REG - CLS Holdings PLC - Half-year Report
09/08/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230809:nRSI7155Ia&default-theme=true
RNS Number : 7155I CLS Holdings PLC 09 August 2023
PRESS RELEASE
Release date: 9 August 2023
Embargoed until: 07:00
CLS HOLDINGS PLC
("CLS", the "Company" or the "Group")
ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT
FOR THE 6 MONTHS TO 30 JUNE 2023
Net rental income growth, good financing progress and significant further
rental upside potential
CLS is a leading FTSE250 office space specialist and a supportive, progressive
and sustainably focused commercial landlord, with a c.£2.2 billion portfolio
in the UK, Germany and France, offering geographical diversification with
local presence and knowledge. For the half year ended 30 June 2023, the Group
has delivered the following results:
30 June 2023 31 December 2022 Change (%)
EPRA Net Tangible Assets ("NTA") per share (pence)(1) 291.6 329.6 (11.5)
Statutory NAV per share (pence)(1) 271.5 307.3 (11.7)
Contracted rents (£'million) 108.7 110.2 (1.5)
30 June 2023 30 June 2022(2) Change (%)
Net rental income 55.6 52.8 5.3
(Loss)/profit before tax (£'million) (106.4) 21.3 Nm(3)
EPRA Earnings per share ("EPS") (pence)(1) 5.2 5.8 (10.3)
Statutory EPS from continuing operations (pence)(1) (26.2) 4.4 Nm(3)
Dividend per share (pence) 2.60 2.60 -
(1) A reconciliation of statutory to alternative performance measures is set
out in Note 5 to the condensed Group financial statements
(2) Restated for reclassification of student to investment property (see
account note 3 for detail)
(3) Nm = Not meaningful
Fredrik Widlund, Chief Executive Officer of CLS, commented:
"CLS has continued to perform well and deliver on its business plan despite
macro-economic conditions remaining challenging. We have completed twelve out
of thirteen of our planned 2023 refinancings already as well as two of our
three major projects to improve the quality of our buildings, which has
contributed to our ongoing relative valuation outperformance compared to the
office market.
"CLS remains focussed on executing operational and portfolio improvements, and
our geographic diversity and high-quality properties continue to provide
resilience and performance. Recent lettings are encouraging and demonstrate
our ability to capture opportunities for our properties when they arise."
FINANCIAL HIGHLIGHTS
· Portfolio valuation down 5.5% in local currencies, ahead of the
office market reflecting the quality of our portfolio and indexed-linked
leases. Yield expansion offset ERV increases and resulted in valuation
decreases of 8.5% in the UK, 3.3% in Germany and 1.9% in France in local
currencies
· EPRA NTA down 11.5% primarily as a result of property valuation
declines and foreign exchange losses from strengthening sterling
· Loss before tax £106.4 million (30 June 2022: £21.3 million
profit) principally due to valuation declines on investment properties of
£132.9 million (30 June 2022: £5.1 million decline)
· EPRA EPS down 10.3% to 5.2 pence per share with higher net rental
income more than offset by higher financing costs and foreign exchange losses.
Statutory EPS was a loss of 26.2 pence per share due to valuation declines
across all regions
· Interim dividend maintained at 2.60 pence per share (30 June 2022:
2.60 pence per share) to be paid on 3 October 2023
· Total accounting return per share of -9.9% (30 June 2022: 2.2%)
OPERATIONAL HIGHLIGHTS
· Net rental income increased by 5.3% to £55.6 million (30 June
2022: £52.8 million) as a result of higher income from our 2022 German
acquisitions, indexation and stronger performance of our hotel and student
operations
· Completed the disposal of two smaller properties in the UK and
Sweden, and unconditionally exchanged on the sale of Westminster Tower, Albert
Embankment. In aggregate, the three properties had a net initial yield of 2.4%
and sold for a total of £49.0 million, 7.5% above 31 December 2022 book value
· In addition, offers accepted or terms agreed for a further 6 sales
for £39.1 million
· Completed 69 lease events (30 June 2022: 60) securing £7.8 million
(30 June 2022: £4.4 million) of annual rent at 10.0% above ERV with
like-for-like contracted rent increasing by 1.5%. This included securing one
of CLS' largest ever leases, for 30 years, over 17,400 sqm in Essen
· Vacancy rate increased to 9.2% (31 December 2022: 7.4%). Underlying
vacancy was flat at 7.4% and the increase was due to completion of
developments currently being marketed to prospective tenants
· 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
FINANCING
· Weighted average cost of debt at 30 June 2023 up 63 basis points to
3.32% (31 December 2022: 2.69%) resulting from the impact of central bank
interest rate increases
· Loan-to-value at 45.1% (31 December 2022: 42.2%) reflecting
valuation declines in the period. Gross debt of £1,089.4 million (31
December 2022: £1,105.9 million) with cash of £92.5 million (31 December
2022: £113.9 million) and £50 million (31 December 2022: £50 million) of
undrawn facilities
· In the first half of 2023 refinanced or extended £299.1 million of
debt at 5.21% for 2.9 years. In July completed another refinancing for
£20.8 million. Discussions starting for the one last remaining £24.7
million refinancing due in December 2023
· The loan portfolio as at 30 June 2023 had 75% at fixed rates and 4%
subject to interest rate caps (31 December 2022: 72% at fixed rates and 4%
subject to interest rate caps) with the increase due to £25.7m of loans at
floating rate having been repaid and replaced with fixed rate loans
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
· In delivering our 2030 Net Zero Carbon Pathway, a further £6.1
million is expected to be invested in 2023. So far this year, completed 34
projects with another 84 projects due to finish before year end, which will
save over 1,200 tonnes CO2e per annum and puts us on track to achieve our
targets
· CLS' solar electricity generation at 30 June 2023 has increased 48%
year on year and a further 90 kWp of UK installations will be completing this
year
· CLS now a Living Wage Foundation Accredited Employer in the UK
Interim Dividend Timetable
The Board has declared an interim dividend of 2.60 pence per ordinary share
with the following timetable:
Announcement Date 9 August 2023
Ex-Dividend Date 7 September 2023
Record Date 8 September 2023
Payment Date 3 October 2023
-ends-
Results presentation
A presentation for analysts and investors will be held in-person at Liberum
Capital, by webcast and by conference call on Wednesday 9 August 2023 at
8:30am followed by Q&A. Questions can be submitted either online via the
webcast or to the operator on the conference call.
· Liberum Capital: Ropemaker Place, 25 Ropemaker Street, London EC2Y
9LY
· Webcast: The live webcast will be available here:
https://secure.emincote.com/client/cls/cls00
(https://secure.emincote.com/client/cls/cls007) 7
· 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/cls007/vip_connect
(https://secure.emincote.com/client/cls/cls007/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
Liberum Capital Limited
Richard Crawley
Jamie Richards
+44 (0)20 3100 2222
Panmure Gordon
Hugh Rich
+44 (0)20 7886 2733
Berenberg
Matthew Armitt
Richard Bootle
+44 (0)20 3207 7800
Edelman Smithfield (Financial PR)
Alex Simmons +44 7970 174353
Hastings Tarrant +44 7813 407665
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
Net rental income growth, good financing progress and significant further
rental upside potential
OVERVIEW
CLS has continued to perform well and deliver on its business plan despite
economic conditions remaining challenging. Our investment in the portfolio
to improve its quality together with the majority of our leases being
index-linked has led to growth in rental income and valuations which are
better compared to the overall office market. We have delivered all of our
planned refinancings for the year to date and have one £24.7 million
refinancing remaining in 2023. Our focus going forward is on executing a
selected number of disposals to reduce LTV and reducing vacancy to capture the
significant upside in the portfolio, particularly from newly refurbished
buildings.
We secured 375,873 sq. ft (34,919 sqm) of lettings and renewals but vacancy
increased to 9.2% (31 December 2022: 7.4%) essentially as two of our three
major projects were completed in the period and are being actively marketed to
prospective tenants. We invested £31.6 million of capital expenditure to
improve the quality of our space but expect this amount to fall significantly
from the second half of 2023 to more normal historical levels.
Over the six months, EPRA NTA decreased by 11.5% to 291.6p per share (31
December 2022: 329.6p) 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 -9.9% (30 June 2022: 2.2%).
We sold two smaller properties in the UK and Sweden and exchanged on the sale
of Westminster Tower, Albert Embankment in the first half. The total
consideration for the three properties is £49.0 million, 7.5% above 2022 book
value. We are targeting further selected disposals in the second half to
reduce gearing and to continue to invest in the portfolio's quality.
RESULTS AND FINANCING
The loss after tax for the six months to 30 June 2023 was £104.1 million (30
June 2022: £18.3 million profit), equivalent to a loss per share of 26.2p (30
June 2022: 4.4p profit). The decrease was as a result of: higher revaluation
losses of £132.9 million (30 June 2022: £5.1 million); and higher net
finance expense of £16.2 million (30 June 2022: £12.0 million), partly
offset by higher net rental income of £55.6 million (30 June 2022: £52.8
million); reduced expenses, other and tax of £13.3 million debit (30 June
2022: £13.9 million debit); and a profit on disposal of £2.7 million (30
June 2022: £0.2 million loss). EPRA earnings per share were 5.2p (30 June
2022: 5.8p), 10.3% down on last year.
Shareholders' funds decreased in the six months by 11.6% to £1,078.7 million
reflecting property valuation declines and the strengthening of sterling.
Our balance sheet liquidity remains strong with £92.5 million of cash and
£50 million of undrawn facilities, and our loan book remains substantially at
fixed rates with 79% fixed/capped (31 December 2022: 76%). Our weighted
average cost of debt increased to 3.32% (31 December 2022 2.69%) principally
as a result of an increase in the UK base rate impacting UK floating rate debt
and refinancings completed during the year at a higher all-in cost. Only one
loan for £24.7 million remains to be refinanced in 2023. Net debt excluding
leasehold liabilities was essentially flat at £996.9 million (31 December
2022: £992.0 million) and loan-to-value rose to 45.1% (31 December 2022:
42.2%) reflecting valuation declines. Interest cover remained high at 2.4
times (30 June 2022: 3.1 times) demonstrating the Group's operating strength
and ongoing ability to generate cash.
PROPERTY PORTFOLIO
At 30 June 2023, the value of the property portfolio, including properties
held for sale, was £2,210.5 million, £142.3 million lower than six months
earlier. This decrease was as a result of: net valuation decreases of £131.5
million; foreign exchange losses of £37.1 million; and disposals of £5.4
million partly offset by investment in the portfolio through capital
expenditure of £32.0 million.
As a result of market conditions remining challenging, we did not pursue any
acquisitions and do not expect to for at least the rest of 2023. To date, we
have sold two smaller properties in the UK and Sweden and unconditionally
exchanged on the sale of Westminster Tower, Albert Embankment. In aggregate,
the three properties had a net initial yield of 2.4% and sold for a total of
£49.0 million, 7.5% above 2022 book value.
We announced that we would be a net seller in 2023 and, in the second half of
2023, we will target further selected disposals of properties that do not fit
our long-term return criteria. We will use the disposal proceeds to reduce
the Group's loan to value and continue investing to improve the quality of the
portfolio.
In the six months to June, the like-for-like valuation of the property
portfolio (which excludes acquisitions and disposals), as well as the overall
portfolio valuation, fell by 5.5% in local currency. There were
like-for-like valuation decreases of 8.5% in the UK, 3.3% in Germany and 1.9%
in France. In Sterling, the valuation decrease was 7.1% incorporating the
strengthening of Sterling in the period. At 30 June 2023, the EPRA 'topped up'
net initial yield of the portfolio was 4.9% (31 December 2022: 4.7%), 158
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 2022 was 9.2% (31 December 2022: 7.4%)
with the increase as a result of the completion of our developments of The
Coade at Vauxhall Walk in London and Park Avenue in Lyon. These properties
offer over 100,000 sq. ft of top-quality offices with excellent amenities and
sustainability credentials. Underlying vacancy was flat at 7.4%.
DIVIDENDS
In October 2023, 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 2022
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 1.70 pence per share.
ENVIRONMENT, SOCIAL AND GOVERNANCE
We have built upon the good progress made in 2022 across many ESG objectives
by continuing to invest in our assets and work towards the targets in our
Sustainability Strategy and Net Zero Carbon Pathway.
So far in 2023, we have been continuing with the implementation of technical
and cost-effective Net Zero Carbon projects across all regions. This year, 34
carbon reduction projects are complete with a further 84 projects due to be
completed by the end of 2023. These projects save an estimated 1,200 tonnes
CO2e per annum, keeping us on track to achieve our 2030 targets. The projects
include LED lighting upgrades, façade replacement as part of the renovation
at Park Avenue, smart water metering (including leak detection) across our
German portfolio, and a high-efficiency heating and air conditioning system
using ground water at Front de Parc in Lyon.
We continually align implementation of opportunities with our lease and
refurbishment plans, and thus refine the optimal time to deliver projects over
the coming years. This ensures we maintain a comprehensive picture of the
costs and compliance risks which are incorporated into the long-term asset
management strategies for each property. The full programme includes meeting
regulatory requirements such as future higher minimum EPC standards in the UK
and the 2030 Décret Tertiaire energy efficiency targets in France.
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.
Finally, as pressures continue on the lowest paid from the increased cost of
living, CLS has signed up to be an accredited Living Wage Employer certified
by the Living Wage Foundation. This covers both UK employees and regular
contractors, and fulfils a key Sustainability Strategy commitment ahead of
time.
OUTLOOK
As expected, the economic backdrop for the property market has been
challenging and we expect it to remain so until interest rates have
definitively peaked. There are tentative signs that the labour market is
becoming less tight which is encouraging more employers to demand employees
back in the office more often particularly as reports, such as "The
working-from-home illusion fades" from the Economist in June 2023, demonstrate
that productivity is enhanced in the office.
To encourage workers back to the office and in response to market trends, CLS
is continuing to invest in its portfolio to provide high quality and
affordable offices that are sustainable with good amenities and well-being
facilities whilst providing flexible and digitally connected space. This,
together with the majority of our leases being index-linked, is contributing
to rental growth in excess of ERV growth. We also continue to see record
results from our hotel through higher daily rates and our student
accommodation is 100% booked for the 2023/2024 academic year at higher rates.
The diversification benefits of the portfolio have again been demonstrated
with Germany and France balancing the weaker UK market. Whilst markets remain
challenging, we are prioritising maintaining a strong balance sheet and will
continue to be a net seller of selected assets at appropriate prices. Our
long-term approach and active asset management should keep the Group in good
stead, and we have significant opportunities to increase rental income through
reducing vacancy, to more than compensate for higher interest costs, over the
next couple of years.
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 pages 10 and 11 of CLS' 2022 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 four brokers which publish regular analyst research: Liberum
Capital; Panmure Gordon; Berenberg and Peel Hunt. Contact details can be found
on our website www.clsholdings.com (http://www.clsholdings.com) .
2023 INVESTOR ENGAGEMENT
Events which have taken place Events which are due to take place
March 2023 August 2023
Annual Results presentation Half-Year Results presentation
Annual Results investor calls and meetings
August/September 2023
April 2023 Half-Year Results investor calls and meetings
Annual General Meeting
November 2023
Trading Update
Business review
United Kingdom
UK inflation and interest rate increases impacting overall market sentiment
30 June 2023 31 December 2022
Value of properties £1,000.9m £1,070.6m
Percentage of Group's property interests 46% 46%
Number of properties 38 39
Number of tenants 211 204
EPRA vacancy rate 12.5% 10.0%
Lettable space 1.8m sq. ft 1.8m sq. ft
Government and large companies 71% 78%
Weighted average lease length to end 3.4 years 3.7 years
Leases subject to indexation 33% 33%
The value of the UK portfolio decreased by £69.7 million as a result of:
capex of £25.9 million, offset by one disposal for £1.8 million; and
valuation decreases of £93.8 million or 8.5%. The valuation decrease was
fairly consistent across our London, South-East and government-let properties
due to outward yield shifts resulting from rising interest rates and ongoing
inflationary pressure. Hotel and student properties fared better reflecting
the strength of these sectors.
The construction of "The Coade", our 28,400 sq. ft (2,638 sqm) new office
development at Vauxhall Walk, London, was completed in April and is expected
to achieve EPC A and a BREEAM rating of Excellent. In addition, "The
Artesian", our development at 9 Prescot Street, London, is due to complete in
Q4 2023 and will offer 92,500 sq. ft (8,594 sqm) of modern and attractive
space including a café/reception, ample bike storage, showers and a large
roof terrace. In both cases, we are seeing occupier demand for these locations
improve with a number of viewings taking place.
In terms of disposals, we have continued to execute our strategy of disposing
of assets which are either small lot sizes or have greater value for
alternative use. More specifically, we completed the sale of St Cloud Gate in
Maidenhead which is a 9,700 sq. ft (901 sqm) office building close to the town
centre. The property has the benefit of a planning permission for a 40,000 sq.
ft (3,716 sqm) Grade A office building which was granted prior to the sale.
We have unconditionally exchanged on the sale of Westminster Tower, a
prominent office building of 48,500 sq. ft (4,505 sqm) which is located on the
banks of the River Thames and overlooks the Houses of Parliament. The building
benefits from implemented planning permission for conversion to residential
apartments and the sale is due to complete in Q4 2023. Overall, these two
transactions have a combined price of £42.8 million.
Vacancy increased in the period from 10.0% to 12.5% largely due to completed
developments and refurbishments in particular The Coade. Since 1 January 2023,
we let or renewed leases on 246,742 sq. ft (22,923 sqm) and lost 271,276 sq.
ft (25,202 sqm) from expiries or new vacancies. 32 lease extensions and new
leases were signed adding £2.9 million of rent at an average of 4.7% above 31
December 2022 ERV. The most significant transactions were a 5-year lease
extension with Allocate Software at Thameslink House, Richmond for 14,221 sq.
ft (1,321 sqm) and a 3-year lease extension with Select Contracts Limited to
2032 for 19,714 sq. ft (1,831 sqm) at Pacific House, Reading. Furthermore, we
negotiated the surrender of the head lease of one of our largest assets, New
Printing House Square, London from the Secretary of State. It is fully let to
a variety of sub-tenants and the surrender resulted in increasing the rent
receivable from the building by c.£1.2m pa whilst giving us full control of
the asset. Excluding this surrender, like-for-like ERVs were up 0.8% for our
UK portfolio.
The consensus forecast published by the Bank of England in June 2023 is that
GDP will grow by 0.3% in 2023 and 0.6% in 2024. Unemployment rose again in
June 2023 to 4.0% and the estimated employment rate was 76% which has been
attributed to an increase in part-time employees.
In terms of the UK property market, commercial investment volumes were
c.£14.6 billion in the first half of 2023 compared with £35.6 billion in the
same period in 2022. In the South-East, the occupational take up was 493,577
sq. ft, 34% below the 10-year quarterly average. Vacancy in London is now 9.2%
and in the South-East 10.9%.
Germany
Investment market slow but lettings holding up well to Government and
Mittelstand
30 June 2023 31 December 2022
Value of properties £936.0m £996.1m
Percentage of Group's property interests 42% 42%
Number of properties 33 33
Number of tenants 358 372
EPRA vacancy rate 6.2% 6.1%
Lettable space 3.7m sq. ft 3.9m sq. ft
Government and large companies 55% 56%
Weighted average lease length to end 5.1 years 5.2 years
Leases subject to indexation 65% 65%
The value of the German portfolio decreased by £60.1 million as a result of:
capex of £4.8 million, offset by a disposal of £3.6 million; foreign
exchange loss of £28.8 million; and a valuation decrease of £32.5 million or
3.3% in local currency. The portfolio valuation loss was as a result of yield
expansion.
In terms of disposals we sold a land holding outside Helsingborg in Sweden for
£6.2 million. The property was included within our German portfolio and it
was sold with planning permission for logistics.
During the period bbw Academy ended their lease at Bismarkstrasse, Berlin
after 17 years in occupation. We have commenced a substantial renovation plan
to the façade, common areas and vacated floors to make the building best in
class. The property will be rebranded as "Loop Berlin" which on completion
will present excellent opportunities to capture substantially higher rents.
During the six months to 30 June 2023, we continued to invest across the
portfolio improving the quality of our assets and enhancing their
sustainability credentials.
Vacancy was relatively flat at 6.2% compared with 6.1% at 31 December 2022 due
to expired leases moving to development stock. Since 1 January 2023, 70,562
sq. ft (6,555 sqm) was let or renewed but 162,137 sq. ft (15,063 sqm) of space
expired or was vacated. 22 lease extensions and new leases were signed adding
£3.7 million of rent at an average of 17.8% above 31 December 2022 ERV. The
most significant transaction was a new 30-year letting for 187,292 sq. ft
(17,400 sqm) to The City of Essen at The Brix, Kruppstrasse in Essen. A
substantial development programme will commence on expiration of the existing
tenant's lease in July 2024. The plan to spend up to €20 million over a
three year period will include a host of energy efficiency, sustainability,
and wellbeing initiatives, providing The City of Essen with high quality and
flexible workspace, in compliance with the EU taxonomy. Across the portfolio,
like-for-like ERVs were up 1.1%. On a proforma basis, the inclusion of the
Essen deal would increase proforma WAULT by 1.6 years to 6.7 years and add
£0.9 million to contracted rent.
The German economy is projected to stagnate in 2023 and grow by 1.0% in 2024.
High inflation is reducing real incomes and savings, dampening private
consumption. Although energy prices have dropped from last summer's heights,
inflation is again increasing with regards to food and services industries
prices. Unemployment remained at 5.5% but is expected to rise slightly by the
end of 2023.
The commercial property market stabilised somewhat in the second quarter, but
activity remained low. For the first half of 2023, investment volume totalled
c.€9.9 billion, substantially lower than the same period in 2022 when
c.€27.8 billion was invested.
In the letting market, large companies are reluctant to take space due to the
uncertain economic environment and the space-saving potential associated with
hybrid working tends to be greater the larger the office. In contrast,
lettings to Government and Mittelstand companies are holding up well and here
we saw increased activity in the period. Take-up in the first half of 2023 was
at around 1.1 million sqm, around 30% lower than the same period in 2022. The
average vacancy rate in the top seven cities increased to 5.3% from 4.8%.
France
Letting market resilient for small to medium sized floorplates
30 June 2023 31 December 2022
Value of properties £273.6m £286.1m
Percentage of Group's property interests 12% 12%
Number of properties 17 17
Number of tenants 149 147
EPRA vacancy rate 6.8% 2.6%
Lettable space 0.8m sq. ft 0.8m sq. ft
Government and major corporates 54% 56%
Weighted average lease length to end 5.0 years 4.9 years
Leases subject to indexation 100% 100%
The value of the French portfolio decreased by £12.5 million as a result of:
capex of £1.3 million, offset by a foreign exchange loss of £8.3 million and
a valuation decrease of £5.5 million or 1.9% in local currency which was
largely driven by yield expansion.
During the first half of the year, we continued our programme of refurbishing
several of our French properties. The most significant was the completion of
our €11.2 million refurbishment at Park Avenue in Lyon. This included
replacement of the existing façade and creation of new common terraces
through the extension of existing landings. The sustainability credentials of
the building have been enhanced through the installation of new windows,
electric shades and a green roof. During the works, the tenants were relocated
to temporary office space but resumed occupation in March 2023. Two new leases
have been signed to date and there is a good level of interest in the
remaining newly refurbished space with several viewings taking place.
Vacancy increased from 2.6% to 6.8% which was due to the completion of the
Park Avenue refurbishment works. During the period, 58,569 sq. ft (5,441 sqm)
was let or renewed but 68,299 sq. ft (6,345 sqm) of space expired or was
vacated. Since 1 January 2023, 15 lease extensions and new leases were signed
adding £1.2 million of rent at an average of 1.6% above 31 December 2022 ERV.
The most significant transactions were a lease extension at Inside in Paris
for 10,280 sq. ft (955 sqm) with Transdev on a 3/6/9 year lease and another
extension with Citadines at Jean Jaurès, Paris for 8,837sq. ft (821 sqm) on a
6/9 year lease. Across the portfolio, like-for-like ERVs were up 1.1%. The
French portfolio benefitted from a larger proportion of small to medium sized
floorplates which have done well compared to larger ones.
The French economy is expected to see a slowdown in 2023 with limited growth
of 0.7% followed by a slight uptick in 2024 to 1.0%. The unemployment rate is
forecast to increase to 7.1% at the end of 2023 and will continue its upward
trend in 2024 before stabilising in 2025. Nevertheless, hiring intentions
remain high and the employment market could even set a new record.
Following the sharp decline in investment activity at the end of 2022 and in
Q1 2023, the investment volume in commercial real rstate in France over the
first half of 2023 reached c.€6.1 billion, compared with c.€11.2 billion
for the same period in 2022. The sharp drop in the number of transactions
illustrates the general slowdown in activity.
Foreign investors have been scarcer since the beginning of 2023, representing
only 30% of the amounts invested, mainly concentrated in the Greater Paris
Region. In the Greater Paris Region, the investment volume in commercial real
estate over first half 2023 reached c.€4.2 billion, down by 44% compared
with the first half of 2022.
In the letting market, over first half 2023, office take-up in the Greater
Paris Region reached 816,200 sqm, this is down by 22% compared to the first
half of 2022. Office immediate supply on June 30 2023 in the Greater Paris
Region is estimated at 4.5 million sqm, up by 10% year on year with the
vacancy rate reaching 8% at 30 June 2023.
Key data
Rental Data
Rental Income for the Period (£m) Net Rental Income for the Period (£m) Lettable Space (sqm) Contracted Rent at 30 June 2023 (£m) ERV at 30 June 2023 (£m) Contracted Rent Subject to Indexation (£m) EPRA Vacancy rate at 30 June 2023
UK 22.7 22.3 168,174 49.3 58.0 16.3 12.5%
Germany 21.7 20.9 347,311 45.2 48.8 29.4 6.2%
France 6.6 6.7 73,763 14.2 15.9 14.2 6.8%
Total Portfolio 51.0 49.9 589,248 108.7 122.7 59.9 9.2%
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 866.5 (104.0) - 5.3% 5.6% 8.2% 5.2% 6.1%
Germany 934.3 (32.4) (28.6) 3.8% 4.4% 8.9% 7.5% 5.0%
France 271.9 (5.5) (8.3) 4.4% 4.8% 8.9% 4.2% 5.4%
Total Portfolio 2,072.7 (141.9) (36.9) 4.5% 4.9% 8.6% 6.1% 5.6%
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 2.6 3.4 5.7 12.6 21.9 9.1 5.5 15.4 21.0 8.8
Germany 5.0 5.1 10.0 5.3 15.5 14.4 10.7 5.4 16.0 13.6
France 2.2 5.0 1.7 0.5 3.3 8.7 1.6 0.4 3.2 9.5
Total Portfolio 3.6 4.3 17.4 18.4 40.7 32.2 17.8 21.2 40.2 31.9
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 21.3% Offices 88.6%
Commercial and Professional Services 13.0% Student 5.2%
Information Technology 11.9% Hotel 3.9%
Consumer Discretionary 10.3% Food/Retail 2.3%
Communication Services 8.4%
Health Care 6.7%
Industrials 6.3%
Financials 6.3%
Other 6.1%
Real Estate 5.4%
Consumer staples 4.3%
Property use by rent
Offices 88.6%
Student 5.2%
Hotel 3.9%
Food/Retail 2.3%
Financial review
RESULTS FOR THE PERIOD
HEADLINES
The loss after tax of £104.1 million (30 June 2022: £18.3 million profit)
generated basic loss per share of 26.2 pence (30 June 2022: 4.4 pence profit).
EPRA earnings per share, which exclude valuation losses, were 5.2 pence (30
June 2022: 5.8 pence), which were down 10.3% 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.
The higher net rental income was also reduced by tax in Germany and France and
the higher UK tax rate on UK non-REIT income. Gross property assets at 30 June
2023, including those in property, plant and equipment and those held for
sale, decreased to £2,210.5 million (31 December 2022: £2,352.8 million) as
a result of: a revaluation decrease of £131.5 million; foreign exchange
reductions of £37.0 million; and disposals of £5.5 million, partly offset by
capital expenditure of £31.7 million. Net assets per share fell by 11.7% to
271.5 pence (31 December 2022: 307.3 pence) and EPRA NTA per share by 11.5% to
291.6 pence (31 December 2022: 329.6 pence). Total accounting return per share
including dividends paid in the period was -9.9% (30 June 2022: 2.2%).
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 5 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 2023 of £55.6 million (30
June 2022: £52.8 million) was higher than last year by 5.3% as a result of
higher rental income from index-linked leases and acquisitions more than
offsetting disposals and lease surrenders as well as higher income from our
hotel and student operations and higher dilapidations income. 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 £90.5 million (30 June 2022: £28.2 million profit) was due
primarily to the 5.5% revaluation decline in local currency equivalent to a
loss of £132.9 million (30 June 2022: £5.1 million loss) which was only
partially offset by higher operating profit before revaluation and disposals
of £39.7 million (30 June 2022: £36.8 million) and profit on disposal of
£2.7 million (30 June 2022: £0.2 million loss).
Net interest expense of £15.5 million (30 June 2022: £6.7 million), which
was up £8.8 million, is comprised of three elements. Finance costs of
£17.2 million (30 June 2022: £12.6 million) were up year on year as a result
of higher interest rates on CLS' floating rate debt and recent refinancings.
Finance income was higher with both interest income at £1.0 million (30
June 2022: £0.6 million) and the movement in the fair value of derivatives of
£0.7 million (30 June 2022: £5.3 million) benefitting from the increase in
interest rates.
The tax credit of £2.3 million (30 June 2022: tax charge £3.0 million)
represented an effective rate of 2.2% (30 June 2022: 14.7%). 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 329.6p to 291.6p in the six months to 30 June
2023, a decrease of 38.0p per share or 11.5%. On a per share basis, the
decrease comprised the decrease in property values of 33.4p, foreign exchange
losses of 5.0p and the final 2022 dividend of 5.35p, partly offset by EPRA
earnings of 5.2p and other positive movements of 0.6p.
CASH FLOW, NET DEBT AND FINANCING
In the six months to 30 June 2023, gross borrowings decreased by £16.5
million to £1,089.4 million (31 December 2022: £1,105.9 million),
principally due to a stronger pound decreasing the value of debt denominated
in Euros.
As at 30 June 2023, the Group had cash of £92.5 million (31 December 2022:
£113.9 million) and £50.0 million (31 December 2022: £50.0 million) of
undrawn facilities. The cash balance decreased by £21.4 million from 31
December 2022 given net investment in our portfolio. During the period, we
invested £30.9 million of capital expenditure in our properties partially
offset by net receipts from disposals of £9.7 million. Net proceeds from new
financing were £83.4 million and £83.5 million of loans were repaid. Net
cash flow from operating activities was £23.5 million (30 June 2022: £19.3
million) which was used to pay the 2022 final dividend of £20.5 million (net
of withholding tax which was paid in July).
Net debt excluding leasehold liabilities at the half-year was £996.9 million
and the Group's loan-to-value was 45.1% (31 December 2022: 42.2%). The
weighted average cost of debt increased to 3.32% (31 December 2022: 2.69%)
principally as a result of an increase in the UK base rate impacting UK
floating rate debt and refinancing completed during the year at a higher
all-in cost. Weighted average debt maturity was 3.8 years (31 December 2022:
3.8 years).
The proportions of fixed, capped and unhedged debt were 75%, 4% and 21% (31
December 2022: 72%, 4%, 24%) respectively. The proportion of fixed rate debt
has increased in the first half of the year due to £25.7m of loans at
floating rate having been repaid and replaced with fixed rate loans. 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 1.99% below the average
3 month EURIBOR of 3.19%.
CLS has 44 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 44 loans, CLS has between 16% and 33% 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.
Overall, since the start of the year, CLS has successfully refinanced loans
due in 2023 but also in 2024. Of the total loans of £162.0 million due in
2023, only one loan remains to be refinanced in December for £24.7 million.
The loan balance due in 2024, excluding amortisation, was £342.2 million at
the start of 2023. Of that balance, £178.2 million of loans have been
extended. We are confident that the remaining balance of £183.7 million,
after amortisation, which now includes £19.7 million for Westminster Tower
which was extended prior to the sale, will be refinanced well ahead of their
maturity dates. The balance of £183.7 million is well-diversified being
split across 10 loans with 2 loans for £84.7 million in the UK, 4 loans for
£66.8 million in Germany and 4 loans for £32.2 million in France. The
average loan to value across the 10 loans is only 46% financed by 7 different
banks.
Finally, we are advanced for a new £30 million Revolving Credit Facility to
replace the existing RCF which expires on 20 September 2023.
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
96 to 103 of the annual report and financial statements for the year ended 31
December 2022, 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 high inflation and correspondingly higher interest rates as well as
Russia's continued invasion of Ukraine. The overall risk landscape remains
heightened; however, we do not believe that there has been sufficient change
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 further progress expected by the end of the year. In
the second half of the year, end to end "walkthrough" tests of a number of
processes and the associated controls will be performed.
Principal risk Status at year end Change since year end Commentary
Property High No change Investor sentiment around the property industry remains depressed given value
reductions and lower market activity. In addition, with hybrid working
becoming accepted, there remain concerns about the future level of demand for
offices. However, there is increasing evidence that tenants are 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 and staying
close to our tenants.
Sustainability Medium No change A key part of CLS' DNA is to provide sustainable buildings, which also accords
with changing office trends and regulatory demands. We are 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.
Business interruption Low No change We continue to invest in our IT and other equipment to give our employees the
tools to perform their roles effectively. Ongoing penetration testing and
other work has resulted in continued Cyber Essential Plus standard
certification.
Financing High No change Whilst inflation appears to have peaked and interest rates are peaking,
financing risk remains high. This is reflected in higher interest costs,
albeit with few increases in bank margins, and some lowering of loan to value
ratios. Through ongoing selected disposals CLS is seeking to reduce Group
LTV. In addition to de-gearing, 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.
Political and economic High No change The risk remains high given concerns over economic growth and continued
geopolitical uncertainty not least from Russia's invasion of Ukraine. The
most immediate impact on CLS has been from higher interest rates and some
exposure to higher construction costs but these have been mitigated through
CLS' high levels of inflation-indexed rent and higher replacement values for
existing buildings.
People Medium No change CLS' staff turnover remains elevated given the tight labour market. Through
ongoing training, CSR activities, and social and culture events activities, we
continue to respond to staff needs. A new staff survey later in the year
will give further feedback and areas upon which to focus.
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 104 and 105 of the 2022 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
2022 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
8 August 2023
INDEPENDENT REVIEW REPORT TO CLS HOLDINGS plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises Condensed Group income statement, the Condensed
Group statement of comprehensive income, the Condensed Group balance sheet,
the Condensed Group statement of changes in equity, the Condensed Group
statement of cash flows and the related notes to the financial statement 1 to
19. We have read the other information contained in the half yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Material uncertainty related to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
we draw attention to Note 2 - Going Concern in the condensed set of financial
statements, which indicates that the going concern assumption is dependent
upon the timing and value of both the refinancing of the debt maturing and
investment property disposals during the going concern period to 30 September
2024. The Group acknowledges that these refinancings and disposals are
dependent on circumstances outside their control. As stated in note 2, these
events or conditions, along with the other matters as set forth in note 2,
indicate that a material uncertainty exists that may cast significant doubt on
the Group's ability to continue as a going concern.
Our conclusion is not modified in respect of this matter.
The responsibilities of the directors with respect to going concern are
described in the relevant section of this report.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern (including the material
uncertainty set out in Note 2) and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including the Material
uncertainty related to going concern, is based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
8 August 2023
Financial statements
Condensed Group income statement
for the six months ended 30 June 2023
Six months ended Restated Year ended
Six months ended
30-Jun-23 30-Jun-22 31-Dec-22
£m £m £m
Notes (unaudited) (unaudited) (audited)
Revenue 4 72.3 68.3 139.7
Costs 4 (16.7) (15.5) (31.9)
Net rental income 55.6 52.8 107.8
Administration expenses (8.8) (8.4) (15.7)
Other expenses (7.1) (7.6) (16.2)
Operating profit before revaluation and disposals 39.7 36.8 75.9
Net revaluation movement on investment property 10 (132.9) (5.1) (136.5)
Net revaluation movement on equity investments - (3.3) (3.8)
Profit/(loss) on sale of investment property 2.7 (0.2) 0.5
Operating profit (90.5) 28.2 (63.9)
Finance income 6 1.7 5.9 10.1
Finance costs 7 (17.2) (12.6) (26.8)
Foreign exchange loss (0.4) (0.2) (0.3)
Impairment of goodwill - - (1.1)
(Loss)/profit before tax (106.4) 21.3 (82.0)
Taxation 8 2.3 (3.0) 0.1
(Loss)/profit for the period (104.1) 18.3 (81.9)
Attributable to:
Owners of the Company (104.1) 18.3 (81.9)
p
Basic and diluted earnings per share 15 (26.2)p 4.4p (20.2)p
Condensed Group statement of comprehensive income for the six months ended 30
June 2023
Note Six months ended Restated Year ended
30 June 2023 Six months ended 31 December 2022
£m 30 June 2022 £m
(audited)
(unaudited) £m
(unaudited)
(Loss)/profit for the period (104.1) 18.3 (81.9)
Other comprehensive income
Items that may be reclassified to profit or loss
Revaluation of property, plant and equipment 11 (0.1) 1.3 1.9
Foreign exchange differences (16.8) 13.6 28.5
Deferred tax on fair value movements - (0.2) (0.4)
Total items that may be reclassified to profit or loss (16.9) 14.7 30.0
Total other comprehensive (expense)/income (16.9) 14.7 30.0
Total comprehensive (expense)/income for the period (121.0) 33.0 (51.9)
Attributable to:
Owners of the Company (121.0) 33.0 (51.9)
Condensed Group balance sheet at 30 June 2023
Notes Restated
30 June 30 June 31 December
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Non-current assets
Investment properties 10 1,992.7 2,299.1 2,295.0
Property, plant and equipment 11 39.6 42.4 39.6
Goodwill and intangible assets 3.0 3.5 2.8
Equity investments 2.5 3.3 2.7
Deferred tax 3.1 2.6 2.8
Derivative financial instruments 7.2 5.1 8.5
2,048.1 2,356.0 2,351.4
Current assets
Trade and other receivables 14.2 30.9 15.8
Derivative financial instruments 1.9 - -
Cash and cash equivalents 17 92.5 110.4 113.9
108.6 141.3 129.7
Assets held for sale 12 180.6 59.5 20.3
Total assets 2,337.3 2,556.8 2,501.4
Current liabilities
Trade and other payables (63.0) (52.9) (58.6)
Current tax (0.2) (0.6) (2.0)
Borrowings 13 (224.5) (184.6) (173.4)
Derivative financial instruments - (0.2) -
(287.7) (238.3) (234.0)
Non-current liabilities
Deferred tax (102.6) (114.5) (110.5)
Borrowings 13 (864.9) (858.6) (932.5)
Leasehold liabilities (3.4) (3.5) (3.6)
(970.9) (976.6) (1,046.6)
Total liabilities (1,258.6) (1,214.9) (1,280.6)
Net assets 1,078.7 1,341.9 1,220.8
Equity
Share capital 14 11.0 11.0 11.0
Share premium 83.1 83.1 83.1
Other reserves 98.7 99.9 115.4
Retained earnings 885.9 1,147.9 1,011.3
Total equity 1,078.7 1,341.9 1,220.8
Condensed Group statement of changes in equity for the six months ended 30
June 2023
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 income 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
Unaudited Share Share Restated Other Restated Total
capital premium reserves Retained £m
£m £m £m earnings
£m
At 1 January 2022 11.0 83.1 88.7 1,147.9 1,330.7
Arising in the six months ended 30 June 2022:
Total comprehensive income for the period (restated) - - 14.7 18.3 33.0
Share-based payments - - - - -
Transfer of fair value of property (restated) - - (3.5) 3.5 -
Dividends to shareholders - - - (21.8) (21.8)
Total changes arising in the period - - 11.2 - 11.2
At 30 June 2022 11.0 83.1 99.9 1,147.9 1,341.9
Audited Share Share Other Retained Total
capital premium reserves earnings £m
£m £m £m £m
At 1 January 2022 11.0 83.1 88.7 1,147.9 1,330.7
Arising in the year ended 31 December 2022:
Total comprehensive income/(expense) for the year - - 30.0 (81.9) (51.9)
Share-based payments - - 0.2 - 0.2
Transfer of fair value of property - - (3.5) 3.5 -
Dividends to shareholders - - - (32.4) (32.4)
Purchase of own shares - - - (25.8) (25.8)
Total changes arising in 2022 - - 26.7 (136.6) (109.9)
At 31 December 2022 11.0 83.1 115.4 1,011.3 1,220.8
Condensed Group statement of cash flows for the six months ended 30 June 2023
Restated 31 December
30 June 2022
2022 £m
30 June £m (audited)
2023 (unaudited)
£m
(unaudited)
Notes
Cash flows from operating activities
Cash generated from operations 16 40.6 31.0 70.5
Interest received 1.0 0.6 1.3
Interest paid (15.4) (11.3) (24.2)
Income tax paid on operating activities (2.7) (1.0) (4.6)
Net cash inflow from operating activities 23.5 19.3 43.0
Cash flows from investing activities
Purchase of investment properties - (32.1) (83.4)
Capital expenditure on investment properties (30.9) (25.9) (57.2)
Proceeds from sale of investment properties 9.7 9.8 56.2
Income tax paid on sale of properties (1.8) (3.8) (3.2)
Purchases of property, plant and equipment (0.7) (0.1) (0.4)
Purchase of intangibles (0.1) (0.4) (0.8)
Repayment of vendor loan - - 7.7
Cost on foreign currency transactions - - (0.2)
Net cash outflow from investing activities (23.8) (52.5) (81.3)
Cash flows from financing activities
Dividends paid (20.5) (21.8) (32.4)
Purchase of own shares - - (25.8)
New loans 83.9 14.7 144.1
Issue costs of new loans (0.5) (0.2) (1.1)
Repayment of loans (83.5) (16.1) (99.4)
Net cash (outflow)/inflow from financing activities (20.6) (23.4) (14.6)
Cash flow element of net decrease in cash and cash equivalents (20.9) (56.6) (52.9)
Foreign exchange loss (0.5) (0.4) (0.6)
Net decrease in cash and cash equivalents (21.4) (57.0) (53.5)
Cash and cash equivalents at the beginning of the period 113.9 167.4 167.4
Cash and cash equivalents at the end of the period 92.5 110.4 113.9
Notes to the condensed Group financial statements 30 June 2023
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 2022 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 or include a reference to any matter
to which the Auditor drew attention by way of emphasis 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
2023. These new standards and amendments are listed below:
· Insurance Contracts - Amended IFRS 17
· Definition of Accounting Estimates - Amendments to IAS 8
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12
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 2023 and are not expected to materially impact the full year financial
statements for the 12 months ended 31 December 2023.
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 high rent
collection and low bad debts, and has a long-term track record in financing
and refinancing debt including £229.9 million completed in 2022 and a further
£299.1 million during the six month period to 30 June 2023.
Going concern period and basis
The Group's going concern assessment covers the period to 30 September 2024
("the going concern period"). The period chosen takes into consideration the
maturity date of loans totalling £226.3 million that expire by September
2024. The going concern assessment uses the forecast cash flows approved by
the Board at its May 2023 meeting as the Base case, updated for the actual
results achieved for 2023 half year. 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 current greater uncertainty
related to the more challenging economic backdrop. The forecast cash flows
have been updated using assumptions regarding forecast forward interest
curves, inflation and foreign exchange, updated for a worsening of these
assumptions in 2023 and 2024. The Base case includes the impact of 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 £226.3 million with 9 lenders
expiring within the going concern period will be refinanced as expected
(£96.1 million) or will be repaid (£130.2 million, of which £116.4 million
is linked to forecast property disposals, with the balance being planned
repayments). The Directors recognise that these events and conditions are
outside their 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 existing
and new lenders in relation to these refinancings with the Group having
ongoing relationships with over 24 banks;
· CLS' track record of prior refinancings, particularly in the 18
months to 30 June 2023 when £529.0 million was successfully refinanced or
extended as planned, both in terms of timing and commercial terms; and
· recent refinancings subsequent to the period end that have been
executed, credit approved by lenders, or where the terms have been agreed.
The Group also has a number of mitigating actions at its disposal, as set out
below.
The Base case also 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 2023. The Directors acknowledge that property disposals are
not within their control both in terms of timing and value; however, the
Directors are confident these transactions will be completed within the going
concern period, based on their history of achieving disposals and the status
of ongoing disposal processes (offers accepted or terms agreed for 6
properties for £39.1 million). 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, limited cure payments
have been forecast such that the Group's 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;
and higher interest rates. The 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 reduction in property values of 10% until
September 2024, impacting forecast refinancings, sales and cash cures. This
is in addition to the property value reduction of 10.5% experienced over the
12 months to 30 June 2023.
Assumptions around refinancing and investment property disposals remain the
same as in the base case; however, the reduction in property values of 10%
results in additional cure payments of £5.2 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 before putting in place controllable mitigating actions as set out
below.
Mitigating actions
In the Severe but plausible case, CLS would need to take further mitigating
actions including depositing additional cash to equity cure certain loans as
required under the agreements of £15.1 million, scaling back uncommitted
capital expenditure (without impacting revenue streams over the going concern
period) and deferring in full the dividend related to the Property Income
Distribution required under the UK REIT rules as well as drawing upon its
existing £50 million of currently unutilised facilities of which £30 million
is committed until 20 September 2023 and £20 million is an overdraft
available subject to certain criteria being met and until further notice.
Discussions for a new secured £30 million revolving credit facility are
advanced. As with the Base case, it is assumed that loan facilities are
refinanced as they become due. If needed, further disposals could be
considered as there are no sale restrictions on CLS' £2.2 billion of
properties, albeit the timing and the amount of these potential disposals are
not in the Group's control.
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 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
2022 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.
3 RESTATEMENT OF PRIOR PERIOD
The restatement of the prior period noted below does not change profit,
earnings per share or the net assets of the Group materially; they are
presentational restatements that reclassify amounts to alternative financial
statement lines.
£95.0 million reclassification from property plant and equipment to
investment property
The student accommodation at Spring Mews was held as investment property until
31 December 2020 when it was reclassified to property, plant and equipment.
The accounting judgement made at that time was reconsidered and it was
determined that it was more appropriate and market sector comparable to
classify the student accommodation as an investment property and so it has
been reclassified back to investment property. There is a £1.0 million
increase to profit before tax and a corresponding decrease in other
comprehensive income as a result of the revaluation movement being recognised
in the income statement for investment property. The impact on basic and
diluted earning per share is an increase of 0.2p. These impacts are not
material.
4 SEGMENT INFORMATION
The Group has two operating divisions - investment properties and other
investments. Other investments comprise the hotel at Spring Mews and other
small corporate investments. 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 2023 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 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 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 movements on revaluation of investment property (93.1) (34.4) (5.4) - - (132.9)
Movement on revaluation of equity investments - - - - - -
Profit on sale of investment property 0.1 2.6(1) - - - 2.7
Operating profit/(loss) (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)
Loss before tax (84.2) (19.8) (1.4) 1.2 (2.2) (106.4)
1 This is the land disposal in Sweden
4 SEGMENT INFORMATION (continued)
The Group's results for the six months ended 30 June 2022 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 25.1 17.3 6.4 - - 48.8
Other property-related income 4.0 - 0.1 2.1 - 6.2
Service charge income 5.7 5.1 2.5 - - 13.3
Revenue 34.8 22.4 9.0 2.1 - 68.3
Service charges and similar expenses (6.8) (6.0) (2.7) - - (15.5)
Net rental income 28.0 16.4 6.3 2.1 - 52.8
Administration expenses (3.6) (1.4) (0.8) - (2.6) (8.4)
Other expenses (3.7) (2.1) (0.3) (1.5) - (7.6)
Revenue less costs 20.7 12.9 5.2 0.6 (2.6) 36.8
Net movements on revaluation of investment property 4.6 (3.6) (6.1) - - (5.1)
Net movements on revaluation of equity investments - - - (3.3) - (3.3)
Loss on sale of investment property (0.2) - - - - (0.2)
Operating profit/(loss) 25.1 9.3 (0.9) (2.7) (2.6) 28.2
Finance income 3.4 0.7 0.7 1.1 - 5.9
Finance costs (7.9) (2.8) (1.3) (0.6) - (12.6)
Foreign exchange loss - - - - (0.2) (0.2)
Share of associates after tax - - - - - -
20.6 7.2 (1.5) (2.2) (2.8) 21.3
Profit/(loss) before tax
4 SEGMENT INFORMATION (continued)
The Group's results for the year ended 31 December 2022 were as follows:
Investment properties
United Kingdom Germany France Other Central Total
£m £m £m investments administration £m
£m £m
Rental income 48.5 38.0 12.9 - - 99.4
Other property-related income 8.2 0.2 - 4.9 - 13.3
Service charge income 11.2 11.3 4.5 - - 27.0
Revenue 67.9 49.5 17.4 4.9 - 139.7
Service charges and similar expenses (13.1) (14.1) (4.7) - - (31.9)
Net rental income 54.8 35.4 12.7 4.9 - 107.8
Administration expenses (6.4) (2.8) (1.4) (0.2) (4.9) (15.7)
Other expenses (8.1) (4.2) (0.7) (3.2) - (16.2)
Revenue less costs 40.3 28.4 10.6 1.5 (4.9) 75.9
Net movements on revaluation of investment properties (79.6) (41.5) (15.4) - - (136.5)
Net revaluation movements on equity investments - - - (3.8) - (3.8)
(Loss)/profit on sale of investment property (0.3) - 0.8 - - 0.5
Operating profit/(loss) (39.6) (13.1) (4.0) (2.3) (4.9) (63.9)
Finance income 5.3 1.4 1.4 2.0 - 10.1
Finance costs (16.4) (6.8) (2.4) (0.8) (0.4) (26.8)
Foreign exchange loss - - - - (0.3) (0.3)
Impairment of goodwill - (0.3) (0.8) - - (1.1)
Loss before tax (50.7) (18.8) (5.8) (1.1) (5.6) (82.0)
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
2023 2022 2022 2023 2022 2022 2023 2022 2022
£m £m £m £m £m £m £m £m £m
Investment property segment
United Kingdom 1009.5 1,073.8 1,083.6 556.5 539.1 551.7 25.5 14.1 36.6
Germany 968.3 962.8 1,011.6 529.3 487.6 536.4 4.8 3.6 9.8
France 280.7 296.8 294.3 167.4 182.2 185.7 1.3 6.8 11.7
Other investments segment
78.8 223.4 111.9 5.4 6.0 6.8 0.7 - 0.4
2,337.3 2,556.8 2,501.4 1,258.6 1,214.9 1,280.6 32.3 24.5 58.5
5 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. 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.
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.
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.
The latest edition of the EPRA guidelines was issued in February 2022 and
contains three net asset measures which are defined in the glossary:
• EPRA net tangible assets (NTA);
• EPRA net realisable value (NRV); and
• EPRA net development value (NDV).
CLS considers EPRA NTA to be the most relevant of these new measures as we
believe that this will continue to reflect the long-term nature of our
property investments most accurately. However, all three balance sheet
measures along with EPRA Earnings have been disclosed.
Whilst CLS primarily uses the measures referred to above, we have also
disclosed other EPRA metrics being:
• EPRA net initial yield;
• EPRA 'topped-up' net initial yield;
• EPRA vacancy;
• EPRA capital expenditure;
• EPRA cost ratio; and
• EPRA LTV
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.
Set out below is a reconciliation of the APMs used in these results to the
statutory measures.
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
1) EPRA APMs
Number of shares for use in EPRA calculations:
30 June 2023 30 June 2022 Number 31 December 2022
Number Number
Weighted average number of ordinary shares in circulation 397,249,424 407,395,760 404,410,051
Number of ordinary shares in circulation 397,410,268 407,395,760 397,210,866
i) EPRA Earnings
Six months Restated Year ended 31 December 2022
ended Six months ended £m
30 June 2023 30 June 2022 £m
£m
(Loss)/profit for the period (104.1) 18.3 (81.9)
Net movement on revaluation of investment property 132.9 5.1 136.5
Deferred taxation on revaluations (4.7) 1.9 (4.8)
Net movement on revaluation of equity investment - 3.3 3.8
(Profit)/loss from sale of investment property (2.7) 0.2 (0.5)
Current tax on disposals - - 1.6
Movement in fair value of derivative financial instruments (0.7) (5.3) (8.8)
Impairment of goodwill - - 1.1
EPRA earnings 20.7 23.5 47.0
Basic and diluted earnings per share from continuing operations (26.2)p 4.4p (20.2)p
EPRA earnings per share 5.2p 5.8p 11.6p
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
ii) Net asset value measures
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
Goodwill as a result of deferred tax on acquisitions - - - -
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(1) - - 145.7 -
1,078.7 1,158.6 1,315.6 1,162.2
Per share 271.5p 291.6p 331.0p 292.4p
(1) Purchasers costs have been calculated using the regional market rates
30 June 2022 IFRS EPRA EPRA Restated(1)
NAV NTA NRV EPRA
£m £m £m NDV
£m
Net assets 1,341.9 1,341.9 1,341.9 1,341.9
Goodwill as a result of deferred tax on acquisitions - (1.1) (1.1) (1.1)
Other intangibles - (2.4) - -
Fair value of fixed interest debt(1) - - - 53.0
- tax thereon(1) - - - (3.6)
Deferred tax on revaluation surplus - 112.5 112.5 -
Adjustment for short-term disposals - (8.2) - -
Fair value of financial instruments - (4.9) (4.9) -
Purchasers' costs - - 153.3 -
1,341.9 1,437.8 1,601.7 1,390.2
Per share 329.2p 352.8p 393.0p 341.2p
(1) Restated to be consistent with the 31 December 2022 disclosure which
included all fair value movements and not just the downside movement.
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
31 December 2022 IFRS EPRA EPRA EPRA
NAV NTA NRV NDV
£m £m £m £m
Net assets 1,220.8 1,220.8 1,220.8 1,220.8
Goodwill as a result of deferred tax on acquisitions - - - -
Other intangibles - (2.8) -
Fair value of fixed interest debt - - - 87.2
- tax thereon - - - (6.4)
Deferred tax on revaluation surplus - 108.6 108.6 -
Adjustment for short-term disposals - (8.6) - -
Fair value of financial instruments - (8.5) (8.5) -
Purchasers' costs - - 149.3 -
1,220.8 1,309.5 1,470.2 1,301.6
Per share 307.3p 329.6p 370.1p 327.7p
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 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%
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
Six months ended 30 June 2022
United Kingdom Germany France Total
£m £m £m £m
Rent passing 49.6 38.1 12.3 100.0
Adjusted for development stock (2.6) (0.5) - (3.1)
Forecast non-recoverable service charge (1.6) (1.3) (0.5) (3.4)
Annualised net rents (A) 45.4 36.3 11.8 93.5
Property portfolio 1,043.0 933.4 287.9 2,264.3
Adjusted for development stock (115.4) (46.6) - (162.0)
Purchasers' costs 63.1 60.3 19.6 143.0
Property portfolio valuation including purchasers' costs (B) 990.7 947.1 307.5 2,245.3
EPRA NIY (A/B) 4.6% 3.8% 3.8% 4.2%
Year ended 31 December 2022
United Kingdom Germany France Total
£m £m £m £m
Rent passing 46.0 42.6 12.8 101.4
Adjusted for development stock (0.9) - - (0.9)
Forecast non-recoverable service charge (1.5) (2.1) (0.3) (3.9)
Annualised net rents (A) 43.6 40.5 12.5 96.6
Property portfolio 946.8 990.1 284.2 2,221.1
Adjusted for development stock (118.7) (4.9) - (123.6)
Purchasers' costs 56.3 67.0 19.3 142.6
Property portfolio valuation including purchasers' costs (B) 884.4 1,052.2 303.5 2,240.1
EPRA NIY (A/B) 4.9% 3.9% 4.1% 4.3%
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
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 2023
United Germany France T
o
Kingdom £m £m t
a
£m l
£
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%
Six months ended 30 June 2022
United Germany France Total
Kingdom £m £m £m
£m
Contracted rent 51.9 42.0 14.0 107.9
Adjusted for development stock (2.6) (0.6) - (3.2)
Forecast non-recoverable service charge (1.6) (1.3) (0.5) (3.4)
'Topped-up' annualised net rents (A) 47.7 40.1 13.5 101.3
Property portfolio 1,043.0 933.4 287.9 2,264.3
Adjusted for development stock (115.4) (46.6) - (162.0)
Purchasers' costs 63.1 60.3 19.6 143.0
Property portfolio valuation including purchasers' costs (B) 990.7 947.1 307.5 2,245.3
EPRA 'topped-up' NIY (A/B) 4.8% 4.2% 4.4% 4.5%
Year ended 31 December 2022
United Germany France Total
Kingdom £m £m £m
£m
Contracted rent 48.1 47.4 14.7 110.2
Adjusted for development stock (0.9) - - (0.9)
Forecast non-recoverable service charge (1.5) (2.1) (0.3) (3.9)
'Topped-up' annualised net rents (A) 45.7 45.3 14.4 105.4
Property portfolio 946.8 990.1 284.2 2,221.1
Adjusted for development stock (118.7) (4.9) - (123.6)
Purchasers' costs 56.3 67.0 19.3 142.6
Property portfolio valuation including purchasers' costs (B) 884.4 1,052.2 303.5 2,240.1
EPRA 'topped-up' NIY (A/B) 5.2% 4.3% 4.8% 4.7%
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
iv) EPRA vacancy
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£m £m £m
ERV of vacant space (A) 11.3 8.2 9.0
ERV of let space 111.4 110.6 112.4
ERV of lettable space (B) 122.7 118.8 121.4
EPRA vacancy rate (A/B) 9.2% 6.9% 7.4%
v) EPRA capital expenditure
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£m £m £m
Acquisitions - 22.5 83.4
Amounts spent on the completed investment property portfolio
Creation of incremental space 1.9 5.9 12.7
Creation of no incremental space 29.7 18.6 45.5
EPRA capital expenditure 31.6 47.0 141.6
Conversion from accrual to cash basis (0.8) 11.0 (1.0)
EPRA capital expenditure on a cash basis 30.8 58.0 140.6
vi) EPRA cost ratio
Six months Restated Year ended
ended Six months 31 December
30 June 2023 ended 2022
£m 30 June 2022 £m
£m
Administration expenses - recurring 8.8 8.4 15.7
Other expenses (restated) 7.1 7.6 16.2
Less: investment segment and student operating costs (2.3) (2.5) (5.7)
13.6 13.5 26.2
Net service charge costs 2.8 2.2 4.9
Service charge costs recovered through rents but not separately invoiced (0.1) (0.2) (0.3)
Dilapidations receipts (1.1) (0.6) (1.2)
EPRA costs (including direct vacancy costs) (A) 15.2 14.9 29.6
Direct vacancy costs (2.7) (2.0) (4.0)
EPRA costs (excluding direct vacancy costs) (B) 12.5 12.9 25.6
Gross rental income 51.0 48.8 99.4
Service charge components of rental income (0.1) (0.2) (0.3)
Adjusted gross rental income (C) 50.9 48.6 99.1
EPRA cost ratio (including direct vacancy costs) (A/C) 29.9% 30.7% 29.9%
EPRA cost ratio (excluding direct vacancy costs) (B/C) 24.6% 26.5% 25.8%
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
vii) EPRA LTV
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£m £m £m
Borrowings from financial institutions 1,089.4 998.8 1,105.9
Bank loans (secured notes) - 44.4 -
Foreign currency derivatives - - -
Net payables 48.9 22.6 44.8
Cash and cash equivalents (92.5) (110.4) (113.9)
Net debt (A) 1,045.8 955.4 1,036.8
Properties held as property, plant and equipment 37.2 40.4 37.5
Investment properties 1,992.7 2,299.1 2,295.0
Properties and land held for sale 180.6 60.2* 20.3
Financial assets - equity investments 2.5 3.3 2.7
Total property value (B) 2,213.0 2,403.0 2,355.5
EPRA LTV (A/B) 47.3% 39.8% 44.0%
* This figure differs from assets held for sale on the balance sheet due to
£0.7m of associated liabilities
2. Other APMs
i) Total accounting return per share
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
p p p
EPRA closing net tangible assets 291.6 352.8 329.6
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) (329.6) (350.5) (350.5)
Return before dividends (B) (32.6) 7.7 (12.9)
Total accounting return (B/A) (9.9%) 2.2% (3.7%)
ii) Net borrowings and gearing
Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Borrowings short-term 13 224.5 184.6 173.4
Borrowings long-term 13 864.9 858.6 932.5
Add back: unamortised issue costs 13 4.9 5.3 5.3
Gross debt 13 1,094.3 1,048.5 1,111.2
Cash (92.5) (110.4) (113.9)
Net borrowings (A) 1,001.8 938.1 997.3
Net assets (B) 1,078.7 1,341.9 1,220.8
Net gearing (A/B) 92.9% 69.9% 81.7%
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
iii) Balance sheet loan-to-value
Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Borrowings short-term 13 224.5 184.6 173.4
Borrowings long-term 13 864.9 858.6 932.5
Less: cash (92.5) (110.4) (113.9)
Net debt (A) 996.9 932.8 992.0
1,992.71,99 2,295.0
Investment properties 9 1,992.7 2,299.1 2,295.0
Properties in PPE 9 37.2 40.4 37.5
Properties and land held for sale 9 180.6 60.2* 20.3
Total property portfolio (B) 2,210.5 2,399.7 2,352.8
Loan-to-value (A/B) 45.1% 38.9% 42.2%
* Sum total differs from assets held for sale on the balance sheet due
to £0.7m of associated liabilities
iv) Dividend cover Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Interim dividend * 10.3 10.6 10.6
Final dividend - - 21.3
Total dividend (A) 10.3 10.6 31.9
EPRA earnings (B) 20.7 23.5 47.0
Dividend cover (B/A) 2.00 2.22 1.47
* The 30 June 2023 amount represents the proposed interim 2023 dividend
v) Interest cover Notes Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Net rental income 4 55.6 52.8 107.8
Administration expenses 4 (8.8) (8.4) (15.7)
Other expenses 4 (7.1) (7.6) (16.2)
Revenue less costs (A) 4 39.7 36.8 75.9
Finance income (excluding dividends and derivatives) 6 1.0 0.6 1.3
Finance costs (excluding derivatives) 7 (17.2) (12.6) (26.8)
Net interest (B) (16.2) (12.0) (25.5)
Interest cover (A/B) 2.45 3.07 2.98
5 ALTERNATIVE PERFORMANCE MEASURES ('APMs') (continued)
vi) CLS administration cost ratio
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Administration expenses 8.8 8.4 15.7
Less: Other investment segment (0.1) - (0.2)
Underlying administration expenses (A) 8.7 8.4 15.5
Net rental income (B) 55.6 52.8 107.8
Administration cost ratio (A/B) 15.6% 15.9% 14.4%
6 FINANCE INCOME
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Interest income
Financial instruments carried at amortised cost 1.0 0.6 1.3
Movement in fair value of derivative financial instruments 0.7 5.3 8.8
1.7 5.9 10.1
7 FINANCE COSTS
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Interest expense
Secured bank loans 16.3 10.9 23.3
Secured notes - 0.8 1.7
Amortisation of loan issue costs 0.9 0.9 1.8
17.2 12.6 26.8
8 TAXATION
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Deferred tax
Origination and reversal of temporary differences (5.0) 1.8 (5.4)
(5.0) 1.8 (5.4)
Current tax 2.7 1.2 5.3
Tax (credit)/charge (2.3) 3.0 (0.1)
8 TAXATION continued
Tax for the six months ended 30 June 2023 has been recorded at an effective
rate of 2.2% (six months ended 30 June 2022: 14.7%; year ended 31 December
2022: 18.5%), 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 2.2.% is lower than the weighted average tax rate
of 21.8%. 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 of £2.3 million is lower than the £3.0
million tax charge for the six months ended 30 June 2022 primarily due to the
release of deferred tax liabilities in Germany and France. The total tax
credit for the period of £2.3 million is higher than the £0.1 million credit
recognised for the year ended 31 December 2022 as a result of a decrease in
the current tax charge related to France.
9 PROPERTY PORTFOLIO
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 1,105.1 926.5 267.5 2,299.1
Property held as property, plant and equipment 33.1 5.4 1.9 40.4
Properties held for sale* 32.9 6.9 20.0 59.8
0.0
Land held for sale* - - 0.4 0.4
Property portfolio at 30 June 2022 1,171.1 938.8 289.8 2,399.7
*Sum total differs from assets held for sale on the balance sheet due to
£0.7m of associated liabilities
United Kingdom Germany France Total
£m £m £m £m
Investment property 1,030.0 990.5 274.5 2,295.0
Property held as property, plant and equipment 33.6 2.0 1.9 37.5
Properties held for sale 7.0 3.6 9.7 20.3
Property portfolio at 31 December 2022 1,070.6 996.1 286.1 2,352.8
The property portfolio which comprises investment properties detailed in note
10, properties held for sale detailed in note 12, and the hotel detailed in
note 11 was revalued at 30 June 2023 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 2023 30 June 2022 31 December 2022
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 915.4 85.5 1,000.9 1,105.1 66.0 1,171.1 1,030.0 40.6 1,070.6
Jones Lang LaSalle 1,077.3 132.3 1,209.6 1,194.0 31.0 1,225.0 1,265.0 13.6 1,278.6
L Fällström AB - - - - 3.6 3.6 - 3.6 3.6
1,992.7 217.8 2,210.5 2,299.1 100.6 2,399.7 2,295.0 57.8 2,352.8
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 10 for details on valuation technique and fair value
measurement.
10 INVESTMENT PROPERTIES
United Kingdom Germany France Total
£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
Restated* Germany France Total
United Kingdom
£m £m £m £m
At 1 January 2022 (restated*) 1,090.5 883.0 273.6 2,247.1
Acquisitions - 22.5 - 22.5
Capital expenditure 14.1 3.6 6.8 24.5
Net revaluation movement (restated*) 4.7 (3.6) (7.1) (6.0)
Lease incentives 0.7 6.3 - 7.0
Exchange rate variances - 21.6 6.5 28.1
Transfer to properties held for sale (4.9) (6.9) (12.3) (24.1)
At 30 June 2022 (restated*) 1,105.1 926.5 267.5 2,299.1
* See note 3 for detail
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2022 (restated) 1,090.5 883.0 273.6 2,247.1
Acquisitions - 83.4 - 83.4
Capital expenditure 36.6 9.9 11.7 58.2
Disposals (11.5) - - (11.5)
Net revaluation movement (79.5) (41.6) (15.4) (136.5)
Lease incentives 0.9 6.9 - 7.8
Exchange rate variances - 48.9 14.3 63.2
Transfer to plant, property and equipment - - - -
Transfer to properties held for sale (7.0) - (9.7) (16.7)
At 31 December 2022 1,030.0 990.5 274.5 2,295.0
Investment properties include leasehold properties with a carrying value of
£72.6 million (30 June 2022: £49.8 million; 31 December 2022: £77.7
million).
Interest capitalised within capital expenditure in the period amounted to
£0.6 million (30 June 2022: £nil; 31 December 2022 £0.5 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 standards.
10 INVESTMENT PROPERTIES continued
Each Country Head, who report 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 2023 or 2022. 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 £132.9 million (30 June 2022: £6.0 million; 31 December 2022:
£136.5 million) and are presented in the income statement in the line item
'Net movements on revaluation of investment properties'.
All gains and losses recorded in profit or loss in 2023 and 2022 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 2023 and 30 June 2022, respectively.
10 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-22 31-Dec-22 30-Jun-22 31-Dec-22
30-Jun-23 30-Jun-23
UK 35.62 36.83 34.01 10.00 - 55.85 10.00 - 63.22 10.00 - 58.09
Germany 14.07 13.56 14.10 9.84 - 24.53 9.08 - 24.62 10.14 - 25.27
France 21.19 20.78 21.69 12.87 - 40.20 12.05 - 39.60 13.26 - 41.38
Equivalent yield
Average % Range %
30-Jun-22 31-Dec-22 30-Jun-22 31-Dec-22
30-Jun-23 30-Jun-23
UK 6.09 5.31 5.61 2.93 - 9.27 2.75 - 9.09 2.94 - 9.61
Germany 5.01 4.40 4.75 4.00 - 6.00 3.00 - 5.40 3.30 - 5.90
France 5.41 5.03 5.13 4.30 - 6.90 3.90 - 6.50 4.05 - 6.75
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 £93.5
million (30 June 2022: £137.0 million; 31 December 2022: £138.5 million)
whilst a 25 basis point increase would reduce the fair value by £98.9 million
(30 June 2022: £116.5 million; 31 December 2022: £107.0 million). A
decrease in the ERV by 5% would result in a decrease in the fair value of the
Group's investment property by £87.9 million (30 June 2022: £86.4 million;
31 December 2022: £86.8 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
£72.6 million (30 June 2022: £95.5 million; 31 December 2022: £106.5
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 2023.
£m
5% increase in value of sterling against the euro (51.3)
5% fall in value of sterling against the euro 56.7
Sustainability, climate change, Net Zero Carbon Pathway and EPC compliance
The Group published its sustainability strategy including a pathway to Net
Zero Carbon ("NZC") in August 2021 and has set 2030 as its date to achieve
this (see pages 58 to 61 of the 2022 Annual Report). During 2021 the Group
employed technical experts to carry out individual property energy audits to
identify energy and carbon saving opportunities. A total of 76 properties were
visited from January to April 2021 across the UK, France and Germany, with new
developments, properties under refurbishment and properties earmarked for sale
all excluded from the programme. The investment needed to deliver the audit
findings amounts to an estimated £65 million over 9 years for all properties.
We have integrated these energy audits into each Asset Management Plan to
enable strategic decisions about the refurbishment, sale or full redevelopment
of assets to be made. The UK portfolio is already compliant with the 2023
Minimum Energy Efficiency Standard (MEES) requirements and the 2030 target of
EPC B is factored in to the NZC Pathway model (see page 58 of the 2022 Annual
Report for more detail).
11 PROPERTY, PLANT AND EQUIPMENT
Restated*
30 June 30 June 2022 31 December
2023 £m 2022
£m £m
Hotel 27.1 25.8 26.7
Land and buildings - 3.6 -
Owner-occupied property 10.1 11.0 10.8
Fixtures and fittings 2.4 2.0 2.1
Total 39.6 42.4 39.6
* See note 3 for detail
Hotel Owner-occupied property Fixtures Total
£m £m and £m
fittings
£m
At 1 January 2023 26.7 10.8 3.5 41.0
Additions 0.4 - 0.3 0.7
Disposals - - - -
Reclassification (0.2) - 0.2 -
Revaluation 0.2 (0.4) - (0.2)
Exchange rate variances - (0.3) - (0.3)
At 30 June 2023 27.1 10.1 4.0 41.2
Comprising:
At cost - - 4.0 4.0
At valuation 27.1 10.1 - 37.2
27.1 10.1 4.0 41.2
Accumulated depreciation and impairment
At 1 January 2023 - - (1.4) (1.4)
Disposals - - - -
Depreciation charge (0.1) - (0.2) (0.3)
Revaluation 0.1 - - 0.1
At 30 June 2023 - - (1.6) (1.6)
Net book value
At 30 June 2023 27.1 10.1 2.4 39.6
At 31 December 2022 26.7 10.8 2.1 39.6
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 net operating profit in the 11(th)
year is capitalised at a market yield before being brought back to present day
values.
This technique is consistent with the principles in IFRS 13 Fair Value
Measurement and uses 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.
The revaluation deficit for the property, plant and equipment of £0.1 million
(30 June 2022: surplus £1.3 million 31 December 2022: surplus £1.9
million) was included within the revaluation reserve via other comprehensive
income.
12 ASSETS HELD FOR SALE
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)
Exchange rate variances - - (0.3) (0.3)
Transfer from investment property 44.8 119.4 - 164.2
At 30 June 2023 51.8 119.4 9.4 180.6
(1 This is the disposal of our land holding in Sweden)
The balance above comprises 7 properties (31 Dec 2022: 3 properties; 30 June
2022: 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 2022 37.3 - 6.9 44.2
Disposals (10.1) - - (10.1)
Net revaluation movement - - 0.9 0.9
Exchange rate variances - - 0.3 0.3
Transfer from investment property 5.0 6.9 12.3 24.2
At 30 June 2022 32.2 6.9 20.4 59.5
United Kingdom Germany France Total
£m £m £m £m
At 1 January 2022 37.3 - 6.9 44.2
Disposals (37.3) - (6.9) (44.2)
Transfer from investment property 7.0 - 9.7 16.7
Transfer from property, plant and equipment - 3.6(1) - 3.6
At 31 December 2022 7.0 3.6(1) 9.7 20.3
(1 Land holding in Sweden)
13 BORROWINGS
MATURITY PROFILE
At 30 June 2023 Bank Secured Total
loans notes £m
£m £m
Maturing in:
Within one year or on demand 225.9 - 225.9
One to two years 176.8 - 176.8
Two to five years 424.3 - 424.3
More than five years 267.3 - 267.3
1,094.3 - 1,094.3
Unamortised issue costs (4.9) - (4.9)
Borrowings 1,089.4 - 1,089.4
Due within one year (224.5) - (224.5)
Due after one year 864.9 - 864.9
At the year ended 31 December 2022, £175.1 million of borrowings were due for
repayment within one year and £350.1m was due within one to two years
including unamortised issue costs (see 2022 Annual Report and Accounts, note
21). During the six-month period, CLS has refinanced £299.1million (of which
£83.9m was classified as new loans).
MATURITY PROFILE
At 30 June 2022 Bank Secured Total
loans notes £m
£m £m
Maturing in:
Within one year or on demand 141.7 44.4 186.1
One to two years 319.3 - 319.3
Two to five years 229.4 - 229.4
More than five years 313.7 - 313.7
1,004.1 44.4 1,048.5
Unamortised issue costs (5.3) - (5.3)
Borrowings 998.8 44.4 1,043.2
Due within one year (140.2) (44.4) (184.6)
Due after one year 858.6 - 858.6
At 31 December 2022 Bank Secured Total
loans notes £m
£m £m
Maturing in:
Within one year or on demand 175.1 - 175.1
One to two years 350.1 - 350.1
Two to five years 314.4 - 314.4
More than five years 271.6 - 271.6
1,111.2 - 1,111.2
Unamortised issue costs (5.3) - (5.3)
Borrowings 1,105.9 - 1,105.9
Due within one year (173.4) - (173.4)
Due after one year 932.5 - 932.5
13 BORROWINGS continued
FAIR VALUES
Carrying amounts Fair values
30 June 2023 30 June 2022 31 December 2022 30 June 2023 30 June 2022 31 December 2022
£m £m £m £m £m £m
Current borrowings 224.5 184.6 173.4 224.5 184.4 173.4
Non-current borrowings 864.9 858.6 932.5 777.3 805.8 845.3
1,089.4 1,043.2 1,105.9 1,001.8 990.2 1,018.7
The fair value of borrowings represents the amount at which a financial
instrument could be exchanged in an arm's length transaction between informed
and willing parties, discounted at the prevailing market rate, and excludes
accrued interest.
14 SHARE CAPITAL
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 2022 and 30 June 2022 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
Purchase of own shares (market purchase) (10,184,894) 10,184,894 - (0.3) 0.3 -
At 31 December 2022 397,210,866 41,566,914 438,777,780 9.9 1.1 11.0
Issue of shares from treasury 199,402 (199,402) - - - -
At 30 June 2023 397,410,268 41,367,512 438,777,780 9.9 1.1 11.0
15 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 2023 30 June 2022 Number 31 December 2022
Number Number
Weighted average number of ordinary shares in circulation 397,249,424 407,395,760 404,410,051
Number of ordinary shares in circulation 397,410,268 407,395,760 397,210,866
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
in addition to the passage of time.
Employee share plan 30 June 2023 30 June 2022 31 December 2022
Number Number Number
Element B / Special Award 932,847 520,901 520,901
LTIP 2,963,569 1,674,113 1,674,113
Total potential dilutive shares 3,896,416 2,195,014 2,195,014
16 CASH GENERATED FROM OPERATIONS
Six months ended Restated Year ended
30 June 2023 Six months ended 31 December 2022
£m 30 June 2022 £m
£m
Operating (loss)/profit (90.5) 28.2 (63.9)
Adjustments for:
Net movements on revaluation of investment properties (restated) 132.9 5.1 136.5
Net movements on revaluation of equity investments - 3.3 3.8
Depreciation and amortisation (restated) 0.3 0.3 0.6
Non-cash rental income (lease incentives) (1.5) (7.0) (0.5)
Share-based payments 0.2 (0.6) (7.8)
(Profit)/loss on sale of investment properties (2.7) 0.2 0.2
Changes in working capital:
Decrease in receivables 1.5 4.6 2.3
Increase/(decrease) in payables 0.4 (3.1) (0.7)
Cash generated from operations 40.6 31.0 70.5
17 CASH AND CASH EQUIVALENTS
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
£m £m £m
Cash at bank and cash in hand 92.5 110.4 113.9
At 30 June 2023, cash at bank and in hand included £30.0 million (31 Dec
2022: £15.8 million; 30 June 2022: £13.4 million) which was restricted
by a third-party charge. £19.9 million of the restricted cash is deposited
with banks in respect of borrowings (31 Dec 2022: £5.3 million; 30 June
2022: £3.0 million), £9.9 million is tenant deposits (31 Dec 2022: £10.3
million; 30 June 2022: £10.2 million) and £0.2 million (31 Dec 2022: £0.2
million; 30 June 2022: £0.2m) is from a recently terminated contract for
the provision of property management services to a related party.
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
Since 30 June 2023 we have repaid a loan in Germany of £13.4 million and
refinanced a loan in Germany of £20.8 million of borrowings.
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 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.
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.
Passive infrared sensor (PIR)
A PIR sensor will turn the lights on automatically when someone walks into a
room or space and off when it becomes empty resulting in significant energy
savings.
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.
SKA rating
SKA rating is an environmental assessment method, benchmark and standard for
non-domestic fit-outs, led and owned by RICS. Performance is measured across
the ratings; Bronze, Silver and Gold.
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.
Variable refrigerant flow (VRF)
The modular design of VRF results in energy savings by giving occupants the
choice to air condition or heat only the zones in use.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR NKFBDKBKBFFKRecent news on CLS Holdings
See all newsREG - CLS Holdings PLC - Publication of 2024 Annual Report & Notice of AGM
AnnouncementREG - CLS Holdings PLC - Director/PDMR Shareholding
AnnouncementREG - CLS Holdings PLC - Director/PDMR Shareholding
AnnouncementREG - CLS Holdings PLC - Director/PDMR Shareholding
AnnouncementREG - CLS Holdings PLC - Annual Financial Report
Announcement