Thank you very much, welcome all to call presenting SBB Q2 report. Slide number two, please. Let me dig to the numbers directly. We present on rental income for the first half of 2020 of SEK 2,664,000,000. The net operating income of SEK 1,817,000,000. Here I want to add that we had SEK 40 million in one-off cost related to some accounting things related to Hemfosa acquisition. Adjusted NOI for the first half of the year was SEK 1,857,000,000. That means that also adjusted NOI for the second quarter is SEK 40 million higher. Surplus ratio 68% reported, 70% adjusted. Strong profit of SEK 2.6 billion and still relatively high yield for this kind of safe and secure assets yield of 4.6%. We are continuing our trend of strongly improving cash flows, and cash flow from current operations landed at SEK 1,194,000,000 for the first half of the year, despite large one-offs.
Property value at the end of the quarter, SEK 73 billion and EPRA NAV SEK 19.92 per share. Earnings capacity SEK 2.5 billion, and continuing strengthening balance sheet earnings per ordinary shares for the first half of the year SEK 1.8 per share. Next slide, please. The main business for SBB is providing Nordic welfare states with social infrastructure and in this report also for the first time, we are presenting detailed number on different categories within community service properties. As you can see, 94% of our income is coming from social infrastructure, 17% coming from rent-regulated residentials. You can also see that the main part of our community service business is education and care. That is among others consequence that we have sold a large part of offices during the Q2.
We have a long history of cooperation with municipalities, that is of course underlying the fact that we are having rent collection of 99.8% in Q2 2020. That is probably the highest in European listed real estate universe. We have also been able to continue to prepare for organic growth through new long leases. Among others, we announced lease with Västerås Municipality, 25 years lease for elderly care home and also announced 3 new police station and few more are to come. Next slide, please. As I said, if you look at our safe and secure low-risk assets, you will see that 94% of the property value is coming from social infrastructure. 94% of the income is coming from social infrastructure. We are largest player in social infrastructure in Nordics, having 75% of the property portfolio in metropolitan and university cities. Next slide, please.
The main message from the report, and I think that should be underlined many times, is strong track record of operational performance. Despite that we bought a company that was larger than us already few months after the transaction, we have fully accomplished integration. We have integrated talented best-in-class managers from SBB and Hemfosa, and those guys and ladies, they are chaired by the lady. They have been performing well. Our margins have increased with seven percentage units. Adjusted margin for first half of the year was 70%, to be compared with 63% by last year. As you can see also, given the acquisitions that we did after the quarter, we are already now in line with earnings capacity that is around margin of around 72%.
You can also see very strong growth in EPS, earnings per share, growing from Q4 2019 of SEK 0.2 per share to SEK 0.47 per share for Q2 2020. Next slide, please. One important message I want to send is also liquidity in our assets. We announced in the connection to acquisition of Hemfosa that we will dispose SEK 11 billion in assets. Almost 100% of that has already been delivered, and that has been delivered in probably one of the most challenging real estate markets ever. In those markets, you have many constraints to visit properties, to move around, to comply to government measures. Despite all of that, and despite less functioning capital markets, we succeed to deliver SEK 10.9 billion in disposals last six, seven months. That is something that I'm very proud of our M&A team. It is also showing once more two things.
One is that we have the most liquid assets in the Nordics, and probably in Europe. On top of that, very experienced M&A team. Next slide, please. We are active in the Nordics and focusing on Nordic markets. Those are countries with strong population growth, and our market is also affected by aging population and clear supply shortage of community service properties. This is going to create opportunities for us to continue to grow earnings per share and NAV. Large focus in next quarter will be on organic growth, where we have great potential to deliver new community service properties, new social infrastructure to the Nordic welfare states. Next slide, please. One important part of that is moving our property development focus from selling building rights to also delivering and continuing to be long-term owner of social infrastructure.
Let me first start with an amazing development that we have had in our property development portfolio. By 32 June, we had approximately 2.1 million sq m, which corresponded to approximately 28,000 apartments, making SBB one of the Nordics region's leading property developers. That means that on the top of property management with strong margins, we have company within the company that is probably one of the largest leading Nordic property developers. In the report, you can see that large majority of our building rights portfolio is in larger cities and university cities in the Nordics. Next slide, please. We are delivering from property development and from transactions with very long leases. After the quarter, we announced buying preschools in Norway, also signing the new 35 years triple net leases. No break clauses, 100% index to CPI.
We also during the next 12 months, we will also have in our portfolio the first-ever 50-year lease in Europe with Skellefteå Municipality. On top of that, a few weeks ago, we announced a new 25-year lease with Västerås Municipality, which is part of Stockholm region and Sweden's seventh-largest municipalities. Also here, no break clauses, 100% indexed to CPI. On top of that, as I mentioned before, we are continuing to cooperate with the different government agencies, making sure so they have the best properties, and also following their strategies and supporting them to get the best properties for their business. Among others, we have announced three 15-year leases for the new buildings for police authorities. As I said, it is more to come here also. This is also a strong base for continuing NAV growth and continuing growth in earnings capacity.
No one of those leases is included in earnings capacity presented at the end of Q2. Next slide, please. When talking about earnings capacity at the end of the quarter after successful divestments, we had SEK 4.5 billion in running income, SEK 3.2 billion in NOI, and SEK 2.5 billion in operating profit which is SEK 1.98 per share. You also see that including the results from our additive income streams and after being accounting for payments of all dividends among others or for D-shares and hybrids, we have adjusted operating profit to ordinary shareholders of SEK 3.7 billion on a yearly basis or SEK 2.91 per share. This quarter is underlying that we are delivering according to earnings capacity profit after tax was SEK 2.6 billion, which is strong increase compared to last year.
We have also, as I said in the introduction, showing very strong increase in cash flow from operations and cash flow from operations before changes in working capital adjusted for non-recurring costs amounted to SEK 1,348,000,000. On top of that, in that we have not included the cash flow from the building rights. We have had strong profits from the property development for the first half of the year. I will come back to comment that. Next slide, please. Just to summarize few important points showing key updates on successfully delivering on the business plan. As I said before, ahead of schedule we have delivered already almost everything that we said in connection to Hemfosa acquisition and our de-leveraging ambitions. Organization is fully integrated, and it was at place already in the beginning of May. We have now a company that is social infrastructure champion in the Nordics.
Synergies have been delivered in the first half of the year with SEK 170 million, and the rest will be delivered in the second half of the year. Disposals, SEK 10.9 billion according and even better than planned, and also significant de-leveraging. Important thing here when you read the balance sheet is you will see that we have SEK 7 billion in cash to come from already sold properties. At the same time, we have also been able to continue to create additional earnings capacity among others by buying large property of Frigaard Property Group in Norway. Also after the quarter, we did actually external valuations of the leases that we will start during next 12 months. Those valuations are showing extra value exceeding the investments and crystallizing unrealized fair value gain of additional SEK 2,242 million. Those numbers are, of course, not included in Q2.
It will come during next 12 months, which is building a very stable base for strong continuing growth in NOI. SEK 2.2 billion, SEK 242 million, that is almost SEK 2 per share. The important message from those leases is that average hold for those is 36 years, and we have 36 years fully indexed SEK 324.5 million of NOI to come. You can do your math by yourself. You will see that is amazing guaranteed cash flows going forward. We have also been able to continue to lower our cost of debt since Hemfosa acquisition and despite large interest rate in Hemfosa, we have lowered the cost of debt from 1.75% to 1.61%. Despite that, STIBOR was higher in beginning of Q2 and also despite that, we have prolonged our debt maturity by repaying short debt.
Given today's rating, we will probably finish the year by having average interest rate of below 1.5. If we improve our rating, that will be even much below. That is one of the strengths in our financial positions that we will be able to continue to decrease our funding cost. Next slide, please. To summarize, profit after tax per ordinary share of Class A and B increased to SEK 1.8 per share. If we take into account non-recurring cost, as I'm writing in CEO letter, that will be SEK 2.08 per share, which is the strongest in the market. Our earnings capacity, as I said before, SEK 2.5 billion in earnings from operations, and very strong increase of 149% per ordinary A and B shares during last 12 months.
Number two, profit before tax, showing that we are delivering not only profits from property management, but also delivering profit from all of our income streams. Profit after tax was SEK 2.6 billion, as I mentioned before, adjusted for non-recurring costs for repayment of expensive loans. Also taking into account all payments for D-shares and hybrid bonds, earnings for the first half of year were adjusted SEK 2.08 per ordinary A and B shares. Number three, as I mentioned in the introduction, strong continuing increase in the cash flow from operating activities before changes in working capital increased by 389% to SEK 1.2 billion, and adjusted for non-recurring effects for the buybacks of expensive loans, cash flow landed at SEK 1.348 billion for the first half of year. You have the next, number four, and here we have a few important points showing our great performance in additive income streams.
First, if you start with property development, we had before a goal to deliver SEK 250 million to SEK 400 million on yearly basis. On the 17th of June at our capital markets day , we presented the new goal that we will be delivering SEK 500 million to SEK 700 million over business cycle on yearly basis, recurring income. Already for the first half of the year, we have delivered SEK 258 million. In second quarter of those SEK 258 million for the first half year, SEK 108 million come during the second quarter. This is, I should say, just a slice of our large building rights portfolio of 2.1 million sq m, which corresponds to 28,000 apartments, and which makes us the Nordic region's leading property developer on top of our safe cash flow. We also continue to invest and running our investments and innovation programs.
I showed the examples before with renovating, with building new elderly care home in Västerås, with renovating and building new municipal house in Nykvarn and Västerås. Also, we renovate 323 apartments during the first quarter, which is slightly higher than our target to renovate 600 apartments on a yearly basis. We used to say that sustainability is integrated part of our business. We don't need to brag a lot about that because that is what we do. Just to give you a flavor in accordance with our green framework, we are continuing to initiate energy efficiency investments and continue to decrease CO2 emissions. We are also starting large investment in solar energy also in that way supporting our target of being 100% climate neutral by 2030. Paragraph number 5, as I mentioned before, we are focusing on achieving BBB+ rating during 2020.
As I'm writing in CEO letter, we do see that we already now, if we take into account also the profit for the next 12 months, that we are already now at the levels that will be in space for BBB+. An important point here is that when you read our balance sheet and you look at other receivables, you will see that like SEK 7 billion, and that is cash. The majority of that cash, like SEK 5 billion, came in by 9th of July. It's very important when you do math to look at there is a large amount of cash that company is having on balance sheet. This is of course very important for our growth to continue focusing on BBB+ rating in short, medium term, and long-term goal.
Long-term goal is to achieve an A- rating because we have the most safe, the lowest risk assets in Europe. We could also show through the COVID-19 crisis that we are the strongest rent collection, which is underpinning the quality and the security of our assets. Finally, as I should say, the one of the main messages from the report, now when we have fully integrated Heimstaden, we are continuing to deliver with strong potential from organic growth from the property development, but also high NOI margins and high increase in our NOI margins from property management. We increased adjusted NOI margins with seven percentage units between first half of 2019 and first half of 2020. On showing adjusted NOI margin for first half of 2020 at 70% and in accordance with 72% according to earnings capacity for all of the year.
Finally, this is something that maybe is not interesting for you, but very interesting for me as responsible for the businesses that we are continuing to deliver very strong like-for-like increase with 7% at the end of Q2. Thank you for listening. I will stay there and please question.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. Our first question comes from the line of Simen Mortensen from DNB Markets. Please go ahead.
Hi there. This is Simen. Congratulations for the stable and solid report. Just a few questions from my side this time. In terms of the vacancy rates, it seems to be going up a bit. It's up 80 basis points year-to-date, and 30 basis points in the quarter. Do you have any comment on that?
Yeah, it's just composition effect. After selling for SEK 11 billion, we have the refurbishments and investment, and the properties for building rights have higher rent. Actually our vacancy rates are decreasing in our portfolio. That is just composition effect.
It's just related to the transaction if I'm understanding you correctly?
Yeah, it's related to transaction, but in two ways. One is when you sell the offices, and the second one, which is main effect, is that the properties for property development and rent-regulated residentials that are ready for refurbishment get higher weight in counting average occupancy. As you could see, we performed 393 apartments refurbished in the first half of the year and have prepared additional stocks to continue to refurbish during the second half of the year.
My second question will go into the earnings capacity guidance. I know this is a bit down from all the sales, but I'm assuming, as you like the top line for earnings capacity guidance is down 12% year to date. Is that now reflecting all the sales you have been doing? The only thing that's left in this from what you have announced is Laeringsverkstedet, the transaction which will come in September, if I'm correct.
Yeah, that's right. Earnings capacity now is clean for all sales, and it will come additional earnings capacity from Laeringsverkstedet. Let's say that in beginning of September.
Okay. In terms of Laeringsverkstedet, just congratulations. It's an impressive yield of 5.9% in that yield. I noticed one thing based on the figures you stated in terms of it's a triple net lease. If you look at the square meter in the rent, the rent in the portfolio seems to be NOK 2,200 the square meter on triple net, which would in a normal rent be like SEK 2,500 per square meter, which is well above what we see in CBD Oslo. Can you tell us a bit on how that will be treated? The rent seems so high in that portfolio versus what will be normal market rent for kindergartens in Norway.
As you know, Simon, in Norway, it's regulated the size of the plot. The rent is not only covering the rent for the buildings, it's covering that we have 600,000 sq m of the plot for the properties. In a comparative perspective, the rents are still 10%-15% lower than in another large portfolio that was sold by Adolfsson brothers to private equity last year. Those rents are very competitive, and I should say they are 10%-15% lower than the closest competitor.
Yeah, I know that deal quite well. We were advisor in that deal, too. Just in terms of you continue to say you have successfully integrated Hemfosa, and it's fully integrated. Yet you have in your earnings capacity, you say some synergies. When are these come, and what do you mean by fully integrated? Yet the whole guide only going to have more synergies.
Yeah. This is affected with those SEK 40 million that we had to take this quarter related to Hemfosa accounting from the last years. That is now taken into account. Already in Q3, you will see that there are no one-offs, and you will see even more than SEK 40 million on comparable basis coming from integration with Hemfosa.
Thank you. Those are my questions for now.
Thank you.
The next question comes from the line of Bertil Nilsson from Carlsquare. Please go ahead.
Yes, hello. I want to check the math on your impressing coming increased value of your development portfolio, which to some 70%, 75% is assignable to the Laeringsverkstedet's rental agreement, as I can see. My interpretation is that the new valuation is something like 3% to 3.5% yield. Could that be correct when finished?
No, that is not correct. The valuations for those additional contracts are averaging yield of 4%, which is still relatively high for average of 36 years.
Okay. Yes, correct. Okay, thank you.
Thank you.
The next question comes from the line of Stefan Bilo from ABG. Please go ahead.
Hi, good morning, and thank you for the presentation. I have questions regarding the adjustment of Hemfosa's accounting principles to SBB's accounting principles, which resulted in the effect of SEK 40 million. First, what does this relate to? Two, for which period, is it January to June or April to June? Three, should we expect more accounting translations for the coming quarters?
I can start with the last one. There are no more accounting, because now also accounting is fully integrated, there will not be any more accounting effects from Hemfosa. Number two, those are related to utility charges. Number three, the effect was taken in Q2. That is, of course, thank you for that question. I forget to mention that, because that is very important, because that means that NOI for Q2 was adjusted, was SEK 962 million, which is very strong NOI margin. If you look SEK 962 and relate to SEK 1,323, you will get an NOI margin of 73% for the Q2, which is really strong.
Okay. Thank you very much for taking the questions.
Thank you.
As there are no further questions, I'll hand it back to the speaker.
We have received one question by email as well. Considering the strong demand for your D-shares and that they have your rating, have you considered issuing more D-shares in a public or directed new issue?
We are never commenting the questions related to different issues. We do see that all our share classes are very strong.
Great. Actually, we received one more just this minute. Can you please specify which divestments that are included in the cash flow for first half 2020, and what adjustments that need to be carried out to reflect all announced divestments, also including incoming cash for Q3 2020?
As I said before, all divestments are already done in Q2, there are no divestments left in Q3. The earnings capacity of SEK 2.5 billion at the end of Q2 should be adjusted with SEK 250 million coming from announced transaction with Laeringsverkstedet. That's it.
Great. No more questions by email. If you want to conclude.
We saw this as a strong quarter in very challenging environment. We are humble in those environments. A part of that is that we also will continue to invest in our society. We have been supporting different initiatives to deal with COVID-19 crisis. One important message from us is that we will continue to support our communities, and that is why we also offered 103 summer jobs to young people living in our neighborhoods. Thank you very much.