Good morning, ladies and gentlemen, and Welcome to Kojamo's Half-year Report News Conference. My name is Maija Hongas, and I'm Manager Investor Relations here at Kojamo. I'm very pleased to see you all here after these very weird circumstances that have been on for a while now. Today's presenters will be familiar faces: CEO Jani Nieminen and CFO Erik Hjelt. After the presentation, we have some time for questions. First, we will be taking questions here from the conference room, and after that, from the conference call line. Without further delay, please, Jani, the stage is yours.
Thank you. Hello, everybody. Nice to see you here in the conference room as well. I think the story there is, of course, to pinpoint the cover page. The one building in the middle is Luma One Tower, under construction at the moment, on top of Redis Shopping Center. If we move forward towards the agenda, I would say that today we are presenting a solid H1 report. In a big picture, if I wanted to highlight some aspects, I would say that all our essential operations have been running. All construction projects have been proceeding as planned. We have strong progress in development projects. Financially, we are strong and in a good position. COVID-19 has had a limited impact for us. On the other hand, we see that urbanization will continue creating demand, and we are well in line with our strategy.
As I mentioned, the impact of COVID-19 has been limited. Of course, one aspect is that there has been temporarily more supply in the market. We knew that a lot of new apartments will be completed in Finland during H1 because of the high volumes of construction work. On the other hand, these special circumstances created a situation that, for example, most of the so-called Airbnb apartments were converted to long-term rental use. At the same time, because of these circumstances, for example, students went back to their homes, either to their parents here in Finland or back to their home countries. That created temporarily a bit of an unusual situation. We have been operating in a more challenging period of time. On the other hand, now it seems that the situation here in Finland is relatively good.
On the other hand, of course, the anticipation of the so-called second wave has begun. Finland's GDP has significantly decreased, but on the other hand, compared to many other countries, it seems that the situation here in Finland is better. Of course, we have to keep in mind that Finland is a small export-driven country, and the second wave of the pandemic to Finland's export markets would hurt our economy. On the other hand, here in the property market, I would say that the impacts of the pandemic are expected to be temporary, and urbanization will continue. According to the latest estimates and forecast published in June this year, urbanization will continue. The housing need by 2040 is 700,000 apartments here in Finland. Of course, the Helsinki region will be growing most, and there will be the biggest need for new apartments.
In the operating environment, we already during last year saw that the construction volumes will be slowing down, and the number of new building permits granted will decrease. What's been happening this year, of course, combined with COVID-19, is that residential startups seem to be going down rapidly. Now the estimate is that only 28,000 apartments will be started this year. The volume of new completed apartments in the market will go down during the next couple of years, 2021-2022. We have to keep in mind at the same time that due to the urbanization, the need is to complete 35,000 apartments here in Finland to the biggest cities on average annually. Finland seems to be heading for a period of time where there is less supply in the market against a growing need because of the urbanization.
Construction costs, the increase there seems to have leveled off. We were able to find really good opportunities during Q2 to buy new development projects from construction companies. Now what's happening in the housing market, it seems that the estimates concerning rent increases are still valid. On the other hand, it seems quite difficult at the moment to estimate what's going to happen with the housing trade. During the pandemic, there was a severe slowdown. After the summer vacation, it seems that people are buying homes a bit more. On the other hand, typically this kind of uncertainty creates more demand towards the rental market, and people are less attracted to buy homes. Of course, as the forecast says, urbanization will continue, and by far the biggest need for new homes is in the Helsinki region.
It's good to keep in mind that still the same big drivers are creating a lot of demand for new apartments in the biggest cities: urbanization and the development of household sizes. Actually, according to the latest forecast, the development of household sizes, so the number of one and two-person households, is still growing, and that creates actually more demand to create new homes than the population grows. At the same time, we have seen that people are increasingly attracted by the freedom provided by rental homes and the services we are able to arrange in rental homes. As I have been pointing out prior, it's good to notice that even typically people tend to think that Finland is a country with owner-occupied apartments. Here in Helsinki, more households are living in rental apartments today than in owner-occupied homes.
At the same time, close to half of the households in Turku and Tampere are today living in rental apartments. The number of households living in rental apartments has been increasing annually. Occupancy is still on a good level, even though, of course, temporarily the operating environment has been more challenging. For example, here in the Helsinki region, as I said, a lot of new apartments have been completed during H1. At the same time, more supply came from so-called Airbnb apartments, and the students went to their parents. It is not the typical situation, but it seems that the impact is temporary. To give some color on that issue, for example, here in Kojamo, we have been making more new rental agreements every month since April. July was the highest number of new rental agreements this year.
If we take a look at the fair value of the housing portfolio, it's good to keep in mind that we've been focusing on the biggest cities and city areas here in Finland. 73.4% of the housing assets are located in the Helsinki region. If we combine Helsinki, Tampere, and Turku regions, more than 87% of our housing assets are today located in these areas. The numbers show that it's been a really solid H1, providing profitable growth. The net rental income increased more than total revenue. The like-for-like growth of the rents was 2.4%. The revenue grew 3.2%. At the same time, the net rental income increased by 6.2%. The funds from operations, EUR 71.5 million, the increase there was 7.6%. Fair value of the investment properties today, EUR 6.5 billion.
Of course, we have to keep in mind there that during Q4 last year, we made a valuation methodology change, and the impact there was roughly EUR 800 million. Gross investments during H1 was EUR 179 million. There, by far, the biggest portion was new development projects and investments there, EUR 156.5 million. Profit excluding changes in value, EUR 77 million, was 6.6% above the corresponding period. We received a EUR 48 million net gain in fair values compared to last year, EUR 72.3 million, and ended up profit before taxes, EUR 125.2 million. As I said, we were able to make quite good agreements concerning new development projects during H1. At the end of H1, we had 2,380 apartments under construction, all located here in the Helsinki region. We completed 201 apartments.
It is good to keep in mind that as we have a really high number of apartments under construction, we kept ourselves busy during Q2 and started 811 apartments. We do have a really strong pipeline and a solid base for our growth strategy. A record high number of projects under construction combined with co-operation agreements providing more than 1,200 apartments, combined with so-called Metropolia properties where we have the zoning process ongoing and expected to be completed by 2020. A lot of new apartments are needed here in the Helsinki region. Kojamo, by far, at the moment, is the biggest player providing new homes and helping the urbanization. We have all our properties along with public transportation with good micro-locations. The strong pipeline will come visible as growth starting by 2021 as the number of new completions will severely grow.
Next year, we are completing more than 1,200 apartments. In 2022, more than 1,800 apartments will be completed. Of course, every day we still keep on working in order to try to find some new good projects. Digitalization has always been an important topic for Kojamo. Today, Kojamo is a frontrunner thanks to online selling and MyLuma mobile services. At the same time, we do believe that there are still a lot of opportunities available in using technology and digital solutions. The digital roadmap will focus on creating even better customer experience, operative excellence, and efficient use of data and AI. During the next years, we will be providing new solutions as well. We are not stopping with online selling and MyLuma services. Today, of course, we are already providing a high-quality customer experience and a lot of services.
Easy access with online selling, a lot of services for a customer entering LumaWorld. On the other hand, we are providing a lot of services and taking good care of our existing tenants with a lot of and a wide scale of different services. A daily operation is to use MyLuma application where you are able to take care of all your problems ordering services. It is good to keep in mind that WebStore is not a pilot project. We are at the moment getting half of all new customers from the online selling. At H1, over 18,000 new agreements there. Today, more than 19,000. We are on the level where we are able to do so-called A and B testing, a lot of new features in online selling. That is one aspect that will even be growing in the future.
Sustainability has been a really important issue for us as well. It's part of our company's DNA. Now we have conducted a materiality analysis of sustainability, and we will publish our sustainability report later this year. At the same time, during the summer, we participated in GRESB for the first time. As you see on the right-hand side, we have been quite successful in proceeding with our energy-saving targets. At this point, I would pass the microphone and topics to our CFO, Erik. Please, Erik.
Thank you, Jani, and good morning everybody from my side as well. It's great to see people here even in the conference room this time. Page 17, if you start to look at the final figures, total revenue growth was 3.2% and the revenue growth was EUR 5.9 million. Completed apartments contributed EUR 3.3 million for the growth, acquisitions EUR 0.2 million to 0.5 million.
Disposal was a negative figure, of course, there, EUR 2 million, and then rent increases EUR 4.1 million. The like-for-like growth was 2.4%. If we then look at the profit from changing fair value of investment properties, EUR 48.2 million. Two-thirds of that was contributed by the ending restrictions and 20% for development gain. We booked modernization investments, money spent there as a negative figure in changing fair value of investment properties. That was EUR 10.7 million. At the end of H1, we kept all major parameters. The biggest one being the yield requirements unchanged given the fact that in the market there has not been any transactions. We discussed a lot with the brokers and JLL, and they said our view that now it is not the right time to change the yield requirements.
We want to see transactions, and hopefully at the second part of this year we'll see some. Of course, we can look at the yield requirements again, but we estimate that the yield requirements will be flat given the lack of acquisitions in the market. Net rental income, the growth there was 6.1%, so bigger, stronger growth than the top-line growth. The growth was EUR 7.2 million. Total revenue contributed EUR 5.9 million. Maintenance was EUR 1.5 million lower than in corresponding periods, mainly thanks to the mild winter during the first quarter. Repairs was EUR 0.2 million higher than in the corresponding period. Net rental income margin, what we booked was 65.6%, but it's good to keep in mind that we booked all property taxes in Q1.
If we adjust the NOI margin with the property taxes allocated for the second half of this year, the margin is about 68%. FFO grew EUR 5.1 million. Net rental income contributed EUR 7.2 million. SGA expenses quite flat, so EUR 0.3 million bigger than in corresponding periods. Financial expenses EUR 1.5 million more given the fact that the loan portfolio was much bigger than in the corresponding period. And gas taxes EUR 0.7 million higher than in corresponding period. Occupancy rate stood on quite a good level despite the COVID-19, as Jani already described. Page 20, the gross investments, EUR 179 million, little more than EUR 166 million spent for development investments, modernization investments EUR 10.7 million, and capitalized interest EUR 1.5 million. During H1, there are no acquisitions actually. We participated in one bidding competition before the summer break.
We were on the second round, but the asking price went so high that we were not willing to pay that price, and we dropped out from that bidding competition. The transaction has not been finalized yet, so we do not know what the final outcome is going to be, but we were not ready to pay that price. Modernization investments and repairs moved sideways compared to the corresponding period. We estimate going forward that modernization investments and repairs put together is going to be somewhere between EUR 60 million and EUR 70 million per year. In 2020, we estimate to be on the lower end of that range. The value of investment properties, EUR 6.5 billion. As Jani mentioned, at the end of last year, we changed the valuation technique that contributed roughly EUR 800 million positive impact for the value of the properties.
The change of the properties, the value of properties this year has been positive as well. We still have, at the end of H1, 2,633 apartments where we still have restrictions regarding the valuation of those properties. Those restrictions will graduate by the end of 2024. The uplift in the value on average is going to be EUR 88 million per apartment. That is a little more than EUR 200 million altogether. 1.5% of that will come through this year, 30% in 2024, and the rest is spread evenly for the other years. At the end of H1, we had 426 so-called VEVE apartments where we still have restrictions regarding the rents. Those restrictions will end by the end of this year. Page 22, our strong pipeline now looked from the euro point of view, if you like.
Apartments under construction, almost 2,400 apartments, more than EUR 280 million already spent in those ongoing developments, and a little more than EUR 300 million to be spent to complete those apartments. We have binding agreements, mainly cooperation agreements with SRV and Hausia, providing us 1,252 apartments and a little less than EUR 270 million to be invested in those apartments. Our land bank, right-hand side column, where we have pure land, we are able to build more than 1,000 apartments on that. We have a plot where we have an existing residential building, and the idea is to demolish the existing building and build a new one, around 700 apartments to be built there. These conversions, biggest one being the Metropolia case, more than 1,000 apartments. All these plots and real estate developments are located in the Helsinki region.
We estimate that the whole year development investments are going to be somewhere between EUR 320 million and EUR 370 million. We end up with this EUR 320 million total figure for this year if we just make these investments that are already ongoing. The idea is to start a couple of new ones, and if we are able to proceed according to our plans, we will end up at the higher end of that range. So far, we've been able to book on average 20% development gain when we are completing these development projects. We estimate that on average, the development gain is going to be the same in all these projects that we currently have ongoing and in these cooperation agreements. On top of that, the net initial yield in all these projects on average has been 4% or above that.
If we look at the future growth, that means that we are able to grow both the value of the properties and the top line as well. That gives very, very strong growth for us going forward. Equity ratio page 23 and loan to value, we have set targets for loan to value to be below 50%, equity ratio to be above 40%. We are well in line with these targets, and we have quite nice buffer actually against these target levels. We are able to grow without asking any new equity. EPRA NAV EUR 15.62. At the end of this year, the EPRA changed the guidelines for EPRA NAV, and we are going to adopt that at the year-end figures. This is the old one, if you like, EPRA NAV. The growth there was strong as well.
Page 25, our liquidity is on a good level. We tapped the euro bond market at May. Now, of course, our liquidity is on an unusually high level given the cash equivalents, liquid financial assets, and unused credit facilities as well. We decided to tap the market because we felt that it is better to make these financial agreements earlier rather than later given the strong development pipeline that we have and the uncertainties in the market. That euro bond was very successful, seven years maturity, three or four times oversubscribed, carrying a coupon of 1.875%. Page 26, versatile capital structure. Now the portion of bond financing is 54%, and going forward, we expect that portion to grow even more. We want to have bank financing in place as well.
Given the growth of the company, of course, euro wise, even the bank financing can grow going forward as well. Hedging ratio at the end of H1, 87%. Average interest rate one notch down, 1.7%. The coupon was slightly higher than on average in our portfolio, but we paid back EUR 100 million bond. The other coupon was much higher, and we paid back a couple of smaller bank loans where the margin was even higher than in these existing loans. The average interest rate period and average loan period is healthy, close to five years. Page 27, strategic targets for 2023. A couple of notes there. One is that the average growth per year in strategy for between 4% to 5%. Going forward, we estimate in the midterm that the likelihood of growth is going to be somewhere between 2.1% to 2.5%.
If we then add these ongoing developments which may not complete, they start, of course, to generate positive cash flow, and that will contribute very strongly for this top-line growth. FFO against total revenue, well in line with our target, but again, there is an impact for the fact that the property taxes was booked for the whole year in Q1. If we allocate half of the property taxes for the first half, this ratio is around 40%. Outlook, top line, outlook slightly specified. As discussed earlier, we participated in that bidding competition for acquisitions and decided not to acquire that portfolio. We will, of course, look at the market, but given the fact that more than half of the year has already passed us.
Even if we manage to acquire something, the impact for the top line is going to be quite limited for this year. That is why we slightly revised the top line guidance. We retained our FFO guidance. No changes there. We estimate the impact of COVID-19 for the outlooks. I think the main takeaway here is that we expect that our operations will continue for the most part. We estimate no specific changes there having impact for our outlook. Now back to Jani.
Dividend policy on page 31, no changes there. Our objective is to be a stable dividend payer. The annual dividend payment will be at least 60% of the FFO provided that equity ratio is 40% or more, taking account of the company's financial position. Both the equity ratio and financial position seem to be strong at the moment. To summarize what's been happening, I would say that it's quite obvious that we have been having a really solid H1 with profitable growth. In our strategy, it's important to understand that we are able to grow from various sources. We are combining growth from new development projects. We are able to buy portfolios if we find a matching portfolio to our portfolio and the pricing is right. We are able to convert buildings into apartments like the Metropolia case. We have been having strong progress in property development. The pipeline is record high, and we are well in line with the strategy and in a good position to continue our operations. Thank you. At this point, I would pass it to Maija.
Thank you very much. Erik, please, would you join us to the stage? Now we can have some questions, and we will start here from the conference room.
Hi. Anssi Kiviniemi from SEB. Thanks for the stick and for letting us ask questions. New rental contracts, you highlighted that July was a record for this year. What about year-over-year comparison? Because I would assume that July is a strong month altogether. How is that? Also, in Q2, occupancy ratio, that was quite low. Do you expect it to be the lowest point this year, or do you expect it to be kind of in a similar level going forward?
Typically, it is good, of course, to understand that the more new agreements we do, the better the occupancy typically gets. It may take a period of time before they are valid. The lowest point is probably over because we have been doing more and more new agreements all the time. Not to provide exact figures, but July this year was really good compared to many years.
Yeah. The second question, it's basically on the pipeline. Sorry if I missed it, but how much of the overall pipeline commitments and units under construction are in the capital region, in Helsinki region? What's the situation in the Metropolia development project? Could you give us some kind of indications on how many apartments will there be roughly altogether just to figure out what's the potential of the project?
If I recall right, of course, it's easy to say that all the projects under construction are located here in Helsinki region. Actually, it seems that the whole pipeline is located here in Helsinki region. In the Metropolia case, it's an ongoing zoning process. We expect it to be ready this year. Of course, it's not entirely in our hands, but we expect and hope that it should be totally ready this year. The expectation there is 1,000 new apartments here in Helsinki region.
Yes. Hi, Markku Moilainen from OP Bank . How much would you say that this COVID-19, i.e., work-related immigration and students moving back to home, affected your rental income in Q2?
I would say it's not easy to provide an exact figure. We are sure that it had an impact because temporarily the market has been challenging and totally different. There is a combination that people were not able to continue urbanization to move from other cities to Helsinki. On the other hand, students leaving the rental apartments. At the end of the day, even though we've been quite successful running business from home offices, it's not entirely the same process.
Thanks. Second question, you highlighted that the supply of rental apartments has grown in Q2 mainly because of these Airbnb apartments coming to the market. Has that affected the rent level of new lease agreements?
Not here in Helsinki region. No.
Okay. Thanks. That is all from me.
Okay. We can move on to the question from the conference call line. Please, operator.
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. There will be a brief pause while questions are being registered. Our first question from Ben Tetchner from Nordea. You may begin your question, sir.
Yes. Good morning, and thank you for taking my questions. The first question is regarding the likelihood of likely in Q2. I did not find specifically mentioning of that, but 2.4 in H1 and 2.6 in Q2. Is it fair to assume it was a bit lower, 2.2?
It was a bit lower. Yeah. You are right. Yeah. The 2.4 is for H1 for this year.
Yes. You do not see any impact from the increased supply of Airbnb on likelihood of likely going forward?
How we see the market is that those apartments that were converted for short-term lease to longer-term lease or Airbnb apartments, that has already happened.
Okay. That is clear. Regarding the valuation changes and the EPRA yield that you disclosed, the EPRA yield went down from 4.29% to 4.22% roughly. Has that more to do with the timing of vacancies and so on?
It is pretty much the timing of the vacancies. If you look at the figures for passing rent, there's a slight change there. No material changes, actually.
Okay. I think it's good that you told about the development gains that you have had on your new developments. Those appear to be quite encouraging. You said that a yield of 4% or more. We should, it's easy to calculate that we get into the 3% to 3.5% valuation yield range. Is that correct to expect? I guess that is what you have guided also, that transactions have been made on new apartments in the capital region.
If you just look and use your Excel, 4% net initial yield and 20% development gain gives you 3.2%. In the ballpark, I think you are right.
Okay. That's good. Perhaps there was a review, Asumismenot 2020, published, I think, yesterday. There they also suggested that people postponed their buying apartments and move more to rentals. Have you looked at that, and do you agree with the conclusions there?
We've been providing views that people are increasingly interested in rental apartments for a period of time already. I guess it's the other way around. They are backing our story.
Okay. Fair enough. Thank you very much for taking my questions.
Thank you.
Thank you. Next, we have Elina from Barclays. You may begin a question. Yes.
Hi. Good morning. I just have two questions. The first one is about the guidance. What are the reasons behind a lower-higher range for your total revenue increase guidance? The second question would be on the pipeline. Can you confirm, because we might have heard it wrong, but do you expect the profit on cost from the development pipeline to be around 20% going forward? Thank you.
20% development gains. So it's against the cost, correct there. The reason, as mentioned, to specify the top line guidance was that even if we manage to acquire a sizable portfolio this year, the impact for the top line this year is limited, given the fact that half of the year already passed. That was the reason why we slightly specified the top line guidance.
Thank you. Next question, we have Neil Green from JPMorgan. You may begin a question, sir.
Hi. Good morning. Thank you for the presentation. Just one question on the balance sheet. I can see the average cost of debt of 1.7. There's not a huge amount of debt coming up for refinancing in the next few years, but I was wondering where your kind of marginal cost of debt is today, please, and if you see any opportunity to bring that 1.7% down over the coming few years as well.
The coupon in the latest year upon was 1.875%. The spreads have come in after that. That is how the market at the moment seems.
Thank you. There are no further questions at this time. Please go ahead, speaker.
Thank you very much. We had from the chat function only one question, but that covered the Metropolia project that we already discussed. Thank you very much for all of you participating. If you may switch to the next slide. Thank you. We are going to publish our interim report for Q3 on 5th of November. Earlier, we mentioned that we are planning to have a capital markets day this September. Unfortunately, due to the circumstances, we have decided to postpone that until next spring. I hope the weather is nice then, and you'll be able to see our properties. I hope the situation is much better then. Instead, we are going to arrange investors' day in a virtual format 2nd of December. We'll be sending the date soon. Let's see you there. Thank you very much.
Thank you.