CLS (LON:CLI) reported lower first-half earnings as property disposals, tenant departures and valuation declines weighed on results, while the office investor continued its program of asset sales, debt reduction and refinancing.
Chief Executive Fredrik Widlund said the company faces “near-term earnings pressure” after selling more than £200 million of properties since the start of 2025, leaving it with a smaller income-producing portfolio. Leasing activity remained steady but was slower than management had anticipated earlier in the year, he said.
Earnings and dividend decision
Chief Financial Officer Patrick Symons said EPRA earnings declined 32.5% year over year to 2.7 pence per share, or £11 million. The decline principally reflected reduced net rental income following the disposal program and tenant departures during 2025.
Like-for-like net rental income fell 4.7% to £50.8 million. Symons said the expiry of all leases at New Printing House Square in June 2025 and two German tenant insolvencies in the second half of 2025 together reduced like-for-like rental income by £2.6 million. Other lease expiries reduced income by a further £2.5 million, although new leases and indexation added £2.6 million.
Property sales since the beginning of 2025 reduced net rental income by £4.6 million, largely due to the sale of Spring Mews Student, according to Symons. Total net rental income declined to £46.3 million from £53.3 million.
The company reduced property, administrative and financing costs during the period. Finance costs declined as debt was £80 million lower than in the first half of 2025, following repayments associated with asset sales.
CLS will not pay an interim dividend. Widlund said the board will instead determine whether to pay a single final dividend after full-year earnings are known, taking into account dividend coverage and the company’s U.K. redistribution requirement.
The company expects full-year 2026 EPRA earnings of between 4.6 pence and 5.5 pence per share.
Valuations raise leverage despite debt repayment
EPRA net tangible assets fell 11.5% to 177.7 pence per share, driven primarily by a 4.6% local-currency decline in portfolio valuations and the payment of the 2025 final dividend.
Portfolio values declined as yields expanded across all three markets. The U.K. portfolio fell 7.2%, with a 55-basis-point yield expansion, while German values declined 2.5% in local currency and France recorded a blended yield increase of 16 basis points. Symons noted that properties in Dortmund rose in value after the company secured long-term government leases.
Loan-to-value rose to 51.6%, above the company’s target range of 35% to 45%, despite CLS repaying more than £57 million of debt during the first half. Widlund said loan-to-value would have fallen below 50% excluding valuation movements.
Net debt fell £44.2 million during the period. CLS said its weighted average debt maturity was 3.2 years and its weighted average cost of debt increased slightly to 3.9% from 3.8%, reflecting higher long-term interest rates. Interest cover declined to 1.6 times from 1.9 times because of lower earnings.
During questions from analysts, Symons said the company was not seeing lenders demand additional covenants and was refinancing largely with existing lenders on similar terms, with margins of around 1% to 2%. He said the company had covenant headroom of 20% to 31% and was not flagging issues with lenders.
Sales and refinancing progress
CLS sold £57 million of properties during the first half at book value, including The Bricks in Essen. It completed the sale of Columbia House in Bracknell in July, exchanged contracts on the Clockwork building in London and was under offer on another German property.
The company said it had completed or exchanged on £75.7 million of sales and remained on track to achieve approximately £100 million of disposals in 2026. Management said further sales would be monitored in light of valuation movements, leasing progress, leverage and earnings capacity.
CLS refinanced or repaid more than £113 million, or 57%, of debt maturing in 2026. A further 32% had been credit approved or agreed and was expected to close in August and early September, leaving about 11% of 2026 maturities under discussion with lenders.
The company replaced a revolving credit facility with a new euro-denominated facility that increased available funds by about £9 million. It also secured a bridging loan against Spring Gardens, which management said would provide flexibility through the expected sale of that property in the first half of 2027, subject principally to planning.
Leasing, vacancies and development plans
CLS signed £5.7 million of annual rent in the first half and a further £1.9 million in July. New lease volumes increased more than 20% compared with 2025, while fewer lease expiries limited renewal opportunities.
Reported vacancy was stable at 14.5%, with new leases and renewals broadly offsetting expiries and disposals. France recorded the strongest leasing performance, with vacancy declining 4.4 percentage points to 7.7% amid demand for smaller floor plates.
Leases signed during the period were 8.9% below estimated rental values, though Widlund said that excluding one short-term lease at New Printing House Square, the remaining 56 lettings were agreed on average in line with estimated rental values. The company said it may accept lower rents in selected situations to reduce void costs and support occupancy.
Management said it was pursuing investments with shorter paybacks and pre-lets where possible. Projects include tenant fit-outs at Yellow and Gothic House in Germany, a proposed residential-led redevelopment at New Printing House Square, and a Spring Gardens planning application expected to go before the planning committee in September 2026.
About CLS (LON:CLI)
We are a commercial property investment company with a £2.1bn portfolio listed on the Premium Main Market on the London Stock Exchange, specialising in future-focused office space in the UK, Germany and France. Through geographical diversification, local expertise and an active management approach, we transform office properties into sustainable, modern spaces that help our tenants’ businesses to grow.
