Monthly reporting of REDSIDE funds for the period 4/2023
In April 2023, the NOVA Real Estate Fund's appreciation reached 0.28%, bringing the total appreciation since the beginning of the year to 1.49%
As of the end of April, our real estate portfolio is 99.4% leased, of which retail accounts for 99.8%, offices 96.5% and the industrial hall in Trencin is fully occupied by tenants. For the leases that will expire this year, there are 3 tenants, representing 1.9% of the retail space, and one lease in Trencin, representing 6% of the industrial space, with extensions remaining to be negotiated
All tenants who lease office space and originally intended to terminate their lease this year have already had their leases extended for the next period.
Currently, we are focusing on the Anděl 16 building, where the banking institution Hello Bank, which is also the main tenant, is located. Hello Bank plans to exit its banking business from the Czech market and therefore does not plan to extend the lease in its current form. We are actively addressing the situation at the moment and are planning the location of other tenants.
The overall office vacancy rate in Prague declined slightly during the first quarter, for the fourth consecutive quarter, to 7.5%. The Slovak industrial vacancy rate is 3.3% at the end of 1Q 2023. However, the lowest rate is reported by Western Slovakia, at 0.6%.
NOVA Green Energy Sub-Fund 1
The valuation of Sub-Fund 1 was 0.45 % in April 2023 and reached 1.64 % YTD.
In the Krnča biomass heating plant, Subfund 1 continues to take steps towards financial and operational stabilisation.
We believe that in the long term, the price ratios for wood chips and electricity will level out and these types of heating plants will continue to be profitable. However, the current market pricing of wood chips and electricity currently offers the possibility of only partially covering the cost of inputs, and thus Sub-Fund 1 is considering various options for the continued operation of the CHP plant this year, including a temporary shutdown/continued operation.
Despite a slight decrease in the price of wood chips, the state of operations is unflattering as spot electricity prices on the stock exchange have fallen significantly over the last few months and have been around the EUR 100/MWh mark for several weeks.
The two biomass thermal power plant projects, whose secured receivables also form the assets of Subfund 1, are facing similar price-operating problems as the Krnča thermal power plant, but we, like the current management, are confident in the long-term prospects of the thermal power plants. A petition for a payment order has been filed in Austria to recover the receivables from these two heating plants, and preparations are underway to start court proceedings.
With effect from 1 August 2022, Sub-Fund 1 does not formally plan to make further investments in new funds, in view of the phasing out of the business. On the other hand, it is focusing on the management and optimization of the assets falling under the "Side Pocket", with the aim of eliminating all risks and transferring these assets to Sub-Fund 2. Detailed information in the form of questions and answers regarding the fund split project has been published on the website of Sub-Fund 1 in the "FAQ - "Side Pocket" section.
The valuation of Sub-Fund 2 in April 2023 was 0.58 % and for 2023 it was 2.41 % YTD.
In April, work continued on the development of several PV plants mainly in the Czech and Slovak Republics. We received studies for 12 rooftop installations on the roofs of buildings owned by our sister fund NOVA Real Estate. These studies show that these 12 rooftops could be fitted with PV plants of up to 3 MWp. 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. The remaining applications for connection of the plants to the distribution grid are being submitted, and discussions are currently underway with tenants on the purchase or sale of electricity at the site of PV production/installation.
Work on the pilot PV project on the roof of the Orlice shopping centre is progressing as expected, with the structures currently in place and about half of the panels installed.
Again after several months - the last time it was about windfall tax - legislative changes are being discussed in the energy sector in the Czech Republic. In May 2023, an austerity package was presented by the government with the aim of saving government expenditure, including on subsidies provided, including support for RES. As no further details are known, it is not possible to assess the impact on the Fund's assets in the Czech Republic. There may be a neutral scenario where the government, after analysis, eventually decides that retrospective cuts in subsidies based on a retrospective change to an approved law that was examined and notified by the European Commission years ago are too risky and leaves the support at the current level. There is also the possibility of a negative option where only the subsidy would be cut, i.e. a reduction in feed-in tariffs without any further compensating effect. But there is also a variant similar to Slovakia, where the remaining amount of aid has been maintained but spread over a longer period - reducing the feed-in tariffs but also extending the period over which they are paid, thus providing fiscal relief to the state budget for the coming years. We will monitor developments closely and defend ourselves if necessary.
In Slovakia, work continues on the replacement of inverters, but the work itself has been slightly delayed by unusually rainy weather, which does not allow the movement of heavier equipment due to waterlogging. Due to the specific technical parameters of several Slovak PV plants, transformers and some other equipment and cabling have to be replaced together with the inverters. However, the replacement should still only last for a few days and no major impact on the electricity production from these PV plants can be expected. Inverter replacements are typical for PV plants and have been anticipated in the financial plans.
