Kojamo Oyj

OMXH:KOJAMO

Q2-2025 Earnings Call

[Niina Saarto, executive]

Very good morning and welcome. This is Kojamo's Half Year Results Webcast. I'm Niina Saarto from Investor Relations. Today, we have 2 presenters namely our new CEO, Reima Rytsola. He starts the presentation with the highlights for the review period, and he also discusses the operating environment. Then, CFO, Erik Hjelt continues with financial figures and the outlook for this year.

As usual, we have Q&A after the presentation. And there, we take questions via chat. And then we also open the phone line for live questions. So I guess we are now ready for the presentation.

[Reima Rytsola, executive]

Thank you, Niina, and a very good morning on behalf of myself as well. It's -- I'm excited to be here for my first quarterly release. I calculated that it's roughly 12 years ago since I was last on this side of the table on investment, meeting investment community. I was then in Pohjola Bank plc's Division Head of Banking. And so last 12 years, been sitting on another side of the -- your side of the table, but very happy to be here, and it has been kind of a very positive start for me. It has been kind of a great to notice that Kojamo people are very energized and competent. And even though the market conditions haven't been that great in the last 2 years, but hopefully getting better.

So as Niina said, that I recently started -- so started on 1st of June, actually 2nd of June, Monday. And obviously, 2/3 of the quarter has already done at that stage, but happy to present main key points of the quarterly result. I think the highlight of our first half year has been that we have been improving significantly our occupancy rate, and that has been really kind of a positive development both the revenue and net rental income increased. And there was obviously in Q2, some leakage from gross revenue to net rental income, and that was mainly due to some one-off allocations. But of course, some of the effects were also in inflation picking, still affecting the maintenance and repair costs, but we assume that those costs overall will be around about same level this year than they were previous year. FFO decreased mainly due to higher financial costs. Maintenance and repair expenses caused some decline of FFO. But as I said, the majority of the impact came from financial costs.

As I told in the very beginning, so the occupancy rate development has been really good, and it has been kind of a very conscious strategy so that we were lacking in our occupancy rate, and we have worked really hard and made some changes in our processes, especially pricing and sales process as such so that we have been able to achieve a very good development. Market hasn't helped that much in that respect. And there's still oversupply in the market, especially in the capital area. But at least it looks like so that -- how would I say, growth of oversupply has stalled now, and you might expect that at some point, it will turn around.

We also signed in June and closed the deal in July, the 1,944 apartment sale. And as we already have earlier communicated, the proceeds of sale will be used reducing debt and starting the share buyback program. And of course, this transaction and usage of proceeds will kind of strengthen our balance sheet. And also with the buyback, we aim to also kind of neutralize the FFO effect for the shareholders and through that kind of give a better kind of a chance for value creation.

Our financing position is very, very strong. And both in June and actually this month, we have closed over EUR 200 million bank loans refinancing and next refinancing arrangements will focus on loans that are maturing in 2027. So -- and then of course, starting those refinancing operations next year. So it's a very solid base for the business where we are.

Operating environment, I think many of us who follow the kind of global economy and indicators are somewhat confused at what's going on. There has been a lot of hassle around tariffs and their effects on global economy. It certainly brings some uncertainty. Still, even though there's an expectation that U.S. economy will slow down a bit, but there's still some kind of a positive upbeat in the expectations of euro area growth and Finland has been forecasted as well that the growth will be better this year.

Inflation in Finland is very modest. And it's -- I think it's fair to say that given the circumstances, our own growth prospects in Finland and inflation, so the monetary policy as such is tighter than Finnish economy would kind of required. And some might argue that there's a room to cut rates further is also from euro area perspective, but anyhow, the kind of rate cut expectations have, if not vanished, but at least expectations are definitely not there in that extent than they were some months ago. Even though the kind of macroeconomic outlook is not as kind of boosting as we all would hope, I would say that the kind of mega trends are still there when talking about housing and 2 main drivers of that is, of course, the startups of a new residential and then the kind of population growth in major cities.

And if you look at this graph of -- basically housing starts. So it's very, very kind of a low level at the moment and even the expectation of residential start-ups this year, 20,000, I would say that it's probably on optimistic side. And for example, today, this morning, it was in Finnish newspaper Helsingin Sanomat article of legislation changes concerning the subsidized apartment building and if that will be cut as well. So given the fact that it has been estimated that the kind of a need for a new apartment is roughly 35,000 a year in Finland. So -- and the current level is 20,000 or less than 20,000. So -- and it has been already for a couple of years underneath the 20,000. So that's obvious that it will affect the supply.

And at the same time, the population growth in the major cities in Finland has even picked up. And for example, Helsinki just posted that over 700,000 inhabitants in Helsinki. So -- and also the kind of -- overall, the capital area is growing. Of course, the big driver in that sense is immigration. And even though the trend of decreasing average household size is still there, but immigration as such is a little bit kind of affecting that trend kind of slowing down because it seems to be the case that many immigrants are living more intense in apartments than the Finnish ones.

But overall, the urbanization megatrend, I think, is definitely there. And the biggest cities like Helsinki capital region and Tampere, Turku are the ones who are the clear winners in that sense. And then if you look at the kind of -- I'll give a glance for our own portfolio, Kojamo's portfolio. So it's very well fit to that trend and roughly 87% of our fair value of our real estate is in Helsinki region, Tampere and Turku. So it's -- I would say that it's a very good strategic fit in that sense.

ESG as such, has kind of, if not faded away from investors' interests, but at least the significance is not there in that extent as it used to be a couple of years ago. But we still think that it's a super important topic. And we keep on doing constant work for achieving carbon neutrality in 2030. We are well in time in that schedule. And for us, it's, of course, also kind of matter of profitability, so to say. So more energy efficient than we are. So we can cut down our maintenance costs. And even though we speak about Scope 2 here, so it's good to notice that actually heating is included in our figures. So it's, in that sense, relatively comprehensive Scope 2, so to say. Of course, we all know that the last mile is the most difficult here and -- but there's still some room to kind of develop different kind of technologies as well, which could enable the achieving the carbon neutrality in that sense.

I would say, overall, very, very kind of a solid first half year. And as I said, that the most kind of positive point is to picking up the occupancy rate and create revenue growth even though the rent levels are kind of -- development in rent levels are muted or even in negative territory, some locations. But one thing that I would like to highlight here as well in this screen is the Net Promoter Score, which is 58 for us, and it's all-time high. And the customer experience and developing customer experience is -- will be kind of a key factor for us in the future as well. And we truly believe that put the customer in the center, we can create service and kind of a clue for our customer relationships that in the future, we're even able to kind of improve our rent premium, hopefully.

I think this is pretty much the part that I should cover, and I would like to now hand over to Erik for the financial development, and then we will take together with the Q&A. So thank you very much.

[Erik Hjelt, executive]

Thank you, Reima, and good morning, everybody, from my side as well. So Page 12, if we first look at the total revenues, total revenue growth first half of this year compared to first half last year was EUR 4.3 million and Q2 was EUR 3.3 million, up compared to Q2 last year. And you may say that growth came entirely thanks to improved occupancy. On the net rental income side, H1, the growth was EUR 2.9 million and Q2, EUR 0.7 million. On the maintenance side, the cost increase was EUR 0.8 million in the first half. And on the repair side, it was EUR 0.6 million.

In the maintenance expenses, they are both positive and negative figures. So on the positive side, heating, EUR 1.5 million below last year's figures, mainly came through during the Q1 this year. So electricity down by EUR 0.4 million and credit losses EUR 0.5 million. So on the other side, there's water that went up EUR 0.9 million. That's actually quite logic when you have more customers, they spend more water. So maintenance up by EUR 0.7 million and outdoor maintenance up by EUR 0.6 million. As Reima already mentioned, there are some allocations in the cost side, and we still expect the whole year maintenance expenses and repairs to be broadly in line last year figures.

Page 13. If you first look left-hand side, profit and loss before taxes. I come to the change in values later. So the profit, excluding change in values. So it's down by EUR 12.3 million. Net rental income contributed EUR 2.9 million, as said, SG&A expenses increased by EUR 0.2 million. Financial expenses up by EUR 8.8 million. And then depreciation, EUR 7.3 million. I come to that figure later when discussing value changes. On the right-hand side, FFO down by EUR 6.2 million. Most of the items are same as in profit calculation, so net rental income, SG&A and finance expenses. And then in FFO calculations, current taxes up by EUR 1.7 million.

So Page 14, as Reima mentioned, there was a strong growth in our occupancy rate and that our focus has been quite a long time already to improve the occupancy. There has been discussions whether we should release quarterly figures as well. Now they are here. So this 93.6% is cumulative figure year-to-date. But you can, of course, always calculate the quarterly figures as well, but now it's released here. So the Q2 occupancy rate was already 94.4%. And in June alone, it was 94.8%. So quarter-on-quarter, the growth was 1.6 percentage points. And if you compare Q4 to Q2 this year, so the growth was 3.3 percentage points. At the same time, our tenant turnover came down by 1.9 percentage points.

Page 15, like-for-like calculations. This is backward-looking calculations because we compare latest 12 months against the previous 12 months period and in a turnaround situation where we clearly are at the moment, and so this is clearly lagging behind. And this is especially true if you look at the occupancy rate because in this type of calculations, you have the tail of previous quarters. So in these calculations, Q3, you compare actually Q3 2024 against Q3 2023. So that's why it's really backward looking. Of course, rents and water charges are better representative. We are still increasing the rents for existing customers, the rent increases on average are between -- somewhere between 1.2, 1.3 percentage. And some of that is eaten, if you like, because we are now -- we've been more flexible when it comes to the renting. But in total, in this calculation, we are still -- the impact of rents and water charges on positive side.

Investments remained at the low level. We have only 1 ongoing development, 119 apartments, 1 project to be completed January, February 2026. And for the time being, we are not making any new investment decisions as part of the saving program as we are not anymore talking about saving program as such, but we are still in the mode that we are at the moment, we are not making any new investment decisions. And of course, the disposal side, almost 2,000 apartments completed after a review period, but the agreement was signed during the period. Modernization investments now up to EUR 10.4 million, and we estimate that the modernization investments this year will grow from last year, estimates are around EUR 30 million because we have started a few larger modernization projects. And as said, repair is expected to be in line with last year figures.

Page 17, fair value of investment properties. There hasn't been any changes in calculation parameters, no changes in what comes to the yield requirements. All transactions, small or bigger ones, they are taken into account in these calculations. And those ones completed after the review period are pretty much in line with these parameters. During second quarter this year, the fair value change was negative EUR 48 million. Biggest portion of that, EUR 33.8 million is related to value change in non-yielding assets, particular Metropolia properties, and we estimate that this is -- this will not have any impact for valuation of values of apartments.

On top of that, there's an impairment loss of EUR 7.3 million due to the write-down of our own office premises, so head office here in Helsinki where we currently are, but that is booked on a different line, or that's a change in fair value of investment properties. Loan-to-value equity ratio, quite stable on loan-to-value side, 44.4%. That includes the noncurrent assets held for sale. Now biggest portion of that already sold as we speak.

Page 19, next financing arrangement needed for us is to refinance 2027 maturing loans. So no need to do any additional financing arrangement in the short term. Our average interest rate came down to 3.2%. We have made 2 different agreements, 1 during the review period and 1 after that. So they were actually both extending existing loans. So in that sense, no new the agreements, no new financing agreements. Net debt came down and our financial key figures are strong. Equity per share and EPRA NAV quite stable this quarter.

And then Page 21, our outlook. So when we released the closing of the divestment, we updated our outlook and we restate that outlook. So compared to that, no changes. So we estimated that the total revenue growth for this year is going to be 0% to 2% and then FFO to be between EUR 135 million to EUR 141 million. Why we restated this? Why we made the update in outlook in connection with the disposal? So always, our outlook is given excluding the potential impact of potential transactions. So that's why linked to the transaction, we updated our outlook. And it's good to keep in mind that the outlook doesn't take into account taxes resulting from the transactions because they are considered to be nonrecurring items.

But then a couple of notes regarding the outlook. So if we take the midpoint of the top line outlook, so there we estimated that the occupancy will improve even going forward. We estimated that the rent increases are going to be moderate, and we are flexible in rents. And we don't expect any support from the market. It may happen that the market is going to be more supportive going forward. But in this guidance, we haven't anticipated any support from the market. And then the midpoint of the range for FFO, that, of course, reflects the range for top line outlook. And in the midpoint of this FFO guidance, we expect will be penciled in that repairs and SG expenses are going to be broadly in line last year figures, maintenance expenses broadly in line with last year figures, as already discussed, and then average weather for the remaining part of this year.

So at this point, back to Reima.

[Reima Rytsola, executive]

Thank you, Erik. I think overall, we have tried to cover as well as possible at the moment, the H1 results and maybe a couple of words of -- before we went to Q&A that how to go forward, and we have decided to start to review our strategy during latter part of the year.

I would say that as a non-native English speaker, I'm not 100% sure is reviewing correct word. It's more of a tuning, but anyhow tuning to reviewing as you can take it, but we definitely do that. I think a couple of themes that will be in a spotlight for going forward as well is customer experience and operational excellency. And we definitely kind of understand that growth importance from a value creation perspective, and we will kind of work hard to kind of assess that what's the way to grow in the future and what's the good timing for that. So definitely not taken even before the note was given.

So I think we are more or less ready to start the Q&A.

[Niina Saarto, executive]

Yes, we are, definitely. Do we have any questions from the room here? No. Then in that case, we start with questions from the phone line. Go ahead, please.

[Operator]

[Operator Instructions] The next question comes from Anssi Raussi from SEB.

[Anssi Raussi, analyst]

Yes. I have a few questions, and I go one by one. So first one is about your rents. So reported rent per month decreased a bit year-over-year, and you mentioned that the rents actually increased in existing agreements. So can you maybe discuss a bit these underlying elements here like the impact of campaigns? And should we expect that this level out towards the end of this year? That's the first one.

[Reima Rytsola, executive]

Maybe if I start and Erik can continue that -- obviously, the kind of obvious outcome is that when we have gained so much in occupancy rate, so with the market conditions that haven't eased that much, so it's obvious that we have had to reprice the kind of new apartments as such. And -- but as we discussed already earlier, the kind of market conditions that we expect that oversupply at least stalled and there might be a good chance that it will ease a little bit in the coming months. But -- so that's why it's difficult to say that whether -- how is the rental increase developing in the coming months. But I would say that we see kind of next -- going next year that there is a room for rental increase. But on the other hand, the amount probably will be relatively modest.

I don't know if you want to kind of add some, Erik.

[Erik Hjelt, executive]

So we have changed our approach how we price apartments that become vacant. And now we are doing it when it becomes vacant not before that. And in some cases, it turned out that the market conditions are such that the new rent is lower than the one in the contract that expired. So that plays a role there. And then some campaigns, yes, we do use -- in some cases, we give 2 or 3 weeks rent-free period in the beginning of tenancy. The market standard has been actually 1 or 2 months, and we've never done those, but 2 or 3 weeks is something that we use.

So this is the impact on top of the rent increases we do for existing customers. And we started this new approach for pricing when we concluded that we are focusing now to improve the occupancy, and we wanted to be more flexible in the rents given the market conditions. And now we -- as part of expanding our or enhancing our own operations, thanks to the more flexible in the rent levels. And now we've been improving very strongly the occupancy. And of course, the idea is going forward that once our occupancy is on a high level and then once we see that the market conditions are improving, then we start to increase the rents more. Already today, in some cases, we are able to increase the rents. So these are average figures depending on the local supply-demand situation.

[Reima Rytsola, executive]

And if I still add a couple of words. So we have made the changes for our pricing methodology as such and make it more dynamic, and that will obviously work on both sides. So expect it to work on another when the market will pick up to another side as well.

[Anssi Raussi, analyst]

Okay. That's really helpful. And maybe the next question related to this fair value change, especially in this Metropolia property or properties. So what triggered this fair value change? And maybe do you have plans regarding this property? And also maybe if you can comment on other plans, if you have any related to possible future divestments?

[Reima Rytsola, executive]

Can you repeat the first part of the question, so I kind of missed it. So about the Metropolia assets. So what was your first question?

[Anssi Raussi, analyst]

Yes. So basically, what triggered this fair value change, how it -- triggered your plans?

[Reima Rytsola, executive]

Yes, sorry, I didn't hear. I think it's -- of course, we -- me as a new CEO wanted to kind of do the kind of thorough due diligence as well. And we discussed quite a lot of kind of possibilities of those nonyielding development assets as Metropolia assets are. And of course, the market has changed quite dramatically when talking about development assets as such and their pricing. And then we did kind of a thorough analysis and kind of readjusted the valuations more on a level that we think that kind of a fair market prices. As you know, when we talk about the non-yielding assets, the valuation is more of a kind of -- depending on very many kind of criterias and inputs. But we think that at the moment, they are in fair value.

[Anssi Raussi, analyst]

Okay. Got it. And yes, the final question was that basically, do you have any initial discussions regarding possible future divestments, additional divestments?

[Reima Rytsola, executive]

Well, we keep on focusing our portfolio and concentrate even further with the kind of major cities in Finland. And that's what we keep on doing. We are definitely -- as we both with Erik stated earlier that we think that we are in a strong financial position. So we are -- we don't have kind of any urgency to divest further. But on the other hand, you can't kind of focus the portfolio even further if you don't do any divestments. So in that respect, there's still some on the agenda of divestments.

[Erik Hjelt, executive]

One additional comment. So we -- after this transaction completed during the summer, we still have 4 assets in assets held for sale, and those discussions are proceeding quite nicely.

[Operator]

The next question comes from John Vuong from Van Lanschot Kempen.

[John Vuong, analyst]

So you've been regaining quite some market share as you move up in occupancy. But at the same time, it sounds like you still aren't really happy with the [ of ] occupancy you're at. So what's exactly the next step in your view? And what's the level that you'd be a bit more happy with where you wouldn't necessarily have to do these marketing campaigns anymore?

[Reima Rytsola, executive]

Well, I think we still have some room to do in -- to improving the occupancy. It's fair to say that we're progressing well on that. And our plan is, of course, that our occupancy will be in more of a kind of, would I say, normalized levels when the market will pick up and we have kind of a better capability to go with the rent hikes as well.

[Erik Hjelt, executive]

What would you consider more normalized levels? That's like 97% or...

[Reima Rytsola, executive]

Well, we haven't communicated any kind of a target level for our occupancy. But I would say that around about 96% to 97% sounds much better to me than 94.8%.

[John Vuong, analyst]

That's fair. And just on the Net Promoter Score, I think you mentioned that you're also seeing room for a rent premium given that you have such a good score. So just trying to understand here, what's the difference between your in-place rents and market rents? And how much more of a premium do you expect to get in this market?

[Erik Hjelt, executive]

So we do get a premium compared to market rents still even being more flexible when it comes to the renting. And that is the current situation. And going forward, of course, our aim is to get even more of premium. And as I said, when the occupancy rate is higher and the market improves and our Net Promoter Score, so customer feedback improves as well. So that gives us more space to start to increase the rent score going forward. So yes, we get premium pricing at the moment, but we definitely want to get more premium in the future.

[Reima Rytsola, executive]

And I think that's, as Erik said, the kind of a focus in the future as well, the customer experience is one key part of that, that we will be able to charge kind of a premium rent that our customers will value our apartments and services so that they are willing to pay premium.

[John Vuong, analyst]

Okay. That's clear. And just 1 last question. As you start your share buyback program, I suppose you sent a signal that you're comfortable with your leverage. How should we think about restarting the dividend distributions?

[Reima Rytsola, executive]

Well, that's a discussion that we have to go through in -- with our Board of Directors in the latter part of this year. Of course, we aim to get back on paying dividends as well. That has definitely been a kind of a temporary period that we didn't proceed any dividends in the last 2 years. But of course, then we need to kind of adjust as well the market price and valuations so that what is the kind of best and optimal way to proceed funds back to owners.

[Operator]

The next question comes from Rob Phillips from Green Street.

[Robert Phillips, analyst]

I just had 2 questions on my end. So firstly, following your recent disposal, how do you kind of see the broader transaction market developing? And are you observing other potential deals? And should we expect future transactions at similar discounts to balance sheet value?

And then secondly, could you share some thoughts on your capital allocation road map going forward? And should we expect more disposals and balance sheet discipline? Or are you starting to tilt towards growth? And how do you think about the role of new equity in that context as well?

[Reima Rytsola, executive]

Well, I think if we start with the transaction that we made and the feedback since that and kind of market reactions. Of course, it was a very big transaction given the kind of a recent history of Finnish real estate markets. It definitely has created some kind of more interest around the transactional market, and there's kind of a picking up of interest to invest in Finnish real estate market or in general, I would say that as we discussed or answered already previous questions. So we do have kind of some thoughts to divest further.

It depends on how it will match our strategy and portfolio and more of an aim to even more further focus the portfolio. We wouldn't take the kind of any kind of a stance of a possible discount in future transactions. But of course, everything depends on the quality of the disposed assets and so on. But on the other hand, I would consider that when the -- at least it looks like, so that the market conditions are getting better. So in that respect, I think if something, so it would be kind of -- with the kind of a like-for-like type of portfolio, the discount should be smaller. I don't know if you have anything to add.

[Erik Hjelt, executive]

So of course, the transaction volume has been quite muted, 6 or 7 small transaction last year and the beginning of this year, 1, 2, 3, even 4 assets each. Based on discussions after our transaction with the brokers, it looks that this transaction is actually creating momentum because there seems to be more international investors who are really scanning the Finnish property market. So they've been here early as well, but in most cases, what we heard and we know some of those, they have filed in so-called local offers.

But now it looks that the discussions are around more relevant levels. And our transaction was the biggest transaction or the only bigger transaction after 2022, and that really was positive for the whole market. And after our transaction, there was one bigger transaction in the market as well. And as I said, there's more realistic discussions at least at the moment, thanks to our transaction.

[Operator]

The next question comes from Neeraj Kumar from Barclays.

[Neeraj Kumar, analyst]

My question is in regards to Moody's rating. So I see the negative outlook from Moody's has been there for nearly 2.5 years now. And we see that you have started a share buyback program as well. So is it fair to say that you see no risk of Moody's downgrade from here?

[Erik Hjelt, executive]

So yes, the negative outlook has been there quite long time already. And that's quite unusual to be frank. But based on discussions with the Moody's, they think that all our other KPIs and ICR is very strong in line with requirements for Baa2. They do share our view that the market is about to change, and they have noticed the same as we have that the interest rates came down, and they seem to like the company.

And they are more focused now on the big picture, not only 1 KPI. And they appreciate all the actions taken by the company. So the saving program not to start new developments and not paying dividends for 2 years in a row. And so they view that the company is moving in the right direction, and they wanted to give the company time to show that this is really, really happening. So that's what's that all about.

We are going to have a management meeting with Moody's Friday this week. So perhaps we learn something more. We really didn't discuss this disposal and how to use the money with Moody's, but we say that our aim is the same as we released in the Q4 report that our aim is to dispose something. And first priority is to pay back loans. Second priority is to buy back own shares. And now that's something we've done and we are doing. So the biggest portion of the proceedings received used to pay back loans. And on top of that, we are about to start this share buyback.

So they are aware of this. And as I said, the negative outlook has been there quite a long time. And as what I explained is the reason why they kept that so long time. So they wanted to give the company time to show that all the actions taken by the company are really paying off as they are doing.

[Neeraj Kumar, analyst]

Got it. And my second question is in regards to the valuation yields and the valuation assumptions. So I see that you're assuming a value -- occupancy of 97.2%. And looking at last 5 years of occupancy numbers, it's nowhere close to 97.2%. And also in light of your recent transaction where you disposed at around 10% discount to book values, do you think it warrants a rethinking on how you're valuing your portfolio and if there is more valuation declines to be taken?

[Reima Rytsola, executive]

Yes. I think we are kind of confident of our valuation parameters, and that's true that our occupancy rate hasn't been there as on the parameters, but we have done that adjustment. Would you like to elaborate a little bit, Erik, the adjustment that...

[Erik Hjelt, executive]

So the adjustment as such was made when we moved the portfolio assets held for sale. But before the transaction and when the transaction discussions was ongoing, we discussed with Jones Lang Laselle the potential impact of this transaction if it is completed on these levels where we're talking about at that time. And the feedback from Jones Lang Laselle was that it's not going to have any impact for the valuation. And actually, they say that the yield we were discussing about was even better than they expected. So in that sense, it was actually a positive thing.

So that transaction is according to our stand is not going to have any impact on the valuation going forward. Yes, we do believe that the valuation is made correctly and reflecting the fair value of these properties. And of course, the yield requirement has been one topic that we have been discussing 2 or 3 years already. And now since the interest rates came down quite nicely, so at least the pressure to increase the yield requirement in the valuation has gone away. So -- and Jones Lang Laselle share our view regarding that.

[Operator]

The next question comes from Svante Krokfors from Nordea.

[Svante Krokfors, analyst]

Svante Krokfors from Nordea. A couple of questions left from my side. First one, regards the market balance. I think you have earlier this year also mentioned that the market balance, I guess, for the capital region could be reached, I mean, a similar level as witnessed before the pandemic, could be reached already in H2. So that doesn't seem to be what you comment now. So what has changed and perhaps not changed for you to have a more cautious view on the market balance?

[Reima Rytsola, executive]

I think it's partly because I don't know what's called in English, but [Foreign Language], so to say, in Finnish, so that when you kind of forecast that it will balance and there's a kind of very good reasons from a megatrends like -- trends like population growth in major cities. And on the other hand, very low level of start-up of new residential. So that will eventually kind of balance the supply-demand pattern. And we are confident that it will do, but we have kind of probably stopped guessing now that what is the quarter or what is the half that it will happen. But I think it's fair to say that our confidence that it will happen hasn't decreased as such.

[Erik Hjelt, executive]

So perhaps I'm guilty for saying something regarding the balancing the market situation. And as I said earlier, we are not guiding anything. And as Reima mentioned, [Foreign Language]. But what I said was actually that we expect to be on a market situation in the same level, so available apartments in the portal on same level before COVID-19 by the end of this year. And I haven't changed my view. It remains to be seen whether that happens or not.

So overall situation of Finland is one thing. But if you then look available apartments in the portals, Helsinki, Espoo and Vantaa, the volume has gone down beginning of this year. So in that sense, we are moving in the right direction. And the gap between -- in these cities, the gap of available apartments today compared to the volumes before COVID-19, it's not that huge. But now at the moment, it's rather challenging to comment whether this trend at the moment is thanks to the situation really changing because it has to change in some part. If you look at the volumes of new start-ups over the last 3 years or so and estimates for population growth, in some point of time, it has to change.

Is it thanks to this expectation coming through? Or is it because of the seasonality because during the summer, you typically make more lease agreement. We've been making very strong improvement in occupancy despite of the seasonality earlier this year and despite of the oversupply in the market. But as I said, this is the situation that in Helsinki, Espoo and Vantaa. We've been moving in the right direction in the market beginning of this year. But as I said, it remains to be seen where we are by the end of this year and in what quarter we are in that type of balanced situation.

[Svante Krokfors, analyst]

Okay. That is very helpful. The second question is regarding your churn, that seems to have come down quite clearly and still you're raising rents on existing contracts in a difficult market. So what are the reasons behind that?

[Reima Rytsola, executive]

I think that's one thing that we are actually targeting to kind of bring the churn somewhat down, and we have kind of focused on the -- already now on the improving the customer experience. And as I showed the NPS figure. So we have -- we seem to have kind of succeeded to do that. And of course, that will help the kind of bringing the churn figure down. We are in a kind of early days in that respect, but that's definitely something that we try to kind of bring down in the future as well. Of course, there's -- that can't be kind of -- as an intrinsic value type of target, the churn, but it definitely -- every new customer, you have an acquisition cost as well. So it's -- in that respect, I think it's -- from a company point of view, it's kind of profitable to bring the churn down.

[Erik Hjelt, executive]

And I think our own doings plays an important role there as well in improved NPS. So we have actually changed many things what we are doing. One is that now we have better cooperation with service providers, and we're leading them in a more efficient way. We have developed our operations when it comes to the Lumo service center. And now we are faster and more effortless services giving to our customers because we have changed how we manage the actions in the customer interface. So I think this plays an important role in improving Net Promoter Score.

[Svante Krokfors, analyst]

And the last question, Reima, you mentioned growth and obviously, the most profitable growth in history for you has been own new developments. What needs to change in the market for you to be attracted to make new developments again? I guess we are quite far from that point currently.

[Reima Rytsola, executive]

Yes. I agree that's kind of not the next step or next tool for growth because already in the market, there's a very good existing assets to be acquired if there's a will. So that's more attempting at the moment than developing and starting up new developments of our own. It's very difficult to say that when -- it definitely needs a better market conditions than at the moment, but it's very difficult to say kind of -- give a kind of a time line when that would happen. But at the moment, the kind of development margin don't tend to work as well as they did before the interest rates start to rise.

[Operator]

The next question comes from [ Paul Gori ] from [ CTI ].

[Unknown Analyst]

Paul Gori from [ Terms of Capital ]. I had a quick question on the cash tax related to the disposal. I just wanted to understand, we don't always see cash tax actually crystallized as part of these transactions. So I wanted to understand why it's crystallized here? And is it that the company doesn't have kind of tax losses carried forward to offset against that?

[Erik Hjelt, executive]

So we have quite sizable amount of deferred tax liabilities in the balance sheet, almost EUR 1 billion. And that's, of course, due to the depreciations and due to the positive value changes in the history. And when you dispose something, of course, those deferred tax liabilities will crystallize as cash taxes. So that's how it works.

[Unknown Analyst]

Okay. And so future developments, would it be the same structure? So if you did another transaction tomorrow of roughly the same size, I could expect the same level of kind of cash tax to come through.

[Erik Hjelt, executive]

So there's clearly going to be a cash tax as well, but what amount depends on what properties we are disposing because it depends on the value changes and depreciations in the history. In some cases, the impact is 0. In some cases, it's the same level as in this one. In most cases, somewhere in between.

[Unknown Analyst]

Yes. Yes. Okay. That makes sense. I guess I was thinking about it from the perspective of disposals and share buybacks. So the logic is you do the disposal at NAV roughly. I mean, a 10% discount in this instance, but at NAV and then buy back the shares at a big discount. But once you factor in the discount -- potential discount to book and then the tax impact, it kind of negates. So would you say that kind of future developments, the tax element has a big implication as to whether you would then do additional share buybacks with the proceeds? Or are the 2 -- you don't really relate the 2?

[Erik Hjelt, executive]

So of course, we take into account and consideration the potential tax implications, but we are not running the company based on taxes and tax implications. So there are other drivers behind disposals and share buybacks.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers.

[Niina Saarto, executive]

Yes. Thank you. Excellent questions. I think we have a few more here left, although we covered quite many.

But coming back to the rent increases, could you give some color regarding your ability to increase or the pressure to decrease rent in different areas and different cities? Is there a lot of variation between cities?

[Reima Rytsola, executive]

Yes, I think there is. And definitely, the market is not the one and the same, and that's why I think it was also important that we have changed our pricing methodology so that it goes to basically in the end for a single flat. And it depends on -- of course, if you look at the occupancy rates in different cities, they are different and that kind of indicates as well the pricing power in the future.

So -- and as we have discussed quite a lot of capital regions. So there we have had kind of difficulties with the kind of oversupply. But as we discussed earlier about the market outlook and probable timing for balancing that supply/demand. So that will definitely help with the pricing power as well.

[Niina Saarto, executive]

Yes. A little bit same theme is as you mentioned, occupancy levels are different in different cities and the supply-demand balance is different. But does this influence your future portfolio allocation? And would you see any potential to invest outside Finland?

[Reima Rytsola, executive]

Well, to invest outside Finland is not at the moment on the cards. I think we have plenty to do here in Finland as well. I would say that the current occupancy rates in different cities are not affecting that much of our future kind of a portfolio consistency so that content -- so that -- I would say that it's more of those megatrends or trends that are affecting that where is the population growth and which will drive the -- our portfolio -- focusing our portfolio and that will come to the which I earlier mentioned that we are focusing more of the bigger cities here in Finland.

[Niina Saarto, executive]

Right. Okay. Then practical question about the share buyback program. Has it started? Or what is the current status?

[Erik Hjelt, executive]

We are about to start it.

[Niina Saarto, executive]

Okay. Then you mentioned you might have some disposals in the pipeline. Do you expect them to impact negatively your guidance?

[Reima Rytsola, executive]

Well, we haven't indicated any and we will definitely -- if that would happen, so then we would kind of rephrase our guidance, but not at the moment the kind of anything to kind of inform in that respect.

[Erik Hjelt, executive]

And these 4 assets held for sale, they are quite small compared to the transaction we completed already. So the impact is going to be, in any case, quite limited.

[Niina Saarto, executive]

Then a question about maintenance and repair expenses. When you mentioned that they are expected to be on the last year's level, do you mean in absolute terms or relative terms, taking into account, for example, the divestments?

[Erik Hjelt, executive]

Euro-wise.

[Niina Saarto, executive]

Euro-wise. Yes. And can you comment anything about '26 repairs or long-term level?

[Erik Hjelt, executive]

So we are not guiding '26 or years beyond that. So in due course, we are going to give a guidance for 2026.

[Niina Saarto, executive]

Okay. So that was the final question. Thank you very much for active participation. Q3 report is published on October 30. Thank you all for joining us and hope to see you in October. Have a lovely autumn.

[Reima Rytsola, executive]

Thank you very much.

[Erik Hjelt, executive]

Thank you.