Arcona Property Fund increases operating profit, raises dividend in 2018
Arcona Property Fund N.V., the exchange-listed fund that invests in commercial property in Central Europe, posted an operational profit in 2018 of €2.28 million, up 7% from €2.13 million in 2017, while EPRA earnings per share were €0.42, up 13.5% from €0.37 in 2017. As a result, Arcona Property Fund proposes to pay a final dividend of €0.25 per share, bringing the full-year dividend for 2018 to €0.35 versus €0.24 the year before. For 2019, the fund forecasts operating profit to rise further to €2.4 million.
Occupancy rates of the real estate portfolio of Arcona Property Fund improved during 2018 to 86.9% from 84.0%, while the loan-to-value ratio improved to 50.5% from 52.7%. Lower valuations of real estate held in Poland ultimately led to a net loss for 2018 of €197,000, against a profit of €5.57 million in 2017.
Guy Barker, Director of the Fund’s manager, Arcona Capital, said in a statement: “During 2018 the Fund continued the positive trends seen in its operational performance. Despite the smaller portfolio, the operating result increased, while occupancy levels grew, key leases were extended and expanded, and loan-to-value ratios improved.”
“The strong value growth in our Czech and Slovak portfolios in 2018 was partly offset by the lower valuation of the Polish real estate portfolio, which was attributable to the administration process of supermarket chain Piotr & Pawel. However, the value of the Polish portfolio is expected to recover in 2019 as new tenants have since been found for the majority of the stores concerned,” noted Barker.
“For 2019, the Fund’s management expects a further increase in operational profit from the existing portfolio and substantial growth in both net asset value and income generation from our pipeline of acquisitions. The final dividend of €0.25 per share, to give €0.35 for the full-year 2018, puts the Fund firmly on its way towards meeting the 2022 dividend target of 8% on the prevailing share price.”
The occupancy rate of the Arcona Property Fund portfolio improved in 2018 to 86.9% from 84.0%. On a like-for-like basis, the portfolio´s annual net rental income grew to €4.8 million (December 2018) from €4.7 million (December 2017). Operational profit increased to €2.28 million.
Of particular importance to the medium-term stability of income flow were the extensions to two major leases – Intive in Szczecin in Poland and AT&T in Kosice in Slovakia. With this, income for 8,500 m² (approximately 19% of the total office space of the Fund) has now been secured until 2023.
The direct result before tax, adjusted for sales results, of Arcona Property Fund was €1.48 million in 2018, compared with €1.28 million in 2017. The indirect result before tax in 2018 was – / – €1.34 million, compared with €3.25 million in 2017. The 2017 figures were strongly influenced by the sale of the Drahobejlova property in Prague, which realised a book profit of €2.2 million. The lower valuation of the portfolio in Poland was also influenced by the administration process of supermarket chain Piotr & Pawel in 2018. The loan-to-value ratio of Arcona Property Fund improved to 50.5% from 52.7% in 2018.
EPRA net asset value (NAV) in 2018 decreased to €43.2 million from €44.5 million. As of the end of 2018, the number of outstanding shares in the Fund was 3.17 million. The NAV per share at year-end was €13.65.
In 2018, average monthly turnover in the Fund’s shares was €260,359, an increase of 12.6% over the previous year. Arcona Property Fund received a second share listing on the Prague Stock Exchange in October 2018.
In August 2018 an interim dividend of €0.10 was paid out in cash. To maintain the trend of increasing dividends, and to reflect the current volume of outstanding shares (3.17 million), the Managing Board is recommending a conditional final dividend of €0.25 for 2018, payable in cash.
Based on the share price as of the end 2018 (€7.10), the dividend yield for 2018 will be 4.9%.
Profit forecast 2019
For 2019, the Managing Board expects the Fund to achieve an operational result of €2.4 million from the existing portfolio.
The announced acquisition in 2019 of the majority of the real estate assets of Secure Property Development & Investment PLC (SPDI) is an important step in the Fund’s growth strategy. With the acquisition, the size of the fund will grow to around €161 million without dilution for existing shareholders.
The due diligence for the acquisition is currently in progress. Management expects to be able to complete the first phase of the acquisition in the second quarter of 2019, subject to approval by regulators and banks. Shareholders will be formally consulted during this process.
Arcona Property Fund is maintaining its long-term target to grow to €500 million by 2022, with an annual dividend yield of 8% based on the prevailing stock price.