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EfTEN real estate funds preliminary unaudited financial results of year 2016

With respect to summarized results of the three EfTEN real estate funds the gross asset value of the three funds were 492 million euros as of 31. December 2016. Year before the gross asset values were 331 million euros, growing almost 50% in 2016. The total equity of the three funds were 232 million euros (2015: 151 million euros) and the combined net profit 29,2 million euros vs. 16,5 million in year 2015. All three EfTEN funds have the same dividend policy – dividend gross pay-out is 80% of the annual free cash flow. In 2015 the funds paid in combined 8 million as gross dividends. In spring 2017 we plan to make a pay-out in total sum of 12,2 million euros.

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

EfTEN Kinnisvarafond AS  
Fund’s year of founding: 2009
Gross asset volume: € 220.5 million
Number of investments: 22
Owner’s equity: € 107.6 million
Sales revenue: € 16.9 million (2015 – € 16.5 million)
Net profit: € 14.4 million (2015 – € 12.2 million)
incl. increase/decrease in fair (net) value of assets: € 3.7 million (2015 – € 2.4 million)
Portfolio net yield: 7,4 %
ROIC (return on invested capital)1: 23.6 %
Expected gross dividend pay-out: € 5.6 million
Status of the fund: investment period has ended; holding phase

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

The fund has concluded its investment phase and is currently in holding phase. In year 2017 we plan to continue of divesting from smaller individual assets and concentrate on bigger assets. Until now EfTEN Kinnisvarafond has successfully exited from 7 individual assets whereas all transactions have been closed on higher valuations than the book value of the concrete asset at the time of sale. In 2017 we are starting the construction works of the extensions of RAF Centre in Jelgava as well as UKU Centre in Viljandi. Also, we plan to start the construction of the DEPO DIY store in Jelgava, Latvia.

EfTEN KINNISVARAFOND II AS  
Fund’s year of founding: 2015
Gross asset volume: € 193.9 million
Number of investments: 4
Owner’s equity: € 93.7 million
Sales revenue: € 16.0 million (2015 – € 9.2 million)
Net profit: € 10.5 million (2015 – € 3.0 million)
incl. increase/decrease in fair (net) value of assets: € 4.8 million
Portfolio net yield: 7,4 %
ROIC (return on invested capital)1: 16.8%
Expected gross dividend pay-out: € 4.9 million
Status of the fund: active investment phase

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. 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.

EfTEN Real Estate Fund III AS  
Fund’s year of founding: 2015
Gross asset volume: € 77.2 million
Number of investments: 6
Owner’s equity: € 30.3 million
Sales revenue: € 5.3 million
Net profit: € 4.3 million
incl. increase/decrease in fair (net) value of assets: € 1.9 million
Portfolio net yield: 7,6 %
ROIC (return on invested capital)1: 19.4 %
Expected gross dividend pay-out: € 1.7 million
Status of the fund: active investment phase

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. In October 2016, we acquired from E.L.L. Real Estate L3 office building in Vilnius in address Laisves 3. After L3 transaction all of the fund’s equity is fully invested. In 2017 we plan to carry out the third public share emission to finance future acquisitions which are suitable to our conservative investment criteria.

Conclusion

In year 2016 all of our three-fund achieved the best financial results since inception of the funds. Good economical results were achieved thanks to effective, hands-on management of the underlying assets as well as thanks to the overall valuations growth in Baltic commercial real estate market. It is fair to say that all segments of Baltic commercial real estate market have recovered from the 2009 crises to “new normality”. It is more complicated to forecasts the development of going forward. Commercial real estate market has witnessed a very strong value growth in last five years. US Federal Reserve is the first major central bank which has started with raising of interest rates. It will obviously have an impact on wider real estate market.

After obtaining the Domina centre, the total value of assets under management by EfTEN Capital has risen to EUR 500 million. In year 2016 we invested in total 140 million euros into new investment projects. 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