Published: 2020-04-29 13:23:45 CEST
Pillar Capital, AS
Inside information

Announcement about the potential impact of Covid-19

Riga, Latvia, 2020-04-29 13:23 CEST -- Announcement about the potential impact of Covid-19 on the economic activity, financial situation and performance of New Hanza Capital, AS, hereinafter – the Company.

Given that on 11 March World Health Organization announced that the spread of the Covid-19 disease caused by coronavirus, hereinafter referred to as Covid-19, has reach the volume of a global pandemic, on 12 March Latvian government made a decision to declare the state of emergency in the country, and the restrictions followed by this decision had an impact on business environment and the country’s economy in general. Yet the situation is still uncertain and changing, and the precise volumes of impact on the Company as on the day of preparing this Announcement, cannot be clearly determined. Management of the Company and the companies belonging to the group is on the daily basis managing the negative economic risks caused by the consequences of limiting the spread of Covid-19 and is working on decreasing their impact on the Company and its subsidiaries

In accordance with the specification and purposes of business of the Company and its subsidiaries, the Company puts its businesses in several separate segments. Having analysed the impact of Covid-19 on the Company and the companies belonging to the group, the Company hereby provides analysis of the impact on each of the segments separately:

Segment 1 – service providers (Pillar Re Services, SIA, Pillar Contractor, SIA, Pillar Architekten, SIA and Hanzas Perons, SIA). The purpose of business of the companies in this segment is to gain income by rendering real estate management, construction, design and real estate operator’s services to the companies of the group and external clients. Given the restrictions due to Covid-19, it is planned that the total turnover of the companies of this segment in 2020 will decrease by EUR 640 thousand, which will mainly be affected by the restrictions faced by Hanzas Perons, SIA, – the operator of the event venue Hanzas Perons, namely, restrictions to organise events gathering audiences and renting premises to event organisers. Additionally, the decrease in income is caused by the low demand for parking spots at New Hanza territory, which is managed by Pillar RE Services, SIA. While no decrease in income due to Covid-19 restrictions is anticipated for the companies Pillar Contractor, SIA, and Pillar Architekten.

Segment 2 – companies owning real estate held for development (Pillar 23, SIA, New Hanza Centre, SIA, Pillar Development, SIA and Hanzas Dārzs, SIA). The real estate portfolio of these companies includes properties at New Hanza territory, and before the development of each particular object is started the companies conduct no active business. The Company is assuming that Covid-19 restrictions will not affect the development plans of the companies in this segment and the value of their assets in long-term perspective.

Segment 3 – companies that own commercial properties generating lease income (NHC 2, SIA, NHC 4, SIA, NHC 5, SIA and Pillar 22, SIA). The purpose of business of companies in this segment is to ensure stable income flow from leasing the commercial properties owned by these companies and facilitate the growth of their value in long-term perspective. The portfolio of companies of this sector includes properties like VEF office buildings, logistics complex in Riga at 462 Maskavas, St., office building at 23 Elizabetes St., etc. There are industries affected by the Covid-19 restrictions among the tenants of these properties, who are facing decrease of demand for their products and services. Understanding their difficult times and in order to maintain a close long-term cooperation, the Company is looking for mutually acceptable solutions. If necessary, companies sign short-term amendments to their lease agreements, which provide discounts to their rent or partially postponing it to future periods, i.e., after the declared state of emergency ends. The estimated total decrease in revenue for the companies of this segment in 2020 is EUR 340 thousand. Additionally, the Company is carrying out negotiations with its service providers in an attempt to agree about decrease in costs related to the maintenance of the properties until the declared state of emergency period ends. Based on the opinions of industry experts, hotels and big shopping malls are going to be the ones that will experience significant negative impact in commercial properties sector due to Covid-19 restrictions. As on the day of preparing this Announcement, the Company does not own any hotels or shopping malls.

Segment 4 – companies with real estate objects held for sale, which were obtained in the course of restructuring the loans of clients of ABLV Bank, AS, in liquidation (subsidiaries of Pillar Holding Company, KS). The purpose of business of these companies is to sell these properties within a certain period of time. It was planned to sell more than 70 objects owned by the companies of this segment in 2020. Due to Covid-19 restrictions and the uncertainty caused by its impact, the Company is assuming decrease in the number of transactions of sale of these properties in 2020 due to that a part of buyers in these uncertain times would be likely to postpone big purchases to future periods. The estimated total decrease in revenue in companies of this segment in 2020 is EUR 3.8 million.

Thanks to the transactions completed in March 2020 selling shares of two companies to an investment fund EfTEN Real Estate Fund III, AS, which implied sale of 100% of shares of companies NHC 1 and NHC 3 (owning AirBaltic headquarters in Riga airport and production and logistics complex in Ķekavas Region) for EUR 15.8 million, the Company has decreased the group’s liabilities by EUR 7.2 million and gained free cash in the amount of more than EUR 8.6 million, which enable the Company and the companies belonging to the group to fulfill their liabilities despite the probable decrease in revenue.

Given the uncertain situation with the spread of Covid-19 and measures for restricting it, more precise information about their impact on the businesses of the Company, its financial situation and performance the Company will disclose by publishing its interim and annual reports for the year 2020.

         Artūrs Eglītis
         Head of Communications
         New Hanza Capital, AS