Price : 195p
Mkt cap £

Interesting release from CLS today which announces it will acquire a portfolio of German and offices for €152m (£134m) representing a net initial yield of 6.3%. Occupancy is only 89% so there is room for some asset management, where CLS has a good track record. The offices are located around the major cities of Hamburg, Düsseldorf and Munich and are close to CLSs existing offices.

The offices are initially being purchased for cash, although the company says it will partially refinance them using debt at some point. I wonder if it will break up the 2 subsidiaries that contain 11 of the 12 offices. Generally CLS prefers to have each asset in an SPV as they say it helps with active management.

What are the the cash implications?
The recent sale of Vauxhall square site to Hong Kong based developers has freed up cash resources. Vauxhall square was sold for net £140m but the income was only £1.8m per annum. The cash proceeds have just been deployed at 6.3% and will generate £8.4m of income, a net increase of over £6m when compared to what Vauxhall Sq generated. This equates to 1.5p / share (£6m/413m shares ). Over time some debt will be taken on which will reduce this figure but that refinancing will free up resources for other purchases.

New shape
The pro forma portfolio now looks like this by asset values : UK 54%, Germany 31%, France 15%. The UK has fallen from over 60% at the year end, so this is a management team not afraid to invest where they see value and digest where they see values are stretched.

CLS trades on around a 25% discount to 2017 NAV (my educated guess of the NAV/share is 260p)



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