CLS Holdings, the office landlord with assets across the UK, France and Germany, has reported a sharp fall in EPRA net tangible assets (NTA) in full year results to the end of December 2023, as the office sector continues to struggle with valuation declines.
The group’s NTA fell 23.2% to 253.0p from 329.6p at the end of 2022. The group’s portfolio valuation ewas down 12.5% in local currency (UK -16.7%, Germany -9.1% and France -9.1%).
The company did grow net rental income by 4.8% to £113.0m (2022: £107.8m) as a result of inflation indexation (55.2% of contracted rent is index-linked), strong performance of its hotel and student operations and a full-year of income from prior year acquisitions.
EPRA earnings per share, however, was down 11.2% to 10.3p per share due to higher financing costs, partly offset by the higher net rental income. This still comfortably covered its dividend of 7.95p.
Operational performance
The company signed 130 new lettings and renewals in the year (2022: 106) generating annual rent of £15.5m (2022: £8.2 million).
The underlying vacancy rate was steady at 7.6% but overall vacancy rate increased to 11.0% (2022: 7.4%) due to the completion of developments in the year.
Five smaller properties were sold (four completed and one unconditionally exchanged) for a total of £25.4m, 10.0% above the latest valuations of the properties.
The buyer for Westminster Tower, Albert Embankment, which exchanged unconditionally in June 2023, failed to complete and the company has received the deposit. The property is now being re-marketed for sale.
The company is progressing additional planned sales, including two sales for over £70m that have received strong expressions of interest on at a small discount to valuations.
Financial highlights
- Loan-to-value of 48.5% (2022: 42.2%) reflecting valuation declines with net debt of £1bn broadly unchanged (2022: £992.0m). Weighted average debt maturity of 3.5 years (2022: 3.8 years) with 76% at fixed rates and 4% subject to interest rate caps (31 December 2022: 72% fixed and 4% caps)
- The weighted average cost of debt at 31 December 2023 was up 92 basis points to 3.61% (2022: 2.69%)
- During the year the company refinanced or extended £330.6m of debt at an average of 5.27%, including £196.7m fixed at 4.76%
- 2024 refinancing activity progressing, with £251.7m out of £350m executed, leaving £98.3m across six loans in Germany and France with an LTV of 45%
- Total liquidity of £120.6m, comprising cash of £70.6m and two undrawn revolving credit facilities totalling £50m
Fredrik Widlund, chief executive of CLS, commented:
“CLS performed well during the period and made progress on its strategic objectives. Our high-quality estate underpinned strong leasing momentum and pricing with new leases nearly 7% above ERV. As a result, we held our underlying vacancy rates steady, and delivered net rental income growth of close to 5%.
“As expected, valuations reduced in the period. However, our outperformance relative to the markets we operate in and the embedded rental growth potential in our portfolio give us confidence in our ability to deliver long-term growth. We remain focused on optimising our portfolio and reducing LTV through the course of 2024, with nearly three-quarters of the loans expiring in 2024 already refinanced, and over £270m of assets targeted for disposal.
“We firmly believe the outlook for high-quality offices is bright and we are seeing a clear trend of companies thinking strategically about the return to the office as a value driver for their businesses. The investments we have made and continue to make across our portfolio mean we are well placed to thrive.”