Right. I think we're ready to go. Good morning and welcome to this presentation of CLS Holdings PLC half-year results 2022. I'm Fredrik Widlund, Chief Executive, and with me here is Andrew Kirkman, our CFO. Today, we will present what CLS has delivered during the first half of 2022. First though, on the next slide, I will start with an overview before we go into more details. If we go to page four in the slide pack. CLS delivered a robust set of results in the first half, with increases in net asset, profits, and dividends. Our focus remains on our diverse and strong set of tenants, and we believe that our strategy and business model remains well-placed for the long-term success of the company.
Net rental income grew 0.9% from the leases we signed during the back end of 2021, which finished strongly, as well as indexation. The new leases we signed in the first six months were 4.5% above ERV, which is encouraging. We also had a strong performance from our student and hotel operation in Vauxhall, which was mainly from pent-up demand. Valuations were up in the U.K. and Germany, while France recorded a reduction, giving an overall slight increase in valuations. EPRA NTA increased 0.7% to GBP 3.528, mainly from earnings and FX. EPRA EPS was up 7.4% to GBP 0.058 on the back of the operational performance and lower tax of the conversion of our U.K. business to a REIT.
Vacancy crept up to 6.9% from a completed refurbishment, yet to let, but also from lease expiries. We're working hard to reduce this, and inquiries and activities are increasing. Our interim dividend will increase 10.6% to 0.026 per share, in line with our revised policy. We have today also launched a GBP 25.5 million tender buyback to drive shareholder value. I would now like to talk in more detail about valuations. If we move to slide five. On a like-for-like basis, portfolio is up 0.1% in local currency and up 1.3% in reporting currency of sterling. In the U.K., valuations were up 0.5% since year-end, with the key drivers being a large proportion of government leases and ERV growth.
In Germany, valuations were up 0.3% from letting activity and a planning gain on one property in Berlin. ERV and yields were flat. In France, valuations were down 2.1% due to soft leasing deals done to maintain our high occupancy. We also had an increase in ERVs while yields were flat. Valuations for the second half may well be affected by increasing interest rates and fewer property transactions. We expect the impact, if any, will be modest given the supply and demand dynamics in our locations. Now, moving on to acquisition and sales on page six. In the first half of the year, we closed on one acquisition in April and one in July, both in Germany, for a total of GBP 76.9 million.
The first one, Kanzlerstrasse in Dusseldorf, closed in April for GBP 20.9 million, with a net initial yield of 5.1% and a reversionary yield of 5.7%. The second property, The Yellow in Dortmund, closed in July for GBP 56 million, also with a net initial yield of 5.1% and with a reversionary yield of 5.6%. Both are in great long-term additions to our portfolio, which will add a combined GBP 4.1 million in contracted rent per annum and with strong opportunities to grow the rent further. On the sales side, we closed on two smaller properties in the first quarter, and in July, we closed on a further three, of which Great West House in Brentford in London was the most significant.
In total, we sold for GBP 49.9 million, which was 2.9% above year-end valuation. We don't expect to do any further acquisition in the second half of the year, and we will continue to work on our sales program to focus on larger properties with good asset management opportunities. Turning now to the next slide about the tender buyback. To drive shareholder value and in consideration of the unwarranted discount to NTA, we have today announced a tender buyback. The key terms are a capital return of GBP 25.5 million at GBP 2.5 per share, which is a 20.2% premium to yesterday's closing price. We have scaled the capital return to maintain what we believe is an appropriate gearing level for our business.
We have also been advised by our two main shareholders, who own 58% of CLS shares, that they intend to accept their share of the tender offer, i.e., one in every 40 shares. We will consider further buybacks of shares in the future as we execute on our disposal program. Further details on the tender buyback will be published on Monday the 15th of August. I will now hand you over to Andrew for the financials.
Thank you, Fredrik, and thank you to everyone listening in. This morning, I'm gonna run you through our robust financial results.
Letting progress in the first half of 2022, and some of the defensive characteristics of the business, including our strong balance sheet and our index-linked leases. Fredrik will then run through the portfolio and sustainability before commenting on the outlook and the significant rental upside from refurbishments and reducing vacancy that we're on with delivering. Slide nine sets out several of the key financial metrics of the business. In summary, it was a robust performance. This was driven by a small increase in valuations, a slight weakening of sterling, and tax savings following our conversion to a REIT in the U.K.. As a consequence, most of our core metrics were up, with EPRA NTA up 0.7%, EPRA EPS up 7.4%, and the proposed interim dividend up 10.6%.
The dividend is in line with our revised policy announced in May of 1.2-1.6 times EPRA earnings dividend cover. Overall, these financials result in a total account return of 2.2%, an increase of 3% on last year. The balance sheet remains very strong with 80% of debt fixed and one of the lowest costs of debt in the sector at 2.26%. Now for some more detail around these numbers and the drivers behind them. The waterfall chart on slide 10 sets out the main components of the movement in EPRA net tangible assets, with NTA increasing by 0.7% or GBP 0.023 per share.
Going through the components of the movement from opening to closing NTA, we have the final 2021 dividend paid in April of GBP 21.8 million. EPRA earnings of GBP 0.058, which is a GBP 0.004 increase from 2021. This is broken down in more detail on the next slide. The valuation increase of 0.14% or GBP 3.4 million, with uplifts in the U.K . And Germany and a decline in France, which Fredrik ran through earlier. This valuation increase comes from two areas. Firstly, investment property valuations, including assets held for sale, were up by GBP 1 million, which goes through the P&L. Secondly, the value of our property within property, plant and equipment increased by GBP 2.3 million, with the increase going through other comprehensive income.
This increase relates to the valuation of our one student accommodation and one hotel in Vauxhall, as occupancy and profitability are now above pre-pandemic levels. Lease incentives are separately split out as they almost entirely relate to Germany, for in Germany, we've signed a large number of leases for which we do not spend CapEx in advance of a letting, but instead said CapEx is de-risked by being tied to the lease. Other of GBP 0.012 is largely the decline in the value of our legacy equity investments. Lastly, sterling weakened by 2.3% against the euro in the period, resulting in a GBP 0.04 increase. This is the increase in the value of our properties in Germany and France, partly offset by the natural hedge of the associated euro debt.
Turning to the next slide, we've set out the movement in EPRA EPS, which increased by 7.4% or GBP 0.004 per share in the first half. The principal movements from left to right in the graph are as follows, a slight increase of GBP 0.001 per share in net rent income due to positive contributions from rental indexation and our hotel and student operations achieving revenues above pre-pandemic levels. The increase in expenses mostly relates to two things. Firstly, an increase in property-related costs, such as repairs and maintenance, reflecting catch-up following pandemic, lower activity and responding to increasing occupancy. Secondly, 2021 bad debt expense included release of the prudent provision taken at the start of the pandemic.
GBP 0.004 reduction in tax as a result of the conversion of our U.K. operations to a REIT from the start of 2022. Finally, a reduction in the FX losses from those movements on U.K.-based euro-denominated bank accounts, which goes through the income statement. Slide 12 sets out the movement in CLS's liquid resources during the first half of 2022. Despite considerable investment into our portfolio, our cash position remains strong with over GBP 110 million of cash and GBP 50 million of undrawn facilities. Cash went down by GBP 57 million in the first half, which is almost exactly the same as the GBP 58 million we spent on capital expenditure and acquisitions. The GBP 58 million is split between capital expenditure of GBP 26 million, which reflects the continued investment in the portfolio to improve its quality to meet tenant demands.
Our more cautious approach to acquisitions, with just two exchanges in the period. An acquisition spend of GBP 32.1 million, which reflects the completion of the acquisition in Dusseldorf and the deposit and cost for the Yellow in Dortmund, which completes in July. Lastly, cash from operations remains strong and was used to cover the payments of dividends, interest, tax, and other costs. Interest cover at 3.1 times remained healthy. The investment spends shown in the cash flow is reflecting the increase in the property portfolio on slide 13. The portfolio increased by nearly GBP 70 million, which reflects the GBP 47 million spent on CapEx and the one acquisition in Germany, and the increase of GBP 28.3 million in the value of our German and French portfolio properties from the 2.3% strengthening of the euro relative to sterling in the period.
The increase in the value of properties of 0.14% or GBP 3.4 million, excluding lease incentives, is also shown. On slide 14, we've set out a summary of our key debt metrics. We remain proactive in our approach to our treasury activities with lots going on in the first half. There are three key points which cover interrelated areas to bring out. Firstly, the cost of debt increased in the first half, but remains one of the lowest in the sector. The 4 basis point increase, our first increase in over 10 years, reflects the increase in U.K. base rates on our floating rate debt. We have also seen increase in swap rates, which have been reflected in new financings, with the debt linked to the acquisition of Kanzlerstrasse executed at 2.34%.
While there are still opportunities to reduce the cost of debt through the refinancing of older debt in 2022, this is likely to be outweighed by interest rate increases. Secondly, our debt remains substantially at fixed rates, with 80% fixed and a further 5% capped. The proportion of fixed rate debt declined by 5% in the first half. This was as we extended a number of loans on a short-term basis on floating rates in advance of securing longer-term debt following improved lettings at some buildings. We also expect to sell some properties, and thus can avoid break costs. These short-term extensions have been reflecting the slight decrease in our overall debt maturity, which is down to four years from 4.4 years. Finally, our loan-to-value increased to 38.9%, reflecting our investment in CapEx and one acquisition in the period.
Our intention is to keep the rate below 40% in the medium term, given the more uncertain market. Thus, we will look to make further disposals, both to reduce the LTV increase from the current tender buyback and to fund potential future buybacks alongside investing in the business. We are already well advanced with the remaining refinancing activity for 2022, and also some for 2023. Slide 15 is a busy slide demonstrating our active asset management approach to securing tenants. The left-hand side shows that we signed 60 leases in the first half at 4.5% above ERV, ahead of last year. Although the average size of deals was smaller than last year, reflecting the hesitancy of some larger occupiers to commit, especially since the first quarter.
New leases were ahead of extensions, with smaller occupiers more prepared to commit to new leases than during the pandemic. Pleasingly, like-for-like contracted rent was 0.4% higher, reflecting among other things, that the majority of our leases are index-linked. Finally, the new normal of rent collection remains the old normal, with 99% collected, reflecting our strong tenant base, more of which on the next slide. On the right-hand side, we've shown the movement in our vacancy. The top right graph demonstrates that we've reduced vacancy year-on-year and since last quarter. However, as per the bottom right, vacancy has increased since the year-end. The increase reflects net lease expiries, but moreover, recently completed higher quality refurbishments, which are now available to let. This gives us a substantial opportunity, more of which from Fredrik shortly.
My penultimate slide 16, is a familiar one, which illustrates our high quality and diversified tenant base across our three markets. The three key points to highlight are, firstly, our properties remain strongly multi-let, with over 749 tenants, equating to an average of over eight tenants per building. Secondly, a new entrant into our hit parade of our top 15 tenants with AMEVIDA, one of the largest owner-managed customer care providers in Germany, entering at number 14 following our acquisition in Dusseldorf. Lastly, and most importantly, the strength of our tenant base is reflected by 25.7% being government agencies and 28.1% being major corporations. Overall, this is a slight uptick from the year end. My final slide 17, summarizes the resilience of our income, with 53% of rent being index-linked.
As set out below, the amount of indexation and how it works does vary by country as follows. Most U.K. leases are not index-linked, but benefit from upward-only rent reviews. However, Spring Gardens, which has our largest tenant and rent roll, had a 10.5% rent increase mid-year due to the rent being linked to RPIX. In Germany, 65% of our leases are CPI-linked. In addition, 24% of our German leases have built-in stepped increases. In the first half, we saw an inflation increase of 6.3%. Lastly, in France, all leases are index-linked. In the first half, we saw an inflation increase of 2.8%, and we expect further increases in the second half. With that, I'll hand you back to Fredrik to run through the portfolio.
Thank you, Andrew. For the next few slides, I would like to discuss the bigger projects and give an update on our sustainability program. Starting with the bigger projects on page 19, we have presented these projects in the past, so this is an update on progress and marketing. By the way, they are all on fixed price contracts for the construction. At The Coade Vauxhall Walk, we are making good progress on our 28,500 sq ft new office building, and we recently topped out the building on the 10th floor. PC is on track for Q1 next year, and we are starting the full marketing after the summer, although we have already had several visits from potential occupiers.
At Artesian, 9 Prescot Street, we are refurbishing the entire building of 94,000 sq ft to create top-of-the-range offices in the original Art Deco building. PC is on track for Q2 next year, and here we're also starting the full marketing after the summer. At Park Avenue in Lyon, a city with an office market that's continuing to do very well. We are on track to complete refurbishment of the entire building in Q4 this year. We are in advanced discussions about the additional space being created and expect that the building will be fully let on completion. Turning to the next slide, I will update on our sustainability program and the progress we are making.
We have a very clear pathway to achieve our net zero carbon commitment by 2030, and so far, we have completed on 35 projects across the portfolio with a further 76 in progress. By the end of the year, we expect to have invested GBP 11 million since the launch of our net zero carbon program in 2021, and we are already seeing the benefits in terms of tenant feedback and in our ratings. For example, we have increased our on-site solar power generation by 23% compared to the same period last year, and we have more coming in the pipeline. When we launched our net zero carbon pathway, we estimated that the total spend would be circa GBP 58 million over a nine year period.
As we learn more and see additional opportunities, we now expect this to be circa GBP 64 million, including price increases, which as I said earlier, GBP 11 million since launch will have been spent by year-end 2022. We will now move to markets and outlook on page 22. In the U.K., the overall sentiment is impacted by inflation and increased cost of living debate, which means that there are again, some clouds hanging over the macro picture. Investment volumes in the commercial property markets are ahead compared to last year, although it is still from a low base. The occupational market was relatively strong in the first six months, and the current expectation or the take-up should be pretty decent in the second half of the year for the right kind of offices.
In Germany, there are a number of bigger questions in relation to energy supply and interest rate rises that have dominated the market so far. Our impression, though, is that progress is being made on the political front, which is encouraging. The property investment market did very well in Q1, but paused significantly in the second quarter as both buyers and sellers took stock of the new situation. The interest rate increases are likely to impact some of the very low yields we have seen for prime properties in recent years. The occupational market did, however, do well, and we have seen companies making decisions and moving ahead with signing new leases. The supply and demand dynamics for good quality offices is continuing to be favorable, and rental growth is expected to continue in Germany.
In France, which has significantly less inflationary pressure, even if large compared to historical number, there was an increase in transaction volumes in the first six months. Take-up in central Paris and Lyon is performing well, while the supply imbalance in some areas in the outskirts of Paris is still challenging. Smaller spaces, less than 1,000 square meters, again did well, which is beneficial to our French portfolio. In the first half of 2022, we saw vacancy increase further in our portfolio, and current levels of demand are expected to continue. Finally, on the last couple of slides, I would like to talk about opportunities in the portfolio. Our main focus is on reducing vacancy and ensuring that we have properties that are the best in our locations, and we believe there are significant opportunities to drive rental income over the next few years.
What I'd like to do is go through the walk from left to right. Starting on the left, you see the contracted rent, which was GBP 107.9 million at the thirtieth of June date. In addition to that, we have the vacancy in the current portfolio, which represents GBP 8.2 million. You can make up your own mind how much of that you think we will have long term. We've assumed that half of it here will be long-term vacancy in the portfolio. We have the net reversion of GBP 2.7 million. A lot of that is being captured through the indexation that we're seeing at the moment from inflation. That would take the ERV to around GBP 118.8 million.
In addition to that, we have the net acquisition less disposals that we did post the accounting period, which will add GBP half a million. The big opportunity for us is the GBP 14.5 Million in the middle of the walk. These are all the refurbishment and developments that we have in the pipeline that we're working on at the moment. The key thing for us to capture as much as we can of that GBP 14.5 Over the next couple of years. That would take it to circa GBP 134 million of rental income or contracted rent. In addition to that, on the right-hand side, you can also see that we have a number of longer term development opportunities like Lichtendorf and Adlershofer Tor in Germany.
After 2025, you also have the big development sites in London like Spring Gardens and New Printing House Square that will add value to the company. Finally, on page 24, there are a few key takeaways that I would like to leave you with today. In the first six months, we delivered a robust set of results with increases in NTA, EPS, and dividend. Valuations were slightly up. U.K. and Germany, positive. France, negative. Vacancy did increase from completed refurbishment and lease expiries, but the market is active, and there is optimism about the future direction. The significant portfolio upside from vacancy indexation and completed refurbishment over the next few years. Our net zero carbon projects are well underway, and we are on track to deliver the plan.
We prioritize shareholder value and have today announced a GBP 25.5 million tender buyback at GBP 2.5 per share. We have a great portfolio, with a high proportion of index-linked leases, and most of the debt is fixed to provide protection against economic headwinds. That is the end of today's presentation. Thank you all for listening in, and we will now open up for questions.
You can raise your hand if you have any questions, and then say your name and organization.
Miranda Cockburn from Panmure . Just two questions from me. Just first, on the debt side, looking at the graph, you've got about GBP 250 million coming up for refinancing over the next two years. Can you just talk us a little bit more as to what you're seeing, where, what the current rates of that debt is, where you think that could go to, where it might impact your overall cost of debt? The other question was just in terms of the lettings that you've achieved, the 60 deals, that was 4.5% above ERV. Where was that versus passing rent? Have you got that number? Thank you.
Starting with the debt coming up over the next couple of years. I suppose the first thing to say is that we are very confident that we'll finance it. We've got just under GBP 100 million till the end of the year, including amortization. We have got terms agreed on all but one of those financings, and simply the last one is just right at the end of the year, so it's just time. That one, we're also confident with. We're actually already on with financing some of the debt for next year. There's only one in the U.K., and we probably will upsell that building.
The debt in Germany and France, as I said, some of that we're already on with financing, for this year. In terms of cost of debt, though, it is increasing. I mean, there's no way around it. As a simple rule of thumb, over the next, say, four years, if 40% of our debt comes up for renewal, we're probably gonna see, say, 200 basis points increase. That would add about 80 basis points to our overall cost of debt. We'll probably go to around 3% on that basis. Clearly, I'm sure you watch it as eagerly as I do.
You know, it's always interesting when you get a 50 basis point increase in the five-year swap rate goes down because, you know, it depends on the risk of recession relative to, you know, those increases. It is a bit of a moving feast at the moment. As we sit here, yeah, we probably could see a cost of debt on a four-year basis going to 3%. In terms of passing rents, actually I don't have that figure to hand. I'll come back to you if that's all right.
Morning, Kieran Lee from Berenberg. Just a couple from me. You touched on some plans to sell properties. Would you be able to talk a little bit more about current market conditions, what we're seeing in the market and the geographic location and types of properties that these are likely to be? Then secondly, there was a comment on France in the statement and prioritizing occupancy over rate. Would you be able to talk to that a little bit considering the French portfolio has just about the lowest vacancy across the piece?
Yeah. I mean, maybe start with the disposal programs. I mean, we do have a existing disposal program which looks at properties that we do not consider long-term to be part of CLS, and that's mainly driven by alternative use value, or it's driven by the opportunities we see as an office building. That program will continue. We have that overall three countries, so there's no specific country to single out from that perspective. It's just prudent asset management of the portfolio. In addition to that, there's clearly opportunities to take some money off the table where we have done well or where we have done everything we set out to do when we acquired the properties. I would say that is probably mainly in Germany and in the U.K.
There will probably be a bit of more opportunistic disposals as well in the next year or so. I think there's still strong demand for well-let properties, certainly with government and big corporations, which we have a large proportion of. What is probably struggling a little bit more now is shorter leases and, if you have a very heavy development angle on it, because there is clearly less risk-taking in the market at the moment. In terms of letting properties above or below ERV, you're right, we have the lowest vacancy in France. But our view is that it's better to have them fully let, even if that is slightly below current ERV, given the supply imbalance you have in certain parts of Paris. It's a decision that is being made on a property-by-property basis.
If you have something in central Paris, you have very, very low vacancy, yeah, you probably take one stance. If you have something which is a bit closer to La Defense, you probably take a slightly different view on it. It's one property by property. I would say, I said again, we would prioritize to have them fully let, even if we don't always max out on ERV.
Any further questions in the room?
Hi, Romney, Aberdeen. Any comments you'd like to make about sort of the benefit to come with indexation? You spoke a little bit about the benefit you saw in the first half, especially that Spring Gardens upside. I was thinking, able to put any sort of materiality around how excited we should get H2, H1 next year?
You shouldn't unfortunately get any more excited about the U.K.. We've had the indexation on Spring Gardens. We can't have it again this year, but hopefully there'll be something next year. We do definitely expect more indexation in both France and Germany. France, I would expect if everything stays the same, probably a similar level. You know, that 2%-3%. Germany, yeah, I probably would say, you know, of the order of maybe 5% in the second half. Yeah, it's a good and strong market.
Hi, good morning. [inaudible] from Corlytics. Just a couple of questions from me, please. The first one just around the buyback that you've announced and the mechanism. You've chosen a mechanism that I think is perhaps slightly different to what we've seen in the past, which is typical in the sense that you go to the market and do a share buyback at the price, or you do a capital return through a special dividend. Why have you chosen this mechanism with a higher share price here, please?
I mean, it is not a new mechanism for CLS. CLS used to do this a lot in the past before we changed to pay a dividend in 2017. Before that, this was the mechanism that CLS used to distribute funds to shareholders. It's not a new structure for us. It might be a little bit more unusual than some of the other ones, but you also have to take into account that we have a certain shareholder register, and we have to make sure that an offer is accepted in the highest possible way. This was the preferred way of doing it. As I said, it has worked very well in the past.
I think the other thing to say is it will be quicker. You know, it's a one-off. We're not gonna be out in the market for, you know, potentially months, depending on, you know, liquidity and, you know, the relative share price movements. Hopefully, it's very clear. You know, it just shows the confidence of the management in the valuation of the business. You know, and, yeah, we just think the discount is just unjustified.
Any further questions? Well, we have no calls on the line, or web questions. I'll hand back to Fredrik.
Right. Well, if there are no questions online this time, I would like to thank you all for attending, and we will conclude today's presentation. Thank you.