Lumo Kodit Oyj

Good morning, ladies and gentlemen, and welcome to Kojamo's full year results news conference. My name is Niina Sairto. I'm responsible for investor relations. Our CEO Jani Nieminen and CFO Erik Hjelt will shortly present last year's figures and also give outlook for this year. After their presentation, you will have a chance to ask questions. We will take first questions from the phone line and then from the chat. But now we can start. Jani, I would like to invite you over here.

Thank you, Nina. Good morning. I'll start by saying Always nice to be here providing some color concerning Koyama operations. Today, we start by providing a bit of color, what's been going on last year, what's the operational environment and what's the summary. In my eyes, then, Erik, as a CFO, will provide a bit more detailed color concerning financial development. Last year, I would say, A good starting point is that we actually had a really strong year with our strategic targets. All the key figures are really well in line with our strategic targets. Operationally, our numbers are solid and we created profitable growth. On the other hand, it's easy to say that 2022 can be seen from two standpoints. On the other hand, as COVID-19 restrictions were lifted, urbanization continued during the summer and that had a positive impact and a positive turn in the occupancy towards the year end. On the other hand, of course, Russian invasion to Ukraine has had a negative impact to the operational environment. inflation has been increasing, interest levels have been increasing, and that has been impacting the operation. As we've been saying, we have been stopping temporarily our new investments. On the other hand, this new environment had as well an impact on our valuation of investment properties. There is good to keep in mind that actually it's now based on environmental factors, not actual deals done in the market. In this environment it's been really a positive and important thing that our balance sheet is strong. we have been using all the time multiple sources for financing, our hedging ratio has been high and because of that the impact of interest levels increasing has been really limited. Then moving forward to the operational environment It is to say that the big outlook in the global economy at the moment is bleak and cloudy. Mild recession might come. On the other hand, here in Finland, It's good to keep in mind that on the other hand, we see a really low consumer confidence. On the other hand, still, the employment situation remains really good. And on the other hand, I would say it's good to keep in mind that typically, when consumer confidence goes down, it has a really quick impact to housing sales, so owner-occupied market, and sooner or later a positive impact towards rental homes and rental demand. If we look at the industry key figures, residential startups, there has been a rapid stopping in the market, they've been sharply going down, the number of new startups, still no exact figure from last year, but I would say clearly below 40,000 apartments have been started last year. Official estimate still for this year for residential startups, 36,000 apartments. I would say, I would be surprised if the first number will not be two. So, clearly below 30,000 apartments here in Finland will be started this year. And of course, that will have an impact towards the coming supply starting 2024. Construction increases, cost increases have been leveling off. Of course, there are some materials still increasing like concrete. On the other hand, sharply falling volume should and will impact this material cost and bring the construction cost down. But as we've been seeing in the market, Koyama is not investing in new construction cases and neither are the construction companies actually starting any build to sell projects. Operational environment, we've been saying all the time throughout COVID-19, that we see a temporary impact towards urbanization. Starting last year during the summer, we have seen that urbanization is continuing, and actually, according to the latest estimates, The biggest cities had a positive net migration. Actually, the top ten cities, which grew last year through net migration, were the places where Kojamo has rental apartments and where Kojamo invests, so capital region there. The biggest growing part of Finland, then Turku and Tampere as well. So megatrend is still valid, urbanization creating long-term demand in the market. On the other hand, we do see still an increasing number of small households, meaning one and two person households, and they tend to typically live in rental apartments. Even though they are not the latest statistic concerning 2022, it's been the same trend throughout the last 10 years, that the portion of households living in rental apartments have been increasing every year in the biggest cities, and it's good to keep in mind that even though people tend to think that Finland is owner-occupied home country, in cities like Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner-occupied homes. As I said, urbanization, talking about page seven, urbanization started to continue. I checked out the latest estimate from Statistics Finland, So the pure net migration in Helsinki, Vantaa, Espoo last year was 15,600 people. And so the population growth has been bigger. Residential startups volumes have been coming down and actually will decrease this year. And if we look at the chart on the bottom left hand corner, I tend to believe that we are going 10 years back in the time, meaning the volumes of 2013 or 2014, and that will have an impact in the residential market starting 2024. A really limited new supply coming to the market, starting 2024, and that will of course create the possibility to increase the rents as the demand is growing and the supply is going down sharply in the market. Homebuyers have been really careful. According to the marketing information, it's down 80%, so basically construction companies don't have the capability to start up any build-to-sell projects. Homebuyers are really careful. They either stay put in their current home, but now the interest levels are increasing, and on the other hand, in the owner-occupied buildings, the maintenance increases are facing the inhabitants during this spring, and that will create pressure in owner-occupied apartments. And in that sense, actually rental apartments are becoming more and more competitive, As I said, our operational key figures were strong. We were able to create total revenue growth by 5.5%, ending up to 413 million. That's a combination of three aspects. At the end of 2022, we were able to create positive like-for-like growth. We made an acquisition of 1,000 apartments roughly last year, and then, of course, we've been completing new apartments both last year and 2021, and apartments completed 2021 have been providing revenues the full year last year, and then, of course, close to 1,400 apartments completed last year created revenue growth. that provided a positive starting point for the net rental income, and the increase was 6.8%, so profitable growth. If we compare net rental margins, 2022 it was 67.8, as the comparison year was 67%. Some aspects there, of course, maintenance, cost increases there because of the electricity prices, the impact was 1.4 million euros, then heating 1.3 million euros increase, property taxes a bit more than half a million euros and then some cost savings concerning repairs. and then funds from operations we were able to increase by five percent of course we do have a slightly bigger loan portfolio for example there record high gross investments 501 million euros. It's a combination of new development projects that provided investments of 270 million euros, then quite a large acquisition after some years, we were able to find a portfolio matching our parameters, and then of course modernization investments. So these are the three topics there. fair value of investment properties now 8.2 billion euros. There of course a positive impact because of the gross investments of 500 million euros. On the other hand because of the inflation and interest level environment there was a yield requirement change in the valuation, and that created a negative impact of 682 million euros, and that's how we ended up with 8.2 billion euros. profit excluding changes in value, strong performance there, 182 million euros improvement by 5.2%, and then because of these changes in value of investment properties, profit before tax is now 500 billion euros negative this year, there is good to keep in mind that a year ago the comparison figure was 1.1 billion euros positive. We've been following the market and proceeding with our strategy really consistently throughout the years. We were able to find a portfolio matching our parameters last year. So we acquired 985 apartments and completed 1300 apartments. On the other hand, we already saw during the first part of the year, the change in operational environment. we're a bit more demanding with our parameters, and then as we move towards this autumn, we stopped making new investment decisions, and that's why we started 477 apartments last year, and today we have under construction 1800 apartments. Concerning those 1800 apartments under construction, it's good to keep in mind that we still have really good development gains. They vary between 15 and 20 percent as we complete those projects. All the projects are proceeding as planned. All the projects have fixed pricing and excellent micro locations. One project in Turku, one project in Tampere, and all the other projects located here in capital region. A couple of examples of buildings we've been completing and apartments we've been completing during Q4 last year. For example, Tenderinlenkki in Pasila close to Mall Tripla, brilliant project. Vantaan Pyhtäänkorventia close to airport, and then Ruukkupolku in Myyrmäki. For us, it's been all the time important that in our strategy, we want to be customer's number one choice. And we do believe in creating added value for our customers by combining apartments, common spaces and services, services provided digitally or physically. We've been providing new services now For example, our potential customers are helped by an AI-based apartment agent that helps you to find a new home, a Luma home, according to your parameters and your wishes. On the other hand, as we see this operational model and strategy really important, we made some changes in the management team and management team responsibilities. We combined a new task for Chief Experience Officer, taking care of customer experience, customer insight and data, so customer understanding, creating the concept of LUMO, and then combining that to marketing and communication. We will continue on creating new services for our customers and creating added value for our customers. And now as we move forward, Erik will join and provide more detailed color. Here is a good example of what Koyama can provide for our customers. A building in Annankatu 5, Building was originally built in 1885, totally renovated, 2021 completed. Sad to say that today no vacant apartments there, but the building is superb. Thank you.

Thank you, Jani, and good morning everybody from my side as well. So, page 14, our top line growth was 21.6 million euros, and the like-for-like rental growth turned positive. during Q4, so 0.3%. Rents and water charges increases contributed 2.2%. Positive figure, occupancy rate negative 1.9%, another 0.1%. Last year, we acquired this portfolio June, and that contributed 4 million euros for the top line. last year, so the growth in top line came through pretty much thanks to those completed apartments, so 2022 completed apartments and of course second half of 2021 completed apartments played a role there as well. Our net rental income growth was 17.8 million euros maintenance expenses up by 6.2% and made growing items there, as Jani already mentioned, electricity, heating, water and property taxes. If we look at maintenance expenses, euros per square meter per month, there the growth was 2.2%. So, the growing portfolio, of course, played a role there. And repairs were down 2.2 million euros. So, page 15, if we first look at the change in fair values, looking backwards, it's good to know that during 2018-2021, the profit in change in fair value on investment properties was 2.8 billion euros, and now the loss 682 million euros, so the net is still positive, more than 2.1 billion euros. In theory, the valuation should be made based on evidence from the market. In Finnish property market, there were no major transactions during Q4, and these adapted yields in the valuation is based on opinion of external valuator. And the yield expansion was point 3-4% and now the total portfolio yield is 3.97% and that of course should reflect the current market conditions. If you look profit before taxes, excluding change in fair values, it's good to note that on the finance expenses side, there was 5.4 million euros positive impact because of value changes. Then if you look FFO, up by 7.6 million euros. Net rental income, of course, the biggest contributor there, 17.8 million euros. SG expenses, up by 5.8 million euros. Financing expenses up by 4.6 million euros on FFO level, and then gas taxes down by 2.8 million euros. SG expenses, couple notes there. One is that, of course, when we compare the figures for 2021, there were some savings because of the COVID-19. Inflation plays a role there as well, and there we had some one-off items, if you like, so some external experts used for some transactions. Of course, there are some costs, We tested external sales forces that of course played a role there. And then we are renewing our ERP system and all this plays a role for SGA expenses last year. Finance expenses are up because of the PicoLoan portfolio, what we have in our balance sheet. Page 16, so financial occupancy rate for the whole year cumulative, 92% at the end of September. Year-to-day figure was 91.7. If you look only Q4, there the occupancy rate was already 93%. And tenant turnover came down by 2.2%, and that reflects on its side as well, the restrictions that ended last year. Like I think we already covered, so page 18, gross investments, 501.6 million euros. There, of course, the acquisition plays a role and those development process that we completed and that are still ongoing. If you look at modernization investments and repairs put together, the growth there is 8.3 million euros, repairs down 2.2 million euros, as already mentioned, and modernization investments up by 10.6 million euros. So we've been taking good care of all the properties that we have in our portfolio. For the time being, we will make no new investment decisions due to the uncertainty in the market. So we have a strong balance sheet. and we like to keep it that way. And all ongoing process will be completed as agreed, and they are proceeding according to our plans. Page 19, fair value investment properties. Of course, there's these investments on the positive side, and then the change in fair value on the negative side. On the right-hand side, we still have 1,680 apartments, where we have restrictions regarding the valuation, and those restrictions will gradually end by 2024, and the uplift in the value will be somewhere between 100 and 110 million euros. Page 20, if you look at these ongoing developments from the euro perspective, so 293 million euros already invested, and 168 million euros to be invested in order to complete these ongoing developments. In total, 1,804 apartments, and that includes 119 apartments under binding agreements. We estimate that the total investment in developments this year will be between 160 and 190 million euros. Phase 21. Of course equity ratio loan-to-value changed slightly because of the value change in property portfolio, but we still have quite sizable buffer against our targets, so the target is to have equity ratio above 40% for 0% and loan-to-value to be below 55-0%. If you look only value perspective, so the buffer against this 50% loan-to-value level is 1 billion euros. So as said, we have quite sizable buffer against those levels. Strong balance sheet there. APRA NRV reflects, of course, the result at the end of last year, 19.53 euros per share. Our financing position is strong. Our cash position includes 190 million euros cash and cash equivalents, 104 million euros financial assets. And on top of that, we have 300 million euros committed unused credit lines in place. Average cost of financing, 1.9. including the cost of derivatives, and the hedging ratio is still quite high, 84%. We don't have any major financing needs for the next 12 months, and those maturing loans are pretty much already covered. And in December, we made a new refinancing of 50 million euros with Danske Bank, unsecured. three years with two one-year extension options unsecured at that point of time. Our strategic KPIs, H24, actually all of them are in line with our targets, so top line growth 5.5%, investments more than 100 million euros FFO against total revenue, almost 39 percent. Loan-to-value equity ratio strong, as I said, and in line with our strategy, providing us a large buffer against our target levels, and net promoter score strong, 45. Then on page... Next page, we have the outlook for 2023. So we estimate that the top line growth will be between 7 and 10 percent, and we estimate that the FFO will be between 153 and 165 million euros. If you look at first the top line growth outlook, so to hit this 7 percent, so the low end of that range, that is covered by increased rents and water charges in normal manner, acquisitions completed 2022, now contributing top line for the whole year, completed developments 2022 and developments to be completed this year. And then to get closer to this upper end of that range, of course, then requires that we will improve our occupancy. And that's, of course, a target for the company. FFO level. That outlook reflects the top line growth outlook. And there are some, of course, assumptions. If you look at the midpoint of that FFL range, that requires to have a normal weather for 2023, to increase the maintenance expenses by 10%, to have repairs in line with figures in 2022, SGA expenses increased according to inflation, gas taxes to remain on the current level between 11 and 13%, and refinancing at the current pricing, current interest rate environment. So these are assumptions in the midpoint of that FFO target. And then one additional note that this outlook, FFO outlook, doesn't take into account the potential premature funding of the Eurobond due 2024. Because we don't know the timing of that, we don't know what is the price when we will renew that one. Dividend policy. So, the board of directors proposes a dividend, 0.39 euros per share, And that's in line with the dividend policy of the company and growth for last year's figure. At this stage, back to Jani.

Thank you, Erik. As a summarize, I would say, As I said earlier, we did have an operationally strong year. We were able to create profitable growth. Both the total revenue and net rental income increased, as well did FFO. For us, it's been all the time important that our balance sheet is strong, and as our CFO Erik said, there's a significant buffer in our LTV and equity ratio. In the market conditions there's been a change and there was an impact concerning the valuation based on the estimated thinking concerning yield requirements. that's good to keep in mind that actually no transactions, so no data from the market. Looking forward, in my eyes, it would mean that in order to make new changes in the valuation, that would actually need some data from the market. For the time being, we will not make any new investment decisions. Of course, all the ongoing projects are proceeding in a normal manner. and we are completing a lot of new homes this year. And it's good to keep in mind that as housing startups have fallen sharply, there will be, looking forward, a really limited number of new supply coming to the residential market starting 2024. And as the supply will go down, that will of course provide opportunities to increase the rent levels throughout the market more than this year. Thank you.

So, thank you, Jani, and thank you, Erik, for the presentation. We can now start the Q&A part, and as said, we can take first questions coming from the phone line. Operator, we are ready here.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Ansi Rousey from SEB. Please go ahead.

Hi guys and thank you for the presentation I have a few questions and I go one by one and the first one is about your development gains and I think you mentioned that you're seeing development gains between 15 to 20 percent so How do the dynamics and numbers work here? Because I think that you have mentioned that the development yield is around 4% or so. So, could you open these numbers a bit? Thanks.

And thank you for the question, Anssi. Yes, I did say that development gains are still solid. They are between 15 to 20%, so they will kick in as we complete those projects. Valuation yields are below our investment yields. The investment yields have been starting by four. We've been always saying that they are around four or above four percent. All the projects are located in Helsinki region, except one in Turku and one in Tampere, so location-wise, excellent microlocations.

Okay, so it's fair to assume that the investment yield is above four percent, and I think your capital region yield requirement was around 3.5, so that's the math behind. Yeah. This calculation. In a ballpark, yeah. Okay.

And the next one about your capital allocation, like, what kind of priorities you have in your capital allocation and... So, we decided not to make any new investment decisions, so the investments will be made to complete these ongoing developments. And we haven't really decided when we start to make new developments, because it's still unclear where the market is heading and what opportunities there will be. So, to complete these ongoing developments is the biggest portion of our spending money this year. And modernization investments and repairs, we estimate to be pretty much in line with what we saw last year's figures.

Anssi Rausi, SEB, your line is now unmuted. Please go ahead.

Sorry, can you hear me?

Please state your name and company. Please go ahead. Your line is now unmuted. Please go ahead. Please state your name and company. Please go ahead. The next question comes from Eric Granstrom from Carnegie. Please go ahead.

Thank you very much. Can you guys hear me out there? Yeah. Okay, good. Thank you. I don't know what happened. I was somehow disconnected, I think, or at least everything was muted. I'm sorry if I'm repeating any of the questions because I can only hear the first part of the Q&A. I would like to start off by asking, when you mentioned that external evaluators have looked at increasing interest rates rather than transactions, how do you think that they've gone about? Because it seems like they've been fairly even when it comes to the capital region versus the rest of Sweden. How has their thinking been in terms of increasing the yield requirements?

Do you believe that they tend to think thoroughly, think about different aspects, and now the impact has been starting from the core regions of Helsinki area, so city center Helsinki starting?

Okay, and you also believe that they will not do any additional adjustments until you see evidence in the transactions market, is that correct?

That's how I see this issue, that now there has been some adjustments, and they have been based on estimates what's going in the market, but we don't have any actual data from the market. So in that sense, I do believe that in order to make new changes, it would be good to have some kind of data from the market.

Okay, thank you. And then regarding your guidance, you mentioned that in order to reach through the upper end of the growth guidance, you would need to see some sort of adjustments to the vacancy and I would assume then also like-for-like rental growth. What kind of numbers do you think that you need in order to reach that 10% for 2023 in terms of occupancy, but also in terms of like-for-like rental development?

Look at these items I mentioned, so increase in rents and water charges, acquisitions made in 2022, completed apartments in 2022 and developments to be completed this year. This alone should take us to the lower end of that range, so improvement in occupancy rate will then take it towards the upper end of that range.

Exactly. And in order to reach the 10%, what kind of occupancy do you think that you would need?

Well, if we hit 7% without any improvement in the occupancy, so that's... I leave you to do the math.

Okay. Fair enough. Good. So far, what have you seen in terms of rent development for this year, in terms of renegotiations and when you're looking at new leases, when you actually have new tenants moving in? Can you say something about what the development has been like with the start of this year?

Throughout the market, I would say that we have seen in the market rent increases. not as hard as the inflation because there's still quite a lot of new supply in the market because of the startups two years ago. Looking forward to the year, we are following the market really closely. I would expect that going towards the year end and especially to 2024, we will see higher rent increases throughout the market as there will be a really limited number of new supply. But as I said, throughout the market, rents are going up, not down.

Okay, good. And then also regarding your units under production, you have about 1800 you will complete about 1,400 this year, and you started about 447, I believe, in 22. You seem to be a little bit still restrictive in terms of starting new projects. Should we expect units under production to continue to decline in 2023 as you complete projects but do not start new ones? Or is this something that you expect to start new projects in the second half of this year?

At the moment, we don't see us starting new projects. We are not investing at the moment in new development projects.

Okay, so your units under production will then sort of fall with the completion of the ongoing production?

Yes, as it now seems, but as Erik mentioned, of course, going forward, things may change. If the market provides exceptionally good opportunities, and we see that now the market is starting to change, then, of course, it's then time to think whether to start investing again. Okay, good, thank you. On the other hand, that will provide us capabilities to increase the rents in a normal manner, in a new normal manner, as we will face an era with a limited supply in the market.

Yeah, exactly. Perfect. And then my final question was a little bit of a detail, but you did mention it in the presentation. Admin expenses, I think, increased by 35% year-over-year in Q4 alone. You mentioned some one-offs, but also that you're implementing a new ERP system that seems to have sort of boosted the expensive on an admin. Is this work completed or should we expect sort of new ERP systems to cost you in 23 as well? I'm just trying to figure out what admin expenses we should expect for 23.

That process is ongoing. So we started last year and it's still ongoing.

Okay. Okay. Thank you. Those were my questions.

And that's included our FFO guidance, of course.

Yeah. Okay. Yeah. Perfect. Thank you.

Please state your name and company. Please go ahead.

Svante Kluk was from Nordea. I hope you can hear me this time.

Yes.

Thank you. Actually, most of the questions have been answered. I was cut off for some time, but a question about the hedging ratio came down. somewhat in Q4. Could you elaborate a bit on how you reason around that going forward and your hedging policy?

Actually, nothing changed really. So, there is a €200 million bond that will mature late this year, and that's now short term, and that's why it was left out of this hedging ratio calculation. So, really nothing changed. That's the only reason why it came slightly down. But as I said, it's still quite high.

Yes, it absolutely is. And regarding your, I mean, you mentioned that or that the valuation is not based on reference deals. What kind of activity do you see among investors, especially the national side?

I would say that at the moment, investors are following the market. No activity is there. We have not seen any transactions completed.

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

The next question comes from unavailable. Please go ahead.

Hello, am I audible? Hello. Yeah, hey, this is Neeraj from Barclays. So my first question is, can you please help us understand what's your net debt to EBITDA levels?

That's a little more than 40, 1.4% at the moment. And then if you look, that figure is of course good to keep in mind that we still have developments, ongoing developments, and of course, first we invest, and then they start to generate a cash flow, but that's the level.

Got it. And my second question is somehow linked to this. So, when I look at Moody's report, the downgrade threshold of 50% for effective leverage, it's linked to net debt to EBITDA being less than 12x, right? Do you think there could be some pressure on that if the net debt to EBITDA doesn't come down? Maybe the threshold for downgrade might be lower?

So the Moody's current rating for us, BAA2 with stable outlook, there are several figures and some of these figures in our case are actually very strong. So the loan-to-value is very strong, interest cover ratio is very strong and So even if the net debt is slightly elevated, it's just one figure, so they are not looking at only one figure, so they are looking at the whole company's position, and as I said, our balance sheet is still very strong.

Got it. A couple of more questions from my side. Do you have any LTV target in mind, given that we are in the valuations tagline? The LTV has gone up from last reporting. Do you have any target on our side?

We have set the target for loan-to-value to be below 50-5-0. And that's when we decided that that's actually a combination of what we think that plays for equity investors and what we think that debt finance providers would like to see. And as I said, our current public rating for Moody's is pretty much anchored to this level. So to have loan value below 50, and we have quite a buffer against that level.

Got it. And just the last question from my side. I mean, hello. Am I audible?

Yes.

We can hear you.

Can you hear us? We can hear you.

Please state your name and company. Please go ahead.

The phone number ending 899, your line is, sorry, Yeah, the next question comes from the line ending 899.

Please state your name and company. Please go ahead.

Hi, good morning. This is John from Kampen. Just have a couple of questions left. I think you mentioned that you don't know the timing on the premature refinancing of your 24 euro bonds. But given that it's maturing in June, what would still be a reasonable timeframe in your view?

So how we see the situation is that we would like to postpone it as long as possible, but to make it early enough. So perhaps a range for that would be late summer, early next year, somewhere in between. We haven't really decided. It's a combination what we think that is is beneficial for the company price-wise and liquidity-wise. So, late summer this year, you mean? Late summer this year at the earliest, or it can be postponed early next year.

Okay, that's clear. Thank you. And in the current environment, what do you think would be the most, what would be the most viable refinancing option?

In our case, it's good that we have access for different sources of financing. And bank financing is available for us, both secured and unsecured. Bond financing is an option for us as well, so the market is open. And according to the banks, we are able to tap the market if we decide to do that. And then there are, of course, additional sources of financing as well. For us, it's important to have access to all these different sources of financing, and then decide which one we want to use. It's still on the drawing table what source we will use. Of course, the bond market is important for us, and we would like to refinance that from the bond market. depending on the pricing and market conditions at that time, then we make the final decision.

Okay, that's clear. And if you were to decide to move to fully secured financing, so bank loans, how much do we have left in terms of headroom, in terms of unencumbered assets in that case?

We have quite a sizable buffer there, so we can go up to 45%, and currently we are at nine, so there's a quite sizable buffer there. Okay, perfect. Thank you.

And the next question comes from the line ending 406. After the prompt, please go ahead.

Please state your name and company. Please go ahead.

Hi, this is Anders Torme from Green Street Advisors. Can you hear me? Yes, we can hear you. Perfect. Thank you. So I had some technical issues here as well, so apologies if my questions have been asked already. But, you know, I have a few questions. Firstly, just getting a bit more color around occupancy development over the quarter. So you sort of say 93% in the fourth quarter, and I think last quarter you said spot occupancy almost 93%. So, there's been a bit of an improvement there, but would it be fair to assume about 50 basis points in the overall portfolio in the fourth quarter? And I suppose in Helsinki, about 100 basis points improvement. Does that sort of jive with your internal estimates as well?

Thank you for the question. As Erik mentioned, throughout Q4, the occupancy was in a level of 93% throughout the portfolio.

And any color on the improvement of occupancy over the quarter?

We have not been providing that information. The cumulative occupancy at the end of Q3 was 91.7, and now at the end of the year the cumulative number was 92%, and the last quarter there was 93%.

So, if you want to play with the figures, and combine this information we've given. So, the cumulative at the end of last year was 92, and the cumulative at the end of September was 91.7, and that we say that the Q4 figure was 93. So, if you do the math, so that means improvement of 90 basis points from Q3 to Q4.

Got it, understood. And then maybe a bit more colour on the rental market as well. How are you seeing the leasing momentum in the fourth quarter and also at the start of this year? Are there signs of material improvement or is it sort of slowly improving?

As I mentioned, at the moment there's still supply in the market. It will come down towards the year end and starting 2024, a really limited number of supply in the market. Rental market has been okay the last part of last year, and at the moment, urbanization is continuing creating demand for rental apartments. What could provide a bigger impact is people living in owner-occupied apartments facing challenges. We already see that housing trade has been coming down severely. And as I mentioned, typically when consumer confidence goes down, that has a really fast impact in housing trade. So home buyers stop buying homes and then sooner or later that provides more demand for rental apartments.

Thank you. And one more question around this capital allocation and thinking about balance sheet management. Obviously, there's some refinancing that are coming due. You know, market rates for at least unsecured bonds seem to be, you know, north of 5 percent. How are you thinking about that refinancing sort of activity versus perhaps trying to sell some portfolios instead? How does that play out in your sort of strategy?

As already discussed, we have a strong balance sheet and we have a quite sizable buffer against our targets, what comes to loan to value and other key KPIs as well. So we don't have to sell anything. So now we have taken the action that we decided not to make any new investment decision and to keep the balance sheet strong and that later perhaps tap the opportunities available in the market. So we don't have to sell anything, and we have quite sizable buffers, and we have a strong balance sheet. And the refinancing, of course, that's what this type of companies do every year pretty much going forward. And of course, the price of the new financing at this stage is clearly higher than what we have on average in our portfolio. But given the balanced maturing structure, so nothing happens overnight. So even if the next Eurobond will be higher than, the pricing there will be higher than what we have in the expiring ones, then of course that has a limit. Of course, it has an impact for for financing expenses point of view, but the impact is not that huge, given it's just a little more than 10% of the total loan portfolio.

Understood. But I guess my point is, from an earnings perspective, you know, the financing rate of more than 5% versus, let's say, you're sort of saying Helsinki residential at 3.5% net initial yield, that is sort of implying negative leverage, so wouldn't disposing be sort of a better option for earnings from that perspective?

Well, actually, we are very pleased with our strategy, and we've been following that. over the years, and the idea is to provide profitable growth and to enhance the return on equity. Of course, we've been using leverage as well, and we are in a strong position. And that's good to be if the operating environment is like it is today. And of course, we are monitoring the market. It depends whether actually the yields in the market will end when we see the evidence from the market. It comes to question where the rents go if the inflation will remain high. Of course, we are able to increase the rents in the future more than what we've been doing. And then nobody really knows what is going to be the price of the new financing, let's say, next 12 or 24 months. Of course, central banks are quite hawkish, but the market seems not to in total belief of what they are saying. So yes, we are in a good position, strong position, and we are monitoring the market and operating environment and then later make decision what is the right actions to take. But at this stage we are not forced and we are not willing to sell anything because of just selling something.

And just to add there, as Eric mentioned, for Koyama it's been all the time important that we are consistent with our strategy. We don't jump up and down because of some circumstances changing for half a year or for one year. We didn't bring down our investment parameters, even though we saw yield compression in the market, we didn't leverage more. We kept the hedging ratio high. And because of that, we still have strong development gains, a strong balance sheet. And as Erik has been mentioning, we've been around for many years already, me and Erik, and real estate business can be done successfully in different circumstances when you are consistent. So, we are following the market and looking forward. It may happen that money is a bit more expensive, but as I said, the supply in the market is coming down and rent increases are higher in the future.

Understood. Thank you very much.

And our next suggestion comes from the line ending 981. After the prompt, your mic will be opened.

Please state your name and company. Please go ahead.

Hi there, this is Paul Gorry from Thames River Capital. Just checking you guys can hear me okay?

We can hear you, thank you.

Okay, great, thanks. A couple more from me, if that's okay. The first one on the valuations, and I just, you've said that it was an adjustment to the interest rates rather than transactional evidence, but I just wanted to check firstly on the amounts of external valuation this quarter versus last quarter. I'm assuming that no adjustment to the yield was made in Q3 by the valuers and it's all come through in Q4. And then, alongside that question, you know, Sato put out its results with a, you know, a much smaller decline. I think it was minus 1% after the fourth quarter. So, just wondering if you had any comments on the large differential between those two.

Average valuation yield went up by 34 basis points at the end of Q4.

Yes, yeah, no, I appreciate that. But, yeah, sorry, you said that in the statement, but the question is more, you know, the difference of this versus Q3. Was there a change in the amount of properties that were externally valued?

We didn't change yield requirements at the end of Q3.

Okay, but the same number of properties were evaluated in the same way, and the value was just decided in Q4 to move it back to its four basis points, that's what you're saying.

Hello?

Yeah, okay. Okay, yeah, and sorry, and any comment on the differential between yourselves and Sato? I appreciate that's commenting on another company, but the gap is so large. Just wondering if you had any comments on why there'd be such a big difference with a close competitor.

So, it's slightly challenging to comment peer companies' outcomes. So we don't know what those guys are doing, but we know what we are doing and what our evaluators is doing. And there might be some reasoning because of the ownership structure or something like that. We don't know. So it's a question that should be addressed to those guys.

Sure. Okay. Yeah, no problem. And then my other question was on the guidance specifically. And I think you referenced, Jenny, so we know that the Eurobond, the 500 million Eurobond isn't included, but there must be a level of refi included. in order to get the differential. Obviously, if the top line is growing at 7 to 10, then the FFO is going to be down 1% in the midpoint. So, can you just confirm what... Is it the Euro 200 million bond? You've made an assumption around refinancing that. It's due this year. Is there other refinancing? Can you just confirm exactly what you're assuming in terms of refinancing?

Included in the FFO guidance is the refinancing of this mentioned 200 million euros bond and 150 million euros bank financing to be refinanced. These are included in the FFO guidance, but the potential pre-maturing refinancing of this summer 24 maturing euro bond is not included. Yeah. Okay. Perfect.

That's very clear. That was all my questions. Thanks, Beth.

As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay, thank you. Something here in the chat, not covered yet. Erik, you opened up the guidance for 2023 about the revenue growth side. Is there any split you can give between index increases and completed apartments and the assumptions behind that?

So the acquisition part is quite easy because it's 4 million euros. So it was 4 million euros for the second half of last year. So additional 4 million euros. So that's pretty much close to 1%. Then increases in rents and water charges. We've been communicating that the increase is somewhere between 2.1 and 2.45%. And the remaining is then split between those apartments completed already last year and those apartments to be completed this year. Not exactly even, but pretty close to that.

Okay. Then we already discussed capital allocation, but there was some technical issues with the line. So can you repeat how you think of you acquisitions going forward. Are you still looking for something to acquire, if once in a lifetime situation comes in front of you?

Maybe I take that one. As mentioned, at the moment we don't make any new investments, but never say never. If once in a lifetime opportunity kicks in, then we have to think about it.

I see. Okay.

Typically always, if something is appealing enough, yes, of course we will move forward.

Yes. About the sales side, it was discussed that the company is not, or doesn't need to sell anything, but is there any progress in divesting the non-core apartment portfolio?

At the moment, we have not been active there. We don't see the market as attractive in that sense. We don't have any reason why we must sell those apartments or that portion of the portfolio. So, of course, I will answer the phone if somebody calls me and wants to pay a lot of money. but no activities there.

Okay. Thank you. And thanks for the excellent questions. That was the final one. So, our Q1 report will be out on 11th of May. So, we hope you can join us then. Now, I wish you all a wonderful day. Thank you and bye-bye.