REG - Workspace Grp PLC - WORKSPACE GROUP PLC FULL YEAR RESULTS
25/05/2023 07:00
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RNS Number : 5741A Workspace Group PLC 25 May 2023
25 May 2023
WORKSPACE GROUP PLC
FULL YEAR RESULTS
STRONG INCOME GROWTH AND 20% INCREASE IN DIVIDEND FROM OUR DISTINCTIVE
FLEXIBLE MODEL
Workspace Group PLC ("Workspace"), London's leading owner and operator of
sustainable, flexible work space today announces its results for the year to
31 March 2023. The comments in this announcement refer to the period from 1
April 2022 to 31 March 2023 unless otherwise stated.
Financial highlights: Strong rental income growth driving increase in trading
profit and dividend, with valuation resilient
● Net rental income up 34% (£29.9m) to £116.6m, up 17% on an underlying
basis(1)
ּ● Trading profit after interest(†) up 29% to £60.7m
● Total dividend per share up 20% to 25.8p per share (31 March 2022: 21.5p)
● Resilient property valuation of £2,741m, an underlying(2) reduction of 3.2%
(£91m) from 31 March 2022. Like-for-like portfolio valuation down 0.3%
● Loss before tax of £37.5m (2022: £124.0m profit) reflecting a reduction in
the property valuation
● EPRA net tangible assets per share down 6.2% from 31 March 2022 to £9.27
● Robust balance sheet with £148m of cash and undrawn facilities and LTV of 33%
(31 March 2022: 23%)
● Average cost of debt over the year was 3.7% with 73% at fixed rates and a
weighted average drawn debt maturity of 4.1 years as at 31 March 2023
● Announced exchange for sale of McKay non-core assets for £82m in May 2023,
will reduce LTV by 2% to 31% on a proforma basis and increase the percentage
of lower cost fixed-rate debt to 80%
Customer activity: Good demand, high occupancy and pricing momentu
● Continued good customer demand with 1,312 lettings completed in the year with
a total rental value of £34.8m, highlighting the appeal of our flexible offer
● Like-for-like rent roll up by 7.1% to £97.7m
● Like-for-like occupancy stable at 89.1%
● Like-for-like rent per sq. ft. up 9.4% to £40.61
● Strong demand at recently completed projects with occupancy up 10.3% to 80.2%
and rent up £3.4m (36.5%)#
Portfolio activity: McKay integration complete and active capital recycling
● Operational integration of McKay complete, good progress in adapting
properties to the Workspace model and debt facilities transferred and extended
● Sale ofthe residential component of the mixed-use redevelopment at Riverside,
Wandsworth for £54m completed in March 2023
● Sale of McKay non-core assets progressing:
o one asset sold for £7m in July 2022
o five assets exchanged for sale for £82m in May 2023
Project Activity and Sustainability
· Three major projects underway delivering 210,000 sq. ft. of new and
upgraded space. Further 1.1m sq. ft. of projects in the pipeline
· Active asset management delivered a 5% reduction in operational
energy intensity, 27% reduction in gas use and a 12% increase in EPC A and B
rated space to 43%.
Commenting on the results, Graham Clemett, Chief Executive Officer said:
"Our strong trading performance and resilient valuation once again highlight
the core strengths that differentiate Workspace: our unique flexible work
space offer; the quality and sustainability of our owned buildings and the
great in-house customer service and support we provide to our SME customers.
These strengths have enabled us to continue attracting a diverse range of the
brightest SMEs across the capital, from outer London zones to more central
locations. This demand has helped keep occupancy rates high across our
portfolio, which has allowed us to drive a significant, sustained improvement
in pricing and rental income growth. We estimate our target SMEs employ around
21% of London's working population, some 1.2 million people, and represent a
significant market opportunity for us.
We have also made good progress in recycling capital from disposals into our
value-add projects and further strengthening our robust balance sheet. The
sale of the residential component of the mixed-use redevelopment at Riverside,
Wandsworth, for £54m in March was an important step, as was the exchange for
sale of five non-core McKay assets for £82m, announced in May.
As flex has gone mainstream, our offer stands alone as the only true flexible
space and lease option for London's SMEs. Combined with our extensive property
portfolio, long track record of experience and a proven scalable operating
platform, we are well positioned to continue delivering strong income and
dividend growth."
Summary Results
March March Change
2023 2022
(Unaudited)
Financial performance
Net rental income £116.6m £86.7m +34.5%
Trading profit after interest(†) £60.7m £46.9m +29.4%
(Loss)/profit before tax £(37.5)m £124.0m
Full year dividend per share 25.8p 21.5p +20%
March March Change
2023 2022
Valuation
EPRA net tangible assets per share(†) £9.27 £9.88 -6.2%
Property valuation(†) £2,741m £2,402m -3.2%(2)
Financing
Loan to value 33% 23%
Undrawn bank facilities and cash £148m £442m
† Alternative performance measure (APM). The Group uses a number of
financial measures to assess and explain its performance. Some of these which
are not defined within IFRS are considered APMs.
(1) Underlying Net Rental Income excludes net rental income associated with
current year acquisitions, disposals, rent discounts and expected credit
losses.
(2) Underlying change excluding capital expenditure and disposals and
including McKay at acquisition cost.
For media and investor enquiries, please contact:
Workspace Group 020 7138 3300
PLC
Graham Clemett, Chief Executive Officer
Dave Benson, Chief Financial Officer
Paul Hewlett, Director of Strategy & Corporate Development
FGS Global 020 7251 3801
Chris Ryall
Guy Lamming
Details of results presentation
Workspace will host a results presentation for analysts and investors on
Thursday 25 May 2023 at 9:00am. The venue for the presentation is The London
Stock Exchange, 10 Paternoster Square, EC4M 7LS.
The presentation can also be accessed live via webcast or conference call.
Webcast
The live webcast will be available here:
https://secure.emincote.com/client/workspace/workspace023
(https://secure.emincote.com/client/workspace/workspace023)
Conference call
In order to join via phone at 9:00am, 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/workspace/workspace023/vip_connect
(https://secure.emincote.com/client/workspace/workspace023/vip_connect)
Notes to Editors
About Workspace Group PLC:
Workspace is London's leading owner and operator of flexible work space,
managing five million sq. ft. of sustainable space with 76 core locations in
London and the South East.
We are home to some 4,000 of London's fastest growing and established brands
from a diverse range of sectors. Our purpose, to give businesses the freedom
to grow, is based on the belief that in the right space, teams can achieve
more. That in environments they tailor themselves, free from constraint and
compromise, teams are best able to collaborate, build their culture and
realise their potential.
Our ownership model allows us to offer true flexibility. We provide customers
with blank canvas space to create a home for their business, alongside leases
that give them the freedom to easily scale up and down within our
well-connected, extensive portfolio.
We are inherently sustainable - we invest across the capital, breathing new
life into old buildings and creating hubs of economic activity that help
flatten London's working map. We work closely with our local communities to
ensure we make a positive and lasting environmental and social impact,
creating value over the long term.
Workspace was established in 1987, has been listed on the London Stock
Exchange since 1993, is a FTSE 250 listed Real Estate Investment Trust (REIT)
and a member of the European Public Real Estate Association (EPRA).
Workspace® is a registered trademark of Workspace Group PLC, London, UK.
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk
(http://www.workspace.co.uk)
CHIEF EXECUTIVE'S STATEMENT
We entered the year with good momentum and strong levels of customer demand,
and occupancy at our like-for-like properties back at pre-Covid levels of
around 90%. The resulting pricing tension has enabled us to deliver a 9.4%
increase in rent per sq. ft. over the year, with many of our business centres
now back at, or ahead of, pricing levels last seen in 2019. Even with prices
increasing our customers value our offer highly, and it was great to see 88%
stay with us on renewal.
We have also seen a good pace of occupancy increase at recently completed
projects. Most notably, we have seen occupancy at our refurbished Mare Street
property in Hackney move up 25% to 95% in the year, whilst Mirror Works, our
new building in Stratford, saw occupancy increase 58% to 81%. These successes
highlight both the quality of our buildings and the power of our marketing and
sales platform in attracting demand to a broad range of locations and then
converting this demand into lettings.
Our extensive property portfolio across London continues to provide us with a
rich opportunity to upgrade and reposition buildings to meet both the changing
needs of our customers and higher environmental standards. This sustainable
regeneration, at the heart of our business model, drives uplifts in income and
values producing very attractive returns. We currently have a pipeline of
refurbishment and redevelopment projects that will deliver around 1.3m sq. ft.
of new and upgraded space. Our existing buildings are income earning, so we
can selectively decide on the optimal timing for each project to ensure we can
deliver as a minimum our benchmark returns.
Our sustainability ambitions extend beyond simply meeting environmental
standards, and we are proud of the regenerative impact of our business model.
As we breathe new life into old buildings, we create hubs of economic activity
across the Capital, providing significant employment and social benefits in
what are often historically deprived areas. We hold our properties for the
long-term and our engagement with local communities is crucial to our social
sustainability agenda. During the year, we started major refurbishment schemes
at the Chocolate Factory in Wood Green, and The Biscuit Factory in Bermondsey.
The scheme at Leroy House in Islington, which started in summer 2021, is now
well progressed and we expect to complete this project in spring 2024. We also
completed the sale of the residential component of our mixed-use redevelopment
at Riverside, Wandsworth for £54m in March 2023, where we obtained planning
permission for 433 flats, highlighting our opportunity to add value and
recycle capital.
In May 2022 we acquired the previously publicly listed McKay Securities,
adding good quality assets across London and the South East to our existing
portfolio at a discount to book value. We completed the operational
integration of the McKay portfolio in November 2022, and continue to make
progress in our plan to add significant value to the portfolio by adapting the
buildings to our multi-let strategy and rolling out our flexible lease offer.
The market environment has unfortunately slowed the planned sale of identified
non-core assets (principally light industrial and logistics properties). We
sold one asset for £7m in July 2022 and exchanged on the sale of a further
five in May 2023 for £82m.
Overall we have delivered a strong trading performance in the year, with a 34%
increase in net rental income, an increase of 17% on an underlying basis, and
a 29% increase in trading profit after interest. We maintained tight control
over discretionary costs and while we saw an increase in interest costs from
the McKay acquisition, we benefited from the majority of our debt being at
fixed rates.
A resilient property valuation meant that we saw a relatively small decline of
6% in our net asset value per share to £9.27 over the year. Outward yield
movement was largely offset by the increases in rental price levels, with an
underlying fall of just 3.2% in the property valuation.
Our strong trading performance is a testament to our business model:
· We have been championing flexibility in the commercial real estate
market for over 35 years and it is great to see that it has now become firmly
mainstream. Of course, it covers many different offers, but what makes ours
stand apart is the complete flexibility we give our customers - both in terms
of the leases we offer and the ability to fit out their own space. We have
always understood the merits of giving our customers lease flexibility,
achieving strong retention by providing an unmatched quality of service rather
than tying them into long leases. The other aspect of flexibility, the ability
for customers to fit out their space to suit their individual needs, is
sometimes overlooked. This freedom to personalise their space and to create
their own identity is incredibly important. In fact, around half of our
customers use their space in a very different way to a traditional office
occupier, meeting the needs of a diverse range of businesses such as fashion
design, video production, etc.
· Our focus is on creative and service-based SMEs, which we estimate
represent some 21% of the working population in London. These SMEs are in a
very broad range of business sectors and represent a dynamic and exciting
opportunity for us. We estimate Workspace is home to around 3% of this
fragmented market, so we still have plenty to go for.
· We have a well-recognised brand, a scalable and technically advanced
operating platform and an experienced and committed in-house team that
provides a high level of service and support to customers. On that note, I
would like to thank everyone at Workspace for their tremendous efforts through
the year and congratulate them on the delivery of a great set of results.
With the strong improvement in trading performance and confidence in the
longer term prospects of the Company, the Board is recommending a final
dividend of 17.4p per share, taking the full year dividend to 25.8p which is
up 20% on last year.
Lastly, I would like to thank our Chairman Stephen Hubbard, who steps down at
this year's AGM having served as a non-executive for nine years, the last
three as Chairman. He has been a fantastic ambassador and champion of our
business. On behalf of everyone at Workspace, I would like to thank him for
his contribution to the business over the past nine years and wish him all the
very best for the future.
BUSINESS REVIEW
CUSTOMER ACTIVITY
We have seen resilient demand over the year with an average of 109 lettings
per month, despite the extreme hot weather over the summer and disruption
caused by tube and rail strikes. Good activity levels have continued into the
first quarter of 2023/24.
Monthly Average
Q4 Q322/23 Q2 Q122/23
22/23 22/23
Enquiries 932 724 780 757
Viewings 589 479 495 508
Lettings 114 110 106 108
Alongside our new lettings, we have seen strong renewal activity in the year,
with over 700 customers renewing at a retention rate of 88%.
RENT ROLL
Total rent roll, representing the total annualised net rental income at a
given date, was up 6.5% to £140.1m at 31 March 2023.
Rent Roll £m
At 31 March 2022* 131.6
Like-for-like portfolio 6.5
Completed projects 3.4
Projects underway and design stage (1.2)
McKay - London 0.8
McKay - South East 0.1
McKay - Non-core 0.7
Disposals (1.8)
At 31 March 2023 140.1
*Adjusted for McKay portfolio acquired in May 2022
The total Estimated Rental Value (ERV) of the portfolio, comprising the ERV of
the like-for-like portfolio and those properties currently undergoing
refurbishment or redevelopment (but only including properties at the design
stage at their current rent roll and occupancy) was £194.6m at 31 March 2023.
Like-for-like portfolio
The like-for-like portfolio represents 70% of the total rent roll as at 31
March 2023. It comprises 38 properties with stabilised occupancy excluding
recent acquisitions, buildings impacted by significant refurbishment or
redevelopment activity or contracted for sale.
Six Months Ended
Like for Like 31 Mar 23 30 Sep 22 31 Mar 22
Occupancy 89.1% 89.6% 89.5%
Occupancy change (0.5%) 0.1% 3.8%
Rent per sq. ft. £40.61 £38.59 £37.12
Rent per sq. ft. change 5.2% 4.0% 2.8%
Rent roll £97.7m £94.5m £91.2m
Rent roll change 3.4% 3.6% 6.4%
As occupancy levels have stabilised, we have been able to move pricing forward
across our like-for-like portfolio with rent per sq. ft. increasing by 9.4% in
the year to £40.61. Like-for-like occupancy was marginally down by 0.4% to
89.1% in the year, with an overall increase in like-for-like rent roll of 7.1%
(£6.5m) to £97.7m.
We have seen ERV per sq. ft. increase by 13.6% in the year and if all the
like-for-like properties were at 90% occupancy at the CBRE estimated rental
values at 31 March 2023, the rent roll would be £116.7m, £19.0m higher than
the actual rent roll at 31 March 2023.
Completed Projects
There are ten projects in the completed projects category, with overall rent
roll increasing by 36.5% (£3.4m) in the year to £12.8m, with rent per sq.
ft. up 19.7% and occupancy up 10.3% to 80.2%.
If the buildings in this category were all at 90% occupancy at the ERVs at 31
March 2023, the rent roll would be £17.2m, an uplift of £4.4m.
Projects Underway - Refurbishments
We are currently underway on three refurbishment projects that will deliver
210,000 sq. ft. of new and upgraded space. As at 31 March 2023, rent roll was
£1.7m, down £0.4m in the year.
Assuming 90% occupancy at the ERVs at 31 March 2023, the rent roll at these
three buildings once they are completed would be £7.8m, an uplift of £6.0m.
Projects at Design Stage
These are properties where we are planning a refurbishment or redevelopment
that has not yet commenced. As at 31 March 2023 the rent roll at these
properties was £5.8m.
McKay Securities
In May 2022, we completed the acquisition of the McKay portfolio. As at 31
March 2023 the rent roll at these properties was £22.0m, an underlying
increase of £1.6m since acquisition. The integration is now complete with all
operational activity utilising the Workspace platform.
As at 31 March 2023 the rent roll at the seven London assets was £8.2m, an
increase of £0.8m since acquisition with occupancy at 72.6%. A number of
these properties are being refurbished, including sub-division to adapt to the
Workspace multi-let model. We have seen ERV per sq. ft. increase by 8% since
acquisition and assuming 90% occupancy at the ERVs at 31 March 2023, the rent
roll at these seven buildings, would be £11.6m, an uplift of £3.4m.
As at 31 March 2023 the rent roll of the South-East office and business park
portfolio, comprising thirteen buildings, was £8.5m, an increase of £0.1m
since acquisition with occupancy steady at 88.3%. Assuming 90% occupancy (or
current occupancy if higher) at the ERVs at 31 March 2023 the rent roll would
be £11.2m, an uplift of £2.7m.
We are progressing with the disposal of the nine non-core light industrial and
logistics assets with the timing dependant on market conditions. Contracts
have been exchanged for the sale of five of these properties in May 2023.
Overall occupancy across these sites at 31 March 2023 was 87.7% with a rent
roll of £5.2m, an increase of £0.7m since acquisition. Assuming 90%
occupancy (or current occupancy if higher) at the ERVs at 31 March 2023, the
rent roll at these buildings, would be £6.5m, an uplift of £1.7m.
Disposals
In July 2022 we completed the sale of a medical centre in Newbury, which had
rent roll of £0.2m, from the McKay portfolio for £7.2m (£1.1m ahead of the
March 2022 valuation).
In March 2023 we completed on the sale of the Riverside residential component
in Wandsworth for £54m (in line with the September 2022 valuation) and expect
to commence the construction of the new commercial buildings (comprising
153,000 sq. ft. of workshop and office space), at our cost, on a phased basis
in the second half of 2023.
PROFIT PERFORMANCE
Trading profit after interest for the year was up 29.4% (£13.8m) on the prior
year to £60.7m.
£m 31 Mar 31 Mar
2023 2022
Net rental income 116.6 86.7
Administrative expenses - underlying (18.0) (17.7)
Administrative expenses - acquisitions (2.1) -
Administrative expenses - share based costs* (1.4) (1.6)
Net finance costs (34.4) (20.5)
Trading profit after interest 60.7 46.9
*These relate to both cash and equity settled costs
Net rental income was up 34.5% (£29.9m) to £116.6m.
£m 31 Mar 31 Mar
2023 2022
Underlying Rental income 110.7 97.9
Unrecovered service charge costs (4.0) (4.4)
Empty rates and other non-recoverable costs (8.3) (10.4)
Services, fees, commissions and sundry income - 0.7
Underlying net rental income 98.4 83.8
Rent discounts and waivers - 0.3
Expected credit losses (1.1) (1.5)
Acquisitions 18.5 1.2
Disposals 0.8 2.9
Net rental income 116.6 86.7
The £12.8m increase in underlying rental income to £110.7m reflects the
strong increase in average rent per sq. ft. achieved over the last year.
With energy costs hedged until October 2024 and higher average occupancy
levels compared to the prior period there was a decrease of £0.4m in
unrecovered service charge costs.
Higher average occupancy has also contributed to a reduction in empty rates
with non-recoverable costs decreasing by £2.1m to £8.3m. Net revenue from
services, fees, commissions and sundry income decreased by £0.7m driven by
the cost of our enhanced customer events programme.
Rent collection for the year has remained strong with 98% of rent collected to
date with the charge for expected credit losses reducing to £1.1m in the
year.
Growth in net rental income included a £18.5m contribution from recent
acquisitions, primarily the McKay portfolio acquired in May 2022.
Underlying administrative expenses remained under tight control, increasing by
£0.3m to £18.0m, which included inflationary pay rises of 3% but with higher
increases in more junior roles Administrative expenses also included £2.1m in
respect of the McKay business, with synergies realised ahead of original
expectations. Share based costs decreased by £0.2m to £1.4m driven by lower
vesting levels and assumptions.
Net finance costs increased by £13.9m to £34.4m in the year reflecting the
increased level of debt following the McKay acquisition and the increase in
SONIA during the period. The average net debt balance over the year was £281m
higher than the prior year, whilst the average interest cost increased from
3.1% to 3.7%.
Loss before tax was £37.5m compared to a profit of £124.0m in the prior
year.
£m 31 Mar 31 Mar
2023 2022
(Unaudited)
Trading profit after interest 60.7 46.9
Change in fair value of investment properties (93.1) 68.7
(Loss)/gain on sale of investment properties (0.7) 7.8
Exceptional costs (4.3) -
Other items (0.1) 0.6
(Loss)/profit before tax (37.5) 124.0
Adjusted underlying earnings per share 31.7p 25.8p
The change in fair value of investment properties, including assets held for
sale, was £93.1m compared to an increase of £68.7m in the prior year.
The loss on sale of investment property of £0.7m resulted from costs
associated with the disposal of the residential scheme at Riverside,
Wandsworth and the profit on disposal of the medical centre at Newbury from
the McKay portfolio.
Exceptional costs include one-off items relating to the acquisition and
integration of McKay, including the cost of buying-out the McKay pension
scheme, and implementation of a new finance and property management system.
Adjusted underlying earnings per share, based on EPRA earnings adjusted for
non-trading items and calculated on a diluted share basis, was up 22.9% to
31.7p.
DIVIDEND
Our dividend policy is based on trading profit after interest, taking into
account our investment and acquisition plans and the distribution requirements
that we have as a REIT, with our aim being to ensure the total dividend per
share in each financial year is covered at least 1.2 times by adjusted
underlying earnings per share.
With the strong improvement in trading performance and confidence in the
longer term prospects of the Company, the Board is recommending a final
dividend of 17.4p per share, taking the full year dividend to 25.8p (2022:
21.5p), to be paid on 4 August 2023 to shareholders on the register at 7
July 2023. The dividend will be paid as a REIT Property Income Distribution
(PID) net of withholding tax where appropriate.
PROPERTY VALUATION
At 31 March 2023, our property portfolio was independently valued by CBRE at
£2,741m, an underlying decrease of 3.2% (£91m) in the year. The main
movements in the valuation are set out below:
£m
Valuation at 31 March 2022 2,402
Capital expenditure 56
Acquisitions 434
Disposals (60)
Revaluation - H1 8
Revaluation - H2 (99)
Valuation at 31 March 2023 2,741
There was an underlying revaluation decrease of 3.5% (£99m) in the second
half of the year compared to an increase of 0.3% (£8m) in the first half. A
summary of the full year valuation and revaluation movement by property type
is set out below:
£m Valuation 31 March Revaluation increase/(decrease)
2023 Full year H2 H1
Like-for-like Properties 1,887 (6) (21) 15
Completed Projects 265 12 12 -
Refurbishments 172 (25) (14) (11)
Redevelopments 33 (17) (10) (7)
McKay - London 154 1 (11) 12
McKay - South East 114 (13) (21) 8
McKay - Non-core 116 (41) (34) (7)
Sold - (2) - (2)
Total 2,741 (91) (99) 8
Like-for-like Properties
There was a 0.3% (£6m) underlying decrease in the valuation of like-for-like
properties to £1,887m. This was driven by a 13.6% increase in the ERV per sq.
ft. (£216m) reflecting the pricing of recent lettings and renewals, offset by
a 55bps outward shift in equivalent yield (£222m). This outward shift
typically ranged from 25bps to 90bps depending upon location.
31 Mar 31 Mar
2023 2022 Change
ERV per sq. ft. £48.00 £42.23 13.6%
Rent per sq. ft. £40.61 £37.12 9.4%
Equivalent Yield 6.2% 5.6% 0.6%*
Net Initial Yield 4.7% 4.2% 0.5%*
Capital Value per sq. ft. £698 £679 2.8%
* absolute change
A 5% increase in ERV would increase the valuation of like-for-like properties
by approximately £94m whilst a 50bps increase in equivalent yield would
decrease the valuation by approximately £140m.
Completed Projects
There was an underlying increase of 4.7% (£12m) in the value of the ten
completed projects to £265m. The overall valuation metrics for completed
projects are set out below:
31 Mar
2023
ERV per sq. ft. £34.36
Rent per sq. ft. £28.70
Equivalent Yield 6.5%
Net Initial Yield 4.3%
Capital Value per sq. ft. £475
Current Refurbishments and Redevelopments
There was an underlying decrease of 12.7% (£25m) in the value of our current
refurbishments to £172m and a reduction of 34.0% (£17m) in the value of our
current redevelopments to £33m.
The most significant movements in this category are a decrease of £8.4m at
our light industrial property Havelock Terrace, Battersea, reflecting the
outward movement in industrial yields and a £8.1m decrease at Rainbow
Industrial Park, Raynes Park, reflecting the outward movement in industrial
yields and reduction in expected residential values.
McKay
We completed the acquisition of McKay Securities PLC on 6 May 2022 for a total
consideration of £267.6m, comprising £191.1m in cash and 10.5m Workspace
shares, and £9.4m transaction costs, representing a 14% discount to NTA
acquired (after seller's transaction costs) of £310.5m.
There was an underlying decrease of 12.1% (£53m) in the valuation of the
McKay portfolio, compared to the acquisition cost. A summary of the full year
valuation and underlying movements for the McKay portfolio from acquisition is
set out below:
Valuation (£m) Change (£m) Equivalent Yield Movement ERV Movement
London 154 1 +25bps +8%
South East 114 (13) +80bps +5%
Non-core 116 (41) +235bps +6%
Total 384 (53)
The valuation metrics for the McKay portfolio are set out below:
As at 31 March 2023 London South East Non-core
No. Properties 7 13 10
ERV per sq. ft. £44.36 £26.67 £10.13
Rent per sq. ft. £38.80 £21.68 £10.59
Equivalent Yield 6.9% 9.1% 6.4%
Net Initial Yield 4.3% 6.8% 4.3%
Capital Value per sq. ft. £528 £257 £176
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 31 March 2023 is set
out below:
Projects Number Capex spent Capex to spend Upgraded and new space (sq. ft.)
Underway 3 £14m £56m 210,000
Design stage 7 - £251m 438,000
Design stage (without planning) 7 - £382m 577,000
Our adaptive re-use of existing buildings for refurbishments delivers up to
70% reduction in embodied carbon compared to new build schemes.
We are on-site at Leroy House, Islington where we are delivering a refurbished
and extended 58,000 sq. ft. business centre which we expect to complete in
spring 2024. We have recently commenced major upgrades and extensions at the
Chocolate Factory, Wood Green and at the The Biscuit Factory, Bermondsey.
REDEVELOPMENT ACTIVITY
Many of our properties are in areas where there is strong demand for mixed-use
redevelopment. Our model is to use our expertise, knowledge and local
relationships to obtain a mixed-use planning consent and then typically to
agree terms with a residential developer to undertake the redevelopment and
construction at no cost and limited risk to Workspace. We receive back a
combination of cash, new commercial space and overage in return for the sale
of the residential scheme to the developer.
A summary of the status of the redevelopment pipeline at 31 March 2023 is set
out below:
No. of properties Residential units New commercial space (sq. ft.)
Design stage 3 539 77,000
The three schemes at design stage at Chocolate Factory, Wood Green, Poplar and
Rainbow, Raynes Park all have planning consent.
SUSTAINABILITY
We have an inherently green property portfolio with energy intensity already
19% lower than the industry best practice standard. Further improving the
energy efficiency of our buildings is key in helping us to achieve our target
of being a net zero carbon business by 2030. The Workspace portfolio is
currently 43% EPC A and B rated, an increase of 12% in the year, and we are on
track to upgrade the remainder of our portfolio to these categories by 2030.
We are also targeting a reduction in Scope 1 gas emissions by a minimum of 5%
each year, whilst continuing to procure 100% renewable electricity (REGO
backed). In the year we also achieved a 5% reduction in operational energy
intensity and a 27% reduction in gas use.
CASH FLOW
The Group generates strong operating cash in line with trading profit. A
summary of cash flows are set out below:
£m 31 Mar 31 Mar
2023 2022
(Unaudited)
Net cash from operations after interest(†) 70 58
Dividends paid (44) (43)
Capital expenditure (60) (31)
Purchase of Investment Properties (201) (88)
Net Debt acquired (162) -
Property disposals and cash receipts 49 122
Other 4 (11)
Net movement (344) 7
Opening debt (net of cash) (558) (565)
Closing debt (net of cash) (902) (558)
† Excludes £8.8m of VAT receipts relating to sale of Riverside included in
'Other'
There is a reconciliation of net debt in note 11(b) to the unaudited financial
statements.
The overall increase of £344m in net debt reflects the acquisition of McKay
in May 2022 for cash consideration of £201m (including fees) and net debt
acquired of £162m.
Rent collection remains robust with 98% of rent due for the year collected to
date. The majority of the amounts still outstanding are covered by rent
deposits or by the provision for doubtful debts.
NET ASSETS
Net assets decreased in the year by £13m to £1,787m. EPRA net tangible
assets (NTA) per share at 31 March 2023 was down 6.2% (£0.61) to £9.27:
EPRA NTA per share
£
At 31 March 2022 9.88
Adjusted trading profit after interest 0.31
Exceptional Costs (0.02)
Property valuation deficit (0.48)
Share issue (0.19)
Dividends paid (0.23)
At 31 March 2023 9.27
The calculation of EPRA NTA per share is set out in note 6 of the unaudited
financial statements.
TOTAL ACCOUNTING RETURN
The total accounting return for the full year was (3.8)% compared to 8.0% in
the year ended March 2022. The total accounting return comprises the growth in
absolute EPRA net tangible assets per share plus dividends paid in the year as
a percentage of the opening EPRA net tangible assets per share. The
calculation of total accounting return is set out in note 6 of the unaudited
financial statements.
FINANCING
As at 31 March 2023, the Group had £12m of available cash and £136m of
undrawn facilities:
Drawn amount Facility Maturity
£m £m
Private Placement Notes 300.0 300.0 2025-2029
Green Bond 300.0 300.0 2028
Secured loan 65.0 65.0 2030
Bank facilities 249.0 385.0 2023-2025
Total 914.0 1,050.0
The majority of the Group's debt comprises long-term fixed-rate committed
facilities comprising a £300m green bond, £300m of private placement notes,
and a £65m secured loan facility.
Shorter term liquidity and flexibility is provided by floating-rate bank
facilities totalling £385m which were £249m drawn as at 31 March 2023. The
bank facilities comprise £335m of sustainability-linked Revolving Credit
Facilities (RCFs) and a £50m acquisition facility put in place for the
acquisition of McKay. During the year, our RCF bank facility maturities were
extended, with £135m now maturing in April 2025 and £200m in December 2025,
with both facilities having the potential to extend by a further year. The
£200m RCF also has the option to increase the facility amount by up to
£100m, subject to lender consent.
All facilities, other than the Secured loan, are provided on an unsecured
basis with an average drawn debt maturity of 4.1 years (31 March 2022: 4.2
years).
At 31 March 2023, the effective interest rate was 4.0% based on SONIA at 4.2%,
with 73% of the net debt (£665m) at fixed rates. The average interest cost of
our fixed rate borrowings was 2.9% and our floating-rate bank facilities had
an average margin of 1.78% over SONIA. A 1% increase in SONIA would increase
the effective interest rate by 0.3% (at current debt levels).
At 31 March 2023, loan to value (LTV) was 33% (31 March 2022: 23%) and
interest cover, based on net rental income and interest paid over the last 12
month period, was 3.8 times (31 March 2022: 4.8 times), providing good
headroom on all facility covenants.
FINANCIAL outlook FOR 2023/24
Over the last year we have seen stable like-for-like occupancy and continued
rental growth driven by good levels of customer demand. Rental income in
2023/24 will be underpinned by the 7.1% growth in like-for-like rent roll we
have seen over the last year. We continue to see good demand and expect to see
further pricing growth. Rental income growth will also be supported by the
letting up of recently completed projects and the letting up of refurbished
and vacant space in the McKay portfolio.
The current high levels of inflation will impact on both our service charge
and administrative costs. In relation to service charge costs, where the
majority of the cost is passed on to our customers, we have been able to limit
the impact on customers by the hedging of our energy costs in October 2021.
Staff costs are the most significant driver of our administrative expenses
and, whilst we have limited inflationary salary increases to 6% for staff
earning more than £50,000, we have given higher increases for those on lower
salary levels.
The proceeds from the recently announced exchange for sale of five McKay
non-core assets for £82m will be used to repay our short-term floating rate
debt which currently has an effective interest rate of 6%. The disposal will
result in a reduction in rent roll of £3.6m, a reduction in net debt of £82m
and a net reduction of around £5m per annum in interest costs. On a proforma
basis this sale reduces LTV by 2% to 31%, increases the percentage of
fixed-rate debt to 80% and reduces our average cost of debt to 3.8% and
extends the average maturity of drawn debt to 4.4 years. We are progressing
with the sale of the remaining non-core assets valued at £34m as at 31 March
2023.
We expect capital expenditure of around £60m over the next year as we
progress with a range of planned asset management projects, including the
refurbishments of Leroy House, Chocolate Factory and Biscuit Factory. This
investment incorporates the spend of some £10m per annum to meet our 2030
environmental commitments.
property statistics
Half Year ended
31 Mar 30 Sep 31 Mar 30 Sep
2023 2022 2022 2021
Workspace Portfolio
Property valuation £2,741m £2,863m £2,402m £2,271m
Number of locations 86 87 57 58
Lettable floorspace (million sq. ft.) 5.2 5.4 4.0 3.9
Number of lettable units 4,910 4,901 4,482 4,234
Rent roll of occupied units £140.1m £134.7m £111.0m £102.1m
Average rent per sq. ft. £32.86 £30.03 £33.26 £32.28
Overall occupancy 81.5% 84.0% 84.3% 81.2%
Like-for-like number of properties 38 38 39 39
Like-for-like lettable floor space (million sq. ft.) 2.7 2.7 2.8 2.9
Like-for-like rent roll growth 3.4% 3.6% 6.4% 2.1%
Like-for-like rent per sq. ft. growth 5.2% 4.0% 2.5% (2.1%)
Like-for-like occupancy movement (0.5%) 0.1% 4.0% 3.7%
1) The like-for-like category has been restated in the current financial
year for the following:
· The transfer out of Riverside to the sold category
2) Like-for-like statistics for prior years are not restated for the
changes made to the like-for-like property portfolio in the current financial
year.
3) Overall rent per sq. ft. and occupancy statistics includes the
lettable area at like-for-like properties and all refurbishment and
redevelopment projects, including those projects recently completed and also
properties where we are in the process of obtaining vacant possession.
Consolidated income statement
For the year ended 31 March 2023
Notes 2023 2022
(Unaudited)
£m £m
Revenue 1 174.2 132.9
Direct costs(1) 1 (57.6) (46.2)
Net rental income 1 116.6 86.7
Administrative expenses 2 (21.5) (19.3)
Trading profit 95.1 67.4
(Loss)/profit on disposal of investment properties (0.7) 7.8
Other income - 0.6
Other expenses (3.8) -
Change in fair value of investment properties 7 (88.0) 68.7
Impairment of assets held for sale 7 (5.1) -
Operating (loss)/profit (2.5) 144.5
Finance costs 3 (34.4) (20.5)
Exceptional finance costs 3 (0.6) -
(Loss)/profit before tax (37.5) 124.0
Taxation (0.3) (0.1)
(Loss)/profit for the financial year after tax (37.8) 123.9
Basic (loss)/earnings per share 5 (19.9p) 68.5p
Diluted (loss)/earnings per share 5 (19.9p) 68.1p
1. Direct costs in 2023 includes impairment of receivables of £1.1m
(2022: £1.5m). See note 1 for additional information.
Consolidated statement of comprehensive income
For the year ended 31 March 2023
Notes 2023 2022
(Unaudited)
£m £m
(Loss)/profit for the financial year (37.8) 123.9
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Change in fair value of other investments 0.4 -
Fair value of investments recycled to retained earnings - 2.1
Cash flow hedge - transfer to income statement - (0.3)
Items that will not be reclassified subsequently to profit or loss:
Pension fund movement 0.9 -
Other comprehensive income in the year 1.3 1.8
Total comprehensive (loss)/income for the year (36.5) 125.7
Consolidated balance sheet
As at 31 March 2023
Notes 2023 2022
(Unaudited)
£m £m
Non-current assets
Investment properties 7 2,643.3 2,366.7
Intangible assets 2.0 1.9
Property, plant and equipment 4.4 2.9
Other investments 2.1 1.7
Deferred tax - 0.3
2,651.8 2,373.5
Current assets
Trade and other receivables 8 45.8 23.5
Assets held for sale 123.0 65.9
Cash and cash equivalents 9 18.5 49.0
187.3 138.4
Total assets 2,839.1 2,511.9
Current liabilities
Trade and other payables 10 (107.8) (85.8)
Borrowings 11(a) (49.8) -
(157.6) (85.8)
Non-current liabilities
Borrowings 11(a) (859.1) (595.5)
Lease obligations 12 (34.7) (31.0)
(893.8) (626.5)
Total liabilities (1,051.4) (712.3)
Net assets 1,787.7 1,799.6
Shareholders' equity
Share capital 14 191.6 181.1
Share premium 14 295.5 295.5
Investment in own shares (9.9) (9.9)
Other reserves 91.0 32.6
Retained earnings 1,219.5 1,300.3
Total shareholders' equity 1,787.7 1,799.6
Company registration number - 02041612
Consolidated statement of changes in equity
For the year ended 31 March 2023
Attributable to owners of the Parent
Notes Share capital Share premium Investment in own shares Other reserves Retained earnings Total share-holders' equity
£m £m £m £m £m £m
Balance at 31 March 2021 181.1 295.5 (9.6) 33.1 1,219.4 1,719.5
Profit for the financial year - - - - 123.9 123.9
Other comprehensive income for the year - - - - 1.8 1.8
Total comprehensive income - - - - 125.7 125.7
Transactions with owners:
Purchase of own shares - - (0.3) - - (0.3)
Dividends paid 4 - - - - (44.8) (44.8)
Share based payments - - - 1.6 - 1.6
Recycled OCI to retained earnings - - - (2.1) - (2.1)
Balance at 31 March 2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
Loss for the financial year - - - - (37.8) (37.8)
Other comprehensive income for the year - - - 0.4 0.9 1.3
Total comprehensive income - - - 0.4 (36.9) (36.5)
Transactions with owners:
Shares issued 10.5 - - 56.6 - 67.1
Dividends paid 4 - - - - (43.9) (43.9)
Share based payments - - - 1.4 - 1.4
Balance at 31 March 2023 (Unaudited) 191.6 295.5 (9.9) 91.0 1,219.5 1,787.7
Consolidated statement of cash flows
For the year ended 31 March 2023
Notes 2023 2022
(Unaudited)
£m £m
Cash flows from operating activities
Cash generated from operations 13 110.5 80.5
Interest paid (31.7) (22.6)
Net cash inflow from operating activities 78.8 57.9
Cash flows from investing activities
Purchase of investment properties (184.4) (88.4)
Capital expenditure on investment properties (56.2) (29.8)
Proceeds from disposal of investment properties (net of sale costs) 7.1 117.3
Proceeds from disposal of assets held for sale (net of sale costs) 41.4 -
Purchase of intangible assets (0.8) (0.5)
Purchase of property, plant and equipment (3.1) (0.7)
Other (expenses)/income (2.9) 4.5
Settlement of defined benefit pension scheme (1.3) -
Proceeds from sale of investments - 6.8
Net cash (outflow)/inflow from investing activities (200.2) 9.2
Cash flows from financing activities
Finance costs for new/amended borrowing facilities (1.6) (1.3)
Exceptional finance costs - (16.4)
Settlement of derivative financial instruments - 0.7
Repayment of bank borrowings and Private Placement Notes (150.0) (173.5)
Draw down of bank borrowings 286.0 25.0
Own shares purchase (net) - (0.3)
Dividends paid 4 (43.5) (43.3)
Net cash inflow/(outflow) from financing activities 90.9 (209.1)
Net decrease in cash and cash equivalents (30.5) (142.0)
Cash and cash equivalents at start of year 9 49.0 191.0
Cash and cash equivalents at end of year 9 18.5 49.0
Notes to the UNAudited financial statements
For the year ended 31 March 2023
Workspace Group PLC (the 'Company') and its subsidiaries (together 'the
Group') are engaged in property investment in the form of letting of
high-quality business accommodation to businesses across London.
The Company is a public limited company which is listed on the London Stock
Exchange and is incorporated and domiciled in the UK.
The registered number of the Company is 02041612.
The consolidated financial statements of Workspace Group PLC and the entities
controlled by the Company (its subsidiaries, collectively the Group) for the
year ended 31 March 2023 will be approved by the Board of Directors and
reported on by the auditors, KPMG LLP (KPMG), in June 2023. Accordingly, the
financial information for the year ended 31 March 2023 is presented unaudited
in this preliminary announcement.
Basis of preparation
The results in this preliminary announcement have been taken from the Group's
2023 unaudited Annual Report and Accounts. The unaudited consolidated
financial statements of the Group have been prepared in accordance with
UK-adopted international accounting standards.
The basis of preparation, basis of consolidation and summary of significant
accounting policies applicable to the Group's consolidated financial
statements will be published in the Notes to the audited consolidated
financial statements in the 2023 Annual Report and Accounts.
The unaudited consolidated financial statements have been prepared on a going
concern basis and on a historical cost basis except as otherwise stated. The
Group has reviewed the appropriateness of the going concern basis in preparing
the unaudited financial statements, details of which are included below. Based
on those assumptions, the Directors have concluded that it remains appropriate
to adopt the going concern basis in preparing the financial statements.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 March 2023 or 2022. The financial
information for 2022 is derived from the statutory accounts for 2022 which
have been delivered to the registrar of companies. The auditor has reported on
the 2022 accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts
for 2023 will be finalised on the basis of the financial information presented
by the directors in this preliminary announcement and will be delivered to the
registrar of companies in due course.
GOING CONCERN
The Board is required to assess the appropriateness of applying the going
concern basis in the preparation of the financial statements. Macro-economic
and political issues, including the war in Ukraine, have heightened wider
concerns around the UK economy meaning there is a continuing risk of an
economic downturn. In this context, the Directors have fully considered the
business activities and principal risks of the Company.
In preparing the assessment of going concern, the Board has reviewed a number
of different scenarios over the 12-month period from the date of issue of
these unaudited preliminary results. These scenarios include a severe, but
realistically possible, scenario which includes the following key assumptions:
· A reduction in occupancy, reflecting weaker customer demand for
office space.
· A reduction in the pricing of new lettings, resulting in a reduction
in average rent per sq. ft.
· Elevated levels of counterparty risk, with bad debt significantly
higher than pre-pandemic levels.
· Continued elevated levels of cost inflation.
· Further increases in SONIA rates impacting the cost of variable rate
borrowings.
· Estimated rental value reduction in-line with the decline in average
rent per sq. ft. and outward movement in investment yields resulting in a
lower property valuation.
The appropriateness of the going concern basis is reliant on the continued
availability of borrowings, sufficient liquidity and compliance with loan
covenants. All borrowings require compliance with LTV and Interest Cover
covenants. As at the tightest test date in the scenarios modelled, the Group
could withstand a reduction in net rental income of 34% compared to 31 March
2023 Net Rental Income and a fall in the asset valuation of 42% compared to 31
March 2023 before these covenants are breached, assuming no mitigating actions
are taken.
As at 31 March 2023, the Company had significant headroom with £150.0m of
cash and undrawn facilities. The majority of the Group's debt is long-term
fixed-rate committed facilities comprising a £300.0m green bond, £300.0m of
private placement notes, and a £65.0m secured loan facility. Shorter term
liquidity and flexibility is provided by floating-rate bank facilities which
comprise £335.0m of sustainability-linked revolving credit facilities (RCFs),
a £2.0m overdraft facility and £50.0m of facilities put in place for the
acquisition of McKay which matures in September 2023. The RCF facilities
comprise £135.0m due in April 2025 and £200.0m due in December 2025, with
both facilities having the potential to extend by a further year. The £200.0m
RCF also has the option to increase the facility amount by up to £100.0m,
subject to lender consent.
For the full period of assessment under the scenarios tested, the Group
maintains sufficient headroom in its cash and loan facilities.
Consequently, the Directors have a reasonable expectation that the Group and
Company will have sufficient funds to continue to meet their liabilities as
they fall due for at least 12 months from the date of issue of these unaudited
preliminary results and therefore the preliminary results have been prepared
on a going concern basis.
New accounting standards, amendments and guidance
a) During the year to 31 March 2023 the Group adopted the following
accounting standards and guidance:
IFRS Standards 2018-2020 Annual Improvements to IFRS Standards 2018-2020
IAS 37 (amended): Onerous Contracts Cost of Fulfilling a Contract
IAS 16 (amended) Property, Plant and Equipment - Proceeds before Intended Use
IFRS 3 (amended) Reference to the Conceptual Framework
There was no material impact from the adoption of these accounting standard
amendments on the financial statements.
b) The following accounting standards and guidance are not yet effective but
are not expected to have a significant impact on the Group's financial
statements or result in changes to presentation and disclosure only. They have
not been adopted early by the Group:
IAS 12 (amended) Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
IAS 8 (amended) Accounting Policies, Changes in Accounting Estimates and Errors: Definition
IAS 1 (amended) and IFRS Practice Statement 2 Presentation of Financial Statements and IFRS Practice Statement 2: Making
Materiality Judgements
IFRS 17 Insurance Contracts
IFRS 9 Comparative Information
IAS 1 (amended) Classification of Liabilities as Current or Non-Current; Non-Current
Liabilities with Covenants; Deferral of Effective Date Amendment
IFRS 16 (amended) Lease Liability in a Sale and Leaseback
1. Analysis of net rental income and segmental information
2023 (Unaudited) 2022
Revenue Direct Net rental income Revenue Direct Net rental income
£m costs(1) £m £m costs(1) £m
£m £m
Rental income 136.7 (4.2) 132.5 104.3 (2.9) 101.4
Service charges 30.0 (35.7) (5.7) 21.1 (25.9) (4.8)
Empty rates and other non-recoverable costs - (10.6) (10.6) - (10.6) (10.6)
Services, fees, commissions and sundry income 7.5 (7.1) 0.4 7.5 (6.8) 0.7
174.2 (57.6) 116.6 132.9 (46.2) 86.7
(1) There are no properties within the current or prior period that are
non-rent producing.
Included within direct costs for rental income is a charge of £1.0m (2022:
£1.5m) and within direct costs for service charges is a charge of £0.1m
(2022: £nil) for expected credit losses in respect of receivables from
customers in the period.
All of the properties within the portfolio are geographically close to each
other and have similar economic features and risks. Management information
utilised by the Executive Committee to monitor and review performance is
presented as one portfolio. As a result, for the year ended 31 March 2023,
management have determined that the Group operates a single operating segment
providing business accommodation for rent in and around London.
2. Operating (LOSS)/profit
The following items have been charged in arriving at operating (loss)/profit:
2023 2022
(Unaudited)
£m £m
Depreciation(1) 1.6 1.8
Staff costs (including share-based costs)(1) 25.3 19.6
Repairs and maintenance expenditure on investment properties 5.4 2.0
Trade receivables impairment (note 8) 1.1 1.5
Amortisation of intangibles 0.7 0.9
Audit fees payable to the Company's Auditor 0.4 0.3
1. Charged to direct costs and administrative expenses based on the
underlying nature of the expenses.
2023 2022
(Unaudited)
£m £m
Total administrative expenses are analysed below:
Staff costs 13.4 10.7
Equity settled share-based payments 1.4 1.6
Other 6.7 7.0
Total Administrative Expenses 21.5 19.3
3. Finance costs
2023 2022
(Unaudited)
£m £m
Interest payable on bank loans and overdrafts (11.9) (1.4)
Interest payable on other borrowings (19.0) (16.7)
Amortisation of issue costs of borrowings (2.0) (1.1)
Interest payable on leases (1.9) (1.7)
Interest capitalised on property refurbishments (note 7) 0.2 0.4
Interest receivable 0.2 -
Finance costs (34.4) (20.5)
Exceptional finance costs (0.6) -
Total finance costs (35.0) (20.5)
The exceptional finance costs in the year related to unamortised finance costs
for McKay Securities Limited's previous bank loan which were written off when
this was refinanced in September 2022.
All finance costs have been calculated in accordance with IFRS 9,
re-estimating the cash flows based on the original effective interest rate
with the adjustment being taken through P&L.
4. Dividends
Payment date Per share 2023 2022
(Unaudited)
£m £m
For the year ended 31 March 2021:
Final dividend August 2021 17.75p - 32.1
For the year ended 31 March 2022:
Interim dividend February 2022 7.0p - 12.7
Final dividend August 2022 14.5p 27.8
For the year ended 31 March 2023:
Interim dividend February 2023 8.4p 16.1
Dividends for the year 43.9 44.8
Timing difference on payment of withholding tax (0.4) (1.5)
Dividends cash paid 43.5 43.3
The Directors are proposing a final dividend in respect of the financial year
ended 31 March 2023 of 17.4 pence per ordinary share, which will absorb an
estimated £33.3m of retained earnings and cash. If approved by the
shareholders at the AGM, it will be paid on 4 August 2023 to shareholders who
are on the register of members on 7 July 2023. The dividend will be paid as a
REIT Property Income Distribution ('PID') net of withholding tax where
appropriate.
5. Earnings per share
Earnings used for calculating earnings per share: 2023 2022
(Unaudited)
£m £m
Basic and diluted earnings (37.8) 123.9
Decrease/(increase) in fair value of investment properties 88.0 (68.7)
Impairment of assets held for sale 5.1 -
Loss/(profit) on disposal of investment properties 0.7 (7.8)
EPRA earnings 56.0 47.4
Adjustment for non-trading items:
Other expenses/(income) 3.8 (0.6)
Exceptional finance costs 0.6 -
Taxation 0.3 0.1
Trading profit after interest 60.7 46.9
Earnings have been adjusted to derive an earnings per share measure as defined
by the European Public Real Estate Association ('EPRA') and an adjusted
underlying earnings per share measure.
Number of shares used for calculating earnings per share: 2023 2022
(Unaudited)
Number Number
Weighted average number of shares (excluding own shares held in trust) 190,470,363 180,983,916
Dilution due to share option schemes 1,129,310 998,280
Weighted average number of shares for diluted earnings per share 191,599,673 181,982,196
In pence: 2023 2022
(Unaudited)
Basic (loss)/earnings per share (19.9p) 68.5p
Diluted (loss)/earnings per share (19.9p) 68.1p
EPRA earnings per share 29.4p 26.2p
Adjusted underlying earnings per share(1) 31.7p 25.8p
1. Adjusted underlying earnings per share is calculated by dividing
trading profit after interest by the diluted weighted average number of shares
of 191,599,673 (2022: 181,982,196).
The diluted loss per share for the period to 31 March 2023 has been restricted
to a loss of 19.9p per share, as the loss per share cannot be reduced by
dilution in accordance with IAS 33 Earnings per Share.
6. Net assets per share and total accounting return
Number of shares used for calculating net assets per share: 2023 2022
(Unaudited)
Number Number
Shares in issue at year-end 191,638,357 181,125,259
Less own shares held in trust at year-end (152,550) (162,113)
Dilution due to share option schemes 1,201,277 1,078,852
Number of shares for calculating diluted adjusted net assets per share 192,687,084 182,041,998
EPRA Net Asset Value Metrics
The Group measures financial position with reference to EPRA Net Tangible
Assets (NTA), Net Reinvestment Value (NRV) and Net Disposal Value (NDV).
March 2023 March 2022
(Unaudited)
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,787.7 1,787.7 1,787.7 1,799.6 1,799.6 1,799.6
Intangibles per IFRS balance sheet - (2.0) - - (1.9) -
Excess of book value of debt over fair value - - 86.6 - - 13.0
Purchasers' costs 186.4 - - 163.3 - -
EPRA measure 1,974.1 1,785.7 1,874.3 1,962.9 1,797.7 1,812.6
EPRA measure per share £10.24 £9.27 £9.73 £10.78 £9.88 £9.96
Total accounting return
Total Accounting Return 2023 2022
(Unaudited)
£ £
Opening EPRA net tangible assets per share (A) 9.88 9.38
Closing EPRA net tangible assets per share 9.27 9.88
(Decrease)/Increase in EPRA net tangible assets per share (0.61) 0.50
Ordinary dividends paid in the year 0.23 0.25
Total return (B) (0.38) 0.75
Total accounting return (B/A) (3.8%) 8.0%
The total accounting return for the year comprises the movement in absolute
EPRA net tangible assets per share plus dividends paid in the year as a
percentage of the opening EPRA net tangible assets per share. The total return
for the year ended 31 March 2023 was -3.8% (31 March 2022: 8.0%).
7. Investment properties
2023 2022
(Unaudited)
£m £m
Balance at 1 April 2,366.7 2,349.9
Purchase of investment properties 426.6 88.4
Capital expenditure 55.8 30.0
Change in value of lease obligations 3.7 4.7
Capitalised interest on refurbishments (note 3) 0.2 0.4
Disposals during the year (5.5) (109.5)
Change in fair value of investment properties (88.0) 68.7
Less: Classified as assets held for sale (116.2) (65.9)
Balance at 31 March 2,643.3 2,366.7
Investment properties represent a single class of property, being business
accommodation for rent in and around London. Capitalised interest is included
at a rate of capitalisation of 3.9% (2022: 3.0%). The total amount of
capitalised interest included in investment properties is £15.1m (2022:
£14.9m). The change in fair value of investment properties is recognised in
the consolidated income statement.
Investment properties include buildings with a carrying amount of £321.9m
(2022: £315.4m) for which there are lease obligations of £34.7m (2022:
£31.0m).
During the period, the Group acquired McKay Securities Limited (formerly McKay
Securities PLC) adding 32 properties in and around London to the portfolio.
One of the properties classified as held for sale at the end of the prior year
was not sold during the year. It is retained within current assets as it is
still expected to sell within 12 months of 31 March 2023 and has been subject
to an impairment charge of £5.1m following the valuation carried out at 31
March 2023. Ten (2022: two) additional properties were reclassified as held
for sale at year-end. Five of these properties have exchanged for sale and are
likely to complete within the next 12 months. The transfer value is their
year-end valuation per CBRE.
Valuation
The Group's investment properties are held at fair value and were revalued at
31 March 2023 by the external valuer, CBRE Limited, a firm of independent
qualified valuers, in accordance with the Royal Institution of Chartered
Surveyors Valuation - Global Standards. All the properties are revalued at
period end regardless of the date of acquisition. In line with IFRS 13, all
investment properties are valued on the basis of their highest and best use.
For like-for-like properties, their current use equates to the highest and
best use. For properties undergoing refurbishment or redevelopment, most of
these are still being used for business accommodation in their current state.
However, the valuation at the balance sheet date includes the impact of the
potential refurbishment and redevelopment as this represents the highest and
best use.
The Executive Committee and the Board both conduct a detailed review of each
property valuation to review appropriate assumptions have been applied and
that valuations are appropriate. Meetings are held with the valuers to review
and challenge the valuations and to confirm that they have considered all
relevant information.
The valuation of like-for-like properties (which are not subject to
refurbishment or redevelopment) is based on the income capitalisation method
which applies market-based yields to the Estimated Rental Values ('ERVs') of
each of the properties. Yields are based on current market expectations
depending on the location and use of the property. ERVs are based on estimated
rental potential considering current rental streams and market comparatives
whilst also considering the occupancy and timing of rent reviews at each
property. Although occupancy and rent review timings are known, and there is
market evidence for transaction prices for similar properties, there is still
a significant element of estimation and judgement in estimating ERVs. As a
result of adjustments made to market observable data, the significant inputs
are deemed unobservable under IFRS 13.
When valuing properties being refurbished by Workspace, the residual value
method is used. The completed value of the refurbishment is determined as for
like-for-like properties above. Capital expenditure required to complete the
building is then deducted and a discount factor is applied to reflect the time
period to complete construction and make allowance for construction and market
risk to arrive at the residual value of the property.
The discount factor used is the property yield that is also applied to the
estimated rental value to determine the value of the completed building. Other
risks such as unexpected time delays relating to planned capital expenditure
are assessed on a project-by-project basis, looking at market comparable data
where possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual value method. The
proposed redevelopment which would be undertaken by a residential developer is
valued based on the market value for similar sites and then adjusted for costs
to complete, developer's profit margin and a time discount factor. Allowance
is also made for planning and construction risk depending on the stage of the
redevelopment. If a contract is agreed for the sale/redevelopment of the site,
the property is valued based on agreed consideration.
For all methods, the valuers are provided with information on tenure, letting,
town planning and the repair of the buildings and sites.
The reconciliation of the valuation report total to the amount shown in the
consolidated balance sheet as non-current assets, investment properties, is as
follows:
2023 2022
(Unaudited)
£m £m
Total per CBRE valuation report 2,741.1 2,402.2
Deferred consideration on sale of property (0.5) (0.6)
Head leases treated as leases under IFRS 16 34.7 31.0
Less: tenant incentives recognised under IFRS 16 (8.8) -
Less: Reclassified as assets held for sale (123.2) (65.9)
Total investment properties per balance sheet 2,643.3 2,366.7
The Group's investment properties are carried at fair value and under IFRS 13
are required to be analysed by level depending on the valuation method
adopted. The different valuation methods are as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date.
Level 2 - Use of a model with inputs (other than quoted prices included in
Level 1) that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market
data.
Property valuations are complex and involve data which is not publicly
available and therefore involve a degree of judgement. All the investment
properties are classified as Level 3, due to the fact that one or more
significant inputs to the valuation are not based on observable market data.
If the degree of subjectivity or nature of the measurement inputs changes then
there could be a transfer between Levels 2 and 3 of classification. No changes
requiring a transfer have occurred during the current or previous years.
8. Trade and other receivables
Current trade and other receivables 2023 2022
(Unaudited)
£m £m
Trade receivables 16.9 11.9
Less provision for impairment of receivables (4.6) (5.2)
Trade receivables - net 12.3 6.7
Prepayments, other receivables and accrued income 22.3 16.2
Deferred consideration on sale of investment properties 11.2 0.6
Total receivables 45.8 23.5
Receivables at fair value
Included within deferred consideration on sale of investment properties is
£0.5m (2022: £0.6m) of overage which is held at fair value through profit
and loss. As the amounts receivable are expected within the following 12
months they have been classified as current receivables. The deferred
consideration arising on the sale of investment properties relates to cash and
overage. The overage has been fair valued by CBRE Limited using appropriate
discount rates and will be revalued on a regular basis.
Receivables at amortised cost
The remaining receivables are held at amortised cost. There is no material
difference between the above amounts and their fair values due to the
short-term nature of the receivables. Trade receivables are impaired when
there is evidence that the amounts may not be collectable under the original
terms of the receivable. All the Group's trade and other receivables are
denominated in Sterling.
Movements on the provision for impairment of trade receivables are shown
below:
2023 2022
(Unaudited)
£m £m
Balance at 1 April 5.2 4.6
Increase in provision for impairment of trade receivables 1.1 1.5
Receivables written off during the year (1.7) (0.9)
Balance at 31 March 4.6 5.2
9. Cash and cash equivalents
2023 2022
(Unaudited)
£m £m
Cash at bank and in hand 12.0 42.3
Restricted cash - tenants' deposit deeds 6.5 6.7
Total cash 18.5 49.0
Tenants' deposit deeds represent returnable cash security deposits received
from tenants and are held in ring-fenced bank accounts in accordance with the
terms of the individual lease contracts.
10. Trade and other payables
2023 2022
(Unaudited)
£m £m
Trade payables 15.4 13.2
Other tax and social security payable 15.9 3.8
Tenants' deposit deeds (note 9) 6.5 6.7
Tenants' deposits 30.5 26.5
Accrued expenses 26.1 27.4
Deferred income - rent and service charges 13.4 8.2
Total payables 107.8 85.8
There is no material difference between the above amounts and their fair
values due to the short-term nature of the payables.
11. Borrowings
(a) Balances
2023 2022
(Unaudited)
£m £m
Current
Bank loans (unsecured) 49.8 -
Non-current
Bank loans (unsecured) 197.2 (2.1)
Other loans (secured) 63.9 -
3.07% Senior Notes (unsecured) 79.9 79.9
3.19% Senior Notes (unsecured) 119.8 119.8
3.6% Senior Notes (unsecured) 99.9 99.8
Green Bond (unsecured) 298.4 298.1
859.1 595.5
Total Borrowings 908.9 595.5
(b) Net debt
2023 2022
(Unaudited)
£m £m
Borrowings per (a) above 908.9 595.5
Adjust for:
Cost of raising finance 5.1 4.5
914.0 600.0
Cash at bank and in hand (note 9) (12.0) (42.3)
Net debt 902.0 557.7
At 31 March 2023, the Group had £136.0m (2022: £400.0m) of undrawn bank
facilities, a £2.0m overdraft facility (2022: £2.0m) and £12.0m of
unrestricted cash (2022: £42.3m).
(c) Maturity
2023 2022
(Unaudited)
£m £m
Repayable within one year 50.0 -
Repayable between one and two years - -
Repayable between two and three years 279.0 -
Repayable between three years and four years - 80.0
Repayable between four years and five years 420.0 80.0
Repayable in five years or more 165.0 440.0
914.0 600.0
Cost of raising finance (5.1) (4.5)
Total 908.9 595.5
(d) Interest rate and repayment profile
Principal at period end Interest rate Interest payable Repayable
£m
Current
Bank overdraft due within one year or on demand - Base + 2.25% Variable On demand
Bank Loan 50.0 SONIA + 1.75%(1) Monthly September 2023
Non-current
Private Placement Notes:
3.07% Senior Notes 80.0 3.07% Half yearly August 2025
3.19% Senior Notes 120.0 3.19% Half yearly August 2027
3.6% Senior Notes 100.0 3.60% Half yearly January 2029
Bank Loan 123.0 SONIA + 1.77%(2) Monthly December 2025
Bank Loan 76.0 SONIA + 1.80%(2) Monthly April 2025
Other Loan (Secured) 65.0 4.02% Monthly May 2030
Green Bond 300.0 2.25% Yearly March 2028
Total Loans 914.0
1. This is an average over the life of the facility. The margin increases
from 1.5% to 2.0% over the facility availability period.
2. The base margin is dependent upon the LTV as reported in the client
certificate, which is submitted twice a year. The base margin can be
adjusted further by up to 4.5bps dependent upon achievement of three
ESG-linked metrics.
12. Lease Obligations
Lease liabilities are in respect of leased investment property.
Minimum lease payments under leases fall due as follows:
2023 2022
(Unaudited)
£m £m
Within one year 2.1 1.9
Between two and five years 8.4 7.4
Between five and fifteen years 19.0 18.6
Beyond fifteen years 180.8 162.4
210.3 190.3
Future finance charges on leases (175.6) (159.3)
Present value of lease liabilities 34.7 31.0
Following the adoption of IFRS 16, lease obligations are shown separately on
the face of the balance sheet. The balance represents a non-current liability
as the payment shown within one year of £2.1m (2022: £1.9m) is offset by
future finance charges on leases of £2.1m (2022: £1.9m). All lease
obligations are long leaseholds, therefore, the majority of the obligations
fall beyond fifteen years.
13. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
2023 2022
(Unaudited)
£m £m
(Loss)/profit before tax (37.5) 124.0
Depreciation 1.6 1.8
Amortisation of intangibles 0.7 0.9
Letting fees amortisation 0.5 -
Loss/(profit) on disposal of investment properties 0.7 (7.8)
Other expenses/(income) 3.8 (0.6)
Net loss/(profit) from change in fair value of investment property 88.0 (68.7)
Impairment of assets held for sale 5.1 -
Equity-settled share-based payments 1.4 1.6
Finance costs 34.4 20.5
Exceptional finance costs 0.6 -
Changes in working capital:
(Increase)/decrease in trade and other receivables (6.4) 1.4
Increase/(decrease) in trade and other payables 17.6 7.4
Cash generated from operations 110.5 80.5
For the purposes of the cash flow statement, cash and cash equivalents include
restricted cash - tenants' deposit deeds (note 9).
14. Share capital and share premium
2023 2022
(Unaudited)
£m £m
Issued: Fully paid ordinary shares of £1 each 191.6 181.1
Movements in share capital were as follows: 2023 2022
(Unaudited)
Number Number
Number of shares at 1 April 181,125,259 181,113,594
Issue of shares 10,513,098 11,665
Number of shares at 31 March 191,638,357 181,125,259
The Group issued 10,513,098 shares as part of the consideration for the
acquisition of McKay Securities Limited (formerly McKay Securities PLC) during
the year. The average share price on issue was £6.38 leading to an increase
in the merger reserve of £56.6m in the period. In the year there were no
share scheme options issued (31 March 2022: 11,665 with net proceeds £nil).
Share capital Share premium
2023 2022 2023 2022
(Unaudited) (Unaudited)
£m £m £m £m
Balance at 1 April 181.1 181.1 295.5 295.4
Issue of shares 10.5 - - 0.1
Balance at 31 March 191.6 181.1 295.5 295.5
15. Capital commitments
At the year-end the estimated amounts of contractual commitments for future
capital expenditure not provided for were:
2023 2022
(Unaudited)
£m £m
Investment property construction 34.4 4.6
For both current and prior period, there were no material obligations for the
repair or maintenance of investment properties. All material contracts for
enhancement are included in the capital commitments.
16. POST BALANCE SHEET EVENTS
On 16 May 2023 the Group announced the exchange for sale of five light
industrial and logistics properties in the South-East of England for a total
consideration of £82m. The sale price is in line with the 31 March 2023
valuation and is at a net initial yield of 4.5%.
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