GROUP CEO'S REVIEW
Rait Riim, CEO and Member of the Management Board of Arco Vara AS:
"The second quarter of 2026 marked my first full quarter as the Chief Executive Officer of Arco Vara. Thanks to more than 20 years of experience in the real estate sector, my transition into the role has been both smooth and efficient.
During the quarter, Arco Vara focused on three key priorities:
- the successful completion of the ongoing development projects at Soodi and Spordi;
- preparations for the construction of the Lutheri Quarter and Arcojärve residential developments; and
- the implementation of the Company's new long-term growth strategy.
Starting with the latter, the Supervisory Board approved the new strategy developed by our management team, with the diversification of Arco Vara's product portfolio at its core. The development of comprehensive residential communities will remain the Company's primary business focus. However, we intend to complement this by developing townhouses, detached houses and residential building plots. Over the longer term, we also see opportunities in the development of build-to-rent residential properties and commercial buildings. In addition, we aim to offer products across different price segments and locations in order to better respond to market demand. Our strategic objective is to deliver at least 150 new homes to customers each year.
Our development projects on Spordi Street in the Kristiine district of Tallinn and on Iili Street (formerly Soodi Street) in the Kodulahe residential quarter in Haabersti are progressing according to schedule. Completion of both developments is expected in November-December 2026. During the second quarter, we sold 19 new homes, representing one of Arco Vara's strongest quarterly sales performances in recent years.
Preparatory work for our next major development projects - Lutheri Quarter and Arcojärve - is also progressing as planned. Although valid building permits already cover a substantial part of the Lutheri Quarter development, detailed technical construction designs must be completed before construction can commence. As a result, the second quarter was largely dedicated to design work. We expect construction at Lutheri Quarter to begin in the fourth quarter of 2026.
The detailed spatial planning process for Arcojärve has entered its final stage. Following the adoption of the detailed spatial plan, amendments arising from the public consultation process have been incorporated, and we expect the plan to be formally approved in the coming months. The construction designs for the first buildings have already been completed and will be submitted for building permits once the detailed spatial plan is approved. Our objective is to commence construction of the Arcojärve development during the first half of 2027.
The market for new residential developments in Tallinn remains highly competitive. During the second quarter of 2026, approximately 3,200-3,300 new apartments were available across 106 development projects, representing an increase of around 12% compared with a year earlier. The supply of new apartments continues to grow at a moderate pace.
A total of 325 new apartments were sold in Tallinn during the second quarter of 2026, representing a 13% decrease compared with 373 apartments sold during the corresponding period of the previous year. Although sales volumes declined temporarily during the quarter, the longer-term trend continues to indicate gradual and stable market growth. Against this highly competitive backdrop, I am particularly pleased that Arco Vara achieved one of its strongest quarterly sales performances in recent years.
The average asking price of new apartments in Tallinn reached EUR 5,329 per square metre during the second quarter of 2026, increasing by 5.6% year-on-year. Across Tallinn's districts, average asking prices ranged from approximately EUR 4,050 per square metre in Haabersti to EUR 6,740 per square metre in Pirita, with prices continuing to show an upward trend.
The continued increase in asking prices despite higher market supply is primarily driven by rising development costs. In addition to general inflation, increasingly stringent regulatory requirements are also contributing to higher construction costs. For example, apartment buildings for which construction commences after 1 July 2026 must include civil protection shelters. According to various estimates, this requirement is expected to increase construction costs and may raise the final selling prices of new apartments by approximately 2-8%.
Arco Vara's second-quarter loss reflects the inherently cyclical nature of the real estate development business. During the active construction phase of development projects, costs are recognised as incurred, whereas revenue and profit are generated primarily upon project completion and the handover of completed homes to customers.
As the completion of the Spordi Street and Kodulahe Soodi developments is scheduled for the fourth quarter of 2026, we expect a significant increase in revenue and a substantial improvement in profitability towards the end of the year. Accordingly, we expect both the fourth quarter and the 2026 financial year as a whole to be profitable for Arco Vara.
Overall, Arco Vara is well positioned to take the next important step in both growth and profitability. Our existing land bank provides a strong foundation for developing integrated residential communities, while expanding the portfolio with smaller and more diverse projects will strengthen business diversification and reduce dependence on the development cycle of individual large-scale projects.
The implementation of strategic changes takes time, and their benefits will not materialise overnight. At the same time, it is important to recognise the cyclical nature of the real estate development business. Arco Vara's development portfolio has now reached a stage where the majority of projects are either under active preparation or construction. By the nature of our business model, revenue and profit are realised primarily upon project completion and the handover of homes to customers. Consequently, next year's financial performance will largely depend on the sale of completed inventory, while the financial contribution from projects currently entering construction will be recognised only upon their completion. I am confident that the successful implementation of our new strategy and the launch of new development projects will begin to generate tangible benefits over the next two to three years, creating a solid foundation for Arco Vara's long-term, sustainable growth."
KEY PERFORMANCE INDICATORS
The Group's revenue for the first six months of 2026 amounted to EUR 4,319 thousand, representing an increase of EUR 1,226 thousand compared with the first six months of 2025.
For the first six months of 2026, the Group reported an operating loss (EBIT) of EUR 1,205 thousand and a net loss of EUR 1,154 thousand. In the first six months of 2025, the Group generated an operating profit of EUR 265 thousand and a net loss of EUR 43 thousand.
During the second quarter of 2026, the Group sold 19 apartments in its development projects, of which 16 were sold under preliminary sale and purchase agreements and 3 under real right contracts. By comparison, in the second quarter of 2025, the Group sold 6 apartments, of which 1 was sold under a preliminary sale and purchase agreement and 5 under real right contracts.
As of 30 June 2026, the Group had 65 apartments and 1 commercial unit available for sale across its development projects. As of 30 June 2025, the Group had 19 completed apartments and 1 commercial unit in inventory.
As of the end of the first half of 2026, the Group's net debt amounted to EUR 45,218 thousand, an increase of EUR 11,957 thousand compared with the end of the corresponding period of the previous year. The increase in net debt was primarily attributable to the utilisation of development loans to finance the construction of the Group's ongoing real estate development projects. As of 30 June 2026, the weighted average interest rate on the Group's interest-bearing liabilities was 8.77%.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| In thousands of euros | 6M 2026 | 6M 2025 | Q2 2026 | Q2 2025 |
| Revenue from sale of own real estate | 4,064 | 2,853 | 3,794 | 1,264 |
| Revenue from rendering of services | 255 | 240 | 135 | 123 |
| Total revenue | 4,319 | 3,093 | 3,929 | 1,387 |
| Cost of sales | -4,039 | -2,069 | -3,714 | -961 |
| Gross profit | 280 | 1,025 | 215 | 426 |
| Other income | 90 | 1 | 2 | 0 |
| Marketing and distribution expenses | -219 | -193 | -95 | -125 |
| Administrative expenses | -1,035 | -562 | -595 | -293 |
| Other expenses | -321 | -4 | -249 | -4 |
| Operating profit | -1,205 | 265 | -721 | 5 |
| Finance income and costs | 202 | 0 | 213 | 0 |
| Interest income and costs | -151 | -295 | -66 | -152 |
| Profit/ loss before tax | -1,154 | -30 | -575 | -147 |
| Income tax | 0 | -13 | 0 | 0 |
| Net profit/ loss for the period | -1,154 | -43 | -575 | -146 |
| attributable to owners of the parent | -1,129 | -43 | -550 | -146 |
| attributable to non-controlling interests | -25 | 0 | -25 | 0 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| In thousands of euros | 30 June 2026 | 31 December 2025 |
| Cash and cash equivalents | 2,070 | 2,784 |
| Receivables and prepayments | 1,381 | 6,420 |
| Inventories | 83,275 | 74,127 |
| Total current assets | 86,726 | 83,331 |
| Receivables and prepayments | 18 | 18 |
| Investment property | 2,296 | 2,296 |
| Property, plant and equipment | 521 | 551 |
| Intangible assets | 31 | 41 |
| Total non-current assets | 2,866 | 2,905 |
| TOTAL ASSETS | 89,591 | 86,236 |
| Loans and borrowings | 4,070 | 4,180 |
| Payables and deferred income | 4,171 | 8,560 |
| Warranty provisions | 270 | 347 |
| Total current liabilities | 8,511 | 13,087 |
| Loans and borrowings | 43,218 | 36,283 |
| Payables and deferred income | 453 | 503 |
| Total non-current liabilities | 43,671 | 36,786 |
| TOTAL LIABILITIES | 52,182 | 49,873 |
| Share capital | 12,158 | 12,158 |
| Share premium | 16,399 | 16,399 |
| Statutory capital reserve | 2,011 | 2,011 |
| Other reserves | 51 | 28 |
| Retained earnings | 5,767 | 6,593 |
| Total Comprehensive Income for the Reporting Period | -1,154 | -826 |
| Total equity attributable to owners of the parent | 35,232 | 36,363 |
| Non-controlling interest | 2,177 | 0 |
| TOTAL EQUITY | 37,409 | 36,363 |
| TOTAL LIABILITIES AND EQUITY | 89,591 | 86,236 |
Darja Bolshakova
CFO
Arco Vara AS
www.arcovara.com
