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CLS HOLDINGS PLC HALF YEAR RESULTS 2016
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  • CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • CONTENTS

    2

    OVERVIEW Fredrik Widlund Chief Executive

    FINANCIALS John Whiteley Chief Financial Officer

    PROPERTY Simon Wigzell Head of Group Property

    MARKETS & SUMMARY

    Fredrik Widlund Chief Executive

  • OVERVIEW A strong six months

    Strong underlying business §  Geographical diversification §  EPRA NAV up 9.6% to 2,282p §  Positive FX High yielding and well let portfolio §  High volume of leasing activity §  Low vacancy rate 3.7% §  NIY 243 bps over cost of debt §  High and stable cash flow

    Increased distribution §  +10% to implied 3.2% dividend yield Opportunistic portfolio management §  Recycling capital through disposals (£80m)

    and acquisitions (£48m) Vauxhall Square §  Enhanced planning, office focus §  Process to select partner or purchaser for residential tower ongoing

    3

    Germany £305m

    20%

    Rest of UK £98m

    7%

    France £250m 17%

    London £847m 56%

    Property Portfolio 30 June 2016 £1.5bn

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • OVERVIEW Benefiting from geographical diversification

    UK (63% of portfolio) §  Valuation - broadly flat §  Underpinned by long-term government income §  Ongoing development and asset management

    opportunities in existing portfolio Germany (20% of portfolio) §  Valuation uplift 1.4%1 §  Strong tenant demand, vacancies down to 2.1% §  Two acquisitions

    France (17% of portfolio) §  Valuation uplift 1.8%1 §  Robust leasing performance §  Non-core disposals

    1. Local currency

    UK 59%

    Germany 23%

    France 18%

    Contracted Rental Income

    £89m pa

    4 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • OVERVIEW Brexit in context

    §  Limited risk of Brexit impact on existing tenants, apart from general economic slowdown

    §  Investment market slowing from uncertainty around Brexit timing and terms

    §  London office property fundamentals remain positive, with supply and demand imbalance

    §  Rental growth likely to continue, albeit at a reduced rate

    §  Sterling weakness and low interest rates support UK real estate

    London remains a world city where CLS will continue to invest

    5 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • CONTENTS

    6

    OVERVIEW Fredrik Widlund Chief Executive

    FINANCIALS John Whiteley Chief Financial Officer

    PROPERTY Simon Wigzell Head of Group Property

    MARKETS & SUMMARY

    Fredrik Widlund Chief Executive

  • FINANCIALS A strong performance

    §  EPRA NAV up 9.6% to 2,282p (31 Dec 2015: 2,083p)

    §  EPRA EPS up 92.1% to 80.5p (2015: 41.9p)

    §  Portfolio value up 5%

    §  Weighted Av. Cost of Debt lowered 13 bps to 3.27% (31 Dec 2015: 3.4%)

    §  Interest cover comfortable at 3.6x (2015: 3.1x)

    §  Strong cash from operating activities £22.2m

    §  10% increase1 in distributions to shareholders with a proposed £7.2m tender buy-back of 1 in 95 at 1,650p per share

    7 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

    1,000

    1,500

    2,000

    2013 2014 2015 H1 2016

    EPRA NAV (p)

    3

    3.4

    3.8

    2013 2014 2015 2016 H1

    Weighted Av Cost of Debt (%)

    3.00

    3.50

    4.00

    2013 2014 2015 2016 H1

    Interest Cover (times)

    1. Based on one-third of distributions for 2015

  • +9.6%

    2,083

    2,282

    77

    98 8 8

    8

    2,000

    2,100

    2,200

    2,300

    1 Jan 2016 Underlying profit FX Revaluation of properties

    Share Buy Back Other revaluation 30 June 2016

    MOVEMENT IN EPRA NAV Growth driven by cash flow and FX uplifts

    Pence

    8 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

    1 Jan 2016 Underlying Profit FX Revaluation of Properties

    Share Buy Back

    Other Revaluations

    30 June 2016

  • +92.1%

    41.9

    80.5

    6.9

    5.7 1.2 2.4 1.7

    1.4

    19.3

    30

    40

    50

    60

    70

    80

    90

    31 Jun 2015 Rental Income Other Income Other Expenses

    Financ Income

    Tax Minority Interest

    FX 31 Jun 2016

    MOVEMENT IN EPRA EPS Benefiting from growth throughout the business and from FX

    Pence

    9

    149, 97, 13

    248,161,40

    183,1,64

    181,211,36

    11,79,134

    H1 2015 Rental Income

    Other Income

    Other Expenses

    Finance Income

    Tax Minority Interest

    FX H1 2016

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • 1,366.8 1,445.9

    37.5

    38.1

    58.6

    15.8

    -49.5

    6.4 11.5 4.3

    64.2

    1,250

    1,350

    1,450

    1,550

    MOVEMENT IN PROPERTY PORTFOLIO Benefiting from strength of Euro

    £m

    10

    1 Jan 2016

    Disposals Additions Capex Valuation Uplift FX 30 June 2016

    1,462.9

    1,499.8

    Held for sale PPE Investment properties

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • DEBT POSITION Taking advantage of market conditions

    §  Sold £47m of bonds in May §  Redeemed SEK300m bond and repaid Vänerparken loan §  H1 refinanced £68.3m at 1.96%;

    since 1 July refinanced £23.6m at 1.73% §  Cost of debt reduced to 3.27% (31 Dec 2015: 3.40%) §  Interest cover high at 3.6x (2015: 3.1x) §  Property LTV 50.6% (31 Dec 2015: 50.0%)

    Fixed 59%

    Capped 6%

    Floating 35%

    -20

    20

    60

    100

    140

    180

    2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

    Debt Maturity At 30 June 2016

    11

    149, 97, 13

    248,161,40

    183,1,64

    181,211,36

    11,79,134

    Credit Approved

    Total Bullet Repayment

    Total Amortisation

    Net Debt (£m) 30 Jun 16 31 Dec 15

    Borrowings 798.7 795.5

    Cash (91.0) (100.7)

    Corporate bonds (39.7) (73.4)

    668.0 621.4

    Debt Structure At 30 June 2016

    £m

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • -

    5

    10

    15

    20

    25

    2011 2012 2013 2014 2015 2016

    Interim Final

    0

    2

    4

    6

    8

    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1

    NIY Cost of Debt

    FOCUS ON CASH Distributions underpinned by financing arbitrage

    Healthy margin of Net Initial Yield (NIY) over cost of debt

    +10.1%

    Increasing shareholder distribution year on year1

    149, 97, 13

    248,161,40

    183,1,64

    181,211,36

    11,79,134

    +7.5% +13.2% +6.4%

    +20.0% +10.0%

    1. Through share buy-back mechanism 12

    5.70% 3.27%

    £m

    %

    +11.3% pa compounded

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • CONTENTS

    13

    OVERVIEW Fredrik Widlund Chief Executive

    FINANCIALS John Whiteley Chief Financial Officer

    PROPERTY Simon Wigzell Head of Group Property

    MARKETS & SUMMARY

    Fredrik Widlund Chief Executive

  • RESILIENT TENANT BASE Diversified, secure income

    14

    115 properties & 545 customers §  Total contracted rent £89m per annum §  37% of rents paid by governments (UK: 52%) §  23% by major corporates §  49% index-linked §  Top UK tenants1, 70% of UK rent roll

    (£36.8m) –  Strong covenants –  No tenant representing more than

    10% of Group contracted rent §  Average rent very affordable

    at £16 per sq ft §  6.1 years WAULT; 4.6 years to first break

    Government 37%

    Business Services 18%

    Manufact. 9%

    IT & Tech. 8%

    Student Accom. 4%

    Medical & healthcare 4%

    Retail, Leisure & Tourism 4%

    Financial 3%

    Education & training 1%

    Media and publishing 1%

    Other 10%

    Tenants by Sector

    1. Rental value in excess of £500,000 pa

    Contracted rent £89m p.a.

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • ACTIVE ASSET MANAGEMENT 284,000 sq ft of lease transactions (H1 2015: 133,000 sq ft)

    15

    High volume of leasing activity §  H1: 56 transactions (UK: 32) §  H2: 18 transactions (UK: 7)

    UK: 57,000 sq ft; £1.5m p.a. rent; 5.9% above ERV §  Great West House, Brentford 16,400 sq ft new leases §  Westminster Tower, SE1 7,500 sq ft new leases §  Quayside, SW6 7,000 sq ft of lease renewals

    France: 116,000 sq ft; £1.6m p.a. rent; at ERV §  Park Avenue, Lyon 42,000 sq ft new lease §  Gennevilliers, Paris 33,500 sq ft lease renewal §  Debussy, Paris 11,330 sq ft lease renewal

    Germany: 111,000 sq ft; £1.3m p.a. rent; 4.7% above ERV §  Bismarckallee, Freiburg 65,500 sq ft lease extension §  Tangentis, Munich 12,200 sq ft lease extension §  Adlershofer Tor, Berlin 9,000 sq ft new lease

    15 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • H1 2016 §  £8.5m - Luxembourg completed §  £52.4m - Vänerparken completed §  £11.0m - Aberdeen exchanged H2 2016 §  £7.8m - Antibes exchanged

    SALES, ACQUISITIONS & CAPEX Investing in our core markets

    16

    H1 2016 §  £6.4m - Leatherhead completed H2 2016 §  £4.9m - Hamburg completed §  £36.4m - Düsseldorf exchanged

    £79.7m of sales at 5.7% NIY

    £47.7m of acquisitions at 6.9% NIY

    Developments Capex §  c.£25m at Spring Mews, Vauxhall Square &

    Ateliers Victoires, Paris

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016 16

  • PROPERTY PORTFOLIO1 Low vacancies, affordable rents and high NIY

    At 30 June 2016

    Market Value2

    £m Valuation3

    %

    EPRA Net Initial

    Yield4 %

    Vacancy By Rent

    % WAULT (years)

    ERV of Contracted

    Rent £m

    Contracted Rent

    £m

    Contracted Rent

    £/sq ft (£/sqm)

    London 847.1 ê 0.1% 4.7% 4.6% 6.1 49.1 41.6 22.74 (245)

    Rest of UK 97.7 ê 2.3% 11.8% 0.9% 5.9 8.4 11.3 13.18 (142)

    France 250.4 é 1.8% 5.8% 5.0% 5.3 15.4 15.9 17.80 (192)

    Germany 304.6 é 1.4% 6.0% 2.1% 6.7 19.4 20.2 10.50 (113)

    Total portfolio 1,499.8 é 0.4% 5.7% 3.7% 6.1 92.3 89.0 16.17 (174)

    17

    1 Data relates to investment properties and properties held for sales unless otherwise stated 2 Includes hotel and owner-occupied property 3 In local currency 4 Excludes developments

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • VAUXHALL SQUARE Progress update

    18

    §  Enhanced planning permission Feb 2016 §  Cap Gemini started vacating site ready for Dec 2016 VP §  Student build started §  Hostel contractor appointed

    Phase Two: Ex Cap Gemini site Office and North Tower residential

    Phase One Office and South Tower

    Residential / boutique hotel

    Phase One

    Phase Two

    Next Steps §  Progress value engineering §  Select partner or purchaser for residential South Tower air

    rights development on Phase One §  Start demolition of Wendle Court

    Phase One New hostel

    Phase Two Affordable Housing

    Sold Student housing

  • 83

    -20

    +25 88

    0

    10

    20

    30

    40

    50

    60

    70

    80

    90

    1 Jan 2016 Revised market assumptions

    New planning permission 30 June 2016

    VAUXHALL SQUARE Valuation movement

    19

    §  Avg residential valuation reduced by 3.8% to £1,333 psf

    §  Extended sales programme §  Increased developer’s profit

    §  Enhanced planning §  Replacement of hotel to

    increase offices and residential

    £m

    Note: §  Figures exclude developer’s profit §  Underlying existing use value: £72m

    19 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • CONTENTS

    20

    OVERVIEW Fredrik Widlund Chief Executive

    FINANCIALS John Whiteley Chief Financial Officer

    PROPERTY Simon Wigzell Head of Group Property

    MARKETS & SUMMARY

    Fredrik Widlund Chief Executive

  • OVERVIEW Country update

    Germany (20% of portfolio)

    §  Attractive investment and financing opportunities in office market

    §  German economy and corporates keeps performing and unemployment now close to 6%

    §  Rental growth accelerating in larger cities like Berlin, Munich and Hamburg, average vacancy levels 3-5%

    §  Very competitive lending market

    §  Lack of stock impacting investment volumes

    France (17% of portfolio)

    §  A challenging economic backdrop but some progress with higher growth recorded in H1

    §  Paris rental market resilient with vacancy below 4% in the city centre, outer suburbs around 10%

    §  2nd largest city Lyon stable with growing office take-up and vacancy down to 6%

    §  Investment market driven by domestic institutions and companies

    §  Solid market interest for CLS disposals

    21 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • SUMMARY Strong performance

    2016 H1

    §  Geographical diversification has driven performance §  EPRA NAV up 9.6% to 2,282p and EPRA EPS up 92% §  Positive FX impact §  High volume of leasing activity

    §  Recycling capital through disposals and acquisitions §  Increased distribution +10% to implied 3.2% dividend yield

    Near Term Outlook

    §  Well positioned against Brexit uncertainty

    §  Financial firepower gives room to act §  Strong pipeline of asset management opportunities §  Progress developments in France and UK §  Real estate fundamentals remain positive across the Group

    22 22 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • APPENDICES 23

  • ABOUT CLS

    24

    CLS is a FTSE 250 property investment company with £1.5bn of property interests §  Investments in the UK, Germany and France §  Geographical diversification with local presence and knowledge

    Our strategy combines §  Active in-house asset, property and facilities management §  Long-term capital appreciation with strong emphasis on cash generation §  An opportunistic approach to acquisitions, developments and disposals

    The Group’s core business §  Owning and actively managing offices which are:

    –  High-yielding –  Located in good, non-prime locations –  Close to major transportation links

    §  Adding value to properties through lease restructuring, refurbishment and development

    We finance our activities through §  Diverse and flexible debt structures §  Active cash management

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • 73.4

    39.7

    100.7

    22.2

    -17.5

    13.3

    -6.4

    -30.5

    -38.4

    13.9

    91.0

    0

    50

    100

    150

    200

    250

    MOVEMENT IN LIQUID RESOURCES High liquidity

    £m

    25

    Cash

    Corporate Bonds

    130.7

    174.1

    1 Jan 2016 From operations

    Share buy-backs

    Sale of properties

    Property acquisitions

    Capital expenditure

    Net loan repayments

    Other 30 Jun 2016

    Active Cash Management: £47m of Corporate Bonds sold prior to referendum CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • Banks & Financials

    Telecom and IT

    Energy & Resources Insurance

    Travel & Tourism Other Total

    Value £13.6m £7.0m £12.3m £2.7m £3.2m £0.8m £39.7m

    Running Yield 8.0% 6.8% 9.0% 7.1% 6.5% 6.4% 7.3%

    Issuers Societe Generale Bank of Ireland

    Deutsche Bank

    Credit Agricole

    Allied Irish

    Santander

    Unicredit

    Barclays

    Investec

    Lloyds

    HSBC

    RBS

    Telecom Italia

    Centurylink

    T-Mobile

    Millicom

    Dell

    Freeport-McMoRan

    ArcelorMittal

    BHP Billiton

    Transocean

    Seadrill

    Enel

    Brit Insurance

    Phoenix Life

    Old Mutual

    British Airways

    Stena

    SAS

    Stora Enso

    CORPORATE BOND PORTFOLIO At 30 June 2016

    26

    Total portfolio return H1 2016: 10.4% Benchmark return H1 2016: 3.8% iShares Euro HY Corporate Bond ETF

    8.2% iShares iBoxx USD HY Corporate Bond ETF Reason for outperformance: Telecom and Energy & Resources bonds, and USD, outperformed Diversification: 30 bonds issued by large-cap companies, spread over nine sectors

    Average Duration: 13.7 years

  • TOP UK TENANTS >£500,000 rent pa; £40.6m, 75% of UK rent roll

    Rent Tenant Sector

    > £5m Secretary of State Government

    National Crime Agency Government

    £2m - £5m Roehampton University & Direct Lets Student Accommodation

    HMRC Government

    £1m - £2m

    BAE Systems Manufacturing

    Cap Gemini IT & Tech.

    Spring Mews Hotel Travel and Hospitality

    Honda Motors Manufacturing

    £500k - £1m

    Ministry of Justice Government

    Signature Litigation Business and Professional Services

    Scottish Records Office Government

    Flight Centre Travel and Hospitality

    Health and Care Professions Council Government

    Allianz Insurance

    IHS Global Business and Professional Services

    Health and Safety Executive Government

    West Midlands Police Authority Government

    149, 97, 13

    248,161,40

    183,1,64

    181,211,36

    11,79,134

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016 27

  • DEVELOPMENT & CAPEX UPDATE Further progress; c.£25m development capex

    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 Q3 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 Q4 2017

    28

    Spring Mews

    Ateliers Victoire CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • VAUXHALL SQUARE Next steps

    29

    Phase One Could start 2017, deliver 2021 §  South Tower (residential and boutique hotel) §  190,000 sq ft Grade A office §  Retail and leisure §  New public square §  Refurbish 95 Wandsworth Road office §  New 50 bedroom hostel Financing §  Select partner or purchaser for development air rights

    of residential South Tower §  Financing commercial construction cost £190m with

    partner / sales proceeds and existing resources Phase Two §  North Tower (residential) §  65,000 sq ft Grade A office §  Affordable housing

    Phase One

  • UK

    London §  45 properties §  £847.1m §  1,992,800 sq ft / 185,140 sqm §  178 tenants §  £41.6m contracted rent §  4.6% vacancy Rest of UK §  26 properties §  £97.7m §  923,000 sq ft / 85,750 sqm §  25 tenants §  £11.3m contracted rent §  0.9% vacancy

    30

    CLS strategy Capture rental growth in existing London portfolio Opportunistic investments meeting CLS investment criteria. Focus on Greater London and South East We target locations with strong fundamentals for rental growth and tightening supply of offices

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • §  25 properties §  £250.4m §  960,500 sq ft / 89,234 sqm §  187 tenants §  £15.9m contracted rent §  5.0% vacancy

    FRANCE

    CLS Strategy:

    Focus on existing portfolio; investing into assets and maintaining low vacancy. Selected disposals in non-core locations

    31 CLS HOLDINGS PLC HALF YEAR RESULTS 2016

  • GERMANY

    §  19 properties §  £304.6m §  1,973,900 sq ft / 183,380 sqm §  155 tenants §  £20.9m contracted rent §  2.1% vacancy

    32

    CLS strategy:

    Capture rental growth and work with existing occupiers to meet their requirements

    Acquisition focus on multi-let properties in major cities

    Still seeing good opportunities despite strong competition from both local and international investors

    CLS HOLDINGS PLC HALF YEAR RESULTS 2016