TIDMWKP
RNS Number : 1862T
Workspace Group PLC
13 November 2019
HALF YEAR RESULTS
13 November 2019
WORKSPACE GROUP PLC
INTERIM RESULTS
WORKSPACE GROUP PLC
STRONG CUSTOMER DEMAND
10% GROWTH IN DIVID
Workspace Group PLC ("Workspace") is pleased to announce its
results for the six months ended 30 September 2019. The comments in
this announcement refer to the period from 1 April 2019 to 30
September 2019 unless otherwise stated.
Workspace's differentiated business model, which combines
property ownership, inspiring flexible work spaces and direct
customer relationships, has delivered a strong performance as set
out below:
Financial highlights
-- Net rental income up 11% to GBP60.1m and trading profit after interest up 13% to GBP40.1m
-- Underlying increase in property valuation in the six months of 2.2% (GBP59m) to GBP2,682m
-- Profit before tax, including a lower revaluation surplus and
no disposal profits, marginally down at GBP99.1m (September 2018:
GBP101.6m)
-- EPRA net asset value per share up 2.7% in the six months to GBP11.15
-- Loan to value stable at 22% with GBP111m of undrawn facilities and cash
-- Increase of 10% in the interim dividend to 11.67p
Operating performance
-- Strong customer demand with enquiries averaging 1,109 per
month (H1 2018/19: 1,020) and lettings averaging 127 per month (H1
2018/19: 92)
-- Total rent roll up 2.3% in the six months to GBP130.4m (31 March 2019: GBP127.5m)
-- Successful letting-up of new space with Completed Projects rent roll up 16% to GBP22.9m
-- Like-for-like rent roll up 1.0% to GBP94.0m with rent per sq.
ft. at GBP41.01, down 0.2%, offset by occupancy up 1.1% to
91.8%
Portfolio update
-- Three properties exchanged for sale for GBP49.5m at a 27% premium to 31 March 2019 valuation
-- Four refurbishment projects delivering 200,000 sq. ft.
completed in first half and letting up well
-- Five refurbishment projects and four redevelopments underway
which will deliver a further 309,000 sq. ft. of new and upgraded
space
-- New 55,000 sq. ft. building in Hackney opening in the second half of the year
Commenting on the results, Graham Clemett, Chief Executive
Officer said:
"I am delighted with this strong set of results, my first as
CEO. Our robust enquiry and letting levels reflect the appeal of
our offering as an increasing number of occupiers look for flexible
terms for their office space requirements. The 10% increase in the
interim dividend we have announced today reflects our success to
date and the Board's continued confidence in our future growth
prospects.
The new centres we launched last year have let up well with The
Frames in Shoreditch fully let within 12 months of opening. We have
completed a further four projects in this half year, with another
new building in Hackney to be launched in the second half. We have
a robust pipeline of project activity which will continue to
deliver high quality space across our portfolio and fuel income
growth.
It will come as no surprise that I remain committed to our
proven and successful strategy. My priority is to ensure that we
continue to invest in and adapt our operational capabilities to
remain at the forefront of this exciting and growing market. Our
strong balance sheet also gives us the ability to take advantage of
acquisition opportunities as they arise."
Summary results
September September Change
2019 2018
Financial performance
---------- ----------- ---------
Net rental income GBP60.1m GBP54.1m +11%
---------- ----------- ---------
Trading profit after interest(1) GBP40.1m GBP35.4m +13%
---------- ----------- ---------
Profit on disposal of properties - GBP8.5m -
---------- ----------- ---------
Profit before tax GBP99.1m GBP101.6m -3%
---------- ----------- ---------
Interim dividend per share 11.67p 10.61p +10%
---------- ----------- ---------
September March 2019 Change
2019
---------- ----------- ---------
Valuation
---------- ----------- ---------
EPRA net asset value per share(1) GBP11.15 GBP10.86 +2.7%
---------- ----------- ---------
CBRE property valuation(2) GBP2,682m GBP2,604m +2.2%**
---------- ----------- ---------
Financing
---------- ----------- ---------
Loan to value 22% 22% -
---------- ----------- ---------
Undrawn bank facilities and cash GBP111m GBP127m -GBP16m*
---------- ----------- ---------
* absolute change
** underlying change
(1) Adjusted performance measures are used by Workspace to
assess and explain its performance but are not defined under
IFRS.
- Trading profit after interest is net rental income, less
administrative expenses and net finance costs (excluding
exceptional finance costs).
- EPRA net asset value represents net assets after excluding
mark to market adjustments of effective cash flow hedges (financial
derivatives) and deferred tax relating to revaluation movements,
capital allowances and derivatives.
(2) Refer to note 9 of the accounts for the reconciliation of
the CBRE property valuation to Investment Properties as per the
balance sheet.
Definitions of other performance measures included in the
results are consistent with those in the glossary contained in the
Annual Report and Accounts for year ended 31 March 2019.
For media and investor enquiries, please contact:
Workspace Group PLC
Graham Clemett, CEO
Emily Meara, Investor Relations Manager 020 7138 3300
Edelman
John Kiely
Rob Yates 020 3047 2546
Notes to Editors
About Workspace Group PLC:
Established in 1987, and listed on the London Stock Exchange
since 1993, Workspace owns and manages some 4 million sq. ft. of
business space in London. 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.
Details of results presentation
There will be a results presentation to analysts and investors
hosted by Workspace on Wednesday 13 November 2019 at 10.30am. The
venue for the presentation is: Bank of America Merrill Lynch, 2
King Edward Street, London, EC1A 1HQ. There is also a webcast and
conference call facility in conjunction with the presentation.
Webcast: The live webcast will be available here
https://secure.emincote.com/client/workspace/workspace012
Conference call details:
Dial in: +44 (0)20 3059 5868
BUSINESS REVIEW
ENQUIRIES AND LETTINGS
We have seen strong levels of demand with enquiries averaging
1,109 per month (H1 2018/19: 1,020) and lettings averaging 127 per
month (H1 2018/19: 92). This momentum has continued into the second
half of the year with 1,142 enquiries and 146 lettings in October
2019.
Quarter Ended
-------------------------------------------------
Average number 30 Sept 30 Jun 31 Mar 31 Dec 30 Sept 30 June
per month 2019 2019 2019 2018 2018 2018
--------------- ------- ------ ------ ------ ------- -------
Enquiries 1,158 1,060 1,244 907 1,019 1,021
Lettings 134 121 130 98 97 88
--------------- ------- ------ ------ ------ ------- -------
RENT ROLL
Total rent roll, representing the total annualised net rental
income at a given date, was up 2.3% (GBP2.9m) in the six months to
September 2019 to GBP130.4m:
Rent Roll GBPm
----------------------------------- -----
At 31 March 2019 127.5
Like-for-like portfolio 0.9
Completed projects 3.2
Projects underway and design stage (0.6)
Other (including disposals) (0.6)
At 30 September 2019 130.4
The total estimated rental value (ERV) of the portfolio,
comprising the ERV of the like-for-like portfolio, and those
currently undergoing refurbishment or redevelopment (but only
including properties at the design stage or being sold at their
current rent roll and occupancy) is GBP169.7m.
Like-for-like Portfolio
The like-for-like portfolio represents 72% of the total rent
roll as at 30 September 2019. It comprises 32 properties with
stabilised occupancy, excluding buildings impacted by significant
refurbishment or redevelopment activity or contracted for sale.
This category now also includes the prior year acquisitions of
Centro Buildings and The Shepherd's Building. Like-for-like trends
reported for previous financial years are not restated for the
property transfers made in the current financial year.
The like-for-like rent roll has increased by 1.0% (GBP0.9m) in
the six months to GBP94.0m. The growth over the six months has come
from a 1.1% increase in occupancy to 91.8% offset by a 0.2%
decrease in rent per sq. ft. to GBP41.01, reflecting some
moderation in pricing levels.
Six months Ended
------------------------
30 Sept 31 Mar 30 Sept
Like-for-Like Properties 2019 2019 2018
------------------------- ------- ------ -------
Rent roll growth 1.0% (0.4)% 2.6%
Occupancy movement 1.1% (0.7)% (0.2)%
Rent per sq. ft. growth (0.2)% 1.0% 2.8%
------------------------- ------- ------ -------
If all the like-for-like properties were at the current
occupancy level of 91.8% at the CBRE estimated rental values at 30
September 2019, the rent roll would be GBP102.4m, GBP8.4m higher
than the actual cash rent roll at 30 September 2019.
Completed Projects
There are now a total of fifteen projects in the Completed
Projects category with rent roll increasing by 16% (GBP3.2m) in the
six months to September 2019 to GBP22.9m and overall occupancy at
78%. During the first half we completed four projects delivering a
total of 200,000 sq. ft. of new and upgraded space with good demand
since launch.
If the buildings in this category were all at 90% occupancy at
the CBRE estimated rental values at 30 September 2019, the rent
roll would be GBP32.9m, an uplift of GBP10.0m.
Projects Underway - Refurbishments
We are currently underway on five refurbishment projects that
will deliver 213,000 sq. ft. of new and upgraded space. As at 30
September 2019, rent roll was GBP2.1m, down GBP0.2m in the six
months. We expect to complete one of these refurbishments in the
second half of the financial year delivering 55,000 sq. ft. of new
space.
Assuming 90% occupancy at the CBRE estimated rental values at 30
September 2019, the rent roll at these five buildings once they are
completed would be GBP7.0m, an uplift of GBP4.9m.
Projects Underway - Redevelopments
There are currently four mixed-use redevelopment projects
underway. At three of these sites, new business centres (built at
no cost to Workspace) will be delivered providing 96,000 sq. ft. of
net lettable space.
Assuming 90% occupancy at the CBRE estimated rental values at 30
September 2019, the rent roll at the three new business centres
would be GBP2.1m.
Projects at Design Stage
These are properties where we are planning a refurbishment or
redevelopment that has not yet commenced. In a number of cases this
is because we are awaiting planning consent. The rent roll at these
properties at 30 September 2019 was GBP9.7m, down GBP0.4m in the
period.
Disposals
Contracts have been exchanged for the sale of three properties,
with completion to take place in the second half of the year. As at
31 September 2019 these properties had GBP1.7m of rent roll.
PROFIT PERFORMANCE
Trading profit after interest for the half year is up 13.3%
(GBP4.7m) on the prior half year to GBP40.1m.
30 Sept 30 Sept
GBPm 2019 2018
--------------------------------------------- ------- -------
Net rental income 60.1 54.1
Administrative expenses - underlying (7.4) (7.3)
Administrative expenses - share based costs* (1.1) (1.1)
Net finance costs (11.5) (10.3)
--------------------------------------------- ------- -------
Trading profit after interest 40.1 35.4
--------------------------------------------- ------- -------
* These relate to both cash and equity settled costs
Net rental income was up 11% (GBP6.0m) in total to GBP60.1m, as
detailed below:
30 Sept 30 Sept
GBPm 2019 2018
----------------------------- ------- -------
Underlying net rental income 51.1 49.3
Acquisitions 8.0 3.0
Disposals 1.0 1.8
60.1 54.1
------- -------
There was a GBP1.8m (4%) increase in underlying net rental
income comprising:
-- GBP3.2m uplift in income from completed projects as they let up;
-- GBP0.5m reduction in like-for-like income as a result of the
decline in like-for-like rent roll in the second half of the
previous financial year; and
-- GBP0.9m reduction in income from projects as properties are
vacated ahead of refurbishment and redevelopment activity
The income from acquisitions relates to the Centro Buildings and
The Shepherds Building acquired in the last financial year; while
disposals include both sales in the last financial year and the
properties exchanged for sale in the first half of the current
financial year which will complete in the second half.
Underlying administrative expenses increased by 1% (GBP0.1m) to
GBP7.4m. There has been a short-term salary saving in the first
half of GBP0.3m following the departure of the previous Chief
Executive Officer at the end of May, offset by an increase in
average head-office head count of four and inflationary pay rises
averaging 3%.
Share based costs have remained stable year on year at
GBP1.1m.
Net finance costs increased by 11.7% (GBP1.2m) in the half year.
The average net debt balance over the period was GBP84.8m higher
than the first six months of the prior year, whilst the average
interest rate has reduced from 3.8% to 3.6%. This interest rate
includes the commitment fee on the undrawn revolver facility. The
marginal cost of the undrawn revolver facility is 1.5% over
LIBOR.
Profit before tax reduced by GBP2.5m to GBP99.1m with a lower
increase in the property valuation and no profit on sale or
exceptional items reported in the first half of the current
financial year.
30 Sept 30 Sept
GBPm 2019 2018
---------------------------------------------- ------- -------
Trading profit after interest 40.1 35.4
Change in fair value of investment properties 59.6 60.6
Profit on sale of investment properties - 8.5
Exceptional finance costs - (3.1)
Other items (0.6) 0.2
---------------------------------------------- ------- -------
Profit before tax 99.1 101.6
---------------------------------------------- ------- -------
Adjusted underlying earnings per share 22.1p 20.2p
---------------------------------------------- ------- -------
The change in fair value of investment properties of GBP59.6m
reflects the underlying increase in the CBRE valuation in the
period of GBP59.0m, with the reduction in the fair value of overage
of GBP0.6m reclassified in the accounts as deferred
consideration.
Adjusted underlying earnings per share, based on EPRA earnings
adjusted for non-trading items and calculated on a diluted share
basis, is up 9.4% to 22.1p. The growth in trading profit after
interest of 13% is reduced by the impact of an increase of 9.96% in
the number of shares in issue following the share placement in June
2018.
DIVID
Our dividend policy is based on the growth in trading profit
after interest taking into account our investment and acquisition
plans and the distribution requirements that we have as a REIT. The
current plan is to grow the dividend on a covered trading profit
basis of at least 1.2 times adjusted underlying earnings per
share.
An interim dividend of 11.67p (2018: 10.61p) will be paid on
5(th) February 2020 to shareholders on the register at 10(th)
January 2020. The 10% increase in the interim dividend reflects the
strong financial performance and the Board's confidence in the
outlook for the Company. The dividend will be paid as a Property
Income Distribution.
PROPERTY VALUATION
At 30 September 2019, the wholly owned portfolio was
independently valued by CBRE at GBP2,682m, an underlying increase
of 2.2% (GBP59m) in the six months. The main movements in the
valuation over the six months are set out below:
GBPm
------------------------------- -----
Valuation at 31 March 2019 2,604
Revaluation uplift 59
Capital expenditure 30
Capital receipts (11)
------------------------------- -----
Valuation at 30 September 2019 2,682
------------------------------- -----
A summary of the half year valuation and uplift by property type
is set out below:
GBPm Valuation Uplift
------------------------- --------- ------
Like-for-like Properties 1,672 33
Completed Projects 583 15
Refurbishments 219 0
Redevelopments 158 1
Disposals 50 10
Total 2,682 59
------------------------- --------- ------
Like-for-like Properties
There was a 2.0% (GBP33m) underlying increase in the valuation
of like-for-like properties to GBP1,672m, comprising:
-- a decrease in ERV per sq. ft. of 1.4% equating to a reduction in value of some GBP(24)m; and
-- a (0.1%) reduction in equivalent yield equating to an increase in value of some GBP57m.
30 Sept 31 March
2019 2019 Change
-------------------------- -------- -------- --------
ERV per sq. ft. GBP44.70 GBP45.33 (1.4%)
Rent per sq. ft. GBP41.01 GBP41.09 (0.2%)
Equivalent Yield 5.8% 5.9% (0.1%)
Net Initial Yield 5.1% 5.1% (0.0%)
Capital Value per sq. ft. GBP670 GBP654 +2.4%
-------------------------- -------- -------- --------
Note: The like-for-like category now includes the recent
acquisitions of Centro Buildings and The Shepherds Building for
which 31 March 2019 comparatives have been restated.
There was a fall of 1.4% in CBRE's ERV estimates across our
like-for-like portfolio from the reductions in pricing we have made
over the last year. Despite this reduction in ERV estimates, we
have seen increases in valuation at over half of our like-for-like
properties from a contraction in equivalent yields. This reflects a
reappraisal by CBRE of property valuations in the light of recent
market evidence in a number of locations. The overall like-for-like
portfolio has a relatively low capital value of GBP670 per sq. ft.,
given the locations of these properties across London.
Completed Projects
There was an underlying uplift of 2.6% (GBP15m) in the value of
the fifteen completed projects to GBP583m. This reflects the strong
demand and pricing levels that have been achieved at recently
launched schemes with an GBP8m uplift at The Frames and GBP4m at
Ink Rooms. The overall valuation metrics for completed projects are
set out below:
30 Sept
2019
-------------------------- --------
ERV per sq. ft. GBP46.03
Rent per sq. ft. GBP37.24
Equivalent Yield 5.6%
Net Initial Yield 3.7%
Capital Value per sq. ft. GBP713
-------------------------- --------
Current Refurbishments and Redevelopments
The valuation of current refurbishments is unchanged at GBP219m
on an underlying basis and there has been a GBP1m increase in the
value of current development projects to GBP158m.
REFURBISHMENT ACTIVITY
In April 2019, we completed the refurbishment of The Light Box,
Chiswick which now provides 78,000 sq. ft. of net lettable space,
following a roof extension and significant upgrade to the common
areas.
In June 2019, we completed two new buildings:
-- Brickfields, adjacent to Hoxton Rail Station, provides 57,000
sq. ft. of net lettable space. The industrial design of the
building features a steel-frame interior and a large central
atrium.
-- Ink Rooms, a former printing ink factory in Clerkenwell, has
been converted and extended to provide 22,000 sq. ft. of net
lettable space.
In September 2019, we completed the refurbishment of 338 Goswell
Road, Angel, comprising 43,000 sq. ft. of upgraded space.
We expect to complete the major re-build of Mare Street,
Hackney, in the second half of the current financial year,
providing 55,000 sq. ft. of new business space.
A summary of the status of the refurbishment pipeline at 30
September 2019 is set out below:
Projects Number Capex spent Capex Upgraded
to spend and new space
(sq. ft.)
--------------------------------- ------- ------------ ---------- ---------------
Underway 5 GBP28m GBP22m 213,000
Design Stage 4 - GBP45m 179,000
Design stage (without planning) 2 - GBP74m 248,000
--------------------------------- ------- ------------ ---------- ---------------
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 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 2019 is set out below:
No. of Residential Cash Cash/ New commercial
properties units received overage space (sq.
to come ft.)
----------------------- ------------ ------------ ---------- --------- ---------------
Underway 4 577 GBP41m GBP8m 96,000
Design stage 4 783 - - 115,000
Design stage (without
planning) 1 350 - - 140,000
----------------------- ------------ ------------ ---------- --------- ---------------
The sale of the residential schemes at the four redevelopment
schemes underway is expected to deliver GBP49m in cash (of which
GBP41m has already been received) and three new commercial
buildings.
There are four schemes at the design stage that have obtained
mixed-use planning consents but are not yet contracted for
sale.
Discussions with the planners for the redesignation of land use
for a significant mixed-use redevelopment scheme in Wandsworth are
progressing well and we hope to obtain planning consent in the
second half of the year.
DISPOSALS
Three properties have been exchanged for sale (classified as
held for sale at the half year), for a total of GBP49.5m at a
premium of 27% (GBP10.5m) to the 31 March 2019 valuation:
-- In September 2019 we exchanged contracts for the sale of
Alexandra House, Wood Green for GBP15.5m. This represents a premium
of 38% to the 31 March 2019 valuation, a net initial yield of 4.1%
and a capital value of GBP283 per sq. ft. The premium achieved is
well ahead of the returns we expected to achieve from the planned
repositioning of this building.
-- In September 2019 we also exchanged contracts for the sale of
Vestry Street Studios, near Old Street for GBP19.25m. The sale of
this small office building completed in October 2019 at a premium
of 8% to the 31 March 2019 valuation, a net initial yield of 4.3%
and a capital value of GBP847 per sq. ft.
-- In October 2019 we exchanged and completed on the sale of
12-13 and 14 Greville Street, Farringdon for GBP14.75m. This
represents a premium of 47.5% to the 31 March 2019 valuation, a net
initial yield of 1.3% and a capital value of GBP1,000 per sq. ft.
In June 2018 we obtained planning consent for a refurbishment
project. However, the premium to book value achieved on the sale
exceeds the return anticipated from this planned project.
CASH FLOW
The Group generates strong operating cash flow in line with
trading profit, with good levels of cash collection. Bad debts are
low in the period at GBP0.2m (September 2018: GBP0.2m). A summary
of the movements in cash flow are set out below:
30 Sept 30 Sept
GBPm 2019 2018
---------------------------------------- ------- -------
Net cash from operations after interest 44 24
Dividends paid (38) (32)
Capital expenditure (33) (49)
Purchase of investment properties - (100)
Property disposals and cash receipts 11 56
Exceptional finance costs - (3)
Share placement proceeds - 176
Other (1) (5)
Net movement (17) 67
Opening Debt (net of cash) (580) (517)
---------------------------------------- ------- -------
Closing Debt (net of cash) (597) (450)
---------------------------------------- ------- -------
There is a reconciliation of net debt in note 13(b) to the
financial statements.
FINANCING
As at 30 September 2019, the Group had GBP11.6m of cash and
GBP99.0m of undrawn facilities:
Drawn Amount Facility Maturity
----------------------- ------------ --------- ---------
Private Placement Notes GBP457.5m GBP457.5m 2020-2029
Bank facilities GBP151.0m GBP250.0m 2022
------------ ---------
Total GBP608.5m GBP707.5m
------------ ---------
All facilities are provided on an unsecured basis with an
average maturity of 5.0 years (31 March 2019: 5.6 years).
The average interest cost of our fixed rate private placement is
4.0%. Our revolver bank facilities are provided at a floating rate
of 1.65% over LIBOR. At 30 September 2019, 63% of our facilities
are at fixed rates, representing 74% of our borrowings on a drawn
basis.
At 30 September 2019, loan to value (LTV) was 22% (31 March
2019: 22%) and interest cover (based on net rental income) was 5.2
times (31 March 2019: 5.2), providing good headroom on all facility
covenants.
On a proforma basis, the impact of the GBP49.5m cash to be
received from recently announced disposals which will complete in
the second half of the year, increases undrawn facilities and cash
to GBP160.1m and reduces LTV to 21%.
NET ASSETS
Net assets increased in the six months by GBP60m to GBP2,042m.
EPRA net asset value (NAV) per share at 30 September 2019 was up
2.7% (GBP0.29) to GBP11.15:
GBP
--------------------------------------- --------
At 31 March 2019 10.86
Property valuation surplus 0.33
Adjusted trading profit after interest 0.22
Dividends paid (0.22)
Other (0.04)
--------------------------------------- --------
At 31 September 2019 GBP11.15
--------------------------------------- --------
The calculation of EPRA NAV per share is set out in note 8 of
the financial statements.
property statistics
Half Year ended
------------------------------------------
30 Sept 31 March 30 Sept 31 March
2019 2019 2018 2018
-------------------------------------- --------- --------- --------- ---------
Workspace Group Portfolio
Property valuation GBP2,682m GBP2,604m GBP2,435m GBP2,280m
Number of locations 64 64 64 66
Lettable floorspace (million sq.
ft.) 4.0 3.9 3.8 3.7
Number of lettable units 4,969 4,796 4,709 4,539
Rent roll of occupied units GBP130.4m GBP127.5m GBP115.0m GBP112.9m
Average rent per sq. ft. GBP38.06 GBP38.45 GBP36.66 GBP36.05
Overall occupancy 86.3% 84.8% 82.4% 85.5%
Like-for-like number of properties 32 30 30 33
Like-for-like lettable floor space
(million sq. ft.) 2.5 2.1 2.1 2.0
Like-for-like rent roll growth 1.0% (0.4)% 2.6% 4.3%
Like-for-like rent per sq. ft. growth (0.2)% 1.0% 2.8% 4.8%
Like-for-like occupancy movement 1.1% (0.7)% (0.2)% (0.7)%
-------------------------------------- --------- --------- --------- ---------
Notes:
1) The like-for-like category has been restated in the current financial year for the following:
-- The transfer in of Centro Buildings, Camden from the acquisitions category
-- The transfer in of The Shepherds Building, Shepherd's Bush, from the acquisitions category
-- The transfer in of The Record Hall, Hatton Garden, from the completed projects category
-- The transfer in of Cocoa Studios at The Biscuit Factory,
Bermondsey, from the completed projects category
-- The transfer out of Canalot Studios, Ladbroke Grove, to the refurbishment projects category
-- The transfer out of Vestry Street Studios, Old Street, to the disposals 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 include 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 MonthsED 30 September 2019
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2019 2018 2019
Notes GBPm GBPm GBPm
---------------------------------------------- ----- -------------- ------------- -----------
Revenue 2 80.2 71.9 149.4
Direct costs 2 (20.1) (17.8) (38.4)
---------------------------------------------- ----- -------------- ------------- -----------
Net rental income 2 60.1 54.1 111.0
Administrative expenses (8.5) (8.4) (17.1)
---------------------------------------------- ----- -------------- ------------- -----------
Trading profit 51.6 45.7 93.9
Profit on disposal of investment properties 3(a) - 8.5 8.3
Other income 3(b) - 0.2 -
Other expenses 3(c) (0.6) - (1.1)
Change in fair value of investment properties 9 59.6 60.6 60.8
---------------------------------------------- ----- -------------- ------------- -----------
Operating profit 110.6 115.0 161.9
Finance costs 4 (11.5) (10.3) (21.5)
Exceptional finance costs 4 - (3.1) (3.1)
Profit before tax 99.1 101.6 137.3
Taxation 5 - - -
---------------------------------------------- ----- -------------- ------------- -----------
Profit for the period after tax 99.1 101.6 137.3
---------------------------------------------- ----- -------------- ------------- -----------
Basic earnings per share 7 54.9p 58.4p 78.9p
Diluted earnings per share 7 54.5p 58.0p 78.3p
---------------------------------------------- ----- -------------- ------------- -----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE six monthsED 30 September 2019
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
------------------------------------------ ------------- ------------- -----------
Profit for the period 99.1 101.6 137.3
Other comprehensive income:
Items that may be classified subsequently
to profit or loss:
Change in fair value of other investments (1.6) - 4.0
Cash flow hedge - transfer to income
statement (4.3) 5.7 (5.5)
Cash flow hedge - change in fair value 6.4 (5.5) 7.6
------------------------------------------- ------------- ------------- -----------
Total comprehensive income for the period 99.6 101.8 143.4
------------------------------------------- ------------- ------------- -----------
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2019
Unaudited Audited Unaudited
30 September 31 March 30 September
2019 2019 2018
Notes GBPm GBPm GBPm
--------------------------------- ------ ------------- --------- -------------
Non-current assets
Investment properties 9 2,635.6 2,591.4 2,430.2
Intangible assets 2.0 1.6 1.4
Property, plant and equipment 3.7 3.4 3.5
Other investments 8.2 9.8 3.2
Trade and other receivables 10 4.5 - -
13(e)
Derivative financial instruments & (f) 16.5 10.1 8.2
--------------------------------- ------ ------------- --------- -------------
2,670.5 2,616.3 2,446.5
--------------------------------- ------ ------------- --------- -------------
Current assets
Assets held for sale 9 60.5 25.5 15.0
Trade and other receivables 10 21.6 13.7 37.9
Cash and cash equivalents 11 20.5 26.7 66.3
--------------------------------- ------ ------------- --------- -------------
102.6 65.9 119.2
--------------------------------- ------ ------------- --------- -------------
Total assets 2,773.1 2,682.2 2,565.7
--------------------------------- ------ ------------- --------- -------------
Current liabilities
Trade and other payables 12 (87.4) (77.0) (73.8)
(87.4) (77.0) (73.8)
--------------------------------- ------ ------------- --------- -------------
Non-current liabilities
Borrowings 13(a) (643.5) (623.2) (533.4)
--------------------------------- ------ ------------- --------- -------------
(643.5) (623.2) (533.4)
--------------------------------- ------ ------------- --------- -------------
Total liabilities (730.9) (700.2) (607.2)
--------------------------------- ------ ------------- --------- -------------
Net assets 2,042.2 1,982.0 1,958.5
--------------------------------- ------ ------------- --------- -------------
Shareholders' equity
Share capital 16 180.7 180.4 180.4
Share premium 295.4 295.1 295.0
Investment in own shares (9.9) (9.3) (9.3)
Other reserves 28.7 27.4 20.5
Retained earnings 1,547.3 1,488.4 1,471.9
--------------------------------- ------ ------------- --------- -------------
Total shareholders' equity 2,042.2 1,982.0 1,958.5
---------
EPRA net asset value per share 8 GBP11.15 GBP10.86 GBP10.75
--------------------------------- ------ ------------- --------- -------------
Consolidated Statement of Changes in Equity
FOR THE periodED 30 September 2019
Attributable to owners of the Parent
----------------------------------------------------
Investment Total
Unaudited 6 months Share Share in own Other Retained Share-holders'
to capital premium shares reserves earnings equity
30 September 2019 Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2019 180.4 295.1 (9.3) 27.4 1,488.4 1,982.0
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the period - - - - 99.1 99.1
Other comprehensive
income - - - 0.5 - 0.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 0.5 99.1 99.6
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 16 0.3 0.3 - - - 0.6
Own share purchase
(net) - - (0.6) - - (0.6)
Dividends paid 6 - - - - (40.2) (40.2)
Share based payments - - - 0.8 - 0.8
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 30 September
2019 180.7 295.4 (9.9) 28.7 1,547.3 2,042.2
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Unaudited 6 months
to
30 September 2018
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2018 163.8 135.3 (9.3) 19.4 1,403.7 1,712.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the period - - - - 101.6 101.6
Other comprehensive
income - - - 0.2 - 0.2
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 0.2 101.6 101.8
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 16 16.6 159.7 - - - 176.3
Dividends paid 6 - - - - (33.4) (33.4)
Share based payments - - - 0.9 - 0.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 30 September
2018 180.4 295.0 (9.3) 20.5 1,471.9 1,958.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Audited 12 months
to
31 March 2019
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2018 163.8 135.3 (9.3) 19.4 1,403.7 1,712.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the year - - - - 137.3 137.3
Other comprehensive
income - - - 6.1 - 6.1
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 6.1 137.3 143.4
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 16 16.6 159.8 - - - 176.4
Own share purchase
(net) - - - - - -
Dividends paid 6 - - - - (52.6) (52.6)
Share based payments - - - 1.9 - 1.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 31 March
2019 180.4 295.1 (9.3) 27.4 1,488.4 1,982.0
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2019
Unaudited Unaudited
6 month 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2019 2018 2019
Notes GBPm GBPm GBPm
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from operating activities
Cash generated from operations 14 55.4 37.1 99.8
Interest paid (12.0) (12.8) (23.7)
Tax paid 0.2 - -
--------------------------------------------- ----- ------------- ------------- -----------
Net cash inflow from operating activities 43.6 24.3 76.1
Cash flows from investing activities
Purchase of investment properties - (99.5) (220.8)
Capital expenditure on investment properties (32.6) (48.5) (86.7)
Proceeds from disposal of investment
properties 10.5 51.5 50.8
Purchase of intangible assets (0.6) (0.2) (0.6)
Purchase of property, plant and equipment (0.6) (1.2) (1.5)
Other income (overage receipts) 0.6 3.7 5.8
Purchase of investments (0.1) - (1.5)
Income distributions from joint ventures - - 0.1
--------------------------------------------- ----- ------------- ------------- -----------
Net cash outflow from investing activities (22.8) (94.2) (254.4)
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 0.6 176.3 176.4
Settlement and re-couponing of derivative
financial instruments (0.1) (0.1) (0.2)
Own share purchase (0.6) - -
Finance costs for new/amended borrowing
facilities - (0.1) (0.7)
Exceptional finance costs - (2.9) (2.9)
Repayment of bank borrowings (25.0) (233.5) (343.5)
Proceeds from bank borrowings 36.0 210.0 410.0
Dividends paid 6 (37.9) (31.5) (52.1)
--------------------------------------------- ----- ------------- ------------- -----------
Net cash (outflow)/inflow from financing
activities (27.0) 118.2 187.0
--------------------------------------------- ----- ------------- ------------- -----------
Net increase/(decrease) in cash and
cash equivalents (6.2) 48.3 8.7
--------------------------------------------- ----- ------------- ------------- -----------
Cash and cash equivalents at start of
period 11 26.7 18.0 18.0
Cash and cash equivalents at end of
period 11 20.5 66.3 26.7
--------------------------------------------- ----- ------------- ------------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE periodED 30 September 2019
1. The half year report has been prepared in accordance with the
Disclosure and Transparency Rules and with IAS34 'Interim Financial
Reporting' as adopted by the European Union. The half year report
should be read in conjunction with the annual financial statements
for the year ended 31 March 2019, which have been prepared in
accordance with IFRSs as adopted by the European Union.
The condensed financial statements in the half year report 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 2019, which were prepared
under IFRS as adopted by the European Union have been delivered to
the Registrar of Companies. 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.
The Group's financial performance does not suffer materially
from seasonal fluctuations. There have been no changes in estimates
of amounts reported in prior periods which have a material impact
on the current half year period.
The directors are satisfied that the Group has adequate
resources, and sufficient headroom on its bank facilities to cover
current liabilities, in order to continue in operational existence
for a period of at least twelve months from the date of signing
this report and for this reason the half year report is prepared on
a going concern basis.
This report was approved by the Board on 13 November 2019.
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 March 2019, with
the exception of the following:
IFRS 16 Leases (effective 1 January 2019)
This standard does not substantially affect the accounting for
rental income earned by the Group from leases with customers. The
main impact of the standard is the removal of the distinction
between operating and finance leases for lessees, which results in
almost all leases being recognised on the balance sheet. As the
Group does not hold any material operating leases as a lessee, the
impact of the standard is not material to the financial statements
but has some minor changes to the carrying amount of finance leases
relating to the Group's long leasehold investment properties.
The following standards, amendments and interpretations endorsed
by the EU were effective for the first time for the Group's current
accounting period and had no material impact on the financial
statements.
-- IFRIC 23 - Uncertainty over Income Tax Treatments;
-- IFRS 9 (amended) - Prepayment Features with Negative
Compensation and modifications of financial liabilities;
-- IAS 28 (amended) - Long-term interests in Associates and Joint Ventures;
-- IAS 19 (amended) - Plan Amendment, Curtailment or Settlement;
-- Annual Improvements to IFRSs (2015 - 2017 cycle).
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.
-- References to Conceptual Framework in IFRSs (amended);
-- IFRS 17 - Insurance Contracts;
-- IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets
between an investor and its Associate or Joint Venture.
2. Analysis of net rental income
6 months ended 30 6 months ended 30
September 2019 September 2018
--------------------------- ---------------------------
Direct Net rental Direct Net rental
Revenue costs income Revenue costs income
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Rental income 65.6 (1.5) 64.1 59.5 (1.7) 57.8
Service charges 10.9 (13.2) (2.3) 9.5 (11.4) (1.9)
Empty rates and other non recoverable
costs - (2.8) (2.8) - (2.4) (2.4)
Services, fees, commissions and
sundry income 3.7 (2.6) 1.1 2.9 (2.3) 0.6
-------------------------------------- ------- ------ ---------- ------- ------ ----------
80.2 (20.1) 60.1 71.9 (17.8) 54.1
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Year ended 31 March
2019
---------------------------
Direct Net rental
Revenue costs income
GBPm GBPm GBPm
-------------------------------------- ------- ------ ----------
Rental income 123.7 (3.8) 119.9
Service charges 19.3 (24.6) (5.3)
Empty rates and other non-recoverable
costs - (5.3) (5.3)
Services, fees, commissions and
sundry income 6.4 (4.7) 1.7
-------------------------------------------- ------- ------ ----------
149.4 (38.4) 111.0
----------------------------------------- ------- ------ ----------
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
London.
3(a). Profit on disposal of investment properties
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ---------
Proceeds from sale of investment properties
(net of sale costs) 15.0 51.0 50.8
Book value at time of sale (15.0) (42.5) (42.5)
-------------------------------------------- ------------- ------------- ---------
Profit on disposal - 8.5 8.3
-------------------------------------------- ------------- ------------- ---------
During the six months, the sale of the Marshgate site completed.
Workspace received proceeds of GBP15m, of which GBP10.5m was
received in cash in August 2019. The remaining balance of GBP4.5m
is payable upon transfer of the leasehold element and is being held
on the balance sheet as deferred consideration (Note 10). As part
of the sale, Workspace will also be receiving new commercial space,
the value of which is held as investment property on the balance
sheet.
3(b). Other income
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
----------------------------------------------- ------------- ------------- ---------
Change in fair value of deferred consideration - 0.2 -
- 0.2 -
----------------------------------------------- ------------- ------------- ---------
The value of deferred consideration (cash and overage) from the
sale of investment properties has been re-valued by CBRE Limited at
30 September 2019. The amounts receivable are included in the
Consolidated balance sheet under non-current and current trade and
other receivables (note 10).
3(c). Other expenses
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
----------------------------------------------- ------------- ------------- ---------
Change in fair value of deferred consideration 0.6 - 1.1
0.6 - 1.1
----------------------------------------------- ------------- ------------- ---------
The value of deferred consideration (cash and overage) from the
sale of investment properties has been re-valued by CBRE Limited at
30 September 2019. The amounts receivable are included in the
Consolidated balance sheet under non-current and current trade and
other receivables (note 10).
4. Finance costs
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
------------------------------------------------ ------------- ------------- ---------
Interest payable on bank loans and overdrafts (2.1) (1.8) (4.7)
Interest payable on other borrowings (9.4) (9.1) (17.3)
Amortisation of issue costs of borrowings (0.4) (0.5) (1.3)
Interest payable on finance leases (0.6) (0.4) (0.9)
Interest capitalised on property refurbishments
(note 9) 1.0 1.5 2.7
Foreign exchange gains/(losses) on financing
activities 4.3 (5.7) 5.5
Cash flow hedge - transfer from equity (4.3) 5.7 (5.5)
------------------------------------------------ ------------- ------------- ---------
Finance costs (11.5) (10.3) (21.5)
------------------------------------------------ ------------- ------------- ---------
Exceptional finance costs - (3.1) (3.1)
Total finance costs (11.5) (13.4) (24.6)
------------------------------------------------ ------------- ------------- ---------
Exceptional finance costs of GBP3.1m were incurred upon
repayment of the GBP57.5m 6% Retail Bond in September 2018.
5. Taxation
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
---------------------------------------------------- ------------- ------------- ---------
Current tax:
UK corporation tax - - -
Adjustments to tax in respect of previous - -
periods -
---------------------------------------------------- ------------- ------------- ---------
- - -
Deferred tax:
On origination and reversal of temporary differences - - -
---------------------------------------------------- ------------- ------------- ---------
- - -
---------------------------------------------------- ------------- ------------- ---------
Total taxation charge - - -
---------------------------------------------------- ------------- ------------- ---------
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 2019: GBP1.0m credit, 30 September 2018:
GBPnil).
6. Dividends
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Payment Per 2019 2018 2019
Ordinary dividends paid date share GBPm GBPm GBPm
----------------------------- --------- ------------- ------------- ------------- ---------------
For the year ended 31 March
2018:
August
Final dividend 2018 18.55p - 33.4 33.4
For the year ended 31 March
2019:
February
Interim dividend 2019 10.61p - - 19.2
August
Final dividend 2019 22.26p 40.2 - -
Dividends for the period 40.2 33.4 52.6
Timing difference on payment
of withholding tax (2.3) (1.9) (0.5)
---------------------------------------- ------------- ------------- ------------- ---------------
Dividends cash paid 37.9 31.5 52.1
---------------------------------------- ------------- ------------- ------------- ---------------
In addition the Directors are proposing an interim dividend in
respect of the financial year ending 31 March 2020 of 11.67 pence
per ordinary share which will absorb an estimated GBP21.2m of
revenue reserves and cash. The dividend will be paid on 5 February
2020 to shareholders who are on the register of members on 10
January 2020. The dividend will be paid as a REIT Property Income
Distribution (PID) net of withholding tax where appropriate.
7. Earnings per share
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Earnings used for calculating earnings per 2019 2018 2019
share: GBPm GBPm GBPm
---------------------------------------------- ------------- ------------- ------------------
Basic and diluted earnings 99.1 101.6 137.3
Change in fair value of investment properties (59.6) (60.6) (60.8)
Exceptional finance cost - 3.1 3.1
Profit on disposal of investment properties - (8.5) (8.3)
EPRA earnings 39.5 35.6 71.3
---------------------------------------------- ------------- ------------- ------------------
Adjustment for non-trading items:
Other income and expenses (note 3(b and c)) 0.6 (0.2) 1.1
Taxation - - -
---------------------------------------------- ------------- ------------- ------------------
Adjusted trading profit after interest 40.1 35.4 72.4
---------------------------------------------- ------------- ------------- ------------------
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.
6 months 6 months
ended 30 ended Year ended
Number of shares used for calculating September 30 September 31 March
earnings per share: 2019 2018 2019
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares (excluding
own shares held in trust) 180,366,326 174,038,975 177,138,144
Dilution due to share option schemes 1,186,691 1,182,233 1,258,651
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares for
diluted earnings per share 181,553,017 175,221,208 178,396,795
--------------------------------------------- ----------- -------------- -----------
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2019 2018 2019
------------------------------------------ ------------- ------------- ----------
Basic earnings per share 54.9p 58.4p 77.5p
Diluted earnings per share 54.5p 58.0p 77.0p
EPRA earnings per share 21.9p 20.5p 40.3p
Adjusted underlying earnings per share(1) 22.1p 20.2p 40.6p
------------------------------------------ ------------- ------------- ----------
(1) Adjusted underlying earnings per share is calculated on a
diluted basis.
8. Net assets per share
30 September 31 March 30 September
Net assets used for calculating net assets 2019 2019 2018
per share: GBPm GBPm GBPm
------------------------------------------- ------------ -------- ------------
Net assets at end of period (basic) 2,042.2 1,982.0 1,958.5
Derivative financial instruments at fair
value (16.5) (10.1) (8.2)
------------------------------------------- ------------ -------- ------------
EPRA net assets 2,025.7 1,971.9 1,950.3
------------------------------------------- ------------ -------- ------------
Number of shares used for calculating 30 September 31 March 30 September
net assets per share: 2019 2019 2018
-------------------------------------------- ------------ ----------- -------------
Shares in issue at period-end 180,729,144 180,385,498 180,374,393
Less own shares held in trust at period-end (174,719) (135,946) (146,005)
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating basic
net assets per share 180,554,425 180,249,552 180,228,388
Dilution due to share option schemes 1,119,431 1,276,169 1,278,470
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating diluted
adjusted net assets per share 181,673,856 181,516,721 181,506,858
-------------------------------------------- ------------ ----------- -------------
30 September 31 March 30 September
2019 2019 2018
-------------------------- ------------ -------- ------------
EPRA net assets per share GBP11.15 GBP10.86 GBP10.75
Basic net assets per share GBP11.31 GBP11.00 GBP10.87
-------------------------- ------------ -------- ------------
Net assets have been adjusted and calculated on a diluted basis
to derive a net asset per share measure as defined by EPRA.
9. Investment Properties
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Balance at 1 April 2,591.4 2,288.7 2,288.7
Purchase of investment properties - 221.8 89.2
Capital expenditure 28.4 88.6 50.5
(Disposal)/ acquisition of finance lease 4.7 (0.3) -
Capitalised interest on refurbishments (note
4) 1.0 2.7 1.5
Disposals during the period - (42.5) (42.5)
Change in fair value of investment properties 59.6 60.8 60.6
---------------------------------------------- ------------ ------------
Balance at end of period 2,685.1 2,619.8 2,448.0
Less: reclassified as deferred consideration - (2.9) (2.8)
Less: reclassified as held for sale (49.5) (25.5) (15.0)
---------------------------------------------- ------------ -------- ------------
Total investment properties 2,635.6 2,591.4 2,430.2
---------------------------------------------- ------------ -------- ------------
Investment properties represent a single class of property being
business accommodation for rent in London.
Capitalised interest is included at a rate of capitalisation of
4.3% (March 2019: 4.3%, September 2018 4.4%). The total amount of
capitalised interest included in investment properties is GBP13.3m
(March 2018: GBP12.3m, September 2018 GBP11.1m).
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 0.4% 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 2019 by the external valuer, CBRE
Limited, a firm of independent qualified valuers in accordance with
the Royal Institution of Chartered Surveyors Valuation -
Professional Standards 2017. All the properties are revalued at
period end regardless of the date of acquisition. This includes a
physical inspection of all properties, at least once a year. In
line with IFRS 13, all investment properties are valued on the
basis of their highest and best use. For like-for-like properties
their current use equates to the highest and best use. For
properties undergoing refurbishment or redevelopment, most of these
are currently being used for business accommodation in their
current state. However, the valuation is based on the current
valuation at the balance sheet date including the impact of the
potential refurbishment and redevelopment as this represents the
highest and best use.
The Executive Committee and the Board both conduct a detailed
review of the property valuation to ensure appropriate assumptions
have been applied. Meetings are held with the valuers to review and
challenge the valuations, ensuring they have considered all
relevant information, and rigorous reviews are performed to ensure
valuations are sensible.
The valuation of like-for-like properties (which are not subject
to refurbishment or redevelopment) is based on the income
capitalisation method which applies market-based yields to the
Estimated Rental Values (ERVs) of each of the properties. Yields
are based on current market expectations depending on the location
and use of the property. ERVs are based on estimated rental
potential considering current rental streams, market comparatives,
occupancy and timing of rent reviews. Whilst there is market
evidence for these inputs and recent transaction prices for similar
properties, there is still a significant element of estimation and
judgement. 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 Estimated Rental Value to determine the value of the
completed building. Other risks such as unexpected time delays
relating to planned capital expenditure are assessed on a
project-by-project basis, looking at market comparable data where
possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual
value method. The 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 non-current assets,
investment properties, is as follows:
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Total per CBRE valuation report 2,681.9 2,604.0 2,435.3
Deferred consideration on sale of property (6.3) (2.9) (6.3)
Head leases treated as finance leases 20.5 15.8 16.2
Less reclassified as held for sale (60.5) (25.5) (15.0)
---------------------------------------------- ------------ -------- ------------
Total investment properties per balance sheet 2,635.6 2,591.4 2,430.2
---------------------------------------------- ------------ -------- ------------
Assets held for sale includes properties for which contracts for
sale have been exchanged but not yet completed. The GBP60.5m
reclassified at 30 September 2019 includes GBP11m relating to an
asset already classified as held for sale as at 31 March 2019.
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 2019.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
----------------------- ---------------------
Valuation Valuation Weighted Weighted
Property category GBPm technique Range average Range average
------------------- --------- ---------- ------------- -------- ----------- --------
Like-for-like 1,671.4 1 GBP12 - GBP79 GBP45 3.8% - 7.1% 5.8%
Completed projects 583.8 1 GBP19 - GBP74 GBP46 5.0% - 7.0% 5.6%
Refurbishments 219.0 2 GBP19 - GBP68 GBP41 4.3% - 6.3% 5.0%
Redevelopments 140.9 2 GBP16 - GBP35 GBP20 3.4% - 7.0% 5.6%
Head leases 20.5 n/a
------------------- --------- ---------- ------------- -------- ----------- --------
Total 2,635.6
------------------- --------- ---------- ------------- -------- ----------- --------
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
12%-19% with a weighted average of 17%.
Costs to complete is a key unobservable input for redevelopments
at planning stage with a range of GBP213-GBP297 per sq. ft. and a
weighted average of GBP248 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
30 September 31 March 30 September
2019 2019 2018
Non-current deferred consideration GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Deferred consideration on sale of investment
properties 4.5 - -
4.5 - -
--------------------------------------------- ------------ -------- ------------
30 September 31 March 30 September
2019 2019 2018
Current trade and other receivables GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Trade receivables 7.6 4.3 8.4
Prepayments, other receivables and accrued
income 12.2 6.5 23.2
Deferred consideration on sale of investment
properties 1.8 2.9 6.3
--------------------------------------------- ------------ -------- ------------
21.6 13.7 37.9
--------------------------------------------- ------------ -------- ------------
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 a loss of GBP0.6m (31 March 2019: loss of
GBP1.1m, 30 September 2018: profit of GBP0.2m) (note 3(c)).
Receivables at fair value:
Included within deferred consideration (both non-current and
current) on sale of investment properties is GBP6.3m (March 2019:
GBP2.9m, September 2018: GBP0.9m) 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 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 11.6 17.3 57.8
Restricted cash - tenants' deposit deeds 8.9 9.4 8.5
----------------------------------------- ------------ -------- ------------
20.5 26.7 66.3
----------------------------------------- ------------ -------- ------------
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 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
------------------------------------------- ------------ -------- ------------
Trade payables 6.7 5.7 6.1
Other tax and social security payable 6.1 0.4 2.7
Tenants' deposit deeds (note 14) 8.9 9.4 8.5
Tenants' deposits 24.2 21.2 19.7
Accrued expenses 29.0 28.7 27.4
Deferred income - rent and service charges 12.5 11.6 9.4
------------------------------------------- ------------ -------- ------------
87.4 77.0 73.8
------------------------------------------- ------------ -------- ------------
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
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Non-current
Bank loans (unsecured) 149.8 138.5 148.2
5.6% Senior US Dollar Notes 2023 (unsecured) 81.1 76.9 76.9
5.53% Senior Notes 2023 (unsecured) 83.9 83.8 83.8
Senior Floating Rate Notes 2020 (unsecured) 9.0 9.0 9.0
3.07% Senior Notes (unsecured) 79.7 79.7 79.7
3.19% Senior Notes (unsecured) 119.7 119.7 119.6
3.6% Senior Notes (unsecured) 99.8 99.8 -
Finance lease obligations 20.5 15.8 16.2
--------------------------------------------- ------------ -------- ------------
643.5 623.2 533.4
--------------------------------------------- ------------ -------- ------------
(b) Net Debt
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
----------------------------------- ------------ -------- ------------
Borrowings per (a) above 643.5 623.2 533.4
Adjust for:
Finance leases (20.5) (15.8) (16.2)
Cost of raising finance 2.2 2.6 2.8
Foreign exchange differences (16.7) (12.5) (12.5)
----------------------------------- ------------ -------- ------------
608.5 597.5 507.5
Cash at bank and in hand (note 11) (11.6) (17.3) (57.8)
----------------------------------- ------------ -------- ------------
Net Debt 596.9 580.2 449.7
----------------------------------- ------------ -------- ------------
At 30 September 2019, the Group had GBP99m (31 March 2019:
GBP110m) of undrawn bank facilities and GBP11.6m of unrestricted
cash (31 March 2019: GBP17.3m).
The Group has a loan to value covenant applicable to these
borrowings of 60%, and compliance is being comfortably met. Loan to
value at 30 September 2019 was 22% (March 2019: 22%, September
2018: 18%).
The Group also has an interest cover covenant of 2.0x,
calculated as net rental income divided by finance costs. At 30
September 2019 interest cover was 5.2 (31 March 2019: 5.2x,
September 2018: 5.3x).
(c) Maturity
Unaudited Audited Unaudited
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Repayable between one and two years 9.0 9.0 9.0
Repayable between two and three years 151.0 - -
Repayable between three years and four years 148.5 140.0 150.0
Repayable between four years and five years 0.0 148.5 148.5
Repayable in five years or more 300.0 300.0 200.0
--------------------------------------------- ------------- --------- -------------
608.5 597.5 507.5
Cost of raising finance (2.2) (2.6) (2.8)
Foreign exchange differences 16.7 12.5 12.5
--------------------------------------------- ------------- --------- -------------
623.0 607.4 517.2
Finance leases
Repayable in five years or more 20.5 15.8 16.2
--------------------------------------------- ------------- --------- -------------
643.5 623.2 533.4
--------------------------------------------- ------------- --------- -------------
(d) Interest rate and repayment profile
Principal
at
period
end Interest Interest
GBPm rate payable Repayable
-------------------------- --------- ------------ ----------- ------------
Current
-------------------------- --------- ------------ ----------- ------------
Bank overdraft due within
one year or on demand
(GBP2m facility) - Base +2.25% Variable On demand
-------------------------- --------- ------------ ----------- ------------
Non-current
-------------------------- --------- ------------ ----------- ------------
Private Placement Notes:
-------------------------- --------- ------------ ----------- ------------
5.6% Senior US Dollar
Notes 64.5 5.6% Half Yearly June 2023
-------------------------- --------- ------------ ----------- ------------
5.53% Senior Notes 84.0 5.53% Half Yearly June 2023
-------------------------- --------- ------------ ----------- ------------
Senior Floating Rate
Notes 9.0 LIBOR +3.5% Half Yearly June 2020
-------------------------- --------- ------------ ----------- ------------
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 3.6% Half Yearly January 2029
-------------------------- --------- ------------ ----------- ------------
Revolver loan 151.0 LIBOR +1.65% Monthly June 2022
-------------------------- --------- ------------ ----------- ------------
608.5
-------------------------- --------- ------------ ----------- ------------
(e) Derivative financial instruments
The Group has cross currency swaps to ensure the US Dollar
liability streams generated from the US Dollar Notes are fully
hedged into Sterling for the life of the transaction. Through
entering into cross currency swaps the Group has created a
synthetic Sterling fixed rate liability totalling GBP64.5m.
These swaps have been designated as a cash flow hedge with
changes in fair value dealt with in other comprehensive income. The
Group has elected to continue applying hedge accounting as set out
in IAS 39 to these swaps as permitted by IFRS 9.
Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic prospective effectiveness
assessments to ensure that an economic relationship exists between
the hedged item and hedging instrument. The critical terms of this
hedging relationship perfectly matched at origination, so for the
prospective assessment of effectiveness a qualitative assessment
was performed. Quantitative retrospective effectiveness tests using
the hypothetical derivative method are performed at each period end
to determine the continuing effectiveness of the relationship.
Sources of hedge ineffectiveness include credit risk or changes
made to the critical terms of the hedged item or the hedging
instrument.
The effects of the cash flow US Dollar swap hedging relationship
is as follows:
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
------------------------------------------- ------------ --------- ------------
Carrying amount of derivative 16.5 10.1 8.2
------------------------------------------- ------------ --------- ------------
Change in fair value of designated hedging
instrument 6.4 7.6 5.7
------------------------------------------- ------------ --------- ------------
Change in fair value of designated hedged
item (4.3) (5.4) (5.5)
------------------------------------------- ------------ --------- ------------
Notional amount GBPm 64.5 64.5 64.5
------------------------------------------- ------------ --------- ------------
Notional amount ($m) 100 100 100
------------------------------------------- ------------ --------- ------------
Rate payable (%) 5.66% 5.66% 5.66%
------------------------------------------- ------------ --------- ------------
Maturity June 2023 June 2023 June 2023
------------------------------------------- ------------ --------- ------------
Hedge ratio 1:1 1:1 1:1
------------------------------------------- ------------ --------- ------------
(f) Financial instruments and fair values
Unaudited Unaudited
30 September Audited 30 September
2019 31 March 2018
Book Value 2019 Book
GBPm Fair Value Book Value Fair Value Value Fair Value
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial liabilities held
at amortised cost
Bank loans 149.8 151.0 138.5 140.0 148.2 150.0
Private Placement Notes 473.2 504.0 468.9 478.1 369.0 387.0
Finance lease obligations 20.5 20.5 15.8 15.8 16.2 16.2
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
643.5 675.5 623.2 633.9 533.4 553.2
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial (assets)/liabilities
at fair value
through other comprehensive
income
Derivative financial instruments:
Cash flow hedge - derivatives
used for hedging (16.5) (16.5) (10.1) (10.1) (8.2) (8.2)
Other Investments (8.2) (8.2) (9.8) (9.8) (3.2) (3.2)
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
(24.7) (24.7) (19.9) (19.9) (11.4) (11.4)
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial assets at fair
value through profit or
loss
Deferred consideration
(overage) 1.8 1.8 2.9 2.9 0.9 0.9
1.8 1.8 2.9 2.9 0.9 0.9
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
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 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 below in note 10.
The total change in fair value of derivative financial
instruments recorded in other comprehensive income was a GBP0.5m
gain (March 2019: gain of GBP6.1m, September 2018: gain of
GBP0.2m).
14. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from
operations:
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
----------------------------------------------------- ------------- ------------- ----------
Profit before tax 99.1 101.6 137.3
Depreciation 0.3 0.6 1.0
Amortisation of intangibles 0.2 0.2 0.4
Profit on disposal of investment properties - (8.5) (8.3)
Other (income)/ expenses 0.6 (0.2) 1.1
Net gain from change in fair value of investment
property (59.6) (60.6) (60.8)
Equity settled share based payments 0.8 0.9 1.9
Finance expense 11.5 10.3 21.5
Exceptional finance cost - 3.1 3.1
Changes in working capital:
(Increase) / decrease in trade and other receivables (9.4) (6.6) 1.8
Increase / (decrease) in trade and other payables 11.9 (3.7) 0.8
----------------------------------------------------- ------------- ------------- ----------
Cash generated from operations 55.4 37.1 99.8
----------------------------------------------------- ------------- ------------- ----------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following:
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 11.6 17.3 57.8
Restricted cash - tenants' deposit deeds 8.9 9.4 8.5
----------------------------------------- ------------ -------- ------------
20.5 26.7 66.3
----------------------------------------- ------------ -------- ------------
15. 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 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
-------------------------------------------- ------------- --------- -------------
Construction or refurbishment of investment
properties 12.3 16.1 41.2
-------------------------------------------- ------------- --------- -------------
Purchase of investment properties - - 120.0
-------------------------------------------- ------------- --------- -------------
In the prior year, the Group had exchanged contracts in
September 2018 for the purchase of Shepherds Building, Shepherd's
Bush for GBP125.3m and transaction costs of GBP7.2m. A deposit of
GBP12.5m was paid in September 2018 and the balance was paid on
completion in October 2018.
16. Share Capital
Unaudited Audited Unaudited
30 September 31 March 30 September
2019 2019 2018
GBPm GBPm GBPm
------------------------------------------- ------------- --------- -------------
Issued: Fully paid ordinary shares of GBP1
each 180.7 180.4 180.4
------------------------------------------- ------------- --------- -------------
Unaudited Audited Unaudited
30 September 31 March 30 September
Movements in share capital were 2019 2019 2018
as follows: GBPm GBPm GBPm
-------------------------------- ------------- ----------- -------------
Number of shares at 1 April 180,385,498 163,806,591 163,806,591
Issue of shares 343,646 16,578,907 16,567,802
-------------------------------- ------------- ----------- -------------
Number of shares at period end 180,729,144 180,385,498 180,374,393
-------------------------------- ------------- ----------- -------------
The Group has issued 0.3m of shares to satisfy the exercise of
employee share option schemes.
17. Post balance sheet events
In October 2019, the Group completed on the sale of Vestry
Street Studios for GBP19.3m. It also exchanged and completed on the
sale of two properties on Greville Street, Farringdon for combined
sales proceeds of GBP14.8m.
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 by
the EU;
-- 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 2019. A list of
current Directors is maintained on the Workspace Group website:
www.workspace.co.uk.
Approved by the Board on 12 November 2019 and signed on its
behalf by
G Clemett
Director
INDEPENT 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 2019 which comprises the Consolidated
Income Statement, Consolidated Statement of other 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 2019 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board 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.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
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 International Financial
Reporting Standards as adopted by the EU. 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 by the EU.
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.
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.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
12 November 2019
Principal Risks and uncertainties
The Board assesses and monitors the key risks of the business.
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 2019 and have been assessed in line with the requirements
of the 2019 UK Corporate Governance Code. They are reproduced
below. The Board is satisfied that we continue to operate within
our risk profile.
Risk Description Mitigating activities
area
Brexit The Board has debated
* With the continuing uncertainty in the political and the potential implications
economic environment following the EU Referendum, it of Brexit and mitigating
is important that we remain vigilant to any potential actions required for
issues or impact that we foresee. key areas of the business,
including the following
* The operational impact of Brexit and how it may
affect customers is being monitored
* Close relationships are maintained with key suppliers
and due diligence carried out when entering into new
relationships. Assurances are sought that the
services and materials they provide will not be
materially impacted
* We plan to assist relevant staff with visa
arrangements once the requirements under Brexit
become clear
-------------------------------------------------------------- -------------------------------------------------------------
Financing
* Inability to fund business plans * We regularly review funding requirements for business
Reduced plans and ensure we have a wide range of options to
availability fund our forthcoming plans. We also prepare a
of financing * Restricted ability to invest in new opportunities five-year business plan which is reviewed and updated
options annually
resulting in
inability * Increased interest costs.
to meet * We have a broad range of funding relationships in
business plans place and regularly review our refinancing strategy
or satisfy * Negative reputational impact amongst lenders and in
liabilities. the investment community
* We maintain a specific interest rate profile via use
of fixed rates and swaps on our loan facilities so
that our interest payment profile is stable
-------------------------------------------------------------- -------------------------------------------------------------
Valuation
* Covenants (Loan to Value) * Market-related valuation risk is largely dependent on
Value of our external factors which we cannot influence. However,
properties we continue to do the following to ensure we are
declining as a * Impact on share price aware of any market changes, and are generating the
result maximum value from our portfolio
of external
market
or internal * Monitor the investment market mood
management
factors
* Monitor market yields and pricing of property
transactions across the London market
* Alternative use opportunities pursued across the
portfolio and continue to drive progress made in
achieving planning consent for mixed-use development
schemes
-------------------------------------------------------------- -------------------------------------------------------------
Customer
* Fall in occupancy levels at our properties * Every week the Executive Committee meet with Senior
Demand for our Management to monitor occupancy levels, pricing,
accommodation demand levels and reasons for customers vacating.
declining as a * Falling rent roll and property valuation This ensures we react quickly to changes in any of
result these indicators
of social,
economic
or competitive * Our extensive marketing programme ensures that we are
factors. in control of our own customer leads and pipeline of
deals. We also utilise social media, backed up by a
busy events programme which has further helped us to
engage with customers. This differentiates us as we
provide not only space but also an opportunity to
network with other businesses based in our portfolio
* We stress test our business plans to assess the
sensitivity we could tolerate if demand from our
customers reduced
-------------------------------------------------------------- -------------------------------------------------------------
Development
* Failure to deliver expected returns on developments * For every potential development scheme we work hard
Impact on to gain a thorough understanding of the planning
underlying environment and ensure we seek counsel from
income and * Cost over runs appropriate advisers
capital
performance.
* Delayed delivery of key projects * We undertake a detailed development analysis and
appraisal prior to commencing a development scheme.
Appraisals are presented for Investment Committee
* Poor reputation amongst contractors and customers if approval and sign-off is required for every project
projects are delayed.
* The Investment Committee reviews progress on
refurbishments and redevelopments every fortnight,
against project timings and cost budgets both during
and after the completion of a project
-------------------------------------------------------------- -------------------------------------------------------------
London
* Impact on demand for space if London adversely * Having been based within the London market for a
Changes in the affected by a major incident number of years, we know our markets and areas well
political,
infrastructure
and * Changes in the political and economic environment * We regularly monitor the London economy and
environmental commission research reports. We also hold regular
dynamics meetings with the GLA and the councils in the London
of London lead boroughs in which we operate to ensure that we are
to reduced aware of any changes coming through ahead of time
demand from
our customers.
-------------------------------------------------------------- -------------------------------------------------------------
Investment
* Poor timing of disposals * We undertake regular monitoring of asset performance
Under and positioning of our portfolio with periodic
performance detailed portfolio reviews
due * Poor timing of acquisitions
to
inappropriate * For each new acquisition we undertake thorough due
strategy * Failure to achieve expected returns diligence and detailed appraisals prior to purchase
on
acquisitions
and * Negative reputational impact amongst investors and * We monitor acquisition performance against target
disposals. sell-side analysts. returns
* Property disposals are subject to detailed review and
Board approval
-------------------------------------------------------------- -------------------------------------------------------------
Regulatory
* Fines or penalties for failure to adhere to * REIT conditions are monitored and tested on a regular
Failure to regulations basis and reported to the Board. We work closely with
meet HMRC and our tax advisers to ensure we are aware of
regulatory emerging issues and keeping up to date with changes
requirements * Failure to identify and respond to the introduction
leading of new requirements
to fines or * Close working relationship maintained with
tax appropriate authorities and all relevant issues
penalties, * Health and Safety breaches openly disclosed
or the
introduction
of new * Negative impact on reputation amongst investors and * The Company Secretary issues a detailed briefing to
requirements partners/suppliers. the Board regularly
that inhibit
activity.
* The Group's Health and Safety Manager meets regularly
with the CEO to keep abreast of any actual or
potential Issues
Business
Interruption * Loss of critical data * We have robust Business Continuity Plans and
procedures in place which are regularly tested and
Major events updated
mean that * Loss of access for customers to work at our business
Workspace is centres
unable * IT controls and safeguards are in place across all
to carry out our systems, including a specific standalone data
its business * Potential loss of income centre back-up facility
for a
sustained
period. * Potential negative impact on reputation amongst
customers.
----------------------------------------------------------- -------------------------------------------------------------
Resourcing
* Reduced ability to action strategy successfully * We have a robust recruitment process in place to
Failure to ensure that there is an appropriate level of
progress interviewing and scrutiny of new joiners
with * Insufficient resource to manage increased demands as
strategy due the Company grows
to * We have various incentives to align staff objectives
inability to with those of the Group to help ensure staff are
recruit working in the best interests of the Group and its
and retain stakeholders
correct
staff.
* Our HR team run a detailed training and development
programme to ensure staff are supported and
encouraged to progress their learning and study
opportunities
----------------------------------------------------------- -------------------------------------------------------------
Cyber
security * Loss of critical data * Monitoring information on security threats and
targets
Loss of data
or income * Financial loss due to fraud
due to cyber * Monitoring guidance and best practice issued by
security Government and advisors
attack on * Reputational damage amongst customers
our business
and on that * Review of IT systems and infrastructure in place to
of our * Potential loss of income ensure these are as robust as possible
customers.
----------------------------------------------------------- -------------------------------------------------------------
Competition
* Reduced customer demand * We closely monitor competitors at both a local level,
Emerging by looking at similar business centres located
third closely to ours, and at a corporate level by
parties * Adverse impact on rental growth reviewing competitor trends and performance
and
competitors
within * We invest time and effort in getting to know our
our market customers, building connections with them and
encouraging them to build connections with each
other. We thereby establish ourselves as more than
just a landlord, giving us a competitive edge
----------------------------------------------------------- -------------------------------------------------------------
Reputational
Risk * Damage to brand and perception by customers and * To ensure we understand our customers and their
stakeholders ever-evolving requirements we undertake twice-yearly
Failure to customer surveys
meet
customer * Adverse publicity impacting on demand from new
and external customers * We maintain regular communication with all
stakeholder stakeholders. We hold investor presentations,
expectations roadshows and an annual Capital Markets Day
. Joint
ventures or
other
ventures
with third
parties
do not
deliver the
expected
return.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FFDFUEFUSESF
(END) Dow Jones Newswires
November 13, 2019 02:00 ET (07:00 GMT)
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