Eastnine AB (publ) (EAST) Earnings Call Transcript & Summary

Hello and a very warm welcome to our today's presentation. We're trying this time a little bit new media. So as I understand, our translation is somewhat delayed between what I say and what you see. So to mitigate this, I suggest that you actually pose your questions on the chat site. There is a little sign with a question mark on your screen during our presentation, and we will look at them whilst we present and answer all of your questions at the end. And with this, I will start and go ahead. On today's agenda, we will describe to you the highlights of year-end and fourth quarter and full 2020. We'll go through our property portfolio and investments. Financials will be presented by Britt-Marie, and I will summarize at the very end of this presentation. So if you look at the highlights, and we're actually very proud to present this 2020 report despite all the difficulties that we experienced during the year due to COVID and restrictions and so on. And of course, it's been a very, very tough year for many, including ourselves, but at the same time, we're extremely happy that we can report all-time high earnings, all-time high results for our company. Our top line grew by 44%. Our profit from property management grew twice as fast, and it's an effect of actually our growing portfolio of properties and enormous scale effect that it brings with it. We also announced a new business plan we have with ambition to actually double our assets and grow our portfolio further. We're also extremely happy to report that actually Melon Fashion Group, one of our biggest holdings -- noncore holdings, have actually performed extremely well during the pandemic, which also resulted in a positive value increase. And we also ranked us -- placed ourselves on top of sustainability both in terms of agenda in the Baltics, but also in different rankings as a company. And of course, I'm extremely happy to tell you today that our net asset value is also at all-time high at SEK 147 per share, which is also despite the quite strong SEK. So a bit of a headwind in the currency. So from that perspective, a very, very strong year-end and very, very strong results that we achieved during the year. If we go into our portfolio, 84% of the value is in Vilnius and the Vilnius market has been quite stable. As you see on the properties, they are concentrated in the CBD area. They are all modern, top-quality properties with very, very strong tenant base, which also gave us enormous stability during this pandemic, during this crisis. And together with our contractors we weathered out this very well, as you will hear from Britt-Marie later on. Our property portfolio in Riga is smaller. It's a position that we are building up. It's around EUR 61 million in value and approximately 16% of our portfolio, but that position is bound to grow as we also announced the development projects, both The Pine and the project in Kimmel, which is now under architectural competition. If you look on our tenancy base, of course, we have very, very strong tenants. In total, 120 office tenants and restaurants with 160 lease contracts, relatively long duration of those contracts. Of course, the Danske Bank is our largest relationship and very important relationship. But if you look again on the list, most of the names are relatively familiar to most of you. They are Nordic names, which also gives us a very, very strong stability, especially in these situations. During COVID, we've been affected. But from average rents compared to many others, discounts accounted for approximately 1.5% of our rental revenue. And we also chose to support our restaurants by buying food from them and delivering to the hospitals. So all in all, it's been a tough year, but we managed through it very strongly. If we go into our direct investments, Melon Fashion Group, as you know, most of the stores were closed during the middle of the last year, which, of course, resulted in a reservation of value in first quarter last year. But nevertheless, business has recovered and that actually fascinate me enough. The company has actually managed to grow in total sales despite the falling market, despite having many stores closed. And of course, it was driven by e-com, which grew by 78% during the year and accounted at year-end for 34% of the company sales. We're also extremely happy for Melon's performance in terms of profitability. That despite all this tough year, company also reached all-time high EBITDA level in the gross value and, of course, showing even positive growth. So it's an extraordinary achievement by the company and by the management. It also resulted into a positive value increase, approximately EUR 12 million. And our holding now is very close to EUR 80 million. The property fund also performed stably having been on more headwinds in the Baltic market. But as we see, it had an overall okay value development during the year. So one of the last parts of my presentation, but nevertheless, one of the most important is, of course, sustainability. We have been working quite a lot in that area already from the start of our company. Of course, during this year, we spent more time on documenting our procedures and so on, which also resulted into significantly improved results both in GRESB evaluation and, of course, green bond financing both witnessed by CICERO, which is Dark Green and Excellent ratings. For the financing framework on the GRESB, we're actually among top 20%-listed companies, which makes us a 5-star company in terms of sustainability. 87% of our portfolio is actually environmentally certified. And it's not only environmentally certified, it's also at the highest brackets of different systems, both LEED Platinum or BREEAM Excellent. So this is also extremely positive, and we will continue working on certifying the rest of our portfolio. And as we acquire more properties, we will continue that work. We've been top ranked in -- by Allbright Foundation among Swedish-listed companies in terms of gender equality. And we're also very proud of it as a company. We also managed to implement green leases in Vilnius, which is also a great achievement, and we're very grateful to our tenants who actually were so enthusiastic and supported this initiative that positive way. And we also -- last but not least, we have a very fantastic group of people working in our company. And we all are very motivated to continue developing this company further. So on this, I will leave over to Britt-Marie.

Thank you, Kestutis. Over to the income statement and fantastic results. I would like to start with the profit from property management, which increased by 80% or more depending on whether we're comparing the year or the quarter, while rental income increased by 44% during the year and 26% during the quarter. This is a clear effect from economies of scale. Fixed costs are distributed among a larger volume. Rental income increased not only due to a larger portfolio, but also due to higher average rent level. In a comparable portfolio, the rental income increased by 5% during the year or 4% during the quarter. Eastnine reports positive unrealized value changes during the year and during the quarter. When it comes to the property portfolio, it's mainly due to lower yield requirements. And when it comes to Melon Fashion Group, mainly due to positive sales and lower risk level. Eastnine has received lower dividends during this year compared to previous years. As you can see, we received no dividend from MFG and EUR 640,000 from the property fund. Statements of financial position. The value of investment properties was mainly affected by the 2 acquisitions. During the year, we acquired S7-3 in June and Vertas-2 in September, but it was also affected by unrealized value changes. The long-term securities holding was mainly affected by the value increase in MFG. The cash was affected by the acquisitions, which made it decrease, and we also sold some repurchased shares, which increased the cash position. The equity increased due to the profit for the period and the sale of the shares. Liabilities to credit institutions increased after the acquisitions. To continue with some key figures. The occupancy rate is on a high level and approximately the same level as last year. The surplus ratio is also on a high level, slightly higher than last year. The average rent level increased a little bit during the year. And as you probably already have seen, we had a slightly negative net lettings during the year. Surprisingly -- not that surprisingly, but the new leases were signed on a higher level than the average rent level. The LTV is low and it's extremely low when it comes to all investments, 36%; LTV on the properties, 46%, slightly lower than last year; return on equity, 12.5%, and boosted by the value increase during the last quarter. Profit from property management almost doubled during the year. Earnings per share on the same level as last year. Equity and long-term equity increased by 6% to 7%, and it's now on an all-time high level. Continue with the current earning capacity. As you probably already know, the earning capacity is a theoretical assessment based on current agreements and certain assumptions. This is not a prognosis. It gives an indication of how much money we actually can earn on the coming 12 months. There were only minor changes in the earning capacity during the last quarter since we didn't buy any new properties. The level of rental value increased slightly during the fourth quarter. But since the vacancy also increased, we have a lower rental income and a lower net operating income. And you can see it also in the profit from property management. The vacancies also mean higher property costs since we are not able -- normally, when we have triple-net leases, you are -- you can transfer more or less all property expenses to the tenants. But in case you get vacancies, this is not possible and, therefore, the property expenses increases. The forward-looking yield has decreased mainly due to higher property value and higher property costs. We continue with some debt financing. Eastnine has a very solid financial situation. Liabilities to credit institutions increased due to the acquisitions. The loans are split among 3 banks: SEB, Swedbank and OP Bank. And we believe that we have very good relations with all of them. Equity ratio is on a very high level and the LTV also is on -- are on a low level. Average loan maturity was 3 years by the end of December. Loans mainly maturing in 2023 and 2024. And the average interest maturity was 2.3 years. The share and shareholding. The stock market was affected by the corona pandemic during the first quarter 2020 and so was Eastnine share, but both recovered and Eastnine share closed the year on a top level after the initial effect from the corona pandemic. The closing price was SEK 125. Still, the share was trading with a discount of 5 -- 15% in comparisons with the long-term NAV by year-end. The Board has proposed an increase of the dividend. It will be probably SEK 3 per share corresponding to an increase of 11% and 66% of the profit from property management. So Kestutis, do you want to try it again?

Thank you. So why Eastnine? It's actually we have managed to collect a unique portfolio of prime properties in the Baltic capitals. They are all modern. They are all very highly sustainably certified. They are all in prime locations and, as you see, with a very strong and resilient client base. The portfolio also -- the underlying businesses of our tenants is actually very much Nordics or very much international, which makes us -- those cash flows are very safe and strong. And of course, the cash flow generation of the portfolio overall is very, very strong. We should also mention that we have quite significant amortization of our loan, which shows out or makes our leverage level decreasing over the time. We have been working very actively in terms of -- in leading on the sustainability issues. And it's a unique portfolio to get exposure with this high certification level. But also, we have very ambitious goals in terms of both environmental goals and ESG goals in our company, but also we're driving this ambition as well in the market. And we have a fantastic growth journey ahead. We have a plan to double our portfolio. And if you look on the next page, you can see actually how we have been developing quarter-by-quarter. And we've been -- if you look, our rental income in the last 3 years actually increased 5x and our profits increased even more. So just continuing that journey ahead, it's a very exciting story in the future. So on that, I will end our presentation. Of course, you are all very welcome to pose questions.

I see there is one question posted already, which we can answer. And is MFG has a possibility to IPO as an exit? And so if we look on then this exit possibility for Melon as an IPO, definitely, it is possible in the future. The company is a relatively -- is a very fast-growing business, as you can see, and especially on the e-com side. And so of course, there's more opportunities opening with that growth. And this is the only question that we received so far. I suggest that if there are any other questions, we suggest that you may be write on your e-mail to us or if we will not -- there is a delay in this sending. So probably if there will be one or two questions coming up a bit later, we will answer them directly and post it on our website.