Good morning, ladies and gentlemen, and welcome to Kojamo's Q3 results webcast. Today's presenters will be Jani Nieminen, CEO, and Erik Hjelt, CFO. My name is Maija Hongas, and I'm Manager Investor Relations here at Kojamo. After today's presentation, we will have some time for questions. First, we will be taking questions from the conference call line, and after that, from the chat. Let's get started. Please, Jani.
Thank you, Maija, and good morning on my side as well. Welcome to get some color on what's been going on this year. In a big picture, I would put it in a few words in such a manner that the impact of COVID-19 has been limited, and in Finland, the situation is relatively good compared to many other countries. All our essential operations have been running in a normal manner, and construction projects are proceeding as planned. According to the estimates, urbanization will continue, and that creates, of course, demand for new homes in the biggest cities. We have a really strong pipeline, and we are well in line with our growth strategy. Moving forward to the operating environment, of course, the COVID-19 pandemic has contracted the Finnish economy, but I would say less than in most European economies.
Of course, Finland is a small export-driven country, and difficulties in other European countries and other countries as well would have an impact towards the Finnish export economy. On the housing market, it seems that the impact of COVID-19 will be temporary, and urbanization will continue as I provided the information. Actually, what it means is that the population growth forecast in the biggest cities creates a demand for new homes. Annually, roughly 35,000 apartments should be completed in these biggest cities on an annual basis. We have seen that during the last couple of years, the number of new building permits has been declining, and it seems that the COVID-19 pandemic has accelerated that phenomenon. According to the latest estimates, only 28,000 apartments will be started here in Finland this year.
On the other hand, if we keep in mind that urbanization creates a lot of demand, it seems that even though this year there has been temporarily a lot of supply in the market because of a lot of completed new projects that have been there. On the other hand, 2021-2022, there will be less completed apartments, and it seems that the supply will not meet the annual demand for the urbanization and the demand there. We see that some of the construction companies are facing challenges in order to get financing for owner-occupied projects. Even if the market has been challenging, there will be demand, a long-term demand, and there are at the moment no new estimates concerning the housing prices or rents. On the other hand, I see that these existing estimates seem to still be being valid.
Positive increases both on rents and housing prices in the biggest cities, especially in the Helsinki region. Of course, as I said, we see that urbanization will continue if we combine urbanization and the development of household sizing, actually meaning the growing number of one and two-person households. That is the main driver creating demand for new homes in the biggest cities. Today, we have the official data showing that already in Helsinki, Tampere, and Turku, more households live in rental apartments actually than in owner-occupied homes. That's a global phenomenon. Rental homes are popular in the biggest cities. On the other hand, of course, people seem to value the high-quality micro-location along with the public transportation, and there have been changes in people's preferences. Customers are choosing rental apartments because of the freedom.
They do not want to tie themselves with owner-occupied homes and housing loans, and they are choosing rental apartments along with the public transportation and good services. Of course, the pandemic had an impact towards the owner-occupied housing market, but it seems that after the summer holiday, there have been some positive signs, and the housing trade has picked up a bit of speed. On the other hand, we see that in the market, there are a bit fewer homes for sale. Typically, it seems that as the consumer confidence goes down and the uncertainty increases, people tend to postpone decisions making buying homes, and they tend to increase the activities towards rental homes. In the big picture, of course, on the lower right-hand side, we notice that Helsinki, Turku, and Tampere, as I said, more households in rental apartments today than in owner-occupied homes.
On the other hand, the portion of households living in rental apartments has been growing in all the biggest cities. I mean, in all the focus areas where our company is operating. Most of the households living in rental apartments in Helsinki, Turku, and Tampere region are our main focus areas. Today, more than 73% of the housing assets are located in the Helsinki region, and if we combine the Helsinki region, Turku, and Tampere regions, more than 87% today of our assets are located in these three main growth areas. Of course, we saw that during COVID-19, especially during H1, there was more supply in the market and less demand. We knew already that a lot of construction projects will be completed to the market this year.
We saw that during H1, for example, here in the Helsinki region, quite many apartments used for, for example, the Airbnb business were converted to longer rental business by individuals. Actually, what it means is that the impact was the biggest here in the Helsinki region towards the occupancy and the supply. On the other hand, we have seen that already starting from July, we had a really high number of new tenant agreements, and we've been on a really good level both August and September and October. I would say that towards the occupancy, the biggest hit was during May and July. Now, as those new tenant agreements are becoming to provide money as people are moving in, that has a positive impact towards the occupancy. Here are the key figures. Still a really solid year providing profitable growth.
If we first take a look at the total revenue, of course, the growth is a combination of new completed apartments and like-for-like growth. Like-for-like growth at the end of Q3 was 1.7%, and inside there it's good to note that if we combine the positive impact of rents and water charges, that's 2.4%. Actually, the occupancy impact was negative 0.7%. Both the rental income and FFO was increasing more than the total revenue, so a really solid profitable growth. We've been able to operate quite cost-efficient. Of course, we have the benefit of mild weather last winter, but overall, in the big picture, our people are doing extremely good work. We have a good amount of cross-investments, EUR 264 million. There, of course, the biggest portion is new development projects, a bit more than EUR 229 million, acquisitions roughly EUR 8 million, and then modernization investments, EUR 27 million.
Profit excluding changes in fair values, EUR 124 million, 3% better than last year, and then we received a net gain in fair values of EUR 74.1 million, providing profit before taxes EUR 198 million. We have a growth strategy, and at the moment, we do have a record high number of new apartments under construction. This year, we have already completed 340 apartments. We have started the construction of more than 1,500 apartments, and at the end of Q3, we had a bit more than 2,500 apartments under construction, all here in the Helsinki region. I would note that, of course, after Q3, we already provided information of starting two projects here in the Helsinki region, providing additional 234 apartments, and these two projects are outside our binding agreements with construction companies. A really solid, strong project pipeline.
For us, it's really important that we are able to grow using multiple sources. We are creating projects based on our own land bank. We are buying new development projects from construction companies. In those cases, we are buying both the land and the project from the construction companies. We have the capability of converting premises into apartments like the Metropolia case. Of course, if we find suitable acquisition targets, we are able and ready to move fast. At the moment, as I mentioned, all construction projects are located in the Helsinki region, all the Metropolia properties that the zoning process is proceeding, located in city center Helsinki. I would say really high-quality micro-locations, and we are quite happy with these investments, providing the net initial yield of 4% or above 4%.
It's good to know that the amount of new completed apartments will be growing starting next year, providing more than 1,300 completed apartments, and that, of course, will be visible in our growth. Here in Kojamo, we believe that Lumo is providing special customer experience, providing easy and effortless living and a lot of different services. The net internet business, I mean online selling, has still been growing. Roughly half of the new customers are coming from online store. Good to know that at the same time, we've been combining so-called old web store and Lumo.fi pages, so now customers really have easy access. As we combine these two features, it seems that we've been able to increase the number of tenant agreements done by our own people as well. Next month, we will have our first investor day, and we will provide more color on our digital roadmap.
This year, we've been also working and putting a lot of effort in creating our sustainability program, and that will be published December 2nd. Of course, we are really pleased that EPRA recognized both our financial statements and sustainability report. At this point, I would ask Erik to continue and provide more detailed information. Thank you.
Thank you, Jani, and good morning everybody from my side as well. On page 15, the total revenue growth was 2.3%, and in euro wise, EUR 6.5 million, and like-for-like growth 1.7% contributed approximately EUR 4.5 million for that growth. As Jani mentioned, the impact of rent increases and water charges was positive for like-for-like growth 2.4% and occupancy rate a negative 0.7%. The remaining part of the growth, EUR 2 million, came as a net of completed apartments, disposals, and acquisitions.
We showed EUR 74.1 million profit on fair value investment properties, and two-thirds of that came through thanks to the ending restrictions of apartments, and one-third generated by the development gains. We are well on track providing approximately 20% development gain when completing these ongoing developments. The profit before taxes, excluding value changes, grew EUR 3.1 million. Net rental income contributed EUR 6.6 million. SGA expenses slightly above from the corresponding period, EUR 0.7 million, and finance expenses EUR 2.3 million more than in the corresponding period, given the fact that the loan portfolio was much higher than in the corresponding period. Page 16, net rental income growth 3.5%, EUR 6.6 million. Total revenue growth was EUR 6.5 million. Maintenance expenses EUR 0.9 million less than in the corresponding period, and repairs EUR 0.8 million, higher level than in the corresponding period.
Maintenance expenses, there were actually two different things behind those figures. One was, as Jani mentioned, the mild weather in the beginning of this year that contributed EUR 2 million savings in maintenance expenses. What we've seen during the COVID-19 is that people are spending actually more time at home, remote working, and such. Water expenses was EUR 0.8 million higher than in the corresponding period, and cleaning was EUR 0.7 million higher. Repairs was slightly higher than in the corresponding period, given the fact that when COVID-19 eased somewhat, we started some additional repair projects. NOI margin was in Q3 71.5%, and in year to date, 67.6%. FFO, healthy growth 7% there, EUR 7.4 million. Net rental income contributed EUR 6.6 million. SGA expensive on a negative side, EUR 0.7 million.
Finances altogether EUR 3.5 million, and cash taxes savings actually EUR 3.7 million, given the fact that during this year we have not made any major disposal. In the corresponding periods, there was quite sizable disposal leading to paid taxes slightly elevated in the corresponding period. Another operating income expenses contributed EUR 1.4 million for the FFO. Page 17, financial occupancy rate flat compared to H1, and as Jani explained, now we have been able to make more lease agreements, and they are coming into force in slight delay. The occupancy rate is slightly improving given the higher amount of new lease agreements. Tenant turnover slightly elevated, most likely given the fact that people are slightly moving more given the COVID-19. Page 18, gross investments EUR 264 million, mainly development investments EUR 236.2 million, acquisitions EUR 7.7 million, and modernization investments EUR 20.1 million.
Modernization investments and repairs put together EUR 0.7 million less than in the corresponding period. Repairs EUR 0.8 million higher, and modernization investments EUR 1.5 million less than in the corresponding period. Going forward, we expect modernization investments and repairs put together to be between EUR 60 million-EUR 70 million, and this year we are heading in the midpoint, close to midpoint of that range. Page 19, fair value investment properties, EUR 6.6 billion. Main contributors there, developments and acquisitions, as well as profit on fair value investment properties. At the end of Q3, we still had 2,529 apartments where we have restrictions regarding valuation, and those restrictions will end gradually by the end of 2024, and that will provide us somewhere between EUR 180 million-EUR 200 million value uplift.
40% of that will come through in 2024, a little more than 10% remaining part of this year, and other is split quite evenly for years 2021, 2022, and 2023. We had only 326 apartments at the end of Q3 where we have restrictions regarding rents, and those restrictions will end by the end of this year. During this year, we actually have participated in two processes to acquire mid-size portfolios, one before the summer break, and we concluded that we are not willing to pay the price that was finally asked, and we dropped out from that process. Funny enough, that transaction has not been closed yet, so we do not know the exact outcome.
Lately, we actually participated in another one mid-size portfolio transaction, and just recently, we decided to drop out there as well, given the fact that the indications are that that transaction will be finalized in mid-3% yield, and we were not ready to pay those prices. Most likely, we are not able to make property transactions this year that will have an impact for top line this year, given these couple of transactions where the prices were so high that we were not ready to pay those prices. Page 20, on the left-hand side column, 2,532 apartments covering where we already invested EUR 326 million, and to complete those developments, a little less than EUR 300 million to be invested. 1,062 apartments where we have binding agreements with construction companies.
There we have fixed price agreements, and that will take a little more than EUR 233 million to build those apartments. On the right-hand side, our land bank, if you like, so there we have pure land. Then there we have some plots where we have existing residential building that will be demolished and build a new one, and then this Metropolia case, as Jani mentioned. All of these plots and real estate development reserves are located in the Helsinki region, and we estimated that EUR 320 million-EUR 350 million investments this year. Loan to value, page 21, and equity ratio well in line with our targets. Page 22, equity per share, and especially EPRA NAV and EV per share improved nicely. Growth from the corresponding period more than 30%, and we are now trading roughly with a 13% premium against EPRA NAV and EV.
Page 23, we have quite strong financial key figures. Average interest rate, including the cost of derivatives, 1.8%, and hedging ratio was 89% at the end of Q3. Average interest at fixed period and average loan maturity close to five years. Total loan portfolio, a little more than EUR 3 billion, 55% of those are bonds, and outstanding commercial papers, EUR 50 million. We were quite cash rich, given the strong development pipeline, so we wanted to tap the European market before the summer break, and we still have money left of that transaction, if you like, so almost EUR 500 million cash and financial assets. On top of that, we have EUR 300 million committed unused credit lines in place. Page 24, strategic KPIs, annual growth year to date 2.3%, where we have a strategic target to be between 4-5%.
The like-for-like growth here this year, 1.7%, as Jani mentioned. In short term, we expect rent increases to be above and water charges increases to be above 2%, but given the fact that how like-for-like calculation is made, of course, the occupancy rate will have a negative impact in short term there. In mid- to- long term, we expect like-for-like growth to be between 2.1-2.5%, and then we've taken into account the ongoing developments, especially those that will be completed in 2021, almost 400 apartments, and they will, of course, contribute to revenue growth and will take our revenue growth on or above the strategic target what we have here on page 24. Annual investments, nicely in line with the target already. FFO total revenue EUR 39.6 million, well above our strategic target EUR 36 million.
Loan to value equity ratio in line with our target, and net promoter score strong, 36%. Page 26, our outlook. We are one of the few companies that actually have kept giving outlook during this whole COVID-19 period, and we still are doing that, and we kept our outlook unchanged. It's good to note, of course, that this outlook means that our total revenue will increase, and that's quite rare at these times as well, so we are very proud that we are able to increase our top line and keep our outlook unchanged. Given the fact that it's unlikely that we are able to find a portfolio to be acquired that will have an impact for top line this year, given that we are already at this point of the year, so most likely we are going to hit the lower end on this top line range.
FFO guidance, if we take the midpoint of that range, there we have a couple of assumptions to hit that midpoint. One is that the weather is going to be so-called normal weather, and the remaining part of this year that repair projects will proceed as planned. SGA expenses will be on the same level as the corresponding period, and no disposal, meaning that no additional cash taxes to be paid, and no additional financial arrangement this year as not needed, given the sizable cash what we at the moment still have. Dividend policy, no change is there, so 60% of FFO to be paid dividend. At this point, I hand it back to Jani.
Thank you, Erik. Of course, for most of the companies, this year has been exceptional, and the operating environment has been a bit challenging.
For us, it's nice to be able to provide the information, as Erik mentioned, that we have and we are able to increase the total revenue, the net rental income, and the FFO, and actually we've been able to increase the net rental and FFO more than the total revenue. We do have a really strong project pipeline, a lot of projects under construction providing additional growth next couple of years, and there it's good to note that it seems that as we are providing more completed homes 2021, 2022, at the same time in the total market, the number of completed new apartments will be going down. All the estimates are providing the information that the pandemic will have only a temporary impact on the housing market, and the urbanization will continue creating a lot of demand for new rental apartments and other apartments as well.
I would say that Finland needs a lot of new homes in the biggest cities, so a bit worried about the number of startups this year. For Kojamo, things look really good, and we are well in line with our strategy and ready to continue on our growth path. Thank you, and now I will pass to Maija.
Thank you very much. Now we have some time for questions, and first we will be taking questions from the conference call line. Operator, please, we're ready.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question is from Sampo Tukiainen from Nordea. You may begin your question, sir.
Good morning, and thank you for a good presentation of the Q3 results. I hope you can hear me.
We hear you, thank you.
Great. Yes, thanks for opening up on the like-for-like. If I just stay a bit on that theme, the report number was 1.7, but adjusting for vacancy, it would have been 2.4. That 1.7 compares to 2.8 last year. Can you give an indication of what the vacancy impact was in last year to the 2.8% number?
Last year, the occupancy rate played a positive role in like-for-like, slightly positive.
Okay, so basically you could assume that the like-for-like 2.4 adjusted is approximately at similar level as last year.
Yeah, that's correct.
That's very clear.
Regarding your EPRA yield increased from 4.22% to 4.32%, what's the reason behind that? You still at the same time say that you walked away from a deal where it was in the mid-three level.
The main reason behind that positive change, if you like, is that the passing rent is actually on a high level than in corresponding period.
I would add that, of course, as I mentioned, for us, it's important that we are able to grow using multiple sources, and we are optimizing our growth. As I mentioned, we do have a really solid pipeline, a lot of projects under construction providing the net initial yield of 4% or above 4%. If we would do an acquisition, all the parameters should be good for us. The micro-location, the apartment sizes, and the pricing.
We saw that we are not willing to pay mid-threes or three and a low figure.
I fully agree on that, and I think your strategy to do own developments is optimal now. What I do not understand is how the fact that you cannot buy anything because the yields are so low, why did not they transfer into your own valuation?
I think as we provided the information after H1 results, of course, we have been talking with the brokers and the valuators as well, and it seems that there is not enough information and completed transactions in the market. It seems that the yields concerning valuation stay stable this year, and if there is enough new information, then the valuators will think about the issue next year.
Okay, that is clear. You said that you had two portfolios that you looked at.
The second one was, you said, around three and a half yield. Can you elaborate on was that newly built or older apartments?
It's an ongoing project, so choosing my words carefully, so it's a combination.
Okay, that's clear. I think that's all from me for now, at least. Thank you.
Thank you.
Thank you very much. If you have a question for our speakers, please press zero one on your telephone keypad to enter the queue. Our next question is from Oliver Karatus from Goldman Sachs. You may begin your question, sir.
Good morning, and thank you very much for the presentation. Just a couple of quick ones from me. On the lower like-for-like rent growth progression for this year, I think it was 1.7% is your 9M number. What's the split on this between occupancy and rental pricing?
Is it all in relation to the weaker occupancy, the fact that this number has come down from, I think, about 2.7% last year?
Thank you for the question. Yes, as I provided colors, the components inside the like-for-like growth was that the occupancy, the negative impact was 0.7%. Actually, what it means is that the increase in the rents and water charges was 2.4%.
Got it. That's very, very helpful. Thank you. Sorry, I missed that number earlier. On just a second quick question, based on what you were saying around the velocity of the leases you've been signing through to October, should we expect this 96.3% occupancy number to improve by year end?
Of course, if we are able to increase the number of new tenant agreements as we have been during the summer, they will have a positive impact.
There is a slight delay, of course, always when a new customer signs a tenant agreement until they really move inside the apartment and start paying.
Okay. Maybe phrase it another way. What would be the, I guess, normalized, you had this kind of supply impact from the long-term rentals. What would be the best way to think about a normalized occupancy rate once we get through this?
We had the historical figures on some of the pages. I do not recall the exact number, but it is around 97% the occupancy levels. Okay.
It is 17. You can find the historical figures in the presentation.
Okay. Very helpful. Thank you very much.
Thank you. Our next question is from Sampo Tukiainen from Nordea. You may begin a question.
Yes, hi again. A follow-up question.
You said that I didn't catch it all, but regarding your guidance of 2-5% revenue growth, was it so that you said that it's going likely to be closer to the lower end? Do you have any indications regarding the FFO guidance, or do you have any comments on that? Will that also be to the lower end, or are there too many factors affecting that?
In FFO guidance, of course, there are many factors, but I tried to give a color of what it's required to hit the midpoint of that FFO range. Of course, it depends on all those factors, but as mentioned, it's depending on the weather of the remaining part.
To hit the midpoint, it requires to have a normal weather on the remaining part of the year to have these ongoing repairs projects to proceed as planned, to have SGA expenses on a previous level and no disposals, so no additional cash taxes to be paid and no additional financing arrangement as not needed given the size of the cash at the moment. If these will happen, then most likely we are pretty close to the midpoint of that range. As you said, there are many factors, so we are not able to provide any further information where we are going to. It depends.
Top line going to be below 3.5% growth?
Top line is going to be most likely on the lower end of that outlook range.
Okay. Thank you very much. Thank you.
There are no further questions at this time. Please go ahead, speakers.
Thank you. We have one question from the chat. According to Statistics Finland, the rents are rising at the rate of 1.5% in Greater Helsinki area. You have said previously that you are expecting higher like-for-like growth at a range of 2.1-2.5% in the medium term. How would you describe the level of your rents compared to the market, and could you also elaborate the drivers behind the figure in Q3 and your growth ambition being above the market?
Of course, we tend to think that we have the rents at the market, and we are following the market really closely, and actually we are using AI in pricing today. The pricing is a combination, of course, where we have a lot of parameters.
The market price is dependent on the micro-location of the product, so what kind of building, the quality of the apartment, and then at the end of the day, the customer experience, what kind of services and additional values you are able to provide for the customer. This is our strategy. We are providing high-quality customer experience along with public transportation, excellent micro-locations.
Okay. Thank you. We have another question. The yield in the EPRA NAV gained 10 percentage points. Is that a rounding effect, or what is it?
It is the increase of passing rents. If you look at the annualized cash passing rent in Q3 report page 25, at the end of last year it was EUR 385.3, and at the end of Q3 it was EUR 393. This passing rent reacts faster to the higher amount of lease agreements in place than like-for-like growth.
This explains the difference there, or positive impact there.
Thank you. It seems that we do not have any more questions. I would like to take this opportunity to invite you all to our investors' day on 2nd of December this year. We will discuss some very topical themes for Kojamo at there. As Jani mentioned, we are going to talk about the digital roadmap presented by Katri Haarra Salonen, our Chief Digital Officer, and also we are going to publish our sustainability program, which will be presented by our Sustainability Manager, Hanna-Mari Koivula. Of course, we will also give you more color on our investments and development side presented by Ville Raitio, our Chief Investment Officer. To wrap up, we are going to publish our full year results next year on 18th of February. Hope you see all in there. Thank you very much for participating today.