EfTEN Real Estate Fund III AS management decisions during the crisis and the net asset value as of 31.03.2020

Comments by fund manager, Viljar Arakas:
March was the month of the transition from the normal economic environment to the crisis management phase. Significant restrictions by Baltic governments, incl. restrictions on the freedom of movement in shopping centers, was made in mid-March, which divided the month into two – the business as usual first two weeks, followed by two weeks of crisis. April will be the central month of the crisis, and May will hopefully be the month of lifting the previously established restrictions during the crisis and ending the state of an emergency. It will however take several months after the end of the medical crisis to restore the consumer confidence.Cash flow management is the main objective in portfolio management during the crisis. We have started negotiations with the banks to apply the temporary (minimum 3 months, rather 6 months) grace periods. As EfTEN Real Estate Fund III’s usual summarized repayment of principal part on bank loans has averaged 230 thousand euros per month (30% of the Fund’s monthly rental income), it provides us with the necessary additional cash flow buffer to help us provide temporary rent discounts to our tenants during the crisis. In March, grace periods began on two loan agreements of the Fund, which had a positive effect on cash flows of 80 thousand euros.The primary task of the fund manager is always to take care of the interests of investors, but at the same time help our dozens of tenants to survive the crisis economically. We have not implemented uniform temporary discount policies for all tenants, as each customer needs to find a solution that considers their business vulnerabilities in times of current crisis. The rent reductions offered are also temporary, lasting for couple of months, and in no case permanent – in most cases we have agreed with the tenants to extend the term of the contract in normal rent level for the same period as the rent reduction currently lasts. We have followed this principle for all segments – offices, retail and logistics. It is important to ensure a positive monthly cash flow on every property, which takes into account both temporary rent reductions and grace periods.EfTEN Real Estate Fund III is well-capitalized, and the grace periods of the loan principals help the Fund’s tenants during the crisis. We believe that April is the most difficult month, and observing the trends in the spread of the virus in the rest of the world, we can expect that in May the restrictions on movement will decrease and gradual normal economic life can start again.Financial results and net asset value per shareThe net asset value (NAV) of EfTEN Real Estate Fund III AS as of 31.03.2020 was 17.18 euros. NAV increased by 0.6% in March. The net asset value of the EPRA share (net book value excluding deferred income tax liability and fair value of interest rate derivatives) as of 31.03.2020 was 18.28 euros. EPRA NAV increased by 0.5% during March.The March results include for the first time the revenues, expenses, assets and liabilities of the two newly purchased properties – Piepilsetas logistics center and airBaltic headquarters at Riga Airport, which resulted in an increase in March sales revenue of 103 thousand euros, increased Fund assets by 16.4 million euros and liabilities by 7.3 million.The Fund’s sales revenue has decreased by a total of 103 thousand euros in March due to temporary agreements with tenants (approximately 13% of the fund’s usual level). At the same time, according to the agreement with the banks, the fund has received a grace period since March for two loan principal payments in the total amount of 80 thousand euros. As of the end of March, the Fund has receivables from customers totaling 504 thousand euros, of which 305 thousand euros have exceeded their maturity mainly due to ongoing negotiations with customers. Receivables from customers include both rental and utility services, ie receivables that are not recognized in the Fund’s sales according to accounting rules. In March, the Fund has made a provision for rental income in the amount of 90 thousand euros. Previously provisioned but received debt receivables are recognized in income in the month in which they are received.EfTEN Real Estate Fund III AS earned a total of 556 thousand euros in EBITDA in March, which is 105 thousand euros less than in February. The decrease in EBITDA was mainly related to the due diligence costs related to the acquisition of two new subsidiaries. Repayments of principal and interest payments on the Fund’s loans totaled 429 thousand euros in March, incl. the February loan and interest payments that banks debited from the accounts of several subsidiaries in early March in the total amount of 132 thousand euros. Thus, the Fund earned a total positive cash flow of 127 thousand euros in March, including partial February loan payments.The net profit of the Fund was 422 thousand euros in March 2020 (February 2020: 477 thousand euros).As of 31.03.2020, the consolidated cash balance of EfTEN Real Estate Fund III AS was 10.4 million euros, of which 4.7 million euros is the balance of uninvested capital received from the last share issue.As of 31.03.2020, the consolidated assets of EfTEN Real Estate Fund III AS were 140.6 million euros (31.12.2019: 132.8 million euros) and equity was 72.5 million euros (31.12.2019: 71.17 million euros).Marilin Hein
CFO
Phone 655 9515
E-mail: marilin.hein@eften.ee