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ANNUAL REPORT AND SUSTAINABILITY REPORT 2018 “WHAT MAKES HOME A HOME IS THAT YOU HAVE YOUR OWN SPACE AND YOU FEEL GOOD.” Kati, Mellunkylä THE YEAR 2018 OPERATING ENVIRONMENT AND STRATEGY OUR BUSINESS OPERATIONS THE SUSTAINABLE SATO GRI GOVERNANCE FINANCIAL STATEMENTS 30 OMASATO OmaSATO service brings housing services within easy reach of our residents, any time and 4 any place. CEO'S REVIEW Our successes from last year lay a strong foundation for developing our activities and services this year, too. 7 HIGHLIGHTS The economic occupancy rate strengthened each quarter. 18 THIS IS HOW WE 43 CREATE VALUE SATO'S SUSTAINABILITY FOCUS Our mission is to transform Sustainability is echoed in our vision – thriving cities will housing and offer our customers be home to people who enjoy a high level of well-being. more than just walls. Annual Report and Sustainability Report 2018 2 THE YEAR 2018 OPERATING ENVIRONMENT AND STRATEGY OUR BUSINESS OPERATIONS THE SUSTAINABLE SATO GRI GOVERNANCE FINANCIAL STATEMENTS CONTENTS The year 2018 ..................................................................... 2 GRI ................................................................................... 66 CEO's review ................................................................................... 4 Reporting principles ...................................................................... 67 Highlights and key figures .............................................................. 6 Management approach ................................................................68 Sustainability concepts .................................................................. 72 Operating environment and strategy ................................. 11 GRI-index ...................................................................................... 74 SATO in brief ..................................................................................12 Assurance report ...........................................................................80 Impact of the operating environment ............................................13 Value creation and our strategy ..................................................... 17 Governance ...................................................................... 82 Stakeholder cooperation ............................................................... 20 Sustainability management .......................................................... 83 Risk management .........................................................................84 Our business operations................................................... 24 Corporate governance statement .................................................86 SATOhomes .................................................................................. 25 Remuneration statement ................................................................ 92 Rental activities ............................................................................. 28 Board of Directors ......................................................................... 94 Housing and customer service ......................................................30 Corporate Management ............................................................... 96 Investments ................................................................................... 32 Property development .................................................................34 Financial statement ......................................................... 99 Construction and renovation ........................................................ 36 Report of Board of Directors ...................................................... 100 Financing ...................................................................................... 39 Consolidated financial statements, IFRS .....................................105 Financial statements of the parent company, FAS ...................... 149 The sustainable SATO ....................................................... 43 Auditor's report ........................................................................... 159 Highlights in 2018 ..........................................................................44 Key financial indicators ............................................................... 163 Sustainability focus ........................................................................ 45 Information for shareholders ...................................................... 165 Sustainability goals and actions ....................................................48 Customers ..................................................................................... 50 Personnel ...................................................................................... 53 Partners ......................................................................................... 56 Environment ................................................................................. 58 Finances ........................................................................................ 63 Annual Report and Sustainability Report 2018 3 THE YEAR 2018 OPERATING ENVIRONMENT AND STRATEGY OUR BUSINESS OPERATIONS THE SUSTAINABLE SATO GRI GOVERNANCE FINANCIAL STATEMENTS / CEO'S REVIEW CEO, SAKU SIPOLA “SATO’s operating environment and the Finnish housing market in general have been in a phase of rapid change in the past decade. Urbanisation, the growing cost burden of house construction, changes resulting from regulation and from banks’ own risk assessments of housing lending, uncertainty related to consumers’ incomes and the rapid change in values related to ownership have contributed to the growing popularity of rental housing. There is good reason to believe this trend will continue. The development has led to a rapid increase in the offering of rental housing, as well as diversified the range of players offering rental apartments.” Annual Report and Sustainability Report 2018 4 THE YEAR 2018 OPERATING ENVIRONMENT AND STRATEGY OUR BUSINESS OPERATIONS THE SUSTAINABLE SATO GRI GOVERNANCE FINANCIAL STATEMENTS Ceo's review In the prevailing market situation, our property development and in- was raised from 35 per cent to 40 per cent. The Group’s other financial vestments have focused almost entirely on complementary construction targets remained unchanged: the interest coverage ratio must be over planning projects carried out in cooperation with cities and on our own 1.8x and unencumbered assets 60 per cent or more. The long-term construction. target for solvency ratio is not to exceed 50 per cent. The growing economic uncertainty and weakening development will In 2018, we focussed on reinforcing our personnel’s competence in curb housing investments on a general level in the coming years, which areas that are key to implementing our strategy. We also cultivated our could open up interesting acquisition opportunities for SATO. culture of safety and provided our customer service personnel with training in dealing with challenging situations at work. In average, In an increasingly competitive environment, 2018 was a positive year for SATO employees took part in 4.8 training days in 2018. As in previous SATO, characterised by renewals and successes, which were reflected years, satisfaction at work was high at SATO, and assessments of super- in the improvement in all our key ratios. Our Customer First strategy visory work showed very positive development. SATO had a total of 218 moved forward nicely, and particular bright points in our successes were (212) employees at the end of the year. the improved economic occupancy rate and the especially pleasing improvement in customer satisfaction across all measured areas. Our sustainability work was guided by SATO’s strategy, sustainability pol- A special icy and the material topics raised in our stakeholder survey. I would like highlight of One of the highlights of the year was the launch of the OmaSATO to call attention to one particular area that is very important to us, which service, which helped us bring housing services to our residents’ smart is housing health and safety; we developed our operations around this 2018 was the phones, so they can use the services any time and any place. More than theme during the financial year. We established, among other things, the improvement 250 of our residents were involved in the planning, testing and further position of Housing Health Manager, and drew up an operating model development of OmaSATO in various workshops. By the end of the year, for housing health and safety matters. From the perspective of corporate in customer there were 8,190 registered users of the service, and one of our main social responsibility, we also considered it important to be part of efforts focus areas in 2019 will be to continue developing OmaSATO. to reduce two major societal issues, unemployment and homelessness. satisfaction in We collaborated on a project with the non-profit organisations No Fixed all measured In 2018, we submitted city planning applications covering 63,000 floor Abode and the Rehabilitation Foundation to help participants in the square metres, and we reinforced our rental housing portfolio with project find two of life’s essentials – a home and a job. By the end of areas. investments valued at over EUR 140 million. In construction and renova- the reporting year, nine people who had participated in the project were tions, we paid special attention to energy efficiency and life-cycle think- living in a SATOhome.

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