Investments in Lumo business operations continued in growth centres
Summary of January–March 2016 (comparison period 1 Jan.–31 Mar. 2015)
- The Group’s gross investments during the period totalled EUR 43.7 (53.3) million. Gross investments were 45.6 (58.6) per cent of turnover.
- The fair value of investment properties was EUR 3.7 (3.8) billion. Return on investment was 7.6 (8.5) per cent.
- The Group’s turnover totalled EUR 95.9 (90.9) million. Turnover is entirely generated by rental income.
- Profit before taxes amounted to EUR 54.3 (60.4) million. The profit includes EUR 14.1 (26.0) million in net valuation gain on the fair value assessment of investment properties. Our favourable profit performance is based on changes in the fair value, low financial costs, a good rental occupancy rate and the successful management of maintenance costs
- Net rental income was EUR 60.8 (55.4) million, representing 63.4 (61.0) per cent of turnover. Net rental income was increased by completed new development, higher rental income and the successful management of maintenance and repair costs.
- The rental occupancy rate remained high, standing at 96.9 (97.4) per cent.
- There were 1,046 (1,324) rental apartments under construction at the end of the review period.
- Group owned 37,293 (40,760) rental apartments on 31 March 2016.
Jani Nieminen, CEO:
VVO Group’s financial development remained good during the review period. We are strongly future-oriented and increase the number of rental apartments in order to facilitate labour mobility to growth centres and to improve Finland’s growth opportunities. In particular, we support the vitality of the Helsinki Metropolitan Area with our housing investments.
In the future, VVO Group will offer Lumo rental apartments in 30 locations in Finland. Our investments during the review period totalled EUR 43.7 million.
VVO Group aims to invest heavily in the growth of Lumo apartments in the next three years by developing new properties and buying existing properties in its property portfolio. We currently have 28,901 Lumo rental apartments and our market share is 6.5 per cent of the market-based rental housing stock. A total of 1,046 Lumo apartments were under construction at the end of the period.
During the first months of the year, VVO Group invested EUR 43.7 million in rental apartments, which is estimated to have an employment effect of approximately 699* person-years and to accrue taxes amounting to roughly EUR 18** million. Last year’s gross investments were EUR 235.0 million, equalling approximately 3,760 person-years, and accrued taxes of roughly EUR 96 million.
Car sharing that has been welcomed warmly by our residents has now been extended to Vantaa. Car sharing services are also available to the residents of certain properties in Tampere, Espoo, Jyväskylä, Helsinki and Turku. The Lumo kotinyt.fi apartment rental service, launched last autumn, has been well received: by the end of the review period, approximately 350 apartments had been selected and rented through the service.
*The calculation method is based on the calculation method used by VTT and the Confederation of Finnish Construction Industries RT: a EUR 1 million investment in construction generates 16 person-years of employment.
**VTT, RT: a EUR 1 million investment in the construction of apartment blocks accrues tax revenue and tax-like charges by EUR 410,000.
Outlook for 2016
Market outlook
According to the Bank of Finland’s forecast, economic growth in Finland in 2016 is expected to remain clearly slower compared with the rest of the euro zone. The outlook for the Finnish economy is influenced by factors such as weak exports, 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 measures 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 strong in major growth centres. Differences between regions are increasing and in some regions, supply and demand are now equal. During the past few years, a great deal of privately financed rental apartments has been built. New development is expected to continue focusing on privately financed rental apartments.
Continuing urbanisation can be seen in the growing number of apartment blocks being built in major 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 start-ups by construction firms are at a relatively low level. The increase in renovation volume is expected to continue.
Outlook for VVO Group
VVO Group’s rental occupancy rate is expected to remain at the current 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. The estimate is based on currently valid tenancy agreements and the stable demand in growth centres.
Operating environment
General operating environment
In Europe, the economic situation improved slightly during the review period. The US economy developed favourably, as expected.
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 apartments and construction investments.
According to Statistics Finland, the prices of old apartments in apartment blocks and row houses rose somewhat throughout the country. In the Helsinki Metropolitan Area, the year-on-year increase in prices was higher than in other parts of the country.
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 apartments. There were no noticeable 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 Metropolitan Area, made it harder to launch the construction of new rental apartments.
Business operations
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.
The fair value of VVO Group’s investment properties at the end of the review period was EUR 3.7 (3.8) billion, including EUR 183.2 million classified into non-current assets held for sale. At the end of the review period, VVO Group owned 37,293 (40,760) 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.
The details related to the selling of 8,631 of VVO Group’s cost principle apartments have been further specified. The apartments are sold with a so-called direct property transaction to Kiinteistö Oy Y-Asunnot, which is part of the Y-Foundation group. The sales price is the transfer price confirmed by the Housing Finance and Development Centre of Finland (ARA), determined by ARA in phases. For the first phase, the transaction was executed on 31 March 2016 and the transfer price has now been determined. The determination of the transfer price for the remaining phase is estimated to be completed in the near future.
Turnover
VVO Group had a turnover of EUR 95.9 (90.9) million for the period 1 January–31 March 2016. The Lumo segment recorded a turnover of EUR 68.5 (45.3) million, and the VVO segment EUR 27.8 (46.7) million. Turnover is entirely generated by rental income.
Result and profitability
The Group’s net rental income totalled EUR 60.8 (55.4) million, representing 63.4 (61.0) per cent of turnover. The Lumo segment recorded a net rental income of EUR 43.7 (28.9) million, and the VVO segment EUR 17.4 (27.1) million.
The Group’s profit before taxes amounted to EUR 54.3 (60.4) million. The profit includes EUR 14.1 (26.0) million in net valuation gain on the fair value assessment of investment properties, and capital gains and losses of EUR 1.0 (0.9) million. Our favourable profit performance is based on changes in the fair value of investment properties, low financial costs, a good rental occupancy rate and the successful management of maintenance costs. Financial income and expenses totalled EUR -12.4 (-12.3) million.
Balance sheet, cash flow and financing
At the end of the review period, the Group’s balance sheet total was EUR 3,983.4 (4,031.3) million. Equity totalled EUR 1,729.9 (1,604.2) million. The equity ratio stood at 43.5 (39.9) per cent. Equity per share was EUR 233.61 (216.64). The equity ratio of the Lumo segment stood at 44.4 (45.1) per cent. The Group’s return on equity was 10.2 (12.1) per cent and return on investment 7.6 (8.5) per cent.
At the end of the review period, the Group’s liquid assets totalled EUR 138.0 (108.5) million. The Group maintained good liquidity throughout the period. EUR 155.8 (69.8) million of the EUR 200 million commercial paper programme had been issued by the end of the review period. In addition, the Group has committed credit facilities of EUR 100 million and an uncommitted credit facility of EUR 5 million that remained unused at the end of the review period.
At period end, interest-bearing liabilities stood at EUR 1,506.7 (1,856.1) million, of which EUR 1,003.8 (905.1) million was accounted for by market-based loans. At the end of the review period, the Group’s loan to value was 42.4 (48.6) per cent.
The average interest rate of the loan portfolio stood at 2.3 (2.5) per cent, including interest rate derivatives. The average maturity of loans at the end of the review period was 7.2 (10.5) years.
On 29 March 2016, VVO Kodit Oy signed a contract with Swedbank AB concerning a five-year secured loan worth EUR 100 million.
Real estate property and fair value
VVO Group owned a total of 37,293 (40,760) rental apartments at period end. The Lumo segment accounted for 28,901 (20,019) and the VVO segment for 8,392 (20,741) of these apartments. At the end of the review period, the Group owned apartments in 39 (42) municipalities.
At the end of the review period, the fair value of VVO Group’s investment properties stood at EUR 3.7 (3.8) billion. The fair values include the portfolio held for sale, totalling EUR 183.2 (0.0) million. During the review period, the fair value decreased by EUR 293.9 (73.3) million, mainly due to the selling of investment properties. The change includes EUR 14.1 (26.0) million in net valuation gains on the fair value assessment of investment properties. The fair value of the Group’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 the Group’s investment properties. The last valuation statement was issued on the situation as on 31 March 2016. 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 147,000 floor sq m (115,000 floor sq m) and its fair value was approximately EUR 68.9 (40.5) million.
Rental housing
Demand for rental housing remained strong in growth centres. Differences between regions are increasing and in some regions, supply and demand are now equal. As in previous years, the strongest demand focused on smaller apartments, that is, studios and one-bedroom apartments.
The rental occupancy rate remained at a good level, standing at 96.9 (97.4) per cent for the review period. At the end of the review period, 250 (527) apartments were vacant due to renovations. The tenant turnover rate, which includes internal transfers, increased slightly when compared to the corresponding period of the financial year 2015 and was 7.6 (6.8) per cent.
The average rent for the Group’s 28,386 (26,808) market-based rental apartments (Lumo) was 14.40 (13.80) per sq m per month during the review period, and EUR 14.16 (13.52) at period end. The corresponding figures for the 8,907 (13,952) apartments rented at cost price (VVO) was EUR 12.93 (12.77) during the review period and EUR 12.73 (12.58) at period end.
At the end of the review period, there were 13,735 (18,774) active applications. (Applications are active for three months.) The average number of active applications per rental agreement termination was 15.1 (19.0). A total of 12,742 (16,476) new rental housing applications were received during the review period.
The car sharing scheme for Lumo residents was extended to Vantaa. Car sharing services are also available in Tampere’s Hervanta district, Espoo’s Suurpelto district, Jyväskylä, Helsinki’s Sörnäinen district and Turku. The Lumo kotinyt.fi service, launched last autumn, has been well received: by the end of the review period, approximately 350 apartments had been selected and rented through the service.
The average period of tenancy remained at an excellent level, 6.0 (5.9) years. 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 1.0 (1.2) per cent at the end of the review period.
Investments, divestments and real estate development
VVO Group launched construction of 98 (197) apartments during the review period. There were a total of 1,046 (1,324) apartments under construction at the end of the period, all of them privately financed. Of the apartments under construction, 815 (851) are located in the Helsinki region and 231 (473) in other Finnish growth centres.
During the review period, VVO Group acquired 0 (40) apartments and sold 4,076 (73) apartments. In addition, a binding preliminary agreement has been signed on the sale of 4,586 apartments.
241(0) new apartments were completed during the period. An estimated 567 (670) apartments are scheduled for completion by the end of the year.
The Group’s gross investments totalled EUR 43.7 (53.3) million. Total repair costs and modernisation investments during the review period amounted to EUR 11.4 (15.9) million, of which modernisation investments accounted for EUR 4.6 (7.5) million. The Lumo segment accounted for EUR 43.6 (51.8) million of gross investments, and the VVO segment for EUR 0.1 (1.5) million.
At period end, there were binding acquisition agreements worth a total of 298.9 (269.1) million. A total of 1,934 new apartments will be built under the acquisition agreements, of which 1,046 were under construction at the end of the review period.
VVO Group signed an agreement with Pohjola Rakennus Oy Uusimaa on the construction of rental apartments in Helsinki, Vantaa and Hyvinkää, with a total value of nearly EUR 50 million. All in all, this agreement involves the construction of 263 Lumo rental apartments, most of which will be completed during the next two years.
The City of Espoo’s Trade and Competitiveness Division reserved an area for VVO Group and SRV for the planning of the Kivenlahti Metro Centre. According to plans, the area would feature approximately 76,000 square metres of housing and roughly 56,000 square metres of business, office and service premises as well as a bus terminal and a park-and-ride car park. The total number of apartments to be built in the area is approximately 1,200.
During the review period, properties’ consumption of heating energy was 121.9 (105.5) GWh.
Annual general meeting
At the Annual General Meeting of VVO Group plc held on 17 March 2016, Riku Aalto, Matti Harjuniemi, Olli Luukkainen, Jorma Malinen, Reima Rytsölä, Jan-Erik Saarinen, Ann Selin and new member Mikko Mursula were elected as members of the Board of Directors for the term that ends with the Annual General Meeting of 2017. Riku Aalto was elected Chairman of the Board of Directors.
It was decided that the following annual fees will be paid to the members of the Board of Directors elected at the Annual General Meeting: EUR 20,000 for the Chairman of the Board of Directors, EUR 11,000 for the Deputy Chairman and EUR 8,000 for each of the members. In addition, it was decided that the attendance allowance for Board meetings will be EUR 600 per meeting.
KPMG Oy Ab, with Esa Kailiala, APA, as its chief auditor, was selected as the accountant for the company for the term lasting until the next Annual General Meeting.
At the Annual General Meeting it was decided, as proposed in the presentation of the Board of Directors, that for the financial year 2015, the company will pay a dividend of EUR 5.00 for every Series A share, a total of EUR 37,012,800.00, and EUR 151,710,864.19 will be retained in unrestricted shareholders’ equity.
Further information:
CEO Jani Nieminen, VVO Group plc tel. +358 50 373 4847, jani.nieminen@vvo.fi
CFO Erik Hjelt, VVO Group plc, tel. 0400 472 313, erik.hjelt@vvo.fi
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. lumo.fi, vvo.fi
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.