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2013


On 4 February 2013, Arco Vara announced to the stock exchange that in order to recover a loan Danske Bank A/S had initiated enforcement proceedings against Arco HCE OÜ, which is a 50% joint venture of Arco Investeeringute AS that is a wholly-held subsidiary of Arco Vara AS. The object of the proceedings was to exercise a mortgage created for the benefit of Danske Bank A/S on a property located at Ahtri 3 in Tallinn.

On 20 February 2013, the court satisfied ARCO HCE OÜ’s application for securing the action and suspended the enforcement proceedings against the company. Together with the application for securing the action, Arco HCE OÜ filed an action against Danske Bank A/S seeking that Danske Bank A/S extend the loan agreement.

Since Arco Investeeringute AS has provided a surety guarantee to Arco HCE OÜ’s bank loan, Danske Bank A/S sent Arco Investeeringute AS a claim for paying out the guarantee, which extends to 1,917,349.46 euros.

Arco Investeeringute AS challenged the claim for paying out the surety guarantee. In simplified terms, the basis for the challenge was that if the loan cannot be called in, then the surety guarantee cannot be called in either.

In response, Danske Bank A/S filed a petition for declaring Arco Investeeringute AS bankrupt.

Arco Investeeringute AS is of the opinion that there is no basis for calling in the surety guarantee and intends to challenge the bankruptcy petition.

The shares in Arco HCE are held, in equal proportions, by Arco Investeeringute AS and Ahtrimaa OÜ (former name U.S. Real Estate Management OÜ).

 

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
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On 11 April 2013, Kylemore International Invest Corp, a creditor of Tivoli Arendus OÜ (Tivoli Arendus), presented a claim for payment and initiated execution proceedings for satisfying its claim through sale of the properties belonging to Tivoli Arendus. Arco Vara group will join the execution proceedings, claiming recovery of a loan of approx. 2.9 million euros. The creditors have reached a mutual compromise.

Because of the lengthy and legally complicated history of the Tivoli project, the properties will be sold at a public auction conducted by a bailiff. This will ensure maximum legal certainty to potential buyers as well as Tivoli Arendus and its owners and creditors.

Further information on the sale of the Tivoli properties can be found at: www.arcovara.ee/tivoli

Tivoli Arendus is a project company established for developing a plot of 48,588 square metres in the centre of Tallinn (former address: Narva mnt 67). The company’s only significant assets are the properties located on the above plot. The shareholders of Tivoli Arendus are, in equal proportions, Arco Investeeringute AS and International Invest Project OÜ.

Commentary of Tarmo Sild, the CEO of Arco Vara AS:

“At a webinar held on 31 January 2013, we informed the public that the group has three major problems that need to be resolved. I am pleased to report that to date we have stabilised the situation in Bulgaria (see also the stock exchange announcement at http://bit.ly/14hwr1M) and the situation at Tivoli Arendus is stabilising. However, we continue active efforts to find a solution for the third problem – the property at Ahtri 3.

The partners of the Tivoli project have reached consensus in that they cannot carry out the project together and that the property should be realised in a manner that is beneficial for both parties, taking advantage of investors’ increasing interest in development properties that have an effective detailed design plan, a building permit and the best possible location.

A successful sale would also improve the group’s financial position. Because of the weak position of the collateral of the loan provided by Arco Vara - the mortgage created for the benefit of the partner has a priority ranking, the loan to Tivoli Arendus (nominal amount 2.9 million euros) had to be written down in full. In addition, we had to recognise a provision of 1 million euros for covering the surety guarantee Arco Vara had provided to the partner.

The sale would be a step in the direction that we could release the provision in the near term and, depending on the outcome of the auction, could also satisfy part of our claim.”

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
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The supervisory board of Arco Vara AS approved Arco Vara AS’s annual report for 2012 together with the proposal for covering the loss at a meeting held on 24 April 2013.

The supervisory board resolved to submit the annual report and the proposal for covering the loss, both prepared by the management board, to the annual general meeting as presented by the management board.

The audited annual report for 2012 is available on the website of the NASDAQ OMX Tallinn Stock Exchange and on that of Arco Vara at http://www.arcorealestate.com.

Arco Vara’s audited consolidated revenue for 2012 was 20.7 million euros. The Group’s revenue for 2011 was 43.1 million euros. Revenue decreased by 52%. The audited consolidated net loss for 2012 was 18 million euros. The net loss for the comparative period was 3.4 million euros.

There were no significant adjustments made in audited annual report compared to the preliminary 12 month interim report published on 28 February 2013.

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
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Annual report 2012 of Arco Vara AS


Arco Vara will release its consolidated financial reporting for 2013 on the following dates:

17 May 2013 Unaudited interim report Q1 2013
16 August 2013 Unaudited interim report Q2 2013
15 November 2013 Unaudited interim report Q3 2013
28 February 2014 Unaudited interim report Q4 2013
17 April 2014 Audited annual report 2013


Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


The second auction of the properties of Tivoli Arendus will take place 10 June 2013. Further information about the sale of the Tivoli properties and the process of the auction can be found at: http://www.arcovara.ee/en/tivoli.

Tivoli Arendus is a project company established for developing a plot of 48,588 square metres in the centre of Tallinn (former address: Narva mnt 67). The company’s only significant assets are the properties located on the above plot. The shareholders of Tivoli Arendus are, in equal proportions, Arco Investeeringute AS and International Invest Project OÜ.

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.


GROUPCHIEF EXECUTIVE’S REVIEW

General commentary

In the first quarter the group’s operations in Bulgaria stabilised because we succeeded in changing the conditions of the loan agreements with Piraeus bank that financed the Manastirski and Madrid projects. In addition, we restarted completion of the Bišumuiža apartments in Latvia.

At the same time, the situation in Estonia became more strained due to circumstances surrounding the group’s Ahtri 3 and Tivoli projects that are 50/50 joint ventures with external partners. Danske bank, which had financed the Ahtri 3 project, initiated enforcement proceedings against the group’s joint venture Arco HCE and called in the surety guarantee provided by its shareholders, Arco Investeeringute AS and OÜ Ahtrimaa. There are currently three litigations in progress and enforcement proceedings have been suspended. Parallel to legal action, the parties are seeking constructive solutions. It is quite probable that in the near future a solution will be found, which will satisfy all parties.

In the Tivoli project, the venture partner, International Invest Project OÜ, and Kylemore International Invest Corp, which had financed the project, terminated the loan agreement of the group’s joint venture Tivoli Arendus OÜ. Moreover, due to contractor’s breach, Tivoli Arendus OÜ was forced to terminate the construction contract. Realisation of the Tivoli project in the manner and timeframe foreseen in the business plan, which was difficult already at the end of 2012, became impossible. The group and the partner have been seeking solutions for restructuring or ending the project in the least damaging manner, considering the surety guarantee provided by Arco Vara AS, the rankings of the mortgages created on the Tivoli properties and the balances and interest rates of the loans provided to Tivoli Arendus OÜ. By the date of release of this report, the Tivoli property has been put up for auction. It is also probable that in the second or third quarter a solution can be found that will satisfy all involved.

Commentary on sales volumes

The decrease in first quarter revenue compared with the same period in 2012 was expected because the group is discontinuing its environmental engineering operations. In 2011-2012, the Construction division contributed around 40% of the group’s turnover. Hence, shrinkage in its operations has a strong impact on the group’s sales. I would like to emphasize that all construction-related commitments have been duly met although during last month this has required significant efforts from other group companies as well as Arco Ehitus OÜ itself.

The Development division increased its first quarter sales by 71% and the Service division maintained stable performance. However, in absolute terms the revenue of the Development division is relatively small and our target is to increase it.

Commentary on profit

The group’s target for 2013 was to start earning operating profit. We ended the first quarter with an operating profit as well as a minimal net profit. However, to uphold the trend and increase profits, we will have to grow our sales volumes. Although growth is supported by the Service division, the main opportunities for growth lie in continuing and expanding development operations. It would be difficult to finance expansion of development operations with the group’s current capital. Thus, in 2013 solutions will have to be found for raising additional capital.

Commentary on the loan burden

In the first quarter the group reduced its loan burden significantly. At 31 December 2012 interest-bearing loans and borrowings totalled 18.8 million euros and at 31 March 2013 16.6 million euros, a decrease of 2.2 million euros within three months. In addition, we lowered the average loan interest rate, which has had a positive impact on our performance, particularly in Bulgaria. The loan burden can be further reduced by selling finished goods. However, we will have to raise additional funds to continue and expand our development operations. Thus, we do not foresee a rapid decline in the group’s loan burden.

Commentary on human resources

In the first quarter the number of people working for the group did not change considerably and we are not planning to make any major changes to personnel or personnel expenses except for those resulting from shrinkage of operations at the Construction division. The main focus is on streamlining our operations and creating intra-group synergies.

KEY PERFORMANCE INDICATORS

In the first quarter of 2013, the group generated revenue of 2.8 million euros compared with 3.6 million euros in the first quarter of 2012. Revenue was 22% smaller than in the comparative period mainly because construction volumes decreased significantly. At the same time, the revenue of the Service division remained stable and the Development division increased its revenue by 71% (year over year).

  • Operating profit for the first quarter amounted to 0.3 million. The same period in 2012 ended in an operating loss of 0.5 million euros.
  • Net profit for the first quarter was 39 thousand euros compared with a net loss of 1.3 million euros incurred in the first quarter of 2012.
  • Equity to assets ratio improved to 11.7% (31 December 2012: 10.8%).
  • The loan burden (net loans) decreased to 14.2 million euros (31 March 2012: 22.3 million euros) and the average interest rate of loans dropped to 5.2% per year.
  • At the end of the first quarter, the group’s order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012. In 2013, the group will duly complete all environmental engineering projects, which are in progress. After that, the group is planning to discontinue provision of environmental engineering services.
  • In the first quarter, the group sold 15 apartments and plots in its self-developed projects (2012 Q1: 4).
Q1 2013 Q1 2012
In millions of euros
Revenue 2.8 3.6
Operating profit/loss 0.3 -0.5
Net profit/loss 0.0 -1.3
EPS (in euros) 0.01 -0.18
Total assets at period-end 29.0 54.9
Invested capital at period-end 19.4 44.3
Net loans at period-end 14.2 22.3
Equity at period-end 3.4 20.3
Average loan term (in years) 2.1 2.3
Average interest rate of loans (per year) 5.2% 6.9%
ROIC (rolling, four quarters) neg neg
ROE (rolling, four quarters) neg neg
Number of staff at period-end 76 140

REVENUE AND PROFIT

Q1 2013 Q1 2012
In millions of euros
Revenue
Service 0.6 0.6
Development 1.2 0.7
Construction 1.1 2.4
Eliminations -0.1 -0.1
Total revenue 2.8 3.6
Operating profit/loss
Service 0.0 0.0
Development 0.4 -0.6
Construction 0.0 0.4
Eliminations 0.0 0.0
Unallocated income and expenses -0.1 -0.3
Total operating profit/loss 0.3 -0.5
Interest income and expense -0.3 -0.4
Net profit/loss 0.0 -0.9

CASH FLOWS

Q1 2013 Q1 2012
In millions of euros
Cash flows from operating activities 0.1 -1.2
Cash flows from investing activities 1.4 1.0
Cash flows from financing activities -1.8 -0.3
Net cash flow -0.3 -0.4
Cash and cash equivalents at beginning of period 1.8 2.2
Cash and cash equivalents at end of period 1.5 1.8

At 31 March 2013, the largest current liabilities to be settled in the next 12 months comprised:

  • repayments to be made under the settlement schedule of the loan of the Boulevard Residence Madrid project in Sofia of 0.7 million euros;
  • repayments of the loan taken for the Manastirski project of 1.7 million euros;
  • repayments of the loan taken for the Bišumuiža 1 project of 0.5 million euros.

In the first quarter of 2013, the group made repayments of the loans taken for the Madrid and Manastirski projects in Sofia and repaid in full the loans taken by Pärnu Turg OÜ and Kolde AS.

In addition, sales-linked loan repayments were made by Marsili II SIA and repayments were made under the settlement schedule agreed for the bank loan taken by Arco Real Estate AS.

SERVICE DIVISION

In the first quarter of 2013, the Service division performed better than a year ago, generating an operating profit of 46 thousand euros compared with an operating loss of 5 thousand euros incurred in the first quarter of 2012. Revenue for the first quarter of 2013 was 572 thousand euros, which is practically equal to the figure posted a year ago. The number of brokerage transactions increased by 3% and the number of valuation reports issued grew by 6% year over year. At the same time, the number of brokers decreased by 5% and the number of appraisers increased by 18%.

Q1 2013 Q1 2012 Change, %
Number of completed brokerage transactions 323 313 3%
Number of projects on sale at end of period 177 162 9%
Number of valuation reports issued during the period 1,470 1,382 6%
Number of appraisers at end of period¹ 46 39 18%
Number of brokers at end if period¹ 71 75 -5%
Number of staff at end of period 37 45 -18%
¹ Includes people working under service contracts

DEVELOPMENT DIVISION

In the first quarter of 2013, Arco Vara sold 14 apartments and 1 plot in its own development projects: 1 plot in the Baltezers project in Latvia, 3 apartments in the Kodukolde project in Estonia and 11 apartments in the Manastirski project in Bulgaria.

Phase VI of the Kodukolde development project at Helme 16 in Tallinn, which consists of two apartment buildings with a total of 48 apartments, was completed in June 2012. Out of those apartments, 46 were sold (final sales under real right contracts) by May 2013. At the end of the first quarter the project’s inventory comprised 3 unsold apartments and by the date of release of this report the figure has decreased to 2.

In January 2012, we obtained a permit for the construction of a residential and commercial building of energy class B called Kastanimaja (Chestnut House) at Tehnika 53 in Tallinn. According to plan, construction work will be completed by August 2013. Pre-sale of apartments, which began in May 2012, has been successful: by the date of release of this report 12 of the 14 apartments have been sold based on contracts under the law of obligations (pre-sale contracts).

In Bulgaria, the construction of phase I of the Manastirski project has been completed. At 31 March 2013, 90% of the 74 apartments were either reserved or sold. We have started planning phase II of the Manastirski project. In the commercial and residential building Boulevard Residence Madrid in Sofia we continue to lease out commercial and office premises and to sell the remaining free apartments.

In the third quarter of 2012, we suspended development and construction in the Bišumuiža 1 apartment buildings project in Latvia. However, in February 2013 we extended the construction permit to continue development of the project. A building with 14 apartments and a sellable area of 1,149 square metres, which is currently in the stage of interior finishing works, will be completed in August 2013. By the date of release of this report, 8 of the apartments have been reserved. After that we are going to develop the project’s last building, also with 14 apartments. The outer shell has already been erected. All apartments in the project’s previously completed 7 buildings have been sold.

On 1 March, Arco Investeeringute AS sold its 100% interest in the subsidiary Pärnu Turg OÜ to Bellvory Turg OÜ.

On 1 February 2013, Tivoli Arendus OÜ terminated the design and build contract with Nordecon AS because the counterparty had seriously breached its contractual obligations. On 11 April 2013, Kylemore International Invest Corp, a creditor of Tivoli Arendus OÜ, presented a claim for payment and initiated execution proceedings for satisfying its claim through sale of the properties belonging to Tivoli Arendus OÜ. Arco Vara AS joined the execution proceedings.

In order to recover a loan, Danske Bank A/S initiated enforcement proceedings against Arco HCE OÜ, which is a 50% joint venture of Arco Investeeringute AS. The object of the proceedings was to exercise a mortgage created for the benefit of Danske Bank A/S on the property located at Ahtri 3 in Tallinn. On 20 February 2013, the court suspended the enforcement proceedings against Arco HCE OÜ. Concurrently with the legal proceedings, Arco Vara AS is seeking alternative solutions for resolving the situation.

At the end of March 2013, the division employed 6 people (31 December 2012: 10).

For further information on our projects, please refer to: www.arcorealestate.com/development.

CONSTRUCTION DIVISION

The Construction division specialises in environmental engineering and infrastructure construction.

At the end of the first quarter of 2013, the largest contracts in progress were the construction of the Paide wastewater treatment plant (remaining balance 1.3 million euros) and the construction of the Kuusalu public water and wastewater network (remaining balance 0.9 million euros).

In the first quarter of 2013, the group secured new construction contracts of 34 thousand euros. At the end of the first quarter, the order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012.

At 31 March 2013, the division employed 19 people (31 December 2012: 26 people).

Consolidated statement of comprehensive income

Note Q1 2013 Q1 2012
In thousands of euros
Revenue from rendering of services 1,940 3,368
Revenue from sale of own real estate 882 260
Total revenue 3 2,822 3,628
Cost of sales 4 -2,081 -2,815
Gross profit 741 813
Other income 19 192
Marketing and distribution expenses 5 -65 -82
Administrative expenses 6 -490 -697
Other expenses -18 -716
Gain on sale of a subsidiary 11 98 0
Operating profit/loss 285 -490
Finance income 7 12 22
Finance costs 7 -258 -394
Profit/loss for the period attributable to 39 -862
Owners of the parent 38 -847
Non-controlling interests 1 -15
Total comprehensive income/expense for the period attributable to 39 -862
Owners of the parent 38 -847
Non-controlling interests 1 -15
Earnings per share (in euros) 8 0.01 -0.18

Consolidated statement of financial position

Note 31 March 2013 31 December 2012
In thousands of euros
Cash and cash equivalents 1,433 1,775
Receivables and prepayments 9 3,391 3,094
Inventories 10 11,542 11,701
Total current assets 16,366 16,570
Investments in equity-accounted investees 1 1
Investment property 11 12,083 14,097
Property, plant and equipment 526 540
Intangible assets 20 21
Total non-current assets 12,630 14,659
TOTAL ASSETS 28,996 31,229
Loans and borrowings 12 3,422 16,838
Payables and deferred income 13 6,558 6,645
Provisions 3,077 3,084
Total current liabilities 13,057 26,567
Loans and borrowings 12 12,533 1,231
Payables and deferred income 13 0 64
Total non-current liabilities 12,533 1,295
TOTAL LIABILITIES 25,590 27,862
Share capital 8 3,319 3,319
Statutory capital reserve 2,011 2,011
Retained earnings -1,920 -1,958
Total equity attributable to owners of the parent 3,410 3,372
Equity attributable to non-controlling interests -4 -5
Total equity 3,406 3,367
TOTAL LIABILITIES AND EQUITY 28,996 31,229

Consolidated statement of cash flows

Note Q1 2013 Q1 2012
In thousands of euros
Cash receipts from customers 3,398 6,018
Cash paid to suppliers -2,412 -6,818
Taxes paid -543 -529
Taxes recovered 53 235
Cash paid to employees -294 -417
Other cash payments and receipts related to operating activities -57 -24
NET CASH FROM/USED IN OPERATING ACTIVITIES 145 -1,535
Purchase of property, plant and equipment and intangible assets 0 -12
Proceeds from sale of property, plant and equipment 2 0
Proceeds from sale of investment property 20 1,140
Proceeds from sale of non-current assets held for sale 0 373
Proceeds from sale of a subsidiary 1,610 0
Loans provided 0 -63
Placement of security deposits -263 0
Interest received 4 3
Other payments related to investing activities 0 -29
NET CASH FROM INVESTING ACTIVITIES 1,373 1,412
Proceeds from loans received 12 93 261
Settlement of loans and finance lease liabilities 12 -1,666 -165
Interest paid -248 -393
Other payments related to financing activities -2 -2
NET CASH USED IN FINANCING ACTIVITIES -1,823 -299
NET CASH FLOW -305 -422
Cash and cash equivalents at beginning of period 1,775 2,209
Decrease in cash and cash equivalents -305 -422
Decrease in cash and cash equivalents through sale of a subsidiary -37 0
Cash and cash equivalents at end of period 1,433 1,787

Egert Paulberg
Financial Controller
Arco Vara AS
Phone: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.

Whole interim report of Arco Vara