Lumo Kodit Oyj

Good morning and welcome to Koyamos Q3 results news conference. My name is Niina Sarkto. I'm responsible for investor relations. Today we have CEO Jani Nieminen and CFO Erik Hjalt, who will present the third quarter's result. And after their presentation, as before, we have a Q&A. We start taking questions from the conference call line, and then thereafter we take chat questions. But now let's get started. I would like to invite Jani over here. Welcome.

Thank you, Niina. Good morning, everybody. Nice to be here once again providing information and color concerning our operations. To start by... I think this time it's good to provide some kind of summary first and then dig a bit deeper into the numbers. It's easy to say that our Q3 figures are solid and our position is actually really strong in an uncertain market. We've been creating profitable growth, and as the rental market turned positive during the summer, as we estimated, it had a positive impact as well in the occupancy during Q3 in our figures. Our financial position is strong, and it actually protects us against the impacts of changes in a financial market. So for example, the average cost of debt has been quite steady because of the high hedging ratio we use. So as our financing expenses are quite well hedged, these expenses will not increase in line with the market's interest increases. For the time being, we want to focus actually to ensure our strong position, and we will not make any new investments. Of course, we are scanning and analyzing the market very actively, And if we find something appealing enough, we are ready, willing and able to move fast. I do believe that construction companies will have challenges in order to start new build to sell projects. Homebuyers are getting more and more careful and actually construction volumes looking forward next 18 months will come to a lower level. Then moving forward to the operational environment. Yes, visibility is limited. Global economy has been clouded. Financial market has been different because of the inflation, war in Ukraine. Inflation figures are quite high. At the same time, it's good to keep in mind that here in Koyamo, the general inflation doesn't have a straight impact, as inflation figures here have been now estimated to be 6.5. Actually, our maintenance increase was 2.46, if we compare euros per square meter per month. So, as a strong big player, we are able to offset quite actually many parts of the inflation. On the other hand, so far, actually the employment rate here in Finland has continued to increase, so that helps us a lot. Looking at the volumes, we collect the official estimates concerning residential startups. They are now roughly 40 000 apartments here in Finland for this year. We don't believe that those numbers are reached this year. We already said that information a couple of times this year, and it remains to be seen, but Most likely the figures, for example, non-subsidized block of flats will be below 20,000 apartments this year, and the figures next year are lower than expected. On the cost side, actually, construction cost increases seem to be leveling off. but on the other hand as construction companies are a bit struggling in order with the build to sell projects they would still like to have the prices of the cost increases with their product and now the market is in that sense a bit struggling home price is still increasing modest increases there as well the rent levels throughout the country then moving Forward, for us it's important that actually all the megatrends creating long-term demand for rental apartments are still solid. Actually, picking up a couple of Figures here now, the latest statistics are in use for 2021, on the lower right-hand corner, providing the information of households living in rental apartments, and actually throughout all the big cities, the number of households living in rental apartments or the portion of households living in rental apartments has been increasing once again, and that's expected to continue. On the other hand, People have been wondering what's going to happen here in Finland after COVID-19. And now the latest estimates concerning population forecasts have been provided in September and actually the population forecast, the estimates were increased in all the major parts of Finland where Koyama operates, so the big cities like Helsinki, Oulu, Turku, Tampere, Jyväskylä, and in general capital region. So in that sense, the outlook and megatrend creating demand is really solid. And yes, we do have still an increasing number of small households, one- and two-person households, and that typically means that they prefer living in rental apartments. As said, for five years here in Finland, the construction volumes have been on the higher level, well above 40,000 apartments a year, Without COVID-19 kicking in, that wouldn't have been a problem, but as COVID-19 kicked in the market, that created a temporary setback concerning urbanization and some challenges in the rental market. On the other hand, at the moment, construction volumes are coming down and I would assume that we are next year on the levels, matching the prior levels between 2015 and 16, so somewhere 33-36,000 apartments a year will be the startups next year. Moving forward to our figures, as said, we did make a solid performance, our numbers are strong, we created profitable growth, seems actually a bit stronger numbers than expected by others, our total revenue increased by 4.6%, Net rental income increased 5.5% and funds from the operations increased 4.8%. A couple of details from there. If we think about the net rental income, and a strong increase there. On the other hand, yes, there were increases concerning maintenance. A total maintenance increase was 4.4 million euros. A couple of details there. Most impacts creating cost increases were electricity and property taxes. On the other hand, we were able to create some savings concerning repairs. Fair value of investment properties today, 8.9 billion euros. Of course we've been creating growth by investing in new homes, in new buildings, that's visible there. Cross-investments 416.5 million. Actually now this year quite a nice balance there. In a big picture half of the cross-investments are new development projects and half of the investments are acquisitions this year. Profit excluding changes in fair value, 137.7 million euros, there the increase was 4.4%, and then profit before taxes, including the positive changes in fair values of investment properties, 248 1.6 million euros, a really good strong number there. And then it's on the other hand good to keep in mind that this year the positive impacts in fair values have been mostly development gains as we are completing projects. Last year there was a bigger positive impact because of changes in those profit requirements. We still have more than 2,000 apartments under construction. All the projects are proceeding in a normal manner. They are fixed price projects, turnkey projects, no problems there. It's been quite an active year. We've been completing 1100 apartments to the rental market. We've been quite successful there with new buildings. And as said, now for time being, we are not investing in new projects. But on the other hand, we know that the existing project pipeline is still quite strong, creating growth for us. our projects are located in excellent micro locations, development gains are actually quite strong, roughly 30% that either you can think creates added value as a positive impact in fair values, on the other hand, if something would change in the market, that creates protection for Koyamo. As said, this year completed already 1,100 apartments, still a bit more than 100 apartments to be completed this year. Next year, a bit more than 1,500 apartments to be completed in Helsinki region mainly. Yes, we do have one project under construction in Tampere and one in Turku as well. A couple of words concerning LUMO 1, the tallest rental apartment building in Finland. I would say that LUMO 1 is a unique case here in Finland, providing exceptional added value for our customers, combining apartments, common spaces and services in a very unique way. All the apartments have been completed now. customers have been moving in the building, and actually, the occupancy has been high from the start, and... An important factor is that it seems that our customers are really satisfied with this type of living. Building on top of a shopping center, basically on top of a subway line, providing a unique opportunity to use urban living services, services nearby you. And I would say that LumaOne is in a way a top example, how we create actually easily best living for our customers. Our approach is not providing only walls, ceilings and floors, but combining apartments, communal spaces, services provided physically, services provided digitally, additional services to apartments, and that way creating added value for our customers. I would call it easy, effortless living. Now, if Erik would provide a bit more detailed color. Thank you.

Thank you, Jani, and good morning everybody from my side as well. It's great to be discussing our solid figures, and if we start with the total revenue, net rental income, so the total revenue growth year to date, 13.4 million euros and 7.3 million euros during the Q3. Our like-for-like growth slightly improved, but still a negative territory, 0.1%. Rent increases and water charges increases, a positive figure, 2.2%, and the occupancy rate negative, 2.4. I come to these occupancy rate figures later. and other items 0.1%. So, the growth mainly came from the growing property portfolio. So, we acquired almost 1,000 apartments during the summer, and we have completed 1,100 apartments year-to-date, and then, of course, due for last year, completed almost 500 apartments, and these are now contributing for the top-line growth. Net rental income growth was actually stronger than top line growth, 5.5% growth was 10.9 million euros and Q3 6 million euros. Maintenance expenses year to date up 4.4 million euros and there of course it's good to know that the underlying portfolio grew during the year. Biggest items that grow during the year to date electricity 1.4 million euros, property taxes 0.7 million euros, heating 0.5 million euros. Other lines pretty much in line to the corresponding period. Of course, inflation is an important figure, but if we look at our maintenance expenses, so euro per square meter per month, the growth was less than 2.5%, and so that's a more important figure in our cost side than the inflation figures as such. Repairs down 1.9 million euros. If you look at the change in fair value in investment properties, we kept all valuation parameters unchanged. And the reason there is pretty simple. So there's no transactions in the market completed during Q3. So the latest portfolio transaction we saw in the market late summer, they were still made in quite high prices and since there are no reference transactions in the market, so we kept the valuation parameters unchanged. So the positive impact for valuation 35.8 million euros during Q3 was mainly due to the development gains, so 95% of that actually out of development. Only one property came out of the ending restrictions, so that covers the remaining part of the change in fair value investment properties. FFO up by 5.5 million euros, of course, net rental income contributed there. SGA expenses up by 2.3 million euros from corresponding period. And then last year, actually, we got some savings because of the COVID-19. And if you look, the previous year 2020 SGA expenses, so we are pretty much in line with those figures. Finance expense is up by 2.3 million euros, because loan portfolio underlying, and then cash tax is up by 0.4 million euros. Of occupancy rate, 91.7% and at the end of H1, it was 91.5%, so improvement there. It's good to note that this is actually a year-to-date figure, and to get a 0.2% improvement in year-to-date figure, that means, if you do the math, that during Q3 the occupancy rate must have been 100 basis spots higher than in Q2. And then in CEO's comments, the spot occupancy rate at the end of September was almost 93. So these actually are the figures behind the headline here that the occupancy rate improved in third quarter. At the same time, the tenant turnover came down 1.8%. I think we already covered this like-for-like rental question. So, investments, €416 million. Acquisition or investment properties for this portfolio acquisition during the summer and our ongoing developments covers mostly that, €404 million. Monetization investments. grew 9.6%, so repairs down 1.9 million euros, and monetization investments up by 4.9 million euros. Value of investment properties almost 8.9 million euros, acquisitions covered 404 million euros, as already mentioned, and profit on fair value investment properties 110 million euros year to date. We still have 1,774 apartments where we have restrictions regarding the valuation, and those valuations will gradually end by 2024, providing €10-20 million uplift in values. And that's back-weighted, the ending restrictions. Apartments under construction, 2012 apartments, a little more than 300 million euros already invested, 192 million euros to be invested in order to complete these ongoing developments. We estimate that the investments in developments project this year will amount to 270 to 300 million euros. The total amount is slightly down because one project was postponed and so pretty much intact compared to H1. And as Jani mentioned, For the time being, we will not make any new investment decisions. It's slightly foggy there, so we want to monitor the market and get clearer picture where the market is heading. We are ready when the opportunities come, and we are able to acquire or start new developments when we find suitable projects, but at the time being we will not make any new investment decisions. Equity ratio, loan-to-value, strong figures there. Our loan-to-value below 40, and that's very strong, and that gives a significant buffer against our PAA2 stable outlook rating from Moody's. And we have set the target to have the loan-to-value below 50 and equity ratio above 40, and our current rating is pretty much anchored into these levels. So we have a solid, strong balance sheet, and of course, if you look out in the market, it is good to have buffers against these levels. Persea figures, EPRA NRV very strong, 22.63 and a healthy growth there as well. It's very important for us and for investors, of course, that our financial key figures are very strong. So thanks to our very high hedging ratio, 92%, the rising interest rate didn't increase our financial cost, actually 1.7, the average cost of financing, including cost of derivatives. And actually, during the summer, it came slightly down from 1.8. And we don't have any material new financing needs in the short term. And our cash position is very strong, so cash and cash equivalents and finance assets in total 161 million euros. On top of that we have 300 million euros committed unused credit lines in place. And after the reporting period, we make a new 100 million euros loan unsecured with OB Bank six years maturity. So it's on top of these figures. So our gas position is very strong and no material refinancing needs in short term. And of course, that means that having a high hedging ratio and strong gas position and no maturing loans in the short term, that means that what has happened in the interesting environment doesn't have any impact in our figures, given our position. It's not a coincidence where we are right now. So this has been the strategy of the company for a very long time already. strategy targets, our KPIs, Actual year-to-date in line with our strategic targets, top line growth, 4.6% annual investments, a little more than 400 million euros. Profitability is there, FFO against total revenue, more than 39%. And of course, the whole year's property tax is already booked in in Q1, so that is going to have a positive impact going forward as well. And then loan-to-value and equity ratio, strong figures there, net promoter score 44. So the customer interface, we are satisfied with that figure to be in line with our target. outlook we have slightly specified our outlook remaining part of this year so top line growth now we estimate that is going to be between five and six percent and then that assumptions there are that that we estimated like follow growth uh wise uh the the increase in in uh rents and water charges more than two percent, of course remaining part of the year is quite short. Slight improvement in occupancy, we know the amount of completed apartments and of course this impact of the acquisition during the summers, they are all included in this slightly specified top line growth. And now we estimate that FFO is going to be between 156 and 164 million euros. And that, of course, reflects the specified top line growth estimate and the main factor for for the remaining part of the year is what is the weather going to be like. So, if it's going to be very cold and a lot of snow, of course, that will increase the cost, but otherwise all cost increases are included already in the specified FFO guidance. Dividend policy unchanged, so 60% of the FFO provided that the group security ratio is 40% or above 40%. And now back to Jani.

Thank you, Erik. In a way to summarize, QEM has been for a long time a company with a strategy, and we've been proceeding quite systematically our things. And now figures are solid, stable development continued. There was a total revenue growth and as Eric provided color, actually the net rental income growth was stronger. and FFO increased as well. The situation in the rental market, we expected that to improve by the summer. It seems that after COVID-19, it took a bit longer. for example, here in capital region, before people started moving towards the biggest cities and towards Helsinki region. For example, students started renting the apartments in the middle of July. Typically that starts happening third week of June. But as things started happening, according to our estimates, July was good. August was good, September was good in the number of new tenant agreements. On the other hand, if we combine the estimates now that the number of new startups in a construction business are coming down for this year and next year, that actually means that starting 2024, less new supply is coming to the market and that creates a situation where we do see urbanization continuing people moving towards the biggest cities on the other hand a bit less new supply coming towards to the market so that provides actually quite a positive outlook if we look a bit further for rental market. On the other hand, as I said, we've been quite systematic with our strategy, whether it's operational business, whether it's investing or financing. In financing for us, it's been important that we have access to multiple sources of financing. We've been quite systematic in keeping the hedging ratio in a higher level, And now we are really happy that our balance sheet is strong. We still have access for different sources of financing. And as the hedging ratio is high, there are no impacts in our interest levels so far. And looking forward, as Erik provided color, no near-time big financial needs. At this point, I would like to thank you and let's move to Q&A.

Thank you, Jani, and thank you, Erik, for the presentation. We are now ready to take questions from the conference call line first.

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Please state your name and company. Please go ahead.

Good morning, Svante Krokfoss from Nordea. Hope you can hear me.

Yeah.

Great. Quite a solid result, and good to hear that the occupancy rate is improving again, close to 93%. Obviously, we can try to estimate what it is as a spot every quarter, but how low was the, let's say, spot rate at the lowest?

during this year. We've been not publishing spot levels, but as you mentioned, and thanks for the questions, Vante, you are able to calculate and get it to the right ballpark. We did say that we hit the bottom during the summer.

Thanks. I mean, looking at your valuation metrics, you... It can provide a bit of additional color there.

So, if you do the math, so based on our year-to-date figures, so you can calculate that Q3 occupancy rate was 92.1. And there was an improvement from Q, obviously from Q2.

Thanks. In your valuation metrics, you have an assumption of roughly 97%. What kind of timeframe do you expect you to reach? I guess 97 is what you strive for in the long term.

Yeah, that is good to keep in mind that the occupancy level is one aspect, and that's for the next 10 years. That's a long target. On the other hand, there's been an adjustment in Helsinki region. So actually, all the apartments vacant are held vacant for the next 12 months. So it's handled in two aspects all the time.

Okay thanks and then on for example heating costs I mean 99% I guess is district heating we have seen some differences in the races there and you said that 0.5 million was the impact in Q3 but could you give some guidance of heating and perhaps other costs also I mean there has been some some discussion about the property tax also going up, but I guess that is only a bit more than 10 million annually, but could you give some color on the cost, especially heating?

Yes, we have this so-called district heating system here in Finland in place, and district heating is provided mostly by companies owned by municipalities, and each of them, they have their own pricing, depending how they produce the heat actually, and they have the different way of communicating the increases in their pricing. So some of these companies, they have sent their new pricing for next 12 months and some of companies next three or four months. So it's a mixed picture there. So what we know so far is that the highest increase is around 30% and the lowest is zero. So if you try to estimate what is the average increase in heating, it's around 15-15% next year. Weather plays a big role there, so whether it's mild weather or cold weather is going to play a role there. And the heating is somewhere between 25-27% of total maintenance costs. And since we have this system that we are able to increase the rents once a year, sending a letter to our customers and the rent increases, maximum rent increases index plus 5%. So there's not a direct link for the increased heating cost and the rents, but there is a mechanism in place that we are able to pass the cost increases to the tenants.

Thanks. Then on looking at repair expenses, they are down year on year, even if your property portfolio has grown quite significantly.

So could you elaborate a bit around that? Since there's different way to book things, for example, German beers, they capitalize all modernization investments, they capitalize all repairs, and they actually capitalize a big chunk of maintenance expenses as well. So it's good to look repairs and modernization investments together. And that's how we reported in our presentation. And that actually grew during the year to date. So we've been still taking care of our portfolio. Of course, a bigger portion of the portfolio is new or renovated properties. So there's less to do there, less money to be spent. But in general, we've still been taking care of the properties.

Thank you. And then regarding your your debt portfolio, what is the availability of funding in? We know what the credit market looks like, but I mean, you have a bond maturing next year, 200 million euros. What's your thought about that? I guess looking at that, you have increased your share of bond financing quite significantly. My assumption is that there will not be an issue in refinancing that with the bank debt if the credit market remains difficult.

For us it's always been important to have access for different sources of financing. So bond market and bank financing and local commercial paper market. And this 100 million euros bank loan we made with OPA that of course underlines the fact that we are able to get financing from the banks and the terms there was quite attractive. The thing is that actually we have this 160 million euros cash at the end of Q3. We made on top of that this 100 million euros loan and we have 300 million euros committed credit lines in place we have a commercial paper program and only 30 million euros outstanding commercial papers so based on all these facts so we don't anticipate any difficulties whatsoever to refinance finance maturing laws from banks or nobody knows actually where the bond market is after the summer 2023 but whatever the situation is there, we estimate that we are able to finance easily maturing loans from our maturing bonds from banks.

Thanks. And then you also said that you refrain from making new investments. Well, what needs to change before you pick up that again? Does it have more to do with the residential market or has it more to do with the credit market?

I would say it's a combination of uncertainty and the fogginess in the market. As I said, we've been estimating throughout this year that construction volumes will start coming down. Now we see that happening in the market. We see home buyers getting more and more careful and less new apartments sold for home buyers from build to sell projects. So far, steel construction companies would love to price their products according to the increase of the cost side. We do believe that with a bit of patience, we will see some better opportunities in the market. On the other hand, of course, we know that the price of new money at the moment has increased, if we would tap the market. And we see that the rental market has been improving a bit. Our pipeline at the moment, as said, providing a bit more than 2000 apartments is solid for 2022, 2023. We are in no rush to invest more at the moment. We are patient and we can wait a bit and look for a better opportunity.

And just the fact that you refrain from making new investments, are you still open to make opportunistic acquisitions? Or is that also on hold?

Always, if it's attractive enough. We were able to move quite fast once COVID-19 kicked in. It's good to keep in mind that we are ready and able when we are willing.

Thank you. Then the last question, I don't know if you want to answer it, but I guess you still have the authorization of a one Euro extra dividend. Is that still in place until the end of this year? Do you want to comment it in any way?

I think the decision is in place. No further comments on that.

Okay. Thank you. That's all from me.

Please state your name and company. Please go ahead.

Hi, this is Andres Tolme from Green Street Advisors. My first question is about the occupancy rate. Is it fair to assume that in Helsinki the spot occupancy is around 91% and also the sequential quarter over quarter increase has been around 100 basis points on the spot figure?

In total portfolio, the increase quarter from Q2 to Q3 was around 100 basis points. And the spot at the end of September, as mentioned in the CEO's report, was close to 93. But we haven't disclosed aerial occupancy rates spot.

Okay, and maybe you can perhaps give a bit of color in terms of leasing success after September, so in October.

How's that been? Thank you for the question. As I provided, Karloi, July was really strong, August was really strong, September was really strong, and as well, October seems to be quite a good one. So the market has been quite positive at the moment.

And then in terms of your capital allocation direction, it sounds a bit mixed in terms of just cutting back on development, perhaps a bit, but also being on the lookout for any sort of distressed opportunities in the market. How should we think about it in terms of where you're heading? Also looking at your sources uses for 2023, they seem okay because you do have quite a lot of Jone Peter Reistadler, Unutilized facilities, but there's also bigger that maturity coming in 2024 just looking at the share price as well, obviously the cost of capital would actually suggest that you should be selling not expanding at this stage.

Well, of course, all loans and bonds, they mature at some point. So if you look, yes, we have 2025 and 2026 maturing losses as well. So it's ongoing thing in this type of business, of course. For us, it's important and the thinking behind all this, these topics we've been discussing. The reason is that we want to be in a strong position whatever happens in interest rate environment and investment environment and we have strong buffers against whatever happens in the balance sheet side we don't anticipate any major changes there but we have buffers and we are in a strong cash position and that's exactly the place we want to be and in that regard we are totally different from many peer companies and we want to follow what happens in the market. In the long run of course we want to grow but this type of environment of course we want to be slightly cautious on the cautious side and look where the interests are actually heading and what opportunities that there will be in the market. So we want to be in a situation that we are able to make decisions and we are able to grab the opportunities in the market. So we are not that concerned what is going to happen in 2024 in the interstate environment. I'm old enough that I've been around in this business when the interest rates were quite high and inflation was quite high. And it's totally possible to do profitable real estate business even in that type of environment. Of course, the shift from the low interest rate environment to the higher interest rate environment may be painful for some players but given our position so of course if the new the cost of new debt is much much higher what it currently is that will gradually increase your average cost of financing but we have many years to offset that by increasing the rents and taking care of the cost side so our thinking is that we want to be in strong position we want to keep everything in control and we want to be our options open and yes 2024 I'm confident that we are able to refinance those maturing loans and then we have access for additional financing if we think that is the right time to do something and acquire something appealing.

Thank you. And in terms of the access to the credit market, can you give a bit of color on the facility you signed in October? What is the interest rate on that bank facility?

It's 100 million euros, six years maturity unsecured, and the margin there is below 2%.

Thank you. That's all from my side.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad.

The next question comes from John Vong from Kempen. Please go ahead.

Hi, good morning. Thank you for taking questions. To provide a bit more color on your value growth, I mean, yield requirements are up everywhere. Rental growth still screens a bit muted in Finland. So it feels a bit counterintuitive that values are up in your portfolio.

I couldn't actually hear, hi John, throughout the question. So it was a combination of the acquisitions and rental market, was it?

Oh, no, I'm sorry. It was about value growth. I mean, you reported positive value growth during this quarter, but looking at yield requirements everywhere, they're essentially up, looking at how other European property companies are reporting. And rental growth in Finland still screens a bit muted in residential, so it all feels a bit counterintuitive to me. that the values are up in your portfolio.

Okay, thank you. As mentioned, basically 95% of the value growth, so the positive impact in changes of fair value, came from development gains. If you have ongoing projects providing development gains north of 30%, once you complete them, they will have a positive impact. We've been making quite strong deals throughout last years compared to the market. That's basically the story there. And then we've been increasing the rents in a normal manner throughout last two years. So now the market is improving and occupancy is improving. That typically will have a positive impact put together.

Sure, but does that imply that also your like-for-like portfolio is essentially flat and not trending downwards?

Yeah, it's good to keep in mind that like-for-like is the last 12 months against the prior 12 months. So it's not providing an immediate impact. But looking forward, if positive things keep on changing, it will have a positive impact.

And what comes to the valuation parameters, of course it's very, very important to be consistent there. So when we discussed about and evidenced the yield compression in our portfolio and we communicated that very clearly that first we wanted to see evidence from the market that where the yields are heading. And then when there was enough evidence from the market, we made the changes in yields downwards at that time. So there's no evidence. So you need to follow that same pathway when times changes, so we don't know where the yet requirements are heading. So there's no evidence in the market so far. So we need to wait and see where they are heading, if they are changing. And the latest transaction we've seen in the market late summer, the pricing was still very, very high, according to our view. So it's important to be consistent with your parameters. And then As a general comment, of course, yield requirement is only one parameter in the valuation. There is top line growth and cost side as well. And if the interest rates are high and inflation is high, if especially if the weight inflation is going to be there so most likely in that type of environment the rent increases will be higher and that that is going to have a impact for values as well so it's a combination of all these things and again of course it's clear but it's good to keep in mind that valuation is based on 10 years cash flows discounted so you need to look at it with the long run. So this is the facts behind the thinking that we didn't change our valuation parameters. And of course, John Lang LaSalle being the external expert gave the report as well and they fully share our view that no change is required when there's no evidence from the market.

Okay, that's clear. So that also implies that you're expecting market rental growth to move towards CPI again in, say, the coming years, essentially.

I would say that as Erik said prior, yes, he is a bit older, but I've been around for a couple of years already as well, since mid-90s in resi business, doing this business with yield requirements well above 8%, with rent increases well above 8 or 9%. So I think in that sense, experience provides a bit wider view on things than a couple of months. We've been trying to be systematic and prudent throughout the years, whether it's financing, whether it's investments, whether it's yield requirements. In the long run, if interest levels inflates and keeps on a higher level, yes, that will mean higher rent increases as well.

Okay, that's good. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers.

Thank you. We do have some questions in the chat. I think most of these themes have been covered, more or less. But about the energy costs, can you comment how long the duration is for the electricity hedging?

So the next 12 months, pretty much 85% hedged. And for next 12 months, so after that, around 60% hedged.

Okay, clear. And maybe you could refresh, what is the expectation for Koyamo's own starts in 2023?

Own starts, meaning new development projects. We did have the figure, how many projects already started this year. I can't recall, 400 and... 37 apartments started this year already, and as I said, at the moment, for the time being, we are not making any new investment decisions. Most probably, it's only six, seven weeks left of this year. We will keep that situation. On the other hand, as said, we do have more than 2,000 apartments under construction, providing growth for this year, and we are completing more than 1,500 apartments next year. So that will provide growth as well.

Thanks. And final question is, How do you consider the importance of dividends versus lowering your debt?

Dividend policy is part of the board decision making. We've been happy with this dividend policy. It provides decent dividends for the shareholders and actually leaving 40% of the FFO inside the company to back up the growth. Our financial figures are really strong. We do have a significant buffer, whether it's loan-to-value or equity ratio. And on the other hand, loan maturities are still quite long and hedging ratio is high. And there's no major need for new financing. So we are in quite a secure spot there at the moment. So we don't feel that we are in a position that we should sell something or make changes in a dividend policy because of the balance sheet problem. We don't have one.

Okay, thank you and that was all. Thank you for the questions and thank you for joining us today. We will meet then next year and now I wish you a lovely autumn. Thank you, bye bye.