Unaudited consolidated interim report for Q3 and 9 months of 2024

GROUP CEO'S REVIEW

The third quarter of 2024 marked a turning point for the Estonian real estate market, which showed signs of stabilization and gradual recovery after a prolonged period of decline. Lowered base interest rates and decreased Euribor had a significant impact on the whole market, which was also visible in the results of the third quarter of Arco Vara.

The transaction volumes of the entire apartment market showed an increase compared to the same period in 2023 and a significant increase compared to the first 6 months of this year. Arco Vara sold 7 apartments in Rannakalda, which is 3.5 times more compared with the second quarter of 2024. We reached a turnover of 2.15 million and a 128% increase compared to the second quarter of 2024. This indicates that the market has bottomed out and activity is beginning to pick up. The worst of the downward cycle seems to have passed, especially considering that transaction volumes in other sectors, such as commercial properties, have also begun to increase.

In the third quarter, the team put its primary effort into the Kodulahe development, with both projects in focus – the completed apartments at Rannakalda and the pre-sale of Soodi 6. Our third quarter ended with the following results: 80 units out of 113 were sold at Rannakalda, 5 units out of 66 were sold and 7 units booked at Soodi 6. The start of construction of the next stage of Kodulahe (Soodi 6) is planned for the end of this year. The detailed planning of Lammi 6, the last stage of Kodulahe, is in progress. We are planning approximately 175 apartments for Lammi 6, the construction of which expected to begin in about two years.

In September, we completed the construction of our padel venue ahead of schedule by a few months and for slightly less cost than anticipated, allowing for an increase in the profitability of the rental property during the lease period of the building. We handed the building over to the operator Padelstar and it was officially opened in October.

We are continuing to design Arcojärve, the next major project of Arco Vara, and registering potential customers until the end of the year. We are planning to begin construction in the second half of 2025.

Our Bulgarian team reached 75% of project readiness in Botanica Lozen, meaning that construction works will be completed by the end of 2024. We finished the third quarter on a positive note with one additional booking, having now 9 houses available out of 16. We have seen greater interest in our Botanica Lozen project over the last couple of months and hope for increased interest in the upcoming months when the houses will be fully ready with all the greenery, since in Bulgaria, customers prefer to buy nearly finished houses in contrast to the Estonian market where interest is primarily seen during the pre-sale.

The overall economic situation is still challenging, with weak consumer confidence and low growth expectations, but interest rates have continued to decline, which could help bring more buyers back to the market in the near future.

Looking ahead, the market is likely to remain stable but cautious. While transaction volumes and prices may start to rise modestly, particularly in the second half of 2025, significant positive changes are not expected in the short term. Additionally, tax increases could weigh on housing availability and market dynamics. Overall, while the worst appears to be over, the recovery will be gradual, with broader market growth expected to take hold by mid-2025.

The greatest challenge of the Arco Vara team for the upcoming months and the end of 2024 will be the sales of completed apartments at Kodulahe and Kuldlehe with a market value of around 14 million euros. Until the end of this year and the beginning of 2025, the focus is on selling the remaining houses at Botanica Lozen, with the market value of around 9 million euros.

During the last quarter of 2024, the whole team is gearing up to compile a 3-year strategy for Arco Vara and define all future areas for development.

KEY PERFORMANCE INDICATORS

In Q3 2024, the group's sales revenue was 2,154 thousand euros, which is 2,009 thousand euros more than the sales revenue of the Q3 2023 of 145 thousand euros, because in the first 9 months of 2023, the group did not have real estate in the stage of final sale. The group's sales revenue was 4,087 thousand euros for the 9 months of 2024 which is 6.3 times higher than the sales revenue of 652 thousand euros for the 9 months of 2023.

In Q3 2024, the group's operating profit (=EBIT) was 154 thousand euros and net loss 156 thousand euros (in 9 months 2024: operating loss 157 thousand euros and net loss of 844 thousand euros). In Q3 2023, the group had operating loss of 221 thousand euros and net loss of 290 thousand euros. In 9 months 2023, the group had operating loss of 654 thousand euros and net loss of 928 thousand euros.

In Q3 2024, 7 apartments were sold, 14 apartments were sold in total in 9 months 2024. As of 30 of September 2024, 37 apartments and one commercial space were ready in stock. In Q3 2023, no final sales were formalized (in 9 months only 1 parking space was sold), because group did not have any apartments ready for sale that time.

In the first 9 months of 2024, the group's debt burden (net loans) increased by 6,058 thousand euros up to the level of 14,666 thousand euros as of 30 September 2024. As of 30 September 2024, the weighted average annual interest rate of interest-bearing liabilities was 9.4%. This is an increase of 1.2 percentage points compared to 31 December 2023.

OPERATING REPORT

The group's sales revenue was 2,154 thousand euros in Q3 2024 (Q3 2023: 145 thousand euros), including the sale of real estate in the group's own development projects 2,075 thousand euros (0 euros in Q3 2023).

Other sales revenue in 2024 mainly includes revenue from franchise fees of real estate agencies in Estonia, Latvia and Bulgaria. Franchise fees for the Q3 2024 were 71 thousand euros (in 9 months 199 thousand euros), franchise revenues for the Q3 2023 were 67 thousand euros (in 9 months 186 thousand euros).

In Q2 2024, the pre-sale of the next stage of Kodulahe began: 66 apartments and 4 commercial premises in the form of three buildings will be built at Soodi 6. By the time this report is published, 6 apartments and 2 commercial premises have been presold, additional 3 apartments booked. The homes are schedules to be completed in early 2026.

In the most premium phase of Kodulahe, Rannakalda, a pavilion, 4 service areas and 108 apartments (as three separate apartment buildings), many of which have a sea view, have been completed. As of the publication date of the quarterly report, 29 of the 113 are vacant.

A subsidiary of Arco Vara, Arcojärve OÜ, 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. As of 30.09.2024, the total advance payment for the land is 4,978 thousand euros. The subsidiary of Arco Vara is obliged to pay an additional 1,627 thousand euros for the purchase of the land within three months from the establishment of the detailed plan for the property by the Tallinn City Government, but no later than 30.04.2026. The start of the construction of the first stage is planned for 2025.

In the Kuldlehe project, an exclusive cluster house with 5 spacious homes was built in Pirita. By the date of publication of the quarterly report, 2 out of 5 apartments have been booked.

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 first phase will be completed by the end of 2024. By the date of publication of the quarterly report, 6 out of 16 houses have been pre-sold, one booked.

Kerberon OÜ, a subsidiary of Arco Vara, developed a fully automatic padel venue with six indoor courts at Helme 18 with the help of the construction company Arco Tarc OÜ. The hall is rented out on a full lease agreement and is open to guests by the time of the publication of this report.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Tiina Malm
CFO
Arco Vara AS
Phone: +372 614 4630

www.arcovara.com

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• ArcoVara_aruanne Q3 2024 ENG