Lumo Kodit Oyj

Good morning and welcome to Kojamo's half-year results news conference. My name is Niina Sairto. I'm Group Treasurer and Head of Investor Relations. Today's presenters are our CEO Jani Nieminen and CFO Erik Hjalt, who will tell you about the first six months' figures and events. After the presentation, we take questions first from this room, then from the conference call line, and finally from the chat. But now, I would like to hand over to Jani. Please go ahead.

Good morning, everybody. Nice to be here providing color on what's been going on here in Koyamo and in the Finnish residential market during H1 this year. But first, I would I just want to mention that the building on the left-hand side, in the picture, is Luma One Tower. Its first tenants actually moved last month, and today, even prior to completion, the occupancy is actually already above 90%, so it's been a huge success story. But moving forward, closer to half of your figures, In the big picture, I would say our H1 key figures are solid. We've been able to create profitable growth. We acquired almost 1,000 apartments, and our financial position is really strong. in the market as COVID-19 restrictions were lifted in March. Since that, we have seen the rental market improving towards the summer. That's kind of the big picture. Then moving closer to the operating environment. Of course, the continuation of Russia's attack towards Ukraine has had an impact. creating inflation, interest levels increasing, construction cost increases. Now what seems to be happening in the market is that a substantial decrease concerning new startups, especially non-subsidized block of flats, the estimated decrease is 29%. In my eyes, it may be even bigger one. the total amount of startup estimated officially 39,000 in this thinking includes only the decrease of non-subsidized block of flats, but I would assume that in the total market as well other parts of the construction business like social housing or one family homes, new startups will decrease, so housing volume startups in Finland will decrease. On the other hand, we have seen a significant construction cost increase in the industry at the moment in the way what the construction companies provide information. It seems that this cost increase is slowly leveling off. Rent levels are increasing back again in the whole market. Home price is still increasing this year. Now, of course, the latest information seems to be that home buyers are getting a lot more careful, and that may have an impact in the owner-occupied market, actually creating more demand towards the rental market. Then, inflation has been a big topic, and most probably will be a topic towards the rest of this year. Inflation level estimate here in Finland, 5.8. Actually, in my eyes, it's good to know that for us in Koyamo, the inflation impact, the cost increase, if you think about maintenance cost, H1 this year, the increase was 1.9%, if you calculated Euros per square meter per month. So, not the whole inflation impact is coming to our figures. We are able to optimize our doings, and on the other hand, buildings use energy and need cleaning and maintenance repairs, but they don't need. They don't buy grocery. In the market otherwise, actually, a couple of large portfolio deals being made during the summer, both around 2000 apartments, so it seems that there's a lot of interest towards the Finnish resi market still. Yield seems to be in a normal level, no impacts there because of the market situation. Of course, we have seen a couple of portfolio deals postponed or taken away from the market. On the other hand, we know that a couple of new portfolios are entering the market. We released information prior that we are considering a possible disposal. No decisions being yet made other than that we decided to postpone this project because of the uncertainty related to Ukrainian situation, NATO discussion, raising interest levels. So in that sense, we saw the market Atmosphere a bit cloudy and at the end of the day as we've been saying we don't have to sell that portfolio We are happy to enjoy the net rental income Moving a bit forward An important aspect is that we do still believe that all the mega trends creating long-term and need for new rental apartments are still valid. So urbanization will continue. A number of small households in Finland seems to be still growing. Values towards ownership have been changing. People seem to be choosing easy and effortless living in rental apartments. not that anxious anymore to take the housing loans. And as the table on the right-hand side, the bottom corner shows, actually in all the big cities, the number of households living in rental apartments is still increasing on an annual basis. Towards the summer, as I said, we have seen the improvement of the rental market. Actually, one factor is that It seems that there was uncertainty related to COVID-19 and the restrictions as they were taken away in March, whether new restrictions would be entering. We have seen an increasing number of new job opportunities in Helsinki region. People being a bit careful in order to move towards Helsinki, actually queue to This year, net migration in Helsinki was again positive. Students are active in moving into university cities. Now an age group between 25-35 people, an increasing number of new tenant agreements actually means that people are coming to capital region in order to start working. Our renting, even though it's in a way not an H1 figure, I have to say that actually we did make a new record concerning new tenant agreements this July, and August seems quite strong, providing a lot of new tenant agreements. And of course, that way it will have a positive impact towards the occupancy as towards the end of H1, tenant turnover has been decreasing. In the operational environment, of course, as I said, we estimate that there's a substantial decrease concerning new startups. Aspects behind that are increasing construction costs, home buyers' intentions to buy apartments are decreasing, and of course, housing loan interest levels are increasing. that's creating a bit of a challenge situation for construction companies to provide build-to-sell projects. At the same time, it's good to keep in mind that all Koyama projects are turnkey projects, fixed price projects, so all projects are proceeding in a normal manner. remains to be seen what's the situation later this year as construction companies been saying that the constant increases seems to be leveling off. And so mainly the impact of Ukrainian situation. Digging into the Half-year figures, as I said, strong figures, solid performance, providing profitable growth. Total revenue increased 3.1%. We've been quite consistent with our strategy, increasing rents in a normal manner, as we have seen the COVID-19 situation is a temporary thing. Of course, there's been an impact in occupancy, providing a moderate like-for-like growth. So basically the total revenue growth has been coming in by a high level of investment. So buildings completed last year and during this year. A strong performance in net rental income, improvement compared to last year, 4%. Of course, if you look inside the maintenance, there was an increase of 2.7 million euros. Biggest couple of aspects there, increase in electricity, 0.9 million euros, increase in property taxes, 0.7 million euros, mainly because we just own more buildings. And then some savings concerning repairs. FFO growing strong, 2.7% increase there against the comparison year. Of course, a positive thing there is the net rental income improvement. On the other hand, there's an impact because of financing and the actual green bond we launched at the end of Q1. So as we have more debt, that had an impact on On the other hand, I would say that was a good thing to do during Q1. We were cash rich, and actually the interest levels are in a good level in Kojama. Fair value of investment properties at the moment, 8.7 million euros. we are investing a lot, there's been a positive development concerning fair values, and as I said, investing a lot, cross investments during H1, 338 million euros, would say in a big ballpark around 130 million euros, new development projects, close to 200 million acquisitions, and then roughly 10 million euros modernization investments. Profit excluding changes in fair value improved by 2.7%, being 82.7 million euros, so a good solid performance there, and then profit before taxes 157.8 million euros there. It's good to keep in mind that this year, the impact of changes in fair values of investment properties. There was a positive impact, 75 million euros, mainly because of the strong development gain we are receiving as we are completing apartments. But there, on the other hand, we have to keep in mind that a year ago, the corresponding number was 446 million euros, and there was, yields were going a bit down. But in the big picture, solid figures, good performance. As we've been saying, for us it's important that we are able to grow by using multiple sources. We've been quite careful what to buy concerning existing portfolios. We were able to find a portfolio matching our parameters. good micro locations, quality new apartments. We bought a portfolio of 942 apartments in June. There's been some questions concerning the transaction price. In a big picture, I would say that well below 200 million euros. We don't have any revenues in H1 figures. We did do the acquisition during H1, but actually, revenues are generated from the beginning of July, and it seems that occupancy-wise, we've been having quite a good start. And towards looking in the future, the stabilized yield is 3.8-ish. Being able to use multiple sources in order to grow is a way to optimise the growth, so now we were able to buy close to 1,000 units. On the other hand, we still have more than 2,200 apartments under construction, mainly in Helsinki region. This year has been quite active in order with the completion, so close to 1,800 apartments were completed. We are helping people to move towards the big cities, providing new homes. We've been consistent with our strategy. All our projects have a high quality micro location, close to public transportation services. All the projects are turnkey projects with a fixed pricing, actually meaning that the development gains are around 30%, so providing good good impact to our fair values looking forward. In a market, LUMO operates in a way that we really want to provide easily best living. So it's a combination of providing apartments, communal spaces and services. So strategy is to provide added value for the customer. Some of the services are included in the monthly rent. Some of the services tenants pay as they use them. So we don't aim to be the cheapest player in the market, only the best player in the market. Looking to the services, For example, the installation of dishwashers has been appreciated by the customers. There seems to be an increasing number of customers there. A couple of new services, carbon footprint test, is available in myLUMO, as well our tenants are able to buy carbon-free district heating using myLUMO application, so actually able to join the movement. Now, if Erik, you would go a bit deeper to our figures, please.

Thank you, Jani, and good morning, everybody, from my side as well. So, base 13, our total revenue growth was 6 million euros, slash 3.1%, and the like-for-like growth was negative 0.4%. We've been increasing the rents and water charges in a normal manner, so that contributed positive 2.2% occupancy rate, negative figure there, 2.7%, and others, 0.1%. So, the growth was mainly generated by the growth of the property portfolio. So, during H1 this year, we completed 784 apartments, and in H2 last year, 841 apartments. So, of course, that generates growth for Topline, as Jani mentioned. The portfolio acquisition didn't contribute any cash flows during H1. It started to contribute for the top line growth 1st of July. So, net rental income growth was 5 million euros, plus 4% maintenance expenses, up by 2.7 million euros. Electricity, biggest factor there, so up by 0.9 million euros. property taxes 0.7 million euros, heating 0.2 million euros, and all other items were pretty much in line with the corresponding period. So, what comes to the heating, of course, heating expenses as such has been increasing, but given the fact that the weather, so the milder winter this year, offsets the increases in prices. Repairs decreased by 1.6 million euros. So FFO, if you first look profit before taxes, so excluding change in values, there was an increase there. If you look at the change in value part of the equation, so yield requirements were kept unchanged and we increased our assumptions related to inflation, rent increases and expenses increases 30 basis points. to somehow reflect the change in the inflation environment. Of course, this valuation is based on 10 years' cash flow calculations, so it's inflation for 10 years and not the inflation figures today. During Q2, we had one property where the restrictions ended, contributed roughly 4% of the change in fair value, so almost all positive change in fair value of investment properties was due to the completed developments or development gains. And then all these developments on average, the development gain has been north of 33.0%. FFO increased by 1.9 million euros. So net rental income contributed 5 million euros, as mentioned, SG expenses up by 0.7 million euros, no big changes there. Finance expenses up by 2.2 million euros, because of the big loan portfolio, what we currently have. Cash tax is flat, so 9.1 million euros, as in during the corresponding period. So COVID-19 have had an impact for our occupancy rate. The rate came down 0.4, Of course, it's not on a satisfactory level, but nevertheless, we think that the impact is temporary and related to COVID-19. Now we have seen actually several positive signs. One is that restrictions regarding COVID-19 has been removed in Finland, March this year. And we have seen since people starting to move towards Helsinki region especially, So the total population in Helsinki region now is increasing according to statistics. We've seen students starting to be active and some tourists are here as well. So all these are of course positive signs and according to our estimates that how we are going to come out of this restriction, one is that students will be the first movers, then people start to move towards the Helsinki region where there are a lot of working opportunities, and then tourists will return to Finland. That part we have already seen. Other positive sign is there that our tenant turnover came down by 1.3 percentage point, and most of that, almost all of that positive change there was during the Q2, so back of ending restrictions. And then tenancy agreements completed in July and August. So, also clear improvement compared to the previous years. So, they're clearly positive signs now in this occupancy rate thing. I think we covered already the slide for like rental growth. So, investments 338.4 million euros. As Jani mentioned, the acquisition of this, sustainable portfolio included in these figures, and it started to generate cash flows for us in 1st of July. And then other part of these investments, of course, were developments, both completed and ongoing developments. Modernization investments, 7 million euros. Modernization investments, slightly up 2.1 million euros and repairs decreased 1.6 million euros. Investment properties 8.7 billion euros and of course biggest contributors acquisition, ongoing developments as well as positive change in fair value on investment properties We still have a little more than 1,800 apartments where we have restrictions regarding valuation, and those restrictions will graduate by 2024, and we are going to get a uplift of 110 to 130 million euros when these restrictions ends. We start to just apply different valuation techniques, so we are not aiming to dispose those, maybe just start to apply different valuation method there. and the uplift in values is somewhat back-weighted. Then if you look euro-wise, our ongoing developments as well as the land bank, so these 2,230 apartments under construction, 331 million euros already invested and 232 million euros to be invested in order to complete these ongoing developments. And binding agreements, a little more than 100 million euros to be invested, fixed price there as well, as in these ongoing developments. And under these binding agreements, we have apartments, 363 apartments. We estimate that the development investments this year is going to be between 280 and 330 million euros. 94% of all this in Helsinki region. So actually we have one project in Turku and one project in Tampere ongoing, and all others are located here in Helsinki region. We have fixed prices as mentioned in this, by the agreements as well on these apartments and the construction. Net initial yield 4% still, and we estimate that the development gain is going to be north of 30%. Equity ratio, loan-to-value, we have strong figures there. So, the target is to have equity ratio above 40% and loan-to-value below 50%, and we have quite sizable buffer against these levels. The increase in loan-to-value after Q1, nothing exciting there. So, actually, we made this Eurobond during Q1, and that was included in the net debt calculation, and this portfolio acquisition was paid as cash, so that plays a role in the net debt calculation, so nothing exciting there. Epriner V, 22.29, the growth from the corresponding period, 16.9%. Our financial key figures are very strong. And here it's good to note when you compare our figures to many other players in Europe, especially in Sweden. So we have strong balance sheet figures. We have high hedging ratio, 91%. Actually, our average cost of financing decreased during Q2 down to 1.7. We still have quite sizable cash positions or cash and cash equivalents and financial assets total 240 million euros we have credit lines 300 million euros committed unused and commercial paper program 250 million euros outstanding commercial papers 65 million euros and our average maturity in our loan portfolio and as well as our fixed interest rate period close to four years and no major maturities in in next 12 months or so Our strategic targets, top line growth, 3.1%. H1 investments, 338 million euros, so growth is there. FFO against total revenue, 35.7. There is a good to keep in mind that because of IFRIC 21, the whole year's property tax is already included in our figures during Q1, and if we adjust the FFO against total revenue by the H1 portion of property taxes, so 5.85 million euros, so that means roughly three percentage points improvement in FFO, so that means that FFO constant total revenue will be improving going forward this year. Loan-to-value equity ratio already discussed. and net promoter score 43, and there now we include the digital NPS as well. Our outlook this year specified, so now we estimate that the total revenue increase will be between four and six percent, and we estimate that the FFO is going to be between 155 and 165 million euros. If you look what might take us towards the higher end of this top line growth range, so that requires that we are increasing the rents in normal manner between 2.1-2.5%. That's what we've been doing so far, and that's our aim to achieve second half of this year as well, and some improvement in the occupancy. Then, of course, completed apartments, those ones that are completed, especially Q2 and Q3 will be contributed for the top line growth. And then this portfolio acquisition that already we discussed. And what assumptions we have for FFO guidance, so if we take the midpoint of the guidance, so that reflects our specified top line, outlook and we have a couple of assumptions there. One is that normal weather during H2, because the weather plays a role for maintenance cost and current inflation figures included in our assumptions as well in the midpoint on FFO guidance. Dividend policy, no changes there. So 60% of FFO providing that the equity ratio above 40%, and that is clearly the case today. So, at this stage, back to Jani. Thank you, Erik.