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CLS Holdings (CLI) – the next to look anomalously cheap

SKYSHIP
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CLS Holdings (CLI) – the next to look anomalously cheap

#407113

Postby SKYSHIP » April 26th, 2021, 2:22 pm

CLS Holdings (CLI) – the next to look anomalously cheap

Having banked turns in RGL & AIRE, I was casting my eyes over the 18 REIT/Propcos in my constantly updating spreadsheet.

What a difference a few months has made, with NAV discounts shrinking back from the many in the 35% range to now at an average of just over 21% - I exclude CREI, LXI & WHR in that calculation as they are all secure yield plays trading at a premium.

After a long deliberation I have reinvested the sale proceeds into the only one still looking cheap, other than SREI of course........CLS Holdings (CLI).
CLI is a rather different player in that its portfolio is almost wholly Office (92%) and the geographical split was last declared as: GB 52%; DE 34%; FR 14%. However after recent acquisitions, predominantly in Germany, I estimate the mix now to be: GB 49%; DE 39%; FR 12%.

Currently it has not converted to REIT status; though they recently stated in the Q&A session after the post-Finals presentation (see link below), that that might change if corporation taxes were to rise – a subject of much global political discussion at the moment. CLI @ 235p are still on a 31.9% discount; though an aggravatingly low yield of just 3.2%. Full REIT status would obviously be beneficial for income seekers as the last annual dividend of 7.55p would need to rise to 11.0p to comply with the REIT regs. EPRA EPS was 12.2p.

https://secure.emincote.com/client/cls/cls002#

I would strongly advise watching the Presentation as there is a wealth of good information in there. So much so that you will surely wonder, with discounts tumbling across the board, just why are CLI still available on a 31.9% discount.

# Rent collection at 99%.
# Well diversified tenant base, with c50% Government or large corporations
# Low average rents at under £19/sq ft
# ERVs 11% above contracted rents
# Debt cost 2.28%
Etcetcetc

All of us on the REIT thread will be enjoying good profits; but many may have missed CLI. I strongly recommend you take a look… (Obvious disclosure – I hold from 230p; and added today)

Incidentally, a PS: After the sad death last December of CLI’s founder, IMO there is also the likelihood of corporate action later this year as the family trust trustees have to decide on the future of their 51.5% stake. They will need to maximise value; but more important, they will surely need to diversify the Trust’s assets. A sale to Private Equity may be the future.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#408361

Postby SKYSHIP » April 30th, 2021, 4:35 pm

CLI made a nice chart breakout through 240p today. Closed at 250p...short-term target 260p.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#408371

Postby jonesa1 » April 30th, 2021, 5:33 pm

I bought a few at 233.5p, thanks for the suggestion.

Andrew

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#408607

Postby SKYSHIP » May 1st, 2021, 4:08 pm

Excellent price - well done you!

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#460891

Postby SKYSHIP » November 25th, 2021, 4:13 pm

I mentioned these back in April when the sp was c233p. I had a target of 260p, which they hit in June, they hit it again in July and then again in August.

Since then however it has been all downhill; whilst others in the sector are hitting their highs; and some even challenging pre-pandemic levels.

The past few days they have been as low as 207p; now c210p as I type. So that represents a 19.2% fall from the summer’21 levels; and most crucially represents a 38% discount to the Sept’21 NAV.

The fall may well be partially due to the strengthening £ versus the Euro, noting that 51% of their properties are in Germany & France. Also continental Europe is again caught up in another Covid wave.

That said, with office valuations steadying and even improving slightly for prime assets, it seems anomalous that Regional Properties (RGL) should be trading at a mere 8% discount, in spite of the fact that they do provide a 7.2% yield – double that of CLI.

That cavernous 38% discount for CLI will surely close as they are set to adopt REIT status for the UK subsidiary which holds 49% of the property valuation. How the mechanics work to separate out the UK from Europe, I have no idea! However, it will enable CLI to be more generous with their dividend.

One last thing. We are approaching the first anniversary of the death of CLI’s founder. The family and the trustees of the controlling family trust must surely be pondering the attraction of selling the company for a valuation of 50% over the listed share price. A diversification of their portfolio from a 100% commitment to commercial property will at some stage seem both attractive and logical.

The shares are now too cheap and represent excellent value.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#461407

Postby SalvorHardin » November 27th, 2021, 1:58 pm

Thanks for the write up. I bought some yesterday at a touch over 205p.

Regarding REIT conversion, under the new rules coming into effect next April, it looks as if the UK properties could all be put in a UK REIT which is a wholly owned subsidiary of CLS. Accountants BDO have more on this:

https://www.bdo.co.uk/en-gb/insights/industries/real-estate/reits-rules-relaxed

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#461855

Postby flyer61 » November 29th, 2021, 3:33 pm

Have joined you gents albeit I have been watching this one for sometime.

Going forward Offices give me the hebbi gebbi's, however the rent collection rate has been exceptionally good.

Still a little potted as to why they are continuously going down. Is there a big seller in the market? or is it not a very actively traded stock?

Hopefully with this margin of safety to the NAV and with other things on the horizon this will bring us to the sunny uplands.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#461864

Postby SalvorHardin » November 29th, 2021, 4:05 pm

flyer61 wrote:Have joined you gents albeit I have been watching this one for sometime.

Going forward Offices give me the hebbi gebbi's, however the rent collection rate has been exceptionally good.

Still a little potted as to why they are continuously going down. Is there a big seller in the market? or is it not a very actively traded stock?

Hopefully with this margin of safety to the NAV and with other things on the horizon this will bring us to the sunny uplands.

A quick check on the trading. From Stockopedia we have 407,395,760 shares issued with an average daily trading volume of 281,000 shares. That's 1,450 days to turnover the entire shares issued, which is roughly 5.8 trading years (Stock Exchange is open for roughly 250 days per year). Given that the shares of the typical operating company are turned over about one year, it's a pretty inactive share register by comparison. A major reason for this is that Mortstedt family and charitable trusts own 51.46%.

Offices in decent locations can always be converted to flats if the demand for offices never returns to pre-lockdown levels. Then again some firms have been using the same amount of office space for fewer staff to ensure that the space is less crowded.

Now whilst the news about the latest major coronavirus variant doesn't look good for offices at first glance, I believe that this variant isn't anywhere like as dangerous as delta based upon early reports from South Africa (and how viruses typically evolve). These indicate that Omicron is more infectious than Delta but less harmful. Unfortunately the media (and politicians) tend to see "more infectious" and translate this to "vastly more dangerous to health"). This is a why I bought on Friday whilst the market was falling, having had CLS on my watchlist since I saw SKYSHIP's excellent post back in April.

JOHANNESBURG, Nov 28 (Reuters) - A South African doctor who was one of the first to suspect a different coronavirus strain among patients said on Sunday that symptoms of the Omicron variant were so far mild and could be treated at home. Dr. Angelique Coetzee, a private practitioner and chair of South African Medical Association, told Reuters that on Nov. 18 she noticed seven patients at her clinic who had symptoms different from the dominant Delta variant, albeit "very mild".

https://www.reuters.com/world/africa/safrican-doctor-says-patients-with-omicron-variant-have-very-mild-symptoms-2021-11-28/

https://www.telegraph.co.uk/global-health/science-and-disease/south-african-doctor-raised-alarm-omicron-variant-says-symptoms/

I held CLS Holdings shares quite some time ago (before the 2008 financial crisis), long before they started paying dividends. Back then, due to Swedish tax law, it was more efficient for the family if the company didn't pay dividends as cash but instead tendered to buy some shares back at a premium to the market price. Lots of shareholders didn't bother with the tenders, which meant that you could often increase your shareholding by tendering your entire holding then using whatever cash you received to buy back the tendered shares and a few more. This was a bit of a nightmare if done outside an ISA because of the capital gains tax calculations :D

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#462276

Postby Gerry557 » December 1st, 2021, 10:44 am

flyer61 wrote:Have joined you gents albeit I have been watching this one for sometime.

Going forward Offices give me the hebbi gebbi's, however the rent collection rate has been exceptionally good.

Still a little potted as to why they are continuously going down. Is there a big seller in the market? or is it not a very actively traded stock?

Hopefully with this margin of safety to the NAV and with other things on the horizon this will bring us to the sunny uplands.


I'm not sure what has spooked the SP. Covid stories have played a part but there must be something else. Still Skyship keeps a good watch on REITs so I might bow to his knowledge.

I joined in this morning after watching yesterday. I was in two minds but wanted to catch up on the last reports first.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#469005

Postby Wozzitworthit » December 29th, 2021, 1:28 pm


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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#477691

Postby RockRabbit » February 1st, 2022, 8:51 am

Chairman bought 40,000 shares at 222p on 25 Jan 2022.

https://www.londonstockexchange.com/new ... g/15303288

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#502403

Postby SalvorHardin » May 24th, 2022, 9:21 am

I've clearly been asleep as I missed this RNS of 11th May, about a proposed tender to reduce the discount to NAV (and which also mentions a small change in dividend policy.

"CLS remains committed to its strategy and business model to drive long-term value including its planned 2022 disposals, which to date have been at or above valuations. Nevertheless, the Board of CLS believes the share price discount to its net tangible assets ("NTA") is unjustified and believes that it is in the best interests of all shareholders to take steps to reduce this discount.

Subject to the completion of a number of property sales by the end of the first half of 2022, and the significant share price discount to NTA persisting, CLS intends to undertake a tender offer of its ordinary shares, the terms of which will be announced following the publication of the Group's half yearly financial results on 10 August 2022. The quantum of any tender offer will be scaled to ensure the Group's loan-to-value is still within an acceptable level by the year-end. "


"The company will maintain a progressive dividend policy, with a dividend cover of 1.2 to 1.6 times EPRA earnings (previously 1.5 to 2.0 times"

https://www.investegate.co.uk/cls-holdings-plc/rns/dividend-policy-update/202205110700050247L/

Current share price 226p, most recent NAVs as of 31st December are 350.5p (EPRA NTV) and 326.6p (statutory), so the discount is 35.5% or 30.8%.

The tender should be interesting. Years ago when I previously owned some CLS Holdings shares, they used to make a tender offer at a premium to the share price instead of paying dividends and it was possibly to tender everything, get paid for more than your expected allocation and then buy back more shares than you sold.

That said, discounts have appeared everywhere in the property sector in the last couple of years. So a big discount doesn't necessarily mean cheap in the light of current market sentiment. Even Shaftesbury, whose shares routinely traded at a big premium to NAV, are trading at a discount of almost 14% to the 679p NAV published this morning with its interim results.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#514343

Postby brightncheerful » July 14th, 2022, 6:08 pm

At £1.978 buy (at close) i really ought to given the favourable comments on this thread.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#514361

Postby SalvorHardin » July 14th, 2022, 6:52 pm

brightncheerful wrote:At £1.978 buy (at close) i really ought to given the favourable comments on this thread.

One thing to bear in mind is that many property company shares are now trading on discounts of over 30% of NAV. CLS' discount is now 43%, which doesn't stand out quite as much as it did.

For example, Derwent London used to consistently trade at a price that was quite close to its NAV; it's now on a 33% discount.

Whether Derwent deserves to trade at a premium to CLS depends on people's views about central London (the vast majority of Derwent's properties are situated in the area enclosed by London Underground's circle line). Also about the effects of the expected German recession on CLS' properties when Putin cuts off the gas.

The forthcoming tender offer will provide good support for CLS' shares when it is announced.next month. I'm still holding and added earlier this week at 200p (I also have been buying Derwent London (and Great Portland Estates and Shaftesbury for my sins))

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#514500

Postby brightncheerful » July 15th, 2022, 9:32 am

I'd rather buy into Derwent than CLS. Quite apart from knowing next to nothing about office property investment in mainland Europe, CLS's holdings in London and elsewhere do not impress me. (Also its website is awful compared to Derwent's.)

I appreciate CLS is into secondary locations which means comparison with D is chalk and cheese but Derwent into prime London has in my view more potential for rental and capital growth, particularly as generally high-quality tenants prefer to be in the capital (if only for fear of otherwise being thought of as 'provincial') and overseas sovereign fund investors prefer London. (I note that Derwent owns Bush House in the Aldwych. my first job was at a firm nearby in Kingsway).

Regarding Shaftesbury and Capital & Counties, I think the latter's portfolio is more attractive than the former.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#515194

Postby SalvorHardin » July 18th, 2022, 8:42 am

brightncheerful wrote:I'd rather buy into Derwent than CLS. Quite apart from knowing next to nothing about office property investment in mainland Europe, CLS's holdings in London and elsewhere do not impress me. (Also its website is awful compared to Derwent's.)

I appreciate CLS is into secondary locations which means comparison with D is chalk and cheese but Derwent into prime London has in my view more potential for rental and capital growth, particularly as generally high-quality tenants prefer to be in the capital (if only for fear of otherwise being thought of as 'provincial') and overseas sovereign fund investors prefer London. (I note that Derwent owns Bush House in the Aldwych. my first job was at a firm nearby in Kingsway).

Regarding Shaftesbury and Capital & Counties, I think the latter's portfolio is more attractive than the former.

Yes, there is potentially a massive divide between secondary offices and Derwent's central London properties. Hence the larger discount on CLS (and why my Derwent London shareholding is roughly four times my CLS holding).

In the longer term if there remains the same level of resistance to returning to the office as has been the case since the end of lockdown, I wouldn't be too surprised to see a lot of offices in secondary and primary locations being turned into blocks of flats (more expensive flats in central London). Like you, I'm nowhere near as confident in my ability to predict European office markets than the British market.

CLS' tender offer should support the price when announced. In the past when CLS offered tenders instead of dividends (due to Swedish tax rules), they used to be a nice little earner as lots of shareholders didn't tender their shares (so you could sell more than your "fair share" at a higher price, then buy back more shares than you sold in the tender).

In other news, Derwent London has just announced that it has sold Bush House.

"Derwent London announces that it has exchanged contracts to sell Bush House, South West Wing WC2, a 103,700 sq ft freehold office building. The disposal price is £85m before costs, reflecting a premium to December 2021 book value."

https://www.investegate.co.uk/derwent-london-plc--dln-/rns/disposal-of-bush-house-wc2/202207180700056998S/

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#515693

Postby brightncheerful » July 19th, 2022, 3:44 pm

For the sale of Bush House, DLG's premium to book value I estimate at about £30M

Interim results 11 August 2022.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#524293

Postby Gerry557 » August 22nd, 2022, 10:57 am

Having been distracted by life in general I missed the announcement of the Tender offer. 1 for 40 and a bump in the dividend presumably due to conversion to a REIT.

Will catch up with the news and what to do with my holdings this week.

Hopefully you lot are all up to date

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#524378

Postby SKYSHIP » August 22nd, 2022, 2:42 pm

"The Board believes the share price discount to its NTA is unjustified and it is in the best interests of all Shareholders to implement the Tender Offer to reduce this discount."

IMO the Board is rather naive, or just plain dumb, to believe that such a piddling Tender will have any effect at all in further reducing the discount.

At the falling 197p the discount now = 44.2%. Top of the recent trading range, ie 230p, would still mean a 34.8% discount.

They refer to the EPRA NAV discount as being too high versus the actual NAV of 352.8p

The 250p Tender is frankly a bit of a joke; and really the family shouldn't be accepting. Why do so at a £1 discount to the true value of their shares!!! Trustees really dumb.

All bizarre as it looks like a quality portfolio. Always has. Another mystery that they trade at such a wide NAV discount ; but no institutional support. Surely inevitable that at some stage the family will accept a bid here.

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Re: CLS Holdings (CLI) – the next to look anomalously cheap

#525878

Postby SKYSHIP » August 28th, 2022, 12:22 pm

Well, another week passes by and CLI slumps yet further. Now at 188p and
the discount widened out to 46.7%!


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