MANAGEMENT REPORT

The parent company UPP & CO Kauno 53 OÜ (hereinafter together with its subsidiaries referred to as the Group) was formed for the acquisition and management of investment property and for raising capital for this transaction.

In 2017, the company acquired a 100% ownership interest in the company Promalita UAB, incorporated in the Republic of Lithuania, which owns a logistics centre near Vilnius. The net floor area of the centre is 21,232 m2 and it is fully leased out. The Rimi retail chain is the anchor tenant.

The Group’s revenue for the financial year was EUR 1,323,920 (2022: EUR 1,277,056). Finance costs for the financial year were EUR 655,143 (2022: EUR 495,243). The Group employs no permanent staff and therefore pays no employee salaries, however it remunerates its Management Board members. Such expenses including taxes amounted to EUR 510 (2022: EUR 448) for the year, no other benefits were granted.

In 2023, the average EURIBOR rate that underlies the Group’s bank loan was 3%, which caused interest expense to increase by ~34%. Despite higher interest expense, the Group maintained a strong debt service capacity. The Group has accumulated sufficient reserves, two-thirds of the Group’s borrowing costs are fixed, therefore the Group maintains a strong debt service capacity going into 2024.

In the opinion of the Management Board, as of the reporting date, investment property is reflected at fair value. Due to significant expense involved in appraisals, the Management Board does not deem it reasonable to conduct ad hoc appraisals, which creditors have also not required, and the Management Board will continue with its original plan to commission new appraisals from independent qualified appraisers at the end of 2024.

17 July 2024 is the maturity date for the EUR 4.7m of bonds issued by the parent company. The Group is planning to redeem the bonds using accumulated cash, bank loan and supplementary loan granted by the sole shareholder.

The Group sees the macroeconomic environment as uncertain due to high inflation, increased interest rates and weakness of the Estonian economy. Whereas the revenues and finance costs as the Group’s main inputs are fixed, the rising interest rates and inflation have impacted the business of the Group’s customers and in turn the confidence level of their customers. Customers are current on their obligations to the Group and based on conversations held with them on an ongoing basis there is no reason to doubt their ability to perform their obligations in the future.

The leased-out building is at full occupancy, all payments from customers are received on time and the Group has duly settled its liabilities as at the year-end.

As the Group was formed solely to operate this business, no structural change in business is planned for the financial year following the reporting year. The group has also not assumed liabilities or issued guarantees that may materially impact the results of future financial years.