Liven
Half Year financial report

Liven AS - consolidated unaudited interim report for the II quarter of 2024

Although there were no huge positive development leaps in the operating environment, there were still some signs of renewed optimism in the residential property market during the quarter. During the second quarter, we signed 47 contracts under the law of obligation (sales contract; 2024 Q1: 16; 2023 Q2: 12) and during the first half of the year, we signed a total of 63 sales contracts (2023: 19). Most of the new sales during the quarter came from the start of signing sales contracts of apartments and new terraced houses of phase II of Iseära development, and also the sales of previously completed apartments of Luuslangi development. Liven's market share of new sales in Tallinn and the surrounding area is estimated to have been around 10% in the first half of 2024, up from the 6-7% estimate of the previous two years.

The weekly sales ratio, which represents the number of homes going out of supply under sales contract or paid reservations, improved compared to the preceding quarters and remined above the 1% mark throughout the period. By the end of July, the ratio is approaching 2.0%. The long-term average is considered to be 1.5-2.0%.

During the second quarter, we handed over a total of 29 new homes in developments completed under the real right contract (12 in 2023). Of these, 13 in the phase II of the Iseära development, 10 were in phase I of the Luuslangi development, 5 in phase II of the Uus-Meremaa development, and one from the Magdaleena development. In the same order, the projects also had an impact on the financial results of the second quarter. Revenue for the quarter was EUR 8,546 thousand (Q2 2023: EUR 12,258 thousand) and net profit for the period was EUR 443 thousand (Q1 2023: EUR -431 thousand). The second quarter result was also impacted by the income tax expense of EUR 169 thousand (2023: EUR 104 thousand) related to the payment of dividends.

In the first six months of the year, we have delivered a total of 41 new homes (2023: 19), generated sales revenue of EUR 12,045 thousand (2023: EUR 14,553 thousand) and a net profit of EUR 293 thousand (2023: EUR -892 thousand).

Assets increased by EUR 5,250 thousand during the quarter to EUR 72,801 thousand at the end of the period. The greatest impact to the quarterly increase in the balance sheet was from the EUR 6,200 thousand issue of publicly traded green bonds quarter. During the quarter, we received new bank loans of EUR 2,579 thousand to finance the construction of projects, but together with home deliveries, we repaid EUR 5,437 thousand of earlier construction loans. Total borrowings increased by EUR 4,392 thousand to EUR 43,737 thousand during the quarter. As the maturity of construction loans approached, short-term borrowings increased by EUR 5,120 thousand to EUR 10,053 thousand during the quarter.

The balance of cash and cash equivalents increased by EUR 5,528 during the quarter to EUR 8,530 at the end of the quarter. Affected by the dividend payment during the quarter the equity decreased by EUR 138 thousand to EUR 17,886 thousand by the end of the quarter.

Consolidated statement of financial position

Consolidated statement of comprehensive income

Similarly to the end of Q1 the customer satisfaction feedback rating for the last 12 months, collected at different stages of the customer journey, remained at 8.0 out of 10 by the end of the quarter (Q2 2023: 8.9/10). The decline in feedback rating over last year is primarily related to the delay in the completion of construction and handover of homes at Magdalena and Iseära phase I developments, the need to improve communication and the quality of construction management. In 2024 the focus is on increasing both the quantity and quality of customer feedback assessments and in the first half of the year, we have already made positive progress.

Key events in development projects
During the quarter, the detailed spatial plan for Kadaka tee 88 was adopted and will be publicly displayed until the end of July. Construction of the Iseära phase II apartment buildings started and the agreements for general contracting and financing of the construction were signed for the last 5 terraced houses of phase II in July. During the quarter, we also signed an agreement for the long-term financing of the commercial space in the Väike-Tallinn development.

Annual General Meeting of Shareholders
Liven AS held its Annual General Meeting of Shareholders on 19th April. 28 shareholders attended at the meeting, forming 94,0% of all the votes. Shareholders approved the annual report for the financial year 2023, extended the authority of Andres Aavik and Peeter Mänd as Supervisory Board Members, and approved the new option program. Consequently, it was decided to preclude the pre-emptive subscription rights of shareholders for the shares to be issued under this program and give Liven AS the right to acquire its own shares for exercising the option programs.

Additionally, the shareholders approved the distribution of profits and payment of dividends in the amount of EUR 635 thousand. According to the dividend policy, the amount of dividends was 25% of the profit before income tax in 2023 (EUR 220 thousand), plus 12.5% of the profit before income tax in 2022 (EUR 416 thousand). In 2023, dividends were paid only on 12.5% of the profit before income tax in 2022.

Public Offering of Green Bonds
In May 2024, Liven AS held a public offering of green bonds to finance the development of new and existing projects. The public offering also allowed to increase the transparency of the company and broaden the range of investors. The capital raised can only be used by Liven to finance projects that meet the criteria outlined in Liven's green financing framework. The offer and issuance of the green bonds was organised by LHV Bank and the legal advisor was Ellex Raidla law firm.

Liven offered a total of 4,000 unsecured green bonds with a nominal value of EUR 1,000 per bond, maturing on 23 May 2028, with a fixed interest rate of 10.5% per annum, payable quarterly. A total of 14,529 bonds were subscribed by the 2,819 investors who participated in the offer, representing a 3.63-fold oversubscription. As a result of the oversubscription, Liven's management board decided to increase the size of the offer up to 6,200 bonds, i.e. EUR 6,200 thousand.

Negotiations for the acquisition of a new property, which started prior to the bond offer, are still ongoing and it has not yet been possible to acquire a new property. We will continue both the ongoing negotiations and the consideration of new investment alternatives.

Significant developments in the economic environment in the period under review
The 6-month Euribor (Euribor), which peaked in autumn 2023 at 4.143%, has fallen somewhat in 2024. Compared to the first quarter of 2024, the Euribor remained stable in the second quarter, showing a slight decrease and reaching 3.682% at the end of the period (31.03.2024: 3.851%). Since the reporting date, the Euribor has continued to decline, reaching 3.591%.

At the Governing Council of the European Central Bank in June 2024, it was decided to cut the base rate by 25 basis points. The July meeting left the base rate unchanged, and while the ECB President has not given any direct indication of the ECB's future actions, the general expectation in the markets is that the ECB will cut rates a further 1-2 times in the second half of 2024.

The main presumption for lowering Euribor rates is declining inflation, and in Estonia, the consumer price inflation rate continued to fall during the quarter. In the second quarter of 2024, the annual inflation rate was 2.5% (Q1 2024: 3.9%).

According to the latest data from Statistics Estonia, the estimated annual increase in average gross wages in the second quarter (9.3%) exceeded the increase in prices. Despite this, consumer confidence, which had remained low for a long time, remained weak in the latest quarter. Consumers are more likely to view the purchase of durable goods as a bargain in the next 12 months than they do now, leading to a general sentiment to continue to be on hold and to delay purchasing decisions. Based on the July data from the Institute of Economic Research, the consumer confidence indicator has improved somewhat compared to Q1 2024, but still remains at a low level (Q1 2024 average: -34; July 2024: -28).

Despite the above, there were signs of activation of home buyers in the market. For example, according to the Land Statistical Office's transaction statistics, the volume of secondary sales of apartments increased by 8.5% in the second quarter compared to the previous quarter (Q2 2024: 1,486 transactions; Q1 2024: 1,370 transactions). There was also an increase in the volume of transactions on the new developments market.

Compared to the first quarter of 2024, the offer prices of new developments remained stable in the second quarter of 2024, showing a decrease only of 0.5%. The number of transactions on the market increased by 63% compared to the first quarter of 2024, being well above the sales performance in the second quarter of 2023 (79%). The number of new listings was 46, which is compared to the previous quarter.

Due to the completion of construction of several development projects in spring 2024, the stock of unsold ready-to-move-in apartments remained relatively high in the second quarter, reaching 933 apartments by the end of the quarter (Q1 2024: 833; Q2 2023: 525). Consequently, options for homebuyers and market competition remain high.

During the second quarter, around 513 apartments were sold in new developments (based on market data), which is 63% higher than in the previous quarter (Q1 2024: around 314). Compared to the same period last year, the increase has been even higher (Q2 2023: ca 286).

The average price per square metre of a new apartment in Tallinn was EUR 4,350 in Q2, showing an annual increase of 4.8%. On a quarterly comparison, prices have remained relatively unchanged, dipping by only 0.5%.

Outlook for the future
Despite some recovery in the market during the second quarter, the main challenges in the second half of 2024 and beyond will continue to be the impact of the external factors on demand and sales. We expect the external influences affecting the residential real estate sector to continue to improve gradually, in particular falling interest rates and real wage growth. Provided that the demand holds up or increases we are ready to quickly bring new supply to the market.

We expect continued challenges and risk also from all levels of the public sector, as part of the operating environment. There have been positive developments in Tallinn's planning procedures, but significant challenges still remain. We look forward to the conclusion of several long-drawn-out procedures either in 2024 or the first half of 2025. Planned increases in the VAT and income taxation have negative impact on real estate affordability in the coming years by simultaneously contributing to increasing sales prices and reduction in personal income.

In real estate development, results are achieved with a significant time lag and an increase in marketing expenses in the periods preceding the sales growth. The results for 2024 will reflects the conditions and decisions of 2022 and 2023, when construction work started on only a few projects and the cost base was heavily affected by high inflation. To meet our 20% return on equity target we need an annual revenue in excess of EUR 40 million. While we have the necessary capacity in our portfolio for the coming years, we can deliver only up to 110 units in total this year and consequently our revenue potential for 2024 will be at approximately EUR 30 million. In the first half of the year, we achieved revenue of EUR 12.0 million and delivered 41 homes, i.e 37% of the total potential. By the end of July, 54% of the total potential.

With the decisions and actions undertaken in 2024, we will build on our economic performance in 2025 and 2026. Achieving good results will require improvements in external factors as well as internal efforts to reduce construction costs. As a result of the developments in the Regati and Iseära projects, we expect to see a significant improvement in financial performance in 2025 and 2026. There is sufficient capacity in the development portfolio for the next 3-4 years, but we continue to actively negotiate and consider acquisition alternatives to increase the development portfolio.

Joonas Joost
Liven AS CFO
E-mail: joonas.joost@liven.ee

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• Liven 2024 Q2 interim report