TIDMWKP
RNS Number : 0544U
Workspace Group PLC
21 November 2023
21 November 2023
WORKSPACE GROUP PLC
HALF YEAR RESULTS
CONTINUED INCOME AND DIVID GROWTH FROM OUR SCALABLE OPERATING
PLATFORM
Workspace Group PLC ("Workspace"), London's leading owner and
operator of sustainable, flexible work space today announces its
results for the half year to 30 September 2023. The comments in
this announcement refer to the period from 1 April 2023 to 30
September 2023 unless otherwise stated.
Financial highlights: Strong rental income growth driving
increase in dividend, valuation reduction from yield expansion
-- Net rental income up 9% (GBP4.9m) to GBP61.0m (September 2022: GBP56.1m)
-- Trading profit after interest up 7% to GBP 31.1 m (September 2022: GBP29.1m)
-- Interim dividend per share up 7% to 9.0p per share (30 September 2022: 8.4p)
-- Property valuation of GBP2,505m, an underlying(1) reduction
of 6.6% (GBP178m) from 31 March 2023
-- Like-for-like portfolio valuation down 5.6% with equivalent yield out 45bps to 6.7%
-- Loss before tax of GBP147.9m (30 September 2022: GBP35.8m
profit ) reflecting the reduction in the property valuation
-- EPRA net tangible assets per share down 10.2% from 31 March 2023 to GBP8.32
-- Robust balance sheet with GBP133m of cash and undrawn
facilities and LTV stable at 34% (30 September 2022: 33%)
-- Average cost of debt over the half year was 4.0% with 76% of debt at fixed rates
-- Bank facilities extended to April/December 2026 in November
2023, with a pro-forma weighted average maturity of drawn debt of
4.1 years as at 30 September 2023
Customer activity: Stable occupancy and continued pricing
growth
-- Good customer demand with 583 lettings completed in the half
year with a total rental value of GBP15.0m, highlighting the appeal
of our flexible offer
-- Strong rental growth with like-for-like rent roll up 3.0% in
the quarter, up 6.3% in the half year to GBP108.6m
-- Improved pricing with like-for-like rent per sq. ft. up 3.3%
in the quarter, the ninth consecutive quarterly increase, and 6.6%
in the half year, to GBP42.98
-- Like-for-like occupancy stable at 88.7% (30 September 2022: 89.2%)
Portfolio activity: Active capital recycling
-- Good progress on disposals of non-core assets, with GBP92.8m
completed in the first half of the year, and a further GBP13.5m of
disposals completed in October and November
Project activity & Sustainability
-- Three major and five smaller projects underway delivering
360,000 sq. ft. of new and upgraded space. Further 1.0m sq. ft. of
projects in the pipeline
-- Active asset management delivered a 7% reduction in
operational energy intensity, 37% reduction in gas use and a 5%
increase in EPC A and B rated space to 48%
Commenting on the results, Graham Clemett, Chief Executive
Officer said:
"Over 35 years we have developed a deep understanding of what
SMEs want from their working space. This experience and knowledge
of our customers is difficult to replicate. Our flexible offer is
built with the needs of their businesses and their teams at its
heart. Now more than ever this means control over their space,
being part of a community of like-minded businesses and having the
freedom to grow and move within our portfolio of characterful and
well-located buildings. Today, demand from businesses across London
increasingly points towards this holistic flexibility. This is
coming through in our results as we report good customer demand and
strong rental income growth, driven by increased pricing and stable
occupancy.
Throughout the first half of the year, we have continued to
actively manage our portfolio to meet changing customer needs. We
have completed a wide range of smaller unit refurbishments and
subdivisions, as well as making good progress on our larger
projects. As expected, valuations are down as a result of movement
in market yields. However, we have maintained a conservative level
of gearing, with the continuing disposal of non-core properties
further strengthening our balance sheet and we expect more over the
next six months.
We go into the second half of the year with good momentum. Our
scalable operating platform gives us a competitive advantage and we
have a clear pathway to unlock near and long-term income growth,
both through capturing reversion on our like-for-like properties
and active asset management opportunities."
Summary Results
September September Change
2023 2022
Financial performance
------------ ---------- ---------
Net rental income GBP61.0m GBP56.1m +8.7%
------------ ---------- ---------
Trading profit after interest GBP31.1m GBP29.1m +6.9%
------------ ---------- ---------
(Loss)/profit before tax GBP(147.9)m GBP35.8m
------------ ---------- ---------
Interim dividend per share 9.0p 8.4p +7.1%
------------ ---------- ---------
September March Change
2023 2023
------------ ---------- ---------
Valuation
------------ ---------- ---------
EPRA net tangible assets per
share GBP8.32 GBP9.27 -10.2%
------------ ---------- ---------
Property valuation GBP2,505m GBP2,741m -6.6%(1)
------------ ---------- ---------
Financing
------------ ---------- ---------
Loan to value 34% 33%
------------ ---------- ---------
Undrawn bank facilities and cash GBP133m GBP148m
------------ ---------- ---------
Alternative performance measure (APM). The Group uses a number
of financial measures to assess and explain its performance. Some
of these which are not defined within IFRS are considered APMs.
(1) Underlying change excluding capital expenditure and
disposals.
For media and investor enquiries, please contact:
Workspace Group PLC
Graham Clemett, Chief Executive Officer
Dave Benson, Chief Financial Officer
Paul Hewlett, Director of Strategy & Corporate
Development
Clare Marland, Head of Corporate Communications 020 7138 3300
FGS Global
Chris Ryall
Guy Lamming 020 7251 3801
Details of results presentation
Workspace will host a results presentation for analysts and
investors on Tuesday, 21 November 2023 at 9:00am. The presentation
will take place at our recently opened Eventspace, at our
refurbished Salisbury House, 114 London Wall, EC2M 5QA.
The presentation can also be accessed live via webcast or
conference call.
Webcast
The live webcast will be available here:
https://secure.emincote.com/client/workspace/workspace024
Conference call
In order to join via phone at 9:00am, please register at the
following link and you will be provided with dial-in details and a
unique access code:
https://secure.emincote.com/client/workspace/workspace024/vip_connect
Notes to Editors
About Workspace Group PLC:
Workspace is London's leading owner and operator of flexible
workspace, currently managing 4.7 million sq. ft. of sustainable
space at 79 locations in London and the South East.
We are home to some 4,000 of London's fastest growing and
established brands from a diverse range of sectors. Our purpose, to
give businesses the freedom to grow, is based on the belief that in
the right space, teams can achieve more. That in environments they
tailor themselves, free from constraint and compromise, teams are
best able to collaborate, build their culture and realise their
potential.
We have a unique combination of a highly effective and scalable
operating platform, a portfolio of distinctive properties, and an
ownership model that allows us to offer true flexibility. We
provide customers with blank canvas space to create a home for
their business, alongside leases that give them the freedom to
easily scale up and down within our well-connected, extensive
portfolio.
We are inherently sustainable - we invest across the capital,
breathing new life into old buildings and creating hubs of economic
activity that help flatten London's working map. We work closely
with our local communities to ensure we make a positive and lasting
environmental and social impact, creating value over the long term.
Workspace was established in 1987, has been listed on the London
Stock Exchange since 1993, is a FTSE 250 listed Real Estate
Investment Trust (REIT) and a member of the European Public Real
Estate Association (EPRA).
Workspace(R) is a registered trademark of Workspace Group PLC,
London, UK.
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk
BUSINESS REVIEW
CUSTOMER ACTIVITY
We have seen good customer demand with 583 lettings completed in
the half year with a total rental value of GBP15.0m.
Monthly Average Monthly Activity
----------------------
H1 H1 FY 30 Sep 31 Aug 31 Jul
2023/24 2022/23 2022/23 2023 2023 2023
--------- ------ ------ ------
Enquiries 788 769 798 916 824 771
Viewings 509 502 518 578 480 524
Lettings 98 107 110 112 111 100
--------- -------- -------- ------ ------ ------
Good activity levels have continued into the third quarter, with
858 enquiries, 533 viewings and
90 deals in October 2023.
Alongside our new lettings, we have seen strong renewal activity
in the half year, with 313 customers across the like-for-like
portfolio renewing for a GBP1.6m (20%) uplift in annual rent.
RENT ROLL
Total rent roll, representing the total annualised net rental
income at a given date, was up 1.3% (GBP1.8m) in the six months to
GBP141.9m at 30 September 2023.
Total Rent Roll GBPm
------------------------------------ ------
At 31 March 2023 140.1
Like-for-like portfolio 6.4
Completed projects (0.4)
Projects underway and design stage 0.5
South East Office 0.0
Non-core 0.1
Disposals (4.8)
At 30 September 2023 141.9
------------------------------------ ------
The total Estimated Rental Value (ERV) of the portfolio,
comprising the ERV of the like-for-like portfolio and those
properties currently undergoing refurbishment or redevelopment (but
only including properties at the design stage and non-core
properties at their current rent roll and occupancy), was GBP191.5m
at 30 September 2023.
Like-for-like portfolio
The like-for-like portfolio represents 77% of the total rent
roll as at 30 September 2023. It comprises 42 properties with
stabilised occupancy excluding recent acquisitions, buildings
impacted by significant refurbishment or redevelopment activity, or
contracted for sale.
Six Months Ended
----------------------------------------
Like for Like 30 Sep 23 31 Mar 23(1) 30 Sep 22(1)
------------------------- ---------- ------------- -------------
Occupancy 88.7% 89.3% 89.2%
Occupancy change(2) (0.6%) 0.1% 0.4%
Rent per sq. ft. GBP42.98 GBP40.30 GBP38.17
Rent per sq. ft. change 6.7% 5.6% 3.8%
Rent roll GBP108.6m GBP102.2m GBP97.8m
Rent roll change 6.3% 4.5% 4.8%
------------------------- ---------- ------------- -------------
(1) Restated for the transfer in of Westbourne Studios and Mare
Street from the Completed Projects category and the transfer in of
Castle Lane and Wilson Street from Recent Acquisitions
(2) Absolute change
We have continued to move pricing forward across our
like-for-like portfolio with rent per sq. ft. increasing by 6.7% in
the half year to GBP42.98. Like-for-like occupancy was marginally
down by 0.6% to 88.7% in the half year, with an overall increase in
like-for-like rent roll of 6.3% (GBP6.4m) to GBP108.6m.
We have seen ERV per sq. ft. increase by 0.8% in the half year.
If all the like-for-like properties were at 90% occupancy at the
CBRE estimated rental values at 30 September 2023, the rent roll
would be GBP124.0m, GBP15.4m higher than the actual rent roll at 30
September 2023.
Completed Projects
There are eight projects in the completed projects category.
Rent roll reduced overall by GBP0.4m in the six months to GBP8.7m.
An underlying increase of GBP0.5m in rent roll was offset by a
GBP0.9m reduction at Evergreen Studios, Richmond, following the
expiry of a short leaseback of the building by the developer.
If the buildings in this category were all at 90% occupancy at
the ERVs at 30 September 2023, the rent roll would be GBP11.8m, an
uplift of GBP3.1m.
Projects Underway - Refurbishments
We are currently underway on eight refurbishment projects that
will deliver 360,000 sq. ft. of new and upgraded space. As at 30
September 2023, rent roll was GBP8.9m, up GBP0.3m in the last six
months.
Assuming 90% occupancy at the ERVs at 30 September 2023, the
rent roll at these eight buildings once they are completed would be
GBP19.5m, an uplift of GBP10.6m.
Projects at Design Stage
These are properties where we are well advanced in planning a
refurbishment or redevelopment that has not yet commenced. As at 30
September 2023, the rent roll at these properties was GBP6.0m, up
GBP0.2m.
South East Office
As at 30 September 2023, the rent roll of the South East office
portfolio, comprising eleven buildings, was stable at GBP7.6m, with
occupancy at 88.1%.
Assuming 90% occupancy (or current occupancy if higher) at the
ERVs at 30 September 2023, the rent roll would be GBP10.3m, an
uplift of GBP2.7m.
Non-core
As at 30 September 2023, the rent roll of the non-core
portfolio, comprising three industrial estates, two residential
schemes and an advertising tower adjacent to The Mille in
Brentford, was GBP2.2m, down GBP0.1m.
Disposals
In June, we completed on the sale of five light industrial and
logistics properties in Bracknell, Crawley, Poyle, Theale and
Weybridge for GBP82.0m, in line with their March 2023
valuations.
In the second quarter, we completed on the sale of Columbia
House, Farnborough, for GBP7.3m and Ancells Road, Fleet, for
GBP3.5m, both in line with their March 2023 valuations.
In aggregate, these disposals have delivered GBP92.8m of
proceeds in the first half of the year, at a combined net initial
yield of 5.1%.
Since the half year, we have completed on the sale of the
advertising tower adjacent to The Mille in Brentford for GBP9.0m
and the Three Acre industrial estate, Folkestone for GBP4.5m, at a
combined net initial yield at 7.2%.
PROFIT PERFORMANCE
Trading profit after interest for the half year was up 6.9%
(GBP2.0m) on the prior half year to GBP31.1m.
30 Sep 30 Sep
GBPm 2023 2022
----------------------------------------------- ------ ------
Net rental income 61.0 56.1
Administrative expenses - underlying (10.4) (10.4)
Administrative expenses - share based costs(1) (1.2) (1.0)
Net finance costs (18.3) (15.6)
----------------------------------------------- ------ ------
Trading profit after interest 31.1 29.1
----------------------------------------------- ------ ------
(1) These relate to both cash and equity settled costs
Net rental income was up 8.7% (GBP4.9m) to GBP61.0m.
30 Sep 30 Sep
GBPm 2023 2022
---------------------------------------------- ------ ------
Underlying rental income 59.3 54.9
Unrecovered service charge costs (2.7) (1.7)
Empty rates and other non-recoverable costs (5.1) (4.8)
Services, fees, commissions and sundry income 0.5 (0.4)
---------------------------------------------- ------ ------
Underlying net rental income 52.0 48.0
Acquisitions 7.3 5.0
Disposals 1.7 3.1
Net rental income 61.0 56.1
---------------------------------------------- ------ ------
The GBP4.4m increase in underlying rental income to GBP59.3m
reflects the strong increase in average rent per sq. ft. achieved
over the last year. Total net rental income also benefited from
increased rents from recent acquisitions which have continued to
let up well in the first half of the year.
Although the majority of service charge costs are recovered from
customers, the unusually high levels of inflation we have seen in
the UK over the last year, combined with a slight reduction in
overall occupancy, resulted in an increase of GBP1.0m in
unrecovered service charge costs.
There was a small increase in empty rates and other
non-recoverable costs which were up GBP0.3m to GBP5.1m. Net revenue
from services, fees, commissions and sundry income was up by
GBP0.9m, including increased hospitality revenue.
Rent collection for the period has remained robust with a charge
for expected credit losses of GBP0.6m for the six months, compared
to GBP1.1m for the full year to March 2023.
Underlying administrative expenses remained unchanged at
GBP10.4m, with inflationary increases offset by synergy savings
following the completion of the integration of McKay. Share-based
costs increased by GBP0.2m to GBP1.2m driven by higher vesting
levels and assumptions.
Net finance costs increased by GBP2.7m to GBP18.3m in the half
year reflecting the increase in SONIA over the last year and higher
average net debt following the acquisition of McKay. The average
net debt balance in the period was GBP23m higher than the first six
months of the prior year, whilst the average interest cost
increased from 3.5% to 4.0%.
Loss before tax was GBP147.9m compared to a GBP35.8m profit in
the prior year.
30 Sep 30 Sep
GBPm 2023 2022
---------------------------------------------- ------- ------
Trading profit after interest 31.1 29.1
Change in fair value of investment properties (177.4) 8.1
(Loss)/gain on sale of investment properties (1.2) 1.5
Exceptional costs (0.4) (2.9)
(Loss)/profit before tax (147.9) 35.8
---------------------------------------------- ------- ------
Adjusted underlying earnings per share 16.1p 15.3p
---------------------------------------------- ------- ------
The change in fair value of investment properties, including
assets held for sale, was a decrease of GBP177.4m compared to an
increase of GBP8.1m in the prior year.
The loss on sale of investment properties of GBP1.2m resulted
from costs associated with disposals in the first half.
Exceptional costs include one-off items relating to the
implementation of our new finance and property management
system.
Adjusted underlying earnings per share, based on EPRA earnings
adjusted for non-trading items and calculated on a diluted share
basis, was up 5.2% to 16.1p.
INTERIM 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 total dividend per share in each financial year
is covered at least 1.2 times by adjusted underlying earnings per
share.
With the solid trading performance in the first half and
confidence in the longer-term prospects of the Company, the Board
is pleased to announce that this year an interim dividend of 9.0p
per share (2022: 8.4p) will be paid on 2 February 2024 to
shareholders on the register at 5 January 2024. The dividend will
be paid as a REIT Property Income Distribution (PID) net of
withholding tax where appropriate.
PROPERTY VALUATION
At 30 September 2023, our property portfolio was independently
valued by CBRE at GBP2,505m, an underlying decrease of 6.6%
(GBP178m) in the half year. The main movements in the valuation are
set out below:
GBPm
------------------------------- -----
Valuation at 31 March 2023 2,741
Capital expenditure 34
Disposals (92)
Revaluation (178)
Valuation at 30 September 2023 2,505
------------------------------- -----
A summary of the half year valuation and revaluation movement by
property type is set out below:
GBPm Valuation Movement
------------------------- ---------------- --------
Like-for-like properties 1,881 (111)
Completed projects 177 (14)
Refurbishments 290 (31)
Redevelopments 27 (5)
South East office 96 (10)
Non-core 34 (7)
Total 2,505 (178)
------------------------- ---------------- --------
Like-for-like Properties
There was a 5.6% (GBP111m) underlying decrease in the valuation
of like-for-like properties to GBP1,881m. This was driven by a
45bps outward shift in equivalent yield (GBP132m), offset by a 0.8%
increase in the ERV per sq. ft. (GBP21m).
ERV growth has returned to a lower, historically more normal
level of growth, with pricing at most centres now back at or above
pre-Covid levels. We saw stronger growth in ERV for smaller space
which represent the majority of our lettings activity, with an
increase of 2% in the six months for units under 1,000 sq. ft.
compared to larger spaces where ERVs have been flat, and also
reflects our approach to implement a wide range of smaller unit
refurbishments and subdivisions.
30 Sep 31 Mar
2023 2023(1) Change
-------------------------- -------- -------- ---------
ERV per sq. ft. GBP48.38 GBP48.01 0.8%
Rent per sq. ft. GBP42.98 GBP40.30 6.6%
Equivalent yield 6.7% 6.2% 0.5%(2)
Net initial yield 5.2 % 4.7% 0.5%(2)
Capital value per sq. ft. GBP661 GBP697 5.2%
-------------------------- -------- -------- ---------
(1) Restated for the transfer in of Westbourne Studios and Mare
Street from the Completed Projects category and the transfer in of
Castle Lane and Wilson Street from Recent Acquisitions
(2) Absolute change
A 2.5% increase in ERV would increase the valuation of
like-for-like properties by approximately GBP50m whilst a 25bps
increase in equivalent yield would decrease the valuation by
approximately GBP70m.
Completed Projects
There was an underlying decrease of 7.3% (GBP14m) in the value
of the eight completed projects to GBP177m. This was driven by a
51bps outward shift in equivalent yield, offset by a 1.3% increase
in the ERV per sq. ft. The overall valuation metrics for completed
projects are set out below:
30 Sep
2023
-------------------------- --------
ERV per sq. ft. GBP31.20
Rent per sq. ft. GBP27.65
Equivalent yield 6.9%
Net initial yield 4.3 %
Capital value per sq. ft. GBP422
-------------------------- --------
Current Refurbishments and Redevelopments
There was an underlying decrease of 9.7% (GBP31m) in the value
of our current refurbishments to GBP290m and a reduction of 15.6%
(GBP5m) in the value of our current redevelopments to GBP27m.
The decreases in respect of refurbishments largely reflected the
movement in market yields, with redevelopment valuations also
impacted by a decline in expected residential values and increases
in expected build costs.
South East Office
There was a 9.4% (GBP10m) underlying decrease in the valuation
of the South East office portfolio to GBP96m with a 92bps outward
shift in equivalent yield, offset by a 1% increase in ERV per sq.
ft. The overall valuation metrics are set out below:
30 Sep
2023
-------------------------- --------
ERV per sq. ft. GBP28.63
Rent per sq. ft. GBP22.75
Equivalent Yield 9.9%
Net Initial Yield 7.7 %
Capital Value per sq. ft. GBP255
---------------------------- --------
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 30
September 2023 is set out below:
Projects Number Capex Capex to Upgraded and
spent spend new space (sq.
ft.)
----------------------- ------- ------- --------- ----------------
Underway 8 GBP29m GBP68m 362,000
Design stage 8 GBP0m GBP418m 672,000
Design stage (without
planning) 6 GBP0m GBP195m 331,000
----------------------- ------- ------- --------- ----------------
We are on-site at Leroy House, Islington, where we are
delivering a refurbished and extended 58,000 sq. ft. business
centre which we expect to complete in summer 2024. Our adaptive
re-use of the existing building creates 70% less embodied carbon
compared to a new build scheme. We have also recently commenced
major upgrades and extensions at Chocolate Factory, Wood Green, and
at The Biscuit Factory, Bermondsey.
We will obtain vacant possession of Atelier House, at the
northern end of our Centro property, in December 2023, which will
allow us to progress with our planned conversion of the building to
a business centre.
REDEVELOPMENT ACTIVITY
Many of our properties are in areas where there is strong demand
for mixed-use redevelopment. Our model is to use our expertise,
knowledge and local relationships to obtain a mixed-use planning
consent and then typically to agree terms with a residential
developer to undertake the redevelopment and construction at no
cost and limited risk to Workspace. We receive back a combination
of cash, new commercial space and overage in return for the sale of
the residential scheme to the developer.
A summary of the status of the redevelopment pipeline at 30
September 2023 is set out below:
No. of properties Residential New commercial
units space (sq.
ft.)
-------------- ------------------ ------------ ---------------
Design stage 3 539 61,000
The three schemes at design stage at Chocolate Factory in Wood
Green, Rainbow in Raynes Park and Poplar all have planning
consent.
SUSTAINABILITY
We have an inherently green property portfolio with energy
intensity already 9% lower than industry best practice for net zero
carbon offices. Further improving the energy efficiency of our
buildings is key in helping us to achieve our target of being a net
zero carbon business by 2030. The Workspace portfolio is currently
48% EPC A and B rated, an increase of 5% in the half year, and we
are on track to upgrade the remainder of our portfolio to these
categories by 2030. We are also targeting a reduction in Scope 1
gas emissions by a minimum of 5% each year, whilst continuing to
procure 100% renewable electricity (REGO backed). In the half year
we also achieved a 7% reduction in operational energy intensity and
a 37% reduction in gas use.
CASH FLOW
A summary of cash flows is set out below:
30 Sep 30 Sep
GBPm 2023 2022
---------------------------------------- ------ ------
Net cash from operations after interest 20 30
Dividends paid (32) (26)
Capital expenditure (36) (25)
Purchase of investment properties - (201)
Net debt acquired - (162)
Property disposals and cash receipts 92 7
Other (9) (2)
Net movement 35 (379)
Opening debt (net of cash) (902) (558)
---------------------------------------- ------ ------
Closing debt (net of cash) (867) (937)
---------------------------------------- ------ ------
2023 e xcludes GBP8.8m of VAT payments relating to sale of
Riverside included in 'Other'
There is a reconciliation of net debt in note 13(b) in the
financial statements.
The overall decrease of GBP35m in net debt reflects the
disposals made in the period.
NET ASSETS
Net assets decreased in the half year by GBP179m to GBP1,608m.
EPRA net tangible assets (NTA) per share at 30 September 2023 was
down 10.2% (GBP0.95) to GBP8.32.
EPRA NTA per
share
GBP
--------------------------------------- ------------
At 31 March 2023 9.27
Adjusted trading profit after interest 0.16
Property valuation deficit (0.92)
Dividends paid (0.17)
Other (0.02)
----------------------------------------- ------------
At 30 September 2023 8.32
----------------------------------------- ------------
The calculation of EPRA NTA per share is set out in note 8 of
the financial statements.
TOTAL ACCOUNTING RETURN
The total accounting return for the half year was (8.4)%
compared to 0.1% in the half year ended September 2022. The total
accounting return comprises the change in absolute EPRA net
tangible assets per share plus dividends paid in the year as a
percentage of the opening EPRA net tangible assets per share. The
calculation of total accounting return is set out in note 8 of the
financial statements.
FINANCING
As at 30 September 2023, the Group had GBP4m of available cash
and GBP129m of undrawn facilities:
Drawn amount Facility
GBPm GBPm Maturity
------------------------ ------------ -------- ---------
Private placement notes 300.0 300.0 2025-2029
Green bond 300.0 300.0 2028
Secured loan 65.0 65.0 2030
Bank facilities 206.5 335.0 2026
------------ --------
Total 871.5 1,000.0
------------ --------
The majority of the Group's debt comprises long-term fixed-rate
committed facilities including a GBP300m green bond, GBP300m of
private placement notes, and a GBP65m secured loan facility.
Shorter term liquidity and flexibility is provided by
floating-rate sustainability-linked Revolving Credit Facilities
(RCFs) totalling GBP335.0m which were GBP206.5m drawn as at 30
September 2023. The maturity of the bank facilities was
successfully extended by a further year in November 2023 with
GBP135m now maturing in April 2026 and GBP200m in December 2026.
Following the extension, on a pro-forma basis, the average maturity
of drawn debt at 30 September 2023 was 4.1 years (31 March 2023:
4.1 years).
At 30 September 2023, the effective interest rate was 4.1% based
on SONIA at 5.2%, with 76% of the net debt (GBP665m) at fixed
rates. The average interest cost of our fixed-rate borrowings was
2.9% and our floating-rate bank facilities had an average margin of
1.8% over SONIA. A 1% change in SONIA would change the effective
interest rate by 0.2% (at current debt levels).
At 30 September 2023, loan to value (LTV) was 34% (31 March
2023: 33%) and interest cover, based on net rental income and
interest paid over the last 12 month period, was 3.5 times (31
March 2023: 3.8 times), providing good headroom on all facility
covenants.
FINANCIAL outlook FOR 2023/24
Over the first half of the year, we have seen continued strong
rental growth driven by increased pricing and stable occupancy.
Rental income growth in the second half of the year will be
underpinned by the 6.3% growth in like-for-like rent roll we have
seen over the last six months. We continue to see good demand and
expect further growth in average rent per sq. ft. in the second
half of the year. Rental income growth will also be supported by
the letting up of recently completed projects.
The current high levels of inflation will impact on both our
service charge and administrative costs. In relation to service
charge costs, where the majority of the cost is passed on to our
customers, we have been able to limit the impact on customers by
the hedging of our energy costs in October 2021. Staff costs are
the most significant driver of our administrative expenses and,
whilst we have limited inflationary salary increases to a maximum
of 6% for staff earning more than GBP50,000, we have given higher
increases for those on lower salary levels.
The GBP92.8m of proceeds from disposals of non-core properties
made in the first half have reduced our floating-rate debt, which
currently has an effective interest rate of 7%, and we expect this
to result in a reduction in interest costs in the second half.
We expect capital expenditure of around GBP30m in the second
half as we continue to progress with planned asset management
projects, including the refurbishments of Leroy House, Chocolate
Factory and The Biscuit Factory. This capital expenditure will be
offset by asset disposals in the second half of the year.
property statistics
Half Year ended
------------------------------------------
30 Sep 31 Mar 30 Sep 31 Mar
2023 2023 2022 2022
----------------------------------- --------- --------- --------- ---------
Workspace Portfolio
Property valuation GBP2,505m GBP2,741m GBP2,863m GBP2,402m
Number of locations 79 86 87 57
Lettable floorspace (million
sq. ft.) 4.7 5.2 5.4 4.0
Number of lettable units 4,718 4,910 4,901 4,482
Rent roll of occupied units GBP141.9m GBP140.1m GBP134.7m GBP111.0m
Average rent per sq. ft. GBP36.81 GBP32.86 GBP30.03 GBP33.26
Overall occupancy 83.5% 81.5% 84.0% 84.3%
Like-for-like number of properties 42 38 38 39
Like-for-like lettable floor
space (million sq. ft.) 2.8 2.7 2.7 2.8
Like-for-like rent roll growth 6.3% 3.4% 3.6% 6.4%
Like-for-like rent per sq. ft.
growth 6.6% 5.2% 4.0% 2.5%
Like-for-like occupancy movement (0.6%) (0.5%) 0.1% 4.0%
----------------------------------- --------- --------- --------- ---------
1) The like-for-like category has been restated in the current financial year for the following:
-- The transfer in of Westbourne Studios and Mare Street from
the Completed Projects category and the transfer in of Castle Lane
and Wilson Street from Recent Acquisitions.
2) Like-for-like statistics for prior years are not restated for
the changes made to the like-for-like property portfolio in the
current financial year.
3) Overall rent per sq. ft. and occupancy statistics includes
the lettable area at like-for-like properties and all refurbishment
and redevelopment projects, including those projects recently
completed and also properties where we are in the process of
obtaining vacant possession.
CONSOLIDATED INCOME STATEMENT
FOR THE Six MonthsED 30 September 2023
Unaudited Unaudited
6 months 6 months
ended ended Audited
30 September 30 September Year ended
2023 2022 31 March
Notes GBPm GBPm 2023 GBPm
---------------------------------------------- ----- -------------- ----------------- -----------
Revenue 2 90.7 82.3 174.2
Direct costs(1) 2 (29.7) (26.2) (57.6)
---------------------------------------------- ----- -------------- ----------------- -----------
Net rental income 2 61.0 56.1 116.6
Administrative expenses (11.6) (11.4) (21.5)
---------------------------------------------- ----- -------------- ----------------- -----------
Trading profit 49.4 44.7 95.1
(Loss)/profit on disposal of investment
properties 3(a) (1.2) 1.5 (0.7)
Other expenses 3(b) (0.4) (2.3) (3.8)
Change in fair value of investment properties 9 (170.8) 8.1 (88.0)
Impairment of assets held for sale 9 (6.6) - (5.1)
---------------------------------------------- ----- -------------- ----------------- -----------
Operating (loss)/profit (129.6) 52.0 (2.5)
Finance costs 4 (18.3) (15.6) (34.4)
Exceptional finance costs 4 - (0.6) (0.6)
(Loss)/ profit before tax (147.9) 35.8 (37.5)
Taxation 5 - - (0.3)
---------------------------------------------- ----- -------------- ----------------- -----------
(Loss)/ profit for the period after
tax (147.9) 35.8 (37.8)
---------------------------------------------- ----- -------------- ----------------- -----------
(19.9
Basic (loss)/earnings per share 7 (77.2p) 18.9p p)
(19.9
Diluted (loss)earnings per share 7 (77.2p) 18.8p p)
---------------------------------------------- ----- -------------- ----------------- -----------
(1) Direct costs include impairment of receivables of GBP0.6m
(31 March 2023: GBP1.1m, 30 September 2022: GBP0.2m). See note 2
for further information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE six monthsED 30 September 2023
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------------ ------------- ------------- -----------
(Loss)/ profit for the period (147.9) 35.8 (37.8)
Other comprehensive income:
Items that may be classified subsequently
to profit or loss:
Change in fair value of other investments - - 0.4
Items that will not be reclassified
subsequently to profit or loss:
Pension fund movement - 0.9 0.9
------------------------------------------- ------------- ------------- -----------
Other comprehensive income in the year - 0.9 1.3
------------------------------------------- ------------- ------------- -----------
Total comprehensive (loss)/income for
the period (147.9) 36.7 (36.5)
------------------------------------------- ------------- ------------- -----------
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2023
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
Notes GBPm GBPm GBPm
------------------------------ ----- ------------- --------- -------------
Non-current assets
Investment properties 9 2,471.7 2,643.3 2,824.3
Intangible assets 2.1 2.0 2.0
Property, plant and equipment 3.9 4.4 2.9
Other investments 2.1 2.1 1.7
Deferred tax - - 0.3
------------------------------ ----- ------------- --------- -------------
2,479.8 2,651.8 2,831.2
------------------------------ ----- ------------- --------- -------------
Current assets
Trade and other receivables 10 58.1 45.8 37.1
Assets held for sale 60.5 123.0 65.9
Cash and cash equivalents 11 10.3 18.5 19.9
------------------------------ ----- ------------- --------- -------------
128.9 187.3 122.9
------------------------------ ----- ------------- --------- -------------
Total assets 2,608.7 2,839.1 2,954.1
------------------------------ ----- ------------- --------- -------------
Current liabilities
Trade and other payables 12 (99.1) (107.8) (97.8)
Borrowings 13(a) - (49.8) (199.7)
Pension fund deficit - - (0.3)
(99.1) (157.6) (297.8)
------------------------------ ----- ------------- --------- -------------
Non-current liabilities
Borrowings 13(a) (867.3) (859.1) (745.1)
Lease obligations 14 (34.7) (34.7) (34.6)
------------------------------ ----- ------------- --------- -------------
(902.0) (893.8) (779.7)
------------------------------ ----- ------------- --------- -------------
Total liabilities (1,001.1) (1,051.4) (1,077.5)
------------------------------ ----- ------------- --------- -------------
Net assets 1,607.6 1,787.7 1,876.6
------------------------------ ----- ------------- --------- -------------
Shareholders' equity
Share capital 16 191.9 191.6 191.6
Share premium 296.6 295.5 295.5(2)
Investment in own shares (9.9) (9.9) (9.9)
Other reserves 89.8 91.0 90.2(2)
Retained earnings 1,039.2 1,219.5 1,309.2
Total shareholders' equity 1,607.6 1,787.7 1,876.6
---------
(2) Refer to footnote on page 16.
Consolidated Statement of Changes in Equity
FOR THE periodED 30 September 2023
Attributable to owners of the Parent
----------------------------------------------------
Investment Total
Unaudited 6 months Share Share in own Other Retained Shareholders'
to capital premium shares reserves earnings equity
30 September 2023 Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 1 April
2023 191.6 295.5 (9.9) 91.0 1,219.5 1,787.7
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Loss for the period - - - - (147.9) (147.9)
Other comprehensive
income - - - - - -
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Total comprehensive
loss - - - - (147.9) (147.9)
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Transactions with
owners:
Dividends paid 6 - - - - (33.3) (33.3)
Share based payments 0.3 1.1 - (1.2) 0.9 1.1
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 30 September
2023 191.9 296.6 (9.9) 89.8 1,039.2 1,607.6
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Unaudited 6 months
to
30 September 2022
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 1 April
2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Profit for the period - - - - 35.8 35.8
Other comprehensive
income - - - - 0.9 0.9
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Total comprehensive
income - - - - 36.7 36.7
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Transactions with
owners:
Shares issued 16 10.5 - - 56.6(2) - 67.1
Dividends paid 6 - - - - (27.8) (27.8)
Share based payments - - - 1.0 - 1.0
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 30 September
2022 191.6 295.5 (9.9) 90.2 1,309.2 1,876.6
------------------------ ----- -------- -------- ---------- --------- --------- --------------
(2) Share premium as at 30 September 2022 has been restated to
reduce the balance at that date by GBP56.6m with an equal increase
in other reserves to reflect the nature of the McKay share acquisition,
consistent with the audited financial statements as at 31 March
2023.
Audited 12 months
to
31 March 2023
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 1 April
2022 181.1 295.5 (9.9) 32.6 1,300.3 1,799.6
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Loss for the year - - - - (37.8) (37.8)
Other comprehensive
income - - - 0.4 0.9 1.3
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Total comprehensive
(loss) - - - 0.4 (36.9) (36.5)
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Transactions with
owners:
Shares issued 16 10.5 - - 56.6 - 67.1
Dividends paid 6 - - - - (43.9) (43.9)
Share based payments - - - 1.4 - 1.4
------------------------ ----- -------- -------- ---------- --------- --------- --------------
Balance at 31 March
2023 191.6 295.5 (9.9) 91.0 1,219.5 1,787.7
------------------------ ----- -------- -------- ---------- --------- --------- --------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2023
Unaudited Unaudited
6 month 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2023 2022 2023
Notes GBPm GBPm GBPm
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from operating activities
Cash generated from operations 15 26.7 40.2 110.5
Interest paid (15.2) (10.0) (31.7)
Net cash inflow from operating activities 11.5 30.2 78.8
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from investing activities
Purchase of investment properties - (184.4) (184.4)
Capital expenditure on investment properties (35.9) (24.8) (56.2)
Proceeds from disposal of investment
properties (net of sales costs) 3.5 7.2 7.1
Proceeds from disposal of assets held
for sale (net of sale costs) 88.0 - 41.4
Purchase of intangible assets (0.4) (0.4) (0.8)
Purchase of property, plant and equipment (0.3) (0.7) (3.1)
Other expenses (0.4) (1.4) (2.9)
Settlement of defined benefit pension
scheme - - (1.3)
Net cash inflow/(outflow) from investing
activities 54.5 (204.5) (200.2)
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from financing activities
Finance costs of new/amended borrowing
facilities - (0.7) (1.6)
Settlement of share schemes (0.2) - -
Repayment of bank borrowings (134.5) (40.0) (150.0)
Draw down of bank borrowings 92.0 212.0 286.0
Dividends paid 6 (31.5) (26.1) (43.5)
--------------------------------------------- ----- ------------- ------------- -----------
Net cash (outflow)/inflow from financing
activities (74.2) 145.2 90.9
--------------------------------------------- ----- ------------- ------------- -----------
Net decrease in cash and cash equivalents (8.2) (29.1) (30.5)
--------------------------------------------- ----- ------------- ------------- -----------
Cash and cash equivalents at start of
period 11 18.5 49.0 49.0
Cash and cash equivalents at end of
period 11 10.3 19.9 18.5
--------------------------------------------- ----- ------------- ------------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE periodED 30 September 2023
1. Accounting policies
Basis of preparation
The half year report has been prepared in accordance with the
Disclosure and Transparency Rules and with IAS 34 'Interim
Financial Reporting' as adopted for use in the UK. The half year
report should be read in conjunction with the annual financial
statements for the year ended 31 March 2023, which have been
prepared in accordance with UK adopted international accounting
standards.
The condensed consolidated financial statements (consolidated
financial statements) in the half year report, presented in
Sterling, are unaudited and do not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006. The
Annual Report and Accounts for the year to 31 March 2023, were
prepared and approved by the Directors on a going concern basis, in
accordance with UK adopted international accounting standards
("IFRS"). The Company elected to prepare its Parent Company
financial statements in accordance with FRS 101. The auditor's
opinion on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement made
under Section 498 of the Companies Act 2006.
There have been no changes in estimates of amounts reported in
prior periods which have a material impact on the current half year
period.
As with most other UK property companies and REITs, the Group
presents many of its financial measures in accordance with the
guidance criteria issued by the European Public Real Estate
Association ('EPRA'). These measures, which provide consistency
across the sector, are all derived from the IFRS figures in notes 7
and 8.
Going concern
The Board is required to assess the appropriateness of applying
the going concern basis in the preparation of the financial
statements. Macro-economic and political issues have heightened
wider concerns around the UK economy meaning there is continuing
risk of an economic downturn. In this context, the Directors have
fully considered the business activities and principal risks of the
Company.
In preparing the assessment of going concern, the Board has
reviewed a number of different scenarios over the 12 month period
from the date of signing of these financial statements. These
scenarios include a severe, but realistically possible, scenario
which includes the following key assumptions:
-- A reduction in occupancy, reflecting weaker customer demand for office space.
-- A reduction in the pricing of new lettings, resulting in a
reduction in average rent per sq. ft.
-- Elevated levels of counterparty risk, with bad debt
significantly higher than pre-pandemic levels.
-- Continued elevated levels of cost inflation.
-- Further increases in SONIA rates impacting the cost of variable rate borrowings.
-- Estimated rental value reduction in-line with the decline in
average rent per sq. ft. and outward movement in investment yields
resulting in a lower property valuation.
The appropriateness of the going concern basis is reliant on the
continued availability of borrowings, sufficient liquidity and
compliance with loan covenants. All borrowings require compliance
with LTV and Interest Cover covenants. As at the tightest test date
in the scenarios modelled, the Group could withstand a reduction in
net rental income of 39% compared to the September 2023 Net Rental
Income and a fall in the asset valuation of 27% compared to 30
September 2023 before these covenants are breached, assuming no
mitigating actions are taken.
As at 30 September 2023, the Company had significant headroom
with GBP135m of cash and undrawn facilities. The majority of the
Group's debt is long-term fixed-rate committed facilities
comprising a GBP300m green bond, GBP300m of private placement
notes, and a GBP65m secured loan facility. Shorter term liquidity
and flexibility is provided by floating-rate bank facilities which
comprise GBP335m of sustainability-linked revolving credit
facilities (RCFs). The RCF facilities comprise GBP135m due in April
2025 and GBP200m due in December 2025, with both facilities having
been extended by a further year after the balance sheet date. The
GBP200m RCF also has the option to increase the facility amount by
up to GBP100m, subject to lender consent.
For the full period of assessment under the scenario tested, the
Group maintains sufficient headroom in its cash and loan
facilities.
Consequently, the Directors have a reasonable expectation that
the Group and Company will have sufficient funds to continue to
meet its liabilities as they fall due for at least 12 months from
the date of approval of the consolidated set of financial
statements and therefore the financial statements have been
prepared on a going concern basis.
This report was approved by the Board on 20 November 2023.
Change in accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 March 2023, with
the exception of the following standards, amendments and
interpretations endorsed by the UK which were effective for the
first time for the Group's current accounting period and had no
material impact on the financial statements.
-- IAS 12 (amended): Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction;
-- IAS 8 (amended): Accounting Policies, Changes in Accounting
Estimates and Errors: Definition;
-- IAS 1 (amended) and IFRS Practise Statement 2: Presentation
of Financial Statements and IFRS Practise Statement 2 Making
Materiality Judgements;
-- IFRS 17: Insurance Contracts;
-- IFRS 9: Comparative Information
Standards in issue but not yet effective
The following standards, amendments and interpretations were in
issue at the date of approval of these financial statements but
were not yet effective for the current accounting period and have
not been adopted early. Based on the Group's current circumstances,
the Dir ectors do not anticipate that their adoption in future
periods will have a material impact on the financial statements of
the Group.
-- IFRS 16 (amended): Lease Liability in a Sale and Leaseback
-- IAS 1 (amended): Classification of liabilities as current or
non-current; Non-current Liabilities with Covenants; Deferral of
Effective Date Amendment
-- IAS 7 and IFRS 7 (amended): Supplier Finance Arrangements
-- IAS 21 (amended): Lack of Exchangeability
2. Analysis of net rental income
Unaudited 6 months Unaudited 6 months
ended 30 September ended 30 September
2023 2022
------------------------ ---------------------------
Net
Direct rental Direct Net rental
Revenue costs income Revenue costs income
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------ ------- ------- ------ ----------
Rental income 71.8 (2.8) 69.0 65.6 (1.4) 64.2
Service charges 15.9 (18.7) (2.8) 14.1 (16.4) (2.3)
Empty rates and other non-recoverable
costs - (5.5) (5.5) - (5.5) (5.5)
Services, fees, commissions and
sundry income 3.0 (2.7) 0.3 2.6 (2.9) (0.3)
-------------------------------------- ------- ------ ------- ------- ------ ----------
90.7 (29.7) 61.0 82.3 (26.2) 56.1
-------------------------------------- ------- ------ ------- ------- ------ ----------
Audited Year ended
31 March 2023
---------------------------
Direct Net rental
Revenue costs income
GBPm GBPm GBPm
-------------------------------------- ------- ------ ----------
Rental income 136.7 (4.2) 132.5
Service charges 30.0 (35.7) (5.7)
Empty rates and other non-recoverable
costs - (10.6) (10.6)
Services, fees, commissions and
sundry income 7.5 (7.1) 0.4
-------------------------------------------- ------- ------ ----------
174.2 (57.6) 116.6
----------------------------------------- ------- ------ ----------
A charge of GBP0.6m (31 March 2023: GBP1.0m, 30 September 2022:
GBP0.2m) for expected credit losses in respect of receivables from
customers is recognised in direct costs of rental income in the
period.
All of the properties within the portfolio are geographically
close to each other and have similar economic features and risks.
Management information utilised by the Executive Committee to
monitor and assess performance is reviewed as one portfolio. As a
result, management have determined that the Group operates a single
operating segment of providing business space for rent in and
around London.
3(a). (Loss)/profit on disposal of investment properties
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ---------
Proceeds from sale of investment properties
(net of sale costs) 3.4 7.2 7.0
Proceeds from sale of assets held for sale
(net of sale costs) 88.1 - 52.1
Book value at time of sale (92.7) (5.7) (59.8)
-------------------------------------------- ------------- ------------- ---------
(Loss)/profit on disposal (1.2) 1.5 (0.7)
-------------------------------------------- ------------- ------------- ---------
3(b). Other income/(expenses)
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
----------------------------------------------- ------------- ------------- ---------
Change in fair value of deferred consideration 0.1 - (0.1)
Other expenses (0.5) (2.3) (3.7)
----------------------------------------------- ------------- ------------- ---------
(0.4) (2.3) (3.8)
----------------------------------------------- ------------- ------------- ---------
The increase in fair value of deferred consideration of GBP0.1m
(cash and overage) from the sale of investment properties has been
revalued by CBRE Limited at 30 September 2023 (31 March 2023:
decrease of GBP0.1m; 30 September 2022: GBPnil).
In the current period, other expenses include the exceptional
one-off costs relating to the implementation costs of replacing our
finance and property system (31 March 2023: GBP1.8m; 30 September
2022: GBP0.9). These costs are outside the Group's normal trading
activities.
Other expenses in the prior period also included exceptional
one-off costs relating to the acquisition and integration of McKay
Securities Limited (31 March 2023: GBP1.9m, 30 September 2022:
GBP1.4), including the cost of buying out McKay Securities Limited
defined benefit pension scheme.
4. Finance costs
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------------------ ------------- ------------- ---------
Interest payable on bank loans and overdrafts (7.7) (4.3) (11.9)
Interest payable on other borrowings (9.7) (9.4) (19.0)
Amortisation of issue costs of borrowings (0.9) (1.1) (2.0)
Interest on lease liabilities (0.9) (1.0) (1.9)
Interest capitalised on property refurbishments
(note 10) 0.8 0.1 0.2
Interest receivable 0.1 0.1 0.2
Finance costs (18.3) (15.6) (34.4)
------------------------------------------------ ------------- ------------- ---------
Exceptional finance costs - (0.6) (0.6)
------------------------------------------------ ------------- ------------- ---------
Total finance costs (18.3) (16.2) (35.0)
------------------------------------------------ ------------- ------------- ---------
All finance costs have been calculated in accordance with IFRS
9, re-estimating the cash flows based on the original effective
interest rate with the adjustment being taken through profit and
loss.
In the prior period the exceptional finance costs relate to
unamortised finance costs for McKay Securities Limited's previous
bank loan which were written off when this was refinanced in
September 2022.
5. Taxation
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
----------------------------------------------------- -------------- ------------- ---------
Current tax:
UK corporation tax - - -
----------------------------------------------------- -------------- ------------- ---------
Deferred tax:
On origination and reversal of temporary differences - - 0.3
----------------------------------------------------- -------------- ------------- ---------
0.3
-------------------------------------------------------------------- ------------- ---------
Total taxation charge - - 0.3
----------------------------------------------------- -------------- ------------- ---------
The Group is a Real Estate Investment Trust (REIT). The Group's
UK property rental business (both income and capital gains) is
exempt from tax. The Group's other income is subject to corporation
tax. No tax charge has arisen on this other income for the half
year (31 March 2023: GBP0.3m, 30 September 2022: GBPnil).
6. Dividends
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Payment Per 2023 2022 2023
Ordinary dividends paid date share GBPm GBPm GBPm
------------------------------ --------- ------ ------------- ------------- ---------
For the year ended 31 March
2022:
August
Final dividend 2022 14.5p - 27.8 27.8
For the year ended 31 March
2023:
February
Interim dividend 2023 8.4p - - 16.1
August
Final dividend 2023 17.4p 33.3 - -
Dividends for the period 33.3 27.8 43.9
Timing difference on payment
of withholding tax (1.8) (1.7) (0.4)
----------------------------------------- ------ ------------- ------------- ---------
Dividends cash paid 31.5 26.1 43.5
----------------------------------------- ------ ------------- ------------- ---------
The Directors are proposing an interim dividend in respect of
the financial year ending 31 March 2024 of 9.0 pence per ordinary
share which will absorb an estimated GBP17.3m of revenue reserves
and cash. The dividend will be paid on 2 February 2024 to
shareholders who are on the register of members on 5 January 2024.
The dividend will be paid as a REIT Property Income Distribution
(PID) net of withholding tax where appropriate.
7. Earnings per share
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Earnings used for calculating earnings per 2023 2022 2023
share: GBPm GBPm GBPm
--------------------------------------------------- ------------- ------------- -----------------
Basic and diluted earnings (147.9) 35.8 (37.8)
Change in fair value of investment properties 170.8 (8.1) 88.0
Impairment of assets held for sale 6.6 - 5.1
Loss/(profit) on disposal of investment properties 1.2 (1.5) 0.7
EPRA earnings 30.7 26.2 56.0
Adjustment for non-trading items:
Other expenses (note 3(b)) 0.4 2.3 3.8
Exceptional finance costs (note 4) - 0.6 0.6
Taxation - - 0.3
--------------------------------------------------- ------------- ------------- -----------------
Adjusted trading profit after interest 31.1 29.1 60.7
--------------------------------------------------- ------------- ------------- -----------------
Earnings have been adjusted to derive an earnings per share
measure as defined by the European Public Real Estate Association
(EPRA) and an adjusted underlying earnings per share measure.
Unaudited Unaudited
6 months 6 months Unaudited
ended 30 ended 30 Year ended
Number of shares used for calculating September September 31 March
earnings per share: 2023 2022 2023
--------------------------------------------- ----------- ----------- -----------
Weighted average number of shares (excluding
own shares held in trust) 191,594,236 189,456,131 190,470,363
Dilution due to share option schemes 1,177,892 872,332 1,129,310
--------------------------------------------- ----------- ----------- -----------
Weighted average number of shares for
diluted earnings per share 192,772,128 190,328,463 191,599,673
--------------------------------------------- ----------- ----------- -----------
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2023 2022 2023
------------------------------------------ ------------- ------------- -----------
Basic (loss)/earnings per share (77.2p) 18.9p (19.9p)
Diluted (loss)/earnings per share (77.2p) 18.8p (19.9p)
EPRA earnings per share 16.0p 13.8p 29.4p
Adjusted underlying earnings per share(1) 16.1p 15.3p 31.7p
------------------------------------------ ------------- ------------- -----------
(1) Adjusted underlying earnings per share is calculated by
dividing adjusted trading profit after finance costs by the diluted
weighted average number of shares of 192,772,128 (31 March 2023:
191,599,673, 30 September 2022: 190,328,463).
The diluted loss per share for the period to 30 September 2023
has been restricted to a loss of 77.2p per share (31 March 2023:
restricted to a loss of 19.9p per share), as the loss per share
cannot be reduced by dilution in accordance with IAS 33 Earnings
per Share.
8. Net assets per share
Unaudited Audited Unaudited
Number of shares used for calculating 30 September 31 March 30 September
net assets per share: 2023 2023 2022
-------------------------------------------- ------------- ----------- --------------
Shares in issue at period-end 191,897,854 191,638,357 191,638,357
Less own shares held in trust at period-end (135,461) (152,550) (160,476)
-------------------------------------------- ------------- ----------- --------------
Number of shares for calculating basic
net assets per share 191,762,393 191,485,807 191,477,881
Dilution due to share option schemes 1,269,278 1,201,277 958,891
-------------------------------------------- ------------- ----------- --------------
Number of shares for calculating diluted
adjusted net assets per share 193,031,671 192,687,084 192,436,772
-------------------------------------------- ------------- ----------- --------------
EPRA Net Asset Value Metrics
Unaudited 30 September Audited 31 March
2023 2023
-------------------------- --------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------- ------- -------- ------- -------
IFRS Equity attributable to
shareholders 1,607.6 1,607.6 1,607.6 1,787.7 1,787.7 1,787.7
--------------------------------- -------- ------- ------- -------- ------- -------
Intangibles per IFRS balance
sheet - (2.1) - - (2.0) -
Excess of book value of debt
over fair value - - 103.1 - - 86.6
Purchasers' costs(1) 170.4 - - 186.4 - -
--------------------------------- -------- ------- ------- -------- ------- -------
EPRA measure 1,778.0 1,605.5 1,710.7 1,974.1 1,785.7 1,874.3
Number of shares for calculating
diluted net assets per share
(millions) 193.0 193.0 193.0 192.7 192.7 192.7
EPRA measure per share GBP9.21 GBP8.32 GBP8.87 GBP10.24 GBP9.27 GBP9.73
--------------------------------- -------- ------- ------- -------- ------- -------
Unaudited 30 September
2022
---------------------------
EPRA EPRA EPRA
NRV NTA NDV
GBPm GBPm GBPm
----------------------------------------- -------- ------- --------
IFRS Equity attributable to shareholders 1,876.6 1,876.6 1,876.6
----------------------------------------------- -------- ------- --------
Intangibles per IFRS balance sheet - (2.0) -
Excess of fair value of debt over
book value - - 128.4
Purchasers' costs(1) 194.7 - -
----------------------------------------------- -------- ------- --------
EPRA measure 2,071.3 1,874.6 2,005.0
Number of shares for calculating diluted
net assets per share (millions) 192.4 192.4 192.4
EPRA measure per share GBP10.76 GBP9.74 GBP10.42
----------------------------------------------- -------- ------- --------
(1) EPRA NTA and EPRA NDV reflect IFRS values which are net of
purchasers' costs. Purchasers' costs are added back when
calculating EPRA NRV.
Total Accounting Return
Total Accounting Return Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
----------------------------------------------- ------------- --------- -------------
Opening EPRA net tangible assets per share
(A) 9.27 9.88 9.88
----------------------------------------------- ------------- --------- -------------
Closing EPRA net tangible assets per share 8.32 9.27 9.74
----------------------------------------------- ------------- --------- -------------
Decrease in EPRA net tangible assets per share (0.95) (0.61) (0.14)
----------------------------------------------- ------------- --------- -------------
Ordinary dividends paid in the period 0.17 0.23 0.15
----------------------------------------------- ------------- --------- -------------
Total return (B) (0.78) (0.38) 0.01
----------------------------------------------- ------------- --------- -------------
Total accounting return (B/A) (8.4%) (3.8%) 0.1%
----------------------------------------------- ------------- --------- -------------
The total accounting return for the period comprises the
(reduction)/growth in absolute EPRA net tangible assets per share
plus dividends paid in the period as a percentage of the opening
EPRA net tangible assets per share. The total return for the period
to 30 September 2023 was -8.4% (year ended 31 March 2023: -3.8%,
period ended 30 September 2022: 0.1%).
9. Investment Properties
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------------------- ------------- --------- -------------
Balance at 1 April 2,643.3 2,366.7 2,366.7
Purchase of investment properties - 426.6 426.6
Capital expenditure 33.5 55.8 24.8
Remeasurement of leases - 3.7 3.6
Capitalised interest on refurbishments (note
4) 0.8 0.2 0.1
Disposals during the period (3.6) (5.5) (5.6)
Change in fair value of investment properties (170.8) (88.0) 8.1
Disposed properties tenant incentives recognised
in advance under IFRS 16 1.4 - -
Less: Classified as assets held for sale (32.9) (116.2) -
------------------------------------------------- ------------- -------------
Total investment properties 2,471.7 2,643.3 2,824.3
------------------------------------------------- ------------- --------- -------------
Investment properties represent a single class of property being
business premises for rent in and around London.
Capitalised interest is included at a rate of capitalisation of
6.6% (31 March 2023: 3.9%, 30 September 2022: 3.0%). The total
amount of capitalised interest included in investment properties is
GBP15.9m (31 March 2023: GBP15.1m, 30 September 2022:
GBP15.0m).
The change in fair value of investment properties is recognised
in the consolidated income statement.
Five of the properties classified as held for sale at the end of
the prior year were not sold during the half-year. They are
retained within current assets as they are still expected to sell
within the next 12 months of 30 September 2023 and have been
subject to an impairment charge of GBP6.6m following the valuation
carried out at 30 September 2023. Six (31 March 2023: eleven, 30
September 2022: four) additional properties were reclassified as
held for sale at 30 September 2023.
Valuation
The Group's investment properties are held at fair value and
were revalued at 30 September 2023 by the external valuer, CBRE
Limited, for the properties held throughout the period. They are
independent qualified valuers in accordance with the Royal
Institution of Chartered Surveyors Valuation - Global Standards.
All the properties are revalued at period end regardless of the
date of acquisition. In line with IFRS 13, all investment
properties are valued on the basis of their highest and best
use.
The valuation of like-for-like properties (which are not subject
to refurbishment or redevelopment) and completed projects are based
on the income capitalisation method which applies market-based
yields to the Estimated Rental Values (ERVs) of each of the
properties. Yields are based on current market expectations
depending on the location and use of the property. ERVs are based
on estimated rental potential considering current rental streams
and market comparatives whilst also considering the occupancy and
timing of rent reviews at each property. Although occupancy and
rent review timings are known, and there is market evidence for
transaction prices for similar properties, there is still a
significant element of estimation and judgement in estimating ERVs.
As a result of adjustments made to market observable data, the
significant inputs are deemed unobservable under IFRS 13.
When valuing properties being refurbished, the residual value
method is used. The completed value of the refurbishment is
determined as for like-for-like properties above. Capital
expenditure required to complete the building is then deducted and
a discount factor is applied to reflect the time period to complete
construction and allowance made for construction and market risk to
arrive at the residual value of the property.
The discount factor used is the property yield that is also
applied to the ERV to determine the value of the completed
building. Other risks such as unexpected time delays relating to
planned capital expenditure are assessed on a project-by-project
basis, looking at market comparable data where possible and the
complexity of the proposed scheme.
Redevelopment properties are also valued using the residual
value method. The completed proposed redevelopment which would be
undertaken by a residential developer is valued based on the market
value for similar sites and then adjusted for costs to complete,
developer's profit margin and a time discount factor. Allowance is
also made for planning and construction risk depending on the stage
of the redevelopment. If a contract is agreed for the
sale/redevelopment of the site, the property is valued based on
agreed consideration.
For all methods the valuers are provided with information on
tenure, letting, town planning and the repair of the buildings and
sites.
The reconciliation of the valuation report total to the amount
shown in the consolidated balance sheet as investment properties,
is as follows:
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
---------------------------------------------- ------------- --------- -------------
Total per CBRE valuation report 2,505.2 2,741.1 2,863.0
Deferred consideration on sale of property (0.6) (0.5) (0.6)
Head leases obligations 34.7 34.7 34.6
Less: reclassified as held for sale (60.5) (123.2) (65.9)
Less: tenant incentives recognised in advance
under IFRS 16 (7.1) (8.8) (6.8)
---------------------------------------------- ------------- --------- -------------
Total investment properties per balance sheet 2,471.7 2,643.3 2,824.3
---------------------------------------------- ------------- --------- -------------
The Group's Investment properties are carried at fair value and
under IFRS 13 are required to be analysed by level depending on the
valuation method adopted. The different valuation methods are as
follows:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date.
Level 2 - Use of a model with inputs (other than quoted prices
included in Level 1) that are directly or indirectly observable
market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
Property valuations are complex and involve data which is not
publicly available and involves a degree of judgement. All the
investment properties are classified as Level 3, due to the fact
that one or more significant inputs to the valuation are not based
on observable market data. If the degree of subjectivity or nature
of the measurement inputs changes then there could be a transfer
between Levels 2 and 3 of classification. No changes requiring a
transfer have occurred during the current or previous years.
CBRE have made enquiries to ascertain any sustainability factors
which are likely to impact on value, consistent with the scope of
their terms of engagement. Sustainability encompasses a wide range
of physical, social, environmental, and economic factors that can
affect the value of an asset, even if not explicitly recognised.
This includes key environmental risks; such as flooding, energy
efficiency, climate, design, legislation and management
considerations - as well as current and historic land use. Where
CBRE recognise the value impacts of sustainability, they reflect
their understanding of how market participants include
sustainability factors in their decisions and the consequential
impact on market valuations.
The following table summarises the valuation techniques and
inputs used in the determination of the property valuation at 30
September 2023.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
----------------------- ----------------------
Valuation Valuation Weighted Weighted
Property category GBPm technique Range average Range average
------------------- --------- ---------- ------------- -------- ------------ --------
Like-for-like 1,880.9 1 GBP20 - GBP79 GBP48 5.0% - 8.2% 6.7%
Completed projects 177.3 1 GBP24 - GBP53 GBP31 5.9% - 7.0% 6.9%
Refurbishments 289.9 2 GBP24 - GBP56 GBP37 4.8% - 9.8% 7.0%
Redevelopments 19.7 2 GBP12 - GBP17 GBP15 5.0% - 9.9% 7.1%
South East Office 76.3 1 GBP25 - GBP35 GBP29 7.3% - 11.6% 9.9%
Head leases 34.7 N/A
IFRS 16 adjustment (7.1) N/A
------------------- --------- ---------- ------------- -------- ------------ --------
Total 2,471.7
------------------- --------- ---------- ------------- -------- ------------ --------
1 = Income capitalisation method.
2 = Residual value method.
Developer's profit is a key unobservable input for properties
that are valued using the residual value method. The range is
10%-19% with a weighted average of 14%.
Costs to complete is a key unobservable input for properties
that are valued using the residual value method. The range of
GBP222-GBP425 per sq. ft. and a weighted average of GBP270 per sq.
ft.
10. Trade and other receivables
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
Current trade and other receivables GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Trade receivables 20.3 12.3 11.4
Prepayments, other receivables and accrued
income 26.5 22.3 25.1
Deferred consideration on sale of investment
properties 11.3 11.2 0.6
--------------------------------------------- ------------- --------- -------------
58.1 45.8 37.1
--------------------------------------------- ------------- --------- -------------
Included within trade receivables is the provision for
impairment of receivables of GBP4.3m (31 March 2023: GBP4.6m, 30
September 2022: GBP5.1m).
The deferred consideration arising on the sale of investment
properties relates to cash and overage. The overage has been fair
valued by CBRE Limited on the basis of residual value, using
appropriate discount rates, and will be revalued on a regular
basis. This is a Level 3 valuation of a financial asset, as defined
by IFRS 13. The change in fair value recorded in the Consolidated
income statement was GBP0.1m (31 March 2023: -GBP0.1m, 30 September
2022: GBPnil) (note 3(b)).
Receivables at fair value:
Included within deferred consideration on sale of investment
properties is GBP0.6m (31 March 2023: GBP0.5m, 30 September 2022:
GBP0.6m) of overage or cash which is held at fair value through
profit and loss.
Receivables at amortised cost:
The remaining receivables are held at amortised cost. There is
no material difference between the above amounts and their fair
values due to the short-term nature of the receivables. All the
Group's trade and other receivables are denominated in
Sterling.
11. Cash and cash equivalents
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
----------------------------------------- ------------- --------- -------------
Cash at bank and in hand 4.0 12.0 13.3
Restricted cash - tenants' deposit deeds 6.3 6.5 6.6
----------------------------------------- ------------- --------- -------------
10.3 18.5 19.9
----------------------------------------- ------------- --------- -------------
Tenants' deposit deeds represent returnable cash security
deposits received from tenants and are ring-fenced under the terms
of the individual lease contracts.
12. Trade and other payables
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------------- ------------- --------- -------------
Trade payables 13.6 15.4 10.6
Other tax and social security payable 6.8 15.9 5.8
Tenants' deposit deeds (note 11) 6.3 6.5 6.6
Tenants' deposits 31.3 30.5 29.4
Accrued expenses 28.0 26.1 31.9
Deferred income - rent and service charges 13.1 13.4 13.5
99.1 107.8 97.8
------------------------------------------- ------------- --------- -------------
There is no material difference between the above amounts and
their fair values due to the short-term nature of the payables.
13. Borrowings
(a) Balances
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------ ------------- --------- -------------
Current
Bank loans (unsecured) - 49.8 199.7
Non-current
Bank loans (unsecured) 205.1 197.2 83.4
Other loans (secured) 64.0 63.9 64.0
3.07% Senior Notes 2025 (unsecured) 79.9 79.9 79.9
3.19% Senior Notes 2027 (unsecured) 119.8 119.8 119.8
3.6% Senior Notes 2029 (unsecured) 99.9 99.9 99.8
Green Bond (unsecured) 298.6 298.4 298.2
867.3 908.9 944.8
------------------------------------ ------------- --------- -------------
(b) Net Debt
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
----------------------------------- ------------- --------- -------------
Borrowings per (a) above 867.3 908.9 944.8
Adjust for:
Cost of raising finance 4.2 5.1 5.2
871.5 914.0 950.0
Cash at bank and in hand (note 11) (4.0) (12.0) (13.3)
----------------------------------- ------------- --------- -------------
Net Debt 867.5 902.0 936.7
----------------------------------- ------------- --------- -------------
At 30 September 2023, the Group had GBP129.0m (31 March 2023:
GBP136.0m, 30 September 2022: GBP250.0m) of undrawn bank
facilities, a GBP2.0m overdraft facility (31 March 2023: GBP2.0m,
30 September 2022: GBP2.0m) and GBP4.0m of unrestricted cash (31
March 2023: GBP12.0m, 30 September 2022: GBP13.3m).
Net debt represents borrowing facilities drawn, less cash at
bank and in hand. It excludes lease obligations and any cost of
raising finance as they have no future cash flows.
The Group has a loan to value covenant applicable to the Bank
Loans and Senior Debt Borrowings of 60% and Green Bond of 65%. Loan
to value at 30 September 2023 was 34% (31 March 2023: 33%, 30
September 2022: 33%).
The Group also has an interest cover covenant of 2.0x applicable
to the Bank Loan and Senior Debt Borrowings, and 1.75x applicable
for the Green Bond. This is calculated as net rental income divided
by interest payable on loans and other borrowings. At 30 September
2023 interest cover was 3.5x (31 March 2023: 3.8x, 30 September
2022: 4.5x).
(c) Maturity
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Repayable within one year - 50.0 200.0
Repayable between one and two years 157.5 - 73.0
Repayable between two and three years 129.0 279.0 92.0
Repayable between three years and four years 120.0 - -
Repayable between four years and five years 300.0 420.0 120.0
Repayable in five years or more 165.0 165.0 465.0
--------------------------------------------- ------------- --------- -------------
871.5 914.0 950.0
Cost of raising finance (4.2) (5.1) (5.2)
867.3 908.9 944.8
--------------------------------------------- ------------- --------- -------------
(d) Interest rate and repayment profile
Principal
at
period
end Interest Interest
GBPm rate payable Repayable
------------------------- --------- ---------------- ----------- -------------
Non-current
------------------------- --------- ---------------- ----------- -------------
Private Placement Notes:
3.07% Senior Notes 80.0 3.07% Half Yearly August 2025
3.19% Senior Notes 120.0 3.19% Half Yearly August 2027
3.6% Senior Notes 100.0 3.60% Half Yearly January 2029
Bank Loan 129.0 SONIA + 1.77%(1) Monthly December 2025
Bank Loan 77.5 SONIA + 1.77%(1) Monthly April 2025
Other Loan (secured) 65.0 4.02% Monthly May 2030
Green Bond 300.0 2.25% Yearly March 2028
------------------------- --------- ---------------- ----------- -------------
871.5
------------------------- --------- ---------------- ----------- -------------
(1) The base margin can be adjusted by up to 4.5bps dependent
upon achievement of three ESG-linked metrics.
(e) Financial instruments and fair values
Unaudited Unaudited Unaudited
30 September 30 September Audited Audited 30 September Unaudited
2023 2023 31 March 31 March 2022 30 September
Book Fair 2023 2023 Book 2022
Value Value Book Value Fair Value Value Fair Value
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial liabilities
held at amortised cost
Bank loans (unsecured) 205.1 205.1 247.0 247.0 283.1 283.1
Other loans (secured) 64.0 57.0 63.9 63.5 64.0 57.4
Private Placement Notes 299.6 270.1 299.6 287.8 299.5 264.1
Lease obligations 34.7 34.7 34.7 34.7 34.6 34.6
Green Bond 298.6 232.0 298.4 224.0 298.2 211.8
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
902.0 798.9 943.6 857.0 979.4 851.0
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial assets at fair
value
through other comprehensive
income
Derivative financial
instruments:
Other Investments 2.1 2.1 2.1 2.1 1.7 1.7
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
2.1 2.1 2.1 2.1 1.7 1.7
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
Financial assets at fair
value through profit or
loss
Deferred consideration
(overage) 11.3 11.3 11.2 11.2 0.6 0.6
11.3 11.3 11.2 11.2 0.6 0.6
-------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
In accordance with IFRS 13 disclosure is required for financial
instruments that are carried or disclosed in the financial
statements at fair value. The fair values of all the Group's
financial derivatives, bank loans, other loans and Private
Placement Notes have been determined by reference to market prices
and discounted expected cash flows at prevailing interest rates and
are Level 2 valuations. There have been no transfers between levels
in the year. The different levels of valuation hierarchy as defined
by IFRS 13 are set out in note 9.
The total change in fair value of derivative financial
instruments recorded in other comprehensive income was a GBPnil (31
March 2023: GBP0.4m, 30 September 2022: GBPnil).
14. Lease obligations
Lease liabilities in respect of leased investment property are
recognised in accordance with IFRS 16.
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Minimum lease payments under leases fall due
as follows:
Within one year 2.1 2.1 2.1
Between two and five years 8.4 8.4 8.3
Beyond five years 198.8 199.8 200.8
209.3 210.3 211.2
Future finance charges on leases (174.6) (175.6) (176.6)
--------------------------------------------- ------------- --------- -------------
Present value of lease liabilities 34.7 34.7 34.6
--------------------------------------------- ------------- --------- -------------
Following the adoption of IFRS 16, lease obligations are shown
separately on the face of the balance sheet. The balance represents
a non-current liability as the payment shown within one year of
GBP2.1m is offset by future finance charges on leases of GBP2.1m.
All lease obligations are long leaseholds, therefore, the majority
of the obligations fall beyond fifteen years.
15. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from
operations:
Unaudited Unaudited Audited
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2023
2023 GBPm 2022 GBPm GBPm
--------------------------------------------------- ------------- ------------- -----------
(Loss)/profit before tax (147.9) 35.8 (37.5)
Depreciation 0.8 0.7 1.6
Amortisation of intangibles 0.3 0.3 0.7
Letting fees amortisation 0.2 0.3 0.5
Loss/(profit) on disposal of investment properties 1.2 (1.5) 0.7
Other expenses 0.4 2.3 3.8
Net loss/(profit) from change in fair value
of investment property 170.8 (8.1) 88.0
Impairment of assets held for sale 6.6 - 5.1
Equity-settled share based payments 1.2 1.0 1.4
Finance expense 18.3 15.6 34.4
Exceptional finance costs - 0.6 0.6
Changes in working capital:
Increase in trade and other receivables (13.6) (8.3) (6.4)
(Decrease)/ increase in trade and other payables (11.6) 1.5 17.6
Cash generated from operations 26.7 40.2 110.5
--------------------------------------------------- ------------- ------------- -----------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following:
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
----------------------------------------- ------------- --------- -------------
Cash at bank and in hand 4.0 12.0 13.3
Restricted cash - tenants' deposit deeds 6.3 6.5 6.6
----------------------------------------- ------------- --------- -------------
10.3 18.5 19.9
----------------------------------------- ------------- --------- -------------
16. Share Capital
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------------- ------------- --------- -------------
Issued: fully paid ordinary shares of GBP1
each 191.9 191.6 191.6
------------------------------------------- ------------- --------- -------------
Unaudited Audited Unaudited
Movements in share capital were 30 September 31 March 30 September
as follows: 2023 2023 2022
-------------------------------- ------------- ----------- -------------
Number of shares at 1 April 191,638,357 181,125,259 181,125,259
Issue of shares 259,497 10,513,098 10,513,098
-------------------------------- ------------- ----------- -------------
Number of shares at period end 191,897,854 191,638,357 191,638,357
-------------------------------- ------------- ----------- -------------
In the prior period ended 30 September 2022, the Group issued
shares as part of the consideration for the acquisition of McKay
Securities Limited (formerly McKay Securities PLC) totalling
10,513,098 shares. In the period there were 259,497 scheme options
issued (31 March 2023: GBPnil proceeds, 30 September 2022: GBPnil
proceeds).
17. Capital commitments
At the period end the estimated amounts of contractual
commitments for future capital expenditure not provided for
were:
Unaudited Audited Unaudited
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
-------------------------------------------- ------------- --------- -------------
Construction or refurbishment of investment
properties 30.3 34.4 30.0
-------------------------------------------- ------------- --------- -------------
18. Post balance sheet events
In October 2023 the Group announced the completion of the sale
of the advertising tower adjacent to the Mille Building, Brentford
for total consideration of GBP9.0m, the sale price is in line with
the 31 March 2023 valuation. The sale of Folkestone completed in
November 2023 for GBP4.5m, this is in line with the 30 September
2023 valuation.
In November 2023, the Group's GBP335m RCF bank facilities were
extended by a further 12 months, with GBP135m now expiring in April
2026 and GBP200m maturing in December 2026.
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
The Directors of Workspace Group PLC are listed in the Workspace
Group PLC Annual Report and Accounts for 31 March 2023. A list of
current Directors is maintained on the Workspace Group website:
www.workspace.co.uk .
Approved by the Board on 20 November 2023 and signed on its
behalf by
D Benson
Director
INDEPENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by Workspace Group PLC ("the Company") to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 which
comprises Consolidated Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Balance Sheet, Consolidated
Statement of Changes in Equity, Consolidated Statement of Cash
Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2023 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the half-yearly financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report , nothing has come to our
attention that causes us to believe that the directors have
inappropriately adopted the going concern basis of accounting, or
that the directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with UK-adopted international
accounting standards.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review. Our conclusion, including our
conclusion relating to going concern, is based on procedures that
are less extensive than audit procedures, as described in the Basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Bano Sheikh for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
20 November 2023
PRINCIPAL RISKS AND UNCERTAINTIES
The Board assesses and monitors the principal risks of the
business and considers how these risks could best be mitigated,
where possible, through a combination of internal controls and risk
management. The first six months of the financial year have seen a
period of challenging macro-economic conditions with high inflation
and increasing interest rates.
Whilst the combination of these factors presents an increased
risk of recession and potential adverse impact on property values
and construction costs, the key risks that could affect the Group's
medium-term performance and the factors which mitigate these risks,
have not materially changed from those set out in the Group's 2023
Annual Report and Accounts.
These risks have been assessed in line with the requirements of
the 2018 UK Corporate Governance Code and are shown below. The
Board is satisfied that we continue to operate within our risk
profile.
Risk Area Mitigating activities
Customer demand
* Broad mix of buildings across London and the home
Opportunities for growth could counties with different office experiences at various
be missed without a clear branding price points to match customer requirements.
strategy to meet the changing
demands of flexible working
models. Whilst the uncertainty
from the Covid pandemic has * Pipeline of refurbishment and redevelopments to
significantly reduced there further enhance the portfolio.
are other macroeconomic factors
including, weak economic growth,
current levels of inflation,
and interest rate rises that * Weekly meeting to track enquiries, viewings and
could also impact potential lettings to closely track customer trends and amend
customers. pricing as demand changes.
RISK IMPACT
* Fall in occupancy levels at our properties
* Centre staff maintain ongoing relationships with our
customers to understand their requirements and
* Reduction in rent roll implement change to meet their needs.
* Reduction in property valuation
* Business plans are stress tested to assess the
sensitivity of forecasts to reduced levels of demand
and implement contingency measures.
* Marketing campaigns maintain awareness of Workspace's
offer and content and messaging is regularly reviewed
to remain relevant and appealing to customers.
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Financing
* We regularly review funding requirements for business
There may be a reduction in plans and we have a wide range of options to fund our
the availability of long-term forthcoming plans. We also prepare a five-year
financing due to a prolonged business plan which is reviewed and updated annually.
economic recession, which may
result in an inability to grow
the business and impact Workspace's
ability to deliver services * We have a broad range of funding relationships in
to customers. place and regularly review our refinancing strategy.
We also maintain a specific interest rate profile via
RISK IMPACT use of fixed rates on our loan facilities so that our
* Inability to fund business plans and invest in new interest payment profile is stable.
opportunities
* Increased interest costs * Loan covenants are monitored and reported to the
Board on a monthly basis, and we undertake detailed
cash flow monitoring and forecasting.
* Negative reputational impact amongst lenders and in
the investment community
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Valuation
* Market-related valuation risk is largely dependent on
Macroeconomic uncertainty could independent, external factors. We maintain a
have an impact on asset valuations, conservative LTV ratio which can withstand a severe
whereby property yields increase decline in property values without covenant breaches.
and valuations fall. This may
result in a reduction in return
on investment and negative
impact on covenant testing. * We monitor changes in sentiment in the London real
estate market, yields and pricing to track possible
RISK IMPACT changes in valuation. CBRE a leading full-service
* Financing covenants linked to loan to value ('LTV') real estate services and investment organisation,
ratio provides twice yearly valuations of all our
properties.
* Impact on share price
* Typically, our building or unit refurbishment
projects are completed within short time frames,
* Failure to meet Energy Performance Certificate (EPC) giving us good visibility on costs, expected rents
targets could result in a loss of rental income and property values at completion. We continually
impacting valuation assess the viability of our refurbishment and
development projects for optimal timing and cost
management opportunities, and have flexibility on
when to commence development. Alternative use
opportunities, including mixed-use developments, are
actively pursued across the portfolio.
------------------------------------------------------------------
Acquisition pricing
* We have an acquisition strategy determining key
Inadequate appraisal and due criteria such as location, size and potential for
diligence of a new acquisition growth. These criteria are based on the many years of
could lead to paying above knowledge and understanding of our market and
market price leading to a negative customer demand.
impact on valuation and rental
income targets.
RISK IMPACT * A detailed appraisal is prepared for each acquisition
* Negative impact on valuation and is presented to the Investment Committee for
challenge and discussion prior to authorisation by
the Board. The acquisition is then subject to
* Impact on overall shareholder return thorough due diligence prior to completion.
* Workspace will only make acquisitions that are
expected to yield a minimum return and will not
knowingly overpay for an asset.
* For all corporate acquisitions we undertake
appropriate property, financial and tax due diligence
including a review of ESG.
------------------------------------------------------------------
Customer payment default
* The risk is mitigated by strong credit control
There remains a risk of continued processes being in place along with an experienced
economic downturn given the team of credit controllers, able to make quick
broader geopolitical climate, decisions and negotiate with customers for payment.
inflation and interest rate In addition, we hold a three-month deposit for the
rises. This could result in majority of customers.
further pressure on rent collection
figures with a prolonged period
of companies failing leading
to a decline in occupancy and * Centre staff maintain relationships with customers
an increase in office vacancies. and can identify early signs of potential issues.
RISK IMPACT
* Negative cash flow and increasing interest costs
* Breach of financial covenants
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Cyber security
* Cyber security risk is managed using a mitigation
A cyber-attack could lead to framework comprising network security, IT security
a loss of access to Workspace policies and third-party risk assessments. Controls
systems or a network disruption are regularly reviewed and updated and include
for a prolonged period of time, technology such as next generation firewalls, multi
this could damage Workspace's layered access control through to people solutions
reputation and inhibit our such as user awareness training and mock-phishing
ability to run the business. emails.
RISK IMPACT
* Inability to process new leases and invoice customers
* Assurance of the framework's performance is gained
through an independent maturity assessment,
* Reputational damage penetration testing and network vulnerability testing,
all performed annually.
* Increased operational costs
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Resourcing
* We have a robust recruitment process to attract new
Ineffective succession planning, joiners and established interview and evaluation
recruitment and people management processes with a view to ensuring a good fit with the
could lead to limited resourcing required skill set and our valued corporate culture.
levels and a shortage of suitably
skilled individuals to be able
to achieve Workspace's objectives
and grow the business. A failure * Various incentive schemes align employee objectives
to have in place adequate resourcing with the strategic objectives of the Group to
may also result in a stretch motivate employees to work in the best interests of
of existing management and the Group and its stakeholders. This is supported by
a decline in efficiency. a robust appraisal and review process for all
employees.
RISK IMPACT
* Increased costs from high staff turnover
* Our HR and Support Services teams run a detailed
* Delay to growth plans training and development programme designed to ensure
employees are supported and encouraged to progress
with learning and study opportunities. The
* Reputational damage Recruitment Manager coordinates all activities to
attract talented employees.
------------------------------------------------------------------
Third party relationships
* Workspace has in place a robust tender and selection
Poor performance from one of process for key contractors and partners. Contracts
Workspace's key contractors contain service level agreements which are monitored
or third-party partners could regularly, and actions taken in the case of
result in an interruption to underperformance.
or reduction in the quality
of our service offering to
customers or could lead to
significant disruptions and * For key services, Workspace maintains relationships
delays in any refurbishment with alternative providers so that other solutions
or redevelopment projects. would be available if the main contractor or third
party was unable to continue providing their
RISK IMPACT services. Processes are in place for identifying key
* Decline in customer confidence suppliers and understanding any specific risks that
require further mitigation.
* Increase project or operational costs
* Workspace is London Living Wage compliant for all
* Fall in customer demand contractors since April 2022.
* Weaker cash flow
* Reputational damage
------------------------------------------------------------------
Regulatory
* Health and safety is one of our primary concerns,
A failure to keep up to date with strong leadership promoting a culture of
and plan for changing regulations awareness throughout the business. We have
in key areas such as health well-developed policies and procedures in place to
and safety or sustainability help ensure that any workers, employees or visitors
could lead to fines or reputational on site comply with strict safety guidelines and we
damage. work with well-respected suppliers who share our
high-quality standards in health and safety.
RISK IMPACT
* Increased costs
* Health and safety management systems are reviewed and
updated in line with changing regulations and regular
* Reputational damage audits are undertaken to identify any potential
improvements.
* Sustainability requirements have an increasing
importance for the Group and it is a responsibility
we take seriously. We have committed to a net zero
Carbon target of 2030 and we are implementing the
TCFD recommendations. We manage our properties to
ensure they are compliant with or exceed the Minimum
Energy Efficiency Standards (MEES) for EPCs.
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Climate Change
* The inherent risk from climate change is universal,
A failure to recognise that with a high likelihood of risk materialising in the
climate change presents a financial near future resulting in potentially significant
risk to our business alongside impact on businesses in general. For Workspace, our
changes to our customers' expectations risk is lower when compared to many other real estate
could lead to a significant businesses, in particular our exposure to physical
impact on the business. risk. However, transition risk is an industry-wide
risk and is impacting all real estate businesses due
RISK IMPACT to the significant environmental impact associated
* Loss of rent roll with the sector. In response to this, Workspace has
been proactively managing its risk exposure. Our
mitigation strategy includes:
* Negative impact on value
* Annual assessment of our climate risk exposure, using
* Reduced occupancy levels climate modelling to inform our risk management plan
* Reputational damage * Ongoing review of control measures and their
effectiveness by our Risk Management Group and
Environmental Sustainability Committee
* Active management of acute physical risks such as
floods and storms across the portfolio through
emergency preparedness, site maintenance surveys and
business continuity planning
* Delivery of an accelerated net zero and EPC upgrade
plan across the portfolio to manage transition risk
* Introduction of climate objectives linked with
remuneration, to incentivise focused action
* Long-term energy contracts in place to hedge price
and availability risk
* Stretching carbon targets for our development
projects to minimise reliance on raw materials and
exposure to increasing offset costs
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END
IR FFFFILFLIFIV
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November 21, 2023 02:00 ET (07:00 GMT)
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