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EfTEN Real Estate Fund III IPO was oversubscribed 5.7 times

A public closed-end alternative investment fund EfTEN Real Estate Fund III AS’ initial public offering of shares with total volume of 3.5 MEUR was oversubscribed 5.7 times. In total, 1 833  subscription orders were received and 1 502 930 shares subscribed for the total volume of 21 MEUR. After the IPO, the fund will be listed on Nasdaq Baltic main list, thus becoming tradeable for all investors.

According to EfTEN Real Estate Fund III AS’ fund manager Viljar Arakas, the fund was confident that IPO will be successful, however, the extent of interest and oversubscription was beyond what was expected and came somewhat as a surprise.

In total, 337 272 shares were offered. EfTEN Capital AS subscribed 87 272 shares offered directly to the fund manager and fulfilled the obligation arising from the management contract. Subscription period started October 30 and lasted until today, November 10, 2017. The distribution of shares will be approved on or about November 14, 2017.

The volume of IPO was relatively small compared to known interest because the conservative investment fund will not raise more capital than it plans to invest in the foreseeable future, according to Arakas.

“With growing price levels of real estate in the Baltic states, we are lacking investment objects with suitable conservative risk and return profile,” added Arakas, assuring that the fund is planning to raise additional capital and issue shares in the future, provided the economic situation is suitable.

Raised capital will be used for developing ongoing projects according to fund’s investment policy and for development of new Hortes Tähesaju gardening centre in Tallinn.

Though, the subscription is available only to Estonian investors, the share will become tradeable for investors from other countries as well like all other Nasdaq Baltic main list shares. The Fund will become termless after being listed in Baltic Stock Exchange.

The fund’s investments in the Baltic states are Saules Miestas shopping centre in Šiauliai, Ulonu business centre and Laisves 3 office building in Vilnius, Lithuania. Also, DSV logistic centres in the capitals of Baltic states – Riga, Vilnius and Tallinn, Selver grocery store development and Hortes gardening centre in Laagri, Tallinn, and Hortes’ Tähesaju development in Tallinn.

The largest investment of the fund is shopping centre Saules Miestas, located in Šiauliai, Lithuania that is valued at 31.1 MEUR as of September 30, 2017, making up of approximately third of the total value of the fund’s assets.

From annual free cash flow, the fund pays 80 percent in dividends and annual expected dividend rate is 4 – 8 percent. The share price has increased to 14 euros (from 10 euros per share, that was nominal price of initial offering in 2015), corresponding to the fund’s net asset value per share as of September 30, 2017.

Shareholders received net dividends of 29.7 cents per share for 2015 (based on 5 months). For 2016, the fund paid net dividends of 63 cents per share – in total 1.5 MEUR.

The fund’s gross asset value as of September 30, 2017 is 91.1 MEUR with 40.4 MEUR of owner’s equity. The unleveraged net yield of the current portfolio is 7.7 percent and gross rental income current portfolio yield is 9.1 percent.  Leverage makes up 53 percent of total value of real estate investments.

EfTEN Real Estate Fund III AS is the only fund, managed by EfTEN Capital, that makes investments to the large-scale commercial real estate projects accessible to retail investors, characterised by stable, predictable cash flow and capital growth. The Fund’s leverage, according to prospectus confirmed by Estonian Financial Supervision Authority, is limited to a maximum of 65 percent of the total value of real estate acquisition value. Annual expected equity return is 15 percent. EfTEN Real Estate Fund III AS is not a guaranteed fund.