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A diversified approachCLS Holdings plc
Full Year Results 2018
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.
Contents
Overview
01
Property14
06 21Appendices
24
Fredrik Widlund – CEO
John Whiteley – CFO
Simon Wigzell – Head of Group Property
Financials Markets and Summary
Overview
CLS Holdings plc Full Year Results 2018 | 01
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%
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
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
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
Financials
CLS Holdings plc Full Year Results 2018 | 06
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
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)
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
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
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
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
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
Property
CLS Holdings plc Full Year Results 2018 | 14
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%)
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
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%
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
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
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
Markets & Summary
CLS Holdings plc Full Year Results 2018 | 21
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
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)
Appendices
CLS Holdings plc Full Year Results 2018 | 24
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%
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
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
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
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
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)
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
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