Good day, and thank you for standing by. Welcome to the NSI 2022 preliminary results and webcast. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please note that today's conference is being recorded. I would now like to hand over to your first speaker, Mr. Bernd Stahli. Please go ahead.
Thank you, good morning, everyone. Notwithstanding the challenging economic backdrop we've had in 2022, we've had a very good and productive year at NSI, and it shows in our full year results. If you go to slide five, we show you the main KPIs, and it shows that we've had EUR 2.15 in earnings. It's down compared to last year, mostly because of disposals. We've had a small decline in capital values. The balance sheet is strong at 28% loan to value. More importantly, we've spent a lot of time this time around on all our non-financial KPIs, and we'll talk about that more later, especially on the CRREM methodology. If you look at EPC labels, 88% level A, GRES score 93. We're feeling very comfortable there.
If you go to the portfolio on slide seven, you can see the map of our assets and the concentration of our assets at this point in time. It's getting increasingly concentrated. We now show three gray dots. One of the gray dots has already gone since the start of this year because of the disposal. The two other cities, we're down to one asset as of now, and they have become insignificant in our activities and eventually will disappear in time. The vacancy rates on slide eight is 6.2%. It's slightly up on last year, but a good result overall in our view. The top five in terms of vacancy has hardly changed over the past six months. We are in conversations for the first two assets, but as we would like to say in Dutch, flowers at the finishing line.
The vacancy at Alexanderpoort is strategic and will remain in place until we complete our building works, which is probably in early 2024, as getting the permits has been slowed throughout 2022. The revaluations you can see on slide nine show what we believe to be 35 basis points of yield expansion, the remainder coming from rental growth. Our values are down 5.6% overall, with a small increase in H1, followed by a circa 6% fall in H2. Amsterdam was mostly hit due to the lower yields to begin with and due to the value declines in the assets, in particular on our south-facing assets. The overall yields is now a 6.5% level. We believe it as attractive, and it's before the indexation that is still to come in 2023. More on the indexation later.
In all our key markets, we show the yield shift we have seen over the year as a combination of value declines and income growth. The overall yields for the portfolio is higher than what the market shows to be the yields for prime assets, i.e., the best asset in each market. For our yields, for our portfolio, the yield is not based on one asset, but is an average for all of our assets in these markets. For what we believe is a high-quality portfolio, we now have a very comfortable and maintain a very comfortable margin over the prime yield in these cities. That is, that our valuations are sensible is also shown in our latest transactions. On slide 10, we show what we've done in the last couple of months. We sold two assets in H2 at only a small discount to our 2021 book value.
In January of this year, in fact, just two days ago, we sold two further assets at a 12% premium to the 2021 valuation. That in an investment market that is perceived to be difficult, especially for non-prime assets. We appreciate the concerns over valuations. We've seen our own value declines. To be honest, it's not something we lose too much sleep over at this point in time. If we look at the initiatives we deployed in 2022, we've been talking about HNK for some time. We've completed the brand update that we envisaged for this year. We've revitalized the brands. We've made several improvements to all aspects of our business. As a result, our customers have a booking tool that is new.
There's some new food concepts, and the initial feedback we've had from our customers is positive, and there is more to come in 2023, in particular with the opening of HNK Sloterdijk in Amsterdam later in this year. The other big initiatives in 2022 was our efforts with respect to sustainability. This is a big topic for everyone and one we spend a lot of time on every year. To make clear, the minimum regulatory requirement in the Netherlands for offices to be rented out is label C. At this point in time, all of our assets are label C, and in fact, 88% of our assets are label A or better. We also have now over 60% of our assets at B and excellent or very good.
That is significant progress during the year. It reflects the great work by our technical team over the last couple of years, including last year itself. We also show the result of our initial EU Taxonomy assessments, and more on this in our annual reports due to come out in March. More importantly, something that will drive the business structurally for the next coming years, we've now got a complete roadmap to align our portfolio with the Paris Agreement. The details on that you can see on slide 14. This is not about EPC Label C or A, this is about the actual energy intensity of our buildings. EPC is about theoretical energy usage and ignores the tenant energy usage.
More importantly, investors, we're now in a world where everyone looks at the actual energy intensity of a building with the increase in energy costs we've seen over the last couple of months, and I think that is only gonna become more important. We use CRREM. It will become the industry standard. To align our portfolio with the Paris Agreement, we need to get the intensity of our portfolio down to 85 kilowatt hours per year in 2034. We are at 129 today. We've worked out a plan for all our efforts, and we're gonna start executing the plan for the first two or three efforts, the so-called straightforward efforts that you see in the table.
We say straightforward to you, but if we say and we talk to the technical team, they're not really happy when we say straightforward because it's not that easy to do. That's why it takes a 10-year period. It is quite an initiative because it's gonna cost us EUR 58 million over the next decade. When we say cost, it's not a cost. In fact, it's an investment because there will be a genuine return on the investments that we're gonna make. There is the immediate saving in terms of energy costs by simply using less energy in the portfolio. More importantly, as we see the demand shift increasingly to more sustainable buildings, there will be structurally higher rents, lower vacancy, and ultimately, in an investment market that will recognize this, lower yields. It's not an expense nor a cost, it's an investment with a genuine return.
If you go to slide 15 and 16, you can see it's two examples of this, of what we've done already in the last two years. We've made significant strides at HNK The Hague and Q-Port in Amsterdam. You can see some pictures of stuff that you normally wouldn't see in a building, but you will have to see more and more over the years to come. This will become probably as important as some of the other space you would typically see nice pictures of in buildings. What you see is that we've been able to get the energy intensity of buildings down by spending EUR 800K in The Hague and closer to EUR 2 million in Q-Port in Amsterdam. Q-Port is a very interesting example because actually, what we say here, it's mostly paid for by the tenants.
We've got an agreement and a structure that we've basically agreed with the tenants that they are paying for the upgrades, and they're getting the benefit in terms of lower energy costs. We're gonna see more of that over the years to come. This is also an example of a building that already is pretty much aligned with the Paris Agreement at 891 kWh a square meter per year as of today. More detail on that, happy to discuss that with you as we start to go on the road over the coming weeks. That's all for me for now, I would like to hand it over to Alianne to talk about the developments and the financials.
Thank you, Bernd. Good morning, everybody. On this slide 18, we included an overview of our development projects, Vitrum, Laanderpoort, and Well House. The current total estimated cost is circa EUR 435 million-EUR 475 million. This includes the book values of the existing buildings. The volume of the total CapEx will be between EUR 320 million and EUR 340 million. This CapEx estimate is circa 10% higher than the figure mentioned earlier in 2022, and this is mainly due to the assumption of higher building cost levels as per today. The estimated average yield on cost is 5.4%. Earlier in 2020, we communicated the yield on cost of circa 5.5%.
The projects are profitable with a reasonable yield on cost, even in the light of the latest market adjustments today. Longer term, these are assets that we still are convinced that this is the quality that we need and that's also the quality that is needed by our customers. I would like to give an update first on our development project, the renovation Vitrum. First, on slide 19, an update of this renovation. The final design of the Vitrum renovation has been completed in 2022. In 2022, we also have experienced an additional delay, mainly due to the approval needed from the owners association. Vitrum is part of an owners association and therefore the redevelopment requires an amendment of the deeds of division by the 60 individual residential owners located on top of our Vitrum building. So far, this has been quite a demanding process.
In 2022, all owners have been consulted individually. The next quarter we will continue this. We do not have their final approval, but we aim for a mutual understanding and approval in H1 of this year. We have obtained agreement with the municipality on the other relevant topics regarding the extension of the building and the environmental procedures, except for the new land price. This discussion is still ongoing. It's our ambition to settle the agreement letter, including the final price quote for the land, in Q1 of this year. In February, we will start the tender process, and we will start preparing the technical designs phase as well. We could start these activities in the meantime, but we only could start the construction works if we have obtained the final approval of the owners association.
For now, the start of the renovation works are foreseen for the second half of this year. On slide 20, you can see the current artist's impression of the Laanderpoort project at the outcome of the final design phase. This building is 80% prelet to ING for a 15-year period. The agreement letter of the municipality, including land prices, was signed in December. Last week, the final design has been approved by both ING and NSI. In February, we will start the tender for the selection of the contractor. The outcome of this tender should as well confirm the business case for this project. As we mentioned with our H1 results, we agreed for the request of ING, a new delivery date for Laanderpoort in mid-2026.
After successful completion of the technical design phase, including the mutual agreement on building costs with the contractor, the start of the demolition work is foreseen to start at the end of this year. Let's continue with slide 21. Although at the end of 2022, we were fully ready to start the Well House project, we have decided not to start this project right now. We have obtained the irrevocable building permit, and in November, we have received the final building price quote from our contractor as well. As mentioned earlier, we obtained a higher final quote from our contractor for the development of Well House. Of course, to some extent, we were expecting a higher price quote in line with the higher building price index during this year.
Due to the higher-than-expected building cost in combination with increased overall market uncertainty, we were not comfortable to start, and we decided to postpone this project. We prefer to obtain more comfort over the financial viability, be it through lower building costs, more clarity on current and future capital values, or higher rent levels before starting this project. The next period, we will actively monitor the market conditions, taking into account all dimensions aspects. With respect to the 20% prelet situation with Spaces, I would like to comment that we have extended the agreed conditions regarding the start of this project, and on a regular basis, we are having conversations with them. This was my update on our development projects. I would like to continue with presenting the key highlights of the 2022 full year financial results.
On slide 23, you can see at the bottom line that our EPRA earnings per share is EUR 2.15. This is 9.6% lower compared to the full year 2021 figures. This lower EPRA EPS is due to a lower GRI of 8%. This is mostly due to our net disposals and the lower income due to the redevelopment of Vitrum, combined with a higher rental income in 2022 on the existing Laanderpoort buildings compared to prior year. The operating costs were almost 14% lower, mainly due to lower maintenance costs compared to prior year.
We had a 12.5% higher administrative cost due to some higher depreciation costs related to the move of our headquarter to Amsterdam in Zuidas, and some higher consultancy costs and higher travel and employee training costs due to less COVID restrictions this year compared to prior year. Almost 14% lower financing costs, mainly due to lower swap costs and higher capitalized interest on the development projects. Slide 24, we have prepared the same way as we prepared it in H1 2022, providing some more details on the impact and composition of the indexation with respect to our rental income. For the full year 2022, the financial impact of lease indexation was circa 2.6%. This was one of the drivers of our like-for-like GRI growth of 5.8%.
This might seems to be quite low compared to the index figure showed in the table at the bottom left, but this is due to the way the index mechanism works. The yearly indexation date for every tenant is based on the start date of the lease and the actual indexation rate for a specific month based on the CPI index of four months earlier. Because of this delayed effect, the indexations will be captured over a two-year period, so the year 2022 and this year. For the year 2023, based on the indexation levels, which are already known, and the latest form of current CPI index assumption for the remaining periods of this year, we assume an additional circa 6% indexation of our rental income for this year.
In the left graph at the bottom, we show the actual CPI indexation percentages for the specific months. In the graph at the bottom right, we present some more details about the percentages of our total contracted rent, which will be yearly indexed in that specific month. The EPRA EPS, which is shown on slide 25. The EPRA EPS was EUR 0.23 lower compared to the full year 2021. The total GRI was EUR 0.40 lower, and this is the total of the four orange buckets. This can be explained by a positive impact of EUR 0.08 due to the acquisitions we did in 2021. A negative impact of EUR 0.45 due to the disposals.
The disposals in 2021, they were mainly concentrated in the second half year. A negative impact of EUR 0.15 related to the transfer of the Vitrum building to the development. In addition, a positive EUR 0.12 was due to a 5.8 positive like-for-like GRI growth. As I mentioned earlier, circa 2.6% is the result of the earlier high lease indexations, and circa 2.2% due to the higher rental income of the current Laanderpoort buildings, and the remaining parts by new leases and lease renewals during the year. Furthermore, we had EUR 0.10 lower operating costs, EUR 0.04 higher admin costs, and EUR 0.07 lower financing costs as explained before. On slide 26, the EPRA NTA bridge is shown.
In 2022, the EPRA NTA decreased with 8%, with EUR 4.06 per share to EUR 44.17 per share. The main driver of this decrease is the negative revaluation of our assets during the second half of this year. On slide 27, we show our four main balance sheet KPIs. At the top left, you can see that the cost of debt for 2022 is slightly lower at 2%. The small decrease is mainly due to the lower cost of our swaps. The LTV level is shown in the graph at the top right. The LTV is 28.6%. The slightly higher LTV compared to the year-end 2021 is mainly due to the negative revaluations of our real estate portfolio. It's partly offset by the lower net debt position due to our disposals.
On the bottom left, you can see the interest coverage ratio is 6.3. The small decrease is mainly the result of the lower NRI during 2022 due to our disposals. We show our net debt to EBITDA as well for a complete picture of our financial leverage. This brings me to my last slide, 28. At the end of 2022, we extended our term loan from April 2023 to December 2026. The volume of the term loan decreased from EUR 80 million to EUR 60 million because the extra funding was not needed, certainly not in light of the current higher margins. NSI remains comfortable with its overall liquidity position, especially given the flexibility of the EUR 283 million undrawn credit facilities. We have enough funding capacity to fund our development projects and/or selective acquisitions.
The amended term loan includes the sustainability-linked interest margin mechanism, this is fully in line with our RCF facility that we extended in December 2021. The average maturity of our loans is now 4.7 years, only the EUR 66 million secured loan will mature at the end of June this year. We have started conversations with Berlin Hyp, they are already expressed their willingness to extend this loan. We expect, as we mentioned before, that our cost of debt to increase from 2% to circa 3% by year-end of this year. Mainly as a consequence of the new higher term loan margins and the assumption of closing some new swaps. To conclude with an LTV of 28.7% and limited upcoming debt maturities, NSI remains in a really solid financial position.
Thank you for your attention, and I would like to hand it over to Bernd for some final remarks.
Thank you, Alianne. Slides 30 and 31. The action plan for 2022. What did we want to do? What did we achieve? Quite a few things were achieved. We were expecting an economic recovery post the end of COVID that didn't materialize to the extent that we expected, which meant that we didn't meet our own internal vacancy targets to end up below 5%. In this market, six felt actually quite a good result to our view, in our view. The HNK Sloterdijk and HNK Rotterdam Alexander, one was problems in getting the contractor, the other one was problems in getting the permits. Sloterdijk actually the works has started last week. Rotterdam Alexander will probably be finished early next year. Take a final decision to start the construction of Well House.
Well, we did take a decision, but we, they didn't, we didn't take a decision to start. Didn't necessarily mean that we got there. Some of the others will be postponed into 2023. If we look at 2023, the action plan is slightly different. We need to resolve the FBI regime discussion from our perspective. We're still lobbying governments. We're broadening the lobby, and we're working still internally on mapping out the alternative scenarios from a taxing point of view. The other thing is that we need to make sure and continue to manage the LTV to make sure we have the capacity for the developments to come and/or any opportunistic acquisition opportunities that may come along. This year, keeping the overall portfolio vacancy rate stable at 6% again in this market looks like a good result.
Probably most importantly, we did say the indexation this year looks to be circa 6%, but we still need to manage that. Because of the high level of indexation, much higher than what we've normally had, we do expect to have some conversation with tenants about the affordability of that level of indexation. We will, we'll update you on that as the year progresses. The other targets are for the developments, the main targets, starting Vitrum, starting Laanderpoort, and reappraise Well House to see whether or not we can start this later this year, and that depends on how the market evolves from here, as Alianne de Jong described. With that, I would like to hand it back to the operator for Q&A.
Thank you, sir. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, it is star one and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. We are now going to proceed with our first question. The questions come from the line of Kai Klose from Berenberg. Please ask your question. Your line is open.
Yes. Good morning. Thanks for the presentation. I've got two quick questions if I may. The first one, you mentioned that maintenance costs were somewhat lower in 2022 compared to last year. Was it mainly due to disposals, or have you also postponed some maintenance work due to higher material costs happening than in 2023? Could you indicate for 2023, what would be the kind of normalized cost and normalized levels for the admin costs after a slight increase in 2022? Thanks.
Good morning, Kai. Maintenance, if we look at that level, it's always ending up a bit volatile in our business. Certain years it's higher, certain years it's lower. Last year it was lower. Not because of the disposals really, but more because it was a challenge to get the contractors to do the work. Some of it is slipping over into 2023, and more likely some of the stuff we plan to do in 2023 may well end up slipping into 2024. Yeah, work on the assumption it's gonna be slightly higher this year. Your other question was on normalized admin levels. This year, we expect higher salary costs to reflect the inflation that we're seeing in the world around us. We do expect higher consultancy costs because of the FBR situation.
Getting tax advice is not cheap, that is gonna stay slightly higher than what we normally have. I think that's probably the best guidance I can give you at this point in time. Maybe the level you saw last year is the new normal level going forward.
Thanks so much.
We are now going to proceed with our next question. The questions come from the line of Gerardo Ibáñez Herrero from ABN AMRO and ODDO BHF. You may ask your question. Your line is open.
Morning.
Good morning. Thank you for taking my call. It's good to see some disposals in the current environment from non-core assets. Can you give us an outlook on potential upcoming disposals at this stage, and if you have any discussions at the moment? On the other hand, are you looking at other potential acquisition at this point, given your well-positioned balance sheet? What yields would you be interested to buy?
In the presentation we did point out that we have two assets left, one in Hoofddorp, one in Den Bosch that we don't regard as long-term core cities in our business. Something will happen in due course. No guarantee it will happen this year. We also look at one or two other assets for potential disposal, one where we've maximized this value, another one where we see an opportunity to get a good price to get out. We don't need to dispose assets because as you say, the balance sheet is in good shape. Acquisitions from here, we look at stuff, but everyone is talking about sort of the risk to values, the uncertainty in the markets, the limited liquidity. There is no distress. The stuff that we see being offered to the market typically is the lower quality stuff.
People hang on to their better kits. Yes, we can buy assets that are maybe slightly lower quality if we can see an economic case to upgrade into better quality space. Just managed out lower quality kit doesn't fit our business at this point in time. Because in every acquisition we nowadays consider, the upgrade cost for sustainability goes in full. We're not yet in a world where owners are willing to accept the price cuts that are needed to make that happen. Maybe not completely a complete answer, but we're looking at stuff with no certainty that any of that will come through.
Okay. Thank you, Bernd. I also have another question on the EPS outlook. Why did you not decide to provide an outlook for 2023? Is it more on the uncertainty for new divestment, investment, or is it a bit on the contractual rent increases?
It means you as an analyst have to do your own work rather than us telling you what the number is gonna be. The components to consider, we've set 6% indexation. On a EUR 70 million rent roll, that's EUR 4 million of rent, that's EUR 0.20 a share. Take off the impact of Laanderpoort, which will become vacant at the end of this month in preparation for the developments. Take off the higher funding costs that we will have this year as we refinance some of our debt last year. Take off the effect of disposals. Net debt and balance, you'll end up slightly lower, as I said, there are too many moving variables. If inflation ends up staying high throughout this year, the effect will be more positive.
If inflation does slow down further, maybe we were a little bit optimistic with the 6%. It's a bit hard to judge at this point in time. As I said, we've potentially got more disposals, we may have more acquisitions. It's hard to judge at this point.
Okay. Okay, clear. Thank you.
We are now going to proceed to our next question. The question's come from the line of Pieter Runneboom from Kempen. Please ask your question. Your line is opened.
Hi, team. Thanks for the presentation, and also the roadmap to align with Paris Agreement. That's, it's appreciated. A couple of questions from my side. First of all, according to your comments, you expect value decline to be behind us by the end of 2023. Last time, I think it took like three to four years for values to trough. Could you maybe give some additional color on why you expect the values this time to decline so quickly?
No promise that it will be done by the end of the year. It's hard to look into the future. The crystal ball is a bit foggy at this point in time. Why we think it's quicker is because what we read from all our messages we've got from the valuers is that they don't wanna be as slow as they were last time around. You may not have expected the value decline we had because you would've looked back to the previous cycle, and you saw them to be slow to respond. They weren't slow to respond this time around, so they've been on the front foot, even with limited evidence. They said, "We think values are down." We said, "We agree. It's a bit tricky to judge how much.
We see what we can do with respect to our disposals, and we're selling at good value, so we're comfortable where we are. You'll get a little bit of a further blip in H1 as the 2% increase in spend really will come through. Beyond that, it's hard to judge. As I said, we've got a 6.5% valuation yield that is gonna go up as we get the invitation this year. That, to me, looks like a good number. If you were to take into account the share price, which you may or may not, on an implied basis, the gross initial yield on our portfolio is now 9.8%. That makes no sense whatsoever. That is not the value decline we're gonna get. That's never happened in the country's history.
There may be other stuff going into the share price that I don't know, but the value declines are not gonna be as severe. Famous last words.
Thanks.
You're right.
Thanks. On the values, I'm not sure. Do you know whether the appraisers already take into account the negative impact of the raise of Dutch transfer tax?
As I said, There may be an element of that in there if they use DCF valuations, but anyone that uses a normal yield approach can only include that in the first quarter.
Oh, yeah. Okay, thanks. On the dividends. For 2022, these were uncovered. We take into account the current uncertainty of recurring earnings, which could last for some years. In your view, how long can the situation with uncovered dividends continue?
Fair question. We have always said we don't look at the income profile of any given year to judge the dividend and the long-term dividend trajectory. It's a multi-year analysis that we take into account. There are lots of moving variables. If we end up with a income level that is structurally lower than the dividend, then the dividend will have to be adjusted. That can't be a surprise to you. You would actually think we would not be doing our job if we would keep on paying a uncovered dividend. We need to know what our sustainable level of income is gonna be, and that depends, to some extent, on where interest rates go from here. That depends, on where we can see acquisition opportunities and the yield spread we get on those.
It depends on how much leverage we use in the years ahead. It's a bit tricky to judge what our income profile is gonna be. Even when we've got an answer, we know what to do with the dividend.
Clear. Thanks. That's very helpful. A last question. We've specifically seen prime yields in Amsterdam quickly expanding. I think some appraisers said this were about 20%-30%, values at 10%-30% down for prime assets. This would also mean, like, development margins for your developments are quickly coming down. At what development margins, in your view, are projects still feasible?
The yields have gone up for the best fit in the market.
Yes.
If you look at the slide deck that we sent you, the presentation, you can see there is a movement in the prime yield segment in Amsterdam, according to the valuers or the agents, moving yields from just over 3%-4%. That is getting you to your 20%-25% capital value decline. Mind you, not all of that is value decline because there will have been an income outgrowth element to that as well. The yield that everyone now references is the 5.1% yield that has been achieved on the Booking.com deal that was signed in December. You need to start because it's only just one transaction, you need to start referencing elements for your own portfolio. Is South Exit better than the location? Is the lease length better or worse than location?
Is the structure of the building better or worse than that building? If you look at the 5.4% yield on cost, and you look at the 4.1% that is being done in that one transaction, we still think there is a margin in our projects. It may not be as great as it once was, but there is still a margin, as Alianne de Jong already alluded to.
It's very helpful. Thanks a lot.
Welcome.
Once again, as a reminder, if you have any question or comment, please press star one and one on your telephone and wait for your name to be announced. Thank you. We have no further questions at this time. I would now like to hand back the conference to you for closing remarks.
Well, thank you very much for dialing in, listening in, webcasting in. We're gonna go on the road over the coming weeks. If you wanna see us, you may already have a meeting and, but otherwise, if you don't, feel free to reach out, and we're happy to come and talk to you about the business and its prospects. Thanks very much, and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines.