Market announcement

Title

Arco Vara AS unaudited consolidated interim report for first quarter 2016

Message

General information

As at 31 March 2016: the group comprised 23 companies, which is two less than
at the end of year 2015. On 19 February 2016, the group’s subsidiary
Fineprojekti OÜ was deregistered in Estonian Commercial Register, the
liquidation process was started in 2014. The liquidation also resulted in
derecognitionof Romanian subsidiary Arco Capital Real Estate SRL from the
group’s structure. The liquidation has no impact on the group’s net assets. 

In Q1 2016, the group’s interest in Bulgarian real estate fund Arco Real Estate
Fund REIT was increased from 70% up to 100% and the share capital of the fund
was additionally increased by 77 thousand euros. 


Significant subsidiaries

Company name       Locati  Segment       Share capital      Equity   The group's
                   on                  (nominal value)     balance      interest
                                                             at 31              
                                                        March 2016              
--------------------------------------------------------------------------------
In thousands of                                                                 
 euros                                                                          
Arco Manastirski   Bulgar  Develop               2,676       4,069          100%
 EOOD              ia         ment                                              
--------------------------------------------------------------------------------
Arco Invest EOOD   Bulgar  Develop              26,826        -286          100%
                   ia         ment                                              
--------------------------------------------------------------------------------
Arco Real Estate   Bulgar  Develop                 332         317          100%
 Fund REIT ¹       ia         ment                                              
--------------------------------------------------------------------------------
Kodulahe OÜ        Estoni  Develop                   3        -145          100%
                   a          ment                                              
--------------------------------------------------------------------------------
Kerberon OÜ        Estoni  Develop                   5       1,269          100%
                   a          ment                                              
--------------------------------------------------------------------------------
Marsili II SIA     Latvia  Develop               1,524         931          100%
                              ment                                              
--------------------------------------------------------------------------------
Arco Real Estate   Estoni  Service                  42        -979          100%
 AS                a                                                            
--------------------------------------------------------------------------------
Arco Real Estate   Latvia  Service               1,905          50         70.6%
 SIA ¹                                                                          
--------------------------------------------------------------------------------
Arco Imoti EOOD    Bulgar  Service                 444         181          100%
                   ia                                                           
--------------------------------------------------------------------------------

¹ - Non-controlling interest in Arco Real Estate SIA equals to the group’s
total non-controlling interest 


Key Performance Indicators

·    In Q1 2016, the group’s revenue was 5.1 million euros, exceeding by 15%
the revenue of first three months 2015, when revenue amounted to 4.4 million
euros. Revenue increased in Development division, where revenue amounted to 4.4
million euros in first three months 2016 (in Q1 2015: 3.8 million euros). The
revenue of Service division amounted to 0.7 million euros in Q1 2016, decreased
by 4% compared to Q1 2015. However the external revenue (sales outside the
group) of Service division increased by 6% in Q1 2016 compared to Q1 2015. 

·    In first 3 months 2016, the group’s operating profit (=EBIT) was 1.2
million euros and net profit 1.1 million euros. In Q1 2015, the same figures
were 0.9 million euros and 0.7 million euros respectively. Similarly to the
revenue growth the EBIT of Q1 2016 came from Development division. Service
division ended up Q1 2016 with the operating loss of 73 thousand euros, due to
the continuing unprofitability of Estonian brokerage unit. 

·    In Q1 2016, the group continued to decrease debt burden. Net loans
decreased by 2.5 million euros in first 3 months 2016 down to the level of 9.5
million euros as at 31 March 2016. Total loans and borrowings amounted 11.4
million euros at 31 March 2016, decreased by 1.4 million euros through the
quarter. As at 31 March 2016, the weighted average annual interest rate of
loans was 5.7%. This is an increase by 0.7 percentage points compared to 31
December 2015. The average interest rate raised due to the bond issue conducted
in January 2016 in amount of 1.12 million euros with the interest rate of 12%
(significantly higher than average rate). 

·    In Q1 2016, 68 apartments and 2 commercial spaces were sold in projects
developed in the group. In Q1 2015, 48 apartments and 5 commercial spaces were
sold. 

                                       Q1 2016  Q1 2015
-------------------------------------------------------
In millions of euros                                   
                                      ---------        
Revenue                                                
-------------------------------------------------------
Development                                4.4      3.8
-------------------------------------------------------
Service                                    0.7      0.8
-------------------------------------------------------
Eliminations                              -0.1     -0.2
-------------------------------------------------------
Total revenue                              5.1      4.4
-------------------------------------------------------
                                                       
                                      ---------        
Operating profit (EBIT)                                
-------------------------------------------------------
Development                                1.4      1.0
-------------------------------------------------------
Service                                   -0.1      0.0
-------------------------------------------------------
Unallocated income and expenses           -0.2     -0.2
-------------------------------------------------------
Eliminations                               0.1      0.1
-------------------------------------------------------
Total operating profit (EBIT)              1.2      0.9
-------------------------------------------------------
                                                       
-------------------------------------------------------
Finance income and expense                 0.2     -0.2
-------------------------------------------------------
Income tax                                 0.0      0.0
-------------------------------------------------------
Net profit                                 1.1      0.7
-------------------------------------------------------
                                                       
Main ratios                                            
-------------------------------------------------------
--------------------------------------         --------
Earnings per share, EPS (in euros)        0.17     0.12
                                      ---------        
Diluted earnings per share (in euros)     0.16     0.11
-------------------------------------------------------
ROIC (rolling, four quarters)             3.6%     4.8%
-------------------------------------------------------
ROE (rolling, four quarters)              7.9%    13.8%
--------------------------------------         --------
ROA (rolling, four quarters)              3.3%     4.3%
-------------------------------------------------------



                                                                 
-----------------------------------------------------------------
                                       31 March 2016  31 Dec 2015
-----------------------------------------------------------------
                                      ---------------            
In millions of euros                                             
--------------------------------------               ------------
Total assets                                    24.0         24.5
-----------------------------------------------------------------
Invested capital                                22.0         22.4
-----------------------------------------------------------------
Net loans                                        9.5         12.0
-----------------------------------------------------------------
Equity                                          10.6          9.6
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Current ratio                                   6.33         3.22
-----------------------------------------------------------------
Quick ratio                                     1.21         0.32
-----------------------------------------------------------------
Financial leverage                              2.26         2.54
-----------------------------------------------------------------
Average loan term (in years)                     1.7          1.7
-----------------------------------------------------------------
Average annual interest rate of loans           5.7%         5.0%
-----------------------------------------------------------------
Number of staff, at period end                   189          178
-----------------------------------------------------------------



Cash flows

                                                  Q1 2016  Q1 2015
------------------------------------------------------------------
                                                 ---------        
In millions of euros                                              
-------------------------------------------------         --------
Cash flows from operating activities                  2.9      3.0
------------------------------------------------------------------
Cash flows used in investing activities               0.0     -0.1
------------------------------------------------------------------
Cash flows used in financing activities              -1.7     -2.8
------------------------------------------------------------------
Net cash flows                                        1.1      0.1
------------------------------------------------------------------
                                                                  
------------------------------------------------------------------
Cash and cash equivalents at beginning of period      0.7      1.7
------------------------------------------------------------------
Cash and cash equivalents at end of period            1.9      1.8
------------------------------------------------------------------



Revenue and net profit/loss from continuing operations 
          Q1      Q2      Q3      Q4     Total    Q1      Q2      Q3      Q4   
 Total    Q1      Q2      Q3      Q4     Total    Q1 
         2013    2013    2013    2013    2013    2014    2014    2014    2014  
 2014    2015    2015    2015    2015    2015    2016 
--------------------------------------------------------------------------------
------------------------------------------------------ 
In 
 milli 
ons of 
 euros 
--------------------------------------------------------------------------------
------------------------------------------------------ 
Revenu     1.7     3.5     3.5     2.0    10.7     1.1     1.1     1.2     5.8 
   9.2     4.4     2.1     2.1     2.1    10.7     5.1 
e 
--------------------------------------------------------------------------------
------------------------------------------------------ 
Net        0.0     1.4     0.1     2.0     3.5     0.4    -0.3     0.4     0.6 
   1.1     0.7     0.0     0.2    -0.4     0.5     1.1 
 profi 
t/loss 
--------------------------------------------------------------------------------
------------------------------------------------------ 

FORMULAS USED

Earnings per share (EPS) = net profit attributable to owners of the parent /
(weighted average number of ordinary shares outstanding during the period – own
shares) 
Invested capital = current interest-bearing liabilities + non-current
liabilities + equity (at end of period) 
Net loans = current interest-bearing liabilities + non-current liabilities –
cash and cash equivalents – short-term investments in securities (at end of
period) 
Return on invested capital (ROIC) = past four quarters’ net profit / average
invested capital 
Return on equity (ROE) = past four quarters’ net profit / average equity
Return on assets (ROA) = past four quarters’ net profit / average total assets
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventory) / current liabilities
Financial leverage = total assets / equity
Number of staff at period-end = number of people working for the group under
employment or authorization (service) contracts 


Group Chief Executive’s review

Arco Vara is an international group involved in real estate development,
brokerage and valuation services which generates net profit for its
shareholders. Thankfully, the international scope and involvement in
development as well as services are starting to show in quarterly and annual
results, even though the undertaking is currently nanoscopic on the European
scale and even for the Tallinn stock market, the company is considered a small
company. 

The goal of the management is to double the activity volumes and profit of Arco
Vara by the end of 2018 at the latest. Therefore, the results of the first
quarter of 2016 are an example of a quarter which, according to the goal of the
management, should be a relatively typical quarterly result for Arco Vara
starting from 2018. The sales of the first quarter of 2016 were a little over
five million euros and net profit a little over one million euros. This also
emptied out the majority of our stock of development products which were
created over the past year. 

In order to double the activity volumes, the company must achieve a stable
development and sales activity. In 2013–2015, we were involved in restarting
the development business, resulting in mostly positive, if volatile quarterly
results, whereas now the goal is constant development, constant sales, and
constant profit.  All this is supported by the brand which is kept visible by
the service division and data flow. Sales volumes and profit achievable in the
future are possible only if we manage to launch and constantly maintain
development projects which the clients want and can buy in the present. 

From the second quarter of 2016 to the end of the third quarter of 2017, the
group must undergo a period of construction and pre-sales, when very little is
happening for the income statement. The following quarterly results will be
relatively modest in the financial sense. 

Important developments: Kodulahe and Iztok Parkside

At present, we are involved in the construction and preliminary sales of
Kodulahe residential area first stage in Tallinn and in the concurrent design,
establishment of a detailed plan, and conclusion of the purchase transaction of
the property at the Iztok Parkside project in Sofia. By the end of 2016, the
construction and preliminary sales should also be underway at Iztok Parkside. 

In recent years, Arco Vara has not developed two large residential developments
in the construction stage at the same time. This will be a big challenge to the
group’s team and cash flows. The expected revenue of the first stage of
Kodulahe is approximately 16 million euros (130 apartments and business
premises) and the expected revenue of Iztok Parkside is approximately 7 million
euros (about 70 apartments and business premises). The expected profit margin
of both projects meets the goal set for return on equity (ROE 20% per year) and
for the development of both projects, it is critical to find financing
solutions which enable – in the case of sufficient demand – to continue the
development of second stage in Kodulahe project without delay, as well as the
development of project X following Iztok Parkside in Sofia. 

At present, the management is satisfied with the tempo of preliminary sales at
Kodulahe (we only consider notarized contracts with at least 10% down payment
to be preliminary sales). I am also satisfied with the speed of development of
the Iztok Parkside project, where we have developed the project so far without
allocating significant equity to it. At the same time, only the completion of
the acquisition transaction and obtaining the right of construction for the
plot count, both of which are expected in the second quarter this year. 

Madrid Blvd

By the end of the first quarter, we have concluded one long-term lease contract
for leasing nearly 500 square metre office premises, and six more leased
premises sized 500-900 m2 are still vacant. The lease revenue currently earned
on the building is a little lower than the interest expenses for the loan from
Piraeus Bank. Despite some interest of various potential tenants, concluding
long-term contracts with tenants of good quality has been slower than expected.
The quality of lease revenue earned on the building is most important for us,
regardless of whether we will sell the building at Madrid Blvd as an object of
cash flow or continue to operate the house itself. The expectations for
occupancy rate for 2016 and lease revenue for the current year must also be
adjusted accordingly. At present, we can predict that at least 85% of vacant
office premises will be leased by the end of this year. 

As we sold two apartments (plus some parking spaces) in Madrid Blvd building in
first quarter and one more in April, the balance of the bank loan on the
building has dropped below 10 million euros by the publication date of interim
report. 

At the publication date of interim report, 23 apartments still remain to be
sold at the building (GSA 2,539 m2), of which 15 apartments are leased out, as
well as 111 parking spaces, and commercial and office premises (GLA 7,350 m2). 

Service division

The management is not satisfied with the results of service division. We are
generating profit and growing in Bulgaria, bordering on profitability in
Latvia, and generating a loss in Estonia. The management continues to carry out
changes necessary in the Estonian division, involving better marketing, more
effective brokerage and distribution of information, and better targeted
general expenses. The management is expecting the Estonian division to become
profitable by the end of 2016 at the latest. 

Annual forecast

At the end of first quarter, the management sticks to his previously announced
annual forecast: year 2016 revenue of 10.3 million euros and net profit of 0.8
million euros. 


SERVICE DIVISION

In Q1 2016, revenue of service division was 748 thousand euros (in Q1 2015: 779
thousand euros), that included intra-group revenue of 77 thousand euros (in Q1
2015: 143 thousand euros). Revenue of service division from main services (real
estate brokerage and valuation services) was 678 thousand euros in first three
months 2016, decreased by 3% compared to the first quarter of previous year. In
first quarter, revenue from main services increased only in Estonian brokerage
agency, increasing by 8% compared to Q1 2015. The revenue from main services
decreased in Latvian and Bulgarian real estate agency: decreasing by 3% and 21%
respectively. The drop in the revenue of Bulgarian agency can be attributed to
the decreased income from mediating the sales of the group’s own properties: 33
thousand euros in Q1 2016 and 100 thousand euros in Q1 2015. 

Revenue of real estate agencies from brokerage and valuation

                       Q1 2016  Q1 2015  Change, %
--------------------------------------------------
In thousands of euros                             
--------------------------------------------------
Estonia                    300      278         8%
--------------------------------------------------
Latvia                     235      243        -3%
--------------------------------------------------
Bulgaria                   143      180       -21%
--------------------------------------------------
Total                      678      701        -3%
--------------------------------------------------

In Q1 2016, the Estonian agency has operated on a loss of 73 thousand euros (in
Q1 2015: loss of 7 thousand euros). In Q1 2016, Latvian and Bulgarian agencies
had small net profit of 1 thousand and 9 thousand euros, respectively. In Q1
2015, the Bulgarian agency earned net profit of 51 thousand euros and Latvian
agency had a loss of 15 thousand euros. 

In addition to brokerage and valuation services, the service division also
provides real estate management services as well as accommodation service in
Bulgaria. The revenue from real estate management was 27 thousand euros in
first three months 2016, 23 thousand euros of which was intra-group revenue (in
Q1 2015: 41 thousand and 28 thousand euros, respectively). Revenue from
accommodation services amounted to 30 thousand euros in Q1 2016 (in Q1 2015: 23
thousand euros). 

The number of staff in service division has been increased to 176 employees in
first three months of 2016, this is 11 people more compared to year end 2015.
The number of staff is increased in all three countries. 

DEVELOPMENT DIVISION

In Q1 2016, revenue of development division totalled 4,412 thousand euros (in
Q1 2015: 3,782 thousand euros). The development division revenue was higher
than usual quarterly revenue because of the sale of properties in the group’s
own development projects: amounting to 4,305 thousand euros in Q1 2016 and
3,505 thousand euros in Q1 2015. 

Most of the remaining revenue of development division consist of rental income
from commercial and office premises in Madrid Blvd building in Sofia, amounted
to 76 thousand euros in Q1 2016 (237 thousand euros in Q1 2015). Rental income
has decreased compared to previous year due to conclusion of rental agreement
with anchor tenant and the renovation works of rental spaces in Q4 2015. The
rental space that was previously rented out for one anchor tenant is now
divided into 7 separate spaces. The search of new tenants is ongoing, first
rental agreement is concluded by the publication date of interim report. The
rental income is planned to recover on the previous level by the end of year
2016. 

In Q1 2016, operating profit of development division was 1,386 thousand euros,
966 thousand euros of operating profit was earned in Q1 2015. 

In Q1 2016, handing over the apartments to the clients and concluding final
sales in third stage (block D) apartment building of Manastirski Livadi project
in Sofia has been continued. The process started in the end of December 2015.
In Q1 2016, sale of 66 apartments and 1 commercial space were concluded. As at
31 March 2016, one apartment and seven commercial spaces were left unsold. By
the publication date of interim report, the last apartment and also an
additional commercial space have been sold. 

In Q1 2016, one commercial space has been sold in second stage (Block AB) of
Manastirski Livadi project and one more left unsold. All apartments and parking
places are sold in this building. 

As at 31 March 2016, 26 apartments remained unsold in Madrid Blvd complex in
Sofia. In Q1 2016, sales were concluded for two apartments presold at the end
of 2015. In 2016, 3 more apartments have been pre-sold, final sales will be in
second quarter 2016. 15 apartments, out of all Madrid Blvd unsold apartments,
are rented out as accommodation service. Unsold 111 parking places are also
rented out. 

In first three months 2016, 68 apartments and 2 commercial spaces were sold in
the group’s Bulgarian projects (in Q1 2015: 48 apartments and 5 commercial
spaces). 

In March 2016, the construction of first stage apartment building (with 125
apartments and 5 commercial spaces) in Kodulahe project was started in Tallinn.
 By the publishing date of the interim report, first 30 apartment presale
agreements have been concluded. The construction of the apartment building
should finalize at the beginning of summer 2017. 

In Latvia, 14 Marsili residential plots are not sold yet. A presale agreement
for one of these plots was concluded in December 2015, the final sale should be
concluded in Q2 2016. 

As at 31 March 2016, 5 people were employed in development division, the same
number as at the end of year 2015. 

SUMMARY TABLE OF ARCO VARA’S ACTIVE PROJECTS AS AT 31 MARCH 2016

Project   Address       Product  Stage  Area of       GSA / GLA      No of units
 name                    main           plot(s)   (above grade)    (above grade)
                         type              (m2)    available or     available or
                                                        <future  <future target>
                                                        target>                 
--------------------------------------------------------------------------------
Manastir  Manastirski,  Apartme  S5           -              83                1
ski A/B    Sofia        nts                                                     
--------------------------------------------------------------------------------
Manastir  Manastirski,  Apartme  S5           -             674                8
ski D      Sofia        nts                                                     
--------------------------------------------------------------------------------
Madrid    Madrid Blvd,  Lease:   S5/S6        -           7,350               21
 Blvd      Sofia         Retail                                                 
                        /Office                                                 
--------------------------------------------------------------------------------
Madrid    Madrid Blvd,  Apartme  S5/S6        -           2,990               26
 Blvd      Sofia        nts                                                     
--------------------------------------------------------------------------------
Marsili   Marsili,      Residen  S5           -          25,389               14
 residen   near Riga    tial                                                    
tial                     plots                                                  
 plots                                                                          
--------------------------------------------------------------------------------
Marsili   Marsili,      Residen  S2     120,220       <120,220>             <68>
 residen   near Riga    tial                                                    
tial                     plots                                                  
 plots                                                                          
--------------------------------------------------------------------------------
Kodulahe  Lahepea 7,    Apartme  S4/S5    6,102           8,732              130
, stage    Tallinn      nts                                                     
 1                                                                              
--------------------------------------------------------------------------------
Kodulahe  Lahepea,      Apartme  S2      22,396        <13,300>            <200>
, stages   Soodi, Pagi  nts                                                     
 2-5       streets,                                                             
           Tallinn                                                              
--------------------------------------------------------------------------------
Lehiku    Lehiku 21,23  Apartme  S2       5,915         <1,100>              <5>
 carpet    Tallinn      nts                                                     
 buildin                                                                        
g                                                                               
--------------------------------------------------------------------------------
Liimi     Liimi 1b,     Lease:   S2/S5    2,463         <6,500>                1
           Tallinn       Office                                                 
--------------------------------------------------------------------------------
Viimsira  Haabneeme,    Office/  S3/S5   14,174             500                1
nna        Viimsi vald  Mix                                                     
--------------------------------------------------------------------------------

Note: Value presented inbetween < > means future target value as the project is
in early (S1, S2) development stage and the building rights or the design have
not been finished yet. The table does not reflect sellable or lettable volumes
below grade including parking spaces and storages. The table does not provide
complete overview of the group’s land bank. 

Description of stages

S1: Land plot acquired
S2: Building Rights Procedure
S3: Design and Preparation Works
S4: Construction
S5: Marketing and Sale
S6: Facility Management and/or Lease

PEOPLE

As at 31 March 2016, 189 people worked for the group (178 as at 31 December
2015). Employee remuneration expenses in first three months 2016 amounted to
0.7 million euros (in Q1 2015: 0.6 million euros). 

The remuneration of the member of the management board/chief executive and the
members of the supervisory board of the group’s parent company including social
security charges in Q1 2016 amounted to 28 thousand euros (25 thousand euros in
Q1 2015). 

MANAGEMENT BOARD AND SUPERVISORY COUNCIL

The management board of Arco Vara AS has one member. Since 22 October 2012, the
member of the management board and chief executive of Arco Vara AS has been
Tarmo Sild. The mandate of the chief executive was prolonged by 3 years (until
October 2018) on the supervisory board meeting held in September 2015. 

The supervisory board of Arco Vara AS has 5 members. Since 10 February 2015,
supervisory board comprise: Hillar-Peeter Luitsalu (the chairman), Allar
Niinepuu, Rain Lõhmus, Steven Yaroslav Gorelik and Kert Keskpaik. 

More information on key persons of Arco Vara you can find on company’s
corporate web page www.arcorealestate.com. 



DESCRIPTION OF THE MAIN RISKS

Strategic risk

Most of the group’s equity is placed in real estate development. The group is
focused mainly on residential real estate development where development cycle
lasts for years consisting of detail planning, designing, construction and sale
- starts from purchase of land plot and finishes with the sale of end products
to customers. The equity is invested mainly in starting phase of the cycle
(purchase of land) on the assumption that there will be a demand for certain
products in the future. Considering that the demand for development product is
largely based on forecast and not on transaction then the main risk for the
group is investing equity to the development product for which there is no
demand in the future. 

For mitigating the risk: (i) the group invests equity into different
development project in different markets (in 2016, in Sofia and Tallinn), (ii)
monitoring current demand and supply in its home markets and (iii) makes
efforts to narrow the time between moment of investment and moment of the
demand is rising - signing pre-agreements with clients, purchases land without
using equity or postpones it using project financing alternatives there equity
placement is not necessary. 

Credit risk

The group’s credit risk arises mainly from two sources: real estate development
activities and reliability of the banks where bank deposits are placed. As on
real estate transactions a lot of counterparty financing goes through banks,
co-operation with financing banks is common to mitigate counterparty risk. And
not all cash and cash equivalents are placed on the same banking group. As a
consequence, the group considers credit risk as substantially mitigated. 

Liquidity and interest rate risks

The base currency of all of the group’s loan agreements is euro and the base
interest rate is 3 or 6 months EURIBOR. As a result, the group is exposed to
developments on the international capital markets. The group does not use
hedging instruments to mitigate its long-term interest rate risk. In first 3
months 2016, the group’s interest-bearing liabilities have decreased by 1.4
million euros and at 31 March 2016 amounted to 11.4 million euros, of which
only 0.1 million euros is due within next 12 months. At the same time, the
group’s cash and cash equivalents totalled 1.9 million euros as at 31 March
2016 (at 31 December 2015: 0.7 million euros). In Q1 2016, interest payments on
interest-bearing liabilities totalled 0.2 million euros (in Q1 2015: 0.3
million euros). The group’s weighted average loan interest rate was 5.7% as at
31 March 2016. This is an increase by 0.7 percentage points compared to the end
of year 2015. The reason for the increase is bonds issued in January 2016, the
bonds bear significantly higher than average interest rate. 

Currency risk

Purchase and sales contracts of provided services are mostly signed in local
currencies: euros (EUR) or Bulgarian lev (BGN). Real estate sales are mostly
nominated in euros, as a result of which the group’s assets and liabilities
structure does not denote a significant currency risk. The group is not
protected against currency devaluations. Most liquid funds are held in demand
or short-term deposits denominated in euros. 


Share and shareholders

Arco Vara AS has issued a total of 6,117,012 ordinary shares with nominal value
of 0.7 euros per share. The shares are freely traded on NASDAQ Tallinn stock
exchange. As at 31 March 2016, the company had 1,579 shareholders (at 31
December 2015: 1,600) including 1,365 individuals as shareholders (at 31
December 2015: 1,381 individuals). The share price closed at 1.14 euros. The
price has decreased by 1% within 3 months 2016 (closing price at the end of
2015 was 1.15 euros). During the period, the highest price per share was 1.15
euros and lowest price 1.03 euros. As at 31 March 2016, market capitalization
of shares amounted to 6,973 thousand euros, P/E ratio of the share was 8.8 and
P/B ratio 0.66 (at 31 December 2015: 7,035 thousand euros, 15.8 and 0.73,
respectively). 

Major shareholders at 31 March 2016  No of shares  Interest %
NORDEA BANK FINLAND PLC client            862,820       14.1%
AS Lõhmus Holdings                        602,378        9.8%
Gamma Holding Investment OÜ               572,356        9.4%
Alarmo Kapital OÜ                         489,188        8.0%
LHV PENSIONIFOND L                        389,765        6.4%
FIREBIRD REPUBLICS FUND LTD               356,428        5.8%
HM Investeeringud OÜ                      325,505        5.3%
FIREBIRD AVRORA FUND, LTD.                185,800        3.0%
LHV PENSIONIFOND XL                       173,583        2.8%
FIREBIRD FUND L.P.                        150,522        2.5%
Other shareholders                      2,008,667       32.8%
-------------------------------------------------------------
Total                                   6,117,012      100.0%



Holdings of members of the management  Position                    No of  Intere
 and supervisory boards (and related                              shares    st %
 persons) at 31 March 2016                                                      
Rain Lõhmus (AS Lõhmus Holdings)       member of supervisory     602,378    9.8%
                                        board                                   
Tarmo Sild ja Allar Niinepuu (Alarmo   member of management      489,188    8.0%
 Kapital OÜ)                            board/ member of                        
                                        supervisory board                       
Hillar-Peeter Luitsalu (HM             chairman of               364,259    6.0%
 Investeeringud OÜ, related persons)    supervisory board                       
Kert Keskpaik (privately and through   member of supervisory     194,633    3.2%
 K Vara OÜ)                             board                                   
Steven Yaroslav Gorelik ¹              member of supervisory           0    0.0%
                                        board                                   
--------------------------------------------------------------------------------
Total                                                          1,650,458   27.0%

¹ - Steven Yaroslav Gorelik is active as fund manager in three investment funds
holding interest in Arco Vara (Firebird Republics Fund Ltd, Firebird Avrora
Fund Ltd and Firebird Fund L.P) of 692,750 shares (total of 11.3% interest). 


Condensed consolidated interim financial statements

Consolidated statement of comprehensive income


                                           Note  Q1 2016  Q1 2015
-----------------------------------------------------------------
In thousands of euros                                            
-----------------------------------------------------------------
Continuing operations                                            
-----------------------------------------------------------------
Revenue from sale of own real estate               4,305    3,505
-----------------------------------------------------------------
Revenue from rendering of services                   752      892
-----------------------------------------------------------------
Total revenue                              2, 3    5,057    4,397
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Cost of sales                               4     -3,179   -2,900
-----------------------------------------------------------------
Gross profit                                       1,878    1,497
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Other income                                           1       17
-----------------------------------------------------------------
Marketing and distribution expenses         5       -142     -109
-----------------------------------------------------------------
Administrative expenses                     6       -499     -475
-----------------------------------------------------------------
Other expenses                                        -6      -12
-----------------------------------------------------------------
Operating profit                                   1,232      918
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Finance income and costs                    7       -172     -190
-----------------------------------------------------------------
Profit before tax                                  1,060      728
-----------------------------------------------------------------
Net profit from continuing operations              1,060      728
------------------------------------------------         --------
                                                ---------        
                                                                 
------------------------------------------------         --------
                                                ---------        
Discontinued operations                                          
------------------------------------------------         --------
Loss from discontinued operations                      0      -11
-----------------------------------------------------------------
                                                                 
------------------------------------------------         --------
Net profit for the period                          1,060      717
-----------------------------------------------------------------
attributable to owners of the parent               1,060      722
-----------------------------------------------------------------
attributable to non-controlling interests              0       -5
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Total comprehensive income for the period          1,060      717
-----------------------------------------------------------------
attributable to owners of the parent               1,060      722
-----------------------------------------------------------------
attributable to non-controlling interests              0       -5
-----------------------------------------------------------------
                                                                 
-----------------------------------------------------------------
Earnings per share (in euros)               8                    
-----------------------------------------------------------------
- basic                                             0.17     0.12
-----------------------------------------------------------------
- diluted                                           0.16     0.11
-----------------------------------------------------------------



Consolidated statement of financial position

                                             Note      31 March      31 December
                                                           2016             2015
--------------------------------------------------------------------------------
In thousands of euros                                                           
                                                  --------------                
Cash and cash equivalents                                 1,877              745
--------------------------------------------------------------------------------
Receivables and prepayments                   9             750              679
--------------------------------------------------------------------------------
Inventories                                   10         11,124           12,818
--------------------------------------------------------------------------------
Total current assets                                     13,751           14,242
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Receivables and prepayments                   9              11                0
--------------------------------------------------------------------------------
Investment property                           11          9,531            9,513
--------------------------------------------------------------------------------
Property, plant and equipment                               482              489
--------------------------------------------------------------------------------
Intangible assets                                           258              229
--------------------------------------------------------------------------------
Total non-current assets                                 10,282           10,231
--------------------------------------------------------------------------------
TOTAL ASSETS                                             24,033           24,473
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                          12            118            2,345
--------------------------------------------------------------------------------
Payables and deferred income                  13          1,974            1,935
--------------------------------------------------------------------------------
Provisions                                                   82              146
--------------------------------------------------------------------------------
Total current liabilities                                 2,174            4,426
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                          12         11,246           10,417
--------------------------------------------------------------------------------
Total non-current liabilities                            11,246           10,417
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                        13,420           14,843
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Share capital                                             4,282            4,282
--------------------------------------------------------------------------------
Share premium                                               292              292
--------------------------------------------------------------------------------
Statutory capital reserve                                 2,011            2,011
--------------------------------------------------------------------------------
Other reserves                                8             298              298
--------------------------------------------------------------------------------
Retained earnings                                         3,716            2,656
--------------------------------------------------------------------------------
Total equity attributable to owners of the               10,599            9,539
 parent                                                                         
--------------------------------------------------------------------------------
Equity attributable to non-controlling                       14               91
 interests                                                                      
--------------------------------------------------------------------------------
TOTAL EQUITY                                             10,613            9,630
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                             24,033           24,473
--------------------------------------------------------------------------------



Consolidated statement of cash flows

                                                          Note  Q1 2016  Q1 2015
--------------------------------------------------------------------------------
In thousands of euros                                                           
                                                               ---------        
Cash receipts from customers                                      5,826    5,893
--------------------------------------------------------------------------------
Cash paid to suppliers                                           -1,782   -1,285
--------------------------------------------------------------------------------
Other taxes paid and recovered (net)                               -771   -1,503
--------------------------------------------------------------------------------
Cash paid to employees                                             -324     -235
--------------------------------------------------------------------------------
Other cash payments and receipts related to operating               -47      127
 activities (net)                                                               
--------------------------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES                                2,902    2,997
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Payments made on purchase of tangible and intangible                -39      -56
 assets                                                                         
--------------------------------------------------------------------------------
Interest received                                                     0        1
--------------------------------------------------------------------------------
Other payments related to investing activities                       -3        0
--------------------------------------------------------------------------------
Net cash flow of discontinued operations                              0        0
--------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                               -42      -55
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Proceeds from loans received                               12     1,020        0
--------------------------------------------------------------------------------
Settlement of loans and borrowings                         12    -2,418   -2,533
--------------------------------------------------------------------------------
Interest paid                                                      -202     -303
--------------------------------------------------------------------------------
Other payments related to financing activities                     -128        0
--------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES                            -1,728   -2,836
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
NET CASH FLOW                                                     1,132      106
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                    745    1,691
--------------------------------------------------------------------------------
Increase in cash and cash equivalents                             1,132      106
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period                        1,877    1,797
--------------------------------------------------------------------------------



Consolidated statement of changes in equity



------------                                                                    
                Equity attributable to owners of the parent     Non-cont   Total
                                                                 rolling  equity
                                                                interest        
                                                                       s        
            --------------------------------------------------------------------
              Share   Share  Statutory   Other  Retain   Total            
             capita  premiu    capital  reserv      ed                    
                  l       m    reserve      es  earnin                    
                                                    gs                    
---------------------------------------------------------------          
In                                                                              
 thousands                                                                      
 of euros                                                                       
                                                       --------                 
Balance as    4,282     292      2,011     179   2,250   9,014        36   9,050
 at 31                                                                          
 December                                                                       
 2014                                                                           
--------------------------------------------------------------------------------
Total             0       0          0       0     722     722        -5     717
 comprehens                                                                     
ive income                                                                      
 for the                                                                        
 period                                                                         
--------------------------------------------------------------------------------
Balance as    4,282     292      2,011     179   2,972   9,736        31   9,767
 at 31                                                                          
 March 2015                                                                     
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Balance as    4,282     292      2,011     298   2,656   9,539        91   9,630
 at 31                                                                          
 December                                                                       
 2014                                                                           
--------------------------------------------------------------------------------
Profit            0       0          0       0       0       0         0       0
 distributi                                                                     
on                                                                              
--------------------------------------------------------------------------------
Change in         0       0          0       0       0       0       -77     -77
 non-contro                                                                     
lling                                                                           
 interest                                                                       
--------------------------------------------------------------------------------
Total             0       0          0       0   1,060   1,060         0   1,060
 comprehens                                                                     
ive income                                                                      
 for the                                                                        
 period                                                                         
--------------------------------------------------------------------------------
Balance as    4,282     292      2,011     298   3,716  10,599        14  10,613
 at 31                                                                          
 March 2016                                                                     
--------------------------------------------------------------------------------




         Contact information:
         Marek Pontus
         CFO
         Arco Vara AS
         Tel: +372 614 4662
         [email protected]
         www.arcorealestate.com