Unaudited consolidated interim report for Q2 and 6 months of 2022

GROUP CEO’S REVIEW

In the second quarter, we reached the moment every real estate developer is waiting for once again, being able to commence the handover of completed homes to our clients in Kodulahe Kvartal, the sales revenue of 41 transactions in which is reflected in the numbers for the last quarter. As of the date of this report, 70 homes have been delivered to clients in the summer of 2022. The completion of stages IV and V of Kodulahe means that the development of the first area of the detailed plan of the Kodulahe Kvartal (Paldiski road 70c) is completed and we can state that the team of Arco Vara has made a powerful contribution to the development of this area.

The construction of Kodulahe Rannakalda continues in the hands of Arco Tarc, where the newly recruited staff has grown into a good team. Construction of Rannakalda continues on schedule and sales have also progressed at expected pace. Sales contracts have been concluded for approximately 35% of the apartments.

Our Bulgarian team has reached the point of applying for a construction permit for Botanica Lozen Residences. The goal for issuing the residence permit was the second quarter, but this goal was not met. However, a construction procurement has been carried out at the same time, three main contractors took part. At present, negotiations with construction companies are underway and works should begin in the third quarter.

At present, one office space is still available out of the premises in the Madrid BLVD office building and the 800 m2 area of this space is a significant challenge considering the passive office market in Sofia. One possible opportunity is dividing the office space into smaller parts, but due to the specifics of the building, this division may turn out to be impractically expensive. Therefore, at present, the search for finding a new tenant for a single office space continues.

In terms of financial indicators, we are clearly below the ROE targets across the past 12 months, but on a positive note, we can observe the liquidity of the group and profit margins of the projects. Considering the increasing interest rates of the European Central Bank, we can breathe easy in regards to the development loan of Kodulahe, which has a fixed interest rate, meaning that an increase of interest rates will not influence the profitability of the project. In addition, in preparation for a potential crisis in autumn, we are in a secure position in regards to the overall debt of the group.

Looking ahead at activities in the third quarter of 2022, Arco Vara continues to monitor potential plots for development with the aim to acquire the next property for development.

KEY PERFORMANCE INDICATORS

In Q2 2022, the group’s revenue was 7,633 thousand euros, which is 5 times more than the revenue of 1,504 thousand euros in Q2 2021. In 6 months 2022, the group’s revenue was 7,935 thousand euros, which is 26% less than the revenue of 10,670 thousand euros in 6 months 2021.

In Q2 2022, the group’s operating profit (=EBIT) was 1,023 thousand euros and net profit 934 thousand euros (in 6 months 2022: operating profit 1,126 thousand euros and net profit of 950 thousand euros). In Q2 2021, the group had operating profit of 621 thousand euros and net profit of 523 thousand euros. In 6 months 2021, the group made operating profit of 2,430 thousand euros and net profit of 2,223 thousand euros.

In Q2 2022, 41 apartments were sold in projects developed by the group (in 6 months 2022 41 apartments and a land plot in Latvia). In Q2 2021, 5 apartments and a commercial space were sold (63 apartments and a commercial space in 6 months).

In the 6 months of 2022, the group’s debt burden (net loans) decreased by 2,528 thousand euros down to the level of 6,793 thousand euros as of 30 June 2022. As of 30 June 2022, the weighted average annual interest rate of interest-bearing liabilities was 5.1%. This is a decrease of 0.1 percentage points compared to 31 December 2021.

OPERATING REPORT

The revenue of the group totalled 7,633 thousand euros in Q2 2022 (in Q2 2021: 1,504 thousand euros,) and 7,935 thousand euros in 6 months 2022 (in 6 months 2021: 10,670 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 7,346 thousand euros in Q2 and 7,377 thousand euros in 6 months 2022 (2021: 1,234 thousand euros in Q2 and 10,136 thousand euros in 6 months).

Most of the other revenue of the group consisted of rental and property management services income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 202 thousand euros in Q2 2022 and 406 thousand euros in 6 months (2021: 200 thousand euros in Q2 and 394 thousand euros in 6 months). By the time of publishing the present report, all office and commercial spaces, together with parking places, were rented out.

In Q1 2022, the construction company Arco Tarc OÜ was established, which laid the foundation for a new business segment. In 2022, the service will be offered only intra-group with a fixed profit margin of 4%.

The construction of the IV-V stage buildings in Kodulahe was completed in the second quarter of 2022. Two residential buildings with 36 apartments were completed at Pagi 3 and Pagi 5. In the Q2 2022, the final sale was finalized for 41 apartments, the rest of the customers were met at the notary at the beginning of July. 1 apartment became available in the process of formalizing final sales and it is for sale at the time of submitting the report.

The construction of the Stage VI of Kodulahe project at Lammi 8 started in February 2022 by Arco Vara’s own construction company Arco Tarc OÜ. The construction includes a pavilion, 4 commercial areas and 108 apartments, out of which many have sea view. The apartment buildings will become ready in about 2 years after the construction begins. Apartment sales also commenced in February 2022. As at the date of publishing the annual report, 35 apartments out of the 108 had been presold. The company is limiting the number of apartments to be presold, in order to respond to the effects of inflation in the course of the development as necessary.

A subsidiary of Arco Vara, Aktsiaselts Kolde, signed an agreement for land acquisition beside Lake Harku, address Paldiski road 124b, Tallinn. More than 35,000 m² of residential and commercial real estate (GBA) is planned for development. The expected development period is 6 years with the start of construction planned for 2023. The detailed planning is in process.

The plan is to build a cluster house with 5 homes Pirita Kuldlehe project. Road construction in underway. The construction of the house is planned to start in the second half of 2022, and the house will be completed within a year. The sale of the project has not started.

The last vision of the Botanica Lozen project foresees construction of 54 homes (houses) in three stages. The expected start time of construction is the autumn of 2022, when the construction of the first 16 buildings will start. Minimum construction period is 2 years.

As of 30 June 2022 and the date of this report, 3 Marsili residential plots remained in stock in Latvia.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Tiina Malm

CFO

Arco Vara AS

Phone: +372 614 4630

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