EfTEN Real Estate Fund III AS and EfTEN Kinnisvarafond AS concluded a merger agreement

Today, 19.09.2022, EfTEN Real Estate Fund III AS as an acquiring fund and EfTEN Kinnisvarafond AS as a fund being acquired concluded on the basis of the respective resolutions of the supervisory board a merger agreement with the aim of merging EfTEN Kinnisvarafond AS with EfTEN Real Estate Fund III AS without liquidation proceedings. Upon entry into force of the merger, i.e. as of making a merger entry in the commercial register, EfTEN Kinnisvarafond AS shall be dissolved. The approval from the depositary, the permission of the Financial Supervision Authority and approvals from the general meetings of both funds are the preconditions for the merger.

Previously, the merger of the funds was planned in 2020, when a merger agreement was signed on 14.01.2020, an application for the merger permission was submitted to the Financial Supervision Authority, and general meetings of shareholders of the funds approving the merger were prepared. Unfortunately, the corona virus also reached Estonia at that time and on 12.03.2020 an emergency situation was declared due to the spread of the virus. Therefore, it was decided to postpone the merger activities and the merger agreement was terminated. No rights or obligations arose from the merger agreement to the funds.

Reasons for the merger

In 2020 and at the present time, the fund manager and the managements of the funds have the opinion that the merger of EfTEN Real Estate Fund III AS and EfTEN Kinnisvarafond AS is in the long-term interests of the shareholders of both funds, without considering the merger of the funds as a goal in itself. Both funds came through the corona pandemic successfully. After analysing the results of the funds' business activities, loan portfolios, assets, and equity volumes, the merging funds’ management boards came to the conclusion that it is an appropriate time to merge the funds. Upon the merger, the resulting fund will have ca 370 million euros worth of assets, including 35 commercial properties across the Baltic states. As a result of the merger, diversification of assets is increased, incl. geographically and across business sectors. The proportion of each individual investment will decrease as well as the risks stemming therefrom to the merging funds as well as their investors (shareholders). The opportunistic and value-adding investment strategy of EfTEN Kinnisvarafond AS is identical to the investment strategy of EfTEN Real Estate Fund III AS. The investment strategy and risk profile of EfTEN Real Estate Fund III AS will not be changed in the course of the merger. The acquiring fund will continue to invest and raise capital after the merger. Due to a greater market capitalisation, the merger will bring along better visibility, incl. amongst foreign investors, which in turn provides a more solid foundation for increasing market liquidity and financing and developing real estate investments. The structure of charges and expenses of the funds is similar, including the principles of calculating the base management fee of the fund manager. The merging funds have the same fund manager (i.e. EfTEN Capital AS), auditor (i.e. AS PricewaterhouseCoopers), depository (i.e. AS Swedbank) and the same appraiser of assets (real estate investments) (i.e. Colliers International). Thus, the merger will not lead to an increase in costs. The valuation principles of the merging funds are the same.

Fund being acquired - EfTEN Kinnisvarafond AS

EfTEN Kinnisvarafond AS (registry code 11505393; located at Tallinn, A. Lauteri 5), which shall be merged with EfTEN Real Estate Fund III AS, is a closed-ended non-public alternative investment fund founded as a public limited company in 2008. Upon entry into force of the merger, the management contract concluded between EfTEN Kinnisvarafond AS and fund manager EfTEN Capital AS shall be terminated and on the account of the success fee deriving from the management contract (counted up to 30.11.2022) shares in EfTEN Kinnisvarafond AS shall be issued to the fund manager. Thereafter no success fee shall be calculated under the management contract and EfTEN Kinnisvarafond AS shall only pay the base fee to the fund manager until the merger takes effect. Furthermore, the depositary contract concluded between EfTEN Kinnisvarafond AS and the depositary shall be terminated upon entry into force of the merger. The list of shareholders of EfTEN Kinnisvarafond AS, whose shares in the fund shall be exchanged with the shares of EfTEN Real Estate Fund III AS upon the merger, shall be determined as of 31.12.2022, unless the general meeting of shareholders decides otherwise.

The merger and calculating the exchange ratio

In order to carry out the merger, the share capital of EfTEN Real Estate Fund III AS shall be increased on the account of the totality of assets of EfTEN Kinnisvarafond AS transferred to EfTEN Real Estate Fund III AS (non-monetary contribution), the value of which shall be the EPRA Net Asset Value (NAV) of EfTEN Kinnisvarafond AS as at 31.12.2022. Having regard to the fact that the tax regimes of various countries differ widely (including in the Baltic states), the European Public Real Estate Association has recommended the use of EPRA NAV, which differs from the net asset value calculated in accordance with International Financial Reporting Standards (IFRS) by excluding the deferred income tax liabilities and fair value of the interest derivatives related to the real estate investment from the calculation of the net asset value. Considering the long-term business strategy of the funds where divestment of assets in the near future is unlikely and temporary differences in financial assets or liabilities obscure the transparency of the fair value of the net assets of the fund, EPRA NAV is considered as suitable and appropriate for the purposes of the merger.

The extent of the increase of the share capital of EfTEN Real Estate Fund III AS as well as the number of shares to be issued upon the increase shall be calculated as of 31.12.2022 on the basis and in accordance with the principles specified in the merger agreement annexed to this notice and the number of shares used for the exchange and the increase of share capital of EfTEN Real Estate Fund III AS shall be determined by the resolution of the supervisory board of EfTEN Real Estate Fund III AS. The calculation of the exchange ratio shall be verified by the depositary.

Upon the increase of the share capital of EfTEN Real Estate Fund III AS in connection with the merger, the shareholders of EfTEN Real Estate Fund III AS will not have a pre-emptive right for the acquisition of the shares. The shareholders of EfTEN Real Estate Fund III AS and EfTEN Kinnisvarafond AS do not have the right to demand redemption of the fund’s shares.

In accordance with applicable law, the merging funds are not required to prepare a merger report or interim balance sheet. The merger agreement shall be verified by the depositary, which shall prepare a report in which it shall indicate whether the depositary approves the merger. Furthermore, the merger is subject to the authorisation from the Financial Supervision Authority. Upon issue of the authorisation, the merging funds shall publish a respective notice together with information on the merger addressed to the shareholders.

The approval from the depositary, the authorisation from the Financial Supervision Authority and the approval of the merger agreement by the general meetings of the merging funds are all preconditions for the completion of the merger.

Post-merger, EfTEN Real Estate Fund III AS will continue operating under the business name EfTEN Real Estate Fund AS.

                                                                                                                                  

The indicative timetable of the merger is the following:

The merger agreement is annexed to this notice and available also on the website of EfTEN Real Estate Fund III AS and on the website of the fund manager of the funds EfTEN Capital AS . In addition to the merger agreement, a summary of the merger in a presentation format has been annexed to this notice.

Viljar Arakas

Member of the Management Board

Tel. 655 9515

E-mail:

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