Good morning, ladies and gentlemen, and welcome to Kojamo's Half-Year Financial Reports News Conference. My name is Maija Hongas, and I'm Manager Investor Relations here at Kojamo. Today's presenters will be CEO Jani Nieminen and CFO Erik Hjelt. After the presentations, there is some time for questions. First, we are going to take questions here from the conference room, and after that, from the conference call line. You have also an opportunity to ask questions with the web chat function at the webcast. Let's get started. Please, Jani, the stage is yours.
Thank you.
I'll bring with me all the important papers to cover the right topics. We will cover what's been going on during the first half-year here in Kojamo. Of course, the starting point is the operating environment. To wrap up shortly, it's still positive, no big changes going on. The first half-year has been really consistent with our expectations. Strong operating performance is reflected in all our key figures. Of course, at this point of time of year, we see that probably there's a chance to slightly specify the outlook. If we start with the general operating environment, as I said, no big changes. Urbanization is still the biggest and most important megatrend, creating a lot of demand for new rental homes. The construction volume here in Finland seems to settle down to the so-called normal level, especially in the biggest growth centers.
I'll talk about Helsinki region, Jyväskylä, probably Tampere and Turku. It seems that the estimate of building permits is slightly going down, but of course, the population growth is going forward, and people are moving towards especially Helsinki region, which will be the winner in this urbanization game here going on here in Finland as Helsinki is the most important economic point here in Finland. Of course, Tampere and Turku areas are important as well. Overall, the operating big picture and achieving the growth here in Finland is still positive and good, but the slowing growth of the world trade would have an impact on Finland as we are a small nation, export-driven economy. The demand-supply in the rental market is based on urbanization, not so much about the GDP growth.
As the urbanization proceeds, there are no big changes in so-called more operating environments concerning residential production and housing development. The number of startups, new building startups, is going down, but as I said, the level of construction work in my eyes will return to normal in the biggest cities and the biggest growth centers, Helsinki, Tampere, Turku. Of course, the low interest levels are appealing, so the institutional players seem to be quite willing to invest in residential business. In my eyes, it seems that the total number of building permits granted this year might be a bit lower than the official estimate at this point of year. The dropping down is outside the biggest growth centers.
Of course, even though the number of building permits granted is going down, there is still a lot of new supply in the market because of the construction work going on. The supply situation will remain the same throughout the next 12 months-14 months. The supply-demand balance will change after the new construction work goes on a bit lower level. As I said, still it seems that in the biggest cities, it is returning to so-called normal level, not dropping really down. There has been a lot of supply in the market, and in my eyes, it will stay the same throughout the next year. We have been doing okay in that environment. As I say, there is a combination that creates demand for new rental homes. It is a combination of urbanization and changing household sizes. More and more households are one or two-person households.
There has been also, as said before, a change in people's attitudes towards ownership. More people who would be able to buy an apartment, or as a matter of fact, for example, a car, are choosing not to buy and not to own. That creates a bit more demand towards the rental market. Another aspect is that the apartment prices have been increasing. For some people, they are just too expensive, or they do not want to spend the money in order to buy the apartment, they choose to rent. A third aspect is that there have been slight changes concerning the loan terms and the equity needed for individuals in order to buy the apartment. The so-called housing corporation loan discussion has been impacting a bit. I see that there is a good demand for rental homes in the future as well.
As we see on the lower right-hand corner, the number of households living in rental apartments in all the main growth centers is growing all the time. For example, here in Helsinki, roughly half of the households today live in rental apartments. It's actually more households living in rental apartments than owning their own apartment. As I said, the year has been as expected in my eyes. No surprises. We do have a really strong operating year. It's reflected in all the key figures. The total revenue has been growing 3.7%. Like-for-like growth this year, 2.8% compared to last year, 1.9%. In my eyes, the like-for-like growth this year is really strong. We've been able to improve the net rental income by 7.4%. Of course, the funds from operations FFO is this year really strong.
It is a combination of improved net rental income and lower paid income taxes. Profit excluding changes in value is important because it's an operating result, and it's 8.9% better than last year. Of course, happy good numbers, strong numbers. On the other hand, even though the EUR 52.6 million net gain in fair values this year is a positive and big figure, it's a slightly lower figure than last year. That's reflected in the profit before taxes. All the figures are really strong, and it's said that we are proceeding as expected and planned. As urbanization is going on and proceeding, it's important to notice that more than 2/3 of our housing portfolio, residential portfolio, is located in the Helsinki region. Actually, the portion of the value in the Helsinki region is slightly growing all the time.
The numbers are so big at this point of time that there are no that big changes, but 67.9% today in the Helsinki region. If we combine the Helsinki region with Turku and Tampere region, the three biggest growth centers here in Finland, it covers 83.5% of our rental homes from the value point of view. We've been able to improve the occupancy rate this year, even though we were happy as well last year. After the first half of the year last year, it was 96.5%, and this year 96.9%. We have to really keep in mind that there's a like-for-like growth of 2.8% going on. At the same time, we've been able to improve the occupancy rate. We've been able to improve the processes.
Of course, the digitization and our web store is an important vehicle how we help people here in Finland to move towards the growth centers. Same comments concerning Jyväskylä area than last presentation of the Q1. Even though the city of Jyväskylä is growing and there is a good growth going on, there has been a lot going on with the supply side. For a short period of time, there is a situation that too many new construction projects were started a couple of years ago at the same time. There is a good supply for the tenants at the moment, but it will level off. The strategy is still the same. We are a combination of strong operative performance and the ability and goal to grow. During this year, we have been able to complete 383 apartments. We have started the construction of 648 apartments.
At the moment, we have under construction 1,329 apartments, of which 1,127 here in the Helsinki region. A clear focus all the time in the Helsinki region. We have agreed to sell 478 apartments in 12 different locations here in Finland. The Olo Asunnot behind Olo is international money, international investor. There is a slight capital gain of EUR 0.4 million. They were non-core assets to us. It is an actual strategic move. We have been telling already after Q1 that the aim is that this part of the strategy will be completed during this year, and now the deal is done. We have been following and monitoring the market closely in order to find a suitable portfolio according to our parameters. In the market, there is a lot of interest toward portfolios. We have been seeing quite low yields.
We haven't found a portfolio meeting to our parameters yet, but the work's still going on, and we have a lot of time this year still. If we will find a suitable investment opportunity, of course, we are ready and able to move really fast. Digitization and the customer experience is actually really important for us all the time. And we've been able to improve the customer experience. It starts always from the point of time where a people is looking for a rental apartment. We have to be able to provide an easy and effortless experience. We're not selecting the customer. The customer is selecting us. We are providing means to rent an apartment from the web store. Still, I promise in 15 minutes you're able to rent an apartment and move in the next day. We provide a lot of services even before you live in our apartments.
After you are our customer, of course, it's important that the customer experience stays the same. It's easy and effortless. We are providing added value. We launched My Lumo services. This year, today, a bit more than 22,000 active users. A mobile app, you get all the information concerning your living in our apartments. You get the services available. We have now the Leanh eat system in all of the apartments. There is winter coming again in a couple of months, and now we have the system in place as fall. Of course, all kinds of different services. Still, a big service is the sharing car system, providing the opportunity that you really don't need to own a car in order to use a car. It's available for you through My Lumo service. As I said, the web store is important.
After the first half of the year, the number was 12,000. This morning, more than 13,000. The portion of transactions coming in through the web store has been growing all the time. At the moment, half of the rental agreements are coming from the web store concerning the whole Finland. Here in the Helsinki region, at the moment, more than half, roughly 60% of all the transactions are coming through the web portal. That is something that nobody else is able to provide for the customers. At this point of time, I will let our CFO, Erik, provide some more detailed information.
Thank you, Jani. Good morning, everybody from my side as well. Our figures, H1 this year came out strong, and total revenue increased by 3.7%.
That includes the like-for-like rental growth, 2.8% and 2.4% from the rent increases and 0.4% from improved occupancy. The revenue growth, EUR 6.6 million, was driven by completed apartments, EUR 4.6 million. That, of course, includes completed apartments, H2 2018, as well as the completed apartments, H1 this year. Acquisition contributed EUR 1 million. Disposals, a negative figure there, of course, EUR 3.9 million. Rent increases, euro wise, EUR 4.2 million and improved occupancy, EUR 0.7 million. Profit before taxes, if you look at the profit excluding profit on fair value or investment properties, the growth was EUR 5.9 million. The main driver in that growth was net rental income improvement, EUR 8.2 million. SG expenses, EUR 0.4 million, so pretty stable situation there. Finance expenses growth, EUR 2 million, mainly because of the bigger loan portfolio of what we have.
Of course, the profit on fair value or investment properties, EUR 52.6 million. It's a positive figure, quite sizable positive figure, but slightly smaller than in corresponding period. Roughly 60% of the profit came through because of the higher prices in the market, and roughly 40% of that profit came through the ending restrictions. Net rental income, there the growth rate, 7.4%, is clearly higher than the top line growth rate. There are two main reasons behind that. One is that maintenance expenses grew only 1.6%, EUR 0.8 million. There are two items that grew there. One is the property taxes, was EUR 0.5 million bigger than in corresponding period. Cleaning costs, outside areas, cleaning costs was higher than in corresponding period. Repairs was minus EUR 2.3 million compared to corresponding period. There we had some clear savings.
On top of that, some of the project type of repairs were postponed. FFO growth, EUR 68.1 million. It's good to note that in the corresponding period, we booked EUR 13.5 million gas taxes because of the disposals of apartments there. The net rental income grew EUR 8.2 million, so that's on the positive side. It's good to note that the integration on IFRIC 21 property taxes are recognized now as an expense in first of January this year. Whole year's property taxes. This year, the property taxes are EUR 10.8 million. Jani will discuss later our guidance, but a couple of notes there already at this stage. The FFO guidance, the midpoint of the guidance is based on a couple of assumptions. One is that the weather is going to be on average level.
Already in the midpoint of the FFO guidance, there is a bigger amount for repairs compared to previous years. If we are able to get some savings there, there's potential to move towards the upside of upper part of the range. That remains to be seen. As Jani discussed already, we are agreed to dispose of 478 apartments, and that deal will be closed at the end of this month. In this guidance is already included EUR 4.4 million gas taxes because of that disposal. Occupancy rate improved slightly. We climbed it slightly during Q1, and Q2 was clearly stronger. This is the cumulative figure for the whole H1 improvement there. The tenant turnover seems to be in the market-based rental part of the market, roughly on the 30% level. No changes there.
Cross investments, investments are proceeding according to the strategy. EUR 96.6 million. There's acquisitions, EUR 17 million. We acquired 99 apartments during the first half of this year. Development investments, EUR 98.1 million, both completed apartments and still ongoing apartments there. And modernization investments, EUR 11.5 million. Modernization investments and repairs on the same level as in the corresponding period. As already said, we have achieved some savings there. The division between repairs and modernization investments has slightly changed. There's one bigger modernization project that was postponed next year. There's another modernization project that was started later than what we had in our budget. That means that part of those costs will be booked next year. These two postponements are not going to have an impact for the total amount of modernization investment repairs in 2020.
The value of investment properties increased in line with the strategy. At the beginning of this year, the increase was EUR 210 million. IFRS 16 had roughly EUR 61 million impact there. Developments, acquisitions, and modernization investments, EUR 96.6 million. Change in fair value when we do evaluation was positive, EUR 52.6 million. The valuation was made according to old valuation techniques. Biggest portion is valued based on transactions on the market. We have disclosed that we are going to change the valuation technique at the end of this year to yield-based valuation technique. We do not have any new figures for you guys at this stage. What we are preparing is the change there. The model, we are building the model. It is going to be a 10 years discounted cash flow method that we are going to apply going forward.
There is going to be an external expert giving a statement each quarter going forward as well. It is going to be a household name. As soon as we have some figures, we are going to disclose, of course, those figures. So far this year, 570 apartments came out of the restrictions and the total amount coming out of the restrictions this year is going to be a little more than 1,400. Most of them will come out of the restrictions during Q4 this year. Our land bank, on the upper part of this page, our land bank that we already own. Plots means basically pure land, EUR 43 million, roughly 1,100 apartments. That is the management estimation. The four square meters multiplied by 0.8 and the average size of the apartment, 50 square meters, that gives the rough figure of 1,100.
Plots and existing residential buildings. There the idea is to demolish the existing building and build a new one, 700 apartments, roughly. Currently, in that part of the portfolio, we have 300 apartments. And conversions, mainly Metropolia project and Erik 7 in the heart of the city of Helsinki. Altogether, roughly 1,300 apartments. The lower part of the page today is figures for what we have binding agreements and reservation for plots. This EUR 121 million is binding agreements where we agreed to acquire the existing land. There is already a construction agreement in place. The lower part, this is pure land. We have an agreement that we are allowed to buy those lands. It is good to note that 99% of the total of what we just discussed is located in the Helsinki region. Equity ratio and loan to value went in line with our targets.
Equity ratio target is to be about 40% for zero and loan to value to be below 50% for zero. We are well in line with those targets. EPRA NAV growth by 6.4%. We are extremely pleased with that growth rate. Versatile capital structure. We made one new agreement with OP Financial Group, EUR 100 million, seven years maturity unsecured at the end of the reporting period that was undrawn. That supports our growth. In the beginning of this year, we made the latter part of the loan from European Investment Bank. Went well balanced loan structure, well balanced distribution of loan maturities, average interest rate stayed at 1.8. That is including the cost of derivatives, hedging ratio 89%, and the average maturity for loan portfolio 5.1, and average interest rate fixed period 5.4 years. Very strong financial key figures.
There are no major refinancing needs for the next two or three years. Outstanding commercial papers are included in these figures. We have EUR 300 million committed credit lines in place. At the end of H1, they were totally unused. At this stage, back to Jani.
We move forward towards the outlook and what is going on in the big picture. Of course, we have to keep in mind that our strategy is based on different elements, which provides a complete picture. There is a strategy that we want to grow. The target at the moment is that by the end of 2021, we are going to be a EUR 6 million company. We do have the means, the willingness, and the ability to grow.
The second aspect is that we haven't been willing, and the aim is not to grow at any cost. We want to keep the FFO level about 33%. Actually, we are in strategy growing in order to be even more profitable. Third aspect is how we handle the risk. We want to keep the equity ratio above 40% and the LTV below 50%. Of course, the customer experience is important for us. The aim is that the NPS will be 40 by the end of 2021. We've been proceeding according to our strategy. All the aspects at the moment are well in line with our strategic goals. This year, still no big portfolios. Last year, we were able to buy more than the strategy actually needs. Last year, a bit ahead, still here. This year, still looking for a suitable portfolio.
We have to keep in mind that the growth strategy actually is being able to provide roughly 1,000 new apartments by building and by buying portfolios of roughly 500 apartments a year. Some year, the portfolio deal might be 1,000 or 2,000. Some year, a couple of hundreds. The average of 500 apartments from the market, existing apartments, will carry us through to be a EUR 6 million company by the end of 2021. As Erik has provided a lot of color behind the numbers and the specified outlook, at this point of the year, we feel that we are able to be a more specified range concerning the total revenue increase, and it will be between 3%-5%. The previous outlook was from 2%-7%.
The FFO range will be somewhere between EUR 134 million-EUR 144 million, excluding one of the items previously, EUR 130 million-EUR 143 million. Still, we see that we are investing this year approximately EUR 300 million. Of course, depending whether we are able to find the portfolio, we are looking all the time. There are some opportunities coming available. Depending on the size of the portfolio, such a deal could take a couple of months or a couple of weeks. This is the specified outlook. Looking at the second aspect, the dividend policy, there are no changes. The dividend policy, the annual dividend payment will be at least 60% of the FFO, provided that the group's equity ratio is 40% or more. Of course, taking account of the company's financial position. There is a number where we were last year, EUR 0.29.
To wrap up the whole, of course, as I said, no surprises. All the things are going according to our expectations. A really strong performance. We have to keep in mind that the operating performance is strong and efficient. On the other hand, we are providing good customer experience. The customer is choosing us from the web store. They are willing to move into our apartments, pay the rents. We are providing new kinds of services. Nobody else has been able to copy them. Web store providing more and more new clients, My Lumo services. It's growing with roughly 2,000-3,000 active users a month. I guess at this point, we are ready to move forward to questions.
Thank you, Jani and Erik. Now it's time for questions. First, we take questions here from the conference room in Helsinki.
Thank you. Good morning.
It's Erkki from Inderes. A couple of questions. First, on the Lumo services, the revenue and profitability. Any comment on those would be nice or even better ballpark figures regarding those services.
I would answer this way. At the moment, we are not providing any detailed figures. We have to keep in mind that it's a good combination of different aspects. Some of the services are and will be such that you really feel easy and effortless. Some of the services are providing added value that you feel that you are willing to pay a bit more compared to our competitors. Some of the services in the future will be that you pay as you use. Of course, there's a financial checkup. We are testing some of the services, collecting data all the time. Some of the services will disappear. Some new services will appear.
The service development is much quicker. You have to find, test, get the customer feedback compared to the real estate investment where you invest in a property and keep it for the next 40 years.
Okay, thanks. This goes to Erik. How's the new valuation methodology going to impact bookkeeping? I mean, what's the treatment going to be? It's going to show in P&L, etc.
If there's going to be a change in the values compared to what we now have in the book, it's going to come through P&L.
Okay, thank you very much.
If I may add, I guess one aspect could be that the customer experience and the service might be helping our like-for-like growth compared to others.
Thanks. It's Anssi Kiviniemi from SEB. A couple of questions from my side. First of all, like-for-like growth, it's rental growth. Basically, what are the key drivers?
We have seen a small pickup in like-for-like basis. What are the drivers behind the number?
Of course, 2.8% like-for-like growth is a combination of two aspects. The rental growth, 2.4%, and the improvement with the occupancy rate is 0.4%. That is a combination. The rent increase, the urbanization is creating demand, but there is supply in the market more than usual. As I said, the customers are choosing us. They are willing to pay in order to move into the Lumo apartments.
Thanks. My second question, you or. Yeah.
One is that there are actually three components behind that. One is that according to our lease agreements, we are allowed to increase the rents once a year. That has an impact, of course, for the like-for-like rental growth. Another aspect is that we compare what is the rent level in new agreements compared to expiring ones.
There has been a slight increase in a couple of years. The third aspect is, of course, this vacancy level. There are two questions here. One is how fast we get a new tenant when one is leaving. We have been able to shorten that time. Another thing is, of course, if there is a quite long time vacant apartments, there are other things that we need to do. These are the main drivers behind the like-for-like growth.
Thanks. You already touched upon this, but it is related to the housing supply. If we look at the official data, we have already seen on a Finnish scale a decline in new rental contracts and prices. In a way, should we expect that this will have some kind of impact for you in the future? How should we read the situation?
Kind of my question is that how resilient do you see this, let's say, 2.4% rental growth rate that you currently have?
I think the latest statistic provided, was it last week or a couple of weeks ago, showed an increase in the existing rents of 1.5% or something like that. Still, the expectation is that the increase with the rents and actually with the house prices in main growth centers will stay the same, roughly to 2.5%. We have been able to provide a bit more with the like-for-like growth. As we provided the color behind the 2.8%, the actual rental increase was 2.4%. That side seems steady. No changes there in my eyes.
Okay, great. Thank you.
Svante Krokfors, Nordea. First question regarding maintenance and repair costs.
Was Q2 a representative or was it below what you should model in for the remainder of the year? How does that compare also to 2020 when you have postponed some projects?
Yeah, we just discussed before this meeting that how predictable this business is, that these repairs and organization investment is one item that is not that easy to predict. In the midpoint of FFO, we penciled in increase in repairs compared to corresponding to last year's latter half of last year. Typically, the repairs, the amount of repairs is higher in the second half of the year. There are two reasons. One is if you in the beginning of the year start repair project, it will take time before they are up and running. Another thing is that I do not know why, but for some odd reason, construction companies are sending bills quite late.
The amount of bill coming in is for some reason piling up towards the end of the year. We expect the repairs in the last part, the second part of this year to be higher level compared to last year. There are a couple of these projects that discussed that were postponed. That has an impact for what we anticipate in the beginning of this year. They are not going to have an impact on the total amount next year that we are going to spend for repairs and maintenance. We are, of course, not giving any guidance for concerning 2020, but as a general comment, it is not going to have an impact for the total amount next year. Slightly above last year's figures.
Thank you. Quite clearly said that you have not found targets that match your parameters.
Can you a bit elaborate on which the parameters are and what's the main reason that deals haven't come through? Is it, I guess, in location, you decide whether you want to look at it at all, but is it just that the pricing has been how much too high has the pricing been to match your parameters?
Yeah. In order to provide color, it truly is a combination of different aspects. Related to the previous question, where the rents are going. It starts really from the micro-location and our existing locations. Do we feel that this is the right micro-location? Does it match the criteria of what kind of apartments are included in that property? Is it studios, one-bedroom apartments, the average size in general? What's the technical condition? Then we come to the pricing. We've seen quite low yields.
Three and a half, even below that. We are not willing to pay that yield if we do not truly believe it is a unique, good building. We have been able to close our deals with better yields. You could say that we are a bit picky, that we choose carefully. It would be easy to grow at any means, but we are choosing not.
I guess the 3%-3.5% yield, is that only on new production or?
Mostly newly built. It seems that there has been quite a lot of appetite towards the Finnish residential market.
Last question about the 478 apartments. You saw that the EUR 0.4 million gain. Can you give me an indication about the yield on that? I know it is non-accord.
Yeah.
Even though I do understand the question, and it would be nice to provide the color concerning the yield, there has not been a yield discussion. It was a non-core portfolio, including non-core locations. Might be some more challenging technical conditions. It was a portfolio deal done on a junk-based pricing.
Okay, thank you.
Okay, one more.
Yes, hello, this is Jesse Kinnunen from Inderes. One question concerning your divestments. You still have some non-core assets in your portfolio. Could you briefly describe your strategy and how and when are you going to divest these assets?
Yeah, we provided the color of the Q1 that we had roughly 500 apartments under disposal process in the strategy. Now we have provided the information of selling 478 apartments. Close to that 500. I mean, really not that much left. Of course, we are a professional investor.
Also in the future, it will be rational to sell some of the properties each year in order to improve the overall portfolio, even though the main focus is to grow. The big part of the disposals concerning the location strategy is ready.
Okay, it seems we do not have any more questions from here. Let us go to the conference call line, please.
Thank you. If you have a question, please dial zero one on your telephone keypad now to join the queue. Once you are announced, you can ask your question. If you find it is answered before it is your turn to speak, you can dial zero two to cancel. Once again, that is zero one to ask a question or zero two if you need to cancel. There will be a brief pause now whilst we register any questions. Okay, there seems to be no questions from the phones at this time.
Okay, thank you. We will have questions from the webcast or the chat function. We have one question from there. It is regarding that several executives have left the company this year. What is behind that?
No big surprises. We are a company having more than 300 people. Most of our employees have been around for a really long time. There comes a time that people feel that they want to have change. Of course, we have become a more visible company. The Kojamo story is more and more known, and it seems that we have been able to provide actions and solutions nobody else has been able to provide. More and more our people are providing offers outside.
Actually, even though we are able to find new people, really high-class new people, we are living in a new world that the other companies are after all people as well. It is like a normal situation that you get some new blood, you lose some blood. No big things going on.
Okay, thank you. It seems that was our last question. Thank you, everybody, for joining us today. We will be publishing our Q3 report on 6th of November. I hope we will meet there. Thank you very much.
Thank you.