Eastnine: Delivering on eastern promises - ABG

- Slight quarterly miss on operating lines is a non-event
- Acquisition potential remains, '25e CEPS upside of ~25%
- Trading at 2025e P/CEPS of <14x (sector average at ~18x)

Slight miss on operating lines not the main event

Eastnine delivered a Q2 report with rental income and NOI slightly below our estimates (-0.5% and -1.7% respectively) but the miss on rec. PTP was only -0.8% vs. our estimates. However, this is not the main takeaway. Instead, we are focusing on the effect of the large new acquisition of Nowy Rynek E in Poznan. The new addition drives an increase in WAULT from 4.1 yrs to 4.2 yrs, a sequential occupancy uptick to 93.6% and a total rental value increase to EUR 45.3m (EUR 39.3m in Q1'24).

Net LTV and occupancy increase post M&A

The acquisition was financed at a 50% LTV (in line with EAST's target for the company overall), with the company's net LTV moving from ~27% to 38% q-o-q. In the conference call, management said that the net cost of debt for the acquisition was in line with the overall average cost of debt at 4.7% (which was flat q-o-q), and the net initial yield for the property was 7.5%, which is higher than we had calculated from the press release (6.75%).

More acquisitions could add 25% to 2025e CEPS

While it has previously been difficult to forecast what sort of opportunities Eastnine could redeploy the cash generated from the sale of MFG towards, the Q2 report made things crystal clear. Eastnine will most likely soon acquire another high-yielding property in Warsaw. Yields will likely be a bit lower than in Poznan, but still around the ~7% mark. With LTV still at the bottom of the sector at 38%, Eastnine has room for ~EUR 150m in additional acquisitions without breaching its 50% LTV target. Assuming a 5% cost of debt and 7% yields, this could add another ~25% to CEPS '25e. The share is trading at a 2025e P/CEPS of 13.6x, which is a >20% discount to the sector average at 17.6x.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/eastnine/Equity-research/2024/7/eastnine---delivering-on-eastern-promises/