Lumo Kodit Oyj

Good morning all. This is Koyamo's full year results news conference and I am Niina Saito, Treasury and Investor Relations Director. Today's presenters are CEO Jani Nieminen and CFO Erik Hjelt. Jani will start with the key figures and he'll discuss the operating environment, whereas Erik's gonna dig deeper into the financial figures and he'll go through the outlook for this year. You can send us questions throughout the presentation via chat and also in the Q&A we take live questions from the phone line. So if you wish to ask in person, there is a hand sign on the screen and when you click that, you'll be placed in the queue. It's good to note that before you speak, you should unmute the microphone. But now we can move on to presentation and I would like to welcome Jani to start.

Thank you, Nina. And good morning, everybody. Nice to be here providing color on what's going on last year and how is the operational environment. I'll jump right to the page number four and start by saying that we achieved actually a good result in a challenging operational environment. We were able to grow total revenues net rental incomes and funds from operations and although there still was a lot of supply in the market we were able to increase the occupancy and decrease the customer turnover talking about valuation now the valuation yield is 4.4 at the end of 2023 there is good to keep in mind that during The last 15 months, we have actually increased the valuation yield requirement by 80 bps. That yield requirement change, if we take that as a separate thing, has had an impact of 1.5 billion euros. On the other hand, at the end of last year, so Q4 figures, the yield requirement came up by 37 basis points creating a negative impact on the other hand as we've been saying several other parameters and as those parameters were looked at and changed as well that had on the other hand a strong positive impact in evaluation We'll come back to more detail in evaluation what's been done there and what are the positive and negative impacts, so I don't dig in further now. Happy to say that the balance sheet has remained strong and our financer figures are actually good and strong. After the review period, we issued a 200 million private placement So financial position at the moment really strong, and the saving program is proceeding according to our plans. Moving on page five, an operational environment. In a way, a bit two-folded situation. On the other hand, global economy uncertain, still high interest rates, geopolitical tension globally casting shadows. On the other hand, positive signs, inflation slowing down, employment has remained high and the rate cycle is estimated to be over and trade cuts are estimated to start during the first part of the year. If we look at the key industry figures, as I said a year ago, we will see a historically low number of new residential startups here in Finland. The numbers stayed well below 16,000 apartments. We still don't have the official latest figures, but it will be a historically really low figure. Today, estimates are that for 2024, the number of residential startups would be a bit higher. Actually, we don't believe in that. There are no signs at the moment that construction volumes would pick up speed. This estimate is based on high hopes that something positive might happen after the summer. But as now it seems, there are no that kind of signs available. That will, of course, create the impact that we already know that for 18 months only a very low number of projects have been started throughout the market. Completions of new resi properties will come down and end and looking forward there will be a time period when we see no completion throughout the resi market. In this kind of situation it's been hard to provide Actual data what's been going on with the construction cost changes. They just say that at least the increase has been leveled off but as there's a very low number of started projects throughout the market there's like no this lack of data in the market so hard to say that the pricing is going at the moment. Last year to be as likely to negative. Now the estimate is that we will see a Slightly positive turn there for 2024. Unemployment still on low level. Inflation here in Finland is estimated to come down to 2%. Moving on page 6. Easy to say that in rental home business the underlying megatrends are still valid. We see that urbanization is ongoing. All the big cities are growing. Strongest population growth in the biggest city areas here in Finland is Helsinki region, Turku region and Tampere region. So basically the so-called growth triangle that creates all the time more demand for new homes. At the same time, we still have an increasing number of small households meaning one or two person households housing trade home buyers have been really careful actually the economic uncertainty rising interest rates of mortgages low consumer confidence has created a situation where the housing trade volumes are muted in the market and it seems that people are more willing to rent the apartment than to take a housing loan. So that creates more demand towards the rental homes. Even though in Finland we on national level see figures that more than 60% of the Finns live in owner-occupied homes, the story is still really different in the biggest cities. And whenever we see new statistics, there's always an increasing number of households living in rental apartments. Cities like Helsinki, Tampere, Turku, actually more households live today in rental apartments than in owner-occupied homes. As said, we did see a historically low number of RACI startups last year. Here's a comparison on the lower right hand corner from the last decade. It will be the lowest figure and as I mentioned most likely same kind of figure 2024. It will create a situation where the rental market balance between supply and demand looking forward will change radically. There will be a market situation where, in my eyes, throughout the market, vacancies will go down and we will see higher rental increases. At the same time, construction companies are really struggling in order to find a way to sell homes. As there is a lack of customers, they are not able to start building new homes. Hopefully at some point there is a new way of providing homes bit more affordable. Home prices are a bit higher at the moment so the construction calls the cost of the land. And this may create a situation where we may see a standstill for a bit longer time. On page 8, a couple of words concerning the key figures. As said, a really good year in a challenging market. Total revenue grew by 7%. That's a combination of three angles. Of course, apartments completed 2022 and 2023. Then, 23, improvement in occupancy and rent increases. And the third angle is the acquisition done during the summer 2022 now provided revenues for the whole year. Net rental income improvement there, 6.1%. Positive impact, of course, from the revenue growth. On the other hand, we did see an increase in maintenance expenses of €13 million, so €1.3 million. two big things there. Heating provided an increase of €4.1 million and property taxes €1.7 million. Funds from operations €167.2 million. Improvement there, comparison year, 4.1%. Two kind of positive impacts, of course, improvement in net rental income. Then on the other hand, the tender offer we did during Q2 last year. Fair value of investment property is now €8 billion, slightly coming down now. Of course, to impact on the other hand, we still have ongoing projects, a new development project increasing the fair value of investment properties. On the other hand, valuation impact was now at Q4 minus 295.4 million euros as it was on the comparison year 682 million euros so that actually explains as well why now the profit before taxes was minus 112 million euros as it was in a comparison year close to 500 million euros on the negative territory. Gross investments 190 million euros mainly remaining ongoing the new development projects which provided 160 million euros and then on the other hand modernization investments which were 31 million euros profit excluding changes in value 183 million euros improving their 0.5 percent I'm moving forward said we don't for time being make any new investment issues and so we are proceeding with the ongoing projects. The end of you for we had 354 apartments under construction and a cost of completion leading these projects. It was 10 million euros. After that we already completed at the end of January one. one project, so two remaining projects. On the chart on the right hand lower corner, there's 119 apartments to be completed at some point after 2025. That project has not been started and will not be started in the near future, but we do have an agreement with one construction company. So one day it might happen, but not today. Two remaining projects proceeding in a normal manner, no surprises there. We still have fixed prices and we start marketing six months prior to completion of the project. On page 10, a couple of words concerning the customer base and our offering. It's really important to keep in mind that Our aim is to provide best possible living, provide added value for our customers by combining apartments, common spaces, services, whether they are physical or digital. We have to have a good understanding of our customers and their preferences. Here, if we look at the figures, we have a really nice match if we consider what kind of housing stock we have, what kind of customer base we have. So one and two bedroom apartments are 73% of the housing stock. On the other hand, one and two person households as a customer base are roughly 76% of the customer base. Then as we've been talking that we are helping people to move towards the biggest cities in order to start working. People in the working age, so I would say between 26 and 64 of the customer base are 73.4%. Of course, we do have younger clients like students, roughly a bit more than 10%. So there's a well diversified customer base. On page 11, some key figures concerning sustainability. For us, it's been always important that ESG sustainability is part of Guilherme's DNA, part of all our daily operations. Of course, we are committed to UN sustainability goals. And our target is that our property portfolio will be carbon free by 2030. We are proceeding well with that target, actually the carbon dioxide reduction was really strong last year, close to 17%. On the other hand, if you look at the figures on the right-hand upper corner, we talk about digital services, 86% of our customers use myeloma services regularly. At the same time, net promoter score 50 was really strong last year. Now if Erik would go further and dig a bit more detailed.

Thank you Jani and good morning everybody from my side as well. So total revenue growth was 7%, so 28.9 million euros, and top line growth was 1.9%. There we have rent and water charges contributing 1.4% growth and occupancy 0.6% growth. So completed apartments, and here I mean 2022 completed apartment as well as 2023, a completed apartment contributed 17 million euros whole year and during Q4 4 million euros for top line growth rents and occupancy improvement there contributed 6.1 million euros whole year and 1.4 million euros during four Q4 and then acquisition that one we made in summer 22 contributed whole year 4.8 million euros but during Q4 the impact was muted. Net rental income maintenance expenses up by 12.6 million euros a whole year and Q4 3.1 million euros Biggest growing items there, as Jani mentioned, heating, 4.1 million euros. Credit losses, 2.4 million euros. Property taxes, 1.7 million euros. Water, 1.5 million euros. And waste management, 0.9 million euros. If you look only Q4, it's worth noting that the winter, starting of the winter, was actually very, very cold here in Finland, and we estimate that the weather impact was almost 1 million euros compared to so-called average weather during Q4. Page 14, left-hand side, profit before taxes. So I'll come back to these value changes later, but if you first look profit excluding value changes, so STA expenses up by 2.5 million euros. And there the biggest growing item as far as personal expense is 1.2 million euros and ICT 2.1 million euros. So we went live for our ERP, a new solution and all those money spent there was expensed, including in our P&L. And it's good to know that the saving program as such is proceeding as planned, but the impact of the saving process program is coming through 2024. On the right-hand side, Of course, FFO in SGA expense is the same as in profit before taxes, but financial expenses in FFO calculations grew by 8.8 million euros. Financial occupancy rate improvement, one percentage points year on year. 93 and during q4 the occupancy rate was 94 is and then if you look tenant turnover it declined by 1.6 percentage point i think we already covered like for like so at 17 investments as i mentioned for time being we are not making any new investments And there are three ongoing projects, one completed already in January, and one will be completed in Q2, and the last one in Q3. And in total, 10 million euros to be invested in order to complete these ongoing developments. So 190 million euros invested last year, they are all coming from the developments and monetization investments. Repairs down by 0.9 million euros and modernization investments up by 4.2 million euros. And then 2024 as part of this saving program, of course, these figures are going to be much lower level. Then page 18, the fair value investment properties, the whole year impact was negative 295 million euros. and out of that, for Q4, 158 million euros. There actually were no comparable transactions in the market, and that's why the yield requirements are based on overall evaluation. And at the end of Q4, we actually looked at all valuation parameters, and other changes actually offset partly the negative impact of yield expansion. So if you start looking the whole path from Q4 2022 to up to end of 2023, so the yearly expansion has been around 80 basis points and 43 in 2023 alone, and out of that 37 basis points in Q4. So, the impact of increase in net rental income contributed a positive figure, €306 million, and change in other assumptions contributed €181 million. So, we increased inflation assumption by 20 basis points, rent growth assumption by 40 basis points, and expense growth assumption by 20 basis points. We added in our material some additional figures regarding evaluation because we noted that other companies or some companies are actually commenting different yield requirements, for example, so we wanted to make clear that that everybody sees what yield and other parameters we use in our valuation. So it's good to keep in mind that all our yields, they are based on net yield, not gross, they are net yield. And on average, if we first look at net yield requirement for cash flows, on average, at the end of Q4, it was 4.4%. The exit capitalization rate was 4.55%. And since we applied 2% inflation assumption, so cash flow discount rate was 6.4%. As said, inflation assumption now 2%, rent growth 2.8%. 6 and expense increase is assumption in calculation 2.5%. Loan-to-value, we have set the target to be below, have a loan value below 50. And Moody's affirmed our PAA2 rating in December. One parameter there is of course loan-to-value at the end of Q4. The loan to value was 44.6. And if you then look what buffer we have against this 50% level. So if only yield requirements changed, we have roughly 900 million euros buffer against this 50% level that translates into 55 basis points. As seen in Q4 valuation, there are other parameters that plays important role, but this calculation was based only if yield requirements change. Page 20. Last year was actually, we were quite active what comes to the financing, so we made in total financial arrangements for 925 million euros And we say that 2024 maturing loans are already covered and actually almost half of 2025 maturing loans as well. So this 425 million syndicated loan, the second one that's still undrawn and in January we made an additional 200 million euros private placement on the issue at the end of Q before we had 18 million euros cash and financial assets and we had 275 million euros unused committed credit lines in place so if you calculate this second syndicate it was still under on the private placement and the fact that the board is proposing not to pay dividend and the saving program and the impact of those so almost 800 million euros to be used to refinance these maturing loans. And so that leaves roughly 250 million euros to be in a position where already all 2025 maturing loans are covered as well. So we are in that regard quite strong position. Financial key figures quite strong. Interim liabilities in total 3.6 billion euros. Hedging ratio north of 90. and average interest rate including cost of derivatives 2.4 percent. APRA NRV 18.45 and the change was due to the change in fair value and investment properties. Then page 23, our outlook. So we estimate that the top line growth will be between four and eight percent year-on-year and we estimate that the ffo for 2024 is going to be 154 and 166 million euros in in that range so if we first look the the assumptions uh behind this stop-line growth estimate so complete departments so meaning 2023 complete this and the one completed already in January and the two one that will be completed later this year, that will bring us around 3% top line growth. And then, of course, the like-for-like rental growth last year was 1.9, and we anticipate that like-for-like rental growth 2024 is going to be stronger than that. So the rent increases and improvement in any vacancy most likely is going to have a positive impact of top-line growth on top of this 3% what comes through the completed apartments. FFO guidance, of course, the range echoes the top line growth guidance, but if you look then the midpoint of this FFO guidance, so there we included in those figures the cost inflation for this year, the impact of cost inflation this year, saving program, and then and the assumption that the remaining part of 2025 maturing loans will be refinanced this year and earlier rather than later. So all these are included in the midpoint of the FFO guidance. The range as such in guidance equals the top line growth guidance. Page 24, our strategic targets. We are in a saving program mode and for time being not starting any new investments. and that's our action plan for short term. However, we met all our strategy targets 2023. So, the top line growth at 7%, investments 190 million euros, FFO clearly above this 39% target, 37.8, loan-to-value 44.6, and equity ratio 44.5, and net promoter score clearly north of the target, so 50. So, as said, We met all our strategy targets, despite the fact that now we are in this saving program mode in the whole package, including not making any new investments for time being. And now back to Jani.