Market announcement
Baltic Horizon Fund / Northern Horizon Capital AS
LEI code
5299008IKT93E4SA0G49
Size of the entity
Small undertaking
Economic activities
Financial and Insurance Activities
Industry sector(s)
Management company
Country of registered office
Estonia
General information
Categories
Other corporate action
Unique data record identifier
8423
Attachments
Submission date and time
30.11.2020 23:55:00
Content of announcement in English
Title
Baltic Horizon Fund Consolidated Unaudited Interim Results for Q3 2020
Message
Management Board of Northern Horizon Capital AS has approved the unaudited
consolidated interim financial statements of Baltic Horizon Fund (the Fund) for
the first nine 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. The virus outbreak has caused significant shifts in the Fund's
operating environment, which will have a negative overall impact on the Fund's
expected 2020 performance. 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 2.2 million of distributable cash flow
from the results for the first three quarters of 2020 to strengthen the Fund's
financial position. Over the past three quarters, the Fund has increased its
cash distribution reserve to EUR 3.0 million. The Management Company believes
that it was in the best interest of the investors and the Fund to reduce its
quarterly cash distribution during the initial outbreak of COVID-19 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.
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. Retail assets located in the central business districts
(Postimaja, Europa and Galerija Centrs) accounted for 27.9% of total portfolio
NOI in Q3 2020. Overall, the portfolio has remained resilient to the crisis and
the total negative effect on the portfolio NOI for the year 2020 is expected to
remain around 10%.
Distributions to unitholders for Q2 2020 and Q3 2020 Fund results
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.
On 20 October 2020, the Fund declared a cash distribution of EUR 3,111 thousand
(EUR 0.026 per unit) to the Fund unitholders for Q3 2020 results. This
represents a 2.25% return on the weighted average Q3 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 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
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(+) Net rental income 5,412 5,635 5,772 4,618 4,799
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(-) Fund administrative expenses (879) (846) (889) (634) (682)
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(-) External interest expenses (1,295) (1,346) (1,331) (1,327) (1,327)
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(-) CAPEX expenditure(1) (178) (225) (95) (97) (230)
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(+) Added back listing related
expenses 60 - 39 29 114
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(+) Added back acquisition related
expenses 16 - - - -
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Generated net cash flow (GNCF) 3,136 3,218 3,496 2,589 2,674
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GNCF per weighted unit (EUR) 0.031 0.029 0.031 0.023 0.024
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12-months rolling GNCF yield(2 )(%) 8.4% 8.6% 11.5% 9.6% 9.4%
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Dividends declared for the period 3,061 3,175 1,701 1,701 3,111
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Dividends declared per unit(3 )(EUR) 0.027 0.028 0.015 0.015 0.026
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12-months rolling dividend yield(2
)(%) 7.8% 8.0% 9.6% 7.2% 7.5%
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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 (Q3 2020: closing market
price of the unit as of 30 September 2020).
3. Based on the number of units entitled to dividends.
Net profit and net rental income
During the first three quarters of 2020, the Group recorded a net loss of EUR
6.9 million against a net profit of EUR 5.4 million for Q1-Q3 2019. The net
result was significantly impacted by the one-off negative valuation result of
EUR 15.8 million recognized in June 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
Q1-Q3 2020 would have amounted to EUR 8.9 million (Q1-Q3 2019: EUR 7.8 million).
In Q3 2020, the Fund earned a net profit of EUR 2.6 million, although negative
COVID-19 related rent concessions impact on net rental income led to a lower net
profit compared to previous year (Q3 2019: EUR 3.1 million). Earnings per unit
for Q1-Q3 2020 were negative at EUR 0.06 (Q1-Q3 2019: positive EUR 0.06).
Earnings per unit excluding valuation losses on the investment properties
amounted to EUR 0.08 (Q1-Q3 2019: EUR 0.09).
In Q1-Q3 2020, the Group earned net rental income of EUR 15.2 million exceeding
the previous year's net rental income for the same period by EUR 1.6 million or
11.8% (Q1-Q3 2019: 13.6 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 Q1-Q3 2020 as compared to Q1-Q3 2019, albeit
rental income growth in Q2-Q3 2020 was slower due to relief measures granted to
tenants during the COVID-19 pandemic. The addition of Galerija Centrs added EUR
2.5 million to the net rental income during the first quarters of 2020, while
North Star added EUR 1.1 million.
On an EPRA like-for-like basis, portfolio net rental income decreased by 7.2%
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 55.1% (Q1-Q3
2019: 51.5%) of net rental income in Q1-Q3 2020 followed by the retail segment
with 40.6% (Q1-Q3 2019: 42.8%) and the leisure segment with 4.3% (Q1-Q3
2019: 5.7%).
Retail assets located in the central business districts (Postimaja, Europa and
Galerija Centrs) accounted for 30.0% of total portfolio net rental income in the
first three quarters of 2020. Total net rental income attributable to
neighbourhood shopping centres accounted for 10.6% in Q1-Q3 2020.
During the first three quarters of 2020, investment properties in Latvia and
Lithuania contributed 39.4% (Q1-Q3 2019: 35.4%) and 35.3% (Q1-Q3 2019: 35.4%) of
net rental income respectively, while investment properties in Estonia
contributed 25.3% (Q1-Q3 2019: 29.2%).
Gross Asset Value (GAV)
At the end of September 2020, the GAV decreased to EUR 358.4 million (31
December 2019: EUR 371.7 million) which was a drop of 3.6% over the first three
quarters of 2020. 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. Compared to the previous quarter, the Fund's GAV rose by EUR 1.7 million
during Q3 2020. The Group made a capital investment (EUR 1.2 million) in the
Meraki office building development project during Q3 2020. The Fund aims to
continue the construction of the Meraki office building throughout 2020 and
2021. 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 September 2020, the Fund net asset value (NAV) decreased to EUR
138.9 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 9.0%. Positive operational performance over the period was
offset by EUR 6.6 million dividend distributions to the unitholders and a
negative cash flow hedge reserve movement of EUR 0.2 million. Compared to the
previous quarter, the Fund's NAV rose by EUR 0.9 million during Q3 2020 mostly
due to positive operational performance of the portfolio. At 30 September 2020,
NAV per unit stood at EUR 1.2247 (31 December 2019: EUR 1.3451), while NAV per
unit based on EPRA standards was EUR 1.3137 (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 Q3 2020, the fair value of the Fund's portfolio was EUR
347.2 million (31 December 2019: EUR 358.9 million) and incorporated a total net
leasable area of 153,351 sq. m. During Q3 2020, the Group invested EUR 0.5
million in the existing property portfolio and an additional EUR 1.2 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 31.12.2019 31.03.2020 30.06.2020 30.09.2020
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Equity Ratio >25%(1)/35.0% 42.6% 42.4% 40.0% 40.2%
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Debt Service
Coverage Ratio > 1.20 3.32 3.35 3.30 3.16
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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 the first three quarters of 2020
amounted to EUR 11.9 million (Q1-Q3 2019: cash inflow of EUR 11.0 million).
Cash outflow from investing activities was EUR 2.5 million (Q1-Q3 2019: cash
outflow of EUR 56.4 million) due to subsequent capital expenditure on existing
portfolio properties and investments in the Meraki development project. Cash
outflow from financing activities was EUR 10.9 million (Q1-Q3 2019: cash inflow
of EUR 38.8 million). During the first nine months of 2020, the Fund made three
cash distributions of EUR 6.6 million and paid regular interest on bank loans
and bonds. At the end of Q3 2020, the Fund had a sufficient amount of cash (EUR
8.4 million) to cover its liquidity needs amid the COVID-19 pandemic.
Key earnings figures
EUR '000 Q3 2020 Q3 2019 Change (%)
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Net rental income 4,799 5,412 (11.3)
Administrative expenses (682) (879) (22.4%)
Other operating income - 17 (100.0%)
Valuation losses on investment properties (4) - -
Operating (loss)
profit 4,113 4,550 (9.6%)
Net financing costs (1,367) (1,339) 2.1%
Loss before tax 2,746 3,211 (14.5%)
Income tax (153) (152) 0.7%
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Net (loss) profit for the
period 2,593 3,059 (15.2%)
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Weighted average number of units
outstanding (units) 113,387,525 100,461,178 12.9%
Earnings per unit (EUR) 0.02 0.03 (33.3%)
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Key financial position figures
EUR '000 30.09.2020 31.12.2019 Change (%)
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Investment properties in
use 342,775 356,575 (3.9%)
Investment property under
construction 4,437 2,367 87.5%
Gross asset value (GAV) 358,409 371,734 (3.6%)
Interest bearing loans and
bonds 205,660 205,827 (0.1%)
Total
liabilities 219,544 219,216 0.1%
Net asset value (NAV) 128,865 152,518 (9.0%)
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Number of units outstanding
(units) 113,387,525 113,387,525 -
IFRS Net asset value (IFRS NAV) per unit
(EUR) 1.2247 1.3451 (9.0%)
EPRA Net reinvestment value (EPRA NRV)
per unit (EUR) 1.3137 1.4333 (8.3%)
EPRA Net tangible assets (EPRA NTA) per
unit (EUR) 1.3137 1.4333 (8.3%)
EPRA Net disposal value (EPRA NDV) per
unit (EUR) 1.2292 1.3400 (8.3%)
EPRA Net asset value (EPRA NAV) per unit
(EUR) 1.3137 1.4333 (8.3%)
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Loan-to-Value ratio (%) 59.2% 57.3% -
Average effective interest
rate (%) 2.6% 2.6% -
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Property performance
During Q3 2020, the average actual occupancy of the portfolio was 94.6% (Q2
2020: 96.4%). Taking into account Duetto I and Duetto II rental guarantees, the
effective occupancy rate was 94.6% (Q2 2020: 96.4%). The occupancy rate as of
30 September 2020 was 94.7% (30 June 2020: 96.0%). The Fund's tenant base
remains strong despite several tenants vacating premises in Q3 2020. Occupancy
rates in the retail segment decreased further because of additional vacancies in
Europa SC, Pirita SC and Galerija Centrs. The Fund signed a new rental agreement
with F8 Outlet in Domus PRO Retail Park which increased the occupancy level of
property to 100.0% at the end of Q3 2020. Occupancy rates in the office segment
still remain strong albeit two tenants vacating premises in Upmalas Biroji and
Lincona had a minor negative effect on the occupancy levels.
The average direct property yield during Q3 2020 was 5.5% (Q2 2020: 5.3%). The
net initial yield for the whole portfolio for Q3 2020 was 5.6% (Q2 2020: 5.2%).
Property yields increased compared to Q2 2020 albeit rent relief measures are
still affecting the Fund's performance. Compared to pre-COVID-19 pandemic
performance levels, 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 Q3 2020 was EUR 11.8 per sq. m.
Net
Direct initial
Property name Sector Fair property yield Occupancy
value(1) NLA yield Q3 rate for
(EUR '000) (sq. m.) Q3 2020(2) 2020(3) Q3 2020
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Vilnius,
Lithuania
Duetto I Office 16,250 8,587 7.7% 7.1% 100.0%
Duetto II Office 18,665 8,674 7.3% 7.2% 100.0%
Europa SC Retail 39,725 16,856 5.0% 4.7% 91.6%
Domus Pro Retail
Retail Park 16,170 11,247 7.0% 6.7% 96.6%
Domus Pro Office
Office 7,590 4,831 8.4% 7.1% 100.0%
North Star Office 19,743 10,550 6.9% 7.2% 100.0%
Meraki
Development 4,437 - - - -
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Total Vilnius 122,580 60,745 6.5% 6.3% 97.0%
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Riga, Latvia
Upmalas Biroji Office
BC 23,033 10,458 6.4% 6.7% 90.2%
Vainodes I Office 20,843 8,052 6.9% 7.0% 100.0%
LNK Centre Office 16,505 7,453 6.4% 6.6% 100.0%
Sky SC Retail 4,962 3,254 8.5% 8.6% 98.6%
Galerija Centrs Retail 71,370 20,022 3.8% 4.0% 84.9%
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Total Riga 136,713 49,239 5.2% 5.4% 91.7%
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Tallinn,
Estonia
Postimaja & CC Retail
Plaza complex 30,832 9,145 1.4% 1.6% 95.1%
Postimaja & CC Leisure
Plaza complex 14,250 8,664 8.0% 6.7% 100.0%
G4S Office
Headquarters 16,790 9,179 7.9% 7.3% 100.0%
Lincona Office 16,470 10,871 7.5% 7.2% 91.6%
Pirita SC Retail 9,577 5,508 4.7% 6.1% 81.5%
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Total Tallinn 87,919 43,367 4.9% 5.0% 94.5%
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Total portfolio 347,212 153,351 5.5% 5.6% 94.6%
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1. Based on the latest valuation as at 30 June 2020m 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.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
EUR '000 01.07.2020-30.09.2020 01.07.2019-30.09.2019 01.01.2020-30.09.2020 01.01.2019-30.09.2019
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Rental income 5,267 5,782 16,549 14,579
Service charge
income 1,245 1,476 3,749 3,128
Cost of rental
activities (1,713) (1,846) (5,109) (4,123)
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Net rental
income 4,799 5,412 15,189 13,584
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Administrative
expenses (682) (879) (2,205) (2,405)
Other
operating
income - 17 186 23
Valuation
losses on
investment
properties (4) - (15,757) (2,439)
-------------------------------------------------------------------------------------------------------
Operating
(loss) profit 4,113 4,550 (2,587) 8,763
-------------------------------------------------------------------------------------------------------
Financial
income 1 1 3 4
Financial
expenses (1,368) (1,340) (4,118) (3,316)
-------------------------------------------------------------------------------------------------------
Net financing
costs (1,367) (1,339) (4,115) (3,312)
-------------------------------------------------------------------------------------------------------
(Loss) profit
before tax 2,746 3,211 (6,702) 5,451
Income tax
charge (153) (152) (161) (75)
-------------------------------------------------------------------------------------------------------
(Loss) profit
for the period 2,593 3,059 (6,863) 5,376
-------------------------------------------------------------------------------------------------------
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net losses on
cash flow
hedges (3) (305) (227) (1,397)
Income tax
relating to
net gains on
cash flow
hedges (2) 17 13 92
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Other
comprehensive
expense, net
of tax, that
is or may be
reclassified
to profit or
loss in
subsequent
periods (5) (288) (214) (1,305)
-------------------------------------------------------------------------------------------------------
Total
comprehensive
(expense)
income for the
period, net of
tax 2,588 2,771 (7,077) 4,071
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Basic and
diluted
earnings per
unit (EUR) 0.02 0.03 (0.06) 0.06
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000 30.09.2020 31.12.2019
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Non-current assets
Investment properties 342,775 356,575
Investment property under construction 4,437 2,367
Derivative financial instruments - 73
Other non-current assets 54 54
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Total non-current assets 347,266 359,069
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Current assets
Trade and other receivables 1,849 1,794
Prepayments 496 301
Other current assets 411 734
Cash and cash equivalents 8,387 9,836
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Total current assets 11,143 12,665
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Total assets 358,409 371,734
-------------------------------------------------------------------
Equity
Paid in capital 138,064 138,064
Cash flow hedge reserve (1,770) (1,556)
Retained earnings 2,571 16,010
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Total equity 138,865 152,518
-------------------------------------------------------------------
Non-current liabilities
Interest bearing loans and borrowings 195,705 205,718
Deferred tax liabilities 6,166 6,199
Derivative financial instruments 1,847 1,728
Other non-current liabilities 1,162 1,298
-------------------------------------------------------------------
Total non-current liabilities 204,880 214,943
-------------------------------------------------------------------
Current liabilities
Interest bearing loans and borrowings 10,247 414
Trade and other payables 3,729 3,171
Income tax payable - 8
Derivative financial instruments 35 -
Other current liabilities 653 680
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Total current liabilities 14,664 4,273
-------------------------------------------------------------------
Total liabilities 219,544 219,216
-------------------------------------------------------------------
Total equity and liabilities 358,409 371,734
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For more information, please contact:
Tarmo Karotam
Baltic Horizon Fund manager
E-mail [email protected]
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 23:32 on 30 November 2020.