CLS Holdings (LSE:CLI) reported a deeper first-half loss as declining office property valuations and lower rental income weighed on performance, prompting the group to prioritise asset disposals, refinancing and leverage reduction over an interim dividend.
Falling property values weigh on first-half results
CLS reported a statutory loss after tax of £69.6 million for the first half, while EPRA earnings per share declined 32.5% to 2.7 pence.
The value of its property portfolio fell 4.6% in local currency, contributing to an 11.5% decline in EPRA net tangible assets per share.
Net rental income decreased 13.1% to £46.3 million. The decline reflected a combination of lease expiries, tenant insolvencies and the impact of £201.2 million of property disposals completed since the beginning of 2025.
Despite these pressures, portfolio vacancy remained stable at 14.5%, while rent collection and leasing activity provided some operational resilience.
CLS prioritises disposals over interim dividend
The board decided not to pay an interim dividend as CLS directs capital towards strengthening its balance sheet.
Asset sales have become an important part of that strategy. The company has completed or agreed multiple disposals and expects approximately £100 million of property sales during 2026.
The programme is intended to reduce leverage while allowing CLS to reshape its portfolio around assets where management sees stronger occupier demand or opportunities to create additional value.
Alongside disposals, the group continues to progress redevelopment and conversion plans and is advancing repositioning projects across its German portfolio.
Debt falls but loan-to-value ratio increases
CLS reduced net debt by £44.2 million during the period, but declining property valuations meant its loan-to-value ratio still increased to 51.6%.
That illustrates one of the central challenges facing the group: asset sales and debt repayments are reducing absolute borrowings, but falling portfolio values can offset that progress when leverage is measured against property assets.
Refinancing remains another priority. By the end of the first half, CLS had addressed 57% of its 2026 debt maturities, with another 32% subsequently approved or agreed.
The group continues to rely primarily on secured borrowing, with most debt carrying fixed interest rates. Available cash and undrawn facilities provide additional liquidity as CLS operates against a higher-for-longer interest rate backdrop.
Full-year earnings expected to remain under pressure
Management expects the weaker operating environment to continue affecting earnings during the remainder of 2026.
CLS is guiding for full-year earnings per share of between 4.6 pence and 5.5 pence, reflecting the impact of disposals, vacancy and other portfolio pressures.
Near-term priorities include filling vacant space, completing further asset sales, refinancing upcoming maturities and directing investment towards properties with clearer opportunities for improved returns.
The leasing pipeline remains encouraging, according to the company, but execution on disposals and occupancy will be important in determining whether CLS can strengthen its balance sheet while limiting further earnings pressure.
Financial risks remain despite debt reduction
CLS continues to face financial headwinds from multi-year net losses and elevated leverage, although positive operating and free cash flow provide some support.
The absence of an interim dividend also changes the near-term income proposition for shareholders as management prioritises debt reduction.
Technical indicators have become moderately more supportive, with near-term momentum improving. Valuation remains mixed, however, as the company’s historically high dividend yield is balanced against its loss-making position and negative price-to-earnings ratio.
For investors, progress on property valuations, vacancy, disposals and refinancing is likely to remain particularly important as CLS works to reduce leverage and stabilise earnings.
More about CLS Holdings
CLS Holdings PLC is a specialist commercial property landlord managing an approximately £1.6 billion portfolio of predominantly multi-let offices across the U.K., Germany and France.
The company focuses on actively managing well-located properties across Europe’s three largest economies, with its strategy centred on reducing vacancies, controlling void costs, disposing of selected properties and investing where opportunities exist to improve asset values and occupier demand.
Sustainability is also incorporated into the portfolio strategy. CLS has reported reductions in landlord energy consumption and an increasing proportion of U.K. properties achieving EPC ratings between A and C.
Redevelopment, conversion and repositioning projects in London and German cities form part of its efforts to modernise the portfolio while improving its appeal to occupiers.
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