Earlier this year, I linked a MOT documentary I watched under the Rakennusteollisuus (Construction Industry) thread regarding deficiencies in firestops, etc. I cannot comment on what caused the fire to spread in this particular case, but these often seem to be a series of many unfortunate events.
Generally speaking, the documentary clearly demonstrates how flawed and indifferent building cultures can be found. In one Skanska project alone, nearly 600 different deficiencies in firestops were discovered.
Here is a link to the story (the full episode can be found at the end of the article):
One year of Reima’s reign is now behind us. In rounded figures, shareholders have lost approximately one billion euros. The market does not know how to value growth ambition when your own stock is available at a roughly 60% discount to book value. I wonder who could deliver a calculator to the head office?
I don’t know about the market in general, but based on the shareholder list, the selling pressure seems to be coming from nominee-registered accounts (= foreign owners).
The 2025 AFFO/share was €0.45. That is the cash flow available for paying dividends or debt. The share price is currently 7.17. This results in 6.3%. It might not feel like much in the middle of the AI hype when you can get the same elsewhere in a single day, but if you compare it to the net rental yield you would get by investing in an apartment in Helsinki yourself, the difference is quite significant (+ all the administrative work). In Kojamo’s (Lumo) case, we are talking about real estate in the Helsinki metropolitan area, in municipalities with positive net migration, and a company where governance is in order. Furthermore, if migration flows and housing starts remain stable through 2026-2028, then by the end of 2028, the oversupply will be largely absorbed according to my calculations, and in 2029-2030, apartment prices could start to rise quite briskly. This would be on top of that 6.3%. This scenario doesn’t require the economy to boom or interest rates and unemployment to drop; it only requires both to remain stable. (Yes, on top of this came the Varma mess, but the net yield of that deal is approaching 6% when considering today’s share price and the premium paid by Varma). Disclaimer: Position XXL
This makes 6.3%. It might not feel like much in the midst of the AI hype when you can get the same elsewhere in a day, but if you compare it to the net rental yield you would get by investing in an apartment in Helsinki yourself, the difference is quite significant.
I think we are comparing apples and oranges here if we compare the net rental yield of individual apartment investments to Lumo’s return on equity (ROE). Lumo uses quite a lot of leverage, which is needed to achieve that return on equity you presented. Leverage increases risk, and of course, by leveraging individual apartment investments, one can boost returns in the same way.
Lumo still has some of its debt financing at fixed rates of 0.875% and 1.875%. When these are refinanced in the coming years, the interest rate will surely be closer to the 4% of the more recent bonds. Refinancing will therefore weigh on that AFFO. (source: Rahoitus ja joukkovelkakirjalaina - Yritys Lumo)
Of course, it’s obvious that if the return levels are in the same ballpark for Lumo vs. direct apartments, it makes more sense to invest in an asset where someone else handles all the administrative work. However, the return comparison should be done using so-called “fair parameters.”
No matter how much leverage you use yourself, reaching that 6.3% is impossible ; 3-4% is a more realistic level. The average interest rate on loans was 3.3% in Q1/24, so you are right—they will likely rise by a few tenths of a percent, which will push the AFFO/market cap toward 6%, or even below it.
As long as apartment prices continue to drop by 3-4% per annum, which seems to be the pace in major cities =), Lumo’s leverage creates pressure on the company regarding the cost and availability of financing, balance sheet values, and declining rental levels (i.e., profitability). In my view, the greatest risk lies in the quality of these bulk apartment purchases—at worst, Lumo is heading toward becoming a “bad bank” for (vacant) apartments.
On the positive side, the (rental) housing market will turn around at some point, as it always has—the question is whether the timing is on Lumo’s side or against it?
Even with as much leverage as you can get, reaching that 6.3% is impossible , a level of 3-4% is more realistic.
For a private real estate investor, the cost of leverage including margins probably sits around 3.5% at current interest rate levels. For the leveraged return on equity (ROE) to end up between 3-4%, it would mean the private investor is buying a property with a rental yield between 3-4%, meaning leverage would essentially add no value to the equation. I am not intimately familiar with the Helsinki metropolitan area real estate market, but one would think a savvy investor could find properties with a 5%+ rental yield there too, in which case leverage would work in the right direction and surely push returns above Lumo’s 6% level.
Of course, real estate investing isn’t for everyone, so a diversified and managed portfolio like Lumo’s might be a better solution. Naturally, it might be worth analyzing other peer options more broadly as well, since Lumo’s key figures aren’t particularly exceptional despite the drop in share price.
To conduct a return comparison with fair parameters, it is also worth adding opposing perspectives:
Lumo’s AFFO is cash flow after taxes, and other real estate investors generally have to pay their taxes sooner or later as well.
Lumo’s AFFO is reduced by modernization investments, which are usually not taken into account when presenting net rental yield levels for individual apartments. The more comparable FFO was approximately 25% higher than the AFFO.
Anyone is free to try to achieve an equity cash flow yield corresponding to the current share price level with a debt and quality level similar to Lumo’s, but it will likely remain unachieved—at least if one assigns any value to their own time.
Lumo’s AFFO is cash flow after taxes, and other real estate investors also generally have to pay their taxes sooner or later.
By owning Lumo, Lumo first pays corporate tax, and the investor receiving dividends pays capital gains tax a second time. This double tax burden on the income received should therefore also be taken into account when comparing investment methods.
In Lumo’s case, there also seems to be a significant amount of deferred tax liability on the balance sheet, meaning tax payments are reduced by depreciation taken on the properties. This provides Lumo with a certain short-term tax advantage, which will of course be realized and payable if the portfolio is liquidated later.
Lumo’s AFFO is reduced by modernization investments, and these are generally not taken into account when presenting net rental yield levels for individual apartments. The more comparable FFO was about 25% higher than the AFFO.
It is clear, of course, that any maintenance backlog and modernization investments must also be taken into account in direct investments. I believe that even slightly sophisticated real estate investors do so.
Anyone is free to try to achieve a cash flow yield on equity corresponding to the current share price level with a debt and quality level similar to Lumo’s, but it will likely remain unachieved, at least if one puts any value on their time.
It is certainly true that, considering the use of time, owning a listed real estate investment company is sensible for many. I am not particularly convinced that Lumo has some kind of exceptional quality level that would make it unwise to look at other listed alternatives with better key figures.
It’s quite convenient to track interest rates for investment property loans or other loans and various other data from the Bank of Finland’s website Loans and deposits.
Poker players seem to have a particular weakness for NAV discounts. Many easily assume that if a company is trading 40–50% below its Net Asset Value, it is automatically a good deal. In real estate, however, the problem is that NAV is not cash flow but an estimate, and balance sheet values can be just as optimistic as the market price is pessimistic.
At the poker table, chips are counted to the cent, but in real estate companies, NAV is often more of an opinion than a fact. That is why I personally wouldn’t give it as much weight as many poker millionaires seem to give based on their NAV calculations.
So, hasn’t the Finnish housing market already shown us that the value of a property or apartment is determined by its occupancy rate & yield? An empty property without use is worthless - in fact, it’s value-eroding…
Lumo’s share price continues to melt down, and the reason is likely the approaching refinancing of low-cost loans combined with the company’s silence.
When a real estate investment company is available on the stock exchange at P/B 0.4x multiples, we should start seeing extensive insider buying as well as share buybacks.
The current silence does not communicate confidence, especially since management has already spoken about buybacks, yet nothing is happening.
As a positive signal, the number of vacant apartments has broken the 2,000 threshold—downwards! In other words, the occupancy rate is rising. This figure also includes apartments becoming vacant on, for example, July 1st or even August 1st. The train is moving in the right direction in this regard.
In a real estate company’s P/B ratio, as with the corresponding ratio for any other company, the “P” is determined daily by the market and is therefore a fact. The “B,” on the other hand, is in practice determined by the company itself, and everyone should evaluate its accuracy against the current market conditions.
Looking at it from the opposite perspective, one could also consider that if the P/B ratio were supposed to be 1, then the “B” would actually be only 0.4x of what is stated in the company’s books.
In the Helsinki metropolitan area, more new apartments are still being built than the number of households is growing, as the average household size is increasing. For 2025 and 2026, the key reasons for this are the weakening of housing benefits and the growing proportion of immigrants. Thus, there are no foreseeable material changes to the oversupply of rental apartments in the coming years, at least in the Helsinki metropolitan area.
Surely a real estate investment company doesn’t record arbitrary property values in its balance sheet, but rather those calculated by external appraisers?
; 3-4% is a more realistic level. The average interest rate on loans was 3.3% in Q1/24, so you are right—they will likely rise by a few tenths of a percent, which will push the AFFO/market cap toward 6%, or even below it.