TIDMCLI
RNS Number : 4012S
CLS Holdings PLC
07 November 2013
Release date: 7 November 2013
Embargoed until: 07:00
CLS Holdings plc
("CLS", the "Company" or the "Group")
Interim Management Statement for the period 1 July 2013 to 6
November 2013
The Group announces its Interim Management Statement for the
period 1 July 2013 to 6 November 2013.
HIGHLIGHTS
-- Successful GBP118.6 million portfolio acquisition of 34
mostly government-let properties throughout the UK yielding 12.2%
net
-- Acquisition of a further two properties in London totalling
GBP5.9 million before costs, on a blended net initial yield of
9.4%
-- Further improvement of rental income quality through
acquisitions: 49% is now generated from governments and 27% from
major corporations, and 61% is subject to indexation
-- Occupational demand remains firm; vacancy level remains low at 4.4% (30 June 2013: 5.5%)
-- New leases, lease renewals and extensions completed on 10,162 sq m
-- Weighted average cost of debt remains low at 3.62% (30 June 2013: 3.55%)
-- Agreement with InterContinental Hotels Group for a Staybridge
Suites hotel at the 20,800 sq m Spring Mews mixed-use development
in Vauxhall, and terms agreed to let 210 student rooms to a
university; completion of development on schedule for Q3 2014
-- Strong pre-letting interest for all of the offices at
Clifford's Inn, Fetter Lane, EC4 refurbishment, with completion on
schedule for summer 2014
-- Advancing plans on 143,000 sq m development at Vauxhall Square, London
OVERVIEW - Since 30 June, the Group has made solid progress in a
number of areas, and a major acquisition. Core investment
operations have delivered according to plan, financing costs have
remained very low, and developments have progressed strongly.
The occupational markets are firm, with the Group's vacancy
level of 4.4% by rental income remaining very low. Demand from
existing and potential occupiers is steady, with good interest
particularly in London and Germany. Of the Group's income, 61%
benefits from indexation and 49% is paid by government
occupiers.
On 13 September the Group acquired a UK-wide portfolio of 34
primarily UK Government-occupied properties for GBP118.6 million
before costs of GBP5.3 million, generating a net initial yield of
12.23%. The portfolio, known as the Neo portfolio, was a
receivership sale in an open tender process. Since 30 June, we also
made two acquisitions, in Chertsey and Staines, for an aggregate of
GBP5.9 million, together producing a net initial yield of 9.4%.
The development in the financial markets continues to be
positive but uncertainty remains in the Eurozone, particularly in
France. The Group benefited from high corporate bond prices when
selling most of the corporate bond portfolio in August to raise
part of the consideration for the Neo portfolio acquisition.
In September, Catena AB issued shares which reduced our interest
from an associate status to that of an available-for-sale asset to
be carried in our balance sheet at fair value by reference to
Catena's share price. This, together with a 20.8% gain in the
Catena share price, added 35 pence per share to the Company's NAV
from the investment in Catena AB.
UK - With the UK enjoying its third consecutive quarterly growth
in GDP, London continues to benefit from its status as a global
safe haven. Demand remains solid from overseas investors, with
increasing interest beyond the prime West End and City locations in
search of yield. Even though financing conditions have improved for
strong borrowers, banks continue to work through their issues, and
have increased the pressure on distressed borrowers who are finding
refinancing very challenging to achieve. This is providing
attractive opportunities for the Group, and since 1 July we have
completed one significant and two smaller acquisitions:
-- a UK-wide portfolio of 34 properties for GBP118.6 million
before costs of GBP5.3 million, with 64% let to the Secretary of
State, 14% to Government agencies, and 20% to Trillium (Prime)
Property, but occupied by Government sub-tenants; the portfolio has
a weighted average unexpired lease term of 7.1 years, or 4.8 years
to the first break event, and generates GBP15.1 million p.a.,
representing a net initial yield of 12.23% after costs
-- a 1,245 sq m office property in Staines, TW18 for GBP3.15
million, let to Trillium (Prime) Property as a Job Centre for
GBP318,500 p.a. for over 4 years, representing a net initial yield
of 9.61%
-- a 1,257 sq m office property, in Chertsey, KT16 for GBP2.67
million, multi-let to four occupiers, generating a rent of
GBP261,000 p.a., and representing a net initial yield of 9.16%
We continue to be successful in leasing space and the vacancy
rate is only 2.2%. Excluding the fully-let Neo portfolio,
like-for-like vacancies are 2.9% (30 June 2013: 4.4%). New lettings
were achieved on 2,805 sq m, lease renewals and extensions were
completed on 2,303 sq m, occupiers vacated from 3,623 sq m, and 884
sq m of vacant space was retired to development stock, not
available for letting.
Our Spring Mews development of an extended stay hotel and
student accommodation is well under way, and completion is targeted
for Q3 2014. We have signed an agreement with InterContinental
Hotels Group for the hotel to be operated under its Staybridge
Suites brand, and have agreed terms to pre-let 210 student rooms
(55% of the total) to a university. The remaining student rooms
will be operated and marketed on a direct-let basis by Fresh
Student Living.
At Clifford's Inn, Fetter Lane, EC4 the refurbishment of 3,433
sq m of new Grade A offices and the development of eight
residential apartments are on schedule to complete in the summer of
2014, and we have received strong interest to pre-let the entire
office space.
The Vauxhall Nine Elms regeneration area continues to move
forward, of which our mixed-use, residential-led Vauxhall Square
will be an integral part. We are continuing to develop financing
options for the 143,000 sq m scheme, and are in positive
discussions with potential hoteliers and student operators for
elements of it. The first phase could start in 2015.
FRANCE - The French economy remains slow, with concerns over
political direction, weak growth, low confidence and rising
unemployment.
The lack of new supply should restrict vacancy levels and
available space. Lettings in the Paris region are down some 30% in
2013. Since the end of June, we have let or renewed 4,589 sq m of
offices and taken back 5,073 sq m. As previously indicated, based
on expected occupier departures, our vacancy levels in France rose
in the middle of the year and now stand at 10.6% (30 June 2013:
9.3%). We expect this to fall modestly by the end of the year,
though occupiers are cautious about making new commitments in the
current economic climate.
GERMANY - The German economy continues to show superior strength
to any other major Eurozone country. The IFO business confidence
indicator rose for each of the five months to September before
falling marginally in October, and employment levels are at an
all-time high. Bank debt availability and pricing are noticeably
improving, and are the most attractive in all of our regions.
We have seen an increase in activity and enquiries, especially
in Berlin and Munich, where prime rents are growing, and our
vacancy rate has fallen to 3.8% (30 June 2013: 4.2%). Since 30 June
we have let 5,193 sq m and taken back 255 sq m.
SWEDEN - Swedish GDP growth is expected to rise to 1.15% in
2013, with unemployment relatively stable at 7.5%.
Occupancy of the Group's only directly held property in Sweden,
Vänerparken, to the north of Gothenburg, has remained unchanged
with a vacancy of 1.7% by rental value and negotiations are under
way regarding certain lease renewals due in 2015.
FINANCE - Core profit has continued to be resilient, with stable
net rental income, high rent collection rates, tightly controlled
costs, and a continuing low cost of debt of 3.62% (30 June 2013:
3.55%).
Bank debt has continued to be more available in recent months,
with new entrants into the market and lower margins across all our
regions. The Group has 57 loans from 23 lenders, and two unsecured
corporate bonds; none of the loan covenants is in breach and none
of the debt has been securitised. We are exploring a number of
options for financing the Neo acquisition, and the Group currently
has cash and available undrawn facilities in excess of GBP75
million.
Most of the corporate bond portfolio, which was valued at
GBP88.9 million at 30 June 2013, was sold in August to raise part
of the consideration for Neo portfolio acquisition. The bonds were
sold in less than a week without adversely moving market prices.
The Group has invested in corporate bonds since late 2008, which
has proved to be a successful strategy to increase the return on
cash; in the five years since our initial investments, the
corporate bond portfolio generated a return on cost of 88.1%, or
13.5% per annum compound.
In September, the Stockholm-listed property company Catena AB,
in which the Group held a 29.99% interest, issued shares as payment
for a large, earnings-enhancing property portfolio acquisition,
reducing the Group's interest to 13.8% of the enlarged share
capital. Consequently, Catena ceased to be an associate of the
Group, and became an available-for-sale asset to be carried at fair
value by reference to Catena's share price. This, together with a
20.8% gain in the Catena share price following the acquisition,
added 35 pence per share to the Company's NAV.
After a period of relative weakness in the first half of 2013,
sterling strengthened in the third quarter of 2013 by 2.3% against
the euro, in which half of our business is conducted, and by 2.1%
against the Swedish krona. The effect has been a reduction in EPRA
net asset value of some 12 pence per share.
In the latest tender offer, all of the shares available were
cancelled by the Company on 25 September resulting in a
distribution of GBP5.0 million to shareholders and leaving
42,353,790 shares in circulation.
Executive Chairman of CLS, Sten Mortstedt, commented:
"Recent signs of improvement in the UK economy together with an
encouraging development in the property sector have strengthened
our opinion that now is a good time to buy UK property.
"The recent Neo portfolio acquisition is the largest transaction
the Group has made in many years and shows our ability and capacity
to move quickly and opportunistically when the time is right.
"The Group's core activities are performing well, debt costs
remain low and strong progress is being made on pre-letting our
development programme.
"With a strong balance sheet and a large part of our rental
income secured by government occupiers, we are well positioned to
meet future opportunities and challenges with confidence. Our solid
financial resources, together with our opportunistic approach, will
enable us continuously to seek opportunities to add value for our
shareholders."
-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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