Good morning all, and welcome to Lumo Homes half-year result webcast. I am Niina Saarto. I am treasury and investor relations director. Soon we will hear the Q2 result. Our CEO, Reima Rytsölä, starts giving also an update on the market as well as on the acquired portfolio's leasing and how the integration to our platform has started. Then interim CFO Antti Syvänen continues with financial development and outlook. Q&A follows the presentation, and there we welcome both live questions and chat questions. Now we can start with the presentation.
Very good morning on behalf of myself as well, and welcome to this Lumo Q2 earnings release webcast. We had actually a strong quarter behind us and all the total revenue, net rental income, and FFO grew strongly in second quarter. All in all, the market conditions seem to improve, and I come back on later stage a little bit more detailed on the market conditions. Our occupancy rate grew from last year's comparison point, even though we acquired, on the 1st of April, the portfolio of 4,761 apartments, which occupancy was much lower, 83% on the date of 1st of April. But already during Q2, we managed to raise the occupancy from 83% to 89% on this acquired portfolio, and it was truly a success. The development has continued in very favorable terms since the end of June also.
We also refinanced EUR 300 million of our acquisition financing with the bond issue in May, and all in all, our financial position remains stable. In June, we also signed EUR 500 million backstop facility agreement, which is very favorable terms in cost effective-wise to us and enables us to refinance the maturing bond not earlier than next spring. If I then start with the operating environment. All in all, I think the first half of the year for Finnish economy has been very good, and it is glad to see that finally Finnish economy is leading the pack also in European context on growth terms in first half. Both the first quarter and the second quarter preliminary GDP figures are 0.9% growth in each quarter, which is strong compared to what it has been in previous muted years.
Of course, the geopolitical tensions and somewhat rising interest rates are giving some kind of a cloud for the development, but so far so good on Finnish economy-wise. Also the supply-demand balance seem to finally start balancing out, especially if we look at the supplied rental apartments, which especially in Helsinki the amounts of offered apartments have declined meaningfully, close to 20% from last year's comparison point or last 12 months time. Year to date, the decline of supplied apartments have been even higher, but then we need to bear in mind that we always have a kind of a seasonal effect from beginning of the year when we coming to summertime, which is the seasonally best time for landlords. Also, as I said, for example, Helsinki, it is roughly 20% decline in apartments that are offered for rental. It is meaningful in that sense.
Also, the construction has been very muted this year, and even some of the forecasts seem to be that also the next year for residential construction will be even lower than this year. At the moment, the latest forecast is 15,000 apartments. Still, especially the growth triangle, so to say, Helsinki area, Tampere, Turku area, is growing on population terms and even the household terms. Even though the number of households have not grown as fast as population, that has been probably the one thing that has postponed the recovery of a rental market. But now it seems that it has started from Helsinki area, and it is of course, the most important area for us, especially Helsinki as a city, but Helsinki area overall. So 76% of our portfolio value is in the Helsinki area.
In that growth triangle, close to 90% of our apartments are located in the growth triangle. So I would say that our portfolio is in good shape to face the recovery that has started from the capital area. As we already announced in February, the deal was closing on the 1st of April. So we acquired 4,761 apartments. I think the only weak spot of the portfolio was that it has very low occupancy at the time of acquisition or closing, and it was roughly 83%. As I said already earlier, already during the Q2, we were able to raise the occupancy from 83% to 89%, and the development has been very favorable since that. So it looks good.
On the last Q1 earnings release, I said that we expect to reach with this portfolio the stabilized occupancy rate, which we mean that roughly the same occupancy rate than we have in our legacy portfolio. So we expect to reach that, probably not this year, but latest during next year. But I have to revise that due to favorable development, so that we already expect to reach that stabilized level already in Q3. So by the end of September. If this kind of a favorable development carries on like we do believe at the moment. All in all, I would say that we had a strong and solid quarter. We still have plenty to do. It is very promising that the markets seem to finally start recovering.
Of course, if you think about the pricing power of a landlord, it often comes a bit delayed since the supply-demand balance process. But we expect that we will see latest in the next year. So a growing pricing power for our landlords as well. For financial targets compared to our strategy, it is of course early days. We have a first six months to go, but all in line, but definitely some work to do still, which is natural. Good time to remind that we, in last spring, on AGM, we revised our dividend policy where we said that we will distribute at least 20% of FFO to our shareholders, and it was optional, either dividend or share buyback. With the current trading of a share, it is probably more likely to do the distribution via buybacks than with the dividend.
But that's a bit of early days to say, but that's the thinking at the moment. Okay. I would like to hand over the word for Antti, who will carry on the financial development and outlook.
Yes. Hello, everybody, also from my side. My name is Antti Syvänen. I'm the interim CFO of Lumo. I will be giving you the insights into the financials for over the next two quarters until Tommi Valento, who has been appointed as CFO, will start next January. Let's go through the figures, starting from the top line. The revenue and net rental income both increased. Total revenue up EUR 5.9 million or 2.6%. As Reima mentioned, we have acquired a portfolio that gave us a revenue increase of EUR 14 million compared to last year. We have made some disposals in 2025 and 2026, which has had an effect to the net revenue, roughly EUR 12 million. In addition, we have had a higher occupancy rate compared to last year, which gave increased revenue by EUR 2.8 million. Net rental income up EUR 6.0 million, 4.51%.
The main explanations than in revenue. In addition, we had a bit higher maintenance expenses, EUR 0.8 million compared to last year. Repair expenses were EUR 0.9 million less compared to last year. On slide 14, profit before taxes and FFO both increased. Profit before taxes came up from a EUR -24 million last year into EUR +62.7 million. If we exclude the changes in value, the increase was EUR 9.6 million. Of course, it was positively affected by the increase in total revenue as I explained. In addition, we had a bit higher admin expenses compared to last year, EUR 2.5 million. The increased salaries and fees were EUR 1.3 million higher compared to last year. Total amount of financial expenses, they were EUR 2.3 million higher compared to last year. FFO up EUR 2.8 million, 4.5% compared to last year.
The same explanation standing profit excluding changes in value. Next slide, occupancy rate. It has steadily increased actually from quarter three, 2024. It now stood at 95%. It was up 1.4% compared to last year. It was also slightly up 0.2% compared to the year end, even though we acquired the portfolio, which had a relatively low occupancy rate compared to our, so to say, legacy portfolio. Tenant turnover ratio has increased slightly, but it's still on a normal level, 14.5%. Nothing special there. Next slide. We have had a positive development in like-for-like rental income. It was up 2.7% compared to last year. Main driver was the impact of occupancy, effect was 3.7%. We have slightly minus from the impacts of rent, especially rent and tenant water charges in total.
Just as a reminder, when we calculate this like-for-like rental income, we are comparing past 12-month figures into previous 12-month figures, and it doesn't include the properties that we have acquired or disposed of or completed within two years. It doesn't include the acquired portfolio as such. Next slide, 17. We have had strong progress in investments. That was mainly due to the acquisition of a portfolio which was made in April that had an effect of roughly EUR 900 million. We have sold 218 apartments. That had an effect of EUR 21.5 million. Gross investments were totally up by roughly EUR 870 million. Maybe one comment here regarding the accounting treatment of this portfolio acquisition. At the time when we acquired the portfolio, it was recognized as a cost according to the ruling of IFRS.
That's why the figure is slightly below EUR 900 million due to the fact of this booking of the premium of this deal. Later on, this premium that Varma paid, it was subsequently recognized as a profit on fair value of investment properties, roughly EUR 51 million. Modernization investments and repairs were up 6.3% or EUR 1.5 million. Slide number 18, fair value of investment properties. They were EUR 8.5 million, up 7.5%. Once again, the main reason was the acquisition of this Varma portfolio that had an effect of EUR 900 million. On the negative side, we had the disposal last year of residential properties, which had an effect of roughly EUR 240 million. We didn't change any parameters regarding the valuation. They were unchanged. In the second quarter, the change in the fair value of investment properties were EUR 34.1 million.
Next slide, equity ratio and loan-to-value. They have both remained really strong. Equity ratio 45%. Loan-to-value was a bit above our internal target, which is 45%. Now it was 45.1%, but we see already in the near future that it will go down below 45%. Maybe one comment here that we still have a quite a sizable headroom to all the financial agreement covenants. For instance, the Moody's leverage is 50% and European Investment Bank's LTV limit is 60%, so there's a sizable buffer into the limits. Our financial position has remained strong. In May, we issued that EUR 300 million unsecured bond, and the proceeds were used to refinance the so-called bridge loan that was drawn in April, and we still have a plan to refinance this rest of the EUR 300 million with the long-term debt.
In June, we signed a EUR 500 million backstop facility agreement, which can be used if needed to refinance this EUR 500 million bond, which is maturing in spring 2027. Of course, our intention is to refinance it in the debt capital markets. After the review period, we signed a EUR 100 million loan agreement with OP. The liquidity situation is very strong. We have unused committed credit facilities of EUR 275 million, and then this unused backstop facility of EUR 500 million. The distribution of group's loan maturity is very well-balanced. Key figures per share, they both slightly came down, but didn't change significantly, slightly down. Equity per share now EUR 14.53 EPRA net tangible assets just slightly below EUR 18 per share, and the reason was the dilution of shares. Finally to the outlooks. Outlook, we have specified our outlook both for the revenue and for the FFO.
In revenue, we have narrowed the guidance by raising the lower end by EUR 4 million and lowering the upper end by EUR 4 million. The guidance now is EUR 488 million to EUR 493 million. Still, the midpoint of this revenue is unchanged, is EUR 490.5 million, based on our latest estimates. In FFO, we have kept the low guidance limit unchanged, and we have lowered the upper guidance limit by EUR 5 million. The main reason for this is that the finance expenses has been a bit higher than we anticipated in our previous outlook. That's all from me. Now I welcome you here. We have now the Q&A session.
Thank you. We can now start the Q&A, and let's first take the online questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Robert Phillips from Green Street. Please go ahead.
Thank you very much for the presentation. I just had two questions, and I'll go one at a time. You noted that occupancy in the Varma portfolio moved from 83% to 89% in the second quarter and will be stabilized in the coming year. I was just wondering what kind of occupancy level you're targeting by year end, and also how rents are tracking relative to the rest of the portfolio.
The line was very bad in the very beginning. Can you repeat the question? Apologies for that. I didn't get it.
Yeah, of course. You noted that occupancy in the Varma portfolio moved from 83% to 89%, and it's looking like it will be stabilized in the coming year. I was just wondering what kind of occupancy level you're targeting by year end.
Okay. Yeah, thanks. Well, as I said that we talk about the stabilized level for acquired portfolio, and then we talk about kind of our own stabilized level. I have earlier said that with the market conditions like this, it's probably somewhere between 96% to 97%, the kind of stabilized level. So round about that. We're not giving any guidance as such for our occupancy.
Perfect. Thanks. You also flagged improvements in renting activity in the quarter. I was just wondering if you could give more color on what you're seeing in terms of general performance, and then also just whether that's translating into pricing power.
Yeah, I think as I said already earlier, of course, we do have a seasonal effect as well on the summertime is always more active on renting activities. D efinitely this year has been encouraging in a way that the activity has been probably even higher so far, and of course, we had a kind of extra vacant apartments in our portfolio as well due to fact that we acquired a significant portfolio with relatively low occupancy.
Like we said already when we released the deal, we said that we are confident that actually our leasing operations are capable of renting these apartments, and it appears to be so. Then your question of pricing power. As I said earlier, we haven't seen that much yet of a pricing power. It definitely hasn't gone worse, but no significant improvement yet. But it's natural that first comes the supply and demand balance, and then you will see the pricing power. So we expect that the pricing power will improve either end of this year or beginning of next year.
Just on the regional performance, can you just elaborate a bit more on what you're seeing on the ground?
On regional wise, Helsinki is definitely leading the pack at the moment. I think it's natural that the majority of the new jobs are creating in Helsinki and in Helsinki area. Inside the Helsinki area, Espoo is kind of following the Helsinki trend. Vantaa is more on a stable. So the situation hasn't improved as much as in Helsinki and Espoo, and that's, I think, mainly due to fact that there have been quite a lot of foreign construction workers living in Vantaa traditionally, and construction market hasn't improved that much. At least not in Helsinki area. There are some data center projects, but they are more of outside of a capital area. So the amount of construction workers hasn't grown up so far, so that's why I think Vantaa is lacking Helsinki and Espoo, but the main volumes are obviously in Helsinki.
Perfect. Thanks.
The next question comes from Anssi Raussi from SEB. Please go ahead.
Yes. Hi, all. It is Anssi Raussi from SEB. Thank you for the presentation. A couple of questions left from me. First, about your campaigns. Could you talk about the impact of these campaigns on your reported financial occupancy rate and also average monthly rents? Did your campaigns affect these lines? That is the first one.
I would say that, of course, there have been some boost for campaigns in Q2 figures as well. But so far, I think especially the acquired portfolio, we have not had to kind of boost them with the campaigns. So in that respect, campaigns have played some kind of a role, but I would say not that meaningful.
Okay. If I continue on your reported financial occupancy, do you have some apartments which are not listed on your website, or is there something else which explains maybe a slight difference compared to the reported financial occupancy and the absolute occupancy?
Yeah, we do have apartments that are not listed. They are under a major renovation, for example, so they are not listed there.
Okay, that is clear. Finally, on your refinancing, you mentioned, and of course, you have this backstop financing in place, which is kind of an optionality right now, but you said that you still aim to use or tap the bond market at some point. Was it so that your time table is early next year, or are you already planning to use bond financing this year?
Yeah. The backstop facility was basically taken to kind of secure the refinancing of a bond that is maturing next spring. According to kind of Moody's rules or how the Moody's assess companies, we should have refinanced that bond already this year. Now that we took the backstop facility, we are actually able to carry until the next spring and still it is a long-term finance. That is why I said that. Given the fact that actually the maturing bond coupon is less than 2%, the combination of cost of a backstop facility and the bond that is maturing on next spring, the combined cost is cost-effective in these market conditions.
Got it. That is helpful. Thank you.
The next question comes from John Vuong from Van Lanschot Kempen. Please go ahead.
Hi. Good morning. Thanks for taking my questions. Just following up on the Varma portfolio. It sounds like you are ahead of underwriting in terms of occupancy gains, but could you provide a bit more color on the incentives that you are providing and to what extent these net effects are in line with your underwriting?
Yeah, I think they are very much in line in underwriting. That is why I think we are well in line with the business case on pricing terms and then well ahead with the occupancy as such. All in all, I would say that the integration of Varma portfolio has gone really well, even better than our own expectations.
Okay. That is clear. On your LTV, you mentioned that it is a bit ahead of your target. How do you see the trajectory towards a lower leverage from here?
Yeah, we do not give that much of details in the future, but it was only slightly up of our internal target, so we expect that to come lower. But we do not give too detailed numbers as such.
But you cannot provide on how you see that this 45.1% goes towards, say, mid-40s or around that level, basically.
Yeah. Well, as Antti said, that we are not willing to give a detailed path for that, but we expect it to come underneath that 45%. So that is why we are relatively confident for that.
As I mentioned, it is our internal target to have it below 45%. We have a sizable buffer to all the leverage from Moody's and also from European Investment Bank.
Okay. Follow on from the campaigns. Just to confirm, are these campaigns, so the instances you are providing, are these reflected in your ERVs in financial occupancy or are parts of it in other lines like costs?
Sorry, John, the line was very bad in the beginning of your question. Can you repeat that again?
Oh, yeah, sorry. Just following up on the campaigns or incentives. Are these reflected in the ERVs in your financial occupancy or are there also parts of it reflected in other lines like costs?
They do not affect our occupancy as such, but they of course affect the revenue that we present.
Okay. It is netted in your gross rental income.
Yeah.
Great. Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead.
Thank you, Reima, Antti, and Niina for the presentation. A couple of questions left from me. Could you elaborate a bit on rental increases in existing contracts? I think you earlier have mentioned that in the capital region, you basically do not try to push for higher rents on existing portfolios. Whereas, for example, in Tampere, you could increase rents by 2%. Has there been any change to that?
Well, we have, in general, in our portfolio, I think averaging roundabout 1.3%-1.5% of rental increases for existing customers. And we have kept on doing that. But as you said, Svante, we need to be mindful for what is kind of a micro market for particular apartments or real estate or area. So that is why it differs quite a lot. But as I said, that also in a capital area, the market seems to improve now.
Okay, thank you. Then coming back to the Varma portfolio. Could you give some color on what the reason has been that the occupancy rate was so low on that? Have you introduced significant or have you lowered rents significantly on vacant apartments in the Varma portfolio?
Well, first of all, it is difficult to say why it was so low. We have somewhat decreased the rents of vacant apartments as we planned already in our underwriting, but not kind of a meaning. In a way, of course, they are meaningful, but not kind of outstanding declines of a rent. So I would say that the biggest contribution has been the kind of a very active rental operation and kind of a leasing operation that we have. And it differs a lot from a third-party model that Varma used to have in their renting operations.
Thank you. Coming back to Anssi's question about apartments taken off the market, could you give some color on what kind of numbers we thought? I think you have earlier mentioned that it could be something like 40, 50 apartments max normally, but what numbers are we talking about this time?
Actually, I do not have it, and neither seem to have the exact figure. We can come back to that on what is the kind of a round, not probably the exact figure, but the roundabout figure that we have currently.
Okay. Thank you. Last question, you sold 218 apartments in Q2. Could you give some details on what that? Were there any from the acquired portfolio, or was it some non-core assets that you have had in your legacy portfolio?
Well, it was not from acquired portfolio, but it was more of a related to a heavy CapEx spend and the trade-off between the CapEx usage or divestment. We come to conclusion that it is more profitable for us to dispose those assets.
Okay. Thank you. That is all from me.
There are no more questions at this time, so I hand the conference back to the speakers.
Okay. Seems that we have some questions here in the chat. Let me see. There are some questions about the guidance and the acquisition progressed ahead of expectations, but why did you narrow the revenue guidance instead of upgrading it?
Well, it's a good question, and it links to the more of a pricing power that we have already discussed. That even though the market seems to improve, and especially when talking about the acquired portfolio, so the occupancy has performed, and leasing operations have performed really well. But given the fact that overall the pricing power in the market hasn't improved that much, so that's why we kept that guidance as a midpoint unchanged. And it's good to bear in mind that it's still roughly 12% of our portfolio, the acquired portfolio. So there's a lot of apartments in the or revenue creators as such outside of the acquired portfolio.
Then, there is another question. Could you please elaborate more on the EUR 2 million higher other operating income?
Yeah. The other operating income actually came from one disposal that was a company which we had less than 50% ownership. So it came from that disposal.
Okay. Coming back to the guidance and now FFO guidance, that was cut by EUR 5 million . What is the reason of setting the strong operational run rate? Can you comment?
Well, I think the FFO guidance, I think the main reason that we brought down the upper limit of or upper band of a guidance was the higher financial costs that are involved since the last February than we were given the guidance.
Okay. Then, about rent increases. Average rent per square meter increased both quarter-on-quarter and year-on-year. Is there any split between what was the effect from the new apartments versus like-for-like if we compare to let's say Q1?
I do not know. We probably do not have an exact split, but it is fair to say that the average rent for acquired portfolio, given the location of those assets that we acquired, is higher and increased the average rent in our portfolio. In Antti's presentation, there was a like-for-like, so rents and water charges in like-for-like calculations was - 1%.
Okay. We discussed already existing agreement and the rent increases, but how about new lease agreements? There are some Statistics Finland data, for example, in Helsinki area, the figures seem to be quite flat, and then again in some smaller cities, quite a lot positive. What is our comment? Is it the same as our rent increases for new agreements?
Well, it definitely differs by rents, and we do have some new leases or some new tenants that we need to still decline the rent. But it is growing amount that we can raise the rent as well. All in all, it has been, so far, year to date, slightly negative. As I said already a couple of times, we expect that this pricing power, especially in Helsinki and capital area, will come back for landlords in some undefined timetable.
Then as the acquired portfolio occupancy has been moving up very nicely, has it been affecting negatively the legacy portfolio somehow?
Well, this is a question that we have discussed a lot internally as well, and there's a kind of a common understanding that it hasn't affected negatively. But all in all, it's fair to say that the major component or contribution of increased occupancy has come from acquired portfolio. Of course, there was plenty of room, and as we have said since the February of releasing the deal that we see that, actually, the asset quality in acquired portfolio is really good, and there was plenty of vacant apartments. So it's kind of natural as well that in very good quality portfolio and relatively high vacancy, so it's easier to raise the occupancy in those assets.
Okay. Continuing with the acquisition. What annualized net operating income contribution do you expect, once stabilized versus your original acquisition underwriting?
Antti, do you have—
No. Well, I do not have any numbers to present here, but it should be maybe a bit higher than our legacy portfolio, since the locations are a bit better in that portfolio compared to our whole legacy portfolio.
Okay. A different type of question. What is more important to maximize asset book value or cash flows?
I think it is more of a cash flow. All in all, I think as you look at our financial targets as well, we aim to have a growth in FFO per share. Contributing and creating cash flow is in top of our list.
Okay. This may be the last question. It is about guidance again and refinancing the bond next year. What refinancing cost or timing is included in guidance, and how should investors assess if the bond coupon will be between 3.7%-4.0%?
Was the question about the bond that is maturing next spring?
Yes. Or it's what kind of refinancing expectations are in the guidance.
Shall I take it?
Yes.
I think, first of all, as we said, that we have more or less locked in the cost of a bond maturing next spring. And we have said that we still have EUR 300 million to take on acquisition financing on the capital markets transaction. It's roundabout the market level of refinancing the acquisition finance. And then, of course, it depends on what kind of instruments do you use. But all in all, I would say that given the fact that it's the time of this year, the financing cost as such doesn't have any more, at this stage of the year, as big significance for the guidance as it would have in beginning of the year.
Okay. That concludes the Q&A. Thank you very much for the questions. Lumo's Q3 report will be published on 5th of November. Thank you all for joining us today. Let's meet in November.
Thank you very much.
Thanks