Thank you very much. My name is Ilija Batljan, and I'm Founder and Chief Executive Officer of SBB. Slide two, please. We are, as you can see on slide two, presenting strong profit for the first quarter. Our net profit increased to SEK 216 million from SEK 113 million for the first quarter of 2018. That's despite that we took SEK 25 million in non-recurring costs related to bond buybacks, but also some additional non-specified costs related to transactions and some energy projects. The most significant result from the report is the strong increase in our net asset value. That increased with SEK 432 million or SEK 0.57 per ordinary Class A and Class B shares. This is almost doubling compared to the first quarter 2018. We continued to strengthen our equity during the first quarter with SEK 585 million.
After the end of the quarter, we have issued additional number of ordinary B shares for SEK 750 million and also hybrid bond in EUR market of EUR 300 million. This means that in 2019 so far, we have strengthened equity by approximately SEK 4.4 billion to approximately SEK 15.5 billion. Also at the end of the first quarter, if you look at our net loan-to-value, that was 52%. However, taking into account the issues of ordinary D shares, hybrid euro bond, sale of DNB, planned repayment of SEK 3.4 billion of secure debt. If you add all of this, also including announced acquisition in Finland, then our pro forma net LTV will be about 40%, which is really strong and put us in position to have a BBB flat rating. That is also part of our short-term goals.
Number four point is that we continue to deliver additional profit from three value-creating areas, refurbishment and investments in our rent-regulated residentials and social infrastructure, development of building rights and transactions. Also in this quarter, investments and transaction contributed with SEK 135 million and building rights with SEK 32 million to profit before tax. In the first quarter, we had started to renovate 176 apartments and prepared at the end of the quarter additional 75 apartments that will be started to be refurbished in second quarter. During the first quarter also, our property development is continued to deliver zoning plans of 50,500 sq m building rights were approved in Nykvarn, Oskarshamn, Ulricehamn but also that we managed to build and deliver two new LSS special housing building units at our own building rights in Malmö Bulltofta.
Final point in the highlights is, as you can see that we continue to grow our earnings capacity and our estimated earnings capacity on a rolling 12-month basis at the end of the first quarter was SEK 798 million, an increase with 35% from SEK 590 million at the end of Q1 2018. Next slide, please. Financial performance, a few key numbers. Rental income SEK 429 million. Net operating income for Q1 SEK 240 million. Surplus ratio 56%, slightly lower than in 2018, mainly affected by us having a slightly larger share of rent-regulated residential apartments in Q1 2019, but also that by having this nice pace of refurbishment, we are also doing some extra maintenance.
At the same time, we have had some additional cost for our energy projects, both as a part of our sustainability investments, but also the part that we want to use our strength as a big company also to prepare for renegotiations of prices for different utilities. Interim profit SEK 216 million, yield still relatively high for this kind of low-risk assets. We have a yield of 4.6%, and there is still valuation upside. Strong increase in cash flow. We report SEK 97 million at the end of Q1. Property value SEK 27.2 billion.
European Public Real Estate Association net asset value SEK 9.2 billion. Earnings capacity 12 months rolling, as I mentioned, SEK 798 million, an increase with 35% from the last year. Loan to value 52%, but heading pro forma to 40%. Equity ratio 39%, but increasing strongly. Adjusted equity ratio 43%. Earnings per ordinary share SEK 0.2. Next slide, please.
Few words about the company. We are owning or managing low-risk social infrastructure properties in terms of elderly care homes, schools, municipal buildings, ministries in the Nordics now, having properties in Sweden, Norway, and Finland. Also looking to enter in Denmark to be broad player in the field of social infrastructure in the Nordics, and combining this with rent-regulated residential properties in Sweden. We own approximately more than 10,000 or manage more than 10,000 rental apartments, of which 1,700 are owned by joint ventures. One of our biggest rental apartment portfolio is actually in Stockholm, where we have 1,700 units. You can also see that 71% of our value is in Sweden, 28% in Norway, and 1% in Finland. The biggest cities in the region are our main hubs, and Oslo and Stockholm together are almost half of our total portfolio.
Stockholm strongly increasing and will continue to increase in quarters to come. As I mentioned, SEK 27.2 billion in property value, 644 properties. Rental income of SEK 1.7 billion at 12 months rolling. Almost no vacancies, with occupancy rate of 96.6%. The vacancy that we have are mainly related to refurbishments and to property development. Still a relatively high yield of 4.67%. Probably the longest weighted average lease term in the market, with seven years reported and with adjustment to the contracts that we will go in next two years. Among others, new 50-year lease with municipality of Skellefteå. We will have total WALT of 10 years. Adjusted equity ratio of 43%. Next slide, please. As I mentioned, we have low-risk social infrastructure properties and Swedish rent-regulated residentials.
As you can see here, we have SEK 16.7 billion in social infrastructure properties, which is 62% of value. We have 31% of the value, which is rent-regulated residentials, and that is around SEK 8.5 billion. Then SEK 3 billion in our property development field, which is 7% of the value. As you can see at the slide, we are developing those building rights by converting cash flow properties to building rights for rent-regulated residentials and social infrastructure properties. At the slide, you can see how it looks in Nyköping, when we have own entrance to Central Station and where we own almost a quarter of central city district. Next slide, please. However, the main business or the unique point for our business is our long-term relationships with municipalities.
In our team, we have long experience of working together with municipalities, delivering both from transaction and from the building rights and from being partner in building communities. You can also see that 91% of our income is coming either from rent-regulated rental residentials or from government direct or indirect. You can also see at the slide some of our partners that are among others, Norwegian state and Norwegian government, and largest cities and regions in Sweden. As I mentioned before, at the end of the last year, we also did the first-ever 50 years lease in Europe with the municipality. Next slide, please. Our relationship with the municipalities are, of course, very important for long-term development of the company. However, those are underpinned by strong demographic change with higher proportion of elderly people requiring elderly care homes.
Also we are in the, as I mentioned before, having 50% of the portfolio in Oslo and Stockholm, and those are the most growing cities in Europe. We also do a lot of work on energy efficiency projects, and we see sustainability as a core part of our business. If you add to that broad urbanization all over the Nordic countries, then you have a very good combination for delivering good profit by combining relationships with Nordic municipalities with this kind of mega trends that will continue to support our growth. Next slide, please. We delivered a strong net operating income in Q1. Profit after tax was SEK 216 million, which adjusted for non-recurring costs relating to refinancing and repurchase of bonds amounting to SEK 241 million. That is a strong increase compared to the corresponding quarter of the previous year.
Because of us having more than 10,000 residential units, Q1 used to be our weakest quarter. So having this kind of profit is also giving good signals for the rest of the year. Our strong net operating income, combined with long-term reduced financing cost and also cash flow from building rights enable us that we will continue to deliver growing cash flow. Also for this quarter, I did a summary of cash flow changes just to give you a flavor what kind of cash we are delivering from different parts of the business. If you look that we are reporting SEK 97 million in cash flow before changing in working capital, then you add that we paid SEK 25 million non-recurring for redemption of the repurchase of the bonds, then that is SEK 35 million additional.
We have, in this quarter, strong cash flow from building rights because we got 50,000 sq m leased on, and there is still cash to come from those building rights in Q2. But in Q1, we got SEK 157 million. Then if you subtract paid interest on hybrid bonds and paid dividend on preference shares of SEK 41 million, then adjusted free cash flow of SEK 238 million for Q1. Our estimated earnings capacity on a rolling 12 months basis at the end of first quarter was SEK 798 million, which correspond to an increase of 35% from Q1 2018. Next slide, please. Earnings capacity continued to develop, SEK 1.7 billion in income, SEK 1.2 billion in net operating income, and still relatively high financial expenses.
You have heard me talking about this last years, In 2018, we have been successful to decrease our financial cost with SEK 100 million, I'm pretty sure that we will continue on that ride also in 2019. Despite that, we have an earnings capacity of SEK 800 million, this is from property management only, In addition to this, we will deliver profit from building rights, from refurbishments of residentials, and from our transaction business. Next slide, please. This is just to give you more flavor on the statement at the previous slide concerning continuous decrease in our financial costs. Here you can just see some of the points from last few weeks, You will see that there is still large potential for us to get in better profit as a result of lower financing costs in the months and quarters to come.
Next slide, please. Our property development continued to deliver also this quarter. As I mentioned before, more than 50,000 sq m with approved zoning plans delivering cash in the first quarter of 2019. As you can see on the slide, there is still more to come. Total portfolio of almost 960,000 sq m that will continue to deliver cash and to boost our NAV in next quarters and next years. Next slide, please. I will try to summarize the quarter with few points, The first of course is that SBB is low risk management of social infrastructure in the Nordics as main player in the Nordics, combining those with rent-regulated residentials with big emphasis of rent regulations, this delivers sustainable and predictable cash flow, that is the foundation of our activities.
On top of that, we can add that we have one of the most experienced development and transaction teams in the market. I could mention Lars Thagesson as the person that has done probably the most real estate transactions in the Nordics market ever, add to that our leadership in property development with Krister Karlsson and the team. Those are the teams with very strong track records that continue to deliver from quarter to quarter, that have delivered building other companies and have been very important for development of SBB last three years. We also deliver strong NAV growth. This is continued to our three value-creating areas in addition to property management. Those value-creating areas are renovations or refurbishment of rent-regulated apartments, but also investments in our social infrastructure properties, our development of building rights, and our transactions.
Profit before tax landed at SEK 349 million, where the profit from property management contributed with SEK 106 million, investments and transactions with SEK 135 million, and building rights with SEK 32 million. Just to give you some comparisons between 2016 and 2018, transaction contributed with SEK 700 million in profit, building rights with SEK 511 million on yearly average, the investments with SEK 290 million on yearly average. We will probably see even higher numbers in profit from refurbishment and investments, because there is a significant potential from renovations within both residentials and social infrastructure properties. In the first quarter, we started renovation of 176 apartments, at the end of the quarter, we have prepared for additional 75 apartments to start. They're planned for renovation to start during the second quarter. Our target of 600 apartments to be renovated in 2019 is within reach.
That will, of course, boost both our income and our NAV growth. Renovation within social infrastructure, an area where very few other actors are active. In the field of refurbishment of apartments, you have both Hembla and Victoria Park that often are in our neighborhoods. Within social infrastructure, we are very strong and in unique positions by renovating and also signing new leases for renovating properties. One example is our new 25 years lease with Nykvarn Municipality in connection with the rebuilding of the municipal house. Point number five, of course, it's very important for us to emphasize sustainability as a central part of our business model. We are using a lot of resources, and have initiated major investments in reducing carbon dioxide emissions by at least 400 tons per year over the next five years.
We have energy projects on the way in Tidaholm, Skara, and our largest in Norrtälje, that we are expecting to reduce CO2 emissions with 75%. In early February this year, we also launched our first green bond of SEK 500 million with a maturity of five years that has been listing on Nasdaq Stockholm's sustainable bond list. Last point is that on the outlook, we see continued strong demand for rent-regulated rental apartments and great competition for both rental apartments and community service properties. To finalize, we always used to deliver on the things that we say that we will do. Last quarter, I wrote that I look forward to the credit rating agencies report. Those reports have come, and we have delivered BBB- or investment-grade rating with stable outlook from both Fitch and Standard and Poor's.
That is not good enough for our quality of assets. We are looking to also fulfill our short-term goal, which is BBB flat. I will stay there saying thank you, and inviting you for Q&A.
Thank you. Ladies and gentlemen, if you have a question for the speaker, please press the zero one on your telephone keypad. Our first question comes from the line of Niclas Höglund.
Yes. Good morning, Niclas Höglund of Nordea Markets. Let me start out with a couple of questions. Firstly, could you share some highlights related to the DNB divestments that you announced for the second quarter here? What will be the sort of effects on NAV and earnings capacity following that divestment?
Yeah, The effect of NAV is almost neutral, but there will be large effect on NAV going forward because of two things. The one is that DNB, and I have to say first that is one of the most beautiful buildings and probably the most beautiful one in the Nordics. It has been a difficult decision for me to sell it. In relation to earnings capacity growth, that will have significant effects because DNB has also been connected to high financing costs. We have the average interest rate for senior and junior bonds for DNB at almost 4%. Of course, taking that away and using money to buy the properties that we announced last week, going from both decreasing cost and going from a yield of 3.8% to 5.2% or 6% that we did last week will have a significant effect on earnings capacity.
Okay. Moving over to the report. If we look at the trend, you have very strong rents but soft NOI, as you alluded to. You had some extra costs in the quarter, NOI margin is only 56%, while in your earnings capacity, it's 69%. Could you help us a little bit of the magnitude of these costs and if they are recurring, if you will have continued energy costs going into the rest of the year?
Yeah. First concerning surplus ratio, you've seen before that our surplus ratio in Q1 is not significant for the development that will come. That has been the case both in 2017 and 2018. There are, as I mentioned before, two main effects affecting the surplus ratio. One is that we had a higher proportion of rent-regulated residentials in first quarter of this year than before. Because in Q1 this year, we did a few transactions buying rent-regulated residentials, social infrastructure transaction will be visible first in Q2. That is one part of that. The other is actually even more positive. I should say that our utility costs are SEK 10 million, SEK 15 million too high in Q1 and because of two different things.
The one is that we are concentrating all of our electricity bills in one big pool. That means that in a short period of time, we have to be exposed to that market completely, meaning that we have the higher cost that we should have. On the long term, that is giving us nice profit. We are not crying for those costs. The second one there is that we are doing some energy projects that has been taking some cost that will deliver both return in terms of lower CO2 emissions and lower costs going forward. The third one is that we now are increasing our pace in refurbishment area. That give us also opportunity to efficiently give some extra investment in maintenance. We did that in Q4. We are continuing to do that in Q1.
We encourage our management to do that going forward when it's most efficient.
Is it fair to say that these investments are supportive to your cash earnings outlook and actually also supporting to the values in the properties?
Absolutely. Because we are moving a part of portfolio, as you know, to a joint venture. Also in this process, of course, we are taking some additional costs. We are in the process to paying company to change this. We have some additional costs for that. We feel that we deliver strong profit, and we are not, how to say, we are not having time to try to estimate those costs because we see the trend is very clear. We are going to continue to have a strong increase in NOI and also a related strong increase in NAV.
Okay. My third question was actually related to the central and admin costs. They are also on a slightly higher level than what your indication in the earnings capacity, rather around SEK 9 million higher. Is that related to the listing costs or [crosstalk].
It is related mainly to transactions and some listing costs.
Right.
That is beneficial for us to take those costs through P&L.
Okay. My fourth question is actually just a follow-up on the DNB. When you divest this property and you redeem these loans, will we see any extra costs related on the financing side in the second quarter to be aware of? Will this be net about in the transaction?
We will sort out the main part within transaction, that is also giving extra value to this transaction given our strong development of credit metrics. However, this is, how to say, it looks like cliché, but it's paying for success. We have been too successful in the capital markets, meaning that our bond prices, our margins decrease very fast, meaning that we pay a lot to get rid of those. We are continuing to clean up. As you know, Niclas, I still think that our assets requires much lower financial costs. I am always very clear in the market that we are always on the buy side concerning our bonds, because they are still very cheap. That will be, of course, costly for us, that means that we will probably have additional costs for repayment of the bonds also in Q2.
Right. My last question, if I may.
Yes.
When we look at the development portfolio, part of the value changes were related to building rights or zoning coming in at place. What's your outlook for the timing of the already announced divestments to generate cash over the rest of the year? Have you seen any planning in place also in the second quarter and your outlook for the SEK 1.5 billion to be coming into the balance sheet or into the cash flow statement?
Yeah. As I emphasized in the CEO letter, we delivered SEK 157 million in cash flow from building rights in Q1. We are expecting additional SEK 85 million in Q2 as I can see right now. My expectation for the whole of the year are, as I mentioned before, between SEK 500 million and SEK 650 million. I don't see any threat to that. Of course, sometimes some things can move one quarter forward, but it will be in the reach of net cash flow from building rights in the quarters to come.
Just to follow up, though, if I may. On these SEK 500 million-SEK 600 million in cash flow from this already taken on divestments and more of the timing, what would be the revaluation effect? Because I know that you.
It is not, because it's very important. I'm never giving predictions or how to say. We are guiding that we will deliver SEK 250 million-SEK 400 million in profits from the building rights on yearly basis. Last three years, we have delivered SEK 511 million on profit from building rights. I'm just commenting cash flow coming in.
Right.
In Q1, we had cash flow of SEK 157 million. We are given the sole building rights expected to land at SEK 500 million-SEK 650 million in cash flow for 2019. That part of it may slip to Q1 of 2020, but that is how this business works. Concerning the profit, that was delivery in Q1 was SEK 32 million, and we will see what will come in the quarters to come.
Okay, super. Thank you very much.
Thank you.
The next question comes from the line of Philip Hallberg, ABG. Please go ahead.
Yes. Hi, Philip Hallberg here from ABG. Just a detailed question regarding the DNB divestment. Will the preference share related to the Barcode be removed after the divestment? I think it's roughly SEK 330 million or so that you mentioned in the report.
We have already repaid almost all of those after the end of the quarter, all of those preference shares. I think we have SEK 27 million left. We are always ready to repay those also, but that is insignificant amount for us. As I said before, concerning the bonds, we are always on the buy side for all mispriced assets. That is the case here also.
Super. Thanks. Then in Q4, we talked a bit about the debt you had on your balance sheet related to the joint ventures, where you were to transfer debt to the JV. How are you going with that? Is the progression going well?
Yeah.
You said it would be a gradual phasing out of the JV debt.
Yeah. In this quarter, we phased out like SEK 150 million from one of the older JVs, then we had some additional debt to relaunch a new JV or prepare for new JV in Norway. Those are insignificant changes. Significant changes will be seen in Q2 because we already, after the end of the quarter, have refinanced like SEK 650 million. As I have said before, we are expecting to be refinancing up to SEK 1 billion of JV debt before the end of Q2, and SEK 650 million has been refinanced last week.
Okay. That was debt that you initially had on your balance sheet, right?
Yeah. This is awesome because as you know today, the banks take some longer times for financing and in those joint ventures, since it's mainly bank debt, and SEK 650 million approximately has been closed last week.
Yeah. Okay, perfect. Just a broader question, now when you've sold the DNB property and you have issued your D shares and the large hybrid bond, how large would you say that your current investment capacity is, both regarding acquisitions and projects? Obviously, you bought a Finnish portfolio here last week, if you could just give some clarification regarding your [crosstalk].
Yeah. Absolutely, Philip, as you know, the transaction business is an important part of our business model, where we are delivering large profits from our transaction business over time. We did the Finnish transaction announced last week, we will close it a few hours from now, I think I need to send some money away directly after the call, or SEK 1.5 billion, we have capacity to do at least SEK 3 billion more in, I should not say weeks to come, but at least during this next quarter.
Okay, super. Just another broad question, you mentioned here in the call that you're looking into perhaps entering Denmark. Are there any specific type of assets you're looking into or just any type of community service property, really?
Yeah. We are focusing on elderly care homes, schools, how to say, municipal government buildings. We see that we will do the deals in this space of social infrastructure because if you look at the market, we have only one competitor in the market, and that is Hemsö. We see that we can continue to be a leading player in social infrastructure space in the Nordics in years to come.
Super. Thank you for taking my questions.
Thank you.
The next question comes from the line of Bertil Nilsson from Carlsquare . Please go ahead.
Yes. One remaining question, the others have been taken. My question relates to the profitability you mentioned in residential refurbishment. One thing, obviously, when you're looking at the value changes, comparing residentials, public properties, and other properties, that residential have increased rather significantly while the others are not so much.
When your profitability, is that due to this change or is it other components like rent increases and lower construction cost and so on?
Well, that is very important because refurbishment, the first thing is that we still have a very high yield for this kind of low-risk assets with lot of valuation. You are making very important point here that I actually forget to mention that we almost don't have any bigger support for decreasing in yields. As you can see, we have almost the same yields over the quarters. The main NAV growth is coming from these different areas, as I mentioned before, from building right, development of building rights, from transactions, but also from refurbishments and renovations. That is the main force behind the increasing valuation in residential portfolio. As I said before, we are close to have to double the yield for every refurbished apartment, and that is very good efficiency.
Okay. Thank you.
The last question comes from the line of Jan Ihrfelt from Kepler Cheuvreux . Please go ahead.
Okay, thanks for that. I have a couple of questions. First one is on your financial net. If we look at the earnings capacity at the end of 2018, you indicated the run rate of SEK 90 million. Now it came in at SEK 107, excluding the SEK 25 million. I'm just wondering if so-called tomträttsavgäld is included in this SEK 107?
The part of effect, Jan, here of the 70s that we did, as I mentioned before, we launched some bonds relatively early in the quarter, both by topping out of one of our bonds in January and then doing the green bond, SEK 500 million, and after that, an additional bond of SEK 300 million. We took long maturity because that is one important thing for us is to have as low refinancing risk as possible. We took those bonds at levels of 3.3%. Today we should pay like 1.4% or 1.5% for the same maturity. That is one part of the explanation. The other part is that the part of the bonds of this high-priced bonds that we have from before still have some additional fees that also will expire through time. Those are the main parts.
Concerning, I think we don't have a high amount of land leases, but I can check more exactly and send an email to you.
Okay. I'm also a little bit puzzled about your earnings capacity. If you go back one year, when we started 2018, your earnings capacity indicated a surplus ratio of 70%. When we finally got 2018, the reported surplus ratio was 63.6%. Seems to be quite high leakage here. Now you're saying 69%. Is that excluding all the extra costs that you mentioned that you had in the first quarter? Will these higher cost base continue?
Yes. I should say that there is no higher cost base because the main part of those costs are of non-recurring characteristic. The main reason behind this is also our high transaction pace, that means that the earnings capacity is just mathematical exercise, but I think very good one because it's showing the trends. It's exactly for that point in time. This is an important point for me, because if you look at 2018, we did almost SEK 7 billion in transactions without increasing total value. You can imagine how big change in the mixes and this transaction pace is very beneficial for us delivering profit. Of course, that is always problem from outside to see that those incomes should be seen as recurring.
No matter how you see them, we have delivered SEK 700 million from transaction last three years on average. For that, we do have some extra costs that are hurting our NOI and particularly in comparison with earnings capacity. I would say that our surplus ratio of 69% is exactly how this portfolio could be run in a steady state environment. However, we are not going to run it in steady state environment. I should say on the total, we will deliver the profit that is better than steady state environment. I can just guide you for some of the pieces from Q1. We are delivering in Q1 net operating income of SEK 240 million.
I should say that this should be in the levels SEK 20 million-SEK 25 million higher without transactions and without these projects that we are running on energy efficiency and also extra maintenance that we already had people place those establishments.
Okay. Your investment volumes in existing buildings for 2019 and 2020, do you have any rough number there?
In 2019, we are expecting SEK 100 million in refurbishments, and that will, according to our plans that we use to almost double the yield, that will deliver additional SEK 400 million in profit. The biggest part of this will come from refurbishing rent-regulated residences. We also do, as I mentioned before, some refurbishments also with pre-signed contracts in social infrastructure. This is very important because I used to say that this is the main difference between this kind of low-risk business and commercial business, because we never have a CapEx. We have just investments in already signed contracts where we have [crosstalk] this kind of doubling the yield.
Yeah. Okay, SEK 400 million refurbishment. If add maintenance CapEx to that, it's like SEK 600 million or something for 2019 ?
No, as I said before, we don't see this as a CapEx, but as investments. All other CapEx is already fully integrated in our maintenance cost, those will be around SEK 100 million for 2019.
Okay. Thanks. That's very clear. My final question is regarding the DNB head office. Do you have any amount of the financing costs of this building in millions? How much did it cost to finance it now?
We announced that with the sale of DNB our financial costs are decreasing with SEK 139 million.
Okay. Thanks very much.
Thank you.