Good morning, ladies and gentlemen, welcome to Kojamo's full year results news conference. My name is Niina Saarto. I'm responsible for investor relations. Our CEO, Jani Nieminen, and CFO, Erik Hjelt, will shortly present last year's figures and also give outlook for this year. After their presentation, you will have a chance to ask questions. We will take first questions from the phone line and then from the chat. Now we can start. Jani, I would like to invite you over here.
Thank you, Niina. Good morning. I'll start by saying it's always nice to be here providing some color concerning Kojamo operations. Today, we start by providing a bit of color what's been going on last year, what's the operational environment, and what's the summary. In my eyes then, Erik, as a CFO, will provide a bit more detailed color concerning the financial development. Last year, I would say, good starting point is that we actually had a really strong year with our strategic targets. All the key figures are really well in line with our strategic targets. Operationally, our numbers are solid, and we created profitable growth. On the other hand, it's easy to say that 2022 can be seen from two standpoints.
As COVID-19 restrictions were lifted, urbanization continued during the summer, and that had a positive impact and a positive turn in the occupancy towards the year-end. Of course, Russian invasion to Ukraine has had a negative impact to the operational environment. Inflation has been increasing, interest levels have been increasing. That has been impacting the operation. As we've been saying, we have been stopping temporarily our new investments. This new environment had as well an impact on our valuation of investment properties. There it's good to keep in mind that actually it's now based on environmental factors, not actual deals done in the market. In this environment, it's been really a positive and important thing that our balance sheet is strong. We have been using all the time multiple sources for financing.
Our hedging ratio has been high. Because of that, the impact of interest levels increasing has been really limited. Moving forward to the operational environment. It is to say that the big outlook in the global economy at the moment is bleak and cloudy. Mild recession might come. On the other hand, here in Finland, it's good to keep in mind that on the other hand, we see a really low consumer confidence. On the other hand, still, the employment situation remains really good. On the other hand, I would say it's good to keep in mind that typically when consumer confidence goes down, it has a really quick impact to housing sales, so owner-occupied market, and sooner or later, a positive impact towards rental homes and rental demand.
We look at the industry key figures, residential startups, this has been a rapid stopping in the market. They've been sharply going down the number of new startups. Still no exact figure from last year, I would say clearly below 40,000 apartments have been started last year. Official estimate still for this year for residential startups, 36,000 apartments. I would say I would be surprised if the first number will not be two. Clearly below 30,000 apartments here in Finland will be started this year. Of course, that will have an impact towards the coming supply starting 2024. Construction increases, cost increases have been leveling off. Of course, there are some materials still increasing like concrete.
On the other hand, sharply falling volume should and will impact this material cost and bring the construction cost down. As we've been seeing in the market, Kojamo is not investing in new construction cases, and neither are the construction companies actually starting any build-to-sell projects. Operational environment, we've been saying all the time throughout COVID-19 that we see a temporary impact towards urbanization. Starting last year during the summer, we have seen that urbanization is continuing, and actually, according to the latest estimates, the biggest cities had a positive net migration. Actually, the top 10 cities which grew last year through net migration were the places where Kojamo has rental apartments and where Kojamo invests, so capital region there. The biggest growing part of Finland, Turku and Tampere as well. Mega trends still valid. Urbanization creating long-term demand in the market.
On the other hand, we do see still an increasing number of small households, meaning one or two-person households, and they tend to typically live in rental apartments. Even though they are not the latest statistic concerning 2022, it's been the same trend throughout the last 10 years, that the portion of households living in rental apartments have been increasing every year in the biggest cities. It's good to keep in mind that even though people tend to think that Finland is owner-occupied homes country, in cities like Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner-occupied homes. As I said, urbanization, talking about page seven, urbanization started to continue. I checked out the latest estimate from Statistics Finland. The pure net migration in Helsinki, Vantaa, Espoo last year was 15,600 people.
The population growth has been bigger. Residential startups volumes have been coming down and actually will decrease this year. If we look at the chart on the bottom left-hand corner, I tend to believe that we are going 10 years back in the time, meaning the volumes of 2013 or 2014. That will have an impact in the residential market starting 2024. A really limited new supply coming to the market starting 2024, and that will of course, create the possibility to increase the rents as the demand is growing and the supply is going down sharply in the market. Home buyers have been really careful. According to the market information, it's down 80%, so basically construction companies don't have the capability to start up any build-to-sell projects. Home buyers are really careful.
They either stay put in their current home, but now the interest levels are increasing. On the other hand, in the owner of occupied buildings, the maintenance increases are facing the inhabitants during this spring, that will create pressure in owner-occupied apartments. In that sense, actually, rental apartments are becoming more and more competitive. I said, our operational key figures were strong. We were able to create total revenue growth by 5.5%, ending up to EUR 430 million. That's a combination of three aspects. At the end of 2022, we were able to create positive like-for-like growth. We made an acquisition of 1,000 apartments roughly last year.
Of course, we've been completing new apartments both last year and 2021, and apartments completed in 2021 have been providing revenues the full year last year. Of course, close to 1,400 apartments completed last year created revenue growth. That provided a positive starting point for the net rental income. And there the increase was 6.8%, so profitable growth. If we compare net rental margins, 2022 it was 67.8%, as the comparison year was 67%. Some aspects there, of course, maintenance cost increases there because of the electricity prices. There the impact was EUR 1.4 million. Heating, EUR 1.3 million increase. Property taxes, a bit more than half a million EUR. Some cost savings concerning repairs.
Funds from operations, we were able to increase by 5%. Of course, we do have a slightly bigger loan portfolio, for example, there. Record high gross investments, EUR 501 million. It's a combination of new development projects that provided investments of EUR 270 million. Quite a large acquisition. After some years, we were able to find a portfolio matching our parameters. Of course, modernization investment. These are the three topics there. Fair value of investment properties now EUR 8.2 billion. They are of course a positive impact because of the gross investments of EUR 500 million.
Because of the inflation and interest level environment, there was a yield requirement change in the valuation, and that created a negative impact of EUR 682 million. That's how we ended up with EUR 8.2 billion. Profit excluding changes in value, strong performance there, EUR 182 million, improvement by 5.2%. Because of these changes in value of investment properties, the profit before tax is now EUR 500 million negative this year. There is good to keep in mind that a year ago, the comparison figure was EUR 1.1 billion positive. We've been following the market and proceeding with our strategy really consistently throughout the years. We were able to find a portfolio matching our parameters last year.
We acquired 985 apartments and completed 1,300 apartments. On the other hand, we already saw during the first part of the year the change in operational environment, we were a bit more demanding with our parameters. As we moved towards this autumn, we stopped making new investment decisions, and that's why we started 477 apartments last year. Today we have under construction 1,800 apartments. Concerning those 1,800 apartments under construction, it's good to keep in mind that we still have really good development gains. They vary between 15%-20% as we complete those projects. All the projects are proceeding as planned. All the projects have fixed pricing and excellent micro locations. One project in Turku, one project in Tampere, and all the other projects located here in capital region.
A couple of examples of buildings we've been completing and apartments we've been completing during Q4 last year. For example, Tenderinlenkki in Pasila, close to Mall Tripla, brilliant project. Vantaan Pyhtäänkorventie close to airport. Ruukkupolku in Myyrmäki. For us, it's been all the time important that in our strategy, we want to be customers' number one choice, and we do believe in creating added value for our customers by combining apartments, common spaces, and services provided digitally or physically. We've been providing new services now. For example, our potential customers are helped by AI-based apartment agent that helps you to find a new home, a Lumo home, according to your parameters and your wishes. On the other hand, as we see this operational model and strategy really important, we made some changes in the management team and management team responsibilities.
We combined a new task for chief experience officer taking care of customer experience, customer insight and data, so customer understanding, creating the concept of Lumo, then combining that to marketing and communication. We will continue on creating new services for our customers and creating added value for our customers. Now as we move forward, Erik will join and provide more detailed color. Here is a good example what Kojamo can provide for our customers. A building in Annankatu 5. Building was originally built in 1885, totally renovated. 2021 completed. Sad to say that today no vacant apartments there, the building is super. Thank you.
Thank you, Jani, and good morning everybody from my side as well. Page 14, our top line growth was EUR 21.6 million, and the like-for-like rental growth turned positive during Q4, 0.3%. Rents and water charges increases contributed 2.2% positive figure, occupancy rate negative 1.9%, and other 0.1%. Last year, we acquired this portfolio June, and that contributed EUR 4 million for the top line last year. The growth in top line came through pretty much thanks to those completed apartments. 2022 completed apartments and of course, second half of 2021 completed apartments played a role there as well. Our net rental income growth was EUR 17.8 billion.
Maintenance expenses up by 6.2% made growing items there, as Jani already mentioned, electricity, heating, water, and property taxes. You look maintenance expenses, EUR per square meter per month, there the growth was 2.2%. The growing portfolio of course, played a role there. Repairs were down EUR 2.2 million. Page 15, if we first look the change in fair values looking backwards, it's good to note that during 2018, 2021, the profit in change fair value on investment properties was EUR 2.8 billion. Now on the loss, EUR 682 million. The net is still positive, more than EUR 2.1 billion.
In theory, the valuation should be made based on evidence from the market. In Finnish property market, there were no major transaction during Q4. These adapted yields in evaluation is based on opinion of external valuator. The yield expansion was 0.34%, and now the total portfolio yield is 3.97. That of course, should reflect the current market conditions. If you look profit before taxes, excluding change in fair values, it's good to note that, you know, on the finance expenses side, there was EUR 5.4 million positive impact because of value changes.
If you look, FFO up by EUR 7.6 million, net rental income of course, the biggest contributor there, EUR 17.8 million. SGA expenses up by EUR 5.8 million. Finance expenses up by EUR 4.6 million on FFO level. Cash taxes down by EUR 2.8 million. SGA expenses, a couple notes there. One is that of course, when we compare the figures for 2021, there were some savings because of the COVID-19 inflation plays a role there as well. There we had some one-off items, if you like. So some external experts used for some transactions. Of course, at least for some costs, we're testing external sales forces that of course played a role there.
Then we are renewing our ERP system, and all this plays a role for SG expenses last year. Finance expenses up because of the bigger loan portfolio of what we have in our balance sheet. Page 16. Financial occupancy rate for the whole year cumulative 92% at the end of September. Year to date figure was 91.7. If you look only Q4, there the occupancy rate was already 93%. Tenant turnover came down by 2.2%, and that reflects on its side as well that restrictions that ended last year. Like-for-like, I think we already covered. Page 18. Gross investments EUR 501.6 million.
There of course, the acquisition plays a role and those development project that we completed and that are still ongoing. If you look, modernization investments and repairs put together, the growth there is EUR 8.3 million. Repairs down EUR 2.2 million as already mentioned. Modernization investments up by EUR 10.6 million. We've been taking good care of all the properties that we have in our portfolio. For the time being, we will make no new investment decision due the uncertainty in the market. We have strong balance sheet, and we like to keep it that way. Our ongoing project will be completed as agreed, and they are proceeding according to our plans. Page 19. Fair value investment properties.
There's these investments on the positive side and then the change in fair value on a negative side. We still have 1,680 apartments where we have restrictions regarding the valuation, and those restrictions will gradually end by 2024, and the uplift in the value will be somewhere between EUR 100 million-EUR 110 million. Page 20. If you look these ongoing developments from the Euro perspective, EUR 293 million already invested and EUR 168 million to be invested in order to complete these ongoing developments. In total, 1,804 apartments, and that includes 119 apartments were under binding agreements.
We estimate that the total investment in developments this year will be between EUR 160 million and EUR 190 million. Page 21. Of course, equity ratio loan value changed slightly because of the value change in property portfolio, we still have quite sizable buffer against our targets. The target is to have equity ratio above 40% and loan to value to be below 50%. I feel if you look only, value perspective, the buffer against this 50% loan to value level is EUR 1 billion. As said, we have quite sizable buffer against those levels. Strong balance sheet there. EPRA NRV reflects of course the result at the end of last year, 19.53 euros per share. Our financing position is strong.
Our cash position includes EUR 190 million cash and cash equivalents, EUR 104 million financial assets, and on top of that, we have EUR 300 million committed, unused credit lines in place. Average cost of financing 1.9 including the cost of derivatives and the hedging ratio is still quite high, 84%. We don't have any major financing needs for next 12 months and those maturing loans are pretty much already covered. At the December, we made actual new refinancing EUR 50 million with Danske Bank unsecured, 3 years with two 1 years extension options unsecured at that point of time. Our strategic KPIs page 24 actually all of them are in line with our targets. Top line growth 5.5%.
Investments more than EUR 500 million. FFO against total revenue, almost 39%. Loan to value ratio strong as I said, and in line with our strategy, providing us a large buffer against our target levels, and net promoter score strong, 45. On page, next page, we have the outlook for 2023. We estimate that the top line growth will be between 7% and 10%, and we estimate that the FFO will be between EUR 153 million and EUR 165 million. If you look the first the top line growth outlook, to hit this 7%, the low end of that range, that is covered by increased rents and water charges in normal manner.
Acquisitions completed, 2022 now contributing top line for the whole year. Completed developments 2022, and developments to be completed this year. Then to get closer to this upper end of that range, of course, then requires that we will improve our occupancy, and that's of course a target for the company. FFO level, that target, that outlook reflects the top line growth outlook, and there are some, of course, assumptions. If you look the midpoint of that FFO range, that requires to have a normal weather for 2023, to increase the maintenance expenses by 10%, to have repairs in line with figures in 2022. SGA expenses increased according to inflation.
Gas taxes to remain on the current level between 11 and 13%, and refinancing at the current pricing, current interest rate environment. These are assumptions in the midpoint of that FFO target. Then one additional note that this outlook, FFO outlook doesn't take into account the potential premature funding of the Eurobond due 2024 because we don't know the timing of that, and we don't know what the price when we renew that one. Dividend policy. The board of director proposes a dividend point 0.39 EUR per share, and that's in line with the dividend policy of the company and growth for last year's figure. At this stage, back to Jani.
Thank you, Erik. As to summarize, I would say, as I said earlier, we did have a operationally strong year. We were able to create profitable growth. Both the total revenue and net rental income increased, as well did FFO. For us, it's been all the time important that our balance sheet is strong. As our CFO, Erik, said, there's a significant buffer in our LTV and equity ratio. In the market conditions, there's been a change and there was a impact concerning the valuation based on the estimated thinking concerning yield requirements. That's good to keep in mind that actually no transactions, so no data from the market. Looking forward in my eyes, it would mean that in order to make new changes in the valuation, that would actually need some data from the market.
For time being, we will not make any new investment decisions. Of course, all the ongoing projects are proceeding in a normal manner and we are completing a lot of new homes this year. It's good to keep in mind that as housing startups have fallen sharply, there will be, looking forward, a really limited number of new supply coming to the residential market starting 2024. As the supply will go down, that will of course provide opportunities to increase the rent levels throughout the market more than this year. Thank you.
Thank you, Jani, and thank you, Erik, for the presentation. We can now start the Q&A part, and as said, we can take first questions coming from the phone line. Operator, we are ready here.
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. The next question comes from Anssi Raussi from SEB. Please go ahead.
Hi, guys, thank you for the presentation. I have a few questions, and I go one by one. The first one is about your development gains. I think you mentioned that you're seeing development gains between 15%-20%. How do the dynamics and numbers work here? Because I think that you have mentioned that the development yield is around 4% or so. Could you open these numbers a bit? Thanks.
Thank you for the question, Anssi. Yes, I did say that development gains are still solid. They are between 15%-20%. They will kick in as we complete those projects. Valuation yields are below our investment yields. The investment yields have been starting by four. We've been always saying that they are around 4% or above 4%. All the projects are located in Helsinki region, except one in Turku and one in Tampere. Location-wise, excellent micro locations.
It's fair to assume that the investment yield is above 4%, and, I think your capital region yield requirement was around, 3.5%. That's the math behind this calculation.
In a bulk, yeah.
Yeah. Okay. Okay. The next one about your capital allocation, like, what kind of priorities you have in your capital allocation and...[audio distorted]
We decided not to make any new investment decisions. The investments will be made to complete these ongoing developments. We haven't really decided when we start to make new developments because it's still unclear where the market is heading and what opportunities there will be. The to complete these ongoing developments is the biggest portion of our spending money this year. Monetization investments and repairs we estimate to be pretty much in line what we saw last year's figures.
Anssi Raussi, SEB, your line is now unmuted. Please go ahead.
Sorry, can you hear me?
Please state your name and company. Please go ahead. Your line is now unmuted. Please go ahead. Please state your name and company. Please go ahead. The next question comes from Erik Granström from Carnegie. Please go ahead.
Thank you very much. Can you guys hear me out there?
Yeah.
Okay, good. Thank you. I don't know what happened. I was somehow disconnected, I think, or at least everything was muted. I'm sorry if I'm repeating any of the questions 'cause I can only hear the first part of the Q&A. I would like to start off by asking when you mentioned that external evaluators have looked at increasing interest rates rather than transactions, how do you think that they've gone about? It seems like they've been fairly even when it comes to the capital region versus the rest of Finland. How has their thinking been in terms of increasing the yield requirements?
I do believe that they tend to think thoroughly, think about different aspects and now the impact has been starting from the core regions of Helsinki area. City central Helsinki starting.
Okay. You also believe that they will not do any additional adjustments until you see evidence in the transactions market. Is that correct?
That's how I see this issue that now there has been some adjustments and they have been based on estimates what's going in the market. We don't have any actual data from the market. In that sense, I do believe that in order to make new changes, it would be good to have some kind of data from the market.
Thank you. Regarding your guidance, you mentioned that in order to reach through the upper end of the growth guidance, you would need to see some sort of adjustments to the vacancy, and I would assume then also like-for-like rental growth. What kind of numbers do you think that you need in order to reach that 10% for 2023 in terms of occupancy, but also in terms of like-for-like rental development?
If we look at these items I mentioned, increase in rents and water charges, acquisitions made in 2022, completed apartments in 2022 and developments to be completed this year. This alone should take us to the lower end of that range. Improvement in occupancy rate will take it towards the upper end of that range.
Exactly. In order to reach the 10%, what kind of occupancy do you think that you would need?
If we hit 7% without any improvement in the occupancy, so that's... I'll leave you to do the math.
Okay. Sure. Fair enough. Good. In terms of what so far, what have you seen in terms of rent development for this year, in terms of renegotiations and when you're looking at new leases, when you actually have new tenants moving in? Can you say something about what the development has been like with the start of this year?
Yeah. Throughout the market, I would say that we have seen in the market rent increases, not as hard as the inflation because there's still quite a lot of new supply in the market because of the startups two years ago. Looking forward the year, we are following the market really closely. I would expect that going towards the year end, and especially to 2024, we will see higher rent increases throughout the market as there will be a really limited number of new supply. As I said, throughout the market, rents are going up, not down.
Okay. Good. Then also regarding your units under production. You have about 1,800. You will complete about 1,400 this year. You started about 447, I believe, in 2022. You seem to be a little bit still restrictive in terms of starting new projects. Should we expect units under production to continue to decline in 2023 as you complete projects but do not start new ones? Is this, is this something that you expect to start new projects in the second half of this year?
At the moment, we don't see us starting new projects. We are not investing at the moment in new development projects.
Okay. Your units under production will then sort of fall with the completion of the ongoing production?
Yes. As it now seems. As Erik mentioned, of course, going forward, things may change. If the market provides exceptionally good opportunities and we see that now the market is starting to change, then of course it's then time to think whether to start investing again.
Okay. Good. Thank you.
On the other hand, that will provide our, us capabilities to increase the rents in a normal manner and in a new normal manner as we will face an era with a limited supply in the market.
Yeah. Exactly. Perfect. My final question was a little bit of a, of a detail, but you did mention it in the presentation. Admin expenses I think increased by 35% year over year in Q4 alone. You mentioned some one-offs, but also that you're implementing a new ERP system that seems to have sort of boosted the expensive on an admin side. Is this work completed or should we expect sort of new ERP systems to cost you in 2023 as well? I'm just trying to figure out what admin expenses we should expect for 2023.
That process is ongoing. We started last year, and it's still ongoing.
Okay. Thank you. Those were my questions.
That's included our FFO guidance, of course.
Yeah. Okay. Yeah. Perfect. Thank you.
Please state your name and company. Please go ahead.
Svante Krokfors from Nordea. Hope you can hear me this time.
Yes.
Thank you. Actually, most of the questions have been answered. I was cut off for some time, but a question about the hedging ratio came down somewhat in Q4. Could you elaborate a bit on how you reason around that going forward and your hedging policy?
Actually nothing changed really. There is a EUR 200 million bond that will mature late this year, and that's now short-term, and that's why it was left out of this hedging ratio calculation. Really nothing changed. That's the only reason why it came slightly down. It's still as said, it's still quite high.
Yes, it absolutely is. Regarding your... I mean, you mentioned that, or that the valuation is not based on reference deals. What kind of activity do you see among investors, especially the national side?
I would say that at the moment, investors are following the market. No activity is there. We have not seen any transactions completed.
Okay. Thank you. That's all from me.
The next question comes from unavailable. Please go ahead.
Hello. Am I audible?
Hello.
Yeah. Hi, this is Neeraj from Barclays. My first question is, can you please help us understand what's your net debt to EBITDA levels?
That's a little more than 40.14% at the moment. If you look, that figure is of course good to keep in mind that we still have developments, ongoing developments. Of course those, they are first we invest and then they start to generate a cash flow then. That's the level.
Got it. My second question is, somehow linked to this. When I look at Moody's report, the downgrade threshold of 50% for effective leverage, it's linked to net debt to Adjusted EBITDA being less than 12x, right? Do you think there could be some pressure on that if the net debt to Adjusted EBITDA doesn't come down?
Well-
The threshold for downgrade might be lower.
The Moody's current rating for us, we will be Aa2 with stable outlook. There are several figures and some of these figures in our case are actually very strong. The loan to value is very strong. Interest cover ratio is very strong and even the net debt to Adjusted EBITDA slightly elevated. It's just one figure. They are not looking only one figure. They're looking the whole company's position and as said, so our balance sheet is still very strong.
Got it. A couple of more questions from my side. Do you have any LTV target in mind, given that we are in the valuation decline? The LTV has gone up from last reporting. Do you have any target, on upper side?
We have set a target for a loan to value to be below 55.0%. That's when we decided that that's actually combination of what we think that a place for equity investors and what we think that debt finance providers would like to see. As said, our current public rating for Moody's is pretty much anchored to this level. To have loan value below 50% and we have quite sizeable buffer against that level.
Got it. Just the last question from my side, I mean... Hello? Am I audible?
Yes. We can hear you.
Hello.
Can you hear us? We can hear you. Hello?
Please state your name and company. Please go ahead.
Sorry. The next question comes from the line, ending 899.
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Hi, good morning. This is John Vuong from Kempen. Just have a couple of questions left. I think you mentioned that you don't know the timing on the premature refinancing of your 2024 Eurobonds. Given that it's maturing in June, what would still be a reasonable timeframe in your view?
How we see the situation is that we would like to postpone it as long as possible, but to make it early enough. Perhaps a range for that would be late summer, early next year, somewhere in between. We haven't really decided. It's a combination what we think that is beneficial for the company price-wise and liquidity-wise.
Late summer this year, you mean?
Late summer this year at the earliest or it can be postponed, early next year.
Okay. That's clear. Thank you. In the current environment, what do you think would be the most viable refinancing option?
In our case, it's good that we have access for different source of financing and bank financing is available for us, both secured and unsecured. Bond financing is an option for us as well. The market is open and according to the banks, we are able to tap the market if we decided to do that. There are, of course, additional source of financing as well. For us it's important to have access for all these different sources of financing and then decided which one we want to use. It's still on the drawing table, what source we'll use.
Of course, the bond market is important for us and we would like to refinancing that from the bond market. Depending on the pricing and market conditions at that time, then we make the final decision.
Okay. That's clear. If you were to decide to move to fully secured financing, so bank loans, how much do you have left in terms of headroom, in terms of unencumbered assets in that case?
We have quite sizable buffer there, so we can go up to 45% then. Currently we are at 9, so there's a quite sizable buffer there.
Okay. Perfect. Thank you.
The next question comes from the line ending 406. After the prompt, please go ahead.
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Hi, this is Andres Toome from Green Street Advisors. Can you hear me?
Yes. We can hear you.
Perfect. Thank you. I had some technical issues here as well, so apologies if my questions have been asked already. You know, I have a few questions. Firstly, just getting a bit more color around occupancy development over the quarter. You sort of say 93% in the fourth quarter, and I think last quarter you said spot occupancy almost 93. There's been a bit of a improvement there, but would it be fair to assume about 50 basis points in the overall portfolio in the fourth quarter, and I suppose in Helsinki about 100 basis points improvement? Does that sort of jive with your internal estimates as well?
Thank you for the question. As Erik mentioned, throughout Q4, the occupancy was in a level of 93% throughout the portfolio.
Any color on the improvement of spot occupancy over the quarter?
We have not been provided that information. The cumulative occupancy at the end of Q3 was 91.7%. Now at the end of the year, the cumulative number was 92%. The last quarter there was 93%.
If you want to play with the figures and combine this information we given, the cumulative at the end of last year was 92, and the cumulative at the end of September was 91.7. That we say that the Q4 figure was 93. If you do the math, that means improvement of 90 basis points from Q3 to Q4.
Got it. Understood. Then maybe a bit more color on the rental market as well. How are you seeing the leasing momentum in the fourth quarter and also at the start of this year? Are there signs of material improvement or is it sort of slowly improving?
As I mentioned, at the moment there's still supply in the market. It will come down towards the year end, and starting 2024, really leaving that number of supply in the market. The rental market has been okay the last part of last year. At the moment, urbanization is continuing, creating demand for rental apartments. What could provide a bigger impact is people living in owner-occupied apartments facing challenges. We already see that housing trade has been coming down severely. As I mentioned, typically when consumer confidence goes down, that has a really fast impact in housing trade. Home buyers stop buying homes and then sooner or later that provides more demand for rental apartments.
Thank you. One more question around just capital allocation and thinking about balance sheet management. Obviously there's some refinancings that are coming due. You know, market rates for at least non-secured bonds seem to be, you know, north of 5%. How are you thinking about that refinancing sort of activity versus perhaps trying to sell some portfolios instead? How does that play out in your sort of strategy?
As already discussed, we have a strong balance sheet and we have a quite sizable buffer against our targets when it comes to loan-to-value and other key KPIs as well. We don't have to sell anything. Now we have taken the action that we decided not to make any new investment decision and to keep the balance sheet strong and that later perhaps tap the opportunities available in the market. We don't have to sell anything and we have quite sizable buffers and we have a strong balance sheet. The refinancing, of course, that's what these type of companies do every year pretty much going forward.
Of course the price of the new financing at this stage is clearly higher than what we have on average in our portfolio. But given the balanced maturing structure, nothing happens overnight. Even if the next Eurobond will be higher than the pricing there will be higher than what we have in expiring ones, of course that has a limit. Of course, it has an impact for financing expenses point of view, but the impact is not that huge given it's just a little more than 10% of total loan portfolio.
Understood. I guess my point is from an earnings perspective, you know, financing rate of more than 5% versus, let's say, you're sort of saying Helsinki residential at 3.5% net initial yield, that is sort of implying negative leverage. Wouldn't disposing be sort of better option for earnings from that perspective?
Actually we are very pleased with our strategy and we have been following that over the years. The idea is to provide profitable growth and to enhance the return on equity. Of course, we're using leverage as well and we are in a strong position. That's good to be if the environment is operating environment is like it's today. Of course, we are monitoring the market. It depends where the yields in the market will end when we see the evidence from the market. It comes to a question where the rents go if the inflation will remain high.
We are able to increase the rents in the future more than what we've been doing. Nobody really knows what is going to be the price of the new financing, let's say next 12 or 24 months. Central banks are quite hawkish, but the market seems not to in totally believe what they are saying. Yes, we are in a good position, strong position and we are monitoring the market and operating environment and then later make decision what is the right actions to take. At this stage we are not forced and we are not willing to sell anything because of just selling something.
Yeah. Just to add there, as Erik mentioned, for Kojamo it's been all the time important that we are consistent with our strategy. We don't jump up and down because of some circumstances changing for half a year or for one year. We didn't bring down our investment parameters even though we saw yield compression in the market. We didn't leverage more. We kept the hedging ratio high. Because of that, we still have strong development gains, a strong balance sheet. As Erik been mentioning, we've been around for many years already, me and Erik, and real estate business can be done successfully in different circumstances when you are consistent. We are following the market and looking forward.
It may happen that money is a bit more expensive. As I said, supply in the market is coming down and rent increases are higher in the future.
Understood. Thank you very much.
Our next question comes from the line ending 981. After the prompt, your mic will be opened.
Please state your name and company. Please go ahead.
Hi there. This is Paul Gorey from Tanzin Capital. Just checking you guys can hear me okay.
We can hear you. Thank you.
Okay, great. Thanks. A couple more from me, if that's okay. The first one on the valuations. You know, you've said that it was an adjustment to the interest rates, rather than transactional evidence. I just wanted to check firstly on the amounts of external valuation this quarter versus last quarter. I'm assuming that no adjustment to the yield was made in Q3 by the valuers, and it's all come through in Q4. Alongside that question, you know, SATO put out its results with a, you know, a much smaller decline. I think it was -1%, for the fourth quarter. Just wondering if you had any comments on the large differential between those two.
Average valuation yield went up by 34 basis points at the end of Q4.
Yes. Yeah, no, I appreciate that. So you've got that statement, but the question is more, you know, the difference of this versus Q3. Was there a change in the amount of properties that were externally valued?
We didn't change yield requirements, at the end of Q3.
The same number of properties were evaluated in the same way, and the value was just decided in Q4 to move it by 34 basis points. That's what you're saying. Hello?
Hello. I hear you.
Yeah. Okay. Okay. Yeah. Sorry, any comment then on the differential between yourselves and SATO? I appreciate that's commenting on another company, but the gap is so large. Just wondering if you had any comments on why there'd be such a big difference with, you know, a close competitor.
It's slightly challenging to comment peer company's outcome. We don't know what those guys are doing, but we know what we are doing and what our valuators is doing. There might be some reasoning because of the ownership structure or something like. We don't know. It's a question that should be addressed to those guys.
Sure. Okay. Yeah, no problem. And then my other question was on the guidance specifically. And I think you referenced, I mean, so we know that the Eurobond, the EUR 500 million Eurobond isn't included. But there must be a level of refi included in order to get the differential. Obviously, if the top line's growing at 7%-10% and then the FFO is gonna be down 1% in the midpoint. Can you just confirm what? Is it the, you know, the EUR 200 million bond you've made an assumption around refinancing that was due this year? Is it the other refinancing? Can you just confirm exactly what, you know, you're assuming in terms of refinancing in terms of...
Included in the FFO guidance is the refinancing of this mentioned EUR 200 million bond and EUR 150 million bank financing to be refinanced. These are included in the FFO guidance. The potential premature refinancing of this summer 2024 maturing Eurobond is not included.
Yeah. Okay. Perfect. That's very clear. That was all my questions. Thanks. Thanks, Beth.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Okay, thank you. We have something here in the chat, not covered yet. Erik, you opened up the guidance for 2023. About the revenue growth side, is there any split you can give between index increases and completed apartments and the assumptions behind there?
The acquisition part is quite easy because it's EUR 4 million. It was EUR 4 million for the second half of last year, additional EUR 4 million, that's pretty much close to 1%. Then increases in rents and water charges, we've been communicating that the increase is somewhere between 2.1% - 2.45%. The remaining is then split between those apartments completed already last year and those apartments completed to be completed this year. Not exactly even, but pretty close to that.
Okay. We already discussed capital allocation, but there were some technical issues with the line. Can you repeat how you think of your acquisitions going forward? Are you still looking for something to acquire if once in a lifetime situation comes in front of you?
Maybe I take that one. As mentioned, at the moment, we don't make any new investments. Never say never. If once in a lifetime opportunity kicks in, then we have to think about it.
I see. Okay.
Typically always, yes. If something is appealing enough, yes, of course, we will move forward.
Yes. About the sales side, it was discussed that the company is not or doesn't need to sell anything, but is there any progress in divesting the non-core apartment portfolio?
At the moment, we have not been active there. We don't see the market as attractive in that sense. We don't have any reason why we must sell those apartments or that portion of the portfolio. Of course, I will answer the phone if somebody calls me and wants to pay a lot of money, but no, like, activities there.
Okay. Thank you. Thanks for the excellent questions. That was the final one. Our Q1 report will be out on 11th of May, you can join us then. I wish you all a wonderful day. Thank you. Bye-bye.