Baltic Horizon Fund's Strategic Insights and Financial Review

Introduction to Baltic Horizon Fund's Financial Results

The Management Board of Northern Horizon Capital AS has shared the unaudited financial results of Baltic Horizon Fund for the first nine months of 2024. This report sheds light on the framework within which the Fund operates and its strategies to deliver sustainable value to its investors.

Strategic Ambitions and Market Positioning

Over the past year, Baltic Horizon Fund has dedicated its efforts to transforming its strategy towards enabling long-term and consistent growth. The ‘Modern City Life’ framework, introduced in 2023, is now a key driver for the Fund's operations, which aims to meet the evolving needs of urban dwellers and their communities.

Focus on Central Locations

The strategy outlines that two-thirds of the Fund's Net Operating Income (NOI) is projected to stem from centrally located multifunctional assets. These spaces are crafted to foster community engagement and enhance the quality of life in urban environments. Additionally, the remaining NOI will largely come from government-rented properties and select suburban supermarkets.

Key Performance Indicators Implementation

To monitor progress effectively, the Fund's management team has established key performance indicators (KPIs). These measurable benchmarks serve to enhance transparency and sharpen decision-making processes while maintaining a robust evaluation framework.

Operational Goals for 2024 and Beyond

The management team's strategic objectives include maintaining a portfolio occupancy rate of at least 90% by the end of the year, adhering to a Loan-to-Value (LTV) target of 50% or lower, and defining a clear Environmental, Social, and Governance (ESG) and refurbishment strategy.

Successful Bond Repayment

Recently, the Fund has successfully repaid its short-term bonds, which matured mid-year. Refinancing was accomplished through a more affordable loan, keeping the LTV steady while enhancing the Fund’s financial health.

Leasing Performance Amid Challenges

In the face of fluctuating market conditions and increased vacancy rates across the Baltic region, the Fund has shown a remarkable adaptability. The team embarked on negotiations with both existing and potential new tenants, leading to the renewal of significant leases and the establishment of valuable new agreements.

Strong Tenant Engagement

Major leasing deals have bolstered the Fund's position, including substantial leases with prominent tenants such as Narbutas and Apollo Group. This proactive approach has facilitated around 20,000 square meters in lease renewals and attracted a net inflow of approximately 3,200 square meters of additional space.

Growing Occupancy Rates

By September 2024, occupancy rates had surged to 80%, aligning well with the targeted improvement goals. Moreover, pending letters of intent for over 3,700 square meters imply potential increases in this figure, indicating favorable leasing activity.

Looking Forward

The outlook for the fourth quarter of 2024 remains optimistic. Baltic Horizon is focused on further enhancing portfolio occupancy and debt repayment. As the economic landscape evolves, the Fund is committed to adjusting its strategies to ensure resilience against market fluctuations.

Addressing Price Deviation from NAV

Currently, Baltic Horizon units are trading significantly below Net Asset Value (NAV). This discrepancy has prompted the management to intensify efforts to strengthen the portfolio by bringing in new anchor tenants and reimagining existing retail spaces.

Sustainability and Green Initiatives

Baltic Horizon Fund achieved 100% BREEAM certification across its portfolio, highlighting its commitment to sustainable practices. The Fund is also paving the way for environmentally responsible governance by integrating green lease clauses into its agreements.

Financial Highlights and Performance Metrics

In the first nine months of 2024, the Baltic Horizon Fund recorded a net loss of €13.4 million, a slight improvement from €15.2 million in the same period last year. Notably, net rental income fell to €8.9 million compared to €11.7 million in 2023.

Valuation of Investment Properties

As of the end of September 2024, the fair value of the Fund’s portfolio stood at €241.6 million with a total net leasable area of 118.6 thousand square meters, reflecting current market valuations and investment activities.

Future Outlook and Financial Position

The Fund's GAV (Gross Asset Value) decreased to €256.8 million. Meanwhile, the issuance of new units has provided a cash influx supporting the Fund's equity and future investment plans, illustrating resilience in the management structure.

Conclusion

Baltic Horizon Fund continues to navigate its path through strategic planning, robust leasing activities, and a commitment to sustainability, which positions it favorably for potential recovery in the market and sustained growth.

Frequently Asked Questions

What are the key strategic goals for Baltic Horizon Fund in 2024?

The primary goals include achieving a portfolio occupancy rate of at least 90% and ensuring a Loan-to-Value target below 50%. The Fund aims to strengthen its centrally located assets and refine its ESG strategies.

How has Baltic Horizon managed leasing challenges this year?

Despite facing challenges, the Fund has successfully renewed numerous leases and signed new agreements with significant tenants, which bolstered its leasing performance.

What does the 100% BREEAM certification indicate?

This certification demonstrates Baltic Horizon Fund's commitment to sustainable building practices and environmental responsibility within its portfolio.

What financial performance metrics were reported for Q1-Q3 2024?

The Fund recorded a net loss of €13.4 million and a net rental income of €8.9 million during this period, reflecting operational challenges while still negotiating an improvement in occupancy rates.

How is Baltic Horizon Fund addressing the disparity between its trading price and NAV?

The Fund's management is focused on enhancing its portfolio through tenant acquisition and renovation strategies to mitigate this pricing discrepancy.

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