Comment from fund manager Viljar Arakas: “The fund’s overall results in the first half of 2024 are in line with the management company’s expectations. Vacancy remains below 3% at portfolio level, which is a very good result given the general business environment. If we exclude tenants’ rent payment difficulties related to Hortes properties, tenants’ payment behavior is good and the level of arrears remains low. According to the fund manager, Hortes properties can be treated as a customer-specific case and do not reflect a broader deterioration in the tenants’ financial situation. The fund manager has already started looking for new solutions for both Hortes properties. The largest vacancy is currently in the office sector, which accounts for 76% of the portfolio’s total vacancy. However, it is spread across 10 different office buildings, and new tenants are constantly being added. Weaker demand for office space is a clear trend both globally and in every capital of the Baltic States. In general, the downward trend in interest rates in the second half of 2024 will lead to increased transaction activity, which will help increase the fair value of EfTEN Real Estate Fund AS’s conservatively valued portfolio.”
EfTEN Real Estate Fund AS’s consolidated rental income in June amounted to EUR 2,572,000, EUR 17,000 less than in May. The slight decrease in rental income is due to lower customer traffic in shopping centers due to the first month of summer, lower turnover-based rents and slightly increased vacancy rates in the office space segment. The Fund’s consolidated EBITDA for June amounted to EUR 2,188,000, EUR 65,000 less than in May. Expenses in June included costs related to the valuation of investment properties and the comparative period included a one-off income of EUR 29,000 from the establishment of an easement on a logistics center in Tallinn.
Colliers International conducted a regular valuation process for the Fund’s investment properties in June, resulting in a 0.4% decrease in the fair value of the Fund’s real estate portfolio and a consolidated loss of EUR 1,454,000 from the revaluation. The loss from the revaluation was mainly due to a more conservative cash flow forecast for office buildings in Tallinn and the Saules Miestas shopping center. The discount rates and capitalization rates used to discount the cash flows remained unchanged in most calculations compared to the end of last year. Although EURIBOR has declined slightly since the end of 2023 and the market expects even lower interest rates until the autumn, these changes had not yet had an impact on actual market transactions by the end of June.
Consolidated rental income for the first six months of this year amounts to EUR 15,343,000, up 1.3% from the same period last year. The Fund’s investment properties generated net operating income (NOI) of EUR 14,803,000 in the first half of the year, up 0.6% from the same period last year. The Fund’s EBITDA for the first six months of this year amounts to EUR 13,077,000, up 0.5% from the same period last year.
The vacancy rate of the fund’s real estate portfolio was 2.9% at the end of June. The fund has 9,780 square meters of vacant space, of which 7,477 square meters are in the office space segment.
In the first six months of 2024, EfTEN Real Estate Fund AS generated free cash flow of EUR 5,329,000 (EBITDA less loan payments less interest expenses), which is EUR 621,000 less than in the same period last year. The decrease in cash flow is mainly due to the increase in EURIBOR. Based on the fund’s results for the first five months of this year, the potential gross dividend is 39.4 cents per share, 10.2% less than in the same period last year.
The weighted average interest rate on bank loans of the Fund’s subsidiaries was 5.65% at the end of June. Compared to the end of 2023, the weighted average interest rate decreased by 0.26 percentage points and is at the same level as in August 2023.
As of June 30, 2024, the net asset value (NAV) per share of EfTEN Real Estate Fund AS was EUR 19.7904 and the EPRA NRV was EUR 20.5862. The NAV per share decreased by 0.1% in June. Without the revaluations of the investment properties, the fund’s NAV would have increased by 0.6% in June.
Marilin Hein
Chief Financial Officer
Phone +372 6559 515
Email: [email protected]
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EREF_Monthly reports_06.2024
