CLS Holdings plc – 2022 Half Year Results.

CLS is a leading FTSE250 office space specialist and a supportive, progressive and sustainably focused commercial landlord, with a c.£2.4 billion portfolio in the UK, Germany and France, offering geographical diversification with local presence and knowledge. For the half year ended 30 June 2022, the Group has delivered the following results:

Fredrik Widlund, Chief Executive Officer of CLS, commented: “CLS delivered a robust set of results in the first half of 2022, with EPRA NTA growing by 0.7%, EPRA EPS up 7.4% and the interim dividend up 10.6%. We remain focused on actively managing our portfolio to drive long-term value and continue to invest where we see opportunities.

“We are well placed to navigate the challenging economic and trading conditions with our high-quality portfolio, a significant portion of index-linked leases and strong balance sheet.

“We continue to believe the share price discount is unjustified and today are announcing an initial £25.5 million tender offer share buyback to address the issue. If the share price discount persists, we will consider further buybacks in tandem with disposals demonstrating the Board’s commitment to delivering shareholder value whilst maintaining the Group’s gearing at appropriate levels.”

Financial highlights

• EPRA NTA up 0.7% primarily as a result of foreign exchange gains from weakening sterling with the portfolio valuation slightly up in local currency before lease incentives.
• Portfolio valuation up 0.1% in local currency with increases in the UK of 0.5% and Germany of 0.3%, partly offset by declines in France of 2.1%.
• Profit before tax down 17.8% to £20.3 million (30 June 2021: £24.7 million) from lower fair value movements on investment properties due to lease incentives (£3.1 million) and a one-off profit on disposal of equity investments in 2021 (£1.4 million).
• EPRA EPS up 7.4% to 5.8 pence per share from lower foreign exchange losses, lower tax following REIT conversion, and higher income from our hotel and student operations, partly offset by higher expenses as 2021 included the release of pandemic bad debt provisions. Statutory EPS up 90.1% due to lower UK tax charges after the conversion to a UK REIT.
• Interim dividend up 10.6% to 2.60 pence per share (30 June 2021: 2.35 pence per share) to be paid on 3 October 2022. Increased dividend reflects the adoption of our updated dividend policy announced in May.
• Total accounting return of 2.2% (30 June 2021: (0.8%).

Operational highlights

• Net rental income increased by 0.9% to £52.8 million (30 June 2021: £52.3 million) as a result of higher income from our hotel and student operations and higher dilapidations income.
• Acquired two properties for £76.9 million, which completed in April and July respectively. These properties were bought for their asset management opportunities at a combined net initial yield of 5.1% and a reversionary yield of 5.6%.
• Completed the disposal of two smaller properties for £10.1 million, one of which had exchanged in 2021, at book value. Post period end, completed on a further three disposals for £39.8 million at an average 3.7% above book value.
• Completed 60 lease events (30 June 2021: 53) securing £4.4 million (30 June 2021: £5.2 million) of annual rent at 4.5% above ERV with like-for-like contracted rent increasing by 0.4%.
• Vacancy rate increased to 6.9% (31 December 2021: 5.8%; 31 March 2022: 7.2%). Most of this increase was due to lease expiries and completion of developments currently being marketed to prospective tenants.
• Rent collection remained at the same, consistently high levels with 99% of first half rent collected and 98% of third quarter contracted rent due collected to date.

Financial

• Weighted average cost of debt at 30 June 2022 up 4 basis points to 2.26% (31 December 2021: 2.22%) due to increases in SONIA on UK floating rate debt.
• Loan-to-value at 38.9% (31 December 2021: 37.1%) reflecting net investments in the period. Gross debt of £1,043.2 million (31 December 2021: £1,031.6 million) with cash of £110.4 million (31 December 2021: £167.4 million) and £50 million (31 December 2021: £50 million) of undrawn facilities.
• In the first half of 2022, financed or refinanced £92.3 million of debt at 1.81% for 1.9 years. Discussions well advanced for the remaining £93.6 million refinancings, excluding amortisation, due in 2022.
• The loan portfolio as at 30 June 2022 had 80% at fixed rates (31 December 2021: 85%) with the reduction as a result of short-term floating rate extensions in advance of longer-term loans once the letting of the buildings has been improved or to give flexibility for potential sales.

Environmental, Social and Governance

• Progress continues with implementing our ambitious but achievable long-term sustainability targets including our 2030 Net Zero Carbon Pathway. We have completed 35 carbon reduction projects with another 76 projects in progress totalling £11 million estimated spend by the end of 2022 which will save an estimated 1,300 tonnes CO2e per annum and puts us on track to achieve our targets.
• A 23% net increase in CLS’ solar electricity generation and a further 347kWp increase in capacity in progress from the installation of new solar arrays in the UK. We are also installing more electric vehicle charging points in the UK and Germany.
• Taking action on social challenges including supporting refugees from the Ukraine war, donating to local food banks tackling the cost-of-living crisis for the poorest and volunteering to support local community projects.

Tender Offer Share Buyback and Interim Dividend Timetable

Further to this announcement, in which the Board announced a £25.5 million tender offer share buyback and declared an interim dividend of 2.60 pence per ordinary share, the expected key timetable dates are as follows:

Results presentation

A presentation for analysts and investors will be held in-person at Liberum Capital, by webcast and by conference call on Wednesday 10 August 2022 at 8:30am followed by Q&A. Questions can be submitted either online via the webcast or to the operator on the conference call.

• Liberum Capital: Ropemaker Place, 25 Ropemaker Street, London EC2Y 9L.
• Webcast: The live webcast will be available here: https://secure.emincote.com/client/cls/cls005
• Conference call: In order to dial in to the presentation via phone, please register at the following link and you will be provided with dial-
  in details and a unique access code https://secure.emincote.com/client/cls/cls005/vip_connect