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Edited Transcript of IPO-KOJAMO.HE earnings conference call or presentation 6-Nov-19 8:00am GMT

Nine Months 2019 Kojamo Oyj Earnings Call

HELSINKI Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Kojamo Oyj earnings conference call or presentation Wednesday, November 6, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Erik Hjelt

Kojamo Oyj - CFO & Deputy CEO

* Jani Nieminen

Kojamo Oyj - CEO

* Maija Hongas

Kojamo Oyj - Manager of IR

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Conference Call Participants

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* Anssi Kiviniemi

SEB, Research Division - Analyst

* Svante Krokfors

Nordea Markets, Research Division - Analyst

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Presentation

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Maija Hongas, Kojamo Oyj - Manager of IR [1]

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Good morning, ladies and gentlemen, and welcome to Kojamo's Interim Report January-September 2019 News Conference. My name is Maija Hongas, and I'm Manager, Investor Relations here at Kojamo. And today's presenters will be CEO, Jani Nieminen; and CFO, Erik Hjelt. After the presentation, we have some time for questions. And first we take questions here from the conference room and after that from the conference call line. You have also opportunity to ask questions from the webcast chat function.

But let's get started. Please, Jani, the stage is yours.

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Jani Nieminen, Kojamo Oyj - CEO [2]

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Yes. First of all, good morning, everybody, and I'm happy to provide some color on how Kojamo is doing. And today, as usual, we will cover the summary of the first 9 months; and then our CFO, Erik Hjelt, will provide some information concerning the actual numbers; and then we have some specifications concerning the outlook for this year. And of course, as far as it's good to notice that this year is really in line with our expectation, and our strong operating performance is quite visible in all the key performance indicators. And on the other hand, we've been really successful on how to create more pipeline for the future. So there's an increase in the new building project pipeline.

If you look at the summary. So the general operating environment is still positive for us. And of course, the urbanization is the biggest factor creating demand for new rental homes. According to the latest estimate by Statistics Finland, all the regions where we operate, so the growth centers in Finland, are expected to grow by 2030, and that creates a lot of demand for new homes in these areas. Of course, still Helsinki region, the capital region, is growing the fastest and the most, and will be the biggest winner. But all the -- our focus areas are expected to grow. And that, of course, creates demand for new rental homes.

What we see in the market was, as I assume that, the estimate concerning the number of new building permits is slightly coming down and seems that the building volume is returning to so-called normal level and concentrating to growth centers. The construction cost increase seems to be leveling off, as we estimated. And it seems that there's a steady increase concerning both the housing prices and the rents here in capital area. And my estimate is that, as there are some slight changes in the market, we expect that the construction companies will provide us some projects during the next 12 months, so that will be adding on to our pipeline for new construction projects.

No big changes here. Of course, still the big question is that the number of small households here in Finland is increasing all the time, and especially the number of 1 person households and that creates a lot of demand for small apartments. And we also see that more and more those kind of people who could be able to buy the apartment, especially the millennials, are choosing not to buy the owner-occupied apartment and choosing to rent the apartment. And now it's important how we are able to create easy and effortless living, because it seems that there's a big change in people's values towards the ownership. They wanted the freedom and easy and effortless life. As the urbanization continues, it's visible in all the figures that the number of households living in rental apartments is increasing in all the biggest cities. If we compare the figures, 2018 against 2017, we see that still there's an increase in all the biggest cities, in Helsinki, and even bigger change in Turku and Tampere. So in all these 3 big cities, basically half of the households today live in rental apartments. And this portion seems to be increasing all the time.

Operationally, a really strong year, no surprises. We've been able to provide profitable growth as we expect in our strategy. The total revenue has grown with 4.7%. And on the other hand, the net rental income with 7.6% and we do have a like-for-like growth of 2.8%. And if we compare that to previous year at the same time, then it was 2%. So we've been able to create a good like-for-like growth and at the same time improve the occupancy. The FFO still doing really nicely compared to last year, but of course, we have to keep in mind that it's a combination of increasing net rental income, and on the other hand slightly there was more paid taxes last year.

So that has an impact which now is leveling off towards the end of the year. The fair value of investment properties, according to our strategy, we've been able to invest and grow today EUR 5.4 billion and the gross investment side EUR 175.6 million. They're actually the investments concerning new building projects and modernization investments, we'll be investing more. We haven't been buying a big portfolio so far, only 117 apartments. But we've been investing in new development projects and modernization investments.

Profit, excluding changes in value, 7.5% better than a year before. So a really strong operating performance. And profit before taxes, even though, of course, there's a big positive change in fair values this year as well, but it was even bigger a year ago. Today, 68% of the value of our assets located in Helsinki region, and if we combine Helsinki with Turku and Tampere, it's more than 83.5% today.

Last time, we were discussing about the financial occupancy rate in different areas, and it's nice to provide some color that we've been able to increase the occupancy rate in all the areas, except Lahti, Lahti region and still there the numbers roughly the same as the last time. Today the overall figure, 97.1%. So good improvement during Q3, and we are satisfied with this figure because we are combining, of course, all the time financial occupancy rate and our ability to create like-for-like growth.

We have, at the moment, roughly 1,200 apartments under construction. And of them, 95% here in Helsinki region. And we were really satisfied with our reverse tender offering process, which provided 2 agreements and will provide more than 900 new apartments here in Helsinki region. And of course, those projects are not yet all visible in our figures concerning the number of apartments under construction. But it creates a really solid pipeline for our growth, and we are able to combine different sources for our growth. So building new apartments, converting premises to apartments, buying portfolios. So we are using multiple sources at all times.

We do believe that it's important to be able to create added value for the customers and create high-quality customer experience. The customer values easy and effortless living, and it's in our mission how to create better urban living. We will keep on focusing on how to create better services, whether they are digital services and easy access services. On the other hand, as well, new kind of services related to the living in the premises, like maybe a dog walking service, which we are launching at the moment, but a lot of different kinds of services. And actually, quite many people are using these services today. And I'm really happy that we are receiving a new CDO, Ms. Katri Harra-Salonen from January. With her experience, I think we are even more confident on providing new kind of digitalized services.

Of course, today, Lumo webstore plays an important role in our business. Today, more actually than -- more than 14,000 agreements already through the Lumo webstore. Half of all the new clients today are coming from the webstore here. In Helsinki region, actually more than 60% of new tenants are coming through the webstore. So we are still in a growing phase concerning this digitalized services and experience how to get the apartment easy and effortlessly, so you actually are able to rent the apartment 24x7 with -- for example, with your mobile phone. And people seem to value this kind of service a lot. And we have to keep in mind that a great deal of the demand for new homes comes from the fact that people are moving inside Finland towards the biggest growth centers. And now we are providing an easy access to the apartment. You don't have to travel in order to see the apartment, fill in any application, you just rent it from the webstore.

To provide some color on what's going on concerning those 1,200 apartments under construction today, only 1 project actually outside Helsinki region and it's located in Turku. So one of the biggest growth centers in Finland. So we are growing there where the demand is the highest. And as I said, we expect to find new projects as well, some new projects might come from construction companies and might be ready even next year. A good example was that -- the agreements with SRV and Hausia provided already 2 projects completed this year. So the estimate is, this is an ongoing pipeline, and now we are adding more than 900 apartments with these 2 agreements. It's important to notice that they are really nicely located along the public transportation, along the subway, the train stations and it meets the demand quite nicely. We have to keep in mind that the average size of the portfolio is roughly 45 square meters.

And now I would pass Erik to provide some deeper color concerning numbers. Please, Erik?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [3]

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Thank you, Jani, and good morning, everybody, from my side as well. So our figures came out strongly, and our total revenue increased by 4.7%. And then the main driver there behind this growth was like-for-like growth 2.8% and 2.4% came from the increase in rents and 0.4% in improved occupancy rate. The biggest contributor for the top line growth was completed apartments, EUR 7.9 million. Of course, that includes apartments completed this year and after the Q3 last year. Profit before taxes, if we first exclude change in fair value investment properties, grow 7.5%, that's EUR 8.3 million and a main contributor there, net rental income growth by 31 -- EUR 3.2 million. SG&A expenses flat, and then financial expenses negative figure EUR 4.3 million. And there's EUR 3.3 million change in fair value of interest rate derivatives we apply. It's accounting, but smaller impact will come through the P&L as well. And of course, it's good to know that IFRS 16 had a minus EUR 1.8 million negative impact of financial expenses, but of course, a positive impact on the maintenance cost side.

Then if you look, the change in fair value investment properties, EUR 71 million. That's a healthy amount, but it is slightly smaller than in corresponding period. That's why the change in profit before taxes, including change in fair value of investment properties was slightly negative. Main part of that change in fair values during Q3 came from the change in market prices, only minor part came from the ending restrictions. So during the Q4, the portion of ending restrictions is going to be much bigger than in previous quarters this year.

Net rental income grow 7.6%, so that's growing. Net rental income is growing with faster pace than top line, and that boost our net rental income margin to 60 -- 6.8% year-to-date. And during the Q3, the margin was even higher. Maintenance expenses increased EUR 1.4 million, a 2.1% increase in maintenance expenses. Two reasons there, heating EUR 0.9 million increase, mainly during the first 3 months in this year; and then property taxes, up by EUR 0.6 million. Repairs, EUR 2 million less than corresponding period. That's the 7.7% minus figure there. We achieved some savings there, then some project has been postponed.

Then funds from the operations increased almost 30%. It's good to note that during the corresponding period in the first quarter last year, we paid EUR 13.5 million cash taxes because of the disposal of a sizable portfolio. This year's because during the Q4, we booked EUR 4.4 million cash taxes because of a disposal completed in Q3 this year. Other contributors for the FFO growth was of course, net rental income growth EUR 13.2 million. And we have slightly narrowed the range when it comes to guidance for FFO this year. And the midpoint of that guidance is based on assumptions that the weather is going to be on average in the remaining part of this year and that the repairs are going to be on a high level -- higher level than in the corresponding period as well as earlier this year.

Occupancy rate, improvement there. So 0.3% improvement compared to previous year and 0.2% compared to the H1 figure, so healthy growth there and then our turnover remained roughly on the previous level.

Gross investments, EUR 175 million. There's development investments, EUR 123.8 million. And acquisitions, EUR 30.2 million and modernization investments, EUR 21.6 million. And we have acquired 117 apartments, completed 710 apartments year-to-date and then there are 3 apartments demolished or altered. And on the divestment side, we have completed the divestment of 482 apartments and the price there was EUR 24.3 million.

Modernization investments and repairs up by 10%, a higher level than in corresponding period, and we estimate those to be between EUR 60 million and EUR 68 million this whole year depending on 1 or 2 process, whether we start them or not at the end of this year.

The value of investment properties increased in line with the strategy. And here again, it's good to know that on last Friday, we disclosed the range for the impact of change in valuation technique. And this because, of course, prepared applying the old valuation technique. And fair value investment properties, up by little more than EUR 280 million year-to-date; IFRS 16 contributed EUR 60 million; developments, EUR 175 million; change in fair value investment properties, EUR 71 million; and disposals, EUR 24.3 million.

On the right side of this page, we see the number of apartments under each valuation that we currently apply. The change in valuation technique that comes into force at the end of this year will have an impact for those apartments that are currently valued under the transaction-based valuation technique and yield-based valuation technique. Of course, these apartments put together that have an impact then we change the valuation technique to yield-based valuation technique. We estimated that regardless of this change in valuation technique, the uplift in values and restrictions, hence, going forward, is going to be in the same range as we have estimated earlier, so between EUR 250 million and EUR 300 million, put them all together.

Our pipeline, so in the upper part of this page shows what we currently have in our balance sheet, so plots means the land, there we have a potential for 1,200 apartments; plots and existing residential buildings, idea there is to demolish them and to build a new one there, gross 700 apartments, currently there's 300 apartments, so the net impact is going to be 400 apartments. And then conversion is roughly 1,200 apartments, and then the biggest portion by far is the Metropolia case. They are in a rezoning phase, no news there. But it seems to take some time before we get the new zoning in place, but that is coming slowly, but steadily. And we are very thrilled to get those started when the zoning is in place. This lower part of this picture, they are off-balance sheet items, if you like. So this EUR 236.3 million, giving roughly 1,033 apartments covering SRV portfolio, covering Hausia portfolio and 2 other properties. It's good to note that 99% of this whole pipeline is located in Helsinki region. So this is extremely well located, taking account of the strategy of the company.

Equity ratio and loan-to-value. We have the target to have equity ratio above 40% and loan-to-value of below 50%, and we are well in line with these targets. EPRA NAV per share improved as well as equity per share. And then just one note that this, of course, based on the old, if you like, valuation technique.

Our capital structure, no excitement there. So we have made any new arrangement there for the portfolio. From bond market, half from Nordic banks and local commercial paper market. We have EUR 250 million commercial paper program and EUR 50 million currently outstanding and EUR 300 million credit line in place. Financial key figures unchanged, if you like, average interest rate 1.8%, including cost of derivatives, and we are looking there quite conservative. The hedging ratio was at 90% at the end of Q3.

And no major refinancing is in coming next 2 or 3 years. And then finally, the change in valuation technique. Last Friday, we disclosed a range for the impact of this change. We have prepared, of course, our own calculations, and then we have discussed with Jones Lang LaSalle that has been appointed partner recording the valuation, and is going to give a external evaluator's report when we start to apply this new valuation technique. And we estimate that the impact for the shift of the valuation technique is going to between EUR 760 million and EUR 840 million at the end of Q3.

If we take the midpoint of this range, so that is going to have roughly in the ballpark, a 5% impact for equity ratio, positive impact and roughly 7% impact for like for -- loan-to-value, a positive impact there as well.

And now back to Jani.

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Jani Nieminen, Kojamo Oyj - CEO [4]

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Yes, Erik. Yes, it's easy to say that we are progressing toward our strategic goals, well on the way. The strategy has been all the time a combination of different aspects. So there's a growth target of us being a EUR 6 billion company by end of 2021 and roughly [miss] 38,000 apartments. And the story behind there has been that we are aiming to build roughly 1,000 new apartments a year. Actually, the pipeline is really solid and might be in place already, but we will keep on working. We've been saying that the other part comes that on average we are buying 500 apartments from the market. Actually, last year, we bought more than 1,000 units from the market. So we were ahead of the strategy. So even though we haven't been buying more than -- a bit more than 100 apartments this year, we are well in line with our strategy. It's easy to put in Excel that you are buying each year exactly 500 apartments, while the real-life goes in such a manner that sometimes you are able to buy 1,000 and sometimes a bit less. But we are able to buy whenever we find a portfolio matching our parameters. And it's a combination of, of course pricing, but the micro location, the average size of the apartment, particular condition of the building. So we are combining all the parameters. But as I said prior, we are able to use multiple sources in order to grow. If we find new development projects, more than estimated, we are increasing the amount of new building projects.

The other part of the strategy says that we are actually growing in order to be even more profitable. Yes. The aim has been that we want to keep the FFO against turnover above 32%, and actually today it's 37.9%. So we are investing in order to be even more profitable. And the third aspect is how we handle the risks, so we want to keep the loan-to-value under 50%, today it's 46.7%. And the equity ratio above 40%, today 42%. So it's been a well-balanced strategy, and we have been able to grow with all the strategic parameters. And of course, we don't forget the customer and that's the target that by the end of 2021, the NPS will be 40.

And we've been doing some specifications concerning the outlook for this year. So actually the revenue increase outlook is that it will increase by 3% to 5%. So no changes there on a year-on-year. The FFO range will be EUR 137 million to EUR 145 million, excluding one-off items. Previously, it was EUR 134 million to EUR 144 million, so a bit more narrow by EUR 1 million upwards. And the third part was that prior we estimated that we would all put together invest roughly EUR 300 million and that would require a sizable portfolio deal. But today, we expect that we are not making a sizable portfolio deal by the end of this year. So the amount of investments will be approximately between EUR 190 million to EUR 220 million -- EUR 210 million, sorry. So that's what we've been doing with our specified outlook.

And now I guess we are ready to move forward. No change in the dividend policy, so still the same. Dividend will be at least 60% of the FFO, provided that the equity ratio is 40% or more. And if we put all together and summarize what's been happening, so as Erik said, on the finance side, no surprises; on the operating performance, no surprises. A really strong operating performance. We've been able to create both like-for-like growth, improve the occupancy level. And we've been able to actually increase the pipeline for new development projects. So the growth seems solid.

Thank you. Now, Maija.

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Maija Hongas, Kojamo Oyj - Manager of IR [5]

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Thank you, Jani, and thank you, Erik. Now we have some time for questions. First we'll take questions from the conference room.

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Questions and Answers

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Svante Krokfors, Nordea Markets, Research Division - Analyst [1]

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Svante Krokfors, Nordea. First, a question regarding the apartments within rent restrictions, I calculate that your valuation yield will decline by some 70 basis points. Shouldn't that impact also the valuation of the apartments coming out of the restrictions where you have a guidance of EUR 250 million to EUR 300 million potential increase in value?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [2]

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There's actually 2 things that this is behind the fact that we estimate that the range is going to remain unchanged. One is that the new valuation technique will be applied for those apartments that still have restrictions, but are valued based on yield-based valuation technique. So the amount of apartments coming out of restrictions and have an impact for values, (inaudible) sense, is going to be smaller going forward. But of course, this shift in valuation technique will have an impact for the amount of value change when each apartment's restriction ends. So combine these 2 things.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [3]

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Okay, that's clear. Then another question also regarding the balance sheet. Your loan-to-value will decline 7 percentage points and equity ratio increase 5. How will you use this? I mean could you consider extra dividends? Or will you focus more on perhaps growing faster?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [4]

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It's good to note that we haven't give any other releases regarding this value change. So it remains to be seen. We have now a new Chairman of the Board. And of course, he started a strategic process. And it remains to be seen, what is going to be outcome. And of course, we come about as soon if there's something to be told going forward.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [5]

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And then regarding potential portfolios in the market, which you obviously haven't found, is it only that the prices continue to increase? Or is that the only reason you haven't booked anything, or are locations...

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Jani Nieminen, Kojamo Oyj - CEO [6]

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Actually, as I mentioned, so for us, it's a combination of all the elements. So the pricing, the location, the micro location, the average size of the apartments inside the property, technical condition. There hasn't been that many portfolios available. We are scanning the market all the time, and we are ready to move fast, if we find a suitable. But on the other hand, we've been able to find new means for our growth, like the reverse tender offering process. So we are scanning all the possibilities all the time.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [7]

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Okay. And then final question regarding the supply in the market. A lot of apartments that have been built in order to be bought by consumers have been transferred into rental apartments, and international investors are keen to be here. Do you see any risk of oversupply? Or is it just a regional thing, you have to be in the right place?

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Jani Nieminen, Kojamo Oyj - CEO [8]

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I think we have already seen the offering peaking last year and this year. And at least in our numbers, it's quite visible that we are not suffering. So of course, there have been some micro location challenge with new construction project for all the players in the market. But on the other hand, we've been doing quite nicely. And it seems that there will be still a lot of new apartments coming to the market this year and the first half of next year. But it's not changing the market. There's a lot of demand for new rental apartments.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [9]

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So your best guess for the like-for-like development is what we have seen in the last quarters, [so that would be]?

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Jani Nieminen, Kojamo Oyj - CEO [10]

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Like we've been estimating prior, so we still believe that roughly 2.5.

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Anssi Kiviniemi, SEB, Research Division - Analyst [11]

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Anssi Kiviniemi from SEB. Svante already cleaned the table, but I have 1 follow-up. So you now invested into acquired apartments less. Is one factor that you believe that during next 12 months, the market will be more favorable for buying portfolios?

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Jani Nieminen, Kojamo Oyj - CEO [12]

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It's not easy to see the future. But we've been focusing on how to create profitable growth. And for example, the announced deals with SRV and Hausia, the net initial yield was 4 for 1,000 new apartment in Helsinki region. So we were quite happy with those transactions made. So we are scanning all the potential in the market. And it seems that the construction increase is leveling off. There might be some projects coming available. And we have always provided the information that we pay the fair price and the right price for portfolios.

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Anssi Kiviniemi, SEB, Research Division - Analyst [13]

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Perhaps a second question. We have seen many construction companies struggle in these markets with low profitability and kind of project postponements, limited amount of employees, et cetera, kind of a lot of issues. How do you handle the situation, when you choose a construction company to construct a property for you and kind of how does that process work for you? And have you changed the process in some way in the last, let's say, 1 year?

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Jani Nieminen, Kojamo Oyj - CEO [14]

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Of course, we've been following the market closely. And as I said already, in the beginning of this year, my estimate is that the volume of construction work is basically coming down from the reason that it's not healthy for the construction companies that all the resources are in use and they're not able to make money. So the subcontractor, the full capacity is in use. We use tender processes. When we buy projects from construction companies, of course, we follow and evaluate the risks connected to the construction companies. And we've been able to do okay. We do have a really capable team here in Kojamo, from both evaluating the projects and on the other hand, the companies providing those projects.

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Unidentified Analyst, [15]

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It's (inaudible). A couple of questions from me as well. Regarding the new valuation technique, what kind of impact, if any, do you have on the terms of your existing loan facilities and the linked financial covenants? I mean is there more headroom now?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [16]

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There's clearly more headroom there, yes.

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Unidentified Analyst, [17]

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Very clear, indeed.

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [18]

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Yes. And of course, to add that is that we don't know, how, for example, rating agencies will look this. Our assumption is that they're going to see this as a credit positive, and this gives more headroom for the company. But they haven't given any releases yet, and we haven't given any additional releases. So the financial targets for the company remains the same. And as discussed earlier, of course, if the outcome of [credit] processes is something (inaudible) then we are going to give releases. But that work is ongoing, so we don't have any results there yet. But clearly, it gives us a quite nice headroom actually regarding our current loan facilities, what we have in place.

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Unidentified Analyst, [19]

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Sounds great. And then for Jani, I know I asked this already 3 months ago, but could you provide us with any kind of update on the Lumo services in terms of the revenue and profitability development during the last 3 months?

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Jani Nieminen, Kojamo Oyj - CEO [20]

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Actually, we're not providing any color number wise. We've been piloting new services launching. We will launch some newer services for piloting even this year -- by the end of this year. And actually, it's a combination. Most often I get the question that, are we able to create like extra revenue outside the paid rents? Although on the other hand, I guess one proof of the concept is that we are able to create 2.8% like-for-like growth. So we are quite happy with the current level that we are able to increase occupancy level and increase the like-for-like growth. So it's an element backing the like-for-like growth.

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Unidentified Analyst, [21]

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So the Lumo revenue, is it following a trend? I mean is it accelerating, staying the same or decelerating, the growth rate?

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Jani Nieminen, Kojamo Oyj - CEO [22]

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As I said, at the moment, the like-for-like growth was 2.8%, and we estimate to be able to keep it roughly on 2.5% level. And of course, in the future, we do believe that we are able to create revenues from the services part. But today, it's not on the table.

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Unidentified Analyst, [23]

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[Josen Nika], Handelsbanken. You have a very positive challenge with the strategic goals when achieving the targets well ahead the 2021, with the portfolio increasing to EUR 6 billion rather nicely now in estimated in -- here in '19. But do you still continue with investments as earlier stated and you're saying? And whether you have a kind of down level target for your leverage, for example, as you're having kind of 50% kind of upper limit, whether you have a lower limit for the leverage?

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Jani Nieminen, Kojamo Oyj - CEO [24]

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As Erik provided color, we do have the existing strategy in place. And we keep on working on that one at the moment. And of course, with the new Chairman, we are in a strategy process and thinking about what's going to happen after 2021, because life will keep on going and probably the demand is still there. And that means that we are providing more new homes. Erik?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [25]

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And one comment there to add. Yes, we are -- after this value change, if it's in the range what we've given, we are already above this EUR 6 billion, but we have actually told that the EUR 6 billion target is without any change in the fair value of investment properties. So this EUR 300 million on average per year to be invested for development acquisition is still there.

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Unidentified Analyst, [26]

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How do you see the foreign investor interest currently in the Finnish housing market, as it has been rather strong previously during the last 2 years?

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Jani Nieminen, Kojamo Oyj - CEO [27]

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Yes, of course, we have seen a lot of interest towards the Finnish housing market. And I think there's no big change there. The interest levels are low, real estate is interesting for investors, and Finland is a good operating environment.

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Unidentified Analyst, [28]

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Can I also ask a question about sustainability, you slightly suffered from the carbon dioxide emissions through the Helsinki energy [full in] having rather large coal field operations currently. What are your plans to have an input in there to decrease the emissions?

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Jani Nieminen, Kojamo Oyj - CEO [29]

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I think, of course, this Helsinki question will be decided by the City of Helsinki, and they've been providing quite positive views on that by the mayor. For us as a company, this type of questions are part of our company DNA, and we try on daily basis to work on these kind of matters. We've been, for example, providing Leanheat systems, so artificial intelligence on how to combine outside temperature with the room temperature and the weather forecast, how to really optimize the heating and the amount of energy we use. For example, the electricity we use in our properties today is carbon free.

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Maija Hongas, Kojamo Oyj - Manager of IR [30]

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Okay. Let's move on to the questions from the conference call line, please.

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Operator [31]

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(Operator Instructions)

And as there are no questions, I'll hand it back to the speakers.

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Maija Hongas, Kojamo Oyj - Manager of IR [32]

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Okay, thank you. We have a couple of questions from the chat function. They are touching the same subject that we have been already discussing, but I'm going to ask them anyway.

First of all, to what extent are you considering to amend your financial policy or targets following the significantly lower LTV expected at the end of this year based on the new valuation technique?

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Jani Nieminen, Kojamo Oyj - CEO [33]

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I think Erik will provide the same color.

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [34]

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I think we already covered that. But just to repeat myself, actually is that we haven't set any new financial targets for the company. So this for the prospective issue and [fit] loan-to-value is still there. And of course, this the change in fair values is going to give a larger headroom against these targets. And the strategic process is ongoing. We need to be patient there and look what the outcome is going to be. And the growth target for the company to invest roughly EUR 300 million per year, that remains the same. So of course, the company is looking for the growth. But the 2021 is approaching, and strategic process is prudent to have at this stage, and we will give you more color when the strategic process is finalized.

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Maija Hongas, Kojamo Oyj - Manager of IR [35]

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Yes, and to continue with the same subject, the new valuation approach will lower LTV by approximately 6 to 6.5 percentage points, according to my calculations, which will improve the ratio towards 40 percentage target stipulated by Moody's for an upgrade. On the back of the lower LTV, will Kojamo use this headroom to increase leverage and enable further growth or will you target to improve the credit profile in the eyes of Moody's and strive for a better rating, which would improve financial cost markedly?

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Erik Hjelt, Kojamo Oyj - CFO & Deputy CEO [36]

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We haven't changed the financial targets. But most likely, rating agencies will look this as a credit positive, but that's other thing.

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Maija Hongas, Kojamo Oyj - Manager of IR [37]

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Okay. Thank you very much for the questions and for coming here today. The -- our next report will be the full year report, which will be published on 13 of February next year. So we hope to see you all there. Thank you very much.