Management commentary
The most important economic event of EfTEN Real Estate Fund III AS in the third quarter of 2018 was the beginning of the construction of Hortes gardening centre on Tähesaju road in Tallinn. The gardening center serving eastern Tallinn and Viimsi is scheduled to open in the 4th quarter of 2019. In addition, a substantial renewal of the tenants’ composition will be carried out at Saules Miestas shopping center. SportsDirect and Pepco will open the city’s new flagship stores. The two anchor tenants will significantly increase the attractiveness of the second floor of the shopping center.
During the first nine months of the year, the potential dividend payout amounted to EUR 1.783 thousand, which is 55 euro cents per share. The Fund's dividend policy determines a dividend payment of 80% of the Fund's annual cash flow. The distribution of the Fund's profits will be decided by the general meeting of the Fund and the dividend payment from the profit of 2018 will be made after the general shareholders' meeting of 2019.
Financial overview
The consolidated sales revenue of EfTEN Real Estate Fund III AS for 9 months of 2018 was EUR 6.343 million (9 months of 2017: EUR 5.373 million), which increased by 18% in a year. The Group’s profit before revaluation of investment properties, depreciation and financial income/ -costs and income tax expense (EBITDA) totalled EUR 4.282 million (9 months of 2017: EUR 3.703 million). The Group's net profit for the same period amounted to EUR 4.548 million (9 months of 2017: EUR 5.298 million). The smaller net profit is due to lower investment property revaluation profit, which in the first nine months of this year was EUR 962 thousand, but EUR 2.316 thousand last year.
The consolidated gross profit margin in the first nine months of 2018 was 97% (9 months of 2017: 98%). Therefore, expenses directly related to management of properties (incl. land tax, insurance, maintenance and improvement costs) accounted for only 3% (9 months of 2017: 2%) of the revenue. The Group's expenses related to properties, marketing costs, general expenses, other income and expenses accounted for 21.2% of the revenue in the first nine months of 2018. The respective indicator was 21.8% in the first nine months of 2017.
| 9 months | ||
| 2018 | 2017 | |
| EUR million | ||
| Rental revenue, other fees from investment properties | 6.343 | 5.373 |
| Expenses related to investment properties, incl. marketing costs | -0.516 | -0.437 |
| Interest expense and interest income | -0.716 | -0.501 |
| Net rental revenue less finance costs | 5.111 | 4.435 |
| Management fees | -0.468 | -0.400 |
| Other revenue and expenses | -0.361 | -0.332 |
| Profit before change in the value of investment property, change in the success fee liability, fair value change of interest rate swap and income tax expense | 4.282 | 3.703 |
As at 30.09.2018, the Group’s total assets were in the amount of EUR 107.0 million (31.12.2017: 97.291 million), including fair value of investment property, which accounted for 95% (31.12.2017: 91%) of the total assets.
| 30.09.2018 | 31.12.2017 | |
| EUR million | ||
| Investment properties | 101.308 | 88.390 |
| Other non-current assets | 0.026 | 0.090 |
| Current assets. excluding cash | 0.476 | 0.678 |
| Net debt | -53.068 | -42.773 |
| Net asset value (NAV) | 48.742 | 46.385 |
| Net asset value (NAV) per share (in euros) | 15.13 | 14.39 |
In the first nine months of the year, the net asset value of the share of EfTEN Real Estate Fund III AS increased by 5.1%. From the 2017 profit, EUR 2,191 thousand (in spring 2017: EUR 1,503 thousand) was paid out in dividends in April 2018. Without the dividend payment, the Fund's NAV would have increased by 9.4% in the first nine months of 2018. Return on invested capital (ROIC) was 16.4% in the first nine months of 2018 (9 months of 2017: 27.6%).
Access to flexible financing conditions will help to increase the Group's competitiveness. In the first nine months of 2018, the Group entered into new loan contracts in the total amount of EUR 9.492 million in connection with the acquisition of new investment properties. As at the end of the first nine months of 2018, the average interest rate on Group's loan agreements (including interest swap contracts) was 1.86% (31.12.2017: 1.73%) and the LTV (loan to value) ratio was 53% (31.12.2017: 52%).
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 April 2018, EfTEN Real Estate Fund III AS paid the shareholders (net) dividends in the amount of EUR 2.2 million (2017: EUR 1.5 million), which represents 6.1% (2017: 6.0%) of the share capital paid in.
During the first nine months of 2018, the Group earned a free cash flow of EUR 2.370 million (9 months of 2017: EUR 2.146 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 would be able to pay net dividends to the shareholders in the total amount of EUR 1.783 million (55 cents per share) from the profit earned in the first nine months of the year. For the entire previous year, the fund paid the shareholders a net dividend of 68 cents per share.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
| 3rd quarter | 9 months | |||
| EUR thousand | 2018 | 2017 | 2018 | 2017 |
| Revenue | 2,238 | 1,835 | 6,343 | 5,373 |
| Cost of services sold | -99 | -35 | -184 | -102 |
| Gross profit | 2,139 | 1,800 | 6,159 | 5,271 |
| Marketing costs | -108 | -119 | -332 | -335 |
| General and administrative expenses | -269 | -256 | -836 | -1,200 |
| Gain / loss from revaluation of investment properties | 0 | 0 | 962 | 2,316 |
| Other operating income and expense | 0 | 1 | 7 | 5 |
| Operating profit | 1,762 | 1,426 | 5,960 | 6,057 |
| Interest income | 0 | 0 | 3 | 0 |
| Finance costs | -199 | -243 | -719 | -501 |
| Profit before income tax | 1,563 | 1,183 | 5,244 | 5,556 |
| Income tax expense | -164 | 84 | -696 | -258 |
| Total comprehensive for the financial period | 1,399 | 1,267 | 4,548 | 5,298 |
| Earnings per share | ||||
| - Basic | 0.43 | 0.46 | 1.41 | 2.05 |
| - Diluted | 0.43 | 0.46 | 1.41 | 2.05 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
| 30.09.2018 | 31.12.2017 | |
| EUR thousand | ||
| ASSETS | ||
| Cash and cash equivalents | 5,190 | 8,133 |
| Receivables and accrued income | 398 | 641 |
| Prepaid expenses | 78 | 37 |
| Total current assets | 5,666 | 8,811 |
| Long-term receivables | 0 | 49 |
| Investment property | 101,308 | 88,390 |
| Property, plant and equipment | 22 | 37 |
| Intangible assets | 4 | 4 |
| Total non-current assets | 101,334 | 88,480 |
| TOTAL ASSETS | 107,000 | 97,291 |
| LIABILITIES AND EQUITY | ||
| Borrowings | 2,633 | 2,109 |
| Derivative instruments | 72 | 58 |
| Payables and prepayments | 798 | 1,848 |
| Total current liabilities | 3,503 | 4,015 |
| Borrowings | 50,875 | 43,667 |
| Other long-term liabilities | 555 | 360 |
| Deferred income tax liability | 3,325 | 2,864 |
| Total non-current liabilities | 54,755 | 46,891 |
| Total liabilities | 58,258 | 50,906 |
| Share capital | 32,225 | 32,225 |
| Share premium | 3,658 | 3,658 |
| Statutory reserve capital | 622 | 293 |
| Retained earnings | 12,237 | 10,209 |
| Total equity | 48,742 | 46,385 |
| TOTAL LIABILITIES AND EQUITY | 107,000 | 97,291 |
Marilin Hein
CFO
Phone 655 9515
E-mail: marilin.hein@eften.ee
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