Kojamo Plc

Very good morning and welcome. This is Koyamos Haavio Result webcast. I'm Niina Sarko. I'm from Investor Relations. Today we have two presenters, namely our new CEO, Reima Klytsölä. He starts the presentation with the highlights for the review period, and he also discusses the operating environment. Then CFO Erikelt continues with financial figures and the outlook for this year. As usual, we have Q&A after the presentation and there we take questions via chat. And then we also open the phone line for live questions. So I guess we are now ready for the presentation.

Thank you, Niina, and very good morning on behalf of myself as well. I'm excited to be here for my first quarterly release I calculated that it's roughly 12 years ago since I was last on this side of the table on investment, meeting investment community. I was then in Pohjola Bank PLC's division head of banking and also last 12 years been sitting on another side of the table, your side of the table, but very happy to be here. And it has been kind of a very positive start for me. It has been kind of great to notice that Koimo people are very energized and competent and even though the market conditions haven't been that great in last two years, but hopefully getting better. So as Nina said that I recently started, so started on 1st of June, or actually 2nd of June, Monday, and obviously 2 3rd of the quarter has already done at that stage, but happy to present the main key points of the quarterly result. I think the highlight of our first half year has been that we have been improving significantly our occupancy rate and that has been really kind of a positive development. both the revenue and net rental income increased and there was obviously due to some leakage from gross revenue to net rental income and that was mainly due to one of allocations but of course some of the effects were also in inflation still affecting the the maintenance and repair costs, but we assume that those costs overall will be around about same level this year than they were previous year. FFO decreased mainly due to higher financial costs. Maintenance and repair expenses caused some decline of FFO, but as I said, the majority of the impact came from financial costs. As I told on very beginning, the occupancy rate development has been really good and it has been kind of a very conscious strategy so that we were lacking in our occupancy rate and we have worked really hard and made some changes in our processes, especially pricing and sales process as such so that we have been able to achieve a very good development Market hasn't helped that much in that respect and there's still oversupply in the market, especially in the capital area. But at least it looks like so that, how to say, growth of oversupply has stalled now and you might expect that at some point it will turn around. We also signed in June and closed the deal in July the 1944 apartment sale and as we already have earlier communicated the proceeds of sale will be used reducing debt and starting the share buyback program and of course this transaction and usage of proceeds will kind of strengthen our balance sheet and also with the buyback we aim to also kind of neutralize the FFO effect for the shareholders and through that kind of give a better kind of a chance for value creation. Our financing position is very strong and both in June and actually this month we have closed over 200 million bank loans refinancing and and next refinancing arrangements will focus on loans that are maturing in 2027 and then of course starting those refinancing operations next year so it's very solid base for do the business where we are Operating environment, I think many of us who follow the kind of global economy and indicators are somewhat confused at what's going on. There has been a lot of hassle around tariffs and their effects on global economy. It certainly brings some uncertainty. still even though there's the expectation that the US economy will slow down a bit but there's still some kind of a positive upbeat in the expectations of a euro area growth and Finland has been forecasted as well that the growth will be better this year. Inflation in Finland is very modest and I think it's fair to say that given the circumstances, our own growth prospects in Finland and inflation, so the monetary policy as such is tighter than the Finnish economy would required and some might argue that there's a room to cut rates further is also from euro area perspective but anyhow the kind of a rate cut the expectations have if not vanished but at least the expectations are definitely not there in that extent that they were some months ago. Even though the macroeconomic outlook is not as boosting as we all would hope, I would say that the megatrends are still there when talking about housing and and two main drivers of that this is of course the startups of a new residential and then the kind of a population growth in major cities and if you look at this graph of how basically housing starts so it's very kind of low level at the moment and even the expectation of a residential startups this year 20 000 I would say that it's probably on optimistic side and for example today this morning it was in a Finnish newspaper Helsingin Sanomat article of a of legislation changes concerning the subsidized apartment building and if that will be cut as well so given the fact that it has been estimated that the kind of a need for a new apartment is roughly 35 000 a year in Finland so and the current level is 20 000 or less than 20 000 so and it has been already for a couple of years underneath the 20 000 so that's obvious that it will affect the supply And at the same time, the population growth in major cities in Finland has even picked up. And for example, Helsinki just posted that over 700,000 inhabitants in Helsinki, and also the kind of overall the capital area is growing. Of course the big driver in that sense is immigration and even though the trend of decreasing average household size is still there, But immigration as such is a little bit kind of affecting that trend, kind of slowing down, because it seems to be the case that many immigrants are living more intense in apartments than the Finnish ones. But overall, the urbanization megatrend, I think, is definitely there. And the biggest cities like Helsinki Capital Region and Tampere-Turku are the ones who are the clear winners in that sense. And then if you look at the kind of, I'll give a glance for our own portfolio, Kojamos portfolio, so it's very well fit to that trend and roughly 87% of our fair value of our real estate is in Helsinki region, Tampere and Turku. So I would say that it's a very good strategic fit in that sense. ESG as such has kind of, if not faded away from investors' interests, but at least the significance is not there in that extent as it used to be a couple of years ago. But we still think that it's a super important topic. and we keep on doing constant work for achieving carbon neutrality in 2030. We are well in time in that schedule. and for us it's of course also kind of a matter of profitability so to say so more energy efficient than we are so we can cut down our maintenance costs and and even though we speak about the scope 2 here so it's good to notice that actually heating is included in our figures so it's in that sense relatively comprehensive scope 2 so to say Of course, we all know that the last mile is the most difficult here, but there's still some room to develop different technologies as well, which could enable achieving carbon neutrality in that sense. I would say overall very solid first half year and as I said that the most positive point is to picking up the occupancy rate and create the revenue growth even though the development in rent levels muted or even in negative territory some locations but one thing that I would like to highlight here as well in this screen is the Net Promoter Score which is 58 for us and it's all-time high and the customer experience and developing customer experiences will be kind of a key factor for us in the future as well and we truly believe that put the customer in the center we can create the service and kind of a clue for our customer relationships that in the future we even able to kind of improve our rent premium hopefully. I think this is pretty much the part that I should cover, and I would like to now hand over to Eerik to go to financial development, and then we will take together with the Q&A. So thank you very much.

Thank you, Reema, and good morning, everybody, from my side as well. So, page 12, if we first look at the total revenue growth, first half of this year compared to first half last year was 4.3 million euros, and Q2 was 3.3 million euros up compared to Q2 last year. And you may say that growth came entirely thanks to improved occupancy. On the net rental income side, H1, the growth was 2.9 million euros and Q2, 2.7 million euros. On the maintenance side, the cost increase was 0.8 million euros in the first half, and on the repair side it was 0.6 million euros. In the maintenance expenses, there are both positive and negative figures, so on the positive side, heating 1.5 million euros below last year's figures, mainly came through during the Q1 this year. So electricity down by 0.4 million euros and credit losses 0.5 million euros. So on the other side, there's water that went up 0.9 million euros. That's actually quite logic when you have more customers, they spend more water. So maintenance up by 0.7 million euros and outdoor maintenance up by 0.6 million euros. As Reema already mentioned, there are some allocations in the cost side and we still expect the whole year maintenance expenses and repairs to be brought in line last year figures. Page 13, if you first look left-hand side, profit and loss before taxes, I come to the change in values later, so the profit excluding change in values, so it's down by 12.3 million euros. Net rental income contributed 2.9 million euros, as said. SGI expenses increased by 0.2 million euros, financial expenses up by 8.8 million euros and then depreciations 7.3 million euros. I come to that figure later when discussing value changes. On the right hand side, FFO down by 6.2 million euros. Most of the items are same as in profit calculations, so net rental income, SGA and finance expenses. And then in FFO calculations, current tax is up by 1.7 million euros. So page 14, as Reimo mentioned, there was a strong growth in our occupancy rate and that our focus has been quite a long time already to improve the occupancy. There has been discussions whether we should release quarterly figures as well now they are here so this 93.6 is a cumulative figure year to date but you can of course always calculate the quarterly figures as well but now it's released here so the Q2 occupancy rate was already 94.4 and in June alone it was 94.8 So quarter on quarter the growth was 1.6 percentage point and if you compare Q4 to Q2 this year, so the growth was 3.3 percentage point. At the same time our tenant turnover came down by 1.9 percentage point. With 15 like-for-like calculations, this is backward-looking calculations, because we compare latest 12 months against the previous 12 months period, and in a turnaround situation where we clearly are at the moment, this is clearly lagging behind, and this is especially true if you look at the occupancy rate, because in this type of calculations, you have the tail of previous quarters. So in these calculations Q3 you compare actually Q3 2024 against Q3 2023. So that's why it's really backward looking. Of course rents and water charges are better representative. We are still increasing the rents for existing customers, the rent increases. on average are between somewhere between 1.2-1.3 percentage and some of that is eaten if you like because we are now we've been more flexible what comes to the renting but in total in these calculations we are still the impact of rents and water charges on positive side. Investments remained at the low level We have only one ongoing development, 119 apartments, one process to be completed January, February 26. And for the time being, we are not making any new investment decisions as part of the saving progress. anymore talking about saving program as such, but we are still in the mode that we are at the moment, we are not making any investment decisions. And of course, the disposal site, almost 2000 apartments completed after a review period, but the agreement was signed during the period. Modernization investments now are up to 10.4 million euros and we estimate that the modernization investments this year will grow from last year estimates are around 30 million euros because we have started few larger modernization projects. And as I said, repairs expected to be in line with last year figures. Page 17, fair value investment properties. There hasn't been any changes in calculation parameters, no changes what comes to the yield requirements. All transactions, small or bigger ones, they are taken into account in these calculations, and those ones completed after the review period are pretty much in line with these parameters. During the second quarter this year, the fair value change was negative 48 million euros. Biggest portion of that 33.8 million euros is related to value change in non-yielding assets, particular metropolitan properties, and we estimate that this will not have any impact for valuation or values of apartments. On top of that, there's an impairment loss of 7.3 million euros due to the write-down of our own office premises, so head office here in Helsinki where we currently are, but that is booked on a different line or that's a change in fair value investment properties. Loan-to-value equity ratio, quite stable. On loan-to-value side, 44.4. That includes the non-current assets held for sale. Now, biggest portion of that already sold, as we speak. Page 19, next financing arrangement needed for us is to refinance 2027 maturing loans, so no need to do any additional financing arrangement in the short term. Our interest rate came down to 3.2%. We have made two different agreements, one during the review period and one after that, so they were actually both extending existing loans, so in that sense no new financial agreements. Net debt came down and our financial key figures are strong. equity per share and EPRA NRV quite stable this quarter and then page 21 our outlook so when we released the closing of the divestment we updated our outlook and we restate that outlook so compared to that no changes so we estimated that the total revenue growth for this year is going to be zero to two percent and then FFO to be between 135 to 141 million euros. Why we made the update in Outlook in connection with the disposal, so always our outlook is given excluding the potential impact of potential transactions, so that's why linked to the transaction we updated our outlook. And it's good to keep in mind that the outlook doesn't take into account taxes resulting from the transactions, because they are considered to be non-recurring items. But then a couple of notes regarding the outlook. So if we take the midpoint of the top line outlook, so there we estimated that the occupancy will improve even going forward. We estimated that the rent increases are going to be moderate and we are flexible in rents. and we don't expect any support from the market. It may happen that the market is going to be more supportive going forward, but in this guidance we haven't anticipated any support from the market. And then the midpoint of the range for FFO, that of course reflects the range for top-line outlook. And in the midpoint of this FFO guidance, we expect, we hope in St. Pennsylvania, that the repairs and SD expenses are going to be brought in line with last year's figures, maintenance expenses brought in line with last year's figures, as already discussed, and then average weather, the remaining part of this year. So at this point, back to Reimo.

Thank you, Erik. I think overall we have tried to cover as well as possible at the moment the H1 results and maybe a couple of words before we went to Q&A that how to weigh forward and we have decided to start to review our strategy during latter part of the year. I would say that as a non-native English speaker, I'm not 100% sure is reviewing correct word. It's more of a tuning, but anyhow tuning to reviewing as you can take it. But we definitely do that. I think couple of themes that will be in a spotlight for going forward as well is customer experience and operational excellency. And we definitely kind of understand that growth importance from a value creation perspective and we will kind of work hard to kind of assess what's the way to grow in the future and what's the good timing for that. So definitely note taken even before the note was given. So I think we are more or less ready to start the Q&A.

Yes, we are. Definitely. Do we have any questions from the room here? No. Then in that case, we start with the questions from the phone line. Go ahead, please.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Anssi Rausi from SEB. Please go ahead.

Yes. Hi, Ollanta. Thank you for the presentations. I have a few questions and I go one by one. So first one is about your rent. So reported rent per month decreased a bit year over year. And you mentioned that the rents actually increased in existing agreements. Can you maybe discuss a bit these underlying elements here, like the impact of campaigns and should we expect that these level out towards the end of this year? That's the first one.

Maybe if I start and Erik can continue, that obviously the kind of obvious outcome is that when we have gained so much in occupancy rates, so with the market conditions that haven't eased that much, so it's obvious that we have had to reprice the kind of new apartments as such, but as we discussed already earlier, the kind of market conditions that we expect that oversupply at least stalled, and there might be a good chance that it will ease a little bit in the coming months, so that's why it's difficult to say that whether how's the rental increments developing in the coming months but I would say that we see kind of going next year that there is a room for a rental increments but on the other hand the amount probably will be relatively modest. I don't know if you want to kind of add some, Erik.

So we have changed our approach how we price apartments that become vacant and now we are doing it when it becomes vacant, not before that and in some cases. It turned out that the market conditions are such that the new rent is lower than the one in the contract that expired. So that plays a role there. And then some campaigns, yes, we do use some campaigns. In some cases, we give two or three weeks rent-free period in the beginning of tenancy. The market standard has been actually one or two months, and we've never done those. But two or three weeks is something that we use. So this is the impact on top of the rent increases we do for existing customers. And we started this new approach for pricing. when we concluded that we are focusing now to improve the occupancy and we wanted to be more flexible in rents given the market conditions and now we as part of expanding our or enhancing our own operations thanks to the more flexible in the rent levels and now we've been improving very strongly the occupancy. And of course, the idea is going forward that once our occupancy is on a high level and once we see that the market conditions are improving, then we start to increase the rents more. Already today, in some cases, we are able to increase the rents, so these are average figures, depending on the local supply-demand situation.

And if I still add a couple of words, so we have made the changes for our pricing methodology as such and make it more dynamic and that will obviously work on both sides. So expect it to work on another when the market will pick up to another side as well.

Okay, thanks. That's really helpful. And maybe the next question related to this fair value change, especially in this metropolia property or properties. So what regard this fair value change and maybe do you have plans regarding this property? And also maybe if you can comment on other plans, if you have any related to possible future divestment.

Can you repeat the first part of the question? So I kind of missed it. So about the Metropolia asset. So what was your first question?

Yeah, so basically what triggered this fair value change?

What triggered?

Oh, sorry.

Yeah, sorry. I didn't hear it. I think it's, of course, we... me as a new CEO wanted to kind of do that kind of a thorough due diligence as well and we discussed quite a lot of kind of possibilities of those non-yielding development assets as metropolis assets are and of course the market has changed quite dramatically and when when talking about the development assets as such and their pricing and then we did kind of a thorough analysis and kind of readjusted the valuations more on a level that that we think that kind of a fair market price is... As you know, when we talk about non-yielding assets, the valuation is more of a kind of a... Depending on very many kind of criteria and inputs, but we think that at the moment they are in fair value.

Okay, got it. And yeah, the final question was that basically, do you have any initial discussions regarding possible future divestments, additional divestments?

Well, we keep on focusing our portfolio and concentrate even further with the major cities in Finland, and that's what we keep on doing. We are definitely, as we both with Erik stated earlier, that we think that we are in a strong financial position, so we don't have any urgency to divest further, but on the other hand, you can't kind of focus the portfolio even further if you don't do any divestments. So in that respect, there's still some on the agenda of divestments.

One additional comment. So we, after this transaction completed during the summer, we still have four assets in assets held for sale. And those discussions are proceeding quite nicely.

Thank you so much. That's all from me for now, at least.

The next question comes from John Vong from Van Lanshot Kempen. Please go ahead.

Hi, good morning. So you've been regaining quite some market share as you move up in occupancy, but at the same time, it sounds like you still aren't really happy with the occupancy you're at. So what's exactly the next step in your view? And what's a level that you'll be a bit more happy with where you wouldn't necessarily have to do these marketing campaigns anymore?

Well, I think we still have some room to do in improving the occupancy. It's fair to say that we're progressing well on that. And our plan is, of course, that our occupancy will be in a more of a kind of, would I say, normalized levels when the market will pick up and we have a kind of a better capability to go with the rent hikes as well.

What would you consider more normalized levels, like 97%?

Well, we haven't communicated any kind of a target level for our occupancy, but I would say that around about 96 to 97 sounds much better to me than 94 and 8. That's fair, thanks.

Just on the net promoter score, I think you mentioned that you also see room for a rent premium, given that you have such a good score. Just try to understand here, what's the difference between your in-place rents and market rents, and how much more of a premium do you expect to get in this market?

So we do get a premium compared to market rents still, even being more flexible when it comes to the renting. And that is the current situation. And going forward, of course, our aim is to get even more of premium, and as said, when the occupancy rate is higher and the market improves, and our net promotional score, so customer feedback improves as well, so that gives us more space to start to increase trends going forward. So yes, we get premium pricing at the moment, but we definitely want to get more premium in the future.

And I think that, as Erik said, that the kind of focus in the future as well, the customer experience is one key part of that, that we will be able to charge kind of a premium rent that our customers will value our apartments and services so that they are willing to pay premium.

OK, that's clear. And just one last question. As you start your share buyback program, I suppose you send a signal that you are comfortable with your leverage. How should we think about restarting the different distributions?

Well, that's a discussion that we have to go through with our board of directors in the latter part of this year. Of course, we aim to get back on paying dividends as well. That has definitely been a kind of a temporary period that we didn't proceed any dividends in last two years but of course then we need to kind of adjust as well the market price and valuations so that what is the kind of a best and optimal way to proceed funds back to owners.

Okay, clear. Thank you.

The next question comes from Rob Phillips from Green Street. Please go ahead.

Thank you very much for the presentation. I just had two questions on my end. So firstly, following your recent disposal, how do you kind of see the broader transaction market developing And are you observing other potential deals? And should we expect future transactions at similar discounts to balance sheet value? And then secondly, could you share some thoughts on your capital allocation roadmap going forward? And should we expect more disposals and balance sheet discipline? Or are you starting to tilt towards growth? And how do you think about the role of new equity in that context as well?

Well, I think if we start with the transaction that we made and the feedback since that and kind of market reactions, of course, it was a very big transaction given the kind of a recent history of Finnish real estate markets. has created some kind of a more interest on around the transactional market and that there's kind of a picking up of interest to invest in Finnish real estate market or in general I would say that as we discussed or answered already previous questions, so we do have a kind of some thoughts to divest further. It depends on how it will match our strategy and portfolio and more of an aim to even more further focus the portfolio. take any kind of a stance of a possible discount in future transactions but of course everything depends on the quality of the disposed assets and so on but on the other hand I would consider that when the at least it looks like so that the market conditions are getting better so in that respect I think if something so it would be kind of a with the kind of a like for like type of portfolio the discount should be smaller I don't know if you have anything to add down there

So, of course, the transaction volume has been quite muted, six or seven small transactions last year and the beginning of this year, one, two, three, even four assets each. Based on discussions after our transaction with the brokers, it looks that this transaction is actually creating momentum because there seems to be more international investors who are really scanning the Finnish property market. So they've been here earlier as well, but in most cases, what we heard, and we know some of those, they have filed in so-called low-ball offers. But now it looks at the discussions around more relevant levels. And our transaction was the biggest transaction, the only bigger transaction after 2022, and that really... was positive for the whole market. And after our transaction, there was one bigger transaction in the market as well. And as I said, there's more realistic discussions at least at the moment, thanks to our transaction.

The next question comes from Neeraj Kumar from Barclays. Please go ahead.

Good morning, everyone. My question is in regards to Moody's rating. So I see the negative outlook for Moody's has been there for nearly 2.5 years now. And we see that you have started a share buyback program as well. So is it fair to say that you see no risk of Moody's downgrade from here?

So, yes, the negative outlook has been there quite a long time already, and that's quite unusual, to be frank, but based on discussions with the Moody's, they think that all our other KPIs and ICRs is very strong in line with requirements for PAA2. They do share our view that the market is about to change, and they have noticed the same as we have, that the interest rates came down, and they seem to like the company. and they are more focused now on the big picture, not only one KPI. And they appreciate all the actions taken by the company, so the saving program, not to start new developments and not paying dividends for two years in a row. And so they... view that the company is moving in the right direction and they wanted to give the company time to show that this is really happening. So that's what that's all about. We are going to have a management meeting with Moody's Friday this week, so perhaps we learn something more. We really didn't discuss this disposal and how to use the money with Moody's, but we say that our aim is The same as we released in Q4 report that our aim is to dispose something and first priority is to pay back loans, second priority is to pay back own shares. And now that's something we've done and we are doing. So the biggest portion of the proceedings received used for to pay back loans and on top of that we are about to start this share buyback so they are aware of this and as said the negative outlook has been there quite a long time and as what I explained is the reason why they kept that so long time so they wanted to give the company time to show that all the actions taken by the company are really paying off as they are doing

Got it. And my second question is in regards to the valuation yields and the valuation assumptions. So, I see that you're assuming a value occupancy of 97.2 percent and Looking at last five years of occupancy numbers, it's nowhere close to 97.2%. And also in light of your recent transaction where you disposed at around 10% discount to book values, do you think it warrants a rethinking on how you're valuing your portfolio and if there's more valuations to be taken?

Yeah, I think we are kind of confident of our valuation parameters, and that's true that our occupancy rate hasn't been there as on the parameters, but we have done that adjustment. Would you like to elaborate a little bit, Erik, the adjustment?

So the adjustment as such was made when we moved the portfolio as it's held for sale. But before the transaction and when the transaction discussions was ongoing, we discussed with Jons Lang Lasalle the potential impact of this transaction if it is completed on these levels we were talking about at that time. And the feedback from Jons Lang Lasalle was that it's not going to have any impact for the valuation. And actually, they say that the yield we were discussing about was even better than they expected. So in that sense, it was actually a positive thing. So that transaction is, according to our standards, not going to have any impact on the valuation going forward. Yes, we do believe that the valuation is made correctly and reflects the fair value of these properties. And of course, the yield requirement has been one topic that we have been discussing two or three years already. And now, since the interest rates came down quite nicely, so at least the pressure to increase the yield requirement in the valuation has gone away. So, and George Langlas, I'll share our view regarding that.

Got it. That's very helpful. Thank you.

The next question comes from Svante Krokfus from Nordea. Please go ahead.

Yes, good morning. Svante Krokfus from Nordea. Thank you, Reema, Erik, and Nina for the presentation. A couple of questions left from my side. First one regards the market balance. I think you have earlier this year also mentioned that the market balance, I guess, for the capital region could be reached. I mean, similar level as witnessed before the pandemic could be reached already in H2. So that doesn't seem to be what you comment now. So what has changed and perhaps not changed for you to have a more cautious view on the market balance?

I think it's partly because, I don't know what it's called in English, but Siberia opettaa, so to say, in Finnish, so that when you kind of forecast that it will balance, and there's kind of very good reasons from megatrends or trends like population growth in major cities, and on the other hand, very low level of a startup of new residents also that will eventually kind of balance the supply-demand pattern and we are confident that it will do but we have kind of probably stopped guessing now that what is the quarter or what is the half that it will happen but I think it's fair to say that our confidence that it will happen hasn't decreased as such.

So perhaps I'm guilty for saying something regarding balancing the market situation. And as I said earlier, we are not guiding anything. And as Reimo mentioned, siperi opetta. But what I said was actually that we expect to be on a market situation on the same level, so available apartments in the portal on the same level before COVID-19 by the end of this year. And I haven't changed my view. It remains to be seen whether that happens or not. So overall situation of Finland is one thing, but if you then look available apartments in the portals Helsinki Expo and Vantaa, the volume has gone down beginning of this year. So in that sense, we are moving in the right direction. And the gap between in these cities, the gap of available apartments today compared to the volumes before COVID-19, it's not that huge. But at the moment, it's rather challenging to comment whether this trend at the moment is thanks to the situation really changing because it has to change in some point if you look the volumes of our new startups for last three years or so and estimates for population growth in some point of time it has to change is it thanks to this expectation coming through or is it because of the seasonality because during the summer you typically make more lease agreement we've been making very strong improvement in occupancy, despite of the seasonality earlier this year, and despite of the oversupply in the market. But as said, this is the situation that in Helsinki Expo and Vantaa, we've been moving in the right direction in the market beginning of this year. But as said, it remains to be seen where we are by the end of this year, and in which quarter we are in that type of balanced situation.

Okay, thank you. That is very helpful. The second question is regarding your churn, that seems to have come down quite clearly and still you're raising rents on existing contracts in a difficult market. So what are the reasons behind that?

I think that's one thing that we are actually targeting to kind of bring the churn somewhat down. And we have kind of focused on the already now on the improving the customer experience. And as I showed the NPS figure, so we seem to have kind of succeeded to do that. And of course, that will help the kind of bringing the churn figure down. We are in kind of early days in that respect, but that's definitely something that we try to kind of bring down in the future as well. Of course, that can't be kind of a as an intrinsic value type of target, the churn, but definitely every new customer, you have an acquisition cost as well. So in that respect, I think from a company point of view, it's kind of profitable to bring the churn down.

And I think our own doings plays an important role there as well in improved NPS. So we have actually changed many things what we are doing. One is that now we have better cooperation with service providers and we're leading them in a more efficient way. We have developed our operations what comes to the LUMO Service Center and now we are faster and more effortless services giving to our customers because we have changed how we manage the whole actions in customer interface. So I think this plays an important role in improving Net Promoter Score.

Thank you. And the last question, Reimo, you mentioned growth, and obviously the most profitable growth in history for you has been own new developments. What needs to change in the market for you to be attracted to make new developments again? I guess we are quite far from that point currently.

Yeah, I agree that that's kind of not the next step or next tool for growth, because already in the market there's very good existing assets to be acquired if there's a will. So that's more tempting at the moment than developing and starting up a new development of our own. it's very difficult to say that when it definitely needs a better market conditions than at the moment but it's very difficult to say kind of give a kind of a timeline when that would happen but at the moment the kind of a development margin don't tend to work as well as they did before the interest rates start to rise

Okay, thank you. That is all from me.

The next question comes from Paul Gorry from CTI. Please go ahead.

Hi all. Yes, it's Paul Gorry from Tensory Capital. I have a quick question on the cash tax. Related to the disposal, I just wanted to understand, we don't always see cash tax actually crystallized as part of these transactions. So I wanted to understand why it's crystallized here. And is it that the company doesn't have kind of tax losses carried forward to offset against that?

So we have quite a sizable amount of deferred tax liabilities in the balance sheet, almost one billion euros. And that's, of course, due to the depreciations and due to the positive value changes in the history. And when you dispose something, of course, those deferred tax liabilities will crystallize as gas taxes. So that's how it works.

Okay. So future developments, would it be the same structure? So if you did another transaction tomorrow of roughly the same size, I could expect the same level of cash tax to come through.

There's clearly going to be a cash tax as well, but what amount depends on what properties we are disposing, because it depends on the value changes and depreciations in history. In some cases,

the impact is zero and some cases it's the same level as in in this one in most cases some some somewhere in between yeah yeah okay that makes sense i i guess i was thinking about it from the perspective of of disposals and share buybacks so you know the logic is you do the disposal at NAV roughly. I mean, it's a 10% discount in this instance, but at NAV and then buy back the shares at a big discount. But once you factor in the potential discount to book and then the tax impact, it kind of negates. Would you say that kind of future developments, you know, the tax element has a big implication as to whether you would then do additional share buybacks with the proceeds or the two, you know, you don't really relate the two?

So, of course, we take into account and consideration the potential tax implications, but we are not running the company based on taxes and tax implications. So there are other drivers beyond disposals and share buybacks.

Yeah, okay. Okay, that makes sense. That's it for me.

Thanks. There are no more questions at this time, so I hand the conference back to the speakers.

Yeah, thank you. Excellent questions. I think we have few more here left, although we covered quite many. But coming back to the rent increases, could you give some color regarding your ability to increase or the pressure to decrease rent in different areas and different cities? Is there a lot of variation between cities?

Yeah I think there is and definitely the market is not the one and the same and that's why I think it was also important that we have changed our pricing methodology so that it goes to basically in the end for a single flat. And it depends on, of course, if you look at the occupancy rates in different cities, they are different, and that kind of indicates as well the pricing power in the future. And as we have discussed, quite a lot of capital regions, so we have had difficulties with the oversupply, but as we discussed earlier about the market outlook and probable timing for balancing that supply demand, so that will definitely help with the pricing power as well.

Yeah, a little bit the same theme is, as you mentioned, occupancy levels are different in different cities and the supply-demand balance is different. But does this influence your future portfolio allocation? And would you see any potential to invest outside Finland?

Well, to invest outside Finland is not at the moment on the cards. I think we have plenty to do here in Finland as well. I would say that the current current occupancy rates in different cities are not affecting that much of our future kind of a portfolio consistency or content, so that I would say that it's more of those megatrends or trends that are affecting that, where's the population growth and which will drive our portfolio, focusing our portfolio, and that will come to that, which I already earlier mentioned, that we are focusing more on bigger cities here in Finland.

Right. Okay, then a practical question about the share buyback program. Has it started, or what is the current status?

We are about to start it.

Okay. Then you mentioned you might have some disposals in the pipeline. Do you expect them to impact negatively your guidance?

Well, we haven't indicated any, and we will definitely, if that would happen, so then we would kind of rephrase our guidance, but not at the moment anything to kind of inform in that respect.

And these four assets held for sale, they are quite small compared to the transaction we completed already. So the impact is going to be in any case quite limited.

Then a question about maintenance and repair expenses. When you mentioned that they are expected to be on the last year's level, do you mean in absolute terms or relative terms, taking into account, for example, the divestments?

Euro-wise.

Yes. Can you comment anything about 26 repairs or long-term level?

So we are not guiding 26 or years beyond that. So in due course, we are going to give a guidance for 2026.

Okay. So that was the final question. Thank you very much for active participation. Q3 report is published on October 30. Thank you all for joining us and hope to see you in October. Have a lovely autumn.

Thank you very much.