Eastnine: Polish purchase adds 45% to earnings - ABG

39,000sqm office building in central Poznan, Poland
EUR 25m target narrowed significantly
Eastnine’s largest transaction to date

Top modern office building acquired from Skanska
Eastnine has acquired its first Polish property, a EUR 121m (~SEK 1.3bn) office property in Poznan. The property was developed by Skanska and completed in 2021. It is 39,000sqm with a rental value of ~EUR 7.5m, corresponding to EUR 192/sqm, which is higher than EAST’s current average rent of EUR 181/sqm (Q1’22). The transaction improves EAST’s earnings capacity to EUR 16.1m, from 11.1m before the acquisition, corresponding to a 45% increase. This brings the company closer to its target of EUR 25m annually by Q4’23. The acquisition was closed today so the full earnings impact should be seen in a year from now. The new-built property will be environmentally certified by LEED Platinum and WELL Silver this year, adding to the 81% of its properties that are already certified (Q1’22).

Polish market similar to the Baltics
Prior to this acquisition, Eastnine owned properties in Vilnius, Lithuania (83%) and Riga, Latvia (17%). Today’s acquired office building is located in central Poznan (just 550m from Poznan Main Station). Poznan is Poland’s fifth largest city with a population of ~540,000, similar to Vilnius (~550,000). Even the market characteristics of the Polish real estate market are similar to the Baltics, e.g., triple net leases (meaning the tenant pays real estate taxes, building insurance and maintenance costs) are common, which results in high surplus ratios (=NOI margins) for property owners. For prime real estate buildings in the Baltics, levels are typically at 90-95%. Since the acquired building by Eastnine was built in 2021 (i.e. lower costs from greater energy efficiency and likely higher rental income), the NOI margin is likely around 95%. This implies a net initial yield close to 6% compared to EAST’s average of 5.5% (Q1’22).

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