Thank you. Welcome to SBB's presentation of Q2. Please go to the slide number two, quarterly highlights. If you look at the quarterly highlights or the first half of 2019, we delivered a strong profit after tax. Net profit increased with 80% to SEK 933 million. That's despite that we paid SEK 123 million in non-recurring costs related to bond buybacks.
Those costs for bond buybacks are a consequence of our success in credit market where we are improving our credit metrics and where our financial costs are decreasing. The net asset value after deductions for the dividend increased strongly during the first half of the year with SEK 857 million or SEK 1.14 per ordinary Class A and B shares. That means that the last 12 months we increased NAV with 20% or more, exactly 19.6%.
Bullet number three, we continued to strengthen equity during the first half of the year by SEK 4.4 billion. At the end of the second quarter, our net loan-to-value ratio was 43%. We also could see very strong increase in our interest coverage ratio from 1.7 to 2.2 times. You can also take into account that is on rolling 12 months, that means that for every quarter coming, we will continue to increase our ICR.
We have decreased our average interest rate from 2.93% from Q2 2018 to 1.96% at the end of Q2 2019, despite prolonging both capital maturity and fixed interest rates. Our fixed interest rate is four years and 91% of our loans are with fixed interest rates. Bullet number four, we continued to deliver profits from all of our three value-creating areas from renovation investments in our properties and from transactions.
In total, SEK 854 million for renovations and transactions, but also building rights SEK 40 million. Our renovations are going well. We are also expanding the team with four new members. At the end of the first half years of 2019, we have commenced the refurbishment of 248 apartments, of which 98 are completed.
For another 147 apartments leases were terminated. Those are now in planning and preparation for renovation. Bullet number five, during the first half of the year, the zoning plans of more than 50,000 square meters were approved. There is amazing project that we have in Nykvarn, which is part of Stockholm region. We are also finished two new LSS special housing units at our building sites in Malmö and signed additional four long leases for LSS special housing buildings.
Last bullet for quarterly highlights, our estimated earning capacity on a rolling 12 months basis at the end of the second quarter was SEK 1,006 million which is very strong increase with 67% from SEK 640 million at the end of Q2 2018.
Next slide, please. Just to give you some flavor with the numbers for the first half of the year, rental income increased with 10% to SEK 893 million. The net operating income increased with 11% to SEK 560 million. We see strong increase in cash flow and profit before tax increased with 54% to SEK 1,060 million. Profit for the period after tax increased with 80% to SEK 930 million.
Now we have a portfolio value of SEK 30.3 billion and long-term NAV of SEK 9.6 billion corresponding to SEK 12.69 per share, which is increase with 20%. As I mentioned before, very strong decrease in average interest rate on a 12 months rolling basis from 2.93% to 1.96%. Well, if you look at next slide please. If you look at the second quarter, rental income increased to SEK 464 million and NOI increased to SEK 320 million.
The main message from this is that our surplus ratio increased from 66% to 69%. We also see a strong increase in profit and cash flow from operation. Finally, net income after tax for the second quarter amounted to SEK 717 million, corresponding to earnings per share of SEK 0.73 before dilution. Next slide, please. On the financial performance, I've already gone through some numbers.
To give you some additional numbers, is that our equity ratio landed at 43% and adjusted equity ratio 46%. Our net loan-to-value ratio 43%. Overall strong financial performance. I also mentioned before a strong increase in ICR and very nice increase in average interest rates cost. Next slide, please. Looking at portfolio, we today have properties in Sweden, 84% of the value, 10% in Norway, 5% in Finland, and 1% in Denmark.
We did the first deal with the Danish state during the second quarter. We continue to work together with municipalities in Sweden, Finland, Norway, and we'll start in Denmark to continue to strengthen our base as leading listed social infrastructure company in the Nordics. We have 91% of our earnings capacity coming from social infrastructure with elderly care homes, schools, preschools in the Nordic countries and also Swedish rent-regulated residentials.
If we look at the property value, there it's almost 93% coming from social infrastructure, where community service properties account for 59% and Swedish rent-regulated residentials 34%. We also have a stronger position in the Nordic larger cities. Almost 60% of our property value is today in the larger cities in the Nordic, and Stockholm is our larger city with 26% of total property value.
Please, next slide. At slide seven, you can see how our property portfolio looks like, where we have, as I mentioned before, elderly care homes, schools, preschools, LSS housing and municipal and government agencies amounted to SEK 17.9 billion or 59% of total value. Then we combine that in a strong social infrastructure block with residential properties, rent-regulated residentials in Sweden, SEK 10.2 billion in property value or 34% of total value.
Then we have our property development which is mainly land bank and cash flow properties that will be rezoned to the building rights of 8% or SEK 2.3 billion. Half of this is already building rights that will be used for social infrastructure. If you add this, you should have numbers like 96% social infrastructure, which is very strong in exposure to the Nordic welfare states.
Next slide, please. We have one very special or very specific characteristics for Samhällsbyggnadsbolaget or SBB, and that is that we are a long-term reliable partner for municipalities. We have been doing that and have a very long track record. You can see that of our SEK 2 billion or SEK 1,909 million in rental income for the last 12 months, 91% is coming either from Nordic welfare states, direct or indirect, or from Swedish rent-regulated residentials.
You can also see that the Norwegian government is actually our largest tenant. After the Norwegian government, we have some of the Nordic largest cities as large tenants. Our long history is very important for our continuing development because as a partner to the municipalities, we also use our partnership very actively, and this is supporting both transactions and renovations and property development.
We have a very strong track record helping municipalities to develop the cities. You can also see at this slide some of the deals that we have done with municipalities last years. For example, we actually signed the first 50 years deal with the municipality ever done in Europe. We signed the deal with Municipality of Skellefteå at the end of the last year. Next slide, please.
Earnings capacity. We see that we have strong growth in earnings capabilities, and we have a rental income of SEK 2 billion. NOI, slightly less than SEK 1.4 billion. Then you can see strong operation profit in earnings capacity, SEK 1,006 million which is increased with 57% to the last half year of 2018. We still see potential to continue to decrease our financial expenses.
We have done a great job there by decreasing average cost of interest rates from 2.93% to 1.96%, despite at the same time also prolonging both capital maturity and average interest rates maturity or fixed interest rates maturity. Fixed interest rates maturity was four years at the end of first half of the year. We will continue to decrease our financial costs. To summarize, strongly increasing earnings capacity. Next slide, please.
Project development at the end of the first half of the year, we have our land bank more than 1 million square meters. As you can see also from the city table, it is almost half of it that is in Stockholm's region with Haninge, Nyköping, City of Stockholm, Nykvarn, and Täby. So we see continuing potential for cash inflows in the quarters to come and also continuing potential for value creation.
Next slide, please. It is always good to summarize, and I'm pointing out in the CEO letter that we feel pretty confident to continue to deliver value and to continue to increase NAV. We have some of very strong key pillars in our story. The first one is that we have a unique and non-replaceable long-term relationships with municipalities. We have by today SEK 30 billion low-risk social infrastructure property portfolio.
We delivered the last 12 months compelling NAV growth per share of 19.6% and at the same time building a strong financial position and an investment-grade capital structure. So you can see that we have succeeded to grow the portfolio and increasing EPRA NAV with very strong pace. Next slide, please.
To summarize, sustainable and predictable cash flow remains the foundation of our activities. As I mentioned before, we deliver strong increase with 56%-57% in earnings capacity to SEK 1,006 million at the end of the first half year of 2019.
We have also very experienced development and transactions team with strong track records. Just to give you some flavor, we closed transactions for SEK 14.5 billion first half year 2019. We deliver strong earnings growth thanks to the three value creation areas: innovation, investments in our properties, building rights, and transactions.
Where the profits from property management in total profit before tax of SEK 1,060 million . Profits from property management was SEK 254 million, affected by non-recurring costs for repurchasing the bonds. On top of that, we had the profit from investments and transactions with SEK 854 million in building rights with SEK 40 million. Bullet number four, we see continuing significant potential for renovation between both residentials and social infrastructure properties.
During the first half of 2019, we have commenced with the refurbishment of 248 apartments, of which 98 were completed and another 147 apartments were prepared for renovations. We also continue to do this with the renovation of social infrastructure. An important point here is that we have now a very nice stock of apartments where rents are negotiated and where apartments can be renovated after tenants moves out.
Bullet number four, as previously communicated, we are continuing work to prepare SBB for a listing on the Nasdaq Stockholm's main list. We are on a strong growth path, having announced 10 acquisitions with a total value of SEK 8.9 billion in 2019.
As we continue to see opportunities to grow, we may also evaluate the possibility of rising capital in connection with the listing on the main list in order to further strengthen our capacity to fund growth in compliance with our recently achieved investment grade credit rating.
Finally, we see continued strong demand for rent-regulated rental apartments. We also see great competition for both rental apartments and community service properties, and we have a unique position as a long-term partners to municipalities. We will combine growth with a strong financial metrics.
We now have BBB- with stable outlook from both Fitch and Standard & Poor's, and our short-term goal is to have BBB flat. That means we combine our low-risk social infrastructure asset with strong low-risk financial position. Next slide. Thank you very much. Questions, please.
Thank you. Ladies and gentlemen, if you do wish to ask a question, then please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. The first question comes on the line of Niclas Höglund from Nordea. Please go ahead.
Yes, good morning. Niclas Höglund here from Nordea. A couple of questions, if I may. First start with the surplus margin. It was extremely strong in the second quarter, especially given a little bit weaker first quarter, up to 69% in the quarter. Is there any one-time positive incomes or lack of costs which we should be aware about? Should we see the first and second quarter in more in a total in the first half to give a fair picture of the underlying cost?
We are communicating in the report our earnings capacity with surplus ratio for all of the year at level of 68%, those are our real numbers. That means that strong increase in surplus ratio between Q1 and Q2 is mainly because Q1 was lower than it should be. You have this kind of fluctuation, particularly when you have a large number of rent-regulated residentials.
Another, how to say, extra burden of Q2 was that we had lower surplus ratio for some of the apartments that have been sold. That is, how to say, transaction related. I think the surplus ratio in Q2 is signaling where we are going, and that is underpinned by a surplus ratio of 68%, but for all of the year.
Surplus ratio is a measure that we will spend more time to explain, particularly for international investors, because there is a lot of rents that we are also passing to the municipalities through the supplements. Actually in international comparison, our margins are much higher than those 68% that our surplus ratio shows.
Right. Moving over to value changes. Could you help us to understand the drivers here? You report a SEK -272 million value changes from DNB, and pretty small value changes related to the building rights portfolio. The underlying value changes are very strong in the quarter. Could you break that down to deferred tax in acquisitions and value changes related to renovations? Please help out here.
DNB's as we are writing in the report, we sell DNB at the latest valuation, even slightly better if I need to be more exact and slightly better. We said in accordance with our latest valuation the realized value changes there are actually related to accounting regulations.
We also explained that the main part of that is offset by the fair tax and also on top of that by cost for repurchasing very long bond that we have there, the financing. So, DNB is an amazing deal that delivered a half a billion in profit in two year and three times ownership, and also by selling delivered strong cash flow that we could use to buy new properties and to increase earnings capacity.
If you look at the numbers, we have slightly SEK 200 million because we are writing in or I'm writing in my CEO letter that transactions and investments were together SEK 854 million and slightly below SEK 200 million is coming from investments and the renovation and the rest is coming from strong transactions. That is the strength of SBB to have a very experienced transaction team that is creating off-market deals and in that way delivering the value on the line.
Just to follow up on that. When you look at the transactions, you've done off-market deals, it's clearly supported through the cash earnings in the quarter. What's the drivers here for revaluation already now? Is it related to acquiring deferred tax or is it related to these off-market transactions, i.e. that the valuation is also applying the better values?
It is mainly related to as I said a quarter of it or slightly below SEK 200 million is related to renovation and investments and the rest above SEK 600 million is related mainly to off-market deals and the strength in each of those deals and the history that we have prepared some of those deals during last 12 months and before actual time of execution.
My final question. You are mentioning that you are aiming for an investment grade flat rating and that you also are looking into the possibility to strengthen your balance sheet in connection with the listing on the larger marketplace here in the second half. Could you elaborate a little bit how much you need to strengthen your capital in order to reach an i nvestment grade flat ? And if that would be a constraint on growth now in the second half.
Let me be very clear on this. We do not with current earnings capacity and with our deliverables from all of our income streams, we feel pretty confident to achieve BBB flat rating, which in our case is having adjusted LTV and as communicated by rating agencies, having adjusted LTV of below 50%-60%. We feel pretty confident to achieve that in the beginning of next year.
However, we think that we have a unique position where we have opportunities to grow, and in that position, it is important to us to grow with strong financial metrics, and it is also why at the same path where we are communicating before that we are preparing SBB for a listing on the main list.
This is why when we see opportunities to grow, we also want to point out that we may evaluate the possibility of raising capital in connection with the listing on the main list in order to strengthen our capacity to fund growth in compliance with as I mentioned, our strong financial position and investment grade rating.
All right. Just to clarify, it is more growth related, if any, new capital rather than to sort of get the BBB flat that should be more in place already today.
I should say it's only growth related. We have strong metrics that is improving, strong credit metrics that is improving every day. We have a strong increase in earnings capacity, we see deliverables from both transaction renovation and leasing it out.
Okay. Those were my questions. Thank you.
Thank you.
Thank you. Just as a reminder, if you would like to ask a question, then please press 01 on your telephone keypad. Our next question comes to the line of Bertil Nilsson from Carlsquare. Please go ahead.
Yes, hello. The previous, it's already touched upon this transaction part which was raised. If you look at the individual Nordic markets, do you see any difference in the heat, so to speak, in the transaction market? Also if you make very much off-market deals or the public sellers, are they not reflecting value increases that fast since you are able to gain value gains in these transactions rather clearly, please?
We are long-term partners to the municipalities and for the municipalities, it is also important to have long-term partners. That means that when investing in municipalities and when they're buying new elderly care homes or schools, the municipalities are not only getting money, they are also getting a professional team that we will be there in long-term and also support city development and municipality development.
That is why I said in the introduction that it's important to see our unique and non-replicable long-term relationships with municipalities.
Also many, how to say, private sellers because those are very specialized assets and also many private sellers are preferring to not chasing the last krona, but preferring to sell to long-term owners because they then know that will be appreciated by municipalities and that will both give them to maybe to not to the best exit ever, but however, to preserve the position to continue to be active in this very special market.
That is actually the main strength that I emphasized before today in another presentation. The main strength of SBB is our team and our relationships and our deliverables. If you look at the transactions. It may seem as good profit. At the same time, we have executed transactions for SEK 14.5 billion in six months. That is a lot of money.
Very impressing, also follow-up of any particular differences in the Nordic markets that you see in that respect or also in Norway?
Yeah. We did our first Danish transaction with the Danish State in this quarter. The Swedish municipalities and Swedish social infrastructure market is very professional, and municipalities have been in the market for a long time. We see now that we do prepare transactions both with Finnish and Norwegian municipalities.
There are some differences, but the main thing here is that you have the countries with large tax-financed services that need professional property management, and that also have to deal with both demographics challenges from the aging populations and the urbanization. This, I should say, is even strengthening our position.
Okay. Good job.
Thank you. As there are no further questions registered at this stage, I will hand the word back to you, Ilija, for any closing comments, please.
My only comment is that we are on the path to create the leading Nordic social infrastructure property company in the listing space in the Nordics. We look forward to have you on board. Thank you very much.