Eastnine AB (publ)

Hello and very warm welcome to IS9's third quarter presentation. My name is Kastuti Sasnauskas and with me, Frit-Marie Nyman, Deputy CEO and CFO, and today we will guide you through our third quarter results of 2025. Before I start, I urge you to post your questions during our presentation and we will answer them right after the presentation is done. So let's move into the third quarter. We continue experiencing tailwinds in operations. Our rental revenue is growing 45%. Incomparable portfolio, 3.1%. Profit from property management up 48%. And per share is 35%. All of these figures depend very much on our last acquisition in Poland. This growth is mainly attributed to that. But we're also very, very happy to see strong performance in comparable portfolio as well. We also have positive value changes in our portfolio, though slight. There's no dramatic change, mainly driven by growing market rental levels in the market, which result into positive revaluation of our portfolio. We also refinanced some of our debt and increased our leverage a little bit. This is all in preparation for further future acquisitions. During the quarter, we concluded an extended lease contract with Rockwell, one of our key tenants in Poznan. The contract grew from almost 7,000 square meters to over 9,000 square meters and extend for another seven years. We're also working on establishing operations in Poland. We have country manager in place since August already and four employees starting in December and February. So all in all, business is as planned. If we look over period, continued growth figures are more impressive. Again, rental revenue growing 59% and comparable portfolio at strong 4.4%. Profit from property management up 49% and per share 36%. So again, very, very strong performance. And realized value changes at 24 million euros over the period. Net letting slightly negative, but we are coming from very high level of occupancy with closer to 97%. Slight drop from last quarter, but still significantly above the start of the year. Surplus ratio at almost 94%. Again, very strong operational metrics continue. So if we look at these nine at a glance, we are a property company in the fastest growing part of Europe, with core markets today being Poland, followed by Lithuania and Latvia. And if you look on overall size, I mean, we're 270,000 square meters, almost 1 billion in property assets. 97% occupancy rate. We expect our annual revenue to reach 62 million euros. Properties yield 6.1% with 47% leverage and average interest of 4.4%. And you can see some of the names of our key tenants. I will go into that a little bit later in the presentation. If you look at these nine as a long-term investment over the last 10 years, the share outperformed most of our benchmarks, both EAPRA index, and this is EAPRA developed market index, and real estate index in Stockholm. So both in euro and CIEC. And if we look on the targets that we reached, of course, our overreaching target is to deliver attractive return, total return to shareholders, but also, you know, growth with high profitability as we have, we continue doing it right now. So over the year, our investment series 9 returns around 8%. Over the five-year period, around 18%. Our property portfolio is growing 47% over one year and an average of 24%. And this is the ambition that we intend to continue on this growth. If you look historically on our asset base, assets more than doubled over the five years and profit from property management close to three times. So if we look a little bit on the sort of the market and the long term trends and I'm continue talking about it is just very, very important to understand where we are. We are actually in the fastest part of Europe, fastest growing part of Europe. with Poland topping the growth over the last 25 years. But even for the next coming five years, the growth in Poland is expected to be among the highest in Europe. So are the other two Baltic markets, which are considerably smaller, but at the same time developing and evolving extremely nicely. Again, if you look at the growth parameter, it's very important, but it comes as well with very nice investment metrics. We are in the market with the lowest rental levels and in combination with the highest yields, the capital values are significantly below of the surrounding markets, which is a kind of wrong assumption in the longer term. I think that this gap will sometime close. We don't know when. Of course, there are certain factors affecting it. But I think it is very, very important to remember that this combination, again, in combination with... the same financing opportunities as we have in the other European markets is very, very compelling. If we look at the market per se, I think we are in a bit of a different universe compared to our Nordic peers. We are in the market where rental levels are growing in general, and especially in the sort of prime segment. And if we look over the last five years, the rental levels in markets like Vilnius increased by 41 percent, Riga 19 percent, Warsaw 18 percent and Poznań 16 percent. So a positive dynamics. And this dynamic started to accelerate even more over the last two, three years. mainly driven by increased construction cost and inflation. So it's not a kind of market sentiment driven. It's more driven by the underlying cost, etc. So still a very, very positive environment. The demand also remains very strong in our segment. If you look on the yields... We again in the market where probably the shift in yields have happened pretty quickly. If you look on Warsaw, we are up 150 basis points compared to the lowest levels back in 21. 125 bps in the Baltics and Poznan around 100 bps. Of course, Poznan comes from a significantly higher level already. So that change of 100 bps is pretty... motivated but the positive thing that's over the last two years these yields are now stabilizing and we see that probably with dropping financing costs those yields are probably peaking in in general and if you look on this maybe separate transactions you know this kind of gap from the top to the from the bottom to the top is closer to 200 pips if we look in places like Warsaw. The other important aspect of this is vacancies in the market. In general, we see that vacancies have increased over the years in all markets. It's probably following the sort of normal global trends. Warsaw is the only market that actually is more or less flat since the level of 2017. These are statistics for the total market. If we look for prime segment, these statistics differ quite a lot. But if we look on our portfolio, our occupancy was very stable over the years at a very high level, above 90% all the time. And today we are still at 96.7%. And we also are in the market of increasing rents. And if you look on sort of the graph on the right, you see the latest trends in our core buildings and the rents are upwards, ticking upwards. And this is, again, a little bit different sentiment from most what we see in other markets. But the prime segment, prime properties in best locations, they continue to deliver very stable returns. And they are in a very high demand, as most of the tenants are actually looking for. higher quality products. So this flight to quality trend continues and is very, very strong in our region. If we look on our portfolio overall, 31% of the value is in Warsaw, 22% in Poznań, and Vilnius with 40% remains our biggest market. We are very focused on offices. We basically do only office. So 96% of our portfolio is only dedicated to offices. And those offices are very modern. So despite these very high yields, this is a very, very modern and young portfolio. If we look on our tenant base, we are exposed to the most exciting part of the economy. It's IT, it's finance, it's e-comm, it's medical health and medical segment. And in general, if you look on our tenant list, these are very strong, either very strong local regional players or multinationals. And of course, the best properties attract the strongest tenants. Volt is at 3.6 years. Average rent still very low, which is at almost 2.5 thousand sec per square meter. And this is in the prime segment again. So we should not forget that. There is just a slide to show you our portfolio. I mean, it's the same as it was in the previous quarters. We haven't done any acquisitions yet. And if we look on sustainability part, 100% of our portfolio is sustainability certified. We certify under LEED and BREEAM standards and in BREEAM we only have outstanding and in LEED we have most of our properties are or almost all of our properties are in platinum and only one in gold which is again the highest standards of environmental certification. 82% of our revenue is EU taxonomy aligned. Green financing stands for 88% of our total financing. We received five stars in GRESS with 91 points. And we are among top 20 in the whole universe of real estate companies. We are number two in our segment of listed peers in Europe, I think. And if you look on our energy performance, we continue working very hard on reducing our energy intensity in the buildings. This year, so far, we reduced our energy intensity by 4.5%. And if we look on, this is in total portfolio, and if we look on our buildings per se, without tenant electricity, it's down 7.2%. So on this, I will leave over to you, Britt-Marie, to discuss more of the quarterly figures.

Thank you very much, Kerstutis. Once again, new record results from East9, both during the quarter and the period. This is mainly due to the acquisitions in Poland last year, of course. We can see that both rental income and net operating income increased substantially. But it's also good to see that income in a comparable portfolio increases by 3% in the quarter and 4% in the period. And this is related to indexation and a higher occupancy in average. The acquisitions, of course, also increased the interest expenses and decreased the interest income since we used partly cash in the acquisitions, while the increase in expenses was partly offset by decreased interest rate level. We saw profit from property management increasing by nearly 50 percent, both during the quarter and the period. And we saw positive unrealized value changes for properties during the quarter. third quarter and the first quarter meaning that the period was also positive this was related to changes in poland history is of course important but future potential is even more important and in the earnings capacity we compare the situation by the end of previous quarter and also one year back. It's a theoretical assessment. It's not a prognosis. And as you can see, the profit from property management compared to one quarter back decreased by 3% and this is because we had slightly lower occupancy by the end of September this year compared to the end of June. And we also saw an increase in interest expenses in the earning capacity due to the additional loans that we decided upon in the end of September. If you compare one year back in the earning capacity, we can see a huge increase during this 12 months, 33% on the bottom line profit from property management, and this is of course related to the acquisition of Warsaw Units in November last year. A little bit about financing and some key figures. The LTV decreased somewhat during the last quarter, down from 48 to 47% after amortizations and increased property values. The liquidity is slightly higher after additional financing. The interest rate level and the ICR on the same level. The debt ratio continues to decrease. And capital tie up period increased after additional and new financing, additional and refinancing, sorry, and the fixed interest period slightly lower. But we have some new swaps starting during the fourth quarter, which will have an effect on both fixed interest period and their share of fixed interest. And as you can see, we don't have any maturities left in 2025. These two millions, as you can see, they are only amortizations. And we also said in the report that related to the very good market conditions on the credit market, we might even refinancing something more early before maturity. So we are looking into that and not really much maturing in 26, 27 and 28, a little bit more in 29, of course. The debt sources are the same as in the end of previous quarter, except for a change. SEB is nowadays our largest bank after the additional financing during the third quarter, followed by Berlin Hypp, Erste and Helaba. The property value has increased by 47% during the last year. And the main reason is the acquisition in Poland in November. But if we look at the unrealized value changes for properties, they were 5 million during the third quarter, which is 0.5% versus second quarter. And the yield requirements, they were unchanged during the quarter 6.6%. If you look into the share, you can see that the liquidity and the trading in the share has increased substantially during this year. 216% for the first nine months up compared to the same period last year. The number of shareholders has also increased up 8%, 6400. NAV increased by 4% during the first nine months in SEK and 7% in euro. And total return for the shareholders during the last year is 8%, 12 months. And in average during the last five years, 18%. So that was all.

So before we conclude, of course, we are in the active phase of preparation for new acquisitions. We are accumulating bigger cash positions. And of course, we work continuously on looking at the opportunities to grow our portfolio primarily in Warsaw.

So please continue posting questions. We will start by answering those we already received. The first one. Hi, and once again, congrats to yet another strong report. Could you, if possible, elaborate a bit more around size in million euro overcoming acquisition? And is it currently only Warsaw that's in focus for IS9?

Of course, we are focusing primarily on Warsaw because Warsaw is where we see the biggest opportunities to build our position. We could do something in the markets we are already existent as well. We don't exclude that. But Warsaw is our key priority today. In terms of size, I think it would be inappropriate to comment, but we believe that we have a really very strong balance sheet today with nine times debt-to-BDA ratio. And if we look on... look forward looking figures it's going down to 8.4 so of course we have a possibility to increase a little bit our leverage and of course do quite significant acquisitions we normally do relatively sizable transactions in your markets do you expect highest upside from rental growth or yield compression It's very difficult to speculate about the yield compression, but of course, implications of yield compressions are huge. Should the yield start going down, we would see very, very significant uplift in values. At the same time, cash flow is something that we worked very hard to make sure that it continues growing and our earnings per share continue growing. at a very strong phase. So, focus is very much on that. Of course, the rental levels and the rental contracts normally are longer. They are fixed for a longer period of time. So we have a kind of inflationary adjustments. And you can see actually in our like for like growth over the nine months, we are growing a bit faster than before. The average inflation, we are doing 4.4 like-for-like growth versus inflation of just below 2, around 2 or something, if I recall correctly. But since we have contracted rents, maybe the yield could happen. Moves can happen faster.

Given how supportive banks are right now, how much higher leverage are you comfortable with in terms of LTV or net debt related to EBITDA? Perhaps you shouldn't give an exact figure, but somewhat higher at least. As Kestuti said, the net debt in relation to EBITDA is higher. only nine today, and it's decreasing further if you look at the earnings capacity. So I would say it's a bit higher, at least then, no problem.

I think in general, I mean, we would try to keep it over time, just below 10, definitely, just to be on a prudent side. At the same time, it could initially go over 10 times when we do acquisitions with the potential of reducing it over time. next coming 12 months, as it happened when we did acquisition of Warsaw unit. So in general, you should look on a long term or maybe earnings capacity figure for what we target. And we probably target somewhere to be around 10 or in a comfortable zone just below 10.

Are you considering taking up bond financing? And if so, what terms, interest rates and amount issued could we expect from a bond issue? I would say some time, yes, I guess. But it's not... Not right now, perhaps, because the interest from banks is very, very good in the market with very low margins, meaning that with our fairly low LTV, we can still borrow some more money in the banks. It's not a problem. So as long as that possibility is cheaper, than bond financing. I guess it will be the best for us, but sometime in the future, yes.

I guess it's very much driven by transaction to transaction. So should there be a very attractive transaction that we can actually use part of the financing with bonds, we will do it as well.

And all these questions will be related to what kind of acquisitions we are

So everything is very much related for the further acquisitions. But today we are accumulating cash for further acquisitions by refinancing by debt.

Update on dividend policy, 30% of EPS. What is long-term goal for EPS? increase in EPS per year or next five years. Dividend per share should increase in line with EPS growth. This... I don't think that we actually can say anything more about that. That will be a decision for the board to give a proposition for the AGM in the end. We have our dividend policy to follow.

But the dividend policy that is communicated is 30% of the profit from property management after tax. And of course, we also said that we expect the dividends to grow as our profit from property management is growing very rapidly. So in general, I think there's nothing new to communicate. i guess that what was it any more questions so please post them okay it seems that no more questions are coming in so thank you very much for listening to us today and we look forward to present you another exciting q4 hopefully thank you