REG - Workspace Grp PLC - WORKSPACE GROUP PLC HALF YEAR RESULTS
15/11/2022 07:00
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RNS Number : 3730G Workspace Group PLC 15 November 2022
15 November 2022
WORKSPACE GROUP PLC
HALF YEAR RESULTS
STRONG FINANCIAL PERFORMANCE DRIVEN BY RESILIENT
CUSTOMER DEMAND
Workspace Group PLC ("Workspace"), London's leading provider of sustainable,
flexible work space, today announces its results for the half year to
30 September 2022.
Financial highlights: Strong increase in trading profit and dividend
● Trading profit after interest(†) up 33.5% to £29.1m (30 September 2021:
£21.8m) driven by 36.8% (£15.1m) increase in net rental income to £56.1m
● Profit before tax of £35.8m (30 September 2021: £3.4m) after exceptional
costs of £2.9m which include the integration of McKay
● Interim dividend up 20% to 8.4p per share (30 September 2021: 7.0p)
● Property valuation stable at £2,863m, an underlying increase** of 0.3% (£8m)
from 31 March 2022
● EPRA net tangible assets per share down 1.4% from 31 March 2022 to £9.74
● Robust balance sheet with £263m of cash and undrawn facilities and LTV of 33%
(31 March 2022: 23%)
● Average cost of debt of 3.5% with 71% at fixed rates (at current debt levels)
and a weighted average drawn debt maturity of 4.1 years
Customer activity: Stable occupancy and improving pricing
● Continued resilient levels of customer demand and letting activity
highlighting the appeal of our flexible offer
● Like-for-like rent roll up by 3.6% to £94.5m in the six months to 30
September 2022
● Like-for-like occupancy stable at 89.6% with rent per sq. ft. up 4.0% in the
half year to £38.59
● Strong demand at recently completed projects with occupancy up 6.7% in the
first half to 76.7%
Portfolio activity: McKay integration complete and active capital recycling
● Operational integration of McKay complete and McKay debt facilities amended
● Expect to complete the sale of the residential component of our mixed-use
redevelopment at Riverside, Wandsworth for £55m in January 2023
● Completed the sale of a medical centre in Newbury from the McKay portfolio for
£7.25m
● Progressing with the planned disposal of other McKay non-core assets, with
timing dependent on market conditions
Sustainability: A differentiated model
● An inherently green property portfolio with energy intensity already 30% lower
than industry best practice standard
● Targeting a 5% reduction in operational energy and scope one gas emissions in
the year
● On track to increase the percentage of EPC A and B rated space by 10% in the
year
Commenting on the results, Graham Clemett, Chief Executive Officer said:
"Having delivered a rapid recovery from the challenges of the Covid period, I
am delighted with our continued progress. Occupancy has now stabilised,
pricing is steadily increasing, new space is letting up well and we have
completed the integration of the McKay business. This robust operational
performance has driven the strong financial results we are reporting for the
first half.
We are clearly in a period of economic uncertainty with elevated inflation. We
are mindful of this in the way we actively manage our relationships with
customers and business partners and the support we provide to our staff. We
are also focused on tightly controlling our own costs and prudently managing
our balance sheet.
Our customers are innovative and agile SMEs operating across a diverse range
of sectors and industries and the way they want to use their space reflects
this diversity. Their space is an integral part of their business, and they
want choice and control over how they fit it out. We provide our customers
with a blank canvas and over half use their space in a non-traditional way -
work space, not office space. This is true flexibility and is what continues
to set us apart in the expanding flexible market.
Despite the current economic challenges, we are well placed to deliver a
strong trading performance for the full year. We have good momentum from the
rental growth in the first half and we are seeing resilient customer demand
into the second half of the year. We will continue to pursue our disposal
programme where the reduction in income from disposals will be offset by a
similar level of interest cost saving.
As the pioneers of flex in London, we have a long track record of success and
a clear plan to realise our growth potential. By owning great buildings,
upgrading them to meet our customers' needs, recycling capital into new
opportunities and delivering our project pipeline, we can capture more of the
significant market opportunity ahead of us and deliver sustainable long term
growth."
Summary Results
September September Change
2022 2021
Financial performance
Net rental income £56.1m £41.0m +36.8%
Trading profit after interest(†) £29.1m £21.8m +33.5%
Profit before tax £35.8m £3.4m
Interim dividend per share 8.4p 7.0p +20%
September March Change
2022 2022
Valuation
EPRA net tangible assets per share(†) £9.74 £9.88 -1.4%
Property valuation(†) £2,863m £2,402m +0.3%**
Financing
Loan to value 33% 23% +10%*
Undrawn bank facilities and cash £263m £442m -£179m
† 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. For further details see Notes
to the Financial Statements.
* absolute change
** underlying change excluding capital expenditure and disposals and including
McKay at acquisition value
For media and investor enquiries, please contact:
Workspace Group PLC 020 7138 3300
Graham Clemett, Chief Executive Officer
Dave Benson, Chief Financial Officer
Duncan Pelham, Senior Corporate Communications Manager
FGS Global 020 7251 3801
Chris Ryall
Guy Lamming
Details of results presentation
Workspace will host a results presentation for analysts and investors on
Tuesday 15 November 2022 at 10:45am. 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/workspace022
(https://secure.emincote.com/client/workspace/workspace022)
Conference call
In order to join via phone at 10:45am, 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/workspace022/vip_connect
(https://secure.emincote.com/client/workspace/workspace022/vip_connect)
Notes to Editors
About Workspace Group PLC:
Established in 1987 and listed on the London Stock Exchange since 1993. We are
home to thousands of businesses, including fast growing and established brands
across a wide range of sectors.
Workspace is geared towards helping businesses perform at their very best. We
provide inspiring,
flexible work spaces in dynamic London locations.
Workspace (WKP) is a FTSE 250 listed Real Estate Investment Trust (REIT) and a
member of the European Public Real Estate Association (EPRA).
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk
(http://www.workspace.co.uk)
BUSINESS REVIEW
CUSTOMER ACTIVITY
We saw resilient underlying demand, although activity levels were impacted by
the extreme hot weather over the summer and disruption caused by tube and rail
strikes.
Monthly Average Monthly Activity
H1 H1 FY 30 Sep 31 Aug 31 Jul
2022
22/23 21/22 2021/22 2022 2022
Enquiries 769 941 917 823 762 756
Viewings 502 622 598 517 524 444
Lettings 107 131 127 134 87 96
Good activity levels have continued into the third quarter, with 806
enquiries, 529 viewings and 96 deals in October 2022.
Alongside our new lettings, we have seen strong renewal activity in the half
year, with 178 customers across the like-like-for-like portfolio renewing for
a £1.0m (14%) uplift in annual rent.
RENT ROLL
Total rent roll, representing the total annualised net rental income at a
given date, was up 2.4% in the six months to £134.7m at 30 September 2022.
Rent Roll £m
At 31 March 2022* 131.6
Like-for-like portfolio 3.3
Completed projects 1.5
Projects underway and design stage (1.6)
Recent acquisitions 0.1
Disposals (0.2)
At 30 September 2022 134.7
*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 £183.3m at 30 September
2022.
Like-for-like portfolio
The like-for-like portfolio represents 70% of the total rent roll as at 30
September 2022. 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 30 Sep 22 31 Mar 22 30 Sep 21
Occupancy 89.6% 89.5% 85.7%
Occupancy change 0.1% 3.8% 4.4%
Rent per sq. ft. £38.59 £37.12 £36.11
Rent per sq. ft. change 4.0% 2.8% - 3.1%
Rent roll £94.5m £91.2m £85.7m
Rent roll change 3.6% 6.4% 1.8%
The like-for-like rent roll has increased by 3.6% (£3.3m) in the six months
to 30 September 2022 to £94.5m. The increase is driven by an uplift of 4.0%
in rent per sq. ft. to £38.59.
If all the like-for-like properties were at 90% occupancy at the ERVs at 30
September 2022, the rent roll would be £111.7m, £17.2m higher than the
actual rent roll at 30 September 2022.
Completed Projects
There are ten projects in the completed projects category, with overall rent
roll increasing by 15.6% (£1.5m) in the six months to £10.8m, with rent per
sq. ft. up 5.7% and occupancy up 6.7% to 76.7%.
If the buildings in this category were all at 90% occupancy at the ERVs at 30
September 2022, the rent roll would be £15.3m, an uplift of £4.5m.
Projects Underway - Refurbishments
We are currently underway on two refurbishment projects that will deliver
97,000 sq. ft. of new and upgraded space. As at 30 September 2022, rent roll
was £0.5m, down £0.2m in the six months.
Assuming 90% occupancy at the ERVs at 30 September 2022, the rent roll at
these two buildings once they are completed would be £4.2m, an uplift of
£3.7m.
Projects Underway - Redevelopments
We are progressing with obtaining vacant possession at our Riverside property
in Wandsworth, ahead of a major mixed-use redevelopment, which resulted in
a £1.4m reduction in rent roll in the six months, to £1.0m.
We expect to complete on the sale of the residential component of this scheme
in January 2023 and 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.
Projects at Design Stage
These are properties where we are planning a refurbishment or redevelopment
that has not yet commenced. As at 30 September 2022 the rent roll at these
properties was £3.5m.
Recent Acquisitions and Disposals
In September 2021, we completed the acquisition of Old Dairy, Shoreditch for
£43.4m and in November 2021 we completed the acquisition of The Busworks,
Islington for £45.0m. We are progressing with the design of extensive
refurbishments at these two buildings. The rent roll across these two
properties at 30 September 2022 was £3.5m, down £0.3m in the six months.
In May 2022, we completed the acquisition of the McKay portfolio. As at 30
September 2022 the rent roll at these properties was £20.8m, an increase
since acquisition of £0.4m. The integration is now complete with all
operational activity utilising the Workspace platform.
As at 30 September 2022 the rent roll at the seven London assets was £7.2m
and occupancy 64.7%. Four of these buildings have recently been refurbished
and we are making good progress in letting up the vacant and refurbished space
with 46,000 sq. ft let in the first half with £1.1m of rent. We have seen
increasing demand for the Workspace flexible offer at these properties.
Assuming 90% occupancy at the ERVs at 30 September 2022, the rent roll at
these seven buildings, would be £10.9m, an uplift of £3.7m.
As at 30 September 2022 the rent roll of the South-East office and business
park portfolio, comprising thirteen buildings, was £8.5m with occupancy at
89.2%. There was 35,000 sq. ft of lettings and renewals in the first half with
£0.7m of rent. Assuming 90% occupancy (or current occupancy if higher) at the
ERVs at 30 September 2022 the rent roll would be £11.0m, an uplift of £2.5m.
We continue to target disposal of the non-core light industrial and logistics
assets with the timing dependant on market conditions. In the meantime, we are
achieving good rental pricing growth on both renewals and new lettings with
73,000 sq. ft let with rent of £1.0m since acquisition. We have one vacant
industrial estate in Farnborough where we are seeing a strong level of demand.
Overall occupancy across these sites at 30 September 2022 was 91% with a rent
roll of £5.1m. Assuming 90% occupancy (or current occupancy if higher) at the
ERVs at 30 September 2022, the rent roll at these buildings, would be £6.7m,
an uplift of £1.6m.
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 £7.25m (£1.15m ahead of
the March 2022 valuation).
PROFIT PERFORMANCE
Trading profit after interest for the half year was up 33.5% (£7.3m) on the
prior half year to £29.1m.
£m 30 Sep 30 Sep
2022 2021
Net rental income 56.1 41.0
Administrative expenses - underlying (8.9) (8.4)
Administrative expenses - acquisitions (1.5) -
Administrative expenses - share based costs* (1.0) (0.3)
Net finance costs (15.6) (10.5)
Trading profit after interest 29.1 21.8
*These relate to both cash and equity settled costs
Net rental income was up 36.8% (£15.1m) to £56.1m.
£m 30 Sep 30 Sep
2022 2021
Underlying rental income 55.9 47.2
Unrecovered service charges (1.7) (2.2)
Empty rates and other non-recoverable costs (4.8) (4.9)
Services, fees, commissions and sundry income (0.4) -
Underlying net rental income 49.0 40.1
Expected credit losses (0.2) (0.3)
Acquisitions 7.3 -
Disposals - 1.2
Net rental income 56.1 41.0
The £8.7m increase in underlying rental income to £55.9m reflects the strong
increase in occupancy and improved pricing over the last year.
With energy costs hedged until October 2024 and higher occupancy levels
compared to the prior period there was a decrease of £0.5m in unrecovered
service charge costs in the first half of the financial year.
Higher average occupancy has also resulted in a reduction in empty rates with
non-recoverable costs decreasing by £0.1m to £4.8m. Net costs of services,
fees, commissions and sundry income increased by £0.4m driven by an enhanced
customer events programme.
Rent collection in the first half has remained strong with 98% of rent
collected to date resulting in a charge for expected credit losses of £0.2m
in the six months to 30 September 2022.
Growth in net rental income was further accelerated by a £7.3m contribution
from the McKay portfolio acquired in May 2022.
Underlying administrative expenses remained under tight control, increasing by
£0.5m to £8.9m, which included inflationary pay rises of 3% but with higher
increases in more junior roles. Administration costs also included £1.5m in
respect of the McKay business, with further savings expected in the second
half now that integration is complete. Share based costs increased by £0.7m
to £1.0m, with lower vesting levels and assumptions in the prior year.
Net finance costs increased by 48.6% (£5.1m) in the half 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 six months was
£227m higher than the first six months of the prior year, whilst the average
interest cost has increased from 3.1% to 3.5%.
Profit before tax in the half year was £35.8m compared to the £3.4m in the
first six months of the prior year.
£m 30 Sep 30 Sep
2022 2021
Trading profit after interest 29.1 21.8
Change in fair value of investment properties 8.1 (14.9)
Gain/(loss) on sale of investment properties 1.5 (3.5)
Exceptional items (2.9) -
Profit before tax 35.8 3.4
Adjusted underlying earnings per share 15.3p 12.0p
The increase in the property revaluation was £8.1m compared to a decrease of
£14.9m in the prior year.
The gain on sale of investment property of £1.5m relates to the disposal of
the medical centre at Newbury from the McKay portfolio.
Exceptional items include one-off costs 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 27.5% to
15.3p.
INTERIM 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 in the first half and
confidence in the longer term prospects of the Company, the Board is pleased
to announce that this year an interim dividend of 8.4p per share (2021: 7.0p)
will be paid on 1 February 2023 to shareholders on the register at 6 January
2023. The dividend will be paid as a REIT Property Income Distribution (PID)
net of withholding tax where appropriate.
PROPERTY VALUATION
At 30 September 2022, our property portfolio was independently valued by CBRE
and Knight Frank at £2,863m, an underlying increase of 0.3% (£8m) in the
half year. The main movements in the valuation are set out below:
£m
Valuation at 31 March 2022 2,402
Capital expenditure 25
Acquisitions 434
Disposals (6)
Revaluation 8
Valuation at 30 September 2022 2,863
A summary of the half year valuation and revaluation movement by property type
is set out below:
£m Valuation Movement
Like-for-like properties 1,891 15
Completed projects 250 (1)
Refurbishments 93 (10)
Redevelopments 96 (9)
Recent acquisitions* 533 13
Total 2,863 8
*Includes Old Dairy and Busworks acquired in prior year
Like-for-like Properties
There was a 0.8% (£15m) underlying increase in the valuation of like-for-like
properties to £1,891m. This was driven by a 7.5% increase in the ERV per sq.
ft. (£132m) reflecting the pricing of recent lettings and renewals, offset by
a 30bps outward shift in equivalent yield (£117m). This outward shift
typically ranged from 20bps to 50bps depending upon location.
30 Sep 31 Mar
2022 2022 Change
ERV per sq. ft. £45.41 £42.23 7.5%
Rent per sq. ft. £38.59 £37.12 4.0%
Equivalent Yield 5.9% 5.6% 0.3%*
Net Initial Yield 4.3% 4.2% 0.1%*
Capital Value per sq. ft. £692 £679 1.9%
* absolute change
A 5% increase in ERV would increase the valuation of like-for-like properties
by approximately £100m whilst a 50bps increase in equivalent yield would
decrease the valuation by approximately £150m.
Completed Projects
There was an underlying decrease of 0.4% (£1m) in the value of the ten
completed projects to £250m. The overall valuation metrics for completed
projects are set out below:
30 Sep
2022
ERV per sq. ft. £30.48
Rent per sq. ft. £25.35
Equivalent Yield 6.2%
Net Initial Yield 3.7%
Capital Value per sq. ft. £448
Current Refurbishments and Redevelopments
There was an underlying decrease of 9.7% (£10m) in the value of our current
refurbishments to £93m and a reduction of 8.6% (£9m) in the value of our
current redevelopments to £96m.
The most significant movements in this category are a decrease of £5.1m at
Leroy House, Islington, where we have commenced a major refurbishment and a
£3.7m decrease at our light industrial property Havelock Terrace, Battersea
reflecting the outward movement of industrial yields.
Recent Acquisitions
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 increase of 3.2% (£14m) in the valuation of the McKay
portfolio, compared to the acquisition cost. This was however, a 9% (£42m)
discount to the 31 March 2022 valuation of the portfolio, adjusting for
disposals. A summary of the half year valuation and underlying movements for
the McKay portfolio from acquisition is set out below:
£m Valuation Movement
London Offices 162 13
South East Offices 134 8
South East Industrials 140 (8)
Other 10 1
Total 446 14
The valuation metrics for the McKay portfolio are set out below:
London Offices South East Offices South East Industrials
As at 30 September 2022
No. Properties 7 13 9
ERV per sq. ft. £41.60 £25.44. £12.23
Rent per sq. ft. £38.05 £21.39 £9.99
Equivalent Yield 6.2% 7.9% 4.8%
Net Initial Yield 2.5% 5.6% 3.7%
Capital Value per sq. ft. £557 £299 £243
This category also includes Old Dairy, Shoreditch and BusWorks, Islington
which were acquired in 2021/22. There was a 1.1% (£1m) underlying decrease in
the valuation of these two properties to £87m.
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 30 September 2022 is
set out below:
Projects Number Capex spent Capex to spend Upgraded and new space (sq. ft.)
Underway 2 £7m £40m 97,000
Design stage 6 £0m £203m 453,000
Design stage (without planning) 5 £0m £345m 509,000
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 58,000 sq. ft business
centre with a stabilised income of £2.1m which we expect to complete in 2024.
We are progressing detailed design for new business space at Kennington Park,
Riverside and The Biscuit Factory where in total we have planning permission
for 453,000 sq. ft of new space which we will deliver on a phased basis.
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 30 September 2022 is
set out below:
No. of properties Residential units Cash received New commercial space (sq. ft.)
Cash to come
Underway 1 430 £0m £55m N/A
Design stage 3 539 £0m TBC 80,000
We are making good progress in obtaining vacant possession ahead of the sale
of the residential component of Riverside, Wandsworth and expect to complete
the sale in January 2023.
SUSTAINABILITY UPDATE
We have an inherently green property portfolio with energy intensity already
30% 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 over 30% A/B rated, and we are on track to upgrade a further 550k
sq. ft. (10%) to EPC A/B by the end of the financial year. We are also
targeting a reduction of both our operational energy and Scope 1 gas emissions
by 5% in the year.
CASH FLOW
The Group generates strong operating cash flow in line with trading profit. A
summary of cash flows in the half year are set out below:
£m 30 Sep 30 Sep
2022 2021
Net cash from operations after interest(†) 30 21
Dividends paid (26) (29)
Capital expenditure (25) (15)
Purchase of Investment Properties (201) (43)
Net Debt acquired (162) -
Property disposals and cash receipts 7 92
Other (2) 7
Net movement (379) 33
Opening debt (net of cash) (558) (565)
Closing debt (net of cash) (937) (532)
† 2021 excludes £18m of VAT receipts relating to sale of Fitzroy included
in 'other'.
There is a reconciliation of net debt in note 13(b) to the financial
statements.
The overall increase of £379m 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 first half or the
year collected as of 8 November 2022. The majority of the amounts still
outstanding are covered by rent deposits or by the provision for doubtful
debts.
NET ASSETS
Net assets increased in the half year by £77m to £1,877m. EPRA net tangible
assets (NTA) per share at 30 September 2022 was down 1.4% (£0.14) to £9.74:
EPRA NTA per share
£
At 31 March 2022 9.88
Adjusted trading profit after interest 0.15
Property valuation surplus 0.04
Profit on disposal of investment property 0.01
Share issue (0.19)
Dividends paid (0.15)
At 30 September 2022 9.74
The calculation of EPRA NTA per share is set out in note 8 of the financial
statements.
TOTAL ACCOUNTING RETURN
The total accounting return for the half year was 0.1% compared to 0.8% in the
half year ended September 2021. 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 8 of the
financial statements.
FINANCING
As at 30 September 2022, the Group had £13m of available cash and £250.0m 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
Aviva loan 65.0 65.0 2030
Bank facilities 285.0 535.0 2023-2024
Total 950.0 1,200.0
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 loan facility from Aviva.
Shorter term liquidity and flexibility is provided by floating-rate bank
facilities totalling £535m which were £285m drawn at 30 September 2022. The
bank facilities comprise £335m of sustainability-linked revolving credit
facilities (RCFs) and a £200m acquisition facility put in place for the
acquisition of McKay. £200m of RCF facilities mature in December 2024 and
£135m in April 2024, with both facilities having the potential to extend by
two further years. 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 Aviva loan, are provided on an unsecured basis
with an average maturity of 4.1 years (31 March 2022: 4.2 years).
At 30 September 2022, the effective interest rate was 3.5% based on SONIA at
2.2%, with 71% 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 1.69% over SONIA. A 1% increase in SONIA
would increase the effective interest rate by 0.3% (at current debt levels).
At 30 September 2022, 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 4.5 times (31 March 2022: 4.8 times), providing good
headroom on all facility covenants.
FINANCIAL outlook FOR 2022/23
Over the first half we have seen stable like-for-like occupancy and continued
rental growth driven by good levels of customer demand. Rental income in the
second half will be underpinned by the 3.6% growth in like-for-like rent roll
in the first half. While there may be an impact from the current economic
environment on our customers, we are currently seeing continued levels of good
demand in the second half and our pricing still remains below pre-Covid
levels. Rental income growth will also be supported by the letting up of
recently completed projects and the letting up of vacant space and pricing
growth in the McKay portfolio.
The current high levels of inflation will continue to put pressure 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 hedging our energy costs. Staff costs
are the most significant driver of our administration costs and, whilst we
have limited inflationary salary increases to 3% in the current year we have
seen higher increases in more junior roles.
The majority of our debt is at fixed interest rates. Around 30% bears interest
at a margin over SONIA, and is therefore subject to changes in market interest
rates. Given recent and expected increases in interest rates, we therefore
anticipate a slight increase in our average cost of borrowing to around 3.7%
for the full year.
We expect capital expenditure of around £50m in the full year as we progress
with planned projects, including the refurbishment of Leroy House.
We expect to complete the £55m sale of the residential element of our
development at Riverside, Wandsworth in January 2023. Together with the
disposal of non-core assets from the McKay portfolio and other potential
disposals this should reduce our LTV to below 30%.
property statistics
Half Year ended
30 Sep 31 Mar 30 Sep 31 Mar
2022 2022 2021 2021
Workspace Portfolio
Property valuation £2,863m £2,402m £2,271m £2,324m
Number of locations 87 57 58 58
Lettable floorspace (million sq. ft.) 5.4 4.0 3.9 3.9
Number of lettable units 4,901 4,482 4,234 4,196
Rent roll of occupied units £134.7m £111.0m £102.1m £103.9m
Average rent per sq. ft. £30.03 £33.26 £32.28 £33.90
Overall occupancy 84.0% 84.3% 81.2% 77.8%
Like-for-like number of properties 38 39 39 38
Like-for-like lettable floor space (million sq. ft.) 2.7 2.8 2.9 2.8
Like-for-like rent roll growth 3.6% 6.4% 2.1% (13.9)%
Like-for-like rent per sq. ft. growth 4.0% 2.5% (2.1)% (9.9)%
Like-for-like occupancy movement 0.1% 4.0% 3.7% (3.9)%
1) The like-for-like category has been restated in the current financial
year for the following:
· The transfer out of Riverside to the redevelopment projects
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 Six Months ENDED 30 September 2022
Notes Unaudited 6 months ended 30 September 2022 Unaudited 6 months ended 30 September 2021 Audited
£m £m Year ended
31 March 2022 £m
Revenue 2 82.3 61.2 132.9
Direct costs(1) 2 (26.2) (20.2) (46.2)
Net rental income 2 56.1 41.0 86.7
Administrative expenses (11.4) (8.7) (19.3)
Trading profit 32.3 67.4
44.7
Profit/(loss) on disposal of investment properties 3(a) 1.5 (3.5) 7.8
Other income 3(b) - - 0.6
Other expenses 3(c) (2.3) - -
Change in fair value of investment properties 9 8.1 (14.9) 68.7
Operating profit 52.0 13.9 144.5
Finance costs 4 (15.6) (10.5) (20.5)
Exceptional finance costs 4 (0.6) - -
Profit before tax 124.0
35.8 3.4
Taxation 5 - - (0.1)
Profit for the period after tax 123.9
35.8 3.4
Basic earnings per share 7 18.9p 1.9p 68.5 p
Diluted earnings per share 7 18.8p 1.9p 68.1 p
(1) Direct costs include impairment of receivables of £0.2m (31 March 2022:
£1.5m, 30 September 2021: £0.3m). See note 2 for further information
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE six months ENDED 30 September 2022
Unaudited 6 months ended 30 September 2022 Unaudited 6 months ended 30 September 2021 Audited
£m £m Year ended
31 March 2022
£m
Profit for the period 123.9
35.8 3.4
Other comprehensive income:
Items that may be classified subsequently to profit or loss:
Fair value of investments recycled to retained earnings - - 2.1
Cash flow hedge - transfer to income statement - (0.3) (0.3)
Pension fund movement 0.9 - -
Other comprehensive income/(loss) in the year 0.9 (0.3) 1.8
Total comprehensive income for the period 125.7
36.7 3.1
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2022
Notes Unaudited 30 September 2022 Audited 31 March 2022 Unaudited 30 September 2021
£m £m £m
Non-current assets
Investment properties 9 2,824.3 2,366.7 2,297.1
Intangible assets 2.0 1.9 2.2
Property, plant and equipment 2.9 2.9 3.4
Other investments 1.7 1.7 7.9
Deferred tax 0.3 0.3 0.4
2,373.5
2,831.2 2,311.0
Current assets
Trade and other receivables 10 37.1 23.5 28.1
Assets held for sale 65.9 65.9 -
Cash and cash equivalents 11 19.9 49.0 75.0
138.4
122.9 103.1
Total assets 2,511.9
2,954.1 2,414.1
Current liabilities
Trade and other payables 12 (97.8) (85.8) (100.3)
Borrowings 13(a) (199.7) - -
Pension fund deficit (0.3) - -
(85.8)
(297.8) (100.3)
Non-current liabilities
Borrowings 13(a) (745.1) (595.5) (596.7)
Lease obligations 14 (34.6) (31.0) (26.3)
(626.5)
(779.7) (623.0)
Total liabilities (712.3)
(1,077.5) (723.3)
Net assets 1,799.6
1,876.6 1,690.8
Shareholders' equity
Share capital 16 191.6 181.1 181.1
Share premium 352.1 295.5 295.5
Investment in own shares (9.9) (9.9) (9.6)
Other reserves 33.6 32.6 33.4
Retained earnings 1,309.2 1,300.3 1,190.4
Total shareholders' equity 1,799.6
1,876.6 1,690.8
Consolidated Statement of Changes in Equity
FOR THE period ENDED 30 September 2022
Attributable to owners of the Parent
Unaudited 6 months to Notes Share Share Investment Other Retained Total Shareholders'
equity
30 September 2022 capital premium in own reserves earnings
£m
£m £m shares £m £m
£m
Balance at 1 April 2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
Profit for the period - - - - 35.8 35.8
Other comprehensive income - - - - 0.9 0.9
Total comprehensive income - - - - 36.7 36.7
Transactions with owners:
Shares issued 16 10.5 56.6 - - - 67.1
Dividends paid 6 - - - - (27.8) (27.8)
Share based payments - - - 1.0 - 1.0
Balance at 30 September 2022 191.6 352.1 (9.9) 33.6 1,309.2 1,876.6
Unaudited 6 months to
30 September 2021
Balance at 1 April 2021 181.1 295.5 (9.6) 33.1 1,219.4 1,719.5
Profit for the period - - - - 3.4 3.4
Other comprehensive loss - - - - (0.3) (0.3)
Total comprehensive income - - - - 3.1 3.1
Transactions with owners:
Dividends paid 6 - - - - (32.1) (32.1)
Share based payments - - - 0.3 - 0.3
Balance at 30 September 2021 181.1 295.5 (9.6) 33.4 1,190.4 1,690.8
Audited 12 months to
31 March 2022
Balance at 1 April 2021 181.1 295.5 (9.6) 33.1 1,219.4 1,719.5
Profit for the year - - - - 123.9 123.9
Other comprehensive income - - - - 1.8 1.8
Total comprehensive income - - - - 125.7 125.7
Transactions with owners:
Purchase of own shares 16 - - (0.3) - - (0.3)
Dividends paid 6 - - - - (44.8) (44.8)
Recycled OCI to retained earnings - - - (2.1) - (2.1)
Share based payments - - - 1.6 - 1.6
Balance at 31 March 2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2022
Notes Unaudited Unaudited Audited
6 month ended 30 September 2022 6 months ended 30 September 2021 Year ended
£m £m 31 March
2022
£m
Cash flows from operating activities
Cash generated from operations 15 40.2 48.3 80.5
Interest paid (10.0) (9.3) (22.6)
Tax paid - - -
Net cash inflow from operating activities 30.2 39.0 57.9
Cash flows from investing activities
Purchase of investment properties (184.4) (43.5) (88.4)
Capital expenditure on investment properties (24.8) (14.3) (29.8)
Proceeds from disposal of investment properties 7.2 91.8 117.3
Purchase of intangible assets (0.4) (0.3) (0.5)
Purchase of property, plant and equipment (0.7) (0.3) (0.7)
Other (expenses)/ income (1.4) 4.5 4.5
Proceeds from sale of investments - - 6.8
Net cash (outflow)/ inflow from investing activities (204.5) 37.9 9.2
Cash flows from financing activities
Finance costs of new/amended borrowing facilities (0.7) - (1.3)
Settlement and re-couponing of derivative financial instruments - 0.7 0.7
Repayment of Private Placement Notes and bank borrowings (40.0) (173.5) (173.5)
Drawdown of bank borrowings 212.0 25.0 25.0
Exceptional costs - (16.4) (16.4)
Own shares purchased (net) - - (0.3)
Dividends paid 6 (26.1) (28.7) (43.3)
Net cash inflow/ (outflow) from financing activities 145.2 (192.9) (209.1)
Net decrease in cash and cash equivalents (29.1) (116.0) (142.0)
Cash and cash equivalents at start of period 11 49.0 191.0 191.0
Cash and cash equivalents at end of period 11 19.9 75.0 49.0
NOTES TO THE FINANCIAL STATEMENTS
FOR THE period ENDED 30 September 2022
1. Accounting policies
Basis of preparation
The half year report has been prepared in accordance with the Disclosure and
Transparency Rules and with IAS 34 'Interim Financial Reporting' as adopted
for use in the UK. The half year report should be read in conjunction with the
annual financial statements for the year ended 31 March 2022, which have been
prepared in accordance with UK adopted international accounting standards.
The condensed financial statements in the half year report, presented in
Sterling, are unaudited and do not constitute statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The Annual Report and
Accounts for the year to 31 March 2022, were prepared and approved by the
Directors on a going concern basis, in accordance with UK adopted
international accounting standards ("IFRS"). The Company elected to prepare
its Parent Company financial statements in accordance with FRS 101. The
auditor's opinion on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement made under
Section 498 of the Companies Act 2006.
There have been no changes in estimates of amounts reported in prior periods
which have a material impact on the current half year period.
As with most other UK property companies and REITs, the Group presents many of
its financial measures in accordance with the guidance criteria issued by the
European Public Real Estate Association ('EPRA'). These measures, which
provide consistency across the sector, are all derived from the IFRS figures
in notes 7 and 8.
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. 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 months period from the date of signing of
these financial statements. 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.
- Increased levels of counterparty risk, with bad debt significantly higher
than current levels.
- Continued high 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 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 40% compared to the September 2022 Net Rental Income (on
an annualised basis and adjusted for a full year of ownership of the McKay
portfolio) and a fall in the asset valuation of 45% compared to September 2022
before these covenants are breached, assuming no mitigating actions are taken.
As at 30 September 2022 the Group had a fully unsecured loan portfolio of
£1,200m and significant headroom on its facilities with £13m of cash and
undrawn facilities of £250m. Shorter term liquidity and flexibility is
provided by floating-rate bank facilities totalling £535m which were £285m
drawn at 30 September 2022. The bank facilities comprise £335m of
sustainability-linked revolving credit facilities (RCFs) and a £200m
acquisition facility put in place for the acquisition of McKay which matures
in September 2023. £200m of RCF facilities mature in December 2024 and £135m
in April 2024, with both facilities having the potential to extend by two
further years. The £200m RCF also has the option to increase the facility
amount by up to £100m, subject to lender consent.
For the full period of the scenario tested, the Group maintains sufficient
headroom in its cash and loan facilities and loan covenants are met.
Consequently, the Directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for at least 12
months from the date of approval of the financial statements and therefore
have prepared the financial statements on a going concern basis.
This report was approved by the Board on 14 November 2022.
Change in accounting policies
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 March 2022, with the exception of
the following standards, amendments and interpretations endorsed by the UK
which were effective for the first time for the Group's current accounting
period and had no material impact on the financial statements.
· References to Conceptual Framework in IFRSs (amended);
· IFRS 16 (amended) - Covid-19-related Rent Concessions;
· IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amended) - Interest
Rate Benchmark Reform - Phase 2.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in issue at the
date of approval of these financial statements but were not yet effective for
the current accounting period and have not been adopted early. Based on the
Group's current circumstances, the Directors do not anticipate that their
adoption in future periods will have a material impact on the financial
statements of the Group.
· Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a
Contract;
· IFRS Standards 2018-2020: Annual Improvements to IFRS Standards
2018-2020;
· Amendments to IAS 16: Property, Plant and Equipment-Proceeds
before Intended;
· Amendments to IFRS 3: Reference to the Conceptual Framework;
· Amendments to IAS 1: Classification of liabilities as current or
non-current;
· IFRS 17: Insurance Contracts;
· Amendments to IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors: Definition;
· Amendments to IAS 1: Presentation of Financial Statements and
IFRS Practise Statement 2 Making Materiality Judgements;
· Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets
and Liabilities arising from a Single Transaction
2. Analysis of net rental income
6 months ended 30 September 2022 6 months ended 30 September 2021
Revenue Direct costs Net rental income Revenue Direct costs Net rental income
£m £m £m £m £m £m
Rental income 65.6 (1.4) 64.2 49.6 (1.5) 48.1
Service charges 14.1 (16.4) (2.3) 9.3 (11.5) (2.2)
Empty rates and other non-recoverable costs - (5.5) (5.5) - (4.9) (4.9)
Services, fees, commissions and sundry income 2.6 (2.9) (0.3) 2.3 (2.3) -
82.3 (26.2) 56.1 61.2 (20.2) 41.0
Year ended 31 March 2022
Revenue Direct Net rental
£m costs income
£m £m
Rental income 104.3 (2.9) 101.4
Service charges 21.1 (25.9) (4.8)
Empty rates and other non-recoverable costs - (10.6) (10.6)
Services, fees, commissions and sundry income 7.5 (6.8) 0.7
132.9 (46.2) 86.7
A charge of £0.2m (31 March 2022: £1.5m, 30 September 2021: £0.3m) for
expected credit losses in respect of receivables from customers is recognised
in direct costs of rental income 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 assess performance is
reviewed as one portfolio. As a result, management have determined that the
Group operates a single operating segment of providing business space for rent
in and around London.
3(a). Profit/(loss) on disposal of investment properties
6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Proceeds from sale of investment properties (net of sale costs) 7.2 91.8 117.3
Book value at time of sale (5.7) (95.3) (109.5)
Profit/(loss) on disposal 1.5 (3.5) 7.8
3(b). Other income
6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Other income - - 0.6
0.6
- -
The Group disposed of the investment in Lovespace Ltd in the year ended 31
March 2022, resulting in a gain of £0.6m.
3(c). Other expenses
6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Other expenses (2.3) - -
-
(2.3) -
Other expenses include the exceptional one-off costs relating to the
acquisition and integration of McKay Securities Limited (formerly McKay
Securities PLC), including the cost of buying out the McKay Securities Limited
defined benefit pension scheme (see note 18) and the implementation costs of
replacing our finance and property system. These costs are outside the Group's
normal trading activities.
4. Finance costs
6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Interest payable on bank loans and overdrafts (4.3) (0.8) (1.4)
Interest payable on other borrowings (9.4) (8.5) (16.7)
Amortisation of issue costs of borrowings (1.1) (0.6) (1.1)
Interest on lease liabilities (1.0) (0.8) (1.7)
Interest capitalised on property refurbishments (note 10) 0.1 0.2 0.4
Interest receivable 0.1 - -
Finance costs (15.6) (10.5) (20.5)
Exceptional finance costs (0.6) - -
Total finance costs (16.2) (10.5) (20.5)
Exceptional finance costs in the period relate to unamortised finance costs
for McKay Securities Limited's previous bank loan which were written off when
this was refinanced in September 2022.
5. Taxation
6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Current tax:
UK corporation tax - - -
Deferred tax:
On origination and reversal of temporary differences - - 0.1
0.1
Total taxation charge - - 0.1
The Group is a Real Estate Investment Trust (REIT). The Group's UK property
rental business (both income and capital gains) is exempt from tax. The
Group's other income is subject to corporation tax. No tax charge has arisen
on this other income for the half year (31 March 2022: £0.1m, 30 September
2021: £nil).
6. Dividends
Ordinary dividends paid Payment Per 6 months ended 6 months Year
date share 30 September ended 30 September 2021 ended
2022 £m 31 March
£m 2022
£m
For the year ended 31 March 2021:
Final dividend August 2021 17.75p - 32.1 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 - -
Dividends for the period 27.8 32.1 44.8
Timing difference on payment of withholding tax (1.7) (3.4) (1.5)
Dividend's cash paid 26.1 28.7 43.3
In addition, the Directors are proposing an interim dividend in respect of the
financial year ending 31 March 2023 of 8.4 pence per ordinary share which will
absorb an estimated £16.1m of revenue reserves and cash. The dividend will be
paid on 1 February 2023 to shareholders who are on the register of members on
6 January 2023. The dividend will be paid as a REIT Property Income
Distribution (PID) net of withholding tax where appropriate.
7. Earnings per share
Earnings used for calculating earnings per share: 6 months ended 30 September 2022 6 months Year
£m ended 30 September 2021 ended
£m 31 March
2022
£m
Basic and diluted earnings 35.8 3.4 123.9
Change in fair value of investment properties (8.1) 14.9 (68.7)
(Profit)/ loss on disposal of investment properties (1.5) 3.5 (7.8)
EPRA earnings 26.2 21.8 47.4
Adjustment for non-trading items:
Other expense/(income) (note 3(c) and 3(b)) 2.3 - (0.6)
Exceptional finance costs (note 4) 0.6 - -
Taxation - - 0.1
Adjusted trading profit after interest 29.1 21.8 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: Year ended
6 months ended 30 September 2022 6 months ended 31 March
30 September 2022
2021
Weighted average number of shares (excluding own shares held in trust) 189,456,131 181,006,085 180,983,916
Weighted average dilution due to share option schemes 872,332 832,534 998,280
Weighted average number of shares for diluted earnings per share 190,328,463 181,838,619 181,982,196
6 months ended 6 months ended Year ended
30 September 2022 30 September 2021 31 March
2022
Basic earnings per share 18.9p 1.9p 68.5p
Diluted earnings per share 18.8p 1.9p 68.1p
EPRA earnings per share 13.8p 12.1p 26.2p
Adjusted underlying earnings per share(1) 15.3p 12.0p 25.8p
(1) Adjusted underlying earnings per share is calculated by dividing adjusted
trading profit after finance costs by the diluted weighted average number of
shares of 190,328,463 (31 March 2022: 181,982,165, 30 September 2021:
181,838,619).
8. Net assets per share
Number of shares used for calculating net assets per share: 30 September 31 March 30 September
2022 2022 2021
Shares in issue at period-end 191,638,357 181,125,259 181,123,659
Less own shares held in trust at period-end (160,476) (162,113) (162,113)
Number of shares for calculating basic net assets per share 191,477,881 180,963,146 180,961,546
Dilution due to share option schemes 958,891 1,078,852 954,111
Number of shares for calculating diluted adjusted net assets per share 192,436,772 182,041,998 181,915,657
30 September 2022 31 March 30 September
2022 2021
EPRA net tangible assets per share £9.74 £9.88 £9.28
Basic net assets per share £9.80 £9.94 £9.34
Diluted net assets per share £9.75 £9.89 £9.29
EPRA Net Asset Value Metrics
30 September 2022 31 March 2022
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,876.6 1,876.6 1,876.6 1,799.6 1,799.6 1,799.6
Derivative financial instruments at fair value - - - - - -
Intangibles per IFRS balance sheet - (2.0) - - (1.9) -
Excess of book value of debt over fair value - - 128.4 - - 13.0
Purchasers' costs(1) 194.7 - - 163.3 - -
EPRA measure 2,071.3 1,874.6 2,005.0 1,962.9 1,797.7 1,812.6
Number of shares for calculating diluted net assets per share (millions) 192.4 192.4 192.4 182.0 182.0 182.0
EPRA measure per share £10.76 £9.74 £10.42 £10.78 £9.88 £9.96
30 September 2021
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
IFRS Equity attributable to shareholders 1,690.8 1,690.8 1,690.8
Derivative financial instruments at fair value - - -
Intangibles per IFRS balance sheet - (2.2) -
Excess of fair value of debt over book value - - (48.4)
Purchasers' costs(1) 154.5 - -
EPRA measure 1,845.3 1,688.6 1,642.4
Number of shares for calculating diluted net assets per share (millions) 181.9 181.9 181.9
EPRA measure per share £10.14 £9.28 £9.03
(1) EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
Total Accounting Return
Total Accounting Return 30 September 31 March 30 September
2022 2022 2021
Opening EPRA net tangible assets per share (A) 9.88 9.38 9.38
Closing EPRA net tangible assets per share 9.74 9.88 9.28
(Decrease)/ increase in EPRA net tangible assets per share (0.14) 0.50 (0.10)
Ordinary dividends paid in the year 0.15 0.25 0.18
Total return (B) 0.01 0.75 0.08
Total accounting return (B/A) 0.1% 8.0% 0.8%
The total accounting return for the period comprises the growth in absolute
EPRA net tangible assets per share plus dividends paid in the period as a
percentage of the opening EPRA net tangible assets per share. The total return
for the period to 30 September 2022 was 0.1% (year ended 31 March 2022: 8.0%,
period ended 30 September 2021: 0.8%).
9. Investment Properties
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Balance at 1 April 2,366.7 2,349.9 2,349.9
Purchase of investment properties 426.6 88.4 43.4
Capital expenditure 24.8 30.0 13.8
Remeasurement of leases 3.6 4.7 -
Capitalised interest on refurbishments (note 4) 0.1 0.4 0.2
Disposals during the period (5.6) (109.5) (95.3)
Change in fair value of investment properties 7.6 68.7 (14.9)
Adjustment for tenant incentives recognised in advance under IFRS 16 0.5 - -
Less: Classified as assets for resale - (65.9) -
Total investment properties 2,824.3 2,366.7 2,297.1
Investment properties represent a single class of property being business
premises for rent in and around London.
During the period, the Group acquired McKay Securities Limited (formerly McKay
Securities PLC) adding 32 properties in and around London to the portfolio.
Capitalised interest is included at a rate of capitalisation of 3.0% (31 March
2022: 3.0%, 30 September 2021: 3.7%). The total amount of capitalised interest
included in investment properties is £15.0m (31 March 2022: £14.9m, 30
September 2021: £14.7m).
The change in fair value of investment properties is recognised in the
consolidated income statement.
The Group occupies around 14,000 square feet of space within one of its
Investment Properties as its Head Office. The deemed valuation of this space
equates to approximately 0.2% of the overall Investment Property valuation and
as such has not been split out as specific Owner Occupied Property.
Valuation
The Group's investment properties are held at fair value and were revalued at
30 September 2022 by the external valuer, CBRE Limited, for the Workspace
properties held throughout the period, and by the external valuer, Knight
Frank LLP, for the McKay properties acquired during the period. Both firms are
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.
The valuation of like-for-like properties (which are not subject to
refurbishment or redevelopment) and completed projects are 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 allowance made 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 ERV
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
completed 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 investment properties, is as follows:
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Total per valuation report 2,863.0 2,402.2 2,271.4
Deferred consideration on sale of property (0.6) (0.6) (0.6)
Head leases obligations 34.6 31.0 26.3
Less: reclassified as held for sale (65.9) (65.9) -
Less: tenant incentives recognised in advance under IFRS 16 (6.8) - -
Total investment properties per balance sheet 2,824.3 2,366.7 2,297.1
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 involves 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 year.
The following table summarises the valuation techniques and inputs used in the
determination of the property valuation at 30 September 2022.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
Property category Valuation Valuation Range Weighted Range Weighted
£m technique average average
Like-for-like 1,891.5 1 £20 - £75 £45 4.5% - 7.5% 5.9%
Completed projects 249.9 1 £22 - £50 £30 5.1% - 6.5% 6.2%
Refurbishments 92.8 2 £20 - £40 £27 3.9% - 6.7% 5.4%
Redevelopments 29.5 2 £3 - £11 £6 4.6% - 6.2% 5.5%
Acquisitions 526.0 1 £6 - £62 £25 3.7% - 9.8% 6.2%
Head leases 34.6 n/a
Total 2,824.3
1 = Income capitalisation method.
2 = Residual value method.
Developer's profit is a key unobservable input for redevelopments and
refurbishments at planning stage. The range is 10%-19% with a weighted average
of 17%.
Costs to complete is a key unobservable input for redevelopments at planning
stage with a range of £219-£247 per sq. ft. and a weighted average of £226
per sq. ft.
Costs to complete are not considered to be a significant unobservable input
for refurbishments due to the high percentage that is already fixed.
10. Trade and other receivables
Current trade and other receivables 30 September 2022 31 March 30 September 2021
£m 2022 £m
£m
Trade receivables 11.4 6.7 10.0
Prepayments, other receivables and accrued income 25.1 16.2 17.5
Deferred consideration on sale of investment properties 0.6 0.6 0.6
37.1 23.5 28.1
Included within trade receivables is the provision for impairment of
receivables of £5.1m (31 March 2022: £5.2m, 30 September 2021: £4.9m).
The deferred consideration arising on the sale of investment properties
relates to cash and overage. The overage has been fair valued by CBRE Limited
on the basis of residual value, using appropriate discount rates, and will be
revalued on a regular basis. This is a Level 3 valuation of a financial
asset, as defined by IFRS 13. The change in fair value recorded in the
Consolidated income statement was £nil (31 March 2022: £nil, 30 September
2021: £nil) (note 3(b)).
Receivables at fair value:
Included within deferred consideration on sale of investment properties is
£0.6m (31 March 2022: £0.6m, 30 September 2021: £0.6m) of overage or cash
which is held at fair value through profit and loss.
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. All the Group's trade and other
receivables are denominated in Sterling.
11. Cash and cash equivalents
30 September 2022 31 March 30 September 2021
£m 2022 £m
£m
Cash at bank and in hand 13.3 42.3 68.1
Restricted cash - tenants' deposit deeds 6.6 6.7 6.9
19.9 49.0 75.0
Tenants' deposit deeds represent returnable cash security deposits received
from tenants and are ring-fenced under the terms of the individual lease
contracts.
12. Trade and other payables
30 September 2022 31 March 30 September 2021
£m 2022 £m
£m
Trade payables 10.6 13.2 12.5
Other tax and social security payable 5.8 3.8 24.6
Tenants' deposit deeds (note 11) 6.6 6.7 6.9
Tenants' deposits 29.4 26.5 23.3
Accrued expenses 31.9 27.4 23.4
Deferred income - rent and service charges 13.5 8.2 9.6
97.8 85.8 100.3
There is no material difference between the above amounts and their fair
values due to the short-term nature of the payables.
13. Borrowings
(a) Balances
30 September 2022 31 March 30 September 2021
£m 2022 £m
£m
Current
Bank loans (unsecured) 199.7 - -
Non-current
Bank loans (unsecured) 83.4 (2.1) (0.6)
Other loans (secured) 64.0 - -
3.07% Senior Notes 2025 (unsecured) 79.9 79.9 79.8
3.19% Senior Notes 2027 (unsecured) 119.8 119.8 119.8
3.6% Senior Notes 2029 (unsecured) 99.8 99.8 99.8
Green Bond (unsecured) 298.2 298.1 297.9
944.8 595.5 596.7
(b) Net Debt
30 September 2022 31 March 30 September 2021
£m 2022 £m
£m
Borrowings per (a) above 944.8 595.5 596.7
Adjust for:
Cost of raising finance 5.2 4.5 3.3
950.0 600.0 600.0
Cash at bank and in hand (note 11) (13.3) (42.3) (68.1)
Net Debt 936.7 557.7 531.9
At 30 September 2022, the Group had £250m (31 March 2022: £400m, 30
September 2021: £250m) of undrawn bank facilities and £13.3m of unrestricted
cash (31 March 2022: £42.3m, 30 September 2021: £68.1m). There are
unamortised finance costs of £1.5m (31 March 2022: £2.1m, 30 September 2021:
£0.6m).
Net debt represents borrowing facilities drawn, less cash at bank and in hand.
It excludes lease obligations and any cost of raising finance as they have no
future cash flows.
The Group has a loan to value covenant applicable to the Bank Loans and Senior
Debt Borrowings of 60% and Green Bond of 65%. Loan to value at 30 September
2022 was 33% (31 March 2022: 23%, 30 September 2021: 23%).
The Group also has an interest cover covenant of 2.0x applicable to the Bank
Loan and Senior Debt Borrowings, and 1.75x applicable for the Green Bond. This
is calculated as net rental income divided by interest payable on loans and
other borrowings. At 30 September 2022 interest cover was 4.5x (31 March 2022:
4.8x, 30 September 2021: 4.3x).
(c) Maturity
Unaudited Audited Unaudited
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Repayable within one year 200.0 - -
Repayable between one and two years 73.0 - -
Repayable between two and three years 92.0 - -
Repayable between three years and four years - 80.0 80.0
Repayable between four years and five years 120.0 - -
Repayable in five years or more 465.0 520.0 520.0
950.0 600.0 600.0
Cost of raising finance (5.2) (4.5) (3.3)
944.8 595.5 596.7
(d) Interest rate and repayment profile
Principal at Interest Interest Repayable
period end rate payable
£m
Current
Bank overdraft due within one year or on demand (£2m facility) - Base +2.25% Variable On demand
Bank Loan 200.0 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 12.0 SONIA + 1.65%(2) Monthly December 2024
Bank Loan 73.0 SONIA + 1.65%(2) Monthly April 2024
Other Loan (secured) 65.0 4.02% Monthly May 2030
Green Bond 300.0 2.25% Yearly March 2028
950.0
(1) This is an average over the life of the facility. The margin increases
from 1.5% to 2.15% over the facility availability period.
(2) The base margin can be adjusted by up to 4.5bps dependent upon achievement
of three ESG-linked metrics.
(e) Financial instruments and fair values
Unaudited Unaudited Audited Audited Unaudited Unaudited
30 September 2022 30 September 2022 31 March 31 March 30 September 2021 30 September 2021
Book Value Fair Value 2022 2022 Book Value Fair Value
£m £m Book Value Fair Value £m £m
£m £m
Financial liabilities held at amortised cost
Bank loans (unsecured) 283.1 283.1 (2.1) (2.1) (0.6) (0.6)
Other loans (secured) 64.0 57.4 - - - -
Private Placement Notes 299.5 264.1 299.5 301.8 299.4 323.9
Lease obligations 34.6 34.6 31.0 31.0 26.3 26.3
Green Bond 298.2 211.8 298.1 282.8 297.9 321.8
979.4 851.0 626.5 613.5 623.0 671.4
Financial assets at fair value
through other comprehensive income
Derivative financial instruments:
Other Investments 1.7 1.7 1.7 1.7 7.9 7.9
1.7 1.7 1.7 1.7 7.9 7.9
Financial assets at fair value through profit or loss
Deferred consideration (overage) 0.6 0.6 0.6 0.6 0.6 0.6
0.6 0.6 0.6 0.6 0.6 0.6
In accordance with IFRS 13 disclosure is required for financial instruments
that are carried or disclosed in the financial statements at fair value. The
fair values of all the Group's financial derivatives, bank loans, other loans
and Private Placement Notes have been determined by reference to market prices
and discounted expected cash flows at prevailing interest rates and are Level
2 valuations. There have been no transfers between levels in the year. The
different levels of valuation hierarchy as defined by IFRS 13 are set out in
note 9.
The total change in fair value of derivative financial instruments recorded in
other comprehensive income was a £nil (31 March 2022: £nil, 30 September
2021: £nil).
14. Lease obligation
Lease liabilities in respect of leased investment property are recognised in
accordance with IFRS 16.
Unaudited Audited Unaudited
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Leases repayable in two years or more 34.6 31.0 26.3
Minimum lease payments under leases fall due as follows:
Within one year 2.1 1.9 1.6
Between two and five years 8.3 7.4 6.6
Beyond five years 200.8 181.0 147.6
211.2 190.3 155.8
Future finance charges on leases (176.6) (159.3) (129.5)
Present value of lease liabilities 34.6 31.0 26.3
15. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
6 months ended 30 September 2022 £m 6 months Year ended
ended 30 September 2021 £m 31 March 2022
£m
Profit before tax 35.8 3.4 124.0
Depreciation 0.7 0.9 1.8
Amortisation of intangibles 0.3 0.4 0.9
Letting fees amortisation 0.3 - -
(Profit)/ Loss on disposal of investment properties (1.5) 3.5 (7.8)
Other expenses/ (income) 2.3 - (0.6)
Net (profit)/loss from change in fair value of investment property (8.1) 14.9 (68.7)
Equity-settled share based payments 1.0 0.3 1.6
Finance expense 15.6 10.5 20.5
Exceptional finance costs 0.6 - -
Changes in working capital:
(Increase)/ decrease in trade and other receivables (8.3) (3.2) 1.4
Increase in trade and other payables 1.5 17.6 7.4
Cash generated from operations 40.2 48.3 80.5
For the purposes of the cash flow statement, cash and cash equivalents
comprise the following:
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Cash at bank and in hand 13.3 42.3 68.1
Restricted cash - tenants' deposit deeds 6.6 6.7 6.9
49.0
19.9 75.0
16. Share Capital
Unaudited Audited Unaudited
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Issued: fully paid ordinary shares of £1 each 191.6 181.1 181.1
Movements in share capital were as follows: Unaudited Audited Unaudited
30 September 31 March 30 September
2022 2022 2021
Number of shares at 1 April 181,125,259 181,113,594 181,113,594
Issue of shares 10,513,098 11,665 10,065
Number of shares at period end 191,638,357 181,125,259 181,123,659
The Group issued shares as part of the consideration for the acquisition of
McKay Securities Limited (formerly McKay Securities PLC) during the period
ended 30 September 2022 totalling 10,513,098. The average share price on issue
was £6.38 leading to share premium of 56,560,467 in the period. In the year
there were no share scheme options issued (31 March 2022: 11,665 with net
proceeds £nil, 30 September 2021: 10,065 with net proceeds £nil).
17. Capital commitments
At the period end the estimated amounts of contractual commitments for future
capital expenditure not provided for were:
Unaudited Audited Unaudited
30 September 2022 31 March 30 September
£m 2022 2021
£m £m
Construction or refurbishment of investment properties 30.0 4.6 3.2
18. Post balance sheet events
On 12 October 2022, the Group entered into a pension buy-out transaction
whereby an insurance company took on all current and future liabilities of the
McKay Securities Limited defined benefit pension scheme totalling £6.7m in
exchange for the £5.4m assets of the scheme and a cash contribution from the
Company of £1.3m. The liability for the payment and associated costs was
provided for as at 30 September 2022.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the UK;
• the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Directors of Workspace Group PLC are listed in the Workspace Group PLC
Annual Report and Accounts for 31 March 2022. A list of current Directors is
maintained on the Workspace Group website: www.workspace.co.uk
(http://www.workspace.co.uk) .
Approved by the Board on 14 November 2022 and signed on its behalf by
D Benson
Director
INDEPENDENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated
Statement of Changes in Equity, Consolidated Statement of Cash Flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly financial report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Bano Sheikh for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
14 November 2022
PRINCIPAL RISKS AND UNCERTAINTIES
The Board assesses and monitors the principal risks of the business and
considers how these risks could best be mitigated, where possible, through a
combination of internal controls and risk management. The first six months of
the financial year has seen a period of political uncertainty and challenging
macro-economic conditions with high inflation and increasing interest rates.
Whilst the combination of these factors presents an increased risk of
recession and potential adverse impact on property values and construction
costs, the key risks that could affect the Group's medium-term performance and
the factors which mitigate these risks, have not materially changed from those
set out in the Group's Annual Report and Accounts 2022.
Workspace recognises that climate change will have an impact on our business.
Our properties are at risk from physical climate related issues and as a
business we are also at risk from the transition to a net zero economy in the
form of increasing regulation and changes in customer demand. We are actively
managing our climate change risk and have put in place mitigation measures for
the most material impacts.
These risks have been assessed in line with the requirements of the 2018 UK
Corporate Governance Code and are shown below. The Board is satisfied that we
continue to operate within our risk profile.
Risk Area Mitigating activities
Customer demand · Broad mix of buildings across London with different office
experiences at various price points to match customer requirements
Whilst the uncertainty from the Covid pandemic has significantly reduced there
are other macro-economic factors including the war in Ukraine, current levels · Pipeline of refurbishment and redevelopments to further enhance
of inflation and predicted interest rate rises that could also impact the portfolio
potential customers and change their requirements for space
· Weekly meeting to track enquiries, viewings and lettings to
RISK IMPACT closely track customer trends and amend pricing as demand changes
· Fall in occupancy levels at our properties
· Reduction in rent roll · Centre staff maintain ongoing relationships with our customers to
understand their requirements and implement change to meet their needs
· Reduction in property valuation
· Business plans are stress tested to assess the sensitivity of
forecasts to reduced levels of demand and implement contingency measures
· Marketing campaigns maintain awareness of Workspace's offer and
content and messaging are regularly reviewed to remain relevant and appealing
to customers
Financing · We regularly review funding requirements for business plans, and
we have a wide range of options to fund our forthcoming plans. We also prepare
a five-year business plan which is reviewed and updated annually
There may be a reduction in the availability of long-term financing due to a
continued economic recession, which may result in an inability to grow the
business and impact Workspace's ability to deliver services to customers · We have a broad range of funding relationships in place and
regularly review our refinancing strategy. We also maintain a specific
interest rate profile via use of fixed rates on our loan facilities so that
our interest payment profile is stable
RISK IMPACT
· Inability to fund business plans and invest in new opportunities
· Loan covenants are monitored and reported to the Board on a
· Increased interest costs monthly basis, and we undertake detailed cash flow monitoring and forecasting
· Negative reputational impact amongst lenders and in the
investment community
· During 2021/22 we refinanced our Revolving Credit Facility,
extending the maturity for a further three years, providing the Group with
adequate funds for future plans
· During the first six months of 2022/23 we refinanced the McKay
RCF and Aviva loan providing further certainty over our funding position going
forwards
Valuation · Market-related valuation risk is largely dependent on
independent, external factors. We maintain a conservative LTV ratio which can
withstand a severe decline in property values without covenant breaches
Macroeconomic uncertainty could have an impact on asset valuations, whereby
property yields increase, and valuations fall. This may result in a reduction
in return on investment and negative impact on covenant testing · We monitor changes in sentiment in the London real estate market,
yields and pricing to track possible changes in valuation. CBRE and Knight
Frank, both leading full-service real estate services and investment
organisations, provides twice yearly valuations of all our properties
RISK IMPACT
· Financing covenants linked to loan to value ('LTV') ratio
· We manage our properties to ensure they are compliant with the
· Impact on share price Minimum Energy Efficiency Standards (MEES) for EPCs
· Failure to meet Energy Performance Certificate (EPC) targets
could result in a loss of rental income impacting valuation
· Alternative use opportunities, including mixed-use developments,
are actively pursued across the portfolio
Acquisition pricing · We have an acquisition strategy determining key criteria such as
location, size and potential for growth. These criteria are based on the many
years of knowledge and understanding of our market and customer demand
Inadequate appraisal and due diligence of a new acquisition could lead to
paying above market price leading to a negative impact on valuation and rental
income targets · A detailed appraisal is prepared for each acquisition and is
presented to the Investment Committee for challenge and discussion prior to
authorisation by the Board. The acquisition is then subject to thorough due
diligence prior to completion
RISK IMPACT
· Negative impact on valuation
· Workspace will only make acquisitions that are expected to yield
· Impact on overall shareholder return a minimum return and will not knowingly overpay for an asset
· For all corporate acquisitions we undertake appropriate property,
financial and tax due diligence including a review of ESG
Customer default payment · Rent collections improved during the year but still impacted as a
result of the moratorium put in place by the Government. This has now been
partially removed improving our ability to enforce payment
There is a reducing impact from Covid-19 on the economy with less customers
defaulting on their rental payments. However there remains a risk of continued
economic downturn given the broader geopolitical climate, inflation and · The reduced impact continues to be mitigated by strong credit
interest rate rises. This could result in further pressure on rent collection control processes in place and an experienced team of credit controllers, able
figures with a prolonged period of companies failing leading to a decline in to make quick decisions and negotiate with customers for payment. In
occupancy and increase in office vacancies addition, we hold a month three-month deposit for the majority of customers
RISK IMPACT · Centre staff maintain relationships with customers and can
identify early signs of potential issues
· Negative cash flow and increasing interest costs
· Breach of financial covenants
Cyber security · Cyber security risk is managed using a mitigation framework
comprising network security, IT security policies and third-party risk
assessments. Controls are regularly reviewed and updated and include
technology such as next generation firewalls, multi layered access control
A cyber-attack could lead to a loss of access to Workspace systems or a through to people solutions such as user awareness training and mock-phishing
network disruption for a prolonged period of time, this could damage Workspace emails
reputation and inhibit our ability to run the business
· Assurance of the framework's performance is gained through an
RISK IMPACT independent maturity assessment, penetration testing and network vulnerability
testing, all performed annually
· Inability to process new leases and invoice customers
· Reputational damage
· Increased operational costs
Resourcing · We have a robust recruitment process to attract new joiners and
established interview and evaluation processes with a view to ensuring a good
fit with the required skill set and our valued corporate culture
Ineffective succession planning, recruitment and people management could lead
to limited resourcing levels and a shortage of suitably skilled individuals to
be able to achieve Workspace objectives and grow the business. A failure to · Various incentive schemes align employee objectives with the
have in place adequate resourcing may also result in stretch of existing strategic objectives of the Group to motivate employees to work in the best
management and a decline in efficiency interests of the Group and its stakeholders. This is supported by a robust
appraisal and review process for all employees
RISK IMPACT
· Our HR and Support Services teams run a detailed training and
· Increased costs from high staff turnover development programme designed to ensure employees are supported and
encouraged to progress with learning and study opportunities. The HR function
· Delay to growth plans was this year strengthened by the newly created appointment of a Recruitment
Manager who will coordinate all activities to attract talented employees
· Reputational damage
Third party relationships · Workspace has in place a robust tender and selection process for
key contractors and partners. Contracts contain service level agreements which
are monitored regularly, and actions taken in the case of underperformance
Poor performance from one of Workspace's key contractors or third party
partners could result in an interruption to or reduction in the quality of our
service offering to customers or could lead to significant disruptions and · For key services, Workspace maintains relationships with
delays in any refurbishment or redevelopment projects alternative providers so that other solutions would be available if the main
contractor or third party was unable to continue providing their services.
Processes are in place for identifying key suppliers and understanding any
specific risks that require further mitigation
RISK IMPACT
· Decline in customer confidence
· Workspace is London Living Wage compliant for all contractors
· Increase project or operational costs since April 2022
· Fall in customer demand
Regulatory · Health and safety is one of our primary concerns, with strong
leadership promoting a culture of awareness throughout the business. We have
well-developed policies and procedures in place to help ensure that any
workers, employees or visitors on site comply with strict safety guidelines
A failure to keep up to date and plan for changing regulations in key areas and we work with well-respected suppliers who share our high-quality standards
such as health and safety or sustainability could lead to fines or in health and safety
reputational damage
· Health and safety management systems are reviewed and updated in
RISK IMPACT line with changing regulation and regular audits are undertaken to identify
any potential improvements
· Increased costs
· Reputational damage
· Sustainability requirements have an increasing importance for the
Group, and it is a responsibility we take seriously. We have committed to a
Carbon Zero target of 2030, and we are implementing the TCFD recommendations
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. END IR FFFSILSLSLIFRecent news on Workspace
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