Hello, very warm welcome to our year-end report. My name is Kestutis Sasnauskas. I'm CEO of Eastnine, and with me I have Britt-Marie Nyman, CFO and Deputy CEO. Today we will be presenting a summary of our year 2022. I would also like to remind you that please send your questions during our presentation. We have them online. You can actually see on the link just below the picture that you see of us. Our sending is a little bit delayed between what we speak and what you see. It's good that you send it during the presentation, so there is no delay in answering the questions. With this, I move in to the quarter, which actually.
The whole year, which was very strong for us. During the year, we had a positive net letting of 9,300 square meters. It's around EUR 2 million in value. Q4 was somewhat negative, but we are at very high levels of occupancy. As you can see, we are 96.3% occupancy rate, which also increased during the year by six percentage points. We also have record high profit from property management, which is up 41%. It's the highest ever in our history. We're also becoming greener than ever. We actually today have 94% of all of our properties environmentally certified on the GBA.
We also have 68% of green leases signed in our portfolio, and 64% of our portfolio is coming from green financing, or can be attributed to green financing. Which is again, a great achievement during the year. We also grew our pro-property portfolio by 29%. I will just come back to it a bit later. We also signed a conditional agreement to sell Melon Fashion Group, which will further increase our possibility to grow once that transaction is completed. The board proposes a dividend of EUR 3.40 per share, which is 13% increase compared to last year. If we go into Melon, there are no news, unfortunately, other than that has been reported before.
We signed an agreement in Q4 last year, which was conditional. We have advanced to a certain degree because governmental approvals were achieved, but there are still certain outstanding conditions that are not fulfilled. We are working towards closing. We expect completion to happen during Q1. Underlying, Melon Fashion continues performing very well. If we go to our markets and look at the overall economic outlook, of course, we see a slowdown in the economies. We had a very strong recovery post-COVID in the Baltic region and Poland. Now we see a certain slowdown, which is, of course, caused by inflation. It's caused by the countermeasures taken by the central banks by increasing the interest rates.
We also see that inflation probably peaked during last year, and is now coming down quite significantly. Unemployment ticking somewhat up, but there's no significant change actually in the underlying businesses, what we see at least in our portfolio in terms of employments or the employment plans of our tenants. If you look on the prime office rents, they are growing somewhat, but I think in this slide, it's important to see the trend. We compare ourselves to Stockholm, which is the largest city in our region in terms of kind of property market. We see that, The.
Probably the most important thing is not the difference in the staples. It's actually the trend that we see. We saw a very significant increase in rents in Stockholm during last 8 years, but we haven't seen that trend taking place in our region. There are a couple of reasons for that. Number one is that, of course, our region has been adding a lot of properties and growing gradually. At the same time, now we see a higher pressure in terms on rents going up because of higher construction costs, because of inflationary pressures, overall, and still quite strong demand in the market. Vacancy rates, of course, one of the explanatory explanations behind the strong performance of Stockholm is very low vacancy rates in CBD.
We have statistics for the Baltics that cover the whole market. This shows, even, not only CBD, but basically all office premises. This statistic is somewhat higher. The occupancy levels are actually higher in prime offices in the segment where we are. Vacancies actually are lower. In Vilnius, we see vacancy in, in A class properties is around closer to 5%. Prime yields have been falling, but now there is a clear shift in the trend. We see it in the Nordics, we see it even in the Baltics. However, the sort of even maybe the shift if 25 or 50 bips can be expected.
Of course, relatively, this is a smaller shift in the capitals of the in our region compared to the implications of it in Sweden. If we look on our property portfolio overall, we have today a portfolio of 14 prime properties, around 180,000 square meters of floor space, and around EUR 600 million in value. This portfolio has grown. We added Poland during the year. The total investment was around EUR 121 million in new properties. We invested more in our portfolio overall. We see a quite insignificant value, positive value change during the year. Basically the values have not shifted significantly during the year.
The positive drivers were of course, increased market rate, and rent indexations, and of course inflationary pressures on the cost side, is pushing the valuation somewhat down. If we look on our work and sustainability, we have actually achieved 94% of our floor space now being environmentally certified. All of our properties are actually certified at the highest brackets. We have 1 property in this 94% that is LEED Gold. The rest is actually either LEED Platinum or BREEAM Excellent or Outstanding. Or actually we don't even have Excellent anymore. All properties were upgraded to Outstanding. We've been working very hard to improve our already existing very nice portfolio.
We achieved 92 points in GRESB evaluation this year, and actually among top 20% of the best performing on ESG issues companies globally. We ranked number 6 in Allbright's evaluation of annual survey of listed companies in Sweden, that's a survey actually comprised of approximately 355 companies overall. We have a very strong motivated team with fantastic results and great place to work, showing 95% of our employees consider the company being a great place to work, and very strong confidence index, basically at the same level.
If you look on our property portfolio, in Vilnius, we have our biggest portion of our portfolio, 121,000 square meters, quite big properties, 13,500 square meters on average. In Vilnius, we enjoy very high occupancy, 97% today, with anchor tenants being within banking and IT sectors. Basically here, and e-com. All of the sectors that we believe still will continue performing quite well during the years to come. We have 1 development project. I will say immediately that all our development projects are now put on hold just because of the uncertainty in the market. We have 1 development project in Vilnius. It's an addition to the 3Bures complex.
It would be the fourth so-called sail in that complex. In terms of properties in Riga, there are no changes. Basically three cash flow producing properties and two development projects. Again, projects are on hold for the time being. As soon the situation clears in the market, and of course with our exit in Russia, we will come back to those projects checks as well. If we look on. In Poland, there's only one property, but a very significant one and very significant in the market. It's fully let with anchor tenants being Allegro, ROCKWOOL, and Arvato.
For those of you who don't know, Allegro is a e-com platform, one of the largest platforms in Eastern Europe, and one of the largest platforms globally. So if you look on our distribution of tenants, of course, top 10 tenants stand for approximately 60% of our portfolio. Still our portfolio is relatively concentrated. But as portfolio grows, that concentration will decrease. And it has been doing so for certain tenants like Danske Bank and so on. Over time, this concentration will decrease. But it's also at these times we feel very, very good to have a very strong list of strong tenants in our portfolio. On the financial overview, over to you, Bisma.
Thank you, Kestutis.
Thank you.
Yeah. Thank you. We start with the financial key figures, we compare the fourth quarter with the third quarter. The occupancy rate increased to 96.3%. This is a very high figure due to the positive net letting during the year. The surplus ratio stable above 90%. This is a figure real estate companies operating in Sweden could die for. Property yield in the earning capacity increased to 5.3% due to a higher NOI. Net LTV on properties stable around 51%. Please remember that the investment in MFG is non-leveraged. The average interest rate increased to 3.4% after an increase in the market interest rates. This, of course, affected the interest coverage ratio in a negative way. It's important to remember that the indexation from Q1 this year will make a difference on the ICR.
We saw a strong development in the income statements both during the quarter and the year. Of course, the figures are higher since we had a larger property portfolio. We start by looking into the Q4. A higher occupancy meant a positive effect on both rental income and the property expenses. We saw a limited increase in the central administration costs and a quite high increase in the interest expenses, both due to a higher interest rate but also, of course, due to new loans related to acquisitions. The profit from property management more than doubled during the quarter. We had a fairly strong Q4 this year, or 2022, I mean, of course, and a weak Q4 2021. We saw a negative unrealized value change in investments. That's MFG. This is the technical effect. By year-end, MFG is valued at the sale price in euro.
If you look into the full year, we see that rental income, NOI, and profit from property management all increases by more than 40%, a high figure. We saw the same effect on central administration and interest expenses as during the quarter, and the increase in MFG for the full year is above EUR 70 million. The earning capacity for the properties, this is forward-looking and a very important slide. Since we didn't acquire any properties during the quarter, the figures haven't changed that much. We compare the situation by year-end to the situation by the end of September. It's based on current agreements and certain assumptions, and it's not a prognosis.
The two most important changes during the quarter was an increase in the occupancy, meaning positive effects on vacancies, decreased the vacancy value, and an increase in rental income and decrease in property expenses. The other important effect was the increase in the interest rate, meaning higher interest expenses. On the bottom line, this means slightly lower profit from property management in the earning capacity. We have a stable financing structure, with a diversified bank financing and a low capital market financing. We have five different banks, of which two are new for this year, Berlin Hyp and Luminor, and only 40% bond financing.
If you look into the loan maturity, and that's the dark blue bars in the chart to the right, you can see that the average loan maturity was 2.3 years by year-end, and this is including the bond which matures in July 2024. The average interest maturity was 1.8 years, and we have around a third of the debt with floating interest rate. The share price, of course, was affected by the Russian war and the increase in the interest rates during the year. We have a share discount, which increased in the beginning of the year and decreased somewhat after the signed sale agreement of MFG. By year-end, it was around 50% based on a long-term NAV of 243 SEK and a share price of 121 SEK. We only saw minor changes among the shareholders during the year.
The top three are the same as at the beginning of the year, and number 4 now is actually Kestutis Sasnauskas.
Yeah.
Why should we invest in Eastnine?
Why we think IS9 is a very compelling story, and it's actually our growth and our possibilities to actually develop in this fast-growing and converging market. If you look historically, you can see a very clear trend of growing profit from property management as we add more properties. As we add more properties, it's actually we gain very big scale effects today as we have already a fully fledged organization to actually take on more properties and develop further without adding on any significant cost. Actually for us, it's very, very important to continue growing and improving all of our ratios and actually creating higher earnings. We continue with dividend payouts.
We increase this dividend in this turbulent times, and we feel confident about our markets. Of course, there is uncertainty as everywhere, but in general, we feel very confident. If you look on our long-term equity, and this is where we as a management team actually are able to contribute most, and that is actually building up the value in our portfolio and in our assets, and you can see a very clearly positive trend there over the years. We actually to summarize it, we have a unique portfolio of very modern properties that are with prime locations. Housing one of the, or among the strongest tenants in the respective markets.
We also expanded our geographic region to Poland. Poland opens up very nice opportunities to further growth as well for us. We see that in certain aspects, the Polish market is even more profitable compared to Baltic. Our properties are very strong cash flow-generating properties. We enjoy higher yields compared to Nordics. At the same time, we house most of the Nordic companies in our portfolio, so the risk/reward perspective, we clearly see a benefit there. We also lead the way in terms of sustainable work. It has become even more important to our tenants. There is a huge diversification in the market. Diversification, but actually trend towards more sustainable premises.
There's more demand for modern premises, more energy effective, efficient premises as well as offering the best services and the best quality to employees. Even if we see a certain trend of decreasing the number of square meters overall, we see higher demand for prime properties. Actually we see that tenants are ready to pay for higher quality. A growth journey ahead. Of course, we have, we have been growing over these years, but we also have a fantastic market that is actually converging towards Western Europe.
Gradually, both Poland and the Baltics have been growing faster and evolving faster and coming still from relatively low levels in terms of, you know, rental cost and so on, and square meter cost, et cetera. And of course, we have ambitious plans to reach EUR 700 million of portfolio. Now we are at 600. We also, the divestment of Melon Fashion Group, will open up even higher opportunities for us. So on this, I finish, we finish our presentation, and we open up for questions.
Yeah.
Thank you.
We have already received questions, a lot of them about MFG, of course, but please continue to pose questions during while we are answering them. The first question was regarding MFG status on the sale of MFG in terms of cash flows. How will it be paid, and in what FX and cash outside Russia in euros, at what expected time, and so on?
Yeah. I cannot go into very many details. The transaction is agreed in euros and it's supposed to be paid in Sweden. The money is fully available, so to speak, and it will be in euros. Completion is still expected to happen during Q1. More than that, I probably will not be able to comment.
The next question, are there unrealized currency losses on MFG? If so, why aren't they recorded in Q4? No, there are not.
The deal is agreed in euros.
Yeah.
Yeah. There is a currency shift that happened during that period. Ruble weakened, but the deal is agreed in euros.
Yeah, by the end of September, the MFG investment was valued by the FX by the end of September due to accounting rules, that's why. Is it possible to give some further color on the remaining conditions to the MFG sale which is not fulfilled yet? No. If successfully closing the MFG deal, what kind of assets and regions would you primarily look at for acquisitions?
I think once it's completed and we have the cash, of course it will open up fantastic opportunities for us to grow. We definitely would like to grow in our core markets where we already existent. It's basically Vilnius, Riga, and Poland. These will stay our core markets.
Another question on the same item. Thinking around acquisition size and pace would also be interesting to hear about. Thanks.
The pipeline is very strong, and as you all know, there are more sellers today in the market than buyers. Probably some of the price adjustments haven't occurred yet. The overall Market is not yet as active as it used to be. In general, I think, having strong cash position in this market opens up fantastic opportunities. Size-wise and property-wise, we will probably focus still now on office segment and continue acquiring according to our strategy prime properties in best locations.
Yeah, we also had a question regarding MFG. How certain are you that the deal will be closed in Q1 '23? We will not say anything about that obviously.
It's, it's impossible to say, actually.
If the deal is closed in Q1 2023, how long will it take before you'll receive the funds?
The funds will be on the account when the deal will be closed.
Interest expenses increased by approximately 15% compared to prior quarter and 67 year-on-year. Could you please elaborate more what is driving the increase besides larger property portfolio? The increase in market interest rate. We have around one third of the portfolio with floating interest rates, that's why. Can you provide more information regarding the development projects and the current status? Are you expecting to continue according to plan? That's one question.
Well, for the time being, we post all of our developments. We have actually building permit for The Pine. Already we are working on the building permits in Vilnius for the fourth sale, and we continue working for the building permit in-
In Kimel.
in Kimel project in Riga. Those projects will be ready to start. Of course, the start will be determined a little bit on the possibilities where we see the market at that point of time. There was a high uncertainty in the market in the Baltic region, especially in Riga in terms of possibilities of pre-leases. There were a lot of projects announced, and unfortunately, some of them seem to be not continuing as planned in their construction. That is of course because very big discrepancy in supply chains, a very high uncertainty in terms of construction cost, and so on.
When this stabilizes a little bit and we can see very clear pre-leases, we will kick off those projects.
A slight increase in property value, but we have seen further decrease in values across Europe. Is there a risk that the properties are overvalued?
Well.
We have a very clear valuation process, and that's the same process and that Colliers uses actually. No, we are not afraid about that. We have seen after year end that the yield in the Baltics is probably increasing. We expect or it's likely that we will see some changes during the first six months.
I think it's important to remember that probably the yields will be shifting up because of the overall financing cost as well. At the same time, we have increased in rental levels. That is driven both by growing market trend, primarily in Vilnius, and we see that same trends in Poland, and to some extent in Latvia. At the same time, there is inflationary adjustments that are taking place from this year. Exact implication on the capital values is very difficult to predict. Overall, the positive driver will be increase in rents. The negative driver will be the potential increase or expected increase in the yield.
What would you need, what would need to happen for you to resume development activity of the projects?
I think we answered that question.
Yeah, yeah. Yeah, a lot about MFG here. How would you evaluate the risk that Russian government would like to stop this deal from taking place?
I think, we all understand, and it's fairly, pretty clearly reflected in our share price that there is an uncertainty when it comes to an asset being held in Russia today. There is a number of uncertainties as always, and there is always changing regulations, new sanctions being imposed and so on. Of course, there is uncertainty until the deal is not completed. Of course, there were also two big uncertainty points before in terms of permissions. Those were obtained. Yeah, it's, I will not be able to speculate here about the intentions of the Russian State.
That was actually the last question that we received.
Okay. On this we thank you once again for listening to our presentation.
Thank you very much.
see you next time.