Baltic Horizon Fund's Key Insights and Strategic Overview
Baltic Horizon Fund's Strategic Overview Mid-Year 2025
The management board of Northern Horizon Capital AS has recently reviewed and approved the unaudited financial results for the Baltic Horizon Fund for the first half of this year. During these six months, the fund faced various challenges while striving to execute its strategy effectively.
Addressing Strategic Challenges
This strategy concentrates on advancing governmental and social tenant concepts, alongside establishing centrally located, multifunctional properties. These spaces are tailored for adaptability, aiming to inspire and improve the lifestyles of our communities. The management firmly believes that investing in central locations is a smart long-term decision, ensuring consistent demand and prospects for capital appreciation over time.
Key Performance Indicators Review
The fund's recent occupancy targets have been challenging to meet. Achieving a 90% occupancy rate has become increasingly difficult, with both the acquisition of new tenants and the retention of current ones proving tough. At the close of Q2, the occupancy rate stood at 84.2%. Although there has been progress, some properties experienced more expiries than new lettings, notably at Upmalas and Lincona.
In terms of financial performance, the net operating income (NOI) per square meter increased from 107 in Q1 to 109 in Q2. Yet, achieving an NOI of EUR 130 per square meter remains a medium-term goal, given the rising triple net charges and competitive pressure on rent levels across various markets.
The Loan-To-Value (LTV) ratio aimed at 50% can only be achieved in the short term through significant asset disposals or the infusion of new equity. The postponement of mid-year evaluations complicates accurate performance assessment, while year-end valuations depend heavily on leasing activity and market dynamics.
The current market conditions have made finding potential buyers at acceptable price levels rather challenging. Consequently, the fund continues with its strategy to dispose of non-essential assets, primarily focusing on smaller properties in the portfolio where liquidity might be more favorable.
Leasing Developments
As of mid-2025, the fund has secured new leases covering approximately 9,250 square meters, alongside extending agreements for around 6,600 square meters. Notably, 30 new tenants have joined the fund, often replacing tenants that presented challenges, while 22 existing ones chose to renew.
A significant highlight in Q2 involves the launch of a modern restaurant zone at Europa SC, which has seen some fluctuation in occupancy due to tenant changes. However, future improvements in occupancy rates are anticipated in the coming quarters. New lease agreements with a sports facility operator for 2,316 square meters have been signed, with plans to add further sports-related tenants in Q3.
Moreover, the fund has reaffirmed its long-term collaboration with Latvian State Forestry by extending the irrevocable lease until 2034. Nonetheless, adjustments to the leased area are planned in accordance with cost-saving measures initiated by the government.
Market Positioning and Future Focus
By the end of June 2025, the overall portfolio occupancy rate was recorded at 84.2%, while the figure based on lease signing dates was slightly higher at 85.6%. Addressing the lingering vacancies in properties remains paramount for the upcoming quarters. One of the significant adjustments includes the relocation of the International School of Riga into a space of 3,689 square meters, although the exit of Swedbank, one of the largest tenants with 2,568 square meters in Lincona, is expected by the end of this year.
The average duration until the first break option for leases has shown positive growth since June, reaching an average of 3.5 years.
Outlook for the Future
Throughout 2025, the fund's focus will shift towards embracing flexible and sustainable solutions tailored to tenant needs and evolving market conditions. The primary objectives include enhancing portfolio occupancy and reducing the LTV through strategic debt repayment solutions.
As part of operational improvements, the fund has initiated the process for potential delisting from Nasdaq Stockholm. Management is actively engaging in multiple tenders, exploring various cost-saving measures relating to audits, legal services, and administrative tasks. By focusing on technology upgrades and efficient resource management, the fund aims to bolster operational efficacy and overall investment performance.
Despite undergoing multiple property disposals in the first half of the year, there remains a substantial challenge in finding suitable buyers willing to meet the necessary valuations, especially for the stronger assets within the portfolio. Smaller, non-strategic assets are prioritized for sale in this pursuit.
Regarding capital structure, the management is working on a refinancing strategy that may include the sale of an appropriate asset coupled with raising additional funds to reinforce the fund's financial base.
Commitment to Sustainability
Enhancing asset performance and maximizing net operating income is central to the fund's evolution. With the challenges posed by a competitive rental market, adaptive leasing strategies and investments in high-demand sectors will be a key focus. The commitment to delivering long-term value for investors remains steadfast, ensuring the fund's ability to maintain its core assets.
Baltic Horizon's Commitment to Sustainability
All properties within the portfolio are now 100% BREEAM certified, demonstrating the fund's dedication to sustainability.
GRESB Benchmarks
The fund achieved a 3-star GRESB rating in 2024 and plans to implement a GRESB improvement strategy hoping to regain a 4-star rating by the end of this year.
H1 Financial Performance
The group reported a consolidated net rental income of EUR 6.1 million in H1 2025, a slight increase over the previous year's income of EUR 6.0 million. Despite higher income, the group also faced a net loss of EUR 891 thousand, an improvement compared to the previous loss of EUR 12,849 thousand. The financial figures reveal a significant year-over-year improvement, excluding interim losses from the previous year.
As of mid-year, the Baltic Horizon Fund's portfolio comprised 11 investment properties valued at EUR 227.5 million. The focus remains on tenant fit-outs, with approximately EUR 2.7 million invested in enhancing tenant spaces.
With all these efforts, Baltic Horizon Fund stands ready to adapt to market conditions and enhance its position within the industry, ensuring all stakeholders benefit from its ongoing commitment to sustainability and operational excellence. Together, we aim to drive change, fostering a resilient and adaptive business model moving forward.
Frequently Asked Questions
What are the main challenges the Baltic Horizon Fund is facing?
The primary challenges include achieving a 90% occupancy rate, retaining tenants, and managing loan-to-value ratios in the current competitive market.
What sustainability initiatives has the fund undertaken?
The fund has achieved a 100% BREEAM certification for its portfolio, ensuring all properties meet high sustainability standards.
How is the rental income growth trend for the fund?
The fund reported a slight increase in net rental income from EUR 6.0 million in H1 2024 to EUR 6.1 million in H1 2025, reflecting better occupancy and tenant retention strategies.
What is the impact of tenant changes on property occupancy rates?
Tenant changes can temporarily reduce occupancy rates, as seen with the recent opening of new tenant zones. However, improved tenant mixes are expected to enhance occupancy over time.
How does the fund plan to enhance its financial performance?
The fund intends to focus on leasing strategies, property management improvements, and refinancing efforts to strengthen its capital structure and enhance net operating income.
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