BALTIC HORIZON FUND CONSOLIDATED UNAUDITED RESULTS FOR H1 2022

Baltic Horizon Fund / Northern Horizon Capital

Management Board of Northern Horizon Capital AS has approved the unaudited consolidated interim financial statements of Baltic Horizon Fund (the Fund) for the six months of 2022.

Distributions to unitholders for Q1 2022 and Q2 2022 Fund results
On 28 April 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q1 2022 results. This represents a 1.17% return on the weighted average Q1 2022 net asset value to its unitholders.

On 28 July 2022, the Fund declared a cash distribution of EUR 1,555 thousand (EUR 0.013 per unit) to the Fund unitholders for Q2 2022 results. This represents a 1.17% return on the weighted average Q2 2022 net asset value to its unitholders.

With reduced payouts over 2020, 2021 and 2022 in the light of prevailing market uncertainty, the Fund has opted to retain EUR 7.2 million of distributable cash flow.

EUR ’000	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022
(+) Net rental income	4,357	4,676	3,798	4,193	4,482
(-) Fund administrative expenses	(756)	(735)	(633)	(659)	(726)
(-) External interest expenses	(1,311)	(1,407)	(1,408)	(1,372)	(1,403)
(-) CAPEX expenditure1	(92)	(38)	(222)	(266)	(369)
(+) Extraordinary income related to investment properties2	-	-	440	-	261
(+) Added back listing related expenses	-	-	-	-	-
(+) Added back acquisition related expenses	5	9	32	1	5
Generated net cash flow (GNCF)	2,203	2,505	2,007	1,897	2,250
GNCF per weighted unit (EUR)	0.018	0.021	0.017	0.016	0.019
12-months rolling GNCF yield3 (%)	7.0%	7.0%	6.8%	7.6%	8.0%
Dividends declared for the period	1,316	2,034	2,273	1,555	1,555
Dividends declared per unit4 (EUR)	0.011	0.017	0.019	0.013	0.013
12-months rolling dividend yield3 (%)	5.0%	4.5%	5.4%	6.3%	6.9%

1. The table provides actual capital expenditures for the quarter. Future dividend distributions to unitholders are aimed to be based on the annual budgeted capital expenditure plans equalised for each quarter. This will reduce the quarterly volatility of cash distributions to unitholders.

2. 12-month rolling GNCF and dividend yields are based on the closing market price of the unit as at the end of the quarter (Q2 2022: closing market price of the unit as of 30 June 2022).

3. Based on the number of units entitled to dividends.

Property valuations
In June 2022, the portfolio valuations were conducted by an independent real estate appraiser Colliers. As of 30 June 2022, the fair value of the Baltic Horizon Fund portfolio increased to EUR 335.6 million (31 December 2021: 327.4 million). In June 2022, the portfolio revaluation resulted in a fair value gain of EUR 0.2 million (+0.1% of portfolio value) primarily due to the upward revision of rent indexation and cash flow assumptions associated with high inflation across Europe.

Net result and net rental income
The Group recorded a net profit of EUR 4.2 million for H1 2022 against a net loss of EUR 9.2 million for H1 2021. The net result was mainly driven by strong recovery of the Galerija Centrs operating performance as fewer COVID-19 rent reliefs have been granted to tenants in 2022 and increased rent indexation.  The net result for H1 2021 was significantly impacted by the one-off negative valuation result of EUR 14.3 million. Meanwhile in H1 2022, the valuation resulted in a net fair value gain of EUR 0.2 million (+0.1% of portfolio value). The positive impact of the increase in net rental income was also supplemented by a decrease in administrative expenses and a grant of EUR 0.3 million received from the Latvian government. Earnings per unit for H1 2022 were EUR 0.04 (H1 2021: EUR -0.08).

The Group earned net rental income of EUR 8.7 million in H1 2022 compared to 8.5 million in H1 2021. The results for H1 2021 still included EUR 0.6 million of net rental income from G4S Headquarters, which was sold in Q4 2021 and did not contribute to H1 2022 results. Rent indexations and recovery of income improved the net rental income of the same portfolio mix (like-for-like portfolio).

Gross Asset Value (GAV)
At the end of H1 2022, the Fund’s GAV was EUR 347.5 million (31 December 2021: EUR 346.3 million), 0.3% higher than at the end of the previous period. The increase is mainly related to a positive property revaluation of EUR 0.2 million and capital investments (EUR 4.1 million) in the Meraki office building development project during H1 2022. The Fund aims to carry on with the construction of the Meraki office building throughout 2022 and 2023. An additional EUR 3.3 million was invested in other (re)development projects.

Net Asset Value (NAV)
At the end of H1 2022, the Fund’s NAV slightly increased to EUR 134.2 million (31 December 2021: EUR 132.6 million). Compared to the year-end 2021 NAV, the Fund’s NAV increased by 1.2%. The increase in operational performance, portfolio valuations and positive cash flow hedge reserve movement of EUR 1.2 million over the period was partially offset by a EUR 3.8 million dividend distribution to the unitholders. As of 30 June 2022, IFRS NAV per unit rose to EUR 1.1215 (31 December 2021: EUR 1.1082), while EPRA net tangible assets and EPRA net reinstatement value grew to EUR 1.2016 per unit (31 December 2021: EUR 1.1884). EPRA net disposal value was EUR 1.1177 per unit (31 December 2021: EUR 1.1086).

Investment properties
The Baltic Horizon Fund portfolio consists of 14 cash flow generating investment properties in the Baltic capitals and an investment property under construction on the Meraki land plot. At the end of Q2 2022, the fair value of the Fund’s portfolio was EUR 335.7 million (31 December 2021: EUR 327.4 million) and incorporated a total net leasable area of 144,215 sq. m. During H1 2022, the Fund invested EUR 0.6 million in the existing property portfolio and EUR 7.5 million in the reconstruction or development projects.

Interest-bearing loans and bonds
Interest-bearing loans and bonds (excluding lease liabilities) were EUR 198.4 million, remaining at a level similar to year-end 2021 (31 December 2021: EUR 198.6 million). Outstanding bank loans decreased slightly due to regular bank loan amortisation. Annual loan amortisation accounts for 0.3% of total debt outstanding. All loans expiring during H1 2022 were prolonged with the original loan providers.

Cash flow
Cash inflow from core operating activities for H1 2022 amounted to EUR 7.3 million (H1 2021: cash inflow of EUR 6.4 million). Cash outflow from investing activities was EUR 7.6 million (H1 2021:  cash outflow of EUR 2.7 million) due to subsequent capital expenditure on existing portfolio properties and investments in the Meraki, Postimaja and CC Plaza complex and Europa development projects. Cash outflow from financing activities was EUR 7.1 million (H1 2021: cash outflow of EUR 1.6 million). During H1 2022, the Fund made a cash distribution of EUR 3.8 million and paid regular interest on bank loans and bonds. At the end of H1 2022, the Fund’s consolidated cash and cash equivalents amounted to EUR 8.7 million (31 December 2021: EUR 16.1 million), which demonstrates sufficient liquidity and financial flexibility. Available cash will be used to continue with development projects.

Key earnings figures

EUR ‘000					Q2 2022	Q2 2021	Change (%)
Net rental income					4,482	4,357	2.9%
Administrative expenses					(726)	(756)	4.0%
Other operating income					271	-	-
Valuation gains (losses) on investment properties					178	(14,255)	101.2%
Operating profit (loss)					4,205	(10,654)	139.5%
Net financing costs					(1,518)	(1,361)	(11.5%)
Profit (loss) before tax					2,687	(12,015)	122.4%
Income tax					(444)	888	(150.0%)
Net profit (loss) for the period					2,243	(11,127)	120.2%
Weighted average number of units outstanding (units)					119,635,429	119,635,429	-
Earnings per unit (EUR)					0.02	(0.09)	120.2%

Key financial position figures

EUR ‘000					30.06.2022	31.12.2021	Change (%)
Investment properties in use					320,029	315,959	1.3%
Investment property under construction					15,620	11,400	37.0%
Gross asset value (GAV)					347,495	346,338	0.3%
Interest-bearing loans and bonds					198,360	198,571	(0.1%)
Total liabilities					213,319	213,754	(0.2%)
IFRS Net asset value (IFRS NAV)					134,176	132,584	1.2%
EPRA Net Reinstatement Value (EPRA NRV)					143,752	142,176	1.1%
Number of units outstanding (units)					119,635,429	119,635,429	-
IFRS Net asset value (IFRS NAV) per unit (EUR)					1.1215	1.1082	1.2%
EPRA Net Reinstatement Value (EPRA NRV) per unit (EUR)					1.2016	1.1884	1.1%
Loan-to-Value ratio (%)					59.1%	60.7%	-
Average effective interest rate (%)					2.8%	2.7%	-

During Q2 2022, the average actual occupancy of the portfolio was 93.4% (Q1 2022: 92.3%). The occupancy rate as of 30 June 2022 was 93.3% (31 March 2022: 92.4%). The overall occupancy rates in the portfolio rose after the successful launch of the North Star office hotel and filling the premises with small tenants. Increasing occupancy figures were supplemented with new leases in Europa, Postimaja and Galerija Centrs. During the quarter, Sportland relocated and expanded its premises to almost 1,000 sq. m in Galerija Centrs. In Europa, Huracan Coffee opened its café of approx. 140 sq. m creating a new attraction point for clients coming in from the main square of CBD. The opening of Huracan marked the full reopening of Europa’s entrances and public areas to clients after the refurbishment.

Occupancy rates in the office segment remain strong at around 98%. Positive momentum in office leasing is expected to continue in Q3 2022. Retail leasing teams were expanded in H1 2022 to fasten the leasing process. The Fund is having in-depth negotiations with potential anchor tenants for shopping centres. The average direct property yield during Q2 2022 was 5.3% (Q1 2022: 5.0%). The net initial yield for the whole portfolio for Q2 2022 rose to 5.6% (Q1 2022: 5.3%). Property yields increased compared to Q1 2022 after a strong recovery of Galerija Centrs results following the lift of lockdowns at the end of 2021 and positive rent indexations across the portfolio.

Overview of the Fund’s investment properties as of 30 June 2022

Property name	Sector	Fair value1 (EUR ‘000)	NLA (sq. m)	Direct property yield Q2 20222	Net initial yield Q2 20223	Occupancy rate
Vilnius, Lithuania
Duetto I	Office	18,525	8,587	7.7%	6.5%	100.0%
Duetto II	Office	20,253	8,674	7.7%	7.1%	100.0%
Europa SC	Retail	38,757	16,844	1.8%	1.9%	84.5%
Domus Pro Retail Park	Retail	16,535	11,226	8.4%	8.1%	98.5%
Domus Pro Office	Office	8,010	4,831	8.7%	7.1%	97.3%
North Star	Office	21,538	10,550	6.7%	6.8%	98.2%
Meraki Development	Office	15,620	-	-	-	-
Total Vilnius		139,238	60,712	5.6%	5.4%	94.9%
Riga, Latvia
Upmalas Biroji BC	Office	21,978	10,459	7.5%	8.2%	100.0%
Vainodes I	Office	18,470	8,052	6.6%	7.8%	100.0%
LNK Centre	Office	17,660	7,452	6.8%	6.8%	100.0%
Sky SC	Retail	5,693	3,244	8.1%	7.8%	97.6%
Galerija Centrs	Retail	64,910	20,075	3.1%	3.6%	77.2%
Total Riga		128,711	49,282	5.0%	5.6%	90.6%
Tallinn, Estonia
Postimaja & CC Plaza complex	Retail	26,975	9,242	9.2%	7.6%	95.6%
Postimaja & CC Plaza complex	Leisure	14,525	8,664	3.6%	4.5%	100.0%
Lincona	Office	16,900	10,871	7.3%	6.8%	90.8%
Pirita SC	Retail	9,300	5,444	5.1%	6.7%	90.4%
Total Tallinn		67,700	34,221	5.5%	6.0%	94.4%
Total portfolio		335,649	144,215	5.3%	5.6%	93.3%

1. Based on the latest valuation as of 30 June 2022 and recognised right-of-use assets.

2. Direct property yield (DPY) is calculated by dividing annualized NOI by the acquisition value and subsequent capital expenditure of the property.

3. The net initial yield (NIY) is calculated by dividing annualized NOI by the market value of the property.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

EUR ‘000		01.04.2022-30.06.2022	01.04.2021-30.06.2021	01.01.2022-30.06.2022	01.01.2021-30.06.2021
Rental income		5,111	4,835	10,070	9,512
Service charge income		1,341	1,209	2,645	2,426
Cost of rental activities		(1,970)	(1,687)	(4,040)	(3,408)
Net rental income		4,482	4,357	8,675	8,530
Administrative expenses		(726)	(756)	(1,385)	(1,501)
Other operating income		271	-	278	-
Valuation gains (losses) on investment properties		178	(14,255)	172	(14,259)
Operating profit (loss)		4,205	(10,654)	7,740	(7,230)
Financial income		-	1	-	1
Financial expenses		(1,518)	(1,362)	(2,960)	(2,752)
Net financial expenses		(1,518)	(1,361)	(2,960)	(2,751)
Profit (loss) before tax		2,687	(12,015)	4,780	(9,981)
Income tax charge		(444)	888	(541)	759
Profit (loss) for the period		2,243	(11,127)	4,239	(9,222)
Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods
Net gain on cash flow hedges		575	241	1,296	451
Income tax relating to net gain on cash flow hedges		(51)	(16)	(115)	(31)
Other comprehensive income, net of tax, that is or may be reclassified to profit or loss in subsequent periods		524	225	1,181	420
Total comprehensive income (expense) for the period, net of tax		2,767	(10,902)	5,420	(8,802)
Basic and diluted earnings per unit (EUR)		0.02	(0.09)	0.04	(0.08)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR ‘000		30.06.2022	31.12.2021
Non-current assets
Investment properties		320,029	315,959
Investment property under construction		15,620	11,400
Intangible assets		8	9
Property, plant and equipment		2	2
Derivative financial instruments		439	-
Other non-current assets		22	23
Total non-current assets		336,120	327,393
Current assets
Trade and other receivables		2,214	2,708
Prepayments		423	137
Cash and cash equivalents		8,738	16,100
Total current assets		11,375	18,945
Total assets		347,495	346,338
Equity
Paid in capital		145,200	145,200
Cash flow hedge reserve		352	(829)
Retained earnings		(11,376)	(11,787)
Total equity		134,176	132,584
Non-current liabilities
Interest-bearing loans and borrowings		102,765	157,471
Deferred tax liabilities		6,959	6,297
Derivative financial instruments		-	756
Other non-current liabilities		1,261	1,103
Total non-current liabilities		110,985	165,627
Current liabilities
Interest-bearing loans and borrowings		96,153	41,676
Trade and other payables		5,479	5,223
Income tax payable		-	5
Derivative financial instruments		15	109
Other current liabilities		687	1,114
Total current liabilities		102,334	48,127
Total liabilities		213,319	213,754
Total equity and liabilities		347,495	346,338

For more information, please contact: 

Tarmo Karotam
Baltic Horizon Fund manager
E-mail tarmo.karotam@nh-cap.com
www.baltichorizon.com

The Fund is a registered contractual public closed-end real estate fund that is managed by Alternative Investment Fund Manager license holder Northern Horizon Capital AS. Both the Fund and the Management Company are supervised by the Estonian Financial Supervision Authority.

This announcement contains information that the Management Company is obliged to disclose pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the above distributors, at 22:00 EET on 8 August 2022.

Attachment

• BHF semi-annual report H1 2022