CLS HOLDINGS PLC ANNUAL RESULTS 2016/media/Files/C/CLS... · At 1 Jan 2016 Underlying profit...

CLS HOLDINGS PLCANNUAL RESULTS 2016

CONTENTS

2

OVERVIEWFredrik WidlundChief Executive

FINANCIALSJohn WhiteleyChief Financial Officer

PROPERTYSimon WigzellHead of Group Property

MARKETS &SUMMARY

Fredrik WidlundChief Executive

OVERVIEWA strong twelve months

Strong results

EPRA NAV up 17.9% to 2,456p

EPRA EPS up 45% to 123.0p

High yielding and well-let portfolio

Record volume of leasing activity

Lowest ever vacancy rate 2.9%

NIY 270 bps over cost of debt

Active recycling of assets

Disposal of 4 properties for £85.5m at NIY 5.6%

Acquired 4 properties for £45.7m at NIY 6.9%

Since year end, acquired UK portfolio for £31.4m

at NIY 8.0%

Distributions

Change from buy-back to dividend

23% increase to 57.5p full year

3

France£258m

16%Germany£363m23%Rest of UK

£95m6%

Property Portfolio

31 December 2016

£1.575bn (+2.7%)

CLS HOLDINGS PLC ANNUAL RESULTS 2016

London£859m55%

OVERVIEWBenefiting from geographical diversification

UK: Resilient

Valuation uplift 1.6%

Underpinned by long-term government income(51% of UK rental income)

Low blended vacancy rate at 3.3%

Germany: Strong performance

Valuation uplift 3.8%1

Strong tenant demand, vacancies down to 1.7%

Leasing 5.5% ahead of ERV

France: Stabilising

Valuation uplift 4.8%1 driven by yield shift

Robust leasing performance, vacancy down to 2.9%(2015: 3.9%)

Restricted supply

1. Local currency

UK58%

Germany25%

France17%

Contracted Rental Income

£91m pa

4CLS HOLDINGS PLC ANNUAL RESULTS 2016

CONTENTS

5




MARKETS &SUMMARY


FINANCIALSA year of excellent progress

EPRA NAV up 17.9% to 2,456p (31 Dec 2015: 2,083p)

EPRA EPS up 45.2% to 123.0p (2015: 84.7p)

Portfolio value up 2.7%

Weighted Av. Cost of Debt down to 2.91%(31 Dec 2015: 3.40%)

Strong interest cover at 3.4x (2015: 3.2x)

Strong cash from operating activities £40.1m

23% increase in annual distributions to shareholders,including proposed dividend of 40p per share


1,000

1,500

2,000

2,500

2012 2013 2014 2015 2016

EPRA NAV

50

75

100

125

2012 2013 2014 2015 2016

EPRA EPS

500

750

1000

1250

1500

2012 2013 2014 2015 2016

Property Portfolio£m

p

p

+12.2%

+5.7%

2,083

2,456

131

97 1511

119

2,000

2,250

2,500

At 1 Jan 2016 Underlying profit Property valuation Other valuations Share buy-backs FX At 31 Dec 2016

Total Uplift +17.9%

MOVEMENT IN EPRA NAVGrowth driven by cash flow, revaluations and FX uplifts

Pence


At1 Jan 2016

Underlyingprofit

Propertyvaluations

Othervaluations

Sharebuy-backs

FX At31 Dec 2016

84.7

123.0

15.5

7.6

-1.0

0.2

4.4

11.6

60

70

80

90

100

110

120

130

2015 Rental Income Other Income Financ Income Tax Minority Interest FX 2016

MOVEMENT IN EPRA EPSBenefiting from growth of the business and from FX

Pence

8

2015 RentalIncome

Other NetIncome

Net FinanceCosts

Tax MinorityInterest

FX 2016


Total Uplift +45.2%

+31.5%

+13.7%

1,366.8

1,536.637.5

38.1

58.6

-70.9

45.720.7

38.6

77.7

1,250

1,350

1,450

1,550

1,650

1 Jan 2016 Disposals Additions Capex Valuation Uplift FX 31 Dec 2016

MOVEMENT IN PROPERTY PORTFOLIORecycling capital and good underlying performance

£m

9

1 Jan2016

Disposals Acquisitions Capex Valuation Uplift FX 31 Dec2016

1,462.9

1,574.7


Held for sale

PPE

Investment Properties

DEBT POSITIONLocking in fixed rates; reducing the cost of debt

Locked in more fixed rates

Refinanced £177m at 1.90%,incl. £119m fixed at 1.75%

Cost of debt reduced to 2.91%(31 Dec 2015: 3.40%)

Interest cover strong at 3.4x (2015: 3.2x)

Diversified Loan Book

58 loans

24 banks

Av. maturity 5.0 years

Property LTV 49.8% (31 Dec 2015: 48.1%)

0

40

80

120

160

2017 2018 2019 2020 2021 2022 2023 2024 2025

Debt MaturityAt 31 December 2016

10

ExpiriesAmortisation

Net Debt (£m) 31 Dec 16 31 Dec 15

Borrowings 849.9 795.5

Cash (99.0) (100.7)

Corporate bonds (65.1) (73.4)

685.8 621.4

£m


63%

5%

32%

Debt StructureAt 31 Dec 2016

Av. cost of debt 2.91%

FixedCappedUnhedged

DISTRIBUTIONS BY DIVIDEND

Track Record of Progressive Distributions to Shareholders

First half £7.2m = 17.5p per share as buy-back

Full year £16.3m = 40.0p per share as dividend

Total £23.5m = 57.5p per share (2015: £19.1m); an uplift of 23%

Move to Dividend

Shareholder feedback

Greater transparency; more easily comparable with other listed property companies

Continue with twice yearly distribution (one third Sept; two thirds April)

Dividend Policy

Maintain sufficient cash to grow the business whilst providing cash returns to shareholders

Pay a progressive dividend fully covered by EPRA earnings

Share Sub-Division Existing ordinary shares of 25p each into 10 new ordinary shares of 2.5 pence each


CONTENTS

12




MARKETS &SUMMARY


RESILIENT TENANT BASEDiversified, secure income

13

115 properties & 525 customers

Total contracted rent £91m per annum

50% index-linked

36% of rents paid by governments

31% by major corporates

Top fifteen tenants

– Represent 43.7% of contracted rent

– Strong covenants

– No tenant representing more than10% of Group contracted rent

Average rent very affordableat £16 per sq ft

6.2 years WAULT; 4.7 years to first break

Government36%

BusinessServices 18%

Manufact. 8%

IT & Tech. 7%

Student Accom.5%

Financial 2%

Others 24%

Tenants by Sector

Contracted rent£91m p.a.


ACTIVE ASSET MANAGEMENTOver 600,000 sq ft of lease transactions


Record volume of leasing activity: 139 transactions

UK

114,237 sq ft; £3.0m p.a. rent; 0.6% above ERV

Great West House, Brentford 26,000 sq ft1

Westminster Tower, Lambeth SE1 12,200 sq ft1

Quayside, London SW6 9,700 sq ft2

Pascal Place, Leatherhead 7,600 sq ft1

CI Tower, New Malden 15,000 sq ft2

Germany

232,789 sq ft; £ 2.6m p.a. rent; 5.5% above ERV

Bismarckallee, Freiburg 75,800 sq ft3

Tangentis, Munich 30,200 sq ft3

Adlershofer Tor, Berlin 23,100 sq ft1

Fangdickstrasse, Hamburg 35,800 sq ft3

Merkurring, Hamburg 46,200 sq ft3

France

287,321sq ft; £3.9m p.a. rent; at 1.6% above ERV

Park Avenue, Lyon 45,700 sq ft1

Gennevilliers, Paris 33,600 sq ft2

Debussy, Paris 23,500 sq ft2

Malakoff, Paris 116,000 sq ft2

1. New leases 2. Lease renewals3. Lease extensions

H1 2016

£8.3m – Rue Eugene Rupert, Luxembourg

£50.8m – Vänerparken, Sweden

H2 2016

£7.7m – Le Chorus, Antibes

£18.7m – Chancel House, Neasden

SALES, ACQUISITIONS & CAPEXInvesting in our core markets

15

H1 2016

£6.4m – Pascal and Cassini Court, Leatherhead

H2 2016

£4.7m - Hamburg completed

£34.6m – Parsevalstrasse, Düsseldorf completed

Q1 2017

£31.4m – UK portfolio of five buildings

£85.5m of sales at 5.6% NIY

£77.1m of acquisitions at 7.3% NIY

Developments Capex

£21m total capex, majority at Spring Mews,Vauxhall Square & Ateliers Victoires, Paris

CLS HOLDINGS PLC ANNUAL RESULTS 2016 15

PROPERTY PORTFOLIO1

Low vacancies, affordable rents and high NIY

At 31 December2016

MarketValue2

£mValuation3

%

EPRANet Initial

Yield4

%

VacancyBy Rent

%WAULT(years)

ERV ofContracted

Rent£m

ContractedRent

£m

ContractedRent

£/sq ft(£/sqm)

London 859.0 2.5% 4.7% 4.0% 6.1 51.1 41.523.56

(254)

Rest of UK 94.7 6.1% 11.9% 0.9% 5.4 8.6 11.313.18

(142)

Germany 362.6 3.8% 5.8% 1.7% 7.2 23.3 22.510.20

(110)

France 258.4 4.8% 5.6% 2.9% 5.7 16.0 15.917.96

(193)

Total portfolio 1,574.7 2.7% 5.6% 2.9% 6.2 99.0 91.215.96

(172)

16

1 Data relates to investment properties unless otherwise stated2 Includes hotel and owner-occupied property3 In local currency4 Excludes developments


CURRENT DEVELOPMENTSFurther progress; c.£25m capex under way

Spring Mews (Phase 2), Vauxhall

9 residential style, high-end student flats

9,181 sq ft of offices

Estimated NDV £11.4m, build costs £8.6m

On site; completion Q4 2017

Vauxhall Square Hostel

Relocate 50 bedroom hostel

Build cost £9.5m, Q3 2016 – Q1 2018

Ateliers Victoire (Petits Champs), Paris

Prime Paris, 21,500 sq ft office refurbishment

Estimated value €24m; build cost €8.2m

On site; completion Q1 2018


VAUXHALL SQUAREGood progress

18

Enhanced planning permission Feb 2016

Cap Gemini vacated Dec 2016

Student Site (sold 2015) under construction

Hostel construction started

PhaseOne

PhaseTwo

Next Steps

Minor planning enhancements to increase site value

Site investigation and enabling works

Securing short-term leases on vacant space

Delivery options

Student Site


LONG-TERM VALUE-ADD OPPORTUNITIES

Property CountryExisting

Size (sq m)Potential

Time FrameOpportunity

Vauxhall Square, London SW8 UK 15,389 2017 - 2023 Mixed-use development

St Cloud Gate, Maidenhead UK 941 2018 - 2020 Office extension / redevelopment

Ty Cambria, Cardiff UK 3,135 2019 - 2020 Mixed-use development

Quayside, London SW6 UK 3,064 2020 - 2022 Residential development site

Westminster Tower, London SW1 UK 4,457 2020 - 2022 Residential / office development

Le Quatuor, Paris France 2,459 2020 - 2022 Office development with land assembly

Atholl House, Aberdeen UK 5,058 2021 - 2023 Mixed-use development

Bismarckallee, Freiburg Germany 7,471 2021 - 2023 Major office refurb /redevelopment

Schanzenstrasse, Dusseldorf Germany 3,095 2024 - 2025 Residential development

New Printing House, London WC1 UK 26,295 2025 - 2027 Major office refurb / development

Spring Gardens, London SE11 UK 19,964 2026 - 2028 Mixed-use development

Malakoff, Paris France 10,778 2028 - 2030 Mixed-use development

Unicorn House, Bromley UK 5,456 2028 - 2030 Major office refurb / development

Armstrong Road, Acton UK 4,039 2028 - 2030 Residential development

St Cross House, Southampton UK 3,993 2028 - 2030 Mixed-use development

CONTENTS

20




MARKETS &SUMMARY


MARKET UPDATEUnited Kingdom

Overview

Economy stronger than anticipated but lingering uncertainty over Brexit impacting sentiment

Recent UK Manufacturing PMI well above expansionary threshold; business confidence strong

Rental markets for Greater London resilient but we expect slower rental growth

Very few speculative developments in London, outside of the City

Bank debt available but preference for medium-larger transactions

Overseas buyers remain active in London; c.75% of total office volumes in 2016

CLS Response

London and the South East focus

Opportunities for selective office acquisitions

Increased capital recycling out of existing low yielding and/or non-core assets

Longer term development opportunities, well positioned on Vauxhall Square


MARKET UPDATEGermany

Overview

Economy stable and growing; election in September creating minimal uncertainty

– Expanded at fastest pace in five years in 2016

– Momentum expected to continue into 2017

Solid economic performance is positive for tenants and vacancies continuing to fall

Rental growth in larger cities +5% and increasing

More competitive market

– Lack of stock impacting investment volumes

– Growing international investment levels

CLS Response

Leverage attractive investment and financing opportunities for non-prime offices

Focus on growing our portfolio in major cities

Increase weighting in portfolio


MARKET UPDATEFrance

Overview

Political uncertainty; Presidential election in May impacting investor sentiment

Economic challenges; modest economic growth and high levels of unemployment

However, lack of supply in central Paris is supportive; encouraging signs with vacancy in central Parisfalling to 3% and outer suburbs to 6.5%

Robust valuations driven by active domestic investors and lack of supply

CLS Response

Despite signs of improvement, we maintain our cautious approach

Focus is primarily on upgrading existing portfolio

– Classic CLS properties in good locations with good cash flow

– Investing to maintain relationships with tenants and ensure low vacancy rates


STRATEGY

Build on strong,established business model

Active asset management

Geographical diversity

Multi-let properties

Strong tenant covenants

Financial firepower

Strongly cash generative


Focus on core markets

London and South East UK and largercities in Germany and France

Accelerate active recycling of assets

Proactive disposals (low yieldingproperties; non-core assets)

Acquisition (asset management angles;increase average lot size)

Enhance performance throughdevelopment opportunities

SUMMARYStrong performance

SUMMARYStrong performance

2016 Strong Results

EPRA NAV up 17.9% to 2,456p

EPRA EPS up 45% to 123.0p

Strong interest cover at 3.4x

High yielding and well-let portfolio

Record volume of leasing activity

– Over 600,000 sq ft of transactions

Lowest ever vacancy rate 2.9%

NIY 270 bps over cost of debt

Active recycling of assets

Sold 4, acquired 9 properties

£163m of transactions

Distributions

Change from buy-back to dividend

23% increase to 57.5p

Progressive, fully covered25


APPENDICES

26

UK

London

44 properties

£826.6m

1,920,032 sq ft / 178,377 sqm

170 tenants

£41.5m contracted rent

4.0% vacancy

Rest of UK

26 properties

£94.7m

923,015 sq ft / 85,751 sqm

25 tenants


0.9% vacancy


GERMANY

21 properties

£356.9m

2,255,664 sq ft / 209,558 sqm

164 tenants


1.7% vacancy


24 properties

£258.4m

926,148 sq ft / 86,042 sqm

166 tenants


2.9% vacancy

FRANCE


RESILIENT TENANT BASEDiversified, secure income


0.0

5.0

10.0

London Rest ofUK

Germany France Total

To first break To end of lease

0

10

20

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Later

Millio

ns

Rent expiring ERV of rent expiring

0.0

5.0

2006 2008 2010 2012 2014 2016

Group KPI

Average Unexpired Lease Term Vacancy Rate

Effect of Rent Expiries

£m

Years %

85.3

91.3

3.7

1.8

4.3 1.0

-4.8

60

80

100

2015 Acquisitions Developments FX Net otherlettings

Disposals 2016

MOVEMENT IN RENTAL INCOME

£m


2083

2456

77

54 8

89 87 8 3

9821

1850

2100

2350

2600

MOVEMENT IN EPRA NAVH1 v H2 2016

£m


1 Jan2016

Underlying profit Property valuation Other Share Buy-Back FX 31 Dec2016H1 H2 H1 H2 H1 H2 H1 H2 H1 H2

73.4 65.1

100.7

99.0

40.1

-24.8

39.4

-45.7

-41.8 -0.9

19.0 4.7

0

50

100

150

200

250

MOVEMENT IN LIQUID RESOURCESHigh liquidity

£m

33

Cash

Corporate Bonds

164.1

174.1


At 1 Jan2016

Fromoperations

Distributions Sale ofproperties

Propertyacquisitions

Capitalexpenditure

Netdrawdown of

loans

Other Bondrevaluation

At 31 Dec2016

Banks &Financials

Telecoms& IT

Energy &Resources

Travel &Tourism Insurance Other Total

Value £22.4m £13.1m £15.2m £10.8m £1.8m £1.8m £65.1m

RunningYield

7.6% 7.6% 8.9% 7.5% 6.4% 6.5% 7.8%

Issuers Societe Generale

Deutsche Bank

Bank of Ireland

Credit Agricole

Allied Irish

Santander

Unicredit

Barclays

Investec

Lloyds

HSBC

RBS

Western Digital

Telecom Italia

Centurylink

Millicom

Seagate

Dell

Freeport-McMoRan

ArcelorMittal

Transocean

Seadrill

Enel

Air France-KLM

British Airways

Stena

Hertz

SAS

Brit Insurance

PGH Capital

Stora Enso

CORPORATE BOND PORTFOLIOAt 31 December 2016

Total portfolio return 2016: 18.6 % in local currencies.

Benchmark return 2016: 7.9 % iShares Euro HY Corporate Bond ETF.13.4 % iShares iBoxx USD HY Corporate Bond ETF.

Reason for outperformance: Telecoms and Energy & Resources bonds outperformed.

Diversification: 31 bonds issued by large-cap companies

Average Duration: 12.6 years

34

SUSTAINABILITY AT CLS

Achieved 11.4% carbon emission reduction in 2016

Generated 551,000 kWh renewable & low carbon energy(enough to power 275 typical UK homes per year)

Initiated group-wide Sustainability Report

UK portfolio 100% ready for 2018 EPC regulation

Activity guided by CLS’s Sustainability Green Charter

CLS Renewable GenerationGeoMap

Installed systems (6 x Solar PV, 1x CHP)

Planned 2017 installations (9 x Solar PV)

Ground Source Heat Pump 3 installations


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