Lumo Kodit Oyj (LUMO) Earnings Call Transcript & Summary

Good morning. Welcome to Kojamo's Half Year Results News Conference. I'm Niina Saarto, Treasury and Investor Relations Director. CEO, Jani Nieminen and CFO, Erik Hjelt, are here today to present the first 6 months figures. They will also give outlook for the whole year. We'll have Q&A after the presentation. So, you can send questions via chat. Also if you like to ask in person, you can see a hand sign on your screen. By clicking that, you will be placed in queue and when it's your turn to speak, please remember to unmute the microphone first. And now we can start the presentation and hear what Jani Nieminen has to say. Welcome, Jani.

Thank you, Niina. Good morning, everybody. It's time to provide again color on what's been going on here at Kojamo. And actually, today, we provide color as well as what's going to happen in the future concerning the measures. Topics today as -- typically as usual, summary of H1 this year and then a bit deeper color concerning the financial development, specified outlook for this year and then we will also provide information concerning our saving program for 2024. There is good to keep in mind that at the moment our operations are solid, our numbers are strong, but we want to keep the credit rating as investment credit rating in the future and we will take proactive measures in order to maintain and secure on our financial position. As said, a good starting point is that our operations have remained stable during H1, although of course, the financial and interest rate level, market combined with inflation, cost pressure towards, for example, maintenance cost has been a challenging time throughout the market for all real estate operators. In that, we've been quite successful. We've been able to grow total revenue, net rental income and FFO. Our occupancy compared to comparison year is on a better level. We've been able to improve occupancy since spring, and we still have active ongoing measures in order to improve the occupancy. I'm quite confident we are on right path there. And we made some financing arrangements during H1, totaling EUR 500 million successfully. And there was, of course, a positive impact due to tender offer process, impacting positively our FFO. Moving to Page 5, a bit of color concerning the operational environment. The outlook for the world economy is still uncertain and weak. Core inflation has remained high, although we see that inflation has slowed down basically due to energy prices. Here in Finland, employment is still at a good level, but rising prices and interest rates reduce household spending and consumer confidence. Biggest impact in my eyes at the moment is, for example, in housing trade volumes. Home buyers are really careful. The markets do not expect interest rate cuts to start in the near future, and that's something we have to consider. We are a strong company. We will remain as a strong company in the future, but on the right-hand side on the table, typical estimates concerning different figures. As usually, I do have a different opinion versus the official estimates concerning the number of new resi start-ups here in Finland. The official estimate has come down. It was at the beginning of the year, 36,000. Then in Q2, it was 27,400 and now it's roughly 20,000. I would be surprised to see a number of 15,000 to be started this year. Most probably it will be below that. The number of single-family homes to be started will be bigger than apartment building homes number. That will impact throughout the market. We already know that, of course, this year still apartments are completed to the market, providing supply because of the project started 2021, 2022. But as the number of new starts has been going down since last year, starting next year, we will see a very limited number of new supply coming to the market and that will have a positive impact towards the rental market. As said, unemployment rates here in Finland still good. In that sense, situation here in Finland is good. Official estimates concerning the home prices or the rent adjustments, in my eyes, they've been too modest. Home prices are not going down between 1.5 and 3. Actually in my eyes, they're already happening here in capital region, roughly 9% according to the data. In my eyes, it's a bit of a probably a coincidence, but we did adjust our values by 9% at the end of last year without the transaction data from the market. And now it seems that the market has been roughly 8% to 9% down. On Page 6, basic information. Still good to keep in mind that the mega trends are valid, creating long-term demand for rental apartments, basically, for homes here in Finland. Urbanization is continuing. All the big cities here in Finland are growing, especially capital region. We do have an increasing number of small households, 1 and 2-person households. Typically, those households are looking after rental apartment, not an owner-occupied apartment. At the same time, we see that home buyers are more careful, choosing instead to rent the apartment, not to buy. Amount of households living in rental apartments, increasing in all the big cities. This data is always a bit lacking behind, but throughout the last decade, we have seen an increasing number in all the big cities area when it's launched. For example, in Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner-occupied homes. At the same times, as I said, home buyers are very careful. Housing trade volumes are muted because of the economic uncertainty, rising interest rates and increase in property tax charges. And this supports rental apartment markets, which is improving towards next year significantly. On Page 7, still a couple words concerning the operational environment. Residential construction volume has decreased already a year and during the first half of this year, actually decline in new start-up has been accelerating sharply. We will have the lowest number of new resi start-ups throughout the last decade this year. As said, I don't believe to see 20,000 apartments to be started. That will mean that the supply balance -- supply-demand balance will rapidly change next year, improving rental market. Throughout the market, I would say there is pressure to increase the rents due to the interest rates increasing, property charges increasing and now the supply situation will change and that will go throughout the market. And then I don't see at the moment any indication that would mean that the construction volumes would pick up speed this year or early next year. There's no such data available. So it will take a while before construction volumes will pick up speed again throughout the market. A couple of notes concerning the key figures on Page 8. As said, I'm happy to say all the numbers are solid. Performance has been good. We've been able to improve total revenue, net rental income funds from the operations. Total revenue growth was 8.6%. That's, of course, a combination of completed apartments on the latter part of last year. During the first 6 months of this year, like-for-like growth, which is now positive and then the acquisition made a year ago during the summer close to 1,000 units. That was impacting on half year level last year, around EUR 4 million. And now this year, EUR 4.4 million during the first 6 months. So that's the combination there. The net rental income improvement, 7%, so we've been actually coping really good against the inflation. The hardest part was Q1 with the energy prices. We still see that the maintenance expenses have been growing EUR 7.7 million during the first 6 months of the year. A couple of notes there. The biggest issues there are heating, of course, EUR 2.4 million and property taxes, EUR 1.7 million. There is -- of course, you have to keep in mind that we've been completing new apartments and so the volumes are bigger. FFO up 12.8%. It's a combination of the positive improvement in net rental income and the positive impact from repurchasing those maturing bonds 2024, 2025. Fair value of investment properties at the end of H1, EUR 8.3 billion. No changes in value. It's same parameters. There's no data from the market to create pressure make changes. Of course, we are following what's going on in the market. So basically, the fair value grew by EUR 180 million. It's a combination of completing ongoing new development projects and then ending restrictions that had a positive impact of roughly EUR 20 million. Gross investments during the first 6 months is EUR 116 million, basically, ongoing projects to be completed. We have not been starting any new development projects. So the part in gross investments concerning new development projects is EUR 97.5 million, and the rest EUR 18.7 million is modernization investments. Profit, excluding the changes in fair value improvement there, 9.7%, a combination of very good net rental income improvement and then, of course, positive impact from financial expenses. And then at the end, profit before taxes, including changes in fair value, EUR 95.7 million. There it's good to keep in mind that now during the first 6 months of the year, the positive impact from changes in fair value was EUR 5.1 million. And the corresponding period, it was EUR 75.1 million. So basically, the difference comes from that part. Concerning ongoing development projects, we already provided information last autumn that we are not starting any new development projects. We are focusing on completing the ongoing development projects. And for the time being, that's going to be the situation. We are not starting any new development projects. All the ongoing projects are proceeding as planned. In those development projects, our valuation development gains are still about 15%, so 1-5. In that sense, we are happy those properties will be developed in high-quality micro locations, will meet the demand nicely. Customers are still looking for same kind of apartments than prior to COVID-19. So, those are proceeding as planned and will be completed. At the end of Q2, we had 1,152 apartments under construction. Of that, during the latter part of this year, we are completing 758 apartments. So it leaves roughly 400 apartments to be completed next year. Couple of examples of latest completions. one property in Espoo, basically close to the sports center in Espoo Tapiola, one in City Center, Helsinki, one of the most central locations in Helsinki, Eerikinkatu 7 behind Forum. That's a conversion project where we converted office space into really high-quality rental apartments and then one property was completed in Tampere, a number of apartments in Espoo 80 apartments, Eerikinkatu 40 apartments and 49 apartments was completed in Tampere. And basically, in all those completed cases, the occupation levels are high. Eerikinkatu was totally sold out when we started marketing. Tampere is sold out. And [ Espoon Jousenpuistonkatu ] will be sold out in September. A couple of words concerning the housing stock and our customer base. In a big picture, it's very nicely balanced. If we first stop and think about the portfolio, 73% of our housing portfolio is by the studios or one-bedroom apartments. On the other hand, the customer base, 1- and 2-person households put together is 76.8%. Then if we look at customers, divide it between different age groups. Good to know that it's well diversified, well balanced. And actually, 75% of customers are between the ages of 26 and 65, basically working people. A couple of words concerning sustainability on Page 12. As always said, sustainability has always been a part of our company DNA. We've been quite successful in all our measures. We have committed to the United Nations Sustainable Development Goals. Our target is that our property portfolio will be carbon-neutral, carbon-free by 2030 in terms of energy consumption. And we are progressing well with our ESG targets. We are planning -- moving forward even in some areas a bit faster than planned. Carbon dioxide emissions per apartment, reduction estimate for this month -- for this year is 12.5%. So it's been actually accelerating. We are in that 2030 target, a bit of ahead of the target, a bit ahead of the schedule, so progressing there well. Net promoter score, this year is good. Last year, we had struggled there, but now still 55 -- 52, sorry. And as we've been providing digital services to our customers, it's good to know that My Lumo digitalized service, so basically a mobile application. The utilization rate is 84%. So, our customers really use the service. At this point, Erik, as a CFO, will provide a bit more detailed color concerning the financials.

Thank you, Jani, and good morning, everybody, from my side as well. So on Page 14, if we first start a couple notes regarding our total revenue. So the total revenue growth H1 this year compared to H1 last year was EUR17.1 million and the like-for-like top line growth was 1.4%. And on the positive side, we have here increases in rents and water charges 2% and on negative side, occupancy, 0.6%. Occupancy as such is improving, but in this like-for-like calculation, still a negative figure. Biggest contributor for top line growth was 2022 and 2023 completed apartments, roughly EUR 9 million acquisition in especially June last year, EUR 4.4 million, and then rent increases and improving occupancy contributed EUR 3 million for the first half this year growth. On the right-hand side, we have net rental income. There the growth was EUR 9 million and maintenance costs increased by EUR 7.7 million. Of course, the underlying portfolio assets are bigger. Underlying portfolio is bigger than in corresponding period. But the biggest items that's growing in the maintenance business part was hitting EUR 2.4 million, property taxes EUR 1.7 million, credit losses EUR 1.3 million and then cleaning and waste management put together EUR 1 million. The growth in maintenance costs during Q2 was only EUR 2 million. So actually, the main increases came through during Q1, especially when it comes to the heating. If you first look at profit before taxes and the change in fair value of investment properties H1, the gain was EUR 5.1 million. And during Q2, it was a positive EUR 14 million, 1-4 million euros. There were no relevant transactions in the market, and that's why we kept all key parameters valuations -- key parameters unchanged. It's good to keep in mind that already at the end of last year, actually, we increased the yield requirement by 34 basis points. So, that had a roughly 9% impact for the values of the investment properties as Jani mentioned. The main contributor for the positive fair value change during Q2 was some properties came out of restriction and uplift in values there and then completed apartments related development gain. Then if you look at the profit before taxes, excluding change in fair values, so that was increased by EUR 8 million. And of course, net rental income contributed there, but the SG&A expenses came up by EUR 2 million and financial expenses actually decreased by EUR 0.9 million. On right-hand side, we have FFO. A couple of notes there. There are some items that are different from the profit before taxes, obviously. So first of all, financial expenses declined EUR 2.6 million. And there, we have an impact of this completed tender offer. Some of our financial expenses line, we booked approximately EUR 9 million gain. And of course, that has a tax impact. So the net impact of that tender was EUR 7.2 million. If you just look, interest expenses, so that grew EUR 7.1 million, given the fact that there was a bigger loan portfolio -- underlying portfolio and we have quite a high hedging ratio, but it's not 100. So, that's why some part of the portfolio has a -- loan portfolio has an impact from the higher interest rates. Financial occupancy improved, as Jani already mentioned, and tenant turnover declined 1.3 percentage points. So good trends in both angles here. I think, like-for-like rental income we already discussed. So investments, EUR 116.3 million, mainly ongoing developments. So, we haven't been starting any new development projects, but these are ongoing processes and those, of course, will be completed. Modernization investments and repairs put together EUR 25.9 million. Then if you look what we estimate to happen in 2024 regarding this saving program, so this -- we are not making any new modernization investments. So of course, we will finalize the ongoing modernization investments, and those will be completed mostly by the end of this year. So 2024, there still we estimate that it's going to be between EUR 1 million and EUR 2 million, so quite moderate level given the saving program. Value of investment properties, change in fair value is already discussed. A couple of notes there, though, on top of that. So, one is that we have still a little less than 1,000 apartments where there are restrictions recording the valuation. And those restrictions will end by the end of next year and giving in total an uplift in value between EUR 85 million and EUR 95 million. Most of that will come through 2024. And these ongoing developments, we have already invested EUR 236.4 million and EUR 56.5 million to be invested in order to finalize these ongoing developments. Most of that this year, less than EUR 20 million next year. And this ongoing project that not will be completed this year, will be completed quite early next year. And as Jani mentioned, roughly 15%, 1-5 percent development gain. So if you do the math, so that gives approximately EUR 50 million development gain in this ongoing development once finalized. Equity ratio and loan-to-value, we actually have very strong figures here. We have set the target to have equity ratio above 40% and loan-to-value of below 50%, and we have quite sizable buffer against these levels. Couple notes regarding the financing. So, we still have unused committed credit lines in place, EUR 300 million. And we have EUR 200 million unused syndicated loan we made before the summer. And then we are going to draw that to pay back the EUR 200 million bond maturing in October this year. So, that actually means that we don't have any specific maturing loans before the remaining part of the Eurobond maturing in June 2024. Our financing key figures, actually quite strong. Hedging ratio, 86%. Average interest rate going up for obvious reasons. So hedging ratio is not 100. And when we do new financing or refinancing, actually, so there the cost of new debt is much higher than compared to the once we are paying back. So that's why it's going up, I mean, the average interest rate. But with the moderate phase, given the balanced maturity profile what we have in our portfolio. Coverage ratio 4.1% and average maturity as well as average interest -- fixed interest rate period a little more than 3 years. EPRA NAV down by 12.5%, landed at EUR 19.5. And the biggest reason behind that change is, of course, the revaluation we made at the end of last year, still quite a strong figure here. Strategic KPIs, very strong outcome there. So top line growth 8.6%, annual investments EUR 116.3 million, FFO against total revenue a little more than 37%. It's good to keep in mind that whole year's property taxes are already booked during Q1. And the second half portion of that is EUR 6.7 million. Loan-to-value equity ratio as already discussed, quite sizable buffer there. And then net promoter score, 52, very, very strong figure and a nice improvement there as well. Then our outlook for this year, specified. Not that huge changes there, but some specification anyway. So now we estimate that the top line growth is going to be between 7% and 9%. And as we are proceeding and as I already explained, the drivers behind the top line growth. So properties, our developments completed acquisition last year and our properties to be completed this year, they all contribute already the top line and then the improving occupancy and the increase in rent is going to contribute as well. If you then talk about FFO, now we estimate that FFO this year is going to be between EUR 158 million and EUR 167 million, so slight increases there. And it's good to know that now we have changed the wording as well. So in this specified FFO guidance, it's now included the outcome of the tender offer. So a net impact -- positive impact EUR 7.2 million. And then we have penciled in possible refinancing -- premature refinancing on this 2024 maturing Eurobond. And there, we have penciled in a figure of roughly EUR 6 million. And these are now included in this specified FFO outlook, and we have changed the wording accordingly. And now back to Jani.

Thank you, Erik. Yes. On Page 26, the same program. I would say the most important starting point is to start where we are. Kojamo is a company, hopefully, known to be really systematic, proceeding with the strategy as planned. We've been growing. Today is not the right moment to grow. Our figures are solid. Total revenue growth, net rental income growth, FFO growth, the financial position, all good and solid, and we will keep it in that level. For us, it's important to be proactive, take all measures in order to keep our financial position strong, our profitability at a good level and we want to keep investment-grade rating. So, we are not forced to make decisions at the moment. We are proactive, and we will take measures in order to keep us in good fit and keep the company in such a position that once things are better, we are able to move fast and react on opportunities. But we are launching a saving program and taking proactive measures in order to keep the financial position strong. It's a combination of different aspects. Totaling, if we think about investments and costs next year, EUR 43 million. And of that, the share of cost is estimated to be EUR 18 million. A saving program is a combination of different things. At the moment, we will not invest in new development projects as we launched the idea already last year. So no changes there. In addition to that, this new savings program is a combination of different aspects. We are not making any new modernization investments at the moment. So, we are basically breathing a while, a bit postponing them. We are focusing our operations to run the existing portfolio as efficient as possible. It means that we are focusing the repairs to back up the renting and the occupancy in a more efficient manner, saving a bit of repair costs there. We're not in a position that we are creating more repair depth. It's a temporary situation. We are able to cope with that. We will sell properties in moderate scale during the next year. We'll start change negotiations with our personnel. We will find a way how to be efficient organization, save money and focus on running the existing business as efficient as possible for time being. In addition to that, the Board has made a decision. The Board of Directors will propose to the Spring '24 Annual Meeting that no dividend will be paid for 2023. So actually, the saving program includes all the important actions needed to keep the position strong. In my eyes, the path is clear. We are able to do the all measures planned and company will do good. Before we go to the Q&A, a couple of words to summarize. As I said, now we are in a situation where actually operations are solid, operations continued stable. Even though the overall business environment has been challenging for all real estate operators, we've been coping that well. Still, we are proactively starting a saving program. We are able to improve the occupancy. It's been improving. Measures are ongoing in order to improve the occupancy. And as we look forward, the rental market situation is expected to improve next year as supply in the market is going down. Two reasons, people are more actively renting homes now and new supply is not coming to the market 2024, 2025. It creates pressure throughout the market to increase the rents as well more than we have seen during the last years. Of course, we've been still successful in making new financial arrangements and those had a positive impact, for example, in FFO. At this point, I would leave it to Niina and we will start Q&A.

Thank you, Jani, and thank you, Erik, for the presentation. I noticed that the first question is coming from the room here. Please go ahead.

Svante Krokfors from Nordea. First one regarding your debt situation and would ask about the bank's debt capacity when it comes to you and also focus on the unencumbered assets ratio, which has declined to 80% now. And at the same time, you said that you want to defend your investment-grade rating and also want to increase the secured financing part. So regarding, for example, Moody's, how they look at the unencumbered ratio? Could you elaborate a bit around how you will balance this?

So thanks for the questions. And if we start with the portion of secured financing, so one way to look at this is that in Moody's metrics, you are allowed to be an investment-grade rated company if you allow us to have 20% of secured loans against total assets. And today, our figures is between 10% and 11%. So, we have quite sizable headroom there to do further secured financing. And that's, of course, important. And that's a very good position to be in, in Kojamo's case to have that capacity available without jeopardizing the rating. And then this -- the appetite of these banks on board today, it seems to be there. Some banks have more -- are better than the others, but the appetite is there. And there are additional banks available as well who are looking and who are financing companies, good companies like Kojamo in Finland.

Have you been much in discussions with the banks outside of the Nordics?

We have discussions with those banks as well.

Then regarding the rent increases, which now are at 2% run rate, there's much discussion in Finland about Heka, for example, the Helsinki owned company, which will increase their rents by 10% to 15%. But their rents are, on average, 50% higher than yours. What kind of trajectory should we expect for rent increases in '24 for your part?

Thank you for the question. Yes, we noticed that most probably because of media providing a lot of information. Everybody has been noticing that Heka is increasing rents between 10% to 15%. That social housing, they apply cost price principle. But in my eyes that's a good example of the cost pressure provided by inflation to real estate operators. They have to transfer the cost increases towards rents. At the end of the day, of course, those social housing rents are on a lower level here in Helsinki region. But I would say, in such a way that taking in consideration the pressure created by operational charges, maintenance impacts of inflation, interest rate levels, financing situation throughout all the players in the market, individual zoning, rental apartments, that creates a lot of pressure but increased rents. On the other hand, we already know that supply will go significantly down. I would be quite surprised if we don't see a high rental increase next year. What's the number? That's always a tricky part. We're not providing outlook at this point, not probably the levels Heka, but maybe half of that in the market.

And will you be ready to sacrifice occupancy rate on the behalf of rent increase?

That's always a balancing question. At the moment, we are focusing on the occupancy. We will improve the occupancy. Next year, we are in a situation where the occupancy is on a better level. We know that new supply is not coming to the market. So supply-demand balance situation will change. We will price our apartments according to the market. At some point, there is a turning point where it's creating an opportunity to earn more money. In that sense, we will increase the rents, take in some cancellations because you know that the demand is on the market and you reprice the product and sell it again. But that's not the situation today. It's the situation in 2024.

And regarding the transaction market, obviously, not much activity there. The [ Kronos Barcelona ] transaction is a bit old news. But was it so that, that didn't have any impact on your valuation metrics?

Basically, Kronos, as you know, it the only portfolio deal in the market and it's good to keep in mind the background of that portfolio. They are old [ Garrison ] sites. 25% of the portfolio is really non-core regions where, for example, Kojamo, does not operate. I would say a very tricky one to get what would be the yield requirement in those certain micro locations, double or triple digit. So it's not comparable to our portfolio. And in that sense, there was no pressure to make any changes in our valuation.

And then regarding your cost savings program, you talked about EUR 18 million in costs. I mean, how much is modernization and how long will you be keeping that on hold?

So in total, in this program, we are aiming to get EUR 43 million savings, cost side and investments put together. And we estimate that EUR 18 million, 1-8 million of that is going to be a cost side. So modernization investments is not included in that figure. It's included in the whole figure. And as I said, we estimate that modernization investments 2024 is going to be a tail on ongoing modernization investment project and euro wise between EUR 1 million and EUR 2 million.

And do you -- I mean, looking at sustainable cost savings that you can take out from here to return, what kind of level are we talking about there?

I think it's not the right timing to talk about eternity. We are talking about what's going to happen in the near future, what are our measures for 2024. So, we are following the market, what's going to happen in the market. We are capable to continue with that kind of measures if needed. We are capable to react fast if and when the market is improving. It's a good exercise to find the most efficient measures and ways to operate. But on the other hand, of course, we are in a different atmosphere looking forward. The rental increases will be on a higher level and interest levels will have to follow what's going to happen. But I think it's a near-term project at the moment that we are focusing.

Next, we can see if we have any questions from the phone line. Please check that your microphone is unmuted before you speak.

The next question comes from John Vuong representing Kempen.

As a follow-up on the cost savings plan, it's a rather drastic measure. Could you highlight your thoughts behind coming through this conclusion? Maybe more specifically, does this relate to your decision to stop developments. And perhaps what is the ideal portfolio size to be managed with the current workforce? And how do you see this after the program?

Thank you, John, for the question, and good morning as well. As I said, at the moment, the company is in a strong and a good financial position. All the numbers are solid, and we like to keep it that way. So, we are acting proactively, making measures in order to ensure our capabilities to be a strong company. It's not the right time today to generate additional growth. That's why we are not investing in new development. We are cutting down modernization investments for a while, focusing on creating efficiencies. The strategy has been to grow, create new services, develop the way we work, and that's been reflected in our organization as well. And that's the reasoning why we start change negotiation with the personnel. We are focusing temporarily to run the existing portfolio in the most efficient manner, and that will have an impact towards the personnel. We have released the information that at maximum 70, 7-0 layoffs and 20 terminations of employment. Those 2 put together maximum of 80 people, but we just started the negotiation. That will take 6 weeks. So it is too early to provide any deeper color or deeper color on the numbers at this point.

Okay. And perhaps on the modernization part, what is expected to be the impacts on like-for-like rental growth by stopping modernization? Or maybe perhaps differently asked, what is your expected yield on cost on modernization here?

I would say that I'm not seeing the impact on like-for-like growth there concerning the properties owned for the last 2 years, the last 12 months against the prior 12 months. We will see a positive impact from occupancy. We are always able to postpone a modernization investment for a year or a couple of years. That will not hurt. Modernization investment project is an investment. So, we typically end up in a situation where we have to terminate all the existing tenant agreements, then we make an extensive renovation project and that's handled as an investment. We rent it again on new costs, but on a new rent level. So in that sense, as we are not starting new modernization investments next year, we are not terminating those tenant agreements. We are not creating empty buildings. So, it will have a positive impact in such a manner.

Okay. That's clear. So just to understand it correctly, it's more focused on assets where you see upside, but not per se, assets that are currently already vacant?

Yes. Assets which are currently vacant are basically individual apartments. We will focus our repairs in such a manner that, on the other hand, we are saving money, but we are making sure that we are able to improve the occupancy.

Okay. That's clear. And maybe on to the letting market. Could you provide a bit more color on your expectations here? I mean, looking at your vacancy, it seems to be stable over the quarter. Is there a bit of a seasonality effect? And should we expect this to come down for the rest of the year?

I provided color during Q1 presentation that there's always seasonality in rental market. Typically, the winter time is more quiet and the highest season in rental market is summer. And typically, occupancies throughout the market seems to go down until the summer and they then pick up speed. I provided already then information that since April, our occupancy has not been going down. We have been making the turning point already in April. Ever since we've been able to improve that. Concerning the figures after H1, we are not providing exact figures. It's not our way to provide outlooks. But the number of new tenant agreements, June, July, and I would say even here in August are really strong. June, July, a couple of times, we've been making a new record throughout the history, in the number of new tenant agreements. So, we are doing good with our measures in order to improve the occupancy.

Okay. That's great. And just last one. You report both the FFO and the FFO excluding non-recurring costs, which seem to be the same for this quarter. Could you clarify whether this means that the EUR 9 million gains from bond repurchases included in FFO and not considered a one-off and it's, therefore, also included in the FFO guidance upgrade?

The outcome of the tender is related to existing or at that time, existing Eurobonds and repurchase of those. So it's part of the normal activities of the company when you are paying back or we are raising new money and what is the cost and what is the outcome of there. So that's why it's included in FFO. It's quite natural way to put it there. It's related to ongoing financing of the company.

The next question comes from [ Paul Gorrie ], representing [ CTI ].

All hope you can hear me okay. Perfect. So just following on actually from John's question and just to check that I understand correctly, therefore. So within the FFO guidance now, there is this, I would call it one-off, but I appreciate you are including it, which is the gain from buying the bonds at a discount. So the first question, I guess, is just to check, is that the methodology you're going to be using from now onwards? So any time you do a bond tender, your FFO guidance will take into accounts any gain on the bond tender?

That's the idea because I think one should book same type of items in the same type of way. Yes, we are going -- if we are making a new tender, we will include the outcome of the tender in FFO. Yes.

Yes. Okay. Okay. I think -- I mean, this is just an opinion for me, but I agree with John that it's one-off because you can only sort of do it once and you only see the gain once. But okay, as long as we understand the methodology, that's fine. I think the second point just on that. I think you said the Eurobond, the refinancing of the 2024 Eurobond is now included, is that correct?

We included the potential refinancing of that June '24 maturing -- remaining part of that Eurobond in that guidance. Correct.

And was the impact EUR 6 million?

We penciled in EUR 6 million of costs, depending when and how and what the instrument and so on and so forth. But EUR 6 million, we penciled in when we calculated the new or specified guidance.

Okay. Just the EUR 6 million sounds -- it sounds like quite a low figure. I would have expected it to be more. The current coupon on those bonds is, I think, is it 1.5% or around that area, maybe 1.6%? And presumably when they're refinanced, it will be at kind of, I don't know, 3.5%, 4%. Can you just explain the EUR 6 million to me? Why is the figure so low?

So for us, it's always been important to access for different sources of financing and especially, this type of time or environment -- operating environment, it's quite good to have that option available. And our aim is to do the next refinancing from banks as a secured syndicated loan most likely. And there, of course, the pricing is totally different what you have to pay or what are the syndications for bonds. It's good to remind that those bond syndications today are really syndications because we haven't seen any primary or secondary transactions in the real estate companies -- among real estate companies quite a long time. So, we penciled in that when we calculated this EUR 6 million. It's based on that. The refinancing will occur by the end of September. Whether it's going to happen or not, we don't know. And the amount is -- the idea is to refinance the whole remaining part of that June '24 maturing Eurobond.

Yes. Okay. No, that's very clear. And then just one more for me, which is on the dividend cut. And just to clarify, so that's obviously part of protecting the investment-grade rating. But again, it seems like quite a drastic step to do it now. I appreciate you want to be proactive. But I think you are 2 notches above junk. So, you obviously have one notch downgrade kind of leeway. I think the LTV trigger is probably 50%. So, you're not actually that close. I guess my point is you are not actually that close to your kind of hitting your triggers for the downgrades. You've got one step. You've probably got 2 years before you'd even get considered to be junk. So why are you taking this step today?

Yes. As I said, in our eyes, it's better to take measures when you're in a good position. And when you are strong, you are not forced to do what somebody else thinks. We are proactive and we wanted to provide a clear story, a comprehensive package, including different measures. And that includes that clear message concerning the dividend as well. And of course, that's a way to even further strengthen the company's financial position. So it's a part of the package.

There are no more questions in the queue.

We have some left in the chat. How has building costs developed recently? Do you see lower building costs in the near term?

It is easy to comment in that sense that we have not been starting new development projects since last autumn. So, we have not been involved in competitions. Of course, we have recognized that. The number of started projects is next to nothing. So, there's high pressure for construction companies to try to sell projects for investors. They've been indicating that cost increases have been leveling off. I would say that there's a pressure to bring down the prices in the current environment. I would say there's pressure to bring down the cost of construction work by 20% to 30% before investors start to operate again. And that's including, of course, the price of the land and the cost of the project. So that's something that construction companies will have to figure out during the next 12 months, 18 months.

Okay. And another topic. You mentioned that you might be selling some properties during the next 12 months. What kind of portfolio are we talking about? Is it core or non-core assets?

No decision has been yet made, what kind of portfolio we will sell. We will follow the market closely. We have been doing that already. We are not in a position to be forced to sell. So, we're not selling anything today. We will follow where is appetite. We know that there is still appetite in the market towards the Finnish resi market, but we have to follow and create a deeper understanding that where is the best appetite, what kind of buyers are available there and what kind of pricing is there. But during the next 12 months, we expect to see smaller scale disposals, a couple of hundred million probably during the next year or 2.

Okay. Then with regards to the saving program and EUR 18 million operational cost savings. Does that have effect to the development organization?

As said, we have not been starting new developments since last autumn. That's been already impacting at the beginning of this year. In that organization, we are starting change negotiations throughout the organization. So, all Kojamo employees are included in those negotiations. Today, it's too early to provide deeper comments on separate divisions on all units.

Good. And then I think we've touched pretty much all other topics. But continuing with the dividend decision, did you have a pre-discussion with the credit rating agency before you make the decision?

No. No, we like to keep matters in our own hands and keep the company strong, and then we will have discussions with the rating agency in a normal manner when there is time and place for those ones.

And thanks. That was the final question. And we will then meet on 2nd of November when Q3 report is out. So, I hope you can all join us then as well. Now, wishing you all very nice autumn. Thank you. Bye-bye.

Thank you.