Lumo Kodit Oyj

Good morning, ladies and gentlemen, and welcome to Kojamo's Half-Year Reports news conference. My name is Maija Hongas, and I'm manager of investor relations here at Kojamo. Today's presenters are familiar faces, Jani Nieminen, our CEO, and Erik Hjelt, CFO. After the presentation, we will have some time for questions, and first, we will be taking the questions from the conference call line. After that, we will answer questions from the chat. But without further ado, let's get started. The stage is yours, Jani.

Thank you, and good morning, everybody. As we start, in order to provide some color on our H1 figures, it's easy to start by saying that the first six months has been in line with our expectations. COVID-19 has had an impact to urbanization and rental apartments market. That means that our financial occupancy is temporarily lower, and our like-for-like growth has been moderate. On the other hand, we see that the biggest trends for long-term demand for rental apartments are still valid. Urbanization will continue, as will the number of small households. At the same time during last year a couple of years and this year we have seen a lot of foreign interest towards portfolio deals and a lot of deals have been now completed providing information to valuators and we have seen yield compression in the market reflecting our fair values as well. In During the summer as expected we saw positive signs meaning a high number of new tenant agreements in July and as estimated it seems that students are moving towards the university cities and on the other hand we have seen that There's a lack of employees in service businesses, especially here in Helsinki region, and that will mean that urbanization will continue. Moving forward to the topics more detailed, we look at the operational environment, The estimates are that the easing of pandemic is expected to have a positive impact to Finnish economic growth. The vaccination coverage is already quite good here in Finland and proceeding well. Yesterday, the levels were that 69.3% had already received the first vaccination and 43.5% the second vaccination. The number of residential startups has been a bit higher than expected, seems to be high, but not meeting the highest volume from prior years. What we saw during the summer has been a rapid and quite significant increase concerning construction costs, especially timber and steel, and that may have an impact if to be continued towards the volumes. In a market we see that all the estimates are that rents are still increasing as well the housing prices. A lot of homes have been bought and of course we see as these estimates on the table on the right hand side a lot of differences between areas and micro locations concerning housing prices. In June we received a new information concerning forecast and scenarios concerning population growth after pandemic, and according to all three scenarios provided by MDI, urbanization is expected to continue, especially here in Helsinki region. So, big cities will be growing during the next couple of decades. That combined with the fact that we still have an increasing number of small households, meaning one and two percent households changes in values concerning owning things, there are these long-term trends in place for demand of new rental homes in the biggest cities. And as I said, we have seen transactions concerning portfolio deals this year providing data and impacting values as a result of yield compression provided in our figures as well. It seems that the same trend still continues so in all the big cities the number of households living in rental apartments is increasing and as prior in cities like Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner occupied apartments. As I said, COVID-19 has had an impact and it seems that It has created a point of discontinuity to urbanization, especially here in Helsinki region. But on the other hand, as I said, all the scenarios provide the same information. As pandemic is easing off, urbanization will continue and may even pick up speed. Housing production seems to be remaining in fairly high level, not reaching the highest values. What we see is the number of build-to-sell projects increasing and the increasing of construction cost of course may end up providing a little less production for rental apartments and on the other hand, increasing the number of build-to-sell projects And my opinion is that most probably this construction cost increase will settle down at some point. If it would keep on going, that would have an impact. to overall volumes providing built-to-sell projects as well. But as all the estimates are providing the same data, urbanization will continue, the housing production volumes are focusing towards the biggest cities and towards Helsinki region. Providing some color on our H1 figures, We've been able to create growth throughout the pandemic. Total revenue is still growing 1.8%. Of course, it's a combination of two things. One is the completion of new apartments and the other part is our capability to create like-for-like growth. Erik will go deeper in the like-for-like figures. It's important to notice that we are still able to increase our rents. The like-for-like rental growth combined with water charges has been 2.1% and we expected mid to long term that we are still creating like-for-like growth between 2.1 to 2.5% a year. On the other hand, comparing our net rental income and FFO against the comparison year to pick up some topics there. Of course, we have to keep in mind still that last winter was cold and we had a lot of snow. COVID-19 has created a situation where we have been increasing the intensity of cleaning. So these two aspects have increased the amount of maintenance cost. And on the other hand, as we are growing and investing, the loan portfolio has been increasing as well. The fair value of investment properties at the moment, 7.5 billion euros now, providing data that we are growing there's a strong growth combined with a positive change in fair values as a reflection of yield compression. Gross investments 176.5 million euros are mainly new development projects. Profit excluding changes in fair value increased 4.5%, and of course, combined this result with the positive impact concerning fair value of investment properties, €466 million provided a result of profit before taxes close to €550 million. So, in the big picture, no surprises in the figures, we are still proceeding as planned. Still the strategy is to grow our capability is combine different approaches We have the strong capability to create new development projects either based on our own land or by buying projects from construction companies. The second part of the growth is still that we are able to convert buildings into our apartments. And then the remaining aspect is that we are following the market closely, buying portfolios if we find something matching our parameters. During H1, we've been completing 441 apartments and starting 610 apartments. At the moment, the pipeline is really strong. We have more than roughly 2,800 apartments under construction. All the projects located here in Helsinki region meeting our criteria. high-quality micro-locations along with public transportation and services, all the projects having fixed prices, so we don't carry the risk of increasing construction costs, all the projects providing the net initial yield of 4%, roughly, or above 4%. And actually, as we've been providing information, we are budgeting in a development gain of roughly 20%, as it now has been we've been reaching numbers above 20 percent. Some slight changes concerning our estimates of completion of projects actually meaning that some of the binding commitments with construction companies, there's been timing issues concerning zoning or municipality decision making, so these projects may always end up to be completed a month or a couple of months prior or delayed a couple of months. But we do have a really solid and strong pipeline towards the future. A couple of words concerning Metropolia properties, which we have and what we see as a huge potential for us providing 1,000 apartments in the city center Helsinki. Now the zoning has been completed concerning a couple of locations like Abrahaminkatu and Agrikalankatu, and our estimate is that we are able to start those projects later this year or in the beginning of next year. then a couple of the remaining projects, mainly the zoning, should be completed by the end of this year. I guess one of the smallest projects, Sofia Lehdonkatu, it seems that the zoning will be completed next year. That property is actually connected to the property besides owned by the city of Helsinki and there are discussions on how to proceed with the zoning. A couple of words concerning what's been happening in the market service-wise and in a customer base. We are still proceeding with our capabilities providing services and digital services. We are really happy that more than 70% of our customers are using myeloma services and actually the net promoter score concerning digital services has been really high. The last figures have been 67. On the other hand, we've been creating a couple of new services and providing now a bigger capacity concerning broadband services. Then what's been happening in the market, we've seen a point of discontinuity concerning urbanization. On the other hand, if we look deeper, we see that customers between 25 and 34 years have been moving more often than usually and then the number of customers below 25 actually we've been making a bit more tenant agreements here in Helsinki region but on the other hand the tenant turnover has been abnormal high there probably because of people renting the apartments in order to start studying, then moving back to the parents and not being able to decide what to do. Some of the single parent households are looking for more affordable solution moving towards the parts of capital region where apartments are cheaper. On the other hand, trying to find solutions outside Helsinki region. Now, we would ask Erik to join and provide more detailed data. Please, Erik.

Thank you, Joani, and good morning, everybody, from my side as well. So, page 13, total revenue, the growth there was 3.5 million euros, and like for like rental growth contributed point 4 million euros and then completed apartments around 3 million euros. And we completed 3,096 apartments during Q2 this year. Net rental income down by 0.4 million euros. Total revenue growth was 3.5 million euros as mentioned. So maintenance cost growth was 3.8 million euros and repairs was flat. So any maintenance cost increase was coming from actually from two sources. One was related to the weather. So heating and taking snow from one place to another increased the cost 2.7 million euros, especially during Q1. And then the second part is related to COVID-19, so people spending more time in their apartments, so that increases their cleaning costs and water costs in total around 800,000 euros. Page 14, profit before taxes. Of course, the bigger figure there is the profit on fair value on investment properties. So now the yield compression is really visible in our figures, 290 million euros during Q2 and 421 million euros in H1 and the yield compression compared to Q1 was 22 basis points and compared to Q4 2020 was 32 basis points. Ending restrictions, actually there was no ending restrictions during Q2, but the H1 figure is 12.5 million euros. Development gain, so we completed six projects during Q2 this year, development gain above 30 million euros, and as Jani mentioned, the development gain there was above this 20% on average, what we have anticipated. Modernization investments, of course, a negative figure. They are 4.9 million euros during H1. FFO, so down by 2.5 million euros. Net return on income, negative 0.4 as mentioned. SGA expenses, a positive figure, 0.9 million euros. There are some savings related to COVID-19. Finance expenses up 2.3 million euros mainly because of the bigger interest bearing liabilities by 160 million euros from a corresponding period and more than 300 million euros from the Q8 2020. And gas taxes growth was 0.4 million euros. Our financial occupancy rate, that was clearly impacted because of the third wave of COVID-19, so that is the main driver behind that declining financial occupancy rate. And the like-for-like rental growth was moderate during H1 as anticipated. And as Jani mentioned, the vaccination has proceeded here in Finland well, so almost 70% of the population has got their first shot. And the authorities have increased, they estimate what is the sufficient vaccination level. Previously they estimated that 70% is enough. Now the estimates are that the level should be somewhere between 80 and 90 percent. As estimated, the students are the first movers, so many universities here in Finland have informed that they are going to increase the portion of in-person studies, and that has a clear impact for demand. What comes to the service sector, so there's a message from service companies that there's a shortage of workforce there. So we think that that actually tells two stories. One is that there's growing demand towards services, so people are willing to spend more money for services. And those people who lost their jobs and moved outside Helsinki region used to work for non-service sector has not really returned in a big scale yet. So this remains to be seen when this really happened. Most likely the restrictions will be removed and on back of sufficient vaccination level and that this of course helped but it has slightly postponed. It's good to note that in July and first half of August, we have made more new lease agreements than we made last year during July and August. Tenant turnover slightly elevated. We have noted that especially people under the age of 25 and one-parent families are rotating. pretty much explains the elevated tenant turnover. Rent receivables flat, so only 1.3% of total revenue. Page 16, our like-for-like rental income. So on the positive side, rent increases and increases water charges we've been increasing the rents pretty much in a normal manner contributing 2.1 percent for for like for like rental growth and the the occupancy rate has a impact for a negative impact for like for like rental growth so negative 1.7 percent but 0.2% other impacts, so it's a portion of several small items, slightly lower capacity. We have some commercial space, so in those spaces sauna fees and car parking fees. Now saunas are open and people are traveling more, so that means that We've seen that sauna fees and car parking fees are increasing. So in total, like for like rental income growth, positive 0.2%. Page 17, gross investments, by far the biggest portion is our development investments, almost 169 million euros, modernization investments, 4.2%. 9 million euros and capitalized borrowing cost 2.8 million euros. Modernization investment and repairs, so repairs flat and modernization investments done by 5.7 million euros mainly due to the timing of some projects. So, in the corresponding period, we had a couple of larger projects, and during H1 this year, we haven't started a bigger organization project. In total, of course, we keep our properties in good condition as earlier. Page 18, fair value of investment properties, so main drivers of course are investments and changing fair value of investment properties, as mentioned. Number of apartments by valuation class, so this 2180... includes 2123 apartments where we still have restrictions regarding the valuation and those restrictions will gradually end by 2024 and contribute uplifted values between 140 and 160 million euros in total. Page 19, shown left-hand side column, apartments and the construction, 2,793 apartments, a little more than 400 million euros already invested, and a little more than 2,050 million euros to be invested in order to complete these ongoing developments. In the mid-column, finding lease agreements, binding agreements at construction companies apartments 829 and the investment cost there will be 171 million euros and then metropolia case providing us roughly 1000 apartments and others so really land bank poor land and plots and existing building providing roughly 1400 apartments We estimate that investments in development project this year is going to be between 370 and 420 million euros. And it's good to note that all these projects are located in Helsinki region. Page 20, our equity ratio and loan-to-value figures strong and well in line with our strategy targets to have equity ratio above 40 and loan-to-value below 50. Page 21, EPRA NRV growth 18.1%, so 1.86 euros per share. Page 22, we have strong financial key figures, so average interest rate, fixed interest rate period and average loan maturity slightly increased, 4.7 and 4.6 years, and average interest rate down to 1.8. 62% of total loan portfolio of 3 billion euros already from bond market, a hedging ratio at the end of H1 92% and we are quite cash rich, so 435 million euros cash and cash equivalents and financial assets. Credit lines 300 million euros committed unused. In May we issued our inaugural green bond, AGS maturity 350 million euros, carrying a coupon of 0.875 and the proceedings from that green bond will be used for to finance and or refinance so-called next to zero energy buildings. Page 23, our strategy KPIs, couple notes there. So, the FFO against total revenue 35.6. It's good to note that because of the IFRIC 21, the whole year's property taxes are included or booked in Q1. and the portion of Q3 and Q4 is 5.5 million euros, and if you calculate those into this equation, so the FFO against total revenue would be 38.4. Net promoter score 22. It's quite an interesting situation actually, because all our customer satisfaction KPIs have improved, but the recommendation part of the question has just came down. And we have looked at this figure and what might be the reason behind this decline. and we think that the reason is simply COVID-19. So people are spending more time in their apartments and they are sick and tired for COVID-19 and that is reflected in this recommendation part. And we noted that this actually goes for all industries internationally. So, whether it's hotel, airline, car rental or whatever industry, net promoter scores seem to have come down during COVID-19. It's funny actually that this has been the case even for those industries that for services people are not able to use because of COVID-19, and their recommendation figures came down. But that's how it is. So we think that it's important to keep up our work, and after the COVID-19 this figure will be improving. Page 25, our outlook slightly specified. So now we estimate that the top line growth will be between 2 and 4%. And this specification of top line reflects the uncertainties related to fourth phase of COVID-19 and especially Delta variant. And as mentioned, so the authorities have increased, they estimate what is the sufficient vaccination level, previously they estimated that 70% is enough, now they estimate that the sufficient vaccination level is somewhere between 80 and 90, and of course to remove all remaining restrictions regarding COVID-19 requires that vaccination level will be sufficient and we still estimate that on back of this sufficient vaccination level and the migration will gradually be there again and the first sign of that is already visible for the amount of new lease agreements made in during July and first half of August so the student has already started to make lease agreements and some increases in other part of the market as So the specification is related to the slightly postponed recovery from COVID-19. And we specified our FFO guidance as well. So now we estimate that the FFO will be between 150 and 158 million euros. And the biggest impact for H2, FF4 will be from the weather. So whether it's going to be cold or not cold, whether we are going to get snow in that early stage, that plays a role there, of course. Repair projects and the timing plays a role there for FF4 during H2 this year. And of course, total revenue growth plays a role there as well. We anticipated no additional financing to be made in the second half of this year, given the strong cash position of the company, and we estimate that SGA expenses is going to be the same level as last year. Page 26, no changes in dividend policy, so 60% FFO to be paid dividend, providing that equity ratio above 40%, and that is the case. And at this stage, I will hand it back to Jani.