TIDMCLI
RNS Number : 1654R
CLS Holdings PLC
15 November 2012
CLS Holdings plc
("CLS", the "Company" or the "Group")
Interim Management Statement for the period 1 July 2012 to 14
November 2012
The Group announces its Interim Management Statement for the
period 1 July 2012 to 14 November 2012.
HIGHLIGHTS
-- Successful issue of GBP65 million retail bond
-- Weighted average cost of debt remains low at 3.79% (30 June 2012: 3.74%)
-- Planning application for 143,000 sq m scheme at Vauxhall Square, London progressing well
-- Occupational demand resilient; vacancy level reduced to 3.3% (30 June 2012: 3.5%)
-- New leases, lease renewals and extensions completed on 9,738 sq m
-- Over GBP170 million of liquid resources
-- Over GBP90 million of undrawn credit facilities
OVERVIEW - Since 1 July, the Group has continued to make
positive progress on a number of fronts. Its core investment
activities continue to perform well, the development opportunities
are moving forward and we have increased and diversified our
financing through the successful issue of a publicly quoted retail
bond.
The occupational markets remain resilient, with the Group's
vacancy level of 3.3% by rental income at its lowest level for ten
years. Demand from existing and potential occupiers is steady, with
some encouraging highlights. 66% of the Group's income benefits
from indexation and 40% is paid by government occupiers. We have
made two acquisitions in London since the half year totalling
GBP5.2 million, with further acquisitions being actively
pursued.
Demolition is well under way at our student and hotel scheme,
Spring Mews in Vauxhall, SE11, and the planning application for the
mixed use proposal Vauxhall Square, SW8 is expected to go to
planning committee with a recommendation for approval before the
year end.
The financial markets have been somewhat less volatile since the
summer. Whilst this is welcome, there remains uncertainty and risks
in the Eurozone which could lead to renewed volatility. Meanwhile
the value of the Group's corporate bond investments has benefited
significantly from the fall in yields as investors have
increasingly searched for income.
LONDON - Whilst the UK economy still has many issues to
overcome, the capital's safe haven status has been enhanced with
the successful Olympics, and overseas investors continue to be
significant buyers, particularly in prime West End and City
locations. The purchase of the iconic Battersea Power Station by a
Malaysian consortium is testament to a willingness to consider
other areas where there is a strong rationale. The banks, however,
have continued to increase pressure on distressed borrowers who are
currently finding refinancing very challenging to achieve. This is
providing attractive opportunities for the Group, and since 1 July
we have completed two acquisitions. First, we bought a 1,963 sq m
property in Wallington, Surrey for GBP2.1 million, where we have
let the remaining vacant space and increased the rent to
GBP320,885. Secondly, we have completed on the purchase of a 1,844
sq m office property, Gateway House in Kennington, SE11 for GBP3.1
million, fully let and generating a rent of GBP282,000 from two
occupiers. Both of these purchases were at capital values per sq m
well below replacement cost, and we are considering other similar
potential acquisitions.
We continue to be successful in leasing space and the vacancy
rate has been further reduced to just 2.5%. New lettings were
achieved on 3,050 sq m, including 1,450 sq m over three floors at
Great West House, Brentford on a 10 year lease with a break at year
7, and lease renewals and extensions were completed on 3,958 sq m.
Tenants vacated from 3,956 sq m, of which 2,323 sq m was taken out
of lettable stock and demolished to create part of the Spring Mews
site.
The Spring Mews development is progressing according to plan and
in line with the guidance given at the time of the half year
results. Demolition is due for completion before the end of the
year and piling work is due to start early in the New Year. We are
in discussions with a number of operators to manage the hotel.
Discussions have progressed well with stakeholders on the
143,000 sq m Vauxhall Square mixed use development proposal, which
is expected to go to the Local Authority's planning committee
before the year end with a recommendation for approval. The scheme
is at the heart of the Vauxhall Nine Elms regeneration zone where
an encouraging pace of activity continues. The recent acquisition
of the Battersea Power Station by a Malaysian consortium, the start
of initial ground works for the new United States embassy and
significant pre-selling of residential apartments on a number of
projects are positive elements of progress.
The planning application on Clifford's Inn, Fetter Lane, EC4 is
also expected to go to planning committee before the year end with
a recommendation for approval for 3,433 sq m of new Grade A offices
and eight residential apartments. If planning is granted we expect
to start on site in April 2013 with a 15 month construction
programme.
FRANCE - Economic data from France shows proof of weak growth
and the economy also faces substantial budget cuts to reduce the
country's deficit. However, there are some positive indicators,
with consumer spending growing in September and we have seen an
increase in leasing enquiries from existing and potential
customers.
Since the end of June, we have let or renewed 2,046 sq m of
offices and taken back 2,396 sq m, resulting in a vacancy rate in
France of 3.8%. Rents appear stable with some positive movement in
Lyon.
GERMANY - The German economy shows more strength than any other
major Eurozone country. The need of certain owners to sell for
structural reasons could lead to potentially attractive
acquisitions for CLS over the forthcoming 12 months. Of the 2.2
million sq m of new construction in the top six cities over the
next two years, only 37% is unlet at this stage, and the average
vacancy level in these cities is stable at approximately 9.4%.
We have noticed a rise in enquiries, particularly in Munich, and
we have let 686 sq m of offices during the period, with no leases
having expired. The vacancy rate of the German portfolio has fallen
to 4.8% by rental value, following these lettings and the
completion on time and on budget of the fourth phase of our pre-let
development at Landshut to the north of Munich, which added 5,389
sq m of occupied space.
SWEDEN - A healthy level of consumer purchasing power in Sweden
has to a degree offset the impact of lower exports to the Eurozone.
GDP growth is expected to be 0.9% in 2012 and 1.8% in 2013, with
inflation below the 2% target at 0.9%.
The planning application in Stockholm for the 150,000 sq m mixed
use scheme owned by the Group's 29.9% associate, Catena, is
proceeding towards final approval by the end of this year for 800
apartments and 70,000 sq m of commercial space. The share price of
Catena at 14 November of SEK 62.5 means the current market value of
the Group's interest exceeds book value by GBP6.8 million, which
would add 15.6 pence per share of CLS's net asset value.
Occupancy of the Group's only directly held property,
Vänerparken, to the north of Gothenburg, has remained unchanged
with a vacancy of 1.8% by rental value.
FINANCE - Core profit has continued to be resilient, with stable
net rental income, high debt collection rates, tightly controlled
costs, and a continuing low cost of debt of 3.79% (30 June 2012:
3.74%). At 31 October 2012, the Group had cash and liquid resources
of over GBP170 million and undrawn facilities in excess of GBP90
million.
In September, we issued an unsecured GBP65 million retail bond
on the London Stock Exchange's Order Book for Retail Bonds with a
coupon of 5.5% per annum, and a maturity date of 31 December 2019.
This successful issue was 30% oversubscribed and gave the Group
considerable additional resources to fund its growth plans as well
as diversifying our sources of funding. The Group has 56 loans from
18 lenders, and two unsecured corporate bonds; none of the loan
covenants is in breach and none of the debt has been
securitised.
After a period of relative stability in the first quarter of
2012, the financial markets in Europe again became more volatile
during the summer. The euro, in which half of our business is
conducted, is at broadly the same level against our reporting
currency of sterling as at 30 June.
The corporate bond portfolio has performed strongly since the
half year and is generating an attractive running yield of 8.9%
against current values, and we continue to monitor actively the
underlying strength and performance of all the issuers. There are
currently 44 different bonds in the portfolio, giving broad
diversification. Since 1 July 2012, the bond portfolio has risen in
value by some 7.5% like-for-like and the total return for the bond
investments year to date has been 22.3%
In the latest tender offer, all of the shares available were
cancelled by the Company on 26 September, resulting in a
distribution of GBP4.6 million to shareholders and leaving 43.3
million shares in circulation.
Executive Chairman of CLS, Sten Mortstedt, commented:
"The Group's core investment portfolio is continuing to deliver
strong income returns against the Group's very low cost of debt and
benefits from significant rental indexation. We are adding value
through the planning and development process, particularly in the
Vauxhall regeneration zone in London. In addition the balance sheet
is strong, we benefit from excellent relationships with our banks
and we have substantial liquid resources to fund the increasing
number of attractive opportunities which we continue to
identify.
"This puts us in a solid position to deliver good returns,
whilst being able to respond to events and opportunities as they
arise."
-ends-
For further information, please contact:
CLS Holdings plc +44 (0)20 7582 7766
www.clsholdings.com
Sten Mortstedt, Executive Chairman
Henry Klotz, Executive Vice Chairman
Richard Tice, Chief Executive Officer
Liberum Capital Limited +44 (0)20 3100 2222
Tom Fyson
Charles Stanley Securities
Mark Taylor +44 (0)20 7149 6000
Hugh Rich
Kinmont Limited +44 (0)20 7087 9100
Jonathan Gray
Smithfield Consultants (Financial PR) +44 (0)20 7903 0669
Alex Simmons
This information is provided by RNS
The company news service from the London Stock Exchange
END
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