Hello, good afternoon, and welcome to Baltic Horizon Fund's Q1 webinar. My name is Tarmo Karotam. I'm the Fund Manager, and as usual, giving you the summary of the beginning of the year, what happened in our fund and also discussing some of the latest events also in the fund. Let's kick this off. Some of the key events happening on that quarter, which finished at the end of March, is that we were able to open our second food hall in Galerija Centrs. The first one was opened last year in Europa on the fourth floor.
As we see that food is the new fashion and as we are in the process of redeveloping our Centras located assets, food and beverage, and especially well-crafted food halls, for us are extremely important. As we see also from the first month's results, the numbers are actually very, very strong and very much look forward to the summer of Galerija Centrs and especially when the tourists start to visit the old town. We had sold in the first quarter Domus Pro retail and office center in the suburbs of Vilnius and closed that transaction successfully at the end of February, early March.
we had as our old bond was maturing, a final sort of rating by Standard & Poor's for the existing bond and given what's happening in the financial markets today and the challenges that we had to refinance the bond, we had a reduction of the rating. More, I think, importantly is that we were able to refinance the bond, and refinancing of the bond was a quite complicated structured process that started already after the war broke out a year earlier.
It was quite a sort of a year full of uncertainties, and the process itself required us to sell some of our assets, but also refinance some of the bank loans, so in order to be able to reach the agreement for the bond extension. I will talk a bit about that later as well, about how we structured the bond and what are we planning to do with it. Just a few words, you know, about how we see the real estate markets and capital markets today, quite quite firsthand as we were able to participate in this process.
Of course, with the COVID repercussions and the war with all the energy price questions, and now the increase in EURIBOR, generally rent generating real estate has been under quite strong pressures, and not only in commercial real estate side, but also in residential real estate side. If you look at regionally and across Europe, then many of the real estate companies have been hit. If you specifically talk about Sweden, then many real estate companies had been financing with bonds for years and also struggled to and still struggling to refinance some of the bonds that are expiring in today's market.
The rates that they are getting, you know, are around four, five, 6%, plus Euribor. Our case was in that sense similar that we had a bond which we launched in 2018 for five years, expiring just now in May 2023, in a very challenging moment. A lot of the discussions with the investors went to the structuring of the bond and since we knew that we wanted to reduce the bond amount as much as possible. In that sense, we considered private placement, we considered private debt, we considered as well public bond.
It became quite clear that in this turbulent environment is probably more reasonable to talk to some of the key investors that we already had in the fund, I mean, in the bond, and look for solutions with them directly, so in order to manage also the execution risk of the bond. How we structured this bond, as also was announced that part of the, or the first tranche, if you may wanna call that, is structured as more as bridge financing for us to be able to call it back, specifically the EUR 20 million part, over the next 12 months. We are taking steps towards that. I will explain a bit later what those steps are.
Also have a call option for the remainder of the bond in the coming several years . I think the structure for us at this moment of the bond was quite successful, successfully done. We are quite happy that we were able to pay back the full amount to our old bond investors and then continue now with fewer bond investors to refinance the fund and work on rental income increases in the coming periods. In this presentation, I will also try to answer some of the questions that were sent to me before the webinar.
If questions are not answered, then I will also see if I can respond in more detailed way over email later. Meraki, you know, since 2021, when COVID started and we started to also think about the future of commercial real estate and how would that influence both office and retail segments coming into the future, then first of all, it is still sort of yet to be seen how these segments move in the coming years. What I think first of all, you know, sort of office working partially from home and at the office location is here to stay.
I think that is quite clear. Also retail as it was known previously will be constantly changing as well. We have also reviewed our portfolio from the point of view that where are our properties located and what quality of the properties need to be for us to have also strong ESG ratings in the future. Also review what sort of investments are needed for some of the properties to take them into the next decade.
When we did receive a purchase offer for Domus Pro at the end of last year, and we considered it quite attractive and considered everything that was happening, we thought it is good way to free up some cash, pay back some loans, and deleverage our portfolio. We actually started it already in 2021 when we sold G4S office building, a B class office building in Tallinn, and really started to look how to reshuffle our portfolio. This Domus Pro property was actually developed with a local developer back in 2013. We were a financing partner there and became an owner at quite attractive entry price.
Selling the property now quite close to the latest valuation, I think it was around 4% discount to the year-end valuation, we were quite happy with the end result that we achieved over the period of nine years. Moving on to the latest, I think, information that was sent out to the market now, as we, you know, our style. The way we've, you know, manage Baltic Horizon is, and probably because of our investor base, you know, coming from Sweden is, you know, following quite a bit what the Swedish real estate companies have been doing, and for good or for bad. That has been the case since our main investors are coming from Sweden.
The, the old bond that we had, was actually to restructure our debt obligations so that we had, and I've seen I think I've said it many times before, a portfolio that had almost no loan amortization. We kept the LTV at around 55%, plus minus during this period in order to extract, you know, as much of cash possible from our rental activities and pay it out to the investors. Over the past, I would say, six years, the amount of distributions we've had a total amount of around EUR 45 million from, just from operating our portfolio. It was a priority for our investors and, that was a strategy, you know, a financial strategy back then.
Of course, the world has changed, now quite severely and as all real estate players are coping with new reality . When refinancing the old bond, we knew that we wanted to reduce the bond relatively quickly and for that reason, we had negotiations with several parties to acquire this property. With East Capital, we found the best match. Actually going through the process quite quickly and we have now signed the agreement to sell Duetos and also free up money from this transaction for our other needs.
The history of this investment was that it the both of the properties were originally developed by YIT Lietuva. First property in 2017 opened doors, second one early 2019, and that's exactly where we had a forward purchase agreement to buy these properties at an agreed price . The properties today remain fully rented, let's say 90% almost fully rented. There are several tenants in the building, major office tenants in Vilnius.
The price we agreed with East Capital was also, I think, it was a good price for both parties, for us to be able to , you know, get, free up our money and extract it for other needs and also achieve quite an attractive return for this investment over the past four-six years. There's quite a few events that have happened now already in Q2, so that's why this chart as of 31st of March will be slightly changing. For example, Intrum is in the Duetos, and also SCB in Ukmergė is going to be replaced by another tenant in the second half of the year.
Let's say our allocation has been also reducing in Lithuania to be more balanced for with the other countries . We're also now more focused on centrally located properties that we have in the portfolio, and I will discuss that a bit as well later right here actually. The three, I think, most important properties for the fund today are the centrally located assets that we have, and that's where I would like to spend more time on in this webinar. Also more time, even more time in the annual general meeting beginning of June.
We've started major turnaround of the property already in 2020 with the interior architects from Finland to create a new feeling of the property and take it from the 2000s when it was the first fashion center in Vilnius to a mixed-use service center in the central area of Vilnius. Of course, this takes a bit of time, but when we again look what's happening in the area, new buildings being constructed, not only office, but also some retail, but also some residential, then we do believe in the hub of institutions for the coming decade.
What we also see is that the new tenants that we have introduced, especially in the food and beverage segment , have been very successful. We see that the new concept is working, but the new concept is being introduced to Europa step by step. The Europa shopping center vacancy has still remained quite low, and it is meaning that it hasn't recovered much from the COVID period. It is around 80% today. This is because we have freed up some areas and are working to get a new anchor tenants into the property. That would be game-changers for Europa Shopping Center. The negotiations are ongoing, but again, multi-functionality is the key word here.
I do hope to be able to update everyone on this in the coming period. Now, second food hall opened in Galerija Centrs, and I do recommend to visit it, both food halls, if you are in town. You know, after COVID, you know, everybody was waiting for something new. Yes, Riga Old Town has been quite empty for, you know, for the COVID period and also the tourists are still returning. You know, Old Town is Old Town and city center is city center. With the new new train station being constructed now in the city center and some of the roads being converted into pedestrian areas.
You know, Riga City Center will definitely go through a major change over the next three years. 25, 26 are the terms for some of these major changes. What is another major change, and I don't know if many people know about it, but Vaļņu Street in Riga Old Town is to be converted into a main street of the city center, of the Old Town. something similar to Gedimino prospektas in Vilnius and perhaps Viru Street in Tallinn. Pedestrian Street attracting, you know, tourists, but also the people of the city back to the Old Town.
This is the priority of the new mayor who was also present at Galerija Centrs, BURZMA opening, and also supported by the city architect. So looking very much forward to see what the city can do for Riga Old Town. Apart from opening the food hall, we have at beginning of this year signed a new fashion anchor tenant, and I think there's already some news out, but more news will be sent out shortly. So we're already working on their premises on the ground floor. It's a new, let's say, concept of fashion and social shopping in this region.
This brand, also the first to open its stores in, in Riga. There was a big fight for this tenant with the other central and near center shopping centers, but we won the tender. I guess we all believe in the future of the Old Town sooner or later. We plan to open the this fashion anchor new concept in November 2023. The deadlines are very, very precise, so very much looking forward to take also Galerija to the next level with such a very attractive anchor tenant. The results of Galerija Centrs were influenced by the increase in vacancy.
As you recall, increase in vacancy also means not the costs are also not covered. In case we increase the occupancy , there is a double effect, meaning that rental income is there, but also cost coverage. But not least is our centrally located asset in Tallinn, Postimaja and Coca-Cola Plaza. Perhaps that property was affected by COVID the least and has recovered its footfall the quickest. We do see a trend actually in all of our properties for our tenants, where, you know, the revenues have been increasing and recovering from the COVID times. We do see also continuous increase in revenues even in April. Small increase, but still there .
With Postimaja, we have been prolonging many of the current lease agreements, and we are aiming to have the Postimaja part of the property, you know, fully leased out, including the second floor vacancy, which has been there, by September this year. Fully leased out prolonged lease agreements, and sort of, yeah, ready to take on the next period of three-five years when also the tramline will be constructed. Currently, if you, if you live in Tallinn, then you already know, but if you, if you don't, then Tallinn is going through as a city of major reconstruction. Many arterial roads in the city center are being now reconstructed because of the tramline.
Yes, there is quite a bit of chaos, actually. At least Rotermann District and the Postimaja area seem to be very central in the way that the tourists still walk past it and even, you know, the reconstruction. We see it also from the revenues. When the tramline is constructed and the new tram stops nearby in the fall of next year, then we expect again, quite a big boost for our properties, for our tenants.
Another, I would say, important, I think for the cinema is for us to negotiate the new lease agreement with Apollo Group, who are very interested in creating a first-class entertainment center in this area. They see a lot of potential there. We aim to agree on the new agreement now quite shortly. To maybe touch upon the major reconstruction we were planning before COVID started to build the two buildings together. Let's say that is still possible, but probably not now . We are working hard on, you know, both properties currently separately.
With the cinema new lease agreement, very likely the ground floor of the cinema, we will reconstruct to something else, whether it's some food and beverage, whether it's some services. And we also aim to refurbish that area by next year. Some of the, you know, more important focuses of the fund is also, of course, filling up Meraki office building. We just had our own internal Baltic Horizon session there just this morning. And yes, we there is still some quite a bit of vacancy, and we're very much looking how to communicate better to the market because there are reconstructions happening in the area.
There are several offices in the area, we are the newest ones. Of course, our the way to market the property for future tenants is as well, if you look at the traffic jams in Vilnius, then towards that direction, there is almost no waiting times. We're really targeting tenants for this property, companies that are operating already in the area and want good quality, very good quality pre-premises, you know, outside of the central business district. We have certain negotiations ongoing. So, but, yes, unfortunately, I don't have more concrete news at the moment. So currently the property is around 30% let out, and the tenants mostly have already moved in.
There's definitely some potential there. Now, I think these numbers also speak for themselves, that to decrease the vacancy in Europa and Galerija Centrs will still take some time. Currently, it's more structured vacancy for the new anchors to move in. We definitely see potential for 2024 for the NOI to recover quite considerably. We have had one tenant also expanding in Lincona, so that occupancy should also be increasing now in the next quarter. Pirita remains currently quite stable. We're working on the ground floor. There is some small vacant premises there. Postimaja I already discussed. Sky is actually fully rented, a very good cash cow for the portfolio.
LNK and Vainodes fully rented out on a long-term basis to the state forestry. Currently, they have expanded just recently into some area which they subtenanted back few years. With LNK, we are in negotiations with the tenant for their future office needs. Potentially will be also news soon about that property. North Star remaining stable. We have let out the vacancy that was done or what was happening what was the result of the COVID crisis. Duetto, we have now sold, as well as Domus Pro, or will be sold in the coming several weeks.
Now, one would ask, you know, you know, why would, why are we selling, the, you know, the properties that we have sold? I think I briefly talked about it, also before. We do see, you know, in this turmoil, of, you know, real estate and, usage of real estate, what would be the future of, both office segment, retail segment, perhaps also, other segments, we do believe that, on a long-term basis, capital city centers will be the most successful. Yes, it's been very, sort of even disappointing, I would use the word, that, and surprising that, this COVID crisis has affected, the central areas of the cities the most.
We do see the most potential in those properties rather than anywhere else. The focus of the fund is definitely on anchor tenants that would be game changers for both Europa and Galleria and Postimaja for the coming periods. Other properties in the portfolio has remained stable. If you would look for the recovery story of Baltic Horizon and how we are aiming to increase revenues for the coming periods, the focus is on the centrally located properties. We were able to index beginning of the year, and we are still indexing in office more than 3%, in retail remained quite stable.
I guess also because of the vacancies, we had some temporary discounts given in the leisure segment, which is the cinema. Generally, like for like, rental development is also positive in Q1 and should continue to be positive in Q2 and Q3. Some words about the financial results. We were able to overall increase our rental income, regardless of some disposals. However, due to vacancies, our cost of rental activities has been higher than previously. The rental, net rent NOI of the portfolio remained quite the same as compared to last year.
admin expenses, as you know, the net asset value of the fund has decreased somewhat and also due to the unit price, there's been some reduction in the management fees over the past years. Due to the bond refinancing program and relisting our fund in Stockholm, then we had some admin expenses, which are one-off. Hopefully, we can show now better results for the upcoming quarters. We have also recorded a small loss of disposal on at Domus Pro. That was that 4-5% of the discount to the latest valuation. We did have some increase in our financial expenses as well.
Overall, the quarter was strongly net cash flow positive, but was affected by some of this one-off events. When deleveraging, yes, we have also a reduction in our assets. Have had some reduction in our assets and we'll also have probably in the second quarter due to the sale of Duetto, but also reduction of our liabilities. We do have also valuations coming up by in mid of the year. It is currently unknown what would the values be, but we hope that they will be somewhere around the current valuations. Probably some assets will decrease in value, some assets may increase in value.
As evaluators have already taken into account the increased Euribor, but we'll see how much that will affect the valuations now in mid-year and at the end of the year. I think very important for the investors is our debt structure currently. We have refinanced many of the loans over the past periods and paid back some of these loans. You can also see on the right side, the fixed rate portion of some of these loans. You know, over the years, we have been focusing on getting hedges and in interest rate caps for our debt obligations.
Also our bond, old bond, was with a fixed coupon. Especially now, in the first quarter, the increase in Euribor, so our options or hedgings were actually in the money. They helped us to reduce the cost of debt. As is now known, the new bond is with more expensive margins. And as well , it will not be fixed. I would say the fixed portion of our interest rates will be around 50% over the coming periods. Many of the hedges are until end of the loan term, but some of the caps are also longer.
Some of the hedges are even up to 2026. Currently, they are definitely helping us, but they will be also expiring in the coming periods. But mostly in 2024 and 2025. With the sale of the assets, we are targeting an LTV of 50% and aiming to minimize the cost of debt for the fund as much as possible. The end of Q1, our cost of debt was 3.4%. We have some of our also loans coming up for refinancing. We have already discussions on LNK and Upmalas Biroji. Positive discussions with the banks.
Bonds we have refinanced, and then for the beginning of the year, we have Galerija Centrs and Europa. With the major changes now happening in Galerija Centrs this year, we see that the Galerija Centrs loan should be quite successfully be rolled over, as we have already reduced it during the COVID period as well. Definitely the markets remain challenging, and we are yet to prepare and see the developments with the Euribor and interest rates. The market is expecting the peak of interest rates in the fall this year. However, the question remains, when would the central banks be starting to give more positive signals to the market?
Today keeping a bit of cash buffer for both adverse situations, but opportunities has also been on our minds and one of the targets of the fund. Before I take a look at the questions, and hopefully many of those were answered already, just to stress on the main priorities of the fund for this year. You know, we have several anchor like negotiations with in our top properties and we've already signed and prolonged many of the leases. A major focus on that, on Galerija Centrs, on Europa center, on the cinema and on Meraki specifically. We have a new tenant coming in in Upmalas.
We have won the tender. Negotiations are also taking place there at this moment for them to move in Q3 this year. Reducing the leverage, since we operate in a very different environment than several years ago when, and we'll likely continue to operate in an interest rate environment where interest rates, where money costs something. In that sense, we are satisfied with the transactions that were made to be able to deleverage the fund. Of course, we have reviewed our expenses, and I continuously look for cost optimization opportunities. Once again, increasing occupancy is the best solution here because the costs can be recovered then as well.
For this year, we continue to be committed to have all of our properties certified with BREEAM and this is in final process for also for our retail assets. That will be definitely completed during this year. Again, longer-term view of what properties we want to have in our fund and to have a target to improve the energy efficiency classes of our properties. Of course, you know, reshuffle some of our assets which are already older and potentially making room for some newer assets in the future. There was a question on who are the bond investors that we have.
I think today, public information is that the LHV pension funds have continued to be our bond investor. They were also an anchor investor in the old bond. The second investor, I think I can say that it is one of the family offices in Estonia. The proceeds of Duetto sale, we will use, there will be, I think from this transaction if it's closed and adjusted, roughly, you know, EUR 15 million worth of equity released. We are still now calculating how much we will refinance and when, but yeah, majority of the proceeds will be used to refinance these expensive bonds.
There will be of course, stock exchange notices when we refinance or call back some of our bonds. Let me see the question. We can call the first EUR 20 million also in tranches. It's not the total EUR 20 million that we have to repay at once. We're also generating, you know, funds from operations and yes, it is a priority to decrease the bond as soon as possible. For the remainder part, we have call options later on during the period. We also don't have to wait 5 years to pay back the remainder of the bond.
Here we're definitely working very hard on our centrally located assets for their NOI recovery so that we'd be able to repay back the whole bond when we deem it possible and necessary. There is a question of the pro forma cost of debt after issuing new bonds and selling Duetto. Since we haven't yet decided on the amount of bonds there and which will be refinanced, then, you know, there are several answers to that question. We hope to be more precise about this when we've actually closed the Duetto transaction and have refinanced part of the first tranche of the bond.
There's a question about Europa. Yes, we know that it's been on media many times and not always being positively regarded. For us, it's just very strange how is it so because of the plans that we have there and the anchor tenants that we are, you know, discussing with. For us to sell the part of the parking, for example, was I think a very successful transaction because the parking that did and does need renovation, and we with the co-owner there, we have very, very different views on how this renovation should take place. In regards to that, the parking is now part, you know, being paid.
It's not the case. If you do shop in Europa, then, you still have free parking for several hours. What it has done is freed up, many of the spaces there for people that were using it just as free parking, and never visited our center or never even visited the office building. You know, why should we then, just give the out free spaces, for these people? We rather focus on our customers and promote, you know, our customers, to park and have more space. It is also well known that for years, in Europa, it was very difficult to find parking space because everybody was abusing it. We want our customers to park there, rather than, just random people.
There is currently a system in place where if you go to Europa and buy something, then you still have free parking. Of course, we're monitoring the situation and want to improve it still with apps, with making it more convenient, all the rest. There's a question on the valuation of Duetto and the sales price. The sales price agreed is EUR 37 million. If I recall correctly, then the valuation of last year of Duetto was EUR 38.9 million. I think considering the circumstances in the market, we have the parties have agreed on a deal that both parties are happy with. Then there's quite a few questions on the dividends and it is, of course, challenging times.
For the reasons of bond refinancing, we have postponed the dividend payments and have used operating cash of course to pay back the bond as much as possible. If I can currently not answer this question because we haven't yet decided, you know, even the Duetto transaction, you know, it's not done until it's done. There's certain things that still have to happen before we can make a decision on that. Currently, we plan to make the decision on the second of June in the AGM, taking place in a couple of weeks' time. Hopefully this webinar was informative and thank you for the questions.
If I missed some of the questions, please try to chase me over email or by phone. I'm also open for meetings. Thank you once again and let's talk soon again.