We raise our estimates for rental income to incorporate the acquisition of Uptown Park in Vilnius, which was announced after our last update. We lower our net operating income margin assumptions a notch to reflect the decrease to 89% in the earnings capacity in Q4 (90.6% in Q3). The second move-out from Danske Bank in May should be countered by some new move-ins and we forecast the occupancy rate to be unchanged in Q1-Q2’22, but to turn positive in Q3-Q4’22, as mgmt. has the spring to sign new leases and large contracts run for 3+ years. The decrease in our CEPS estimates reflects the sustained impact the bond issue in Q3 has on net interest, especially in ’22. The estimate change on EPRA NRV is mainly due to the Q4 value uplifts.
‘23e adj. P/CEPS 13x – 35% below standard P/CEPS
A high equity ratio and depressed cash earnings tend to keep investors away. It may be the view among some that this is the case with Eastnine. In this note, we therefore shed light on Eastnine’s “Other Holdings”, which appear to be non-yielding, according to the way we usually measure (i.e. “recurring income streams from property management”). For Eastnine, these holdings generated cash earnings per share (CEPS) of EUR 0.23 in 2021, i.e. 53% of the CEPS achieved from its investment properties. We have applied this percentage to our ’22e-’24e cash earnings multiples to show that these are 35% below our “normal” cash earnings (P/CEPS) multiples. We argue that these earnings, somewhat unjustifiably, are frequently overlooked by investors.
21x and 0.7x ’23e P/IFPM and P/EPRA NRV
Applicable peers in our coverage with similar exposure to Eastnine include Castellum, Diös, FastPartner and Wihlborgs. EAST is trading 42% above and 23% below these peers on ’23e P/IFPM and P/EPRA NRV, respectively, and well below its own two- and three-year averages, while
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