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EfTEN real estate funds financial results of the first half of year 2016

The following is a brief overview of the unaudited economic results of our three real estate funds for the first half of 2016.

EfTEN Kinnisvarafond AS
Fund’s year of founding: 2009
Gross asset volume: € 213.0 million
Number of investments: 22
Owner’s equity: € 98.8 million
Sales revenue: € 8.5 million (2015 – € 8.2 million)
Net profit: € 6.3 million (2015 – € 5.4 million)
incl. increase/decrease in fair (net) value of assets: € 1.1 million (2015 – € 1.2 million)
Portfolio net yield: 7,8 %
ROIC (return on invested capital)1: 21.1%
Status of the fund: investment period has ended; holding phase

1 ROIC is the total annual rate of return on the equity invested

In the first half of the year, we sold the office building located at Ülikooli 6A, Tartu. We have, by a large extent, fulfilled our strategic objective, which was exiting smaller buildings and focusing on larger investments. All six sales transactions for smaller buildings so far have been conducted at a higher price than the balance sheet fair value of each building at the time of the sale. Looking towards the future, we are preparing for the construction of a DEPO hardware store in Jelgava, Latvia as well as the expansion of UKU Keskus in Viljandi, Estonia and RAF Centre in Jelgava.

The semi-annual report can be found here.

EfTEN KINNISVARAFOND II AS
Fund’s year of founding: 2015
Gross asset volume: € 108.7 million
Number of investments: 3
Owner’s equity: € 51.2 million
Sales revenue: € 5.7 million (2015 – € 3.7 million)
Net profit: € 2.8 million (2015 – € 1.0 million)
incl. increase/decrease in fair (net) value of assets: € 1.2 million
Portfolio net yield: 7,7 %
1ROIC (return on invested capital): 12.8%
Status of the fund: active investment stage

1 ROIC is the total annual rate of return on the equity invested

We have acquired EUR 100 million worth of retail real estate in 2016. In Tallinn we invested into the Magistral Centre, which we bought from Citycon. Magistral is a shopping centre of mainly local importance located in the Tallinn’s Mustamäe sleeping district. After the end of the first half of the year, in July, we acquired the Domina shopping centre, in Riga, for EUR 74.5 million. With its 47,000 leasable square metres, Domina is one of the largest shopping centres in Riga, where we are planning significant changes both in terms of the concept of the centre and a tenant mix. After acquiring the Domina Centre, the fund has a total of four investments with the total volume of assets being EUR 185 million.

The semi-annual report can be found here.

EfTEN Real Estate Fund III AS
Fund’s year of founding: 2015
Gross asset volume: € 56.9 million
Number of investments: 3
Owner’s equity: € 27.2 million
Sales revenue: € 2.1 million
Net profit: € 1.2 million
incl. increase/decrease in fair (net) value of assets: € 0.4 million
Portfolio net yield: 8,0 %
1ROIC (return on invested capital): 15.7 %
Status of the fund: active investment stage

1 ROIC is the total annual rate of return on the equity invested

In EfTEN Real Estate Fund III AS we carried out the fund’s second share emission, involving a total of EUR 11 million of new equity. We invested the lion’s share of money received in the sales and leaseback transaction of DSV, where we obtained logistics centres in the three Baltic capitals, which DSV is renting from the fund under a long-term lease contract. As at the end of the half-year, we managed to close the transaction of the DSV’s logistics centre in Vilnius. The transaction to obtain DSV’s buildings in Tallinn and Riga were closed only in July, after the end of the first half of the year.

The semi-annual report can be found here.

Conclusion

We are fully satisfied with the results of all the funds we manage. The market as a whole is characterised by the increasing supply of new commercial properties in all segments, causing the lease rates to move sideways. The rise in rental prices is also curbed by the non-existent inflation. Due to the continued very low interest policy of the European Central Bank, a general decline in the levels of yield on commercial real estate can be observed, which consequence raises the price of real estate. The liquidity of the commercial real estate market of the Baltic States remains low due to the limited involvement of foreign investments, mainly due to worries about the state of national security in the Baltic States.

After obtaining the Domina centre, the total value of assets under management by EfTEN Capital has risen to EUR 500 million. Growing the portfolio further is not our first priority and we are mainly focusing on the existing investments instead. Against a backdrop of rising real estate prices, finding investment objects with a suitable risk-to-profit ratio is becoming increasingly difficult. Our second and third funds will continue their investment activities and to look for suitable investment objects, although we are expecting a slowdown in the pace of investments going forward.

Viljar Arakas                                                                                                                                                                                                                                                                                                                                        EfTEN Capital AS, CEO                                                                                                                                                                                                                                                                                                                       Fund manager of EfTEN real estate funds