Kojamo Oyj

OMXH:KOJAMO

Earnings Call Transcript 2023-Q1

[Niina Saarto, executive]

Good afternoon, ladies and gentlemen, and welcome to Kojamo's Q1 Results News Conference. My name is Niina Saarto, I'm Investor Relations Director. Today's presenters are familiar faces. We have Jani Nieminen, our CEO; as well as Erik Hjelt, CFO, who will tell you shortly how the year has started for the company. [Operator Instructions].

So let's move on. And first, I would like to invite Jani over here. Thank you.

[Jani Nieminen, executive]

Thank you, Niina. Good afternoon on my behalf as well. Nice to be here, again, providing some color on what's going on here in Finland and in [ Kojamo ], of course, especially. The agenda is a normal one. I'm providing a summary of what's been going on in January and March. Then our CFO, Erik Hjelt, will provide a bit deeper color concerning the financial development, and then we wrap things up as a summary and we'll move then to Q&A.

Starting point, of course, is that the year has started along with our expectations. No big surprises anywhere. Total revenue and rental income grew as we expected. Occupancy rate improved compared to the comparison period as well compared to last year whole year figure. There, it's good to understand that there's always some seasonality concerning the occupancy, typically in the industry occupancy goes down towards the summer and then picks up speed during the summertime, and we reach in the industry the highest figures towards the autumn. That's the typical manner.

And now what we have seen in the market is still supply coming to the market from existing projects. So there's a competition situation between the players in the market. On the other hand, we saw already last autumn that the number of new development projects went down severely. We did stop making new investment decisions and so have all the other players, and we already see that going forward, the supply coming from new development projects completed to the market will go down at the end of this year, and supply demand balance will be totally different going to year 2024.

At the same time, as I said, our occupancy was stronger than comparison period of time. And even as there is some seasonality, I'm glad to tell that we have seen the bottom. We are not going down with our occupancy today. So looking forward, I expect our occupancy to pick up positive speed. Some changes made there. We've been successful in improving our housing management services. That's been impacting on 2 positive aspects. NPS, Net Promoter Score is on the highest ever level, and we have witnessed that the tenant turnover has come down a bit.

That, of course, helps us. And now we are moving at the moment towards the most hectic season in the rental business. So in that sense, things are looking today more positive at the moment. And the further you look, the rental business looks the better. No substantial changes in fair value view of the investment properties. There it's important to keep in mind that we actually did make an adjustment with the valuation parameters already during Q4 last year. The impact then was minus 9%. So in my -- not all the players have been acting according to the market yet, but we did react already at Q4 and now no major changes there.

In this current market environment, it is really important that our balance sheet is strong, and there we are proud. And of course, after the review period, we made a financial arrangement, which actually makes us stronger both in liquidity and looking for the expiring loans. Higher hedging rates are still -- there's been a positive impact, of course, reducing the impact of interest rates.

If you look at the whole operational environment, of course, the outlook for the world economy is still uncertain. Inflation remains rapid and central banks have continued to increase interest levels. Even though Finland's economic growth is expected to be weak, the employment situation is good and that provides a solid base for us as a landlord. On the other hand, on the right hand side with the figures, the official estimate. Today, the official estimate concerning residential startups this year is 27,000 when I was here last, providing information, the official estimate was 36,000 apartments to be started this year.

At that point, I said that my personal view was that isn't going to happen. Today, I'm saying that 27,000 apartments will not be started this year. High hopes is 2 and a low figure. So that part of business is going towards quite cloudy weather, not many residential construction projects will be started this year. And that, of course, provides the impact that the demand [ dash ] -- demand supply balance will rapidly change next year. At the same time, which is kind of surprising is that we see construction cost increase is leveling off, but they are not coming down, especially the material costs have not been coming down. That's a problem this construction business industry has to be able to solve before they have the capabilities to start new projects.

Current environment as well impacting housing trade volumes and the official estimates today is that prices of old block of flats will go down between 1.5% to 3%. I would estimate that the adjustment will be between 5% to 6% downwards. On the other hand, rental increases at the moment, between 2 -- 2.5%. Then looking forward, moving to 2024, it will pick up speed rapidly. So quite a different market, whether you play on selling owner-occupied homes or whether you are a rental apartments business today. For us, it's very important that -- actually, the mega brands creating long-term demand for rental apartments are valid. The big cities in Finland are growing. It took a while after COVID-19 before Helsinki region started to pick up speed in order to grow, but that started happening during the latter part of that last year. And now all the big cities are growing again.

On the other hand, we still have an increasing number of small households here in Finland, meaning 1 or 2-person households, and they typically tend to rent the apartments, not to buy the apartments. One, I guess, piece of news to be told is that we are really capable to say from our data that pandemic did not change the demand for small apartments. People do rent studios and one-bedroom apartments. So here in Finland, it did not happen. Not all the people are moving towards [ lap land ] or living in very big homes. They prefer the efficiency of smaller homes. And as said prior, even though Finland has been known as owner-occupied country, in the big cities the truth is totally different. And for example, in cities like Helsinki, Turku and Tampere, actually more households live in rental apartments than in owner-occupied apartments, and that portion of rental apartments is still increasing.

Additional, what's been going on. If you combine this aspects, interest levels, picking up speed going upwards, uncertainty concerning economy, consumer confidence going -- barring people, makes people hesitating to buy apartments. There's lack of buyers in all Nordic markets, nothing happening. That will create pressure towards the rental market. So actually, the appealing towards our business is growing.

During pandemic, we saw that we were in a year where construction volumes were high. Volumes to the market were completed in high numbers, and at the same time, all of a sudden the population growth stopped. And that created a temporary impact in the market. Actually, what's now happening is we are moving back towards a similar time as it was maybe 10 years ago. We are moving towards an era with an undersupply and/or demand. The number of residential start-ups is most probably at the same level as 10 years ago. Looking, for example, 2014, if not the lowest number in 15 years.

Moving to Page 8 and our key figures. As I said, all things have been proceeding as expected. Total revenue grew by 8.8%, meaning EUR 8.7 million. Reasons behind that to 3 aspects, of course, completed apartments last year, providing now rental income for the full year, completed apartments this year already. Then, of course, the acquisition made last summer, providing now turnover for the whole year. And last but not the least, the like-for-like growth, which is now positive 2.2%. Net rental income grew by 4.3% there. It's good to know that the maintenance expenses grew by EUR 5.8 million. Of course, pricing issues concerning, for example, heating, then property taxes, combination of the tax base and the bigger portfolio. And than a minor growing in repairs. Then [ better ] funds from operations, basically on the same level as a comparison year impacted by a combination of increased maintenance and then financing. Fair value of investment properties today, EUR 8.2 billion. No material changes there.

Actually, if we compare the figure now at the year-end, it grew by [ EUR 46.8 million ] because of new development projects. Gross investments to the end of Q1, EUR 54.9 million. That's basically mainly new development projects and then EUR 8.5 million of modernization investments. Profit, excluding changes in value, EUR 33 million, biggest change there in the comparison year is the financing cost. The loan portfolio is a bit bigger. Profit and loss before taxes, EUR 24 million. And there, the explanation is that corresponding period, there was a positive impact from changes of fair values, EUR 27.9 million. And this year, the figure was minus EUR 9 million.

Then taking a look at our ongoing development projects. As said at the moment, we do not make any new investment decisions. We are carrying on with ongoing projects. They all are proceeding in a normal manner as planned. Development gains, they are still solid, above 15% and basically, 1,600 apartments under construction. And towards the year-end after Q1, a bit more than 1,000 units to be completed.

And then as we see looking to the year 2024, the number of completions is going down severely as we have not made any new investment decisions since last autumn. But actually, this will happen throughout the market that basically very limited number of new completions coming to the market starting next year. During Q1, we actually completed properties in 5 locations, 319 apartments, and here is 4 examples, 2 properties (sic) [ 1 property ] located in Vantaa, 1 in Espoo and 1 (sic) [ 2 ] in Helsinki. Actually good, successful projects and the occupancies on a higher level in all these projects.

Then we wanted to provide a piece of information concerning the customer base, matching the housing portfolio. And if we first start taking a look at the housing portfolio, 73% of the housing stock is either studios or one-bedroom apartments. And that's been the case throughout the years, from 72.5% now 73%. On the other hand, if we look at our customers, it tells us the story that 76.8% of our tenants are households of 1 or 2 person. Then if we look at the customer base divided by age groups it's quite well balanced. That's the first thing to be noted. Then on the other hand, if we would calculate it in such a manner that we think that most of the tenants above the age of 25 and below 65 are in a working life situation. The part of that group is close to 75% of our tenants. So excluding the youngest segment.

Moving to Page 12 and sustainability. Sustainability has always been a big part of our daily operations. We've been proud to say that ESG is part of our DNA. We have committed to UN Sustainable Development Goals. Our target is that by 2030, our property portfolio will be carbon free in terms of energy consumption. We're now providing a couple of figures concerning ESG. And I'm happy to say that we are proceeding systematically and successfully with our aims and targets. And we've been having some good results, for example, carbon dioxide reduction minus 8.5% (sic) [ 8.6% ]. Net Promoter Score on the highest level ever. And then on the other hand, digital services, now 83% of our tenants use My Lumo services on a regular basis.

We know that 90% as the target is demanding. It's a high target, but we now already are on a level of 83%. And now if Erik will provide a bit deeper color on financial.

[Erik Hjelt, executive]

Thank you, Jani, and good afternoon, everybody, from my side as well. So if you first look total revenue growth, EUR 8.7 million. That's driven by like-for-like growth, 0.84. There we have a positive side. Rent and water charges increase is 2.2% and then on the negative side, occupancy rate, 1.4%. The portfolio acquisition last summer has contributed EUR 1 million for the top line growth. And then the rest comes from the mainly finalized developments 2022. Of course, we have completed 319 apartments already Q1 this year, but they are not contributing that much for the Q1 because they completed during the Q1, but last year completed apartments of course contributing [ properly ] for top line growth. Net rental income growth was EUR 2.5 million. Maintenance expenses increased EUR 5.8 million. And biggest items, growth items there were hitting EUR 2 million and property taxes, EUR 2.4 million. Other items we are quite small.

If you look maintenance expenses, euros per square meter per month there the growth was 10.8%. And of course, the underlying portfolio grew during the Q1 and maybe compared to last year's Q1 figures. Then if you look profit before taxes. First, loss on fair value of investment properties, EUR 9 million. There were no relevant transactions in the market during Q1, and we kept all our key parameters unchanged during Q1 valuation. There were some positive figures included in that valuation. Further development gain was clearly a positive aside. These 4 process completed here, the development gain was well above 20%. And there was 1 property where the restriction ended that contributed almost EUR 3 million.

And then on the negative side, some changes in cash flows and [ aging ] that put together, so the net loss was EUR 9 million. So no major changes there. If you look profit before taxes, excluding the change in fair value of investment properties, so that was negative EUR 2 million mainly driven by higher financial expenses of EUR 4.3 million. But there it's good to note that Q1 last year and there was unrealized change in fair value of derivatives, a positive EUR 3 million.

On the right-hand side, we have these FFO figures. They are pretty much on the same level as last year Q1, net rental income, a positive figure there of EUR 2.5 million with the expenses pretty much unchanged. The change was only

EUR 0.4 million. Financial expenses, EUR 2.8 million growth because of the bigger portfolio -- underlying portfolio. The average cost of financing stayed pretty much unchanged. Cash taxes negative EUR 0.3 million and other EUR 0.2 million.

So financial occupancy rate improved slightly, as Jani mentioned, compared to Q1 last year and that year -- whole year figure last year and our tenant turnover came down to 1.1 -- 1 percentage point and a clear improvement there. I think we've covered already this like-for-like rental growth. So if you look our gross investments, EUR 54.9 million, EUR 50.3 million. Ongoing developments, EUR 125 million to be completed this ongoing developments and then EUR 4.6 million modernization investments. Repairs growth there EUR 0.5 million and modernization investments, up EUR 3 million.

If you then look at the value of investment properties, EUR 8.2 billion, pretty much on the same level as at the year-end. And as said, no significant transactions in the market. And the average valuation yield 3.97%, unchanged in the Q1 valuation. Going forward, it's good keep in mind that there are a couple of positive items to keep in mind. One is that the development gain in this ongoing development is still between 15% and 20%, and that which, of course, have a positive impact. And when completed, there's going to be an uplift in properties that comes out of the restriction, 1,200 apartments and the uplift will be between EUR 100 million and EUR 110 million. And those restrictions gradually end by 2024. So this year and next year, biggest portion next year. And of course, the growing top line is going to have a positive impact on values as well.

We have a strong balance sheet. We have set a target for loan to value to below 50 and equity ratio of above 40%. And at the end of Q1, loan-to-value was 42.9%, so quite sizable buffer against this 50% level. And our public rating Baa2 from Moody's is pretty much anchored to these levels as well. And the buffer in loan-to-value figure against this 50% level where it was in the hurdle for current public rating from [ LTV-wise ] is EUR 1.1 billion in values of investment properties. So quite sizable buffer there.

Our financial figures were strong. At the end of Q1, we had cash and cash equivalents plus financial assets put together EUR 166 million. On top of that, we have committed unused grade facilities in place, EUR 300 million.

We have EUR 250 million commercial paper program in place, outstanding commercial papers at the end of Q1 was EUR 29.8 million. Interest-bearing liabilities in total equal more than EUR 3.6 billion. Hedging ratio still very high, 84%. Average interest rate quite low in current circumstances, 1.9%. And of course, the high hedging ratio is moving things for us, average loan maturity and average interest -- fixed interest rate period, both 3 or slightly above 3 years.

We are extremely happy that after the reporting period, we completed 2 financial agreements, one with up to [indiscernible] EUR 75 million, unsecured 5 years loan and other one syndicated EUR 425 million secured 3 years maturity. And on top of that, there is 2 1-year extension options included in that loan. And there, we have 6 Nordic banks, our relationship banks, and we are extremely happy with both these this financial arrangement. And the maturity profile shown on this space is before this financial arrangement and the idea, of course, to use a major part of these 2 loans to refinance existing loans. So we basically don't have any additional financial needs for this year. EPRA NRV 19.23, of course, compared to last year figures, the fair value decrease at the end of last year, later role there, the declining of EPRA NRV.

Page 23, we have our strategic KPIs, very strong actually. So the top line growth, 8.8%, investments, 54.9%, FFO against total revenue, 26.6%. That is good to keep in mind that the whole year's finance property taxes are already booked during Q1 and total amount of property tax is around EUR [ 414 ] million. Excluding that, so the -- if that's allocated for the whole year, I mean, the property tax is allocated for the whole year, the forecast total revenue is clearly about this 36%. Loan-to-value equity ratio is strong, as I already mentioned, and we are extremely happy that our Net Promoter Score improved and a very, very strong figure there.

Our outlook for this year, we kept that unchanged. So we estimate that the top line growth is going to be between 7% and 10%. And we estimate that the FFO is going to be between EUR 153 million to EUR 165 million. If you look first, the top line growth guidance, so to be there above 7% level. So the low end of that range that requires that we are able to increase the rents and water charges between 2.2% and 2.5%, as we've been doing and more than half of this year's rent increases already happened. Acquisitions, 2022 are, of course, contributing there because now they are generating cash flows for the whole year. Last year completed developments and developments to be completed this year. When you put these together, we are already above the 7% level.

And then on top of that, is coming that the improving occupancy and that, of course, is in our plans. And as Q1 figures also we are clearly above this 7% level. If we then look at the FFO guidance. So that, of course, reflects the top line guidance range and the midpoint of this FFO guidance, we assume the normal weather for this year. No major price increases when it comes to the maintenance expenses, the SGA expenses, repairs in line with 2022 figures and no new financing agreements arrangement this year. And one note there is that this outlook is given without taking into account a potential acquisition or disposals or the impact of premature -- potential premature funding of Eurobond due in 2024. So that remains to be seen what is the time to refinance that and what is going to be the price of that refinancing. But that said, we don't need to do any additional financing arrangement this year. Dividend policy, no changes there, so the 60% of FFO, paid dividend and decided yearly.

Now back to Jani.

[Jani Nieminen, executive]

Thank you, Erik. To summarize, I think it's easy to say that everything continued steadily, revenue grew -- growth. Net rental income grew as we estimated and expected. I'm happy that we were able to improve our daily operations in housing management, especially here in capital region; providing a positive impact with the customers, impacting the Net Promoter Score. Occupancy rate developed positively. The demand for rental apartments is on the rise. And actually, if we combine the successful improvement in daily operations and a thing we did after the review period, we moved to an even, I would say, more agile active pricing model on micro location level to really understand the problems in the vacancy that seems to be providing positive impacts. Only a couple of weeks ongoing project.

But on a daily basis, I'm happy to say that I can see the positive change there. So looking forward, expecting to have a positive impact on the occupancy, positive impact throughout this year. And as I said, the overall market going forward to 2024 will actually improve in the rental markets. Our balance sheet is strong and liquidity has remained good. And as earlier said, we are extremely happy after the arrangements we did after review period. Thank you.

[Niina Saarto, executive]

Thank you, Jani, and thank you, Erik, for the presentation. And we can now jump to the Q&A part. Do we have any questions from the room here? Please go ahead.

[Svante Krokfors, analyst]

Svante Krokfors from Nordea. A couple of questions. First one regarding the quite big supply of apartments in the market, especially Helsinki region. How do you look at how long it will take to digest that volume, until the end of this year?

[Jani Nieminen, executive]

So as said, I said, we moved to more agile, active pricing. Now I see it now it's as a temporary peak as a supply. Now reducing the vacancy, builds up capabilities to actually increase the levels for rents next year. So now it's -- I would say 6 to 9 months still supply in the market. The biggest demand will start now, and we'll keep on going until the autumn. And then it's the right time to see what's going on with the supply in the market.

[Svante Krokfors, analyst]

And then on the transaction market, no deals, obviously. But what's your view of the interest in the market currently? I mean, have potential buyers disappeared? Or is it just that the spread is too big between buyers and sellers?

[Jani Nieminen, executive]

Yes, it's true that no evidence in the market, a limited number, a couple of small transactions. So no data from the market are providing no reason to react. We reacted already during Q4. We follow the market. It seems that buyers are coming back to the market. Then it remains to be seen whether there is a need for some players to make fire sales. We don't have any needs at the moment to make fire sales. I think we will see a limited number of transactions this year.

At some point, things will settle down. I've seen this business for a long time. We were able to conduct reasonable profitable business in different environments. It's been the uncertainty where are the rates moving. Once they settle, we will see transactions.

[Svante Krokfors, analyst]

And then regarding the new credit facility, EUR 425 million. Could you tell a bit about the margins there? I think you disclosed it in the announcement and also a bit about the timing, how we will take it into [ use until ]...

[Erik Hjelt, executive]

So it's [ posting ] and the margin is mid-100 basis points. And the availability period in that loan agreed to be mid- until mid-October, and we are allowed to take the loan in maximum 4 installments. So it depends how we track to optimize when we really need the money, not with the one go -- but not decided yet exactly when, but quite long available period, of course, allows us to optimize and [ detect ] the money.

[Svante Krokfors, analyst]

Okay. That's very clear. Then perhaps also, I mean, the credit facility was a secured one. How do you look at your -- I mean unencumbered assets and secured solvency ratio, I mean, I guess in your covenants, you have a -- you're at 0.45 mentioned, but I guess Moody's is a bit more -- quite more stricter on that. So how do you look at...

[Erik Hjelt, executive]

We still have quite sizable buffer against these requirements by Moody's or requirements by the [ documentation ], existing financing for this plenty of room to do secured financing going forward, if decided to do so. So for us, it has been important to have access difference, also financing and this is a good example that the bank financing seems to be there and bank seems to prefer a secured financing. Having said that, it's good to keep in mind that we just made a one agreement, unsecured, recently.

But it's good to have that in your toolkit, and we are able to do quite sizable secured financing going forward as well. But in the longer term, we would prefer, of course, unsecured financing given the requirement by the Moody's and given the fact that at some point of time, we want to access the European market again. And that market typically is operating unsecured. So we want to have access for that financing as well. So it's good to have a source of different financing and we have the capability to use secured financing going forward as well.

But we prefer unsecured, but not decided what is going to be the next financial arrangement, whether it's going to be bank financing, point financing or secured, unsecured. But as I said, it's good to have all in your toolkit.

[Svante Krokfors, analyst]

And a continuation on that, on your EUR 500 million bond maturing next year. What is your kind of time line there? When can we start to hear something regarding that? And could you tell a bit about...

[Erik Hjelt, executive]

So this financial arrangement we made this week, it's partly used for refinancing debt and of course, not covering the whole. And this gives us a flexibility to optimize what is the right timing to take care of the remaining part of that point. I would say that the earliest we would do it late summer this year and at the latest, perhaps by the end of this year. So that's quite large range. I like large ranges, but we need to look where the market is heading and what is [ talked ] and timing for that. So at the -- by the end of this summer at the earliest, but by the end of this year at the latest.

[Niina Saarto, executive]

We don't have any further questions from here, so we can start taking the other questions. [Operator Instructions].

[Operator]

The first question comes from John Vuong.

[John Vuong, analyst]

Just on the operational data, I appreciate that you reported the like-for-like top line coming in at plus 0.8%, but the NOI margin has also come down substantially because of the higher maintenance costs. Could you provide a bit more color on what like-for-like operating costs were or maybe even like-for-like NOI growth?

[Erik Hjelt, executive]

So if you look at the cost side, so as mentioned the euro per square meter per month, the growth was 10.8%. So that pretty much represented the price increases what we've seen in the market. Biggest portion of the maintenance expenses is clearly heating, and the heating costs were increased quite substantial during the Q1. And these [ heating ] providers, they typically send the pricing for next 6 or 12 months.

And Q1, of course, the pricing has been what we decided late last year. And now the new pricing is coming in, and it seems that the pricing today for the next 6 to 12 months is clearly lower than what we've seen, what we had at the end of last year, so during Q1. So that is one part going forward. The other thing is that, of course, weather plays a role there. The winter was quite mild this year. Now the winter is behind us. And of course, the remaining part of the year in our guidance is based on the midpoint, [ the card ] is based on so-called average weather during the summer, usually nothing big happens, but then a couple of last months of the year plays a role, what is the weather going to be like there. Electricity is, of course, one big part of the story as well. And there, the prices came down very much by the end of Q1. So the electricity price is going to be much lower level than we've seen so far. Property taxes plays a role there. The percentage of property taxes didn't change, but the tax authorities, they take up the values used in property taxes, but that's pretty much what you have in your books because we already booked all property taxes during Q1. So the top line growth is very strong, and the margin is -- I think that the highest costs for this year are most likely are now behind us given the -- what I just described regarding heating and electricity.

[John Vuong, analyst]

Okay. That's very clear. But then given the 2% to 2.5% guidance on rent and water charge increases, I suppose that you are happy to absorb these costs as the landlord?

[Erik Hjelt, executive]

Yes, that's where we are right now. And more than half of this year's rent increase and water charge increase has already happened. So biggest portion, it is rotating. And every month, we sent a new pricing for a portion of the total portfolio, but still March is by far the biggest amount of customers [ receiving their ] letters. So more than half of this year increase has already taking place. And as Jani mentioned, so the supply-demand balance is going to change towards the end of this year. So we estimate that, especially starting 2024, we are able to increase the rents more than what we have seen in the last 2 or 3 years.

[John Vuong, analyst]

Okay, that's clear. Maybe moving on to the units that are getting off restrictions. You mentioned that you got gains from -- of EUR 100 million to EUR 110 million. Could you provide some color on what yield these assets will be repriced to?

[Erik Hjelt, executive]

The yield is pretty close to the average what we have in our portfolio.

[Operator]

The next question comes from Andres Toome.

[Andres Toome, analyst]

So my first question is about the EUR 425 million secured loan you've signed. So firstly, to confirm, did you say that this is on a floating rate?

[Erik Hjelt, executive]

Floating, yes.

[Andres Toome, analyst]

So I'm just wondering why do you decide to go on a floater. And I guess your hedging ratio then, as a result, will come down to maybe more closer to 80% or below that.

[Erik Hjelt, executive]

Typically, bank loans are floating. And we have a hedging strategy that 50% to 100% of the loan portfolio, all the times will be hedged. And we used fixed loans, fixed financing and interest rate derivatives to keep the hedging ratio high. So it's another decision by the company, whether to invent to hedge that. So it's the loan as such is floating, but we are able to hedge it by using interstate swaps actually. And that's something we are working. It doesn't make any sense to hedge it today when we are taking the loan in later. But so we are able to keep our hedging ratio high regardless of the fact that this is a floating loan.

[Andres Toome, analyst]

Okay. And then I'm just wondering also in terms of the valuation that form the basis for this loan. Did the bank do their own appraisal? And was that different from your book value estimates of these assets?

[Erik Hjelt, executive]

So we don't exactly know what work banks have done, but I'm convinced that they have -- do their own values as well. But in this type of agreements and arrangements typically there's a third party. And in this case, being Jones Lang LaSalle, who gave the view on valuation.

[Andres Toome, analyst]

Okay. Understood. And in terms of generally, looking at the banking financing market, are you seeing that LTV and ICR caps are getting tighter for new lending? Or how is the sort of criteria for banks at the moment?

[Erik Hjelt, executive]

So we haven't actually used secured financing for quite some time. So I can't comment what is the go-to value levels, but the interest coverage covenants are exactly the same what we have in our loan arrangements.

[Andres Toome, analyst]

Okay. And then a final question, just trying to understand also about the rental demand in Helsinki and you point to sort of longer-term improvement in fundamentals because supply is coming off. But just wondering, is there anything in the data that you're observing showing you that there's improvement in the short term as well in terms of demand? And maybe just on the number of apartments that are available for let.

[Jani Nieminen, executive]

You're, of course, able to collect data from commercial portals, which we do. Until the end of Q1, it seems that the supply in the market was increasing and April actually shows that the supply came a bit down throughout all the big cities. Then I said, we've been able to actually improve our processes and started a new way of active pricing in order to temporary pickup speed with reducing vacancy. Most hectic period of year is now starting in the rental markets. That will take away supply from the market. So we are, in a way, getting ready towards the year-end to pick up speed with rent increases looking to 2024.

It remains to be seen whether that's possible already during the last quarter of this year.

[Operator]

There are no more questions in the [ talk-back ] queue

[Niina Saarto, executive]

So we have some questions via chat. So let's see about rating agency. Have you had any discussions with the agency? And if so, have they flagged any issues or questions? Or are they paying special attention to some specific metrics?

[Erik Hjelt, executive]

We had a management meeting with Moody's 2 months ago. And after that meeting, they gave the same rating, Baa2, and they changed the outlook from stable to negative. I think that was a precautious because the key figures all were in line with our current profit accretion requires. Of course, in their metrics, there are several figures. They looked the total market. They looked at the company as such, the brand and the portfolio. But looks that the key parameters, they are looking today our loan-to-value coverage ratio, net debt-to-EBITDA.

[Niina Saarto, executive]

Then about the valuation parameters. Can you give some color? Is it still fair for your valuers to use occupancy rate assumption of 97% when your yours is standing at 92%?

[Jani Nieminen, executive]

There it's good to keep in mind that the parameters are for the next 10 years. So that's a long-term vision concerning the market. And as now said, we estimate that the market looks quite different starting next year. On the other hand, it's important to keep in mind that yes, occupancy estimate is 1 parameter in that calculation. On the other hand, we've been, in a way, cautious that all the vacant apartments in Helsinki region, capital region are kept vacant 12 months in that calculation in addition to that estimate. So that kind of takes care of the short-term difference.

[Niina Saarto, executive]

Okay. Then we more or less discussed the new secured facility and its terms. But the last question from here is about occupancy rate, it's standing at 92.2%. Do you think that you're on track to land at the lower end of your guidance range? What does it require to reach the upper end of the range?

[Jani Nieminen, executive]

Thank you for the question. I think Erik quite nicely explained our approach to the guidance. And we are above the lower end of that range without changes in the occupancy. And then we are already above last year figures concerning the occupancy. I said that even though in this business, we typically see seasonality in such a manner that occupancy goes down for the first 5, 6 months and then starts picking up speed. Our occupancy is no longer going down. So we expect to improve the occupancy towards the year-end and get better figures throughout all the months than last year.

[Niina Saarto, executive]

Okay. And it seems that we got some additional questions while discussing. If you have to book additional fair value losses in the future and the LTV would increase. What would be the critical level to take actions, would it be 50%?

[Erik Hjelt, executive]

So 50% is the level representative for current ratings of Baa2 and there we have a buffer of roughly EUR 1.1 billion in values, and that's a yield requirement change 0.6 to -- or 62 basis points, but that's only 50. And then if you look where the hurdle for investment grade lies, it's somewhere between EUR 55 million to EUR 60 million. So the buffer there is very, very large.

[Niina Saarto, executive]

And now maybe the final question about the new cost of debt. Now the average cost of debt is 1.9%. As mentioned here, are you able to reflect the new cost of debt including the new facilities? Is it possible to comment or calculate that yet?

[Erik Hjelt, executive]

We are not guiding that, of course. If you look average cost of financing going forward, the hedging ratio plays a role there. Our hedging ratio is very high, 84%, but it's not 100%. So partly, of course, the higher interest rates come through because of that. And then the pricing of these 2 transactions we made was quite attractive. But of course, it's much but higher compared to what we have on average. And how that impacts for this year's average cost of financing depends on when we actually take the loans in. And as I said, the availability period is quite long. So it's a combination on all these things.

And as I said, we are not guiding the average cost of financing.

[Niina Saarto, executive]

Thank you. And yet another question here. If there would be a future equity injection, have you heard from the largest shareholder, if they would be able to strengthen and support the equity injection?

[Jani Nieminen, executive]

I think that's one of the questions where it's more important to have many tools in the toolkit than only 1 tool. We haven't had those discussions here but throughout the last year, it seems that all the big shareholders are keen to Kojamo -- they think that Kojamo is doing good business. And most often, it's been about if we find something appealing enough would we then move with equity? Then as said in my eyes, there are quite many options available to move if we feel that there is a need, whether it's a dividend policy or selling assets or whatever, there's flexibility. In my eyes, that's more important.

[Niina Saarto, executive]

Okay. And that was the final question. Thank you for the excellent questions. It's time to conclude today. Thank you for joining us. We'll meet next time on 17th of August when our half year financial report is out. So until then, I wish you all a lovely summer. Thank you. Bye-bye.