Baltic Horizon Fund (NHCBHFFT) Earnings Call Transcript & Summary

Good afternoon, and welcome to Baltic Horizon Fund's Annual General Meeting. We see we have also online participants logging in. The presentation will be made by myself, Tarmo Karotam, Fund Manager; and Co-Fund Manager, Edvinas Karbauskas. And this Annual General Meeting is, first of all, of informative nature, meaning that no decisions are needed to be done by the General Meeting at this time. The presentation will likely be about approximately 1 hour. We are open for questions thereafter. But also during the presentation, we propose to send the questions in the question-and-answer box and then we can take it at the end of the presentation. Hopefully, some of the questions will also be answered already during the presentation. So let's start. We have put together the agenda for this General Meeting of investors to again mention and talk about the latest financial results of the fund last quarter, which has been officially published this first quarter. However, also in the second quarter, several important events have happened so we will also cover those. Then we will talk about a bit of the journey of Baltic Horizon, the background and where we are today and where we would like to be in the future. So hereby, I would like to give word to our Co-Fund Manager, Edvinas Karbauskas, to once again go over the financial results.

Hello, everyone. It's a pleasure to be with you today. Thank you, Tarmo, for the introduction. We will quickly go through the financial results, as some of it was already presented during the Q1 webinar. Primarily, we will touch up on the disposals of our assets that happened in recent months and then present key financial metrics. Let me begin with the Domus Pro transaction and the major event that happened in the fund. It was truly a successful exit of an asset after developing the assets in several stages over the years and shaping it from the scratch. We -- over the 7-year period, we've achieved an equity multiple above 2.1, an IRR close to 16%, and the exit price that we managed to receive for the sale of the site was EUR 23.5 million. So the funds and the profit from this disposal through the cash flows of the fund -- or through the cash flows of the property over the years, but also from the capital gains from the successful exit. As you may know, the sales proceeds of the asset disposal was mostly used for the loan obligation reduction, and we've successfully managed to reduce our bond issue by several millions as a result of this transaction. This was not the only transaction that we did. Recently, another disposal which was planned for quite a long time and quite a sizable disposal was Duetto I and II. We acquired these buildings in 2017 and 2018 from a well-owned developer, YIT. We maintained quite good quality of the building. And again, it was truly a successful exit in the market, as you probably all know that the recent investment market in the Baltics was quite silent. And it is quite silent. So to do such sizable deal in the current market environment is a good achievement. So for this particular asset, we managed to achieve a sales price of EUR 37 million, which is almost EUR 4 million higher than the CapEx that we invested into the building over the years of acquisition price plus all the investments that we made into the building. So again, the investors received the capital gains from this asset over the years as well as the good cash flows from the property, which turned out to be roughly 13.7% IRR and again almost a 2 equity multiple. The sales proceeds again will mostly be used to reduce the financial leverage of the fund and to invest into centrally located assets of the fund. We still haven't closed the transaction yet, but it's planned for the next week. And after that, we will receive all the funds from the transaction and use the proceeds as discussed. Digging deeper into the portfolio performance over the Q1. We -- the portfolio is still yielding around 5%. We are estimating that the yields will start to improve in the upcoming periods. But right now, it's 5%. And this is mostly because of the vacancies in some of our properties on which we are building kind of the new strategy and refreshing the concepts of those assets, so Tarmo will present it a bit later. But we've successfully managed to sign new lease agreements during Q1 in Postimaja. So we have a prelease that will improve the occupancy to 100% in Lincona. We are also working with one tenant to lease out almost all of the remaining vacancy. Again, given the Meraki [indiscernible] last week, we announced 5 new lease agreements. All of them are smaller ones. But still when you add those up, you get quite a decent leasing activity. So we do expect these yields to go up. And obviously, our office portfolio is standing quite strong. Several assets are returning 7-plus percent to the investors and likely will continue to do so. In recent months, we've seen that the NOI has been kind of also recovering, even though the Q1 -- even though if we compare Q1 2022 and Q1 2023, the difference is quite small. But this is mostly due to the fact that the Galerija Centrs' NOI for this year is a bit lower than compared to the last year the same period. We've seen this happen because of the -- again, the BURZMA food hall opening in Galerija Centrs this year, and we had some one-off expenses to promote the newly built food hall, which will likely even out throughout the year. And we do expect that Galerija Centrs' year-on-year results for the whole 2023 will be better than 2022. So this will likely improve in the future quarters. At the same time, when we look at the NOI, it's important to emphasize the fact that on a like-for-like basis, basically comparing the same buildings that were in the portfolio last year, this year, the portfolio NOI increased by almost 2%. Again, this is mostly kind of a bit downsized by the Galerija Centrs impact. It would have been higher if -- without these one-off expenses, but we do see quite a good growth in the offices. And obviously, we did sizable indexations of the rents, which is around 8% to 9% across the whole portfolio on average. So the result of these indexations should be quite visible in the future quarters. The profit for the Q1 of 2023 was EUR 22,000, but this was mostly impacted by disposal of the Domus Pro compared to the book value that we had at the beginning of the year. The Domus Pro transaction value was almost EUR 1.5 million lower or 5%. But here, we -- it's important to emphasize that we've recognized the increase in fair value of this asset over the year. So again, our acquisition price was significantly lower than the final disposal price. And other than that, we can definitely see that the cost of financing is increasing. It's a well-known fact for everyone. The prudent market environment and Euribor increases are kind of driving this. But the fund still has hedges against Euribor, and we'll maintain these hedges for 2023, 2024 and moving forward. On the screen, you can see the latest balance sheet for the fund, this again likely -- and will change after the Duetto transaction. The assets available will decrease but as well as the liabilities. As I mentioned before, our main goals for now is to reduce the financial leverage of the fund. And with the Duetto transaction, we should manage to reach already our target LTV ratio of 50%. And most of the cash that was on hand actually at the beginning of Q1 was used also to reduce our bond issue, on which Tarmo will talk about a bit later. But the balance sheet -- the main changes basically between the year-end and Q1 is from the asset disposals.

Thank you, Edvinas. So this was just a quick recap of the financial results of first quarter, and now let's move on to more strategic topics that we would like to present to you this time. So we, Baltic Horizon Fund, the history of Baltic Horizon Fund may not be very, very clear to all investors, so just a few words. It got started back in 2010 and '11 when Baltic Opportunity Fund got launched with a list of Swedish institutional investors, and the first investments we have made in the Baltic states into commercial real estate are from 2011. Over the years, we have built up the portfolio. And in 2016, we had a proposal to the investors to list the fund, which was approved, and Baltic Horizon Fund became the first commercial real estate fund ever to be listed on Nasdaq Stock Exchange both in Estonia and in Tallinn and in Sweden. So over the years and also as our portfolio has grown, also has grown our investor base and -- but still a majority of our investors are coming from Sweden. But we are happy to see that we have more and more investors from Estonia and Lithuania and also from Latvia. So also during these turbulent times, some -- the units have been traded, and we have about 5,000 investors altogether that we today can count off. Baltic Horizon has been, since listing and also actually before listing, a strong dividend payer. And over the years, we have paid out approximately EUR 40 million, EUR 45 million worth of dividends from the operating cash flows. It is a well-known fact that during the last decade, financing costs were very low and yielding properties were successfully able to generate a lot of cash. Our investors' expectation was to pay out that cash on a regular basis, which we did. However, we have all witnessed the past several years and what has happened in the real estate market, in the economy, first, the COVID, the lockdowns, Ukrainian war, rising energy and construction prices and, of course, higher Euribor. So the environment has notably changed. We are really in a new reality, and we all need to take this into consideration when going forward. And it is a very challenging business climate, I think, for all, for many. What we see today is that the relations with Russia have been basically put on hold in many ways. We would even call it Iron Curtain with Russia. So that is potentially there for a very long time. We are also witnessing construction costs, increase in wages. We are -- of course, the interest rate environment has changed and money will be costing much more than last decade. The environment is stabilizing, the indexation numbers are coming down and the latest EU indexation -- or sorry, the inflation number was lower than expected. But the ECB seems to be always behind the curve as they were in increasing the rates. So we do expect as well that they are not that quickly willing to slow down those rates in the coming quarters. We are also in an environment where the working patterns have definitely shifted. Flexible working is here to stay. The impact to the office segment is yet to be seen. We do see and expect that for the coming periods, it will be stable. But it's definitely a new adoption for both tenants and property owners, how the new offices will look like and so forth. But as has been said in many locations and conferences, and many studies have shown that people are expected back to the offices. And for most companies, it's important to retain the corporate culture to innovate and to go work together. And from the distance, this is not as efficient as in live format. When you talk about retail and consumer focus and consumer expectations then, just spending money on shoes and fashion is history. People look and expect much more from the money that they are spending, and services is something that everybody looks to experience. Of course, food and entertainment is something that, especially after COVID, people are really looking forward to, and same goes for traveling. So there is definitely an ongoing shift as well in the retail segment. And for us, as I think for many other businesses, tourists are key. But the tourists are only slowly returning to the cities and the city centers, but we are seeing this happening still very, very successfully. Now here, what we would like to emphasize is that Baltic Horizon Fund has had to face several challenges and is adapting to the environment. So -- and we have analyzed our portfolio and, of course, the assets that we have acquired. And we today know that some of the assets, we will sell and we have sold, but some of the assets we will definitely focus on. And we do believe in the city centers and the potential of the city centers and the city center assets that we currently hold. So already by the end of '21, by selling G4S property, we have been executing our asset disposal plan. Of course, we -- as we financed some of our debt with the bond and after the interest rates started to increase, the bond market went into a total turbulent reality. So -- and our bond was also maturing this year in May, so it was quite a challenge to refinance the bond with additional or other means. We were thinking about refinancing the bond already beginning of last year. But after the war started, the market wasn't there. It was initially a total chaos, a lot of distrust. So we thought that to execute the refinancing of the bond successfully last summer was quite difficult. Also, we continued negotiations with our anchor investors throughout last year but did not come to a mutually acceptable conclusion throughout those negotiations. We were also thinking this year that perhaps we should do a public offering to investors of the bond. But it was easier to make a private placement to a few investors that we negotiated the terms with, so we decided to take that route. And in the meanwhile, we had asset disposals ongoing because we needed to reduce the bond amount, which we knew that was going to be more expensive than previously. We achieved a result with bond investors, where almost half of the bond we are able to pay back throughout the next 12 months. And this is key for us when going forward to reduce the expensive debt that we have in our balance sheet. So we do also have other call options later on, so if the time allows and the means are there, then we would like to reduce the bond amount later even more. Also, at the same time, what has been happening is a rejuvenation of our centrally located properties. And in 2021, we started and executed the renovation of Europa, a new look and feel, a new food hall which has successfully been opened. And the journey started to convert the property into a mixed-use asset. And that journey continues. So -- but if you look at the potential in the future, then after the disposals, our gross asset value will be reduced to around EUR 270 million. We will have 12 cash flow producing assets. We will have achieved hopefully an LTV -- net LTV below 50% or around 50%. And still, majority of our assets are located in prime locations where we see a lot of potential in. So as our top assets are located in the central locations, so we would like to share more details about those and where we are, what is our journey and where we would like to be. So we see that mixed-use properties in the city centers will be the winners in the future. That's what we're believing. And the people, yes, they were forced to stay at home during COVID times. So people are social beings and they do look for reasons to come to city centers for one reason or the other, to work or to visit, to meet or to spend time. And they just need reasons to be there. And in the city center, all property owners are thinking about how to attack those tenants to spend money in their location, in their shop. So new concepts and developing concepts, adopting concepts are key. So we believe in retail concepts that really bring together not only shopping, but the beauty, health services, just spending free time and just creating an enjoyable experience one way or the other. We do also believe that food is the new fashion. We have seen that in our 2 food halls that we have opened in Europa and Galerija Centrs. And we are thinking about now a third food hall concept in our cinema building. So there has to be a unique selling proposition and it has to be also specific to each asset. So in terms of Europa, where most of the people that visit Europa are working or living in the area, that needs to be catered to their needs. In Galerija Centrs, in middle of old town, it needs to cater to the people also living and working and studying in the area but also for tourists. It's a major destination and has been for tourists, so tourists is the most important customer there as well. And in Postimaja, it's a mix of everyone, not only people living and working but also traveling as the new tram line is being constructed. And we do see that when we execute the plans that we have and fill up these properties with those suitable tenants, we do see an NOI potential of up to EUR 18 million by 2027. So other office properties are supporting from the cash flow perspective, but yes, a lot of effort has been and will be put on reducing the vacancy of our top assets and getting in the tenants that we believe will add value to these concepts. So now a more detailed overview of all the 3 assets. I'm not sure that everyone has all visited these assets. So we would like to give more of a flavor what these assets are and why we'd be leaving those assets.

Yes. Thank you, Tarmo. I'll take over and present you the Europa case. We actually chose to name every single building with a slightly different wording. And we call Europa the service center, and this is because this asset is truly in the heart of the CBD. We see a huge development happening around the building, and we believe that it will become kind of a go-to service center for all the people living in the Šnipiškes area in Vilnius and also all the office workers in the CBD area of the city. As some of you may know, the Vilnius CBD has been rapidly expanding over the years and the current stock is around 300,000 square meters there. But kind of the construction doesn't stop here. There are at least a few sizable projects that are being implemented at the moment and will be built in the future. So the total stock of the Vilnius CBD is expected to rise from 300,000 square meters to 500,000 within the next 5 years, which will bring additional new office workers which will bring additional residents to the areas and which, in turn, will likely become the customers and the traffic for the Europa Shopping Center. Even now, we see that roughly 40,000 office workers, some 40,000 visitors are coming to the CBD every single day. And we are definitely capturing them through our current and future unique sales proposition. If we are to describe the target audience of the CBD and the main people that are coming there, it's high-income, young and active target audience. So we have to be proposing the services that would be needed for such kind of audience. And for that reason, we will be introducing a 3-in-1 concept and have been introducing a 3-in-1 concept, which I'll talk about a bit later. But if we talk about the concept in general, the rejuvenation of the whole building already started in 2021 when we started the refurbishment of the shopping center. And we've so far invested EUR 6 million kind of to attract several key tenants in the building as well as refurbish all the common areas of the asset and build Dialogai food hall, which is kind of always, I would say, packed at the lunch time and a good destination for the office workers. This also allowed us to build new entrances to the building, to build the new elevators which are helping with the flow around the building and for us to really achieve the expected like path for our customer in this particular building. So far, the 2023 kind of implementation of the strategy has been quite successful because we already signed leases for 800 square meters, and almost 3,000 square meters are in the pipeline. It's -- we are truly working with strong tenants that will bring significant value to the building. And we are trying to implement the new retail trends when we are thinking about what we should offer to the clients. And for us, it's truly important to have signed new leases with sustainable tenants like E-shaped or TexTale, which was signed not long ago, and then introducing the whole kind of additional sports cluster through a pilates studio in the third floor, as well as our current tenant Lemon Gym has been also expanding, so -- and contributing to the new strategy which, in turn, is quite simple. We are seeing that we need to introduce basically 3-in-1 concept, which is food spaces, fashion and then services and beauty in the shopping center. So our general idea revolves around building it in different floors. The first floor for the shopping center should be the food spaces and the convenient type of shopping, whereas the second floor is fashion. And then we want to concentrate the third floor on the beauty and medicine as well as offices in this particular asset, which again brings additional flow to the building and allows us to truly capture the most value of the building. And we've been shaping the strategy for the last few years, and it's been an exciting journey to reshape the strategy of the building. And as you saw from the signed leases, we already see the first results. Additional leases are about to come. But even this early in the journey, we have already received quite well recognized award in the local real estate community, which was the award for the Best Shopping Center Renovation Project in the Baltics, and this award was given to us yesterday. So it's been basically the international jury of real estate experts have evaluated the new concept and strategy of Europa and decided that this is worth the award. And it's a good path forward. But as with everything, the concept changes are made to not only make our customers happy but also our investors happy. And as you can see, the COVID impact was quite significant on Europa actually, and we've seen the decrease of the NOI and the occupancy over the last years. From 2019 to 2022, there was more than double decrease in the net rental income and, of course, '22 was somewhat affected by the reconstruction. We had higher utility expenses and others. But we expect that the path forward is to actually get back to the previous historical levels of the NOI of 2.5 and then to exceed them in the near future. So we do believe that this particular concept can help us achieve that.

Some new visualizations as well of Europa here. But moving on to the other top asset that we have in our portfolio, Galerija, what we call now a lifestyle center in the middle of Old Town. As you can see a picture of Riga and also the new Rail Baltica terminal, which is under reconstruction already. So again, the property was also heavily hit by COVID, by the lockdowns, by the tourist flows drying out and the recovery journey has taken a bit of time. However, in this location, we do believe that investors are coming back, and we see from the numbers that they already are there. Just at the beginning of this week on Monday, when Latvia received or won their bronze medal and it was declared the national holiday, then Latvians were all back in the city center and in the Old Town. And also Galerija Centrs hasn't seen that many visitors for quite a bit of time. So in the heart of Riga, what the city is also planning is they have a specific plan to bring people back to the city center. And so the Mayor has declared that the municipalities is very much interested in creating additional -- and helping shops to open again, the restaurants to open again, services to open again. And we see Riga moving definitely towards this direction. The center is a historic center, it's built in the 1930s and has been renovated many times. And after COVID hit, we developed a new plan for Galerija, where sporting goods and similar are on the third floor, fashion would be on the first and second floor, but the fourth floor and the fifth floor will be either for services, food, beverage, beauty. And that's how we believe that this mixed-use center will be successful in the future. Now more specifically, the BURZMA food hall that we opened at the end of February, it was a very special project. And what we have heard now all across is that the Riga Old Town was really missing for something like this that would attract people back to the city. And we're really, really happy to contribute to that. So what we have seen is the footfall increase of more than 30% and the net rent for the fourth floor from the turnover rents and the achievement of the little food places has developed or has resulted in a net rent of more than EUR 20 per square meter per month. So I think real estate people understand that to achieve that on the fourth floor is quite good. For Galerija, we also have already a signed lease agreement and the opening of the ARKET store, flagship store is underway. It will be a first in lot, we are first in Riga, and I think also a major achievement for the team ARKET is the newest brand of the H&M Group. They expect a lot from the visitors. And when H&M makes a decision and opens its store, then it is clear that the expected amount of people visiting will be high. There are many leases still under negotiation, but -- and the full force is put on getting those signed in the nearest future. Also from the NOI point of view, the NOI had dropped quite a bit because of the COVID lockdowns and because of the shifts in consumer behavior. But again, we see a potential of more than doubling the NOI that we expect for this year and the coming years based on the lease -- anchor lease agreements that we have signed today based on the concept, that we do expect to attract people back not only to the Old Town but to Galerija lifestyle center as well. I do recommend to visit BURZMA. They have a fantastic use of the Old Town and several terraces especially now during the summer time. And of course, during the celebration on Monday, the place was fully packed without the place even to move. And third, last but not least, I think a lot of Estonians and many others know this property very well. We have acquired both the Postimaja and the cinema building over the past years. We all know that what is happening today in the area is a tram line construction. We hope and expect this to be finished by next spring. And that will, of course, again make this area much more alive than it is today. What is good is that we have already achieved 100% occupancy in the Postimaja building by prolonging the leases and renting out also the last vacancies. So also the tenants believe in the future of this location and the future of the concept. Also, we have the old cinema agreement still valid with Apollo, but active negotiations are to bring also the Apollo cinema and entertainment concept to the next level. And we're very much working hard on getting a new lease agreement in place, which will then make this property 100% let again. So in terms of what is happening for these properties, we would also like to consider the concept of a food hall for the ground floor of the cinema that would add value to the visitor that is visiting the cinema and bring some -- either some services or something that would really complement this entertainment center. We've had plans, and we do have actually a construction permit to build these 2 properties together. At the moment, we are working on each property separately to get it fully leased. Unfortunately, at this point, considering the increase in construction prices, we are not planning to move forward with a full development of the 2 properties together, but still keeping and refreshing our business plans and keeping an eye on whether this could be done in the later years. We already see a recovery of the NOI of the complex this year, and the upside maybe from this property is not that large compared to Galerija and Europa because most of it is already let. But with the new concept of Apollo and additional tenants taking up the vacancy and indexations that we expect to happen, there is also NOI upside that, together with our evaluator, we see for this complex.

We mostly discussed our retail assets because we see the highest value growth potential in those particular assets. But as Tarmo mentioned, for us, it's important to maintain the whole portfolio. And another key asset, which we are working on is actually Meraki Office Home. We've built the asset last year, and we can probably say that it's been a challenging environment in the office space to lease out the office premises fully. We see that the overall take-up in Vilnius market has been decreasing quite heavily, and there's quite a lot of subleases happening in the Vilnius property market, and the tenants are definitely rethinking their choices of offices following this COVID period and the current changes in the market environment and they're considering whether to downsize or not and whether to move locations. But so far, we've managed to attract certain clients to Meraki, but we are still searching for the main anchor tenant for the building and as well as to supplement the remaining areas with smaller tenants. As of right now, the main tenants of the building are Luminor Bank, Baltic Line, InMedica, Altic IT and others. And we, again, do believe in the capacity to lease out this building over the next 12 months. It's truly a good modern 8-story office building which is fully equipped with all the tools for a sustainable house. And as a result, we are expecting to achieve BREEAM Excellent in 2023, which is given to highly sustainable buildings. This is one of the key selling points of this asset to the tenants and as well as to the whole community of Pašilaiciai in Vilnius. But again, even if we look at a straightforward asset like Meraki, where you -- in the past, you would typically say that it's a very standard office building, we see that the trends are changing and you have to redevelop the offices a bit for the client needs. So we see that the future tenant mix should not only be the office segment, but it should have flexible office solutions. That's why we are implementing this office hotel concept, which is mostly short-term offices or small places for the companies to use and as well as implementing some additional amenities which are needed for the benefit of the clients such as having a clinic there, catering which -- and other services, which should take up to 20% of the building. For now, we have the opportunity to build a second tower there, but we are not aiming to implement it in the very near future. We are investigating several options how to move along with the B Tower, whether it should be another office building with a strong anchor tenant or whether it should be a residential project or some other type of project. So this will be evaluated through -- likely through this year, and then the fund will make the decisions on the B Tower at the end of this year or beginning of next year.

So moving on to the financing part of things. So far, we have presented the portfolio that we have, what we have disposed, what we believe in, in the future, where do we see the NOI growth. But of course, we are in an environment where cost of money has increased. And so historically, Baltic Horizon has been one of the funds who has always aimed to fix their interest rates over a period of the years when making investments. And we've had the hedging ratio, which is an instrument to use to fix interest rates of around 80%. Of course, today and last 6 to 12 months, we have faced the total deterioration of the bond market. We had a bond issued in 2018 to diversify the cost of financing and diversify the source of financing, and the main aim to do that back then was to reduce the amortization of the loans and be able to pay out regular high dividends. In today's market, even though that our bank loans are -- form of the total loan portfolio more than 70%, close to even 80%, to refinance the bond was not an easy task and just availability of capital, debt capital was a big question mark. Also, the cost of that capital was a big question mark, how much will that be. However, now we have successfully refinanced the bond and are deleveraging, looking ways out to decrease the bond going forward. As of end of first quarter -- and because of the hedging ratio that we have and many hedges on the bank loans, our average interest rate was 3.4%. We do expect this interest rate to increase in the coming periods but gradually, also depending on how quickly and how much we can pay back the new bond. So we're looking for various ways how to decrease the cost of debt for the coming periods. So coming down to, I think, to the core of things and what we are -- where we are today and what we are faced with. I know that we all expect regular dividends from Baltic Horizon. But today, I think it's a prudent decision to withhold those dividends for the time being given the turbulent market conditions and also uncertainties for the future. It's not an easy decision to make. But this time, we believe that to withhold dividends, at least for the time being, will definitely strengthen the fund and its asset performance, also the ability to service its debt. And looking forward to -- we are looking forward to work on the NOI, increase the NOI based on those results to achieve higher interest in our funds on the stock exchange and rather work on the confidence of the investors towards the fund that will hopefully then also result in a higher unit price on the stock exchange, which as we all know is very low at the moment. So we are working with the capital that we have in hand. We are making disposals to free up capital to pay down debt. As of today, no new capital calls are planned, so we're working with what we have. And as we described before, even though for the past quarter, the NOI results in our top centers are still recovering, we do see that the leases that we have signed are recovering the NOI. Also, reducing vacancy means that not only we would earn more rent, but we will have also costs -- utility costs covered by the tenants. So this is very encouraging for us. And when it comes to as well financial goals for the future, that last decade operating with an LTV between 50% and 60% was reasonable, I would say, even this was at the low end. Then going forward, we believe that reasonable loan-to-value should be below 50%. And our main goal when the markets -- the turbulence lessens and more stabilities in the markets and our NOI growth further then, of course, go back to the regular dividend payments from the operating cash of the fund. So very bluntly, what we're -- where our team's energy goes into, just to conclude this presentation. So we want to strengthen our balance sheet with disposal of the assets. We have successfully sold in this difficult market environment 3 assets actually over the past 6 months. We want to reduce the expensive debt that we have at hand, also through these disposals to bringing up cash and reduce the LTV ratio for that matter. Then each and every property has a leasing strategy. And our team, in addition to the signed anchor leases, is in negotiations with many anchor tenants, and we hope to have good news as well to announce very soon. Several of the anchor tenants like the food halls are already open. ARKET will be open end of this year, renewed H&M concept. In Postimaja, in the heart of city, will be shown to the public beginning of next year with the new tram line being constructed as well. And as well, main focus goes to having a new agreement with Apollo that would attract for sure not only tourists but also people living in Tallinn the center. And we will continue our negotiations with certain tenants to make as well Europa a diversified service center for the future. So these are the things that we are working on. And if those will be completed, then we believe we can achieve the financial goals that we have described in our strategy here and in this presentation.

So I will see now the questions. So a question on the future yields. And I think income of the 2 most important properties, Europa and Galerija, this income potential we described a bit. We believe that today -- in today's market, the yields have shifted between 50 and 100 points upwards. But I think with the new stabilization, it should be expected that mixed-use properties in the city centers with medium- to long-term leases in a good environment probably would again trade at around 6%. So this would be sort of the -- what also market participants have sort of opinionated to be the long-term average top yield of certain properties in the central locations. There is a question on the dividend policy for the next 3 to 5 years. So as we mentioned, that today it is prudent to withhold dividends. Dividends obviously depend on the net cash flow of the fund and depend as well -- and that depends basically on the NOI, on the occupancy. So what -- on the same side -- at the same time, it also of course depends on the cost of debt and what sort of investments are needed for the properties. So what we have mentioned in the past, that we have the dividend payouts semiannually or decisions, let's say. So I think every 6 months, we will discuss dividends again. And of course, as mentioned previously, if possible, if the financial position of the fund allows it, then we want to pay out the dividends in the coming years. There's a question about share buybacks. And that's also a very good question as we have received a mandate from the investors to buy back shares. So at the moment, we see that it is more prudent for us to reduce the expensive leverage of the fund. And there is also quite a lot of limitations for the share buybacks. And perhaps also, Edvinas, you would like to add something to that, the reason why we have postponed the buybacks for the time being.

Again, it's mostly the financial leverage part. For us, we see that the cost of capital from the bonds are a bit more expensive than what the share buybacks -- the effect that the share buybacks would bring to the table. So our main goal is to first reduce the bond amount. And then if we have sufficient cash left over for the buybacks, I would even say that it's more a financially prudent way to earn a good return on the investment for our investors, to do the buybacks compared to the dividends at this very moment when there is a significant gap between the NAV and the market price of the fund. And it could again help to bridge the gap against these 2 metrics.

There's a question also on the stock market and the value of the unit and why is it trading at the level where it is trading. So it is, of course -- market is always right in that sense that if investors believe that the fund should be priced at this moment at that level, then that's how the reality is. I think we have also witnessed some sales over the past periods which have been very, let's say, aggressive in terms of -- and we've seen that happen in -- by the Swedish sort of investor base. So yes, we do hope that with the results in the upcoming quarters and our ability to reduce the expensive debt, we'll add additional confidence to the investor base and to look at Baltic Horizon as more of an opportunity, yes. But however, yes, market is still quite uncertain. There's still quite a few risks. And we're working to manage those risks for the future. So there's also a question about the Meraki office building and when we started to develop this property. So Meraki office building is located next to the Domus Pro Shopping Center. And the third phase of the Domus Pro Shopping Center back in 2017 was a 6-floor office property. And when we started, the reason that we acquired the adjacent plant plot and started the office development was actually in view of some of the tenants that were growing in the Domus Pro third stage office building as they showed interest. So we did have around 25% at that moment of pre-leases and actually now several -- and that moment as well several negotiations with anchor tenants. However, when we started the construction into end of 2019 and the early '20s, the COVID hit, so it was a lockdown, and those negotiations didn't succeed at that point. However, as of today, we have achieved 32% occupancy, and many of the tenants from the Domus Pro office building have actually moved to Meraki. And we again put our main efforts there to fill up that building in the nearest future. There's a question on the buyback program, should it be canceled. I don't think we want just to cancel it. It's another tool in the toolbox. And if we do see that there's a reason to buy back units -- I think one has to understand how regulated this buyback program actually is. And yes, it is reasonable today to buy back some of these units. But effectively, we are -- I think it's more important now to keep liquidity in the fund than buy back units. As well, I think it's also not a correct sort of expectation that this buyback program will definitely increase the unit price. I think the unit price potential is only shown -- could only be shown if the results of the fund improve and if the market environment settles. I think we believe that our assets are not valued at 35% or 40% of the current value. For example, even if we would sell the whole portfolio today, I think it will still be much higher. We are not planning to sell the whole portfolio today as we see potential. We don't want to sell assets that are still recovering from COVID, and we do see potential in those. We don't want to sell assets at the lowest possible price. So again, the team is working hard to recover from these turbulences and market -- sort of market changes. We have a plan. We are committed to delivering it and aim to work on this with the team until the successful results appear. Do you understand?

[Foreign Language]

No.

[Foreign Language]

[Foreign Language] So I don't know if there's any questions from this audience that has come to the meeting. So perhaps -- we're open to suggestions, we're open to further questions later on over e-mail. So from our side, we would like to thank everyone who participated. And with any news, we will of course share that either through the stock exchange or through our other communication channels as soon as possible. Thank you very much.

Thank you.