Interim Management Statement

RNS Number : 9075V

CLS Holdings PLC

10 November 2010

 



Release date: 10 November 2010

CLS Holdings plc

("CLS", the "Company" or the "Group")

Interim Management Statement for the period 1 July 2010 to 10 November 2010

The Company today announces its Interim Management Statement for the period 1 July 2010 to 10 November 2010.

HIGHLIGHTS

·     Acquisition of Apex Tower, New Malden for £21.5 million

·     Acquisition of Colt Group's Paris headquarters for €14.3 million

·     Further pre let developments in Munich and in Landshut, Germany

·     Strong performance of Catena AB

·     New leases, lease renewals and extensions completed on 16,957 sq m

·     Weighted average cost of debt of 4.3%

·     Over £125 million of liquid resources available for investment

OVERVIEW - The Group has made acquisitions in the UK and in France, and entered into two pre-let development agreements in Germany since 1 July.  The vacancy rate by rental value is 5.0%, which would fall to 4.2% after accounting for leases under offer.  The market value of the Group's 29.99% interest in Stockholm-listed property company Catena AB would add 35 pence per share to net asset value, and the core CLS business has continued to generate high net initial yields against a low cost debt base.

UK (LONDON) - Since 1 July, commercial letting markets have remained  sensitive to the recessionary climate for occupiers, but the falling vacancy rate in the central London office market has helped rental value stability.  Sentiment in the prime investment market has remained positive and yields have stabilised following the sharp compression in 2009.  There continue to be good opportunities to acquire attractive secondary stock and we are actively seeking new acquisitions.

On 1 November, we completed the purchase of Apex Tower, New Malden for £21.5 million, equating to a net initial yield of 8.66% and return on equity of 16.1%.  The property, which is predominantly let to BAE Systems until June 2020, produces a rental of £1.86 million per annum. 

We are progressing medium-term redevelopment plans for our two major sites in Vauxhall and will provide further details in the coming months.

Lease renewals were completed on 296 sq m (3,186 sq ft), new lettings were achieved on 2,514 sq m (27,060 sq ft) and tenants vacated from 3,496 sq m (37,631 sq ft).The vacancy rate by rental value rose from 5.4% at 30 June 2010 to 5.8%. This includes space intentionally taken back at Westminster Tower for enhancement, and we are cautiously encouraged by signs of tenant activity and new demand.

FRANCE - Since 1 July, the French investment market has continued to be characterised by investor demand significantly exceeding the supply of good quality product, and prime yields which were 5.75% are now nearer 5%.  Investment market activity since 1 January 2010 of €6.9 billion was over 40% above the equivalent period last year, and the letting market was 33% above levels of a year earlier.

In October we acquired 23/27 Rue Pierre Valette, Malakoff, Paris for €14.3 million, on an initial yield of 7.38% and producing a return on equity of 15.3%.  The 10,778 sq m (116,014 sq ft) property is let at €1.1 million p.a. on an index-linked lease until 2018 to Colt Group S.A. as its French subsidiary headquarters and network node.

During the period, leases expired on 5,978 sq m (64,347 sq ft), of which 3,303 sq m (35,553 sq ft) renewed, and a further 1,592 sq m (17,136 sq ft) was leased.  Due to the acquisition of Malakoff, the resulting void rate by rental value was virtually unchanged at 4.8% (30 June 2010: 4.7%).

GERMANY - Real estate investment market activity in Germany in 2010 has been more than double that of the previous year.  Although across the entire market voids are over 10%, letting market activity has increased marginally in 2010, GDP growth is expected to remain strong, and unemployment has now fallen to its lowest level for 18 years.

Since 1 July we have agreed to develop two buildings for existing tenants in Germany:

·     At Gräfelfing in Munich, Dr Hönle AG will add 1,642 sq m of space to create an 8,527 sq m (91,783 sq ft) complex in total.  The new office, to be completed in 2011, has been let, along with the existing space, on a combined new index-linked lease to October 2020 at an initial €1.1 million p.a., representing an initial yield of 7.7% and a return on equity of 18.3% p.a.

·     At Landshut, E.ON will take a fourth building, to be built by summer 2012.  The new space will comprise 3,400 sq m (36,597 sq ft) of offices generating €410,000 p.a. on an index-linked lease until 2030 with no breaks, and representing a return on equity of 14.9% p.a. with an initial yield of 8.2%

Since 1 July, new lettings were achieved on 2,367 sq m (25,478 sq ft), lease renewals completed on 6,885 sq m (74,100 sq ft), and a further 1,622 sq m (17,459 sq ft) became vacant. There has been a fall in the vacancy rate by rental value to 5.5% (30 June 2010: 5.9%).

SWEDEN - The void rate of the Vänerparken portfolio, currently the Group's only direct property investment in Sweden, is 1.0%.

In October, Catena AB, a Stockholm-listed property company in which CLS owns 29.99%, distributed a special dividend, of which our share was £8.6 million.  Following a significant re-rating of its shares since June reflecting property sales, improving values in a strong market, and the development potential of one of its major assets, the market value of our interest in Catena now exceeds its current book value by over £16 million, which would add the equivalent of 35 pence per share to CLS's net asset value.

FINANCE - At 1 November 2010, following the acquisitions in New Malden and Paris, borrowings were £580.3 million (30 June 2010: £554.6 million).  In October, interest rate caps were taken out against loans with a nominal value of £206 million for predominantly five years at a weighted average strike rate of 2.67%, leaving 95% of the Group's debt hedged and with a weighted average total cost of debt of 4.3%.  Cash and undrawn facilities stood at £45.3 million (30 June 2010: £64.0 million), and the Group held corporate bonds with a value of £84.0 million (30 June 2010: £58.7 million).

At 1 November 2010 the Group had 59 bank loans from 20 banks; none of the bank loan covenants was in breach.

Underlying profit continued to be resilient, with stable net rental income, high debt collection rates, and tightly controlled costs.

DIRECTORATE CHANGES - On 1 January 2011, Richard Tice (Deputy Chief Executive Officer) will become Chief Executive Officer, Henry Klotz (Chief Executive Officer) will become Executive Vice Chairman, and Thomas Lundqvist will step down as Non-Executive Vice Chairman but remain as a Non-Executive Director.

Executive Chairman of CLS, Sten Mortstedt, commented:

"The acquisitions in London and Paris, and the development initiatives in Germany, continue our investment strategy of focusing on high, secure cash-on-cash returns, meeting the needs of tenants, and reacting swiftly to opportunities in our chosen markets.  The strongest market so far this year has been Sweden.

In the prevailing economic climate, our high initial yield and low cost of debt are key to our continued success.  Our focus remains on active portfolio management to keep vacancy rates low across the portfolio and, with significant resources at its disposal, the Company remains well placed to take advantage of investment opportunities as they arise.

I believe the Board changes announced today reflect the most appropriate management structure to take the Company forward to meet its objectives and ambitions."

-ends-

For further information, please contact:

Sten Mortstedt, Executive Chairman, CLS Holdings plc                    [phone]

Henry Klotz, Chief Executive Officer, CLS Holdings plc                  [phone]

Richard Tice, Deputy Chief Executive Officer, CLS Holdings plc     [phone]

Jonathan Gray, Kinmont Limited                                                     [phone]

Alex Simmons, Smithfield Consultants                                             [phone]

 

END

 

 

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