CLS Holdings plc Annual Report and Accounts 2020 Well placed for the future Our business CLS is a London-based FTSE 250 office investment Through our business model, we seek to be company with a £2.2 billion portfolio of 97 properties a responsible business by employing sustainable comprising 6.4m sq. ft (over 597,000 sqm) in the long-term thinking with the environment in mind. UK, Germany and France. We provide workspaces As well as benefiting our own business and shareholders, for over 740 tenants including leading blue-chip this supports other key stakeholders like our tenants companies and government bodies. in their efforts to reduce their environmental impacts and achieve their sustainability objectives. We actively manage our portfolio with in-house teams across all functions of the business. This allows us to engage with our tenants to build long-term relationships and develop a detailed understanding of their needs. It also allows us to embed sustainable behaviours throughout the business which support and drive our progress towards our commitments. Who we are and what we believe Statutory and alternative performance measures Throughout the strategic report we use a range of financial and non-financial measures to assess our performance. The majority of those are European Public Real Estate Association (EPRA) measures. EPRA is a recognised body in the property industry which is involved in the formulation of accounting metrics and sustainability reporting, which give the European listed real estate sector greater transparency and consistency. These standards also provide visibility and comparability to industry stakeholders in addition to being appreciated by the investment community. Management uses these measures to monitor the Group’s financial performance alongside International Financial Reporting Standards (IFRS) measures because they help illustrate the underlying financial performance and position of the Group. The EPRA measurements should be considered in addition to measures of financial performance, financial position or cash flows reported in accordance with IFRS. Note 5 to the financial statements provides a reconciliation of the alternative performance measures used and the Glossary gives a more complete description of them. Front cover: Mittlerer Pfad 2-4, Stuttgart CLS Holdings plc Annual Report and Accounts 2020 CLS Holdings plc 18 Strategic reportStrategic 02 Corporate governance Rhône-Alpes, Lyon 6 Strategic report statementsFinancial 2 Group highlights 4 Chairman’s letter 5 Chief Executive’s review 10 Our investment proposition 12 The future of the office and the office of the future 16 Business model and strategy 22 Key performance indicators information Additional 24 Strategy in action 32 Engaging our stakeholders 34 Environmental, social and governance review 44 Country reviews 50 Chief Financial Officer’s review 54 Our principal risks 63 Going concern and viability Corporate governance 64 Chairman’s introduction 65 UK Corporate Governance Code 66 Board of Directors 68 Board leadership and Company purpose 74 Workforce engagement 76 Division of responsibilities 78 Nomination Committee Report 86 Audit Committee Report 90 Remuneration Committee Report 110 Directors’ Report 113 Directors’ responsibility statement Financial statements One Elmfield Park, Bromley 114 Independent Auditor’s report to the members of CLS Holdings plc 122 Group income statement 123 Group statement of comprehensive income 124 Group balance sheet 125 Group statement of changes in equity 126 Group statement of cash flows 127 Notes to the Group financial statements 159 Company balance sheet 160 Company statement of changes in equity 161 Notes to the Company financial statements Additional information 165 Five-year financial summary 166 Glossary of terms 168 Directors, officers and advisers 33 Reflex, Bracknell CLS Holdings plc Annual Report and Accounts 2020 01 Solid, stable and diversified portfolio Highlights CSR highlights (see pages 36-38) Property portfolio by value The chart shows the value of the property Basic NAV +5.7% Reduction in CO2 emissions portfolio (see note 11) which comprises investment property, properties held for 311.9p 6.4% sale, student accommodation and a hotel. (2019: 295.1p, see note 5) from prior year 1 EPRA NTA1 +5.8% Sustainable electricity 3 345.2p 91% (2019: 326.3p, see note 5) Renewable/low-carbon sourced electricity Basic EPS -42.6% GRESB rating 19.0p 72 (2019: 33.1p, see note 5) up two points from prior year 2 EPRA EPS +1.7% Sustainably-linked loans 1. United Kingdom £1,125.7m 12.2p 15% 2. Germany £747.7m (2019: 12.0p, see note 5) of Group debt are ‘green’ loans 3. France £309.6m Valuation uplift2 3 4 1 +1.4% 2 (2019: +3.0%) Full year’s dividend +2.0% 7.55p (2019: 7.4p, see note 23) Profit before tax -39.3% £96.5m Rent by property use (2019: £159.0m) Cost of debt lowered further to 2.28% (2019: 2.42%) Rental income collection 99% (2019: 98%) 1. Oce 92% 2. Student 4% 1 EPRA NTA replaces the Group’s previous measure 3. Hotel 2% of EPRA NAV (See note 5). 2 In local currency – total property portfolio. 4. Retail 2% 02 CLS Holdings plc Annual Report and Accounts 2020 Active asset management Rent by sector Strategic reportStrategic 116 asset management deals completed 25.1% 11.7% securing £13.6m of annual rent at 8.2% Government Information Technology above ERV (2019: 158 deals, £14.7m annual rent at 3.3% above ERV) Rental income Rental income decreased by 1.1% to £106.5m (2019: £107.7m) 11.6% Commercial and Professional Service Corporate governance Asset enhancement Total capital expenditure £17.5m (2019: £16.7m) High occupancy levels Vacancy rate increased to 5.3% 9.5% 8.5% (2019: 4.0%) Consumer Industrials Growing the portfolio Discretionary Financial statementsFinancial • Eight acquisitions (six properties and two floors) made for £112.8m • Six properties disposed of for £63.8m 8.1% Financing initiatives Communication Financed £261.5m at 2.08% pa for 9.3 years Services Balance sheet loan-to-value 5.4% 6.6% 33.7% (2019: 31.4%) Financials Health Care Additional information Additional 4.3% Real Estate 3.9% 2.8% 2.5% Consumer Staples Other Energy 1 Rental Net rental Contracted Contracted Rental data income for income for Lettable rent at ERV at rent subject the year the year space year end year end to indexation Vacancy rate £m £m sqm £m £m £m at year end United Kingdom 58.2 60.4 201,336 57.2 64.0 14.0 6.2% Germany 33.3 32.7 277,851 34.7 39.2 22.3 4.0% France 15.0 14.8 81,455 16.0 16.7 16.0 5.1% Total portfolio 106.5 107.9 560,642 107.9 119.9 52.3 5.3% Valuation data1 Valuation movement in the year EPRA Market value Foreign ‘topped -up’ of property Underlying exchange EPRA net net initial Equivalent £m £m £m initial yield yield Reversion Over-rented yield United Kingdom 1,003.8 (25.7) – 5.0% 5.2% 8.3% 3.1% 5.7% Germany 743.4 58.4 38.2 4.1% 4.3% 12.3% 5.0% 4.4% France 307.5 0.7 16.2 4.0% 4.7% 4.7% 3.6% 4.6% Total portfolio 2,054.7 33.4 54.4 4.5% 4.8% 9.1% 3.5% 5.1% Lease data1 Average lease length Contracted rent of leases expiring in: ERV of leases expiring in: Years After Years After To break To expiry Year 1 Year 2 3 to 5 5 years Year 1 Year 2 3 to 5 5 years years years £m £m £m £m £m £m £m £m United Kingdom 3.5 4.7 5.3 4.0 23.5 24.4 6.0 4.3 25.4 24.5 Germany 5.0 5.2 8.5 5.1 10.2 10.9 10.0 5.8 10.6 11.3 France 2.5 4.9 0.6 0.6 7.3 7.5 0.6 0.6 7.4 7.3 Total portfolio 3.8 4.9 14.4 9.7 41.0 42.8 16.6 10.7 43.4 43.1 1 The above tables comprise data of the investment properties and properties held for sale. They exclude owner occupied, land, student accommodation and hotel. CLS Holdings plc Annual Report and Accounts 2020 03 Strategic report Chairman’s letter Environmental, Social and Governance In 2020, we completed the drafting of our new sustainability strategy which will come into effect in 2021. The strategy is built around investing in properties, working in partnerships with stakeholders and being a responsible business to deliver positive environmental impacts and socio-economic outcomes. In 2021, we will complete our technical portfolio assessment in order to launch our Net Zero Carbon pathway in our sustainability report later this year with a realistically achievable delivery date. More detail is set out on pages 34 to 38. This year was clearly more challenging for employees in terms of personal interaction but we put significant emphasis on ensuring employee well-being, albeit necessarily much was done on a remote basis. Our concentration on our employees was reflected in the favourable staff survey results, which are discussed further on page 40. There were several changes in the membership of the Lennart Sten Board through retirements and appointments in 2019. In 2020 we Non-Executive Chairman implemented the changes in committee composition and chairs previously announced to continue to refresh and improve the balance and skills of the Board and committees. A critical focus of the Group is to ensure that all stakeholders are considered in our decision-making and pages 70 and 71 give examples of how we discharged our S172 obligations when making We remain convinced that offices have a vibrant significant decisions across our business model.