Unaudited consolidated interim report for Q3 and 9 months of 2023

GROUP CEO’S REVIEW

Summer is traditionally the low season in the real estate market, but this year it did not apply to Arco Vara, as the third quarter showed. Although interest rates remain high, Arco Vara has been successful in pre-sales and the number of inquiries for our homes has been growing throughout the year. However, in today’s market the million-dollar-question is how to convert a larger number of inquiries into sales.

In Kodulahe, we continued building and sales activities as planned, which enables us to start delivering homes in our Kodulahe Rannakalda development already by the time of the publication of the report. We have therefore adjusted the sales revenue and profit projections for 2023 according to the delivery schedule, when according to our assumptions, 65 clients receive a new home. Final sales of 48 units are planned for 2024.

Development of ​​the Kodulahe area continues at Soodi 6, in the framework of which an architectural contest was held to give the quarter new value in the form of outdoor areas and exterior appearance. The contest was won by architectural bureau APEX whose solution for outdoor area connects the Stroomi beach area of ​​the Kodulahe development with the light traffic area of ​​the Paldiski road, focusing on the safety of road users and the compactness of the walkways.

In addition, construction activities continue in Botanica Lozen, where 3 private homes out of 16 have found a happy buyer. According to the building schedule, the handover of the homes should take place in the second half of 2024, including the start of the new building phase of 24 homes.

The building of the Kuldlehe boutique residence continues as planned, but it is still waiting for buyers. The unique homes, located on a quiet cul-de-sac, will be completed in the first half of 2024.

After the summer, markets have continued to get used to the changed economic environment. This includes the real estate market, as shown by lower than average transaction volume. However, Arco Vara's balance sheet and equity ratio remain very strong, and the rise in interest rates has not significantly affected our cash flow. Building on this, we will continue to sell and market homes as planned which should allow us to reach a profit of nearly EUR 3 million already this year.

KEY PERFORMANCE INDICATORS

In Q3 2023, the apartment buildings had not yet reached the stage of completion, therefore, looking at the content of the development work, the quarter is not comparable to the same period last year. The group's sales revenue for the Q3 2023 was 145 thousand euros, which is several times less than the sales revenue of the Q3 2022 of 5,232 thousand euros. In 9 months 2023, the group’s revenue was 652 thousand euros, which is much less than the revenue of 13,167 thousand euros in 9 months 2022.

In Q3 2023, the group’s operating loss (=EBIT) was 221 thousand euros and net loss 290 thousand euros (in 9 months 2023: operating loss 654 thousand euros and net loss of 928 thousand euros). In Q3 2022, the group had operating profit of 659 thousand euros and net profit of 556 thousand euros. In 9 months 2022, the group made operating profit of 1,785 thousand euros and net profit of 1,506 thousand euros.

In Q3 2023, no final sale contracts were signed (1 parking space was sold in 9 months). In Q3 2022, 31 apartments were sold in projects developed by the group (in 9 months 2022, 72 apartments and 1 land plot in Latvia).

In the 9 months of 2023, the group’s debt burden (net loans) increased by 3,388 thousand euros up to the level of 21,477 thousand euros as of 30 September 2023. As of 30 September 2023, the weighted average annual interest rate of interest-bearing liabilities was 6.2%. This is an increase of 0.4 percentage points compared to 31 December 2022.

OPERATING REPORT

In the Q3 2023, apartment buildings had not yet entered into final sale contracts, therefore the group's sales revenue was 145 thousand euros (in Q3 2022, the sales revenue was 5,232 thousand euros).

Most of the other revenue of the group consisted of rental and property management services income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 371 thousand euros in 6 months (2022: 406 thousand euros in 6 months). The sale process of the Madrid building was completed in July 2023. There is no profit or loss from the sale of the building in 2023 because the discounts were recognized in 2022. The transaction is not reflected in the sales revenue, as it is the sale of a real estate investment. Equity capital worth 4.1 million euros was released from the transaction.

Arco Vara's own construction company Arco Tarc OÜ is the main contractor for the most premium stage of Kodulahe - Rannakalda. Under construction are a pavilion, 4 service areas and 108 apartments (in three separate apartment buildings), many of which have sea views. The apartment buildings will be ready in the Q4 2023. As at the date of publishing the interim report, 53 units out of the 113 have been presold and 8 sold.

A subsidiary of Arco Vara, Aktsiaselts Kolde, in 2021 signed an agreement for land acquisition beside Lake Harku, address Paldiski road 124b, Tallinn. More than 35,000 m² of residential and commercial real estate (GBA) is planned for development. The project is called Arcojärve. In Q2 2023, the next land purchase prepayment of 1,626 thousand euros was paid, as of 30.09.2023, the total advance payment for the said land is 4,978 thousand euros. The start of the construction of the first stage is planned for 2024.

Construction is underway in the Kuldlehe project. The plan is to build a spacious and exclusive cluster house with 5 homes in Pirita in 2023. The sale of the project has started.

The Botanica Lozen project foresees construction of 54 homes (houses) in three stages. Construction and sales of the first 16 buildings have begun – the private houses of the firat phase will be completed by the end of 2024. By the date of publication of the quarterly report, 3 out of 16 houses have been pre-sold.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros	9m 2023	9m 2022	Q3 2023	Q3 2022
Revenue from sale of own real estate	14	12,337	7	4,960
Revenue from rendering of services	638	830	138	272
Total revenue	652	13,167	145	5,232
Cost of sales	-209	-10,665	-18	-4,282
Gross profit	443	2,502	127	950
Other income	106	209	30	7
Marketing and distribution expenses	-268	-153	-91	-45
Administrative expenses	-924	-764	-278	-251
Other expenses	-11	-9	-9	-2
Operating profit/loss	-654	1,785	-221	659
Financial costs	-274	-279	-69	-103
Profit/loss before tax	-928	1,506	-290	556
Net profit/loss for the period	-928	1,506	-290	556
Total comprehensive income/ loss for the period	-928	1,506	-290	556
Earnings per share (in euros)
- basic	-0,09	0,14	-0,03	0,05
- diluted	-0,09	0,14	-0,03	0,05

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of euros	30 September 2023	31 December 2022
Cash and cash equivalents	916	3,427
Receivables and prepayments	5,972	4,387
Inventories	36,600	22,511
Investment property for sale	0	9,050
Total current assets	43,488	39,375
Receivables and prepayments	18	18
Investment property	2	82
Property, plant and equipment	239	284
Intangible assets	28	46
Total non-current assets	287	430
TOTAL ASSETS	43,775	39,805
Loans and borrowings	747	5,255
Payables and deferred income	5,814	3,681
Total current liabilities	6,561	8,936
Loans and borrowings	20,731	12,834
Total non-current liabilities	20,731	12,834
TOTAL LIABILITIES	27,292	21,770
Share capital	7,272	7,272
Share premium	3,835	3,835
Statutory capital reserve	2,011	2,011
Retained earnings	3,365	4,917
Total equity attributable to owners of the parent	16,483	18,035
TOTAL EQUITY	16,483	18,035
TOTAL LIABILITIES AND EQUITY	43,775	39,805

Tiina Malm
CFO
Arco Vara AS
Phone: [phone]

www.arcovara.com

Attachment

• ArcoVara_aruanne Q3 2023 ENG