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Eastnine: Relatively bright outlook - ABG

We trim our growth assumptions
Slower rental growth hedges against price fall
11x ’23e P/IFPM and 50% discount to EPRA NRV

Low vacancies indicate solid demand
As announced in Q2’21, the previous sole tenant of the 6,900sqm Uniq property in Vilnius (Danske Bank) moved out in May, and the tech company Wolt has leased part of the property. Eastnine’s management remains optimistic about its prospects to have the premise filled again during Q3’22. Real estate advisor Ober-Haus reports new office supply in line with 2021 and slightly increased vacancies (~6.5%). Meanwhile, prime office vacancies have remained at ~3-5% the last ten years, supported by take-up exceeding new supply. In Poland, regional city offices average a vacancy of ~14%, but the variation is high and prime offices should average a significantly lower vacancy level. Eastnine’s previous acquisition in Poznan is a good example, as the vacancy was 3.5% and the seller offers a 0% vacancy guarantee. Despite the solid position, we remove our EUR 30m of template acquisitions p.a. and lower our income growth estimates.

Lower price fall than for most Swedish names
Because of increased interest rate expectations, we incorporate an increase to the European Central Bank policy rate of 110bps, from today’s -0.50%. Historical development of yields and rent levels say something about the sensitivity for value declines. In the last ten years, yields have declined at similar paces in Vilnius and Poland’s regional cities as in Sweden’s three largest cities; however, rental levels have risen far less (~5-25% vs. ~50-100%). This indicates higher resistance for property value declines in Lithuania and Poland versus Sweden. As such, we assume declining property values of ~5% (excl. inflation and value gains) between Q4’22e and Q4’23e, lower than the typical decline for our Swedish coverage, causing EPRA NRV estimate cuts by ~1-7%.

Fair value range of SEK 85-115 EAST trades at 11x ’23e P/IFPM and a 50% discount to last reported NRV ...
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