Good afternoon. This is Tarmo Karotam, I'm a fund manager of Baltic Horizon. We host the webinar of the third quarter to give an overview of the fund's third quarter results, and talk about the situations, the events that are happening in the fund. Let's kick this off. As usual, 30-40 minutes presentation, then open to questions, which I will then address afterwards. I will also try to already address some of the questions that were asked before the webinar, as we go along with the presentation.
The main events for us in the third quarter were related to our refurbishment projects, and mainly we have fully completed the refurbishment of Europa shopping center, and as we like to call it, more a community center. We have totally turned around the ground floor and refurbished the facade elements as well. In regards to the tenants, yes, we have full hall, which has 10 different food outlets, and very happy to say that it's working very well. On the other side, we have Graak Cafe and another cafeteria that offers busy business people in the area, in the city center of Vilnius, morning snacks and lunches and evening drinks as well.
Generally, we're quite happy with the result. Meraki first tower completion took place and over as well. Its first building is fully operational. We had also an opening event there, and now it's in the same, as you know, in the same vicinity as we have our Domus Pro complex. It is now a big complex of office and retail mixed use complex in Vilnius. I will give more details about this later. Also, as we are preparing for the refinancing of the bonds, as everybody knows, the term is May 2023.
We have for that engaged as well Standard & Poor's to give us a rating. They've confirmed this is also due late summer, so our rating has remained unchanged. Furthermore, what happened in the third quarter that we got back our GRESB rating scores, which is the sustainability benchmark. I'd be happy to say that we've made some progress there. Not only, you know, making our properties more efficient, but also focusing on the processes that we have in place and upgrading them to a level where we were able to receive a four-star rating.
There's still a lot of work to be done there, but it's definitely good progress for us. Yes, last but not least, for the past quarter and as well in the fourth quarter, we are working on prolongation of many of our loans, mostly office building loans. That is definitely work in process. To comment on the portfolio. Generally, the quarter was relatively, let's say, relatively as predicted. Overall, maybe the big change here is that we have included now Meraki in these tables, in the occupancy rate table. Meraki currently is about 24% leased.
We're working on an anchor tenant that should definitely increase the NOI and the occupancy and the yield of the property. Our plan was what we did last year, we sold G4S building and sort of changed G4S to Meraki brand-new building, BREEAM Excellent certification and was just finished. We have some tenants already moved in. In regards to the yields, the direct property yields that one can see here, we definitely expect much more improvement in both Galerija and Europa Center, but as well in Postimaja.
Mainly why the yield has been still so low, especially in Europa and Galerija , is the ongoing reconstructions that we've had there. That's why we had to sort of complete them before new tenants could move in. Already now we could see that Europa's occupancy is increasing and will be increasing further in Q4. Also happy to say that all tenants that have moved in terms of turnovers, they have done better than they expected, but is also better than expected. That gives us good comfort about, you know, the concept change that we're definitely on the right track. Otherwise, yeah, relatively stable, we have prolonged many leases.
Let me maybe also look at and show the NOI development and comparison. As one can see, you know, most of our properties developed very positively and in yeah, I think worth commenting here is Europa and we received less rental income than we expected. That was again mainly to do with the reconstruction, also some discounts that we had to give to some tenants because of the reconstruction and areas that were not well accessible to the people. We definitely see Q4 to be an improvement here and as well next year.
Overall we have been indexing rents and I think yesterday we had announcement about October and of course these results show up until September. Yeah, with the improvement of occupancy and indexation, the rental increase was quite notable. We're quite happy that finally the numbers are starting to show some evidence of the results. Overall the portfolio is in the same shape as it was before. We have most of our assets in Lithuania and Latvia, so no, we haven't made any acquisitions.
We are still having a retail office portfolio and when it comes to the anchor tenants then they're still the same anchor tenants. There was a question about you know what are we planning any changes in the portfolio? Yes, I think we have said it openly that we are in the process of selling Lincona and as well selling Sky. The process has taken a bit more time than expected, but let's say negotiations are ongoing and we expect to finalize those still this year. That's definitely the goal.
We're working on potentially another sale of a smaller property. I think more news will come to that when this is made public. Effectively focusing on the city centers, that's what our goal is and on our strategic assets. More details about the main events in our properties, especially with our tenants. I think a change that we had, which is also notable is that Newsec Property Management, the most well connected, let's say, property management company has taken over Europa's management as of first of November.
At the same time, several lease deals and letter of terms have been signed, for example, Sportland, we prolonged in Galerija Centrs. They expanded from the fourth floor where they now the new food hall is coming, they moved to the third floor, so future destination on the third floor. As well in Galerija, we are in final stages of signing a new international anchor tenant for all the property, starting from third quarter next year, opening the doors. When it comes to Postimaja, then we opened the pharmacy and ongoing works are for a brand new Revol Cafe, which is also an expansion to the street level.
All of this we believe makes the properties more lively again and definitely increases the footfall, but also overall retail spending. What's interesting to see in the shopping centers today is that the footfall hasn't yet, you know, reached 2019 levels, but turnovers have. Yes, tourists are not all back and, you know, still some aftermath of COVID happening.
Yes, the turnovers are back to 2019 levels, and that's probably to do with some inflation in terms of the products and services that are being sold, but also that people are visiting less and spending more. That's definitely the trend across the board. Quite a few interesting tenants in Europa, which I didn't mention before, for example, Avitela, a electronics gadget shop, so not selling washing machines, but rather gadgets, electronic gadgets for everyday use of office workers.
That has opened very successfully, and as well, Odore d'amore, new concept, it's sort of a beauty salon, sells makeup products and then at the same time has a bar. Definitely worth a visit when in Europa. A few other expansions and extensions like MyFitness and Delta peak in Pirita Red Cross office sort of outlet that we brought to the third floor of Europa, but they also service customers and especially during this time in the world, they found a good location in our shopping center.
Domino's Pizza, I didn't mention, this is a tenant that we would like to introduce to Sky next year, probably in the second half of next year. Overall, lots of work with tenants to prolong leases, prolonged several Rimi leases, and when it comes to the office segment and in North Star, we have filled in the vacancy, the 1,000 sq m that was due to some premises given back by the State Tax Inspectorate last year. Now that is almost fully leased out.
I think another notable event for us is one of our assets, cinema building in Tallinn, next to the Postimaja complex. The tenant has changed, so Apollo Group has taken over this property with their operations. Now the Dark Nights Film Festival is happening and people are visiting the cinema increasingly a lot. The plan with the Postimaja complex is to expand first the Revol Cafe and the anchor tenants are thinking their rejuvenation plans, which they plan to work on next year.
The cinema building, our plan there is to work together with Apollo on the ground floor to bring in some additional tenants over the next year to make this a real entertainment center and place for also sort of food services and some fashion. More words about Meraki, as it's also pictured here. We decided to do the first tower and that's now been completed. That included as well a large underground parking which we have also completed. The second tower currently is not built and will be built only if we find additional anchor tenants.
Yeah, we have tenants already moving in, Imedica, which is a clinic, IT company also, financing company and Luminor as a bank, and several tenants already have moved in and starting to pay some rent now in Q4 and going forward. We do expect maybe one thing I didn't mention. We made some sort of analysis and for example, our portfolio yield currently is around 5%.
With all the increased occupancies that we foresee both in Europa and Galerija after the reconstruction is completed, also Meraki turnovers and some indexation that our goal is to achieve when our portfolio is in sort of close to fully leased out, then the portfolio yield can increase up to, you know, 6.5%, but maybe even higher. That's our definite different goal and to continuously increase the portfolio yield by operations. Some pictures of Meraki. Yeah, it's a brand-new building with a park in front. Very happy to have completed it. As well, Newsec is assisting us together with CBRE with the anchor tenants.
We have participated actually in two tenders where we have got the second place. There are tenders upcoming and we continue to participate in them once we get the property filled out. It's definitely the highest quality building in this area. Still some pictures. Now, I think latest news was also that, you know, we shared some visualizations of how Galerija Centrs, the fourth floor food hall will start to look. One picture is seen also here. We have worked on the name of the new food hall. In Europa it was called Dialogai.
In Galerija Centrs, it would be called something else. Maybe too early to still say it here. The construction works have started, and it's going as planned. Beginning of first quarter, we plan to open it and let's say that the big opening probably in April, beginning of the spring. It is half of the fourth floor and also a small terrace will be included there. There will be different type of. In terms of tenants, we have actually signed up 90% of them already. Half of them are grab-and-go tenants, but half of them are also stay-and-dine sort of tenants.
We expect to have an offering, you know, throughout the day. The more the breakfast, the lunch, and the dinner. Definitely make it a destination on its own and in Riga Old Town and there's no real food hall in this level in Riga today. I have a few more pictures of the Europa. Refurbishment was just finished and we also with the new escalators and the amphitheater and Ali Cafe as well. Bakeries and coffee and cakes very popular. Some more pictures on the Galerija Centrs food hall and we aim to complete it pretty much as it is in the pictures.
Now a bit more about the numbers and the where we are today. In terms of you know our portfolio and when we were hit by the COVID lockdowns in 2020 and 2021, then much of the work has been to you know rejuvenate our centers. It has taken a bit more time as spoken before Galerija and Europa. By the end of this year, we have completed our investment program fully and you know beginning of next year in the Galerija food hall. In that sense the investment program as such has ended.
We have focused and we will see more improvement now in the NOI next year because of this contract signed. Currently, I think for this year we expect similar NOI than last year. Regardless that, you know, G4S was sold last year and it's not contributing to the NOI this year. There's already has been an improvement about EUR 1 million. For next year, with this portfolio that we have, we forecast the NOI to increase to EUR 19 million based on the contracts and what we see today in our portfolio. I think that's something important to, you know, consider.
It's definitely for us a realistic goal, you know, given the current circumstances. We estimate the gross asset value and the valuations to remain quite stable by year. Yes, there is a push on one hand, you know, with the discount rate in the discounted cash flow valuation. You know, whether that will change a bit or not. On the other hand, you know, indexation of rents, and that's definitely a balancing act setting off. I think the valuations should remain quite stable. We are indexing our rents. I think you know, everybody in the commercial real estate market is doing that.
As we have various lease agreements, let's say many of them have European Union CPI, you know, and that, you know, inflation in the European Union is what, 8%, 9% today. Many of them are also local CPI contracts. However, some of them do have caps, you know, around 5% and some don't. It's a big mix. We are definitely indexing as much as we can. I think that's also represented in our NOI forecast for next year. The comment here on the net rental income and probably cost of rental activities, that it was much higher than comparatively last year.
This is mainly to do with uncovered owner's costs due to, you know, the vacancy in Europa and Galerija Centrs. Those vacancies, you know, also had utilities to be used and that when the premise is vacant, then the owner has to pay for it. Also in August, when many of the vacancies were replaced in the energy prices, especially the electricity price and especially in Lithuania skyrocketed. That was a considerable amount that was sort of increase in the owner's costs, and I think that's represented here.
What I see now is because of the different support measures across all Baltic States for private citizens and as well for companies and for our tenants as well. You know, I think it has calmed down a bit, the situation and the big fear of you know, nuclear winter and you know, energy prices increasing ten times maybe has calmed down a bit. That's what I see, you know, from the discussions with our partners, with our tenants. However, cost of energy and cost of I would say, utilities overall has been increasing.
But as well, I see that many of the tenants are pushing this sort of inflated cost already to the end customers. I guess that's how everybody's trying to cope with the increase in utilities and other expenses. The next year of course will be challenging, I think. But I think as well, you know, what we hear and what we read is that also the consumption of the utilities has decreased overall, giving some comfort, but still very unexpected environment will continue. That's what we believe.
A note on the trade receivables, that hasn't really changed much. That's on receivables, which means, you know, basically unpaid invoices at any given moment. I think that's generally fine. As well, we are in the process of refinancing some of our obligations. I think one deadline is actually next Monday, when Meraki EUR 4 million bonds become payable. We are going to refinance those. As well in the process with the banks to refinance our loans and increase also the loan terms. We're discussing another five-year loans with the banks.
Yes, I got ahead of me already. One thing I think I need to mention, and it's been mentioned, I think before, is that, you know, whenever we have taken the loan, you know, in 2018 or 2017 or 2019, we have always tried to hedge it and try to fix as much as possible the interest rate. One way to hedge it is with a swap. But also we have had quite a few caps, which is capping the Euribor increase. So many of our caps are, you know, at 1% Euribor, 2% Euribor and 3% Euribor.
If Euribor goes to 5% or more, then in that sense, we're quite well protected. However, in terms of cost of debt, you know, currently our cost of debt is around 2.8%, also in the third quarter, but I think we also estimate some increase in the cost of debt. It is currently difficult to say what it will be, as we are in negotiations with the banks and as well the, I think the main influencer will also be the bond. I think it's fair to say that what one should expect is maybe let's say quite stable margins with the banks.
I think we will have some more amortization now in our loans going forward. Currently and up until now, we've almost had no amortization and that has been, as one may remember, our goal to keep the cash in the fund level and not to amortize. Definitely amortization is probably going to be increasing, you know, across our portfolio, not in all loans, but in the new loans. Then the bond market is quite volatile today, and I think there will be some news about the bond as well very shortly. Basically, the bond is maturing in May 2023.
We are going to visit the bond investors and bond market in that regard as well already now. It is also probably one can expect that you know we would try to get a bit more bank loans this time around from the banks and then see if we can issue a lower amount of the bond. Not EUR 50 million, but slightly lower. But again, you know, this is work in progress and I think at the moment all I can comment. We definitely you know want to be ready for some increasing cost of debt.
That's why, you know, working on our NOI and occupancies as well as indexing our rents at reasonable levels is very important for us. Last but not least, question on the dividends. Overall, in the past, you know, we have aimed to pay out the majority of our net cash flow from operations to dividends. Over the past quarters, the generated net cash flow as well increased and expected to increase, you know, as we continue with the occupancy increases and new tenants indexing our rents. Again, it's a bit difficult to say at the moment what will be the new dividend level considering everything.
Our priority is to pay dividends and do it regularly. We have decreased the frequency due to these turbulent times to semi-annual dividends. Next time a decision has to be made in late January, early February, based on the situation. In regards to maybe a comment on the unit price, which is on the stock exchange right now. It is you know almost you know 35% or even more below the net asset value based on the last evaluation. Many have asked you know also me what could have been the reasons for that.
You know, I can only say what I've sort of monitored and viewed, that of course when the corona started then it was the lockdown that affected our centrally located assets, and that was the first sort of drop. Also we saw a major drop now after the war has broken out and you know the uncertainty around energy costs and uncertainty about you know the Euribor and financing costs. I think those are the main reasons.
Of course, what we saw as well was that when the war broke out then many Swedish retail investors sold their stake in the fund quite quickly trying to, you know, exit this region with all kinds of investments that they may have had. That pushed probably the price down even further. At the same time, you know, when we speak to our largest investors, the Swedish pension funds and family offices, then many of them have actually even bought some more. There was a question that, you know, whether the management has bought any fund units over the past years. That's also the case.
There was one other question. What do we plan to do with the buyback program that we had put in place. Yes, buyback program is definitely a tool in our toolbox. It's something that we are still, you know, thinking about using. The question is, of course, when. But it's a highly regulated process. We had to clarify many things with the Financial Supervisory Authority about the intention and how it's being done.
I have to be, you know, careful here, you know, in terms of more regulation and any to avoid any kind of market price manipulation. This is definitely not our goal. It's in an organized fashion. You know, this tool is in place for three years, so we're happy that it's in place. Many things, you know, we have to ask our investors' approval in an annual general meeting. We don't need to ask that anymore. Let me see if there's any more questions. Mm-hmm. Maybe a few more words on Meraki.
Maybe what our analysis has been is that's why we have lost those two anchor tenants. One reason it was that we competed with an older property in a similar location, let's say, in Vilnius. What we understood is that they dumped their rent price very low. We have taken note of that. Let's say we are open for negotiations with the tenants in terms of rental level. At that level we thought it was not reasonable to compete.
The other actually interesting one was that the tenant preferred another location, even though we understood that they paid more than our rent level was. It's quite interesting to analyze the logic of the tenants. They have to also think, you know, where their employees are working. Our old properties on Ukmergės Street and in a densely populated area where , you know, even behind our center, you know, the dwelling houses are currently being built. It is the fastest growing region in Vilnius, as far as I know.
We do wait for and look for a tenant and have some discussions already with those that want to be in that location predominantly. I see another question here. I think I answered it already that during August, mainly August, the energy bill was very high. We did pass, you know, all the utility charges across to our tenants. But due to the vacancy, you know, according to the contract, according to the contracts. But yeah, then we had vacancy, and then we had to cover some of these high energy bills ourselves. Let's say it has stabilized. The utilities cost slightly has increased.
You know, across the board, what I know from the latest numbers, it has stabilized to the levels which are not extreme. Yes, everything is getting more expensive, but still at reasonable rates. I mentioned the rental income, the NOI target according to our view to be EUR 19 million for next year and closer to EUR 20 million for 2024, given the current portfolio. That we estimate comes from increased occupancy rates in our shopping centers and also some removal of discounts. As well, you know, indexation of rent and then Meraki will also hopefully contribute to that.
In terms of triple net leases, then, I think, there's a good number to monitor in our quarter reports and that's the margin. Usually the margin of costs being covered or the net rental margin means that, you know, how much of the utilities and all surcharges are being covered by the tenants. Usually it has been around 90%, now last quarter it was 84%, and again, because of the vacancies. We estimate this to increase to around 90% also in the upcoming periods. Back to the levels because the rental agreements also in retail centers are triple net, the new ones.
There are a few old agreements that are not triple net for some specific reasons. It is sort of up to 10% of the portfolio. Of course, you know, when these rental agreements become renewable, our goal is to have these renewed. New question, correct, yeah. Without selling Sky and Lincona currently, that's our NOI target. If we sell them, you know, the aim is of course to reinvest the money. Current target is EUR 90 million.
There is a good question about, you know, risk management and, currently, our, you know, to decrease the financial exposure, and that's something we are very actively also discussing. Actually, over the past quarter, and actually during the last quarters, we have repaid back some of our loans, especially regarding, you know, Europa and Galerija. This is something definitely on table that we are discussing. Also, you know, selling Lincona, and maybe another property here would decrease the loan to value ratio. Yes. You know, there are these. I think I answered these questions.
In that sense, maybe last question here just to repeat that there are a few non-strategic assets that we are selling at the moment. To decrease our LTV and to be ready for newer acquisitions into newer buildings next year. Let me see. There's a few more questions. I think I hope I have answered the other questions. I'm not gonna repeat. Anybody can always follow up with an email if something remained unclear. There's a question here as well, what happens in an adverse situation where you know valuations drop and because we have our loan-to-value maximum at 65%.
Of course, then there's ways how to reduce the LTV by you know increasing or issuing new equity to our top you know investors and new investors possibly. That's also something that we are currently you know planning for or thinking about for early next year. Just also from the sake of view that opportunities may arise and probably will arise investment opportunities. But overall, yeah, if suddenly this 65% is reached, then the management has to according to the fund rules sort of remedy the situation over a certain period of time.
then there's a question of, yeah, new equity, or paying back some of the loans from the cash flows and then, of course, in such an adverse situation, then of course, dividends might be at risk. but again, you know, these are the thoughts that, or these are the risk scenarios that we're also thinking about. but currently, as of today, I don't have those expectations for the year end. but yeah, I think maybe just to repeat that, some of the properties that we're considering selling is, yes, you know, some of them are good cash flow properties, but they are not strategically important for us today.
If we get a good price for them, then we will complete the sales for new opportunities. I think that's all the questions that are here. I think on a summarized note, you know, lots of hard work is being put in now by our team and to work on our occupancies and we're happy to see very positive results in our newly refurbished centers. Next year is going to be also quite unexpected. You know, we know that the cost of lending is increasing across the board for everybody.
For those, you know, who never had hedging or fixed rates will probably increase faster than for the others. Eventually, you know, what we see and forecast for the next 10 years is that I think it was also well described in one of the questions that I received, that it will be quite an inflationary period. That is mostly also somewhat to do with the geopolitical, you know, situation continuing to be as dense as it has been, not only in our region, but also in China and Middle East to some extent.
We do estimate as well that you know last decade was amazing decade where money didn't cost anything and that has changed. Money will cost always something. Now it's interesting to see where the equilibrium will be found in terms of you know for example Euribor or any other rate that what is bearable for the different economies and countries. As we know you know lots of debt has been printed over the past two years especially. Definitely lots of variables in the picture. You know what number I always also focus on the Baltic is the employment. Because the balance sheets of the companies generally is very strong.
Lots of profits have been made. Some segments have been already hit because of the war, but that doesn't seem to be stemming. In that sense, equity-wise, the economies in the Baltic are in much better shape. That gives some positive views for the future. Then again, you know, plan for the worst and be ready for the good times. Thank you very much. I don't think I see any more questions. Welcome to follow up any of my comments or topics over email. We'll keep you posted over Nasdaq Stock Exchange releases about events happening in the fund in the future.