Good morning, ladies and gentlemen, and welcome to Kojamo's Q1 Results Audiocast. Due to the coronavirus pandemic, we are not hosting this time a news conference at Kojamo's head office, but instead we are happy to present our results with this audiocast. Today's presenters are CEO Jani Nieminen and CFO Erik Hjelt. After the presentation, we have some time for questions. We start with the questions from the conference call line, and after that, it is also possible to ask questions with the chat function in the audiocast, and we will be taking those after the conference call line questions. Without further delay, let's get started. Please, Jani, you can start.
Okay, good morning, everybody. Jani Nieminen here. Today we are providing information in a bit different circumstances, and I'm sitting alone here in my office room having a headset. It would be so much nicer to present our Q1 in front of real people. Anyway, our strong Q1 is reflected to all our key figures. We've been able to continue profitable growth, and our pipeline for new building projects is really strong. During this COVID-19 pandemic, all our essential operations are still ongoing, and our strong capability to provide digitalized services has made it possible for us to serve our clients and keep on renting our apartments. We are well in line with our strategy, and we have specified the outlook for 2020. I was just checking out whether I have the authority to change the slides, of course. Let's move forward and see what's been going on.
I'm checking out the scroll. I would like to start with providing some information about the impact of the COVID-19 pandemic. As I said, all operations here are ongoing. We made a smooth transition to remote working. Actually, our people started working from home offices the 16th of March. We are able to provide services. For example, the call center is operated from home offices. We are providing a lot of information and access to customer questions with myLumo services. We are able to keep on renting our apartments with our web store. We have used, I guess, a bit even more technology in order to rent the apartments and help our customers. Examples like using video streams in order to check out the apartments and to create a marketing video.
If we look at the customer side, so far there has been no increasing needs for rent payment arrangement, and it seems that also April and May rents are paid in a normal manner. Of course, we have made it possible, if needed in the future, to create some payment arrangements if needed. In order to keep our people and our customers safe and sound, we have restricted the common spaces use and postponed non-urgent maintenance and repair visits to inhabited apartments. Of course, we tried to proceed with the repairs outside these apartments in a normal manner. In order to help this pandemic situation, there are no saunas at the moment, for example, for tenants, and we increased some cleaning in elevators and lobbies. On the construction side, the construction of new apartments and our development projects continues normally for now.
Financially, we are able to continue our operative actions and growth in a normal manner. If we then move forward, what's been going on during Q1, I would say that to start with, urbanization is still the important megatrend and creates demand for new apartments, and that is expected to continue, and the significance of larger growth centers will increase. The pandemic will dampen economic activity, and Finland's GDP is estimated to decrease. There is exceptional uncertainty in estimating future development of economic development, and we provided some scenarios provided by authorities at the moment. I would say that typically, downturn in the economy and decreasing consumer confidence has had an impact on the housing trade. Home buyers are buying own-occupied homes, and that has created typically more demand towards rental apartments.
We estimate that long-term demand for rental apartments continues and may even grow a bit. The number of new building permits was reducing already before the COVID-19 pandemic, and residential startups are estimated to contract by several thousand units until 2021. It seems that construction companies are postponing projects as home buyers are more careful, and on the other hand, it seems that construction companies are having a bit harder times with financing their projects. The increase of construction costs has leveled off, and I estimate that the new situation will provide a situation where construction companies are providing more projects for us. At the moment, it's really difficult to estimate the development of prices of dwellings, so what's going to be happening with the housing market and people buying their homes. I would say that estimates concerning rents seem still valid.
In the longer term, urbanization keeps the demand high for rental apartments, especially, of course, the Helsinki region, as the biggest growth centers play an important role. The number of households living in rental apartments has been increasing in all the big cities, and we estimate that trend will continue. Of course, now I would say it's a combination of even more things providing an impact. On the other hand, we are already seeing that people are increasingly attracted by the freedom provided by the rental housing. On the other hand, the development of household sizes, so I mean the number of households of one and two persons, is typically creating a lot of demand for rental homes. Now, during the coronavirus pandemic, it's estimated that the housing trade will slow down and even further increase the popularity of rental apartments.
We've been focused our operations in the seven biggest growth centers here in Finland, and at the moment, we have 73.1% of our assets located in the Helsinki region. If we combine the three biggest growth areas, so the Helsinki region, Tampere region, and Turku region, it's today 87.5% of our housing assets located in these three regions together. The final occupancy rate, 96.9% during Q1, was actually the same as last year during Q1, so there's typically some changes throughout the year. If we look at the key figures, I would say that we've been able to keep on providing profitable growth. The revenue grew with 4.6%, and our like-for-like growth was 2.9%. Last year, Q1 like-for-like growth was 2.6%, so a really strong like-for-like growth.
We were able to increase our net rental income by 10.2%, and there is important to notice that even though the number of apartments has been growing, our maintenance expenses were actually EUR 0.8 million lower than last year. Funds from operations, EUR 29.4 million, there was an increase of 11.8%, and of course, the strong net rental income growth provided a solid FFO growth as well. Today, the fair value of investment properties is EUR 6.4 billion, and cross-investment EUR 62.1 million is mainly new development projects. The amount of new development projects there is EUR 58.5 million, and the rest is basically modernization investments. The strong operative result, EUR 29.7 million, is 4.1% higher than last year, and profit before taxes includes a net gain in fair values of EUR 22 million compared to last year's EUR 10.4 million.
I would say a really solid and strong beginning for this year. We have a really strong pipeline for new development projects, and at the end of Q1, 1,651 apartments under construction, all located here in the Helsinki region. We started construction of 454 apartments and made an agreement with SRV providing another 676 apartments in the Helsinki region. Actually, if we compare the number of apartments under construction at the end of Q1, all those projects are located in the Helsinki region, as last year of 1,280 apartments. Of that, in the Helsinki region, was located 1,010 apartments. It is good to keep in mind that in order to grow, we are able to combine different sources like building new apartments, converting buildings into residential use, and by buying existing apartments.
In addition to projects under construction, we have existing agreements providing an additional 1,305 apartments here in the Helsinki region, and we signed an agreement with SRV in March, including the highest rental tower building to be constructed in Finland. Actually, the construction work has been started during April, and the tower will be named Lumo One. The zoning process of Metropolia development project is currently ongoing and expected to be completed in 2020. We estimate that the Metropolia case will provide another 1,000 apartments here in the Helsinki city center area. If we look at our projects under construction, and on the other hand, the binding pre-agreements, all the projects in our strong pipeline are located nicely along the public transportation, and Metropolia case will provide 1,000 new apartments in the city center of Helsinki.
Of course, I love talking about how we create services and combine technology. As we believe in providing added value for our customers, we will continue creating new services and concepts for our customers. We have been already successful in combining technology and services, but for the future, we are actually at the moment developing Kojamo's next digital roadmap. There are several aspects in order to create a digital roadmap. To mention some, one would be customer experience and service education, then scalability and employee experience, digitalization of properties and services, AI and knowledge management, and enabling technology and IT architecture. At this point, I would transfer to our CFO, Erik Hjelt.
Thank you, Jani, and good morning everyone from my side as well.
Page 15, the total revenue growth was EUR 4.2 million, and like-for-like growth was 2.9%, and that contributed EUR 2.6 million for the top line growth. We are gradually moving towards separate water charges, and that contributes quite nicely to the like-for-like top line growth as well. We expect the like-for-like growth to be between 2.1%-2.5% going forward. Completed apartments contributed EUR 1.6 million for the top line growth. We completed 119 apartments during Q1 this year, but of course, the completions last year after Q1 2019, 755 contributed as well, but then we sold 520 apartments last year as well. The net contribution for top line growth. The profit before taxes includes the profit for changing fair value investment properties, EUR 22 million.
Two-thirds of that is coming through the ending restrictions, and one-third is coming mainly through the fact that we updated cash flows in the calculation. We kept the year requirements unchanged when we made these valuations at the end of Q1. The profit excluding changing fair value investment properties grew EUR 1.1 million, so net rental income contributed EUR 5.2 million. SGA expenses was EUR 0.9 million higher than in corresponding period, mainly through the marketing activities. We had a lot of activities during Q1, and that will, of course, balance going forward this year. Financial expenses was EUR 3.2 million higher than in corresponding periods. Most of that difference comes through the change in valuations, so mainly no cash flow generated items there.
Page 17, net rental income margin was 58.9%, but it's good to know that the full year property taxes was booked according to current requirements in Q1, EUR 11.6 million, and if we calculate that as allocated for different quarters, that helped EUR 8.7 million of other quarters, part of the property taxes is roughly 9% of the annual margin. Maintenance expenses was down by EUR 0.8 million, and there are several items behind that. One that was increased was property taxes, so the increase there was EUR 0.8 million, but then again, we get savings when it comes to the heating and taking one place to another. Thanks to Mike Rinder, we got EUR 1.4 million savings in heatings and EUR 0.7 million savings regarding the snow work, if you like. FFO growth was 11.8%, EUR 3.1 million, so net rental income 5.2 contributed.
The biggest part of the growth, SGA expenses was EUR 0.9 million negative, and cash taxes was EUR 1 million higher than in corresponding period, given that the higher result compared to corresponding period. Page 17, occupancy rate on the same level as in corresponding period, and page 18, so EUR 62.1 million gross investments, roughly EUR 60 million through development investments and EUR 1.5 million through modernization investments. Modernization investments and repairs were slightly down, both EUR 2.2 million repairs and EUR 1.1 million modernization investments. We make only necessary works when it comes to entering apartments, given the COVID-19 epidemic, and that, of course, plays a role there why we got some savings there. Going forward, we expect the modernization investment repairs put together between EUR 60 million-EUR 70 million.
Page 19, fair value investment properties grow by EUR 83.4 million, so developments contributed EUR 62.1 million, changing fair value EUR 22 million, and we disposed some couple of apartments. Disposal was EUR 1.5 million. At the end of Q1, we still had 2,876 apartments where we still have restrictions regarding valuation, and those restrictions will end gradually by the end of 2024. The impact of these ending restrictions is estimated to be somewhere between EUR 230 million-EUR 240 million. 25% of that will crystallize this year, 30% in 2024, and the remaining part will be evenly between the other years. Page 20, the left-hand side column shows ongoing development activities, so apartments under construction, 1,651 apartments, EUR 2.5 million already invested, and almost EUR 200 million to be invested to complete these ongoing development projects.
The mid-column shows these binding agreements, mainly agreements made between Kojamo and SRV and Hausia, providing 1,305 apartments and EUR 331 million to be invested there. The right-hand column shows our land bank, if you like, so pure land plots with existing residential buildings where the idea is to demolish them and build a new one there, and then these conversions, mainly Metropolia case. We expect the total amount of development investments this year to be between EUR 300 million and EUR 360 million. EUR 300 million is pretty much what we already invested and what it takes to complete ongoing development activities. EUR 360 million requires a couple of new projects to be started this year. 99% of the land bank is located in Helsinki. Page 21, we have some nice pictures of projects under construction. They are all in the Helsinki region, quite nice buildings.
Actually, we are thrilled to be able to finalize them and get them into the market. Page 22, equity ratio and loan to value figures very strong. We have very nice buffer against our target levels there, so target equity ratio is 40% to be above that, and LTV to be below 50%. Page 23, so EPRA and EV per share improved nicely as well as equity per share. Of course, if you compare the figure to the year-end, it is good to know that at the end of Q1 this year, the dividend was already out of this calculation, so that, of course, plays a role there. Page 25, financing, we have a versatile capital structure. Half of the financing coming from the bond market, the other half mainly from the Nordic banks and Commercial Paper Program as well.
Strong financial key figures, average interest rate, including the cost of derivatives 1.8, and the average fixed interest that appeared, and average loan maturity just below five years. No major refinancing needs in a couple of next coming years. This EUR 309 million maturing this year covers outstanding commercial papers as well as EUR 100 million bond that will be maturing later this month. We have the cash to pay that, so that is nicely covered already. Page 25, at the end of Q1, we had cash and cash equivalents, almost EUR 240 million, and liquid financial assets above EUR 70 million. We had EUR 300 million committed unused credit lines in place, so the cash situation and liquidity situation of the company is in a good level.
We made some agreements during the period and after the period, so we agreed with EUR 75 million, 5.5 years loan with OP Corporate Bank. We made a EUR 50 million agreement with Danske Bank, and we signed a loan agreement with the European Investment Bank of EUR 34 million. Even the market has been quite challenging, but we've been able to make all financing agreements we wanted to make. We increased the issuance of commercial paper to be on the safe side, if you like. We wanted to increase the cash amount of the company when this COVID-19 kicked in, and the normal level, if you like, is close to EUR 50 million.
We put an EMTN program in place, EUR 2.5 billion, and that covers the financial needs for the whole strategy period, and on top of that, the refinancing of the two outstanding euro bonds that will mature in 2024 and 2025. Page 26, strategic targets, they are now unchanged, so these were released when we released our annual account. One note there is that for the total revenue at the end of Q1 was below this level, but there we include the whole year's property taxes. If we allocate that for the whole year, at the end of Q1, we were nicely above this target level when it comes to EPRA against total revenue as well.
Page 28, our outlook for this year is slightly specified, so we kept the outlook for top line to be between unchanged to be between 2%-6%, and we specified our FFO guidance to EUR 146 million-158 million. The previous one was EUR 142 million-156 million. This specification, actually, the background for this is that we had a quite strong Q1, and we expect that the prices of the company going forward to be on quite close to normal levels. We expect that later this year to be on a normal level, and of course, we include the apartments to be completed later this year. Now I will hand it back to Jani Nieminen.
All right.
There are some effects, and I would say to wrap it up, we think that we are nicely able to continue our operations and growth despite the COVID-19 pandemic. Digitalization and our capability to provide services from remote offices is strong, and customer behavior, we have not seen any big changes there. The demand will remain strong, and we will keep on continuing investing according to our strategy. A slight risk there is COVID virus will have an impact on construction sites. There might be some small delays, but at the moment, we do not see any of that happening. Financially, we are in a strong position, are able to keep on investing.
The dividend policy is still the same, so the payment strategy is to pay at least 60% of EPRA provided that the equity ratio is 40% or more, taking into account the company's financial position, which is at the moment strong. To summarize, I would say that the year began strongly, and actually, according to our expectations, the like-for-like growth of 2.9% was really strong, and we were able to strengthen the pipeline for new development projects, new building projects, and we are in a good position in order to continue our operations and growth despite the COVID-19 pandemic. At this point, I will forward to Maja and we'll start with Q&A. Do we have Maja online?
Yes, apparently it seemed that my microphone was not working, but now it is. Thank you very much.
Let's continue with the questions, and we will first be taking questions from the conference call line. Please, operator, we are ready for the questions.
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. Question number one from Concept Kim Yong Min from SEB. You may proceed now.
Yeah, hi guys. It's Anssi from SEB. I have three questions, so I will take them one by one if that's okay. First of all, what is your approach to rental increases in this market? We have seen many announcements on concessions for tenants in their rental payments, so how do you approach this?
Was it that you highlighted previously in the call that you expect like-for-like rental growth to be about 2.5% in the near future, or did I misunderstand something? Thanks.
Hi, Jani here. I guess I will take this one. As I said, our customers have been paying the rents in a normal manner, and I said that we do believe that the rent development will still be as estimated prior, so increases in the market slightly below 2% here in the capital region. On the other hand, we do believe that we are able to increase the rents this year as planned. I would say the rent increase and like-for-like growth, as Erik mentioned, we have been collecting more charges concerning water consumption, and that creates like-for-like growth as well.
I would say 2.9 is a really strong number, but in the longer run, I would say, of course, at the end of the day, all the customers will be already paying the separate water charges. The like-for-like growth most probably will be between 1% and 2.2%-2.5%, as estimated before.
Okay, thanks. The second question on repair and maintenance expenses. They were low in Q1. Should we expect this trend to continue also in Q2, Q3, Q4? Again, should we expect some kind of ramp-up of repair expenses and maintenance cost in 2021?
I would say, as Erik provided information, we have avoided to enter apartments with tenants living inside, and only urgent needs have been handled. On the other hand, of course, we try to proceed with all the repairs outside the apartments as planned.
At this point, we do believe that, as Erik provided the information, mainly we are able to do all the repairs outside the apartments as planned, but of course, we are following the situation all the time, whether there are any delays or needs to postpone some of the projects. It is a bit early to provide the total information. We have to follow the situation. In the big picture, I do not believe that there will be a significant impact in any case for 2021.
Okay, thanks. The last question, it is on the transaction market. We have seen very little of public announcements and transactions happening in the market, but how is the activity, so to speak, behind the scenes?
Have you been offered more or less portfolios, or what is the situation, and what is your ambition, meaning that you have currently a pretty strong pipeline in historic terms in your own development going forward? How do you look at the portfolio acquisitions going forward? Thanks.
Thank you for the question. As I mentioned, of course, it is important for us that we are able to grow using multiple sources, so new building projects, converting premises into apartments, and by buying existing portfolios. We are scanning all the possibilities at all times. I think I provided the information that I do believe that more development projects will be provided for us. We are scanning probably more projects this year than typically. On the other hand, of course, we are scanning the market all the time in order to buy portfolios.
I would say during the last month, special circumstances, so probably the bigger investors have been following what's really happening in Finland, and we've been having restrictions in order to move around here in Finland. Hard to estimate what will happen throughout this year, but we are scanning, and if we find a portfolio suitable for us, of course, we are able to move fast. In the big picture, I would estimate that the transaction market will be slower this year.
Okay, that's fair. That's all for me. Thank you very much.
Thank you. Our next question is from [Swansi Rufus] from Nordea. You may now proceed.
Yes, good morning, and thank you for taking my question. I have one left after Anssi 's question, and that goes to Erik.
Do you want to comment something on the loan availability, cost of debt in bank financing and bond financing? How has that developed? I think you have commented a bit on that earlier, at least.
The bank seems to be quite selective, and in our case, we have not had any difficulties to get the financing we wanted, and the margins in those transactions we made is clearly below what we have on average in our portfolio. The bond market has been really a rollercoaster. At the beginning of this year, in our case, the bank estimated that the spread would be somewhere around 100 basis points, and when this COVID-19 started, the estimates were close to 300, and now the market has opened and it is improving, so we might be somewhere there in between.
There have been quite significant changes, but again, it's good to keep in mind that the interest rates are still on an extremely low level, so these levels are quite doable for a company like that, but the changes have been quite large, actually, first upwards and then gradually improved.
Okay, thank you. That's very helpful. That's all from me. Thank you.
Thank you. Our next question is from Jussi Nikkanen from Handelsbanken. You may now proceed.
Hi, thank you for taking my questions. I had three, actually. How do you see the valuation yields developing during this year or next year?
At this point, our yields stayed the same, and we've received no information that there would be a pressure to make changes in the yield requirements.
Okay, then kind of two questions relate basically to your rating, and there is kind of Moody's struggling with, or I do not know whether it is struggling, but still kind of the excess offer that you are having in the financial target of the LTV below 50. And now when we know what happened last year with the fair value changes, is there some thoughts that you might revise down the LTV target based on the valuation change you made last year?
I think Erik will provide information for this one.
Yes, when we made this change in valuation technique at the end of last year, Moody's released a comment, and they saw this as a credit-positive thing, and they did not change the rating, as they usually do not do in this type of situation, but they really wanted to communicate that they saw this as a credit-positive.
We did not change our financial targets, and we still feel that these targets are quite suitable for the large resi company here in Finland. We have quite a sizable buffer against these levels currently. As Jani mentioned, we have not seen any changes in yield requirements in the market, and brokers are not commenting. Actually, they are not at the moment forcing any changes there, but the view is, of course, quite short there. A couple of weeks ago, Moody's released a comment regarding Kojamo as well, and there they state that the company is in good shape, that the key figures are strong, and they maintained the current rating with a stable outlook. Of course, later this year, not that far away, we are going to have an annual meeting with Moody's and discuss through the situation, but we have quite strong KPIs, and we have not changed them.
Given the estimates for long-term demand driven by the organization here, we think that the strategy to grow here is still valid, and our key figures give a good background for us for that growth. We have the equity, if you like, already in place for additional growth, and now we have access for different sources of financing as well.
Referring to the same report Moody's came out, a key metric that they highly evaluate, which is kind of an unencumbered assets, they seem to struggle heavily with the understanding the Finnish kind of pledged asset status. Could that be something that you could assist with key metrics with unencumbered assets in the future in order to let them understand better your pledged asset situation?
Actually, in our case, we have not had any difficulties, and we think that Moody's understands very well our position.
When we applied for the first public rating more than two years ago, then we discussed about this portion of unencumbered asset, and it was very clear for us and for Moody's that the target level is to be above 60%, 60% of our unencumbered asset. We had a path towards that, and we are already above that level. It is non-topic in our case anymore.
As they kind of calculate the figure of the pledged asset, it is roughly almost EUR 1 billion above your actual asset pledges when looking at the outcome in the Moody's report. Somewhat a misunderstanding there could be. I do not know, kind of just looking at the figures, but just another question as such. Thank you for the answer.
I say it's not an issue for us because Moody's seems to be quite satisfied with our current situation regarding the unencumbered portion of unencumbered asset.
Okay, thank you.
All right. Our next question is from Oliver Brothers from Goldman Sachs. You may now begin.
Hi there. Thank you very much for the presentation. I just have a question on the flexibility arrangements that you discussed for tenants as a result of coronavirus. Can you comment a little bit further about what sort of arrangements these are and what kind of uptake you expect from them? Thank you.
Yeah, I think we had a similar question in the chat as well, so I covered the whole topic. As I mentioned prior, we haven't seen any changes there.
Actually, the rents have been coming in in a normal manner, but we have prepared ourselves in case that the economic situation is getting worse and some of our customers as well might get unemployed. In that case, the tenant might end up in a situation that it will take some weeks or even a couple of months in order to get the decisions concerning subsidies. We are able to make payment agreements for that period when the customer, the tenant, is waiting for the subsidy decision. So far, we haven't seen a significant pressure there. It's been business as usual.
Okay, thank you. That would be, to clarify, a rent waiver if a decision was pending on a government subsidy for a tenant that was made unemployed.
Yeah.
Yeah, of course, there are several subsidies available, like unemployment subsidy, which the individual is able to get. And then, of course, at the end of the day, we do have a housing allowance system in place here in Finland.
Okay, thank you very much. Very clear.
All right. There are no further questions at this time, so please go ahead, speakers.
Okay, thank you very much. We had one question from the chat, but actually, Jani already answered that, so now we have no further questions. Thank you very much for all of you participating in our audiocast today. Before you go, I would like to remind you that our half-year report from January-June 2020 will be published on 20th of August. And also to let you know that we are planning to hold our first capital markets day in Helsinki on 29th of September, if the circumstances permit.
Please save the date. We will provide more information later. Thank you very much. Enjoy the beautiful spring day, and hopefully, we will see you soon again. Thank you very much.