Good day, and thank you for standing by. Welcome to the NSI First Half 2023 Analyst Presentation Call and Webcast. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. Alternatively, you may submit your questions via the webcast at any time. If you wish to do so, please type them in the question box and click submit. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Laura Gomez Zuleta, Head of Investor Relations, Treasury, and Business Development. Please go ahead.
Good morning, and welcome to the NSI First Half 2023 Analyst Call. Bernd Stahli, CEO, and Alianne de Jong, CFO, will now give a presentation on the results. I will now hand over to Bernd Stahli, CEO.
Thank you, Laura. Good morning, everyone. Let's go through the presentation. There are two parts to it. One is the regular results update. The second part is a comment on where we stand with respect to our strategic review. Slide 5, key performance indicators. I think all the numbers are quite clear. The one that I think may warrant a little bit more in terms of comment at this stage, is the dividend. We've reduced the dividend. Last year, we over distributed our dividends. This year, based on where we stand today, based on the environment in which we operate, given that we no longer own the portfolio that we once owned, generating the income and the lower LTV that we now have relative to where we were originally, this was the moment to reset the dividends.
There will be a new proposal for a dividend policy later this year once we've completed the strategic review, once we know exactly where we stand. This is the best indication we can give at this point in time. That is the one point to make from this slide. Another slide that I think is worth highlighting is slide 9. You see that the vacancy is up a little bit, but it's very concentrated. 7.3%. 1% of that is an asset in Amsterdam, Donauweg, that we are on the verge of selling to an owner-occupier. That should reduce that number once again. You can see there is also the comment on strategic vacancy for Alexanderpoort. It's an asset that has actually been on this list for a while, and it's been strategic vacancy for a while.
There we've had a little bit of an issue with respect to approvals for the municipality. Also, as we've sort of gone through the motions of realizing that sustainability is increasingly relevant, we've also reset the bar for ourselves with respect to what we want to achieve at this project. Therefore, we've taken a bit more time to rework the model and rework the plans to make it one of the most sustainable buildings in Rotterdam. Slide 10 shows the 7% like-for-like rental growth in the first half. We've had significant indexation over the last two years. We've had a very high inflation. We already told you earlier this year that there is a lag effect in how the inflation works its way through into our indexation. That this year's indexation was therefore going to be higher than last year's indexation.
That is still what we expect for this year. The data so far confirms it, there is no major issue with respect to that with for the remainder of this year. The reversion in the portfolio is falling. The indexation is higher than the ERV growth at this point in time, positively, the ERV growth or the reversion is still positive at this time. The office market data, you can see the disconnect between the top two graphs on slide 11 and the bottom two graphs. The investment market has fallen away. Yields are moving out, if you look at the operational data, the vacancy rate is staying low, the rents are reasonably stable, if anything, for the best product, are going up.
If we go and look at our own portfolio, actually, the 7% vacancy rate that we're on today, 7.3, should fall back on the back of the disposal of Donauweg. If you take into account our remaining lease expiries that may come up later this year or are due to come up later this year, the majority of them are HNK related, we're pretty convinced our vacancy is under control, at least for the remainder of this year. The slide number 12 shows the real collapse that we've had in the investment markets over the last, basically, 6-9 months. I saw this morning the report from CBRE confirming data for Q2, which is slightly better than Q1, but they've reduced the forecast for the entire year.
For us, today, we're sitting on a portfolio where the yields are higher than prime. The capital value is EUR 3,000 a square meter. We're not far from replacement costs. It feels like a good position to be in at this point in time, on our valuation basis today. Going into the detail on the revaluations on slide 13, you can see that we've broken it down into two components, one related to the standing portfolio and one related to the developments. Amsterdam has seen the biggest hit in value declines in that we've started there from lower yields. That hasn't helped. Also specifically because it's project related. In the case of Vitrum, that asset has been written down and hit to reflect that you've now got a vacant building, which in this market is not going up in value.
In the case of Laanderpoort, the value decline is entirely related to the look-through end value of the project. A 10% fall on a EUR 200 million projects has a significant impact on what the value of the existing building is today. That is explaining that in full detail. The yield now is 6.9% gross. We're back to where we were in 2018, but the quality of the portfolio is significantly higher than it was back then. It's hard to say where values will go from here, but doing a bit of crystal ball gazing at this point in time, as long as there is no liquidity in the investment market, there is a risk that values will continue to be reappraised down by the agents as they're looking for a clearing price.
Slide 15 is my last slide for now. It sort of highlights the sustainability task that we, as a company, but the industry in general, has ahead of itself. We've given you our path to become Paris aligned by 2035. We've told you that for the majority of our assets, it's gonna cost close to EUR 60 million to get our energy consumption in our portfolio down from the existing 116 kilowatt-hours a square meter to the 85 that the current pathways show that we should be achieving. That actually works out to be just over EUR 200 a square meter. That we think is a number that is very much acceptable and manageable over the next decade for us as a business.
That is also equating to roughly 6%, 7% of the value of our assets, and it's a range. There are assets where the cost is gonna be lower, and there are assets where the costs are gonna be significantly greater. That's what we've tried to sort of highlight as well in the graph on the right-hand side. If you want to reduce the energy intensity well below the 85 kilowatt hours a square meter, and you want to go to the quality of new build, you're getting to the point that you have to go for basically a full renovation, stripping the installations, stripping the facades, and redoing them in full. That is a journey that I think some of the industry will have to face, and some of the assets in the industry will have to face, depending on their starting point.
For us, we think at this point in time, it is in all likelihoods, better to build, because if you see what we can build, and the energy intensity of our projects is being given at sort of anywhere between 35 and 45 kWh a square meter. To get to that same quality that we can get through development, is gonna be very expensive through redevelopment of existing assets. Ultimately, the regulator or the customer will decide what the end number is that we need to achieve with respect to sustainability. This is a challenge for the industry. We know where we stand, we know what we need to do. We've already sold assets where we knew that the cost of upgrading was gonna be prohibitive in terms of economics, therefore, we sold the asset.
There's a further list of assets that we need to sell on the back of this. We will do that. That's the only way to sort of protect the capital value of our business. That's where I would like to leave it for now. With that, I would like to hand it over to Alianne.
Thank you, Bernd, and good morning, everybody. On slide 17, I would like to give a short update on the two development projects, Laanderpoort and Vitrum. In our Q1 update, we mentioned that for both projects, we were facing zoning and permitting delays and that we had no projects ready to move to the realization phase near term. We would like to mention that in the Q2 for Laanderpoort, the objection from an owner in the neighborhood was withdrawn, and as a result, the rezoning plan has been approved. The objection was, in fact, submitted at the moment when we filed the permit. The withdrawal automatically meant it was approved and is now irrevocable.
It's appropriate as well to mention here that we have an agreement with ING. Because of this agreement, which goes both ways, both parties are motivated to make the project happen. While it's true that the project might not be as profitable as it once was, we are examining ways to make the project as attractive as we can, given the current challenging market conditions. A further update of this outcome will be provided when available. Regarding the Vitrum project, the foreseen delay of obtaining permits has meant a reassessment of the project as well. Together with third-party operators and leasing agents, we are now examining a temporary leasing of the asset. We can generate rent for the intermediary period while we seek court approval.
The final program for the project will be reassessed upon obtaining the required approvals and depends on meeting or exceeding our cost of capital at the time. As Bernd already mentioned, in line with the general decline in the office market valuations, we also saw a fall in the Vitrum valuation and the end-of-project market value of Laanderpoort, which is reflected in H1, as well as a negative revaluation of our total portfolio. On the next slide 19, you can see at the bottom line that our EPRA earnings per share for the first half year is EUR 1.02. The EPRA earnings per share were 3% higher compared to the first half year, 2022. Our gross rental income remained stable compared to the H1, 2022 figures, while the like-for-like DOI growth was 7.3% positive.
The EUR 300K lower net rental income was mainly a result of higher non-recoverable service costs because of reaching specific service charge caps, as agreed with some tenants, due to the higher energy cost level and some higher average vacancy. The operating costs were at the same level. The admin costs were 12.6% lower compared to the same period last year. This was mainly related to lower office costs, consultancy, and marketing costs. The financing costs were 17% lower due to a combination of lower swap costs and higher interest costs due to higher interest rates on the variable loans. On slide 21, the development of the EPRA NTA bridge is shown. The first half year, the EPRA NTA decreased by almost EUR 6 per share to EUR 38.2 per share.
The main driver of this decrease is the negative revaluation of our assets, with EUR 5.8 per share during the first half of 2023. On slide 22, we show the most important balance sheet KPIs. At the top left, you can see that the cost of debt for H1 has increased from 2% to 2.6%. This increase is due to the expiration of some swaps in April and an increase of the Euro rate. As foreseen and communicated at year-end 2022, our cost of debt will further increase during the second half of this year to circa 3.1%, as the remaining swaps expired by the 1st of July. These swaps have been replaced by new swaps at an increased cost due to a higher coupon of circa 3.3%.
The LTV level, as shown in the graph at the top right, is 30.2%. The higher LTV compared to year-end 2022, is mainly due to the negative revaluations of our real estate portfolio, is partly offset by a EUR 20 million lower net debt position due to disposals in Q1. On the bottom left, you can see the interest coverage ratio is 6. This is firmly above our covenant of 2. This brings me to my last slide, 23. As we already communicated in a separate press release in June, we are very pleased that we succeeded in the extension of our EUR 65 million secured financing with Berlin Hyp at an improved margin of 136 basis points over Euribor.
We extended this loan with 4 years, from June 20 this year to June 2027. Now we do not have any debt maturities until 2026. The average maturity of our loans is 4.3 years. In July, we have agreed new swaps with a notional value of EUR 55 million and a tenor of 4 years. This results in a volume hedge ratio of 80.6%, in line with our internal hedging policy, between 70% and 100% of our total variable debt. NSI remains comfortable with its overall liquidity position, especially given the flexibility of the EUR 290 million undrawn credit facilities. We have enough funding capacity to carry out our business plan and to keep a solid balance sheet.
Thank you for your attention, and I will hand it over again to Bernd for the final remarks on the strategic review.
Thank you, Alianne. We did send out a press release last night because there was a lot to digest at this point. I presume most of you will have sort of read our comments and documentation. Basically making clear where we stand. I'm not going to go into too much detail. I presume also we'll get a few questions on the Q&A later. It's clear that the last couple of years have been challenging. COVID has not helped. Coming out of COVID, we had our Capital Markets Day, and we had a clear path in terms of what we were gonna do, what we wanted to achieve, and how we were gonna get there.
Then you look at what has happened since, and you've got a combination of higher interest rates, higher inflation, stamp duty increases, a falling share price that reflects that, but also therefore limits your options. The occupational market changing in that there is much more focus on quality, location, sustainability and amenities. The cost of sustainability is becoming increasingly clear. Oh, and by the way, government announced the abolishment of the FBI regime. There's been quite a bit of a storm brewing, and therefore, the strategic review was appropriate, and we've done it, and we're actually still doing it. It feels appropriate to give you the update as to where we stand. On slide 26, we've given you basically the status. We've also highlighted the most important options we sort of considered.
We also highlight what is achievable in this market and what is not achievable in this market. We've looked. If you do a strategic review, all the options should be on the table. They were on the table. We've discussed them in full with our advisors. Some of them, like liquidation or take privates, are not maximizing value at this point in time or are achievable. Merger or transformative deal, given our share price, we are not the party to initiate that. We may be on the other side, but that is not in our control. You then look at all the other elements coming out of the environment in which you operate, and you start to look at, okay, what does it mean in the way we should be running our business?
That actually, then we explore in detail on slide 27. We've said, okay, if the world is gonna be more discerning in terms of quality, and there is gonna be a significant cost to upgrading assets to make them the quality level that the market needs nowadays, sustainability costs, services, amenities, what have you, then you need to operate in markets where the capital values are high enough to absorb that cost. We already, over the years, moved to Amsterdam. It's pertinent now that we need to do more, and therefore, we will review our asset list outside of Amsterdam and basically see how we can make the transition and release capital outside of Amsterdam. Sustainability, I think we've spent a lot of time on it in the document, highlighting what is coming at us, not us as NSI only, but us as an industry.
It's gonna have an impact, and it has already been, and it will increasingly be a driver in the decisions that we make in terms of asset rotation, where we deploy our capital, and where we should be selling assets. Losing the FBI regime is, in a way, a negative, but it does open up new opportunities. One of the avenues that now can be explored, and it's a process, it's gonna take some time, is to find private capital to basically allow us to proceed with some of the business, also to release perhaps some capital that we've currently tied up in the business. More on that later. The final one in that is retained earnings, and that comes back to the dividend policy. Up until now, we've been paying out all of our income.
Some will say a little bit more than that. This is the moment to also look at what the right dividend policy is, and we need to weigh the needs and the expectations of our shareholders with the opportunities that are in the portfolio, if and when they exist. It's also a balance sheet management tool in that respect. What are we gonna do next? We have mandated Rothschild, the bank, to basically reach out to each and everyone in the world who's interested to give their comments, feedback on what we've published today. That will be collated. That we will bring together. We will see in the coming month and a half, two months, what will happen with respect to the abolishment of the FBI regime.
We may not get the clarity we wanted, but we're ready anyway, and we'll see what is the right course of action at that point in time. We know that this is an issue that is at heart of many of you. It felt appropriate to give you this interim update rather than waiting until the end of the strategic review. Please give your input, tell us what you think, and we'll take it from there. Before we go to Q&A, I would like to make one final remark on my side, and that is the departure of Alianne. That was announced yesterday as well. I find it a real pity that she's leaving the business, and there is never a good time.
Having basically got the business to where we are today, this stage of the strategic review, the refinancing of our debt so that we've got the balance sheet in great shape, the developments at the stage where they are, I'm okay that she's making the move to go for a new, exciting journey elsewhere. I'm really gonna miss her, we go on. We're ready for your Q&A, please go with the questions.
Thank you. 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, to ask your questions on the phone lines, please press star one and one on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please type them in the question box and click submit. Please stand by while we compile the Q&A roster. This will take a few moments. Once again, please press star one and one on your telephone if you have any questions or comments at this time. We are now going to proceed with our first question. The questions come from the line of Aruna Boon, Peter.
Please go ahead with your question. Your line is open.
Good morning, team. Thanks for the comprehensive update and also your openness regarding this strategic review. On that, I understand that liquidation is not feasible due to the limited liquidity in the market. Meanwhile, your new strategy highlights the disposal of non-Amsterdam assets. How feasible is this considering this limited liquidity in the market?
Hi, Peter. That's an entirely fair question, and we're gonna find out. We're gonna start. We'll see where we end up. Listen, it's over the last seven years, it took us seven years to sell EUR 700 million of assets. This is not a walk in the park, not in this market. No guarantees, but the process will be starting later this year. In fact, we've got a number of assets that we are working on, and we'll see where we end up later this year. DonauWeg that we've announced conditionally sold is the first one. Hoofddorp is next, Den Bosch is coming up, and Eindhoven is coming up, and we'll see. No promises, but we're starting.
As a follow-up on that, Yeah, it's a hard question, but do you believe or feel that the current write-down, as it was quite limited, in the non-Amsterdam region, is sufficient, or do you expect to have to take additional write-downs, when selling these assets, or that you will sell these assets below current book value?
The book value is a reference point in deciding whether or not to sell an asset. It cannot be the case that a valuer decides whether or not we sell the building. We decide whether or not we sell the building. I've seen it many times that people say: "Oh, it's below the book value, we shouldn't be selling," and then they wait for the book value to decline, and then they can sell. That makes no sense whatsoever. We sell when we think it's the price that is right. Do we need more write-downs? If that is the case, so be it. We will basically get out of some of these markets to get the capital back and see where we deploy it. Be it back into the business, back to restore the balance sheet, back to shareholders. That remains to be seen.
Clear. Thanks.
We are now going to proceed with our next question. The question comes from the line of Vincent Koppmair from Degroof Petercam. Please ask a question. The line is opened.
Hello, good morning. Thank you very much for taking my, your time, and thanks for the insightful presentation. I had a quick question on the pipeline. Laanderpoort basically is back on track, but no timeline has been given. Can we expect to start in H2, maybe?
We've not given you a timeline. You can look at the timeline we gave you previously. Obviously, we're in a process with ING to see how we bring this forward, and if we can say more, we definitely will tell you more.
Okay. Thank you very much. I had then a follow-up question, but it's more or less in line with the previous question. From the discussion with valuators, do you have the feeling that more revaluation might be to come in H2?
I wouldn't rule it out. You're asking me to gaze the crystal ball, and it's a tricky job, but I can only imagine that if there is no liquidity, the valuers will look to find a level at which there will be a return to liquidity. We'll see. There are some transactions out there in the market at this point in time. They're not that many. That will give an indication of where pricing is, and that may be the start of a sort of release of some capital in this process, but very hard to predict at this point in time.
Okay. Very clear. Very clear. I had maybe one last question. A couple of weeks ago, it came out that Harm Meijer stepped down from the supervisory board due to not wanting to have any conflict of interest. Could you give more color on that one?
No, not necessarily. I think the press release in itself was clear. I think you actually, at some point in time, need to speak to Harm and ask him for his motivations. It's not for me to comment on that.
Okay. Very clear. Thank you very much, Bernd.
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Thank you all for having attended this call. We have reached out for follow-up calls if with management, if that's desired. If you haven't gotten an email, please feel free to reach out to us. You know where to find us, and we will be happy to take your questions offline. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.