TIDMWKP
RNS Number : 0753O
Workspace Group PLC
08 June 2022
08 June 2022
WORKSPACE GROUP PLC
FULL YEAR RESULTS
STRONG TRADING PERFORMANCE DRIVEN BY CUSTOMER DEMAND
Workspace Group PLC ("Workspace"), the leading provider of
flexible space, is pleased to announce its Full Year Results for
the year ended 31 March 2022. The comments in this announcement
refer to the period from 1 April 2021 to 31 March 2022 unless
otherwise stated.
Financial highlights: significant increase in trading profit and
dividend
-- Trading profit after interest up 21% to GBP46.9m driven by
6.4% (GBP5.2m) increase in net rental income to GBP86.7m
-- Total dividend up 21% to 21.5p per share (2021: 17.75p)
reflecting the strong financial performance
-- Property valuation of GBP2,402m, an underlying uplift of 3.0% (GBP69m) from 31 March 2021
-- EPRA Net Tangible Assets (NTA) per share up 5.3% to GBP9.88
with total accounting return of 8.0%
-- Loan to value of 23% (2021: 24%)
-- Profit before tax of GBP124.0m (2021: GBP235.7m loss), with
increases in both trading profit after interest and the property
valuation
Customer activity: strong demand
-- Customer demand now running at pre-Covid levels
-- 1,520 lettings completed in the year with a total rental value of GBP30m
-- Like-for-like occupancy up 7.8% to 89.6%
-- Like-for-like rent roll up 8.7% to GBP92.9m with rent per sq. ft. up 0.4% to GBP36.39
-- Pricing tension increasing with like-for-like rent per sq.
ft. up 2.5% in the second half of the year
ESG: a long-term sustainable model
-- Focus on future-proofing our properties for long-term climate resilience
-- Committed to be a net zero carbon business by 2030
-- Extensive project pipeline repurposing, upgrading and breathing new life into buildings
-- Generating hubs of economic activity to create a flatter, fairer and more sustainable London
-- 20% reduction in Scope 1 and 2 emissions achieved in the year compared to 2019/20
Portfolio activity: active capital recycling and expansion of
our footprint
-- Acquired The Old Dairy, Shoreditch for GBP43m in September 2021
-- Acquired Busworks, Islington for GBP45m in November 2021
-- Post year-end completed the acquisition of McKay Securities PLC for GBP258m in May 2022
-- Sold 13-17 Fitzroy Street, Fitzrovia for GBP92m in September 2021
-- Sold Highway Business Park, Limehouse for GBP24m in March 2022
-- Completed the refurbishment of Pall Mall Deposit, Ladbroke Grove in September 2021
-- Opened Mirror Works, a new business centre in Stratford in October 2021
-- Healthy pipeline of refurbishment and redevelopment activity
projected to deliver 1.2m sq. ft. of new and upgraded space over
next 5 years
Commenting on the results, Graham Clemett, Chief Executive
Officer said:
"Our focus over the past year has been to support our customers'
return to the office, rebuild like-for-like occupancy back to 90%
and drive trading profit growth. I am delighted that we have been
able to deliver on these targets, reflecting the fantastic efforts
of the Workspace team, the quality of space and facilities we
provide and the attractions of our distinctive flexible offer.
Customers want their office space to be as flexible as their
working habits, without compromising on quality, identity and
culture, location or sustainability. Our Workspace offer is
resonating because of our deep understanding of the flexible market
and what our customers want. This gives us a unique advantage in
the market and underpins our confidence in our growth
ambitions.
Our recent acquisitions and project activity give us the
opportunity to grow and spread our footprint more broadly,
exploiting the scalability of our operating platform. The
attractively priced acquisition of McKay will allow us to
accelerate our growth in London and provides the opportunity to
extend our reach into the South-East. We continue to be disciplined
in our investment activity, recycling assets that don't meet our
demanding return requirements.
Looking ahead, the positive momentum of our recovering
occupancy, strong customer demand and improving pricing are
tempered, near-term, by wider concerns around the economy. We have
not yet seen any impact on customer activity, but we are monitoring
this closely. We benefit from the diversity of our customers and
the proven agility of SMEs to adapt quickly to changing economic
environments. We remain confident that we are well positioned for
continued sustainable growth and to deliver strong returns over the
medium term."
Summary Results
March March Change
2022 2021
Financial performance
---------- ------------ --------
Net rental income GBP86.7m GBP81.5m +6.4%
---------- ------------ --------
Trading profit after interest GBP46.9m GBP38.7m +21%
---------- ------------ --------
Profit / (loss) before tax GBP124.0m GBP(235.7)m
---------- ------------ --------
Total dividend per share 21.5p 17.75p +21%
---------- ------------ --------
Valuation
---------- ------------ --------
EPRA net tangible assets per
share GBP9.88 GBP9.38 +5.3%
---------- ------------ --------
EPRA net reinstatement value
per share GBP10.78 GBP10.26 +5.1%
---------- ------------ --------
CBRE property valuation GBP2,402m GBP2,324m +3.0%**
---------- ------------ --------
Financing
---------- ------------ --------
Loan to value 23% 24% -1%*
---------- ------------ --------
Undrawn bank facilities and cash GBP442m GBP434m +GBP8m*
---------- ------------ --------
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
For media and investor enquiries, please contact:
Workspace Group PLC
Graham Clemett, Chief Executive Officer
Dave Benson, Chief Financial Officer
Kate Annakin, Interim Investor Relations Manager
Duncan Pelham, Senior Corporate Communications
Manager 020 7138 3300
Finsbury Glover Hering
Chris Ryall
Guy Lamming 020 7251 3801
Details of results presentation
Workspace will host a results presentation for analysts and
investors on Wednesday, 08 June 2022 at 09:30am at The London Stock
Exchange, 10 Paternoster Square, EC4M 7LS.
The presentation can also be accessed live via webcast or
conference call.
Webcast: The live webcast will be available here:
https://secure.emincote.com/client/workspace/workspace021
Conference call: In order to join via phone at 09.30am, 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/workspace021/vip_connect
Notes to Editors
About Workspace Group PLC:
Established in 1987, and listed on the London Stock Exchange
since 1993. We are home to thousands of businesses, including fast
growing and established brands across a wide range of sectors.
Workspace is geared towards helping businesses perform at their
very best. We provide inspiring,
flexible work spaces in dynamic London locations.
Workspace (WKP) is a FTSE 250 listed Real Estate Investment
Trust (REIT) and a member of
the European Public Real Estate Association (EPRA).
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk
CEO's statement
Our focus during the last financial year has been on putting the
business back on an even keel after the significant challenges that
Covid has posed. Our priorities have been to support our customers
return to their offices and rebuild occupancy towards our target
90% level. Despite the ongoing difficulties of operating through
Covid-related restrictions for much of the year, I am delighted
with the progress the business has made and want to thank all our
teams across Workspace for their outstanding efforts.
In terms of performance, the strength of customer demand for
space and the improvement in occupancy we have achieved are a
testament to the attraction of our flexible offer and the quality
of our space. We averaged over 900 enquiries a month and completed
on some 1,500 lettings over the year with a total value of GBP30m.
We saw our like-for-like occupancy level improve from 81.8% to
89.6%, and made excellent progress in letting up the space at our
recently completed projects. This has delivered a 6% increase in
net rental income and a 21% improvement in trading profit after
interest to GBP46.9m. On the back of these strong trading results
and confidence in the outlook the Board has recommended a final
dividend of 14.5p per share, with the total dividend for the year
up 21% to 21.5p per share.
We have also seen a welcome increase in our property valuation
this year, up by 3% on an underlying basis to GBP2,402m, with our
EPRA net tangible assets per share up by 5% to GBP9.88. The
improvement over the year was driven by yield movement with the
equivalent yield on our like-for-like portfolio coming in from 5.9%
to 5.7%; Estimated rental values were down by 1.9% in the year as a
whole, despite pricing and estimated rental values improving in the
second half of the year.
The changes to working practices that we have been seeing for
some time have accelerated in the post-Covid environment and I
believe are here to stay. We benefit hugely from these changes;
flexibility has become mainstream; businesses have realised that
the office must be a place for collaboration and creativity and
demand is broadening out to a wider range of locations in and
around London. Employers are also aware of the growing importance
of creating a culture and environment their employees want to be a
part of and want to commute to, helping ensure they attract and
retain the best talent. With all of this in mind we are very much
in growth mode, both organically from our extensive project
pipeline and from acquisitions.
In terms of acquisitions, we purchased The Old Dairy in
Shoreditch and Busworks in Islington during the year. Distinctive
buildings in locations where we see strong demand, they are great
additions to our portfolio.
More recently in May of this year we completed the acquisition
of McKay Securities PLC, a well-regarded commercial property
company with a portfolio covering both London and the South-East.
The portfolio was valued at GBP495m at 31 March 2022 and we
acquired the company at a 14% discount to its net asset value. A
third of the portfolio by value are London properties in good
locations, with a number having high vacancy levels due to
refurbishment activity giving us the opportunity to quickly adapt
the buildings to our flexible offer. A further third are South-East
offices and business parks which give us the opportunity over time
to roll-out our flexible offer in well-connected feeder towns to
London, although the majority are currently well let and high
income yielding. The remaining third is an industrial portfolio
which is again well let but offers limited opportunity for us to
add value and we are now considering its sale. Overall, with very
limited risk we see this as an attractive opportunity to deliver
significant value from integrating McKay onto the Workspace
platform, scaling up our portfolio and its reach, and recycling the
proceeds from the sale of non-core assets.
Alongside these acquisitions we continue to deliver attractive
new and refurbished space from our project pipeline. Just south of
the Olympic Park in Stratford, we opened Mirror Works, our latest
mixed-use redevelopment project, which is letting up well in an
area previously lacking in flexible office space. In West London,
we completed the major refurbishment of Pall Mall Deposit, adding
13,000 sq. ft. of space and significantly upgrading the rest of the
building, including the front of house and café. We have more
exciting projects to come, with an extensive pipeline of projects
delivering some 1.2 million sq. ft. of new and upgraded space over
the next five years.
While all our projects have different characteristics and asset
plans, there is a common thread tying them together; the
sustainability lens through which we operate our business. Our
focus is on future proofing our properties for generations to come,
often breathing new life into older character buildings, ensuring
they are climate resilient and will have a positive impact on their
local community and environment. By generating hubs of economic
activity we aim to create a flatter, fairer, more sustainable
London.
This focus on sustainability extends to our engagement with
people across all aspects of our business. We prioritise the
satisfaction and wellbeing of our employees and our customers and
work in partnership with them to drive more sustainable behaviours
across our sites. Over the coming year, we will be rolling out a
programme of engagement with local schools and youth organisations
to offer workshops and work experience placements for disadvantaged
young people with our customers' businesses to support the next
generation of entrepreneurs.
Looking ahead we are of course conscious of the challenging
economic environment in the UK, with inflationary pressures to the
fore and concerns over a potential recession. That said, we have
proved many times over the enduring appeal of our flexible offer
and our ability to manage through these more challenging times. We
have a distinctive flexible offer that chimes with the market, a
scalable operating platform, a great portfolio of properties with a
rich pipeline of project activity and the opportunity to add to
this from selective acquisitions. With our like-for-like occupancy
now back at its target level, customer demand strong and pricing
improving we are well-positioned to deliver superior returns to
shareholders over the coming years.
BUSINESS REVIEW
CUSTOMER ACTIVITY
Customer demand for space within our business centres is back at
pre-Covid levels with a strong level of conversion of enquiries to
viewings and lettings, and momentum continuing into the first
quarter of the new financial year.
Monthly Average
------------------------------------------------------------------
Q4 Q3 Q2 Q1 FY FY FY
21/22 21/22 21/22 21/22 21/22 20/21 19/20
------- ------- ------- -------- ------- -------
Enquiries 957 831 935 947 917 739 1,087
Viewings 634 513 629 615 598 328 675
Lettings 127 117 138 125 127 96 121
----------- ------- ------- ------- ------- -------- ------- -------
Utilisation of business centres by our customers has increased
throughout the year, reaching around 69% of pre-Covid levels in the
week ending 01 April 2022 and peaking at 73% mid-week.
RENT ROLL
Total rent roll, representing the total annualised net rental
income at a given date, was up 6.8% to GBP111.0m at 31 March 2022,
with overall occupancy increasing from 77.8% to 84.3%.
Total Rent Roll GBPm
----------------------------------- -----
At 31 March 2021 103.9
Like-for-like portfolio 7.4
Completed projects 2.5
Projects underway and design stage 0.2
Acquisitions 3.8
Disposals / other (6.8)
----------------------------------- -----
At 31 March 2022 111.0
----------------------------------- -----
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) is GBP149.9m.
Like-for-like Portfolio
The like-for-like portfolio represents 84% of the total rent
roll as at 31 March 2022. It comprises 39 properties with
stabilised occupancy, excluding buildings impacted by significant
refurbishment or redevelopment activity or contracted for sale.
Quarter Ended
----------------------------------------------
Like-for-like 31 Mar 22 31 Dec 21 30 Sep 21 30 Jun 21
------------------- ---------- ---------- ---------- ----------
Occupancy 89.6% 86.6% 85.6% 82.9%
Occupancy Change* 3.0% 1.0% 2.7% 1.1%
Rent per sq. ft. GBP36.39 GBP35.92 GBP35.50 GBP35.41
Rent per sq. ft.
change 1.3% 1.2% 0.3% (2.3)%
Rent Roll GBP92.9m GBP89.3m GBP87.3m GBP84.6m
Rent Roll change 4.0% 2.3% 3.2% (1.1)%
* absolute change
The like-for-like rent roll has increased by 8.7% (GBP7.4m) in
the year to 31 March 2022 to GBP92.9m driven by a recovery in
occupancy to pre-Covid levels, increasing from 81.8% to 89.6%.
After a decrease in like-for-like pricing of 2.3% in the first
quarter, we have seen pricing growth in each subsequent quarter,
resulting in like-for like pricing increasing by 0.4% (GBP0.14 per
sq. ft.) over the year to GBP36.39 per sq. ft.
If all the like-for-like properties were at 90% occupancy at the
CBRE estimated rental values, the rent roll would be GBP106.2m,
GBP13.3m higher than the actual cash rent roll at 31 March
2022.
Completed Projects
There are eight projects in the completed projects category.
Rent roll in this category has increased by 61% (GBP2.5m) in the
year to GBP6.6m. This movement has been driven by significant
improvements in occupancy, with properties we launched both during
the Covid pandemic and more recently letting up well. Occupancy
across completed projects has increased to 69.2% from 55.2% in
March 2021.
Particularly pleasing is the letting up of Mare Street Studios,
Hackney, which was launched in June 2020, and is now 70.1% let (up
from 5.6% at March 2021), with rent roll increasing by GBP0.8m.
A further GBP0.5m was added to rent roll at Pall Mall Deposit,
Ladbroke Grove, where we completed an extensive refurbishment in
September 2021, and have seen good demand for space, with occupancy
increasing from 50.7% to 75.6% over the year.
This category also contains buildings launched more recently
including, Mirror Works, Stratford, a new business centre and an
additional 17,000 sq. ft. of new space at The Light Bulb,
Wandsworth, both of which launched in the second half and are
letting up well.
If the buildings in this category were all at 90% occupancy at
the CBRE estimated rental values at 31 March 2022, the rent roll
would be GBP10.7m, an uplift of GBP4.1m.
Projects Underway - Refurbishments
We are currently underway on four refurbishment projects that
will deliver 195,000 sq. ft. of new and upgraded space. As at 31
March 2022, rent roll was GBP3.5m, down GBP0.1m in the year.
In January 2022 we commenced the refurbishment of Leroy House,
where we will upgrade, extend and reconfigure the whole building,
adding 12,000 sq. ft. of net lettable space. Our sustainability
goals are at the heart of the design, which aims to achieve a
BREEAM excellent certification. The project has been designed to
achieve significantly less embodied carbon than a typical new build
(estimated at a 77% reduction) by retaining the existing structure,
opting for natural ventilation and using materials with a high
recycled content.
Assuming 90% occupancy at the CBRE estimated rental values at 31
March 2022, the rent roll at these four buildings once they are
completed would be GBP8.4m, an uplift of GBP4.9m.
Projects at Design Stage
These are properties where we are planning a refurbishment or
redevelopment that has not yet commenced. The rent roll at these
properties at 31 March 2022 was GBP4.2m, an uplift of GBP0.3m in
the year.
Acquisitions
In September 2021, we completed the acquisition of Old Dairy in
Shoreditch for GBP43.4m. In November 2021 we completed the
acquisition of The Busworks in Islington for GBP45.0m. The rent
roll across these two sites at 31 March 2022 was GBP3.8m.
Assuming 90% occupancy at the CBRE estimated rental values at 31
March 2022, the rent roll at these two properties would be GBP5.8m,
an uplift of GBP2.0m.
PROFIT PERFORMANCE
Trading profit after interest for the year is up 21.2% (GBP8.2m)
on the prior year to GBP46.9m.
31 March 31 March
GBPm 2022 2021
----------------------------------------------- -------- --------
Net rental income 86.7 81.5
Administrative expenses - underlying (17.7 ) (16.5)
Administrative expenses - share based costs(*) (1.6) (2.5)
Net finance costs (20 .5) (23.8)
----------------------------------------------- -------- --------
Trading profit after interest 46.9 38.7
----------------------------------------------- -------- --------
(*These relate to both cash and equity settled costs)
Net rental income was up 6.4% (GBP5.2m) in total to GBP86.7m, as
detailed below:
31 March 31 March
GBPm 2022 2021
---------------------------------------------- -------- --------
Rental income 100.3 115.0
Unrecovered service charges (4.2) (2.1)
Empty rates and other non-recoverable costs (10.5) (7.0)
Services, fees, commissions and sundry income 0.7 (0.7)
---------------------------------------------- -------- --------
Underlying net rental income 86.3 105.2
Rent discounts and waivers 0.3 (19.9)
Expected credit losses (1.5) (4.2)
Acquisitions 1.3 -
Disposals 0.3 0.4
---------------------------------------------- -------- --------
Net rental income 86.7 81.5
---------------------------------------------- -------- --------
The reduction in rental income of GBP14.7m has been driven by
the fall of 11.7% in like-for-like occupancy together with a
reduction of 12.9% in rent per sq. ft. during 2020/2021, combined
with the impact of the disposal of Fitzroy Street which was vacant
from June 2021. This resulted in a lower opening total rent roll of
GBP103.9m at 31 March 2021 compared to GBP132.8m at 31 March
2020.
Our focus on cost control during Covid lockdown periods enabled
us to reduce unrecovered service charges in the year to 31 March
2021. With customers returning to our centres in increasing numbers
over the course of the year to 31 March 2022, and with the impact
of increased energy prices, service charge costs have returned to
more normal levels. This, combined with lower average occupancy
compared to the prior year, has resulted in an increase of GBP2.1m
in unrecovered service charge costs in this financial year.
The lower average occupancy has also resulted in an increase in
empty rates which, combined with increased marketing and customer
acquisition costs has resulted in non-recoverable costs increasing
by GBP3.5m to GBP10.5m. Increased customer activity has also
resulted in net income from services, fees, commissions and sundry
income increasing to GBP0.7m.
Net rental income in the prior year was significantly reduced by
rent discounts and waivers given to customers, predominantly in
respect of the first quarter when we offered a 50% discount to our
business centre customers. These one-off discounts and waivers have
not been repeated in the current financial year.
In addition, although we hold rent deposits for the majority of
our customers, the extension of Government restrictions on rent
collection has impeded efforts to collect rent from a number of our
customers which resulted in a significant charge of GBP4.2m for
expected credit losses in the prior year. Although the restrictions
still remained in place until 31 March 2022, rent collection has
continued to improve, with a reduction in the charge to GBP1.5m in
the current financial year.
Administrative expenses increased by 1.6% (GBP0.3m) to GBP19.3m
with an underlying increase of 7%, reflecting an average pay rise
of 2%, increased recruitment and other staff costs and continued
investment in technology. This was largely offset by a reduced
charge for share-based costs due to lower vesting assumptions.
Net finance costs decreased by 13.9% (GBP3.3m) in the year,
reflecting a decrease in the average interest rate from 3.8% to
3.1%, following the pre-payment of GBP148.5m of 5.6% Private
Placement loan notes in April 2021.
Profit before tax was GBP124.0m compared to a loss before tax of
GBP235.7m in the prior year.
31 March 31 March
GBPm 2022 2021
---------------------------------------------- -------- --------
Trading profit after interest 46.9 38.7
Change in fair value of investment properties 68.7 (257.7)
Gain/(loss) on sale of investment properties 7.8 (0.1)
Exceptional finance costs - (16.4)
Other items 0.6 (0.2)
---------------------------------------------- -------- --------
Profit/(loss) before tax 124.0 (235.7)
---------------------------------------------- -------- --------
Adjusted underlying earnings per share 25.8p 21.3p
---------------------------------------------- -------- --------
The increase in the property revaluation was GBP68.7m compared
to a decrease of GBP257.7m in the prior year.
The gain on sale of investment properties of GBP7.8m reflected
the disposal of Highway in March 2022 for GBP24m and Fitzroy Street
in September 2021 for GBP92m.
Exceptional finance costs in the prior financial year related to
the refinancing of $100m and GBP84m of private placement notes due
in 2030 which were repaid early in April 2021 after notice was
given in March 2021.
Adjusted underlying earnings per share, based on EPRA earnings
adjusted for non-trading items and calculated on a diluted share
basis, was up 21.1% to 25.8 p.
DIVID
Our dividend policy is based on trading profit after interest,
taking into account our investment and acquisition plans and the
distribution requirements that we have as a REIT, with our aim
being to ensure the dividend per share is covered at least 1.2
times by adjusted underlying earnings per share.
In line with our policy, the Board is recommending a final
dividend of 14.5p per share, taking the full year dividend to 21.5p
(2021: 17.75p). The final dividend will be paid on 05 August 2022
to shareholders on the register at 08 July 2022. The dividend will
be paid as a Property Income Distribution and fully meets the REIT
distribution requirement for the year to 31 March 2022.
PROPERTY VALUATION
At 31 March 2022, our property portfolio was independently
valued by CBRE at GBP2,402m, an underlying increase of 3.0%
(GBP69m) in the year. The main movements in the valuation over the
year are set out below:
GBPm
--------------------------- -----
Valuation at 31 March 2021 2,324
Revaluation surplus 69
Capital expenditure 28
Capital receipts (1)
Acquisitions 90
Disposals (108)
--------------------------- -----
Valuation at 31 March 2022 2,402
--------------------------- -----
There was an underlying revaluation increase of 3.6% (GBP84m) in
the second half of the year compared to a decrease of 0.7% (GBP15m)
in the first half. A summary of the full year valuation and
revaluation movement by property type is set out below:
Valuation
GBPm 31 March Revaluation increase/(decrease)
-----------------------------------
2022 Full year H2 H1
------------------------- --------- ------------------ ------ -------
Like-for-like Properties 1,897 63 74 (11)
Completed Projects 186 8 9 (1)
Refurbishments 161 (4) (2) (2)
Redevelopments 70 5 6 (1)
Acquisitions 88 (3) (3) -
Total 2,402 69 84 (15)
------------------------- --------- ------------------ ------ -------
Like-for-like Properties
There was a 3.4% (GBP63m) underlying increase in the valuation
of like-for-like properties to GBP1,897m. This was driven by yield
movement, with the equivalent yield of the like-for-like portfolio
coming in from 5.9% to 5.7%. This was partly offset by a 1.9%
decrease in ERV per sq. ft. reflecting price reductions we have
seen on lettings and renewals completed during the first half of
the year. ERV per sq. ft. deceased by 3.1% in the first half, but
following improved pricing in the second half, it increased by
1.2%.
31 March 31 March
2022 2021 Change
-------------------------- -------- -------- --------
ERV per sq. ft. GBP41.42 GBP42.23 -1.9%
Rent per sq. ft. GBP36.39 GBP36.25 0.4%
Equivalent Yield 5.7% 5.9% -0.2%*
Net Initial Yield 4.2% 4.2% -
Capital Value per sq. ft. GBP666 GBP633 +5.2%
-------------------------- -------- -------- --------
* absolute change
Completed Projects
There was an underlying increase of 4.5% (GBP8m) in the value of
the eight completed projects to GBP186m. The overall valuation
metrics for completed projects are set out below:
31 March
2022
-------------------------- --------
ERV per sq. ft. GBP28.04
Rent per sq. ft. GBP22.49
Equivalent Yield 5.8%
Net Initial Yield 3.2%
Capital Value per sq. ft. GBP437
-------------------------- --------
The major movements within this category included increases of
GBP3.8m at Parkhall, reflecting an increase in ERV following our
recently completed refurbishment project, and an increase of
GBP1.9m at Wenlock Studios, where occupancy has improved
significantly over the year.
Current Refurbishments and Redevelopments
There was an underlying reduction of 2.4% (GBP4m) in the value
of our current refurbishments to GBP161m and an increase of 7.7%
(GBP5m) in the value of our current redevelopments to GBP70m.
Within the refurbishment category there was an underlying
reduction of GBP4m at Leroy House, where we have now obtained
vacant possession ahead of our refurbishment project and have begun
incurring construction costs.
The most significant movement in the redevelopment category was
an increase of GBP5m at Garratt Lane, which forms part of our
mixed-use redevelopment scheme at Riverside, Wandsworth.
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 31
March 2022 is set out below:
Projects Number Capex spent Capex to Upgraded and
spend new space (sq.
ft.)
----------------------- ------- ------------ --------- ----------------
Underway 4 GBP9m GBP46m 195,000
Design stage 3 GBP2m GBP116m 298,000
Design stage (without
planning) 5 GBP0m GBP221m 429,000
In May 2021, we received planning permission for the
re-designation of land use for a major scheme at Kennington Park.
The existing 91,000 sq. ft. of low-grade space situated to the
south and east of the Kennington Park campus will be replaced with
169,000 sq. ft. of high specification office space.
REDEVELOPMENT ACTIVITY
Many of our properties are in areas where there is strong demand
for mixed-use redevelopment. Our model is to use our expertise,
knowledge and local relationships to obtain a mixed-use planning
consent and then typically 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 31
March 2022 is set out below:
No. of properties Residential units New commercial space (sq. ft.)
-------------- ------------------ ------------------ -------------------------------
Design stage 4 969 228,000
There are now four schemes at the design stage that have
obtained mixed-use planning consents.
In February 2022, we completed a land-swap and a surrender of
our long leasehold interest on part of the Chocolate Factory site
to the freeholder, Haringey Council. This allows Haringey and
Workspace to deliver their share of the consented scheme and
unlocks the residential element of Workspace's ownership for
redevelopment. As part of the deal we transferred ownership of
Mallard Place to Haringey Council.
EPC AND NET ZERO
Improving the energy efficiency of our portfolio is key in
helping us to achieve our target of being a net zero carbon
business by 2030. The energy efficiency upgrades we deliver as part
of our planned refurbishment and redevelopment programme means that
a significant proportion of our portfolio will be upgraded to EPC A
and B ratings by 2030. Excluding these upgrades, we estimate the
additional investment needed to upgrade the remaining portfolio
(excluding McKay) to EPC A and B ratings by 2030 will be some
GBP35-47m, with a further GBP15-20m required to achieve full
net-zero. Part of this expenditure will be included within our
routine maintenance capital expenditure, and we estimate the
incremental investment will be c.GBP5m per year.
The McKay portfolio we have recently acquired is well positioned
with 40% of the portfolio (excluding non-core assets) already EPC A
and B rated. We estimate the total investment needed to upgrade all
these properties to EPC A and B by 2030 will be some GBP11-13m or
c.GBP2m per year.
PROPERTY ACQUISITIONS AND DISPOSALS
In September 2021 we acquired The Old Dairy, Shoreditch for
GBP43.4m. It provides 57,000 sq. ft. of net lettable space adjacent
to our existing business centre, The Frames. We will reposition the
property over time to our distinctive, flexible model, which will
strengthen our presence and broaden our offering in this exciting
and dynamic area of London.
In November 2021 we acquired Busworks, Islington for GBP45.0m.
The former Victorian bus factory provides 103,000 sq. ft. of net
lettable space across two conjoined warehouse buildings on 1.6
acres just north of King's Cross, an attractive area for SMEs. We
plan to upgrade the building and reposition the offering towards
our distinctive, flexible model, creating a flagship centre in
North London.
In September 2021, we disposed of 13-17 Fitzroy Street in
Fitzrovia, for a total of GBP92m, a loss on disposal of
GBP3.5m.
In March 2022, we simultaneously exchanged and completed on the
disposal of Highway Business Park in Limehouse, for GBP23.7m for
its share of the sale, a significant premium to the 30 September
2021 valuation of GBP11.6m.
CASH FLOW
The Group generates strong operating cash flow in line with
trading profit. A summary of cash flows in the year are set out
below:
31 March 31 March
GBPm 2022 2021
---------------------------------------- -------- --------
Net cash from operations after interest 58 39
Dividends paid (43) (46)
Purchase of Investment Properties (88) -
Capital expenditure (31) (26)
Property disposals and cash receipts 122 11
Other (11) (2)
Net movement 7 (24)
Opening debt (net of cash) (565) (541)
---------------------------------------- -------- --------
Closing debt (net of cash) (558) (565)
---------------------------------------- -------- --------
There is a reconciliation of net debt in note 16(b) to the
financial statements.
Rent collection for the year was robust, despite the Government
restrictions on rent collection measures which have been in place.
Overall, 98% of rent due has been collected to date, including 97%
of rent due for the fourth quarter of 2021/22.
NET ASSETS
Net assets increased in the year by GBP80m to GBP1,800m. EPRA
net tangible assets (NTA) per share at 31 March 2022 was up 5.3%
(GBP0.50) to GBP9.88:
EPRA NTA per
share
GBP
------------------------------------------ ------------
At 31 March 2021 9.38
Adjusted trading profit after interest 0.26
Property valuation surplus 0.38
Profit on disposal of investment property 0.04
Dividends paid (0.25)
Other 0.07
-------------------------------------------- ------------
At 31 March 2022 9.88
-------------------------------------------- ------------
The calculation of EPRA NTA per share is set out in note 9 of
the financial statements.
TOTAL ACCOUNTING RETURN
The total accounting return for the year was 8.0% compared to
(11.5)% in the year ended March 2021. The total accounting return
comprises the growth in absolute EPRA net tangible assets per share
plus dividends paid in the year as a percentage of the opening EPRA
net tangible assets per share. The calculation of total accounting
return is set out in note 9 of the financial statements.
MCKAY ACQUISITION
We completed the acquisition of McKay Securities PLC on 6 May
2022 for a total consideration of GBP265.7m, comprising GBP191.1m
in cash and 10.5m Workspace shares, and GBP7.5m transaction costs,
representing a 14% discount to NTA acquired (after seller's
transaction costs) of GBP310.3m.
The acquisition comprises 31 assets, with a value as at 31 March
2022 of GBP495m. A third of the portfolio (by value) are London
office buildings, which lend themselves well to our model and are
in areas which are complementary to our existing portfolio. A
further third of the portfolio are quality office buildings in the
South-East, which are well let but provide a good opportunity to
selectively test demand for our offering and expand our total
addressable market. The remaining third of the portfolio are
South-East light industrial assets.
The table below shows the proforma combined group based on the
results for the year to 31 March 2022, adjusted for the disposal of
Great Brighams Mead, Reading which was held for sale at 31 March
with the sale completing on 4 May 2022, reduced administration
expenses which includes the departure of McKay executive team and
increased finance costs and net debt reflecting the cash
consideration paid for McKay.
GBPm Workspace McKay Adjustments Combined
------------------------------ --------- ------- ----------- --------
12 Months to 31 March
2022:
Net rental income 86.7 20.4 (2.2) 104.9
Administrative expenses (19.3) (6.4) 3.2 (22.5)
Net finance costs (20.5) (6.2) (5.9) (32.6)
------------------------------ --------- ------- ----------- --------
Trading profit after interest 46.9 7.8 (4.9) 49.8
------------------------------ --------- ------- ----------- --------
No. shares (m) 182.0 91.4 192.5
Adjusted underlying EPS 25.8p 8.5p 25.9p
At 31 March 2022:
Investment property valuation 2,402 495 (19) 2,878
Net debt (558) (170) (186) (914)
Other (44) (15) 7 (52)
------------------------------ --------- ------- ----------- --------
Net assets 1,800 310 (198) 1,912
------------------------------ --------- ------- ----------- --------
EPRA NTA per share GBP9.88 GBP3.39 GBP9.93
LTV 23% 34% 32%
The total rent roll of the portfolio at 31 March 2022, excluding
Great Brighams Mead, was GBP23.6m. Assuming 90% occupancy at the
estimated rental values at 31 March 2022, the rent roll at these
properties would be GBP27.6m, an uplift of GBP4.0m.
Workspace will be disposing of non-core assets which are likely
to include the light industrial portfolio. Any such asset disposals
would result in a reduction in net debt, to, but would not be
expected to have a material impact on trading profit after
interest, with any reduction in net rental income being broadly
offset by reduced finance costs.
FINANCING
As at 31 March 2022, the Group had GBP42.3m of cash and
GBP400.0m of undrawn facilities:
Drawn amount Facility
GBPm amount GBPm Maturity
-------------------------- ------------ ------------ ---------
Private placement notes 300.0 300.0 2025-2029
Green bond 300.0 300.0 2028
Revolving credit facility - 200.0 2024
Acquisition facility - 200.0 2023
Total 600.0 1,000.0
------------ ------------
In December 2021, we agreed a new GBP200m sustainability-linked
revolving credit facility ("RCF") replacing the Group's previous
revolving credit facility. The facility has an initial term of
three years, with the potential to extend by a further two years
and to increase the facility amount to a maximum of GBP300m,
subject to lender consent.
In March 2022, we agreed a new GBP200m acquisition facility with
a term of 18 months to fund the acquisition of McKay.
All facilities are provided on an unsecured basis with an
average maturity of 4.2 years, or 4.9 years excluding the
acquisition facility (31 March 2021: 4.8 years).
At 31 March 2022, the average interest cost of our fixed rate
private placement notes and Green bond was 3.1%. Our revolving
credit bank facility is provided at a margin of 1.65% over SONIA
with a margin adjustment depending on performance against a number
of ESG-related metrics.
At 31 March 2022, loan to value (LTV) was 23% (31 March 2021:
24%) and interest cover, based on net rental income and interest
paid, was 4.8 times (31 March 2021: 3.8), providing good headroom
on all facility covenants.
In addition to the facilities noted above, with the acquisition
of McKay in May 2022, the Group has inherited a GBP180m revolving
credit facility maturing in April 2024 and a GBP65m term loan from
Aviva due May 2030. Both facilities are secured and contain change
of control prepayment provisions however there is significant
overlap between our existing relationship banks and the McKay
lending banks, who have already consented to the change of control.
Including the McKay facilities, on a proforma basis, the enlarged
Group would have cash and available facilities of GBP331m, with the
combined facilities having an average maturity of 4.1 years and an
average effective interest rate of 3.2%.
FINANCIAL OUTLOOK FOR 2022/23
Over the last year we have seen a good recovery from the impact
of the Covid-19 pandemic driven by strong levels of customer
demand. Rental income in 2022/23 will be underpinned by the full
year benefit of the growth in like-for-like rent roll in 2021/22 of
8.7%. Our opening like-for-like rent roll of GBP92.9m is over 5%
ahead of the average like-for-like rent roll last year. As
occupancy recovered to pre-Covid levels, we were able to
selectively start increasing pricing with average rent per sq. ft.
up 2.5% in the second half of last year. The extent to which this
pricing momentum continues will, in part, depend on the impact of
any economic downturn on our customers, although our pricing still
remains well below pre-Covid levels.
Rental income will be boosted by a full year's contribution from
Busworks and The Old Dairy which were acquired part way through
last year and by the letting up of recently completed projects,
including Mirror Works and Pall Mall Deposit.
The current high levels of inflation will impact both our
service charge and administrative costs. In relation to service
charge costs, where the majority of the cost is passed on to our
customers, we have been able to limit the impact by hedging our
energy costs for three years from October 2021. We will also
benefit from a reduction in void costs due to increased occupancy
levels. Staff costs are the most significant driver of our
administration costs and, whilst we have limited inflationary
salary increases to 3%, we are seeing higher increases in more
junior roles across the Group.
The results for the year will also benefit from the ownership of
McKay for 11 months of the year. Rental income from the McKay
portfolio will be reduced by the sale of non-core assets but the
impact on net rental income will be broadly offset by reduced
interest costs. Underlying administrative costs of the McKay
business will be reduced by around GBP3m per annum which includes
the departure of the McKay executive team, with one-off synergy
realisation costs expected to be around GBP3m.
Whilst our core debt bears interest at fixed-rates, the majority
of the McKay debt, as well as the acquisition facility used to
finance the cash consideration for McKay, bears interest at a
margin over SONIA, and is therefore subject to changes in market
interest rates. Given recent and expected increases in interest
rates, we therefore anticipate a slight increase in our average
cost of borrowing to around 3.2%.
We expect capital expenditure to double to around GBP50m in
2022/23 as we progress with planned projects, including at Leroy
House.
We expect to complete the sale of the residential element of our
planned developments at Riverside, Wandsworth and the Chocolate
Factory, Wood Green during this financial year. With these sales
and the disposal of non-core assets from the McKay portfolio our
LTV will reduce to below 30%.
KEY property statistics
Half Year ended
------------------------------------------
31 Mar 30 Sept 31 Mar 30 Sept
2022 2021 2021 2020
---------------------------------------- --------- --------- --------- ---------
Workspace Group Portfolio
CBRE property valuation GBP2,402m GBP2,271m GBP2,324m GBP2,450m
Number of locations 57 58 58 58
Lettable floorspace (million sq.
ft.) 4.0 3.9 3.9 3.9
Number of lettable units 4,482 4,234 4,196 4,147
Rent roll of occupied units GBP111.0m GBP102.1m GBP103.9m GBP118.2m
Average rent per sq. ft. GBP33.26 GBP32.28 GBP33.90 GBP37.15
Overall occupancy 84.3% 81.2% 77.8% 81.1%
Like-for-like number of properties 39 39 38 38
Like-for-like lettable floor space
(million sq. ft.) 2.8 2.9 2.8 2.8
Like-for-like rent roll movement 6.4% 2.1% (13.9)% (11.6)%
Like-for-like rent per sq. ft. movement 2.5% (2.1)% (9.9)% (3.3)%
Like-for-like occupancy movement 4.0% 3.8% (3.9)% (7.8)%
---------------------------------------- --------- --------- --------- ---------
1) The like-for-like category has been restated in the current financial year for the following:
-- The transfer in of Brickfields and Rainbow Industrial Estate
(part) from the completed projects category
-- The transfer out of Leroy House to the refurbishment 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 year ended 31 March 2022
Notes 2022 2021
GBPm GBPm
---------------------------------------------------- ----- ------ --------
Revenue 1 132.9 142.3
---------------------------------------------------- ----- ------ --------
Direct costs1 1 (46.2) (60.8)
---------------------------------------------------- ----- ------ --------
Net rental income 1 86.7 81.5
---------------------------------------------------- ----- ------ --------
Administrative expenses 2 (19.3) (19.0)
---------------------------------------------------- ----- ------ --------
Trading profit 67.4 62.5
---------------------------------------------------- ----- ------ --------
Profit/ (loss) on disposal of investment properties 3(a) 7.8 (0.1)
---------------------------------------------------- ----- ------ --------
Other income 3(b) 0.6 -
---------------------------------------------------- ----- ------ --------
Other expenses 3(c) - (0.2)
---------------------------------------------------- ----- ------ --------
Change in fair value of investment properties 10 68.7 (257.7)
---------------------------------------------------- ----- ------ --------
Operating profit/ (loss) 144.5 (195.5)
---------------------------------------------------- ----- ------ --------
Finance costs 4 (20.5) (23.8)
---------------------------------------------------- ----- ------ --------
Exceptional finance costs 4 - (16.4)
---------------------------------------------------- ----- ------ --------
Profit/ (loss) before tax 124.0 (235.7)
---------------------------------------------------- ----- ------ --------
Taxation 6 (0.1) -
---------------------------------------------------- ----- ------ --------
Profit/ (loss) for the financial year after
tax 123.9 (235.7)
---------------------------------------------------- ----- ------ --------
Basic earnings/ (loss) per share 8 68.5p (130.3)p
---------------------------------------------------- ----- ------ --------
Diluted earnings/ (loss) per share 8 68.1p (130.3)p
---------------------------------------------------- ----- ------ --------
1. Direct costs in 2022 includes impairment of receivables of
GBP1.5m (2021: GBP4.2m). See note 1 for additional information.
Consolidated statement of comprehensive income
For the year ended 31 March 2022
2022 2021
GBPm GBPm
-------------------------------------------------------- ----- -------
Profit/ (loss) for the financial year 123.9 (235.7)
-------------------------------------------------------- ----- -------
Other comprehensive income:
-------------------------------------------------------- ----- -------
Items that may be classified subsequently to profit
or loss:
-------------------------------------------------------- ----- -------
Fair value of investments recycled to retained earnings 2.1 -
-------------------------------------------------------- ----- -------
Cash flow hedge - transfer to income statement (0.3) 8.6
-------------------------------------------------------- ----- -------
Cash flow hedge - change in fair value - (9.8)
-------------------------------------------------------- ----- -------
Other comprehensive loss in the year 1.8 (1.2)
-------------------------------------------------------- ----- -------
Total comprehensive income/ (loss) for the year 125.7 (236.9)
-------------------------------------------------------- ----- -------
Consolidated balance sheet
As at 31 March 2022
Notes 2022 2021
GBPm GBPm
--------------------------------- ----- ------- -------
Non-current assets
--------------------------------- ----- ------- -------
Investment properties 10 2,366.7 2,349.9
--------------------------------- ----- ------- -------
Intangible assets 1.9 2.4
--------------------------------- ----- ------- -------
Property, plant and equipment 11 2.9 4.0
--------------------------------- ----- ------- -------
Other investments 12 1.7 7.9
--------------------------------- ----- ------- -------
Derivative financial instruments 16(e) - 8.7
--------------------------------- ----- ------- -------
Deferred tax 6 0.3 0.4
--------------------------------- ----- ------- -------
2,373.5 2,373.3
--------------------------------- ----- ------- -------
Current assets
--------------------------------- ----- ------- -------
Trade and other receivables 13 23.5 29.3
--------------------------------- ----- ------- -------
Assets held for sale 10 65.9 -
--------------------------------- ----- ------- -------
Cash and cash equivalents 14 49.0 191.0
--------------------------------- ----- ------- -------
138.4 220.3
--------------------------------- ----- ------- -------
Total assets 2,511.9 2,593.6
--------------------------------- ----- ------- -------
Current liabilities
--------------------------------- ----- ------- -------
Trade and other payables 15 (85.8) (95.0)
--------------------------------- ----- ------- -------
Borrowings 16(a) - (156.6)
--------------------------------- ----- ------- -------
(85.8) (251.6)
--------------------------------- ----- ------- -------
Non-current liabilities
--------------------------------- ----- ------- -------
Borrowings 16(a) (595.5) (596.2)
--------------------------------- ----- ------- -------
Lease obligations 17 (31.0) (26.3)
--------------------------------- ----- ------- -------
(626.5) (622.5)
--------------------------------- ----- ------- -------
Total liabilities (712.3) (874.1)
--------------------------------- ----- ------- -------
Net assets 1,799.6 1,719.5
--------------------------------- ----- ------- -------
Shareholders' equity
--------------------------------- ----- ------- -------
Share capital 19 181.1 181.1
--------------------------------- ----- ------- -------
Share premium 19 295.5 295.5
--------------------------------- ----- ------- -------
Investment in own shares (9.9) (9.6)
--------------------------------- ----- ------- -------
Other reserves 20 32.6 33.1
--------------------------------- ----- ------- -------
Retained earnings 1,300.3 1,219.4
--------------------------------- ----- ------- -------
Total shareholders' equity 1,799.6 1,719.5
--------------------------------- ----- ------- -------
Consolidated statement of changes in equity
For the year ended 31 March 2022
Attributable to owners of the Parent
---------------------------------------------------------------------
Notes Share Share Investment Other Retained Total
capital premium in own reserves earnings share-holders'
GBPm GBPm shares GBPm GBPm equity
GBPm GBPm
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Balance at 31 March 2020 180.7 295.4 (9.6) 32.2 1,499.3 1,998.0
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Loss for the financial year - - - - (235.7) (235.7)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Other comprehensive loss for the
year 20 - - - (1.2) - (1.2)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive loss - - - (1.2) (235.7) (236.9)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Transactions with owners:
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Share issues 19 0.4 0.1 - (0.4) - 0.1
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Dividends paid 7 - - - - (44.2) (44.2)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Share based payments - - - 2.5 - 2.5
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Balance at 31 March 2021 181.1 295.5 (9.6) 33.1 1,219.4 1,719.5
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Profit for the financial year - - - - 123.9 123.9
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Other comprehensive loss for the
year - - - - 1.8 1.8
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive profit - - - - 125.7 125.7
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Transactions with owners:
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Share issues 19 - - - - - -
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Purchase of own shares - - (0.3) - - (0.3)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Dividends paid 7 - - - - (44.8) (44.8)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Share based payments - - - 1.6 - 1.6
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Recycled OCI to retained earnings 20 - - - (2.1) - (2.1)
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Balance at 31 March 2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
---------------------------------- ----- -------- -------- ---------- --------- --------- ---------------
Consolidated statement of cash flows
For the year ended 31 March 2022
Notes 2022 2021
GBPm GBPm
------------------------------------------------------ ------- ------- -------
Cash flows from operating activities
------------------------------------------------------ ------- ------- -------
Cash generated from operations 18 80.5 62.4
------------------------------------------------------ ------- ------- -------
Interest paid (22.6) (23.4)
------------------------------------------------------ ------- ------- -------
Tax paid - (0.6)
------------------------------------------------------ ------- ------- -------
Net cash inflow from operating activities 57.9 38.4
------------------------------------------------------ ------- ------- -------
Cash flows from investing activities
------------------------------------------------------ ------- ------- -------
Purchase of investment properties (88.4) -
------------------------------------------------------ ------- ------- -------
Capital expenditure on investment properties (29.8) (23.6)
------------------------------------------------------ ------- ------- -------
Proceeds from disposal of investment properties
(net of sale costs) 117.3 11.0
------------------------------------------------------ ------- ------- -------
Purchase of intangible assets (0.5) (1.2)
------------------------------------------------------ ------- ------- -------
Purchase of property, plant and equipment (0.7) (1.2)
------------------------------------------------------ ------- ------- -------
Other income (deferred consideration/overage
receipts) 4.5 0.1
------------------------------------------------------ ------- ------- -------
Proceeds from sale of investments 3(b)/12 6.8 -
------------------------------------------------------ ------- ------- -------
Net cash inflow/ (outflow) from investing activities 9.2 (14.9)
------------------------------------------------------ ------- ------- -------
Cash flows from financing activities
------------------------------------------------------ ------- ------- -------
Proceeds from issue of ordinary share capital 19 - 0.1
------------------------------------------------------ ------- ------- -------
Finance costs for new/amended borrowing facilities (1.3) (2.0)
------------------------------------------------------ ------- ------- -------
Exceptional finance costs (16.4) -
------------------------------------------------------ ------- ------- -------
Settlement of derivative financial instruments 0.7 -
------------------------------------------------------ ------- ------- -------
Repayment of bank borrowings and Private Placement
Notes 16(h) (173.5) (217.0)
------------------------------------------------------ ------- ------- -------
Draw down of bank borrowings 16(h) 25.0 54.0
------------------------------------------------------ ------- ------- -------
Green Bond proceeds - 299.5
------------------------------------------------------ ------- ------- -------
Own shares purchase (net) (0.3) -
------------------------------------------------------ ------- ------- -------
Dividends paid 7 (43.3) (46.3)
------------------------------------------------------ ------- ------- -------
Net cash (outflow)/ inflow from financing activities (209.1) 88.3
------------------------------------------------------ ------- ------- -------
Net (decrease)/ increase in cash and cash equivalents (142.0) 111.8
------------------------------------------------------ ------- ------- -------
Cash and cash equivalents at start of year 18 191.0 79.2
------------------------------------------------------ ------- ------- -------
Cash and cash equivalents at end of year 18 49.0 191.0
------------------------------------------------------ ------- ------- -------
Notes to the financial statements
For the year ended 31 March 2022
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2022 or
2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the Registrar of Companies, and those
for 2022 will be delivered in due course. The auditor has reported
on those accounts; their reports were i) unqualified and i i) did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006. The accounting policies are consistent with
those contained in the Group's last ANNUAL REPORT and accounts for
the year ended 31 March 2021, with exception of the following:
Basis of preparation
These condensed financial statements are presented in Sterling,
which is the Company's functional currency and the Group's
presentation currency and have been prepared and approved by the
Directors on a going concern basis, in accordance with UK adopted
international accounting standards. In addition, the Group
financial statements are required under the UK Disclosure and
Transparency Rules 4.1.6, to be prepared in accordance with United
Kingdom adopted international accounting standards.
Whilst the impact of Covid-19 on the Group has reduced in the
last 12 months, the war in Ukraine, current high levels of
inflation and higher interest rate environment means there is an
increased risk of an economic downturn.
We have modelled a number of different scenarios considering a
period of 12 months from the date of signing of these financial
statements. These scenarios include a severe, but realistically
possible, downside scenario which includes the following key
assumptions:
- A stalling of the UK economy, with low levels of GDP growth
and inflationary pressure, resulting in a reduction in customer
demand over the next two years, compared to current levels.
- Like-for-like occupancy reduces by c.5% to 85% over the next
two years, with associated increase in void costs and downward
pressure on pricing of new lettings.
- New lettings at below the average price per sq. ft. of
vacating customers resulting in a overall reduction in average rent
per sq. ft.
- Increase in counterparty risk, with bad debt significantly
higher than pre-pandemic levels.
- Higher levels of cost inflation.
- Higher interest rate environment resulting in an increase in
the cost of variable rate borrowings.
The appropriateness of the going concern basis is reliant on the
continued availability of borrowings, sufficient liquidity and
compliance with loan covenants.
The Group's revolving credit facility was refinanced in December
2021 with a limit of GBP200m and a term to December 2024 bringing
the total longer-term debt facilities to GBP800m. In addition, in
March 2022, a GBP200m "Acquisition facility" was secured, in
relation to the purchase of McKay Securities PLC, bringing total
facilities to GBP1bn as at 31 March 2022.
As at 31 March 2022, the Company had significant headroom with
GBP442m of cash and undrawn facilities. On 6 May 2022 we completed
the acquisition of McKay, with the consideration comprising a
GBP191m cash payment and the issuance of new shares. Under the
downside scenario, whereby we assume that the McKay facilities are
required to be prepaid in June 2022, the Group maintains sufficient
headroom in its cash and loan facilities for the full period of
assessment.
The GBP200m Acquisition facility expires in September 2023 and
no other debt is due to be refinanced until December 2024.
All outstanding borrowings require compliance with LTV and
Interest Cover covenants. As at the tightest test date in the
scenarios modelled, the Group could withstand a reduction in net
rental income of 51% and a fall in the asset valuation of 56%
compared to 31 March 2022 (pro-forma including McKay) before these
covenants are breached, assuming no mitigating actions are
taken.
Consequently, the Directors are confident that the Group and
Company will have sufficient funds to continue to meet its
liabilities as they fall due for at least 12 months from the date
of approval of the financial statements and therefore have prepared
the financial statements on a going concern basis.
New accounting standards, amendments and guidance
a) During the year to 31 March 2022 the Group adopted the
following accounting standards and guidance:
IFRS Standards Amendments to References to the Conceptual
Framework in IFRS Standards
---------------------------- ------------------------------------------
IFRS 9, IAS 39, IFRS 7, IFRS Interest Rate Benchmark Reform - Phase 2
4 and IFRS 16 (amended)
---------------------------- ------------------------------------------
IFRS 16 (amended) COVID-19 related rent concessions
---------------------------- ------------------------------------------
There was no material impact from the adoption of these
accounting standard amendments on the financial statements.
b) The following accounting standards and guidance are not yet
effective but are not expected to have a significant impact on the
Group's financial statements or will result in changes to
presentation and disclosure only. They have not been adopted early
by the Group:
IFRS 17 Insurance contracts
----------------------------------- -----------------------------------------------
IAS 1 (amended) Classification of Liabilities as Current
or Non-Current
----------------------------------- -----------------------------------------------
IAS 1 and IFRS Practise Statement Disclosure of Accounting Policy
2 (amended)
----------------------------------- -----------------------------------------------
IAS 8 (amended) Definition of Accounting Estimate
----------------------------------- -----------------------------------------------
IAS 37 (amended): Onerous Contracts Cost of Fulfilling a Contract
----------------------------------- -----------------------------------------------
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use
----------------------------------- -----------------------------------------------
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
----------------------------------- -----------------------------------------------
IFRS Standards 2018-2020 Annual Improvements to IFRS Standards 2018-2020
----------------------------------- -----------------------------------------------
IFRS 3 (amended) Reference to the Conceptual Framework
----------------------------------- -----------------------------------------------
IAS 1 (amended) Presentation of Financial Statements and
IFRS Practise Statement 2 Making Materiality
Judgements
----------------------------------- -----------------------------------------------
1. Analysis of net rental income and segmental information
2022 2021
--------------------------- ---------------------------
Revenue Direct Net rental Revenue Direct Net rental
GBPm costs income GBPm costs income
1 GBPm GBPm GBPm
GBPm
--------------------------------------- ------- ------ ---------- ------- ------ ----------
Rental income 104.3 (2.9) 101.4 118.0 (24.4) 93.6
--------------------------------------- ------- ------ ---------- ------- ------ ----------
Service charges 21.1 (25.9) (4.8) 20.3 (24.6) (4.3)
--------------------------------------- ------- ------ ---------- ------- ------ ----------
Empty rates and other non-recoverables - (10.6) (10.6) - (7.1) (7.1)
--------------------------------------- ------- ------ ---------- ------- ------ ----------
Services, fees, commissions and sundry
income 7.5 (6.8) 0.7 4.0 (4.7) (0.7)
--------------------------------------- ------- ------ ---------- ------- ------ ----------
132.9 (46.2) 86.7 142.3 (60.8) 81.5
--------------------------------------- ------- ------ ---------- ------- ------ ----------
1. There are no properties within the current or prior period that are non-rent producing.
Included within direct costs for rental income and service
charges in the period are amounts of GBPnil (2021: GBP17.8m) and
GBPnil (2021: GBP2.1m) respectively, relating to discounts provided
to customers, accounted for in accordance with IFRS 9.
Additionally, a charge of GBP1.5m (2021: GBP4.2m) for expected
credit losses in respect of receivables from customers is
recognised in direct costs of rental income in the period.
All of the properties within the portfolio are geographically
close to each other and have similar economic features and risks.
Management information utilised by the Executive Committee to
monitor and review performance is reviewed as one portfolio. As a
result, management have determined that the Group operates a single
operating segment providing business accommodation for rent in
London.
2. Operating profit/ (LOSS)
The following items have been charged in arriving at operating
profit/ (loss):
2022 2021
GBPm GBPm
---------------------------------------------------- ----- -----
Depreciation1 1.8 2.0
---------------------------------------------------- ----- -----
Staff costs (including share based costs)1 (note 5) 19.6 20.1
---------------------------------------------------- ----- -----
Repairs and maintenance expenditure on investment
properties 2.0 2.5
---------------------------------------------------- ----- -----
Trade receivables impairment (note 13) 1.5 3.5
---------------------------------------------------- ----- -----
Amortisation of intangibles 0.9 0.9
---------------------------------------------------- ----- -----
Audit fees payable to the Company's Auditor 0.3 0.2
---------------------------------------------------- ----- -----
1. Charged to direct costs and administrative expenses based on
the underlying nature of the expenses.
Auditor's remuneration: services provided by the Company's 2022 2021
Auditor and its associates GBP000 GBP000
----------------------------------------------------------- ------- -------
Audit fees:
----------------------------------------------------------- ------- -------
Audit of Parent Company and consolidated financial
statements 245 207
----------------------------------------------------------- ------- -------
Audit of subsidiary financial statements 35 33
----------------------------------------------------------- ------- -------
280 240
----------------------------------------------------------- ------- -------
Fees for other services:
----------------------------------------------------------- ------- -------
Audit-related assurance services1 55 96
----------------------------------------------------------- ------- -------
Total fees payable to Auditor 335 336
----------------------------------------------------------- ------- -------
1. Audit-related assurance services consist of GBP40k for half
year review (2021: GBP36k); GBPnil for ICMA letter (2021: GBP60k);
and GBP15k for Green Bond use of Proceeds Assurance (2021:
GBPnil).
2022 2021
GBPm GBPm
-------------------------------------------------- ----- -----
Total administrative expenses are analysed below:
-------------------------------------------------- ----- -----
Staff costs 10.7 11.3
-------------------------------------------------- ----- -----
Cash-settled share based costs - 0.2
-------------------------------------------------- ----- -----
Equity settled share based costs 1.6 2.3
-------------------------------------------------- ----- -----
Other 7.0 5.2
-------------------------------------------------- ----- -----
19.3 19.0
-------------------------------------------------- ----- -----
3(a). profit/ (Loss) on disposal of investment properties
2022 2021
GBPm GBPm
---------------------------------------------------- ------- ------
Proceeds from sale of investment properties (net of
sale costs) 117.3 11.0
---------------------------------------------------- ------- ------
Book value at time of sale (109.5) (11.1)
---------------------------------------------------- ------- ------
Profit/ (loss) on disposal 7.8 (0.1)
---------------------------------------------------- ------- ------
3(b). Other INCOME
2022 2021
GBPm GBPm
------------------- ----- -----
Sale of investment 0.6 -
------------------- ----- -----
0.6 -
------------------- ----- -----
The Group disposed of the investment in Lovespace Ltd, resulting
in a gain of GBP0.6m in the year.
3(C). Other expenses
2022 2021
GBPm GBPm
----------------------------------------------- ----- -----
Change in fair value of deferred consideration - 0.2
----------------------------------------------- ----- -----
- 0.2
----------------------------------------------- ----- -----
The value of deferred consideration (cash and overage) from the
sale of investment properties has been revalued by CBRE Limited at
31 March 2022 and 31 March 2021. This resulted in a reduction in
the fair value of deferred consideration of GBPnil at 31 March 2022
(31 March 2021: GBP0.2m). The amounts receivable are included in
the consolidated balance sheet under current trade and other
receivables (note 13).
4. Finance costs
2022 2021
GBPm GBPm
------------------------------------------------------ ------ ------
Interest payable on bank loans and overdrafts (1.4) (3.1)
------------------------------------------------------ ------ ------
Interest payable on other borrowings (16.7) (18.6)
------------------------------------------------------ ------ ------
Amortisation of issue costs of borrowings (1.1) (0.9)
------------------------------------------------------ ------ ------
Interest payable on leases (1.7) (1.6)
------------------------------------------------------ ------ ------
Interest capitalised on property refurbishments (note
10) 0.4 0.4
------------------------------------------------------ ------ ------
Foreign exchange losses on financing activities - (8.6)
------------------------------------------------------ ------ ------
Cash flow hedge - transfer from equity - 8.6
------------------------------------------------------ ------ ------
Finance costs (20.5) (23.8)
------------------------------------------------------ ------ ------
Exceptional finance costs - (16.4)
------------------------------------------------------ ------ ------
Total finance costs (20.5) (40.2)
------------------------------------------------------ ------ ------
In the prior year, the exceptional finance costs related to the
refinancing of the $100m and GBP84m private placement notes due
2023 which were repaid early in April 2021. An irrevocable notice
for the repayment was given in March 2021. The costs included a
GBP16.3m premium on redemption and GBP0.1m of unamortised finance
costs.
All exceptional finance costs have been calculated in accordance
with IFRS 9, re-estimating the cash flows based on the original
effective interest rate with the adjustment being taken through
P&L.
5. Employees and Directors
Staff costs for the Group during the year were: 2022 2021
GBPm GBPm
------------------------------------------------ ----- -----
Wages and salaries 17.4 16.3
------------------------------------------------ ----- -----
Social security costs 2.0 2.1
------------------------------------------------ ----- -----
Other pension costs 0.8 0.8
------------------------------------------------ ----- -----
Cash-settled share based costs - 0.2
------------------------------------------------ ----- -----
Equity-settled share based costs 1.6 2.3
------------------------------------------------ ----- -----
21.8 21.7
------------------------------------------------ ----- -----
Less costs capitalised (2.2) (1.6)
------------------------------------------------ ----- -----
19.6 20.1
------------------------------------------------ ----- -----
The monthly average number of people employed during 2022 2021
the year was: Number Number
----------------------------------------------------- ------- -------
Head office staff (including Directors) 124 121
----------------------------------------------------- ------- -------
Estates and property management staff 125 118
----------------------------------------------------- ------- -------
249 239
----------------------------------------------------- ------- -------
The emoluments and pension benefits of the Directors are
determined by the Remuneration Committee of the Board and are set
out in detail in the Directors' Remuneration Report. These form
part of the financial statements.
Total Directors' emoluments for the financial year were GBP2.3m
(2021: GBP1.7m), comprising of GBP2.2m (2021: GBP1.6m) of
Directors' remuneration, GBPnil (2021: GBPnil) gain on exercise of
share options and GBP0.1m (2021: GBP0.1m) of cash contributions in
lieu of pension in respect of two Directors (2021: two).
6. Taxation
2022 2021
GBPm GBPm
----------------------------------------------------- ----- -----
Current tax:
----------------------------------------------------- ----- -----
UK corporation tax - -
----------------------------------------------------- ----- -----
Adjustments to tax in respect of previous periods - -
----------------------------------------------------- ----- -----
- -
----------------------------------------------------- ----- -----
Deferred tax:
----------------------------------------------------- ----- -----
On origination and reversal of temporary differences 0.1 -
----------------------------------------------------- ----- -----
0.1 -
----------------------------------------------------- ----- -----
Total taxation charge 0.1 -
----------------------------------------------------- ----- -----
Taxation chargeable in the year relates to income from non-REIT
activities such as overage, meeting room income and utilities
recharges.
The tax on the Group's profit for the year differs from the
standard applicable corporation tax rate in the UK of 19% (2021:
19%). The differences are explained below:
2022 2021
GBPm GBPm
--------------------------------------------------- ------ -------
Profit/ (loss) before taxation 124.0 (235.7)
--------------------------------------------------- ------ -------
Tax at standard rate of corporation tax in the UK
of 19% (2021: 19%) 23.6 (44.8)
--------------------------------------------------- ------ -------
Effects of:
--------------------------------------------------- ------ -------
REIT exempt income (11.3) (8.0)
--------------------------------------------------- ------ -------
Changes in fair value not subject to tax as a REIT (13.1) 49.0
--------------------------------------------------- ------ -------
Share based payment adjustments 0.4 (0.1)
--------------------------------------------------- ------ -------
Unrecognised losses carried forward 0.4 3.8
--------------------------------------------------- ------ -------
Other non-taxable expenses 0.1 0.1
--------------------------------------------------- ------ -------
Total taxation charge 0.1 -
--------------------------------------------------- ------ -------
The Group is a Real Estate Investment Trust ('REIT'). The
Group's UK property rental business (both income and capital gains)
is exempt from tax. The Group estimates that as the majority of its
future profits will be exempt from tax, future tax charges are
likely to be low.
An increase in the rate of corporation tax was enacted on 24 May
2021 and, from 1 April 2023, the corporation tax rate will increase
to 25%. This will increase the Company's future current tax charge
accordingly. The deferred tax asset at the balance sheet date has
been calculated at 19% (2021: 19%) expected to be utilised within
12 months.
The Group currently has an unrecognised asset in relation to tax
losses from the non-REIT business carried forward of GBP7.3m (2021:
GBP5.6m) calculated at a corporation tax rate of 25% (2021:
19%).
2022 2021
GBPm GBPm
-------------------------------------------------- ----- -----
Deferred tax assets:
-------------------------------------------------- ----- -----
- Deferred tax to be recovered within 12 months 0.4 0.5
-------------------------------------------------- ----- -----
Deferred tax liabilities:
-------------------------------------------------- ----- -----
- Deferred tax liabilities to be recovered within
12 months (0.1) (0.1)
-------------------------------------------------- ----- -----
Deferred tax assets (net) 0.3 0.4
-------------------------------------------------- ----- -----
The movement in deferred tax assets and liabilities during the
year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
Deferred tax liabilities Other income Total
(overage GBPm
receipts)
GBPm
----------------------------- ------------ -----
At 1 April 2020 0.2 0.2
----------------------------- ------------ -----
Credited to income statement (0.1) (0.1)
----------------------------- ------------ -----
At 31 March 2021 0.1 0.1
----------------------------- ------------ -----
Credited to income statement - -
----------------------------- ------------ -----
At 31 March 2022 0.1 0.1
----------------------------- ------------ -----
Deferred tax assets Expenses Tax losses Total
(share based GBPm GBPm
payment)
GBPm
---------------------------- ------------- ---------- -----
At 1 April 2020 (0.6) (0.2) (0.8)
---------------------------- ------------- ---------- -----
Other movement - 0.2 0.2
---------------------------- ------------- ---------- -----
Charged to income statement 0.1 - 0.1
---------------------------- ------------- ---------- -----
At 31 March 2021 (0.5) - (0.5)
---------------------------- ------------- ---------- -----
Charged to income statement 0.1 - 0.1
---------------------------- ------------- ---------- -----
At 31 March 2022 (0.4) - (0.4)
---------------------------- ------------- ---------- -----
7. Dividends
Payment Per share 2022 2021
date GBPm GBPm
-------------------------------------------- ------------ --------- ----- -----
For the year ended 31 March 2020:
-------------------------------------------- ------------ --------- ----- -----
Final dividend August 2020 24.49p - 44.2
-------------------------------------------- ------------ --------- ----- -----
For the year ended 31 March 2021:
-------------------------------------------- ------------ --------- ----- -----
Final dividend August 2021 17.75p 32.1 -
-------------------------------------------- ------------ --------- ----- -----
For the year ended 31 March 2022:
-------------------------------------------- ------------ --------- ----- -----
February
Interim dividend 2022 7.0p 12.7 -
-------------------------------------------- ------------ --------- ----- -----
Dividends for the year 44.8 44.2
---------------------------------------------------------- --------- ----- -----
Timing difference on payment of withholding
tax (1.5) 2.1
---------------------------------------------------------- --------- ----- -----
Dividends cash paid 43.3 46.3
---------------------------------------------------------- --------- ----- -----
The Directors are proposing a final dividend in respect of the
financial year ended 31 March 2022 of 14.5 pence per ordinary
share, which will absorb an estimated GBP27.9m of revenue reserves
and cash. If approved by the shareholders at the AGM, it will be
paid on 5 August 2022 to shareholders who are on the register of
members on 8 July 2022. The dividend will be paid as a REIT
Property Income Distribution ('PID') net of withholding tax where
appropriate.
8. Earnings per share
Earnings used for calculating earnings per share: 2022 2021
GBPm GBPm
---------------------------------------------------- ------ -------
Basic and diluted earnings 123.9 (235.7)
---------------------------------------------------- ------ -------
Change in fair value of investment properties (68.7) 257.7
---------------------------------------------------- ------ -------
Exceptional finance costs - 16.4
---------------------------------------------------- ------ -------
(Profit) /loss on disposal of investment properties (7.8) 0.1
---------------------------------------------------- ------ -------
EPRA earnings 47.4 38.5
---------------------------------------------------- ------ -------
Adjustment for non-trading items:
---------------------------------------------------- ------ -------
Other (income)/ expenses (0.6) 0.2
---------------------------------------------------- ------ -------
Taxation 0.1 -
---------------------------------------------------- ------ -------
Trading profit after interest 46.9 38.7
---------------------------------------------------- ------ -------
Earnings have been adjusted to derive an earnings per share
measure as defined by the European Public Real Estate Association
('EPRA') and an adjusted underlying earnings per share measure.
Number of shares used for calculating earnings per 2022 2021
share: Number Number
-------------------------------------------------------- ----------- -----------
Weighted average number of shares (excluding own shares
held in trust) 180,983,916 180,839,945
-------------------------------------------------------- ----------- -----------
Dilution due to share option schemes 998,280 -
-------------------------------------------------------- ----------- -----------
Weighted average number of shares for diluted earnings
per share 181,982,196 180,839,945
-------------------------------------------------------- ----------- -----------
In pence: 2022 2021
---------------------------------------- ----- --------
Basic earnings/ (loss) per share 68.5p (130.3p)
---------------------------------------- ----- --------
Diluted earnings/ (loss) per share 68.1p (130.3p)
---------------------------------------- ----- --------
EPRA earnings per share 26.2p 21.3p
---------------------------------------- ----- --------
Adjusted underlying earnings per share1 25.8p 21.3p
---------------------------------------- ----- --------
1. Adjusted underlying earnings per share is calculated by
dividing trading profit after interest by the diluted weighted
average number of shares of 181,982,196 (2021: 181,831,833).
The diluted loss per share for the period to 31 March 2021 has
been restricted to a loss of 130.3p per share, as the loss per
share cannot be reduced by dilution in accordance with IAS 33
Earnings per Share.
9. Net assets per share and total accounting return
Net assets used for calculating net assets per share: 2022 2021
GBPm GBPm
------------------------------------------------------ ------- -------
Net assets at end of year (basic) 1,799.6 1,719.5
------------------------------------------------------ ------- -------
Derivative financial instruments at fair value - (8.7)
------------------------------------------------------ ------- -------
EPRA net assets 1,799.6 1,710.8
------------------------------------------------------ ------- -------
Number of shares used for calculating net assets per 2022 2021
share: Number Number
----------------------------------------------------- ----------- -----------
Shares in issue at year end 181,125,259 181,113,594
----------------------------------------------------- ----------- -----------
Less own shares held in trust at year end (162,113) (159,139)
----------------------------------------------------- ----------- -----------
Dilution due to share option schemes 1,078,852 1,116,127
----------------------------------------------------- ----------- -----------
Number of shares for calculating diluted adjusted
net assets per share 182,041,998 182,070,582
----------------------------------------------------- ----------- -----------
2022 2021
---------------------------- ------- -------
EPRA net assets per share GBP9.89 GBP9.40
---------------------------- ------- -------
Basic net assets per share GBP9.94 GBP9.50
---------------------------- ------- -------
Diluted net assets per share GBP9.89 GBP9.44
---------------------------- ------- -------
Net assets have been adjusted and calculated on a diluted basis
to derive a net asset per share measure as defined by EPRA.
EPRA Net Asset Value Metrics
EPRA published updated best practice reporting guidance in
October 2019, which included three 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 NAV metrics
came into full effect for accounting periods starting from 1
January 2020, presented below for comparison to the previous EPRA
NAV metric.
March 2022 March 2021
-------------------------- --------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- -------- ------- ------- -------- ------- -------
IFRS Equity attributable to shareholders 1,799.6 1,799.6 1,799.6 1,719.5 1,719.5 1,719.5
----------------------------------------------- -------- ------- ------- -------- ------- -------
Fair value of derivative financial instruments - - - (8.7) (8.7) -
----------------------------------------------- -------- ------- ------- -------- ------- -------
Intangibles per IFRS balance sheet - (1.9) - - (2.4) -
----------------------------------------------- -------- ------- ------- -------- ------- -------
Excess of book value of debt over fair
value/ (Excess of fair value of debt
over book value) - - 13.0 - - (22.2)
----------------------------------------------- -------- ------- ------- -------- ------- -------
Purchasers' costs 163.3 - - 158.1 - -
----------------------------------------------- -------- ------- ------- -------- ------- -------
EPRA measure 1,962.9 1,797.7 1,812.6 1,868.9 1,708.4 1,697.3
----------------------------------------------- -------- ------- ------- -------- ------- -------
EPRA measure per share GBP10.78 GBP9.88 GBP9.96 GBP10.26 GBP9.38 GBP9.32
----------------------------------------------- -------- ------- ------- -------- ------- -------
Reconciliation to previously reported EPRA NAV
March 2022 March 2021
------------------------- -------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ------- ------- ------- -------
EPRA NAV 1,799.6 1,799.6 1,799.6 1,710.8 1,710.8 1,710.8
------------------------------------------- ------- ------- ------- ------- ------- -------
Include fair value of derivative financial
instruments - - - - - 8.7
------------------------------------------- ------- ------- ------- ------- ------- -------
Exclude intangibles per IFRS balance
sheet - (1.9) - - (2.4) -
------------------------------------------- ------- ------- ------- ------- ------- -------
Excess of book value of debt over fair
value/ (Excess of fair value of debt
over book value) - - 13.0 - - (22.2)
------------------------------------------- ------- ------- ------- ------- ------- -------
Purchasers' costs 163.3 - - 158.1 - -
------------------------------------------- ------- ------- ------- ------- ------- -------
EPRA measure 1,962.9 1,797.7 1,812.6 1,868.9 1,708.4 1,697.3
------------------------------------------- ------- ------- ------- ------- ------- -------
Total accounting return
Total Accounting Return 2022 2021
GBP GBP
----------------------------------------------------- ---- -------
Opening EPRA net tangible assets per share (A) 9.38 10.88
----------------------------------------------------- ---- -------
Closing EPRA net tangible assets per share 9.88 9.38
----------------------------------------------------- ---- -------
Increase/ (decrease) in EPRA net tangible assets per
share 0.50 (1.50)
----------------------------------------------------- ---- -------
Ordinary dividends paid in the year 0.25 0.24
----------------------------------------------------- ---- -------
Total return (B) 0.75 (1.26)
----------------------------------------------------- ---- -------
Total accounting return (B/A) 8.0% (11.5%)
----------------------------------------------------- ---- -------
The total accounting return for the year comprises the growth in
absolute EPRA net tangible assets per share plus dividends paid in
the year as a percentage of the opening EPRA net tangible assets
per share. The total return for the year ended 31 March 2022 was
8.0% (31 March 2021: (11.5%)).
10. Investment properties
2022 2021
GBPm GBPm
------------------------------------------------ ------- -------
Balance at 1 April 2,349.9 2,586.3
------------------------------------------------ ------- -------
Purchase of investment properties 88.4 -
------------------------------------------------ ------- -------
Capital expenditure 30.0 22.8
------------------------------------------------ ------- -------
Change in value of lease obligations 4.7 (1.9)
------------------------------------------------ ------- -------
Capitalised interest on refurbishments (note 4) 0.4 0.4
------------------------------------------------ ------- -------
Disposals during the year (109.5) -
------------------------------------------------ ------- -------
Change in fair value of investment properties 68.7 (257.7)
------------------------------------------------ ------- -------
Less: Classified as assets held for sale (65.9) -
------------------------------------------------ ------- -------
Balance at 31 March 2,366.7 2,349.9
------------------------------------------------ ------- -------
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 3.0% (2021:
3.7%). The total amount of capitalised interest included in
investment properties is GBP14.9m (2021: GBP14.5m). The change in
fair value of investment properties is recognised in the
consolidated income statement.
Investment properties include buildings with a carrying amount
of GBP315m (2021: GBP271m) held under leases with a carrying amount
of GBP31.0m (2021: GBP26.3m). Investment property lease commitment
details are shown in note 17.
Two properties were reclassified as held for sale at year end
and have been classified as current assets. One of these properties
has exchanged for sale and the other has agreed terms with a buyer,
both are likely to complete within the next 12 months. The value
they have been transferred at is their year end valuation per CBRE
less costs for sale.
Valuation
The Group's investment properties are held at fair value and
were revalued at 31 March 2022 by the external valuer, CBRE
Limited, a firm of independent qualified valuers in accordance with
the Royal Institution of Chartered Surveyors Valuation - Global
Standards at this balance sheet date. All the properties are
revalued at period end regardless of the date of acquisition. In
line with IFRS 13, all investment properties are valued on the
basis of their highest and best use. For like-for-like properties
their current use equates to the highest and best use. For
properties undergoing refurbishment or redevelopment, most of these
are currently being used for business accommodation in their
current state. However, the valuation is based on the current
valuation at the balance sheet date including the impact of the
potential refurbishment and redevelopment as this represents the
highest and best use.
The Executive Committee and the Board both conduct a detailed
review of each property valuation to review appropriate assumptions
have been applied. Meetings are held with the valuers to review and
challenge the valuations, to confirm that they have considered all
relevant information, and rigorous reviews are performed to check
that valuations are sensible. In the prior year, they discussed the
impact on the valuation of the Covid-19 rent reductions. They are
satisfied with the valuer's conclusions.
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 and market
comparatives whilst also considering the occupancy and timing of
rent reviews at each property. Although occupancy and rent review
timings are known, and there is market evidence for transaction
prices for similar properties, there is still a significant element
of estimation and judgement in estimating ERVs. As a result of
adjustments made to market observable data, the significant inputs
are deemed unobservable under IFRS 13.
When valuing properties being refurbished by Workspace, the
residual value method is used. The completed value of the
refurbishment is determined as for like-for-like properties above.
Capital expenditure required to complete the building is then
deducted and a discount factor is applied to reflect the time
period to complete construction and allowance made for construction
and market risk to arrive at the residual value of the
property.
The discount factor used is the property yield that is also
applied to the estimated rental value to determine the value of the
completed building. Other risks such as unexpected time delays
relating to planned capital expenditure are assessed on a
project-by-project basis, looking at market comparable data where
possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual
value method. The completed proposed redevelopment which would be
undertaken by a residential developer is valued based on the market
value for similar sites and then adjusted for costs to complete,
developer's profit margin and a time discount factor. Allowance is
also made for planning and construction risk depending on the stage
of the redevelopment. If a contract is agreed for the
sale/redevelopment of the site, the property is valued based on
agreed consideration.
For all methods, the valuers are provided with information on
tenure, letting, town planning and the repair of the buildings and
sites.
The reconciliation of the valuation report total to the amount
shown in the consolidated balance sheet as non-current assets,
investment properties, is as follows:
2022 2021
GBPm GBPm
---------------------------------------------- ------- -------
Total per CBRE valuation report 2,402.2 2,324.2
---------------------------------------------- ------- -------
Deferred consideration on sale of property (0.6) (0.6)
---------------------------------------------- ------- -------
Head leases treated as leases under IFRS 16 31.0 26.3
---------------------------------------------- ------- -------
Less: Reclassified as assets held for sale (65.9) -
---------------------------------------------- ------- -------
Total investment properties per balance sheet 2,366.7 2,349.9
---------------------------------------------- ------- -------
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.
As noted in the Significant judgements, key assumptions and
estimates section, 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 for 31
March 2022.
Key unobservable inputs:
ERVs - per Equivalent
sq. ft. yields
--------------------- -------------------
Property category Valuation Valuation Range Weighted Range Weighted
GBPm technique average average
------------------- --------- ---------- ----------- -------- --------- --------
Like-for-like 1,865.1 A GBP20-GBP66 GBP42 4.1%-7.3% 5.5%
------------------- --------- ---------- ----------- -------- --------- --------
Completed projects 185.6 A GBP21-GBP44 GBP28 4.9%-6.4% 5.6%
------------------- --------- ---------- ----------- -------- --------- --------
Refurbishments 161.3 A/B GBP18-34 GBP25 3.6%-6.4% 5.3%
------------------- --------- ---------- ----------- -------- --------- --------
Redevelopments 35.3 A/B GBP13-25 GBP16 4.5%-6.5% 6.0%
------------------- --------- ---------- ----------- -------- --------- --------
Acquisitions 88.4 A GBP33-GBP53 GBP40 4.9%-5.8% 5.4%
------------------- --------- ---------- ----------- -------- --------- --------
Head leases 31.0 n/a - - - -
------------------- --------- ---------- ----------- -------- --------- --------
Total 2,366.7
------------------- --------- ---------- ----------- -------- --------- --------
A = Income capitalisation method.
B = Residual value method.
A key unobservable input for redevelopments at planning stage
and refurbishments is developer's profit. The range is 13%-19% with
a weighted average of 14%.
Costs to complete is a key unobservable input for redevelopments
at planning stage with a range of GBP213-GBP280 per sq. ft. and a
weighted average of GBP250 per sq. ft.
Costs to complete are not considered to be a significant
unobservable input for refurbishments due to the high percentage of
costs that are fixed.
Sensitivity analysis:
A +/- 10% movement in ERVs or a +/- 25 basis points movement in
yields would result in the following increase/decrease in the
valuation.
GBPm +/- 10% +/- 25 bps
in ERVs in yields
------------------- --------- ----------
Like-for-like +186/-186 -82/+90
------------------- --------- ----------
Completed projects +19/-19 -8/+9
------------------- --------- ----------
Refurbishments +17/-17 -8/+9
------------------- --------- ----------
Redevelopments +4/-4 -1/+1
------------------- --------- ----------
Acquisitions +9/-9 -4/+4
------------------- --------- ----------
The following table summarises the valuation techniques and
inputs used in the determination of the property valuation at 31
March 2021.
Key unobservable inputs:
ERVs - per Equivalent
sq. ft. yields
--------------------- -------------------
Valuation Valuation Range Weighted Range Weighted
Property category GBPm technique average average
-------------------- --------- ---------- ----------- -------- --------- --------
Like-for-like 1,790.5 A GBP12-GBP68 GBP42 4.5%-7.4% 5.8%
-------------------- --------- ---------- ----------- -------- --------- --------
Completed projects 180.7 A GBP19-GBP48 GBP31 4.5%-6.5% 5.7%
-------------------- --------- ---------- ----------- -------- --------- --------
Refurbishments 255.7 A/B GBP20-GBP70 GBP36 3.85-6.6% 5.1%
-------------------- --------- ---------- ----------- -------- --------- --------
Redevelopments 96.7 A/B GBP14-GBP33 GBP20 3.9%-6.7% 5.3%
-------------------- --------- ---------- ----------- -------- --------- --------
Head leases 26.3 n/a - - - -
-------------------- --------- ---------- ----------- -------- --------- --------
Total 2,349.9
-------------------- --------- ---------- ----------- -------- --------- --------
A = Income capitalisation method.
B = Residual value method.
A key unobservable input for redevelopments at planning stage
and refurbishments is developer's profit. 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-GBP242 per sq. ft. and a
weighted average of GBP232 per sq. ft.
Costs to complete are not considered to be a significant
unobservable input for refurbishments due to the high percentage of
costs that are fixed.
Sensitivity analysis:
A +/- 10% movement in ERVs or a +/- 25 basis points movement in
yields would result in the following increase/decrease in the
valuation.
GBPm +/- 10% +/- 25 bps
in ERVs in yields
------------------- --------- ----------
Like-for-like +179/-179 -74/+81
------------------- --------- ----------
Completed projects +18/-18 -8/+8
------------------- --------- ----------
Refurbishments +28/-28 -16/+17
------------------- --------- ----------
Redevelopments +9/-7 -3/+5
------------------- --------- ----------
11. Property, plant and equipment
Cost or valuation Equipment
and fixtures
GBPm
--------------------------------- -------------
1 April 2020 11.0
--------------------------------- -------------
Additions during the year 1.2
--------------------------------- -------------
Disposals during the year (1.6)
--------------------------------- -------------
Balance at 31 March 2021 10.6
--------------------------------- -------------
Additions during the year 0.7
--------------------------------- -------------
Disposals during the year (1.8)
--------------------------------- -------------
Balance at 31 March 2022 9.5
--------------------------------- -------------
Accumulated depreciation
--------------------------------- -------------
1 April 2020 6.2
--------------------------------- -------------
Charge for the year 2.0
--------------------------------- -------------
Disposals during the year (1.6)
--------------------------------- -------------
Balance at 31 March 2021 6.6
--------------------------------- -------------
Charge for the year 1.8
--------------------------------- -------------
Disposals during the year (1.8)
--------------------------------- -------------
Balance at 31 March 2022 6.6
--------------------------------- -------------
Net book amount at 31 March 2022 2.9
--------------------------------- -------------
Net book amount at 31 March 2021 4.0
--------------------------------- -------------
12. Other investments
The Group holds the following investments:
2022 2021
GBPm GBPm
------------------------------------------------------ ----- -----
2.8% of share capital of Wavenet Limited (2021: 0%) 1.7 -
------------------------------------------------------ ----- -----
0% of share capital of Excell Holdings Limited (2021:
15%) - 7.9
------------------------------------------------------ ----- -----
1.7 7.9
------------------------------------------------------ ----- -----
Within the year, Wavenet Limited purchased the entire share
capital in Excell Holdings Limited. As a result, the group received
cash of GBP6.2m and acquired 2.8% of share capital in Wavenet
Limited.
In accordance with IFRS 9 the shares in Wavenet Limited have
been valued at fair value, resulting in no movement in the
financial year (2021: no movement in Excell Holdings Limited),
recognised in the consolidated statement of comprehensive
income.
In addition, included within other income (note 3(b)) is GBP0.6m
for the sale of investment in Lovespace Ltd which was previously
written off.
13. Trade and other receivables
Current trade and other receivables 2022 2021
GBPm GBPm
-------------------------------------------------------- ----- -----
Trade receivables 11.9 16.0
-------------------------------------------------------- ----- -----
Less provision for impairment of receivables (5.2) (4.6)
-------------------------------------------------------- ----- -----
Trade receivables - net 6.7 11.4
-------------------------------------------------------- ----- -----
Prepayments, other receivables and accrued income 16.2 12.8
-------------------------------------------------------- ----- -----
Deferred consideration on sale of investment properties 0.6 5.1
-------------------------------------------------------- ----- -----
23.5 29.3
-------------------------------------------------------- ----- -----
Receivables at fair value
Included within deferred consideration on sale of investment
properties is GBP0.6m (2021: GBP0.6m) of overage which is held at
fair value through profit and loss. In the current year, as the
amounts receivable are expected within the following 12 months they
have been classified as current receivables.
The deferred consideration arising on the sale of investment
properties relates to cash and overage. The overage has been fair
valued by CBRE Limited 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, including both
current and non-current elements, was GBPnil (31 March 2021: loss
of GBP0.2m) (note 3(c)).
2022 2021
GBPm GBPm
--------------------------------------------------------- ----- -----
Deferred consideration on sale of investment properties:
--------------------------------------------------------- ----- -----
Balance at 1 April 5.1 5.3
--------------------------------------------------------- ----- -----
Cash received (4.5) -
--------------------------------------------------------- ----- -----
Change in fair value - (0.2)
--------------------------------------------------------- ----- -----
Balance at 31 March 0.6 5.1
--------------------------------------------------------- ----- -----
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. Trade
receivables are impaired when there is evidence that the amounts
may not be collectable under the original terms of the receivable.
All the Group's trade and other receivables are denominated in
Sterling.
Movements on the provision for impairment of trade receivables
are shown below:
2022 2021
GBPm GBPm
---------------------------------------------------------- ----- -----
Balance at 1 April 4.6 1.1
---------------------------------------------------------- ----- -----
Increase in provision for impairment of trade receivables 1.5 4.3
---------------------------------------------------------- ----- -----
Receivables written off during the year (0.9) (0.8)
---------------------------------------------------------- ----- -----
Balance at 31 March 5.2 4.6
---------------------------------------------------------- ----- -----
14. Cash and cash equivalents
2022 2021
GBPm GBPm
----------------------------------------- ----- -----
Cash at bank and in hand 42.3 183.6
----------------------------------------- ----- -----
Restricted cash - tenants' deposit deeds 6.7 7.4
----------------------------------------- ----- -----
49.0 191.0
----------------------------------------- ----- -----
Tenants' deposit deeds represent returnable cash security
deposits received from tenants and are held in ring-fenced bank
accounts in accordance with the terms of the individual lease
contracts.
15. Trade and other payables
2022 2021
GBPm GBPm
------------------------------------------- ----- -----
Trade payables 13.2 10.4
------------------------------------------- ----- -----
Other tax and social security payable 3.8 3.6
------------------------------------------- ----- -----
Tenants' deposit deeds (note 14) 6.7 7.4
------------------------------------------- ----- -----
Tenants' deposits 26.5 20.7
------------------------------------------- ----- -----
Accrued expenses 27.4 43.4
------------------------------------------- ----- -----
Deferred income - rent and service charges 8.2 9.5
------------------------------------------- ----- -----
85.8 95.0
------------------------------------------- ----- -----
There is no material difference between the above amounts and
their fair values due to the short-term nature of the payables.
1 6. BORROWINGS
(a) Balances
2022 2021
GBPm GBPm
--------------------------------------------- ----- -----
Current
--------------------------------------------- ----- -----
5.6% Senior US Dollar Notes 2023 (unsecured) - 72.6
--------------------------------------------- ----- -----
5.53% Senior Notes 2023 (unsecured) - 84.0
--------------------------------------------- ----- -----
Non-current
--------------------------------------------- ----- -----
Bank loans (unsecured) (2.1) (0.8)
--------------------------------------------- ----- -----
3.07% Senior Notes (unsecured) 79.9 79.8
--------------------------------------------- ----- -----
3.19% Senior Notes (unsecured) 119.8 119.7
--------------------------------------------- ----- -----
3.6% Senior Notes (unsecured) 99.8 99.8
--------------------------------------------- ----- -----
Green Bond (unsecured) 298.1 297.7
--------------------------------------------- ----- -----
595.5 752.8
--------------------------------------------- ----- -----
In March 2021, the Group issued a Green Bond of GBP300m. At year
end, the bank loan facilities were undrawn, there are unamortised
finance costs of GBP2.1m (2021: GBP0.8m) included within
borrowings.
(b) Net debt
2022 2021
GBPm GBPm
----------------------------------- ------ -------
Borrowings per (a) above 595.5 752.8
----------------------------------- ------ -------
Adjust for:
----------------------------------- ------ -------
Cost of raising finance 4.5 3.8
----------------------------------- ------ -------
Foreign exchange differences - (8.1)
----------------------------------- ------ -------
600.0 748.5
----------------------------------- ------ -------
Cash at bank and in hand (note 14) (42.3) (183.6)
----------------------------------- ------ -------
Net debt 557.7 564.9
----------------------------------- ------ -------
At 31 March 2022, the Group had GBP400m (2021: GBP250m) of
undrawn bank facilities, a GBP2m overdraft facility (2021: GBP2m)
and GBP42.3m of unrestricted cash (2021: GBP183.6m).
Net debt represents borrowing facilities drawn, less cash at
bank and in hand. It excludes impacts of foreign exchange
differences as these are fixed via swaps, lease obligations and any
cost of raising finance as they have no future cash flows.
(c) Maturity
2022 2021
GBPm GBPm
--------------------------------------------- ----- -----
Repayable within one year - 148.5
--------------------------------------------- ----- -----
Repayable between three years and four years 80.0 -
--------------------------------------------- ----- -----
Repayable between four years and five years 80.0 80.0
--------------------------------------------- ----- -----
Repayable in five years or more 440.0 520.0
--------------------------------------------- ----- -----
600.0 748.5
--------------------------------------------- ----- -----
Cost of raising finance (4.5) (3.8)
--------------------------------------------- ----- -----
Foreign exchange differences - 8.1
--------------------------------------------- ----- -----
595.5 752.8
--------------------------------------------- ----- -----
(d) Interest rate and repayment profile
Principal Interest rate Interest payable Repayable
at
period
end
GBPm
----------------------------------- --------- -------------- ---------------- --------------
Current
----------------------------------- --------- -------------- ---------------- --------------
Bank overdraft due within one year - Base+2.25% Variable On demand
or on demand
----------------------------------- --------- -------------- ---------------- --------------
Non-current
----------------------------------- --------- -------------- ---------------- --------------
Private Placement Notes:
----------------------------------- --------- -------------- ---------------- --------------
3.07% Senior Notes 80.0 3.07% Half yearly August 2025
----------------------------------- --------- -------------- ---------------- --------------
3.19% Senior Notes 120.0 3.19% Half yearly August 2027
----------------------------------- --------- -------------- ---------------- --------------
3.6% Senior Notes 100.0 3.6% Half yearly January 2029
----------------------------------- --------- -------------- ---------------- --------------
Bank Loan - SONIA + 1.65%2 Monthly December 2024
----------------------------------- --------- -------------- ---------------- --------------
Bank Loan - SONIA + 1.75%1 Monthly September 2023
----------------------------------- --------- -------------- ---------------- --------------
Green Bond 300.0 2.25% Half yearly March 2028
----------------------------------- --------- -------------- ---------------- --------------
600.0
----------------------------------- --------- -------------- ---------------- --------------
1. This is an average over the life of the debt. This ranges
from SONIA + 1.5% - 2.15% based on the remaining life of the
loan.
2. There are 3 ESG linked metrics which can fluctuate the interest by up to 4.5 BPS.
(e) Derivative financial instruments
The Group had cross currency swaps to ensure the US Dollar
liability streams generated from the US Dollar Notes were fully
hedged into Sterling for the life of the transaction. Through
entering into cross currency swaps the Group created a synthetic
Sterling fixed rate liability totalling GBP64.5m at 31 March
2021.
These swaps were designated as a cash flow hedge with changes in
fair value dealt with in other comprehensive income. The Group
previously elected to continue applying hedge accounting as set out
in IAS 39 to these swaps as permitted by IFRS 9. The cash flow
hedge was terminated during the year ended 31 March 2022 in line
with the repayment of the US Dollar Notes in April 2021 and
therefore there is nil notional amount at this date.
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 hedged
instrument.
The effects of the cash flow US Dollar swap hedging relationship
is as follows:
2022 2021
------------------------------------------------------ ---- ---------
Carrying amount of derivative (GBPm) - 8.7
------------------------------------------------------ ---- ---------
Change in fair value of designated hedging instrument
(GBPm) - (9.8)
------------------------------------------------------ ---- ---------
Change in fair value of designated hedged item (GBPm) - 8.6
------------------------------------------------------ ---- ---------
Notional amount (GBPm) - 64.5
------------------------------------------------------ ---- ---------
Notional amount ($m) - 100
------------------------------------------------------ ---- ---------
Rate payable (%) - 5.66%
------------------------------------------------------ ---- ---------
Maturity - June 2023
------------------------------------------------------ ---- ---------
Hedge ratio - 1:1
------------------------------------------------------ ---- ---------
The cash flow hedge was terminated in line with the repayment of
the US Dollar Notes.
(f) Financial instruments and fair values
2022 2022 2021 2021
Book Fair Book Fair
value value value value
GBPm GBPm GBPm GBPm
----------------------------------------------- ------ ------ ------ ------
Financial liabilities held at amortised cost
----------------------------------------------- ------ ------ ------ ------
Bank loans (2.1) (2.1) (0.8) (0.8)
----------------------------------------------- ------ ------ ------ ------
Private Placement Notes 299.5 301.8 455.9 478.1
----------------------------------------------- ------ ------ ------ ------
Lease obligations 31.0 31.0 26.3 26.3
----------------------------------------------- ------ ------ ------ ------
Green Bond 298.1 282.8 297.7 297.7
----------------------------------------------- ------ ------ ------ ------
626.5 613.5 779.1 801.3
----------------------------------------------- ------ ------ ------ ------
Financial assets at fair value through other
comprehensive income
----------------------------------------------- ------ ------ ------ ------
Derivative financial instruments:
----------------------------------------------- ------ ------ ------ ------
Cash flow hedge - derivatives used for hedging - - 8.7 8.7
----------------------------------------------- ------ ------ ------ ------
Other investments 1.7 1.7 7.9 7.9
----------------------------------------------- ------ ------ ------ ------
1.7 1.7 16.6 16.6
----------------------------------------------- ------ ------ ------ ------
Financial assets at fair value through profit
or loss
----------------------------------------------- ------ ------ ------ ------
Deferred consideration (overage) 0.6 0.6 5.1 5.1
----------------------------------------------- ------ ------ ------ ------
0.6 0.6 5.1 5.1
----------------------------------------------- ------ ------ ------ ------
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 in note 10.
(g) Financial instruments by category
Assets 2022 2021
GBPm GBPm
------------------------------------------------------ ----- -----
a) Assets at fair value through profit or loss
------------------------------------------------------ ----- -----
Deferred consideration (overage) 0.6 5.1
------------------------------------------------------ ----- -----
0.6 5.1
------------------------------------------------------ ----- -----
b) Loans and receivables
------------------------------------------------------ ----- -----
Cash and cash equivalents 49.0 191.0
------------------------------------------------------ ----- -----
Trade and other receivables excluding prepayments1 8.4 14.5
------------------------------------------------------ ----- -----
57.4 205.5
------------------------------------------------------ ----- -----
c) Assets at value through other comprehensive income
------------------------------------------------------ ----- -----
Cash flow hedge - derivatives used for hedging - 8.7
------------------------------------------------------ ----- -----
Other investments 1.9 7.9
------------------------------------------------------ ----- -----
1.9 16.6
------------------------------------------------------ ----- -----
Total 59.9 227.2
------------------------------------------------------ ----- -----
Liabilities 2022 2021
GBPm GBPm
-------------------------------------------------------------- ----- -----
Other financial liabilities at amortised cost
-------------------------------------------------------------- ----- -----
Borrowings 595.5 752.8
-------------------------------------------------------------- ----- -----
Lease liabilities 31.0 26.3
-------------------------------------------------------------- ----- -----
Trade and other payables excluding non-financial liabilities2 73.8 81.9
-------------------------------------------------------------- ----- -----
700.3 861.0
-------------------------------------------------------------- ----- -----
1. Trade and other receivables exclude prepayments of GBP14.5m
(2021: GBP9.7m) and non-cash deferred consideration of GBP0.6m
(2021: GBP5.1m).
2. Trade and other payables exclude other tax and social
security of GBP3.8m (2021: GBP3.6m), corporation tax of GBPnil
(2021: GBPnil) and deferred income of GBP8.2m (2021: GBP9.5m).
(H) CHANGES IN LIABILITIES FROM FINANCING ACTIVITIES
Bank loans Lease liabilities Derivatives
and borrowings GBPm used for
GBPm hedging-assets
GBPm
--------------------------------------------------- --------------- ----------------- ---------------
Balance at 1 April 2020 626.2 28.2 18.5
--------------------------------------------------- --------------- ----------------- ---------------
Changes from financing cash flows:
--------------------------------------------------- --------------- ----------------- ---------------
Proceeds from bank borrowings and Private
Placement Notes 54.0 - -
--------------------------------------------------- --------------- ----------------- ---------------
Repayment of bank borrowings and Private Placement
Notes (217.0) - -
--------------------------------------------------- --------------- ----------------- ---------------
Proceeds from Green Bond 299.5 - -
--------------------------------------------------- --------------- ----------------- ---------------
Total changes from cash flows 136.5 - -
--------------------------------------------------- --------------- ----------------- ---------------
Changes in fair value of derivative financial
instruments - - (9.8)
--------------------------------------------------- --------------- ----------------- ---------------
Foreign exchange differences (8.5) - -
--------------------------------------------------- --------------- ----------------- ---------------
Amortisation of issue costs of borrowing (1.4) - -
--------------------------------------------------- --------------- ----------------- ---------------
Changes in leases - (1.9) -
--------------------------------------------------- --------------- ----------------- ---------------
Interest payable 21.7 1.6 -
--------------------------------------------------- --------------- ----------------- ---------------
Interest paid (21.7) (1.6) -
--------------------------------------------------- --------------- ----------------- ---------------
Total other changes (9.9) (1.9) (9.8)
--------------------------------------------------- --------------- ----------------- ---------------
Balance at 31 March 2021 752.8 26.3 8.7
--------------------------------------------------- --------------- ----------------- ---------------
Bank loans Lease liabilities Derivatives
and borrowings GBPm used for
GBPm hedging-assets
GBPm
--------------------------------------------------- --------------- ----------------- ---------------
Balance at 1 April 2021 752.8 26.3 8.7
--------------------------------------------------- --------------- ----------------- ---------------
Changes from financing cash flows:
--------------------------------------------------- --------------- ----------------- ---------------
Proceeds from bank borrowings 25.0 - -
--------------------------------------------------- --------------- ----------------- ---------------
Repayment of bank borrowings and Private Placement
Notes (173.5) - -
--------------------------------------------------- --------------- ----------------- ---------------
Finance costs for new/amended borrowing facilities (1.3)
--------------------------------------------------- --------------- ----------------- ---------------
Repayment of derivatives - - (0.7)
--------------------------------------------------- --------------- ----------------- ---------------
Total changes from cash flows (149.8) - (0.7)
--------------------------------------------------- --------------- ----------------- ---------------
Changes in fair value of derivative financial - - -
instruments
--------------------------------------------------- --------------- ----------------- ---------------
Foreign exchange differences (8.6) - (8.0)
--------------------------------------------------- --------------- ----------------- ---------------
Amortisation of issue costs of borrowing 1.1 - -
--------------------------------------------------- --------------- ----------------- ---------------
Changes in leases - 4.7 -
--------------------------------------------------- --------------- ----------------- ---------------
Interest payable 18.8 1.7 -
--------------------------------------------------- --------------- ----------------- ---------------
Interest paid (18.8) (1.7) -
--------------------------------------------------- --------------- ----------------- ---------------
Total other changes (7.5) 4.7 (8.0)
--------------------------------------------------- --------------- ----------------- ---------------
Balance at 31 March 2022 595.5 31.0 -
--------------------------------------------------- --------------- ----------------- ---------------
17. Lease Obligations
Lease liabilities are in respect of leased investment
property.
Minimum lease payments under leases fall due as follows:
2022 2021
GBPm GBPm
----------------------------------- ------- -------
Within one year 1.9 1.6
----------------------------------- ------- -------
Between two and five years 7.4 6.6
----------------------------------- ------- -------
Between five and fifteen years 18.6 16.4
----------------------------------- ------- -------
Beyond fifteen years 162.4 132.0
----------------------------------- ------- -------
190.3 156.6
----------------------------------- ------- -------
Future finance charges on leases (159.3) (130.3)
----------------------------------- ------- -------
Present value of lease liabilities 31.0 26.3
----------------------------------- ------- -------
Following the adoption of IFRS 16, lease obligations are shown
separately on the face of the balance sheet. The balance represents
a non-current liability as the payment shown within one year of
GBP1.7m (2021: GBP1.6m) is offset by future finance charges on
leases of GBP1.7m (2021: GBP1.6m). All lease obligations are long
leaseholds, therefore, the majority of the obligations fall beyond
fifteen years.
18. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from
operations:
2022 2021
GBPm GBPm
----------------------------------------------------------- ------ -------
Profit/ (loss) before tax 124.0 (235.7)
----------------------------------------------------------- ------ -------
Depreciation 1.8 2.0
----------------------------------------------------------- ------ -------
Amortisation of intangibles 0.9 0.9
----------------------------------------------------------- ------ -------
(Profit)/ loss on disposal of investment properties (7.8) 0.1
----------------------------------------------------------- ------ -------
Other (income)/ expenses (0.6) 0.2
----------------------------------------------------------- ------ -------
Net (profit)/ loss from change in fair value of investment
property (68.7) 257.7
----------------------------------------------------------- ------ -------
Equity-settled share based payments 1.6 2.5
----------------------------------------------------------- ------ -------
Finance costs 20.5 23.8
----------------------------------------------------------- ------ -------
Exceptional finance costs - 16.4
----------------------------------------------------------- ------ -------
Changes in working capital:
----------------------------------------------------------- ------ -------
Decrease/ (increase) in trade and other receivables 1.4 (4.4)
----------------------------------------------------------- ------ -------
Increase/ (decrease) in trade and other payables 7.4 (1.1)
----------------------------------------------------------- ------ -------
Cash generated from operations 80.5 62.4
----------------------------------------------------------- ------ -------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following:
2022 2021
GBPm GBPm
----------------------------------------- ----- -----
Cash at bank and in hand 42.3 183.6
----------------------------------------- ----- -----
Restricted cash - tenants' deposit deeds 6.7 7.4
----------------------------------------- ----- -----
49.0 191.0
----------------------------------------- ----- -----
19. Share capital and share premium
2022 2021
GBPm GBPm
------------------------------------------------ ----- -----
Issued: Fully paid ordinary shares of GBP1 each 181.1 181.1
------------------------------------------------ ----- -----
Movements in share capital were as follows: 2022 2021
Number Number
-------------------------------------------- ----------- -----------
Number of shares at 1 April 181,113,594 180,747,868
-------------------------------------------- ----------- -----------
Issue of shares 11,665 365,726
-------------------------------------------- ----------- -----------
Number of shares at 31 March 181,125,259 181,113,594
-------------------------------------------- ----------- -----------
The Group issued 11,665 shares (2021: 365,726 shares) during the
year to satisfy the exercise of share options with net proceeds of
GBPnil (2021: GBP0.1m).
Share capital Share premium
--------------- ---------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
-------------------- ------- ------ ------- ------
Balance at 1 April 181.1 180.7 295.4 295.1
-------------------- ------- ------ ------- ------
Issue of shares - 0.4 0.1 0.3
-------------------- ------- ------ ------- ------
Balance at 31 March 181.1 181.1 295.5 295.4
-------------------- ------- ------ ------- ------
20. Other reserves
Other Equity-settled Merger Hedging Total
investment share reserve reserve GBPm
reserve based GBPm GBPm
GBPm payments
GBPm
--------------------------------------------- ----------- -------------- -------- -------- -----
Balance at 1 April 2020 2.1 20.2 8.7 1.2 32.2
--------------------------------------------- ----------- -------------- -------- -------- -----
Share based payments - 2.5 - - 2.5
--------------------------------------------- ----------- -------------- -------- -------- -----
Issue of shares - (0.4) - - (0.4)
--------------------------------------------- ----------- -------------- -------- -------- -----
Change in fair value of derivative financial
instruments (cash flow hedge) - - - (1.2) (1.2)
--------------------------------------------- ----------- -------------- -------- -------- -----
Balance at 31 March 2021 2.1 22.3 8.7 - 33.1
--------------------------------------------- ----------- -------------- -------- -------- -----
Share based payments - 1.6 - - 1.6
--------------------------------------------- ----------- -------------- -------- -------- -----
Issue of shares - - - - -
--------------------------------------------- ----------- -------------- -------- -------- -----
Recycled to retained earnings (2.1) - - - (2.1)
--------------------------------------------- ----------- -------------- -------- -------- -----
Balance at 31 March 2022 - 23.9 8.7 - 32.6
--------------------------------------------- ----------- -------------- -------- -------- -----
The Group sold its investment in Excell Holdings Limited
realising a gain recognised in previous periods which has been
recycled to retained earnings.
21. Capital commitments
At the year end the estimated amounts of contractual commitments
for future capital expenditure not provided for were:
2022 2021
GBPm GBPm
--------------------------------- ----- -----
Investment property construction 4.6 4.2
--------------------------------- ----- -----
For both current and prior period, there were no material
obligations for the repair or maintenance of investment properties.
All material contacts for enhancement are included in the capital
commitments.
22. Post balance sheet events
On 6 May 2022 the Group completed on the acquisition of McKay
Securities PLC for GBP258.1m, adding 31 properties to the portfolio
across London and the South East with a value of GBP491.7m as
valued by Knight Frank at 31 March 2022. The Group have considered
the IFRS 3 framework and have concluded this is an asset
acquisition for accounting purposes.
23. RESPONSIBILITY STATEMENT
The 2022 Annual Report, which will be issued on 20 June 2022,
contains a responsibility statement which states that on 7 June
2021, the date of approval of the Annual Report, the Directors
confirm that, to the best of their knowledge:
- The Group financial statements, which have been prepared in
accordance with UK adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group.
- The Business Review contained within the Annual Report,
includes as fair review of the developments and performance of the
business, and the position of the Group, with a description of the
principle risks and uncertainties that the Group faces included in
a separate section.
- The Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
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END
FR FFFELRRIDIIF
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June 08, 2022 02:01 ET (06:01 GMT)
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