TIDMCLI
RNS Number : 8431V
CLS Holdings PLC
12 August 2020
PRESS RELEASE
Release date: 12 August 2020
Embargoed until: 07:00
CLS HOLDINGS PLC
("CLS", the "Company" or the "Group")
ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT
FOR THE 6 MONTHS TO 30 JUNE 2020
Robust balance sheet underpinning resilient business model and
strategy
CLS is a leading FTSE 250 office space specialist and a
supportive, progressive and sustainably focused commercial
landlord, with a GBP2.1 billion portfolio in the UK, Germany and
France, offering geographical diversification with local presence
and knowledge. For the half year ended 30 June 2020, the Group has
delivered the following results:
30 June 31 December Change
2020 2019 (%)
--------------------------------- -------- ------------ -------
EPRA NAV per share (pence) (1) 339.6 329.2 3.2
EPRA NTA per share (pence) (1) 336.4 326.3 3.1
EPRA NRV per share (pence) (1) 370.5 358.3 3.4
Statutory NAV per share (pence) 301.7 295.1 2.2
Contracted rents (GBP'million) 113.5 109.3 3.8
--------------------------------- -------- ------------ -------
30 June 2020 30 June 2019 Change
(%)
--------------------------------- ------------- ------------- -------
Profit before tax (GBP'million) 31.5 84.6 (62.8)
EPRA Earnings per share ("EPS")
(pence) 7.0 6.0 16.7
Statutory EPS from continuing
operations (pence) 5.3 16.8 (68.5)
Dividend per share (pence) 2.35 2.35 0.0
--------------------------------- ------------- ------------- -------
Notes: (1) The old and new EPRA measures together with other
Alternative Performance Measures ("APMs") are defined and
reconciled in Note 4 to the financial statements
Fredrik Widlund, Chief Executive Officer of CLS, commented:
"CLS has delivered an encouraging performance in the first six
months of 2020 despite a challenging economic and market backdrop.
Our rent collection has remained strong with 99% of first half rent
and 95% of contracted rent due for the third quarter collected to
date. This rent collection performance and our diverse portfolio
together with our robust balance sheet demonstrate the resilience
of our business model and we have maintained our dividend. We also
continue to look for suitable acquisitions to add to our
portfolio.
"We have continued to prioritise the welfare of our staff,
tenants and other stakeholders to ensure we support them in
responding to Covid-19 and in beginning to return to normality. We
believe that the office market will continue to evolve with greater
use of home working balanced by less dense and lower-rise offices.
Our strategy of concentrating on affordable, non-prime offices with
good transport links and focusing on our tenants by providing
flexible leases and customer-focused space should continue to
perform well."
FINANCIAL HIGHLIGHTS
-- EPRA NAV up 3.2% and EPRA NTA up 3.1% primarily through
increased EPRA earnings and foreign exchange gains less payment of
the final 2019 dividend
-- Profit before tax down 62.8% to GBP31.5 million (30 June
2019: GBP84.6 million) from lower investment property valuation
uplift of GBP2.7 million (30 June 2019: GBP36.9 million) and uplift
on our equity investment in Catena (30 June 2019: GBP23.6 million),
sold in September 2019
-- EPRA EPS up 16.7% from higher net rental income and foreign
exchange. Statutory EPS down 68.5% from the above lower comparative
valuation increases
-- Interim dividend maintained at 2.35 pence per share (30 June
2019: 2.35 pence per share) to be paid on 25 September 2020. Any
full year dividend increase to be assessed with the final
dividend
-- Total accounting return of 4.6% (30 June 2019: 7.3%)
OPERATIONAL HIGHLIGHTS
-- Net rental income increased by 5.0% to GBP56.5 million (30
June 2019: GBP53.8 million) driven by net additions to the
portfolio and operational improvements as well as higher other
income
-- Rent collection remained high with 99% of first half rent
collected and 95% of third quarter contracted rent due collected.
An appropriate increase in bad debts has been taken
-- Portfolio valuation flat with increases in Germany of 2.6%
and France 0.4%, offset by UK decline of 2.0%
-- Acquired three properties for GBP49.3 million at Harrow and
Staines in the UK, both of which had exchanged at the end of 2019,
and Nuremberg in Germany (6.2% Net Initial Yield) with an Estimated
Reversionary Yield of 6.6%, and exchanged on the acquisition of one
floor in Lyon in France for GBP0.6 million
-- Disposed of four properties in the UK and France for GBP9.2
million. All properties had been exchanged at the end of 2019
-- Completed 52 lease events (30 June 2019: 78) securing GBP7.8
million (30 June 2019: GBP6.9 million) of annual rent at 4.0 %
above 31 December 2019 Estimated Rental Value
-- Vacancy rate increased to 5.2% (31 December 2019: 4.0%). This
increase is due to completed refurbishments, now available to let,
and acquired vacancy in the UK, and recent lease expiries across
the portfolio
-- Since period end, we exchanged on the disposal of
Albert-Einstein-Ring in Germany for GBP33.0 million (3.6% Net
Initial Yield), 38% ahead of December 2019 book value, which is due
to complete on 30 September 2020
-- In accordance with our sustainability strategy, all managed
buildings will be independently certified by BREEAM by the end of
2020
Financing:
-- Significant headroom with cash of GBP195.4 million as at 30
June 2020 (31 December 2019: GBP259.4 million) and a further GBP50
million of undrawn facilities
-- By 30 June 2020, refinanced or extended GBP26.7 million and
repaid GBP5.1 million of debt. Since the half-year, extended
GBP54.5 million and agreed a refinancing for GBP5.3 million of debt
with discussions advanced for the remaining GBP24.0 million
financing due in 2020
-- Balance sheet Loan to Value at 33.7% (31 December 2019:
31.4%) reflecting net acquisitions in the period
-- Weighted average cost of debt at 30 June 2020 of 2.35% (31 December 2019: 2.42%)
-- The loan portfolio as at 30 June 2020 had 79% at fixed rates (31 December 2019: 77%)
Governance:
-- In March, Bill Holland appointed as Audit Committee chair on Malcolm Cooper's retirement
-- In April, Denise Jagger appointed as Remuneration Committee
chair after Chris Jarvis stood down from the Committee
Interim Dividend Timetable
Further to this announcement, in which the Board declared an
interim dividend of 2.35 pence per ordinary share, the Company
confirmed its dividend timetable as follows:
Announcement 12 August 2020
date
Ex-Dividend date 20 August 2020
---------------
Record date 21 August 2020
---------------
Payment date 25 September
2020
---------------
-ends-
Results presentation
A presentation for analysts and investors will be held by
webcast and conference call on Wednesday 12 August 2020 at 10.00am
followed by Q&A. Questions can be submitted either online via
the webcast or to the operator on the conference call.
Webcast: The live webcast will be available here:
https://secure.emincote.com/client/cls/cls001
Conference call: In order to dial in to the presentation via
phone, please register at the following link and you will be
provided with dial-in details and a unique access code:
https://secure.emincote.com/client/cls/cls001/vip_connect
For further information, please contact:
CLS Holdings plc
(LEI: 213800A357TKB2TD9U78)
www.clsholdings.com
Fredrik Widlund, Chief Executive Officer
Andrew Kirkman, Chief Financial Officer
+44 (0)20 7582 7766
Liberum Capital Limited
Richard Crawley
Jamie Richards
+44 (0)20 3100 2222
Panmure Gordon
Hugh Rich
+44 (0)20 7886 2733
Elm Square Advisers Limited
Jonathan Gray
+44 (0)20 7823 3695
Smithfield Consultants (Financial PR)
Alex Simmons
Rob Yates
+44 (0)20 3047 2546
Forward-looking statements
This document may contain certain 'forward-looking statements'.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Actual outcomes and results may differ materially from those
expressed or implied by such forward-looking statements. Any
forward-looking statements made by or on behalf of CLS speak only
as of the date they are made and no representation or warranty is
given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. Except as
required by its legal or statutory obligations, the Company does
not undertake to update forward-looking statements to reflect any
changes in its expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is
based. Information contained in this document relating to the
Company or its share price, or the yield on its shares, should not
be relied upon as an indicator of future performance.
Chief Executive's statement
Our business and strategy remain resilient
OVERVIEW
CLS performed well in the first six months of 2020 against the
challenging backdrop caused by Covid-19. We prioritised the welfare
of our staff and tenants, ensuring that the business continued to
operate effectively with limited impacts on productivity. All of
our offices across the UK, Germany and France remained open and we
made the necessary modifications to make the buildings compliant
with local Covid-19 safety measures.
Rent collection remained high with 99% of first half rent and
95% of third quarter contracted rent due collected as of the date
of this report. The rent collection performance reflects the
benefits of a diverse tenant base with strong credit ratings and a
limited exposure to those sectors that have been most affected by
Covid-19. Of the 767 tenants across our three countries,
approximately 24.0% of rents are paid by governments and 24.9% by
major corporations with 47.4% of rents subject to indexation. In
the UK, 36.2% of the rent roll is derived from central government
departments.
Over the six months, EPRA NTA increased by 3.1% to 336.4p per
share (31 December 2019: 326.3p) mainly through EPRA earnings and
foreign exchange movements as a result of weaker sterling. We
delivered 443,467 sq. ft (41,199 sqm) of lettings, GBP49.3 million
of acquisitions, GBP9.2 million of disposals and the financing or
refinancing of GBP26.7 million of bank loans, as well as securing
planning permission for two buildings that when completed will
provide over 170,000 sq.ft of new office space. Total accounting
return for the six months was 4.6% (2019: 7.3%).
Our business strategy to invest in well-located office
properties remains unchanged and we believe the office market has a
strong and vibrant future. We recognise that recent events will
result in changes to how tenants will use our buildings in terms of
locations and building configuration but we believe our portfolio
is well placed to meet their needs.
The first quarter of 2020 saw the completion of the transactions
that had exchanged at the end of 2019 to refocus the portfolio. In
the second quarter we acquired Georg-Elser-Strasse 7 in Nuremberg
at a net initial yield of 5.8% and after the half-year we exchanged
on the sale of Albert-Einstein-Ring in Hamburg at a net initial
yield of 3.6%. The balance sheet is strong with a diversity of
funders giving significant flexibility.
RESULTS AND FINANCING
Profit after tax from continuing operations for the six months
to 30 June 2020 was GBP21.6 million (2019: GBP68.5 million),
equivalent to earnings per share of 5.3p (2019: 16.6p). Earnings in
2019 included an uplift of GBP23.6 million (2020: nil) on the
shareholding in Catena which was disposed of in September 2019 and
an uplift on the investment property portfolio of GBP36.9 million
(2020: GBP2.7 million). EPRA earnings per share were 7.0p (2019:
6.0p), 16.7% up on last year.
Shareholders' funds rose in the six months by 2.2% to GBP1,229.3
million, net of dividends of GBP20.6 million paid to shareholders
in April.
Our cash resources of GBP195.4 million of cash and GBP50 million
of undrawn facilities demonstrate the strength of the balance sheet
and our capacity to invest in the future. We have now financed,
refinanced, or extended GBP81.2 million of loans and our weighted
average cost of debt fell to 2.35% (31 December 2019: 2.42%),
reflecting a reduced proportion of more expensive UK financing as a
result of weaker sterling and the lower UK base rate. Net debt rose
to GBP718.5 million (31 December 2019: GBP632.3 million),
reflecting net acquisitions in the period. At 30 June 2020, net
debt as a proportion of property assets was 33.7% (31 December
2019: 31.4%). Interest cover remained high at 3.5 times (2019: 3.6
times), demonstrating the Group's ongoing ability to generate
cash.
PROPERTY PORTFOLIO
At 30 June 2020, the value of the property portfolio, including
properties held for sale, was GBP2,130.0 million, GBP117.9 million
higher than six months earlier, driven by acquisitions of GBP51.7
million, capex of GBP9.3 million and foreign exchange gains of
GBP69.2 million offset by GBP10.2 million of disposals and a small
net revaluation decline of GBP2.1 million.
Understandably transactional activity was lower in the first
half of 2020. In the first quarter, we completed the transactions
which had exchanged but not completed at the end of 2019, being two
acquisitions in the UK at 166 College Road, Harrow and 'TWENTY'
Kingston Road, Staines which were bought for a total consideration
of GBP32.8 million (before costs). The acquisitions have a blended
net initial yield of 6.4% and reversionary yield of 6.9%. We also
closed on the disposal of four properties (Sidcup and the remaining
two regional assets from our 30 December 2019 portfolio disposal in
the UK, and Foch in Paris) for total consideration of GBP9.2
million. The disposals being at their 31 December 2019 valuations
less costs.
In the second quarter we acquired Georg-Elser-Strasse 7,
Nuremberg for GBP16.5 million (before costs) reflecting a net
initial yield of 5.8%. The associated financing was at 0.96%
including costs at an LTV of 70% for 7 years. We also exchanged on
the acquisition of one additional floor at Rhône Alpes in Lyon for
GBP0.6 million, a building we already part own.
Since the half-year, we have exchanged on the disposal of
Albert-Einstein-Ring 17-21 for GBP33.0 million which is 38% above
the 31 December 2019 valuation and equates to a 3.6% net initial
yield. The building was classified in the balance sheet at 30 June
2020 as held for sale at its disposal value.
In the six months to June, the value of the property portfolio,
excluding net additions, rose by 3.3% primarily as a result of a
weaker sterling. In local currency, the value of the property
portfolio was almost unchanged with uplifts in Germany and France
offset by small declines in the UK. At 30 June 2020, the net
initial yield of the portfolio was 4.6% (31 December 2019: 4.9%),
some 228 basis points above the Group's cost of debt, underpinning
the Group's ability to generate cash.
Overall, the vacancy rate at 30 June 2020 was 5.2%, as a result
of completed refurbishments, now available to let, and acquired
vacancy in the UK, and recent lease expiries across the portfolio
(31 December 2019: 4.0%). It has, for obvious reasons, been more
challenging to conduct viewings in the second quarter but with
demand and viewings increasing we expect more lettings by
year-end.
DIVIDS
In April, the Board made the decision to proceed with the
recommended final dividend for 2019 of 5.05 pence per share, given
the Group's strong cash position and resilient tenant base. In
September, the Group will pay an interim dividend for 2020 of 2.35
pence per share, which is at the same level as the 2019 interim
dividend. Any full year dividend increase will be assessed with the
final dividend.
ENVIRONMENT, SOCIAL AND GOVERNANCE
In May, we published our fifth annual sustainability report
which is available on our website and highlights the positive steps
we have taken in implementing our sustainability strategy. We are
currently having our buildings' environmental ratings independently
assessed in order to produce more detailed property improvement
plans that will assist in our overall investment strategy and to
derive more stretching Group targets.
As part of being a responsible corporate citizen and long-term
investor, we have increased our contributions to local and industry
related charities during this crisis. We have also offered parking
spaces for key healthcare workers, rent free periods to our charity
tenants, provided subsidised rooms for NHS and other key workers at
our Spring Mews hotel and focussed our contributions to help
homelessness and food banks close to our properties.
Covid-19 has placed higher demands on our employees,
particularly in focusing on our tenants whether through managing
their welfare or by dealing with their requests. On behalf of the
business, I want to pass on my heartfelt thanks to all of our
employees for continuing to demonstrate CLS' values.
As previously announced, in March, Bill Holland was appointed as
Audit Committee chair on Malcolm Cooper's retirement and in April,
Denise Jagger was appointed as Remuneration Committee chair after
Chris Jarvis stood down from the Committee.
THE FUTURE OF THE OFFICE
There has been, and will continue to be, much written about the
impacts of the Covid-19 pandemic on current and established ways of
living and working. As a provider of office space, we are
constantly exploring how modern workplaces will evolve and below we
outline our view as to how this might happen in the coming months
and years in response to considerations from the pandemic.
The pandemic, and the associated mass experience of working from
home, has accelerated many of the recent office trends. There will
be changes to the office environment, new preferred locations, and
some winners and some losers; as is the case in any structural
disruption whether it is driven by technological, political,
environmental or other global changes. Whilst it is too early to
draw definitive conclusions, we believe that offices will retain
their significant role in society and the real estate market.
We recognise the benefits of home working, such as avoiding a
long commute or balancing the responsibilities of home life. It is
also clear that there are certain types of roles that can be done
successfully remotely. However, the impact of the current situation
has shown us that working from home has, for many, reinforced the
benefits of the office whereas others have potentially forgotten
important aspects. Face to face interaction cannot be
underestimated for driving collaboration, creativity and business
innovation as well as providing motivation and support networks.
Many aspects of employee development, networking and training are
easier in an office environment as well as hiring and managing
employee well-being. These factors come together to provide a clear
division between work and home-life, which provides routine,
structure, purpose and fulfilment.
There are clear benefits of a centrally managed office
infrastructure, such as cyber security. Even greater benefits are
derived from embedding and embodying an organisation's culture and
a sense of belonging. Companies who have well defined goals and
values often deliver superior performance, and offices play a
fundamental role in linking this to our human nature to be social
and part of a successful team. It is important to remember that the
office also provides many of us with a crucial part of our social
life. This combination will continue to be hugely important to
attract, motivate and retain the best talent and this is especially
true for younger employees.
For many companies as well as individuals, we expect the new
norm will be a hybrid of working part of the time from home and
part of the time in the office to give the best of both worlds.
There may be companies who embrace working from home as a cost
cutting measure or others who decide they no longer need disaster
recovery sites. However, we also expect lower workplace densities
and less hot-desking which may increase requirements. Whatever the
exact balance, we believe that with our tenant-focussed, in-house
management teams, there will be opportunities for CLS to benefit
from our non-prime office locations.
CLS offices tend to be relatively low rise, reducing the need
for tightly-packed lifts, with more car parking and electric
charging points, on-site secure bike storage and shower facilities,
and good rail and road transport links, which we believe will be
even more favoured in future. In larger cities or regions, we also
expect to see a growth in demand for satellite or hub offices and
believe CLS is well positioned by offering affordable, high quality
office space outside of the prime city centre locations.
We have set out below some facts to illustrate the ongoing
attractions of our portfolio:
-- the typical CLS office property has on average 5 floors of office occupation and over 80% of our office
properties have between 2 and 7 floors;
-- there are on average 119 car parking spaces per property giving a high parking ratio of 1 parking space per 54
sqm (1 per 578 sq. ft), which is in addition to offering cycle spaces at 78% of our properties. Through our
on-going investment programme, we intend to increase this to 100%;
-- 82% of all our properties have access to windows that can be opened for natural ventilation and air circulation
and circa 70% of all buildings have access to private outdoor space or roof terraces; and
-- the average occupancy density is 17 sqm (178 sq. ft) per person based on net lettable area compared to an average
of 10-12 sqm per person in the countries in which we operate. On current occupation, this gives each tenant
ample space per employee both for wellbeing initiatives as well as the required social distancing.
The office will continue to evolve. However, the pandemic has
sped up this evolution, not just in terms of what we have seen
regarding employee amenities like breakout/leisure areas or quiet
spaces. They will also need to be cleaner, healthier and well
managed. Ultimately these changes have reinforced the importance of
our core value - our tenants, our focus.
OUTLOOK
While 2020 will be a challenging year for many businesses and
economies, the last six months have both reinforced the merits of
focusing upon, and the diversity benefits of being in, the three
largest economies in Europe. At CLS, we will continue to offer our
tenants flexibility in both leases and space configuration as part
of providing sustainable, modern spaces that help businesses to
grow.
The development and response to the pandemic and the underlying
structure of the economies in each of our three countries have
meant that we are not seeing a unified picture, with Germany
showing an impressive resilience while France and the UK are
displaying slightly more uncertain economic indicators, the latter
also exacerbated by the uncertainty surrounding the Brexit
negotiations. However, we are long-term investors and although the
countries have different characteristics, we believe strongly in
the long-term prospects of all three economies.
With the gradual easing of lockdown restrictions, the priority
for the second half of the year is the conversion of our leasing
enquiry pipeline to drive occupancy while continuing to maintain a
high level of cash collection from the portfolio. Initial
indications are that leasing enquiries are picking-up in lockstep
with general economic activity and we are encouraged by recent
increases in leasing activity.
We also expect to see attractive acquisition opportunities and
will look for opportunities to drive the growth and earnings
capacity of our portfolio. Our acquisition criteria remain
unchanged as we continue to seek well-located properties with good
asset management opportunities, yielding well in excess of our cost
of debt to drive earnings, cash and dividends.
Our investor proposition
Strong and consistent long-term shareholder returns
Set out below are the key tenets of our investment proposition.
A full description can be found on pages 8 and 9 of CLS' 2019
Annual Report and Accounts:
Clear strategy Active management
-------------------------------------------- ----------------------------------------------
* Diversified approach * Experienced in-house capabilities
* Sole focus on non-prime offices * Secure rents and high occupancy
* Selected development schemes * Interest rate management
Leading track record Focus on sustainability
----------------------------------------------------- ------------------------------------------
* Disciplined approach to investment * Responsible profit
* Cash-backed progressive dividend * Strong ESG performance
* Financing headroom * Climate risk mitigation
----------------------------------------------------- ------------------------------------------
DIVID POLICY
The Company expects to generate sufficient cash flow to be able
to meet the growth requirements of the business, maintain an
appropriate level of debt and provide cash returns to shareholders
via a dividend.
It is our policy to pay a progressive dividend, fully covered by
EPRA earnings. Approximately one-third of the annual dividend is
paid as an interim in September, with the balance paid as a final
dividend in April.
ANALYST COVERAGE
We are covered by four brokers which publish regular analyst
research: Liberum Capital; Panmure Gordon; Peel Hunt; and
Berenberg. Contact details can be found on our website
www.clsholdings.com.
2020 INVESTOR ENGAGEMENT
Events which have taken place Events which are due to take
place
----------------------------------- ----------------------------------
March 2020 August 2020
Annual Results presentation Half-Year Results presentation
Annual Results roadshows/investor August/September 2020
calls Half-Year Results investor calls
April 2020 October 2020
Trading update Trading Update
Annual General Meeting
May and June 2020
Investor calls
July 2020
Trading update
----------------------------------- ----------------------------------
Business review
United Kingdom
Positioned to take advantage of opportunities
30 June 2020 31 December 2019
--------------------------------- ------------- -----------------
Value of properties GBP1,067.6m GBP1,059.8m
--------------------------------- ------------- -----------------
Percentage of Group's property
interests 50% 53%
--------------------------------- ------------- -----------------
Number of properties 44 45
--------------------------------- ------------- -----------------
Number of tenants 254 253
--------------------------------- ------------- -----------------
Vacancy rate 5.9% 4.1%
--------------------------------- ------------- -----------------
Lettable space 2.2m sq. ft 2.2m sq. ft
--------------------------------- ------------- -----------------
Government and major corporates 57.8% 57.0%
--------------------------------- ------------- -----------------
Weighted average lease length 4.8 years 4.8 years
to end
--------------------------------- ------------- -----------------
The value of the UK portfolio increased by GBP7.8 million as a
result of net additions of GBP29.2 million less a valuation decline
of GBP21.4 million. The 2.0% valuation decline is a combination of
factors with the slight hardening of net initial yields by c.10
basis points more than offset by the increase in vacancy while ERVs
were largely flat. Excluding acquisitions, the like for like
decline was 1.8%.
The tail-end of last year's portfolio refocusing was reflected
in the first-half disposals. All three disposals had exchanged by
the end of 2019 and completed by the end of February for GBP8.4
million. Two of the disposals, at Norwich and Salford, were the
remaining part of the UK regional portfolio disposal which largely
completed in December 2019 with the other sale being of a building
in Sidcup for GBP6.5 million.
By the start of February, we completed the two acquisitions
which had exchanged as at the end of last year. 166 College Road,
Harrow and 'TWENTY' Kingston Road, Staines were bought for a total
consideration of GBP32.8 million (before costs) with a blended net
initial yield of 6.4% and reversionary yield of 6.9%.
Resolution to grant planning permission for a new 29,500 sq. ft
(2,741 sqm) 10-floor, office development at Vauxhall Walk next to
our Spring Mews property was achieved in May. Initial site
investigation and pre-construction works are ongoing before an
anticipated construction start at the beginning of 2021. A planning
application for a 44,000 sq. ft (4,088 sqm) Grade A office was
submitted in the period to replace our existing office at St Cloud
Gate, Maidenhead. A planning decision is expected in the second
half of the year.
In the first half of 2020, 200,221 sq. ft (18,601 sqm) of space
expired and 116,822 sq. ft (10,853 sqm) was let. The vacancy rate
rose in the first six months to 5.9% based on rental values (31
December 2019: 4.1%) as a result of: completed refurbishments, now
available to let; some acquired vacancy; and recent lease expiries.
On average, new lettings and rent reviews (excluding indexation
uplifts) were achieved at close to 31 December 2019 ERVs. The most
notable letting was a 10-year lease for 24,500 sq. ft (2,277 sqm)
agreed with the main tenant, RSM International, at Portland House,
Crawley.
London and the South East non-prime offices offer attractive
cash yields and the current sentiment is likely to create
acquisition opportunities for long-term investors like CLS. In
terms of the outlook for leasing and vacancy we expect the
remainder of 2020 to be somewhat challenging and business
confidence is only gradually recovering as economic activity
improves.
Germany
Underlying office market remains attractive
30 June 2020 31 December 2019
--------------------------------- ------------- -----------------
Value of properties GBP754.7m GBP667.0m
--------------------------------- ------------- -----------------
Percentage of Group's property
interests 35% 33%
--------------------------------- ------------- -----------------
Number of properties 31 30
--------------------------------- ------------- -----------------
Number of tenants 341 349
--------------------------------- ------------- -----------------
Vacancy rate 4.6% 4.3%
--------------------------------- ------------- -----------------
Lettable space 3.2m sq. ft 3.2m sq. ft
--------------------------------- ------------- -----------------
Government and major corporates 33.8% 30.7%
--------------------------------- ------------- -----------------
Weighted average lease length 5.0 years 4.6 years
to end
--------------------------------- ------------- -----------------
The value of the German portfolio increased by GBP87.7 million
as a result of net additions of GBP20.7 million, foreign exchange
gains of GBP49.0 million and a valuation gain of GBP18.0 million or
2.6% in local currency. The 2.6% increase was largely driven by
active asset management, as detailed below, with net initial yields
hardening by almost 30 basis points, ERVs unchanged and a slight
rise in vacancy in the first six months.
Despite more uncertain market conditions, there still remain
opportunities to acquire properties and capture the significant
differential between net rental income and the cost of debt. At the
start of June, we acquired Georg-Elser-Strasse 7 in Nuremberg for
GBP16.5 million excluding costs. It is a modern, four-storey office
building comprising 5,913 sqm (63,647 sq. ft) of space fully let to
Deutsche Telekom (T-Mobile). The asset has a WAULT of 7 years to
breaks with GBP1.0 million net rent per annum, reflecting a net
initial yield of 5.8%. The associated financing was from Sparkasse
Nüremberg, a new lender to the Group. The 7-year, 70% LTV financing
is at an all-in fixed rate of 0.96% including costs
In July, we announced the disposal of Albert-Einstein-Ring 17-21
in Hamburg for GBP33.0 million. Compared to the December 2019
valuation, the sale captured a significant profit on sale of GBP8.7
million excluding costs which is included in the half-year
valuation. By selling a property with higher than average vacancy,
when the sale completes at the end of the third quarter, German
average vacancy will reduce.
In May, we secured planning permission for our Vor dem Lauch
building in Stuttgart which contributed to the valuation uplift at
the half-year. The permission is for a new office development of
c.141,000 sq. ft (14,099 sqm) of lettable space and we are now
starting to market the building before making a decision as to how
to proceed.
In terms of lettings, 262,471 sq. ft (24,384 sqm) was renewed or
let at an average of 7.3% above 31 December 2019 ERVs whilst
357,575 sq. ft (33,220 sqm) of space expired or was vacated and
vacancy therefore rose to 4.6% by the end of June (31 December
2019: 4.3%). The most notable letting change was the increase in
the length of the lease at our building in Bochum, which is let to
the City of Bochum, for which the lease expiry has been extended
from 2039 to 2049.
The resilient German economy and political leadership appears to
support a relatively fast recovery and underlying office market
fundamentals remain attractive with low vacancy and supply
constraints in the larger German cities. In terms of outlook, we
are starting to experience a clear pick-up in leasing and
investment activity and would expect this to accelerate further as
economic activity picks up during the year.
France
Continuing to produce solid cash flow
30 June 2020 31 December 2019
--------------------------------- ------------- -----------------
Value of properties GBP307.7m GBP285.3m
--------------------------------- ------------- -----------------
Percentage of Group's property
interests 15% 14%
--------------------------------- ------------- -----------------
Number of properties 21 22
--------------------------------- ------------- -----------------
Number of tenants 172 177
--------------------------------- ------------- -----------------
Vacancy rate 3.6% 3.1%
--------------------------------- ------------- -----------------
Lettable space 0.9m sq. ft 0.9m sq. ft
--------------------------------- ------------- -----------------
Government and major corporates 52.5% 54.5%
--------------------------------- ------------- -----------------
Weighted average lease length 4.9 years 5.0 years
to end
--------------------------------- ------------- -----------------
The value of the French portfolio increased by GBP22.4 million
as a result of net additions of GBP0.9 million, foreign exchange
gains of GBP20.2 million and a valuation gain of GBP1.3 million or
0.4% in local currency. Overall, there was little valuation
movement for the majority of the properties with the slight decline
in net initial yields outweighing an increase in vacancy against
flat ERVs.
Whilst there were few significant investment opportunities, we
have continued with our successful strategy of acquiring the
remaining floors in part-owned buildings where the economics stack
up. In June, we exchanged on one floor at Rhône Alpes in Lyon for
GBP0.6 million which is expected to complete in the second half of
2020. Acquisitions such as this allow us to advance our
refurbishment strategy and following the acquisition of two
additional floors at Park Avenue in December 2019, we will now
start a substantial refurbishment and façade upgrade in order to
capture higher rents as well as improve the thermal insulation of
the building thereby reducing energy requirements. We will also
shortly start on site with refurbishment and a new façade at
D'Aubigny in Lyon whilst the on-going refurbishments of Sigma and
Debussy in Paris will be completed in the third quarter.
In-line with our strategy of disposing of properties which are
too small to have a meaningful impact, we sold Foch in Paris for
GBP0.8 million in February. The disposal had exchanged before the
end of 2019.
In terms of lettings, 64,174 sq. ft (5,962 sqm) of space expired
or was vacated and 81,569 sq. ft (7,578 sqm) was renewed or let at
values slightly behind year-end ERVs. As a consequence, the vacancy
rose to 3.6% by the end of June (31 December 2019: 3.1%). The most
notable letting was a lease renewal at Front de Parc in Lyon for
14,381 sq. ft (1,336 sqm) on a 4/6/9 year lease with BNP
Paribas.
Due to a large proportion of the economy being dependant on the
domestic market, France seems less impacted by the global slowdown
and while we have seen increasing vacancies in the Paris region,
Lyon and Lille have shown resilience. It is pleasing to note that
The Grand Paris Express infrastructure project is progressing well
which should have a positive impact on our existing portfolio
through improved communication and transport links. With recent
leasing enquiries trending up, we expect that the market will
regain further momentum towards the end of the year.
Key data
Rental Data
Rental Net Rental Lettable Contracted ERV at Contracted Vacancy
Income Income Space Rent At 30 June Rent Subject rate at
for the for the (sqm) 30 June 2020 To Indexation 30 June
Period Period 2020 (GBPm) (GBPm) (GBPm) 2020
(GBPm) (GBPm)
--------- ----------- --------- ------------- --------- --------------- ---------
UK 29.4 31.8 203,574 59.6 67.0 14.1 5.9%
----------------- --------- ----------- --------- ------------- --------- --------------- ---------
Germany 16.4 16.0 300,163 37.4 41.7 23.2 4.6%
----------------- --------- ----------- --------- ------------- --------- --------------- ---------
France 7.6 7.7 83,615 16.5 17.4 16.5 3.6%
----------------- --------- ----------- --------- ------------- --------- --------------- ---------
Total Portfolio 53.4 55.5 587,352 113.5 126.1 53.8 5.2%
----------------- --------- ----------- --------- ------------- --------- --------------- ---------
Valuation Data
H1 Valuation Movement
------------ ------------------------ --------- ------------ ---------- ------------ ------------
Market Underlying Foreign EPRA ERPA Topped Reversion Over-rented True
Value (GBPm) Exchange Net Up Net Equivalent
of Property (GBPm) Initial Initial Yield
(GBPm) Yield Yield
------------- ------------ ------------ ---------- --------- ------------ ---------- ------------ ------------
UK 1,067.6 -21.4 - 4.91% 5.26% 8.5% 2.5% 5.70%
------------- ------------ ------------ ---------- --------- ------------ ---------- ------------ ------------
Germany 754.7 18.0 48.9 4.29% 4.72% 10.7% 4.2% 4.84%
------------- ------------ ------------ ---------- --------- ------------ ---------- ------------ ------------
France 307.7 1.3 20.3 4.54% 5.02% 7.0% 5.0% 5.31%
------------- ------------ ------------ ---------- --------- ------------ ---------- ------------ ------------
Total 2,130.
Portfolio 0 -2.1 69.2 4.63% 5.03% 9.0% 3.4% 5.34%
------------- ------------ ------------ ---------- --------- ------------ ---------- ------------ ------------
Lease Data
Average Lease Contracted Rent of Lease ERV of Lease Expiring
Length Expiring In: In:
------------------- ---------------------------------------- ------------------------------------------
To Break To Year Year Years After Year Year Years After
(Years) Expiry 1 2 3 - 5 Years 1 (GBPm) 2 (GBPm) 3 - 5 Years
(Years) (GBPm) (GBPm) 5 (GBPm) (GBPm) 5 (GBPm) (GBPm)
----------- --------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
UK 3.96 4.81 5.09 3.04 22.70 23.53 5.52 3.17 24.82 23.57
----------- --------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
Germany 4.89 5.03 9.66 3.84 11.38 12.54 10.22 4.34 12.20 13.10
----------- --------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
France 2.58 4.93 0.88 0.38 6.03 9.19 0.97 0.36 5.65 9.84
----------- --------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
Total
Portfolio 4.07 4.91 15.63 7.26 40.11 45.26 16.71 7.88 42.67 46.51
----------- --------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
Note: The above table contains data for all CLS properties
(comprised of: investment property; properties held for sale;
hotel; and land)
Tenant Industries by Contracted Property use by
Rent rent
Government 24.0% Offices 91.0%
------ ------
Commercial and Professional Student 5.0%
Services 11.3% ------
------ Hotel 2.0%
Information Technology 9.9% ------
------ Food Retail 2.0%
Consumer Discretionary 9.0% ------
------
Industrials 8.6%
------
Commercial Services 7.9%
------
Health Care 6.4%
------
Financials 6.2%
------
Other 5.7%
------
Student 4.7%
------
Real Estate 3.8%
------
Energy 2.5%
------
Financial review
RESULTS FOR THE PERIOD
HEADLINES
Profit after tax from continuing operations of GBP21.6 million
(2019: GBP68.5 million) generated basic earnings per share of 5.3
pence (2019: 16.8 pence) and EPRA earnings per share of 7.0 pence
(2019: 6.0 pence), which was up 16.7% driven by higher net rental
income and foreign exchange gains partly offset by lower finance
income. Gross property assets at 30 June 2020, including those in
property, plant and equipment and those held for sale, increased to
GBP2,130.0 million (31 December 2019: GBP2,012.1 million) through
net additions and capex of GBP50.7 million and foreign exchange
gains of GBP69.2 million with a small revaluation decline of GBP2.1
million. Net assets per share rose by 2.2% to 301.7 pence (31
December 2019: 295.1 pence) and EPRA NTA per share by 3.1% to 336.4
pence (31 December 2019: 326.3 pence). Total accounting return
including dividends paid in the period was 4.6% (2019: 7.3%).
CLS uses a number of Alternative Performance Measures ("APMs")
alongside statutory figures. We believe that these assist in
providing stakeholders with additional useful information on the
underlying trends, performance and position of the Group. Following
the change to the EPRA net asset measures, EPRA Net Tangible Assets
("NTA") will replace EPRA NAV as our primary metric and we have
also included more EPRA measures such as EPRA vacancy in our APMs.
Note 4 to the Financial Statements gives a full description and
reconciliation of our APMs.
STATEMENT OF COMPREHENSIVE INCOME
Net rental income for the six months to 30 June 2020 of GBP56.5
million (2019: GBP53.8 million) was higher than last year by a net
GBP2.7 million, or 5.0%, as a result of the rental increase from
acquisitions being greater than that lost through disposals and
higher dilapidations income offsetting lower hotel revenue due to
Covid-19. The table below sets out our rent collection across our
countries and the Group in the first half of 2020 and the third
quarter of 2020 as at the date of this report:
Business segment First-half 2020 Third quarter 2020
UK 99% 93%
---------------- -------------------
Germany 99% 99%
---------------- -------------------
France 98% 93%
---------------- -------------------
Group 99% 95%
---------------- -------------------
Note: Basis of preparation - Contractual rent due (Q3 2020 is
97% including agreed quarterly to monthly changes which have been
agreed for 7% of our tenant base)
Despite a high level of rent collection we have taken an
appropriate increase in our first half 2020 bad debt charge of
GBP1.5 million (2019: GBP0.2 million), much of which has been
offset by cost savings.
Operating profit of GBP41.9 million (2019: GBP97.8 million) was
down year on year as in 2019 there was an uplift in the value of
our shareholding in Catena of GBP23.6 million which was then sold
in September 2019 and there were lower revaluation gains on
investment properties of GBP2.7 million (2019: GBP36.9
million).
The fall in net interest expense to GBP10.4 million (2019:
GBP13.2 million) contained GBP3.1 million of positive foreign
exchange variances (2019: GBP3.4 million negative) from translating
monetary assets into sterling at the balance sheet date offsetting
a GBP1.8 million fall in other finance income from the sale of the
corporate bond investments in November 2019 and the movement on
financial instruments.
The tax charge of GBP9.9 million (2019: GBP16.1 million), which
represented an effective rate of 31.3% (2019: 19.0%) was distorted
in 2020 by the enactment of an increase in UK corporation tax from
17% to 19% from 2021 onwards which increased deferred tax by GBP5.0
million. Without this, the estimated effective tax rate of the
Group in 2020 would have been 15.6%.
EPRA NET TANGIBLE ASSETS PER SHARE
EPRA NTA per share rose from 326.3p to 336.4p in the six months
to 30 June 2020, an increase of 10.1p per share or 3.1% (EPRA NAV
grew by 3.2%). On a per share basis, the increase comprised EPRA
earnings of 7.0p, from which a dividend of 5.05p was paid, and
foreign exchange gains of 9.0p partly offset by the reduction in
property values of 0.6p and other movements of 0.2p.
CASH FLOW, NET DEBT AND FINANCING
As at 30 June 2020, the Group had cash of GBP195.4 million and
GBP50 million of undrawn facilities. The cash balance decreased by
GBP64.0 million from 31 December 2019. During the period, GBP49.1
million was paid for property acquisitions (including costs) and we
invested GBP9.5 million of capital expenditure in our properties
offset by net receipts from disposals of GBP10.1 million. Net
proceeds from new financing were GBP11.1 million and GBP21.9
million of loans were repaid. Net cash flow from operating
activities was GBP21.6 million (2019: GBP21.4 million) which was
used to pay the 2019 final dividend of GBP20.6 million.
In the six months to 30 June 2020, borrowings rose by GBP22.2
million to GBP913.9 million (31 December 2019: GBP891.7 million),
principally due to the strengthening of the euro relative to
sterling. By 30 June 2020, we had financed, refinanced or extended
GBP26.7 million of debt and repaid GBP5.1 million with GBP54.5
million of financing extended since the half-year. Refinancing is
agreed for GBP5.3 million with the remaining GBP24.0 million in
advanced discussions. Net debt at the half-year was GBP718.5
million and the Group's balance sheet loan to value was 33.7% (31
December 2019: 31.4%).
The weighted average cost of debt decreased to 2.35% (31
December 2019: 2.42%) as a result of a reduced proportion of more
expensive UK financing due to weaker sterling, accounting for 6
basis points, and the lower UK base rate, accounting for 1 basis
point reduction. Weighted average debt maturity was 3.1 years (31
December 2019: 3.5 years) and the proportion of fixed debt to
floating rate debt was 79%:21% (31 December 2019 77%:23%).
CLS has 48 different loans either secured by individual, or
portfolios of, properties. The loans vary in terms of the number of
covenants with the three main covenants being ratios relating to
loan to value, interest cover and debt service cover. However, some
loans only have one or two of these covenants, some have other
covenants and some have none. The loans also vary in terms of the
level of these covenants and the headroom to these covenants.
On average across the 48 loans, CLS has between 30% and 45%
headroom for these three main covenants. In the event of an actual
or forecast covenant breach, all of the loans have equity cure
mechanisms to repair the breach which allow CLS to either repay
part of the loan or deposit cash for the period the loan is in
breach, after which the cash can be released.
SUSTAINABILITY
Given Covid-19 has caused "passive" reductions in carbon and
energy usage, we have highlighted our sustainability progress
across other areas of our business. For example, in the first half
of 2020, the on-site solar PV installations across our portfolio
have generated 11% more clean electricity compared to the first
half of 2019.
Our roll out of BREEAM In-Use assessments across our managed
portfolio has made good progress this year. So far we have
completed all the assessments on the 14 French assets within the
project scope, with 85% achieving a minimum of a "Good" rating.
Assessments are nearing completion across 29 assets in the UK, and
a further 26 assets in Germany have begun the assessment process.
The project is planned to complete before the year-end.
We have been busy this year investing in solutions across our
portfolio to support our and our tenants' sustainability
aspirations. The easing of Covid-19 restrictions has enabled us to
progress the roll out of Automated Meter Reading devices across our
utility supplies to improve the quality of our data and support
improved resource management. In addition, we have completed the
installation of electric vehicle charging points at Great West
House to support our tenants' aspirations to provide sustainable
transport solutions for their employees.
Following the completion of our Purpose, Vision, and Values
project and the recruitment of a new Head of Sustainability in
June, work has begun on developing an enhanced Sustainability
Strategy which we aim to complete in the fourth quarter of the
year.
PRINCIPAL RISKS AND UNCERTAINTIES
A detailed explanation of the principal risks and uncertainties
affecting the Group, and the steps it takes to mitigate these
risks, can be found on pages 24 to 30 of the Annual Report and
Financial Statements for the year ended 31 December 2019, which is
available at www.clsholdings.com/investors.
The Group's principal risks and uncertainties are grouped into
six categories: property; sustainability; business interruption;
financing; political and economic; and people. These risks and
uncertainties are expected to remain relevant for the remaining six
months of the financial year. However, principally as a result of
the direct and indirect effects of Covid-19 on the global economy
and CLS' property markets in particular, the Board has reviewed the
risk status of each of the six risk categories.
We believe that there have been changes in some of the
directions of these risk categories but, as yet, there has not been
sufficient movement to change the status. The table below sets out
the change in the direction of the risk categories and gives
explanations for these changes.
Principal risk Status at year end Change since year end Comment on change
Property Medium Increased The global Covid-19 pandemic may cause a
downturn in the property market through changes
in
the supply of space and occupier demand. Our
offices and leases must remain flexible to
respond
to market dynamics.
------------------- ---------------------- ------------------------------------------------
Sustainability Medium No change There is rightly increased, and increasing,
focus in this area and CLS remains committed to
improving the sustainability of our properties.
------------------- ---------------------- ------------------------------------------------
Business interruption Medium No change CLS has responded well to the changes
necessitated by Covid-19, especially home
working, demonstrating
the resilience of our infrastructure reflected
in no overall impact to productivity or
performance.
------------------- ---------------------- ------------------------------------------------
Financing Low Increased The global Covid-19 pandemic has given rise to
an increased risk of tenant defaults and
therefore
loan covenants are likely to see a decrease in
headroom and may start to come under pressure.
Although not yet evident from our involvements,
there may be a decrease in the appetite of
finance providers to lend in the future, or to
do so on more restrictive terms.
------------------- ---------------------- ------------------------------------------------
Political and economic High Increased Covid-19 is likely to cause an economic
downturn for which the severity and timing are
unknown
and which will be heavily influenced by
government stimulus. Government regulation,
particularly
the restriction of landlord remedies, may
impact our ability to operate as effectively as
usual. The run-up to the end of the Brexit
transition period at the end of 2020 and the
subsequent
"settling-in" period is likely to see increased
disruption.
------------------- ---------------------- ------------------------------------------------
People Medium No change On balance there has been little change in our
people risk. Employee engagement has had to
evolve to take on different forms but we
believe that we are still engaging in an
effective
manner.
------------------- ---------------------- ------------------------------------------------
GOING CONCERN
The Directors' assessment of going concern uses the same
methodology as for the preparation and validation of the year end
viability statement (see page 31 of the 2019 Annual Report and
Accounts). This assessment uses forecasts that have been adjusted
for the impacts of Covid-19. A more detailed description of the
approach is set out in note 2 to these condensed Group financial
statements.
The Directors consider that in their assessment there are no
material uncertainties that would cast significant doubt on the
ability of the Group to continue as a going concern and therefore
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for at least 12 months from
the date of this interim report. Accordingly, they continue to
adopt the going concern basis in preparing the condensed Group
financial statements.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) the condensed set of financial statements, which has been
prepared in accordance with IAS 34 'Interim Financial Reporting',
gives a true and fair view of the assets, liabilities, financial
position and profit of the Group, as required by DTR 4.2.4R;
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the financial year);
and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
On behalf of the Board
Fredrik Widlund Andrew Kirkman
Chief Executive Officer Chief Financial Officer
12 August 2020
INDEPENT REVIEW REPORT TO CLS HOLDINGS PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the condensed Group
income statement, the condensed Group statement of comprehensive
income, the condensed Group balance sheet, the condensed Group
statement of changes in equity, the condensed Group statement of
cash flows and related notes 1 to 17. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Emphasis of matter - Material uncertainty related to investment
property valuation
We draw attention to note 10, which describes the effects of the
uncertainties created by the coronavirus (COVID-19) pandemic on the
valuation of the Group's investment property portfolio. As noted by
the Group's external valuers, the outbreak has caused extensive
disruptions to businesses and economic activities and the
uncertainties created have increased the estimation uncertainty
over the fair value of the investment property portfolio at the
balance sheet date. Our review report is not modified in respect of
this matter.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
12 August, 2020
Financial Statements
Condensed group income statement
for the six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
----------------------------------------------- ------ ------------- -------------- --------------
Continuing operations
Group revenue 3 71.1 67.6 138.3
----------------------------------------------- ------ ------------- -------------- --------------
Net rental income 3 56.5 53.8 110.6
Administration expenses (9.9) (9.9) (19.9)
Other expenses (7.2) (6.3) (13.7)
----------------------------------------------- ------ ------------- -------------- --------------
Group revenue less costs 39.4 37.6 77.0
Net movements on revaluation of investment
properties 10 2.7 36.9 57.4
(Loss)/profit on sale of properties (0.2) (0.3) 8.6
Net movements on revaluation of equity - 23.6 -
investments
Gain on sale of other financial instruments,
net of impairments - - 40.4
----------------------------------------------- ------ ------------- -------------- --------------
Operating profit 41.9 97.8 183.4
Finance income 5 3.8 3.3 5.0
Finance costs 6 (14.2) (16.5) (29.4)
----------------------------------------------- ------ ------------- -------------- --------------
Profit before tax 31.5 84.6 159.0
Taxation 7 (9.9) (16.1) (23.8)
----------------------------------------------- ------ ------------- -------------- --------------
Profit for the period from continuing
operations 21.6 68.5 135.2
Discontinued operations
Loss for the period from discontinued
operations - (1.8) (0.5)
----------------------------------------------- ------ ------------- -------------- --------------
Profit for the period 21.6 66.7 134.7
----------------------------------------------- ------ ------------- -------------- --------------
Attributable to:
Owners of the Company 21.6 67.5 135.5
Non-controlling interests - (0.8) (0.8)
----------------------------------------------- ------ ------------- -------------- --------------
21.6 66.7 134.7
----------------------------------------------- ------ ------------- -------------- --------------
Earnings per share (expressed in pence
per share)
Basic and diluted earnings per share
from continuing operations 5.3 16.8 33.2
Basic and diluted (loss)/earnings
per share from discontinued operations - (0.2) 0.1
----------------------------------------------- ------ ------------- -------------- --------------
Basic and diluted earnings per share 8 5.3 16.6 33.3
----------------------------------------------- ------ ------------- -------------- --------------
Condensed group statement of comprehensive income
for the six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------------------ ------------- -------------- -------------
Profit for the period 21.6 66.7 134.7
------------------------------------------------ ------------- -------------- -------------
Other comprehensive income
Items that will not be reclassified
to profit or loss
Foreign exchange differences 30.3 (0.7) (28.8)
------------------------------------------------ ------------- -------------- -------------
Items that may be reclassified to profit
or loss
Fair value gains on corporate bonds - 3.4 -
and other financial investments
Fair value gains taken to gain on sale
of other financial investments, net
of impairments - - 2.5
Revaluation of property, plant and equipment (4.9) 0.2 (0.1)
Deferred tax on net fair value losses/(gains) 0.7 (0.6) (0.3)
Discontinued operations - (0.9) (0.9)
------------------------------------------------ ------------- -------------- -------------
Total items that may be reclassified
to profit or loss (4.2) 2.1 1.2
------------------------------------------------ ------------- -------------- -------------
Total other comprehensive income/(loss) 26.1 1.4 (27.6)
------------------------------------------------ ------------- -------------- -------------
Total comprehensive income for the period 47.7 68.1 107.1
------------------------------------------------ ------------- -------------- -------------
Attributable to:
Owners of the Company 47.7 68.9 107.9
Non-controlling interests - (0.8) (0.8)
------------------------------------------------ ------------- -------------- -------------
47.7 68.1 107.1
------------------------------------------------ ------------- -------------- -------------
Condensed group balance sheet
at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
---------------------------------- ------ ------------- ------------- ------------
Non-current assets
Investment properties 10 2,053.9 1,904.3 1,961.0
Property, plant and equipment 11 38.4 44.3 43.1
Goodwill and intangibles 1.7 1.4 1.4
Other financial investments 12 - 132.3 -
Deferred tax 7.3 4.8 4.7
---------------------------------- ------ ------------- ------------- ------------
2,101.3 2,087.1 2,010.2
---------------------------------- ------ ------------- ------------- ------------
Current assets
Trade and other receivables 20.3 18.9 25.3
Properties held for sale 39.9 135.1 10.4
Derivative financial instruments - - 0.3
Cash and cash equivalents 195.4 107.6 259.4
255.6 261.6 295.4
---------------------------------- ------ ------------- ------------- ------------
Total assets 2,356.9 2,348.7 2,305.6
---------------------------------- ------ ------------- ------------- ------------
Current liabilities
Trade and other payables (51.9) (53.2) (54.7)
Current tax 0.7 (5.1) (11.9)
Derivative financial instruments - (0.4) -
Borrowings 13 (128.0) (61.5) (132.3)
(179.2) (120.2) (198.9)
---------------------------------- ------ ------------- ------------- ------------
Non-current liabilities
Deferred tax (156.1) (152.6) (140.8)
Borrowings 13 (785.9) (897.8) (759.4)
Derivative financial instruments (6.4) (5.8) (4.1)
---------------------------------- ------ ------------- ------------- ------------
(948.4) (1,056.2) (904.3)
---------------------------------- ------ ------------- ------------- ------------
Total liabilities (1,127.6) (1,176.4) (1,103.2)
---------------------------------- ------ ------------- ------------- ------------
Net assets 1,229.3 1,172.3 1,202.4
---------------------------------- ------ ------------- ------------- ------------
Equity
Share capital 14 11.0 11.0 11.0
Share premium 83.1 83.1 83.1
Other reserves 122.3 124.7 96.4
Retained earnings 1,012.9 953.5 1,011.9
---------------------------------- ------ ------------- ------------- ------------
Equity attributable to owners
of the Company 1,229.3 1,172.3 1,202.4
Non-controlling interests - - -
---------------------------------- ------ ------------- ------------- ------------
Total equity 1,229.3 1,172.3 1,202.4
---------------------------------- ------ ------------- ------------- ------------
Condensed group statement of changes in equity
for the six months ended 30 June 2020
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interest equity
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ---------- ---------- --------- ---------------- ---------
At 1 January 2020 11.0 83.1 96.4 1,011.9 1,202.4 - 1,202.4
---------------------------- --------- --------- ---------- ---------- --------- ---------------- ---------
Arising in the six
months ended 30 June
2020:
Total comprehensive
income
for the period - - 26.1 21.6 47.7 - 47.7
Employee Performance
Incentive Plan charge - - (0.2) - (0.2) - (0.2)
Dividends to shareholders - - - (20.6) (20.6) - (20.6)
---------------------------- --------- --------- ---------- ---------- --------- ---------------- ---------
Total changes arising
in the period - - 25.9 1.0 26.9 - 26.9
---------------------------- --------- --------- ---------- ---------- --------- ---------------- ---------
At 30 June 2020 11.0 83.1 122.3 1,012.9 1,229.3 - 1,229.3
---------------------------- --------- --------- ---------- ---------- --------- ---------------- ---------
Share Share Other Retained Non- controlling Total
capital premium reserves earnings Total interest equity
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ---------- ---------- --------- ----------------- ---------
At 1 January 2019 11.0 83.1 123.0 905.1 1,122.2 0.8 1,123.0
---------------------------- --------- --------- ---------- ---------- --------- ----------------- ---------
Arising in the six
months ended
30 June 2019:
Total comprehensive
income
for the period - - 1.3 67.5 68.8 (0.8) 68.0
Employee Performance
Incentive Plan charge - - 0.4 - 0.4 - 0.4
Dividends to shareholders - - (19.1) (19.1) (19.1)
---------------------------- --------- ---------
Total changes arising
in the period - - 1.7 48.4 50.1 (0.8) 49.3
---------------------------- --------- --------- ---------- ---------- --------- ----------------- ---------
At 30 June 2019 11.0 83.1 124.7 953.5 1,172.3 - 1,172.3
---------------------------- --------- --------- ---------- ---------- --------- ----------------- ---------
Share Share Other Retained Non- controlling Total
capital premium reserves earnings Total interest equity
Audited GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ---------- ---------- -------- ----------------- --------
At 1 January 2019 11.0 83.1 123.0 905.1 1,122.2 0.8 1,123.0
---------------------------- --------- --------- ---------- ---------- -------- ----------------- --------
Arising in the year
ended 31 December
2019:
Total comprehensive
income
for the year - - (27.6) 135.5 107.9 (0.8) 107.1
Employee Performance
Incentive Plan charge - - 1.0 - 1.0 - 1.0
Dividends to shareholders - - - (28.7) (28.7) - (28.7)
---------------------------- --------- --------- ---------- ---------- -------- ----------------- --------
Total changes arising
in 2019 - - (26.6) 106.8 80.2 (0.8) 79.4
---------------------------- --------- --------- ---------- ---------- -------- ----------------- --------
At 31 December 2019 11.0 83.1 96.4 1,011.9 1,202.4 - 1,202.4
---------------------------- --------- --------- ---------- ---------- -------- ----------------- --------
Condensed group statement of cash flows
for the six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
---------------------------------------------- ------ ------------- ------------- -------------
Cash flows from operating activities
Cash generated from operations 15 39.0 35.1 75.3
Interest received 0.6 1.4 2.8
Interest paid (11.0) (10.4) (22.8)
Income tax paid (7.0) (4.7) (6.4)
---------------------------------------------- ------ ------------- ------------- -------------
Net cash inflow from operating
activities 21.6 21.4 48.9
---------------------------------------------- ------ ------------- ------------- -------------
Cash flows from investing activities
Purchase of investment properties (49.1) (116.9) (237.2)
Capital expenditure on investment
properties (9.5) (6.7) (16.7)
Proceeds from sale of properties 10.1 4.0 171.6
Income tax paid on sale of properties (9.0) (1.8) (6.6)
Purchases of property, plant
and equipment (0.1) (1.0) (0.5)
Proceeds from sale of corporate
bonds - - 34.5
Proceeds from sale of equity
investments - 4.6 113.1
Dividends received from equity
investments - 1.9 2.2
Dividends received from associates 0.1 - -
Proceeds from sale of subsidiaries - - 4.5
Purchase of intangibles (0.3) - -
Proceeds from/(costs of) foreign
currency transactions 0.3 (1.0) (1.2)
---------------------------------------------- ------ ------------- ------------- -------------
Net cash (outflow)/inflow from
investing activities (57.5) (116.9) 63.7
---------------------------------------------- ------ ------------- ------------- -------------
Cash flows from financing activities
Dividends paid (20.6) (19.1) (28.7)
New loans 11.1 137.0 292.4
Issue costs of new loans - (1.4) (3.6)
Repayment of loans (21.9) (12.9) (209.5)
---------------------------------------------- ------ ------------- ------------- -------------
Net cash (outflow)/inflow from
financing activities (31.4) 103.6 50.6
---------------------------------------------- ------ ------------- ------------- -------------
Cash flow element of net (decrease)/increase
in cash and cash equivalents (67.3) 8.1 163.2
Foreign exchange gains/(losses) 3.3 (0.8) (4.1)
---------------------------------------------- ------ ------------- ------------- -------------
Net (decrease)/increase in cash
and cash equivalents (64.0) 7.3 159.1
Cash and cash equivalents at
the beginning of the period 259.4 100.3 100.3
---------------------------------------------- ------ ------------- ------------- -------------
Cash and cash equivalents at
the end of the period 195.4 107.6 259.4
---------------------------------------------- ------ ------------- ------------- -------------
Notes to the condensed group financial statements
30 June 2020
1 BASIS OF PREPARATION
The financial information contained in this half-yearly
financial report does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. The results disclosed for
the year ended 31 December 2019 are an abridged version of the full
accounts for that year, which received an unqualified report from
the Auditor, did not contain a statement under section 498(2) or
(3) of the Companies Act 2006 or include a reference to any matter
to which the Auditor drew attention by way of emphasis without
qualifying the Auditor's report, and have been filed with the
Registrar of Companies. The annual financial statements of CLS
Holdings plc are prepared in accordance with IFRSs as adopted by
the European Union. The condensed financial statements included in
this half-yearly financial report have been prepared in accordance
with IAS 34 Interim Financial Reporting, as adopted by the European
Union.
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the latest audited annual financial
statements. A number of new standards and amendments to IFRSs have
become effective for the financial year beginning on 1 January
2020. These new standards and amendments are listed below:
- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
- Definition of Material (Amendments to IAS 1 and IAS 8)
- Amendments to References to the Conceptual Framework in IFRS Standards
- Definition of a Business (Amendments to IFRS 3)
The adoption of these new standards and amendments to IFRSs did
not materially impact the condensed set of financial statements for
the six months ended 30 June 2020.
2 GOING CONCERN
Covid-19, and the associated responses, are having a profound
impact on the global economy and it is currently the single biggest
negative influence on the Group leading to both current and
forecast impacts as well as far greater levels of uncertainty. CLS
is weathering these impacts well with high rent collection, low bad
debts and a continuing ability to meet its financing and
refinancing needs.
Usually the Board reviews a going concern assessment every
six-months alongside the approval of the financial statements.
Currently, however, we are producing the analysis quarterly given
this heightened level of uncertainty.
For the current assessment, a new 4-year forecast has been
prepared and reviewed by the Board. The forecast and the going
concern assessment apply the same methodology that is used for the
year-end viability statement (see page 31 of the 2019 Annual Report
and Accounts).
The latest forecast reflects current negative expectations
arising as a result of Covid-19, in terms of reduced rent and
increased bad debts whilst also incorporating mitigating cash
preservation measures in terms of cost savings, and reduced and
delayed capital expenditure and acquisitions.
This forecast is used as the base case for our going concern
assessment which has focussed on the cash, liquid resources and
working capital position of the Group. The Directors are confident
that loans expiring within at least the next 12 months will be
refinanced as expected given existing banking relationships and
ongoing discussions.
Two downside scenarios, being mid and severe cases, have also
been prepared. The key potential property risks have been
incorporated in the modelling by assuming: lower rents; increased
service charges and property expenses; falling property values; and
reduced loan to value covenants on refinancing reflecting expected
greater risk aversion by banks. More general economic factors such
as higher interest and tax rates, and foreign exchange changes
through a strengthened sterling have also been assumed.
The downside scenarios modelled are based off the negative
market and economic impacts experienced during the 2007-2009 global
financial crisis with the mid case being somewhat less extreme and
the severe case being somewhat more extreme (for example property
falls of 35% over 4 years and 40% over 2 years respectively). It is
worth noting that these scenarios are potentially overly harsh as:
it is unlikely all the changes would occur at the same time; the
assumptions have been applied equally to all regions and thus there
is no benefit given for the geographic and tenant diversity
benefits of the Group; and the base case already reflects current
expectations of the impact of Covid-19.
The modelling has focused on the cash position of the Group and
potential covenant breaches. On average across the 48 loans, CLS
has between 30% and 45% headroom for the three main covenant ratios
of loan to value, interest cover and debt service cover. In
addition, our loan agreements have equity cure mechanisms and in
the downside scenarios it is assumed that sufficient, available
cash is used to avoid covenant breaches. It has also been assumed
that acquisitions, capital expenditure and dividends are either
reduced or cancelled. Finally, property sales at the reduced
modelled values are assumed.
In the downside scenarios, a minimum cash balance of GBP100
million has been maintained and no use has been made of the current
GBP50 million of undrawn facilities. In the severe case, only 8% of
the property portfolio, at the assumed lower valuations, would need
to be sold to maintain this GBP100m cash buffer. In a downside
scenario, the GBP50 million of facilities could be withdrawn but if
they were not withdrawn and were used, less than 1% of properties
would need to be sold.
The longer term operational and financial implications of
Covid-19 are hard to forecast accurately. However, based on flexing
the key financial assumptions impacting core drivers of CLS' cash
flows, it appears that the potential negative outcomes can be
mitigated without risking the going concern and longer-term
viability of the Group.
Taking the foregoing into account, the Directors consider that
in their assessment there are no material uncertainties that would
cast significant doubt on the ability of the Group to continue as a
going concern and therefore have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for at least 12 months from the date of this interim report and
therefore, the Directors continue to adopt the going concern basis
in preparing these condensed accounts.
3 SEGMENT INFORMATION
The Group has two operating divisions - Investment Property and
Other Investments. Other Investments comprise the hotel at Spring
Mews and other small corporate investments. The Group manages the
Investment Property division on a geographical basis due to its
size and geographical diversity. Consequently, the Group's
principal operating segments are:
Investment Property: United Kingdom
Germany
France
Other Investments
3 SEGMENT INFORMATION (continued)
The Group's results for the six months ended 30 June 2020 by
operating segment were as follows:
Investment
Property
-----------------------------------
United Other Central
Kingdom Germany France Investments Administration Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Rental income 29.4 16.4 7.6 - - 53.4
Other
property-related
income 3.2 - 0.1 1.0 - 4.3
Service charge
income 5.5 5.0 2.9 - - 13.4
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Revenue 38.1 21.4 10.6 1.0 - 71.1
Service charges
and similar
expenses (6.3) (5.4) (2.9) - - (14.6)
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Net rental income 31.8 16.0 7.7 1.0 - 56.5
Administration
expenses (3.8) (1.3) (0.9) (0.2) (3.7) (9.9)
Other expenses (3.8) (1.1) (0.6) (1.0) (0.7) (7.2)
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Group revenue
less costs 24.2 13.6 6.2 (0.2) (4.4) 39.4
Net movements
on revaluation
of investment
properties (18.0) 19.5 1.2 - - 2.7
Net movement on
revaluation of - - - - - -
equity
investments
Loss on sale of
investment
property (0.2) - - - - (0.2)
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Segment operating
profit/(loss) 6.0 33.1 7.4 (0.2) (4.4) 41.9
Finance income - - - 3.8 - 3.8
Finance costs (10.0) (2.5) (1.3) (0.2) (0.2) (14.2)
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
Segment
(loss)/profit
before tax (4.0) 30.6 6.1 3.4 (4.6) 31.5
------------------ ---------------- ----------------- -------- ----------------- ----------------- ---------
3 SEGMENT INFORMATION (continued)
The Group's results for the six months ended 30 June 2019 by
operating segment were as follows:
Investment Property
----------------------
United Central
Kingdom Germany France Other Investments Administration Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
Rental income 28.3 15.9 8.3 - - 52.5
Other property-related
income 0.6 - 0.1 2.2 - 2.9
Service charge income 4.2 4.9 3.1 - - 12.2
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
Revenue 33.1 20.8 11.5 2.2 - 67.6
Service charges
and similar expenses (5.3) (5.5) (3.0) - - (13.8)
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
Net rental income 27.8 15.3 8.5 2.2 - 53.8
Administration expenses (3.8) (1.2) (0.9) (0.3) (3.7) (9.9)
Other expenses (3.0) (1.6) (0.4) (1.3) - (6.3)
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
Group revenue less
costs 21.0 12.5 7.2 0.6 (3.7) 37.6
Net movements on
revaluation of investment
properties (3.5) 27.2 13.2 - - 36.9
Net movement on
revaluation of equity
investments - - - 23.6 - 23.6
Loss on sale of
investment property - (0.3) - - - (0.3)
Profit/(loss) on
sale of other financial - - - - - -
investments
Segment operating
profit/(loss) 17.5 39.4 20.4 24.2 (3.7) 97.8
Finance income - - - 3.3 - 3.3
Finance costs (8.6) (2.5) (1.4) (3.7) (0.3) (16.5)
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
Segment profit/(loss)
before tax 8.9 36.9 19.0 23.8 (4.0) 84.6
---------------------------- ----------- --------- -------- ------------------ ---------------- ---------
3 SEGMENT INFORMATION (continued)
The Group's results for the year ended 31 December 2019 were as
follows:
Investment Property
----------------------
United Other Central
Kingdom Germany France Investments Administration Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Rental income 59.2 32.4 16.1 - - 107.7
Other property-related
income 1.1 0.6 0.2 4.9 - 6.8
Service charge income 9.2 9.1 5.5 - - 23.8
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Revenue 69.5 42.1 21.8 4.9 - 138.3
Service charges and
similar expenses (10.8) (11.3) (5.6) - - (27.7)
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Net rental income 58.7 30.8 16.2 4.9 - 110.6
Administration expenses (7.5) (2.8) (2.0) (0.3) (7.3) (19.9)
Other expenses (6.2) (3.6) (0.9) (3.0) - (13.7)
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Group revenue less
costs 45.0 24.4 13.3 1.6 (7.3) 77.0
Net movements on
revaluation of investment
properties (3.4) 50.7 10.1 - - 57.4
Net movement on revaluation
of equity investments - - - - - -
(Loss)/profit on
sale of investment
property (4.4) 6.9 6.1 - - 8.6
Profit on sale of
other financial investments - - - 40.4 - 40.4
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Segment operating
profit/(loss) 37.2 82.0 29.5 42.0 (7.3) 183.4
Finance income - - - 5.0 - 5.0
Finance costs (17.8) (4.9) (2.8) (3.9) - (29.4)
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
Segment profit/(loss)
before tax 19.4 77.1 26.7 43.1 (7.3) 159.0
------------------------------ ---------- ---------- -------- ------------- ---------------- ---------
SEGMENT ASSETS AND LIABILITIES
Assets Liabilities Capital expenditure
--------------------------------- --------------------------------- ---------------------------------
30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December
2020 2019 2019 2020 2019 2019 2020 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------- -------- ------------- -------- -------- ------------- -------- -------- -------------
Investment
Property
United
Kingdom 1,068.5 1,052.3 1,064.7 522.3 568.4 532.4 38.6 80.2 5.9
Germany 761.2 723.3 679.1 393.4 365.6 357.1 20.7 32.5 7.4
France 314.1 336.8 290.7 206.6 227.5 205.2 1.6 10.5 1.6
Other
Investments 213.1 236.3 271.1 5.3 14.9 8.5 - - 0.1
------------- -------- -------- ------------- -------- -------- ------------- -------- -------- -------------
2,356.9 2,348.7 2,305.6 1,127.6 1,176.4 1,103.2 60.9 123.2 15.0
------------- -------- -------- ------------- -------- -------- ------------- -------- -------- -------------
4 ALTERNATIVE PERFORMANCE MEASURES ("APMs")
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Introduction
The Group has applied the October 2015 European Securities and
Markets Authority ("ESMA") guidelines on APMs and the November 2017
Financial Reporting Council ("FRC") corporate thematic review of
APMs in these results, whilst noting ESMA's December 2019 report on
the use of APMs. An APM is a financial measure of historical or
future financial performance, position or cash flows of the Group
which is not a measure defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional
useful information on the underlying trends, performance and
position of the Group. APMs assist our stakeholder users of the
accounts, particularly equity and debt investors, through the
comparability of information. APMs are used by the Directors and
management, both internally and externally, for performance
analysis, strategic planning, reporting and incentive-setting
purposes.
APMs are not defined by IFRS and therefore may not be directly
comparable with other companies' APMs, including peers in the real
estate industry.
There are essentially two sets of APMs which we utilise, and
which are reconciled where possible to statutory measures
below:
1) Existing and new EPRA APMs, and similar CLS APMs
CLS monitors the Group's financial performance using APMs which
are European Public Real Estate Association ("EPRA") measures as
these are a set of standard disclosures for the property industry
and thus aid comparability for our stakeholder users. In previous
years, the two key APMs for CLS, which are in accordance with the
November 2016 EPRA guidelines, are:
-- EPRA Net Asset Value which excludes certain items not
expected to crystallise in a long-term investment property business
model, such as CLS'; and
-- EPRA Earnings which gives relevant information to investors
on the long-term performance of the Group's underlying property
investment business and an indication of the extent to which
current dividend payments are supported by earnings.
The latest edition of the EPRA guidelines were issued in October
2019 and replaced EPRA NAV with three other balance sheet reporting
measures, which are defined in the glossary.
-- EPRA Net Tangible Assets;
-- EPRA Net Reinstatement Value; and
-- EPRA Net Disposal Value;
CLS considers EPRA Net Tangible Asset to be the most relevant of
these new measures as we believe that this will continue to reflect
the long-term nature of our property investments most accurately,
however all the new measures have been disclosed along with the
2016 measures for comparative purposes.
EPRA Earnings remains the same.
Whilst CLS primarily uses the EPRA measures referred to above,
we have also disclosed the measures that CLS prefers for certain of
these categories. The notes below highlight where the measures that
we monitor differ and our rationale for using them.
2) Other APMS
CLS uses a number of other APMs, many of which are commonly used
by other industry peers, for example Loan to Value, and these APMs
are reconciled below.
Changes to APMs
Except for the inclusion of the new EPRA balance sheet measures
as noted above, there have been no changes to the Group's APMs in
the year with the same APMs utilised by the business being defined,
calculated and used on a consistent basis. We have added the full
suite of new EPRA APMs and retained the previous EPRA APMs for
comparative purposes.
Reconciliation of APMs
Set out below is a reconciliation of the APMs used in these
results to the statutory measures.
1) EPRA APMs and similar CLS APMs
i) Earnings - EPRA Earnings
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------------------------------------- ----------- ----------- --------------
Profit for the period 21.6 67.5 135.5
(Profit)/loss from discontinued operations* - 1.0 (0.3)
Net uplift on revaluation of investment
properties (2.7) (36.9) (57.4)
Net uplift on revaluation of equity - (21.0)
investments -
Loss/(profit) from sale of investment
properties 0.2 0.3 (8.6)
Current tax on disposals 0.2 - 13.4
Profit from sale of corporate bonds
and equites - - (40.4)
Tax thereon - - 0.1
Change in fair value of interest derivatives 2.3 1.2 0.5
Change in fair value of FX derivatives - 0.9 0.4
Deferred taxation 6.8 11.5 5.7
EPRA Earnings 28.4 24.5 48.9
---------------------------------------------- ----------- ----------- --------------
EPRA Earnings Per Share (pence) 7.0p 6.0p 12.0p
---------------------------------------------- ----------- ----------- --------------
*attributable to equity holders of
the parent
ii) Net asset value - EPRA NAV, NTA, NRV and NDV
Six months ended Six months ended Year ended 31 December 2019
30 June 30 June
2020 2019 GBPm
GBPm GBPm
Notes
------------------------------------------ ------ ----------------- ----------------- ----------------------------
Basic net assets 9 1,229.3 1,172.3 1,202.4
------------------------------------------ ------ ----------------- ----------------- ----------------------------
Goodwill as a result of deferred tax on
acquisitions (1.1) (1.1) (1.1)
Fair value of fixed interest rate debt (12.6) (13.2) (9.9)
Fair value of fixed interest rate debt -
tax thereon 2.4 2.4 1.9
------------------------------------------ ------ ----------------- ----------------- ----------------------------
EPRA Triple Net Assets 1,218.0 1,160.4 1,193.3
Deferred tax 148.8 147.8 136.1
Fair value on financial instruments 6.4 6.2 3.8
Fair value of debt adjustment 12.6 13.2 9.9
Fair value of debt adjustment - tax
thereon (2.4) (2.4) (1.9)
------------------------------------------ ------ ----------------- ----------------- ----------------------------
EPRA Net Asset Value 1,383.4 1,325.2 1,341.2
Deferred tax (capital allowances and
other items) (11.5) (12.1) (11.7)
Deferred tax on fair value gains* (0.8) 0.1 0.1
Intangibles as per the IFRS balance sheet (0.6) (0.3) (0.3)
------------------------------------------ ------ ----------------- ----------------- ----------------------------
EPRA Net Tangible Assets 1,370.5 1,312.9 1,329.3
Deferred tax on fair value gains* 0.8 (0.1) (0.1)
Intangibles as per the IFRS balance sheet 0.6 0.3 0.3
Purchaser costs (inc. Real Estate
Transfer tax) 137.3 134.9 130.2
------------------------------------------ ------ ----------------- ----------------- ----------------------------
EPRA Net Reinstatement Value 1,509.2 1,448.0 1,459.7
Purchaser costs (inc. real estate
transfer tax) (137.3) (134.9) (130.2)
Deferred tax on fair value gains (137.3) (135.7) (124.4)
Fair value of financial instruments (6.4) (6.2) (3.8)
Fair value of fixed interest rate debt (12.6) (13.2) (9.9)
------------------------------------------ ------ ----------------- ----------------- ----------------------------
EPRA Net Disposal Value 1,215.6 1,158.0 1,191.4
------------------------------------------ ------ ----------------- ----------------- ----------------------------
* NTA is calculated by including the level of deferred tax
expected to be realised on planned sales in our strategic plan.
This strategic plan, which is for the next four years, is the same
one which is used for the viability statement assessment. The low
level of deferred tax expected to be realised in the NTA
calculation reflects our business model and strategy as a long-term
investor with few asset disposals.
Six months ended Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Basic NAV Per Share (pence) 301.7p 287.8p 295.1p
EPRA Triple Net Assets Per Share (pence) (1) 299.0p 284.8p 292.9p
EPRA NAV Per Share (pence) (1) 339.6p 325.3p 329.2p
EPRA NTA Per Share (pence) 336.4p 322.2p 326.3p
EPRA NRV Per Share (pence) 370.5p 355.4p 358.3p
EPRA NDV Per Share (pence) 298.4p 284.2p 292.4p
(1) previous EPRA measures
iii) Yield
EPRA Net Initial Yield ("NIY")
EPRA NIY is calculated as the annualised rental income based on
the cash rents passing at the balance sheet date less
non-recoverable property operating expenses, divided by the gross
market value of the property (excluding those that are under
development, held as PPE or occupied by CLS).
Six months ended 30 June
2020
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------ -------------- -------- ------- --------
Rent passing 55.8 34.1 14.9 104.8
--------- -------- ------- --------
Adjusted for development
stock (1.3) - - (1.3)
-------------------------------------- --------- -------- ------- --------
Forecast non recoverable
service charge (2.5) (1.0) (0.1) (3.6)
-------------------------------------- --------- -------- ------- --------
Annualised net rents (A) 52.0 33.1 14.8 99.9
Property portfolio 1,036.7 751.3 305.8 2,093.8
Adjusted for development
stock (45.3) (28.5) - (73.8)
Purchasers' costs 67.3 49.2 20.8 137.3
-------------------------------------- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,058.7 772.0 326.6 2,157.3
-------------------------------------- --------- -------- ------- --------
EPRA NIY (A/B) 4.9% 4.3% 4.5% 4.6%
-------------------------------------- --------- -------- ------- --------
Six months ended 30 June
2019
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------ -------------- -------- ------- --------
Rent passing 59.8 35.8 15.1 110.7
--------- -------- ------- --------
Adjusted for development
stock (1.3) - - (1.3)
-------------------------------------- --------- -------- ------- --------
Forecast non recoverable
service charge (2.6) (0.2) 0.1 (2.7)
-------------------------------------- --------- -------- ------- --------
Annualised net rents (A) 55.9 35.6 15.2 106.7
Property portfolio 1,023.8 685.4 330.1 2,039.3
Adjusted for development
stock (47.0) (9.3) (2.3) (58.6)
Purchasers' costs 66.4 46.0 22.3 134.7
-------------------------------------- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,043.2 722.1 350.1 2,115.4
-------------------------------------- --------- -------- ------- --------
EPRA NIY (A/B) 5.4% 4.9% 4.3% 5.0%
-------------------------------------- --------- -------- ------- --------
Year ended 31 December
2019
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------ -------------- -------- ------- --------
Rent passing 56.7 32.8 14.1 103.6
--------- -------- ------- --------
Adjusted for development
stock (1.4) - - (1.4)
-------------------------------------- --------- -------- ------- --------
Forecast non recoverable
service charge (2.2) - - (2.2)
-------------------------------------- --------- -------- ------- --------
Annualised net rents (A) 53.1 32.8 14.1 100.0
Property portfolio 1,024.3 663.6 283.4 1,971.3
Adjusted for development
stock (52.4) (8.2) - (60.6)
Purchasers' costs 66.1 44.5 19.3 129.9
-------------------------------------- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,038.0 699.9 302.7 2,040.6
-------------------------------------- --------- -------- ------- --------
EPRA NIY (A/B) 5.1% 4.8% 4.7% 4.9%
-------------------------------------- --------- -------- ------- --------
EPRA "Topped-up" NIY
EPRA "topped-up" NIY is calculated by making an adjustment to
EPRA NIY in respect of the expiration of rent-free periods (or
other unexpired lease incentives such as discounted rent periods
and step rents).
Six months ended 30 June
2020
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- -------- ------- --------
Contracted rent 59.6 37.4 16.5 113.5
---- --------- -------- ------- --------
Adjusted for development
stock (1.5) - - (1.5)
------------------------------- ---- --------- -------- ------- --------
Forecast non recoverable
service charge (2.5) (1.0) (0.1) (3.6)
------------------------------- ---- --------- -------- ------- --------
"Topped Up" annualised
net rents (A) 55.6 36.4 16.4 108.4
Property portfolio 1,036.7 751.3 305.8 2,093.8
Adjusted for development
stock (45.3) (28.5) - (73.8)
Purchasers' costs 67.3 49.2 20.8 137.3
------------------------------- ---- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,058.7 772.0 326.6 2,157.3
------------------------------- ---- --------- -------- ------- --------
EPRA "Topped Up" NIY (A/B) 5.3% 4.7% 5.0% 5.0%
------------------------------- ---- --------- -------- ------- --------
Six months ended 30 June
2019
----------------------------------------
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- -------- ------- --------
Contracted rent 61.8 37.3 17.8 116.9
---- --------- -------- ------- --------
Adjusted for development
stock (1.3) - - (1.3)
------------------------------- ---- --------- -------- ------- --------
Forecast non recoverable
service charge (2.6) (0.2) 0.1 (2.7)
------------------------------- ---- --------- -------- ------- --------
"Topped Up" annualised
net rents (A) 57.9 37.1 17.9 112.9
Property portfolio 1,023.8 685.4 330.1 2,039.3
Adjusted for development
stock (47.0) (9.3) (2.3) (58.6)
Purchasers' costs 66.4 46.0 22.3 134.7
------------------------------- ---- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,043.2 722.1 350.1 2,115.4
------------------------------- ---- --------- -------- ------- --------
EPRA "Topped Up" NIY (A/B) 5.6% 5.1% 5.1% 5.3%
------------------------------- ---- --------- -------- ------- --------
Year ended 31 December 2019
----------------------------------------
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------- -------------- -------- ------- --------
Contracted rent 59.2 34.3 15.8 109.3
---- --------- -------- ------- --------
Adjusted for development
stock (1.5) - - (1.5)
------------------------------- ---- --------- -------- ------- --------
Forecast non recoverable
service charge (2.2) - - (2.2)
------------------------------- ---- --------- -------- ------- --------
"Topped Up" annualised
net rents (A) 55.5 34.3 15.8 105.6
Property portfolio 1,024.3 663.6 283.4 1,971.3
Adjusted for development
stock (52.4) (8.2) - (60.6)
Purchasers' costs 66.1 44.5 19.3 129.9
------------------------------- ---- --------- -------- ------- --------
Property portfolio valuation
including purchasers' costs
(B) 1,038.0 699.9 302.7 2,040.6
------------------------------- ---- --------- -------- ------- --------
EPRA "Topped Up" NIY (A/B) 5.4% 5.0% 5.2% 5.2%
------------------------------- ---- --------- -------- ------- --------
iv) Vacancy
CLS Vacancy
CLS has historically opted to use our own KPI regarding vacancy
as we believe that this provides a more accurate reflection of
occupancy levels in our portfolio and provides a more prudent KPI
as a large proportion of our portfolio is under rented.
Six months ended Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
ERV of vacant space (A) 6.2 5.0 4.6
Contracted rent 113.5 116.9 109.3
ERV of vacant space plus contracted rent (B) 119.7 121.9 113.9
---------------------------------------------- ----------------- ----------------- -------------
CLS vacancy rate (A/B) 5.2% 4.1% 4.0%
---------------------------------------------- ----------------- ----------------- -------------
EPRA Vacancy
Estimated Market Rental Value (ERV) of vacant space divided by
ERV of the whole portfolio.
Six months ended Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
ERV of vacant space (A) 6.2 5.0 4.6
ERV of lettable space (B) 126.1 127.4 120.1
--------------------------- ----------------- ----------------- -------------
EPRA vacancy rate (A/B) 4.9% 3.9% 3.8%
--------------------------- ----------------- ----------------- -------------
v) Cost ratios
CLS Administration Cost Ratio
CLS' administration cost ratio represents the cost of running
the property portfolio relative to its net income. CLS uses this
measure to monitor the efficiency of the business as it focuses on
the administrative cost of active asset management across three
countries. We recognise that the cost ratio is higher than some
other UK listed property companies given the additional costs for
our in-house model and diversified approach. We would expect both
cost ratios to improve in the future as there were several one-off
costs in 2019 and as the scale of CLS increases.
Six months ended Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Administration expenses 9.9 9.9 19.9
Less: Investment segment and First Camp (0.2) (0.3) (0.3)
-------------------------------------------- ----------------- ----------------- -------------
Underlying administration costs 9.7 9.6 19.6
Net rental income from investment property 56.5 53.8 110.6
-------------------------------------------- ----------------- ----------------- -------------
Administration cost ratio 17.2% 17.8% 17.7%
-------------------------------------------- ----------------- ----------------- -------------
2. Other APMs
i) Total Accounting Return
Six months ended Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
-------------------------------------------- ----------------- ----------------- -------------
EPRA closing net tangible assets 1,370.5 1,312.9 1,329.3
----------------- ----------------- -------------
Add back: prior year final dividend paid 20.6 19.1 19.1
----------------- ----------------- -------------
Add back: interim dividend paid - - 9.6
--------------------------------------------- ----------------- ----------------- -------------
Less: EPRA opening net tangible assets (A) (1,329.3) (1,241.0) (1,241.0)
--------------------------------------------- ----------------- ----------------- -------------
Return before dividends (B) 61.8 91.0 117.0
----------------- ----------------- -------------
Total Accounting Return (B/A) 4.6% 7.3% 9.4%
--------------------------------------------- ----------------- ----------------- -------------
ii) Net borrowings and gearing
Six months ended Six months ended Year ended
30 June 30 June 31 December
Notes 2020 2019 2019
-------------------------------------- ------ ----------------- ----------------- -------------
Borrowings short-term 13 128.0 61.5 132.3
------ ----------------- ----------------- -------------
Borrowings long-term 13 785.9 897.8 759.4
------ ----------------- ----------------- -------------
add back: unamortised issue costs 13 4.8 6.0 5.5
-------------------------------------- ------ ----------------- ----------------- -------------
Gross debt 13 918.7 965.3 897.2
------ ----------------- ----------------- -------------
Cash (195.4) (107.6) (259.4)
-------------------------------------- ------ ----------------- ----------------- -------------
Net borrowings 723.3 857.7 637.8
------ ----------------- ----------------- -------------
Net assets 1,229.3 1,172.3 1,202.4
------ ----------------- ----------------- -------------
Net gearing (before corporate bonds) 58.8% 73.2% 53.0%
------ ----------------- ----------------- -------------
Net borrowings 723.3 857.7 637.8
------ ----------------- ----------------- -------------
Corporate bonds - (33.8) -
-------------------------------------- ------ ----------------- ----------------- -------------
Net borrowings after corporate bonds 723.3 823.9 637.8
-------------------------------------- ------ ----------------- ----------------- -------------
Net gearing (after corporate bonds) 58.8% 70.3% 53.0%
-------------------------------------- ------ ----------------- ----------------- -------------
iii) Balance sheet loan to value
Six months ended Six months ended Year ended
30 June 30 June 31 December
Notes 2020 2019 2019
-------------------------------------- ------ ----------------- ----------------- -------------
Borrowings short-term 13 128.0 61.5 132.3
------ ----------------- ----------------- -------------
Borrowings long-term 13 785.9 897.8 759.4
------ ----------------- ----------------- -------------
Less: cash (195.4) (107.6) (259.4)
------ ----------------- ----------------- -------------
Less: corporate bonds - (33.8) -
-------------------------------------- ------ ----------------- ----------------- -------------
Borrowings less liquid resources (A) 718.5 817.9 632.3
------ ----------------- ----------------- -------------
Investment properties 2,053.9 1,904.3 1,961.0
------ ----------------- ----------------- -------------
Properties in PPE 36.2 41.0 40.7
------ ----------------- ----------------- -------------
Held for sale 39.9 135.1 10.4
-------------------------------------- ------ ----------------- ----------------- -------------
Total property portfolio (B) 2,130.0 2,080.4 2,012.1
-------------------------------------- ------ ----------------- ----------------- -------------
Balance sheet loan to value (A/B) 33.7% 39.3% 31.4%
-------------------------------------- ------ ----------------- ----------------- -------------
iv) Dividend cover
Six months ended Six months ended Year ended
30 June 30 June 31 December
Notes 2020 2019 2019
---------------------- ------- ----------------- ----------------- -------------
ERPA EPS (A) 28.4 24.5 48.9
----------------- ----------------- -------------
Interim dividend 9.6* 9.6 9.6
----------------- ----------------- -------------
Final dividend 20.6
------------------------------- ----------------- ----------------- -------------
Total dividend (B) 9.6 9.6 30.2
----------------- ----------------- -------------
Dividend cover (A/B) 3.0 2.6 1.6
------------------------------- ----------------- ----------------- -------------
*Proposed interim 2020 dividend
v) Interest cover
Six months ended Six months ended Year ended
30 June 30 June 31 December
Notes 2020 2019 2019
-------------------------------------------- ------ ----------------- ----------------- -------------
Net rental income 3 56.5 53.8 110.6
------ ----------------- ----------------- -------------
Administration expenses 3 (9.9) (9.9) (19.9)
------ ----------------- ----------------- -------------
Other expenses 3 (7.2) (6.3) (13.7)
-------------------------------------------- ------ ----------------- ----------------- -------------
Group revenue less costs (A) 3 39.4 37.6 77.0
------ ----------------- ----------------- -------------
Finance income (excluding dividend income) 5 0.6 1.4 2.8
------ ----------------- ----------------- -------------
Finance costs (excluding derivatives) 6 (11.9) (11.9) (25.3)
-------------------------------------------- ------ ----------------- ----------------- -------------
Net interest (B) (11.3) (10.5) (22.5)
------ ----------------- ----------------- -------------
Interest cover (A/B) 3.5 3.6 3.4
-------------------------------------------- ------ ----------------- ----------------- -------------
5 FINANCE INCOME
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------------------- ----------- ----------- -------------
Interest income
Financial instruments carried at amortised
cost 0.6 0.3 0.7
Financial instruments carried at fair
value through other comprehensive
income - 1.1 2.1
Other finance income 0.1 1.9 2.2
Foreign exchange gains 3.1 - -
--------------------------------------------- ----------- ----------- -------------
3.8 3.3 5.0
--------------------------------------------- ----------- ----------- -------------
6 FINANCE COSTS
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------------------------------- ----------- ----------- -------------
Interest expense
Bank loans 9.9 9.7 20.6
Secured notes 1.1 1.2 2.4
Amortisation of loan issue costs 0.9 1.0 2.3
-------------------------------------- ----------- ----------- -------------
Total interest costs 11.9 11.9 25.3
Foreign exchange losses - 3.4 3.6
Movement in fair value of derivative
financial instruments
Interest rate swaps: transactions
not qualifying as hedges 2.3 1.2 0.5
-------------------------------------- ----------- ----------- -------------
14.2 16.5 29.4
-------------------------------------- ----------- ----------- -------------
7 TAXATION
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------- ----------- ----------- -------------
Current tax 3.3 4.6 18.1
Deferred tax 6.6 11.5 5.7
-------------- ----------- ----------- -------------
9.9 16.1 23.8
-------------- ----------- ----------- -------------
Tax for the six months ended 30 June 2020 has been charged at an
effective rate of 31.3% (six months ended 30 June 2019: 19.0%; year
ended 31 December 2019: 15.0%), representing the best estimate of
the average annual effective tax rate expected for the full year
adjusted for the tax effect of one-off items, applied to the
pre-tax income of the six month period. The effective tax rate for
the period of 31.3% is higher than the weighted average tax rate of
18.2%. This is predominantly due to a deferred tax charge resulting
from the substantive enactment of an increase in the UK corporation
tax rate from 17% to 19% in the period.
8 EARNINGS PER SHARE
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Earnings GBPm GBPm GBPm
---------------------------------- ----------- ----------- -------------
Profit for the year attributable
to owners of the Company 21.6 67.5 135.5
---------------------------------- ----------- ----------- -------------
Six months Six months
ended ended Year ended
30 June 30 June 31 December
Weighted average number of ordinary 2020 2019 2019
shares in circulation Number Number Number
------------------------------------- ------------ ------------ -------------
Weighted average number of ordinary
shares in circulation 407,395,760 407,395,760 407,395,760
------------------------------------- ------------ ------------ -------------
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Earnings per share Pence Pence Pence
-------------------- ----------- ----------- -------------
Basic and diluted 5.3 16.6 33.3
-------------------- ----------- ----------- -------------
9 NET ASSETS PER SHARE
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Net assets GBPm GBPm GBPm
------------------------------- ----------- ----------- -------------
Basic net assets attributable
to owners of the Company 1,229.3 1,172.3 1,202.4
------------------------------- ----------- ----------- -------------
Year ended
30 June 30 June 31 December
Number of ordinary shares in 2020 2019 2019
circulation Number Number Number
------------------------------ ------------ ------------ -------------
Number of ordinary shares in
circulation 407,395,760 407,395,760 407,395,760
------------------------------ ------------ ------------ -------------
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Net assets per share Pence Pence Pence
---------------------- ----------- ----------- -------------
Basic 301.7 287.8 295.1
---------------------- ----------- ----------- -------------
10 INVESTMENT PROPERTIES
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------- -------- -------- ------------
United Kingdom 1,036.5 995.4 1,014.7
Germany 718.3 617.2 663.6
France 299.1 291.7 282.7
---------------- -------- -------- ------------
2,053.9 1,904.3 1,961.0
---------------- -------- -------- ------------
The movement in investment properties since the last reported
balance sheet was as follows:
United Germany France Total
Kingdom GBPm GBPm GBPm
GBPm
------------------------------------- --------- -------- ------- --------
At 1 January 2020 1,014.7 663.6 282.7 1,961.0
Acquisitions 34.7 16.9 - 51.6
Capital expenditure 3.8 3.8 1.7 9.3
Net movements on revaluation of
investment properties (17.9) 19.4 1.2 2.7
Rent-free period debtor adjustments 1.2 (1.0) - 0.2
Exchange rate variances - 48.6 20.2 68.8
Transfer to held for sale - (33.0) (6.7) (39.7)
------------------------------------- --------- -------- ------- --------
At 30 June 2020 1,036.5 718.3 299.1 2,053.9
------------------------------------- --------- -------- ------- --------
The investment properties (and the hotel and landholding
detailed in note 11) were revalued at 30 June 2020 to their fair
value. Valuations were based on current prices in an active market
for all properties. The property valuations were carried out by
external, professionally qualified valuers, Cushman &
Wakefield.
The Directors note the inclusion of an industry standard
material uncertainty clause in the valuation reports received from
Cushman & Wakefield and understand that in the current
extraordinary circumstances less certainty can be attached to the
valuation than would otherwise be the case.
Property valuations are complex and require a degree of
judgement and are based on data which is not publicly available. We
have classified the valuations of our property portfolio as level 3
as defined by IFRS 13 Fair Value Measurement. Inputs into the
valuations include equivalent yields and rental income and are
'unobservable' under the definition in IFRS 13. These inputs are
analysed by segment in the key data tables presented earlier in
this report. All other factors remaining constant, an increase in
rental income would increase valuations, whilst an increase in the
true equivalent yield would result in a fall in value, and vice
versa.
Key inputs to the valuation ERV
ERV True Equivalent yield
------------------------------------------ -------------------------------
Average GBP per sq ft Range per sq ft Average % Range %
Min Max Min Max
--------- ---------------------- -------- -------- --------------- ----- -------
UK 31.45 10.00 66.41 5.70 2.43 9.06
Germany 13.23 9.80 20.67 4.84 4.13 6.65
France 20.41 11.40 39.46 5.31 3.63 5.88
--------- ---------------------- -------- -------- --------------- ----- -------
A decrease in the equivalent yield by 25 basis points would
result in an increase in the fair value of the Group's investment
property by GBP116.1 million (31 December 2019: GBP99.3 million)
whilst a 25 basis point increase would reduce the fair value by
GBP97.1 million (31 December 2019: GBP109.2 million). A decrease in
the ERV by 5% would result in a decrease in the fair value of the
Group's investment property by GBP59.5 million (31 December 2019:
GBP84.4 million) whilst an increase in the ERV by 5% would result
in an increase in the fair value of the Group's investment property
by GBP67.8 million (31 December 2019: GBP65.1 million).
Although not a key valuation assumption, in the absence of a
financial instruments note and disclosure on foreign exchange risk,
the below table shows how the investment property values would be
impacted by a 5% movement in the Sterling/euro exchange rate.
30 June
2020
Scenario GBPm
-------------------------------------- --------
5% increase in value of sterling
against the euro (48.5)
5% fall in value of sterling against
the euro 53.5
-------------------------------------- --------
Investment properties include leasehold properties with a
carrying value of GBP31.5 million (30 June 2019: GBP74.6 million;
31 December 2019: GBP29.8 million).
Where the Group leases out its investment property under
operating leases the duration is typically three years or more. No
contingent rents have been recognised in the current or comparative
years.
Substantially all investment properties (and the hotel detailed
in note 11) are provided as security against debt.
11 PROPERTY, PLANT AND EQUIPMENT
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------------------------- -------- -------- ------------
Hotel 23.6 27.5 28.0
Land and buildings 2.2 3.4 2.4
Owner-occupied property 10.4 10.1 10.3
Fixtures and fittings 2.2 3.3 2.4
------------------------- -------- -------- ------------
Total 38.4 44.3 43.1
------------------------- -------- -------- ------------
The movement in property, plant and equipment since the last
reported balance sheet was as follows:
Land and Owner-occupied Fixtures
Hotel buildings property and fittings Total
GBPm GBPm GBPm GBPm GBPm
--------------------------- ------ ----------- --------------- -------------- ------
At 1 January 2020 29.0 2.4 10.3 6.0 47.7
Additions - - - 0. 1 0. 1
Exchange rate variances - 0. 2 0.3 (0.1) 0. 4
Revaluation (4.3) (0.4) (0.2) - (4.9)
--------------------------- ------ ----------- --------------- -------------- ------
At 30 June 2020 24.7 2.2 10.4 6.0 43.3
--------------------------- ------ ----------- --------------- -------------- ------
Comprising:
At cost - - - 6.0 6.0
At valuation 30 June 2020 24.7 2.2 10.4 - 37.3
--------------------------- ------ ----------- --------------- -------------- ------
24.7 2.2 10.4 6.0 43.3
--------------------------- ------ ----------- --------------- -------------- ------
Accumulated depreciation
and impairment
At 1 January 2020 (1.0) - - (3.6) (4.6)
(0. 1 (0. 2 (0. 3
Depreciation charge ) - - ) )
--------------------------- ------ ----------- --------------- -------------- ------
At 30 June 2020 (1.1) - - (3.8) (4.9)
--------------------------- ------ ----------- --------------- -------------- ------
Net book value
At 30 June 2020 23.6 2.2 10.4 2.2 38.4
--------------------------- ------ ----------- --------------- -------------- ------
At 31 December 2019 28.0 2.4 10.3 2.4 43.1
--------------------------- ------ ----------- --------------- -------------- ------
12 OTHER FINANCIAL INSTRUMENTS
30 June 30 June 31 December
Investment Destination 2020 2019 2019
type of Investment GBPm GBPm GBPm
---------------------- ----------------- --------------- -------- -------- ------------
Carried at fair Listed corporate UK - 7.6 -
value through other bonds
comprehensive income
Other - 26.2 -
-------- -------- ------------
- 33.8 -
Carried at fair Listed equity Sweden - 98.5 -
value through profit securities
and loss
- 132.3 -
---------------------- ----------------- --------------- -------- -------- ------------
13 BORROWINGS
MATURITY PROFILE
Bank Secured
loans notes Total
At 30 June 2020 GBPm GBPm GBPm
------------------------------------------------- -------- -------- --------
Within one year or on demand 125.4 4.2 129.6
More than one but not more than two years 170.5 4.2 174.7
More than two but not more than five years 481.7 44.4 526.1
More than five years 88.3 - 88.3
------------------------------------------------- -------- -------- --------
865.9 52.8 918.7
Unamortised issue costs (4.6) (0.2) (4.8)
------------------------------------------------- -------- -------- --------
Borrowings 861.3 52.6 913.9
Less amount due for settlement within 12 months (123.9) (4.1) (128.0)
------------------------------------------------- -------- -------- --------
Amount due for settlement after 12 months 737.4 48.5 785.9
------------------------------------------------- -------- -------- --------
Bank Secured
loans notes Total
At 30 June 2019 GBPm GBPm GBPm
------------------------------------------------- ------- -------- -------
Within one year or on demand 59.2 4.2 63.4
More than one but not more than two years 227.8 4.2 232.0
More than two but not more than five years 479.5 48.6 528.1
More than five years 141.6 - 141.6
------------------------------------------------- ------- -------- -------
908.1 57.0 965.1
Unamortised issue costs (5.5) (0.3) (5.8)
------------------------------------------------- ------- -------- -------
Borrowings 902.6 56.7 959.3
Less amount due for settlement within 12 months (57.4) (4.1) (61.5)
------------------------------------------------- ------- -------- -------
Amount due for settlement after 12 months 845.2 52.6 897.8
------------------------------------------------- ------- -------- -------
Bank Secured
loans notes Total
At 31 December 2019 GBPm GBPm GBPm
------------------------------------------------- -------- -------- --------
Within one year or on demand 129.8 4.2 134.0
More than one but not more than two years 88.5 4.2 92.7
More than two but not more than five years 492.8 46.5 539.3
More than five years 131.2 - 131.2
------------------------------------------------- -------- -------- --------
842.3 54.9 897.2
Unamortised issue costs (5.2) (0.3) (5.5)
------------------------------------------------- -------- -------- --------
Borrowings 837.1 54.6 891.7
Less amount due for settlement within 12 months (128.2) (4.1) (132.3)
------------------------------------------------- -------- -------- --------
Amount due for settlement after 12 months 708.9 50.5 759.4
------------------------------------------------- -------- -------- --------
FAIR VALUES
Carrying amounts Fair values
-------------------------------- --------------------------------
30 June 30 June 31 December 30 June 30 June 31 December
2020 2019 2019 2020 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------- ------------ -------- -------- ------------
Current borrowings 128.0 61.5 132.3 128.0 61.5 132.3
Non-current borrowings 785.9 897.8 759.4 798.5 911.0 769.3
------------------------ -------- -------- ------------ -------- -------- ------------
913.9 959.3 891.7 926.5 972.5 901.6
------------------------ -------- -------- ------------ -------- -------- ------------
The fair value of borrowings represents the amount at which a
financial instrument could be exchanged in an arm's length
transaction between informed and willing parties, discounted at the
prevailing market rate, and excludes accrued interest.
14 SHARE CAPITAL
Number
------------------------------------------
Ordinary Total
Ordinary Total shares Treasury ordinary
shares Treasury ordinary in circulation shares shares
in circulation shares shares GBPm GBPm GBPm
-------------- ---------------- ----------- ----------- ---------------- --------- ---------
At 1 January
2020 and 30
June 2020 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
-------------- ---------------- ----------- ----------- ---------------- --------- ---------
15 CASH GENERATED FROM OPERATIONS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------------------------------------------------- ----------- ----------- -------------
Operating profit 41.9 97.8 183.4
Adjustments for:
Net movements on revaluation of investment
properties (2.7) (36.9) (57.4)
Net movements on revaluation of equity - (23.6) -
investments
Depreciation and amortisation 0.3 0.6 1.0
Non-cash rental income (0.3) (2.8) (3.7)
Share-based payment expense 0.7 0.4 1.0
Purchase of shares to fulfil share-based
payment (0.9)
Loss/(profit) on sale of investment
properties 0.2 0.3 (8.6)
(Gain) on sale of other financial instruments,
net of impairments - - (40.4)
Changes in working capital:
Decrease/(increase) in receivables 1.7 0.1 (3.4)
(Decrease)/increase in payables (1.9) (0.8) 3.4
------------------------------------------------- ----------- ----------- -------------
Cash generated from operations 39.0 35.1 75.3
------------------------------------------------- ----------- ----------- -------------
16 RELATED PARTY TRANSACTIONS
There have been no material changes in the related party
transactions described in the last Annual Report, other than those
disclosed elsewhere in this condensed set of financial
statements.
17 POST BALANCE SHEET EVENTS
Since the period end, we have unconditionally exchanged
contracts to sell Albert-Einstein-Ring 17-21 in Hamburg for
EUR36.45 million excluding costs, with completion expected on 30
September 2020. This property was presented within assets held for
sale on the balance sheet.
There were no other material events after 30 June 2020 which
have a bearing on the understanding of the financial statements and
require disclosure.
Glossary of terms
Administration cost ratio
Recurring administration expenses of the Investment Property
operating segment expressed as a percentage of net rental
income
Balance sheet loan-to-value Net debt expressed as a percentage
of property assets
CDP
CDP, formerly known as the Carbon Disclosure Project, assesses
the ESG performance of all major companies worldwide and aids
comparability between organisations to allow the investor community
to assess the carbon and climate change risk of each company.
Contracted rent
Annual contracted rental income after any rent-free periods have
expired
Diluted earnings per share
Profit for the year attributable to the owners of the Company
divided by the diluted weighted average number of ordinary
shares
Diluted number of ordinary shares
Number of ordinary shares in circulation at the balance sheet
date adjusted to include the effect of potential dilutive shares
issuable under employee share schemes
Diluted weighted average number of ordinary shares
Weighted average number of ordinary shares in issue during the
period adjusted to include the effect of potential weighted average
dilutive shares issuable under employee share schemes
Earnings per share
Profit for the year attributable to the owners of the Company
divided by the weighted average number of ordinary shares in issue
in the period
EPRA
European Public Real Estate Association
EPRA earnings per share
Profit for the year attributable to the owners of the Company,
but excluding net gains or losses from fair value adjustments on
investment properties and on equity investments, profits or losses
on disposal of investment properties and other noncurrent
investment interests, profits or losses of discontinued operations,
profits or losses on early redemption of debt, impairment of
goodwill and intangible assets, movements in fair value of
derivative financial instruments and their related current and
deferred tax
EPRA net assets
Net assets attributable to the owners of the Company excluding
the fair value of financial derivatives, deferred tax on
revaluations, and goodwill arising as a result of deferred tax
EPRA net assets per share or EPRA NAV
EPRA net assets divided by the diluted number of ordinary
shares
EPRA net disposal value (EPRA NDV)
Represents the shareholders' value under a disposal scenario,
where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability,
net of any resulting tax
EPRA net initial yield
Passing rent less net service charge costs on investment
properties and properties held for sale, expressed as a percentage
of the valuation of those properties after adding purchasers'
costs
EPRA net reinstatement value (EPRA NRV)
Net assets attributable to the owners of the Company excluding
the fair value of financial derivatives, deferred tax on
revaluations and goodwill arising as a result of deferred tax and
including real estate transfer tax
EPRA net tangible assets (EPRA NTA)
Assumes that entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax
EPRA topped up net initial yield
Contracted rent less net service charge costs on investment
properties and properties held for sale, expressed as a percentage
of the valuation of those properties after adding purchasers'
costs
EPRA triple net assets
EPRA net assets adjusted to reflect the fair value of debt and
derivatives and to include the fair value of deferred tax on
property revaluations
EPRA triple net assets per share
EPRA triple net assets divided by the diluted number of ordinary
shares
EPRA Vacancy
Estimated Market Rental Value (ERV) of vacant space divided by
ERV of the whole portfolio
Estimated rental value (ERV)
The market rental value of lettable space as estimated by the
Group's valuers
GRESB
GRESB assesses and benchmarks the Environmental, Social and
Governance (ESG) performance of real assets, providing standardized
and validated data to the capital markets.
Interest cover
The aggregate of group revenue less costs, divided by the
aggregate of interest expense and amortisation of loan issue costs,
less interest income
Liquid resources
Cash and short-term deposits and listed corporate bonds
Net assets per share or net asset value (NAV) Equity
attributable to the owners of the Company divided by the diluted
number of ordinary shares
Net debt
Total borrowings less liquid resources
Net gearing
Net debt expressed as a percentage of net assets attributable to
the owners of the Company
Net initial yield
Net rent on investment properties and properties held for sale
expressed as a percentage of the valuation of those properties
Net rent
Passing rent less net service charge costs
Occupancy rate
Contracted rent expressed as a percentage of the aggregate of
contracted rent and the ERV of vacant space
Over-rented
The amount by which ERV falls short of the aggregate of
contracted rent
Passing rent
Contracted rent before any rent-free periods have expired
Property loan to value
Property borrowings expressed as a percentage of the market
value of the property portfolio
Rent roll
Contracted rent
Return on equity
The aggregate of the change in equity attributable to the owners
of the Company plus the amounts paid to the shareholders dividends
and the purchase of shares in the market, divided by the opening
equity attributable to the owners of the Company
Reversionary
The amount by which ERV exceeds contracted rent
Total accounting return
The change in EPRA NTA (previously NAV) before the payment of
dividends
Total shareholder return
The growth in capital from purchasing a share, assuming that
dividends are reinvested every time they are received
True equivalent yield
The capitalisation rate applied to future cash flows to
calculate the gross property value, as determined by the Group's
external valuers
Vacancy rate
The ERV of vacant lettable space, divided by the aggregate of
the contracted rent of let space and the ERV of vacant lettable
space.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KKDBPOBKDOFD
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August 12, 2020 02:00 ET (06:00 GMT)
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