Eastnine AB (publ)

Hello and very warm welcome to our first half result presentation. My name is Kerstuti Sasnauskas, I'm CEO of East9 and with me is Britt-Marie Nyman. Today we will go through the first half and the second quarter and discuss a little bit about the market and the opportunities we see. So before I start, I just want to note that please post your questions during our presentation so we can start responding to them directly after. We are building a very exciting company in the fastest growing part of Europe. And it's a company focused on prime offices in prime locations. And our offices actually yielding not as offices in most of the European countries, they're actually yielding very highly at 6.2%. Our surplus ratio is 93.5% and we enjoy very high occupancy. Our property portfolio over the last 12 months has increased by 47%. So it's an amazing development over these years and especially even during the last quarter. Our rental income is up 62%. In comparable portfolio, we grow 5.1% over this quarter. Profit from property management increasing by 54% and profit from property management per share is growing by 40%. We have slightly negative unrealized value changes, but only 63,000 euros in our almost 1 billion portfolio or balance sheet. So it's very minimal. We have slightly negative net letting, but we are coming from very high occupancy rate in general. And our occupancy rate actually during the quarter increased by 1.1% to 97.1%. So basically, we don't have any real vacancy. It's more like moving tenants in and out. Surplus ratio up to 93.6%. And we hired CEO for Poland or head of Poland, Julia Radzewicz-Lewandowska, who will start in August. During the period of six months, our revenue is up even growing even faster, 67%. Incomparable portfolio, again, very strong, 4.8%, well above inflation rates. And this is due to a higher lease, very strong leasing over this half year. Profit from property management up 50% and per share basically 36%. So again, very, very strong growth. And realized value changes are positive over the first half by almost 90 or over 19 million euros. Net letting basically zero over this, but it's very difficult for us to increase it positively because of already very, very high letting figures. We have, and surplus ratio is almost 94% over the period. Very strong operational performance. And if we look, before we go into sort of all the details, I'd also like to draw your attention a little bit more to the markets and what's happening in our region. And we start with Poland, which is our very high focus area. It's actually 51% of our portfolio. We see that Poland attracted a lot of headlines, a lot of happening, very positive economic development overall. And Poland continues actually to grow very, very fast. If we look actually at the areas where we are actually situated in Warsaw, this is how it looked back in 2009. And this is from the same place, how it looks 2024. So it's been an enormous transformation that a lot of people have missed. And we believe it's actually, it's very, very exciting, this dynamic and very fast growing markets. If we look on GDP figures, on the growth, actually Poland has surpassed Sweden in GDP in current prices back in 2018. And it's actually continuous. It's almost now 50% above the Swedish level. If we look on the growth figures, of course, growth have been almost five times faster during the last decade. 10 years in Poland versus Swedish market. So we have actually a very strong underlying dynamics, both economic growth, growth in office jobs and growing demand for office per se. So with this dynamics, of course, it's wonderful to have a very strong property portfolio. We have, you can see pictures of our last three acquisitions since in Poland. Two of them were done during last year, and this is actually a result of our very significant growth. But I would also like to draw your attention to two factors. Not only that we have a very positive economic environment, which creates growth per se, we also are in the segment of top located modern offices, which are today in very high demand. The office market is split today with sort of some offices are not in very high demand, which are probably not as good located, but in good locations, modern offices are in very, very high demand. And we actually see this today, because all of our Polish portfolio is 100% leased. And here you see all of our portfolios. It's very modern, very centrally located premises in both Vilnius, which is our still largest market, in Riga and in both Poznan and Warsaw. If you look on overall portfolio, property value of 955 million euros, approaching 1 billion, 271,000 square meters of leasable space, an annual rent of 62.5 million euros. Again, surplus ratio on the high side. And yield requirements and valuations of 6.6%. Average value of our portfolio per square metre is a mere 3,500 euros. So it's relatively low valued compared to most of the Western peers. An average age portfolio is 7.8 years. So again, very young, very modern portfolio and enjoying very high occupancy. Out of the whole stock, 96% is pure offices, 4% is other auxiliary, mainly auxiliary services to our offices, like restaurants, gyms, et cetera, et cetera. If you look on the value split, we have Vilnius with the biggest market, followed by Warsaw today, Poznań and Riga. So it's a nicely diversified portfolio overall. Again, our tenants are coming from the most exciting parts of the economy. It's ICT, it's finance, it's e-comm, it's medtech and medical health sectors and a number of other very modern sectors. If you look on the Right hand side of the presentation, you see the key tenant relationships, Varta being the sort of second largest Polish insurance company. Allegro is a leading econ player in Eastern Europe, followed by very prominent names. So it's a very very strong tenant list and all of them enjoying quite significant growth over the years and actually continue growing. If you look on our sustainability work, we have today 100% certified portfolio. And it's not only certified, it's in the highest brackets like LEED Platinum or BREEAM Outstanding. Green financing stands for 89% of our financing. We have five stars in grass with 92 points. Green leases at 45%. We have them mainly in the Baltics. We are starting this work in Poland as acquisitions have been quite successful. recent, and our portfolio today is 82% taxonomy aligned. If you look on energy performance, we are reducing energy. There's still a lot to be done here. We see huge potential to still continue, even though our properties are among the top in the sector per se. And if you look on the yield curve, we actually, our portfolio is yielding similar to logistic type of properties. At the same time, we see a great value potential in the long term as rental growth is continuing growing slightly, but There's a positive trend and there is a very strong economic sentiment in our region. So on this, let's move to the figures.

Thank you, Kestutis. Just a reminder, please keep posting questions. We are happy to share another very solid report from IS9. We start by comparing the second quarter this year with the same quarter last year. And rental income and net operating income increase quite a lot. And this is mainly due to the last year's acquisitions in Poland, of course. The income in a comparable portfolio increased by more than 5%, and this was mainly related to a higher occupancy, but also indexation in the beginning of the year. The acquisitions also increased the central administration and the interest expenses, of course, and had a negative effect on the interest income because we used some cash in the acquisitions. The central administration costs was also affected by costs for recruitments during the quarter and digitalization. Profit from property management increased by as much as 54% and the property values were stable with hardly any unrealized value changes for properties. If you look at the period, January, June, we can see the same effects. The most important thing that is different is actually the unrealized value changes for properties during the period. During the first quarter, they were positive, 90 million euros, and thereby they are also positive during the period related to value changes in Poland. The earning capacity is a theoretical assessment based on IS9's earnings during 12 months, based on current loan agreements and current lease agreements. And to some certain extent, when it comes, for example, to property expenses and central administration, it's rolling 12-month figures. And when it's interest income and interest expenses, It's based on the current amounts and the current interest level. We can see we compared the situation by the end of June with the situation previous quarter. But on this slide, this time, we have also compared to one year back, the earnings capacity. The interest income, sorry, the rental income increased by 1% compared to the end of March. And this is due to a higher occupancy for example, and the interest expenses decreased mainly due to a lower interest rate level. And on the bottom line, profit from property management continued to increase 2%. And if we compare to the earning capacity one year back, the increase was as high as 44%. And this is due to the acquisition of Warsaw Units in November. Novoryniki was already included in these figures in the earning capacity by that time. Profit from property management per share continued to increase up to 0.34 for a 12-month period and of course the difference is bigger if we compare one year back. The surplus ratio a little bit lower compared to a quarter ago, and this is related to increase in property expenses since we use rolling 12-month figures, but we can see quite substantial increase compared to one year back. The net debt decreased somewhat during the last quarter, but increased if we compare one year back, and that's because we have just quite a lot of cash. Interest rate level continues coming down now to 4.4. It was as high as 4.7 a couple of quarters back. We have a healthy leverage level and also a diversified debt portfolio. The LTV still at 48%, same as previous quarter. Liquidity a couple of millions higher. Interest rate level down to 4.4. Interest coverage ratio increased a little bit, up to 2.5. The capital tie-up period and the fixed interest period somewhat shorter. Since we didn't do any refinancing or new financing during the quarter, the share of fixed interest increased to 84%. If we look at maturities both for the capital and for fixed interest, the green ones, the green bars are the capital tie-up period and the blue ones are the fixed interest. You can see that this year we only have 36 million euros to refinance and we have already started that refinancing and the interest from banks is actually huge. And that's very positive. It's a positive market and we can probably see that in the end when we have refinanced them during the autumn. Still same debt sources and we have approximately 20% from five different banks all over Europe. All financing is in euro. Property values. increased by 47% during the last year, but were stable during the last quarter. We had no unrealized value changes during the quarter, but quite a lot during the first quarter this year. yield requirements in the valuations came up 0.04 percentage points during the quarter, up to six, which rounded means up to 6.6. We had 6.7 as the highest. We look at the share and Eastline share as an investment. We can see an increased interest in the share. The share price has increased by 6% until the end of June. Been trading at all-time high after that, quite recently. The NAV per share increased by 2% in SEC and 5% in euro during the period. up to 55, slightly above 55 SEK. The total shareholder return for the last 12 months was 16% and in average 18% during the last five years. The share turnover has increased by 160% during the last six months, including all marketplaces. And we can also see an increased interest from institutional investors and foundations in the shareholder list, which is positive. And the shareholding split is more than 80% Swedish and around 20 other countries. We have a proven growth and strategy execution. The property value has increased by more than 150% since 2020 until the end of June. And the profit per share from property management, almost the same from 2020 to the rolling 12-month figures and even 187% if we include the figures in the earnings capacity. Finally, if we look at IS9 as a long-term investment, we can see that the IS9 share has outperformed both real estate index in Sweden, in Stockholm and in Europe, as well as Nasdaq Stockholm and Warsaw Stock Exchange since 2014.

Yes, and summing up, we are very happy with the very strong performance of our portfolio. Our properties are very attractive today and attractively located, and they are very modern in prime locations in capital cities of the Baltics, Warsaw, and in a very strong regional city of Poznań. So on the back of this, we are focusing continuously to build our organisation. We are driving a big decentralisation process to enable us to build a very efficient and modern organisation, but also continuously looking for further acquisitions with focus on Poland and primarily Warsaw. So on this, we open up for questions.

Yes, and I know this question was coming. Given where both the leverage and the share price is today, can you quantify what the huge interest from banks mean in terms of expected changes in lending margins going forward? No, I will not be exactly, but it will be all-time low as far as that I can go. But if it in the end means that our average interest level will come down, will of course also depend on how much of the debt we decide to fix and what fixing level we get and what fixing level we had before. So it's not only the margin. It's important to remember. How are you affected by Swedish inflation, which surprised negatively today?

We are financing in euro-born markets. So we are a euro company. 100% of revenue is euros. 100% of financing is euros with euro-born margins. So we are very much affected by European inflation, the figures in which Sweden has a relatively small impact.

Given where both the leverage and the share price is today, are you looking at more creative, attractive, perhaps deals like Warsaw Units, including payments with shares?

The answer is yes.

How come rental income down quarter to quarter yeah that's a good question it's actually the fact that we had a sort of it's if you include in rental income other financial income we had a little bit too high figure for other financial income in this quarter, and it was too low in the previous quarter. And we had a little bit too high figure in rental income during the first quarter, and a little bit too low in this quarter. It's related to rental guarantees. So if you even them out during the quarters, you get sort of the long-term level. Any more questions?

Okay, since no more questions are coming and I guess everybody is waiting to go out in this rainy summer day. So thank you very much for listening to us today and see you