Comments from fund manager Viljar Arakas

The three quarters of this year were financially the best period in the fund’s history. Rental income increased by 13%. The acquisition of new properties, but also the 8% increase in rental income from existing properties, contributed to this. This indicates that despite rising energy prices, we have been able to pass on increased rents to our tenants as well as reduce vacancy rates.

The vacancy rate was 0.5% at the end of the 3rd quarter, ie almost all of the fund’s commercial premises are covered by lease contracts.

High energy prices present challenges, but so far we have not encountered impossible problems. The fund manager, together with the tenants, makes every effort to reduce energy consumption in the buildings.

Importantly, from the perspective of the fund’s investors, free cash flow for dividends increased by 22% to EUR 4,623 million (73 euro cents per share) in the first three quarters of the year. ‘year. The fund has low leverage – 41% LTV (the total value of loans to the total value of assets). As a result, we expect to increase the debt level of each property to 50% in regular refinancing operations and pay out the additional cash flow to shareholders in the form of dividends.

The rapidly growing Euribor leads to higher financial costs, but since we have always amortized our loans (typically 27% of monthly rental income), higher interest rates do not threaten the business activities of the fund. Furthermore, the ability to pass on the increase in rental prices in recent quarters gives us additional assurance that higher interest charges can be (at least partially) offset by higher rental income.

Financial overview

The first 9 months of 2022 have proven successful for EfTEN Real Estate Fund III AS. The fund’s income increased to 10,600 million euros, or 12.6%, compared to the first nine months of last year.

In the first nine months of the year, the fund bought two new investment properties – buildings for the Valkla and Ermi rest homes which are expected to accommodate up to 370 clients when completed. As of September 30, 2022, a total of 2,389 million euros has been spent to buy nursing homes and make the first investments.

In June 2022, the fund subsidiaries EfTEN Laagri OÜ (Laagri Selver) and EfTEN Seljaku OÜ (Laagri Hortes) extended their bank loans for the next five years. When the interest margin of EfTEN Laagri OÜ remained the same during the contract extension (1.4%), the interest margin of EfTEN Seljaku OÜ decreased from 1.55% to 2.0% . Over the next 12 months, the fund’s three loans that have a mortgage on the Saules Miestas shopping center, the Evolution office building and the Piepilsetas logistics center will mature. All of the investment properties that are pledged have high rental cash flow and an LTV of between 30% and 40%, so management sees no risk in extending loan contracts when the date deadline is coming.

As of September 30, 2022, the fund has an uninvested capital of €3.5 million which is planned to be used for the development of purchased plots of land in care homes.

Consolidated revenue for EfTEN Real Estate Fund III AS for the third quarter of 2022 amounted to €3,612 million (third quarter of 2021: €3,458 million), up 4.5% during the year.

Consolidated revenue for EfTEN Real Estate Fund III AS for the first nine months of 2022 amounted to €10,600 million (first nine months of 2021: €9,413 million), up 12.6% compared to last year (1,187 million euros). In the first nine months of 2022, the Group generated rental income of €9,995 million. Rental income calculated in comparative terms amounts to EUR 9,331 million over the first nine months of 2022, i.e. 9% (EUR 752 thousand) more than in 2021 for the same period.

Group net rental income for the first nine months of 2022 amounted to €10,135 million (2021: €9,076 million), up 11.7%. The Group’s net profit for the same period was €10,209 million (2021: €7,744 million).

During the first nine months of 2022, the consolidated net margin on rental income was 96% (2021: identical), as well as expenses directly related to the management of the property (including property tax, insurance, maintenance and improvement costs) and marketing expenses accounted for 4% (2021: same) of revenue.

As of September 30, 2022, the volume of the Group’s total assets amounted to EUR 180,125 million (31.12.2021: EUR 176,401

In September 2022, the Group held 18 (31.12.2021: 16) commercial property investments with a fair value at the balance sheet date of 168,830 million EUR (31.12.2021: 161,961 million EUR) and an acquisition cost of 150 800 million EUR (31.12.2021: 147,633 million EUR).

In April, the subsidiary of the EfTEN fund Valkla OÜ acquired a property located in Valklaranna tee 36, Valkla. The fund plans to convert the care home building into a general care home that could accommodate up to 250 clients in the future. The renovation works are carried out in stages. The purchase price of the real estate land was 2,005 thousand euros and in addition, the subsidiary of the fund is required to make investments in the amount of 2,000 thousand euros. The purchase of the real estate land and the investments are financed by the fund’s own assets.

In April, EfTEN fund subsidiary Ermi OÜ acquired building rights located at Ermi tn 13, Tila village, Tartu parish in Tartu county. The fund plans to develop a nursing home for a minimum of 120 clients on the land used on a building rights basis. The expiry date of the right to build is 50 years, possibility of extending up to 99 years in agreement with the landowner. After developing a nursing home on the land, it will be leased to Südamekodud AS on the basis of a long-term lease agreement. The purchase price of the building rights amounted to 233 thousand euros. The purchase of building rights and investments are financed by the fund’s own assets.

In the following 12 months, the loan contracts of the three Group subsidiaries – Evolution office building, Saules Miestas shopping center and Piepilsetas logistics center – will end, the balance of the loans as of September 30, 2022 is 20,160 thousand euros . The LTV of maturing loan contracts is 30% to 40% and the investment properties have a strong and stable rental cash flow, thanks to which the Group’s management does not see any risk linked to the extension of the contracts.

The weighted average interest rate of the Group’s loan contracts (including taking into account interest rate swap contracts) at the end of September is

2.9% (31.12.2021: same) and LTV (Ready to Assess) is 41% (31.12.2021: 44%). All loan agreements of the Fund’s subsidiaries are linked to a variable interest rate. In order to cover the risk of an increase in the interest rate of a loan contract, where the Euribor is fixed at 0.35% rate. The interest rate swap contract expires in 2023 and its fair value as of September 30, 2022 is EUR 79,000.

As of September 30, 2022, the net asset value per share (EPRA NDV) of EfTEN Real Estate Fund III AS was EUR 20.32 (31.12.2021: EUR 19.11). The net asset value per share of EfTEN Real Estate Fund III AS increased by 6.3% in the nine months of 2022.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

3rd trimester 9 months
thousands of euros 2022 2021 2022 2021
Revenue 3,612 3,458 10,600 9,413
Cost of sales -80 -54 -211 -193
Gross profit 3,532 3,404 10,389 9,220
Marketing costs -63 -54 -254 -144
General and administrative expenses -488 -426 -1,391 -1,302
Gain / loss on revaluation of investment properties -1 0 3,701 2020
Other operating income and expenses 5 12 48 18
Operating result 2,985 2,936 12,493 9,812
Other financial income and expenses -376 -419 -1,098 -1,258
Profit before income tax 2,609 2,517 11,395 8,554
income tax expense -282 -243 -1,186 -810
Net income for the year 2,327 2,274 10 209 7,744
Earnings per share
– basic 1.17 0.45 2.01 1.69
– diluted 1.17 0.45 2.01 1.69

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30.09.2022 31.12.2021
thousands of euros
ASSETS
Cash and cash equivalents 9,623 13,074
Receivables and accrued income 1,496 876
Prepaid expenses 44 314
Inventory 0 29
Total current assets 11,163 14,293
Long-term receivables 2 4
Investment property 168,830 161,961
Property. factory and equipment 128 140
Intangible assets 2 3
Total non-current assets 168,962 162 108
TOTAL ASSETS 180 125 176,401
LIABILITIES AND EQUITY
Loans 22,280 7,645
Derivatives 0 121
Debts and installments 949 1,349
Total current liabilities 23,229 9,115
Loans 46 117 63,440
Other long-term debts 1,007 987
Deferred tax liability 6,707 5,945
Total non-current liabilities 53,831 70,372
Total responsibilities 77,060 79,487
Share the capital 50,725 50,725
Premium 16,288 16,288
Legal reserve capital 2,149 1,489
Retained earnings 33,903 28,412
Total equity 103,065 96,914
TOTAL LIABILITIES AND EQUITY 180 125 176,401

Marilin Hein

CFO
Telephone +372 6559 515
E-mail: [email protected]