Good morning, ladies and gentlemen, and welcome to Kojamo's full-year results news conference. My name is Maija Hongas, and I'm Manager of Investor Relations here at Kojamo. Today's presenters will be Jani Nieminen, CEO, and Erik Hjelt, CFO. After the presentation, we have some time for questions. First, we take questions here from the conference room, and after that, from the conference call line. It is also possible to ask questions at the webcast with the chat function. After the news conference, we have also reserved time for media for interviews. Let's get started. Please, Jani.
Thank you, and good morning, everyone. It's nice to be here and to provide some color on what's been going on last year and as well what's going on in the future. Today we have on the agenda, of course, the summary of 2019. The year 2019 was in line with our expectations, and I'm happy to provide our results. We've been able to create profitable growth, and our strong operating performance is really reflected in all our key figures. Typically, I would say that it's better to analyze our kind of business on the whole year level than one quarter at a time. Our strategy has proved to be strong, and we have updated our strategy targets to 2023. Our pipeline for new development projects at the moment is very strong, and we are able to grow our business from various sources.
We have received a lot of feedback from investors, and we started applying a similar valuation methodology as our international peers, and that resulted in a net gain in our fair values. If we look at the operating environment, of course, it's important to notice that overall the operating environment is really positive for Kojamo. Urbanization is a big megatrend, and that creates a lot of demand for new apartments in the biggest cities. According to the latest estimates, population will grow in all Kojamo's focus areas, so the biggest growth cities and regions in Finland. Of course, especially Helsinki, Tampere, and Turku regions are the regions where people are moving the most and will be the biggest winners in urbanization in Finland. Of course, most of the new apartments will be needed in the Helsinki region.
As we provided estimates last year, the number of new building startups has been coming down, and it's returning to the so-called normal level. Mostly, the new building projects are focusing in the biggest cities. It seems that the level would be roughly the same in Helsinki still, but the differences between the biggest growth centers and the rest of Finland are growing all the time. There has been more supply in the market in 2018, 2019, and still this year, but there are already some concerns concerning whether there's enough supply to back up the urbanization in Finland during 2021. In the biggest cities, we see that for rental apartments, there's a big need, and both the rents and housing prices will still keep on rising, and there's a long-term demand for new homes.
As the urbanization is by far the biggest megatrend creating the demand in Finland, of course, there are several other things going on at the same time. The development of household sizes is continuing, so I mean that the number of one-person, two-person households is still increasing, and that creates a lot of demand for smaller apartments, studios, and one-bedroom apartments. Another trend is that people seem to value more and more the micro-location and the services combined with the living. At the same time, people value more and more the freedom of the rental apartments, and that seems to create more demand towards rental apartments. Already, in the biggest cities like Helsinki, Turku, and Tampere, half of the population, half of the households live in rental apartments, roughly. In Helsinki, actually, more households live in rental apartments than in owner-occupied apartments.
The trend seems to be clear: the amount of households living in rental apartments is still increasing in all the biggest growth centers. The last year was a really good year for us. Even though there was more supply in the market, we were able both to create like-for-like growth in rents and to improve our occupancy. In 2018, the occupancy level was 97%, and last year, 97.2%. If we look at the allocation, 72%-73% of our housing assets are located in the Helsinki region, and if we combine Helsinki, Tampere, and Turku regions, a bit more than 87% of all our assets are located in these three biggest growth regions. To wrap up some bigger numbers, of course, it's easy to say that the year 2019 was in line with our expectations, and we were able to create strong, profitable growth.
Our total revenue increased 4.6%, and at the same time, the net rental income was increasing by 5.7%. The like-for-like growth with our turnover was 2.5% compared to last year's 2.4%. Funds from operations, EUR 140.7 million, was 20.9% better than last year. Of course, we have to keep in mind that there are two aspects: we were able to create like-for-like growth also with the net rental income, but there were some differences between the lower in taxes paid compared to 2018 on the net level, roughly EUR 10 million. Today, the fair value of investment properties is EUR 6.3 billion, and we invested roughly EUR 260 million last year, mainly on new building projects, but we did buy 260 apartments as well. Profit excluding changes in value was 6% better than last year.
It actually means EUR 9 million, and we then had a net gain in fair values of EUR 872.4 million, and that results in a profit before taxes of EUR 1,031 million last year. I would say a really strong year and in line with our expectations. In the heart of the strategy has been that we are growing and we are creating profitable growth. At the end of last year, we had 1,336 apartments, 16 apartments under construction, and of that, 1,260 in the Helsinki region. We have been actually able to increase the number of apartments under construction in the Helsinki region because in 2018, we had 850 apartments under construction in the Helsinki region.
At the same time, after a reverse tender process competition, we made two agreements with construction companies called SRV and Hausia, providing a bit more than 900 new apartments in the Helsinki region in the future. In the strategy, we are able to grow from various sources. We are combining new development projects, but we are as well buying existing portfolios. Last year, we bought 260 apartments, and in 2018, 1,049 apartments. Actually, on average, we are well in line with our strategy.
Here are the projects under construction at the year-end, and of course, we have to keep in mind that we do believe that, as well as last year, it's possible that during this year we are able to find new building projects and make agreements with construction companies of projects that might be completed already this year, like we did last year with SRV and Hausia agreements providing already two completed projects. Just a reminder of SRV and Hausia deals providing 905 apartments here in the Helsinki region, along with really, really good micro-locations, along with the public transportation, mainly studios and one-bedroom apartments. The average size of apartments in this portfolio is roughly 45 sq m. We have completed one project under construction and still 816 apartments coming in the future.
Of course, these projects will be added in our numbers concerning how many apartments under construction when these projects are started. Providing added value for our customers is an important aspect for us and a really big part of our strategy. We are combining a lot of technology, data, and customer understanding in order to create easy and effortless living and added value for our customers. Whether it's a customer entering LumoWorld, it should be easy and effortless. You are able to use WebStore and rent the apartment 24/7. We are providing a lot of benefits, but as well those existing customers, it should be easy and effortless and a feeling of real added value. Most of our customers today use an application called MyLumo. They're able to take care of their daily matters, whether it's a rental or defect report or even some services.
Actually, during the last six to seven months, we've been collecting a lot of data concerning what's going on in Finland in micro-locations and concerning the deeper customer understanding. What are the real preferences in different customer segments? In the future, this will provide us new concepts, and we will keep on creating new services for our customers and specified customer segments. In the heart of Lumo is to provide easy and effortless living and added value for our customers. As you notice on the right-hand side, already last year, half of all the new agreements came from WebStore. Here in the Helsinki region, actually 60% of all the new tenants are entering our world from the WebStore. At this point, I will pass it for our CFO, Erik, please.
Thank you, Jani, Niina, and good morning everybody from my side as well.
Page 40, our total revenue increased by 4.6%, and our like-for-like rental growth was 2.7%. Out of that, 2.5% was due to the increase in rents, and 0.2% was increases in other charges, mainly water charges. The total revenue growth was EUR 16.5 million, and our main contributor for that growth was completed apartments, EUR 10.5 million, acquired apartments, EUR 3.3 million, and rent increases roughly EUR 10 million. On the negative side, of course, it is post-asset, and there was an impact of minus EUR 8 million. If you then look at profit before taxes without changing the fair value on investment properties, the growth there was EUR 9 million, and our main contributor there, net rental income increased EUR 13.3 million. SGA expenses moved sideways, and the finance expenses growth was EUR 3.7 million.
That growth was mainly because of the growth of underlying loan portfolio, but there was a small negative figure for fair value change in interest derivatives. We do apply hedge accounting, but a smaller part of the change in fair value of investment derivatives is coming to the P&L as well. That was EUR 2 million, and IFRS 16 was an impact for EUR 2.5 million for financial expenses. This change in fair value investment properties, EUR 872 million, includes the impact of the change in valuation technique, roughly EUR 800 million, and I'll come back to that later. Page 15, the net rental income and FFO increased, so the IMRC growth was 65.9%, and the net rental income increase was EUR 13.3 million. The increase in net rental income was bigger than the growth of the top line.
The maintenance expenses growth was 1.6%, and the repairs EUR 1.5 million. Main drivers for the slight growth in maintenance expenses was the rough weather at the Q1 last year and the fact that the property taxes growth by EUR 0.6 million compared to the corresponding period. One note regarding the Q4, we made during the Q4, the repairs were EUR 3.5 million bigger than the corresponding period, and the reasons behind that was that we made many small repairs, but on top of that, we had the opportunity to make a couple of sizable repair projects, and we decided to make those during the Q4.
It's good to know that other than difference from our international PSV book repairs on top of net rental income, that makes a fluctuation on a quarterly basis because our international PSV mainly capitalizes on repairs, so that makes an impact for one quarter's figures, but in the big picture, that doesn't change basically anything. FFO growth was a little more than 20%, and the main contributor there was, of course, net rental income growth, EUR 13.3 million, others EUR 1.9 million. Good to note that during the corresponding period, we paid taxes EUR 13.5 million because of the disposal of assets, and in 2019, the impact for taxes for disposing assets was EUR 4.4 million. Occupancy rate increased 0.2%, tenant turnover slightly below 30%, and internal turnover was 7%. Page 17, the investments, EUR 260 million.
EUR 183 million development investments, EUR 44 million acquisitions, and EUR 30 million modernization investments, and disposal EUR 26 million. Modernization investments and repairs put together EUR 67.6 million, and as mentioned during the Q4, the repairs were slightly higher than in the corresponding period. Going forward, we expect modernization investments and repairs put together being between EUR 60 million-EUR 70 million. Fair value investment properties close to EUR 6.3 billion. The growth was almost EUR 1.2 billion. Development investments and acquisitions contributed EUR 227 million. IFRS 16 had an impact of EUR 61 million, and then the change of fair value on investment properties was EUR 872 million. We applied this new valuation technique, yield-based valuation technique, for those apartments that were before this change. They were valued based on transaction prices and this so-called old yield-based valuation technique.
We still have roughly 3,000 apartments where we have restrictions regarding the valuation, so they are currently in our books based on original acquisition cost. Those restrictions regarding the valuation will end gradually by the end of 2025, and the impact for those ending restrictions will be more than EUR 80,000 per apartment. Roughly 30% of those restrictions will end this year, 30% in 2024, and the remaining part spread equally for the other years. Page 19, our land bank, if you like. The plots mean pure land. We are able to build 1,200 apartments on that land, and they are already in our balance sheet, those properties. Plots and existing residential buildings means that we own the land, and there is a cash flow generating building on that land, and the idea is to demolish those buildings and build a new one there.
The net impact is going to be around 400 apartments. Conversions, mainly Metropolia case and property called Erik the 7th, and the idea is to convert them into residential purposes. In this Metropolia case, the new planning, we have filed in the applications for changing the plans. The lower part of this page shows these are off-balance sheet items, so we have agreements for new constructions providing almost 1,000 apartments, and on the top of that, we have an agreement by land, and there is more than 1,000 apartments that we can build on that land. It is good to know that 99% of all that is located in the Helsinki region. At the end of Q4, we have 1,316 apartments under construction, already invested EUR 167 million, and to be invested EUR 148 million to finalize those ongoing projects.
We still have the equity ratio target and loan to value unchanged, so equity ratio target to be about 40%, and the loan to value to be below 50%.
We have now very, very strong figures for equity ratio and loan to value, quite sizable buffer against these target levels, so that means that we have the capability to grow even further. Our EPRA NAV growth to 15.49 at the end of Q4. We had EUR 2.6 billion loans. Half of that is from the bond market, another half mainly from the Nordic banks. Very strong financial key figures, almost five years fixed average interest rate period and average maturity in our loan portfolio, average interest rate included in the cost of derivatives, 1.8%. The hedging ratio at the end of Q4 was 88%. On top of all this, we have a commercial paper program, EUR 250 million.
Outstanding commercial paper at the end of Q4 was EUR 50 million, and we have EUR 300 million credit lines committed in place. No major refinancing needs in the next coming couple of years. The change in valuation technique. We started to apply the same valuation technique as all business premises players are applying in Europe and in Finland as well, and most of the recipients in Europe are applying this discounted cash flow technique to value their properties. We wanted to be more comparable with our international peers, and after the IPO, we received a lot of feedback from international investors that they had it slightly difficult to compare our figures because we are applying a different valuation technique, and now we decided to start to apply the same valuation technique as international peers.
It's important for us to have an internationally recognized external valuator partner in this process going forward, and Jones Lang LaSalle is our partner there. This new valuation technique came into force at the end of last year. The yield requirements in capital region in this new valuation technique was 3.84%, other regions in Finland 5.05%, and a group total of 4.25%. It's good to note that we didn't change these yield requirements at the end of last year because we released the range for the impact early November, and we felt it's not right to change the yields in such a short period, so we didn't change them. The valuation calculations were made applying same yield requirements as we made the preliminary calculation. The range was released during November.
Now, back to Jani.
Thank you, Erik.
Of course, one piece of new news is that we have a new strategy period until 2023. Our strategy has proved to be strong, and we will continue in the big picture to implement it as well in the future. In order to provide new color, our board of directors has approved an updated strategy and target and focal points until 2023. We seek strong growth with optimized financing and profitable business through leading operating models. Basically, the big picture is still the same, but of course, some new aspects as well. The megatrends are still the same: urbanization creating a lot of new demand for new homes in the bigger cities, so that provides the opportunity to invest and grow our business with new investments.
On the other hand, these other megatrends are as well important, but in my eyes, it's more than how we should conduct our business, which kind of concepts we should create, what kind of homes we should build. The population is aging, the family sizes are getting smaller. We have to be able to use more and more new technologies and digitalization. Individuality is an important thing for people, but at the same time, they feel the need of a sense of community. Of course, environment and sustainable development is an important aspect for us. Our mission, we create better urban housing, actually means that it's not only about floors, walls, and ceilings. It's how we connect to the city, the urban living, how we create services. We want to be the property market front runner and the number one choice of the customer.
Actually, one of the biggest reasons behind the WebStore. We are not choosing the customer. The customer is really choosing us. The strategic focal points, I will come back later in deeper to those, but one big strength for our company and our people is that we have the ability to really focus on our focal points and take them to our daily operations. That's the real strength in Kojamo. Our people really work on these focal points. The values are in place. They were made with our employees a couple of years ago, and they are really present in our company. I'm really, really happy. It's not often that you find a value in a company as strived for success. Actually, it really sounds better in Finnish, Hinku onnistua. It really describes our world and the courage to change. We are creating a lot of new things.
The strategic focal points, if we take them one by one, they have been present already, but of course, this provides a new color when they are listed here. We want to deliver the best customer experience. Actually, it means easy, effortless living, but a sense of added value that will back up our ability to create a life-for-life growth and might bring up some new businesses as well. Operational excellence. We have the saying that it's good to do things right, but it's better to do the right things right and then efficiently. We are combining technology. We are ready to grow, and we have the platform ready, mainly the business models ready. Of course, we want to be the leading company and create even better business models. The personal is important for us.
We operate with our own people, so all the most value-adding processes are handled by our own people. We want to be known as a company with a corporate culture of dynamic and effective atmosphere. We want to keep well our people and ensure that the competitiveness keeps on going and we learn the right things for tomorrow. We are focusing on what we should know tomorrow and next year. The strong growth. We are able to grow from different sources. It seems that our concept is strong, and we are able to create a strong like-for-like growth. We are able to provide new development projects either based on our own land or by buying from construction companies. We have the ability to convert premises into apartments. We will keep on buying existing portfolios and apartment buildings. Actually, we are combining all the aspects at all times.
Responsibility and sustainable development. That's something that's always been present here. ESG matters are a part of our DNA and daily operations. Digitalization. We've been focusing on that already, but it's something that's connected to everything. We will keep on focusing on digitalization, whether it's the services or the properties. Like we today apply artificial intelligence in order to optimize the heating. It's as well how our business is operated. What's the experience for our employees? How they are providing more value easier? How we are using more and more data in order to be excellent in the business. It's actually a really big thing, and that's why we wanted to highlight it. The new KPIs for 2020-2023 basically providing still the same strategy and the same future. We will keep on focusing on growth. We have the ability to grow without asking any new equity.
We are combining these different sources, and the annual growth of total revenue, the target is between 4% and 5% a year. Actually, that provides still the story that we are ready, willing, and able to grow. The annual investments are between EUR 200 million and EUR 400 million. Of course, we are financially really strong, and if we would find a bigger opportunity, we are ready to move fast. We are not growing at any cost, as we've been saying already, and as we've been providing the results. We have increased the requirement of FFO against total revenue. It should be more than 36%. It used to be more than 32%. The third angle is that our financial figures are strong, and it's the way we handle the risk. We still want to keep the loan-to-value under 50% and the equity ratio above 40%.
Of course, the customer is really important for us, and still the net promoter score target is 40. It's still the same kind of setup of different angles, but providing the same story that we are still growing and creating profitable growth. Looking forward, the outlook and of course then the dividend policy. We estimate that during this year, the revenue will increase between 2% and 6%, and the FFO will be between EUR 142 million and EUR 156 million. This is how it looks at this point of time. The board of directors proposes to the annual general meeting a dividend of EUR 0.35 per share, and that's well in line with our dividend policy. The dividend policy has been that the dividend will be 60% of the FFO provided that the equity ratio. Sorry, I said wrong. It's EUR 0.34 per share.
The dividend policy is 60% of the FFO provided that the equity ratio is more than 40%. To wrap it up, last year we are really happy. No surprises, in line with our expectations and with our strategy. We were able to create strong like-for-like growth of 2.7%. We were able to improve the occupancy, and we were able to strengthen our pipeline for new development projects. Of course, we provided some new color concerning our strategy. At this point, I thank you and move it back to Maija.
Thank you. Now we have time for questions, and let's take first questions from here. Let's start with Anssi.
Thank you, Ansi Kiviniemi from SEB. A couple of questions from my side. First of all, you were highlighting for a strong pipeline in new projects.
Were you referring to units under construction, or were you referring to something that is beyond that?
I was referring to what's going on. The number of apartments under construction combined with the actual knowledge of the deals made with Kojamo and SRV. Still, 816 apartments already coming.
Great. Thanks.
Of course, we are under discussion with all the construction companies, but that's business as usual.
Good. On your new strategy, I didn't see a word Finland in the strategy. Does it mean that you're open to other markets, or is Finland still the place you want to be?
I would say that neither did the old strategy have the word Finland. There are no changes. We are still here in Finland, focusing in Finland and the growth centers in Finland.
That's pretty clear. On perhaps the transaction market, we are still waiting the pipeline to fill in.
What's the transaction market like currently?
There's been a lot of interest towards the Finnish resi market, as we all know. We've been scanning several portfolios. We were able to buy 260 apartments basically off-market deals last year. We were really happy. We are scanning the market all the time, and I see no problem why we shouldn't be able to keep on track with our strategy. We've been saying that on average we are trying to find 500 apartments of existing apartments from the market. That's doable.
The last one. Could you please give the fair value gain from the valuation method change? You didn't highlight it in the report.
I think we highlighted in the report, actually, it's approximately EUR 800 million.
Okay. Approximately?
Yeah.
Thanks. First question is about the strategy. You used to have volume targets also.
Now you do not have regarding number of apartments and value of. Does that mean that you could also consider selling apartments or portfolios if that comes?
Actually, we have already provided color that this whole part of the strategy has been in the big picture completed, and we have been successful in focusing to the main growth centers. I think that we have the ability to combine different approaches. As last year was visible that some of the investors are worried if you provide exact figures that this would be 500 apartments. We are flexible. If we find more than 1,000 apartments to buy, we will buy. If we find suitable new building projects more, we move to that. We are combining. We are optimizing the situation. We are creating growth, and the growth becomes visible in the total turnover growth.
I assume the answer is that you are not considering selling anything even if somebody would pay a good price.
As I said, the disposal part in the big picture is over. Of course, we are a rational professional investor. Also, in the future, it might be sensible to sell some of the properties as we invest more in order to improve the average quality of the portfolio in some location.
Second question about the dividend might be the wrong forum to ask the question, but given that your balance sheet has strengthened very much, you paid basically the very low end of your dividend policy. Do you have any comments on that?
I think that the dividend policy is in place, and the suggestion from the board of directors is in line with the dividend policy.
Our numbers are strong and provide headroom for us to move if we find something that's appealing.
Thank you.
Jussi Nikkanen, Handelsbanken. Did I understand correctly that you're not having on the growth target? The old 38,000 apartment is now withdrawn, so it's more of annual investments that you are targeting for?
We wanted to provide new kind of color, but as we are growing, we will hit the number 38 as well. Probably some more in the future as well.
Had the leverage target, you remain on the below 50 level on the leverage target, and that creates some uncertainty as the buffer is so wide currently.
If, for example, looking from the rating agency perspective, which they highlighted, can you estimate something or give us some color on the level of the current LTV, 40.5, whether that's a good proxy when looking ahead or how you're thinking now for the coming investments?
We haven't changed the targets for LTV and equity ratio. Moody's actually commented that this value change and the impact of value change was a credit positive, but they were not ready to change the rating. Yes, our figure currently is very strong, and that gives us a buffer for our levels, what's required by the rating agency for the current rating. We are very pleased with the current rating.
It's a good combination, actually, this equity ratio and all the value targets, what we think that plays for equity investors and what we think that debt finance providers would like to see. This current rating what we have in place is PWA2 to stable outlook from Moody's. That seems to underline the fact that it plays for debt finance providers as well. We are happy with these figures. Yes, we have a buffer, and for us, it means that we have, from that angle as well, capacity to growth if we find something suitable to acquire.
Could you repeat on the regulated apartments part? What was the share of the released apartments in 2021?
2020, roughly 30% of the restricted apartments comes out of the restrictions, and 2024, again, roughly 30%. The remaining part is spread equally for the other years.
Okay. Yes.
The share of amount of like-for-like rental increase in 2019, that percentage was? The like-for-like rental growth?
Yeah, rental growth. 2.7%. 2.7%.
Okay. That's all. Thank you. Thank you.
Okay. Let's move to the conference call line, please. Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero and then one on your telephone keypad now. The first question is from the line of Frederik Sian from Carnegie. Please go ahead. Your line is open.
Good morning, gentlemen. A couple of questions from my side. Ilmarinen just announced that they have sold a portfolio to Swedish investor ARIM in Finland for about EUR 140 million or slightly below EUR 160,000 per unit. Are you familiar with those assets? Were you interested in acquiring those? Do you know anything about the net yield that the transaction took place at?
I think it's not in our hand to comment on the actual transaction, but yes, basically, we always know what's going on in Finland.
Looking at the price tag, are those assets similar to what you own? I wouldn't comment that the Ilmarinen portfolio in details. Moving over to the turnover rate, it was fairly high in 2019, close to 30%, and has been growing over the years. Do you think this kind of level is what we should expect going forward as well?
I think it seems that's something you have to expect in the future as well. It's a new era, and it seems that the millennials are moving more often.
Of course, we have to keep in mind that a lot of people are moving inside Finland towards the biggest cities, and they might choose the first place and then decide a bit later what should be the best possible micro-location. That is something we want to be helping them with.
When it comes to the new strategic targets for 2023, those are six. Which one do you think is the most challenging to reach?
I think the strategy is always something that you are having challenges in all the aspects, but at the same time, you are comfortable with those and you are able to meet those targets. That is something in our world that we set the targets high and then we go there.
My final question on guidance for revenue increase in 2020. What kind of like-for-like assumptions have you used to get to that guidance?
Somewhere between 2.3 and 2.5.
Okay. Thank you.
There are currently no further questions registered, so I'll hand the call back to the speakers. Please go ahead. Okay. Thank you. It also seems that we don't have any questions in the chat, so I thank you all for today. Our Q1 report is going to be published on 7th of May, so hopefully we'll meet then again. Thank you very much.
Thank you.