Performance of REDSIDE funds in December 2023

Monthly reporting of REDSIDE funds for the period 12/2023

NOVA Real Estate

As of December 2023, the NOVA Real Estate Fund's appreciation reached -9.30% and therefore the total appreciation for 2023 is -5.71%.

The only factor in the decline in the Fund's performance in the last month of last year is the annual revaluation of the real estate component of the portfolio, which the Fund has done by an external international independent valuer, Colliers. In accordance with the Articles of Association, the Fund performs this revaluation once every twelve months, always in the last quarter of the calendar year.

The revaluation is a purely accounting matter and does not speak to the health of the portfolio or its individual properties. It is a theoretical determination of the fair market value, which seeks to reflect the situation of the property market in a given period. Despite the decline in this value, the portfolio retains a 98.7% rental yield and a WAULT of 3.95 years at the end of the year.

A major factor in the decline in the value of the Fund's properties is the application of an increased yield percentage called the Yield Yield Yield, which reflects market developments in the valuation. Yield as a capitalization percentage has an inverse effect on the value of real estate, i.e. an increase in this percentage reduces the valuation. According to market reports and valuation reports, yield rates have risen by 50 to 75 basis points year-on-year across the board, which in itself would reduce the real estate component by about 10%. However, the yield growth factor, on the other hand, is offset by the growth in the income component, i.e. the actual contracted or market rents, which in many cases have increased due to indexation for inflation.

Yield is primarily a function or reflection of interest rates and market sentiment. We believe that as these rates fall soon, there will be a market repricing (a function of rents and yields) and a retrospective revaluation of the NRE portfolio. The CNB has already started to cut rates at the end of 2023 and the market similarly expects EURIBOR rates to fall in the coming quarters, which should translate into increased activity in the commercial real estate market.

The Fund has not been successful in finding a new strategic investor to replace the bankrupt Arca Capital group, which still holds the majority of the Fund's investment shares, within the deadline it set for itself, i.e. by the end of 2023. In line with its previously announced strategy, the Fund therefore approached a leading international real estate agent to help the Fund prepare a public tender for the sale of the remaining part of the portfolio. Despite the relative size of the portfolio, the Fund will attempt to sell all of the properties this year so that, ideally, the Fund can be opened and all holders of investment shares paid out before the end of the year. Technically, this means that in the next few weeks the Fund manager will decide to re-suspend and start selling property companies.

Report NOVA Real Estate

NOVA Green Energy

The valuation of Sub-Fund 2 in December 2023 was 0%, the main reason for the lower valuation is the change (reduction) in long-term electricity price expectations for those resources whose valuations assume operation beyond the end of the feed-in tariff regime. Overall for 2023, Sub-Fund 2 achieved a preliminary appreciation of 4.69%. This valuation is subject to regular annual revaluation by an external valuer and verification by the statutory auditor.

In December, work on the development of several PV plants in the Czech Republic was finalised. For investment in these PV plants we are considering investment subsidy support from a subsidy program of the Ministry of Environment or the Ministry of Industry and Trade. In the first days of 2024, the first rooftop installation of 0.5 MW on the roof of a shopping centre owned by NOVA Real Estate Fund was connected to the grid, making it one of the largest rooftop installations on a commercial building of the retail centre type in the Czech Republic. In January, we expect the indexation of guaranteed feed-in tariffs in Hungary according to the 2023 inflation there. In accordance with the current Sub-Fund 1 Articles of Association effective from 1 September 2023, the frequency of announcement of the value of the investment share has changed, whereby the values will be announced semiannually as at 30 June and 31 December each year, with the value as at the end of 2023 to be announced in accordance with the Sub-Fund 1 Articles of Association no later than the end of April 2024 for the valuation and statutory audit.

In the case of the Topolčany and Bardejov biomass power plants, we obtained a winning verdict in the Vienna court, where the court awarded us our claim in full, including interest, but due to the Natland Group's lien and subsequent sale, the shares were removed from the Austrian parent. The problem is the sale price, which was marginal and far from covering the secured creditor due to the aforementioned split between the cost of biomass electricity production and the proceeds from its sale, and therefore there is no room for a second creditor in the queue. Despite the efforts and involvement of a leading Austrian law firm, a negative impact on the value of this asset for Sub-Fund 1 can be expected as part of the regular annual portfolio revaluation.

In February, we plan to inform investors and their representatives about the outlook and timing in connection with the announced sale of the complete photovoltaic portfolio, which comprises more than 20 projects in the Czech Republic, Slovakia and Hungary.

Report NOVA Green Energy