,179 7.9% 7.1% 100.0%
Lincona Office 16,470 10,871 8.0% 7.2% 99.4%
Pirita SC Retail 9,540 5,508 5.7% 7.2% 83.4%
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Total Tallinn 87,600 43,367 5.6% 5.5% 96.8%
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Total portfolio 345,541 153,351 5.3% 5.2% 96.4%
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1. Based on the latest valuation as at 30 June 2020 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.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
EUR '000 01.04.2020-30.06.2020 01.04.2019-30.06.2019 01.01.2020-30.06.2020 01.01.2019-30.06.2019
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Rental income 5,073 4,646 11,282 8,797
Service charge
income 1,148 889 2,504 1,652
Cost of rental
activities (1,603) (1,279) (3,396) (2,277)
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Net rental
income 4,618 4,256 10,390 8,172
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Administrative
expenses (634) (817) (1,523) (1,526)
Other
operating
income 178 - 186 6
Valuation
losses on
investment
properties (15,749) (2,439) (15,753) (2,439)
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Operating
(loss) profit (11,587) 1,000 (6,700) 4,213
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Financial
income 1 1 2 3
Financial
expenses (1,373) (1,077) (2,750) (1,976)
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Net financing
costs (1,372) (1,076) (2,748) (1,973)
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(Loss) profit
before tax (12,959) (76) (9,448) 2,240
Income tax
charge 149 220 (8) 77
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(Loss) profit
for the period (12,810) 144 (9,456) 2,317
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Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net losses on
cash flow
hedges (46) (536) (224) (1,092)
Income tax
relating to
net gains on
cash flow
hedges 2 39 15 75
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Other
comprehensive
expense, net
of tax, that
is or may be
reclassified
to profit or
loss in
subsequent
periods (44) (497) (209) (1,017)
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Total
comprehensive
(expense)
income for the
period, net of
tax (12,854) (353) (9,665) 1,300
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Basic and
diluted
earnings per
unit (EUR) (0.11) 0.00 (0.08) 0.03
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000 30.06.2020 31.12.2019
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Non-current assets
Investment properties 342,267 356,575
Investment property under construction 3,274 2,367
Derivative financial instruments 6 73
Other non-current assets 54 54
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Total non-current assets 345,601 359,069
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Current assets
Trade and other receivables 3,166 1,794
Prepayments 550 301
Other current assets 353 734
Cash and cash equivalents 7,081 9,836
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Total current assets 11,150 12,665
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Total assets 356,751 371,734
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Equity
Paid in capital 138,064 138,064
Cash flow hedge reserve (1,765) (1,556)
Retained earnings 1,678 16,010
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Total equity 137,977 152,518
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Non-current liabilities
Interest bearing loans and borrowings 205,604 205,718
Deferred tax liabilities 6,011 6,199
Derivative financial instruments 1,885 1,728
Other non-current liabilities 1,165 1,298
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Total non-current liabilities 214,665 214,943
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Current liabilities
Interest bearing loans and borrowings 405 414
Trade and other payables 2,886 3,171
Income tax payable 181 8
Other current liabilities 637 680
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Total current liabilities 4,109 4,273
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Total liabilities 218,774 219,216
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Total equity and liabilities 356,751 371,734
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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
22:24 EET on 7 August 2020.
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