Equities and commercial property in the Baltics


Baltic commercial property offers generous risk premiums and is an attractive investment. The Baltic stock market is dormant and still at an embryonic stage.

There are about 80 companies listed on the Baltic Exchange. These have a total value of 50 billion NOK. Liquidity is however minimal as daily turnover rarely exceeds ten million NOK.

Due to the absence of a functioning stock exchange the Baltics are suffering from a chronic shortage of risk capital. This inhibits business innovation and growth opportunities for local businesses.

A common feature of the listed companies is that they have a dominant owner that is either private or state, while the free float is limited.

When it comes to valuation, it does not appear as an obvious value case based on earnings multiples. Ratios are in line with what one would find on Oslo Bors.

Gold in the balance sheets

The picture changes, however, if we look at the balance sheets. Benjamin Graham, the world’s first value investor, invested only in companies where NCAV is at least 67 percent of the market value. NCAV is current assets less all liabilities and is an estimate of the liquidation value of a company.

On the Oslo Stock Exchange Graham would not find a single stock to buy since no companies satisfy this criterion. However, in the Baltics 20 per cent of the listed companies pass the NCAV test.

The gap between earnings and balance sheet based indicators reflects that Baltic companies have little incentive to show large profits. In state-controlled companies like Lietuvos Energija this is often due to political interference. Lietuvos Energija is under constant pressure from politicians to cut the price of energy delivered to households.

In privately-controlled companies the main owner generally sees few benefits from being listed and attempts to minimize tax through keeping the visible surpluses as low as possible. Moreover, minority shareholders are often given a cold shoulder when it comes to dividends.

The culture of corporate governance, however, is gradually changing. Among other things, the political interference in state-controlled companies is declining. This creates a long-term repricing potential.

Real Estate

At first glance the Baltic commercial real estate doesn’t appear obviously cheap. Prime yields in the Baltic capitals are at 7.5-8.0 percent, while the corresponding level in Oslo is at 5.0 percent.

It is easy to argue that the yield premium of 250-300 basis points is a reasonable compensation for risks related to politics and lower liquidity. The picture changes, however, if one looks deeper into the matter.

First, borrowing costs in the Baltics are lower since the region is part of the euro zone. This increases the profitability of real estate investments.

Secondly, the prospects for growth in property values are clearly stronger than in Norway. Typically 2/3 of the return on commercial real estate comes from regular rental income while a third is due to appreciation.


Because of convergence in wages and prices to the rest of Europe, the Baltic States have systematically higher growth in rents and thus property values over time. An example of this price convergence is that the consumer price index in Lithuania has risen ten percent more than the euro zone since the turn of the century.

With 50 percent higher yield, lower funding costs and higher capital appreciation potential the Baltic commercial property is an attractive investment option.

Dovre portfolio

  • Panoro Energy
  • Petrolia
  • Selvaag Bolig
  • BW Offshore
  • Napatech
  • Jinhui Shipping