Hello, very warm welcome to our quarterly presentation for Q1. My name is Kęstutis Sasnauskas, I'm CEO of Eastnine, and with me Britt-Marie Nyman, Deputy CEO and CFO. Before I start the presentation, I would like to note to you that please ask questions, put your questions during our presentation. There is a certain delay in the sending that you see. Whilst we finish, we can see the questions coming. If we go into our first quarter results, this is truly fantastic quarter for us. We make record profits, record turnover. Of course, it is due to growing portfolio. Not only that, we see basically strengthening in our real estate operations on basically every single aspect.
Reveues grew by 45%, like-for-like 12%. But what's most importantly actually is that profit from property management, uh, is growing 70% versus Q1 last year. Not only that actually versus Q4 2022, we are growing 26%. So truly amazing quarter and very, very strong results. As I mentioned, larger portfolio, increase in occupancy, and increase in rental levels. So we strengthen basically on all levels. We have a negative unrealized value changes, and this is mainly driven by increased yield requirement in our region. And we also continue our discussions on exit from Melon Fashion Group.
If we look on the region as such, of course, the higher interest rates start biting into economies. We see a certain slowdown, at least we expect a strongest slowdown during this year. However, I cannot say that we notice this on our lease out and we notice in our particular segment, in ICT, in telecom and financial services, they're all performing very, very strongly. We see it actually on demand for the properties. Inflation, that has been a big issue. Of course, a major issue for us, not only or mainly due to increased interest rates. We see that inflation starts cooling off at least in the Baltic region and Poland somewhat. Baltics were...
had very, very high inflation over the last year. Definitely there will be base effects that will bring that figure down. If we look on the unemployment, we see also the weakened economy increase. We see a clear trend that probably, you know, unemployment will rise. We're still in a very strong economic development. Overall, I mean, the Baltics are at EU level. Poland is actually extremely strong when it comes to employment figures as such. What is actually very interesting to see is actually the first spike is the last part of this graph, where you see the interest or rental rate development in the region.
You see a very gradual increase, but actually this quarter we clearly see a spike in Vilnius. This is actually effect of relatively strong market, but also inflation-driven cost base for construction that actually drives the prime rents up. Even in this kind of weakening market, we see a relatively strong performance. No clear trend actually when it comes to vacancies, but those statistics include basically the whole market. We see significantly lower vacancies in prime properties and significantly higher vacancies in B locations or C locations. Basically the divergence right now between the prime and non-prime is even bigger, and demand remains very strong for prime. As companies transform, they maybe focus on less space, but actually higher quality space.
In that respect, our portfolio is very well positioned. Yields are rising. Of course, they're driven by higher interest rates. We see during this quarter actually an increase of somewhere 25 basis points to 30 basis points overall of our portfolio. Of course, but we are sorry. We are actually in a market which is significantly above the Nordic capitals still. There is much less of a downturn in risk in this market. If you look on our properties and tenants, this is actually the best graph to describe a lot of our strategy.
The yellow line that you see is actually the planned Via Baltica road, that is a railway road, that is being planned, and it's actually there is already a physical road. We see very strongly the potential of the eastern flank of the Baltic Sea actually developing and integrating into the Nordic region and converging with the Nordic region. Of course, the build-up of infrastructure is extremely important for this development to happen, which will now happen in the near future. Of course, being in these hotspots of Riga, Vilnius, Poznań, maybe in the future in Warsaw, is actually on this, so to speak, the Baltic Silk Road, or the Eastern Flank Silk Road. This will definitely benefit us.
Of course, with this growing trend of working at a distance, at the same time with a growing trend of nearshoring certain services, we see a huge potential in Poland and the Baltic region as such. Overall, we own 14 properties in this region. We've been very, very selective on choosing the properties. Today we manage 183,000 square meters of prime office, valued at around EUR 600 million. If we look on our tenancy base and basically which sectors we are exposed to, we are very much in ICT, we are very much in finance and e-com. All the modern parts of the economy.
We have a lot of different services, law and audit firms, in our premises and so on. Overall, these are the key sectors, but very much modern services that are provided. If you look on the contract length, most of the contracts are relatively long. The average WALT is 4.2 years. Sustainability has always been a very big focus, and I'm extremely happy to actually show these figures that 94% of our floor space is environmentally certified. Not only environmentally certified, it's also in the highest brackets of both LEED and BREEAM certification levels. 68% of our lease agreements are actually today green.
What is also very, very interesting to note is actually we started looking at our EU Taxonomy compliance already last year. Now we can actually... Our assessment is that 91% of our properties and our revenue is actually generated from EU Taxonomy or EU-aligned properties. We are extremely proud of this. We also scored very high in GRESB, 86 points during last year. We also are on the top in terms of gender and diversity equality by Allbright, number six out of 355 listed companies. We score very high on Great Place To Work within our company. We have a very strong corporate culture, very strong, motivated people working to develop this company further.
On this, I turn over to Britt-Marie.
Thank you, Kęstutis. We're gonna dig a little bit deeper into the key figures from the property operations and start with the occupancy rate, which increased to 96.6. This is up 6 percentage points compared to Q1 last year and 0.3 compared to Q4 last year, mainly due to a fantastic net letting during the year. The average rent level increased to slightly above EUR 60 per square meter a month. This is up 6% compared to Q1 and 5% compared to Q4. Of course, this is mainly due to the rent indexation in the beginning of this year. The surplus rates here increased to 93%. This is up 5 percentage points compared to Q1 last year and 1 percentage point compared to Q4. This is due to a higher NOI.
Those of you who actually looked at our presentation last quarter remember that, might remember at least, that I said that this is a figure anyone could die for. I guess I have to repeat it now since it's even higher. The value for the property portfolio decreased to EUR 590 million. This is up 25% compared to the first quarter last year, mainly due to the acquisition of Nowy Rynek in Poland. It's down 3% versus Q4 last year, mainly due to unrealized value changes. I would like to start in the middle of the income statement with the profit from property management, since this is an extremely high figure, up 70%. This is fantastic. If we compare to the last quarter, it's up 26%. It's not only that we have a bigger portfolio.
Of course, a larger portfolio has affected most of the figures in the income statement, and mainly the rental income, the property expenses, and the interest expenses. There were also other factors that have influenced. The rental income also increased due to a higher occupancy and an increased rent level. The property expenses decreased due to a higher occupancy since we are able to transfer the property costs to the tenants when the premises are leased out. The central administration expenses decreased, and this is due to lower personnel costs. The interest expenses, as you know, increased due to higher average interest rates.
We had negative unrealized value changes for properties, and the value of MFG was unchanged. Continue with the earning capacity. It's forward-looking, as you know, how much money can we earn the coming 12 months based on the agreements by the end of March and compared to the previous quarter, by the end of the previous quarter. This is not a prognosis. It's a theoretical assessment based on the current agreements and certain assumptions. Normally, we can't see that much of a change during a quarter if we don't take possession of any new properties. Still this quarter we see quite a substantial change in the earning capacity, and this is due to the rent indexation during the first quarter. The rental value and the rental income increased by 6%. The vacancy value decreases due to a higher occupancy.
The personnel costs are lower, and this means that the central administration expenses decrease. The interest expenses continue to increase, and we see on the bottom line that profit from property management increase in the earning capacity by as much as 8%. The value of the property portfolio decreased to EUR 590 million. This is mainly an effect of the negative unrealized value changes during the quarter, close to EUR 17 million corresponding to 2.8%. We also saw some investments in existing properties which had a positive effect. If you look a little bit closer into the unrealized value change, Kęstutis mentioned it, that we saw an increase in the weighted yield requirement plus 0.3 percentage points to 5.9%, little bit higher.
We also saw a positive effect from an increase in the average market rent up EUR 0.4 per square meter and month. Sorry, we can look at the chart as well. You see that the unrealized negative value changes during the quarter was 17, and this is sort of eating up the value increase during the last year. It's even bigger than the value increase during the past 12 month. Continue with the financing structure and some key figures regarding the financials. We have seen both positive and negative effects during the quarter. The interest rate level increased up to 3.8, and the net LTV properties increased a little bit due to the lower property value even though we had some amortizations during the quarter, of course.
The ICR a little bit higher. That's good. The average loan maturity and the average interest maturity, they are little bit lower than previous quarter. You can see too on the chart to the right that if you start with the dark blue bars, that the loan maturity, we have a loan ending in Q4 this year, and we have already ongoing discussions, and we have received offers from three different banks. If you look at the green-blue bars, you see that a third of our interest-bearing liability has floating interest rates, and the others are spread out all over the years, the coming five years. Kęstutis, over to you again.
Thank you. Why we think Eastnine is a very compelling story, and it's all about our growth, and the potential in the region. You see actually the gradual build-up on this graph of our property portfolio. Of course, now we have a slight negative effect in terms of increasing yields on property values that decrease a little bit the bar, but the overall trend is, I think very, very clear. If you look on our rental income, and actually the cash flow generation capacity, it's actually growing very, very nicely and very steadily. In last year we have a 21% increase.
If you look on our equity, of course, it's again affected by the decrease in property values, but it's also been a very nice build-up over the years. The most important actually is our ability to generate cash from profit from property management. Here you see again, a very nice growing curve, and Q1 figure is based on the earnings capacity versus actuals of the previous year. We still have a very nice continuous journey. Long-term equity per share has been growing again, and we continue paying a nice dividend, and we see a certain growth.
With all of that combined, we believe, and we see a very positive outlook in general, in our markets. Of course, there are clouds in the sky. Increased interest rates. There is, you know, big transformation in different sectors, overall. It's not only sky in the sky, but we see... Well, it's not only sun in the sky, but there are... We believe, we are very well positioned to meet the future challenges as well. On this, we turn over to questions.
We have already received some questions. Are you impacted by the 50% haircut to the so-called independent valuations imposed on Russian asset sales? Does the additional 10% tax also impact you? That's a question, I guess it is.
I think there is no change in the rules from the sort of previously announced transaction how the values are done. So to speak, quarter to quarter, no. Of course, the values are lower compared to sort of to the potential market value that you can actually sell. In terms of our valuation, no, just to be very clear.
We have a, some questions here. Any update regarding when you start your three future development projects? That's the first one.
Not yet. We continue continuously monitor the market. On the positive side, what we can see is actually more positive news coming out of lease market in Latvia. We see more positive developments there. That is a positive. At the same time, I think, we just, you know, right now we a little bit in a wait mode.
What is your view on M&A at the moment in order to potentially reach EUR 700 million in investment properties by the end of this year?
Of course, it depends very much on our ability to exit Melon. We didn't revise this goal yet. That maybe indicates, you know, where we stand today. Should that transaction happen, I think that goal is very easily achievable.
Property value is down 2.8%. Any relevant property transactions during Q1 in your markets? There is a lack of transactions.
Yeah. Today, there's very few transactions actually, and very few relevant transactions that have actually occurred. We know that there are some transactions ongoing, and we'll probably see a new levels established. Right now, it's difficult to actually base on any transactions.
What is your view on rent potential in renegotiations, excluding or in addition to indexation?
In certain cases, we have very high potential because we have some contracts, older contracts that actually expire that were at a significantly lower rental levels that were before. Overall, we don't see very much of the movement in the closest year. Unless something dramatic happens, I mean, today we have at 97% occupancy rate, so it's very difficult to make any impact.
Any update on MFG and potential buyers, et cetera?
Not at the moment.
EUR 45 million in bond financing due next summer can almost be covered with available cash at hand, and your cash flow from a property management, not quite. In the case that MFG transaction had not materialized, what is your plan for refinancing of the bond next summer to have available remaining borrowing capacity with your real estate as collateral? Probably not. I guess we will have the same opportunities as every real estate companies, meaning that if MFG, which we still will happen, if it will not, we probably will need to sell something or make some sort of new issue. Could you please provide more clarity on the way forward if there is no deal for divesting MFG? Is writing off MFG an option in order to continue as a pure real estate company?
I think we will come back to that, once we know, a bit clear, what will happen and so on. Right now, we firmly believe that this will happen.
Of the 2023 and 2024 loan maturity have so far been refinanced with new agreements, and what's the average increase in interest costs? Okay. We don't expect any increase in the margins, of course, the interest rates on the market is higher. Probably or most probably, there will be an increase. The newer loans will be more on a higher level than existing ones, but we will see how it ends.
It depends on the Euro rate, basically.
Yeah.
The margins are relatively similar.
Very similar.
... maybe, yeah, maybe even lower-
Yeah
... somewhat.
What interest do you see in MFG at the moment? Are you hopeful of selling MFG at its current value, or do you see yourself having to give a discount to be able to sell MFG?
As we wrote in our quarterly report, we have discussions on the same price level. It's also supported by our valuation model. So basically, the value is intact.
If you have any more questions, please send them now since I think we have answered all questions so far.
Okay.
Wait just a couple of seconds to see if there are any more questions.
Doesn't seem that anything is popping up.
No.
Those questions that came later, will come in later, may be answered directly to those people. On this, we thank you very much for this opportunity to present you our strongest results ever. Thank you very much, and goodbye.
We have a new question, actually.
Okay.
Should we take that one?
Yes, yes.
How is the working- from- home trend in your markets?
It's relatively similar to what we see here in the Nordics. Of course, we still have a significant portion of people working at home. Also we see a very clear trend of the companies trying to bring people back to the offices. In certain markets, this increase is very visible. In certain markets, it's maybe, you know, taking a longer time. It depends a little bit from the company to company, from the sector to the sector. Overall, we see a significant growth in people actually coming back to the office as such. We see it also on, you know, water usage and a lot of other parameters, actually.
All in all, it's a growing trend coming back, but definitely not fully yet.
Okay. Now it's time to say thank you once again then.
Thank you once again.
Thank you.
See you next quarter.
Bye.