REG - Workspace Grp PLC - WORKSPACE GROUP PLC HALF YEAR RESULTS
21/11/2023 07:00
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RNS Number : 0544U Workspace Group PLC 21 November 2023
21 November 2023
WORKSPACE GROUP PLC
HALF YEAR RESULTS
CONTINUED INCOME AND DIVIDEND GROWTH FROM OUR SCALABLE OPERATING PLATFORM
Workspace Group PLC ("Workspace"), London's leading owner and operator of
sustainable, flexible work space today announces its results for the half year
to 30 September 2023. The comments in this announcement refer to the period
from 1 April 2023 to 30 September 2023 unless otherwise stated.
Financial highlights: Strong rental income growth driving increase in
dividend, valuation reduction from yield expansion
· Net rental income up 9% (£4.9m) to £61.0m (September 2022: £56.1m)
· Trading profit after interest(†) up 7% to £31.1m (September 2022:
£29.1m)
· Interim dividend per share up 7% to 9.0p per share (30 September
2022: 8.4p)
· Property valuation of £2,505m, an underlying(1) reduction of 6.6%
(£178m) from 31 March 2023
· Like-for-like portfolio valuation down 5.6% with equivalent yield out
45bps to 6.7%
· Loss before tax of £147.9m (30 September 2022: £35.8m profit)
reflecting the reduction in the property valuation
· EPRA net tangible assets per share down 10.2% from 31 March 2023 to
£8.32
· Robust balance sheet with £133m of cash and undrawn facilities and
LTV stable at 34% (30 September 2022: 33%)
· Average cost of debt over the half year was 4.0% with 76% of debt at
fixed rates
· Bank facilities extended to April/December 2026 in November 2023,
with a pro-forma weighted average maturity of drawn debt of 4.1 years as at 30
September 2023
Customer activity: Stable occupancy and continued pricing growth
· Good customer demand with 583 lettings completed in the half year
with a total rental value of £15.0m, highlighting the appeal of our flexible
offer
· Strong rental growth with like-for-like rent roll up 3.0% in the
quarter, up 6.3% in the half year to £108.6m
· Improved pricing with like-for-like rent per sq. ft. up 3.3% in the
quarter, the ninth consecutive quarterly increase, and 6.6% in the half year,
to £42.98
· Like-for-like occupancy stable at 88.7% (30 September 2022: 89.2%)
Portfolio activity: Active capital recycling
· Good progress on disposals of non-core assets, with £92.8m completed
in the first half of the year, and a further £13.5m of disposals completed in
October and November
Project activity & Sustainability
· Three major and five smaller projects underway delivering 360,000 sq.
ft. of new and upgraded space. Further 1.0m sq. ft. of projects in the
pipeline
· Active asset management delivered a 7% reduction in operational
energy intensity, 37% reduction in gas use and a 5% increase in EPC A and B
rated space to 48%
Commenting on the results, Graham Clemett, Chief Executive Officer said:
"Over 35 years we have developed a deep understanding of what SMEs want from
their working space. This experience and knowledge of our customers is
difficult to replicate. Our flexible offer is built with the needs of their
businesses and their teams at its heart. Now more than ever this means control
over their space, being part of a community of like-minded businesses and
having the freedom to grow and move within our portfolio of characterful and
well-located buildings. Today, demand from businesses across London
increasingly points towards this holistic flexibility. This is coming through
in our results as we report good customer demand and strong rental income
growth, driven by increased pricing and stable occupancy.
Throughout the first half of the year, we have continued to actively manage
our portfolio to meet changing customer needs. We have completed a wide range
of smaller unit refurbishments and subdivisions, as well as making good
progress on our larger projects. As expected, valuations are down as a result
of movement in market yields. However, we have maintained a conservative level
of gearing, with the continuing disposal of non-core properties further
strengthening our balance sheet and we expect more over the next six months.
We go into the second half of the year with good momentum. Our scalable
operating platform gives us a competitive advantage and we have a clear
pathway to unlock near and long-term income growth, both through capturing
reversion on our like-for-like properties and active asset management
opportunities."
Summary Results
September September Change
2023 2022
Financial performance
Net rental income £61.0m £56.1m +8.7%
Trading profit after interest(†) £31.1m £29.1m +6.9%
(Loss)/profit before tax £(147.9)m £35.8m
Interim dividend per share 9.0p 8.4p +7.1%
September March Change
2023 2023
Valuation
EPRA net tangible assets per share(†) £8.32 £9.27 -10.2%
Property valuation(†) £2,505m £2,741m -6.6%(1)
Financing
Loan to value 34% 33%
Undrawn bank facilities and cash £133m £148m
† 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 change excluding capital expenditure and disposals.
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
Clare Marland, Head of Corporate Communications
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, 21 November 2023 at 9:00am. The presentation will take place at our
recently opened Eventspace, at our refurbished Salisbury House, 114 London
Wall, EC2M 5QA.
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/workspace024
(https://secure.emincote.com/client/workspace/workspace024)
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/workspace024/vip_connect
(https://secure.emincote.com/client/workspace/workspace024/vip_connect)
Notes to Editors
About Workspace Group PLC:
Workspace is London's leading owner and operator of flexible workspace,
currently managing 4.7 million sq. ft. of sustainable space at 79 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.
We have a unique combination of a highly effective and scalable operating
platform, a portfolio of distinctive properties, and an ownership model that
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)
BUSINESS REVIEW
CUSTOMER ACTIVITY
We have seen good customer demand with 583 lettings completed in the half year
with a total rental value of £15.0m.
Monthly Average Monthly Activity
H1 H1 FY 30 Sep 31 Aug 31 Jul
2023/24 2022/23 2022/23 2023 2023 2023
Enquiries 788 769 798 916 824 771
Viewings 509 502 518 578 480 524
Lettings 98 107 110 112 111 100
Good activity levels have continued into the third quarter, with 858
enquiries, 533 viewings and
90 deals in October 2023.
Alongside our new lettings, we have seen strong renewal activity in the half
year, with 313 customers across the like-for-like portfolio renewing for a
£1.6m (20%) uplift in annual rent.
RENT ROLL
Total rent roll, representing the total annualised net rental income at a
given date, was up 1.3% (£1.8m) in the six months to £141.9m at 30 September
2023.
Total Rent Roll £m
At 31 March 2023 140.1
Like-for-like portfolio 6.4
Completed projects (0.4)
Projects underway and design stage 0.5
South East Office 0.0
Non-core 0.1
Disposals (4.8)
At 30 September 2023 141.9
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 and non-core properties at their current rent roll and occupancy), was
£191.5m at 30 September 2023.
Like-for-like portfolio
The like-for-like portfolio represents 77% of the total rent roll as at 30
September 2023. It comprises 42 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 23 31 Mar 23(1) 30 Sep 22(1)
Occupancy 88.7% 89.3% 89.2%
Occupancy change(2) (0.6%) 0.1% 0.4%
Rent per sq. ft. £42.98 £40.30 £38.17
Rent per sq. ft. change 6.7% 5.6% 3.8%
Rent roll £108.6m £102.2m £97.8m
Rent roll change 6.3% 4.5% 4.8%
(1) Restated for the transfer in of Westbourne Studios and Mare Street from
the Completed Projects category and the transfer in of Castle Lane and Wilson
Street from Recent Acquisitions
(2) Absolute change
We have continued to move pricing forward across our like-for-like portfolio
with rent per sq. ft. increasing by 6.7% in the half year to £42.98.
Like-for-like occupancy was marginally down by 0.6% to 88.7% in the half year,
with an overall increase in like-for-like rent roll of 6.3% (£6.4m) to
£108.6m.
We have seen ERV per sq. ft. increase by 0.8% in the half year. If all the
like-for-like properties were at 90% occupancy at the CBRE estimated rental
values at 30 September 2023, the rent roll would be £124.0m, £15.4m higher
than the actual rent roll at 30 September 2023.
Completed Projects
There are eight projects in the completed projects category. Rent roll reduced
overall by £0.4m in the six months to £8.7m. An underlying increase of
£0.5m in rent roll was offset by a £0.9m reduction at Evergreen Studios,
Richmond, following the expiry of a short leaseback of the building by the
developer.
If the buildings in this category were all at 90% occupancy at the ERVs at 30
September 2023, the rent roll would be £11.8m, an uplift of £3.1m.
Projects Underway - Refurbishments
We are currently underway on eight refurbishment projects that will deliver
360,000 sq. ft. of new and upgraded space. As at 30 September 2023, rent roll
was £8.9m, up £0.3m in the last six months.
Assuming 90% occupancy at the ERVs at 30 September 2023, the rent roll at
these eight buildings once they are completed would be £19.5m, an uplift of
£10.6m.
Projects at Design Stage
These are properties where we are well advanced in planning a refurbishment or
redevelopment that has not yet commenced. As at 30 September 2023, the rent
roll at these properties was £6.0m, up £0.2m.
South East Office
As at 30 September 2023, the rent roll of the South East office portfolio,
comprising eleven buildings, was stable at £7.6m, with occupancy at 88.1%.
Assuming 90% occupancy (or current occupancy if higher) at the ERVs at 30
September 2023, the rent roll would be £10.3m, an uplift of £2.7m.
Non-core
As at 30 September 2023, the rent roll of the non-core portfolio, comprising
three industrial estates, two residential schemes and an advertising tower
adjacent to The Mille in Brentford, was £2.2m, down £0.1m.
Disposals
In June, we completed on the sale of five light industrial and logistics
properties in Bracknell, Crawley, Poyle, Theale and Weybridge for £82.0m, in
line with their March 2023 valuations.
In the second quarter, we completed on the sale of Columbia House,
Farnborough, for £7.3m and Ancells Road, Fleet, for £3.5m, both in line with
their March 2023 valuations.
In aggregate, these disposals have delivered £92.8m of proceeds in the first
half of the year, at a combined net initial yield of 5.1%.
Since the half year, we have completed on the sale of the advertising tower
adjacent to The Mille in Brentford for £9.0m and the Three Acre industrial
estate, Folkestone for £4.5m, at a combined net initial yield at 7.2%.
PROFIT PERFORMANCE
Trading profit after interest for the half year was up 6.9% (£2.0m) on the
prior half year to £31.1m.
£m 30 Sep 30 Sep
2023 2022
Net rental income 61.0 56.1
Administrative expenses - underlying (10.4) (10.4)
Administrative expenses - share based costs(1) (1.2) (1.0)
Net finance costs (18.3) (15.6)
Trading profit after interest 31.1 29.1
(1) These relate to both cash and equity settled costs
Net rental income was up 8.7% (£4.9m) to £61.0m.
£m 30 Sep 30 Sep
2023 2022
Underlying rental income 59.3 54.9
Unrecovered service charge costs (2.7) (1.7)
Empty rates and other non-recoverable costs (5.1) (4.8)
Services, fees, commissions and sundry income 0.5 (0.4)
Underlying net rental income 52.0 48.0
Acquisitions 7.3 5.0
Disposals 1.7 3.1
Net rental income 61.0 56.1
The £4.4m increase in underlying rental income to £59.3m reflects the strong
increase in average rent per sq. ft. achieved over the last year. Total net
rental income also benefited from increased rents from recent acquisitions
which have continued to let up well in the first half of the year.
Although the majority of service charge costs are recovered from customers,
the unusually high levels of inflation we have seen in the UK over the last
year, combined with a slight reduction in overall occupancy, resulted in an
increase of £1.0m in unrecovered service charge costs.
There was a small increase in empty rates and other non-recoverable costs
which were up £0.3m to £5.1m. Net revenue from services, fees, commissions
and sundry income was up by £0.9m, including increased hospitality revenue.
Rent collection for the period has remained robust with a charge for expected
credit losses of £0.6m for the six months, compared to £1.1m for the full
year to March 2023.
Underlying administrative expenses remained unchanged at £10.4m, with
inflationary increases offset by synergy savings following the completion of
the integration of McKay. Share-based costs increased by £0.2m to £1.2m
driven by higher vesting levels and assumptions.
Net finance costs increased by £2.7m to £18.3m in the half year reflecting
the increase in SONIA over the last year and higher average net debt following
the acquisition of McKay. The average net debt balance in the period was £23m
higher than the first six months of the prior year, whilst the average
interest cost increased from 3.5% to 4.0%.
Loss before tax was £147.9m compared to a £35.8m profit in the prior year.
£m 30 Sep 30 Sep
2023 2022
Trading profit after interest 31.1 29.1
Change in fair value of investment properties (177.4) 8.1
(Loss)/gain on sale of investment properties (1.2) 1.5
Exceptional costs (0.4) (2.9)
(Loss)/profit before tax (147.9) 35.8
Adjusted underlying earnings per share 16.1p 15.3p
The change in fair value of investment properties, including assets held for
sale, was a decrease of £177.4m compared to an increase of £8.1m in the
prior year.
The loss on sale of investment properties of £1.2m resulted from costs
associated with disposals in the first half.
Exceptional costs include one-off items relating to the implementation of our
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 5.2% to
16.1p.
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 solid 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 9.0p per share (2022: 8.4p) will be paid on 2
February 2024 to shareholders on the register at 5 January 2024. The dividend
will be paid as a REIT Property Income Distribution (PID) net of withholding
tax where appropriate.
PROPERTY VALUATION
At 30 September 2023, our property portfolio was independently valued by CBRE
at £2,505m, an underlying decrease of 6.6% (£178m) in the half year. The
main movements in the valuation are set out below:
£m
Valuation at 31 March 2023 2,741
Capital expenditure 34
Disposals (92)
Revaluation (178)
Valuation at 30 September 2023 2,505
A summary of the half year valuation and revaluation movement by property type
is set out below:
£m Valuation Movement
Like-for-like properties 1,881 (111)
Completed projects 177 (14)
Refurbishments 290 (31)
Redevelopments 27 (5)
South East office 96 (10)
Non-core 34 (7)
Total 2,505 (178)
Like-for-like Properties
There was a 5.6% (£111m) underlying decrease in the valuation of
like-for-like properties to £1,881m. This was driven by a 45bps outward shift
in equivalent yield (£132m), offset by a 0.8% increase in the ERV per sq. ft.
(£21m).
ERV growth has returned to a lower, historically more normal level of growth,
with pricing at most centres now back at or above pre-Covid levels. We saw
stronger growth in ERV for smaller space which represent the majority of our
lettings activity, with an increase of 2% in the six months for units under
1,000 sq. ft. compared to larger spaces where ERVs have been flat, and also
reflects our approach to implement a wide range of smaller unit refurbishments
and subdivisions.
30 Sep 31 Mar
2023 2023(1) Change
ERV per sq. ft. £48.38 £48.01 0.8%
Rent per sq. ft. £42.98 £40.30 6.6%
Equivalent yield 6.7% 6.2% 0.5%(2)
Net initial yield 5.2% 4.7% 0.5%(2)
Capital value per sq. ft. £661 £697 5.2%
(1) Restated for the transfer in of Westbourne Studios and Mare Street from
the Completed Projects category and the transfer in of Castle Lane and Wilson
Street from Recent Acquisitions
(2) Absolute change
A 2.5% increase in ERV would increase the valuation of like-for-like
properties by approximately £50m whilst a 25bps increase in equivalent yield
would decrease the valuation by approximately £70m.
Completed Projects
There was an underlying decrease of 7.3% (£14m) in the value of the eight
completed projects to £177m. This was driven by a 51bps outward shift in
equivalent yield, offset by a 1.3% increase in the ERV per sq. ft. The overall
valuation metrics for completed projects are set out below:
30 Sep
2023
ERV per sq. ft. £31.20
Rent per sq. ft. £27.65
Equivalent yield 6.9%
Net initial yield 4.3%
Capital value per sq. ft. £422
Current Refurbishments and Redevelopments
There was an underlying decrease of 9.7% (£31m) in the value of our current
refurbishments to £290m and a reduction of 15.6% (£5m) in the value of our
current redevelopments to £27m.
The decreases in respect of refurbishments largely reflected the movement in
market yields, with redevelopment valuations also impacted by a decline in
expected residential values and increases in expected build costs.
South East Office
There was a 9.4% (£10m) underlying decrease in the valuation of the South
East office portfolio to £96m with a 92bps outward shift in equivalent yield,
offset by a 1% increase in ERV per sq. ft. The overall valuation metrics are
set out below:
30 Sep
2023
ERV per sq. ft. £28.63
Rent per sq. ft. £22.75
Equivalent Yield 9.9%
Net Initial Yield 7.7%
Capital Value per sq. ft. £255
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 30 September 2023 is
set out below:
Projects Number Capex spent Capex to spend Upgraded and new space (sq. ft.)
Underway 8 £29m £68m 362,000
Design stage 8 £0m £418m 672,000
Design stage (without planning) 6 £0m £195m 331,000
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 summer 2024. Our adaptive re-use of the existing building creates
70% less embodied carbon compared to a new build scheme. We have also recently
commenced major upgrades and extensions at Chocolate Factory, Wood Green, and
at The Biscuit Factory, Bermondsey.
We will obtain vacant possession of Atelier House, at the northern end of our
Centro property, in December 2023, which will allow us to progress with our
planned conversion of the building to a business centre.
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 2023 is
set out below:
No. of properties Residential units New commercial space (sq. ft.)
Design stage 3 539 61,000
The three schemes at design stage at Chocolate Factory in Wood Green, Rainbow
in Raynes Park and Poplar all have planning consent.
SUSTAINABILITY
We have an inherently green property portfolio with energy intensity already
9% lower than industry best practice for net zero carbon offices. 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 48% EPC A and B rated, an increase of 5% in the half
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 half year we also achieved a 7% reduction in
operational energy intensity and a 37% reduction in gas use.
CASH FLOW
A summary of cash flows is set out below:
£m 30 Sep 30 Sep
2023 2022
Net cash from operations after interest(†) 20 30
Dividends paid (32) (26)
Capital expenditure (36) (25)
Purchase of investment properties - (201)
Net debt acquired - (162)
Property disposals and cash receipts 92 7
Other (9) (2)
Net movement 35 (379)
Opening debt (net of cash) (902) (558)
Closing debt (net of cash) (867) (937)
† 2023 excludes £8.8m of VAT payments relating to sale of Riverside
included in 'Other'
There is a reconciliation of net debt in note 13(b) in the financial
statements.
The overall decrease of £35m in net debt reflects the disposals made in the
period.
NET ASSETS
Net assets decreased in the half year by £179m to £1,608m. EPRA net tangible
assets (NTA) per share at 30 September 2023 was down 10.2% (£0.95) to £8.32.
EPRA NTA per share
£
At 31 March 2023 9.27
Adjusted trading profit after interest 0.16
Property valuation deficit (0.92)
Dividends paid (0.17)
Other (0.02)
At 30 September 2023 8.32
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 (8.4)% compared to 0.1% in
the half year ended September 2022. The total accounting return comprises the
change 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 2023, the Group had £4m of available cash and £129m 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 206.5 335.0 2026
Total 871.5 1,000.0
The majority of the Group's debt comprises long-term fixed-rate committed
facilities including 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
sustainability-linked Revolving Credit Facilities (RCFs) totalling £335.0m
which were £206.5m drawn as at 30 September 2023. The maturity of the bank
facilities was successfully extended by a further year in November 2023 with
£135m now maturing in April 2026 and £200m in December 2026. Following the
extension, on a pro-forma basis, the average maturity of drawn debt at 30
September 2023 was 4.1 years (31 March 2023: 4.1 years).
At 30 September 2023, the effective interest rate was 4.1% based on SONIA at
5.2%, with 76% 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 1.8% over SONIA. A 1% change in SONIA
would change the effective interest rate by 0.2% (at current debt levels).
At 30 September 2023, loan to value (LTV) was 34% (31 March 2023: 33%) and
interest cover, based on net rental income and interest paid over the last 12
month period, was 3.5 times (31 March 2023: 3.8 times), providing good
headroom on all facility covenants.
FINANCIAL outlook FOR 2023/24
Over the first half of the year, we have seen continued strong rental growth
driven by increased pricing and stable occupancy. Rental income growth in the
second half of the year will be underpinned by the 6.3% growth in
like-for-like rent roll we have seen over the last six months. We continue to
see good demand and expect further growth in average rent per sq. ft. in the
second half of the year. Rental income growth will also be supported by the
letting up of recently completed projects.
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 a maximum of 6%
for staff earning more than £50,000, we have given higher increases for those
on lower salary levels.
The £92.8m of proceeds from disposals of non-core properties made in the
first half have reduced our floating-rate debt, which currently has an
effective interest rate of 7%, and we expect this to result in a reduction in
interest costs in the second half.
We expect capital expenditure of around £30m in the second half as we
continue to progress with planned asset management projects, including the
refurbishments of Leroy House, Chocolate Factory and The Biscuit Factory. This
capital expenditure will be offset by asset disposals in the second half of
the year.
property statistics
Half Year ended
30 Sep 31 Mar 30 Sep 31 Mar
2023 2023 2022 2022
Workspace Portfolio
Property valuation £2,505m £2,741m £2,863m £2,402m
Number of locations 79 86 87 57
Lettable floorspace (million sq. ft.) 4.7 5.2 5.4 4.0
Number of lettable units 4,718 4,910 4,901 4,482
Rent roll of occupied units £141.9m £140.1m £134.7m £111.0m
Average rent per sq. ft. £36.81 £32.86 £30.03 £33.26
Overall occupancy 83.5% 81.5% 84.0% 84.3%
Like-for-like number of properties 42 38 38 39
Like-for-like lettable floor space (million sq. ft.) 2.8 2.7 2.7 2.8
Like-for-like rent roll growth 6.3% 3.4% 3.6% 6.4%
Like-for-like rent per sq. ft. growth 6.6% 5.2% 4.0% 2.5%
Like-for-like occupancy movement (0.6%) (0.5%) 0.1% 4.0%
1) The like-for-like category has been restated in the current financial
year for the following:
· The transfer in of Westbourne Studios and Mare Street from the
Completed Projects category and the transfer in of Castle Lane and Wilson
Street from Recent Acquisitions.
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 2023
Notes Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited
£m £m Year ended
31 March 2023 £m
Revenue 2 90.7 82.3 174.2
Direct costs(1) 2 (29.7) (26.2) (57.6)
Net rental income 2 61.0 56.1 116.6
Administrative expenses (11.6) (11.4) (21.5)
Trading profit 44.7 95.1
49.4
(Loss)/profit on disposal of investment properties 3(a) (1.2) 1.5 (0.7)
Other expenses 3(b) (0.4) (2.3) (3.8)
Change in fair value of investment properties 9 (170.8) 8.1 (88.0)
Impairment of assets held for sale 9 (6.6) - (5.1)
Operating (loss)/profit (129.6) 52.0 (2.5)
Finance costs 4 (18.3) (15.6) (34.4)
Exceptional finance costs 4 - (0.6) (0.6)
(Loss)/ profit before tax (37.5)
(147.9) 35.8
Taxation 5 - - (0.3)
(Loss)/ profit for the period after tax (37.8)
(147.9) 35.8
Basic (loss)/earnings per share 7 (77.2p) 18.9p (19.9 p)
Diluted (loss)earnings per share 7 (77.2p) 18.8p (19.9 p)
(1) Direct costs include impairment of receivables of £0.6m (31 March 2023:
£1.1m, 30 September 2022: £0.2m). See note 2 for further information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE six months ENDED 30 September 2023
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited
£m £m Year ended
31 March 2023
£m
(Loss)/ profit for the period (147.9) 35.8 (37.8)
Other comprehensive income:
Items that may be classified subsequently to profit or loss:
Change in fair value of other investments - - 0.4
Items that will not be reclassified subsequently to profit or loss:
Pension fund movement - 0.9 0.9
Other comprehensive income in the year - 0.9 1.3
Total comprehensive (loss)/income for the period (36.5)
(147.9) 36.7
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2023
Notes Unaudited 30 September 2023 Audited 31 March 2023 Unaudited 30 September 2022
£m £m £m
Non-current assets
Investment properties 9 2,471.7 2,643.3 2,824.3
Intangible assets 2.1 2.0 2.0
Property, plant and equipment 3.9 4.4 2.9
Other investments 2.1 2.1 1.7
Deferred tax - - 0.3
2,651.8
2,479.8 2,831.2
Current assets
Trade and other receivables 10 58.1 45.8 37.1
Assets held for sale 60.5 123.0 65.9
Cash and cash equivalents 11 10.3 18.5 19.9
187.3
128.9 122.9
Total assets 2,839.1
2,608.7 2,954.1
Current liabilities
Trade and other payables 12 (99.1) (107.8) (97.8)
Borrowings 13(a) - (49.8) (199.7)
Pension fund deficit - - (0.3)
(157.6)
(99.1) (297.8)
Non-current liabilities
Borrowings 13(a) (867.3) (859.1) (745.1)
Lease obligations 14 (34.7) (34.7) (34.6)
(893.8)
(902.0) (779.7)
Total liabilities (1,051.4)
(1,001.1) (1,077.5)
Net assets 1,787.7
1,607.6 1,876.6
Shareholders' equity
Share capital 16 191.9 191.6 191.6
Share premium 296.6 295.5 295.5(2)
Investment in own shares (9.9) (9.9) (9.9)
Other reserves 89.8 91.0 90.2(2)
Retained earnings 1,039.2 1,219.5 1,309.2
Total shareholders' equity 1,787.7
1,607.6 1,876.6
(2) Refer to footnote on page 16.
Consolidated Statement of Changes in Equity
FOR THE period ENDED 30 September 2023
Attributable to owners of the Parent
Unaudited 6 months to Notes Share Share Investment Other Retained Total Shareholders'
equity
30 September 2023 capital premium in own reserves earnings
£m
£m £m shares £m £m
£m
Balance at 1 April 2023 191.6 295.5 (9.9) 91.0 1,219.5 1,787.7
Loss for the period - - - - (147.9) (147.9)
Other comprehensive income - - - - - -
Total comprehensive loss - - - - (147.9) (147.9)
Transactions with owners:
Dividends paid 6 - - - - (33.3) (33.3)
Share based payments 0.3 1.1 - (1.2) 0.9 1.1
Balance at 30 September 2023 191.9 296.6 (9.9) 89.8 1,039.2 1,607.6
Unaudited 6 months to
30 September 2022
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(2) - 67.1
Dividends paid 6 - - - - (27.8) (27.8)
Share based payments - - - 1.0 - 1.0
Balance at 30 September 2022 191.6 295.5 (9.9) 90.2 1,309.2 1,876.6
(2) Share premium as at 30 September 2022 has been restated to reduce the
balance at that date by £56.6m with an equal increase in other reserves to
reflect the nature of the McKay share acquisition, consistent with the audited
financial statements as at 31 March 2023.
Audited 12 months to
31 March 2023
Balance at 1 April 2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
Loss for the year - - - - (37.8) (37.8)
Other comprehensive income - - - 0.4 0.9 1.3
Total comprehensive (loss) - - - 0.4 (36.9) (36.5)
Transactions with owners:
Shares issued 16 10.5 - - 56.6 - 67.1
Dividends paid 6 - - - - (43.9) (43.9)
Share based payments - - - 1.4 - 1.4
Balance at 31 March 2023 191.6 295.5 (9.9) 91.0 1,219.5 1,787.7
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2023
Notes Unaudited Unaudited Audited
6 month ended 30 September 2023 6 months ended 30 September 2022 Year ended
£m £m 31 March
2023
£m
Cash flows from operating activities
Cash generated from operations 15 26.7 40.2 110.5
Interest paid (15.2) (10.0) (31.7)
Net cash inflow from operating activities 11.5 30.2 78.8
Cash flows from investing activities
Purchase of investment properties - (184.4) (184.4)
Capital expenditure on investment properties (35.9) (24.8) (56.2)
Proceeds from disposal of investment properties (net of sales costs) 3.5 7.2 7.1
Proceeds from disposal of assets held for sale (net of sale costs) 88.0 - 41.4
Purchase of intangible assets (0.4) (0.4) (0.8)
Purchase of property, plant and equipment (0.3) (0.7) (3.1)
Other expenses (0.4) (1.4) (2.9)
Settlement of defined benefit pension scheme - - (1.3)
Net cash inflow/(outflow) from investing activities 54.5 (204.5) (200.2)
Cash flows from financing activities
Finance costs of new/amended borrowing facilities - (0.7) (1.6)
Settlement of share schemes (0.2) - -
Repayment of bank borrowings (134.5) (40.0) (150.0)
Draw down of bank borrowings 92.0 212.0 286.0
Dividends paid 6 (31.5) (26.1) (43.5)
Net cash (outflow)/inflow from financing activities (74.2) 145.2 90.9
Net decrease in cash and cash equivalents (8.2) (29.1) (30.5)
Cash and cash equivalents at start of period 11 18.5 49.0 49.0
Cash and cash equivalents at end of period 11 10.3 19.9 18.5
NOTES TO THE FINANCIAL STATEMENTS
FOR THE period ENDED 30 September 2023
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 2023, which have been
prepared in accordance with UK adopted international accounting standards.
The condensed consolidated financial statements (consolidated 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
2023, 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 have heightened wider concerns around the UK economy
meaning there is 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 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.
· 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 39% compared to the
September 2023 Net Rental Income and a fall in the asset valuation of 27%
compared to 30
September 2023 before these covenants are breached, assuming no mitigating
actions are taken.
As at 30 September 2023, the Company had significant headroom with £135m of
cash and undrawn facilities. The majority of the Group's debt is 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 which
comprise £335m of sustainability-linked revolving credit facilities (RCFs).
The RCF facilities comprise £135m due in April 2025 and £200m due in
December 2025, with both facilities having been extended by a further year
after the balance sheet date. 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 assessment under the scenario 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 its liabilities as they
fall due for at least 12 months from the date of approval of the consolidated
set of financial statements and therefore the financial statements have been
prepared on a going concern basis.
This report was approved by the Board on 20 November 2023.
Change in accounting policies
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 March 2023, 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.
· IAS 12 (amended): Income Taxes - 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 Practise Statement 2: Presentation of
Financial Statements and IFRS Practise Statement 2 Making Materiality
Judgements;
· IFRS 17: Insurance Contracts;
· IFRS 9: Comparative Information
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.
· IFRS 16 (amended): Lease Liability in a Sale and Leaseback
· IAS 1 (amended): Classification of liabilities as current or
non-current; Non-current Liabilities with Covenants; Deferral of Effective
Date Amendment
· IAS 7 and IFRS 7 (amended): Supplier Finance Arrangements
· IAS 21 (amended): Lack of Exchangeability
2. Analysis of net rental income
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022
Revenue Direct costs Net rental income Revenue Direct costs Net rental income
£m £m £m £m £m £m
Rental income 71.8 (2.8) 69.0 65.6 (1.4) 64.2
Service charges 15.9 (18.7) (2.8) 14.1 (16.4) (2.3)
Empty rates and other non-recoverable costs - (5.5) (5.5) - (5.5) (5.5)
Services, fees, commissions and sundry income 3.0 (2.7) 0.3 2.6 (2.9) (0.3)
90.7 (29.7) 61.0 82.3 (26.2) 56.1
Audited Year ended 31 March 2023
Revenue Direct Net rental
£m costs income
£m £m
Rental income 136.7 (4.2) 132.5
Service charges 30.0 (35.7) (5.7)
Empty rates and other non-recoverable costs - (10.6) (10.6)
Services, fees, commissions and sundry income 7.5 (7.1) 0.4
174.2 (57.6) 116.6
A charge of £0.6m (31 March 2023: £1.0m, 30 September 2022: £0.2m) 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). (Loss)/profit on disposal of investment properties
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited Year
£m £m ended
31 March
2023
£m
Proceeds from sale of investment properties (net of sale costs) 3.4 7.2 7.0
Proceeds from sale of assets held for sale (net of sale costs) 88.1 - 52.1
Book value at time of sale (92.7) (5.7) (59.8)
(Loss)/profit on disposal (1.2) 1.5 (0.7)
3(b). Other income/(expenses)
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited Year
£m £m ended
31 March
2023
£m
Change in fair value of deferred consideration 0.1 - (0.1)
Other expenses (0.5) (2.3) (3.7)
(0.4) (2.3) (3.8)
The increase in fair value of deferred consideration of £0.1m (cash and
overage) from the sale of investment properties has been revalued by CBRE
Limited at 30 September 2023 (31 March 2023: decrease of £0.1m; 30 September
2022: £nil).
In the current period, other expenses include the exceptional one-off costs
relating to the implementation costs of replacing our finance and property
system (31 March 2023: £1.8m; 30 September 2022: £0.9). These costs are
outside the Group's normal trading activities.
Other expenses in the prior period also included exceptional one-off costs
relating to the acquisition and integration of McKay Securities Limited (31
March 2023: £1.9m, 30 September 2022: £1.4), including the cost of buying
out McKay Securities Limited defined benefit pension scheme.
4. Finance costs
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited Year
£m £m ended
31 March
2023
£m
Interest payable on bank loans and overdrafts (7.7) (4.3) (11.9)
Interest payable on other borrowings (9.7) (9.4) (19.0)
Amortisation of issue costs of borrowings (0.9) (1.1) (2.0)
Interest on lease liabilities (0.9) (1.0) (1.9)
Interest capitalised on property refurbishments (note 10) 0.8 0.1 0.2
Interest receivable 0.1 0.1 0.2
Finance costs (18.3) (15.6) (34.4)
Exceptional finance costs - (0.6) (0.6)
Total finance costs (18.3) (16.2) (35.0)
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 profit and loss.
In the prior period the exceptional finance costs 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
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited Year
£m £m ended
31 March
2023
£m
Current tax:
UK corporation tax - - -
Deferred tax:
On origination and reversal of temporary differences - - 0.3
0.3
Total taxation charge - - 0.3
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 2023: £0.3m, 30 September
2022: £nil).
6. Dividends
Ordinary dividends paid Payment Per Unaudited 6 months ended Unaudited 6 months ended 30 September 2022 Audited Year
date share 30 September £m ended
2023 31 March
£m 2023
£m
For the year ended 31 March 2022:
Final dividend August 2022 14.5p - 27.8 27.8
For the year ended 31 March 2023:
Interim dividend February 2023 8.4p - - 16.1
Final dividend August 2023 17.4p 33.3 - -
Dividends for the period 33.3 27.8 43.9
Timing difference on payment of withholding tax (1.8) (1.7) (0.4)
Dividends cash paid 31.5 26.1 43.5
The Directors are proposing an interim dividend in respect of the financial
year ending 31 March 2024 of 9.0 pence per ordinary share which will absorb an
estimated £17.3m of revenue reserves and cash. The dividend will be paid on 2
February 2024 to shareholders who are on the register of members on 5 January
2024. 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: Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2022 Audited Year
£m £m ended 31 March
2023
£m
Basic and diluted earnings (147.9) 35.8 (37.8)
Change in fair value of investment properties 170.8 (8.1) 88.0
Impairment of assets held for sale 6.6 - 5.1
Loss/(profit) on disposal of investment properties 1.2 (1.5) 0.7
EPRA earnings 30.7 26.2 56.0
Adjustment for non-trading items:
Other expenses (note 3(b)) 0.4 2.3 3.8
Exceptional finance costs (note 4) - 0.6 0.6
Taxation - - 0.3
Adjusted trading profit after interest 31.1 29.1 60.7
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: Unaudited Year ended 31 March
Unaudited 6 months ended 30 September 2023 Unaudited 6 months ended 30 September 2023
2022
Weighted average number of shares (excluding own shares held in trust) 191,594,236 189,456,131 190,470,363
Dilution due to share option schemes 1,177,892 872,332 1,129,310
Weighted average number of shares for diluted earnings per share 192,772,128 190,328,463 191,599,673
Unaudited 6 months ended Unaudited 6 months ended Audited Year ended
30 September 2023 30 September 2022 31 March
2023
Basic (loss)/earnings per share (77.2p) 18.9p (19.9p)
Diluted (loss)/earnings per share (77.2p) 18.8p (19.9p)
EPRA earnings per share 16.0p 13.8p 29.4p
Adjusted underlying earnings per share(1) 16.1p 15.3p 31.7p
(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 192,772,128 (31 March 2023: 191,599,673, 30 September 2022:
190,328,463).
The diluted loss per share for the period to 30 September 2023 has been
restricted to a loss of 77.2p per share (31 March 2023: 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.
8. Net assets per share
Number of shares used for calculating net assets per share: Unaudited 30 September Audited 31 March Unaudited 30 September
2023 2023 2022
Shares in issue at period-end 191,897,854 191,638,357 191,638,357
Less own shares held in trust at period-end (135,461) (152,550) (160,476)
Number of shares for calculating basic net assets per share 191,762,393 191,485,807 191,477,881
Dilution due to share option schemes 1,269,278 1,201,277 958,891
Number of shares for calculating diluted adjusted net assets per share 193,031,671 192,687,084 192,436,772
EPRA Net Asset Value Metrics
Unaudited 30 September 2023 Audited 31 March 2023
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,607.6 1,607.6 1,607.6 1,787.7 1,787.7 1,787.7
Intangibles per IFRS balance sheet - (2.1) - - (2.0) -
Excess of book value of debt over fair value - - 103.1 - - 86.6
Purchasers' costs(1) 170.4 - - 186.4 - -
EPRA measure 1,778.0 1,605.5 1,710.7 1,974.1 1,785.7 1,874.3
Number of shares for calculating diluted net assets per share (millions) 193.0 193.0 193.0 192.7 192.7 192.7
EPRA measure per share £9.21 £8.32 £8.87 £10.24 £9.27 £9.73
Unaudited 30 September 2022
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
IFRS Equity attributable to shareholders 1,876.6 1,876.6 1,876.6
Intangibles per IFRS balance sheet - (2.0) -
Excess of fair value of debt over book value - - 128.4
Purchasers' costs(1) 194.7 - -
EPRA measure 2,071.3 1,874.6 2,005.0
Number of shares for calculating diluted net assets per share (millions) 192.4 192.4 192.4
EPRA measure per share £10.76 £9.74 £10.42
(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 Unaudited 30 September Audited 31 March Unaudited 30 September
2023 2023 2022
Opening EPRA net tangible assets per share (A) 9.27 9.88 9.88
Closing EPRA net tangible assets per share 8.32 9.27 9.74
Decrease in EPRA net tangible assets per share (0.95) (0.61) (0.14)
Ordinary dividends paid in the period 0.17 0.23 0.15
Total return (B) (0.78) (0.38) 0.01
Total accounting return (B/A) (8.4%) (3.8%) 0.1%
The total accounting return for the period comprises the (reduction)/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 2023 was -8.4% (year ended 31 March
2023: -3.8%, period ended 30 September 2022: 0.1%).
9. Investment Properties
Unaudited 30 September 2023 Audited 31 March 2023 Unaudited 30 September 2022
£m £m £m
Balance at 1 April 2,643.3 2,366.7 2,366.7
Purchase of investment properties - 426.6 426.6
Capital expenditure 33.5 55.8 24.8
Remeasurement of leases - 3.7 3.6
Capitalised interest on refurbishments (note 4) 0.8 0.2 0.1
Disposals during the period (3.6) (5.5) (5.6)
Change in fair value of investment properties (170.8) (88.0) 8.1
Disposed properties tenant incentives recognised in advance under IFRS 16 1.4 - -
Less: Classified as assets held for sale (32.9) (116.2) -
Total investment properties 2,471.7 2,643.3 2,824.3
Investment properties represent a single class of property being business
premises for rent in and around London.
Capitalised interest is included at a rate of capitalisation of 6.6% (31 March
2023: 3.9%, 30 September 2022: 3.0%). The total amount of capitalised interest
included in investment properties is £15.9m (31 March 2023: £15.1m, 30
September 2022: £15.0m).
The change in fair value of investment properties is recognised in the
consolidated income statement.
Five of the properties classified as held for sale at the end of the prior
year were not sold during the half-year. They are retained within current
assets as they are still expected to sell within the next 12 months of 30
September 2023 and have been subject to an impairment charge of £6.6m
following the valuation carried out at 30 September 2023. Six (31 March 2023:
eleven, 30 September 2022: four) additional properties were reclassified as
held for sale at 30 September 2023.
Valuation
The Group's investment properties are held at fair value and were revalued at
30 September 2023 by the external valuer, CBRE Limited, for the properties
held throughout the period. They 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, 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:
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September
£m 2023 2022
£m £m
Total per CBRE valuation report 2,505.2 2,741.1 2,863.0
Deferred consideration on sale of property (0.6) (0.5) (0.6)
Head leases obligations 34.7 34.7 34.6
Less: reclassified as held for sale (60.5) (123.2) (65.9)
Less: tenant incentives recognised in advance under IFRS 16 (7.1) (8.8) (6.8)
Total investment properties per balance sheet 2,471.7 2,643.3 2,824.3
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 years.
CBRE have made enquiries to ascertain any sustainability factors which are
likely to impact on value, consistent with the scope of their terms of
engagement. Sustainability encompasses a wide range of physical, social,
environmental, and economic factors that can affect the value of an asset,
even if not explicitly recognised. This includes key environmental risks; such
as flooding, energy efficiency, climate, design, legislation and management
considerations - as well as current and historic land use. Where CBRE
recognise the value impacts of sustainability, they reflect their
understanding of how market participants include sustainability factors in
their decisions and the consequential impact on market valuations.
The following table summarises the valuation techniques and inputs used in the
determination of the property valuation at 30 September 2023.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
Property category Valuation Valuation Range Weighted Range Weighted
£m technique average average
Like-for-like 1,880.9 1 £20 - £79 £48 5.0% - 8.2% 6.7%
Completed projects 177.3 1 £24 - £53 £31 5.9% - 7.0% 6.9%
Refurbishments 289.9 2 £24 - £56 £37 4.8% - 9.8% 7.0%
Redevelopments 19.7 2 £12 - £17 £15 5.0% - 9.9% 7.1%
South East Office 76.3 1 £25 - £35 £29 7.3% - 11.6% 9.9%
Head leases 34.7 N/A
IFRS 16 adjustment (7.1) N/A
Total 2,471.7
1 = Income capitalisation method.
2 = Residual value method.
Developer's profit is a key unobservable input for properties that are valued
using the residual value method. The range is 10%-19% with a weighted average
of 14%.
Costs to complete is a key unobservable input for properties that are valued
using the residual value method. The range of £222-£425 per sq. ft. and a
weighted average of £270 per sq. ft.
10. Trade and other receivables
Current trade and other receivables Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Trade receivables 20.3 12.3 11.4
Prepayments, other receivables and accrued income 26.5 22.3 25.1
Deferred consideration on sale of investment properties 11.3 11.2 0.6
58.1 45.8 37.1
Included within trade receivables is the provision for impairment of
receivables of £4.3m (31 March 2023: £4.6m, 30 September 2022: £5.1m).
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 £0.1m (31 March 2023: -£0.1m, 30 September
2022: £nil) (note 3(b)).
Receivables at fair value:
Included within deferred consideration on sale of investment properties is
£0.6m (31 March 2023: £0.5m, 30 September 2022: £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
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Cash at bank and in hand 4.0 12.0 13.3
Restricted cash - tenants' deposit deeds 6.3 6.5 6.6
10.3 18.5 19.9
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
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Trade payables 13.6 15.4 10.6
Other tax and social security payable 6.8 15.9 5.8
Tenants' deposit deeds (note 11) 6.3 6.5 6.6
Tenants' deposits 31.3 30.5 29.4
Accrued expenses 28.0 26.1 31.9
Deferred income - rent and service charges 13.1 13.4 13.5
99.1 107.8 97.8
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
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Current
Bank loans (unsecured) - 49.8 199.7
Non-current
Bank loans (unsecured) 205.1 197.2 83.4
Other loans (secured) 64.0 63.9 64.0
3.07% Senior Notes 2025 (unsecured) 79.9 79.9 79.9
3.19% Senior Notes 2027 (unsecured) 119.8 119.8 119.8
3.6% Senior Notes 2029 (unsecured) 99.9 99.9 99.8
Green Bond (unsecured) 298.6 298.4 298.2
867.3 908.9 944.8
(b) Net Debt
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Borrowings per (a) above 867.3 908.9 944.8
Adjust for:
Cost of raising finance 4.2 5.1 5.2
871.5 914.0 950.0
Cash at bank and in hand (note 11) (4.0) (12.0) (13.3)
Net Debt 867.5 902.0 936.7
At 30 September 2023, the Group had £129.0m (31 March 2023: £136.0m, 30
September 2022: £250.0m) of undrawn bank facilities, a £2.0m overdraft
facility (31 March 2023: £2.0m, 30 September 2022: £2.0m) and £4.0m of
unrestricted cash (31 March 2023: £12.0m, 30 September 2022: £13.3m).
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
2023 was 34% (31 March 2023: 33%, 30 September 2022: 33%).
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 2023 interest cover was 3.5x (31 March 2023:
3.8x, 30 September 2022: 4.5x).
(c) Maturity
Unaudited Audited Unaudited
30 September 2023 31 March 30 September
£m 2023 2022
£m £m
Repayable within one year - 50.0 200.0
Repayable between one and two years 157.5 - 73.0
Repayable between two and three years 129.0 279.0 92.0
Repayable between three years and four years 120.0 - -
Repayable between four years and five years 300.0 420.0 120.0
Repayable in five years or more 165.0 165.0 465.0
871.5 914.0 950.0
Cost of raising finance (4.2) (5.1) (5.2)
867.3 908.9 944.8
(d) Interest rate and repayment profile
Principal at Interest Interest Repayable
period end rate payable
£m
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 129.0 SONIA + 1.77%(1) Monthly December 2025
Bank Loan 77.5 SONIA + 1.77%(1) Monthly April 2025
Other Loan (secured) 65.0 4.02% Monthly May 2030
Green Bond 300.0 2.25% Yearly March 2028
871.5
(1) 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 2023 30 September 2023 31 March 31 March 30 September 2022 30 September 2022
Book Value Fair Value 2023 2023 Book Value Fair Value
£m £m Book Value Fair Value £m £m
£m £m
Financial liabilities held at amortised cost
Bank loans (unsecured) 205.1 205.1 247.0 247.0 283.1 283.1
Other loans (secured) 64.0 57.0 63.9 63.5 64.0 57.4
Private Placement Notes 299.6 270.1 299.6 287.8 299.5 264.1
Lease obligations 34.7 34.7 34.7 34.7 34.6 34.6
Green Bond 298.6 232.0 298.4 224.0 298.2 211.8
902.0 798.9 943.6 857.0 979.4 851.0
Financial assets at fair value
through other comprehensive income
Derivative financial instruments:
Other Investments 2.1 2.1 2.1 2.1 1.7 1.7
2.1 2.1 2.1 2.1 1.7 1.7
Financial assets at fair value through profit or loss
Deferred consideration (overage) 11.3 11.3 11.2 11.2 0.6 0.6
11.3 11.3 11.2 11.2 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 2023: £0.4m, 30 September
2022: £nil).
14. Lease obligations
Lease liabilities in respect of leased investment property are recognised in
accordance with IFRS 16.
Unaudited Audited Unaudited
30 September 2023 31 March 30 September
£m 2023 2022
£m £m
Minimum lease payments under leases fall due as follows:
Within one year 2.1 2.1 2.1
Between two and five years 8.4 8.4 8.3
Beyond five years 198.8 199.8 200.8
209.3 210.3 211.2
Future finance charges on leases (174.6) (175.6) (176.6)
Present value of lease liabilities 34.7 34.7 34.6
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 is offset by future finance
charges on leases of £2.1m. All lease obligations are long leaseholds,
therefore, the majority of the obligations fall beyond fifteen years.
15. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
Unaudited 6 months ended 30 September 2023 £m Unaudited 6 months ended 30 September 2022 £m Audited Year ended
31 March 2023
£m
(Loss)/profit before tax (147.9) 35.8 (37.5)
Depreciation 0.8 0.7 1.6
Amortisation of intangibles 0.3 0.3 0.7
Letting fees amortisation 0.2 0.3 0.5
Loss/(profit) on disposal of investment properties 1.2 (1.5) 0.7
Other expenses 0.4 2.3 3.8
Net loss/(profit) from change in fair value of investment property 170.8 (8.1) 88.0
Impairment of assets held for sale 6.6 - 5.1
Equity-settled share based payments 1.2 1.0 1.4
Finance expense 18.3 15.6 34.4
Exceptional finance costs - 0.6 0.6
Changes in working capital:
Increase in trade and other receivables (13.6) (8.3) (6.4)
(Decrease)/ increase in trade and other payables (11.6) 1.5 17.6
Cash generated from operations 26.7 40.2 110.5
For the purposes of the cash flow statement, cash and cash equivalents
comprise the following:
Unaudited 30 September 2023 Audited 31 March Unaudited 30 September 2022
£m 2023 £m
£m
Cash at bank and in hand 4.0 12.0 13.3
Restricted cash - tenants' deposit deeds 6.3 6.5 6.6
18.5
10.3 19.9
16. Share Capital
Unaudited Audited Unaudited
30 September 2023 31 March 30 September
£m 2023 2022
£m £m
Issued: fully paid ordinary shares of £1 each 191.9 191.6 191.6
Movements in share capital were as follows: Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
Number of shares at 1 April 191,638,357 181,125,259 181,125,259
Issue of shares 259,497 10,513,098 10,513,098
Number of shares at period end 191,897,854 191,638,357 191,638,357
In the prior period ended 30 September 2022, the Group issued shares as part
of the consideration for the acquisition of McKay Securities Limited (formerly
McKay Securities PLC) totalling 10,513,098 shares. In the period there were
259,497 scheme options issued (31 March 2023: £nil proceeds, 30 September
2022: £nil proceeds).
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 2023 31 March 30 September
£m 2023 2022
£m £m
Construction or refurbishment of investment properties 30.3 34.4 30.0
18. Post balance sheet events
In October 2023 the Group announced the completion of the sale of the
advertising tower adjacent to the Mille Building, Brentford for total
consideration of £9.0m, the sale price is in line with the 31 March 2023
valuation. The sale of Folkestone completed in November 2023 for £4.5m, this
is in line with the 30 September 2023 valuation.
In November 2023, the Group's £335m RCF bank facilities were extended by a
further 12 months, with £135m now expiring in April 2026 and £200m maturing
in December 2026.
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 2023. 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 20 November 2023 and signed on its behalf by
D Benson
Director
INDEPENDENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by Workspace Group PLC ("the Company") to review the
condensed set of financial statements in the half-yearly financial report for
the six months ended 30 September 2023 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 2023 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.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for 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 conclusion relating to going concern,
is 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
20 November 2023
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 have seen a period of 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 2023 Annual Report and Accounts.
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 and the home counties with
different office experiences at various price points to match customer
requirements.
Opportunities for growth could be missed without a clear branding strategy to
meet the changing demands of flexible working models. Whilst the uncertainty
from the Covid pandemic has significantly reduced there are other · Pipeline of refurbishment and redevelopments to further enhance
macroeconomic factors including, weak economic growth, current levels of the portfolio.
inflation, and interest rate rises that could also impact potential customers.
· 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 is 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
prolonged 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
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 a leading
full-service real estate services and investment organisation, provides twice
yearly valuations of all our properties.
RISK IMPACT
· Typically, our building or unit refurbishment projects are
· Financing covenants linked to loan to value ('LTV') ratio completed within short time frames, giving us good visibility on costs,
expected rents and property values at completion. We continually assess the
· Impact on share price viability of our refurbishment and development projects for optimal timing and
cost management opportunities, and have flexibility on when to commence
· Failure to meet Energy Performance Certificate (EPC) targets development. Alternative use opportunities, including mixed-use developments,
could result in a loss of rental income impacting valuation 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 payment default · The risk is mitigated by strong credit control processes being in
place along with an experienced team of credit controllers, able to make quick
decisions and negotiate with customers for payment. In addition, we hold a
three-month deposit for the majority of customers.
There remains a risk of continued economic downturn given the broader
geopolitical climate, inflation and interest rate rises. This could result in
further pressure on rent collection figures with a prolonged period of
companies failing leading to a decline in occupancy and an increase in office · Centre staff maintain relationships with customers and can
vacancies. identify early signs of potential issues.
RISK IMPACT
· 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 emails.
Workspace's 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's 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 a 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 Recruitment
· Delay to growth plans Manager coordinates 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
· Weaker cash flow
· Reputational damage
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
line with changing regulations and regular audits are undertaken to identify
any potential improvements.
RISK IMPACT
· Increased costs
· Sustainability requirements have an increasing importance for the
· Reputational damage Group and it is a responsibility we take seriously. We have committed to a net
zero Carbon target of 2030 and we are implementing the TCFD recommendations.
We manage our properties to ensure they are compliant with or exceed the
Minimum Energy Efficiency Standards (MEES) for EPCs.
Climate Change · The inherent risk from climate change is universal, with a high
likelihood of risk materialising in the near future resulting in potentially
significant impact on businesses in general. For Workspace, our risk is lower
when compared to many other real estate businesses, in particular our exposure
A failure to recognise that climate change presents a financial risk to our to physical risk. However, transition risk is an industry-wide risk and is
business alongside changes to our customers' expectations could lead to a impacting all real estate businesses due to the significant environmental
significant impact on the business. impact associated with the sector. In response to this, Workspace has been
proactively managing its risk exposure. Our mitigation strategy includes:
· Annual assessment of our climate risk exposure, using climate
RISK IMPACT modelling to inform our risk management plan
· Loss of rent roll · Ongoing review of control measures and their effectiveness by our
Risk Management Group and Environmental Sustainability Committee
· Negative impact on value
· Active management of acute physical risks such as floods and
· Reduced occupancy levels storms across the portfolio through emergency preparedness, site maintenance
surveys and business continuity planning
· Reputational damage
· Delivery of an accelerated net zero and EPC upgrade plan across
the portfolio to manage transition risk
· Introduction of climate objectives linked with remuneration, to
incentivise focused action
· Long-term energy contracts in place to hedge price and
availability risk
· Stretching carbon targets for our development projects to
minimise reliance on raw materials and exposure to increasing offset costs
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