Lumo Kodit Oyj

Good morning, ladies and gentlemen, and welcome to Kojamo's full year results news conference. My name is Maija Hongas, and I'm manager of investor relations here at Kojamo. Today's presenters will be Jani Nieminen, CEO, and Erik Hjelte, CFO. After the presentation, we have some time for questions, and first we will be taking the questions from the conference call line, and after that from the chat. Thanks for joining us today and let's get started. Please, Jani.

Good morning, everyone. Nice to be here. Sun is shining here in Finland today. Amount of light is increasing on daily basis. Today, I'm providing color on our full year report. And I would say compared to many countries, of course, COVID-19 impact has been limited here in Finland compared to many countries. But on the other hand, of course, it has had an impact in the housing market as well. We have been able to run all our operations quite the normal manner, and we've been able to proceed with our strategy, strengthening our new development pipeline, publishing our digital roadmap, publishing our sustainability program. According to the estimates, urbanization will continue after sufficient vaccination coverage will be achieved here in Finland. So I think we are proceeding with our strategy, providing profitable growth as planned, and there will be a long-term demand for new homes here in Finland. Provide some color on the operating environment. Of course, a big mega trend creating long-term demand for new homes is urbanization, which has been slower throughout the pandemic, but on the other hand, according to all the estimates, after the pandemic is over, urbanization will continue here in Finland, creating demand in the biggest cities, and still the same estimate that roughly 35,000 apartments should be completed on an annual basis in the biggest cities. Of course, still Helsinki metropolitan area will be the most growing part of Finland. It seems that according to the latest figures, the number of started apartments last year decreased less than expected. And I would say that after summer, the demand for owner-occupied apartments was recovering, and it seems that financing has been a bit better available for construction companies, so they've been able to recover from the drop providing owner-occupied homes. The supply-demand balance in rental apartment market Last year was different. As we've been providing information, of course, we knew that a lot of apartments were completed last year. On the other hand, as COVID-19 kicked in, many apartments which were used for short-term leasing were converted into long-term rental apartments. And at the same time, for example, a lot of students started remote studies, went back to their parents' homes, went back to their home countries. So I would say there was new supply coming to the market. but a bigger impact because of lack of demand or change in the demand as students were moving out. As I said, urbanization will continue and we see that this impact has been temporary. Latest figures are not available concerning the estimates of rental increases, but we do believe that they will keep on the same level, so roughly a bit more than 1% a year in the market. And this year, the latest estimate is that roughly 31,000 apartments will be started, the construction here in Finland. Of that, roughly 11,000 rental, sorry, market-based apartment buildings. The decrease will be roughly 5,000 apartments compared to last year. Keeping in mind the big trends behind the demand, urbanization, development of household sizes, so the number of small households, one and two person households will be increasing still, and there is still the change in people's values, especially with the millennials that they tend to value the freedom of rental apartments and not that anxious to take the housing loan. Even though we have seen that housing trade has been a bit more active and there are media provides information that a lot of home buyers available that, but on the other hand, we see that not that many homes for sale. What we have been seeing all the time is that the number of households living in rental apartments has been and is still increasing in all the big cities. And for example, in Helsinki, Turku and Tampere, actually more households today live in rental apartments than in owner occupied homes. Most of our housing assets are located here in Helsinki region, roughly 74%. On the other hand, if we combine Helsinki, Turku and Tampere regions, it's roughly 88% of our assets located in the three biggest growth centers in Finland. On the other hand, as I said, last year has been a bit more challenging renting apartments in the market. On the other hand, we've been able to keep the occupancy rate on a good level despite of the pandemic. We've been able to still improve our processes and make new tenant agreements on a fairly good level. On the other hand, of course, we have seen the impact of COVID-19 hitting the tenant turnover. Students leaving homes back to their parents, single parent families moving out. So that has had an impact towards the occupancy. To provide some color on numbers, I would say last year, roughly 3,000 new agreements done by clients under 25 years. At the same time, a bit more than 2,000 rental agreements terminated by tenants under 25 years. So there have been a lot of turnover with the youngest clients last year. To wrap up the biggest numbers and the most important KPIs, we did have a solid year last year providing profitable growth. Total revenue increase 2.3 percent, net rental income 4.2% growth and funds from operations grew by 7.7%. To provide a bit more color on a total revenue growth, of course, it's a combination of completed apartments during 2019 and 20 and the rental rent increases done last year. On the other hand, we've been able to increase the net rental income. There are a couple of aspects. On the other hand, we did have a so-called mild weather last year here in Finland, so a bit less heating costs. And on the other hand, less need to remove the snow. On the other hand, people did spend a lot more time in their homes. So we saw an increase in water consumption and in cleaning of the properties. The gross investments last year, 371 million euros. Of course, there the most important part was new development projects close to 370 million euros. On the other hand, a important figure, of course, profit excluding changes in value grew by 4.2%, 165 million. And then we had a net gain in fair values a bit more than 225 million euros, a good solid number last year. Of course, we have to keep in mind that during the comparison year, we did adopt a yield-based valuation methodology, and that year it had a positive impact of roughly 800 million euros. For us, it's important that we are able to grow by using multiple sources to provide some color on the new development pipeline. We started last year the construction of more than 1800 apartments, We did make several important agreements with construction companies to pick a couple of those. An agreement done with SRV during March provides 676 apartments, and another agreement with construction company Lehto in June provides close to 400 apartments. We have been able to still increase the number of apartments under construction now more than 2,600 apartments, all located in Helsinki region. So a really strong pipeline providing growth where Finland is growing. So the population is growing. Then we still have cooperation agreements providing roughly 1,000 apartments. And in addition to that, the so-called metropolia properties case, The zoning is proceeding. The first two properties, the zoning was completed at the end of last year. And of course, our aim is that the construction of first properties or buildings will be started during this year. And then our state of mind is such that the one building prior used to be the main building for University of Technology will be sold as a hotel project. The strong pipeline here in Helsinki region is matching all the most important parameters when we consider our investments. So the location, micro location, the sizes of the apartments, services available near the buildings, and of course the net rental yield being four or above four percent and the additional development gains received from those projects. The strong pipeline will provide also an increasing number of completed apartments starting this year, and as visible here on page 11, close to 1,300 apartments will be completed this year, then more than 1,600 apartments 2022, and already we know a pipeline to be completed close to 700 apartments year 2023. And still, we are working every day in order to find new projects. For us, it's always been important that we are able to provide added value for our customers. Services for new customers entering the LUMO world, as well the services during the tenancy period. To provide some new color, of course, for example, MyLUMO services has been accepted and used on a fairly good level by our tenants. 75% of our tenants are using MyLUMO application on regular basis, more than 1300 daily users. We've been providing a couple of new services like electricity tendering, move and installation services, and then, for example, installation of washing machines and cleaning services for moving out. We've been also piloting direct payments from customers as they use the services. So the first gas flows been entering Last year, this year, of course, our aim is to increase the amount of services and create services that will generate cash flows as well. On the right hand side, an increasing number of agreements done online. Of course, today more than 21,000 apartments rented from LUMO Web Store. On the other hand, I guess during this period of time, the most important piece of news is that we've been able to increase the number of new tenant agreements last year compared to comparison year. Sustainability has always been an important factor for us. We argue that it's a part of our company DNA. We published our sustainability program in the beginning of December. Our key commitments are United Nations Sustainability Development Goals, as well as carbon neutral energy in our properties by 2030. In a couple of weeks, we'll be launching our sustainability report as part of annual report. We've been providing a lot of new information in board of directors report and financial statements. So I think we have reached now a better level providing information concerning sustainability. Now I would ask Erik to provide some deeper color on the numbers.

Thank you Jani and good morning everybody from my side as well. So we were able to provide a solid set of numbers and total revenue growth was 8.6 million euros and like for like rental growth contributed 1.2% and there we have rent increases and water charges positive figure 2.1% and the occupancy rate negative figure 0.9%. And the remaining part of the total revenue, of course, was contributed by the net of completed apartments last year and at the end of 2019, as well as acquired and disposed apartments. Profit before taxes without changing fair value of investment properties grow 6.7 million euros. And the profit on fair value of investment properties was 225.8 million euros. and roughly half of that is due to the increase in cash flows, and a little less than 40% is coming through because of the ending restrictions, and little more than 10% was from the development gains from the development process completed last year. We kept yield requirements at the end of last year unchanged as anticipated. Net rental income growth 10.3 million euros. Biggest contributor there, of course, total revenue growth, 8.6 million euros. Maintenance cost was 0.6 million euros less than in the corresponding period. There was a couple items moving different directions. So on the positive side, mild winter. heating 2.4 million euros less than in corresponding period. And then we transport less snow last year. So that was 1 million euros less than in corresponding periods. On the opposite direction move to water expenses was higher 0.9 million euros, cleaning higher 1.2 million euros and waste 0.7 million euros and these are mainly because of the Covid-19 so people spent more time at home, so that's why this part of the maintenance expenses was elevated last year. Repairs was 1.1 million euros less than in corresponding periods, and net rental income margin 67.1%, and that was higher than in corresponding period where we had 65.9%. FFO growth was 10.8 million euros. Net rental income contributed 10.3 million euros. SGA expenses was 0.3 million euros less than in corresponding period. There was slight impact because of the COVID-19. Obviously, we spent less time at the office, so there was some savings related to that. Financial cost was up 4.5 million euros due to the fact that the loan portfolio is much bigger than in corresponding periods. And cash taxes was less, 3 million euros due to the fact that in corresponding period there was disposal of assets and that led to paid cash taxes. Financial occupancy rate maintaining a good level as Jani already discussed, and gross investments, 371.2 million euros, 331.3 million euros on development investments, acquisitions, 12.8 million euros, and modernization investments, 27.1 million euros. Modernization investments and repairs put together 62.9 million euros, 1.1 million euros savings what comes to repairs and 3.6 million euros what comes to modernization investments. And going forward, we still expect the modernization investment and repairs put together to be between 60 and 70 million euros per year. Value of investment properties. growth was almost 10%, the biggest contributors there, of course, the developments, as well as the profit on changing fair value or investment properties. At the end of last year, we still had 2275 apartments where there are restrictions regarding the valuation, and those restrictions will gradually end by the end of 2024. And there will be an uplift in values between 150 and 170 million euros. And then those uplifts will be back-weighted. Our development pipeline and our land bank, if you like, from your point of view. So on the left hand side, we have apartments under construction, 370 million euros already invested and 262.9 million euros to be invested in order to complete those ongoing developments. 200 in the mid column, 214 million euros to the cost of these apartments, almost 1,000 apartments, and the right-hand side column, there's our land bank, if you like, so pure land, metropolia cases, as well as those properties where the idea is to demolish existing building and then build a new one. We estimate that the total amount of investments in developments this year is going to be somewhere between 370 and 420 million euros. And all these ongoing developments, as well as the landmark located in Helsinki region. Equity ratio and loan-to-value, strong figures there as well. We have quite sizable buffer against our target levels to be, have equity ratio above 40% and loan-to-value to be below 50%. So we have there leeway to grow the company further. Equity per share growth there as well as Ebra NAV. Going forward, we are going to report NRV in a financial way, so all these three new Air Prime and Navy metrics, but we think that this NRV illustrates best Koyamo's business, and Koyamo will use this one as the primary indicator of net asset going forward. We have quite strong financial key figures, almost 3 billion euros loan portfolio, 57% of that from the point market, average interest rate included in cost of derivatives, 1.8%, and the average loan maturity and average fixed interest rate period, four and a half year. The hedging ratio is quite high, 91% at the end of last year, and we have credit lines committed unused 300 million euros and cash and cash financial assets, more than 300 million euros and no major maturing loans in a couple of coming years. Strategic KPIs, strong figures there as well. Total revenue already discussed, annual investments on the high end of our strategic target range, close to 400 million euros FFO against total revenue close to 40% loan-to-value equity ratio on the strong side, as well as a good NPS figure 36. Then the outlook for this year. So we estimate that the top line growth is going to be between three and five percent year on year. And that is coming through the like for like rental growth as well as number of apartments to be completed this year. This estimate does not include any potential acquisitions. We are still actively looking for acquisitions to acquire apartments, but it's not included in these estimates. Of course, we are not doctors, but this outlook is based on assumption that the sufficient vaccination coverage will be achieved in summer and migration will gradually recover to pre-pandemic levels thereafter. But still, the fact is, of course, that the vaccination is not going to happen overnight. So the development of a like-for-like rental income most likely is going to be moderate during the first half of this year because of the COVID-19. We estimate that the FFO this year is going to be between 150 and 163 million euros, and there are a couple assumptions in the midpoint of that range. So first of all, the midpoint of that range is based on the assumption that the weather is going to be normal this year, that the repair project is going to proceed as planned. The SGA expenses are going to be in the ballpark on the same level as last year, and no disposal, meaning no additional taxes to be paid. And then the financing of the ongoing developments, 370, 420 million euros this year. So these are the assumptions of the midpoint of this FFO range. And the board proposal for dividend, Euro 3.7 per share. And of course, that finally will be decided by the AGM later. And now back to Jani.