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.