SATO Corporation’s Financial Statements Bulletin 2022: Improved customer satisfaction strengthened customer retention

10 February 2023

SATO Corporation, Stock Exchange Release 10 February 2023 at 9:00 am

SATO Corporation’s Financial Statements Bulletin 2022

Highlights January–December 2022 (January–December 2021)

The economic occupancy rate improved in Finland and was 95.2% (94.9).
Net sales stood at EUR 291.2 million (298.3).
Net rental income decreased and was EUR 200.4 million (210.6).
Profit before taxes decreased and was EUR 151.9 million (259.4).
The unrealised change in the fair value of investment properties included in the result was EUR -14.9 million (129.1).
Housing investments amounted to EUR 190.5 million (167.1).
Invested capital was EUR 4,626.5 million (4,520.8).
Return on invested capital was 4.3% (6.7).
Earnings per share were EUR 2.13 (3.64).
The Board of Directors proposes to the Annual General Meeting that dividends shall not be distributed (EUR 0.50).

Highlights October–December 2022 (October–December 2021)

The economic occupancy rate in Finland was 95.5% (95.4).
Net sales were EUR 71.4 million (75.1).
Profit before taxes was EUR -31.0 million (47.7).
The unrealised change in the fair value of investment properties included in the result was EUR -58.1 million (14.6).
Investments in rental apartments amounted to EUR 68.4 million (50.2).
Earnings per share were EUR -0.45 (0.65).

Events after the review period

Chief Commercial Officer Janne Ojalehto left the company 27 January 2023.

CEO’s review

– The reporting year was exceptional. The mood at the start of the year was expectant in terms of the ending of the COVID-19 pandemic of the past two years and the lifting of the restrictions, and the year began with strong economic growth. However, Russia’s attack on Ukraine in February, created a new kind of uncertainty in the world and the war resulted in human suffering.

– The war’s impacts could been seen in our operating environment as economic uncertainty, rising energy prices and interest rates and high inflation. These multiplier effects showed in SATO’s business operations during the reporting year. We have approximately 25,000 homes in the Helsinki metropolitan area, Tampere and Turku. In addition, SATO has 522 apartments in St. Petersburg, which make up approximately one per cent of the value of our investment assets. Since the start of the war in Ukraine, we have been reviewing opportunities to withdraw from the Russian business operations and we are searching actively for a solution.

– Despite the economic uncertainty, there is demand for rental apartments in Finland, and the urbanisation trend continues. The rise in mortgage interest rates coupled with the increase in energy and other costs had a partial impact on the growth in rental apartment demand. Now, also some of the people looking for an owner-occupied apartment may consider renting an apartment.

– The competition between rental housing providers is tough and a large number of new rental apartments has been built especially in the Helsinki metropolitan area in recent years. The historically high rate of housing construction is slowing. There are significantly fewer housing starts than before, but a large number of new apartments will be completed in 2023. This will maintain the tight competition for good tenants and keep rent increases moderate, despite the pressure for rent to increase in the future due to the rising cost level.

– During the reporting year, our investments in rental apartments were EUR 190.5 million (167.1). In 2022, we completed 191 rental apartments and 52 FlexHomes. On 31 December 2022, a total of 1,418 apartments were under construction. During the second half of the reporting year, we made a decision to refrain from launching any new construction projects. Our decision was based on the dramatic rise in the cost level for construction and property maintenance and the increase in financing costs, while rent development remained moderate due to the market situation.

– During the first half of the year, we made a decision to launch new non-subsidised rental apartment construction projects in Rykmentinpuisto in Tuusula, Skanssi in Turku and Finnoo in Espoo. The Rykmentinpuisto project is our first new apartment investment in Tuusula in 15 years and the Skanssi project is the first new apartment investment in Turku in five years.

– In April of the reporting year, we sold 2,009 rental apartments mainly in the Lahti, Jyväskylä and Oulu areas to the Swedish investment company Heimstaden. The sale was consistent with our strategy of focusing our apartment investments on the Helsinki metropolitan area and its commuting area along the main railway, and in Tampere and Turku and their surrounding municipalities.

– We continued to develop the customer experience at SATO during the year. The economic occupancy rate improved compared to the previous year and was 95.2% (94.9). Our tenant turnover for the reporting year fell and our customer satisfaction improved. We clarified and simplified the processes and operating models related to the customer experience and focused especially on building a harmonised and seamless service experience. In addition to developing digital services, we invested in our presence near to the customers.

– During the reporting year, we continued our sustainability work and released our sustainability programme for 2023−2026, our second ever. The themes of the sustainability programme are sustainable housing, thriving communities and sustainable profitability. Our vision is to be a leader in sustainable rental housing. In our own sustainability goals, we have committed to the UN Sustainable Development Goals (SDG).

– Last autumn, SATO became the first rental housing provider to join the Ostavastuullisesti.fi service, which provides sustainable service and products and tips for sustainable living. A sustainability panel consisting of outside experts in sustainable production and consumption selected six of SATO’s buildings: Lupajantie 2 in Mellunkylä, Helsinki; Jokiniityntie 28 in Kirkkonummi; Lincolninaukio 4 in Keimola, Vantaa; Kotkatie 6 in Espoo and Jokiniementie 46 and 48 in Veräjämäki, Helsinki to be featured on the website as more sustainable options. We also participated in Rakli’s Green Homes activities (which started up in 2022), with altogether 1,100 Green Homes which had either geothermal heat or consumption-based water invoicing or both.

– During the reporting year, we focused on supporting the well-being of SATO personnel and encouraged SATO employees to learn and grow continually. Our goal is for each person to be able to come up with ideas in their work and develop solutions for future rental housing. We want for everyone at SATO to have the courage to reinvent themselves and the ability to succeed. During the year, the entire organisation adopted the objectives and key results (OKR) model with which we are working towards better setting of objectives, closer monitoring of results and openness. The constantly increasing complexity in the operating environment challenges both experts’ and supervisors’ competence and thinking. In order to provide support to this end, we launched supervisor training in the coaching management style during the reporting year.

– I wish to thank all SATO employees for their committed and excellent work. I also wish to thank our partners and the residents of our SATOhomes for their good co-operation during the past year.

Report of the Board of Directors

Report of the Board of Directors 1 January–31 December 2022

Operating environment

The year 2022 began with strong economic growth. Russia’s invasion of Ukraine in February of the reporting year brought uncertainty to the economic outlook, dramatically raising the price of energy and accelerating inflation. The exceptionally high inflation forced the central banks to react by rapidly hiking interest rates. During the reporting year, the ECB raised its key interest rate four times after the summer and it was 2.50% at the end of 2022. Due to the high inflation, interest rate hikes are expected to continue in early 2023. Inflation is anticipated to stabilise during 2023.

Employment development was strong in early 2022, but slowed down towards year-end due to economic challenges. During the reporting year, consumers’ confidence weakened to a historically low level after the start of the year, which showed in private consumption. According to the projection made by the Bank of Finland on 16 December 2022, Finland’s economic growth in 2022 will be 1.9 % due to the good start to the year. In 2023, the increase in energy prices and the cost of living is predicted to cause the economy to slide into a slight downturn and shrink by 0.5%.

Uncertainty and rising interest rates are slowing housing sales. According to the statistics released by the Central Federation of Finnish Real Estate Agencies in December 2022, sales volumes of new and old apartments clearly fell in November compared to the five-year average. According to Statistics Finland’s preliminary data in December, the prices of old owner-occupied apartments fell in November 2022 in the whole of Finland by 3.4% compared to November of the previous year.

The economic situation will decelerate the historically high rate of construction. The number of issued building permits began to fall already in 2021, but plenty of new apartments were and will be completed in 2022 and 2023, which is maintaining tight competition for good tenants and keeping rent increases moderate. The increased cost level resulting from inflation does, however, create pressure to increase rents in the future.

The lifting of COVID-19 restrictions and improving employment resulted in a positive turnaround in internal migration to large growth centres in 2022 and demand for rental apartments has begun to grow. This, and SATO’s investments in making renting more efficient and improving customer service, were visible as an increase in SATO’s occupancy rate. Also, economic uncertainty, upward pressure on interest rates and increasing consumer prices contributed to the increase in the demand for rental apartments.

Despite the economic uncertainty, there is demand for rental apartments, and the urbanisation trend continues. Dense urban living near services and along good public transport connections is becoming increasingly popular in Finland. The Helsinki metropolitan area, Tampere and Turku continue to enjoy strong growth, while according to Statistics Finland’s population projection, Finland’s population will start declining in 2031. The Helsinki metropolitan area is expected to grow by over 200,000 new residents by 2040. Close to 80% of the area’s residents already live in one- to two-person households, and the number of small households continues to rise. The proportion of immigrants living in the capital area is predicted to grow from the current 17% to 25% by 2030. Aging populations typically move closer to growth centres and the services they offer, and they increasingly expect housing-related services.

The change in the population structure and urbanisation create a stable foundation for demand for rental housing especially in the capital area and in Tampere and Turku. Outside of growth centres, the real prices of homes are declining, which makes acquiring an owner-occupied apartment in growth centres even more challenging for people coming from those areas.

Strategy

Customer experience, sustainability and sustainable housing, and SATO employees lie at the core of SATO’s strategy. We want to be closely involved in our customers’ daily lives in order to serve them in the best possible way. We build homes that stand the test of time and we take care of them in line with the life-cycle principles. We enable sustainable housing for our residents and encourage them to make sustainable choices in their daily lives. We want all SATO employees to be able to contribute ideas and participate in developing future housing solutions.

SATO is a housing investment company whose basic product is a rental apartment in an apartment building. We focus our investments on growth centres: the Helsinki metropolitan area, Tampere and Turku, because in these areas demand for apartments is the highest and the increase in value is expected to be stable over the longer term. Our operations are geared towards profitable growth.

During the reporting year, our strategy implementation focused especially on developing the customer experience, improving customer satisfaction and retention, and ensuring an excellent moving-in experience. We prepared a sustainability programme for 2023–2026, which is based on feedback from our stakeholders, such as personnel, customers and partners. The themes of the sustainability programme are sustainable housing, thriving communities and sustainable profitability. In our own sustainability goals, we have committed to the UN Sustainable Development Goals (SDG). With regard to our personnel, we focused on supporting work well-being and developing an inspiring employee experience, competence and a coaching management style.

SATO has set maintaining its investment grade credit rating as a strategic goal. Our return on equity target is 8%. In addition, our strategic goal is to achieve a continuously improving Net Promoter Score (NPS) from our residents.
According to SATO’s dividend policy, a maximum of 40% of the cash flow from operations will be paid in annual dividends, depending on the market situation, investment level, the development of the equity ratio and the solvency ratio.

Net sales and profit

In 2022, consolidated net sales were EUR 291.2 million (298.3).
Operating profit was EUR 198.9 million (304.5). The operating profit without the fair value change of investment properties was EUR 213.8 million (175.4). The change in fair value was EUR -14.9 million (129.1).

Net financing costs totalled EUR -47.0 million (-45.1).

Profit before taxes was EUR 151.9 million (259.4). Cash flow from operations (free cash flow after taxes excluding changes in fair value) amounted to EUR 141.3 million (107.9).

Earnings per share were EUR 2.13 (3.64).

Financial position and financing

The consolidated balance sheet totalled EUR 5,184.7 million (5,091.4) at the end of December. Equity was EUR 2,480.9 million (2,351.3). Equity per share was EUR 43.82 (41.53).

The Group’s equity ratio was 47.8% (46.2) at the end of the year. EUR 137.3 million in new long-term financing was withdrawn and the solvency ratio was 40.7% (42.5) at the end of December.

The Group’s return on equity was 5.0% (9.1). Return on invested capital was 4.3% (6.7).

Cash and cash equivalents at the end of December totalled EUR 60.5 million (8.5). Interest-bearing liabilities at the end of December totalled EUR 2,145.7 million (2,169.5), of which loans subject to market terms accounted for EUR 1,991.3 million (1,994.5). The loan itemisation is in note 26 of the financial statements. At the end of the reporting year, the average loan interest rate was 2.3% (1.7). Net financing costs totalled EUR -47.0 million
(-45.1). The average maturity of loans was 3.3 years (4.0).

The calculated impact of changes in the market value of interest hedging on equity was EUR 48.1 million (15.1). During the reporting year, SATO increased the proportion of unsecured loans to 88.1% of all loans. At the end of the year, the proportion of unencumbered assets was 89.2% of the balance sheet.

Group structure

SATO Corporation is the parent company of SATO Group. At the end of the reporting year, the parent company had a total of 21 subsidiaries engaged in business operations (23). Mergers took place during the year in order to clarify the Group structure.

SATO Corporation’s majority shareholder is Balder Finska Otas AB, whose parent company is Fastighets AB Balder, which is quoted on the Stockholm Stock Exchange.

Housing business

Our housing business includes rental activities, customer service, lifecycle management and maintenance. Effective rental activities and digital services provide home-seekers with quick access to a home, and the Group with a steadily increasing cash flow. High-quality maintenance operations ensure the comfort of residents and that the apartments stay in good condition and maintain their value. We serve our customers in daily housing issues through our customer-oriented service organisation.

The competition between rental housing providers has become tighter, as a large volume of new rental apartments have been built in growth centres, especially in the Helsinki metropolitan area, in recent years. Tenants now have a wide array of choices and a successful customer experience is more important than ever. We try to respond to this challenge by adjusting the organisation and our service processes. We want to be closely involved in our customers’ daily lives in order to serve them in the best possible way.

During the reporting year we expanded the house expert model further in the Helsinki metropolitan area. At the end of the year, SATO employed 62 house experts and the model is now in use to its full extent in the Helsinki metropolitan area, Tampere and Turku. The house experts take care of the technical building work on homes and buildings. The purpose of our house expert operating model is to create a better customer experience and more efficient maintenance.

SATO had approximately 45,000 customers at the end of the reporting year. We measure our successes in customer encounters using the Net Promoter Score (NPS). Our customer satisfaction improved during the reporting year. We clarified and simplified the processes and operating models related to the customer experience and focused especially on building a harmonised and seamless service experience. We invested in developing digital services, as well as our presence near to the customers. We also established closer collaboration between SATO employees working at our residents’ buildings and improved internal communications.

The economic occupancy rate improved compared to the previous year and was 95.2% (94.9) on average in Finland. The external tenant turnover rate for rental apartments was 28.4% (31.2). Rental income decreased 2.4% and was EUR 291.2 million (298.3).

The average monthly rent of SATO’s rental apartments in Finland at the end of the reporting year was EUR 17.84 per m2 (17.46).

Net rental income for apartments was EUR 200.4 million (210.6).

Investment properties

On 31 December 2022, SATO owned a total of 24,999 apartments (26,791). Altogether 191 rental apartments were completed and 1 was acquired. The total number of divested rental apartments was 2,021, of which 2,009 rental apartments were sold to the Swedish investment company Heimstaden.

Fair value

The development of the value of rental apartments is a key factor for SATO. The housing stock is focussed on areas and apartment sizes that are expected to grow in demand in the long term. The allocation of building repairs is based on life-cycle plans and repair need specifications.

The fair value of investment properties at the end of December totalled EUR 5,044.2 million (5,032.8). The change in the value of investment properties, including investments and divestments in the financial year, was EUR 11.4 million (279.3).

The external expert JLL Finland Oy (JLL) issues a biannual statement on the valuation methods applied by SATO, the appropriateness of sources of information used and the quality and credibility of the valuation for Finnish investment properties. JLL’s latest statement was issued on the valuation carried out on 31 December 2022. The criteria for the determination of the fair value are presented in the notes to the consolidated financial statements.

The change in value was influenced by the increase in yield requirements and the decrease in the fair value of St. Petersburg housing assets.

At the end of the year, the Helsinki metropolitan area’s commuting area accounted for 87.3%, Tampere for 6.4% and Turku for 5.1%, and St. Petersburg for roughly 1.2% of the value of apartments.

Investments, divestments and property development

Investment activities are used to manage the housing portfolio and prepare the ground for growth. SATO’s investments in the 2000s in non-subsidised rental apartments total more than EUR 3 billion. SATO acquires and builds entire rental buildings and single rental apartments. Property development allows for new investments in rental apartments in Finland. The rental potential and value of rental apartments owned by SATO are developed through renovation activities.

Investments in rental apartments were EUR 190.5 million (167.1). Investments in the Helsinki metropolitan area represented 84.0% of all investments in the reporting year. Investments in new apartments represented 57.1% of the investments. In addition, on 31 December 2022, binding purchase agreements in Finland totalled EUR 114.3 million (96.8).

During the reporting year, 2,021 rental apartments (26) were divested in Finland. Their total value was EUR 210.6 million (7.9). In April of the reporting year, we sold 2,009 rental apartments mainly in the Lahti, Jyväskylä and Oulu areas to the Swedish investment company Heimstaden. The sale was consistent with our strategy based on which SATO is focusing its apartment investments on the Helsinki metropolitan area and its commuting area along the main railway, and in Tampere and Turku and their surrounding municipalities.

The book value of plot reserves totalled EUR 40.8 million (43.4) at the end of December. The value of new plots acquired by the end of December totalled EUR 18.4 million (15.5).

The permitted building volume for about 1,450 apartments is being developed for the plots in the company’s housing portfolio. This allows SATO to utilise existing infrastructure, create a denser urban structure and thus bring more customers closer to services and public transport connections.

We collaborate with cities when areas are being developed and new housing is planned for them. As a long-term owner, housing investor and housing provider, SATO wants to build nice homes, residential areas and pleasant urban areas for decades to come. During the reporting year, we continued the development of the Hakunila area in Vantaa and Finnoo in Espoo, for example. In Helsinki, we were involved in planning the Mellunpuisto project in Mellunkylä and we continued our collaboration with VR to develop the area it owns in Ilmala. During the reporting year, plots in complementary planning areas developed by SATO were sold to construction companies and other partners, enabling the construction of approximately 175−200 owner-occupied apartments and roughly 25 state-subsidised rental apartments, thus promoting a diverse residential area and urban structure.

In May 2022, construction of non-subsidised rental apartments began in Rykmentinpuisto in Tuusula. The area is a collaboration by several parties and the area will include different types of housing. SATO is building 92 non-subsidised rental apartments in the area. The Rykmentinpuisto Pataljoonantie project is SATO’s first new apartment investment in Tuusula in more than 15 years.

In August 2022, SATO signed a deed to buy from Lujatalo an apartment building which is being built in Skanssi, Turku. The eight-storey building under construction at the address Sorakatu 9 will have 77 new rental apartments. This is SATO’s first new apartment investment in Turku in five years. Construction was begun in August 2022 and the apartments will be ready for residents at the end of 2023.

We are building 257 new rental apartments at Peijinkuja in Finnoo, Espoo. Construction began in August 2022 and the apartments will be completed in stages during autumn 2024. The project is based on long-term development work in which we drew up a new local plan with the City of Espoo for a property that SATO owns in the old low-rise area of Hannus, which formerly featured terraced houses. The area is being transformed into a new area called Finnoo. SATO’s goal is to continue developing the Finnoo area in the future.

During the reporting year, new rental apartments were finished on Lupajantie in Mellunmäki, Helsinki and on Jokiniityntie in Kirkkonummi.

Due to rising construction, maintenance and financing costs and the moderate rent development resulting from the competitive situation, we made a decision to refrain from launching new construction projects and we are postponing their launch.

In 2022, we completed 191 rental apartments (235) and 0 owner-occupied apartments (71) and 52 FlexHomes (0) in Finland. On 31 December 2022, a total of 1,418 apartments (1,152) were under construction: 1,418 rental apartments (1,100) and 0 owner-occupied apartments (0) and 0 FlexHomes (52). FlexHome is a short-term ownership concept that enables home ownership with a small initial capital outlay and which the resident can purchase entirely for themselves within five years of completion.

A total of EUR 92.4 million (93.6) was spent on repairing and upgrading apartments.

At the end of December, SATO owned 522 apartments (525) in St. Petersburg. The economic occupancy rate of rental apartments in St. Petersburg was 92.4% (97.7) on average. Since the start of the war in Ukraine, we have been reviewing opportunities to withdraw from the Russian business operations. Based on our studies, a fast withdrawal is not possible. For this reason, SATO will continue to rent residential apartments in St. Petersburg until a way to withdraw has been found. The company is actively seeking a solution.

Sustainability

Our sustainability work during the reporting year was guided by SATO’s strategy and our sustainability programme for 2019–2022, which emphasised carbon-neutral cities and the well-being of residents and neighbourhoods.

Due to the energy crisis resulting from the war in Ukraine, we increased the efficiency of our energy saving measures and paid more attention to the temperatures of apartments than earlier. We monitor and regulate the heating of some 21,000 SATOhomes using AI. Our goal is to maintain a temperature of approximately 21 degrees in SATOhomes, which is a healthy and energy-efficient indoor temperature. In addition to our own energy saving measures, we actively provided our residents with guidance on energy saving opportunities in their day-to-day lives. At the end of the year, we provided our residents with instructions on how to prepare for possible blackouts in the exceptional energy situation.

During the reporting year, we launched a development project related to waste and sorting, in which we surveyed our homes’ waste-collection points and inspected their lighting, the number of waste bins and signage. Based on the survey, we targeted repairs at the sites that needed them and they will continue in upcoming years. Our housing advisors’ tours focused on waste guidance during the year. We pilot tested a clothing collection point on Kauppakartanonkatu in Helsinki’s Itäkeskus.

Some of our sustainable development measures are described below under ‘Impacts on the environment and society’.

In the autumn of 2022, an external sustainability panel chose six of SATO’s rental apartment buildings to be among the Ostavastuullisesti.fi website’s more sustainable choices. SATO was the first rental housing provider to be included in the Ostavastuullisesti.fi service. Our following buildings were assessed to be a more sustainable choice: Lupajantie 2 in Mellunkylä, Helsinki; Jokiniityntie 28 in Kirkkonummi; Lincolninaukio 4 in Keimola, Vantaa; Kotkatie 6 in Espoo and Jokiniementie 46 and 48 in Veräjämäki, Helsinki.

In 2022, we took part in Rakli’s newly launched Green Homes activities. At the end of 2022, we had altogether 1,100 Green Homes which had either geothermal heat or consumption-based water invoicing or both.

We participated for the eighth time in the Global Real Estate Sustainability Benchmark (GRESB) assessment. SATO received two stars on a scale of one to five. SATO’s score in the Standing Investments Benchmark (existing properties) fell by one point from last year (score now at 73), while in the Development Benchmark (construction projects) SATO’s score rose to 75 points from 71 points last year.

We report on our sustainability annually in accordance with the Global Reporting Initiative’s (GRI) reporting guidelines, and the environmental sustainability figures presented in the report have been verified by an independent third party, i.e. KPMG Oy Ab.

During the reporting year, we collaborated on a project with the non-profit organisations No Fixed Abode and the Rehabilitation Foundation to help participants in the project find two of life’s essentials – a home and a job. By the end of 2022, 10 people who had participated in the project were living in a SATOhome.

During 2022, we updated the materiality analysis and released a new sustainability programme for 2023–2026. Our vision is to be a leader in sustainable rental housing during the programme period.

In 2020 we committed to reporting in compliance with the Task Force on Climate-Related Financial Disclosures (TCFD) framework and in 2021, we conducted an extensive assessment of the risks and opportunities arising from climate change for SATO’s entire supply chain. In the framework, the risks are divided into four main categories: transition risks, acute and chronic physical risks and social risks. At the same time, we carried out a scenario analysis to look into how the two- and four-degree scenarios affect society and how SATO should prepare for these changes. During the reporting year, risks caused by climate change were part of SATO’s general risk assessment that is conducted internally each year. In 2022, two reports were made to SATO’s Board of Directors on climate risks and opportunities and their impact.

The Corporate Governance Statement is published separately from the Report of the Board of Directors. SATO’s Corporate Governance Statement, Code of Conduct and sustainability programme are available at sato.fi.

Impacts on the environment and society

Our objective is to systematically reduce the negative impacts of our operations on the environment. We reduce the load on the environment by regularly and proactively taking care of and repairing homes and properties according to the life-cycle principle, and by building properties primarily in existing urban environments and near good public transport connections.

The planning of SATO’s new rental apartments always takes into account energy efficiency and solutions that will last for decades. In new properties, SATO’s goal is energy class A (energy performance indicator 75 or below), which is significantly better than that required by the building code (energy performance indicator 90). All of the buildings that were completed during the reporting year were energy class A. The average EPI for buildings begun during 2022 was 72 and all of the housing starts are energy class A.

We are committed to the Energy Efficiency Agreement targets for the property sector, aiming for a reduction in the total consumption of electricity and heat of 10.5% from the 2015 baseline by 2025.

The use of renewable energy in heating significantly reduces the in-use emissions of homes. At every new building and renovation site, we look into the possibility of geothermal heat. We currently have 17 properties that are carbon neutral in terms of electricity and heating. During the reporting year, geothermal heat was being built on 12 properties. In addition, six properties had a solar power plant and solar power plants were being built on nine properties. In 2022, building electricity consisted entirely of emission-free electricity.

During 2022, SATO converted the heating system to geothermal heat at the last properties which still had fossil-fuel-based heating, thus taking us a significant step closer to our goal of achieving in-use carbon neutrality.

Vantaa Energy and SATO signed an energy partnership agreement in February 2022. Together with Vantaa Energy, we are developing carbon-neutral energy solutions for buildings’ heating and cooling, which will help us achieve our carbon neutrality target by 2030 for in-use energy consumption.

During the reporting year, we continued to invest in energy efficiency improvements in SATOhomes in connection with renovations. In renovations, our goal is to improve energy efficiency by some 30% compared to earlier. Due to the rise in heating and electricity prices, energy costs rose overall.

During the reporting year, specific energy consumption fell 4.1%, specific electricity consumption rose 7.1% and specific water consumption fell 2.0% compared to 2021. Specific emissions from SATO’s apartments fell by 9.3% compared to 2021 and were 28.2 (31.1) carbon dioxide equivalent kilograms per square metre. Emissions are calculated according to the absolute consumption of district heat. Electricity was generated from emission-free nuclear power.

According to the Ministry of the Environment, the built environment causes approximately one third of Finland’s greenhouse gas emissions. The construction industry, together with the real estate sector and their related services, employ more than half a million people and bring in tax revenues for society. The construction industry does, however, have negative impacts not only on the environment, but also society and people. Some well-known examples of the construction industry’s negative impacts are the grey economy, occupational safety and human rights-related violations, as well as irregularities in procurement and delivery chains. We regularly assess and predict the social, economic and environmental risks related to our operations. We try to systematically reduce the identified negative impacts, for example by following our Code of Conduct, by combating the grey economy, by conducting audits and internal control, and by continuously developing our operations. During 2022, we decided to survey the current state of our compliance function in order to gain an overall picture of our policies and commitments.

SATO has a whistleblowing channel through which SATO employees and external stakeholders can anonymously report critical concerns.
The Group’s sustainability programme is available in its entirety at sato.fi.

Development activities

SATO’s development activities during the reporting year focused on developing sales and customer experience processes and operating models, the renewal of the invoicing processes and improving the continuous development operating model. We invested in developing digital services, as well as our presence near to the customers, and in building a uniform and seamless service experience. Our goal is to serve our customers in the best way possible, regardless of time or place.

Based on customer feedback, we also developed, during the reporting year, our processes involving the rental of a new home. The changes made daily work more efficient for our rental team, which also means even better service for our customers. We revamped the reservation of apartment viewings to make them more flexible for the customer and to pilot test the online reservation of viewings no matter the time or place. The apartment viewings were mostly held by our own viewing agents. We updated the apartment application process on the sato.fi website and in 2022 made it possible for our customers to apply for homes using the ‘more sustainable option’ search criterion.

In our development operations last year, we also focused on renewing the invoicing processes and we piloted a new invoicing system in summer 2022. The new system offers better opportunities to view up-to-date invoicing information and the plan is to roll it out in full in spring 2023.

In developing the business, we adopted a continuous development model at SATO during the reporting year. We defined the roles related to the model and will develop the activities as smaller components rather than large units, which will speed up development work and allow processes to be improved more effectively.

A total of EUR 3.2 million (3.2) was spent on development, corresponding to approximately 1.1% of net sales.

Risk management

Risk management is used to ensure that risks impacting the company’s business are identified, managed and monitored. The main risks of SATO’s business are risks related to the business environment and financial risks.

SATO’s most significant risks are related to prolonged inflation and the resulting rise in interest rates. As a result of the war in Ukraine, the prices of energy, food, materials and commodities have increased dramatically and interest rates have risen. Higher cost of living can have a negative impact on consumers’ purchasing power and ability to meet their obligations. If the strong growth in the cost of financing and maintenance costs continues and the market situation does not provide an opportunity to transfer the higher costs into rents in full, this can have a negative impact on the fair value of investment assets and the company’s ability to finance investments, which means that new investments and renovations will have to be postponed.

The most significant risks in the renting of apartments are related to economic cycles and fluctuations in demand and supply. Market risk can increase the supply of rental housing to a point that it exceeds demand. This leads to rental housing vacancies and pressure to even out or lower the rent level especially for the old housing portfolio.

A clear weakening in the housing market could have a negative impact on the market value of SATO’s housing portfolio. In accordance with its strategy, SATO focuses its investments on growth centres and on renovating and repairing its existing housing portfolio, thus ensuring the rental potential of its apartments and the development of their value.

Changes in official regulations and legislation, as well as the uncertainty stemming from them, may have a significant impact on the reliability of the investment environment and thus on SATO’s business. SATO monitors and anticipates these changes and also calls attention to what it considers to be negative impacts of regulation.

The management of financial risks is steered by the Group’s treasury policy, which has been approved by SATO’s Board of Directors. Our financial risk management principles have been defined in the treasury policy. Our most significant financial risks relate to liquidity, refinancing and interest rates. We manage our liquidity and refinancing risks by diversifying the financing sources and maturity of our loan portfolio, and by holding sufficient liquidity reserves in the form of committed credit facilities and other long-term financing commitments. The company established a EUR 1.5 billion Euro Medium Term Note (EMTN) bond programme in 2019.

The means for managing the liquidity risk at SATO include cash assets, a bank account limit, committed credit facilities of EUR 700 million and a commercial paper programme of EUR 400 million. We increase the amount of reserves as the financing requirements grow. Our objective is to keep the liquidity requirements of the next 12 months covered by committed agreements.

Floating rate loans form an interest rate risk which we manage by balancing the share of fixed and floating rate loans either by issuing fixed rate loans or by interest rate hedges. According to our treasury policy, our objective is to keep the ratio of fixed rate loans at over 60 % of debt portfolio after interest hedging.

There are risks related to the business environment in our St. Petersburg operations, including currency risk. The consolidation of foreign currency-denominated assets in the consolidated financial statements also involves a translation risk. Possibilities of hedging the translation risk are evaluated in accordance with our financial policy. SATO has abstained from making new investments in Russia for a long time. Since the start of the war in Ukraine, the company has been reviewing opportunities to withdraw from the Russian business operations. Based on our studies, a fast withdrawal is not possible, which is why SATO will continue to rent residential apartments in St. Petersburg until a way to withdraw has been found. The company is actively seeking a solution. The Russian operating environment is expected to be extremely uncertain and it may cause disturbances in SATO’s business operations in Russia and with parties related to the Russian business. This can affect SATO’s ability to make payments to suppliers, its employees and authorities, and to receive payments from customers, which can have a significant adverse impact on SATO’s business operations in Russia. If the Ukraine war is prolonged, doing business in Russia may have a negative impact on the company’s reputation and it may make doing business difficult in Finland and weaken the company’s ability to procure financing on the market. It may also have an adverse impact on the financial result or operations of SATO’s properties, not to mention on financing costs or values.

A more detailed description of risks and risk management is available on the Group’s website www.sato.fi.

Pending legal actions

SATO has no official procedures, legal actions or arbitration proceedings pending that would have a significant impact on the company’s financial standing or profitability, and SATO is not aware of any threat of such proceedings.
Shares

On 31 December 2022, the share capital of SATO Corporation was EUR 4,442,192.00 and there were 56,783,067 shares. The company has one series of shares. The shares are included in the book-entry system maintained by Euroclear Finland Oy.

SATO Corporation holds 166,000 treasury shares. This represents 0.3% of all shares and the votes they confer.

On 31 December 2022, the Board of Directors did not have authorisation to acquire or issue the company’s own shares.

On 31 December 2022, the Board members or the CEO of SATO Corporation did not directly hold any shares in the company. A more detailed description of the shareholdings of the members of the Board is given in the Corporate Governance Statement 2022.

Personnel

At the end of December, the Group employed 325 people (313), of whom 299 (278) had a permanent employment contract. The average number of personnel was 328 (276) during the reporting year. The Group’s salaries and remunerations in 2022 totalled EUR 21.6 million (18.8).

Shareholders’ Nomination Committee

The Shareholders’ Nomination Committee consists of representatives of SATO’s four largest shareholders registered in the book-entry system on 1 October. If a shareholder chooses not to exercise their nomination right, the right will pass on to the next largest shareholder. The State Pension Fund, the company’s fourth largest shareholder on 1 October 2022, did not exercise its nomination right, and the right was passed to Erkka Valkila, the fifth largest shareholder. The Committee consisted of representatives of the following shareholders: Balder Finska Otas AB (Erik Selin), Stichting Depositary APG Strategic Real Estate Pool (Hans Spikker), Elo Mutual Pension Insurance Company (Hanna Hiidenpalo) and Erkka Valkila.

Board of Directors, CEO and auditors

The Annual General Meeting held on 24 March 2022 confirmed that the Board of Directors consists of six members. In 2022, the members of SATO’s Board of Directors were chairman Erik Selin and ordinary members Esa Lager, Tarja Pääkkönen, Sharam Rahi, Johannus (Hans) Spikker and Timo Stenius.

The Board of Directors convened 11 times in 2022. The Board’s work is supported by the Nomination and Remuneration Committee.

In 2022, Antti Aarnio, M.Sc. (Tech.), was SATO’s CEO.

As the company’s auditor, the Annual General Meeting selected the audit firm Deloitte Oy, which appointed APA Aleksi Martamo as the auditor in charge. The auditor’s term in office is the financial year, and the auditor’s duties end at the closing of the next Annual General Meeting.

Members of the Management Group

During the reporting period 2022, the Corporate Management Group consisted of Antti Aarnio, CEO, Arto Aalto, EVP, Investments, Markku Honkasalo, CFO, Janne Ojalehto, CCO (until 27 January 2023) and Elina Vaurasalo, EVP, Housing Business.

Outlook

In the operating environment, SATO’s business activities are mainly affected by consumer confidence, the development of purchasing power, rent and price development for apartments, the general competitive situation and interest rates.

Employment development was strong in early 2022, but slowed down towards year-end due to economic challenges. During the reporting year, consumers’ confidence weakened to a historically low level after the start of the year, which showed in private consumption. According to the projection made by the Bank of Finland on 16 December 2022, Finland’s economic growth in 2022 will be 1.9% due to the good start to the year. In 2023, the increase in energy prices and the cost of living is predicted to cause the economy to slide into a slight downturn and shrink by 0.5%.

As tenants have a wider array of choices, a successful customer experience is more important than ever. SATO is investing strongly in increasing its customer presence and developing digital services.

In line with its majority shareholder’s operating model, SATO Corporation will not publish guidance on its 2023 earnings. The parent company of Balder Finska Otas AB is Fastighets AB Balder, which is quoted on the Stockholm Stock Exchange.
Proposal of the Board of Directors for the distribution of profit

On 31 December 2022, the parent company’s distributable equity was EUR 512,557,145.56, of which profit for the period was EUR 129,644,613.16. The company had 56,617,067 outstanding shares entitling to dividends for 2022.
According to the dividend policy, a maximum of 40% of the cash flow from operations will be paid in annual dividends, depending on the market situation, investment level, the development of the equity ratio and the solvency ratio.

The Board of Directors proposes to the Annual General Meeting that dividends shall not be distributed for the 2022 financial period (EUR 0.50 per share for year 2021), and that EUR 129,644 613.16 is transferred to earnings.

Largest shareholders 30.12.2022

On 30 December 2022, the Group had 127 shareholders entered in the book-entry register. The turnover of SATO Corporation’s shares was 1.7% during the reporting year.

More information at www.sato.fi.

Annual General Meeting 2023
The Annual General Meeting of SATO Corporation will be held on March 23, 2023.

Financial publications in 2023
Publication dates for interim reports and the half-year financial report:
Interim report January–March: 11 May 2023
Half-year financial report January–June: 18 July 2023
Interim report January–September: 27 October 2023

Further information
CEO Antti Aarnio, tel. +358 20 134 4200
CFO Markku Honkasalo, tel. +358 20 134 4226
www.sato.fi

SATO CORPORATION

ATTACHMENTS
Annual Report 2022
Financial Statements presentation 2022
Financial Statements as an XHTML file

DISTRIBUTION:
NASDAQ Helsinki Ltd., Euronext Dublin, main media, www.sato.fi