Hello, good afternoon, and welcome to Baltic Horizon Fund Q1 Webinar. I'm Tarmo Karotam, Fund Manager, and as usual, we'll give you the update with some commentaries on the Q1 results, but also some additional comments on the most recent events. I received some questions from investors prior to this webinar. I will also try to answer them throughout the presentation. In case you have questions, don't hesitate to put them in the chat box, and I will aim to answer them at the end of the presentation. To start off with, this is our KPI table, the key performance indicators that we are monitoring on a regular basis for some time now, and I would like to present them line by line just to go through them with some explanatory comments from our side.
We continue to welcome new tenants in our properties, and those figures have gradually now been improving and also improved in the first quarter this year. The average occupancy of the fund is now the actual occupancy of all tenants in the properties, close to 83%, and we do expect quite a few tenants now move in in the coming months, and this actual occupancy now to increase further. In regards to the signed leases that we have and the expectations of tenants moving in who already are in the process of completing their fit-outs and will be moving in in the coming months, we also have several negotiations undergoing as usual, and we'll provide also more information about it in the upcoming slides. We're also quite happy to be able to keep the average rent stable and slightly pointing upwards.
It is, on one hand, the principle of the fund not to make lease agreements which are not beneficial for the fund on a long term and request the right commercial conditions, but also it somewhat shows the indexation impact of the portfolio. Net rental income of the fund had increased in Q1, and we are back to approximately EUR 1 million of NOI which the fund can deliver. Side comment is that, yes, it also includes still Meraki office building NOI, and in the coming months and quarters, that NOI will not be any more reflected, but we do expect that the NOI still to remain close and around EUR 1 million in the coming months, and then gradually increase in the second half of the year when, for example, the largest tenant currently doing fit-out, International School of Riga, is moving in and starting to pay rent.
Overall, yeah, we expect the NOI to remain stable and gradually then increase in the second half of the year from around EUR 1 million slightly upwards. We have been in the process as well to deleverage, and we've had now recently sold Meraki in order to do that, also to strategically reduce our allocation to B-class offices in our portfolio, and as a result, our total debt outstanding has now started to also decrease. Furthermore, we have seen some positive movements in the average cost of debt, and despite that, we had also some extraordinary costs to terminate Meraki loan, but we do see that the Euribor is continuing to drop, and as well, our cost of debt will be expected to gradually be dropping as well.
We are continuously looking for solutions how to reduce the bond, which is the most expensive debt element in our balance sheet currently. The bond had a coupon of 8%, Euribor around 2%, so the total cost of that debt is of the bond around 10.1%. That should improve the average cost of debt for the fund going forward. I will also comment later on the disposals. Overall, we're moving to the right direction gradually, and we expect these numbers to continue to improve in the coming quarters. When it comes to the capital expenditure and fit-outs, which is for us and has been one of the most important elements to consider, especially when we are filling in the vacancies of our portfolio of our properties, and it has been a cash burden and continues to be a cash outflow from the operating cash flows generated.
But we aim to make wise decisions when it comes to which tenants to sign up and what would be the investment in that regard. Historically, we've been successful in getting in tenants with minimal investments. In some cases, investments have been needed, and we try to minimize that as much as reasonable. But yeah, the fit-out line, the CapEx expenditures are expected to continue in the coming quarters, and we have also generated cash reserves for that and continue to look for solutions in order to optimally complete the fit-out so that the NOI of the portfolio continues to increase as well as the occupancy. With the sales of Meraki, our office segment allocation has decreased somewhat. And maybe a few words how we see the office market today in the Baltics. It is challenging, and especially for B-class locations.
The uptake of the new premises and new international companies coming to the Baltics has been quite limited, and at the same time, when new A-class office developments are taking place with also quite a bit of vacancy, then the times for the office segment are definitely not going to get easier. But I think we believe that the office buildings that we currently have are the ones that we can work with and that have tenants that on a majority basis remain there regardless of large volatilities in the markets and how the economies are doing. So we continue to manage them and try to find suitable tenants for the right premises in right locations.
On the left, you can see the tenant breakdown currently, and in addition to Rimi and Apollo, we have the largest tenants in the portfolio, the State Forestry of Latvia, State Police of Latvia, and Lithuanian State Tax Inspectorate, with whom we prolonged the lease agreement also now just recently for another five years. And as well, International School of Riga is going to be our largest tenant. And so we were already starting to see some associated tenants moving in in the vacancies in the Vainodes building that believe that they have some benefits for being in the building together with the International School of Riga. So more specifically on the occupancy, and I think what is key here to say is that throughout the quarter, we've been able to increase the weighted average on expiry lease term for the portfolio.
Over the past 15 months, the efforts have been able to increase it to roughly 3.6 years, so good progress there. We're gradually making progress with now handing over the premises, and we expect then the occupancy to increase to around 86%-87% based on the leases that were already signed and the tenants moving in. Roughly 3% of that will be because of the International School of Riga moving in hopefully already in August. We plan to hand over the premises to them already now in the coming weeks. They are making preparations to already start the next school year in the new premises. Overall, just some numbers, roughly 5,500 square meters of tenants or lease agreements have been prolonged.
And when you look at the quarterly activity in the office segment here on the left, then majority of the in and out has been happening in North Star. And I think we will see this interest is quite strong in the vacancy there. So there have been changes in tenants, some moving out, some moving in. Then we continue to see, I think, positive development there also in the second quarter this year. In retail, as one can see, there are also tenants coming in, but also tenants that have moved out. And we're happy that the net result continues to be positive. So that's our main goal. Sometimes we want to change the tenants that are not performing with new ones. Sometimes the tenants discontinue because their business is not working anymore.
But again, our main focus is to continuously find tenants for the vacancies and make sure that our occupancy will be gradually increasing this year. The key prolongations and the key tenants signed in the past few months for us, not only size-wise, but strategically important tenants are Lithuanian State Tax Inspectorate in North Star. It was quite a progress or process. And we were, again, the winners of the tender. So we're happy to continue with them and as well key anchor tenants coming to Galerija, Sinsay and Lindex in Europa. With these tenants, we also plan to and hope that other negotiations with other tenants are moving faster. And we're happy to see that such international names, long-term players in the market, see potential in our properties in the city centers, which have been quite challenging for us to fill.
But gradually, step by step, we want to get there with the right tenant mix and with the right offering to the customers of our centers. More specifically, then this is a table showing again the updated occupancy, what is the actual occupancy, and we still monitor very closely where can the occupancy be since we're making also our budgets and plans based on that. What is the realistic targets and what could be achieved throughout this year? And so I think that, yeah, the biggest change will be because of the school moving in, but there are definitely many negotiations still in Europa with various tenants on the third and second floor in Europa. Now, just today and tomorrow, we will have, in addition to Caffeine, which is a new cafeteria on the ground floor, we will have Miyako and Fortas move in on the ground floor.
Making Europa more of a destination F&B hub in the city center. That's been under process and development for about a year now. We will see some tenant mix improvements there. Also in North Star, we expect some additional tenants for the vacancy, which is currently there, approximately 10%. When it comes to Lincona, then yes, we had some changes in the furniture outlets there, but we have now a pet clinic who has moved in just recently in the process of offering the services. When it comes to Coca-Cola Plaza, then it is 100% let, and the tenants are paying already in full. Not in full, sorry, almost in full, but the ground floor, we just had an opening in the beginning of May of two new restaurants, Lido new concept, and My Sushi.
In July, August, the opening of the bookstore on the ground floor of the cinema building. From then onwards, also we will receive additional rent for those premises. In Pirita, we have some also notable, let's say, actions there. We are aiming to sign a new anchor tenant for the property and change the tenant mix there on the ground floor. In Vainodes, we continue discussions with the State Forestry on the next 10-year lease cycle. They have some requests for us, and we are discussing how to and when to address them going forward. In Galerija Centrs, we had an opening of MyFitness a couple of months ago, and now with the opening of Sinsay, we aim to continue to work on that 700 square meters, which are currently under negotiations to get the occupancy closer to 90%.
Currently, when it comes to tenants moving out, major tenants moving out of the property, then in Lincona, the main cases in Lincona where Swedbank will move out by year-end from the 31st of December this year, and they occupy currently around 23% of the total area, so we're definitely looking for a solution there for new tenants, but that maybe is the biggest, let's say, change expected in our portfolio when it comes to outgoing tenants, so a few more comments on the net rental income, so our net rental income increased on a quarterly basis to EUR 3 million , and as explained earlier, in the coming months, the Meraki rental income is not there anymore, but with other smaller tenants moving in across the portfolio, smaller and bigger, we expect to recover the shortfall.
As I mentioned earlier, to expect EUR one million of rental income approximately in the coming months with expected further gradual increases when school is moving in and other tenants in the second half of this year. Then, yes, overall, the rental income increased year- on- year by approximately 6%. And like-for-like, rental income has increased approximately 1%. And that figure should improve as well when we are filling out the vacancies of our office buildings, retail, and the cinema building generally doing very well when it comes to the increase of the rental income, both filling in the occupants' vacancies and indexing the rents. Then I would like to comment on one thing. We are aware and have been aware that partly because of the vacancy and the reduced rental income in our portfolio, our expenses are proportionally high compared to the market, compared to the peers.
We have been looking for further cost cutting and cost savings. Beginning of the year, we started the delisting process of Baltic Horizon Fund in Stockholm. That is fully underway, and we expect to save roughly EUR 100,000 a year from that endeavor. We are further looking very closely into all of our expenses, and this is work in progress. We believe that we can find further improvements there. I think that's positive news for the investors. Hopefully, we can reduce the costs that are not mandatory for the fund also after delisting in Stockholm. We'll give you more updates on that in the coming quarters. We expect this line to improve as well. Yeah, due to certain accounting and other processes with the Meraki disposal, we recorded a loss of around EUR 900,000 .
So that's also reflected in the operating profit. And our financial expenses were slightly higher compared to last year, but also because of some extraordinary expenses that have been recorded there. So going forward, we should expect these figures to improve as well. And the main goal, of course, for us is to become profitable again. And we are working on this on a daily basis. And we'll be if there are some news, then we will make announcements in that regard. When it comes to the balance sheet, then after selling Meraki, we have roughly EUR 226 million worth of property in our balance sheet. The announced disposal process or the disposal plan in order to reduce the bond. So that has been ongoing. And with the sale of Meraki, we reduced the bond from EUR 22 million- EUR 19 million.
And we have had both solicited and unsolicited offers for several of our properties. And I think some of them had been mentioned before, like Lincona, and Pirita, and Postimaja. So I cannot comment too much about the results, but let's say there have been several offers, especially for Lincona, sorry, for Pirita and Postimaja, also one interested party for Lincona. And given this market, of course, the proposals cannot be expected to be high or higher than we expect. So we are making our internal analysis to see how any of these disposals would influence the fund, its results, and going forward. And what is the best scenario for the fund and its investors and whether to sell a property or not to sell a property effectively? So we continue to work on finding other ways how to refinance the bond than just property disposals.
So it's work in progress. And hopefully, I can comment more about that in the coming weeks and months. So in that sense, yeah, Euribor continues to go down. So that has helped our performance somewhat as well, the reduced amount of loan. So we continue to, yeah, inform the market and the investors when the time is right, when certain activities are more concrete and certain decisions have been made. A few more words about debt. And so we have been able to prolong all of our loans this year that were due and have been able to prolong also the largest loan that we had, which is a Galerija loan, and prolong it for two years. And when it comes to financing and refinancing, the next time to prolong any loans is beginning of next year when Vainodes, S27, and Pirita loans are coming due.
So we're starting already to prepare for that as well. And hopefully, the improved performance of the properties will enable us to make these prolongations successful, as we've done in the past. So happy about that. We still have some hedges in the portfolio, which some of them are maturing also still this year. And when it comes to the hedging strategy here, overall, we would like to have at least half of our loans hedged. But also, we want to be smart about it and do it at the right time. So that continues to be the focus point of the management team as well. Then perhaps a summary of our key activities, not only in Q1, but Q2 and going forward. So the delisting of the fund in Stockholm will be completed by October, by middle of October this year.
And according to the delisting mechanism, it takes a bit of time. And we will find some cost savings there for the fund. And we continue to work on cost reduction possibilities across the fund expenses and its SPVs. Relentless work on occupancy, getting the tenants in. And many tenants are now moving in, which were signed last year. So Apollo, as I mentioned in the cinema building, has already partially moved in and will fully move in in the summer. The school will move in by this autumn, most likely. And we have several restaurants in Europa moving in. And also in the school building, for example, we have signed a lease agreement with the dentistry and as well with the Latvian Volleyball Association. And the interest in the premises remains quite high, so.
Of course, debt service coverage ratio, it has been improving, as you can see also in the quarterly report due to the leveraging activities as well as improvement of the NOI. At the fund level, we aim to receive or achieve an average DSCR of at least 1.2 during this year for us to be at a sustainable level and continue to improve the performance from there. Yeah, unfortunately, yeah, in real estate, not everything happens overnight. Things take a bit of time. I'd say it's a big ship that we're running. I think we have the right direction and continue to look for further improvements and for the fund to excel and perform very well in the future. Let me see if there's any questions. If all the questions received during or before the webinar have been answered.
Currently, I don't see any questions, so then we continue our work. We can continue to give you the updates when the time is right, and we normally have at least one general meeting of investors on an annual basis. So we will see when is the right time to invite the investors together. Is it now in June or perhaps more appropriate in August, September, when we will have hopefully more news? And please continue to follow our monthly NAV reports when it comes to the net operating income and as well the main topics around tenants in the fund. Oh, okay. There has been two more questions, so first of all, a question on is it reasonable to pay back the bond when the Euribor has been decreasing with the early prepayment fees? That's a very good question, and we continue to model this on an ongoing basis.
The answer is that it is still expensive to have the bond for a longer period of time. So yes, the prepayment fee is something, it's a one-off fee that will influence the cash flow of the fund. But overall, what should improve after that is the debt service coverage ratio, which is important for the long-term operation of the fund and as well the average leverage of the fund, which is still quite high at around 60%. However, we continue to model and see what also financially is the best for the investors. It could be partial payment, not the whole payment. It could be continuation with the bond. It could be refinancing the whole bond. So there are various options that we're continuously considering. So then I have another question. I'm not sure if I understand it correctly, but it's about the disposal.
So once again, we continue to look for the best solution there when it comes to what property to sell and what price. So in regards to so let's say we have, yeah, several proposals on the table, and then we try to think what is the best for the fund and the investors going forward, what properties we want to keep, and what we want to sell. Maybe a comment on Meraki that also Meraki as a property, we didn't want to keep it for a long term due to various risks of the office market going forward. And since we are not planning to develop the second tower, so the market has changed quite a bit. And that location, we don't believe is any more long-term attractive.
So going forward, I think there's definitely some properties that we see long-term future and some properties that we think that maybe somebody else can do a better job with them, somebody who wants to be a developer, wants to take different kind of risk. And so I would maybe comment I would finish my comment here on that point. So there's also a question on the new investor that has bought into the fund and Grinvest, who has also called together a general meeting to propose certain new supervisory board members. And it was also announced that the shareholding of that investor in the fund is slightly more than 25%. So that has remained stable for the time being. And we have had several new sessions with the new supervisory board.
I can only say that they are very much interested in Baltic Horizon doing well on a long-term basis and finding the right moves and right ways going forward. Grinvest is definitely a more active lead investor compared to the previous lead investor, Swedish Church. So yes, we are in regular contact with them. We discuss the market together. We discuss what we can do with various properties together. They are experienced real estate investors in the Baltics. They have a lot of tenant contacts. So I look at very positively. I think the brainstorms that we've had, I think, are quite fruitful. So yeah, we are brainstorming also about the future of the fund. We're brainstorming about what to do with the bond. So I think, yeah, it's been good to have them on board.
We continue to consider their, let's say, proposals or ideas as a management company going forward as the environment remains quite challenging. There's definitely things that we can still do in order to improve the fund performance and have a brighter future ahead. There's a question of, I think, have I purchased any Baltic Horizon Fund shares recently? The answer to that is that I'm in the process because the Q1 report was announced. Before that, I could not buy anything. I'm actually in the process. I asked for permission from our group, the Northern Horizon Capital. I hope to complete the purchase of some additional Baltic Horizon Fund units in the coming week or so. There's a question which, for me, I think it's a bit difficult to answer. The question is, can the new big investor take over the fund?
I don't know what does it exactly mean, take over the fund. We have very clearly set fund rules which have been registered with Financial Supervisory Authority. We are the management company, Northern Horizon, as of the fund. So just maybe to answer it in this way that we don't operate as a regular company. It's a fund that is managed by a fund management company. And all the terms, all the rights and obligations are clearly stipulated in the fund rules along with the limitations, what one or the other party can do. So maybe I will leave this answer like that. So there's also a question on what was the average interest rate in the, I think, just for the loans in Q1. I think it's around 5.2%, if I recall correctly. So yes, the bond continues to be still, I think, slightly higher, I think, 5.5%.
So yeah, the bond continues to be the most expensive debt instrument in our balance sheet. And our target is to get the average cost of debt of the fund down to 5.5%. I think that's our sort of target. So I have a few more questions. Let me see if I understand these questions correctly. There's a question of how much does the management own of the fund? So what I think is public information and what I can confirm is that the management company with its owners and the management members sort of in-house and supervisory board members, the stake of, let's say, the management is roughly 1% of the fund. And now Grinvest, being also on the supervisory board, then what is represented also in supervisory board is close to, let's say, 30% of all the fund units.
So there's a follow-up question on the bank debt, that 5.5%, why is it so high compared to, let's say, the peers? Then the answer is that we've gone through refinancing processes of many of our properties last year and as well refinancing of Meraki, of Galerija, of Europa. And many of those loans were actually leveraged up in order to pay down the bond, which is more expensive. So the reason is that our LTV level at the property level is probably higher than the peers. And some of our properties may not be yet at their optimal performance. So the strategy forward or the tactics and the strategy forward is to improve the income of the properties, bring in new tenants, prolong leases, and then go back to the banks to refinance. So that's basically the next step now.
We've taken cheaper money to pay the more expensive obligations. But now we continue to work on the properties in order to refinance and make better terms in the coming periods. And there's this final question here. The question is on the influence of Gene Invest or the Grinvest Gene Invest beyond and above their sort of official unit of the official ownership in the fund, which is, as I said, a bit more than 25%. I would say that we've had very open discussion and dialogue and the relationship with the members of the Grinvest team throughout the years. We know them more than 10 years also personally. And they've been very open on what they expect from us, from the fund, and as any investor would. So improvement of the performance. And I think there is no hidden agenda that one would currently speculate. We can all speculate whatever.
But I can only say that we have a very professional relationship with them in the past. And I think the question goes to comment on any kind of hidden influences or through other investor groups, nothing that wouldn't be out of the ordinary. I mean, investors are talking to each other, which is good. They're sharing views. They're sharing some ideas with us, not only Grinvest, but many other investors through questions, through emails, through meetings. So I'm actually quite positive about an active investor, experienced investor like that in the fund. So I think it will be to the benefit of all investors and that belief in the Baltic Horizon and want to participate in the future of the fund. So I can only answer this question like that. So thank you very much for the questions.
And hopefully, this webinar was informative and we'll continue to work and hope to be in touch soon again. Thank you very much.