Evo Investors 20' Q1 Update
Gustas Germanavičius April 10, 2020
Dear Evo Investors,
During the first quarter of 2020, COVID-19 has struck Europe and with the current Q1 Update, we would like to shift our focus on our projects portfolio overview, repaid projects and introduction of long-waited EvoEstate originator ratings.
In the first quarter of 2020, 8 projects were repaid, out of which 7 had full principal repayment and 1 partial. The performance of these projects varied, but the best performer was Industrial Conversion project, by Relender which had an expected return rate of 9%, while it has yielded investors 12% XIRR, it’s important to note that the project was also finished within 3 months, while the maximum investment term was 6 months.
For those who are not that familiar with real estate crowdfunding, such phenomenon as early repayment happens quite often. In the past, some of the projects which had an expected term of 12 months, would get repaid within 7-9 months. However, with an ongoing pandemic situation, we can expect that this will not be that likely to happen that often in 2020 and the beginning of 2021.
There have also been cases when the projects got repaid extremely early, such as in 2 or 3 months. In these cases, originators in order to protect investor's interests usually apply a minimum loan term which is usually at least 3 months or in other cases if the borrower repays early, he has to cover an additional month of interest to the investor.
On the other hand, we had a project which was canceled 28 IN - Auction Product by Inveslar. Because it is an equity project and the borrower does not accrue interest but shares the profit based on the project's performance, we’re glad that Inveslar has agreed with the borrower to distribute a small payment to the investors which resulted in 2.8% XIRR.
To sum it up: projects in Q1 had yielded 10.34% XIRR, while our historical XIRR, currently stands at 13.11% across 13 projects spread across 4 countries.
At the timing of writing this article, our active project portfolio consists of 108 projects, which are located in 11 countries. Our largest market s remains Spain with close to 50% of all portfolios, followed by Lithuania with 15% share and Germany with 10%. With time we expect that loans in Lithuania, Germany and Austria will even the overall portfolio as we have introduced more originators in Q3 and Q4 of 2019.
Late principal repayment
Out of all of these projects, we have only a single project that is late for principal repayment- Duplex apartment development in Tallinn’s tech hub by Reinvest24 in Tallinn, Estonia. The project is currently late by 4 months to return the principal investments. On the positive side, it’s not an equity project, but fixed interest and the investment is accruing interest. During March, Reinvest24 has informed us that they have reached an agreement for property acquisition, but then COVID-19 broke out and the buyer has requested an additional 2 weeks to finalize the deal due to this situation. Reinvest24 expressed that they don’t want to depend on just this one buyer, therefore they are actively looking for new potential buyers.
Late interest payments (+7 days late)
Besides the previously mentioned project, there are two projects- Savanorių pr. 178, Vilkpėdės districts, Vilnius and Vilties str 20, Utenos county, Lithuania, by Nordstreet that has late interest payments which exceed 7 days late period.
Grace period of late interest payments (Less than 7 days)
In the grace period, we have 2 projects by Nordstreet, in the past few of their projects have had late interest payments. When the borrower is late to pay interest, Nordstreet imposes penalties- which are equal to 0.2% of the amount that is late, from this amount investors pay half for Nordstreet’s loan administration, meaning that for each late day of the payment investors get 0.1% of the amount which is late.
For the previous projects’ originated by Nordstreet, the developers didn’t pay monthly interest and only paid for it at the end of the project. For example Basanavičiaus g. 148B, Kėdainiai, Kauno m. apskritis had an expected return rate of 13% but yielded 15.01% due to these reasons.
As the market situation today has changed, Nordstreet is currently changing and negotiating contracts with new borrowers to impose a 30 EUR penalty for each delayed day of interest payment for new projects.
Additionally, there are 4 projects by Brickstarter which are in the grace period. However, with Brickstarter the situation is different, as rental investments in Brickstarter projects have the return directly tied with the performance of the underlying assets and importantly the properties incur costs. We have already made an inquiry for the status of their payments and we will publish an update for investors as soon as we receive an answer.
Currently, the whole project portfolio stands at a solid rate of having only 0.925% of the late principal repayments and 2.775% of late interest payments (+7 days) of the total portfolio. We expect that with the ongoing pandemic and its afterward effects on the global economy will decrease our statistics, but starting from today you can keep track of all our investments and their status in our updated originator's page.
Here you will be able to find the country where the originator is incorporated, the number of projects on EvoEstate, how many and which projects are late (+7 days), which ones are traded on the Secondary Market and whether the originator is a licensed financial entity.
When it comes to licensing, some of our partners are licensed indirectly, meaning that they operate or originate their projects under the umbrella of a fully licensed entity. To see the exact cause and find an overview of the company and external shareholders such as Venture Capital investors or Banks click on the logo of the originator on that page. There you will also find the total amount the partner has originated and the founding year of the company.
Lastly, we are introducing EvoEstate Rating, which assigns risk ratings for the project originators that are offering investment opportunities on EvoEstate. The EvoEstate Ratings are on a scale from “A+” to “D”, representing the lowest and the highest risk respectively.
It’s important to note that the rating does not analyze the individual investment opportunities, but the environment in which the investments are structured. The EvoEstate rating is informative only and cannot be considered investment advice.
The rating is based on factual data, which answers some questions and assigns a weight and rating for each originator. The assessment methodology is divided into three main classes: operating environment, risk appetite and financial profile. Later two different risk scorings are based on the business model of the platform for buy to let investments and loan originators (applies to both fixed-interest and profit participatory-equity loans).
Buy to let Loan originators
30.5% Operating environment 28.5% Operating environment
39% Risk appetite 43% Risk appetite
30.5% Financial profile 28.5% Financial profile
- Operating environment-The quality of regulations and the presence of the relevant financial services license. Effective regulatory institutions and law enforcement are viewed positively. The absence of relevant regulation is a negative factor that imposes a higher risk of the investments. Payments collection structure as well as an implemented continuity plan with assigned budget results in a lower risk.
- Risk appetite-Assessment of underwriting standards of the documentation criteria and their application during the scoring process. Application of internal or external risk controls, usage of collateral agents, escrow accounts and special purpose vehicles (SPVs) is a positive factor. The track record for executed previous loans without defaults or with a full recovery of capital is a positive factor. Delayed payments and late principal repayments are a negative factor.
- Financial profile-Assessment of financial stability of the company, external shareholders and access to capital. Large institutional investors (shareholders) such as Banks or established Venture Capital funds are viewed positively. Positive cash-flow, reasonable monthly operational expenditures and longer experience operating in the market is a positive indicator. High monthly expenditures with non-existing external institutional investors is a negative factor.
Undermining factors-Lack of measures implemented to control potential conflict of interest and untransparent financials or past loan performance.
The EvoEstate Rating will be updated on a biannual basis, with the next update scheduled for October 2020. Any significant updates which could impact originators ratings would be implemented immediately before the next update’s date and announced on our Blog & News page.
International media appearances
In February we were recognized as the #1 Fintech company in 50 Founders battle in Techchill, the largest tech event in the Baltic.
The Baltic Times has featured EvoEstate between “Incredible Baltic start-ups making global waves”. Here you can find a full interview with me about 2019 for EvoEstate.
A couple of weeks ago we published an interview with our originators about COVID-19 and its effect on projects that were funded. In the upcoming quarter, you can expect completion of interest payment schedule with distributed amounts, updates on Secondary Market and portfolio analytics.
I hope you found this information relevant and to make communication with investors easier, we recently have introduced a comments section under our articles if you would have any questions we would be more than glad to help.