Market announcement

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Arco Vara AS unaudited consolidated interim report for the first quarter of 2018

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KEY PERFORMANCE INDICATORS

  * In Q1 2018, the group's revenue was 2.1 million euros, which is 34.2% higher
    than the revenue of 1.6 million euros in Q1 2017. In Q1 2018, revenue of the
    Development Division amounted to 1.5 million euros (Q1 2017: 1.1 million
    euros) and revenue of the Service Division amounted to 0.8 million euros (Q1
    2017: 0.7 million euros).
  * In Q1 2018, the group's operating profit (=EBIT) was 0.1 million euros and
    the quarter ended with a small net loss. In Q1 2018, the Development
    Division made operating profit of 0.2 million euros and the Service Division
    made a small operating loss.
  * In Q1 2018, 7 apartments and 1 land plot were sold in projects developed by
    the group. In Q1 2017, 1 apartment and 3 plots were sold.
  * In the first 3 months of 2018, the group's debt burden (net loans) did not
    change, remaining at the level of 9.7 million euros, while a year ago, the
    debt burden was 50,5% or 4.9 million euros higher on 31 March 2017. As of
    31 March 2018, the weighted average annual interest rate of interest bearing
    liabilities was 5.1%. This is a decrease of 0.3 percentage points compared
    to 31 December 2017.


GROUP CEO'S REVIEW

In  Q1  2018, the  two  most  important  events  for  Arco  Vara  group were the
completion  of  3.74 mln  share  issue  in  January and the acquisition of Lozen
project in Bulgaria, which consumed most of the proceeds from the share issue.

Speaking about the current year in broader terms, we can say that the first, the
second and the third quarter prepare for the fourth quarter, when Iztok Parkside
project  will be  completed and  the sale  of apartments  and profit-making will
begin.  From the financial viewpoint, the beginning  of the year is like setting
up  a stage for a rock-concert. The task of the management is to ensure that the
stage will be up on time, but the most important thing is the concert itself.

During  this preparatory period, we  earn about 2 mln euros  per quarter, out of
which  roughly half  comes from  services or  rental agreements and another half
from the sale of the small remaining stock. These are modest numbers.

That  being said,  even "quiet"  quarters demonstrate  a noticeable progress. We
have had quite quarters earlier, when cranes have been up, but clients have been
served only with brokerage, evaluations and rental agreements. Compared to Q1 of
2017 for  instance, revenue  from services  has increased  by 27% in Estonia and
Bulgaria  combined. Rental  income from  office and  commercial premises  in the
Madrid  building has increased by 35%. The  Group makes an operating profit even
with  these small volumes, and the small net loss of Q1 was a result of interest
expenses.  We have borrowed money  and are paying interests  in order to develop
real estate in both Iztok, Kodulahe and Lozen, and from May on, two developments
are  in process simultaneously  with 140 new apartments  and commercial areas on
the  way. The results of these developments will begin to show in Q4. Thus, Arco
Vara  group is quite well balanced this year. We are not burning cash even while
preparing  for larger results,  and we are  preparing for several  concerts at a
time.

The next financial goal is to increase the size and frequency of developments in
order  to decrease the  number of "quiet"  quarters, and increase  the number of
periods with some new real estate developments becoming ready for sale. While Q4
2018 and  Q1 2019 will  be covered  by the  sales revenue  and profit from Iztok
Parkside,  the next substantial  results are expected  from stage 2 of Kodulahe,
which  should materialize in Q4 2019 and Q1 2020. An addition to our timeline is
the  Lozen project in Sofia,  where we plan to  start construction by the end of
this  year and commence sales in early 2020. Additionally, Oa street development
project  in Tartu will be undertaken if  we can reach an acceptable construction
price  - with sale  of 30 apartments most  likely to start  in the first half of
2020. The  expected sales revenue from stage 1 of Lozen is over 25 mln euros and
the  sales revenue from Oa  street should definitely exceed  3 mln euros. As for
profit  margins, expectations are  higher in Bulgaria.  Bulgaria seems to be far
away,  but the cash generated  there brings it closer  to Estonia and the parent
company.  Above all,  the question  is about  managing people,  and Arco Vara is
increasingly working as one team.


SERVICE DIVISION

Revenue  of the Service  Division amounted to  776 thousand euros in Q1 2018 (Q1
2017: 680 thousand  euros),  which  included  intra-group revenue of 85 thousand
euros (Q1 2017: 120 thousand euros).

The  main  services  of  the  Service  Division  are  real  estate brokerage and
evaluation  services through real estate agencies. In Q1 2018, revenue from real
estate  agencies increased  by 15% compared  to Q1  2017. The revenue  from main
services  increased  both  in  Estonian  and  Bulgarian  agencies (16% and 11%,
respectively).

In Q1 2018, Estonian agency had net loss of 20 thousand euros (Q1 2017: net loss
of 62 thousand euros), Bulgarian agency had net loss of 10 thousand euros (Q1
2017: net profit of 35 thousand euros).

In  addition  to  brokerage  and  valuation  services, the Service Division also
provides  real  estate  management  and  accommodation services in Bulgaria. The
revenue  from  real  estate  management  was  26 thousand  euros in Q1 2018, 25
thousand  euros of which  was intra-group revenue  (Q1 2017: 29 thousand and 24
thousand  euros, respectively). Revenue from  accommodation services amounted to
42 thousand euros in Q1 2018 (Q1 2017: 39 thousand euros).

On  31 March  2018, the  number  of  staff  in  the Service Division was 120 (on
31.12.2017: 126).


DEVELOPMENT DIVISION

In  Q1 2018, revenue of  the Development Division  totalled 1,473 thousand euros
(in Q1 2017: 1,063 thousand euros) including revenue of 1,310 thousand euros (Q1
2017: 938 thousand  euros)  from  the  sale  of  properties  in  the group's own
development projects.

Most  of the other revenue of the Development Division consists of rental income
from  commercial and office premises in Madrid Blvd building in Sofia, amounting
to 124 thousand euros in Q1 2018 (Q1 2017: 92 thousand euros). By the publishing
date  of the interim report,  two office spaces and  two commercial areas remain
vacant, and one apartment unsold in Madrid Blvd building. 15 more apartments are
furnished  and are  being rented  out as  accommodation service.  Unsold parking
places are also being rented out.

In Q1 2018, operating profit of the Development Division was 180 thousand euros.
In  Q1  2017, operating  loss  was  14 thousand euros. Revenue and profitability
figures  were higher in Q1 2018 due to the completion of several sale agreements
for  the apartments in the first stage  of Kodulahe project. The construction of
the  apartment building with 125 apartments  and 5 commercial areas was finished
in  Q3 2017. By the publishing date of  the interim report, 4 apartments (one of
which will be kept as a demo apartment) and 3 commercial spaces (one of which is
rented out since Q1 2018) remain unsold.

In  Q1 2018, preparatory works started for the second stage of Kodulahe project,
where  a  building  with  68 apartments  and  1 commercial space is planned. The
project  is  expected  to  be  finalised  in  the  second  half  of 2019. By the
publishing   date  of  the  interim  report,  both  construction  and  financing
agreements have been signed, and 22 apartments have been presold.

In  Iztok Parkside project  in Sofia, construction  continued during Q1 2018. By
the  publication date  of interim  report, presale  agreements for 33 apartments
have  been concluded. Iztok  project consists of  three apartment buildings with
67 apartments (7,070 square meters of apartments' sellable area).

During  Q1 2018, Arco Vara acquired land plots  in the Lozen project in Bulgaria
with  total  area  of  5.3 ha.  The  land  is located on the outskirts of Sofia,
outside  Sofia ring road but with quick access to all main transport arteries of
the city. In 2021, the ring road extension will be completed which will make the
access  even  better.  Lozen  project  has  2 stages.  The  project will include
apartment  buildings,  row  houses,  private  houses, supermarket, several small
shops,   restaurant,  kindergarten,  sports  and  spa  facilities,  playgrounds,
apartment-hotel  and possibly office spaces.  Parking will be underground, while
visitors' parking places will be organized on the ground.

As  of 31 March 2018, 5 Marsili residential plots remained unsold in Latvia, out
of which one was presold in 2017. In Q1 2018, one plot was sold in the project.

As  of 31 March 2018, 6 people were employed  in the Development Division, which
is one more than at the end of 2017.


Kristel Tumm
CFO
Arco Vara AS
Tel: +372 614 4662
www.arcorealestate.com




Attachment

  * AVG 2018 Q1 ENG (https://prlibrary-eu.nasdaq.com/Resource/Download/47eaf359-
    d973-46f6-bb5b-7e7026d86e0c)