Asuntosalkku - Real Estate Investment Company to the Helsinki Stock Exchange

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Jaakko Sinnemaa said in an interview that housing company renovations cost 1% per year in the long term. As I understand it, Asuntosalkku pays off the apartment-specific share of the debt after renovations and finances it with its own loan. This means Asuntosalkku only pays the maintenance fee. Minor repair costs are added on top, as are administration and rental expenses. Asuntosalkku’s LTV is 50%, and according to the report, the interest rate on May 20, 2025, was 4.5%, which is 2.25% relative to the housing stock. The rental yield of the apartments is 4.96%. Other expenses are approx. 0.5%. After expenses, the remaining yield is approx. 1.2% on the housing stock at book value. Rents are not rising in the near future (and likely neither are apartment prices), but maintenance fees are rising by approx. 2–3% per year. If apartment prices were to fall by 1.2% per year, the return on the Finnish portfolio would be zero. Is this a correct conclusion?

The fact that Asuntosalkku entered the Tallinn market was a brilliant move. However, the Tallinn portfolio should be divided into two parts: #1) a new portfolio in good areas that can be liquidated at a profit, and #2) the rest of the portfolio.

If Asuntosalkku were forced to quickly liquidate its 1,413 Finnish apartments, would the price obtained be higher or lower compared to selling entire buildings? Additionally, Asuntosalkku’s portfolio is laborious to manage, and the owner is hardly able to influence (doesn’t have the time for) the housing companies’ renovation decisions or development. Selling them as individual transactions would take a long time.

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The business review mentioned, among other things, that net rental yields were affected by a higher amount of financial charges. Personally, I would assume that housing companies undergo renovations from time to time, and these result in financial charges.

If those figures are correct (I can’t be bothered to check specifically), wouldn’t that leave more yield: 4.96% - 2.25% - 0.5% = 2.21%?

The share price is, of course, lower than the book values, so the calculated yields on market values are slightly better.

I also believe that maintenance charges will continue to see some sort of annual increase in the coming years, although no massive hikes are expected as inflation slows down.

Regarding rents and apartment prices, I am a bit more optimistic over a 5-year horizon. There is oversupply now, but construction is actually quite moderate already, and new supply is no longer coming in such volumes. The rental market has taken a hit from subsidy changes, and this may continue to have a negative impact for a while, especially on newer small apartments. Looking at building permits, the average square footage has risen significantly, meaning fewer small apartments are being built. This is good for the rental market of small apartments, which will inevitably start to balance out in growth cities.

Wage levels and rents/apartment prices won’t move in different directions forever; in the long run, they are interconnected. Lately, they have diverged quite rapidly. I don’t see a high probability for the current trend to continue when looking at a 5-year timeframe. Will wages drop? Hardly, so the alternative is rising rents, which also pull apartment prices up. Economic development and employment also play a big role in this equation. General sentiment regarding economic and housing market development seems quite negative, so there is potential for a positive surprise.

Asuntosalkku’s Tallinn portfolio is well-suited for retail sales: high-quality apartments in prime locations and an active market. Although it’s quite small-scale, it is still value-creating activity. The Finnish residential portfolio is more “investor grade” because it consists mainly of small apartments. I find it very unlikely that anyone would buy Asuntosalkku’s Finnish portfolio in its entirety, at least not at a price that would make sense for Asuntosalkku to sell. Administratively, it would be extremely laborious. Large investors naturally prefer whole buildings.

So, I don’t see it as a good scenario for Asuntosalkku to be forced to sell the Finnish portfolio quickly. Fortunately, there is no sign of the company being driven into such a tight spot. In that situation, I believe significant capital losses would be realized if large quantities had to be sold. There are certainly apartments in the portfolio that could sell for a good price, but why indeed go to the sell side if there’s no rush on the buy side.

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I agree that the yield level will remain quite low for the next few years. The residential investor’s equation is indeed quite poor if prices fall. However, I am clearly somewhat more optimistic about the future of the Finnish portfolio than you, even though I am more pessimistic about the company’s book value. The company also negotiated its current financing package during the tightest period for obtaining financing in this cycle, which is why I assume there is some room for a decrease in current interest expense levels (H2’25: 4.3%).

Why I am on the positive side of the investment case, despite recognizing the negative drivers and challenges, is the current stock market valuation (P/NAV 0.65x) and the company’s share buyback program. In my opinion, the NAV is at a fairly realistic level when considering the undervaluation of Tallinn and the overvaluation of Finland at the moment. I don’t believe we will see 1x NAV pricing quickly, but I think there are reasonable grounds for the discount to narrow, or else more value can be created through share buybacks. I would like to see the company strive to make a Lemonsoft-style move.

Certainly, if one were to start selling off assets in Finland quickly now, it would not succeed anywhere near book values. However, I echo @investori86’s views. In good locations, prices/rents cannot continue indefinitely in a downward spiral without the Finnish economy developing very poorly. The very poor development of the Helsinki metropolitan area, however, is due a lot to overbuilding and overcapacity. I would see that there is also room for positive surprises now. As an investor, I personally tend to get interested when sentiment looks very bleak. Timing the bottom is, of course, very difficult, but I don’t perceive very much optimism about the state of the housing market either.

In Tallinn, about half of the apartments were built after 2019 (including sold apartments). The rest are roughly from 2013-2019, and the apartments are mainly in good locations, as seen in the map above. In my own valuation, I have used a 4.4% yield requirement vs the 4.96% book valuation. These sales have occurred at an average level of just under 4%. Relative to these, 4.4% is not a bad level, as I see that almost the entire portfolio can be sold into the owner-occupied housing market.

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Finnish housing portfolio and renovation costs. It would be good to get confirmation on whether the housing company’s renovation costs are accounted for before or after net rental yields. In Finland, 45% of apartments were built in the 70s and 80s. If a comprehensive building services renovation (LVIS) is carried out, the cost is perhaps €700–900/m2. As an individual apartment owner in Asuntosalkku, it is difficult (and there is no time) to influence the renovation. 800 €/m2 x 54277 m2*45% = 19.5 m€. Other renovations (facade, roof, windows, geothermal heat, elevator, etc.) on top.

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At least in the Helsinki Metropolitan Area, a comprehensive MEP (HVAC and electrical) renovation often costs between €1,000 and €1,500/m2. Surprisingly—depending on the location, of course—sometimes less than half of this is reflected in the market value. Unfortunately, I don’t have any hard data to support this claim, so take it with a grain of salt.

In my own housing company, the cost of the MEP renovation was €1,200/m2, and the estimated increase in value after a couple of years is €600/m2. Of course, the general market situation has also influenced this equation.

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@henrielo has written an analysis of Asuntosalkku. :slight_smile:

The Finnish market situation has not had a significant impact on Asuntosalkku’s business. Asuntosalkku’s occupancy rate for apartments in Finland has remained at the very high level of 97.7% seen a year ago. The Group’s gross rental income grew by 0.8 percent in the first quarter year-on-year, even though the number of apartments decreased by 0.3 percent.

Note.

IR Monitoring is a channel for the corporate partners of SalkunRakentaja and Sijoittaja.fi for background and analytical articles, as well as other interesting investor information. The article is part of a commercial collaboration with the company. The article does not contain investment recommendations.

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Apologies for the delayed response. The net yield level has been calculated by deducting operating expenses and minor repairs from gross rents, i.e., before major renovations.

In the determination of the portfolio’s fair value, renovation costs have been taken into account in the cash flow calculation. In my own calculation for the fair value of the residential portfolio, I have estimated that for the entire Finnish portfolio, renovation costs are approximately 20% of the net income per year.

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