Good morning and welcome to this presentation of CLS Holdings plc full year results 2022. I'm Fredrik Widlund, Chief Executive, and to my right is Andrew Kirkman, our CFO. Today, we will present to you with the full year results and give an update on the portfolio. Let me first start with an overview of the year. It will be no surprise that last year was a challenging year for the real estate industry. Despite this backdrop, we delivered a solid and resilient performance. EPRA EPS was up 2.7% per share from a strong performance from our student and hotel operation, and the benefits from our U.K. REIT conversion, which did offset higher vacancy.
Valuations were down 5.3% in local currency, but only 2.6% in group currency, mainly due to yield expansion, which I will cover in more detail later. New leases during the year were 4.8% above ERV, and over 55% of the portfolio is now index-linked. Vacancy increased from 5.8% a year earlier to 7.4%, with a majority of the increase coming from completed refurbishments in the U.K.. Both Germany and France improved vacancy rates. We continued to invest in the portfolio with GBP 58 million of CapEx. A significant proportion was for our two development, Vauxhall Walk and Prescot Street in London, with the remainder relating to individual refurbishments in all countries, including sustainability enhancements.
We completed GBP 230 million of financings in 2022. So far this year, we have already closed or agreed over GBP 230 million as well, which means that we are well advanced with both 2023 and 2024 refinancings. Our net zero carbon pathway is making significant progress that is starting to deliver real progress. Our proposed final dividend is maintained, taking our full year dividend to GBP 7.95 per share, which is up 3.2% compared to last year and accords with our new dividend policy. On the next slide, before we go into more details, I would like to give a short overview of the current portfolio given the changes we have driven in the last few years. Firstly, what do we own today?
The answer is that we own high quality offices in central and urban locations. Which location we invest in is still one of the most important success factors. We will continue to invest in and near large cities with great transportation links. A flight to quality, irrespectively of whether a property is located in a central location or in an urban setting, is huge. In addition to being well-located, offices needs to be of a high quality, both from a customer and sustainability perspective, to attract occupiers. We have successfully repositioned the portfolio to meet these criteria. This has meant that we have sold most smaller properties below GBP 10 million, disposed of non-core offices outside of our core markets. Examples include the exit in the U.K. from properties outside of Greater London and the Southeast. The sale of most of our Lille properties.
We've also invested significantly in upgrading by both general quality in terms of amenities, flexibility, well-being and digital, and in sustainability enhancements. In the graph below, you can see that the portfolio now consists of 48% city center locations, 26% of properties that are let to government, and 5% student and hotel, which are also mainly in city centers, with the remaining 21% in urban locations. The few remaining properties that we do not see as well-located or capable of cost-effectively meeting the right quality will be exited as soon as the right opportunities arises. We now have a portfolio that is focused on better markets with properties that meet occupiers' needs today and in the future. On slide 6, the portfolio was down 5.3% in local currency and 2.6% on our reporting currency of sterling over the year.
With flat performance in the first half of the year, all of the correction came in the second half. We've chosen to break down the countries further this time, so bear with me as there are a lot of details. In the U.K., valuations declined 6.7%, with the drivers being an overall 27 bps yield expansion and ERVs declining 0.3%. The U.K. portfolio can be split in three areas. We have government, Central London offices, developments, and student and hotel, which makes up 56% of the U.K. portfolio, outperformed the market only down 1.4%. The majority of the outperformance came from the removal of lease breaks in several government leases, as well as record trading for the student and hotel operation. Secondly, other London offices, which are 31% of the U.K. portfolio, were down 10.3%.
Thirdly, Southeast offices, which is only 13% of the U.K. portfolio, was down 18%. Our other London and Southeast offices performed pretty much in line with the rest of the market. In Germany, valuations were down 3.5% from a 30 basis points yield expansion that was offset by ERVs growing 1.4%. In general, values fell between 3%-4% in Germany, but Berlin was only down 0.8% due to a planning approval for our property in Berlin, Adlershof. The other outlier was Stuttgart, which was down 11.2% from our decision to postpone our Lichthof development due to higher construction cost. In France, valuations were down 5.3% from yields moving out 12 basis points, while ERVs were up 4.9%.
Our Paris properties reduced in value by 7.4%, while Lyon was only down 2.1%, reflecting a strong market with very tight supply. Acquisitions and sales on slide seven. The commercial property market slowed down significantly in all countries during 2022 on the back of the macroeconomic challenges and increasing funding cost. France did bounce back in the fourth quarter. At the start of the year, we closed on two acquisitions, both in Germany, for a total of GBP 76.9 million. The first one, Kanzlerstrasse in Düsseldorf, closed in April for GBP 20.9 million, with a net initial yield of 5.1% and the reversionary yield of 5.7%. The property has a WALT of eight years and will provide good index linked rental income growth in the years to come.
The second property, The Yellow in Dortmund, closed in July for GBP 56 million, also with a net initial yield of 5.1%, with a reversionary yield of 5.6%. The WALT is 5.2 years, there are significant asset management opportunities to drive rent in a prime city location with only 3.5% vacancy. On the sales side, we closed on six smaller properties, of which five were in the U.K. and one in France. In total, the sales closed at 2.5% above the 31st of December 2021 valuation. The property that we sold in Greater London and Lille, and were mostly sold for residential conversions.
We have slowed down our acquisition program and expect to be a net seller in 2023, with the proceeds used for consolidating our balance sheet and to take advantage of future opportunities as market activity resumes. I'll now hand over to Andrew for more details on the numbers and occupiers.
Thank you, Fredrik. Good morning to both those here in the room and to everyone tuning in. Today, I'm gonna run you through our solid and resilient financial results of 2022, our financing position, and the considerable progress made with 2023 and 2024 refinancings, and our letting progress in 2022. Fredrik will then run through the portfolio, highlighting our significant growth opportunities. The photo here on slide eight shows how we are catching higher income through delivering quality refurbishments, this being of Apex Tower in New Malden. Slide nine sets out several of the key financial metrics of the business, which I'll run through in more detail over the following slides. It was a solid and resilient performance against a challenging backdrop. EPRA EPS was up 2.7%, but like most property companies, our valuations were down.
The proposed final dividend is maintained to give a full year dividend up 3.2%, which is covered 1.47 times by EPRA earnings. This reflects our revised dividend policy announced in May, for which the dividend color range is 1.2 to 1.6 x EPRA earnings. The balance sheet remains strong. We are confident that we will successfully navigate the more challenging financing market. I'll talk a lot more about financing in a few minutes. Now for some more detail around these numbers and the drivers behind them. The waterfall chart on slide 10 sets out the main component of the movement in EPRA Net Tangible Assets, with NTA decreasing by 6.0% or 30.9 pence per share.
Going through the components of the movement from opening to closing NTA, we have dividends paid in the year of 7.95 pence per share. EPRA earnings of 11.6 pence, a 0.3 pence increase from 2021. This is broken down in more detail in the next slide. The valuation decline of 5.3% or 33.9 pence per share, which is highlighted, compares very favorably to the office market, which experienced declines of over 10% in the U.K. and similar but slightly lower declines in Germany and France. The NTA accretion from the 25 million share buyback executed in September, given that it was at discount to NTA. Finally, sterling weakened by 5% against the euro in the period, resulting in an 8.5 pence per share 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 have set out the movement in EPRA earnings per share, which increased by 2.7% or GBP 0.003 per share. As highlighted in the fetching lilac from our new pastel color range, the increases were from a GBP 0.008 per share increase from our student and hotel operations, which both delivered record results. The strong performance is continuing in 2023, with solid lettings for the 2022, 2023, 2024 academic year ahead of last year, both in room rates and rooms sold. A GBP 0.006 per share reduction in tax as a result of the conversion of our U.K. operations to a REIT from the start of 2022.
A 0.5 pence per share reduction in the FX losses from those movements on U.K. bank, euro-denominated bank accounts, which go through the income statement. Whilst in the creamy mint bars, the decreases were from a 0.9 pence reduction in income from our offices as a result of higher vacancy, which I'll talk more about on slide 15. A 0.4 pence per share increase in expenses, partly resulting from this higher vacancy and a normal bad debt charge in 2022 compared with provision release in 2021. Finally, a 0.3 pence per share increase in net finance costs resulting from higher debts and higher interest rates. Over the page on slide 12, I've set out the movement in CLS's liquid resources during the year 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 resources. You can see, there were quite a few moving parts in 2022, so I'll break it down to three areas. To start, operating cash flow in the first three movement bars remained strong with healthy interest cover of 3 times. Net cash from operations after interest and tax of GBP 43 million, which is almost exactly the same as EPRA earnings, and a surplus after dividends of almost GBP 10 million to invest in our properties. Secondly, our net investment into the portfolio in the next four bars. This was GBP 36.7 million from the aggregate of disposals, loan drawdowns, acquisitions and CapEx.
We expect CapEx to remain at a raised level in 2023, but slightly lower than 2022 as we continue to improve the portfolio's quality through our major refurbishments and development, before dropping to GBP 30 million or below from 2024 onwards. Lastly, as discussed earlier, we spent GBP 25.8 million, including costs, on our one for forty share buyback. Slide 13, which sets out a summary of our key debt metrics, is one of my most important slides, so I'll dwell on it a bit longer. There are four points to highlight, which cover several interrelated areas. Firstly, our LTV increased to over 40% in 2022 as a result of our investment in our portfolio and valuation declines. We aim to reduce this below 40% in 2023 by selling some properties.
Secondly, we successfully refinanced all expiring debt in 2022. However, we did execute more extensions at floating rates, hence why our proportion of fixed rate debt is reduced. The rationale for these extensions is threefold. Firstly, some properties will be sold, and thus we want to avoid break costs. Secondly, the letting situation for some properties is being improved, and once done, we'll refinance them on better terms. Thirdly, we thought interest rates would reduce, particularly after the Kwasi Kwarteng's mini-budget. Thirdly, on the page, we are well advanced with refinancings in 2023 and 2024, given that we have a higher proportion than usual of loans expiring in this period. Approximately half of these loans are agreed, half of them have already been completed.
The graph in the top right shows the pro forma position if the GBP 237 million of agreed deals are completed at the start of the year. Finally, our interest expense will increase in 2023. This is a result of higher interest rates on our floating rate debt and debt to be refinanced. If interest rate curves stay as they are, we would expect our cost of debt to increase by 50 to 60 basis points. However, over time, we would expect to more than offset this through capturing existing rental growth opportunities in our portfolio, more of which from Fredrik shortly. Turning to our property portfolio on slide 14. The portfolio margin increased by 0.9%, as is shown on the page.
The portfolio grew from our property investment through capital expenditure and acquisitions, as well as an uplift from the weakening of sterling. This was mostly offset by disposals and the decline in valuations. I'll now turn to the occupiers of our property portfolio. Slide 15 is a busy slide demonstrating our active asset management approach to securing tenants. The left-hand side shows that we signed 106 leases at 4.8% above ERV, with the uplift ahead of last year. Although the average size of deals was smaller than last year, reflecting the popularity of smaller spaces and the hesitancy of some occupiers to commit. New leases were ahead of extensions and are back at a more normal level. Like for like contracted rent and ERV both grew during the year as the occupational markets remained busy despite a slow investment market.
On the right-hand side, you can see the movement in our vacancy in three different ways. In essence, vacancy increased as a result of refurbishments completed in the U.K. in the first quarter of 2022. As is shown in the bottom graph, vacancy in Germany and France fell in the year, we would hope for further reductions in Germany this year and France to stay at a low level. Our greatest challenge, but also our greatest opportunity, is the U.K., where we are carrying out the majority of our refurbishments to ensure that we meet the quality demanded by tenants. Vacancy may go up in the U.K. in 23 as some of these schemes, some of which is quite large, become available to let. We have seen more inquiries at the start of this year, which we would hope will convert into lettings.
My penultimate slide 16, is a familiar one, which illustrates our high quality and diversified tenant base across our three markets. The key points to highlight are: our properties remain strongly multi-let, with our 723 tenants equating to an average of over eight tenants per building. There are three new entries in our hit parade of our top 15 tenants since the start of 2022. AMEVIDA, one of the largest owner-managed customer call center providers in Germany, entered at number 15 following our acquisition of K8 in Düsseldorf. HSPV NRW at number 11, a higher education institution in Germany that offers specialized training and education for police officers and other civil servants in the state of North Rhine-Westphalia.
Postbank coming at number seven, both of these following the acquisition of The Yellow in Dortmund. Lastly, and most importantly, the strength of our tenant base is reflected in our rent collection, continuing to be over 99%. This is a result of 26% of our tenants being government agencies, and a further 42% being large or medium companies. My final slide summarizes the resilience of our income, with over 55% of rent now being index linked. As set out on the slide, 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, CLS's most valuable property, had a 10.5% rent increase in mid-2022 due to the rent being linked to RPIX. In Germany, 64% of our leases are CPI linked.
In addition, around 20% of our German leases have built-in stepped increases. Lastly, in France, all leases are index linked. Given that indexation increases occurred throughout the year, usually on a lease's anniversary, only around half the indexation came through in 2022, and thus we would expect healthy uplifts in 2023 as well. Finally, it's worth remembering that the benefits of indexation come through not just via rental income growth, but the indexation also contributes to valuation, as was shown in this year's results. With that, I'll hand back to Fredrik to run through the portfolio and our sustainability progress.
Thank you, Andrew. What better way to introduce this section than to show a picture of our new solar panel installation in Richmond in Greater London? Let's now move to Slide 19. In addition to a number of refurbishments that are ongoing, we are also on site with three larger projects that are completing in 2023. Firstly, at The Coade Vauxhall Walk, we are in the final stretch with PC in early April of our 28,400 sq ft new office building in the heart of Vauxhall. The building will have both an EPC A and a BREEAM excellent rating. Marketing started in Q4, and we have seen good interest, especially in the last four weeks. We expect average rent of GBP 55 a sq ft, which will give a rental yield of 7%.
The second one is Artesian, 9 Prescot Street, where we are refurbishing the entire building of 92,500 sq ft, as well as adding a large roof terrace to the original Art Deco building. PC is planned for this summer, marketing is ongoing, with interestingly strong inquiries from educational occupiers. We expect average rent of GBP 60 a sq ft, which will give a rental yield of 5.7%. Finally, at Park Avenue in Lyon, we have completed construction, PC is due in a few weeks' time. Existing occupiers have moved back into the property, we have pre-let 2 floors, with the last two vacant floors being marketed as we speak. Turning to the next slide, I will give an update on our sustainability program.
We are making good progress on our net zero carbon pathway, and I'm very pleased with how things are progressing. We've spent GBP 11 million by year-end 2022, and are tracking to budget with expectation to spend a further GBP 54 million until 2030. In 2022, we completed 57 individual projects, everything from LED lighting to replacing windows and boilers that will save over 600 tons of CO2E annually. To give a reference point, that is equivalent to taking 130 cars permanently off the road. We're also continuing the rollout of our solar PVs and added 50% to our capacity in the last year. We've also installed another 43 EV charging points at 12 buildings in the U.K..
As you can see on the right-hand side, our U.K. EPC ratings continues to improve even further, and we are well-positioned to meet all future statutory requirements. There will be no Ds by 2027, and there's a good chance that we might get there earlier. We'll now move on to markets and outlook on page 22. The leasing markets in the U.K. are mixed, with Greater London robust and showing rental growth, while the Southeast and the rest of the country is slower. We've seen a gradual return to offices, which is encouraging, and the three to four days in the office seems to be the preferred model for many occupiers, which supports our business model. In the U.K. and in other markets, perhaps even more so here, there is a clear flight to quality with secondary stock rapidly losing attraction.
London vacants have been stable at 8.5%, but given the low supply of new offices, we believe there are good longer-term opportunities. On a comparable basis, the U.K. is our most challenging market short term. In Germany, industrial companies have again proven to be more resilient than some might have forecast, and this also impacts the service industry positively. Leasing take-up has been resilient, and recent numbers show take-up very much in line with previous years and long-term averages. Rental growth prospects are solid, and given less supply, this is likely to continue. Vacants has crept up marginally, but is still at low levels for the bigger cities, with an average of 5% for the top seven cities in Germany.
Investment markets slowed down significantly in 2022, but as valuations stabilize, we expect this to improve in the second half of the year. In France, which continues to have slightly less inflationary pressure, it is benefiting from the large domestic economy. Leasing take-up in both Paris and Lyon show double-digit growth in 2022. Paris is showing significant difference between Central Paris and some of the outskirts of Paris, which have a supply-demand imbalance. Lyon is doing very well with strong growth and falling vacancy rates. Smaller space, less than 1,000 square meters, again, did well, which is beneficial for our French portfolio. The vacancy continued to fall in the French CLS portfolio as a result of that. On slide 23, as you know, our main focus is on letting our refurbishment and developments to drive rental income into existing properties.
We have updated the walk that we have shown before, and we believe there are good opportunities to drive rental income over the next few years. Let me go through the walk from left to right. If you start on the left, you can see our GBP 110.2 million of contracted rent. In addition to that, we have GBP 9 million in our vacancy. We have GBP 2.2 million of net re-reversion that are likely to close in the next 12 to 18 months. That would take the ERV to GBP 121 million. On top of that, the largest opportunity comes from letting the refurbishment and the developments we have right now. You heard about Vauxhall Walk, and we have Prescot Street.
They're the two largest ones, but we also have Park Avenue in Lyon, and we have Apex Tower in New Malden and Gateway House in Kennington. Closing those out would be another GBP forty-and-a-half million, which takes the portfolio ERV to GBP 136 million. We have potential developments. You heard about the Adlershof tour planning permission, which means adding a few floors on top of the existing building. We have LichtHof in Stuttgart, which are potential to add another GBP 3 million on top of that, which would take this to GBP 139 million. Longer term, which is post-2025 and 2026, we also have Spring Garden and New Printing House Square, both in Central London, which offers excellent development opportunities when it come. There's a lot in the portfolio that we could work with, which would add long-term value.
In addition to these opportunities, and as you heard from Andrew, we also have over 55% of the portfolio on index linked leases, which will drive income, and that is not included in these charts. Slide 24, it's the final slide. I'd like to give or leave you with a few key takeaways. CLS delivered solid results in 2022 against a challenging economic backdrop. EPRA EPS was up. EPRA NTA was down on a comparable basis, but better than market, which all means an increase in the full-year dividend of 3.2%. We're investing significantly in the portfolio to ensure quality and sustainability. CapEx is expected to be similar in 2023 to last year, and then reducing from 2024 to more normal levels of circa GBP 30 million per year.
Operational focus is on reducing vacancy and completing refinancings for 2023 and 2024. As you heard earlier, we are well advanced. We're likely to be a net seller in 2023 to reduce LTV and build flexibility for future opportunities. There's significant upside in the existing portfolio over the next two-three years. Finally, we do have the best properties in our locations, and we will continue to refine the portfolio to only have the right offices for the long-term future. That's the end of today's presentation. Thank you for listening, and we will now open up for questions.
Say your name and where you're from.
Good morning. Chris Spearing from Liberum. Thank you both very much for the presentation. Probably one for Andrew, I think, but you talk about an LTV target of below 40%. What level of disposals then do you expect over the next year?
Thanks, Chris. If you just do it on a pro forma basis, assuming that nothing else changes, I think at 40%, that's about GBP 90 million disposals. At 35%, that's about GBP 260 million disposals. I think that probably gives you a good feel for a range. Clearly, if valuations were to drop, we might look at, you know, slightly more than that. You know, we are keen to get below 40%. That's the level that the market, you know, starts to get uncomfortable about. Yeah, it's something we're targeting.
Thank you, Andrew. Probably one for Fredrik. You talked about the impact of removing some breaks from government leases in the U.K. as a sort of positive driver for the outperformance. Am I right in thinking that relates to Spring Gardens? If it does, can you give any comment on the valuation performance of the asset and kind of your thoughts on the strategy for it? 'Cause you've talked about potential redevelopment in the longer term in the past.
Yeah. It did not relate to Spring Gardens. These are other government leases that we have in the portfolio. Happy to say something about Spring Gardens. It's our largest asset. It's in Zone one in Central London. It has a lease to the National Crime Agency until Q1 2026. Should they leave at that time, it is an excellent opportunity for us to develop that site. We are already looking at the various options, and I hope to be able to update you later on this year in terms of what options we have for and what that might add to the portfolio.
On the vice versa, they stay. RPIX is quite a good type of lease to have. We win both ways around.
Go ahead, last one then we leave. Thank you.
Morning, it's Matthew Saperia from Peel Hunt. Two questions, if I may. First one, the 4.9% ERV growth in France, that seems strong. Were there any particular assets or locations that drove that number? The second question, obviously a very strong outperformance on valuation terms in 2022. Do you think that the portfolio can maintain that outperformance into 2023? As a follow on, have you seen any evidence of any returning liquidity into investment markets in either the U.K., Germany or indeed France?
Few different questions. I'll give it a go. If we start with evaluations, I think what you have seen this time, certainly in the U.K., is a very rapid reaction from the values. I think we've seen quite large falls, probably quicker than we've had in the past. I don't expect to see much more in our U.K. portfolio. I think there's probably a little bit more to come in Germany and France, where the valuation decrease has been less pronounced than what you have seen in the U.K. In terms of the investment market, they did slow down in all three countries we operate. I would say that France had a very strong fourth quarter, which did not replicate itself in Germany and the U.K.
Until you have clarity in terms of where interest rates are going, I think you're gonna continue to see a fairly slow investment market. We and many other people, I think, expect that in the second half of the year, it's likely to start being a bit more active again.
I think your third question, Matt, was around ERVs in France. A lot of it came from Lyon. Lyon, we have five properties, very much located in the two best parts of Lyon City Center, Villeurbanne and La Part-Dieu. Yeah, nothing specific, just it's a strong market.
Any other questions in the room? I believe we have one caller on the line.
If there are any questions on the phone, please press star followed by one. First question is from the line of Richard Pearson with Hamilton Asset Management. Please go ahead.
Hello?
Hello?
Hello.
We can hear you. Hello.
Yes. One question, please. Can we expect a further buyback as the discount has risen quite significantly since the tender, last year's tender was completed?
I'll take that one. At this point in time, no. Quite simply, we are focused on reducing LTV. As I said, we will look at disposals in the first instance, and then we will do what we would normally do, which is assess the prospects in the market of acquisitions, investment in our portfolio and share buybacks against each other. There is no prospect in the short term, but it's one of the things that we always keep under review.
Thank you.
Second question. Next question is from the line of Kieran Lee with Berenberg. Please go ahead.
Good morning, guys. Sorry, I couldn't be in the room. Just a quick one from me on debt costs. I see comments on sort of the likely increased trajectory of those debt costs and the refinancings. Are we seeing any changes in covenants in the availability of debt as you've been looking to refinance some of those loans?
On the whole, no. We benefit from the fact that we have 46 loans with 25 different lenders. We have, you know, very well and long-established relationships. We haven't seen almost any difficulty in refinancing. The only thing that we probably have seen is slightly lower LTVs. I think some concerns with the banks around valuations. We have also had to look at our debt service cover ratios because with a slightly higher interest rate and then with amortization, we just gotta make sure that, you know, we don't in any way stress the assets. No, we've, you know, we've probably done more refinancings. Well, we did as many refinancings in the first 2 months of this year as we did in all of last year.
You can see it's a pretty healthy market out there.
Perfect. Thank you.
We have one final question on the web from Veronica Cohen at Panmure. Can you give an indication of your lease expiries due this year? Are there any you are concerned about?
No is the answer. We have nothing large expiring in 2023 at all. It's with 723 different tenants, there's always quite a churn, but we don't have nothing that's of any significant in 2023.
That completes the questions.
In that case, thank you all for attending and for the questions. We will finish the call.