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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