Arco Vara
Quarterly report

Unaudited consolidated interim report for Q4 and 12 months of 2020

GROUP CEO’S REVIEW

Arco Vara's fourth quarter of 2020 was largely spent on the realisation of pre-sales. There were no significant setbacks in the process of handing over nor final sales of the apartments, for which we had been prepared due to the ongoing uncertainty in the field of healthcare.

The fourth quarter of 2020 was also spent in a positive light in terms of project financing. The bonds issued by Arco Vara in December were oversubscribed and the terms of development loans have improved. The company's credibility with financial partners has increased.

We consider the issuance of authorisation of the use of Iztok Parkside, the timely completion of Tartu Kodukalda and the start of the construction of the next stage of the Kodulahe quarter to be important advances in the development area in the fourth quarter.

In the Kodulahe quarter, we started the construction of stage IV and V, where a total of 72 apartments have been designed. By the time of submitting the report, during the two-month sales period, 33 apartments have binding agreements. The fast pace of sales provides confidence that the offered real estate meets the expectations of our customers and increases our desire for further development of the Kodulahe region.

In the Kodulahe quarter, we also started to deliver the III stage homes to customers. Thanks to favourable construction conditions and the operative work of the project team, we handed over the keys of half of the homes two months earlier than expected, in December 2020. The delivery of the remaining apartments was carried out at the beginning of 2021.

The development of Tartu Kodukalda was completed according to plan, where 20 homes have been handed over by today, of which approximately 95% of the sales revenue remained in 2020.

Bulgaria's Iztok Parkside apartment buildings received the long-awaited usage permit, which enabled the sale of a total of 38 apartments by the end of 2020. The remaining sales revenue of the project is expected in the first quarter of 2021. At the time of submitting the report, there are only 3 apartments in the buildings without a pre-sale agreement.

The Madrid BLVD building has a tenant occupancy rate of around 95%, which fluctuates due to the persistent COVID-19 restrictions in Bulgaria. Due to local legislation, we have to take into account the temporary reduction of some rental payments, but due to the different functions of the building, the Arco Vara retail and office building is allowed to be open despite restrictions on other shopping centres.

We consider the fourth quarter of Arco Vara successful. We have been able to significantly increase the return on equity, which confirms the increase in the company's efficiency. Arco Vara's ongoing developments are also moving according to plan, which gives the company the confidence to start new developments in both Estonia and Bulgaria.

KEY PERFORMANCE INDICATORS

In Q4 2020, the group’s revenue was 10,298 thousand euros, which is 5% less than the revenue of 10,887 thousand euros in Q4 2019. In 12 months 2020, the group’s revenue was 14,056 thousand euros, which is 7% more than the revenue of 13,109 thousand euros in 12 months 2019.

In Q4 2020, the group’s operating profit (=EBIT) was 1,400 thousand euros and net profit 1,289 thousand euros (in 12 months 2020: operating profit 1,449 thousand euros and net profit of 1,012 thousand euros). In Q4 2019, the group had operating profit of 1,068 thousand euros and net profit of 848 thousand euros. In 12 months 2019, the group made operating profit of 950 thousand euros and net profit of 388 thousand euros.

In Q4 2020, 64 apartments were sold in projects developed by the group (in 12 months 2020 81 apartments and 1 land plot in Latvia). In Q4 2019, 70 apartments were sold (82 apartments in 12 months).

In the 12 months of 2020, the group’s debt burden (net loans) decreased by 2,951 thousand euros down to the level of 8,499 thousand euros as of 31 December 2020. As of 31 December 2020, the weighted average annual interest rate of interest-bearing liabilities was 4.8%. This is an increase of 0.6 percentage points compared to 31 December 2019.

OPERATING REPORT

The revenue of the group totalled 10,298 thousand euros in Q4 2020 (in Q4 2019: 10,887 thousand euros) and 14,056 thousand euros in 12 months 2020 (in 12 months 2019: 13,109 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 10,015 thousand euros in Q4 and 13,129 thousand euros in 12 months 2020 (2019: 10,665 thousand euros in Q4 and 12,152 thousand euros in 12 months).

Most of the other revenue of the group consisted of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 211 thousand euros in Q4 2020 and 699 thousand euros in 12 months (2019: 160 thousand euros in Q4 and 696 thousand euros in 12 months). The Q2 of 2020 and Covid-19 brought changes in the economic situation of tenants. Several tenants have been replaced during 2020, but surprisingly in a more favourable direction for Arco Vara, that is why at the moment 95% of retail and office spaces with the accompanying parking spaces are rented out.

In the II Stage of the Kodulahe quarter, which was completed at the end of 2019, commercial space remains unsold – the last apartment was sold in Q2 2020. In 2020, Lahepea 9 house received permit of use.

In Q4 2020, construction works ended in Stage III of Kodulahe quarter, where a building with 50 apartments was finished at Soodi 4 Merimetsa. By the publishing date of the interim report, 49 apartments have been sold and 1 presold.

In Q4 2020, the joint construction of Stages IV and V of Kodulahe started. Two 36-apartment residential buildings at Pagi 3 and Pagi 5 in Merimetsa are under construction. The apartment buildings will become ready for final sale in about 1,5 years. By the publishing date of the interim report, 16 apartments of total 72 have been presold and 17 booked for waiting for notary.

In Q4 2020, final sales of Oa street plots in Tartu started, where 4 smaller apartment buildings were constructed under the Kodukalda project name. By the publishing time of the interim report, 20 of the 30 apartments have been sold and 1 presold.

In Iztok Parkside project in Sofia, the majority of final sales of apartments started in December 2020, after receiving an occupancy permit. By the publishing date of the interim report, presale agreements for 3 apartments have not been concluded. Iztok project consists of three apartment buildings with a total of 67 apartments.

In the Lozen project near Sofia in Bulgaria, design works have been completed. As the development was designed as a premium class product, it has been decided to temporarily freeze the project and wait for the market to recover from Covid-19. Under favourable market conditions, construction may start in Q3 2021, divided into smaller sub-stages. The project foresees construction of 179 homes (apartments and houses), commercial spaces and a kindergarten. Minimum construction period is 2 years.

In Q3 2020 a land plot without accounting value was sold in Latvia. As of 31 December 2020 and the date of this report, 4 Marsili residential plots remained unsold in Latvia.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Tiina Malm
CFO
Arco Vara AS
Phone: +372 614 4630
www.arcovara.com

Attachment

• AVG 2020 Q4 ENG