Monthly reporting of REDSIDE funds for the period 12/2022
In December 2022, the appreciation of the NOVA Real Estate fund reached a value of 1.39%, of which approximately 0.7% results from the revaluation effect of the real estate portfolio. The total net appreciation of the fund for the entire year 2022 is 8.10%.
In December, we signed a contract for the sale of one of the hobby markets in the portfolio. The lessee was not interested in continuing the lease relationship, and based on an economic analysis of the benefits, we chose a direct sale to this operator as the most optimal solution. The transaction will be completed at the turn of January and February, but the transaction has already been taken into account in the December performance figures.
In Trenčín, at the end of the year, we successfully concluded three lease transactions with existing tenants concerning 19,800 m2 of leased space. All these tenants are extending and expanding their current areas, which are primarily intended for production (Hella, Leoni, Yanfeng).
The appreciation of Subfund 1 for the month of December 2022 was 0.46%, and for the whole year 2022 it was 5.38%.
The valuation of the (yet unaudited) Subfund 1 was therefore slightly below the expected value of 6% in 2022. The main reason is the unfavorable macroeconomic environment, which consists primarily of rising interest rates. This results in higher prices for senior loans, but above all in the growth of risk-free interest rates, which define, for example, the yields of government bonds. Both influences are reflected in the growth of the discount rate when valuing future cash flows, which results in a decrease in the current value of assets. On the other hand, it achieves an increase in growth potential in the following years with the same effect. However, photovoltaic power plants achieved their most successful year so far since the start of operation in 2022, and their high operating numbers thus "compensated" for the unfavorable macroeconomic environment.
In the Krnča biomass heating plant, Subfund 1 is taking steps for the purpose of financial and operational optimization, we have a plan for the year 2023 drawn up, but there is considerable uncertainty regarding the key parameters affecting sales, i.e. the price of heat and electricity, which is due, among other things, to the lack of measures by the Government of the Slovak Republic regulating price levels of heat and electricity. In Slovakia, similarly to the Czech Republic, a package of measures in the form of a windfall tax was approved, which provides for a mandatory tax deduction above the set price level of electricity, and an implementing decree that will define the individual limits is currently awaited. Negotiations are also ongoing with the financing bank on the possibilities of refinancing the remaining, already marginal amount of the senior loan.
The projects of two biomass heating plants, whose secured receivables are also the assets of Subfund 1, are still struggling, for example, with the price increase of the input raw material (wood chips) and have not reached the production and operating plan for 2022. Similar to the case of the Krnča heating plant, there is also uncertainty regarding the capping of electricity sales prices, and we are waiting for the regulating decree of the SR government. We believe that the Slovak government will take into account the significant increase in the price of wood chips when setting the price ceiling, so that the operation of these renewable resources will be profitable in the long term.
As part of the Csabrendek PV project, we managed to negotiate with the financing bank to reduce the BUBOR interest rate from the current 14% to half for the next several quarters, which will have a positive impact on the project's cash flow, considering the low LTV.
The appreciation of Subfund 2 for the month of December 2022 was 0.52%, and for the year 2022 it was 3.58% YTD.
However, Subfund 2 only operated for 7 months of 2022. If we annualized the performance of Subfund 2 for 7 months of 2022, the performance would have reached 6.14%.
In December, work continued on the development of several PV plants, mainly in the Czech and Slovak Republics. We received studies for 12 roof installations on the roofs of buildings owned by sister fund NOVA Real Estate. These studies show that these 12 roofs could be equipped with photovoltaic power plants with an output of up to 3 MWp. For investment in these PV plants, we are considering investment subsidy support from a subsidy program of the MFŽP or MPO. Work is currently underway on the project documentation for these works. For the pilot roof-top PV project Orlice with an installed capacity of 0.5 MWp, we have received a building permit and at the same time we have issued a call for tenders for the contractor of this project, in this period we are expecting offers for the construction of the work.
We are currently also focusing on the situation of existing Czech PV plants owned by Subfund 2. In our two Czech PV plants, we switched to the purchase scheme of the so-called green bonus, where we contracted the sale of electricity in EUR. We decided to purchase in euros due to the planned drawdown of new loans in this currency, which will significantly reduce the exchange rate risk of loan repayment vs. revenues. Negotiations are currently underway with financing banks regarding the latest conditions. In Slovakia, similarly to the Czech Republic, a package of measures in the form of a windfall tax was approved, which provides for a mandatory tax deduction above the set price level of electricity, and an implementing decree that will define the individual limits is currently awaited.
In 2022, photovoltaic power plants achieved their most successful year so far since the beginning of operation, and their high operating figures thus "compensated" for the unfavorable macroeconomic environment, which consists primarily of rising interest rates. This results in an increase in the price of loans and an increase in risk-free rates. Both effects are reflected in the growth of the discount rate, which results in a decrease in the current value of assets. On the other hand, it achieves an increase in growth potential in the following years with the same effect.