Unaudited consolidated interim report for Q3 and 9 months of 2022

GROUP CEO’S REVIEW

The cooling of the real estate market in the third quarter did not cause panic in Arco Vara's developments. The planned final sales of the Kodulahe quarter were held as expected and there was no visible concern among customers who had bought a home from the pre-sale in 2021, which generated 5.2 million euros in sales revenue and 560,000 euros in net profit in the third quarter of 2022.

As in the whole real estate market, there has been a decrease in the number of inquiries also in the Rannakalda development, part of the Kodulahe project. As of the date of publication, no customers have withdrawn from their contracts, and approximately 35% of the building has been pre-sold. The Arco Tarc team continues with the construction of Kodulahe Rannakalda, and works are on schedule both in terms of construction speed and budget. To get a good overview of the pace of construction, there is a live broadcast on the following link: kodulahe.ee/hoone.

In the interim period, the expansion of the Kodulahe quarter has been confirmed. Detailed plan for the construction of up to 6,500 sqm was initiated on the Soodi 6 property, and Kodulahe OÜ won the Lammi 6 auction of state land, acquiring another approximately 1.5 hectares of land.

Botanica Lozen Residences development of private houses in Bulgaria reached the building permit in the third quarter and an agreement has been reached with the main contractor to start construction in November. Unfortunately, the goal of starting construction in the third quarter could not be met, but on the positive side, construction solutions were optimized to ensure a more efficient construction process both in terms of time and budget.

As for the commercial building Madrid BLVD in Sofia, 20 out of 22 spaces in the building were covered with leases at the time of the publication of this report. Two remaining spaces are office spaces, for which there is little interest in the Sofia market, according to statistics. The local team evaluated possible reductions in the volume of individual spaces by creating more leasable office units, but the possible solutions and the associated costs were not justified in today's market situation.

In today's economic environment, one can clearly see homebuyers' worries about the future, which is amplified by media coverage of possible dramatic scenarios. However, considering the long-term nature of real estate development, the Arco Vara team must continue to grow in order to reach the 2026 goal of developing at least 200 apartments every year.

KEY PERFORMANCE INDICATORS

In Q3 2022, the group’s revenue was 5,232 thousand euros, which is 8,5 times more than the revenue of 613 thousand euros in Q3 2021. In 9 months 2022, the group’s revenue was 13,167 thousand euros, which is 17% more than the revenue of 11,283 thousand euros in 9 months 2021.

In Q3 2022, the group’s operating profit (=EBIT) was 659 thousand euros and net profit 556 thousand euros (in 9 months 2022: operating profit 1,785 thousand euros and net profit of 1,506 thousand euros). In Q3 2021, the group had operating profit of 294 thousand euros and net profit of 202 thousand euros. In 9 months 2021, the group made operating profit of 2,724 thousand euros and net profit of 2,425 thousand euros.

In Q3 2022, 31 apartments were sold in projects developed by the group (in 9 months 2022 72 apartments and a land plot in Latvia). In Q3 2021, only garages were sold (in addition, 63 apartments and a commercial space in 9 months).

In the 9 months of 2022, the group’s debt burden (net loans) decreased by 4,038 thousand euros down to the level of 7,146 thousand euros as of 30 September 2022. As of 30 September 2022, the weighted average annual interest rate of interest-bearing liabilities was 5.0%. This is a decrease of 0.2 percentage points compared to 31 December 2021.

OPERATING REPORT

The revenue of the group totalled 5,232 thousand euros in Q3 2022 (in Q3 2021: 613 thousand euros,) and 13,167 thousand euros in 9 months 2022 (in 9 months 2021: 11,283 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 4,960 thousand euros in Q3 and 12,337 thousand euros in 9 months 2022 (2021: 305 thousand euros in Q3 and 10,441 thousand euros in 9 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 189 thousand euros in Q3 2022 and 595 thousand euros in 9 months (2021: 214 thousand euros in Q3 and 608 thousand euros in 9 months). By the time of publishing the present report, 2 offices remain vacant, but all commercial spaces, together with parking places, were rented out. The free office spaces make 13.3% of the rented office and retail area.

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. By the time of publishing the present report, the house is fully sold.

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, 42 units out of the 113 had been presold.

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. By the time of publishing the present report, the detailed planning has been started.

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 end 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 September 2022 and the date of this report, 3 Marsili residential plots remained unsold 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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