Viljar Arakas: by going public the form might change, but content will remain
The first day of trading on Nasdaq Baltic Main List for public closed-end alternative investment fund EfTEN Real Estate Fund III AS will be December 1, 2017. EfTEN’s third fund is only a third newcomer from Estonia on the Main List during past 10 years.
The Fund’s IPO with total volume of 3.5 MEUR that ended November 10, 2017 was oversubscribed 5.7 times, meaning subscription orders were placed in total for the volume of 21 MEUR. The investor base of the fund increased with IPO from 300 to nearly 2000.
According to EfTEN Real Estate Fund III AS’ fund manager Viljar Arakas it is without a doubt great honour for the company and testament of hard work by the team to be listed on Nasdaq Baltic Main List. “My sincere gratitude goes to all investors, but especially the first 300 who believed in the fund since the early days,” added Arakas, confirming that with fund going public the form might change but content, that investors have put their trust in, will remain.
Looking into the future and commenting on the investment strategy of the fund, Arakas said that five years from today the asset composition will not be the same, but making certain predictions is difficult. “I can only reassure that the fund’s strategy will remain the same and the fund manager, EfTEN Capital, will never establish a fund with competing strategy,” added Arakas.
“We will continue to be a fund with value adding and opportunistic investment strategy, looking for smaller assets with higher yield, do not shy away from development projects and also look into smaller cities in addition to Baltic capitals. We will surely make new investments in the future as well as do not exclude possible sales, provided the proposal is attractive,” said Arakas.
EfTEN Real Estate Fund III AS’ IPO is the cheapest from IPO cost point of view to date, according to Arakas, making up of only 0,14% of fund’s equity or 63 000 euros from which 75% can be considered inevitable base costs of IPO.
“We are not using the greenshoe or over-allotment option meant to secure the share price from falling below IPO price that is common in context of initial public offerings,” added Arakas, explaining that the reasoning behind this decision is confidence that shareholders are not interested in exiting if the price is below NAV or 14 EUR for a share. The fact that so far there have been only a few transactions on the secondary market, and both IPO as well as offering directed only to current investors in spring 2017 were oversubscribed several times, adds confidence in that belief according to Arakas.
Though, the subscription was available only to Estonian investors, the share becomes 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.
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. Also, Laagri Selver will open on December 14, 2017.
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 fund’s gross asset value as of September 30, 2017 is 91.1 MEUR. The largest investment of the fund by far 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. The unleveraged net yield of the current portfolio is 7.7 percent and gross rental income current portfolio yield is 9.1 percent.
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.