CLS : 2022 Half Year Results

PRESS RELEASE

The announcement contains inside information for the purposes of UK MAR.

Release date:	10 August 2022
Embargoed until:	07:00

CLS HOLDINGS PLC

("CLS", the "Company" or the "Group")

ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT

FOR THE 6 MONTHS TO 30 JUNE 2022

Sound portfolio, index-linking and majority fixed debt provide protection against economic headwinds

CLS is a leading FTSE250 office space specialist and a supportive, progressive and sustainably focused commercial landlord, with a c.£2.4 billion portfolio in the UK, Germany and France, offering geographical diversification with local presence and knowledge. For the half year ended 30 June 2022, the Group has delivered the following results:

	30 June 2022	31 December 2021	Change (%)
EPRA Net Tangible Assets ("NTA") per share (pence)1	352.8	350.5	0.7
Statutory NAV per share (pence)1	329.2	326.6	0.8
Contracted rents (£'million)	107.9	107.6	0.3

	30 June 2022	30 June 2021	Change (%)
Profit before tax (£'million)	20.3	24.7	(17.8)
EPRA Earnings per share ("EPS") (pence)1	5.8	5.4	7.4
Statutory EPS from continuing operations (pence)1	4.2	2.2	90.1
Dividend per share (pence)	2.60	2.35	10.6

1 A reconciliation of statutory to alternative performance measures is set out in Note 4 to the condensed Group financial statements

Fredrik Widlund, Chief Executive Officer of CLS, commented:

"CLS delivered a robust set of results in the first half of 2022, with EPRA NTA growing by 0.7%, EPRA EPS up 7.4% and the interim dividend up 10.6%. We remain focused on actively managing our portfolio to drive long-term value and continue to invest where we see opportunities.

"We are well placed to navigate the challenging economic and trading conditions with our high-quality portfolio, a significant portion of index-linked leases and strong balance sheet.

"We continue to believe the share price discount is unjustified and today are announcing an initial £25.5 million tender offer share buyback to address the issue. If the share price discount persists, we will consider further buybacks in tandem with disposals demonstrating the Board's commitment to delivering shareholder value whilst maintaining the Group's gearing at appropriate levels."

Registered in England No. 2714781. Registered Office as above

FINANCIAL HIGHLIGHTS

• EPRA NTA up 0.7% primarily as a result of foreign exchange gains from weakening sterling with the portfolio valuation slightly up in local currency before lease incentives
• Portfolio valuation up 0.1% in local currency with increases in the UK of 0.5% and Germany of 0.3%, partly offset by declines in France of 2.1%
• Profit before tax down 17.8% to £20.3 million (30 June 2021: £24.7 million) from lower fair value movements on investment properties due to lease incentives (£3.1 million) and a one-off profit on disposal of equity investments in 2021 (£1.4 million)
• EPRA EPS up 7.4% to 5.8 pence per share from lower foreign exchange losses, lower tax following REIT conversion, and higher income from our hotel and student operations, partly offset by higher expenses as 2021 included the release of pandemic bad debt provisions. Statutory EPS up 90.1% due to lower UK tax charges after the conversion to a UK REIT
• Interim dividend up 10.6% to 2.60 pence per share (30 June 2021: 2.35 pence per share) to be paid on 3 October 2022. Increased dividend reflects the adoption of our updated dividend policy announced in May
• Total accounting return of 2.2% (30 June 2021: (0.8%))

OPERATIONAL HIGHLIGHTS

• Net rental income increased by 0.9% to £52.8 million (30 June 2021: £52.3 million) as a result of higher income from our hotel and student operations and higher dilapidations income
• Acquired two properties for £76.9 million, which completed in April and July respectively. These properties were bought for their asset management opportunities at a combined net initial yield of 5.1% and a reversionary yield of 5.6%
• Completed the disposal of two smaller properties for £10.1 million, one of which had exchanged in 2021, at book value. Post period end, completed on a further three disposals for £39.8 million at an average 3.7% above book value
• Completed 60 lease events (30 June 2021: 53) securing £4.4 million (30 June 2021: £5.2 million) of annual rent at 4.5% above ERV with like-for-like contracted rent increasing by 0.4%
• Vacancy rate increased to 6.9% (31 December 2021: 5.8%; 31 March 2022: 7.2%). Most of this increase was due to lease expiries and completion of developments currently being marketed to prospective tenants
• Rent collection remained at the same, consistently high levels with 99% of first half rent collected and 98% of third quarter contracted rent due collected to date

FINANCING

• Weighted average cost of debt at 30 June 2022 up 4 basis points to 2.26% (31 December 2021: 2.22%) due to increases in SONIA on UK floating rate debt
• Loan-to-valueat 38.9% (31 December 2021: 37.1%) reflecting net investments in the period. Gross debt of
  £1,043.2 million (31 December 2021: £1,031.6 million) with cash of £110.4 million (31 December 2021: £167.4
  million) and £50 million (31 December 2021: £50 million) of undrawn facilities
• In the first half of 2022, financed or refinanced £92.3 million of debt at 1.81% for 1.9 years. Discussions well advanced for the remaining £93.6 million refinancings, excluding amortisation, due in 2022
• The loan portfolio as at 30 June 2022 had 80% at fixed rates (31 December 2021: 85%) with the reduction as a result of short-term floating rate extensions in advance of longer-term loans once the letting of the buildings has been improved or to give flexibility for potential sales

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

• Progress continues with implementing our ambitious but achievable long-term sustainability targets including our 2030 Net Zero Carbon Pathway. We have completed 35 carbon reduction projects with another 76 projects in progress totalling £11 million estimated spend by the end of 2022 which will save an estimated 1,300 tonnes CO2e per annum and puts us on track to achieve our targets
• A 23% net increase in CLS' solar electricity generation and a further 347kWp increase in capacity in progress from the installation of new solar arrays in the UK. We are also installing more electric vehicle charging points in the UK and Germany
• Taking action on social challenges including supporting refugees from the Ukraine war, donating to local food banks tackling the cost-of-living crisis for the poorest and volunteering to support local community projects

Tender Offer Share Buyback and Interim Dividend Timetable

Further to this announcement, in which the Board announced a £25.5 million tender offer share buyback and declared an interim dividend of 2.60 pence per ordinary share, the expected key timetable dates are as follows:

	Tender Offer	Dividend Timetable
Announcement Date for the Tender Offer and Dividend	10 August 2022	10 August 2022
Posting of Tender Offer Circular / Tender Offer opens	15 August 2022
Ex-Dividend Date		8 September 2022
Record Date for the Tender Offer and Dividend	9 September 2022	9 September 2022
General Meeting / Tender Offer Closes	9 September 2022
Outcome of Tender Offer announced by	12 September 2022
Cheques despatched / CREST accounts credited	By 16 September 2022
Dividend Payment Date		3 October 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 10 August 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.

• Liberum Capital: Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY
• Webcast: The live webcast will be available here:https://secure.emincote.com/client/cls/cls005
• 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/cls005/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 [phone]

Liberum Capital Limited

Richard Crawley

Jamie Richards

[phone]

Panmure Gordon

Hugh Rich

[phone]

Berenberg Matthew Armitt Richard Bootle

[phone]

Edelman Smithfield (Financial PR)

Alex Simmons [phone]

Hastings Tarrant [phone]

Forward-looking statements

This document may contain certain 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of CLS speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, the Company does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Information contained in this document relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

Chief Executive's statement

Sound portfolio, index-linking and majority fixed debt provide protection against economic headwinds

OVERVIEW

CLS delivered a robust set of results in the first half with increases in net assets, profits and dividends. Our focus remains on our diverse and strong set of tenants with continued high rent collection and excellent results from our one hotel and student operation. CLS remains well-placed with significant financial strength despite the slowdown in market activity that we have seen since the end of the first quarter.

We secured 331,668 sq. ft (30,813 sqm) of lettings and renewals but vacancy increased to 6.9% (31 December 2021: 5.8%) due to lease expiries and completion of refurbishments, which are currently being marketed to prospective tenants. We invested £24.5 million of capital expenditure in an increased number of refurbishments and a limited amount of developments so as to improve the quality of our space to meet market needs.

Over the six months, EPRA NTA increased by 0.7% to 352.8p per share (31 December 2021: 350.5p) mainly as a result of positive foreign exchange movements due to sterling weakening and a slight overall uptick in property valuations before lease incentives. Total accounting return for the six months was 2.2% (30 June 2021: (0.8%)).

Given market uncertainty, we have chosen to reduce our acquisition activity with just two acquisitions made in Germany for £76.9 million. The properties, which exchanged in the first quarter, completed in April and July. Each had a Net Initial Yield ("NIY") of 5.1% but both have good asset management opportunities and a combined reversionary yield of 5.6%. Two disposals were completed in the first half for £10.1 million at book value with a NIY of 6.0%. Since the half-year, three further disposals have completed for £39.8 million at an average of 3.7% above 31 December 2021 book values with a NIY of 4.9%. We are targeting further disposals in the second half, focussing on smaller properties with less growth potential, to release funds to invest in the portfolio whilst maintaining gearing at appropriate levels.

We announced in May an intention to initiate a tender buyback if the share price discount to book value remained at unjustified levels. Consequently, today we have announced a £25.5 million tender buyback for 1 in every 40 ordinary shares at £2.50 per share. The tender offer document containing further details will be sent out shortly. If the share price discount persists, we will consider further buybacks in tandem with disposals so as to maintain gearing at appropriate levels.

RESULTS AND FINANCING

Profit after tax for the six months to 30 June 2022 was £17.3 million (30 June 2021: £8.8 million), equivalent to

earnings per share of 4.2p (30 June 2021: 2.2p). The increase was as a result of: higher net rental income of £52.8

million (30 June 2021: £52.3 million); smaller FX losses of £0.2 million (30 June 2021: £1.9 million loss); lower

current tax charge of £1.2 million (30 June 2021: £4.5 million) and lower deferred tax charge of £1.8 million (30

June 2021: £11.4 million) following the conversion of CLS' UK operations to a REIT. EPRA earnings per share

were 5.8p (30 June 2021: 5.4p), 7.4% up on last year.

Shareholders' funds increased in the six months by 0.8% to £1,341.3 million reflecting the weakening of sterling partly offset by the payment of the final dividend in April.

Our balance sheet liquidity remains strong with £110.4 million of cash and £50 million of undrawn facilities. Whilst our loan book remains substantially at fixed rates with 80% secured (31 December 2021: 85%), our weighted average cost of debt increased marginally to 2.26% (31 December 2021 2.22%) reflecting the increase in the UK bank base rate impacting UK floating rate debt. All of the remaining 2022 refinancings of £93.6 million are well advanced. Net debt excluding leasehold liabilities rose to £932.8 million (31 December 2021: £864.2 million) and loan-to-value rose to 38.9% (31 December 2021: 37.1%) reflecting net investment in the period. Interest cover remained high at 3.1 times (30 June 2021: 3.2 times) demonstrating the Group's ongoing ability to generate cash.