CLS Holdings plc – Annual financial results for the twelve months ended 31 December 2022.

CLS is a leading FTSE250 office space specialist and a supportive, progressive and sustainably focused commercial landlord, with a c.£2.35 billion portfolio in the UK, Germany and France, offering geographical diversification with local presence and knowledge. For the year ended 31 December 2022, the Group has delivered the following results:

Fredrik Widlund, Chief Executive Officer of CLS, commented: “Against the backdrop of a challenging economy and uncertain property market, CLS has delivered solid and resilient results ahead of market expectations with lower relative valuation and NTA declines, reflecting the quality and locations of our properties and higher EPRA earnings.

“Over the last year, we have continued to invest in our properties to make them sustainable and attractive to tenants and ensure that we have the best offices in our locations. With the economic outlook and monetary policy conditions across our markets remaining uncertain, our focus in 2023 is to optimise our planned refinancings and leverage our in-house asset management capabilities to reduce vacancy rates, which will position the company well for the future.”

Financial highlights

• EPRA NTA down 6.0% primarily as a result of property valuation declines of 2.6% in Group currency (5.3% in local currencies), partially offset by increased EPRA earnings.
• Portfolio valuation down 5.3%% in local currencies, better than the declines in the market reflecting the quality of our portfolio and indexed-linked leases. Yield expansion resulted in valuation decreases of 6.7% in the UK, 3.5% in Germany and 5.3% in France.
• Loss before tax of £82.0 million (2021: £91.5 million profit) principally due to valuation declines on investment properties of £136.5 million (2021: £28.5 million gain).
• EPRA EPS up 2.7% to 11.6 pence per share from higher profits from our hotel and student operations and tax savings following conversion to a REIT in the UK, partly offset by lower net rental income from our offices given higher vacancy. Statutory EPS of (20.2) pence per share reflecting the valuation declines.
• A proposed final dividend maintained at 5.35 pence per share to be paid on 2 May 2023, resulting in a total 2022 dividend of 7.95 pence per share, an increase of 3.2% (2021: 7.70 pence per share).
• Total accounting return for the year of -3.7% (2021: 3.7%).
• We anticipate increased financing costs in 2023 given higher interest rates but are focussed on reducing vacancy from our refurbished schemes and other vacant space.

Operational highlights

• Net rental income stable at £107.8 million (2021: £108.0 million) due to disposals, redevelopment and leasing expiries resulting in higher vacancy offset by contributions from net acquisitions, higher student and hotel income, and the benefits of indexation.
• Properties with contractual rental indexation increased to 55.5% (2021: 50.1%) of the Group portfolio.
• Acquired two properties in Germany 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%.
• Disposed of six properties for £57.9 million (5.4% net initial yield) at 2.5% above 2021 book values.
• Completed 106 lease events securing £8.2 million of annual rent at 4.8% above 31 December 2021 estimated rental values 2.
• Vacancy rate increased to 7.4% (2021: 5.8%) with most of this increase due to the completion of developments currently being marketed to prospective tenants as well as some net lease expiries.
• Rent collection has continued to remain strong with 99% collected (2021: 99%).

Financial

• Weighted average cost of debt at 31 December 2022 up 47 basis points to 2.69% (2021: 2.22%) resulting from the impact of central bank interest rate increases.
• Loan-to-value at 42.2% (2021: 37.1%) reflecting valuation declines and net acquisitions during the year. Gross debt of £1,105.9 million (2021: £1,031.6 million) with cash of £113.9 million (2021: £167.4 million) and £50 million (2021: £50 million) of undrawn facilities.
• Weighted average debt maturity of 3.8 years (2021: 4.4 years).
• Financed or refinanced £229.9 million of debt in 2022 at an average of 3.24%, including £58.4 million fixed at 3.17%, and repaid £166.6 million of debt.
• The loan portfolio as at 31 December 2022 had 72% at fixed rates and 4% subject to interest rate caps (31 December 2021: 85% fixed and 5% caps).
• Well advanced with 2023 and 2024 refinancing activity with £237 million out of £505 million executed or with credit approval secured, leaving £94 million to refinance in 2023 which we are confident will be completed successfully.

Environmental, Social and Governance

• GRESB score remained good at 85 (2021: 85) and 4 green stars, with 86% (2021: 83%) of the managed portfolio achieving at least a ‘Good’ BREEAM In-Use rating.
• 99.9% (2021: 92%) of Group electricity is now carbon-free, our rooftop solar PV energy output increased by 51% by installing a further 347kWp of new solar arrays in the UK and 43 electric vehicle charging points installed at 12 of our buildings in the UK.
• Progress continues with implementing our ambitious, but achievable, long-term sustainability targets including our 2030 Net Zero Carbon Pathway at a total cost of £65 million. We completed 57 carbon reduction projects this year with spend on track with the plan which will save an estimated 612 tonnes CO2e per annum and we were in-line with our Scope 1 & 2 target for 2022.
• We are fully compliant with 2023 minimum EPC regulations in the UK and reduced our EPC D rated buildings by nearly 20% through a combination of refurbishments and disposals.
• Continued action on social challenges including 562 employee volunteering hours given to community and charitable organisations, new diversity, equity & inclusion plan created and committed to Living Wage Foundation accreditation in the UK.

Divdend Timetable

Further to this announcement, in which the Board recommended a final dividend of 5.35 pence per ordinary share, the Company confirmed its dividend timetable 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 8
March 2023 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/cls006.
• 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/cls006/vip_connect.