Real estate development buoys Merko Q1 results, plans to start construction of over 500 apartments this year
Merko Ehitus posted revenue of EUR 46.8 million in Q1 2016, EBIDTA of EUR 1.2 million and profits before taxes of EUR 0.3 million. Merko continues to focus on private sector customers and real estate development, and the share of revenue from the latter increased to 42% of the group’s total Q1 revenue. Merko sold 101 apartments in the first quarter compared to 62 in the same period last year.
“Due to the recent developments on the Baltic construction market, we can’t be satisfied with the results of the first quarter, unfortunately. Civil engineering construction volumes are in a slump, which has affected profitability, and the volume of government orders in general is down. While at the end of 2014, government contracts made up close to half of the Merko portfolio, today the figure is only 20%,” said AS Merko Ehitus management board chairman Andres Trink. “The first quarter results were also impacted by the slower than planned launch of construction of several large-scale projects, due to changes in project design solutions and delays in getting approvals.”
“Our goal continues to be to strengthen our positions on the general contracting and residential real estate market in Latvia and Lithuania, where similarly to Estonia, there are currently few public sector orders and the realization of private sector commercial real estate projects takes a long time. So we’ll be sailing into the wind this year. In the first quarter, we acquired a majority holding in a Norwegian construction company with the objective to form the basis for operations in the Norwegian construction market. We have continued investing into real estate development as planned and the apartment sales results are satisfactory in all three Baltic capitals. We hope that similarly to Vilnius and Tallinn, the Riga apartment market will also become active, as there has recently clearly been an undersupply of new apartments in the biggest city in the Baltics. For the first time, sales revenue in the real estate segment made up over 40% of the group’s total revenue, which includes the sale of strategically non-core immovable properties for the group. In apartment development, we will continue investing into quality product development and construction,” said Trink.
In Q1, Merko sold 101 apartments with a total price of EUR 11.4 million (not including VAT), compared to the 62 apartments sold in the first three months of 2015. In the first quarter, Merko launched construction of the second Paepargi high-rise in Tallinn and the last apartment building in the Kaupmehe project in Tartu. “We will continue investing into residential real estate projects and similarly to last year, we plan to start construction of more than 500 new apartments in 2016,” said Trink.
Merko Ehitus posted revenue of EUR 46.8 million in Q1 2016, which includes sale of non-strategic immovable properties. Q1 EBITDA was EUR 1.2 million, profit before taxes was EUR 0.3 million and the net profit was EUR 0.1 million.
In Q1 2016, the group’s companies entered into new contracts totalling EUR 22.4 million, including the BAUHAUS department store in Rocca al Mare and Tallink tennis centre. As at 31 March 2016, the group had a secured order book balance of EUR 243.5 million. Major projects in progress in Tallinn for Merko in Q1 included the construction of Hilton Tallinn Park Hotel, the design and construction of Maakri Quarter, Öpiku Building, T1 shopping centre and the design and construction of a tram line that will serve the airport. In Latvia and Lithuania, the largest projects in progress are the Riga Airport passenger terminal, the Kauno Algirdo residential and commercial quarter and the Narbuto 5 office building.