Lumo Kodit Oyj

Good afternoon, ladies and gentlemen, and welcome to Koyamo's Q1 results news conference. My name is Niina Saarto. I'm Investor Relations Director. Today's presenters are familiar faces. We have Jani Nieminen, our CEO, as well as Eirik Jelt, CFO, who will tell you shortly how the year has started for the company. After the presentation, there is a chance to ask questions. First, we take questions from the live audience here in the room and then from the other participants. So if you want to ask a question, please push the hand sign on the right corner on the screen. You will be put in the queue. And when it's your turn to ask a question, please unmute yourself. So let's move on. And first, I would like to invite Jani over here. Thank you.

Thank you, Niina. Good afternoon on my behalf as well. Nice to be here again, providing some color on what's going on here in Finland and in Kojama, of course, especially. The agenda is a normal one. I'm providing a summary of what's been going on in January, March. Then our CFO Erik Hjelte will provide a bit deeper color concerning the financial development, and then we wrap things up as a summary, and we'll move then to Q&A. A starting point, of course, is that The year has started along with our expectations, no big surprises anywhere. Total revenue and rental income grew as we expected. occupancy rate improved compared to the comparison period as well compared to last year whole year figure there it's good to understand that there's always some seasonality concerning the occupancy typically in this industry occupancy goes down towards the summer and then picks up speed during the summertime and we reach industry, the highest figures towards the autumn. That's the typical manner. And now what we have seen in the market is still supply coming to the market. from existing projects. So there's a competition situation between the players in the market. On the other hand, we saw already last autumn that the number of new development projects went down severely. We did stop making new investment decisions and so have all the other players. And we already see that going forward, the supply coming from new development projects completed to the market will go down at the end of this year. and supply-demand balance will be totally different going to year 2024. At the same time, as said, our occupancy was stronger than comparison period of time, and even as there is some seasonality, I'm glad to tell that we have seen the bottom. We are not going down with our occupancy today. So looking forward, I expect our occupancy to pick up positive speed. Some changes made there, we've been successful in improving our housing management services. That's been impacting on two positive aspects. NPS net promoter score is on the highest error level, and we have witnessed that the tenant turnover has come down a bit. That of course helps us. And now we are moving at the moment towards the most hectic season in rental business. So in that sense, Things are looking today more positive at the moment. And the further you look, the rental business looks the better. No substantial changes in fair value of investment properties. There it's important to keep in mind that we actually did make an adjustment with the valuation parameters already during Q4 last year. The impact then was minus 9%. So in my eyes, not all the players have been acting according to the market yet, but we did react already at Q4 and now no major changes there. In this current market environment, it is really important that our balance sheet is strong, and there we are proud. And of course, after a review period, we made a financial arrangement, which actually makes us stronger, both in liquidity and looking for the expiring loans. High hedging ratio still. There's been a positive impact, of course, reducing the impact of interest rates. If you look at the whole operational environment, of course, the outlook for the world economy is still uncertain. Inflation remains rapid and central banks have continued to increase interest levels. Even though Finland's economic growth is expected to be weak, the employment situation is good and that provides a solid base for us as a landlord. On the other hand, on the right hand, side, we see figures, the official estimates. Today, the official estimate concerning residential startups this year is 27,000. When I was here last providing information, the official estimate was 36,000 apartments to be started this year. At that point, I said that my personal view was that ain't going to happen. Today I'm saying that 27,000 apartments will not be started this year. High hopes is two and a low figure. So that part of business is going towards quite cloudy weathers. Not many residential construction projects will be started this year. And that of course provides the impact that the demand supply balance will rapidly change next year. At the same time, which is kind of surprising, is that we see construction cost increases leveling off, but they are not coming down, especially the material costs have not been coming down. That's a problem this construction business industry has to be able to solve before they have the capabilities to start new projects. Current environment, as well impacting housing trade volumes, and the official estimate today is that prices of old block of flats will go down between 1.5 to 3 percent. I would estimate that the adjustment will be between 5 to 6 percent downwards. On the other hand, rental increases at the moment between 2.5 percent Then looking forward, moving to 2024, it will pick up speed rapidly. So quite a different market, whether you play on selling owner occupied homes or whether you are at rental apartments business today. For us, it's very important that Actually, the mega trends creating long-term demand for rental apartments are valid. The big cities in Finland are growing. It took a while after COVID-19 before the Helsinki region started to pick up speed in order to grow. But that started happening during the latter part of that last year. And now all the big cities are growing again. On the other hand, we still have an increasing number of small households here in Finland, meaning one and two person households, and they typically tend to rent the apartments, not to buy the apartments. One, I guess, piece of news to be told is that we are really capable to say from our data that pandemic did not change the demand for small apartments. people do rent studios and one-bedroom apartments. So, here in Finland, it did not happen. Not all the people are moving towards Lapland or living in very big homes. They prefer the efficiency of smaller homes. And as said prior, even though Finland has been known as owner-occupied country, in the big cities, the truth is totally different. And for example, in cities like Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner occupied apartments and that portion of rental apartments is still increasing. Additional what's been going on, if you combine these aspects, interest levels picking up speed, going upwards, uncertainty concerning economy, consumer confidence going down, worrying people, makes people hesitating to buy apartments. There's lack of buyers in owner-owned markets, nothing happening. That will create pressure towards the rental market. So actually, the appealing towards our business is growing. During pandemic, we saw that we were in an era where construction volumes were high. volumes to the market were completed in high numbers, and at the same time, all of a sudden, the population growth stopped. And that created a temporary impact in the market. Actually, what's now happening is we are moving back towards a similar time as it was maybe 10 years ago. we are moving towards an era with an undersupply and over demand. The number of residential startups is most probably at the same level as 10 years ago, looking for example, 2014, if not the lowest number in 15 years. Moving to page eight and our key figures. As said, all things have been proceeding as expected. Total revenue grew by 8.8 percent, meaning 8.7 million euros. reasons behind that. Three aspects, of course, completed apartments last year, providing now rental income for the full year. Completed apartments this year already. Then of course the acquisition made last summer, providing now turnover for the whole year. And last but not the least, the like for like growth, which is now positive 2.2%. Net rental income grew by 4.3 percent there. It's good to know that. The maintenance expenses grew by 5.8 million euros. Of course, pricing issues concerning, for example, heating, then property taxes, combination of the tax base and the bigger portfolio, and then the miner grew growing in repairs. Then FFO funds from operations, basically on the same level as comparison year impacted by a combination of increased maintenance and then financing. Fair value of investment properties today, 8.2 billion euros. No material changes there. Actually, if we compare the figure now at the year end, it grew by 46.8 million because of new development projects. Gross investments at the end of Q1, 54.9 million euros. That's basically mainly new development projects and then 8.5 million of modernization investments. Profit excluding changes in value, 33 million. Biggest change there Again, the comparison here is the financing cost. The loan portfolio is a bit bigger. Profit and loss before taxes, 24 million euros, and the explanation is that corresponding period there was a positive impact from changes of fair values, 27.9 million euros, and this year the figure was minus 9 million euros. Then taking a look at ongoing development projects. As said, at the moment we do not make any new investment decisions. We are carrying on with ongoing projects. They all are proceeding in a normal manner as planned. Development gains, they are still solid, about 15%. basically 1,600 apartments under construction and towards the year end after Q1 a bit more than 1,000 units to be completed and then as we see looking to the year the number of completions is going down severely, as we have not made any new investment decisions since last autumn. But actually this will happen throughout the market, that basically very limited number of new completions coming to the market starting next year. During Q1, we actually completed properties in five locations, 319 apartments. Here are four examples, two properties located in Vantaa, one in Espoo and one in Helsinki. Actually good, successful projects and the occupancy is on a high level in all these projects. Then we wanted to provide a piece of information concerning the customer base matching the housing portfolio. And if we first start taking a look at the housing portfolio, 73% of the housing stock is either studios or one bedroom apartments. That's been the case throughout the years from 72.5%, now 73%. On the other hand, if we look at our customers, It tells us the story that 76.8% of our tenants are households of one or two persons. Then if we look at the customer base divided by age groups, it's quite well balanced. That's the first thing to be noted. Then on the other hand, If we would calculate it in such a manner that we think that most often tenants above the age of 25 and below 65 are in a working life situation, the part of that group is close to 75% of our tenants. So excluding the youngest segment. Moving to page 12 and sustainability. Sustainability has always been a big part of our daily operations. We've been proud to say that ESG is part of our DNA. We have committed to UN sustainable development goals. Our target is that by 2030, Our portfolio will be carbon free in terms of energy consumption. We're now providing a couple of figures concerning ESG, and I'm happy to say that we are proceeding systematically and successfully with our aims and targets, and we've been having some Good results, for example, carbon dioxide reduction, minus 8.5%, net promoter score on the highest level ever. And then on the other hand, the digital services, now 83% of our tenants use myeloma services on regular basis. We know that 90% as a target is demanding. It's a high target, but we now already are on a level of 83. And now if Erik will provide a bit deeper color on financial.

Thank you, Joni, and good afternoon everybody from my side as well. So if we first look at total revenue growth, 8.7 million euros, that's driven by like for like growth, 0.84. There we have a positive side. rent and water charges increase is 2.2% and then on the negative side, occupancy rate 1.4%. The portfolio acquisition last summer has contributed 1 million euros for the top line growth. And then the rest comes from the mainly finalized developments 2022. Of course, we have completed 319 apartments already Q1 this year, but they are not contributing that much for the Q1, because they completed during the Q1, but last year completed apartments, of course, contributing for for top line growth. Net rental income growth was 2.5 million euros, maintenance expenses increased 5.8 million euros and biggest items, growth items there were heating 2 million euros and property taxes 2.4 million euros. Other items were quite small. If you look at maintenance expenses, euros per square meter per month, there the growth was 10.8%. And of course, the underlying portfolio grew during Q1 compared to last year's Q1 figures. Then if we look profit before taxes, first loss on fair value of investment properties, 9 million euros. There were no relevant transactions in the market during Q1 and we kept all key parameters unchanged during Q1 valuation. There were some positive figures included in that evaluation. So the development gain was clearly a positive side. These four processes completed, the other development gain was well above 20%. And there was one property where the restriction ended and that contributed almost 3 million euros. And then on the negative side, some changes in gas flows and aging that all were put together so the loss was nine million euros so no major changes there. If you look profit before taxes excluding the change in fair value investment properties so that that was negative two million euros and mainly driven by higher financial expenses, 4.3 million euros, but there is a good note that Q1 last year, there was unrealized change in fair value of derivatives, positive 3 million euros. On the right-hand side, we have these FFO figures, They are pretty much on the same level as last year Q1. Net rental income, a positive figure there, 2.5 million euros. SG expenses, pretty much unchanged. The change was only 0.4 million euros. Financial expenses, 2.8 million euros growth because of the bigger portfolio, underlying portfolio. The average cost of financing stayed pretty much unchanged. cash tax is negative 0.3 and others 0.2 million euros. So, financial occupancy rate improved slightly, as Jani mentioned, compared to Q1 last year and a whole year figure last year, and our tenant turnover came down to a 1.1 percentage point and a clear improvement there. I think we covered already this like-for-like rental growth. So if you look across investments, 54.9 million euros, 50.3 million euros, ongoing developments, 125 million euros to be completed, these ongoing developments, and then 4.6 million euros modernization investments. Repairs, growth there, 0.5 million euros, and modernization investments up 3 million euros. If you then look at the value of investment properties, 8.2 billion euros, pretty much on the same level as at the year end, and as I said, no significant transactions in the market. And the average valuation yield 3.97 unchanged in Q1 valuation. Going forward, it's good to keep in mind that there are a couple of positive items to keep in mind. One is that The development gain in these ongoing developments is still between 15 and 20 percent. And that is, of course, have a positive impact when completed. There's going to be an uplift in properties that comes out of the restriction, 1200 apartments and the uplift will be between 100 and 110 million euros. And those restrictions will gradually end by 2024. So this year and next year, biggest portion next year. And of course, the growing top line is going to have a positive impact on values as well. We have a strong balance sheet. We have set the target for loan-to-value to below 50 and equity ratio above 40. And at the end of Q1, loan-to-value was 42.9. So quite sizable buffer against this 50% level. And our public rating, BAA2 from Moody's, is pretty much anchored to these levels as well. And the buffer in loan-to-value figure against this 50% level, was it the hurdle for current public rating from LTV wise, is 1.1 billion euros in values of investment properties. So quite sizable buffer there. Our financial key figures strong. At the end of Q1, we had cash and cash equivalents plus financial assets put together 166 million euros. On top of that, we have committed unused credit facilities in place, 300 million euros. We have 250 million euros commercial paper program in place. Outstanding commercial papers at the end of Q1 was 29.8 million euros. Interest-bearing liabilities in total, a little more than 3.6 billion euros. Hedging ratio still very high, 84%. Average interest rate quite low in current circumstances, 1.9. And of course, the high hedging ratio is more than things for us. Average loan maturity and average interest, fixed interest rate period, both three or slightly above three years. We are extremely happy that after the reporting period, we completed two financial agreements. One with Aktia Bank, 75 million euros unsecured, five years loan. Another one syndicated, 425 million euros secured, three years maturity. And on top of that, there is two one-year extension options included in that loan. And there we have six Nordic banks, our relationship banks. And we are extremely happy with both these financial arrangements. And the maturity profile shown on this page is before these financial arrangements. And the idea, of course, to use major part of these two loans to refinance existing loans. So we basically don't have any additional financial needs for this year. EPRA NRV 19.2.3, of course, compared to last year figures, the fair value decrease at the end of last year played a role there, the declining of EPRA NRV. Page 23, we have our strategic KPIs, very strong actually. So the top line growth 8.8%, investments 54.9%, FFO against total revenue 26.6%. It's good to keep in mind that the whole year's property taxes are already booked during Q1 and total amount of property tax is around 40-14 million euros. Excluding that, so if that's allocated for the whole year, I mean the property tax is allocated for the whole year, the FF4 against total revenue is clearly about this 36%. Loan-to-value equity ratio strong, as already mentioned, and we are extremely happy that our net promoter score improved and very, very strong figure there. Our outlook for this year, we kept that unchanged. So we estimate that the top line growth is going to be between 7 and 10%. And we estimate that the FFO is going to be between 153 to 165 million euros. If you look first, the top-line growth guidance, so to be there above 7% level, so the low end of that range, that requires that we are able to increase the rents and water charges between 2.2 and 2.5%, as we've been doing, and more than half of this year's rent increases already happened. Acquisitions 2022 are of course contributing there, because now they are generating cash flows for a whole year. Last year completed developments and developments to be completed this year. When you put these together, we are already above this 7% level. And then on top of that is coming the improving occupancy and that of course is our plans. And as Q1 figures shows, we are clearly above this. at this 7% level. If we then look at the FFO guidance, so that of course reflects the top line guidance range, and in the midpoint of this FFO guidance, we assume the normal weather for this year, no major price increases when it comes to the maintenance expenses and STA expenses, repairs in line with 2022 figures and no new financing agreements arrangement this year. And one note there is that this outlook is given without taking into account potential acquisition or disposals, nor the impact of potential British material funding of the Euro.eu in 2024. So that remains to be seen. what is the time to refinance and what is going to be the price of that refinancing. But that said, we don't need to do any additional financing arrangements this year. Dividend policy, no changes there. So, 60% of FF4 paid dividend and decided yearly. Now, back to Jani.