Kojamo Plc

Good morning all and welcome to LUMO Home's half-year result webcast. I'm Niina Saarto, I'm Treasury and Investor Relations Director. Soon we will hear the Q2 results. Our CEO, Reima Rytsola, 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 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 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 good and it's glad to see that finally Finnish economy is leading the pack also in European context and 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 balancing out, especially if we look at the supplied 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 to year, 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 the year. in apartments that are offered for rental. So it's meaningful in that sense. Also the construction has been very muted. This year and even some of the forecasts seem to be that also the next year for residential construction will be even lower than this year and at the moment the latest forecast is 15 000 apartments. still the 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 percent 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

Thank you very much. Thank you very much. Thank you. 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 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 work for Antti who will carry on the financial development announcement.

Yes, hello everybody also from my side. My name is Antti Syvännen, 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 Reima 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 of 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 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 minus from the impacts of rents, especially rents 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 Bank's 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 group'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 5 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.

Thank you. So we can now start the Q&A and let's first take the online questions.

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 Robert Phillips from Green Street. Please go ahead.

Thank you very much for the presentation. I just had two questions and I'll go one at a time. So you noted that occupancy in the bomber portfolio moved from 83% to 89% in the second quarter and will be stabilised in the coming year. And I was just wondering what kind of occupancy level you're targeting by year end and also how rents are tracking relative to the rest of the portfolio.

The line was very bad in the very beginning, so can you repeat the question? Apologies for that, I didn't get it.

Yeah, of course. So you noted that occupancy in the Barmer portfolio moved from 83% to 89%, and it's looking like it will be stabilized in the coming year, and I was just wondering what kind of occupancy level you're targeting by year-end.

Okay, yeah, thanks. Well, as I said that We talk about the stabilized level for acquired portfolio and then we talk about kind of our own stabilized level. I have earlier said that with the market conditions like this, it's probably somewhere between 96 to 97, the kind of a stabilized level. So round about that, we're not giving any guidance as such for our occupancy.

Perfect, thanks. And then you also flag improvements in renting activity in the quarter. I was just wondering if you could put a bit more colour on what you're seeing in terms of general performance, and then also just whether that's translating into pricing power.

Yeah I think it has already earlier so it's of course we do have a seasonal effect as well on the summer time is always more active on renting activities but definitely this year has been encouraging in a way that the activity has been probably even higher. So far, and of course, we had a kind of extra vacant department in our portfolio as well due to the fact that we acquired a significant portfolio with relatively low occupancy. But like we said already when we released the deal, so we said that We are confident that actually our leasing operations are capable of renting these apartments and it appears to be so. Then your question of pricing power. So as I said earlier, so we haven't seen that much yet of a pricing power. It definitely hasn't... We expect that the pricing power will improve either end of this year or beginning of next year.

And then just on the regional performance, can you just elaborate a bit more on what you're seeing kind of on the ground?

On regional wise, Helsinki is definitely leading the pack at the moment, so I think it's natural that the majority of the new jobs are creating in Helsinki and in Helsinki area. Inside the Helsinki area, the Espo is Thank you very much. There have been quite a lot of foreign construction workers living in Vantaa traditionally, and the construction market hasn't improved that much. At least not in the Helsinki area, there are some data center projects, but they are more outside of the capital area. So the amount of construction workers hasn't grown up so far, so that's why I think Vantaa is lacking Helsinki and Espoo, but the main volumes are obviously in Helsinki. Perfect, thanks.

The next question comes from Anzi Rossi from SEB. Please go ahead.

Yes, hi all, it's Anders Rausse from SCB, thank you for the presentation. A couple of questions left from me. First about your campaigns, like could you talk about the impact of these campaigns on your report at financial occupancy rate and also average monthly rents, like did your campaigns affect these lines? That's the first one.

I would say that, of course, there have been some boosts for campaigns in Q2 figures as well. But so far, I think, especially the acquired portfolio, so we haven't had to kind of boost them with the campaigns. So in that respect, they, of course, have... campaigns have played some kind of a role but I would say that not that meaningful.

Okay and if I continue on your report the financial occupancy do you have some apartments which are not listed on your website or is there something else which explains maybe a slight difference compared to the report the financial occupancy and the absolute occupancy? yeah we do we do have a we do have apartments that that are not in a in a listed so so they are they are under under kind of a major renovation for example so they are not listed there okay that's clear and finally on your refinancing you mentioned and of course you have this backstop financing in place which is kind of an optionality right now but you said I think it might be at some point but was it so that your time date was early next year or are you already planning to use bond financing this year?

The backstop facility was basically taken to kind of secure the refinancing of a bond that is maturing next spring and according to kind of Moody's Rules or how to Moody's assess companies so we should have a refinance that bond already this year but now that we took the backstop facility so we actually able to carry until the next spring and still it's a long-term finance so that's why I said that and given the fact that actually the maturing bond is if the coupon is less than two percent so that the combination of a cost of a backstop facility and the bond that is maturing on next spring so the combined cost is cost effective in these market conditions.

Ari, that's helpful, thank you.

The next question comes from John Bong from Van Lansch at Kempen. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just following up on the warm-up portfolio, it sounds like you're ahead of underwriting in terms of occupancy gains, but could you provide a bit more color on the incentives that you're providing and to what extent these net effects are in line with your underwriting?

Yeah, I think they are very much in line in underwriting. So that's why I think we are well in line with the business case on pricing terms and then well ahead with the occupancy as such. So all in all, I would say that the integration of a Varma portfolio has gone really well, even better than our own expectations.

That's clear. And just on your LTV, you mentioned that there's a bit ahead of your target. How do you see the trajectory towards a lower leverage from there?

Yeah, we don't give that much of details in the future, but it was only slightly above our internal target. So we expect that to come lower, but we don't give too detailed numbers as such.

You can provide on how you see that this 45.1 goes to let's say mid 40s or around that level basically.

As Antti said, we're not willing to give a detailed path for that, but we expect it to come underneath that 45. So that's why we are relatively confident for that.

And also, as I mentioned, it's our internal target to have it below 45. so we have a sizable buffer to all the leverage from Moody's and also from European Investment Bank.

Just a lot from the campaigns, just to confirm, are these campaigns, so the instruments that you're providing, are these reflected in your VRVs in financial occupancy or are parts of it in other lines of costs?

Sorry John, the line was very bad in the beginning of your question, can you repeat that again?

Oh yeah sorry, just following up on the campaigns or incentives, are these reflected in the ERVs in your financial occupancy or are there also parts of it reflected in other lines like costs?

They don't affect our occupancy as such but they of course affect the revenue that we present.

Okay, so it's netted in your gross rental income.

Yeah.

Okay, thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Svante Krogfors from Nordia. Please go ahead.

Thank you Reima, Antti and Niina for the presentation. A couple of questions left from me. Could you elaborate a bit on rental increases in existing contracts? I think you earlier have mentioned that in the capital region you basically don't try to push for higher rents on existing portfolios whereas for example in Tampere you could increase rents by 2%. Has there been any change to that?

Well, we have kind of in general in our portfolio, I think averaging round about 1.3 to 1.5% of rental increases for existing customers. And we have keep on doing that. But as you said, Svante, so we need to be mindful for what's kind of a micro market for particular customers. particular apartments or real estate or area so that's why it differs quite a lot but as I said that also in a capital area the market seems to improve now.

Okay thank you and then coming back to the Varma portfolio. Could you give some color on what the reason has been that the occupancy rate was so low on that? I mean, have you introduced significant or have you lowered rent significantly on vacant apartments in the Varma portfolio?

First of all, it's difficult to say why it was so low. We have somewhat decreased the rents of vacant apartments as we planned already in our underwriting, but not kind of a... Of course, they are meaningful, but not kind of an outstanding and many other clients over rent. So I would say that the biggest contribution has been the kind of a very active rental operation and kind of a leasing operation that we have. And it differs a lot from a kind of a third party model that Varma used to have in the renting operations.

thank you and then coming back to Anssi's question about apartments taken off the market could you give some color on what kind of numbers we thought I think you have earlier mentioned that it could be something like 40-50 apartments max normally but what numbers are we talking about this time

Actually, I don't have that, and neither seem to have the exact figure, so we can come back to that on what is the kind of a round, not probably the exact figure, but the roundabout figure that we have currently.

Okay, thank you, and last question, you sold 218 apartments in Could you give some details on were there any from the acquired portfolio or was it some non-acquired assets that you have in your legacy portfolio?

Well, it was more of a, not from the acquired portfolio, but it was more of a related to kind of a heavy CapEx spend and the trade-off between the CapEx usage or divestment. And we come to conclusion that it's more profitable for us to dispose those assets.

Okay, thank you. That is all from me.

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

Okay, since that we have some questions here in the chat, let me see. There are some questions about the guidance and the acquisition progressed ahead of expectations but why did you narrow the revenue guidance instead of upgrading it?

Well it's a good question and it links to the more of a pricing power that we have already discussed that even though the kind of market seems to improve and especially when talking about that wired portfolio so the occupancy has performed and leasing operations have performed really well but given the fact that overall the pricing power in the market hasn't improved that much so that's why we get that guidance in at the midpoint unchanged. And it's good to bear in mind that it's still roughly 12% of our portfolio, the acquired portfolio. So there's a lot of apartments or revenue creators as such outside of the acquired portfolio.

there's another question could you please elaborate more on the two million euros higher other operating income yeah the other operating income actually come from one disposal that was a that was a company which we had less than 50 ownership so it came from that disposal okay coming back to the guidance and now FFO guidance that was cut by five million euros What is the reason of setting the strong operation of run rate? Can you comment?

Well, I think the FFO guidance, I think the main reason that we brought down the kind of upper limit or upper band of a guidance was the higher financial costs that are involved since the last February when we were given the guidance.

Okay, then about rent increases, average rent per square meter increase both quarter on quarter and year on year. Is there any split between workforce to effect from the new apartments versus like for like compared to let's say Q1?

I don't know, we probably don't have an exact split, but it's fair to say that the average rent for our acquired portfolio, given the location of those assets that we acquired, so it's higher and it raised the kind of rent, average rent in our portfolio. And like in Antti's presentation, there was a like for like, so rent and water charges was in like for like

calculations was minus one percent okay so we discussed already existing agreements and their rent increases but how about new lease agreements there are some statistics Finland data for example in Helsinki area the figures seem to be quite flat and then again in some smaller cities So what is our kind of comment? Is it the same as our rent increases for new agreements?

Well, it definitely differs on by rents, and we do have some new leases or some new tenants that we need to still kind of decline the rent, but it's growing amount that we can raise the rent as well. But all in all, it's... it has been so far year to date slightly negative but as I said already a couple of times so we expect that this pricing power especially in Helsinki and capital area will come back for landlords in some undefined timetable.

Then as the acquired portfolio occupancy has been moving up very nicely Has it been affecting negatively the legacy portfolio somehow?

this is a question that we have discussed a lot internally as well and there's a kind of a common understanding that it hasn't affected negatively but all in all it's fair to say that the kind of a major component or contribution of increased occupancy has come from acquired portfolio of course there was a there was a plenty of room and as we have said since the February of releasing the deal that we see that actually the asset quality in acquired portfolio is really good and there was a plenty of vacant apartments so it's kind of a natural as well that that in very good quality portfolio and relatively high vacancy so it's easier to raise the occupancy in those assets.

Okay and continuing with the acquisition so what annualized net operating income contribution do you expect once stabilized versus your original acquisition underwriting?

Well I don't have any numbers to present here but it should be maybe a bit higher than our legacy portfolio since the locations are a bit better in that portfolio compared to our whole legacy portfolio.

Okay and then different type of questions so what is more important to maximize asset book value or cash flows I think it's more of a more of a cash flow

all in all I think as you look at our financial targets as well so we aim to have a growth in FFO per share so kind of contributing and creating cash flow is in top of our list.

Okay this may be the last question so it's about and refinancing the bond next year. So what refinancing cost or timing is included in guidance and how should investors assess if the bond coupon will be between 3.7 to 4.0 percent?

What was the question about the bond that is maturing next spring?

Yeah, yes, or what kind of refinancing expectations are in the guidance?

Shall I take it? So first of all I think as we said that we have kind of a more or less locked in the cost of a bond maturing next spring and we have said that we still have a 300 million to take on acquisition financing on the capital markets transactions so so it's round about the market level of refinancing the acquisition finance and then of course it depends on what kind of instruments do you use but all in all I would say that given the fact that that it's the time of this year so the financing cost as such doesn't have any more at this stage of the year as big significance for the guidance as it would have in beginning of the year.

Okay, that concludes the Q&A. Thank you very much for the questions. So LUMOS Q3, Thank you all for joining us today. Let's meet in November. Thank you very much.