Annual General Meeting 2018 Fund Manager s Comment on the Year. East Capital Baltic Property Investors AB (publ.)

Transcription

1 Annual General Meeting 2018 Fund Manager s Comment on the Year East Capital Baltic Property Investors AB (publ.)

2 Summary Positive and supportive macro-economic backdrop Baltic Property fund continues to deliver strong NAV performance Strategic plan executed during 2017/ dividend suggested for 2017/2018 same as last year Next year will entail investments into a few selected properties Dividend for coming year may be slightly lower due to this New liquidity event planned for 1Q

3 Main targets when fund was extended Optimize the property portfolio and focus on good properties primarily in Estonia Invest in existing properties to add value and secure future cash flow Maximize cash flow to investors after necessary investments Listen to investor suggestions on future strategy after goals have been achieved e.g. possibililty of permanent vehicle 3

4 Milestones of the year - delivery on strategy Net asset value increase of 12.5% 3.3m free cash flow generated (incl. 2.1m amortization) New syndicated loan for 4 years for the Estonian property portfolio Divestment of Duntes property in Latvia Active dialogue on further exits in Latvia and Lithuania Dividend of 25/share paid through redemption share in 4Q 2017 Liquidity event held in ECBPI in 1Q

5 Fund in brief 2017/18 The value of investment properties amounted to 94.9m at financial year end. The revaluation excluding divested properties remained flat (+0.7%) Portfolio yield at year-end 7.9% Year-end loan balance EUR 52.0m equivalent to a loan-to-value of 55% Active management of the Estonian loan portfolio with a new syndicated loan for 4 years. The Lithuanian loan portfolio has been extended for 1 year with the existing bank. 5

6 NAV development Dividend adjusted NAV above the initial investment level and expected to increase by ~10% annually Annual dividend potential without exits or major investments ~ 25/share

7 Property portfolio Tallinn Tänassilma Logistics Facility Seaport Hotel Tammsaare Business Park Saaremaa Go Spa Hotel ESTONIA Maardu Metal Industrial Facility Narva Kerese Commercial Centre Jõhvi Jewe Retail & Furniture Centre Tsentraal Centre Pärnu Papiniidu Commercial Centre Klaipeda Deco Furniture & Interior Centre Laracija Office Center LITHUANIA LATVIA Riga Zemitana Centre Offices Vilnius Jin Office Centre 7

8 Estonian portfolio Tammsaare Business Park Jewe Retail Centre Go Spa Hotel Tsentraal Commercial Centre Kerese Commercial Centre Seaport Hotel Metal Industrial Tänassilma Logistics Papiniidu Commercial Centre 8

9 Risk and opportunities for coming year Risks - Vacancy risks - Delays in exits in Latvia/Lithuania (limited financial effect) - Delays in the investment plan - Investment costs Possibilities - Optimized Estonian portfolio within reach - Continued strong cash flow 9

10 Investment plan for selected propertied Extension of Jewe Retail Centre is planned to increase shopping centre attractiveness, secure anchor tenants and future cash flow in light of competition from new shopping centres The extension will add ~700 sqm leasable area to ground floor. Rental income expected to increase by 150th p.a. Construction tender is being prepared, estimated investment ~ 1.5m. Investments are also needed in other properties to maintain property value and attractiveness (tenant replacements, refreshment of premises and general areas) In case the investment plans are fully realized, the fund s free operating cash flow will be reduced affecting dividend capacity in the medium term. 10

11 Suggested dividend The BoD has proposed a dividend of 501.2/share in the fund enabling a share redemption program in ECBPI equivalent to 25/share to be paid in 4Q 2018 On the record day for the share split, one (1) existing share will be divided into two (2) shares, of which one (1) will be a redeemable share Shareholders who own redeemable shares on the record day for the redemption of the redeemable shares will automatically receive EUR 25 through Euroclear Shareholders that wish to sell rather than automatically redeem may trade their redemption shares OTC 11

12 Liquidity event In order to provide an opportunity for investors buy or sell shares in ECBPI at a fair market price, East Capital will administrate a second liquidity event in January 2019 on a best efforts basis. In last year s liquidity event approximately 30 shareholders were able to exit their holdings at a price significantly above secondary trading during the previous months. It also enabled larger shareholders to increase their investment and shares worth ~ 3.5m was transacted. Existing investors, and new investors, will be asked if they have an interest to either buy or sell shares, including volume, at 355/share (same price as in 2018). 12

13 Appendix I Portfolio and financials II Share split and redemption of shares III IV Baltic real estate market & economic outlook Legal structure

14 Appendix I Portfolio and financials II Share split and redemption of shares III IV Baltic real estate market & economic outlook Legal structure

15 I - Portfolio activities 2017/18 Management focus remained on reducing vacancies and increasing rental income for portfolio properties. Average rent of 7.0/sqm/month is expected to remain stable Portfolio economic vacancy for the financial year concluded at an average of 7%. Longer vacancy periods are only experienced in secondary locations, where the demand for commercial premises still remains weak. The hotels in the portfolio continue to meet or exceed budgeted turnovers and contribute notable turnover rent to the fund s results, 65-75% on top of base rent In June 2018, the fund finalized the sale of Duntes Nami office in Riga, Latvia to SG Capital Partners. The sale did not influence the fund net asset value, but did result in extraordinary income of 2.8m in financial reports. In June 2018, all Estonian properties were refinanced through a syndicated loan with maturity matching the fund s maturity in The interest rate of the loan has been similarly hedged for four years, reducing interest rate risk. 15

16 Fund distribution Country allocation, % of property value Sector allocation, % of property value 3% 12% Estonia Latvia Lithuania 18% 16% 31% Office Retail Hotel Logistics 85% 35% 16

17 Portfolio vacancy 30% 25% 20% 15% 10% 5% 0% Estonia Latvia Lithuania Fund 3Q Q Q Q 2018 End of quarter 17

18 Result contributor 2017/18 EUR m 10,0 9,0 8,0 7,0 6,0-1,51 0,23 0,74-1,15 2,80 0,16 5,0 4,0 3,0 7,65 8,92 2,0 1,0 0,0 18

19 Base case fund CF forecast, /2018 ACTUAL* 2018/2019 PLAN 2019/2020 PLAN 2020/2021 PLAN 2021/2022 PLAN Net rental income EUR/sqm/m 6,7 6,7 6,9 6,9 7,0 Vacancy rate % 7% 8% 8% 8% 6% Operating expenses Bad debt Net operating income Interest expense Other financial income/loss Profit/loss Loan principal payment Investments Free cashflow before mgmt fee Loan covenants LTV 55% 52% 49% 47% 44% DSCR 2,20 1,76 1,84 1,87 2,00 ICR 7,06 5,65 6,02 6,37 7,10 *excluding divested properties 19

20 II - Outline of share split and redemption of shares Before Share split Payment Acquisition cost 23 November 2018 On the record day for the share split, one (1) existing share will be divided into two (2) shares, of which one (1) will be a redeemable share 19 December 2018 Shareholders who own redeemable shares on the record day for the redemption of the redeemable shares on 12 December will automatically receive EUR 25 through Euroclear The redemption share gets an acquisition cost corresponding to its value relative to the ordinary share s market price before the share split, multiplied by the ordinary share s acquisition cost 1 ordinary share EUR 350 Market price before split 1 ordinary share EUR 325 (350-25) Theoretical market price after split 1 redeemable share EUR 25 1 ordinary share Redemption settlement EUR 25 Acquisition cost of 1 ordinary share is reduced by the acquisition cost attributed to 1 redemption share Acquisition cost of 1 redeemable share: 25/350=7,14% of 1 ordinary share s acquisition cost Based on a theoretical example where the ordinary share is traded for EUR 350 before the split

21 Timetable Annual General Meeting Record day for share split and the right to redemption of shares Carnegie offer to buy redeemable shares ends Record date for redemption of redeemable shares 9 Nov 21 Nov 23 Nov 27 Nov 4 Dec 10 Dec 12 Dec 19 Dec Trading window Last day of trading before share split, including the right to redemption of shares Trading in redeemable shares starts N.B. Not mandatory to trade the redeemable shares Trading in redeemable shares ends Automatic payment of redemption settlement

22 OTC trading via Carnegie Carnegie offer at EUR 24.5 Carnegie offer 27 November 4 December 7 December Shareholders that wish to sell rather than automatically redeem may trade their redemption shares OTC Carnegie offers to buy redeemable shares for EUR 24.5 Trading offered between 27/11 and 10/12 Carnegie offer ends on 4 December Client s custodian bank should contact Carnegie Full information brochure available on 22

23 III - Economic outlook remains positive The Baltic countries recovered quickly from the economic crisis and, building on improved external demand, have sustained an economic growth surpassing EU average. Broad-based GDP growth of 3+% is excpected in 2018 in the Baltic countries; economies are well balanced and resilient. Public finances are sound and the countries have been able to build buffers. Labour constraints, wage growth and productivity challenges, as well as slowing growth in Europe will also slightly slow down the GDP growth pace to 2-3% in the coming years. In the longer term, the Baltic economies will remain open to global risks: trade wars, protectionist economic policy, geopolitical tensions, as well as financial effect of policies related to climate change. 10,0% 5,0% 0,0% -5,0% -10,0% Real GDP growth 10% 8% 6% 4% 2% 0% -2% -4% Consumer prices (HICP) ,0% EU28 Estonia Latvia Lithuania EU28 Estonia Latvia Lithuania Source: Eurostat 23

24 Investment market - Transaction volumes in 2018 expected to exceed 1bn Transaction volume in the Baltics has been increasing steadily in the recent years Alongside the known Baltic and Nordic investors, several international investors have entered the Baltic market Despite consolidation and turbulenace in the banking sector, financing conditions are still good for strong companies East Capital remains the second largest investor and asset manager in the Baltics, with AUM in excess of EUR 400m EUR m Estonia Latvia Lithuania Source: Colliers 24

25 Prime yields are mostly stable with slight downward pressure Prime Office Yields 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% Prime Retail Yields 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% Prime Logistics Yields Tallinn Riga Vilnius Tallinn Riga Vilnius Tallinn Riga Vilnius Source: Colliers 25

26 Solid demand for modern space in letting markets Demand for modern space is high in all three sectors (office, retail, logistics), leading to stabilization or a slight decline in vacancy rates 40% 30% 20% Office vacancy Tallinn Based on the strong supply, several large-scale projects have been completed, are under development or planned in both office and retail sector T1 shopping mall in Tallinn, SC Akropolis in Riga, SC Akropolis 2 in Vilnius, Maakri office tower in Tallinn, Porto Franco multifunctional complex etc 10% 0% 15% 10% Shopping centre vacancies Riga Vilnius Tallinn Prime rents remain stable in capital cities 5% 0% Riga Vilnius Interest from international tenants in office markets (shared service centre, business process outsourcing) as well in retail market (new brands and retailers) 25% 20% 15% 10% 5% 0% Industrial premises vacancies Tallinn Riga Vilnius 26

27 IV - East Capital Baltic Property Fund - Fund structure Investors in the Investment Vehicle EAST CAPITAL HOLDING AB Direct Investors % of the Pref A shares (all economic rights) EAST CAPITAL BALTIC PROPERTY INVESTORS AB (PUBL ) % of the Pref A shares (all economic rights) East Capital Baltics AS 100% of the common shares, right to profit sharing, control by 95.2% of the votes EAST CAPITAL BALTIC PROPERTY FUND AB A company operating under the laws of Sweden A company operating under the laws of Estonia

28 Important Information Every effort has been made to ensure the accuracy of the information in this document but it may be based on unaudited or unverified figures or sources. The information in this document should not be used as the sole basis for an investment. East Capital s services and investment products may not be available to all people in all jurisdictions. East Capital s services and investment products may not be offered, sold or distributed in any country unless such offer, sale or distribution is made in accordance with local registrations or any applicable exemptions from any registration requirements provided by the local laws and regulations. Information about our services, investment products, prospectuses, financial reports, distributors and where the funds are registered for sale can be obtained at East Capital ( Investment in funds always involves some kind of risk. Past performance is no guarantee for future performance. Fund units may go up or down in value and may be affected by changes in exchange rates. Investors may not get back the amount invested. As East Capital invests in foreign markets, currency fluctuations can affect the funds values. 28

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