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19.5.2015 | News

Interim Report Review January-March 2015

Review period January-March 2015

  • Turnover totalled EUR 90.9 (88.1) million. This growth was generated by increased profit from rental operations.
  • Profit before taxes amounted to EUR 60.4 (35.7) million and is based on a good financial occupancy rate, the successful management of maintenance costs, low financial costs, and changes in the fair value of investment properties.
  • The financial occupancy rate remained high, standing at 97.4 (98.4) per cent.
  • Tenant turnover stayed at the same level as in the comparison period, that is, 6.8 (6.7) per cent.
  • There were 1,324 (969) rental apartments under construction at the end of the review peri-od.
  • The Group owned 40,760 (40,273) rental apartments on 31 March 2015.
  • The fair value of investment properties was EUR 3.8 (3.5) billion. Their fair value amounted to EUR 3.7 billion at the end of the 2014 financial year. Changes in fair value accounted for EUR 26.0 (4.0) million of the Group´s profit for the period.
  • The Group´s gross investments during the period totalled EUR 53.3 (32.3) million.

VVO Group Plc adopts IFRS in its financial reporting

The first Interim Report of 2015 has been drawn up in accordance with International Financial Re-porting Standards (IFRS) and the comparison figures have been converted to comply with IFRS accounting principles. The transition to IFRS and its impact has been explained in the ´Transition to IFRS´ section of the Notes to the Interim Report.

CEO Jani Nieminen:

VVO Group´s turnover and profit performance remained very good during the review period. At period end, the fair value of our investment properties stood at EUR 3.8 billion. According to a market analysis conducted by KTI Kiinteistötieto Oy, we became Finland´s largest property investor in late 2014.

During the review period, the Group invested EUR 53.3 million in new construction and purchasing and renovating existing housing stock. We are continuing to make in-vestments, and are increasing the number of apartments we can offer in Finland´s growth centres. We currently have 40,760 rental apartments, and a total of 1,324 privately financed Lumo apartments were under construction at the end of the period.

Outlook for 2015

Market outlook

Uncertainty in the Finnish economy persists. The outlook for employment remains weak. The Eu-ropean Central Bank´s decision in early 2015 to purchase EUR 60 billion in securities per month is supporting the euro zone´s economy. As a result of the ECB´s policy, general interest rates are forecast to remain low.

Demand for rental housing is expected to remain at the same good level. No considerable changes are expected in the overall supply of rental apartments. New development will continue to focus on privately financed rental apartments. Due to the general market situation, construction firms are offering sites for rental housing.

Continuing urbanisation can be seen in the growing number of apartment blocks being built in major growth centres. Price trends in owner-occupied apartments can be expected to continue along the same lines as in 2014. A slight rise is expected in the prices of small, centrally located apartments, while the prices of large apartments in the outskirts may fall slightly.

The number of completed yet unsold apartments remains high, which is curbing new start-ups by construction firms. The volume of renovation construction will continue to rise.

Outlook for VVO Group

VVO Group´s financial occupancy rate is expected to remain at a good level through-out the finan-cial year due to continuing stable demand for rental apartments. Strong investments will, therefore, also continue. Net rental income is expected to increase to some extent.

Operating environment

General operating environment

Slow improvements were being seen in the European economy during the review period. Growth in the US economy, a fall in the price of oil, and reflationary fiscal policies supported favourable developments in the world economy. In March, the European Central Bank launched an expanded asset purchase programme for euro-zone sovereign bonds, which weakened the euro and thereby strengthened euro-zone exports. However, political risks overshadowed economic development.

Consumer confidence remained low. Both private households and companies are cautious in their investment decisions. This was seen in, for example, demand for owner-occupied apartments and construction investments. During early 2015, the prices of old owner-occupied apartments fell slightly throughout the country. In the Helsinki Metropolitan Area, prices rose slightly on the corre-sponding period of 2014.

Interest rates remained exceptionally low.

Industry operating environment

Demand for rental apartments remained at a good level. Business was good for small rental apartments and newly constructed locations, particularly in growth centres. There was still clear demand for new homes in the Helsinki Metropolitan Area.

New construction clearly focused on privately financed rental apartments. There were no noticea-ble changes in the price level of either new construction or renovations. The market situation for the construction of owner-occupied apartments enabled better than average implementation of negotiated contracts for rental housing development.

The slowness of the zoning process and a lack of suitable plots, particularly in the Helsinki Metro-politan Area, made it harder to launch the construction of new rental apartments.

Business operations

VVO Group Plc is Finland´s largest market-based, private-sector landlord, offering versatile and effortless rental solutions coupled with an extensive range of housing services.

The fair value of VVO´s investment properties is EUR 3.8 (3.5) billion. The VVO Group owns 40,760 (40,273) apartments, of which 26,808 (26,218) are Lumo apartments (marked-based rent) and 13,952 (14,055) VVO apartments (cost principle rent).

The rental housing business is characterised by stability and predictability, which provide a good foundation for development. The nature of our business, our solid financial position, and our good financial performance enable us to make investments in different kinds of economic situations.

VVO has been engaged in administrative litigation to overturn the designation of Vuokra-asunnot Oy as a non-profit company, and the Supreme Administrative Court has now resolved the case in VVO Group´s favour. The case was returned to the Housing Finance and Development Centre of Finland (ARA) for reconsideration.

Segment reporting

VVO Group forms a financial entity that reports on its operations in two segments. The basis for the segment division is the profit distribution limitation defined by the Act on State-Subsidised Housing Loans (ARAVA Act).

The VVO Non-subsidised segment contains VVO Group Plc and the Group companies VVO Kodit Oy, VVO Vuokra-asunnot Oy, VVO Vuokratalot Oy and VVO Palvelut Oy. These companies can freely distribute their profit. Some of VVO Vuokratalot Oy´s housing is subject to property-specific limitations in accordance with the ARAVA Act.

The Group companies VVO Asunnot Oy and VVO Korkotukikiinteistöt Oy, which are subject to the profit distribution limitation specified in the ARAVA Act, belong to the VVO State-subsidised seg-ment. These companies can pay their owner an eight per cent return on own funds invested in them that have been confirmed by the Housing Finance and Development Centre of Finland (ARA). The return payable from the annual profits of companies within the VVO State-subsidised segment totals approximately EUR 3 million. Some of the housing in the VVO State-subsidised segment is not subject to property-specific limitations in accordance with the ARAVA Act.

Result and profitability

The Group´s net rental income totalled EUR 55.4 (51.9) million, representing 61.0 (58.9) per cent of turnover. The VVO Non-subsidised segment recorded a net rental income of EUR 28.9 (26.9) million, and the VVO State-subsidised segment EUR 27.1 (25.7) million.

The Group´s profit before taxes amounted to EUR 60.4 (35.7) million. The result includes a EUR 26.0 (4.0) million change in the fair value of investment properties, and capital gains and losses of EUR 0.9 (-1.4) million. Our favourable profit performance is based on a good financial occupancy rate, the successful management of maintenance costs, low financial costs, and changes in the fair value of investment properties. Financial income and expenses totalled EUR -12.3 (-11.3) million.

Turnover

VVO Group Plc had a turnover of EUR 90.9 (88.1) million for the period 1 January-31 March 2015. The VVO Non-subsidised segment recorded a turnover of EUR 45.3 (43.5) million, and the VVO State-subsidised segment EUR 46.7 (45.9) million. Turn-over is entirely generated by rental in-come.

Balance sheet, cash flow and financing

At the end of the review period, the Group´s balance sheet total was EUR 4,031.3 (3,847.0) million. Equity totalled EUR 1,604.2 (1,508.5) million. The equity ratio stood at 39.9 (39.3) per cent. Equity per share was EUR 216.64 (203.72). The VVO Non-subsidised segment´s equity ratio stood at 45.1 (46.0) per cent. The Group´s return on equity was 12.1 (7.6) per cent and its return on investment 8.5 (5.8) per cent.

At the end of the review period, the Group´s liquid assets totalled EUR 108.5 (167.0) million. The Group maintained good liquidity throughout the period. EUR 69.8 (38.0) million of the EUR 200 million commercial paper programme had been issued by the end of the review period.

At period end, interest-bearing liabilities stood at EUR 1,856.1 (1,826.2) million, of which EUR 905.1 (833.9) million was accounted for by market-based loans.

During the review period, VVO Group converted EUR 31.0 million in high-interest government an-nuity loans into market-based loans. Interest expenses from new local government funding loans are significantly lower than they have been in the past. The new loans have maturities of 10-23 years. At the end of the review period, loan to value was 48.6 per cent.

The average interest rate of VVO´s loan portfolio during the review period was 2.5 (2.6) per cent, and the average maturity of its loans was 15.0 (15.7) years at period end.

Real estate property and fair value

VVO Group owned a total of 40,760 (40,273) rental apartments at period end. The VVO Non-subsidised segment accounted for 20,019 (19,605) of these homes and the VVO State-subsidised segment for 20,741 (20,668). At the end of the review period, VVO owned apartments in 42 (43) municipalities.

The fair value of VVO´s investment properties stood at EUR 3.8 (3.5) billion, with a change in fair value of EUR 73.3 (29.1) million during the review period. The fair value of VVO´s investment properties is determined quarterly on the basis of the company´s own evaluation. An external expert gives a statement on the valuation of VVO´s investment properties. The last valuation statement was issued on the situation as at 31 March 2015. The criteria for determining fair value are presented in the Notes to the Interim Report.

At period end, the plot reserve held by the Group totalled about 115,000 floor sq m (115,000 floor sq m) and its fair value was approximately EUR 40.5 (37.5) million.

Rental housing

Demand for rental housing remained high in all municipalities where VVO Group has a presence. As in previous years, the strongest demand centred on smaller apartments, that is, studios and one-bedroom apartments.

The financial occupancy rate remained at a good level, standing at 97.4 (98.4) per cent for the re-view period. At the end of the review period, 527 (301) apartments were vacant due to renovations. The tenant turnover rate, which includes internal transfers, remained at the same level as in the corresponding period of 2014, that is, 6.8 (6.7) per cent.

The average rent for the Group´s 26,808 (26,218) market-based rental apartments (Lumo) was EUR 13.52 (12.91) per sq m per month during the review period, and EUR 13.80 (13.17) at period end. The corresponding figure for the 13,952 (14,055) apartments rented at cost price (VVO) was EUR 12.58 (12.27) during the review period and EUR 12.77 (12.41) at period end.

Demand for rental housing remained brisk. At the end of the review period, there were 18,774 (20,284) active applications. (Applications are active for three months.) The average number of active applications per rental agreement termination was 19.0 (20.9). 16,476 (17,709) new rental housing applications were received during the review period.

The average period of tenancy remained high, at 5.9 (5.9) years. Thanks to successful rental con-trol and our housing advisory service, the proportion of annual turnover accounted for by rent re-ceivables stood at 1.2 (1.2) per cent at the end of the period.

During the review period, Lumo residents launched a car sharing pilot in the Suurpelto district of Espoo and the Hervanta district of Tampere. Lumo and 24Rent´s half-year pilot is seeking to identi-fy residents´ interest in ecological motoring. The housing cooperatives keep their shared car in a marked parking space, from where it can be reserved and used by residents.

Contracts with DNA and Elisa for a faster broadband connection came into force on 1 January 2015: the rent for almost every one of our Lumo and VVO apartments now includes a 10 Mbit broadband connection.

The VVO Group presents an annual award to the residents of a VVO house for exemplary com-munity spirit and management of their shared living environment. The 2015 House of the Year was chosen at the National Housing Day. This biennial national event brings together the chairpersons of VVO´s house committees to discuss common issues. Koulukatu 1 in Lappeenranta was chosen as VVO House of the Year 2015.

Investments, divestments and real estate development

VVO Group launched construction of 197 (72) apartments during the review period. There were a total of 1,324 (969) apartments under construction at the end of the period – 1,324 (850) privately financed apartments and 0 (119) State-subsidised apartments. Of the apartments under construc-tion, 851 (773) are located in the Helsinki region and 473 (196) in other Finnish growth centres.

During the review period, VVO Group acquired 40 (0) apartments in Espoo and sold 73 (56) apartments. 0 (123) new apartments were completed during the period. An estimated 736 (750) apartments are scheduled for completion by the end of the year.

The Group´s gross investments totalled EUR 53.3 (32.3) million. EUR 7.5 (4.2) million of these investments was allocated to capitalised renovation costs. The VVO Non-subsidised segment ac-counted for EUR 51.8 (27.6) million of gross investments, and the VVO State-subsidised segment for EUR 1.5 (4.9) million.

Repair costs totalled EUR 15.9 (13.1) million, of which EUR 8.5 (8.9) million was recognised as expenses in the income statement.

At period end, there were also binding acquisition agreements worth a total of EUR 269.1 (88.8) million.

Properties´ temperature-corrected consumption of heating energy decreased by 2.2% on the cor-responding period of the previous year.

Annual general meeting

VVO Group Plc´s Annual General Meeting of 19 March 2015 elected Riku Aalto as Chairman of the Board of Directors.

As of 19 March 2015, the Board of Directors has consisted of the following members:

  • Riku Aalto (Chairman)
  • Tomi Aimonen (Vice Chairman)
  • Matti Harjuniemi
  • Olli Luukkainen
  • Jorma Malinen
  • Reima Rytsölä
  • Jan-Erik Saarinen
  • Ann Selin

KPMG Oy Ab will continue as VVO´s auditor with APA Kai Salli as principal auditor.

The Annual General Meeting decided to pay a dividend of EUR 3.00 per share, to a total of EUR 22.2 million, in accordance with the Board of Directors´ proposal. The dividend payment date was 8 April 2015.

Personnel

At the end of the review period, the VVO Group had a total of 347 (323) employees. The average number of personnel during the period was 345 (323).

During the review period, the company decided to hire 50 summer employees.

Management and administration

Erik Hjelt, Master of Laws, eMBA has been appointed as CFO of VVO Group Plc. Hjelt, 53, started in his new position on 18 May 2015. The current CFO, Raimo Vehkaluoto, will retire in summer 2015.

Responsibility

VVO Group Plc´s operations are based on the provision of a diverse range of safe, high-quality rental housing. VVO Group seeks to participate in debate on Finnish housing policy to improve the standing of rental housing.

During the review period, the Group published its theses on the development of housing policy. These theses take a stand on several issues: the conditions required for an increase in rental housing production, factors that affect the cost of both construction and living, and support for housing and construction.

We fight the grey economy by ensuring that all the anti-grey economy models used by the compa-ny exceed legislative requirements in many respects. We continuously monitor contractor´s liability data for all of the companies in our supplier network, whereas the law only requires data checks at three-month intervals.

VVO Group will continue its climate partnership agreement with the City of Helsinki. The Group has also committed to following the Rental Property Action Plan (VAETS), which has set a 2016 heating energy savings target of seven per cent compared to 2009. The Rental Property Action Plan (VAETS) savings targets for 2016 have al-ready been achieved and, with regard to property electricity consumption, have even been exceeded.

VVO Group Plc was approved as a member of the Climate Leadership Council (CLC), an associa-tion of Finland´s leading companies and organisations. It seeks to encourage both its own members and others to find more sustainable ways of producing goods and services. CLC improves research organisations´ and industry and commerce´s readiness to respond to both climate change threats and the business opportunities they generate.

During the review period, Lumo residents launched a car sharing pilot in the Suurpelto district of Espoo and the Hervanta district of Tampere. Lumo and 24Rent´s half-year pilot is seeking to identi-fy residents´ interest in ecological motoring.

During the review period, a new waste disposal area was tested in the Arabianranta district of Hel-sinki in a joint pilot project run by the Helsinki Metropolia University of Applied Sciences, Lassila & Tikanoja, and VVO Group. The pilot ran until the end of March. According to a residents´ survey, clarity, cleanliness and good lighting made the waste disposal area easier and more pleasant to use. The volume of mixed waste also decreased.

A total of seven athletes were sponsored through the Virkeä programme in 2015:
Lassi Etelätalo (athletics), Henry Manni (paracanoeing), Nooralotta Neziri (athletics), Venla Paunonen (athletics), Tommi Pulli (speed skating), Mimosa Jallow (swimming) and Jenni Saarinen (figure skating).

Near-term risks and uncertainties

Slow economic growth continued and was reflected in both the housing and financial markets.

The prolonged rise in owner-occupied apartment prices has now halted at country level. The hous-ing market is split between the Helsinki Metropolitan Area and the rest of the country. Year-on-year price increases in the first quarter of 2015 mainly occurred in the Helsinki Metropolitan Area. A potential fall in house prices could have an impact on the fair value of property assets.

The situation with regard to financial risks has not substantially changed from that described in the 2014 Financial Statements. The financial risks resulting from uncertainty in the money market are mainly associated with increasing market interest rates and interest margins, and the availability of financing. Strong fluctuations in these areas may slow investments in new development and reno-vation. Interest rate risks are managed by keeping the percentage of fixed-rate market-based loans at around the 80 per cent mark in accordance with the Group´s financing policy.

A more detailed description of risks and uncertainties can be found in the financial statements and on our website, http://vvo.fi.

Transition to IFRS

Since 1 January 2015 VVO Group prepares its consolidated financial statements, including the interim reports, in accordance with International Financial Reporting Standards (IFRSs). For periods up to and including the year ended 31 December 2014, VVO has drawn up its consolidated financial statements in accordance with Finnish Accounting Standards (FAS). The Group´s date of transition to IFRS was 1 January 2014. VVO Group has applied IFRS 1 First-time Adoption of In-ternational Financial Reporting Standards in the transition.

The current reporting period presented in this interim report is the first quarter as at and for the period ended 1 January – 31 March 2015, together with the IFRS-compliant comparative data for the period 1 January – 31 March 2014.

The transition from FAS to IFRS has affected the reported financial position, financial performance and cash flows of VVO-group. The most significant impacts relate to the following:

  • Measurement of investment property
  • Recognition of deferred taxes
  • Measurement of financial instruments
  • Changes in consolidation methods

In the Interim report is presented the more detailed transition disclosure on the financial perfor-mance, financial position and the most important key ratios of VVO Group. The presented figures are unaudited.

Interim report 1-3/2015
Interim report 1-3/2015 Info

For further information:

CEO Jani Nieminen, VVO Group plc. tel. +358 50 373 4847, firstname.surname(at)vvo.fi

VVO-group plc is Finland´s largest market-based, private-sector landlord, offering versatile and effortless rental solutions coupled with an extensive range of housing services. VVO Group owns approximately 41,000 apartments, of which nearly 27,000 are Lumo apartments and nearly 14,000 are VVO apartments

Under the Lumo and VVO brands, VVO Group Plc offers versatile and effortless rental solutions coupled with an extensive range of housing services for different life situations. VVO Group aims to invest heavily in increasing housing supply in the next three years by developing new properties and buying existing properties.