TIDMCLI
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 GBP1.7 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 GBP4.0 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 GBP165 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
GBP218 million, comprising GBP43 million of cash, GBP65 million of
corporate bonds, and available undrawn facilities in excess of
GBP110 million.
In the latest tender offer, all of the shares available were
cancelled by the Company on 25 September resulting in a
distribution of GBP5.5 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 +44 (0)20 7582 7766
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 +44 (0)20 3100 2222
Tom Fyson
Charles Stanley Securities
Mark Taylor +44 (0)20 7149 6000
Hugh Rich
Kinmont Limited +44 (0)20 7087 9100
Jonathan Gray
Smithfield Consultants (Financial PR) +44 (0)20 7903 0669
Alex Simmons
This information is provided by RNS
The company news service from the London Stock Exchange
END
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