Merger of EfTEN funds will create a Baltic commercial real estate fund with assets of about €350m

  • 2020-01-15
  • TBT Staff

Listed company EfTEN Real Estate Fund III AS will acquire EfTEN Kinnisvarafond AS, the merger resulting in a commercial real estate fund with assets of about €350m and a portfolio of 29 properties in the Baltics.

“As real estate is primarily a business of volume, the merger of two funds with identical investment strategy would enhance the reach and joint fund would become more attractive to foreign investors too. The joint fund, with total assets of about 350 million euros, has all prerequisites to enter the TOP 10 of the companies in Nasdaq Baltic Main List, considering the fund’s equity of about 175 million euros”, said Viljar Arakas, CEO of the fund management company EfTEN Capital AS.

According to the agreement, in the transaction the acquiring fund will be EfTEN Real Estate Fund III AS, investing in commercial real estate in the Baltics and listed in Nasdaq Baltic Main List. The merger has to be approved by the general meetings of shareholders scheduled for March 2020. After the merger, the fund’s business name will be EfTEN Real Estate Fund AS.

Arakas added that boards of both funds have a positive view on the broader market sentiment in real estate investments. “The merger will increase the diversification of assets, including in geographical sense, and reduce the share of each individual investment and the resulting risks, both for the funds and the shareholders. At the same time, the funds' opportunistic and value-adding investment strategy will be retained and the risk profile will not change”, Arakas said.

Higher market capitalization and greater visibility among investors are providing better conditions for increasing market liquidity and for developing and financing real estate investments. „Based on recent investment pace, it would take at least five years for EfTEN Real Estate Fund III AS to achieve the assets volume that is comparable with the scale of the joint fund”, noted Arakas.

Before the merger comes into effect, LHV pension funds would divest in EfTEN Kinnisvarafond a holding worth €25m, which will be mostly acquired by founding partners of the fund management company EfTEN Capital and other institutional investors. The list of EfTEN Kinnisvarafond shareholders who can swap their shares to EfTEN Real Estate Fund III shares, will be determined as of 31 March 2020.

According to the plan, the trading with the shares of joint fund would commence in Tallinn Stock Exchange in the second half of 2020.

EfTEN Real Estate Fund III AS is an alternative investment fund founded in 2015, which is listed in Nasdaq Baltic Main List from December 01, 2017. Of the fund’s portfolio, retail properties constitute 46%, logistics and manufacturing spaces 27% and office buildings 27%. Across the countries, 64% of the fund’s portfolio is in Lithuania, followed by Estonia (28%) and Latvia (8%). Currently the fund’s investment portfolio encompasses 11 properties: DSV logistics centres in Tallinn, Riga and Vilnius, a sales and service centre of ABC Motors in Tallinn, two Hortes garden centres and Laagri Selver retail centre in Tallinn, Evolution business centre in Vilnius, Saulės Miestas retail centre in Šiauliai, as well as Laisves 3 and Ulonų office buildings in Vilnius. The fund has signed conditional purchase agreements for acquiring two commercial properties in Latvia, in the territory of Riga Airport airBaltic’s headquarters, as well as a logistics centre in Ķekava, in the outskirts of Riga.

Alternative, closed-end investment fund EfTEN Kinnisvarafond AS was EfTEN’s first fund that launched investment activities in 2008 and ended the investments in new commercial properties in 2014, when the fund reached planned asset volume. Of the fund’s assets, 75% are in Estonia and the investment portfolio encompasses 18 properties, among them Hotel Palace, Mustikas retail centre and many office buildings in Tallinn, UKU retail centre in Viljandi, as well as police and rescue building in Rakvere.

Real estate investments account for over 85% of the total assets of both funds and other assets are mainly cash on accounts. The assets of the funds were evaluated by Colliers International that has been since 2013 doing asset evaluations of all funds that are run by EfTEN.

The funds’ assets are managed by EfTEN Capital AS, an asset management company, regulated by the Estonian Financial Supervision Authority. The company is also managing EfTEN Kinnisvarafond II AS and Usaldusfond EfTEN Real Estate Fund 4. EfTEN Capital group of companies (EfTEN Capital AS with its subsidiaries) manages 43 commercial real estate buildings where over 1,100 tenants are operating. Total market value of the real estate assets under management is about €750m.