Comment of the Fund manager
In February 2019, EfTEN Real Estate Fund III AS acquired the ABC Motors sales and service center in Tallinn. The cost of the investment property, including transaction costs, totaled EUR 3.015 million and a loan of EUR 1.8 million was taken for the transaction. The remaining acquisition amount was financed from the Group's free funds. The investment property added 2,149 m2 of rental property and the Group receives rental income of EUR 252 thousand per year.
In the spring of 2019, EfTEN Real Estate Fund III AS shall carry out an additional share issue of approximately 16 million euros to finance the acquisition of new facilities planned for the future.
The Fund will continue its investment activities based on an opportunistic and value-adding investment strategy.
Financial overview
The consolidated sales revenue of EfTEN Real Estate Fund III AS for the 1st quarter of 2019 was EUR 2.315 million (1st quarter of 2018: EUR 2.000 million), which increased by 16% in a year. The Group's net profit for the same period amounted to EUR 1.369 million (1st quarter of 2018: EUR 1.251 million).
The consolidated gross profit margin in the 1st quarter of 2019 was 97% (1st quarter of 2018: 98%). Therefore, expenses directly related to management of properties (incl. land tax, insurance, maintenance and improvement costs) accounted for 3% (1st quarter of 2018: 2%) of the revenue. The Group's expenses related to properties, marketing costs, general expenses, other income and expenses accounted for 19.5% of the revenue in the 1st quarter of 2019. The respective indicator was 20.7% in the 1st quarter of 2018.
As at 31.03.2019, the Group’s total assets were in the amount of EUR 111.088 million (31.12.2018: 108.503 million), including fair value of investment property, which accounted for 95% (31.12.2018: same) of the total assets.
During the 1st quarter of 2019, the net asset value of the share of EfTEN Real Estate Fund III AS increased by 2.7% (1st quarter of 2018: the same). Return on invested capital (ROIC) was 17.9% as of 31.03.2019 (31.12.2018: 17.6%).
Access to flexible financing conditions will help to increase the Group's competitiveness. In the 1st quarter of 2019, the Group entered into new loan contracts in the total amount of EUR 1.978 million in connection with the acquisition of new investment properties and the development of existing investment propoerties. As at the end of March, the average interest rate on Group's loan agreements (including interest swap contracts) was 1.8% (31.12.2018: the same) and the LTV (Loan to Value) ratio was 52% (31.12.2018: the same).
The dividend policy of EfTEN Real Estate Fund III AS provides that the Group will pay out 80% of the free cash flow to shareholders as (gross) dividends in each accounting year. In May 2019, EfTEN Real Estate Fund III AS shall pay the shareholders (net) dividends 95 cents per share (in the total amount of EUR 3.061 million). In 2018, the Group paid net dividends to the shareholders 68 cents per share (in the total amount of EUR 2.191 million).
During the 1st quarter of 2019, the Group earned a free cash flow of EUR 0.912 million (1st quarter of 2018: EUR 0.776 million). Following the deduction of Lithuanian income tax expense and the calculation of the dividend income tax expense in Estonian and Latvian companies, EfTEN Real Estate Fund III AS would be able to pay net dividends to the shareholders in the total amount of EUR 0.656 million (20 cents per share) from the profit earned in this period.
Real estate portfolio
The Group invests in commercial real estate with a strong and long-term tenant base. At the end of March 2019, the Group had 11 (31.12.2018: 10) commercial investment properties with a fair value as at the balance sheet date of EUR 106.084 million (31.12.2018: EUR 102.787 million) and acquisition cost of EUR 98.292 million (31.12.2018: EUR 94.627 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| 1st quarter | ||
| EUR thousand | 2019 | 2018 |
| Revenue | 2,315 | 2,000 |
| Cost of services sold | -76 | -49 |
| Gross profit | 2,239 | 1,951 |
| Marketing costs | -86 | -102 |
| General and administrative expenses | -288 | -262 |
| Gain / loss from revaluation of investment properties | 0 | 0 |
| Other operating income and expense | -1 | 0 |
| Operating profit | 1,864 | 1,587 |
| Interest income | 0 | 1 |
| Finance costs | -338 | -208 |
| Profit before income tax | 1,526 | 1,380 |
| Income tax expense | -157 | -129 |
| Total comprehensive income for the financial period | 1,369 | 1,251 |
| Earnings per share | ||
| - Basic | 0.42 | 0.39 |
| - Diluted | 0.42 | 0.39 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| 31.03.2019 | 31.12.2018 | |
| EUR thousand | ||
| ASSETS | ||
| Cash and cash equivalents | 4,359 | 4,859 |
| Receivables and accrued income | 440 | 673 |
| Prepaid expenses | 99 | 46 |
| Total current assets | 4,898 | 5,578 |
| Long-term receivables | 0 | 24 |
| Investment property | 106,084 | 102,787 |
| Property, plant and equipment | 106 | 114 |
| Total non-current assets | 106,190 | 102,925 |
| TOTAL ASSETS | 111,088 | 108,503 |
| LIABILITIES AND EQUITY | ||
| Borrowings | 2,755 | 8,105 |
| Derivative instruments | 264 | 189 |
| Payables and prepayments | 673 | 1,019 |
| Total current liabilities | 3,692 | 9,313 |
| Borrowings | 51,390 | 44,743 |
| Other long-term liabilities | 513 | 457 |
| Deferred income tax liability | 3,630 | 3,496 |
| Total non-current liabilities | 55,533 | 48,696 |
| Total liabilities | 59,225 | 58,009 |
| Share capital | 32,225 | 32,225 |
| Share premium | 3,658 | 3,658 |
| Statutory reserve capital | 621 | 621 |
| Retained earnings | 15,359 | 13,990 |
| Total equity | 51,863 | 50,494 |
| TOTAL LIABILITIES AND EQUITY | 111,088 | 108,503 |
Marilin Hein
CFO
Phone 655 9515
E-mail: marilin.hein@eften.ee
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