Eastnine - Operational improvements and MFG potential - ABG

Better than most
In a challenging macroeconomic environment Eastnine delivered one of the strongest sets of Q4 results so far in the real estate reporting season. Occupancy increased by 2pp q-o-q to >96%, while we see Stockholm property names with vacancies around ~10%. Thanks to true triple-net lease agreements and operating leverage, the NOI margin increased by 7pp y-o-y to >91%, while we see/forecast NOI margin contraction in almost all of Swedish real estate companies. On top of this, Eastnine is the only company with positive Q4 property value changes in our coverage, so far. Eastnine is obviously not unaffected by external factors such as higher interest rates (interest maturity of ~1.8 years, ~30% floating terms and another ~17% of interest maturities in 2023e), and recent interest rate hikes lead to slightly adjusted CEPS estimates. With that said, we are impressed by the operational performance and expect 2023e CEPS to grow by double-digits (~13%).

MFG divestment the main attraction
Even though Eastnine delivered a Q4 report with stellar operating property management performance, we do acknowledge (and understand) that any news around the MFG divestment is key for the share price and the company outlook. Management has previously stated that a divestment may be completed in Q1'23 . With EUR 193m of cash consideration, leveraged at 50%, Eastnine may acquire properties for almost EUR 400m. Assuming these potential acquisitions were done at the current average property yield (~5.6%), this would add ~EUR 22m of NOI, equivalent to an increased NOI of >65% vs our 2023 estimate of ~EUR 33m.

Trading at 2023e P/CEPS of 17x
The share is trading at a 2023e P/CEPS of 17x and ~0.5x the reported EPRA NRV, below office peers and with the estimate potential from the MFG divestment noted earlier.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/eastnine/Equity-research/2023/2/eastnine---operational-improvements-and-mfg-potential/