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2014

Shareholders of public limited company Arco Vara have asked the management board questions concerning the agenda of extraordinary meeting of shareholders on 4 July, which the management board will answer below.
 

The questions and answers:

1) The company’s Supervisory Board also supported the involving of new money. Was the Supervisory Board unanimous in its decision? Did the Supervisory Board members provide any counterarguments and alternatives and if so, which ones? Were those recorded in the minutes? If so, can they be provided?

Answer: the company’s Supervisory Board discussed the capital needs of the company and the issue size and price of shares to be issued on 13.05.2014. The Supervisory Board found it important that the issue of shares be successful. The Supervisory Board unanimously approved of making the proposition of increasing share capital at the general meeting of shareholders, in the draft wording as it was voted on June 5thand will be voted again on July 4thgeneral meeting. The Supervisory Board discussed no alternatives to increasing share capital.

 

2) For what exact purpose is the new money intended to be used? How would the involved money be distributed between various projects?

Answer: the Management Board and the Supervisory Board find it expedient to involve a total of €3,500,000 in the company, distributed between two important investments:

A. About €2,000,000 for self-financing the apartment development project in Tallinn, Paldiski mnt 70c. Volume of the project, according to information provided in earlier quarterly reports, exceeds 27,000 square metres on sale, and includes 300 apartments. With the money, designing works and preparation works for the infrastructure of the plot would begin in the 3rdquarter of 2014. Bank loan taken to obtain the immovable, to the sum of 1.4 million euros, also needs to be repaid. Self-financing is a prerequisite for developing the project further with finances from the bank, in order to obtain the required balance between equity finance and loan finance.

B. About €1,200,000 for repayment of principal amount of bank loan to extend the loan contract for multifunctional building located in Sofia, Madrid Blvd until December 2017. The building contains approx. 7,300 square metres of rented business and commercial premises on three floors, providing the company with annual rent revenue of nearly 1 million euros. The group also owns 34 unsold apartments with sellable area approx. 3,800 square metres.

Balance of bank loan for the building is 12.1 million euros. The bank has agreed to extend the bank loan until December 2017 for only interest payments if the owner of the building, the group’s 100% subsidiary Arco Invest EOOD decreases the loan balance by 1.2 million euros. If the bank loan is extended and if the building’s occupancy rate and payment discipline of tenants do not change to a significant extent, the free cash flow of the group from the building on Madrid Blvd will exceed €300,000 per year after the bearing of interest expenses and expenses related to the building’s operation.

The loan balance and interest expenses may decrease further if the group sells the 34 apartments it owns in the building.

 

3) If the proposition does not gain the required support at the general meeting, which plans need to be changed? Is there something planned that will not be done? In short, what would forgoing the investment result in?

Answer: if the proposition to increase share capital does not gain the required support of 2/3 of the votes of the general meeting, the Management Board assesses this to result in three likely and negative consequences:

(i) It is rather likely that the Piraeus Bank will terminate the loan contract of Madrid blvd and the building will be sold in enforcement proceeding to satisfy the loan claim of the bank, secured with mortgage. This would stop the annual rent revenue of the group for approx. 1 million euros per year and the positive cash flow. The building would be obtained by a third person.

In the case of sale in enforcement proceedings at the bank’s request, it is also rather likely that the revenue gained from the sale of the building is less than if the building was sold by the group on its own schedule and sales conditions. The interest of the bank that finances real estate is primarily in retrieving the loan, not in obtaining maximum revenue from selling the building which is the ultimate interest of the developer. This means that the group may bear additional loss in late 2014 or in 2015 if the loan is not extended and the building is foreclosed.

(ii) Designing and preparation works of the development project at Paldiski mnt 70c are postponed to 2015 at the earliest. Therefore, construction works and sales would begin in 2016 at the earliest. The group loses one year of sales revenue, waiting until the equity capital required to develop the project at Paldiski mnt is released from the development project of Manastirski 2ndstage in Bulgaria.

(iii) On the whole, the group’s current equity capital is approx. 7 million euros, which, divided over three markets (Estonia, Latvia, Bulgaria) and projects already in development is too little to start any new developments on any market in 2014. Considering the developments already in work in Riga (Bisumuisa 1) and Sofia (Manastirski Livadi 2ndstage), involving additional foreign capital from credit institutions is impossible – credit institutions require at least 30% self-financing for funding a development project – and involving private investors would cost the group too much, because private investors generally expect rate of return to exceed 15% when investing money in a development project.

The gap which occurred in Estonian development activities in 2011-2012 probably cannot be closed without increasing equity capital. If the equity capital is not increased, the group should focus on completing the existing developments in Riga and Sofia in 2014-2015. This means that the annual sales turnover of the group in 2014, 2015 and 2016 will likely remain below 10 million euros and also affect the prospect of revenue accordingly.

 

4) Expenses have been made to acquire capital. If capital increase is not approved, how many expenses have been made for no reason (financially speaking)?

Answer: the total expenses made to increase share capital today is under €85,000, which are related to international legal due diligence of the group, independent valuation of main real estate properties of the group, compiling a prospectus, verifying the prospectus by independent international auditors and investment banking services.

If the share capital increase will be approved by general meeting on July 5th, then the company will upgrade the prospectus as it was prepared for June 6thand release it after obtaining new approval by Financial Supervisory Authority, but before the subscription period commences.

 

Tarmo Sild
Juhatuse liige
Arco Vara AS
This email address is being protected from spambots. You need JavaScript enabled to view it.
+372 6144594

The extraordinary general meeting of shareholders of Arco Vara AS held on 4 July, 2014 adopted the decision to approve the issuance of new shares of Arco Vara AS on the following terms and conditions:
•Arco Vara AS (the „Company“) will issue 3,5 million new shares with the nominal value of 0,7 EUR increasing the share capital by 2 450 000 EUR, therefore the new share capital of the Company will be 5 769 194,9 EUR;

•the Company will issue common shares;

•all of the existing shareholders of the Company will have the pre-emptive right to subscribe for the new shares in accordance with § 345 of the Commercial Code. Only the shareholders who are in the list of the Company’s shareholders on 7 August 2014 at 23:59 Estonian time will be eligible. The pre-emptive right can be executed during the subscription period, which commences on 8 August 2014 at 09:00 Estonian time and terminates on 29 August 2014 at 17:00 Estonian time;

•the shares will be offered to the existing shareholders, professional investors and the employees of Arco Vara group in accordance with the public offering and listing prospectus;

•by issuing the new shares the pre-emptive right of subscription for the new shares derived from legislative acts will be granted to the shareholders and in case the amount of shares owned by a shareholder does not give the right to subscribe for a whole number of shares the amount of shares will be rounded down;

•the subscription period for the shares issued by the Company will commence on 8 August 2014 at 09:00 Estonian time and terminates on 29 August 2014 at 17:00 Estonian time;

•payment for the subscribed shares will be made by monetary contribution at the time of subscription;

•the nominal value of the shares is 0.7 EUR per share and issuance price of the new shares will be 1 EUR per share, therefore the amount of premium will be 0.3 EUR per share;

•the issued shares shall grant the right to dividends from the financial year the share capital was increased;

•in case the amount of shares subscribed for during the subscription period is under the volume of the planned share capital increase, the Management Board of the Company will have the right to cancel the shares that were not subscribed for during the subscription period. The Management Board will have the right to exercise this right during 15 days after the end of the subscription period;

•by issuing new shares the Company wishes to improve its capitalization. Proceeds of the share issue will be used for investing in residential real estate development projects.

 

Manager’s comment:

In the general meeting a record-high number of shareholders took part and the decision, that was not adopted on 5 June due to lack of the needed amount of votes in favour of the decision, was adopted today. The Company thanks all the shareholders who found the time to participate in the extraordinary general meeting personally or through a representative. The next goal of the company’s Management Board is to successfully raise the share capital.

From 8 August, 2014 until 29 August, 2014 took place the offering of new shares of Arco Vara AS. In total 1375305 shares were subscribed for. Arco Vara AS has made a decision regarding the allocation of subscribed shares to the investors. All investors will receive the full amount of shares they subscribed for. The Management Board of Arco Vara AS will adopt a decision regarding the shares which were not subscribed for, i.e. 2124695 shares, after the settlement.

As a result of the subscription of new shares the share capital of Arco Vara AS will be increased by 962713.5 EUR, i.e. the new share capital will be 4281908.4 EUR.

CEO’s comment about the subscription results: “The Company set out to raise up to 3.5 million EUR. Subscriptions equalled 39% of this total and the company attracted 1.375 million EUR. Investors may therefore ask, whether the subscription was a success or a failure?

This implies that Arco Vara’s shares on issue will be increased by 29%, from 4.7 million to 6.1 million. A mixture of retail and institutional investors participated, including those who were not previously shareholders of Arco Vara.

From the viewpoint of management the capitalization of the group has improved and for the first time since 2012 the group has free cash which can be invested into new projects. One may also say that it is the first time since the IPO investors dared to place their money into Arco Vara again. Key employees of Arco Vara’s Bulgarian and Estonian units participated in the share issue, contributing more than 20,000 EUR. The company thanks everyone for their trust and admits that more work is necessary to regain full investor confidence in the coming years.

The share capital increase objectives that we set in the spring were to (i) implement the Paldiski road 70C development project in Tallinn and (ii) continue earning stable rent revenues in Sofia, Madrid Blvd building by extending the existing loan agreement until December 2017 and by reducing the outstanding loan on the building by 1.2 million EUR.

Management deems the realization of these objectives as very likely. As a condition precedent, we must continuously succeed in selling the apartments in Manastirski Stage II and undertake very dynamic management of cashflows. Construction works of Manastirski Stage II must be completed within 60 days at the latest and the sale of the apartments commences in Q4. The extension of the loan agreement with Piraeus bank in the Madrid Blvd project has already been signed, and the 1.2 million EUR must be paid by the end of November 2014. During the capital raising process management also received confirmation that there is interest from potential investors to participate in the Paldiski road 70C project even if Arco Vara itself would not be able to inject additional equity into the project (in addition to the existing landplot and construction rights) - whereas it should be immediately added that depending on the success of the Manastirski project the group will have sufficient capacity to inject equity into its new projects.

As a main obstacle to engage new investors into the group, we should point out their current fears towards general uncertainties resulting from the escalating Russia-Ukraine conflict. Evidently the group can help to overcome these concerns by demonstrating within the next one to two years its capability to make money with development activities in its markets, and distribute money between the broadened shareholder base consisting of 6.1 million shares.”

On 26 August, 2014, the Management Board of NASDAQ OMX Tallinn stock exchange decided to approve the application of Arco Vara AS and to list up to 3500000 additional shares in the Baltic Primary List under the following conditions:

· the offering Arco Vara AS shares has been completed, the offering has been conducted according to the conditions described in the Issuer’s prospectus and the offering results are disclosed;

· the offered shares have been transferred to the securities accounts of new investors in Estonian CSD;

· the issued shares have been converted into main shares (ISIN: EE3100034653) in Estonian CSD;

· after meeting the aforementioned conditions, Arco Vara AS has submitted the respective report to the Exchange.

Trading with Arco Vara AS additional shares will start on the next trading day after meeting the aforementioned conditions.

 

IMPORTANT DATES:

On or about 04.09.2014 new shares will be transferred to the investors’ securities accounts
On or about 17.09.2014 new shares will commence trading on the NASDAQ OMX Tallinn Stock Exchange
 

Evelin Kanter
Lawyer
Arco Vara AS
Tel: +372 614 4594
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


Arco Vara invites all interested parties to join investor webinar scheduled on March 6, 2013 at 14:00 (EET).


Webinar will be hosted by the chairman of the management board Mr. Tarmo Sild. The presentation will be held in English. During the webinar Mr. Tarmo Sild will give an overview of the concern’s financial results of 2013 and introduce its further action plan.

Before and during the presentation it will be possible to ask questions. Please send the questions This email address is being protected from spambots. You need JavaScript enabled to view it.. The preference will be given to the questions sent in before the webinar.

Please register for the event by sending a request to participate to This email address is being protected from spambots. You need JavaScript enabled to view it.. Registration to webinar will be closed on March 5, 2013 at 14:00 (EET).

Due to technical reasons only the first 90 registered participants based on first-come-first-serve principle will have the opportunity to participate in the webinar. Registered participants will receive access to the webinar in the morning of March 6 via e-mail. The webinar will be recorded and available online for everyone at the company’s homepage on www.arcorealestate.com and on the web page of NASDAQ OMX Tallinn as well as the answers to all of the questions sent in earlier or asked during the webinar.

What is webinar?
A webinar is a virtual conference where the company’s representatives can present the company’s operations and plans. A webinar provides opportunities for interactive communication, including opportunities for asking questions and obtaining answers directly from the company’s representatives.

Additional information on the webinar.
All you need to have is a computer with internet connection and headphones. To use webinar, you need  Adobe Flash Player. Additional installations are not necessary. You will be able to ask questions in written form during webinar.         

Evelin Kanter
Lawyer
Arco Vara AS
Phone: +372 614 4594
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.


Arco Vara will release its consolidated financial reporting for 2014 on the following dates:


15 May 2014           Unaudited interim report Q1 2014
7 August 2014          Unaudited interim report Q2 2014                
6 November 2014     Unaudited interim report Q3 2014               
6 February 2014       Unaudited interim report Q4 2014              
17 April 2015              Audited annual report 2014         

Marko Err
CFO
Arco Vara AS
Phone: +372 614 4503
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
www.arcorealestate.com


On March 6, 2014 at 14:00 (EET) Arco Vara will hold an investor webinar, during which the participants will be presented with the presentation attached to this notification.

Arco Vara thanks all the participants.          


Evelin Kanter 
Lawyer 
Arco Vara AS 
Phone: +372 614 4594 
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Attachments:
Arco Vara webinar 06 03 2014.pdf