Eastnine: Faring well in this environment - ABG

Limited impact from energy costs & high indexation

… with NOI up ~4-5% and CEPS down ~2-6%

Share trading ~30% below Swedish office peers

2022 a good year despite horrible macro
The operational outlook for H2 2022 is solid, as signed tenants (~2% of lettable area) are set to move in during Q3 and Q4, respectively, and there have been no significant terminations. Pandemic-era fears of lower office space needs do not seem to have materialised, as vacancies in Vilnius and Riga fell in 2021 (Poznan, Poland is fully let) and both the company and industry experts allude to further improvements YTD 2022. The majority of Eastnine’s rental income is linked to inflation in the Euro area (9.5% in August), with most of the remainder linked to Lithuanian inflation (~22% in August). In addition, triple net lease agreements mean that tenants pay nearly all property-related costs, i.e. they are hit from two angles. We argue that Eastnine’s tenants are generally steady enough to absorb these double cost increases, e.g. Allegro, Danske Bank, Telia and Swedbank make up 50% of the company’s rental value.

Updated ECB rate path explains lower CEPS estimates
We do not make any forecasts for value changes in Melon Fashion Group (Russia) other than FX. Since 30 June, the Rouble has strengthened by ~3% against the Euro, which raised Q3e NAV by ~1%. We forecast rental income increases from indexation of 7% in 2023 and 4% in 2024, up from 3% and 2.5% previously. Our estimate cuts on CEPS stem from updated interest rate assumptions in accordance with the ECB’s most recent rate path (September). In addition, we assume four margin increases of 10bps in ’23-’24e. As of now, however, Eastnine has had no indications from banks of increased margins.

Trades at ~0.4x EPRA NRV vs. 3y average of ~0.8x
The share is trading at 2023e P/IFPM and P/EPRA NRV of ~11x and ~0.4x. Despite great earnings growth and expansion of EAST’s only remaining non-core asset, Russian MFG (33% of EPRA NRV), EAST is looking at possible ...
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