CLS holdings : EPRA NAV 286p. Share price 241p. 16% discount to NAV

Strong results today from CLS Holdings. THe EPRA NAV, which is a standardised way of looking at the Net Aseet Value which includes marking debt to market, dilutive effect of share options etc rose 17% to 286p / share.

I like the company because it focuses on higher yielding regional offices, often with shorter leases and employs an active management strategy. Its properties are much less at risk from disintermediation from the internet than regional shops. Buying high yielding properties generates more cash flow per unit up front via rents and gives greater protection if yields shift outwards.

Today's results are a continuation of the strategy it has employed for many years. The difference between CLS a and the major real estate companies is that the Mordstet family own just under 58% (Sten owns 51%, Bengt 7%). Decisions are made for the long term health of the business, not just to hit some LTIP target!

The portfolio is worth £1753m, with PPE a further £103m and a corporate bond portfolio worth £121. The properties have an initial yield of 5.2% despite higher vacancies post sales and purchases. The spread of assets is 52% UK (61% in 2016), 32% Germany and France 16%

Sales were £240m during the year (£144m for Vauxhall Sq) and purchases of £239m were made, mainly in German offices. As as result of refurbishing some offices and buying some offices with vacant space (av 9% vacancy in purchased offices) the overall vacancy rate has risen to 5.9% from 2.9%. However the Group has shown skill in leasing up vacant space so I see this as an opportunity.

Gross debt is £914m. The group has a cost of debt of 2.51% of which 74% is fixed for an average of 4.2yrs. So it is well protected from rising interest rates. LTV is 36% so not hugely leveraged. Interest cover is 3.7x.

My view
I have put my faith and £££ with a proven management team, who aim to deliver value throughout the cycle and are not afraid to reposition the portfolio for the longer term good. The discount has narrowed to 16% to EPRA NAV when it was over 50% post Brexit. The business is now roughly 50% UK,…

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