REG - CLS Holdings PLC - CLS Holdings Half Year Report
07/08/2024 07:15
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RNS Number : 4526Z CLS Holdings PLC 07 August 2024
PRESS RELEASE
Release date: 7 August 2024
Embargoed until: 07:01
CLS HOLDINGS PLC
("CLS", the "Company" or the "Group")
ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS TO 30 JUNE 2024
Delivering on our strategic priorities with positive letting progress and
achievement of greater sales
CLS is a leading office space specialist and a supportive, progressive and
sustainably focused commercial landlord, with a c.£1.9 billion portfolio in
the UK, Germany and France, offering geographical diversification with local
presence and knowledge. For the half-year ended 30 June 2024, the Group has
delivered the following results:
30 June 2024 31 December 2023 Change (%)
EPRA Net Tangible Assets ("NTA") per share (pence) (1) 227.4 253.0 (10.1)
Statutory NAV per share (pence) (1) 210.6 233.8 (9.9)
Contracted rents (£'million) 111.7 112.6 (0.8)
30 June 2024 30 June 2023 Change (%)
Net rental income 58.9 55.6 5.9
(Loss) after tax (£'million) (61.1) (104.1) Nm(2)
EPRA Earnings per share ("EPS") (pence) (1) 4.8 5.2 (7.7)
Statutory EPS from continuing operations (pence) (1) (15.4) (26.2) Nm(2)
Dividend per share (pence) 2.60 2.60 -
(1) A reconciliation of statutory to alternative performance measures is set
out in Note 4 to the condensed Group financial statements
(2) Nm = Not meaningful
Fredrik Widlund, Chief Executive Officer of CLS, commented:
"In the first half of 2024, CLS made strong progress on its strategic
priorities and delivered good underlying performance across the portfolio. Net
rental income was up over 5% with new leases signed nearly 6% above ERV such
that this positive leasing momentum resulted in a slight fall in underlying
vacancy. Valuations were lower but the rate of decline slowed and we are
seeing values start to bottom as the challenging conditions begin to ease.
"Following the investment in recent years to further improve the quality of
our portfolio, we are expecting further letting progress in the second half of
the year such as our first letting at Artesian. In the first half of the year,
we completed on three disposals with a fourth completed this week for a total
of £61 million. There will be further sales such as Spring Mews Student which
is progressing well alongside ongoing refinancings to reduce net debt and
loan-to-value.
"We see considerable opportunities within the portfolio to drive rental growth
and valuation increases in all three of our geographies. The largest being
Spring Gardens in Vauxhall, for which the planning process for a mixed-use
development is advancing well. Overall, there are encouraging signs in the
market for quality offices in the right locations."
OPERATIONAL HIGHLIGHTS
· Net rental income increased by 5.9% to £58.9 million (30 June
2023: £55.6 million) as a result of higher income from indexation, stronger
performance from our hotel and student operations, retention of part of the
deposit from previous failed sale of Westminster Tower and higher other
income, with some offset from disposals
· Completed the disposals of: Quatour, Paris; Westminster Tower,
London; and Aqueous II, Birmingham, and unconditionally exchanged
Hansastrasse, Dortmund in May 2024 which completed at the start of August
2024. In aggregate, the four properties had a net initial yield of 3.3% and
sold for a total of £61.0 million, which was in line with 2023 book values
· Sales process for Spring Mews Student is progressing well and has
generated significant interest with several bids received from experienced and
well-funded PBSA owners
· Completed 58 lease events (30 June 2023: 69) securing £6.4
million (30 June 2023: £7.8 million) of annual rent at 5.9% above ERV with
like-for-like contracted rent increasing by 1.9%. Excluding the very large
lease signed for The Brix in Essen in early 2023, the value of leases
completed was 23% ahead of 2023 at £5.2 million
· Vacancy rate increased to 13.2% (31 December 2023: 11.0%) as the
remaining floors at Artesian, Prescot Street in London completed at the start
of 2024. On an underlying basis, excluding recently completed space, vacancy
reduced slightly to 10.8%. Post the half-year, Médecins Sans Frontières
agreed a lease for one floor at Artesian
· Rent collection remained at the same, consistently high levels
with 99% of first half rent collected and 97% of third quarter contracted rent
due collected to date
FINANCIAL HIGHLIGHTS
· EPRA NTA down 10.1% primarily as a result of property valuation
declines of 4.1% in local currencies (5.3% in Group currency), partially
offset by EPRA earnings
· Portfolio valuation down 4.1% in local currencies was overall
better than the declines in the respective countries reflecting the quality of
our portfolio and indexed-linked leases. Yield expansion resulted in valuation
decreases of 4.4% in the UK, 3.6% in Germany and 5.0% in France in local
currencies
· Loss after tax £61.1 million (30 June 2023: £104.1 million)
principally due to valuation declines on investment properties of £82.8
million (30 June 2023: £132.9 million decline)
· EPRA EPS down 7.7% to 4.8 pence per share from higher financing
costs, partly offset by increased net rental income from indexation and higher
other income and lower tax. Statutory EPS of (15.4) pence per share reflected
valuation declines for the portfolio
· Interim dividend flat at 2.60 pence per share (30 June 2023: 2.60
pence per share) to be paid on 2 October 2024
· Total accounting return of -8.0% (30 June 2023: -9.9%)
FINANCING
· Weighted average cost of debt at 30 June 2024 up 20 basis points
to 3.81% (31 December 2023: 3.61%) due to the impact of refinancing at higher
interest rates but limited movement expected in the second half of 2024
· Loan-to-value at 50.3% (31 December 2023: 48.5%) reflecting
valuation declines in the period. Gross debt of £1,028.5 million (31 December
2023: £1,070.6 million) with cash of £68.5 million (31 December 2023: £70.6
million) and £50.0 million (31 December 2023: £50.0 million) of undrawn
facilities. CLS has no interest cover or loan-to-value covenants at a Group
level
· At 30 June 2024, 78% of our debt was at fixed rates and 4% was
hedged by interest rate caps (31 December 2023: 76% at fixed rates and 4%
subject to interest rate caps)
· In the first half of 2024, extended or refinanced £137.1 million
of debt at 5.64% for 1.7 years. Most financing was short-term extensions in
advance of sale such as Westminster Tower or completion of reletting activity
· Discussions are well advanced for the remaining four loan
refinancings for £49.1 million, excluding amortisation, due in 2024. In
addition, discussions started on over three-quarters of the £372.3 million of
refinancings due in 2025, although over half are not due until Q4 2025
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
· To deliver our 2030 Net Zero Carbon Pathway, a total programme spend
to date of £17 million is expected to be invested by the end of 2024. So far
this year, 13 projects have been completed with another 57 projects due to
finish before year end, which will save over 750 tonnes CO2e per annum. We
remain on track to achieve our 2030 targets
· We have maintained or improved our BREEAM In-use ratings for office
buildings in our French and UK portfolios as we upgrade to the latest version.
Over 78% of our BREEAM rated assets are now rated "good" or above
demonstrating the progress we are making
· Over half of our UK office buildings are now EPC A or B
DIVIDEND TIMETABLE
Further to this announcement, in which the Board declared an interim dividend
of 2.60 pence per ordinary share, the Company confirmed its dividend timetable
as follows:
Announcement Date 7 August 2024
Ex-Dividend Date 5 September 2024
Record Date 6 September 2024
Payment Date 2 October 2024
-ends-
Results presentation
A presentation for analysts and investors will be held in-person at Panmure
Liberum, by webcast and by conference call on Wednesday 7 August 2024 at
8:30am followed by Q&A. Questions can be submitted either online via the
webcast or to the operator on the conference call.
· Panmure Liberum: Ropemaker Place, 25 Ropemaker Street, London
EC2Y 9LY
· Webcast: The live webcast will be available here:
https://secure.emincote.com/client/cls/cls008
(https://url.uk.m.mimecastprotect.com/s/9xleCgpnwUAx3WrcNsfW-?domain=secure.emincote.com)
· Conference call: In order to dial in to the presentation via
phone, please register at the following link and you will be provided with
dial-in details and a unique access code:
https://secure.emincote.com/client/cls/cls008/vip_connect
(https://secure.emincote.com/client/cls/cls008/vip_connect)
For further information, please contact:
CLS Holdings plc
(LEI: 213800A357TKB2TD9U78)
www.clsholdings.com (http://www.clsholdings.com/)
Fredrik Widlund, Chief Executive Officer
Andrew Kirkman, Chief Financial Officer
+44 (0)20 7582 7766
Panmure Liberum
Jamie Richards
David Watkins
+44 (0)20 3100 2000
Berenberg
Matthew Armitt
Richard Bootle
+44 (0)20 3207 7800
Edelman Smithfield (Financial PR)
Alex Simmons +44 7970 174 353
Hastings Tarrant +44 7813 407 665
cls@edelmansmithfield.com (mailto:cls@edelmansmithfield.com)
Forward-looking statements
This document may contain certain 'forward-looking statements'. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to future events and circumstances. Actual outcomes and results may
differ materially from those expressed or implied by such forward-looking
statements. Any forward-looking statements made by or on behalf of CLS speak
only as of the date they are made and no representation or warranty is given
in relation to them, including as to their completeness or accuracy or the
basis on which they were prepared. Except as required by its legal or
statutory obligations, the Company does not undertake to update
forward-looking statements to reflect any changes in its expectations with
regard thereto or any changes in events, conditions or circumstances on which
any such statement is based. Information contained in this document relating
to the Company or its share price, or the yield on its shares, should not be
relied upon as an indicator of future performance.
Chief Executive's statement
Delivering on our strategic priorities with positive letting progress and
achievement of greater sales
OVERVIEW
In the first half of 2024, CLS made strong progress on its strategic
priorities and delivered good underlying performance across the portfolio. Net
rental income was up over 5% with new leases signed nearly 6% above ERV such
that this positive leasing momentum resulted in a slight fall in underlying
vacancy. Valuations were lower but the rate of decline slowed and we are
seeing values start to bottom as the challenging conditions begin to ease.
Following the investment in recent years to further improve the quality of our
portfolio, we are expecting further letting progress in the second half of the
year such as our first letting at Artesian. In the first half of the year, we
completed on three disposals with a fourth completed this week for a total of
£61 million. There will be further sales such as Spring Mews Student which is
progressing well alongside ongoing refinancings to reduce net debt and
loan-to-value.
We see considerable opportunities within the portfolio to drive rental growth
and valuation increases in all three of our geographies. The largest being
Spring Gardens in Vauxhall, for which the planning process for a mixed-use
development is advancing well. Overall, there are encouraging signs in the
market for quality offices in the right locations.
We secured 225,009 sq. ft (20,904 sqm) of lettings and renewals and lost
221,838 sq. ft (19,681 sqm) of space from expiries in the first half of 2024.
Over the same period, vacancy increased to 13.2% (31 December 2023: 11.0%) as
the remaining floors at Artesian, Prescot Street in London completed at the
start of 2024 and the refurbishment of three floors at Front de Parc in Lyon
were finished. On an underlying basis, excluding recently completed space,
vacancy reduced slightly to 10.8% (31 December 2023: 11.0%). Following the
significant investments made in 2022 and 2023 to improve the quality of our
portfolio, capital expenditure has reduced to our more usual level with £8.8
million invested in the first half.
Over the six months to 30 June 2024, EPRA NTA decreased by 10.1% to 227.4p per
share (31 December 2023: 253.0p) mainly from a reduction in property
valuations and negative foreign exchange movements due to sterling
strengthening. Total accounting return per share for the six months was -8.0%
(30 June 2023: -9.9%).
We completed the disposals of three properties and exchanged on one other
which completed this week for a total of £61.0 million. To reduce
loan-to-value, we expect to make more disposals in the second half.
RESULTS AND FINANCING
The loss after tax for the six months to 30 June 2024 was £61.1 million (30
June 2023: £104.1 million), equivalent to a statutory loss per share of 15.4p
(30 June 2023: 26.2p). The decrease was as a result of: lower revaluation
losses of £82.8 million (30 June 2023: £132.9 million); and higher net
finance expense of £20.8 million (30 June 2023: £16.2 million), partly
offset by higher net rental income of £58.9 million (30 June 2023: £55.6
million); flat expenses, other and tax of £15.0 million debit (30 June 2023:
£13.4 million debit) and loss on disposal of £1.4 million (30 June 2023:
£2.7 million profit). EPRA earnings per share were 4.8p (30 June 2023: 5.2p),
7.7% down on last year.
Shareholders' funds decreased in the six months by 9.9% to £836.9 million
reflecting property valuation declines and the strengthening of sterling.
Our balance sheet liquidity remains strong with £68.5 million of cash and
£50 million of undrawn facilities, and our loan book remains substantially at
fixed rates with 82% fixed/capped (31 December 2023: 80%). Our weighted
average cost of debt increased to 3.81% (31 December 2023: 3.61%) principally
as a result of higher rates on our refinancings and loan extensions. Only four
loans for £49.1 million remain to be refinanced in 2024. Net debt excluding
leasehold liabilities was down by £40.0 million to £960.0 million (31
December 2023: £1,000.0 million) but loan-to-value rose to 50.3% (31 December
2023: 48.5%) reflecting valuation declines. Interest cover remained high at
2.0 times (30 June 2023: 2.5 times) demonstrating the Group's operating
strength and ongoing ability to generate cash.
PROPERTY PORTFOLIO
At 30 June 2024, the value of the property portfolio, including properties
held for sale, was £1,910.4 million, £152.5 million lower than six months
earlier. This decrease was as a result of: net valuation decreases of £82.3
million; disposals of £53.7 million; and foreign exchange losses of £25.2
million, partly offset by investment in the portfolio through capital
expenditure of £8.8 million less depreciation of £0.1 million.
We completed the disposals of Quatour, Paris; Westminster Tower, London and
Aqueous II, Birmingham and unconditionally exchanged Hansastrasse, Dortmund in
May 2024 which completed at the start of August 2024. In aggregate, the four
properties had a net initial yield of 3.3% and sold for a total of £61.0
million, which was in line with 2023 book values.
As previously announced, to reduce our loan-to-value, we are targeting a
greater amount of disposals in 2024 and in addition to the disposals already
completed, the sales process for Spring Mews Student is progressing well. It
has generated significant interest with several bids received from experienced
and well-funded PBSA owners.
In the six months to 30 June 2024, the like-for-like valuation of the property
portfolio (which excludes acquisitions and disposals) fell by 4.1% in local
currency. There were like-for-like valuation decreases of 4.4% in the UK (2.9%
excluding Spring Gardens), 3.6% in Germany and 5.0% in France. In Sterling,
the valuation decrease was 5.3% reflecting the strengthening of Sterling in
the period. Across the Group, like-for-like ERVs were down 1.5% but up 0.8% if
New Printing House Square is excluded as the valuation assumptions changed
following our decision to delay a substantial redevelopment to the end of the
decade. At 30 June 2024, the EPRA 'topped up' net initial yield of the
portfolio was 5.7% (31 December 2023: 5.4%), 189 basis points above the
Group's average cost of debt, demonstrating the Group's continuing ability to
generate cash.
The EPRA vacancy rate as at 30 June 2024 was 13.2% (31 December 2023: 11.0%)
as the remaining floors at Artesian, Prescot Street in London completed at the
start of 2024. On an underlying basis, excluding recently completed space,
vacancy reduced slightly to 10.8%. Post the half-year, Médecins Sans
Frontières agreed a lease for one floor at Artesian with many other
discussions ongoing on the remaining space and other vacancies.
DIVIDENDS
In October 2024, the Group will pay an interim dividend for the current
financial year of 2.60 pence per share, which is at the same level as the 2023
interim dividend, and in line with the revised dividend policy announced in
May 2022 of 1.20x to 1.60x EPRA earnings dividend cover. The PID part of the
dividend is 1.75 pence per share.
ENVIRONMENT, SOCIAL AND GOVERNANCE
In 2024, across many ESG objectives, we are maintaining good momentum. Of
primary focus, we are continuing to invest in our assets and work towards the
targets in our Sustainability Strategy and Net Zero Carbon (NZC) Pathway.
So far in 2024, we have continued with the implementation of cost-effective
NZC projects across all regions. During the first half of this year, 13 carbon
reduction projects were completed with a further 57 projects due to be
completed by the end of 2024. These projects will save an estimated 750 tonnes
CO2e per annum, keeping us on track to achieve our 2030 NZC targets. The
projects include LED lighting and heating control upgrades in all regions,
Solar PV in Germany and smart water metering (including automatic leak
detection) across our UK portfolio. Smart metering now covers over 80% of our
utility supplies. For the first six months of 2024 this resulted in a 4.3%
decrease in like-for-like energy usage across the managed portfolio which is
ahead of our annual 3% energy reduction target.
Our focus this year is to ensure major future capital spending as part of the
NZC Pathway is derisked and aligned with our leasing and refurbishment plans
to achieve our 2030 targets. In particular, we continue the complex task of
replacing gas heating systems with electric heat pumps or similar. Feasibility
studies and designs are underway for many of the c.30 buildings needing
heating replacements in the UK and Germany. This should ensure that we
maintain a comprehensive picture of the costs and compliance risks which will
be incorporated into the long-term asset management strategies for each
property.
We are on track to meet future regulatory requirements, such as expected
higher minimum EPC standards in the UK, and the 2030 Décret Tertiaire energy
efficiency targets in France. Over half of our UK office buildings are already
EPC A or B. Meeting tenant demand for refurbished "net zero carbon ready"
office space can also be a differentiator versus competitors.
Work continues on biodiversity with action plans rolling out at key UK sites
to support our rewilding and biodiversity net gain targets. Finally, as part
of being a responsible company and long-term investor, we have continued to
support local and industry related charities, with our core focus being to
support the issues of homelessness, food poverty, youth skills and
environmental sustainability.
OUTLOOK
There are signs of improvements in the real estate investment market and
leasing activity continues to be positive as occupiers are increasingly
prepared to commit to the right locations and buildings. The bifurcation
seen in the last few years has carried on with stronger demand for centrally
located and/or higher quality offices, like those core to our portfolio, while
more peripheral office locations or lower quality buildings, which we are
disposing of, continued to decline.
The investment market improved in the first half of 2024, albeit from
historically low numbers, but an increase compared to the same period last
year and certainly Q2 2024 was more active with buyers slowly returning to the
market. Our strategic priorities remain clear and for the second half of this
year we will continue to drive occupancy while executing on selective sales to
reduce LTV.
We see considerable opportunities in the existing portfolio to drive long-term
shareholder value and in the medium-term our focus is on: Bismarckstrasse,
Berlin, a refurbishment and repositioning of an office building in central
Berlin; The Brix, Essen, a refurbishment and ESG investment for a committed
lease with the City of Essen; Debussy, Paris, an asset repositioning as
serviced apartments; and progressing our mixed-use development of Citadel
Place in Vauxhall.
As we have seen in past cycles, the UK entered the downturn earlier and is now
ahead in its recovery while Germany and France are a bit further away. We
remain confident that in responding to the market demands by having some of
the best properties in our locations, alongside an expectation of more
favourable monetary policies, CLS is well placed to capitalise on these trends
and remain successful.
Business review
United Kingdom
Letting market is positive with expected interest rate falls to kickstart
investments
30 June 2024 31 December 2023
Value of properties £839.7m £919.9m
Percentage of Group's property interests 44% 45%
Number of properties 35 37
Number of tenants 217 221
EPRA vacancy rate 19.6% 15.8%
Lettable space 1.6m sq. ft 1.9m sq. ft
Government and large companies 74.7% 72.1%
Weighted average lease length to end 3.3 years 3.5 years
Leases subject to indexation 32.6% 32.7%
The value of the UK portfolio decreased by £80.2 million as a result of: two
disposals for £43.9 million; and valuation decreases of £38.7 million or
4.4%, partly offset by capex of £2.5 million less depreciation of £0.1
million. The biggest valuation decrease was for our largest property, Spring
Gardens, Vauxhall (also known as Citadel Place) as the lease to the NCA nears
expiry in February 2026. Excluding Spring Gardens, the valuation decline was
2.9%. Encouragingly, there were valuation uplifts on our better let offices
and hotel and student properties.
The occupational market in London and the South-East remains active. During
the period, we secured our first letting at "The Coade", our 28,400 sq. ft
(2,638 sqm) new office development at Vauxhall Walk, London. This was to a
cyber security company, Cybanetix Limited, who moved from a nearby serviced
office. We have also completed our first letting at our recently refurbished
building, "Artesian", Prescot Street, London for the entire 5th floor of
c.12,000 sq. ft. Similarly to our recent letting at The Coade, the tenant was
drawn to the sustainability credentials of the fully electric building with an
EPC A rating.
Overall, vacancy increased in the period from 15.8% at 31 December 2023 to
19.6% essentially due to completion of the refurbishment of the remaining
three floors at Artesian. On an underlying basis, vacancy fell from 15.8% to
15.3%. Since 1 January 2024, we let or renewed leases on 54,288 sq. ft (5,044
sqm) and lost 45,699 sq. ft (4,246 sqm) from expiries. There were 31 lease
extensions and new leases added £3.7 million of rent at an average of 5.6%
above 31 December 2023 ERV. The most significant transactions were a lease
re-gear with BAE Systems for the c.35,000 sq. ft (3,252 sqm) they occupy at
Apex Tower in New Malden which extended the lease by 5 years and removed the
2025 break clause. We also secured a 5-year lease extension with Bindmans LLP
at New Printing House Square for 13,864 sq. ft (1,288 sqm) and exchanged on an
agreement for lease with E.S. Pipelines Limited for a 10-year lease of
c.13,000 sq. ft (1,208 sqm) at Kings Court in Leatherhead. Across the
portfolio, like-for-like ERVs were down 3.3% but up 1.5% if New Printing House
Square is excluded as the valuation assumptions changed following our decision
to delay a substantial redevelopment to the end of the decade.
In terms of disposals, we completed the sale of Westminster Tower to London
Square Developments for £40.8 million. In addition, we completed the sale of
Aqueous II in Birmingham for £3.0 million. As a result, the UK portfolio is a
now based entirely in London and the South-East of England. We have received
significant interest in the sale of the student accommodation at Spring Mews
in Vauxhall and are anticipating completion in H2 2024.
There are a number of opportunities in the portfolio and we have begun the
public consultation process for the development of Citadel Place, Vauxhall
which is aimed at bringing forward a vibrant mixed-use scheme on the 2½ acre
site on the expected departure of the NCA in February 2026.
In terms of the UK property market, commercial investment volumes were
c.£20.8 billion in the first half of 2024 an increase of 4.5% on same period
in 2023 (c.£19.9 billion).
Leasing take-up in London in the first half of 2024 was 4.3 million sq. ft,
which is roughly flat compared to the same period last year while take-up
across the Southeast office market reached 1.3 million sq. ft, which was 45%
above H1 2023 and in line with the five-year average. Market vacancy in London
is now 9.2% and 12.6% in the South-East.
Germany
Economic recovery has been slow but the property investment market is starting
to revive
30 June 2024 31 December 2023
Value of properties £839.0m £885.5m
Percentage of Group's property interests 44% 43%
Number of properties 32 32
Number of tenants 370 368
EPRA vacancy rate 7.2% 6.8%
Lettable space 3.5m sq. ft 3.8m sq. ft
Government and large companies 58.2% 55.6%
Weighted average lease length to end 4.7 years 4.9 years
Leases subject to indexation 57.2% 65.9%
The value of the German portfolio decreased by £46.5 million as a result of:
a valuation decrease of £31.2 million or 3.6% in local currency; and foreign
exchange loss of £19.8 million, partly offset by capex of £4.5 million. The
valuation loss was as a result of yield expansion as ERVs remained stable
across the portfolio.
Vacancy increased slightly to 7.2% compared with 6.8% at 31 December 2023 due
to lease expiries. Since 1 January 2024, 120,972 sq. ft (11,239 sqm) was let
or renewed but 135,782 sq. ft (12,615 sqm) of space expired. 17 lease
extensions and new leases were signed adding £1.7 million of rent at an
average of 7.6% above 31 December 2023 ERV. The most significant transaction
was at Office Connect, Cologne with a new 6-year lease with Eviden, a
technology transformation leader, for 15,220 sq. ft (1,414 sqm). Other notable
transactions were a new 10-year lease at Fleethaus, Hamburg with the German
Red Cross for 13,197 sq. ft (1,226 sqm) and a new 6-year lease at Flexion,
Berlin with Pulsation IT, a leading software company, for 9,139 sq. ft (849
sqm). Across the portfolio, like-for-like ERVs grew by 0.5%. Vacancy in the
second half of the year is expected to increase following the expiry of a
large lease at our Gotic Haus property in Dortmund although we are in active
discussions with potential new tenants.
In May 2024 we exchanged on the £7.7 million sale of Hansastrasse, Dortmund,
a 42,902 sq. ft (3,986 sqm) office building originally constructed 1957 and
completion took place post the half-year in early August 2024.
In terms of larger scale projects, we are about to commence our €20 million
refurbishment at Kruppstrasse ("The Brix") in Essen. This will substantially
improve the building where we have secured a 30-year lease with the City of
Essen.
The outlook for the second half of the year is influenced by the delayed
German economic recovery, which is impacting demand and sentiment as larger
companies are still cautious to commit to new space while Government and
Mittelstand companies are more active. However, there has been an improvement
in sentiment in the investment markets with more sales as investors are
becoming increasingly confident in both the current and future market
environment. A moderate upward trend is evident, which we expect to accelerate
somewhat in the second half of the year.
The German office markets recorded a take-up of 1.26 million sqm in the first
half of 2024, similar to the same period in 2024 of 1.23 million sqm. Prime
rents are increasing given that new and newly built offices are in short
supply in the CBDs.
The commercial property market showed signs of growth compared with 2023. For
the first half of 2024, investment volume totalled c.€11.9 billion, which is
an encouraging increase compared with the same period in 2023 when c.€9.9
billion was invested.
Market vacancy rates in the Top 7 office markets is now 6.1%, ranging from
3.5% in Cologne to 10.0% in Dusseldorf.
France
Letting market remains resilient for small to medium sized floorplates
30 June 2024 31 December 2023
Value of properties £231.7m £257.5m
Percentage of Group's property interests 12% 12%
Number of properties 16 17
Number of tenants 148 155
EPRA vacancy rate 7.1% 5.6%
Lettable space 0.7m sq. ft 0.8m sq. ft
Government and major corporates 54.4% 49.0%
Weighted average lease length to end 5.3 years 5.2 years
Leases subject to indexation 100.0% 100.0%
The value of the French portfolio decreased by £25.8 million as a result of:
a valuation decrease of £12.4 million or 5.0% in local currency; disposals of
£9.8 million; and a foreign exchange loss of £5.4 million, partly offset by
capex of £1.8 million. The valuation loss was as a result of yield expansion.
Vacancy increased to 7.1% from 5.6% at 31 December 2023 mainly due to the
completion of refurbishments. During the period, 49,749 sq. ft (4,622 sqm) was
let or renewed but 30,359 sq. ft (2,820 sqm) of space expired. Since 1 January
2024, 10 lease extensions and new leases were signed adding £1.1 million of
rent at an average of 4.6% above 31 December 2023 ERV. The most significant
transaction was a lease extension at Cap G in Paris for 11,000 sq. ft (1,022
sqm) to IT company Pixid on a 3/6/9 year lease. We also let 8,393 sq. ft (780
sqm) of our newly refurbished space in Park Avenue, Lyon to Smile IT on a
3/6/9 year lease. Across the portfolio, like-for-like ERVs fell by 0.1%.
In May 2024, we completed the disposal of Quatuor, located in the Montrouge
area in Paris. The 2,500 sqm office building was originally acquired for
€4.6m in 2002 and is located in front of the future Grand Paris metro
station. The City of Montrouge purchased the property for €11.3 million,
which was in-line with the latest valuation.
During the first half of the year, we launched the redevelopment of two
properties. The first of these is the 45,187 sq. ft (4,198 sqm) office
building Debussy in the western crescent of Paris to be converted into
serviced apartments. This will be let to Edgar Suites, a national operator in
serviced apartments by way of a 12-year lease. The conversion will be executed
by Nexity via a fixed-price redevelopment contract for c.€12 million.
Completion is targeted for the end of 2026.
The second major project is at Petits Hotels, in Central Paris close to Gare
du Nord. This is a refurbishment of one of the buildings including the facade,
windows, roof, terraces and garden. The budgeted works of €1.7 million will
improve the sustainability credentials of the building and are expected to
complete in H1 2025.
Investment volume in commercial real estate over the first half of 2024
reached €5.8 billion, down 4.9% compared to first half 2023 but is still
expected to reach €10 billion by the end of 2024. This is partly because
yields appear to be stabilising while central Paris shows healthy rental
growth.
Office take-up in the first half of 2024 in the Greater Paris Region reached
853 000 sqm, down 5% compared with the same period last year. Immediate office
supply in the Greater Paris Region at 30 June 2024 was estimated to be 4.9
million sqm, up 11% compared with the same period last year. Market vacancy in
Paris is at 9%.
Whilst the demand is relatively stable, supply is likely to be the key issue
in France for the next 12-18 months, although, the stronger demand for smaller
floorplates bodes well for our French portfolio.
Key data
Valuation Data
H1 Valuation Movement
EPRA Topped-up Net Initial Yield
Market Value of Property (£m) EPRA Net Initial Yield
Foreign Exchange (£m)
Underlying (£m) Over-rented Equivalent Yield
Reversion
UK 695.8 (48.8) - 5.6% 6.5% 3.7% 7.7% 7.0%
Germany 837.4 (31.2) (19.7) 5.1% 5.2% 5.3% 10.8% 5.3%
France 230.0 (12.4) (5.4) 5.0% 5.4% 4.5% 4.8% 6.1%
Total Portfolio 1,763.2 (92.4) (25.1) 5.3% 5.7% 4.6% 8.7% 6.0%
Rental Data
Rental Income for the Period (£m) Net Rental Income for the Period (£m) Lettable Space (sqm) Contracted Rent at 30 June 2024 (£m) ERV at 30 June 2024 (£m) Contracted Rent Subject to Indexation (%) EPRA Vacancy rate at 30 June 2024
UK 23.3 25.8 172,837 50.2 59.8 32.6 19.6%
Germany 21.3 20.2 346,480 47.6 48.6 57.2 7.2%
France 6.5 6.3 68,213 13.9 14.8 100.0 7.1%
Total Portfolio 51.1 52.3 587,530 111.7 123.2 51.4 13.2%
Lease Data
Average Lease Length Contracted Rent of Lease Expiring In: ERV of Lease
Expiring In:
To Break (Years) To Expiry (Years) Years 3 - 5 (£m) After 5 Years (£m) Years 3 - 5 (£m) After 5 Years (£m)
Year 1 (£m) Year 2 (£m) Year 1 (£m) Year 2 (£m)
UK 2.5 3.3 12.7 15.6 13.2 8.7 12.6 14.0 13.2 8.4
Germany 4.7 4.7 10.0 6.1 16.0 15.5 10.4 5.7 15.4 20.8
France 2.4 5.3 0.5 1.2 3.3 8.9 0.6 1.1 3.4 8.6
Total Portfolio 3.4 4.2 23.2 22.9 32.5 33.1 23.6 20.8 32.0 37.8
Note: The above tables comprise data for our offices in investment property
and properties held for sale. They exclude owner-occupied, student
accommodation and hotel.
Tenant Industries by Contracted Rent Property use by rent
Government 22.2% Offices 86.5%
Information Technology 13.9% Student 5.9%
Commercial and Professional 13.0% Hotel 4.8%
Communication Services 8.0% Food/Retail 2.8%
Consumer Discretionary 7.9%
Health Care 6.9%
Industrials 6.8%
Financials 6.7%
Other 5.8%
Consumer Staples 4.6%
Real Estate 4.2%
Property use by rent
Offices 86.5%
Student 5.9%
Hotel 4.8%
Food/Retail 2.8%
Our investor proposition
Strong and consistent long-term shareholder returns
Set out below are the key tenets of our investment proposition. A fuller
description can be found on the inside front cover and page 1 of CLS' 2023
Annual Report and Accounts:
Clear strategy Active management
· Diversified approach · Experienced in-house capabilities
· The best offices in our locations · Secure rents and high occupancy
· Selected development schemes · Interest rate management
Leading track record Focus on sustainability
· Disciplined approach to investment · Responsible profit
· Cash-backed progressive dividend · Strong ESG performance
· Financing headroom · Climate risk mitigation
DIVIDEND POLICY
The Company expects to generate sufficient cash flow to be able to meet the
growth requirements of the business, maintain an appropriate level of debt and
provide cash returns to shareholders via a dividend.
As announced in May 2022, we updated our dividend policy following the
conversion of our UK operations to a REIT. The company will maintain a
progressive dividend policy, with a dividend cover of 1.2 to 1.6 times EPRA
earnings (previously 1.5 to 2.0 times). Approximately one-third of the annual
dividend is paid as an interim in September or October, with the balance paid
as a final dividend in April.
ANALYST COVERAGE
We are covered by three brokers which publish regular analyst research:
Panmure Liberum; Berenberg and Peel Hunt. Contact details can be found on our
website www.clsholdings.com (http://www.clsholdings.com) .
2024 INVESTOR ENGAGEMENT
Events which have taken place Events which are due to take place
March 2024 August 2024
Annual Results presentation Half-Year Results presentation
Annual Results investor calls and meetings
August/September 2024
April 2024 Half-Year Results investor calls and meetings
Annual General Meeting
November 2024
Trading Update
Financial review
RESULTS FOR THE PERIOD
HEADLINES
The loss after tax of £61.1 million (30 June 2023: £104.1 million) generated
a basic statutory loss per share of 15.4 pence (30 June 2023: 26.2 pence).
EPRA earnings per share, which exclude valuation movements, were 4.8 pence (30
June 2023: 5.2 pence), down 7.7% year on year. This was due to: higher net
rental income more than offset by higher finance expenses from higher interest
rates on our floating rate debt and recently refinanced loans. There was also
a positive benefit from lower tax given lower profits and a review of
inter-company interest charges. Gross property assets at 30 June 2024,
including those in property, plant and equipment and those held for sale,
decreased to £1,910.4 million (31 December 2023: £2,062.9 million) as a
result of: a revaluation decrease of £82.3 million; disposals of £53.7
million and foreign exchange reductions of £25.2 million; partly offset by
capital expenditure of £8.8 million less depreciation of £0.1 million. Net
assets per share fell by 9.9% to 210.6 pence (31 December 2023: 233.8 pence)
and EPRA NTA per share fell by 10.1% to 227.4 pence (31 December 2023: 253.0
pence). Total accounting return per share including dividends paid in the
period was -8.0% (30 June 2023: -9.9%).
CLS uses a number of Alternative Performance Measures ('APMs') alongside
statutory figures. We believe that these assist in providing stakeholders with
additional useful information on the underlying trends, performance and
position of the Group. Note 4 to these condensed set of Financial Statements
gives a full description and reconciliation of our APMs, and sets out the full
suite of EPRA measures.
STATEMENT OF COMPREHENSIVE INCOME
Net rental income for the six months to 30 June 2024 of £58.9 million (30
June 2023: £55.6 million) was higher than last year by 5.9% as a result of
higher income from indexation, stronger performance of our hotel and student
operations, retention of part of the deposit from previous failed sale of
Westminster Tower and higher other income, with some offset from disposals.
Rent collection remained at the same, consistently high levels with 99% of
first half rent collected and 97% of third quarter contracted rent due
collected to date.
Operating loss of £43.9 million (30 June 2023: £90.5 million) was due
primarily to the 4.1% revaluation decline in local currency equivalent to a
loss of £82.8 million (30 June 2023: £132.9 million) which was only
partially offset by higher operating profit before revaluation and disposals
of £40.8 million (30 June 2023: £39.7 million) and loss on disposal of £1.4
million (30 June 2023: £2.7 million profit).
Net interest expense of £21.5 million (30 June 2023: £15.5 million), which
was up £6.0 million, is comprised of three elements. Interest costs of £21.3
million (30 June 2023: £17.2 million) were up year-on-year as a result of
higher interest rates on CLS' floating rate debt and recent refinancings. The
movement in the fair value of derivatives was £0.7 million negative (30 June
2023: £0.7 million positive) as these are closer to expiry. Interest income
was lower at £0.5 million (30 June 2023: £1.0 million) due to lower average
cash balances.
The tax credit of £4.6 million (30 June 2023: tax credit £2.3 million)
represented an effective rate of 7.0% (30 June 2023: 2.2%). The overall tax
credit is primarily attributable to the release of deferred tax liabilities in
France and Germany resulting from the reduction in property values.
EPRA NET TANGIBLE ASSETS PER SHARE
EPRA NTA per share fell from 253.0p to 227.4p in the six months to 30 June
2024, a decrease of 25.6p per share or 10.1%. On a per share basis, the
decrease comprised the decrease in property values of 20.7p, foreign exchange
losses of 3.1p, other negative movements of 1.2p and the final 2023 dividend
of 5.35p, partly offset by EPRA earnings of 4.8p.
CASH FLOW, NET DEBT AND FINANCING
In the six months to 30 June 2024, gross borrowings decreased by £42.1
million to £1,028.5 million (31 December 2023: £1,070.6 million),
principally due to a greater amount of loans being repaid due to disposals
compared to loans being drawn.
As at 30 June 2024, the Group had cash of £68.5 million (31 December 2023:
£70.6 million) and £50.0 million (31 December 2023: £50.0 million) of
undrawn facilities. The cash balance decreased by £2.1 million from 31
December 2023 given net investment in our portfolio. During the period, we
invested £9.4 million of capital expenditure including property, plant and
equipment in our properties which was funded by net receipts from disposals of
£30.9 million. Net proceeds from new financing were £26.3 million and £56.8
million of loans were repaid. Net cash flow from operating activities was
£19.9 million (30 June 2023: £23.5 million) which was used to pay the 2023
final dividend of £20.3 million (net of withholding tax which was paid in
July).
Net debt excluding leasehold liabilities at the half-year reduced to £960.0
million (31 December 2023: £1,000.0 million) but the Group's loan-to-value
increased to 50.3% (31 December 2023: 48.5%) due to the valuation declines.
LTV will reduce below 50% when the remaining £20.4 million Westminster Tower
proceeds are received in September. We are forecasting to achieve c.45% LTV at
year-end from further sales with more reduction targeted in future. CLS has no
loan-to-value or interest cover covenants at a Group level.
The weighted average cost of debt increased to 3.81% (31 December 2023: 3.61%)
principally as a result of higher rates on refinancings and loan extensions
more than offsetting the reduction from loan repayments. Based on the current
swap rate and expected refinancings and sales, we would expect the rate to
stay flat or slightly decrease in the second half of 2024. Weighted average
debt maturity was 3.3 years (31 December 2023: 3.3 years).
The proportions of fixed, capped and unhedged debt were 78%, 4% and 18% (31
December 2023: 76%, 4%, 20%) respectively. The proportion of fixed rate debt
has increased in the first half of the year due to £21.8 million of loans at
floating rate having been repaid due to disposals. The 4% of total debt
subject to interest rate caps are all for French and German loans which are at
a range of 0.5% to 1.5%, being on average 2.61% below the average 3-month
EURIBOR of 3.81%.
CLS has 43 different loans secured by individual, or small portfolios of
properties. The loans vary in terms of the number of covenants with the three
main covenants being ratios relating to loan-to-value, interest cover and debt
service cover. However, some loans only have one or two of these covenants,
some have other covenants and some have none. The loans also vary in terms of
the level of these covenants and the headroom to these covenants.
On average across the 43 loans, CLS has between 12% and 28% headroom for these
three main covenants. In the event of an actual or forecast covenant breach,
all of the loans have equity cure mechanisms to repair the breach which allow
CLS to either repay part of the loan or deposit cash for the period the loan
is in breach, after which the cash can be released.
In the first half of 2024, we extended or refinanced £137.1 million of debt
at 5.64% for 1.7 years. Most financing was short-term extensions in advance of
sale, such as Westminster Tower, or completion of reletting activity.
Discussions are well advanced for the remaining four loan refinancings for
£49.1 million, excluding amortisation, due in 2024.
CLS has a higher proportion of loans expiring in 2025 comprising 12 loans
(four in each country) totalling £372.3 million. Discussions have already
started on over three-quarters of the £372.3 million of refinancings, even
though the majority are not due until Q4 2025.
PRINCIPAL RISKS AND UNCERTAINTIES
A detailed explanation of the principal risks and uncertainties affecting the
Group, and the steps it takes to mitigate these risks, can be found on pages
48 to 53 of the 2023 Annual Report and Accounts, which is available at
www.clsholdings.com/investors. (http://www.clsholdings.com/investors.)
The Group's principal risks and uncertainties are grouped into six categories:
property; sustainability; business interruption; financing; political and
economic; and people. These risks and uncertainties are expected to remain
relevant for the remaining six months of the financial year, and these are
discussed further below.
The Board has reviewed the risk status of each of the six risk categories,
particularly with regard to the ongoing economic and geopolitical risks
including higher but peaked interest rates given moderating inflation,
election uncertainty and conflicts in Ukraine and the Middle East. The overall
risk landscape remains heightened but with an increased likelihood of risk
levels moderating in future although not yet sufficient to alter any of the
risk ratings. Both property and financing risks remain as high risks and we
continue to monitor the risks focused around; vacancy; disposals and
loan-to-value; and refinancings, and mitigations vigilantly.
Work continues on implementing software to document, and help test, risks and
internal controls with ongoing progress being made. In the second half of the
year, end to end "walkthrough" tests of a number of processes and the
associated controls will be performed as part of our ongoing controls testing
programme.
Principal risk Status at year end Change since year end Commentary
Property High No change The office market remains bifurcated in two ways. The occupational market
remains healthy with tenants seeking out, and paying more for, higher quality
offices. CLS is responding by investing in its properties to provide the best
offices in our locations. By contrast, the investment market is sluggish given
higher interest rates, valuation uncertainty and lingering concerns about
future office demand.
Sustainability Medium No change We remain committed to, and are on track to deliver our 2030 Net Zero Carbon
Pathway, which is a key part of our Sustainability (and wider ESG) Strategy.
CLS believes that providing sustainable buildings, not only accords with
regulatory demands but also meets changing office trends.
Business interruption Low No change We prioritise investing in our IT and other equipment to give our employees
the tools to perform their roles effectively, whilst taking on board comments
from the staff survey. Ongoing penetration testing and other work has resulted
in continued Cyber Essential Plus standard certification.
Financing High No change Financing risk remains high despite inflation reducing and higher but peaked
interest rates. This is reflected in higher interest costs for CLS with some
increases in bank margins and lowering of Loan-To-Value ratios. Through
ongoing selected disposals CLS is seeking to reduce Group LTV. In addition,
CLS continues to maintain banking relationships, monitor covenants and engage
early with upcoming refinancings. CLS has significant protection with c.80% of
debt fixed and good covenant headroom. CLS also continues to monitor its
compliance with the UK REIT rules.
Political and economic Medium No change As noted, economic conditions remain challenging with higher interest costs
and property valuation declines, and slower growth. These have been mitigated
through CLS' high levels of inflation-indexed rent and higher replacement
values for existing buildings. Geopolitical risks are heightened but CLS'
diversified business model in Europe's three largest economies provides
mitigation.
People Medium No change CLS' staff turnover has reduced in 2024, partly in response to a loosening of
the labour market. A new staff survey has recently been conducted which
highlighted that the culture and our people were the best parts about CLS.
However, to respond to staff needs and market trends more work is needed to
improve communication, training and diversity.
GOING CONCERN
The Directors' assessment of going concern uses the same methodology as for
the preparation and validation of the year end going concern (and viability)
statement(s) (see pages 54 to 57 of the 2023 Annual Report and Accounts). This
assessment uses forecasts that have been adjusted for the impacts of the
current economic, property and financing markets. A more detailed description
of the approach is set out in note 2 to these condensed Group financial
statements.
The Group is reliant in the Base case and Severe but plausible case upon its
ability to both refinance the debt maturing and to complete a number of
investment property disposals in the going concern period in more challenging
market conditions.
Whilst the Directors remain confident that a combination of sufficient
refinancings and property disposals will be achieved, the timing and value of
both the planned refinancing of facilities falling due within the going
concern review period, and planned property disposals, is outside of
management's control and consequently a material uncertainty exists that may
cast significant doubt on the Group's ability to continue as a going concern.
Notwithstanding this material uncertainty on the going concern assumption,
given our track-record and reputation, and the progress made since 31 December
2023 in terms of refinancing, the Directors are confident that the debt
falling due for repayment in the going concern period will be refinanced or
settled in line with their plans for the reasons set out above, rather than
requiring repayment on maturity, or will be extinguished as part of property
disposals in the period. Therefore, the Directors continue to adopt the going
concern basis in preparing these Group financial statements.
The financial statements do not contain the adjustments that would result if
the Group were unable to continue as a going concern.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) the condensed set of financial statements, which has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as contained in UK
adopted financial standards, gives a true and fair view of the assets,
liabilities, financial position and profit of the Group, as required by DTR
4.2.4R;
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the financial year); and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).
On behalf of the Board
Fredrik Widlund Andrew Kirkman
Chief Executive Officer Chief Financial Officer
6 August 2024
Financial statements
Condensed Group income statement
for the six months ended 30 June 2024
Year ended
Six months ended Six months ended
30 June 2024 30 June 31 December 2024
2024
£m £m £m
Notes (unaudited) (unaudited) (audited)
Revenue 3 77.8 72.3 148.7
Costs 3 (18.9) (16.7) (35.7)
Net rental income 58.9 55.6 113.0
Administration expenses (9.0) (8.8) (18.2)
Other property expenses (9.1) (7.1) (15.6)
Operating profit before revaluation and disposals 40.8 39.7 79.2
Net revaluation movements on investment property 9, 11 (82.8) (132.9) (302.7)
Net revaluation movements on equity investments (0.4) - (1.3)
(Loss)/profit on sale of investment property (1.4) 2.7 1.4
Loss on sale of equity investments (0.1) - -
Operating loss (43.9) (90.5) (223.4)
Finance income 5 0.5 1.7 1.6
Finance costs 6 (22.0) (17.2) (41.3)
Foreign exchange loss (0.3) (0.4) (0.3)
Loss before tax (65.7) (106.4) (263.4)
Taxation 7 4.6 2.3 13.6
Loss for the period attributable to equity shareholders (61.1) (104.1) (249.8)
p
Basic and diluted earnings per share 14 (15.4p) (26.2)p (62.9)p
Condensed Group statement of comprehensive income for the six months ended 30
June 2024
Note Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
£m £m £m
(audited)
(unaudited) (unaudited)
Loss for the period (61.1) (104.1) (249.8)
Other comprehensive income
Items that may be reclassified to profit or loss
Revaluation of property, plant and equipment 10 0.6 (0.1) 2.2
Foreign exchange differences (10.7) (16.8) (12.3)
Deferred tax on revaluation of property, plant and equipment (0.1) - (0.6)
Total items that may be reclassified to profit or loss (10.2) (16.9) 10.7
Total other comprehensive (expense)/income (10.2) (16.9) 10.7
Total comprehensive expense for the period attributable to equity shareholders (71.3) (121.0) (260.5)
Condensed Group balance sheet at 30 June 2024
Notes
30 June 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Non-current assets
Investment properties 9 1,737.5 1,992.7 1,850.5
Property, plant and equipment 10 42.2 39.6 41.8
Intangible assets 2.7 3.0 2.9
Equity investments 1.0 2.5 1.4
Deferred tax - 3.1 -
Derivative financial instruments 3.3 7.2 3.6
1,786.7 2,048.1 1,900.2
Current assets
Trade and other receivables 32.5 14.2 16.7
Derivative financial instruments 0.7 1.9 0.7
Cash and cash equivalents 16 68.5 92.5 70.6
101.7 108.6 88.0
Assets held for sale 11 132.7 180.6 172.7
Total assets 2,021.1 2,337.3 2,160.9
Current liabilities
Trade and other payables (70.7) (63.0) (68.6)
Current tax (2.2) (0.2) (0.3)
Borrowings 12 (247.9) (224.5) (193.9)
(320.8) (287.7) (262.8)
Non-current liabilities
Deferred tax (79.4) (102.6) (88.7)
Borrowings 12 (780.6) (864.9) (876.7)
Leasehold liabilities (3.4) (3.4) (3.5)
(863.4) (970.9) (968.9)
Total liabilities (1,184.2) (1,258.6) (1,231.7)
Net assets 836.9 1,078.7 929.2
Equity
Share capital 13 11.0 11.0 11.0
Share premium 83.1 83.1 83.1
Other reserves 96.8 98.7 106.7
Retained earnings 646.0 885.9 728.4
Total equity 836.9 1,078.7 929.2
Condensed Group statement of changes in equity for the six months ended 30
June 2024
Unaudited Share Share Other Retained Total
capital premium reserves earnings £m
£m £m £m £m
At 1 January 2024 11.0 83.1 106.7 728.4 929.2
Arising in the six months ended 30 June 2024:
Total comprehensive expense for the period - - (10.2) (61.1) (71.3)
Share-based payments - - 0.3 - 0.3
Dividends to shareholders - - - (21.3) (21.3)
Total changes arising in the period - - (9.9) (82.4) (92.3)
At 30 June 2024 11.0 83.1 96.8 646.0 836.9
Unaudited Share Share Other Retained Total
capital premium reserves earnings £m
£m £m £m £m
At 1 January 2023 11.0 83.1 115.4 1,011.3 1,220.8
Arising in the six months ended 30 June 2023:
Total comprehensive expense for the period - - (16.9) (104.1) (121.0)
Share-based payments - - 0.2 - 0.2
Dividends to shareholders - - - (21.3) (21.3)
Total changes arising in the period - - (16.7) (125.4) (142.1)
At 30 June 2023 11.0 83.1 98.7 885.9 1,078.7
Audited Share Share Other Retained Total
capital premium reserves earnings £m
£m £m £m £m
At 1 January 2023 11.0 83.1 115.4 1,011.3 1,220.8
Arising in the year ended 31 December 2023:
Total comprehensive expense for the year - - (10.7) (249.8) (260.5)
Share-based payments - - 0.5 - 0.5
Transfer of fair value of property, plant and equipment - - 1.5 (1.5) -
Dividends to shareholders - - - (31.6) (31.6)
Total changes arising in 2023 - - (8.7) (282.9) (291.6)
At 31 December 2023 11.0 83.1 106.7 728.4 929.2
Condensed Group statement of cash flows for the six months ended 30 June 2024
30 June 31 December
2023 2023
£m £m
30 June (unaudited) (audited)
2024
£m
(unaudited)
Notes
Cash flows from operating activities
Cash generated from operations 15 40.8 40.6 83.2
Interest received 0.5 1.0 1.6
Interest paid (20.6) (15.4) (35.1)
Income tax paid on operating activities (0.8) (2.7) (3.8)
Net cash inflow from operating activities 19.9 23.5 45.9
Cash flows from investing activities
Capital expenditure on investment properties (9.3) (30.9) (46.4)
Proceeds from sale of properties 30.9 9.7 17.0
VAT timing difference on sale of property 8.2 - -
Income tax paid on sale of properties - (1.8) (1.8)
Purchases of property, plant and equipment (0.1) (0.7) (0.8)
Purchase of intangibles - (0.1) (0.3)
Net cash inflow/(outflow) from investing activities 29.7 (23.8) (32.3)
Cash flows from financing activities
Dividends paid (20.3) (20.5) (31.6)
Cash received on settlement of derivative instrument 0.7 - -
Purchase of derivative financial instrument (1.2) - -
New loans 26.9 83.9 129.1
Issue costs of new loans (0.1) (0.5) (1.1)
Repayment of loans (56.8) (83.5) (152.6
Net cash outflow from financing activities (50.8) (20.6) (56.2)
Cash flow element of net decrease in cash and cash equivalents (1.2) (20.9) (42.6)
Foreign exchange loss (0.9) (0.5) (0.7)
Net decrease in cash and cash equivalents (2.1) (21.4) (43.3)
Cash and cash equivalents at the beginning of the period 70.6 113.9 113.9
Cash and cash equivalents at the end of the period 68.5 92.5 70.6
Notes to the condensed Group financial statements 30 June 2024
1 BASIS OF PREPARATION
The financial information contained in this half-yearly financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. The results disclosed for the year ended 31 December 2023 are an
abridged version of the full accounts for that year, which received an
unqualified report from the Auditor, did not contain a statement under section
498(2) or (3) of the Companies Act 2006 but did draw attention to material
uncertainty related to going concern without qualifying the Auditor's report,
and have been filed with the Registrar of Companies. The annual financial
statements of CLS Holdings plc are prepared in accordance with United Kingdom
adopted International Accounting Standards (IASs) and International Financial
Reporting Standards (IFRSs). The condensed financial statements included in
this half-yearly financial report have been prepared in accordance with IAS 34
Interim Financial Reporting, as adopted by the United Kingdom.
The same accounting policies, presentation and methods of computation are
followed in the condensed set of financial statements as applied in the latest
audited annual financial statements. A number of new standards and amendments
to IFRSs have become effective for the financial year beginning on 1 January
2024. These new standards and amendments are listed below:
· Amendments to IAS 1 - Classification of liabilities as current or
non-current
· Amendments to IAS 7 and IFRS 7 - Disclosures: Supplier finance
arrangements
· Amendments to IFRS 16 - Lease liability in a sale and leaseback
The adoption of these new standards and amendments to IFRSs did not materially
impact the condensed Group financial statements for the six months ended 30
June 2024 and are not expected to materially impact the full year financial
statements for the 12 months ended 31 December 2024.
2 GOING CONCERN - BASIS OF PREPARATION
Background
CLS' strategy and business model include regular secured loan refinancings,
and capital deployment and recycling through acquisitions, capital expenditure
and disposals. Over the last thirty years, the Group has successfully
navigated several periods of economic uncertainty, including the recent
economic stress resulting from the Covid-19 pandemic, Russia's invasion of
Ukraine and the cost-of-living crisis.
The Group continues to have very high rent collection and low bad debts, and
has a long-term track record in financing and refinancing debt including
£137.1 million completed in 2024 and a further £45.2 million has been well
advanced subsequent to half-year, whereby terms sheets have been obtained or
we have reached a first stage credit review.
The Directors note that the Group financial statements for the year ended 31
December 2023 contained disclosure of a Material Uncertainty related to going
concern due to the timing and amounts of the planned refinancing of debt and
disposals of property being outside of Management's control. In this context
the Directors set out their considerations and conclusions in respect of going
concern for these financial statements below.
Going concern period and basis
The Group's going concern assessment covers the period to 30 September 2025
("the going concern period"). The period chosen takes into consideration the
maturity date of loans totalling £229.2 million that expire by September
2025. The going concern assessment uses the forecast approved by the Board at
its May 2024 meeting as the Base case. The assessment also considers a Severe
but plausible case.
Forecast cash flows - Base case
The forecast cash flows prepared for the Base case take account of the Group's
principal risks and uncertainties, and reflect the challenging economic
backdrop. The forecast cashflows have been updated using assumptions regarding
forecast forward interest curves, inflation and foreign exchange, and includes
revenue growth, principally from contractual increases in rent, and increasing
cost levels in line with forecast inflation.
The Base case is focussed on the cash and working capital position of the
Group throughout the going concern period. In this regard, the Base case
assumes continued access to lending facilities in the UK, Germany and France,
and specifically that debt facilities of £229.2 million with ten lenders
expiring within the going concern period will be refinanced as expected
(£177.1 million) or will be repaid (£52.1 million), some of which are linked
to forecast property disposals. The Board acknowledges that these refinancings
are not fully within its control; however, they remain confident that
refinancings or extensions of these loans will be executed within the required
timeframe, having taken into account:
· existing banking relationships and ongoing discussions with the
lenders in relation to these refinancings;
· CLS' track record of prior refinancings, particularly in the six
months to 30 June 2024 when £137.1 million was successfully refinanced or
extended; and
· recent refinancings subsequent to 30 June 2024 that have reached
an initial credit committee review stage by lenders, or where term sheets have
been obtained, totalling £45.2 million of the £177.1 million noted above.
The Base case includes property disposals in the going concern period in line
with the Group's business model and the forecast cash flows approved by the
Board in May 2024. The Board acknowledges that property disposals are not
fully within its control; however, they are confident these transactions will
be completed within the going concern period, based on their history of
achieving disposals (with disposals of £61.0 million achieved in the six
months to 30 June 2024) and the progress made with the disposal of Spring Mews
Student. The value of the properties available for disposal is significantly
in excess of the value of the debt maturing during the going concern period.
The Group's financing arrangements, which utilise non-recourse property loans,
contain Loan-to-Value ('LTV'), Interest Cover Ratio ('ICR') and Debt Service
Coverage Ratio ('DSCR') covenants. In the Base case, minimal cure payments
have been forecast given that the Group expects to maintain its compliance
with the covenant requirements.
The near-term impacts of climate change risks within the going concern period
have been considered in all scenarios modelled and are expected to be
immaterial.
Forecast cash flows - Severe but plausible case
A Severe but plausible case has been assessed which has been produced by
flexing key assumptions further including: lower rents, increased service
charges, higher property and administration expenses, falling property values,
higher interest rates and reduced achievements of refinancings and disposals.
These flexed assumptions are more severe than CLS experienced during the
2007-2009 global financial crisis and other downturns such as that experienced
in 2020-2022 during the Covid-19 pandemic. A key assumption in this scenario
is a further reduction to the base case, in property values of 10% until
September 2025, impacting forecast refinancings, sales and cash cures. This is
in addition to the reduction experienced of 12.5% in 2023 and cumulative c.
22% decline from 30 June 2022 to 30 June 2024.
Assumptions around refinancing and investment property disposals remain the
same in the base case; however a reduction in property values of 10% results
in additional cure payments of £18.8 million being necessary for the Group to
remain in compliance with its covenant requirements.
Due to the severity of the assumptions used in this scenario, which is severe
but plausible and therefore not remote, the liquidity of the Group is
exhausted even after putting in place controllable mitigating actions as set
out below.
Mitigating actions
In the Severe but plausible case, CLS is assumed to take mitigating actions in
terms of depositing cash to equity cure some loans, scaling back uncommitted
capital expenditure (without impacting revenue streams over the going concern
period) and reducing the dividend to the Property Income Distribution required
under the UK REIT rules as well as drawing its existing £50 million of
currently unutilised revolving credit and overdraft facilities. If needed,
further disposals could be considered as there are no sale restrictions on
CLS' £1.9 billion of properties, albeit the timing and the amount of these
potential disposals are not in the Group's control.
Additionally, the Directors note that the properties that require refinancing
in the going concern period are on a non-recourse basis to the Group.
Accordingly, in extremis, the lender could enforce their security on an
individual property with no claim on the rest of the Group's assets.
Material Uncertainty related to going concern
As described above, the Group is reliant in the Base case and Severe but
plausible case upon its ability to both refinance the debt maturing and to
complete a number of investment property disposals in the going concern period
in more challenging market conditions.
Whilst the Directors remain confident that a combination of sufficient
refinancings and property disposals will be achieved, the timing and value of
both the planned refinancing of facilities falling due within the going
concern period, and planned property disposals, is outside of management's
control and consequently a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going concern.
Notwithstanding this material uncertainty on the going concern assumption,
given our track-record and reputation, the Directors are confident that the
debt falling due for repayment in the going concern period will be refinanced
or settled in line with their plans for the reasons set out above, rather than
requiring repayment on maturity, or will be extinguished as part of property
disposals in the period. In extremis, the loans requiring refinancing are
provided on a non-recourse basis. Therefore, the Directors continue to adopt
the going concern basis in preparing these Group financial statements.
The financial statements do not contain the adjustments that would result if
the Group and Company were unable to continue as a going concern.
3 SEGMENT INFORMATION
Each property represents an operating segment which the Group aggregates into
two reporting segments with similar characteristics - investment properties
and other investments. Other investments comprise the hotel at Spring Mews and
other small corporate investments. Central administration relates to the
operating costs of the Group's headquarters and are not allocated to any
reporting segment. The Group manages the investment properties division on a
geographical basis due to its size and geographical diversity. Consequently,
the Group's principal operating segments are:
Investment properties: United Kingdom
Germany France
Other investments
The Group's results for the six months ended 30 June 2024 by operating segment
were as follows:
Other Central Total
investments administration £m
£m £m
Investment properties
United Germany France
£m
Kingdom £m
£m
Rental income 23.3 21.3 6.5 - - 51.1
Other property-related income 7.5 - 0.1 2.8 - 10.4
Service charge income 7.5 6.0 2.8 - - 16.3
Revenue 38.3 27.3 9.4 2.8 - 77.8
Service charges and similar expenses (8.7) (7.1) (3.1) -- - (18.9)
Net rental income 29.6 20.2 6.3 2.8 - 58.9
Administration expenses (3.8) (1.7) (0.8) (0.1) (2.6) (9.0)
Other property expenses (5.1) (2.0) (0.3) (1.7) - (9.1)
Revenue less costs 20.7 16.5 5.2 1.0 (2.6) 40.8
Net revaluation movements on investment property (38.9) (31.4) (12.5) - - (82.8)
Net revaluation movements on equity - - - (0.4) - (0.4)
investments
Loss on sale of equity instruments - - - (0.1) - (0.1)
Loss on sale of investment property (1.3) (0.1) - - - (1.4)
Segment operating (loss)/profit (19.5) (15.0) (7.3) 0.5 (2.6) (43.9)
Finance income 0.2 - - 0.3 - 0.5
Finance costs (13.5) (6.7) (1.6) - (0.2) (22.0)
Foreign exchange loss - - - (0.3) - (0.3)
Segment (loss)/profit before tax (32.8) (21.7) (8.9) 0.5 (2.8) (65.7)
3 SEGMENT INFORMATION (continued)
The Group's results for the six months ended 30 June 2023 by operating segment
were as follows:
Investment properties
United Kingdom Germany France Other Central Total
£m £m £m investments administration £m
£m £m
Rental income 22.7 21.7 6.6 - - 51.0
Other property-related income 4.2 0.3 0.5 2.4 - 7.4
Service charge income 6.0 5.5 2.4 - - 13.9
Revenue 32.9 27.5 9.5 2.4 - 72.3
Service charges and similar expenses (7.3) (6.6) (2.8) - - (16.7)
Net rental income 25.6 20.9 6.7 2.4 - 55.6
Administration expenses (3.8) (1.6) (0.7) (0.1) (2.6) (8.8)
Other property expenses (3.6) (2.1) (0.3) (1.1) - (7.1)
Revenue less costs 18.2 17.2 5.7 1.2 (2.6) 39.7
Net revaluation movements on investment property (93.1) (34.4) (5.4) (132.9)
- -
Profit on sale of investment property 0.1 2.6(1) - - - 2.7
Segment operating (loss)/profit (74.8) (14.6) 0.3 1.2 (2.6) (90.5)
Finance income 0.6 0.1 0.1 - 0.9 1.7
Finance costs (10.0) (5.3) (1.8) - (0.1) (17.2)
Foreign exchange loss - - - - (0.4) (0.4)
(84.2) (19.8) (1.4) 1.2 (2.2) (106.4)
Segment (loss)/profit before tax
1 This is the land disposal in Sweden
3 SEGMENT INFORMATION (continued)
The Group's results for the year ended 31 December 2023 were as follows:
Investment properties
United Kingdom Germany France Other Central Total
£m £m £m investments administration £m
£m £m
Rental income 46.4 43.2 13.2 - - 102.8
Other property-related income 8.9 0.6 0.9 5.5 - 15.9
Service charge income 13.4 11.7 4.9 - - 30.0
Revenue 68.7 55.5 19.0 5.5 - 148.7
Service charges and similar expenses (16.3) (14.0) (5.4) - - (35.7)
Net rental income 52.4 41.5 13.6 5.5 - 113.0
Administration expenses (7.5) (3.2) (1.3) (0.1) (6.1) (18.2)
Other property expenses (8.6) (4.2) (0.4) (2.4) - (15.6)
Revenue less costs 36.3 34.1 11.9 3.0 (6.1) 79.2
Net revaluation movements on investment properties (186.6) (90.6) (25.5) - - (302.7)
Net revaluation movements on equity investments - - - (1.3) - (1.3)
Profit/(loss) on sale of investment property 0.4 (1.6) (1) (0.1) 2.7 - 1.4
Segment operating (loss)/profit (149.9) (58.1) (13.7) 4.4 (6.1) (223.4)
Finance income 0.1 - - 1.5 - 1.6
Finance costs (25.2) (11.9) (4.0) - (0.2) (41.3)
Foreign exchange gain/(loss) - - 0.1 (0.4) - (0.3)
(175.0) (70.0) (17.6) 5.5 (6.3) (263.4)
Segment loss before tax
1 This includes the land disposal in Sweden
SEGMENT ASSETS AND LIABILITIES
Assets Liabilities Capital expenditure
30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec
2024 2023 2023 2024 2023 2023 2024 2023 2023
£m £m £m £m £m £m £m £m £m
Investment property segment
United Kingdom 857.0 1,009.5 930.0 532.9 556.5 548.2 2.5 25.5 37.2
Germany 858.5 968.3 908.1 495.3 529.3 510.8 4.5 4.8 9.3
France 237.4 280.7 265.0 153.2 167.4 164.3 1.8 1.3 3.1
Other investments segment
68.2 78.8 57.8 2.8 5.4 8.4 - 0.7 0.8
2,021.1 2,337.3 2,160.9 1,184.2 1,258.6 1,231.7 8.8 32.3 50.4
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs')
Alternative performance measures ('APMs') should be considered in addition to,
and are not intended to be a substitute for, or superior to, IFRS
measurements.
Introduction
The Group has applied the October 2015 European Securities and Markets
Authority ('ESMA') guidelines on APMs and the October 2021 Financial Reporting
Council ('FRC') thematic review of APMs in these results, whilst noting the
International Organization of Securities Commissions (IOSCO) 2016 guidance and
ESMA's December 2019 report on the use of APMs. An APM is a financial measure
of historical or future financial performance, position or cash flows of the
Group which is not a measure defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional useful
information on the underlying trends, performance and position of the Group.
APMs assist our stakeholder users of the accounts, particularly equity and
debt investors, through the comparability of information. APMs are used by the
Directors and management, both internally and externally, for performance
analysis, strategic planning, reporting and incentive-setting purposes.
APMs are not defined by IFRS and therefore may not be directly comparable with
other companies' APMs, including peers in the real estate industry. There are
two sets of APMs which we utilise, and which are reconciled where possible to
statutory measures on the following pages.
1. EPRA APMs
CLS monitors the Group's financial performance using APMs which are European
Public Real Estate Association ('EPRA') measures as these are a set of
standard disclosures for the property industry and thus aid comparability for
our stakeholder users. CLS considers the two measures below to be the most
relevant as we believe that these will continue to reflect the long-term
nature of our property investments most accurately:
• EPRA earnings; and
• EPRA net tangible asset value (NTA).
Whilst CLS primarily uses the measures referred to above, we have also
disclosed other EPRA metrics being:
• EPRA net realisable value (NRV);
• EPRA net development value (NDV);
• EPRA net initial yield;
• EPRA 'topped-up' net initial yield;
• EPRA vacancy;
• EPRA capital expenditure;
• EPRA cost ratio;
• EPRA LTV; and
• EPRA like-for-like gross rental income growth.
2. Other APMs
CLS uses a number of other APMs, many of which are commonly used by industry
peers:
• Total accounting return;
• Net borrowings and gearing;
• Loan-to-value;
• Administration cost ratio;
• Dividend cover; and
• Interest cover.
Changes to APMs
There have been no changes to the Group's APMs in the year. The APMs utilised
by the business are defined, calculated and used on a consistent basis.
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
Set out below is a reconciliation of the APMs used in these results to the
statutory measures.
1) EPRA APMs
For use in earnings per share calculations 30 June 2024 30 June 2023 Number 31 December 2023
Number Number
Weighted average number of ordinary shares in circulation 397,410,268 397,249,424 397,330,507
Diluted number of ordinary shares 402,916,907 401,145,840 400,942,040
For use in net asset per share calculations
Number of ordinary shares in circulation 397,410,268 397,410,268 397,410,268
i) EPRA Earnings
Six months Six months ended Year ended 31 December 2023
ended 30 June 2023 £m £m
30 June 2024
£m
Loss for the period (61.1) (104.1) (249.8)
Net revaluation movement on investment property 82.8 132.9 302.7
Deferred taxation on revaluations (7.5) (4.7) (16.3)
Net movement on revaluation of equity investment 0.4 - 1.3
Loss on sale of equity investments 0.1 - -
Loss/(profit) on sale of investment property 1.4 (2.7) (1.4)
Current tax thereon 2.1 - -
Movement in fair value of derivative financial instruments 0.7 (0.7) 4.2
Amortisation of intangible assets 0.2 - 0.2
EPRA earnings 19.1 20.7 40.9
Basic and diluted earnings per share (15.4)p (26.2)p (62.9)p
EPRA earnings per share 4.8p 5.2p 10.3p
ii) Net asset value measures
30 June 2024 IFRS EPRA EPRA EPRA
NAV NTA NRV NDV
£m £m £m £m
Net assets 836.9 836.9 836.9 836.9
Other intangibles - (2.7) - -
Fair value of fixed interest debt - - - 63.1
- tax thereon - - - (3.4)
Deferred tax on revaluation surplus - 80.7 80.7 -
Adjustment for short-term disposals - (7.2) - -
Fair value of financial instruments - (4.0) (4.0) -
Purchasers' costs(1) - - 136.9 -
836.9 903.7 1,050.5 896.6
Per share 210.6p 227.4p 264.3p 225.6p
(1) Purchasers costs have been calculated using the regional market rates
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
30 June 2023 IFRS EPRA EPRA EPRA
NAV NTA NRV NDV
£m £m £m £m
Net assets 1,078.7 1,078.7 1,078.7 1,078.7
Other intangibles - (3.0) - -
Fair value of fixed interest debt - - - 89.1
- tax thereon - - - (5.6)
Deferred tax on revaluation surplus - 100.3 100.3 -
Adjustment for short-term disposals - (8.3) - -
Fair value of financial instruments - (9.1) (9.1) -
Purchasers' costs - - 145.7 -
1,078.7 1,158.6 1,315.6 1,162.2
Per share 271.5p 291.6p 331.0p 292.4p
31 December 2023 IFRS EPRA EPRA EPRA
NAV NTA NRV NDV
£m £m £m £m
Net assets 929.2 929.2 929.2 929.2
Other intangibles - (2.9) - -
Fair value of fixed interest debt - - - 56.7
Tax thereon - - - (3.3)
Deferred tax on revaluation surplus - 90.0 90.0 -
Adjustment for short-term disposals - (6.6) - -
Fair value of financial instruments - (4.3) (4.3) -
Purchasers' costs - - 147.7 -
929.2 1,005.4 1,162.6 982.6
Per share 233.8p 253.0p 292.5p 247.2p
iii) Yield
EPRA Net Initial Yield ('NIY')
EPRA NIY is calculated as the annualised rental income based on the cash rents
passing at the balance sheet date less non-recoverable property operating
expenses, divided by the gross market value of the property (excluding those
that are under development, held as PPE or occupied by CLS).
Six months ended 30 June 2024
United Kingdom Germany France Total
£m £m £m £m
Rent passing 43.8 46.8 13.0 103.6
Adjusted for development stock - - - -
Forecast non-recoverable service charge (3.2) (1.6) (0.6) (5.4)
Annualised net rents (A) 40.6 45.2 12.4 98.2
Property portfolio 695.8 837.4 230.0 1,763.2
Adjusted for development stock (15.9) (2.1) - (18.0)
Purchasers' costs 46.2 56.8 15.6 118.6
Property portfolio valuation including purchasers' costs (B) 726.1 892.1 245.6 1,863.8
EPRA NIY (A/B) 5.6% 5.1% 5.0% 5.3%
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
Six months ended 30 June 2023
United Kingdom Germany France Total
£m £m £m £m
Rent passing 46.6 40.1 13.2 99.9
Adjusted for development stock - - - -
Forecast non-recoverable service charge (1.7) (1.9) (0.4) (4.0)
Annualised net rents (A) 44.9 38.2 12.8 95.9
Property portfolio 866.5 934.4 271.8 2,072.7
Adjusted for development stock (75.8) (4.8) - (80.6)
Purchasers' costs 53.8 63.2 18.5 135.5
Property portfolio valuation including purchasers' costs (B) 844.5 992.8 290.3 2,127.6
EPRA NIY (A/B) 5.3% 3.8% 4.4% 4.5%
Year ended 31 December 2023
United Kingdom Germany France Total
£m £m £m £m
Rent passing 45.5 46.4 13.2 105.1
Adjusted for development stock - - - -
Forecast non-recoverable service charge (3.7) (2.0) (0.5) (6.2)
Annualised net rents (A) 41.8 44.4 12.7 98.9
Property portfolio 745.4 883.8 246.0 1,875.2
Adjusted for development stock (15.7) (2.8) - (18.5)
Purchasers' costs 49.6 59.9 16.7 126.2
Property portfolio valuation including purchasers' costs (B) 779.3 940.8 262.7 1,982.9
EPRA NIY (A/B) 5.4% 4.7% 4.8% 5.0%
EPRA 'topped-up' NIY
EPRA 'topped-up' NIY is calculated by making an adjustment to EPRA NIY in
respect of the expiration of rent-free periods (or other unexpired lease
incentives such as discounted rent periods and stepped rents).
Six months ended 30 June 2024
United Germany France T
o
Kingdom £m £m t
a
£m l
£
m
Contracted rent 50.1 47.7 13.9 111.7
Adjusted for development stock - - - -
Forecast non-recoverable service charge (3.2) (1.6) (0.6) (5.4)
'Topped-up' annualised net rents (A) 46.9 46.1 13.3 106.3
Property portfolio 695.8 837.4 230.0 1,763.2
Adjusted for development stock (15.9) (2.1) - (18.0)
Purchasers' costs 46.2 56.8 15.6 118.6
Property portfolio valuation including purchasers' costs (B) 726.1 892.1 245.6 1,863.8
EPRA 'topped-up' NIY (A/B) 6.5% 5.2% 5.4% 5.7%
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
Six months ended 30 June 2023
United Germany France Total
Kingdom £m £m £m
£m
Contracted rent 49.3 45.2 14.2 108.7
Adjusted for development stock - - - -
Forecast non-recoverable service charge (1.7) (1.9) (0.4) (4.0)
'Topped-up' annualised net rents (A) 47.6 43.3 13.8 104.7
Property portfolio 866.5 934.4 271.8 2,072.7
Adjusted for development stock (75.8) (4.8) - (80.6)
Purchasers' costs 53.8 63.2 18.5 135.5
Property portfolio valuation including purchasers' costs (B) 844.5 992.8 290.3 2,127.6
EPRA 'topped-up' NIY (A/B) 5.6% 4.4% 4.8% 4.9%
Year ended 31 December 2023
United Kingdom Germany France Total
£m £m £m £m
Rent passing 50.9 47.5 14.2 112.6
Adjusted for development stock - - - -
Forecast non-recoverable service charge (3.7) (2.0) (0.5) (6.2)
Annualised net rents (A) 47.2 45.5 13.7 106.4
Property portfolio 745.4 883.8 246.0 1,875.2
Adjusted for development stock (15.7) (2.8) - (18.5)
Purchasers' costs 49.6 59.9 16.7 126.2
Property portfolio valuation including purchasers' costs (B) 779.3 940.9 262.7 1,982.9
EPRA NIY (A/B) 6.1% 4.8% 5.2% 5.4%
iv) EPRA vacancy
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
£m £m £m
ERV of vacant space (A) 16.2 11.3 13.9
ERV of let space 107.0 111.4 112.4
ERV of lettable space (B) 123.2 122.7 126.3
EPRA vacancy rate (A/B) 13.2% 9.2% 11.0%
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
v) EPRA capital expenditure
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
£m £m £m
Acquisitions - - -
Amounts spent on the completed investment property portfolio
Creation of incremental space - 1.9 2.1
Creation of no incremental space 8.8 29.7 47.5
EPRA capital expenditure 8.8 31.6 49.6
Conversion from accrual to cash basis 0.5 (0.8) (3.2)
EPRA capital expenditure on a cash basis 9.3 30.8 46.4
vi) EPRA cost ratio
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
£m £m £m
Administration expenses - recurring 9.0 8.8 18.2
Other expenses 9.1 7.1 15.6
Less: investment segment and student operating costs (3.3) (2.3) (5.2)
14.8 13.6 28.6
Net service charge costs 2.6 2.8 5.7
Service charge costs recovered through rents but not separately invoiced (0.1) (0.1) (0.1)
Dilapidations receipts (0.3) (1.1) (2.3)
EPRA costs (including direct vacancy costs) (A) 17.0 15.2 31.9
Direct vacancy costs (3.9) (2.7) (6.1)
EPRA costs (excluding direct vacancy costs) (B) 13.1 12.5 25.8
Gross rental income 51.1 51.0 102.8
Service charge components of rental income (0.1) (0.1) (0.1)
Adjusted gross rental income (C) 51.0 50.9 102.7
EPRA cost ratio (including direct vacancy costs) (A/C) 33.3% 29.9% 31.1%
EPRA cost ratio (excluding direct vacancy costs) (B/C) 25.7% 24.6% 25.1%
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
vii) EPRA LTV
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
£m £m £m
Borrowings from financial institutions 1,028.5 1,089.4 1,070.6
Net payables 40.4 48.9 52.2
Cash and cash equivalents (68.5) (92.5) (70.6)
Net debt (A) 1,000.4 1,045.8 1,052.2
Properties held as property, plant and equipment 40.2 37.2 39.7
Investment properties 1,737.5 1,992.7 1,850.5
Properties and land held for sale 132.7 180.6 172.7
Financial assets - equity investments 1.0 2.5 1.4
Total property value (B) 1,911.4 2,213.0 2,064.3
EPRA LTV (A/B) 52.3% 47.3% 51.0%
viii) EPRA like-for-like gross rental income growth
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
% % %
Increase in gross rental income (%) 0.3 4.8 3.5
Six months Six months Year ended
ended ended 31 December
30 June 2024 30 June 2023 2023
£m £m £m
Increase in gross rental income (£m) 0.2 2.3 3.4
2. Other APMs
i) Total accounting return per share
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
p p p
EPRA closing net tangible assets 227.4 291.6 253.0
Add back: prior year final dividend paid 5.4 5.4 5.4
Add back: interim dividend paid - - 2.6
Less: EPRA opening net tangible assets (A) (253.0) (329.6) (329.6)
Return before dividends (B) (20.2) (32.6) (68.6)
Total accounting return (B/A) (8.0)% (9.9)% (20.8)%
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
ii) Net borrowings and gearing
Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Borrowings short-term 12 247.9 224.5 193.9
Borrowings long-term 12 780.6 864.9 876.7
Add back: unamortised issue costs 12 4.4 4.9 5.0
Gross debt 12 1,032.9 1,094.3 1,075.6
Cash 16 (68.5) (92.5) (70.6)
Net borrowings (A) 964.4 1,001.8 1,005.0
Net assets (B) 836.9 1,078.7 929.2
Net gearing (A/B) 115.2% 92.9% 108.2%
iii) Balance sheet loan-to-value
Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Borrowings short-term 12 247.9 224.5 193.9
Borrowings long-term 12 780.6 864.9 876.7
Less: cash 16 (68.5) (92.5) (70.6)
Net debt (A) 960.0 996.9 1,000.0
1,992.71,99 1,850.5
Investment properties 9 1,737.5 1,992.7 1,850.5
Properties in PPE 8 40.2 37.2 39.7
Properties and land held for sale 11 132.7 180.6 172.7
Total property portfolio (B) 1,910.4 2,210.5 2,062.9
Loan-to-value (A/B) 50.3% 45.1% 48.5%
iv) Dividend cover Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Interim dividend * 10.3 10.3 10.3
Final dividend - - 21.3
Total dividend (A) 10.3 10.3 31.6
EPRA earnings (B) 19.1 20.7 40.9
Dividend cover (B/A) 1.85 2.00 1.30
* The 30 June 2024 amount represents the proposed interim 2024 dividend
4 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
v) Interest cover Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Net rental income 3 58.9 55.6 113.0
Administration expenses 3 (9.0) (8.8) (18.2)
Other expenses 3 (9.1) (7.1) (15.6)
Revenue less costs (A) 3 40.8 39.7 79.2
Finance income (excluding dividends and derivatives) 5 0.5 1.0 1.6
Finance costs (excluding derivatives) 6 (21.3) (17.2) (37.1)
Net interest (B) 20.8 (16.2) (35.5)
Interest cover (A/B) 1.96 2.45 2.23
vi) CLS administration cost ratio
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Administration expenses 9.0 8.8 18.2
Less: Other investment segment (0.1) (0.1) (0.1)
Underlying administration expenses (A) 8.9 8.7 18.1
Net rental income (B) 58.9 55.6 113.0
Administration cost ratio (A/B) 15.1% 15.6% 16.0%
5 FINANCE INCOME
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Interest income
Financial instruments carried at amortised cost 0.5 1.0 1.6
Movement in fair value of derivative financial instruments - 0.7 -
0.5 1.7 1.6
6 FINANCE COSTS
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Interest expense
Secured bank loans 20.4 16.3 35.5
Amortisation of loan issue costs 0.9 0.9 1.6
Total interest costs 21.3 17.2 37.1
Movement in fair value of derivative financial instruments 0.7 - 4.2
Total finance costs 22.0 17.2 41.3
7 TAXATION
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Deferred tax
Origination and reversal of temporary differences (7.5) (5.0) (17.3)
(7.5) (5.0) (17.3)
Current tax 2.9 2.7 3.7
Tax credit (4.6) (2.3) (13.6)
Tax for the six months ended 30 June 2024 has been recorded at an effective
rate of 7.0% (six months ended 30 June 2023: 2.2%; year ended 31 December
2023: 5.5%), representing the best estimate of the average annual effective
tax rate expected for the full year adjusted for the tax effect of one-off
items, applied to the pre-tax income of the six month period. The effective
tax rate for the period of 7.0% is lower than the weighted average tax rate of
21.2%. This is primarily due to the revaluation loss arising from the UK
property rental business which is exempt from UK Corporation Tax under the
REIT regime.
The total tax credit for the period ended 30 June 2024 of £4.6 million is
higher than the £2.3 million tax credit for the six months ended 30 June 2023
primarily due to lower current tax in the UK. The total tax credit for the
period ended 30 June 2024 of £2.3 million is lower than the £13.6 million
credit recognised for the year ended 31 December 2023 as a result of a release
of deferred tax liabilities in Germany and France.
8 PROPERTY PORTFOLIO
United Kingdom Germany France Total
£m £m £m £m
Investment property 699.7 807.8 230.0 1,737.5
Property held as property, plant and equipment 36.8 1.7 1.7 40.2
Properties held for sale 103.2 29.5 - 132.7
Property portfolio at 30 June 2024 839.7 839.0 231.7 1,910.4
United Kingdom Germany France Total
£m £m £m £m
Investment property 915.4 814.9 262.4 1,992.7
Property held as property, plant and equipment 33.7 1.7 1.8 37.2
Properties held for sale 51.8 119.4 9.4 180.6
Property portfolio at 30 June 2023 1,000.9 936.0 273.6 2,210.5
United Kingdom Germany France Total
£m £m £m £m
Investment property 836.3 768.2 246.0 1,850.5
Property held as property, plant and equipment 36.3 1.7 1.7 39.7
Properties held for sale 47.3 115.6 9.8 172.7
Property portfolio at 31 December 2023 919.9 885.5 257.5 2,062.9
The property portfolio which comprises investment properties detailed in note
9, the hotel and owner-occupied property detailed in note 10 and properties
held for sale detailed in note 11 was revalued at 30 June 2024 to its fair
value. Valuations were based on current prices in an active market for all
properties. The property valuations were carried out by external independent
valuers as follows:
30 June 2024 30 June 2023 31 December 2023
Investment property Other property Property portfolio Investment property Other property Property portfolio Investment property Other property Property portfolio
£m £m £m £m £m £m £m £m £m
Cushman and Wakefield 699.7 140.0 839.7 915.4 85.5 1,000.9 836.3 83.6 919.9
Jones Lang LaSalle 1,037.8 32.9 1,070.7 1,077.3 132.3 1,209.6 1,014.2 128.8 1,143.0
1,737.5 172.9 1,910.4 1,992.7 217.8 2,210.5 1,850.5 212.4 2,062.9
The total fees, including the fees for this assignment, earned by each of the
valuers from the Group is less than 5% of their total revenues in each
jurisdiction. See note 9 and note 10 for details on valuation technique and
fair value measurement.
9 INVESTMENT PROPERTIES
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2024 836.3 768.2 246.0 1,850.5
Capital expenditure 2.5 4.5 1.8 8.8
Disposals (3.1) - - (3.1)
Net revaluation movement (38.9) (30.9) (12.5) (82.3)
Lease incentives (0.4) 0.2 0.1 (0.1)
Exchange rate variances - (18.0) (5.4) (23.4)
Transfer to property, plant and equipment - (0.1) - (0.1)
Transfer (to)/from properties held for sale (96.7) 83.9 - (12.8)
At 30 June 2024 699.7 807.8 230.0 1,737.5
Germany France Total
United Kingdom
£m £m £m £m
At 1 January 2023 1,030.0 990.5 274.5 2,295.0
Capital expenditure 25.5 4.8 1.3 31.6
Disposals (1.8) - - (1.8)
Net revaluation movement (93.0) (34.4) (5.5) (132.9)
Lease incentives (0.5) 2.0 - 1.5
Exchange rate variances - (28.6) (7.9) (36.5)
Transfer to properties held for sale (44.8) (119.4) - (164.2)
At 30 June 2023 915.4 814.9 262.4 1,992.7
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2023 1,030.0 990.5 274.5 2,295.0
Acquisitions - - - -
Capital expenditure 37.2 9.3 3.1 49.6
Disposals (3.7) (6.6) - (10.3)
Net revaluation movement (186.1) (90.6) (25.5) (302.2)
Lease incentives (0.3) 1.6 (0.2) 1.1
Exchange rate variances - (20.3) (5.7) (26.0)
Transfer to properties held for sale (40.8) (115.7) (0.2) (156.7)
At 31 December 2023 836.3 768.2 246.0 1,850.5
Investment properties include leasehold properties with a carrying value of
£63.0 million (30 June 2023: £72.6 million; 31 December 2023: £65.1
million).
Interest capitalised within capital expenditure in the period amounted to
£nil (30 June 2023: £0.6 million; 31 December 2023 £1.0 million)
Valuation process
The Group's property portfolio was valued by external valuers on the basis of
fair value using information provided to them by the Group such as current
rents, terms and conditions of lease agreements, service charges and capital
expenditure. This information is derived from the Group's property management
systems and is subject to the Group's overall control environment. The
valuation reports are based on assumptions and valuation models used by the
external valuers. The assumptions are typically market related, such as yields
and discount rates, and are based on professional judgement and market
evidence of transactions for similar properties on arm's length terms. The
valuations are prepared in accordance with RICS Valuation - Global standards.
9 INVESTMENT PROPERTIES continued
Each Country Head, who reports to the Chief Executive Officer, verifies all
major inputs to the external valuation reports, assesses the individual
property valuation changes from the prior year valuation report and holds
discussions with the external valuers. When the process is complete, the
valuation report is recommended to the Audit Committee and the Board, which
considers it as part of its overall responsibilities.
Valuation techniques
The fair value of the property portfolio (excluding ongoing developments, see
below) has been determined using the following approaches in accordance with
International Valuation Standards:
United Kingdom: an income capitalisation approach whereby
contracted and market rental values are capitalised with a market
capitalisation rate
Germany: a 10 year discounted cash flow
model with an assumed exit thereafter
France: both the market
capitalisation approach and a 10 year discounted cash flow approach
The resulting valuations are cross-checked against the equivalent yields and
the fair market values per square foot derived from comparable recent market
transactions on arm's length terms. Other factors taken into account in the
valuations include the tenure of the property, tenancy details, and ground and
structural conditions.
Ongoing developments are valued under the 'residual method' of valuation,
which is the same method as the income capitalisation approach to valuation
described above, with a deduction for all costs necessary to complete the
development, including a notional finance cost, together with a further
allowance for remaining risk. As the development approaches completion, the
valuer may consider the income capitalisation approach to be more appropriate.
All valuations have considered the environmental, social and governance
credentials of the properties and the potential cost of improving them to
local regulatory standards along with the broader potential impact of climate
change.
These techniques are consistent with the principles in IFRS 13 Fair Value
Measurement and use significant unobservable inputs such that the fair value
measurement of each property within the portfolio has been classified as Level
3 in the fair value hierarchy.
There were no transfers between any of the Levels in the fair value hierarchy
during either 2024 or 2023. The Group determines whether transfers have
occurred between levels in the fair value hierarchy by re-assessing
categorisation at the end of each reporting period.
Gains and losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy amount to
a loss of £82.8 million (30 June 2023: £132.9 million; 31 December 2023:
£302.7 million) and are presented in the income statement in the line item
'Net movements on revaluation of investment properties'. The revaluation
surplus for the property, plant and equipment of £0.6 million (30 June 2023:
£0.1 million loss; 31 December 2023: surplus £2.2 million) was included
within the revaluation reserve via other comprehensive income.
All gains and losses recorded in profit or loss in 2024 and 2023 for recurring
fair value measurements categorised within Level 3 of the fair value hierarchy
are attributable to changes in unrealised gains or losses relating to
investment property held at 30 June 2024 and 30 June 2023, respectively.
9 INVESTMENT PROPERTIES continued
Quantitative information about fair value measurement using unobservable
inputs (Level 3)
ERV
Average £ per sq. ft Range £ per sq. ft
30-Jun-23 31-Dec-23 30-Jun-23 31-Dec-23
30-Jun-24 30-Jun-24
UK 37.75 35.62 34.76 10.00 - 56.24 10.00 - 55.85 10.00 - 56.05
Germany 13.78 14.07 14.40 9.70 - 28.26 9.84 - 24.53 9.93 - 29.70
France 21.65 21.19 21.96 12.69 - 44.25 12.87 - 40.20 12.99 - 43.53
Equivalent yield
Average % Range %
30-Jun-23 31-Dec-23 30-Jun-23 31-Dec-23
30-Jun-24 30-Jun-24
UK 7.19 6.09 6.08 3.44 - 10.50 2.93 - 9.27 2.98 - 13.23
Germany 5.25 5.01 5.24 4.10 - 6.40 4.00 - 6.00 4.40 - 6.20
France 6.12 5.41 6.00 4.86 - 7.50 4.30 - 6.90 4.79 - 7.40
Sensitivity of measurement to variations in the significant unobservable
inputs
All other factors remaining constant, an increase in ERV would increase
valuations, whilst an increase in the equivalent yield would result in a fall
in value, and vice versa. There are inter-relationships between these inputs
as they are partially determined by market conditions. An increase in the
reversionary yield may accompany an increase in ERV and would mitigate its
impact on the fair value measurement.
A decrease in the equivalent yield by 25 basis points would result in an
increase in the fair value of the Group's investment property by £81.6
million (30 June 2023: £93.5 million; 31 December 2023: £84.8 million)
whilst a 25 basis point increase would reduce the fair value by £81.2 million
(30 June 2023: £98.9 million; 31 December 2023: £85.4 million). A decrease
in the ERV by 5% would result in a decrease in the fair value of the Group's
investment property by £74.8 million (30 June 2023: £87.9 million; 31
December 2023: £79.0 million) whilst an increase in the ERV by 5% would
result in an increase in the fair value of the Group's investment property by
£68.3 million (30 June 2023: £72.6 million; 31 December 2023: £70.7
million).
Where the Group leases out its investment property under operating leases the
duration is typically three years or more. No contingent rents have been
recognised in the current or prior year.
Although not a key valuation assumption, in the absence of a financial
instruments note and disclosure on foreign exchange risk, the table below
shows how the investment property values would be impacted by a 5% movement in
the sterling/euro exchange rate at 30 June 2024.
£m
5% increase in value of sterling against the euro (49.4)
5% fall in value of sterling against the euro 54.6
Sustainability, climate change, Net Zero Carbon Pathway and EPC compliance
In August 2021, the Group published its Sustainability Strategy which includes
a pathway to achieve Net Zero Carbon ("NZC") emissions by 2030 (see pages 37
to 38 of the 2023 Annual Report). Our NZC Pathway is underpinned by individual
property energy audits, undertaken by technical experts, which identify energy
and carbon saving opportunities. At today's costs, the investment required to
upgrade all our assets to meet our SBTi-aligned NZC target amounts is an
estimated £65 million over the 10-year period between 2021 and 2030, with
over £15 million spent since 2021. We have integrated the energy audits into
individual asset management plans to enable strategic decisions about the
refurbishment, sale or full redevelopment of our assets to be made. Additional
audits are undertaken as and when required (e.g. when a property enters the
portfolio) to ensure the robust delivery of the pathway across the Group's
portfolio. The UK portfolio is already compliant with the 2023 Minimum Energy
Efficiency Standard (MEES) requirements, whilst further upgrades are scheduled
to ensure our properties achieve the expected target of EPC B by 2030. In
France, our asset management plans will ensure we meet the Décret Tertiaire
requirements, whilst we continue to monitor the revised EU Energy Performance
of Buildings Directive to ensure the alignment of our buildings in Germany and
France. In addition, our NZC Pathway will see our alignment with the Carbon
Risk Real Estate Monitor ("CRREM") energy and carbon intensity pathways, by
2030, across all three regions.
10 PROPERTY, PLANT AND EQUIPMENT
30 June
30 June 2023 31 December
2024 £m 2023
£m £m
Hotel 30.8 27.1 30.2
Owner-occupied property 9.4 10.1 9.5
Fixtures and fittings 2.0 2.4 2.1
Total 42.2 39.6 41.8
Hotel Owner-occupied property Fixtures Total
£m £m and £m
fittings
£m
At 1 January 2024 30.2 9.5 3.9 43.6
Additions - - 0.1 0.1
Disposals - - (0.1) (0.1)
Reclassification from investment property - 0.1 - 0.1
Revaluation 0.6 (0.1) - 0.5
Exchange rate variances - (0.1) - (0.1)
At 30 June 2024 30.8 9.4 3.9 44.1
Comprising:
At cost - - 3.9 3.9
At valuation 30.8 9.4 - 40.2
30.8 9.4 3.9 44.1
Accumulated depreciation and impairment
At 1 January 2024 - - (1.8) (1.8)
Depreciation charge (0.1) - (0.2) (0.3)
Disposals - - 0.1 0.1
Revaluation 0.1 - - 0.1
At 30 June 2024 - - (1.9) (1.9)
Net book value
At 30 June 2024 30.8 9.4 2.0 42.2
At 31 December 2023 30.2 9.5 2.1 41.8
Valuation techniques
The fair value of the hotel has been determined using the following approach
in accordance with International Valuation Standards:
Hotel: a 10 year discounted cash flow model with an assumed exit thereafter. The
projected EBITDA in the 11th year is capitalised at a market yield before
being brought back to present day values.
Owner - occupied an income capitalisation approach whereby contracted and market rental values
are capitalised with a market capitalisation rate.
property:
This technique is consistent with the principles in IFRS 13 Fair Value
Measurement and use significant unobservable inputs such that the fair value
measurement of the hotel within the portfolio has been classified as Level 3
in the fair value hierarchy.
11 ASSETS HELD FOR SALE
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2024 47.3 115.6 9.8 172.7
Disposals (40.8) - (9.8) (50.6)
Transfer from/(to) investment property 96.7 (83.9) - 12.8
Revaluation - (0.5) - (0.5)
Exchange rate variances - (1.7) - (1.7)
At 30 June 2024 103.2 29.5 - 132.7
The balance above comprises 3 properties (31 Dec 2023: 6 properties; 30 June
2023: 7 properties). The facts and circumstances of the disposals or
expected disposals are commercially sensitive and therefore are not disclosed
here however further detail may be obtained from the earlier part of this
report. Management expect that properties transferred to held for sale during
the year will be disposed of within 12 months, usually via an open market
process.
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2023 7.0 3.6 9.7 20.3
Disposals - (3.6)(1) - (3.6)
Transfer from investment property 44.8 119.4 - 164.2
Exchange rate variances - - (0.3) (0.3)
At 30 June 2023 51.8 119.4 9.4 180.6
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2023 7.0 3.6 9.7 20.3
Disposals - (3.6)(1) - (3.6)
Transfer from investment property 40.8 115.6 0.3 156.7
Revaluation (0.5) - - (0.5)
Exchange rate variances - - (0.2) (0.2)
At 31 December 2023 47.3 115.6 9.8 172.7
(1 This is the disposal of our land holding in Sweden)
12 BORROWINGS
MATURITY PROFILE
At 30 June 2024 Secured bank
loans
£m
Maturing in:
Within one year or on demand 249.4
One to two years 247.9
Two to five years 315.4
More than five years 220.2
1,032.9
Unamortised issue costs (4.4)
Borrowings 1,028.5
Due within one year (247.9)
Due after one year 780.6
At the year ended 31 December 2023, £195.4 million of borrowings were due for
repayment within one year and £327.0 million was due within one to two years
including unamortised issue costs (see 2023 Annual Report and Accounts, note
19). During the six-month period, CLS has financed £137.1 million (of which
£16.9 million was classified as new loans).
At 30 June 2023 Secured bank
loans
£m
Maturing in:
Within one year or on demand 225.9
One to two years 176.8
Two to five years 424.3
More than five years 267.3
1,094.3
Unamortised issue costs (4.9)
Borrowings 1,089.4
Due within one year (224.5)
Due after one year 864.9
At 31 December 2023 Secured bank
loans
£m
Maturing in:
Within one year or on demand 195.4
One to two years 327.0
Two to five years 331.0
More than five years 222.2
1,075.6
Unamortised issue costs (5.0)
Borrowings 1,070.6
Due within one year (193.9)
Due after one year 876.7
12 BORROWINGS continued
FAIR VALUES
Carrying amounts Fair values
30 June 2024 30 June 2023 31 December 2023 30 June 2024 30 June 2023 31 December 2023
£m £m £m £m £m £m
Current borrowings 247.9 224.5 193.9 247.9 224.5 193.9
Non-current borrowings 780.6 864.9 876.7 719.3 777.3 820.0
1,028.5 1,089.4 1,070.6 967.2 1,001.8 1,013.9
The valuation methods used to measure the fair values of the Group's fixed
rate borrowings were derived from inputs which were either observable as
prices or derived from prices taken from Bloomberg (Level 2).
13 SHARE CAPITAL
Number of shares authorised, issued and fully paid
Ordinary Treasury Total ordinary shares Ordinary shares in circulation Treasury Total
shares in shares Number £m shares ordinary shares
circulation Number £m £m
Number
At 1 January 2023 379,210,866 41,566,914 438,777,780 9.9 1.1 11.0
Issue of shares 199,402 (199,402) - - - -
- - - -
At 30 June 2023 and 397,410,268 41,367,512 438,777,780 9.9 1.1 11.0
31 December 2023
At 30 June 2024 397,410,268 41,367,512 438,777,780 9.9 1.1 11.0
14 EARNINGS PER SHARE
The calculation of earnings per ordinary share is based on earnings after tax
and the weighted average number of ordinary shares in issue during the year.
30 June 2024 30 June 2023 Number 31 December 2023 Number
Number
Weighted average number of ordinary shares in circulation 397,410,268 397,249,424 397,330,507
Number of ordinary shares in circulation 397,410,268 397,410,268 397,410,268
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The diluted earnings per share does not assume conversion of potential
ordinary shares that would have an antidilutive effect on earnings per share.
The Group has three types of dilutive potential ordinary shares, being:
unvested shares granted under the Long Term Incentive Plan for executive
directors and senior management; unvested shares granted under the Element B
plan for executive directors and senior management; and unvested shares
granted under the Special Share Award plan to key management. The issue of all
these unvested shares is contingent upon satisfying specified conditions such
as length of service and company performance.
Employee share plan 30 June 2024 30 June 2023 31 December 2023
Number Number Number
Element B / Special Share Award 694,695 932,847 820,246
LTIP 4,811,944 2,963,569 2,880,054
Total potential dilutive shares 5,506,639 3,896,416 3,700,300
15 CASH GENERATED FROM OPERATIONS
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
£m £m £m
Operating loss (43.9) (90.5) (223.4)
Adjustments for:
Net movements on revaluation of investment properties 82.8 132.9 302.7
Net movements on revaluation of equity investments 0.4 - 1.3
Depreciation and amortisation 0.5 0.3 0.8
Lease incentive debtor adjustments 0.1 (1.5) (1.1)
Share-based payment charge 0.3 0.2 0.5
Loss/(profit) on sale of investment properties 1.4 (2.7) (1.4)
Changes in working capital:
Decrease/(increase) in receivables 4.6 1.5 (0.9)
(Decrease)/increase in payables (5.4) 0.4 4.7
Cash generated from operations 40.8 40.6 83.2
16 CASH AND CASH EQUIVALENTS
Six months Six months Year ended
ended ended 31
30 June 30 June December
2024 2023 2023
£m £m £m
Cash at bank 68.5 92.5 70.6
At 30 June 2024, cash at bank included £24.7 million (31 Dec 2023: £26.1
million; 30 June 2023: £30.0 million) which was restricted
by a third-party charge. £15.0 million of the restricted cash is deposited
with banks in respect of borrowings (31 Dec 2023: £15.4 million; 30 June
2023: £19.9 million), £9.7 million is tenant deposits (31 Dec 2023: £10.7
million; 30 June 2023: £9.9 million) and £nil (31 Dec 2023: £nil; 30 June
2023: £0.2m) is from a terminated contract for the provision of property
management services to a related party.
17 CONTINGENCIES
As outlined in note 28 of the 2023 Annual Report and Accounts, in April 2023,
CLS Holdings plc dissolved 8 subsidiaries. Before the subsidiaries were
dissolved, capital reductions and distributions of the net assets of the
subsidiaries, primarily represented by inter-company receivables of £17.1
million, to CLS Holdings plc should have been executed. However, they were
not. As a consequence of this, as a matter of Law, on dissolution of these
subsidiaries the technical titles to the inter-company receivables were
transferred from the Group to the Crown. A further review of subsidiary
dissolutions was conducted during the six months ended 30 June 2024. This
review identified a further three subsidiaries of CLS Holdings plc where
capital reductions and distributions were not executed appropriately
representing a further £4.6 million of inter-company receivables that were
transferred to the Crown. The Directors have taken legal advice and started
the process to restore the aforementioned subsidiaries. Thereafter, the
Directors can execute the capital reductions and make appropriate
distributions to CLS Holdings plc of these subsidiaries' assets. Also, based
on that legal advice, the Directors consider that it is improbable that the
Crown will pursue the CLS group for these assets of the subsidiaries prior to
the process of the restoration of the subsidiaries being completed and the
technical title to the receivables being returned to the Group. Therefore, the
Directors consider that it is not probable that an outflow of cash or other
economic resources of £21.7 million from the Group will occur, and therefore
no provision is recognised at 30 June 2024, but has been disclosed as a
contingent liability. Subsequent to 30 June 2024, notice was received that
three subsidiaries have been successfully restored, reducing the contingent
liability to £17.6 million at the date of this report.
18 RELATED PARTY TRANSACTIONS
There have been no material changes in the related party transactions
described in the last annual report, other than those disclosed elsewhere in
this condensed set of financial statements.
19 POST BALANCE SHEET EVENTS
The Group completed on the sale Hansastrasse, Dortmund on 5 August 2024 for a
total of £7.7 million. At the balance sheet date the property was classified
as held for sale on the balance sheet.
There were no other material events after 30 June 2024 which have a bearing on
the understanding of the financial statements and require disclosure.
GLOSSARY
Administration cost ratio
Recurring administration expenses of the investment property operating
segment expressed as a percentage of net rental income.
Balance sheet loan-to-value
Net debt expressed as a percentage of property assets.
Building Research Establishment Environmental Assessment Method (BREEAM)
An environmental impact assessment method for non-domestic buildings. Their
standards cover new construction, In-Use as well as refurbishment and
fit-out. BREEAM In-Use enables property investors, owners, managers and
occupiers to determine and drive sustainable improvements in the operational
performance of their buildings. It provides sustainability benchmarking and
assurance for all building types and assesses performance in a number
of areas; management, health & wellbeing, energy, transport,
water, resources, resilience, land use & ecology, and pollution.
Performance is measured across a series of ratings; Good, Very Good,
Excellent and Outstanding.
Carbon emissions Scopes 1, 2 and 3
Scope 1 - direct emissions;
Scope 2 - indirect emissions; and
Scope 3 - other indirect emissions.
CDP
CDP, formerly known as the Carbon Disclosure Project, assesses the ESG
performance of all major companies worldwide and aids comparability
between organisations to allow the investor community to assess the carbon
and climate change risk of each company.
Contracted rent
Annual contracted rental income after any rent-free periods have expired.
Earnings per share
Profit for the year attributable to the owners of the Company divided by the
weighted average number of ordinary shares in issue in the period.
Energy Performance Certificate (EPC)
An EPC is an asset rating detailing how energy efficient a building is, rated
by carbon dioxide emission on a scale of A-G, where an A rating is the most
energy efficient. They are legally required for any building that is to be put
on the market for sale or rent.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe's leading property
companies, investors and consultants which strives to establish best practices
in accounting, reporting and corporate governance and to provide high-quality
information to investors. EPRA's Best Practices Recommendations includes
guidelines for the calculation of the following performance measures which the
Group has adopted.
EPRA capital expenditure
Investment property acquisitions and expenditure split between amounts used
for the creation of additional lettable area ('incremental lettable space')
and enhancing existing space ('no incremental space') both on an accrual and
cash basis.
EPRA cost ratio
Administrative & operating costs (including & excluding costs
of direct vacancy) divided by gross rental income. A measure to enable
meaningful measurement of the changes in a company's operating costs.
EPRA earnings per share (EPS)
Earnings from operational activities. A measure of a company's underlying
operating results and an indication of the extent to which current dividend
payments are supported by earnings.
EPRA like-for-like rental growth
This measure shows the growth in gross rental income on properties owned
throughout the current and previous year under review. This growth rate
excludes properties held for development, acquired or disposed in either year.
EPRA net reinstatement value (NRV)
NAV adjusted to reflect the value required to rebuild the entity and assuming
that entities never sell assets. Assets and liabilities, such as fair value
movements on financial derivatives are not expected to crystallise in normal
circumstances and deferred taxes on property valuation surpluses are excluded.
EPRA net tangible assets (NTA)
Assumes that entities buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
EPRA net disposal value (NDV)
Represent the shareholders' value under a disposal scenario, where deferred
tax, financial instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax.
EPRA net initial yield (NIY)
Annualised rental income based on the cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
value of the EPRA property portfolio, increased by estimated purchasers'
costs.
EPRA LTV
The aim of EPRA LTV is to assess the gearing of the shareholder equity within
a real estate company by adjusting IFRS reporting. The main overarching
concepts are: any capital which is not equity is considered as debt
irrespective of its IFRS classification; it is calculated on proportional
consolidation; and assets are included at fair value and net debt at nominal
value.
EPRA 'topped up' net initial yield
This measure incorporates an adjustment to the EPRA NIY in respect of the
expiration of rent-free periods (or other unexpired lease incentives such as
discounted rent periods and stepped rents).
EPRA vacancy rate
Estimated rental value (ERV) of immediately available space divided by the ERV
of the lettable portfolio. Estimated rental value (ERV) The market rental
value of lettable space as estimated by the Group's valuers.
Estimated rental value (ERV)
The market rental value of lettable space as estimated by the Group's valuers.
GRESB
GRESB assesses and benchmarks the environmental, social and governance (ESG)
performance of real assets, providing standardised and validated data to the
capital markets.
Interest cover
The aggregate of group revenue less costs, divided by the aggregate of
interest expense and amortisation of loan issue costs, less interest income.
Key performance indicators (KPIs)
Activities and behaviours, aligned to both business objectives and individual
goals, against which the performance of the Group is annually assessed.
Performance measured against them is referenced in the annual report.
Liquid resources
Cash and short-term deposits.
Net assets per share or net asset value (NAV)
Equity attributable to the owners of the Company divided by the diluted number
of ordinary shares.
Net debt
Total borrowings less liquid resources.
Net gearing
Net debt expressed as a percentage of net assets attributable
to the owners of the Company.
Net initial yield
Net rent on investment properties and properties held for sale expressed as
a percentage of the valuation of those properties.
Net rent
Passing rent less net service charge costs.
Occupancy rate
Contracted rent expressed as a percentage of the aggregate of contracted
rent and the ERV of vacant space.
Over-rented
The amount by which ERV falls short of the aggregate of contracted rent.
Passing rent
Contracted rent before any rent-free periods have expired.
Property loan-to-value
Property borrowings expressed as a percentage of the market value of the
property portfolio.
Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (REIT) is a vehicle that allows an investor to
obtain broadly similar returns from their investment, as they would have, had
they invested directly in property. In the UK a REIT is exempt from UK tax on
the income and gains of its property rental business. A REIT in the UK is
required to invest mainly in property (75% of total Group's assets and profits
must be in the tax exempt business) and to pay out 90% of the profits from its
property rental business as measured for tax purposes as dividends to
shareholders (property income distributions). In the hands of the shareholder,
property income distributions (PID) are taxable as profits of a UK property
rental business. The PID is received net of withholding tax, unless it is to a
recipient entitled to gross payment.
Rent reviews
Rent reviews take place at intervals agreed in the lease (typically every five
years) and their purpose is usually to adjust the rent to the current market
level at the review date. For upwards only rent reviews, the rent will either
remain at the same level or increase (if market rents are higher) at the
review date.
Rent roll
Contracted rent.
Return on equity
The aggregate of the change in equity attributable to the owners of the
Company plus the amounts paid to the shareholders as dividends and the
purchase of shares in the market, divided by the opening equity attributable
to the owners of the Company.
Reversion
The amount by which ERV exceeds contracted rent.
Streamlined energy and carbon reporting (SECR)
The SECR regulations were introduced in April 2019 and require companies
incorporated in the UK to undertake enhanced disclosures of their energy and
carbon emissions in their financial reporting.
The Task Force on Climate-related Financial Disclosures (TCFD)
Set up by the Financial Stability Board (FSB) in response to the G20 Finance
Ministers and Central Bank Governors request for greater levels of
decision-useful, climate-related information; the TCFD was asked to develop
climate-related disclosures that could promote more informed investment,
credit (or lending), and insurance underwriting decisions. In turn, this would
enable stakeholders to understand better the concentrations of carbon-related
assets in the financial sector and the financial system's exposures to
climate-related risks.
Total Accounting Return - basic
The change in IFRS net assets before the payment of dividends.
Total Accounting Return
The change in EPRA NTA before the payment of dividends.
Total Shareholder Return (TSR)
The growth in capital from purchasing a share, assuming that dividends are
reinvested every time they are received.
True equivalent yield
The capitalisation rate applied to future cash flows to calculate the gross
property value, as determined by the Group's external valuers.
UN Sustainable Development Goals (SDGs)
The 2030 Agenda for Sustainable Development, adopted by all United Nations
Member States in 2015, provides a shared blueprint for peace and prosperity
for people and the planet, now and into the future. At its heart are the 17
Sustainable Development Goals (SDGs), which are an urgent call for action by
all countries - developed and developing - in a global partnership. They
recognize that ending poverty and other deprivations must go hand-in-hand with
strategies that improve health and education, reduce inequality, and spur
economic growth - all while tackling climate change and working to preserve
our oceans and forests.
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