Börsiteade

Pealkiri

Unaudited consolidated interim report for Q1 and 3 months of 2020

Teade

GROUP CEO'S REVIEW

The  satisfactory results  of the  first quarter  do not  give an  idea of ??the
duration and impacts of the forthcoming Ice Age.

In the first quarter, Arco Vara earned money from rental and management fees for
the Madrid Blvd building and from license fees paid by real estate brokerage and
appraisal  companies, as well as the sale of some Madrid Blvd and Iztok Parkside
apartments.  The cost base also decreased during the quarter. First, as a result
of  the partial repayment of the bank loan  for the Madrid Blvd building and the
cut  of  the  interest  rate  by  the  bank  and  secondly, salary costs for the
following months were decreased, due to the occurred economic crisis.

The  primary short-term challenge for the  Group continues to be the realization
of  the already built and largely pre-sold Iztok Parkside project. The Bulgarian
government's  decision at Christmas  to transfer small  street properties to the
city of Sofia is being implemented, where we are no longer surprised by the fact
that  bureaucracy has now taken four months  instead of the initial one month to
be  completed. It is therefore expected that a few months will elapse before the
usage license is obtained. The good news is that customers are still waiting for
apartments  and  have  not  yet  expressed  a  desire  to withdraw from pre-sale
transactions.  As an additional  risk, we have  to consider the possibility that
the  customers'  purchasing  power  or  motivation  to purchase will nonetheless
decrease  during the  second quarter.  It also  means keeping  more money in the
treasury than necessary.

Other  developments in the field of  construction in Estonia proceeded according
to  plan, whereas pre-sales continuing  at a satisfactory pace  until the end of
the quarter. In Kodulahe and Kodukalda, 40% of the total area is covered by pre-
sale  agreements and more than half a year remains until the end of construction
activity.

In  Sofia, we froze the development of the Botanica Lozen development project on
an indefinite basis. We may need our released equity to make favorable purchases
to replenish the land bank.

In  anticipation  of  the  developments  ahead,  we  can bring out the following
thoughts.

First,  during  the  second  and  third  quarters,  the  Estonian  and Bulgarian
economies  will perform  worse prior  to the  moment when  the stability will be
regained and we will do better again. It is conceivable that the economy in both
countries  will decrease by 10% of GDP on  an annual basis, the vast majority of
which will be borne by the private sector and the people who earn money from it.
The  amount of services provided by the public sector and investments are rather
growing.

Secondly,  in  the  residential  real  estate  market, we expect the transaction
activity  to shrink by more than 25% compared to 2019 (in Estonia we expect less
than  37,000 transactions in 2020), as lessens A. the psychological readiness of
most people to spend money and B. the purchasing power of people making money in
the private sector. The reduction in purchasing power is primarily caused by the
decrease  in income, not by the diminishing  in the financing capacity of banks.
The  financing capacity of  banks is increasing  due to the  intervention of the
European  Central Bank,  but the  price of  loans offered  to consumers  of real
estate  is also rising. According to the signs seen so far, the average Estonian
and   Bulgarian   apartment  buyer  will  not  benefit  significantly  from  the
intervention of the European Central Bank.

Third, we will reach the level of transaction activity in 2018-2019 (in Estonia:
49,000 changes  of  ownership  entered  in  the  land  register per year and the
estimated  number of long-term lease transactions  per year is approximately the
same)  in 2022 at the earliest. The remainder of 2020 can be considered a period
of  decline in terms of both the  number of transactions and transaction prices.
The  decline  in  transaction  activity  is  followed  by decline in real estate
prices,  which has already begun in some  segments of the real estate market. It
should  be noted, however, that well-capitalized companies are unlikely to lower
prices.

For  Arco  Vara,  the  assumptions  given  mean that when selling Iztok Parkside
dwellings,  it must be decided whether it is  more beneficial for us A. to start
new  developments, decreasing  the cost  price of  the development (construction
price),  B. replenish the  land bank, or  C. to direct  equity to repurchases of
shares  during the downtime or to distribute it as dividends. A complete Ice Age
scenario  cannot be  ruled out,  where the  market is  overstuffed by ready-made
apartments  where the company is unable to  sell them to anyone, while there are
no  new development projects to  strive for either. As  a conclusion, we need to
evaluate  the situation on  an ongoing basis  with an opportunistic mindset. The
good  news is that Arco Vara's equity ratio to total assets is high and there is
no need for coercive steps in the realization of property or start developments.
Our  current  situations  is  significantly  different from the previous crisis,
which for Arco Vara only passed by the end of 2013.

Hence,  the Management Board is optimistic about Arco Vara and pessimistic about
what lies ahead in the economy.


KEY PERFORMANCE INDICATORS

In  Q1 2020, the  group's revenue  was 2,238 thousand  euros, which is 2.1 times
higher than the revenue of 1,051 thousand euros in Q1 2019.

In  Q1 2020, the group's operating profit (=EBIT) was 133 thousand euros and net
profit  20 thousand  euros.  In  Q1  2019, the  group had operating profit of 5
thousand euros and net loss of 112 thousand euros.

In  Q1 2020, 10 apartments were sold  in projects developed by  the group (in Q1
2019: 7 apartments).

In the Q1 of 2020, the group's debt burden (net loans) increased by 397 thousand
euros  up to the level  of 11,847 thousand euros as  of 31 March 2020. As of 31
March  2020, the  weighted  average  annual  interest  rate  of interest-bearing
liabilities was 4.6%. This is an increase of 0.4% compared to 31 December 2019.


OPERATING REPORT

The  revenue  of  the  group  totaled  2,238 thousand  euros  in  Q1 2020 (in Q1
2019: 2,238 thousand  euros), including revenue  from the sale  of properties in
the group's own development projects in the amount of 1,995 thousand euros in Q1
2020 (in Q1 2019: 823 thousand euros).

Most  of  the  other  revenue  of  the  group  consisted  of  rental income from
commercial  and office premises  in Madrid Blvd  building in Sofia, amounting to
162 thousand  euros in Q1 2020 (in Q1 2019: 172 thousand euros). In Q1 2020, one
office space was vacant, all commercial spaces together with parking places were
rented out.
One apartment and commercial space remain unsold in Stage II of Kodulahe project
which  was finished at  the end of  2019. By the publishing  date of the present
report, the house already has received an occupation permit.
In  Q1 2020, construction works  continued for Stage  III of Kodulahe project, a
residential  building  with  50 apartments  at  Soodi 4 in Merimetsa district in
Tallinn.  The  project  is  expected  to  be  finalized by the Q1 of 2021. Under
continuing favourable construction conditions, the construction of Stage III may
be  finished  in  Q4  2020. By  the  publishing  date of the interim report, 21
apartments have been presold.

Stages  IV-V of  Kodulahe project  have construction  permit, design  works have
finished. The joint construction of the Stage IV-V is scheduled to start in year
2021. The  apartment buildings  will become  ready for  final sale in about 1,5
after the construction begins.

In  Q1 2020, construction works of Oa street  plots in Tartu continued, where of
4 smaller  apartment buildings are constructed under Kodukalda project name. The
construction  is scheduled  to end  in Q4  2020. By the  publishing time  of the
interim report, 12 apartments have been presold.

In  Iztok Parkside project in Sofia, the final sale of apartments started at the
end  of Q4 2019, but the main sales  are planned to take place during 2020 after
receiving  an occupancy  permit. By  the publishing  date of the interim report,
presale  agreements  for  9 apartments  have  not  been concluded. Iztok project
consists of three apartment buildings with a total of 67 apartments.

By the date of this report, design works of Botanica Lozen project near Sofia in
Bulgaria  have been essentially completed.  The project foresees construction of
179 homes  (apartments and houses), commercial  spaces and a kindergarten. Under
favourable market conditions, construction may start in the Q3 of 2020, possibly
divided into smaller sub-stages. Considering the nature of terrain on a mountain
slope, minimum construction period is 2 years.

As  of 31 March  2020 and the  date of  this report, 4 Marsili residential plots
remained unsold in Latvia.



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

------------------------------------------------------------------------
  In thousands of euros                               3m 2020   3m 2019
------------------------------------------------------------------------


  Revenue from sale of own real estate                  1,995       823

  Revenue from rendering of services                      243       228

  Total revenue                                         2,238     1,051



  Cost of sales                                        -1,827      -815

  Gross profit                                            411       236



  Other income                                              0        91

  Marketing and distribution expenses                     -42       -85

  Administrative expenses                                -236      -233

  Other expenses                                            0        -4

  Operating profit                                        133         5



  Finance income and costs                               -113      -117

  Profit/loss before tax                                   20      -112



  Net profit/loss for the period                           20      -112



  Total comprehensive income/expense for the period        20      -112
------------------------------------------------------------------------

------------------------------------------------------------------------
  Earnings per share (in euros)

  - basic                                                0.00     -0.01

  - diluted                                              0.00     -0.01
------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

-------------------------------------------------------------------
   In thousands of euros          31 March 2020   31 December 2019
-------------------------------------------------------------------


  Cash and cash equivalents               1,181                870

  Receivables and prepayments             1,272                544

  Inventories                            16,757             15,807

  Total current assets                   19,210             17,221



  Investment property                    10,689             11,051

  Property, plant and equipment             259                265

  Intangible assets                         207                217

  Total non-current assets               11,155             11,533

  TOTAL ASSETS                           30,365             28,754



  Loans and borrowings                    7,124              6,416

  Payables and deferred income            4,018              3,135

  Total current liabilities              11,142              9,551



  Loans and borrowings                    5,904              5,904

  Total non-current liabilities           5,904              5,904

  TOTAL LIABILITIES                      17,046             15,455



  Share capital                           6,299              6,299

  Share premium                           2,285              2,285

  Statutory capital reserve               2,011              2,011

  Other reserves                            245                245

  Retained earnings                       2,479              2,459

  TOTAL EQUITY                           13,319             13,299

  TOTAL LIABILITIES AND EQUITY           30,365             28,754
-------------------------------------------------------------------


Tiina Malm
CFO
Arco Vara AS
Phone: +372 614 4630
www.arcovara.com