TIDMWKP
RNS Number : 9029E
Workspace Group PLC
11 November 2020
11 November 2020
WORKSPACE GROUP PLC
HALF YEAR RESULTS
RESILIENT OPERATING PERFORMANCE,
REINFORCING STRENGTH OF OUR OPPORTUNITY
Workspace Group PLC ("Workspace") today announces its half year
results for the period to 30 September 2020.
Despite a challenging operating environment due to Covid-19, the
half year results reflect the resilience of the business,
underpinned by its flexible customer-focused offering and freehold
ownership model. Workspace is uniquely placed to meet the
fast-changing needs of London's brightest businesses as they emerge
from the pandemic.
Financial highlights: Resilience in the face of near-term impact
of Covid-19
-- Trading profit after interest of GBP15.3m (2019: GBP40.1m)
after GBP19.9m of rent discounts given to customers
-- Property valuation of GBP2,450m, an underlying reduction of
GBP126m (4.9%) from 31 March 2020
-- Loss before tax of GBP110.4m (30 September 2019: GBP99.1m
profit), reflecting a fall in the property valuation
-- In light of the current pandemic and the recent return to
lockdown, the Board has decided to defer a decision on dividend
payment until the full year
-- Loan to value of 23% (31 March 2020: 21%) with GBP127m of
available cash and undrawn facilities
-- EPRA net tangible assets per share of GBP10.05, down 7.6% from 31 March 2020
Customer activity: Near-term challenges but positive signs of
recovery under eased restrictions in Q2
-- Increase in customers vacating and downsizing due to Covid-19
-- Like-for-like occupancy declined by 7.8% to 85.5%; rent per
sq. ft. reduced by 3.3% to GBP40.61; like-for-like rent roll down
11.6% to GBP98.8m
-- Strong levels of rent collection, with 95% of rents due for
the first half (net of discounts and deferrals) received as at 2
November 2020
-- Significant improvement in new customer demand under eased
restrictions, reaching near pre-Covid levels in September
-- Steadily increased customer utilisation of our centres in
second quarter, reaching over 30% of pre-Covid levels by
mid-September, prior to new Government restrictions
Portfolio activity: Further strengthening our leading London
footprint
-- One disposal completed for GBP11m, in line with the 31 March 2020 valuation
-- Two new business centres providing 94,000 sq. ft. of net
lettable space opened in the first half
-- Three projects expected to complete in the second half,
providing a further 105,000 sq. ft. of new and upgraded space
Commenting on the results, Graham Clemett, Chief Executive
Officer said:
"Like so many businesses, we have had a challenging first half
as a result of the Covid-19 pandemic. Despite the difficult
environment, we have delivered a resilient performance which has
highlighted the strength of our offering and business model. We
have sought to support our customers as much as possible during
this time, offering the majority a 50% rent discount in the first
quarter. We believe our freehold ownership model, our financial
strength and our long-established flexible offer will be an
attractive option for an increasing number of London businesses as
the economy recovers. In this regard, it was encouraging to see the
increase in enquiries and lettings from new customers to near
pre-Covid levels in the second quarter, confirming the appeal of
our offer.
There is no doubt that people's expectations of the office are
changing. Although this trend has been apparent to us for several
years, the pandemic has accelerated fundamental changes to the role
and requirements of the office for an increasing number of
businesses and their employees. As the economy recovers from
Covid-19, businesses will need to be more agile and will expect the
same from office space providers. By owning our properties
outright, we can quickly adapt to customers' changing needs - from
ensuring they are Covid-safe to making our offices ever more
sustainable. This is distinct to Workspace and ideally positions us
in the flight to flexibility.
Our immediate priority is to manage our way through the
challenges of the second half of the year. With Government Covid-19
restrictions in place we expect to see further pressure on
occupancy and pricing in the near-term, which will impact on our
full year performance. However, our strong balance sheet,
compelling customer offer and experienced team mean that Workspace
is well positioned to navigate the challenges ahead and benefit as
the economy recovers."
Summary Results
September September Change
2020 2019
Financial performance
------------ ---------- ---------
Net rental income GBP36.5m GBP60.1m -39%
------------ ---------- ---------
Trading profit after interest GBP15.3m GBP40.1m -62%
------------ ---------- ---------
Profit/(loss) before tax GBP(110.4)m GBP99.1m -211%
------------ ---------- ---------
Interim dividend per share - 11.67p -
------------ ---------- ---------
September March Change
2020 2020
------------ ---------- ---------
Valuation
------------ ---------- ---------
EPRA net tangible assets per
share GBP10.05 GBP10.88 -7.6%
------------ ---------- ---------
EPRA net reinstatement value
per share GBP10.98 GBP11.92 -7.9%
------------ ---------- ---------
CBRE property valuation GBP2,450m GBP2,574m -4.9%**
------------ ---------- ---------
Financing
------------ ---------- ---------
Loan to value 23% 21% +2%*
------------ ---------- ---------
Undrawn bank facilities and cash GBP127m GBP166m -GBP39m*
------------ ---------- ---------
Alternative performance measure (APM). The Group uses a number
of financial measures to assess and explain its performance. Some
of these which are not defined within IFRS are considered APMs. For
further details see Notes to the Financial Statements.
* absolute change
** underlying change excluding capital expenditure and
disposals
For media and investor enquiries, please contact:
Workspace Group PLC
Graham Clemett, Chief Executive Officer
Dave Benson, Chief Financial Officer
Clare Marland, Head of Corporate Communications 020 7138 3300
Finsbury
James Bradley 07500 616161
Chris Ryall 07342 713748
Details of results presentation
The results presentation will be published online at 07.30am and
be available at www.workspace.co.uk/investors/reportingcentre
There will be a live Q&A session with Workspace's management
team for analysts and investors today at 10.00am, available to
access via webcast or conference call. Questions can be submitted
either online via the webcast or to the operator on the conference
call.
Webcast: The live webcast will be available here:
https://secure.emincote.com/client/workspace/workspace015
Conference call: In order to join the Q&A session via phone
at 10am, please register at the following link and you will be
provided with dial-in details and a unique access code:
https://secure.emincote.com/client/workspace/workspace015/vip_connect
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
BUSINESS REVIEW
ENQUIRIES AND LETTINGS
The Covid-19 Government restrictions on public movement had a
significant impact on enquiries and lettings in the first quarter
but the improving trend seen in May and June continued into the
second quarter, with enquiries reaching near pre-Covid levels by
mid-September.
Monthly average Monthly activity
---------- ------------------
H1 H1 Sep Aug Jul Jun May Apr
2020/21 2019/20 2020 2020 2020 2020 2020 2020
---------- -------- -------- ----- ----- ----- ----- ----- -----
Enquiries 687 1,109 935 757 914 765 480 272
Viewings 289 708 491 345 469 318 95 14
Lettings 81 127 126 114 118 91 17 20
---------- -------- -------- ----- ----- ----- ----- ----- -----
Activity levels reduced following the new Government
restrictions and advice announced in September with 785 enquiries
and 122 lettings in October.
RENT ROLL
Total rent roll, representing the total annualised net rental
income at a given date, was down 11.0% in the six months to
GBP118.2m at 30 September 2020, with overall occupancy reducing
from 87.0% to 81.1%.
Rent Roll GBPm
----------------------------------- ------
At 31 March 2020 132.8
Like-for-like portfolio (12.9)
Completed projects 0.3
Projects underway and design stage (2.0)
At 30 September 2020 118.2
----------------------------------- ------
The total estimated rental value (ERV) of the portfolio,
comprising the ERV of the like-for-like portfolio and those
properties currently undergoing refurbishment or redevelopment (but
only including properties at the design stage at their current rent
roll and occupancy) was GBP161.1m at 30 September 2020.
Like-for-like Portfolio
The like-for-like portfolio represents 84% of the total rent
roll as at 30 September 2020. It comprises 38 properties with
stabilised occupancy, excluding buildings impacted by significant
refurbishment or redevelopment activity or contracted for sale.
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 decreased by 11.6% (GBP12.9m) in
the six months to 30 September 2020 to GBP98.8m. The decline has
come from a 7.8% reduction in occupancy from 93.3% to 85.5%,
combined with a 3.3% decrease in rent per sq. ft. to GBP40.61.
If all the like-for-like properties were at 90% occupancy at the
CBRE estimated rental values at 30 September 2020, the rent roll
would be GBP115.8m, GBP17.0m higher than the actual cash rent roll
at 30 September 2020.
Completed Projects
There are five projects in the completed projects category, with
overall rent roll increasing by 11% (GBP0.3m) in the six months to
GBP3.3m and occupancy at 46%. This includes Mare Street, Hackney,
and Lock Studios, Bow, which both opened in June 2020 providing
94,000 sq. ft. of net lettable space.
If the buildings in this category were all at 90% occupancy at
the CBRE estimated rental values at 30 September 2020, the rent
roll would be GBP7.7m, an uplift of GBP4.4m.
Projects Underway - Refurbishments
We are currently underway on six refurbishment projects that
will deliver 240,000 sq. ft. of new and upgraded space. We expect
the two refurbishments at Wenlock Studios, Old Street, and Parkhall
Business Centre, Dulwich, to complete during the second half
providing 88,000 sq. ft. of upgraded space. As at 30 September
2020, rent roll was GBP6.3m, down GBP1.8m in the six months.
Assuming 90% occupancy at the CBRE estimated rental values at 30
September 2020, the rent roll at these six buildings once they are
completed would be GBP11.4m, an uplift of GBP5.1m.
Projects Underway - Redevelopments
There are currently two mixed-use redevelopment projects
underway providing 58,000 sq. ft. of net lettable space, with the
first delivering 17,000 sq. ft. of additional space at The Light
Bulb, Wandsworth, completing in the second half of the year.
Assuming 90% occupancy at the CBRE estimated rental values at 30
September 2020, the rent roll at the two new business centres would
be GBP1.3m.
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 2020 was GBP9.8m, down GBP0.4m in the
six months.
PROFIT PERFORMANCE
Trading profit after interest for the half year was down 61.8%
(GBP24.8m) on the prior half year to GBP15.3m.
30 Sept 30 Sept
GBPm 2020 2019
--------------------------------------------- ------- -------
Net rental income 36.5 60.1
Administrative expenses - underlying (7.8) (7.4)
Administrative expenses - share based costs* (1.6) (1.1)
Net finance costs (11.8) (11.5)
--------------------------------------------- ------- -------
Trading profit after interest 15.3 40.1
--------------------------------------------- ------- -------
* These relate to both cash and equity settled costs
Net rental income was down 39.3% (GBP23.6m) in total to
GBP36.5m, as detailed below:
30 Sept 30 Sept
GBPm 2020 2019
----------------------------- ------- -------
Underlying net rental income 57.7 59.1
Rent discounts and waivers (19.9) -
Expected credit losses (1.5) (0.2)
Disposals 0.2 1.2
36.5 60.1
------- -------
There was a GBP1.4m (2.4%) decrease in underlying net rental
income, largely driven by the fall in occupancy and average rent
per sq. ft., partially offset by savings in direct costs and the
letting up of recently completed projects .
Net rental income was significantly reduced by rent waivers and
discounts given to customers, predominantly in respect of Q1.
Overall, we have given rent reductions to over 90% of our customers
(by rent), which represents a reduction in net rent totalling
GBP19.9m in the half year. Additionally, although we hold rent
deposits for the majority of our customers, the extension of
Government restrictions on rent collection have impeded efforts to
collect rent from a number of our customers resulting in a charge
for expected credit losses of GBP1.5m.
Underlying administrative expenses increased by GBP0.4m to
GBP7.8m, up 5.4%. The prior year benefited from a short-term saving
in executive costs following Jamie Hopkins stepping down as CEO in
May 2019. Discretionary costs and headcount are being kept under
tight control.
Net finance costs increased by 2.6% (GBP0.3m) in the half year.
The average net debt balance over the 6 months was GBP23.9m lower
than the first six months of the prior year, whilst the average
interest rate has increased marginally from 3.6% to 3.8%.
Loss before tax was GBP110.4m reflecting a decrease in the
property valuation of GBP125.3m since 31 March 2020 compared to an
increase of GBP59.6m in the first six months of the prior year.
30 Sept 30 Sept
GBPm 2020 2019
---------------------------------------------- ------- -------
Trading profit after interest 15.3 40.1
Change in fair value of investment properties (125.3) 59.6
Loss on sale of investment properties (0.2) -
Other items (0.2) (0.6)
---------------------------------------------- ------- -------
(Loss)/profit before tax (110.4) 99.1
---------------------------------------------- ------- -------
Adjusted underlying earnings per share 8.4p 22.1p
---------------------------------------------- ------- -------
The small loss on sale of investment properties relates to sales
costs associated with a disposal which completed in the half year
in line with the March 2020 valuation.
Adjusted underlying earnings per share, based on EPRA earnings
adjusted for non-trading items and calculated on a diluted share
basis, is down 62.0% to 8.4p.
INTERIM DIVID
We remain focused on balancing the interests of shareholders and
other stakeholders and the long-term sustainability of our
business. The Board is mindful of the importance of income to
shareholders but, in light of the current pandemic and following
the Government's implementation of a second national lockdown, has
decided to defer a decision on payment of a dividend until the full
year.
PROPERTY VALUATION
At 30 September 2020, our property portfolio was independently
valued by CBRE at GBP2,450m, an underlying decrease of 4.9%
(GBP126m) in the half year. The main movements in the valuation
over the half year are set out below:
GBPm
------------------------------- -----
Valuation at 31 March 2020 2,574
Revaluation (126)
Capital expenditure 13
Disposals (11)
------------------------------- -----
Valuation at 30 September 2020 2,450
------------------------------- -----
A summary of the half year valuation and revaluation movement by
property type is set out below:
GBPm Valuation Uplift / deficit
------------------------- --------- ----------------
Like-for-like Properties 1,898 (93)
Completed Projects 126 (6)
Refurbishments 323 (25)
Redevelopments 103 (2)
Total 2,450 (126)
------------------------- --------- ----------------
Like-for-like Properties
There was a 4.7% (GBP93m) underlying decrease in the valuation
of like-for-like properties to GBP1,898m. This is driven by a 3.1%
decrease in the ERV per sq. ft. (GBP64m) reflecting price
reductions we have seen on lettings and renewals completed in the
first half of the year, and a small 8bps outward shift in
equivalent yields (GBP29m).
30 Sept 31 March
2020 2020 Change
-------------------------- -------- -------- --------
ERV per sq. ft. GBP45.21 GBP46.65 -3.1%
Rent per sq. ft. GBP40.61 GBP41.98 -3.3%
Equivalent Yield 5.9% 5.8% +0.1%
Net Initial Yield 4.7% 5.1% -0.4%
Capital Value per sq. ft. GBP667 GBP696 -4.2%
-------------------------- -------- -------- --------
Completed Projects
There was an underlying decrease of 4.5% (GBP6m) in the value of
the five completed projects to GBP126m. The overall valuation
metrics for completed projects are set out below:
30 Sept
2020
-------------------------- --------
ERV per sq. ft. GBP37.10
Rent per sq. ft. GBP30.85
Equivalent Yield 5.7%
Net Initial Yield 2.1%
Capital Value per sq. ft. GBP549
-------------------------- --------
The major movements within this category were a decrease of
GBP3.4m at Mare Street Studios, Hackney, which is at the early
stage of letting up after being launched in June 2020, and a
decrease of GBP2.5m at 160 Fleet Street with a 3% reduction in ERV
reflecting the pricing of recent lettings.
Current Refurbishments and Redevelopments
There was an underlying decrease of 7.2% (GBP25m) in the value
of our current refurbishments to GBP323m and a reduction of 1.9%
(GBP2m) in the value of our current redevelopments to GBP103m.
The most significant movements in this category are a decrease
of GBP5.6m at Fitzroy Street, Fitzrovia, where the sole occupier,
as expected, has exercised their break ahead of our planned
extensive refurbishment and a reduction of GBP4.2m at Biscuit
Factory (J Block), Bermondsey, where the refurbishment programme
has been delayed by Covid-19.
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 30
September 2020 is set out below:
Projects Number Capex spent Capex Upgraded
to spend and new space
(sq. ft.)
--------------------------------- ------- ------------ ---------- ---------------
Underway 6 GBP15m GBP15m 240,000
Design stage 4 - GBP85m 310,000
Design stage (without planning) 1 - GBP60m 155,000
--------------------------------- ------- ------------ ---------- ---------------
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 2020 is set out below:
No. of Residential Cash Cash/ New commercial
properties units received overage space (sq.
to come ft.)
-------------- ------------ ------------ ---------- --------- ---------------
Underway 2 277 GBP19m GBP4m 58,000
Design stage 5 1,209 - - 289,000
I n June 2020, we were granted planning consent for a
significant mixed-use redevelopment project in Wandsworth. The 5.4
acre site currently comprises 145,000 sq. ft. of low quality
office, leisure and light industrial space, with a rent roll of
GBP2.4m. The planning consent is for a new 106,000 sq. ft. business
centre and 65,000 sq. ft. of new light industrial space, as well as
402 residential apartments, including 35% affordable housing.
ACQUISITIONS AND DISPOSALS
No acquisitions were made in the first half but we continue to
track opportunities across London and remain disciplined in our
returns criteria.
In September 2020, we completed the sale of Bow Exchange, Bow
for GBP11.0m, in line with the 31 March 2020 valuation, at a
capital value of GBP298 per sq. ft.
CASH FLOW
The Group generates strong operating cash flow in line with
trading profit. A summary of cash flows in the half year are set
out below:
30 Sept 30 Sept
GBPm 2020 2019
---------------------------------------- ------- -------
Net cash from operations after interest 14 44
Dividends paid (42) (38)
Capital expenditure (13) (33)
Property disposals and cash receipts 11 11
Other - (1)
Net movement (30) (17)
Opening debt (net of cash) (541) (580)
---------------------------------------- ------- -------
Closing debt (net of cash) (571) (597)
---------------------------------------- ------- -------
There is a reconciliation of net debt in note 13(b) to the
financial statements.
Cash collection in the first half of the year has been adversely
impacted by the effect of Covid-19 on many of our customers'
businesses and by the Government restrictions on rent collection
measures. In addition to the GBP19.9m of rent discounts given to
customers in the first half, rent deferrals were also agreed with
customers on a case by case basis totalling GBP3.3m, of which
GBP2.5m remains outstanding at 30 September 2020.
Rent collection remains strong with 95% of rents (after
discounts and deferrals) for the first half collected by 2 November
2020.
Q1 Q2 H1
------------------------------------------------------------------------------ ---- ---- ----
Rent collected as proportion of rent receivable after discounts and deferrals 97% 94 % 95 %
Rent collected as proportion of gross rents 44 % 88 % 66 %
The majority of the amounts still outstanding are covered by
rent deposits or by the provision for doubtful debts.
In the second half of the year, 86% of third quarter rent
(including October monthly rents) were collected by 2 November
2020.
FINANCING
As at 30 September 2020, the Group had GBP4.3m of available cash
and GBP123m of undrawn facilities:
Drawn amount Facility Maturity
----------------------- ------------ --------- ---------
Private Placement Notes GBP448.5m GBP448.5m 2023-2029
Bank facilities GBP127.0m GBP250.0m 2022
------------ ---------
Total GBP575.5m GBP698.5m
------------ ---------
All facilities are provided on an unsecured basis with an
average maturity of 4.1 years (31 March 2020: 4.5 years).
The average interest cost of our fixed rate private placement
notes is 4.1%. Our revolver bank facilities are provided at a
floating rate of 1.65% over LIBOR. At 30 September 2020, 64% of our
facilities are at fixed rates, representing 78% of our borrowings
on a drawn basis.
At 30 September 2020, loan to value (LTV) was 23% (31 March
2020: 21%) and interest cover (based on net rental income) was 4.5
times (31 March 2020: 5.2), providing good headroom on all facility
covenants. We estimate that we could withstand a reduction in net
rental income of 52% or a fall in asset valuation of 61% before any
debt covenants are breached.
NET ASSETS
Net assets decreased in the six months by GBP153m to GBP1,845m.
EPRA net tangible assets (NTA) per share at 30 September 2020 was
down 7.6% (GBP0.83) to GBP10.05 and EPRA net reinstatement value
(NRV) per share was down 7.9% (GBP0.94) to GBP10.98:
EPRA NRV EPRA NTA
per share per share
GBP GBP
--------------------------------------- ---------- ----------
At 31 March 2020 11.92 10.88
Adjusted trading profit after interest 0.08 0.08
Property valuation deficit (0.69) (0.69)
Purchasers costs (0.11) -
Dividends paid (0.24) (0.24)
Other 0.02 0.02
--------------------------------------- ---------- ----------
At 30 September 2020 10.98 10.05
--------------------------------------- ---------- ----------
The calculation of EPRA NTA and NRV per share measures are set
out in note 8 of the financial statements.
outlook for the year to 31 March 2021
There remains significant uncertainty about the full year
trading result, with our performance very sensitive to Covid-19 and
associated Government restrictions. We have, however, modelled a
number of scenarios that provide comfort on the continuing
robustness of the business as a going concern. The key variables
for our operating performance are occupancy and pricing, with a 5%
change in occupancy having an impact of approximately GBP7m, and a
5% change in rent per sq. ft. having an impact of approximately
GBP6m on rent roll. A 5% change in occupancy would also increase
void costs by around GBP2m on an annualised basis.
Our immediate focus is on retaining existing customers,
alongside capturing the demand from new customers. Performance in
the second half of the year will be driven by a combination of:
-- The reduction in income from customers that vacated during the first half.
-- Existing customers downsizing and vacating in the second half
of the year, sensitive to Government restrictions.
-- New customer demand, although again sensitive to any Government policy restrictions.
KEY property statistics
Half Year ended
------------------------------------------
30 Sept 31 March 30 Sept 31 March
2020 2020 2019 2019
-------------------------------------- --------- --------- --------- ---------
Workspace Group Portfolio
CBRE property valuation GBP2,450m GBP2,574m GBP2,682m GBP2,604m
Number of locations 58 59 64 64
Lettable floorspace (million sq.
ft.) 3.9 3.9 4.0 3.9
Number of lettable units 4,147 4,009 4,969 4,796
Rent roll of occupied units GBP118.2m GBP132.8m GBP130.4m GBP127.5m
Average rent per sq. ft. GBP37.15 GBP39.18 GBP38.06 GBP38.45
Overall occupancy 81.1% 87.0% 86.3% 84.8%
Like-for-like number of properties 38 29 28 30
Like-for-like lettable floor space
(million sq. ft.) 2.8 2.2 2.2 2.1
Like-for-like rent roll growth (11.6)% 1.2% 0.7% (0.4)%
Like-for-like rent per sq. ft. growth (3.3)% 0.3% (1.0)% 1.0%
Like-for-like occupancy movement (7.8)% 0.9% 1.7% (0.7)%
-------------------------------------- --------- --------- --------- ---------
1) The like-for-like category has been restated in the current financial year for the following:
-- The transfer in of Goswell Road, Cannon Wharf, Ink Rooms, 60
Gray's Inn Road, The Light Box, Edinburgh House, The Frames, The
Leather Market, China Works and Fuel Tank from the completed
projects category
-- The transfer in of Canalot Studios from the refurbishment projects category
-- The transfer in of Poplar Business Park from the redevelopment projects category
-- The transfer out of Westbourne Studios to the refurbishment projects category
-- The transfer out of Mallard Place to the redevelopment projects category
2) Like-for-like statistics for prior years are not restated for
the changes made to the like-for-like property portfolio in the
current financial year.
3) Overall rent per sq. ft. and occupancy statistics 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 2020
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2020 2019 2020
Notes GBPm GBPm GBPm
---------------------------------------------- ----- -------------- ------------- -----------
Revenue 2 75.5 80.2 161.4
Direct costs 2 (39.0) (20.1) (39.4)
---------------------------------------------- ----- -------------- ------------- -----------
Net rental income 2 36.5 60.1 122.0
Administrative expenses (9.4) (8.5) (17.7)
---------------------------------------------- ----- -------------- ------------- -----------
Trading profit 27.1 51.6 104.3
Loss on disposal of investment properties 3(a) (0.2) - (0.8)
Other expenses 3(b) (0.2) (0.6) (0.2)
Change in fair value of investment properties 9 (125.3) 59.6 (7.5)
---------------------------------------------- ----- -------------- ------------- -----------
Operating (loss)/ profit (98.6) 110.6 95.8
Finance costs 4 (11.8) (11.5) (23.3)
(Loss)/ profit before tax (110.4) 99.1 72.5
Taxation 5 - - (0.4)
---------------------------------------------- ----- -------------- ------------- -----------
(Loss)/ profit for the period after
tax (110.4) 99.1 72.1
---------------------------------------------- ----- -------------- ------------- -----------
Basic earnings per share 7 (61.1)p 54.9p 40.0p
Diluted earnings per share 7 (60.8)p 54.5p 39.7p
---------------------------------------------- ----- -------------- ------------- -----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE six monthsED 30 September 2020
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
------------------------------------------ ------------- ------------- -----------
(Loss)/ profit for the period (110.4) 99.1 72.1
Other comprehensive income:
Items that may be classified subsequently
to profit or loss:
Change in fair value of other investments - (1.6) (1.9)
Cash flow hedge - transfer to income
statement 3.7 (4.3) (4.2)
Cash flow hedge - change in fair value (4.2) 6.4 8.3
------------------------------------------- ------------- ------------- -----------
Total comprehensive income for the period (110.9) 99.6 74.3
------------------------------------------- ------------- ------------- -----------
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2020
Unaudited Audited Unaudited
30 September 31 March 30 September
2020 2020 2019
Notes GBPm GBPm GBPm
--------------------------------- ------ ------------- --------- -------------
Non-current assets
Investment properties 9 2,471.4 2,586.3 2,635.6
Intangible assets 2.2 2.0 2.0
Property, plant and equipment 4.3 4.8 3.7
Other investments 7.9 7.9 8.2
Trade and other receivables 10 - - 4.5
13(e)
Derivative financial instruments & (f) 14.3 18.5 16.5
Deferred tax 0.5 0.6 -
--------------------------------- ------ ------------- --------- -------------
2,500.6 2,620.1 2,670.5
--------------------------------- ------ ------------- --------- -------------
Current assets
Assets held for sale 9 - 11.0 60.5
Trade and other receivables 10 35.0 25.2 21.6
Cash and cash equivalents 11 12.4 79.2 20.5
--------------------------------- ------ ------------- --------- -------------
47.4 115.4 102.6
--------------------------------- ------ ------------- --------- -------------
Total assets 2,548.0 2,735.5 2,773.1
--------------------------------- ------ ------------- --------- -------------
Current liabilities
Trade and other payables 12 (90.3) (83.1) (87.4)
Borrowings 12 - (9.0) -
(90.3) (92.1) (87.4)
--------------------------------- ------ ------------- --------- -------------
Non-current liabilities
Borrowings 13(a) (586.9) (617.2) (623.0)
Lease obligations 14 (26.3) (28.2) (20.5)
--------------------------------- ------ ------------- --------- -------------
(613.2) (645.4) (643.5)
--------------------------------- ------ ------------- --------- -------------
Total liabilities (703.5) (737.5) (730.9)
--------------------------------- ------ ------------- --------- -------------
Net assets 1,844.5 1,998.0 2,042.2
--------------------------------- ------ ------------- --------- -------------
Shareholders' equity
Share capital 17 181.1 180.7 180.7
Share premium 295.1 295.4 295.4
Investment in own shares (9.6) (9.6) (9.9)
Other reserves 33.2 32.2 28.7
Retained earnings 1,344.7 1,499.3 1,547.3
--------------------------------- ------ ------------- --------- -------------
Total shareholders' equity 1,844.5 1,998.0 2,042.2
---------
Consolidated Statement of Changes in Equity
FOR THE periodED 30 September 2020
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 2020 Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2020 180.7 295.4 (9.6) 32.2 1,499.3 1,998.0
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the period - - - - (110.4) (110.4)
Other comprehensive
income - - - (0.5) - (0.5)
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - (0.5) (110.4) (110.9)
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 17 0.4 (0.3) - - - 0.1
Own share purchase
(net) - - - - - -
Dividends paid 6 - - - - (44.2) (44.2)
Share based payments - - - 1.5 - 1.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 30 September
2020 181.1 295.1 (9.6) 33.2 1,344.7 1,844.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Unaudited 6 months
to
30 September 2019
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
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 17 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
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Audited 12 months
to
31 March 2020
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2019 180.4 295.1 (9.3) 27.4 1,488.4 1,982.0
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the year - - - - 72.1 72.1
Other comprehensive
income - - - 2.2 - 2.2
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 2.2 72.1 74.3
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 17 0.3 0.3 (0.3) - - 0.3
Own share purchase
(net) - - - - - -
Dividends paid 6 - - - - (61.2) (61.2)
Share based payments - - - 2.6 - 2.6
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 31 March
2020 180.7 295.4 (9.6) 32.2 1,499.3 1,998.0
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2020
Unaudited Unaudited
6 month 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2020 2019 2020
Notes GBPm GBPm GBPm
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from operating activities
Cash generated from operations 15 25.6 55.4 108.7
Interest paid (11.8) (12.0) (24.1)
Tax paid (0.7) 0.2 0.1
--------------------------------------------- ----- ------------- ------------- -----------
Net cash inflow from operating activities 13.1 43.6 84.7
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from investing activities
Capital expenditure on investment properties (12.2) (32.6) (59.7)
Proceeds from disposal of investment
properties 11.0 10.5 75.0
Purchase of intangible assets (0.5) (0.6) (0.9)
Purchase of property, plant and equipment (0.4) (0.6) (2.3)
Other income (overage receipts) - 0.6 2.0
Purchase of investments (0.1) (0.1) 0.5
--------------------------------------------- ----- ------------- ------------- -----------
Net cash (outflow)/ inflow from investing
activities (2.2) (22.8) 14.6
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 0.1 0.6 0.6
Settlement and re-couponing of derivative
financial instruments - (0.1) -
Repayment of Private Placement Notes (9.0) - -
Repayment of bank borrowings (81.0) (25.0) (90.1)
Drawdown of bank borrowings 54.0 36.0 104.0
Own shares purchased - (0.6) (0.3)
Dividends paid 6 (41.8) (37.9) (61.0)
--------------------------------------------- ----- ------------- ------------- -----------
Net cash outflow from financing activities (77.7) (27.0) (46.8)
--------------------------------------------- ----- ------------- ------------- -----------
Net (decrease)/ increase in cash and
cash equivalents (66.8) (6.2) 52.5
--------------------------------------------- ----- ------------- ------------- -----------
Cash and cash equivalents at start of
period 11 79.2 26.7 26.7
Cash and cash equivalents at end of
period 11 12.4 20.5 79.2
--------------------------------------------- ----- ------------- ------------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE periodED 30 September 2020
1. Accounting policies
Basis of preparation
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 2020, 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 2020, 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.
There have been no changes in estimates of amounts reported in
prior periods which have a material impact on the current half year
period.
As with most other UK property companies and REITs, the Group
presents many of its financial measures in accordance
with the guidance criteria issued by the European Public Real
Estate Association ('EPRA'). These measures, which
provide consistency across the sector, are all derived from the
IFRS figures in notes 7 and 8.
Going concern
The Board is required to assess the appropriateness of applying
the going concern basis in the preparation of the financial
statements. In considering this, the Directors have reviewed a
financial forecast and cashflow model for the 18 month period to 31
March 2022. The model has been prepared on the basis of a severe
but plausible downside scenario which includes key assumptions
around the continued impact of Covid-19 alongside other principal
risks.
Key assumptions in this scenario include:
- A further reduction of 12% in occupancy and 6% in pricing.
- Occupancy to stabilise at the low point of March 2021 with a
limited and slow recovery thereafter.
- A further 20% reduction in NRI reflecting risk of unrecoverable rent.
- An expansion in investment yields of 100bps at March 2021.
The appropriateness of the going concern basis is reliant on the
continued availability of borrowings and compliance with loan
covenants. Based on the financial forecast the group could
withstand a reduction in net rental income of 52 percent and a fall
in the asset valuation of 61 percent before covenants are breached,
assuming no mitigating actions are taken. As at 30 September 2020,
the company had significant headroom on its facilities and loan
covenants with GBP4m of cash, undrawn facilities of GBP123m and no
debt due to be refinanced until June 2022. For the full period
considered, the Group maintains sufficient headroom in its cash and
loan facilities and loan covenants are met.
Based on these factors, and the outcome of their review, the
Directors have a reasonable expectation that the Group and the
Company have adequate resources and sufficient loan facility
headroom to continue as a going concern.
This report was approved by the Board on 10 November 2020.
Change in accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 March 2020, with
the exception of 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.
-- References to Conceptual Framework in IFRSs (amended);
-- IAS 1 and IAS 8 (amended) - Definition of Material;
-- IFRS 3 (amended) - Definition of a Business;
-- IFRS 16 (amended) - Covid-19-related Rent Concessions .
Derecognition of trade receivables
Discounts have been provided to the majority of our customers on
receipt of payment for the net amount due for the discounted
period. These retrospective discounts are considered to be a
partial forgiveness of the trade receivable. In accordance with
IFRS 9, the element of the trade receivable that has been forgiven
has been derecognised in the balance sheet and recognised as a loss
in the income statement.
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 Dir ectors do not anticipate that their adoption in future
periods will have a material impact on the financial statements of
the Group.
-- IFRS 17 - Insurance Contracts;
-- IAS 1 (amended) - Classification of liabilities as current or non-current;
-- IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets
between an investor and its Associate or Joint Venture.
Significant judgments, key assumptions and estimates
Property portfolio valuation
The valuation provided by CBRE at 31 March 2020 included a
materiality uncertainty clause as required by the Royal Institution
of Chartered Surveyors (RICS) in response to the Covid-19 pandemic.
This was to reflect that less certainty and consequently, a higher
degree of caution should be attached to the valuation than would
normally be the case. This requirement has since been relaxed and
the valuation as at 30 September does not include a material
uncertainty clause.
Impairment testing of trade receivables and other financial
assets
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost less provision for
impairment based on the expected credit loss. Accrued income has
been recognised in accordance with IFRS 16 in relation to the
spreading of rental income which has been deferred in agreement
with some customers and due to be repaid over the remaining period
of their lease. We provide for the impairment of trade receivables
and accrued income in accordance with IFRS 9 based on the expected
credit loss which uses a lifetime expected loss allowance for all
trade receivables based on the individual occupiers' circumstance.
Due to the impact of Covid-19 on our customers we are experiencing
a higher level of unpaid debts than is usual which is reflected in
the increased provision for this period.
2. Analysis of net rental income
6 months ended 30 6 months ended 30
September 2020 September 2019
--------------------------- ---------------------------
Direct Net rental Direct Net rental
Revenue costs income Revenue costs income
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Rental income 63.7 (20.7) 43.0 65.6 (1.5) 64.1
Service charges 9.9 (12.7) (2.8) 10.9 (13.2) (2.3)
Empty rates and other non-recoverable
costs - (3.2) (3.2) - (2.8) (2.8)
Services, fees, commissions and
sundry income 1.9 (2.4) (0.5) 3.7 (2.6) 1.1
-------------------------------------- ------- ------ ---------- ------- ------ ----------
75.5 (39.0) 36.5 80.2 (20.1) 60.1
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Year ended 31 March
2020
---------------------------
Direct Net rental
Revenue costs income
GBPm GBPm GBPm
-------------------------------------- ------- ------ ----------
Rental income 132.7 (2.2) 130.5
Service charges 21.8 (25.5) (3.7)
Empty rates and other non-recoverable
costs - (6.3) (6.3)
Services, fees, commissions and
sundry income 6.9 (5.4) 1.5
-------------------------------------------- ------- ------ ----------
161.4 (39.4) 122.0
----------------------------------------- ------- ------ ----------
Included within direct costs for rental income and service
charge in the period are amounts of GBP17.9m and GBP2.0m
respectively, relating to discounts provided to customers,
accounted for in accordance with IFRS9. Additionally, a charge of
GBP1.5m for expected credit losses in respect of receivables from
customers is recognised in direct costs of rental income in the
period.
All of the properties within the portfolio are geographically
close to each other and have similar economic features and risks.
Management information utilised by the Executive Committee to
monitor and assess performance is reviewed as one portfolio. As a
result, management have determined that the Group operates a single
operating segment of providing business space for rent in
London.
3(a). Loss on disposal of investment properties
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ---------
Proceeds from sale of investment properties
(net of sale costs) 11.0 15.0 79.5
Book value at time of sale (11.2) (15.0) (80.3)
-------------------------------------------- ------------- ------------- ---------
Loss on disposal (0.2) - (0.8)
-------------------------------------------- ------------- ------------- ---------
3(b). Other expenses
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
----------------------------------------------- ------------- ------------- ---------
Change in fair value of deferred consideration 0.2 0.6 0.2
0.2 0.6 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 2020. The amounts receivable are included in the
consolidated balance sheet under current trade and other
receivables (note 10).
4. Finance costs
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
------------------------------------------------ ------------- ------------- ---------
Interest payable on bank loans and overdrafts (1.6) (2.1) (4.1)
Interest payable on other borrowings (9.2) (9.4) (18.6)
Amortisation of issue costs of borrowings (0.4) (0.4) (0.7)
Interest on lease liabilities (0.8) (0.6) (1.7)
Interest capitalised on property refurbishments
(note 9) 0.2 1.0 1.8
Foreign exchange (losses)/gains on financing
activities (3.7) 4.3 4.2
Cash flow hedge - transfer from equity 3.7 (4.3) (4.2)
------------------------------------------------ ------------- ------------- ---------
Total finance costs (11.8) (11.5) (23.3)
------------------------------------------------ ------------- ------------- ---------
5. Taxation
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
----------------------------------------------------- ------------- ------------- ---------
Current tax:
UK corporation tax - - 0.8
----------------------------------------------------- ------------- ------------- ---------
Deferred tax:
On origination and reversal of temporary differences - - (0.4)
----------------------------------------------------- ------------- ------------- ---------
Total taxation charge - - 0.4
----------------------------------------------------- ------------- ------------- ---------
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 2020: GBP0.4m, 30 September 2019: GBPnil).
6. Dividends
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Payment Per 2020 2019 2020
Ordinary dividends paid date share GBPm GBPm GBPm
------------------------------ --------- ------------- ------------- ------------- ---------------
For the year ended 31 March
2019:
August
Final dividend 2019 22.26p - 40.2 40.2
For the year ended 31 March
2020:
February
Interim dividend 2020 11.67p - - 21.0
August
Final dividend 2020 24.49p 44.2 - -
Dividends for the period 44.2 40.2 61.2
Timing difference on payment
of withholding tax (2.4) (2.3) (0.2)
----------------------------------------- ------------- ------------- ------------- ---------------
Dividends cash paid 41.8 37.9 61.0
----------------------------------------- ------------- ------------- ------------- ---------------
7. Earnings per share
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Earnings used for calculating earnings per 2020 2019 2020
share: GBPm GBPm GBPm
---------------------------------------------- ------------- ------------- -----------------
Basic and diluted earnings (110.4) 99.1 72.1
Change in fair value of investment properties 125.3 (59.6) 7.5
Loss on disposal of investment properties 0.2 - 0.8
EPRA earnings 15.1 39.5 80.4
Adjustment for non-trading items:
Other expenses (note 3(b)) 0.2 0.6 0.2
Taxation - - 0.4
---------------------------------------------- ------------- ------------- -----------------
Adjusted trading profit after interest 15.3 40.1 81.0
---------------------------------------------- ------------- ------------- -----------------
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: 2020 2019 2020
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares (excluding
own shares held in trust) 180,725,220 180,366,326 180,465,649
Dilution due to share option schemes 888,198 1,186,691 981,867
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares for
diluted earnings per share 181,613,418 181,553,017 181,447,516
--------------------------------------------- ----------- -------------- -----------
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2020 2019 2020
------------------------------------------ ------------- ------------- ----------
Basic earnings per share (61.1)p 54.9p 40.0p
Diluted earnings per share (60.8)p 54.5p 39.7p
EPRA earnings per share 8.4p 21.9p 44.5p
Adjusted underlying earnings per share(1) 8.4p 22.1p 44.6p
------------------------------------------ ------------- ------------- ----------
(1) Adjusted underlying earnings per share is calculated on a
diluted basis.
8. Net assets per share
Number of shares used for calculating 30 September 31 March 30 September
net assets per share: 2020 2020 2019
-------------------------------------------- ------------ ----------- -------------
Shares in issue at period-end 181,106,425 180,747,868 180,729,144
Less own shares held in trust at period-end (165,034) (174,719) (174,719)
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating basic
net assets per share 180,941,391 180,573,149 180,554,425
Dilution due to share option schemes 1,038,337 1,232,747 1,119,431
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating diluted
adjusted net assets per share 181,979,728 181,805,896 181,673,856
-------------------------------------------- ------------ ----------- -------------
30 September 31 March 30 September
2020 2020 2019
---------------------------- ------------ -------- ------------
Basic net assets per share GBP10.19 GBP11.07 GBP11.31
Diluted net assets per share GBP10.14 GBP10.99 GBP11.24
---------------------------- ------------ -------- ------------
EPRA Net Asset Value Metrics
EPRA published updated best practice reporting guidance in
October 2019, which included 3 new Net Asset Valuation metrics;
EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA)
and EPRA Net Disposal Value (NDV). This new set of EPRA NAVs
metrics came into full effect for accounting periods starting from
1st January 2020, presented below for comparison to the EPRA NAV
metric.
September 2020 March 2020
---------------------------- ----------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------- -------- -------- -------- --------
IFRS Equity attributable to shareholders 1,844.5 1,844.5 1,844.5 1,998.0 1,998.0 1,998.0
Derivative financial instruments
at fair value (14.3) (14.3) - (18.5) (18.5) -
Intangibles per IFRS balance
sheet - (2.2) - - (2.0) -
Excess of fair value of debt
over book value - - 31.6 - - 11.9
Purchasers costs 166.6 - - 187.8 - -
----------------------------------------- -------- -------- -------- -------- -------- --------
New EPRA measure 1996.8 1,828.0 1,876.1 2,167.3 1,977.5 2,009.9
Number of shares for calculating
diluted net assets per share
(millions) 182.0 182.0 182.0 181.8 181.8 181.8
New EPRA measure per share GBP10.97 GBP10.05 GBP10.31 GBP11.92 GBP10.88 GBP11.06
----------------------------------------- -------- -------- -------- -------- -------- --------
September 2019
----------------------------
EPRA EPRA EPRA
NRV NTA NDV
GBPm GBPm GBPm
----------------------------------------- -------- -------- --------
IFRS Equity attributable to shareholders 2,042.2 2,042.2 2,042.2
Derivative financial instruments at
fair value (16.5) (16.5) -
Intangibles per IFRS balance sheet - (2.0) -
Excess of fair value of debt over
book value - - 32.0
Purchasers costs 182.4 - -
----------------------------------------------- -------- -------- --------
New EPRA measure 2,208.1 2,023.7 2,074.2
Number of shares for calculating diluted
net assets per share (millions) 181.7 181.7 181.7
New EPRA measure per share GBP12.15 GBP11.14 GBP11.42
----------------------------------------------- -------- -------- --------
Reconciliation to previously reported EPRA NAV
September 2020 March 2020
------------------------- -------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- ------- ------- ------- -------
Net assets at end of period (basic) 1,844.5 1,844.5 1,844.5 1,998.0 1,998.0 1,998.0
Derivative financial instruments
at fair value (14.3) (14.3) (14.3) (18.5) (18.5) (18.5)
EPRA NAV 1,830.2 1,830.2 1,830.2 1,979.5 1,979.5 1,979.5
Derivative financial instruments
at fair value - - 14.3 - - 18.5
Exclude Intangibles per IFRS
balance sheet - (2.2) - - (2.0) -
Excess of fair value of debt
over book value - - 31.6 - - 11.9
Purchasers costs 166.6 - - 187.8 - -
------------------------------------ ------- ------- ------- ------- ------- -------
New EPRA measure 1996.8 1,828.0 1,876.1 2,167.3 1,977.5 2,009.9
------------------------------------ ------- ------- ------- ------- ------- -------
September 2019
-------------------------
EPRA EPRA EPRA
NRV NTA NDV
GBPm GBPm GBPm
------------------------------------ ------- ------- -------
Net assets at end of period (basic) 2,042.2 2,042.2 2,042.2
Derivative financial instruments
at fair value (16.5) (16.5) (16.5)
EPRA NAV 2,025.7 2,025.7 2,025.7
Derivative financial instruments
at fair value - - 16.5
Exclude Intangibles per IFRS
balance sheet - (2.0) -
Excess of fair value of debt
over book value - - 32.0
Purchasers costs 182.4 - -
------------------------------------------ ------- ------- -------
New EPRA measure 2.208.1 2,023.7 2,074.2
------------------------------------------ ------- ------- -------
9. Investment Properties
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Balance at 1 April 2,586.3 2,591.4 2,591.4
Capital expenditure 12.1 53.5 28.4
Remeasurement of leases (1.9) 12.4 4.7
Capitalised interest on refurbishments (note
4) 0.2 1.8 1.0
Disposals during the period - ( 65.3) -
Change in fair value of investment properties (125.3) (7.5) 59.6
---------------------------------------------- ------------ ------------
Balance at end of period 2,471.4 2,586.3 2,685.1
Less: reclassified as held for sale - - (49.5)
---------------------------------------------- ------------ -------- ------------
Total investment properties 2,471.4 2,586.3 2,635.6
---------------------------------------------- ------------ -------- ------------
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
3.8% (March 2020: 4.0%, September 2019 4.3%). The total amount of
capitalised interest included in investment properties is GBP14.3m
(March 2020: GBP14.1m, September 2019 GBP13.3m).
The change in fair value of investment properties is recognised
in the consolidated income statement.
The Group occupies around 14,000 square feet of space within one
of its Investment Properties as its Head Office. The deemed
valuation of this space equates to approximately 0.5% 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 2020 by the external valuer, CBRE
Limited, a firm of independent qualified valuers in accordance with
the Royal Institution of Chartered Surveyors Valuation - Global
Standards. All the properties are revalued at period end regardless
of the date of acquisition. 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.
The valuation provided by CBRE at 31 March 2020 included a
materiality uncertainty clause as required by the Royal Institution
of Chartered Surveyors (RICS) in response to the Covid-19 pandemic.
This was to reflect that less certainty and consequently a higher
degree of caution should be attached to the valuation than would
normally be the case. This requirement has since been relaxed and
the valuation as at 30 September does not include a material
uncertainty clause.
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 ERV to determine the value of the completed
building. Other risks such as unexpected time delays relating to
planned capital expenditure are assessed on a project-by-project
basis, looking at market comparable data where possible and the
complexity of the proposed scheme.
Redevelopment properties are also valued using the residual
value method. The completed proposed redevelopment which would be
undertaken by a residential developer is valued based on the market
value for similar sites and then adjusted for costs to complete,
developer's profit margin and a time discount factor. Allowance is
also made for planning and construction risk depending on the stage
of the redevelopment. If a contract is agreed for the
sale/redevelopment of the site, the property is valued based on
agreed consideration.
For all methods the valuers are provided with information on
tenure, letting, town planning and the repair of the buildings and
sites.
The reconciliation of the valuation report total to the amount
shown in the consolidated balance sheet as non-current assets,
investment properties, is as follows:
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Total per CBRE valuation report 2,450.3 2,574.4 2,681.9
Deferred consideration on sale of property (5.2) (5.3) (6.3)
Head leases obligations 26.3 28.2 20.5
Less: reclassified as held for sale - (11.0) (60.5)
---------------------------------------------- ------------ -------- ------------
Total investment properties per balance sheet 2,471.4 2,586.3 2,635.6
---------------------------------------------- ------------ -------- ------------
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 2020.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
----------------------- ---------------------
Valuation Valuation Weighted Weighted
Property category GBPm technique Range average Range average
------------------- --------- ---------- ------------- -------- ----------- --------
Like-for-like 1,897.9 1 GBP12 - GBP70 GBP45 4.5% - 7.4% 5.9%
Completed projects 126.3 1 GBP23 - GBP52 GBP37 4.6% - 6.5% 5.7%
Refurbishments 322.6 2 GBP19 - GBP70 GBP34 4.3% - 6.4% 5.3%
Redevelopments 98.3 2 GBP14 - GBP35 GBP19 3.9% - 6.7% 5.3%
Head leases 26.3 n/a
------------------- --------- ---------- ------------- -------- ----------- --------
Total 2,471.4
------------------- --------- ---------- ------------- -------- ----------- --------
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
14%-19% with a weighted average of 16%.
Costs to complete is a key unobservable input for redevelopments
at planning stage with a range of GBP213-GBP274 per sq. ft. and a
weighted average of GBP238 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
2020 2020 2019
Non-current deferred consideration GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Deferred consideration on sale of investment
properties - - 4.5
--------------------------------------------- ------------ -------- ------------
30 September 31 March 30 September
2020 2020 2019
Current trade and other receivables GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Trade receivables 14.0 10.0 7.6
Prepayments, other receivables and accrued
income 15.8 9.9 12.2
Deferred consideration on sale of investment
properties 5.2 5.3 1.8
--------------------------------------------- ------------ -------- ------------
35.0 25.2 21.6
--------------------------------------------- ------------ -------- ------------
Included within trade receivables is the provision for
impairment of receivables of GBP2.6m (March 2020: GBP1.1m,
September 2019: GBP0.9m). In accordance with IFRS16 GBP2.5m
covid-19 deferrals are being accounted for within other receivables
(March 2020: GBPnil, September 2019: GBPnil).
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 GBP0.2m (31 March 2020: loss of
GBP0.2m, 30 September 2018: loss of GBP0.6m) (note 3(b)).
Receivables at fair value:
Included within deferred consideration (both non-current and
current) on sale of investment properties is GBP5.2m (March 2020:
GBP5.3m, September 2019: GBP6.3m) 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
2020 2020 2019
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 4.3 70.3 11.6
Restricted cash - tenants' deposit deeds 8.1 8.9 8.9
----------------------------------------- ------------ -------- ------------
12.4 79.2 20.5
----------------------------------------- ------------ -------- ------------
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
2020 2020 2019
GBPm GBPm GBPm
------------------------------------------- ------------ -------- ------------
Trade payables 9.7 4.8 6.7
Other tax and social security payable 13.2 5.6 6.1
Corporation tax payable - 0.8 -
Tenants' deposit deeds (note 14) 8.1 8.9 8.9
Tenants' deposits 23.6 25.6 24.2
Accrued expenses 24.4 26.6 29.0
Deferred income - rent and service charges 11.3 10.8 12.5
90.3 83.1 87.4
------------------------------------------- ------------ -------- ------------
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
2020 2020 2019
GBPm GBPm GBPm
-------------------------------------------- ------------ -------- ------------
Current
Senior Floating Rate Notes 2020 (unsecured) - 9.0 -
- 9.0 -
-------------------------------------------- ------------ -------- ------------
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Non-current
Bank loans (unsecured) 126.2 153.0 149.8
5.6% Senior US Dollar Notes 2023 (unsecured) 77.5 81.0 81.1
5.53% Senior Notes 2023 (unsecured) 83.9 83.9 83.9
Senior Floating Rate Notes 2020 (unsecured) - - 9.0
3.07% Senior Notes 2025 (unsecured) 79.8 79.8 79.7
3.19% Senior Notes 2027 (unsecured) 119.7 119.7 119.7
3.6% Senior Notes 2029 (unsecured) 99.8 99.8 99.8
586.9 617.2 623.0
--------------------------------------------- ------------ -------- ------------
(b) Net Debt
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
----------------------------------- ------------ -------- ------------
Borrowings per (a) above 586.9 626.2 623.0
Adjust for:
Cost of raising finance 1.7 1.9 2.2
Foreign exchange differences (13.1) (16.6) (16.7)
----------------------------------- ------------ -------- ------------
575.5 611.5 608.5
Cash at bank and in hand (note 11) (4.3) (70.3) (11.6)
----------------------------------- ------------ -------- ------------
Net Debt 571.2 541.2 596.9
----------------------------------- ------------ -------- ------------
At 30 September 2020, the Group had GBP123m (31 March 2020:
GBP96m, 30 September 2019: GBP99m) of undrawn bank facilities and
GBP4.3m of unrestricted cash (31 March 2020: GBP70.3m, 30 September
2019: GBP11.6m).
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 2020 was 23% (March 2020: 21%, September
2019: 22%).
The Group also has an interest cover covenant of 2.0x,
calculated as net rental income divided by interest payable on
loans and other borrowings. At 30 September 2020 interest cover was
4.5 (31 March 2020: 5.2x, September 2019: 5.2x).
(c) Maturity
Unaudited Audited Unaudited
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Repayable within one year - 9.0 9.0
Repayable between one and two years 127.0 - -
Repayable between two and three years 148.5 154.0 151.0
Repayable between three years and four years - 148.5 148.5
Repayable between four years and five years 80.0 - -
Repayable in five years or more 220.0 300.0 300.0
--------------------------------------------- ------------- --------- -------------
575.5 611.5 608.5
Cost of raising finance (1.7) (1.9) (2.2)
Foreign exchange differences 13.1 16.6 16.7
--------------------------------------------- ------------- --------- -------------
586.9 626.2 623.0
--------------------------------------------- ------------- --------- -------------
(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
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 127.0 LIBOR +1.65% Monthly June 2022
-------------------------- --------- ------------ ----------- ------------
575.5
-------------------------- --------- ------------ ----------- ------------
(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 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
2020 2020 2019
GBPm GBPm GBPm
------------------------------------------- ------------ --------- ------------
Carrying amount of derivative 14.3 18.5 16.5
Change in fair value of designated hedging
instrument (4.2) 8.3 6.4
Change in fair value of designated hedged (4 .2
item 3.7 ) (4.3)
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 Unaudited Audited Audited 30 September Unaudited
2020 30 September 31 March 31 March 2019 30 September
Book Value 2020 2020 2020 Book 2019
GBPm Fair Value Book Value Fair Value Value Fair Value
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial liabilities held
at amortised cost
Bank loans 126.2 127.0 153.0 154.0 149.8 151.0
Private Placement Notes 460.8 491.6 473.2 484.1 473.2 504.0
Lease obligations 26.3 26.3 28.2 28.2 20.5 20.5
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
613.3 644.9 654.4 666.3 643.5 675.5
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial assets at fair
value
through other comprehensive
income
Derivative financial
instruments:
Cash flow hedge - derivatives
used for hedging (14.3) (14.3) (18.5) (18.5) (16.5) (16.5)
Other Investments (7.9) (7.9) (7.9) (7.9) (8.2) (8.2)
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
(22.2) (22.2) (26.4) (26.4) (24.7) (27.7)
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial assets at fair
value through profit or
loss
Deferred consideration
(overage) 5.2 5.2 5.3 5.3 1.8 1.8
5.2 5.2 5.3 5.3 1.8 1.8
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
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
loss (March 2020: gain of GBP2.2m, September 2019: gain of
GBP0.5m).
14. Lease obligation
Lease liabilities in respect of leased investment property are
recognised in accordance with IFRS 16.
Unaudited Audited Unaudited
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Leases repayable in two years or more 26.3 28.2 20.5
Minimum lease payments under leases fall due
as follows:
Within one year 1.6 1.8 1.3
Between two and five years 6.6 7.0 5.0
Beyond five years 149.2 157.2 117.0
157.4 166.0 123.3
Future finance charges on leases (131.1) (137.8) (102.8)
--------------------------------------------- ------------- --------- -------------
Present value of lease liabilities 26.3 28.2 20.5
--------------------------------------------- ------------- --------- -------------
Following the adoption of IFRS16 lease obligations, which were
previously included in borrowings, have been shown separately on
the face of the balance sheet.
15. 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
2020 2019 2020
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ----------
(Loss)/ profit before tax (110.4) 99.1 72.5
Depreciation 0.9 0.3 0.9
Amortisation of intangibles 0.3 0.2 0.5
Profit on disposal of investment properties 0.2 - 0.8
Other expenses 0.2 0.6 0.2
Net gain/(loss) from change in fair value
of investment property 125.3 (59.6) 7.5
Equity settled share based payments 1.5 0.8 2.6
Finance expense 11.8 11.5 23.0
Changes in working capital:
Increase in trade and other receivables (9.8) (9.4) (9.5)
Increase in trade and other payables 5.6 11.9 10.2
-------------------------------------------- ------------- ------------- ----------
Cash generated from operations 25.6 55.4 108.7
-------------------------------------------- ------------- ------------- ----------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following:
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 4.3 70.3 11.6
Restricted cash - tenants' deposit deeds 8.1 8.9 8.9
----------------------------------------- ------------ -------- ------------
12.4 79.2 20.5
----------------------------------------- ------------ -------- ------------
16. 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
2020 2020 2019
GBPm GBPm GBPm
-------------------------------------------- ------------- --------- -------------
Construction or refurbishment of investment
properties 4.2 4.3 12.3
-------------------------------------------- ------------- --------- -------------
17. Share Capital
Unaudited Audited Unaudited
30 September 31 March 30 September
2020 2020 2019
GBPm GBPm GBPm
------------------------------------------- ------------- --------- -------------
Issued: fully paid ordinary shares of GBP1
each 181.1 180.7 180.7
------------------------------------------- ------------- --------- -------------
Unaudited Audited Unaudited
30 September 31 March 30 September
Movements in share capital were 2020 2020 2019
as follows: GBPm GBPm GBPm
-------------------------------- ------------- ----------- -------------
Number of shares at 1 April 180,747,868 180,385,498 180,385,498
Issue of shares 358,557 362,370 343,646
-------------------------------- ------------- ----------- -------------
Number of shares at period end 181,106,425 180,747,868 180,729,144
-------------------------------- ------------- ----------- -------------
The Group has issued 0.4m of shares to satisfy the exercise of
employee share option schemes.
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 2020. A list of
current Directors is maintained on the Workspace Group website:
www.workspace.co.uk .
Approved by the Board on 10 November 2020 and signed on its
behalf by
D Benson
Director
INDEPENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by the Group to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 September 2020 which comprises the Consolidated
Income Statement, 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 2020 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 ("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.
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 Group in accordance with the
terms of our engagement to assist the Group in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Group 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 Group 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
10 November 2020
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.
The Covid-19 pandemic has had a significant impact on Workspace
and its customers. A Covid-19 working group was set up to identify
specific risks in relation to the pandemic and implement an action
plan to address these risks. Key areas of consideration included
employees, customers, regulation, properties, financing and a
back-to-business plan following the easing of restrictions.
Risk area Mitigating activities
Brexit
* Modelling and stress testing our business plans and
The UK is now in a transition viability throughout the year, including loan
period following its exit from covenants and borrowing levels
the EU on 31 January 2020.
Workspace operates solely in * Reviewing and monitoring loan covenants and borrowing
London with no international levels
activities. The main risks to
the Group are the impact on
the UK economy and Workspace * Regular communication with customers and stakeholders
customers. to gather information on potential Brexit impacts
* Review of any key contracts which may be impacted by
Brexit
* Consideration of the potential impact on employees
and communication with staff as and when applicable
* Liaising with our advisors on any potential changes
to regulation which may arise
-------------------------------------------------------------
Customer demand
* We use a wide range of marketing strategies to reach
Demand for our flexible office our customers, with around 70% of customer leads
space declining as a result coming from our lettings website. Advertising,
of social, economic or competitive word-of-mouth, social media and aggregators also
factors, which impacts on: contribute customer leads. Our range of 59 buildings
* Fall in occupancy levels at our properties providing over 3.9m sq. ft. of lettable space enables
us to offer different office experiences at various
price points to match customer requirements. Weekly
* Falling rent roll enquiries, viewings and lettings are closely tracked
to identify changes in expected customer trends.
Based on trends in demand, we are able to vary our
* Reduction in property valuation pricing and occupancy levels to match requirements
* Our asset management and in-house lettings teams know
Covid-19 risk and response and understand our customers through ongoing business
relationships, often over several years. Changes in
The Government guidelines for customer behaviour are quickly noted and followed up.
businesses to work from home Where the customer requires an expansion or
in response to the Covid-19 contraction of their office space, we are usually
pandemic had an immediate impact able to offer alternative space very quickly due to
on customer demand. This could our flexible lease terms.
be further exacerbated if the
economy falls into recession
and business are reluctant to * Our business plans are stress tested to assess the
take up new office space. sensitivity of our forecasts to reduced levels of
demand, and contingency measures can be implemented.
In response to the lockdown, Although a loss of customers is a risk, customer
Workspace offered a 50% discount turnover on its own can be beneficial in allowing
to its customers for the three office space to be refurbished and rent reversion
months to the end of June 2020. captured.
-------------------------------------------------------------
Valuation
* Market-related valuation risk is largely dependent on
Value of our properties decreasing external factors. We maintain a conservative LTV
as a result of external market ratio which can withstand a severe decline in
or internal management factors, property values without covenant breaches
impacting on:
* Financing covenants linked to loan to value ratio
* We monitor changes in sentiment in the London real
estate market, yields and pricing to track possible
* Impact on share price changes in valuation. CBRE, the leading full-service
real estate services and investment organisation in
the world, provides twice yearly valuations of all
our properties.
Covid-19 risk and response
A prolonged recession following * Alternative use opportunities, including mixed-use
the lockdown could result in developments, are actively pursued across the
a negative impact on both ERVs portfolio.
and yields.
We have managed our balance
sheet so that we are in a strong
financial position with significant
headroom on our loan to value
covenant.
-------------------------------------------------------------
Competition
* We closely monitor competitors locally and across the
New entrants to our market space region more generally by comparing pricing, customer
decrease customer demand for offering and location. Competitor trends and
our properties resulting in performance are regularly reviewed and discussed at
reduced rent roll growth. the corporate strategy level. Alongside the review of
competition, we also liaise closely with our
Covid-19 risk and response customers to gain insightful feedback on our business
space, facilities and overall product. This helps us
Competitors may respond to the to create new initiatives to respond to customer
crisis faster and provide solutions behaviours and keep ahead of competition.
that deal with Covid-19 in offices
more effectively.
* Our asset management and lettings teams maintain
We continue to monitor competitor close relationships with customers which provides us
activity and speak to our customers with real-time information about customer
about requirements. requirements, allowing us to modify or improve our
customer offer according to market developments.
-------------------------------------------------------------
Refurbishments and development
* We maintain a pipeline of potential refurbishments
Cost inflation or timing delays and developments that we bring to market at the
or inability to proceed with appropriate time when customer feedback indicates
planned pipeline of schemes. increasing demand for flexible office space. All
projects are fully assessed before work is commenced
Failure to deliver expected and full costings developed. Building work is managed
returns on developments, cost to strict financial targets and assessed on an
over runs and delayed delivery ongoing basis during the project. The Investment
of key projects all have a potential Committee is responsible for approving all projects
effect on property returns and prior to commencement and monitors progress on
valuation. Not completing projects refurbishments and redevelopments against project
on time and on budget can have timings and budgets. After project completion, the
a negative effect on our reputation. Investment Committee reviews the result and notes any
key points for future projects.
Covid-19 risk and response
Extended Government restrictions
on movement could impact the
delivery of planned projects,
impacting financial returns.
Two properties due to launch
around the time of the Government
announcement to restrict movement
were put on hold and launched
at a later date once restrictions
were relaxed.
-------------------------------------------------------------
Acquisitions and business development
* We undertake regular monitoring of asset performance
Inappropriate strategies on and positioning of our portfolio with periodic
acquisitions, disposals and detailed portfolio reviews
new business initiatives, including
timing, incorrect valuations
and longer than anticipated * For each new acquisition we undertake thorough due
letting up process could lead diligence and detailed appraisals prior to purchase
to financial underperformance.
Acquisitions and disposals are * We monitor acquisition performance against target
essential components of our returns
capital recycling strategy which
drives long-term growth and
net rental income. Failure to * Property disposals are subject to detailed review and
execute that strategy successfully Board approval
impacts our ability to recycle
capital into properties that
meet changing customer demand
and ultimately affect growth
in net rental income.
Covid-19 risk and response
Transactional activity was limited
during these uncertain times.
We continue to manage our finances
prudently to maintain our robust
liquidity profile. We remain
alert to market opportunities
that satisfy our financial and
strategic requirements.
-------------------------------------------------------------
London
* We have been active in the London property market for
Our property portfolio is solely over 30 years with a proven base of knowledge and
London-based. Adverse changes experience through various property cycles. We have
in the political, economic and regular meeting with influencers and decision-makers
environmental context could in the London economy to keep us abreast of economic
translate into reduced demand and political trends that could affect our portfolio.
for our properties. Single incidents
such as a terrorist attack or,
as has occurred this year, the * We manage our portfolio conservatively and keenly
Government restriction on movement monitor political and economic risks that could
due to the Covid-19 pandemic affect the London market. Our development strategy
can affect lettings, customer tends to be incremental with fewer large scale
demand and pricing. developments to impact our cost base. Over the longer
term, we believe that the London market is one of the
Covid-19 risk and response most resilient given its global exposure. Our strong
balance sheet and market-leading position ensures
Business could reconsider their that we are well-placed to benefit from both positive
office requirements following and negative
the pandemic with a preference
for locations outside of Central
London requiring less reliance
on public transport.
Workspace has a portfolio of
properties spread across London
including outside of transport
zone 1. We are monitoring enquiries
closely to understand any changes
in requirements.
-------------------------------------------------------------
Business Interruption
* We have robust business continuity plans and
Major events outside the Company's procedures in place to manage short-term shutdowns of
control could prevent us from our centres due to terrorism or other incidents. A
carrying out our normal daily crisis management plan and cascade of customer
business for an undefined period communications details a series of actions designed
of time. to disseminate crucial information and ensure the
safety of our employees, customers and suppliers
Our centres are there to support during a crisis situation. IT controls maintain the
our customers and their daily security of customer and corporate data and are
business activities. Loss of regularly tested and updated.
access, Wi-Fi or other amenities
could affect our customers and
our own operations. This could * These measures were extensively tested during the
result in loss of rental income, Covid-19 pandemic in the first and second quarters of
impact on valuation and reputational 2020. This was an unprecedented situation that far
damage. exceeded contingency plans for short-term shutdowns.
Nonetheless, our systems worked well in allowing
Covid-19 risk and response customers to access their premises in accordance with
Government guidelines, data was kept secure and our
The Covid-19 pandemic is the asset management teams worked tirelessly to maintain
most serious business interruption contact
event that we have encountered.
Our business continuity planning
and investment in IT structure
meant that we were well prepared
to adapt quickly to remote working.
Once restrictions were eased,
a mobilisation plan was developed
to assist employees and customers
in returning to work in the
office.
-------------------------------------------------------------
Regulatory
* The Company Secretary, supported by the Head of Legal
Failure to meet regulatory requirements and Assistant Company Secretary, prepares a detailed
and/or lack of knowledge about briefing for the Board on a regular basis covering
changing regulation in property all regulatory issues. The Company's Health and
development, finance or health Safety Manager meets regularly with the Chief
and safety. Executive Officer to keep abreast of health and
safety provisions which are also reported to the
Regulatory infringements can Board.
lead to fines, tax penalties,
health and safety sanctions
or more stringent regulatory
controls which can also affect
our corporate reputation, development
activity and customer demand.
Covid-19 risk and response
We have kept up-to-date with
Government announcements and
published guidelines regarding
hygiene, health and safety and
social distancing.
-------------------------------------------------------------
Resourcing
* We have a robust recruitment process to attract new
An inability to recruit and joiners and established interview and evaluation
retain talented employees in processes with a view to ensuring a good fit with the
key areas could lead to: required skill set and our valued corporate culture.
* Inability to implement strategic goals Various incentive schemes align employee objectives
with the strategic objectives of the Group to
motivate employees to work in the best interests of
* Adverse impact on brand and reputation the Group and its stakeholders. This is supported by
a robust appraisal and review process for all
employees.
* A high employee turnover resulting in a loss of
knowledge base
* Our HR and Support Services teams run a detailed
training and development programme designed to ensure
employees are supported and encouraged to progress
Covid-19 risk and response with learning and study opportunities. The HR
function was this year strengthened by the newly
Employees will be more aware created appointment of a Head of People who will
of their safety when travelling coordinate all activities to attract and retain
to work and in the office. talented employees.
Workspace implemented a plan
to allow employees to return * We have a strong internal culture based on our
to work in a clean and safe Company values which encourage independent thought
environment that allows for and initiative which is articulated in our four key
social distancing. Measures values:
include staggered hours and
a limit on the number of staff
allowed in the certain areas - Know your stuff.
of the office at one time. - Find a way.
- Show we care.
- Be a little bit crazy.
-------------------------------------------------------------
Cyber security
* Cyber security risk is managed using a mitigation
Malicious threats to information framework comprising network security, IT security
systems could lead to: policies and third party risk assessments. Controls
are regularly reviewed and updated and include
* Loss of critical data technology such as next generation firewalls, multi
layered access control through to people solutions
such as user awareness training and mock-phishing
* Financial loss due to fraud emails.
* Reputational damage amongst customers * Assurance of the frameworks performance is gained
through an independent maturity assessment,
penetration testing and network vulnerability testing,
all performed annually.
Covid-19 risk and response
At a time when there is increased
reliance on technology as employees
work remotely, there is a higher
risk of cyber attacks from criminals
taking advantage of business
focussing on other events.
We already have robust processes
surrounding cyber security which
have been reviewed to consider
the impact of the pandemic and
to put in place additional safeguards
to cover remote working.
-------------------------------------------------------------
Financing
* We regularly review funding requirements for business
Reduced availability of financing plans and ensure we have a wide range of options to
options could result in: fund our forthcoming plans. We also prepare a
five-year business plan which is reviewed and updated
* Inability to fund business plans annually
* Restricted ability to invest in new opportunities * We have a broad range of funding relationships in
place and regularly review our refinancing strategy
* Increased interest costs.
* We maintain a specific interest rate profile via use
of fixed rates and swaps on our loan facilities so
* Negative reputational impact amongst lenders and in that our interest payment profile is stable
the investment community
* Loan covenants are monitored and reported to the
Board on a monthly basis and we undertake detailed
Covid-19 risk and response cashflow monitoring and forecasting.
The pandemic has impacted our
customers and their ability
to pay which could impact our
financial performance and lead
to a breach in covenants.
There has been an extensive
review of our forecast models,
considering various downside
scenarios, as reported in our
Basis of Preparation note.
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END
IR FFLFUSESSELF
(END) Dow Jones Newswires
November 11, 2020 02:00 ET (07:00 GMT)
Workspace (LSE:WKP)
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