Eastnine AB (publ)

Hello and very warm welcome to East9's year-end report. My name is Kasturtis Asnauskas, I'm CEO of East9 and with me I have Britt-Marie Niemann, Deputy CEO and CFO. Before I start, I would like to ask you to post your questions during our presentation, which we will respond to after we finish the presentation. So what an amazing year we had. Our property portfolio grew by 63% and our profits from property management actually grew by 25% during the year, on a top-line growth of 15%. But actually the biggest acquisition happened in the last quarter and we can see immediately that our profits are growing by 37% during the last quarter. Profit per share increased by 24% during the year, 32% for the quarter. So an amazingly strong result, but also the full effect of the acquisitions will only be seen throughout 2025. So we're actually looking forward to quite nice development during the year. We have a positive net letting during the year and during the quarter and our occupancy now is at 96.1%. Our surplus ratio remains very high at 92.8 during the year. It's even higher during the quarter, but I will go into it a bit later. So we did two big acquisitions during the year, Novorinik year in Poznan in June and Warsaw unit in November. The board proposes increase in dividend of 1.20 sec per share in total, which is actually 50% of profit from property management. The biggest acquisition Warsaw unit was totally transformative for our business. So that's why we put an extra highlight on it. It's the central Warsaw in probably the best location on the Rondo Dschinckiego. It's 202 meters high building, 46 floors, one of the most modern buildings in Europe and also 60,000 square meters approximately. So it's a very, very big property. It's fully leased with fantastic tenants as Varta, Amazon, Moderna, Striker, Sibiri, Panatoni and at rent level, which is now below the current market, it's around 24 euros per square meter a month, whilst the market today is reaching approximately 27, 28 euros for similar type of properties. Annual income from this property is 18 million euros. We acquired it for 280 million euros and a yield of 6.4%. So it's been an amazing, great addition to our portfolio. And actually we established ourselves in Warsaw with probably the best located and best property to buy in the market overall. So if we look in our markets, what is so special about us? Well, you can see we've entered Poland. And actually Poland has received quite a lot of media coverage in both Swedish media, but also internationally. The coverage of Warsaw unit was also put our brand on the European level as well. So what's so interesting in this region is actually we are in the fastest growing part of European Union on the eastern flank of the Baltic Sea, eastern southern flank of the Baltic Sea. We are present in Latvia, Lithuania and Poland. But also if we look on the GDP growth in the region, actually this is the fastest growing part of EU. It has been the fastest growing part of EU for the last 25 years. It is bound to continue growing very, very fast for the next coming five years. The economies that we are in are also very lowly revered. So they have not been affected as much with the big increases in interest rates. But also there is a potential actually to do additional investments, lever up the economies as well, do infrastructural investments. So this all looks very, very positive, especially in light of current transformation that is ongoing overall in the economies. We have this nearing to the sort of more developed markets going on. We see more infrastructure investments coming in the region, which will overall boost further boost the growth. We also see very strong demand in the office jobs overall. The office employment has increased quite substantially over the years. It actually tripled in the whole of our regions over the last 20 years and it continues growing. And if you look, maybe Warsaw is reaching this kind of European average for the bigger cities in terms of office, number of office employees as of total employment in the cities, we have still Riga, Vilnius and especially Poznan lagging significantly behind. They always try to compare Poznan to actually Munich, which is at 33 percent and it's more industrial part of Germany, which is more Poznan is more industrial part of Poland. So it's an amazing market which is still growing and there is pending demand going forward for office jobs. And of course, this employment is bound to continue. I've just got off the call with one of our tenants actually, and I was told that they are increasing the number of employees by 1000 people this year. So we are actually in a very, very positive overall mood. What is also very what makes our case very attractive is actually that we are in the region where rents are still relatively low and among the lowest among the peers, whilst the yields are among the highest. This in combination with the same financing cost, we basically finance ourselves with Nordic and German banks, makes the investment very, very attractive. Capital values are still very low, but also we generate similar kind of yields, our portfolio generates similar kind of yields that logistic companies do. And it's coming from prime, prime office segment. So if you look on our operations, today we have 16 properties, 271,000 square meters of lethable area. So it's relatively chunky big properties, total property value 935 million euros per square meter. It's valued at 3400 euros on average, an average age of approximately seven years. It's a very modern, very young portfolio. If we look on our operations, our surplus ratio is very high, especially for the office operator. It's triple net lease market, but we actually continuously improve it. So if you see over the quarters, we're coming from 91% to 93%. And actually, if we look on our earnings capacity is bound to grow up to 95% by the end of this year. Occupancy ratio also continuously improving from 93% at the end of the year to .1% at the end of this year. And at the end of sorry, 2024. And actually still, it will most likely increase as we have some tenants moving in. So we are actually probably record for year of 97 and slightly above that. Yield in the portfolio has actually flattened out. So in valuations, it came from 6.4 up to 6.7 during last quarter and actually down now to 6.6. So it's all positive in terms of yield development. Poland today stands for 51% of our portfolio, Lithuania 41% and Latvia approximately 8%. And you can see that actually the only vacancy we have is basically in two properties in Latvia. So if it looks even high in terms of figures in the market as such, it's about two properties. And we actually in the good process of improving them and actually reletting them later during the year. So if we look on the net letting, it was positive during the year. Again, in Q4, we still have a positive net letting. With these very high figures, it will be difficult to show any significant positive net letting going forward. But we also see relatively positive dynamics over on the market on the lease market per se. Volt again improved. So basically we improve on every single metric our business during the year. Tenant concentration is down. It's something that we are totally aware of and we're trying to bring it down. So coming from 16 just a year ago for one largest tenant, I think at that point of time it was Allegro. Now we're down to 11%. And with further acquisitions, this ratio will go down and our risk will be more spread out. But we also have very, very strong tenants. Our largest relationship with was Varta. It's a Polish insurance company. Allegro, one of the largest Eastern European e-com players. We have a lot of names that you recognize and actually represent the modern part of the economy, of the service economy in these countries. We also worked a lot on sustainability and improved our performance quite significantly during the year. Now we have 100% certified portfolio. All of our properties are either BREAM or LEED certified on the absolute highest brackets. We have only one property in LEED Gold and that we will move up to LEED Platinum during the year. That's the intention. So basically we will have only LEED Platinum or BREAM outstanding properties. So not only they are certified, they are actually certified in the absolutely highest level. We received 92 points in Gresp and we worked quite a lot of reducing our energy per square meter, both working with our tenants. That reduction is around 10%. But actually if you look on the properties alone, we reduced by 12% and we continue reducing. We have a slightly higher energy consumption overall in our premises compared to Nordic peers. But the main reason for that is actually that we have humidity installed in our buildings, which is not present in this market here in Nordics. Green financing, 76% of total and green lease is 45%. It decreased but just because of addition of unit property in Warsaw. So on this I will hand over to Britta Marin.

Thank you, Christoph Tiss. It's a pleasure to present East9's earnings for 2024 and the last quarter. We saw a large increase in profit from property management both during the year and the quarter. And this was of course related to the acquisitions of the two properties in Poland. Now we're in E in June and Warsaw unit in November. As you can see, the profit from property management increased by 25% during the year and even higher during the last quarter. Acquisitions mainly increased rental income and increased also the interest expenses. But we saw a decrease in the interest income and this is of course related to the fact that we used cash in the acquisition. During the full year we saw an increase in the interest income. And this is because we sold our investment in MFT in August 2023. So we only had four and a half months that year with interest income and we had a lot more income in 2024. Sorry. The central administration expenses was affected by one of costs in the first quarter and affected by increased legal and sustainability costs during the full year. The earning capacity is a theoretical assessment based on current agreements, certain assumptions and also in some cases 12 month figures. We compare on this slide the end of December with the end of September. And the acquisition of Warsaw unit has substantially increased the rental income, the net operating income and also of course the profit from property management and 32% on the last one. Central administration cost is a 12 month figure, thereby affected by the increase in one of costs during the first quarter and also affected by the increase in sustainability and legal costs during the year. The interest income has decreased since the end of September since we used cash in the acquisitions and the interest expenses has increased due to the acquisition but slightly affected by a decrease, positively affected by a decrease in the interest rate level. If you look at the key ratios in the earning capacity, the profit from property management increases by 21% looking forward. The surplus ratio is also positively affected up almost two units, 2%. The interest coverage ratio decreases and the net debt ratio increases due to increased costs for the loans and also that we have less interest income. And as I said before, the interest rate level decreases somewhat during the fourth quarter. Now we have seven different banks on the financing side and also a pension fund. As you can see in this chart, five of them finance almost on the same amount, around 20% each and that's very good. It's spread out between different banks. We have two German banks, Berlin Hypp and Helaba. Helaba financed 50% of the latest acquisition and the other 50% was financed by Erste, an Austrian bank. Still, SEB and Swedbank around 20%. If you look at the interest key figures, the interest rate level decreased somewhat compared to the last quarter but increased, of course, in comparison with the last year end. We have increased the share of fixed interest quite a lot due to new swaps during the fourth quarter related to refinancing and the new financing. And the fixed interest period increased after the refinancing and the new financing. Interest coverage ratio increased compared to Q4 2023 but a little bit lower compared to last quarter. Liquidity has decreased, of course, since we used cash as planned in the acquisitions. Loan to value on the level that we actually prefer it to be, around 50% after the acquisitions. And the capital tie-up period, 3.4 years, quite long now, has increased. The property value increased by 63% to 935 million euros, 10.7 billion SEK. It's a medium, East9 has become a medium-sized real estate company now and that's good. And all of that increased during 2024 is related to acquisitions since we saw hardly any changes in values and not much of other investments either. They were around 4 million euros each. And in Q4 we had a slight decrease of the unrealized changes in value and they were related to building rights in one of our properties. And if you look at the chart in the middle, you can see that we had a lot of negative unrealized value changes in 2023, hardly any in 2024. And hopefully this is a shift in the trend. Hill requirements also decreased somewhat in the fourth quarter. A little bit of information for the shareholders. The profit per share from property management increased by 24% in 2024 and also, as you saw, in the earning capacity, plus 21%. And if you look at the total shareholder return during the last year, East9 presented 11.6 compared to only minus 2 when it comes to OMX Stockholm real estate. And the average during the last five years, East9 had 10.6 compared to minus 1.3, an extraordinary result. And as Kirsten said in the beginning, the board proposes an increase of the dividend to 1.2 per share split over four installments and corresponding to 50% of profit from property management. Less current tax and the board also proposes a new dividend policy. East9 sees increasing profit from property management and has also identified interesting investment opportunities. So therefore a change in the dividend policy. East9 has the ambition to annually increase the dividend per share. Dividends are to correspond to at least one third of profit from property management. Less current tax. So I think this was about it in the presentation.

So, okay, thank you very much. And now we go over to questions.

Yeah, and we have received quite a lot of them. The average interest rate of 4.5 seems high compared to other real estate companies. Do you expect this level to go down? I expect the question is yes, of course we do. But since we have 84% with fixed interest rates now, this will not have happened very quickly. It will happen on the part that we actually have with floating interest rates and also sometimes when we refinance. How do you view future? Can't read that one. Now we have to go to the next

one.

Concerning rents in Warsaw unit, will you raise the rents to 27 euro per square meter or close to it during this year or will you stay at 24?

When it comes to rents in Warsaw unit, I think we have an average vault of around five years and it will not happen quickly. It's 100% at least today. So, of course, when there will be rent negotiations, we will be able to adjust it to the market. But in general, it's quite positive that we see an upwards trend in the market overall. So the rents are going up. We see that in Warsaw, especially in the office segment, there is very little supply coming in the next coming two to three years. But we also see that demand is very, very strong. So we believe that the overall rental levels will come up. How it will affect us, of course, in valuations, values include the market rents. So, of course, if they go up, we will see a positive appreciation in value.

You changed your dividend policy this quarter. Could you elaborate on what made you change it?

Primarily, we see enormous opportunities for growth. So the intention actually is not to decrease dividend per share. The ambition is to continue increasing dividend per share. But at the same time, we keep some of the cash for further investment and for the growth of our business. And we see an enormous amount of very interesting opportunities today.

Your net LTV is now slightly above 50% after being well below the Swedish sector average for quite some times. How are you thinking about acquisitions, investments and how do you fund them going forward? Yeah, about the LTV, we think that 50% is a comfortable level. But of course, in some cases, as we did when we acquired Warsaw units, we can decide to go a little bit further up. And probably this is a better opportunity to do it now when we have seen a lot of decreases when it comes to values, but around 50 over time.

I think it's also very important when you look at LTV, you should look also at the yield level that we are generating. The yield level in valuations is 6.6. So it's very high compared to our peers in the Nordics. And that's why higher leverage is justified.

I think we had another question. How are you thinking about acquisitions, investments and how do you fund them going forward?

We have a number of opportunities. Of course, now we have a portfolio which we can start optimizing. So we will probably reallocate in the future some of our proceeds if we do have something. But before we have all the tools as any real estate company.