TIDMCLI
RNS Number : 9469E
CLS Holdings PLC
16 March 2022
CLS HOLDINGS PLC
("CLS", the "Company" or the "Group")
ANNOUNCES ITS ANNUAL RESULTS
FOR THE YEARED 31 DECEMBER 2021
Location Quality Flexibility
CLS is a leading FTSE250 office space specialist and a
supportive, progressive and sustainably focused commercial
landlord, with a c.GBP2.3 billion portfolio in the UK, Germany and
France, offering geographical diversification with local presence
and knowledge. For the year ended 31 December 2021, the Group has
delivered the following results:
31 December Change (%)
2021 2020
----------------------------------------------------- ------ ----- ----------
EPRA Net Tangible Assets (NTA) per share (pence) (1) 350.5 345.2 1.5
Statutory NAV per share (pence)(1) 326.6 311.9 4.7
Contracted rents (GBPmillion) 107.6 107.9 (0.3)
Profit before tax (GBPmillion) 91.5 96.5 (5.2)
EPRA Earnings per share (EPS) (pence) (1) 11.3 12.2 (7.4)
Statutory EPS from continuing operations (pence) (1) 29.3 19.0 54.2
Dividend per share (pence) 7.70 7.55 2.0
----------------------------------------------------- ------ ----- ----------
(1)A reconciliation of statutory to alternative performance
measures is set out in Note 5 to the financial statements
Fredrik Widlund, Chief Executive Officer of CLS, commented:
"CLS has delivered a healthy and robust set of results for 2021
with net assets up from earnings and valuation gains in all of our
three countries. We faced headwinds from the strengthening of
sterling and the impact of pandemic restrictions which temporarily
reduced occupancy but our operational performance, especially in
the second half of the year, was excellent with collection and
leasing activities at pre-pandemic levels.
"These results show that our well-located, high quality and
flexible offices with great amenities in modern, sustainable
buildings are meeting the needs of our customers. We have seen
significant positive momentum in lettings in recent months and have
more than 30 ongoing refurbishment and developments that will drive
strong growth going forwards"
FINANCIAL HIGHLIGHTS
á EPRA NTA up 1.5% primarily due to EPRA earnings and portfolio
valuation gains, which were offset by foreign exchange losses due
to the strengthening of sterling
á Portfolio valuation up 1.6% in local currency with increases
in all regions (3.1% in Germany, 0.7% in the UK and 0.3% in France)
as a result of strong letting activity and slight yield
tightening
á Profit before tax down 5.2% to GBP91.5 million (2020: GBP96.5
million) due to lower gains from disposals but statutory EPS up
54.2% because of the derecognition of deferred tax liabilities on
UK property revaluation gains following CLS' conversion of its UK
operations to a Real Estate Investment Trust ("REIT")
á EPRA EPS was down 7.4% due to the strengthening of sterling
which resulted in unfavourable foreign exchange movements, offset
by cost rationalisations which have lowered our cost base
á A proposed final dividend of 5.35 pence per share to be paid
on 29 April 2022, resulting in a total 2021 dividend of 7.70 pence
per share, an increase of 2.0% (2020: 7.55 pence per share) and
total accounting return for the year of 3.7% (2020: 8.1%)
OPERATIONAL HIGHLIGHTS
á Rent collection remained strong in 2021 with 99% collected
(2020: 99%) and 97% of first quarter 2022 contracted rent due now
collected (2020: 98%)
á Net rental income stable at GBP108.0 million (2020: GBP109.8
million) due to redevelopment and leasing expiries, foreign
exchange reductions and lower dilapidations income offset by
contributions from net acquisitions
á Acquired six properties for GBP164.8 million, three of which
had exchanged in 2020. The five properties in Germany and one in
the UK were bought for their asset management opportunities at a
combined net initial yield of 3.9% and a reversionary yield of
6.1%. Post period end, a further two properties have exchanged in
Germany for GBP75.7 million, with a combined net initial yield of
5.1% and a reversionary yield of 5.6%. Both completions are due in
April 2022
á Disposed of eight properties for GBP37.4 million (4.8% net
initial yield) at 3.2% above 2020 book values. Post period end, two
further properties exchanged for sale in the UK at GBP10.1 million
(6.0% net initial yield) at book value. Completions are expected in
Q1 2022
á Completed 125 lease events securing GBP12.9 million of annual
rent at 0.4% above 31 December 2020 estimated rental values
á Vacancy rate increased to 5.8% (2020: 5.1%) due to the
deliberately acquired vacancy in our 2021 German purchases. Whilst
vacancy was reduced from 7.7% at the end of June due to
considerable letting activity at the end of 2021, there are further
opportunities to capture market rents
Financing
á Weighted average cost of debt at 31 December 2021 down 6 basis
point to 2.22% (2020: 2.28%)
á Loan-to-value at 37.1% (2020: 33.7%) reflecting net
acquisitions during the year. Gross debt of GBP1,031.6 million
(2020: GBP970.7 million) with cash of GBP167.4 million (2020:
GBP235.7 million) and GBP50 million (2020: GBP50 million) of
undrawn facilities
á Second long-term, 'green' loan secured for GBP61.7 million
with Scottish Widows at 2.65% fixed interest rate for 12 years,
such that over 20% of CLS' loan portfolio is now 'green'. This
transaction contributed to maintaining high weighted average debt
maturity of 4.4 years (2020: 4.6 years)
á Financed or refinanced GBP196.7 million of debt in 2021 at an
average of 1.62%, including GBP172.8 million fixed at 1.70%, and
repaid GBP88.2 million of debt
á The loan portfolio as at 31 December 2021 had 85% at fixed
rates (31 December 2020: 84%)
ENVIRONMENTAL, SOCIAL AND Governance
á GRESB score increased to 85 (2020: 72) and all managed
buildings have been independently certified by BREEAM to assess
their sustainability rating and highlight areas for improvement
á Launched our Sustainability Strategy to 2030, incorporating
our fully funded Net Zero Carbon Pathway, and increased our solar
PV capacity by 112% to 933kWp
á 92% of Group electricity is now carbon-free and 83% of managed
portfolio is achieving at least a Good BREEAM In-Use rating
Dividend Timetable
Further to this announcement, in which the Board recommended a
final dividend of 5.35 pence per ordinary share, the Company
confirmed its dividend timetable as follows:
Announcement 16 March
date 2022
Ex-Dividend 24 March
date 2022
---------
Record date 25 March
2022
---------
Payment date 29 April
2022
---------
ends
Results presentation
A presentation for analysts and investors will be held in-person
at Liberum Capital, by webcast and by conference call on Wednesday
16 March 2022 at 8:30am followed by Q&A. Questions can be
submitted either online via the webcast or to the operator on the
conference call.
á Liberum Capital: Ropemaker Place, 25 Ropemaker Street, London EC2Y 9L
á Webcast: The live webcast will be available here:
https://secure.emincote.com/client/cls/cls004
á 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/cls004/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
Richard Crawley
Jamie Richards
+44 (0)20 3100 2222
Panmure Gordon
Hugh Rich
+44 (0)20 7886 2733
Berenberg
Matthew Armitt
Richard Bootle
+44 (0) 203 207 7800
Edelman Smithfield (Financial PR)
Alex Simmons +44 7970 174353
Rob Yates +44 7715 375443
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.
Chairman's letter
Dear Shareholder,
The pandemic and the impact on working practices and habits
remains one of the most significant influences on CLS' operations.
In response, we have maintained our focus on the key drivers of the
business as well as adapting to developing patterns such as hybrid
working. Whilst there is still some uncertainty about the future of
the office, greater clarity is emerging. The market is becoming
bifurcated such that offices which are less sustainable with poorer
amenities will struggle, whilst well-located, high quality and
flexible buildings with strong sustainability credentials such as
those provided by CLS will thrive.
Performance and our property portfolio
It is yet again pleasing that the benefits of our diversified
business model and clear strategy continue to persist as
demonstrated by our results. In 2021, we delivered a robust
financial performance despite our results being impacted by the
strengthening of sterling and the negative impacts of the pandemic
restrictions on our Vauxhall student and hotel operations.
EPRA NTA per share increased by 1.5% to 350.5 pence per share
(2020: 345.2 pence per share) and total accounting return,
including the dividends paid in the year, was 3.7% (2020: 8.1%).
The value of our property portfolio rose to GBP2.3 billion (2020:
GBP2.2 billion) as a result of: GBP142.4 million of acquisitions
net of disposals; GBP36.0 million capital expenditure; GBP36.7
million from net valuation increases of 1.6% in local currencies
with uplifts in all countries; offset by depreciation of GBP0.5m
and a reduction of GBP66.3 million as a result of the strengthening
of sterling by 6.3%. Our property portfolio is split 50% in the UK,
38% in Germany and 12% in France.
Environmental, social and governance
As highlighted by the Glasgow Climate Pact made at COP26,
climate change continues to dominate world events reinforcing the
need to reduce carbon dioxide emissions, move away from fossil
fuels and align private finance towards achieving net zero
emissions. CLS is proud to have published our sustainability
strategy, incorporating our pathway to net zero carbon by 2030,
which is aimed at addressing each of these key themes. As we are
now into the delivery phase of our strategy, I am energised by the
way in which our employees have embraced our aspirations and the
commitment they have shown to deliver future-ready assets. This
energy is an essential part of our commitment to being a good
corporate citizen in our communities and neighbourhoods whilst at
the same time maintaining the highest standards of corporate
governance.
Strategic outlook
We are seeing increasing clarity around the companies and
properties which will be successful in the post-Covid era. As a
result, CLS will continue to pursue our proven strategy and
business model of providing well-located, high quality and flexible
offices that have the ability to respond to changing market
dynamics.
Our successful efforts to reduce vacancy, our recent conversion
to a REIT in the UK and our focus on providing offices that meet
tenant needs leave us well-positioned for 2022 onwards.
Dividends
Given the financial position of the business and confidence in
the future, the Board has decided to propose an increase in the
final 2021 dividend of 3% to give a 2% increase in the full year
dividend, which will be 7.70 pence per share. The Board's policy of
keeping the dividend 1.5 to 2.0 times covered by EPRA earnings
(i.e. paying out 50% to 66.6%) remains in place but we will review
this policy during the year as the 2022 interim dividend in
September 2022 will be the first paid out under the REIT
regime.
Our staff and our culture
I and the rest of the Board continue to be impressed by the
ongoing hard work of all our staff and the tremendous way that they
have responded to the challenges thrown up during the last two
years, for which we offer our sincere thanks and gratitude. One of
CLSÕ big attractions and differentiators is its open, inclusive and
positive culture. It is very pleasing that this has been
maintained, which will stand CLS in good stead going forward.
Lennart Sten
Non-Executive Chairman
16 March 2022
Chief Executive's review
"Historically, successful investment in properties, including
offices, was largely determined by Location, Location, Location. In
recent years, the market and occupiers have become increasingly
sophisticated - a trend which has been accelerated by the pandemic.
Consequently, more characteristics are demanded with the most
successful office owners now offering Location, Quality and
Flexibility."
Delivering on our strategy
Much has been written, and continues to be written, about the
future of the office and whilst a definitive conclusion has yet to
be reached, trends are starting to emerge. Rather than repeat or
rehash the debate, I wanted to make a few observations.
A 2021 Knight Frank (Y)OUR SPACE survey showed 30% of corporates
anticipated growing their total space in the next three years, 35%
anticipated it staying the same, and 35% foresaw a decrease in
space occupied. This balanced picture feels about right, but as
work from home and other restrictions have persisted, the
attractions of offices in surveys continues to increase.
Perhaps more important is the supply side of the debate. The
importance of sustainability amongst investors and occupiers is
increasing. Many existing offices will become obsolete, as it is
uneconomic to upgrade them to meet rising environmental standards,
or will be converted to other uses. The pandemic has also reduced
the amount of construction of new offices. This will be exacerbated
if other cities follow the lead of the City of London in favouring
refurbishment over redevelopment Ð which clearly supports CLS'
business model. And finally, Google in acquiring its office in
Kings Cross highlighted the importance of Òde-intensifyingÓ space.
This reduction in density, creates more space per worker and will
further limit supply, ultimately creating additional demand.
Overall, what appears to be clear is that hybrid working is here
to stay and offices need to be attractive and sustainable, and
offer better amenities. For CLS and our tenant-focused strategy,
this simply reinforces our belief in ensuring we have the right
offices which offer Location, Quality and Flexibility.
With these characteristics in mind, we made six acquisitions in
2021 for a headline purchase price of GBP164.8 million and sold
eight smaller properties for a headline sale price of GBP37.4
million. This resulted in net additions of GBP127.4 million before
costs.
Five of the acquisitions were in Germany and one was in the UK.
All of the properties had asset management opportunities to drive
further value, particularly the two properties in Germany which had
significant vacancy. As a consequence, whilst the net initial yield
of these acquisitions was 3.9%, we have the opportunity within the
next couple of years or so to capture the potential of these
assets, which is reflected in the reversionary yield of 6.1%. More
detail on the individual buildings is given in the country pages.
The three German properties which were bought together are
highlighted in a case study in the annual report.
Since the year end we have exchanged on the acquisition of two
properties in Dusseldorf and Dortmund for GBP75.7 million, which
are due to complete in April 2022 and, after financing and costs,
will result in a net cash outflow of GBP32.7 million while adding
c.GBP4 million of rent p.a. The combined net initial yield is 5.1%
with the potential to reduce the limited vacancy and capture rent
increases to achieve a reversionary yield of 5.6%. We continue to
look for further acquisition opportunities across all three
countries but we will not compromise acquisition returns and thus
will only acquire when our acquisition criteria are met.
We continue to recycle capital on a selective basis, making
disposals where there are limited opportunities to add value and/or
drive returns, or when offered a compelling price. Additionally, we
are seeking to increase the average size of our properties by
disposing of smaller properties which usually consume a
disproportionate amount of management time and are less economic to
equip with the best amenities. To that end, we sold eight smaller
properties (three in the UK, two in Germany and three in France) at
a net initial yield of 4.8% for GBP37.4 million which was in line
with latest valuations. Since the year end, we have exchanged on
the disposal of two further properties in the UK which will
complete in the first half of 2022. The total consideration is
GBP10.1 million, in line with the latest valuations, reflecting a
net initial yield of 6.0%.
Maintaining and improving the quality of our properties in terms
of amenities and sustainability remains paramount. We are therefore
increasing our investment across refurbishments such as 45 London
Road in the UK, redevelopments such as Park Avenue in France and
developments such as LichtHof in Germany. Capital expenditure in
2021 was GBP36.0 million and we expect to spend around GBP50 to
GBP70 million in each of 2022 and 2023, of which c.GBP5 million per
annum is part of the Net Zero Carbon pathway spend, to improve the
attractiveness of the portfolio.
In November 2021, we held a Capital Markets Day in London at
which we highlighted the considerable opportunities in the short,
medium and long-term to improve rental income and the value of the
portfolio. We also showcased a number of properties across all
three regions and were able to conduct in-person site visits to
some of these opportunities. Since then, we have continued to make
good progress with these opportunities.
Demolition, piling and the ground floor slab were completed by
December 2021 at our 28,500 sq. ft office development at Vauxhall
Walk in London and the concrete superstructure has now reached the
fourth floor of this GBP17.4 million project. Completion is on
target for Q1 2023 and marketing has started. The redevelopment of
9 Prescot Street in London is also progressing well. Strip-out
works have been completed and the c.GBP29 million 94,000 sq. ft
project is on target to complete in Q2 2023.
Asset and property management
In last year's annual report, I repeated the wording from my
2019 commentary about the importance of staying close to our
tenants and building long-term relationships. I am not going to
repeat the wording again but will merely stress that this business
ethos, CLS' business ethos, remains critical in determining
long-term success. Testament to this, our rent collection rates in
2021 were over 99% as has been the case throughout the pandemic. On
the whole, our properties are multi-let with over 750 tenants, of
which 24% are government agencies and 29% are major
corporations.
In 2021, the overall Group EPRA vacancy rate increased to 5.8%
(2020: 5.1%) which remains above our target of 5%. However, a
simple number does not tell the story of the drivers and the
considerable successes of the asset management team in the year.
Simplistically, the vacancy rate increased from 5.1% at the start
of the year to 7.7% in June as a result of consciously acquired
vacancy in Germany as discussed above. The vacancy rate then rose
to over 8% in October from a combination of significant lease
expiries and completed refurbishments becoming available to let
again. The reduction to 5.8% by the end of December (UK 5.4%,
Germany 7.4% and France 3.0%) reflected substantial letting
activity conducted throughout Q4, particularly in Germany, due to
the team's efforts and a rebound in market activity. We are
confident that our active asset management strategy will reduce
vacancy levels below 5% in 2022.
At 31 December 2021, the value of the portfolio increased by
1.6% in local currencies as a result of revaluation uplifts. There
were increases in all countries with Germany up 3.1%, the UK 0.7%
and France up 0.3%. Whilst many of the property increases were
individual in nature, some trends can be discerned.
In the UK, the attractiveness of government income and
longer-term development potential helped drive a reduction in
equivalent yields to 5.5% (2020: 5.7%) and ERVs increased 1.3%
(2020: 1.6%) (net initial yield fell to 4.8% (2020: 5.0%)). In
Germany, considerable letting activity drove improvements in ERVs,
which increased 0.6% (2020: 3.1%), with equivalent yields stable at
4.4% (2020: 4.4%) (net initial yield fell to 3.8% (2020: 4.1%)). In
France, the picture was more mixed with the continued strength of
the Lyon market but a more varied picture for our Parisian assets
resulting in equivalent yields tightening to 5.0% (2020: 5.2%) but
ERVs down 1.6% (2020: 0.2% up) (net initial yield fell to 3.8%
(2020: 4.0%)). In aggregate, fair value uplifts added 9.0 pence per
share to EPRA NTA (GBP36.7 million including GBP2.7 million lease
incentive debtor adjustments) before the impact of lease incentives
and depreciation.
Financial results
Overall, results in 2021 were robust with excellent rent
collection continuing and revaluation uplifts across all countries.
However, as flagged earlier in the year, results in 2021 were
impacted by the 6.3% strengthening of sterling against the euro and
reduced occupancy in the first half of the year in our student and
hotel operations as a result of pandemic restrictions. As the
impacts of the pandemic have receded, the performance of the
student and hotel operations have rebounded such that our student
building is now fully occupied (2020/21: 46%) and the hotel is
forecasting occupancy of 88% in 2022 (2021: 70%).
Profit from recurring operations was GBP77.3 million (2020:
GBP77.4 million). Revaluation gains and the sale of investment
properties in 2021 of GBP28.4 million (2020: GBP43.1 million) were
below last year given lower valuation uplifts with a foreign
exchange loss of GBP2.3 million (2020: GBP2.1 million gain).
Including non-recurring items, earnings per share of 29.3p was
ahead of last year (2020: 19.0p) as a result of the release of UK
deferred tax liabilities on revaluation gains following CLS'
conversion of its UK operations to a REIT.
As highlighted, EPRA earnings were impacted by negative exchange
rate movements and student and hotel occupancy. Consequently, EPRA
earnings per share in 2021 were down at 11.3p (2020: 12.2p). The
second half of the year contributed strongly with earnings of 5.9p
reflecting an accelerating recovery and momentum as we go into 2022
as well as actions to lower the cost base.
EPRA NTA increased by 1.5% (2020: 5.8%) reflecting EPRA
earnings, revaluation gains of 1.6% in local currency and a
positive uplift from UK REIT conversion offset by a GBP39.5 million
reduction from the 6.3% weakening of sterling against the euro
(2020: GBP29.7 million gain) and the payment of an increased
dividend.
At the year end, we had liquid resources of GBP167.4 million
(2020: GBP235.7 million), reflecting net acquisitions and ongoing
investment, as well as GBP50.0 million of undrawn credit facilities
(GBP2020: GBP50.0 million).
In 2021, we generated GBP44.2 million net cash from operating
activities (2020: GBP44.3 million) compared with EPRA earnings of
GBP45.9 million (2020: GBP49.5 million) showing the continued
strong cash generation of our business model. Of this cash, GBP30.8
million (2020: GBP30.1 million) was paid as a dividend to
shareholders. We balance the use of the cash generated between
dividends and reinvestment in the business to drive the total
accounting return to shareholders, which was 3.7% in 2021 (2020:
8.1%).
Purpose, people and planet
In 2021, we made significant progress in future proofing our
portfolio with the publication of our enhanced sustainability
strategy, incorporating our Net Zero Carbon pathway to 2030, which
has been validated by the Science Based Targets initiative, and our
Social Value Framework. We have set ourselves clear and ambitious
targets that mirror our aspirations as a sustainably focused
landlord. The fully costed plan has an estimated cost of GBP58
million with a minimum expected recovery of 20% through normal
service charge expenditure.
Whilst the focus in the years ahead is on the delivery of the
Net Zero Carbon pathway and the Social Value Framework, this year
has seen improvements and developments in a number areas related to
our sustainability strategy. We have implemented the results of our
energy and carbon audits into our capex budgets, identifying
initiatives that ensure our buildings become more environmentally
efficient and reduce our energy usage as well as informing our
investment and divestment decisions.
It is especially gratifying that our progress has been
recognised by external assessors with a big increase in our GRESB
score from 72 to 85, reflecting the continuous improvements made
throughout the business. We met our 2021 target to double PV
generation across the portfolio through five installations,
increasing total generation to 469,411 kWh per year, representing
2% of energy used in our managed portfolio. We will continue this
progress though further ambitious targets during 2022. Finally, we
continued to align our sustainability objectives with those of our
lenders. We secured our second 'green' loan in 2021 and now have
over 20% of our loans linked to ESG targets.
Our sustainability agenda is more than simply environmental
measures and targets. At various times throughout the year, the
majority of our employees and I took part in at least one day of
community support. In total, we invested c.400 hours in our
communities in which we are an active participant and supporter. We
also delivered initiatives aimed at supporting workplace health and
wellbeing across our managed portfolio, supporting our tenants
during what has been a very difficult period.
Never before have our culture and values been more important,
both during the various lockdowns but moreover in ensuring we
maintain and build on those strong relationships as we return to
the new norm. Our clear purpose, underpinned by our core values has
continued to inspire our teams across our countries and I thank all
of our employees for stepping up to the challenges of 2021, which
has enabled us to deliver a robust set of results.
Looking to the future
To demonstrate more clearly the opportunities within the
portfolio to capture higher rents, we have included a waterfall
chart in recent investor materials. The updated rent progression
figures are:
Ð contracted rent at the end of 2021 of GBP107.6 million;
Ð the current potential Estimated Rental Value ('ERV') of the
portfolio of GBP120.0 million if all vacant space let (GBP7.0
million increase) and net reversionary potential (GBP5.4 million
increase) were captured. We do though benefit from some
vacancy/churn within the portfolio to capture reversion more
quickly and to allow the refurbishment of older properties and thus
recognise that not all of this vacancy upside should be
captured;
Ð net acquisitions exchanged in 2022 to reporting date (c.GBP3.5 million);
Ð the potential increase to ERV over 2022 and 2023 to GBP134
million from refurbishments (c.GBP9 million increase), committed
developments (GBP1.5 million from Vauxhall Walk); and
Ð the potential increase to ERV between 2023 and 2025 to GBP139
million from the uncommitted developments of LichtHof, St Cloud
Gate and the rooftop extension at Adlershofer Tor (c.GBP5 million
increase).
In addition to these increases up to 2025, there is further
potential from: inflation indexation, with over half the portfolio
having contractual increases; market movements; and executing
value-enhancing transactions, both acquisitions and disposals, to
focus the portfolio on faster growing properties. Post 2025, we
have significant development, redevelopment or rental increase
opportunities at Spring Gardens and New Printing House Square, both
of which are in Zone 1 in London.
Our strategy and our focus on the three largest countries in
Europe remains unchanged but with slightly different priorities:
growing Germany; driving UK long-term value; and realising French
profitability and cash returns. By concentrating on the Location,
Quality and Flexibility of our offices and ensuring that we respond
to client and market demands, we are confident that CLS will
continue to be successful for all of our stakeholders.
Fredrik Widlund
Chief Executive Officer
16 March 2022
Chief Financial Officer's review
"Robust results in 2021 with continuing excellent rent
collection, strong EPRA NTA and revaluation uplifts across all
countries."
Summary
EPRA net tangible assets ('NTA') per share, rose by 1.5% to
350.5 pence (2020: 345.2 pence) and basic net assets per share by
4.7% to 326.6 pence (2020: 311.9 pence). Profit after tax of
GBP119.5 million (2020: GBP77.4 million) generated basic earnings
per share of 29.3 pence (2020: 19.0 pence) and EPRA earnings per
share of 11.3 pence (2020: 12.2 pence). EPRA EPS provided 1.5x
cover of the full year dividend of 7.70 per share.
On 1 January 2022, we converted our UK operations to a REIT. As
a result of the conversion, CLS will pay no UK corporation tax on
its UK property operations (rental income, gains on property sales
and sales of companies owning UK property) which fall within the
REIT regime from the 2022 financial year onwards. One of the
reasons for conversion was so as to shield the UK operations from
being subject to the increase in the rate of UK corporation tax
from 19% to 25% from 1 April 2023. Conversion has increased EPRA
NTA by 4.5 pence and will save between GBP3 million to GBP5 million
annually in UK corporation tax from 2022 onwards. The low end of
the range being the tax saving in EPRA EPS and the high end being
the usual tax saving in statutory EPS including the tax on the
realisation of valuation gains on property disposals.
The overall level of CLS' dividend under the REIT regime will be
reassessed in the second half of the year.
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. Note 5
gives a full description and reconciliation of our APMs.
Income statement
Net rental income in 2021 of GBP108.0 million was GBP1.8 million
lower than in 2020. Acquisitions added GBP8.3 million but this was
more than offset by income lost from disposals (GBP2.7 million);
properties being redeveloped (GBP2.3 million); net lease expiries
as vacancy increased (GBP2.2 million); the impact of a stronger
sterling on German and French rent receipts (GBP1.6 million); and
lower dilapidation income (GBP1.4 million). Both the hotel and
student income rebounded in the second half, as businesses
recovered following the easing of Covid-19 restrictions, such that
overall hotel revenue increased by GBP0.8 million to GBP2.7 million
(2020: GBP1.9 million). Given the timing of the academic year
relative to Covid-19 restrictions, student income fell GBP0.7
million to GBP4.1 million (2020: GBP4.8 million) but occupancy
rates are back to, or above, normal levels at 99% for the current
academic year.
As the difficult trading environment continued during 2021, we
also continued our focus on our tenant relationships and monitoring
rent collection. Rent collection statistics in 2021 and the first
quarter of 2022, as set out below, remained excellent
throughout.
H1 H2 2021 Q1
2021 2021 Year 2022
-------- ----- ----- ------ -----
UK 99% 99% 99% 96%
-------- ----- ----- ------ -----
Germany 99% 99% 99% 98%
-------- ----- ----- ------ -----
France 99% 99% 99% 98%
-------- ----- ----- ------ -----
Total 99% 99% 99% 97%
-------- ----- ----- ------ -----
Due to the continued 99% level of rent collection, we have been
able to reduce our 2021 bad debts provision by GBP0.3 million
(2020: GBP1.8 million increase). Index-linked rent represents 50.1%
of the total contracted rent of the portfolio which is a slight
increase from 48.5% in 2020. This level of indexation is
particularly helpful in a time of higher inflation and increasing
interest rates.
We monitor the costs of running the business closely and as a
result of several cost control measures, including limited
redundancies, and lower bad debt charges, the administration cost
ratio fell to 14.1% (2020: 16.7%) and the EPRA cost ratio fell to
22.6% (2020: 26.6%).
The net surplus on revaluation of investment properties of
GBP28.5 million (2020: GBP31.5 million) resulted from valuation
increases from all three countries; in local currencies, Germany
again had the strongest year with a 3.1% rise in values, UK by 0.7%
and France by 0.3%.
Eight properties were sold in 2021 at 3.2% above book value but
after costs resulted in a loss on sale of properties before tax of
GBP0.1 million (2020: GBP11.6 million profit).
Finance income of GBP5.9 million (2020: GBP1.1 million) included
unrealised gains on derivative financial instruments of GBP5.2
million (2020: GBP1.6 million loss). Excluding the derivative
financial instruments, finance income fell by GBP0.4 million as
interest received fell to GBP0.5 million (2020: GBP1.0 million) and
dividends receivable increased to GBP0.2 million (2020: GBP0.1
million).
Excluding the 2020 derivative financial instruments cost,
finance costs increased to GBP25.4 million (2020: GBP24.4 million)
mainly due to the increase in borrowings offset by the further
reduction in the cost of borrowing and the higher exchange
rate.
Approximately 53% of the Group's sales are conducted in the
reporting currency of sterling and 47% in euros. Compared to last
year, relative movements of sterling against the euro had a notable
negative impact on the Group's results for the year both in terms
of the translation of our balance sheet and the monetary assets
recognised in the income statement. At 31 December 2021 sterling
was 6.3% stronger against the euro than 12 months previously and
sterling's average rate strengthened against the euro by 3.4%. This
strengthening resulted in a foreign exchange loss of GBP2.3 million
in the income statement (2020: GBP2.1 million gain).
Exchange rates to the GBP EUR
-------------------------- ------
At 31 December 2019 1.1825
-------------------------- ------
2020 average rate 1.1251
-------------------------- ------
At 31 December 2020 1.1185
-------------------------- ------
2021 average rate 1.1634
-------------------------- ------
At 31 December 2021 1.1893
-------------------------- ------
The effective tax rate of -30.6% (2020: 19.8%) was below the
weighted average rate of the countries in which we operate,
primarily due to the release of UK deferred tax liabilities
following our transfer to a REIT of our UK operations.
Overall, EPRA earnings were lower than last year at GBP45.9
million (2020: GBP49.5 million) and generated EPRA earnings per
share of 11.3 pence (2020: 12.2 pence). The decrease of 0.9 pence
in EPRA EPS was primarily due to the 3.4% strengthening of the
average rate of sterling (1.1 pence comparative movement), without
which EPRA EPS would have slightly increased. We were able to
achieve operational cost savings of 1.0 pence mostly offset by
reduced net rental income of 0.4 pence, as commented on above, and
increased finance costs and tax of 0.4 pence.
Additional income of GBP7.5 million was recognised in 2021 in
statutory EPS as a result of the sale and revaluation of our
remaining two legacy non-core Swedish investments. CLS now directly
holds 3.23% of Fragbite Group AB and indirectly 9.68% of Vo2 Cap
Holding AB.
EPRA net tangible assets and gearing
At 31 December 2021, EPRA net tangible assets per share were
350.5 pence (2020: 345.2 pence), a rise of 1.5%, or 5.3 pence per
share. The main reasons for the increase were; EPRA earnings per
share of 11.3 pence; property valuation increases of 1.6%
equivalent to 8.4 pence per share; and the impact of the REIT
conversion of 4.5 pence per share from the release of UK deferred
tax liabilities related to future sales and timing differences,
less foreign exchange of 9.7 pence per share; dividends of 7.6
pence per share; and other movements of 1.6 pence per share.
Balance sheet loan-to-value (net debt to property assets) at 31
December 2021 increased to 37.1% (2020: 33.7%) as a result of net
acquisitions. The loan-to-value of secured loans by reference to
the value of properties secured against them was 46.3% (2020:
48.8%). The value of properties not secured against debt fell to
GBP100.8 million (2020: GBP138.8 million).
Cash flow and net debt
As at 31 December 2021, the Group's cash balance had fallen to
GBP167.4 million (2020: GBP235.7 million). Net cash flow from
operating activities generated GBP44.2 million, a reduction of
GBP0.1 million from 2021. GBP30.8 million was distributed as
dividends and GBP33.4 million paid out for financing costs, tax and
other costs, with the remainder reinvested in the business to grow
net tangible assets. Acquisitions of GBP164.6 million and capital
expenditure of GBP36.4 million were partly funded by proceeds after
tax from property disposals of GBP35.7 million and the net drawdown
of loans of GBP88.1 million. The net result of property and
financing transactions being the investment of GBP68.3 million in
our property portfolio.
Gross debt increased by GBP60.9 million to GBP1,031.6 million
(2020: GBP970.7 million) due to the net drawdown of loans of
GBP88.1 million, amortisation of loan issue costs of GBP1.9 million
and the decrease of GBP29.1 million due to the strengthening of
sterling against the euro. In the year, GBP196.7 million (GBP195.3
million net of fees) of new or replacement loans were taken out,
loans of GBP88.2 million were repaid and GBP21.1m of contractual
periodic or partial repayments were made. Year end net debt rose to
GBP864.2 million (2020: GBP735.0 million). At the year end, CLS'
additional facilities remained unchanged comprising undrawn bank
facilities of GBP50.0 million, of which GBP30.0 million was
committed.
The weighted average cost of debt at 31 December 2021 was 2.22%,
6 basis points ('bps') lower than 12 months earlier and a new
all-time low for CLS. The movement was as a result of new lower
cost debt drawn for German acquisitions (8 bps reduction) and from
refinancing debt at a lower all-in-rate (4 bps reduction) partly
offset by an increased proportion of more expensive UK financing
due to stronger sterling (3 bps increase), an increase in the UK
base rate (2 bps increase) and cheaper euro-denominated debt being
repaid following disposals (1 bps increase). In 2021, interest
cover remained at a healthy level of 3.2 times (2020: 3.3
times).
Financing strategy and covenants
The Group's financing strategy remains to utilise non-recourse
bank debt in the currency used to purchase the asset. In this way
credit and liquidity risk can be managed easily, around 49% of the
Group's exposure to foreign currency is naturally hedged and an
efficient use can be made of the GroupÕs assets.
Most of the Group's investment properties are held in special
purpose vehicles ('SPVs') and the majority are financed on the
basis of one property, one company and one loan. This is
particularly advantageous in Germany and France where secured, SPV
financing rates are very low. In addition, the Group has a number
of portfolio loans or secured notes including our two ÔgreenÕ
loans. The advantage of these portfolio loans is that they can be
structured to afford the Group greater flexibility such that
properties, with the appropriate attributes, can be substituted
into and out of such portfolios.
In 2020, we executed our first 'green' loan, a GBP154.0 million
11-year loan with Aviva Investors and during 2021, we signed our
second with Scottish Widows. The GBP61.7 million loan was secured
on a portfolio of five properties for 12 years. The sustainability
objectives on both our 'green' loans are aligned with the targets
set out in our sustainability strategy. The year one targets to
achieve the margin reduction have been met and subsequent
objectives are on target and will be tested on an annual basis.
At 31 December 2021, the 12-year Scottish Widows loan has added
to the longer term loans such that the weighted average unexpired
term of the Group's debt remained similar at 4.4 years (2020: 4.6
years).
Given the significant refinancing activity in 2024, and to a
lesser extent in 2022, options are already being assessed. One
potential solution is a larger RCF to give greater optionality
regarding the encumbered buildings, whether new lettings,
refurbishment or redevelopment.
To the extent that Group borrowings are not at fixed rates, the
Group's exposure to interest rate risk is mitigated by financial
derivatives, mainly interest rate swaps. In the recent medium-term
low interest rate environment, the Group continued to choose to
take advantage of the conditions, fixing most of the medium-term
debt taken out during the year.
In 2021, the Group financed, refinanced or extended ten loans to
a value of GBP196.7 million for a weighted average duration of 6.9
years and at a weighted average all-in rate of 1.62%, and of these
GBP172.8 million were fixed at a weighted average all-in rate of
1.70%. Consequently, at 31 December 2021, 85.0% of the Group's
borrowings were at fixed rates or subject to interest rate swaps,
4.5% were subject to caps and 10.5% of loans were floating and
unhedged. The fixed rate debt had a weighted average maturity of
5.1 years and the floating rate 3.3 years.
The Group's financial derivatives, predominantly interest rate
swaps, are marked to market at each balance sheet date. At 31
December 2021 they represented a net liability of GBP0.4 million
(2020: GBP5.6 million).
At 31 December 2021, the Group had 47 loans (36 SPVs, nine
portfolios and two facilities) from 25 lenders. 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 47 loans, CLS has between 29% and 48%
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, substitute property or deposit cash for the
period the loan is in breach, after which the cash can be
released.
Distributions to shareholders and total accounting return
The proposed final dividend for 2020 of 5.20 pence per share
(GBP21.2 million) was paid in April. In September 2021, given the
ongoing uncertainty, CLS maintained its interim dividend for 2021
at the same level as 2020 and an interim dividend of 2.35 pence per
share (GBP9.6 million) was paid. The proposed final dividend for
2021 is 5.35 pence per share (GBP21.8 million). This represents a
full year distribution of 7.70 pence per share (GBP31.4 million)
which was covered 1.5 times by EPRA earnings per share.
The 2021 dividend is an increase of 2.0% over the prior year and
the total accounting return, being the increase in EPRA NTA plus
the dividends paid in the year, was 3.7% (2020: 8.1%).
As a result of the conversion of our UK operations to a REIT,
for the 2022 interim dividend, expected to be paid in September
2022, and for all dividends going forward, shareholders will
receive dividends comprising two elements. The dividends will
comprise a Property Income Distribution ('PID') from the UK REIT
operations and a second element from CLS' remaining operations.
Andrew Kirkman
Chief Financial Officer
16 March 2022
Business review
United Kingdom
Value of property portfolio GBP1,160.9m
Percentage of Group's property interests 50%
Number of properties 44
Number of tenants 227
EPRA vacancy rate 5.4%
Lettable space 2.0m sq. ft
Government and major corporates 64.6%
Weighted average lease length to end 4.3 years
Leases subject to indexation 28.0%
"The market in the United Kingdom, for both investment and
occupation, is favouring modern, sustainable and flexible space as
the return to the office ramps up."
Portfolio movement and valuation summary
The value of the UK portfolio increased by GBP35.2 million as a
result of: net additions of GBP27.6 million (one acquisition for
GBP17.9 million including costs and capital expenditure of GBP20.6
million partly offset by three disposals for GBP10.9 million); and
a valuation gain of GBP8.0 million or 0.7%, marginally offset by
depreciation of GBP0.4 million.
The like-for-like valuation increase, which excludes acquisition
costs, was also 0.7%. The valuation increase was due to an increase
in ERVs and a slight decline in equivalent yields (from 5.70% to
5.51%) as government income and long-term development project
opportunities are now more sought after. The net initial yield
decreased to 5.1% (2020: 5.2%) whilst like-for-like ERVs grew by
1.3% and like-for-like contracted rents increased 1.1%.
Acquisitions
In January 2021, we completed on the acquisition of Radius House
in Watford for GBP16.9 million which had exchanged in December
2020. The well-located property comprises 41,226 sq. ft (3,830 sqm)
and, at completion, was fully let to four tenants with a WAULT of
8.1 years. The net initial yield was 5.6% with secure long-term
income as 51% is contracted to The Secretary of State for Housing,
Communities and Local Government until 2030 without break.
Developments and refurbishments
In July 2021, construction started on "The Coade", our new
28,500 sq. ft office development at Vauxhall Walk with completion
forecast for the first quarter of 2023. We are targeting a minimum
20% profit on cost and the 10-storey building is expected to
achieve EPC A and BREEAM Excellent ratings.
"The Artesian", our development at 9 Prescot Street, London, is
progressing well with strip out works of the lower floors complete.
The scope of the project has expanded such that the remaining
floors will also be redeveloped upon expiry of leases in the first
half of 2022. The 94,000 sq. ft tenant-focused development will
feature a café/reception, ample bike storage, showers and a large
roof terrace. A full case study is set out in the Annual
Report.
In 2021, a number of refurbishments to capture rental increases
were also completed. The most notable being the completion of the
refurbishment of the entirety of 45 London Road in Reigate
(discussed below) and the 1st floor at Columbia in Bracknell, both
of which resulted in improvements in the EPC ratings to a Grade
B.
Disposals
During 2021, we continued with our strategy of repositioning the
UK Portfolio by way of GBP12.0 million of selected disposals of a
limited number of assets which were either too small to have a
meaningful impact or had a greater alternative use value. This
capital has been deployed into higher growth opportunities across
the portfolio.
In January 2021, we completed on the sale of Atholl House in
Aberdeen at book value and in April and July, we completed on the
sale of Quest House and Falcon House in Hounslow for GBP11.8
million, a 10.2% premium over the 2020 year end value.
It is intended that this programme of disposing of smaller
assets of less than GBP10 million will continue into 2022. In
January 2022, we completed on the sale of Kings House in Bromley
for GBP5.4 million which was 6.4% over the 2020 year end value of
GBP5.1 million. In February 2022, we exchanged on the disposal of
Crosspoint House in Wallington for GBP4.7 million, which was at
book value. The disposal will complete in the first half of
2022.
Asset management
The vacancy rate in the UK reduced to 5.4% as at 31 December
2021 (2020: 5.9%) with the reduction being largely driven by sales
and a general improvement in letting conditions.
In 2021, we let or renewed leases on 118,357 sq. ft (10,996 sqm)
and lost 238,843 sq. ft (22,189 sqm) of space from expiries or new
vacancies. For a number of these expiries, we took the opportunity
to refurbish the buildings to ensure that they provide the
requisite quality and amenities for tenants.
In 2021, excluding those arising from contractual indexation
uplifts, 55 lease extensions and new leases were signed which added
GBP3.8 million of rent at an average of 1.1% above 31 December 2020
ERVs. The portfolio was 4.5% net reversionary at the year end.
In tandem with reduced restrictions for the hospitality sector
and the reintroduction of face-to-face tuition at universities, the
occupation of our one hotel and one student accommodation building
improved significantly towards the end of 2021. Going into 2022,
the hotel occupancy and room rates are now at pre-pandemic levels,
and the occupancy of the student accommodation at 99% is the
highest since its opening in 2014.
Market overview and outlook
The UK economy has continued its recovery from the effects of
the pandemic and 2021 GDP growth of 7.2% was among the highest in
the G7 countries.
Commercial property investments in 2021 were c.GBP55 billion
which was an almost 30% increase on the previous year and
marginally below the five-year average. For the office sector,
transactions in the South-East were GBP3.8 billion in the year
which is 67% above the five-year average. In the occupational
market, vacancy rates in the South-East range from c.6.5% in the
M25 market to closer to 10% along the M4 corridor. For central
London, the vacancy rate stabilised around 8% as take up increased
during the year.
Ultimately, and despite temporary Government guidance for staff
to work from home if they can, the trend amongst UK occupiers is
increasingly to recognise the office as part of their overall
business strategy. In tandem with the end of all restrictions and
finding ways to live with Covid, we remain convinced of the
attractiveness of offices as an asset class and believe that our
portfolio of affordable office space in attractive locations is
well placed to capture future occupier demand.
Germany
Value of property portfolio GBP888.0m
Percentage of Group's property interests 38%
Number of properties 31
Number of tenants 367
EPRA vacancy rate 7.4%
Lettable space 3.5m sq. ft
Government and major corporates 40.5%
Weighted average lease length to end 5.0 years
Leases subject to indexation 63.5%
"The market in Germany remains well supported given: low
vacancy; limited high quality, sustainable supply; and high
replacement costs."
Portfolio movement and valuation summary
The value of the German portfolio increased by GBP140.3 million
as a result of: net additions of GBP160.9 million (five
acquisitions for GBP161.6 million including costs and capital
expenditure of GBP9.4 million partly offset by two disposals for
GBP10.1 million); and a valuation gain of GBP27.9 million or 3.1%
in local currency, offset by depreciation of GBP0.2 million and a
foreign exchange loss of GBP48.3 million.
The like-for-like valuation increase, which excludes the
acquisition costs, was 4.4%. The valuation increase was as a result
of letting activity driving higher rents, particularly towards the
end of the year, and yield compression as the equivalent yield fell
to 4.39% (2020: 4.42%). The net initial yield fell to 4.2% (2020:
4.3%) whilst like-for-like ERVs increased by 0.6% and like-for-like
contracted rents increased by 1.6% as we have actively sought to
capture rental growth.
Acquisitions
The first half of 2021 was an especially busy period with the
completion of five acquisitions for GBP147.9 million (two of which
for a combined GBP70.2 million had exchanged in December last
year). Two of the properties are located in Berlin with one in each
of Hamburg, Dusseldorf and Essen. The overall net initial yield was
3.8% with a reversionary yield of 5.9%. This considerable upside is
because of: deliberately acquiring vacancy in three of the
buildings and reversionary rental levels, which CLS will seek to
capture through our active asset management model; as well as being
able to source off-market deals given our business network and
reputation as a trusted buyer.
The acquisition of three of these properties is discussed in
more detail in the Annual Report.
Since the year end, we have exchanged on the acquisitions of a
further two properties for GBP75.7 million in Dusseldorf and
Dortmund. The properties, which are due to complete in the first
half of 2022, have an initial yield of 5.1% and a reversionary
yield of 5.6%.
Developments and refurbishments
Our German portfolio continues to offer several added-value
development and refurbishment opportunities. The most significant
development is the LichtHof building in Stuttgart, comprising at
least 141,000 sq. ft (13,099 sqm) of lettable space. We are
currently marketing the building to secure a significant pre-let
before proceeding and have signed a construction contract which is
conditional on this pre-letting. We are also progressing two roof
top extensions: firstly, the construction of c.2,000 sqm additional
office space at the Technical Town Hall in Bochum which is leased
to the City of Bochum, our existing tenant; and, secondly, c.3,500
sqm of speculative offices at Adlershofer Tor in Berlin with
planning consent expected in spring 2022. Both extensions are due
in late 2023/early 2024.
Disposals
Limited portfolio adjustments have taken place with the sale of
two smaller assets, Frohbösestrasse in Hamburg and Kreuzberger Ring
in Wiesbaden, at a combined price of GBP9.0 million.
Asset management
EPRA vacancy rates rose sharply from 3.6% at 31 December 2020 to
9.3% at 30 June 2021 as a result of the vacancy acquired with the
new building purchases and then rose to 11.0% at 30 October 2021 as
a result of a few significant lease expiries. Given very
substantial leasing activity, particularly in the fourth quarter,
the vacancy rate was reduced to 7.4% at the year end. Of note, the
re-letting campaigns for two of the three new acquisitions with
vacancy are well ahead of their business plans.
In 2021, we let or renewed leases on 446,914 sq. ft (42,449 sqm)
and lost 498,787 sq. ft (46,339 sqm) of space from expiries or new
vacancies. Excluding those arising from contractual indexation
uplifts, 50 rent reviews, lease extensions and new leases secured
GBP6.9 million of rent at an average of 4.2% above ERV. On a
like-for-like basis, ERVs rose by 0.6% in the year and at the end
of 2021 the portfolio was 7.2% net reversionary. In light of the
continued recovery of the letting markets and despite the increased
vacancy rates we believe that there is the potential for further
rental growth.
Market overview and outlook
The German economy recovered in 2021 with GDP increasing close
to 3% and is forecast to grow by another 4% in 2022, which will
result in the economy returning to pre-pandemic levels by the end
of 2022.
The investment market for commercial property finished the year
strongly with c.EUR20 billion in the fourth quarter which took the
full year to c.EUR58 billion. Although overall investment volumes
were down 10%, offices represented c.EUR31 billion, which is the
second-best volume ever recorded and 30% above the 10-year average.
The majority of these transactions was attributed to deals above
EUR300 million. Demand remains high with investments in commercial
property in 2022 forecast to increase further.
The letting market recovered further, especially in the second
half of 2021, with a take-up of c.3.4 million sqm, which is an
increase of 27% from 2020 and in line with the 10-year average.
There were differences between the main cities but pleasingly there
was a significant increase in larger lettings as occupier
confidence returns. Whilst vacancy has increased in the top-seven
cities from 4.5% in 2020 to close to 5.0% by December 2021, the
rate of increase has significantly slowed, and we expect that
demand will continue to be high for the right properties.
France
Value of property portfolio GBP282.4m
Percentage of Group's property interests 12%
Number of properties 18
Number of tenants 158
EPRA vacancy rate 3.0%
Lettable space 0.8m sq. ft
Government and major corporates 46.4%
Weighted average lease length to end 5.0 years
Leases subject to indexation 100.0%
"The market in France is mixed with good demand in central Paris
and regional markets like Lyon but weaker in Parisian suburbs such
as the Western Crescent, albeit with some offset from contractual
indexation"
Portfolio movement and valuation summary
The value of the French portfolio decreased by GBP27.2 million
as a result of: net reductions of GBP10.0 million (three disposals
for GBP16.0 million offset by capital expenditure of GBP6.0
million); and a foreign exchange decline of GBP18.0 million, partly
offset by a valuation gain of GBP0.8 million or 0.3% in local
currency.
In the absence of any acquisitions, the like-for-like valuation
increase was also 0.3%. The valuation increase was as a result of a
decrease in ERVs with some offset for a slight hardening of
equivalent yields. The net initial yield fell to 4.5% (2020: 4.7%)
whilst like-for-like ERVs decreased by 1.6% and like-for-like
contracted rents declined by 0.3% as we have actively sought to
reduce vacancy.
Developments and refurbishments
During the year we embarked on a programme of refurbishing
several of our French properties. The most significant of these is
the redevelopment of Park Avenue, Lyon for which our revised
application was approved in September 2021. The planned works
include refurbishment of common areas, replacement of the existing
façade and creation of new common terraces through the extension of
existing landings. The works will improve the sustainability
credentials of the building through the installation of new
windows, electric shades and a green roof. Our existing tenants
have been temporarily relocated while the works are carried out to
allow us to complete the project much quicker than if they were in
situ. The works are expected to complete in Q4 2022 at a cost of
EUR10.7 million resulting in expected uplifts in the ERV of the
building.
Disposals
During the course of 2021 we disposed of three smaller assets
for EUR19.3 million (5.5% above book value) which offered greater
value through alternative use. Further details are provided in the
Annual Report.
Asset management
EPRA vacancy in France reduced to 3.0% as at 31 December 2021
(2020: 5.1%) with the reduction largely driven by active asset
management in spite of market challenges. The majority of our 2021
expiries were renewed, and existing vacancy was filled by
attracting new tenants and leasing additional space to our existing
tenants.
In 2021, we let or renewed leases on 112,625 sq. ft (10,463 sqm)
and lost 90,602 sq. ft (8,417 sqm) of space from expiries or new
vacancies. Excluding contractual indexation uplifts, 24 lease
extensions and new leases secured GBP2.2 million of rent at an
average of 10.8% below ERV. The deficit to ERV was mainly driven by
the lease extension and renewal with Veolia at Inside, Paris.
Excluding this deal, the remaining transactions secured rent at
1.7% below ERV. On a like-for-like basis, ERVs fell by 1.6% in the
year and at the end of 2021 the portfolio was 1.4% net
reversionary.
In 2021, Energy audits were completed for the whole French
portfolio, allowing the group Net Zero Carbon pathway to be
calibrated with milestones set until 2030. Smart metering was
installed to allow us to focus on managing consumption and
reporting in compliance with "Decret Tertiaire" requirements.
Market overview and outlook
The French economy delivered a very respectable 7% GDP growth in
2021 and the economy is forecast to grow around 4% in 2022 on the
back of economic stimulus irrespectively of the outcome of the
upcoming presidential election.
Commercial property investments in 2021 were c.GBP24 billion
which was marginally up on the previous year. The regional market
performed well and now represents 25% of the overall investment
volume with Lyon being the top regional investment destination.
More than 1.8 million sqm of office space was let in 2021 in the
Paris Region, which exceeded expectations and the prior year, on
the back of a strong fourth quarter with 631,000 sqm of take-up.
Supply has stabilised with four million sqm of office space
available in the Paris Region which is a vacancy rate of 7.5%.
There is a widening gap between Paris CBD at 4% vacancy and the
western districts of la Défense and Péri-Défense at 15% vacancy
which are suffering from over-supply. The southern and northern
Paris districts are performing relatively well. Vacancy in Lyon
continues to be between 5% and 6%. We expect these differences to
remain or even widen further in 2022 which should benefit our
French portfolio both in terms of flexibility, floor plate sizes
and the quality that is required.
Key data
Net Contracted EPRA
Rental rental Contracted ERV rent vacancy
income income rent at at subject rate
for the for Lettable year year to at
Rental year the year space end end indexation year
data(1) GBPm GBPm sqm GBPm GBPm GBPm end
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
United
Kingdom 53.3 53.7 188,356 55.0 60.7 15.4 5.4%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Germany 33.8 33.3 327,418 38.8 44.9 24.7 7.4%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
France 14.1 14.2 73,383 13.8 14.4 13.8 3.0%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Total
portfolio 101.2 101.2 589,157 107.6 120.0 53.9 5.8%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Valuation movement
in the year
---------- ------- -------- -------------------- -------- ----------- --------- ---------- ----------
Market
value EPRA EPRA
of Foreign net 'topped-up'
property Underlying exchange initial net initial Over- Equivalent
Valuation data(1) GBPm GBPm GBPm yield yield Reversion rented yield
------------------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
United
Kingdom 1,034.5 3.1 -- 4.8% 5.1% 7.5% 3.0% 5.5%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Germany 883.0 27.2 48.0 3.8% 4.2% 11.8% 4.6% 4.4%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
France 280.1 0.9 17.9 3.8% 4.5% 5.1% 3.8% 5.0%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Total
portfolio 2,197.6 32.2 65.9 4.3% 4.6% 8.7% 3.7% 5.0%
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Average lease Contracted rent of leases ERV of leases expiring
length expiring in: in:
---------- ---------------- ---------------------------------------- ----------------------------------------------
3 to 3 to
To To Year Year 5 After Year Year 5 After
Lease break expiry 1 2 years 5 years 1 2 years 5 years
data(1) years years GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
United
Kingdom 3.2 4.3 5.0 3.9 31.4 14.7 5.7 4.0 32.7 15.0
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Germany 4.9 5.0 8.2 6.4 11.8 12.4 9.7 6.9 12.2 12.8
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
France 2.6 5.0 0.5 2.3 3.3 7.7 0.6 2.1 3.2 8.1
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
Total
portfolio 3.7 4.6 13.7 12.6 46.5 34.8 16.0 13.0 48.1 35.9
---------- ------- ------- -------- ---------- -------- -------- ----------- --------- ---------- ----------
1 The above tables comprise data of the investment properties
and properties held for sale (see note 12). They exclude owner
occupied, land, student accommodation and hotel.
Key performance indicators
EPRA earnings per share
Definition
EPRA earnings is a measure of operational performance and
represents the net income generated from the Group's underlying
operational activities.
Why this is important to CLS
This KPI gives relevant information to investors on the income
generation of the Group's underlying property investment business
and an indication of the extent to which current dividend payments
are supported by earnings.
Our target
We will seek to grow the earnings of the business alongside net
asset value. Following REIT conversion in the UK, the tax saving is
expected to increase EPRA earnings by at least 0.7 pence.
Progress
EPRA earnings per share for 2021 was 11.3 pence.
More detail is provided in the Chief Financial Officer's review
and in note 5.
Total accounting return
Definition
As described in more detail in note 5, EPRA NTA has replaced
EPRA NAV as the Group's primary measure of net assets. Total
accounting return is the aggregate of the change in EPRA NTA plus
the dividends paid, as a percentage of the opening EPRA NTA.
Why this is important to CLS
This KPI measures the increase in EPRA NTA per share of the
Company before the payment of dividends and so represents the value
added to the Company in the year.
Our target
Our target total accounting return is between 3% and 9%.
Progress
In 2021, the total accounting return was 3.7%.
More detail is provided in the Chief Financial Officer's review
and in note 5.
Vacancy rate
Definition
Estimated rental value (ERV) of immediately available space
divided by the ERV of the lettable portfolio.
Why this is important to CLS
This KPI measures the potential rental income of unlet space
and, therefore, the cash flow which the Company would seek to
capture.
Our target
We target a vacancy rate of between 3% and 5%; if the rate
exceeds 5%, other than through recent acquisitions, we may be
setting our rental aspirations too high above the current market;
if it is below 3% we may be letting space too cheaply.
Progress
At 31 December 2021, the EPRA vacancy rate was 5.8%.
More detail is provided in the Country business reviews and in
note 5.
Total shareholder return -- relative
Definition
The annual growth in capital in purchasing a share in CLS,
assuming dividends are reinvested in the shares when paid, compared
to the TSR of the 24 companies in the FTSE 350 Real Estate Super
Sector Index.
Why this is important to CLS
This KPI measures the increase in the wealth of a CLS
shareholder over the year, against the increase in the wealth of
the shareholders of a peer group of companies.
Our target
Our target total shareholder return (relative) is between the
median and upper quartile.
Progress
The TSR was 0.4%, making CLS the 23rd ranked share of the FTSE
350 Real Estate Super Sector Index of 24 companies.
Other performance indicators
In addition to these key performance indicators, the Group also
has a number of other performance indicators by which it measures
its progress. Three are shown here but others are summarised in
note 5 and are discussed throughout this strategic report. Our
environmental and social indicators (including health and safety)
are discussed in the ESG section in the annual report.
Net initial yield vs cost of debt
We seek to maintain a cost of debt at least 200 bps below the
Group's net initial yield. At 31 December 2021, the cost of debt of
2.22% was 205 bps below the net initial yield of 4.27%.
More detail is provided in the Chief Financial Officer's review
and in note 5.
Administration cost ratios
These measure the administration cost of running the core
property business by reference to the net rental income that it
generates, and provides a direct comparative to most of our peer
group. We aim to maintain the CLS ratio between 15% and 17%. The
administration cost ratio was for 2021 was 14.1%.
More detail is provided in the Chief Financial Officer's review
and in note 5.
GRESB (ESG) score/100
Our main sustainability indicator has changed to be the Group's
GRESB rating as this is an industry standard measure and also due
to the difficulty in drawing conclusions from carbon-related
measures due to the variability in occupancy of our buildings
during the pandemic. We achieved a further thirteen GRESB points
this year, and an additional green star taking our total score for
2021 to 85 points and four green stars.
Our principal risks
"The effective management of risk is critical for the Group to
be able to deliver its strategy, which is especially important in
these times of heightened uncertainty. Our organisational structure
allows the close involvement of senior management in all
significant decisions, which together with the CLS in-house teams,
embeds the management of risks and opportunities throughout the
operation of the Group."
Risk management framework
The risks, being both principal and emerging, which the Group
faces are reviewed and monitored in Senior Leadership Team meetings
throughout the year and presented to the Board and Audit Committee
at least every six months for further discussion and oversight. The
Senior Leadership Team comprises the CEO, the CFO, the COO,
regional business heads as well as other senior managers.
In addition, major business-wide decisions such as property
acquisitions, disposals and significant strategy changes are
discussed at the Executive Committee Meetings and reviewed by the
Board before implementation, subject to authorisation limits. The
Executive Committee meets weekly and comprises the CEO and the
CFO.
An update on risks and the control environment is presented at
each Audit Committee meeting including the results of any internal
control review procedures undertaken in the period. Senior managers
also attend Audit Committee meetings to discuss specific risk areas
and these discussions are supplemented by external advisors where
relevant.
Risk management processes, which include health and safety,
human resources and sustainability risk management, are employed
within the business and updates are reported to the Board at each
meeting.
Covid-19 has not changed our risk processes but increased the
frequency of our considerations.
A summary of our risk management structure is provided in the
diagram opposite.
Our key activities for the year
-- Purchased and started implementation of risk and internal control software to allow the Group to monitor and test
its internal controls and the risks associated with them more efficiently and extensively.
-- Published 2030 sustainability strategy and Net Zero Carbon pathway.
-- Grant Thornton conducted internal controls and risk reviews with limited findings.
-- Rolled out improvement recommendations from 2020 staff survey.
-- Increased percentage of 'green' loans to over 20% of our loan portfolio and fixed rate debt to 85% whilst
lowering average cost of debt from 2.28% to 2.22%.
Our priorities for 2022
-- Roll-out of risk and internal control software.
-- Implement Grant Thornton findings.
-- Establish milestone targets for Net Zero Carbon pathway.
-- Engage external consultants to assist us with in-depth analysis of climate-related resilience risk set across
different climate scenarios.
-- Establish Risk and Sustainability Committee.
-- Establish benchmarks and targets for Social Value Framework.
-- Make improvements based on tenant surveys.
-- Simulate a major business interruption to test the Group's updated business continuity plan.
-- Ensure Cyber Essentials plus ranking retained.
Our risk management structure is set out below:
The Board
-- Overall responsibility for risk management and internal controls
-- Monitors the long-term viability of the business
-- Sets strategic objectives and considers risk as part of this process
-- Determines the level of risk appetite
-- Sets business-wide delegated authority limits
Audit Committee
-- Key oversight and assurance function on risk management, internal controls and viability
-- Reports to the Board on the effectiveness of risk management processes and internal controls
Executive Committee
-- Day-to-day operational oversight of risk management
-- Consideration of business wide decisions and their impact on risk appetite
Senior Leadership Team
-- Oversight function of business activities and risk considerations
-- Identifies strategic objectives and assesses risk
Underpinned by:
Policies
-- Multi-level review of annual budget quarterly forecasts and four-year strategic plans
-- Tenant covenant testing and leasing objectives
-- Occupancy targets
-- Acquisition and development appraisal criteria
-- Gearing and liquidity benchmarks
-- Security covenant compliance
Controls
-- High level risk assessment
-- Policy and procedure framework
-- Strict authorisation structures
-- Extensive back-up documentation for all decision-making
-- External review of key controls
-- Recommendations from external Auditor
People
-- Extensive market expertise
-- Highly qualified staff with defined roles and responsibilities
-- Open and transparent internal and external communication
-- Integrity and diligence
-- Alignment of interests with investors
Management of risks throughout the business
Each business area operates various processes to ensure that key
risks are identified, evaluated, managed and reviewed
appropriately. For example:
-- a monthly asset management portfolio review for each region is prepared and circulated to the Board which
outlines key business risks, developments and opportunities; and
-- the development team convenes risk and opportunity workshops with the design team at the feasibility stage of
development projects. Regular reviews are then part of the design development to ensure the continuous
identification and management of risks throughout the development process.
The potential risks associated with loss of life or injury to
members of the public, customers, contractors or employees arising
from operational activities are continually monitored.
Competency
checks are undertaken for the consultants and contractors we
engage and regular safety tours of our assets are undertaken by the
property management team.
In addition, the wellbeing of our employees is a key focus for
the Group and various activities are supported by the Board
including the delivery of annual mental health workshops and
company-funded employee contributions to promote healthy lifestyle
initiatives such as gym, or other sports club, memberships. In this
way some of the people risks are somewhat mitigated.
During the year we purchased a suite of internal controls and
risk software so that we can fully embed an effective risk
management structure within our operations as well as monitor and
report the risks and their associated internal controls more
efficiently to the Audit Committee and the Board.
Risk appetite
The Board recognises its overall responsibility for undertaking
a robust risk assessment and for establishing the extent to which
it is willing to accept some level of risk to deliver its strategic
priorities.
Our risk appetite is reviewed at least annually and assessed
with reference to changes both that have occurred, or trends that
are beginning to emerge in the external environment, and changes in
the principal risks and their mitigation. These will guide the
actions we take in executing our strategy. Whilst our appetite for
risk will vary over time, in general we maintain a balanced
approach to risk. The Group allocates its risk appetite into five
categories:
Very low: Avoid risk and uncertainty
Low: Keep risk as low as reasonably practical with very limited,
if any, reward
Medium: Consider options and accept a mix of low and medium risk
options with moderate rewards
High: Accept a mix of medium and high risk options with better
rewards
Very high: Choose high risk options with potential for high
returns
The Board has assessed its risk appetite and current status for
each of the Group's principal risks as follows:
Board Principal
risk risk
appetite assessment
--------------------- --------- -----------
Property Medium High
--------------------- --------- -----------
Sustainability Medium Medium
--------------------- --------- -----------
Business Interruption Low Medium
--------------------- --------- -----------
Financing Medium Medium
--------------------- --------- -----------
Political & Economic Medium High
--------------------- --------- -----------
People Medium Medium
--------------------- --------- -----------
The Board's risk appetite in relation to the Group's principal
risks is broadly aligned. As shown in the table above, there is
divergence of risk appetite and risk status in relation to the
property, sustainability, business interruption, and political and
economic principal risks. The Board accepts there are factors in
relation to these principal risks that are outside the Group's
control and are likely to change over time. Mitigating actions have
been put in place to ensure these risks are adequately managed and
monitored to reduce the potential impact on the Group. The Board
also recognises that not all risk can be fully mitigated and that
they need to be balanced alongside commercial considerations. If a
difference between the Board's risk appetite and the risk
assessment persists for an extended period, this variance is
debated as to whether and how the gap should be closed.
Risk environment
The general risk environment in which the Group operates has
remained at a higher level over the course of the year. This is
largely due to the continuing effects of the Covid-19 outbreak, and
associated uncertainty, together with the increased world-wide
focus on sustainability.
Covid-19 presented a new and major risk to the business in 2020
and this has continued in 2021. Whilst much is starting to return
to normal, it is still hard to predict the long-term impacts on the
Global and European economies and consequentially the impacts on
our key markets and our business. In 2021, the impact of the
pandemic was most strongly felt at our Spring Mews hotel and
student accommodation through lower occupancy but we have seen a
strong recovery at both sites during the final few months of the
year. Rent collection rates have remained at the same very high
rate of 99% in 2021 (2020: 99%) for our office tenants which
comprise over 90% of the portfolio.
Throughout the year, the Board monitored the continually
changing situation and considered its effect on the business and
will continue to do so going forward. Some of the potential
longer-term effects that may result from the pandemic are discussed
in the CEO review and the individual country property reviews.
CLS condemns the invasion of Ukraine by Russia and we are
looking at ways that we can support the Ukrainian people. We
continue to monitor whether additional risk mitigation actions need
to be taken to counter greater expected increases in inflation and
overall economic disruption.
In considering our principal risks, set out on the following
pages, any potential impact as a result of Covid-19 has been taken
into account.
As discussed in more detail in the political and economic risk
section, Brexit has had a limited direct impact on our business but
we continue to monitor the situation.
Principal risks
Our principal risks are set out in the diagram below and are
discussed in the following pages along with the change in their
risk profile since the last year end and the current direction of
travel as well as our risk mitigation actions and plans. Whilst we
do not consider there has been any material change to the nature of
the Group's principal risks over the last 12 months, several risks
remain elevated as a result of the challenging external environment
and significant ongoing uncertainty.
The diagram and following pages are only focused on our
principal risks being those that have the greatest impact on our
strategy and/or business model. In addition, there are many lower
level operational and financial risks which are managed on a
day-to-day basis through the effective operation of a comprehensive
system of internal controls.
1. Property risk
Market fundamentals and/or internal behaviours lead to adverse
changes to capital values of the property portfolio or ability to
sustain and improve income generation from these assets.
Risk assessment:
High
--------------------------------------------------------------
Change in
risk profile Current direction
in year: of travel:
Unchanged No change
-------------------------- ----------------------------------
Key risks:
-- Cyclical downturn in the property market which may be
indicated by an increase in yields
-- Changes in supply of space and/or demand
-- Poor property/facilities management
-- Inadequate due diligence and/or poor commercial
assessment of acquisitions
-- Failure of tenants
-- Insufficient health and safety risk protection
-- Building obsolescence
--------------------------------------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
VR
ACR
-------------------------- ----------------------------------
Business Model Link:
We acquire the right
properties
We secure the right
finance
We deliver value through
active management and
cost control
--------------------------------------------------------------
More detail is provided in the Country business reviews.
Risk mitigation in action
As part of our diversified approach, acquisitions continue to be
made in line with our strategic objective to grow both rental
income and capital returns through filling vacancies and
refurbishment. In 2021, we made six acquisitions, all with asset
management opportunities.
We have rigorous and established governance and approval
processes and we have continued to be resolute with our pricing
discipline in assessing opportunities. Our Financial Investment
Committee meets at least monthly to discuss potential acquisition
opportunities in each of our regions.
Eight disposals were made in 2021 of assets which were low
yielding with limited asset management potential or where the
risk/reward ratio was unfavourably balanced. We are also increasing
the average size of the properties in our portfolio by disposing of
smaller properties, which require disproportionate amounts of
management time and are less economic to upgrade in terms of
amenities and sustainability.
We have a high quality and diversified tenant base and monitor
any exposure to individual tenants or sectors. A focused review of
the strength of the tenant covenant is carried out when assessing
each new lease opportunity.
We closely monitor all health and safety related issues and our
in-house teams ensure compliance with all regulations supplemented
by external oversight. Reports outlining progress, issues and
potential risks are presented at each Board meeting.
Risk mitigation priorities for 2022
We will continue to target properties with asset management
opportunities in good locations as well as focusing on disposing of
smaller properties with limited potential and reinvest the proceeds
in locations and properties with the opportunity to add value
through active asset management.
We will continue to monitor the covenant strength and health of
our tenants and provide support where appropriate.
Commentary
There still remains uncertainty regarding the full economic and
social impacts of Covid-19. In particular, the impacts on the
demand for, and supply of, office space. It is though becoming
increasingly clear that there is a market preference for
well-located, high quality and flexible space -- a trend to which
CLS is actively responding.
The CLS in-house management model allows us to build close links
with our tenants in order to understand their needs and to provide
timely insights into potential occupier/property issues and
facilitate resolution. These ties have allowed us to react quickly
and work collaboratively to respond dynamically to tenants'
changing requirements. Our Asset Management Committees meet once a
month to discuss each of our properties with regard to new leases,
lease events and tenant issues.
2. Sustainability risk
As a result of a failure to plan properly for, and act upon, the
potential environmental and social impact of our activities,
changing societal attitudes, and/or a breach of any legislation,
this could lead to damage to our reputation and customer
relationships, loss of income and/or property value, and erosion of
shareholder confidence in the Group.
Risk assessment:
Medium
--------------------------------
Change in
risk profile Current direction
in year: of travel:
Increased Increasing
------------- -----------------
Key risks:
Transition risks:
These include regulatory
changes, economic shifts,
obsolescence and the
changing availability
and price of resources.
Physical risks:
These are climate-related
events that affect our
supply chain as well
as the buildings' physical
form and operation; they
include extreme weather
events, pollution and
changing weather patterns.
--------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
VR
ACR
------------- -----------------
Business Model Link:
We acquire the right
properties
We deliver value through
active management and
cost control
--------------------------------
More detail is provided in the environmental, social and
governance review in the Annual Report.
Risk mitigation in action
All physical and transition risks are captured by the
sustainability risk register maintained by our in-house
sustainability team which is reviewed twice a year or when a
material change in the risk landscape occurs. Additionally, each of
our buildings is reviewed annually.
Our Net Zero Carbon pathway to 2030, which is aligned to a
science-based carbon reduction target (SBTi), was published in
August together with our new sustainability strategy and are
discussed in more detail in the Annual report.
We have BREEAM In-Use assessments on all managed assets with 83%
achieving at least a "Good" rating. We have also undertaken a full
Scope 3 carbon emissions baseline.
We employed an external consultant to provide independent
assurance for our Scope 1 and 2 greenhouse gas 2021
disclosures.
We continue to carry out ongoing risk reviews of environmental
legislation for any upcoming changes.
A portfolio-wide programme of energy audits was carried out in
2021.
An Asset Management Plan for all managed assets was carried out
to ensure they are as energy efficient as possible, aiming for net
zero carbon.
Risk mitigation priorities for 2022
Our focuses for 2022 are set out in the environmental, social
and governance section of the Annual Report. These include starting
to implement our sustainability strategy and Net Zero Carbon
pathway. More detail can be found in the Annual Report.
We continue to maintain our focus on energy reduction at our
existing assets while also identifying potential climate related
physical risks on new acquisitions. Sustainability assessments will
continue to be a key focus of asset management decision making
across the business in each region.
We will continue to expand the coverage of our automatic data
collection across our energy and water supplies to enable the
roll-out of portfolio-wide performance reports
A new Sustainability acquisitions checklist will be rolled out
in 2022 to improve our due diligence on acquisitions further and a
Sustainability Design Guide will be implemented to address energy
efficiency/health and wellbeing issues for development and
refurbishments.
Commentary
Whilst we have identified an increase in this risk this year,
the overall assessment remains at Medium. This increase is in
response to the trend of global increases in emissions and the
increasing world-wide focus on this area, as well as the resulting
focus on carbon and waste/resource reduction and habitat
preservation and restoration.
Increased monitoring of all carbon-related activities, both
directly and indirectly, was a priority for 2021, and will be again
in 2022, given an increase in government policies around reporting
the carbon impact on supply chain and direct use.
For the first time in this report, we are reporting against the
Task Force on Climate-related Financial Disclosures and UNSDG
disclosures.
3. Business interruption risk
Data loss; or disruption to corporate or building management
systems; or catastrophic external attack; or disaster; may limit
the ability of the business to operate resulting in negative
reputational, financial and regulatory implications for long term
shareholder value.
Risk assessment:
Medium
-----------------------------------------------------------
Change in
risk profile Current direction
in year: of travel:
Unchanged No change
------------------------- --------------------------------
Key risks:
-- Cyber threat
-- Large scale terrorist attack
-- Environmental disaster, power shortage or pandemic
-----------------------------------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
VR
ACR
------------------------- --------------------------------
Business Model Link:
We acquire the right
properties
We secure the right
finance
We deliver value through
active management and
cost control
-----------------------------------------------------------
Risk mitigation in action
The Group's business continuity plan was reviewed and updated
during the year.
An annual review of each property's specific emergency plan is
carried out which considers a range of different physical, utility
and catastrophic risks.
As remote working continued to be the norm for a large part of
the year, we ensured that there was the necessary system
infrastructure to cope with the increase in the volume of remote
access. In addition, we ensured the ability to carry out key
operational procedures such as payment authorisations safely and
effectively.
We have continued a programme of employee cyber training which
evolves as the threat landscape changes.
During the year, we have regularly tested the Group's capability
to recover business critical IT systems to secondary hosting
environments and restored data from back-ups.
Risk mitigation priorities for 2022
Independent reviews of our cyber defences are performed
periodically. The Group's "Cyber Essentials Plus" certification was
achieved in 2020 and we aim to exceed this benchmark following the
2022 review.
Simulate a major business interruption to test the Group's
updated business continuity plan.
The Group's insurance coverage is regularly reviewed,
particularly to assess the relevance of cyber cover, and revised
where relevant.
Commentary
Whilst the risks associated with the pandemic have mostly
continued during the year, the business interruption risk to
long-term shareholder value is deemed to remain unchanged due to
our mitigation of this risk through robust IT infrastructure.
Whilst companies continue to be subject to an increasing number
of attempted cyber attacks and the pandemic has resulted in an
increase in Covid-19 related phishing and fraud attempts, we have
continued to develop and invest in our mitigation controls to
reduce these risks.
We continue to implement a new shared property and finance
system across the Group to mitigate against data, cyber, system
integration and control issues. This platform is operational in the
UK region, with the French and German implementations due to
complete within the next 12 months.
4. Financing risk
The risk of not being able to source funding in cost effective
forms will negatively impact the ability of the Group to meet its
business plans or satisfy its financial obligations.
Risk assessment:
Medium
-------------------------------------------------------------
Change in
risk profile Current direction
in year: of travel:
Unchanged No change
-------------------------- ---------------------------------
Key risks:
-- Inability to refinance debt at maturity due to lack
of funding sources, market liquidity, etc.
-- Unavailability of financing at acceptable debt terms
-- Risk of rising interest rates on floating rate debt
-- Risk of breach of loan covenants
-- Foreign currency risk
-- Financial counterparty risk
-- Risk of not having sufficient liquid resources to
meet payment obligations when they fall due
-------------------------------------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
-------------------------------------------------------------
Business Model Link:
We secure the right
finance
We continually assess
whether to hold or sell
properties
-------------------------------------------------------------
More detail is provided in the Chief Financial Officer's
review.
Risk mitigation in action
The Group continues to maintain a wide number of banking
relationships to diversify funding sources.
During the year the Group executed its second 'green' loan of
GBP61.7 million, which was secured on a portfolio of five
properties for 12 years, taking the Group's percentage of 'green'
loans to over 20%, which are aligned to achieving our
sustainability targets. Including this loan, we financed,
refinanced or extended 10 loans to a value of GBP196.7 million for
a weighted average duration of 6.9 years and a weighted all-in rate
of 1.62% and of these GBP172.8 million were fixed at a weighted
average all-in rate of 1.70%.
The Group's weighted average cost of debt at 31 December 2021
fell to 2.22% (2020: 2.28%). At the same time, as a result of
deliberately targeting longer term loans, the Group's average debt
maturity has been broadly maintained at 4.4 years (2020: 4.6
years).
The Group's debt portfolio is split 51% in sterling and 49% in
euros providing a 'natural' hedge against foreign currency
risk.
On average across the Group's 49 loans, we have between 29% and
48% headroom across the 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 us 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.
Risk mitigation priorities in 2022
The Group has facilities with 25 lenders and will seek to
continue to maintain its existing relationships and develop new
ones, whilst also exploring the feasibility of other funding
sources in 2022 to diversify funding sources further and achieve
longer debt maturities. The Group will continue to focus on its
core financing risk mitigation strategies including:
-- Obtaining bids from multiple counterparties to compete for new lending;
-- Fixing a high proportion of new debt, in particular in France and Germany due to the negative interest rate
environment;
-- Ensuring that new debt facilities have appropriate covenants and provisions to allow borrower cure of covenant
breaches;
-- Matching foreign currency liabilities with foreign currency assets by borrowing in the local markets to create
natural hedging relationships;
-- Monitoring lender exposure and ensure that no one lender represents more than 20% of total Group debt; and
-- Managing cash balances with the aim of maintaining a minimum of GBP100m of liquid resources on average to
mitigate refinancing and liquidity risk.
Further 'green' loans will also be targeted.
Commentary
Inflation concerns have increased and central banks are now
increasing interest rates in response. By having 85% of our at
fixed rates, CLS is relatively well insulated.
In our core markets, the appetite and support of lenders varies
and for real estate, covenant strength and quality of property
remain key.
Maintaining our strong lending relationships across multiple,
diversified finance providers remains a key strength of the Group
in more volatile markets.
5. Political and economic risk
Significant events or changes in the Global and/or European
political and/or economic landscape may increase the reluctance of
investors and customers to make timely decisions and thereby impact
the ability of the Group to plan and deliver its strategic
priorities in accordance with its core business model.
Risk assessment:
High
---------------------------------------------------
Change in
risk profile Current direction
in year: of travel:
Unchanged Increasing
---------------------- ---------------------------
Key risks:
-- Ongoing transition of the UK from the EU
-- Global geopolitical and trade environments
---------------------------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
VR
ACR
---------------------- ---------------------------
Business Model Link:
We acquire the right
properties
We secure the right
finance
We deliver value through
active management and
cost control
---------------------------------------------------
Risk mitigation in action
As part of the Group's budgeting and forecasting processes, a
range of scenarios were modelled to determine how various changes
to property values, rental income and interest cost may impact the
business model and funding.
This review also provided a key input into the conclusions
formed in the viability statement.
CLS has a diversified approach in terms of countries, tenants
and financing which provides some in-built risk mitigation.
Risk mitigation priorities for 2022
We will continue to maintain geographical, customer and
financing diversification of the business model.
Where appropriate, we will continue to engage in relevant
industry forums to discuss and contribute to policy and regulatory
changes that may have a direct or indirect impact on the property
sector and our business.
To date, CLS has experienced little direct impact following the
UK's exit from the EU. However, it is hard to assess whether there
have been indirect impacts particularly in terms of overseas
property investment and occupation. We monitor the economic and
political situations in our country markets closely and flex
investment decisions accordingly.
Commentary
The direct and indirect impacts of Covid-19 continue to
influence global and local economies in terms of interest rates,
inflation, supply chain dynamics etc. For many countries, GDP is
near or above pre-pandemic levels but GDP growth in 2022 is likely
to be below 2021.
As noted by many commentators, including the World Economic
Forum, the global level of uncertainty has increased. CLS continues
to monitor events and trends closely, making business responses if
needed.
6. People risk
The failure to attract, develop and retain the right people with
the required skills, and in an environment where employees can
thrive, will inhibit the ability of the Group to deliver its
business plans in order to create long term sustainable value.
Risk assessment:
Medium
-----------------------------------------------------
Change in
risk profile Current direction
in year: of travel:
Increased Increasing
----------------------- ----------------------------
Key risks:
-- Failure to recruit senior management and key
executives with the right skills
-- Excessive staff turnover levels
-- Lack of succession planning
-- Poor employee engagement levels
-----------------------------------------------------
KPI/OPI link:
EPS
TSR(R)
TAR
VR
ACR
----------------------- ----------------------------
Business Model Link:
We deliver value through
active management and
cost control
-----------------------------------------------------
Risk mitigation in action
An annual review of employees' salary and benefits is carried
out to ensure they are at appropriate levels. Our annual appraisal
process focuses on future development opportunities and we continue
to maintain high levels of training and development.
These measures seek to ensure we are able to retain key staff
and attract new staff with the relevant skills and experience to
the company.
In 2021, the staff turnover level was 25% as a result of a
restructure during the year. Excluding redundancies it was 18%.
This relatively high level was due to a tight labour market and the
much discussed 'Great Resignation'. 35% of the vacated positions
were filled with internal transfers or promotions.
Following the results of last year's staff survey which were
reviewed by our Workforce Advisory Panel, we;
-- introduced a flexible working policy during the year whereby staff can work up to two days per week at home;
-- have run Group-wide mental wellbeing workshops; and
-- have rolled out Group-wide training including 'how better to collaborate across teams'.
We ensure that we have a modern workplace, and a comfortable and
collaborative environment which is inviting for employees. We also
maintain effective IT systems including all relevant IT resources
to enable working from home.
Risk mitigation priorities for 2022
We will continue:
-- our workforce engagement through the Workforce Advisory Panel;
-- Group training activities and events;
-- to ensure remuneration and benefits are at market levels;
-- the annual review of succession planning at all levels, which will be presented to the Board;
-- to progress our health and wellbeing programme; and
-- to ensure we have appropriate systems in place to allow employees to perform at their best, in line with our
vision and values.
Commentary
We employ a diverse team of people with a range of skills and
experience and we ensure that CLS is a great place to work so that
our employees remain motivated and engaged to deliver the Group's
strategy.
Covid-19 presents a continuing health and safety challenge for
our people and has made day-to-day operations more difficult and
complex. The safety of our people is paramount and we were swift in
restructuring our offices and encouraging our office-based staff to
work from home. As conditions return to greater normality, we
continue to monitor our staff wellbeing.
The People risk is deemed to have increased since last year due
to skills shortages, tight labour markets and a general war on
talent. However, it has not increased sufficiently to increase the
risk assessment.
Emerging risks
We define emerging risks to be those that may either materialise
or impact over a longer timeframe. They may be a new risk, a
changing risk or a combination of risks for which the broad
impacts, likelihoods and costs are not yet well understood, and
which could have a material effect on CLS' business strategy.
Emerging risks may also be superseded by other risks or cease to
be relevant as the internal and external environment in which we
operate evolves. The Senior Leadership Team, which has
representatives from each area of the business, is tasked with
identifying emerging risks for the business and discussing what
impact these risks may have on the business and what steps we
should be taking to mitigate these risks. The Board reviews these
assessments on an annual basis. In 2021, both the Board and the
Senior Leadership Team were surveyed about their views on emerging
risks. A list, which given it relates to emerging risks is likely
to be non-exhaustive, and the time when these ongoing risks may
have a material effect on the business are set out below:
Time Horizon
------------------ --------------------------------- ---------------------------------- ---------------------
Short Medium Long
< 2-5 >
Risk Potential Impact Mitigation 2yrs yrs 5 yrs
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Regulation/ Increased capital cost Continued ongoing assessment X X
compliance of maintaining our property of all properties against
portfolio. emerging regulatory changes
and benchmarking of fit-out
and refurbishment projects
against third--party schemes.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Increasing Increased cost of operating Ongoing consideration X X X
energy and properties will reduce of, and investment in,
construction attractiveness of tenancies energy efficient plant
costs to existing and potential and building-mounted renewable
customers. energy systems.
Increased costs of refurbishments Continued monitoring
and developments leading of materials, investment
to reduced investment in key skills for staff
returns. and viability assessments
of buildings.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Changes in The attractiveness of Each region updates the X X X
technology our properties may decline Senior Leadership Team
if the challenges to adapt on trends, including technology,
office facilities, to throughout the business.
changing work The in-house management
practices/environment model also gives valuable
expectations of customers insights into tenants'
and advances in technology ongoing needs and potential
and digitisation, are trend changes that can
not met. be incorporated into the
future fit-out of properties.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Changes in Changes in social attitudes In-house asset management X X X
office occupation to agile and flexible model provides the means
trends working practices may for the property team
reduce demand for space to: proactively manage
compared to historic trends. customers; and gain real-time
insight and transparency
on changes in needs and
trends.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Workforce Failure to adapt to evolving The establishment of X X X
expectations of an the Workforce Advisory
intergenerational Panel and the staff survey
working population may process provide forums
reduce attractiveness for employees to communicate
as an employer in the views on the working environment.
market. The Group also interacts
with recruitment agents
to keep abreast of trends
in the employment marketplace.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Climate change Increased risk of weather-related Our sustainability strategy X X
damage to property portfolio continues to evolve and
and reputational impact has been developed in
of not evolving sustainability alignment with Global
goals in line with global Real Estate Sustainability
benchmarks and/or public Benchmarks (GRESB), consideration
expectations. of the UN Sustainable
Development Goals (SDGs)
and climate risk modelling.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Inability to obtain sufficient We are investigating X
carbon credits at suitable various solutions to achieve
price to offset residual sufficient offsets by
carbon emissions in order 2030.
to achieve net zero carbon.
------------------ --------------------------------- ---------------------------------- ----- ------ ------
Viability statement
In accordance with Provision 31 of the Code, the Board has
assessed the prospects of the Group over a longer period than the
twelve months that has in practice been the focus of the going
concern statement.
Covid-19, and the associated responses, are continuing to have a
profound impact on the global economy and it is currently the
single biggest direct and indirect negative influence on the Group
leading to both current and forecast impacts as well as far greater
levels of uncertainty. e.g. The future of the Office. In addition,
ongoing events in Ukraine and the potential impacts on commodity
prices and overall inflation, and supply chains have been
considered and are being monitored. CLS continues to weather these
impacts well with high rent collection, low bad debts and an
ongoing ability to meet its financing and refinancing needs. CLS
has no direct exposure to Russian and Ukrainian interests.
The Board reviews the viability and going concern assessments
every six months alongside the approval of the financial
statements. For the year end assessment, a new four-year forecast
was reviewed and approved by the Board at its November 2021
meeting. The viability and the going concern assessments apply the
same methodology that was used for the 2020 year-end viability
statement. i.e. using the Board approved forecast for the next four
years.
The latest forecast reflects current negative, but overall
diminishing, expectations arising as a result of Covid-19 with the
impacts largely restricted to slower reductions in vacancy and
prudently no general valuation increases.
This forecast is used as the base case for our viability and
going concern assessments which has focused 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 four years and 40% over two 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 its 47 loans, CLS
has between 27% and 48% 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 1% of
the property portfolio, at the assumed lower valuations, on top of
planned disposals, would need to be sold to maintain this GBP100
million cash buffer. In a downside scenario, the GBP50 million of
facilities could be withdrawn but if they were not withdrawn and
were used, no 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.
As a result, the Directors can confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment.
Going concern
The current macro-economic conditions have created a number of
uncertainties as set out on this and the previous pages. The
Group's business activities, and the factors likely to affect its
future development and performance, are set out in this strategic
report. The financial position of the Group, its liquidity position
and borrowing facilities are described in this strategic report and
in notes 19 to 22 of the Group financial statements. The Directors
regularly stress-test the business model to ensure that the Group
has adequate working capital and have reviewed the current and
projected financial positions of the Group, taking into account the
repayment profile and covenants of the Group's loan portfolio, and
making reasonable assumptions about future trading performance. The
Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future, being a period of at least twelve
months to March 2023 and further details of this analysis are set
out in the viability statement on this page. Therefore, the
Directors continue to adopt the going concern basis in preparing
the Annual Report and Accounts.
Directors' responsibility statement
Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with the Companies Act 2006 and United Kingdom adopted
International Accounting Standards and International Financial
Reporting Standards (IFRSs) and have elected to prepare the parent
company financial statements in accordance with FRS101 of United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company law the
Directors must not approve the accounts unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and of the profit or loss of the Group for that period.
In preparing the parent company financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial
position and financial performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
-- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's position and performance, business model and
strategy.
This statement of responsibilities was approved by the Board on
15 March 2022.
Approved and authorised on behalf of the Board
David Fuller BA FCG
Company Secretary
16 March 2022
Group income statement
for the year ended 31 December 2021
2021 2020
--------------------------------- ----- -------------------------------- --------------------------------
Non-recurring
items
Recurring GBPm Recurring Non-recurring
items Note Total items items Total
Notes GBPm 10 GBPm GBPm GBPm GBPm
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Revenue 4 139.8 -- 139.8 139.4 -- 139.4
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Net rental income 4 108.0 -- 108.0 109.8 -- 109.8
Administration expenses (15.0) (1.2) (16.2) (18.5) -- (18.5)
Other expenses (14.4) -- (14.4) (15.1) -- (15.1)
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Revenue less costs 78.6 (1.2) 77.4 76.2 -- 76.2
Net revaluation movements
on investment property 13 28.5 -- 28.5 31.5 -- 31.5
Net revaluation movements
on equity investments 1.0 -- 1.0 -- -- --
(Loss)/profit on sale of
investment property (0.1) -- (0.1) 11.6 -- 11.6
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Operating profit 108.0 (1.2) 106.8 119.3 -- 119.3
Finance income 8 5.9 -- 5.9 1.1 -- 1.1
Finance costs 9 (25.4) -- (25.4) (26.0) -- (26.0)
Foreign exchange (loss)/gain (2.3) -- (2.3) 2.1 -- 2.1
Share of profit of associates
after tax 31 5.1 1.4 6.5 -- -- --
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Profit before tax 91.3 0.2 91.5 96.5 -- 96.5
Taxation 11 (14.0) 42.0 28.0 (19.1) -- (19.1)
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Profit for the year attributable
to equity shareholders 6 77.3 42.2 119.5 77.4 -- 77.4
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Basic and diluted earnings
per share 5 29.3p 19.0p
--------------------------------- ----- --------- ------------- ------ --------- ------------- ------
Group statement of comprehensive income
for the year ended 31 December 2021
2021 2020
Notes GBPm GBPm
----------------------------------------------------- ----- ------ ------
Profit for the year 119.5 77.4
----------------------------------------------------- ----- ------ ------
Other comprehensive income
Items that will not be reclassified to profit or
loss
Foreign exchange differences 25 (32.8) 24.2
----------------------------------------------------- ----- ------ ------
Items that may be reclassified to profit or loss
Revaluation of property, plant and equipment 14 5.5 (3.6)
Deferred tax on fair value movements 18 (1.0) 0.5
Total items that may be reclassified to profit or
loss 4.5 (3.1)
----------------------------------------------------- ----- ------ ------
Total other comprehensive (expense)/income (28.3) 21.1
----------------------------------------------------- ----- ------ ------
Total comprehensive income for the year attributable
to equity shareholders 91.2 98.5
----------------------------------------------------- ----- ------ ------
Group balance sheet
at 31 December 2021
2021 2020
Notes GBPm GBPm
--------------------------------- ----- --------- ---------
Non-current assets
Investment properties 13 2,153.0 2,032.8
Property, plant and equipment 14 135.4 130.5
Goodwill and intangible assets 3.1 2.2
Investment in associate 31 4.9 --
Other financial investments 1.7 --
Deferred tax 18 2.6 7.7
Derivative financial instruments 20 0.4 --
Other receivables 15 7.7 8.2
--------------------------------- ----- --------- ---------
2,308.8 2,181.4
--------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 15 18.1 22.0
Assets held for sale 44.2 21.9
Cash and cash equivalents 16 167.4 235.7
--------------------------------- ----- --------- ---------
229.7 279.6
--------------------------------- ----- --------- ---------
Total assets 2,538.5 2,461.0
--------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 17 (57.6) (54.3)
Current tax (4.5) (0.3)
Borrowings 19 (169.1) (103.6)
Derivative financial instruments 20 (0.7) --
--------------------------------- ----- --------- ---------
(231.9) (158.2)
--------------------------------- ----- --------- ---------
Non-current liabilities
Deferred tax 18 (109.9) (159.5)
Borrowings 19 (862.5) (867.1)
Leasehold liabilities (3.4) --
Derivative financial instruments 20 (0.1) (5.6)
--------------------------------- ----- --------- ---------
(975.9) (1,032.2)
--------------------------------- ----- --------- ---------
Total liabilities (1,207.8) (1,190.4)
--------------------------------- ----- --------- ---------
Net assets 1,330.7 1,270.6
--------------------------------- ----- --------- ---------
Equity
Share capital 23 11.0 11.0
Share premium 83.1 83.1
Other reserves 25 88.7 117.3
Retained earnings 1,147.9 1,059.2
--------------------------------- ----- --------- ---------
Total equity 1,330.7 1,270.6
--------------------------------- ----- --------- ---------
The financial statements of CLS Holdings plc (registered number:
02714781) were approved by the Board of Directors and authorised
for issue on 16 March 2021 and were signed on its behalf by:
Mr F Widlund Mr A Kirkman
Chief Executive Officer Chief Financial Officer
Group statement of changes in equity
for the year ended 31 December 2021
Share Share Other Retained Total
capital premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- -------- --------- --------- -------
Note Note
23 25
Arising in 2021:
Total comprehensive income for the year -- -- (28.3) 119.5 91.2
Share-based payment charge -- -- (0.3) -- (0.3)
Dividends to shareholders -- -- -- (30.8) (30.8)
---------------------------------------- -------- -------- --------- --------- -------
Total changes arising in 2021 -- -- (28.6) 88.7 60.1
At 1 January 2021 11.0 83.1 117.3 1,059.2 1,270.6
---------------------------------------- -------- -------- --------- --------- -------
At 31 December 2021 11.0 83.1 88.7 1,147.9 1,330.7
---------------------------------------- -------- -------- --------- --------- -------
Share Share Other Retained Total
capital premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- -------- --------- --------- -------
Note Note
23 25
Arising in 2020:
Total comprehensive income for the year -- -- 21.1 77.4 98.5
Share-based payment charge -- -- (0.2) -- (0.2)
Dividends to shareholders -- -- -- (30.1) (30.1)
---------------------------------------- -------- -------- --------- --------- -------
Total changes arising in 2020 -- -- 20.9 47.3 68.2
At 1 January 2020 11.0 83.1 96.4 1,011.9 1,202.4
---------------------------------------- -------- -------- --------- --------- -------
At 31 December 2020 11.0 83.1 117.3 1,059.2 1,270.6
---------------------------------------- -------- -------- --------- --------- -------
Group statement of cash flows
for the year ended 31 December 2021
2021 2020
Notes GBPm GBPm
----------------------------------------------------- ----- ------- -------
Cash flows from operating activities
Cash generated from operations 26 73.1 76.9
Interest received 0.5 1.0
Interest paid (24.3) (22.1)
Income tax paid on operating activities (5.1) (11.5)
----------------------------------------------------- ----- ------- -------
Net cash inflow from operating activities 44.2 44.3
----------------------------------------------------- ----- ------- -------
Cash flows from investing activities
Purchase of investment properties (164.6) (124.6)
Capital expenditure on investment properties (35.8) (18.9)
Proceeds from sale of properties 37.0 62.2
Income tax paid on sale of properties (1.3) (9.0)
Purchases of property, plant and equipment (0.6) (0.3)
Net cash flow from sale of subsidiaries -- (1.4)
Purchase of intangibles (0.9) (0.8)
Distributions received from associate and investment
undertakings 0.2 0.1
Disposal of associate undertakings 0.5 --
Net cash flow on foreign currency transactions -- 0.3
----------------------------------------------------- ----- ------- -------
Net cash outflow from investing activities (165.5) (92.4)
----------------------------------------------------- ----- ------- -------
Cash flows from financing activities
Dividends paid 24 (30.8) (30.1)
New loans 196.7 182.5
Issue costs of new loans (1.4) (2.5)
Repayment of loans (107.2) (128.3)
----------------------------------------------------- ----- ------- -------
Net cash inflow from financing activities 57.3 21.6
----------------------------------------------------- ----- ------- -------
Cash flow element of net decrease in cash and cash
equivalents (64.0) (26.5)
Foreign exchange (loss)/gain (4.3) 2.8
----------------------------------------------------- ----- ------- -------
Net decrease in cash and cash equivalents (68.3) (23.7)
Cash and cash equivalents at the beginning of the
year 235.7 259.4
----------------------------------------------------- ----- ------- -------
Cash and cash equivalents at the end of the year 16 167.4 235.7
----------------------------------------------------- ----- ------- -------
Notes to the Group financial statements
for the year ended 31 December 2021
1. General information
CLS Holdings plc (the "Company") and its subsidiaries (together
"CLS Holdings" or the "Group") is an investment property group
which is principally involved in the investment, management and
development of commercial properties. The Group's principal
operations are carried out in the United Kingdom, Germany and
France.
The Company is registered and incorporated in the UK,
registration number 02714781, with its registered address at 16
Tinworth Street, London SE11 5AL. The Company is listed on the
London Stock Exchange.
2. Annual financial report
The annual financial report (produced in accordance with the
Disclosure and Transparency Rules) can be found on the Company's
website www.clsholdings.com. The 2021 Annual Report and Accounts
will be posted to shareholders on 28 March 2022 and will also be
available on the Company's website.
The financial information contained in this announcement has
been prepared on the basis of the accounting policies set out in
the statutory accounts for the year ended 31 December 2021. This
financial information has been prepared in accordance with the
Companies Act 2006 and United Kingdom adopted International
Accounting Standards and International Financial Reporting
Standards (IFRSs). Whilst the financial information included in
this announcement has been computed in accordance International
Financial Reporting Standards adopted by the United Kingdom, this
announcement does not itself contain sufficient information to
comply with IFRS. Those accounts give a balanced, true and fair
view of the assets, liabilities, financial position and profit and
loss of the Group and the undertakings included in the
consolidation taken as a whole.
The financial information set out in this announcement does not
constitute the Group's financial statements for the year ended 31
December 2021 or 31 December 2020 as defined by Section 434 of the
Companies Act 2006. Statutory accounts for 2020 have been delivered
to the Registrar of Companies and those for 2021 will be delivered
following the Company's Annual General Meeting.
The Auditors, Deloitte LLP, have reported on those accounts and
their reports on both the 2021 and 2020 accounts was unqualified,
did not contain an emphasis of matter paragraph and did not contain
any statement under Section 498 (2) or (3) of the Companies Act
2006.
3. Going concern
The current macro-economic conditions have created a number of
uncertainties as set out on the previous pages. The Group's
business activities, and the factors likely to affect its future
development and performance, are set out in the previous pages. The
financial position of the Group, its liquidity position and
borrowing facilities are described in the previous pages and in
notes 19 to 22. The Directors regularly stress-test the business
model to ensure that the Group has adequate working capital and
have reviewed the current and projected financial positions of the
Group, taking into account the repayment profile and covenants of
the Group's loan portfolio, and making reasonable assumptions about
future trading performance. The Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future and
further details of this analysis are set out in the viability
statement above. Therefore, the Directors continue to adopt the
going concern basis in preparing the Annual Report and
Accounts.
4. Segment information
The Group has two operating divisions -- investment properties
and other investments. Other investments comprise the hotel and
student accommodation at Spring Mews and other small corporate
investments. The Group manages the investment properties division
on a geographical basis due to its size and geographical diversity.
Consequently, the Group's principal operating segments are:
Investment properties: United Kingdom
Germany
France
Other investments
Investment properties
------------------------------- ---------------------------- --------------- --------------- ------------- ------
Non-recurring
items
United Other Central GBPm
Kingdom(1) Germany France investments(1) administration Note Total
Year ended 31 December 2021 GBPm GBPm GBPm GBPm GBPm 10 GBPm
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Rental income 53.3 33.8 14.1 -- -- -- 101.2
Other property-related income 1.9 0.3 0.5 6.8 -- -- 9.5
Service charge income 12.3 11.2 5.6 -- -- -- 29.1
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Revenue 67.5 45.3 20.2 6.8 -- -- 139.8
Service charges and similar
expenses (13.8) (12.0) (6.0) -- -- -- (31.8)
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Net rental income 53.7 33.3 14.2 6.8 -- -- 108.0
Administration expenses (6.9) (2.9) (1.7) 0.2 (3.7) (1.2) (16.2)
Other expenses (5.9) (3.3) (1.1) (4.6) 0.5 -- (14.4)
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Revenue less costs 40.9 27.1 11.4 2.4 (3.2) (1.2) 77.4
Net revaluation movements
on investment property 3.7 24.2 0.6 -- -- -- 28.5
Net revaluation movements
on equity investments -- -- -- 1.0 -- -- 1.0
Profit/(loss) on sale of
investment property 0.7 (1.1) 0.3 -- -- -- (0.1)
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Segment operating profit/(loss) 45.3 50.2 12.3 3.4 (3.2) (1.2) 106.8
Finance income 3.8 0.2 -- 1.9 -- -- 5.9
Finance costs (15.7) (5.4) (2.7) (1.3) (0.3) -- (25.4)
Foreign exchange loss -- -- -- (2.3) -- -- (2.3)
Share of profit of associate
after tax -- -- -- 5.1 -- 1.4 6.5
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Segment profit/(loss) before
tax 33.4 45.0 9.6 6.8 (3.5) 0.2 91.5
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Investment properties
------------------------------- ---------------------------- --------------- --------------- ------------- ------
Non-recurring
items
United Other Central GBPm
Kingdom(1) Germany France investments(1) administration Note Total
Year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm 10 GBPm
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Rental income 58.2 33.3 15.0 -- -- -- 106.5
Other property-related income 3.8 -- 0.2 1.9 -- -- 5.9
Service charge income 11.2 10.3 5.5 -- -- -- 27.0
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Revenue 73.2 43.6 20.7 1.9 -- -- 139.4
Service charges and similar
expenses (12.8) (10.9) (5.9) -- -- -- (29.6)
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Net rental income 60.4 32.7 14.8 1.9 -- -- 109.8
Administration expenses (7.5) (2.9) (1.8) (0.2) (6.1) -- (18.5)
Other expenses (8.9) (2.8) (1.4) (2.0) -- -- (15.1)
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Revenue less costs 44.0 27.0 11.6 (0.3) (6.1) -- 76.2
Net revaluation movements
on investment property (29.1) 60.1 0.5 -- -- -- 31.5
(Loss)/profit on sale of
investment property (0.1) 11.7 -- -- -- -- 11.6
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Segment operating profit/(loss) 14.8 98.8 12.1 (0.3) (6.1) -- 119.3
Finance income -- -- -- 1.1 -- -- 1.1
Finance costs (17.3) (5.1) (2.7) (0.9) -- -- (26.0)
Foreign exchange gain -- -- -- 2.1 -- -- 2.1
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
Segment (loss)/profit before
tax (2.5) 93.7 9.4 2.0 (6.1) -- 96.5
------------------------------- ----------- ------- ------ --------------- --------------- ------------- ------
1 On 1 January 2021 the student accommodation was transferred
from the United Kingdom investment property segment to the 'Other
investments' segment due to the property's reclassification to
property, plant and equipment at 31 December 2020.
Other segment information
Assets Liabilities Capital expenditure
---------------------- ---------------- ---------------- ---------------------
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------- ------- ---------- ---------
Investment properties
United Kingdom 1,065.6 1,044.8 555.0 605.2 20.6 7.3
Germany 900.2 767.2 462.4 373.3 9.4 6.3
France 293.8 314.9 183.8 207.2 6.0 4.2
Other investments 278.9 334.1 6.6 4.7 0.5 0.1
---------------------- ------- ------- ------- ------- ---------- ---------
2,538.5 2,461.0 1,207.8 1,190.4 36.5 17.9
---------------------- ------- ------- ------- ------- ---------- ---------
5. Alternative performance measures
Alternative performance measures ('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 October 2021
Financial Reporting Council ('FRC') thematic review of APMs in
these results, whilst noting the International Organization of
Securities Commissions (IOSCO) 2016 guidance and 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 two sets of APMs which we utilise, and
which are reconciled where possible to statutory measures on the
following pages.
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, were:
-- 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; and
-- EPRA net asset value (NAV), which excludes certain items not
expected to crystallise in a long-term investment property business
model, such as CLS'.
The latest edition of the EPRA guidelines were issued in October
2019 and replaced EPRA NAV and EPRA NNNAV with three other balance
sheet reporting measures, which are defined in the glossary:
-- EPRA net tangible assets (NTA);
-- EPRA net realisable value (NRV); and
-- EPRA net development value (NDV).
CLS considers EPRA NTA 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. EPRA Earnings
remains the same.
Whilst CLS primarily uses the measures referred to above, we
have also disclosed all other EPRA metrics as well as disclosing
the measures that CLS used to prefer for certain of these
categories. The notes below highlight where the measures that we
monitor differ and our previous rationale for using them. From 2021
onwards, following CLS' re-entry into the EPRA indices, we will be
just using EPRA measures which are:
-- EPRA net initial yield;
-- EPRA 'topped-up' net initial yield;
-- EPRA vacancy;
-- EPRA capital expenditure; and
-- CLS administration cost ratio and EPRA cost ratio.
Other APMs
CLS uses a number of other APMs, many of which are commonly used
by industry peers:
-- Total accounting return;
-- Net borrowings and gearing;
-- Loan-to-value;
-- Dividend cover; and
-- Interest cover.
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. Set out below is a reconciliation
of the APMs used in these results to the statutory measures.
1. EPRA APMs and similar CLS APMs
2021 2020
For use in earnings per share calculations Number Number
---------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in circulation 407,395,760 407,395,760
---------------------------------------------------------- ----------- -----------
For use in net asset per share calculations
---------------------------------------------------------- ----------- -----------
Number of ordinary shares in circulation at 31 December 407,395,760 407,395,760
---------------------------------------------------------- ----------- -----------
i) Earnings -- EPRA earnings
2021 2020
Notes GBPm GBPm
------------------------------------------------ ----- ------ ------
Profit for the year 119.5 77.4
Non-recurring items after tax 10 1.5 --
------------------------------------------------ ----- ------ ------
Recurring profit for the year 121.0 77.4
Net revaluation movement on investment property 13 (28.5) (31.5)
Deferred tax on revaluations (38.6) 10.9
Net revaluation movement on equities (1.0)
Loss/(profit) on sale of investment property 0.1 (11.6)
Current tax thereon 3.2 2.7
Movement in fair value of derivative financial
instruments 8/9 (5.2) 1.6
Uplift in value of associates (5.1) --
------------------------------------------------ ----- ------ ------
EPRA earnings 45.9 49.5
------------------------------------------------ ----- ------ ------
Basic and diluted earnings per share 29.3p 19.0p
------------------------------------------------ ----- ------ ------
EPRA earnings per share 11.3p 12.2p
------------------------------------------------ ----- ------ ------
ii) Net asset value measures
2021 2020
------------------------------ ---------------------------------- ----------------------------------
IFRS EPRA EPRA EPRA IFRS EPRA EPRA EPRA
NAV NTA NRV NDV NAV NTA NRV NDV
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Net assets 1,330.7 1,330.7 1,330.7 1,330.7 1,270.6 1,270.6 1,270.6 1,270.6
Goodwill as a result of
deferred tax on acquisitions -- (1.1) (1.1) (1.1) -- (1.1) (1.1) (1.1)
Other intangibles -- (2.0) -- -- -- (1.1) -- --
Fair value of fixed interest
debt -- -- -- (4.2) -- -- -- (13.2)
Tax thereon -- -- -- 0.8 -- -- -- 2.5
Deferred tax on revaluation
surplus -- 108.1 108.1 -- -- 151.3 151.3 --
Capital allowances -- (0.3) (0.3) -- -- (12.0) (12.0) --
Adjustment for short-term
disposals -- (7.8) -- -- -- (6.9) -- --
Fair value of financial
instruments -- 0.4 0.4 -- -- 5.6 5.6 --
Purchasers' costs(1) -- -- 149.3 -- -- -- 140.9 --
------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
1,330.7 1,428.0 1,587.1 1,326.2 1,270.6 1,406.4 1,555.3 1,258.8
------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Per share 326.6p 350.5p 389.6p 325.5p 311.9p 345.2p 381.8p 309.0p
------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
(1) EPRA NTA and EPRA NDV reflect IFRS values which are net of
purchasers' costs. Purchasers' costs are added back when
calculating EPRA NRV.
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).
2021 2020
------------------------- ---------------------------------- ----------------------------------
United United
Kingdom Germany France Total Kingdom Germany France Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Rent passing 52.8 34.9 11.7 99.4 54.4 33.2 13.7 101.3
Adjusted for development
stock (2.6) (0.5) -- (3.1) (1.1) -- -- (1.1)
Forecast non-recoverable
service charge (2.0) (0.6) (0.3) (2.9) (2.5) (0.8) (0.5) (3.8)
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Annualised net rents
(A) 48.2 33.8 11.4 93.4 50.8 32.4 13.2 96.4
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio(1) 1,034.5 883.0 280.1 2,197.6 1,003.8 743.3 307.6 2,054.7
Adjusted for development
stock (103.7) (46.2) -- (149.9) (49.5) (7.5) -- (57.0)
Purchasers' costs at
6.8% 63.3 56.9 19.0 139.2 64.6 50.0 20.9 135.5
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio
valuation including
purchasers' costs (B) 994.1 893.7 299.1 2,186.9 1,018.9 785.8 328.5 2,133.2
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
EPRA NIY (A/B) 4.8% 3.8% 3.8% 4.3% 5.0% 4.1% 4.0% 4.5%
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
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).
2021 2020
------------------------- ---------------------------------- ----------------------------------
United United
Kingdom Germany France Total Kingdom Germany France Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Contracted rent 55.0 38.8 13.8 107.6 57.2 34.7 16.0 107.9
Adjusted for development
stock (2.6) (0.6) -- (3.2) (1.2) -- -- (1.2)
Forecast non-recoverable
service charge (2.0) (0.6) (0.3) (2.9) (2.5) (0.8) (0.5) (3.8)
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
'Topped-up' annualised
net rents (A) 50.4 37.6 13.5 101.5 53.5 33.9 15.5 102.9
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio(1) 1,034.5 883.0 280.1 2,197.6 1,003.8 743.3 307.6 2,054.7
Adjusted for development
stock (103.7) (46.2) -- (149.9) (49.5) (7.5) -- (57.0)
Purchasers' costs (6.8%) 63.3 56.9 19.0 139.2 64.6 50.0 20.9 135.5
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio
valuation including
purchasers' costs (B) 994.1 893.7 299.1 2,186.9 1,018.9 785.8 328.5 2,133.2
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
EPRA 'topped-up' NIY
(A/B) 5.1% 4.2% 4.5% 4.6% 5.2% 4.3% 4.7% 4.8%
------------------------- -------- ------- ------ ------- -------- ------- ------ -------
1 The above tables comprise data of the investment properties
and properties held for sale. They exclude owner occupied, land,
student accommodation and hotel.
iv) Vacancy
The EPRA vacancy rate calculates vacancy as a proportion of the
ERV of the total portfolio and, from 2021, is the only measure used
by the Group.
EPRA vacancy
2021 2020
GBPm GBPm
--------------------------- ----- -----
ERV of vacant space (A) 7.0 6.1
ERV of let space 113.0 113.9
---------------------------- ----- -----
ERV of total portfolio (B) 120.0 120.0
---------------------------- ----- -----
EPRA vacancy rate (A/B) 5.8% 5.1%
---------------------------- ----- -----
v) Capital expenditure
1. EPRA capital expenditure
This measure shows the total amounts spent on the Group's
investment properties on an accrual and cash basis with a split
between expenditure used for the creation of incremental space and
enhancing space ('no incremental space').
2021 2020
Notes GBPm GBPm
--------------------------------------------------- ----- ------ -----
Acquisitions 13 179.5 119.1
Amounts spent on the completed investment property
portfolio 13
Creation of incremental space 8.6 1.9
Creation of no incremental space 27.4 15.9
--------------------------------------------------- ----- ------ -----
EPRA capital expenditure 215.5 136.9
Conversion from accrual to cash basis (15.1) 6.6
--------------------------------------------------- ----- ------ -----
EPRA capital expenditure on a cash basis CF(1) 200.4 143.5
--------------------------------------------------- ----- ------ -----
1 Group statement of cash flows
vi) 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.
2021 2020
Notes GBPm GBPm
--------------------------------------- ------ ----- -----
Recurring administration expenses 15.0 18.5
Less: Other investment segment 4 0.2 (0.2)
--------------------------------------- ------ ----- -----
Underlying administration expenses (A) 15.2 18.3
----------------------------------------------- ----- -----
Net rental income (B) 4 108.0 109.8
--------------------------------------- ------ ----- -----
Administration cost ratio (A/B) 14.1% 16.7%
----------------------------------------------- ----- -----
EPRA cost ratio
2021 2020
Notes GBPm GBPm
------------------------------------------------- ------ ----- -----
Recurring administration expenses 15.0 18.5
Other expenses 4 14.4 15.1
Less: Other investment segment 4 (4.4) (2.2)
------------------------------------------------- ------ ----- -----
25.0 31.4
Net service charge costs 4 2.7 2.6
Service charge costs recovered through rents but
not separately invoiced (0.3) (0.3)
Dilapidations receipts (1.2) (2.6)
--------------------------------------------------------- ----- -----
EPRA costs (including direct vacancy costs) (A) 26.2 31.1
Direct vacancy costs (3.4) (2.9)
--------------------------------------------------------- ----- -----
EPRA costs (excluding direct vacancy costs) (B) 22.8 28.2
--------------------------------------------------------- ----- -----
Gross rental income 4 101.2 106.5
Service charge components of gross rental income (0.3) (0.3)
--------------------------------------------------------- ----- -----
EPRA gross rental income (C) 100.9 106.2
--------------------------------------------------------- ----- -----
EPRA cost ratio (including direct vacancy costs)
(A/C) 26.0% 29.3%
--------------------------------------------------------- ----- -----
EPRA cost ratio (excluding direct vacancy costs)
(B/C) 22.6% 26.6%
--------------------------------------------------------- ----- -----
2. Other APMs
i) Total accounting return
2021 2020
Notes GBPm GBPm
------------------------------------- ----- --------- ---------
EPRA NTA at 31 December 5 1,428.0 1,406.4
Distribution -- prior year final 24 21.2 20.5
Distribution -- current year interim 24 9.6 9.6
Less: EPRA NTA at 1 January (A) 5 (1,406.4) (1,329.3)
------------------------------------- ----- --------- ---------
Return before dividends (B) 52.4 107.2
------------------------------------- ----- --------- ---------
Total accounting return (NTA) (B/A) 3.7% 8.1%
------------------------------------- ----- --------- ---------
ii) Net borrowings and gearing
2021 2020
Notes GBPm GBPm
---------------------------------- ----- ------- -------
Borrowings short-term 19 169.1 103.6
Borrowings long-term 19 862.5 867.1
Add back: unamortised issue costs 19 5.9 6.3
---------------------------------- ----- ------- -------
Gross debt 19 1,037.5 977.0
Cash 16 (167.4) (235.7)
---------------------------------- ----- ------- -------
Net borrowings (A) 870.1 741.3
---------------------------------- ----- ------- -------
Net assets (B) 1,330.7 1,270.6
---------------------------------- ----- ------- -------
Net gearing (A/B) 65.4% 58.3%
---------------------------------- ----- ------- -------
iii) Balance sheet loan-to-value
2021 2020
Notes GBPm GBPm
-------------------------------------------- ----- ------- -------
Borrowings short-term 19 169.1 103.6
Borrowings long-term 19 862.5 867.1
Less: cash 16 (167.4) (235.7)
-------------------------------------------- ----- ------- -------
Net debt (A) 864.2 735.0
-------------------------------------------- ----- ------- -------
Investment properties 13 2,153.0 2,032.8
Properties in plant, property and equipment 14 133.3 128.3
Properties and land held for sale 12 45.0 21.9
-------------------------------------------- ----- ------- -------
Total property portfolio (B) 2,331.3 2,183.0
-------------------------------------------- ----- ------- -------
Balance sheet loan-to-value (A/B) 37.1% 33.7%
-------------------------------------------- ----- ------- -------
iv) Dividend cover
2021 2020
Notes GBPm GBPm
--------------------- ----- ----- -----
Interim dividend 24 9.6 9.6
Final dividend 24 21.8 21.2
--------------------- ----- ----- -----
Total dividend (A) 31.4 30.8
--------------------- ----- ----- -----
EPRA earnings (B) 5 45.9 49.5
--------------------- ----- ----- -----
Dividend cover (B/A) 1.46 1.61
--------------------- ----- ----- -----
v) Interest cover
2021 2020
Notes GBPm GBPm
--------------------------------------------------- ------ ------ ------
Net rental income 4 108.0 109.8
Recurring administration expenses (15.0) (18.5)
Other expenses 4 (14.4) (15.1)
--------------------------------------------------- ------ ------ ------
Group revenue less costs (A) 78.6 76.2
----------------------------------------------------------- ------ ------
Finance income (excluding derivatives and dividend
income) 8 0.5 1.0
Finance costs (excluding derivatives) 9 (25.4) (24.4)
--------------------------------------------------- ------ ------ ------
Net interest (B) (24.9) (23.4)
----------------------------------------------------------- ------ ------
Interest cover (-A/B) 3.16 3.26
----------------------------------------------------------- ------ ------
6. Profit for the year
Profit for the year has been arrived at after
charging/(crediting):
2021 2020
Notes GBPm GBPm
------------------------------------------------------------ ----- ----- -----
Auditor's remuneration: Fees payable to the Company's
Auditor for:
Audit of the Parent Company and Group accounts 0.5 0.4
Audit of the Company's subsidiaries pursuant to legislation 0.1 0.1
Depreciation of property, plant and equipment 14 1.0 0.7
Employee benefits expense 7 11.3 13.5
Foreign exchange loss/(gain) 2.3 (2.1)
Provision against trade receivables 15 (0.3) 1.8
------------------------------------------------------------ ----- ----- -----
Other services provided to the Group by the Company's Auditor
consisted of the 2021 interim review of GBP40k (2020: GBP40k).
7. Employee benefits expense
2021 2020
GBPm GBPm
-------------------------------------------- ----- -----
Wages and salaries 8.6 9.1
Social security costs 1.1 1.1
Pension costs -- defined contribution plans 0.4 0.4
Performance incentive plan 1.0 1.1
Other employee-related expenses 0.2 1.8
-------------------------------------------- ----- -----
11.3 13.5
-------------------------------------------- ----- -----
The Directors are considered to be the only key management of
the Group.
Information on Directors' emoluments, share options and
interests in the Company's shares is given in the Remuneration
Committee Report in the Annual Report.
The monthly average number of employees of the Group in
continuing operations, including Executive Directors, was as
follows:
2021 2020
------- -------------------------- --------------------------
Property Hotel Total Property Hotel Total
Number Number Number Number Number Number
------- -------- ------- ------- -------- ------- -------
Male 46 9 55 47 7 54
Female 48 9 57 53 9 62
------- -------- ------- ------- -------- ------- -------
94 18 112 100 16 116
------- -------- ------- ------- -------- ------- -------
8. Finance income
2021 2020
GBPm GBPm
----------------------------------------------------------- ----- -----
Interest income
Financial instruments carried at amortised cost 0.5 1.0
Movement in fair value of derivative financial instruments 5.2 --
Dividend income 0.2 0.1
----------------------------------------------------------- ----- -----
5.9 1.1
----------------------------------------------------------- ----- -----
9. Finance costs
2021 2020
GBPm GBPm
----------------------------------------------------------- ----- -----
Interest expense
Secured bank loans 21.4 20.0
Secured notes 2.1 2.3
Amortisation of loan issue costs 1.9 2.1
----------------------------------------------------------- ----- -----
Total interest costs 25.4 24.4
Movement in fair value of derivative financial instruments -- 1.6
----------------------------------------------------------- ----- -----
25.4 26.0
----------------------------------------------------------- ----- -----
10. Non-recurring items
2021 2020
Notes GBPm GBPm
---------------------------------------------------- ----- ----- -----
Administration costs -- UK restructuring costs* A (1.2) --
Share of associates -- profit on sale of associate* B 1.4 --
---------------------------------------------------- ----- ----- -----
0.2
------------------------------------------------------- ----- ----- -----
Taxation -- tax credit on UK restructuring
costs* A 11 0.2
Taxation -- deferred tax liability release
due to REIT conversion C 11 43.7 --
Taxation -- deferred tax asset release due
to REIT conversion* C 11 (1.9)
---------------------------------------------------- ----- ----- -----
Non-recurring tax 42.0 --
---------------------------------------------------- ----- ----- -----
Total non-recurring 42.2
-------------------------------------------------------- ----- ----- -----
A -- UK restructuring costs
The Group incurred costs of GBP1.2m associated with redundancies
made in the UK. These costs are tax deductible and so the
associated tax credit of GBP0.2m has also been treated as non
recurring.
B -- Profit on sale of associate
This relates to the sale of our 21.8% share in Fragbite AB to
Funrock (now renamed Fragbite Group AB). The consideration for the
sale was a combination of cash and shares in the purchaser.
Subsequent to our sale, the purchaser listed on the Nasdaq Nordic
stock exchange and the shares are held as an 'other financial
investment' on the Group Balance Sheet and were revalued at the
year end. The revaluation of GBP1.0m has been treated as a
recurring item.
C -- Deferred tax arising on conversion to REIT
The UK property business became a REIT on 1 January 2022. As a
result, the majority of the UK deferred tax liabilities and assets
were released. The majority of the deferred tax liability released
relates to the revaluation of the UK properties. The deferred tax
assets disclosed as non-recurring relate to the non property
business in the UK and were released as it is no longer probable
that sufficient taxable profits will be generated in the future for
the recognition criteria to be met.
* These items are included as non-recurring items in the ERPA
earnings reconciliation presented in note 5
11. Taxation
2021 2020
GBPm GBPm
---------------------------------------------------------------- ------ -----
Corporation tax
Current year charge 11.7 8.1
Non-recurring tax on restructuring costs (0.2)
Adjustments in respect of prior years (0.7) 0.3
---------------------------------------------------------------- ------ -----
10.8 8.4
---------------------------------------------------------------- ------ -----
Deferred tax (see note 18)
Origination and reversal of temporary differences 3.0 5.7
Effect of change in UK tax rate -- 5.0
Non-recurring deferred tax liability release due to REIT
conversion (43.7) --
Non-recurring deferred tax asset release due to REIT conversion 1.9 --
---------------------------------------------------------------- ------ -----
(38.8) 10.7
---------------------------------------------------------------- ------ -----
Tax charge for the year (28.0) 19.1
---------------------------------------------------------------- ------ -----
A deferred tax charge of GBP1.0 million (2020: credit of GBP0.5
million) was recognised directly in equity (note 18). The charge
for the year differs from the theoretical amount which would arise
using the weighted average tax rate applicable to profits of Group
companies as follows:
2021 2020
GBPm GBPm
----------------------------------------------------------- ------ -----
Profit before tax 91.5 96.5
----------------------------------------------------------- ------ -----
Expected tax charge at the weighted average applicable
tax rate 17.0 16.3
Expenses not deductible for tax purposes 2.6 1.1
Change in tax basis of UK properties, including indexation
uplift -- 0.7
Change in UK tax rate -- 5.0
Non-taxable income (3.8) (1.6)
Deferred tax on losses not recognised/(recognised) 0.7 (2.8)
Adjustments in respect of prior years (0.7) 0.3
Release of deferred tax on election into UK REIT regime (43.7) --
Other (0.1) 0.1
----------------------------------------------------------- ------ -----
Tax charge for the year (28.0) 19.1
----------------------------------------------------------- ------ -----
The weighted average applicable tax rate of 18.6% (2020: 16.9%)
was derived by applying to their relevant profits and losses the
rates in the jurisdictions in which the Group operated. The
standard UK rate of corporation tax applied to profits is 19.0%
(2020: 19.0%).
12. Property portfolio
United
Kingdom Germany France Total
Notes GBPm GBPm GBPm GBPm
-------- ------- ------ -------
Investment property 13 996.4 883.0 273.6 2,153.0
Property held as property, plant and
equipment 14 126.4 5.0 1.9 133.3
Properties held for sale 38.1 -- 6.5 44.6
Land held for sale -- -- 0.4 0.4
--------------------------------------- ----- -------- ------- ------ -------
Property portfolio at 31 December 2021 1,160.9 888.0 282.4 2,331.3
--------------------------------------- ----- -------- ------- ------ -------
United
Kingdom Germany France Total
Notes GBPm GBPm GBPm GBPm
-------- ------- ------ -------
Investment property 13 997.9 733.2 301.7 2,032.8
Property held as property, plant and
equipment 14 121.9 4.3 2.1 128.3
Properties held for sale 5.9 10.2 5.8 21.9
--------------------------------------- ----- -------- ------- ------ -------
Property portfolio at 31 December 2020 1,125.7 747.7 309.6 2,183.0
--------------------------------------- ----- -------- ------- ------ -------
13. Investment property
Total
United investment
Kingdom Germany France properties
GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------- ------ -----------
At 1 January 2021 997.9 733.2 301.7 2,032.8
Acquisitions 17.9 161.6 -- 179.5
Capital expenditure 20.6 9.4 6.0 36.0
Disposals (5.0) -- (10.7) (15.7)
Net revaluation movement 3.7 24.2 0.6 28.5
Lease incentive debtor adjustments (0.6) 3.0 0.3 2.7
Exchange rate variances -- (48.0) (17.9) (65.8)
Transfer to plant, property and equipment -- (0.4) -- (0.4)
Transfer to properties held for sale (38.1) -- (6.5) (44.6)
------------------------------------------ -------- ------- ------ -----------
At 31 December 2021 996.4 883.0 273.6 2,153.0
------------------------------------------ -------- ------- ------ -----------
Total
United investment
Kingdom Germany France properties
GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------- ------ -----------
At 1 January 2020 1,014.7 663.6 282.7 1,961.0
Acquisitions 98.1 17.3 3.7 119.1
Capital expenditure 7.3 6.3 4.2 17.8
Disposals -- (40.4) -- (40.4)
Net revaluation movement (29.1) 60.1 0.5 31.5
Lease incentive debtor adjustments 3.4 (1.7) 0.2 1.9
Exchange rate variances -- 38.2 16.2 54.4
Transfer to plant, property and equipment (90.8) -- -- (90.8)
Transfer to properties held for sale (5.7) (10.2) (5.8) (21.7)
------------------------------------------ -------- ------- ------ -----------
At 31 December 2020 997.9 733.2 301.7 2,032.8
------------------------------------------ -------- ------- ------ -----------
Investment properties included leasehold properties with a
carrying amount of GBP48.6 million (2020: GBP32.8 million).
The property portfolio which comprises investment properties,
properties held for sale and the student accommodation, hotel and
landholding, detailed in note 12, was revalued at 31 December 2021
to its fair value. Valuations were based on current prices in an
active market for all properties. The property valuations were
carried out by external independent valuers as follows:
Investment Other Property Investment Other Property
property property portfolio property property portfolio
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- --------- ---------- ---------- --------- ----------
Cushman and Wakefield 1,270.0 173.3 1,443.3 1,299.6 135.7 1,435.3
Jones Lang LaSalle 883.0 1.8 884.8 733.2 11.4 744.6
L Fällström AB -- 3.2 3.2 -- 3.1 3.1
------------------------- ---------- --------- ---------- ---------- --------- ----------
2,153.0 178.3 2,331.3 2,032.8 150.2 2,183.0
------------------------- ---------- --------- ---------- ---------- --------- ----------
The total fees, including the fees for this assignment, earned
by each of the valuers from the Group is less than 5% of their
total revenues in each jurisdiction.
Valuation process
The Group's property portfolio was valued by external valuers on
the basis of fair value using information provided to them by the
Group such as current rents, terms and conditions of lease
agreements, service charges and capital expenditure. This
information is derived from the Group's property management systems
and is subject to the Group's overall control environment. The
valuation reports are based on assumptions and valuation models
used by the external valuers. The assumptions are typically market
related, such as yields and discount rates, and are based on
professional judgement and market evidence of transactions for
similar properties on arm's length terms. The valuations are
prepared in accordance with RICS standards.
Each region's Head of Property, who report to the Chief
Executive, verifies all major inputs to the external valuation
reports, assesses the individual property valuation changes from
the prior year valuation report and holds discussions with the
external valuers. When the process is complete, the valuation
report is recommended to the Audit Committee and the Board, which
considers it as part of its overall responsibilities.
Valuation techniques
The fair value of the property portfolio (excluding ongoing
developments, see below) has been determined using the following
approaches in accordance with International Valuation
Standards:
United Kingdom an income capitalisation approach whereby contracted and market
rental values are capitalised with a market capitalisation
rate
Germany a 10 year discounted cash flow model with an assumed exit
thereafter
France both the market capitalisation approach and a 10 year discounted
cash flow approach
The resulting valuations are cross-checked against the
equivalent yields and the fair market values per square foot
derived from comparable recent market transactions on arm's length
terms. Other factors taken into account in the valuations include
the tenure of the property, tenancy details, and ground and
structural conditions.
Ongoing developments are valued under the 'residual method' of
valuation, which is the same of the method as the income
capitalisation approach to valuation described above, with a
deduction for all costs necessary to complete the development,
including a notional finance cost, together with a further
allowance for remaining risk. As the development approaches
completion, the valuer may consider the income capitalisation
approach to be more appropriate.
All valuations have considered the environmental, social and
governance credentials of the properties and the potential cost of
improving them to local regulatory standards along with the broader
potential impact of climate change.
These techniques are consistent with the principles in IFRS 13
Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the
portfolio has been classified as Level 3 in the fair value
hierarchy.
There were no transfers between any of the Levels in the fair
value hierarchy during either 2021 or 2020.
Gains and losses recorded in profit or loss for recurring fair
value measurements categorised within Level 3 of the fair value
hierarchy amount to a gain of GBP28.5 million (2020: GBP31.5
million) and are presented in the income statement in the line item
'Net movements on revaluation of investment properties'. The
revaluation gain for the property, plant and equipment of GBP5.5
million (2020: deficit of GBP3.6 million) was included within the
revaluation reserve via other comprehensive income.
All gains and losses recorded in profit or loss in 2021 and 2020
for recurring fair value measurements categorised within Level 3 of
the fair value hierarchy are attributable to changes in unrealised
gains or losses relating to investment property held at 31 December
2021 and 31 December 2020, respectively.
Quantitative information about investment property fair value
measurement using unobservable inputs (Level 3)
ERV Equivalent yield
-------- ---------------------------------------------- -----------------------------------
Average Range Average Range
-------------------- ------------------------ ------------ ---------------------
2021 2020 2021 2020 2021 2020 2021 2020
GBP per GBP per per sq. per sq.
sq. ft sq. ft ft ft % % % %
-------- --------- --------- ----------- ----------- ----- ----- ---------- ---------
UK 36.91 35.51 10.00-66.19 10.00-66.43 5.51 5.70 2.54-10.30 2.42-8.80
Germany 13.21 13.52 8.88-24.05 9.44-25.09 4.39 4.42 3.00-5.40 3.00-5.50
France 19.49 20.48 11.96-37.36 11.25-38.95 5.04 5.24 4.38-6.00 4.13-6.50
-------- --------- --------- ----------- ----------- ----- ----- ---------- ---------
Sensitivity of measurement to variations in the significant
unobservable inputs
All other factors remaining constant, an increase in ERV would
increase valuations, whilst an increase in the equivalent yield
would result in a fall in value, and vice versa. There are
inter-relationships between these inputs as they are partially
determined by market conditions. An increase in the reversionary
yield may accompany an increase in ERV and would mitigate its
impact on the fair value measurement.
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 GBP126.3 million (2020: GBP115.2 million) whilst a 25
basis point increase would reduce the fair value by GBP125.4
million (2020: GBP103.7 million). A decrease in the ERV by 5% would
result in a decrease in the fair value of the Group's investment
property by GBP88.8 million (2020: GBP75.8 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 GBP74.7 million (2020:
GBP75.6 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 and no interest has been
capitalised within capital expenditure in either the current or
comparative year.
Sustainability and climate change
The Group published its new sustainability strategy including a
pathway to net zero carbon in August 2021 and has set 2030 as its
date to achieve this (see Annual Report). During the year the Group
employed technical experts to carry out individual property energy
audits to identify energy and carbon saving opportunities. A total
of 76 properties were visited from January to April 2021 across the
UK, France and Germany, with new developments, properties under
refurbishment, and properties earmarked for sale all excluded from
the programme. The investment needed to deliver the audit findings
amounts to an estimated GBP58 million over nine years. We have
integrated these energy audits into each Asset Management Plan to
enable strategic decisions about the refurbishment, sale or full
redevelopment of assets to be made.
14. Property, plant and equipment
Owner-
Student Land occupied Fixtures
accommodation Hotel and buildings property and fittings Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
Cost or valuation
At 1 January 2020 -- 29.0 2.4 10.3 6.0 47.7
Additions -- 0.1 -- -- 0.3 0.4
Reclassification from investment
property(1) 90.8 -- -- -- -- 90.8
Revaluation -- (4.1) 0.4 0.1 -- (3.6)
Exchange rate variances -- -- 0.3 0.2 -- 0.5
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2020 90.8 25.0 3.1 10.6 6.3 135.8
Additions -- -- -- -- 0.5 0.5
Disposals (0.9) (0.9)
Reclassification from investment
property(2) -- -- -- 0.4 -- 0.4
Reclassification to accumulated
depreciation -- (1.2) -- -- (2.7) (3.9)
Revaluation 3.3 1.2 0.4 0.1 -- 5.0
Exchange rate variances -- -- (0.3) (0.1) -- (0.4)
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2021 94.1 25.0 3.2 11.0 3.2 136.5
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
Comprising:
At cost -- -- -- -- 3.2 3.2
At valuation 94.1 25.0 3.2 11.0 -- 133.3
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
94.1 25.0 3.2 11.0 3.2 136.5
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
Accumulated depreciation and impairment
At 1 January 2020 -- (1.0) -- -- (3.6) (4.6)
Depreciation charge -- (0.2) -- -- (0.5) (0.7)
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2020 -- (1.2) -- -- (4.1) (5.3)
Depreciation charge (0.3) (0.1) -- (0.1) (0.5) (1.0)
Reclassification from cost -- 1.2 -- -- 2.7 3.9
Disposals -- -- -- -- 0.8 0.8
Revaluation 0.3 0.1 -- 0.1 -- 0.5
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2021 -- -- -- -- (1.1) (1.1)
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
Net book value
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2021 94.1 25.0 3.2 11.0 2.1 135.4
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
At 31 December 2020 90.8 23.8 3.1 10.6 2.2 130.5
---------------------------------------- -------------- ----- -------------- --------- ------------- -----
1 As a result of the ending of an agreement with a third party
the Group will be managing the student accommodation internally and
the services it provides will no longer be ancillary. Therefore,
the Group has decided that, in accordance with IAS16 Plant,
Property and Equipment, this property should be reclassified from
investment property to plant, property and equipment.
2 During 2021, the CLS Group opened an office in the City of
Dusseldorf within a property classified as investment property.
This is the transfer of the value of the part of this investment
property that is now owner occupied by CLS.
15. Trade and other receivables
2021 2020
GBPm GBPm
--------------------- ----- -----
Current
Trade receivables 8.8 7.3
Other receivables 3.9 4.3
Prepayments 2.4 8.5
Accrued income 3.0 1.9
---------------------- ----- -----
18.1 22.0
Non-current
Other receivables(1) 7.7 8.2
---------------------- ----- -----
25.8 30.2
--------------------- ----- -----
1 This is the vendor loan granted on completion of the sale of
First Camp Sverige Holdings AB in March 2019. The loan is due for
repayment no later than June 2023 and can be repaid by the borrower
at any time without penalty. Given current economic uncertainty the
Group has assessed the likely repayment date to be more than 12
months from the year end.
Trade receivables are shown after deducting a provision of
GBP2.4 million (2020: GBP2.8 million) which is calculated as an
expected credit loss on trade receivables in accordance with IFRS 9
(see note 2). The movements in this provision were as follows;
2021 2020
GBPm GBPm
---------------------------------------- ----- -----
At 1 January 2.8 1.1
Debt write-offs (0.1) (0.1)
(Credit)/charge to the income statement (0.3) 1.8
----------------------------------------- ----- -----
At 31 December 2.4 2.8
----------------------------------------- ----- -----
The expected credit loss is recognised on initial recognition of
a receivable and is reassessed at each reporting period. In order
to calculate the expected credit loss, the Group uses historic
default rates and applies a forward-looking outlook. In the current
reporting period, the forward-looking outlook has considered the
actual and potential impacts of Covid-19. The historic default
rates used are specific to how many days past due a receivable is.
Specific provisions are also made in excess of the expected credit
loss where information is available to suggest that a higher
provision than the expected credit loss is required. In the current
reporting period, an additional review of tenant debtors was
undertaken to assess recoverability in light of the Covid-19
pandemic.
The Directors consider that the carrying amount of trade and
other receivables is approximate to their fair value. There is no
concentration of credit risk with respect to trade receivables as
the Group has a large number of customers who are paying their rent
in advance. Further details about the Group's credit risk
management practices are disclosed in note 21.
16. Cash and cash equivalents
2021 2020
GBPm GBPm
------------------------- ----- -----
Cash at bank and in hand 167.4 235.7
------------------------- ----- -----
At 31 December 2021, cash at bank and in hand included GBP13.2
million (2020: GBP14.5 million) which was restricted by a
third-party charge.
17. Trade and other payables
2021 2020
GBPm GBPm
-------------------------------- ----- -----
Current
Trade payables 3.0 1.7
Social security and other taxes 1.9 5.8
Other payables 12.1 12.1
Deferred income 19.8 18.2
Accruals 20.8 16.5
-------------------------------- ----- -----
57.6 54.3
-------------------------------- ----- -----
18. Deferred tax
Liabilities Assets
-------------------- ------------------------------------------ ----------------------------------------- ---------
Fair Fair
value value Total
UK capital adjustments UK capital adjustments deferred
allowances to properties Other Total allowances to properties Other Total tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- -------------- ----- ------ ----------- -------------- ----- ----- ---------
At 1 January
2020 11.2 128.2 1.4 140.8 (0.2) (3.7) (0.8) (4.7) 136.1
Charged/(credited)
to income statement 1.1 12.2 0.4 13.7 (0.1) (2.3) (0.6) (3.0) 10.7
to OCI(1) -- (0.5) -- (0.5) -- -- -- -- (0.5)
Exchange rate
variances -- 5.4 0.1 5.5 -- -- -- -- 5.5
-------------------- ----------- -------------- ----- ------ ----------- -------------- ----- ----- ---------
At 31 December
2020 12.3 145.3 1.9 159.5 (0.3) (6.0) (1.4) (7.7) 151.8
Charged/(credited)
to income statement (12.0) (32.0) 0.1 (43.9) 0.3 3.6 1.2 5.1 (38.8)
to OCI(1) -- 1.0 -- 1.0 -- -- -- -- 1.0
Exchange rate
variances -- (6.5) (0.2) (6.7) -- -- -- -- (6.7)
-------------------- ----------- -------------- ----- ------ ----------- -------------- ----- ----- ---------
At 31 December
2021 0.3 107.8 1.8 109.9 -- (2.4) (0.2) (2.6) 107.3
-------------------- ----------- -------------- ----- ------ ----------- -------------- ----- ----- ---------
1 Other Comprehensive Income.
Deferred tax has been calculated at a weighted average across
the Group of 23.3% (2020: 17.5%), and has been based on the rates
applicable under legislation substantively enacted at the balance
sheet date.
Deferred tax assets are recognised in respect of tax losses
carried forward to the extent that the realisation of the related
tax benefit through future taxable profits is probable. At 31
December 2021 the Group did not recognise deferred tax assets of
GBP7.5 million (2020: GBP5.7 million) in respect of losses
amounting to GBP43.3 million (2020: GBP35.3 million) which may be
carried forward and utilised against future taxable income or
gains.
19. Borrowings
At 31 December 2021 At 31 December 2020
------------------- --------------------------------- ---------------------------------
Total Total
Current Non-current borrowings Current Non-current borrowings
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- ----------- ----------- ------- ----------- -----------
Secured bank loans 122.7 862.5 985.2 99.5 820.7 920.2
Secured notes 46.4 -- 46.4 4.1 46.4 50.5
------------------- ------- ----------- ----------- ------- ----------- -----------
169.1 862.5 1,031.6 103.6 867.1 970.7
------------------- ------- ----------- ----------- ------- ----------- -----------
Issue costs of GBP5.9 million (2020: GBP6.3 million) have been
offset in arriving at the balances in the above tables.
Secured bank loans
Interest on bank loans is charged at fixed rates ranging between
0.8% and 5.5% including margin (2020: 0.8% and 5.5%) and at
floating rates of typically LIBOR or EURIBOR plus a margin.
Floating rate margins range between 1.1% and 2.3% (2020: 1.1% and
2.4%). The bank loans are secured by legal charges over GBP2,194.3
million (2020: GBP1,904.3 million) of the Group's properties, and
in most cases a floating charge over the remainder of the assets
held in the company which owns the property. In addition, the share
capital of some of the subsidiaries within the Group has been
charged.
Secured notes
On 3 December 2013, the Group issued GBP80.0 million secured,
partially-amortising notes. The notes attract a fixed-rate coupon
of 4.17% on the unamortised principal amount, the balance of which
is repayable in December 2022 and are secured by legal charges over
GBP137.1 million (2020: GBP139.9 million) of the Group's
properties. The fair value was determined by the higher of the
carrying principal amount and the discounted future cash flows
(adjusted by excluding the margin component of the fixed interest
rate(1) ) at a discount rate derived from the market interest rate
yield curve at the date of the valuation.
1 The fixed interest rate is made up of a market interest rate
(typically a swap rate) plus a margin.
The maturity profile of the carrying amount of the Group's
borrowings was as follows:
Secured
bank Secured
loans notes Total
At 31 December 2021 GBPm GBPm GBPm
------------------------------ ------- ------- -------
Maturing in:
Within one year or on demand 124.3 46.5 170.8
One to two years 111.3 -- 111.3
Two to five years 432.7 -- 432.7
More than five years 322.7 -- 322.7
------------------------------ ------- ------- -------
991.0 46.5 1,037.5
Unamortised issue costs (5.8) (0.1) (5.9)
------------------------------ ------- ------- -------
Borrowings 985.2 46.4 1,031.6
Due within one year (122.7) (46.4) (169.1)
------------------------------ ------- ------- -------
Due after one year 862.5 -- 862.5
------------------------------ ------- ------- -------
Secured
bank Secured
loans notes Total
At 31 December 2020 GBPm GBPm GBPm
------------------------------ ------- ------- -------
Maturing in:
Within one year or on demand 101.2 4.2 105.4
One to two years 116.1 46.5 162.6
Two to five years 432.0 -- 432.0
More than five years 277.0 -- 277.0
------------------------------ ------- ------- -------
926.3 50.7 977.0
Unamortised issue costs (6.1) (0.2) (6.3)
------------------------------ ------- ------- -------
Borrowings 920.2 50.5 970.7
Due within one year (99.5) (4.1) (103.6)
------------------------------ ------- ------- -------
Due after one year 820.7 46.4 867.1
------------------------------ ------- ------- -------
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
At 31 December 2021 At 31 December 2020
------------------------------------ ------------------------ -----------------------
Sterling Euro Total Sterling Euro Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- ----- ------- --------- ----- -----
Fixed rate financial liabilities 290.0 450.8 740.8 255.2 399.8 655.0
Floating rate financial liabilities
-- hedged 140.9 -- 140.9 143.0 18.7 161.7
------------------------------------ -------- ----- ------- --------- ----- -----
Total fixed rate 430.9 450.8 881.7 398.2 418.5 816.7
------------------------------------ -------- ----- ------- --------- ----- -----
Floating rate financial liabilities
-- capped -- 47.3 47.3 -- 25.6 25.6
Floating rate financial liabilities
-- unhedged 94.3 14.2 108.5 119.1 15.6 134.7
------------------------------------ -------- ----- ------- --------- ----- -----
Total floating rate 94.3 61.5 155.8 119.1 41.2 160.3
------------------------------------ -------- ----- ------- --------- ----- -----
525.2 512.3 1,037.5 517.3 459.7 977.0
Unamortised issue costs (3.9) (2.0) (5.9) (4.0) (2.3) (6.3)
------------------------------------ -------- ----- ------- --------- ----- -----
Borrowings 521.3 510.3 1,031.6 513.3 457.4 970.7
------------------------------------ -------- ----- ------- --------- ----- -----
Of the Group's total borrowings, 85% (2020: 84%) are considered
fixed rate borrowings.
The interest rate risk profile of the Group's borrowings was as
follows:
Weighted average Weighted average
interest rate(1) life
------------------------------------ --------------------- ------------------------
Sterling Euro Total Sterling Euro Total
At 31 December 2021 % % % Years Years Years
------------------------------------ -------- ---- ----- -------- ------ ------
Fixed rate financial liabilities 2.9 1.4 2.0 8.0 3.2 5.1
Floating rate financial liabilities
-- hedged 3.4 -- 3.4 2.2 -- 2.2
------------------------------------ -------- ---- ----- -------- ------ ------
3.1 1.4 2.2 6.1 3.2 4.6
------------------------------------ -------- ---- ----- -------- ------ ------
Floating rate financial liabilities
-- capped -- 1.3 1.3 -- 5.1 5.1
Floating rate financial liabilities
-- unhedged 2.9 1.2 2.7 2.5 2.0 2.4
------------------------------------ -------- ---- ----- -------- ------ ------
2.9 1.3 2.2 2.5 4.4 3.3
------------------------------------ -------- ---- ----- -------- ------ ------
Gross borrowings 3.1 1.4 2.2 5.5 3.3 4.4
------------------------------------ -------- ---- ----- -------- ------ ------
Weighted average Weighted average
interest rate(1) life
------------------------------------ --------------------- ------------------------
Sterling Euro Total Sterling Euro Total
At 31 December 2020 % % % Years Years Years
------------------------------------ -------- ---- ----- -------- ------ ------
Fixed rate financial liabilities 3.0 1.4 2.1 7.4 3.9 5.3
Floating rate financial liabilities
-- hedged 3.3 1.9 3.1 3.2 1.0 2.9
------------------------------------ -------- ---- ----- -------- ------ ------
3.2 1.5 2.3 5.9 3.7 4.8
------------------------------------ -------- ---- ----- -------- ------ ------
Floating rate financial liabilities
-- capped -- 1.5 1.5 -- 4.6 4.6
Floating rate financial liabilities
-- unhedged 2.5 1.2 2.4 3.1 2.3 3.0
------------------------------------ -------- ---- ----- -------- ------ ------
2.5 1.4 2.3 3.1 3.7 3.3
------------------------------------ -------- ---- ----- -------- ------ ------
Gross borrowings 3.0 1.5 2.3 5.3 3.7 4.5
------------------------------------ -------- ---- ----- -------- ------ ------
(1) The weighted average interest rate are based on the nominal
value of the debt facilities.
The carrying amounts and fair values of the Group's borrowings
are as follows:
Carrying amounts Fair values
----------------------- ------------------ --------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
----------------------- ---------- ------ ------- -----
Current borrowings 169.1 103.6 169.1 103.6
Non-current borrowings 862.5 867.1 866.7 880.3
----------------------- ---------- ------ ------- -----
1,031.6 970.7 1,035.8 983.9
----------------------- ---------- ------ ------- -----
The valuation methods used to measure the fair values of the
Group's fixed rate borrowings were derived from inputs which were
either observable as prices or derived from prices (Level 2).
The fair value of non-current 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.
The Group had the following undrawn committed facilities
available at 31 December:
2021 2020
GBPm GBPm
---------------------------- ----- -----
Floating rate:
-- expiring within one year -- 30.0
-- expiring after one year 30.0 --
---------------------------- ----- -----
30.0 30.0
---------------------------- ----- -----
Contractual undiscounted cash outflows
The tables below show the contractual undiscounted cash outflows
arising from the Group's gross debt.
Less 1 to 2 to 3 to 4 to
than 2 3 4 5 Over
1 year years years years years 5 years Total
At 31 December 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Secured bank loans 124.3 111.3 265.9 116.2 50.6 322.7 991.0
Secured notes 46.5 -- -- -- -- -- 46.5
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Total on maturity 170.8 111.3 265.9 116.2 50.6 322.7 1,037.5
Interest payments on borrowings(1) 21.1 18.4 14.6 9.7 7.6 30.0 101.4
Effect of interest rate swaps 1.1 -- 0.1 -- -- -- 1.2
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Gross loan commitments 193.0 129.7 280.6 125.9 58.2 352.7 1,140.1
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Less 1 to 2 to 3 to 4 to
than 2 3 4 5 Over
1 year years years years years 5 years Total
At 31 December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Secured bank loans 101.2 116.1 73.8 258.6 99.6 277.0 926.3
Secured notes 4.2 46.5 -- -- -- -- 50.7
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Total on maturity 105.4 162.6 73.8 258.6 99.6 277.0 977.0
Interest payments on borrowings(1) 19.9 17.3 14.1 11.8 7.1 24.7 94.9
Effect of interest rate swaps 2.4 2.1 1.0 0.5 -- -- 6.0
----------------------------------- ------- ------ ------ ------ ------ -------- -------
Gross loan commitments 127.7 182.0 88.9 270.9 106.7 301.7 1,077.9
----------------------------------- ------- ------ ------ ------ ------ -------- -------
1 Interest payments on borrowings are calculated without taking
into account future events. Floating rate interest is estimated
using a future interest rate curve as at 31 December.
20. Derivative financial instruments
2021 2021 2020 2020
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
----------------------------------- ------- ------------ ------- ------------
Non-current
Interest rate caps and swaps 0.4 (0.1) -- (5.6)
Current
Forward foreign exchange contracts -- (0.7) -- --
----------------------------------- ------- ------------ ------- ------------
0.4 (0.8) -- (5.6)
----------------------------------- ------- ------------ ------- ------------
The valuation methods used to measure the fair value of all
derivative financial instruments were derived from inputs which
were either observable as prices or derived from prices (Level
2).
There were no derivative financial instruments accounted for as
hedging instruments.
Interest rate caps
The aggregate notional principal of interest rate caps at 31
December 2021 was GBPnil (2020: GBPnil). The average period to
maturity of these interest rate caps was 4.2 years (2020: 4.6
years).
Interest rate swaps
The aggregate notional principal of interest rate swap contracts
at 31 December 2021 was GBP159.4 million (2020: GBP161.9 million).
The average period to maturity of these interest rate swaps was 1.9
years (2020: 2.2 years).
Forward foreign exchange contracts
The Group uses forward foreign exchange contracts from time to
time to add certainty to, and to minimise the impact of foreign
exchange movements on, committed cash flows. At 31 December 2021
and 31 December 2020 the Group had no outstanding net foreign
exchange contracts.
Derivative financial instruments cash flows
The following table provides an analysis of the anticipated
contractual cash flows for the derivative financial instruments
using undiscounted cash flows. These amounts represent the gross
cash flows of the derivative financial instruments and are settled
as either a net payment or receipt.
2021 2021 2020 2020
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
----------------- ------- ------------ ------- ------------
Maturing in:
Less than 1 year -- (1.1) -- (2.4)
1 to 2 years -- (0.1) -- (2.1)
2 to 3 years 0.1 (0.1) -- (1.0)
3 to 4 years -- -- -- (0.5)
4 to 5 years -- -- -- --
Over 5 years -- -- -- --
----------------- ------- ------------ ------- ------------
0.1 (1.3) -- (6.0)
----------------- ------- ------------ ------- ------------
21. Financial instruments
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps;
foreign currency forward contracts; financial assets at fair value
through other comprehensive income or fair value through profit and
loss; investments in associates; trade and other receivables; and
cash and cash equivalents.
Financial liabilities of the Group comprise: interest rate
swaps; forward foreign currency contracts; bank loans; secured
notes; and trade and other payables.
The fair values of financial assets and liabilities are
determined as follows:
(a) Interest rate swaps and caps are measured at the present
value of future cash flows based on applicable yield curves derived
from quoted interest rates;
(b) Foreign currency options and forward contracts are measured
using quoted forward exchange rates and yield curves derived from
quoted interest rates matching maturities of the contracts;
(c) The fair values of non-derivative financial assets and
liabilities with standard terms and conditions and traded on active
liquid markets are determined with reference to quoted market
prices. Financial assets in this category include financial assets
at fair value through other comprehensive income or fair value
through profit and loss such as listed corporate bonds and equity
investments;
(d) In more illiquid conditions, non-derivative financial assets
are valued using multiple quotes obtained from market makers and
from pricing specialists. Where the spread of prices is tightly
clustered the consensus price is deemed to be fair value. Where
prices become more dispersed or there is a lack of available quoted
data, further procedures are undertaken such as evidence from the
last non-forced trade; and
(e) The fair values of other non-derivative financial assets and
financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis,
using prices from observable current market transactions and dealer
quotes for similar instruments.
Except for investments in associates and fixed rate loans, the
carrying amounts of financial assets and liabilities recorded at
amortised cost approximate to their fair value.
Capital risk management
The Group manages its capital to ensure that entities within the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and
equity balances. The capital structure of the Group consists of
debt, cash and cash equivalents, other investments and equity
attributable to the owners of the parent, comprising issued
capital, reserves and retained earnings. Management perform "stress
tests" of the Group's business model to ensure that the Group's
objectives can be met and these objectives were met during 2021 and
2020.
The Directors review the capital structure on a quarterly basis
to ensure that key strategic goals are being achieved. As part of
this review they consider the cost of capital and the risks
associated with each class of capital.
The gearing ratio at the year end was as follows:
2021 2020
Notes GBPm GBPm
------------------------------- ----- ------- -------
Debt 19 1,037.5 977.0
Liquid resources 16 (167.4) (235.7)
------------------------------- ----- ------- -------
Net debt (A) 870.1 741.3
------------------------------- ----- ------- -------
Equity (B) 1,330.7 1,270.6
------------------------------- ----- ------- -------
Net debt to equity ratio (A/B) 65% 58%
------------------------------- ----- ------- -------
Debt is defined as long-term and short-term borrowings before
unamortised issue costs as detailed in note 18. Liquid resources
are cash and short-term deposits. Equity includes all capital and
reserves of the Group attributable to the owners of the
Company.
Externally imposed capital requirement
The Group was subject to externally imposed capital requirements
to the extent that debt covenants may require Group companies to
maintain ratios such as debt to equity (or similar) below certain
levels.
Risk management objectives
The Group's activities expose it to a variety of financial
risks, which can be grouped as:
-- market risk;
-- credit risk; and
-- liquidity risk.
The Group's overall risk management approach seeks to minimise
potential adverse effects on the Group's financial performance
whilst maintaining flexibility.
Risk management is carried out by the Group's treasury
department in close co-operation with the Group's operating units
and with guidance from the Board of Directors. The Board regularly
assesses and reviews the financial risks and exposures of the
Group.
(a) Market risk
The Group's activities expose it primarily to the financial
risks of changes in interest rates and foreign currency exchange
rates, and to a lesser extent other price risk. The Group enters
into a variety of derivative financial instruments to manage its
exposure to interest rate and foreign currency risk and also uses
natural hedging strategies such as matching the duration, interest
payments and currency of assets and liabilities. There has been no
change to the Group's exposure to market risks or the manner in
which these risks are managed and measured.
(I) Interest rate risk
The Group's most significant interest rate risk arises from its
long-term variable rate borrowings. Interest rate risk is regularly
monitored by the treasury department and by the Board on both a
country and a Group basis. The Board's policy is to mitigate
variable interest rate exposure whilst maintaining the flexibility
to borrow at the best rates and with consideration to potential
penalties on termination of fixed rate loans. To manage its
exposure the Group uses interest rate swaps, interest rate caps and
natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into
consideration such as refinancing, renewal of existing positions
and alternative financing and hedging. Under these scenarios, the
Group calculates the impact on the income statement for a defined
movement in the underlying interest rate. The impact of a
reasonably likely movement in interest rates, based on historic
trends, is set out below:
2021 2020
Income Income
statement statement
Scenario GBPm GBPm
--------------------------------------------------------- ---------- ----------
Cash +50 basis points 0.8 1.2
Variable borrowings (including swaps and caps) +50 basis
points (1.0) (1.0)
Cash -50 basis points (0.8) (1.2)
Variable borrowings (including swaps and caps) -50 basis
points 0.5 0.6
--------------------------------------------------------- ---------- ----------
(II) Foreign exchange risk
The Group does not have any regular transactional foreign
exchange exposure. However, it has operations in Europe which
transact business denominated in Euros and, to a minimal extent, in
Swedish krona. Consequently, there is currency exposure caused by
translating into sterling the local trading performance and net
assets for each financial period and balance sheet,
respectively.
The policy of the Group is to match the currency of investments
with the related borrowing, which reduces foreign exchange risk on
property investments. A portion of the remaining operations,
equating to the net assets of the foreign property operations, is
not hedged except in exceptional circumstances. Where foreign
exchange risk arises from future commercial transactions, the Group
will hedge the future committed commercial transaction using
foreign exchange swaps or forward foreign exchange contracts.
The Group's principal currency exposure is in respect of the
Euro. If the value of sterling were to increase or decrease in
strength the Group's net assets and profit for the year would be
affected. The impact of a reasonably likely movement in exchange
rates, is set out below:
2021 2020
2021 Profit 2020 Profit
Net before Net before
assets tax assets tax
Scenario GBPm GBPm GBPm GBPm
---------------------------------------------- ------- ------- ------- -------
1% increase in value of sterling against the
Euro (6.2) (0.4) (6.1) (1.1)
1% fall in value of sterling against the Euro 6.3 0.4 6.2 1.2
---------------------------------------------- ------- ------- ------- -------
(b) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises from the ability of customers to meet
outstanding receivables and future lease commitments, and from
financial institutions with which the Group places cash and cash
equivalents, and enters into derivative financial instruments. The
maximum exposure to credit risk is partly represented by the
carrying amounts of the financial assets which are carried in the
balance sheet, including derivatives with positive fair values.
For credit exposure other than to occupiers, the Directors
believe that counterparty risk is minimised to the fullest extent
possible as the Group has policies which limit the amount of credit
exposure to any individual financial institution.
The Group has policies in place to ensure that rental contracts
are made with customers with an appropriate credit history. Credit
risk to customers is assessed by a process of internal and external
credit review, and is reduced by obtaining bank guarantees from the
customer or its parent, and rental deposits. The overall credit
risk in relation to customers is monitored on an ongoing basis.
Moreover, a significant proportion of the Group portfolio is let to
Government occupiers which can be considered financially
secure.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. For banks and
financial institutions, only independently rated parties with a
minimum rating of investment grade are accepted.
At 31 December 2021 the Group held GBP0.4 million (2020: GBPnil)
of financial assets at fair value through other comprehensive
income or fair value through profit and loss. Management considers
the credit risk associated with individual transactions and
monitors the risk on a continuing basis. Information is gathered
from external credit rating agencies and other market sources to
allow management to react to any perceived change in the underlying
credit risk of the instruments in which the Group invests. This
allows the Group to minimise its credit exposure to such items and
at the same time to maximise returns for shareholders.
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash,
other liquid assets and the availability of funding to meet short,
medium and long-term requirements. The Group maintains adequate
levels of liquid assets to fund operations and to allow the Group
to react quickly to potential risks and opportunities. Management
monitors rolling forecasts of the Group's liquidity on the basis of
expected cash flows so that future requirements can be managed
effectively.
The majority of the Group's debt is arranged on an
asset-specific, non-recourse basis. This allows the Group a higher
degree of flexibility in dealing with potential covenant defaults
than if the debt was arranged under a Group-wide borrowing
facility.
Loan covenant compliance is closely monitored by the treasury
department. Potential covenant breaches can ordinarily be avoided
by placing additional security or a cash deposit with the lender,
or by partial repayment to cure an event of default.
22. Financial assets and liabilities
Fair
value
through Total
profit Amortised carrying
and loss cost value
GBPm GBPm GBPm
--------------------------------- --------- --------- ---------
Financial assets
Cash and cash equivalents -- 167.4 167.4
Derivative financial assets 0.4 -- 0.4
Other assets -- non-current(1) -- 7.7 7.7
Other assets -- current(1) -- 15.7 15.7
--------------------------------- --------- --------- ---------
0.4 190.8 191.2
--------------------------------- --------- --------- ---------
Financial liabilities
Secured bank loans -- (985.5) (985.5)
Secured notes -- (46.4) (46.4)
Derivative financial liabilities (0.8) -- (0.8)
Other liabilities -- current(2) -- (35.9) (35.9)
--------------------------------- --------- --------- ---------
(0.8) (1,067.8) (1,068.6)
--------------------------------- --------- --------- ---------
At 31 December 2021 (0.4) (877.0) (877.4)
--------------------------------- --------- --------- ---------
Fair
value
through Total
profit Amortised carrying
and loss cost value
GBPm GBPm GBPm
--------------------------------- --------- --------- ---------
Financial assets
Cash and cash equivalents -- 235.7 235.7
Other assets -- non-current(1) -- 8.2 8.2
Other assets -- current(1) -- 13.5 13.5
--------------------------------- --------- --------- ---------
-- 257.4 257.4
--------------------------------- --------- --------- ---------
Financial liabilities
Secured bank loans -- (920.2) (920.2)
Secured notes -- (50.5) (50.5)
Derivative financial liabilities (5.6) -- (5.6)
Other liabilities -- current(2) -- (30.3) (30.3)
--------------------------------- --------- --------- ---------
(5.6) (1,001.0) (1,006.6)
--------------------------------- --------- --------- ---------
At 31 December 2020 (5.6) (743.6) (749.2)
--------------------------------- --------- --------- ---------
1 Other assets included all amounts shown as trade and other
receivables in note 14 except prepayments of GBP2.4 million (2020:
GBP8.5 million). All current amounts are non-interest bearing and
receivable within one year.
2 Other liabilities included all amounts shown as trade and
other payables in note 16 except deferred income and sales and
social security taxes of GBP21.7 million (2020: GBP24.0 million).
All amounts are non-interest bearing and are due within one
year.
Reconciliation of net financial assets and liabilities to
borrowings and derivative financial instruments
2021 2020
GBPm GBPm
------------------------------------------------ ------- ------
Net financial assets and liabilities 877.4 749.2
Other assets -- non-current 7.7 8.2
Other assets -- current 15.7 13.5
Other liabilities -- current (35.9) (30.3)
Cash and cash equivalents 167.4 235.7
------------------------------------------------ ------- ------
Borrowings and derivative financial instruments 1,032.3 976.3
------------------------------------------------ ------- ------
23. Share capital
Number of shares authorised,
issued and fully paid
------------------------------- ---------------------------------------- --------------- -------- ---------
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, 31 December
2020
and 31 December 2021 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
------------------------------- --------------- ---------- ----------- --------------- -------- ---------
The Board is authorised, by shareholder resolution, to allot
shares or grant such subscription rights (as are contemplated by
sections 551(1) (a) and (b) respectively of the Companies Act 2006)
up to a maximum aggregate nominal value of GBP3,394,964
representing one-third of the issued share capital of the Company
excluding treasury shares.
24. Dividend
Dividend
Payment per share 2021 2020
date p GBPm GBPm
------------------------------------ ------------- ---------- ----- -----
Current year
29 April
2021 final dividend(1) 2022 5.35 -- --
24 September
2021 interim dividend 2021 2.35 9.6 --
------------------------------------ -------------- ---------- ----- -----
Distribution of current year profit 7.70 9.6 --
---------------------------------------------------- ---------- ----- -----
Prior year
29 April
2020 final dividend 2021 5.20 21.2 --
25 September
2020 interim dividend 2020 2.35 -- 9.6
------------------------------------ -------------- ---------- ----- -----
Distribution of prior year profit 7.55 21.2 9.6
---------------------------------------------------- ---------- ----- -----
29 April
2019 final dividend 2020 5.05 -- 20.5
------------------------------------ -------------- ---------- ----- -----
Dividends as reported in the Group
statement of changes in equity 30.8 30.1
---------------------------------------------------- ---------- ----- -----
1 Subject to shareholder approval at the AGM on 28 April 2021.
25. Other reserves
Capital Cumulative Fair Share-based
redemption translation value payment Other
reserve reserve reserve reserve reserves Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----- ----------- ------------ -------- ----------- --------- ------
At 1 January 2021 22.7 64.0 0.5 2.0 28.1 117.3
Exchange rate variances -- (32.8) -- -- -- (32.8)
Property, plant and equipment
-- net fair value gains
in the year 14 -- -- 5.5 -- -- 5.5
-- deferred tax thereon 18 -- -- (1.0) -- -- (1.0)
Share-based payment charge -- -- -- (0.3) -- (0.3)
------------------------------ ----- ----------- ------------ -------- ----------- --------- ------
At 31 December 2021 22.7 31.2 5.0 1.7 28.1 88.7
------------------------------ ----- ----------- ------------ -------- ----------- --------- ------
Capital Cumulative Fair Share-based
redemption translation value payment Other
reserve reserve reserve reserve reserves Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----- ----------- ------------ -------- ----------- --------- -----
At 1 January 2020 22.7 39.8 3.6 2.2 28.1 96.4
Exchange rate variances -- 24.2 -- -- -- 24.2
Property, plant and equipment
-- net fair value deficits
in the year 14 -- -- (3.6) -- -- (3.6)
-- deferred tax thereon 18 -- -- 0.5 -- -- 0.5
Share-based payment charge -- -- -- (0.2) -- (0.2)
------------------------------ ----- ----------- ------------ -------- ----------- --------- -----
At 31 December 2020 22.7 64.0 0.5 2.0 28.1 117.3
------------------------------ ----- ----------- ------------ -------- ----------- --------- -----
The cumulative translation reserve comprises the aggregate
effect of translating net assets of overseas subsidiaries into
sterling since acquisition.
The fair value reserve comprises the aggregate movement in the
value of financial assets classified as fair value through
comprehensive income and owner-occupied property since acquisition,
net of deferred tax.
The amount classified as other reserves was created prior to
listing in 1994 on a Group reconstruction and is considered to be
non--distributable.
26. Notes to the cash flow
2021 2020
Cash generated from operations GBPm GBPm
------------------------------------------------------ ------ ------
Operating profit 106.8 119.3
Adjustments for:
Net movements on revaluation of investment properties (28.5) (31.5)
Net movements on revaluation of equity investments (1.0) --
Depreciation and amortisation 1.1 0.7
Profit on sale of investment property 0.1 (11.6)
Lease incentive debtor adjustments (2.7) (1.9)
Share-based payment charge (0.3) (0.2)
Changes in working capital:
Increase in receivables (3.7) (0.8)
Increase in payables 1.3 2.9
------------------------------------------------------ ------ ------
Cash generated from operations 73.1 76.9
------------------------------------------------------ ------ ------
Non-cash movements
-------------------------------------
Amortisation
of loan Fair
1 January Financing issue value Foreign 31 December
Changes in liabilities arising 2021 cash flows costs adjustments exchange 2021
from financing activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
Borrowings 19 970.7 88.1 2.0 -- (29.2) 1,031.6
Interest rate swaps 20 5.6 -- -- (5.2) -- 0.4
Forward foreign exchange
contracts 20 -- -- -- -- -- --
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
976.3 88.1 2.0 (5.2) (29.2) 1,032.0
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
Non-cash movements
-------------------------------------
Amortisation
of loan Fair
1 January Financing issue value Foreign 31 December
Changes in liabilities arising 2020 cash flows costs adjustments exchange 2020
from financing activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
Borrowings 19 891.7 51.7 2.1 -- 25.2 970.7
Interest rate swaps 20 4.1 -- -- 1.6 (0.1) 5.6
Forward foreign exchange
contracts 20 (0.3) 0.3 -- -- -- --
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
895.5 52.0 2.1 1.6 25.1 976.3
-------------------------------- ----- --------- ----------- ------------ ------------ --------- -----------
27. Contingencies
At 31 December 2021 and 31 December 2020 CLS Holdings plc had
guaranteed certain liabilities of Group companies. These were
primarily in relation to Group borrowings and covered interest and
amortisation payments. Principal amounts of loans secured from
external lenders by two Group companies totalling GBP30.2 million
at 31 December 2021 are also covered by guarantees provided by CLS
Holdings plc (GBP30.6 million at 31 December 2020).
28. Commitments
At the balance sheet date the Group had contracted with
customers under non-cancellable operating leases for the following
minimum lease payments:
2021 2020
Operating lease commitments -- where the Group is lessor GBPm GBPm
--------------------------------------------------------- ----- -----
Within one year 99.9 100.5
Between one and two years 88.7 91,0
Between two and three years 73.3 77.3
Between three and four years 59.2 62.6
Between four and five years 38.9 48.6
More than five years 133.4 90.7
--------------------------------------------------------- ----- -----
493.4 470.7
--------------------------------------------------------- ----- -----
Operating leases where the Group is the lessor are typically
negotiated on a customer-by-customer basis and include break
clauses and indexation provisions.
Other commitments
At 31 December 2021 the Group had contracted capital expenditure
of GBP25.1 million (2020: GBP16.5 million). At the balance sheet
date, the Group had not exchanged contracts to acquire any
investment properties (2020: GBP89.9 million). There were no
authorised financial commitments which were yet to be contracted
with third parties (2020: nil).
29. Post balance sheet events
In February and March 2022, the Group exchanged on the
acquisition of properties for GBP20.8 million and GBP54.9 million,
before costs.
On 1 January 2022, we converted our UK operations to a REIT. As
a result of the conversion, CLS will pay no UK corporation tax on
its UK property operations (rental income, gains on property sales
and sales of companies owning UK property) which fall within the
REIT regime from the 2022 financial year onwards.
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