Titanium - Looking for a second pillar of growth

[gearloose1]

@ValkoinenPeura

I think this one image clearly shows everything necessary about Hoiva and also Titanium, whose only real source of money is Hoiva:

The net yield on Hoiva’s properties is 5.9%, but the fund’s long-term return target is 6-7% per year. At the same time, the fund management company charges a management fee of 2.95% of the net asset value.

Anyone sane understands that such an equation is not possible without continuous upward revaluations of the properties owned by the fund. From the properties’ 5.9% net yield, 2.95% remains as return for the fund owner, without leverage or Excel-authored appreciation.

After the bubble in the real estate market and open-ended real estate funds burst, in my view, it is completely impossible to market such a fund to new investors, as its expected return hardly exceeds even the long-term risk-free rate.

I’ll make life a bit easier for my fellow forum members by stating that the 5.9% net yield is calculated from GAV, and it has been a little over 40 million on an annual level. Since a few daycares were sold in December, it’s probably now slightly under 40 million. This will be clarified in the January report in a few days.

The management fee is calculated from NAV. So the 2.95% fee is now approximately 13.5 million on an annual level.

Only interest expenses remain. Before interest expenses, the unit holders’ purely cash-flow-based income is thus about 26 million. That is 5.6%.

The interest rates have been debated with Sauli in March. The issue is problematic because former CEO Santanen has stated several times that the interest rate hedging of the loans is comprehensive and long-term. According to Santanen, no interest rate risk was taken. The problem is that interest rate hedging is implemented with interest rate derivatives, of which there are probably various types. And their accounting practices vary as well. Some are apparently treated on a balance sheet basis? And even though Sauli managed to spot some relevant figures in Hoiva’s financial statements, I cannot calculate the amount of interest paid by Hoiva based on them. And neither can Sauli

But when the 2025 reports show that yield units were paid 9.4 million, equity increased by 10 million, and even debt decreased by 5 million, the free cash flow generated by Hoiva—even considering interest—could be in the range of 24 million per year.

Which would mean interest rates at a very competitive level and very efficient leverage. (This is mainly affected by the extent to which Sauli’s assumption that no new subscriptions have occurred after 2024 holds true?)

Whatever the case may be with the interest rates in the end, the fact is that Hoiva produces very well on a cash basis for its unit holders.

[Sauli_Vilen]

Titanium has indeed undergone a quite dramatic transformation, and of course, this is reflected in my views (it would be strange if it weren’t)

Let’s consider the situation from before the rise in interest rates. Titanium’s most important product, the Care Fund (share of revenue then ~75%), was churning out good returns for fund owners. As a result, sales of the Care Fund were strong, and its fee level for the manager was fabulously high, as the manager received a large performance-based fee in addition to a high management fee. The Baltic fund had just been launched and had gotten off to a good start. There was a clear possibility that the Baltics would become the second pillar Titanium so desperately needed. The share of these two funds in revenue was ~90%, and their growth outlook was good. In wealth management, the company was certainly trying, but there were no signs of success on this front, and at that time, I considered the wealth management concept to be wrong for achieving greater success. Summa summarum, the revenue growth outlook was good then, and the risk profile was declining thanks to the Baltics. The company was also generating massive profitability (EBIT ~60%).

Fast forward ~4 years to today, and we notice that the situation is very different. In the most important product, i.e., Care, the good growth outlook has been replaced, at least temporarily, by a clear decline in revenue as redemptions are coming in at a fast pace. Performance fees have also dropped to zero and are almost impossible to obtain in the future (once you fall below the cumulative hurdle rate, rising above it requires quite massive annual returns). Regarding the Baltics, revenue has also turned into a decline, and although a second pillar is still possible in the long run, it is a rather distant thought at the moment. Overall, I would also point out that open-ended real estate funds have drifted into a crisis on a broad front and are facing pressure from the media, investors, and regulators. As a house focused on real estate funds, Titanium naturally gets its share of this pressure, and in my opinion, the entire outlook for open-ended real estate funds in Finland has weakened very significantly compared to 4 years ago. At worst, the current crisis could last for years, and every manager will suffer from this, regardless of whether their own fund has performed better or worse. A positive in the current situation is, of course, the PE fund (Private Equity), which has the potential to become a significant product. In addition, wealth management is for the first time operating with a credible concept, and the organization has also been better transitioned into wealth management mode. The Group’s profitability is still good in absolute and relative terms, but EBIT has more than halved from its peak.

In any case, when ~80% of the revenue is subject to downward pressure at least in the short term, and there is clear uncertainty involved in growing replacement revenue, this entire investment case looks veeeeery different than it did 4 years ago.

As I have stated here before, the market cap, or especially the EV, is no longer extremely high. If an investor believes that PE & wealth management will succeed and the hit to real estate funds will be smaller than expected, the current price is a very good buying opportunity.

Regarding the discussion, I personally greatly appreciate the active commenting and challenging, especially by @gearloose1. The discussion is much more interesting, at least from an analyst’s perspective, when someone argues for a view that differs from one’s own!

[Sauli_Vilen]

Attached is a table of Hoiva’s figures (even though you didn’t ask for it ). Most of the figures are taken directly from Hoiva’s financial statements. Below, as a reminder, is that interest rate table I’ve also shared here previously.

NOTE! I have excluded changes in the value of interest rate derivatives, interest income, and received compensation for damages/other income from that calculation. In my view, these are non-recurring items, but of course, a different interpretation can be made regarding interest income if one thinks that a larger part of the fund will be held in cash in the future (in which case, the net rental yield would naturally decrease as equity (OPO) is tied up in cash). And yes, as I said, the exact logic of those derivatives is not clear to me. Attached is a screenshot from the '24 FS (financial statements).

Then, regarding Hoiva’s net subscriptions for 2025. Equity (OPO) was 476 MEUR in December '24 and is now 463 MEUR in December. From this, ~9 MEUR in yield shares has been paid out, and December redemptions were 18.5 MEUR. According to my calculations, Hoiva’s increase in value in 2025 was 10 MEUR. When these figures are summed up, we see that net subscriptions are approximately 5 MEUR. This came almost entirely from May, when ~50% of investors reinvested their yield shares back into the fund.

[gearloose1]

@Sauli_Vilen

Fast forward ~4 years to today and we notice that the situation is very different. In the most important product, Hoiva (Care), the good growth outlook has changed, at least temporarily, to a clear decline in revenue as redemptions come in heavily. Performance fees have also dropped to zero and are almost impossible to earn in the future (once you fall below the cumulative hurdle rate, getting back above it requires massive annual returns). In the Baltics, revenue has also turned downwards, and while the second pillar is still possible in the long run, it is a rather distant thought at the moment. Overall, I also note that open-ended real estate funds have drifted into a crisis across a broad front and are under pressure from the media, investors, and regulators. As a firm focusing on real estate funds, Titanium naturally gets its share of this pressure, and in my opinion, the entire outlook for open-ended real estate funds in Finland has weakened very significantly compared to 4 years ago. At worst, the current crisis will last for years, and everyone—all managers—will suffer from this, regardless of whether their own fund has performed better or worse.

The EU-level regulatory changes regarding funds coming into effect in April are not a punishment package for failing to pay redemptions at the expense of fund managers or those remaining in the fund. In short, in the future, a fund must choose at least two ways out of eight options on how to act in exceptional market situations. More options can be chosen, and methods outside the list can also be approved. The essential thing is, first of all, that the methods are recorded in the fund’s rules, which increases transparency and ensures everyone knows how to act in a crisis. Secondly, funds will have other tools at their disposal besides closing the fund in difficult market situations.

Option 2, if the fund has included the option in its rules, would in my view continue to allow subscriptions to the fund even if redemptions are suspended. It would be foolish if redemptions were suspended and some party wanted to make a significant investment in the fund that could be used to pay out those redeeming, but it couldn’t be done?

The regulations apply to new funds starting from April, and old funds can choose to postpone their implementation by a year.

The new regulations thus aim to facilitate equal treatment of redeeming and remaining shareholders and to increase transparency. They are an opportunity, not a threat or a punishment.

Open-ended real estate funds have now been singled out by the media as if they were a particularly illiquid form of real estate ownership. Because you can’t get your money out. However, in the time before interest rates rose in 2022, an open-ended real estate fund was for a very long time a significantly more liquid and easier way to own apartments or properties than, for example, direct ownership. And it will be again.

There are over 1,000,000 rental apartments in Finland. In 2024, 52,000 apartment transactions were made. If even half of the apartments involved in the transactions were rented at the time of sale, 2.5% of landlords realized their holdings in 2024. And perhaps took a view on the price. So direct real estate ownership doesn’t seem to be a shortcut to liquid real estate ownership either, any more than an open-ended investment fund is. Where one buys and sells in the pulse of the market. The media will realize this sooner or later.

Real estate as a whole is a massive investment class, and it is perhaps premature to predict that the investment form will wither significantly in the coming years. Both existing and new properties will be needed in the years to come. And financing will continue to be a problem for many, as it has been until now. So the real estate rental market isn’t going anywhere either. The property mass owned by Titanium’s funds is not even a rounding error compared to Finland’s total property mass. It shouldn’t be impossible to find one’s place there.

The real estate market crisis naturally affects all funds and managers, but does it affect them equally and with the same force? Certainly not. If we compare, for example, Titanium’s Hoiva (Care) and EQ’s YKK (Community Properties), not to mention Commercial Real Estate, the difference in returns since 2022 is considerable. If the current situation doesn’t separate the wheat from the chaff, I would be very surprised. In the end, the crisis might even be an advantage for the best. When excessive competition takes a bit of a hit.

[gearloose1]

@Sauli_Vilen

Attached is a table of Hoiva’s numbers (even though you didn’t ask for it ). Most of the figures are taken directly from Hoiva’s financial statements. Below, as a reminder, is the interest rate table that I have also previously shared here.

Net rental yields are calculated from the fund’s GAV value. Net rental income is the properties’ gross yield - property maintenance expenses. In Hoiva’s yield calculations, no separate maintenance costs should be accounted for anymore. (In your calculation, 4.5 million in 2023 and 4.0 million in 2024) (see e.g., eQ YKK financial review)

Other expenses (expenses not directly related to properties) are insignificant for the overall picture for both Hoiva and eQ YKK.

The net rental yields in Hoiva’s monthly reports have hovered around 5.7% in 2023 and 5.9% in 2024. Rents increased by 4.6% in December 2023. On the other hand, properties worth 22 million were sold in December 2023.

The net rental yields of 5.7% and 5.9% in the reports are approximately 40 million in both 2023 and 2024. The deviations from the income statements’ “Net property income” of 35 million in 2024 and 49 million in 2023 are due to non-recurring events, such as valuations and property sales.

[gearloose1]

@Sauli_Vilen

Then about interest expenses. I take full 100% political responsibility for the following. The rest of the responsibility lies with the AI.

1. Interest Income

• What they are: cash flows received from the swap (interest based on the Euribor rate at the time for the hedged loan amount)
• In accounting: shown as interest income in the income statement
• Significance: actual money in the cash balance, offsets interest expenses

2. Net income from derivative contracts

• What they are: change in the fair value of the swap during the financial year
• Cash flow impact: none
• Significance: shown on the balance sheet as a “Derivative contracts” liability or asset, affects profit only if the contract is terminated early
• Behavior over time: at the end of the contract, the value → 0 if the contract is held until the maturity date

3. Interest expenses

• What they include:
  1. current Euribor rates for the entire loan amount (gross)
  2. fixed swap rates payable on the hedged amount
  3. margins agreed upon when taking out the loan (do not change over time)

Here is a calculation of effective interest expenses according to the 2024 income statement figures. Assumption: 70% hedging:

1. Loan interest expenses (gross)

Here according to the income statement figures:

Item	€ million
Euribor 2024 × 200	–7.0
Margin × 200	–3.0
Swaps payable at fixed 0.7 % × 140	–3.7
Total interest expenses	–13.7

2. Interest income (swap)

• Euribor interest received on the hedged 140 million: +3.5 million
• Matches your original report.

3. Net income from derivative contracts

• Change in fair value: –3.5 million
• No cash flow impact

4. Income statement summary

Line	€ million
Interest expenses	–13.7
Interest income	+3.5
Net income from derivative contracts	–3.5
Total impact on profit	–13.7 + 3.5 – 3.5 = –13.7

5. Actual cash-based interest burden

• Euribor + margin on loans: –10.0
• Swap cash flow: +3.5 – 0.7 = +2.8

Net cash flow impact: –7.2 million

• For 200 million debt → ~3.6 %

Explanation:

• Interest income 3.5 million → cash flow received from the swap
• Derivative contracts –3.5 million → change in value, no cash flow impact
• Interest expenses 13.7 million → Euribor + margin for the whole loan + swaps payable

[gearloose1]

So for example, the 2024 Hoiva cash flow would have been:

• Net yield 41.4 million
• Fees -15.3 million
• Interest expenses -7.2 million
• Other expenses -0.8 million
  Total 18.1 million

In 2024, 6.2 million was paid in yield units. About half of the yield units are added to the unit holders’ capital. Thus, taking into account the payment of yield units but not potential new subscriptions, Hoiva’s yield-based cash flow was 15 million.

Euribor rates continued to fall in 2025, meaning the interest expense for Hoiva’s loans was likely around 3% in 2025.

Speaking of leverage, from 200 million, interest is 6 million, yield is 11.8 million. Contribution to the unit holder is 2.5%.

At this rate, to everyone’s surprise, new subscriptions might even be possible in the future.

[Sijoittaja-alokas]

Here is Sauli’s preview as Titanium reports its H2 results on Thursday.

We expect the company’s H2 revenue and earnings to be supported by one-off fees from the Care Fund, but due to significant redemptions in the queue, the H2 figures currently provide an overly positive picture of the company’s development. The focus of the report is primarily on the ramp-up of the new asset management service, as its role is absolutely central in filling the fee gap of the Care Fund.

Titanium H2'25 -ennakko: Huomio varainhoidossa ja lunastuksissa - Inderes

[belfastinbingviini]

This report smoothly wiped away any potential for a stock valuation correction that a small positive surprise might have brought.

The remaining scenarios are a good H2 release → no point celebrating, it’s temporary, more crap is coming. Or a bad H2 → total garbage, just as I thought, or actually even worse than I expected.

So, the chances for a proper upward move are slim, but let’s see.

[Raffelson]

The report mentions the year 2025. A small mistake

[Sauli_Vilen]

@gearloose1

Option 2, if the fund has included the option in its rules, in my view allows for subscriptions to the fund to continue even if redemptions have been suspended. It would be foolish if redemptions were suspended and someone wanted to make a significant investment in the fund that could pay out those redeeming their money, but it couldn’t be done?

I haven’t discussed the matter with the Financial Supervisory Authority, but in my own opinion, the interpretation of this point is quite clear.

@gearloose1

The regulations apply to new funds from April onwards, and existing funds can choose to postpone their implementation by a year if they wish.

You are right about this, and I was under the impression that this would come into effect as early as this April. It is hard to see that this 1-year delay would change the situation significantly, as subscriptions are currently at an anemic level across the entire sector, and no rapid recovery is in sight.

@gearloose1

The goal of the new regulations is therefore to promote the equal treatment of redeeming and remaining shareholders and to increase transparency. They are an opportunity, not a threat or a punishment.

Of course, it is not a matter of punishment. In practice, however, the FSA (Fiva) wants to make it clear that postponing redemptions and waiting for subscriptions is not a liquidity management tool.

[Sauli_Vilen]

Operating expenses must indeed be deducted to obtain the net rental yield. Attached is an image from the notes to the financial statements. I would rather look at the numbers in the financial statements here than the “net rental yield” reported by the fund. This net rental yield calculation varies significantly between companies, and usually, only real estate properties are included. So, in Hoiva’s case, cash and the ownership in the Asunto (Residential) fund are likely excluded (I am not completely certain of Hoiva’s calculation formula). Properties under construction are also usually adjusted out (though Hoiva hasn’t really had many of these in recent years). eQ previously reported the net rental yield as a forward-looking 12-month estimate but has since switched to the realized figure. As a result, for example, the net rental yield of the Commercial Property (Liikekiinteistö) fund dropped significantly in the fall. For 2024, Hoiva’s average GAV was 684 MEUR and the net rental yield was 5.89% => net rent 40.3 MEUR. The actual figure appears to be 37.3 MEUR (rental income - operating expenses). The difference is likely explained, at least in part, by cash and the Asunto fund.

[Sauli_Vilen]

In my opinion, an H2 beat/miss doesn’t really have much significance in this case. This is simply because the factors relevant to the stock are not fully reflected in the figures. Two key things are 1) the scale of redemptions (will make a dent in the H2’25 earnings level) and 2) the start of wealth management (a key contributor to filling the gap left by the Care redemptions). The report is unlikely to say anything extraordinary about these, and for that reason, today’s webcast will be the main point of interest for me

[gearloose1]

@Sauli_Vilen

I haven’t discussed the matter with the Financial Supervisory Authority, but in my opinion at least, the interpretation of this point is quite clear.

It is clear, but this is option 1. It has nothing to do with option 2. The options are separate entities. In the future, the fund must choose two options from the eight provided, which will be recorded in the fund’s rules and followed in exceptional situations.

Option 2, among others:

Redemption restriction (AIFML Chapter 8, Section 6 a, Paragraph 2; SRL Chapter 5, Section 4, Paragraph 2; in English: redemption gate)
AIFML and SRL description: temporary and partial restriction of unitholders’ right of redemption, whereby unitholders can only redeem a certain portion of their units.
According to the RTSs, redemption restrictions can be used in different ways. In alternative investment funds, redemption restrictions can be used more diversely than in investment funds, etc…

As I see it, this option doesn’t restrict subscriptions in any way, even if redemption rights are restricted. The option would be very suitable specifically for Hoiva, which does have quite reasonable cash flow. If at least part of the redemptions could be handled with cash flow, it might significantly ease the selling pressure.

[Nordman09]

The FIN-FSA’s guidance on page 3 continues with a comment on this, image attached. The FIN-FSA’s bulletin states that the view may change if different perspectives emerge from Europe later, but based on current information, according to the FIN-FSA’s view, point 1 should be included in the fund rules, and in addition, (at least) 2 others must be chosen from options 2–8. This is how the wording should be interpreted, in my opinion.

How this will be implemented in practice remains to be seen—whether there will be a one-year transition period or if the fund management company decides to implement the changes immediately. I personally cannot know what kind of guidance will come from higher European authorities, whether every detail has already been agreed upon, or if they will be clarified further later.

[gearloose1]

@Sauli_Vilen

Operating expenses definitely need to be deducted to get the net rental yield. Attached is an image from the notes to the financial statements. I would rather look at the figures in the financial statements than the “net rental yield” reported by the fund. That net rental yield calculation varies a lot by company and usually only includes the properties. So in Hoiva’s case, cash and the ownership in the Residential fund (Asunto-rahasto) are likely excluded (I’m not entirely sure about Hoiva’s calculation formula). Properties under construction are also usually adjusted out (though Hoiva hasn’t really had many of these in recent years). For 2024, Hoiva’s average GAV was 684 MEUR and the net rental yield was 5.89% => net rent 40.3 MEUR. The actual figure seems to be 37.3 MEUR (rental income - operating expenses). The difference is probably explained at least partially by cash and Residential.

When an analyst has the luxury of having the notes to the financial statements available, then quite true, the net income of properties is rents - operating expenses.

When a DIYer messes around with monthly reports and calculates based on the “Net property yield” reported in them, no operating expenses are deducted. The reported net property yield is indeed correct, the only problem is that the yield is also not calculated based on the GAV value but on some smaller sum. Which the DIYer doesn’t know. But the factors you mentioned should indeed be deducted from the GAV.

I’ll add a row to my tracking Excel that converts the reported GAV into an effective GAV, which is 6% smaller than the reported one.