EfTEN Real Estate Fund AS unaudited results for 3nd quarter and 9 months 2023
The increase in interest rates, which has been the main factor influencing the real estate sector over the past year, showed the first signs of stabilisation in the third quarter of 2023. Over three months, the EURIBOR, used as the base interest rate in the Eurozone and Baltic countries, increased by 0.2-0.4 percentage points across different maturities. This is the slowest increase since the first quarter of 2022. Financial markets price in that base interest rates in the Eurozone will start to fall in the first half of the next year. Although such expectation may prove to be premature, the global easing of inflationary pressures (including energy prices) and the decelarating economic activity in the Eurozone suggest that interest rates have reached their peak.
Due to the low level of financial leverage, the real estate sector in the Baltic countries has so far coped significantly better with the rise in interest costs compared to many other European countries, including our main trading partners in Scandinavia. With the persistent weak economic activity in the Eurozone, business cycle recovery in the Baltic countries is unlikely in the near quarters. In such a situation, maintaining occupancy and rental income levels are becoming increasingly important in the commercial real estate sector. Finding new tenants and retaining existing ones is becoming more time-consuming and costly (often requiring property modifications etc). The greatest pressure is on various office spaces, where the increasing trend of working from home keeps demand at its lowest in recent years. The EfTEN Real Estate Fund AS group's real estate investment portfolio is relatively evenly distributed among the three main segments of commercial real estate (retail, logistics, offices), and its vacancy rate remains very low (2%).
In the third quarter, Enlight Research and LHV Bank published equity analysis of the EfTEN Real Estate Fund AS (EFT1T). Both analyses highlight the following strengths of the fund: (i) moderate leverage, which allows the fund to navigate through a rising interest rate environment with ease; (ii) very low vacancy of rental spaces; (iii) conservatively priced portfolio.
Financial overview
The consolidated sales income of the EfTEN Real Estate Fund AS for the third quarter of 2023 was 7.965 million euros (2022 III quarter: 3.612 million euros), remaining at the same level as the II quarter. The Fund’s consolidated revenue for the 9 months of 2023 was 23.714 million euros (2022: 10.600 million euros), including revenue from investment property added from the merger with EfTEN Kinnisvarafond AS in the amount of 12.644 million euros. The revenue calculated on the Like-for-like basis has increased by 4.4% in 9 months compared to a year ago.
The consolidated net rental income (NOI) of the Fund for the 9 months of 2023 is 22.201 million euros (2022 9 months: 10.135 million euros). This year's net rental income includes the net rental income from investment properties added by the merger with EfTEN Kinnisvarafond AS in the total amount of 11.616 million euros. Therefore, NOI calculated on the like-for-like basis has also increased by 4.4% compared to a year ago. The consolidated net rental income margin was 94% (2022: 96%) this year, so costs directly related to property management (including land tax, insurance, maintenance and improvement costs) and distribution constituted 6% (2022: 4%) of revenue.
The gross value of the Group's assets as of 30.09.2023 was 385.183 million euros (31.12.2022: 181.956 million euros), of which the fair value of investment properties made up 94% (31.12.2022: 93%).
As of the end of September 2023 the Group has 35 (31.12.2022: 18) commercial investment properties with the fair value as at the balance sheet date of 363.289 million euros (31.12.2022: 168.875 million euros) and with the acquisition cost of 350.004 million euros (31.12.2022: 151.426 million euros). In addition, the Group's joint venture owns the Palace hotel in Tallinn with the fair value of 9.8 million euros as of 30.09.2023.
In the first 9 months of 2023, the Group earned a total of 23.714 million euros in rental income. The rental income calculated on a comparable basis in the first 9 months of 2023 was a total of 10.343 million euros, which is 4% more than at the same time in 2022.
In 9 months of 2023, the Fund's subsidiaries extended a total of six loan agreements. The interest margin for the extension of four loans fell by 0.05-0.5 percentage points and of one loan increased by 0.14 percentage points. Upon extension, the EURIBOR period of all loan agreements will be shortened where possible. Loan agreements were extended for three to five years.
Within the next 12 months, the loan agreements of the Group's four subsidiaries will expire, the balance of which as of 30.09.2023 is 14,734 thousand euros. The LTV (Loan to Value) of the expiring loan agreements is 35%-51%, and investment properties have a stable, strong rental cash flow. Therefore, according to the Group's management, there are no obstacles in extending the loan agreements.
The weighted average interest rate of the Group's loan agreements rose to 5.8% by the end of September (31.12.2022: 3.7%) due to the change in EURIBOR, and the LTV was 41% (31.12.2022: 40%). All loan agreements of the Fund's subsidiaries are linked to a floating interest rate. All loan agreements of the Fund are serviced correctly, and the cash flow from the business activities of all investment properties exceeds the principal and interest payments of the loans.
The net asset value of the EfTEN Real Estate Fund AS (EPRA NRV) share as of 30.09.2023 was 20.76 euros (30.09.2022: 20.32 euros). The EPRA net value of EfTEN Real Estate Fund AS share increased by 2.0% in the 9 months of 2023 (9 months of 2022: increased by 6.3%).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| III quarter | 9 months | |||
| € thousands | 2023 | 2022 | 2023 | 2022 |
| Sales income | 7,965 | 3,612 | 23,714 | 10,600 |
| Cost of services sold | -363 | -80 | -1,120 | -211 |
| Gross profit | 7,602 | 3,532 | 22,594 | 10,389 |
| Marketing costs | -105 | -63 | -393 | -254 |
| General and administrative expenses | -841 | -488 | -2,568 | -1,391 |
| Profit / loss from the change in the fair value of investment property | 0 | -1 | -6,182 | 3,701 |
| Other operating income and expense | 10 | 5 | 23 | 48 |
| Operating profit | 6,666 | 2,985 | 13,474 | 12,493 |
| Profit / loss from joint ventures | 84 | 0 | -25 | 0 |
| Interest income | 77 | 0 | 97 | 0 |
| Other finance income and expense | -2,156 | -376 | -5,693 | -1,098 |
| Profit before income tax | 4,671 | 2,609 | 7,853 | 11,395 |
| Income tax expense | -236 | -282 | -973 | -1,186 |
| Net comprehensive profit/loss for the reporting period | 4,435 | 2,327 | 6,880 | 10,209 |
| Earnings per share | ||||
| - basic | 0.41 | 0.46 | 0.64 | 2.01 |
| - diluted | 0.41 | 0.46 | 0.64 | 2.01 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| 30.09.2023 | 31.12.2022 | |
| € thousands | ||
| ASSETS | ||
| Cash and cash equivalents | 14,167 | 11,331 |
| Current deposits | 2,880 | 0 |
| Receivables and accrued income | 1,805 | 1,522 |
| Prepaid expenses | 138 | 49 |
| Inventory | 1 | 0 |
| Total current assets | 18,991 | 12,902 |
| Long-term receivables | 175 | 61 |
| Shares in joint ventures | 2,552 | 0 |
| Investment property | 363,289 | 168,875 |
| Property, plant, and equipment | 175 | 116 |
| Intangible assets | 1 | 2 |
| Total non-current assets | 366,192 | 169,054 |
| TOTAL ASSETS | 385,183 | 181,956 |
| LIABILITIES AND EQUITY | ||
| Borrowings | 20,589 | 22,058 |
| Payables and prepayments | 2,419 | 1,461 |
| Total current liabilities | 23,008 | 23,519 |
| Borrowings | 128,221 | 45,917 |
| Other long-term liabilities | 1,901 | 1,008 |
| Deferred income tax liability | 7,474 | 7,248 |
| Total non-current liabilities | 137,596 | 54,173 |
| Total liabilities | 160,604 | 77,692 |
| Share capital | 108,198 | 50,725 |
| Share premium | 84,721 | 16,288 |
| Statutory reserve capital | 2,749 | 2,149 |
| Retained earnings | 28,911 | 35,102 |
| Total equity | 224,579 | 104,264 |
| TOTAL LIABILITIES AND EQUITY | 385,183 | 181,956 |
Marilin Hein
CFO
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