Summary of the Year 2015 (comparison period 1.Jan–31.Dec 2014)
The Group’s gross investments during the period totalled EUR 235.0 (200.5) million. Gross investments were 63.3 (56.2) per cent of turnover.
- The fair value of our rental apartments was EUR 4.0 (3.7) billion. Return on investment was 7.6 (5.9) per cent.
- Turnover totalled EUR 370.9 (356.5) million. Turnover is entirely generated by rental income.
- Profit before taxes amounted to EUR 224.7 (146.5) million. The profit includes changes of EUR 70.3 (26.2) million in the fair value assessment of investment properties. Our favourable profit performance was based on changes in the fair value, low financial costs, a good occupancy rate and the successful management of maintenance costs.
- Net rental income was EUR 227.4 (210,0) million, representing 61.3 (58.9) per cent of turnover.
- The rental occupancy rate remained high, standing at 97.6 (98.1) per cent.
- There were 1,189 (1,127) rental apartments under construction at the end of the review period.
- The Group owned 41,153 (40,793) rental apartments on 31 December 2015.
Summary of 1 October– 31 December 2015 (comparison period 1 Oct– 31 Dec 2014)
- Turnover totalled EUR 94.7 (90.9) million. Turnover is entirely generated by rental income.
- Profit before taxes amounted to EUR 57.4 (50.0) million, showing an increase of EUR 7.4 million.
- Net rental income was EUR 56.9 (46.9) million, representing 60.1 (52.1) per cent of turnover.
- The Group’s gross investments during the period totalled EUR 81.1 (68.1) million.
VVO Group’s turnover and profit were excellent in 2015, despite the overall economic situation. At the end of the year, the fair value of our investment properties was EUR 4.0 billion. We invested more than EUR 235 million in new development, in acquiring old housing stock, and in renovation. Our goal is to increase the number of apartments by 1,000 per year. A total of 1,189 privately financed rental apartments were under construction at the end of the review period.
The year 2015 included many changes that were essential for the implementation of our strategy.
We started using the International Financial Reporting Standards (IFRS) to ensure that financing channels can be utilised in a more versatile manner and that we can invest strongly in the future, too.
To fulfil the wishes of customers, we launched an online apartment rental service at www.lumo.fi/kotinyt. The Lumo kotinyt.fi is a completely new way to rent an apartment immediately. We believe that the customer is the expert when it comes their living choices, so we handed over the decision-making power to them: the customer chooses a suitable Lumo rental apartment, pays the rent for the first month and can move in on the next weekday, for instance.
Our customers are also interested in environmentally friendly car sharing. In Helsinki, Espoo, Tampere, Jyväskylä, and Turku, we introduced car sharing in certain Lumo properties.
With these and other innovative services, we offer our customers easy and flexible housing.
At the end of 2015, VVO Group declared that, in the future, it will focus on market-based operations and announced the transfer of 8,631 cost principle, state-subsidised ARA rental apartments to Y-Asunnot.
Future Outlook 2016
In 2016, economic growth in Finland is expected to remain clearly slower compared with the rest of the euro zone. Export has not improved as briskly as expected. The outlook for the Finnish economy is influenced by factors such as the structural change in industry, the decreased cost competitiveness and the contraction in the number of working-age population. The outlook for employment is weak.
The European Central Bank’s monthly EUR 60 billion security purchases are supporting the euro zone’s economy, although the outlook weakened in the latter part of 2015. 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 current good level. At the moment, no considerable changes are foreseeable in the overall supply of rental apartments. New development is expected to continue focusing on privately financed rental apartments. Due to the general market situation, construction firms are actively offering sites for rental housing.
Continuing urbanisation can be seen in the growing number of apartment blocks being built in major growth centres. The increase in the number of asylum seekers may result in growing demand for rental apartments in growth centres.
Price trends in owner-occupied apartments are expected to continue to be stable. A slight rise is expected in the prices of small, centrally located apartments, while the prices of large apartments on the outskirts may fall slightly. New development of owner-occupied housing is challenging.
New start-ups by construction firms are at a low level. The increase in renovation volume is expected to continue, and interest rates are expected to remain low.
Outlook for VVO Group
VVO Group’s rental occupancy rate is expected to remain at a good level throughout 2016, due to continuing stable demand for rental housing. VVO Group estimates that net rental income adjusted with the effect of selling will increase. Investments are expected to exceed the 2015 level.
General operating environment
In Europe, the economic situation improved slightly during the review period. The US economy developed favourably, as expected. Uncertainty in the world economy increased towards the end of the year.
In Finland, economic development continued to be subdued. Export and industrial production have not picked up to a significant degree. The confidence of households and companies is weak. This was seen in, for example, demand for owner-occupied housing and construction investments.
On average, the prices of old apartments in apartment blocks and row houses rose somewhat throughout the country. In the Helsinki Metropolitan Area, prices rose moderately, while in other parts of Finland prices fell.
Industry operating environment
Demand for rental housing remained high. Business was good for small rental apartments and newly constructed locations, particularly in growth centres. There was still demand for new rental apartments in the Helsinki Metropolitan Area.
New construction clearly focused on privately financed rental housing. There were no noticeable changes in the price level of either new construction or renovations. The market situation for the construction of owner-occupied housing 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 Metropolitan Area, made it harder to launch the construction of new rental 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.
At the end of the review period, the fair value of VVO’s investment properties was EUR 3.5 (3.7) billion. A total of EUR 0.5 billion have been transferred from investment properties to non-current assets held for sale. At the end of 2015, VVO Group owned 41,153 (40,793) rental apartments, including investment properties classified as held for sale.
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 Group had a turnover of EUR 370.9 (356.5) million for the period 1 January–31 December 2015. The VVO Non-subsidised segment recorded a turnover of EUR 208.8 (176.4) million, and the VVO State-subsidised segment EUR 165.8 (184.9) million. Turnover is entirely generated by rental income.
Result and profitability
The Group’s net rental income totalled EUR 227.4 (210.0) million, representing 61.3 (58.9) per cent of turnover. The VVO Non-subsidised segment recorded a net rental income of EUR 134.6 (111.8) million, and the VVO State-subsidised segment EUR 94.9 (100.9) million.
The Group’s profit before taxes amounted to EUR 224.7 (146.5) million. The result includes a EUR 70.3 (26.2) million change in the fair value of investment properties, and capital gains and losses of EUR 2.7 (-4.6) million. The good result is based on changes in the fair value of investment properties, a good rental occupancy rate, the successful management of maintenance costs and low financial costs. Financial income and expenses totalled EUR -37.1 (-47.3) million.
Balance sheet and financing
The Group’s balance sheet total at year-end amounted to EUR 4,236.1 (3,957.2) million. Equity totalled EUR 1,739.1 (1,579.5) million. Equity ratio on 31 December 2015 was 41.1 (40.0) per cent, and the equity ratio of the VVO Non-subsidised segment on 31 December 2015 was 45.7 (45.8) per cent. Equity per share was EUR 234.85 (213.30). The Group’s return on equity was 10.8 (7.2) per cent and return on investment 7.6 (5.9) per cent.
The Group’s liquidity remained good throughout the financial year. At the end of the financial year, the Group’s liquid assets totalled EUR 116.0 (114.4) million. A total of EUR 108.8 (64.9) million of the facility associated with the commercial paper programme was in use at the end of the financial year. In 2015, VVO Group plc signed bilateral committed credit facility agreements of EUR 100 million, maturing in 2–5 years. In addition, an uncommitted credit facility agreement of EUR 5 million was signed. The credit facilities were unused on the balance sheet date.
At the end of the financial year, interest-bearing liabilities stood at EUR 1,494.6 (1,850.1) million, of which EUR 1,114.9 (930.7) million was accounted for by market-based loans. The hedging ratio of market-based loans was 72 (68) per cent. During the financial year, EUR 195.9 (124.2) million of new long-term financing was raised. A total of EUR 460.7 million of interest-bearing liabilities were transferred to non-current liabilities held for sale.
During the review period, the Group’s net financial expenses totalled EUR 37.1 (47.3) million. Lower interest expenses, the change in fair value of derivatives not included in hedge accounting and sales profit from investments reduced the financial costs.
At the end of the review period, the average interest rate of the loan portfolio stood at 2.2 (2.6) per cent, including interest rate derivatives. The average maturity of loans at the end of the financial year was 9.8 (10.4) years.
Real estate property and fair value
The total number of rental apartments owned by VVO Group increased by 360 (599) and was 41,153 (40,793) at the end of the financial year. The VVO Non-subsidised segment accounted for 28,716 (20,044) and the VVO State-subsidised segment for 12,437 (20,749) of these apartments. At the end of the financial year, The Group owned apartments in 40 (42) municipalities.
The fair value of the rental apartments and business premises owned by VVO Group was EUR 3,999.2 (3,708.8) million on 31 December 2015, including the EUR 534.3 million amount classified as Non-current assets held for sale. In 2015, the fair value increased by EUR 290.4 (198.2) million. The changes include EUR 70.3 (26.2) million in net valuation gains on the fair value assessment of investment properties. Changes in market prices of apartments, rents and maintenance costs, as well as the expiry of state-subsidy limitations on individual properties contributed to the change.
The fair value of the rental apartments and business premises owned by the Group is determined quarterly on the basis of the company’s own evaluation. An external expert issues a statement on the valuation of rental apartments and business premises owned by the Group. The last valuation statement was issued on the balance sheet date 31 December 2015. The criteria for determining fair value are presented in the Notes to the Financial Statements.
At the end of the financial year, the plot reserve held by the Group totalled approximately 130,000 floor sq m, being approximately 120,000 floor sq m at the beginning of the year. The value of the plot reserve on the balance sheet was approximately EUR 60 (39) million at the end of the financial year.
Demand for rental housing remained high in all municipalities where VVO Group has a presence. As in previous years, the strongest demand focused on smaller apartments, that is, studios and one-bedroom apartments.
The rental occupancy rate remained good, standing at 97.6 (98.1) per cent for the financial year. At the end of the year, 334 (451) apartments were vacant due to renovations.
Tenant turnover, including internal turnover, increased slightly and was 27.2 (25.8) per cent.
The total increase of rental income was in the financial year was 4.1 (3.9) per cent. The increase in rental income was influenced by the rent adjustment, 3.5 (3.5) per cent on average, implemented in March 2015, as well as the change in the housing stock.
With regard to the housing stock as a whole, the average rent during the year was EUR 13.45 (12.91) per sq. m per month. At the end of the financial year, the average rent was EUR 13.66 (13.04). The average rent for the Group’s 28,167 (26,841) rental apartments subject to market-based determination of rent (the Lumo brand) was EUR 13.72 (13.17) during the period and EUR 13.99 (13.33) at the end of the financial year. The corresponding figure for the 12,968 (13,952) cost principle, state-subsidised rental apartments of the VVO brand was EUR 12.87 (12.42) during the period and EUR 12.93 (12.49) at the end of the financial year.
The average duration of tenancy remained high, at 5.9 (5.9) years. At the end of the financial year, there were 14,456 (15,785) active applications. (Applications are active for three months.) The average number of active applications per rental agreement termination was 18.6 (22.9). A total of 61,201 (67,528) new housing applications were received during the financial year. The deployment of the Lumo Kotinyt.fi service was one of the factors contributing to the number of applications.
Thanks to successful rental control and our housing advisory service, the proportion of annual turnover from rental operations accounted for by rent receivables remained low and stood at 0.9 (1.2) per cent at the end of the review period. During the financial year, VVO Group’s housing advisory service was expanded to the entire country.
VVO Group launched an online apartment rental service at www.lumo.fi/kotinyt during the period. The Kotinyt.fi service is a new method for renting an apartment without waiting: the customer chooses a suitable Lumo rental apartment, pays the rent for the first month and can move in on the next weekday, for instance. The new service was an immediate success.
In Helsinki, Espoo, Tampere, Jyväskylä, and Turku, we introduced car sharing co-operation with 24Rent. The car-share vehicle can be reserved by the residents of the respective Lumo property and picked up from the building’s own designated car park.
The agreements signed with DNA and Elisa on faster broadband connections entered into force on 1 January 2015: a 10-megabit broadband connection that is included in the rent is now available in nearly all of the Group’s apartments.
The results of the annual client satisfaction survey were finalised during the period and, according to them, tenant satisfaction has remained high: nearly 90 per cent of them have recommended or ready to recommend VVO Group as a landlord. In 2015, the net promoter score (NPS) was 38 (New tenant survey).
The Building of the Year 2015 was Koulukatu 1 in Lappeenranta, announced at VVO Group’s annual Housing Day event.
Investments, divestments and real estate development
The Group’s gross investments during the financial year totalled EUR 235.0 (200.5) million. Total repair costs and modernisation investments during the financial year amounted to EUR 92.3 (78.6) million, of which modernisation investments accounted for EUR 45.8 (29.1). The VVO Non-subsidised segment accounted for EUR 228.1 (186.4) million of gross investments, and the VVO State-subsidised segment for EUR 6.9 (14.3) million.
The year-on-year change in property maintenance costs excluding repair costs has remained similar to the previous year, being -0.1 (-2.9) per cent. More extensive competitive bidding procedures, general improvement of efficiency and the exceptionally warm late-year weather contributed to the decrease in maintenance costs.
At the end of the financial year, binding acquisition agreements totalled EUR 253.9 (265.9) million. Approximately 1,768 new apartments will be built under the acquisition agreements, of which 1,189 were under construction at the end of the financial year.
During the review period, properties’ consumption of heating energy was 346 (384) GWh.
In 2015, the VVO Group decided to invest over EUR 230 million in new construction, property acquisitions and repairs and renovations. The number of new development start-ups remained nearly unchanged compared with the previous year. The new start-ups are mainly located in the Helsinki Metropolitan Area. The construction of a total of 798 (856) new Lumo apartments began in 2015. At the end of the financial year, 1,189 (1,127) Lumo apartments were under construction at 16 (16) sites. Of the apartments under construction, 908 (733) are located in the Helsinki region and 281 (394) in other Finnish growth centres.
In 2015, 736 (750) Lumo rental apartments were completed in VVO Group. Of these, 502 were built in the Helsinki region and 234 in other parts of Finland.
VVO Group bought 64 (172) apartments during the financial year.
In addition, the Group signed an agreement with Rakennusosakeyhtiö Hartela on the development of rental apartments in Helsinki, Espoo, Tuusula and Lahti, with a total value of approximately EUR 41 million. This agreement involves the construction of 205 apartments and is a continuation to the more than EUR 100 million agreement published in autumn 2014. In addition, the City of Espoo sold a specified parcel of an apartment block plot to VVO Group in an open competitive tendering. The plot is located in the Jousenpuisto city plan zone in the Tapiola district of Espoo. The purchase price of the plot was EUR 9 million.
During the financial year, a total of 458 (291) apartments were sold from the rental housing stock at different locations, including Jyväskylä, Rovaniemi, Salo, Mäntsälä, Kouvola, Hyvinkää, Mikkeli, Kerava, Imatra, Rauma, Oulu and Lempäälä. The recognised profit/loss on sales of investment properties totalled EUR 2.7 (-4.6) million.
VVO Group estimates that near-term risks are first and foremost related to the development of the Finnish economy. The weak development in the Finnish economy may decrease net income and the rental occupancy rate and have a negative impact on the value of properties. Furthermore, increasing uncertainty in the financial market may impair the availability of funding.
Events after the period
In accordance with the preliminary agreement signed on 30 November 2015, a total of 8,631 cost principle, state-subsidised ARA rental apartments, located around Finland, are transferred to Ki-inteistö OY Y-Asunnot which is part of the Y-Foundation. The details of this transaction are still pending.
Proposal by the board of directors for the distribution of profits
The parent company VVO Group plc’s distributable unrestricted shareholders’ equity at 31 December 2015 was EUR 188,723,664.19, of which the profit for the financial period was EUR 159,582,730.80. No significant changes have taken place in the company’s financial position since the end of the financial year.
The Board of Directors proposes to the Annual General Meeting that the distributable funds be used as follows: a dividend of EUR 5.00 per share to be paid for every Series A share, totalling EUR 37,012,800.00, and EUR 151 710 864,19 to be retained in unrestricted shareholders’ equity.
CEO Jani Nieminen, VVO Group Plc, tel. +358 50 373 4847, email@example.com
CFO Erik Hjelt, VVO Group Plc, tel. +358 400 472 313, firstname.lastname@example.org
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.