Eastnine AB (publ)

Hello and very warm welcome to EAST9's first quarter results. My name is Kastuti Sasnauskas, I'm CEO of EAST9 and with me I have Britt-Marie Nieman. We will together present, guide you through the quarterly result. Today we are sending from a live studio with some live attendance, which we are very happy for. So very welcome to you as well. And please post our questions during the presentation. We will respond to them at the end of our presentation. So let's go into the results for the quarter. We see it as a very stable quarter. We're coming from a very high level of occupancy, a very high level of revenues in our portfolio. So, of course, this growth has flattened out, which is a purely natural thing, as we didn't do any acquisitions. Our rental income down approximately 1%. So it's, again, flat. Profit from property management minus 2%. This is also reflecting a little bit the build-up of the portfolio, not portfolio, but the build-up of our internal resources. We are hiring more people in Poland. But also we had a very cold winter, which actually with slightly higher vacancy affects the profit from property management for this quarter. Unrealized value changed, minor, slightly negative, net lettings positive, but again coming from very high level. Occupancy rate down 0.2%. Again, we are at 95.6%. Being an office company, it's very high today. Out of this current vacancy, we also have only 2% that we actually marketing in the market. The rest is purely turnover vacancy where we free up some space for already signed leases or maybe very, very close to signing some of them. So generally, we are working on a very high level, and it's going to be kind of difficult to surprise you significantly on one or other side. We're also preparing for next acquisitions, so accumulating more cash. We are refinancing our portfolio. This will continue over next quarters as well. We also have our climate targets being validated now by SBT. So we follow the science-based target initiative and their path actually for climate neutrality by 2040. The board has also proposed a dividend of 1.28 SEC per share. If we look on the events, more significant events, we are actually selling two properties in Riga. We are reallocating capital to, again, our future acquisitions focusing on Warsaw. So this is very briefly on what we're doing. Going back to the basics, IS9 is a purely office play in the fastest growing part of Europe, in Poland and the Baltic States. We are actually a company of around 272,000 square meters of office, with prime locations and prime quality. around 1 billion euros in assets, high occupancy with 96%, rental income of 62 million. The properties are yielding 6.1%, loan to value 47 and average interest of 4.3%. If we go to longer term trends, Poland is the fastest growing economy over the last 25 years. It's expected to continue to grow. Baltics follow the same path. So we are very excited about this region. If we have a closer look on actually how Poland is developing, this is an Oxford economics prediction of 26 to 30. And you can see that actually within Poland, the two hottest areas are Warsaw and Poznań, where we are. There are some other regional cities as well evolving very nicely. But these are the two places where we are and we are focusing. And those are the places that are expected to continue growing faster. What is also nice is that this combination comes with relatively low rental levels, you see it on the staples, and relatively high yields. So this actually has potential to comprise, and we think that this yield gap should narrow. But actually, when we talk about this yield gap, what does it actually imply? And if we look on the implications, I took some figures from a recent GLL report. You can see the square meter prices. So actually, this combination makes Warsaw come very, very cheap per square meter, if you look at the office values. If you look for the Baltics, I think this figure is almost half of what we see in Warsaw. So the capital values are relatively low. And of course, given the inflation, given the very fast economic development, there is a huge potential for growth. And of course, this is why we believe this is a very compelling story, because we are basically... The yields are similar to logistics and the capital value potential is really huge. If we look on our portfolio, you see that occupancy has been stable, stably high over the since 2020. We are taking small waves, but there's no dramatic changes. And of course, this is very high stability of the underlying business. You can also see on the graph next to it is that rents are actually picking up. These are the rents that we receive in our properties, our three largest properties in three main locations. It's in Warsaw, in Vilnius and in Poznań. If we look at our portfolio, there's no significant change. I mean, we are very office focused entirely on basically only office. Four percent is retail and other, which is basically mainly auxiliary services to our office offering. We are in four markets in four cities. Warsaw, Vilnius, Poznan and Riga. Vilnius remains our biggest market. If you look on Warsaw, you see a picture of Warsaw unit. So this is our jewel and landmark building. It's actually a landmark building, even in Warsaw. If we look on Poznań properties, these are, again, two amazing properties with significant market share in Poznań. Actually, with these two properties, we hold approximately 10% office market share. in Poznan, and this campus will grow over time. In Vilnius, which is 41% of our market, our portfolio, Vilnius remains our main city. We actually have four main clusters in the city, which we plan to keep and expand over time. And if we look in Riga, Riga stands for 7%. Of course, now with the divestment of Alojas and Zala 1, the share of Riga will diminish to 3%. But we have quite exciting development project there as well in the future if we decide to go for it. For now, it's on hold. Again, if we look on the tenant list, this is a really impressive multinational tenant list, which has been stable now over a couple of quarters. We are in a very exciting universe with ICT, finance, e-com, medical health exposure, underlying exposure. So this is really the most dynamic companies. And the most of the dialogues we have are actually about expansion or making sure that our tenants can continue growing, and most of the companies are actually continuously hiring in our universe. If we look on sustainability, which we're working quite a lot, actually, we had a very cold winter, so we have a significant increase in energy consumption. In heating, you can see up almost 20% during January, February. Of course, this will stabilize over time, but there's been extraordinary cold winter and long winter in our region, much colder than actually here in Stockholm. Our portfolio is 100% sustainability certified. 97% of the revenues are EU taxonomy aligned. 88% of financing is green, and we earned five stars in EU. grasp with 91 points in total. So on this, I leave over to you, Britt-Marie.

Thank you. Before I start with some figures, please continue posting questions so we can answer them after the presentation. East 9 delivers a stable report for the first quarter, even though we can see some minor changes on the occupancy and also the surplus ratio, they are still on very high level. It looks like the rental income For the first quarter this year is 1% lower than first quarter last year. But this isn't actually true because during the first quarter last year, we had some currency effect of close to 200,000 euros affecting the rental income. And during the second quarter, it was reclassified to other financial income. So the rental income for the first quarter this year is actually on the same level as last year. The rental income was also affected positively by the indexation of around 2%, but negatively by a lower occupancy. Property expenses, on the other hand, increased quite a lot. And as Kistuti said, and as we hear from many other real estate companies, it was partly because of the cold winter, but also due to the fact that we are recruiting people in Poland, we are replacing external suppliers continuously, and it will continue during the rest of the year. And also the lower occupancy during the first quarter compared to last year affects property expenses since our triple net leases allows us to transfer property expenses to the tenants as long as the premises are let. But if the occupancy increases, so does the property expenses in our income statement. Central administration costs increased due to new employees at the head office mainly. The interest income increased as a result of new financing, increased financing, and we have placed the money in bank accounts. Other financial income was positive during the first quarter this year. but negative last year, and this is an effect of currency. Profit from property management decreased by 2%, mainly as a result of the cold winter and the lower occupancy. And we saw some negative unrealized value changes for the properties, mainly related to the development project, the pine in Riga. We saw a slight improvement in the earnings capacity during the quarter. And as you know, this is a theoretical assessment. It's not a prognosis. And for many of the figures, we use current agreements by the quarterly end in this case. For rental income, we use the lease agreements, of course, and the loan agreements, what's stated in them. But in some cases, we also use 12-month rolling figures for property expenses, for example. So we can see that rental income increases by 2%, and this is mainly due to the indexation during the first quarter, while a lower occupancy ratio had a somewhat opposite effect. Property expenses increased by 11%. during the quarter and this is related to the same items as in the income statement. The colder winter, a lower occupancy and also new employees in Poland. Interest income has increased as a result of increased cash. And interest expenses increased as a result of new debt. Profit from property management on the bottom line increased by 2%. And this was mainly due to the indexation. We have financing which is very stable and we have increased the liquidity continuously both during the autumn and now during the first quarter. Key figures, LTV is on the same level as it was by year end. Total cash increased by 13 million euros up to 63 and it will increase with another 12 million when we are divesting two properties in Riga. during the second quarter interest rate level is on the same level as it was by year end interest coverage ratio and debt ratio somewhat higher slightly higher and the share of fixed interest almost on the same level capital tie-up period and the fixed interest period slightly shorter If you look at the debt and interest maturities, you can see that we have hardly anything to refinance in 2026. And in fact, we don't even have these 12 million, as you can see in the green bar now. Of course, this is related to one of the sold properties in Riga, so we have already paid this loan back to the bank during April. The debt sources were the same by the end of the quarter, but since we repaid the loan for one of the properties in Riga, OP Bank is no longer one of our banks. Look at ownership and the share. We can see that shares owned by funds has increased during the quarter, up to 14% now from 8% by year end. The numbers of shareholders continue to increase, now 7,300. NAV up 2% in SEK and 1% in euro. And the final figure is total shareholder return, which we actually are very proud of because it's on a very competitive level. We have had a 13% during the last 12 months and 12% in average during the last five years compared to 4% for real estate index. So this was actually all.

And now we open for questions.

And we have already received some questions. The first one, does your sale of office buildings in Riga indicate a broader intention to exit the Latvian market? Are you also considering selling the remaining property in Riga?

We haven't communicated that. But of course, I think it's a valid question, of course. But we will review. We're reviewing it now.

No decisions taken so far. Another question. What will you do with all the extra liquidity? Should an acquisition be postponed indefinitely?

Well, we have a lot of prospects. We don't believe that acquisitions will be postponed indefinitely. We're working on acquisitions, as we have indicated before. And, of course, that would be a completely different decision.

And we have always, of course, not only one property that we are interested in. We have a pipeline and we're working... in parallel build different options and phases. Please Emil.

Yes, hi Emil from Pareto Securities. Margin wise, how much impact did the cold winter have from sort of a normalized margin?

Oh, that was a tricky question. I don't really know. I can't answer that question directly. I have to look into that.

How much

The cold winter.

Sorry, margin-wise. Yeah, margin-wise, how much was the impact from the cold winter, from sort of a normalized run rate margin?

What we can see is that our energy, we can see on the figures... Yeah, we see that the energy cost is around a 20% increase.

So if we calculate it back, the only part that affects us is actually the vacancy. So the vacancy is around 5% today. So that portion of the vacancy that we couldn't actually offset to the tenants that effective. I don't know exactly, but it's like, you know, maybe 1% or something. It's not very big.

Okay, makes sense. And it looks like the higher vacancy comes from around 1,900 square meters in Poznan, if I'm correct. Is that related to one or more tenants? And what's your prospects on filling up those spaces?

So the vacancy in Poznan, it's actually 1,900 square meters is related to relocation of one tenant to accommodate for the growth of Rockwool. We have also freed up another 1,000 square meters, which was needed for solving the puzzle of moving a couple of tenants around to, again, accommodate bigger space for Rockwell's expansion. And out of this 1,000, actually, 500 is already committed to one tenant. It's not signed yet, but it's committed. And 500 is in the market right now. and we will believe that it will probably be taken by one of our existing tenants as well.

And when will Rockwell enter those premises?

I think it's 1st of June or 1st of July.

I think it's the second quarter.

Okay. And you spoke about it a little bit, but you have been preparing for acquisition now for some time. What's the sort of main reason why you haven't closed anything? Is it agreeing on price or finding the correct funding?

No, I think... For us, we're very selective on what we buy, and we will continue being very selective on what we buy. We've been working on the acquisition for a while now, and there are certain matters that actually cause some delay, but these are outside of our control for the time being. But it doesn't mean that there is any change in our strategy.

Okay, that was all for me. Thanks.

Okay, Kostutis, I think that we actually don't have any more questions now. Okay. So thank you very much for listening and thank you very much for coming.

Thank you for this time and see you, at least me, during the next quarter.

Because this is my last presentation. I'm retiring within a month. Thank you very much. Thank you.