Interim Management Statement

RNS Number : 1654R

CLS Holdings PLC

15 November 2012

CLS Holdings plc

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

Interim Management Statement for the period 1 July 2012 to 14 November 2012

The Group announces its Interim Management Statement for the period 1 July 2012 to 14 November 2012.

HIGHLIGHTS

· Successful issue of £65 million retail bond

· Weighted average cost of debt remains low at 3.79% (30 June 2012: 3.74%)

· Planning application for 143,000 sq m scheme at Vauxhall Square, London progressing well

· Occupational demand resilient; vacancy level reduced to 3.3% (30 June 2012: 3.5%)

· New leases, lease renewals and extensions completed on 9,738 sq m

· Over £170 million of liquid resources

· Over £90 million of undrawn credit facilities

OVERVIEW - Since 1 July, the Group has continued to make positive progress on a number of fronts. Its core investment activities continue to perform well, the development opportunities are moving forward and we have increased and diversified our financing through the successful issue of a publicly quoted retail bond.

The occupational markets remain resilient, with the Group's vacancy level of 3.3% by rental income at its lowest level for ten years. Demand from existing and potential occupiers is steady, with some encouraging highlights. 66% of the Group's income benefits from indexation and 40% is paid by government occupiers. We have made two acquisitions in London since the half year totalling £5.2 million, with further acquisitions being actively pursued.

Demolition is well under way at our student and hotel scheme, Spring Mews in Vauxhall, SE11, and the planning application for the mixed use proposal Vauxhall Square, SW8 is expected to go to planning committee with a recommendation for approval before the year end.

The financial markets have been somewhat less volatile since the summer. Whilst this is welcome, there remains uncertainty and risks in the Eurozone which could lead to renewed volatility. Meanwhile the value of the Group's corporate bond investments has benefited significantly from the fall in yields as investors have increasingly searched for income.

LONDON - Whilst the UK economy still has many issues to overcome, the capital's safe haven status has been enhanced with the successful Olympics, and overseas investors continue to be significant buyers, particularly in prime West End and City locations. The purchase of the iconic Battersea Power Station by a Malaysian consortium is testament to a willingness to consider other areas where there is a strong rationale. The banks, however, have continued to increase pressure on distressed borrowers who are currently finding refinancing very challenging to achieve. This is providing attractive opportunities for the Group, and since 1 July we have completed two acquisitions. First, we bought a 1,963 sq m property in Wallington, Surrey for £2.1 million, where we have let the remaining vacant space and increased the rent to £320,885. Secondly, we have completed on the purchase of a 1,844 sq m office property, Gateway House in Kennington, SE11 for £3.1 million, fully let and generating a rent of £282,000 from two occupiers. Both of these purchases were at capital values per sq m well below replacement cost, and we are considering other similar potential acquisitions.

We continue to be successful in leasing space and the vacancy rate has been further reduced to just 2.5%. New lettings were achieved on 3,050 sq m, including 1,450 sq m over three floors at Great West House, Brentford on a 10 year lease with a break at year 7, and lease renewals and extensions were completed on 3,958 sq m. Tenants vacated from 3,956 sq m, of which 2,323 sq m was taken out of lettable stock and demolished to create part of the Spring Mews site.

The Spring Mews development is progressing according to plan and in line with the guidance given at the time of the half year results. Demolition is due for completion before the end of the year and piling work is due to start early in the New Year. We are in discussions with a number of operators to manage the hotel.

Discussions have progressed well with stakeholders on the 143,000 sq m Vauxhall Square mixed use development proposal, which is expected to go to the Local Authority's planning committee before the year end with a recommendation for approval. The scheme is at the heart of the Vauxhall Nine Elms regeneration zone where an encouraging pace of activity continues. The recent acquisition of the Battersea Power Station by a Malaysian consortium, the start of initial ground works for the new United States embassy and significant pre-selling of residential apartments on a number of projects are positive elements of progress.

The planning application on Clifford's Inn, Fetter Lane, EC4 is also expected to go to planning committee before the year end with a recommendation for approval for 3,433 sq m of new Grade A offices and eight residential apartments. If planning is granted we expect to start on site in April 2013 with a 15 month construction programme.

FRANCE - Economic data from France shows proof of weak growth and the economy also faces substantial budget cuts to reduce the country's deficit. However, there are some positive indicators, with consumer spending growing in September and we have seen an increase in leasing enquiries from existing and potential customers.

Since the end of June, we have let or renewed 2,046 sq m of offices and taken back 2,396 sq m, resulting in a vacancy rate in France of 3.8%. Rents appear stable with some positive movement in Lyon.

GERMANY - The German economy shows more strength than any other major Eurozone country. The need of certain owners to sell for structural reasons could lead to potentially attractive acquisitions for CLS over the forthcoming 12 months. Of the 2.2 million sq m of new construction in the top six cities over the next two years, only 37% is unlet at this stage, and the average vacancy level in these cities is stable at approximately 9.4%.

We have noticed a rise in enquiries, particularly in Munich, and we have let 686 sq m of offices during the period, with no leases having expired. The vacancy rate of the German portfolio has fallen to 4.8% by rental value, following these lettings and the completion on time and on budget of the fourth phase of our pre-let development at Landshut to the north of Munich, which added 5,389 sq m of occupied space.

SWEDEN - A healthy level of consumer purchasing power in Sweden has to a degree offset the impact of lower exports to the Eurozone. GDP growth is expected to be 0.9% in 2012 and 1.8% in 2013, with inflation below the 2% target at 0.9%.

The planning application in Stockholm for the 150,000 sq m mixed use scheme owned by the Group's 29.9% associate, Catena, is proceeding towards final approval by the end of this year for 800 apartments and 70,000 sq m of commercial space. The share price of Catena at 14 November of SEK 62.5 means the current market value of the Group's interest exceeds book value by £6.8 million, which would add 15.6 pence per share of CLS's net asset value.

Occupancy of the Group's only directly held property, Vänerparken, to the north of Gothenburg, has remained unchanged with a vacancy of 1.8% by rental value.

FINANCE - Core profit has continued to be resilient, with stable net rental income, high debt collection rates, tightly controlled costs, and a continuing low cost of debt of 3.79% (30 June 2012: 3.74%). At 31 October 2012, the Group had cash and liquid resources of over £170 million and undrawn facilities in excess of £90 million.

In September, we issued an unsecured £65 million retail bond on the London Stock Exchange's Order Book for Retail Bonds with a coupon of 5.5% per annum, and a maturity date of 31 December 2019. This successful issue was 30% oversubscribed and gave the Group considerable additional resources to fund its growth plans as well as diversifying our sources of funding. The Group has 56 loans from 18 lenders, and two unsecured corporate bonds; none of the loan covenants is in breach and none of the debt has been securitised.

After a period of relative stability in the first quarter of 2012, the financial markets in Europe again became more volatile during the summer. The euro, in which half of our business is conducted, is at broadly the same level against our reporting currency of sterling as at 30 June.

The corporate bond portfolio has performed strongly since the half year and is generating an attractive running yield of 8.9% against current values, and we continue to monitor actively the underlying strength and performance of all the issuers. There are currently 44 different bonds in the portfolio, giving broad diversification. Since 1 July 2012, the bond portfolio has risen in value by some 7.5% like-for-like and the total return for the bond investments year to date has been 22.3%

In the latest tender offer, all of the shares available were cancelled by the Company on 26 September, resulting in a distribution of £4.6 million to shareholders and leaving 43.3 million shares in circulation.

Executive Chairman of CLS, Sten Mortstedt, commented:

"The Group's core investment portfolio is continuing to deliver strong income returns against the Group's very low cost of debt and benefits from significant rental indexation. We are adding value through the planning and development process, particularly in the Vauxhall regeneration zone in London. In addition the balance sheet is strong, we benefit from excellent relationships with our banks and we have substantial liquid resources to fund the increasing number of attractive opportunities which we continue to identify.

"This puts us in a solid position to deliver good returns, whilst being able to respond to events and opportunities as they arise."

-ends-

For further information, please contact:

CLS Holdings plc +44 (0)20 7582 7766

www.clsholdings.com

Sten Mortstedt, Executive Chairman

Henry Klotz, Executive Vice Chairman

Richard Tice, Chief Executive Officer

Liberum Capital Limited +44 (0)20 3100 2222

Tom Fyson

Charles Stanley Securities

Mark Taylor +44 (0)20 7149 6000