Eik fasteignafélag hf.: Interim results for the first nine months of 2020

Income from operations amounted to ISK 6,252 million.Impairment of trade receivables amounted to ISK 316 million.Operating profit before changes in value and depreciation amounted to ISK 3,773 million.Total loss amounted to ISK 209 million.Net cash from operations was ISK 2,057 million.The book value of investment properties amounted to ISK 96,840 million. The book value of assets for own use amounted to ISK 3,778 million.Changes in value of investment properties were negative by ISK 465 million.Cash and cash equivalents amounted to ISK 2,708 million.Interest-bearing debt amounted to ISK 61,523 million.Equity ratio was 31.0%.Loss per share was ISK 0.02.The Interim Financial Statements of Eik fasteignafélag hf. for the period 1 January to 30 September 2020 were approved by the Company’s Board of Directors and CEO on 28 October 2020.Attached is an interim financial report which contains Interim Financial Statements for the first nine months of the year together with further information on the Company’s operations than are included in the announcement. In case of any discrepancy in the English and the Icelandic versions of this announcement or the Interim Financial Statements, the Icelandic version shall prevail.Company operationsThe Company performed well in the first nine months of 2020 taking circumstances into account and the results were in line with management’s updated forecasts. Operating income for the first nine months amounted to ISK 6,252 million. Of this amount, rental income was ISK 5,640 million. Operating profit before changes in value and depreciation amounted to ISK 3,773 million. Loss before income tax amounted to ISK 70 million and total loss of the Group for the first nine months of 2020 amounted to ISK 56 million. The Group’s total loss amounted to ISK 209 million according to the statement of comprehensive income.On 25 March 2020 the Company published an announcement to Nasdaq Iceland that the earnings forecast for the year 2020 no longer applied due to uncertainties regarding economic effects of the COVID-19 pandemic but published updated forecast on 5 June 2020.The Net Operating Income (NOI) ratio (i.e. operating profit before revaluation and depreciation as a ratio of lease income) was 67.5% for the first nine months of 2020, compared to 74.2% for the same period in 2019.The Company’s investment properties are valued at fair value in accordance with International Financial Reporting Standards (IFRS), based in part on the discounted future cash flows of individual assets. Changes in fair value are recognised in changes in value of investment properties, which were negative by ISK 465 million in the first nine months of the year.Balance SheetThe Company’s total assets amounted to ISK 104,323 million as at 30 September 2020. Of this, investment properties valued at ISK 96,840 million consist of real estate leased to tenants amounting to ISK 94,241 million, leased assets (property utilisation rights) of ISK 2,064 million, real estate in development of ISK 75 million, building rights and lots of ISK 448 million and pre-paid street construction fees in the amount of ISK 13 million. Assets for own use amounted to ISK 3,778 million. The Company’s equity amounted to ISK 32,299 million at the end of September 2020 and its equity ratio was 31.0%. Total liabilities amounted to ISK 72,024 million as at 30 September 2020, of which interest-bearing debt was ISK 61,523 million and deferred tax liability ISK 7,201 million.Economic occupancy rateThe Company’s economic occupancy rate has decreased by 1% since the end of June 2020 and was 92.4% at the end of the third quarter. Around 75% of this net change was caused by bars in the city centre of Reykjavík.Outlook and effects due to COVID-19The effects of COVID-19 on the Company’s operations have been extensive. The balance of trade receivables has increased by ISK 160 million since year end 2019 and impairment of trade receivables amounted to ISK 310 million in the same period. Final impairment amounted to ISK 20 million and precautionary impairment of trade receivables amounted to ISK 290 million. The balance of trade receivables and amounts of impairment are in line with the Company’s expectations when updated forecast was published.It is still unclear what economic effect the pandemic will have on the Company’s operations. The Company continues to work with tenants on resolving their issues which mainly consist of deferrals and payment distribution of lease payments and operating expenses. The Company expects to reach agreements regarding deferrals of lease payments with tenants leasing hotel properties from the Company. The Company’s management do not see any reason to re-evaluate the updated forecast, despite the third wave of the pandemic.Strong cash positionThe Company has taken several measures in order to ensure further a strong cash position. The Company drew down an ISK 1,400 million bank facility which was secured at the beginning of the pandemic, the buyback plan was shortened, and the Board of Directors proposed that no dividend would be paid due to the year 2019. Shareholders approved this proposal at the Annual General Meeting on 10 June 2020.In addition to this the Company has an undrawn line of credit amounting to ISK 800 million and unpledged assets amounting to just under ISK 4,500 million. Furthermore, the Company has postponed some of the planned projects which were not subject to agreements with tenants.The Company’s cash position is strong and at the end of September the Company’s cash and cash equivalents amounted to ISK 2,708 million. Net cash from operations amounted to ISK 2,057 million in the period.The Company’s position continues to be strong with regards to loan agreement covenants. The Company’s cash flow obligation is about 2.4 and the Group’s mortgage rate is at 62.6%.Increases of bond classesThe Company increased the bond class EIK 050726 at the beginning of July by an amount of ISK 2,000 million nominal value and at the beginning of October by an amount of ISK 1,700 million, with a 2.25% rate of return and the proceeds of the issuances were used to repay unfavourable bank loans.The Company always strives to have the most advantageous interest terms available and the Company’s interest rates have continued to decrease. At the publication of the interim financial statements, weighted indexed interest was 3.49%, but was 3.56% at end of September. Weighted unindexed interest was 2.97% at the end of September and is unchanged at the publication of the interim financial statements.Refinancing of LF 14 1The Company plans to prepay the bond class LF 14 1 at its next due date, 12 December 2020. The balance of the bond class is currently just under ISK 12,700 million and was issued by the subsidiary Landfestar in the year 2014 with a 3.9% rate of return. The Company has obtained offers from three financial institutions which would ensure financing of the class in full. Loan agreements have not been signed. If the bond class will be prepaid, the Company plans to issue a bond offering leading up to the prepayment. Assuming no changes to current floating interest rates of bank financing, as at the publication of the quarterly results, it may be expected that the weighted interest of the Group will be around 3.2% after the refinancing. According to the terms of the bond class, a prepayment fee of 1.5% of its balance will be due, which would be recorded in the fourth quarter along with capitalised borrowing costs due to the class LF 14 1.Merger of subsidiariesIn mid-September the subsidiary EF1 hf. was merged into the Company. Furthermore, LF2 ehf., subsidiary of Landfestar ehf., was merged into LF1 ehf., another subsidiary of Landfestar. The mergers became effective as of 1 January 2020Acquisition of Skeifan 9The Company acquired Skeifan 9, Reykjavík, at the beginning of October. This is a 2,160 sqm. warehouse. The current tenant, Höldur ehf., will continue to lease the property at least until the end of the first quarter of 2021. The Company paid for the property in cash, but a 100% bank facility has been secured and thus the acquisition will not influence the Company’s cash and cash equivalents. The Company therefore has flexibility to draw on the facility as late as the loan agreement’s terms allow.Another property owned by the Company, Skeifan 7, is next to Skeifan 9. Both properties are within the same plot according to a recent framework planning by the City of Reykjavík regarding the Skeifan-area. With this acquisition, the Company has the opportunity to start a detailed land-use plan for the premises and subsequently develop it and the Company has hopes for great opportunities relating to the use of this plot in the near future. Estimated construction volumes at these premises, Skeifan 7 and 9, according to the framework plan are just over 10,300 sqm. for residential buildings and just under 7,300 sqm. for commercial buildings.Company PortfolioThe Group owns just over 100 properties which total almost 310,000 sqm. of rental space in just over 600 units. Total number of tenants is over 400. The Company’s principal properties in the capital region are Borgartún 21 and 21a; Borgartún 26; Suðurlandsbraut 8 and 10; Mýrargata 2-16; Pósthússtræti 2 (Hótel 1919); Smáratorg 3 (Turninn); Smáratorg 1; Álfheimar 74 (Nýi Glæsibær); Grjótháls 1-3 and Austurstræti 5, 6, 7 and 17. The Company’s principal property outside the capital region is Glerártorg. The Company’s largest tenants are Húsasmiðjan, Icelandair Hotels, Ríkiseignir, Rúmfatalagerinn, Landsbankinn, Sýn, Síminn, Össur, Míla and Deloitte.The largest share of Eik’s real estate portfolio is office space, or 46%, followed by commercial premises (24%), warehouses (13%), hotel (9%), health related operations (4%) and bars and restaurants (4%). Around 91% of the Company’s real estate are in the capital region, of which 37% is in financial and business districts of Reykjavík (mainly in postal codes 105 and 108), 17% in the Reykjavik city centre and 19% in the Smárinn-Mjódd shopping centres. 9% of the portfolio is located outside the capital region, whereof almost 8% is in Akureyri.Electronic presentationAn electronic presentation will be held on Thursday 29 October 2020 at 8:30 am. Garðar Hannes Friðjónsson CEO and Lýður H. Gunnarsson CFO will present the results and respond to questions following the presentation.Registration to the meeting is here:https://origo.zoom.us/webinar/register/WN_j1a_rjHURKKzhTGCPnn8XgFollowing registration, participants will receive an e-mail with further information.2020 Financial CalendarManagement accounts 2020 and 2021 budget        11 February 20212020 Annual Results                                                 4 March 2021For further information contact:Garðar Hannes Friðjónsson, CEO, gardar@eik.is, tel. 590-2200
Lýður H. Gunnarsson, CFO, lydur@eik.is, tel. 820-8980AttachmentQ3 2020 Condensed Consolidate Interim Financial Statement