EfTEN Real Estate Fund III AS financial results, second quarter and 1st half-year 2018 (unaudited)

Comment of the Chairman of the Board

The main events of the first half of 2018 in EfTEN Real Estate Fund III AS were the acquisition of the Evolution office building in Vilnius, the completion of the DSV Riga Logistics Center and the acquisition of a property at Tähesaju Business campus in Tallinn for the construction of a new garden center for Hortes. At the time of the publication of the interim report, a building permit has been issued to the Fund for the construction of the garden center and negotiations are under negotiation for signing of a construction contract and a lease contract. The Fund plans to start construction in August 2018. The Selver development project in Laagri is also completed after the completion of the asphalting works in May this year.

In addition, in the 1st quarter of 2018 the temporary vacancies filled in the Ulonu office building in Vilnius. Regarding to usual economic activity, the second quarter and the first half-year of 2018 met the expectations of management.

During the first half of the year 2018, EfTEN Real Estate Fund III AS earned free cash-flow for the potential dividend payout of 1,200 thousand euros, which is 37 euros per share. The Fund's dividend policy foresees a dividend payment of 80% from the Fund's annual cash flow. If necessary, it will be coordinated with the creditors of the Fund. The distribution of the Fund's profit will be decided by the general meeting of the Fund and the dividend payment from the profit of 2018 will be made after the general shareholders' meeting on spring 2019.

Financial overview

The consolidated sales revenue of EfTEN Real Estate Fund III AS for the first half of 2018 was EUR 4.105million (the first half of 2017: EUR 3.537 million), which increased by 16% in a year. In the first half of 2018, the Group's profit before revaluation of investment properties, depreciation and financial income/ -costs and income tax expense (EBITDA) totalled EUR 2.719 million (the first half of 2017: EUR 2.517 million). The Group's net profit for the same period amounted to EUR 3.149 million (the first half of 2017:EUR 4.030 million). The smaller net profit is due to lower investment property revaluation profit, which in the first half of this year was EUR 962 thousand, but EUR 2.316 thousand last year. 

The consolidated gross profit margin in the first half of 2018 was 98% (the first half of 2017: the same). Therefore, expenses directly related to management of properties (incl. land tax, insurance, maintenance and improvement costs) accounted for only 2% (the first half of 2017: the same) of the revenue. The Group's expenses related to properties, marketing costs, general expenses, other income and expenses accounted for 21.2% of the revenue in the first half of 2018. The respective indicator was 21.5% in the first half of 2017.

As at 30.06.2018, the Group’s total assets were in the amount of EUR 106.048million (31.12.2017: 97.291 million), including fair value of investment property, which accounted for 95% (31.12.2017: 91%) of the total assets.

In the first half of the year, the net asset value of the share of EfTEN Real Estate Fund III AS increased by 2.08%, attributable to the growth in operating profit, low interest rates and effective cost management. From the 2017 profit, EUR 2,191 thousand (in spring 2017: EUR 1,503 thousand) was paid out in dividends in April 2018. Without the dividend payment, the Fund's NAV would have increased by 6.8% in the first half of 2018. Return on invested capital (ROIC) was 16.6% in the first half of 2018 (the first half of 2017: 27.6%). Access to flexible financing conditions will help to increase the Group's competitiveness. In the first hald of 2018, the Group entered into new loan contracts in the total amount of EUR 9.2 million in connection with the acquisition of new investment properties. As at the end of the first half of 2018, the average interest rate on Group's loan agreements (including interest swap contracts) was 1.86% (31.12.2017: 1.73%) and the LTV (loan to value) ratio was 53% (31.12.2017: 52%). 

The dividend policy of EfTEN Real Estate Fund III AS provides that the Group will pay out 80% of the free cash flow to shareholders as (gross) dividends in each accounting year. In April 2018, EfTEN Real Estate Fund III AS paid the shareholders (net) dividends in the amount of EUR 2.2 million (2017: EUR 1.5 million), which represents 6.1% (2017: 6.0%) of the share capital paid in.

During the first half of 2018, the Group earned a free cash flow of EUR 1.703 million (the first half of 2017: EUR 1.399 million). Following the deduction of Lithuanian income tax expense and the calculation of the dividend income tax expense in Estonian and Latvian companies, EfTEN Real Estate Fund III would be able to pay net dividends to the shareholders in the total amount of EUR 1.200 million (37 cents per share) from the profit earned in the first half of the year. For the entire previous year, the fund paid the shareholders a net dividend of 68 cents per share.

Marilin Hein

CFO

Phone 655 9515

E-mail:

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