Published: 2020-03-20 19:45:00 CET
Baltic Horizon Fund / Northern Horizon Capital
Annual Financial Report

BALTIC HORIZON FUND CONSOLIDATED AUDITED RESULTS FOR 2019

Management Board of Northern Horizon Capital AS has approved the audited financial results of Baltic Horizon Fund (the Fund) for the year 2019. The financial results remained unchanged compared to the preliminary disclosure on 14 February 2020.

Distributions to unitholders for 2019 Fund results
In total, the Fund declared a cash distribution of EUR 11,309 thousand from the operating results of 2019 (EUR 2,449 thousand from Q1 2019, EUR 2,624 thousand from Q2 2019, EUR 3,061 thousand from Q3 2019 and EUR 3,175 thousand from Q4 2019). Dividends for the operating results of 2019 correspond to a gross yield of 8.0% based on the closing price on the Nasdaq Tallinn Stock Exchange at 31 December 2019.

Net profit and net rental income
In 2019, the Group recorded a net profit of EUR 8.8 million, which was a down 12.0%, compared to net profit of EUR 10 million for 2018. The net profit was largely affected by the lower investment property value gains during the year. Portfolio valuations largely remained at the same level as at the end of 2018. Excluding the effect of valuation gains (losses), net profit from operating performance grew by 36.1%. Net profit was also significantly impacted by the increase in net rental income and net financing costs. The increase in net financing costs arose from a higher average cost of financing. Earnings per unit were EUR 0.09 (2018: EUR 0.13).

During the year, the Group recorded a net rental income of EUR 19.2 million compared to EUR 14.8 million in 2018. The increase was achieved through new acquisitions that were made following the capital raisings in 2019. The acquisition of the largest asset in the portfolio (Galerija Centrs) had a significant effect on the Group’s net rental income growth for 2019 and will continue to have a positive impact on the net rental income in the future. On an EPRA like-for-like basis, portfolio rental income decreased by 1.6% compared to 2018 mainly due to Pirita and Postimaja higher vacancies and concept change preparations.

Portfolio properties in the office segment contributed 50.8% (2018: 51.1%) of net rental income in 2019 followed by the retail segment with 43.8% (2018: 42.2%) and the leisure segment with 5.4% (6.7%).

During the year, investment properties in Latvia and Lithuania contributed 37.2% (2018: 51.1%) and 35.0% of net rental income respectively, while investment properties in Estonia contributed 27.8% (2018: 42.2%).

Gross Asset Value (GAV)
At the end of 2019, the GAV increased to EUR 371.7 million (31 December 2018: EUR 260.9 million) which was a rise of 42.5% over the year. The increase is mainly related to new acquisitions during the year and the start of the Meraki development project. The Fund completed the acquisitions of the Duetto II office building, the Galerija Centrs Shopping Centre and the North Star Business Centre and thus deployed most of the new capital raised in 2019. The Fund aims to use the remaining capital to finance the construction of the Meraki office building in 2020.  

Net Asset Value (NAV)
During 2019, the Fund NAV increased from EUR 109.8 million to EUR 152.5 million as compared to the end of 2018. The increase is related to new equity raised and the Group’s operational performance over the year. The Fund raised a total of EUR 44.7 million net equity through private placements in April, May, July and October and generated almost EUR 8.8 million in net profit. The Fund NAV increase was offset by a EUR 10.3 million dividend distribution to its unitholders and a negative cash flow hedge reserve movement of EUR 0.6 million. At 31 December 2019, NAV per unit stood at EUR 1.3451 (31 December 2018: EUR 1.3988), while NAV per unit based on EPRA standards was EUR 1.4333 (31 December 2018: EUR 1.5101).

Investment properties
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 2019, the appraised value of the Fund’s portfolio was EUR 358.9 million (2018: EUR 245.2 million). Despite some NOI increases, valuations were also affected by a decrease in the Baltic States’ inflation rates, which are used for rent indexation, and an increase in the expected cost of debt, taken into account in the valuation discount rates. During the year, the Group invested EUR 0.7 million of capital expenditure in the existing property portfolio and an additional EUR 0.7 million in the Meraki development project.

Interest bearing loans and bonds
Interest bearing loans and bonds increased to EUR 205.8 million (2018: EUR 140.5 million) which was a rise of 46.5% over the year. During 2019, the Group received external financing of EUR 67.4 million (bank loans and bonds), which was used to further expand the Fund’s investment portfolio.

Cash flow
Cash flow from core operating activities for the year 2019 amounted to EUR 16.4 million (2018: EUR 10.4 million). Cash flow for investments amounted to EUR 78.2 million (2018: EUR 56.4 million). Investments consisted of subsequent capital expenditure and acquisitions of investment properties and the subsidiary Tampere Invest SIA, which owns Galerija Centrs. Cash flow from financing activities rose to EUR 59.4 million (2018: EUR 33.7 million). During the year, the Fund drew down several bank loans amounting to EUR 57.4 million and completed a subsequent bond subscription in an amount of EUR 10 million. The proceeds from the bank loans, bond issue and issue of new units (EUR 44.7 million) were used to acquire new properties. The Group’s total cash balance at the end of 2019 amounted to EUR 9.8 million.

Key earnings figures

EUR ‘000         2019 2018 Change (%)
Net rental income         19,219 14,804 29.8%
Administrative expenses       (3,251) (2,813) 15.6%
Other operating income       26 74 (64.9%)
Valuation gains (losses) on investment properties   (2,064) 2,014 (202.5%)
Operating profit         13,930 14,079 (1.1%)
Net financing costs         (4,713) (2,781) 69.5%
Profit before tax         9,217 11,298 (18.4%)
Income tax         (426) (1,308) (67.4%)
Net profit for the period       8,791 9,990 (12.0%)
                 
Weighted average number of units outstanding (units)   96,718,348 78,764,8951 22.8%
Earnings per unit (EUR)       0.09 0.13 (30.8%)

Key financial position figures

EUR ‘000         31.12.2019 31.12.2018 Change (%)
Investment properties in use       356,575 245,160 45.4%
Investment property under construction     2,367 - -
Gross asset value (GAV)       371,734 260,878 42.5%
                 
Interest bearing loans and bonds       205,827 140,507 46.5%
Total liabilities         219,216 151,073 45.1%
                 
Net asset value (NAV)       152,518 109,805 38.9%
             
Number of units outstanding (units)       113,387,525 78,496,8311 44.4%
IFRS Net asset value (IFRS NAV) per unit (EUR)   1.3451 1.3988 (3.8%)
EPRA Net asset value (EPRA NAV) per unit (EUR)   1.4333 1.5101 (5.1%)
             
Loan-to-Value ratio (%)       57.3% 57.3% -
Average effective interest rate (%)       2.6% 2.4% -
  1. The number of units excludes 255,969 units acquired by the Fund as part of the unit buy-back program.

During 2019, the average actual occupancy of the portfolio was 96.8% (2018: 97.6%). Taking into account all rental guarantees, the effective occupancy rate was 97.5% (2018: 98.0%). Occupancy rate as of 31 December 2019 was 98.3%. Average direct property yield during 2019 was 6.6% (2018: 6.8%). The net initial yield for the whole portfolio for 2019 was 6.3% (2018: 6.5%). The decrease is mainly related to the acquisition of new properties with lower yields (e.g. Galerija Centrs) and weaker like-for-like performance of some of the retail assets in Tallinn. The average rent rate for the whole portfolio for 2019 was EUR 13.1 per sq. m.

Investment Properties Performance

Property name Sector Fair value1
(EUR ‘000)
NLA
(sq. m.)
Direct property yield2 Net initial yield3 Occupancy rate for 2019
Vilnius, Lithuania            
Duetto I Office 16,460 8,586 7.7% 7.1% 100.0%4
Duetto II Office 18,935 8,674 7.1% 7.2% 100.0%4
Europa SC Retail 40,711 16,856 6.6% 6.1% 95.9%
Domus Pro Retail Park Retail 16,670 11,247 7.3% 6.7% 98.0%
Domus Pro Office Office 7,740 4,831 8.7% 7.5% 100.0%
North Star Office 20,092 10,550 6.8% 6.9% 97.9%
Meraki Land   2,367 - -   -
Total Vilnius   122,975 60,744 7.2% 6.7% 98.0%
Riga, Latvia            
Upmalas Biroji BC Office 24,198 10,458 7.2% 6.7% 100.0%
Vainodes I Office 20,890 8,052 6.9% 6.9% 100.0%
LNK Centre Office 17,000 7,453 6.3% 6.3% 100.0%
Sky SC Retail 4,850 3,254 7.4% 6.9% 99.4%
Galerija Centrs Retail 76,409 20,022 6.3% 6.2% 96.0%
Total Riga   143,347 49,239 6.6% 6.5% 99.0%
Tallinn, Estonia            
Postimaja & CC Plaza complex Retail 32,250 9,145 4.2% 4.5% 91.2%
Postimaja & CC Plaza complex Leisure 15,150 8,664 8.7% 7.0% 100.0%
G4S Headquarters Office 17,550 9,179 7.3% 6.5% 94.3%
Lincona Office 17,820 10,871 8.1% 7.3% 99.4%
Pirita SC Retail 9,850 5,508 3.6% 4.4% 91.2%
Total Tallinn   92,620 43,367 5.9% 5.8% 95.7%
Total portfolio   358,942 153,350 6.6% 6.3% 97.5%
  1. Based on the latest valuation as at 31 December 2019 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.
  4. Effective occupancy rate is 100% due to a rental guarantee. 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

EUR ‘000 2019 2018
     
Rental income 20,776 15,860
Service charge income 4,525 2,760
Cost of rental activities (6,082) (3,816)
Net rental income 19,219 14,804
     
Administrative expenses (3,251) (2,813)
Other operating income 26 74
Valuation gains (losses) on investment properties (2,064) 2,014
Operating profit 13,930 14,079
     
Financial income 5 8
Financial expenses (4,718) (2,789)
Net financing costs (4,713) (2,781)
     
Profit before tax 9,217 11,298
Income tax charge (426) (1,308)
Profit for the period 8,791 9,990
     
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods    
Net gains (losses) on cash flow hedges (595) (1,013)
Recognition of initial interest rate cap costs - (33)
Income tax relating to net gains (losses) on cash flow hedges 44 97
Other comprehensive income (expense), net of tax, that is or may be reclassified to profit or loss in subsequent periods (551) (949)
     
Total comprehensive income for the period, net of tax 8,240 9,041
     
Basic and diluted earnings per unit (EUR)   0.09 0.13


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000 31.12.2019 31.12.2018
     
Non-current assets    
Investment properties 356,575 245,160
Investment property under construction 2,367 -
Derivative financial instruments 73 9
Other non-current assets 54 596
Total non-current assets 359,069 245,765
     
Current assets    
Trade and other receivables 1,794 2,229
Prepayments 301 154
Other current assets 734 505
Cash and cash equivalents 9,836 12,225
Total current assets 12,665 15,113
Total assets 371,734 260,878
     
Equity    
Paid in capital 138,064 93,673
Own units - (335)
Cash flow hedge reserve (1,556) (1,005)
Retained earnings 16,010 17,472
Total equity 152,518 109,805
     
Non-current liabilities    
Interest bearing loans and borrowings 205,718 140,401
Deferred tax liabilities 6,199 5,844
Derivative financial instruments 1,728 1,069
Other non-current liabilities 1,298 905
Total non-current liabilities 214,943 148,219
     
Current liabilities    
Interest bearing loans and borrowings 414 106
Trade and other payables 3,171 2,397
Income tax payable 8 -
Other current liabilities 680 351
Total current liabilities 4,273 2,854
Total liabilities 219,216 151,073
Total equity and liabilities 371,734 260,878


For more information, please contact: 

Tarmo Karotam
Baltic Horizon Fund manager
E-mail tarmo.karotam@nh-cap.com
www.baltichorizon.com

The Fund is a registered contractual public closed-end real estate fund that is managed by Alternative Investment Fund Manager license holder Northern Horizon Capital AS. Both the Fund and the Management Company are supervised by the Estonian Financial Supervision Authority.

This announcement contains information that the Management Company is obliged to disclose pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the above distributors, at 20:15 EET on 20 March 2020.

Attachment


2BHF annual report 2019_final_EN.pdf