Full Year Results 2017 -...

CLS Holdings plc

Full Year Results 2017

CLS Holdings plc | Full Year Results 2017 2

Contents

Overview Fredrik WidlundChief Executive

Financials John WhiteleyChief Financial Officer

Property Simon WigzellHead of Group Property

Markets & Summary

Fredrik WidlundChief Executive


UK – 52% (£934m) Germany – 32% (£579m) France – 16% (£290m)

Property value by geography

91.2

103.8 13.8%

2016 2017

Contracted rent (£m)

OverviewExceptional and transformational year

• Repositioning portfolio towards higher growth and income-producing properties

• Realised significant value with the sale of Vauxhall Square

• Substantial acquisitions and disposals that increased our geographical diversification

• Strong operational performance with increased EPRA earnings

• Valuation increases in all countries, overall up 5.8% in local currency

• Significant increase in contracted rent that will drive future earnings

• Introduced dividend as method of distributing cash to shareholders

£1,803m


Contents




Markets & Summary



2013

126.8177.4

208.3245.6

286.0

2014 2015 2016 2017

EPRA NAV (pence)

3.403.643.64

2.91

2.51

Cost of debt (%)

2013 2014 2015 2016 2017

0

5

10

15

20

25

30

10.0

5.0

10.4

5.5

13.416.3 17.5

8.47.25.7

2015 201620142013 2017

Distributions (£m)

H1 H2

FinancialsOutperformance supported by strong underlying business

EPRA NAV Up 16.5% to 286.0p (31 Dec 2016: 245.6p)

EPRA EPS Up 4.1% to 12.8p(2016: 12.3p)

Profit before taxation

Up 91% to £191.4m(2016: £100.1m)

Weighted average cost of debt

Down 40bps to 2.51%(31 Dec 2016: 2.91%)

Strong interest cover

3.72x(2016: 3.37x)

Dividend Proposed final dividend 4.30p per share. Total for the year 6.35p per share, up 10.1%


245.6

(6.0)

12.8

22.86.6 1.6 2.6 286.0 16.5%

31 Dec 2016 Dividend EPRA EPS Property valuation

Profit on disposal

Other movement

FX 31 Dec 2017

Movement in EPRA NAV (pence per share)

Movement in EPRA NAVDriven by earnings, revaluations and disposals


12.3

0.9

0.30.2 0.1 0.1

(1.1)

12.8 4.1%

EPRA EPS 2016

Rental income

Other net income

MINet finance costs

Tax FX EPRA EPS 2017

Movement in EPRA EPS (pence per share)

Movement in EPRA EPSStrong underlying business


38.11,574.7

1,536.6(158.9)

238.5 22.9

96.9 28.8

31.617.9

1,802.9

1,753.4

31 Dec 2016 Disposals Acquisitions Capex Valuation uplift

FX 31 Dec 2017

Movement in property portfolio (£m)

Investment properties PPE Held for sale

+14.5%

Movement in Property PortfolioRecycling capital and universal valuation uplift


0

100

200

300

400

500

65.1

99.0

164.143.2

(24.7)

241.9

(230.8)(24.2)

32.2 5.0

65.5

141.2

206.7

31 Dec 2016 From operations

Dividends Sale of properties

Property acquisitions

Capital expenditure

Net drawdown

of loans

Other 31 Dec 2017

Movement in liquid resources (£m)

Cash Bonds

Movement in liquid resourcesAn exceptional year


Fixed rate – 63% Floating rate – capped – 5% Floating rate – unhedged – 32%

Debt hedging 2016

Fixed rate – 74% Floating rate – capped – 5% Floating rate – unhedged – 21%

Debt hedging 2017

Debt positionSecuring attractive debt

Low cost of debt Down to 2.51%(31 Dec 2016: 2.91%)

Strong interest cover

Up to 3.72x(2016: 3.37x)

Fixed rate debt Up to 74%(31 Dec 2016: 63%)Fixed for 4.2 years

Net debt to property assets

Down to 36.7%(31 Dec 2016: 43.7%)

Unencumbered properties

Up to £247m(31 Dec 2016: £136m)


2022

0

50

100

150

200

250

202320192018 2020 2021 2024 2025

Debt maturity (£m)31 December 2017

Expiries

2017 financings

Amortisation

Fixed rate debt (LHS) Floating rate debt

Fixed/floating debt (%)

0

20

40

60

80

100

20142013 2015 2016 2017

Debt positionMitigating our risks

• Locked in more fixed rates:• Refinanced £221.6m at 1.63%• Including £174.0m fixed at 1.54%• Further extended the debt profile

• Repaid loans of £167.2m• Including £23.5m 10.765% Amortising Bond due 2025• Exceptional loss of £9.7m, but accretive to EPS by 0.5p

in 2018, and reduced cost of debt by 25bps

• Average unexpired term at 31 December 2017: 3.6 years• Fixed debt: 4.2 years• Floating debt: 2.0 years

• Property LTV: 51.8% (31 Dec 2016: 49.8%)

• 52 loans

• 21 banks


Contents




Markets & Summary


Munich

Düsseldorf

Stuttgart

Hamburg


Sales and AcquisitionsInvesting in our core markets 2017

£199m of sales at 3.29% NIY

• 4 in the UK - £167m• 1 in France - £7m• 2 in Germany - £25m

Sales Acquisitions

£239m of acquisitions at 6.53% NIY with 9% vacancy

• 8 in the UK - £50m• 1 in France - £1m• 14 in Germany – £188m


Metropolis PortfolioSignificant asset management opportunity

Key Facts• Q3 2017 completed purchase of 12 properties in core locations £140m inc costs• 86% located in Hamburg, Dusseldorf, Stuttgart and Munich providing circa 1m sqft• Attractive yield of 6.3% generating £8.9m rent pa - 28% coming from top five tenants• 11% vacancy and WAULT 3.3 years

‘This a significant asset management opportunity to add value by reducing vacancy, improving the WAULT and increasing rental values from further investment in the buildings including major refurbishments’

So far• 5 deals completed – re-gears and lettings on 31,000 sq ft • Further 14,000 sq ft in legals• Ongoing refurbishment and leasing of additional space to Bosch in Stuttgart• Two smallest properties identified for disposal• Major refurb/development opportunity in Stuttgart – concept design progressing

£22.10

£18.22

£10.97

UK Germany France

Affordable rents


Government – 30% Major corporates – 23%

Secure income of £103.8m

Index-linked rents – 41%

Resilient tenant baseSecure and affordable rents

712tenants up 35%

129properties

£16.19 psfTotal portfolio average contracted rent


UK – 68% Germany – 18% France – 14%

Leasing deals

Acquisitions – 0.7% Refurbishments – 1.5% Core portfolio – 3.6%

Vacancy (5.8%)

Active ManagementOpportunities to add value

£19.4m

Leasing Activity Up to 173 Deals(2016: 139 Deals)Capturing £19.4m(2016: £10.9m)

Tenant Retention 66% Lease Extensions(2016: 54%)26% New Leases8% Rent Reviews

WAULT Down to 5.4 years (31 Dec 2016: 6.2 years)

Vacancy Up to 5.8%(31 Dec 2016: 2.9%)

£41.5m+4.7%

+£21.6m+8.2%1

+£33.8m+6.6%1

UK Germany France

Robust valuations in all countries drove total portfolio valuation +5.8% to £1.8 billion


Strong portfolio growthValuation uplifts across the board

UK• Valuation uplift of 4.7%• 3.6% increase in like-for-like contracted rent• Yield compression 20bps

Germany• Valuation uplift of 6.6% in local currency• ERVs up 3.6%• Yield compression 63bps

France• Valuation uplift of 8.2% in local currency• Yield compression 96bps

Total uplift £97m

1. In local currencies.


Key asset management opportunitiesActively adding value

UK• Letting three newly refurbished buildings in Leatherhead,

Bromley and Birmingham• Implement occupier feedback action plan – improve

facilities and fit-out style• CI Tower additional office floors

Germany• East Gate relet remaining 87,435 sq ft• Adlershofer Tor regear main tenant lease• Launch occupier survey & sustainability initiatives

France• Complete Ateliers Victoires • Good reletting prospects in buoyant market• Launch occupier survey & sustainability initiatives


Good progress on developmentsActively adding value

Spring Mews (Phase 2), Vauxhall• 9,181 sq ft of office space plus 9 residential student flats• Completion Q2 2018• CLS’s new HQ

Ateliers Victoires, Paris• Prime Paris, 21,500 sq ft office refurbishment• Estimated completed value €30m• Completion Q2 2018• Conditional pre-let option agreed

Quayside Lodge, London SW6• Resolution to grant planning permission for a new 10-storey residential and office development• Development area 160,000 sq ft, increase of 500%• Prepare property for disposal


Contents




Markets & Summary



HQ – 28 UK – 38 Germany – 13 France – 13

Employee (FTE) split by country

StrategyLong-term property investor

Our strategy has three key building blocks:

Focus on our core markets• High yielding, non-prime offices in London and the south east, and the

major cities in Germany and France

• We target critical mass and have our own employees with local knowledge and network in each market

Enhancing our existing portfolio• Selected refurbishment and development opportunities

• Rolling capital expenditure programme

• Invested £22.9m in refurbishments, developments and improvements in 2017

• Secure planning permission for extensions, redevelopments and alternative uses to maximise value

• Undertake the development ourselves or sell the property to realise the value uplift

Active recycling of assets• Acquiring where we see opportunities to add value

• Disposing of lower yielding assets where asset management opportunities are limited

92


StrategyActive recycling of assets

• Each property has a business plan reviewed periodically against the Group’s strategy

• Our disposal criteria are:• Assets which are low yielding with limited potential• Investments on which the risk/reward ratio is unfavourably balanced• Properties that are too small to have a meaningful impact on the Group

• In 2017 we sold properties with a value of £159m that generated proceeds of £199m; we have identified a further £150m+ for disposal in the medium term

• Our acquisition criteria are:• High yielding, multi-let, non-prime offices with good transportation links• Asset management opportunities • Return on equity above 12% at 50-65% LTV

• In 2017 we acquired £188m in Germany and £50m in the UK; in the medium term we are targeting to acquire £400m+ in our three core markets


MarketsCountry snap-shots

United Kingdom – repositioning for long economic growth • Brexit negotiations have created uncertainties but also opportunities• Economic outlook stronger than forecast• Non-prime offices in the SE benefiting from structural changes• Continue to invest in value-add buildings

Germany – actively looking to invest in major cities• Strength of Germany’s well-diversified economy highly reassuring• Unemployment falling and vacancy levels at record low• Despite increased competition, continues to have the most attractive office investment

opportunities in Europe

France – delivering value from existing shareholders • Investor sentiment strengthened during the year driven by political change• Limited office development in recent years • Fundamentals for office investments solid and improving in both Paris and Lyon


Summary and OutlookExceptional and transformational year

• Exceptional and transformational year, great progress in repositioning portfolio

• EPRA NAV up 16.5% to 286.0 pence, profit before tax £191.4 million

• Realised significant value with the sale of Vauxhall Square and substantial acquisitions in Germany, expanding our diversification into Europe’s strongest economy

• Strong operational performance, EPRA earnings per share up 4.1% to 12.8 pence

• Introduced dividend as method of distributing cash to shareholders with 10.1% increase over last year

• Contracted rent increased 13.8% to £103.8 million that will drive earnings growth in 2018

• Existing portfolio offers plenty of opportunities

• Company well positioned to continue to deliver long-term shareholder value


Appendices


Property Portfolio1

1 Data relates to investment properties plus properties held for sale, unless otherwise stated

2 Includes hotel and landholding3 In local currency4 Excludes developments and landholding

At 31 Dec 2017 Market Value2

£m

Valuation3

%EPRA Net Initial Yield4

%

Vacancy By Rent%

WAULT(years)

ERV of Contracted Rent£m

Contracted Rent £m

Contracted Rent £/sq ft(£/sqm)

UK 934.0 4.7% 5.4% 5.5% 5.6 58.5 54.4 22.10

(238)

Germany 578.9 6.6% 5.2% 7.1% 4.8 37.8 34.1 10.97

(118)

France 290.0 8.2% 4.6% 4.4% 6.0 16.1 15.3 18.22

(196)

Total portfolio 1,802.9 5.8% 5.2% 5.8% 5.4 112.4 103.8 16.19

(174)


Property CountryExisting Size (sq m)

Potential Time Frame Opportunity

St Cloud Gate, Maidenhead UK 941 2020 - 2022 Office redevelopment. Planning submission 2018 / 2019Ty Cambria, Cardiff UK 3,135 2020 - 2022 Mixed-use development. Planning pre app submission 2018Quayside, London SW6 UK 3,064 2020 - 2022 Residential development site. Resolution to grant planning Jan 2018Westminster Tower, London SW1 UK 4,457 2020 - 2022 Planning permission for residential / office development grantedLe Quatuor, Paris France 2,459 2020 - 2022 Office development with land assemblyVor Dem Lauch 14, Stuttgart Germany 9,700 2020 - 2023 Major office refurb/ redevelopmentAtholl House, Aberdeen UK 5,058 2021 - 2023 Mixed-use developmentBismarckallee, Freiburg Germany 7,471 2021 - 2023 Major office refurb /redevelopmentSchanzenstrasse, Dusseldorf Germany 3,095 2024 - 2025 Residential developmentNew Printing House, London WC1 UK 26,295 2025 - 2027 Major office refurb / developmentSpring Gardens, London SE11 UK 19,964 2026 - 2028 Mixed-use developmentMalakoff, Paris France 10,778 2028 - 2030 Mixed-use developmentUnicorn House, Bromley UK 5,456 2028 - 2030 Major office refurb / developmentArmstrong Road, Acton UK 4,039 2028 - 2030 Residential developmentSt Cross House, Southampton UK 3,993 2028 - 2030 Mixed-use development

Long-term value-add opportunities


UK217No. of tenants

72No. of properties

5.5%vacancy

2,618,340 sq ft /243,252 sqmLettable space

£934.0mValue of investment properties

£54.4mcontracted rent

London


Germany338No. of tenants

33No. of properties

7.1%vacancy

3,363,407 sq ft / 312,471 sqmLettable space



Berlin


France157No. of tenants

24No. of properties

4.4%vacancy

870,112 sq ft / 80,836 sqmLettable space



Paris


0

1

2

3

4

5

6

4.5 4.7

2.94.3

5.64.8

6.0 5.4

UK Germany France Total

Average unexpired lease term (years)

To first break To end of lease

0

5

10

15

20

12 11 10 10 12 127 7 7 7

13 14

7 7

1316 14 13

3 36 5

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Later

Effect of rent expiries (£m)

Rent expiring ERV of rent expiring

Lease profile


Corporate bond portfolioAt 31 December 2017

Banking Insurance Travel & Tourism

Telecoms & IT

Energy & Resources

Other Total

Value £23.9m £2.0m £9.5m £12.1m £10.4m £7.6m £65.5m

Running Yield

6.8% 5.8% 7.4% 7.1% 10.2% 4.1% 7.1%

Issuers RBSHSBCLloydsBarclaysUnicreditSantanderAllied IrishCredit AgricoleDeutsche BankSociete GeneralStandard Chartered

PGH CapitalBrit Insurance

SASStenaHertzBritish Airways

DellSeagateCenturylinkTelecom ItaliaWestern Digital

EnelSeadrillFreeport-McMoRanTransocean

L BrandsStora EnsoLiberty Interactive


Sustainability at CLS31 December 2017

CO2

Reduced by 9% (Target reduction 5%)

Solar PV 3% of Group electricity from 7 systems

Water usage Reduced by 5%(Target reduction 5%)

Recycling 70%(Target 70%)

2018 MEES (“EPC”) Regulation

UK Portfolio 100% compliant

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