Good morning to everyone, and welcome to CLS Holdings plc full year results presentation. I'm Fredrik Widlund, Chief Executive, and next to me here is our new CFO, Harry Stokes. Today, we will present to you the 2025 results and give you an update on the portfolio and how we are delivering on what we set out to do at the beginning of the year. First, to set the scene, let me start with our strategic priorities and how we are delivering against them. Firstly, increasing letting activity to reduce vacancy and improve earnings. We signed GBP 70 million of leases during the year, the highest level in seven years, with particularly strong performance in the second half. Vacancy came in at 14.5%, which was higher than a year ago due to planned expiries and two unforeseen German insolvencies.
However, the overall direction is positive, supported by large leases at Artesian in London and Gothic House in Dortmund. Earnings were lower because we have a smaller portfolio, and there were planned expiries, which reduced rental income, but this was partly offset by cost reductions across administrative, property, and financing expenses. This work will continue in 2026 as we reset the business for future growth. Second, executing sales to reduce loan-to-value to our target range of 35%-45%. Despite challenging investment markets, we were successful in selling properties for GBP 144 million during the year, following GBP 66 million in 2024, and we are making good progress on the remaining disposals, including having conditionally exchanged on the sale of Spring Gardens. Valuations reduced but are starting to bottom out, with several properties increasing in value on the back of leasing activity.
Loan to value remained stubbornly high at 50% due to valuation decline, despite paying down close to GBP 90 million of debt during the year. On a like-for-like basis, LTV would have reduced approximately 46.5%. Third, completing refinancings due in 2025. We had a peak for refinancings in 2025, with GBP 373 million due, and I'm pleased to report that we refinanced or paid back all of them with no change to our average cost of funds at 3.8%. This also had the benefit of smoothing out loan expiries over the coming 5 years and shows the benefit of diversified lending. Fourth, investing in our properties to unlock the value within the portfolio. We are prioritizing pre-lets and spent less CapEx on the portfolio in 2025 following significant investments over the previous three years.
We are operating a strict capital allocation policy and focusing on investments that deliver short-term benefits in addition to meeting necessary statutory and sustainability requirements. This will result in a rebasing of the business to deliver a more focused portfolio with higher quality, faster growing properties and future earnings growth. Next, for more details on how we create competitive advantages in our operations. The clear focus for CLS is on operations and asset management, and this is not just reducing vacancy, even if that is the top priority. It is also to work closely with our existing tenants, having the right fit outs and cost base to meet their needs.
Our AM teams are organized in clusters with full responsibility and targets for the properties, together with dedicated property and facility managers for those same properties, so that our tenants know who they can easily discuss issues or requirements with. We have four clusters in the UK, four in Germany, and two in France. On average, they look after eight properties each. We believe this is a hugely important and a key driver for us as an active asset manager that brings us closer to our tenants. One recent example from the UK is when an existing building tenant in one building, Handelsbanken, was expanding and have now taken additional space in another CLS building based on the relationship.
Marketing is done both through traditional channels like agents, but also through dedicated websites for our key properties, which are optimized for web searches and marketing online, as well as on specialized portals, as all tenants are not searching for space in the same way. We have embraced AI to improve our own productivity when generating leasing contracts or inquiries and the latest BMS systems that we have implemented are reducing energy usage in our building and thereby reducing occupational cost for our tenants. We are mindful that our diversified tenant base with over 650 tenants will be impacted by AI in different ways and at different times, given the spread across industries. By staying close to our tenants, we're able to react quickly to evolving needs.
The office trends over the last few years continued to evolve and with increasing demand for flexibility in both turnkey projects and lease structures. Grade A space or in many cases, already fitted out floors are becoming the standard most occupiers seek in new premises. This comes with CapEx requirement, but it's also an opportunity to differentiate our offering, and we will continue to invest in our properties. This is also a key focus for our AM teams. As the market changes and in a portfolio of 77 properties, there are always opportunities to maximize value by investigating alternative usage. We are actively working on several projects that include conversions to residential, serviced apartments, hotel, and life science. One example is the recently approved Permitted Development Right at Columbia Centre in Bracknell.
This is highly dependent on the location and country, but we see opportunities in all three markets, some of which I will come back to later in the presentation. In summary, we are a very active owner, staying close to our tenants and evolving our offering, and believe this will continue to be a real differentiator going forward. I will now hand you over to Harry, who will take you through the financials.
Thanks, Fredrik, and good morning, everyone. Before I begin, I do want to thank Fredrik, Andrew Kirkman, and the entire CLS team for making me feel welcome during my first few weeks at the company, and absolutely pay tribute to the exceptional finance team for pulling these results together while also dealing with many hundreds of questions from me. It is clear that everyone at CLS both understands the challenges inherent in the strategic priorities and is determined to deliver them. It is a property sector in a tough market, and the teams across our three geographies are working extremely hard to lease up space and maximize the returns from our assets. The business has had to make some difficult decisions over the past year, but has done so while successfully retaining a strong and positive culture.
Those decisions have inevitably had an impact on the results we're reporting today, and there is more work to be done, but they are vital to positioning the business for long-term success. Turning to slide 6, these are the headline numbers for the year. We're reporting EPRA earnings of per share of 7.6 pence, a 17% decline on last year, reflecting the impact of disposals during the year and the absence of the one-off forfeited deposit received in the prior year. Our EPRA NTA fell 7% to 200.7 pence, reflecting primarily the impact of a small decline in the value of our portfolio, partly offset by the positive impact of the strengthening euro during the year. Our disposal activity means that net debt fell by just under GBP 90 million, and our LTV is now 50%.
Still above our target, but it is moving in the right direction. We are proposing a final dividend of GBP 0.027 per share with a scrip alternative in line with last year's final, making a total dividend of GBP 0.04 for the year. This is 1.9 times covered by EPRA earnings in line with our policy coverage of between one and a half and three times. On slide 7, you can see our EPRA income statement. The main moving parts are a fall in our net rental income, which I'll turn to in a moment, partly offset by a 6% overall reduction in our admin and property operating expenses, and a 10% reduction in finance costs.
Property and admin costs are lower as a result of the cost reduction measures we took last year, as well as some impact from disposals, particularly of the student accommodation in early 2025. Finance costs were lower as a result of the pay down of debt, while the average cost of debt has remained stable at 3.8%. Slide 8 highlights the moving parts behind the lower net rental income. Like-for-like, net rental income fell by 6.3%, mainly as a result of higher vacancy, but also from lease expiries in properties we are positioning for future redevelopment, not least New Printing House Square in central London. Disposals reduced net rents by around GBP 6 million, the bulk of which related to the sale of the Spring Mews student accommodation. Slide 9 shows how our cash and cash equivalents moved during the year.
There was around an 11 million pound fall over the period. There was a neutral impact from operational cash flow, interest, and the dividend. Property disposals and the repayment of debt generated net proceeds of GBP 5 million pounds, and we invested GBP 17 million pounds of CapEx in the business, mainly targeted at upgrading and refurbishing vacant space. Slide 10 shows the like-for-like change in valuation of our property portfolio. As a whole, the portfolio fell by 3.8%, an improvement from the 5.8% fall last year, reflecting at a high level a small increase in yields and stable rental values. Although our UK portfolio fell by 4.6% overall, around two-thirds of the fall was caused by a change in the valuation basis of Spring Gardens.
As a reminder, Spring Gardens is the current HQ of the National Crime Agency, and their lease expires at the end of September. We've exchanged contracts with London Square, a well-regarded residential developer, to sell the site to them conditional on receiving planning permission. The site valuation basis has therefore been adjusted from a traditional property appraisal to one which reflects the sale of the site for development, plus the residual income to be received from the NCA before its lease expires. Excluding this, the UK portfolio fell by 1.6%. In Germany and in France, the pace of value decline has also slowed. As with Spring Gardens, more often than not, moves up and down are related to particular property characteristics.
For example, the value of Gothic House in Dortmund increased by almost 50%, reflecting the 8-year lease signed with the German tax authority. While at the other extreme, Maximilian Forum in Munich fell by around 15%, reflecting tenant insolvency we announced last year. While obviously we would very much like yields to fall and ERVs to rise, it is a reminder that the best way to drive value is through the active asset management of our portfolio, which is what our property platform is designed to do. Slide 11 just gives you a reminder of our debt strategy. Most of our debt is secured either on an asset-by-asset basis or against a pool of assets in a particular geography.
The leverage is higher than we would like, with an LTV ratio of 50%, slightly down on last year, but still above our target level of between 35% and 45%. We fix most of our debt to provide good future visibility. Turning to slide 12, 2025 was an extremely busy year for refinancing, with around GBP 400 million of loans needing attention. Our excellent treasury team refinanced or repaid all of them, and disposals meant that net debt fell by GBP 86 million after the impact of the stronger euro increased the sterling value of euro-denominated debt. Despite the refinancing, our cost of debt remained stable at 3.8%, and our average maturity has been extended to 3.6 years.
As you can see from the graph, the maturity profile of the future debt is now more manageable, with no more than around GBP 200 million needing to be refinanced in any single year. In 2026, the volume of refinancing is indeed just under GBP 200 million, the bulk of which is around GBP 145 million of secured loans and GBP 42 million of credit facilities. Far, we have completed GBP 39 million of the total, including extending one of our credit facilities for another year, and we are in discussions with existing or new lenders on the others. We are still determined to reduce our leverage, and to that end, we expect to dispose of around between GBP 100 million and GBP 150 million worth of property this year.
This total does not include Spring Gardens, which we expect to complete early next year. To summarize on slide 13, our earnings this year were impacted by disposals and lease expiries during the year. We are intending to dispose of further properties in 2026, which, assisted by hopefully more stable property values, we expect to reduce our LTV over the course of the year. We have less refinancing to complete and have made a good dent already. We are declaring a final dividend of 2.7 pence per share, stable on last year. We are also offering an optional enhanced scrip dividend alternative to the cash dividend based on a 5% discount to the reference share price to retain capital in the business. The effect of disposals, lease expiries, and vacancy last year and this year will inevitably impact our 2026 earnings.
However, we believe that the necessary actions we are taking in the short term to refocus the company and strengthen its balance sheet will mean a fitter company in the medium and long term. With that, I will pass you back to Fredrik.
Thank you for that, Harry. Let's now cover our markets and what we are seeing. In the UK, we saw investment volume in the commercial property increase by over 20%, with interest from both domestic and international investors. However, activity in the office sector remains mainly focused either on very prime assets or repositioning opportunities. Vacancy has continued to fall in both London and the Southeast, and with prime central London locations starting to fill up, there is a trickle-out effect that benefits CLS. Take-up last year was flat, and we don't expect any significant changes until we see stronger overall economic growth. In Germany, sentiment has been improving, and there are expectations that increased domestic and government spending will create more activity. Investment volumes are still low, while leasing take-up increased marginally.
We do expect vacancy to peak in 2026, and here we are also seeing prime properties in the largest cities starting to come fully let. In France, we're seeing a more challenging supply and demand imbalance, and vacancy continued to rise in the major cities. Investment volumes, like in London, increased last year, heavily driven by domestic investors. Smaller floor plates below 500 square meters continue to perform relatively well, which benefits CLS. Overall, the fundamentals for the property industry are improving, but they remain sensitive to external shocks that could dent occupier confidence. That said, both fundamentals and sentiment are moving in the right direction, especially in the UK and Germany, even if the pace could be faster. This slide illustrates our high quality and diversified tenant base, and I would like to draw your attention to a few key points.
We have 669 tenants across our three markets. Over 30% are government, and a further 32% are large companies and organizations. The tenants are well spread across different industries, giving further diversification. Rent collection remains high at 99%, and we have two new tenants in the top 10 since last year. Both German government organizations, with the city of Essen at The Bricks and BLB, the tax authorities, at Gotic Haus in Dortmund following recently signed leases. The top 10 now represent 30.5% of our total contracted rent. On the next slide, I will give you an update on our leasing progress. Leasing activity continued to increase, and you can see that we secured GBP 17 million of annual rent, which is the highest number in seven years. The leases signed were on average 6.3% above ERVs.
The outperformance on ERV to ERV was driven by Germany, while the UK, excluding New Printing House Square, was just below ERV for the other 49 transactions. France, given the market imbalance, was 7% below. Like-for-like ERVs for the portfolio were broadly flat, and we expect rental growth to continue as tenants will pay for the right properties in the right locations. We are making strategic decisions on a case-by-case basis to ensure we minimize void cost, and that might mean not always maximizing rent to ensure occupancy. On the right-hand side, you can see that our reported vacancy increased to 14.5% despite a strong year on the leasing side.
This was due to expiries in Germany and France, while the UK improved despite planned exits to prepare New Printing House Square for redevelopment. Germany was impacted by two unforeseen insolvencies, but we also had other larger expiries in the year. France was impacted by refurbishment being completed, which are now available to let and expiries. With increased activity, limited new supply, and fewer expiries in 2026, we expect vacancy to start reducing. Now, moving on to an update on our sales program on slide 18. As I mentioned at the start, one of our key priorities is to progress with sales to reduce our LTV, but also to free up cash for investments in our portfolio. We are making good progress.
In 2025, we completed GBP 144 million of sales, with the largest disposal being the student building in Vauxhall, and we also sold two properties in Germany and one in France. On average, they sold at 2.3% below pre-sale valuations. In December 2025, we also announced the conditional sale of Spring Gardens to residential developer London Square, subject to planning. The estimated completion is early 2027. We're also under offer for three properties for GBP 80 million, and overall, we expect to sell properties for GBP 100 million-GBP 150 million in 2026. We will keep monitoring the quantum of sales depending on how valuations move and leasing progresses, which also impacts our loan-to-value and earnings capacity. We are investing in the portfolio, and on the next few slides, I will talk how this will drive value over time.
On this slide, we are presenting some of the current projects we are completing, as well as near and medium-term opportunities that we are pursuing. The two German projects on the left are pre-let, and we are working on the fit outs to hand over the space to the new tenants this year. Near-term, we're also working together with London Square on the planning application for Spring Gardens. This application was submitted at the end of February, and we expect approval in the next 6-9 months for a very exciting scheme that will further improve the attraction of Vauxhall. At Maximilian Forum, located in Martinsried outside Munich, one of Europe's leading biotech and life science clusters, we are converting space to CoLabs and ancillary space for tenants. The new Munich underground extension close to the building is also due to open in 2027.
At New Printing House Square, we have made progress on positioning the building for redevelopment by aligning all leases for expiry in 2029. We have also progressed the plans for conversion to a residential-led scheme and are expecting to submit a pre-application later this year. At Bismarckstraße in Berlin, we are evaluating a hotel conversion after previously having looked at a speculative office refurbishment that we believe will deliver a better return. We are working with a leading hotel operator based on a pre-let if we progress. What these projects illustrate is our commitment to invest and pursue opportunities in the portfolio that will add long-term value. Now, turning to the next slide, I will provide an update on our sustainability program and the progress we are making.
A key part of the investments we are doing is also to progress our sustainability program, with focus on upgrading gas boilers to heat pumps and installing smart meters for water usage. We are on track with our longer-term plans, as mentioned at half-year results, being halfway through our current net zero carbon policy, we're also currently reviewing our plans to ensure we spend our CapEx in the best possible way and over the right timeline. In relation to U.K. EPC ratings, which I know many of you are familiar with, we are confident in meeting the expected regulatory requirements by 2027 and 2030, and 84% of our U.K. portfolio is already rated EPC A to C. Let's now move to the last two slides in the presentation on slide 21.
The walk on this slide is a familiar one and describes the opportunities we have to drive increased rental income in the portfolio. The walk on the slide starts with our contracted rent of GBP 106.2 million. The 16.8 million represent the value of current space that is being marketed. As you can see, the vacancy is very concentrated to a few properties in the UK: Partition, The Code, and New Printing House Square, which are all in great Central London locations with good leasing momentum. We also have some vacancy left in the two properties in Lyon that we have recently refurbished or upgraded. We're making progress, and Park Avenue is now almost fully let after a new lease signed in February 2026.
The GBP 7.6 million of over-rented space that we now have is an effect of recent indexation, mainly in Germany, which has driven rent above ERV. Although a large part is also Spring Gardens, which is less relevant as it is being sold. Overall, this means that we have an opportunity to drive rents to GBP 115.4 million. In addition, we have a further GBP 15.5 million of ERV in potential refurbishments, although this is subject to capital availability and pre-lets, that takes the potential to over GBP 130 million. Securing new leases is our largest opportunity to drive growth, but also to offset some of the impact from the sales. On this final slide, I would like to leave you with a few key takeaways in relation to our strategic priorities. We continue to drive leasing activity.
2025 was the highest for 7 years, and the cost reductions are offsetting lower earnings from the smaller portfolio. This work will continue in 2026 as we reset the company. We are executing on the sales plan, and expect to sell a further GBP 100-150 million in 2026. Loan to value is falling, but how quickly is dependent on future valuations. We had a peak for refinancings in 2025, with all completing, resulting in a much more even distribution of loan maturities expiries going forward. For 2026, we have circa GBP 185 million of secured loans and credit facilities expiring during the year. As of today, we have already completed on GBP 39 million or 21%. We are investing in a portfolio, but apply a strict capital allocation policy that prioritizes pre-lets and shorter paybacks.
Overall CapEx is expected to be lower going forward compared to what we have spent in the last three years. The rebasing of the business will continue in 2026, to deliver a more focused portfolio. Although with a smaller portfolio from sales, there is bound to be an impact on earnings before the vacant space is fully let. There are nevertheless significant opportunities in the portfolio to drive value over time. Finally, the outlook is becoming more supportive, although the impact of the recent conflict in the Middle East remains uncertain. Local factors remain important, and fiscal stimulus, especially in Germany, and market supply constraints for prime properties are starting to have a positive impact on our portfolio. With that, I would like to finish today's presentation. Thank you all for attending, and we will now open for questions.
Hi. Morning, gents. It's Tom Musson from Berenberg. Thanks for the presentation. Just a question on leverage. Appreciate LTV has nudged down, but net debt to EBITDA has climbed to 12.4 times. If we assume sort of GBP 125 million of disposals this year, i.e. the midpoint of your range as a base case, what impact does that have in reducing net debt to EBITDA, and what's a number you'd be more comfortable with?
We haven't set a target. As people know, I think net debt to EBITDA is a useful leverage. It's not the only measure. At least you're sort of in control of both sides of it, unlike LTV, which, you know, we're not. It's very difficult. I haven't set a target for that precisely because while we're confident we know we've got a debt reduction target, the earnings improvement is gonna be based on lettings progress, and is gonna be offset obviously by the earnings we lose from sales. Not set a target there. I'd like it to be lower. It's obviously going in the wrong direction at the moment, but at least we're both. We're in charge of both sides of that ratio.
Makes sense. Thanks. A question on Spring Gardens. Can you just remind us what the net equity you'd now expect to realize on completion there, and are there any foreseeable risks to the planning application that you submitted?
Well, I mean, the planning application was submitted at the end of February. We believe we have good support from Lambeth to deliver on this scheme. We just have to let that run its course. Together with London Square, we feel very confident that we have the right scheme that will be supported at planning committee. The deal, as we said in the announcement, is structured as a base price depending on exactly what is delivered in the planning application. There's also an overage mechanism that will kick in further down the line. That is not possible to estimate today exactly what that will be. We certainly expect to get back our current valuation for the site.
Thank you. Maybe last one. On the three properties you've got under offer at GBP 80 million I think, have you seen any of the buyers try to renegotiate pricing lower just in the last couple of weeks given recent events?
As with all transaction in the current market, there's always discussion back and forth between buyer and seller. We're pretty well advanced with these sales, so I don't expect any further price reductions to what we have agreed. On the other hand, it's a very fluid situation in the Middle East at the moment. Who knows what the future will bring.
Thank you.
Thanks. Morning. Tim Leckie, Panmure Liberum. You mentioned you might look to focus on occupancy rather than rental levels on some of the vacant space. Can we take from that that, is that a new change in letting strategy, prioritizing getting the space filled rather than achieving what's there? And does that imply, we can expect a bit more activity to come through, taking into account that last year was a pickup, and you said the second half was stronger. Is it reasonable to expect that the focus away from hitting those ERV numbers more towards filling the space will result in a pickup in activity through the first half?
Well, I mean, to start with on the activity side, we did GBP 7.5 million in the first six months, and we did GBP 9.5 million in the second half. Clearly activity is picking up. There's no doubt about that. I think we've always taken a pragmatic approach. The key thing is to let out the buildings. We would always strive to get as much as we possibly can, but you also need to balance that against the cost of having vacancy in the portfolio. Yes, I think we will, as I said, take a pragmatic approach to make sure that vacancy goes down.
Just to follow up on how you see the business in years forward, 2028 perhaps, you know, New Printing House residential conversion, the Berlin conversion to hotels, can we expect a more diversified shape to the portfolio? You've always played across sectors rather successfully. You've had optionality in the assets towards other uses. Is that where can we think about the portfolio shape going forward? Can we take any indications from the presentation today on those two assets?
I mean, CLS has always been opportunistic in the way we look at our portfolio. There is nothing that's sacred in there that we wouldn't be prepared to do something different with. We are an office specialist. We believe in offices. We believe in the portfolio that we have. We have close to 80 properties. There will always be some opportunities to do something different that will add more value. In most cases, what we tend to do is secure planning permission for something different and then sell that to a specialist in that area. I think there are some areas that we might consider keeping. We've been investing in the student housing in the past. We have now exited that.
Yes, maybe there will be a little bit more consideration to keeping some of the alternative uses that we have. I would like to say again that we are an office specialist, and that's what we know and believe in.
Just final one from me then. The Spring Gardens had an impact on the NTA, but is that kind of a temporal accounting? You'll have that recognized back when you receive, should the transaction complete?
Yes. Depending on what the final price will be.
Yeah
That will, I guess, go through gain on sales.
Yeah. Okay.
At the end of the day.
Okay. Thanks. That's it.
Any other questions anybody? Right. With that, thank you all for attending, and I wish you all a good day. Thank you.