Good afternoon ladies and gentlemen and welcome to Kojamo's News Conference. I'm Niina Saarto from Investor Relations. Today we have two speakers. Our CEO Reima Rytsölä starts with key highlights for the period and with the operating environment, and then CFO Erik Hjelt continues. We're going to hear more about the financial development. We have Q and 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 Niina and very good afternoon on behalf of myself as well. We released an hour ago 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 a 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. 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 issue there and it remains to be true.
This time the net rental income grew in the same pace as 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 c lose t o 2,000 apartments to Apollo Funds and we kind of paid our debt for EUR 200 million and launched 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.
I think we have a slight or minor signs of improvement even though the kind of a recovery has postponed already many times. One very positive topic for Kojamo during the Q3 was as well that Moody’s affirmed the Baa2 rating for us and that's very, very kind of an important factor for a company like Kojamo that its financing capabilities remain very solid. We also started the strategy review, but as I said already in Q2 release, 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.
If we talk about a little bit the operating environment, the economic growth in Finland remains muted even though there's slight optimism in different kind of forecasts. The global economy is more optimistic and also the Eurozone. 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 a 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 and there's some kind of rumors or initiatives that the legislation will change in subsidized apartment buildings as well. We see how it develops, but it probably will come down in the future as well.
In a sense, if we have kind of 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, 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, it won't be significantly higher. It's easy to say that it's definitely underneath the kind of constant need for apartments as such and why the need is still there. In the biggest cities the population grows constantly and the immigration is obviously a big factor of that. The kind of megatrend that is backing up the equity story here in Kojamo is obviously the population growth.
One thing that has been in discussions is why is that supply-demand balancing out taking so long? Probably the one reason is that even though immigration has grown a lot in the last three to four years in Finland, the number of households hasn't increased at the same pace as population growth. That has been one factor that has kind of slowed down the melting process of oversupply. The kind of old story as such, which has been explained quite a long time. More than 97% of our portfolio is in the seven biggest cities, and the urbanization and the population growth overall in big cities are supporting the Kojamo portfolio locations. 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.
I think if you take a comprehensive view of our results, all the factors were performing as expected. I would describe it that even though the market, as I said, the market conditions haven't eased up significantly, the performance of our own has been good in Q3. I would like to hand over to Erik now and then we can go to Q and A.
Thank you, Reima, and good afternoon from my side as well. Page 12, if you look at the total revenue first, the total revenue grew EUR 4.8 million year to date compared to Q3 last year. The Q3 growth was EUR 0.4 million 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, EUR 3.7 million. We lost that, if you like, in a top line growth way. Net rental income year to date growth was EUR 3.2 million, and in Q3 it was positive at EUR 0.3 million. Maintenance expense is pretty much flattish year to date and EUR 0.8 million decrease during Q3. Repairs year to date up by EUR 1.5 million and EUR 1 million during Q3.
If you then look at maintenance expenses, there are positive and negative figures there. On the positive side, heating down by EUR 1.8 million, credit losses down by EUR 0.8 million, and electricity down by EUR 0.5 million. On the negative side, if you like, is water up by EUR 1.2 million and cleaning up by EUR 0.6 million. Both water and cleaning are impacted by the improved occupancy. Page 13, on the right-hand side, we have FFO. FFO declined by EUR 7.7 million year to date and net rental income contributed EUR 3.2 million. SG expenses increased EUR 0.7 million and finance expenses on FFO side grew by EUR 8.6 million. On the P&L side, the finance expenses growth was EUR 9.1 million and current taxes were up by EUR 2.7 million. In these current taxes, we are not including current taxes due to the disposal of assets.
Page 14, we are extremely proud that we were still able to improve our occupancy. If you look at year to date figures, so cumulative figures, the growth is 2.9 percentage points. More important is actually to look at what happened third quarter compared to second quarter this year. The third quarter figure was 96.1% and it was 94.4% in Q2. There's improvement of 1.7 percentage points. I would call that quite an achievement in the current market position. 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. We have enhanced our interaction with our customers. That, of course, plays a role on the financial occupancy rate angle as well. Page 15, like-for-like rental income in this type of turning point. I'm not even today any good fan of this like for like calculation.
It's prepared according to proposed practice recommendations, but because it's backward looking, in this type of turnaround situation it's not that representative for what's really going. Actually, if you look at our figures, they are improving exactly how we estimated. Now the impact of occupancy rate is visible in this figure, it's + 1.7%. Impact of rent and water charges are down by 0.5% and others - 0.2%. The total like for like rental income growth is + 1.1%. If you just do the math and look at Q4 figures and the Q4 last year that will be rebased in the calculation in our Q4 calculation this year, the impact of the occupancy will improve further. 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.
There's EUR 4.1 million to be invested in order to complete that ongoing project. Repairs, we estimate that the repairs this year are going to be slightly above the last year figures, so a little more than EUR 24.1 million. The modernization investments already clearly higher than last year, so now EUR 19 million year to date, last year it was EUR 4.1 million. We estimate that the modernization investments the whole year is going to be around EUR 30 million, EUR 30 million. 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. The value of investment properties is quite stable there. 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 EUR -16.4 million. Almost all that came through because of the ongoing modernization investments.
In the P&L side, the money invested is a negative figure in the valuation. Of course, once these projects are completed, the outcome of this project will be booked when completed. Loan to value and equity ratio, quite strong figures there. 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 EUR 200 million of outstanding loans on back of this transaction as well, page 19. A very important piece of information is that Moody’s actually affirmed our Baa2 rating and they stabilized our outlook and we are extremely pleased of that. The thing is that next financing arrangements will be to refinance 2027 maturing loans.
In that sense, our liquidity position is quite strong because we have EUR 240 million cash or finance assets put together and EUR 275 million committed unused credit lines in place and we've been active in financing other ways as well. We actually refinanced two loans during Q3: a EUR 100 million loan with OP Corporate Bank and a EUR 75 million credit line with Danske Bank. Our equity per share , and EPRA NRV moved sideways, so no major changes there. On page 22, we actually kept our outlook for this year unchanged. We estimate that top line growth is going to be between 0% and 2% year on year and then we estimate that our FFO this year is going to be EUR 135 million- EUR 141 million.
If we take the midpoint of the revenue growth outlook, we estimate that of course the occupancy has improved, moderate rent increases remaining part of this year, the fact that we are still flexible when it comes to renting, when apartments come vacant and we try to find a new tenant. If you look at the midpoint of FFO guidance, the guidance as such is reflecting the range forward revenue growth guidance. In the midpoint of FFO guidance, we assume the average weather for remaining part of this year, that SG expenses and repairs are broadly in line with what we had in 2024 and no additional financing arrangement to be done during the end of this year. At this point, I hand it back to Reima.
Thanks, Erik. I think it's more or less time for a Q and A, but as we told, on the other hand, not an uneventful quarter but kind of a steady quarter, so to say. Obviously, the kind of highlights still the recent occupancy rate and ending on Q3 to 96.1%. 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 Frans-Mikael Rostedt from Inderes. First, I would like to ask about the occupancy rates increase, which have been significant, significant like you said. What have been the key actions? It seems like you didn't have to make significant rent concessions during Q3, and what have you changed during this year to achieve such a quick turnaround in this market situation?
I think the kind of dynamic pricing is one of the key aspects. On the other hand, as we showed in one of our slides, our NPS is at a record high level. Actually, our churn has come down as well. We have been both kind of attractive landlord to our existing tenants, so the churn has come down, and we have been able to attract new tenants.
Of course, we have had to reprice the rents in some cases for new tenants due to the fact that, as you yourself as well said, the market condition is not that good. Overall, I think we have, which we told already in Q2, put quite a lot of effort on our sales operations and how that process works, and also tried to put focus on the customer experience as such. That has paid off, I would say. I don't know if Erik has something to add on.
Yeah, I fully agree. 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 staffed the evening hours and weekends, and we have established a special team in our service center to support the renting operations. I would say it's a combination of several things that we've been doing.
I could ask about the transaction market in Finland. As you very well know, we struggle with the capital shortage. How have, in your opinion, 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. Was it end of June when we signed that? End of June. After that, there definitely has been a kind of a picking up of the interest. On the other hand, it's fair to say that it started on a very low level, the interest. Even though it has picked up, it's not, how would I say, in very good shape, the transaction market as such. I would say that it's improving.
Okay, 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 key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial six on your telephone keypad. The next question comes from Anssi Rousi from SEB. Please go ahead.
Yes, hi Ola and thank you for the presentation. A couple of questions. I start with the occupancy and rent. As you said, quite an improvement in Q3 regarding occupancy. How should we think about your rent going forward, and is it like your next plan to start implement some modest hikes there or what's your plan?
Yeah, 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. On the other hand, I think we need to be very, very sensitive with the market balance overall, that we are not pushing too high rent hikes to the market, which is not absorbing those. Definitely, given the occupancy rate has risen and we are more on a normalized level at the moment, we have better capabilities from our end to rise the rents as well.
Yeah, I understand that, thanks. 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?
As you can probably calculate throughout the end of June figure and average Q3 figure, it was rising during the quarter going forward. A normal pattern or seasonal effect in occupancies is that they tend to come down a little bit in the latter part of the year. We don't know that yet, but that's a normal pattern I would say.
Thank you. Maybe finally about your repair and maintenance expenses, how would you describe your current levels? Of course, I'm thinking here about the next year. Is 2025 a so-called normal level?
We are not guiding next year at this point, but general comments: 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 seem to be on a decent level at the moment. 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 monetization investment projects next year as well. Either remain on the current level or slightly up. As said, we are not at this point guiding anything next year. This is our current talks regarding repairs and monetization investments.
Okay, got it. Thank you.
The next question comes from John Vuong from Van Lanschot Kempen. Please go ahead.
Hi, good afternoon. 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. 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.
We don't know yet how the, what I meant is that when we have a closer to normalized level in occupancy rate, we are in a better position to start pushing the rent hikes to the market. As I said, at the moment the market remains to be challenging and there's still oversupply, especially in Helsinki and Vantaa area. That differs by city. For example, Tampere, Turku, and Espoo are much better from bigger cities. We need to be kind of sensitive to how the market is absorbing the rent hikes as such. That's why I didn't say that we are able to push significant rent hikes for the market. I said that from our own perspective, we are in a 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. When you say in Tampere and Turku are much better, what rental growth are you achieving over there?
I don't know if we have disclosed the city by city rental growth, but I think the oversupply perspective, they are better. That's why the kind of a market is absorbing better rent hikes, whether they are in any city at the moment, very significant. 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, it doesn't require much in Finland to be more than inflation. If we have a 0.4% at the moment forecasted inflation, that's very low. Still, 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. The market as such is absorbing better the minor rent hikes.
Okay, that's right. Thank you. 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?
We have 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. Firstly, could you give a bit more color on the strategy 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 you said, it's early days, but it's given the. Even though I said that our balance sheet is in good shape and our loan-to-value is 42.2%, I think it was the latest figure. It's in 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. That's why I said that it's more of tuning the existing strategy. What does it mean then? Of course, there's some operational focus points where we should focus more. I think that, as I said, 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.
We expect that to be a kind of important factor in the future, at least in the long term, to be able to create the rent premium that we have satisfied customers. Of course, there's topics that we need to kind of go through, especially from a capital allocation point of view.
Thank you very much. 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?
We do see on the market several types of incentives, whether they are three weeks rent-free, free month, or some kind of vouchers. There are still some. Actually, our interpretation of the market and customer behavior has been that the correct rent price as such is more appealing from a tenant's point of view than different kinds of one-off incentives, so to say.
Perfect. Thank you very much.
As a reminder, if you wish to ask a question, please dial on your telephone keypad. The next question comes from Jonathan Kownator from Goldman Sachs. Please go ahead.
Good afternoon. Thank you for taking my questions. Just to follow up on this pricing, we know 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? Have we changed the pricing? Did you mean how much we have changed the pricing?
Yes, to improve occupancy. Obviously you'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. Some real estate are more challenging than the others. The new tenants' kind of rent levels have been something like 3%- 5% lower in some cases on average wise. Which comes to that actual rent roll has decreased a little bit during the year. We have been able to push small rent hikes for existing tenants as well during the same tenant. On the other hand, there are some new tenants that we have been able to rise their rents as well.
Okay, great. That's it. Thank you so much.
The next question comes from Anssi Rousi from SEB, please go ahead.
Yes, one more from me, if I may continue on this capital allocation topic. I understand that you have not finished your strategic work yet. If we think about, you know, buybacks, dividends, additional deleveraging, maybe, you know, to prepare for the growth at some point, how do these go together and what kind of, let's call it, pecking order you see here?
Thanks, Anssi. You pretty much described the elements of a capital allocation, and those are exactly the ones that we are trying to fit together. We do not have any news for that at this stage. As I have said earlier as well, we fully recognize how important the growth is from a value creation point of view. We are definitely working hard to find our way back to the growth path as well.
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. 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 February 11th. Hope to see you all then. Thank you very much and have a nice evening.
Thanks a lot.
Thank you. Bye.