Lumo Kodit Oyj

Good morning. Welcome to Koyamo's half-year results news conference. I'm Niina Saakto, Treasury and Investment Relations Director. CEO Jani Nieminen and CFO Erik Hjelt are here today to present the first six months figures. They will also give outlook for the whole year. We have Q&A after the presentation, so you can send questions via chat. Also, if you like to ask in person, you can see a hand sign on your screen. By clicking that, you will be placed in queue. And when it's your turn to speak, please remember to unmute the microphone first. But now we can start the presentation and hear what Jani Nieminen has to say. Welcome, Jani.

Thank you, Niina. Good morning, everybody. It's time to provide again the color what's been going on here in Kahelmo, and actually today we provide color as well as what's going to happen in the future concerning the measures. Topics today, as typically as usual, summary of H1 this year and then a bit deeper color concerning the financial development specified outlook for this year. And then we will also provide information concerning our saving program for 2024. There is good to keep in mind that at the moment our operations are solid, our numbers are strong, but we want to keep the credit rating as investment rating in the future, and we will take proactive measures in order to maintain and secure our financial position. As said, a good starting point is that our operations have remained stable during H1, Although of course the financial and interest rate level market combined with inflation cost pressure towards for example maintenance cost has been a challenging time throughout the market for all real estate operators. In that we've been quite successful. We've been able to grow total revenue net rental income and FFO. Our occupancy compared to comparison year is on a better level. We've been able to improve occupancy since spring and we still have active ongoing measures in order to improve the occupancy. I'm quite confident we are on the right path there. and we made some financing arrangements during H1 totaling 500 million euros successfully and there was of course a positive impact due to tender offer process impacting positively our FFO moving to page five a bit of color concerning the operational environment The outlook for the world economy is still uncertain and weak. Core inflation has remained high, although we see that inflation has slowed down basically due to energy prices. Here in Finland, employment is still at a good level, but rising prices and interest rates reduce household spending and consumer confidence biggest impact in my eyes at the moment is, for example, in housing trade volumes. Homebuyers are really careful. The markets do not expect interest rate cuts to start in the near future. And that's something we have to consider. We are a strong company. We will remain as a strong company in the future. On the right hand side on the table, Typical estimates concerning different figures. As usually, I do have a different opinion versus the official estimates concerning the number of new resi startups here in Finland. The official estimate has come down. It was at the beginning of the year 36,000. Then in Q2 it was 27 400 and now it's roughly 20 000. I would be surprised to see a number 15 000 to be started this year. Most probably it will be below that. The number of single family homes to be started will be bigger than apartment building homes number. That will impact throughout the market. We already know that of course this year still apartments are completed to the market providing supply because of the project started 2021-2022 but as the number of new startups has been going down since last year starting next year we will see a very limited number of new supply coming to the market and that will have a positive impact towards the rental market As said, unemployment rates here in Finland are still good. In that sense, the situation here in Finland is good. Official estimates concerning the home prices or the rent adjustments, in my eyes, they've been too modest. Home prices are not going down between 1.2 five and three. Actually, in my eyes, already happening here in capital region, roughly nine percent, according to the data. In my eyes, it's a bit of probably a coincidence, but we did adjust our values by nine percent at the end of last year without the transaction data from the market. And now it seems that the market has been roughly to nine percent down. On page six, basic information. Still good to keep in mind that the megatrends are valid, creating long-term demand for rental apartments, basically for homes here in Finland. Urbanization is continuing. All the big cities here in Finland are growing, especially capital region. We do have an increasing number of small households, one- and two-person households. Typically, those households are looking after a rental apartment, not an owner-occupied apartment. At the same time, we see that homebuyers are more careful, choosing instead to rent the apartment, not to buy. Amount of households living in rental apartments increasing in all the big cities. This data is always a bit lacking behind, but throughout the last decade, we have seen an increasing number in all the big cities every year when it's launched. For example, in Helsinki, Turku and Tampere, actually more households live in rental apartments than in own occupied homes. At the same time, as I said, home buyers are very careful. Housing trade volumes are muted because of the economic uncertainty, rising interest rates and increasing property taxes. And this supports rental apartment markets, which is improving towards next year significantly. On page seven, still a couple of words concerning the operational environment. Residential construction volume has decreased already a year. And during the first half of this year, actually declining new startup has been accelerating sharply. We will have the lowest number of new resi startups throughout the last decade this year. I said I don't believe to see 20,000 apartments to be started. That will mean that the supply balance, supply demand balance will rapidly change next year, improving the rental market. Throughout the market, I would say there is pressure to increase the rents due to the interest rates increasing, property charges increasing, and now the supply situation will change and that will go throughout the market. And then I don't see at the moment any indication that would mean that the construction volumes would pick up speed this year or early next year. There's no such data available. So it will take a while before construction volumes will pick up speed again throughout the market. A couple of notes concerning the key figures on page 8. As said, I'm happy to say all the numbers are solid. Performance has been good. We've been able to improve total revenue, net rental income, funds from reoperations. Total revenue growth was 8.6%. That's of course a combination of completed apartments on the latter part of last year. during the first six months of this year, like for like growth, which is now positive. And then the acquisition made a year ago during the summer, close to 1,000 units that was impacting on half year level last year, around 4 million euros. And now this year, 4.4 million euros during the first six months. So that's the combination there. The net rental income improvement 7%. So we've been, actually coping really good against the inflation. The hardest part was Q1 with the energy prices. We still see that the maintenance expenses have been growing 7.7 million during the first six months of the year. A couple of notes there, the biggest issues there are heating, of course, 2.4 million euros and property taxes 1.7 million euros. There is Of course good to keep in mind that we've been completing new apartments so the volumes are bigger. FFO up 12.8% is a combination of the positive improvement in net rental income and the positive impact from repurchasing those maturing bonds 2024-2025. Fair value of investment properties at the end of H1, 8.3 billion euros. No changes in valuation parameters. There's no data from the market to create pressure, make changes. Of course we are following what's going on in the market. So basically the fair value grew by 118 million euros. It's a combination of completing ongoing new development projects and then ending restrictions that had a positive impact of roughly 20 million euros. Cross investments during the first six months is 116 million euros, basically ongoing projects to be completed. We have not been starting any new development projects. So the part in Gross investments concerning new development projects is 97.5 million euros and the rest 18.7 million euros is modernization investments. Profit excluding the changes in fair value improvement there 9.7% combination of very good net rental income improvement and then of course positive impact from financial expenses and then at the end profit before taxes including changes in fair value 95.7 million euros there is good to keep in mind that now during the first six months of the year the positive impact from changes in fair value was 5.1 million euros and the corresponding period it was 75.1 million euros so basically a difference comes from that part concerning ongoing development projects we already provided information last autumn that we are not starting any new development projects. We are focusing on completing the ongoing development projects. For the time being, that's going to be the situation. We are not starting any new development projects. All the ongoing projects are proceeding as planned. In those development projects, our valuation development gains are still about 15%, so 1.5%. In that sense, we are happy those properties will be developed in high quality micro locations, will meet the demand nicely. Customers are still looking for same kind of apartments than prior to COVID-19. So those are proceeding as planned and will be completed. At the end of Q2, we had 1,100 and 52 apartments under construction. During the latter part of this year, we are completing 758 apartments. So it leaves roughly 400 apartments to be completed next year. A couple of examples of latest completions. One property in Espoo. basically close to the sports center in Espoo Tapiola, one in city center Helsinki, one of the most central locations in Helsinki, Eerikinkatu 7, behind Forum. That's a conversion project where we converted office space into really high quality rental apartments. And then one property was completed in Tampere, a number of apartments in Espoo 80, Erikin Katu 40 apartments and 49 apartments was completed in Tampere. And basically in all those completed cases, the occupancy levels are high. Erikin Katu was totally sold out when we started marketing. Tampere is sold out and Espoja open bookstore will be sold out in September. Couple of words concerning the housing stock and our customer base. In the big picture, it's very nicely balanced. If we first stop and think about the portfolio, 73% of our housing portfolio is either studios or one bedroom apartments. On the other hand, the customer base, one and two person households, put together is 76.8%. Then, if we look at customers divided between different age groups, good to know that it's well diversified, well balanced, and actually 75% of customers are between the ages of 26 and 65, basically working people. A couple of words concerning sustainability on page 12. As always said, sustainability has always been a part of our company DNA. We've been quite successful in our own measures. We have committed to the United Nations Sustainable Development goals. Our target is that our property portfolio will be carbon neutral, carbon free by 2030 in terms of energy consumption. And we are progressing well with our ESG targets. We are moving forward even in some areas a bit faster than planned. carbon dioxide emissions per apartment reduction estimate for this year is 12.5%, so it's been actually accelerating. We are in that 2030 target a bit ahead of the target, a bit ahead of the schedule, so progressing there well. Net promoter score this year is Good. Last year we had struggled there, but now it's still 52. And as we've been providing digital services to our customers, it's good to know that MyLuma digitalized service, so basically a mobile application, the utilization rate is 84. So our customers really use the service. At this point, Erick as a CFO will provide a bit more detailed color concerning the financials.

Thank you, Jani, and good morning, everybody from my side as well. So on page 14, if we first start a couple notes regarding our total revenue, so the total revenue growth H1 this year compared to H1 last year was 17.1 million euros and the like for like top line growth was 1.4% and on the positive side we have here increases in rents and water charges 2% and on negative side occupancy 0.6%. Occupancy as such is improving but in this like for like calculation still a negative figure. Biggest contributor for top-line growth was 2022 and 2023. Completed apartments, roughly 9 million euros. Acquisition, especially June last year, 4.4 million euros. And then rent increases and improving occupancy contributed 3 million euros for the first half of this year's growth. On the right-hand side, we have net rental income. there the growth was 9 million euros and maintenance cost increased by 7.7 million euros. Of course the underlying portfolio assets are bigger, the underlying portfolio is bigger than in the corresponding period, but the biggest items that grow in the maintenance experience part was heating 2.4 million euros, property taxes 1.7 million euros, credit losses 1.3 million euros, and then cleaning and waste management put together 1 million euros. The growth in maintenance cost during Q2 was only 2 million euros. So actually the main increases came through during Q1, especially when it comes to the heating. If you first look profit before taxes and the changes in investment properties, H1, the gain was 5.1 million euros and during Q2 it was positive 14 million euros. There were no relevant transactions in the market and that's why we kept all key parameters, valuation key parameters unchanged. It's good to keep in mind that already at the end of last year, actually, we increased the yield requirement by 34 basis points. So that had a roughly 9% impact for the values of the investment property, as Jani mentioned. The main contributor for the positive fair value change during Q2 was some properties came out of restriction and uplifting values there and then completed apartments related development gain. Then if you look at the profit before taxes excluding the change in fair values, that was increased by 8 million euros. And of course, the net rental income contributed there, but the SGA expenses came up by 2 million euros and financial expenses actually decreased by 0.9 million euros. On the right-hand side, we have FFO, a couple of notes there. There are some items that are different from the profit before taxes, obviously. So first of all, financial expenses declined 2.6 million euros. And there we have an impact of this completed tender offer. Some of our financial expenses line, we booked approximately 9 million euros gain and of course that has a tax impact so the net impact of that tender was 7.2 million euros. If we just look at interest expenses, so that grew 7.1 million euros, given the fact that there was bigger loan portfolio, underlying portfolio, and we have quite a high hedging ratio, but it's not 100. So that's why some part of the portfolio has a, loan portfolio has an impact from higher interest rates. Financial occupancy improved. as Jani already mentioned and tenant turnover declined 1.3 percentage points so good trend in both angles here I think like for like rental income we already discussed so investments 116 point 3 million euros mainly ongoing developments. So we haven't been starting any new development process, but these are ongoing processes and those of course will be completed. Monetary investments and repairs put together 25.9 million euros. Then if we look at what we estimate to happen in 2024 regarding this saving program, we are not making any new modernization investments, so of course we will finalize the ongoing modernization investments and those will be completed mostly by the end of this year. So 2024 there's a tail we estimate that that is going to be between one and two million euros so quite moderate level given the saving program. Value of investment properties, change in fair value is already discussed. A couple notes there though on top of that. So one is that we have still a little less than 1,000 apartments where there are restrictions regarding valuation and those restrictions will end by the end of next year and giving in total an uplifting value between 85 and 95 million euros. Most of that will come through 2024. And these ongoing developments, we have already invested 236.4 million euros and 56.5 million euros to be invested in order to finalize these ongoing developments. Most of that this year, less than 20 million next year. And this ongoing process that not will be completed this year, will be completed quite early next year. And as Jani mentioned, roughly 51% development gain. So if you do the math, so that gives approximately 50 million euros development gain in this ongoing development once finalized. Equity ratio and loan-to-value, we actually have very strong figures here. We have set the target to have equity ratio above 40 and loan-to-value below 50, and we have quite sizable buffer against these levels. Couple notes regarding the financing. So we still have unused committed credit lines in place, 300 million euros, and we have 200 million euros unused syndicated loan we made before the summer. and then we are going to draw that to pay back the 200 million euros bond maturing in October this year. So that actually means that we don't have any specific maturing lows before the remaining part of the Euro bond maturing in June 2024. Our financial key figures actually quite strong, hedging ratio 86, average interest rate going up for obvious reasons. So hedging ratio is not 100 and when we do new financing or refinancing actually, so there the cost of new debt is much higher compared to the ones we are paying back. So that's why it's going up. I mean, the average interest rate, but with the moderate phase, given the balanced maturity profile, what we have in our portfolio. Coverage ratio 4.1 and average maturity as well as average interest, fixed interest rate period, little more than three years. NRV down by 12.5%, landed at 19.5% and the biggest reason behind that change is of course the revaluation we made at the end of last year. Still quite strong figure here. KPI's very strong outcome there, so top line growth 8.6%, annual investment 116.3, FFO against total revenue a little more than 37 percent. It's good to keep in mind that whole year's property taxes are already booked during Q1 and the second half portion of that is 6.7 million euros loan-to-value equity ratio already discussed, quite sizable buffer there. And then net promoter score 52, very very strong figure and a nice improvement there as well. Then our outlook for this year specified Not that huge changes there, but some specification anyway. So now we estimate that the top line growth is going to be between 7 and 9%. And as we are proceeding, and as I already explained, the drivers behind the top line growth, so properties or developments completed acquisition last year. properties to be completed this year, they all contribute already the top line and then the improving occupancy and the increase in rents is going to contribute this as well. If we then talk about FFO, now we estimate that FFO this year is going to be between 158 and 167 million euros, so slight increases there. And it's good to know that now we have changed the wording as well. So in this specified FFO guidance is now included the outcome of this tender offer, so a net impact 7.2 million euros and then we have penciled in the possible refinancing, premature refinancing on this 2024 Maturin Eurobond and there we have penciled in a figure of roughly 6 million euros and these are now included in this specified FFO outlook and we have changed the wording accordingly. And now back to Jani.