Lumo Kodit Oyj

Good morning all and welcome to LUMO Homes half-year result webcast. I'm Niina Saarto, I'm Treasury and Investor Relations Director. Soon we will hear the Q2 results. Our CEO Seema Sushula starts giving also an update on the markets as well as on the acquired portfolios leasing and how the integration to our platform has started. Then entering CFO Antti Sivanen continues with financial development and outlook. Q&A follows the presentation and there we welcome both live questions and chat questions. So now we can start with the presentation.

Very good morning on behalf of myself as well and welcome to this LUMO Q2 earnings release webcast. We had actually a strong quarter behind us and all the total revenue, net rental income and FFO grew strongly in second quarter. All in all, the kind of market conditions seem to improve, and I come back on later stage a little bit more detailed on the market conditions. Our occupancy rate grew from last year's comparison point, even though we acquired on 1st of April portfolio 4761 apartments, which occupancy was much lower, 83 on the date of 1st of April. But already during Q2, we managed to raise the occupancy from 83 to 89 on this acquired portfolio and it was truly a success. And the development has continued in very favorable terms since the end of June also. We also refinanced 300 million of our acquisition financing with the bond issue in May. and all in all, our financial position remains stable. In June, we also signed 500 million backstop facility agreement, which is very favorable terms in cost effective wise to us and enables us to kind of refinance the maturing bond not earlier than next spring. If I then start with the operating environment, so all in all, I think The first half of the year for Finnish economy has been very, very, very good. And it's glad to see that finally Finnish economy is leading the pack also in European context on growth terms in first half. Both the first quarter and the second quarter preliminary GDP figures are 0.9% growth in each quarter, which is strong compared to what it has been in previous muted years. So, of course, the kind of geopolitical tensions and somewhat rising interest rates are giving some kind of clouds for the development, but so far so good on Finnish economy-wise. and also the kind of supply demand balance seem to finally start to balancing out, especially if we look at the supply, the rental apartments, which especially in Helsinki area, in Helsinki the amounts of offered apartments have declined meaningfully close to 20 percent from last year's comparison point or last 12 months time. Year to date the decline of a supply department has been even even higher, but then we need to bear in mind that we always have a kind of a seasonal effect from year in. Beginning of the year, when we're coming to summertime, which is the kind of a seasonally best time for landlords. But also, as I said, that for example, Helsinki, it's roughly 20% decline in in apartments that are offered for rental. So it's a meaningful in that sense. Also the construction has been very muted. this year and even the some of the forecasts seem to be that that also the next year for for a residential construction will be will be even lower than this year and and at the moment the the the latest forecast is 15 000 apartments Still, especially the growth triangle, so to say, so Helsinki area, Tampere, Turku area is growing on population terms and even the household terms, even though the households haven't grown as number of households haven't grown as fast as population. And that has been probably the one thing that has kind of postponed the recovery of a rental market. But now it seems to be started, that it has started from Helsinki area and it's, of course, the most important area for us, especially Helsinki as a city, but Helsinki area, our role, so 76% of our portfolio value is in Helsinki area, and in that growth triangle, close to 90% of our apartments are located in the growth triangle. So I would say that our portfolio is in good shape to kind of face the recovery that has started from the capital area. Then as we already announced in February and the deal was closing in 1st of April, so we acquired 4,761 apartments and I think the only weak spot of the portfolio was that it has a very low occupancy at the time of acquisition or closing and it was roughly 83%, but already during, as I said already earlier, so already during the Q2, we were able to raise the occupancy from 83 to 89 and the development has, has been very favorable since that either. So it looks good. And on the last Q1 earnings release, I said that we expect to reach with this portfolio, the stabilized occupancy rate, which we mean that roughly the same occupancy rate than we have in our legacy portfolio. So we expect to reach that, probably not this year but but latest on during next year but I have to revise that due to favorable development so that we already expect to reach that stabilized level already in Q3 so by the end of September if this kind of a favorable development carries on like we do believe at the moment all in all I would say that we had a kind of a a strong and solid quarter. We still have plenty of two. It's very, very kind of promising that the market seems to finally start to recovering. Of course, there's still, if you think about the kind of pricing power of a landlord, so it often comes a bit delayed since the supply demand balance process, but we expect that we will see in latest in the next year or so, so kind of a growing pricing power for our landlords as well. for financial targets compared to our strategy. So it's, of course, early days. Early days, we have a first six months to go, but all in line, but definitely some work to do still, which is natural. Good time to remind that we, in last spring on AGM, we revised our dividend policy where we said that we will distribute at least 20% of FFO to our shareholders. And it was optional either dividend or share buyback. And with the current rating of our share, it's probably more likely to do the distribution via buybacks than with the dividend. But that's a bit of early days to say, but that's the thinking at the moment. Okay, and then I would like to hand over the word for Antti who will carry on the financial development announcement.

Yes, hello everybody also from my side. My name is Antti Sivanen, I'm the intern CFO of LUMO and I will be giving you the insights into the financials for over the next few quarters. until Tommi Valento, who has been appointed as CFO, will start next January. But let's go through the figures starting from the top line. The revenue and net rental income both increased total revenue up 5.9 million euros or 2.6 percentages. As Reema mentioned, we have acquired a portfolio that gave us revenue increase of 14 million euros compared to last year. We have made some disposals in 25 and 26, which has had an effect to the net revenue, roughly 12 million euros. And in addition, we have had a higher occupancy rate compared to last year, which gave increased revenue by 2.8 million euros. Net rental income up 6.0 million euros, 4.1%, the main explanations and revenue. In addition, we had a bit higher maintenance expenses, 0.8 million euros compared to last year. Repair expenses were 0.9 million euros less compared to last year. On slide 14, profit before taxes and FFO both increased. Profit before taxes came up from a negative 24 million last year into positive 62.7 million. If we exclude the changes in value, the increase was 9.6 million euros. and of course it was positively affected by the increase in total revenue as I explained. In addition, we had a bit higher admin expenses compared to last year, 2.5 million. The increased salaries and fees were 1.3 million higher compared to last year. Total amount of financial expenses, they were 2.3 million higher compared to last year. and FFO up 2.8 million euros, 4.5% compared to last year and the same explanation standing profit excluding changes in value. Next slide, occupancy rate. It has steadily increased actually from quarter three, 24. It's now stood at 95%, it was up 1.4% compared to last year, and it was also slightly up 0.2% compared to the year end, even though we acquired the portfolio which had a relatively low occupancy rate compared to our, so to say, legacy portfolio. Tenant turnover ratio has increased slightly, but it's still on a normal level, 14.5. Nothing special there. Next slide, we have had a positive development in like for like rental income. It was up 2.7% compared to last year. Main driver was the impact of occupancy effect was 3.7%. We have slightly a minus from the impacts of rent, especially rent and then water charges in total. and just as a reminder when we calculate this like for like rental income we are comparing past 12 months figures in the previous 12 month figures and it doesn't include the properties that we have acquired or disposed or completed within a few years so doesn't include the acquired portfolio as such Next slide 17, we have had strong progress in investments that was mainly due to the acquisition of portfolio which was made in April that had an effect of roughly 900 million. We have sold 218 apartments that had an effect of 21.5 million euros. and gross investments were totally up by roughly 870 million. And maybe one comment here regarding to the accounting treatment of this portfolio acquisition. At the time when we acquired the portfolio, it was recognized as a cost according to the ruling of IFRS. So that's why the figure is slightly below 900 million. due to the fact of this booking of the premium of this deal. And later on this premium that Varma paid, it was subsequently recognized as a profit on fair value of investment properties, roughly 51 million euros. Modernization investments and repairs were up 6.3% or 1.5 million euros. Slide number 18, fair value of investment properties. They were 8.5 million euros up 7.5%. Once again, the main reason was the acquisition of this Jupiter portfolio that had an effect of 900 million euros. On the negative side, we had the disposal last year of residential properties, which had an effect of roughly 240 million. And we didn't change any parameters regarding the valuation. They were unchanged. In the second quarter, the change in the fair value of investment properties were 34.1 million euros. And next slide, equity ratio and launch value. They have both remained really strong. Equity ratio, 45%. Launch value was a bit above our internal target, which is 45. Now it was 45.1. But we see already in the near future that it will go down below 45%. and maybe one comment here that we still have a quite a sizable headroom to all the financial agreement covenants and for instance the Moody's leverage is 50 and European investment banks LGV limit is 60 so there's a sizable buffer into the limits our financial position has remained strong in May we issued that 300 million unsecured bond and the proceeds were used to refinance the so-called bridge loan that was thrown in April and we still have a plan to refinance this rest of the 300 million euros with the long-term debt. And in June, we signed a 500 million backstop facility agreement which can be used if needed to refinance this 500 million bond which is maturing in spring 27. and of course our intention is to refinance it in debt capital markets. After the review period, we signed a 100 million loan agreement with OP. The liquidity situation is very strong. We have unused committed credit facilities of 275 million and then this unused backstop facility of 500 million euros and the distribution of Krupp's loan maturity is very well balanced. Then key figures per share, they both slightly came down, but didn't change significantly, slightly down. Equity per share now 14.53, EFRA net tangible assets just below, slightly below 18. and the reason was the division of shares. And finally to the outlooks. Outlook, we have specified our outlook both for the revenue and for the FFO. In revenue, we have narrowed the guidance by raising the lower end by 4 million euros and lowering the upper end by 4 million euros. The guidance now is 488 through 493. Still the midpoint of this revenue is unchanged is 490.5 based on our latest estimates. And in FFO, we have kept the low guidance limit unchanged and we have lowered the upper guidance limit by five million euros. The main reason for this is that the finance expenses has been a bit higher than we anticipated in our previous outlook. That's all from me and now I welcome you here. We have now the Q&A session.