TWINO Properties’ financial statement for 2023 has been released and we’re excited to share the first insights behind the Rentals product that was launched in August last year. For now, the report is available only in Latvian. The English version will be published on our website in the coming weeks. In the meantime, below is a summary of key metrics for 2023:
- Total funding raised: € 655,444
- Properties acquired: 3 apartments
- Total value of the properties: € 702,147
- Net profit for the year: € 67,973
Since the launch of Rentals and during the reporting period, the company has acquired three properties. The first acquisition was made in early September 2023 with two more flats following by the end of the year. As a result, the total value of the company’s assets at the end of the reporting period amounted to €940,494.
Most of it – €702,147, consists of long-term investments – specifically, the 3 fully equipped and furnished apartments in Riga acquired by the company. The remaining €238,347 are current assets, including:
- Cash balance of €108,884 in the company’s bank account, primarily due to an input VAT refund of €95,070 related to the apartment purchases; and
- Receivables totaling €129,463, of which €88,474 is the company’s unpaid share capital at the end of the year.
The property acquisitions were funded through a public offering of TWINO Properties shares on twino.eu platform, raising a total of €655,444 during the reporting period. The funds for the acquisition of the apartments are raised in batches. In this respect, it is worth pointing out that the last apartment was funded in total in 3 batches where at the end of 2023:
- The 1st batch was already fully funded;
- The 2nd batch was in the process of funding; and
- The 3rd batch was not yet started.
As a result, part of the funds (from the 2nd batch) amounting to €88,473 for purchasing one of three apartments was being raised at the end of the year (representing unpaid share capital in the company’s assets) and the rest of the funds (from the 3rd batch) was raised after the end of 2023. Therefore, at the end of the reporting period, the company had liabilities of €170,000 on its balance sheet related to the purchase of one of the three apartments.
The initial performance of the Rentals product has met our expectations, reflecting the stability and potential of the short-term rental market in Latvia. Despite a late start in rental season last year, the demand for our properties has been strong. With our ongoing acquisitions, we are not only expanding our portfolio but also improving our cost efficiency, thus, expecting improved performance going further. Short-term rentals market in Latvia continues to grow, showing strong demand and a growth rate of 21.6% in 2023 compared to 2022[1]”, shares Helvijs Henšelis, CEO of TWINO.
shares Helvijs Henšelis, CEO of TWINO.
Rental income, the primary income source of Rentals, began accruing in September from platforms like Airbnb and Booking.com, generating €7,224 during the reporting period.
While the company reports a comprehensive profit of €67,973, it’s important to note that €73,254 of this profit comes from the revaluation of the investment properties (i.e. the apartments acquired by the company). This revaluation was done for the following reasons:
- At the time of acquisition of the real estate the property is recognized on the company’s balance sheet at the cost of acquisition (that is, taking into account the acquisition price without VAT and expenses related to the acquisition, such as state fees and other commissions);
- In the annual report, the company is obliged to reflect the properties at their fair market value, e.g., based on an independent valuation of the properties;
- Any differences between these values are recorded as either income (if the market value is higher than the balance sheet value at that time) or expenses (if the fair value is lower correspondingly). This is reflected in the company’s profit and loss statement under “Other operating income”.
Simply put – when acquiring the properties, part of the total price paid for them was input VAT. After the purchase, the company received a refund of the said input VAT. As a result, the properties are worth more than the company has effectively paid for them because of the received refund.
This in turn creates the difference between the fair (market) value and the balance sheet value of the properties and, thus, triggers the revaluation of the apartments. Essentially it allows the company to recognize the future revenues from the beneficial tax treatment upfront (which is reflected under the “Other operating income” in the company’s profit and loss account).
Excluding the other operating income (i.e. the revaluation of acquired properties), the company’s financial result is a loss of €5,410. This is due to:
- The rental income was generated only during the last four months of 2023 starting September, while the administrative costs are fixed for the entire period;
- Only three properties were acquired in 2023 (the acquisition of the last one was finished in 2024), but the administrative costs are fixed regardless of the number of properties during the year; and
- The occupancy and rental rates are lower during the winter season resulting in less rental income compared to if the properties were rented out for a full calendar year.
Despite this, the company’s management reports that overall operations are progressing successfully. Although the rental income has not been sufficient to cover all costs, this aligns with the company’s initial 10-year business plan. The costs of acquiring the properties typically do not allow to generate high returns in the first years of the operations. Moreover, since the first property was acquired in September last year, the rental income was generated only during the four few months of 2023, resulting in a limited period to generate revenue.
Looking ahead, positive financial results are expected as the acquired properties will generate income for a full calendar year, particularly maximizing rental income during the high (summer) season. Additionally, the company continues to acquire new properties, which reduces administrative costs per property.
Given the nature of the profit, namely – that it arises from the recognition of the future revenues upfront, not from the rental income as such, the management has decided not to distribute any dividends for the reporting period. Therefore, the company will continue renting out properties and will evaluate the distribution of profits earned in 2023 in the following reporting periods.
[1] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Short-stay_accommodation_offered_via_online_collaborative_economy_platforms_-_monthly_data#growth_of_platform_tourism_in_Q4_2023
