The first half of 2015 has ended with the preparation of financial statements in progress. Final financial statements will be approved by the Supervisory Board by the end of August at the latest, at which time they will be also published on our website, with some concise preliminary information about our first two real estate funds provided below. Our third fund finalized capital raising on 3 July 2015 and does not have any real estate investments as at the end of the first half of this year; accordingly, it is too early to talk of any results for the third fund.

EfTEN Kinnisvarafond AS

In the first half of 2015, the sales revenue of EfTEN Kinnisvarafond was EUR 8.2 million (EUR 6.4 million in the first half of 2014), up 28% year on year. Thanks to a significantly lower revaluation surplus from real estate investments this year, the net profit for the fund for the same period decreased 27%, to EUR 5.4 million (the net profit for the fund was EUR 7.5 million in the first half of 2014). This year’s EBITDA increased 24% year on year; however, operating profit is 13% below last year’s because of the lower value of the revaluations. At the same time, cash flow from the operating activities of the fund in the first half of this year grew to EUR 6.5 million, up 15% from the first half of 2014. Whereas this year’s revaluations and change in success fee liability amounted to a total of EUR 1.2 million, the same indicator was EUR 3.7 million for the first half of last year.

Moreover, in the first half of this year the company assessed dividends and income tax was in the amount of EUR 1.5 million, up 83% year on year.

As at the end of the first half of this year, the fund total assets stood at EUR 206 million and owners’ equity of EUR 92 million. Compared to the end of 2014, there have been no significant changes in the value of assets or owners’ equity. This is primarily due to the fact that the fund paid EUR 5.1 million in net dividends and in income tax on the dividends in the first half of 2015. If the dividend payments and the related income tax expense were eliminated from the net asset value of the shares of the fund, the net asset value of the shares of the fund would have increased 6.8% in the first half of the year. Dividend paid per share was 5.5% based on net asset value, or NAV, of the shares on 31 December 2014.

In Estonia and Latvia, EfTEN Kinnisvarafond has 21 real estate investments, occupied by 291 tenants. EfTEN Kinnisvarafond is the biggest commercial real estate fund in the Baltic States, the net asset value of its shares having increased 4-fold since the inception of the fund in 2008.

EfTEN Kinnisvarafond II AS

The value of the assets of EfTEN Kinnisvarafond II AS (Fund II), established in January 2015 and focused on core commercial real estate, amounted to EUR 49.8 million as at the end of the first half of this year. To date, Fund II has made one real estate investment, acquiring the 24-storey Radisson Blu Sky Hotel in Tallinn at the end of January this year. In its first five months of operation, Fund II has a sales revenue of EUR 3.5 million and a net profit of EUR 1.1 million. As at the end of the first half of this year, there was no change in the value of its real estate investment, which was the same as at the time of the acquisition of the hotel asset, or EUR 46 million. Aimed mainly at institutional investors and investing in the best commercial buildings in the Baltic States, Fund II has an investment period of 5 years, and the total duration of the fund is 10 years. The net asset value of the shares of the fund grew 4.6% in the first 5 months of this year.

In the estimation of its management company, EfTEN Capital, the results for the first half of this year are as expected, meeting the fund managers’ expectations. Similarly to the deceleration in price growth for residential real estate, growth in value of commercial real estate has decreased as well, as manifested in the diminished positive effect of the net revaluation surplus from the assets of our fund. As for the spread between average interest rates on bank loans and the net yield on rental cash flows from real estate, this is at its highest levels in the history of the Baltic States, at approximately 6%. Entry of new foreign investors on the market is discouraged by the small size of the Baltic region, the resulting low liquidity, a negative demographic profile and, needless to say, the current security situation. As a result, the ‘usual suspects’ – market participants who have been around for some time and are familiar with the local conditions – are active on the market.

Furthermore, June 2015 saw EfTEN Capital launch its new commercial real estate fund, EfTEN Real Estate Fund III AS, focused mainly toward retail investors. Guided by an opportunistic and value added investment strategy, Fund III will commence investment activity in the second half of 2015. As of the end of the first half of this year, the third fund has no real estate investments.