Navigating the Challenges: Baltic Horizon Fund Q2 2025 Review
Introduction to Baltic Horizon Fund's Q2 2025 Results
The Management Board of Northern Horizon Capital AS has officially reviewed and approved the unaudited financial results of Baltic Horizon Fund for the first half of 2025. These results reflect the Fund's efforts and strategies amidst a dynamic market environment.
Overview of Strategic Challenges
Our overarching strategy focuses on cultivating governmental and social tenant concepts, emphasizing multi-functional properties in prime locations. These properties are crafted to resonate with the modern lifestyle aspirations of citizens and communities while holding the promise of long-term value appreciation. Central positioning of these assets ensures sustained demand, crucial for potential capital growth.
Despite aspirations, achieving our occupancy target of 90% has proven challenging, as both attracting new tenants and retaining current ones have become increasingly complicated. By the end of Q2, our occupancy rate stood at 84.2%, reflecting a tough leasing climate, specifically in properties like Upmalas and Lincona.
Key Performance Indicators (KPIs)
Here's how our performance metrics displayed the state of our operations:
- Net Operating Income (NOI): We recorded a slight improvement in NOI per square meter, rising from EUR 107 in Q1 to EUR 109 in Q2. However, reaching the medium-term target of EUR 130 remains a substantial challenge due to escalating triple net charges and competitive pressures in leasing.
- Loan-to-Value (LTV): The ideal LTV ratio of 50% may only be achievable in the short term, necessitating significant property disposals or new equity inputs. Year-end valuations are pending and contingent on ongoing leasing activities and broader investment market conditions.
- Asset Disposals: In response to low buyer interest at acceptable prices, we are focused on divesting non-strategic assets, particularly smaller properties within our portfolio, due to their potential liquidity.
Moving forward, the Fund management will implement adjusted strategic initiatives aimed at navigating these challenges effectively throughout 2025.
Leasing Performance Analysis
In the first half of 2025, we successfully signed new leases covering approximately 9,250 square meters, alongside extending leases for about 6,600 square meters. Significant tenant shifts included attracting 30 new tenants, often replacing those with lower performance while retaining 22 existing tenants.
A notable highlight from Q2 was the launch of a new restaurant zone at Europa SC, transforming the first floor into a vibrant dining hub. Although the transition has temporarily lowered occupancy rates, better performance is anticipated in the upcoming quarters. Additionally, a sports facility operator has agreed to lease a 2,316 square meter area, with an encouraging pipeline of approximately 800 square meters of further leasing prospects.
Future Tenant Mix and Partnerships
In Galerija Centrs, we are enhancing our tenant mix as we transition from Massimo Dutti to expanding brands such as Mango and Gant, alongside newly signed operations including a Sinsay store and a large entertainment zone. These shifts are designed to improve our overall market appeal and foot traffic.
Furthermore, we've renewed our long-standing lease with Latvian State Forestry to secure operational cash flows, even though changes will reduce the leased space in line with government measures. To counter these adjustments, we've initiated active dialogues with prospective tenants like private schools and healthcare institutions.
As of June 30, 2025, our occupancy rate calculated from handover dates remained at 84.2%, while lease signing date calculations reflected a rate of 85.6%. Addressing both current and anticipated vacancies remains a priority. Notably, the International School of Riga will occupy a substantial space, yet we must prepare for switchover periods, particularly with our largest tenant, Swedbank, set to vacate.
Looking Ahead: Strategic Objectives
As we progress through 2025, Baltic Horizon Fund is committed to adaptable and sustainable operations that respond to market demands. Our goals include raising portfolio occupancy levels and effectively managing our LTV by strategizing on bond repayments.
In parallel, we are taking steps to delist our Swedish Depository Receipts (SDRs) from Nasdaq Stockholm, expected by October. The management team is driven to optimize operational efficiency through a series of cost-saving measures and technology upgrades, which will likely bear fruit from Q4 2025 onward.
Our continued focus on property disposals, particularly concerning less strategic assets, indicates our intent to adapt to prevailing market trends and buyer sentiments. Our cash flow has regrettably remained negative due to necessary capital investments and the weights of our current debt levels.
Maintaining Portfolio Integrity and Performance
By concentrating on increasing occupancy rates and refining property concepts, we aim to uplift our asset performance while maximizing our net operating income. During these challenging times, employing adaptive leasing strategies, rebranding properties, and investing in high-demand market segments remain pivotal for our long-term objectives. We strive to ensure the integrity of our valuable assets without succumbing to pressures that would force us to undervalue them.
Environmental Commitment
In an impressive feat, Baltic Horizon Fund has achieved a 100% BREEAM certified portfolio, underscoring our commitment to sustainable development and environmental responsibility.
GRESB Benchmarking Success
In 2024, we proudly earned a 3-star GRESB rating, with plans to implement an improvement plan aimed at achieving 4-stars in the following year, further solidifying our dedication to excellence in real estate sustainability.
Financial Summary for Q2 2025
During the first half of 2025, our Group's consolidated net rental income reached EUR 6.1 million, a modest increase from EUR 6.0 million last year. The portfolio's net rental income was bolstered by enhanced occupancy in key properties.
Despite recording a net loss of EUR 891 thousand in H1 2025, a significant improvement compared to the prior year's loss of EUR 12,849 thousand, our performance illustrates the effectiveness of our strategic adaptations. Earnings per unit for H1 2025 were pegged at negative EUR 0.01, against EUR 0.11 in the previous year.
As of June 30, 2025, the total value of our investment properties stood at EUR 227.5 million, alongside a gross asset value (GAV) of EUR 238.8 million, reflecting strategic asset management amid market fluctuations.
Conclusion
In conclusion, while Baltic Horizon Fund navigates through a challenging commercial landscape, our dedication to rejuvenating strategies and enhancing operational efficiencies remains steadfast. Our focus remains on both strengthening the Fund's positioning and fostering long-term growth for our investors.
Frequently Asked Questions
What were the main challenges faced by Baltic Horizon Fund in Q2 2025?
The primary challenges included securing new tenants, retaining existing ones, and achieving the target occupancy rate of 90%, which stood at 84.2% in Q2 2025.
What was the net rental income for H1 2025?
The consolidated net rental income reached EUR 6.1 million, slightly higher than the previous year's EUR 6.0 million.
What strategic initiatives are being implemented to enhance occupancy rates?
The Fund is focused on adaptive leasing strategies, property repositioning, and securing higher demand tenants through improved facilities and tenant diversity.
How does Baltic Horizon Fund ensure environmental sustainability?
All properties within the Fund are 100% BREEAM certified, showcasing the commitment to environmentally friendly and sustainable real estate practices.
What is the future outlook for Baltic Horizon Fund?
The Fund aims to improve occupancy levels, implement cost-saving measures, and prepare for the delisting of Swedish Depository Receipts while focusing on operational efficiency and long-term asset integrity.
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