Good afternoon, and welcome to Baltic Horizon's Q4 2023 webinar. My name is Tarmo Karotam, I'm the Fund Manager, and I aim to give an update of Baltic Horizon Fund. General words about last year, Q4, we are in February already, so also some comments of the latest developments and outlook for this year will also be included. So let's start. We have devised a letter to the investors beginning of this year, and also announced it through Nasdaq, and that's where we have aimed to be very precise about our goals and where we are today. Last year was a very challenging year for us.
A lot of major events happening, and if just to talk about last year, then the year started with the disposal of two of our assets in the secondary locations in Vilnius. This actually, the process had already started in the autumn of 2022, so the aim of those transactions was to find suitable buyers at attractive prices and increase the liquidity of the fund for the upcoming period.
Generally, I think we were successful with the achievement of disposing these assets at the prices that we were able to get back then. I think, today, we would not get those prices, and the market has really moved down after that. But anyway, then, last year we had also a bond to refinance, and it was a difficult moment for in terms of market conditions, a lot of volatility. However, we were able to secure the refinancing of the old bond, which were maturing in 2023, and managed to restructure it into two tranches, one short-term tranche and one long-term tranche, together with two bond investors, local bond investors. And since then, we have been focusing on deleveraging and paying down the first tranche.
It was the total bond is EUR 42 million, and first tranche is EUR 20 million. So in the summer of last year, we refinanced EUR 7.5 million of the EUR 20 million, so EUR 12.5 million is still outstanding. But overall, I think we had also change of some of our anchor tenants in our office buildings last year, in Upmalas, SEB, and Emergn, in Ilien and KATE. So it was a lot of work to get new tenants in, and that's where actually most of our efforts went at the end of last year.
So when we look at this year, then, we have, I think, quite realistic goals, and, and at end of last year, our occupancy of the portfolio was probably the lowest. We have worked to sign several new anchor leases in Europa, in Upmalas. I think that's all been published as well. So, but for this year, we have a goal of 90% of total occupancy across the portfolio. And, I think, this has been also LTV target has been a long-term target for us, and, we used to work with 50%-55%, but, we have reduced it to 50% or lower.
Of course, today's real estate market, the transactions being made at lower levels hasn't helped us too much because evaluations were affected by other market transactions because of discount rate differences and exit deals going up in evaluation estimations, but we still have a target of 50%. We ended up with 57% end of last year, so we have been amortizing our loans as well, and continue to do that also this year. It's all about, you know, having more sort of confidence in today's volatile world about the income side, but also the debt side being managed and reduced, as we are today.
Then, I think overall, maybe a comment on the investor letter, it was devised, we are restricted, of course, what we can say, and it was devised together with quite a large team that we have, as well as lawyers, just to help us understand, you know, what we can say and what we cannot say. But I think these are the three, four key principles that we are currently working with, overall, when it comes to fund management, going to the future and one of them is also that we have reviewed our strategy and I will come to that in the future slides.
We are still considering disposing one or two of our assets in the coming periods. So, but overall, we do see potential in our portfolio as of today, and there's still quite a bit of vacancy to be filled. We have signed several anchor leases, so the occupancy is already increasing or has increased, and we expect to increase it also during this year and next. And here we have also sort of viewed our potential of the portfolio of the NOI being close to sort of EUR 18 million, and the target to achieve that is in the next few years.
Then, more precisely, you know, we wanted to explain, you know, what is our strategy all about, and I think we have explained it, or tried to explain it in our annual reports and other communication. But with this investor letter that has probably summarized it in more precise manner. And thank you for the good feedback on the investor letter. We see that it has been appreciated by the investor base and many other market participants taking notice of this letter.
So, when it comes to our strategy, then, we still believe in city centers, and, despite of COVID, restrictions, you know, influencing the life in the city center and the tourism, then, we see it strongly returning. I'm not saying that there are not hubs, you know, in places in the outskirts, but I think city centers still remain in demand from both tenant and investor perspective. And, we do see that also within the negotiations that we're having in our properties. Glad to say that Postimaja is fully leased as of today. We're working on a new anchor in the cinema building, active negotiations there.
In regards to Galerija and Europa, the top floors have taken more time to fill in. But it also comes from our view that let's not fix the problem for one year, but let's really find a solution for a longer period of time, and also at the right commercial terms. You know, you can fill in premises today, and I think many of the retail centers today, not only in the Baltics but across the region, are renting or, you know, giving out premises to tenants that you know virtually just cover the utilities costs. So that's not our aim, you know.
Our aim is to sign up tenants that fit our concept, that are actually in demand by the visitors. So that the visitors win, the tenant wins, and then eventually the landlord wins and is able to everybody's able to make business and get the services and products that they actually need. So it has taken a bit more time, but I can confirm that the negotiations with the anchor tenants are ongoing also in Galerija and Europa. In Europa, last year was good progress, we increased the NOI by 50%, from EUR 1 million to EUR 1.5 million, and expect a similar pace this year. With Galerija, the increase wasn't that visible, but it's because many tenants, such as Arket...
Arket moved into the property at the end of the year. So we did have sort of forced vacancy for about a year at that location, just to wait for them to move in and start paying rent. Food hall has been a great success for us, also financially, and so we aim to continue with that. And we have a plan, and we have a clear approach to execute that plan also this year and sign at least two anchors in Galerija and on the top floors, actually, to fit the concept of Galerija. And the same goes for Europa.
What also we believe in what happens in the city centers is the development. So people, you know, city centers are becoming more congested, more concentrated. So, you know, in Tallinn and Europa, where the city center is more sort of understandable, we have both commercial, residential, and public infrastructure projects happening, so we believe that will support the locations on a long-term basis.
When it comes to, you know, the impact of, let's say, interest rates and the, and also economic downturn in this region, then, we somewhat see it, and I also understand that somewhat our tenants also feel it, especially, I think, the first quarter of this year will be tough for some retail tenants. But, it doesn't seem to be a big issue actually for many, and, in some cases, you know, we are happy to see that actually the turnovers have remained relatively stable. Yes, they haven't decreased, but they also haven't decreased that much.
So that gives us also sort of, let's say, positive sort of understanding of the future that, for example, if Tallinn, in Tallinn, the tramline is finally finished and, and interest rates hopefully will start to stabilize and many of the developments are completed, then there is—there's quite a bit of upside potential, I think, for our tenants and also for our properties, when it comes to rental income and occupancy. So yes, it's been tough, I think, for Europa, Galerija especially, but then again, you know, we believe in the medium to long-term future of the city centers, and that gives us also confidence to move forward with these properties.
We also see that the anchor tenants believe in it. Yes, it has taken longer time than we anticipated because of many reasons that are external, but, you know, our team and we do what we can, and as soon as, and as fast as we can, you know, to increase the occupancy in these properties. So when it comes to the office segment, you know, since COVID, we've been also like anybody, everybody else, we've been contemplating on what's the new future in the office segment. So, it's definitely so that some particular tenants will definitely need office space. They will need cabinet structures. They will need also flexible spaces.
But it is true that flexible working is here, and there are tenants and companies that basically don't have an office at all anymore. So that has definitely influenced the office segment also in the Baltics and especially in some areas like IT so specifically. So the market is really adapting to it, and also when you look at the development projects coming to the market, yes, there are some, but for the coming years, the pipeline is definitely decreasing.
We also see it, and we're talking with the banks. Then banks are also extremely skeptical of financing other projects like that, unless you know one has quite a high level of 70% or 80% pre-leases, which is very difficult to achieve in today's market. So the market has rather stabilized, and it's looking at its new equilibrium. And where we see our properties, you know, office properties falling into this is that yes, we have certain anchor tenants move for various reasons.
But the tenant market remains active, and not only in Vilnius, less so maybe in Tallinn, but also in Riga. And that's the reason why we were able to also attract the police headquarters. I think it's a good precedent overall for the market. And since yes, you know, many times these municipal governmental tenants also look for solutions with national real estate companies, but national real estate companies also have certain rules and certain capacity. So, with police, I think it was absolutely critical for them to get modern, up-to-date premises for the entire force.
You know, in the meeting with the police chief and the executives there, they did actually show us a presentation of where the police was situated and is situated, and which premises they are actually what level or what quality they are, and they were extremely poor. So they were very content that they could find a solution with us. So and that has really increased also a level of public tenants in our portfolio.
So, we believe that despite certain risks related to sort of public procurement, we do see that they are long-term tenants, and so we—if you keep them happy, they are quite, I guess the professional word to use here is sticky tenants. So, we continue to look into that also in the future when it comes to the vacancies of our properties, then you know, that's where also the concepts are developing based on the anchor tenants. So we will be looking for more public tenants or tenants that work together with police in Upmalas.
We have also a concept developed and in process, let's say, for LNK. So we believe that, you know, when you have an office building today and just randomly open to the market, then it doesn't work as well as if you have a tenant or an office building focusing on a specific concept, on a specific segment. So that's what we're trying to do in Riga today. When it comes to our modern city life concept, and that's something that as well many stakeholders have also come to specify what does it exactly mean?
What I can say is, you know, it's a summary of, I think, how we see, you know, the life continuing in the Baltics. That is, first of all, you know, we still believe it's in, it will be in the cities, and especially also in the city centers. What we mean by modern is really, you know, the post-COVID world that the retail segment has moved into definitely more convenience, but also more, you know, entertainment, more services, more destination tenants. So, window shopping is something that we really don't believe in.
So, and the office segment, as I mentioned previously, that hybrid work, but also the right layouts, the attractiveness of the offices, especially when the occupants, sorry, the employment of the Baltic States remains quite high, then it's really, really important for companies to have attractive premises where to work, where to get inspired, where there is me space, where is we space. So, that's what we see. And life, I think also definitely signals the experiences, and potentially as well other segments such as social assets that we're looking into potentially considering for our portfolio in the coming periods.
Then, I'm focusing now on the investor letter a bit more as it was a plan to explain it or elaborate on this a bit more during this webinar as well. So, we have brought out a table of our properties in the retail entertainment segment, and show the occupancy. So, of course, these numbers are relatively dynamic and sort of changing, but this gives you a bit of a picture that... And what I mean by active negotiations, you know, on the last column there is that we do actually have active negotiations on commercial terms, on the layouts, on the fit outs, on other specifics.
So, contracts actually being shared and you know, real, real serious discussions with real serious anchor tenants. What we're happy to see is that we do have tenants that move across the portfolio, both in office and retail side, that especially, I would say in retail side, where you know, if they're already in one of our properties across the Baltics, then they are also considering other properties that we have in the other capital cities. So, what I can say is that Pirita and Sky have been stable and are expected to be stable supermarkets. And so the focus has really been on Europa and Galerija.
Yes, we still have one anchor negotiation in the cinema building as well. But overall, yeah, the NOI last year increased in this segment, I think largely to do with Europa. We expect further increases this year. Yes, there will be some fit out investments also needed from our side, but also from a tenant side. I think we have the best team currently, you know, in place to not only search for tenants and to negotiate with them, but to work together with our asset management team to really form long-term relationships and continue to bolster them also into the future.
So some of the best comments that we receive is, you know, that we are a listed fund, and they are looking for a stable long-term partner. So, so this is music to our ears from the fund perspective as well. So, when it comes to the office segment, there is also a lot of activity. So, I think what I can say about the office segment is by the end of last year, it was a good achievement that we also prolonged all of the leases, or most, I would say, most of the leases—no, actually, I can say all that we wanted to prolong.
SEB moving out, that we knew already, year something like that in advance. So there were no big surprises to us, I think, in the end of last year. So then the focus has really been on filling in the vacancies. And yes, there is vacancy mainly in Meraki. In Upmalas, we talked about the police and S27, which is the LNK property. So lots of our focus has gone there. For Meraki, I can say that end of last year, when we had, I think, the occupancy rate there of 32% in the early autumn. So we made progress there.
The second half of the year, we really felt that Meraki has regained momentum, so we did achieve an occupancy level of 47%. And there are different negotiations with different tenants also still ongoing with different stakeholders and partners involved. And then S27, it's probably you know the biggest challenge that we have. You know, in terms of occupancy, the level of occupancy has decreased, and we need to find a new life for that property.
The good thing is that, as we were in Riga just a couple of days ago and talking to the local community, getting the fresh news is that Skanstes is definitely in demand as an area. Elemental, developed by Kapitel, the Estonian family office, has been finished right next door, basically. 20,000 square meters of new office space rented out to strong tenants. So, it has definitely brought more life to the area, and we do have visits and discussions with certain tenants there already. So, we aim to give, show some results also this year in LNK property. And, Nordstar, we have prolonged all the leases.
We're happy. I think there will be one or two prolongations also this year. We expect a stable income from both Nordstar and Lincona, where we have prolonged the anchor leases for 2024. Then, the tenant mix of the portfolio has changed a bit. So, there has been a few names that are not here anymore due to disposals and due to one or two tenants relocating. But, what we also have new names, and as I mentioned, from the public sector as well, so when it comes to large tenants.
So, so when it comes to the breakdown, then, the exposure to Latvia is close to 50%, so, definitely needs a lot of focus to get the properties filled there. And, yeah, we know what we're doing, so, work is cut out for us, so it's all about filling the occupancy. And, and so I think this year will be definitely a year where Latvian properties have to deliver, and that's where our our main focus will be. The yield numbers, I think overall are not attractive at all. And, we clearly, I think I can clearly state that also on behalf of the fund management team and the company, that, we're not satisfied with these yield figures.
But we do see potential, and that's, I think, is much more important than looking at the snapshot of the moment. So, and the negotiations are happening, so we do expect the portfolio yield to improve throughout this year. And as we have said as well, the portfolio yield target of 90% for the end of 2024. So this is also a slide comparing each property. I think I have commented on most of these properties already. So we do expect further increases in the NOI in Galerija and Europa specifically. And in some of our office buildings as well this year.
So last year, there was an improvement in retail of close to 12%, whereas in the office segment, due to the vacancies, mainly related to the SEB and Upmalas and the S-27 LNK property on maintaining a vacancy in the second half of the year. And when it comes to leisure, which is the cinema property, then we are working to fill in the ground floor vacancy. So that should also improve the results for the coming period. So when we talk about the rental income, then clearly we had a decrease due to disposals and due to some vacancies.
But overall, we obtained a net rental income of EUR 14.6 million, which was actually close to our budget. So I'm happy that we were able to budget the results quite well. I think what was a bit unexpected was valuation losses, also not only in mid-year, but also at the year-end. I think the whole market had quite a lot of discussions with evaluators, and it's not an easy job for the evaluators to evaluate the market based on so few transactions. But I think the result is here. We consider this result, you know, technically on paper.
So, you know, if one would actually be selling the properties today, then it could be very different for different properties. So, yeah, the evaluators didn't have an easy task this time around. But I think what we believe is that the market has bottomed out. And also for Baltic Horizon, when it comes to the occupancy, then that you know last quarter it was hopefully the lowest ever, and it will continue to increase further. And same goes for cost of debt. So that we've had a good start of cooperation with Šiaulių bankas, and we were able to refinance 2 of our loans at attractive terms.
But the discussions and negotiations took almost six months. So now we're ready to reduce the bond, and that will be happening shortly. So that will definitely affect as well the financial expenses, cost of debt and... So our job is quite simple actually, this year, is to increase income and decrease cost of financing. So we have a portfolio of EUR 250 billion. Today, it is about EUR 80 million less than last year, mainly due to disposals, but also some devaluations.
So, we need to work with the portfolio and continue to increase our income, and hopefully, there will be also some transactions in the market, maybe not in a short while, but that would stabilize the valuations and as well further potential for it. Then, what I'm happy to say about our loans is that, we've had good cooperation with our partner banks, and we have been able to prolong all of our loans. I think there was a question on the Galerija loan and as well on LNK loan prolongation. So, I think we are confident to say that, in a short while, we are able to prolong them further.
So, it's been a discussion with our partner banks, and they have wanted to see certain either valuations or certain results happening. So, I think we have also the information that is key for them. So we have provided that to them and are looking for prolonging those two loans further, I think, which are most imminent. Europa and Nordstar has been refinanced. So, I think the job on the loan side has been or will be done for this year relatively quickly. And, the bond I mentioned, it is key for us to pay down the full EUR 20 million by latest by May this year. So we will be working on that.
So before I go to the questions, in a way, just to summarize. So I think some key events for us definitely has been the cooperation with Šiaulių bankas and the new loan for five years for the two properties which are doing well. And with that, we are able to refinance the bonds. We are still working with certain refinancing cases and potential disposals to be able to increase the liquidity further for us in order to continue welcoming long-term tenants for us, but as well keep liquidity buffers for certain unexpected events. I think this year economically will be relatively challenging.
So, hopefully we're looking at a stable year and it will not worsen considerably. I think there is some optimism in the air on the reduction of the Euribor, but we're not making any sort of fantasies around it, so we will... It's a bonus, you know, so for us, it's a bonus. So, and we still have hedges, you know, many of them until mid-2024, but also certain caps until even 2025, 2026, that will help us, especially on the bank loan side. So, in that sense, we're relatively content.
Then, when it comes to, you know, the leverage target of 50 or LTV target, so yes, as I mentioned, 55 is not anymore a short-term reality. So, I think we feel comfortable when it's below 50%, so we will be working on that. And yes, so I think the last comment is about the partners that we have. So there was a question also on Meraki rent level, and I think what I can say is that we have a premium product in that area. And so we haven't lowered our expectations when it comes to rent.
So overall, we are targeting EUR 12 on average for the whole building, and I think that's a good achievement in the area. So there's a question on Galerija and the yield. So Galerija's yield is influenced mostly about, mostly because there is larger vacancy and that it, the, the, let's say, how we bridge, how we aim to bridge the gap is actually that we believe that we can achieve quite high, relatively high rent levels and in the top floors so as opposed to Europa. So we will be working definitely on increasing the yield both off Galerija and Europa continuously.
So, there's a question on what sort of non-strategic assets do we have for sale? I think, you know, we have had several discussions, I think, over the past couple of years, you know, that many potential buyers have approached us for certain properties. Sometimes we have approached as well, potential buyers if, you know, we felt that we would like to dispose something. So it's been ongoing dialogue, but I think, when I mentioned previously, you know, strategic assets being in central locations and having public tenants and perhaps one can derive conclusions from that. So there's a question on the refinancing of the bond now in the next few months.
So, yes, major part is coming from refinancing of Europa and North Star loans. The remainder will be a combination of either refinancings, cash available or some disposal. So, I cannot say more, but this is something that I think we've communicated to the market as well, and we're working on various angles. We're discussing things with bondholders, and I think there will be announcement about that also very soon. So there's a question on the CapEx, and yes.
So when it comes to CapEx, I think, maybe I could elaborate that, on that a bit more because it's definitely a topic, across, you know, the real estate market today that, you know, when you have, tenants changing and when you have the concepts changing, that, you know, the fit outs, sometimes, you know, the tenants actually bring their own budget, like we have had, you know, with police and IKI. But, but, in many, many cases, you know, landlord has its contribution.
So it's really a question of planning and so CapEx, you know, has to be optimized and has to be, yeah, first of all, optimized that, you know, you find the best solution, you know, not paying for something that is not needed and not, you know, overdoing without works. And also that how to schedule it properly against, you know, incoming cash flows against refinancing and all the rest. So for us, you know, what I can say is that over the past three years, we have invested close to EUR 13 million in our properties in a turnaround and in refurbishment and in full renovation.
For this year, you know, our CapEx budget is, you know, it again, you know, may, some discussions with the tenants are prolonged. So that may be prolonged into the coming years, but you know, it's definitely at least EUR 3 million. So with also the commitments that we've had to tenants in the past, probably realistically also a bit more so. It's difficult to give a very exact number here. There is a question on a direct property yield. When could a direct property yield be 8%? I think the answer to that is that first of all, when?
Yeah, so, so first of all, we need 100% occupancies in our properties or close to that. So I think that would take, twelve to, I would say more than 12 months, so probably, you know, realistically, hopefully 24 months. Some indexation definitely needs to happen, and, we, let's say we have other plans, which maybe I cannot disclose at the moment. So let's leave it, let's leave it like that. So there's a question on, on, you know, how, how. You know, why, why don't we, why don't we announce more, over stock exchange, channels, like, like loans being refinanced and lease agreements being signed? So, I think, first of all, we have to abide by the, Nasdaq rules, which are very, very strict.
And, we also have to, you know, think what is, you know, according to rules, what is material, what is precise, and, and, and, what is concrete enough, so, that type of news. So we have to find a balance. It's true that, you know, we have to find a balance, what we consider important information and, and, material information. So disclosing all the small things that we do, you know, in our properties is definitely not the way to go. But, it's been on our, I think, constantly on our discussions that, you know, how much should we disclose and, and what can we disclose, and so we have, I think, definitely engaged more our social media channels and, and other marketing activities, yeah, apart from Nasdaq.
And with Nasdaq is also the, I think, maybe the restriction with Nasdaq is that you have to be very precise and very concrete and very short. So to elaborate on things, give comments, I think that's quite restricted. So what we try to do is a combination of Nasdaq announcements and press releases, you know, something that we also share with the newspapers and social medias. But it's a good comment, you know, that we, you know, it's a constant reminder for us, you know, because we know that investors-...
expect more information rather than less so, and we want to give as much as we are allowed to, and hopefully we will make further progress also in that area, as we did with the investor letter, which was well-received. A more specific question on the Postimaja, on the picture that could we have a roof terrace there? Yes, there is like a little garden on the third floor inside the... Well, I think to call it a garden, maybe it's too much, but a little patio. It is being used by MyFitness, and there's a lot of people going there.
So, I remember that there are some issues there with the load bearing of the middle part, so it's difficult to have larger gatherings, you know, but I think MyFitness definitely appreciates it. So, in fact, it is all almost a cafe type or a patio already being used by MyFitness clients. So, for all the locals, I do recommend you to visit it, so. I think there was one comment about our ESG and about our, you know, you know, green energy. So overall, I think over the years, we put a lot of effort into it, and especially on the low-hanging fruits.
So, what can we really do that makes sense and really brings us the best utility or best advantage? And I think we've done that. Mostly we continue to do that, green leases for our tenants. And we're close to, you know, achieving the full majority. It's been actually quite a process. Then, of course, certifying all of our properties, so we have BREEAM certified now all of our properties. So a lot of work has gone into that. When it comes to green energy, then, and you know, how do you look at the energy prices today from the landlord's perspective? Because it's been quite volatile, quite expensive.
What tenant expects are stability and so we've had various solutions to that in some of our properties where we've been able to put, we have put, solar panels such as Pirita, such as we have on top of Meraki, the new development, we have been looking into Ukmergės. In many of our properties, technically, it's not possible to put solar panels such as in our old town property, Galerija, and Postimaja, for example. So there's not enough space. So on that, unless there are some more modern solutions coming, more effective solutions, then we will consider it.
But, I think the way we have approached it is that, many of our energy suppliers do offer green energy packages, and, and especially in Lithuania and Latvia, we've been working with that, and, we've signed agreements, I think, at quite competitive prices. And, we have also fixed, for certain periods in some properties, our energy costs, but not to a 100% level, but, but rather to a 50% level of the consumption. So, still trying to hedge the risk of the energy cost not being that volatile in the future. So... All right, so I hope this was an informative webinar.
So please, continue to ask questions and, and, hopefully, hopefully, we can answer them. So we will be focusing on our communication. I think that's, that's key and, and, in case there is any, any news, so I think there will be some news in the coming, weeks. So we will, definitely announce them as, as, as soon as we, we have them. And, and I, I think what I can say is that, maybe an end comment, that, that last year was, a very challenging year, a lot of large, events happening at the same time, quite a lot of volatility and, and, uncertainty. So I think, starting with this year, we have many of the, many of those challenges.
We have faced them, we have, we have solved them, and I think, the work is cut out for us. We need to increase our occupancy, we need to, decrease our cost of debt. And, together with our, our partners, our, banks and, the investors, also the bondholders, we, we aim to achieve it, and, we aim to deliver, strong results or stronger results this year, and, and, and, then we can already take it from there. Thank you, and have a nice day.