Trading Statement

RNS Number : 3825X

CLS Holdings PLC

19 November 2014

 



Release date:                19 November 2014

Embargoed until:            07:00

CLS Holdings plc

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

Trading Update for the period 1 July 2014 to 19 November 2014

The Group announces a Trading Update for the period 1 July 2014 to 19 November 2014.

HIGHLIGHTS

·      Occupational demand remains firm:

o  Overall Group vacancy rate reduced to a record 3.1% (30 June 2014: 3.5%)

o  Vacancy rate in London reduced to 3.3% (30 June 2014: 4.0%)

o  Vacancy rate in France reduced to 6.4% (30 June 2014: 7.1%)

·      New leases, lease renewals and extensions completed on 6,265 sqm

·      Disposal of Blocks C and D at Le Quatuor, Paris at a profit of £1.7 million

·      Weighted average cost of debt remains low at 3.72% (30 June 2014: 3.73%)

·      Completion of Spring Mews, Vauxhall SE11 20,800 sqm mixed-use development

o  Student accommodation completed at end of August

o  100% of 378 student rooms let for 2014/15

o  93 bedroom suite Staybridge hotel due to open in December

·     Imminent completion of Clifford's Inn, Fetter Lane, EC4 (3,423 sqm of refurbished offices and 8 new apartments)

o  Refurbishment to complete in November

o  Discussions to fully let the offices well advanced at rents 25% above forecast

·      Continued progress on Vauxhall Square, London, SW8 (143,000 sqm scheme with full planning consent)

o  Progress has continued to be made to satisfy conditional exchange of contracts for a long lease to a student operator to build and manage 30 storey, 359 student bedroom development

OVERVIEW - Since 1 July 2014, the Group has made good progress in a number of areas: core investment operations have delivered in line with, or above, expectations, financing costs have remained very low, a central London development has completed on time and on budget, and a second is due to complete in November.

The occupational markets are firm, evidenced by the Group's vacancy level reaching a record low of 3.1% (30 June 2014: 3.5%) by rental income.  Demand from existing and potential occupiers is steady, with good interest particularly in London and France.  Since 1 July, 7,017 sqm of rented space has expired or become vacant, of which 2,125 sqm has been taken off the market and added to our development stock, whilst 6,265 sqm has been let or renewed.  Of the Group's income, 60.1% benefits from indexation and 73.4% is paid by government occupiers (50.1% of the total) or major corporations (23.3%).

The Greater London investment market, outside the West End and City, remains significantly more competitive than in previous years.  We continue selectively to explore investment opportunities within and around the M25, and in France and Germany where financing conditions remain more attractive.

LONDON - London continues to benefit from its status as a global safe haven, supported by an economy which remains stronger than those of most of its European trading partners, although recently growing at a marginally slower rate.  Whilst the UK's forecast GDP growth for 2014 has declined to 3.0%, and is forecast to be 2.6% in 2015, unemployment, now at 6.0%, has fallen for the seventh consecutive quarter and CPI inflation is low at 1.2%.  Demand remains solid from overseas investors searching for yield, with increasing interest beyond the prime West End and City locations.

With all of our management performed in-house, we continue to be successful in leasing space, and the vacancy rate has fallen to 3.3% (30 June 2014: 4.0%).  Occupiers vacated from 1,059 sqm but new lettings, lease renewals and extensions were completed on 1,916 sqm since the beginning of July.

Our 20,800 sqm Spring Mews development, comprising up-market student accommodation and an extended-stay hotel, completed on time and on budget.  The student space was completed at the end of August in time for the new academic year, and its state-of-the-art swimming pool, gym and cinema have proved popular in attracting students from 42 countries around the world.  210 student bedrooms have been taken by the University of Roehampton under a 10-year Nominations Agreement, and the remainder have been let directly on our behalf by Fresh Student Living, who also manage the building.  Notwithstanding it being the scheme's first year of operation, all 378 rooms have been let for 2014/15, generating a net annualised income of some £4.0 million.  The adjoining 93 bedroom hotel is due to open for guests in December under the Staybridge Suites brand of InterContinental Hotels Group, operated by Cycas Hospitality on our behalf.

At Clifford's Inn, Fetter Lane, EC4 the refurbishment of 3,433 sqm of new Grade A offices and the development of eight residential apartments is due to complete this month, and we have received significant interest from several parties to take the entire office space at 25% above expected rental levels.

The Vauxhall Nine Elms regeneration area, of which our 143,000 sqm mixed-use, residential-led Vauxhall Square scheme will be an integral part, continues to progress.  The new American and Dutch embassies are well under construction, and several residential schemes are on site.  We continue to make progress to satisfy the conditionality of the sale through a long lease agreement to a specialist student housing operator to build and manage the 359 student room building adjacent to the main site, and we expect construction to start on this first phase of Vauxhall Square in 2015.  We continue to hold positive discussions with potential hoteliers and to explore financing options for the scheme.

In September we secured a resolution to grant planning permission for a residential-led, mixed-use redevelopment of Westminster Tower, Albert Embankment, SE1.  This would comprise a major refurbishment, including a new Portland stone façade, of the existing 14 storey tower and the addition of three extra stories, to provide in total 23 privately-owned residential units, 11 shared ownership units and 1,441 sqm of office space, with views over the River Thames and the Palace of Westminster.

REST OF UK - Following the acquisition of the Neo portfolio a year ago, we have 32 properties outside London, of which 99% by rental value are let to central government departments, and 1.0% is vacant (30 June 2014: 1.0%).  To enhance this portfolio we continue to explore asset management initiatives on which we will report when completed.

Following a recent tender process, we have appointed DTZ as valuers to the London portfolio (excluding the Vauxhall Square development) and to the Rest of the UK, replacing Lambert Smith Hampton and Savills, respectively, and their first involvement with the Group will be to conduct an independent valuation as at 31 December 2014 for the purposes of the annual results.

FRANCE - With GDP growth running at 0.1%, unemployment at 10.2% and CPI inflation at 0.4%, the French economy is stagnant.  However, our offices, particularly in Paris, reflect a demand for less expensive, non-prime space.

In the overall market, lettings in the Paris region in the third quarter of 2014 were 17% below the same period last year.  Our vacancy levels continue to fall from their peak of 10.6% at the end of December 2013 and now stand at 6.4% (30 June 2014: 7.1%).  Since the beginning of July we have let or renewed 4,349 sqm of offices and taken back 5,375 sqm, of which 1,800 sqm has been added to development stock and so is no longer immediately available to let.

GERMANY - With forecast GDP growth in 2014 and 2015 recently revised down to 1.2% and 1.3% respectively, the German economy has been adversely affected by a slowdown in the Eurozone economies to which it exports.  However, unemployment is low at 6.7%, wages are rising and CPI inflation of 0.7% is modest, suggesting domestic demand should remain resilient.  In the first three quarters of 2014, the shortage of investment opportunities in the top five locations in Germany emphasised the importance of secondary locations in which CLS specialises.  The German investment market saw a 52% increase in transaction values over the same nine months last year, with yields declining for prime and good secondary assets.  Bank debt availability and pricing remain the most attractive in all of our regions, and we expect to invest further in the German market in due course.

Our vacancy rate remains very low at 1.8% (30 June 2014: 1.5%).  Since 1 July we have taken back only 526 sqm of let space.

SWEDEN - Swedish GDP is currently growing at 2.6% per annum, and is expected to reach 3.2% in 2015. Unemployment is at 7.2% and falling, and deflation is running at 0.4%.

Occupancy of the Group's only directly held property in Sweden, Vänerparken, to the north of Gothenburg, has remained unchanged with a vacancy of 0.6% by rental value.

FINANCE - The business generates over 20% more cash than a year ago.  The £165 million of acquisitions in 2013, which raised the Group's annualised rental income by 25%, were acquired at a blended net initial yield of 11.6% and financed at an average cost of debt of 4.0%.  This was evident in the growth in core profit in the first three quarters of 2014 compared to last year.  Rent collection rates have remained high and the weighted average cost of debt has continued to be one of the lowest in the property sector at 3.72% (30 June 2014: 3.73%), being some 300 basis points below the property portfolio's net initial yield.

The Group has 60 loans from 23 lenders, two unsecured corporate bonds, a secured note and a debenture; none of the loan covenants is in breach.  The Group currently has liquid resources of over £218 million, comprising £43 million of cash, £65 million of corporate bonds, and available undrawn facilities in excess of £110 million.

In the latest tender offer, all of the shares available were cancelled by the Company on 25 September resulting in a distribution of £5.5 million to shareholders and leaving 42,924,061 shares in circulation.

Executive Chairman of CLS, Sten Mortstedt, commented:

"Continuing signs of resilience in the UK economy, both in London and elsewhere, bode well for CLS.  I am particularly pleased that our Group vacancy rate has been reduced to its lowest ever level, a result of the persistent implementation of our successful strategy across Europe.

"I am also pleased that our development at Spring Mews has completed on time and on budget, and that Clifford's Inn will reach completion later this month, and we expect this to be reflected in their values at the end of December.  The Group's core activities are performing well, cash generation is strong and our cost of debt remains low.

"Fredrik Widlund joined as Chief Executive Officer earlier this month and I look forward to the added values which he will bring to the Group.

"With a strong balance sheet, low vacancies and our rental income predominantly secured by high quality tenants, including governments and major corporations, we remain well positioned to meet future challenges with confidence. Our financial resources, and our opportunistic and selective investment approach, will enable us to continue to invest in assets which add value to the Group and to our shareholders."

-ends-

For further information, please contact:

CLS Holdings plc                                                         [phone]

www.clsholdings.com   

Sten Mortstedt, Executive Chairman

Henry Klotz, Executive Vice Chairman

Fredrik Widlund, Chief Executive Officer

John Whiteley, Chief Financial Officer

Liberum Capital Limited                                             [phone]

Tom Fyson

Charles Stanley Securities

Mark Taylor                                                                   [phone]

Hugh Rich

Kinmont Limited                                                          [phone]

Jonathan Gray

Smithfield Consultants (Financial PR)                         [phone]

Alex Simmons

 

END

 

 

TSTFFUFWAFLSEEF