Kojamo Plc

Good afternoon, ladies and gentlemen, and welcome to Kojaamo's news conference. I'm Niina Sarto from Investor Relations. Today we have two speakers. Our CEO, Reema Rytselä, starts with the key highlights for the period and with the operating environment. And then CFO Erikelt continues. We're going to hear more about the financial development. We have Q&A following their presentation, and then we take live questions and questions coming via chat. Now let's go handing over to you.

Thank you Nina and very good afternoon on behalf of myself as well. We released an hour ago of our Q3 results and happy to say that it was a solid quarter even though the market conditions are still more or less challenging even though kind of a bit improving. I think the highlight again on this Q3 was the kind of recent occupancy rate. We had a very good performance and our occupancy rate raised in Q3 to 96.1. We also, due to that fact, were able to kind of grow our revenues and net rental income and also the leakage that we discussed last quarter on Q2 that net rental income didn't grow as much as revenue we said at that time that we see it as a seasonal adjusted issues there and it remains the to be true and this time the net rental income grew in the same pace than revenues. FFO decreased due to the fact that the financing costs are way higher than last year and repair expenses are a bit higher than previous year. The balance sheet as such is in a strong shape and during the quarter we closed the sale of close to 2,000 apartments to Apollo Funds and we kind of paid our depth for 200 million and launch also the share buyback. The market as such is still, as I said in a very first sentence, is still kind of in a challenging mode, but I think we have a slight slight or minor signs of improvement, even though the kind of recovery has postponed already many times. One very positive topic for Koyama during the Q3 was as well the that Moody's affirmed the BAA2 rating for us and that's a very important factor for a company like Koyama, that its financing capabilities remain very solid. We also started the strategy review but as I said already in Q2 release that we expect that to be more of a revising of a current strategy or tuning the current strategy not as such as a totally new strategy. Then if we talk about a little bit the operating environment, so the economical growth in Finland remains muted, even though it has slight optimism in different kind of forecasts. The global economy is more optimistic and also the Eurozone. But in Finland, unemployment has risen lately, and all in all, I would say that our equity story can't build on Finnish economic growth as such, but more of an operating environment in the context of supply and demand in the long run. As we can see here in this graph, we can note that the residential startups are still very low in Finland, and especially the non-regulated or non-subsidized apartment startups have stayed low level. rumors or initiatives that the legislation will change in subsidized apartment buildings as well. So we see how it develops, but it probably will come down in the future as well. in a sense that if we have a basic need for 35 000 new apartments in Finland and even though you might question that whether it's a correct one or should be 30 000 or 35 000 but still given the fact that our new startups level has been less than 20 000 for three consecutive years now and even though there's some forecast that it will pick up in the next year, but it won't be significantly higher, so it's easy to say that it's definitely underneath the constant need for apartments as such. And while the need is still there, in the biggest cities the population grows constantly, and the immigration is obviously a big factor of that, and the kind of megatrend that is backing up the equity story here in Koyamo is obviously the population growth. One thing that have been in discussions that why is that supply-demand balancing out taking so long time, probably the one reason is that even though immigration has grown a lot in the last three to four years in Finland. So the number of households haven't increased in the same pace than population growth. So that has been one factor that has kind of slowed down the melting process of oversupply. The kind of old story as such, which we have been explaining for quite a long time, but more than 97% of our portfolio is seven biggest cities, the urbanization and the population growth overall in big cities are supporting the Koyamo's portfolio locations, and here we can see that it's kind of a very good fit for the urbanization process as such. Overall, I would say that this quarter, as I described it, it was solid. If you take a comprehensive view of our results, all the factors were performing as expected and I would describe it that even though the market conditions haven't eased up significantly, so the performance of our own has been good in Q3. So I would like to hand over to Erik now and then we can go to Q&A.

Thank you, Reimo, and good afternoon from my side as well. So page 12, if you look at the total revenue first, so the total revenue grew 4.8 million euros year to date compared to three quarters last year, and the Q3 growth was 0.4 million euros compared to Q3 2024. The whole improvement actually came through because of the improved occupancy. It's good to keep in mind that because of the disposal we completed at the end of July, that has an impact for the top line 3.7 million euros. So we lost that, if you like, in a top line growth way. So net rental income year to day growth was 3.2 million euros and Q3 it was positive 0.3 million euros. Maintenance expenses pretty much flattish in year-to-date, and 0.8 million euros decrease during the Q3. Repairs year-to-date up by 1.5 million euros and 1 million euros during the Q3. If you then look maintenance expenses, so there are positive and negative figures there. On the positive side, heating down by 1.8 million euros, credit losses down by 0.8 million euros, and electricity down by 0.5 million euros. On the negative side, if you like, is water up by 1.2 million euros, and cleaning up by 0.6 million euros. Both water and cleaning are impacted by the improved occupancy. Page 13, on the right-hand side, we have FFO. So FFO declined by 7.7 million euros year-to-date, and net rental income contributed 3.2 million euros. SG expenses increased 0.7 million euros, and finance expenses on FFO side grew by 8.6 million euros. On the P&L side, the finance expenses growth was 9.1 million euros. and current taxes were up by 2.7 million euros. And in these current taxes, we are not including current taxes due to the disposal of assets. So, page 14, we are extremely proud that we are still able to improve our occupancy. If you look at year-to-date figures, so cumulative figures, so there the growth is 2.9 percentage points, but more important is actually to look what happened third quarter compared to second quarter this year. So the third quarter figures was 96.1 and it was 94.4 in Q2. So there's improvement on 1.7% in points that I would call that quite achievement in current market position. Tenant turnover down by 2.4 percentage points. Main drivers there of course is that our net promoter score is at the moment all-time high and then we have enhanced our interaction with our customers. So that of course plays a role on the financial occupancy rate angle as well. Page 15, like-for-luck rental income. In this type of turning point, I'm not even today any good fan of this like-for-luck calculation. It's prepared according to APRA best practice recommendations, but because it's backward looking, so in this type of turnaround situation, it's not that... that representative for what's really going. But actually, if you look at our figures, they are improving exactly how we estimated. So now the impact of occupancy rate is visible in this figure, it's positive 1.7%. impact of rent and water charges down by 0.5% and others negative 0.2%. So the total like for light rental income growth is positive 1.1%. And then if you just do the math and look at Q4 figures and the Q4 last year, that will be repaced in the calculation, in our Q4 calculation this year. So the impact of the occupancy will improve further. So page 16, we completed the disposal of almost 2,000 apartments at the end of July, and we have one ongoing development, so 119 apartments in Helsinki region that will be completed early next year, and there's 4.1 million euros to be invested in order to complete that ongoing project. Repairs, we estimate that the repairs this year is going to be slightly above the last year figures. So a little more than 24.1 million euros. And the modernization investments already clearly higher than last year. So now 19 million euros year to date. Last year it was 4.1 million euros. And we estimate that the modernization investments the whole year is going to be around 30 million euros. The increase in modernization investments is mainly due to the fact that we have started a couple of bigger modernization investment projects this year. Next page shows the value of investment properties. Quite stable there, so we didn't change any valuation parameters. We didn't change the yield requirement or any other valuation parameters. The outcome in the valuation was negative 16.4 million euros. Almost all that came through because of ongoing modernization investments. So on the P&L side, the money invested is a negative figure in the valuation. And then, of course, once these processes are completed, the outcome of this process will be booked when completed. loan-to-value and equity ratio, quite strong figures there, and actually our loan-to-value decreased by 2.5 percentage points on back of this, the completed disposals and the fact that we paid back 200 million euros of outstanding loans on back of this transaction as well. page 19. So very important piece of information is that Moody's actually affirmed our PWA2 rating and they stabilized our outlook and we are extremely pleased of that. And the thing is that the next financial arrangements will be to refinance 2027 maturing loans. So in that sense our liquidity position is quite strong because we have 240 million euros cash or finance assets put together, and 275 million euros committed unused credit lines in place. And we've been active in financing other ways as well, so we actually refinanced two loans during the Q3. So 100 million euros loan with OP Banking Group and 75 million euros credit line with Danske Bank. Our equity per share and EPRA NRV moved sideways, so no major changes there. Page 22, we actually kept our outlook for this year unchanged. So we estimate the top line growth is going to be between 0 and 2%. year on year and then we estimate that our FF4 this year is going to be 135 to 141 million euros. If we take the midpoint of the revenue growth outlook, so there we estimate that of course the occupancy has improved moderate rent increases remaining part of this year that the fact that we are still flexible what comes to renting when apartments come vacant and we try to find a new tenant. Then if you look the midpoint of FFO guidance, so of course the guidance as such is reflecting the range for what revenue growth guidance and in the midpoint of FFO guidance we assume the average weather for remaining part of this year, that SD expenses and repairs broadly in line what we had in 2024 and no additional financing arrangement to be done during the end of this year. And now at this point, I hand it back to Reimo. Thanks, Erik.

I think it's more or less time for a Q&A but as we told that on the other hand not uneventful quarter but kind of a steady quarter so to say and and obviously the kind of highlights still, the recent occupancy rate and ending on Q3 to 96.1, so we are pleased on that. But happy to take the questions.

Okay, thank you. Do we have a question from the audience?

Yes, I would like to ask from Inderes. First, I would like to ask about the occupancy rates increase, which have been significant, like you said. What have been the key actions? It seems like you didn't have to make significant rent concessions during the Q3. What have you changed during this year to achieve such a quick turnaround in this market situation?

Well, I think the dynamic pricing is one of the key aspects. And then on the other hand, as we showed in one of our slides, our NPS is record high level so actually our churn has come down as well so we have been both kind of an attractive landlord to our existing tenants so the churn has come down and then we have been able to attract the new tenants. Of course we have had to kind of reprice the rents in some cases for a new tenant due to the fact that as you yourself as well said that the market condition is not that But overall, I think we have put quite a lot of effort on our sales operations and how does that process work and also try to put focus on the customer experience as such. So that has paid off, I would say. I don't know if Erik has something to add on.

I fully agree and I think it's a combination of several things. We are more flexible when it comes to rating. We have enhanced how we manage the actual operations and we are more active meeting our customers. We have better staff the evening hours and weekends, and we have established a special team in our service center to support the renting operations. So I would say it's a combination of several things that we've been doing.

And then I could ask about the transaction market. And in Finland, as you very well know, we struggle a bit with the capital shortage. But how have, in your opinion now, developed the interest of the foreign investors? How has their interest in the Finnish residential market developed this year?

I would say that it's picking up and the one catalyst was obviously our deal in late July, which we closed late July. And was it the end of June when we signed that? Yeah, so end of June. So after that, there's definitely have been a kind of picking up the interest. But on the other hand, it's fair to say that it started on a very low level, the interest. So even though it has picked up, so it's not, how would I say, in very good shape, the transactional market as such. But I would say that it's improving.

Thank you. That's all for me now.

Okay, then let's move on to phone line questions. Do we have any?

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Ansi Rousey from SEB. Please go ahead.

Yes, hi all, and thank you for the presentation. A couple of questions, and I start with the occupancy and rent. So as you said, quite an improvement in Q3 regarding occupancy. So how should we think about your rent going forward? And is it like your next plan to start implement some modesty hikes there or what's your plan?

We do not guide any kind of a target rents or rent levels as such, but obviously there's a, how would I say, embedded need for rent hikes from a landlord's perspective. That's not news for anybody. But on the other hand, I think we need to be very sensitive with the market balance overall, so that we are not pushing too high rent hikes to the market, which is not absorbing those. But definitely, given the occupancy rate has risen and we are more on a normalized level at the moment, then we have better capabilities from our end to raise the rents as well.

Yeah, I understand that. Thanks. And yeah, maybe can you give us any comment on how your occupancy developed during the quarter? Like is this 96.1 a good estimate for your current run rate?

Yeah, well, as you can probably calculate throughout the end of June figure and average Q3 figure, so it was rising during the quarter going forward. kind of a normal pattern or seasonal effect in occupancies is that they tend to come down a little bit in a latter part of the year. So we don't know that yet, but that's kind of a normal pattern, I would say.

Thanks. And maybe finally about your repair and maintenance expenses, like How would you describe your current levels? And of course, I'm thinking here about the next year, like is 2025 so-called normal level?

So we are not guiding next year at this point, but general comment, so repairs most likely will remain roughly on the same level that this is going to be this year, if you look next year, given the fact that repairs seems to be on a decent level at the moment, and we haven't really decided what is going to be the monetization investment level, but most likely we are going to start a couple of modernization investment projects next year as well. So either remain on the current level or slightly up. But as I said, we are not at this point guiding anything next year, but this is our current thoughts regarding repairs and modernization investments.

Okay, got it.

Thank you.

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

Hi, good afternoon. So you've been mentioning a couple of times that the market remains challenging. At the same time, occupancy is 96%, which you say is normalized. You're also mentioning that rental growth could perhaps be possible at these levels. So just how do you reconcile that with the challenging market?

You mean how do we view the market as such? Was that the question?

Yeah, just trying to understand what you mean by challenging if you are saying that 96% is a normalized level for occupancy and that you could see rental growth.

Yeah, well... We don't know yet how will the, what I meant that when we have a closer to normalized level in the occupancy rate, so we are in better position to start pushing the rent hikes to the market, but as I said that that at the moment the market is remains to be challenging and there's still oversupply especially in Helsinki and Vantaa area that differs by city by city so for example Tampere and Turku and Espoo are much much better from a bigger cities but we need to be kind of a sensitive that house the market is absorbing the rent hikes as such so that's why I didn't say that we are we are able to push significant rent hikes for the market. I said that we are in, from our own perspective, we are in better position to start to kind of try that in the future, so to say. That's what I meant with the combined to the recent occupancy rate.

Okay, clear. And when you're saying that Pampa and Turku are much better, what rental growth are you achieving over there?

Well, I don't know if we have disclosed the city by city rental growths, but I think the supply perspective, they are better and that's why the kind of a market is absorbing a better better rent hikes, whether they are in any city at the moment very significant, so I wouldn't say so, but at least some kind of rent hikes are going through.

That's ahead of inflation? Sorry? Are those rent hikes ahead of inflation?

Yeah, well, it doesn't require much in Finland to be more than an inflation. So if we have an 0.4 at the moment forecasted inflation, so that's very low. And still there's in Turku and Tampere as well, there are in some single apartments that there might be cases that the new tenant rent is lower than the existing ones, but the market as such is absorbing better the minor rent hikes.

That's right. Thank you. And just on the actions that you're taking to support leasing, You mentioned better service, having a bit more evening hours. How are you looking at that impacting your cost structure?

Actually, we've been more efficient when it comes to our operations. The headcount is pretty much the same as it was 12 months ago, and we are just more efficient here. It really hasn't had any impact on the cost side.

Okay, that's fair. Thank you.

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

Thank you very much for the presentation. I just had two questions which I'll ask one at a time. So just firstly, could you give a bit more color on the strategic review? I know it's still early days, but could you just share what the main areas of focus might be for this? Thanks.

yeah as as you so said uh it's uh it's uh early days and and uh and uh but it's uh given the even though i said that our balance sheet is in a good shape and our loan to value is 42 points uh 0.2 i think it was the the latest figure so so it's in a strong shape still we are more or less constrained with the cash flow and that gives limitations for strategic renewal as well in a way and that's why I said that it's more of a tuning the existing strategy. What does it mean then? Of course there's some operational focus points where we should focus more And I think that, as I said, that the customer experience and operational excellence, which is supporting also the customer experience, will be the key cornerstones of our strategy in future as well. And we expect that. to be an important factor in the future, at least in the long term, to be able to create the rent premium that we have satisfied customers. And then, of course, there are topics that we need to go through, especially from a capital allocation point of view.

Thank you very much. And then just could you also comment on the use of tenant incentives? Are you still seeing incentives being used to support leasing activity or have they started to ease slightly?

Well, we do see on the market several type of incentives and whether they are free weeks, rent-free weeks or rent-free month or some kind of vouchers. So there are still some, but actually our interpretation of the market and customer customer kind of behavior has been that actually the kind of correct rent price as such is is is more appealing from from from tenants point of view than than different kind of one of incentives, so to say.

Thanks very much.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Jonathan Carnator from Goldman Sachs. Please go ahead.

Good afternoon. Thank you for taking my questions. Just to follow up on this pricing, we know that you've talked about dynamic pricing. You've talked about the correct level of rent. Can you help us understand how did you change, on average, your pricing to be able to improve the occupancy level? Thank you.

Sorry, can you repeat? How do we see the pricing? How much have you changed? Did you mean that how much we have changed the pricing?

Yes, to improve occupancy, we've been very successful and just keen to understand where is the correct rent versus what you were trying to charge before and where a bit less successful.

It obviously depends a lot on apartment by apartment and some real estate are more challenging than the others but the new tenants rent levels have been something like 3-5% lower in some cases on average wise and then which comes to that our actually rent roll has decreased a little bit during the year but we have been able to push small rent hikes for existing tenants as well during the same time and on the other hand there are some new tenants that we have been able to raise the rents as well.

Okay, great. That's it. Thank you so much.

The next question comes from Ansi Rousey from SEB. Please go ahead.

yes one more from me if I may continue on this capital allocation topic so I understand that you have not finished your strategic work yet but if we think about you know buybacks dividends additional deleveraging maybe you know to prepare for the growth at some point so how do these go together and what kind of let's call it pecking order you see here

Thanks, Hans. You pretty much described the elements of a capital allocation, and those are exactly the ones that we are trying to fit together, but we do not have any news for that at this stage. As I have said earlier as well, that we fully recognize how important the growth is from a value creation point of view and we are definitely working hard to find our way back to the growth path as well.

Okay, but do you think that dividends should or could be part of your plans in the near future? They could be, yes. Okay, thanks.

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

Thank you. Very good questions. And when I look at the chat questions, I think we covered all topics already. So it's time to conclude. Thank you for joining us today. Our full year results will be published 11th of February. Hope to see you all then. Thank you very much and have a nice evening.

Thanks a lot. Thank you. Bye.