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Following the Interim Results presentation, we draw attention to the operational gearing built into the P&L going forward. Yes, 1H24 EPS per share declined yoy, but this was clearly going to be the case from the higher finance cost disclosed at FY23. Looking forward, 1/3 of the debt book matures in 2025 at 5.17%, which will be refinanced (at today’s rates) maybe 50 bps lower. Furthermore, admin expense inflation has likely peaked. The point is that UK leasing is improving, there’s c£15m of NRI to capture across the portfolio and costs are now rebased. We reiterate our 10.9pps MTSE forecast and Buy rating.
CLS Holdings plc
Although today’s results lead to further NAV downgrades, we retain our Add recommendation and 105p TP, with the 60% discount to NAV or c.30% discount to gross assets both amongst the widest in the sector.
CLS reported 1H24 Adj EPS of 4.8p vs our Medium Term Sustainable Earnings (MTSE) forecast of 10.9p. We already had solid news of portfolio actions during 1H, but the release shows good NRI progress as well, largely through rent increases on new leases driving a 5.9% increase yoy with only minimal increase in occupancy. Accompanying the results was further good news with the first letting at Artesian supporting earnings going forward.
Rental growth has proven remarkably robust in recent years, but are we going to see some divergence in performance from here? Matt returns from holiday next week, when we also have interim results from CLS Holdings, Derwent London and Tritax Big Box. To listen to this week’s episode of the REcap, please click the image below. #Corporate client of Peel Hunt
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Over 1H24, underlying market indices have moved c5-6% in CLS’s relevant markets according to MSCI/IPD. We factor this into our appraisal value accounting forecasts, resulting in NAV reductions of c12% pa to c230p pa. We remain unchanged on our core metric of Medium Term Sustainable Earnings (MTSE), at 10.9p per share or £43m pa on average over the coming several years, on which we base our unchanged PT of 140p. BUY.
CLS announced plans for the development of Citadel Place in Vauxhall. While it is too early to include any forecasts in our numbers, we expect based on the contents of the announcement, the potential GDV to amount to several hundred million and anticipate a potential profit on cost of at least 15%. While the existing site is characterised by low-rise office buildings built in the 90s, the plans aim to convert the site into a ‘harmonised’ mixed use opportunity. CLS offers deep value with the highest forecast total return to shareholders (c.12%), currently trading at a 63% discount to our estimates of spot NTA which is the widest discount of the stocks within our coverage.
CLS has announced the signing of an agreement with Edgar Suites and Nexity for the conversion of its Debussy, Paris offices into serviced apartments. We view this change of use opportunity as an interesting development. As CLS’ first conversion into serviced apartments, we believe there may be scope for more selective conversion opportunities. CLS offers an earnings yield of 12% (the highest in our coverage universe) and trades at a 66% discount to our estimates of spot NTA vs. office peers at a 33% discount. Buy
CLS’ disposal plan is progressing well following the sale of two further properties for £10.7m at an average 5.0% below Dec ’23 valuations. These disposals are in addition to the sale of Quatuor, Paris (€11.7m, 2.8% above June ‘23 valuations) and Westminster Tower, London (£40.8m, in line with Dec’23 valuations). CLS have also received first stage bids for Spring Mews Student (PBSA), which we expect will generate >£100m in gross proceeds taking total disposals (ytd) to c.£170m, on track to achieve the £270m guided for FY24. We expect disposals to reduce the pro-forma LTV by 4ppts to 44%, expected to fall below 41% by FY24e. CLS offers an earnings yield of 12% (the highest in our coverage universe) and trades at a 66% discount to our estimates of spot NTA vs. office peers at a 33% discount. Buy
Following the disposal of Westminster Tower for £40.8m, we take a look at the debt maturity profile of CLS and options available to management as they execute the deleveraging strategy. We find that due to active management ability and diversification the company has a solid portfolio of options in bringing down debt levels and, while we shy away from forecasting rates, is on solid footing to successfully put the balance sheet back on the offensive. We leave our MTSE unchanged, but the more detailed analysis supports our margin of safety and at current share price levels we see 7.6x PE for 13.1% yield and 14.1% TR. Buy. Sale of Westminster a strong start: Westminster Tower has planning permission for a residential development and was contributing very little income. Sold for £40.8m in line with BV it underpins our MTSE assumptions around disposal earnings drag, even if future disposals will result in a loss of NRI (as well as lower debt costs on repayment). 2025 refinancings: After amortisation to come, 2025 maturing debt totals £387m. CLS repositioned 2023 maturities predominantly into 2025 for three reasons. 1) They have assets targeted for disposal financed accordingly, 2) assets such as Bismarckstrasse in Berlin is undergoing a two year refurb on half the site and thus the letting situation will significantly improve and again is financed accordingly, and 3) debt costs were very high in 2023 and a view was taken (which we agree with, as far as our framework will allow!) that rates would moderate to some degree going forward. We also note the diversified debt book as CLS securitises on an asset by asset level, the £387m is across 12 loans from 10 banks. Options to deal with refinancings: The company has not stated which assets might be for sale and rightly so, however in examination of the portfolio and talks with management, we see plenty of options to dispose of ‘dry assets’ upon completion of asset management plans. 1) Bismarckstrasse upon refurbishment and letting, 2) Essen, on a 30-year lease to a government tenant, 3) the newly developed Prescott Street upon letting and Spring Gardens for alternative use redevelopment, likely residential-led. In total we can see significant additional sales if needed over the announced c£270m which would release c£135m of equity for debt retirement. Demonstrates the asset management ability and execution we want to see: Passive investment strategies overweight ‘prime’ real estate which is another term for having zero growth options and pure beta exposure. CLS can actively manage various strategies whether letting, refurbishing, development across different sectors and geographies. This ability has value and is the key to being able to execute a deleveraging strategy while maintaining earnings. We just wish the free float was bigger. MTSE impact: At the FY results, we reiterated our MTSE (Medium Term Sustainable Earnings) forecast of 10.9p per share. Within this we factor in £230m of disposals, of which c£41m is now done at no drag on NRI. We assume a 6% NIY on disposals, which post Westminster becomes 7.3% (the original £13.8m of lost NRI across £190m further sales) which definitely meets our requirement for a margin of safety. Especially considering Bismarckstrasse and Essen could fetch <5% NIYs. We need this buffer as Spring Gardens NIY at BV is much higher reflecting its short lease runoff. We have sufficient room in our income assumptions and timing of reversion to take some flex on the disposal dilution to earnings. MTSE P/E 7.6x for 13% yield, with 1.6% growth for 14.6% total return: While the liquidity and market cap may pose a barrier, the shares represent an extremely attractive entry point for what we see as sustainable cash earnings of 10.9p per annum, with a total return from visible drivers, accounting for refinancing and deleveraging of 14.6% per annum. Excluding Regional REIT this is the highest yield and second highest income based Total Return in our sector. We remain confident in our 10.9p MTSE figure and therefore our Buy recommendation.
CLS trades on a 67% discount to NAV, which equates to a c.33% discount to the underlying property valuation. We have lowered our TP from 135p to 105p, but upgraded from Hold to Add on underperformance.
We expect to reduce our NAV forecast by c.10%, which would leave the shares trading on a c.62% NAV discount and offering an 8.6% dividend yield. We reiterate our Hold recommendation and 135p TP.
CLS’ FY23 EPRA NTA beat our estimates by 3.3% at 253p, as property values fell 12.5% in local currency, outperforming the broader market in what has been a significant re-basing of Office property values. UK values fell -16.7%, Germany -9.1% and France -9.1%, reflecting higher property yields which were partially offset by ERV growth. EPRA EPS came in +c.2% ahead of our forecasts, declining -11.2% y/y as increased finance costs were partially offset by higher NRI from indexation and a strong leasing performance (£15.5m of rent p.a. signed at c.7% ahead of ERV). Whilst CLS’ results are ahead of our expectations, reflecting the resilience of the business model, we adjust our EPRA EPS slightly lower (-1%) to reflect the guidance for increased disposals. The shares trade on a 63% discount to EPRA NDV, compared to the UK real estate sector at a c.18% spot NDV discount and a long-term average NDV discount of c.31%.
MTSE summary – Refinancings costs as expected, admin costs higher, plenty of in place NRI growth to offset both. EPRA earnings per shares of 10.3p supports our MTSE growth assumption, indicating 1.5% growth from 23A. We are again pleased that we adopt conservative timing for revenue, generally pushing back income and bringing forward costs. We see refinancing dragging on earnings by £8m going forward, which looks surmountable by NRI growth on the basis of the release, meaning we can expect overall earnings growth on average over the next several years from CLS based on FY23. We reiterate our MTSE average earnings forecast of 10.9p per share. Management actions to drive upgrades could include letting successes faster than our assumed timeline, which we rate as likely. We see good value in CLS shares at a sustainable earnings yield of 11.8% with growth from 23A of 1.5% pa over the next several years and retain our BUY rating. We have the vacancy from completed developments already in our MTSE earnings, with an assumption that new space is let up to 90% occupancy over three years. We assume that the vacancy in the existing portfolio, which was broadly stable at 7.6%, takes several years to let up 50%. These very conservative figures are the basis for our NRI pick up of £21.4m in our current sustainable earnings figure. In the release CLS point to at least 20% uplift to rents to 2026, with further benefit from projects and indexation. This, the 89% increase in letting activity supporting prior ERV, and the c£14m of reversion gives us confidence in our NRI assumptions for the next several years. Administration cost inflation is an issue we don’t see enough focus on across the sector. Wage inflation remains elevated in the UK and globally. We currently assume £1.1m higher admin costs across our forecast period but admin expenses went up by £1.9m this year. Likewise, the refinancing. Guess what? Every company is going to face this sooner or later. For CLS it was the main drag on earnings, the weighted average cost of debt increased 92 bps to 3.61% and it’s going to go higher as the remaining debt matures (3.5 years). We have this factored in, using a 6% UK marginal debt cost and 3.75% for the continent. Again, we will have to monitor this but any change is sector wide, not CLS specific. We have also factored in £230m of disposals at 6.0% yield in our figure: We load all of this into year one, with debt repayment at 3.5%. We would also be positive on an introduction of a cost management program. Portfolio activity: Leasing momentum has picked up significantly in the year with by value 89% more leases signed in 2023 than in the prior year, and those leases are being secured at a healthy 6.9% above ERV. 130 new lettings and renewals were completed generating £15.5m of rent (versus £8.2m last year). The underlying vacancy rate was steady at 7.6% however overall vacancy increased to 11% due to development completions. NRI grew by 4.8% to £113m driven in part by indexation on the leases which covers 55% of the portfolio. The EPRA EPS of 10.3p is in line with our forecast and reflects higher net rental income offset by higher financing costs. The dividend of 7.95p is in line with our forecast and reflects 1.3x cover. Progress continued in the year with the company’s net zero carbon pathway, with a further spend of £4.8m taking total spend so far to £15m out of the identified £65m pathway. Balance sheet: The company continues to make good progress with three quarters of the refinancing due in 2024 already completed. The weighted average cost of debt is up by 92bps to 3.61% as a result of higher rates (80% of the debt book is currently fixed or hedged) as well as refinancings completed. In the year £330.6m was refinanced or extended at an average of 5.27%, including £196.7m fixed at 4.76%. CLS is focused on reducing its LTV to (currently 48.5%) and it has identified £270m of assets for disposal. In the year five properties were sold for a total of £25.4m, 10% above book value, demonstrating liquidity in the smaller lot size market. Since the year end CLS has had strong expressions of interest on two assets for over £70m, at a small discount to book.
A number of common themes – including rental growth, occupier demand, and opportunity – came through in the half dozen full-year results this week. Does SEGRO’s £907m placing signal the start of the investment market recovery? To listen to this week’s episode of the REcap, please click the image below.
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Operationally CLS continues to perform well with 23Q3 lettings 6.2% above ERV and deal volumes YTD over 70% higher than the same period in 2022. We believe there are clear signs office market fundamentals are starting to improve, albeit occupier demand remains focussed on the best space. Through its asset management initiatives and re-positioning programme we think CLS is well placed to benefit from this trend. Whilst we expect valuation declines to moderate in FY24, we reduce our Dec’23 NTA forecast by 6% to reflect further increases in office property yields. The shares trade on a c.65% discount to EPRA NDV, compared to the UK real estate sector at a c.25% NDV discount and a long-term average discount of c.15%.
Following a 13% downgrade to NAV, the shares trade on a 50% discount and offer a 5.6% yield, but we remain at Hold and prefer the likes of Helical#, Derwent London and GPE. which also trade on wide discounts.
CLS has today released its H1 FY 2023 results for the period ending 30/06/2023. Net rental income rose by c. 5.3%, driven by 2022 acquisitions, indexation, and higher student and hotel income. Higher financing costs meant EPRA EPS at 5.2p per share was down by c. -10% on the comparable period in 2022, with FX moves also weighing on net income, but earnings remain on a run rate to cover our FY 2023 dividend expectations of 8p per share within the target cover rate of 1.2-1.6x. An interim dividend of 2.6p per share has been declared, to be paid in October 2023 (flat on the previous interim dividend, and in line with our expectations). EPRA NTA fell c. -11.5% from 31/12/2022 to 291.6p, and NAV to 271.5p (down -11.7%), with property revaluations the primary detractor, though management note that valuations appear to be stabilising. Market conditions have been challenging, and shares are down -10.5% YTD and lagging the wider sector (down -1%). Shares continue to trade to a substantial discount of -55% to NAV and this continues to look unjustified to us. With an attractive forward dividend of 5.7% and substantial embedded value, we retain our Buy rating with our target price unchanged.
During the six months to 30 June 2023 EPRA NTA was down 11.5% to 292p, 6% below our forecast, with property values down 5.5% in local currencies. UK values fell 8.5% with Germany -3.3% and France -1.9%. Operationally CLS continues to perform well with 99% rent collection and lettings/renewals in the period 10% above ERV. Whilst we expect valuation declines to moderate in 23H2, we reduce our NTA forecasts to reflect the H1 outturn. The shares are down 10% YTD and trade on a c.53% discount to EPRA NDV, compared to the UK real estate sector at a c.23% NDV discount and a long-term average discount of c.15%.
Whilst the sector has pulled back in recent weeks and given up its gains since the start of the year (UK and Europe sectors now broadly flat year to date), CLS has underperformed at -14%. Although there remains some uncertainty around the office sector, both the European and UK occupational office markets are showing positive signs of momentum (Greater London/ South East take-up increased in each quarter over 2022, and European take-up was 2% above the pre-pandemic average). Demand remains for the best quality space which CLS is positioning its portfolio to meet. The shares are trading on a 58% discount to NAV which continues to look unjustified in our view, in particular given an attractive 5.8% dividend yield, and we reiterate our Buy rating, our target price of 171p implying a 30% total return.
A c.5% 2H fall in asset values means that CLS Holdings’ 2022 EPRA NTA per share is well ahead of our forecasts, outperforming several office peers. Earnings are in line and rising interest costs and prudent dividend cover will, we expect, keep distributions flat in 2023E.
During FY22 EPRA NTA was down 6.0% to 330p, 5.7% ahead of our forecast, with property values down 5.3% in local currencies. UK values fell 6.7% with Germany -3.5% and France -5.3%, reflecting higher property yields. Operationally CLS continues to perform well with EPRA EPS up 2.7% with higher profits from hotel and student operations as well as tax savings following converting to a REIT in the UK. Whilst CLS’ results are ahead of our expectations, reflecting the resilience of the business model, we keep forecasts unchanged as we expect further near-term pressure on values from higher rates. The shares are down 10% YTD and trade on a 56% discount to EPRA NDV, compared to the UK real estate sector at a c.14% NDV discount and a long-term average discount of c.15%.
The NAV of 329.6p is ahead of our forecast of 314p, with the portfolio only showing a 5.3% valuation fall in local currency, in part offset by weakening sterling. This was an outperformance of the wider office market, reflecting the higher quality of CLS’ portfolio and rental increases from index-linked leases (55.5% of the rent roll). The valuation performance was mixed, with taking the UK as an example, the government offices, developments and student and hotel operations (which make up 56% of the UK portfolio) only falling in value 1.4% compared to the rest of London offices down 10.3% and South East offices down 18%. The EPS of 11.6p was in line with our forecast, with reduced income from the office portfolio from higher vacancy offset by increased profits from the hotel and student operations and tax savings from the REIT conversion. CLS’ focus over this year will be to optimise refinancings (on which it has made good progress having executed or secured around half of that due in 2023/24), as well as on asset management to reduce vacancy (up 160bps in the year to 7.4%, with the majority, 130bps, driven by completion of refurbishments and developments which are being actively marketed). The company expects to be a net seller in the year to reduce its LTV back below 40% (currently 42.2%). The shares are down 10% year to date underperforming the sector up 6%. At 143p the shares are trading on a 57% discount to the reported NTA and offer a 5.6% dividend yield, which continues to look attractive and we retain our Buy rating.
A positive quarter for CLS with continued leasing momentum, new lettings being 5.9% above ERV and renewals 12.4% ahead of previous rents. Whilst the vacancy rate has ticked up marginally from 6.9% to 7.4%, this was due to the completion of a refurbishment in the UK which is now being marketed (0.6% of group ERV). The company is making good progress on its current developments and refurbishments (expected completions Q1-Q2 2023), sustainability commitments (over 100 carbon reduction projects will have completed by the end of the year), as well as refinancing with the majority concluded for 2022 and discussions progressing for debt maturing in 2023. The £25.5m tender offer, which completed in the period, is NAV accretive by 2.6p. Management comments that earnings are tracking in line with market expectations (our FY2022E EPS is 11.5p). The shares are down 29% year-to-date (following a positive performance the last week up 11%), now broadly in line with the wider sector down 32%. At 155p they are trading on a wide 55% discount to NAV which in our view is unjustified and we retain our Buy rating.
CLS’ trading updated for the period since 1 July 2022 shows the business has continued to see good letting activity despite the current challenging economic conditions. New leases have been signed 5.9% ahead of ERV with strong growth from renewals (+12.4%) and indexation. In our view, this highlights both the quality and resilience of CLS’ office portfolio. Capital has continued to be recycled with the sale of mature assets and with 2022 financing activity substantially completed good progress has been made on loans due to mature in 2023. The shares trade on a c.51% discount to EPRA NDV offering a prospective c.5.1% dividend yield, compared to the UK REIT sector at a c.23% spot NDV discount.
CLS’ shares have outperformed both the UK and European real estate sector year-to-date, though at 212p they are still trading on a wide 40% discount to NAV. As a result, management is undertaking a tender offer of £25.5m (NAV accretive by 2.6p) and will consider further buybacks going forward should the discount persist. Post the REIT conversion of the UK business, the updated dividend policy should in our view increase the appeal of the stock to a wider range of investors (dividend yield of 4.1% on our forecasts) and we retain our Buy rating, our revised target price of 246p assuming a discount to current+1 NAV of 30%.
Interims: return of the tender offer 1H values were broadly unchanged on a constant currency basis with growth in the UK and German portfolios broadly offset by declines in France. NTA increased c.1% with EPS and DPS up 7% and 11% respectively. The company today announces a tender offer to buy back 10.2m shares at 250p which reflects a 20% premium to the share price and a c.30% discount to today’s NTA. We estimate the buyback will add c.3p or c.1% to NTA. We are expecting the second half to be more challenging as investment demand softens and we are forecasting a c.6% fall in NTA. The shares trade on a 38% discount and yield 4%. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
The results are broadly in line with our forecasts and show a robust picture with growth in earnings (+7.4%) and dividends (+10.6%) and stable valuations. The main focus of the results is the announcement of a tender offer (as previously flagged) for £25.5m, offering 250p (20% premium to yesterday’s closing price and 29% discount to the reported NTA) for 1 in every 40 shares. Management will consider further buybacks if the discount persists, in combination with asset disposals, in order to maintain prudent levels of gearing (39% LTV as at June). The shares are down 6% year-to-date, outperforming the sector down 17%. At 208p they are trading on a wide 41% discount to the reported NAV which looks attractive and we retain our Buy rating.
During 22H1 EPRA NTA was up 0.7% to 353p with property values up 0.1% in local currency as CLS also benefited from FX gains. UK values were up 0.5% ahead of Germany up 0.3%, which was partly offset by a 2.1% decline in France. Operationally CLS continues to perform well with 99% of H1 22 rent collected and EPRA EPS up 7.4%. Whilst we expect some near-term pressure on property values and reduce our Dec’22 NTA forecast by 3% CLS has announced a £25.5m tender offer funded by proceeds from recent sales which will be NTA accretive. The shares trade on a c.37% discount to EPRA NDV, compared to the UK real estate sector at a c.11% spot NDV discount.
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Following conversion of its UK business to a REIT CLS will increase its dividend payout, with cover of 1.2 to 1.6x EPRA earnings, implying an attractive prospective dividend yield of 4.8% vs an average of 3.5% for the UK REIT sector. CLS will also take steps to reduce the discount to NTA which the board believes is unjustified, via a tender offer, which will be announced following the interims on 10 Aug’22. The shares trade at a 46% discount to EPRA NTA, vs the sector at a 12% spot discount. In our view this is too cheap given the strong track record and outlook for the business.
CLS has today announced its updated dividend policy following the conversion of its UK business to REIT status, which will be dividend cover of 1.2 to 1.6 times (from 1.5 to 2.0 times). The FY2022 dividend cover is expected to be in the middle of this range (in line with our expectation of a 9.0p FY2022E dividend resulting in 1.3x cover). Further CLS has announced that in order to take steps to address the persistent discount to NAV that the shares have been trading on (long-term average c.30%), it intends to undertake a tender offer later in the year, the terms of which will be announced following the interim results, and the quantum of which will be scaled to keep the LTV at an acceptable level. The shares are down 12% year-to-date, outperforming the sector which is down 19%. At 192p they are trading on a wide 46% discount to current NTA and offer a 4.7% dividend yield. We retain our Buy rating.
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CLS’ FY results were in line with our expectations. Operationally, CLS continues to perform well whilst delivering a significant reduction in the cost base. A key attraction is the visibility of a >25% rental uplift in the medium term. This will come through letting up vacancy, reversion, and refurbishments/developments. The shares trade at a 37% discount to EPRA NDV, vs the sector at a 7% spot premium. In our view this is too cheap given the strong track record and outlook for the business. BUY.
CLS’ shares have underperformed both the UK and European real estate sectors and as a result the shares are currently trading on one of the widest discounts of our coverage list, as well as offering an attractive earnings yield. In addition, now that the company has converted its UK operations to REIT status, we expect an increase in the dividend pay-out (policy currently under review but we assume cover is reduced from 1.5x to c.1.3x), which in our view should give investors another reason to consider the stock. We retain our Buy rating, our target price of 270p assuming the shares trade on a 27% discount to FY2022E NAV (returning to the rating a year ago).
Prelims: Highlighting the value opportunity CLS reports a modest uplift in NAV which is slightly ahead of expectations. This is despite a 10p hit from adverse FX moves, and the 4% increase in 2H is encouraging. EPS and DPS are both in line but following REIT conversion, the company will now review its dividend policy, which we hope could lead to a higher dividend yield going forward. The shares trade on a forward earnings yield of 6.9%. Combined with a near 50% discount to NAV, we believe the shares continue to offer good value. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
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CEO Video - Volution Group, CLS Holdings, 4imprint Group, Alpha FX, RPS Group, Science Group, Town Centre Securities, Market Highlights
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CLS’ FY21 results are in line with our expectations. Despite FX headwinds EPRA NTA is up 1.5%, reflecting underlying property values rising by 1.6%. Germany was again the star performer with values up 4.4% LfL with the UK and France +0.7% and +0.3%. Operationally CLS continues to perform well with 99% of rent collected whilst delivering a significant reduction in the cost base. The shares trade on a c.37% discount to EPRA NDV, compared to the UK real estate sector at a c.6% spot premium. In our view this is too cheap given the strong track record and outlook for the business. We reiterate our BUY rating.
A robust set of results with the portfolio valuations rising in each country, despite the impact of 6.3% strengthening of sterling over the year. Importantly operational momentum has picked up, in particular in Q4 (40% of full year leasing transactions were in the last quarter) and leasing activity has now returned to pre-pandemic levels. Activity was strong in Germany in particular, with the French market more of a mixed picture. CLS is confident that the vacancy rate currently at 5.8% (down from 7.7% at H1) can get back down to below the target of 5% near-term. The main news of the year from a corporate perspective was the conversion of the UK operations to a REIT (effective 1 January 2022) which is expected to save £3-5m pa in tax going forwards and has added 4.5p to the NTA at the year-end. Upside to earnings will come from current redevelopment and refurbishment initiatives which have the potential to add c.£10.5m pa to the ERV as well as capturing the reversion through the leasing of assets acquired with high vacancy. The shares are down 12% year-to-date, broadly in line with the wider UK REIT sector down 9%. At 193p the shares are trading on a 45% discount to the reported NTA, one of the widest discounts amongst our coverage and we retain our Buy rating.
As has been highlighted previously, CLS had been considering the conversion of its UK operations to REIT status, and over the Christmas period the company announced this has been completed effective 1 January 2022 (with no charge payable to convert). The UK comprises c.50% of the portfolio and converting just in the UK maintains flexibility in the business model. We will update our forecasts and assumptions after the year-end results, but we have modelled the impact of the REIT conversion, which adds c.0.9p to our earnings forecasts and c.4.5p on NTA.
Last week’s Capital Markets Day outlined management’s strategy for CLS to be a leading office space specialist. A key takeaway was the visibility of a >25% rental uplift in the medium term. This will come through letting up vacancy, reversion and refurbishments/developments. Near-term, an update on REIT conversion is expected before the year-end which we think could add 0.5-1.0% to the yield. The shares stand at a c.28% discount to EPRA NDV which in our view does not reflect the embedded value and earnings upside from improving market conditions over the next year.
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We attended CLS’ Capital Markets Day on Wednesday which was accompanied by a positive trading update and a tour of assets in the City (Prescot Street and Lloyd’s Avenue) and Vauxhall. We were impressed by the level of value-add opportunities within the portfolio and the company’s proactive attitude towards sustainability. In our view this is not reflected in the current share price rating (35% discount to NAV) and we retain our Buy rating.
CLS continues to achieve sector leading rent collection rates with improving activity levels in the UK, Germany and France expected to lead to a reduction in vacancy by the year-end. Portfolio repositioning continues with good progress on developments and refurbishments whilst a further update on REIT conversion for the UK business is expected in the next few weeks. The shares stand at a c.28% discount to EPRA NDV which in our view does not reflect the earnings upside from improving market conditions over the next twelve months.
Ahead of its capital markets day this afternoon CLS reports a positive trading update which suggests improving operational momentum (leases being completed ahead of ERV and stable vacancy rates). The company is also making good progress with its developments, improving its sustainability credentials and hopes to make a further update on REIT conversion before the year-end. The shares have lost ground over the recent months (off 12% over 3 months) and year to date are off 3%. As a result, we think they look attractively priced on a 36% discount to NAV with a 3.5% dividend yield. We retain our Buy rating.
The first half numbers showed a robust operational performance and stable valuations but were impacted by FX moves, which is likely to also be the case in H2 given the ongoing strengthening of sterling. A 1% move in the exchange rate has a c.1.3p impact on NTA and c.0.25p on EPS. We have commented previously how CLS looks cheap versus its UK/German/French office peers, and we expect the discount to NTA (currently 25%) to narrow as the return to office momentum continues this Autumn. We reiterate our Buy rating, our revised target price of 279p assuming an undemanding 20% discount to current+1 NAV, implying a 13% total return.
Interims: FX headwinds CLS reports a small 2% decline in NAV with a marginal 0.2% valuation increase not enough to offset FX moves. A relatively upbeat outlook statement refers to a “pronounced pick-up” in activity expected in 2H and, although we pare back our NAV forecast slightly, we expect the 1H decline to be reversed in short order. The shares trade on a 26% discount to NAV, one of the biggest discounts in the sector, and we retain our Buy. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
The results reflected a robust operational performance and stable valuations, though the NAV (337.2p) and EPS (5.4p) are below our forecasts due to the impact of FX in the period. The vacancy rate has increased to 7.7% however over half of the increase is due to vacancy acquired, in line with the acquisitions strategy to target asset management opportunities and management is expecting a stronger operational performance in H2 2021 and 2022. The new news is the launch of the company’s sustainability strategy with a net zero carbon pathway and target of 2030, which has been verified by the Science Based Targets initiative and also costed (estimated £58m capex). After ending 2020 down 26%, the shares have performed better this year up 13% year-to-date although continue to underperform both the wider UK and European REIT indices. The discount to NAV (NTA), which remains relatively wide at 24%, looks attractive given improving return-to-work momentum and with the strong regional office market fundamentals. We retain our Buy rating.
Whilst underlying property values increased by 0.2% in the six months to 30 Jun 21 EPRA NTA was down 2.3% reflecting FX headwinds and deferred tax for the future change in UK corporation tax. Germany was again the star performer with values up 1.5% offsetting declines in the UK and France. Operationally CLS continues to perform well with 99% of H1 21 rent collected and 97% of Q3 21 rent now received whilst delivering a significant reduction in cost ratios. The shares trade on a c. 17% discount to EPRA NDV, compared to the UK real estate sector at a c. 25% spot NDV premium, which in our view is too cheap given the strong track record and outlook for the business.
CLS has continued to achieve high rent collection rates across the business with 95% received for the current quarter. Overall for Q1 2020 CLS has now received 98% of rents due. This outturn is comfortably ahead of collection levels achieved by a number of office-focused peers. The shares trade on a c.25% discount to spot EPRA NDV, offering a prospective c.3.3% dividend yield, compared to the UK real estate sector at a c.9% spot NDV premium. In our view this is too cheap and we reiterate our BUY rating.
Updating post results, upgrading industrials yet again Following a busy reporting season, which contained no material surprises, today we publish new numbers for a host of companies. These are largely confirming previously indicated numbers for FY21-22E, and we also publish inaugural FY23E forecasts. The perennial upgrades of CLS Holdings continue, and the other upgrades are largely focussed on the industrial and logistics names, including SEGRO, Tritax Big Box REIT and Harworth Group#. Matthew.Saperia@peelhunt.com, James.Carswell@peelhunt.com, Sebastian.Isola@peelhunt.com 9-page note #Corporate client of Peel Hunt
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Finals: Strong result not reflected in the rating CLS once again exceeds our expectations with an 8% total accounting return, boosted by a particularly strong revaluation gain in Germany, disposal profits and favourable FX. Rent collection of 99% is among the highest in the sector and CLS’ diversified portfolio means it will likely outperform its UK listed office peers once again. The shares trade on an unwarranted 37% discount to NAV – one of the widest in our entire coverage. A prudent balance sheet and an exemplary track-record mean CLS remains one of our key Buy recommendations. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
CLS has continued to deliver sector-leading returns in 2020, aided by its European diversity. EPRA NTA growth of 5.8% in 2020 was ahead of our forecast with German values up 8.6%. Rent collection remains strong with 99% of 2020 and 98% of Q1 2021 rent now received. The shares trade on a c. 30% discount to NDV, compared to the UK real estate sector at a c. 2% spot NAV discount, which in our view is too cheap given the strong track record and relative outlook for the business. We reiterate our BUY rating.
CLS has continued to achieve high rent collection rates across the business, with 93% received for the current quarter. Overall for 2020 CLS has now received 99% of contractual rents due. This outturn is comfortably ahead of collection levels achieved by a number of office-focused peers. Furthermore, leasing transactions have continued to be secured ahead of ERV with acquisitions delivering attractive double-digit cash-on-cash returns. The shares trade on a c.30% discount to spot EPRA NDV, offering a prospective c.3.5% dividend yield, compared to the UK real estate sector which trades at a small premium, which is too cheap, in our view. We reiterate our BUY rating.
CLS delivered positive returns in H1, ahead of our expectations. In our view, CLS’ income-led strategy provides great resilience, with a portfolio of 96 properties and 767 tenants across the UK, Germany and France. Rent collection rates have remained strong with 97% received for the current quarter, and the balance sheet is robust with an LTV of 34% and cash of £195m. The shares stand at an attractive c.31% discount to EPRA NDV, compared to a long-term average discount of 11%.
The last 12 months have been a period of sizable and successful transition for CLS, with the sale of non-core assets, and the reinvestment of capital in core, high yielding assets. That said, the balance sheet is unconstrained which implies that further acquisitions of value-adding real estate assets, and longer-term investments (Paris, Stuttgart, and continued development opportunities along the south bank of the Thames/London), are likely to be a features of 2020, and beyond. CLS is attractive trading at a 23% discount to NAV, implying c20% upside.
The H2 update confirmed that trading has been in line with strategy and market expectations which should underpin investor confidence. CLS confirms that it currently has £185m of liquid resources, plus c£50m of undrawn credit facilities that offer optionality in a market that seems to be favouring cash buyers. We retain our Buy rating on this attractive and well-run company that trades at a c20% discount to EPRA NAV.
CLS has been active over the last few months recycling capital from dryer assets and reinvesting the proceeds into four acquisitions which offer near-term asset management opportunities. The LTV ratio is down to 35% following the sale of the stake in Catena AB and cash and liquid resources of c.£185m provide capacity for further acquisitions.
CLS has unconditionally exchanged contracts to acquire 2 London office buildings for a consideration of £66.65m, excosts. The deal adds nearly 4% to the Net Rental Income and is c3% EPS enhancing in a full year. As a result, we raise our Target Price by 10p to 310p, implying 30% upside. This brings the total to 8 properties bought this year, with 7 disposals. We believe CLS Holdingsshould be a core holding in any investor’s exposure to the commercial property sector. BUY
The 5% YoY increase in EPRA NAV highlights the strength of this diversified property group. CLS’s drive to recycle value is very evident with 6 properties bought and 2 sold in H1, with another purchase and 5 disposals announced since period end. The shares should be a core holding in any investor’s exposure to the commercial property sector. BUY
CLS has announced the sale of its entire 10.5% shareholding in Catena via an accelerated book build, for £113.9m. This is a savvy strategic move, in our view, increasing the size of CLS’s war chest and allowing management to further focus on its core strategy of investing in high yielding offices in the UK, Germany and France.
CLS offers European office exposure at a UK valuation discount. A better-than-expected H1 leads us to increase our FY NAV forecasts by 3%, and DPS by 4%. We are more cautious on near-term macro conditions in H2, but supply is constrained in CLS’s locations, and the fundamentals of its business model are strong.
CLS has delivered strong first half returns, aided by its European diversity and an income focused approach. H1 NAV per share growth of 5% to 325p was c.4% ahead of our forecast, driven by portfolio valuation gains and a £21m (+5.1p) increase in the value of CLS’ shareholding in Catena.
CLS has made good progress in 2019 crystallising gains on dry assets following successful asset management initiatives. Recent disposals have been achieved at a weighted average ~25% above 2018 book value.
CLS’s capital markets trip to Germany demonstrated its expertise and the positive drivers which should continue to support strong regional rental growth. Despite soft economic conditions the German office market is likely to remain strong, aided by low vacancy, low rents, limited new supply and low borrowing costs.
CLS continues to generate above average returns, aided by its European diversity and income focus. We expect sustained good conditions in Germany and stability in France and the UK to support continued growth in 2019.
In these five videos Fredrik Widlund, CEO of CLS Holdings discusses the outlook for 2019.
CLS again delivered double-digit total returns in 2018, aided by its European diversity, income focused approach and active capital recycling. NAV +8.5% to 310p was 2% ahead of our forecast, with the DPS +9% to 6.8p, supporting 11% total returns.
CLS will deliver a full year NAV at the higher end of the consensus range, ~2% ahead of our forecast. This has been achieved alongside the disposal of the group’s interest in First Camp.
CLS made good operational progress through Q3 with vacancy falling from 5.7% to 4.3% and new leases agreed 4% ahead of December ERV. The portfolio continued to be actively repositioned with £20m of assets sold ahead of December book value.
CLS, which has a £1.9bn office portfolio in the UK, Germany and France, has released a trading statement for the period since its half year end. This shows that the company has been very active in securing lettings across its portfolio, reducing the Group’s vacancy level from 5.7% to 4.3%. It has also made £20m of disposals at an average of 5.5% above 31 December 2017 book values.
CLS offers European office exposure at a UK valuation discount. Rising rental growth in Germany, improving investor sentiment in France and supply constraints in the South East UK market provide the backdrop for continued good returns.
CLS has delivered good first half returns, aided by its European diversity and income focused approach. H1 NAV +3% to 295p was in line with our forecast, supported by retained earnings and positive valuation gain across Germany, France and the UK.
CLS Holdings, the FTSE 250 real estate company with a £1.9bn office portfolio in the UK, Germany and France has reported robust H1 2018 results. EPRA NAV was up 3.0% from 286.0p to 294.7p (after the final dividend payment of 4.3p). Half year EPRA eps were up 15.1% to 6.1p and the interim dividend has been increased by 7.3% to 2.2p. These results demonstrate the strategic advantage of the Group’s diversified office investments across three geographies.
CLS continues to generate some of the strongest returns in the UK Real Estate sector, aided by its European diversity and income focus. Following FY17 results, we upgrade our NAV estimates by 10% and earnings by 13%.
CLS continues to generate some of the strongest returns in the UK real estate sector, aided by its European diversity and income focused approach. FY17 NAV +16.5% to 286p was 5% ahead of our forecast.
CLS Holdings, the FTSE 250 commercial property company with a £1.77bn office portfolio in the UK, Germany and France has reported very strong 2017 final results. EPRA Net Asset Value (NAV), the key property sector valuation measure, was up 16.5% from 245.6p to 286.0p. This is likely to be one of the best NAV performances of the December year end property companies (and just surpasses Segro, the logistics specialist, which posted a 16.3% NAV rise).
CLS’ UK regional lease renewals are positive, with revised rent in line with our expectations and just ahead of ERV, such that a revaluation gain at results is likely. We see ~3% upside risk to NAV. The lease re-gear removes another perceived risk factor from CLS’ investment case and follows a transformative first half, which included the disposal of Vauxhall Square at a 39% valuation premium.
CLS Holdings has announced that it has successfully completed lease renewals with the Secretary of State for Communities and Local Government on 14 properties. They are mostly Job Centres that had leases due to expire, or had a break clause effective, on 31 March 2018. We view this as a very good result as it removes an uncertainty that the lease events had caused and should also have a positive impact on the values of the properties at year end. The shares are trading at a 24% discount to the 30 June EPRA NAV of 268.5p/share which we view as too great. Buy.
CLS’ gradual portfolio tilt towards Germany highlights its opportunity to sustain sector-leading income and capital growth, in a period where other Central London-focused office REITs face elevated risk. The group's high income return derived from multi-let assets accentuates this attraction and leaves its comparable valuation discount unjustified.
First half results were comfortably ahead of our forecast, supported by valuation gains across all regions and a notable disposal premium. NAV +9% to 268.5p, was 5% ahead of our forecast and is the best performance to date in the sector.
CLS has delivered an excellent set of interim results in what has been a transformational period for the Group. Profit after tax increased to £99.0m (H1 2016: £29.5m) reflecting a property valuation uplift of £48.7m (H1 2016: £2.4m) and profit on sale of properties of £41.7m (H1 2016: £4.4m). The EPRA NAV per share increased to 268.5p (+9.3%) compared to EPRA NAV at 31 December 2016 at 245.6p (restated for the share subdivision). The progressive dividend has delivered an interim dividend at 2.05p (+6.6%) and on the basis of a one third: two thirds split we anticipate the full year dividend to be 6.15p. The shares have performed very well and are up 53% in the last 12 months and 40% YTD. Despite this the shares are still trading at an unwarranted 20% discount to EPRA NAV of 268.5p. We have increased our target price to 248p/share (from 234p) to reflect our view that the shares should not trade at more than a 7.5% discount to EPRA NAV. Buy.
CLS Holdings plc (CLI.L / CLI LN) has reported Interim Results for the period 1 January to 30 June 2017 today. The Company have reported a strong set of results with record EPRA net assets per share. Highlights are as follows: EPRA net assets per share: 268.5 pence (31 Dec 2016: 215.1 pence); Profit after tax: £100.0 million (2016: £29.7 million); Earnings per share: 5.3 pence (2016: 8.1 pence); and an Interim Dividend of 2.05 pence.
CLS’ portfolio purchase delivers management’s objective to increase exposure to Germany and continues capital recycling out of lower yielding activity into higher return opportunities. We continue to believe the group's regional diversification and income focus provides attraction in a more uncertain environment for UK real estate.
CLS has exchanged contracts to acquire a portfolio of 12 properties in Germany for c£131m in cash financed from internal resources, later to be part refinanced with bank debt. Gross asset value is c£135m representing an initial yield of 6.3% from a current occupancy rate of 89% (157 tenants). We view this as yet another fabulous acquisition which is positive on 3 levels 1) It is an excellent regeneration of cash from the sale of Vauxhall Square 2) It gives greater geographical balance to the portfolio 3) CLS’s track record would suggest that even greater returns are possible from the assets being acquired. We think that CLS shares should react positively to today’s news and we maintain our Buy recommendation and 234p target price.
Following the announcement of the disposal of Vauxhall Square, the 10 for 1 share split and our estimate of 2017 property valuations we have revised our forecasts and adjusted our target price. We have also adjusted the 2016 result to show a pro forma performance thus making it easier to compare the 2017 forecasts. The shares are trading at a 20% discount to our 2017F year-end EPRA NAV forecast of 250p/share which we believe is too large. We have increased our target price to 234p/share from 216p previously and reiterate our Buy recommendation.
CLS’ disposal of Vauxhall Square has been achieved at a significant 45% premium to book value and adds ~3% to our NAV. Equally importantly it highlights the depth of international capital tracking UK real estate, removes a perceived higher risk asset from CLS' portfolio and provides significant capital to reinvest in core high yielding offices with asset management potential.
CLS’ European diversity and income focus continues to aid returns in a more uncertain period for UK real estate. CLS delivered the strongest total returns within our coverage list in FY16 and prospects for FY17 remain favourable: Vacancy and cost of debt are at an all time low.
FY results were ahead of forecast, aided by underlying valuations gains across London, France and Germany as well as FX benefit. NAV +18% to 2456p, was 3% ahead of our forecast which had been upgraded by 10% in January.
We upgrade our NAV forecasts for CLS by 10% to reflect a stronger than expected valuation. Positive recent IPD data suggests year-end NAVs are increasingly likely to prove stronger than expected for almost all listed UK real estate shares, but CLS appears to be comfortably ahead.
Robust letting activity and occupational progress has continued through Q3 with the group's diversified European portfolio and income focus supporting income and capital values in a more uncertain period for UK real estate. Capital continues to be recycled out of non-core areas and into higher yielding German assets.
CLS has issued a positive trading update for the period 1 July to 22 November. The announcement highlights the continued rebalancing of the portfolio with the disposal of non-core assets in France and London and the acquisition of higher yielding properties in Germany. Occupancy in London remains resilient and vacancy rates have fallen in Germany and France. The geographical spread and weakness of sterling continue to have a positive impact on profitability and NAV. We have increased our 2016/17F adjusted EPS forecasts to 117.0p (+27%) and 105.0p (+4%) respectively to reflect these positive trends. We increase our target price to 2052p/share from 2016p previously reflecting the increase in our 2016F adjusted NAV to 2332p/share from 2290p previously. In our view the shares are currently trading at an unjustified 32% discount to our adjusted NAV. Buy.
CLS has completed the acquisition of a property in Dusseldorf that was announced on 11 July for €43.6m. The net rental income of €3.1m reflects a net initial yield of 7.1% which has been financed with a local bank at an all-in cost fixed for 7 years at 0.92%. The property has a high occupancy rate and has significant scope for future rental increases and other asset management opportunities. In our view it is a good example of how cash generation can act as an offset to any possible valuation falls. The valuation remains compelling with the shares trading at an unwarranted 32.5% discount to EPRA NAV at 30 June of 2282p/share and so we reiterate our Buy recommendation and 2016p target price.
CLS’ diversified European portfolio and income focus continues to support returns. We upgrade our NAV forecasts by 4% to account for underlying progress in Europe and FX benefit.
H1 results are ahead of forecast, aided by underlying valuation gains in Europe and FX benefit. NAV +10% to 2282p, was 4% ahead of our forecast, with EPRA earnings and the shareholder distribution also ahead. A stable UK portfolio value was enhanced by underlying valuation gains in France and Germany and FX translation.
CLS has delivered a good set of interim results with Group revenue at £59.5m (+2%) and Operating profit at £41.4m (-52%) compared with our forecast of £60.9m and £66.5m respectively. The reduction in Operating profit primarily reflects a profit on revaluation of investment properties at £2.4m, which compared to £53.9m in H1 2015. EPRA earnings were up strongly at 80.5p/share (+92%). The weakness in sterling has helped EPRA net assets grow to 2282p/share (+9.6%) compared to 2083p at December 2015 and our 2277p forecast. The property portfolio value, including properties held for sale, now stands at £1.365bn, (+5% or +0.4% in local currencies) having benefitted from the 11.7% strengthening of the euro against sterling. During H1 there have been acquisitions of £47.7m and disposals of £79.7m. The shares are trading at an unwarranted 41% discount to EPRA NAV of 2282p/share and as such we reiterate our Buy recommendation and 2016p target price.
CLS will report its 2016 interim results on Wednesday 17 August. Following Brexit we believe that investors will probably focus more attention on the outlook than the historical performance. Whilst understandable given the downward pressure on property values, offset to some extent by the positive impact of currency, we think that this would overlook what we believe will be a good H1 performance. We are forecasting Group Revenue at £52.0m (+4%) and Operating profit at £94.6m (+9%) primarily driven by valuation uplifts and a small gain on disposal of £4.2m. The shares are trading at an unwarranted 40% discount to our H1 EPRA NAV forecast of 2277p/share.
CLS’ high yield portfolio and low cost of debt continues to underpin retained earnings and support NAV growth. We forecast 9% p.a. total returns over 3 years. The prospect for another year of good operational progress is encouraging. Focus on Office at Vauxhall Square is a sensible evolution for the group's development scheme and it is hard not to conclude that significant pain is now in the valuation. We maintain a BUY and 2010p TP.
CLS Holdings reports results for the year ended December 2015 this morning with an EPRA NAV per share of 2,083.2p and a tender offer distribution of £13.4m at 1 in 57 at 1,810p per share. This is an increase in distribution to shareholders of 20% to £19.1m and is 13% higher than expected. Over the period the company obtained enhanced planning consent at Westminster Tower, SE1 and Spring Mews, SE11, and has progressed strategic plans for Vauxhall Square – which is expected to be developed in two phases starting in 2017. Over recent months, CLS Holdings’ shares have come under pressure over fears about a ‘No’ vote for Europe and a perceived overheated London residential market. However these results point to the highly cash generative nature of the London portfolio – outside of the City core, and relative to overall gross assets of £1.5bn the modest land exposure to London residential and sensible phasing. At a 27.1% discount to spot EPRA NAV per share the shares look incredibly good value. The company has also announced that Henry Klotz will become Chairman and that Sten Mortstedt will remain as Executive Director. Anna Seeley is to be appointed Non-Executive Vice Chairman.
FY15 results demonstrate another year of good capital and income return, with NAV +17% to 2083p, 3% ahead of forecast, and the shareholder distribution +20%, 14% ahead. Strength in the UK and Germany supported a +7.3% local currency valuation gain. As expected, CLS has confirmed it intends to focus on the commercial part of its development scheme at Vauxhall Square. Sten Mortsedt has also confirmed that he will step down from Chairman to be an Executive Director. The shares, down -24% over 3 months vs. the sector down -12%, now trade on a CY16E P/NAV of 0.71x vs. the sector 0.89x. We maintain a BUY rating.
The group has capitalised on the strength of the Swedish market and disposed of its direct property investment there, achieving an 11% uplift since the June 15 valuation. The £48.9m consideration was above our £48.1m estimate for the full year helping to underpin our valuation assumptions for FY15E and FY16E. The weakness of the shares we believe is unjustified given the strength of the income stream and that valuations are not stretched with the portfolio valued on a NIY of 6.1% at interim. We continue to recommend BUY with a TP of 2016p.
The addition of more office space to CLS' Vauxhall Square development both supports the valuation and aligns with the group’s core competency. While investor caution in respect of prime residential-led developments has increased over recent months, this announcement reminds that CLS’ consent at Vauxhall Square is mixed use and highlights the potential the group has to realise or enhance value at the site. Given the recent share price weakness, down -19% over 3 months vs. the sector down -12%, this statement should reassure. CLS trades on a CY16 P/NAV of 0.66x vs. the UK sector 0.88x.
Today's news adds additional office space to the Vauxhall scheme and underscores the great potential in the CLS site. It benefits from the high density, which is only permitted on part of the redevelopment area. It is located next to the existing transport hubs (bus, rail and underground), will provide the pedestrian link to the US embassy, so ensuring footfall, and is a fully diversified scheme (office, retail, leisure, hotels and student accommodation). Additional office space will be highly sought after and adds value to the development. The shares have fallen along with the market and now trade at a 28.9% discount to the FY15E NAV. Markets look to continue to be volatile in the short term so we are amending our target to reflect a 15% discount to the FY16E NAV forecast which still offers 38% upside over the next twelve months. Buy.
The group has announced two acquisitions this morning for a total value of £10.6m both of which offer short term asset management opportunities following which higher levels of income can be secured. As the income will not flow through until 2017 we are not changing our forecasts today. The transactions are consistent with the group strategy of acquiring unloved secondary office properties at yields well above the interest costs so that strong returns for shareholders can be achieved. We retain our BUY and 2610p target price.
CLS has realised a £3.2m profit selling a car park in Vauxhall for £24.8m, which has consent for a 454 room student building. This transaction will lead to the early implementation of planning consent for CLS' entire 1.58m sqft development at Vauxhall Square. It also de-risks exposure to student accommodation and development at the site, as well as realising proceeds to reinvest back into the site. We expect a decision in respect of CLS’ broader strategic direction at Vauxhall Square to be communicated alongside the full year results in March 2016. The shares trade on a CY16E P/NAV of 0.81x, 16% below the sector 0.96x. We maintain a BUY rating.
CLS has sold a 250 year leasehold in the Miles Street Car Park to the specialist student accommodation developer and operator, Urbanest. The construction is due to commence in early 2016 and will represent the commencement of the implementation of the Vauxhall Square development. The group has successfully de-risked this 454 bed-roomed student accommodation building and crystallised a sizable return for shareholders. The price represents a 14.3% premium over the December 2014 book value. We think this is an excellent example of the management ability to unlock value from the estate. We retain our BUY recommendation and 2610p target price.
CLS has a coherent and well executed investment strategy which has outperformed the market over the past decade and continues to deliver excellent returns to shareholders. The group owns a property portfolio valued at £1.4bn (equivalent yield of 6.1%) invested in the UK and Europe which has robust characteristics. The prospects for secondary office assets look attractive as the economic backdrop improves. Moreover, the development estate in Vauxhall could significantly augment future returns. This is a solid cash generating business which looks to be considerably undervalued against peers. We raise our target price to 2610p (from 2140p) and reiterate our BUY recommendation.
CLS has a coherent and well executed investment strategy which has outperformed the market over the past decade and continues to deliver excellent returns to shareholders. The group owns a property portfolio valued at £1.4bn (equivalent yield of 6.1%) invested in the UK and Europe which has robust characteristics. The prospects for secondary office assets look attractive as the economic backdrop improves. Moreover, the development estate in Vauxhall could significantly augment future returns. This is a solid cash generating business which looks to be considerably undervalued against peers. We publish a note this morning in which we raise our target price to 2610p (from 2140p) and reiterate our BUY recommendation.
We believe CLS’ cash-backed NAV growth and opportunistic approach across the UK and Europe provides attraction. Maximising value from its development opportunity at Vauxhall Square could be impeded by signs of weaker international demand. Nevertheless, on current evidence, we would view this as in the price. We maintain a BUY rating, but lower our TP from 2170p to 2010p.
The group has reported good progress during the quarter across all operating and financing activities. The group is focused on the arbitrage between the yield on property and the attractive yield on funding (currently 3.48% on average for the group). The yield gap remains attractive and with London secondary office properties now seeing strong yield compression backed by higher occupancy and rental growth, CLS is well placed to capitalise on the positive economic backdrop. In Europe the portfolio is performing encouragingly with underlying valuation progression although the exchange rate remains a headwind. We retain our target price of 2140p and Buy recommendation
CLS has made further progress through Q3 with new leases agreed 3% ahead of December ERVs and vacancy still low at 3.8%. Two enhanced planning resolutions at Spring Mews and Westminster Tower support the prospect for in-year capital enhancement. We make no change to our forecasts. The review of options to progress Vauxhall Square remains ongoing. We expect clarity surrounding this scheme at the full year results. The shares trade on a CY16E P/NAV of 0.81x, 16% below the sector 0.97x.
The acquisition of Chancery House in Sutton announced this morning is a typical CLS transaction, providing a building with asset management opportunities and for which the arbitrage between debt costs and yield is attractive. The building offers scope for improvements and revenues can be raised through letting the building fully as it is currently 16% vacant. The income will be marginally accretive for FY15E, more so for FY16E but we are not changing our forecasts as a result. We retain our Buy recommendation and target price of 2140p.
The group has announced a disposal of seven properties for £7.4m realising gains on the valuation of £1.6m since December 2015. The disposals are in line with the group strategy to focus on larger properties and the capital will be recycled into assets where more significant returns can be delivered. We retain our BUY recommendation and 2140p target price.
The recent interims demonstrated the core strengths of the group in ‘an active and successful period'. Interim EPRA NAV increased by 7.9% to 1,914p, despite some adverse forex movements, as CLS benefitted from strong operational earnings and a rise in property values. London and the rest of the UK (accounting for 57% and 8% of the portfolio respectively) demonstrated the strongest growth. Profit after tax increased by 10.6% to £68.6m. CLS has continued to undertake acquisitions and has secured £3.5m of new income from its developments. The key strengths of a low vacancy rate (3.4%), strong operating cash flow which rose by +13.3% to £24.7m remain. This resulted from the healthy arbitrage between the net initial yield and funding costs. CLS has proposed a distribution of £5.7m +5.1% by way of a tender offer buy-back of 1 in 162 at 2,190p, the equivalent of 13.52p per share. CLS continues to progress its development pipeline including Vauxhall Square, SW8, Westminster Tower, SE1 as well as Petit Champs in Paris. CLS retains a strong balance sheet and a high level of liquid resources. Following these results, we have raised our EPRA NAV forecasts for FY2015 by 13.2 % to 2,008p (FY2014 – 1,774p). We have increased our target price to 2,140p (1,950p), upside of 16%, based upon a peer group premium to NAV and reiterate our longstanding buy recommendation.
The recent interims demonstrated the core strengths of the group in ‘an active and successful period'. Interim EPRA NAV increased by 7.9% to 1,914p, despite some adverse forex movements, as CLS benefitted from strong operational earnings and a rise in property values. London and the rest of the UK (accounting for 57% and 8% of the portfolio respectively) demonstrated the strongest growth. Profit after tax increased by 10.6% to £68.6m. CLS has continued to undertake acquisitions and has secured £3.5m of new income from its developments. The key strengths of a low vacancy rate (3.4%), strong operating cash flow which rose by +13.3% to £24.7m remain. This resulted from the healthy arbitrage between the net initial yield and funding costs. CLS has proposed a distribution of £5.7m +5.1% by way of a tender offer buy-back of 1 in 162 at 2,190p, the equivalent of 13.52p per share. CLS continues to progress its development pipeline including Vauxhall Square, SW8, Westminster Tower, SE1 as well as Petit Champs in Paris. CLS retains a strong balance sheet and a high level of liquid resources. Following these results, we have raised our EPRA NAV forecasts for FY2015 by 13.1% to 2,008p (FY2014 – 1,774p). We have increased our target price to 2,140p (1,950p), upside of 16%, based upon a peer group premium to NAV and reiterate our longstanding Buy recommendation.
4% property valuation gain and double-digit earnings growth aided an 8% increase in H1 NAV to 1914p. Strength in London is now spreading to the regions. All countries generated a positive constant currency revaluation gain. We increase our NAV estimates by ~2% but see further upside in the event of continued yield compression or progress against the development pipeline. CLS trades at a 16% discount to the UK sector on a CY15E P/NAV of 0.92x and offers one of the highest forecast total returns. We retain a BUY rating and raise our TP from 2040p to 2170p.
Interim results to June highlight notable progress since the beginning of the year with 12,356 sqm of lettings, three acquisitions and new bank finance secured. The core business continues to perform well. CLS is seeing the benefits of an improving economy in both the UK and Germany. A combination of strong operational earnings and a rise in property values resulted in an increase of 11.3% in EPRA NAV in constant currency but after the weakness in the euro and the krona against its reporting currency sterling, EPRA net assets grew by 7.9% to 1914p, compared to 1,774p at December 2014. The property portfolio value, including properties held for sale, now stands at £1.365bn, an increase of 4% in local currencies. The group has maintained its core strengths of strong cash generation with operating cash flow up by 13.3% to £24.7m, driven by the healthy arbitrage between net initial yield and cost of debt. A weighted average cost of debt reduced to 3.46% and interest cover remains comfortable at 3.1x. The group has proposed an increased distribution to shareholders, up 5.1% to £5.7m by way of a tender offer buy-back of 1 in 162 at 2,190p, the equivalent of 13.52p per share. We were previously forecasting FY2015 an NAV of 1,949p. In light of the strength of results we will raise this estimate in due course. The shares have performed well over the last 12 months rising by 45%, we anticipate further outperformance, given the strength of the underlying portfolio and development pipeline. We reiterate our longstanding Buy recommendation.
CLS delivered good progress in NAV and earnings through H1 up 8% and 12% respectively, in line with our expectation. Strength in London and recovery across the Rest of the UK drove a revaluation gain ahead of our expectation, partly offset by adverse FX across Europe. We make no change to our earnings forecasts, but increase NAV by 2%. Occupational demand is firm, with declining vacancy and progress on new lettings. Cost of debt continues to decline, with CLS gradually increasing its weighting of fixed debt. The shares trade at a 14% discount to the sector on a CY15E P/NAV of 0.95x. We retain our BUY rating.
