Liven
Quarterly report

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

As expected, the first quarter of 2024 remained a challenging period for residential property development, due to factors arising from external and seasonal influences. During the quarter, we signed a total of 16 contracts under the law of obligations (Q1 2023: 7), most of it came from continuation of signing the contracts in the Regati development project, which started last quarter. Demand for ready-to-move-in apartments was also negatively affected by the increased VAT rate from the beginning of the year and the higher concentration of demand in the preceding period.

During the quarter, we continued to take paid reservations for both terraced houses and apartment buildings in the Iseära development. The weekly sales ratio, which represents the number of homes going out of supply under contracts under the law of obligations or paid reservations is at 1% at the end of the quarter and it has increased to 1,5% at the beginning of Q2. The long-term average level can be considered to be 1.5-2.0%.

In the first quarter, we handed over a total of 12 new homes in developments completed (11 in 2023 Q1). Of these, 5 were in phase II of the Uus-Meremaa development and 7 were in phase I of the Luuslangi development. Revenue for the quarter was EUR 3,498 thousand (2023 Q1: EUR 2,294 thousand) and net loss for the period was EUR -150 thousand (2023 Q1: EUR -461 thousand).

Assets decreased by EUR 1,008 thousand during the quarter, slipping to EUR 67,551 thousand. Equity decreased to EUR 18,024 thousand by the end of the first quarter of 2024 and the borrowings increased by EUR 911 thousand during the quarter to EUR 39,345 thousand. The current borrowings decreased by EUR 15,764 thousand due to the repayment of construction loans and the refinancing and extension of existing loan agreements. However, the recognition of the EUR 3,591 Uus-Meremaa project investor loan as current liability resulted in current borrowings of EUR 4,933 thousand at the end of the quarter. The repayment timing of the Uus-Meremaa loan is conditional to the receipt of the project's sales revenue, and if sufficient sales revenue is not received within the next 12 months, Liven has the discretion to defer the loan repayment.

Consolidated statement of financial position

Consolidated statement of comprehensive income

12-month rolling customer satisfaction feedback rating, collected at various stages of the customer journey and measured on a 10-point scale, decreased to 7.5 by the end of the quarter (end of Q1 2023: 8.9/10). The decline in feedback is primarily related to the delay of Magdalena and Iseära phase I developments’ construction completion and handover of these homes, the need to improve customer communication and due to confluence of adverse circumstances related to the quality of construction management. One of the focus areas for 2024 will be to increase both the quantity and quality of customer feedback assessments.

Changes in the financing of the Regati development project and commencement of construction
In accordance with the earlier agreement with LHV Bank AS, we refinanced the EUR 6,000 thousand bank loan secured by the previous property mortgage in January 2024. We also agreed on the terms of the extension of the EUR 3,000 thousand subordinated mezzanine loan.

In March 2024, Mitt & Perlebach OÜ, the general contractor, commenced construction work on the Regati development. The construction is scheduled for completion in the summer of 2025. We have had a good experience and cooperation in the past with the general contractor, with the construction of homes in both Suur-Patarei and Luuslangi projects. The construction of Regati development is financed by LHV Pank AS.

Property purchase and refinancing of construction loans in the Luuslangi development project
In January 2024, we made the last payment for the remaining properties in the Luuslangi development project. We also entered into a loan to refinance the loans taken to finance the construction of the previous buildings and infrastructure and to finance working capital, secured by the apartments completed in phase I. The refinancing also allows for an earlier interim interest payment on the mezzanine loan.

Detailed spatial plan for Juhkenatli 48
In the first quarter of 2024, the detailed spatial plan for Juhkentali 48 was adopted by the Tallinn City Council. After the reporting period, a public display of the detailed spatial plan was held, during which suggestions for amendments and changes were received.

Liven’s new showroom and Liven 10
In the first quarter of 2024, we celebrated the 10th anniversary of Liven's founding with the opening of a new showroom. The main considerations for moving to the new space, which is at street level in the Telliskivi Creative City, were to provide customers with better accessibility and quality of service, as well as to enhance the home buying experience. It also increased the visibility of the Liven brand and offerings in the public.

Business name change of development company in Germany
At the beginning of 2024, the name change of the company developing the project at Hüttenroder Weg 11 in Berlin (Wohngarden) was registered. Previously named Liven Hermsdorf GmbH, the company is now called Liven HW11 GmbH.

Significant developments in the economic environment in the period under review
The 6-month Euribor rate, which has been rising since spring 2022, reached a 15-year high of 4.143% in mid-October 2023. Since then, the Euribor has declined somewhat and remained stable in the first quarter of 2024 compared to the end of 2023, reaching 3.851% at the end of March (31.12.2023: 3.861%). After the reporting period, the Euribor has not changed significantly, remaining at a level of 3.82 - 3.87%. At the European Central Bank Governing Council meetings in January and March 2024, the ECB decided to leave the base rate unchanged. However, the general market expectation is for Central Bank rates and Euribor to fall over the course of 2024, especially in the second half of the year. In March, the Swiss central bank decided to lower interest rates, followed by the Swedish central bank in May.

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 first quarter of 2024, the annual inflation rate was 3.9% (2023 Q4: 4.3%). A large part of the increase was due to VAT and excise duty rises at the beginning of the year. Excluding the impact of the tax rises, annual price increases reached 2.4% in March. According to the latest data from Statistics Estonia, the annual increase in the average gross salary in the first quarter (9.1%) exceeded inflation. The increase in the minimum wage at the beginning of the year also impacted salary statistics.

Consumer confidence, which has been low since the second half of 2022, continued to be weak throughout the Q1 of 2024, similar to the previous quarter. Deflationary expectations have affected the residential real estate sector since autumn 2022, and this trend appeared to continue into early 2024. Consumers are more likely to view the purchase of durable goods more favourably over the next 12 months rather than now, so there is a general sentiment to wait and delay purchasing decisions. However, there are signs of an improvement in consumer confidence based on data from the Estonian Institute of Economic Research for April.

The offer prices of new developments in the first quarter of 2024 increased by 8.6% compared to the fourth quarter of 2023, mainly due to the addition of a few new development projects and the changed VAT rate. The number of transactions declined by 25% compared to the fourth quarter of 2023 but increased significantly (64%) compared to the first quarter of 2023. The surge in sales at the end of 2023 was linked to the tax changes at the beginning of 2024, as homebuyers were keen to complete transactions before the increase in the VAT rate. The number of new offers was higher by 43 or 28% compared to the previous quarter.

At the end of 2023, the inventory of unsold ready-to-move-in apartments surged to 889 due to the completion of several development projects. In the first months of 2024, the inventory decreased slightly but, due to low transaction activity, remained at a similar level, totalling 833 apartments at the end of March. Consequently, options for homebuyers and market competition remain high.

Approximately 310 apartments were sold in new developments during the period (based on market data), which is 25% lower than the previous quarter (2023 Q4: approximately 420) but 1.6 times higher than the market low a year ago (Q1 2023: approximately 190). The average price per square metre of a new apartment in Tallinn was EUR 4,374 in the first quarter, showing an annual increase of 14%. Quarter-on-quarter, the price increased by two percent.

2024 outlook
Our outlook for 2024 has not changed significantly compared to 2023. Demand and sales will remain the main challenges in 2024. While we expect the environment and external factors affecting the real estate sector to improve, the year, especially the first half, will continue to be challenging and risky. Moreover, the expected interest rate cut scenario is unlikely to lead to a surge in demand. As the environment improves, we expect demand to pick up, especially in the second half of the year, and we are ready to quickly bring new supply to the market.

In real estate development, results are achieved with a significant time lag. The results for 2024 will reflect the years 2022 and 2023, when construction work started on only a few projects and the cost base was heavily affected by high inflation. Based on the portfolio of developments completed and under construction, we will be able to deliver up to 110 residential and commercial spaces in the current year. Consequently, our maximum potential revenue in 2024 will be approximately 30 million euros, and earnings potential will remain between the results for 2022 and 2023. This means that our portfolio is still too small to achieve our 20% return on equity target in 2024.

Tallinn's planning procedures continue to face challenges, but there have also been positive developments recently. We look forward to the conclusion of several long-drawn-out procedures either in 2024 or the first half of 2025.

There have not been many good opportunities in the market for acquiring new properties in recent years, but there are signs of new opportunities emerging during 2024.

With the activities we undertake 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.

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

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• Liven 2024 Q1 interim report