Hi, very warm welcome to our year-end report for 2021. My name is Kęstutis Sasnauskas, and with me I have Britt-Marie Nyman, Deputy CEO and CFO, who will be presenting this report. We're starting with the first picture. I'm very happy to announce that we acquired this beautiful property just at the end of the year. That will increase our earnings capacity further going on. If we move into the region and our highlights, just to remind you, we have a fantastic opportunity by investing in the Baltic region, which is actually growing a bit faster. Today we will discuss a bit more about that.
If we look at our portfolio, it's yielding higher than the Nordics, and at the same time we have majority Nordic and international tenants. We have a Baltic yields compared with a Nordic underlying risk. We also during this year decided to look into Poland as a new market, which we see as very attractive given its size, liquidity, and also availability of actually investments in eight cities, including Warsaw and regional cities, which have similar patterns as the Baltic capitals. If we look on the market fundamentals of the Baltics, they have been very solid. Markets have been growing faster over the years than the Nordic peers.
This catch-up effect and this transition that is going on, this is what we want to be exposed to. We also score as best in class in terms of ESG credentials. 81% of our portfolio is environmentally certified. 26% of financing is today green. Unfortunately, availability of the green financing is still limited in the Baltics, but we are working hard to increase that share. We also run prudent financial risk, relatively low LTVs, and none of the loans maturing before September 2023. If we look at the Baltic economies, they have been performing actually extremely well despite all the concerns and all the pandemic risks or issues that we had.
If you look at the GDP, it rebounded very strongly in all of our regions. Of course, Estonia performed even better than the others, and that is mainly driven by the pension reforms in the country that allowed individuals to consume more. We have a very strong inflationary pressure at the moment in the market. Inflation is higher in the Baltics, has been higher in the Baltics for a long period of time. Baltics are in the euro, and Baltic economies are still very, very small relative to the overall economies in the Eurozone, which this inflationary pressure is not going to be seen, I think, in the Euribor cost.
For us, a combination of being in Euro, being in a bit higher inflation environment, and still financing ourselves in the eurobond market, is a very nice combination thinking about the inflationary pressures coming. If we look on the property yields, the yields have been compressing. And this year end, we report probably the lowest yields recorded on average in the market with 5.25 in Vilnius, going up to 5.8 in Tallinn. All yields below 6% in our prime segment, which is offices. The markets have been performing extremely well. And of course, this has resulted in a significant value uplift of our portfolio.
If we look at our properties in Vilnius, we today own nine properties with a fair value of around EUR 390 million. This comprises 83% of our portfolio. All properties are super modern. They are relatively large in size, so on average, 13,400 sq m. We have a new development project called Burės number three. It's in the Burės complex.
Four
Burės number four. It's in the Burės complex, and it's additional 12,600 leasable area that we plan to construct in there. In Vilnius, we enjoy high occupancy, 93%. Overall, lease market has been very strong in Vilnius with very strong lease. I mean, the lease out was around 133,000 sq m according to Newsec during the year. This has to be compared to closer to 900,000 sq m of total office space. Very strong underlying market. In Riga, we have three existing properties and two development projects. All in all, once they are developed, we will reach approximately 75,000 sq m of space. Of course, today we have a bit weaker situation in Riga.
Given some of the new leases that are signed that are not yet visible in the quarterly report, the occupancy will increase to 79% in the short term. Of course, we're working further to increase it further. A bit weaker situation in Latvia, but the increase is improving. If you look overall at our portfolio and our tenants, we have a very centrally located portfolio in both Vilnius and Riga. If you look at the biggest changes, we're very happy with the acquisition of Uptown Park. We received two new large tenants, some of our top 10 tenants actually.
Vinted, which is the Lithuanian first Lithuanian unicorn and one of the largest e-com platforms for second-hand clothes in Europe, and Bentley, which is an American software developer. Overall, 13 properties in the portfolio, 143,000 sq m of modern office space, and a total value of EUR 470 million. 90% occupancy, an average rent of around EUR 179 per year, which is around EUR 15 per sq m and month. If we look on our other investments that have been performing extremely well, Melon Fashion, where we hold 36%, we report preliminary results, and we actually report IFRS results right now.
The company has developed tremendously well during the year with sales growth of 49%, reaching RUB 37.5 billion, and EBITDA growing 38% to RUB 8.6 billion. Amazing transformation. E-com grew 42% and amounted to 32% of total sales. The e-com shares decreased somewhat, and the reason for that is that we compare to 2020 when part of the stores were closed for a number of months, or the majority of the physical stores were closed for the number of months. Melon investment generates enormously strong dividends to us. During last year, we received EUR 3.3 million of dividend, and in January, we received additional EUR 6.5 million in dividends. Total EUR 9.8 million, we can say, for the last year.
This actually compares to our profit from property management. Overall, the whole portfolio is generating extremely strong cash flow today. If we look on other investment, Bur ė s property number two is now totally sold out, divested. It is still in our books, but basically, the underlying portfolio of properties was sold in the beginning of this year, transaction was closed the day before yesterday. Now we are waiting for distribution. The fund also performed extremely well over the years. Final figures we will report after we receive the cash proceeds. We worked very hard on sustainability, and during that last year, we also improved a lot on that score. We improved our score in GRESB.
We received 92 points. This compares to the top industry leaders here, even in the Nordics. We ranked number three in Green List and Allbright for gender equality. We have increased our share of green financing. Again, 81% of our gross floor area is environmentally certified. It decreased somewhat compared to Q3 when we had 88%, but due to the acquisition of Uptown. Uptown is actually a very modern property, but not certified, and it will be certified shortly. On this, I leave to Britt-Marie.
Thank you, Kęstutis. We start with some highlights for 2021. We acquired three office properties in top locations, two of them in Vilnius and one in Riga. Profit from property management was affected by higher vacancies, but also affected by higher interest expenses after a bond issue in the beginning of July. We had large positive unrealized value changes from investments, mainly in MFG, and also from properties. The long-term NAV per share increased by 24% to SEK 182 , and the board proposed a dividend increase by 13% to SEK 3.40 per share in quarterly installments. Some financial highlights, the rental income and the net operating income in the earning capacity increased after the acquisition of Uptown Park to EUR 24.5 million and EUR 22.4 million respectively.
The annual rent stable around EUR 180 per year and square meter, and that is SEK 1,800 . All of you who are familiar with the Stockholm market know that rent levels in Stockholm for similar premises around SEK 5,000-SEK 8,000 . The property value increased by 25% to EUR 470 million. The equity asset ratio is high, 58%. Net LTV low, 45%. The property yield in the earning capacity a little bit lower due to unrealized value changes in properties, 4.8%, and the occupancy rate, 90%. Continue with some comments on the income statement. We had a larger property portfolio. We acquired two properties in the second quarter with full effect on the rental income from the third quarter. We acquired Uptown Park just before Christmas with full effect on rental income from this year.
We had higher vacancies, which meant, of course, less rental income, but also higher property expenses since we have, to a large extent, triple net leases, meaning that if the premises are vacant, we are not able to transfer the property expenses to the tenants. In Q4, we also had higher energy costs and a non-recurring cost. The bond issue increased interest expenses and also other financial expenses. Profit from property management was negatively affected, but the future looks brighter, as you will see in the earning capacity. We had large positive unrealized value changes. When it comes to properties, it was due to lower property yields both in Riga and in Vilnius. For MFG, it was due to positive sales development.
We received dividends from both the fund and MFG during last year, and we also had some positive realized value changes in the fund. As Kęstutis earlier mentioned, we received an additional EUR 6.5 million from MFG in dividend this year. Some comments on the statement of financial position, let me start with the assets. We had an increase in the value of the investment properties, of course, mainly due to acquisitions, but also due to unrealized changes in value and investments in the existing properties. The value of securities holding increased mainly due to MFG. The cash increased due to the bond issue, and we had an increase in other assets as well. This is a temporary VAT effect related to the acquisition of Uptown Park, and it also affected other liabilities.
When it comes to the equity, it of course increased due to the profit for the year minus dividends, and the interest-bearing liabilities increased due to acquisition bank financing related to acquisitions and the bond issue. Now we have come to the current earning capacity, and this, I guess, is my favorite page since it is forward-looking. It is a theoretical assessment based on current agreements and certain assumptions. It's not a prognosis. We compare the end of the year with the situation a quarter earlier, end of September. The most important thing that happened during the fourth quarter was the acquisition of Uptown Park, which of course affect the rental value and the rental income in the future. The property expenses increased due to increased operating costs, including higher energy prices and increased vacant space.
The interest expenses are unchanged since Uptown Park was financed with cash. We saw increased other financial expenses related to the bond, and the profit from property management increases once again more than rental income and not net operating income as a percentage. In the bottom, you can see that the prospective yield decreases, and this is natural since we had unrealized value changes for the properties, but it was also affected by increased property expenses. Continue with the capital structure and financing. Total interest-bearing liabilities a little bit more than EUR 240 million. We have bank loans around EUR 200 million and a bond of EUR 45 million. We have three banks, SEB, Swedbank, and OP Bank. The average interest rate stable at 2.8%. It was the same during the last quarter.
You can see that the capital tie-up is two point five years. We have no loans maturing this year, not until October next year, and the bond matures in mid-2024. The interest duration, the fixed interest term is one point five years. 40% of the loans have floating interest rates, and 25% each are fixed until 2023 and 2024. The net LTV properties is low, slowly increasing, and the equity/asset ratio is high, slowly decreasing. This is a natural effect since we are selling off non-leveraged assets and investing in real estate which are leveraged. A little bit information about the share development and the ownership.
The long-term NAV per share increased by 24% during last year up to SEK 182 , and the share price increased by approximately the same, 27%. The share discount is decreased until year end. It was 13%, a little bit more today perhaps. We can see that the number of shareholders has increased by 36% and we now have approximately 6,700 shareholders. We had one new large shareholder during 2021. It was Bonnier Fastigheter Invest who bought 14% of the shares during October. A little bit about the board. We have a reputable board in Eastnine with Liselotte Hjorth as Chairwoman. She's former Deputy CEO at SEB. Christian Hermelin, former CEO at Fabege. Ylva Sarby Westman, Deputy CEO and CFO at Castellum.
Peter Elam Håkansson, Founder and Chairman at East Capital, and Peter Wågström, who is former CEO of NCC. Kęstutis, over to you.
Thank you. Just why Eastnine? Of course, we are committed to deliver on growing profits and value. We have a slight dip in the profit from property management during the year. This is effect, temporary effect due to higher bond increases and some one-off costs in the Q3 and of course Q4. This situation is now changing with the new acquisition and acquisitions to come. We are increasing our dividend payout and we are increasing our long-term equity. If you look on our portfolio, we have actually a unique portfolio of top assets in the Baltic capitals of Vilnius and Riga. We will look into fantastic opportunities in Poland and grow further, but still again, focusing on prime locations or prime assets.
Those prime assets and those fantastic tenants that we have generate very, very strong cash flows. Overall portfolio today generates very, very strong cash flows if you look on the dividend yields from that we receive from Melon and the payouts of the fund. We are leading the way in sustainability in the market. We have a fantastic growth journey ahead. Not only the ambitious target to grow our portfolio, but also this underlying convergence that is taking place day by day of this region accessing the more developed and richer markets. On this, we finish our presentations, and we open for questions. Just as a reminder, you can still post your questions under the picture that we have. Also there is a telephone line for questions if anybody wants to pose questions by that means. With that, over to operator. After that
Thank you. Ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad to register. You can press zero two to withdraw your question. Once again, it's zero one on your telephone keypad to register, and there will be a brief pause while questions are being registered. As we have no telephone questions registered, I hand back to our speakers.
Okay, thank you. The first question is, what is the action plan for Poland? Do you expect to make any acquisitions already this year? I wouldn't exclude those. We are actively looking into this market. In general, we will try to evaluate all the opportunities. What we see, of course, is Poland today probably poses somewhat. There are very attractive opportunities there as well.
I can take this one.
Yeah.
We had a question, can you expand on the benefits of raising capital via green bond? It seems that your interest cost is much higher with 500 basis point and so on. Yeah. We can see that the interest for green bonds is much higher than for common, usual, not green bonds. That's why the cost for our bond is because we are new on the market, and that's normal to pay a little bit extra the first time, and then you get perhaps a little bit lower interest rate in the future.
When will net leasing be positive again for Eastnine? Do you expect a better environment in 2022 compared to 2021? Environment in 2021 was very good. I mean, what we have to remember is actually that we came into 2021 with a very, very high occupancy rate. There was a reduction during the year, and when you come from very high level, there's no other way to go. We're still at 90% occupancy rate, which is relatively high. We expect this to increase during the year. We see a net leasing coming positive during this year.
Could you please provide more color on your thoughts about the recent high inflation in the region and what impact might have on valuation yields and property valuation in the region? I mean, in general, inflation is a big concern for everybody today. Property assets as such are generally inflation protected over time, but there could be turbulences in the valuations when the interest rates start to rise and interest costs start to rise. What we see is that we are financing ourselves in Euribor market, which is more stable and represents wider area. And the Baltic area that we are operating in, the Baltics, both economies have very little impact on the Euribor as such. At the same time, inflationary pressures are a bit higher.
What we also see, the construction costs are rising, and all of these matters actually push the rental levels higher up. Given what we see today in the rental market, where there is an upward pressure with very strong demand, primarily in Vilnius, we'll probably see a faster development on rentals compared to the other costs. Net it should be positive, and we are quite optimistic about that.
We also had a question regarding your view on increasing interest rate and potential implications on borrowing costs. Of course, increased market interest rates will affect all of us, but 60% of the loans are fixed, so they won't be affected immediately. We can also say that right now we have, we haven't financed Uptown Park in the bank, and this means that we have a potential in the future to finance Uptown Park and use the money to increase the portfolio further, and then we expect perhaps the interest rate to come down a bit.
SEK 3.4.
SEK 3.4 is, of course, quart.
Yearly
It's a yearly dividend divided into four pieces, so EUR 0.85 per quarter.
After revaluation, the NAV is now above the stock price by 30%. Would it not make sense to launch a big buyback program to close the gap? Definitely, we evaluate the buyback opportunities in connection with our investment opportunities. Right now, we see that the investment opportunities pose much more attractive possibility for us. We have to remember that we are a small company. We need to grow, and this is our challenge today. For now, we believe that it's better, but of course this is evaluated on a daily basis, weekly basis. I would not exclude the possibility of buybacks as well. Victor?
When do you expect the architectural competition from Burės four to be completed, and the winner to be announced?
Yeah.
How do you view your chances of raising the average rent per square meter during 2022? Is your stated figure referring to the theoretical income?
Yeah. If we look on Burės three, I will point it out back in the presentation as well on this picture. The picture is actually in the second column at the bottom. The architectural competition is already complete. We are in the process of signing up the architects. We expect the building permit to be received in the beginning of next year, and to start construction relatively quickly after that. Vilnius market is very strong and has been very strong, so it's a bit early to speak about the potential rental levels. What we see, at least in the neighborhood developments and so on, the rental levels are above the current market, significantly above the current market.
Could you elaborate further on the rationale to enter Poland rather than combining to build scale on your current markets? We have already built up a very strong position in Vilnius market. We have 120,000 sq m out of almost 900 in total in the market, which means that we can grow. In our segment, we are larger than that. From that perspective, we will continue maintaining our strong position and grow in our capital markets. At the same time, the speed that we would like to develop is higher. The opportunities that we see in Poland today are also very attractive. The yield levels, if you look especially on the regional cities, large regional cities, which have very, very similar patterns to our markets, yields are significantly higher. That makes financially much more attractive investments.
Yeah, I think we heard sort of.
If we look at competition to buying properties in both these buildings, what would you see going forward? What is less competition in Riga than in Vilnius? The competition in Riga or probably is a bit less, but at the same time we have fewer properties. It's paradoxically enough that Riga is actually the largest city today among all three Baltic capitals, but has the smallest office stock. There is a number of development projects going on, and we believe that they will be very successful. But at the same time, it takes time to do acquisitions. We want to be able to grow faster simply.
We received a question. Any success so far in acquiring logistics assets? No. In that case, we would have press released it.
Yes. It's something that we look at and something that we would like to acquire. This will come in the future. With logistics and with Poland, our opportunities are actually increased substantially. Good. It seems that we exhausted the questions and maybe some.
Yeah. Could you give some color to the MFG IPO?
What we wrote is that, of course, this fantastic development opened up for our exit possibilities in connection to listing that may occur before summer. We have, unfortunately, as you all probably know, a very tense geopolitical situation and a certain war in the market related to that. Other than that, we did not communicate any other message, which means that we are moving as planned. Good. Thank you very much for all your questions, and see you at next quarterly report.
Thank you. Bye.