A diversified approach - CLS Holdings/media/Files/C/CLS... · Single let tenant vacated January...

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A diversified approach CLS Holdings plc Full Year Results 2018

Transcript of A diversified approach - CLS Holdings/media/Files/C/CLS... · Single let tenant vacated January...

Page 1: A diversified approach - CLS Holdings/media/Files/C/CLS... · Single let tenant vacated January 2017 and valued at €20m Refurbished 176,540 sq ft during 2017-2018 Over 90% multi-let

A diversified approachCLS Holdings plc

Full Year Results 2018

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Disclaimer

This document may contain certain ‘forward-looking statements’. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from thoseexpressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of CLS speak onlyas of the date they are made and no representation or warranty is given in relation to them, including as to their completeness oraccuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, the Company does notundertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes inevents, conditions or circumstances on which any such statement is based. Information contained in this document relating to theCompany or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

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Contents

Overview

01

Property14

06 21Appendices

24

Fredrik Widlund – CEO

John Whiteley – CFO

Simon Wigzell – Head of Group Property

Financials Markets and Summary

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Overview

CLS Holdings plc Full Year Results 2018 | 01

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Continued growth through diversificationOverview

● Rental income increased by 9.9% to £103.0m(31 Dec 2017: £93.7m); like-for-like up 1.0%

● Valuations up 3.7% led by Germany;total portfolio value of over £1.9bn

● EPRA NAV up 8.5% to 309.8 pence per share (31 Dec 2017: 285.6p1)

● Vacancy driven down to 3.8% (31 Dec 2017: 5.8%)

● EPRA EPS up 4.0% to 13.1p (31 Dec 2017: 12.6p1)

● Recycled capital through sales £49m, acquisitions £70m and capex £18m

● Delivering on capex programme, over 200,000 sq ft of recently developed/refurbished space has now been let on long leases

● Proposed final dividend up to 4.7p per share, full year 6.9p up 8.7%

CLS Holdings plc Full Year Results 2018 | 021 Restated to exclude discontinued operations

PROPERTY VALUE BY GEOGRAPHY

UK (£982.3m) 51%

Germany (£629.4m) 33%

France (£308.1m) 16%

£1.9bn

177.4

208.3

245.6

285.6 309.8

2014 2015 2016 2017 2018

EPRA NAV (pence)

309.8pUp 8.5%

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Strong portfolio growth

UK

● Valuation uplift of 0.5%, London up 0.8%

● ERVs1 down 0.6%, NIY 5.6%, unchanged

● Vacancy down to 4.0% (31 Dec 2017: 5.5%)

Germany

● Valuation uplift of 9.3% in local currency

● ERVs1 up 5.0%; NIY 5.4%, unchanged

● Vacancy down to 4.2% (31 Dec 2017: 7.1%)

France

● Valuation uplift of 3.8% in local currency

● ERVs1 down 0.3%; NIY 5.3%, unchanged

● Vacancy down to 2.3% (31 Dec 2017: 4.4%)

1 Like-for-like

Valuations up 3.7%, vacancies down

VALUATION UPLIFT

£67.9mDriven by Germany

CLS Holdings plc Full Year Results 2018 | 03

3.1% 2.9%

5.8%

3.8%

2015 2016 2017 2018

Group KPI 5.0%

VACANCY

2016 2017 2018

UK France Germany

+£38.6m

+£96.8m

+£67.9m

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Create value, reinvest for the future

CLS Holdings plc Full Year Results 2018 | 04

Strategy

We acquire the right properties…

…we secure the right finance…

…we deliver value through active

management and cost control

We reward shareholders, customers and

employees

● Distribute half of our EPRA earnings and reinvest remaining

● Our tenants are our customers, we understand their needs

● Reward employees for their work and loyalty

● Invest in offices in UK, Germany and France

● Non-prime, good transport links, larger European cities

● Multi-let to spread risk

● Bank loans to SPVs, non-recourse

● Primarily fixed rate

● Some portfolio loans, with flexibility

● Up to 7 year terms from 26 lenders

● In-house asset and property management

● Invest to improve our assets

● Effective cost control through efficiencies and revenue maintenance

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Sales

● Sold 11 properties during 2018 - £49m (NIY 5.9%)

− UK - 8 properties - £39m

− Germany - 2 properties - £8m

− France - 1 property - £2m

● Disposal of First Camp during Q1 2019 - £29m

Acquisitions

● Disciplined and opportunistic approach

● Acquired 2 properties in 2018 - £70m (NIY 6.4%, RIY 7.4%)

− Uxbridge acquired in March 2018 - £51m

− Hammersmith acquired in April 2018 - £16m

− Other acquisitions - £3m

● Exchanged on 2 properties after year end

− Lille exchanged December 2018 - £10m

− Aldgate exchanged February 2019 - £54m

CLS Holdings plc Full Year Results 2018 | 05

Introduction £1.0b

Analyse 50%

Tech DD 16%

Bid 18%

Buy£79m

Analyse 50%

Bid 18%

Considered £4bn

Tech DD £200m

Analysed £1bn

Buy£79m

2018 SALES AND ACQUISITIONS VOLUME (£m)

Acquisitions and sales

Continued portfolio repositioning

HARMAN HOUSE (UXBRIDGE)

11 properties £49m

2 properties£70m

Sales Acquisitions

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Financials

CLS Holdings plc Full Year Results 2018 | 06

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EPRA NAV

309.8pUp 8.5%

(31 Dec 2017: 285.6p1)

EPRA EPS

13.1pUp 4.0%

(2017: 12.6p1)

Total Accounting Return

10.8% (2017: 18.8%)

Weighted Average Cost of Debt

2.43%Down 8 bps

(31 Dec 2017: 2.51%)

Strong Interest Cover

3.8x (2017: 3.9x1)

Final Dividend

4.7pUp 8.7%

Full year 6.9p (2017: 6.35p)

Delivering growth with low-cost financingFinancial highlights

CLS Holdings plc Full Year Results 2018 | 07

3.643.40

2.912.51 2.43

2014 2015 2016 2017 2018

COST OF DEBT (%)

Down 8 bps

Up 8.7%

5.5 5.7 7.2 8.4 9.0

10.413.4

16.317.5

19.1

2014 2015 2016 2017 2018

25.923.5

19.115.9

DISTRIBUTIONS (£m)

1 Restated to exclude discontinued operations

1

7.7 8.5

12.3 12.6 13.1

2014 2015 2016 2017 2018

EPRA EPS (pence)

Up 3.9%

28.1

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285.6

309.8

13.1

15.6

5.5

(1.3)

(6.5)(2.2)

At 1January

2018

EPRA earnings Propertyvaluation

Catenavaluation

Other Dividends Discontinuedoperations

At 31December

2018

Driven by earnings and fair value upliftsMovement in EPRA NAV

CLS Holdings plc Full Year Results 2018 | 08

+8.5%

MOVEMENT IN EPRA NAV (pence per share)

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Enhanced earningsIncrease in EPRA EPS

CLS Holdings plc Full Year Results 2018 | 09

MOVEMENT IN EPRA EPS (pence per share)

12.6113.1

(0.5)

(1.0)(0.2) (0.1)

2.3

2017 Netrental income

Othernet income

Expenses Netfinance costs

Other 2018

+4.0%

1 Restated to exclude discontinued operations

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Net acquisitions and fair value upliftsIncrease in property portfolio

CLS Holdings plc Full Year Results 2018 | 10

31 December2017

Disposals Acquisitions Capex Valuation uplift FX 31 December2018

68.211.6

18.070.0

1,919.8

1,798.3

(46.3)

MOVEMENT IN PROPERTY PORTFOLIO1 (£m)

+6.8%

1 Comprises investment property, properties held for sale and hotel

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Generating cash for reinvestment in the businessMovement in liquid resources

CLS Holdings plc Full Year Results 2018 | 11

MOVEMENT IN LIQUID RESOURCES (£m)

65.530.3

140.5

48.040.9

22.8

100.3

(26.5)

(70.9)(15.8)

(68.6) (5.3)

At 1 January2018

Fromoperations

Dividends Sales Other netnew loans

Acquisitions Capex Retail bondredeemed

Other At 31December

2018

206.0

130.6

■ Cash ■ Corporate Bonds

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Actively managing our debt

● 2018 financing, locked in more fixed rates

Refinanced £137.7m at 2.16%

Weighted average duration 5.8 years

Including £92.0m fixed at 2.20%

● Repaid £158.6m costing 3.26%

Including redeemed £65.0m 5.50% unsecured bond

Reduced cost of debt by 21 bps

Accretive to eps by 0.3p in 2019

● Average unexpired term at 31 December 2018: 3.5 years

Fixed debt (79%): 3.8 years at 2.41%

Floating debt (21%): 2.2 years at 2.50%

CLS Holdings plc Full Year Results 2018 | 12

Debt transactions

DEBT MATURITY (£m)

UK Germany France Total

Gross debt (£m) 381.9 307.8 152.6 842.3

Number of loans 17 17 16 50

Gearing 26.6% 47.2% 47.5% 36.7%

Cost of debt 3.56% 1.44% 1.60% 2.43%

Years to maturity 2.9 3.8 4.2 3.5

0

50

100

150

200

250

2019 2020 2021 2022 2023 2024 2025

GBP EUR

DEBT PROFILE

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Weighted Average Cost of Debt

2.43% (31 Dec 2017: 2.51%)

Interest Cover

3.8x (2017: 3.9x1)

Fixed Rate Debt

79% (31 Dec 2017: 74%)(31 Dec 2016: 63%)

Balance Sheet LTV

36.7% (31 Dec 2017: 36.9%)

Unencumbered Properties

£284m (31 Dec 2017: £247m)

Low cost, well-spread debtDebt position

CLS Holdings plc Full Year Results 2018 | 13

3.3 3.23.4

3.9 3.8

2014 2015 2016 2017 2018

INTEREST COVER (TIMES)

3.8x

DEBT PROFILE31 Dec 2018

Fixed rate (79%)

Floating rate (Capped) (3%)

Floating rate (Unhedged)(18%)

1 Restated to exclude discontinued operations

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Property

CLS Holdings plc Full Year Results 2018 | 14

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CLS Holdings plc Full Year Results 2018 | 15

Asset management

TOP 15 TENANTS (37% of contracted rent)

As at 31 December 2018

CONTRACTED RENT (£109.6m)

Resilient tenant base

Government (28% by rent)

Major corporates (29%)

Other (43%)

1. First Secretary of State (UK)2. National Crime Agency (UK)3. Trillium (Prime) Property (UK)4. Roehampton University (UK)5. City of Bochum (Germany)6. BAE Systems (UK)7. General Mills (UK)8. Kaufland (Germany)9. Honda Motors (UK)10. COLT (France)

11. Bosch (Germany)12. Epoka (France)13. Dr Holne (Germany)14. Materna (Germany)15. Volksbank (Germany)

689Tenants

£23.14

£11.41

£19.41

UK Germany France

AFFORDABLE RENTS (per sq ft)

PROPERTY USE BY REVENUE

Office (89%)

Student (5%)

Hotel (4%)

Food retail (2%)

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Leasing deals

176 deals, secured £16.2m of annual rent, 2.2% above ERV(2017: 173 deals, secured £19.4m of annual rent)

56% lease extension(2017: 66%)

40% new leases (2017: 26%)

4% rent review(2017: 8%)

WAULT

5.3 years(31 Dec 2017: 5.4 years)

Securing income whilst adding valueActive management

CLS Holdings plc Full Year Results 2018 | 16

LEASING DEALS

UK (£5.7m)

Germany (£7.2m)

France (£3.3m)

£16.2mAnnual rent

5.5%

7.1%

4.4%

5.8%

4.0% 4.2%

2.3%

3.8%

UK Germany France Group

2017

2018

VACANCY RATE

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Actively adding value

East Gate, Munich

● Single let tenant vacated January 2017 and valued at €20m

● Refurbished 176,540 sq ft during 2017-2018

● Over 90% multi-let by year end

● YOY valuation uplift net of capex 20%, planned sale

Ateliers Victoires, Paris

● Redevelopment of 21,500 sq ft completed Q3 2018

● Fully let to a single tenant on a long lease during Q4 2018

● YOY valuation uplift net of capex 40%

● Planned sale

CLS Holdings plc Full Year Results 2018 | 17

Capital expenditure programme

One Elmfield Park, Bromley

● Received vacant possession during Q1 2017

● Refurbishment of 24,700 sq ft of space completed 2017

● Fully let to a single tenant on a long lease during Q3 2018

● YOY valuation uplift net of capex 23%

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Listening and responding to our customers needs

CLS Holdings plc Full Year Results 2018 | 18

Market trends

GREAT WEST HOUSE (BRENTFORD)

ATELIERS VICTOIRES (PARIS)

Customer needs

Lease flexibility

Accurate service charge budgeting

and total transparency

Expansion of annual customer

survey

Tailored building designs and work

programme

Introduce ‘London Spec’ to

France and Germany ahead

of the market

Sustainability initiatives

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Carbon CO2 2018: Down 15.9%(Target reduction 5.0%)

Renewable energy

Generated 546,000 kWh of energy (Enough to power145 homes)

EPC regulation UK portfolio100% compliant

Recycling 2018: 71%(Target 70%)

Sustainability at CLSMarket trends

CLS Holdings plc Full Year Results 2018 | 19

Improved by 13% to a score of 63 out of 1002 x Green Star Rated

Awarded a C rating on the international ratings for carbon disclosure

Won a Gold level Green Apple Award for recycling

INTERNALLY MEASURED EXTERNALLY AWARDED

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Maximising value from the existing portfolio

Vauxhall Walk, SE11 London

● Existing building 4,465 sq ft and ERV of £90k pa

● Potential 18,000 sq ft office and ERV £900k pa

● Planning application submission Q2 2019

● Potential delivery 2021

St Cloud Gate, Maidenhead

● Existing building 10,124 sq ft and ERV of £250k pa

● Potential 80,000 sq ft office and £3m pa

● Planning application submission Q2 2019

● Potential delivery 2022

CLS Holdings plc Full Year Results 2018 | 20

Medium-term office developments

Vor dem Lauch 14, Stuttgart

● Existing building 93,500 sq ft and ERV of €1.1m pa

● Potential 150,000 sq ft office and ERV €2.7m pa

● Planning application submission Q2 2019

● Potential delivery 2022

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Markets & Summary

CLS Holdings plc Full Year Results 2018 | 21

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Country snapshots

United Kingdom● The UK office investment markets

have shown resilience

● The UK investment market has the second largest level of investment activity in ten years

● Pragmatic occupational markets with landlords focusing more on occupancy than rental growth

● Whilst forecasting is difficult, we believe the current market sentiment, especially in Greater London, will continue to offer an attractive investment case

Germany● German economy slowed down in H2

2018 but the office investment markets remain resilient

● The German investment market has the highest ever level of investment activity

● Low vacancy and limited supply has driven rental and capital growth

● The supply in the office market is unlikely to increase materially in the near-term with over half of future offices having been pre-let

CLS Holdings plc Full Year Results 2018 | 22

Markets

France● Whilst feeling the effects of street

protests, consumer spending and political measures are forecast to have a positive impact on growth in 2019

● Buoyant investment market across both Paris and the regions

● The occupational market has remained strong, with a vacancy rate in Greater Paris around 5%, in part reflecting historically low levels of supply and pre-lettings of new offices

● Property yields outside Paris have tightened

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Robust and disciplined growth

● Another robust set of results with continued growth

● Benefiting from geographical and tenant diversification and portfolio spread

● Vacancy down in all countries with strong letting pipeline

● Repositioning portfolio towards higher growth and income-producing properties through our acquisition and disposal programme

● With the changing nature of office occupation our existing portfolio offers good value-adding opportunities through refurbishments and medium-term developments

● Our strong balance sheet and substantial liquid resources allow us to take advantage of opportunities as they arise

● Group well positioned in the three largest economies in Europe to continue to deliver long-term shareholder value

CLS Holdings plc Full Year Results 2018 | 23

Summary and outlook

MAXIMILLIAN FORUM (MUNICH)

PRESCOT STREET (E1 LONDON)

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Appendices

CLS Holdings plc Full Year Results 2018 | 24

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CLS Holdings plc at 31 December 2018About us

● CLS is a FTSE 250 property investment company with a £1.9bn property portfolio in London and the South East, and the major cities in Germany and France

● We acquire the right properties

Invest in offices in UK, Germany and France

Non-prime, good transport links, key European cities

Multi-let to spread risk

● We secure the right finance

Bank loans to SPVs, non-recourse

Primarily fixed rate

Some portfolio loans, with flexibility

Up to 7 year terms from 25 banks

● We deliver value through active management and cost control

In-house asset and property management

Invest to improve our assets

Effective cost control through efficiencies and revenue maintenance

● We reward shareholders, customers and employees

Distribute approximately half of our EPRA earnings and reinvest the remaining

Our tenants are our customers, we understand their needs

Reward employees for their work and loyalty

CLS Holdings plc Full Year Results 2018 | 25

TOP 5 SHAREHOLDERS

The Sten and Karin Mortstedt Family & Charity Trust 51.4%

Fidelity Worldwide Investments 9.6%

Bengt Mortstedt 6.5%

Bank of Montreal 6.1%

Invesco 5.0%

PROPERTY VALUE BY GEOGRAPHY

UK (£982.5m) 51%

Germany (£629.4 m) 33%

France (£308.1m) 16%

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United Kingdom

VALUE OF INVESTMENTPROPERTIES

£954.9mLETTABLE SPACE

2.6m sq ftPERCENTAGE OF GROUP’S

PROPERTY INTERESTS

51%VACANCY RATE

4.0%GOVERNMENT AND

MAJOR CORPORATES

68.3%VALUE OF INVESTMENT PROPERTIES IN LONDON

£877.2m

CLS Holdings plc Full Year Results 2018 | 26

Business Review

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Germany

VALUE OF INVESTMENTPROPERTIES

£629.4mLETTABLE SPACE

3.2m sq ftPERCENTAGE OF GROUP’S

PROPERTY INTERESTS

33%VACANCY RATE

4.2%GOVERNMENT AND

MAJOR CORPORATES

40.8%

CLS Holdings plc Full Year Results 2018 | 27

Business Review

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France

VALUE OF INVESTMENTPROPERTIES

£308.1mLETTABLE SPACE

0.9m sq ftPERCENTAGE OF GROUP’S

PROPERTY INTERESTS

16%VACANCY RATE

2.3%GOVERNMENT AND

MAJOR CORPORATES

49.4%

CLS Holdings plc Full Year Results 2018 | 28

Business Review

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CLS Holdings plc Full Year Results 2018 | 29

Portfolio statistics

Group statistics

At 31 December 2018

Valuation4

(£m)

Valuation in local currency

(%)EPRA NIY1

(%)

EPRA topped-up

NIY2

(%)

Vacancy by rent(%)

Weighted average

unexpired lease term

(years)

ERV of contracted

rent(£m)

Contracted rent(£m)

Contracted rent

(£/sq ft)

UK 954.9 + 0.5% 5.2% 5.6% 4.0% 5.4 59.4 57.3 23.14

Germany 629.4 + 9.3% 5.1% 5.4% 4.2% 4.9 37.4 35.3 11.41

France 308.1 + 3.8% 4.7% 5.3% 2.3% 5.4 16.9 17.0 19.41

Total portfolio 1,892.43 + 3.7% 5.1% 5.5% 3.8% 5.3 113.7 109.6 17.00

1. Excludes developments; calculations based on passing rents2. Excludes developments; calculations based on contracted rents3. Total property value: £1,919.8m (including hotel and properties held for sale)4. Valuations performed by JLL in France and Cushman & Wakefield in the UK and Germany

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CLS Holdings plc Full Year Results 2018 | 30

Portfolio statistics

4.34.8

2.6

4.2

5.44.9

5.4 5.3

0.0

5.0

UK Germany France TotalTo first break To end of lease

-

10.00

20.00

Mil

lio

ns

Rent expiring ERV of rent expiring

AVERAGE UNEXPIRED LEASE TERM

EFFECT OF RENT EXPIRIES (£m)

Group statistics

Government (30%)

Business services (23%)

IT (7%)

Manufacturing (13%)

Finance (5%)

Medical services & healthcare (3%)

Education & training (1%)

Media and publishing (2%)

Telecomms (1%)

Charitable (1%)

Other (14%)

OFFICE SECTORS BY REVENUE

EFFECT OF RENT EXPIRIES (£m)

Index-linked rents (49% by rent)

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Movement in rental income

CLS Holdings plc Full Year Results 2018 | 31

MOVEMENT IN RENTAL INCOME (£m)

93.7

11.4

(4.6)

1.80.7

2017 Acquisitions Disposals New Printing HouseSquare

Other 2018

103.0

Driven by acquisitions

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Holdings at 31 December 2018

Banking Insurance Travel & tourism

Telecoms & IT

Energy & resources

Other Total

Value £11.8m £2.3m £3.3m £7.3m £1.4m £4.2m £30.3m

Running yield

8.0% 6.9% 7.5% 8.1% 10.1% 4.2% 7.9%

Issuers RBS

HSBC

Lloyds

Barclays

Unicredit

Crédit Agricole

Société Generale

Standard Chartered

PGH Capital

Brit Insurance

Stena

Hertz

Dell

Seagate

Centurylink

Telecom Italia

Xerox

Transocean L Brands

Stora Enso

Liberty Interactive

CLS Holdings plc Full Year Results 2018 | 32

Corporate bond portfolio

Total portfolio return -0.9%

Benchmark return iShares Euro High Yield index -3.4%

iShares iBoxxUSD High Yield Corporate Bond ETF -2.1%

Reason for performance

Overall negative returns for 2018, but higher than benchmark returns due to positive currency effect following U.S-dollar appreciation

Diversification 21 bond issues in large-cap companies

Average duration 11.4 years