Eastnine: Polish and Baltic prime offices at 0.5x NAV - ABG

Effective operational delivery Improved debt metrics post value gains & acquisition 12.8x P/IFPM and 0.48x P/EPRA NRV 2023e Raised occupancy rate from positive net letting
Net letting in Q2 was EUR 1.8m (2.1m TTM), in sharp contrast to the EUR -1.7m in 2021. Although Baltic GDP forecasts are declining, Eastnine is still experiencing growing demand, primarily from IT sector tenants, and believes its tenants could thrive even in a weaker business cycle due to their emphasis on improved profitability. Thanks to the strong net letting, we lift our occupancy rate gradually up to 93.4% by Q1’23e, from 91.5% in Q2, while the net operating income margin is down somewhat in ’22e & ’23e from higher energy costs. We trim our central admin forecast somewhat but are still above the reported earnings capacity. All in all, a strong report that results in positive estimate revisions on CEPS of ~2-3%.

Rations for tougher times Increased market rent levels and new letting resulted in property value uplifts of EUR 10m, or 2.1%. This is historically only topped by 4.2% in Q4’20, and supported ~15% of the NAV increase q-o-q. The remaining part can be ascribed to the value uplift of the non-core asset, Russian MFG (81% in Q2, 20% in H1), owned entirely unleveraged. This value change is driven by accelerated earnings improvements (~65%) and by a strengthened rouble (~35%). In sum, these value gains improve our EPRA NRV estimates by 19-20%. Moreover, we learnt from the report that Eastnine’s Polish acquisition (Nowy Rynek D) was financed with interest that matures in 2027, which has extended Eastnine’s interest maturity to 2.2y (1.6y in Q1) and has increased its average interest rate to 3.0% (2.9% in Q1). 86% of Eastnine’s IB debt is in the bilateral bank market, which limits risk as opposed to the capital markets currently.

Priced in line with peers on IFPM, lower on EPRA NRV The share is trading at 21x LTM P/IFPM, which is 32% below its 3-year average. As significant cash flow from its recent ... Läs mer på ABG Sundal Collier

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