Kojamo Oyj

OMXH:KOJAMO

Earnings Call Transcript 2019-Q1

[Maija Hongas, Manager of Investor Relations]

Good morning, ladies and gentlemen, and welcome to Kojamo's First Quarter Results News Conference here at Helsinki. My name is Maija Hongas, and I am Manager, Investor Relations, here at Kojamo. And today's result will be presented by CEO, Jani Nieminen; and CFO, Erik Hjelt. After the presentation, we have some time for questions. First, we are going to take questions here from Helsinki, then from the conference call line and after that, it is also possible to ask questions with the web chat function.But let's get started. The stage is yours, Jani.

[Jani Nieminen, Chief Executive Officer]

Good morning, everybody. It's nice to start in Helsinki, where the sun is shining. And we start with the operating environment and a summary of what's been going on during Q1. Of course, and easy understanding to find -- to start with is that the operating environment has been positive, and looks quite good. And of course, the most important megatrend is the urbanization going on and that creates demand for new apartments in growth centers here in Finland. And at the same time, the positive development of employment rate and increase in income levels providing to -- according to estimates with a maintaining growth. And if we look at the chart on the right-hand bottom side, of course, in [ urbanizating ] Finland, the biggest winners are Helsinki region, Turku region and Tampere region. 3 biggest city areas here in Finland. As well the other major cities are getting more and more new people from other parts of Finland. And as this urbanization goes on, as I said, it creates a lot of demand for new housing. But what has been going on during last months is that we see the rolling number of last 12 months with the number of new building permits going down. So it's declining and during last months, more rapidly than last year. And so the production of new housing is returning to normal level. Even after saying that, there will be a lot of new supply in the market during this year, and the decline of the building permits will provide less supply in the market during 2021, 2020 at the earliest. So still during this year, there will be a lot of new supply in the market but as well a lot of demand in the biggest cities and this urbanization creating a lot of demand is reflected to both housing prices and rents here in capital region especially, and the estimate is that the increase in both the rents and housing price will be somewhere around 2.5% compared to the rest of the Finland, where it's roughly 1.8%. So there's a game going on here in Finland that some of the city areas are really the winners and some of the city areas are not the winners. So the diverge is going on.And as the trend of regional divergence is accelerating, both the -- it's a combination of urbanization going on and the development of different household sizes that creates a lot of demand for rental homes. So the biggest demand for rental homes is in the biggest cities for households of 2 and 1 person. So studios and 1-bedroom apartments are those apartments needed in the biggest cities. And the number of households living in rental apartments has been increasing in all the major city areas and other focus areas. And especially, as I've been saying that there is a global trend that, most often, households tend to choose rental apartments in the biggest cities throughout the world. And it's quite visible here as well that the 3 biggest cities, Helsinki, Turku, Tampere, roughly half of the households already choose rental living. And the number of households living in rental apartments has been increasing in all our main regions where we operate. So all the growth centers.If we take a look at what creates a situation that people more and more often choose rental living instead of buying the apartment, in my eyes, it's a combination of two different types of attitudes. Of course, in rental market, there are part of households who are not able -- not capable of buying the apartment. They don't have the money, they don't have the access for loans. So they choose rental living. And what we've been seeing in the market that as the prices are increasing, the loan terms are getting more stricter, it's getting more difficult for these type of people to buy the apartments in the inner city areas and that creates more demand towards rental homes. The other aspect is that there is more and more people who are choosing to rent the apartment instead of buying the home, even though they would be able to buy the apartment. The reasoning behind there is at least two factors: one factor is that they choose not to take the loan. They don't like the loan. The other factor is that there have been a change in the attitudes, the values in people's minds towards owning different things. It's no longer a status thing to own the apartment.And if we look at the Q1 figures, it's easy to say that the year has started as we expected. Things have been going as planned, and our strong performance is visible in all the key figures. The total revenue was increased by 3.7%, and there an important factor was the like-for-like growth of 2.6% compared to the comparison period where the like-for-like growth was 2.2%. The net rental income was increased by 5.7%. So it tells a story that the strategy of our -- us being growing and being able to increase the average quality of the -- of our portfolio has been successful. So we are more and more efficient. And the FFO was increased by more than 20% compared to last year. And of course, it's a combination of the increase of the net rental income and less taxes paid compared to last year.The occupancy rate is on a good level and it's a matching pair to the like-for-like growth. So we've been able to increase the rents. What happened during the Q1 was that the increase in the fair value of the investment properties was smaller, the fair value chain was smaller than last year. And of course, that is reflected in the profit before taxes. But the most important key figures are the ones showing the operative performance. And in the big picture, our strategy is proceeding as planned. And the fair value of the investment properties is increasing as planned. We are well on the way towards the amount of being a EUR 6 billion company by the end of 2021.And if we look at the regional data, so as I said, the urbanization is focusing mainly on the 3 biggest regions: Helsinki region, Tampere region and Turku region even though the other parts -- other growth cities are growing as well, but these are the main areas. And more than 2/3 of our assets are located in Helsinki region, and if we combine Helsinki region with Tampere and Turku regions, it's more than 83% of asset -- our assets located in those areas. And if we go through the regional data, of course, we are doing really nicely here in Helsinki region, as expected. And on the other hand, if we pick up another area, in Jyväskylä area, our occupancy rate is the lowest and even though the city is doing good, and the expectations concerning the urbanization in Jyväskylä area are positive, there has been a situation and there is a situation that there is a lot of supply in the market at the moment compared to the growth rate of the Jyväskylä area. So a good example is that I looked at the numbers in both in Jyväskylä and in Helsinki at the beginning of this week, and in Jyväskylä, there was 122 just newly completed apartments available in the rental market. The number is not huge. But in Helsinki, there was 102 newly completed apartments available in the market. So more new apartments available in Jyväskylä than in Helsinki. And that being said, it's easy to understand that it will take a bit of time before the new housing stock is absorbed by the market in Jyväskylä region.The apartment portfolio is growing, and we are proceeding in line with our strategy. For example, what has been happening during the last 12 months because it's not the game of what's been happening during the last 3 months only. After Q1 last year, during 2018, we sold 1,900 apartments, we completed 1,258 apartments, we bought roughly 1,000 new apartments. So we've been improving the average quality of the portfolio. The strategy is that we are going to be a EUR 6 billion company by the end of 2021 by providing 1,000 new apartments a year and with the aim of buying 500 apartments a year. At the end of Q1, we had 1,280 new apartments under construction. During Q1, we have made a decision, and we have started 277 new apartments under construction. We are trying to find portfolios to buy. There is a lot of interest in the market towards portfolios, and we have been seeing acquisitions with quite low yields. And I have to say that we are financially really strong at the moment. We are able to move fast, if and when we will find a portfolio according to our parameters. We will find the 500 apartments from the market on average a year, either by buying a portfolio or by finding one property at a time. So it can be done both ways. For example, this year, we have already bought 99 apartments, after Q1, we bought a property here in Helsinki. So it seems that we are well on track with the strategy, and we will be able to proceed with our strategy.An important part of our strategy is that we want to provide easy and effortless customer experience at all times. We really want to be the customer's #1 choice. So if we take a look at our thinking concerning the service platform, it's a combination of two things: first, the kind of services we provide for the potential customers and customers entering the Lumo homes, of course an important thing there is the Lumo webstore. But also a variety of different services available. Then on the other hand, there are services -- an increasing amount of services for people living in the apartments. So services during the tenancy, and also on that part, it's important to create the experience of easy and effortless living to be able to provide better urban living.Lumo webstore has been a great success. Today, more than 10,000 apartments already done through the webstore. Today, close to 11,000. It's a now fully automated service, operating 24/7. Tenant are able to choose the apartment they like, pay the first month's rent and move in, even tomorrow. Here in Helsinki, more than half of all the new tenants are coming through the webstore. So it's really helping our business. And actually what is it providing? It's providing an easy and effortless experience for those people moving inside Finland towards the biggest cities. On the other hand, providing services for the existing clients is as important, and we launched a new service, My Lumo during Q1. And already during the first month, more than 8,000 customers took it in use, and today, more than 10,000 customers are already using it, the service. And they are able to pay the rent, follow the rents, make announcements that something could be wrong, get information and things like that.So it's an important and growing services. And I think one of the unique qualities in My Lumo service is that it's a really open platform. So we will be able to bring in new clients of service providers in the future. But that development is going on at the moment, and we are collecting data and wishes from our customers as well.And if I -- now would provide the opportunity to our CFO, Erik Hjelt, to provide more detailed information.

[Erik Hjelt, CFO & Deputy CEO]

Well, thank you, Jani, and good morning, everybody from my side as well.On Page 13, that shows the revenue growth of EUR 3.3 million at 3.7%. And that growth was mainly driven by completed apartments by EUR 3.9 million, and that's offset by the disposals. The impact of disposal, EUR 3.9 million as well. Acquisition contributed EUR 0.9 million for the top line growth. Rental increases, EUR 1.8 million, and in total capacity, EUR 0.6 million. During the Q1, actually, disposal was only 1 apartment and acquisitions, 16, 1-6 apartments and completed apartments 61, but for total revenue, of course, impacted by disposals, acquisitions and completions during the 2018.Profit before taxes contributed by net rental income increased EUR 2.7 million, and SG&A expense is negative figure EUR 0.2 million, and financial expenses show some growth.In financial expenses, there are actually 2 alliance that changed one is that of course, the underlying portfolio. Our loan portfolio is bigger than in the corresponding period. But there was roughly EUR 1 million negative impact for interest rate derivatives. We do apply hedge accounting but when the fair value invested -- derivatives is changing, then has a minor impact for the P&L side as well. And the IFRS 16 implementation of that had a EUR 0.6 million impact for financial expenses. If you look this impact of implementation on -- of IFRS 16, it improved the net rental income by EUR 0.9 million, and it increased the financial expenses EUR 0.6 million. And it increased EUR 0.3 million, the change in fair value of investment properties. On the profit before taxes, of course, the impact is 0. And the main impact for us comes for implementing IFRS 16 is coming through land leases. So land lease agreements are now shown on the balance sheet side and the impact in the P&L leases in the different lines.If we then look at the profit excluding the change in fair value of investment properties, that's true, but if we look then the total profit before taxes, that showed a 20% decline, mainly due to the fact that the change in fair value investment properties was still a positive figure but smaller than in corresponding period. The total change was positive EUR 10.4 million and that includes the modernization investments, a negative figure EUR 2.6 million. And for the positive figure, roughly half of the impact was due to the fact that there were apartments that the restrictions ended. Another part came from the changes in transaction prices in market. The impact for transaction prices was rather moderate, and the fact there was during Q1 this year, the amount of corresponding transaction prices was rather limited. So there was -- we applied this transaction price placed valuation technique, and then there has to be minimum of 4 transactions that is comparable for each apartments in our portfolio. And there was limited amount of this corresponding transaction prices during the Q1 this year.Page 14. Net rental income grew EUR 2.7 million, representing growth of 5.7%. And that's -- the growth rate is bigger than in top line, and that shows that the net rental income margin is improving. There are two different lines that are moving in a different way, one is that maintenance expenses was EUR 1.4 million higher level than in corresponding period. And then there are basically two drivers behind that, one is that property taxes was EUR 1.1 million higher than in corresponding period and the winter was harder than in corresponding year. It's good to note that the interpretation on IFRIC 21 was changed last year and the property taxes are recognized as expenses in Q1, the whole year's property taxes.And then on a positive side, the repairs is lower, EUR 0.9 million compared to corresponding period. And this is the main factor why we revised slightly our outlook for FFO for this year. So the repairs are on a lower level compared to corresponding period. And we made the estimation of how this repair is going to be going forward this year as well.And on FFO side, there is of course positive figure, net rental income contributing EUR 2.7 million for the FFO. Interest rate expenses has some negative impact. And then, it's good to note that the current tax expenses was EUR 3.5 million less than in corresponding period. And that's mainly through the -- reason of allocation of taxes. So there are no specific tax savings compared to corresponding period. But it's related to allocation of taxes.Page 15. Gross investments, EUR 38 million representing mainly ongoing development activities. We sold 1 apartment, so EUR 0.3 million there. And then if you look modernization investment and repairs, they are both below the level -- in the corresponding period, modernization investment with EUR 0.3 million and repairs with EUR 0.9 million as discussed.The value of investment properties increased in line with the strategy. And the IFRS 16 had a EUR 60 million, with amount of that impact if you look -- compare the amount of investment properties at the end of last year due to the amount of properties -- investment properties at the end of Q1 this year. And ongoing development contributed EUR 35 million and changing fair value of investment properties EUR 10.4 million.On the right-hand side shows the amount of apartments under each valuation classes. And these two upper parts shows the amount of apartments that are still under restriction related to valuation, in total, 6,225 apartments, and they will come out of the restrictions gradually in between 2019 and 2021 -- '25. And on average, we have get a uplift in values when apartments comes out of the restriction of EUR 40,000 per apartment.On Page 17, we saw slightly new breakdown of our plots and real estate development reserve. Hopefully, this is more informative than what we used to have. On the other side of the picture shows plots and real estate development sites that the company owns. And plots representing pure land, and there we have 78,000 square meters plots, and exiting residential buildings, meaning, they are still cash flow generating buildings, but the idea is to demolish the existing building and build a new one. And there we have 40,000 square meters and conversions means, mainly, so-called, metropolitan properties and on top of that, so-called Erik 7 properties in heart of Helsinki. It's a conversion project as well. And then this have a square meters amount of 85,000. These, of course, depending what is the average size of the apartments, but these are providing us roughly 3,500 apartments.The lower part of the picture shows binding agreements and reservation for plots and real estate developments. This one is including preliminary agreements with the construction companies, agreement for the construction and acquiring the land, EUR 123 million. And we estimate that the portion of land including in that figure is EUR 24 million, representing 37,000 square meters. And this agreement and reservation for plots, and that's again, pure land, 73,000 square meters. And these two put together, roughly 1,700 apartments. At the end of Q1, we had ongoing development project for 1,280 apartments, invested already 125,000 -- EUR 125 million and to be invested to complete these projects, EUR 103 million.Occupancy rate has stayed stable compared to the end of last year, but showed improvement from the corresponding period, and tenant turnover, this level seems to be the new normal if you like for commercial residential market here in growth areas of Finland.Equity ratio, well in line and loan to value, well in line with our financial target's equity ratio, target for us is to be above 40% level and loan to value to be below 50% level. And we are well in line with these targets. It's good to note if you compare the equity ratio at the end of last year and the equity ratio at the end of Q1 that the dividend was paid EUR 71.7 million, meaning roughly 1.3 percentage points impact for equity ratio and implementation on IFRS 16 had an impact of 0.5 percentage point for equity ratio because from asset side and the liability side, roughly EUR 60 million, was booked. And the implementation on IFRS 16 had a 0.2 percentage point impact for loan to value as well.Equity per share and EPRA NAV improved nicely. EPRA NAV stood at EUR 11.55 at the end of Q1. We still have a versatile capital structure. We didn't make any new loan arrangement during the Q1, half of the loan portfolio from the bond market and other half from the Nordic banks and local commercial paper market. On top of these figures, we had -- we have a commercial paper program, EUR 250 million, outstanding commercial paper, EUR 50 million. And we have committed credit lines EUR 300 million. And we have still strong financial key figures. Average interest rate 1.8%, including the cost of derivatives. And we are quite conservative what come to the interest rates. Hedging, the hedging ratio was 93% at the end of Q1. And then there are no major refinancing needs for next coming years.And now back to Jani.

[Jani Nieminen, Chief Executive Officer]

Thank you, Erik. And at this last section, we will go through the financial targets and our outlook and of course the dividend policy. And if we start with the strategy, so we are progressing towards our strategic targets as planned. And we have to keep in mind that our strategy has different elements. So it's a combination of different aspects. The first strategic goal and target is that we are going to be a EUR 6 billion company by the end of 2021. That tells that we want to grow and we are able to grow. In order to get there, we are providing roughly 1,000 new apartments a year and buying an average 500 apartments a year. The other aspect tells that in order to get there, we are not willing to grow at any cost. We want to keep the FFO level above 32% of the turnover. So actually, we want to grow in order to be even more efficient. At the Q1 situation, the FFO percentage of the total revenue was below the strategy target just because the property taxes are recognized as full for the whole year during Q1. So that this time will really increase throughout the year and it's about the strategy. The third aspect is how we handle the risk factor. So we want to keep the equity ratio above 40%, and the LTV ratio below 50%. And that's at the moment very solid. Both figures are really strong. And the last aspect, as of course, we want to provide good service to our customers and the aim is that our Net Promoter Score will be 40 at the end of 2021. The number to -- after Q1 was low rate, was 28 and we made a big questionnaire to existing clients during January, actually during the same week when they received the letter concerning the rent increases this year. So probably the timing wasn't the best possible. But of course, we are measuring the NPS all the time from different angles of -- I do believe that the number will increase throughout the year.As Erik already said, we have made calculations and estimates concerning 2019, and we have specified our outlook. We are keeping our outlook the same, concerning the increase of the total revenue being somewhere between 2% and 7%, and the target that we will be investing in new development and housing stock acquisitions at least EUR 300 million this year. We made a change and specified the outlook for FFO based on the fact that we do have a strong operating performance, and our estimate is that we are spending slightly less money on renovations and modernization investments than estimated before. So this factor created a situation that we specified the FFO, the range is a bit more narrow and a bit upwards.The dividend policy, there are no changes. We want to be a stable dividend payer with an annual yield of payment being at least 60% of the FFO, provided that the equity ratio is above 40%. And during Q1, the dividend from 2018 was paid and it was EUR 0.29 per stock and 62% of the FFO.And if we move to summary, so as I've been saying, we have been proceeding in line with our expectations. The operating performance is strong. There has to be no surprises. We are really confident concerning this year. We are proceeding as well in line with our strategy, it's on a solid base even though some sounds. We are providing new homes, close to 1,300 apartments under construction at the moment. We are improving the average quality of our housing stock. Our aim is to sell roughly 500 apartments still this year, noncore apartments according to our strategy. So they will fit to our strategy. And we are, of course, trying to find portfolios available or making off-market deals that -- like we bought 83 apartments here in Helsinki Somerontie, 1-bedroom apartments and studios.We have to find all the time new ways in order to create the organic growth and at the moment we are in a process with a reverse tendering process, asking the construction companies what they would be able to provide with roughly EUR 100 million. And after we get their ideas, of course, then we move to possible make a decision concerning the investments if there are projects available according to our parameters.The third aspect in the summary, of course, we want to be the front-runner providing excellent services and easy and effortless living. And we do believe that being able to provide services and high-class customer experience and new kind of digital services is one of the key issues for our success, not the only one, but one important part of our success.So that being said, I think we are closing the presentation moving towards the questions. And as I understand we're starting here.

[Harri Paakkola, Analyst]

Harri Paakkola from Nordea. First of all, regarding the FFO guidance, it was raised due to the lower repair cost. Is it something that is being pushed to the next year? Or what was the reason behind that?

[Jani Nieminen, Chief Executive Officer]

There are, of course, some uncertainties concerning the timing whether the project will be ready this year or whether we will have the time to start it. But overall, the change was EUR 2 million. So not that big. But it was our best estimate at the moment.

[Harri Paakkola, Analyst]

And it's something that could be pushed into the next year?

[Jani Nieminen, Chief Executive Officer]

Yes. It could be. Yes. Most often, things happen in such a manner that if we do have the plan, then it get postponed a bit.

[Harri Paakkola, Analyst]

And then how do you see the staff cost-saving potential if the webstore is getting more popular? Do you believe you can -- could reduce some staff cost if you get more of the rental agreements made through the webstore?

[Jani Nieminen, Chief Executive Officer]

That question has not been on the table yet. Being able to provide webstore services, it makes a big difference on your processes. You have to be able to provide high-quality information concerning the apartments, high-quality photos. So the processes are changing and still at the moment, even though here in Helsinki, more than half of the tenants are coming through the webstore, we are providing services the old-fashioned way as well. So it's not the question of today, but in the long run, of course, it will change the industry and the way we operate.

[Erik Hjelt, CFO & Deputy CEO]

For [indiscernible], our aim is to keep the Euro-wise to SG&A expenses on the current level. It's part of the growth of the company. So in total, we are looking for -- to be more effective going forward.

[Jani Nieminen, Chief Executive Officer]

Yes. I think they provides an efficient way for us to grow and be able to take care of a bigger portfolio without hiring much more new people.

[Harri Paakkola, Analyst]

Then regarding VVO conversions, they were clearly lower now in Q1. How are they distributed throughout the year?

[Jani Nieminen, Chief Executive Officer]

If you, Erik, take that one.

[Erik Hjelt, CFO & Deputy CEO]

Yes. If you look at the number of apartments coming out of the restrictions, so Q4 is by far the biggest amount of apartments coming out of the restrictions. Q1 was the -- clearly lower, but the second biggest, and then Q2 and Q3 are the -- where we have the smallest amount of apartments coming out of the restrictions. Other thing is that the amount of apartments is not directly linked to the amount of positive uplift in the value because the EUR 40,000 per apartment, is that's average. So our estimate is that, in any case, the amount of positive uplift is to -- going to be bigger going forward this year.

[Harri Paakkola, Analyst]

And then regarding -- can you say anything about the timing of divestments in 2019?

[Jani Nieminen, Chief Executive Officer]

As I said, our aim is to sell 500 noncore apartments by the end of this year.

[Harri Paakkola, Analyst]

And then you talked about the good transaction market. What kind of yields have you seen in the Helsinki region transactions?

[Jani Nieminen, Chief Executive Officer]

Very low.

[Harri Paakkola, Analyst]

So low 3s?

[Jani Nieminen, Chief Executive Officer]

Low 3s.

[Harri Paakkola, Analyst]

And then the last for my part. About the cost inflation in construction, has that changed significantly?

[Jani Nieminen, Chief Executive Officer]

We were just talking about this yesterday and the statistics from the last 12 months as in this presentation as well show that there has been an increase over time in the construction cost. And even though they are -- there's new information available concerning how the construction companies are doing at the moment. Not yet there has been significant changes with the prices. There are more projects available, but still, I would say, that the increase of the construction cost, the speed has been turning a bit down, but not like dropping down.

[Harri Paakkola, Analyst]

Okay. Actually one more still. In the outlook you talked about the increasing like-for-like rental growth. And that is driven by the strong demand and migration towards growth regions. Do you expect the like-for-like growth to accelerate this and the next year?

[Jani Nieminen, Chief Executive Officer]

I would say that the like-for-like growth of -- at the moment being 2.6%, is on a fairly good level. And our estimate has been that it's around 2.5%, 2.6%. And there has been no surprises for us and I think that's the level.

[Unknown Analyst]

It's [ Erik Efromindres ] from [indiscernible]. A couple of questions from me as well. First, okay, all-time high number of apartments completed in Finland this year. You guys seem to ignore at least, for the time being the risk of oversupply and that the impact of that on rental levels. You talked about 2.5%, but how sustainable do you see that this is towards the end of the year and next year?

[Jani Nieminen, Chief Executive Officer]

I think once you enter commercial rental apartment market, you have to be ready for competition. And that's something that, I think, the players are not used here in Finland. And we do believe in our processes and in our capabilities and our way of providing customer experience. Of course, we enter in situations where there is a micro location providing a lot of supply towards the demand. And it will take a bit of time before it's absorbed by the market. But in the long run, if you are making investment decisions in apartments, in our eyes, it's a long-term decision based on the demand in the long run, not on the demand for the next couple of weeks or couple of months. We are investing more than EUR 300 million a year. So it's not based on how things are going for the next couple of weeks. And there's too much conversation going on, what's at the market this week or the next week.

[Unknown Analyst]

Okay. And then secondly, could you provide us with an...

[Jani Nieminen, Chief Executive Officer]

Erik, will provide additional information.

[Erik Hjelt, CFO & Deputy CEO]

Some addition to that is of course, it's good to look at the urbanization as discussed earlier here as well. So the urbanization trend is very strong and the latest estimate shows that it's even accelerating. So it -- people are moving towards this growth, same growth areas in Finland, especially Helsinki region. And there is -- just yesterday, I heard one good way to look at it, 1 OnniBus amount of people are moving towards the Helsinki region every day. So that creates the demand. And this amount of new construction that is ongoing is the highest level that the construction company actually can now do. It's -- they are -- their capacity is in full use. And this is not -- seems not to be enough to cut down the backlog created in Helsinki region during the financial crisis. So that is of course, one of the main drivers for growing demand for apartments.

[Jani Nieminen, Chief Executive Officer]

Yes. And that was our main with the decision-making based on long-term information and long-term demand.

[Unknown Analyst]

Okay. And then secondly, could you provide us with an update on the -- what kind of new adjacent services do you intend to launch? And when -- I'm referring to the likes of shared cars, self process services, et cetera? I mean, how big a business could this become?

[Jani Nieminen, Chief Executive Officer]

Of course, being able to provide services is it's a long way. But it's an important factor for us. And we are all the time scanning, collecting data from our customers and different kind of companies like start-ups. And I think we will be living in a world where we launch new services and make like a pilot project and see whether the clients are appreciating them, whether there is a demand for those kind of -- so it's a different lifecycle thinking and a strategy with services than with the portfolio investments. If we make an investment decision that we are building a new building, it's based on the long-term things, and there's -- like services are short-term strategy because the demand will be developing and changing. Whether it's going to be a big business, that's a separate thing, we don't know yet. I don't believe that. But I do believe that it will make our business better, that we will be doing better, and we will be able to provide brand value.

[Unknown Analyst]

[ Hesmat Kropus ], Nordea. Perhaps a follow-up question on the urbanization and how that drives demand. Have you split up how much the decreasing household size also impacts that demand? Is it an extra boost? Or...

[Jani Nieminen, Chief Executive Officer]

Yes. I think, as I said, it's a combination of both things. So -- and it's really hard to say which part has an impact of how much. But on the other hand, these both trends have been going on for some time already. Creating a lot of demand for small rental apartments. And we see that most often, households buying an owner-occupied home are married couples with more than 2 children or 2 children, at least. Some of these smaller households are, most often, renting the apartment. But I will say, still add that one portion of the growing number of smaller households will be the aging people here in Finland. The amount of senior citizens are increasing. And I think that's something that we have to take in account with providing the services and which kind of home we are providing in the future.

[Unknown Analyst]

And then regarding the transaction market, you said that deals have been done at low yields. Can you say what's the yield gap between what you would be willing to pay? And where the transactions have been made? Is it 50 basis points or...

[Jani Nieminen, Chief Executive Officer]

I won't provide an exact figure. I would say that we are trying to find good deals according to our parameters. And I think that our EPRA initially had provided information that, on average, we are doing okay.

[Unknown Analyst]

And looking at the other way, if you think that deals are too low for you to buy, could you consider selling something bigger, good-quality portfolio? Or are you restricted by your volume targets?

[Jani Nieminen, Chief Executive Officer]

I will answer in such a manner that we are sticking with our strategy. We want to grow. We will be a EUR 6 million company by the end of 2021. But on the other hand, of course, we are following the market really closely. And we are a professional residential investor. And it would be rational to keep on selling some of the properties if the market is hot in order to improve the average quality of the portfolio. So I think throughout the years, even after us selling the 500 noncore apartments, we will keep on some level possibly to sell some of the portfolio throughout the years. But I think that, in my eyes, it's like a basic thing in an investment company to take care of your portfolio.

[Unknown Analyst]

Then I don't know if you can give clarification on that, but the deals where you have not wanted to pay the high price this year, that the demand is coming from participants that can use more leverage? Or is it buyers that pay pension fund like money that doesn't use any leverage?

[Jani Nieminen, Chief Executive Officer]

It's been already for a couple of years a combination of the local players being interested in finding portfolios, but especially the growing interest from international players. Most of the recent deals have been done by an international investor. And of course, we've been seeing that the yields in Europe have been quite low. And that has been increasing the interest towards the Finnish market. We, ourself, sold 1,600 apartments last year to Morgan Stanley-operated funds.

[Unknown Analyst]

[ Josen Nika ], Handelsbanken. You mentioned the number of apartments under restrictions to levels of 2,000 -- and 6,200. How has developed during the last year? And can you give an estimate on the number of apartments where the restrictions are elapsing during this year and the next?

[Jani Nieminen, Chief Executive Officer]

Will you provide the information, Erik?

[Erik Hjelt, CFO & Deputy CEO]

This year, the amount of apartments that are coming out of restrictions this year in total is little more than 1,400. And roughly 300 -- actually, 319 already came out of that -- out of the restrictions during the Q1 this year. And the...

[Unknown Analyst]

Restriction, 300?

[Erik Hjelt, CFO & Deputy CEO]

300 -- 319, already came out of the restriction and a little more than 1,400 is total amount of apartments coming out of restriction this year. And these apartments coming out of restrictions going forward, it's coming down gradually between 2019 and 2025. We haven't given exact figure for each year going forward. But that gives an idea of how that goes.

[Unknown Analyst]

And the vacancies, what's the level that you are perhaps kind of targeting for or settling for?

[Jani Nieminen, Chief Executive Officer]

I'm satisfied with the current level. But I do believe that we are able to improve it. But I think in an overall picture, the occupancy rate, if you look at the other way, is quite often talked about and is considered as one of the most important KPIs. In my eyes, it's an important KPI, but not the most important KPI. Because at the end of the day, it's quite an easy KPI to improve. You just spend money. You lower the rents and increase the amount of the renovations. So I think we are in a fairly good level. So -- and total amount being roughly 97 being around 97 from -- on the total portfolio level, it's okay. Thank you. And are we moving forward to the line? Are there any questions online?

[Operator]

[Operator Instructions] And there seem to be no questions. So I'll hand over back to the speakers for any final comments.

[Jani Nieminen, Chief Executive Officer]

Thank you. So I'm passing it to you.

[Maija Hongas, Manager of Investor Relations]

Thank you. Actually, it seems that we don't have any questions from the web either, so thank you for coming today or listening to us from the web or the conference call line. We are going to publish our half year report on 23rd of August. So hopefully, we will see you then. Thank you.

[Jani Nieminen, Chief Executive Officer]

Thank you.

[Erik Hjelt, CFO & Deputy CEO]

Thanks.