Good morning, and welcome to Kojamo's Q3 Results News Conference. My name is Niina Saarto. I'm responsible for investor relations. Today, we have CEO Jani Nieminen and CFO Erik Hjelt, who will present the Q3 result. After their presentation, as before, we have a Q&A. We start taking questions from the conference call line, and then thereafter, we take chat questions. Now let's get started. I would like to invite Jani over here. Welcome.
Thank you, Niina. Good morning, everybody. Good morning. Nice to be here once again providing information and color concerning our operations. To start by, I think this time it's good to provide some kind of summary first and then dig a bit deeper into the numbers. It's easy to say that our Q3 figures are solid, and our position is actually really strong in an uncertain market. We've been creating profitable growth, and as the rental market turned positive during the summer, as we estimated, it had a positive impact as well in the occupancy during Q3 in our figures. Our financial position is strong, and it actually protects us against the impacts of changes in the financial market. For example, the average cost of debt has been quite steady because of the high hedging ratio we use.
As our finance and expenses are quite well hedged, these expenses will not increase in line with the market's interest increases. For the time being, we want to focus actually to ensure our strong position, and we will not make any new investments. Of course, we are scanning and analyzing the market very actively, and if we find something appealing enough, we are ready, willing, and able to move fast. I do believe that construction companies will have challenges in order to start new build-to-sell projects. Home buyers are getting more and more careful. Actually, construction volumes looking forward next 18 months will come to a lower level. Moving forward to the operational environment. Yes, visibility is limited. Global economy has been clouded. Financial market been different because of the inflation, war in Ukraine.
Inflation figures are quite high. At the same time, it's good to keep in mind that here in Kojamo, the general inflation doesn't have a straight impact. As inflation figures here have been now estimated to be 6.5%, actually our maintenance increase was 2.46 EUR per square meter per month. As a strong, big player, we are able to offset quite actually many parts of the inflation. On the other hand, so far, actually the employment rate here in Finland has continued to increase, so that helps us a lot. Looking at the volumes, we collect the official estimates concerning residential start-ups. They are now roughly 40,000 apartments here in Finland for this year. We don't believe that those numbers are reached this year.
We already said that information a couple of times this year, and it remains to be seen, but most likely the figures, for example, non-subsidized block of flats will be below 20,000 apartments this year, and the figures next year are lower than expected. On the cost side, actually construction cost increases seem to be leveling off. On the other hand, as construction companies are a bit struggling in other words with build-to-sell projects, they would still like to have the prices of the cost increases with their product, and now the market is in that sense a bit struggling. Home prices still increasing. Modest increases there, as well as the rent levels throughout the country.
Moving forward, for us it's important that actually all the mega trends creating long-term demand for rental apartments are still solid. Actually picking up a couple of figures here now, the latest statistics are in use for 2021 on the lower right-hand corner, providing the information of households living in rental apartments. Actually throughout all the big cities, the number of households living in rental apartments or the portion of households living in rental apartments has been increasing once again, and that's expected to continue. On the other hand, people been wondering what's gonna happen here in Finland after COVID-19, and now the latest estimates concerning population forecast have been provided in September.
Actually, the population forecast, the estimates were increased in all the major parts of Finland where Kojamo operates, so the big cities like Helsinki, Oulu, Turku, Tampere, Jyväskylä, and in general capital region. In that sense, the outlook and mega trend creating demand is really solid. Yes, we do have still an increasing number of small households, one- and two-person households, and that typically means that they prefer living in rental apartments. As said, for five years here in Finland, the construction volumes have been on the higher level, well above 40,000 apartments a year. Without COVID-19 kicking in, that wouldn't have been a problem, but as COVID-19 kicked in the market, that created a temporary setback concerning urbanization and some challenges in the rental market.
On the other hand, at the moment, construction volumes are coming down and I would assume that we are next year on the levels matching the prior levels between 2015 and 2016. Somewhere 33,000-36,000 apartments a year will be the start of next year. Moving forward to our figures. As said, we did make a solid performance. Our numbers are strong. We created profitable growth, seems actually a bit stronger numbers than expected by others. Our total revenue increased by 4.6%. Net rental income increased 5.5%, and funds from operations increased 4.8%. A couple of details from there. If we think about the net rental income and a strong increase there, on the other hand, yes, there was increases concerning maintenance.
Total maintenance increase was EUR 4.4 million. Couple of details there. Most impacts creating cost increases were electricity and property taxes. On the other hand, we were able to create some savings concerning repairs. Fair value of investment properties today, EUR 8.9 billion. Of course, we've been creating growth by investing in new homes, in new buildings. That's visible there. Gross investments, EUR 416.5 million. Actually now this year, quite a nice balance there. In the big picture, half of the gross investments are new development projects and half of the investments are acquisitions this year. Profit excluding changes in fair value, EUR 137.7 million. There the increase was 4.4%.
Profit before taxes, including the positive changes in fair values of investment properties, EUR 248.6 million. A really good strong number there. It's on the other hand good to keep in mind that this year the positive impacts in fair values have been mostly development gains as we are completing projects. Last year there was a bigger positive impact because of changes in those profit requirements. We still have more than 2,000 apartments under construction. All the projects are proceeding in a normal manner. They are fixed price projects, turnkey projects, no problems there. It's been quite an active year. We've been completing 1,100 apartments to the rental market. We've been quite successful there with new buildings.
As said, now for the time being, we are not investing in new projects, but on the other hand, we know that the existing project pipeline is still quite strong, creating growth for us. Our projects are located in excellent micro locations. Development gains are actually quite strong, roughly 30%. That either you can think creates added value as a positive impact in fair values. On the other hand, if something would change in the market, that creates protection for Kojamo. As said, this year completed already 1,100 apartments. Still a bit more than 100 apartments to be completed this year. Next year, a bit more than 1,500 apartments to be completed in Helsinki region mainly. Yes, we do have one project under construction in Tampere and one in Turku as well. A couple of words concern Lumo One, the tallest rental apartment building in Finland.
I would say that Lumo One is a unique case here in Finland, providing exceptional added value for our customers, combining apartments, common spaces, and services in a very unique way. All the apartments have been completed now. Customers have been moving in the building. Actually, the occupancy has been high from the start. An important factor is that it seems that our customers are really satisfied with this type of living, building on top of a shopping center, basically on top of a subway line, providing a unique opportunity to use urban living services nearby you. I would say that Lumo One is, in a way, a top example how we create actually easily best living for our customers.
Our approach is not providing only walls, seals, and floors, but combining apartments, communal spaces, services provided physically, services provided digitally, additional services to apartments, and that way, creating added value for our customers. I would call it easy, effortless living. Now, if Erik would provide a bit more detailed color. Thank you.
Thank you, Jani, and good morning everybody from my side as well. It's great to be discussing our solid figures, and if we start with the total revenue and net rental income. The total revenue growth year to date, EUR 13.4 million, and EUR 7.3 million during the Q3. Our like-for-like growth slightly improved, but still a negative territory, -0.1%. Rent increases and water charges increases, positive figure, 2.2%. Occupancy rate negative, -2.4%. I come to these occupancy rate figures later. And other items, 0.1%. The growth mainly came from the growing property portfolio.
We acquired almost 1,000 apartments during the summer, and then we have completed 1,100 apartments year to date. Of course, Q4 last year completed almost 500 apartments, and these are now contributing to the top-line growth. Net rental income growth was actually stronger than top-line growth. 5.5% growth was EUR 10.9 million, and Q3 six million euros. Maintenance expenses year to date up EUR 4.4 million, and there, of course, it's good to know that the underlying portfolio grew during the year. Biggest items that grew during the year to date, electricity EUR 1.4 million up, property taxes EUR 0.7 million up, heating EUR 0.5 million up.
Other lies pretty much in line to the corresponding period. Of course, inflation is a figure, an important figure, but if you look our maintenance expenses, euros per square meter per month, the growth was less than 2.5%. That's a more important figure in our cost side than the inflation figure as such. Repairs down EUR 1.9 million. If you look the change in fair value in investment properties, we kept all valuation parameters unchanged. The reason there is pretty simple. There's no transactions in the market completed during Q3. The latest portfolio transaction we saw in the market late summer, they were still made in quite high prices.
Since there are no reference transactions in the market, so we kept the positive impact for valuation EUR 35.8 million during Q3 was mainly due to the development gains. 95% of that actually out of our development gain. Only one property came out of ending restrictions. That covers the remaining part of the change in fair value investment properties. FFO up by EUR 5.5 million, of course, net rental income contributed there. SG&A expenses up by EUR 2.3 million from corresponding period. Last year, actually, we got some savings because of the COVID-19.
If you look the previous year, 2020 SG&A expenses, so we are pretty much in line with those figures. Finance expenses up by EUR 2.3 million, bigger loan portfolio underlying, and then cash taxes up by EUR 0.4 million. Occupancy rate 91.7% and at the end of H1 it was 91.5%, so improvement there. It's good to note that this is actually a year-to-date figure. To get a 0.2% improvement in year-to-date figure, that means if you do the math that during Q3 the occupancy rate must have been 100 basis points higher than in Q2.
In the CEO's comments, the spot occupancy rate at the end of September was almost 93%. This actually are the figures behind the headline here that the occupancy rate improved in Q3. At the same time, the tenant turnover came down 1.8%. I think we already covered this like-for-like rental question. Investments EUR 416 million. Acquisition of investment properties for this portfolio acquisition during the summer and our ongoing developments covers mostly that EUR 404 million. Modernization investments through 9.6%, so repairs down EUR 1.9 million and modernization investments up by EUR 4.9 million. Value of investment properties almost EUR 8.9 billion.
Acquisitions covered EUR 404 million, as already mentioned, and profit on fair value investment properties, EUR 110 million year to date. We still have 1,774 apartments where we have restrictions regarding the valuation, and those valuations will gradually end by 2024, providing 10-20 million euros uplift in values. That's backweighted the ending restrictions. Apartments under construction, 2,012 apartments, a little more than EUR 300 million already invested. EUR 192 million to be invested in order to complete these ongoing developments. We estimate that the investments in development projects this year will amount to EUR 270-300 million.
The total amount is slightly down because one project was postponed and is also pretty much untracked compared to H1. As Jani mentioned, for the time being, we will not make any new investment decisions. It's slightly foggy there, so we want to monitor the market and then get a clearer picture where the market is heading. We are ready when the opportunities comes and we are able to acquire or start new developments when we find suitable project. For the time being, we will not make any new investment decisions. Equity ratio, loan to value, strong figures there.
Our loan to value below 40, and that's very strong and that gives a significant buffer against our Baa2 stable outlook rating from Moody's. We have set the target to have the loan to value below 50 and equity ratio above 40, and our current rating is pretty much anchored into these levels. We have a solid, strong balance sheet and of course if you look out and the market, it is good to have buffers against these levels. Per share figures, EPRA NRV very strong, EUR 22.63, and a healthy growth there as well. It's very important for us and for investors of course that our financial key figures are very strong.
Thanks to our very high hedging ratio, 92%, and the rising interest rate didn't increase our financial cost. Actually 1.7%, the average cost of financing, including cost of derivatives. Actually, during the summer, it came slightly down from 1.8%. We don't have any material new financing needs in the short term. Our cash position is very strong. Our cash and cash equivalents and financial assets in total 161 million EUR. On top of that, we have 300 million EUR committed unused credit lines in place. After the reporting period, we make a new 100 million EUR loan unsecured with OP Corporate Bank, six years maturity. It's on top of these figures.
Our cash position is very strong and no material refinancing needs in short term. Of course, that means that having a high hedging ratio and strong cash position and no maturing loans in the short term, that means that what has happened in the interest rate environment doesn't have any impact in our figures given our position. It's not a coincidence where we are right now. This has been the strategy of the company for a very long time already. Strategic targets, our KPIs, actual year to date in line with our strategic targets. Top line growth 4.6% annual investments a little more than EUR 400 million. Profitability is there, FFO against total revenue more than 39%.
Of course, the whole year's property tax is already booked in Q1, so that is going to have a positive impact going forward as well. Loan-to-value and equity ratio, strong figures there. Net Promoter Score 44, so the customer interface, we are satisfied with that figure to be in line with our target. Outlook, we have slightly specified our outlook remaining part of this year. Top line growth now we estimate that is going to be between 5% and 6%. Assumptions there are that we estimate that like-for-like growth wise, the increase in rents and water charges more than 2%, of course remaining part of the year is quite short. Slight improvement in occupancy.
We know the amount of completed apartments and of course this impact of all the acquisition during the summer. They are all included in this slightly specified top line growth. Now we estimate that the FFO is going to be between EUR 156 million and EUR 164 million, and that of course reflects the specified top line growth estimate. The main factor for the remaining part of the year is what the weather is going to be like. If it is going to be very cold and a lot of snow, of course that will increase the cost. Otherwise all cost increases are included or already specified FFO guidance. Dividend policy unchanged, so 60% of the FFO, provided that the group's equity ratio is 40% or above 40%. Now back to Jani.
Thank you, Erik. Like I say, in a way to summarize, Kojamo has been for a long time a company with a strategy and we've been proceeding quite systematically our things. Now, figures are solid. Stable development continued. There was a total revenue growth and as Erik provided color, actually the net rental income growth was stronger. FFO increased as well. The situation in the rental market, we expected that to improve by the summer. It seems that after COVID-19 it took a bit longer. For example, here in capital region, before people started moving towards the biggest cities and towards Helsinki region. For example, students started renting the apartments in the middle of July. Typically, that starts happening third week of June.
As things started happening, according to our estimates, July was good, August was good, September was good in the number of new tenant agreements. On the other hand, if we combine the estimates now that the number of new startups in the construction business are coming down for this year and next year, that actually means that starting 2024, less new supply is coming to the market. That creates a situation where we do see urbanization continuing, people moving towards the biggest cities, on the other hand, a bit less new supply coming to the market. That provides actually quite a positive outlook if we look a bit further for rental market. On the other hand, as I said, we've been quite systematic with our strategy, whether it's operational business, whether it's investing or financing.
In financing, for us it's really important that we have access to multiple sources of financing. We've been quite systematic in keeping the hedging ratio at a higher level. Now we are really happy that our balance sheet is strong. We still have access to different sources of financing. As the hedging ratio is high, there are no impacts in our interest levels so far. Looking forward, as Erik provided color, no near-term big financial needs. At this point, I would like to thank you and let's move to Q&A.
Thank you, Jani, and thank you, Erik, for the presentation. We are now ready to take questions from the conference call line first.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. Please state your name and company. Please go ahead.
Yes. Good morning. Svante Krokfors from Nordea. Hope you can hear me.
Yeah.
Great. Quite a solid result and good to hear that the occupancy rate is improving again closer to 93%. Obviously, we can try to estimate what it is as a spot every quarter, but how low was the, let's say, spot rate at the lowest during this year or last?
We've been not publishing spot levels, but as you mentioned, and thanks for the question, Svante, you are able to calculate and get it to the right ballpark. We did say that we hit the bottom during the summer.
Thanks. When looking at your valuation metrics, you
Erik can provide a bit additional color there.
Yeah.
Okay
If you do the math, so based on our year-to-date figures, so you can calculate that Q3 occupancy rate was 92.1% and there was improvement from Q, obviously from Q2.
Thanks. In your valuation metrics, you have an assumption of roughly 97%. What kind of timeframe do you expect you to reach? I guess 97% is what you strive for in the long term.
Yeah. That is good to keep in mind that the occupancy level is one aspect, and that's for the next 10 years. That's our long target. On the other hand, there's been an adjustment in Helsinki region, so actually all the apartments vacant are held vacant for the next 12 months. It's handled in two aspects all the time.
Okay. Thanks. On, for example, heating costs, I mean, 99% I guess is district heating. We have seen some differences in the rates there and you said that EUR 0.5 million was the impact in Q3, but could you give some guidance of heating and perhaps other costs also? I mean, there has been some discussion about the property tax also going up, but I guess that is only a bit more than EUR 10 million annually. Could you give some color on the cost, especially heating?
Yes. We have this so-called district heating system here in Finland in place and district heating is provided mostly by companies owned by municipalities. Each of them they have their own pricing depending how they produce the heat actually. They have the different way of communicating the increases in their pricing. Some of these companies they have sent their new pricing for next 12 months, and some of companies next 3 or 4 months. It's a mixed picture there. What we know so far is that the highest increase is around 30% and the lowest is 0.
If you try to estimate what is the average increase in heating, it's around 15% next year. Weather plays a big role there. Whether it's mild weather or cold weather is going to play a role there. The heating is somewhere between 25%-27% of total maintenance costs. Since we have this system that we are able to increase the rents once a year, sending a letter to our customers and the rent increases, maximum rent increases index plus 5%. There's not a direct link for the increased heating cost and the rents, but there is a mechanism in place that we are able to pass the cost increases to the tenants.
Thanks. On looking at repair expenses, they are down year-over-year even if your property portfolio has grown quite significantly. Could you elaborate a bit around that?
Since there's different way to book things, for example, German peers, they capitalize all modernization investments. They capitalize all repairs, and they actually capitalize a big chunk of maintenance expenses as well. It's good to look repairs and modernization investments together. That's how we report it in our presentation. That's actually true year-to-date. We've been still taking care of our portfolio. Of course, bigger part of the portfolio is new or renovated properties. There's less to do there, less money to be spent. In general, we're still taking care of the properties.
Thank you. Regarding your debt portfolio, what is the availability of funding in? We know what the credit market looks like, but I mean, you have a bond maturing next year, EUR 200 million. What's your thought about that? I guess looking at that you have increased your share of bond financing quite significant. My assumption is that there will not be an issue in refinancing that with the bank debt if the credit market remains difficult.
For us, it's always been important to have access to different sources of financing. Bond market and bank financing and this EUR 100 million bank loan we made with OP that of course underlies the fact that we are able to get financing from the banks and the terms there was quite attractive. The thing is that actually we have this EUR 160 million cash at the end of Q3. We made on top of that this EUR 100 million loan and we have EUR 300 million committed credit lines in place. We have a commercial paper program and only EUR 30 million outstanding commercial papers.
Based on all these facts, we don't anticipate any difficulties whatsoever to refinance or finance maturing loans from banks. Nobody knows actually where the bond market is after summer 2023. Whatever this situation is there, we estimate that we are able to finance easily our maturing bonds from banks.
Thanks. You also said that you refrain from making new investments. Well, what needs to change before you pick up that again? Is it? Does it have more to do with the residential market or has it more to do with the credit market?
I would say it's a combination of uncertainty and the fogginess in the market. As said, we've been estimating throughout this year that construction volumes will start coming down. Now we see that happening in the market. We see home buyers getting more and more careful, and less new apartments sold for home buyers from build-to-sell projects. So far still construction companies would love to price their products according to the increase of the cost side. We do believe that with a bit of patience, we will see some better opportunities in the market. On the other hand, of course, yeah, we know that the price of new money at the moment has increased if we would tap the market. We see that the rental market has been improving a bit.
Our pipeline at the moment, as said, providing a bit more than 2,000 apartments is solid for 2022, 2023. We are in no rush to invest more at the moment. We are patient and we can wait a bit and look for a better opportunity.
Does the fact that you refrain from making new investments, are you still open to make opportunistic acquisitions or is that also on hold?
Always if it's attractive enough. We were able to move quite fast once COVID-19 kicked in. It's good to keep in mind that we are ready and able when we are willing.
Thank you. The last question, I don't know if you want to answer it, but I guess you still have the authorization of a EUR 1 extra dividend. Is that still in place until the end of this year? Do you want to comment it in any way?
I think the decision is in place. No further comments on that.
Okay. Thank you. That's all from me.
Please state your name and company. Please go ahead.
Hi, this is Andres Toome from Green Street Advisors. My first question is about the occupancy rate. Is it fair to assume that in Helsinki the spot occupancy is around 91% and also the sequential quarter-over-quarter increase has been around 100 basis points on the spot figure?
In total portfolio.
Yes
The increase quarter-over-quarter from Q2 to Q3 was around 100 basis points. The spot at the end of September, as mentioned in the CEO's report, was close to 93%. But we haven't disclosed overall occupancy rates spot.
Okay. Maybe you can perhaps give a bit of color in terms of leasing success after September. In October, how's that been?
Thank you for the question. As I provided Carlo, July was really strong, August was really strong, September was really strong, and as well, October seems to be quite good one. The market has been quite positive at the moment.
In terms of your capital allocation direction, it sounds a bit mixed in terms of just cutting back on development, perhaps a bit, but also being on the lookout for any sort of distressed opportunities in the market. How should we think about it in terms of where you're heading, also looking at your sources and uses for 2023? They seem okay because you do have quite a lot of unutilized facilities, but there's also a bigger debt maturity coming in 2024. Just looking at the share price as well, obviously the cost of capital would actually suggest that you should be selling, not expanding at this stage.
Well, of course, all loans and bonds, they mature at some point. If you look. Yes, we have 2025 and 2026 maturing loans as well. It's an ongoing thing in this type of business, of course. For us it's important and the thinking behind all these topics we've been discussing, the reasoning is that we want to be in a strong position whatever happens in interest rate environment and investment environment. We have strong buffers against whatever happens in the balance sheet side. We don't anticipate any major changes there, but we have buffers, and we are in a strong cash position. That's exactly the place we want to be.
In that regard we are totally different from many peer companies. We want to follow what happens in the market. In the long run, of course, we want to grow. This type of environment, of course, we want to be slightly cautious on the cautious side and look where the interest rates are actually heading and what opportunities there will be in the market. We want to be in a situation that we are able to make decisions and we are able to grab the opportunities in the market. We are not that concerned what is going to happen in 2024 in the interest rate environment.
I'm old enough that I've been around in this business when the interest rates were quite high and inflation was quite high and it's totally possible to do profitable real estate business even in that type of environment. Of course, the shift from the low interest rate environment to the higher interest rate environment may be painful for some players, but given our position. Of course, if the cost of new debt is much higher than what it currently is, that will gradually increase your average cost of financing. We have many years to offset that by increasing the rents and taking care of the cost side.
Our thinking is that we want to be in a strong position. We want to keep everything in control and we want to keep our options open. Yes, 2024, I'm confident that we are able to refinance those maturing loans and we have access to additional financing if we think that is the right time to do something and acquire something appealing.
Thank you. In terms of the access to the credit market, can you give a bit of color on the facility you signed in October? What is the interest rate on that bank facility?
It's this EUR 100 million, 6 years maturity unsecured, and the margin there is below 2%.
Thank you. That's all from my side.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Jonathan Wong from Kempen & Co. Please go ahead.
Hi. Good morning. Thanks for taking questions. Could you provide a bit more color on your value growth? I mean, yield requirements are up everywhere, and rental growth still seems a bit muted in Finland. It feels a bit counterintuitive that values are up in your portfolio.
Acquisitions. I couldn't actually hear, hi John, throughout the question. It was a combination of the acquisitions and rental market, was it?
Oh, no, sorry. It was about value growth. I mean, you reported a positive value growth during this quarter. Looking at yield requirements everywhere, they're essentially up, looking at how other European property companies are reporting. Rental growth in Finland still seems a bit muted in residential. It all feels a bit counterintuitive to me that the values are up in your portfolio.
Yeah. Okay. Thank you. As mentioned, basically 95% of the value growth or the positive impact in changes of fair value came from development gains. If you have ongoing projects providing development gains north of 30%, once you complete them, they will have a positive impact. We've been making quite strong deals throughout last years compared to the market. That's basically the story there. And then we've been increasing the rents in a normal manner throughout last two years. Now the market is improving and occupancy is improving. That typically will have a positive impact put together.
Sure. Does that imply that also your like-for-like portfolio is essentially flat and not trending downwards?
Yeah. It's good to keep in mind there that like-for-like is the last 12 months.
Against the prior 12 months. It's not providing an immediate impact. Looking forward, if positive things keep on changing, it will have a positive impact.
What comes to the valuation parameters, of course, it's very, very important to be consistent there. When we discussed about and evidenced the yield compression, so in our portfolio, and we communicated that very clearly that first we wanted to see evidence from the market that where the yields are heading, and then when there was enough evidence from the market, we made the changes in yields downwards at that time. There's no evidence. You need to follow that same path when times changes. We don't know where the yield requirements are heading. There's no evidence in the market so far. We need to wait and see where they are heading if they are changing.
The latest transaction we've seen in the market late summer there, the pricing was still very, very high according to our view. It's important to be consistent with your parameters. As a general comment, of course, yield requirement is only one parameter in the valuation. There is top line growth and cost side as well. If the interest rates are high and inflation is high and especially if the rent inflation is going to be there, so most likely in that type of environment, the rent increases will be higher, and that is going to have an impact for values as well. It's a combination of all these things.
Again, of course it's clear, but it's good to keep in mind that valuation is based on 10 years cash flows discounted. Then you need to look at it with the longer run. This is the facts behind the thinking that we didn't change our valuation parameters. Of course, Jones Lang LaSalle being the external expert gave their report as well and they fully share our view that no changes are required when there's no evidence from the market.
Okay, that's clear. That also implies that you are expecting market rent to move towards CPI again in, say, the coming years essentially.
Yes. I would say that as Erik said prior, yes, he is a bit older, but I've been around for a couple of years already as well, since mid-1990s in resi business, doing this business with real yield requirements well above 8%, with rent increases well above 8% or 9%. I think in that sense, experience provides a bit wider view on things than a couple of months. We've been trying to be systematic and prudent throughout the years, whether it's financing, whether it's investments, whether it's yield requirements. In the long run, if interest levels, inflation keeps on a higher level, yes, that will mean higher rent increases as well.
Okay, that's clear. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers.
Thank you. We do have some questions in the chat. I think most of these themes have been covered more or less. About the energy costs, can you comment how long the duration is for the electricity hedging?
The next 12 months pretty much 80%-85% hedged, and next 12 months. After that, around 60% hedged.
Okay. Clear. Maybe you could refresh what is the expectation for Kojamo's own starts in 2023?
Uh, own starts meaning-
New
New development projects?
New starts.
We did have the figure how many projects already started this year. Can't recall it. 437 apartments started this year already. I said at the moment, for the time being, we are not making any new investment decisions. Most probably it's only 6-7 weeks left of this year. We will keep that situation. On the other hand, as said, we do have more than 2,000 apartments under construction providing growth for this year and we are completing more than 1,500 apartments next year. That will provide growth as well.
Thanks. Final question is, how do you consider the importance of dividends versus lowering your debt?
Dividend policy is part of the board decision-making. We've been happy with this dividend policy. It provides decent dividends for the shareholders and actually leaving 40% of the FFO inside the company to back up the growth. Our financial figures are really strong. We do have a significant buffer, whether it's loan to value or equity ratio. On the other hand, loan maturities are still quite long and hedging ratio is high. There's no major needs for new financing. We are in quite a secure spot there at the moment. We don't feel that we are in a position that we should sell something or make changes in a dividend policy because of the balance sheet problem. We don't have one.
Okay. Thank you. That was all. Thank you for the questions, and thank you for joining us today. We will meet then next year. Now I wish you a lovely autumn. Thank you. Bye-bye.